<PAGE> 1
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DRAFT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER O-20418
KENNEDY-WILSON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4364537
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
530 WILSHIRE BOULEVARD, #101 90401
SANTA MONICA, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(310) 314-8400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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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 of the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common stock, $.01 par value;
3,978,797 shares outstanding at June 30, 1998.
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KENNEDY-WILSON, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I. Financial Information.............................................................................. 3
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997........................ 3
Consolidated Statements of Operations for the Three Months Ended June 30, 1998 and 1997
And for the Six Months Ended June 30, 1998 and 1997.......................................... 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997....................................................................... 5
Notes to Consolidated Financial Statements................................................... 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 9
Part II. Other Information................................................................................. 10
Item 1. Legal Proceedings............................................................................. 10
Item 2. Changes in Securities......................................................................... 10
Item 3. Defaults Upon Senior Securities............................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders........................................... 10
Item 5. Other Information............................................................................. 10
Item 6. Exhibits and Reports on Form 8-K.............................................................. 11
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1998 1997
-------------- --------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 4,374,000 $ 10,448,000
Cash - restricted 642,000 174,000
Accounts receivable - other 3,057,000 1,018,000
Notes receivable 21,334,000 9,546,000
Real estate held for sale 74,479,000 18,628,000
Investments with related parties and non-affiliates 7,658,000 4,899,000
Other assets 1,707,000 1,005,000
-------------- --------------
TOTAL ASSETS $ 113,251,000 $ 45,718,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 530,000 $ 666,000
Accrued expenses and other liabilities 2,765,000 4,553,000
Notes payable 18,067,000 4,764,000
Borrowing under lines of credit 9,489,000 9,039,000
Mortgage notes payable 69,512,000 15,102,000
-------------- --------------
Total liabilities 100,363,000 34,124,000
-------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 2,000,000 shares authorized
none issued -- --
Common stock $.01 par value; shares authorized; 10,000,000 40,000 39,000
shares issued: 3,978,797 in 1998 and 4,126,579 in 1997
Additional paid-in capital 23,853,000 23,788,000
Accumulated deficit (10,037,000) (10,913,000)
Notes receivable from stockholders (968,000) (1,320,000)
-------------- --------------
Total stockholders' equity 12,888,000 11,594,000
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 113,251,000 $ 45,718,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Commissions $ 1,592,000 $ 1,407,000 $ 3,734,000 $ 2,125,000
Sales of residential real estate 2,094,000 545,000 2,277,000 2,480,000
Equity in income of investments with related parties
and related parties 205,000 156,000 473,000 497,000
Gain on sale of commercial real estate -- -- -- 1,682,000
Gain on restructured notes receivable 942,000 1,151,000 1,597,000 1,619,000
Rental income, net 1,185,000 356,000 1,864,000 926,000
Interest income 278,000 139,000 529,000 243,000
Other income 163,000 212,000 382,000 264,000
------------ ------------ ------------ ------------
TOTAL REVENUE 6,459,000 3,966,000 10,856,000 9,836,000
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Commissions and marketing expenses 152,000 141,000 257,000 289,000
Cost of residential real estate sold 1,647,000 485,000 1,778,000 2,297,000
Compensation and related expenses 1,106,000 1,195,000 2,326,000 2,216,000
General and administrative 1,005,000 1,018,000 1,997,000 2,038,000
Depreciation and amortization 447,000 188,000 611,000 445,000
Interest expense 1,864,000 740,000 2,877,000 1,716,000
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 6,221,000 3,767,000 9,846,000 9,001,000
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND BEFORE EXTRAORDINARY ITEM 238,000 199,000 1,010,000 835,000
Provision for income taxes 36,000 50,000 134,000 100,000
------------ ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 202,000 149,000 876,000 735,000
Extraordinary item - Gain on debt extinguishment -- 288,000 -- 288,000
------------ ------------ ------------ ------------
NET INCOME $ 202,000 $ 437,000 $ 876,000 $ 1,023,000
============ ============ ============ ============
Basic income per share before extraordinary item $ 0.05 $ 0.04 $ 0.22 $ 0.18
Basic net income per share $ 0.05 $ 0.11 $ 0.22 $ 0.24
Basic weighted average shares 3,969,962 4,050,180 3,959,970 4,179,492
Diluted income per share before extraordinary item $ 0.05 $ 0.04 $ 0.21 $ 0.17
Diluted net income per share $ 0.05 $ 0.11 $ 0.21 $ 0.24
Diluted weighted average shares 4,177,037 4,101,062 4,151,504 4,225,998
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 876,000 $ 1,023,000
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 611,000 445,000
Equity in income in partnerships (473,000) (497,000)
Gains on sales of real estate (499,000) (1,877,000)
Gains on restricted notes receivable - non-cash (644,000) (446,000)
Change in assets and liabilities:
Accounts receivable - other (2,039,000) (180,000)
Other assets (702,000) (99,000)
Accounts payable (136,000) (613,000)
Accrued expenses and other liabilities (1,788,000) (410,000)
------------ ------------
Total adjustments (5,670,000) (3,677,000)
------------ ------------
Net cash used in operating activities (4,794,000) (2,654,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment -- (97,000)
Purchase and additions to real estate held for sale (58,240,000) (2,812,000)
Proceeds from sales of real estate held for sale 2,227,000 12,030,000
Additions to notes receivable (14,845,000) (404,000)
Payments of notes receivable 4,053,000 --
Distribution from partnerships 1,993,000 130,000
Investment in partnerships (4,279,000) (969,000)
Extraordinary item -- (288,000)
------------ ------------
Net cash (used in) provided by investing activities (69,041,000) 7,590,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of mortgage notes payable 55,462,000 3,308,000
Repayment of mortgage notes payable (1,052,000) (6,031,000)
Borrowings under lines of credit 10,574,000 7,051,000
Repayment of lines of credit (10,124,000) (6,346,000)
Borrowings under notes payable 16,640,000 1,617,000
Repayment of notes payable (3,337,000) (2,443,000)
Cash - restricted (468,000) 76,000
Repurchase of common stock 66,000 (1,320,000)
------------ ------------
Net cash provided by (used in) financing activities 67,761,000 (4,088,000)
------------ ------------
Net (decrease) increase in cash (6,074,000) 848,000
CASH, BEGINNING OF PERIOD 10,448,000 1,901,000
------------ ------------
CASH, END OF PERIOD $ 4,374,000 $ 2,749,000
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
UNAUDITED
NOTE 1 - FINANCIAL STATEMENT PRESENTATION
The above financial statements have been prepared by Kennedy-Wilson,
Inc. a Delaware corporation, and subsidiaries (the Company) without audit by
independent public accountants, pursuant to the Rules and Regulations of the
Securities and Exchange Commission. The statements, in the opinion of the
Company, present fairly the financial position and results of operations for the
dates and periods indicated. The results of operations for interim periods are
not necessarily indicative of results to be expected for full fiscal years.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Rules and Regulations of the
Securities and Exchange Commission. The Company believes that the disclosures
contained in the financial statements are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Certain reclassifications have been made to prior year balances to
conform to the current year presentation.
NOTE 2 - NOTES RECEIVABLE
In March 1998, the Company acquired a note receivable secured by a
3,000-acre parcel of land on Hawaii's Kohala Coast for approximately $4.2
million.
In June 1998, the Company acquired two notes receivable secured by a
1,000-acre parcel and a 450-acre parcel of land in Hawaii for approximately $2.5
million and $1.4 million respectively.
In May 1998, the Company purchased a portfolio of non-performing loans
for approximately $2.1 million.
In June 1998, the Company purchased another portfolio of non-performing
loans for approximately $2.8 million.
NOTE 3 - REAL ESTATE HELD FOR SALE
In January 1998, the Company purchased the vacant lot adjacent to the
1304 15th Street building that it owns in Santa Monica, CA for $600,000.
In January 1998, the Company purchased a 75,000 square foot office
building in Van Nuys, CA for approximately $6.6 million.
In January and February 1998, the Company purchased two residential
homes in Pacific Palisades, CA for $527,000 and $612,000 respectively.
In February 1998, the Company purchased a 278,000 square foot office
building in downtown Los Angeles, CA for approximately $24.5 million.
In March 1998, the Company purchased 23 lots zoned for residential
units in Palm Desert, CA for $1.5 million.
In March 1998, the Company acquired a 131,750 square foot office
building located in Los Angeles, CA for approximately $13 million.
6
<PAGE> 7
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
UNAUDITED
In April 1998, the Company purchased a 24 unit residential building in
West Los Angeles for approximately $4.3 million. The purchase was financed with
a mortgage note for approximately $3.7 million.
NOTE 4 - NOTES PAYABLE
The May 1998 purchase of non-performing loans mentioned above was
financed with a draw on one of the Company's lines of credit and a loan for
$800,000 with an interest rate of Prime plus 2% with a maturity date of January
23, 1999.
The June 1998 purchase of non-performing loans was financed with a note
payable with an interest rate of 12% and a maturity date of September 1998.
In June 1998, the Company entered into a loan agreement that provides
the Company with $10 million with an interest rate of 12% and a maturity date of
December 3, 1998.
NOTE 5 - MORTGAGE NOTES PAYABLE
The January 1998 purchase of the lot adjacent to the 1304 15th Street
building referred to above was financed by a mortgage note totaling $450,000.
The note has an interest rate of Prime plus 1% and a maturity date of January 1,
2000 and is secured by the aforementioned property.
The January 1998 purchase of the 75,000 square foot office building in
Van Nuys, CA was financed by a mortgage note of approximately $5.5 million and a
third party equity investment of approximately $1.5 million. The mortgage note
has an interest rate of Prime and a maturity date of January 31, 2001. The
equity investment has an interest rate of Prime plus 4% and a maturity date of
January 23, 2001 and is secured by the aforementioned property.
The January and February 1998 purchases of two residential homes
referred to above were financed by a mortgage note totaling approximately $1.1
million with an interest rate of Prime plus 1.5% and a maturity date of March
19, 1999 and is secured by the aforementioned property.
The February 1998 purchase of a 278,000 square foot office building in
downtown Los Angeles was financed with a mortgage note in the amount of $19
million and a third party equity investment of approximately $4.6 million. The
mortgage note is structured as a senior note of $11 million with an interest
rate of LIBOR plus 2.5% and a junior note of $8 million with an interest rate of
LIBOR plus 4.875%. Both notes have a maturity date of February 28, 2003. The
equity investment has an interest of LIBOR plus 4% and maturity date of February
25, 2001 and is secured by the aforementioned property.
The February 1998 purchase of 23 lots referred to above was financed by
a mortgage note of approximately $1.1 million. The note has an interest rate of
Prime plus 1.25% and a maturity date of March 1, 1999 and is secured by the
aforementioned property.
The March 1998 purchase of the 131,750 square foot office building in
Los Angeles was financed with a mortgage note in the amount of $10 million and a
third party equity investment of approximately $2.4 million and is secured by
the aforementioned property. The note has an interest rate of LIBOR plus 3.5%.
The equity investment has an interest rate of LIBOR plus 4%. Both notes have a
maturity date of March 31, 2001.
7
<PAGE> 8
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
UNAUDITED
The April 1998 purchase of the 24 unit residential building in West Los
Angeles was financed with a mortgage note for approximately $3.7 million. The
note has an interest rate of Prime plus 1% and a maturity date of March 15,
1999.
NOTE 6 - INVESTMENTS IN AFFILIATES AND PARTNERSHIPS
In January 1998, the Company acquired a 15% interest in a joint venture
("60 Broad Street"), with a related party, which owns a commercial property with
approximately 977,000 square foot of rental space, located in Manhattan, New
York. The Company's investment at March 31, 1998 was approximately $3.7 million.
In March 1998, the Company acquired 40% interest in a joint venture
("Beverly Crescent, LLC"), with a related party, which owns a note
collateralized by a hotel in Beverly Hills, CA. The Company's investment at
March 31, 1998 was approximately $300,000. In May 1998, the Company sold its
interest in the note and recorded a gain of approximately $298,000.
NOTE 7 - STOCKHOLDERS' EQUITY
In March 1998, the Company declared a 3 for 1 stock split in the form
of a 200% stock dividend. The stock dividend was payable to holders of record as
of March 30, 1998, and was paid in April 1998. All historical share and per
share amounts have been retroactively restated to reflect the dividend.
In April 1998, the stockholders of the Company approved an increase in
its authorized shares from 6,000,000 to 12,000,000, consisting of 10,000,000
shares of common stock and 2,000,000 shares of preferred stock.
NOTE 8 - RELATED PARTY TRANSACTIONS
Commission revenue has been reduced by $150,000 for consulting fees
paid to a director of the Company in connection with a lease transaction.
NOTE 9 - SUBSEQUENT EVENTS
In July 1998, Colony Investors III, LP acquired a 10 percent equity
position in the Company. The purchase involved a private placement sale of
440,085 shares of the Company's common stock and warrants exercisable for seven
years to purchase an additional 132,026 shares of the Company's common stock,
generating $5.2 million in proceeds. This transaction was reported on a Form
8-K filed with the Securities and Exchange Commission on July 31, 1998.
In July 1998, the Company acquired from Heitman Financial Ltd., a
wholly owned subsidiary of United Asset Management Corporation, all of the
outstanding shares of Heitman Properties, Ltd., a property management company.
The Company financed the acquisition with subordinated debt of approximately
$21 million. The acquisition adds 52 million square feet to the portfolio of
properties managed by the Company. This transaction was reported on a Form 8-K
filed with the Securities and Exchange Commission on July 31, 1998.
In August 1998, the Company sold the 24 unit residential building in
West Los Angeles for approximately $5.4 million. The Company is anticipating
recording a gain of approximately $600,000.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997.
Revenue for the three months ended June 30, 1998 increased 63% compared
to the three months ended June 30, 1997. The increase was a result of an
increase in sales of residential real estate of 284% compared to the second
quarter of 1997 and an increase of 233% in rental revenue. Sales of residential
real estate for the quarter ended June 30, 1998 included significant sales from
a project in Granada Hills, California. There were no such sales in the second
quarter of 1997. Rental revenue increased due to the larger commercial property
portfolio of approximately 604,000 square feet in 1998 as compared to the
245,000 square feet in 1997.
Operating expenses increased 65% for the quarter ending June 30, 1998.
The increase was mainly due to the 240% increase in cost of residential real
estate sold due to higher sales as discussed above. Also, the debt incurred by
the Company to finance its commercial property portfolio generated a 152%
increase in interest expense.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997.
Revenue for the six months ended June 30, 1998 increased 10% compared
to the six months ended June 30, 1997. The increase was due primarily to
increased commission revenue from increased brokerage closing, including the
sale of two large office buildings in Oakland, CA and one in Tokyo, Japan and a
101% increase in rental income due to a larger commercial property portfolio as
compared to the same period in 1997 which more than made up for the fact that
there were no sales of commercial properties during the first six months ended
June 30, 1998.
Operating expenses increased 9% for the six months ended June 30, 1998.
The increase was mainly due to the 68% increase in interest expense on debt
incurred by the Company to finance its larger commercial property portfolio.
The increase is offset by a 77% decrease in cost of residential real estate
sold.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its cash balance of approximately $4.4
million at June 30, 1998, combined with cash generated from operations and the
$15 million from one of its lines of credit, will provide funds sufficient to
meet its present and reasonably foreseeable obligations.
The Company's activities as a principal in real estate and notes
receivable acquisitions requires larger capital resources than is required by
its marketing and brokerage operations. As a result, the Company may
periodically need to obtain third party financing for such transactions. The
Company has been successful in obtaining such financing as needed at competitive
terms, and expects to be able to continue to do so in the future.
FORWARD LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Conditions and
Results of 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.
9
<PAGE> 10
PART II - OTHER INFORMATION
Items 1, 3, 4 and 5 are omitted as not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to a Loan and Warrant Agreement dated June 3, 1998 between
the Company and FBR Asset Investment Corporation ("FBR"), the Company issued
(i) a promissory note bearing interest at 12% per annum and in the aggregate
principal amount of up to $10,000,000 (the "Promissory Note") and agreed to
issue (ii) a warrant (the "Warrant") to purchase shares of common stock of the
Company ("Common Stock"). FBR advanced to the Company $5 million on June 3,
1998 and $5 million on June 9, 1998. The Promissory Note matures on the earlier
of December 3, 1998 and the date on which an underwritten public offering of
shares of Common Stock (a "Public Offering") is consummated.
The Warrant is to be issued on the business day following the earlier
of (i) the date on which the Promissory Note is due and (ii) the consummation
of a Public Offering. The number of shares of Common stock covered by the
Warrant shall be the following percentage of the Common Stock outstanding on a
fully diluted basis on the date the Warrant is issued (without giving effect to
the issuance of the Warrant):
<TABLE>
<CAPTION>
Warrant Issue Date Occurs Percentage of Shares Outstanding
------------------------- --------------------------------
<S> <C>
On or before September 3, 1998 0.50%
After September 3, 1998 and before
December 4, 1998 1.00%
After December 4, 1998 2.00%
</TABLE>
If the Company consummates a Public Offering on or before December 3,
1998, the per share purchase price paid on the exercise on the Warrant shall be
the public offering price of the Common Stock in the Public Offering. If a
Public Offering is not so consummated, the per share purchase price shall be
the average of the closing prices for a share of Common Stock on NASDQ for the
20 business days preceding December 4, 1998. The Warrants shall expire on the
fifth anniversary of the date the Warrants are issued.
The advances made by FBR in connection with the Note and Warrant were
used to acquire notes secured by real property. The sale of the Promissory Note
and the Warrant are exempt from registration under the Securities Act of 1933
as amended (the "Act") under Section 4(2) thereof. The securities were not
offered to any person other than FBR. FBR represented that it was an
"accredited investor" within the meaning of the Regulation D under the Act and
that it was acquiring the Promissory Note and would acquire the Warrant and any
Common Stock issuable upon the excise thereof for its own account for
investment and not with the view to the distribution thereof except in
accordance with applicable federal and state securities laws. in addition, the
Note and Warrant will have customary legends regarding the nature of their sale
and issuance and restriction on transfer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 4.1 Common Stock Registration Rights Agreement
dated as of June 3, 1998 by and between
Kennedy-Wilson, Inc., and FBR Asset Investment
Corporation.
Exhibit 10.1 Loan and Warrant Agreement dated June 3, 1998
by and between Kennedy-Wilson, Inc., and FBR
Asset Investment Corporation.
Exhibit 10.2 Promissory Note dated June 3, 1998 made by
Kennedy-Wilson, Inc., in favor of FBR Asset
Investment Corporation.
(b) Reports on Form 8-K
The registrant did not file any Reports on Form 8-K during the
quarter ended June 30, 1998.
The schedules to the Loan and Warrant Agreements attached as
Exhibit 10.1 have been omitted. These schedules contain
exceptions to the Company's representations and warranties or
documents which have been previously filed with the
Securities and Exchange Commission ("the Commission"). The
Company undertakes to furnish the omitted schedules to the
Commission upon request.
SIGNATURE
Pursuant to the requirements 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: August 14, 1998 KENNEDY-WILSON, INC.
----------------------------------------
Registrant
----------------------------------------
Freeman A. Lyle
Executive Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
10
<PAGE> 1
COMMON STOCK
REGISTRATION RIGHTS AGREEMENT
Dated as of June 3, 1998
by and between
KENNEDY-WILSON, INC.
as the Company,
and
FBR ASSET INVESTMENT CORPORATION
as the Purchaser
This Registration Rights Agreement (the "Agreement") is made and
entered into as of June 3, 1998, by and between Kennedy-Wilson, Inc., a Delaware
corporation (the "Company"), and FBR Asset Investment Corporation, a Virginia
corporation (the "Purchaser").
This Agreement is made pursuant to the Loan and Warrant Agreement (the
"Loan and Warrant Agreement"), of even date herewith, between the Company and
the Purchaser. In order to induce the Purchaser to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights provided
for in this Agreement to the Purchaser and its respective direct and indirect
transferees. The execution of this Agreement is a condition to the closing of
the transactions contemplated by the Loan and Warrant Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following
meanings:
Affiliate: When used with reference to a specified person, (i) any
person that directly or indirectly controls or is controlled by or is under
common control with the specified person, (ii) any person that is an officer of,
partner in or trustee of, or serves in a similar capacity with respect to, the
specified person or of which the specified person is an officer, partner or
trustee, or with respect to which the specified person serves in a similar
capacity, and (iii) any person that, directly or indirectly, is the beneficial
owner of 5% or more of any class of equity securities of the specified person or
of which the specified person is directly or indirectly the beneficial owner of
5% or more of any class of equity securities.
Agreement: This Registration Rights Agreement, as the same may be
amended, supplemented or modified from time to time in accordance with the terms
hereof.
Business Day: With respect to any act to be performed hereunder, each
Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which
banking institutions in New York, New York or other applicable place where such
act is to occur are authorized or obligated by applicable law, regulation or
executive order to close.
<PAGE> 2
Closing Date: The Closing Date for the issuance of the Promissory Note.
Commission: The Securities and Exchange Commission.
Common Stock: Common stock, $0.01 per value per share, of the Company.
Company: Kennedy-Wilson, Inc., a Delaware corporation, and any
successor corporation thereto.
Controlling Person: As defined in Section 5(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Commission pursuant thereto.
Form S-3. Such form under the Securities Act as is in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the Commission that permits inclusion or incorporation
of substantial information by reference to other documents filed by the Company
with the Commission.
Holder: Each registered holder of any Registrable Shares.
Indemnified Party: As defined in Section 5(a) hereof.
Loan and Warrant Agreement: The Loan and Warrant Agreement is as
defined in the preamble.
Person: An individual, partnership, corporation, trust, unincorporated
organization, government or agency or political subdivision thereof, or any
other legal entity.
Proceeding: An action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or, to the knowledge of the person subject thereto,
threatened.
Prospectus: The prospectus included in any Registration Statement,
including any preliminary prospectus, and all other amendments and supplements
to any such prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference, if any, in
such prospectus.
Purchaser: FBR Asset Investment Corporation.
Registrable Shares: Each of the Shares, upon original issuance thereof,
until (i) the date on which it has been registered effectively pursuant to the
Securities Act and disposed of in accordance with the Registration Statement
relating to it, (ii) the date on which either it is distributed to the public
pursuant to Rule 144 (or any similar provisions then in effect) or is saleable
pursuant to Rule 144(k) promulgated by the Commission pursuant to the Securities
Act or (iii) the date on which it is saleable, without restriction, pursuant to
an available exemption from registration under the Securities Act, or (iv) the
date on which it is sold to the Company.
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Registration Statement: Any registration statement of the Company,
including the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference, if any, in such registration statement.
Rule 144: Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
Rule 144A: Rule 144A promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated by the Commission thereunder.
Shares: The shares of Common Stock being offered and sold pursuant to
the terms and conditions of the Purchase Agreement.
2. Form S-3 Registration
(a) In case the Company shall receive from the Holders of at least
fifty (50) percent of all outstanding Registrable Shares a written request or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Shares owned by such Holders, then the Company will:
(i) Notice. Promptly give written notice of the proposed
registration and the Holders' request therefor, and any related
qualification or compliance, to all other Holders of Registrable
Shares; and
(ii) Registration. As soon as practicable, use its reasonable
best efforts to effect such registration and all such qualifications
and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such
Holders' Registrable Shares as are specified in such request, together
with all or such portion of the Registrable Shares of any other Holders
joining in such request as are specified in a written request given
within twenty (20) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance pursuant to
this Section 2:
(1) if Form S-3 is not available for such offering by
the Holders;
(2) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Shares and such
other securities (if any) at an aggregate price to the public
of less than $100,000;
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(3) if the Company shall furnish to the Holders a
certificate signed by the President or Chief Executive Officer
of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be detrimental to
the Company and its shareholders for such Form S-3
registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form
S-3 registration statement no more than once during any twelve
month period for a period of not more than 120 days after
receipt of the request of the Holders under this Section 2;
(4) in any particular jurisdiction in which the
Company would be required to qualify to do business as a
foreign corporation or to execute a general consent to service
of process in effecting such registration, qualification, or
compliance, unless the Company is already subject to service
or required to be so qualified in such jurisdiction and except
as may be required by the Securities Act; or
(5) if within 14 days after its receipt of a written
request to effect such registration, the Company causes to be
delivered to the Holders an opinion of counsel reasonably
acceptable to the Holders to the effect that the proposed
disposition of Registrable Shares by the Holders will not
require registration or qualification under the Securities
Act, it being specifically understood and agreed that the
Holders will promptly furnish to the Company and such counsel
all information such counsel may reasonably request in order
to enable such counsel to determine whether it would be able
to render such opinion.
(b) Expenses. The Company shall pay all expenses incurred in
connection with each registration requested pursuant to this Section 2,
(excluding underwriters' or brokers' discounts and commissions),
including without limitation all filing, registration and
qualification, printers' and accounting fees, the fees and
disbursements of the Company, and the reasonable fees and disbursements
of one counsel for the selling Holders.
(c) Number. Holders may exercise rights pursuant to this
Section no more than twice.
3. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission that may at any time permit the
sale of the Registrable Shares to the public without registration, during any
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities
to the general public;
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act
and the Exchange Act (at any time after it has become subject to such
reporting requirements); and
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(c) So long as a Holder owns any Registrable Shares, to
furnish to the Holder forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said
Rule 144 and of the Securities Act and the Exchange Act (at any time
during which it is subject to the reporting requirements of the
Exchange Act), a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents of the Company as a
Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such
securities without registration (at any time after the Company has
become subject to the reporting requirements of the Exchange Act).
4. Registration Procedures. In connection with the obligations of the Company
with respect to any registration pursuant to this Agreement, the Company shall
use its reasonable best efforts to effect or cause to be effected the
registration of the Registrable Shares under the Securities Act to permit the
sale of such Registrable Shares by the Holder or Holders in accordance with the
Holders' intended method or methods of distribution, and the Company shall:
(a) prepare and file with the Commission, as specified in this
Agreement, a Registration Statement, which Registration Statement shall
comply as to form in all material respects with the requirements of the
applicable form and include all financial statements required by the
Commission to be filed therewith, and use its reasonable best efforts
to cause such Registration Statement to become effective and remain
effective for the lesser of a period of ninety (90) days or until all
such Registrable Shares are sold in accordance with the intended
distribution of such Shares;
(b) subject to Section 4(i) hereof, prepare and file with the
Commission such amendments and post-effective amendments to each such
Registration Statement as may be necessary to keep such Registration
Statement effective for the applicable period; cause each such
Prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 or any similar
rule that may be adopted under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by each Registration Statement during the applicable
period;
(c) furnish to the Holder of Registrable Shares, without
charge, as many copies of each Prospectus, including each preliminary
Prospectus, and any amendment or supplement thereto and such other
documents as such Holder may reasonably request, in order to facilitate
the public sale or other disposition of the Registrable Shares; the
Company consents to the use of any such Prospectus, including each
preliminary Prospectus, by the Holder of Registrable Shares, if any, in
connection with the offering and sale of the Registrable Shares covered
by any such Prospectus;
(d) use its reasonable best efforts to register or qualify, or
obtain exemption for registration or qualification for, all Registrable
Shares by the time the applicable Registration Statement is declared
effective by the Commission under all applicable state securities or
"blue sky" laws of such jurisdictions as the Holder of Registrable
Shares covered by a Registration Statement shall reasonably request in
writing, keep each such registration or qualification or
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exemption effective during the period such Registration Statement is
required to be kept effective and do any and all other acts and things
that may be reasonably necessary or advisable to enable such Holder to
consummate the disposition in each such jurisdiction of such
Registrable Shares owned by such Holder; provided, however, that the
Company shall not be required to (i) qualify generally to do business
in any jurisdiction or to register as a broker or dealer in such
jurisdiction where it would not otherwise be required to qualify but
for this Section 4(d), (ii) subject itself to taxation in any such
jurisdiction, or (iii) submit to the general service of process in any
such jurisdiction; provided, further, that if the Company fails to list
the Registrable Shares on a national stock exchange or qualify for
quotation on an automatic quotation system at or prior to the time the
Registration Statement is declared effective by the Commission because
it fails to meet requirements for such listing or quotation regarding
the number of holders of its shares, the obligation in this Section
4(d) shall not require the Company to register or qualify the
Registrable Shares in any jurisdiction where the Company reasonably
concludes, based upon the advice of securities counsel, that such
registration or qualification would require unreasonable effort
(including, without limitation, amendments to the Company's Articles of
Incorporation or Bylaws) or expense;
(e) notify the Holder of Registrable Shares promptly and, if
requested by such Holder, confirm such advice in writing (i) when a
Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of the
issuance by the Commission or any state securities authority of any
stop order suspending the effectiveness of a Registration Statement or
the initiation of any proceedings for that purpose, and (iii) (x) the
fact that or (y) the happening of, any event during the period a
Registration Statement is effective as a result of which such
Registration Statement or the related Prospectus contains any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (iv) at the request of any such Holder,
promptly to furnish to such Holder a reasonable number of copies of a
supplement to or an amendment of such Prospectus as may be necessary so
that, as thereafter delivered to the purchaser of such securities, such
Prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(f) upon request by the Holder, furnish to the Holder of
Registrable Shares copies of any request by the Commission or any state
securities authority of amendments or supplements to a Registration
Statement and Prospectus or for additional information;
(g) make every reasonable best effort to avoid the issuance
of, or if issued to obtain the withdrawal of, any enjoining order
suspending the use or effectiveness of a Registration Statement or the
lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Shares for sale in any
jurisdiction, at the earliest possible moment;
(h) upon request furnish to the Holder of Registrable Shares,
without charge, at least one conformed copy of each Registration
Statement and any post-effective amendment thereto (without documents
incorporated therein by reference or exhibits thereto, unless
requested);
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(i) upon the occurrence of any event contemplated by Section
4(e)(iii) hereof, use its reasonable best efforts to prepare a
supplement or post-effective amendment to a Registration Statement or
the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Shares, such Prospectus
will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(j) if requested by any Holders of Registrable Shares being
sold in connection with such offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as
such Holders indicate relates to them or otherwise reasonably request
be included therein, and (ii) make all required filings of such
prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters
to be incorporated in such prospectus supplement or post-effective
amendment; provided, however, that the Company shall not be required to
take any action pursuant to this Section 4 that would or would likely,
in the opinion of counsel for the Company, violate applicable law;
(k) make available to inspection by representatives of the
Holder of the Registrable Shares participating in any disposition
pursuant to a Registration Statement and any special counsel or
accountant retained by such Holders, all financial and other records,
pertinent corporate documents and properties of the Company and cause
the respective officers, directors and employees of the Company to
supply all information reasonably requested by any such
representatives, the representative of the underwriters, the special
counsel or accountants in connection with a Registration Statement;
provided, however, that such records, documents or information that the
Company determines, in good faith, to be confidential and notifies such
representatives, special counsel or accountants are confidential shall
not be disclosed by the representatives, representative of the
underwriters, special counsel or accountants unless (i) the disclosure
of such records, documents or information is necessary to avoid or
correct a misstatement or omission in a Registration Statement, (ii)
the release of such records, documents or information is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction, or (iii) such records, documents or information have been
generally made available to the public;
(l) use its reasonable best efforts (including, without
limitation, seeking to cure any deficiencies (within the Company's
control) cited by the exchange or market in the Company's listing
application) to list all Registrable Shares on the primary exchange on
which the Company's Common Stock is then listed;
(m) provide a CUSIP number for all Registrable Shares, not
later than the effective date of the Registration Statement;
(n) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission and make
generally available to its securityholders, as soon as reasonably
practicable, earnings statements covering at least 12 months that
satisfy the
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provisions of Section 1l(a) of the Securities Act and Rule 158 (or any
similar rule promulgated under the Securities Act) thereunder;
(o) provide and cause to be maintained a transfer agent for
all Registrable Shares covered by any Registration Statement from and
after a date not later than the effective date of such Registration
Statement; and
(p) in connection with any sale or transfer of the Registrable
Shares that will result in such securities no longer being the
Registrable Shares, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing the Registrable
Shares to be sold, which certificates shall, subject to applicable laws
and regulations not bear any restrictive legends and to enable such
Registrable Shares to be in such denominations and registered in such
names as the representative of the underwriters, if any, or Holders may
request at least two Business Days prior to any sale of the Registrable
Shares.
(q) The Company may require the Holder of Registrable Shares
to furnish to the Company such information regarding the proposed
distribution by such Holder of such Registrable Shares as the Company
may from time to time reasonably request in writing or as shall be
required to effect the registration of their Registrable Shares.
(r) The Holder agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in
Section 4(e)(ii) or (iii) hereof, such Holder will immediately
discontinue disposition of Registrable Shares pursuant to a
Registration Statement until notice from the Company (in the case of an
event described in Section 4(e)(ii) hereof) or such Holder's receipt of
the copies of the supplemented or amended Prospectus (in the case of an
event described in Section 4(e)(iii)). If so directed by the Company,
such Holder will deliver to the Company (at the expense of the Company)
all copies in its possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable
Shares current at the time of receipt of such notice.
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5. Black-Out Period.
(a) Following the effectiveness of a Registration Statement (and the
filings with any state securities commissions), the Company may direct the
Holder to suspend sales of the Registrable Shares for such times as the Company
reasonably may determine is necessary and advisable, including the following
events: (i) an underwritten offering by the Company where the Company is advised
by the representative of underwriters for such Underwritten Offering that sale
of Registrable Shares under the Registration Statement would have a material
adverse effect on the primary offering, or (ii) pending negotiations relating
to, or consummation of, a transaction or the occurrence of an event (x) that
would require additional disclosure of material information by the Company in
the Registration Statement (or such filings), (y) as to which the Company has a
bona fide business purpose for preserving confidentiality, or (z) that renders
the Company unable to comply with Commission requirements, in each case under
circumstances that would make it impractical or inadvisable to cause the
Registration Statement (or such filings) to become effective or to promptly
amend or supplement the Registration Statement on a post-effective basis, as
applicable.
(b) In the case of an event that causes the Commission, any applicable
state securities authority or the Company to suspend the effectiveness of a
Registration Statement (a "Suspension Event"), the Company may give notice (a
"Suspension Notice") to the Holders to suspend sales of the Registrable Shares
so that the Company may correct or update the Registration Statement (or such
filings); provided, however, that such suspension shall continue only for so
long as the Suspension Event or its effect is continuing. The Holders shall not
effect any sales of the Registrable Shares pursuant to such Registration
Statement (or such filings) at any time after it has received a Suspension
Notice from the Company. If so directed by the Company, the Holders will deliver
to the Company all copies of the Prospectus covering the Registrable Shares held
by them at file time of receipt of the Suspension Notice. The Holders may
recommence effecting sales of the Registrable Shares pursuant to the
Registration Statement (or such filings) following further notice to such effect
(an "End of Suspension Notice") from the Company, which End of Suspension Notice
shall be given by the Company promptly following the conclusion of any
Suspension Event.
(c) Notwithstanding Section 4(a) hereof, if the Company shall give a
Suspension Notice pursuant to this Section 5, the Company agrees it shall extend
the period during which the Registration Statement shall be maintained effective
pursuant to this Agreement by the number of days during the period from the date
of the giving of the Suspension Notice to and including the date when the
Holders shall have received the End of Suspension Notice and copies of the
supplemented or amended Prospectus necessary to resume sales.
6. Indemnification Contribution
(a) Indemnification by the Company. The Company agrees to indemnify,
defend and hold harmless (i) the Purchaser, (ii) each Holder of the Registrable
Shares, (iii) each person, if any, who controls (within the meaning of the
Securities Act or the Exchange Act) any of the foregoing (any of the persons
referred to in this clause (iii) being hereinafter referred to as a "Controlling
Person"), and (iv) the respective officers, directors, partners, employees,
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representatives and agents of the Purchaser, each Holder of the Registrable
Shares, or any Controlling Person (any person referred to in clause (i), (ii),
(iii) or (iv) may hereinafter be referred to as an "Indemnified Party") from and
against any loss, expense, liability, damage or claim (including the reasonable
cost of investigation) which, jointly or severally, any Indemnified Party may
incur under the Securities Act, the Exchange Act or otherwise, insofar as such
loss, expense, liability, damage or claim arises out of or is based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) or in a Prospectus (or any
amendment thereto) pursuant to which Registrable Shares were registered under
the Securities Act including all documents incorporated therein by reference, or
arises out of or is based upon any omission or alleged omission to state a
material fact required to be stated in such Registration Statement or Prospectus
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that such indemnity
with respect to any Prospectus shall not inure to the benefit of any Indemnified
Party to the extent that any such loss, claim, liability, damage or expense
arises out of the failure of any Indemnified Party or its officers, directors,
partners, employees, representatives or agents or any Controlling Person thereof
to send or give a copy of the final Prospectus, as the same may be then
supplemented or amended, to the person asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Shares to such person if such statement
or omission was corrected in such final Prospectus; and provided, further, that
such indemnity agreement does not apply to any Indemnified Party with respect to
any loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Holder or such Holder's directors, officers, partners, employees,
representatives and agents or any Controlling Person thereof expressly for use
in a Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto).
(b) Indemnification by Holders. Each Holder severally agrees to
indemnify and hold harmless the Company, each of its directors and officers
(including each officer of the Company who signed the Registration Statement),
partners, employees, representatives and agents, each Controlling Person of the
Company, any underwriter and any Holder selling securities under such
Registration Statement or any of such other Holder's partners, directors,
officers or Controlling Persons, against any and all loss, liability, claim,
damage and expenses described in the indemnity contained in Section 8(a) hereof,
as incurred, but only with respect to such untrue statement or omission, or
alleged untrue statements or omissions, made in a Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by the Holder expressly for use in such Registration Statement (or any
amendment thereto) or such Prospectus (or any amendment or supplement thereto).
(c) Conduct of Indemnification Proceedings. Each Indemnified Party
shall give reasonably prompt notice to each indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve it
from any liability that it may have under this indemnity agreement except to the
extent that the indemnifying party is actually prejudiced by such failure to
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give notice. If the indemnifying party so elects within a reasonable time after
receipt of such notice, the indemnifying party may assume the defense of such
action or proceeding at such indemnifying party's own expense with counsel
chosen by the indemnifying party and approved by the Indemnified Party or
parties in such action or proceeding, which approval shall not be unreasonably
withheld; provided, however, that if such Indemnified Party or parties
reasonably determines that a conflict of interest exists where it is advisable
for such Indemnified Party or parties to be represented by separate counsel or
that, upon advice of counsel, there may be legal defenses available to them that
are different from or in addition to those available to the indemnifying party,
then the indemnifying party shall not be entitled to assume such defense and the
Indemnified Party or parties shall be entitled to one separate counsel at the
indemnifying party's expense. If an indemnifying party is not entitled to assume
the defense of such action or proceeding as a result of the proviso to the
preceding sentence, such indemnifying party's counsel shall be entitled to
conduct such indemnifying party's defense, and counsel for the Indemnified Party
or parties shall be entitled to conduct the defense of such Indemnified Party or
parties, it being understood that both such counsel will cooperate with each
other to conduct the defense of such action or proceeding as efficiently as
possible. If an indemnifying party is not so entitled to assume the defense of
such action or does not assume such defense, after having received the notice
referred to in the first sentence of this paragraph, the indemnifying party or
parties will pay the reasonable fees and expenses counsel for the Indemnified
Party or parties. In such event, however, no indemnifying party will be liable
for any settlement effected without the written consent of such indemnifying
party. No indemnifying party shall, without the consent of the Indemnified
Party, consent to entry of any judgment or enter into a settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. If an indemnifying party is entitled to assume, and
assumes, the defense of such action or proceeding in accordance with this
paragraph, such indemnifying party shall not be liable for any fees and expenses
for counsel for the Indemnified Parties incurred thereafter in connection with
such action or proceeding.
(d) Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 6 is for any reason held to be unenforceable, unavailable or
insufficient although applicable in accordance with its terms, the Company and
Holder shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
the Company and the Holder in such proportion that the percentage of the
Holder's total contribution under this Section 6(d) shall correspond to the
percentage that the public offering price of the Holder's Registrable Shares
offered by and sold under the Registration Statement bears to the public
offering price of all securities offered by and sold under such Registration
Statement. Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 6 each Controlling
Person of a Holder, if any, shall have the same rights to contribution as such
Holder, and each director of the Company, each officer of the Company who signed
the Registration Statement and each Controlling Person of the Company, if any,
shall have the same rights to contribution as the Company. Each party entitled
to contribution agrees that upon the service of a summons or other initial legal
process upon it in any action instituted against it in respect of
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which contribution may be sought, it shall promptly give written notice of such
service to the party or parties from whom contribution may be sought, but the
omission so to notify such party or parties of any such service shall not
relieve the party from whom contribution may be sought from any obligation it
may have hereunder or otherwise.
(e) Survival. The obligations of the Company and the Holders under this
Section 6 shall survive the completion of any offering of Registrable Shares in
a Registration Statement and otherwise.
7. Termination of the Company's Obligations. The Company shall have no
obligations pursuant to this Agreement with respect to: (a) any request or
requests for registration made by any Holder on a date more than two (2) years
after the issuance of the Warrant; or (b) any Registrable Shares proposed to be
sold by a Holder in a registration pursuant to this Agreement if, in the opinion
of counsel to the Company, all such Registrable Shares proposed to be sold by a
Holder may be sold in a three-month period without registration under the
Securities Act pursuant to Rule 144 under the Securities Act.
8. Miscellaneous
(a) Remedies. In the event of a breach by the Company, or by a Holder
of the Registrable Shares, of any of their obligations under this Agreement,
each Holder of the Registrable Shares of the Company, in addition to being
entitled to exercise all rights granted by law, including recovery and damages,
will be entitled to seek specific performance of its rights under this
Agreement; provided, however, that no Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, except if the written consent of the Holders of a majority in aggregate
principal amount of the then outstanding Registrable Shares is obtained;
provided, however, that for the purposes of this Agreement, Registrable Shares
that are owned, directly or indirectly, by either the Company or an Affiliate of
the Company are not deemed outstanding. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with, respect to a matter that
relates exclusively to the rights of Holders of the Registrable Shares whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect the rights of other Holders of the Registrable
Shares may be given by Holders of a majority of the Registrable Shares being
sold by such Holders pursuant to such Registration Statement; provided, however,
that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
(c) Notices. All notices and other communications provided for herein
shall be made in writing by hand-delivery, next-day air courier, certified
first-class mail, return receipt requested, telex or telecopy;
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<PAGE> 13
(i) if to the Company, to 530 Wilshire Blvd., #101, Santa
Monica, California 90401, ATTN: Freeman Lyle;
(ii) if to the Purchaser, to 1001 Nineteenth Street, North,
Arlington, VA 22209, ATTN: Eric F. Billings;
(iii) if to any other person who is then the Holder of any
Registrable Shares, to the address of such Holder as it appears in the
Common Stock register of the Company.
Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given (v) when delivered by hand, if
personally delivered, (w) one Business Day after being timely delivered to a
next-day air courier, (x) five Business Days after being deposited in the mail,
postage prepaid, if mailed, (y) when answered back, if telexed, or (z) when
receipt is acknowledged by the recipient's telecopier machine or otherwise, if
telecopied.
(d) Successors and Assigns. Notwithstanding anything herein to the
contrary, the registration rights of a Holder under Section 2 hereof will be
assigned to any party who acquires Registrable Shares from such Holder;
provided, however, that any such assignee shall receive such assigned rights
subject to all the terms and conditions of this Agreement, including without
limitation the provisions of this Section 8(d).
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original, and all of which taken
together shall constitute one and the same Agreement.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, as applied to contracts made
and performed within the State of New York without regard to principles of
conflicts of law.
(g) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the terms of this
Agreement. All references made in this Agreement to "Section" refer to such
Section of this Agreement, unless expressly stated otherwise.
(i) Costs and Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the
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<PAGE> 14
prevailing party, as determined by the court, shall be entitled to recover its
reasonable costs and attorneys' fees in addition to any other available remedy.
(j) Adjustment for Stock Splits, etc. Wherever in this Agreement there
is a reference to a specific number of shares, then upon the occurrence of any
subdivision, combination, or stock dividend of such shares, the specific number
of shares so referenced in this Agreement shall automatically be proportionally
adjusted to reflect the effect on the outstanding shares of such class or series
of stock by such subdivision, combination, or stock dividend.
(k) Aggregation of Stock. All shares held or acquired by affiliated
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
SIGNATURE PAGE FOLLOWS
14
<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Registration
Rights Agreement to be duly executed as of the date first written above.
THE COMPANY: KENNEDY-WILSON, INC.
By: /s/ Richard Mandell
---------------------------------------
Name: Richard Mandell
-------------------------------
Title: Managing Director
-------------------------------
THE PURCHASER: FBR ASSET INVESTMENT CORPORATION
By: /s/ William R. Swanson
---------------------------------------
Name: William R. Swanson
-------------------------------
Title: Chief Operating Officer
-------------------------------
15
<PAGE> 1
================================================================================
KENNEDY-WILSON INC.
----------------------------
LOAN AND WARRANT AGREEMENT
----------------------------
June 3, 1998
================================================================================
<PAGE> 2
LOAN AND WARRANT AGREEMENT
This agreement is entered into this 3rd day of June, 1998, by and
between Kennedy-Wilson, Inc., a Delaware corporation (the "Company"), and FBR
Asset Investment Corporation, a Virginia corporation (the "Investor"), and the
parties hereto agree to the following:
1. Capitalization and Warrant.
The Company proposes to issue and sell (i) a promissory note bearing
interest at 12% per annum and in the aggregate principal amount of up to
$10,000,000 (the "Promissory Note"), and (ii) a warrant (the "Warrant") to
purchase shares of common stock of the Company, par value $0.01 per share (the
"Common Stock").
2. Promissory Note, Warrant and Stock Purchase Right.
Subject to the terms and conditions of this agreement (the "Agreement")
and in reliance upon the representations and warranties contained herein, the
Company agrees to issue and sell to the Investor and the Investor agrees to
purchase on the date hereof the Promissory Note and for the Warrant.
2.1. Promissory Note. The Promissory Note shall bear interest at the
rate of 12% per annum payable monthly on the last day of each month beginning in
July 1998 on the daily outstanding principal of the Promissory Note. Interest
shall be calculated on the basis of actual days and a year of 365 days. The
Investor will advance same-day funds to the Company in an aggregate amount up to
$10,000,000 from time to time on the fourth business day following receipt by
the Investor of a written request for an advance. Advances will be made in
increments of $100,000. All outstanding principal and interest accrued and
unpaid shall be due and payable at the close of business on the first to occur
of (i) consummation after the date hereof of an underwritten public offering of
shares of Common Stock ("a Public Offering") and (ii) December 3, 1998. The
Promissory Note may be prepaid in whole at any time by the Company without
penalty and shall be in the form attached hereto as Exhibit A. If any date set
for payment is not a business day, payment shall be made on and interest shall
accrue until the next business day.
2.2. The Warrant. If the Promissory Note is issued as contemplated
hereby and the Investor has made all required advances under the Promissory
Note, on the business day following the earlier of (i) date the Promissory Note
is due or (ii) the consummation of a Public Offering of the Company's Common
Stock, the Company will, subject to applicable laws and regulations, execute and
deliver to the Investor a warrant to purchase shares of Common Stock in the form
attached hereto as Exhibit B. The number of shares of Common Stock covered by
the Warrant shall be the following percentages of the Common Stock outstanding
on a fully diluted basis on the date the Warrant is issued (without giving
effect to the issuance of the Warrant):
<PAGE> 3
<TABLE>
<CAPTION>
If the Warrant Issue Date Occurs Percentage of Shares Outstanding
-------------------------------- --------------------------------
<S> <C>
On or before September 3, 1998 0.50%
After September 3, 1998 and before 1.00%
December 4, 1998
After December 4, 1998 2.00%
</TABLE>
The per share purchase price to be paid on the exercise of the Warrants shall be
determined as follows: (a) if the Company consummates a Public Offering on or
before December 3, 1998, the per share purchase price shall be the offering
price per share of Common Stock in the Public Offering; and (b) if a Public
Offering does not occur before December 4, 1998, the per share purchase price
shall be the average of the closing prices for a share of Common Stock on NASDAQ
for the twenty business days preceding December 4, 1998.
The Warrants issued shall expire on the fifth anniversary of the date
the Warrants are issued.
2.3. Stock Purchase Right. Subject to all applicable laws and
regulations, if the Company consummates a Public Offering on or before December
3, 1998, the Investor shall have the option to purchase at the time of the
closing of the Public Offering registered shares of Common Stock at a per share
price equal to the per share public offering price, less the underwriting
discount. The number of shares of Common Stock as to which the Investor may
exercise this option is up to the number of Shares that could be acquired for
$10,000,000.
3. Closing.
3.1. Closing Date. The sale and purchase of the Promissory Note to be
issued and sold pursuant to this agreement (the "Closing") shall take place on
the date hereof or such other date as the parties shall mutually agree (the
"Closing Date").
3.2. Transactions at Closings. At the Closing, the Company will deliver
to the Investor the Promissory Note in the form attached hereto as Exhibit A,
duly registered in such name as the Investor shall have specified in writing to
the Company before the Closing Date, against the payment of the initial advance,
by wire transfer to the Company in accordance with instructions provided by the
Company.
If the Closing shall not have occurred prior to June 15, 1998, because
any of the conditions specified in Section 5 shall not have been fulfilled to
the Investor's reasonable satisfaction or for any other reason, the Investor
shall, at its election, be relieved of all obligations under this Agreement.
4. Representations and Warranties of the Company. The Company
represents and warrants that:
4.1. Organization, Standing, Capitalization, etc. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all
2
<PAGE> 4
requisite corporate power and authority to own and operate the properties and to
carry on the business described in the Company's Report on Form 10-K for the
year ended December 31, 1997 ("Form 10-K), and to enter into this Agreement.
Attached hereto as Schedule 4.1A is a complete and correct copy of the Articles
of Incorporation of the Company, and all amendments thereto, substantially as
the Articles of Incorporation, as amended, will be in effect at the Closing
Date, and attached hereto as Schedule 4.1B is a complete and correct copy of the
Bylaws of the Company as they will be in effect at the Closing Date. The Company
has authorized capital stock as set forth on Schedule 4.1C. All of the
outstanding shares of capital stock of the Company (as listed in Schedule 4.1C)
have been duly authorized and validly issued and are fully paid and
nonassessable.
4.2. Qualification. The Company and each of its subsidiaries is duly
qualified and in good standing as a foreign corporation authorized to transact
business in each jurisdiction where the conduct of its business or the ownership
of its properties requires such qualification, or, if not so qualified, the
failure so to qualify will not have a material adverse effect on the its
financial condition or results of operations of the Company and its subsidiaries
taken as a whole (a "Material Adverse Effect") and will not impair the right of
the Company or the applicable subsidiary to enforce any material agreement to
which it is a party.
4.3. Financial Statements; Use of Proceeds. The Company has furnished
to the Investor the following financial statements:
(a) balance sheets of the Company and its consolidated
subsidiaries as of December 31, 1997 and 1996, and statements of income
and statements of income and cash flows of the Company and its
consolidated subsidiaries for the years ended December 31, 1997 and
1996, with all appropriate footnotes, audited by the Company's
certified public accountants; and
(b) balance sheets of the Company and its consolidated
subsidiaries as of March 31, 1998 and 1997, and statements of income
and statements of income and cash flows of the Company and its
consolidated subsidiaries for the three-month periods ended March 31,
1998 and 1998, with all appropriate footnotes, certified by the
President and the chief financial officer of the Company.
Such balance sheets of the Company fairly present the condition of the Company
and its consolidated subsidiaries as at the respective dates indicated, and in
each case reflect all liabilities, contingent or other, as at the respective
dates indicated. All such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied.
Attached hereto as Schedule 4.3 is a detailed statement of the
purposes, including dollar amounts, to which the Company proposes to apply the
proceeds of the sale of the Promissory Note to be issued and sold at the
Closing.
Neither the Company nor any subsidiary of the Company has any
indebtedness for borrowed money except (i) indebtedness in an aggregate amount
not in excess of $500,000 as to which there is no recourse to the Company, (ii)
non-recourse indebtedness incurred in connection with the acquisition of assets
in the ordinary course of business, (iii) indebtedness in the amount of
3
<PAGE> 5
$11.9 million under the loan agreement dated as of March 12,1996, as amended,
between the Company and East-West Bank, a California banking corporation and
(iv) a credit line loan to a subsidiary and guaranteed by the Company in the
outstanding amount of $7,400,000 from Hawthorne Savings Bank.
4.4. Changes, etc. Except as listed in Schedule 4.4, since December 31,
1997, there has been no material adverse change in the business or financial
condition of the Company and its consolidated subsidiaries.
4.5. Authorization; No Conflicts. All corporate action on the part of
the Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance by the Company of this Agreement and the
consummation of the transactions contemplated herein and therein, and for the
authorization, offer, issuance, sale and delivery of the Promissory Note has
been taken. This Agreement is the valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to applicable bankruptcy and
other laws affecting the rights of creditors generally, and rules of law
governing specific performance, injunctive relief or other equitable remedies.
The execution, delivery and performance by the Company of this Agreement and
compliance herewith, and the offer, issuance, sale and delivery of the
Promissory Note will not result in any violation of and will not conflict with,
or result in a breach of any of the terms of, or constitute a default under, any
provision of federal or state law to which the Company or any of its
subsidiaries is subject, the Company's Articles of Incorporation, the Company's
Bylaws or any mortgage, indenture, agreement, instrument, judgment, decree,
order, rule or regulation or other restriction to which the Company or any of
its subsidiaries is a party or by which it is bound or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or any of its subsidiaries pursuant to any such term.
4.6. Authorization and Legality of the Promissory Note and the Warrant.
The issuance and sale of the Promissory Note and the Warrant and the Common
Stock to be issued upon exercise of the Warrant to the Investor pursuant to this
Agreement have been duly authorized by the Board of Directors of the Company. No
stockholder of the Company has any preemptive rights or rights of first refusal
by reason of the issuance of the Warrant or the issuance of Common Stock upon
exercise of the Warrant which rights have not been duly waived. No further
approval or authorization of the Board of Directors or the shareholders of the
Company will be required for the issuance and sale of the Promissory Note, the
Warrant or the Common Stock to be issued upon exercise of the Warrant as
contemplated herein. The Common Stock to be issued upon the exercise of the
Warrant will be, at the time of issuance in accordance with the terms of the
Warrant, validly issued and outstanding and fully paid and nonassessable. The
shares issuable upon exercise of the Warrant have been reserved for issuance by
all necessary corporate action on behalf of the Company.
4.7. The Offering. Neither the Company nor anyone acting on its behalf
has directly or indirectly offered the Promissory Note or the Warrant to be sold
to the Investor, any part thereof, or any similar security of the Company, for
sale to, or solicited any offer to buy the same from, anyone other than the
Investor and other investors to whom such offers can be made without requiring
the registration of the Promissory Note or the Warrant under the Securities Act
of 1933, as amended (the "Act") or state securities laws.
4
<PAGE> 6
4.8. Options, Warrants, etc. No option, warrant or other right for the
purchase of any shares of capital stock of the Company or any of its
subsidiaries is presently outstanding and no authorization therefor is presently
in effect, except as described in the Form 10-K or in Schedule 4.8.
4.9. Governmental Approval. Except as described in Schedule 4.9, no
consent, approval or authorization of or qualification, designation, declaration
or filing with any governmental authority on the part of the Company or any of
its subsidiaries is required in connection with the execution, delivery and
performance by the Company of this Agreement or the offer, issue, sale and
delivery of the Promissory Note or the Warrant pursuant hereto or the
consummation of any other transactions contemplated hereby.
4.10. Patents, Trademarks, etc. The Company or a subsidiary of the
Company owns or possesses the patents, copyrights, trade secrets, licenses,
trademarks, service marks, trade names, logos, applications and registrations
therefor necessary for the conduct of the business of the Company and its
subsidiaries.
4.11. Title to Properties; Liens. Except as described in Schedule 4.11,
the Company or a subsidiary of the Company has good and marketable title to all
of its properties and assets, including all properties and assets reflected in
the Balance Sheet, subject only to liens securing indebtedness reflected on the
Balance Sheet and other liens that do not adversely affect the value of the
properties and assets. Neither the Company nor any subsidiary is in violation of
any law, regulation or ordinance (including laws, regulations or ordinances
relating to building, zoning, environmental, city planning, land use or similar
matters) relating to its property or assets which violation would have a
Material Adverse Effect. All personal property and assets material to the
business, operations or financial condition of the Company and its subsidiaries,
and all buildings, structures and fixtures used by any of them in the conduct of
their business, are in good operating condition and repair.
4.12. Litigation, etc. Except as described in Schedule 4.12, there is
no action, proceeding or investigation pending or, to the knowledge of the
Company, threatened (or any basis therefor known to the Company), that questions
the validity of this Agreement, the Promissory Note, the Warrant or the Common
Stock to be issued upon exercise of the Warrant or any action taken or to be
taken pursuant hereto or contemplated hereby, or that might result, either in
any case or in the aggregate, in any material adverse change in the business,
prospects, operations, affairs or condition of the Company and its subsidiaries
taken as a whole, or in any material liability on the part of the Company and
its subsidiaries taken as a whole. The foregoing includes, without limiting its
generality, actions pending or threatened (or any basis therefor known to the
Company) involving the previous employment of any employees or prospective
employees or their use in connection with the business of the Company and its
subsidiaries of any information or techniques allegedly proprietary to their
former employer(s).
4.13. Compliance with other Instruments, etc. The Company nor any
subsidiary is, and at the Closing will be, in violation of any provision of its
articles of incorporation or bylaws, or of any loan agreement or other material
agreement to which it is a party. Neither the Company nor any subsidiary is, and
at the Closing will be, in violation of any instrument, judgment, decree,
5
<PAGE> 7
order, statute, rule or governmental regulation applicable to it, including
without limitation, federal or state securities laws, zoning laws and
ordinances, federal labor laws and regulations, the federal Occupational Safety
and Health Act and regulations thereunder, the federal Employees Retirement
Income Security Act, and federal, state and local environmental protection laws
and regulations, the violation of which might have a Material Adverse Effect.
4.14. Tax Returns and Payments. All of the tax returns and reports of
the Company and its subsidiaries required by law to be filed have been
accurately prepared and timely filed and all taxes shown as due thereon have
been paid or adequately reserved on the Company's books and reflected on the
Balance Sheet. The federal income tax returns of the Company have been audited
by the Internal Revenue Service for the period through December 31, 1993, and
there are in effect no waivers by the Company (or on behalf of any consolidated
group that includes the Company) of the applicable statutes of limitations for
federal taxes for any period. No deficiency assessment or proposed adjustment of
the federal, state or municipal income taxes of the Company or any of its
subsidiaries is pending and the Company has no knowledge of any proposed
liability for any tax to be imposed upon its properties or assets for which
there is not an adequate reserve reflected in the Balance Sheet.
4.15. Disclosure. None of (a) the Form 10-K, (b) the Company's Report
on Form 10-Q for the quarter ended March 31, 1998, (c) this Agreement and any
Schedule hereto or (d) any certificate or other document referenced herein or
therein and furnished to the Investor by the Company contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein or herein, in light of the
circumstances under which they were made, not misleading. There is no material
fact known to the Company relating to the business, affairs, operations,
condition or prospects of the Company that materially adversely affects the same
and that has not been disclosed to the Investor in writing by the Company.
4.16. Brokers, Intermediaries and Finder's Fees. The Company (i)
represents that no finder, broker, agent, financial adviser or other
intermediary has acted on behalf of the Company in connection with the offering
of the Promissory Note and the Warrant to be issued and sold pursuant to this
Agreement or the negotiation or consummation of this Agreement or any of the
transactions contemplated hereby, and (ii) hereby agrees to indemnify and to
hold the Investor harmless of and from any liability for commission or
compensation in the nature of a finder's fee to any broker or other person or
firm and the costs and expenses of defending against such liability or asserted
liability, for which the Company, or any of its employees or representatives,
are responsible.
4.17. Insurance. The Company and its subsidiaries have commercial
general liability insurance, products liability insurance and workers'
compensation insurance in such amounts as are commercially reasonable for
businesses of a similar type and size as the Company or the applicable
subsidiary. The Company and each subsidiary have fire and casualty insurance
policies with extended coverage sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed.
6
<PAGE> 8
5. Conditions of Purchaser's Obligations.
The Investor's obligation to purchase and pay for the Promissory Note
to be delivered to the Investor at Closing is subject to the fulfillment to the
Investor's reasonable satisfaction, before or at the Closing, of all of the
following conditions:
5.1. Representations and Warranties Correct. The representations and
warranties of the Company made or contained herein shall be correct in all
material respects at and as of the relevant Closing Date as if made on and as of
the Closing Date, except as affected by the transactions contemplated hereby.
5.2. Performance. The Company shall have performed and complied with
all agreements and conditions contained herein required to be performed or
complied with by it before or at the Closing.
5.3. Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be satisfactory in
substance and form to the Investor and the Investor's counsel, and the Investor
or the Investor's counsel shall have received all such counterpart originals or
certified or other copies of such documents as the Investor or they may
reasonably request.
5.4. Compliance Certificate. The Investor shall have received an
Officer's Certificate, dated as of the Closing Date, certifying that the
conditions specified in Sections 5.1 and 5.2, applicable to the Closing, have
been fulfilled.
5.5. Opinion of Company Counsel. The Investor shall have received from
White & Case, counsel for the Company, a favorable opinion, dated as of the
Closing Date and satisfactory in scope and form to the Investor and the
Investor's counsel, in substantially the form attached hereto as Exhibit C. Such
opinion shall also cover such other matters incident to the transactions
contemplated hereby as the Investor or its counsel may reasonably request.
6. Accounting; Financial Statements and Other Information.
6.1. Accounting. The Company will maintain a system of accounting
established and administered in accordance with generally accepted accounting
principles consistently followed, and will set aside on its books all such
proper reserves as shall be required by generally accepted accounting
principles.
6.2. Financial Statements. For so long as the Investor holds the
Promissory Note, the Company will deliver to the Investor.
(a) within 45 days after the end of each of the first two
quarterly fiscal periods in each fiscal year of the Company, (i) a
consolidated balance sheet of the Company and its consolidated
subsidiaries as at the end of such period and consolidated statements
of income and of income and cash flows of the Company and its
consolidated subsidiaries for each period and, in the case of the
second and third quarterly periods, for the period from
7
<PAGE> 9
the beginning of the then current fiscal year to the end of such
quarterly period, setting forth in each case in comparative form the
figures for the corresponding period of the previous fiscal year, all
in reasonable detail and certified, subject to changes resulting from
normal year-end audit adjustments, by the President and chief financial
officer of the Company and (ii) a certificate of the President or chief
financial officer stating that the Company is in compliance with the
covenants set forth in Section 7 herein;
(b) promptly upon the filing thereof, all reports and
statements, if any, filed by the Company with the Securities and
Exchange Commission (or any governmental authority succeeding to any of
its functions) (the "Commission") or with any securities exchange; and
(c) with reasonable promptness, such other information and
data with respect to the Company and its consolidated subsidiaries as
from time to time may be reasonably requested.
7. Other Covenants. The Company further covenants and agrees that, so
long as the Promissory Note is outstanding:
(a) The Company shall and shall cause each of its subsidiaries
(as applicable) to:
(1) promptly make all payments or accruals of
interest on the Promissory Note when due, and comply with the
other provisions hereof and the provisions of the Promissory
Note and the Warrant;
(2) comply with all applicable federal, state and
local laws, ordinances and regulations unless such failure to
comply will not have a Material Adverse Effect;
(3) conduct its business in the usual and ordinary
course except as set forth in Schedule 7(a)(3);
(4) maintain its corporate existence and right to
carry on its business and duly procure all necessary renewals
and extensions thereof and use, its best efforts to maintain,
preserve and renew all such rights, powers, privileges and
franchises; provided, however, that nothing herein contained
shall be construed to prevent the Company or its subsidiaries
from ceasing or omitting to exercise any rights, powers,
privileges or franchises that in the judgment of their
respective Boards of Directors can no longer be exercised in
its best interests;
(5) keep and maintain all buildings, plants and other
property in such good condition, repair, and working order and
supplied with all such necessary equipment as in the judgment
of its Board of Directors may be necessary, so that the
business carried on in connection therewith may be properly
and advantageously conducted at all times; provided, however,
that nothing in this paragraph (5) shall prevent the Company
or its subsidiaries from selling,
8
<PAGE> 10
abandoning or otherwise disposing of any building, plant or
property whenever in the opinion of their respective Boards of
Directors the retention thereof is inadvisable or not
necessary to its business;
(6) pay and discharge promptly, or cause to be paid
and discharged promptly, all taxes, assessments and
governmental charges or levies imposed upon it or upon its
income or upon any part thereof, as well as all claims of any
kind (including claims for labor, materials and supplies)
that, if unpaid, might by law become a lien or charge upon its
property; provided, however, that neither the Company nor any
subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim if the amount, applicability or validity
thereof shall be contested in good faith by appropriate
proceedings and if it shall have set aside on its books
reserves (segregated to the extent required by sound
accounting practice) deemed by it adequate with respect
thereto;
(7) pay, or cause to be paid, the principal of and
interest on all indebtedness for borrowed monies heretofore or
hereafter incurred or assumed by the Company when and as the
same shall become due and payable unless such indebtedness be
renewed or extended;
(8) faithfully observe, perform and discharge all
covenants, conditions and obligations that are imposed on it
by any and all indentures and other agreements securing or
evidencing such indebtedness or pursuant to which such
indebtedness was incurred, and not permit the occurrence of
any act or omission that is or may be declared to be a default
thereunder; provided, however, that the Company shall not be
required to make any payment or to take any other action by
reason of the provisions of this paragraph (8) if it is
contesting in good faith its obligation to make such payment
or to take such action and shall have set aside on its books
adequate reserves (to the extent, and segregated if and to the
extent, required by sound accounting practice) with respect
thereto;
(9) provide or cause to be provided for itself
commercial general liability insurance, products liability
insurance and workers' compensation insurance in such amounts
as are commercially reasonable for businesses of similar type
and size as the Company and fire and casualty insurance
policies with extended coverage sufficient in amount (subject
to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed; and
(10) notify the Investor in writing promptly upon the
occurrence of any Event of Default as hereafter defined or any
event that would become an Event of Default upon notice or the
lapse of time, or both.
(11) permit the Investor or any authorized
representatives of such Investor, at such Investor's expense,
to visit and inspect any of the properties of the Company
including its books of account (and to make copies thereof and
to take extracts therefrom) and to discuss its affairs,
finances and accounts with its
9
<PAGE> 11
officers, all at such reasonable times and as often as may be
reasonably requested. The rights set forth herein shall be
exercised solely in furtherance of the proper interests of the
Investor as an investor in the Company, and such Investor
exercising its rights of inspection hereunder shall maintain,
and shall procure that its agents and representatives
maintain, the confidentiality of all financial and other
confidential information of the Company acquired by them in
exercising such rights.
(b) For so long as the Promissory Note is outstanding, without
the Investor's prior written consent;
(1) the Company shall not declare, pay or set aside
for payment any dividend or other distribution with respect to
the Common Stock or any other class of securities, or purchase
or otherwise acquire any Common Stock or any other class of
securities, or contract for such purchase or acquisition; and
(2) neither the Company nor any subsidiary of the
Company shall incur or assume any indebtedness for borrowed
money except as set forth in Schedule 7(b).
8. Events of Default; Remedies.
(a) If any one or more of the following events shall occur for any
reason whatsoever (whether such occurrence shall be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or other
governmental body), it shall be deemed an Event of Default (an "Event of
Default") hereunder:
(1) default by the Company in the due and punctual payment of
the principal, interest or both on the Promissory Note when and as the
same of each such obligation shall become due and payable, whether at
maturity or at a date fixed for prepayment or by acceleration or
otherwise;
(2) default by the Company in the performance or observance of
any covenant, agreement or other provision of this Agreement that is
not cured within a period of 30 days after written notice of such
default is given to the Company;
(3) default by the Company in the due and punctual payment of
the principal, interest or both on any indebtedness for borrowed money
incurred by the Company, when and as the same shall become due and
payable;
(4) if any representation or warranty, or any other statement
of fact herein or in any writing, certificate, report or statement
(including financial statement) at any time furnished to the Investor
pursuant to or in connection with this Agreement, or otherwise, shall
be false or misleading in any material respect when made and shall have
been relied on by the Investor to its detriment;
10
<PAGE> 12
(5) the Company or one of its subsidiaries becoming insolvent
or unable to meet its obligations as they mature, making a general
assignment for the benefit of creditors, or consenting to the
appointment of a trustee or a receiver, or admitting in writing its
inability to pay its debts as they mature;
(6) the appointment of a trustee or receiver for the Company
or for a substantial part of the properties of the Company or one of
its subsidiaries;
(7) the institution of bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings by or against the
Company or one of its subsidiaries and, if instituted against it, the
same being consented to by the Company or a subsidiary or remaining
undismissed for a period of 30 days;
(8) the rendering of any final judgment against the Company or
one of its subsidiaries for the payment of money in an amount in excess
of $100,000 that is not adequately insured against and the same
remaining undischarged or unstayed for a period of 30 days;
(9) any substantial part of the property of the Company or one
of its subsidiaries being sequestered or attached and not being
returned to the possession of the Company or released from such
attachment within 30 days; and
(10) upon the effective date of a merger, reorganization or
sale of substantially all of the assets of the Company in which the
shareholders of the Company immediately prior to such transaction own
less than 50 percent of the voting securities of the surviving or
controlling entity immediately after such transaction.
If any such Event of Default shall occur and be continuing, the
Investor may, at the Investor's option, declare the Promissory Note to be due
and payable, whereupon the maturity of the then unpaid balance of the Promissory
Note shall be accelerated and the principal and all interest accrued thereon
shall forthwith become due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything contained
herein, in the Promissory Note to the contrary notwithstanding, and the Investor
may exercise and shall have any and all remedies accorded the Investor by law.
(b) In case any one or more Events of Default shall occur and be
continuing, the Investor may proceed to protect and enforce its rights or
remedies either by suit in equity or by action at law, or both, whether for the
specific performance of any covenant, agreement or other provisions contained
herein, in the Promissory Note or in any document or instrument delivered
pursuant to this Agreement, including but not limited to the Company's Articles
of Incorporation or proceed to enforce the payment of the Promissory Note or any
other legal, equitable or statutory right or remedy.
(c) No right or remedy herein conferred upon the Investor is intended
to be exclusive of any other right or remedy contained herein, therein or in any
instrument or document delivered in connection with or pursuant to this
Agreement, and every such right or remedy contained
11
<PAGE> 13
herein and therein or now or hereafter existing at law or in equity or by
statute or otherwise may be exercised separately or in any combination.
(d) No course of dealing between the Company and the Investor or any
failure or delay on the Investor's part in exercising any rights or remedies
hereunder shall operate as a waiver of any of the Investor's rights or remedies
and no single or partial exercise of any rights or remedies hereunder shall
operate as a waiver or preclude the exercise of any other rights or remedies
hereunder.
9. Representations and Warranties by the Investor; Purchase for
Investment; Transfers; Legends on Certificates.
9.1. Representations and Warranties by the Investor:
(a) All actions on the part of the Investor for the authorization,
execution, delivery and performance of by the Investor of this Agreement has
been taken.
(b) The Investor has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management and an
opportunity to review the Company's facilities.
(c) The Investor understands that such discussions, as well as the
written information issued by the Company, were intended to describe the aspects
of the Company's business and prospects which it believes to be material but not
necessarily a thorough or exhaustive description.
(d) The Investor is a sophisticated investor with such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of prospective investment in the Securities (the Warrant
and the Common Stock for which the Warrant is exercisable are collectively
referred hereafter as the "Securities"). The Investor, in view of the matters
set forth in this Section 9, bears the economic risk of the investment
represented by the Investor's purchase of the Promissory Note and the Securities
for an indefinite period.
(e) The Investor (i) represents that no finder, broker, agent,
financial adviser or other intermediary has acted on behalf of the Investor in
connection with the offering of the Promissory Note and the Securities to be
issued and sold pursuant to this Agreement or the negotiation or consummation of
this Agreement or any of the transactions contemplated hereby, and (ii) hereby
agrees to indemnify and to hold the Company harmless of and from any liability
for commission or compensation in the nature of a finder's fee to any broker or
other person or firm and the costs and expenses of defending against such
liability or asserted liability, for which the Investor or any of its employees
or representatives, are responsible.
9.2. Purchase for Investment. The Investor represents that the Investor
is an "accredited investor" within the meaning of Regulation D under the 1933
Act, is acquiring the Promissory Note and will acquire the Warrant and any
Common Stock issuable upon exercise of the Warrant for the Investor's own
account for investment and not with the view to the distribution thereof, except
in accordance with applicable federal and state securities laws. This
12
<PAGE> 14
representation and covenant shall be deemed to have been given with respect to
the Warrant and the Common Stock at the time the Warrant is issued and delivered
and exercised.
9.3. Transfers; Legends on Certificates. The Investor further
recognizes that the Promissory Note and the Securities will not be registered
under the 1933 Act or the securities laws of any state, the transfer of the same
will be restricted under such laws, the same cannot be sold except pursuant to
an effective registration statement under such laws or an available exemption
from such registration, and the Promissory Note and the certificates
representing the Securities shall be endorsed with the following legend (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY
DISTRIBUTION THEREOF. THE SECURITIES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION
WITHOUT, EXCEPT UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN
OPINION OF COUNSEL FOR THE HOLDER CONCURRED IN BY COUNSEL FOR THE
COMPANY THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
The Company need not record a transfer of Securities, unless the
conditions specified in the foregoing legends are satisfied. The Company may
also instruct its transfer agents not to record the transfer of any of the
Securities unless the conditions specified in the foregoing legends are
satisfied.
9.4. Notice of Proposed Transfers. The holder of each certificate
representing Securities by acceptance thereof agrees to comply in all respects
with the provisions of this paragraph 9.4. Prior to any proposed sale,
assignment, transfer or pledge of any Securities (other than (i) a transfer not
involving a change in beneficial ownership, (ii) a transfer in compliance with
Rule 144 under the 1933 Act ("Rule 144"), so long as the Company is furnished
with satisfactory evidence of compliance with Rule 144, (iii) a transfer to a
qualified institutional buyer in a transaction that meets the requirements of
Rule 144A under the 1933 Act, (iv) transfers by any holder who is an individual
to a trust for the benefit of such holder or his family, and (v) transfers by
gift, will or intestate succession to the spouse, lineal descendants or
ancestors of any holder or spouse of a holder), unless there is in effect a
registration statement under the 1933 Act covering the proposed transfer, the
holder thereof shall give written notice to the Company of such holder's
intention to effect such transfer, sale, assignment or pledge. Each such notice
shall describe the manner and circumstances of the proposed transfer, sale,
assignment or pledge in sufficient detail, and shall be accompanied, at such
holder's expense at the reasonable discretion of the Company an unqualified
written opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Securities may be effected without
registration under the 1933 Act. Each certificate evidencing the Securities
transferred as above provided shall bear the appropriate
13
<PAGE> 15
restrictive legend set forth in paragraph 9.3 above, except that such
certificate shall not bear such restrictive legend if in the opinion of counsel
for such holder and the Company such legend is not required in order to
establish compliance with any provision of the 1933 Act.
9.5. Removal of Legends and Transfer Restrictions. The legend relating
to the 1933 Act endorsed on a stock certificate or other instrument pursuant to
paragraph 9.3 of this Agreement and the stop transfer instructions with respect
to the Securities represented by such certificate or instrument shall be removed
and the Company shall issue a certificate or instrument without such legend to
the holder of such Securities if such Securities are registered under the Act
and a prospectus meeting the requirements of Section 10 of the 1933 Act is
available or if such holder provides to the Company an opinion of counsel for
such holder of the Securities reasonably satisfactory to the Company, or a
no-action letter or interpretive opinion of the staff of the Commission to the
effect that a public sale, transfer or assignment of such Securities may be made
without registration and without compliance with any restriction such as Rule
144.
10. Expenses. The Company will pay: (a) all the costs and expenses of
the reproduction of this Agreement and of all agreements referenced herein; (b)
all original issue taxes (including any interest and penalties in respect
thereof) the issuance of the Promissory Note and the Warrant (the Company
agreeing to indemnify the Investor in respect thereof), provided that the
Company shall not be obligated to pay any such tax which may be payable in
respect of the issuance of any of the foregoing or a certificate representing
any thereof to or in the name of any person other than the Investor; (c) all
costs and expenses of furnishing all opinions by counsel referenced in Section 5
and all certificates on behalf of the Company and of the Company's performance
of and compliance with all agreements and conditions contained herein on its
part to be performed or complied with; (d) the cost of complying with the
securities or blue sky laws of any jurisdiction with respect to the offering or
sale by the Company of the Promissory Note and the Warrant; (e) the cost of
delivering to such address in the United States as the Investor specifies the
certificates for the Promissory Note and the Warrant purchased by the Investor;
and (f) the reasonable, itemized fees, expenses and disbursements of the
Investor's special counsel, Hunton & Williams, in connection with the subject
matter of this Agreement and the transactions contemplated hereby.
11. Registration Rights. With respect to the shares of Common Stock
issuable upon exercise of the Warrant, the Company has granted the Investor the
registration rights (the "Registration Rights") set forth in the Registration
Rights Agreement dated June 3, 1998, among the Company and the Investor and the
parties thereto, and such shares are deemed to be "Registrable Securities" as
that term is defined therein.
12. Survival of Representations and Warranties, etc. All agreements,
representations and warranties contained herein or made in writing by the
Investor or on behalf of the Company in connection with the transactions
contemplated hereby shall survive the execution and delivery of this Agreement,
any investigation at any time made by the Investor or on the Investor's behalf,
the sale and purchase of the Promissory Note and the Warrant and payment
therefor. All statements contained in any certificate or other instrument
executed and delivered by the Company or its duly authorized officers pursuant
hereto in connection with the transactions contemplated hereby shall be deemed
representations by the Company hereunder.
14
<PAGE> 16
13. Notices. All notices, requests, consents and other communications
hereunder (except as stated in the last sentence of this Section 14) shall be in
writing and shall be delivered by facsimile, reliable courier, or first-class
registered or certified mail, postage prepaid, (a) if to the Investor, at the
Investor's address as set forth below, marked for attention as there indicated,
or at such other address as may have been furnished to the Company by the
Investor in writing, or (b) if to any other holder of the Promissory Note,
Warrant or Common Stock, at such address as may have been furnished to the
Company in writing by such holder, or, until any such other holder furnishes to
the Company an address, then to, and at the address of, the last holder of the
Promissory Note, Warrant or Common Stock who has so furnished an address to the
Company or (c) if to the Company, at the address set forth below, or at such
other address as may have been furnished to the Investor in writing by the
Company:
To the Company:
Kennedy-Wilson, Inc.
530 Wilshire Boulevard, #101
Santa Monica, California 90401
Copy to:
Richard Smith, Esq.
White & Case
633 West Sixth Street
Los Angeles, California 90071
To the Investor:
FBR Asset Investment Corporation
1001 Nineteenth Street, North
Arlington, Virginia 22209
Copy to:
Randolph F. Totten, Esq.
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
For purposes of computing the time periods set forth in Section 6, the date of
delivery in accordance with this Section shall be deemed to be the earlier of
the date received or five days after deposit in the mail. The financial
statements and other reports required by Section 6 may be mailed by first-class
regular mail deposited on or before the end of the applicable period.
14. Amendments and Waivers. Except as otherwise provided herein,
neither this Agreement nor any term hereof may be changed, waived, discharged or
terminated orally or in writing, except that any term of this Agreement may be
amended and the observance of any such term may be waived (either generally or
in a particular instance and either retroactively or prospectively) with (but
15
<PAGE> 17
only with) the written consent of the Company and the holders of at least 51% of
the outstanding principal amount of the Promissory Note.
15. Miscellaneous.
15.1. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York.
15.2. Successors and assignees. All of the terms of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and assignees of the parties hereto, whether so expressed
or not, and, in particular, shall inure to the benefit of and be enforceable by
any holder or holders at the time of the Promissory Note or the Warrant.
15.3. Entire Agreement. Except as stated in Section 12, this Agreement
(with the Exhibits and Schedules annexed hereto) embodies the entire agreement
and understanding between the Investor and the Company and supersedes all prior
agreements and understandings relating to the subject matter hereof.
15.4. Headings of the Agreement. The headings in this Agreement are for
convenience of reference only, and shall not limit or otherwise affect the
meaning hereof.
15.5. Counterparts of the Agreement. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
15.6. Severability of the Agreement. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
15.7. California Corporate Securities Law. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
15.8. Commitment Fee. At the time of the first advance by Investor
pursuant to this Agreement, the Company shall pay Investor $50,000.
16
<PAGE> 18
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed and delivered as of the day and year first written above.
THE COMPANY: KENNEDY-WILSON, INC.
By: /s/ Richard Mandell
-----------------------------------
Name: Richard Mandell
-----------------------------------
Title: Managing Director
-----------------------------------
THE INVESTOR: FBR ASSET INVESTMENT CORPORATION
By: /s/ William R. Swanson
-----------------------------------
Name: William R. Swanson
-----------------------------------
Title: Chief Operating Officer
-----------------------------------
17
<PAGE> 1
PROMISSORY NOTE
$10,000,000 June 3, 1998
FOR VALUED RECEIVED, the undersigned, KENNEDY-WILSON, a Delaware
corporation ("the Company"), hereby promises to pay to the order of FBR ASSET
INVESTMENT CORPORATION, Virginia corporation (the "Lender") or to order, the
principal sum of TEN MILLION DOLLARS ($10,000,000), or so much thereof as shall
have been advanced to the Company by the Lender as line of credit loans and
remain unpaid under the provisions of the Loan and Warrant Agreement (as
hereafter defined), whichever is less, in lawful money of the United States of
America, together with interest on the unpaid principal balance from day-to-day
remaining computed from the date hereof until Maturity at the rate of 12% per
annum (the "Interest Rate").
1. This Note is issued pursuant to the Loan and Warrant Agreement dated
June 3, 1998 between the Company and the Lender (the "Loan and Warrant
Agreement").
2. For purposes of calculating interest accrued hereon at the Interest
Rate, interest on this Note shall be calculated on the basis of the actual days
elapsed over a 365- or 366-day year, as the case may be.
Principal and accrued interest on this Note, computed as aforesaid,
shall be due and payable as follows:
(i) principal shall be payable at Maturity, and
(ii) interest shall be payable monthly on the last day of each
month until Maturity, commencing July 31, 1998.
3. For purposes hereof, "Maturity" means the first to occur of (i) the
closing of a public offering of common stock by the Company and (ii) December
31, 1998, the date on which all outstanding principal and accrued but unpaid
interest is due under this Note.
5. Should the principal of, or any installment of the principal or
interest on, this Note become due and payable on any day other than a business
day, the maturity thereof shall be extended to the next succeeding business day
and interest shall be payable with respect to such extension. Payments made to
the Lender by the Company hereunder shall be applied first to accrued interest
and then to principal.
6. Except as herein provided, the Company waives demand for payment,
presentment, protest, notice of protest and non-payment, or other notice of
default, notice of acceleration and intention to accelerate, and agrees that its
liability under this Note shall not be affected by any renewal or extension in
the time of payment hereof, or by any indulgences, or by any release or change
in any security for the payment of this Note, and hereby consents to any and all
renewals, extensions, indulgences, releases or changes, regardless of the number
of such renewals, extensions, indulgences, release or changes.
<PAGE> 2
7. No waiver by the Lender of any of its rights or remedies hereunder
or under any other document evidencing or securing this Note or otherwise shall
be considered a waiver of any other subsequent right to remedy of the Lender; no
delay or omission in the exercise or enforcement by the Lender of any rights or
remedies shall ever be construed as a waiver of any right or remedy of the
Lender; and no exercise or enforcement of any such rights or remedies shall ever
be held to exhaust any right or remedy of the Lender.
8. An "Event of Default" for the purposes of this Note shall mean any
Event of Default as defined in Section 8 of the Loan and Warrant Agreement. Upon
the occurrence of an Event of Default, the holder hereof may, at its option,
declare the entire unpaid balance of principal and accrued interest on this Note
to be immediately due and payable; provided, however, that with respect to any
Event of Default set forth in Section 8(a)(7) of the Loan and Warrant Agreement,
such Event of Default will automatically cause the principal and accrued
interest on this Note to become immediately due and payable.
9. The Company may prepay its obligation pursuant to this Note at any
time by tendering to the Lender the then outstanding principal balance hereof,
together with accrued but unpaid interest.
10. Notwithstanding anything contained in this Note to the contrary,
the Lender shall never be deemed to have contracted for or be entitled to
receive, collect or apply as interest on this Note any amount in excess of the
amount permitted an calculated at the Maximum Rate (defined below), and, in the
event the Lender ever receives, collects or applies as interest any amount in
excess of the amount permitted and calculated at the Maximum Rate, such amount
which would be excessive interest shall be applied to the reduction of the
unpaid principal balance of this Note, and, if the principal balance of this
Note is paid in full, any remaining excess shall forthwith be paid to the
Company.
The term "Maximum Rate, " as used herein, shall mean, with respect to
the holder hereof, the maximum nonusurious interest rate, if any, that at any
time, or from time to time, may be contracted for, taken, reserved, charged, or
received on the indebtedness evidenced by this Note under the laws which are
presently in effect of the United States and the State of New York applicable to
such holder and such indebtedness or, to the extent permitted by applicable law,
under such applicable laws of the United States and the State of New York which
may hereafter be in effect and which allow a higher maximum nonusurious interest
rate than applicable laws now allow.
11. This Note is being executed and delivered, and is intended to be
performed in the State of New York. Except to the extent that the laws of the
United States may apply to the terms hereof, the substantive laws of the State
of New York shall govern the validity, construction, enforcement and
interpretation of this Note.
12. If this Note is placed in the hands of an attorney for collection,
and if it is collected through any legal proceedings at law or in equity or in
bankruptcy, receivership or other court proceedings, the Company promises to pay
all costs and expenses of collection including, but not limited to, court costs
and the reasonable attorneys' fees of the holder hereof.
-2-
<PAGE> 3
The address for the Company for all purposes contained in this Note and
for the notices hereunder shall be: 530 Wilshire Boulevard, #101, Santa Monica,
California 90401.
The address of the Lender for all purposes contained in this Note and
for all notices hereunder shall be: 1001 Nineteenth Street, North, Arlington,
Virginia 22209.
Executed as of the day and year first above written.
-----------------------------------------------
By: /s/ Richard Mandell
-----------------------------------------
Name: Richard Mandell
-----------------------------------------
Its: President
-----------------------------------------
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,016,000
<SECURITIES> 0
<RECEIVABLES> 24,391,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,407,000
<PP&E> 83,844,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 113,251,000
<CURRENT-LIABILITIES> 3,295,000
<BONDS> 97,068,000
0
0
<COMMON> 40,000
<OTHER-SE> 12,848,000
<TOTAL-LIABILITY-AND-EQUITY> 113,251,000
<SALES> 0
<TOTAL-REVENUES> 10,856,000
<CGS> 0
<TOTAL-COSTS> 9,846,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,010,000
<INCOME-TAX> 134,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 876,000
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
</TABLE>
