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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, 1997
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)
<TABLE>
<S> <C>
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)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 314-8400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
</TABLE>
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 13, 1998 based on the closing price
reported on The NASDAQ National Market of such stock on such date was
approximately $8,000,000.
Registrant's Common Stock outstanding at March 13, 1998 was 1,316,344.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's proxy
statement for its 1998 Annual Meeting of Stockholders, to be held on April 29,
1998, are incorporated by reference into Part III as set forth herein.
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KENNEDY-WILSON, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
------------------------
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PAGE
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 4
Item 3. Legal Proceedings........................................... 4
Item 4. Submission of Matters to a Vote of Security Holders......... 4
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 5
Item 6. Selected Financial Data..................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 8
Item 8. Financial Statements and Supplementary Data................. 9
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 30
Item 10. Directors and Executive Officers of the Registrant.......... 30
Item 11. Executive Compensation...................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 30
Item 13. Certain Relationships and Related Transactions.............. 30
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form
8-K......................................................... 31
</TABLE>
2
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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 Santa Monica, San Francisco, New York, Tokyo, Hong Kong and Jakarta.
Since 1977 the Company has sold over $4 billion of commercial, hotel resort and
residential properties.
Commercial Brokerage -- The Company's commercial business concentrates on
single-seller sealed bid sales and private placement sales of high-end
commercial properties. The division opened offices in New York and Jakarta in
1997, which in addition to the Company's Tokyo and Hong Kong offices provides
greater access to the investment communities in Asia and the eastern U.S.
Auction-Marketing -- The auction-marketing method consists of a broad range
of services 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.
Commercial Acquisitions -- The Company acquires selected commercial
properties that can be purchased at a significant discount to replacement cost.
In addition, the Company targets properties with a high value-added potential.
After acquisition, the Company typically implements an aggressive leasing and
capital improvement program aimed at rapid increases in cash flow and resulting
value. The Company may, depending on the availability of capital and its
assessment of risk, form joint ventures with third parties to acquire commercial
properties (See Note 4 of Notes to Consolidated Financial Statements in Item 8
hereof).
Residential 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 is generally
less than one year, while commercial 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 or financial institutions. 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.
Backlog -- At December 31, 1997, commissions subject to completion of sales
totaled approximately $2 million, compared to approximately $459,000 at December
31, 1996. Additionally, as of December 31, 1997, the Company had executed
marketing agreements on properties having an estimated aggregate gross value of
real estate sales of approximately $318 million. This compares to approximately
$143 million as of December 31, 1996.
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 commercial and residential real estate brokers and auction companies. Some
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.
3
<PAGE> 4
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 for
auctioneers 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 13, 1998, the Company employed approximately 60
full-time and 2 part-time persons compared with 58 full-time and 2 part-time
persons at March 28, 1997. 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 in April 1995. In March 1997, the Company sold the 530
Wilshire Blvd property and executed a lease agreement for the office space which
it continues to occupy for approximately $260,000 per year.
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 (See Note 3 of Notes to Consolidated
Financial Statements in Item 8 hereof).
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 an
increase in the number of authorized shares of common stock and preferred stock.
This amendment was approved at a Special Meeting of Stockholders held on
December 15, 1997 with 79% of the shares voted for and 21% shares abstaining.
4
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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 National 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 and a
20% stock dividend effective October 27, 1997:
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<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter............................................ 14 3/5 7 2/7
Second Quarter........................................... 10 3/7 6 1/4
Third Quarter............................................ 9 8/9 4 1/6
Fourth Quarter........................................... 6 7/9 4 1/6
1996
First Quarter............................................ 5 4 1/6
Second Quarter........................................... 8 4 1/4
Third Quarter............................................ 8 1/8 6 7/8
Fourth Quarter........................................... 9 6 7/8
1997
First Quarter............................................ 10 3/7 8
Second Quarter........................................... 13 1/3 9 3/5
Third Quarter............................................ 15 12
Fourth Quarter........................................... 20 11 1/2
1998
First Quarter............................................ 22 7/8 16 1/2
</TABLE>
As of March 13, 1998, there were 45 holders of record and approximately
1,200 beneficial holders of the Company's Common Stock. Since the completion of
the Company's initial public offering in August 1992, the Company has paid no
cash dividends, and has no present intention to commence the payment of cash
dividends.
5
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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, 1997. 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,
------------------------------------------------
1997 1996 1995 1994 1993
------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues.................................. $26,999 $31,967 $ 20,610 $38,647 $25,910
Total expenses.................................. $22,768 $28,376 $ 33,752 $37,589 $26,722
Income (loss) from operations................... $ 4,231 $ 3,591 $(13,142) $ 1,058 $ (812)
Net income (loss)............................... $ 4,030 $ 3,531 $(13,186) $ 1,010 $ (813)
Basic net income (loss) before extraordinary
items per share............................... $ 2.91 $ 2.24 $ (7.83) $ 0.60 $ (0.48)
Basic extraordinary item per share.............. $ 0.06 N/A N/A N/A N/A
Basic net income per share...................... $ 2.97 $ 2.24 $ (7.83) $ 0.60 $ (0.48)
Basic weighted average shares................... 1,357 1,575 1,683 1,687 1,698
Diluted net income(loss) before extraordinary
items per share............................... $ 2.87 $ 2.24 N/A $ 0.59 N/A
Diluted extraordinary item per share............ $ 0.06 N/A N/A N/A N/A
Diluted net income per share.................... $ 2.93 $ 2.24 N/A $ 0.59 N/A
Diluted weighted average shares................. 1,375 1,576 N/A 1,708 N/A
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................................... $45,718 $51,114 $37,651 $37,014 $32,231
Total liabilities................................ $34,124 $40,732 $29,706 $15,995 $11,924
Total stockholders' equity....................... $11,594 $10,382 $ 7,945 $21,019 $20,307
</TABLE>
6
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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, 1997, 1996 and 1995
Commissions were virtually unchanged at $5.9 million from 1996 and down 10%
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. Sales of residential
real estate decreased 66% in 1997 compared with 1996 as a result of decreased
sales of residential real estate held for sale. Sales of residential real estate
in 1996 included three significant sales from three condominium projects located
in Hawaii, San Francisco and Los Angeles. This compares to sales of residential
real estate of $10.6 million in 1995. Cost of residential real estate sold
related to these sales also decreased 66% to $5.6 million in 1997 compared to
$16.5 million in 1996 and $10.5 million in 1995. In addition, cost of sales as a
percentage of revenue decreased to 83% in 1997 from 84% in 1996 and 99% from
1995.
Gain on sale of commercial real estate in the amount of $6.3 million for
1997 consists of the sale of four commercial properties in the ordinary course
of business. In 1996 the Company also sold a commercial property, for a net gain
of $1.5 million. There were no commercial property sales in 1995, See Note 3 of
Notes to Consolidated Financial Statements.
Gain on restructured notes receivable in the amount of $4 million in 1997
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 2 of Notes to Consolidated Financial
Statements for further discussion.
Commission and marketing expenses decreased 40% in 1997 to $928,000 from
$1.6 million in 1996, which in turn decreased from $2.6 million in 1995.
Commission and marketing expenses decreased as a percentage of commission
revenue due to the lower costs associated with commercial brokerage compared
with auctions.
Compensation and related expenses increased by 61% in 1997 from 1996 due to
an increased number of executive employees and increased incentive compensation.
In comparison, compensation decreased 20% in 1996 from 1995 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 increased 51% in 1997 to $4.7 million
from $3.1 million in 1996 which in turn decreased from $5.8 million in 1995. The
increase in 1997 was primarily due to increase in occupancy expense from the new
office in New York and corporate office rent, See Item 2. Additionally, legal
expense increased in connection with the collection and restructuring of notes
receivable, leasing and sales of commercial and residential properties.
Consulting and outside services increased primarily in connection with
acquisition of real estate and the evaluation and collection of notes
receivable. Property and liability insurance also increased due to the
acquisition of commercial real estate and construction of residential real
estate projects.
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 9 of Notes to Consolidated Financial Statements for
further discussion of the restructuring.
Year 2000 Compliance -- The inability of computers, software and other
equipment utilizing microprocessors to recognize and properly process
information containing a 2-digit year is commonly referred to as the Year 2000
Compliance issue. As the year 2000 approaches, such systems may be unable to
accurately process certain date-based information.
As the Company principally relies on third party vendors for its
applications, the Company has communicated with other companies whom it does
significant business to determine their Year 2000 Compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
the Company's systems
7
<PAGE> 8
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with Company's systems, would not have a
material adverse effect on the Company.
The total cost to the Company of these Year 2000 Compliance activities has
not been determined and is not anticipated to be material to its financial
position or results of operations in any given year. These costs and the date on
which the Company plans to complete the Year 2000 modifications and testing
processes are based on management's best estimates, which were derived utilizing
numerous assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors. However,
there can be no guarantee that the estimates will be achieved and actual results
could differ from those plans.
Liquidity and Capital Resources
The Company believes that cash and cash equivalents at December 31, 1997 of
$10.4 million, plus expected cash generated from ongoing real estate marketing
operations, continued sales of real estate owned, collections from notes
receivable, as well as a 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 Notes 7 and 8 of Notes to Consolidated Financial
Statements, the Company is obligated under various notes payable and mortgages
payable, which are secured by notes receivable and real estate held for sale.
Approximately $4.8 million of notes payable and $639,000 of mortgages are due in
1998. The Company anticipates that these amounts will be repaid from proceeds
from the sale of the related collateral.
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 1997 in the Company's acquisition line of
credit to $10 million, the additional lines of credit secured in 1997, and the
bank financing obtained for 1997 acquisitions, support 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).
Forward Looking Statements
Management's Discussion and Analysis of Financial Conditions and Results of
Operations contains certain forward-looking statements that are subject to risk
and uncertainty. Investors and potential investors in the Company's securities
are cautioned that a number of factors could adversely affect the Company's
ability to obtain these results, including (a) the inability to lease currently
vacant space in the Company's properties; (b) the inability of tenants to pay
contractual rent and other expenses; (c) bankruptcies of tenants; (d) increases
in certain operating costs at the Company's properties; (e) decreases in rental
rate available from tenants leasing space in the Company's properties; (f)
unavailability of financing for acquisitions, development and redevelopment of
properties by the Company; (g) increases in interest rates; and (h) a general
economic downturn resulting in lower rents, rent delinquencies, and other
downward pressure on commissions, occupancies and rents at properties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable. [See Item 305 of Reg. 5-K]
8
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
KENNEDY-WILSON, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
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Independent Auditors' Report................................ 10
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... 11
Consolidated Statements of Operations for the Three Years
Ended December 31, 1997................................... 12
Consolidated Statements of Stockholders' Equity for the
Three Years Ended December 31, 1997....................... 13
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1997................................... 14
Notes to Consolidated Financial Statements.................. 15
</TABLE>
9
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
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, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997 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 2, 1998
10
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KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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ASSETS
DECEMBER 31,
----------------------------
1997 1996
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Cash and cash equivalents................................... $ 10,448,000 $ 1,901,000
Cash -- restricted.......................................... 174,000 396,000
Accounts receivable -- other................................ 1,018,000 994,000
Notes receivable (Notes 2 and 7)............................ 9,546,000 13,787,000
Real estate held for sale (Notes 3, 8, 10 and Schedule
III)...................................................... 18,628,000 28,800,000
Investments with related parties and non-affiliates (Notes 4
and 10)................................................... 4,899,000 3,803,000
Other assets (Note 5)....................................... 1,005,000 1,433,000
------------ ------------
TOTAL ASSETS...................................... $ 45,718,000 $ 51,114,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable.......................................... $ 666,000 $ 893,000
Accrued expenses and other liabilities.................... 4,553,000 2,211,000
Notes payable (Note 7).................................... 4,764,000 8,195,000
Borrowing under lines of credit (Note 6).................. 9,039,000 8,917,000
Mortgage notes payable (Note 8 and Schedule III).......... 15,102,000 20,516,000
------------ ------------
Total liabilities................................. 34,124,000 40,732,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY (Notes 13, 14, 15, 16 and 19):
Preferred stock, $.01 par value; shares authorized;
1,000,000 in 1997 and 500,000 in 1996, none issued..... -- --
Common stock $.01 par value; shares authorized; 5,000,000
in 1997 and 2,000,000 in 1996, issued and outstanding;
1,316,344 in 1997 and 1,482,719 in 1996................ 13,000 12,000
Additional paid-in capital................................ 23,814,000 21,638,000
Accumulated deficit....................................... (10,913,000) (11,268,000)
Notes receivable from stockholders........................ (1,320,000) --
------------ ------------
Total stockholders' equity........................ 11,594,000 10,382,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 45,718,000 $ 51,114,000
============ ============
</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,
----------------------------------------
1997 1996 1995
----------- ----------- ------------
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REVENUES:
Commissions........................................... $ 5,001,000 $ 4,821,000 $ 6,468,000
Commissions -- related parties (Note 10).............. 894,000 1,052,000 89,000
Sales of residential real estate...................... 6,753,000 19,743,000 10,631,000
Equity in income of investments with related parties
and non-affiliates (Note 4)........................ 1,431,000 178,000 138,000
Gain on sale of commercial real estate................ 6,339,000 1,454,000 --
Gain on restructured notes receivable (Note 2)........ 4,036,000 3,057,000 160,000
Rental income, net.................................... 1,629,000 1,467,000 642,000
Interest income....................................... 535,000 102,000 82,000
Sale of assets and subsidiary (Note 9)................ -- -- 1,926,000
Other income.......................................... 381,000 93,000 474,000
----------- ----------- ------------
TOTAL REVENUE......................................... 26,999,000 31,967,000 20,610,000
----------- ----------- ------------
OPERATING EXPENSES:
Commissions and marketing expenses.................... 928,000 1,560,000 2,617,000
Auction-marketing expenses, net -- related parties.... -- -- 12,000
Cost of residential real estate sold.................. 5,592,000 16,523,000 10,488,000
Cost of residential real estate sold -- related
parties............................................ -- 209,000 122,000
Compensation and related expenses (Notes 12, 17, and
18)................................................ 7,658,000 4,726,000 5,883,000
General and administrative (Note 11).................. 4,661,000 3,126,000 5,800,000
Depreciation and amortization......................... 790,000 268,000 623,000
Interest expense...................................... 3,139,000 1,964,000 1,472,000
Cost of assets and subsidiary sold (Note 9)........... -- -- 735,000
Restructuring charge (Note 9)......................... -- -- 6,000,000
----------- ----------- ------------
TOTAL OPERATING EXPENSES.............................. 22,768,000 28,376,000 33,752,000
----------- ----------- ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY ITEMS................................... 4,231,000 3,591,000 (13,142,000)
PROVISION FOR INCOME TAXES (Note 11).................... 280,000 60,000 44,000
----------- ----------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS................ 3,951,000 3,531,000 (13,186,000)
----------- ----------- ------------
EXTRAORDINARY ITEMS (Note 20)........................... 79,000 -- --
----------- ----------- ------------
NET INCOME (LOSS)....................................... $ 4,030,000 $ 3,531,000 $(13,186,000)
=========== =========== ============
Basic net income (loss) before extraordinary items per
share................................................. $2.91 $2.24 $(7.83)
Basic extraordinary items per share..................... $0.06 -- --
Basic net income (loss) per share....................... $2.97 $2.24 $(7.83)
Basic weighted average shares........................... 1,356,777 1,574,855 1,683,429
Diluted net income (loss) before extraordinary items per
share................................................. $2.87 $2.24 N/A
Diluted extraordinary items per share................... $0.06 -- --
Diluted net income (loss) per share..................... $2.93 $2.24 N/A
Diluted weighted average share.......................... 1,374,951 1,576,435 N/A
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 13
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED NOTES
------------------- ADDITIONAL ACCUMULATED TRANSLATION RECEIVABLE
SHARES AMOUNT PAID IN CAPITAL DEFICIT ADJUSTMENT STOCKHOLDERS TOTAL
--------- ------- --------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995.... 1,686,119 $17,000 $22,783,000 $ (1,613,000) $(168,000) -- $ 21,019,000
Foreign currency translation
adjustment................ -- -- -- -- 168,000 -- 168,000
Issuance of common stock.... 600 -- 6,000 -- -- -- 6,000
Repurchase of common
stock..................... (6,000) -- (62,000) -- -- -- (62,000)
Net loss.................... -- -- -- (13,186,000) -- -- (13,186,000)
--------- ------- ----------- ------------ --------- ----------- ------------
BALANCE, DECEMBER 31,
1995...................... 1,680,719 17,000 22,727,000 (14,799,000) -- -- 7,945,000
Repurchase of common
stock..................... (198,000) (2,000) (1,091,000) -- -- -- (1,093,000)
Net income.................. -- 3,531,000 -- -- 3,531,000
--------- ------- ----------- ------------ --------- ----------- ------------
BALANCE, DECEMBER 31,
1996...................... 1,482,719 15,000 21,636,000 (11,268,000) -- -- 10,383,000
Repurchase of common
stock..................... (166,375) (2,000) (1,497,000) -- (1,499,000)
Stock dividend.............. -- -- 3,675,000 (3,675,000) -- -- 0
Notes receivable from
stockholders.............. -- -- -- -- -- $(1,320,000) (1,320,000)
Net income.................. -- -- -- 4,030,000 -- -- 4,030,000
--------- ------- ----------- ------------ --------- ----------- ------------
BALANCE, DECEMBER 31,
1997...................... 1,316,344 $13,000 $23,814,000 $(10,913,000) -- $(1,320,000) $ 11,594,000
========= ======= =========== ============ ========= =========== ============
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 14
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 4,030,000 $ 3,531,000 $(13,186,000)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization............................. 790,000 268,000 623,000
Equity in income of investments with related parties and
non-affiliates.......................................... (1,431,000) (178,000) (139,000)
Gains on sales of real estate............................. (7,500,000) (1,454,000) (20,000)
Gains on sales of assets, subsidiary and partnership...... -- -- (1,543,000)
Restructuring charge...................................... -- -- 6,000,000
Extraordinary gain, net................................... (79,000) -- --
Change in assets and liabilities:
Cash -- restricted........................................ 222,000 (217,000) 718,000
Accounts receivable -- other.............................. (24,000) 751,000 3,706,000
Other assets.............................................. (184,000) (720,000) (560,000)
Accounts payable.......................................... (227,000) (191,000) (335,000)
Accrued expenses and other liabilities.................... 2,343,000 (937,000) 222,000
------------ ------------ ------------
Total adjustments.................................. (6,090,000) (2,678,000) 8,672,000
------------ ------------ ------------
Net cash provided by (used in) operating
activities....................................... (2,060,000) 853,000 (4,514,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment............... (178,000) (197,000) (160,000)
Dispositions furniture, fixtures and equipment.............. -- 559,000 24,000
Purchase and additions to real estate held for sale......... (18,841,000) (21,341,000) (31,150,000)
Proceeds from sales of real estate held for sale............ 36,304,000 25,914,000 10,631,000
Notes receivable............................................ 4,241,000 (13,552,000) 235,000
Loan receivable from stockholders........................... (1,320,000) -- --
Sales of assets, subsidiary and partnership................. -- -- 6,437,000
Distribution from partnerships.............................. 2,775,000 20,000 1,293,000
Investment in partnerships.................................. (2,153,000) (3,607,000) (139,000)
------------ ------------ ------------
Net cash provided by (used in) investing
activities....................................... 20,828,000 (12,204,000) (12,829,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations...................... -- -- 6,000
Issuance of mortgage notes payable.......................... 14,320,000 26,577,000 (61,000)
Repayment of mortgage notes payable......................... (19,734,000) (30,510,000) 28,879,000
Borrowings under lines of credit............................ 14,063,000 15,345,000 (12,040,000)
Repayment of lines of credit................................ (13,941,000) (7,453,000) --
Borrowings under notes payable.............................. 3,737,000 10,128,000 1,925,000
Repayment of notes payable.................................. (7,168,000) (1,933,000) (4,861,000)
Repurchase of common stock.................................. (1,498,000) (1,094,000) (62,000)
------------ ------------ ------------
Net cash used in financing activities.............. (10,221,000) 11,060,000 13,786,000
------------ ------------ ------------
Net increase (decrease) in cash.................... 8,547,000 (291,000) (3,407,000)
CASH, BEGINNING OF YEAR..................................... 1,901,000 2,192,000 5,599,000
------------ ------------ ------------
CASH, END OF YEAR........................................... $ 10,448,000 $ 1,901,000 $ 2,192,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest, net of capitalized interest of $340,000 in 1997,
$57,000 in 1996 and $606,000 in 1995 respectively....... $ 2,930,000 $ 2,113,000 $ 1,373,000
Income taxes.............................................. $ 246,000 $ 34,000 $ 33,000
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 15
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
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 brokerage and 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 joint ventures.
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 inter-company transactions have been
eliminated.
Investments in Partnership -- The Company accounts for investments in
partnerships with a non-controlling interest of 50% or less using the equity
method.
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.
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 when title to the real property
passes to the buyer. The Company follows the guidelines for profit recognition
as set forth by Statement of Financial Accounting Statement No. 66 Accounting
for Sales of Real Estate.
Gains on notes receivable are recognized ratably upon receipt of cash or a
restructured note including a significant cash component.
Basic Net Income Per Share -- In accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings per Share, basic income per share
is computed by dividing net income by the weighted average number of shares of
common stock outstanding during the periods. Diluted net income per share is
computed by dividing net income by the weighted average number of shares of
common stock and common stock equivalents outstanding during the periods.
The basic weighted average number of shares used to compute net income per
share (restated for the 10 for 1 reverse stock split in 1995 and the 20% stock
dividend in 1997) was 1,356,777, 1,574,855, and 1,602,079 for the years ended
December 31, 1997, 1996 and 1995, respectively. The diluted weighted average
number of shares used to compute net income per share were 1,374,951 [and
1,576,435 for the years ended December 31, 1997 and 1996, respectively. For
1995, the diluted per share computation was not applicable.]
Cash and Cash Equivalents -- Cash consists of cash and all highly liquid
investments purchased with maturities of three months or less and deposits in
escrow.
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
15
<PAGE> 16
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
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 6.
Notes Receivable and Notes Payable -- The carrying amounts approximate fair
value because of the short-term nature of these instruments. See Notes 2 and 7.
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 institutions insured by government
agencies. Certain accounts contain balances in excess of the insured limits.
Inflation -- The Company's long-term leases contain provisions designed to
mitigate the adverse impact of inflation on its results from operations. Such
provisions include escalation clauses, which generally increase rental rates
during the terms of the leases. Such escalation clauses are often related to
increases in the CPI or similar inflation indices. In addition, many of the
Company's leases are for term of less than ten years, which permits the Company
to seek to increase rents upon re-rental at market rates if rents are below then
existing market rates. Many of the Company's leases require the tenants to pay a
pro rata share of operating expenses, including common area maintenance, real
estate taxes, insurance and utilities, thereby reducing the Company's exposure
to increases in costs and operating expenses resulting from inflation.
Adoption of Accounting Standards -- In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Standards No. 130 Reporting for
Comprehensive Income and No. 131, Disclosure about Segments of an Enterprise and
Related Information. These Statements are effective for financial statements
issued for fiscal years beginning after December 15, 1997. The Company has not
yet analyzed the impact of adopting these statements.
Reclassification -- Certain reclassifications have been made to the 1996
and 1995 balances to conform with the 1997 presentation.
NOTE 2 -- NOTES RECEIVABLE
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 1997, the Company purchased two portfolios of non-performing loans
for approximately $2.4 million. Also during 1997, the Company secured cash
settlements in the amount of approximately $12 million including interest, and
restructured notes receivable in the amount of $1.2 million.
NOTE 3 -- 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 $119,000 and $588,000 at December 31, 1997 and
1996 respectively.
16
<PAGE> 17
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
Real estate held for sale includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
-------------- -----------
<S> <C> <C>
COMMERCIAL PROPERTIES:
530 Wilshire Blvd., Santa Monica, California -- 47,000
square foot office building............................ -- $ 7,853,000
10301 Pico, Los Angeles, California -- 50,000 square foot
office building........................................ -- 4,112,000
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................................... $ 4,889,000 4,437,000
4350 11th Ave, Los Angeles, California -- 9,000 square
foot office building................................... 438,000 --
301 S. Fair Oaks, Pasadena, California -- 55,000 square
foot office building................................... 8,808,000 --
150 E. Colorado, Pasadena, California -- 61,000 square
foot office building................................... -- 5,808,000
-------------- -----------
$14,135,000.00 $25,083,000
RESIDENTIAL PROPERTIES:
Vista Waikoloa, Waikoloa, HI -- 40 condominium units...... -- 1,494,000
Villa Del Este, Corona Del Mar, California -- 14
condominium units...................................... 112,000 2,223,000
Vista Del Valle, Granada Hills, California, 10 lots zoned
for residential units.................................. 2,810,000 --
Residential Home, Pacific Palisades, California........... 608,000 --
Younguist, Juneau, Alaska -- 9 lots zoned for residential
units.................................................. 433,000 --
Residential Home, Los Angeles, CA......................... 237,000 --
DDR, Riverside, California -- 31 lots zoned for
residential units...................................... 293,000 --
-------------- -----------
4,493,000 3,717,000
-------------- -----------
$ 18,628,000 $28,800,000
============== ===========
</TABLE>
All real estate held for sale at December 31, 1997, except for Younguist,
DDR, 5241 Franklin and 4350 11th Ave, are collateralized 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 $428,000, $535,000, $412,000 for 1997, 1996 and
1995, respectively.
17
<PAGE> 18
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
NOTE 4 -- INVESTMENTS WITH RELATED PARTIES AND NON-AFFILIATES
The Company has a number of joint venture interests ranging from 20% to
50%, some with related parties, that were formed to acquire, manage, develop and
or sell real estate assets. These investments are accounted for under the equity
method. Summarized financial data of the ventures is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------
WITH RELATED WITH
PARTIES NON-AFFILIATES TOTAL
------------ -------------- -----------
<S> <C> <C> <C>
BALANCE SHEET
ASSETS
Cash and cash equivalents.......................... $ 3,319,000 $1,159,000 $ 4,478,000
Receivable......................................... 1,816,000 455,000 2,271,000
Real Estate........................................ 52,050,000 972,000 53,022,000
----------- ---------- -----------
TOTAL ASSETS.................................. $57,185,000 $2,586,000 $59,771,000
=========== ========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accounts payable and accrued expense............... $ 2,248,000 $ 524,000 $ 2,772,000
Mortgages payable.................................. 43,836,000 -- 43,836,000
----------- ---------- -----------
Total Liabilities............................. 46,084,000 524,000 46,608,000
----------- ---------- -----------
PARTNERS' CAPITAL:
Kennedy-Wilson..................................... 3,509,000 1,390,000 4,899,000
Related parties.................................... 7,592,000 -- 7,592,000
Other partners..................................... -- 672,000 672,000
----------- ---------- -----------
Total partners' capital....................... 11,101,000 2,062,000 13,163,000
----------- ---------- -----------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL........................... $57,185,000 $2,586,000 $59,771,000
=========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------
WITH RELATED WITH
PARTIES NON-AFFILIATES TOTAL
------------ -------------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues.............................................. $12,913,000 $9,284,000 $22,197,000
Expenses.............................................. 12,238,000 7,393,000 19,631,000
----------- ---------- -----------
Net income.................................... $ 675,000 $1,891,000 $ 2,566,000
=========== ========== ===========
Net income allocated to:
Kennedy-Wilson..................................... $ 115,000 $1,316,000 $ 1,431,000
Related parties.................................... 560,000 -- 560,000
Other partners..................................... -- 575,000 575,000
----------- ---------- -----------
$ 675,000 $1,891,000 $ 2,566,000
=========== ========== ===========
</TABLE>
18
<PAGE> 19
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------
WITH RELATED WITH
PARTIES NON-AFFILIATES TOTAL
------------ -------------- -----------
<S> <C> <C> <C>
BALANCE SHEET
ASSETS
Cash and cash equivalents.............. $ 463,000 $ 15,000 $ 478,000
Receivable............................. 32,000 44,000 76,000
Real Estate............................ 31,018,000 5,829,000 36,847,000
----------- ---------- -----------
TOTAL ASSETS...................... $31,513,000 $5,888,000 $37,401,000
=========== ========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accounts payable and accrued expense... $ 173,000 $ 38,000 $ 211,000
Mortgages payable...................... 18,354,000 4,480,000 22,834,000
----------- ---------- -----------
Total Liabilities................. 18,527,000 4,518,000 23,045,000
----------- ---------- -----------
PARTNERS' CAPITAL:
Kennedy-Wilson......................... 3,118,000 685,000 3,803,000
Related parties........................ 9,868,000 -- 9,868,000
Other partners......................... -- 685,000 685,000
----------- ---------- -----------
Total partners' capital........... 12,986,000 1,370,000 14,356,000
----------- ---------- -----------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL......................... $31,513,000 $5,888,000 $37,401,000
=========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------
WITH RELATED WITH
PARTIES NON-AFFILIATES TOTAL
------------ -------------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues.................................... $ 2,195,000 $390,000 $2,585,000
Expenses.................................... 1,690,000 258,000 1,948,000
------------ -------- ----------
Net income.......................... $ 505,000 $132,000 $ 637,000
============ ======== ==========
Net income allocated to:
Kennedy-Wilson........................... $ 112,000 $ 66,000 $ 178,000
Related parties.......................... 393,000 66,000 459,000
Other partners........................... -- -- --
------------ -------- ----------
$ 505,000 $132,000 $ 637,000
============ ======== ==========
</TABLE>
19
<PAGE> 20
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------
WITH RELATED WITH
PARTIES NON-AFFILIATES TOTAL
------------ -------------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues.................................... $ -- $2,307,000 $2,307,000
Expenses.................................... -- 2,031,000 2,031,000
------------ ---------- ----------
Net income.......................... $ -- $ 276,000 $ 276,000
============ ========== ==========
Net income allocated to:
Kennedy-Wilson........................... $ -- $ 138,000 $ 138,000
Related parties.......................... -- 138,000 138,000
Other partners........................... -- -- --
------------ ---------- ----------
$ -- $ 276,000 $ 276,000
============ ========== ==========
</TABLE>
The related party transactions are with Goodwin Gaw and his company Pioneer
Industries International. Mr. Gaw holds 9.5% of the Company's stock and is also
a director of the Company.
The agreement for one of the investments with non-affiliates, known as
Hilltop Colony LLC, was amended, resulting in approximately $335,000 of
additional net income allocated to the Company.
NOTE 5 -- OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Office furniture and equipment.............................. $ 192,000 $ 917,000
Leasehold improvements...................................... 20,000 176,000
Equipment under capital leases.............................. 44,000 --
---------- ----------
256,000 1,093,000
Less accumulated depreciation and amortization.............. (100,000) (735,000)
---------- ----------
156,000 358,000
Prepaid insurance, taxes and commissions.................... 337,000 353,000
Loan fees................................................... 225,000 226,000
Deposits.................................................... 120,000 179,000
Acquisition and organization costs.......................... 114,000 117,000
Other....................................................... 53,000 200,000
---------- ----------
$1,005,000 $1,433,000
========== ==========
</TABLE>
NOTE 6 -- BORROWINGS UNDER LINES OF CREDIT
In August 1997, the Company entered into an agreement for a real estate
acquisition facility in the amount of $60 million. $20 million of the facility
will provide 75% to 90% of the equity required for related investments, at a
rate of LIBOR plus 3.25% and a profit participation of 30% to 50%. The remaining
$40 million will be for debt financing of up to 80% of the cost at a rate of
LIBOR plus 3.25%. As of December 31, 1997, there was no balance outstanding
under this agreement.
In July 1997, the Company executed a letter of intent for a commercial
property acquisition facility in the amount of $100 million. The facility will
fund 85% of the cost of acquisitions and improvements with an initial
20
<PAGE> 21
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
rate of LIBOR plus 350 basis points. As of December 31, 1997, there was no
balance outstanding under this letter of intent.
In July 1997, the Company entered into an agreement for an acquisition
facility of $24 million to be used to purchase loans. $6 million of the facility
will provide 75% to 90% of the total acquisition equity for related investments,
with a rate of LIBOR plus 425 basis points and a 30 to 45% profit participation.
The remaining $18 million will be for debt financing of up to 80% of acquisition
cost with a rate of LIBOR plus 375 basis points. As of December 31, 1997, there
was no balance outstanding under this agreement.
In May 1997, the Company entered into a loan agreement that provides the
Company with a $6 million credit facility to acquire additional notes receivable
(See Note 2). The outstanding balance as of December 31, 1997 was approximately
$3.8 million. The facility bears interest at Prime plus 1.5% and matures in May
1998.
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. In July 1997, the line of credit was increased from
$10 million to $12 million. $4 million of the facility is unsecured, and the
remaining $8 million of the facility is secured by real estate owned by the
Company. The actual availability under the secured 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. This facility has a rate
of LIBOR plus 325 basis points. The working capital facility is due in full in
June 1998 and the acquisition facility will be due in full in 18 months from the
date of each advance. The outstanding balance as of December 31, 1998 was
$8,952,000. The principal balance is estimated to be paid in full during 1998.
The Company's Japanese subsidiary has unsecured lines of credit aggregating
approximately $500,000 under which $86,000 in borrowings were outstanding at
December 31, 1997. These borrowings bear interest at rates from 1.9% to 2.6% per
annum.
NOTE 7 -- NOTES PAYABLE
Notes payable were incurred primarily in connection with the acquisition of
notes receivable (See Note 2), and included the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Note payable, 10% fixed interest rate payable monthly, due
in full March 1, 1998, secured by notes receivable of
$3,857,000................................................ -- $2,867,000
Note payable, variable interest rate 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 rate based on LIBOR plus
4.25%, payable monthly.................................... -- 3,998,000
Note payable, variable interest rate based on Prime Rate
plus 1.5%, payable monthly, 10% at December 31, 1997, due
in full June 1998, secured by notes receivable of
$1,250,000................................................ $1,000,000 --
Note payable, variable interest rate based on Prime Rate
plus 1.5%, payable monthly, 10% at December 31, 1997, due
in full May 1998, secured by notes receivable of
$6,545,000................................................ 3,764,000 --
---------- ----------
$4,764,000 $8,195,000
========== ==========
</TABLE>
21
<PAGE> 22
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
Principal is paid monthly based on a percentage of cash collections on the
notes receivable. The percentage of cash flow paid out is 80% of cash
collections. Principal balances are estimated to be paid in full during 1998.
NOTE 8 -- MORTGAGE NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
COMMERCIAL PROPERTIES:
Mortgage note payable, variable interest based on LIBOR,
8.32% at December 31, 1997, principal and interest
payable monthly, due September 1, 2003,
collateralized by 1304 15th Street................... $ 2,952,000 $ 3,133,000
Mortgage note payable, variable interest based on Prime
Rate plus 1%, 9.5% at December 31, 1997, principal
and interest payable monthly, due September 1, 2003,
collateralized by 1304 15th Street................... 885,000 --
Mortgage note payable, fixed interest based on the LIBOR
plus 1.75%, 7.5% at December 31, 1997 principal and
interest payable monthly, due December 1, 2004,
collateralized by 301 S. Fair Oaks................... 7,300,000 --
Mortgage note payable, fixed interest of 10%, principal
and interest payable from excess cash flow, due
November 24, 1999, collateralized by 301 S. Fair
Oaks................................................. 1,250,000 --
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 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
Mortgage note payable, variable interest based on the
Prime Rate plus 4%, 9.5% at December 31, 1996,
principal and interest payable monthly, due October
31, 1999, collateralized by 150 E. Colorado.......... -- 1,125,000
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
Mortgage note payable, variable interest based on Prime
Rate plus 1%, 7.7% at December 31, 1996, principal
and interest payable monthly, due August 1, 2001,
collateralized by 1131 Wilshire Blvd................. -- 2,009,000
----------- -----------
12,387,000 18,839,000
</TABLE>
22
<PAGE> 23
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
RESIDENTIAL PROPERTIES:
Mortgage note payable, variable interest based on the
Prime Rate plus 4%, 9.5% at December 31, 1996,
principal and interest payable monthly, due October
31, 1999, collateralized by Vista Del Valle.......... 2,294,000 --
Mortgage note payable, variable interest based on Prime
Rate plus 1.5%, interest payable monthly, due
December 7, 1998, collateralized by 737 Almar........ 421,000 --
Mortgage note payable, variable interest based on Prime
Rate plus 1.5%, interest payable monthly, due
September 15, 1997, collateralized by Villa Del
Este................................................. -- 1,677,000
----------- -----------
2,715,000 1,677,000
----------- -----------
$15,102,000 $20,516,000
=========== ===========
</TABLE>
All of the mortgage notes payable are secured by deeds of trust on the
respective real estate properties (See Note 5). Aggregate maturities of mortgage
notes payable.
<TABLE>
<S> <C>
1998.................................................... $ 639,000
1999.................................................... 3,762,000
2000.................................................... 218,000
2001.................................................... 218,000
2002.................................................... 218,000
Thereafter.............................................. 10,047,000
-----------
$15,102,000
===========
</TABLE>
NOTE 9 -- 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 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 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 of the Company recognized a gain of approximately $350,000.
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
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 $735,000 included as "Cost of assets and
subsidiary sold" in the Consolidated Statement of Operations.
23
<PAGE> 24
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
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 10 -- RELATED PARTY TRANSACTIONS
In 1997, the Company entered into a joint venture with 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. The purposes of the
joint venture is an investment in a Los Angeles office building. See Note 4.
In 1997, the firm of Kulik, Gottesman & Mouton was paid a total of $470,000
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 $21,000 in director's
fees for 1997.
During 1997, 1996 and 1995, 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.
During 1997, the Company received $156,000 in commissions from the sale of
properties owned by a partnership which includes William J. McMorrow and Lewis
A. Halpert, as principals. The Company was also reimbursed $210,000 for
marketing expense.
The Company paid the spouse of one of its officers/major stockholders fees
of $16,000 and $52,000 for 1996, and 1995, 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 4.
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 subsequently 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
24
<PAGE> 25
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
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.
NOTE 11 -- INCOME TAXES
The provisions for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal.................................... $ 80,000 $ -- $ --
State...................................... 200,000 60,000 44,000
-------- ------- -------
280,000 60,000 44,000
Deferred..................................... -- -- --
-------- ------- -------
Total provision.................... $280,000 $60,000 $44,000
======== ======= =======
</TABLE>
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,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Tax (benefit) computed at statutory rate.... $ 1,472,000 $ 1,200,000 $(4,483,000)
State income tax, net of federal income tax
benefit................................... 132,000 40,000 44,000
Loss on disposition of foreign subsidiary... -- (1,189,000) --
Net tax effect of:
Meals and entertainment................... 12,000 11,000 --
Foreign income............................ 153,000 36,000 --
Other permanent adjustments............... 1,000 -- --
Valuation allowance......................... (1,490,000) (38,000) 4,483,200
----------- ----------- -----------
Provision for income taxes.................. $ 280,000 $ 60,000 $ 44,200
=========== =========== ===========
</TABLE>
25
<PAGE> 26
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
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, 1997 DECEMBER 31, 1996
DEFERRED INCOME TAX DEFERRED INCOME TAX
------------------------- -------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Prepaid expenses..................... $ -- $(117,000) $ -- $(100,000)
Accrued reserves..................... 110,000 -- 490,000 --
State taxes.......................... -- -- 20,000 --
Deferred auction marketing
expenses........................... 22,000 -- 42,000 --
Deferred gain on sale of asset....... -- (791,000) -- (691,000)
Depreciation......................... 372,000 612,000 --
Charitable contribution carryover.... 26,000 -- 31,000 --
Federal net operating loss
carryover.......................... 1,719,000 -- 3,035,000 --
State net operating loss carryover... -- -- 480,000 --
Valuation allowance.................. (1,341,000) -- (3,919,000) --
----------- --------- ----------- ---------
Total...................... $ 908,000 $(908,000) $ 791,000 $(791,000)
=========== ========= =========== =========
</TABLE>
As of December 31, 1997, the Company had federal net operating loss
carryover of approximately $5,054,000. The federal net operating loss carryover
expires in 2009 through 2011.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
Lease Commitments -- Minimum rental commitments, net of sublease income, as
of December 31, 1997 under the non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING NET OPERATING
DECEMBER 31, LEASES
------------ -------------
<S> <C>
1998.................................................. $ 568,000
1999.................................................. 518,000
2000.................................................. 470,000
2001.................................................. 431,000
2001.................................................. 37,000
Thereafter............................................ --
----------
Minimum lease payments........................ $2,024,000
==========
</TABLE>
Approximately $431,000 is due the Company in years 1998 through 2001 under
sublease agreements.
Rental expense amounted to $433,000, $200,000 and $800,000 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
Employment Agreements -- The Company has entered into employment agreements
with its principal officers which provide for annual base compensation in the
aggregate amount of $826,000 and expire at various dates through December 1999.
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 $946,000 in total, and expiring at various dates
through December 1999.
26
<PAGE> 27
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
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 13 -- STOCK OPTION PLANS AND WARRANTS
The Company currently has the 1992 Incentive and Non-statutory Stock Option
Plan, which includes a Plan A and a Plan B and the 1992 Non-Employee Director
Stock Option Plan ("Plan C"). An aggregate of 240,000 shares of common stock are
reserved for issuance under Plan A and B. The Company has 18,000 shares of
common stock reserved for issuance under Plan C. Plan A permits the granting of
Incentive Stock Options to employees, including employee-directors. Plan B
permits the granting of nonstatutory stock options to employees, including
employee-directors and consultants. Plan C permits the granting of options to
non-employee-directors. Options granted under Plan A and B have an option price
of 100% of the fair market value of the common stock on the date of grant. Under
Plan C each director, upon being elected to the Board of Directors, is
automatically granted an option to purchase 2,500 shares at the fair market
value at the date of grant. Additionally, each director is granted an option to
purchase an additional 100 shares at the fair market value on the date of grant
when re-elected. The vesting schedule for options granted under Plan A and Plan
B is determined by a committee of the Board of Directors and the Compensation
Committee of the Board of Directors is currently responsible. Options granted
under Plan C become exercisable on the first anniversary of the date of the
initial grant provided that the optionee continues to serve as a director for at
least one year from the date of such initial grant. Options granted under Plan A
may be exercised for a period of up to five years from the grant date; options
granted under Plan B may be exercised for a period of up to 10 years from the
grant date. Under Plan C, each options expires on the earlier of the tenth
anniversary of the date of grant or 90 days after the individual ceases to be a
director of the Company.
Details of activity under the plans for the years ended December 31, 1995,
1996 and 1997 are as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISE PRICE WEIGHTED AVERAGE
STOCK OPTIONS OPTIONS PER SHARE EXERCISE PRICE
------------- ----------- --------------- ----------------
<S> <C> <C> <C>
Balance, January 1, 1995.................... 115,992 $58.33 - $ 4.17
Granted................................... 15,240 $ 6.78 - $ 4.17 $ 5.72
Forfeited................................. (94,836) $58.33 - $15.63 $37.29
-------
Balance, December 31, 1995.................. 36,396 $58.33 - $ 4.17
Granted................................... 36,120 $ 6.98 - $ 4.28 $ 5.54
Forfeited................................. (6,408) $58.33 $58.33
-------
Balance, December 31, 1996.................. 66,108 $58.33 - $ 4.17
Granted................................... 124,000 $16.75 - $ 9.75 $11.73
Forfeited................................. (5,148) $58.33 $58.33
-------
Balance, December 31, 1997.................. 184,960 $58.33 - $ 9.75
=======
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE OUTSTANDING OPTIONS
REMAINING DECEMBER 31, RANGE WEIGHTED AVERAGE
CONTRACTUAL LIFE 1997 OF EXERCISE PRICE EXERCISE PRICE
- ---------------- ------------------- ----------------- ----------------
<S> <C> <C> <C>
3.44 39,000 $ 4.17 - $ 4.79 $ 4.49
4.23 90,360 $ 6.98 - $ 9.58 $ 8.77
4.57 55,600 $13.54 - $58.33 $21.05
-------
184,960
=======
</TABLE>
27
<PAGE> 28
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
The fair value of the stock options granted during 1997 was $470,748. 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, 1997 was 28,360.
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 14 -- 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 15 -- STOCK DIVIDEND
In October 1997, the Company declared a twenty percent stock dividend,
payable to holders of record as of October 27, 1997. All historical share and
per share amounts have been retroactively restated to reflect the dividend.
NOTE 16 -- INCREASE IN AUTHORIZED SHARES
On December 15, 1997, at a Special Meeting of the Stockholders, an
amendment to the Company's Certificate of Incorporation effecting an increase to
the number of authorized shares from 2,500,000 to 6,000,000, consisting of
5,000,000 shares of common stock and 1,000,000 shares of preferred stock.
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, 1997, 1996 and 1995.
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 15% 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 1997 and 1996 the Company made matching contributions of
$24,000 and $19,000, respectively to this plan. The Company made no
contributions in 1994.
NOTE 18 -- DEFERRED COMPENSATION PLAN
In 1997, the Company established a non-qualified deferred compensation plan
to provide specified benefits to a select group of management or highly
compensated employees and directors who contribute
28
<PAGE> 29
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1997
materially to the continued growth, development and future business success of
the Company. Under this plan, participants are able to make salary deferral
contribution of up to 100% of their total compensation. The plan also includes
provisions which authorize the Company to make discretionary contributions.
During 1997, the Company made a matching contribution of $314,000.
NOTE 19 -- NOTES RECEIVABLE FROM STOCKHOLDERS
In December 1997, a group of key employees, including its principal
executive officers, purchased 73,314 shares of the Company's outstanding stock
for cash in a private transaction with an institutional investor. The purchase
represents approximately 5.6% of the Company's outstanding shares. The Company
provided recourse loans for the employees to purchase the stock totaling
approximately $1.3 million. The terms of the notes receivable are Prime plus 1%
(9.5% at December 31, 1997) interest payable semi-annually with a maturity date
of the earlier of 3 years, or at termination of employment, or sale of stock by
the employee.
NOTE 20 -- EXTRAORDINARY ITEMS
During 1997, the Company recognized a $79,000 extraordinary gain comprised
of a $288,000 gain from debt extinguishment and a $209,000 loss from loan
prepayment penalties.
NOTE 21 -- SUBSEQUENT EVENTS
In January 1998, the Company purchased the vacant lot adjacent to the 1304
15th Street building in Santa Monica, CA for $658,000. The purchase was financed
by a mortgage note in the amount of $450,000.
In January 1998, the Company purchased a 75,000 square foot office building
in Van Nuys, CA for approximately $7.4 million. The purchase was financed by a
mortgage note in the amount of $5.5 million plus an outside equity investment of
$1.5 million.
In January and February 1998, the Company purchased two residential homes
in Pacific Palisades, CA for $527,000 and $612,000 respectively. The purchases
were financed under one of the Company's lines of credit, See Note 8.
In January 1998, the Company acquired a 15% interest in a joint venture
("60 Broad Street"), with a related party, that owns a commercial property with
approximately 977,000 square foot of rental space, located in Manhattan, New
York. The Company invested approximately $3.8 million.
In February 1998, the Company purchased a 278,000 square foot office
building in downtown Los Angeles for approximately $28.6 million. The purchase
was financed by a mortgage note in the amount of $22 million plus a third party
equity investment of $4.6 million.
In March 1998, the Company purchased 23 lots zoned for residential units in
Palm Desert, CA for $1.5 million. The Company financed the purchase with a
mortgage payable of $1 million.
In March 1998, the Company purchased a note collateralized by a hotel in
Beverly Hills, CA for approximately $2.2 million. The purchase was financed by a
note payable of $1.7 million.
29
<PAGE> 30
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, 1997, 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, 1997 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, 1997, 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, 1997, and such information is incorporated herein by
reference.
30
<PAGE> 31
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.
<TABLE>
<S> <C>
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.
</TABLE>
(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.)
10.1.1 1997 Amendment to 1992 Incentive and Nonstatutory Stock
Option Plan.
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.
(filed as Exhibit 10.2 to the Company's 1996 Annual Report
on Form 10-K and incorporated herein by this reference).
Fifth Amendment to Employment Agreement dated as of May 19,
1997 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>
31
<PAGE> 32
<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. (filed as Exhibit
10.9 to the Company's 1996 Annual Report on Form 10-K and
incorporated herein by this reference).
10.10 Loan Agreement dated March 12, 1996 by and between the
Registrant and East-West Bank. (filed as Exhibit 10.10 to
the Company's 1996 Annual Report on Form 10-K and
incorporated herein by this reference). Amendment to Loan
Agreement dated as of July 1, 1997 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).
10.12 Employment Agreement dated January 1, 1996 by and between
the Registrant and Lewis Halpert. First Amendment to
Employment Agreement dated January 1, 1997 by and between
the Registrant and Lewis Halpert.
10.13 Employment Agreement dated April 1, 1996 by and between the
Registrant and Freeman Lyle. First Amendment to Employment
Agreement dated April 1, 1997 by and between the Registrant
and Freeman Lyle.
10.14 Loan Agreement dated May 22, 1997 by and between the
Registrant and Hawthorne Savings Bank.
21.1 List of Subsidiaries of the Registrant.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule
</TABLE>
(b) Current Reports on Form 8-K.
None.
32
<PAGE> 33
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.
Date: March 13, 1998 KENNEDY-WILSON, INC.
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
---- ----- ----
<C> <C> <S>
/s/ WILLIAM J. MCMORROW Chairman of the Board and Chief March 13, 1998
- ----------------------------------------------------- Executive Officer (Principal
William J. McMorrow Executive Officer)
/s/ FREEMAN A. LYLE Executive Vice President, Chief March 13, 1998
- ----------------------------------------------------- Financial Officer and Secretary
Freeman A. Lyle (Principal Financial and
Accounting Officer)
/s/ LEWIS A. HALPERT Executive Managing Director and March 13, 1998
- ----------------------------------------------------- Director
Lewis A. Halpert
/s/ GOODWIN GAW Managing Director and Director March 13, 1998
- -----------------------------------------------------
Goodwin Gaw
/s/ RICHARD A. MANDEL Managing Director and Director March 13, 1998
- -----------------------------------------------------
Richard A. Mandel
/s/ DONALD F. KENNEDY Co-Founder and Director March 13, 1998
- -----------------------------------------------------
Donald F. Kennedy
/s/ DONALD B. PRELL Director March 13, 1967
- -----------------------------------------------------
Donald B. Prell
/s/ KENT MOUTON Director March 13, 1998
- -----------------------------------------------------
Kent Mouton
</TABLE>
33
<PAGE> 34
KENNEDY-WILSON, INC.
SCHEDULE III -- REAL ESTATE OWNED
FOR YEAR ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
COSTS CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION
-------------------------- -------------------------
BUILDING AND CARRYING
ENCUMBRANCE LAND IMPROVEMENTS IMPROVEMENTS COSTS
COMMERCIAL PROPERTIES: ----------- ----------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
1304 15th St. Santa Monica,
California --
37,000 square foot office
building...................... $ 3,838,000 $ 2,374,000 $ 2,041,000 $ 316,000 $257,000
4350 11th Ave. Los Angeles,
California --
9,000 square foot office
building...................... -- -- 438,000 -- --
301 S. Fair Oaks., Pasadena,
California --
55,000 square foot office
building...................... 8,550,000 1,841,000 6,987,000 -- --
----------- ----------- ----------- ----------- --------
12,388,000 4,215,000 9,466,000 316,000 257,000
RESIDENTIAL PROPERTIES:
Villa Del Este, Corona Del Mar,
California --
14 condominium units.......... -- 2,169,000 1,125,000 --
Vista Del Valle, Granada Hills,
California --
10 lots zoned for residential
units........................... 2,294,000 -- 2,733,000 -- 77,000
737 Almar, Brentwood,
California --
Residential home................ 420,000 608,000 -- --
Younguist, Juneau, Alaska
9 lots zoned for residential
units........................... 433,000 -- --
5241 Franklin Ave., Los Angeles,
California
Residential home................ -- 237,000 -- --
DDR, Riverside, California --
31 lots zoned for residential
units........................... -- 293,000 -- --
----------- ----------- ----------- ----------- --------
2,714,000 -- 6,473,000 1,125,000 77,000
----------- ----------- ----------- ----------- --------
Total..................... $15,102,000 $ 4,215,000 $15,939,000 $ 1,441,000 $334,000
=========== =========== =========== =========== ========
Balance at beginning of year...... $29,335,000
Additions during period:
Acquisitions.................. 16,982,000
Improvements.................. 1,775,000
Other:........................ -- 18,757,000
----------- -----------
Deductions during period:
Disposition of real estate
sold........................ 29,345,000
Other:........................ -- 29,345,000
----------- -----------
Balance at end of year............ $18,747,000
===========
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD
-----------------------------------------
BUILDINGS AND ACCUMULATED DATE OF
LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION
COMMERCIAL PROPERTIES: ----------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1304 15th St. Santa Monica,
California --
37,000 square foot office
building...................... $ 2,374,000 $ 2,614,000 $ 4,988,000 $ (99,000) 1972
4350 11th Ave. Los Angeles,
California --
9,000 square foot office
building...................... -- 438,000 438,000 -- 1922
301 S. Fair Oaks., Pasadena,
California --
55,000 square foot office
building...................... 1,841,000 6,987,000 8,828,000 (20,000) 1980
----------- ----------- ----------- ---------
4,215,000 10,039,000 14,254,000 (119,000)
RESIDENTIAL PROPERTIES:
Villa Del Este, Corona Del Mar,
California --
14 condominium units.......... -- 112,000 112,000 n/a 1991
Vista Del Valle, Granada Hills,
California --
10 lots zoned for residential
units........................... -- 2,810,000 2,810,000 n/a n/a
737 Almar, Brentwood,
California --
Residential home................ -- 608,000 608,000 n/a 1994
Younguist, Juneau, Alaska
9 lots zoned for residential
units........................... -- 433,000 433,000 n/a n/a
5241 Franklin Ave., Los Angeles,
California
Residential home................ -- 237,000 237,000 n/a 1922
DDR, Riverside, California --
31 lots zoned for residential
units........................... 293,000 293,000 n/a n/a
----------- ----------- ----------- ---------
-- 4,493,000 4,493,000 --
----------- ----------- ----------- ---------
Total..................... $ 4,215,000 $14,532,000 $18,747,000 $(119,000)
=========== =========== =========== =========
Balance at beginning of year......
Additions during period:
Acquisitions..................
Improvements..................
Other:........................
Deductions during period:
Disposition of real estate
sold........................
Other:........................
Balance at end of year............
</TABLE>
S-1
<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> 17
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 29, 1997, 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:
"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 Six Million (6,000,000) shares consisting
of Five Million (5,000,000) shares of Common Stock, par value $.01 per
share, and One Million (1,000,000) 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> 18
undersigned officers of the Corporation this 15th day of December, 1997.
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> 19
State of Delaware
Office of the Secretary of State
PAGE 1
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 FIFTEENTH DAY OF
DECEMBER, A.D. 1997, AT 9 O'CLOCK A.M.
[SEAL] /s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
2292670 8100 AUTHENTICATION: 8812686
971429577 DATE: 12-16-97
<PAGE> 1
AMENDMENT TO THE
KENNEDY-WILSON, INC. 1992 INCENTIVE
AND NONSTATUTORY STOCK OPTION PLAN
WHEREAS, Kennedy-Wilson, Inc. (the "Company") has adopted the
Kennedy-Wilson, Inc. 1992 Incentive and Nonstatutory Stock Option Plan (the
"Plan"); and
WHEREAS, Section 17 of the Plan permits the Board of Directors of the
Company to amend the Plan, subject to certain limitations; and
WHEREAS, the Board of Directors of the Company now desires to amend the
Plan to increase the number of shares of Common Stock under the Plan (the
"Amendment");
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Subsection (a) of Section 4 of the Plan is hereby amended by deleting
the number "140,000" wherever it appears and by inserting the number "200,000"
in its stead.
2. The provisions of this Amendment shall be effective as of the date of
execution hereof; provided, however, that if this Amendment is not approved by
the stockholders of the Company in accordance with applicable Federal and state
law (and the rules and regulations thereunder), this amendment and any options
granted pursuant to the provisions hereof shall be void and of no force or
effect.
3. Except to the extent set forth above, the Plan is not otherwise
modified and shall remain in full force and effect.
IN WITNESS WHEREOF, the Board of Directors of the Company has caused this
Amendment to be authorized and adopted by the Company on the 19th day of
August, 1997.
KENNEDY-WILSON, INC.
<PAGE> 1
AMENDMENT TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is made and
entered into as of January 1, 1997, by and between KENNEDY-WILSON, INC., a
Delaware corporation, with its principal office located in Santa Monica,
California ("the Company"), and LEWIS A. HALPERT, an individual ("Employee").
RECITALS
WHEREAS, Company and Employee have entered into that certain Employment
Agreement dated as of January 1, 1996, (the "Agreement"), providing for the
employment of Employee by Company pursuant to the terms of such Agreement; and
WHEREAS, Company and Employee have agreed that the terms of the
Employment Agreement should be modified to change Term of Employment, Salary,
Employee Services and Title.
AMENDMENT TO AGREEMENT
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereby amend the
Agreement, effective as of January 1, 1997 as follows:
1. Section 1(a) is deleted in its entirety and the following is
inserted in lieu thereof:
(a) Supersedure: Term. This Agreement shall supersede any and all prior
agreements written or oral. Subject to earlier termination as set forth
in Paragraph (5) below, the term of this Agreement shall be one year
from January 1, 1997 to December 31, 1997.
2. Section 1(b) is deleted in its entirety and the following is
inserted in lieu thereof:
(b) Salary. A salary equal to $12,500 per month and a salary advanced
against bonus earnings equal to $10,416.67 per month, payable on such
bases as is the normal payment pattern of the Company.
3. Section 1(c) is deleted in its entirety and the following is
inserted in lieu thereof:
<PAGE> 2
c) Bonus. The amount of bonus, if any, shall be determined by
calculating the Bonus Revenues less expenses as outlined in the attached
Addendum (1) (Exhibit B) and applied to the following percentages:
<TABLE>
<CAPTION>
NET PROFIT BONUS
---------- -----
<S> <C>
0-1MM 15%
1MM-2MM 20%
2MM-Above 25%
</TABLE>
Bonus revenues for Notes will be 25% and will cap at $2.5MM of net
profits. Bonus will be paid semi-annually.
4. Section 2. Employee Services. Reference to Employee's Title
shall be changed from Managing Director to Executive Managing
Director.
Subject to the foregoing, the Employment Agreement remains in full force
and effect and Company and Employee hereby ratify and confirm the Employment
Agreement in each and every respect.
IN WITNESS WHEREOF, the undersigned have executed this First Amendment
as of the date first written above.
"EMPLOYEE"
/s/ LEWIS A. HALPERT
-------------------------------
Lewis A. Halpert
"EMPLOYEE"
"COMPANY"
Kennedy-Wilson International
a California corporation
By /s/ WILLIAM MCMORROW
-------------------------------
William McMorrow
Chief Executive Officer
<PAGE> 3
EXHIBIT B
LEW HALPERT
1. BASE COMPENSATION:
$12,500.00/mo. Salary
$10,416.67/mo. Non-repayable advance charged against bonus
$22,916.67/mo. $275,000 annualized
To manage KW Properties Residential Division:
1. Find/buy properties;
2. Secure financing
3. Oversee and manage:
a) Legal
b) Construction
c) Marketing/Sales
d) Closing
e) Other matters incidental to success of deal
2. BONUS (Based on Bonus Revenues Net Profits-see attached)
<TABLE>
<CAPTION>
Net Profit Bonus
---------- -----
<S> <C>
0-$1,000,000 15%
$1,000,001- $2,000,000 20%
$2,000,001 -Above 25%
</TABLE>
3. Lew will be awarded a commission percentage as procuring cause for
commercial deals signed by the Company. Commission percentage will be
based upon Lew's contribution to the deal and will be negotiated and
agreed to at the time of the deal signing. Such commissions will be
credited to his Bonus Revenues Net Profit for Bonus calculation. (see #
2).
4. Net Commissions earned by the Company on auctions for which Lew was
procuring cause will be credited to his Bonus Revenues Net Profits for
Bonus calculations. (see # 2).
<PAGE> 1
[KENNEDY - WILS0N LETTERHEAD]
AMENDMENT TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is made and
entered into as of April 1, 1997, by and between KENNEDY-WILSON, INC., A
Delaware corporation, with its principal office located in Santa Monica,
California (the "Company"), and Freeman A. Lyle, an individual ("Employee").
RECITALS
WHEREAS, Company and Employee have entered into that certain Employment
Agreement dated as of April 1, 1996, (the "Agreement"), providing for the
employment of Employee by Company pursuant to the terms of such Agreement; and
WHEREAS, Company and Employee have agreed that the terms of the
Employment Agreement should be modified to change the Employee's term and
compensation.
AMENDMENT TO AGREEMENT
NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties hereby amend the Agreement,
effective as of April 1, 1997 as follows:
1. The Term of the Agreement is extended until March 31, 1998.
Therefore, Section 2 of the Agreement is amended such that the
termination date of "March 31, 1997" is deleted and the
termination date of "March 31, 1998" is inserted in lieu
thereof.
2. Section 4(i) of the Agreement is amended such that Employee's
salary effective January 1, 1997 is equal to $150,600 per annum
payable on such basis as is the normal payment pattern of the
Company, not to be less frequently than monthly.
<PAGE> 2
Subject to the foregoing, the Employment Agreement remains in
full force and effect, and Company and Employee hereby ratify and affirm
the Employment Agreement in each and every respect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date above written.
KENNEDY-WILSON INTERNATIONAL
By: /s/ WILLIAM J. MCMORROW
-------------------------------
William J. McMorrow
Chief Executive Officer
Date:
-----------------------------
EMPLOYEE
/s/ FREEMAN A. LYLE, JR.
----------------------------------
Freeman A. Lyle, Jr.
Date:
-----------------------------
2
<PAGE> 3
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as
of the 1st day of April, 1996, by and between Kennedy-Wilson, Inc., a Delaware
corporation with its principal office located in Santa Monica, California (the
"Company"), and Freeman A. Lyle, Jr., an individual ("Employee").
A. KWI is a licensed California real estate broker in the business of
marketing real property by auction and other means and desires to retain the
services of Employee in conducting this business, subject to the terms and
conditions of this Agreement.
B. Employee desires to be employed by KWI pursuant to the terms and
conditions of this Agreement.
AGREEMENT
1. Services Provided to the Company. During the term of this Agreement,
Employee shall devote his full business time and best efforts in the employment
of the Company and its subsidiaries and shall have such powers and duties as may
from time to time be prescribed by the Board of Directors or the 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; provided, however,
that any reassignment of Employee's duties shall not require him to move from
the Greater Los Angeles area and shall not involve duties which are not
appropriate for his level of expertise, ability or compensation level. Such
duties shall in all events be duties of an officer of the Company. The initial
duties of Employee shall include, without limitation, serving as Executive Vice
President and Chief Financial Officer of the Company with responsibility for
overseeing the financial affairs of the Company. Employee shall provide the
Company with the benefit of his best judgment and efforts in performing his
duties hereunder.
2. Term. Employee shall be employed by the Company pursuant to this
Agreement for a term beginning on the date of this Agreement and continuing
through to, and terminating at 11:59 PM on March 31, 1997 (unless earlier
terminated pursuant to Section 11 hereof).
3. Commitment to the Company. During the term of Employee's employment
under this Agreement, 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 consideration of
such consent shall not be unreasonably delayed and such consent shall be given
or withheld on a
<PAGE> 4
consistent basis with the grant or refusal of the Board to grant consent to real
estate development activities by other officers of the Company who are party to
employment agreements with the Company. The limitation contained in this Section
shall not apply, however, to the ownership of no more than 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,
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.
4. Compensation to Employee. During the term of this Agreement, the
Company shall pay to Employee compensation ("the Compensation") consisting of:
(i) a salary equal to $125,600 per annum, payable on such basis
as is the normal payment pattern of the Company, not to be less frequently than
monthly;
(ii) a discretionary bonus to be determined by the Company in its
sole and absolute discretion which if awarded may be up to 40% of base salary
($50,000) based on Company's determination in its sole and absolute discretion
of its achievement of profit goals. In determining whether any bonus shall be
paid and the amount thereof, Company may examine a number of factors including,
without limitation, employee achievement of the following:
a. To what extent did Employee provide Company Management with
proactive and timely advise to enhance and further Company's
business transactions and successes.
b. To what extent did Employee provide accurate, timely and
appropriate financial reports to Management, Board of Directors
and Public.
c. To what extent did Employee provide financial statements with
analysis and action plan to CEO by the 15th of the following
month.
d. To what extent did Employee manage accounting for capital
expenditures and K-W owned properties.
e. To what extent did Employee manage bank relationships.
f. To what extent did Employee provide financial analysis,
direction and control to guide the Company in meeting profit
goals.
Employee acknowledges that Company has not provided Employee with any
projections or estimates of Net Profit or Net Revenue that might be received by
Employee under the terms of this Agreement as an inducement to Employee to
accept employment with Company.
<PAGE> 5
5. Expenses. Employee shall be entitled to reimbursement from the
Company for any out-of-pocket expenses, including travel expenses (which shall
not include the expense incurred for Employee's daily commute to and from work),
incurred by Employee in the ordinary course of providing his services hereunder
and shall not exceed $300.00 per month. Such reimbursement shall be made by the
Company 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. In those instances, where
out of town travel and per diem or where rare and unusual circumstances arise
and may be required, expenses may exceed the $300 limit provided they are
pre-approved by William J. McMorrow.
6. Deductions. It is understood that all compensation paid to Employee
under this Agreement is subject to the customary tax, social security and other
similar withholding requirements.
7. Benefits. For such time as Employee is employed by KWI, he shall be
entitled to the same medical, dental and insurance, 401k plan, and other
benefits as are generally available to other employees of KWI from time to time
during the course of this Agreement.
8. Noncompetition Covenant. For so long as Employee is employed under
this Agreement and for a period of three years thereafter, Employee will not,
directly or indirectly:
(a) (i) in any manner induce, attempt to induce, or assist others to
induce or attempt to induce any employee, partner, joint venture, independent
contractor, agent or customer of the Company to terminate its, his or her
association with the Company, or (ii) 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
(b) Employee further acknowledges that all trade secrets, know-how,
technology data, formulae, plans, specifications and other information used by
the Company or under development in connection with its business are the
property of the Company, and that Employee does not have the right to disclose,
make available or use any of the foregoing for the benefit of himself or any
other person or entity.
(c) Nothing in this Section 8 shall restrict Employee from owning not
more than 1% of the outstanding shares of any class of securities registered
pursuant to 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.
3
<PAGE> 6
(d) The parties hereto intend that the covenants and agreements
contained in this Section 8 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 reasons 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 thereof.
Notwithstanding the foregoing, nothing herein shall prevent Employee,
following the termination of his employment or the end of the term of this
Agreement, from being associated with any person or entity engaged in any real
estate activities or matters other than real estate auction activities or
matters or other activities which constitute a primarily line of business of the
Company at the time of such termination.
9. Confidential and Proprietary Information. Employee recognizes that he
has occupied and will occupy a position of trust with respect to business
information of a confidential or proprietary nature which is the property of the
Company 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 he shall not at any time, whether during the term hereof or thereafter, use
or disclose directly or indirectly any confidential or proprietary information
of the Company 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. For purposes of this Agreement, the
term "confidential or proprietary information" of the Company shall, include all
information which is owned by the Company and which is not at the time publicly
available or generally known to persons engaged in businesses similar to that of
the Company, including practices, procedures and methods and other facts
relating to the business of the Company; practices, procedures and methods and
other facts related to sales, marketing, advertising, promotions, financial
matters, clients, client lists of the Company and similar information of a
confidential and proprietary nature.
10. Stock Options. Upon execution of this Agreement the Company shall
grant to Employee under the Company's 1992 Incentive and Nonstatutory Stock
Option Plan a non-transferable non-incentive option to purchase an aggregate of
5,000 shares of the Common Stock at an exercise price equal to the price of the
Common Stock on the effective date of the Agreement. The grant of such options
is to be approved by the Stock Option Committee of the Board of Directors of the
Company on such terms and subject to such conditions as are set forth in the
stock
4
<PAGE> 7
option agreement between the Company and Employee and an additional 5,000 shares
of Common Stock on 12/31/96 providing Company and individual goals for 1996 are
met.
11. Termination.
(a) This Agreement will terminate upon the death or physical or mental
incapacity of Employee. Incapacity shall mean the inability to perform
the services due hereunder for a consecutive 60 calendar day period.
(b) This Agreement may also be terminated by the Company:
(i) in the event of a material breach of this Agreement by
Employee (which shall be limited only to a material breach by
Employee of the terms of Sections 3, 8 or 9 hereof or the first
sentence of Section 1 hereof).
(ii) for cause.
(c) This Agreement may be terminated by Employee at any time provided
that such termination shall have the effect set forth in paragraph (d)
below.
(d) Termination of this Agreement pursuant to Section 11(b) shall not
relieve Employee of his obligations to comply with Sections 8 and 9
hereof. If Employee resigns due to the Company's material breach which
is not corrected within ten days after the Employee's written notice of
the breach to the Company, then Employee shall be relieved of his
obligations under Section 8 hereof. If Employee resigns for any other
reason then his obligations under Sections 8 and 9 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 of
this Agreement other than following a material breach by the Company
hereunder, or prior to termination under Section 8 and 9 if applicable,
any further compensation to Employee shall terminate on the date this
Agreement is so terminated by the Company or Employee resigns. 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 hereof 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.
5
<PAGE> 8
1 2. 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: Chief Executive Officer
If to Employee, to: Mr. Freeman A. Lyle, Jr.
31 Silver Saddle Lane
Rolling Hills Estates, CA 90274
(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
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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.
(g) Choice of Law. This Agreement shall be governed by the laws of the
State of California.
(h) Alternative Dispute Resolution. The parties to this Agreement
specifically desire an early resolution of any dispute between them which arises
out of this Agreement. It is therefore, agreed that any controversy arising out
of this Agreement, whether dealing with breach, interpretation or otherwise,
shall be heard by a reference ("Referee") pursuant to the provisions of Section
638 of the Code of Civil Procedure and in accordance with the provisions
described below. Provided, however, that if injunctive relief is sought, the
complaining party may seek such relief from the Los Angeles Superior Court
without the use of a Referee.
1. Enforcement of Agreement. This reference provision may be enforced
by the filing of a complaint or petition or motion seeking specific enforcement.
Service of such motion on the opposing party shall constitute the "Claim Date"
for purposes of this provision.
2. Selection of Referee. The Referee shall be a retired Judge of the
Court selected by mutual agreement of the parties. If the parties cannot agree
then a Referee shall be appointed by the Los Angeles Superior Court in
accordance with Section 640 of the Code of Civil Procedure. Each party shall be
entitled to only one disqualification pursuant to Section 170.6 of the Code of
Civil Procedure. The parties hereby waive their right to a trial by jury and
agree that their dispute shall be tried by the Referee so selected.
3. Decisional Rules. The trial shall be conducted and the issues
determined in compliance with all judicial rules and all statutory and
decisional law of the Sate of California as if the matter were formally
litigated in Superior Court. The Referee shall conduct and decide all pre-trial
and post-trial procedures as if the matter were formally litigated in the
Superior Court. All rules of evidence as set forth in the California Evidence
Code, other statutory and decisional law of California and all relevant Los
Angeles County Superior Court Rules and California Rules of Court shall be
applicable to any proceeding before the Referee.
4. Discovery. The parties to this Agreement expressly waive their right
to engage in any discovery with the exception of depositions and requests for
the inspection, production and copying of documents. Interrogatories, requests
for admissions and depositions upon written interrogatories shall not be
permitted. The
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<PAGE> 10
Referee shall be authorized to issue subpoenas requiring attendance at hearings
and, or trial. All discovery permitted by this Agreement shall be completed no
later than fifteen (15) days before the first hearing date established by the
Referee. The Referee may extend such period in the event of a party's refusal to
provide requested discovery for any reason whatsoever, including legal
objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducting
discovery. Depositions may be taken by either party upon seven (7) days written
notice. Request for production or inspection of documents shall be responded to
within ten (10) days after service. All disputes relating to discovery shall be
submitted to the Referee whose decision shall be final and binding upon the
parties.
5. Hearings and Trial. Except as set forth in this Agreement, the
Referee shall determine the manner in which the proceeding is conducted
including the time and place of all hearings, the order or presentation of
evidence, and all other questions that arise with respect to the course of the
proceeding. All proceedings and hearings conducted before the Referee, except
for trial, shall be conducted without a court reporter unless one is requested
by a party. The party making the request shall have the obligation to arrange
and pay for the court reporter. The costs of the court reporter at the trial
shall be borne equally by the parties. The trial shall be conducted without a
jury on consecutive dates, as opposed to being conducted piecemeal on various
dates separated by postponements or adjournments. The trial shall be conducted
in a courtroom or in surroundings with formality as close to a courtroom as
possible. The Referee shall set the matter for hearing within sixty (60) days
after the Claim Date and try all issues of law or fact and report a statement of
decision upon them, if possible, within ninety (90) days of the Claim Date.
6. Decision of Referee. The Referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The Referee shall issue a single judgment at the close of the proceeding which
shall dispose of all of the claims of the parties that are the subject of the
reference. Any decision rendered by the Referee shall be final, binding and
conclusive and judgment shall be entered pursuant to Section 644 of the Code of
Civil Procedure in any court in the State of California having jurisdiction.
7. Attorneys' Fees. The cost of the Referee shall be shared equally
between the parties. However, the prevailing party shall be entitled to receive
as part of the judgment in its favor an award of all actual attorneys' fees and
costs (including the Referee and court reporter fees) incurred with respect to
the reference, and interest at the highest rate permitted by law as of the date
of the breach.
8. Appeal The judgment entered upon the decision of the Referee shall be
subject to all post-trial procedures and to appeal in the same manner as an
appeal
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from any order or judgment in a civil action.
(i) Assignment. This Agreement is for the unique personal services of
Employee and may not be assigned by Employee without the express written consent
of KWI. Except as so provided, this Agreement shall be binding upon and inure to
the benefit of the respective heirs, personal representatives, successors and
assigns of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
KENNEDY-WILSON INTERNATIONAL
By: /s/ WILLIAM J. MCMORROW
-------------------------------
WILLIAM J. MCMORROW
Date: 4/22/96
-----------
EMPLOYEE
By: /s/ FREEMAN A. LYLE
-------------------------------
FREEMAN A. LYLE
Date: 4/17/96
-----------
9
<PAGE> 12
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement (the "Second Amendment")
is made and entered into as of January 1, 1998, 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
WHEREAS, Company and Employee have entered into that certain Employment
Agreement dated as of January 1, 1997, (the "Agreement") providing for the
employment of Employee by Company pursuant to the term of such Agreement; and
WHEREAS, Company and Employee have agreed that the terms of the
Employment Agreement should be modified to change the Employee's Term and
Compensation.
AMENDMENT TO AGREEMENT
NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties hereby amend the Agreement,
effective as of January 1, 1998 as follows:
1. The Term of the Agreement is extended until December 31, 1999.
Therefore, Section 3 of the Agreement is amended such that the
termination date of "December 31, 1998" is deleted and the
termination date of "December 31, 1999" is inserted in lieu
thereof.
2. Section 5(a) is deleted in its entirety and the following is
inserted in lieu thereof:
5(a) Employee shall be paid an annual salary equal to
$250,000 per annum for the period of January 1, 1998 to
December 31, 1999, payable on such basis is the normal
payment pattern of the Company, not to be less
frequently than monthly.
Subject to the foregoing, the Employment Agreement remains in full force
and effect, and Company and Employee hereby ratify and affirm the Employment
Agreement in each and every respect.
<PAGE> 13
IN WITNESS WHEREOF, the undersigned have executed this Second Amendment
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
Chief Executive Officer
<PAGE> 1
Loan#__________________
REVOLVING LOAN AGREEMENT AND SECURITY AGREEMENT
This REVOLVING LOAN AGREEMENT AND SECURITY AGREEMENT (the "Agreement"),
dated as of May 22, 1997, is made and entered into by and between KWP FINANCIAL
II, a California corporation, ("Borrower"), and HAWTHORNE SAVINGS, F.S.B., a
federal savings bank, ("Lender"), with reference to the facts that (a) Borrower
desires to obtain from Lender a revolving line of credit in the maximum
principal amount of Six Million Dollars ($6,000,000.00) (the "Loan") for the
exclusive purpose of purchasing pools of "Assets" (as defined below in Paragraph
2.) and (b) Lender is willing to provide the Loan, all in accordance with the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
benefits to be achieved through the conditions and assignments herein contained,
the parties agree as follows:
1. The Loan. Lender is willing to provide the Loan to Borrower, subject
to the terms and conditions of this Agreement. The Loan shall be evidenced by a
Note in the form attached hereto as Exhibit A (the "Note") and by this Revolving
Loan Agreement and Security Agreement. Borrower may borrow portions of the Loan
(each an "Advance") from time to time, repay the Loan in full or in part at any
time, and reborrow from time to time, provided, however, that the outstanding
principal balance of the Loan must not exceed Six Million Dollars
($6,000,000.00) at any time.
2. Assets. "Assets" are defined as notes receivable (excluding
restructured notes) originally made payable to regulated financial institutions
(and other documentation, if any, relating to such notes receivable, including,
but not limited to, guaranties and assignments of the creditor's position under
settlement agreements), which, from time to time are placed into pools and
offered for sale by the Federal Deposit Insurance Corporation, other similar
entities, and other sellers approved in writing by Lender (each, a "Pool
Seller"), which are purchased by Borrower with Advances hereunder and delivered
to Lender and (b) the "Existing Collateral" as defined below in Paragraph 4.
3. Conditions Precedent to the Loan. The Loan shall become available,
and Borrower may request Advances, only once Lender is in receipt of (a) this
Agreement duly signed by Borrower, (b) the "Note" duly signed by Borrower, (c) a
corporate resolution (in form and substance satisfactory to Lender) from
Borrower authorizing Borrower's entry into and performance under this Agreement,
(d) a corporate resolution (in form and substance satisfactory to Lender) from
"Guarantor" identified below authorizing the execution of the "Guaranty"
described below in Paragraph 17. pertaining to the Loan and (e) such Guaranty
duly executed by such Guarantor.
4. Repayment of Existing Loans. Before providing any Advances for the
purchase of additional Assets, Lender is hereby authorized to and shall (a) make
an Advance of and apply all such proceeds of the Loan as shall be necessary to
repay in full Borrower's two outstanding borrowings from Lender, loans #79000055
and #79000022 (the "Existing Loans"), in the approximate principal amount of
Three Million Dollars ($3,000,000), and (b) apply as collateral for the Loan all
collateral currently pledged for the Existing Loans (or either of them) (the
"Existing Collateral").
5. Purchase of the Assets. Upon the satisfaction of all of the
conditions of Paragraphs 3. and 4., above, and subject to all of the provisions
of this Agreement, Borrower, acting through the written instructions of its
Chief Executive Officer or its Chief Financial Officer sent to Lender by either
facsimile transmission or letter, may from time to time request Advances, and
Lender agrees to wire transfer or to send by official check directly to the
concerned Pool Seller an Advance in such sum so requested by Borrower, provided,
however, that as a condition to each Advance, (a) Lender shall have received (i)
documentation identifying to Lender's satisfaction the Assets to be purchased
with the proceeds of such Advance and (ii) a written certification from
Borrower, acting through its Chief
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Executive Officer or Chief Financial Officer, of the respective amount which
Borrower anticipates recovering on each Asset in the corresponding pool (each
such amount an "Estimated Recovery Value"), (b) Lender shall be satisfied that
suitable arrangements have been made for the physical delivery to Lender of the
Assets to be purchased with such Advance, (c) Lender shall have determined, in
light of such Advance, that the Borrowing Base (as described below in Paragraph
8.) will remain sufficient, and (d) except with the prior specific written
approval of Lender, there shall be no allocation greater than Six Hundred
Thousand Dollars ($600,000.00) under any Advance for the purchase of any one
Asset (treating a note and any related documentation as one Asset), provided,
however, that the foregoing limitation of this clause (d) is not to be
interpreted as applying to Existing Collateral. Lender may, in its sole
discretion, accompany its wire transfer or official check with its written
instructions to the Pool Seller to apply the Advance solely for Borrower's
purchase of the particular Assets identified in accordance with the foregoing.
6. Creation of Security Interest. Each Advance shall be secured by the
Assets. Effective upon the satisfaction of all of the conditions of Paragraph 3.
above, and continuing irrevocably until the later of the "Maturity Date" (as
defined below in Paragraph 14.) or the date on which the Loan (together with all
other amounts (if any) to which Lender shall be entitled hereunder) shall be
fully repaid, Borrower hereby grants, pledges, transfers and assigns to Lender a
first-priority security interest in all Assets (as the same are from time to
time identified in accordance with this Agreement), and in all proceeds,
products, profits and accessions thereto, and all books, records, documents and
instruments relating thereto or arising therefrom now or in the future. Such
security interest shall be enforceable and otherwise applied and interpreted in
accordance with the California Commercial Code, provided, however, that should
there be any conflict between any provision of any document or instrument
executed in connection with the Loan (including, but not limited to this
Agreement, the Note and the Guaranty) (each a "Loan Document") and any provision
of such Code, the provision of the Loan Document shall control, and provided,
further that such security interest shall be subject to the following provisions
(in lieu of any provisions of such Code inconsistent therewith):
a. Borrower waives any right to require Lender to (i) proceed
against any person or entity, (ii) proceed or exhaust any collateral, or
(iii) pursue any other remedy in Lender's power.
b. Borrower hereby expressly waives any defense arising by
reason of any disability or other defense with respect to any
indebtedness represented by any note constituting an Asset.
c. Borrower authorizes Lender, without notice or demand and
without affecting Borrower's liability thereunder, from time to time,
(i) to take and hold security, other than the Assets, for the payment of
the Note, and exchange, enforce, waive and release the Assets and such
other collateral or any part thereof or any such other security, and
(ii) to apply the Assets and other security and direct the order and
manner of sales thereof as Lender in its discretion may determine.
7. Perfection of Security Interest. Borrower has represented to Lender
that, upon Borrower's purchase of any Asset, the Asset will be delivered to
Borrower's legal counsel for (among other purposes) review and such further
documentation and acts as shall be necessary to cause title to the Asset to vest
in Borrower. Borrower shall deliver each Asset promptly to Lender, which, in
light of the foregoing, shall be no later than fourteen (14) days after the
release of such Asset by the concerned Pool Seller in accordance with Borrower's
written instructions, provided, however, that, upon written request of Borrower,
Lender agrees to grant its consent in writing to a later, specified date of
delivery if Borrower demonstrates that such later delivery is reasonable in
light of the particular circumstances attending any particular Asset or pool of
Assets. With respect to each of the Assets, Borrower shall deliver to Lender, in
accordance with the foregoing time standards, (a) the original promissory note
evidencing such Asset (each such note being a "Pool Note"), (b) all such other
documentation and information (if any) constituting such Asset (including, but
not limited to, any guaranty or settlement agreement) then delivered by the
concerned Pool Seller to Borrower, and (c) with respect to each Pool Note
secured by a mortgage or trust deed, either (i) an assignment from such Pool
Seller to Lender of the mortgage or trust deed corresponding to such Pool Note
or (ii) (A) an assignment from such Pool Seller to Borrower of such mortgage or
trust deed and (B) an assignment from Borrower to Lender of such mortgage or
trust deed. Each assignment of mortgage or trust deed contemplated in this
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<PAGE> 3
Paragraph 7. shall be duly executed in recordable form and notarized. Borrower
further agrees to forward promptly to Lender any additional documentation or
information which Borrower receives from any Pool Seller regarding any Asset
after such Pool Seller's initial transfer of such Asset. Borrower hereby
voluntarily and irrevocably grants to Lender a power-of-attorney coupled with an
interest, on behalf of and in the name of Borrower, to endorse Pool Notes, to
execute assignments of mortgages and trust deeds and otherwise to sign
documentation constituting the Assets and to take all actions with respect
thereto as Lender, in its sole discretion, shall deem necessary (y) to perfect
its security interest therein as contemplated in this Agreement and (z) in the
event of any default by Borrower hereunder, under the Note, or under any other
Loan Document, and after the running of any applicable cure period (if any), to
dispose of the Assets and to apply the proceeds thereof to the then outstanding
balance of the Note and to any and all other (if any) obligations of Borrower
under this Agreement. Borrower agrees to execute and to deliver to Lender, upon
Lender's request, such additional documentation as may be necessary to
effectuate the objectives of the immediately preceding sentence, including, but
not limited to, a recordable power of attorney (addressing the powers expressly
mentioned above), duly notarized.
8. Borrowing Base. No Advance will be funded unless, upon such funding,
the outstanding principal balance of the Loan does not exceed the "Borrowing
Base," defined as sixty-five percent (65%) of the aggregate "Adjusted ERV" of
the Assets (applying the Estimated Recovery Value of each Asset most recently
quoted from time to time by Borrower to Lender in writing, provided, however,
that, on written notice to Lender from time to time, Borrower shall have the
right to reduce, but not to increase, any Estimated Recovery Value). "Adjusted
ERV" means, with respect to each Asset, (a) during the first twelve months
immediately following its acquisition by Borrower, the Estimated Recovery Value
of such Asset, (b) during the thirteenth through eighteenth months following its
acquisition by Borrower, one-half of such Estimated Recovery Value, and (c)
after the eighteenth month following its acquisition by Borrower, zero.
9. Over-Advance on Collateral. In the event that, through the
ineligibility of one or more Assets to serve as collateral due to aging or for
any other reason, the Borrowing Base becomes insufficient with respect to the
balance of the Loan outstanding at any time, Lender may give Borrower written
notice of such insufficiency, whereupon Borrower shall have thirty (30) days to
restore the sufficiency of the Borrowing Base by paying down the Loan with other
cash resources. Until such time as the sufficiency of the Borrowing Base is
restored, (a) further Advances will be suspended, and (b) 100% of all Net
Proceeds (as distinguished from the portion quoted in the Paragraph hereof
entitled "Servicing the Assets") from Borrower's collection activities are to be
paid monthly to Lender for application to the Loan Balance in accordance with
such "Servicing-the-Assets" Paragraph.
10. Return of Ineligible Collateral. Provided that the Borrowing Base
will remain sufficient for the balance of the Loan then outstanding, Assets
serving as collateral for the Loan which are disqualified for any reason
(including, but not limited to, any Asset which Borrower acquired more than
eighteen months previously) will be returned to Borrower from time to time on
Borrower's written request, with the respective release of Lender's security
interest therein, and with the appropriate reduction (if any) in the Borrowing
Base to account for the removal of such Asset from the Borrowing Base.
11. Servicing the Assets. Borrower hereby agrees that it will undertake
such efforts as Borrower deems appropriate to collect or otherwise to liquidate
the obligations evidenced by the Assets. Borrower and Lender both acknowledge
that the Assets are for the most part non-performing or only partially
performing. It is Borrower's intention to convert the Assets into cash.
a. Remittances of Net Proceeds. Borrower and Lender agree that
Borrower shall be obligated to remit to Lender on the first day of each
calendar month (commencing with June 1, 1997) 80% of the Net Proceeds of
Assets received by Borrower on or before the 25th day of the immediately
preceding calendar month (the "Cut-off Date") from obligors or
guarantors of Assets or otherwise in relation to Assets and not
previously remitted to Lender. "Net Proceeds" shall be deemed to include
the gross proceeds less only such expenses incurred by Borrower and
payable to third parties (which expenses do not include any salary,
rent, or office maintenance or administrative expense payable by
Borrower). Such proceeds shall be applied by Lender to reduce the
principal balance of the Loan.
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b. Reporting and Certification.
(i) Monthly. Borrower shall send each monthly remittance
to Lender with a remittance, reconciliation and aging report
(certified by Borrower's Chief Executive Officer or Chief
Financial Officer) showing, through the corresponding Cut-off
Date, (a) the calculation of the 80% for all receipts of Net
Proceeds of Assets and (b) the aging of all Assets for the
purpose of calculating the Borrower Base in accordance with
Paragraph 8. hereof. Borrower shall provide with each monthly
remittance required by Paragraph 11a., in addition to an
accounting of the gross proceeds received, evidence of any
agreed-upon payment plan made between Borrower and an obligor
(or successor of an obligor) of the Asset for which the
remittance is being made (an "Obligor"), and the agreed-upon
balance due from such Obligor if Borrower and such Obligor have
reached a compromise of the full amount due.
(ii) Borrower's Quarterly Reports. Quarterly on or
before the first day of each third calendar month (commencing
with September 1, 1997), Borrower shall submit to Lender a
written narrative report, in form and substance reasonably
satisfactory to Lender, outlining the status of Borrower's
collection efforts on all Assets as of the then most recently
preceding Cut-off Date.
(iii) SEC Filings. No later than the date prescribed by
law for the filing of each SEC form 10K and 10Q of Borrower
(commencing with each such form pertaining to the third calendar
quarter of 1997), Borrower shall submit to Lender a written copy
of each such form for the corresponding period prepared in full
compliance will all legal requirements.
c. Release of Asset upon Liquidation. In the event that Borrower
has reached an agreement to liquidate an Asset in full, Lender shall
release the Note and the assignment of any mortgage or trust deed for
such Asset (and, if Lender shall have received documentation as
contemplated above in Paragraph 7.(c)(i), Lender shall prepare and
deliver to Borrower an assignment from Lender to Borrower for such
Asset) upon receipt of the remittance accounting described in Paragraph
11.b.(i) and receipt of 80% of the Net Proceeds of the agreed-upon
amount to liquidate such Asset.
12. Interest. Interest shall commence to accrue on the Loan proceeds
from the date of disbursement of each Advance for the acquisition of Assets
hereunder at the per annum rate of ten percent (10.00%), provided, however, that
on the first business day following any change in the Index, the rate of
interest accruing on the Loan proceeds shall be adjusted to that per annum rate
one and one-half percent (1.50%) above the Index, and further provided that in
no event shall the per annum interest rate be less than nine and one-half
percent (9.50%). As used in this Agreement, "Index" means the base rate on
corporate loans posted by at least 75% of the nation's 30 largest banks, as
published from time to time by The Wall Street Journal, or if such base rate is
no longer published or is deemed by Lender, in its sole discretion, to be
substantially recalculated in a manner that in Lender's judgment no longer
represents the base rate on corporate loans posted by at least 75% of the
nation's 30 largest banks, then Lender may select an alternate index rate and
that alternate index rate shall be the Index. Accrued interest shall be payable
on the first day of each calendar month; interest cannot be paid with the
proceeds of any Advance. In the event that any conflict shall exist between any
interest provisions of this Agreement and of the Note, the Note provisions shall
be deemed to prevail.
13. Grace Period. In the event that Borrower has not made any payment of
Net Proceeds, interest, or any other amount which Borrower is obligated to pay
Lender in accordance with this Agreement within ten (10) days of its due date,
there shall apply to such amount a surcharge equal to ten percent (10%) thereof
(the "Surcharge"), due and payable therewith by Borrower to Lender. Borrower and
Lender understand and agree that, in the event that any payment due Lender
hereunder is not made by Borrower within ten (10) days of its due date, (a)
Lender will incur additional expenses and other damages which cannot practicably
be determined with precision and (b) the Surcharge is, as of the date of this
Agreement, a reasonable estimate thereof. The Surcharge shall be due and payable
by
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Borrower to Lender in addition to, and not in substitution of, any other payment
which Borrower is or shall be obligated to make to Lender.
14. Loan Term. The Loan shall mature on May 22, 1998 (the "Maturity
Date"), at which time all ability to borrow under the Loan shall terminate and
all outstanding principal on the Loan, together with all accrued but unpaid
interest, shall be due and payable by Borrower without notice from Lender.
15. Fees. Borrower agrees to pay the following fees to Lender upon
Borrower's execution of this Agreement (If Borrower so directs Lender in writing
prior to or concurrently with Borrower's execution of this Agreement, either or
both of the following fees may be paid by an Advance under the Loan.):
a. Commitment Fee. One Hundred Twenty Thousand Dollars
($120,000.00) as a Commitment Fee, in consideration of Lender's
commitment to provide the Loan to Borrower (The entire Commitment Fee is
hereby deemed earned, irrespective of the value or the ultimate
disposition of the Assets (or any of them).); and
b. Loan Fee. Five Thousand Dollars ($5,000.00) as a Loan Fee, to
be applied to the costs and expenses of Lender in documenting and
processing the Loan (including, but not limited to, any filing (if any)
required by Lender).
16. Indemnification. In the event that, for any reason other than
Lender's gross negligence or willful misconduct, (a) funds are wire transferred
or otherwise advanced as contemplated in Paragraph 5. but Borrower does not
purchase all of the Assets for which funds have been advanced under the Loan, or
(b) possession of any Asset is not delivered to Lender in accordance with
Paragraph 7. above, Borrower hereby agrees to indemnify and to hold harmless
Lender and its officers and employees from any injuries, losses, damages, costs
and expenses (including attorneys' fees) which they (or any of them) may sustain
in connection with any such failure to purchase or failure to deliver.
17. The Guarantor. The Loan and the indemnification responsibilities of
Paragraph 16. above shall be guaranteed by Kennedy-Wilson, Inc. ("Guarantor") by
a Guaranty Agreement in the form attached hereto as Exhibit B (the "Guaranty").
In the event that the Guaranty shall be deemed invalid or the Guarantor shall
deny that it is liable under the Guaranty for the full outstanding amount
thereof, in addition to its remedies against Guarantor, Lender shall be able to
pursue and any all of its remedies in relation to Borrower as though such
invalidity or denial were a default by Borrower.
18. Remedies. The following remedies are in addition to and not in lieu
of the remedies contained in the Note or other Loan Documents. The parties
intend that Lender's remedies are to be cumulative and not exclusive of one
another.
a. Performance Breach; Misrepresentations. Lender may accelerate the
obligations of Borrower in the event the Borrower fails to perform any
obligations of Borrower in the Note or this Agreement or if the Borrower has
made any material misrepresentations of fact in connection with any of the
statements, materials or reports given by Borrower to Lender in connection with
the Loan, provided, however, that, with respect to Borrower's failure to make
any payment under the Note when due, such grace period (if any) provided in the
Note shall not be deemed superseded by this provision;
b. Assets as Collateral. Consistent with the provisions of Paragraphs 6.
and 7. above, Lender may conduct a sale of the Assets and apply the proceeds
thereof to the obligations of Borrower under the Note and this Agreement.
19. Existence. Borrower represents and warrants that (a) it has been
duly organized and is validly existing as a corporation in good standing under
the laws of the State of California, (b) its chief executive office and
principal place of business are at 530 Wilshire Boulevard, Suite 101, Santa
Monica, California 90401, and (c) the
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Guarantor has been duly organized and is validly existing as a corporation in
good standing under the laws of the State of Delaware.
20. Notices. For purposes of any notice requirements, the addresses of
the parties are as follows:
Notices to Borrower: KWP Financial II
530 Wilshire Boulevard
Suite 101
Santa Monica, California 90401
facsimile: (310) 314-8511
Notices to Lender: Hawthorne Savings, F.S.B.
Rosecrans Avenue 2381
El Segundo, California 90245
facsimile: (310) 725-5034
21. Attorneys' Fees. In the event that any dispute shall arise
hereunder or under any other Loan Document, the party prevailing therein shall
be entitled to its reasonable attorneys' fees, costs of suit and related
expenses (e.g., photocopying and messenger charges).
22. Choice of Law, Choice of Forum. This Agreement shall be interpreted
and enforced by applying the laws of the State of California (without giving
effect to their choice-of-law provisions). Any litigation arising hereunder
shall be adjudicated before the Courts of the State of California situated in
Los Angeles County or before the Courts of the United States situated in Los
Angeles.
23. Severability. In the event that any provision hereof shall be
determined, by a court of competent jurisdiction or through an arbitration of a
dispute between Lender and Borrower, to be invalid under some or all
circumstances, such provision shall be deemed excised from this Agreement in all
such circumstances of invalidity and applicable in all other circumstances (if
any), and the remainder of this Agreement shall in any event continue in full
force and effect.
24. Headings. Paragraph and subparagraph headings used in this Agreement
are designed solely to facilitate the use of this Agreement and are not intended
to restrict the applicability of any provision of this Agreement.
IN WITNESS WHEREOF, Lender and Borrower have executed this Agreement as
of the date and year first above written.
LENDER: BORROWER;
Hawthorne Savings, F.S.B. KWP Financial II,
a California corporation
By: By:/s/ FREEMAN LYLE
---------------------------- -------------------------------
Norman Morales, Name: Freeman Lyle
Chief Financial Officer ------------------------
Title: EVP CEO
------------------------
6
<PAGE> 7
EIGHTH AMENDMENT TO LOAN DOCUMENTS
AND CONFIRMATION OF GUARANTY
THIS EIGHTH AMENDMENT TO LOAN DOCUMENTS AND CONFIRMATION OF GUARANTY is
entered into as of July 1, 1997 by KENNEDY-WILSON, INC., a Delaware corporation
("Borrower"), KENNEDY-WILSON INTERNATIONAL, a California corporation 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, the Fourth Amendment to Loan Documents and
Confirmation of Guaranty dated as of November 5, 1996, the Fifth Amendment to
Loan Documents and Confirmation of Guaranty dated as of January 30, 1997, the
Sixth Amendment to Loan Documents and confirmation of Guaranty dated as of
February 26, 1997 and the Seventh Amendment to Loan Documents and Confirmation
of Guaranty dated as of June 1, 1997. All terms used in this Amendment without
being defined have the meanings given them in the Loan Agreement.
B. Borrower and Lender desire to enter into this Amendment to increase
the amount available under the Acquisition Facility.
AMENDMENT
1. Amendment to Loan Agreement. The Acquisition Facility is increased
from $8,000,000 to $10,000,000. Accordingly, the aggregate amount of credit
available under the Loan Agreement and Notes is increased from $10,000,000 to
$12,000,000. 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 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
-1-
<PAGE> 8
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 $12,000,000. 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) $10,000,000 and (b) the Borrowing
Base may be used only for the acquisition of interests in
real property as set forth in this Agreement or, with the
consent of Lender, other 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 $12,000,000, (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 $10,000,000 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)
$10,000,000 and (ii) the amount of the Borrowing Base;
and"
(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. Section 3.6 will remain applicable to all Loans made
under both the Working Capital Facility and the Acquisition Facility.
-2-
<PAGE> 9
2. Amendment to Acquisition Note. The principal amount of the
Acquisition Note is $10,000,000.
3. Calculation-of Borrowing Base. Westborough Court Group, Inc. has
granted a security interest in a promissory note payable to it in the amount of
$650,000. Such security interest shall contribute to the Borrowing Base 80% of
the principal amount of such promissory note outstanding from time to time.
4. Representations and Warranties. Borrower makes the following
representations and warranties to Lender:
(a) all representations and warranties contained in the Loan
Agreement are true;
(b) no Event of Default or Potential Event of Default has
occurred and is continuing; and
(c) no material adverse change has occurred in the (i) net
operating income or sales, as applicable, of the Approved Properties or other
properties subject to security instruments given by Borrower or its affiliates
to secure the Loans; (ii) physical and economic condition of the Approved
Properties or such other properties; or (iii) business, financial condition and
management of Borrower, the Guarantors or Borrower's affiliates which are
parties to security instruments granting security interests to secure the Loans.
5. Conditions Precedent, The effectiveness of the increase in the
Acquisition Facility provided for in this Agreement is subject to Borrower's
satisfaction of the following conditions precedent on or before July 31, 1997,
each in form and substance satisfactory to Lender:
(a) Borrower and its affiliates, as applicable, shall have
executed and delivered this Amendment, an Amendment to Security Agreements and
an Amendment to Deeds of Trust;
(b) the Amendment to Deeds of Trust shall have been recorded in
the Official Records of Los Angeles and Orange Counties;
(c) Lender shall have received such endorsements to the Title
Policies increasing their coverage to $10,000,000 as Lender shall require;
(d) Borrower and its affiliates shall have executed and delivered
such UCC-1 financing statements as Lender shall require and such financing
statements shall have been filed in the appropriate filing offices;
(e) Borrower shall have paid a fee to Lender in the amount of
$15,000 in consideration of the increased credit
-3-
<PAGE> 10
being made available to Borrower, which fee shall be fully earned upon receipt
and nonrefundable; and
(f) Borrower shall have paid all of the costs referred to in
Section 9 below.
6. 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 Eighth Amendment, and they are
aware that the amount of the Acquisition Facility has been increased to
$10,000,000 and the aggregate amount of credit available under the Loan
Agreement and the Notes has increased to $12,000,000. Guarantors agree to
guaranty the full amount of the Loans in accordance with the terms of the
Guaranty, that the waivers, acknowledgements and other agreements are applicable
to such amounts and that the Guaranty remains in full force and effect,
enforceable against Guarantors in accordance with its terms.
7. 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.
8. 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 or contemplated by
this Amendment, the Loan Documents remain unmodified and in full force and
effect.
9. Entire Agreement. This Amendment and the other amendments and
modifications referred to in Section 4(a) above constitute the entire agreement
and understanding among the parties with respect to the subject matter of such
amendments and supersede all prior agreements and understandings with respect to
such subject matter, whether oral or written.
10. Loan Fee and Expenses. Borrower agrees, on Lender's demand, to pay
all 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
-4-
<PAGE> 11
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:
-------------------------------
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> 1
FIFTH AMENDMENT TO
EMPLOYMENT AGREEMENT
This Fifth Amendment to Employment Agreement (the "Fifth Amendment") is
made and entered into as of May 19, 1997, by and between KENNEDY-WILSON, INC., A
Delaware corporation, with its principal office located in Santa Monica,
California (the "Company"), and WILLIAM J. McMORROW, an individual ("Employee").
RECITALS
WHEREAS, Company and Employee have entered into that certain Employment
Agreement dated as of August 14, 1992, as amended January 1, 1993, January 1,
1994, March 31, 1995 and January 1, 1996, providing for the employment of
Employee by Company pursuant to the terms of such Agreement; and
WHEREAS, Company and Employee have agreed that the terms of the
Employment Agreement should be modified to change the Term of Employment, Bonus
and Severance Agreement.
AMENDMENT TO AGREEMENT
NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties hereby amend the Agreement,
effective as of May 19, 1997 as follows:
1. Section 2 of the Employment Agreement is deleted in its entirety and
the following is inserted in lieu thereof:
2. Term (a): Employee shall be employed by the Company pursuant
to his Employment Agreement for a term beginning on August 14, 1992, and
continuing through to and terminating at the close of business on
December 31, 1999, (unless earlier terminated pursuant to Section 9
hereof).
(b): In the event the Employment Agreement is terminated
due to change in control, or non renewal of the Agreement, except if
change in control or non renewal is for cause (which shall mean only
Employee's violation of criminal law, material wrongful act or omission,
malfeasance or gross negligence which causes material damage to the
business or reputation of the Companies), disability or death, the
Employee shall in consideration of his execution of the General Release
attached as Exhibit "A", hereof, be entitled to payment from the Company
equal to two (2) times the Employee's annual compensation. The annual
compensation would be the arithmetic average of the most recent three
(3) year period and would include salary and bonus as reported in the
Proxy Statement,
<PAGE> 2
The Committee, after review and discussion, agreed to amend William J.
McMorrow's existing Employment Agreement and to delete the existing bonus cap
agreement at $7.5 million and amend to a bonus cap as follows:
1997 Bonus 20% on profits of 3MM to 12.5MM (pre-tax, pre-bonus)
1998 Bonus 20% on profits of 3MM to 17.5MM (pre-tax, pre-bonus)
1999 Bonus 20% on profits of 3MM to 22.5MM (pre-tax, pre-bonus)
In addition, the Committee agreed to extend the Term of the Agreement to
12/31/99. The Committee approved the purchase of a membership in the Los Angeles
Country Club and to delete the severance section of the Agreement and amend to a
severance payment of two (2) times his annual compensation on termination of
Agreement due to change in control, or non-renewal of Agreement, except if
change in control or non-renewal is for cause, disability or death. The
Committee agreed that average annual compensation would be the arithmetic
average of the most recent 3 year period. Annual compensation would include
salary and bonus as reported in the Proxy Statement.
/s/ JAMES C. OZELLO
-------------------------------
James C. Ozello
(Acting Secretary)
ACCEPTED FOR THE
ATTEST: BOARD OF DIRECTORS
/s/ KENT Y. MOUTON /s/ WILLIAM J. MCMORROW
- ------------------------------- -------------------------------
Kent Y. Mouton, Committee Chairman William J. McMorrow, Chairman
/s/ FREEMAN A. LYLE
-------------------------------
Freeman A. Lyle, CFO
Executive Vice President and
Secretary
<PAGE> 1
EXHIBIT 21.1
KENNEDY-WILSON, INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
NAME INCORPORATION
---- ---------------
<S> <C>
11743 Kiowa Partners Corporation............................ California
301 South Fair Oaks, LLC.................................... California
453 Barrington Property Group, Inc.......................... Delaware
5900 Sepulveda Property Group, Inc.......................... California
Carriage Villas Group, Inc.................................. California
Cathedral Hill Vistas....................................... California
Dealco One, Inc............................................. California
Dealco Two, Inc............................................. California
Del Mar Pasadena, LLC....................................... California
Edinger Business Centre Group, Inc.......................... California
K-W Capital Corporation..................................... California
K-W Del Mar Group, Inc...................................... California
K-W Hilltop, Inc............................................ California
K-W Laurelwood, Inc......................................... California
K-W LP Investments, Inc..................................... California
K-W Management Services, Inc................................ California
K-W Maple Partners, Inc..................................... California
K-W Paseo Group, Inc........................................ California
K-W Paseo Heights, Inc...................................... California
K-W Paseo Heights, LLC...................................... California
K-W Portfolio Group I, Inc.................................. California
K-W Portfolio Group II, Inc................................. California
K-W Properties.............................................. California
K-W Reno Equity, Inc........................................ California
K-W Upland Equities, Inc.................................... California
K-W Vista Del Valle, LLC.................................... California
Kennedy-Wilson International................................ California
Kennedy-Wilson International of New York, Inc............... New York
Mutual Capital Mortgage Group............................... California
Plaza Centre Group, Inc..................................... California
Prestonwood Group, Inc...................................... California
Rancho Del Valle Properties, Group.......................... California
Southwood Townhomes Group, Inc.............................. California
Stonegate Group, Inc........................................ California
VDE Corona Group, Inc....................................... California
Vista Waikoloa Group, Inc................................... California
Westborough Court Group, Inc................................ California
Wilshire & 7th Properties, Inc.............................. California
</TABLE>
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-73324 of Kennedy-Wilson, Inc. on Form S-8 of our report dated March 2, 1998,
appearing in this Annual Report on Form 10-K of Kennedy-Wilson, Inc. for the
year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,622,000
<SECURITIES> 0
<RECEIVABLES> 10,564,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,186,000
<PP&E> 24,532,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 45,718,000
<CURRENT-LIABILITIES> 5,219,000
<BONDS> 28,905,000
0
0
<COMMON> 13,000
<OTHER-SE> 11,581,000
<TOTAL-LIABILITY-AND-EQUITY> 45,718,000
<SALES> 26,999,000
<TOTAL-REVENUES> 26,999,000
<CGS> 19,629,000
<TOTAL-COSTS> 19,629,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,139,000
<INCOME-PRETAX> 4,231,000
<INCOME-TAX> 280,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 79,000
<CHANGES> 0
<NET-INCOME> 4,030,000
<EPS-PRIMARY> 2.97
<EPS-DILUTED> 2.93
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,297,000
<SECURITIES> 0
<RECEIVABLES> 14,781,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,078,000
<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> 31,967,000
<CGS> 26,412,000
<TOTAL-COSTS> 26,412,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,964,000
<INCOME-PRETAX> 3,591,000
<INCOME-TAX> 60,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,531,000
<EPS-PRIMARY> 2.24
<EPS-DILUTED> 2.24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,371,000
<SECURITIES> 0
<RECEIVABLES> 1,980,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,351,000
<PP&E> 33,300,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,651,000
<CURRENT-LIABILITIES> 4,241,000
<BONDS> 25,474,000
0
0
<COMMON> 14,000
<OTHER-SE> 7,922,000
<TOTAL-LIABILITY-AND-EQUITY> 37,651,000
<SALES> 20,610,000
<TOTAL-REVENUES> 20,610,000
<CGS> 25,545,000
<TOTAL-COSTS> 25,545,000
<OTHER-EXPENSES> 6,735,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,472,000
<INCOME-PRETAX> (13,142,000)
<INCOME-TAX> 44,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,186,000)
<EPS-PRIMARY> (7.93)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,909,000
<SECURITIES> 0
<RECEIVABLES> 13,288,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,197,000
<PP&E> 26,979,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,176,000
<CURRENT-LIABILITIES> 3,158,000
<BONDS> 29,982,000
0
0
<COMMON> 11,000
<OTHER-SE> 10,025,000
<TOTAL-LIABILITY-AND-EQUITY> 43,176,000
<SALES> 5,870,000
<TOTAL-REVENUES> 5,870,000
<CGS> 1,960,000
<TOTAL-COSTS> 1,960,000
<OTHER-EXPENSES> 2,298,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 976,000
<INCOME-PRETAX> 636,000
<INCOME-TAX> 50,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 586,000
<EPS-PRIMARY> 0.490
<EPS-DILUTED> 0.350
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,069,000
<SECURITIES> 0
<RECEIVABLES> 15,811,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,880,000
<PP&E> 28,070,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 46,950,000
<CURRENT-LIABILITIES> 2,077,000
<BONDS> 34,784,000
0
0
<COMMON> 11,000
<OTHER-SE> 10,078,000
<TOTAL-LIABILITY-AND-EQUITY> 46,950,000
<SALES> 3,966,000
<TOTAL-REVENUES> 3,966,000
<CGS> 626,000
<TOTAL-COSTS> 626,000
<OTHER-EXPENSES> 2,401,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 740,000
<INCOME-PRETAX> 199,000
<INCOME-TAX> 50,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 288,000
<CHANGES> 0
<NET-INCOME> 437,000
<EPS-PRIMARY> 0.390
<EPS-DILUTED> 0.270
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,214,000
<SECURITIES> 0
<RECEIVABLES> 10,943,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,157,000
<PP&E> 25,836,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,993,000
<CURRENT-LIABILITIES> 2,491,000
<BONDS> 28,013,000
0
0
<COMMON> 11,000
<OTHER-SE> 10,478,000
<TOTAL-LIABILITY-AND-EQUITY> 40,993,000
<SALES> 5,814,000
<TOTAL-REVENUES> 5,814,000
<CGS> 1,563,000
<TOTAL-COSTS> 1,563,000
<OTHER-EXPENSES> 2,848,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 871,000
<INCOME-PRETAX> 532,000
<INCOME-TAX> 65,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 467,000
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.31
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,402,000
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0
0
<COMMON> 14,000
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<EPS-PRIMARY> 1.02
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
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0
0
<COMMON> 13,000
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<SALES> 9,952,000
<TOTAL-REVENUES> 9,952,000
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<LOSS-PROVISION> 0
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<EPS-PRIMARY> 0.60
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
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<DEPRECIATION> 0
<TOTAL-ASSETS> 40,465,000
<CURRENT-LIABILITIES> 2,926,000
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0
0
<COMMON> 13,000
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</TABLE>
