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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
-------------------------
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1998
OR
| | 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: 0-20418
-------------------------
KENNEDY-WILSON, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4364537
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9601 Wilshire Boulevard, Suite 220,
Beverly Hills, California 90210
(Address of principal executive office) (Zip Code)
-------------------------
Registrant's telephone number, including area code: (310) 887-6400
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange
on which registered
Common Stock NASDAQ
($.01 par value) National Market
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No (_)
Indicate by check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. (_)
As of April 28, 1999, there were outstanding 6,770,276 shares of the
Registrant's Common Stock. The aggregate market value of the Registrant's Common
Stock held by non-affiliates on April 28, 1999 was approximately $28,567,744
based on the closing price of $9.75 per share on that date.
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<PAGE>
KENNEDY-WILSON, INC.
Form 10-K/A
TABLE OF CONTENTS
Page
COVER PAGE....................................................................1
TABLE OF CONTENTS.............................................................2
INTRODUCTION..................................................................3
Part III
Item 10. Directors and Executive Officers of the Registrant......4
Item 11. Executive Compensation..................................7
Item 12. Security Ownership of Certain Beneficial Owners and
Management.............................................11
Item 13. Certain Relationships and Related Transactions.........13
SIGNATURES...................................................................17
<PAGE>
INTRODUCTION
This Amended Annual Report on Form 10-K/A for the year ended December 31, 1998
supplements the disclosure under Part III of Kennedy-Wilson, Inc.'s (together
with its subsidiaries, the "Registrant") Annual Report on Form 10-K for the year
ended December 31, 1998. No modifications were made to Parts I, II and IV of the
Registrant's 1998 Annual Report on Form 10-K or to the results reported in the
financial statements and the notes thereto, all of which are incorporated herein
by this reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant's directors and executive officers are listed below:
<TABLE>
<CAPTION>
Name Age Title Board Term
Expires
<S> <C> <C> <C>
William McMorrow.................... 52 Chairman of the Board of Directors and Chief 2001
Executive Officer
Lewis Halpert....................... 47 Director and Executive Managing Director, 1999
President of Kennedy-Wilson, Inc.
Residential and Notes Group
Richard Mandel...................... 36 Director and Managing Director, President of 2000
Kennedy-Wilson, Inc. Commercial Group
Barry Schlesinger................... 58 Director and President of Kennedy-Wilson 2000
Properties. Ltd.
Donald Prell........................ 74 Director and Chairman of the Audit Committee 2001
Kent Mouton......................... 45 Director and Chairman of the Compensation 1999
Committee
Thomas Barrack, Jr.................. 51 Director 1999
Freeman Lyle........................ 45 Executive Vice President, Chief Financial Not Applicable
Officer and Secretary
Terry Wachsner...................... 49 Senior Managing Director of Kennedy-Wilson Not Applicable
Properties, Ltd.
</TABLE>
William McMorrow has been Chairman of the Board of Directors
(the "Board") and Chief Executive Officer since joining the Registrant's
predecessor company in 1988. From that time, he has been instrumental to the
Registrant's growth into a diversified real estate services and investment
company.
Prior to 1988, Mr. McMorrow had more than 17 years of finance
experience specializing in problem real estate held by financial institutions
and insurance companies. For five years, he was the Executive Vice President and
Chairman of the Credit Policy Committee at Imperial Bank, a publicly traded
company headquartered in Southern California. During his tenure with the Bank,
he was responsible for restructuring a significant portion of the Bank's assets,
as well as the marketing and disposition of properties it owned. Additionally,
Mr. McMorrow has held senior positions with various other financial services
firms including Fidelity Bank in Pennsylvania, where he was Senior Vice
President for eight years.
Mr. McMorrow holds a Bachelor of Science Degree and Master of
Business Administration from the University of Southern California. He is also a
board member of the George L. Graziadio School of Business at Pepperdine
University in Malibu, California.
Lewis Halpert has been a member of the Board since joining the
Registrant's predecessor company at the same time as Mr. McMorrow in 1988, and
is Executive Managing Director and President of the Registrant's Residential
Properties Group. In these positions, he is actively involved in developing new
business opportunities and is currently overseeing all residential and notes
investments.
Mr. Halpert has over 20 years experience in all facets of real
estate, including investments and development, brokerage, management and
marketing. Prior to joining the Registrant, he operated his own independent
investment brokerage firm in Southern California.
Mr. Halpert holds a Bachelor of Arts Degree from California
State University at Sonoma.
Richard Mandel has been a member of the Board since December
1995. He is President of the Registrant's Commercial Group, responsible for all
commercial brokerage operations in the U.S. and Asia. Since joining the
Registrant in 1993, Mr. Mandel has established the Registrant's office in Tokyo
and has been instrumental in developing Japan-based relationships for the
Registrant. In 1996, Mr. Mandel opened the Registrant's New York office. During
his tenure, he has played a prominent role in brokering U.S., European and
Australian real estate assets to investors throughout Asia. In addition, he has
advised Japanese companies with the acquisition and disposition of overseas
assets.
Mr. Mandel was previously a director at Jones Lang Wootton
where he was involved with real estate investment banking including the
disposition, analysis, marketing, negotiations and closings relating to real
estate assets and with creating stronger ties to the investment community in
Hong Kong, Singapore, Indonesia and Taiwan. In addition, he advised Asian
investors on their U.S. real estate holdings, created a conduit for Asian
investments into the U.S. and researched new Asian markets.
Mr. Mandel holds a Bachelor of Arts Degree from Washington
University in St. Louis, Missouri and a Master of Business Administration from
the JL Kellogg School of Management at Northwestern University.
Barry Schlesinger has served since July 1998 as a member of
the Board and President of Kennedy-Wilson Properties, Ltd., the Registrant's
wholly-owned property management and leasing subsidiary. Mr. Schlesinger serves
as President of Kennedy-Wilson Properties, Ltd. through an Executive Services
Agreement dated July 17, 1998. From 1990 to July 1998, he served as Chairman of
the Board of Directors and Chief Executive Officer of Heitman Properties, Ltd.
The Registrant purchased Heitman Properties, Ltd. in July, 1998 and renamed it
Kennedy-Wilson Properties, Ltd. Mr. Schlesinger was appointed to the Board in
accordance with the Executive Services Agreement. The Executive Services
Agreement is discussed in more detail in "Certain Transactions."
Prior to joining Heitman Properties, Ltd. in 1971, Mr.
Schlesinger was responsible for project planning and scheduling for Tishman
Realty and Construction Registrant. He has 36 years of real estate experience.
Mr. Schlesinger holds a Bachelor of Science Degree from the
New York University College of Engineering.
Donald Prell has served as a member of the Board since March
1992. For the past five years Mr. Prell has been a mediation consultant and
private investor. He also serves as a Trustee of the UCLA Foundation.
Kent Mouton has served as a member of the Board since December
1995. Mr. Mouton has been a partner in the law firm of Kulik, Gottesman &
Mouton, LLP in Los Angeles, California since 1991. He specializes in the
practice of real estate transactions.
Mr. Mouton holds a Bachelor of Arts Degree and Juris Doctor
Degree from UCLA.
Thomas Barrack, Jr. has served as a member of the Board since
July 1998. He is the Chairman and Chief Executive Officer of Colony Capital,
Inc., a company that manages in excess of $1.0 billion in domestic and
international real estate assets. Colony Capital, Inc. purchased a 10.0% equity
interest in the Registrant in July 1998. Mr. Barrack founded Colony Capital,
Inc. in 1991. Prior to forming Colony Capital, Inc., he was a principal with
Robert M. Bass Group, Inc., the principal investment vehicle of the Fort Worth,
Texas billionaire Robert M. Bass. Mr. Barrack also served as Deputy Under
Secretary at the Department of Interior in Washington, D.C. for a period during
the Reagan Administration. Mr. Barrack also serves as a member of the boards of
directors of Continental Airlines Corporation, Public Storage, Inc., and Harveys
Casino Resorts.
Mr. Barrack holds a Bachelor of Arts Degree form the
University of San Diego and a Juris Doctor Degree from the University of
Southern California. Mr. Barrack was appointed to the Board based on the
Registrant's agreement with Colony Capital, Inc., which is discussed in the
section headed "Certain Transactions - Colony Agreements".
Freeman Lyle has been the Registrant's Chief Financial
Officer, Executive Vice President and Secretary since joining the Registrant in
April of 1996. He is responsible for all of the Registrant's financial matters
including overseeing capital structure and arranging and maintaining credit
facilities.
Prior to joining the Registrant, Mr. Lyle was the President of
Lyle Realty Group, Inc., which provided investment, financing and consulting
services to real estate owners and lenders. He also served as Vice President of
Finance at R&B Realty Group, an international real estate firm. During his
tenure, he was responsible for the performance of a diversified real estate and
loan portfolio.
Mr. Lyle received his Bachelor of Science Degree at California
State University at Northridge and a Master of Business Administration from the
University of Southern California.
Terry Wachsner has been the Senior Managing Director of
Kennedy-Wilson Properties, Ltd. since July 1998 through the Executive Services
Agreement previously described in the discussion of Mr. Schlesinger in this
section. He joined Heitman Properties, Ltd., in 1980 and served as President
from 1988 until the Registrant purchased that company in July 1998. He has 23
years experience in property management.
Mr. Wachsner holds a Bachelor of Arts Degree in Psychology and
a Master of Arts Degree in Architecture/Urban Planning from UCLA.
Committees of the Board of Directors
The Registrant's Audit Committee is composed of Donald Prell
(Chairman) and Kent Mouton. This committee is responsible for reviewing the
Registrant's financial policies and objectives, and monitoring the Registrant's
financial condition and requirements for funds in conjunction with management.
In addition, the Registrant's Audit Committee meets with the Registrant's
independent auditors to review their audit report and consider any
recommendations.
The Registrant's Compensation Committee is composed of Kent
Mouton (Chairman) and Donald Prell. This committee establishes the Registrant's
general compensation policies and determines the compensation levels for the
Chief Financial Officer and each employee that receives annual compensation in
excess of $100,000. The Compensation Committee also has oversight responsibility
for administering the Registrant's stock option plans (other than Plan C for
non-employee director stock options, pursuant to which options are granted
automatically upon the initial election of a non-employee director and upon each
subsequent re-election).
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Registrant's directors and certain of its officers, as
well as person who own ten percent or more of the Registrant's outstanding
Common Stock ("Insiders"), to file an initial report of beneficial ownership of
stock of the Registrant and reports of changes in beneficial ownership
thereafter with the Securities and Exchange Commission (the "SEC"). Section
16(a) requires Insiders to deliver copies of all reports filed under Section
16(a) to the Registrant. Based solely on a review of these copies received, the
Registrant believes that Insiders have complied with all applicable Section
16(a) filing requirements for fiscal 1998, with the exception of Goodwin Gaw, a
former director who resigned on November 5, 1998, who reported two transactions
one day late.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or
accrued by the Registrant during each of the last three fiscal years to the
Chief Executive Officer of the Registrant and the four most highly compensated
executive officers of the Registrant who served in either of those capacities
during fiscal 1998 (collectively, the "Named Executive Officers") for services
rendered:
Summary Compensation Table
<TABLE>
<CAPTION>
Number of
securities
Other annual underlying
Name and Position Year Salary Bonus compensation(1) options(2)
- ----------------- ---- ------ ----- --------------- ----------
<S> <C> <C> <C> <C> <C>
William McMorrow.................... 1988 $300,000 $2,219,222 $501,844 37,500
Chairman of the Board and CEO 1997 300,000 1,270,734 120,607 90,000
1996 300,000 450,000 --- ---
Lewis Halpert....................... 1998 $150,000 $ 623,805 $101,133 ---
Executive Managing Director 1997 150,000 396,800 31,083 45,000
1996 125,000 325,000 --- ---
Richard Mandrel..................... 1998 $250,000 $ 315,318 $116,064 37,500
Managing Director 1997 225,000 284,267 35,917 243,000
1996 188,000 100,000 89,000 54,000
Barry Schlesinger(3)................ 1998 $169,231 $ 270,000 --- 75,000
Chairman of Kennedy-Wilson 1997 --- --- --- ---
Properties, Ltd.. 1996 --- --- --- ---
Freeman Lyle........................ 1998 $161,625 $ 140,000 $ 60,325 45,000
Executive Vice-President, Chief 1997 150,000 100,000 15,020 ---
Financial Officer and Secretary 1996 94,000 37,500 --- 54,000
___________________
(1) "Other annual compensation" includes, among other things, deferred
compensation contributions and car allowance contributions. In 1996, this
included a foreign cost of living and housing allowance for Mr. Mandel
while he was based in Hong Kong and Tokyo. In 1996, "Other Annual
Compensation" excluded compensation in the form of other personal
benefits, for each of the named officers other than Mr. Mandel, that did
not exceed the lesser of $50,000 or 10% of the annual salary and bonus
reported for each year.
(2) Adjusted for 200% stock dividend paid April 10, 1998, and a 50% stock
dividend paid December 15, 1998.
(3) Mr. Schlesinger is employed by KW-A, LLC. An Executive Services Agreement
between the Registrant and KW-A, LLC requires the Registrant to pay to
KW-A, LLC all amounts due Mr. Schlesinger under his employment contract
with KW-A, LLC. The Executive Services Agreement is discussed in more
detail in "Certain Transactions - Executive Services Agreement."
</TABLE>
Deferred Compensation Plan
In 1997, the Registrant established a nonqualified deferred
compensation plan (the "Plan") to provide specific benefits to a select group of
management and highly compensated employees or directors who contribute
materially to the Registrant's continued growth, development and future business
success. Under the Plan, participants are able to defer up to 100% of their
annual total compensation including their bonuses. The Registrant is authorized
to make discretionary matching contributions in varying degrees based on the
Registrant's performance. In the fiscal year ended December 31, 1998, the
Registrant contributed approximately $1.1 million to the Plan. This amount
includes the amounts disclosed in the Summary Compensation Table, as applicable,
for the Named Executive Officers in the column labeled other annual
compensation.
Employee Profit Sharing and 401(k) Plans
The Registrant maintains a profit sharing plan (the "Profit
Sharing Plan") covering all full-time employees meeting certain minimum age and
service requirements. Contributions to the Profit Sharing Plan are made solely
at the discretion of the Board. No contributions were made for the years ended
December 31,1996, 1997 and 1998.
The Registrant also has a qualified profit sharing plan under
the provisions of Section 401(k) of the Internal Revenue Code (the "401(k)
Plan"). Employees who are 21 or older who have completed six months of service
prior to January 1 or July 1 of each year are eligible to participate. Under
this plan, participants are able to reduce their current compensation from 1% up
to the lesser of 15% or the statutorily prescribed annual limit allowable under
Internal Revenue Service Regulations and have that amount contributed to the
401(k) Plan. The 401(k) plan also includes provisions which authorize the
Registrant to make discretionary contributions. During 1998 the Registrant made
$27,000 in matching contributions to this plan. During 1997 the Registrant made
$24,000 in matching contributions. The 401(k) plan has a graduated schedule of
vesting over a six-year period of employment.
Stock Option Plans
Consistent with the Registrant's efforts to employ qualified
and experienced professionals, the Registrant has three stock option plans, the
Incentive Stock Option Plan ("Plan A"), the Non-statutory Stock Option Plan
("Plan B") and the Non-employee Director Stock Option Plan ("Plan C"). Plan A
and Plan B allow the Registrant to grant stock options to employees and
consultants. The Registrant believes that both plans help to attract and retain
highly qualified individuals to fill high-level executive and officer positions
and to give key employees and consultants an additional incentive to contribute
to the Registrant's overall success. The administration of these two plans is
guided by the Registrant's overall compensation philosophy of rewarding
employees and consultants based on their relative contributions to the
Registrant's overall accomplishments. The Compensation Committee has sole
discretion to decide which eligible employees and consultants are granted
options, the number of options granted, and, subject to the plans, the terms and
condition of each grant. Plan C allows the Registrant to grant stock options to
non-employee directors in order to further align their interests with those of
the Registrant's Stockholders.
The options granted under Plans A and B may be either
incentive stock options or options which are not intended to qualify as
incentive stock options. Only employees, however, are eligible for incentive
stock options. In order to encourage valued employees to stay with the
Registrant, the Compensation Committee typically grants options which vest over
a three-year period. The exercise price for shares of common stock underlying an
option is the fair market value of the stock on the date the option is granted
by the Compensation Committee unless the recipient of the option grant already
owns 10% or more of the Registrant's Common Stock. For those recipients, the
exercise price is 110% of the fair market value of the stock on the date the
option is granted. Under Plans A and B, as amended, an aggregate of 1,700,000
shares of common stock are reserved for issuance. To date, options for 1,433,000
shares have been issued. Of these options 1,220,000 remain unexercised and the
balance have been exercised. All options granted under Plan A must be exercised
within five years of the grant date. All options granted under Plan B must be
exercised within ten years of the grant date. No option under either Plan A or
Plan B can be granted after May 11, 2002.
The amount, price and terms of each grant under Plan C are
automatic. Upon election to the Board, non-employee directors receive an option
to purchase 13,500 shares of Common Stock at a price equal to fair market value
of the date preceding the grant. Thereafter, each non-employee director receives
an option to purchase 540 shares of Common Stock on the same terms and
conditions each time he or she is re-elected to the Board. Several aspects of
Plan C operate to encourage capable individuals to remain on the Board. For
example, an option does not vest under Plan C until one year after the date of
the grant and only vests if the holder served as a director during that entire
period. Also, unexercised options lapse the earlier of 90 days after a
non-employee director ceases to be one of the Registrant's directors and the
tenth anniversary of the date the option was granted. No Plan C options may be
granted after May 11, 2002. A total of 81,000 shares of common stock are
reserved for issuance under Plan C. As of April 21, 1999, the Registrant had
options outstanding under Plan C for 28,080 shares, of which none have been
exercised.
Named Executive Officer Stock Options
The following table provides information about stock option
grants made to each of the Named Executive Officers during 1998.
Stock Option Grants In 1998
<TABLE>
<CAPTION>
Potential realizable
value of assumed
Percentage annual rates of stock
of total price appreciation of
Number of options option terms*
securities granted to Exercise
underlying employees price per Expiration
Name of Executive Officer options granted in 1998 share Date 5% 10%
- ------------------------- --------------- ---------- ------------ ---- ------- --------
<S> <C> <C> <C> <C> <C> <C>
William McMorrow.............. 37,500 9.52% $7.00 4/27/03 $ 72,524 $160,359
Lewis Halpert................. 0 n/a n/a n/a n/a n/a
Richard Mandel................ 37,500 9.52% $7.00 4/27/03 $ 72,524 $160,359
Barry Schlesinger............. 75,000 19.04% $8.33 12/15/03 $172,607 $381,416
Freeman Lyle.................. 45,000 11.42% $3.67 1/20/03 $ 45,628 $100,826
* The potential realized value figures assume that the stock price at the time each option is granted will appreciate
at an annual rate of 5% or 10%.
</TABLE>
<PAGE>
The following table provides information about stock options
held by the Named Executive Officers as of December 31, 1998.
<TABLE>
Aggregated Option Exercises In 1998
And Option Values As Of December 31, 1998
<CAPTION>
Number of securities Value of unexercised
Number of underlying unexercised in-the-money options on
shares options on December 31, 1998 December 31, 1998
acquired on Value
Named Executive Officer exercise realized Exercisable Unexercisable Exerciseable Unexercisable
- ------------------------- -------- -------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
William McMorrow.............. 0 n/a 30,000 97,500 $ 98,340 $196,680
Lewis Halpert................. 0 n/a 15,000 30,000 $49,170 $98,340
Richard Mandel................ 18,000 $138,834 153,000 217,500 $830,142 $908,694
Barry Schlesinger............. 0 n/a n/a n/a n/a n/a
Freeman Lyle.................. 27,000 $155,610 9,000 63,000 $ 46,746 $251,190
</TABLE>
Director Compensation
Each director who is not also an employee of the Registrant
receives a quarterly retainer of $4,000 plus a fee of $1,000 for each board
meeting attended and $500 for each Board committee meeting attended. In
addition, the Registrant maintains Plan C described above under the heading
"Stock Option Plans" as further compensation for non-employee directors of the
Registrant. Employees of the Registrant who also are directors receive no
additional compensation for their service on our Board or on any committee
thereof.
Employment Contracts
Each of the Named Executive Officers has entered into, or is
in the process of entering into, an employment contract for 1999. They are
described below:
- Mr. McMorrow's contract provides for a term expiring on December
31, 1999, a base salary of $300,000 per annum and an advance of
$100,000, payable against a bonus of up to 20% of 1999 "profits"
between $3,000,000 and $35,000,000. "Profits" is defined as
pre-tax, pre-reserves and prior to payment of bonuses to other
employees and our contributions to our deferred compensation
plan. The bonus is paid at 6 months based on 1ST and 2ND quarter
profits and at year end based on 3RD and 4TH quarter profits.
- Mr. Halpert's contract provides for a term expiring on December
31, 1999, a base salary of $150,000 per annum plus a
non-repayable advance of $150,000, payable against an annual
incentive bonus of 15% to 25% of the net profit allocated to the
Residential Properties Group.
- Mr. Mandel's contract provides for a term expiring on December
31, 1999, a base salary of $250,000 plus an incentive bonus of 12
1/2% to 20% of the profits allocated to our Commercial Group.
- Mr. Lyle's contract, provides for a term expiring on March 31,
1999, a base salary of $180,000 plus a discretionary performance
bonus of 0% to 100% of base salary. The Compensation Committee of
the Board is in the process of extending Mr. Lyle's contract on
substantially similar terms.
- Mr. Schlesinger's employment contract is with KW-A, LLC and
provides for a term expiring on December 31, 2000. KW-A, LLC is a
limited liability Company, of which Mr. Schlesinger is a
member, that provides executive management services to the
Registrant. Mr. Schlesinger's employment contract provides for an
annual base salary of $400,000 plus (i) an annual incentive bonus
of 7.06% of the first $1,700,000 of net profits of Kennedy-Wilson
Properties, Ltd. in excess of $3,333,000, and a discretionary
bonus in respect of the net profits of Kennedy-Wilson Properties
in excess of $5,033,000 and (ii) an "add-on bonus" in 1999 of
$270,000. Under the Executive Services Agreement dated as of July
17, 1998 with KW-A, LLC the Registrant has agreed to pay KW-A,
LLC an amount equal to all sums payable to Mr. Schlesinger under
the terms of his employment agreement. In return, KW-A, LLC is
obligated to furnish the Registrant with executive management
services. The Executive Services Agreement is discussed in more
detail in "Certain Transactions - Executive Services Agreement."
In addition to compensation as noted above, each contract sets
forth the services the Named Executive Officer is to provide to the Registrant,
his benefits and expenses reimbursement rights and obligations, if any, a
non-competition covenant and confidentiality agreement and terms for
termination. Other than the employment contract for Mr. McMorrow, none of these
employment contracts provide for any severance, change-in-control or related
payments to be paid to the Named Executive Officer upon termination of the
employment contract. Mr. McMorrow's employment contract provides for a severance
payment equal to two times his annual compensation as determined by the
arithmetic average of his salary and bonus for the prior three years in the
event his employment contract is not renewed other than for cause or there is a
change in control of the Registrant.
Compensation Committee Interlocks and Insider Participations
Kent Mouton and Donald Prell were the only two people who
served on the Compensation Committee of the Board in 1998. Neither Mr. Mouton
nor Mr. Prell was an officer or employee of the Registrant during the fiscal
year ended December 31, 1998, nor have either of them been an officer of the
Registrant at any time. Mr. Mouton is a partner in the law firm of Kulik,
Gottesman & Mouton. During the Registrant's fiscal year 1998, the Registrant
paid Kulik, Gottesman & Mouton a total of approximately $496,191 in legal fees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 28, 1999 the total
number of shares of Common Stock beneficially owned and the percentage of the
outstanding shares so owned by (i) each director, (ii) each Named Executive
Officer, (iii) all executive officers and directors as a group and (iv) each
beneficial owner of more than five percent (5%) of the outstanding shares of
Common Stock known to the Registrant. Except as otherwise indicated in the notes
following the table, the stockholders listed in the table are the beneficial
owners of the shares listed with sole voting and investment power over those
shares. Shares subject to options exercisable within 60 days are treated as
outstanding when determining the amount and percentage beneficially owned by a
person or entity.
<PAGE>
<TABLE>
<CAPTION>
Number of shares
Name beneficially owned Percent of class
- ---- ------------------ ----------------
<S> <C> <C>
William McMorrow(1)........................................... 1,521,821 22.3
Lewis Halpert(2).............................................. 1,384,047 20.4
Richard Mandel(3)............................................. 282,500 4.0
Barry Schlesinger............................................. 17,499 *
Donald Prell(4)............................................... 14,580 *
Kent Mouton(4)................................................ 14,040 *
Thomas Barrack, Jr.(5)........................................ 858,166 12.3
Freeman Lyle(6)............................................... 131,493 1.9
---------- -----
All Executive Officers and Directors as a Group............... 4,224,147 57.5
Colony Investors, III, L.P.(5)................................ 858,166 12.3
Kenneth Stevens............................................... 766,200 11.3
Cahill, Warnock Strategic Partners Fund, L.P.(7).............. 750,000 10.0
Fidelity Management & Research Company(8)..................... 400,000 5.9
..................
* Less than 1%.
Except as otherwise indicated in the following notes, the address for
each individual, company, or named group is in care of Kennedy-Wilson, Inc.,
9601 Wilshire Boulevard, Suite 220, Beverly Hills, California 90210.
(1) Includes approximately 4,190 shares held for Mr. McMorrow's account as
well as approximately 275 shares held for the account of Mr. McMorrow's
spouse in the Registrant's 401(k) Profit Sharing Plan and Trust of which
Mr. McMorrow expressly disclaims beneficial ownership, and 42,500 shares
which may be acquired pursuant to exercise of outstanding stock options
that are presently exercisable or exercisable within 60 days.
(2) Includes approximately 1,368 shares held for Mr. Halpert's account in the
Registrant's 401(k) Profit Sharing Plan and Trust, and 15,000 shares
which may be acquired pursuant to exercise of outstanding stock options
that are presently exercisable or exercisable within 60 days.
(3) Includes beneficial ownership of 264,500 shares which may be acquired
pursuant to exercise of outstanding stock options that are presently
exercisable or exercisable within 60 days.
(4) Includes beneficial ownership of 14,040 shares which may be acquired
pursuant to exercise of outstanding stock options that are presently
exercisable.
(5) As reported in a Schedule 13D dated July 24, 1998 filed with the
Securities and Exchange Commission (the "SEC"), Colony Investors III,
L.P., a Delaware limited partnership, holds of record 660,127 shares of
Common Stock and a warrant to acquire 198,039 shares of Common Stock that
is now exercisable. The sole general partner of Colony Investors III,
L.P. is Colony GP III, Inc., a Delaware corporation. Mr. Barrack holds a
60% interest in Colony GP III, Inc. Mr. Barrack and Colony Investors III,
L.P. have shared voting and investment power with respect to those
shares. The mailing address of Colony Investors III, L.P. and Thomas
Barrack, Jr., as indicated in the Schedule 13D, is 1999 Avenue of the
Stars, Suite 1200, Los Angeles, California 90067.
(6) Includes beneficial ownership of 33,000 shares which may be acquired
pursuant to exercise of outstanding stock options that are presently
exercisable or exercisable within 60 days.
(7) Includes beneficial ownership of 750,000 shares which may be acquired
pursuant to conversion of debentures in the aggregate principal amount of
$7,500,000 at the current exercise price of $10.00 per share. These
debentures are registered in the name of Cahill, Warnock Strategic
Partners Fund, L.P. ("Cahill, Warnock") and Strategic Associates, L.P.,
an affiliate of Cahill, Warnock, in the principal amounts of $7,106,000
and $394,000, respectively. The mailing address of Cahill, Warnock and
Strategic Associates, L.P. is One South Street, Suite 2150, Baltimore, MD
21202.
(8) As reported in a Schedule 13G, dated February 12, 1999, filed with the
SEC. The mailing address of Fidelity Management & Research Company, as
indicated in the Schedule 13G, is 82 Devonshire Street, Boston,
Massachusetts 02109-3614.
</TABLE>
ITEM 13. CERTAIN TRANSACTIONS
Transactions with Management and Others
The following are brief descriptions of transactions between
the Registrant or one or more of its subsidiaries and any of the Registrant's
directors, executive officers or stockholders known to the Registrant to own
beneficially more than 5% of Common Stock, or any member of the immediate family
of any of those persons during the fiscal year ended December 31, 1998 where the
amount involved exceeded $60,000.
Property Management Contracts
Barry Schlesinger, a member of the Registrant's Board and
Chief Executive Officer of Kennedy-Wilson Properties, Ltd., holds a 7.1%
interest in two buildings for which the Registrant provides property management
services. During the period of January 1, 1998 to July 16, 1998 Heitman
Properties, Ltd. earned $81,000 in management fees for these buildings. The
Registrant acquired Heitman Properties, Ltd. on July 17, 1998 and renamed it
Kennedy-Wilson Properties, Ltd. During the period of July 17, 1998 to December
31, 1998 the Registrant earned $23,000 in management fees for these buildings.
Presently, the management fees are $25,000 per year per building. The Registrant
expects revenues related to these buildings to be approximately $50,000 for
1999. The Registrant may terminate the management contracts on 30 days notice.
Pioneer Joint Ventures
In November, 1996 the Registrant entered into a joint venture
with parties who are affiliated with Goodwin Gaw, a former member of the Board.
In particular, the Registrant acquired and paid $440,000 for a 25% interest in a
joint venture that purchased a ski resort in Colorado for $7.0 million. In
September, 1997 the Registrant acquired a 50% interest in a joint venture that
purchased for $14.6 million an office building in downtown Los Angeles with
approximately 28,000 square feet. The Registrant acquired an interest in this
joint venture for approximately $1.4 million. In the first calendar quarter of
1998, the Registrant entered into two further joint ventures with parties who
are affiliated with Mr. Gaw. In January 1998, the Registrant acquired for $4.2
million a 15% interest in a joint venture that purchased for $62.0 million a
commercial building in New York with more than 1.0 million square feet. In March
1998, the Registrant acquired for about $300,000 a 40% interest in a joint
venture that acquired a note collateralized by a hotel in Beverly Hills,
California. The Registrant subsequently sold its interest in that note for
$612,717. Mr. Gaw resigned from his position as a member of the Board on
November 5, 1998.
Legal Fees
In 1998, the Registrant paid the firm of Kulik, Gottesman &
Mouton a total of approximately $496,191 in legal fees. Kent Mouton is a partner
in that firm and a member of the Registrant's Board.
Colony Agreements
Mr. Thomas Barrack, Jr., a member of the Board and a
beneficial owner of more than 5% of Common Stock, holds a 60% interest in Colony
GP III, Inc. Colony GP III, Inc. is the sole general partner of Colony Investors
III, L.P. Colony Investors III, L.P. is the sole member of Colony K-W, LLC.
In July 1998, the Registrant acquired Heitman Properties, Ltd.
The purchase price and a portion of the expenses associated with that
acquisition were financed from the proceeds of a $21.0 million subordinated loan
made by Colony K-W LLC, pursuant to a Bridge Loan Agreement dated as of July 16,
1998 among Colony K-W LLC, the Registrant and certain of subsidiaries of the
Registrant. The loan bears interest at a rate of 14% per annum and matures on
January 15, 2000. The loan is guaranteed by certain of the Registrant's
subsidiaries on a subordinated basis and, pursuant to a Pledge Agreement dated
as of July 16, 1998 made by the Registrant in favor of Colony K-W LLC, is
secured by a pledge of all of the outstanding shares of Heitman Properties,
Ltd., now known as Kennedy-Wilson Properties Ltd. The terms of the loan
agreement restrict, among other things, certain borrowings, distributions and
mergers involving the Registrant and the guarantors and is subject to additional
customary restrictive covenants.
On July 16, 1998, Colony Investors III, L.P. entered into a
Stock Purchase Agreement and a Warrant Agreement with the Registrant, pursuant
to which Colony Investors III, L. P. purchased (a) 440,085 shares of Common
Stock (660,127 shares as adjusted for the December 15, 1998 50% stock dividend)
and (b) a warrant, exercisable for seven years from July 16, 1998, to purchase
an additional 132,026 shares of Common Stock (198,039 shares as adjusted for
such stock dividend) at an initial exercise price of $15.00 per share ($10.00
per share as adjusted for such stock dividend) subject to adjustment as provided
in the Warrant Agreement, for a total aggregate purchase price of $5,232,610.
In connection with the purchase of the stock and warrant,
Colony Investors III, L.P. entered into an Investor's Agreement with the
Registrant, dated as of July 16, 1998, pursuant to which the Registrant has
agreed, during the term and subject to the provisions thereof, including the
continued ownership of a specified minimum number of shares of Common Stock,
among other things, to take all action necessary so that the Board will include
one class III director designated by Colony Investors III, L.P., and thereafter,
to use its best efforts to cause a person designated by Colony Investors III,
L.P. to be included in each slate of proposed class III directors put forth by
the Registrant and its stockholders and recommended for election in any proxy
solicitation materials disseminated by the Registrant. Colony Investors III,
L.P.'s initial director nominee was its affiliate, Thomas Barrack, Jr., who is
now a member of the Board. With certain exceptions as described in the
Investor's Agreement, Colony Investors III, L.P. has preemptive purchase rights
to maintain its beneficial ownership percentage for so long as its investment
continues to represent at least 5% of the outstanding Common Stock.
The Registrant and Colony Investors III, L.P. also executed a
Registration Rights Agreement on July 16, 1998 with respect to the warrant and
any Common Stock issuable under that warrant. Pursuant to the Registration
Rights Agreement, and subject to the terms and conditions thereof, the warrant
beneficially owned by Colony Investors III, L.P. is subject to demand and
piggyback registration rights.
Colony Investors III, L.P. is also the general partner of
Colony-K-W Genpar Ltd. and Colony K-W Genpar Ltd. is the general partner of
Colony K-W Partners, L.P. Colony K-W, L.P., K-W Japan Investments, Inc. and
EBISU Investors I, LLC are limited partners in Colony K-W Partners, L.P. K-W
Japan Investments, Inc. is a wholly-owned subsidiary of the Registrant. EBISU
Investors I, LLC is owned in part by William McMorrow (26.32%), Richard Mandel
(26.32%) and Lewis Halpert (10.52%), current directors and executive officers of
the Registrant, and Ryosuke Homma (15.79%), President Kennedy-Wilson Japan, Inc.
The remainder is owned by some of the employees in the Tokyo office of
Kennedy-Wilson Japan, Inc. Colony-K-W Genpar Ltd. and Colony K-W together have a
97.5% interest in Colony-K-W Partners, L.P., K-W Japan Investments has a 2.0%
interest and EBISU Investors I, LLC has a 0.5% interest. The Colony K-W
Partners, L.P. partnership acquired a pool of distressed notes from Sanwa Bank
and its affiliates in September 1998 for approximately $24.0 million and a
building in Kawasaki, Japan in February 1999 for about $93.4 million.
Muromachi Building Management K.K.
In March 1999, the Registrant entered into a Japanese
partnership agreement with Meguro Investors, LLC. Meguro Investors, LLC is owned
in part by William McMorrow (25%), Richard Mandel (25%) and Ryosuke Homma (25%).
The remainder is owned by some of the employees in the Tokyo office of
Kennedy-Wilson Japan, Inc. The K-W/Meguro partnership purchased an insolvent
Japanese real estate holding company called Muromachi Building Management K.K.
The purchase price was $83,000. Under the terms of the partnership agreement,
Meguro Investors LLC is the beneficial owner of the holding company acquired and
the Registrant is the legal owner.
Arrowhead Brokerage
William McMorrow and Lewis Halpert each own 20% of real
property located in Lake Arrowhead, California. They have retained the
Registrant as the exclusive broker for selling that property. The Registrant
will earn a fee of 4% of the sale price at the close of escrow. The property's
value is estimated at approximately $12.5 million.
Executive Services Agreement
On July 17, 1998, the Registrant entered into an agreement
with KW-A, LLC to purchase executive management services. Barry Schlesinger, a
member of the Board and Chairman of Kennedy-Wilson Properties, Ltd., Terry
Wachsner, Senior Managing Director of Kennedy-Wilson Properties, Ltd., David
Latvaaho, Larry Beasley and Jerome Powalish are equal members in KW-A, LLC. The
Registrant pays KW-A, LLC an amount equal to all sums payable by KW-A, LLC to
its members under their respective employment agreements whose services the
Registrant uses. The amount received in 1998 by Mr. Schlesinger under this
arrangement is described in the section "Executive Compensation - Employment
Contracts". Mr. Wachsner received $430,000 in 1998. The terms of the
Registrant's agreement with KW-A, LLC expire the earlier of the termination of
employment by KW-A, LLC of the last member or December 31, 2000.
Goodwin Gaw Shares
On November 5, 1998, Goodwin Gaw resigned from his position as
a member of the Board. On November 10, 1998, the Registrant purchased from Mr.
Gaw 135,000 shares of Common Stock for $6.716 per share for a total of $906,750.
The closing price for Common Stock on the NASDAQ National Market on that date
was $7.281 per share. All 135,000 shares were subsequently retired.
Brokerage Engagements
In the past the Registrant has been retained, and the
Registrant anticipates that from time to time in the future it will be retained,
to perform auction or brokerage services for entities controlled by certain of
the Registrant's executive officers and/or directors. The Registrant believes
that the terms of these brokerage transactions in the past have been
substantially comparable to those that would have been obtainable in similar
transactions with unaffiliated parties, and that they will have no material
effect on the Registrant.
Indebtedness of Management
In December 1997, the Registrant loaned an aggregate of
$1,319,652 to 18 key employees. The company made the loans to enable those
employees to acquire in a private, unsolicited transaction approximately 73,314
shares of Common Stock from an institutional investor. The terms of each of the
loans, other than the principal balances, are identical. Each loan is unsecured,
bears interest at an annual rate equal to the commercial prime rate of Bank of
America in effect from time to time plus 1%. Interest is payable semiannually on
August 31 and January 31. The principal is due on the earlier of three years
following the making of the loan or six months following the employee/borrower's
termination of employment. The following table provides details of the loans
that were made to the Registrant's directors and executive officers:
December 1997 Loans to Directors and Executive Officers
<TABLE>
<CAPTION>
Maximum Amount Amount owed as of
Borrower owed in 1998 April 21, 1999
- -------- --------------------- --------------
<S> <C> <C>
William McMorrow,....................................... $226,008 $ 0
Chairman of the Board of Directors and Chief Executive
Officer
Lewis Halpert, $225,972 $ 0
Director...........................................
Freeman Lyle,........................................... $225,972 $110,000
Executive Vice President, Chief Financial Officer and
Secretary
Richard Mandel,......................................... $162,000 $ 0
Managing Director
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
KENNEDY-WILSON, INC.
Date: April 30, 1999
By: /s/ William J. McMorrow
------------------------
William J. McMorrow
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant in the capacities and on the dates indicated.
Name Title Date
Chairman of the Board and Chief
/s/ WILLIAM J. MCMORROW Executive Officer (Principal April 30, 1999
- ----------------------- Executive Officer)
William J. McMorrow
Executive Vice President, Chief
/s/ FREEMAN A. LYLE Financial Officer and April 30, 1999
- ------------------------ Secretary (Principal Financial
Freeman A. Lyle and Accounting Officer)
/s/ LEWIS A. HALPERT Executive Managing Director and April 30, 1999
- ------------------------ Director
Lewis A. Halpert
/s/ RICHARD A. MANDEL Managing Director and Director April 30, 1999
- ------------------------
Richard A. Mandel
President of Kennedy-Wilson
/s/ BARRY S. SCHLESINGER Properties, Ltd. and Director April 30, 1999
- -------------------------
Barry S. Schlesinger
/s/ THOMAS BARRACK Director April 30, 1999
- -------------------------
Thomas Barrack
/s/ KENT MOUTON Director April 30, 1999
- -------------------------
Kent Mouton
/s/ DONALD PRELL Director April 30, 1999
- -------------------------
Donald Prell
