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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ______________ TO ______________.
COMMISSION FILE NUMBER: 0-20418
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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 offices) (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:
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TITLE OF EACH NAME OF EACH EXCHANGE
CLASS ON WHICH REGISTERED
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Common Stock NASDAQ National
($.01 par value) Market
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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 for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. / /
As of March 2, 1999, there were outstanding 6,746,681 shares of the Registrant's
Common Stock. The aggregate market value of the Registrant's Common Stock held
by non-affiliates on March 2, 1999 was approximately $29,752,973 based on the
closing price of $9.63 per share.
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR ITS 1999 ANNUAL MEETING OF
STOCKHOLDERS, TO BE HELD AT A FUTURE DATE, ARE INCORPORATED BY REFERENCE INTO
PART III OF THIS REPORT.
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KENNEDY-WILSON, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
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PART I
ITEM 1. Business.................................................................................... 3
ITEM 2. Properties.................................................................................. 10
ITEM 3. Legal Proceedings........................................................................... 10
ITEM 4. Submission of Matters to a Vote of Security Holders......................................... 10
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters....................... 11
ITEM 6. Selected Financial Data..................................................................... 12
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 13
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk................................... 22
ITEM 8. Financial Statements and Supplementary Data................................................. 23
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 52
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......................................... 52
ITEM 11. Executive Compensation...................................................................... 52
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.............................. 52
ITEM 13. Certain Relationships and Related Transactions.............................................. 52
PART IV
ITEM 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K............................. 53
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ITEM 1. BUSINESS
OVERVIEW
We are an integrated, international real estate services and investment
company. Founded in 1977, we were later incorporated in Delaware and became a
public company in 1992. Through our subsidiaries, we deliver a complementary
array of real estate services. Headquartered in Beverly Hills, we have
approximately 640 full- and 50 part-time employees in offices throughout the
U.S. and in an office in Tokyo.
We initially gained recognition in the U.S. real estate market through our
residential real estate auction services. Over time, we diversified our business
so that we now provide:
- Commercial and residential property management and leasing;
- Management of real estate and note pool investments; and
- Commercial and residential brokerage, including auction marketing.
In addition to these real estate related services, we invest for our account in:
- Commercial and residential real estate; and
- Pools of secured and unsecured distressed notes.
Our clients include large U.S. and Japanese financial institutions, major
corporations, pension funds, real estate developers, insurance companies and
governmental entities.
We have had a presence in Japan for ten years, through which we have
developed significant relationships with Japanese companies and financial
institutions. In 1995 we opened our Tokyo office. It is staffed with nine
Japanese employees, two of whom are Japanese licensed real estate brokers with
knowledge of the local culture and real estate market. We believe that success
in the Japanese real estate market is determined primarily by a company's
reputation and its business relationships, not solely by its access to capital.
We have entered into joint venture relationships with companies and partnerships
affiliated with Colony Capital, Inc. and Cargill, Incorporated to invest in
Japanese real estate and distressed notes. We believe that these joint venture
parties were attracted to us, in large part, by our strong Japanese presence.
OUR BUSINESS OPERATIONS
PROPERTY MANAGEMENT AND LEASING
On July 17, 1998, we acquired Heitman Properties, Ltd., a national property
management and leasing company founded in 1969. As a result of this acquisition,
we have become a nationwide commercial and residential property management and
leasing company. We provide a full range of services relating to property
management, including:
- Commercial and residential building management;
- Leasing;
- Construction management;
- Engineering services;
- Technical services; and
- Environmental management.
We have managers in four regional offices--Beverly Hills, Houston,
Minneapolis and Chicago-- supervising approximately 600 full-time and 50
part-time employees who assist in managing more than 125 office and industrial
buildings, commercial garages and multi-unit residential complexes in 26
different states and the District of Columbia. We have approximately 48 million
gross square feet of real estate under management, including 15,334 residential
units.
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As part of our strategy for providing our property management clients with
the best services possible, we apply the same approach in managing our clients'
properties as we do in managing our own, where our primary objective is to
maximize the return on investment. To this end, we work with each client to
ascertain its goals and expectations and to design strategic plans for marketing
and improving each property in a way that increases the client's returns. We
also strive to maximize our clients' returns by reducing property operating
expenses through the discounts and lower prices that we generally obtain for
vendor services and supplies such as janitorial and gardening services and
office supplies. As a result of our national purchasing programs and service
provider alliances, we can sometimes secure these services and supplies for less
than the manager of a single property.
We are actively seeking to expand our property management and leasing
operations through the acquisition of property management and leasing companies,
the marketing of our property management services to our existing brokerage
clients and the development of new, institutional clients. We have one senior
executive whose sole responsibility is to seek out, evaluate and negotiate
property management and leasing company acquisitions and we have marketing
personnel working out of our Beverly Hills, Phoenix and Chicago offices seeking
new property management engagements. We have also charged our property managers
and leasing agents with the responsibility of bringing in new business and we
compensate them with bonuses when they are successful in doing so. In addition
to expanding our property management business in the U.S, we also intend to
expand that business into Japan in concert with our efforts to invest in
Japanese real estate.
REAL ESTATE BROKERAGE
Through our offices in Beverly Hills, New York and Tokyo, and with the
assistance of our affiliate in Hong Kong, Kennedy-Goldman, Ltd., we provide
specialized brokerage services for both commercial and residential real estate.
We market and sell on behalf of our clients and ourselves:
- Office and retail buildings;
- Multi- and single-family residences;
- Industrial sites;
- Hotels and resorts; and
- Undeveloped land.
The properties for which we have brokered sales are located throughout the U.S.
with a significant concentration in California. We have also sold properties in
Japan, Guam and Canada.
We strive to achieve the best results for our clients and to provide
superior customer service that focuses on personalized attention, frequent
updates on marketing efforts and utilization of our international relationships
and our complementary array of real estate services. The following is a sample
of the real estate services that we provide in connection with our brokerage
activities:
- Property valuations;
- Development and implementation of marketing plans;
- Sealed bid brokerage; and
- Open bid auctions.
When we receive a new brokerage engagement, we begin by developing with our
client a sales strategy that we believe will maximize the sales proceeds while
taking into account our client's individual situation, including time
parameters, sensitivity to publicity and cash flow needs. We also investigate
and analyze, among other things, the physical condition of the property, its
cash flow and tenant characteristics, market rents and market dynamics within
submarkets and comparable transactions. We conduct commercial property sales
primarily through private negotiations and, to a lesser extent, sealed bid
sales. We conduct residential property sales primarily through sealed bid and
open bid auctions and conventional brokerage activities.
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As part of our effort to ensure that our various offices work together to
provide the brokerage and marketing services that a particular client may need,
our compensation practices reward employees in all offices that participate in a
marketing effort for a particular client. We believe that our compensation
practice is particularly effective when our Asian clients are selling their U.S.
real estate holdings.
COMMERCIAL BROKERAGE SERVICES. We specialize in marketing commercial
properties with privately negotiated sealed bid sales. As part of our efforts to
market each commercial property, we develop and implement cost effective
marketing campaigns ranging from local to worldwide in scope. Each marketing
campaign is tailored to the client's objectives and the property's
characteristics. We also market properties directly to various investors with
whom we maintain ongoing business relationships. We believe that through these
efforts, we create a sales environment intended to enable our clients to obtain
the highest possible prices for their properties.
We obtain our commercial brokerage engagements primarily through our
existing relationships with over 100 institutional and corporate owners of real
estate located in the U.S. Our clients are located in the U.S., Japan, Canada,
Australia and Hong Kong.
Traditionally, our commercial brokerage marketing in Asia focused primarily
on selling properties located in the U.S. for Asian clients. Over the years, we
have built relationships with large Japanese financial institutions, developers,
investors and property owners and have developed what we believe to be a
reputation among them as successful marketer of commercial and residential real
estate in the U.S. In 1995, in order to establish ourselves as brokers in the
Japanese real estate market, we opened our office in Tokyo and are now brokering
the sales of commercial property in Japan.
When we engage in a competitive bidding process for brokerage engagements,
our brokerage commission rates often structured to demonstrate our confidence in
our ability to sell the property at a high price. For example, we might offer a
property owner a market or below-market brokerage commission rate for selling a
property at the price the owner initially expects and a higher rate for selling
the property for a higher price. On average, our commercial brokerage
assignments last for six months from the listing of the property to the payment
of a brokerage commission upon its sale. Generally, we do not enter into
long-term contracts for brokerage services.
RESIDENTIAL BROKERAGE SERVICES. We specialize in designing marketing
programs to sell single-family home developments and condominium projects using
conventional sales and auction-marketing programs. We also design and implement
sealed bid marketing programs for exclusive estates and land for residential
development. Most of the residential properties that we have brokered are
located in California. Our clients include builders, developers, private
sellers, financial institutions and government agencies.
AUCTION SERVICES. We provide our clients with auction marketing services to
sell both commercial and residential real estate. Auctions provide a seller an
opportunity to concentrate the marketing efforts and sell its holdings on one
established date. By doing so, the seller can increase liquidity and avoid
long-term carrying costs and the risk of a drop in market value. For these
reasons, we believe that the net proceeds to the seller following an auction
sale of multiple units often exceeds what the net proceeds would have been had
the units been sold individually through conventional brokerage arrangements.
The typical auction marketing program spans approximately four months from the
time that we sign the agreement with our client to the date of the auction.
REAL ESTATE INVESTMENTS AND ASSET MANAGEMENT
We invest in commercial and residential real estate with joint venture
partners and on our own account. We also provide asset management services for
some of our joint ventures.
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Our current investment portfolio and our plans for future investments focus
on commercial buildings and multiple and single family residences. Generally, we
purchase properties that are subperforming in a manner which we believe can be
rectified with our expertise or financial resources. For example, a developer of
a residential real estate project may find it difficult or impossible to finish
the project because it cannot properly market the finished product or has
insufficient cash flow. In such a situation, we can purchase the project at a
discounted price then apply our marketing expertise and draw on our financial
resources to finish the project and sell it as a whole or to individual home
buyers for a profit. With regard to commercial properties, we acquire
subperforming buildings, make the improvements necessary to attract tenants,
lease to new tenants and then sell the buildings. We refer to this process as
stabilizing the asset.
We believe that one of our strengths is our ability to quickly identify and
acquire desirable real estate assets. We do so by capitalizing on the
institutional knowledge we have developed through our brokerage and investment
business and by conducting quick and thorough investigations and analyses of the
properties, their financial condition and what we believe to be their financial
potential. We have extensive experience in identifying and analyzing the factors
that impact property values in the regions in which we do business, such as new
construction, the marketability of certain neighborhoods, leasing trends and the
types of businesses seeking various types of commercial space. Our
investigations and analyses are conducted by an experienced in-house team,
occasionally supplemented by outside due diligence professionals.
To date, a significant portion of the real estate in which we have invested
is located in California. Within the next year, we plan to liquidate the
commercial real estate investments that we currently wholly own in the U.S. due
to our belief that we will have stabilized or will soon stabilize these assets
in many markets. While we believe the current cycle of the U.S. commercial real
estate market has matured, we think that Japan offers significant real estate
opportunities due to the recent Asian economic downturn. Presently our brokerage
operations are the source of many of our real estate acquisitions in the U.S.
These operations provide us with unique investment opportunities in the form of
close relationships with clients that have substantial real estate investments.
We expect our property management and brokerage operations to continue to
provide select opportunities for us to acquire additional U.S. real estate
investments suitable for our stabilization techniques.
Occasionally, our clients desire to sell some or all of their real estate
holdings through means other than conventional brokerage or auction services.
For example, financial institutions are generally not in the business of holding
and managing property and they may have regulatory or internal requirements that
mandate the rapid sale of real property acquired through foreclosure. Thus, a
financial institution client that has acquired a property through a foreclosure
may desire to sell it in less time than it would take for a conventional
brokerage or auction sale. Similarly, as a result of the current economic
conditions in Asia, a client in Asia may have the need or desire to sell a real
estate holding in a rapid manner with little publicity. In the past, we have
been able to meet the needs of these types of clients by purchasing their
properties quickly and discretely for our own account.
Depending on the size of the property, the availability of capital and our
assessment of risks, we either acquire a property as part of a joint venture or
entirely for our own account. Historically, we have used joint ventures to
acquire larger commercial buildings, typically those with more than 250,000
square feet of space. In these transactions, our joint venture partner
contributed the majority of the capital while we contributed the remainder of
the capital along with our marketing expertise. In some cases we have provided
the joint venture fee based asset management services. These transactions have
offered us the ability to leverage our capital and diversify the risks
associated with owning these larger properties.
We generally finance the acquisitions of our wholly-owned real estate with
mortgage loans and mezzanine financing. Currently, all but one of our
wholly-owned commercial properties were acquired
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with the use of mezzanine financing. In our typical mezzanine financing
transaction, we are required to make an equity investment of 25% to 35% of the
purchase price, of which 70% to 80% of that equity investment is financed by the
mezzanine lender. The remainder of the investment is generally financed by a
mortgage lender. Typically, the mezzanine lender receives interest on its loan
and a share of the sale proceeds. The share of the sale proceeds is generally
determined by the amount of the loan and the period of time which the property
is held. In this type of arrangement, we control the management of the property,
including the timing and marketing of the property's sale.
We are pursuing joint ventures with large international investors,
particularly in Japan. To this end, we have entered into a limited partnership
agreement with affiliates of Colony Capital to invest up to $100.0 million of
which $2.0 million will be invested by us, in Japanese real estate and pools of
distressed notes. The investment strategy of the Kennedy-Wilson/Colony
partnership is to take advantage of depressed Japanese real estate prices and
the weakened Japanese economy by purchasing Japanese real estate and distressed
notes at discounted prices. Once the partnership acquires an asset, whether a
pool of notes or real estate, we manage that investment on behalf of the
partnership for a fee. Thus far, the partnership has purchased a 356,000 square
foot office building in Kawasaki, Japan occupied by high tech tenants and a pool
of notes as described in the "Distressed Note Pool Investments" section that
follows this section.
DISTRESSED NOTE POOL INVESTMENTS
Since 1994, we have been purchasing and managing pools of distressed notes.
Generally, distressed notes are those where the borrower has stopped making
payments or is late in making payments. Our note pools contain notes that are
secured and unsecured. The secured notes are collateralized by real estate or
personal property.
Historically, we have acquired these pools from regulatory agencies such as
the Federal Deposit Insurance Corporation and the Resolution Trust Corporation.
We have also purchased notes from various U.S. private sellers, such as banks,
savings institutions, mortgage companies and insurance companies. Most of these
notes were originated by lenders in California, Texas and Florida.
Recently, we expanded our operations to include the acquisition of a pool of
Japanese distressed note pools a joint venture. In September, 1998, the
Kennedy-Wilson/Colony partnership purchased for $24.0 million a pool of
distressed Japanese notes with a face value in excess of $400.0 million, some of
which are secured by real estate and personal property. In addition, the pool
also included 17 commercial and residential properties. As of December 31, 1998,
this note pool had generated for the Kennedy-Wilson/ Colony partnership revenues
in excess of $1.6 million, of which $109,000 represents revenues for us. In
addition to any amounts paid by the borrowers in this note pool, we will also
earn an asset management fee for managing the notes and real estate acquired.
In March, 1999, we entered into a joint venture agreement with an entity
affiliated with Cargill, Incorporated. The present investment strategy of the
Kennedy-Wilson/Cargill joint venture is to acquire on a privately negotiated
basis pools of distressed Japanese real estate secured notes that cost from $3.0
million to $10.0 million. In addition to our 5.0% contribution, we will provide
the Kennedy-Wilson/ Cargill joint venture asset management and disposition
services on a fee basis. Although, the Kennedy-Wilson/Cargill joint venture has
not yet acquired any assets, we expect it to do so in the near future. In
accordance with our obligations under the Kennedy-Wilson/Colony partnership, we
presented this opportunity to that partnership. The Kennedy-Wilson/Colony
partnership declined the opportunity because, we believe, the assets we intend
to acquire through the Kennedy-Wilson/Cargill partnership do not fit within the
Kennedy-Wilson/Colony partnership strategic investment plan.
We also invest in individual distressed notes secured by real property.
Presently, we hold two nonperforming distressed notes secured by undeveloped
land in the Kailua-Kona region of Hawaii that we acquired in 1998. In one of
those notes we have an equity investment of $3.9 million and it is
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secured by 450 acres of ocean front, undeveloped land. In the second note, we
have an equity investmnet of $540,000. This note is secured by 1,000 acres of
undeveloped land.
MEZZANINE LENDING
In 1997, we began making mezzanine loans to real estate developers for new
single-family, residential developments. Total project costs for these
developments typically range from $5.0 to $25.0 million, and our mezzanine loans
typically range from $500,000 to $1.0 million. We expect to hold these loans for
a period of less than two years. Presently, the borrowers pay interest at 10%
per annum, and we are entitled to a participation in any profits from the
development. We also, generally, collect at the closing of each loan a 1% set-up
fee. We have made three loans of this type, each of which remains outstanding.
The aggregate outstanding principal balance of all three loans is approximately
$1.4 million.
EQUITY INVESTMENTS IN OTHER COMPANIES
KENNEDY GOLDMAN. In June, 1997 we acquired a 20% equity interest in Kennedy
Goldman (HK) Limited, a Hong Kong corporation, located in Hong Kong. Kennedy
Goldman is a real estate services company specializing in leasing and real
estate investment brokerage in Hong Kong. We acquired this interest in order to
maintain a presence in the Hong Kong real estate market and business relations
with Asian real estate investors. We have a director on Kennedy Goldman's Board
of Directors. The book value of our investment is $32,000.
ASSET ONE. In April, 1998 we acquired a 40% equity interest in Asset One, a
Japanese corporation with an office in Tokyo. Asset One is a loan servicing
company. Part of Asset One's business includes servicing the loans in our
distressed Japanese loan pools. The book value of our investment is $182,000.
JUTAKU RYUTSU. In March, 1998 we acquired a 30% equity interest in Jutaku
Ryutsu, a Japanese corporation with offices in Tokyo, Osaka and Fukuoka, Japan.
Jutaku Ryutsu is a brokerage company that specializes in selling real estate
assets between $500,000 and $10 million in value. Jutaku Ryutsu assists us with
our acquisition due diligence on our Japanese loan pools and real estate and the
disposition of those assets. The book value of our investment is $253,000.
GOVERNMENT REGULATIONS
Our brokerage and property management operations are subject to various
federal, state and local regulations in the U.S. and in Japan. We must have an
officer licensed as a real estate broker or we must associate with a broker
licensed by each state within the U.S. in which we provide brokerage and
property management services. In California, we must have an officer licensed as
a real estate broker in order to be exempt from California's lender licensing
requirements with respect to the real estate secured mezzanine loans that we
make. Each of our employees that performs certain brokerage functions in any
particular state must be a licensed real estate salesperson in that state and he
or she must work under the supervision of a broker licensed by that state. In
addition to these licensing requirements, certain state governmental entities,
such as the California Department of Real Estate, regulate our brokerage and
property management operations by requiring our resident operative subsidiary to
be licensed. We believe that we are in substantial compliance with all material
licensing requirements and regulations in states and countries in which licenses
are required and in which we are engaged in material brokerage and property
management activities.
In various states, governmental entities license individual auctioneers
and/or administer various regulations governing their activities and may require
that auctioneers post bonds. We believe that we are in substantial compliance
with all material licensing and bonding requirements in all states in which
auctioning licenses and bonds are required and in which we are engaged in
material auction activities.
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COMPETITION
Because of our unique combination of businesses, we compete with brokerage,
auction, leasing and property management companies as well as companies,
partnerships, trusts and individuals that invest in real estate and distressed
notes. We believe that the brokerage and property management industries are both
highly fragmented and highly competitive. We must compete with conventional
property management companies and commercial and residential real estate brokers
as well as other auction companies. Several of these companies are significantly
larger than us and possess greater financial resources. We compete with real
estate brokerage and auction-marketing companies on the basis of brokerage
commissions charged, marketing expenses paid and quality of service. We compete
with property management and leasing firms on the basis of management fees and
leasing commissions charged and the range and quality of services provided.
Our investment operations compete to varying degrees with real estate
investment partnerships and other investment companies. Many of these
competitors have significantly greater capital resources. Some of these
competitors, however, focus on acquisitions which are larger in size than those
historically targeted by us. We believe that we also compete to a lesser degree
with real estate investment trusts that seek to acquire similar assets. We
compete with these other investors on the basis of the amounts that we pay for
the investments acquired.
EMPLOYEES
We have approximately 640 full-time and 50 part-time employees in the U.S.
and in Japan. None of our employees are represented by a collective bargaining
agreement. Our compensation policies are designed to attract and retain and
motivate the employees that are an integral part of our profitability.
Generally, executive officers and brokers receive a base salary and a variety of
performance based rewards including stock options and either profit sharing or
bonuses. These employees, other than those in our property management and
leasing group, receive a relatively low base salary, with the bulk of their
salary being paid in the form of a performance based bonuses. The upper level
employees in the property management and leasing group receive a market based
salary and performance based bonuses. In either case, the bonuses are based in
part upon the profitability of the group with which the employees are affiliated
as well as our overall performance. As a result, employees are encouraged to
meet individual goals as well as to contribute their expertise and efforts on
behalf of their group. In addition to promoting the generation of revenues, our
bonus structure also encourages our commercial real estate brokers to control
costs because the bonuses paid are based on the profits of the commercial
brokerage operations as opposed to gross brokerage revenues. In furtherance of
our compensation philosophy, we have granted approximately 3% of our employees
stock options to reward excellent performance and to further align their
personal interests with those of our other stockholders. Finally, approximately
4% of our employees are entitled to participate in a deferred compensation plan
in which we match each employee's contribution up to a specified maximum
according to our overall performance.
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ITEM 2. PROPERTIES
Our executive and administrative offices are located at 9601 Wilshire
Boulevard, Suite 220, Beverly Hills, California, and consist of approximately
26,000 square feet in an office building managed by us. We also lease space for
our regional and branch offices and sublease space to third parties. These
facilities, including our Beverly Hills headquarters, comprise a total of
approximately 84,488 square feet of leased space, with an annual aggregate base
rental of approximately $1.0 million. Each of these leases is scheduled to
expire within the next five years. We believe that we will be able to renew any
expiring lease or obtain suitable office space to replace such leased facility,
as necessary, without any material increase in our rental costs.
As described above, we also buy and sell real estate in the ordinary course
of our business.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal proceedings generally incidental to our
business and routine. These matters are generally covered by insurance. The
ultimate disposition of these ordinary proceedings is not presently
determinable. We believe based upon currently available information, that the
outcome of these proceedings will not have a material adverse effect on our
financial position or results of operations and that the existing proceedings,
individually or collectively, are not material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of our stockholders during the
fourth quarter of 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock trades on The NASDAQ National Market under the symbol
"KWIC." The following table sets forth the high and low closing sale prices per
share of our Common Stock as reported in the NASDAQ National Market, adjusted
for a 20% stock dividend paid October 27, 1997; a 200% stock dividend paid April
10, 1998 and a 50% stock dividend paid December 15, 1998, where appropriate.
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HIGH LOW
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1997--
First Quarter............................................................. $ 2.22 $ 1.77
Second Quarter............................................................ $ 2.97 $ 2.13
Third Quarter............................................................. $ 3.33 $ 2.73
Fourth Quarter............................................................ $ 4.39 $ 3.08
1998--
First Quarter............................................................. $ 8.78 $ 3.67
Second Quarter............................................................ $ 12.67 $ 6.33
Third Quarter............................................................. $ 9.00 $ 6.00
Fourth Quarter............................................................ $ 8.50 $ 5.00
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As of March 2, 1999, there were approximately 1,250 holders of our Common
Stock. Since the completion of our initial public offering in August 1992, we
have not paid any cash dividends, and we have no present intention to commence
the payment of cash dividends. However, our Board of Directors may determine to
pay cash dividends on our Common Stock in the future depending on our results of
operations, financial condition, contractual restrictions and other factors our
Board may deem relevant from time to time. Presently, our loan agreemnt with FBR
Asset Investment Corporation prohibits us from declaring or paying any dividend
with respect to our Common Stock without first obtaining the consent of FBR
Asset Investment Corporation.
On December 18, 1998, we purchased 100% of the issued and outstanding stock
of TechSource Services, Inc. from its four stockholders for $225,000 cash and
28,300 shares of our common stock at a per share price of $8.027. The sale was
exempt from registration under the Securities Act of 1933 under Section 4(2)
thereof. We reasonably believed prior to the sale of our shares that each of the
purchasers had such knowledge and experience in financial and business matters
that each was capable of evaluating the merits and risks of an investment in our
Company.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected financial data as of and for
each of the five fiscal years ended December 31. The data set forth below should
be read in conjunction with the Consolidated Financial Statements and related
Notes to Consolidated Financial Statements appearing elsewhere herein and ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1994 1995 1996 1997 1998
--------- ---------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues........................................... $ 38,647 $ 20,610 $ 31,967 $ 26,999 $ 50,872
Total expenses........................................... $ 37,589 $ 33,752 $ 28,376 $ 22,768 $ 44,710
Income (loss) from operations............................ $ 1,058 $ (13,142) $ 3,591 $ 4,231 $ 6,162
Net income (loss)........................................ $ 1,010 $ (13,186) $ 3,531 $ 4,030 $ 5,325
Basic income (loss) before extraordinary items per
share.................................................. $ 0.13 $ (1.74) $ 0.50 $ 0.65 $ 0.85
Basic extraordinary items per share...................... N/A N/A N/A $ 0.01 N/A
Basic net income per share............................... $ 0.13 $ (1.74) $ 0.50 $ 0.66 $ 0.85
Basic weighted average shares............................ 7,594 7,575 7,087 6,104 6,254
Diluted income before extraordinary items per share...... $ 0.13 N/A $ 0.50 $ 0.64 $ 0.78
Diluted extraordinary items per share.................... N/A N/A N/A $ 0.01 N/A
Diluted net income per share............................. $ 0.13 N/A $ 0.50 $ 0.65 $ 0.78
Diluted weighted average shares.......................... 7,686 N/A 7,094 6,187 6,801
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1994 1995 1996 1997 1998
--------- ---------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................................. $ 37,014 $ 37,651 $ 51,114 $ 45,718 $ 204,816
Total liabilities........................................ $ 15,995 $ 29,706 $ 40,732 $ 34,124 $ 182,036
Total stockholders' equity............................... $ 21,019 $ 7,945 $ 10,382 $ 11,594 $ 22,780
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are an international real estate services and investment company. We
provide property management and leasing services, asset management, commercial
and residential brokerage, and auction services to clients primarily in the U.S.
and Japan. Our clients include financial institutions, major corporations, real
estate developers, insurance companies and governmental agencies. We also invest
in commercial and residential real estate, as well as individual and pools of
distressed notes both in the U.S. and Japan. Our revenues in 1996, 1997, and
1998 were $32.0 million, $27.0 million, and $50.9 million, respectively. Our net
income in the same periods was $3.5 million, $4.0 million, and $5.3 million,
respectively.
In 1998, we substantially increased our activities in Japan, including a
joint venture with an affiliate of Colony Capital, Inc. This joint venture
provides a framework for the investment of up $100.0 million, $2.0 million of
which would be invested by us, in Japanese real estate and pools of distressed
notes, of which approximately half has been invested to date. Under the terms of
the joint venture agreement, we provide Japanese real estate expertise and
receive acquisition, management and disposition fees. The joint venture
agreement also requires us to provide 2.0% of the required equity in any
investment. In addition, we made minority investments in brokerage and loan
servicing businesses in Japan and have expanded the size of our direct employee
base in Japan to nine real estate professionals. As part of our strategy, we
plan to grow our business in Japan, continuing to emphasize fee based sources of
income. In furtherance of this strategy, we entered into a joint venture and
strategic alliance with an affiliate of Cargill, Incorporated in March 1999 to
invest in small- and medium-sized pools of distressed notes.
When we sell residential real property, we recognize as gross revenues the
total sales price of residential real estate property and we recognize as an
expense the purchase price and improvements associated with that real estate.
Therefore, a sale of residential real property in any reported period has a
disproportionate effect on revenues and expense in that period relative to sales
of other investments and our other business lines. Our commercial real property
investments are accounted for on a net gain on sale basis.
Our 1998 growth was due principally to our acquisition of our property
management and leasing company, Heitman Properties, Ltd., in July 1998. We
funded this acquisition with a $21.0 million loan from Colony K-W, LLC. We made
this acquisition as part of our strategy to increase recurring fee income as a
percentage of total revenues. We expect that this acquisition will be a platform
for future growth of our property management business in both the U.S. and
Japan. We acquired Heitman Properties for $21.0 million in cash and we accounted
for this transaction under the purchase method of accounting, resulting in
goodwill of $16.0 million which we are amortizing on a straight-line basis over
30 years.
Historically, we have purchased for our own account commercial and
residential real estate in the U.S. During 1996, 1997, and 1998, we acquired
$13.1 million, $10.8 million, and $102.1 million, respectively, of commercial
properties, and $2.2 million, $2.8 million, and $7.6 million, respectively, of
residential properties. We held or hold all these properties for resale. We
anticipate selling these domestic, wholly-owned properties within the next year.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
TOTAL REVENUES
Total revenues for 1998 were $50.9 million, which represents an 88.4%
increase over 1997. Earnings before taxes for 1998 were $6.2 million, which
represents a 45.6% increase over 1997. Net income for 1998 was $5.3 million,
which represents a 32.1% increase over 1997. These increases are primarily
attributable to our acquisition of Heitman Properties, Ltd.
13
<PAGE>
PROPERTY MANAGEMENT. In 1998 our property management and leasing operations
generated $14.2 million of revenues, representing 27.9% of our total revenues.
On July 17, 1998 we acquired Heitman Properties, Ltd., from Heitman Financial,
Inc., and renamed it Kennedy-Wilson Properties, Ltd. Between July 17, 1998 and
December 31, 1998, this subsidiary generated $12.7 million of our $14.2 million
in property management fees and leasing commissions. As of December 31, 1998, it
had under management a portfolio of approximately 48 million square feet of
commercial, industrial and apartment properties located in 26 states and the
District of Columbia.
BROKERAGE. Brokerage commission revenues in 1998 were $4.9 million,
representing 9.7% of total revenues and a 16.6% decrease over brokerage
commission revenues in 1997 of $5.9 million. There were a total of 30
transactions in 1998 with an aggregate value of $522.9 million, compared to 57
transactions in 1997 with an aggregate value of $423.8 million. This reflects a
continued trend toward increased brokerage commissions from commercial sales and
decreased brokerage commissions from residential sales. Commercial properties
typically have higher sales prices but lower brokerage commission rates compared
to residential properties. The costs associated with a commercial assignment
tend to be lower than those associated with residential assignments.
INVESTMENTS. Sales of residential real estate were $13.8 million in 1998,
representing 27.2% of total revenues, compared to $6.8 million in 1997. This
equates to a 104.8% increase. This increase is due to sales from four projects
in 1998, including a 10 unit single family home development in North Los
Angeles, seven units of a 23 unit single family development in Palm Desert, and
the bulk sale of a 24 unit condominium project in west Los Angeles. This
compares to revenues in 1997 from the sale of 13 units of a 14 unit condominium
project located in Orange County, California, the sale of the remaining seven
units in a condominium project in Hawaii, and the sale of a land lot zoned for
condominium development in Beverly Hills. The sales of residential real estate
for both years reflect our strategy to sell upon completion of planned
improvements, rather than holding for speculation.
Equity in income of investments with related parties and affiliates and gain
on sale of partnership increased in total to $4.7 million in 1998, or 9.2% of
total revenue, a 227.7% increase from the $1.4 million realized in 1997. The
gain on sale of the partnership interest was $4.1 million. The increase was
substantially due to the gain on the sale in 1998 of our interest in a joint
venture that owned two commercial office buildings in downtown Los Angeles. We
sold our interest in the joint venture because we had completed the process of
stabilizing the properties, which included increasing average occupancy of the
properties from approximately 45% at acquisition in 1996 to approximately 80% at
the time of sale. Both 1998 and 1997 included revenues from the sale of 88
condominium units from a 109 unit joint venture project located in near downtown
Los Angeles. The sales of these units occurred over the two years as planned
improvements to the units were completed.
Gain on sale of commercial real estate was $2.7 million 1998, or 5.2% of
total revenues, down 58.2% from $6.3 million in 1997. The decline resulted from
the fact that in 1997 we sold five commercial properties including a 46,000
square foot property in Santa Monica, a 50,000 square foot property in West Los
Angeles, 30,000 square foot property in Anaheim, a 61,000 square foot in
Pasadena and a 20,000 square foot property in Santa Monica. In 1998, we sold two
commercial properties, consisting of a 36,000 square foot building in Santa
Monica, and a 28,000 square foot building in downtown Los Angeles. All
properties were sold after the completion of the stabilization process.
Gains on restructured notes totaled $3.9 million in 1998, or 7.7% of total
revenues, a 3.1% decrease from $4.0 million in 1997. This decrease can be
attributed to a reduction in the number of U.S. note purchases in 1998. The gain
in both years reflects our continued progress in liquidating our portfolios of
distressed notes that were purchased at substantial discounts to face value. Our
strategy to collect the note balances consists of either restructuring the note
to performing status, negotiating a payoff, or foreclosing and selling the
related collateral.
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<PAGE>
Net rental income was $4.6 million in 1998, or 9.0% of total revenues,
representing a 181.3% increase from $1.6 million in 1997. The increase reflects
our acquisition of approximately 1.1 million square feet of commercial office
properties in 1998. All of these acquisitions represent what we believe are
value-added opportunities in recovering sub markets in Los Angeles county,
including two properties in Hollywood consisting of 467,000 square feet, a
property in downtown Los Angeles consisting of 282,000 square feet, a property
in the Mid-Wilshire District of Los Angeles consisting of 133,000 square feet, a
property in Pasadena consisting of 52,000 square feet, and a property in Van
Nuys consisting of 74,000 square feet.
TOTAL OPERATING EXPENSES.
Operating expenses in 1998 were $44.7 million, representing a 96.4% increase
over $22.8 million in 1997. This increase was due primarily to the addition of
new personnel in connection with the acquisition of Heitman Properties, Ltd.
Brokerage commissions and marketing expenses decreased 42.7% to $532,000 in
1998 from $928,000 in 1997, primarily as a result of the decreased auction
sales, which are typically more expensive than sealed bid sales or traditional
brokerage sales.
Cost of residential real estate sold was $12.2 million in 1998, a 119.0%
increase from $5.6 million in 1997. The increase correlates with the increased
revenues from the sales of residential real estate discussed above.
Compensation and related expenses was $14.6 million in 1998, up 90.4% from
$7.7 million in 1997. The increase reflects the increase in personnel from 60
employees in 1997 to approximately 700 employees in 1998, primarily as a result
of our acquisition of Heitman Properties, Ltd. In addition, in 1997 we
implemented a deferred compensation program designed to retain and motivate key
employees to help achieve targeted company-wide goals.
General and administrative expenses were $6.9 million in 1998, representing
a 47.8% increase over 1997 expenses of $4.7 million. The increase is due
primarily to the additional expenses associated with our property management
operations.
Depreciation and amortization expense increased to $2.1 million in 1998, a
160.6% increase over the $790,000 in 1997. The increase was due to the increase
in the commercial property portfolio to $110.0 million in 1998 from $14.1
million in 1997. In addition, amortization of the goodwill and property
management contracts associated with the acquisition of Heitman Properties, Ltd.
began from its acquisition in July 1998 and amounted to about $800,000 in 1998.
Interest expense was $8.4 million in 1998, compared to $3.1 million in 1997,
representing a 167.5% increase. The increase results from the increase in total
debt to $163.9 million in 1998 from $28.9 million in 1997. It should be noted
that approximately $115.1 million of the debt in 1998 was in the form of loans
incurred concurrently with the acquisition of our commercial and residential
properties as such acquisitions and loans are discussed in the "Liquidity and
Capital Resources" section.
Provision for income taxes was $837,000 in 1998, a 200% increase over the
$280,000 in 1997. The tax expense has been significantly less than the statutory
rate due to substantial net operating losses carryforward which have been
utilized in reducing the Company's federal tax liabilities. At December 31,
1998, the Company has available net operating losses carryforward totaling
approximately $219,000.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
TOTAL REVENUES.
Total revenues in 1997 were $27.0 million, a 15.5% decrease from $32.0
million in 1996. Earnings before taxes for 1997 were $4.2 million, representing
a 17.8% increase over 1996. Net income for 1997 was $4.0 million, representing a
14.1% increase over 1996. Despite the decrease in sales of residential real
estate earnings before taxes, net income increased because of an increase in the
sale of commercial real estate. We had no property management revenues from 1996
or 1997.
15
<PAGE>
BROKERAGE. Revenues from brokerage commissions were $5.9 million in both
1997 and 1996, representing 21.8% of total revenues in 1997 and 18.4% of total
revenues in 1996. In 1997 there were 57 transactions totaling $424.0 million in
value, compared to 70 transactions in 1996 totaling $359.6 million in value.
Also, in 1997 a greater proportion of the brokerage commissions were earned from
commercial property sales, as opposed to 1996 when sales of residential
properties, especially through the auction process, were greater. Commercial
properties typically have higher sales prices but lower brokerage commission
rates compared to residential properties. The costs associated with a commercial
assignment tend to be lower than those associated with residential assignments.
INVESTMENTS. Residential real estate sales were $6.8 million in 1997, equal
to 25.0% of total revenues, compared to $19.7 million in 1996 representing a
65.8% decline. Residential real estate sales in 1997 consisted of revenues from
three projects, including 13 units of a 14 unit condominium property in Orange
County, the remaining seven units in a condominium property in Hawaii, and land
in Beverly Hills. This compares to residential real estate sales in 1996 which
included revenues from four projects, including 33 condominium units from a
property in Hawaii, 42 condominium units from a property in south San Francisco,
nine units from a property in west Los Angeles, and the remaining unit from a
condominium project located in San Francisco.
Equity in income of investments with related parties and non-affiliates was
$1.4 million in 1997, or 5.3% of total revenues, compared to $178,000 in 1996.
The increase is due primarily to sales of 88 condominium units in a 109 unit
joint venture property located near downtown Los Angeles.
Gain on sale of commercial real estate was $6.3 million in 1997,
representing 23.5% of total revenues, compared to $1.4 million in 1996, equating
to a 336.0% increase. The increase is due primarily to the fact that in 1997 we
sold five commercial properties, including a 46,000 square foot property in
Santa Monica, California, a 50,000 square foot property in west Los Angeles, and
a 30,000 square foot property in Anaheim, California, a 61,000 square foot
property in Pasadena, California, and a 20,000 square foot property in Santa
Monica. In 1996 we sold one commercial property consisting of 56,000 square feet
in Santa Monica.
Gains on restructured notes receivable were $4.0 million in 1997, or 15.0%
of total revenues, compared to $3.1 million in 1996, which equates to a 32.0%
increase. The increase reflects the increased collections from the note pools
acquired in 1996 and 1997.
Rental income net was $1.6 million in 1997, or 6.0% of total revenues,
versus $1.5 million in 1996, resulting in an 11.0% increase. The increase
resulted from an increase in the average occupancy of properties in our
portfolio in 1997 due to our management and leasing programs.
TOTAL OPERATING EXPENSES.
Total expenses in 1997 were $22.8 million, a 20.0% decrease from $28.4
million in 1996. Despite the decrease in sales of residential real estate,
earnings before taxes and net income increased because of an increase in the
sales of commercial real estate. We had no property management revenues in 1996
or 1997.
Brokerage commission and marketing expenses decreased 40.5% to $928,000 in
1997 from $1.6 million in 1996, reflecting the continued trend of less auction
marketing revenues which is typically more costly than single asset commercial
brokerage transactions.
Cost of residential real estate sold decreased 66.2% to $5.6 million in 1997
from $16.7 million in 1996. This was due primarily to the decreased revenues
from sales of residential real estate discussed above.
Compensation and related expenses increased 62.0% to $7.7 million in 1997
from $4.7 in 1996, resulting from an increase in executive employees and from
increased incentive compensation, including the implementation of a deferred
compensation program designed to maximize our profits.
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<PAGE>
General and administrative expenses increased 49.1% to $4.7 million in 1997
from $3.1 million in 1996, due to an increase in occupancy costs associated with
opening our office in New York as well as the necessity of additional corporate
space, and to increased legal costs associated with increased collection and
restructuring of notes receivable and leasing and sales of commercial and
residential real estate.
Depreciation and amortization increased 195.0% to $790,000 in 1997 from
$268,000 in 1996. Although commercial properties held for sale at the end of
1997 totaled approximately $14.1 million, compared to approximately $25.1
million at the end of 1996, the average balance during 1997 was higher.
Interest expense increased 59.8% to $3.1 million in 1997 from $2.0 million
in 1996. Although our total debt decrease to $28.9 million from $37.6 million in
1996, the average balance in 1997 was higher.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital resources requirements include expenditures for
real estate held for sale, distressed notes pools, the acquisition of property
management portfolios, and working capital needs. Historically, we have not
required significant capital resources to support our brokerage operations. We
finance our operations with internally generated funds and borrowings under our
revolving lines of credit as described below. Our investments in real estate are
typically financed by mortgage loans secured primarily by that real estate.
These mortgage loans are generally nonrecourse in that, in the event of a
default, recourse will be limited to the mortgaged property serving as
collateral, subject to certain exceptions that are standard in the real estate
industry. Exceptions where the lender may proceed against the borrower or
guarantor, if any, generally include the voluntary transfer of the mortgaged
property by the borrower, the voluntary initiation of bankruptcy proceedings by
the borrower, fraud or misrepresentation in obtaining the loan, and other
similar acts.
Cash provided by operating activities was about $3.7 million in 1998,
compared to $3.0 million in cash used in operating activities in 1997. The
change included an increase in accounts receivable attributable primarily to the
property management fees which are received one month in arrears, as well as
leasing commissions earned but not received until the related tenant moves in,
offset by increased accrued expenses which includes bonuses and deferred
compensation. The $3.0 million cash used in operating activities in 1997
compares to $533,000 in cash provided by operating activities in 1996. The
change resulted from an increase in 1997 in gains on sale of real estate, which
are excluded from cash flows from operating activities, offset by an increase in
accrued expenses.
Cash used in investing activities was about $136.0 million in 1998, compared
to $21.5 million in cash provided by investing activities in 1997. The change
resulted primarily from our purchases of real estate held for sale of $123.0
million which was attributable to our commercial property acquisitions. In
addition, in 1998, we purchased Heitman Properties, Ltd. for about $21.0
million, which was allocated to contracts, furniture and fixtures, and goodwill.
The $21.5 million in cash provided by investing activities in 1997 compares to
cash used in investing activities in 1996 of $11.7 million. The change resulted
primarily from proceeds from sale of real estate held for sale in the amount of
$36.3 million and collection of notes receivable of $4.9 million, offset by
purchases of real estate held for sale in the amount of $18.8 million.
Cash provided by financing activities was about $131.8 million in 1998,
compared to cash used in financing activities in 1997 of about $10.0 million.
The change resulted from $114.7 million in mortgage loans payable related
primarily to the purchase of the commercial properties referred to above. In
addition we issued $21.0 million in subordinated debt related to the purchase of
Heitman Properties, Ltd. The $10.0 million in cash used in financing activities
in 1997 compares to cash provided by financing activities of $10.8 million in
1996. The change resulted from repayments of mortgage loans payable of $19.7
million and repayment of notes payable of $7.1 million.
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<PAGE>
Prior to September 1998, we had a $15.0 million unsecured credit facility
with East-West Bank with an interest rate of prime plus 2.0%. In September 1998,
we increased that facility to $21.0 million with interest payable monthly at a
rate of LIBOR plus 2.0% and a maturity date of June 30, 2000. We use this
facility primarily for working capital purposes and acquisitions. The
outstanding balance on this facility was $13.1 million as of December 31, 1998.
In July 1998, we entered into a bridge loan agreement with Colony K-W, LLC
that provided us with $21.0 million in subordinated debt, the proceeds from
which we utilized to consummate our acquisition of Heitman Properties, Ltd. This
debt bears interest at a rate of 14%, and the principal is payable in three
installments of $7.0 million due on July 30 in each of 1999, 2000 and 2001.
As of December 31, 1998, we had $115.1 million in mortgage notes payable. We
used proceeds from these loans to finance the acquisition of several commercial
and residential properties, and are secured by both first and second mortgage
liens. All but $5.3 million of these loans are non-recourse against the borrower
or guarantor, if any, except in certain circumstances that are standard in the
real estate industry. We plan to repay each note upon the sale of the
corresponding secured property.
In June 1998, we entered into a term loan agreement with FBR Asset
Investment Corporation which had an original principal amount of $10.0 million
bearing interest at 12.0% per annum. As of November, 1998 the loan terms were
amended so that after December 3, 1998, the interest rate was 13% per annum
payable monthly plus 4% per annum compounded monthly and payable at maturity and
the loan was extended to June 1999; however, we plan on refinancing this debt on
or prior to maturity. As of December 31, 1998 the outstanding principal balance
was $7.5 million. We used the proceeds of this loan to purchase note pools.
To the extent that we engage in additional strategic investments, including
real estate, note portfolio, or acquisitions of other property management
companies, we may need to obtain third party financing which could include bank
financing or the public sale or private placement of debt or equity securities.
We believe that existing cash, plus capital generated from property management
and leasing, brokerage, sales of real estate owned, collections from notes
receivable, as well as our current line of credit with East-West Bank, will
provide us with sufficient capital requirements for the foreseeable future.
Our need, if any, to raise additional funds to meet our working capital and
capital requirements will depend on numerous factors, including the success and
pace of the implementation of our strategy for growth. We regularly monitor
capital raising alternatives to be able to take advantage of other available
avenues to support our working capital and investment needs, including strategic
partnerships and other alliances, bank borrowings, and the sale of equity or
debt securities. We intend to retain earnings to finance our growth and,
therefore, do not anticipate paying any dividends.
RECENT DEVELOPMENTS
On March 5, 1999, we executed a letter of intent relating to our proposed
acquisition of a property management company. The acquisition price is less than
$2.5 million. We intend to finance a portion of this acquisition with borrowings
under our East-West Bank line of credit.
INFLATION
Our long-term leases contain provisions designed to mitigate the adverse
impact of inflation on its results from operations. Such provisions include
escalation clauses, which generally increase rental rates during the terms of
the respective agreements. Such escalation clauses are often related to
increases in the CPI or similar inflation indices. In addition, many of our
leases and management agreements are for terms of less than ten years, which
permits us to seek to increase rents and fees at market rates if they are below
then existing market rates. Many of our leases require the tenants to pay a pro
rata
18
<PAGE>
share of operating expenses, including common area maintenance, real estate
taxes, insurance and utilities, thereby reducing our exposure to increases in
costs and operating expenses resulting from inflation. See Note 1 of Notes to
the Company's Consolidated Financial Statements.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INVESTMENTS AND HEDGING ACTIVITIES was issued June 1998, applicable
for all fiscal years beginning after June 15, 1999. At this time, management has
not completed their analysis of this pronouncement's impact on the Company's
financial statements.
YEAR 2000 ISSUE
It is difficult to estimate the impact the Year 2000 Issue may have on our
business, financial condition and results of operations. Based on current
testing, we have identified two primary systems affected by the Year 2000 Issue.
First, we rely upon information technology systems to run software for
databases, accounting, word processing, e-mail and other programs necessary to
our business. Second, certain mechanical systems in the buildings we manage and
own, such as fire safety systems, key card access devices and air conditioning
and heating units, may be reliant, to some degree, on computer systems for
various functions.
WHAT IS THE STATE OF READINESS OF OUR INFORMATION TECHNOLOGY SYSTEMS?
In January, 1999, we formed an internal information services group that
developed a plan to bring our information technology systems into Year 2000
compliance by September, 1999, consisting of the following:
- Educate management of the nature and scope of the Year 2000 Issue;
- Inventory all hardware and software systems which we use;
- Scan these systems with two industry standard programs for Year 2000
compliance and repair or replace those identified as non-compliant;
- Install a new computer network and server which will allow us to back up
all of our data every evening; and
- Test new systems in a "non-live environment" by turning their internal
clocks forward while monitoring and recording responses and hire outside
consultants to audit and validate our results.
We project our new network will be up and running no later than June 1,
1999, and we presently anticipate to be through with all internal testing by
September, 1999. We plan to have outside consultants perform and complete their
valuation audit of our testing by the fourth quarter of 1999. We estimate based
on current testing, that we will have to replace approximately 20 computers of
the 120 in use at our five corporate offices.
Most of the properties to which we provide property management services have
computer terminals. While these terminals will be tested, they will not be
placed on our network. We do not presently believe Year 2000 compliance problems
with these terminals will have a material adverse affect on our property
management operations.
WHAT IS THE STATE OF READINESS OF OUR BUILDING SYSTEMS?
In the first quarter of 1998, we formed a Year 2000 Compliance Task Force to
formulate and draft a Year 2000 compliance program for the various properties we
manage. Each individual property owner
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is ultimately responsible for assuring its properties are ready for Year 2000,
and our role as property manager is limited to identifying potential problems
and recommending remedial action. However, we will make the necessary Year 2000
renovations to the properties we own.
As of February 28, 1999, approximately 60% of the properties under
management in 1998 are participating in the Year 2000 compliance program. For
those properties, we have substantially completed reviews of the preliminary
inventories and testing and have submitted proposals to those owners. We will
contact owners of non-participating buildings to determine if they would now
like to participate in our Year 2000 compliance program.
HOW DOES THE YEAR 2000 ISSUE IMPACT US?
We are not currently aware of any internal Year 2000 problems that could be
reasonably expected to have a material adverse impact on our business, results
of operations and financial condition. The vendors from which we will acquire
hardware and software for our new information technology system have indicated
the products we plan to use are currently Year 2000 compliant. The current
review of the preliminary systems inventories from our participating managed
properties revealed few Year 2000 Issues.
However, there can be no assurance that we will not discover Year 2000
problems with our systems that will require their repair or replacement. We
cannot give assurances that third-party software, hardware or services
incorporated into our material systems, or systems upon which we are reliant,
will not need to be revised or replaced, which could be time consuming and
expensive. In addition, we cannot give assurances that governmental agencies,
utilities, third-party service providers and others outside of our control will
be Year 2000 compliant. The failure of such entities to become compliant could
result in a systemic failure beyond our control, such as loss of
telecommunications or electricity, which could adversely impact our information
technology systems or may allow tenants at the buildings we own or manage to
terminate leases if such failures persist.
WHAT WILL IT COST TO IMPLEMENT THE YEAR 2000 PLANS?
We estimate that we will incur approximately $150,000 in our Year 2000
compliance efforts, of which we have spent approximately $12,000 to date. The
majority of this amount will be spent on replacing hardware and software and on
testing. We have not had to defer any of our information technology plans as a
result of our Year 2000 preparations. However, these estimates are based on our
current assessment and are subject to change. We will continue to assess our
Year 2000 Issue compliance efforts and as a result, we may need to revise our
budget to implement new measures in the future.
CONTINGENCY PLAN
We are currently developing a Year 2000 Contingency Plan. The results of
current and future testing and responses of vendors, manufacturers and service
providers will be taken into account in developing this plan.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document may constitute
"forward-looking statements" within the meaning of the federal securities laws.
Forward-looking statements are statements containing a projection of revenues,
income (loss), earnings (loss), capital expenditures, dividends, capital
structure or other financial terms or our plans and objectives for future
operations.
The Forward-looking statements in this document are based on our
management's beliefs, assumptions, and expectations of our future economic
performance, taking into account the information currently available to them.
These statements are not statements of historical fact. Forward-looking
20
<PAGE>
statements involve risks and uncertainties that may cause our actual results,
performance or financial condition to be materially different from the
expectations of future results, performance or financial condition we express or
imply in any forward-looking statements. Some of the important factors that
could cause our actual results, performance or financial condition to differ
materially from our expectations are:
- General volatility of the capital markets and the market price of our
common shares;
- Changes in the real estate market, interest rates or the general economy
of the markets in which we operate;
- Our ability to identify and complete acquisitions and successfully
integrate businesses we acquire;
- Our ability to employ and retain qualified employees;
- Our ability, and the ability of our significant vendors, suppliers and
customers, to achieve Year 2000 compliance;
- Changes in government regulations that are applicable to our regulated
brokerage and property management businesses;
- Changes in the demand for our services; and
- Degree and nature of our competition.
When used in our documents or oral presentations, the words "plan,"
"believe," "anticipate," "estimate," "expect," "objective," "projection,"
"forecast," "goal," or similar words are intended to identify forward-looking
statements. We qualify any and all such forward-looking statements entirely by
these cautionary factors.
21
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below represents contractual balances of our financial instruments
at the expected maturity dates as well as the fair value at December 31, 1998.
The expected maturity categories take into consideration actual amortization of
principal and does not take into consideration reinvestment of cash. The
weighted average interest rate for the various assets and liabilities presented
are actual as of December 31, 1998. (See Consolidated Financial Statements--Note
2, Fair Value of Financial Instruments).
<TABLE>
<CAPTION>
PRINCIPAL MATURING IN:
-----------------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER TOTAL
------------ ------------ ------------ ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate
sensitive assets:
Cash and cash
equivalents....... $ 9,838,000 $ 9,838,000
Average interest
rate............ 4.00% 4.00%
------------ ------------ ------------ ----------- --------- ----------- -------------
$ 9,838,000 $ 9,838,000
------------ ------------ ------------ ----------- --------- ----------- -------------
------------ ------------ ------------ ----------- --------- ----------- -------------
Weighted average
interest rate....... 4.00% 4.00%
------------ ------------ ------------ ----------- --------- ----------- -------------
------------ ------------ ------------ ----------- --------- ----------- -------------
Interest rate
sensitive
liabilities:
Variable rate
borrowings........ $ 23,596,000 $ 408,000 $ 99,412,000 $ 1,114,000 $ 83,000 $ 7,283,000 $ 131,896,000
Average interest
rate............ 8.91% 9.16% 9.66% 10.16% 10.66% 10.66% 9.58%
Fixed rate
borrowings........ 16,789,000 14,000,000 1,250,000 32,039,000
Average interest
rate............ 14.40% 14.65% 16.15% 14.58%
------------ ------------ ------------ ----------- --------- ----------- -------------
$ 40,385,000 $ 14,408,000 $ 99,412,000 $ 1,114,000 $ 83,000 $ 8,533,000 $ 163,935,000
------------ ------------ ------------ ----------- --------- ----------- -------------
------------ ------------ ------------ ----------- --------- ----------- -------------
Weighted average
interest rate 11.19% 14.49% 9.66% 10.16% 10.66% 11.46% 10.56%
------------ ------------ ------------ ----------- --------- ----------- -------------
------------ ------------ ------------ ----------- --------- ----------- -------------
<CAPTION>
FAIR VALUE
DECEMBER 31, 1998
------------------
<S> <C>
Interest rate
sensitive assets:
Cash and cash
equivalents....... $ 9,838,000
Average interest
rate............
------------------
$ 9,838,000
------------------
------------------
Weighted average
interest rate.......
------------------
------------------
Interest rate
sensitive
liabilities:
Variable rate
borrowings........ $ 131,896,000
Average interest
rate............
Fixed rate
borrowings........ 32,039,000
Average interest
rate............
------------------
$ 163,935,000
------------------
------------------
Weighted average
interest rate
</TABLE>
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
KENNEDY-WILSON, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... 25
Consolidated Balance Sheets as of December 31, 1998, and 1997.............................................. 26
Consolidated Statements of Income for the Three Years Ended December 31, 1998.............................. 27
Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31, 1998................ 28
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1998.......................... 29
Notes to Consolidated Financial Statements................................................................. 30
Schedule III--Real Estate and Accumulated Depreciation..................................................... S-1
</TABLE>
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Kennedy-Wilson, Inc. and Subsidiaries
Beverly Hills, California
We have audited the accompanying consolidated balance sheets of Kennedy-Wilson,
Inc. and subsidiaries (the "Company"), as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also included the financial statement schedule listed in the Index at Item 14.
These financial statements and financial statement schedule are the
responsibilty of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted out audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Kennedy-Wilson, Inc. and subsidiaries at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 26, 1999
24
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 10,448,000 $ 9,838,000
Cash--restricted (Note 2) 174,000 8,168,000
Accounts receivable 1,018,000 6,674,000
Notes receivable (Notes 3 and 8) 9,546,000 23,115,000
Real estate held for sale (Notes 4 and 9) 18,628,000 122,407,000
Investments with related parties and non-affiliates (Notes 5 and 11) 4,899,000 9,209,000
Contracts, furniture, fixtures and equipment and other assets (Note 6) 1,005,000 9,238,000
Goodwill, net (Note 2) 16,167,000
-------------- --------------
TOTAL ASSETS $ 45,718,000 $ 204,816,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 666,000 $ 1,752,000
Accrued expenses and other liabilities 4,553,000 15,721,000
Deferred taxes (Note 12) 628,000
Notes payable (Note 8) 4,764,000 14,291,000
Borrowings under lines of credit (Note 7) 9,039,000 13,514,000
Mortgage loans payable (Note 9) 15,102,000 115,130,000
-------------- --------------
Total liabilities 34,124,000 161,036,000
-------------- --------------
Subordinated debt (Note 10) 21,000,000
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY (Notes 14 and 15)
Preferred stock, $.01 par value; shares authorized: 2,000,000, none issued
Common stock $.01 par value; shares authorized: 10,000,000 in 1998 and
5,000,000 in 1997; shares issued: 6,597,075 in 1998 and 5,923,548 in 1997 59,000 66,000
Additional paid-in capital 23,768,000 28,888,000
Accumulated deficit (10,913,000) (5,970,000)
Notes receivable from stockholders (1,320,000) (204,000)
-------------- --------------
Total stockholders' equity 11,594,000 22,780,000
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,718,000 $ 204,816,000
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
KENNEDY-WILSON, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES
Property management and leasing fees (Note 18) $ 14,194,000
Commissions $ 4,821,000 $ 5,001,000 3,716,000
Commissions--related parties (Note 11) 1,052,000 894,000 1,201,000
Sales of residential real estate 19,743,000 6,753,000 13,828,000
Equity in income of investments with related parties and
non-affiliates (Note 5) 178,000 1,431,000 612,000
Gain on sale of joint venture 4,077,000
Gain on sale of commercial real estate 1,454,000 6,339,000 2,654,000
Rental income, net 1,467,000 1,629,000 4,583,000
Gain on restructured notes receivable (Notes 2 and 3) 3,057,000 4,036,000 3,911,000
Other income 195,000 916,000 2,096,000
------------- ------------- -------------
Total Revenues 31,967,000 26,999,000 50,872,000
------------- ------------- -------------
OPERATING EXPENSES
Commissions and marketing expenses 1,560,000 928,000 532,000
Cost of residential real estate sold 16,523,000 5,592,000 12,249,000
Cost of residential real estate sold--related parties 209,000
Compensation and related expenses 4,726,000 7,658,000 14,582,000
General and administrative 3,126,000 4,661,000 6,890,000
Depreciation and amortization 268,000 790,000 2,059,000
Interest expense 1,964,000 3,139,000 8,398,000
------------- ------------- -------------
Total Operating Expenses 28,376,000 22,768,000 44,710,000
------------- ------------- -------------
Income Before Provision for Income Taxes and Extraordinary Items 3,591,000 4,231,000 6,162,000
Provision for Income Taxes (Note 12) 60,000 280,000 837,000
------------- ------------- -------------
Income Before Extraordinary Items 3,531,000 3,951,000 5,325,000
Extraordinary Items (Note 17) 79,000
------------- ------------- -------------
NET INCOME $ 3,531,000 $ 4,030,000 $ 5,325,000
------------- ------------- -------------
------------- ------------- -------------
SHARE DATA
Basic net income before extraordinary items per share $ 0.50 $ 0.65 $ 0.85
Basic extraordinary items per share N/A $ 0.01 N/A
Basic net income per share $ 0.50 $ 0.66 $ 0.85
Basic weighted average shares 7,086,848 6,104,497 6,254,470
Diluted net income before extraordinary items per share $ 0.50 $ 0.64 $ 0.78
Diluted extraordinary items per share N/A $ 0.01 N/A
Diluted net income per share $ 0.50 $ 0.65 $ 0.78
Diluted weighted average shares 7,093,958 6,187,280 6,801,356
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
COMMON STOCK RECEIVABLE
--------------------- ADDITIONAL ACCUMULATED FROM
SHARES AMOUNT PAID-IN-CAPITAL DEFICIT STOCKHOLDERS TOTAL
---------- --------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 7,563,236 $ 75,000 $ 22,669,000 $ (14,799,000) $ 7,945,000
Repurchase of common stock (891,000) (9,000) (1,085,000) (1,094,000)
Net income 3,531,000 3,531,000
---------- --------- -------------- -------------- -------------- --------------
Balance, December 31, 1996 6,672,236 66,000 21,584,000 (11,268,000) 10,382,000
Repurchase of common stock (748,688) (7,000) (1,491,000) (1,498,000)
Stock dividend 3,675,000 (3,675,000)
Notes receivable from
stockholders (Note 16) $ (1,320,000) (1,320,000)
Net income 4,030,000 4,030,000
---------- --------- -------------- -------------- -------------- --------------
Balance, December 31, 1997 5,923,548 59,000 23,768,000 (10,913,000) (1,320,000) 11,594,000
Issuance of common stock 808,878 8,000 5,645,000 5,653,000
Repurchase of common stock (135,351) (1,000) (907,000) (908,000)
Stock dividends 382,000 (382,000)
Repayment on notes receivable
from stockholders (Note 16) 1,116,000 1,116,000
Net income 5,325,000 5,325,000
---------- --------- -------------- -------------- -------------- --------------
Balance, December 31, 1998 6,597,075 $ 66,000 $ 28,888,000 $ (5,970,000) $ (204,000) $ 22,780,000
---------- --------- -------------- -------------- -------------- --------------
---------- --------- -------------- -------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
--------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,531,000 $ 4,030,000 $ 5,325,000
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 268,000 790,000 2,059,000
Equity in income of investments with related parties and
non-affiliates (178,000) (1,431,000) (612,000)
Gain on sale of joint venture (4,077,000)
Gains on sales of real estate (1,454,000) (7,500,000) (4,233,000)
Gains on restructured notes receivable -- non-cash (537,000) (689,000) (627,000)
Deferred taxes 628,000
Extraordinary items, net (79,000)
Change in assets and liabilities:
Accounts receivable 751,000 (24,000) (5,656,000)
Other assets (720,000) (184,000) (1,403,000)
Accounts payable (191,000) (227,000) 1,086,000
Accrued expenses and other liabilities (937,000) 2,343,000 11,168,000
----------- ----------- ------------
Net Cash Provided By (Used In) Operating Activities 533,000 (2,971,000) 3,658,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of contract, furniture, fixtures and equipment (197,000) (178,000) (7,280,000)
Dispositions of contracts, furniture, fixtures and equipment 559,000 18,000
Purchase and additions to real estate held for sale (21,341,000) (18,841,000) (122,671,000)
Proceeds from sales of real estate held for sale 25,914,000 36,304,000 21,743,000
Proceeds from sale of joint venture 5,348,000
Additions to notes receivable (13,015,000) (26,235,000)
Payments from notes receivable 4,930,000 13,293,000
Additions to goodwill (16,412,000)
Stockholders (loans to) repayments from (1,320,000) 1,116,000
Distributions from joint ventures 20,000 2,775,000 2,271,000
Contributions to joint ventures (3,607,000) (2,153,000) (7,240,000)
----------- ----------- ------------
Net Cash (Used In) Provided By Investing Activities (11,667,000) 21,517,000 (136,049,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of mortgage loans payable 26,577,000 14,320,000 114,679,000
Repayment of mortgage loans payable (30,510,000) (19,734,000) (14,651,000)
Borrowings under lines of credit 15,345,000 14,063,000 40,348,000
Repayment of lines of credit (7,453,000) (13,941,000) (35,873,000)
Borrowings under notes payable 10,128,000 3,737,000 19,740,000
Repayment of notes payable (1,933,000) (7,168,000) (10,213,000)
Issuance of subordinated debt 21,000,000
Cash -- restricted (increase) decrease (217,000) 222,000 (7,994,000)
Common stock (repurchase) issuance (1,094,000) (1,498,000) 4,745,000
----------- ----------- ------------
Net Cash Provided By (Used In) Financing Activities 10,843,000 (9,999,000) 131,781,000
----------- ----------- ------------
Net (decrease) increase in cash (291,000) 8,547,000 (610,000)
CASH, BEGINNING OF YEAR 2,192,000 1,901,000 10,448,000
----------- ----------- ------------
CASH, END OF YEAR $ 1,901,000 $10,448,000 $ 9,838,000
----------- ----------- ------------
----------- ----------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ 2,113,000 $ 2,930,000 $ 7,754,000
Interest capitalized $ 57,000 $ 340,000 $ 640,000
Income taxes $ 34,000 $ 246,000 $ 633,000
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 1--ORGANIZATION
Kennedy-Wilson, Inc., a Delaware corporation, incorporated in 1992, and its
wholly owned subsidiaries (the "Company") provide real estate property
management, brokerage and marketing services throughout the U.S., and in Japan,
primarily to institutional investors, financial institutions, developers and
government agencies. The Company also acquires, renovates and resells commercial
and residential real estate; invests in non-performing note receivable
portfolios; and invests in various real estate joint ventures. 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 for approximately $21 million.
The Company used the purchase method of accounting to record the transaction.
Accordingly, the results of operations of Heitman Properties, Ltd. (renamed
Kennedy-Wilson Properties, Ltd.) are included in the consolidated financial
statements from the date of acquisition (see Note 19).
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries and joint ventures in
which the Company has a controlling interest. For foreign operations, assets and
liabilities are translated at year-end exchange rates, and income statement
items are translated at average exchange rates prevailing during the year. All
significant inter-company transactions have been eliminated.
REVENUE RECOGNITION--Property management fees are recognized over time as earned
based upon the terms of the management agreement. Brokerage commissions are
generally recognized when all services to be provided by the Company have been
performed and title to real property has passed from the seller to the buyer.
Residential real estate sales revenue and gains on sale of commercial property
are recognized at the close of escrow when title to the real property passes to
the buyer. The Company follows the guidelines for profit recognition as set
forth by Statement of Financial Accounting Standards (SFAS) NO. 66 ACCOUNTING
FOR SALES OF REAL ESTATE. Gains on notes receivable are recognized ratably upon
constructive receipt of cash or a restructured note including a significant cash
component.
INVESTMENTS IN AFFILIATES AND JOINT VENTURES--The Company accounts for
investments in affiliates and joint ventures with a non-controlling interest of
50% or less using the equity method.
ACCOUNTING ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
GOODWILL--The Company's purchase of Heitman Properties, Ltd., a property
management company in July 1998 resulted in goodwill totaling approximately
$16.0 million. Goodwill results from the difference between the purchase price
and the fair value of assets acquired based upon the Purchase Method of
accounting for business combinations under ACCOUNTING PRINCIPALS BOARD OPINION
NUMBER 16. The allocated amount, as determined by Company management, is being
amortized over 30 years using the straight-line method. Goodwill is reviewed for
impairment on a regular basis by Company management by comparison to future
expected undiscounted cash flows. Amortization of goodwill for the year ended
1998 totaled $244,000.
29
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
CASH AND CASH EQUIVALENTS--Cash consists of cash and all highly liquid
investments purchased with maturities of three months or less and refundable
deposits in escrow.
RESTRICTED CASH--Restricted cash consists of cash reserves for capital
expenditures, tenant improvements, property taxes and insurance, as required by
the Company's mortgage lenders.
LONG LIVED ASSETS--During 1996, the Company adopted SFAS No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
Among other provisions, the statement changed current accounting practices for
the evaluation of impairment of long-lived assets. The adoption did not have a
material effect on the Company's financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The Company reports the fair value of
financial instruments in accordance with SFAS 107, Disclosures about Fair Value
of Financial Instruments. The estimated fair value of the Company's financial
instruments is determined using available market information and appropriate
valuation methodologies. Considerable judgment, however, is necessary to
interpret market data and develop the related estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that could be realized upon disposition of the financial
instruments. The use of different market assumptions or estimation methodologies
may have a material impact on the estimated fair value amounts.
Cash, accounts receivable and accounts payable are carried at their book values
as the recorded amount of these instruments approximates fair market value due
to their short term maturities. Notes receivable approximate market value as
they are negotiated based upon market values of loans with similar
characteristics. Bank lines of credit, and short and long term debt approximate
fair market value as the interest rates are comparable to the rates currently
being offered to the Company.
CONCENTRATION OF CREDIT RISK--Financial instruments that subject the Company to
credit risk consist primarily of accounts and notes receivable and cash and cash
equivalents. Credit risk is generally diversified due to the large number of
entities composing the Company's customer base and their geographic dispersion
throughout the U.S. and in Japan. The Company performs ongoing credit
evaluations of its customers and debtors. Cash and cash equivalents are invested
in institutions insured by government agencies. Certain accounts contain
balances in excess of the insured limits.
INFLATION--The Company's long-term leases contain provisions designed to
mitigate the adverse impact of inflation on its results from operations. Such
provisions include escalation clauses, which generally increase rental rates
during the terms of the respective agreements. Such escalation clauses are often
related to increases in the CPI or similar inflation indices. In addition, many
of the Company's leases and management agreements are for terms of less than ten
years, which permits the Company to seek to increase rents and fees at market
rates if they are below then existing market rates. Many of the Company's leases
require the tenants to pay a pro rata share of operating expenses, including
common area maintenance, real estate taxes, insurance and utilities, thereby
reducing the Company's exposure to increases in costs and operating expenses
resulting from inflation.
EARNINGS PER SHARE--In accordance with SFAS No. 128, EARNINGS PER SHARE, basic
income per share for any period is computed by dividing net income by the
weighted average number of shares of common stock outstanding during such
period. Diluted net income per share for any period is computed by dividing net
income by the weighted average number of shares of common stock and common stock
equivalents outstanding during such period.
30
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
The basic weighted average number of shares used to compute net income per share
(adjusted for the 20% stock dividend in 1997 and the 200% and 50% stock
dividends in 1998) was 6,254,470, 6,104,497, and 7,086,848 for the years ended
December 31, 1998, 1997 and 1996, respectively. The diluted weighted average
number of shares used to compute net income per share were 6,801,356, 6,187,280
and 7,093,958 for the years ended December 31, 1998, 1997 and 1996,
respectively.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS--SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INVESTMENTS AND HEDGING ACTIVITIES was issued June 1998, applicable for all
fiscal years beginning after June 15, 1999. At this time, management has not
completed their analysis of this pronouncement's impact on the Company's
financial statements.
RECLASSIFICATION--Certain reclassifications have been made to the 1997 and 1996
balances to conform with the 1998 presentation.
NOTE 3--NOTES RECEIVABLE
Notes receivable consists primarily of non-performing notes and related assets
acquired from financial institutions. A majority of these notes are typically
collateralized by real estate, personal property or guarantees.
31
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 4--REAL ESTATE HELD FOR SALE
Real estate held for sale is comprised of commercial, residential properties and
land stated at cost plus additional capital improvements less accumulated
depreciation and amortization of $1,026,000 and $119,000 at December 31, 1998
and 1997 respectively.
Real estate held for sale includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
<S> <C> <C>
1997 1998
------------- --------------
COMMERCIAL PROPERTIES AND LAND:
1055 Wilshire Blvd., Los Angeles, California--281,649 Sq. Ft. office building $ 24,937,000
6380 Wilshire Blvd., Los Angeles, California--132,730 Sq. Ft. office building 16,223,000
5900 Sepulveda Blvd., Van Nuys, California--74,428 Sq. Ft. office building 6,771,000
7080 Hollywood Blvd., Los Angeles, California--161,140 Sq. Ft. office building 19,821,000
6255 Sunset Blvd., Los Angeles, California--306,025 Sq. Ft. office building 29,166,000
Zeller, Long Beach, California--1 residential and 2 commercial buildings 41,000
802 Huntington Dr., Monrovia, California--20,876 Sq. Ft. automotive center 1,399,000
1304 15th St., Santa Monica, California--37,000 Sq. Ft. office building $ 3,089,000
Santa Monica, California, lots 4 in 1998, 3 in 1997 1,800,000 2,402,000
4350 11th Ave., Los Angeles, California--9,000 Sq. Ft. office building 438,000 336,000
301 S. Fair Oaks Dr., Pasadena, California--51,710 Sq. Ft. office building 8,808,000 8,886,000
------------- --------------
14,135,000 109,982,000
------------- --------------
RESIDENTIAL PROPERTIES AND LAND:
Vista Paseo Heights, Palm Desert, California--23 housing lots 2,902,000
Cathedral City, California,--112 housing lots 2,386,000
Vulcan Mtn., San Diego, California--155 acres of land 283,000
Riverside, California--3.78 acres of land 87,000
Koala, Hawaii--3,000 acres of land 4,611,000
Pacific Palisades, California--3 residential homes in 1998; 1 in 1997 608,000 2,156,000
Riverside, California--31 housing lots 293,000
Los Angeles, CA--residential home 237,000
Villa Del Este, Corona Del Mar, California--14 condominium units 112,000
Vista Del Valle, Granada Hills, California, 10 housing lots 2,810,000
Juneau, Alaska--9 housing lots 433,000
------------- --------------
4,493,000 12,425,000
------------- --------------
$ 18,628,000 $ 122,407,000
------------- --------------
------------- --------------
</TABLE>
32
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 5--INVESTMENTS WITH RELATED PARTIES AND NON-AFFILIATES
The Company has a number of partnerships and joint venture interests ranging
from 6% to 50%, some with former related parties, that were formed to acquire,
manage, develop and or sell real estate assets. These investments are accounted
for under the equity method. Summarized financial data of the ventures are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------
WITH RELATED WITH
PARTIES NON-AFFILIATES TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
BALANCE SHEET
ASSETS
Cash and cash equivalents $ 463,000 $ 15,000 $ 478,000
Receivables 32,000 44,000 76,000
Real estate 31,018,000 5,829,000 36,847,000
------------- ------------- -------------
Total assets $ 31,513,000 $ 5,888,000 $ 37,401,000
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES
Accounts payable and accrued expense $ 173,000 $ 38,000 $ 211,000
Mortgages payable 18,354,000 4,480,000 22,834,000
------------- ------------- -------------
Total liabilities 18,527,000 4,518,000 23,045,000
------------- ------------- -------------
PARTNERS' CAPITAL
Kennedy-Wilson 3,118,000 685,000 3,803,000
Related parties 9,868,000 9,868,000
Other partners 685,000 685,000
------------- ------------- -------------
Total partners' capital 12,986,000 1,370,000 14,356,000
------------- ------------- -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 31,513,000 $ 5,888,000 $ 37,401,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
WITH RELATED WITH
PARTIES NON-AFFILIATES TOTAL
------------ ------------- ------------
<S> <C> <C> <C>
STATEMENT OF INCOME
Revenues $2,195,000 $ 390,000 $ 2,585,000
Expenses 1,690,000 258,000 1,948,000
------------ ------------- ------------
Net income $ 505,000 $ 132,000 $ 637,000
------------ ------------- ------------
------------ ------------- ------------
Net income allocated to:
Kennedy-Wilson $ 112,000 $ 66,000 $ 178,000
Related parties 393,000 66,000 459,000
Other partners
------------ ------------- ------------
Net income $ 505,000 $ 132,000 $ 637,000
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
33
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------
WITH RELATED WITH
PARTIES NON-AFFILIATES TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
BALANCE SHEET
ASSETS
Cash and cash equivalents $ 3,319,000 $ 1,159,000 $ 4,478,000
Receivables 1,816,000 455,000 2,271,000
Real estate 52,050,000 972,000 53,022,000
------------- ------------- -------------
Total assets $ 57,185,000 $ 2,586,000 $ 59,771,000
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES
Accounts payable and accrued expense $ 2,248,000 $ 524,000 $ 2,772,000
Mortgages payable 43,836,000 43,836,000
------------- ------------- -------------
Total liabilities 46,084,000 524,000 46,608,000
------------- ------------- -------------
PARTNERS' CAPITAL
Kennedy-Wilson 3,509,000 1,390,000 4,899,000
Related parties 7,592,000 7,592,000
Other partners 672,000 672,000
------------- ------------- -------------
Total partners' capital 11,101,000 2,062,000 13,163,000
------------- ------------- -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 57,185,000 $ 2,586,000 $ 59,771,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
34
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------
WITH RELATED WITH
PARTIES NON-AFFILIATES TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
STATEMENT OF INCOME
Revenues $ 12,913,000 $ 9,284,000 $ 22,197,000
Expenses 12,238,000 7,393,000 19,631,000
------------- ------------- -------------
Net income $ 675,000 $ 1,891,000 $ 2,566,000
------------- ------------- -------------
------------- ------------- -------------
Net income allocated to:
Kennedy-Wilson $ 115,000 $ 1,316,000 $ 1,431,000
Related partners 560,000 560,000
Other partners 575,000 575,000
------------- ------------- -------------
Net income $ 675,000 $ 1,891,000 $ 2,566,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
WITH
NON-AFFILIATES
-----------------
<S> <C> <C>
BALANCE SHEET
ASSETS
Cash and cash equivalents $ 10,588,000
Receivables 3,278,000
Real estate 109,507,000
-----------------
Total assets $ 123,373,000
-----------------
-----------------
LIABILITIES
Accounts payable and accrued expense $ 7,626,000
Mortgages payable 73,342,000
-----------------
Total liabilities 80,968,000
-----------------
PARTNERS' CAPITAL
Kennedy-Wilson 9,209,000
Other partners 33,196,000
-----------------
Total partners' capital 42,405,000
-----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 123,373,000
-----------------
-----------------
</TABLE>
35
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
WITH
NON-AFFILIATES
-----------------
<S> <C>
STATEMENT OF INCOME:
Revenues $ 49,049,000
Expenses 45,070,000
-----------------
Net Income $ 3,979,000
-----------------
-----------------
Net income allocated to:
Kennedy-Wilson $ 612,000
Other partners 3,367,000
-----------------
Net Income $ 3,979,000
-----------------
-----------------
</TABLE>
In November 1998, the Company sold its 25% interest in the joint venture known
as Downtown Properties LLC for approximately $5.5 million. The company
recognized a gain on sale of approximately $4.1 million.
The agreement for one of the investments with non-affiliates, known as Hilltop
Colony LLC, was amended in 1997, resulting in approximately $335,000 of
additional net income allocated to the Company in 1997.
NOTE 6--CONTRACTS, FURNITURE, FIXTURES AND EQUIPMENT AND OTHER ASSETS
In July 1998, the Company allocated approximately $7.3 million to the property
management contracts acquired as part of the acquisition of Heitman Properties,
Ltd. The Company is amortizing these contracts over a 7 year period. In 1998,
the Company recorded $545,000 in amortization expense for these contracts.
Contracts, furniture fixtures, equipment and other assets consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Contracts $7,262,000
Office furniture and equipment $ 192,000 851,000
Leasehold improvements 20,000
Equipment under capital leases 44,000 6,000
--------- ---------
256,000 8,119,000
Less accumulated depreciation and amortization (100,000) (706,000)
--------- ---------
156,000 7,413,000
Prepaid insurance, taxes and commissions 337,000 671,000
Loan fees 225,000 130,000
Deposits and prepaid rents 120,000 386,000
Investments in marketable securities 250,000
Other 167,000 388,000
--------- ---------
$1,005,000 $9,238,000
--------- ---------
--------- ---------
</TABLE>
36
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 7--BORROWINGS UNDER LINES OF CREDIT
In 1998, the Company entered into a loan agreement that provides the Company
with a $21 million revolving credit facility (the "facility"). The facility is
available for acquisitions and working capital. The loans under the facility
bear interest at three month LIBOR plus 2%, payable monthly. At December 31,
1998, LIBOR was approximately 5.1%. The facility expires in June 2000. The
principal amount of outstanding loans was $13,057,000 at December 31, 1998 and
$8,952,000 at December 31, 1997.
The Company's Japanese subsidiary has unsecured yen denominated lines of credit
pursuant to which it can borrow up to $1.0 million. At December 31, 1998, yen
borrowings in the principal amount of $457,000 were outstanding under these
lines of credit and $87,000 at December 31, 1997. These borrowings bear interest
rates from 1.9% to 2.6% per annum.
NOTE 8--NOTES PAYABLE
Notes payable were incurred primarily in connection with the acquisition of
notes receivable (see Note 3), and include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
Note payable to FBR Asset Investment Corporation, fixed interest
rate of 17% per annum, 13% payable monthly, 4% payable at
maturity, due in full at the earlier of (i) the closing of a
public offering or (ii) June 3, 1999, whichever comes first $7,500,000
Note payable, fixed interest rate of 12%, interest payable monthly,
due July 1, 1999, collateralized by a note receivable 2,289,000
Note payable, variable interest rate based on Prime Rate plus 1.5%,
payable monthly, 9.25% at December 31, 1998, due April 30, 1999 502,000
Note payable, variable interest based on Prime Rate plus 4%, 11.75%
at December 31, 1998, collateralized by a 3,000-acre parcel of
land in Hawaii due April 30, 1999 4,000,000
Note payable, variable interest rate based on Prime Rate plus 1.5%,
payable monthly, 10% at December 31, 1997 due June 1998 $1,000,000
Note payable, variable interest rate based on Prime Rate plus 1.5%,
payable monthly, 10% at December 31, 1997 due May 1998 3,764,000
--------- ----------
$4,764,000 $14,291,000
--------- ----------
--------- ----------
</TABLE>
37
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 9--MORTGAGE LOANS PAYABLE
Mortgage Loans Payable include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
------------ -----------
<S> <C> <C>
COMMERCIAL PROPERTIES:
Mortgage note payable, variable interest based on the LIBOR plus
1.75%, 7.50% at December 31, 1998, principal and interest
payable monthly, due December 1, 2004, collateralized by 301
S. Fair Oaks., Pasadena, California $ 7,300,000 $ 7,613,000
Mortgage note payable, fixed interest of 10%, principal and
interest payable from excess cash flow as defined, due
November 24, 2007, collateralized by 301 S. Fair Oaks.,
Pasadena, California 1,250,000 1,250,000
Mortgage note payable, variable interest based on LIBOR plus
3.5%, 8.75% at December 31, 1998, principal and interest
payable monthly, due March 31, 2001, collateralized by 6380
Wilshire., Los Angeles, California 13,263,000
Mortgage note payable, variable interest based on LIBOR plus 4%,
9.22% at December 31, 1998, interest payable monthly, due
March 31, 2001, secured by common shares of the single purpose
entity holding title to 6380 Wilshire., Los Angeles,
California 2,561,000
Mortgage note payable, variable interest base on Prime Rate plus
1.5%, 9.25% at December 31, 1998, principal and interest
payable monthly, due January 30, 2001, collateralized by 5900
Sepulveda., Los Angeles, California 4,951,000
Mortgage note payable, variable interest based on LIBOR plus 4%,
9.22% at December 31, 1998, interest payable monthly, due
January 23, 2001, secured by common shares of the single
purpose entity holding title to 5900 Sepulveda., Los Angeles,
California 1,610,000
Mortgage note payable, variable interest based on LIBOR plus
4.88%, 10.44% at December 31, 1998, principal and interest
payable monthly, due February 28, 2001, collateralized by 1055
Wilshire, Los Angeles, California 10,894,000
Mortgage note payable, variable interest based on LIBOR plus
2.5%, 8.10% at December 31, 1998, interest payable monthly,
due February 28, 2001, collateralized by 1055 Wilshire, Los
Angeles, California 7,948,000
Mortgage note payable, variable interest based on LIBOR plus 4%,
9.22% at December 31, 1998, principal and interest payable
monthly, due February 28, 2001, secured by common shares of
the single purpose entity holding title to 1055 Wilshire., Los
Angeles, California 4,688,000
</TABLE>
38
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
Mortgage note payable, variable interest base on the monthly
weighted average interest rate for the Eleventh District
Savings and Loan Associations plus 2.5%, 10% at December 31,
1998, principal and interest payable monthly, due May 1, 2002,
collateralized by an automotive center in Monrovia, California 1,096,000
Mortgage note payable, variable interest base on LIBOR plus
3.56%, 9.12% at December 31, 1998, principal and interest
payable monthly, due September 11, 2001, collateralized by
6255 Sunset, Los Angeles, California 28,500,000
Mortgage note payable, variable interest base on LIBOR plus 4%,
9.22% at December 31, 1998, principal and interest payable
monthly, due September 15, 2001, secured by common shares of
the single purpose entity holding title to 6255 Sunset., Los
Angeles, California 5,300,000
Mortgage note payable, variable interest base on LIBOR plus
3.56%, 9.12% at December 31, 1998, principal and interest
payable monthly, due September 11, 2001, collateralized by
7080 Hollywood, Los Angeles, California 16,800,000
Mortgage note payable, variable interest base on LIBOR plus 4%,
9.22% at December 31, 1998, principal and interest payable
monthly, due August 30, 2001, secured by common shares of a
single purpose entity holding title to 7080 Hollywood., Los
Angeles, California 3,359,000
Mortgage note payable, variable interest based on LIBOR, 8.32%
at December 31, 1997, principal and interest payable monthly,
due September 1, 2003, collateralized by 1304 15th Street.,
Santa Monica, California 2,952,000
Mortgage note payable, variable interest based on Prime Rate
plus 1%, 9.50% at December 31, 1998, principal and interest
payable monthly, due September 1, 2003, collateralized by 15th
Street lot., Santa Monica, California 885,000
------------ -----------
12,387,000 109,833,000
------------ -----------
</TABLE>
39
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
RESIDENTIAL PROPERTIES:
Mortgage note payable, variable interest base on Prime Rate plus
1.25%, 9% at December 31, 1998, principal and interest payable
monthly, due March 1, 1999, collateralized by 23 housing lots
in Palm Desert, California 2,191,000
Mortgage note payable, variable interest base on Prime Rate plus
1.5%, 9.25% at December 31, 1998, interest payable monthly,
due March 19, 1999, collateralized by three single family
homes located in Pacific Palisades, California 1,628,000
Mortgage note payable, variable interest base on Prime Rate plus
1%, 8.75% at December 31, 1998, interest payable monthly, due
November, 20 1999, collateralized by 112 housing lots in
Cathedral City, California 1,478,000
Mortgage note payable, variable interest base on Prime Rate plus
4%, 9.25% at December 31, 1997, principal and interest payable
monthly, due October 31, 1999, collateralized by 10
residential homes, Granada Hills, California 2,294,000
Mortgage note payable, variable interest base on Prime Rate plus
1.5%, interest payable monthly, due November, 20 1999,
collateralized by 14 condominium units, Corona Del Mar,
California 421,000
------------ -----------
2,715,000 5,297,000
------------ -----------
Total Mortgage Loans Payable $ 15,102,000 $115,130,000
------------ -----------
------------ -----------
</TABLE>
All of the mortgage loans payable are secured by deeds of trust on the
respective real estate properties (see Note 4). Aggregate maturities of notes
and mortgage notes payable are as follows:
<TABLE>
<S> <C>
1999 $ 5,582,000
2000 408,000
2001 99,412,000
2002 1,114,000
2003 83,000
Thereafter 8,531,000
-----------
$115,130,000
-----------
-----------
</TABLE>
40
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 10--SUBORDINATED DEBT
In July 1998, the Company incurred $21 million in subordinated debt to finance
its purchase of Heitman Properties, Ltd. The debt has a fixed interest rate of
14%, payable monthly and a maturity date of January 15, 2000. The Company has
the option to prepay $7 million after January 15, 1999 and before July 16, 1999
and the option to prepay $14 million thereafter. The debt is secured by the
common stock of a wholly-owned subsidiary Kennedy-Wilson Properties, Ltd.
NOTE 11--RELATED PARTY TRANSACTIONS
On November 5, 1998, Goodwin Gaw resigned from his position as a member of our
Board of Directors. On November 10, 1998, we purchased from Mr. Gaw 135,000
shares (as adjusted for the December 15, 1998 50% stock dividend) of our common
stock for $6.716 per share for a total of $906,750. The closing price for our
shares on the NASDAQ National Market on that date was $7.281 per share. All
135,000 shares were subsequently retired. As at December 31, 1998 Mr. Gaw no
longer had an ownership interest in the Company, and had resigned from his
positions with the Company.
In March 1998, the Company acquired 40% interest in a joint venture Beverly
Crescent, LLC, with a former related party. The joint venture which purchased a
note collateralized by a hotel in Beverly Hills, CA. The Company's original
investment was approximately $300,000. In May 1998, the Company sold its
interest in the joint venture and recorded a gain of approximately $298,000.
In January 1998, the Company acquired a 15% interest in a joint venture Downtown
Properties, NY. LLC, with a former related party, which owns a commercial
property with approximately 1.0 million square foot of rental space, located in
Manhattan, New York. The Company's investment at December 31, 1998 was
approximately $4.2 million.
In 1998, the firm of Kulik, Gottesman & Mouton Ltd., was paid a total of
$496,000 in attorney fees. In addition, Kent Mouton, a partner in the firm and a
member of the Company's Board of Directors, was paid a total of $27,500 in
director's fees. For 1997, the amounts were $470,000 and $21,000, respectively.
In 1997, the Company entered into a joint venture with parties who are
affiliated with Goodwin Gaw, who at that time, was one of the Company's Managing
Directors, a member of the Board of Directors, and a significant stockholder.
The joint venture was formed to invest in a Los Angeles office building. See
Note 5.
During 1998 and 1997, the Company received brokerage and leasing commissions
from affiliates and partnerships with related parties in the amounts of
$1,201,000 and $894,000 respectively.
During 1998 and 1997, the Company received $179,000 and $156,000, respectively,
in commissions from the sale of properties owned by a partnership which includes
William J. McMorrow, the Company's Chief Executive Officer and Chairman of the
Board, and Lewis A. Halpert, a director, Executive Managing Director and
President of the Company's Brokerage Group, as principals. The Company was also
reimbursed $210,000 for marketing expenses in 1997.
In 1996, the Company accrued and subsequently paid $209,000 as profit
participation to William J. McMorrow and Lewis A. Halpert for a loan advanced to
the Company in 1995. The loan terms were reviewed and approved by disnterested
members of the Company's Board of Directors.
41
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 12--INCOME TAXES
The provisions for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal $ 80,000 $ 104,000
State $ 60,000 200,000 105,000
--------- --------- ---------
60,000 280,000 209,000
Deferred 628,000
--------- --------- ---------
Total $ 60,000 $ 280,000 $ 837,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of the statutory federal income tax rate with the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Tax computed at statutory rate $1,200,000 $1,472,000 $2,156,000
State income net of federal benefit 40,000 132,000 145,000
Loss on disposition of foreign subsidiary (1,189,000)
Foreign income 153,000 (119,000)
Usage of net operating loss carryforward (1,490,000) (1,361,000)
Other 9,000 13,000 16,000
--------- --------- ---------
Provision for income taxes $ 60,000 $ 280,000 $ 837,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
42
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
The following summarizes the effect of deferred income tax items and the impact
of "temporary differences" between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws. Temporary
differences and carryforwards which give rise to deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------------- ----------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Prepaid expenses $ (117,000) $ (208,000)
Accrued reserves $ 110,000 $ 267,000
Deferred auction marketing expenses 22,000 51,000
Foreign subsidiary 1,647,000
Deferred gain on sale of asset (791,000)
Asset basis and depreciation differences 372,000 (3,454,000)
Charitable contribution carryover 26,000
Federal net operating loss carryover 1,719,000 74,000
Valuation allowance (1,341,000)
------------- ----------- ------------- -------------
Total $ 908,000 $ (908,000) $ 2,039,000 $ (3,662,000)
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
</TABLE>
As of December 31, 1998, the Company has available a net operating loss
carryforward approximately $219,000 to offset future federal taxable income.
This carryforward expires through the year 2011. The Company has tax credits to
carryforward of approximately $173,000 to offset future federal income taxes.
NOTE 13--COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS--Future minimum rental commitments, net of sublease income, as
of December 31, 1998 under the non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
<S> <C>
1999 $ 1,865,000
2000 1,748,000
2001 1,687,000
2002 933,000
2003 612,000
Thereafter
------------
Future minimum lease payments $ 6,845,000
------------
------------
</TABLE>
Approximately $2,627,000 is due the Company in years 1999 through 2002 under
sublease agreements.
Rental expense amounted to $931,000, $433,000, and $200,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
EMPLOYMENT AGREEMENTS--The Company has entered into employment agreements with
all of its principal officers which provide for annual base compensation in the
aggregate amount of $1,255,000 and expire at various dates through December
1999. The employement agreements provide for the payment of an annual bonus
based upon the achievement of certain agreed-upon earnings objectives. The
Company also has employment agreements with various other non-officer employees
which provide
43
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
for minimum annual compensation of $2,021,000 in total, and expiring at various
dates through December 1999.
LITIGATION--The Company is currently a defendant in certain routine litigation
arising in the ordinary course of business. It is management's opinion that the
outcome of these actions will not have a material effect on the financial
position or results of operations of the Company.
NOTE 14--STOCK OPTION PLANS AND WARRANTS
The Company currently has the 1992 Incentive and Non-statutory Stock Option
Plan, which includes a Plan A and a Plan B and the 1992 Non-Employee Director
Stock Option Plan ("Plan C"). An aggregate of 1,080,000 shares of common stock
are reserved for issuance under Plan A and B. The Company has 81,000 shares of
common stock reserved for issuance under Plan C. Plan A permits the granting of
Incentive Stock Options to employees, including employee-directors. Plan B
permits the granting of nonstatutory stock options to employees, including
employee-directors and consultants. Plan C permits the granting of options to
non-employee-directors. Options granted under Plan A and B have an option price
of 100% of the fair market value of the common stock on the date of grant. Under
Plan C each director, upon being elected to the Board of Directors, is
automatically granted an option to purchase 13,500 shares at the fair market
value at the date of grant. Additionally, each director is granted an option to
purchase an additional 540 shares at the fair market value on the date of grant
when re-elected. The vesting schedule for options granted under Plan A and Plan
B is determined by a committee of the Board of Directors and the Compensation
Committee of the Board of Directors is currently responsible. Options granted
under Plan C become exercisable on the first anniversary of the date of the
initial grant provided that the optionee continues to serve as a director for at
least one year from the date of such initial grant. Options granted under Plan A
may be exercised for a period of up to five years from the grant date; options
granted under Plan B may be exercised for a period of up to 10 years from the
grant date. Under Plan C, options expire on the earlier of the tenth anniversary
of the date of grant and 90 days after the individual ceases to be a director of
the Company.
44
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
Details of activity under the plans for the years ended December 31, 1996, 1997
and 1998 are as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISE PRICE WEIGHTED AVERAGE
STOCK OPTIONS OPTIONS PER SHARE EXERCISE PRICE
- ---------------------------------------------- ----------- -------------- -----------------
<S> <C> <C> <C>
Balance January 1, 1996 163,782 $ 12.96-$0.93 $ 8.11
Granted 162,540 $ 1.55-$0.95 $ 1.23
Forfeited (28,836) $ 12.96 $ 12.96
-----------
Balance December 31, 1996 297,486 $ 12.96-$0.93 $ 3.72
Granted 558,000 $ 3.72-$2.17 $ 2.61
Forfeited (23,166) $ 12.96-$2.17 $ 12.96
-----------
Balance December 31, 1997 832,320 $ 12.96-$2.17 $ 2.72
Granted 420,900 $ 3.67-$8.33 $ 6.74
Exercised (120,450) $ 0.95-$3.73 $ 1.63
Forfeited (16,200) $ 3.01-$7.41 $ 3.74
-----------
Balance December 31, 1998 1,116,570 $ 0.95-$8.33 $ 4.11
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
RANGE OF NUMBER OF WEIGHTED AVERAGE EXERCISABLE
EXERCISE OUTSTANDING SHARES WEIGHTED AVERAGE REMAINING SHARES
PRICES AT 12/31/98 EXERCISE PRICE CONTRACTUAL LIFE AS OF 12/31/98
- -------------- ------------------ ----------------- ------------------- -----------------
<S> <C> <C> <C> <C>
$ 1.00- $1.07 108,000 $ 1.01 2.02 72,000
$ 1.55- $2.13 378,000 $ 1.96 3.18 117,000
$ 3.33- $3.72 295,800 $ 3.67 3.90 56,550
$ 7.00- $8.33 292,650 $ 7.81 4.65
$ 0.93-$12.96 42,120 $ 8.67 4.81 42,120
---------- -------
1,116,570 287,670
---------- -------
---------- -------
</TABLE>
The Company has adopted the disclosure-only provision of SFAS No. 123,
"ACCOUNTING FOR STOCK-BASED COMPENSATION" and will continue to use the intrinsic
value based method of accounting prescribed by APB Opinion No. 25, "ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES," and related interpretations. Accordingly, no
compensation cost has been recognized for the options granted under the Stock
Plan. Had compensation cost for the Company's Stock Plan been determined based
on the fair value at the grant date consistent with the provisions of SFAS No.
123, the Company's net income on a pro forma basis at December 31, 1998 would
have been $4,114,085. In addition, on a pro forma basis, the Company's basic and
diluted net income per share at December 31, 1998, would have been $0.66 and
$0.60, respectively. The effect for 1997 and 1996, was not disclosed as it was
not material.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: (a) no dividend yield, (b) expected volatility of the Company's
stock of 63%, (c) risk free interest rate of 4.75%, (d) expected option life of
three years. The effects of applying SFAS No. 123 may not be representative of
the effects on disclosed pro forma net income for future years because options
vest over several years and additional awards can be made each year.
45
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 15--CAPITAL STOCK TRANSACTIONS
ISSUANCE OF CAPITAL STOCK AND WARRANTS
In July 1998, Colony Investors III, L.P. acquired a 10% equity position in the
Company. The purchase involved a private placement sale of 660,128 shares of the
Company's common stock and warrants exercisable for seven years to purchase
198,039 shares of the Company's common stock.
In June 1998, as part of the loan (see Note 8) obtained from FBR Assets
Investment Corporation, the Company issued warrants of 131,096 shares which
represent 2% of the outstanding shares on a fully diluted bases on June 3, 1998.
The warrants have an exercise price of $7.56 per share which reflects the
average of the closing price for a share of Common Stock on NASDAQ for the
twenty business days proceeding December 4, 1998. The warrants have an
expiration date of June 3, 2003.
STOCK REPURCHASE
In November 1998, the Company purchased 135,000 shares of the Company's stock
from a former officer and director. See Note 11.
STOCK DIVIDEND
In December 1998, the Company declared a 3 for 2 stock split in the form of a
50% dividend. In March 1998, the Company declared a 3 for 1 stock split in the
form of a 200% stock dividend. In October 1997, the Company declared a twenty
percent stock dividend. All historical share and per share amounts have been
retroactively restated to reflect the dividends.
INCREASE IN AUTHORIZED CAPITAL
On April 29, 1998 at a Regular Meeting of the Company's stockholders, the
Company's Certificate of Incorporation was amended to increase the authorized
capital stock to 10 million of common shares and 2 million preferred shares. On
December 15, 1997, at a Special Meeting of the Stockholders, an amendment to the
Company's Certificate of Incorporation was passed effecting an increase to the
number of authorized shares from 2,500,000 to 6,000,000, consisting of 5,000,000
shares of common stock and 1,000,000 shares of preferred stock.
NOTE 16--EMPLOYEE BENEFIT ARRANGEMENTS
EMPLOYEE PROFIT SHARING PLAN
The Company maintains a profit sharing plan covering all full time employees
over the age of 21, who have completed three months of service prior to January
1 and July 1 of each year. Contributions to the profit sharing plan are made
solely at the discretion of the Company's Board of Directors. No contributions
were made for the years ended December 31, 1998, 1997 and 1996.
In addition, the Company has a qualified profit sharing plan under provisions of
Section 401(k) of the Internal Revenue Code. Under this plan, participants are
able to make salary deferral contributions of up to 15% of their total
compensation, up to a specified maximum. The 401(k) plan also includes
provisions which authorize the Company to make discretionary contributions.
During 1998 and 1997 the Company made matching contributions of $27,000 and
$24,000, respectively to this plan.
46
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
DEFERRED COMPENSATION PLAN
In 1997, the Company established a non-qualified deferred compensation plan to
provide specified benefits to a select group of management or highly compensated
employees and directors who contribute materially to the continued growth,
development and future business success of the Company. Under this plan,
participants are able to make salary deferral contribution of up to 100% of
their total compensation. The plan also includes provisions which authorize the
Company to make discretionary contributions. During 1998 and 1997, the Company
made matching contributions of $1,078,000 and $314,000, respectively.
NOTES RECEIVABLE FROM STOCKHOLDERS
In December 1997, a group of key employees, including its principal executive
officers, purchased 73,314 shares of the Company's outstanding stock for cash in
a private transaction with an institutional investor. The purchase represents
approximately 5.6% of the Company's outstanding shares. The Company provided
recourse loans for the employees to purchase the stock totaling approximately
$1.3 million. The terms of the notes receivable are Prime plus 1% (9.5% at
December 31, 1997) interest payable semi-annually with a maturity date of the
earlier of 3 years, or at termination of employment, or sale of stock by the
employee. As at December 31, 1998 and 1997 $204,000 and $1,320,000 were
outstanding on these loans, respectively.
NOTE 17--EXTRAORDINARY ITEMS
During 1997, the Company recognized a $79,000 extraordinary gain comprised of a
$288,000 gain from debt extinguishment and a $209,000 loss from loan prepayment
penalties.
NOTE 18--SEGMENT INFORMATION
The Company's business activities currently consist of property management,
commercial and residential brokerage, and various type of real estate
investments.
In the 1998 property management segment, approximately $7.4 million or 52% of
the fees are generated by property management contracts with Heitman Financial
Ltd.
47
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
The following tables reconcile the Company's income and expense activity for the
year ended December 31, 1996 and balance sheet data as of December 31, 1996.
1996 RECONCILIATION OF REPORTABLE SEGMENT INFORMATION
<TABLE>
<CAPTION>
BROKERAGE INVESTMENTS CORPORATE CONSOLIDATED
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 5,888,000 $ 25,983,000 $ 96,000 $ 31,967,000
Operating expenses 5,087,000 20,037,000 3,252,000 28,376,000
------------ ------------- ------------- -------------
Income before provision for income taxes 801,000 5,946,000 (3,156,000) 3,591,000
Provision for income taxes 60,000 60,000
------------ ------------- ------------- -------------
Net income $ 801,000 $ 5,946,000 $ (3,216,000) $ 3,531,000
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
BROKERAGE INVESTMENTS CORPORATE CONSOLIDATED
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total assets $ 1,154,000 $ 48,387,000 $ 1,573,000 $ 51,114,000
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Total liabilities $ 774,000 $ 29,484,000 $ 10,474,000 $ 40,732,000
Stockholders' equity 380,000 18,903,000 (8,901,000) 10,382,000
------------ ------------- ------------- -------------
Total liabilities and stockholders' equity $ 1,154,000 $ 48,387,000 $ 1,573,000 $ 51,114,000
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
The following tables reconcile the Company's income and expense activity for the
year ended December 31, 1997 and balance sheet data as of December 31, 1997.
1997 RECONCILIATION OF REPORTABLE SEGMENT INFORMATION
<TABLE>
<CAPTION>
BROKERAGE INVESTMENTS CORPORATE CONSOLIDATED
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 5,895,000 $ 21,085,000 $ 19,000 $ 26,999,000
Operating expenses 4,719,000 12,502,000 5,547,000 22,768,000
------------ ------------- ------------- -------------
Income before provision for income taxes 1,176,000 8,583,000 (5,528,000) 4,231,000
Provision for income taxes 280,000 280,000
------------ ------------- ------------- -------------
Income before provision for extraordinary items 1,176,000 8,583,000 (5,808,000) 3,951,000
Extraordinary items 213,000 (134,000) 79,000
------------ ------------- ------------- -------------
Net income $ 1,176,000 $ 8,796,000 $ (5,942,000) $ 4,030,000
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
BROKERAGE INVESTMENTS CORPORATE CONSOLIDATED
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total assets $ 1,132,000 $ 37,117,000 $ 7,469,000 $ 45,718,000
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Total liabilities $ 290,000 $ 19,919,000 $ 13,915,000 $ 34,124,000
Stockholders' equity 842,000 17,198,000 (6,446,000) 11,594,000
------------ ------------- ------------- -------------
Total liabilities and stockholders' equity $ 1,132,000 $ 37,117,000 $ 7,469,000 $ 45,718,000
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
48
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
The following tables reconcile the Company's income and expense activity for the
year ended December 31, 1998 and balance sheet data as of December 31, 1998.
1998 RECONCILIATION OF REPORTABLE SEGMENT INFORMATION
<TABLE>
<CAPTION>
PROPERTY
MANAGEMENT BROKERAGE INVESTMENTS CORPORATE CONSOLIDATE
------------- ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 14,194,000 $ 4,917,000 $ 31,604,000 $ 157,000 $ 50,872,000
Operating expenses 8,311,000 3,182,000 22,250,000 10,967,000 44,710,000
------------- ------------ ------------- -------------- -------------
Income before provision for income
taxes 5,883,000 1,735,000 9,354,000 (10,810,000) 6,162,000
Provision for income taxes 837,000 837,000
------------- ------------ ------------- -------------- -------------
Net income $ 5,883,000 $ 1,735,000 $ 9,354,000 $ (11,647,000) $ 5,325,000
------------- ------------ ------------- -------------- -------------
------------- ------------ ------------- -------------- -------------
</TABLE>
<TABLE>
<CAPTION>
MANAGEMENT BROKERAGE INVESTMENTS CORPORATE CONSOLIDATED
------------- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Total assets $ 27,697,000 $ 2,368,000 $ 160,537,000 $ 14,214,000 $ 204,816,000
------------- ------------ -------------- ------------- --------------
------------- ------------ -------------- ------------- --------------
Total liabilities $ 3,111,000 $ 959,000 $ 128,034,000 $ 28,932,000 $ 161,036,000
Subordinated debt 21,000,000 21,000,000
Stockholders' equity 24,586,000 1,409,000 32,503,000 (35,718,000) 22,780,000
------------- ------------ -------------- ------------- --------------
Total liabilities and stockholders'
equity $ 27,697,000 $ 2,368,000 $ 160,537,000 $ 14,214,000 $ 204,816,000
------------- ------------ -------------- ------------- --------------
------------- ------------ -------------- ------------- --------------
</TABLE>
49
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 19--UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
The following pro forma consolidated statement of income give effect to the
acquisition of all of the outstanding shares of Heitman Properties, Ltd, a
property management company, in July 1998. The pro forma adjustments are based
upon available information and certain assumptions that the Company believes are
reasonable. This unaudited pro forma condensed consolidated information does not
purport to represent what the actual results of operations of the Company would
have been assuming the acquisition had been completed as set forth above, nor do
they purport to predict the results of operations for future periods.
<TABLE>
<CAPTION>
1997 1998
PRO FORMA PRO FORMA
------------- -------------
<S> <C> <C>
Total Revenue $ 63,525,000 $ 68,737,000
Total Operating Expenses 50,074,000 58,957,000
------------- -------------
Income Before Income Taxes 13,451,000 9,780,000
Provision for Income Taxes 3,691,000 2,176,000
------------- -------------
Net Income $ 9,760,000 $ 7,604,000
------------- -------------
------------- -------------
SHARE DATA
Pro forma basic net income per share $ 1.60 $ 1.22
Pro forma basic weighted average shares 6,104,497 6,254,470
Pro forma diluted net income per share $ 1.58 $ 1.12
Pro forma diluted weighted average shares 6,187,280 6,801,356
</TABLE>
50
<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 20--UNAUDITED CONSOLIDATED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
1997
-------------------------------------------------------
THREE MONTHS ENDED
-------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues $ 5,870,000 $ 3,966,000 $ 5,814,000 $ 11,349,000
Total operating expenses 5,234,000 3,767,000 5,282,000 8,485,000
------------ ------------ ------------ -------------
Income before provision for taxes and extraordinary
items 636,000 199,000 532,000 2,864,000
Provision for income taxes 50,000 50,000 65,000 115,000
------------ ------------ ------------ -------------
Income before extraordinary items 586,000 149,000 467,000 2,749,000
Extraordinary items -- 288,000 -- (209,000)
------------ ------------ ------------ -------------
Net income $ 586,000 $ 437,000 $ 467,000 $ 2,540,000
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
SHARE DATA
Basic net income per share before extraordinary items $ 0.09 $ 0.02 $ 0.08 $ 0.46
Basic net income per share $ 0.09 $ 0.07 $ 0.08 $ 0.43
Basic weighted average shares 6,463,211 6,075,270 5,957,469 5,932,058
Diluted net income per share before extraordinary items $ 0.09 $ 0.02 $ 0.08 $ 0.45
Diluted net income per share $ 0.09 $ 0.07 $ 0.08 $ 0.42
Diluted weighted average shares 6,528,483 6,151,593 6,065,619 6,057,639
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 (I) DEC. 31 (I)
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 4,397,000 $ 6,459,000 $ 20,834,000 $ 19,182,000
Total operating expenses 3,625,000 6,221,000 19,132,000 15,732,000
------------ ------------ ------------- -------------
Income before provision for taxes 772,000 238,000 1,702,000 3,450,000
Provision for income taxes 98,000 36,000 311,000 392,000
------------ ------------ ------------- -------------
Net income $ 674,000 $ 202,000 $ 1,391,000 $ 3,058,000
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
SHARE DATA
Basic net income per share $ 0.11 $ 0.03 $ 0.21 $ 0.46
Basic weighted average shares 5,924,800 5,954,943 6,520,855 6,606,858
Diluted net income per share $ 0.11 $ 0.03 $ 0.20 $ 0.43
Diluted weighted average shares 6,366,289 6,583,598 7,093,199 7,150,513
</TABLE>
- ------------------------
(i) includes acquisition of Heitman Properties, Ltd.
51
<PAGE>
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the Directors and Executive Officers of the Company
will be set forth in the Company's definitive proxy statement which is to be
filed pursuant to Regulation 14A within 120 days after the Company's fiscal year
ended December 31, 1998, and such information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to Executive Compensation will be set forth in the
Company's definitive proxy statement which is to be filed pursuant to Regulation
14A within 120 days after the end of the Company's fiscal year ended December
31, 1998 and such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to Security Ownership of Certain Beneficial Owners and
Management will be set forth in the Company's definitive proxy statement which
is to be filed pursuant to Regulation 14A within 120 days after the end of the
Company's fiscal year ended December 31, 1998, and such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to Certain Relationships and Related Transactions will
be set forth in the Company's definitive proxy statement which is to be filed
pursuant to Regulation 14A within 120 days after the end of the Company's fiscal
year ended December 31, 1998, and such information is incorporated herein by
reference.
52
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
(1) Financial Statements. Reference is made to the Index to Financial
Statements and Schedules in Item 8 hereof.
(2) Financial Statement Schedules.
SCHEDULE III - REAL ESTATE OWNED S-1
Supplemental financial statement schedules not listed above are omitted
because either they are not applicable, not required or because the information
required is included in the consolidated financial statements, including the
notes thereto.
(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
3.1* Certificate of Incorporation of the Company, as amended to date.
3.2 Bylaws of the Company (Filed as Exhibit 3.2 to the Company's 1992 Registration Statement on Form S-1
(Registration No. 33-46978) and incorporated herein by this reference).
4.1 Form of Common Stock Certificate (Filed as Exhibit 4.1 to the Company's 1992 Registration Statement on
Form S-1 (Registration No. 33-46978) and incorporated herein by this reference).
10.1 Employee Profit Sharing Plan and Trust, as amended to date. (Filed as Exhibit 10.11 to the Company's
1992 Registration Statement on Form S-1 (Registration No. 33-46978) and incorporated herein by this
reference).
10.2* Deferred Compensation Plan dated September 1, 1997.
10.3 1992 Non-employee Director Stock Option Plan. (Filed as Exhibit 10.26 to the Company's 1992
Registration Statement on Form S-1 (Registration No. 33-46978) and incorporated herein by this
reference).
10.4 1992 Incentive and Nonstatutory Stock Option Plan. (Filed as Exhibit 4 to the Company's 1993
Registration Statement on Form S-8 (Registration No. 33-73324) and incorporated herein by this
reference).
10.4.1* 1993 Amendment to 1992 Incentive and Nonstatutory Stock Option Plan.
10.5 Employment Agreement dated August 14, 1992 between the Company and William J. McMorrow. (Filed as
Exhibit 10.2 to the Company's 1992 Registration Statement on Form S-1 (Registration No. 33-46978) and
incorporated herein by this reference).
10.5.1* Fifth Amendment to Employment Agreement dated as of May 19, 1997 between the Company and William J.
McMorrow.
10.5.2* Sixth Amendment to Employment Agreement dated as of August 20, 1998 between the Company and William J.
McMorrow.
10.6* Limited Liability Company Operating Agreement of KW-A, LLC dated as of July 17, 1998.
10.7* Employment Agreement dated as of July 17, 1998 between KW-A, LLC and Barry Schlesinger.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.8* Executive Services Agreement dated as of July 17, 1998 between the Company and KW-A, LLC.
10.9 Employment Agreement dated as of January 1, 1997 between the Company and Richard Mandel. (Filed as
Exhibit 10.9 to the Company's 1996 Annual Report on Form 10-K and incorporated herein by this
reference).
10.9.1* First Amendment to Employment Agreement dated as of May 19, 1997 between the Company and Richard
Mandel.
10.9.2* Second Amendment to Employment Agreement dated as of January 1, 1998 between the Company and Richard
Mandel.
10.10* Employment Agreement dated January 1, 1996 between the Company and Lewis Halpert.
10.10.1 First Amendment to Employment Agreement dated January 1, 1997 between the Company and Lewis Halpert.
(Filed as Exhibit 10.12 to the Company's 1997 Annual Report on Form 10-K and incorporated herein by
this reference).
10.10.2* Second Amendment to Employment Agreement dated as of January 1, 1998 between the Company and Lewis
Halpert.
10.11 Employment Agreement dated April 1, 1996 between the Company and Freeman Lyle. (Filed as Exhibit 10.13
to the Company's 1997 Annual Report on form 10-K and incorporated herein by this reference).
10.11.1* Second Amendment to Employment Agreement dated April 1, 1998 between the Company and Freeman Lyle.
10.11.2* Third Amendment to Employment Agreement dated as of August 15, 1998 between the Company and Freeman
Lyle.
10.12* Unsecured Promissory Note dated December 22, 1997 by Freeman Lyle in favor of the Company.
10.13* Office Lease dated as of September 1, 1998 between the Company and Wilshire-Camden Associates.
10.14 Indemnification Agreement dated August 13, 1992 among the Company, Kennedy-Wilson International, Inc.,
William J. McMorrow, William R. Stevenson, Lewis A. Halpert and Kenneth V. Stevens. (Filed as Exhibit
10.27 to the Company's 1992 Registration Statement on Form S-1 (Registration No. 33-46978) and
incorporated herein by this reference).
10.15 Form of Stock Option Agreement under the Company's 1992 Incentive and Nonstatutory Stock Option Plan.
(Filed as Exhibit 10.23 of the Company's 1992 Annual Report on Form 10-K and incorporated herein by
this reference).
10.16 Form of Stock Option Agreement under the Company's 1992 Non-employee Director Stock Option Plan. (Filed
as Exhibit 10.24 of the Company's 1992 Annual Report on Form 10-K and incorporated herein by this
reference).
10.17* Amended and Restated Revolving Credit Agreement dated as of September 10, 1998 between the Company and
East-West Bank.
10.18* Loan Agreement dated as of July 28, 1998 between Kennedy-Wilson Properties, Ltd. and East-West Bank.
10.19* Guaranty dated as of July 28, 1998 by the Company in favor of East-West Bank.
10.20* Loan Commitment Letter dated July 2, 1998 between KW-KAU, LLC, Kennedy-Wilson International, Inc. and
Old Standard Life Insurance Company.
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.21 Loan and Warrant Agreement dated June 3, 1998 between the Company and FBR Asset Investment Corporation.
(Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q/A dated August 14, 1998 and
incorporated herein by this reference).
10.21.1* Loan Modification Agreement dated November 30, 1998 between the Company and FBR Asset Investment
Corporation.
10.22 Common Stock Registration Rights Agreement dated as of June 3, 1998 between the Company and FBR Asset
Investment Incorporation. (Filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q/A
dated August 14, 1998 and incorporated herein by this reference).
10.23 Form of Warrant issued by the Company to FBR Asset Investment Corporation. (Filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q/A and incorporated herein by this reference).
10.24 Bridge Loan Agreement dated as of July 16, 1998 among the Company, Kennedy-Wilson International, Inc.,
K-W Properties, Kennedy-Wilson Properties, Ltd. and Colony K-W LLC. (Filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K/A dated September 30, 1998 and incorporated herein by this
reference).
10.25 Investor's Agreement dated July 16, 1998 between the Company and Colony Investors III, L.P. (Filed as
Exhibit 10.5 to the Registrant's Current Report on Form 8-K/A dated September 30, 1998 and
incorporated herein by this reference).
10.26 Registration Rights Agreement dated as of July 16, 1998 between the Company and Colony Investors III,
L.P. (Filed as Exhibit 10.4 to the Company's Current Report on Form 8-K/A dated September 30, 1998
and incorporated herein by this reference).
10.27 Warrant Agreement dated as of July 16, 1998 between the Company and Colony Investors III, L.P. (Filed
as Exhibit 10.4 to the Company's Current Report on Form 8-K/A dated September 30, 1998 and
incorporated herein by this reference).
10.28 Form of Warrant issued July 16, 1998 by the Company to Colony Investors III, L.P. (Filed as Exhibit
10.4 to the Company's 1998 Current Report on Form 8-K dated September 30, 1998 and incorporated
herein by this reference).
10.29* Agreement of Limited Partnership of Colony-KW Partners, L.P.
21* List of Subsidiaries of the Company.
23* Consent of Deloitte & Touche LLP.
27* Financial Data Schedule.
</TABLE>
- ------------------------
* Filed herewith.
(B) CURRENT REPORTS ON FORM 8-K.
None.
55
<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.
<TABLE>
<S> <C> <C>
KENNEDY-WILSON, INC.
</TABLE>
Date: March 12, 1999
<TABLE>
<S> <C> <C>
By: /s/ WILLIAM J. MCMORROW
-----------------------------------------
William J. McMorrow
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board and
/s/ WILLIAM J. MCMORROW Chief Executive Officer
- ------------------------------ (Principal Executive March 12, 1999
William J. McMorrow Officer)
Executive Vice President,
/s/ FREEMAN A. LYLE Chief Financial Officer
- ------------------------------ and Secretary (Principal March 12, 1999
Freeman A. Lyle Financial and Accounting
Officer)
/s/ LEWIS A. HALPERT
- ------------------------------ Executive Managing March 12, 1999
Lewis A. Halpert Director and Director
/s/ RICHARD A. MANDEL
- ------------------------------ Managing Director and March 12, 1999
Richard A. Mandel Director
President of
/s/ BARRY S. SCHLESINGER Kennedy-Wilson
- ------------------------------ Properties, Ltd., and March 12, 1999
Barry S. Schlesinger Director
/s/ THOMAS BARRACK
- ------------------------------ Director March 12, 1999
Thomas Barrack
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ KENT MOUTON
- ------------------------------ Director March 12, 1999
Kent Mouton
/s/ DONALD PRELL
- ------------------------------ Director March 12, 1999
Donald Prell
</TABLE>
57
<PAGE>
KENNEDY-WILSON, INC.
SCHEDULE III - REAL ESTATE OWNED
FOR YEAR ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
---------------------------- --------------------------
BUILDING AND IMPROVE- CARRYING
ENCUMBRANCE LAND IMPROVEMENTS MENTS COSTS
------------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PROPERTIES:
4 vacant lots, Santa
Monica,
California......... $ $ 2,402,000 -- -- --
1055 Wilshire Blvd.,
Santa Monica,
California
282,000 square foot
office building.... 18,842,000 6,125,000 $ 19,102,000 $ 180,000 --
6380 Wilshire Blvd.,
Los Angeles,
California
133,000 square foot
office building.... 13,263,000 6,000,000 7,362,000 1,549,000 $1,312,000
5900 Sepulveda Blvd.,
Van Nuys,
California
74,000 square foot
office building.... 4,951,000 1,667,000 5,148,000 104,000 --
7080 Hollywood Blvd.,
Los Angeles,
California
161,000 square foot
office building.... 16,800,000 5,782,000 14,014,000 108,000 --
6255 Sunset Blvd.,
Los Angeles,
California
282,000 square foot
office building.... 28,500,000 3,222,000 25,652,000 414,000 --
802 Huntington Drive,
Monrovia,
California
21,000 square foot
office building.... 1,096,000 413,000 998,000 -- --
4350 11th Ave., Los
Angeles, California
9,000 square foot
office building.... -- 336,000 -- --
Two commercial
buildings,
Long Beach,
California
2,000 square foot
office buildings... 41,000
301 S. Fair Oaks,
Pasadena,
California
55,000 square foot
office building.... 8,863,000 1,841,000 6,987,000 249,000 --
------------- ------------- ------------- ------------- ----------
92,315,000 27,452,000 79,640,000 2,604,000 1,312,000
RESIDENTIAL PROPERTIES:
Pacific Palisades,
California
3 residential
homes.............. 1,628,000 960,000 789,000 306,000 101,000
Palm Desert,
California
23 housing lots.... 2,191,000 1,535,000 1,125,000 242,000
Cathedral City,
California
112 housing lots... 1,478,000 1,800,000 578,000 8,000
3,000 acres of land,
Koala, Hawaii...... 4,000,000 4,110,000 -- 501,000
San Diego, California
155 acres of
land............... 283,000
Riverside, California
3.7 acres of
land............... 87,000
------------- ------------- ------------- ------------- ----------
$ 9,297,000 $ 8,775,000 $ 789,000 $ 2,009,000 $ 852,000
------------- ------------- ------------- ------------- ----------
Total.............. $101,612,000 $ 36,227,000 $ 80,429,000 $ 4,613,000 $ 852,000
------------- ------------- ------------- ------------- ----------
------------- ------------- ------------- ------------- ----------
Balance at beginning
of year............ $ 18,628,000
Additions during
period:
Acquisitions..... 120,057,000
Improvements..... 5,465,000
Other:........... -- 125,522,000
-------------
Deductions during
period:
Disposition of
real estate
sold........... 21,743,000
Other:........... -- 21,743,000
------------- -------------
Balance at end of
year............... $ 122,407,000
-------------
-------------
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD
-----------------------------------------
BUILDINGS AND ACCUMULATED DATE OF DATE OF
LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUISITION
----------- ------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL PROPERTIES:
4 vacant lots, Santa
Monica, 10/96 &
California......... $ 2,402,000 -- $ 2,402,000 N/A 01/98
1055 Wilshire Blvd.,
Santa Monica,
California
282,000 square foot
office building.... 6,125,000 $19,282,000 25,407,000 $ (470,000) 1985 Feb-98
6380 Wilshire Blvd.,
Los Angeles,
California
133,000 square foot
office building.... 6,000,000 10,223,000 16,223,000 1963 Mar-98
5900 Sepulveda Blvd.,
Van Nuys,
California
74,000 square foot
office building.... 1,667,000 5,252,000 6,919,000 (148,000) 1983 Jan-98
7080 Hollywood Blvd.,
Los Angeles,
California
161,000 square foot
office building.... 5,782,000 14,122,000 19,904,000 (83,000) 1968 Sep-98
6255 Sunset Blvd.,
Los Angeles,
California
282,000 square foot
office building.... 3,222,000 26,066,000 29,288,000 (122,000) 1986 Sep-98
802 Huntington Drive,
Monrovia,
California
21,000 square foot
office building.... 413,000 998,000 1,411,000 (12,000) 1986 May-98
4350 11th Ave., Los
Angeles, California
9,000 square foot
office building.... -- 336,000 336,000 N/A 1910 Oct-97
Two commercial
buildings,
Long Beach,
California
2,000 square foot
office buildings... 41,000 41,000 N/A 1947 Jul-98
301 S. Fair Oaks,
Pasadena,
California
55,000 square foot
office building.... 1,841,000 7,236,000 9,077,000 (191,000) 1991 Dec-97
----------- ------------- ------------ --------------
27,452,000 83,556,000 111,008,000 (1,026,000)
RESIDENTIAL PROPERTIES:
Pacific Palisades,
California
3 residential
homes.............. 960,000 1,196,000 2,156,000 N/A 1994 12/97-2/98
Palm Desert,
California
23 housing lots.... 1,535,000 1,367,000 2,902,000 N/A 1998 2/98
Cathedral City,
California
112 housing lots... 1,800,000 586,000 2,386,000 N/A 1998 9/98
3,000 acres of land,
Koala, Hawaii...... 4,110,000 501,000 4,611,000 N/A 4/6/98
San Diego, California
155 acres of
land............... 283,000 283,000 N/A N/A 5/98
Riverside, California
3.7 acres of
land............... 87,000 87,000 N/A N/A 5/98
----------- ------------- ------------ --------------
$ 8,775,000 $ 3,650,000 $ 12,425,000
----------- ------------- ------------ --------------
Total.............. $36,227,000 $87,206,000 $123,433,000 $ (1,026,000)
----------- ------------- ------------ --------------
----------- ------------- ------------ --------------
Balance at beginning
of year............
Additions during
period:
Acquisitions.....
Improvements.....
Other:...........
Deductions during
period:
Disposition of
real estate
sold...........
Other:...........
Balance at end of
year...............
</TABLE>
S-1
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
KENNEDY-WILSON, INC.
ARTICLE I. Name
The name of the Corporation is Kennedy-Wilson, Inc.
ARTICLE II. Definitions
For purposes of this Certificate of Incorporation, the following terms
shall have the meanings indicated, and all capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in Section
203(c) of the Delaware General Corporation Law, as in effect on the date hereof:
(A) "Board" shall mean the Board of Directors of the Corporation.
(B) "Business Combination" shall have the meaning ascribed to it in
Section 203(c)( 3) of the Delaware General Corporation Law; provided,
however, that for purposes hereof the term "interested stockholder"
appearing therein shall have the meaning ascribed to it in Article II(B)
hereof.
(C) "Disinterested Shares" shall mean the shares of Voting Stock of
the Corporation held by Persons other than an Interested Stockholder, and
each reference herein to a percentage or portion of the Disinterested
Shares shall refer to such percentage or portion of the votes entitled to
be cast by the holders of such Disinterested Shares.
(D) "Independent Directors" shall mean the members of the Board who
were directors of the Corporation prior to any Person becoming an
Interested Stockholder or were recommended for election or elected to
succeed such directors by a majority of such directors.
(E) "Interested Stockholder" shall mean any Person (other than the
Corporation and any director indirect majority-owned subsidiary of the
Corporation) that (1) is the Owner of 5% or more of the outstanding Voting
Stock, or (2) is an Affiliate or Associate of the Corporation and was the
Owner of 5% or more of the outstanding Voting Stock at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such Person is an Interested Stockholder, or (3) is an
Affiliate or Associate of a Person described in (1) or (2) preceding;
provided, however, that the term "Interested Stockholder" shall not include
(i) any Person who (a) owned shares in excess of the 5% limitation set
forth herein as of the first date upon which shares of Voting Stock of the
Corporation are held of record or beneficially by more than one hundred
(100) stockholders and continued to own shares in excess of such 5%
limitation or would have owned such shares but for action by the
Corporation or (b) acquired such shares from a Person described in (a)
above by gift, inheritance or in a transaction in which no consideration
was exchanged; or (ii) any Person whose ownership of shares in excess of
the 5% limitation set forth herein is the result of action taken solely by
the Corporation, provided that such Person shall be an Interested
Stockholder if thereafter such Person acquires additional shares of Voting
Stock except as a result of further corporation action not caused, directly
or indirectly, by such Person. For the purpose of determining whether a
Person is an Interested Stockholder, (1) the Voting Stock deemed to be
outstanding shall include stock deemed to be owned by the Person through
application of Section 203(c)(8) of the Delaware General Corporation Law,
except that the Voting Stock deemed to be outstanding shall not include any
other unissued stock of the Corporation which may be issuable pursuant to
any agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise, and (2) a Person engaged in
business as an underwriter of securities shall not be deemed to own any
Voting Stock acquired through such Person's participation in good faith in
a firm commitment underwriting until the expiration of 40 days after the
date of such acquisition.
(F) "Voting Stock" shall mean stock of the Corporation of any class or
series entitled to vote generally in the election of directors of the
Corporation, and each reference herein to a percentage or portion of shares
of Voting Stock shall refer to such percentage or portion of the votes
entitled to be cast by the holders of such shares.
ARTICLE III. Registered Office
The address of the registered office of the Corporation in the State of
Delaware is Corporation Service Company, 1013 Centre Road, City of Wilmington,
County of New Castle and the name of its registered agent at that address is
Corporation Service Company.
ARTICLE IV. Purpose
<PAGE>
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE V. Authorized Capital Stock
SECTION 1. Number of Authorized Shares. The Corporation shall be authorized
to issue two classes of shares of stock to be designated, respectively, "Common
Stock" and "Preferred Stock"; the total number of shares of all classes of stock
that the Corporation shall have authority to issue is Twenty-Five Million
(25,000,000) shares, consisting of Twenty Million (20,000,000) shares of Common
Stock, par value $.01 per share, and Five Million (5,000,000) shares of
Preferred Stock, par value of $.01 share.
SECTION 2. Common Stock. All shares of Common Stock shall be of one class
without series and shall be denominated "Common Stock."
SECTION 3. Preferred Stock. Shares of Preferred Stock may be issued from
time to time in one or more series. Shares of Preferred Stock that are redeemed,
purchased or otherwise acquired by the Corporation may be reissued except as
otherwise provided by law. The Board is hereby authorized to fix or alter the
designations, powers and preferences, and relative, participating, optional or
other rights, if any, and qualifications, limitations or restrictions thereof,
including, without limitation, dividend rights (and whether dividends are
cumulative), conversion rights, if any, voting rights (including the number of
votes, if any, per share, as well as the number of members, if any, of the Board
or the percentage of members, if any, of the Board each class or series of
Preferred Stock may be entitled to elect), rights and terms of redemption
(including sinking fund provisions, if any), redemption price and liquidation
preferences of any wholly unissued series of Preferred Stock, and the number of
shares constituting any such series and the designation thereof, and to increase
or decrease the number of shares of any such series subsequent to the issuance
of shares of such series, but not below the number of shares of such series then
outstanding. Notwithstanding the foregoing, the Board shall have no power to
alter the rights of any shares of Preferred Stock then outstanding.
SECTION 4. Distributions Upon Liquidation. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, whether voluntary
or involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation, the holders of each series of Preferred Stock
shall be entitled to receive, out of the net, assets of the Corporation, an
amount for each share of such series of Preferred Stock equal to the amount
fixed and determined by the Board in the resolution or resolutions cresting such
series and providing for the issuance of such shares, and no more, before any of
the assets of the Corporation shall be distributed or paid over to the holders
of shares of Common Stock. After payment in full of said amounts to the holders
of Preferred Stock of all series, the remaining assets and funds of the
Corporation shall be divided among and paid to the holders of shares of Common
Stock. If, upon such dissolution, liquidation or winding up, the assets of the
Corporation distributable as aforesaid among the holders of Preferred Stock of
all series shall be insufficient to permit full payment to them of said
preferential amounts, then such assets shall be distributed ratably among such
holders of Preferred Stock in proportion to the respective total amounts which
they shall be entitled to receive as provided in this Section 4.
ARTICLE VI. Annual Meetings of Stockholders
The annual meeting of stockholders shall be held at such time, on such
time, on such date and at such place (within or without the State of Delaware)
as provided in the Bylaws of the Corporation. Subject to any requirement of
applicable law, the books of the Corporation may be kept outside the State of
Delaware at such place or laces as may be designated from time to time by the
Board or in the Bylaws of the Corporation. Elections of directors need not be by
written ballot unless the Bylaws of the Corporation shall so provide.
ARTICLE VII. Call of Special Meetings of Stockholders
Special meetings of stockholders of the Corporation for any purpose or
purposes may be called at any time by a majority of the members of the Board of
Directors or by a committee of the Board of Directors which has been duly
designated by the Board of Directors and whose power and authority, as provided
in a resolution by the Board of Directors or in the Bylaws of the Corporation,
includes the power to call such meetings, but such special meetings of
stockholders of the Corporation may not be called by any other Person or Persons
or in any other manner; provided, however, that if a proposal requiring
stockholder approval is made by or on behalf of an Interested Stockholder or a
director who is an Affiliate or Associate of an Interested Stockholder, or if an
Interested Stockholder otherwise seeks action requiring stockholder approval,
then the affirmative vote of a majority of the Independent Directors shall also
be required to call a special meeting of stockholders for the purpose of
considering such proposal or obtaining such approval; and provided further that
if and to the extent that any special meeting of stockholders may be called by
any other Person or Persons specified in any certificate of designations filed
under Section 151(g) of the Delaware General Corporation Law (or its successor
statute as in effect from time to time), then such special meeting may also be
called by the Person or Persons, in the manner, at the times and for the
purposes so specified.
<PAGE>
ARTICLE VIII. Number of Directors
The number of directors that shall constitute the whole Board shall be as
specified in the Bylaws of the Corporation the same may be amended from time to
time. Notwithstanding the foregoing, during any period in which the holders of
any one or more series of Preferred Stock, voting as a class, shall be entitled
to elect a specified number of directors by reason of dividend arrearages or
other contingencies giving the m the right to do so, then and during such time
as such right continues, A)" \* MERGEFORMAT (A) the then otherwise authorized
number of directors shall be increased by such specified number of directors and
the holders of shares of such series of Preferred Stock, voting as a class,
shall be entitled to elect such specified number of directors in accordance with
the procedure set forth in the resolution or resolutions of the Board creating
such series and providing for the issuance of such shares and B)" \* MERGEFORMAT
(B) each such additional director shall serve until his or her successor shall
be elected and shall qualify, or until his or her right to hold such office
terminates pursuant to the resolution or resolutions of the Board creating such
series of Preferred Stock and providing for the issuance of shares of such
series, whichever occurs earlier. Whenever the holders of shares of such series
of Preferred Stock are divested of such right to elect directors pursuant to the
resolution or resolutions of the Board creating such series and providing for
the issuance of such shares, the terms of office of all directors elected by the
holders of such series of Preferred Stock pursuant to such rights, or elected to
fill any vacancies resulting from the death, resignation or removal of directors
so elected by the holders of such series, shall forthwith terminate and the
authorized number of directors shall be reduced accordingly.
ARTICLE IX. Stockholder Action by Written Consent
Any election of directors or other action by the stockholders of the
Corporation must be effected at an annual or special meeting of stockholders and
may be effected by written consent without a meeting.
ARTICLE X. Election of Directors
SECTION 1. Classified Board. Except to the extent
otherwise provided in any certificate of designations filed under Section 151(g)
of the Delaware General Corporation Law (or its successor statue as in effect
from time to time), the Board of Directors shall be and is divided into three
classes, nearly equal in number of directors as reasonably possible. Each
director shall serve for a term ending on the third annual meeting following the
annual meeting at which such director was elected, provided, however, that the
directors first elected to Class I shall serve for a term ending on the annual
meeting date next following the end of calendar year 1992, the directors first
elected to Class II shall serve for a term ending on the second annual meeting
date next following the end of calendar year 1992, and the directors first
elected to Class III shall serve for a term ending on the third annual meeting
date next following the end of calendar year 1992. The foregoing
notwithstanding, each director shall serve until his successor shall have been
duly elected and qualified unless he shall resign, become disqualified or shall
otherwise be removed.
At each annual election, the directors chosen to succeed those whose terms
then expire shall be of the same class of the directors they succeed unless, by
reason of any intervening changes in the authorized number of directors, the
designated board shall designate one or more directorships whose term then
expires as directorships of another class in order more nearly to achieve
equality of number of directors among the classes. If a director dies, resigns
or is removed, the director chosen to fill the vacant directorship shall be of
the same class as the director he or she succeeds, unless, by reason of any
previous changes in the authorized number of directors, the Board shall
designate such vacant directorship as a directorship of another class in order
more nearly to achieve equality in the number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly equal in
number of directors as reasonably possible, in the event of any change in the
authorized number of directors, such director then continuing to serve as such
shall nevertheless continue as a director of the class of which he is a member
until the expiration of his current term or his prior death, resignation or
removal. If any newly created directorship may, consistently with the rule that
the three classes shall be as nearly equal in number of directors as reasonably
possible, be allocated to one of two or more classes, the Board shall allocate
it to that of the available classes whose term of office is due to expire at the
earliest date following such allocation.
Vacancies and newly created directorships resulting from any increase in
the authorized number of directors elected by all of the stockholders having the
right to vote as a single class may, unless the Board of Directors determines
otherwise, only be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director; provided, however,
that if the holders of any class or classes of stock or series thereof are
entitled to elect one or more directors, vacancies and newly created
directorships of such class or classes or series may only be filled by a
majority of the directors elected by such class or classes or series thereof
then in office, or by a sole remaining director so elected.
SECTION 2. Stockholder Nominees. Nominations by stockholders of persons for
election to the Board shall be made only in accordance with the procedures set
forth in the Bylaws of the Corporation.
<PAGE>
SECTION 3. Removal. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any director, or the entire Board, may be
removed from office only for cause at any time, and only by the affirmative vote
of the holders of a majority of the shares of Voting Stock then outstanding;
provided, however, that if a proposal to remove a director is made by or on
behalf of an Interested Stockholder or a director who is an Affiliated or
Associate of an Interested Stockholder, then such removal shall also require the
affirmative vote of the holders of a majority of the Disinterested Shares then
outstanding.
ARTICLE XI. Business Combinations
SECTION 1. Vote Required for Certain Business Combinations. In addition to
any affirmative vote required by applicable law or any other provision of this
Certificate of Incorporation or specified in any agreement, and in addition to
any voting rights granted to or held by the holders of Common Stock of any
series of Preferred Stock, the approval or authorization of any Business
Combination that has not been approved in advance by a majority of the
Independent Directors shall require the affirmative vote of the holders of not
less than 66-2/3% of the Disinterested Shares then outstanding.
SECTION 2. Determination of Compliance. A majority of the Independent
Directors shall have the power and duty to determine, on the basis of
information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article XI, including, without limitation, (A)
whether a Person is an Interested Stockholder, (B) the number of shares of
Voting Stock owned by any Person, (C) whether a Person is an Affiliate or
Associate of another Person, (D) whether a proposed transaction is a Business
Combination and (E) whether a Business Combination shall have been approved in
advance by a majority of the Independent Directors; and any such determination
made in good faith by a majority of the Independent Directors shall be
conclusive and binding for all purposes of this Article XI.
ARTICLE XII. Liability and Indemnification
To the fullest extent permitted by the Delaware General Corporation Law, as
the same exists or may hereafter be amended (the "Delaware Law"), a director of
the Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. The Corporation
shall indemnify, in the manner and to the fullest extent permitted by the
Delaware Law, any person (or the estate of any person) who is or was a party to,
or is threatened to be made a party to, any threatened, pending or completed
action, suit or proceeding, whether or not by or in the right of the
Corporation, and whether civil, criminal, administrative, investigative, or
otherwise, by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise. The Corporation may indemnify, in the manner
and to the fullest extent permitted by the Delaware Law, any person (or the
estate of any person) who is or was a party to, or is threatened to be made
party to, any threatened, pending or completed action, suit or proceeding,
whether or not by or in the right of the Corporation, and whether civil,
criminal, administrative, investigative or otherwise, by reason of the fact that
such person is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
Corporation may, to the fullest extent permitted by the Delaware Law, purchase
and maintain insurance on behalf of any such directors, officer, employee or
agent against any liability which may be asserted against such person. To the
fullest extent permitted by the Delaware Law, the indemnification provided
herein shall include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement and, in the manner provided by the Delaware Law, any
such expenses may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding. The indemnification provided therein shall
not be deemed to limit the right of the Corporation to indemnify any other
person for any such expenses to the fullest extent permitted by the Delaware
Law, nor shall it be deemed exclusive of any other rights to which any person
seeking indemnification from the Corporation may be entitled under any
agreement, vote of stockholders or disinterested directors, or otherwise, both
as to action in such person's official capacity and as to action in another
capacity while holding such office.
No repeal or modification of the foregoing paragraph shall adversely affect
any right or protection of a director of the Corporation existing by virtue of
the foregoing paragraph at the time of such repeal or modification.
ARTICLE XIII. Amendment of Corporate Documents
SECTION 1. Certificate of Incorporation. In addition to any affirmative
vote required by applicable law or any other provision of this Certificate of
Incorporation or specified in any agreement, and in addition to any voting
rights granted to or held by the holders of Common Stock or any series of
Preferred Stock, any alteration, amendment, repeal or rescission (any"Change")
of any provision of this Certificate of Incorporation must be approved by a
majority of the directors of the Corporation then in office and by the
affirmative vote of the holders of a majority of the Voting Stock then
outstanding; provided, however, that: (A) if any such Change relates to any
Article other than Articles I, III or VI hereof, such Change must also be
<PAGE>
approved either (i) by a majority of the authorized number of directors and, if
one or more Interested Stockholders exist, by a majority of the Independent
Directors, or (ii) by the affirmative vote of the holders of not less than 50%
of the shares of Voting Stock then outstanding; and (B) if any such Change is
proposed by or on behalf of an Interested Stockholder or a director who is an
Affiliate or Associate of an Interested Stockholder, such Change must also be
approved by the affirmative vote of the holders of a majority of the
Disinterested Shares then outstanding. Subject to the foregoing, the Corporation
reserves the right to alter, amend, repeal or rescind any provision contained in
this Certificate of Incorporation in any manner now or hereafter prescribed by
law.
SECTION 2. Bylaws. In addition to any affirmative vote required by
applicable law and any voting rights granted to or held by the holders of Common
Stock or of any series Preferred Stock, any Change of any provision of the
Bylaws of the Corporation must be approved either (A) by a majority of the
authorized number of directors and, if one or more Interested Stockholders
exist, by a majority of the Independent Directors, or (B) by the affirmative
vote of the holders of not less than 80% of the shares of Voting Stock then
outstanding and, if the Change is proposed by or on behalf of an Interested
Stockholder or a director who is an Affiliate or Associate of an Interested
Stockholder, by the affirmative vote of the holders of a majority of the
Disinterested Shares then outstanding. Subject to the foregoing, the Board shall
have the power to make, alter, amend, repeal or rescind the Bylaws of the
Corporation.
ARTICLE XIV. Constituencies
The Board of Directors, when evaluating any proposed transaction that would
result in a person or entity becoming an Interested Stockholder or an Interested
Stockholder increasing his ownership of capital stock of the Corporation, or any
transaction or any proposed transaction with another party which would
constitute a business Combination if the other party to the transaction were an
Interested Stockholder, shall, in connection with the exercise of its judgment
in determining what is in the best interests of the Corporation and its
stockholders, give due consideration to all relevant factors, including without
limitation, the independence and integrity of the Corporation's operations, the
social, economic and environmental effects on the stockholders, employees,
customers, suppliers and other constituents of the Corporation and its
subsidiaries and on the communities in which the Corporation and its
subsidiaries operate or are located or in which they serve.
ARTICLE XV. Appraisal Rights
To the maximum extent permissible under Section 262 of the Delaware General
Corporation Law, the stockholders of the Corporation shall be entitled to the
statutory appraisal rights provided therein, notwithstanding any exception
otherwise provided therein, with respect to any transaction described in Article
XI involving the Corporation which requires the affirmative vote of the holders
of not less than 66-2/3% of the Disinterested Shares then outstanding.
ARTICLE XVI. Incorporation
The name and mailing address of the incorporator of the Corporation is:
Alan D. Wallace
2950 31st Street
Santa Monica, California 90405
The undersigned, being the incorporator hereinbefore named, for the purpose
of forming a corporation to do business both within and without the State of
Delaware, and in pursuance of the Delaware General Corporation Law, does make
and file this Certificate.
/s/ Alan D. Wallace
-------------------
Alan D. Wallace
Incorporator
<PAGE>
CERTIFICATE OF CHANGE OF REGISTERED AGENT
AND
REGISTERED OFFICE
* * * * *
Kennedy-Wilson, Inc. ___________, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
The present registered agent of the corporation is Corporation Service
Company
1013 Centre Road, Wilmington, DE 19805 and the present registered
office of the corporation is in the county of New Castle.
The Board of Directors of Kennedy-Wilson, Inc. Adopted the following
resolution of the 24th day of June, 1994.
Resolved, that the registered office of Kennedy-Wilson, Inc.
In the state of Delaware be and it hereby is changed to corporation Trust
Center, 1209 Orange Street, in the City of Wilmington County of New Castle,
and the authorization of the present registered agent of this corporation
be and the same is hereby withdrawn, ad THE CORPORATION TRUST COMPANY,
shall be and is hereby constituted and appointed the registered agent of
this corporation at the address of its registered office.
<PAGE>
IN WITNESS WHEREOF, Kennedy-Wilson, Inc. _______________ has caused
this statement to be signed by Alan D. Wallace, its Vice President*, this
15th day of November, 1994.
* Any authorized officer or the chairman or Vice-Chairman of the Board of
Directors may execute this certificate.
/s/ Alan D. Wallace
-------------------
Alan D. Wallace, Vice President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF KENNEDY-WILSON, INC.
KENNEDY-WILSON, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies:
FIRST: That the Board of Directors of the Corporation, at a special meeting
held on October 2, 1995, unanimously adopted a resolution declaring it advisable
that the Certificate of Incorporation of the Corporation be amended as follows:
That Section 1 of Article V of the Certificate of Incorporation be amended
to read in its entirety as follows:
SECTION 1. Number of Authorized Shares. The Corporation shall be authorized
to issue two classes of shares of stock to be designated, respectively,
"Common Stock" and "Preferred Stock"; the total number of shares of all
classes of stock that the Corporation shall have authority to issue is
Twenty Five Million (25,000,000) shares consisting of Twenty Million
(20,000,000) shares of Common Stock, par value $.01 per share, and Five
Million (5,000,000) shares of Preferred Stock, par value $.01 per share.
Upon the amendment of this Article, each ten of the outstanding shares of
Common Stock of the Corporation of the par value of $.01 shall be reverse
split into one share of common Stock of the Corporation of the par value of
$.01; provided, however that no fractional shares shall be issued and in
lieu thereof the Corporation shall purchase for cash any such fractional
interest resulting from the reserve split.
SECOND: That the stockholders of the Corporation have approved the
foregoing amendment in accordance with Section 242 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, KENNEDY-WILSON, INC. Has caused this Certificate of
Amendment to be executed and attested to by the undersigned officers of the
Corporation this 20th day of November, 1995.
KENNEDY-WILSON, INC.
By: /s/ William J. McMorrow
-------------------------
William J. McNorrow, Chairman
of the Board
[CORPORATE SEAL]
ATTEST:
/s/ Randall G. Dotemoto, Secretary
- -----------------------------------
Randall G. Dotemoto, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF KENNEDY-WILSON, INC.
KENNEDY-WILSON, INC., a corporation organized an existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies:
FIRST: That the Board of Directors of the Corporation, at a special meeting
held on September 30, 1996, unanimously adopted a resolution declaring it
advisable that the Certificate of Incorporation of the Corporation be amended as
follows:
That the first sentence of Section 1 of Article V of the Certificate of
Incorporation be amended to read in its entirety as follows:
The Corporation shall be authorized to issue two classes of shares of
stock to be designated, respectively, "Common Stock" and "Preferred Stock";
the total number of shares of all classes of stock that the Corporation
shall have authority to issue is Two Million Five Hundred Thousand
(2,500,000) shares consisting of Two Million (2,000,000) shares of Common
Stock, par value $.01 per share, and Five Hundred Thousand (500,000) shares
of Preferred Stock, par value $.01 per share."
SECOND: That the stockholders of the Corporation have approved the
foregoing amendment in accordance with Section 242 of the General Corporation
Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, KENNEDY-WILSON, INC. Has caused this Certificate of
Amendment to be executed and attested to by the undersigned officers of the
Corporation this 19th day of November, 1996.
KENNEDY-WILSON, INC.
By: /s/ William J. McMorrow
---------------------------
William J. McNorrow, Chairman
of the Board
[CORPORATE SEAL]
ATTEST:
/s/ Freeman A. Lyle
- --------------------
Freeman A. Lyle, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF KENNEDY-WILSON, INC.
KENNEDY-WILSON, INC., a corporation organized an existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies:
FIRST: That the Board of Directors of the Corporation, at a special meeting
held on September 29, 1997, unanimously adopted a resolution declaring it
advisable that the Certificate of Incorporation of the Corporation be amended as
follows:
That Section 1 of Article V of the Certificate of Incorporation be amended
to read in its entirety as follows:
"The Corporation shall be authorized to issue two classes of shares of
stock to be designated, respectively, "Common Stock" and "Preferred Stock";
the total number of shares of all classes of stock that the Corporation
shall have authority to issue is Six Million (6,000,000) shares consisting
of Five Million (5,000,000) shares of Common Stock, par value $.01 per
share, and One Million (1,000,000) shares of Preferred Stock, par value
$.01 per share."
SECOND: That the stockholders of the Corporation have approved the
foregoing amendment in accordance with Section 242 of the General Corporation
Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, KENNEDY-WILSON, INC. has caused this Certificate of
Amendment to be executed and attested to by the undersigned officers of the
Corporation this 15th day of December. 1997.
KENNEDY-WILSON, INC.
By: /s/ William J. McMorrow
-----------------------------
William J. McNorrow, Chairman
of the Board
[CORPORATE SEAL]
ATTEST:
/s/ Freeman A. Lyle
- -----------------------
Freeman A. Lyle, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF KENNEDY-WILSON, INC.
KENNEDY-WILSON, INC., a corporation organized an existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies:
FIRST: That the Board of Directors of the Corporation, at a special meeting
held on March 27, 1998, unanimously adopted a resolution declaring it advisable
that the Certificate of Incorporation of the Corporation be amended as follows:
That Section 1 of Article V of the Certificate of Incorporation be amended
to read in its entirety as follows:
"The Corporation shall be authorized to issue two classes of shares of
stock to be designated, respectively, "Common Stock" and "Preferred Stock";
the total number of shares of all classes of stock that the Corporation
shall have authority to issue is Twelve Million (12,000,000) shares
consisting of Ten Million (10,000,000) shares of Common Stock, par value
$.01 per share, and Two Million (2,000,000) shares of Preferred Stock, par
value $.01 per share."
SECOND: That the stockholders of the Corporation have approved the
foregoing amendment in accordance with Section 242 of the General Corporation
Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, KENNEDY-WILSON, INC. has caused this Certificate of
Amendment to be executed and attested to by the undersigned officers of the
Corporation this 29th day of April 1998.
KENNEDY-WILSON, INC.
By: /s/ William J. McMorrow
----------------------------
William J. McNorrow, Chairman
of the Board
[CORPORATE SEAL]
ATTEST:
/s/ Freeman A. Lyle
- ----------------------
Freeman A. Lyle, Secretary
- ------------------------------
<PAGE>
Kennedy Wilson, Inc.
Deferred Compensation Plan
Master Plan Document
===============================================================================
Effective September 1, 1997
Copyright -C- 1997
By Compensation Resource Group, Inc.
All Rights Reserved
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 1
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 2
Selection, Enrollment, Eligibility . . . . . . . . . . . . . . . . . . . . . . . . .8
2.1 Selection by Committee . . . . . . . . . . . . . . . . . . . . . . . . .8
2.2 Enrollment Requirements. . . . . . . . . . . . . . . . . . . . . . . . .8
2.3 Eligibility; Commencement of Participation . . . . . . . . . . . . . . .8
2.4 Termination of Participation and/or Deferrals. . . . . . . . . . . . . .8
ARTICLE 3
Deferral Commitments/Company Matching/Interest Crediting/Taxes . . . . . . . . . . .8
3.1 Minimum Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.2 Maximum Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.3 Election to Defer, Effect of Election Form.. . . . . . . . . . . . . . .9
3.4 Annual Deferral Amounts. . . . . . . . . . . . . . . . . . . . . . . . 10
3.5 Annual Company Matching Amount.. . . . . . . . . . . . . . . . . . . . 10
3.6 Investment of Trust Assets . . . . . . . . . . . . . . . . . . . . . . 11
3.7 Interest Crediting Prior to Distribution . . . . . . . . . . . . . . . 11
3.8 Interest Crediting for Installment Distributions . . . . . . . . . . . 11
3.9 FICA and Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.10 Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 4
Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election. . . . 13
4.1 Short-Term Payout. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Other Benefits Take Precedence Over Short-Term Payout. . . . . . . . . 13
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial
Emergencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.4 Withdrawal Election. . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 5
Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.1 Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Payment of Retirement Benefit. . . . . . . . . . . . . . . . . . . . . 14
5.3 Death Prior to Completion of Retirement Benefit. . . . . . . . . . . . 15
ARTICLE 6
Pre-Retirement Survivor Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 Pre-Retirement Survivor Benefit. . . . . . . . . . . . . . . . . . . . 15
6.2 Payment of Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . 15
ARTICLE 7
Termination Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.1 Termination Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.2 Payment of Termination Benefit . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 8
Disability Waiver and Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.1 Disability Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.2 Continued Eligibility; Disability Benefit. . . . . . . . . . . . . . . 16
ARTICLE 9
Beneficiary Designation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.1 Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.2 Beneficiary Designation; Change; Spousal Consent . . . . . . . . . . . 17
9.3 Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.4 No Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . 17
9.5 Doubt as to Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . 17
9.6 Discharge of Obligations . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 10
Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.1 Paid Leave of Absence. . . . . . . . . . . . . . . . . . . . . . . . . 18
10.2 Unpaid Leave of Absence. . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 11
Termination, Amendment or Modification . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE>
11.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.2 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.3 Plan Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.4 Interest Rate in the Event of a Plan Termination, Amendment
or Modification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.5 Effect of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 12
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.1 Committee Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.2 Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.3 Binding Effect of Decisions. . . . . . . . . . . . . . . . . . . . . . 20
12.4 Indemnity of Committee . . . . . . . . . . . . . . . . . . . . . . . . 20
12.5 Employer Information . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 13
Other Benefits and Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13.1 Coordination with Other Benefits . . . . . . . . . . . . . . . . . . . 20
ARTICLE 14
Claims Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14.1 Presentation of Claim. . . . . . . . . . . . . . . . . . . . . . . . . 21
14.2 Notification of Decision . . . . . . . . . . . . . . . . . . . . . . . 21
14.3 Review of a Denied Claim . . . . . . . . . . . . . . . . . . . . . . . 21
14.4 Decision on Review . . . . . . . . . . . . . . . . . . . . . . . . . . 22
14.5 Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 15
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
15.1 Establishment of the Trust . . . . . . . . . . . . . . . . . . . . . . 22
15.2 Interrelationship of the Plan and the Trust. . . . . . . . . . . . . . 22
15.3 Distributions From the Trust . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 16
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
16.1 Status of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
16.2 Unsecured General Creditor . . . . . . . . . . . . . . . . . . . . . . 23
16.3 Employer's Liability . . . . . . . . . . . . . . . . . . . . . . . . . 23
16.4 Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
16.5 Not a Contract of Employment . . . . . . . . . . . . . . . . . . . . . 23
16.6 Furnishing Information . . . . . . . . . . . . . . . . . . . . . . . . 23
16.7 Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.10 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.11 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.12 Spouse's Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.13 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.14 Incompetent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
16.15 Court Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
16.16 Distribution in the Event of Taxation. . . . . . . . . . . . . . . . . 25
16.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
16.18 Legal Fees To Enforce Rights After Change in Control . . . . . . . . . 26
</TABLE>
<PAGE>
KENNEDY WILSON, INC.
DEFERRED COMPENSATION PLAN
Effective September 1, 1997
Purpose
The purpose of this Plan is to provide specified benefits to a
select group of management or highly compensated Employees and Directors who
contribute materially to the continued growth, development and future business
success of Kennedy Wilson, Inc., a Delaware corporation, and its subsidiaries,
if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes
and for purposes of Title I of ERISA.
ARTICLE 1
Definitions
For purposes of this Plan, unless otherwise clearly apparent from
the context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, a credit on
the records of the Employer equal to the sum of (i) the Deferral Account
balance and (ii) the vested Company Matching Account balance. The
Account Balance, and each other specified account balance, shall be a
bookkeeping entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to a Participant,
or his or her designated Beneficiary, pursuant to this Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to Base Annual
Salary, relating to services performed during any calendar year, whether
or not paid in such calendar year, payable to a Participant as an
Employee under any Employer's annual bonus and cash incentive plans,
excluding stock options.
1.3 "Annual Company Matching Amount" shall mean, for any one Plan Year, the
amount determined in accordance with Section 3.5.
1.4 "Annual Deferral Amount" shall mean that portion of a Participant's Base
Annual Salary, Annual Bonus and Directors Fees that a Participant elects
to have, and is deferred, in accordance with Article 3, for any one Plan
Year. In the event of a Participant's Retirement, Disability (if
deferrals cease in accordance with Section 8.1), death or a Termination
of Employment prior to the end of a Plan Year, such year's Annual
Deferral Amount shall be the actual amount withheld prior to such event.
1.5 "Base Annual Salary" shall mean the annual cash compensation relating to
services performed during any year, excluding, bonuses, commissions,
overtime, fringe benefits, stock options, relocation expenses, incentive
payments, non-monetary awards, directors fees and other fees, automobile
and other allowances, paid to a Participant for employment services
rendered (whether or not such allowances are included in the Employee's
gross income). Base Annual Salary shall be calculated before reduction
for compensation voluntarily deferred or contributed by the Participant
pursuant to all qualified or non-qualified plans of any Employer and
shall be calculated to include amounts not otherwise included in the
Participant's gross income under Code Sections 125, 402(e)(3), 402(h) or
403(b) pursuant to plans established by any Employer; provided, however,
that all such amounts will be included in compensation only to the extent
that, had there been no such plan, the amount would have been payable in
cash to the Employee.
1.6 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under this Plan upon the death of a Participant.
1.7 "Beneficiary Designation Form" shall mean the form established from time
to time by the Committee that a Participant completes, signs and returns
to the Committee to designate one or more Beneficiaries.
1.8 "Board" shall mean the board of directors of the Company.
1.9 "Bonus Rate" shall mean, for a Plan Year, an interest rate, if any,
determined by the Committee, which rate shall be determined and announced
after the end of the Plan Year for which the rate applies, based upon the
Company's Return on Equity for the Plan Year, as follows:
<TABLE>
<CAPTION>
Return on Equity for Bonus Rate as a %
Plan Year of Crediting Rate for Plan Year
--------------------- -------------------------------
<S> <C>
Less than 30% 0%
------------------------------------------------------------
<PAGE>
30%-49% 10%
------------------------------------------------------------
50%-69% 15%
------------------------------------------------------------
70% or more 20%
------------------------------------------------------------
</TABLE>
1.10 "Chance in Control" shall mean the first to occur of any of the following
events:
(a) Any "person" (as that term is used in Section 13 and 14(d)(2) of
the Securities Exchange Act of 1934 ("Exchange Act")) becomes the
beneficial owner (as that term is used in Section 13(d) of the
Exchange Act), directly or indirectly, of 50% or more of the
Company's capital stock entitled to vote in the election of
directors;
(b) During any period of not more than two consecutive years, not
including any period prior to the adoption of this Plan,
individuals who, at the beginning of such period constitute the
board of directors of the Company, and any new director (other
than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in
clause (a), (c), (d) or (e) of this Section 1.12) whose election
by the board of directors or nomination for election by the
Company's stockholders was approved by a vote of at least
three-fourths (3/4ths) of the directors then still in office, who
either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
(c) The shareholders of the Company approve any consolidation or
merger of the Company, other than a consolidation or merger of the
Company in which the holders of the common stock of the Company
immediately prior to the consolidation or merger hold more than
50% of the common stock of the surviving corporation immediately
after the consolidation or merger;
(d) The shareholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company; or
(e) The shareholders of the Company approve the sale or transfer of
all or substantially all of the assets of the Company to parties
that are not within a "controlled group of corporations" (as
defined in Code Section 1563) in which the Company is a member.
1.11 "Claimant" shall have the meaning set forth in Section 14.1.
1.12 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended
from time to time.
1.13 "Committee" shall mean the committee described in Article 12.
1.14 "Company" shall mean Kennedy Wilson, Inc., a Delaware corporation, and
any successor to all or substantially all of the Company's assets or
business.
1.15 "Company Matching Account" shall mean (i) the sum of the Participant's
Annual Company Matching Amounts, plus (ii) interest credited in
accordance with all the applicable interest crediting provisions of this
Plan that relate to the Participant's Company Matching Account, less
(iii) all distributions made to the Participant or his or her Beneficiary
pursuant to this Plan that relate to the Participant's Company Matching
Account.
1.16 "Compensation" shall mean, with respect to a Participant for any Plan
Year, the sum of the Participant's Base Annual Salary, Annual Bonus and
Directors Fees relating to services performed during any Plan Year,
whether or not paid to the Participant during, such Plan Year.
Compensation shall be calculated before reduction for Compensation
voluntarily deferred or contributed by the Participant pursuant to all
qualified or non-qualified plans of any Employer and shall be calculated
to include amounts not otherwise included in the Participant's gross
income under Code Sections 125, 402(e)(3), 402(h) or 403)(b) pursuant to
plans established by any Employer; provided, however, that all such
amounts will be included in Compensation only to the extent that, had
there been no such plan, the amount would have been payable in cash to
the Employee.
1.17 "Crediting Rate" shall mean, with respect to a Participant's Deferral
Account balance and Company Matching Account balance for each Plan Year,
an interest rate, stated as an annual rate, determined and announced by
the Committee before the Plan Year for which it is to be used, that is
equal to the applicable "Moody's Rate." The Moody's Rate for a Plan Year
shall be an interest rate, stated as an annual rate, that (i) is
published in Moody's Bond Record under the heading of "Moody's Corporate
Bond Yield Averages--Av. Corp." and (ii) is equal to the average
corporate bond yield
<PAGE>
calculated for the month of October that immediately precedes the Plan
Year for which the rate is to be used; provided, however, that for the
First Plan Year, the Moody's Rate shall equal the average corporate bond
yield calculated for the month of June 1997.
1.18 "Deduction Limitation" shall mean the following described limitation on a
benefit that may otherwise be distributable pursuant to the provisions of
this Plan. Except as otherwise provided, this limitation shall be
applied to all distributions that are "subject to the Deduction
Limitation" under this Plan. If an Employer determines in good faith
prior to a Change in Control that there is a reasonable likelihood that
any compensation paid to a Participant for a taxable year of the Employer
would not be deductible by the Employer solely by reason of the
limitation under Code Section 162(m), then to the extent deemed necessary
by the Employer to ensure that the entire amount of any distribution to
the Participant pursuant to this Plan prior to the Change in Control is
deductible, the Employer may defer all or any portion of a distribution
under this Plan. Any amounts deferred pursuant to this limitation shall
continue to be credited with interest in accordance with Section 3.8
below, even if such amount is being paid out in installments. The
amounts so deferred and interest thereon shall be distributed to the
Participant or his or her Beneficiary (in the event of the Participant's
death) at the earliest possible date, as determined by the Employer in
good faith, on which the deductibility of compensation paid or payable to
the Participant for the taxable year of the Employer during which the
distribution is made will not be limited by Section 162(m), or if
earlier, the effective date of a Change in Control. Notwithstanding
anything to the contrary in this Plan, the Deduction Limitation shall not
apply to any distributions made after a Change in Control.
1.19 "Deferral Account" shall mean (i) the sum of all of a Participant's
Annual Deferral Amounts, plus (ii) interest credited in accordance with
all the applicable interest crediting provisions of this Plan that relate
to the Participant's Deferral Account, less (iii) all distributions made
to the Participant or his or her Beneficiary pursuant to this Plan that
relate to the Participant's Deferral Account.
1.20 "Director" shall mean any member of the board of directors of any
Employer.
1.21 "Directors Fees" shall mean the annual fees paid by any Employer,
including retainer fees and meetings fees, as compensation for serving on
the board of directors.
1.22 "Disability" shall mean a period of disability during which a Participant
qualifies for permanent disability benefits under the Participant's
Employer's long-term disability plan, or, if a Participant does not
participate in such a plan, a period of disability during which the
Participant would have qualified for permanent disability benefits under
such a plan had the Participant been a participant in such a plan, as
determined in the sole discretion of the Committee. If the Participant's
Employer does not sponsor such a plan, or discontinues to sponsor such a
plan, Disability shall be determined by the Committee in its sole
discretion.
1.23 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.24 "Election Form" shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the
Committee to make an election under the Plan.
1.25 "Employee" shall mean a person who is an employee of any Employer.
1.26 "Employer(s)" shall mean the Company and any of its subsidiaries (now in
existence or hereafter formed or acquired) that have been selected by the
Board to participate in the Plan and have adopted the Plan as a sponsor.
1.27 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as it may be amended from time to time.
1.28 "First Plan Year" shall mean the period beginning September 1, 1997 and
ending December 31, 1997.
1.29 "Participant" shall mean any Employee or Director (i) who is selected to
participate in the Plan, (ii) who elects to participate in the Plan,
(iii) who signs a Plan Agreement, an Election Form and a Beneficiary
Designation Form, (iv) whose signed Plan Agreement, Election Form and
Beneficiary Designation Form are accepted by the Committee, (v) who
commences participation in the Plan, and (vi) whose Plan Agreement has
not terminated. A spouse or former spouse of a Participant shall not be
treated as a Participant in the Plan or have an account balance under the
Plan, even if he or she has an interest in the Participant's benefits
under the Plan as a result of applicable law or property settlements
resulting from legal separation or divorce.
1.30 "Plan" shall mean the Company's Deferred Compensation Plan, which shall
be evidenced by this instrument and by each Plan Agreement, as they may
be amended from time to time.
<PAGE>
1.31 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant and the
Participant's Employer shall provide for the entire benefit to which such
Participant is entitled under the Plan; should there be more than one
Plan Agreement, the Plan Agreement bearing the latest date of acceptance
by the Committee shall supersede all previous Plan Agreements in their
entirety and shall cover such entitlement. The terms of any Plan
Agreement may be different for any Participant, and any Plan Agreement
may provide additional benefits not set forth in the Plan or limit the
benefits otherwise provided under the Plan; provided, however, that any
such additional benefits or benefit limitations must be agreed to by both
the Employer and the Participant.
1.32 "Plan Year" shall, except for the First Plan Year, mean a period
beginning on January 1 of each calendar year and continuing through
December 31 of such calendar year.
1.33 "Preferred Rate" shall mean, for each Plan Year, an interest rate that is
the sum of the Crediting Rate and the Bonus Rate for that Plan Year.
1.34 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.35 "Retirement", "Retires" or "Retired" shall mean, with respect to an
Employee, severance from employment from all Employers for any reason
other than a leave of absence, death or Disability on or after the
earlier of the attainment of (a) age sixty-five (65) or (b) age fifty
five (55) with ten (10) Years of Service; and shall mean, with respect to
a Director who is not an Employee, severance of his or her directorships
with all Employers on or after the later of (y) the attainment of age
sixty-five (65), or (z) in the sole discretion of the Committee, an age
later than age sixty-five (65). If a Participant is both an Employee and
a Director, Retirement shall not occur until he or she Retires as both an
Employee and a Director, which Retirement shall be deemed to be a
Retirement as a Director; provided, however, that such a Participant may
elect, at least two years prior to Retirement, and in accordance with the
policies and procedures established by the Committee, to Retire for
purposes of this Plan at the time he or she Retires as an Employee, which
Retirement shall be deemed to be a Retirement as an Employee.
1.36 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.37 "Return on Equity" shall mean, with respect to any Plan Year, the
Company's return on equity for the corresponding calendar year, as
determined at the Company's expense by a nationally recognized accounting
firm selected by the Committee, expressed as a percentage, and announced
after the end of the Plan Year to which it relates.
1.38 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
1.39 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.40 "Termination of Employment" shall mean the severing of employment with
all Employers, or service as a Director of all Employers, voluntarily or
involuntarily, for any reason other than Retirement, Disability, death or
an authorized leave of absence. If a Participant is both an Employee and
a Director, a Termination of Employment shall occur only upon the
termination of the last position held; provided, however, that such a
Participant may elect, at least three years before Termination of
Employment and in accordance with the policies and procedures established
by the Committee, to be treated for purposes of this Plan as having
experienced a Termination of Employment at the time he or she ceases
employment with an Employer as an Employee.
1.41 "Trust" shall mean the trust established pursuant to that certain Master
Trust Agreement, dated as of Sept. 1, 1997, between the Company and the
trustee named therein, as amended from time to time.
1.42 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency
that is caused by an event beyond the control of the Participant that
would result in severe financial hardship to the Participant resulting
from (i) a sudden and unexpected illness or accident of the Participant
or a dependent of the Participant, (ii) a loss of the Participant's
property due to casualty, or (iii) such other extraordinary and
unforeseeable circumstances arising as a result of events beyond the
control of the Participant, all as determined in the sole discretion of
the Committee.
1.43 "Years of Plan Participation" shall mean the total number of full Plan
Years a Participant has been a Participant in the Plan prior to his or
her Termination of Employment (determined without regard to whether
deferral elections have been made by the Participant for any Plan Year).
Any partial year shall not be counted. Notwithstanding the previous
sentence, a Participant's first Plan Year of participation shall be
treated as a full Plan Year for purposes of this definition, even if it
is only a partial Plan Year of participation.
1.44 "Years of Service" shall mean the total number of full years in which a
Participant has been employed by one or more Employers. For purposes of
<PAGE>
this definition, a year of employment shall be a 365 day period (or 366
day period in the case of a leap year) that, for the first year of
employment, commences on the Employee's date of hiring and that, for any
subsequent year, commences on an anniversary of that hiring date. Any
partial year of employment shall not be counted.
ARTICLE 2
Selection, Enrollment, Eligibility
2.1 Selection by Committee. Participation in the Plan shall be limited to a
select group of management or highly compensated Employees of the
Employers and to Directors, as determined by the Committee, in its sole
discretion. From that group, the Committee shall select, in its sole
discretion, Employees and Directors to participate in the Plan.
2.2 Enrollment Requirements. As a condition to participation, each selected
Employee or Director shall complete, execute and return to the Committee
a Plan Agreement, an Election Form and a Beneficiary Designation Form,
all within 30 days after he or she is selected to participate in the
Plan. In addition, the Committee shall establish from time to time such
other enrollment requirements as it determines, in its sole discretion,
are necessary.
2.3 Eligibility; Commencement of Participation. Provided an Employee or
Director selected to participate in the Plan has met all enrollment
requirements set forth in this Plan and required by the Committee,
including returning all required documents to the Committee within the
specified time period, that Employee or Director shall commence
participation in the Plan on the first day of the month following the
month in which the Employee or Director completes all enrollment
requirements. If an Employee or a Director falls to meet all such
requirements within the period required, in accordance with Section 2.2,
that Employee or Director shall not be eligible to participate in the
Plan until the first day of the Plan Year following the delivery to and
acceptance by the Committee of the required documents.
2.4 Termination of Participation and/or Deferrals. If the Committee
determines in good faith that a Participant no longer qualifies as a
member of a select group of management or highly compensated employees,
as membership in such croup is determined in accordance with Sections
201(2), 301(a)(3) and 401(a)(i) of ERISA, the Committee shall have the
right, in its sole discretion, to (i) terminate any deferral election the
Participant has made for the remainder of the Plan Year in which the
Participant's membership status changes, (ii) prevent the Participant
from making future deferral elections and/or (iii) immediately distribute
the Participant's then Account Balance as a Termination Benefit and
terminate the Participant's participation in the Plan.
ARTICLE 3
Deferral Commitments/Company Matching/Interest Crediting/Taxes
3.1 Minimum Deferral
(a) Annual Deferral Amount. For each Plan Year, a Participant may
elect to defer, as his or her Annual Deferral Amount, Base Annual
Salary, Annual Bonus and Director's Fees in the following minimum
amounts for each deferral elected:
<TABLE>
<CAPTION>
Deferral Minimum Amount
-------- --------------
<S> <C>
Base Annual Salary $2,000
Annual Bonus $2,000
Director's Fees $
</TABLE>
If an election is made for less than a stated minimum, or if no
election is made, the amount deferred shall be zero.
(b) Short Plan Year. Notwithstanding, the foregoing,, if a
Participant first becomes a Participant after the first day of a
Plan Year, or in the case of the first Plan Year of the Plan
itself, the minimum Base Annual Salary deferral shall be an amount
equal to the minimum set forth above, multiplied by a fraction,
the numerator of which is the number of complete months remaining
in the Plan Year and the denominator of which is 12.
3.2 Maximum Deferral. For each Plan Year, a Participant may elect to defer,
as his or her Annual Deferral Amount, Base Annual Salary, Annual Bonus,
and Directors Fees up to the following, maximum percentages for each
deferral elected:
<TABLE>
<CAPTION>
Deferral Maximum Amount
---------------------- --------------
<S> <C>
Base Annual Salary 100%
Annual Bonus 100%
Director's Fees 100%
</TABLE>
<PAGE>
Notwithstanding the foregoing, if a Participant first becomes a
Participant after the first day of a Plan Year, or in the case of the
first Plan Year of the Plan itself, the maximum Annual Deferral Amount
with respect to Base Annual Salary, Annual Bonus and Directors Fees shall
be limited to the amount of compensation not yet earned by the
Participant as of the date the Participant submits a Plan Agreement and
Election Form to the Committee for acceptance.
3.3 Election to Defer, Effect of Election Form.
(a) First Plan Year. In connection with a Participant's commencement
of participation in the Plan, the Participant shall make an
irrevocable deferral election for the Plan Year in which the
Participant commences participation in the Plan, along with such
other elections as the Committee deems necessary or desirable
under the Plan. For these elections to be valid, the Election Form
must be completed and signed by the Participant, timely delivered
to the Committee (in accordance with Section 2.2 above) and
accepted by the Committee.
(b) Subsequent Plan Years. For each succeeding, Plan Year, an
irrevocable deferral election for that Plan Year, and such other
elections as the Committee deems necessary or desirable under the
Plan, shall be made by timely delivering to the Committee, in
accordance with its rules and procedures before the end of the
Plan Year preceding the Plan Year for which the election is made,
a new Election Form. If no such Election Form is timely delivered
for a Plan Year, the Annual Deferral Amount shall be zero for that
Plan Year.
3.4 Annual Deferral Amounts. For each Plan Year, the Base Annual Salary
portion of the Annual Deferral Amount shall be withheld from each
regularly scheduled Base Annual Salary payroll in equal amounts, as
adjusted from time to time for increases and decreases in Base Annual
Salary. The Annual Bonus and Directors Fees portion of the Annual
Deferral Amount shall be withheld at the time the Annual Bonus or
Directors Fees are or otherwise would be paid to the Participant, whether
or not this occurs during, the Plan Year itself.
3.5 Annual Company Matching Amount. For each Plan Year, the Annual Company
Matching, Amount shall be an amount, if any, equal to the Annual Deferral
Amount, up to the following maximum percentage of the Participant's
Compensation for such Plan Year, based upon the Company's Return on
Equity for such Plan Year:
<TABLE>
<CAPTION>
--------------------------------------------------------------
Company's Return on Equity for Maximum Annual Company
Plan Year Matching
Amount as a % of
Participant's
Compensation for Plan Year
--------------------------------------------------------------
<S> <C>
Less than 40% 0%
--------------------------------------------------------------
40%-49% 10%
--------------------------------------------------------------
50%- 59% 15%
--------------------------------------------------------------
60%-69% 20%
--------------------------------------------------------------
70% or more 25%
--------------------------------------------------------------
</TABLE>
By way of example, assume that, for a Plan Year, a Participant's
Compensation is $ 100,000 and the Company's Return on Equity is 70%. If
the Participant's Annual Deferral Amount is $50,000, the Participant's
Annual Company Matching Amount shall equal $25,000; if the Participant's
Annual Deferral Amount is $10,000, the Participant's Annual Company
Matching, Amount shall equal $10,000; and if the Participant's Annual
Deferral Amount is zero, the Participant's Annual Company Matching Amount
shall equal zero. Notwithstanding anything, to the contrary in this
Section 3.5, if a Participant, for any reason, is not employed by an
Employer, or is no longer providing services as a Director, as of the
last business day of a Plan Year, the Annual Company Matching Amount for
such Plan Year shall be zero.
3.6 Investment of Trust Assets. The Trustee of the Trust shall be
authorized, upon written instructions received from the Committee or
investment manager appointed by the Committee, to invest and reinvest the
assets of the Trust in accordance with the applicable Trust Agreement.
3.7 Interest Crediting Prior to Distribution. Except as provided below,
prior to any distribution of benefits under Articles 4, 5, 6, 7 or 8,
interest shall be credited and compounded annually on (i) a Participant's
Deferral Account as though the Base Annual Salary, Bonus and Director Fee
portions of the Annual Deferral Amount for that Plan Year was withheld on
the first
<PAGE>
day of the Plan Year, and (ii) on a Participant's Company Matching
Account as though the Annual Company Matching Amount, if any, was
credited on the last day of the Plan Year to which it relates. If a
Participant's commencement of participation in the Plan is other than
the first day of the Plan Year, then interest crediting for the Base
Annual Salary, Bonus and Director Fee portion of the Annual Deferral
Amount shall commence as of the date that the Participant commences
participation in the Plan. The rate of interest for crediting, shall
be the Preferred Rate, except as otherwise provided in this Plan,
which rate shall be treated as the nominal rate for crediting,
interest. In the event of Retirement, Disability, death or
Termination of Employment prior to the end of a Plan Year, the basis
for that year's interest crediting will be a fraction of the full
year's interest, based on the number of full months that the
Participant was employed with the Employer during, the Plan Year
prior to the occurrence of such event. If a distribution is made
under this Plan, for purposes of crediting interest up to the time of
the distribution, the Participant's Account Balance shall be reduced
as of the first day of the month in which the distribution is made.
3.8 Interest Crediting for Installment Distributions. If a Participant's
benefits under this Plan are to be paid in substantially equal monthly
installments, such payments shall be determined by amortizing the
Participant's specified benefit over the number of months elected, using,
the interest rate specified below and treating,, the first installment
payment as all principal and each subsequent installment payment, first
as interest accrued for the applicable installment period on the unpaid
Account Balance and second as a reduction in the Account Balance. The
interest rate to be used to calculate installment payment amounts shall
be a fixed interest rate that is determined by averaging the Preferred
Rates for the Plan Year in which installment payments commence and the
four (4) preceding Plan Years. This rate shall be treated as the nominal
rate for making, such calculations. If a Participant has completed fewer
than five (5) Years of Plan Participation, this average shall I be
determined using, the Preferred Rates for the Plan Years during, which
the Participant participated in the Plan.
3.9 FICA and Other Taxes.
(a) Annual Deferral Amounts. For each Plan Year in which an Annual
Deferral Amount is being first withheld from a Participant, the
Participant's Employer(s) shall withhold from that portion of the
Participant's Base Annual Salary and Bonus that is not being,
deferred, in a manner determined by the Employer(s), the
Participant's share of FICA and other employment taxes on such
Annual Deferral Amount or Company Matching Amount. If necessary,
the Committee may reduce the Annual Deferral Amount or Company
Matching Amount in order to comply with this Section 3.9.
(b) Company Matching Amounts. When a participant becomes vested in a
portion of his or her Company Matching Account, the Participant's
Employer(s) shall withhold from the Participant's Base Annual
Salary and Bonus that is not deferred, in a manner determined by
the Employer(s), the Participant's share of FICA and other
employment taxes. If necessary, the Committee may reduce the
vested portion of the Participant's Company Matching Account in
order to comply with this Section 3.9.
(c) Distributions. The Participant's Employer(s), or the trustee of
the Trust, shall withhold from any payments made to a Participant
under this Plan all federal, state and local income, employment
and other taxes required to be withheld by the Employer(s), or the
trustee of the Trust, in connection with such payments, in amounts
and in a manner to be determined in the sole discretion of the
Employer(s) and the trustee of the Trust.
3.10 Vesting.
(a) A Participant shall at all times be 100% vested in his or her
Deferral Account.
(b) A Participant shall be vested in his or her Company Matching,
Account as follows: (i) with respect to all benefits under this
Plan other than the Termination Benefit, a Participant's vested
Company Matching Account shall equal 100% of such Participant's
Company Matching Account; and (ii) with respect to the Termination
Benefit, a Participant's Company Matching, Account shall vest on
the basis of the Participant's Years of Plan Participation at the
time the Participant experiences a Termination of Employment, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Plan Participation at Vested Percentage of
Date of Termination of Company Matching Account
Employment
--------------------------------------------------------------
<S> <C>
Less than I year 0%
1 year or more, but less than 2 20%
2 years or more, but less than 3 40%
<PAGE>
3 years or more, but less than 4 60%
4 years or more, but less than 5 80%
5 years or more 100%
</TABLE>
(c) Notwithstanding anything- to the contrary contained in this
Section 3.10, in the event of a Change in Control, a Participant's
Company Matching Account shall immediately become 100% vested (if
it is not already vested in accordance with the above vesting
schedules).
(d) Notwithstanding subsection (d), the vesting schedule for a
Participant's Company Matching Account shall not be accelerated to
the extent that the Committee determines that such acceleration
would cause the deduction limitations of Section 28OG of the Code
to become effective. In the event that all of a Participant's
Company Matching, Account is not vested pursuant to such a
determination, the Participant may request independent
verification of the Committee's calculations with respect to the
application of Section 280G. In such case, the Committee must
provide to the Participant within 15 business days of such a
request an opinion from a nationally recognized accounting firm
selected by the Participant (the "Accounting, Firm"). The opinion
shall state the Accounting Firm's opinion that any limitation in
the vested percentage hereunder is necessary to avoid the limits
of Section 28OG and contain supporting calculations. The cost of
such opinion shall be paid for by the Company.
ARTICLE 4
Short-Term Payout; Unforeseeable Financial Emergencies;
Withdrawal Election
4.1 Short-Term Payout. In connection with each election to defer an Annual
Deferral Amount, a Participant may irrevocably elect to receive a future
"Short-Term Payout" from the Plan with respect to such Annual Deferral
Amount. Subject to the Deduction Limitation, the Short-Term Payout shall
be a lump sum payment in an amount that is equal to the Annual Deferral
Amount plus interest credited in the manner provided in Section 3.7 above
on that amount. Subject to the Deduction Limitation and the other terms
and conditions of this Plan, each Short-Term Payout elected shall be paid
during a period beginning 1 day and ending 60 days after the last day of
any Plan Year designated by the Participant that is at least five Plan
Years after the Plan Year in which the Annual Deferral Amount is actually
deferred. By way of example, if a five year Short-Term Payout is elected
for Annual Deferral Amounts that are deferred in the Plan Year commencing
August 1, 1997, the five year Short-Term Payout would become payable
during a 60 day period commencing January 1, 2003.
4.2 Other Benefits Take Precedence Over Short-Term Payout. Should an event
occur that triggers a benefit under Article 5, 6, 7 or 8, any Annual
Deferral Amount, plus interest thereon, that is subject to a Short-Term
Payout election under Section 4.1 shall not be paid in accordance with
Section 4.1, but shall be paid in accordance with the other applicable
Article.
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies.
If the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to (i) suspend any deferrals
required to be made by a Participant and/or (ii) receive a partial or
full payout from the Plan. The payout shall not exceed the lesser of the
Participant's Account Balance, calculated as if such Participant were
receiving a Termination Benefit, or the amount reasonably needed to
satisfy the Unforeseeable Financial Emergency. If, subject to the sole
discretion of the Committee, the petition for a suspension and/or payout
is approved, suspension shall take effect upon the date of approval and
any payout shall be made within 60 days of the date of approval. The
payment of any amount under this Section 4.3 shall not be subject to the
Deduction Limitation.
4.4 Withdrawal Election. A Participant (or, after the Participant's death,
his or her Beneficiary) may elect, at any time, to withdraw all of his or
her Account Balance, calculated as if there had occurred a Termination of
Employment as of the day of the election, less a withdrawal penalty equal
to 10% of such amount (the net amount shall be referred to as the
"Withdrawal Amount"). This election can be made at any time before or
after Retirement, Disability, death or Termination of Employment, and
whether or not the Participant (or Beneficiary) is in the process of
being paid pursuant to an installment payment schedule. If made before
Retirement, Disability or death, a Participant's Withdrawal Amount shall
be his or her Account Balance calculated as if there had occurred a
Termination of Employment as of the day of the election. No partial
withdrawals of the Withdrawal Amount shall be allowed. The Participant
(or his or her Beneficiary) shall make this election by giving the
Committee advance written notice of the election in a form determined
from time to time by the Committee. The Participant (or his or her
Beneficiary) shall be paid the Withdrawal Amount within 60 days of his or
her election. Once the Withdrawal Amount is paid, the Participant's
participation in the Plan
<PAGE>
shall terminate and the Participant shall not be eligible to participate
in the Plan for the remainder of such Plan Year and the next three (3)
Plan Years. The payment of this Withdrawal Amount shall not be Subject
to the Deduction Limitation.
ARTICLE 5
Retirement Benefit
5.1 Retirement Benefit. Subject to the Deduction Limitation, a Participant
who Retires shall receive, as a Retirement Benefit, his or her Account
Balance.
5.2 Payment of Retirement Benefit. A Participant, in connection with his or
her commencement of participation in the Plan, shall elect on an Election
Form to receive the Retirement Benefit in a lump sum or in substantially
equal monthly installments (the latter determined in accordance with
Section 3.8 above) over a period of 60, 120 or 180 months. The
Participant may annually chance his or her election to an allowable
alternative payout period by submitting a new Election Form to the
Committee, provided that any such Election Form is submitted at least 2
years prior to the Participant's Retirement and is accepted by the
Committee in its sole discretion. The Election Form most recently
accepted by the Committee shall cover the payout of the Retirement
Benefit. Despite the foregoing, if the Participant's Account Balance at
the time of his or her death is less than $25,000, payment of the
Retirement Benefit shall be made in a lump sum. If a Participant does
not make any election with respect to the payment of the Retirement
Benefit, then such benefit shall be payable in a lump sum. The lump sum
payment shall be made, or installment payments shall commence, no later
than 60 days after the date the Participant Retires. Any payment made
shall be subject to the Deduction Limitation.
5.3 Death Prior to Completion of Retirement Benefit. If a Participant dies
after Retirement but before the Retirement Benefit is paid in full, the
Participant's unpaid Retirement Benefit payments shall continue and shall
be paid to the Participant's Beneficiary (a) over the remaining number of
months and in the same amounts as that benefit would have been paid to
the Participant had the Participant survived, or (b) in a lump sum, if
requested by the Beneficiary and allowed in the sole discretion of the
Committee, that is equal to the Participant's unpaid remaining, Account
Balance.
ARTICLE 6
Pre-Retirement Survivor Benefit
6.1 Pre-Retirement Survivor Benefit. Subject to the Deduction Limitation,
the Participant's Beneficiary shall receive a Pre-Retirement Survivor
Benefit equal to the Participant's Account Balance, if the Participant
dies before he or she Retires, experiences a Termination of Employment or
suffers a Disability,
6.2 Payment of Pre-Retirement Survivor Benefit. A Participant, in connection
with his or her commencement of participation in the Plan, shall elect on
an Election Form whether the Pre-Retirement Survivor Benefit shall be
received by his or her Beneficiary in a lump sum or in Substantially
equal monthly payments (the latter determined in accordance with Section
3. 10 above) over a period of 60, 120 or ISO months. The Participant
may annually change this election to an allowable alternative payout
period by submitting a new Election Form to the Committee, which form
must be accepted by the Committee in its sole discretion. The Election
Form most recently accepted by the Committee prior to the Participant's
death shall cover the payout of the Participant's Pre-Retirement Survivor
Benefit. If a Participant does not make any election with respect to the
payment of the Pre-Retirement Survivor Benefit, then such benefit shall
be paid in a lump sum. Despite the foregoing, if the Participant's
Account Balance at the time of his or her death is less than $25,000,
payment of the Pre-Retirement Survivor Benefit may be made, in the sole
discretion of the Committee, in a lump sum or monthly installment
payments that do not exceed five years in duration. The lump sum payment
shall be made, or installment payments shall commence, no later than 60
days after the date the Committee is provided with proof that is
satisfactory to the Committee of the Participant's death. Any payment
made shall be subject to the Deduction Limitation.
ARTICLE 7
Termination Benefit
7.1 Termination Benefit. Subject to the Deduction Limitation, the
Participant shall receive a Termination Benefit, which shall be equal to
the Participant's Account Balance, with interest credited in the manner
provided in Section 3.8 above.
7.2 Payment of Termination Benefit. The Termination Benefit shall be paid in
a lump sum. The lump sum payment shall be made no later than 60 days
after the date of the Participant's Termination of Employment. Any
payment made shall be subject to the Deduction Limitation.
<PAGE>
ARTICLE 8
Disability Waiver and Benefit
8.1 Disability Waiver.
(a) Waiver of Deferral. A Participant who is determined by the
Committee to be suffering, from a Disability shall be excused from
fulfilling, that portion of the Annual Deferral Amount commitment
that would otherwise have been withheld from a Participant's Base
Annual Salary, Annual Bonus and/or Directors Fees for the Plan
Year during which the Participant first suffers a Disability.
During the period of Disability, the Participant shall not be
allowed to make any additional deferral elections, but Will
continue to be considered a Participant for all other purposes of
this Plan.
(b) Return to Work. If a Participant returns to employment, or
service as a Director, with an Employer after a Disability ceases,
the Participant may elect to defer an Annual Deferral Amount for
the Plan Year following his or her return to employment or service
and for every Plan Year thereafter while a Participant in the
Plan; provided such deferral elections are otherwise allowed and
an Election Form is delivered to and accepted by the Committee for
each such election in accordance with Section 3.3 above.
8.2 Continued Eligibility; Disability Benefit. A Participant suffering a
Disability shall, for benefit purposes under this Plan, continue to be
considered to be employed, or in the service of an Employer as a
Director, and shall be eligible for the benefits provided for in Articles
4, 5, 6 or 7 in accordance with the provisions of those Articles.
Notwithstanding, the above, the Committee shall have the right, in its
sole and absolute discretion and for purposes of this Plan only, and must
in the case of a Participant who is otherwise eligible to Retire, deem
the Participant to have experienced a Termination of Employment, or in
the case of a Participant who is eligible to Retire, to have Retired at
any time (or in the case of a Participant who is eligible to Retire, as
soon as practicable) after such Participant is determined to be suffering
a Disability, in which case the Participant shall receive a Disability
Benefit equal to his or her Account Balance at the time of the
Committee's determination; provided, however, that should the Participant
otherwise have been eligible to Retire, he or she shall be paid in
accordance with Article 5. The Disability Benefit shall be paid in a
lump sum within 60 days of the Committee's exercise of such right. Any
payment made shall be subject to the Deduction Limitation.
ARTICLE 9
Beneficiary Designation
9.1 Beneficiary. Each Participant shall have the right, at any time, to
designate his or her Beneficiary(ies) (both primary as well as
contingent) to receive any benefits payable under the Plan to a
beneficiary upon the death of a Participant. The Beneficiary designated
under this Plan may be the same as or different from the Beneficiary
designation under any other plan of an Employer in which the Participant
participates.
9.2 Beneficiary Designation; Change; Spousal Consent. A Participant shall
designate his or her Beneficiary by completing and signing the
Beneficiary Designation Form, and returning, it to the Committee or its
designated agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying, with the
terms of the Beneficiary Designation Form and the Committee's rules and
procedures, as in effect from time to time. If the Participant names
someone other than his or her spouse as a Beneficiary, a spousal consent,
in the form designated by the Committee, must be signed by that
Participant's spouse and returned to the Committee. Upon the acceptance
by the Committee of a new Beneficiary Designation Form, all Beneficiary
designations previously filed shall be canceled. The Committee shall be
entitled to rely on the last Beneficiary Designation Form filed by the
Participant and accepted by the Committee prior to his or her death.
9.3 Acceptance. No designation or change in designation of a Beneficiary
shall be effective until received and acknowledged in writing by the
Committee or its designated agent.
9.4 No Beneficiary Designation. If a Participant falls to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be deemed to be his or her
surviving spouse. If the Participant has no surviving, spouse, the
benefits remaining, under the Plan to be paid to a Beneficiary shall be
payable to the executor or personal representative of the Participant's
estate.
9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the proper
Beneficiary to receive payments pursuant to this Plan, the Committee
shall have the right, exercisable in its discretion, to cause the
Participant's Employer to withhold such payments until this matter is
resolved to the
<PAGE>
Committee's satisfaction.
9.6 Discharge of Obligations. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to
the Participant, and that Participant's Plan Agreement shall terminate
upon such full payment of benefits.
ARTICLE 10
Leave of Absence
10.1 Paid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of absence
from the employment of the Employer, the Participant shall continue to be
considered employed by the Employer and the Annual Deferral Amount shall
continue to be withheld during, such paid leave of absence in accordance
with Section 3.3.
10.2 Unpaid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of absence
from the employment of the Employer, the Participant shall continue to be
considered employed by the Employer and the Participant shall be excused
from making deferrals until the earlier of the date the leave of absence
expires or the Participant returns to a paid employment status. Upon
such expiration or return, deferrals shall resume for the remaining
portion of the Plan Year in which the expiration or return occurs, based
on the deferral election, if any, made for that Plan Year. If no election
was made for that Plan Year, no deferral shall be withheld.
ARTICLE 11
Termination, Amendment or Modification
11.1 Termination. Although each Employer anticipates that it will continue
the Plan for an indefinite period of time, there is no guarantee that any
Employer will continue the Plan or will not terminate the Plan at any
time in the future. Accordingly, each Employer reserves the right to
discontinue its sponsorship of the Plan and/or to terminate the Plan, at
any time, with respect to its participating Employees and Directors, by
the action of its board of directors. Upon the termination of the Plan
with respect to any Employer, the Plan Agreements of the affected
Participants who are employed by that Employer, or in the service of that
Employer as Directors, shall terminate and their Account Balances,
determined as if they had experienced a Termination of Employment on the
date of Plan termination or, if Plan termination occurs after the date
upon which a Participant was eligible to Retire, then with respect to
that Participant as if he or she had Retired on the date of Plan
termination, shall be aid to the Participants as follows. Prior to a
Change in Control, if the Plan is terminated with respect to all its
Participants, an Employer shall have the right, in its sole discretion,
and notwithstanding, any elections made by the Participant, to pay such
benefits in a lump sum or monthly installments for up to 15 years, with
interest credited during, the installment period as provided in Section
3.9. If the Plan is terminated with respect to less than all of its
Participants, an Employer shall be required to pay such benefits in a
lump sum. After a Change in Control, the Employer shall be required to
pay such benefits in a lump sum. The termination of the Plan shall not
adversely affect any Participant or Beneficiary who has become entitled
to the payment of any benefits under the Plan as of the date of
termination; provided however, that the Employer shall have the right to
accelerate installment payments without a premium or prepayment penalty
by PAYING, the Account Balance in a lump sum or in installments using
fewer months (provided that the present value of all payments that will
have been received by a Participant at any given point of time under the
different payment schedule shall equal or exceed the present value of all
payments that would have been received at that point in time under the
original payment schedule).
11.2 Amendment. Any Employer may, at any time, amend or modify the Plan in
whole or in part with respect to that Employer by the action of its board
of directors; provided, however, that no amendment or modification shall
be effective to decrease or restrict the value of a Participant's Account
Balance in existence at the time the amendment or modification is made,
calculated as if the Participant had experienced a Termination of
Employment as of the effective date of the amendment or modification, or,
if the amendment or modification occurs after the date upon which the
Participant was eligible to Retire, the Participant had Retired as of the
effective date of the amendment modification. The amendment or
modification of the Plan shall not affect any Participant or Beneficiary
who has become entitled to the payment of benefits under the Plan as of
the date of the amendment or modification; provided, however, that the
Employer shall have the right to accelerate installment payments by
paying the Account Balance in a lump sum or in installments using fewer
months (provided that, the present value of all payments that will have
been received by a Participant at any given point in time under the
different payment schedule shall equal or exceed the present value of all
payments that would have been received at that point in time under the
original payment schedule).
<PAGE>
11.3 Plan Agreement. Despite the provisions of Sections 11.1 and 11.2 above,
if a Participant's Plan Agreement contains benefits or limitations that
are not in this Plan document, the Employer may only amend or terminate
such provisions with the consent of the Participant.
11.4 Interest Rate in the Event of a Plan Termination, Amendment or
Modification. If a Plan termination, amendment or modification occurs,
the applicable interest rate to be used in determining a Participant's
benefit after the Plan termination, amendment or modification shall be
the Preferred Rate. However, the Crediting Rate for the applicable Plan
Year, and not the Preferred Rate, shall be used as the discount rate for
determining present value.
11.5 Effect of Payment. The full payment of the applicable benefit under
Section 4.4 or Articles 5, 6, 7 or 8 of the Plan shall completely
discharge all obligations to a Participant and his or her designated
Beneficiaries under this Plan and the Participant's Plan Agreement shall
terminate.
ARTICLE 12
Administration
12.1 Committee Duties. This Plan shall be administered by a Committee which
shall consist of the Board, or such committee as the Board shall appoint.
Members of the Committee may be Participants under this Plan. The
Committee shall also have the discretion and authority to (i) make,
amend, interpret, and enforce all appropriate rules and regulations for
the administration of this Plan and (ii) decide or resolve any and all
questions including, interpretations of this Plan, as may arise in
connection with the Plan. Any individual serving on the Committee who is
a Participant shall not vote or act on any matter relating, solely to
himself or herself. When making, a determination or calculation, the
Committee shall be entitled to rely on information furnished by a
Participant or the Company.
12.2 Agents. In the administration of this Plan, the Committee may, from time
to time, employ agents and delegate to them Such administrative duties as
it sees fit (including acting through a duly appointed representative)
and may from time to time consult with counsel who may be counsel to any
Employer.
12.3 Binding Effect of Decisions. The decision or action of the Committee
with respect to any question arising Out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
12.4 Indemnity of Committee. All Employers shall indemnify and hold harmless
the members of the Committee, and any Employee to whom duties of the
Committee may be delegated, against any and all claims, losses, damages,
expenses or liabilities arising from any action or failure to act with
respect to this Plan, except in the case of willful misconduct by the
Committee or any of its members or any such Employee.
12.5 Employer Information. To enable the Committee to perform its functions,
each Employer shall supply full and timely information to the Committee
on all matters relating to the compensation of its Participants, the date
and circumstances of the Retirement, Disability, death or Termination of
Employment of its Participants, and such other pertinent information as
the Committee may reasonably require.
ARTICLE 13
Other Benefits and Agreements
13.1 Coordination with Other Benefits. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in addition
to any other benefits available to such Participant under any other plan
or program for employees of the Participant's Employer. The Plan shall
supplement and shall not supersede, modify or amend any other such plan
or program except as may otherwise be expressly provided.
ARTICLE 14
Claims Procedures
14.1 Presentation of Claim. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice
received by the Claimant, the claim must be made within 60 days after
such notice was received by the Claimant. The claim must state with
particularity the determination desired by the Claimant. All other
claims must be made within 180 days of the date on which the event that
caused the claim to arise occurred. The claim must state with
particularity the determination desired by the Claimant.
14.2 Notification of Decision. The Committee shall consider a Claimant's
claim
<PAGE>
within a reasonable time, and shall notify the Claimant in writing:
(a) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or
in part, to the Claimant's requested determination, and such
notice must set forth in a manner calculated to be understood by
the Claimant:
(i) the specific reason(s) for the denial of the claim, or any
part of it;
(ii) specific reference(s) to pertinent provisions of the Plan
upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is
necessary; and
(iv) an explanation of the claim review procedure set forth in
Section 14.3 below.
14.3 Review of a Denied Claim. Within 60 days after receiving, a notice from
the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant's duly authorized representative) may file with
the Committee a written request for a review of the denial of the claim.
Thereafter, but not later than 30 days after the review procedure began,
the Claimant (or the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
14.4 Decision on Review. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written
request for review of the denial, unless a hearing is held or other
special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a manner calculated to be understood by
the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which
the decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 Legal Action. A Claimant's compliance with the foregoing, provisions of
this Article 14 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under
this Plan.
ARTICLE 15
Trust
15.1 Establishment of the Trust. The Company shall establish the Trust, and
each Employer shall at least annually transfer over to the Trust such
assets as the Employer determines, in its sole discretion, are necessary
to provide, on a present value basis, for its respective future
liabilities created with respect to the Annual Deferral Amounts, Annual
Company Matching Amounts and interest credits for those amounts for all
periods prior to the transfer, as well as any debits and credits to the
Participants' Account Balances for all periods prior to the transfer,
taking into consideration the value of the assets in the trust at the
time of the transfer.
15.2 Interrelationship of the Plan and the Trust. The provisions of the Plan
and the Plan Agreement shall govern the rights of a Participant to
receive distributions pursuant to the Plan. The provisions of the Trust
shall govern the rights of the Employers, Participants and the creditors
of the Employers to the assets transferred to the Trust. Each Employer
shall at all times remain liable to carry out its obligations under the
Plan.
15.3 Distributions From the Trust. Each Employer's obligations under the Plan
may be satisfied with Trust assets distributed pursuant to the terms of
the Trust, and any such distribution shall reduce the Employer's
obligations under this Agreement.
ARTICLE 16
Miscellaneous
16.1 Status of Plan. The Plan is intended to be a plan that is not qualified
<PAGE>
within the meaning of Code Section 401(a) and that "is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated
employee" within the meaning of ERISA Sections 201(2), 301(a)(3) and
401(a)(1). The Plan shall be administered and interpreted to the extent
possible in a manner consistent with that intent.
16.2 Unsecured General Creditor. Participants and their Beneficiaries, heirs,
successors and assigns shall have no legal or equitable rights, interests
or claims of an Employer. For purposes of the payment of benefits under
this Plan, any and all of all Employer's assets shall be, and remain, the
general, unpledged unrestricted assets of the Employer. An Employer's
obligation under the Plan shall be merely that of an unfunded and
unsecured promise to pay money in the future.
16.3 Employer's Liability. An Employer's liability for the payment of
benefits shall be defined only by the Plan and the Plan Agreement, as
entered into between the Employer and a Participant. An Employer shall
have no obligation to a Participant under the Plan except as expressly
provided in the Plan and his or her Plan Agreement.
16.4 Nonassignability. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate, alienate or convey
in advance of actual receipt, the amounts, if any, payable hereunder, or
any part thereof, which are, and all rights to which are expressly
declared to be, unassignable and non-transferable. No part of the
amounts payable shall, prior to actual payment, be subject to seizure,
attachment, garnishment or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant or any
other person, be transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency or be
transferable to a spouse as a result of a property settlement or
otherwise.
16.5 Not a Contract of Employment. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between any
Employer and the Participant. Such employment is hereby acknowledged to
be an "at will" employment relationship that can be terminated at any
time for any reason, or no reason, with or without cause, and with or
without notice, unless expressly provided in a written employment
agreement. Nothing in this Plan shall be deemed to have a Participant
the right to be retained in the service of any Employer, either as an
Employee or a Director, or to interfere with the right of any Employer to
discipline or discharge the Participant at any time.
16.6 Furnishing Information. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be
requested in order to facilitate the administration of the Plan and the
payments of benefits hereunder, including but not limited to taking such
physical examinations as the Committee may deem necessary.
16.7 Terms. Whenever any words are used herein in the masculine, they shall
be construed as though they were in the feminine in all cases where they
would so apply; and whenever any words are used herein in the singular or
in the plural, they shall be construed as though they were used in the
plural or the singular, as the case may be, in all cases where they would
so apply.
16.8 Captions. The captions of the articles, sections and paragraphs of this
Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
16.9 Governing Law. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the internal laws of the State of
California without regard to its conflicts of laws principles.
16.10 Notice. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the address
below:
Freeman A. Lyle
Chief Financial Officer
530 Wilshire Blvd.
Santa Monica, CA 90401
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing, required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing, and hand-delivered, or
sent by mail, to the last known address of the Participant.
16.11 Successors. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns and
the Participant and the Participant's designated Beneficiaries.
<PAGE>
16.12 Spouse's Interest. The interest in the benefits hereunder of a spouse of
a Participant who has predeceased the Participant shall automatically
pass to the Participant and shall not be transferable by such spouse in
any manner, including but not limited to such spouse's will, nor shall
such interest pass under the laws of intestate succession.
16.13 Validity. In case any provision of this Plan shall be illegal or invalid
for any reason, said illes4ality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as
if such illegal or invalid provision had never been inserted herein.
16.14 Incompetent. If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling, the disposition of that
person's property, the Committee may direct payment of such benefit to
the guardian, legal representative or person having the care and custody
of such minor, incompetent or incapable person. The Committee may
require proof of minority, incompetence, incapacity or guardianship, as
it may deem appropriate prior to distribution of the benefit. Any
payment of a benefit shall be a payment for the account of the
Participant and the Participant's Beneficiary, as the case may be, and
shall be a complete discharge of any liability under the Plan for such
payment amount.
16.15 Court Order. The Committee is authorized to make any payments directed
by court order in any action in which the Plan or the Committee has been
named as a party. In addition, if a court determines that a spouse or
former spouse of a Participant has an interest in the Participant's
benefits under the Plan in connection with a property settlement or
otherwise, the Committee, in its sole discretion, shall have the right,
notwithstanding any election made by a Participant, to immediately
distribute the spouse's or former spouse's interest in the Participant's
benefits under the Plan to that spouse or former spouse.
16.16 Distribution in the Event of Taxation.
(a) General. If, for any reason, all or any portion of a
Participant's benefit under this Plan becomes taxable to the
Participant prior to receipt, a Participant may petition the
Committee before a Change in Control, or the trustee of the Trust
after a Change in Control, for a distribution of that portion of
his or her benefit that has become taxable. Upon the grant of such
a petition, which grant shall not be unreasonably withheld (and,
after a Change in Control, shall be granted), a Participant's
Employer shall distribute to the Participant immediately available
funds in an amount equal to the taxable portion of his or her
benefit (which amount shall not exceed a Participant's unpaid
Account Balance under the Plan). If the petition is granted, the
tax liability distribution shall be made within 90 days of the
date when the Participant's petition is granted. Such a
distribution shall affect and reduce the benefits to be paid under
this Plan.
(b) Trust. If the Trust terminates in accordance with Section 3.6(e)
of the Trust and benefits are distributed from the Trust to a
Participant in accordance with that Section, the Participant's
benefits under this Plan shall be reduced to the extent of such
distributions.
16.17 Insurance. The Employers, on their own behalf or on behalf of the
trustee of the Trust, and, in their sole discretion, may apply for and
procure insurance on the life of the Participant, in such amounts and in
such forms as the Trust may choose. The Employers or the trustee of the
Trust, as the case may be, shall be the sole owner and beneficiary of any
such insurance. The Participant shall have no interest whatsoever in any
such policy or policies, and at the request of the Employers shall submit
to medical examinations and supply such information and execute such
documents as may be required by the insurance company or companies to
whom the Employers have applied for insurance.
16.18 Legal Fees to Enforce Rights After Change in Control. The Company and
each Employer aware that upon the occurrence of a Change in Control, the
Board or the board of directors of the Participant's Employer (which
might then be composed of new members) or a shareholder of the Company or
the Participant's Employer, or of any successor corporation might then
cause or attempt to cause the Company or the Participant's Employer or
such successor to refuse to comply with its obligations under the Plan
and might cause or attempt to cause the Company or the Participant's
Employer to Institute, or may institute, litigation seeking to deny
Participants the benefits intended under the Plan. In these
circumstances,, the purpose of the Plan could be frustrated.
Accordingly, if, following a Change in Control, it should appear to any
Participant that the Company, the Participant's Employer or any successor
corporation has failed to comply with any of its obligations under the
Plan or an agreement thereunder or, if the Company, such Employer or any
other person takes any action to declare the Plan void or unenforceable
or institutes any litigation or other legal action, designed to deny,
diminish or to recover from any Participant the benefits intended to be
provided, then the Company and the Participant's Employer irrevocably
authorize such Participant to retain counsel of his or her choice at the
expense of the Company and the Employer (who shall be Jointly and
severally liable) to represent such
<PAGE>
Participant in connection with the initiation or defense of any
litigation or other legal action, whether by or against the Company, the
Participant's Employer or any director, officer, shareholder or other
person affiliated with the Company, the Participant's Employer or any
successor thereto in any jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the Company has signed this Plan document as
of ___________, 199__.
"Company"
Kennedy Wilson, Inc.
a Delaware corporation
By:
------------------------------------
Title:
-----------------------------------
<PAGE>
AMENDMENT NO. 1
TO THE
KENNEDY-WILSON, INC 1992 INCENTIVE
AND NONSTATUTORY STOCK OPTION PLAN
WHEREAS, Kennedy-Wilson, Inc. (the "Company") has adopted the
Kennedy-Wilson, Inc. 1992 Incentive and Nonstatutory Stock Option Plan (the
"Plan"); and
WHEREAS, Sections 17 of the Plan permits the Board of
Directors of the Company to amend the Plan, subject to certain limitations; and
WHEREAS, the Board of Directors of the Company now desires to
amend the Plan in certain respects;
NOW, THEREFORE, the Plan is hereby amended as follows:
FIRST: Subsection (a) of Section 4 of the Plan is hereby
amended by deleting the number "750,000" wherever it appears and inserting the
number "1,400,000" in its stead.
SECOND: Subsection (b) of Section 4 of the Plan is hereby
deleted, in its entirety, and replaced with the following:
"(b) Shares of Common Stock that are not purchased by the
Optionee prior to the expiration or termination of the applicable Option shall
again become available to be covered by the Options to be issued hereunder and
shall not, as of the effective date of such expiration or termination, be
counted as covered by an outstanding Option for purposes of the above-described
maximum number of shares which may be optioned hereunder.
(c) During any calendar year, no executive officer of the
company may receive options in excess of the number then remaining available for
grant under the Plan.'
THIRD: Clause (a) of Section 7 of the Plan is hereby
amended, in its entirety, to read as follows:
"(a) No shares of Common Stock acquired by the Optionee
pursuant to an exercise of an Option granted under the Plan may be disposed of
in whole or in part until six (6) months after the later of (i) the date on
which the Option is granted by the Committee (hereinafter the "Option Grant
Date"), (ii) with respect to persons subject to Section 16 of the Act (as
defined in Section 29 hereof), the date of the shareholder approval of an
amendment to the Plan if such amendment is subject to shareholder approval and
the Option granted is subject to shareholder approval, or (iii) with respect to
persons subject to Section 16 of said Act, the date of any amendment of an
Option which is deemed to be the grant of a new option under rule 16b-3 of said
Act, to the extent that such option was not theretofore exercised."
FOURTH: Subsection (a) of Section 17 of the Plan is hereby
amended, in its entirety, to read as follows:
"(a) The Board may amend this Plan from time to time in such
respects as the Board may deem advisable; provided, however, that no such
amendment shall operate to affect adversely an Optionee's rights under this Plan
with respect to any Option granted hereunder prior to the adoption of such
amendment, except with the written consent of the Optionee or as may be
necessary, in the judgment of counsel to the Company, to comply with any
applicable law. Notwithstanding the preceding, any amendment which would (i)
operate to increase the maximum aggregate number of shares which may be optioned
and sold under the Plan or change the classes of persons eligible to receive
Options under the Plan, or (ii) require shareholder approval under any
applicable law, rule or regulation, shall be subject to shareholder approval in
accordance with applicable laws, rules or regulations."
FIFTH: The provisions of this Amendment shall be effective as
of the date of the execution hereof; provided, however, that if this Amendment
is not approved by the shareholders of the Company in accordance with applicable
Federal and state law (and rules and regulations thereunder), this Amendment and
any options granted pursuant to the provisions hereof shall be void and of no
force or effect.
SIXTH: Except to the extent hereinabove set forth, the Plan
shall remain in full force and effect.
IN WITNESS WHEREOF, the Board of Directors of the Company has
caused this Amendment to be executed by a duly authorized officer of the company
on the 2ND day of August, 1993.
KENNEDY-WILSON, INC.
<PAGE>
Exhibit 10.5.1
FIFTH AMENDMENT TO
EMPLOYMENT AGREEMENT
This Fifth Amendment to Employment Agreement (the "Fifth Amendment")
is made and entered into as of May 19, 1997, by and between KENNEDY-WILSON,
INC., a Delaware corporation, with its principal office located in Santa Monica,
California (the "Company"), and WILLIAM J. McMORROW, an individual ("Employee").
RECITALS
WHEREAS, Company and Employee have entered into that certain
Employment Agreement dated as of August 14, 1992, as amended January 1, 1993,
January 1, 1994, March 31, 1995 and January 1, 1996, providing for the
employment of Employee by Company pursuant to the terms of such Agreement; and
WHEREAS, Company and Employee have agreed that the terms of the
Employment Agreement should be modified to change the Term of Employment, Bonus
and Severance Agreement.
AMENDMENT TO AGREEMENT
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereby amend the
Agreement, effective as of May 19, 1997 as follows:
1. Section 2 of the Employment Agreement is deleted in its entirety
and the following is inserted in lieu thereof
2. Term (a): Employee shall be employed by the Company pursuant to his
Employment Agreement for a term beginning in August 14, 1992, and continuing
through to and terminating at the close of business on December 31, 1999,
(unless earlier terminated pursuant to Section 9 hereof).
(b): In the event the Employment Agreement is terminated due to change
in control, or non-renewal of the Agreement, except if change in control or non-
renewal is for cause (which shall mean only Employee's violation of criminal
law, material wrongful act or omission, malfeasance or gross negligence which
causes material damage to the business or reputation of the Companies),
disability or death, the Employee shall in consideration of his execution of the
General Release attached as Exhibit "A", hereof, be entitled to payment from the
Company equal to two (2) times the Employee's annual compensation. The annual
compensation would be the arithmetic average of the most recent three (3) year
period and would include salary and bonus as reported in the Proxy Statement.
The Committee, after review and discussion, agreed to amend William J.
McMorrow's existing Employment Agreement and to delete the existing bonus cap
agreement at $7.5 million and amend to a bonus cap as follows:
1997 Bonus 20% on profits of 3MM to 12.5MM (pre-tax, pre-bonus)
1998 Bonus 20% on profits of 3MM to 17.5MM (pre-tax, pre-bonus)
1999 Bonus 20% on profits of 3MM to 22.5MM (pre-tax, pre-bonus)
In addition, the Committee agreed to extend the Term of the Agreement
to 12/31/99. The Committee approved the purchase of a membership in the Los
Angeles Country Club and to delete the severance section of the Agreement and
amend to a severance payment of two (2) times his annual compensation on
termination of Agreement due to change in control, or non-renewal of Agreement,
except if change in control or non-renewal is for cause, disability or death.
The Committee agreed that average annual compensation would be the arithmetic
average of the most recent 3 year period. Annual compensation would include
salary and bonus as reported in the Proxy Statement.
/s/ James C. Ozello
-------------------
JAMES C. OZELLO
(Acting Secretary)
ATTEST: ACCEPTED FOR THE
BOARD OF DIRECTORS
/s/ Kent Y. Mouton /s/ William J. McMorrow, Chairman
- ------------------ ---------------------------------
Kent Y. Mouton, Committee Chairman
/s/ Freeman A. Lyle, CFO
------------------------
Freeman A. Lyle, CFO
Executive Vice President and Secretary
<PAGE>
Exhibit 10.5.2
SIXTH AMENDMENT TO
EMPLOYMENT AGREEMENT
This Sixth Amendment to Employment Agreement (the "Sixth Amendment")
is made and entered into as of August 20, 1998, by and between KENNEDY-WILSON,
INC., a Delaware corporation, with its principal office located in Santa Monica,
California (the "Company"), and WILLIAM J. McMORROW, an individual ("Employee").
RECITALS
WHEREAS, Company and Employee have entered into that certain
Employment Agreement dated as of August 14, 1992, as amended January 1, 1993,
January 1, 1994, March 31, 1995, January 1, 1996, and May 19, 1997, providing
for the employment of Employee by Company pursuant to the terms of such
Agreement; and
WHEREAS, Company and Employee have agreed that the terms of the
Employment Agreement should be modified to change the Bonus Structure.
AMENDMENT TO AGREEMENT
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereby amend the
Agreement, effective as of August 21, 1998 as follows:
1. Section 4(ii) the annual bonus is amended such that the existing
bonus cap at $17.5MM for 1998 and $22.5MM for 1999 are deleted and the following
bonus cap is inserted in lieu thereof.
1998 Bonus: 20% of profits of 3MM to 25MM
1999 Bonus: 20% of profits of 3MM to 35MM
Bonus calculations are to be based on Company profit; pre-tax,
pre-bonus paid to all other employees, pre-reserves and pre-Company
contributions to the Deferred Compensation Plan.
Subject to the foregoing, the Employment Agreement remains in full
force and effect, and Company and Employee hereby ratify and affirm the
Employment Agreement in each and every respect.
IN WITNESS WHEREOF, the undersigned have executed this Sixth Amendment
as of the date first above written.
KENNEDY-WILSON, INC. ATTEST:
a Delaware Corporation
/s/ James C. Ozello /s/ Kent Y. Mouton
- ------------------- ------------------
James C. Ozello, Acting Secretary Kent Y. Mouton
Compensation/Stock Option Committee Chairman, Compensation/
Stock Option Committee
ACCEPTED FOR THE
BOARD OF DIRECTORS
/s/ William J. McMorrow
- -----------------------
William J. McMorrow, Chairman
/s/ Freeman Lyle
- ----------------
Freeman Lyle
Executive Vice President and
Chief Financial Officer
<PAGE>
Exhibit 10.6
================================================================================
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
KW-A, LLC
A CALIFORNIA LIMITED LIABILITY COMPANY
Dated as of July 17, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 DEFINITIONS..........................................................1
1.1 ADJUSTED CAPITAL ACCOUNT DEFICIT................................1
1.2 AFFILIATE.......................................................1
1.3 AGREEMENT.......................................................1
1.4 ARTICLES OF ORGANIZATION........................................1
1.5 AVAILABLE CASH FLOW.............................................2
1.6 BUSINESS OF THE LLC.............................................2
1.7 CAPITAL ACCOUNT.................................................2
1.8 CAPITAL CONTRIBUTION............................................2
1.9 CODE............................................................2
1.10 DEPRECIATION....................................................2
1.11 DISSOLUTION.....................................................2
1.12 ECONOMIC INTEREST...............................................2
1.13 FISCAL YEAR.....................................................2
1.14 LLC.............................................................2
1.15 LLC INTEREST....................................................2
1.16 LLC LOANS.......................................................3
1.17 LLC MINIMUM GAIN................................................3
1.18 MAJORITY IN INTEREST OF THE MEMBERS.............................3
1.19 MANAGER.........................................................3
1.20 MEMBER NONRECOURSE DEBT.........................................3
1.21 MEMBER NONRECOURSE DEBT MINIMUM GAIN............................3
1.22 MEMBER NONRECOURSE DEDUCTIONS...................................3
1.24 NET CAPITAL CONTRIBUTIONS.......................................4
1.25 NET PROFITS AND NET LOSS........................................4
1.26 PERCENTAGE INTEREST.............................................4
1.27 PERIOD OF DURATION..............................................5
1.28 PERSON..........................................................5
1.29 PRINCIPAL.......................................................5
1.30 PROPERTY........................................................5
1.31 REGULATIONS.....................................................5
1.32 RESERVES........................................................5
1.33 SECRETARY OF STATE..............................................5
1.34 STATUTE.........................................................5
1.35 VOTE............................................................5
ARTICLE 2 INTRODUCTORY MATTERS.................................................5
2.1 FORMATION OF LLC................................................6
2.2 NAME............................................................6
2.3 PRINCIPAL OFFICE................................................6
2.4 AGENT FOR SERVICE OF PROCESS....................................6
2.5 PERIOD OF DURATION..............................................6
2.6 BUSINESS AND PURPOSE OF THE LLC.................................6
ARTICLE 3 MEMBERS AND CAPITAL CONTRIBUTIONS....................................6
3.1 NAMES AND ADDRESSES OF INITIAL MEMBERS..........................6
3.2 CONTRIBUTIONS...................................................7
3.3 ADDITIONAL CONTRIBUTIONS........................................7
3.4 RIGHTS WITH RESPECT TO CAPITAL..................................7
3.5 GENERAL RULES FOR ADJUSTMEENT OF CAPITAL ACCOUNTS...............7
3.6 SPECIAL RULES WITH RESPECT TO CAPITAL ACCOUNTS..................8
3.7 TRANSFEREE'S CAPITAL ACCOUNT....................................8
ARTICLE 4 ALLOCATION OF PROFITS AND LOSSES.....................................8
4.1 ALLOCATION OF NET PROFITS AND LOSSES............................8
4.2 RESIDUAL ALLOCATIONS............................................9
4.3 QUALIFIED INCOME OFFSET.........................................9
4.4 MINIMUM GAIN CHARGEBACK.........................................9
4.5 MEMBER NONRECOURSE DEBT MINIMUM GAIN CHARGEBACK.................9
4.6 MEMBER NONRECOURSE DEDUCTIONS..................................10
4.7 SPECIAL ALLOCATIONS............................................10
4.8 FEES TO MEMBERS OR AFFILIATES..................................10
4.9 SECTION 704(c) ALLOCATION......................................10
ARTICLE 5 DISTRIBUTIONS.......................................................11
ARTICLE 6 RIGHTS, DUTIES, OBLIGATIONS AND COMPENSATION OF MANAGERS AND
OFFICERS..........................................................11
6.1 MANAGER........................................................11
6.2 CO-MANAGERS....................................................12
6.3 LIMITATIONS ON RIGHTS AND POWERS...............................13
6.4 COMPENSATION OF MANAGER........................................14
6.5 COMPENSATION OF MEMBERS........................................14
<PAGE>
6.6 EXPENSE REIMBURSEMENT..........................................14
ARTICLE 7 MEMBERS' MEETINGS...................................................14
7.1 PLACE OF MEETINGS..............................................14
7.2 ANNUAL MEETINGS OF MEMBERS.....................................14
7.3 SPECIAL MEETINGS...............................................15
7.4 NOTICE OF MEETINGS.............................................15
7.5 VALIDATION OF MEMBERS' MEETINGS................................15
7.6 ACTIONS WITHOUT A MEETING......................................15
7.7 QUORUM AND EFFECT OF VOTE......................................16
ARTICLE 8 RESTRICTIONS ON TRANSFER OR CONVERSION OF LLC INTERESTS, ADDITIONAL
CAPITAL CONTRIBUTIONS;ADMISSION OF NEW MEMBERS....................16
8.1 TRANSFER OR ASSIGNMENT OF MEMBER'S INTEREST....................16
8.2 VOID TRANSFERS.................................................16
8.3 ADDITIONAL CAPITAL.............................................16
8.4 ADMISSION OF NEW MEMBERS.......................................17
ARTICLE 9 BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS..........................17
9.1 MAINTENANCE OF BOOKS AND RECORDS...............................17
9.2 ANNUAL ACCOUNTING..............................................18
9.3 INSPECTION AND AUDIT RIGHTS....................................18
9.4 RIGHTS OF MEMBERS AND NON-MEMBERS..............................18
9.5 BANK ACCOUNTS..................................................18
9.6 TAX MATTERS HANDLED BY MANAGERS................................18
9.7 FEDERAL INCOME TAX ELECTIONS MADE BY MANAGERS..................19
9.8 OBLIGATIONS OF MEMBERS TO REPORT ALLOCATIONS...................19
ARTICLE 10 TERMINATION AND DISSOLUTION.......................................19
10.1 DISSOLUTION....................................................19
10.2 STATEMENT OF INTENT TO DISSOLVE................................20
10.3 CONDUCT OF BUSINESS............................................20
10.4 DISTRIBUTION OF NET PROCEEDS...................................20
ARTICLE 11 INDEMNIFICATION OF THE MEMBERS, MANAGERS, AND THEIR AFFILIATES.....20
11.1 INDEMNIFICATION OF THE MEMBERS AND THEIR PRINCIPALS............20
11.2 EXPENSES.......................................................21
11.3 INDEMNIFICATION RIGHTS NONEXCLUSIVE............................21
11.4 ERRORS AND OMISSIONS INSURANCE.................................21
11.5 ASSETS OF THE LLC..............................................21
ARTICLE 12 AMENDMENTS.........................................................21
12.1 AMENDMENT, ETC. OF OPERATION AGREEMENT........................21
12.2 AMENDMENT, ETC. OF ARTICLES OF ORGANIZATION....................21
ARTICLE 13 MISCELLANEOUS PROVISIONS...........................................21
13.1 COUNTERPARTS...................................................21
13.2 SURVIVAL OF RIGHTS.............................................22
13.3 SEVERABILITY...................................................22
13.4 NOTIFICATION OR NOTICES........................................22
13.5 CONSTRUCTION...................................................22
13.6 SECTION HEADINGS...............................................22
13.7 GOVERNING LAW..................................................22
13.8 ADDITIONAL DOCUMENTS...........................................22
13.9 PRONOUNS AND PLURALS...........................................22
13.10 TIME OF THE ESSENCE............................................23
13.11 FURTHER ACTIONS................................................23
13.12 ARBITRATION OF DISPUTES........................................23
13.13 WAIVER OF JURY.................................................24
13.14 THIRD PARTY BENEFICIARIES......................................24
13.15 TAX ELECTIONS..................................................24
13.16 PARTITION......................................................24
13.17 ENTIRE AGREEMENT...............................................24
13.18 WAIVER.........................................................25
13.19 ATTORNEYS' FEES................................................25
13.20 CONFIDENTIALITY AND PRESS RELEASES.............................25
</TABLE>
<PAGE>
KW-A, LLC
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
This Limited Liability Company Operating Agreement (the "Agreement")
is made and entered into and effective as of July __, 1998, by and among Barry
Schlesinger, Terry Wachsner, David Latvaaho, Larry Beasley, and Jerome Powalish
(collectively, the "Members" and, individually, a "Member") with reference to
the recitals set forth below.
RECITALS
The Members have formed a limited liability company (hereinafter
called the "LLC") pursuant to the provisions of the (California) Beverly-Killea
Limited Liability Company Act as set forth in Title 2.5 (commencing with Section
17000) of the Corporations Code of the State of California (the "Statute").
In consideration of the covenants and the promises made herein, the
parties hereto hereby agree as follows.
ARTICLE 1
DEFINITIONS
1.1 ADJUSTED CAPITAL ACCOUNT DEFICIT. "Adjusted Capital Account
Deficit" means, with respect to any Member, the deficit balance, if any, in such
Member's Capital Account as of the end of the relevant Fiscal Year, after giving
effect to the following adjustments:
1.1.1 increase such Capital Account by any amounts which such
Member is obligated to contribute to the LLC (pursuant to the terms of
this Agreement or otherwise) or is deemed to be obligated to
contribute to the LLC pursuant to Regulations Sections 1.704-2(g)(1)
and 1.704-2(i)(5); and
1.1.2 reduce such Capital Account by the amount of the items
described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and
(6).
1.2 AFFILIATE. "Affiliate" means, when used with reference to a
specified Person, (i) the Principal of the Person, (ii) any Person directly or
indirectly controlling, controlled by or under common control with such Person,
(iii) any Person owning or controlling 10% or more of the outstanding voting
interests of such Person, and (iv) any relative or spouse of such Person.
1.3 AGREEMENT. "Agreement" means this Limited Liability Company
Operating Agreement, as originally executed and as amended from time to time, as
the context requires. Words such as "herein", "hereinafter", "hereto", "hereby"
and "hereunder", when used with reference to this Agreement, refer to this
Agreement as a whole, unless the context otherwise requires.
1.4 ARTICLES OF ORGANIZATION. "Articles of Organization" means the
articles of organization filed with the California Secretary of State for the
purpose of forming the LLC.
1.5 AVAILABLE CASH FLOW. "Available Cash Flow" means, with respect to
any Fiscal Year or other period, the sum of all cash receipts of the LLC from
any and all sources, less all cash disbursements (including loan repayments,
capital improvements and replacements) and a reasonable allowance for Reserves,
contingencies and anticipated obligations as determined by the Manager.
1.6 BUSINESS OF THE LLC. "Business of the LLC" shall have the meaning
set forth in Section 2.6 hereof.
1.7 CAPITAL ACCOUNT. "Capital Account" of a Member shall have the
meaning set forth in Section 3.5 hereof.
1.8 CAPITAL CONTRIBUTION. "Capital Contribution" shall have the
meaning set forth in Article 3 hereof.
1.9 CODE. "Code" means the Internal Revenue Code of 1986, as amended
(or any corresponding provision or provisions of any succeeding law).
1.10 DEPRECIATION. "Depreciation" means, for each Fiscal Year or other
period, an amount equal to the depreciation, amortization or other cost recovery
reduction allowable with respect to an asset for such Fiscal Year or other
period.
1.11 DISSOLUTION. "Dissolution" means (i) when used with reference to
the LLC, the earlier of (a) the date upon which the LLC is terminated under the
Statute, or any similar provision enacted in lieu thereof, or (b) the date upon
which the LLC ceases to be a going concern, and (ii) when used with reference to
any Member, the earlier of (a) the date upon which there is a Dissolution of the
LLC or (b) the date upon which such Member's entire interest in the LLC is
terminated by means of a distribution or series of distributions by the LLC to
such Member.
<PAGE>
1.12 ECONOMIC INTEREST. "Economic Interest" means a Person's right to
share in the Net Profits, Net Loss or similar items of, and to receive
distributions from, the LLC, but does not include any other rights of a Member
including, without limitation, the right to vote or to participate in the
management of the LLC, or, except as provided in Section 9.4, any right to
information concerning the business and affairs of the LLC.
1.13 FISCAL YEAR. "Fiscal Year" means the period of January 1 to and
including December 31.
1.14 LLC. "LLC" means KW-A, LLC.
1.15 LLC INTEREST. "LLC Interest" or "Interest" means an ownership
interest in the LLC, which includes the Economic Interest, the right to vote or
participate in the management of the LLC, and the right to information
concerning the business and affairs of the LLC, as provided in this Agreement
and under the Statute.
1.16 LLC LOANS. "LLC Loans" shall refer to any loans or advances made
by any Member to the LLC at the Member's option, without obligation to so do, to
the extent the LLC does not have sufficient resources (assets, borrowings or
otherwise) to meet its LLC obligations. Such LLC Loans shall bear interest at
the rate agreed to between the Member and the Manager.
1.17 LLC MINIMUM GAIN. "LLC Minimum Gain" means the amount determined
by computing with respect to each nonrecourse liability of the LLC, the amount
of gain (of whatever character), if any, that would be realized by the LLC if it
disposed (in a taxable transaction) of the Property subject to such liability in
full satisfaction thereof, and by then aggregating the amounts so computed as
set forth in Regulations Section 1.704-2(d).
1.18 MAJORITY IN INTEREST OF THE MEMBERS. "Majority in Interest of the
Members," unless otherwise provided in the Agreement, means more than fifty
percent (50%) of the interests of the Members in the current profits of the LLC.
1.19 MANAGER. "Manager" means all the Members pursuant to Section 6.2
of this Agreement.
1.20 MEMBER NONRECOURSE DEBT. "Member Nonrecourse Debt" has the
meaning set forth in Regulations Section 1.704-2(b)(4).
1.21 MEMBER NONRECOURSE DEBT MINIMUM GAIN. "Member Nonrecourse Debt
Minimum Gain" means an amount, with respect to each Member Nonrecourse Debt,
equal to the LLC Minimum Gain that would result if such Member Nonrecourse Debt
were treated as a nonrecourse liability of the LLC, determined in accordance
with Regulations Sections 1.704-2(i)(2) and (3).
1.22 MEMBER NONRECOURSE DEDUCTIONS. "Member Nonrecourse Deductions"
has the meaning set forth in Regulations Section 1.704-2(1)(2). The amount of
Member Nonrecourse Deductions with respect to a Member Nonrecourse Debt for a
Fiscal Year of the LLC equals the excess (if any) of the net increase (if any)
in the amount of Member Nonrecourse Debt Minimum Gain attributable to such
Member Nonrecourse Debt during that Fiscal Year over the aggregate amount of any
distributions during that Fiscal Year to the Member that bears (or is deemed to
bear) the economic loss for such Member Nonrecourse Debt to the extent such
distributions are from the proceeds of such Member Nonrecourse Debt and are
allocable to an increase in Member Nonrecourse Debt Minimum Gain attributable to
such Member Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(2).
1.23 MEMBER. "Member" means a Person who:
1.23.1 Has been admitted to the LLC as a member in accordance
with the Articles of Organization or this Agreement, or an assignee of
an Interest, other than an Economic Interest, who has become a Member
pursuant to Section 8.1.
1.23.2 Has not resigned, withdrawn or been expelled as a Member
or, if other than an individual, been dissolved.
Reference to a "Member" shall be to any one of the Members. Reference to an
"Initial Member" shall be to any one of the Members listed in Section 3.1.
1.24 NET CAPITAL CONTRIBUTIONS. "Net Capital Contributions" means the
aggregate of a Member's Capital Contributions over the aggregate distributions
theretofore made to such Member pursuant to Section 5.1.
1.25 NET PROFITS AND NET LOSS. "Net Profits" and "Net Loss" mean, for
each Fiscal Year or other period, an amount equal to the LLC's taxable income or
loss for such year or period, determined in accordance with Code Section 703(a)
(for this purpose, all items of income, gain, loss or deduction required to be
stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments:
1.25.1 Any income of the LLC that is exempt from Federal income
tax and not otherwise taken into account in computing Net Profits or
Net Loss shall be added to such taxable income or loss;
1.25.2 Any expenditures of the LLC described in Code Section
<PAGE>
705(b)(2)(B) or treated as Code Section 705(b)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise
taken into account in computing Net Profits or Net Loss shall be
subtracted from such taxable income or loss;
1.25.3 Gain or loss resulting from any disposition of Property
with respect to which gain or loss is recognized for Federal income
tax purposes shall be computed by reference to the fair market value
of the Property disposed of, notwithstanding that the adjusted tax
basis of such Property differs from its fair market value;
1.25.4 In lieu of depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such Fiscal Year or other period, computed in accordance with the
subsection hereof entitled "Depreciation"; and
1.25.5 Notwithstanding any other provision of this subsection,
any items of income, gain, loss or deduction which are specifically
allocated shall not be taken into account in computing Net Profits or
Net Loss.
1.26 PERCENTAGE INTEREST. The Initial Members' "Percentage Interests"
shall be in the following percentages:
<TABLE>
<S> <C>
Barry Schlesinger 20%
Terry Wachsner 20%
David Latvaaho 20%
Larry Beasley 20%
Jerome Powalish 20%
---
100%
</TABLE>
1.27 PERIOD OF DURATION. "Period of Duration" shall have the meaning
set forth in Section 2.5 hereof
1.28 PERSON. "Person" means an individual, partnership, limited
partnership, corporation, trust, estate, association, limited liability company,
or other entity, whether domestic or foreign.
1.29 PRINCIPAL. "Principal" means the natural Person which is in
ultimate control of a Member.
1.30 PROPERTY. "Property" means all assets of the LLC, both tangible
and intangible, or any portion thereof.
1.31 REGULATIONS. "Regulations" means the federal income tax
regulations promulgated by the Treasury Department under the Code, as such
regulations may be amended from time to time. All references herein to a
specific section of the Regulations shall be deemed also to refer to any
corresponding provisions of succeeding Regulations.
1.32 RESERVES. "Reserves" means funds set aside from Capital
Contributions or gross cash revenues as reserves. Such Reserves shall be
maintained in amounts reasonably deemed sufficient by the Manager for working
capital and the payment of taxes, insurance, debt service, repairs, replacements
renewals, or other costs or expenses incident to the Business of the LLC, or in
the alternative, the Dissolution of the LLC.
1.33 SECRETARY OF STATE. "Secretary of State" shall mean the Secretary
of State of the State of California.
1.34 STATUTE. "Statute" shall mean the (California) Beverly-Killea
Limited Liability Company Act as set forth in Title 2.5 (commencing with Section
17000) of the Corporations Code of the State of California (or any corresponding
provision or provisions of any succeeding law).
1.35 VOTE. Except where superseded by another Section of this
Agreement, or required by the terms of the Statute, Code or applicable
Regulations thereunder, all decisions made by the LLC shall be approved by
fifty-one percent (51%) of the votes ("Vote") of the Members, wherein each
Member casts a number of votes equal to the Members Percentage Interest in the
LLC.
ARTICLE 2
INTRODUCTORY MATTERS
2.1 FORMATION OF LLC. The parties have formed the LLC pursuant to the
provisions of the Statute by filing, the Articles of Organization with the
Secretary of State.
2.2 NAME. The name of the LLC is "KW-A, LLC." The Members shall
operate the Business of the LLC under such name or use such other or additional
names as the Members may deem necessary or desirable provided that: (i) no such
name shall contain the words "bank," "insurance," "trust," "trustee,"
"Incorporated," "inc.," "corporation," "corp.," or any similar name or variation
thereof, (ii) the Members shall have reasonably determined, before use of any
such name, that the LLC is entitled to use such name and will not by reason of
such use infringe upon any rights of any other Person, or violate any applicable
<PAGE>
laws or governmental regulations, and (iii) the Members shall register such name
under assumed or fictitious name statutes or similar laws of the states in which
the LLC operates.
2.3 PRINCIPAL OFFICE. The LLC shall maintain its principal place of
business at 9601 Wilshire Blvd., Beverly Hills, California 90210, or any other
location mutually agreed upon by the Members.
2.4 AGENT FOR SERVICE OF PROCESS. The name and address of the LLC's
agent for service of process is Kulik, Gottesman & Mouton, LLP, 1880 Century
Park East, Suite 1150, Los Angeles, California 90067, Attention: Kent Y. Mouton,
Esq.
2.5 PERIOD OF DURATION. The period of duration of the LLC ("Period of
Duration") shall be thirty (30) years, commencing on the date of the filing of
the Articles of Organization with the California Secretary of State, unless the
LLC is terminated or dissolved sooner, in accordance with the provisions of this
Agreement.
2.6 BUSINESS AND PURPOSE OF THE LLC. The purpose of the LLC is to
engage in any lawful activities for which a LLC may be organized under the
Statute, including, but not limited to, real estate acquisition, development,
investment, property management, investment advisory services, and the provision
of executive management services in real estate related fields; provided that
the LLC shall not conduct any banking, insurance or trust company business.
ARTICLE 3
MEMBERS AND CAPITAL CONTRIBUTIONS
3.1 NAMES AND ADDRESSES OF INITIAL MEMBERS. The names and addresses of
the Initial Members are as follows:
3.1.1 BARRY SCHLESINGER, an individual ("BS") whose address is
9601 Wilshire Boulevard, Suite 200, Beverly Hills, California 90210.
3.1.2 TERRY WACHSNER, an individual ("TW") whose address is 9601
Wilshire Boulevard, Suite 200, Beverly Hills, California 90210.
3.1.3 David Latvaaho, an individual ("DL") whose address is 9601
Wilshire Boulevard, Suite 200, Beverly Hills, California 90210.
3.1.4 LARRY BEASLEY, an individual ("LB") whose address is 9601
Wilshire Boulevard, Suite 200, Beverly Hills, California 90210.
3.1.5 JEROME POWALISH, an individual ("JP") whose address is 9601
Wilshire Boulevard, Suite 200, Beverly Hills, California 90210.
3.2 CONTRIBUTIONS. The Initial Members each shall contribute the sums
of $100.00.
3.3 ADDITIONAL CONTRIBUTIONS. Except as shall be expressly set forth
herein, no Member shall be required to (a) make any additional Capital
Contributions, (b) make any loan, or (c) cause to be loaned any money or other
assets to the LLC.
3.4 RIGHTS WITH RESPECT TO CAPITAL.
3.4.1 LLC CAPITAL. No Member shall have the right to withdraw, or
receive any return of, its Capital Contribution, and no Capital
Contribution may be returned in the form of property other than cash
except as specifically provided herein.
3.4.2 NO INTEREST ON CAPITAL CONTRIBUTIONS. Except as expressly
provided in this Agreement, no Capital Contribution of any Member
shall bear any interest or otherwise entitle the contributing Member
to any compensation for use of the contributed capital.
3.4.3 ESTABLISHMENT OF CAPITAL ACCOUNTS. A separate capital
account ("Capital Account") shall be maintained for each Member. For
book purposes, each Members Capital Account will be separated into a
contribution account and an income (loss) account and will be
maintained according to generally accepted accounting principles.
Sections 3.6 and 3.7 below describe the appropriate accounting
treatment for tax purposes of the Capital Accounts.
3.5 GENERAL RULES FOR ADJUSTMEENT OF CAPITAL ACCOUNTS. The Capital
Account of each Member shall be:
3.5.1 INCREASES. Increased by:
(i) Such Member's cash contributions;
(ii) The agreed fair market value of property contributed by
such Member (net of liabilities secured by such contributed
property that the LLC is considered to assume or take subject to
under Code Section 752);
(iii) All items of LLC income and gain (including income and
gain exempt from tax) allocated to such Member pursuant to
<PAGE>
Article 4 or other provisions of this Agreement; and
3.5.2 DECREASES. Decreased by:
(i) The amount of cash distributed to such Member;
(ii) The agreed fair market value of all actual and deemed
distributions of property made to such Member pursuant to this
Agreement (net of liabilities secured by such distributed
property that the Member is considered to assume or take subject
to under Code Section 752);
(iii) All items of LLC deduction and loss allocated to such
Member pursuant to Article 4 or other provisions of this
Agreement.
3.6 SPECIAL RULES WITH RESPECT TO CAPITAL ACCOUNTS.
3.6.1 TIME OF ADJUSTMENT FOR CAPITAL CONTRIBUTIONS. For purposes
of computing the balance in a Member's Capital Account, no credit
shall be given for any Capital Contribution which such Member is to
make until such contribution is actually made. "Capital Contribution"
refers to the total amount of cash and the agreed fair market value
(net of liabilities) contributed to the LLC by that Member and any
subsequent contributions of cash and the agreed fair market value (net
of liabilities) of any other property subsequently contributed to the
LLC by that Member.
3.6.2 INTENT TO COMPLY WITH TREASURY REGULATIONS. The foregoing
provisions of Sections 3.6 and 3.7 and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended
to comply with Regulations Section 1.704-1 (b), and shall be
interpreted and applied in a manner consistent with such Regulations
Section. To the extent such provisions are inconsistent with such
Regulations Section or are incomplete with respect thereto, Capital
Accounts shall be maintained in accordance with such Regulations
Section.
3.7 TRANSFEREE'S CAPITAL ACCOUNT. In the event a Member, or the holder
of an Economic Interest, transfers an Interest in accordance with the terms of
this Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the transferred Interest.
ARTICLE 4
ALLOCATION OF PROFITS AND LOSSES
4.1 ALLOCATION OF NET PROFITS AND LOSSES. Except as otherwise provided
in this Article 4, Net Profits and Net Loss of the LLC in each Fiscal Year shall
be allocated among the Members as follows:
4.1.1 NET PROFITS. Net Profits shall be allocated among the
Members as follows:
(i) first, to each of the Members until the cumulative Net
Profits allocated to such Member pursuant to this Section 4.1.1
is equal to the cumulative Net Loss allocated to the Member
pursuant to Section 4.1.2 for any prior period; and
(ii) thereafter, to the Members in accordance with their
Percentage Interests.
4.1.2 ALLOCATION OF NET LOSS. Except as otherwise provided in
this Article 4, Net Loss shall be allocated among the Members as
follows:
(i) first, to offset any Net Profits allocated pursuant to
Section 4.1.1(i) hereof, and then to offset any Net Profits
allocated pursuant to Section 4.1.1 (ii) hereof (in each case pro
rata in proportion to their shares of Net Profits being offset);
(ii) second, in proportion to the positive balances, if any,
in the Members' respective Capital Accounts, until such balances
are reduced to zero; and
(iii) third, to the Members, pro rata, in accordance with
their Percentage Interests; provided, however, that if, and to
the extent that the allocation of Net Loss in this manner would
cause a Member to have an Adjusted Capital Account Deficit at the
end of the Fiscal Year, then such Net Loss shall instead be
allocated to the Member who has the largest Percentage Interest.
4.2 RESIDUAL ALLOCATIONS. Except as otherwise provided in this
Agreement all items of LLC income, gain, loss, deduction, and any other
allocations not otherwise provided for shall be divided among the Members in the
same proportions as they share Net Profits or Net Losses, as the case may be,
for the Fiscal Year.
4.3 QUALIFIED INCOME OFFSET. If any Member unexpectedly receives any
adjustments, allocation or distributions described in clauses (4), (5) or (6) of
<PAGE>
Regulations Section 1.704-1 (b)(2)(ii)(d), items of LLC income shall be
specially allocated to such Member in an amount and manner sufficient to
eliminate the Adjusted Capital Account Deficit created by such adjustments,
allocations or distributions as quickly as possible. This Section 4.3 is
intended to constitute a "qualified income offset" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(d)(3).
4.4 MINIMUM GAIN CHARGEBACK. If there is a net decrease in LLC Minimum
Gain during a Fiscal Year, each Member will be allocated, before any other
allocation under this Article 4, items of income and gain for such Fiscal Year
(and if necessary, subsequent years) in proportion to and to the extent of an
amount equal to such Member's share of the net decrease in LLC Minimum Gain
determined in accordance with Regulations Section 1.704-2(g)(2). This Section
4.4 is intended to comply with, and shall be interpreted consistently with, the
"minimum gain chargeback" provisions of Regulations Section 1.704-2(f).
4.5 MEMBER NONRECOURSE DEBT MINIMUM GAIN CHARGEBACK. Notwithstanding
any other provision of this Article 4, but except Section 4.4, if there is a net
decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member
Nonrecourse Debt during any Fiscal Year of the LLC, each Member who has a share
of the Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treasury Regulations Section
1.704-2(i)(5), shall be specially allocated items of LLC income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Member's share of the net decrease in Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Member pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-2(i)(4). This Section
4.5 is intended to comply with a minimum gain chargeback requirement of that
Section of the Regulations and shall be interpreted consistently therewith.
4.6 MEMBER NONRECOURSE DEDUCTIONS. Any Member Nonrecourse Deductions
for any Fiscal Year or other period shall be specially allocated to the Member
who bears (or is deemed to bear) the economic risk of loss with respect to the
Member Nonrecourse Debt to which such Member Nonrecourse Deductions are
attributable in accordance with Regulations Section 1.704-2(i)(2).
4.7 SPECIAL ALLOCATIONS. Any special allocations of items of Net
Profits pursuant to Sections 4.4, 4.5 and 4.6 shall be taken into account in
computing subsequent allocations of Net Profits pursuant to Section 4.1, so that
the net amount of any items so allocated and the gain, loss and any other item
allocated to each Member pursuant to Section 4.1 shall, to the extent possible,
be equal to the net amount that would have been allocated to each such Member
pursuant to the provisions of this Article if such special allocations had not
occurred.
4.8 FEES TO MEMBERS OR AFFILIATES. Notwithstanding the provisions of
Section 4.1, in the event that any fees, interest, or other amounts paid to any
Member or any Affiliate thereof pursuant to this Agreement or any other
agreement between the LLC and any Member or Affiliate thereof providing for the
payment of such amount, and deducted by the LLC in reliance on Section 707(a)
and/or 707(c) of the Code, are disallowed as deductions to the LLC on its
federal income tax return and are treated as LLC distributions, then
4.8.1 the Net Profits or Net Loss, as the case may be, for the Fiscal
Year in which such fees, interest, or other amounts were paid shall be
increased or decreased, as the case may be, by the amount of such fees,
interest, or other amounts that are treated as LLC distributions; and
4.8.2 there shall be allocated to the Member to which (or to whose
Affiliate) such fees, interest, or other amounts were paid, prior to the
allocations pursuant to Section 4.1, an amount of gross income for the
Fiscal Year equal to the amount of such fees, interest, or other amounts
that are treated as LLC distributions.
4.9 SECTION 704(c) ALLOCATION. Any item of income, gain, loss, and
deduction with respect to any property (other than cash) that has been
contributed by a Member to the capital of the LLC and which is required or
permitted to be allocated to such Member for income tax purposes under Section
704(c) of the Code so as to take into account the variation between the tax
basis of such property and its fair market value at the time of its contribution
shall be allocated to such Member solely for income tax purposes in the manner
so required or permitted.
ARTICLE 5
DISTRIBUTIONS
5.1 AVAILABLE CASH FLOW. Available Cash Flow of the LLC shall be
distributed to the Members in accordance with the following priority and
agreements:
5.1.1 FIRST. Pro rata among the Members, in the ratio of the principal
loan balances outstanding, until all of the accrued but unpaid interest on
all LLC Loans, if any, has been paid, and then the principal amounts
thereof.
5.1.2 SECOND. To the Members, pari passu, on a pro rata basis, until
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all Net Capital Contributions are reduced to zero.
5.1.3 THIRD. To the Members in accordance with their applicable
Percentage Interests as of the time of such distribution.
ARTICLE 6
RIGHTS, DUTIES, OBLIGATIONS AND COMPENSATION
OF MANAGERS AND OFFICERS
6.1 MANAGER. The Manager shall have such rights, duties and powers as
are specified in this Agreement, or conferred upon the Manager by Vote of the
Members.
6.1.1 DUTIES OF THE MANAGER. The Manager is the general manager and
chief executive officer of the LLC and has, subject to the control of the
Members, general supervision, direction, and control of the business of the
LLC. The Manager shall preside at all meetings of the Members. The Manager
shall have the general powers and duties of management typically vested in
the office of president of a corporation, and such other powers and duties
as may be prescribed by the Members. Until the Members shall have elected
more than one Manager for the LLC, the term "Manager" as used in this
Agreement, but other than Section 6.2, shall mean the Person who alone has
the powers and duties specified in this Section 6.1.1.
6.1.2 ELECTION. Each Manager of the LLC shall be chosen annually by
the Vote of the Members. In voting for Managers, each Member shall have a
number of votes equal to its Percentage Interest in the LLC. The candidate
for each Manager position who obtains the majority of Member votes cast
shall succeed to that Manager position. Each Manager shall hold office
until the Manager resigns or shall be removed or otherwise disqualified to
serve, or the Manager's successor is elected and qualified.
6.1.3 SUBORDINATE OFFICERS. The Members may appoint a secretary, a
chief financial officer, and such other officers of the LLC as the Business
of the LLC may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in this
Agreement, or as the Members determine.
6.1.4 REMOVAL AND RESIGNATION. Any Manager or other officer of the LLC
may be removed, with or without cause, by the Vote of the Members. Any
Manager or other officer of the LLC may resign at any time without
prejudice to any rights of the LLC under any contract to which the Manager
or other officer of the LLC is a party, by giving written notice to the
Members, or to the Manager, as applicable. Any such resignation shall take
effect at the date of the receipt of such notice or at any later time
specified therein; and unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
6.1.5 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled
by a Vote of the Members through the appointment of a successor officer who
shall hold the office for the unexpired term.
6.2 CO-MANAGERS. If at any time during the Period of Duration, the
Members by Vote shall determine to have more than one Manager, the Managers
shall be elected pursuant to the provisions of Section 6.1.2 and shall be
subject to removal pursuant to the provisions of Section 6.1.4. Each Manager
shall also have the right to resign provided in Section 6.1.4, and any vacancy
in a Manager position shall be filled pursuant to the provisions of Section
6.1.5. The following provisions of this Section 6.2 shall govern the manner in
which the Managers shall manage the Business of the LLC if the Members have
elected more than one Manager.
6.2.1 The Managers shall share in the duties described in Section
6.1.1.
6.2.2 Meetings of the Managers shall be held at the principal office
of the LLC, unless some other place is designated in the notice of the
meeting. Any Manager may participate in a meeting through use of a
conference telephone or similar communication equipment so long as all
Managers participating in such a meeting can hear one another. Accurate
minutes of any meeting of the Managers shall be maintained by the officer
designated by the Managers for that purpose.
6.2.3 Regular meetings of the Managers shall be held immediately
following the adjournment of the annual meeting, of the Members at which
the Managers are elected. No notice need be given of such regular meetings.
6.2.4 Special meetings of the Managers for any purpose may be called
at any time by any Manager. At least forty-eight (48) hours notice of the
time and place of a special meeting of the Managers shall be delivered
personally to the Managers or personally communicated to them by an officer
of the LLC by telephone, telegraph or facsimile. If the notice is sent to a
Manager by letter, it shall be addressed to him at his last known business
address as it is shown on the records of the LLC. In case such notice is
mailed, it shall be deposited in the United States mail, first-class
postage, prepaid, in the place in which the principal office of the LLC is
located at least four (4) days prior to the time of the holding of the
meeting. Such mailing, telegraphing, telephoning or delivery as above
<PAGE>
provided shall be considered due, legal and personal notice to such
Manager.
6.2.5 With respect to a special meeting which has not been duly called
or noticed pursuant to the provisions of Section 6.2.4, all transactions
carried out at the meeting are as valid as if had at a meeting regularly
called and noticed if: (i) all Managers are present at the meeting, and
sign a written consent to the holding of such meeting, or (ii) if a
majority of the Managers are present and if those not present sign a waiver
of notice of such meeting or a consent to holding the meeting, or an
approval of the minutes thereof, whether prior to or after the holding of
such meeting, which waiver, consent or approval shall be filed with the
other records of the LLC, or (iii) if a Manager attends a meeting without
notice and does not protest prior to the meeting or at its commencement
that notice was not given to him or her.
6.2.6 Any action required or permitted to be taken by the Managers may
be taken without a meeting and will have the same force and effect as if
taken by a vote of Managers at a meeting, properly called and noticed, if
authorized by a writing signed individually or collectively by all, but not
less than all, the Managers. Such consent shall be filed with the records
of the LLC.
6.2.7 A majority of the total number of incumbent Managers shall be
necessary to constitute a quorum for the transaction of business at any
meeting of the Managers, and, except as otherwise provided in this
Agreement or by the Statute, the action of a majority of the Managers
present at any meeting at which there is a quorum, when duly assembled, is
valid. A meeting at which a quorum is initially present may continue to
transact business, notwithstanding the withdrawal of Managers, if any
action taken is approved by a majority of the required quorum for such
meeting.
6.3 LIMITATIONS ON RIGHTS AND POWERS. Except by the unanimous
agreement of the Members which is evidenced in a writing, neither the Manager
nor any other officer of the LLC shall have authority to:
6.3.1 Enter into or commit to any agreement, contract, commitment or
obligation on behalf of the LLC obligating any Member or Principal to find
additional capital, to make or guarantee a loan or to increase its personal
liability either to the LLC or to third parties;
6.3.2 Receive or permit any Member or Principal to receive any fee or
rebate, or to participate in any reciprocal business arrangements that
would have the effect of circumventing any of the provisions hereof;
6.3.3 Materially alter the Business of the LLC or deviate from any
approved business plan of the LLC as set forth in this Agreement;
6.3.4 Permit or cause the LLC to place title to any Property in the
name of a nominee;
6.3.5 Permit the LLC's funds to be commingled with the funds of any
other Person;
6.3.6 Do any act in contravention of this Agreement;
6.3.7 Do any act which would make it impossible to carry on the
Business of the LLC;
6.3.8 Confess a judgment against the LLC;
6.3.9 Possess Property, or assign rights in specific Property, for
other than a LLC purpose;
6.3.10 Admit any person as a Member, except as otherwise provided in
this Agreement;
6.3.11 Sell, lease, pledge, hypothecate, or grant a security interest
in any Property, except in the ordinary course of business;
6.3.12 Attempt to dissolve or withdraw from the LLC; and
6.3.13 Invest or reinvest any proceeds from the operation of the LLC,
or the sale, refinancing or other disposition of any Property.
6.4 COMPENSATION OF MANAGER. The LLC shall pay to the Manager such
salary and other benefits as shall be approved from time to time by Vote of the
Members. The LLC shall reimburse the Manager for any expense paid by the Manager
that properly is to be borne by the LLC.
6.5 COMPENSATION OF MEMBERS. Except as expressly permitted by this
Agreement or any other written agreement, the LLC shall pay no compensation to
any Member or any Principal of any Member for their services to the LLC.
6.6 EXPENSE REIMBURSEMENT. The LLC shall reimburse the Members for any
expense paid by them that properly is to be borne by the LLC, as approved from
time to time by the Manager.
<PAGE>
ARTICLE 7
MEMBERS' MEETINGS
7.1 PLACE OF MEETINGS. Meetings of the Members shall be held at the
principal office of the LLC, unless some other appropriate and convenient
location, either within or without the state where the Articles of Organization
were filed, shall be designated for that purpose from time to time by the
Manager.
7.2 ANNUAL MEETINGS OF MEMBERS. An annual meeting of the Members shall
be held, each year, on the anniversary of the date of this Agreement, at 10:00
a.m. If this day shall be a legal holiday, then the meeting shall be held on the
next succeeding business day, at the same time. At the annual meeting, the
Members shall elect the Manager (or Managers) and transact such other business
as may be properly brought before the meeting.
7.3 SPECIAL MEETINGS. Special meetings of the Members may be called at
any time by the Manager or by one or more Members holding in the aggregate more
than ten percent (10%) of the Percentage Interests. Upon receipt of a written
request, which request may be mailed or delivered personally to the Manager, by
any Person entitled to call a special meeting of Members, the Manager shall
cause notice to be given to the Members that a meeting will be held at a time
requested by the Person or Persons calling the meeting, which time for the
meeting shall be not less than ten (10) nor more than sixty (60) days after the
receipt of such request. If such notice is not given within twenty (20) days
after receipt of such request, the Persons calling the meeting may give notice
thereof in the manner provided by this Agreement.
7.4 NOTICE OF MEETINGS. Except as provided for in Section 7.3 for
special meetings, notice of meetings shall be given to the Members in writing
not less than ten (10) nor more than sixty (60) days before the date of the
meeting by the Manager. Notices for regular and special meetings shall be given
personally, by mail, or by facsimile, and shall be sent to each Member's last
known business address appearing on the books of the LLC. Such notice shall be
deemed given at the time it is delivered personally, or deposited in the mail,
or sent by facsimile. Notice of any meeting of Members shall specify the place,
the day and the hour of the meeting, and (i) in case of a special meeting, the
general nature of the business to be transacted, or (ii) in the case of an
annual meeting, those matters which the Manager, at the date of mailing, intends
to present for action by the Members.
7.5 VALIDATION OF MEMBERS' MEETINGS. The transactions of a meeting of
Members which was not called or noticed pursuant to the provisions of Section
7.3 or 7.4 shall be valid as though transacted at a meeting duly held after
regular call and notice, if Members holding in the aggregate fifty-one percent
(51 %) or more of the Percentage Interests are present, and if, either before or
after the meeting, each of the Members entitled to vote but not present (whether
in person or by proxy, as that term is used in the Statute) at the meeting,
signs a written waiver of notice, or a consent to the holding of such meeting,
or an approval of the minutes thereof. All such waivers, consents or approvals
shall be filed with the records of the LLC. Attendance shall constitute a waiver
of notice, unless objection shall be made.
7.6 ACTIONS WITHOUT A MEETING.
7.6.1 Any action which may be taken at any annual or special meeting
of Members may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action so taken, shall be signed by
Members holding in the aggregate the number of votes equal to or greater
than the Vote, unless a lesser vote is provided for by this Agreement or
the Statute; provided, however, that any action which by the terms of this
Agreement or by the Statute is required to be taken pursuant to a greater
vote of the Members may only be taken by a written consent which has been
signed by Members holding the requisite number of votes.
7.6.2 Unless the consents of all Members have been given in writing,
notice of any approval made by the Members without a meeting by less than
unanimous written consent shall be given at least ten (10) days before the
consummation of the action authorized by such approval. Any Member giving a
written consent may revoke the consent by a writing received by the LLC
prior to the time that written consents of Members required to authorize
the proposed action have been filed with the LLC. Such revocation is
effective upon its receipt by the LLC.
7.7 QUORUM AND EFFECT OF VOTE. Each Member shall have a number of
votes equal to the Percentage Interest held by such Member, provided that if,
pursuant to the Statute or the terms of this Agreement, a Member is not entitled
to vote on a specific matter, then such Member's number of votes and Percentage
Interest shall not be considered for purposes of determining whether a quorum is
present, or whether approval by Vote of the Members has been obtained, in
respect of such specific matter. Members holding an aggregate of fifty-one
percent (51 %) or more of the Percentage Interests shall constitute a quorum at
all meetings of the Members for the transaction of business, and the Vote of
Members shall be required to approve any action, unless a greater vote is
required or a lesser vote is provided for by this Agreement or by the Statute.
ARTICLE 8
RESTRICTIONS ON TRANSFER OR CONVERSION
OF LLC INTERESTS, ADDITIONAL CAPITAL CONTRIBUTIONS;
<PAGE>
ADMISSION OF NEW MEMBERS
8.1 TRANSFER OR ASSIGNMENT OF MEMBER'S INTEREST. The Interest of each
Member and the Economic Interest of a Person who is not a Member constitutes
personal property of the Member or Economic Interest holder. Each Member and
each Economic Interest holder has no interest in the Property.
8.1.1 A Member's Interest or an Economic Interest may be transferred
or assigned only as provided in this Agreement.
8.1.2 No transfer, hypothecation, encumbrance or assignment
("Transfer") of a Member's Interest, or any part thereof, in the LLC will
be valid without the consent of a Majority in Interest of the Members,
other than the Member proposing to dispose of its Interest.
8.1.3 A Transfer of an Economic Interest may be done without the
consent of the other Members or of the Manager. Any holder of an Economic
Interest shall have no right to participate in the management of the
business and affairs of the LLC or to become a Member thereof.
8.2 VOID TRANSFERS. Any Transfer of an Interest which does not satisfy
the requirement of Section 8.1.2 shall only effect a Transfer of an Economic
Interest, and the transferring Member shall continue to be obligated under each
and every provision of this Agreement.
8.3 ADDITIONAL CAPITAL. During the Period of Duration, each of the
Members shall be required to make additional Capital Contributions to the LLC if
such additional Capital Contributions are approved by Members holding in the
aggregate, seventy-five percent (75%) or more of the Percentage Interests.
8.3.1 Each Member shall be obligated to contribute an amount of
additional capital equal to such Member's Percentage Interest times the
total Capital Contribution amount required of all Members.
8.3.2 The Members' Percentage Interests shall be adjusted to recognize
any Members failure to make the required additional Capital Contribution.
8.3.3 Any Member who fails to contribute some or all of the required
additional capital shall be in default of this Agreement and shall have no
right to participate in the management of the business and affairs of the
LLC, but such Member shall not forfeit its rights to distributions and Net
Profits and Net Loss allocations.
8.4 ADMISSION OF NEW MEMBERS. A new Member may be admitted into the
LLC only upon the consent of a Majority in Interest of the Members.
8.4.1 The amount of Capital Contribution which must be made by a new
Member shall be determined by the vote of all existing Members.
8.4.2 A new Member shall not be deemed admitted into the LLC until the
Capital Contribution required of such Person shall have been made and such
Person has become a party to this Agreement.
ARTICLE 9
BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
9.1 MAINTENANCE OF BOOKS AND RECORDS. The LLC shall cause books and
records of the LLC to be maintained in accordance with generally accepted
accounting principles, and shall give reports to the Members in accordance with
prudent business practices and the Statute. There shall be kept at the principal
office of the LLC, as well as at the office of record of the LLC specified in
Section 2.4, if different, the following LLC documents:
9.1.1 A current list of the full name and last known business or
residence address of each Member and of each holder of an Economic Interest
in the LLC set forth in alphabetical order, together with the Capital
Contributions and share in Net Profits and Net Loss of each Member and
holder of an Economic Interest;
9.1.2 A current list of the full name and business or residence
address of each Manager;
9.1.3 A copy of the Articles of Organization and any amendments
thereto, together with any powers of attorney pursuant to which the
Articles of Organization and any amendments thereto were executed;
9.1.4 Copies of the LLC's federal, state and local income tax or
information returns and reports, if any, for the six most recent Fiscal
Years;
9.1.5 A copy of this Agreement and any amendments thereto, together
with any powers of attorney pursuant to which this Agreement and any
amendments thereto were executed;
9.1.6 Copies of the financial statements of the LLC, if any, for the
six most recent Fiscal Years;
9.1.7 The LLC's books and records as they relate to the internal
affairs of the LLC for at least the current and past four Fiscal Years;
<PAGE>
9.1.8 Originals or copies of all minutes, actions by written consent,
consents to action and waivers of notice to Members and Member Votes,
actions and consents; and
9.1.9 Any other information required to be maintained by the LLC
pursuant to the Statute.
9.2 ANNUAL ACCOUNTING. Within 120 days after the close of each Fiscal
Year of the LLC, the LLC shall (i) cause to be prepared and submitted to each
Member a balance sheet and income statement for the preceding Fiscal Year of the
LLC (or portion thereof) in conformity with generally accepted accounting
principles and (ii) provide to the Members all information necessary for them to
complete federal and state tax returns.
9.3 INSPECTION AND AUDIT RIGHTS. Each Member and each holder of an
Economic Interest in the LLC who is not a Member has the right upon reasonable
request, for purposes reasonably related to the interest of that Person, to
inspect and copy during normal business hours any of the LLC books and records
required to be maintained in accordance with Section 9.1. Such right may be
exercised by the Person or by that Person's agent or attorney. Any Member may
require a review and/or audit of the books, records and reports of the LLC. The
determination of the Manager as to adjustments to the financial reports, books,
records and returns of the LLC, in the absence of fraud or gross negligence,
shall be final and binding upon the LLC and all of the Members.
9.4 RIGHTS OF MEMBERS AND NON-MEMBERS. Upon the request of a Member or
a holder of an Economic Interest who is not a Member, for purposes reasonably
related to the interest of that Person, the Manager shall promptly deliver to
the Member or holder of an Economic Interest, at the expense of the LLC, a copy
of this Agreement and a copy of the information listed in Sections 9.1.1, 9.1.2
and 9.1.4 of this Agreement.
9.5 BANK ACCOUNTS. The bank accounts of the LLC shall be maintained in
such banking institutions as the Manager shall determine.
9.6 TAX MATTERS HANDLED BY MANAGERS. One of the Managers who is also a
Member, or in the event no Manager is a Member, a Member or an officer of a
corporate Member, shall be designated as "Tax Matters Partner" (as defined in
Code section 6231), to represent the LLC (at the LLC's expense) in connection
with all examinations of the LLC's affairs by tax authorities, including
resulting judicial and administrative proceedings, and to expend LLC funds for
professional services and costs associated therewith. In its capacity as "Tax
Matters Partner," the designated Person shall oversee the LLC tax affairs in the
overall best interests of the LLC. Unless the Members designate another to be
"Tax Matters Partner," the Manager shall be the "Tax Matters Partner," provided
that Person is a Member or an officer of a corporate Member.
9.7 FEDERAL INCOME TAX ELECTIONS MADE BY MANAGERS. The Manager on
behalf of the LLC may make all elections for federal income tax purposes,
including but not limited to, the following:
9.7.1 USE OF ACCELERATED DEPRECIATION METHODS. To the extent permitted
by applicable law and regulations, the LLC may elect to use an accelerated
depreciation method on any depreciable unit of the assets of the LLC; and
9.7.2 ADJUSTMENT OF BASIS OF ASSETS. In case of a transfer of all or
part of the Interest of any Member, the LLC may elect, pursuant to code
Sections 734, 743, and 754 of the Code to adjust the basis of the assets of
the LLC.
9.7.3 ACCOUNTING METHOD. For financial reporting purposes, the books
and records of the LLC shall be kept on the accrual method of accounting
applied in a consistent manner and shall reflect all transactions of the
LLC and be appropriate and adequate for the purposes of the LLC.
9.8 OBLIGATIONS OF MEMBERS TO REPORT ALLOCATIONS. The Members are
aware of the income tax consequences of the allocations made by this Agreement
and hereby agree to be bound by the provisions of this Section 9.8 in reporting
their shares of the LLC income and loss for income tax purposes.
ARTICLE 10
TERMINATION AND DISSOLUTION
10.1 DISSOLUTION. The LLC shall be dissolved upon the occurrence of
any of the following events:
10.1.1 When the Period of Duration of the LLC expires;
10.1.2 The written approval by a Majority in interest of the Members
to dissolve the LLC;
10.1.3 The death, withdrawal, resignation, expulsion, bankruptcy or
dissolution of a Member or the occurrence of any other event which
terminates the Member's continued membership in the LLC, unless the
business of the LLC is continued by the unanimous vote of all remaining
Members within ninety (90) days of the happening of that event.
10.2 STATEMENT OF INTENT TO DISSOLVE. As soon as possible after the
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occurrence of any of the events specified in Section 10.1 above, the LLC shall
execute a Statement of Intent to Dissolve in such form as prescribed by the
Secretary of State.
10.3 CONDUCT OF BUSINESS. Upon the filing of the Statement of Intent
to Dissolve with the Secretary of State, the LLC shall cease to carry on its
business, except insofar as may be necessary for the winding up of its business,
but the LLC's separate existence shall continue until the Articles of
Dissolution have been filed with the Secretary of State or until a decree
dissolving the LLC has been entered by a court of competent jurisdiction.
10.4 DISTRIBUTION OF NET PROCEEDS. The Members shall continue to
divide Net Profits and Losses and Available Cash Flow during the winding-up
period in the same manner and the same priorities as provided for in Articles 4
and 5 hereof. The proceeds from the liquidation of Property shall be applied in
the following order:
10.4.1 To the payment of creditors, in the order of priority as
provided by law, except to Members on account of their contributions;
10.4.2 To the payment of loans or advances that may have been made by
any of the Members or their Principals for working capital or other
requirements of the LLC;
10.4.3 To the Members in accordance with the positive balances in
their Capital Accounts after adjustments for all allocations of Net Profits
and Net Loss.
Where the distribution pursuant to this Section 10.4 consists both of
cash (or cash equivalents) and non-cash assets, the cash (or cash equivalents)
shall first be distributed, in a descending order, to fully satisfy each
category starting with the most preferred category above. In the case of
non-cash assets, the distribution values are to be based on the fair market
value thereof as determined in good faith by the liquidator, and the shortest
maturity portion of such non-cash assets (e.g., notes or other indebtedness)
shall, to the extent such non-cash assets are readily divisible, be distributed,
in a descending order, to fully satisfy each category above, starting with the
most preferred category.
ARTICLE 11
INDEMNIFICATION OF THE MEMBERS, MANAGERS,
AND THEIR AFFILIATES
11.1 INDEMNIFICATION OF THE MEMBERS AND THEIR PRINCIPALS. The LLC
shall indemnify and hold harmless the Members, the Managers, their Affiliates
and their respective officers, directors, employees, agents and Principals
(individually, an "Indemnitee") from and against any and all losses, claims,
demands, costs, damages, liabilities, joint and several, expenses of any nature
(including reasonable attorneys' fees and disbursements), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, whether civil, criminal, administrative or investigative,
in which the Indemnitee was involved or may be involved, or threatened to be
involved, as a party or otherwise, arising out of or incidental to the Business
of the LLC, excluding liabilities to any Member, regardless of whether the
Indemnitee continues to be a Member, an Affiliate, or an officer, director,
employee, agent or Principal of the Member at the time any such liability or
expense is paid or incurred, to the fullest extent permitted by the Statute and
all other applicable laws.
11.2 EXPENSES. Expenses incurred by an Indemnitee in defending any
claim, demand, action, suit or proceeding subject to Section 11.1 shall, from
time to time, be advanced by the LLC prior to the final disposition of such
claim, demand, action, suit or proceeding upon receipt by the LLC of an
undertaking by or on behalf of the Indemnitee to repay such amount if it shall
be determined that such Person is not entitled to be indemnified as authorized
in Section 11.1.
11.3 INDEMNIFICATION RIGHTS NON-EXCLUSIVE. The indemnification
provided by Section 11.1 shall be in addition to any other rights to which those
indemnified may be entitled under any agreement, vote of the Members, as a
matter of law or equity or otherwise, both as to action in the Indemnitee's
capacity as a Member, as an Affiliate or as an officer, director, employee,
agent or Principal of a Member and as to any action in another capacity, and
shall continue as to an Indemnitee who has ceased to serve in such capacity and
shall inure to the benefit of the heirs, successors, assigns and administrators
of the Indemnitee.
11.4 ERRORS AND OMISSIONS INSURANCE. The LLC may purchase and maintain
insurance, at the LLC's expense, on behalf of the Members and such other Persons
as the Members shall determine, against any liability that may be asserted
against, or any expense that may be incurred by, such Person in connection with
the activities of the LLC and/or the Members' acts or omissions as the Members
of the LLC regardless of whether the LLC would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
11.5 ASSETS OF THE LLC. Any indemnification under Section 11.1 shall
be satisfied solely out of the assets of the LLC. No Member shall be subject to
personal liability or required to fund or to cause to be funded any obligation
by reason of these indemnification provisions.
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ARTICLE 12
AMENDMENTS
12.1 AMENDMENT, ETC. OF OPERATION AGREEMENT. This Agreement may be
adopted, altered, amended, or repealed and a new operating agreement may be
adopted by a Majority In Interest of the Members.
12.2 AMENDMENT, ETC. OF ARTICLES OF ORGANIZATION. Notwithstanding any
provision to the contrary in the Articles of Organization or this Agreement, in
no event shall the Articles of Organization be amended without the vote of
Members representing a Majority In Interest of the Members.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 COUNTERPARTS. This Agreement may be executed in several
counterparts, and all counterparts so executed shall constitute one Agreement,
binding on all of the parties hereto, notwithstanding that all of the parties
are not signatory to the original or the same counterpart.
13.2 SURVIVAL OF RIGHTS. This Agreement shall be binding upon, and, as
to permitted or accepted successors, transferees and assigns, inure to the
benefit of the Members and the LLC and their respective heirs, legatees, legal
representatives, successors, transferees and assigns, in all cases whether by
the laws of descent and distribution, merger, reverse merger, consolidation,
sale of assets, other sale, operation of law or otherwise.
13.3 SEVERABILITY. In the event any Section, or any sentence within
any Section, is declared by a court of competent jurisdiction to be void or
unenforceable, such sentence or Section shall be deemed severed from the
remainder of this Agreement and the balance of this Agreement shall remain in
full force and effect.
13.4 NOTIFICATION OR NOTICES. Except for notices to be given under
Articles 6 and 7 for purposes of meetings of Managers and meetings of Members,
any notice or other communication required or permitted hereunder shall be in
writing and shall be deemed to have been given if personally delivered,
transmitted by facsimile (with mechanical confirmation of transmission), or
deposited in the United States mail, registered or certified, postage prepaid,
addressed to the parties' addresses set forth below. Notices given in the manner
provided for in this Section 13.4 shall be deemed effective on the third day
following deposit in the mail or on the day of transmission or delivery if given
by facsimile or by hand. Notices must be addressed to the parties hereto at the
following addresses, unless the same shall have been changed by notice in
accordance herewith:
13.5 CONSTRUCTION. The language in all parts of this Agreement shall
be in all cases construed simply according to its fair meaning and not strictly
for or against any of the Members.
13.6 SECTION HEADINGS. The captions of the Articles or Sections in
this Agreement are for convenience only and in no way define, limit, extend or
describe the scope or intent of any of the provisions hereof, shall not be
deemed part of this Agreement and shall not be used in construing or
interpreting this Agreement.
13.7 GOVERNING LAW. This Agreement shall be construed according to the
laws of the State of California.
13.8 ADDITIONAL DOCUMENTS. Each Member, upon the request of another
Member, agrees to perform all further acts and execute, acknowledge and deliver
all documents which may be reasonably necessary, appropriate or desirable to
carry out the provisions of this Agreement, including but not limited to
acknowledging before a notary public any signature heretofore or hereafter made
by a Member.
13.9 PRONOUNS AND PLURALS. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine and neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
13.10 TIME OF THE ESSENCE. Except as otherwise provided herein, time
is of the essence in connection with each and every provision of this Agreement.
13.11 FURTHER ACTIONS. Each of the Members agrees to execute,
acknowledge and deliver such additional documents, and take such further
actions, as may reasonably be required from time to time to carry out each of
the provisions, and the intent of this Agreement, and every agreement or
document relating hereto, or entered into in connection herewith.
13.12 ARBITRATION OF DISPUTES. ANY MEMBER HERETO MAY REQUIRE THE
ARBITRATION OF ANY DISPUTE ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR
ANY RELATED AGREEMENT. SUCH MEMBER MAY INITIATE AND REQUIRE ARBITRATION BY
GIVING NOTICE TO THE OTHER PARTIES SPECIFYING THE MATTER TO BE ARBITRATED. IF
LEGAL ACTION IS ALREADY PENDING ON ANY MATTER CONCERNING WHICH THE NOTICE IS
GIVEN, THE NOTICE SHALL NOT BE EFFECTIVE UNLESS GIVEN BY THE DEFENDANT THEREIN
AND GIVEN BEFORE THE EXPIRATION OF TWENTY (20) DAYS AFTER SERVICE OF PROCESS ON
THE PERSON GIVING THE NOTICE. EXCEPT AS PROVIDED TO THE CONTRARY IN THESE
<PAGE>
PROVISIONS ON ARBITRATION, THE ARBITRATION SHALL BE IN CONFORMITY WITH AND
SUBJECT TO APPLICABLE RULES AND PROCEDURES OF THE AMERICAN ARBITRATION
ASSOCIATION (OR ANY SUCCESSOR THERETO). IF THE AMERICAN ARBITRATION ASSOCIATION
IS NOT THEN IN EXISTENCE AND THERE IS NO SUCCESSOR, OR IF FOR ANY REASON THE
AMERICAN ARBITRATION ASSOCIATION FAILS OR REFUSES TO ACT, THE ARBITRATION SHALL
BE IN CONFORMITY WITH AND SUBJECT TO THE PROVISIONS OF APPLICABLE CALIFORNIA
STATUTES (IF ANY) RELATING TO ARBITRATION AT THE TIME OF THE NOTICE. THE
ARBITRATORS SHALL BE BOUND BY THIS AGREEMENT AND ALL RELATED AGREEMENTS.
PLEADINGS IN ANY ACTION PENDING ON THE SAME MATTER SHALL, IF ARBITRATION IS
REQUIRED AS AFORESAID, BE DEEMED AMENDED TO LIMIT THE ISSUES TO THOSE
CONTEMPLATED BY THE RULES PRESCRIBED ABOVE. EACH MEMBER SHALL PAY THE COSTS OF
ARBITRATION, INCLUDING ARBITRATOR'S FEES, AS AWARDED BY THE ARBITRATOR(S). THE
NUMBER AND SELECTION OF ARBITRATOR(S) SHALL BE IN ACCORDANCE WITH THE RULES
PRESCRIBED ABOVE, EXCEPT THAT (i) EACH ARBITRATOR SELECTED SHALL BE NEUTRAL AND
FAMILIAR WITH THE PRINCIPAL SUBJECT MATTER OF THE ISSUES TO BE ARBITRATED, SUCH
AS, BY WAY OF EXAMPLE, REAL ESTATE DEVELOPMENT, OR REAL ESTATE MANAGEMENT, OR
SUCH OTHER SUBJECT MATTER AS MAY BE AT ISSUE, (ii) THE TESTIMONY OF WITNESSES
SHALL BE GIVEN UNDER OATH, AND (iii) DEPOSITIONS AND OTHER DISCOVERY MAY BE
ORDERED BY THE ARBITRATOR(S).
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE ARBITRATION OF DISPUTES
PROVISION DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP ANY RIGHTS YOU
MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY
INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO
DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE
ARBITRATION OF DISPUTES PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER
AGREEING TO THIS PROVISION YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY
OF THE APPLICABLE STATE STATUTE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS
VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE ARBITRATION OF DISPUTES PROVISION TO
NEUTRAL ARBITRATION.
13.13 WAIVER OF JURY. WITH RESPECT TO ANY DISPUTE ARISING UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, AS TO WHICH NO MEMBER
INVOKES THE RIGHT TO ARBITRATION HEREINABOVE PROVIDED, OR AS TO WHICH LEGAL
ACTION NEVERTHELESS OCCURS, EACH MEMBER HEREBY IRREVOCABLY WAIVES ALL RIGHTS IT
MAY HAVE TO DEMAND A JURY TRIAL. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND
VOLUNTARILY MADE BY THE MEMBERS AND EACH MEMBER ACKNOWLEDGES THAT NONE OF THE
OTHER MEMBERS NOR ANY PERSON ACTING ON BEHALF OF THE OTHER PARTIES HAS MADE ANY
REPRESENTATION OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO
MODIFY OR NULLIFY ITS EFFECT. THE MEMBERS EACH FURTHER ACKNOWLEDGE THAT IT HAS
BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPPESENTED) IN THE SIGNING
OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL,
SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS
THIS WAIVER WITH COUNSEL. THE MEMBERS EACH FURTHER ACKNOWLEDGES THAT IT HAS READ
AND UNDERSTAND THE MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION.
13.14 THIRD PARTY BENEFICIARIES. There are no third party
beneficiaries of this Agreement except (i) Affiliates and Principals of the
Members and (ii) any other Persons as may be entitled to the benefits of Article
11.1 hereof.
13.15 TAX ELECTIONS. The Manager, in his sole discretion, shall cause
the LLC to make or not make all elections required or permitted to be made for
income tax purposes.
13.16 PARTITION. The Members agree that the Property that the LLC may
own or have an interest in is not suitable for partition. Each of the Members
hereby irrevocably waives any and all rights that it may have to maintain any
action for partition of any Property the LLC may at any time have an interest
in.
13.17 ENTIRE AGREEMENT. This Agreement and the Articles of
Organization constitute the entire agreement of the Members with respect to, and
supersedes all prior written and oral agreements, understandings and
negotiations with respect to, the subject matter hereof.
13.18 WAIVER. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or any other covenant, duty, agreement or
condition.
13.19 ATTORNEYS' FEES. In the event of any litigation, arbitration or
other dispute arising as a result of or by reason of this Agreement, the
prevailing party in any such litigation, arbitration or other dispute shall be
entitled to, in addition to any other damages assessed, its reasonable
attorneys' fees, and all other costs and expenses incurred in connection with
settling or resolving such dispute. The attorneys' fees which the prevailing
party is entitled to recover shall include fees for prosecuting or defending any
appeal and shall be awarded for any supplemental proceedings until the final
judgment is satisfied in full. In addition to the foregoing award of attorneys'
fees to the prevailing party, the prevailing party in any lawsuit or arbitration
procedure on this Agreement shall be entitled to its reasonable attorneys' fees
incurred in any post judgment proceedings to collect or enforce the judgment.
This attorneys' fees provision is separate and several and shall survive the
<PAGE>
merger of this Agreement into any judgment.
13.20 CONFIDENTIALITY AND PRESS RELEASES. The Members and their
respective Affiliates and Principals hereby agree that it is in all of their
best interests to keep this Agreement and the Business of the LLC and all
information concerning such business confidential. Such parties each agree that
they will not take any action nor conduct themselves in any fashion, including
giving press releases or granting interviews, that would disclose to third
parties unrelated to the LLC or the Business of the LLC any aspect of the LLC or
the Business of the LLC without the unanimous prior written approval of all
Members. To the extent such prior approval is given, it may be conditioned upon
approval of the text of any press release or the scope of any intended
interview.
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Agreement as of the date first written above.
/s/ Barry Schlesinger
Barry Schlesinger
/s/ Terry Wachsner
Terry Wachsner
/s/ David Latvaaho
David Latvaaho
/s/ Larry Beasley
Larry Beasley
/s/ Jerome Powalish
Jerome Powalish
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
as of July 17th, 1998 by and between KW-A, LLC, a California limited liability
company having an address of 530 Wilshire Boulevard, Suite 101, Santa Monica,
California 90401 ("Company") and Barry Schlesinger, a Nevada resident, having an
address of 6 Larkside Court, Henderson, Nevada 89014 ("Employee"), with
reference to the following facts and circumstances:
RECITALS:
A. Kennedy-Wilson Properties, Ltd., an Illinois corporation ("The
Business"), a wholly owned subsidiary of Kennedy Wilson, Properties, Ltd., a
Delaware corporation (KWP), which is a wholly owned subsidiary of
Kennedy-Wilson, Inc., a Delaware corporation (KWI), has entered into a Services
Agreement with Company to manage, market, construct, develop and acquire real
estate and real estate related assets. Employee is experienced in all of their
said aspects of real estate. The Business is an intended beneficiary of the
provisions of this Agreement.
B. Company desires to employ Employee and Employee desires to be
employed by Company for the purposes and on the terms and conditions set forth
in this Agreement.
C. This Agreement replaces and supersedes in their entirety any and
all prior agreements, express or implied, written or oral, performed or
unperformed, pertaining to the employment of Employee and the compensation to be
paid to him therefor, and all such prior agreements and understandings are
hereby terminated and shall be of no further force or effect.
NOW, THEREFORE, in consideration of the mutual convenants set forth
herein and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Company and Employee agree as follows:
1. Employment. Company hereby employs Employee and Employee hereby
accepts employment to perform the duties described in Section 2 below, on the
terms, conditions and covenants set forth in this Agreement.
2. Services Provided. Employee shall be responsible for the operation
of The Business in an efficient and professional manner. To that end, Employee
shall serve as President and Chief Executive Officer of The Business and
Chairman of its Management Committee and as Manager of Company subject to the
policy guidelines and directives, which are provided to him by Company, KWI, KWP
and The Business from time to time during the term of this Agreement. Employee
shall have no authority to bind or obligate Company, The Business, KWP or KWI to
the purchase or sale of any real property, or to any other financial commitment,
including without limitation, the borrowing of any monies on a secured or
unsecured basis, without obtaining the prior written authorization of KWI as to
the other matters or responsibilities as Company and Employee's duties also
shall include such other matters or responsibilities as Company and Employee may
jointly agree upon from time to time during the term of this Agreement. The
initial directors of The Business shall be William J. McMorrow, Barry
Schlesinger, Freemen Lyle, and Tony Zimmerman. The other initial officers of The
Business shall be William J. McMorrow, Chief Executive Officer, Freeman Lyle,
Chief Financial Officer and Treasurer, and Tony Zimmerman, Secretary.
During the term of this Agreement and while employed by the Company,
Employee shall devote substantially all of his business time to his duties
hereunder. He shall, to the best of his ability, perform such duties in a manner
which will faithfully and diligently further the business and interests of the
Company and shall not, directly or indirectly, whether as a partner, employee,
creditor, shareholder or otherwise promote, participate or engage in any
activity or other business competitive with the Company's business, except on
behalf of or for the benefit of The Business and/or the Company or KWI, serve as
an officer for any other real estate management company, without The Business's
prior written consent and such consent shall not be unreasonably withheld.
Notwithstanding the provisions noted above, the Company and The
Business acknowledge that the Employee has made and will continue to make
personal investments that will require Employee's investments to the full extent
desired by Employee so long as such personal investment activity shall not be
competitive with The Business and does not detract from Employee's ability to
devote substantially all of his energies and productive interests to the
performance of his duties and responsibilities under this Agreement. Employee
may invest in real estate for his own account and render investment advisory or
property management advisory services in his individual capacity (and not for or
on behalf of the Company, KWI, KWP or The Business) to an entity in which
Employee has invested and to any immediate member of Employee's family.
Employee shall, at all times during the Term, strictly adhere to and
comply with all of Company's policies, rules and procedures as they currently
exist and as they may be changed by the Company so long as they are consistent
with section 2. Employee agrees that to the best of his ability and experience
<PAGE>
he will at all times loyally and conscientiously perform all of the duties and
obligations required of him expressly or by implication by the terms of this
Agreement.
3. Term of Employment. Employee shall be employed by the Company
pursuant to this Agreement for a term (the "Term") beginning on the date hereof
and continuing through to, and terminating at the close of business on December
31, 2000 (unless earlier terminated pursuant to Section 10).
4. Compensation.
(a) Salary.
Company shall pay a basic salary to Employee at the rate of $33,333.
Per month for the period of this contract, payable in bi-monthly equal
installments ($33,333. Per month total), subject to such deductions and
withholdings as Company may from time to time be required to make pursuant to
applicable law, governmental regulation or order. The basic salary may be
increased only at the sole discretion of The Business (without the vote of
Employee).
(b) Bonuses.
(i) Incentive Bonus: Year ending December 31, 1998. Employee shall be
entitled to an incentive bonus of $270,000, payable on January 31, 1999 (if
Employee is then an employee of the Company) upon The Business achievement of
$4,300,000 pre-tax, pre-bonus Net Profits for the period of July 1, 1998 through
December 31, 1998. In the even the Net Profits for the period from July 1, 1998
through December 31, 1998 are less than $4,300,000, the incentive bonus
described in this Section 4(b)(i), shall be reduced by 31.25%.
Employee shall be entitled to an additional bonus for the year ending
December 31, 1998 according to the following formula. Employee shall receive
35.3% of: (i) a sum equal to 10% of the Net Profits in excess of $4,300,000 up
to and including $7,000,000' and (ii) a sum equal to 20% of the Net Profits in
excess of $7,000,000. Any bonus earned by Employee according to this formula
shall be paid to Employee by not later than January 31, 1999.
(ii) Incentive Bonus: Calendar year beginning January 1, 1999.
Employee shall be entitled to an annual bonus for each calendar year of the term
of this Agreement commencing with the calendar year January 1, 1999 according to
the following formula. Employee shall receive a percentage of a portion of the
Net Profits of The Business. The portion of Net Profits shall be an amount equal
of the sum of 20% of the Net Profits less $3,333,000 (the Bonus Pool). Employee
shall receive 35.3% of the amount of the Bonus Pool up to the first $1,700,000
thereof. To the extent that the Bonus Pool exceeds $1,700,000.
Employee will be eligible for a discretionary bonus based on the sole
and absolute discretion of the Compensation Committee of The Business. The
Compensation Committee of The Business shall be composed of Barry Schlesinger,
William McMorrow and James Ozello.
Net Profits, for the purpose of this section, shall mean the gross
revenues realized by The Business during the applicable period, less costs and
expenses properly charged to such gross revenues according to generally
acceptable accounting principles as determined by KWI's Chief Financial Officer,
including, without limitation, the salaries, bonuses and benefits of all the
employees of The Business and the salaries and benefits of Company members
assigned to The Business.
(iii) Add-On Bonus: Employee shall be entitled to an Add-On Bonus of
$135,000, payable on June 30, 1999 and $135,000 payable on January 3, 2000. In
the even the Net Profits for the period from July 1, 1998 through December 31,
1998 are less than $4,300,000, the total Add-On Bonus described in this Section
4(b)(iii), shall be reduced by 31.25% and the reduced amount shall be paid in
equal one-half shares as provided above.
(c) Stock Options.
KWI shall grant to Employee under KWI's 1992 Incentive and
Nonstatutory Stock Option Plan non-transferable incentive and nonstatutory
options to purchase an aggregate of 50,000 shares of common stock at an exercise
price equal to the price of the common stock on the date hereof on such terms
and conditions (including, without limitation, the vesting of such shares in
three equal shares on the date hereof and on the first and second annual
anniversaries hereof, so long as Employee is an employee of the Company on each
such date) as are set forth in the Stock Option Agreement between KWI and the
Employee.
5. Other Benefits. During the term of his employment and subject to
applicable eligibility requirements of position, tenure, salary, age, health and
other qualifications as may be set forth in the Heitman Employee Handbook or
pursuant to the terms of the applicable benefit provider, Employee shall
participate in such benefit plans or programs as are available to Heitman
Financial Ltds., other employees and to senior management of KWI including
without limitation medical, dental, disability and life insurance, and 401K
plan.
6. Business Expenses. Employee will be required to incur ordinary and
<PAGE>
necessary travel and other business expenses in connection with the performance
of his duties, and Employee shall be entitled to reimbursement from Company for
such expenses in accordance with Company's policies and procedures.
7. Non-Competition. For all periods that Employee is employed pursuant
to this Agreement and for a period of twelve (12) months thereafter, unless
Company has terminated Employee without cause.
Employee shall not: (i) provide or offer or attempt to provide,
whether as an officer, director, employee, partner, stockholder, independent
contractor or otherwise, property management services to any person or entity
other than for Employee's personal account; (ii) interfere with The Business
relations with any person or entity who at any time during such period was a
Client (which means past, and present and potential clients); or (iii) induce or
attempt to induce, directly or indirectly, any professional employee of The
Business or the Company to terminate his or her employment, or hire or attempt
to hire, directly or indirectly, any such person.
Employee represents and warrants that the is not restricted or
prohibited in any way from entering into this Agreement or performing services
hereunder, at any time, whether by non-competition, covenant, or otherwise, and
shall indemnify, defend and hold the Company harmless from and against any
damages, claims, costs (including attorneys' fees) or liabilities as a result of
the incorrectness of such representation and warranty.
8. Trade Secrets. Employee has not disclosed to Company, and Employee
has been advised that Company will not accept at any time during the course of
Employee's employment at Company, the disclosure of any trade secret (as that
term is defined in California Civil Code Section 3426 et. seq.) the disclosure
or misappropriation of which by Employee would constitute a breach by Employee
of any obligation to any third party, including any former employer. Employee
represents and warrants he has informed Company of the existence of any and all
agreements, including covenants not to compete, between Employee and third
parties which may in any way relate to, impact, or prevent Employee's employment
at Company. Employee represents and warrants he has not taken any act prior to
signing this Agreement that constitutes a breach of any agreement which may in
any way relate to, impact, or prevent Employee's employment at Company.
9. Confidentiality and Proprietary Information. Employee recognizes
that he will occupy a position of trust with respect to business information of
a confidential or proprietary nature which is the property of the Company and
which has been and will be imparted to him from time to time in the course of
the performance of his duties under this Agreement. All agreements, documents,
studies, analyses, comparables, data, statistics, marketing materials, leads and
lead lists developed or prepared by Employee or others in Company's employ
during the term of this Agreement shall be and remain confidential and shall be
the sole property of Company. Employee hereby acknowledges that Company develops
and utilizes valuable procedures, confidential information and copyrighted
materials, including, but not limited to, names of property owners who may wish
to sell their property by auction or other means, names of potential purchasers,
leads and lead lists, studies and analyses, methods of obtaining auction
prospects, marketing and auction procedures and various brochure and other
printed materials, all of which constitute a valuable part of Company's assets
built up by Company's ingenuity, time, labor and expense over a period of many
years and all of which constitute Company trade secrets. Employee agrees that:
(a) He shall not at any time, whether during the term or thereafter,
use, divulge or disclose directly or indirectly any confidential or proprietary
information of the Company to any person, except that he may use and disclose to
other Company personnel such confidential and proprietary information in the
course of the performance of his duties hereunder or when legally required to do
so in connection with any pending litigation or administrative inquiry; and
(b) He shall return promptly upon the termination of this Agreement or
otherwise upon the request of the Company any and all copies of any
documentation or materials containing any confidential or proprietary
information of the Company.
For the purposes of this Agreement, the term "confidential or
proprietary information" of the Company shall include all information which is
owned by the Company and which is not at the time publicly available or
generally known to persons engaged in businesses similar to that of the Company,
including practices, procedures and methods and other facts relating to the
business of the Company; practices, procedures and methods and other facts
related to sales, marketing, advertising, promotions, financial matters,
clients, client lists of the Companies and similar information of a confidential
and proprietary nature. Employee agrees that his breach of this Section 10 will
cause irreparable harm to the Company. Employee agrees that the remedy available
to the Company, the Company shall be entitled to injunctive relief for any
actual or threatened breach of this Section 10 without proof that any actual
damages have been caused by such breach, and without any need to post bond or
similar security.
10. Termination.
(a) This Agreement shall be terminated upon the expiration of its term
pursuant to Section 3 or by The Business or the Company for cause if Employee
fails to cure a curable default within 30 calendar days after written notice
from The Business or the Company specifying the nature of the default. No notice
<PAGE>
of default and cure period need be provided to the Employee in respect of any
non-curable default by Employee including, by way or example and not by way of
limitation, theft, fraud, embezzlement, the disclosure of confidential and/or
proprietary information to competitors of The Business or the Company or
providing other services to such competitors during the term of this Agreement.
The term for "cause" shall be defined as:
(i) The unlawful theft or conversion of substantial monies or other
property, the commission of fraud or embezzlement, or the disclosure of
confidential and/or proprietary information to competitors of The Business or
the Company or providing other services to such competitors during the term o
this Agreement;
(ii) Employee's willful, continual and material neglect or failure to
discharge his duties, responsibilities or obligations (other than that which
arises solely due to physical or mental disability);
(iii) The material and persistent failure of Employee to comply with
the policies or directives of Company and/or failure to take direction from
Company management; and
(iv) The reasonable determination by the chief executive officer of
KWI, following the completion of any intra-company sexual harassment
investigation as may be required by and conducted in accordance with any legal
requirement, that an allegation(s) of sexual harassment is sufficiently
substantiated such that any non-executive employee of KWI or The Business would
be terminated under similar circumstances.
(b) Employee's employment with Company shall cease upon the date of
his death or physical or mental disability to the extent that Employee becomes
disabled for more than ninety (90) consecutive days or one hundred twenty(120)
days in the aggregate in any 12-month period to perform his duties on a
full-time basis. Upon termination for death or physical or mental disability,
Employee shall be entitled to receive the compensation described in Section
4(a), (b) and (c) to the date of termination.
(c) If the term of the Agreement is terminated by Company without
cause, then Company shall continue to pay Employee the salary and other benefits
describe in Sections 4 above during and for the remainder of the term of the
Agreement, together with such other compensation as Employee may be entitled to
under the provisions of Section 5, Benefits (or if such benefits cannot be
provided pursuant to the terms of the applicable plans, comparable benefits due
hereunder and remaining to be paid during the Term in the ordinary course,
provided that the payment of fringe or comparable benefits shall be subject to
the availability thereof at a cost not exceeding what was previously being paid
by the Company). If Employee terminates this Agreement, then Company shall not
pay Employee the salary and other benefits which Employee would have been
entitled to for the remainder of the term of the Agreement under Sections 4(a),
(b), (c) and Section 5 above.
(d) If the term of Employee's employment is terminated for cause, then
Employee shall be entitled to receive only the compensation described in Section
4 above earned to the date of termination.
(e) This Agreement may be terminated by Employee at any time, provided
that such termination shall have the effect set forth as follows:
Termination of this Agreement pursuant to this Section 10 shall not
relieve Employee of his obligations to comply with Sections 8 and 9 hereof,
which provisions shall survive the termination of this agreement. Material
breach of Company shall include a reduction in Employee's authority per
requisite position, title or responsibility, (other than such a reduction by the
Company because of temporary illness or disability or such a reduction which
affects all of the Company Senior executives on a substantially equal or
proportionate basis as a result of financial conditions of the Company) the
relocation of Company's primary place of business or the relocation of Employee
by the Company more than 50 miles from its present location.
11. Alternative Dispute Resolution. The parties to this Agreement
specifically desire an early resolution of any dispute between them, which
arises out of this Agreement. It is therefore, agreed that any controversy
arising out of this Agreement, whether dealing with breach interpretation or
otherwise, shall be heard by a reference ("Referee") pursuant to the provision
of Section 638 of the Code of Civil Procedure and in accordance with the
provisions described below; provided, however, that if injunctive relief is
sought, the complaining party may seek such relief from the Los Angels Superior
Court without the use of a Referee.
(a) Enforcement of Agreement. This reference provision may be enforced
by the filing of a complaint or petition or motion seeking specific enforcement.
Service of such motion on the opposing party shall constitute the "Claim Date"
for the purposes of this provision.
(b) Selection of Referee. The Referee shall be a retired Judge of the
Court selected by mutual agreement of the parties. If the parties cannot agree
then a Referee shall be appointed by the Los Angeles Superior Court in
accordance with Section 640 of the Code of Civil Procedure. Each party shall be
entitled to only one disqualification pursuant to Section 170.6 of the Code of
<PAGE>
Civil Procedure. The parties hereby waive their right to a trial by jury and
agree that their dispute shall be tried by the Referee so selected.
(c) Decisional Rules. The trial shall be conducted and the issues
determined in compliance with all judicial rules and all statutory and
decisional law of the State of California as if the matter were formally
litigated in Superior Court. All rules of evidence as set forth in the
California Evidence Code; other statutory and decisional law of California and
all relevant Los Angeles County Superior Court Rules and California Rules of
Court shall be applicable to any proceeding before the Referee.
(d) Discovery. The parties to this Agreement expressly waive their
right to engage in any discovery with the exception of depositions and requests
for the inspection, production and copying of documents. Interrogatories,
requests for admissions and depositions upon written interrogatories shall not
be permitted. The Referee shall be authorized to issue subpoenas requiring
attendance at hearings and/or trial. All discovery permitted by the Agreement
shall be completed no later than fifteen (15) days before the first hearing date
established by the Referee. The Referee may extend such period in the event of a
party's refusal to provide requested discovery for any reason whatsoever,
including legal objections raised to such discovery or unavailability of a
witness due to absence or illness. No party shall be entitled to "priority" in
conducting discovery. Depositions may be taken by either party upon seven (7)
days written notice. Request for production or inspection of documents shall be
responded to within ten (10) days after service. All disputes relating to
discovery shall be submitted to the Referee whose decision shall be final and
binding upon the parties.
(e) Hearings and Trial. Except as set forth in this Agreement, the
Referee shall determine the manner in which the proceeding is conducted
including the time and place of all hearings, the order or presentation or
evidence, and all other questions that arise with respect to the course of the
proceeding. All proceedings and hearings conducted before the Referee except for
trial, shall be conducted without a court reporter unless one is requested by a
party. The trial shall be conducted without a jury on consecutive dates, as
opposed to being conducted piecemeal on various dates separated by postponements
or adjournments. The trial shall be conducted in a courtroom or in surroundings
with formality as close to a courtroom as possible. The referee shall set the
matter for hearing within sixty (60) days after the Claim Date and try all
issues of law or fact and report a statement of decision upon them, if possible,
within ninety (90) days of the Claim Date.
(f) Decision of Referee. The Referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The Referee shall issue a single judgment at the close of the proceeding, which
shall dispose of all of the claims of the parties that are the subject of the
reference. Any decision rendered by the Referee shall be final, binding and
conclusive and judgment shall be entered pursuant to Section 644 of the Code of
Civil Procedure in any court in the State of California having jurisdiction.
(g) Appeal. The judgment entered upon the decision of the Referee
shall be subject to all post-trial procedures and to appeal in the same manner
as an appeal from any order or judgment in a civil action.
12. Miscellaneous.
(a) Assignment. This Agreement is for the unique personal services of
Employee and may not be assigned by Employer without the express written consent
of Company and its affiliates. In the event of a sale or merger of Company, the
Business and/or KWI, this Agreement shall be binding upon and inure to the
benefit of the respective heirs, personal representatives, successors and
assigns of the parties hereto. Successors shall not interfere with the
performance of Employee in a manner that would be detrimental with his ability
to earn the bonus and the vesting of stock options.
(b) Severability. Each provision, sub-provision or term of this
Agreement is intended to be severable and shall continue in full force and
effect although other provisions herein may be determined invalid or void for
any reason.
(c) Attorneys' Fees. In the event suit is brought to enforce the terms
of this Agreement, the prevailing party shall be entitled to costs and
reasonable attorneys' fees, including without limitation those costs and fees
incurred upon any appeal, as awarded by the Court.
(d) Entire Agreement; Amendments. This Agreement contain the entire
agreement of the parties with respect to the subject matter covered hereby and
may be amended, waived or terminated only by an instrument in writing signed by
the parties hereto. This Agreement shall be interpreted according to its fair
meaning and not for or against the party which drafted same.
(e) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California. Venue for any action or
proceeding which is commenced to interpret or enforce the terms and provisions
<PAGE>
of this Agreement shall lie only in the County of Los Angeles, California.
(g) Indemnity. The Business agrees to indemnify Employee from, and to
hold Employee harmless against all expenses of and liability from litigation,
arbitration or administrative proceedings and all costs related thereto,
including reasonable attorneys' fees, judgments or verdicts travel costs and
lodging, witness fees to expert witnesses, accountants' fees which may arise
from having to defend against any claim or action naming Employee because at the
pertinent times on which such claim or action is alleged to have arisen Employee
was an Officer or Director of this Company or any of its subsidiaries or
affiliates, and he was then performing his said duties under this Agreement.
This indemnification and hold harmless provisions shall apply to alleged acts of
omission or acts performed negligently or by mistake or misjudgment, but shall
not apply to proven willful acts such as intentional fraud.
(h) Employee shall work out of the Nevada office.
(i) The Business hereby unconditionally guarantees all covenants and
obligations of Company pursuant to this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date and year first written above.
THE BUSINESS: COMPANY:
KENNEDY-WILSON KW-A, LLC
PROPERTIES, LTD., a California limited
an Illinois corporation liability company
By: /s/ William McMorrow By: /s/ Barry Schlesinger
-------------------------- -----------------------
Name: Willaim J. McMorrow Name: Barry Schlesinger
Title: Chief Executive Officer Title:
<PAGE>
EMPLOYEE:
/s/ Barry Schlesinger
- --------------------------
Print Name: Barry Schlesinger
The undersigned parent of the Business hereby unconditionally
guarantees all covenants and obligations of whatsoever nature of Company and The
Business contained in this Employment Agreement. The undersigned agrees to
nominate Employee to its Board of Directors and to the Compensation Committee of
its board. Employee shall be named as an insured on all applicable liability
insurance policies.
KENNEDY-WILSON, INC.,
a Delaware corporation
By: /s/ William J. McMorrow
--------------------------
Name: /s/ William J McMorrow
Title: Chief Executive Officer
<PAGE>
EXECUTIVE SERVICES AGREEMENT
This Executive Services Agreement ("Agreement") is made and entered into as of
this 17TH day of July, 1998, by and among Kennedy-Wilson, Inc., a Delaware
corporation ("KWI"), Kennedy-Wilson Properties, Ltd., an Illinois corporation
(the "Business"), a wholly owned subsidiary of Kennedy-Wilson Properties, Ltd.
("KWP"), a Delaware corporation referred to collectively as ("KWS"), having
their principal place of business at 530 Wilshire Boulevard, #101, Santa Monica,
California, and KW-A, LLC, a California limited liability company ("KW-A"),
located at the same address, with reference to the following facts:
AGREEMENT
1. Engagement.
KWS hereby engages KW-A to furnish to KWS management executive services
during the term of this Agreement as defined in paragraph 2. Such
services shall include all services that the KW-A Members (the
"Members") are required to render pursuant to their Employment
Agreements as if they were rendered for the benefit of and directly to
KWS. KW-A agrees to furnish such services to KWS on the terms and
conditions of this Executive Services Agreement. KW-A shall direct and
supervise the Members in performing their duties pursuant to their
Employment Agreements.
2. Term.
This engagement of KW-A hereunder may be terminated by either party
with or without cause on the earlier of (i) the termination of
employment by KW-A of the last Member or (ii) December 31, 2000. The
breach by a Member of the terms of such Member's Employment Agreement
shall not be a breach of this Agreement so long as KW-A shall comply
with the material provisions of Section 3 below. If KWS terminates this
agreement for any legal reason, it must fulfill the financial
obligations of KW-A, under its Employment Agreements with the Members.
3. Performance by Members.
Members shall comply with the terms of their Employment Agreement with
KW-A.
4. Substitute Member.
If the employment of any Member is terminated per the terms of the
Employment Agreement, KW-A shall provide an individual to provide the
services rendered by the Member whose Employment Agreement has
terminated ("Substitute Member").
5. Compensation; Benefits; Expenses.
KW-A shall be entitled to compensation for services provided hereunder
as follows:
(a) So long as the Members render the services pursuant to this
Agreement, KWS shall pay, as full and complete compensation for
the services of the Members provided to KWS pursuant to this
Agreement, the following compensation;
All sums due to Member and Substitute Member pursuant to
his Employment Agreement, in a timely fashion.
(b) KWS shall fund the cost of all benefit plans including but not
limited to pension, profit sharing, deferred compensation, group
insurance or other health and welfare plans in an amount
consistent with the positions and duties occupied by the Members,
but only as to those that KWS in its absolute discretion makes
available generally to its officers, but KWI will not be required
to establish or maintain any qualified benefit plan which
provides to any of its Members any benefit which is in excess of
the benefits made available under such plans generally to
employees of KWI and its subsidiaries.
(c) KWS shall pay to KW-A an amount equal to the "employer's share of
payroll taxes" as that term is commonly defined, but KWS shall
not include the Members in its payroll reporting to federal,
state or local governments. KW-A covenants that it shall pay all
compensation paid to the Members as employees. KW-A and the
Members shall hold KWs harmless from any and all liabilities,
damages, costs, expenses including attorneys' and accountants'
fees, penalties, interest and all other charges incurred by KWI
as a result of the failure by KW-A to comply with the covenants
and agreements contained in this sub section, unless such failure
is due to KWS not funding their obligation hereunder.
(d) KWS shall pay the cost of all business expenses incurred by the
<PAGE>
Members in connection with and pursuant to their duties on behalf
of KWS, limited to amounts consistent with the policies
established by KWS from time to time.
6. Business to be the Property of KWI; Assignment of Intellectual Property.
(a) KW-A agrees that any and all pre-existing businesses KWS and all
business development by it or by any of its employees or by any
other employees of KWS, including without limitation all
investment advisory or sales contracts, property management
contracts, fees, commissions, compensation records, client lists,
agreements, and any other incident of any business developed or
sought by the companies or earned or carried on by KW-A or its
employees for KWS are and shall be the exclusive property of KWS
for its sole use, and (where applicable) shall be payable
directly to KWS.
(b) KW-A hereby grants to KWS (without any separate remuneration or
compensation other than that received by it, from time to time)
its entire right, title and interest throughout the world in and
to, all research, information, client lists, and all other
investment advisory, property management, technical and research
data made, conceived, developed and/or acquired by it which
relate to investment and property management advice as it was or
is now rendered or as it may, from time to time, hereafter be
rendered or proposed to be rendered, but excluding any ideas or
thought processes which are not embodied in written or machine
readable form (all such non-excluded items being referred to as
"Intellectual Property").
7. Confidentiality.
KW-A shall not use for its own benefit, or disclose to, or use for the
benefit of any person outside KWS, any information not already lawfully
available to the public concerning any Intellectual Property, including
client lists, whether such information is embodied in writing or in any
other tangible form or is in the memory of KW-A's employees. All such
Intellectual Property and all originals and copies of all Intellectual
Property and such information concerning Intellectual Property, and any
other written material relating to the business of KWS, shall be the
sole property of KWS. Upon termination of this Agreement, KW-A shall
promptly surrender to KWS all originals and copies of any Intellectual
Property. KW-A agrees to take no action prejudicial to the interests of
KWS during the term of this Agreement.
8. Use of Name, Likeness and Biography.
KWS shall have the right to use and grant to others the right to use
the name, likeness and biography of each of the Members in connection
with advertising, publicizing and other exploitation of the Member's
services hereunder.
9. Services as Members and Directors.
Each of the Members who have been requested, shall for so long as such
Member's Employment Agreement shall be in effect, serve as a member of
KWI Board of Directors and shall hold such offices with KWI to which he
may from time to time be elected by KWI's Board of Directors.
10. Equitable Remedies.
The parties recognize that KWS's remedy at law for any breach of this
Agreement would be inadequate and that for breach of any such
provision, KWS, shall, in addition to such other remedies as may be
available to them or either of them at law or in equity or as provided
in this Agreement, be entitled to injunctive relief against KW-A and/or
the Member(s) and to enforce their respective rights by an action for
specific performance to the extent permitted by law.
11. Amendment to Employment Agreements.
None of the Employment Agreements may be amended, nor shall any charge,
modification, consent or discharge be effective except by written
instrument executed by the Employee, KW-A and KWS.
12. Amendments.
This Agreement may not be amended, nor shall any change, modification,
consent or discharge be effective except by written instrument executed
by KW-A and KWS.
13. Assignment; Transfer.
This Executive Services Agreement is not assignable by KW-A except with
the written consent of KWS.
14. Indemnification.
KWS agrees that, except as provided in Section 6 hereof, it shall
<PAGE>
indemnify and hold harmless KW-A and the Members to the same extent
that KWS provides such indemnification to its officers and directors
under KWS, Certificate of Incorporation and By-laws and subject to such
limitations as are contained in the corporation law of the State of
California.
15. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of California. KWS and the
Members hereby consent to the jurisdiction of any state or federal
court located within the State of California, waiver personal service
or process, and assent that service of process may be made by
registered mail to the parties; even if a Member is a resident of a
State other than California.
16. Covenants of KW-A.
KW-A covenants and agrees that during the term of this Agreement, after
the date hereof, KW-A shall not take any of the following actions
except with the written consent of KWS:
(a) terminate the employment of any of the Members.
(b) give any guaranty, enter into any obligation or become surety for
any person or company.
(c) allow any Member of KW-A to assign, encumber, mortgage or pledge
such Member's interest in KW-A.
(d) pledge or give as security any property or asset of KW-A.
17. No Membership; No Agency.
KWA shall not hold itself out as an agent of KWS and shall have no
power to bind KWS except as provided in their Employment Agreement.
18. Entire Agreement.
This Agreement, together with the Exhibits hereto, contains the entire
agreement between the parties with respect to the subject matter hereof
and there are no agreements representations or warranties by any of the
parties hereto which are not set forth herein. This Agreement may not
be amended or revised except by a writing signed by all parties hereto.
19. Notice.
Any notice or other communication hereunder shall be given as
indicated below:
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the date first above written.
KWI: KWP:
Kennedy-Wilson, Inc. Kennedy-Wilson Properties, Ltd.
a Delaware corporation a Delaware corporation
By: /s/ William J. McMorrow By /s/ William J. McMorrow
----------------------- -----------------------
The Business:
Kennedy-Wilson Properties, Ltd.
An Illinois corporation
By /s/ William J. McMorrow
-----------------------
Title: Chief Executive Officer
KW-A, LLC, A California limited liability company
Members:
/s/ Barry Schlesinger
- ---------------------
Barry Schlesinger
/s/ Terence Wachsner
- ---------------------
Terence Wachsner
/s/ David Latvaaho
- ---------------------
David Latvaaho
/s/ Larry Beasley
- ---------------------
Larry Beasley
/s/ Jerome Powalish
- ---------------------
Jerome Powalish
<PAGE>
Exhibit 10.9.1
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement (the "First Amendment")
is made and entered into as of May 19, 1997, by and between KENNEDY-WILSON,
INC., a Delaware corporation, with its principal office located in Santa Monica,
California (the "Company"), and Richard Mandel, an individual ("Employee").
RECITALS
WHEREAS, Company and Employee have entered into that certain
Employment Agreement dated as of January 1, 1997, (the "Agreement"), providing
for the employment of Employee by Company pursuant to the terms of such
Agreement; and
WHEREAS, Company and Employee have agreed that the terms of the
Employment Agreement should be modified to change the Employee's Stock Option
Grants.
AMENDMENT TO AGREEMENT
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereby amend the
Agreement, effective as of May 19, 1997 as follows:
1. Section 5 c) of the Employment Agreement is deleted in its
entirety and the following is inserted in lieu thereof:
5 c). Effective January 1, 1997, the Company shall grant to
Employee under the Company's 1992 Incentive and Non-Statutory
Stock Option Plan nontransferable incentive and non-statutory
options to purchase an aggregate of 10,000 shares of Common Stock
at an exercise price equal to the price of the Common Stock on
the date the grant of such options are approved on such terms and
subject to such conditions as are set forth in the Stock Option
Agreement between the Company and Employee.
The Company shall also grant to Employee under the Company's 1992
Incentive and Non-Statutory Stock Option Plan non-transferable
incentive and non-statutory options to purchase an aggregate of 35,000
shares of Common Stock at an exercise price equal to the price of the
Common Stock on the date the grant of such options were approved, May
19, 1997, on such terms and subject to such conditions as are set
forth in the Stock Option agreement between the Company and the
Employee.
Subject to the foregoing, the Employment Agreement remains in full
force and effect, and Company and Employee hereby ratify and affirm the
Employment Agreement in each and every respect.
IN WITNESS WHEREOF, the undersigned have executed this First Amendment
as of the date first above written.
KENNEDY-WILSON, INC. ATTEST:
a Delaware corporation
/s/ James C. Ozello /s/ Kent Y. Mouton
- ------------------- ------------------
Acting Secretary Kent Y. Mouton
Compensation/Stock Option Committee Chairman, Compensation/Stock
Option Committee
/s/ Richard Mandel /s/ Freeman Lyle
- ------------------ ----------------
Richard Mandel Freeman Lyle
Executive Vice President and
Chief Financial Officer
<PAGE>
Exhibit 10.9.2
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement (the "Second Amendment")
is made and entered into as of January 1, 1998, by and between KENNEDY-WILSON,
INC., a Delaware corporation, with its principal office located in Santa Monica,
California (the "Company"), and Richard Mandel, an individual ("Employee").
RECITALS
WHEREAS, Company and Employee have entered into that certain
Employment Agreement dated as of January 1, 1997, (the "Agreement"), providing
for the employment of Employee by Company pursuant to the terms of such
Agreement; and
WHEREAS, Company and Employee have agreed that the terms of the
Employment Agreement should be modified to change the Employee's Term and
Compensation.
AMENDMENT TO AGREEMENT
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereby amend the
Agreement, effective as of January 1, 1998 as follows:
1. The Term of the Agreement is extended until December 31, 1999.
Therefore, Section 3 of the Agreement is amended such that the
termination date of "December 31, 1998" is deleted and the
termination date of "December 31, 1999" is inserted in lieu
thereof.
2. Section 5(a) is deleted in its entirety and the following is
inserted in lieu thereof.
5(a) Employee shall be paid an annual salary equal to
$250,000 per annum for the period of January 1, 1998 to
December 31, 1999, payable on such basis as is the normal
payment pattern of the Company, not to be less frequently
than monthly.
Subject to the foregoing, the Employment Agreement remains in full
force and effect, and Company and Employee hereby ratify and affirm the
Employment Agreement in each and every respect.
IN WITNESS WHEREOF, the undersigned have executed this Second
Amendment as of the date first above written.
"Employee"
-------------------------------------
Richard Mandel
"Company"
KENNEDY-WILSON, INC.,
a Delaware corporation
By:
------------------------------------
William J. McMorrow
Chairman and Chief Executive Officer
<PAGE>
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made and entered into as of January 1,
1996, by and between KENNEDY-WILSON International, a California Corporation
("KWI"), and Lewis A. Halpert ("Employee").
R E C I T A L S
A. KWI is a licensed California real estate broker in the business of
marketing real property by auction and other means and desires to retain the
services of Employee in conducting this business, subject to the terms and
conditions of this Agreement.
B. Employee desires to be employed by KWI pursuant to the terms and
conditions of this Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
1. Compensation for Services. For purposes hereof, "procuring cause"
means the primary person who brings a deal to KWI directly resulting in a
KWI-held sale. Employee shall only be deemed to be the "procuring cause" of an
auction or non-auction sale, or the purchase of any investment property, as the
case may be, in the event there is a letter substantially in the acknowledgment
form attached hereto as Exhibit A and signed by both KWI and Employee specifying
that Employee was the "procuring cause" for such auctions, non-auction sale
(referred to herein as a "Qualifying Auction," and "Qualifying Sale"
respectively), as the case may be. For his services described in paragraph two
hereof and in all cases subject to the provisions of paragraph three hereof,
Employee shall receive compensation in accordance with the provisions of this
paragraph one.
(a) Supersedure: Term. This Agreement shall supersede any and all
prior agreements, written or oral. Subject to earlier termination as set forth
in paragraph (3), below, the term of this Agreement shall be one year from
January 1, 1996 to December 31, 1996.
(b) Salary. A salary equal to $10,416.67 per month and a salary
advanced against bonus earnings equal to $10,416.67 per month, payable on such
basis as is the normal payment pattern of the Company.
(c) Bonus. The amount of bonus, if any, shall be determined by
calculating the Bonus Revenues less expenses as outlined in the attached
addendum (1) (Exhibit A) and applied to the following percentages:
<TABLE>
<CAPTION>
Net Profit Bonus
<S> <C>
0 -1MM 10%
1MM -2MM 20%
2MM -above 25%
</TABLE>
(d) Commissions/Compensation
(i) A percentage of the commissions will be awarded as "procuring
cause" for commercial and residential auctions/sealed bids/conventional sales
programs signed by the Company based on Employee's contribution to the deal, the
percentage of which is to be negotiated and agreed to at the time of the deal
signing. Such commissions will be credited to Bonus Revenue Net Profit for bonus
calculation. (see attached addendum (2) (Exhibit B).
(ii) Although nothing set forth herein shall obligate any of the
parties hereto to extend the term of this Agreement, if this Agreement is
extended beyond its original one-year term, then the commissions actually
received by KWI subsequent to December 31, 1996, and prior to January 1, 1998,
and each subsequent one year period thereafter, shall count toward the Bonus
Revenue/net profits and shall be paid to Employee at the rates provided for
Paragraph 1(c) unless otherwise modified in writing. If, however, this Agreement
is not extended or is earlier terminated, then Employee's percentage entitlement
to commissions actually received by KWI during the six (6) months following
termination shall be paid to Employee at the rates and times set forth in
Paragraph 1(c).
(iv) "Net commissions" shall be the sums of all commissions
actually received in cash, or later converted to cash if such consideration is
initially paid to KWI in non-cash equivalents, by KWI for a Qualifying Auction,
less reimbursements to KWI for marketing monies advanced by KWI from its own
funds for the subject KWI auction marketing program, broker cooperation fee
arrangements and direct out-of-pocket costs and expenses not provided for in the
applicable marketing program or budget (i.e., budget overruns). It is agreed
that the books of KWI will be made available to Employee or his or her
designated representative at reasonable times and upon reasonable notice for the
purpose of verifying said commissions. For purposes herein, a commission shall
<PAGE>
be deemed earned by KWI, and thus earned by Employee, and only upon actual
receipt thereof by KWI in cash.
(v) To the extent that Employee shall have directly utilized a
finder or similar individual with respect to a Qualifying Auction, a Qualifying
Sale or a Qualifying Acquisition, Employee shall promptly disclose such
relationship to KWI. All commissions or fees payable to such finders or similar
individual claiming through Employee not pre-approved by KWI shall be payable by
Employee.
(d) Commissions with Respect to Non-Auctions. KWI and Employee agree
that real estate commissions generated from Qualifying Sales shall be deemed
earned by KWI only when actually paid to KWI, and shall be counted toward the
targets set forth in Paragraph 1(d) above when and as paid, and shall be divided
between KWI and Employee in accordance with the percentages provided in such
paragraph.
(e) Commissions Generally. Any commissions payable pursuant to this
Paragraph 1 with respect to transactions for which Employee was a co-procuring
cause together with a broker or finder specifically working with Employee shall
in no event exceed the amount which would otherwise be payable solely to
Employee with respect to such transaction pursuant to this Paragraph 1. In the
event Employee shall be deemed partially a procuring cause (e.g., one half,
together with another employee of KWI), then a ratable portion (e.g., one half
of the commissions actually received by KWI in connection with such transaction
shall be applied to the targets set forth for Employee in Paragraph 1(c) or 1(d)
above, and Employee shall thereafter be entitled to a commission based upon the
percentage then applicable to Employee under such paragraphs.
(f) Expenses. Employee shall be entitled to reimbursement from the
Company for any out-of-pocket expenses, including travel expenses, incurred by
Employee in the ordinary course of providing his services hereunder. Such
reimbursement shall be made by the Company within 30 days of submission after
receipt of a statement therefor from Employee setting forth in reasonable detail
the expenses for which reimbursement is requested, accompanied by customary
documentation evidencing such expenses.
(g) Deductions. It is understood that all compensation paid to
Employee under this Agreement is subject to the customary tax, social security
and other similar withholding requirements.
(h) Benefits. During the term of this Agreement, the Company will
provide Employee, at the Company's expense, coverage under the major medical,
hospitalization and other insurance programs maintained by the Company for its
officers generally. In addition, Employee will receive during the term of this
Agreement all other company-provided benefits to which Employee was entitled in
the ordinary course immediately prior to the date hereof as an Employee of
Kennedy-Wilson International, a California Corporation and all other
company-provided benefits which are, from time to time, made available by the
Company to its officers.
(i) Limitation on Liability.
(i) In no event shall KWI be liable to Employee for his share of
commissions not collected on any given Qualifying Auction or Qualifying Sale.
Employee hereby acknowledges that, in the course of its business, KWI is often
required to make certain additional agreements, concessions or accommodations
with sellers in order to successfully conduct an auction or to close a given
sale, and that such agreements, concessions or accommodations may result in a
reduction of the commissions payable to KWI in connection therewith. Employee
hereby consents to such agreements, concessions and accommodations as KWI may,
in its discretion, deem necessary or advisable, and agrees that KWI shall have
no liability to Employee whatsoever for any reduction in commissions payable to
KWI, and thus to Employee, that may result therefrom.
(ii) Employee is responsible for collection of all marketing
monies from owner of properties to be auctioned. If Employee has not fulfilled
this responsibility of collection of said marketing monies in advance of the
start of the marketing period, as is required by KWI procedures, and KWI, in
order to proceed with the marketing program in a timely fashion pursuant to
covenants contained within the marketing agreement, expends marketing monies on
owners behalf, KWI reserves the right, in its discretion, to recoup a portion of
these monies, prorated to Employee's commission rate at the time commission
monies on said transaction were or should have been actually received by KWI,
from any commissions, present or future, owing Employee.
(iii) It is hereby acknowledged and understood that KWI, as a
matter of corporate policy, does not absorb or front marketing monies owed by
client in order to engage KWI's auction marketing services. It is the
responsibility of Employee to "sell" the benefits of KWI's program along with
the normal costs of the successful marketing and sales thereof, which are
incurred by owner. If an exception is made to this policy, it is done so largely
on the basis of the real estate analysis/appraisal conducted by Employee, whose
accuracy is the responsibility of Employee, which validates the sizable risk
that KWI takes in being able to recoup marketing monies that will have been
absorbed or fronted. In such a case, approval must be procured from the Risk
Management Committee.
(j) Professional Dues and Fees. Employee shall be responsible for
<PAGE>
payment of all dues and fees required in connection with the maintenance of his
professional license.
2. Employee's Services.
During the term of this Agreement, Employee shall devote 100% of his
working hours to advance the business and welfare of the Company and its
subsidiaries and shall have such powers and duties as may from time to time be
prescribed by the Board of Directors or the Chief Executive Officer of the
Company, which duties may, in the Company's sole discretion, be changed in any
legal manner from time to time. The initial duties of Employee shall include,
without limitation, serving as a Managing Director of the Company and such other
duties as may be mutually agreed between the Company and Employee. Employee
shall provide the Company with the benefit of his best judgment and efforts in
performing his duties hereunder.
3. Commitment to the Company.
During the term of this Agreement, Employee shall not be involved,
individually or as an employee, principal, officer, general partner, director or
shareholder of any company, in any real estate development activities without
first presenting to KWI for approval of a majority of the Company's Board of
Directors. The limitation contained in this Section shall not apply, however, to
the ownership of less than 1% of the capital stock of any publicly held
corporation or to participation in real estate development activities as a
limited partner. For purposes of this Section, Employee shall be deemed the
owner of any interests held by Employee, Employee's spouse, or any other
unemancipated minor member of Employee's family.
4. Noncompetition Covenant.
During the terms of this Agreement and for a period of three years
thereafter, Employee will not, directly or indirectly:
(a)
(i) in any manner induce, attempt to induce, or assist others to
induce or attempt to induce any employee, partner, joint venturer, independent
contractor, agent or customer of the Company to terminate its, his or her
association with the Company, or
(ii) do anything to interfere with the relationship between the
Company and such person or entity or other persons or entities dealing with the
company; or
(b) in any capacity (whether as an individual, promoter, proprietor,
general partner, joint venturer, employee, agent, consultant, director, officer,
manager, shareholder or otherwise) work for, act as a consultant or adviser to,
own any interest in, or otherwise be connected in any manner with the ownership,
management, operation or control of (collectively "Associated With"), any person
or entity which at any time during the term of this Agreement or for three years
thereafter engages in the businesses engaged in by the Company including without
limitation the real estate auction-marketing business without the consent of the
Board of Directors of the company. Employee acknowledges that the Company's
existing services are marketed internationally and that its business plan
includes marketing throughout the entire world either directly or through
others. Accordingly, the restrictions in this Section 4 shall extend to
operations in any part of the world. Employee further acknowledges that all
patents, trade secrets, know-how, technology data, formulae, plans,
specifications and other information used by the Company or under development in
connection with its business are the property of the Company, and that Employee
does not have the right to disclose, make available or use any of the foregoing
for the benefit of himself or any other person or entity.
(c) Nothing in this Section 4 shall restrict Employee from owning not
more than 1% of the outstanding shares of any class of securities registered
pursuant to the Securities and Exchange Act of 1934, as amended, or any limited
partner interest in a limited partnership or similar passive investment interest
so long as the nature of such investment prevents, pursuant to applicable law,
Employee's control of the management of the issuer of such investment interest.
(d) The parties hereto intend that the covenants and agreements
contained in this Section 4 shall be deemed to be a series of separate covenants
and agreements, one for each and every country, county, state, city and other
jurisdiction in the world with respect to which the Company's business has been
or is hereafter carried on. If any of the foregoing is determined by any court
of competent jurisdiction to be invalid or unenforceable by reason of such
agreement extending for too great a period of time or over too great a
geographical area, or by reason of its being too extensive in any other respect,
such agreement shall be interpreted to extend only over the maximum period of
time and geographical area and to the maximum extent enforceable, all as
determined by such court in such action. Any determination that any provision
shall have no effect on the validity or enforceability of any remaining
provision thereof.
(e) Notwithstanding the foregoing, nothing herein shall prevent
Employee, following the termination of his employment or the end of the term of
<PAGE>
this Agreement, from being associated with any person or entity engaged in any
real estate activities or matters other than real estate auction activities or
matters.
(f) For all periods that Employee is employed pursuant to this
Agreement and for a period of six months thereafter, Employee shall not engage
in any auction business in the State of California which competes with KWI's
auction business or which would result in using or revealing any trade secrets
or confidential information of KWL including but not limited to activities,
whether direct or indirect, as proprietor, partner, shareholder, principal,
agent, employee or consultant. Each provision or subprovision, and each term
within each provision or subprovision, herein shall be construed as an agreement
separate from and independent of any other provision, subprovision or term
herein, and the existence of any claim or cause of action Employee may have
against KWJ shall not constitute a defense to KWI's enforcement thereof.
(i) Employee hereby acknowledges that KWI develops and utilizes
valuable trade secrets, confidential information and copyrighted materials,
including but not limited to names of property owners who may wish to sell their
property by auction, names of potential purchasers, methods of obtaining auction
prospects, marketing and auction procedures and various brochures and other
printed materials, all of which constitute a valuable part of KWI's assets built
up by KWI's ingenuity, time, labor and expense over a period of many years.
Employee acknowledges that such information is highly confidential and is not
accessible to KWI's competitors, and that KWI has endeavored to protect the
confidentiality of such information over the years.
(ii) Accordingly,
(1) Employee agrees not to disclose or at any time during his
employment or at any time thereafter any of such trade secrets or confidential
information belonging to KWI in regards to auctions (including but not limited
to the names of prospective clients and/or purchasers) except as may be required
in the performance of his duties for KWI, whether or not such secrets or
information were developed by Employee or with his/her assistance.
(2) Employee agrees that he shall not at any time during his
employment or upon the termination thereof remove from the premises of KWI any
documents, photographs, brochures, photocopies, computer disks or other
documents or data except as specifically required in the performance of his
duties hereunder.
(3) Employee agrees not to use any of KWI's copyrighted materials
except as may be required in the performance of Employee's duties for KWI, so
long as the copyright exists.
(4) Employee hereby acknowledges that the restrictions contained
herein are reasonable and necessary to protect the legitimate interests of KWI,
in view of the remedies at law for violation of any of such covenants will be
inadequate, that such violation which will cause irreparable injury within a
short period of time, and that KWI shall be entitled to preliminary and other
injunctive relief against such violation, in addition to any other remedies
available to KWI at law and in equity.
5. Termination.
(a) This Agreement, and Employee's employment hereunder, may be
terminated by KWI or Employee with or without cause, upon thirty (30) days prior
written notice. Notwithstanding termination of this Agreement or Employee's
employ provisions of paragraphs 4, 5, 6 and 10 shall survive such termination.
(b) This Agreement will terminate upon the death or incapacity of
Employee Incapacity shall mean the inability to perform the services due
hereunder for a consecutive 30 calendar day period.
(c) This Agreement may also be terminated by the comply.
(i) in the event of a material breach of this Agreement by
Employee which is not corrected within 10 days after the Company's written
notice of the breach to Employee, and
(ii) for cause, which includes, without limitation, Employee's
violation of law, material wrongful act or omission, malfeasance or gross
negligence which causes or can reasonably be anticipated to cause material
damage to the business or reputation of the Company.
(d) This Agreement may be terminated by Employee upon a material
breach of this Agreement by the Company which is not corrected within 10 days
after Employee's written notice of the breach to the Company.
(e) Termination of this Agreement pursuant to this Section 5 shall not
relieve Employee of his obligations to comply with Section 4 hereof Upon the
termination of this Agreement by the Company pursuant to Sections 5(b) and 5(c),
or the resignation of Employee during the term of this Agreement, any further
compensation to Employee shall terminate on the date this Agreement is so
terminated by the Company or Employee resigns; provided that in the event
Employee so resigns, Employee will receive a bonus for the year in which he
resigned in the ordinary course but prorated based on the agreed upon percentage
of contribution Employee made to each deal and the applicable net Bonus Revenue
<PAGE>
at the time of termination. In all other cases, Employee, or his estate, will
receive all salary and bonuses due hereunder and remaining to be paid during the
term hereof in the ordinary course.
6. Alternative Dispute Resolution. The parties to this Agreement
specifically desire an early resolution of any dispute between them which arises
out of this Agreement. It is therefore, agreed that any controversy arising out
of this Agreement, whether dealing with breach, interpretation or otherwise,
shall be heard by a reference ("Referee") pursuant to the provisions of Section
638 of the Code of Civil Procedure and in accordance with the provisions
described below. Provided, however, that if injunctive relief is sought, the
complaining party may seek such relief from the Los Angeles Superior Court
without the use of a Referee.
(a) Enforcement of Agreement. This reference provision m y be enforced
by the filing of a complaint or petition or motion seeking specific enforcement.
Service of such motion on the opposing party shall constitute the "Claim Date"
for purposes of this provision.
(b) Selection of Referee. The Referee shall be a retired Judge of the
Court selected by mutual agreement of the parties. If the parties cannot agree
then a Referee shall be appointed by the Los Angeles Superior Court in
accordance with Section 640 of the Code of Civil Procedure. Each party shall be
entitled to only one disqualification pursuant to Section 170.6 of the Code of
Civil Procedure. The parties hereby waive their right to a trial by jury and
agree that their dispute shall be tried by the Referee so selected.
(c) Decisional Rules. The trial shall be conducted and the issues
determined ill compliance with all judicial rules and all statutory and
decisional law of the Sate of California as if the matter were formally
litigated in Superior Court. The Referee shall conduct and decide all pre-trial
and post-trial procedures as if the matter were formally litigated in the
Superior Court. All rules of evidence as set forth in the California Evidence
Code, other statutory and decisional law of California and all relevant Los
Angeles County Superior Court Rules and California Rules of Court shall be
applicable to any proceeding before the Referee.
(d) Discovery. The parties to this Agreement expressly waive their
night to engage in any discovery with the exception of depositions and requests
for the inspection, production and copying of documents. Interrogatories,
requests for admissions and depositions upon written interrogatories shall not
be permitted. The Referee shall be authorized to issue subpoenas requiring
attendance at hearings and/or trial. All discovery permitted by this Agreement
shall be completed no later than fifteen (15) days before the first hearing date
established by the Referee The Referee may extend such period in the event of a
party's refusal to provide requested discovery for any reason whatsoever,
including legal objections raised to such discovery or unavailability of a
witness due to absence or illness. No party shall be entitled to "priority" in
conducting discovery. Depositions may be taken by either party upon seven (7)
days written notice. Request for production or inspection of documents shall be
responded to within ten (10) days after service. All disputes relating to
discovery shall be submitted to the Referee whose decision shall be final and
binding upon the parties.
(e) Hearings and Trial. Except as set forth in this Agreement, the
Referee shall determine the manner in which the proceeding is conducted
including the time and place of all hearings, the order or presentation of
evidence, and all other questions that arise with respect to the course of the
proceeding. All proceedings and hearings conducted before the Referee, except
for trial, shall be conducted without a court reporter unless one is requested
by a party. The party making the request shall have the obligation to arrange
and pay for the court reporter. The costs of the court reporter at the trial
shall be borne equally by the parties. The trial shall be conducted without a
jury on consecutive dates, as opposed to being conducted piecemeal on various
dates separated by postponements or adjournments. The trial shall be conducted
in a courtroom or in surroundings with formality as close to a courtroom as
possible. The Referee shall set the matter for hearing within sixty (60) days
after the Claim Date and try all issues of law or fact and report a statement of
decision upon them, if possible, within ninety (90) days of the Claim Date.
(f) Decision of Referee. The Referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The Referee shall issue a single judgment at the close of the proceeding which
shall dispose of all of the claims of the parties that are the subject of the
reference. Any decision rendered by the Referee shall be final, binding and
conclusive and judgment shall be entered pursuant to Section 644 of the Code of
Civil Procedure State of California having jurisdiction.
(g) Attorneys' Fees. The cost of the Referee shall be shared equally
between the parties. However, the prevailing party shall be entitled to receive
as part of the judgment in its favor an award of all actual attorneys' fees and
costs (including the Referee and court reporter fees) incurred with respect to
the reference, and interest at the highest rate permitted by law as of the date
of the breach.
(h) Appeal. The judgment entered upon the decision Of the Referee
shall be subject to all post-trial procedures and to appeal in the same manner
as an appeal from any order or judgment in a civil action.
<PAGE>
7. Assignment. This Agreement is for the unique personal services of
Employee and may not be assigned by Employee without the express written consent
of KWJ and its affiliates. Except as so provided, this Agreement shall be
binding upon and inure to the benefit of the respective heirs, personal
representatives, successors and assigns of the parties hereto.
8. Real Estate License. Employee hereby agrees to maintain his/her
real estate license in the State of California and in any other jurisdiction in
which he is presently licensed. During any period that Employee does not have
such a license in good standing, he will not be required to perform acts within
a given jurisdiction for which a license is required in such jurisdiction, and
Employee hereby agrees not to take any such actions for which a license is
required until he has obtained the requisite license for such jurisdiction.
9. Severability. Any provisions of this Agreement which is deemed
invalid, illegal or unenforceable in any jurisdiction shall, as to jurisdiction
and subject to this paragraph be ineffective to the extent of such invalidity,
illegality or unenforceability, without affecting in any way the remaining
provisions hereof in such jurisdiction or rendering that or any other provisions
of this Agreement invalid, illegal, or unenforceable in any other jurisdiction.
If any covenant should be deemed invalid, illegal or unenforceable because its
scope is considered excessive, such covenant shall be modified so that the scope
of the covenant is reduced only to the minimum extent necessary to render the
modified covenant valid, legal and enforceable.
10. Attorneys' Fees. Subject to paragraph 4 hereof, in the event suit
is brought to enforce the terms of this Agreement, the prevailing party shall be
entitled to costs and reasonable attorneys' fees, including without limitation
those costs and fees incurred upon any appeal, as awarded by the court.
11. Successors and Assign. This Agreement shall be binding upon and
shall inure to the benefit of the company and any successors whether by merger,
consolidation, substantially all assets or similar transaction, and it shall be
binding upon and shall inure to the benefit of Employee and his heir and legal
representatives. This Agreement is personal to Employee and shall not be
assignable by Employee.
12. Notices. Any notice to be given pursuant to this Agreement 11 be
in writing and, in the absence of receipted hand delivery, shall be deemed duly
when mailed, if the same shall be sent by certified or registered mail, return
receipt requested, or by a nationally recognized overnight courier, and the
mailing date shall be deemed the date from which all time periods pertaining to
a date of notice shall run. Notices shall be addressed to the parties at the
following addresses.
If to the Company, to: Kennedy-Wilson International
530 Wilshire Blvd., Suite 101
Santa Monica, CA 90405
ATTN: Chief Executive Officer
If to Employee, to: Lewis A. Halpert
c/o Kennedy-Wilson International
530 Wilshire Blvd., Suite 101
Santa Monica, CA 90405
13. Entire Agreement; Amendments, This Agreement contains the entire
agreement of the parties with respect to the subject matter covered hereby and
may be amended, waived or terminated only by an instrument in writing signed by
the parties hereto.
14. Counterparts, This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
15. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
KENNEDY-WILSON INTERNATIONAL
By: /s/ William J. McMorrow
-------------------------
WILLIAM J. MCCMORROW
CEO
Date: 3/31/96
By: /s/ Lewis A. Halpert
-------------------------
EMPLOYEE
Date: 3/30/96
<PAGE>
EXHIBIT A
LEW HALPERT
1. BASE COMPENSATION:
<TABLE>
<S> <C>
$10,416.67/mo. salary
$10,416.67/mo. non-repayable advance-charged against bonus
$20,833.34/mo. $250,000 annualized
</TABLE>
To manage K-W Properties Residential Division:
1 . Find/buy properties
2. Secure financing
3. Oversee and manage:
a) Legal
b) Construction
c) Marketing/Sales
d) Closing
e) Other matters incidental to success of deal
2. BONUS (Based on Bonus Revenues Net Profits--attached)
<TABLE>
<CAPTION>
Net Profit Bonus
<S> <C>
0 - $1,000,000 10%
$1,000,001 - $2,000,000 20%
$2,000,001 - Above 25%
</TABLE>
3. Lew will be awarded a commission percentage as procuring cause for commercial
deals signed by the Company. Commission percentage will be based upon Lew's
contribution to the deal and will be negotiated and agreed to at the time of the
deal signing. Such commissions will be credited to his Bonus Revenues Net Profit
for Bonus calculation. (see # 2).
4. Net Commissions earned by the Company on auctions for which Lew was procuring
cause will be credited to his Bonus Revenues Net Profits for Bonus calculations.
(see # 2).
<PAGE>
BONUS REVENUE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
% OF PROFITS
ADJUSTED FOR
DEAL PROFITS** BONUS POOL BONUS REVENUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Westbourough Court $2,250,000 90% $2,025,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Vista Waikoloa $1,312,500 25% $ 328,125
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Kiowa Gardens $ 225,000 75% $ 168,750
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes $ 750,000 25% $ 375,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other $ 325,000 25% $ 375,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL $4,912,500 $3,084,375
- --------------------------------------------------------------------------------
</TABLE>
EXPENSES:
<TABLE>
<S> <C> <C>
Compensation $330,500
CEO Allocation 120,000
Other 60,000
Corp. Overhead 150,000
----------
TOTAL $660,500 (660,500)
NET PROFIT BONUS REVENUE $2,423,875
COMPENSATION:
Bonus (Including Salary Advance) $405,969
Plus Base Salary $125,000
TOTAL $530,969
</TABLE>
**Adjusted Profits: Adjusted for BD Commissions and other profit splits.
25% Tokyo allocation--Vista Waikoloa
25% BDO commission--Other
<PAGE>
Exhibit 10.10.2
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement (the "Second Amendment")
is made and entered into as of January 1, 1998, by and between KENNEDY-WILSON,
INC., a Delaware corporation, with its principal office located in Santa Monica,
California (the "Company"), and Lewis A. Halpert, an individual ("Employee").
RECITALS
WHEREAS, Company and Employee have entered into that certain
Employment Agreement dated as of January 1, 1996, (the "Agreement"), providing
for the employment of Employee by Company pursuant to the terms of such
Agreement; and
WHEREAS, Company and Employee have agreed that the terms of the
Employment Agreement should be modified to change the Term of Employment and
Salary.
AMENDMENT TO AGREEMENT
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereby amend the
Agreement, effective as of January 1, 1998 as follows:
1. The term of this Agreement is extended to December 31, 1999. Therefore,
Section 1(a) of the Agreement is amended such that the termination date of
"December 31, 1997" is deleted and the termination date of "December 31,
1999" is inserted in lieu thereof.
2. Section l(b) is deleted in its entirety and the following is inserted in
lieu thereof:
l(b) A salary equal to $12,500 per month and a salary advanced against
bonus earnings equal to $12,500 per month, payable on such basis as is
the normal payment pattern of the Company.
3. Section 1(c) Exhibit B is deleted in its entirety and Exhibit C (attached)
is inserted in lieu thereof.
Subject to the foregoing, the Employment Agreement remains in full force
and effect, and Company and Employee hereby ratify and affirm the
Employment Agreement in each and every respect.
IN WITNESS WHEREOF, the undersigned have executed this Second
Amendment as of the date first above written.
"EMPLOYEE"
/s/ Lewis A. Halpert
--------------------
Lewis A. Halpert
"COMPANY"
Kennedy-Wilson, Inc.,
a Delaware corporation
By: /s/ William J. McMorrow
-----------------------
William J. McMorrow
Its Chief Executive Officer
<PAGE>
EXHIBIT C
LEW HALPERT
1. BASE COMPENSATION:
$12,500.00/mo. Salary
$12,500.00/mo. Non-repayable advance charged against bonus
$25,000.00/mo. $300,000 annualized
To manage KW Properties Residential and Notes Division:
To manage KW Properties Residential Division:
1. Find/buy properties;
2. Secure financing;
3. Oversee and manage:
a) Legal
b) Construction
c) Marketing/Sales
d) Closing
e) Other matters incidental to success of deal
2. BONUS (Based on Bonus Revenues Net Profits-see attached)
<TABLE>
<CAPTION>
Net Profit Bonus
<S> <C>
0-$1,000,000 15%
$1,000,001-$2,000,000 20%
$2,000,001-Above 25%
</TABLE>
3. Lew will be awarded a commission percentage as procuring cause for
commercial deals signed by the Company. Commission percentage will be based
upon Lew's contribution to the deal and will be negotiated and agreed to at
the time of the deal signing. Such commissions will be credited to his
Bonus Revenues Net Profit for Bonus calculation. (See #2.)
4. Net Commissions earned by the Company on auctions for which Lew was
procuring cause will be credited to his Bonus Revenues Net Profits for
Bonus calculations. (See #2.)
<PAGE>
LEW HALPERT
1997
BONUS REVENUE
<TABLE>
<CAPTION>
% OF PROFITS FOR
DEAL PROFITS BONUS POOL BONUS REVENUE
- ---- ------- ---------- -------------
<S> <C> <C> <C>
TO BE DECIDED TO BE DECIDED TO BE DECIDED
Notes 25% of net income no
cap (net profits less
employee bonus)
Stuart Cramer 100% net income (net
profit less employee
bonus)
Bill Cerone 100% net income (net
profit less employee
bonus)
Other TBD
</TABLE>
TOTAL:
Expenses:
Compensation $ (total salaries of all employees in dept.)
CEO Allocation 120,000
Barrington/Purdue Legal 100,000 (cap)
Other TBD
Corp. Overhead TBD
-------
TOTAL TBD (TBD)
NET PROFIT BONUS REVENUE: TBD
<PAGE>
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement (the "Second Amendment")
is made and entered into as of April 1, 1998, by and between KENNEDY-WILSON,
INC., a Delaware corporation with its principal office located in Santa Monica,
California (the "Company"), and Freeman A. Lyle, Jr., an individual
("Employee").
RECITALS
WHEREAS, Company and Employee have entered into that certain Employment
Agreement dated as of April 1, 1996, (the "Agreement"), providing for the
employment of Employee by Company pursuant to the terms of such Agreement; and
WHEREAS, Company and Employee have agreed that the terms of the
Employment Agreement should be modified to change the Term of Employment and
Salary.
AMENDMENT TO AGREEMENT
NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties hereby amend the Agreement,
effective as of April 1, 1998 as follows:
1. The term of this Agreement is extended to March 31, 1999.
Therefore, Section 1(a) of the Agreement is amended such that
the termination date of "March 1, 1998" is deleted and the
termination date of "March 31, 1999 is inserted in lieu
thereof.
2. Section 4(ii) is deleted in its entirety and the following is
inserted in lieu thereof:
A discretionary bonus to be determined by the Company in its
sole and absolute discretion which, if awarded, may be up to
100% of base salary based on Company's determination in its
sole and absolute discretion of its achievement of profit
goals.
Subject to the foregoing, the Employment Agreement remains in full force and
effect, and Company and Employee hereby ratify and affirm the Employment
Agreement in each and every respect.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Second Amendment
as of the date first above written.
"COMPANY"
Kennedy-Wilson International
A California Corporation
By: /s/ William J. McMorrow
-----------------------------
William J. McMorrow
Its Chief Executive Officer
"EMPLOYEE"
/s/ Freeman Lyle
-----------------------------
Freeman A. Lyle, Jr.
<PAGE>
Exhibit 10.11.2
THIRD AMENDMENT TO
EMPLOYMENT AGREEMENT
This Third Amendment to Employment Agreement (the "Third Amendment")
is made and entered into as of August 15, 1998, by and between KENNEDY-WILSON,
INC., a Delaware corporation with its principal office located in Beverly Hills,
California (the "Company"), and Freeman A. Lyle, Jr., an individual
("Employee").
RECITALS
WHEREAS, Company and Employee have entered into that certain
Employment Agreement dated as of April 1, 1996, (the "Agreement"), providing for
the employment of Employee by Company pursuant to the terms of such Agreement;
and
WHEREAS, Company and Employee have agreed that the terms of the
Employment Agreement should be modified to change the Salary.
AMENDMENT TO AGREEMENT
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereby amend the
Agreement, effective as of August 15, 1998 as follows:
1. Section 4(i) of the Agreement is amended such that Employee's
salary effective August 15, 1998 is equal to $180,000 per annum
payable on such basis as is the normal payment pattern of the
Company, not to be less frequently than monthly.
Subject to the foregoing, the Employment Agreement remains in full
force and effect, and Company and Employee hereby ratify and affirm
the Employment Agreement in each and every respect.
IN WITNESS WHEREOF, the undersigned have executed this Second
amendment as of the date first above written.
"COMPANY"
Kennedy-Wilson Inc.,
A Delaware Corporation
By: /s/ William J. McMorrow
-----------------------
William J. McMorrow
Its Chief Executive Officer
"EMPLOYEE"
/s/ Freeman J. Lyle, Jr.
------------------------
Freeman J. Lyle
<PAGE>
$224,478 December 29, 1997
UNSECURED PROMISSORY NOTE
Balloon Payment
FOR VALUE RECEIVED, the undersigned promises to pay to Kennedy-Wilson,
Inc., (hereinafter "Holder"), the sum of Two Hundred and Twenty-four Thousand,
Four Hundred and Seventy-eight Dollars ($224,478), with interest on the
outstanding principal balance hereunder at the annual rate of Bank of America
Prime plus one percent (1%), but in no event to exceed the maximum rate
permitted by California law. This Note commences on December 29, 1997
(hereinafter "Commencement Date"), and all obligations set forth herein are
measured from this date. This Note is payable interest only on a twice yearly
basis on August 31st and January 31st, the first interest payment being due on
August 31st, 1998. All principal and interest shall be fully repaid no later
than the sooner of three (3) years after the Commencement Date or six (6) months
after termination of employment with Kennedy-Wilson for any reason.
The undersigned is acquiring 12,471 shares of Holder's Common Stock
with the proceeds of the loan represented by this Note. This Note is not secured
by the stock being acquired with the proceeds of the loan represented by this
Note; however, the stock will be held by an officer of Holder as custodian until
this Note is paid in full. Holder is not relying upon the stock being acquired
as collateral security for the loan represented by this Note. The undersigned is
fully and personally liable for payment in full of this Note pursuant to the
terms hereof and regardless of the value of the stock being acquired with the
proceeds of the loan represented by this Note.
All payments and performances of the obligations under this Note shall
be made in lawful money of the United States of America at 530 Wilshire
Boulevard, Santa Monica, California. This Note may be prepaid in whole or in
part at any time during the term hereof without payment of any penalty or
premium. This Note shall be governed by and interpreted under the laws of the
State of California.
In the event that any action is brought to enforce this Note, the
undersigned agrees to pay all costs and expenses incurred (including all
reasonable attorneys' fees and costs) by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Note on or
before the date above written, effective on the Commencement Date.
/s/ Freeman Lyle 12/22/97
-----------------------------
Freeman A. Lyle Date
<PAGE>
Exhibit 10.13
OFFICE LEASE
between
WILSHIRE-CAMDEN ASSOCIATES,
a California limited partnership
(Landlord)
and
KENNEDY-WILSON, INC.,
a Delaware corporation
(Tenant)
<PAGE>
TABLE OF CONTENTS
OFFICE LEASE
<TABLE>
<CAPTION>
Article Title Page
<S> <C> <C>
1 Definitions 1
2 Premises 2
3 Term 2
4 Rental 2
5 Security Deposit 5
6 Use of Premises 5
7 Utilities and Services 6
8 Maintenance and Repairs 7
9 Alterations, Additions and Improvements 8
10 Indemnification and Insurance 9
11 Damage or Destruction 11
12 Condemnation 11
13 Relocation 11
14 Assignment and Subletting 12
15 Default and Remedies 13
16 Attorneys' Fees; Costs of Suits 15
17 Subordination and Attornment 15
18 Quiet Enjoyment 16
19 Rules and Regulations 16
20 Estoppel Certificates 16
21 Entry by Landlord 17
22 Landlord's Lease Undertakings-Exculpation from
Personal Liability; Transfer of Landlord's Interest 17
23 Holdover Tenancy 17
24 Notices 18
25 Brokers 18
26 Electronic Services 18
27 Miscellaneous 20
EXHIBITS
Exhibit A Floor Plan
Exhibit B Work Letter Agreement
Exhibit C Rules and Regulations
Exhibit D Guaranty
Exhibit E Suite Acceptance Agreement
</TABLE>
<PAGE>
OFFICE LEASE
THIS OFFICE LEASE ("Lease"), dated __________________________________,
is made and entered into by and between WILSHIRE-CAMDEN ASSOCIATES, a California
limited partnership ("Landlord") and Kennedy-Wilson, Inc., a Delaware
Corporation, ("Tenant") upon the following terms and conditions:
ARTICLE I - DEFINITIONS
Unless the context otherwise specifies or requires, the following terms
shall have the meanings specified herein;
1.01 Building. The term "Building" shall mean that certain office
building located at 9601 Wilshire Boulevard in Beverly Hills, California,
commonly known as 9601 WILSHIRE together with any related land, improvements,
parking facilities, common areas, driveways, sidewalks and landscaping.
1.02 Premises. The term "Premises" shall mean Suite 200 in the
Building, as more particularly outlined on the drawing attached hereto as
Exhibit A and incorporated herein by reference. As used herein, "Premises" shall
not include any storage area in the Building, which shall be leased or rented
pursuant to separate agreement.
1.03 Rentable Area of the Premises. The term "Rentable Area of the
Premises" shall mean 26,057 square feet, which Landlord and Tenant have
stipulated as the Rentable Area of the Premises. Tenant acknowledges that the
Rentable Area of the Premises includes the usable area, without deduction for
columns or projections, multiplied by a load factor to reflect a share of
certain areas, which may include lobbies, corridors, mechanical, utility,
janitorial, boiler and service rooms and closets, restrooms and other public,
common and service areas of the Building.
1.04 Lease Term. The term "Lease Term" shall mean the period between
the Commencement Date and the Expiration Date (as such terms are hereinafter
defined), unless sooner terminated as otherwise provided in this Lease.
1.05 Commencement Date. Subject to adjustment as provided in Article 3,
the term "Commencement Date" shall mean September 1, 1998.
1.06 Expiration Date. Subject to adjustment as provided in Article 3,
the term "Expiration Date" shall mean August 31, 2003.
1.07 Base Rent. Subject to adjustment as provided in Article 4, the
term "Base Rent" shall mean Sixty-five Thousand One Hundred Forty-two and 50/100
Dollars ($65,142.50) per month. For months one through eighteen; Seventy-one
Thousand Six Hundred Fifty-six and 75/100 Dollars ($71,656.75) per month for
months nineteen through thirty-six; and Seventy-six Thousand Five hundred
Forty-two and 44/100 Dollars ($76,542.44) per month for months thirty-seven
through sixty.
1.08 Tenant's Percentage Share. The term "Tenant's Percentage Share"
shall mean Nine and Sixty-four One Hundredths percent (9.64%) with respect to
increases in Property Taxes and Operating Expenses (as such terms are
hereinafter defined). Landlord may reasonably redetermine Tenant's Percentage
Share from time to time to reflect reconfigurations, additions or modifications
to the Building.
1.09 Security Deposit. The term "Security Deposit" shall mean None.
($0).
1.10 Tenant's Permitted Use. The term "Tenant's Permitted Use" shall
mean general, administrative and executive non-medical offices and no other use.
1.11 Business Hours. The term "Business Hours" shall mean the hours of
7:00 A.M. to 6:00 P.M., Monday through Friday (federal and state holidays
excepted). Holidays are defined as the following: New Years Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and to the
extent of utilities or services provided by union members engaged at the
Building, such other holidays observed by such unions.
1.12 Landlord's Address For Notices. The term "Landlord's Address for
Notices" shall mean Kennedy-Wilson Properties Ltd., 9601 Wilshire Boulevard,
Beverly Hills, California 90210, Attn: Property Manager, with a copy to
Kennedy-Wilson Properties Ltd., 900 North Michigan Avenue, 14th Floor, Chicago,
Illinois 60611, Attn: Property Management.
1.13 Tenant's Address for Notices. The term "Tenant's Address for
Notices" shall mean 9601 Wilshire Boulevard, Suite 200, Beverly Hills,
California 90210
1.14 Broker. The term "Broker" shall mean: None.
1.15 Guarantor. The term "Guarantor" shall mean: None.
ARTICLE II - PREMISES
<PAGE>
2.01 Lease of Premises. Landlord hereby leases the Premises to Tenant,
and Tenant hereby leases the Premises from Landlord, upon all of the terms,
covenants and conditions contained in this Lease. On the Commencement Date
described herein, Landlord shall deliver the Premises to Tenant in substantial
conformance with the Work Letter Agreement attached hereto as Exhibit B.
2.02 Acceptance of Premises. Tenant acknowledges that Landlord has not
made any representation or warranty with respect to the condition of the
Premises or the Building or with respect to the suitability or fitness of either
for the conduct of Tenant's Permitted Use or for any other purpose. Prior to
Tenant's taking possession of the Premises, Landlord or its designee and Tenant
will walk the Premises for the purpose of reviewing the condition of the
Premises (and the condition of completion and workmanship of any tenant
improvements which Landlord is required to construct in the Premises pursuant to
this Lease); after such review, Tenant shall execute a Suite Acceptance Letter,
in the form of Exhibit E attached hereto, accepting the Premises. Except as is
expressly set forth in this Section 2.02 or the Work Letter Agreement attached
hereto, if any, or as may be expressly set forth in Suite Acceptance Letter,
Tenant agrees to accept the Premises in its "as is" said physical condition
without any agreements, representations, understandings or obligations on the
part of Landlord to perform any alterations, repairs or improvements (or to
provide any allowance for same).
ARTICLE III - TERM
3.01 Except as otherwise provided in this Lease, the Lease Term shall
be for the period described in Section 1.04 of this Lease, commencing on the
Commencement Date described in Section 1.05 of this Lease and ending on the
Expiration Date described in Section 1.06 of this Lease; provided, however,
that, if, for any reason, Landlord is unable to deliver possession of the
Premises on the date described in Section 1.05 of this Lease, Landlord shall not
be liable for any damage caused thereby, nor shall the Lease be void or
voidable, but, rather, the Lease Term shall commence upon, and the Commencement
Date shall be the date that possession of the Premises is so tendered to Tenant
(except for Tenant-caused delays which shall not be deemed to delay commencement
of the Lease Term), and, unless Landlord elects otherwise, the Expiration Date
described in Section 1.06 of this Lease shall be extended by an equal number of
days.
ARTICLE IV - RENTAL
4.01 Definitions. As used herein,
(A) "Base Year" shall mean calendar year 1998.
(B) "Property Taxes" shall mean the aggregate amount of all
real estate taxes, assessments (whether they be general or special), sewer rents
and charges, transit taxes, taxes based upon the receipt of rent and any other
federal, state or local governmental charge, general, special, ordinary or
extraordinary (but not including income or franchise taxes, capital stock,
inheritance, estate, gift, or any other taxes imposed upon or measured by
Landlord's gross income or profits, unless the same shall be imposed in lieu of
real estate taxes or other ad valorem taxes), which Landlord shall pay or become
obligated to pay in connection with the Building, or any part thereof. Property
Taxes shall also include all fees and costs, including attorneys' fees,
appraisals and consultants' fees, incurred by Landlord in seeking to obtain a
reassessment, reduction of, or a limit on the increase in, any Property Taxes,
regardless of whether any reduction or limitation is obtained. Property Taxes
for any calendar year shall be Property Taxes which are due for payment or paid
in such year, rather than Property Taxes which are assessed or become a lien
during such year. Property Taxes shall include any tax, assessment, levy,
imposition or charge imposed upon Landlord and measured by or based in whole or
in part upon the Building or the rents or other income from the Building, to the
extent that such items would be payable if the Building was the only property of
Landlord subject to same and the income received by Landlord from the Building
was the only income of Landlord. Property Taxes shall also include any personal
property taxes imposed upon the furniture, fixtures, machinery, equipment,
apparatus, systems and appurtenances of Landlord used in connection with the
Building.
(C) "Operating Expenses" shall mean all costs, fees,
disbursements and expenses paid or incurred by or on behalf of Landlord in the
operation, ownership, maintenance, insurance, management, replacement and repair
of the Building (excluding Property Taxes) including without limitation:
(i) Premiums for property, earthquake, casualty, liability, rent
interruption or other types of insurance carried by Landlord.
(ii) Salaries, wages and other amounts paid or payable for
personnel including the Building manager, superintendent, operation and
maintenance staff, and other employees of Landlord involved in the maintenance
and operation of the Building, including contributions and premiums towards
fringe benefits, unemployment, disability and worker's compensation insurance,
pension plan contributions and similar premiums and contributions and the total
charges of any independent contractors or property managers engaged in the
operation, repair, care, maintenance and cleaning of any portion of the
Building.
(iii) Cleaning expenses, including without limitation janitorial
<PAGE>
services, window cleaning, and garbage and refuse removal.
(iv) Landscaping expenses, including without limitation
irrigating, trimming, mowing, fertilizing, seeding, and replacing plants.
(v) Heating, ventilating, air conditioning and steam/utilities
expenses, including fuel, gas, electricity, water, sewer, telephone, and other
services.
(vi) Subject to the provisions of Section 4.01(C)(xii) below, the
cost of maintaining, operating, repairing and replacing components of equipment
or machinery, including without limitation heating, refrigeration, ventilation,
electrical, plumbing, mechanical, elevator, escalator, sprinklers, fire/life
safety, security and energy management systems, including service contracts,
maintenance contracts, supplies and parts.
(vii) Other items of repair or maintenance of elements of the
Building.
(viii) The costs of policing, security and supervision of the
Building.
(ix) Fair market rental and other costs with respect to the
management office for the Building.
(x) The cost of the rental of any machinery or equipment and the
cost of supplies used in the maintenance and operation of the Building.
(xi) Audit fees and the cost of accounting services incurred in
the preparation of statements referred to in this Lease and financial
statements, and in the computation of the rents and charges payable by tenants
of the Building.
(xii) Capital expenditures (a) made primarily to reduce Operating
Expenses, or to comply with any laws or other governmental requirements, or (b)
for replacements (as opposed to additions or new improvements) of non-structural
items located in the common areas of the property required to keep such areas in
good condition; provided, all such permitted capital expenditures (together with
reasonable financing charges) shall be amortized for purposes of this Lease over
the shorter of (i) their useful lives, (ii) the period during which the
reasonably estimated savings in Operating Expenses equals the expenditures, or
(iii) three (3) years.
(xiii) Legal fees and expenses.
(xiv) Payments under any easement, operating agreement,
declaration, restrictive covenant, or instrument pertaining to the sharing of
costs in any planned development.
(xv) A fee for the administration and management of the Building
as reasonably determined by Landlord from time to time. (xvi) A fee charged by
the City of Beverly Hills, sometimes referred to as the Beverly Hills Business
rental Tax, which shall not have a base year applicable to it.
Operating Expenses shall not include costs of alteration of the
premises of tenants of the Building, depreciation charges, interest and
principal payments on mortgages, ground rental payments, real estate brokerage
and leasing commissions, expenses incurred in enforcing obligations of tenants
of the Building, salaries and other compensation of executive officers of the
managing agent of the Building senior to the Building manager, costs of any
special service provided to any one tenant of the Building but not to tenants of
the Building generally, and costs of marketing or advertising the Building.
(D) If the Building does not have one hundred percent (100%)
occupancy during an entire calendar year, including the Base Year, then the
variable cost component of "Property Taxes" and "Operating Expenses" shall be
equitably adjusted so that the total amount of Property Taxes and Operating
Expenses equals the total amount which would have been paid or incurred by
Landlord had the Building been one hundred percent (100%) occupied for the
entire calendar year. In no event shall Landlord be entitled to receive from
Tenant and any other tenants in the Building an aggregate amount in excess of
actual Property Taxes and Operating Expenses as a result of the foregoing
provision.
4.02 Base Rent.
(A) During the Lease Term, Tenant shall pay to Landlord as
rental for the Premises the Base Rent described in Section 1.07 above, subject
to the following annual adjustments (herein called the "Rent Adjustments"):
(B) During each calendar year, the Base Rent payable by Tenant
to Landlord, shall be increased by (collectively, the "Tax and Operating Expense
Adjustment"): (i) Tenant's Percentage Share of the dollar increase, if any, in
Property Taxes for such year over Property Taxes for the Base Year; and (ii)
Tenant's Percentage Share of the dollar increase, if any, in any category of
Operating Expenses paid or incurred by Landlord during such year over the
respective category of Operating Expenses paid or incurred by Landlord during
the Base Year. A decrease in Property Taxes or Operating Expenses below the Base
Year amounts shall not decrease the amount of the Base Rent due hereunder or
<PAGE>
give rise to a credit in favor of Tenant.
4.03 Adjustment Procedure; Estimates. The Tax and Operating Expense
Adjustment specified in Section 4.02(B) shall be determined and paid as follows:
(A) During each calendar year subsequent to the Base Year,
Landlord shall give Tenant written notice of its estimate of any increased
amounts payable under Section 4.02(B) for that calendar year. On or before the
first day of each calendar month during the calendar year, Tenant shall pay to
Landlord one-twelfth (1/12th) of such estimated amounts; provided, however,
that, not more often that quarterly, Landlord may, by written notice to Tenant,
revise its estimate for such year, and subsequent payments by Tenant for such
year shall be based upon such revised estimate.
(B) Within one hundred twenty (120) days after the close of
each calendar year or as soon thereafter as is practicable, Landlord shall
deliver to Tenant a statement of that year's Property Taxes and Operating
Expenses, and the actual Tax and Operating Expense Adjustment to be made
pursuant to Section 4.02(B) for such calendar year, as determined by Landlord
(the "Landlord's Statement") and such Landlord's Statement shall be binding upon
Tenant, except as provided in Section 4.04 below. If the amount of the actual
Tax and Operating Expense Adjustment is more that the estimated payments for
such calendar year made by Tenant, Tenant shall pay the deficiency to Landlord
upon receipt of Landlord's Statement. If the amount of the actual Tax and
Operating Expense Adjustment is less than the estimated payments for such
calendar year made by Tenant, any excess shall be credited against Rent (as
hereinafter defined) next payable by Tenant under this Lease or, if the Lease
Term has expired, any excess shall be paid to Tenant. No delay in providing the
statement described in this subparagraph (B) shall act as a waiver of Landlord's
right to payment under Section 4.02(B) above.
(C) If this Lease shall terminate on a day other than the end
of a calendar year, the amount of the Tax and Operating Expense Adjustment to be
paid pursuant to Section 4.02(B) that is applicable to the calendar year in
which such termination occurs shall be prorated on the basis of the number of
days from January 1 of the calendar year to the termination date bears to 365.
The termination of this Lease shall not affect the obligations of Landlord and
Tenant pursuant to Section 4.03(B) to be performed after such termination.
4.04 Review of Landlord's Statement. Provided that Tenant is not then
in default beyond any applicable cure period of its obligations to pay Base
Rent, additional rent described in Section 4.02(B), or any other payments
required to be made by it under this Lease and provided further that Tenant
strictly complies with the provisions of this Section 4.04, Tenant shall have
the right, once each calendar year, to reasonably review supporting data for any
portion of a Landlord's Statement (provided, however, Tenant may not have an
audit right to all documentation relating to Building operations as this would
far exceed the relevant information necessary to properly document a
pass-through billing statement, but real estate tax statements, and information
on utilities, repairs, maintenance and insurance will be available), in
accordance with the following procedure:
(A) Tenant shall, within ten (10) business days after any such
Landlord's Statement is delivered, deliver a written notice to Landlord
specifying the portions of the Landlord's Statement that are claimed to be
incorrect, and Tenant shall simultaneously pay to Landlord all amounts due from
Tenant to Landlord as specified in the Landlord's Statement. Except as expressly
set forth in subsection (C) below, in no event shall Tenant be entitled to
withhold, deduct, or offset any monetary obligation of Tenant to Landlord under
the Lease (including, without limitation, Tenant's obligation to make all
payments of Base Rent and all payments of Tenant's Tax and Operating Expense
Adjustment) pending the completion of and regardless of the results of any
review of records under this Section 4.04. The right of Tenant under this
Section 4.04 may only be exercised once for any Landlord's Statement, and if
Tenant fails to meet any of the above conditions as a prerequisite to the
exercise of such right, the right of Tenant under this Section 4.04 for a
particular Landlord's Statement shall be deemed waived.
(B) Tenant acknowledges that Landlord maintains its records
for the Building at Landlord's manager's corporate offices presently located at
the address set forth in Section 1.12 and Tenant agrees that any review of
records under this Section 4.04 shall be at the sole expense of Tenant and shall
be conducted by an independent firm of certified public accountants of national
standing. Tenant acknowledges and agrees that any records reviewed under this
Section 4.04 constitute confidential information of Landlord, which shall not be
disclosed to anyone other than the accountants performing the review and the
principals of Tenant who receive the results of the review. The disclosure of
such information to any other person, whether or not caused by the conduct of
Tenant, shall constitute a material breach of this Lease.
(C) Any errors disclosed by the review shall be promptly
corrected by Landlord, provided, however, that if Landlord disagrees with any
such claimed errors, Landlord shall have the right to cause another review to be
made by an independent firm of certified public accountants of national
standing. In the event of a disagreement between the two accounting firms, the
review that discloses the least amount of deviation from the Landlord's
Statement shall be deemed to be correct. In the event that the results of the
review of records (taking into account, if applicable, the results of any
additional review caused by Landlord) reveal that Tenant has overpaid
<PAGE>
obligations for a preceding period, the amount of such overpayment shall be
credited against Tenant's subsequent installment obligations to pay the
estimated Tax and Operating Expense Adjustment. In the event that such results
show that Tenant has underpaid its obligations for a preceding period, Tenant
shall be liable for Landlord's actual accounting fees, and the amount of such
underpayment shall be paid by Tenant to Landlord with the next succeeding
installment obligation of estimated Tax and Operating Expense Adjustment.
4.05 Payment. Concurrently with the execution hereof, Tenant shall pay
Landlord Base Rent for the first calendar month of the Lease Term. Thereafter
the Base Rent described in Section 1.07, as adjusted in accordance with Section
4.02, shall be payable in advance on the first day of each calendar month. If
the Commencement Date is other than the first day of a calendar month, the
prepaid Base Rent for such partial month shall be prorated in the proportion
that the number of days this Lease is in effect during such partial month bears
to the total number of days in the calendar month. All Rent, and all other
amounts payable to Landlord by Tenant pursuant to the provisions of this Lease,
shall be paid to Landlord, without notice, demand, abatement, deduction or
offset, in lawful money of the United States at Landlord's office in the
Building or to such other person or at such other place as Landlord may
designate from time to time by written notice given to Tenant. No payment by
Tenant or receipt by Landlord of a lesser amount than the correct Rent due
hereunder shall be deemed to be other than a payment on account; nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment be deemed to effect or evidence an accord and satisfaction; and Landlord
may accept such check or payment without prejudice to Landlord's right to
recover the balance or pursue any other remedy in this Lease or at law or in
equity provided.
4.06 Late Charge; Interest. Tenant acknowledges that the late payment
of Base Rent or any other amounts payable by Tenant to Landlord hereunder (all
of which shall constitute additional rental to the same extent as Base Rent)
will cause Landlord to incur administrative costs and other damages, the exact
amount of which would be impracticable or extremely difficult to ascertain.
Landlord and Tenant agree that if Landlord does not receive any such payment on
or before five (5) days after the date the payment is due, Tenant shall pay to
Landlord, as additional rent, (a) a late charge equal to five percent (5%) of
the overdue amount to cover such additional administrative costs; and (b)
interest on the delinquent amounts at the lesser of the maximum rate permitted
by law if any or twelve percent (12%) per annum from the date due to the date
paid.
4.07 Additional Rent. For purposes of this Lease, all amounts payable
by Tenant to Landlord pursuant to this Lease, whether or not denominated as
such, shall constitute Base Rent. Any amounts due Landlord shall sometimes be
referred to in this Lease as "Rent".
4.08 Additional Taxes. Notwithstanding anything in Section 4.01(B) to
the contrary, Tenant shall reimburse Landlord upon demand for any and all taxes
payable by or imposed upon Landlord upon or with respect to: any fixtures or
personal property located in the Premises; any leasehold improvements made in or
to the Premises by or for Tenant; the Rent payable hereunder, including, without
limitation, any gross receipts tax, license fee or excise tax levied by any
governmental authority; the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy of any portion of the Premises
(including without limitation any applicable possessory interest taxes); or this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises.
ARTICLE V - SECURITY DEPOSIT
5.01 Upon the execution of this Lease, Tenant shall deposit with
Landlord the Security Deposit described in Section 1.09 above. The Security
Deposit is made by Tenant to secure the faithful performance of all the terms,
covenants and conditions of this Lease to be performed by Tenant. If Tenant
shall default with respect to any covenant or provision hereof, Landlord may
use, apply or retain all or any portion of the Security Deposit to cure such
default or to compensate Landlord for any loss or damage which Landlord may
suffer thereby. If Landlord so uses or applies all or any portion of the
Security Deposit, Tenant shall immediately upon written demand deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to the full
amount hereinabove stated. Landlord shall not be required to keep the Security
Deposit separate from its general accounts and Tenant shall not be entitled to
interest on the Security Deposit. Within thirty (30) days after the expiration
of the Lease Term and the vacation of the Premises by Tenant, the Security
Deposit, or such part as has not been applied to cure the default, shall be
returned to Tenant.
ARTICLE VI - USE OF PREMISES
6.01 Tenants Permitted Use. Tenant shall use the Premises only for
Tenant's Permitted Use as set forth in Section 1.10 above and shall not use or
permit the Premises to be used for any other purpose. Tenant shall, at its sole
cost and expense, obtain all governmental licenses and permits required to allow
Tenant to conduct Tenant's Permitted Use. Landlord disclaims any warranty that
the Premises are suitable for Tenant's use and Tenant acknowledges that it has
had a full opportunity to make its own determination in this regard.
6.02 Compliance With Laws and Other Requirements.
<PAGE>
(A) Tenant shall cause the Premises to comply in all material
respects with all laws, ordinances, regulations and directives of any
governmental authority having jurisdiction including, without limitation, any
certificate of occupancy and any law, ordinance, regulation, covenant, condition
or restriction affecting the Building or the Premises which in the future may
become applicable to the Premises (collectively "Applicable Laws").
(B) Tenant shall not use the Premises, or permit the Premises
to be used, in any manner which: (a) violates any Applicable Law; (b) causes or
is reasonably likely to cause damage to the Building or the Premises; (c)
violates a requirement or condition of any fire and extended insurance policy
covering the Building and/or the Premises, or increases the cost of such policy;
(d) constitutes or is reasonably likely to constitute a nuisance, annoyance or
inconvenience to other tenants or occupants of the Building or its equipment,
facilities or systems; (e) interferes with, or is reasonably likely to interfere
with, the transmission or reception of microwave, television, radio, telephone
or other communication signals by antennae or other facilities located in the
Building; or (f) violates the Rules and Regulations described in Article XIX.
6.03 Hazardous Materials.
(A) No Hazardous Materials, as defined herein, shall be
Handled, as also defined herein, upon, about, above or beneath the Premises or
any portion of the Building by or on behalf of Tenant, its subtenants or its
assignees, or their respective contractors, clients, officers, directors,
employees, agents, or invitees. Any such Hazardous Materials so Handled shall be
known as Tenant's Hazardous Materials. Notwithstanding the foregoing, normal
quantities of Tenant's Hazardous Materials customarily used in the conduct of
general administrative and executive office activities (e.g., copier fluids and
cleaning supplies) may be Handled at the Premises without Landlord's prior
written consent. Tenant's Hazardous Materials shall be Handled at all times in
compliance with the manufacturer's instructions therefor and all applicable
Environmental Laws, as defined herein.
(B) Notwithstanding the obligation of Tenant to indemnify
Landlord pursuant to this Lease, Tenant shall, at its sole cost and expense,
promptly take all actions required by any Regulatory Authority, as defined
herein, or necessary for Landlord to make full economic use of the Premises or
any portion of the Building, which requirements or necessity arises from the
Handling of Tenant's Hazardous Materials upon, about, above or beneath the
Premises or any portion of the Building. Such actions shall include, but not be
limited to, the investigation of the environmental condition of the Premises or
any portion of the Building, the preparation of any feasibility studies or
reports and the performance of any cleanup, remedial, removal or restoration
work. Tenant shall take all actions necessary to restore the Premises or any
portion of the Building to the condition existing prior to the introduction of
Tenant's Hazardous Materials, notwithstanding any less stringent standards or
remediation allowable under applicable Environmental Laws. Tenant shall
nevertheless obtain Landlord's written approval prior to undertaking any actions
required by this Section, which approval shall not be unreasonably withheld so
long as such actions would not potentially have a material adverse long-term or
short-term effect on the Premises or any portion of the Building.
(C) Tenant agrees to execute affidavits, representations, and
the like from time to time at Landlord's request stating Tenant's best knowledge
and belief regarding the presence of Hazardous Materials on the Premises.
(D) "Environmental Laws" means and includes all now and
hereafter existing statutes, laws, ordinances, codes, regulations, rules,
rulings, orders, decrees, directives, policies and requirements by any
Regulatory Authority regulating, relating to, or imposing liability or standards
of conduct concerning public health and safety or the environment.
(E) "Hazardous Materials" means: (a) any material or
substance: (i) which is defined or becomes defined as a "hazardous substance,"
"hazardous waste," "infectious waste," "chemical mixture or substance," or "air
pollutant" under Environmental Laws; (ii) containing petroleum, crude oil or any
fraction thereof; (iii) containing polychlorinated biphenyls (PCB's); (iv)
containing asbestos; (v) which is radioactive; (vi) which is infectious; or (b)
any other material or substance displaying toxic, reactive, ignitable or
corrosive characteristics, as all such terms are used in their broadest sense,
and are defined, or become defined by Environmental Laws; or (c) materials which
cause a nuisance upon or waste to the Premises or any portion of the Building.
(F) "Handle," "handle," "Handled," "handled," "Handling," or
"handling" shall mean any installation, handling, generation, storage,
treatment, use, disposal, discharge, release, manufacture, refinement, presence,
migration, emission, abatement, removal, transportation, or any other activity
of any type in connection with or involving Hazardous Materials.
(G) "Regulatory Authority" shall mean any federal, state or
local governmental agency, commission, board or political subdivision.
ARTICLE VII - UTILITIES AND SERVICES
7.01 Building Services. As long as Tenant is not in monetary default
under this Lease, Landlord agrees to furnish or cause to be furnished to the
Premises the following utilities and services, subject to the conditions and
<PAGE>
standards set forth herein:
(A) Non-attended automatic elevator service (if the Building
has such equipment serving the Premises), in common with Landlord and other
tenants and occupants and their agents and invitees.
(B) During Business Hours, such air conditioning, heating and
ventilation as, in Landlord's reasonable judgment, are required for the
comfortable use and occupancy of the Premises. Landlord may make available to
Tenant heating, ventilation or air conditioning in excess of that which Landlord
shall be required to provide hereunder upon such conditions as shall be
determined by Landlord from time to time. Landlord's fee for any such additional
heating, ventilation or air conditioning provided to Tenant, to be set by
Landlord from time to time, will be separate from and in addition to the Tax and
Operating Expenses Adjustment provide in Article IV.
(C) Water for drinking and rest room purposes.
(D) Reasonable janitorial and cleaning services, provided that
the Premises are used exclusively for office purposes and are kept reasonably in
order by Tenant. If the Premises are not used exclusively as offices, Landlord,
at Landlord's sole discretion, may require that the Premises be kept clean and
in order by Tenant, at Tenant's expense, to the satisfaction of Landlord and by
persons approved by Landlord; and, in all events, Tenant shall pay to Landlord
the cost of removal of Tenants refuse and rubbish, to the extent that the same
exceeds the refuse and rubbish attendant to normal office usage.
(E) At all reasonable times, electric current of not less than
3.5 watts per square foot for building standard lighting and fractional
horsepower office machines; provided, however, that (i) without Landlord's
consent, Tenant shall not install, or permit the installation, in the Premises
of any computers, word processors, electronic data processing equipment or other
type of equipment or machines which will increase Tenant's use of electric
current in excess of that which Landlord is obligated to provide hereunder
(provided, however, that the foregoing shall not preclude the use of personal
computers or similar office equipment); (ii) if Tenant shall require electric
current which may disrupt the provision of electrical service to other tenants,
Landlord may refuse to grant its consent or may condition its consent upon
Tenant's payment of the cost of installing and providing any additional
facilities required to furnish such excess power to the Premises and upon the
installation in the Premises of electric current meters to measure the amount of
electric current consumed, in which latter event Tenant shall pay for the cost
of such meter(s) and the cost of installation, maintenance and repair thereof,
as well as for all excess electric current consumed at the rates charged by the
applicable local public utility, plus a reasonable amount to cover the
additional expenses incurred by Landlord in keeping account of the electric
current so consumed; and (iii) if Tenant's increased electrical requirements
will materially affect the temperature level in the Premises or the Building,
Landlord's consent may be conditioned upon Tenant's requirement to pay such
amounts as will be incurred by Landlord to install and operate any machinery or
equipment necessary to restore the temperature level to that otherwise required
to be provided by Landlord, including but not limited to the cost of
modifications to the air conditioning system. Landlord shall not, in any way, be
liable or responsible to Tenant for any loss or damage or expense which Tenant
may incur or sustain if, for any reasons beyond Landlord's reasonable control,
either the quantity or character of electric service is changed or is no longer
available or suitable for Tenant's requirements. Tenant covenants that at all
times its use of electric current shall never exceed the capacity of the
feeders, risers or electrical installations of the Building. If submetering of
electricity in the Building will not be permitted under future laws or
regulations, the Rent will then be equitably and periodically adjusted to
include an additional payment to Landlord reflecting the cost to Landlord for
furnishing electricity to Tenant in the Premises.
Any amounts which Tenant is required to pay to Landlord pursuant to
this Section 7.01 shall be payable upon demand by Landlord and shall constitute
additional rent.
7.02 Interruption of Services. Landlord shall not be liable for any
failure to furnish, stoppage of, or interruption in furnishing any of the
services or utilities described in Section 7.01, when such failure is caused by
accident, breakage, repairs, strikes, lockouts, labor disputes, labor
disturbances, governmental regulation, civil disturbances, acts of war,
moratorium or other governmental action, or any other cause beyond Landlord's
reasonable control, and, in such event, Tenant shall not be entitled to any
damages nor shall any failure or interruption abate or suspend Tenant's
obligation to pay Base Rent and additional rent required under this Lease or
constitute or be construed as a constructive or other eviction of Tenant.
Further, in the event any governmental authority or public utility promulgates
or revises any law, ordinance, rule or regulation, or issues mandatory controls
or voluntary controls relating to the use or conservation of energy, water, gas,
light or electricity, the reduction of automobile or other emissions, or the
provision of any other utility or service, Landlord may take any reasonably
appropriate action to comply with such law, ordinance, rule, regulation,
mandatory control or voluntary guideline and Tenant's obligations hereunder
shall not be affected by any such action of Landlord. The parties acknowledge
that safety and security devices, services and programs provided by Landlord, if
any, while intended to deter crime and ensure safety, may not in given instances
prevent theft or other criminal acts, or ensure safety of persons or property.
<PAGE>
The risk that any safety or security device, service or program may not be
effective, or may malfunction, or be circumvented by a criminal, is assumed by
Tenant with respect to Tenant's property and interests, and Tenant shall obtain
insurance coverage to the extent Tenant desires protection against such criminal
acts and other losses, as further described in this Lease. Tenant agrees to
cooperate in any reasonable safety or security program developed by Landlord or
required by Law.
ARTICLE VIII - MAINTENANCE AND REPAIRS
8.01 Landlord's Obligations. Except as provided in Sections 8.02 and
8.03 below, Landlord shall maintain the Building in reasonable order and repair
throughout the Lease Term; provided, however, that Landlord shall not be liable
for any failure to make any repairs or to perform any maintenance unless such
failure shall persist for an unreasonable time after written notice of the need
for such repairs or maintenance is given to Landlord by Tenant. Except as
provided in Article XI, there shall be no abatement of Rent, nor shall there be
any liability of Landlord, by reason of any injury or inconvenience to, or
interference with, Tenant's business or operations arising from the making of,
or failure to make, any maintenance or repairs in or to any portion of the
Building.
8.02 Tenant's Obligations. During the Lease Term, Tenant shall, at its
sole cost and expense, maintain the Premises in good order and repair
(including, without limitation, the carpet, wall-covering, doors, plumbing and
other fixtures, equipment, alterations and improvements, whether installed by
Landlord or Tenant). Further, Tenant shall be responsible for, and upon demand
by Landlord shall promptly reimburse Landlord for, any damage to any portion of
the Building or the Premises caused by (a) Tenant's activities in the Building
or the Premises; (b) the performance or existence of any alterations, additions
or improvements made by Tenant in or to the Premises; (c) the installation, use,
operation or movement of Tenant's property in or about the Building or the
Premises; or (d) any act or omission by Tenant or its officers, partners,
employees, agents, contractors or invitees.
8.03 Landlord's Rights. Landlord and its contractors shall have the
right, at all reasonable times and upon prior oral or telephonic notice to
Tenant at the Premises, other than in the case of any emergency in which case no
notice shall be required, to enter upon the Premises to make any repairs to the
Premises or the Building reasonably required or deemed reasonably necessary by
Landlord and to erect such equipment, including scaffolding, as is reasonably
necessary to effect such repairs.
ARTICLE IX - ALTERATIONS, ADDITIONS AND IMPROVEMENTS
9.01 Landlord's Consent; Conditions. Tenant shall not make or permit to
be made any alterations, additions, or improvements in or to the Premises
("Alterations") without the prior written consent of Landlord, which consent,
with respect to non-structural alterations, shall not be unreasonably withheld.
Landlord may impose as a condition to making any Alterations such requirements
as Landlord in its sole discretion deems necessary or desirable including
without limitation: Tenant's submission to Landlord, for Landlord's prior
written approval, of all plans and specifications relating to the Alterations;
Landlord's prior written approval of the time or times when the Alterations are
to be performed; Landlord's prior written approval of the contractors and
subcontractors performing work in connection with the Alterations; employment of
union contractors and subcontractors who shall not cause labor disharmony;
Tenant's receipt of all necessary permits and approvals from all governmental
authorities having jurisdiction over the Premises prior to the construction of
the Alterations; Tenant's delivery to Landlord of such bonds and insurance as
Landlord shall reasonably require; and Tenant's payment to Landlord of all costs
and expenses incurred by Landlord because of Tenant's Alterations, including but
not limited to costs incurred in reviewing the plans and specifications for, and
the progress of, the Alterations. Tenant is required to provide Landlord written
notice of whether the Alterations include the Handling of any Hazardous
Materials and whether these materials are of a customary and typical nature for
industry practices. Upon completion of the Alterations, Tenant shall provide
Landlord with copies of as-built plans. Neither the approval by Landlord of
plans and specifications relating to any Alterations nor Landlord's supervision
or monitoring of any Alterations shall constitute any warranty by Landlord to
Tenant of the adequacy of the design for Tenant's intended use or the proper
performance of the Alterations.
9.02 Performance of Alterations Work. All work relating to the
Alterations shall be performed in compliance with the plans and specifications
approved by Landlord, all applicable laws, ordinances, rules, regulations and
directives of all governmental authorities having jurisdiction (including
without limitation Title 24 of the California Administrative Code) and the
requirements of all carriers of insurance on the Premises and the Building, the
Board of Underwriters, Fire Rating Bureau, or similar organization. All work
shall be performed in a diligent, first class manner and so as not to
unreasonably interfere with any other tenants or occupants of the Building. All
costs incurred by Landlord relating to the Alterations shall be payable to
Landlord by Tenant as additional rent upon demand. No asbestos-containing
materials shall be used or incorporated in the Alterations. No lead-containing
surfacing material, solder, or other construction materials or fixtures where
the presence of lead might create a condition of exposure not in compliance with
Environmental Laws shall be incorporated in the Alterations.
<PAGE>
9.03 Liens. Tenant shall pay when due all costs for work performed and
materials supplied to the Premises. Tenant shall keep Landlord, the Premises and
the Building free from all liens, stop notices and violation notices relating to
the Alterations or any other work performed for, materials furnished to or
obligations incurred by or for Tenant and Tenant shall protect, indemnify, hold
harmless and defend Landlord, the Premises and the Building of and from any and
all loss, cost, damage, liability and expense, including attorneys' fees,
arising out of or related to any such liens or notices. Further, Tenant shall
give Landlord not less then seven (7) business days prior written notice before
commencing any Alterations in or about the Premises to permit Landlord to post
appropriate notices of non-responsibility. Tenant shall also secure, prior to
commencing any Alterations, at Tenant's sole expense, a completion and lien
indemnity bond satisfactory to Landlord for such work. During the progress of
such work, Tenant shall, upon Landlord's request, furnish Landlord with sworn
contractor's statements and lien waivers covering all work theretofore
performed. Tenant shall satisfy or otherwise discharge all liens, stop notices
or other claims or encumbrances within ten (10) days after Landlord notifies
Tenant in writing that any such lien, stop notice, claim or encumbrance has been
filed. If Tenant fails to pay and remove such lien, claim or encumbrance within
such ten (10) days, Landlord, at its election, may pay and satisfy the same and
in such event the sums so paid by Landlord, with interest from the date of
payment at the rate set forth in Section 4.06 hereof for amounts owed Landlord
by Tenant shall be deemed to be additional rent due and payable by Tenant at
once without notice or demand.
9.04 Lease Termination. Except as provided in this Section 9.04, upon
expiration or earlier termination of this Lease Tenant shall surrender the
Premises to Landlord in the same condition as existed on the date Tenant first
occupied the Premises, (whether pursuant to this Lease or an earlier lease),
subject to reasonable wear and tear. All Alterations shall become a part of the
Premises and shall become the property of Landlord upon the expiration or
earlier termination of this Lease, unless Landlord shall, by written notice
given to Tenant, require Tenant to remove some or all of Tenant's Alterations,
in which event Tenant shall promptly remove the designated Alterations and shall
promptly repair any resulting damage, all at Tenant's sole expense. All business
and trade fixtures, machinery and equipment, furniture, movable partitions and
items of personal property owned by Tenant or installed by Tenant at its expense
in the Premises shall be and remain the property of Tenant; upon the expiration
or earlier termination of this Lease, Tenant shall, at its sole expense, remove
all such items and repair any damage to the Premises or the Building caused by
such removal. If Tenant fails to remove any such items or repair such damage
promptly after the expiration or earlier termination of the Lease, Landlord may,
but need not, do so with no liability to Tenant, and Tenant shall pay Landlord
the cost thereof upon demand. Notwithstanding the foregoing to the contrary, in
the event that Landlord gives its consent, pursuant to the provisions of Section
9.01 of this Lease, to allow Tenant to make an Alteration in the Premises,
Landlord agrees, upon Tenant's written request, to notify Tenant in writing at
the time of the giving of such consent whether Landlord will require Tenant, at
Tenant's cost, to remove such Alteration at the end of the Lease Term.
ARTICLE X - INDEMNIFICATION AND INSURANCE
10.01 Indemnification.
(A) Tenant agrees to protect, indemnify, hold harmless and
defend Landlord and any Mortgagee, as defined herein, and each of their
respective partners, directors, officers, agents and employees, successors and
assigns, (except to the extent of the losses described below are caused by the
gross negligence of Landlord, its agents and employees), from and against:
(i) any and all loss, cost, damage, liability or
expense as incurred (including but not limited to reasonable
attorneys' fees and legal costs) arising out of or related to
any claim, suit or judgment brought by or in favor of any
person or persons for damage, loss or expense due to, but not
limited to, bodily injury, including death, or property damage
sustained by such person or persons which arises out of, is
occasioned by or is in any way attributable to the use or
occupancy of the Premises or any portion of the Building by
Tenant or the acts or omission of Tenant or its agents,
employees, contractors, clients, invitees or subtenants except
that caused by the sole active negligence or willful
misconduct of Landlord or its agents or employees. Such loss
or damage shall include, but not be limited to, any injury or
damage to, or death of, Landlord's employees or agents or
damage to the Premises or any portion of the Building.
(ii) any and all environmental damages which arise
from: (i) the Handling of any Tenant's Hazardous Materials, as
defined in Section 6.03 or (ii) the breach of any of the
provisions of this Lease. For the purpose of this Lease,
"environmental damages" shall mean (a) all claims, judgments,
damages, penalties, fines, costs, liabilities, and losses
(including without limitation, diminution in the value of the
Premises or any portion of the Building, damages for the loss
of or restriction on use of rentable or usable space or of any
amenity of the Premises or any portion of the Building, and
from any adverse impact of Landlord's marketing of space); (b)
all reasonable sums paid for settlement of claims, attorneys'
<PAGE>
fees, consultants' fees and experts' fees; and (c) all costs
incurred by Landlord in connection with investigation or
remediation relating to the Handling of Tenant's Hazardous
Materials, whether or not required by Environmental Laws,
necessary for Landlord to make full economic use of the
Premises or any portion of the Building, or otherwise required
under this Lease. To the extent that Landlord is held strictly
liable by a court or other governmental agency of competent
jurisdiction under any Environmental Laws, Tenant's obligation
to Landlord and the other indemnities under the foregoing
indemnification shall likewise be without regard to fault on
Tenant's part with respect to the violation of any
Environmental Law which results in liability to the
indemnitee. Tenant's obligations and liabilities pursuant to
this Section 10.01 shall survive the expiration or earlier
termination of this Lease.
(B) Landlord agrees to protect, indemnify, hold harmless and
defend Tenant from and against any and all loss, cost, damage, liability or
expense, including reasonable attorneys' fees, with respect to any claim of
damage or injury to persons or property at the Premises, caused by the gross
negligence of Landlord or its authorized agents or employees.
(C) Notwithstanding anything to the contrary contained herein,
nothing shall be interpreted or used to in any way affect, limit, reduce or
abrogate any insurance coverage provided by any insurers to either Tenant or
Landlord.
(D) Notwithstanding anything to the contrary contained in this
Lease, nothing herein shall be construed to infer or imply that Tenant is a
partner, joint venturer, agent, employee, or otherwise acting by or at the
direction of Landlord.
10.02 Property Insurance.
(A) At all times during the Lease Term, Tenant shall procure
and maintain, at its sole expense, "all-risk" property insurance, for damage or
other loss caused by fire or other casualty or cause including, but not limited
to, vandalism and malicious mischief, theft, water damage of any type, including
sprinkler leakage, bursting of pipes, explosion, in an amount not less than one
hundred percent (100%) of the replacement cost covering (a) all Alterations made
by or for Tenant in the Premises; and (b) Tenant's trade fixtures, equipment and
other personal property from time to time situated in the Premises. The proceeds
of such insurance shall be used for the repair or replacement of the property so
insured, except that if not so applied or if this Lease is terminated following
a casualty, the proceeds applicable to the leasehold improvements shall be paid
to Landlord and the proceeds applicable to Tenant's personal property shall be
paid to Tenant.
(B) At all times during the Lease Term, Tenant shall procure
and maintain business interruption insurance in such amount as will reimburse
Tenant for direct or indirect loss of earnings attributable to all perils
insured against in Section 10.02(A).
(C) Landlord shall, at all times during the Lease Term,
procure and maintain "all-risk" property insurance in the amount not less than
ninety percent (90%) of the insurable replacement cost covering the Building in
which the Premises are located and such other insurance as may be required by a
Mortgagee or otherwise desired by Landlord.
10.03 Liability Insurance.
(A) At all times during the Lease Term, Tenant shall procure
and maintain, at its sole expense, commercial general liability insurance
applying to the use and occupancy of the Premises and the business operated by
Tenant. Such insurance shall have a minimum combined single limit of liability
of at least Two Million Dollars ($2,000,000) per occurrence and a general
aggregate limit of at least Two Million Dollars ($2,000,000). All such policies
shall be written to apply to all bodily injury, property damage, personal injury
losses and shall be endorsed to include Landlord and its agents, beneficiaries,
partners, employees, and any deed of trust holder or mortgagee of Landlord or
any ground lessor as additional insureds. Such liability insurance shall be
written as primary policies, not excess or contributing with or secondary to any
other insurance as may be available to the additional insureds.
(B) Prior to the sale, storage, use or giving away of
alcoholic beverages on or from the Premises by Tenant or another person, Tenant,
at its own expense, shall obtain a policy or policies of insurance issued by a
responsible insurance company and in a form acceptable to Landlord saving
harmless and protecting Landlord and the Premises against any and all damages,
claims, liens, judgments, expenses and costs, including actual attorneys' fees,
arising under any present or future law, statute, or ordinance of the State of
California or other governmental authority having jurisdiction of the Premises,
by reason of any storage, sale, use or giving away of alcoholic beverages on or
from the Premises. Such policy or policies of insurance shall have a minimum
combined single limit of One Million ($1,000,000) per occurrence and shall apply
to bodily injury, fatal or nonfatal; injury to means of support; and injury to
property of any person. Such policy or policies of insurance shall name Landlord
and its agents, beneficiaries, partners, employees and any mortgagee of Landlord
<PAGE>
or any ground lessor of Landlord as additional insureds.
(C) Landlord shall, at all times during the Lease Term,
procure and maintain commercial general liability insurance for the Building in
which the Premises are located. Such insurance shall have minimum combined
single limit of liability of at least Two Million Dollars ($2,000,000) per
occurrence, and a general aggregate limit of at least Two Million Dollars
($2,000,000).
10.04 Workers' Compensation Insurance. At all times during the Lease
Term, Tenant shall procure and maintain Workers' Compensation Insurance in
accordance with the laws of the State of California, and Employer's Liability
insurance with a limit not less than One Million Dollars ($1,000,000) Bodily
Injury Each Accident; One Million Dollars ($1,000,000) Bodily Injury By Disease
- - Each Person; and One Million Dollars ($1,000,000) Bodily Injury to Disease -
Policy Limit.
10.05 Policy Requirements. All insurance required to be maintained by
Tenant shall be issued by insurance companies authorized to do insurance
business in the State of California and rated not less than A-VIII in Best's
Insurance Guide. A certificate of insurance (or, at Landlord's option, copies of
the applicable policies) evidencing the insurance required under this Article X
shall be delivered to Landlord not less than thirty (30) days prior to the
Commencement Date. No such policy shall be subject to cancellation or
modification without thirty (30) days prior written notice to Landlord and to
any deed of trust holder, mortgagee or ground lessor designated by Landlord to
Tenant. Tenant shall furnish Landlord with a replacement certificate with
respect to any insurance not less than thirty (30) days prior to the expiration
of the current policy. Tenant shall have the right to provide the insurance
required by this Article X pursuant to blanket policies, but only if such
blanket policies expressly provide coverage to the Premises and Landlord as
required by this Lease.
10.06 Waiver of Subrogation. Each party hereby waives any right of
recovery against the other for injury or loss due to hazards covered by
insurance or required to be covered, to the extent of the injury or loss covered
thereby. Any policy of insurance to be provided by Tenant or Landlord pursuant
to this Article X shall contain a clause denying the applicable insurer any
right of subrogation against the other party.
10.07 Failure to Insure. If Tenant fails to maintain any insurance
which Tenant is required to maintain pursuant to this Article X, Tenant shall be
liable to Landlord for any loss or cost resulting from such failure to maintain.
Tenant may not self-insure against any risks required to be covered by insurance
without Landlord's prior written consent.
ARTICLE XI - DAMAGE OR DESTRUCTION
11.01 Total Destruction. Except as provided in Section 11.03 below,
this Lease shall automatically terminate if the Building is totally destroyed.
11.02 Partial Destruction of Premises. If the Premises are damaged by
any casualty and, in Landlord's opinion, the Premises (exclusive of any
Alterations made to the Premises by Tenant) can be restored to its pre-existing
condition within two hundred seventy (270) days after the date of the damage or
destruction, Landlord shall, upon written notice from Tenant to Landlord of such
damage, except as provided in Section 11.03, promptly and with due diligence
repair any damage to the Premises (exclusive of any Alterations to the Premises
made by Tenant, which shall be promptly repaired by Tenant at its sole expense)
and, until such repairs are completed, the Rent shall be abated from the date of
damage or destruction in the same proportion that the rentable area of the
portion of the Premises which is unusable by Tenant in the conduct of its
business bears to the total rentable area of the Premises. If such repairs
cannot, in Landlord's opinion, be made within said two hundred seventy (270) day
period, then Landlord may, at its option, exercisable by written notice given to
Tenant within thirty (30) days after the date of the damage or destruction,
elect to make the repairs within a reasonable time after the damage or
destruction, in which event this Lease shall remain in full force and effect but
the Rent shall be abated as provided in the preceding sentence; if Landlord does
not so elect to make the repairs, then either Landlord or Tenant shall have the
right, by written notice given to the other within sixty (60) days after the
date of the damage or destruction, to terminate this Lease as of the date of the
damage or destruction.
11.03 Exceptions to Landlord's Obligations. Notwithstanding anything to
the contrary contained in this Article XI, Landlord shall have no obligation to
repair the Premises if either: (a) the Building in which the Premises are
located is so damaged as to require repairs to the Building exceeding twenty
percent (20%) of the full insurable value of the Building; or (b) Landlord
elects to demolish the Building in which the Premises are located; or (c) the
damage or destruction occurs less than two (2) years prior to the Termination
Date, exclusive of option periods. Further, Tenant's Rent shall not be abated if
either (i) the damage or destruction is repaired within five (5) business days
after Landlord receives written notice from Tenant of the casualty, or (ii)
Tenant, or any officers, partners, employees, agents or invitees of Tenant, or
any assignee or subtenant of Tenant, is, in whole or in part, responsible for
the damage or destruction.
11.04 Waiver. The provisions contained in this Lease shall supersede
<PAGE>
any contrary laws (whether statutory, common law or otherwise) now or hereafter
in effect relating to damage, destruction, self-help or termination, including
California Civil Code Sections 1932 and 1933.
ARTICLE XII - CONDEMNATION
12.01 Taking. If the entire Premises or so much of the Premises as to
render the balance unusable by Tenant shall be taken by condemnation, sale in
lieu of condemnation or in any other manner for any public or quasi-public
purpose (collectively "Condemnation"), and if Landlord, at its option, is unable
or unwilling to provide substitute premises containing at least as much rentable
area as described in Section 1.02 above, then this Lease shall terminate on the
date that title or possession to the Premises is taken by the condemning
authority, whichever is earlier.
12.02 Award. In the event of any Condemnation, the entire award for
such taking shall belong to Landlord. Tenant shall have no claim against
Landlord or the award for the value of any unexpired term of this Lease or
otherwise. Tenant shall be entitled to independently pursue a separate award in
a separate proceeding for Tenant's relocation costs directly associated with the
taking, provided such separate award does not diminish Landlord's award.
12.03 Temporary Taking. No temporary taking of the Premises shall
terminate this Lease or entitle Tenant to any abatement of the Rent payable to
Landlord under this Lease; provided, further, that any award for such temporary
taking shall belong to Tenant to the extent that the award applies to any time
period during the Lease Term and to Landlord to the extent that the award
applies to any time period outside the Lease Term.
ARTICLE XIII - RELOCATION
13.01 Relocation. Landlord shall have the right, at its option upon not
less than thirty (30) days prior written notice to Tenant, to relocate Tenant
and to substitute for the Premises described above other space in the Building
containing at least as much rentable area as the Premises described in Section
1.02 above. If Tenant is already in occupancy of the Premises, then Landlord
shall approve in advance the relocation expenses for purposes of reimbursement
for Tenant's reasonable moving and telephone relocation expenses and for
reasonable quantities of new stationery upon submission to Landlord of receipts
for such expenditures incurred by Tenant.
ARTICLE XIV - ASSIGNMENT AND SUBLETTING
14.01 Restriction. Without the prior written consent of Landlord,
Tenant shall not, either voluntarily or by operation of law, assign, encumber,
or otherwise transfer this Lease or any interest herein, or sublet the Premises
or any part thereof, or permit the Premises to be occupied by anyone other than
Tenant or Tenant's employees (any such assignment, encumbrance, subletting,
occupation or transfer is hereinafter referred to as a "Transfer"). For purposes
of this Lease, the term "Transfer" shall also include (a) if Tenant is a
partnership, the withdrawal or change, voluntary, involuntary or by operation of
law, of a majority of the partners, or a transfer of a majority of partnership
interests, within a twelve month period, or the dissolution of the partnership,
(b) if Tenant is a closely held corporation (i.e. whose stock is not publicly
held and not traded through an exchange or over the counter) or a limited
liability company, the dissolution, merger, consolidation, division, liquidation
or other reorganization of Tenant, or within a twelve month period: (i) the sale
or other transfer of more than an aggregate of 50% of the voting securities of
Tenant (other than to immediate family members by reason of gift or death) or
(ii) the sale, mortgage, hypothecation or pledge of more than an aggregate of
50% of Tenant's net assets, and (c) any change by Tenant in the form of its
legal organization under applicable state law (such as, for example, a change
from a general partnership to a limited partnership or from a corporation to a
limited liability company). An assignment, subletting or other action in
violation of the foregoing shall be void and, at Landlord's option, shall
constitute a material breach of this Lease. Notwithstanding anything contained
in this Article XIV to the contrary, Tenant shall have the right to assign the
Lease or sublease the Premises, or any part thereof, to an "Affiliate" without
the prior written consent of Landlord, but upon at least twenty (20) days' prior
written notice to Landlord, provided that said Affiliate is not in default under
any other lease for space in a property that is managed by Kennedy-Wilson
Properties Ltd. or any of its affiliates. For purposes of this provision, the
term "Affiliate" shall mean any corporation or other entity controlling,
controlled by, or under common control with (directly or indirectly) Tenant,
including, without limitation, any parent corporation controlling Tenant or any
subsidiary that Tenant controls. The term "control," as used herein, shall mean
the power to direct or cause the direction of the management and policies of the
controlled entity through the ownership of more than fifty percent (50%) of the
voting securities in such controlled entity. Notwithstanding anything contained
in this Article XIV to the contrary, Tenant expressly covenants and agrees not
to enter into any lease, sublease, license, concession or other agreement for
use, occupancy or utilization of the Premises which provides for rental or other
payment for such use, occupancy or utilization based in whole or in part on the
net income or profits derived by any person from the property leased, used,
occupied or utilized (other than an amount based on a fixed percentage or
percentages of receipts or sales), and that any such purported lease, sublease,
license, concession or other agreement shall be absolutely void and ineffective
as a conveyance of any right or interest in the possession, use, occupancy or
utilization of any part of the Premises.
<PAGE>
14.02 Notice to Landlord. If Tenant desires to assign this Lease or any
interest herein, or to sublet all or any part of the Premises, then at least
thirty (30) days but not more than one hundred eighty (180) days prior to the
effective date of the proposed assignment or subletting, Tenant shall submit to
Landlord in connection with Tenant's request for Landlord's consent:
(A) A statement containing (i) the name and address of the
proposed assignee or subtenant; (ii) such financial information with respect to
the proposed assignee or subtenant as Landlord shall reasonably require; (iii)
the type of use proposed for the Premises; and (iv) all of the principal terms
of the proposed assignment or subletting; and
(B) Four (4) originals of the assignment or sublease on a form
approved by Landlord and four (4) originals of the Landlord's Consent to
Sublease or Assignment and Assumption of Lease and Consent.
14.03 Landlord's Recapture Rights. At any time within twenty (20)
business days after Landlord's receipt of all (but not less than all) of the
information and documents described in Section 14.02 above, Landlord may, at its
option by written notice to Tenant, elect to: (a) sublease the Premises or the
portion thereof proposed to be sublet by Tenant upon the same terms as those
offered to the proposed subtenant; (b) take an assignment of the Lease upon the
same terms as those offered to the proposed assignee; or (c) terminate the Lease
in its entirety or as to the portion of the Premises proposed to be assigned or
sublet, with a proportionate adjustment in the Rent payable hereunder if the
Lease is terminated as to less than all of the Premises. If Landlord does not
exercise any of the options described in the preceding sentence, then, during
the above-described twenty (20) business day period, Landlord shall either
consent or deny its consent to the proposed assignment or subletting.
14.04 Landlord's Consent; Standards. Landlord's consent to a proposed
assignment or subletting shall not be unreasonably withheld; but, in addition to
any other grounds for denial, Landlord's consent shall be deemed reasonably
withheld if, in Landlord's good faith judgment: (i) the proposed assignee or
subtenant does not have the financial strength to perform its obligations under
this Lease or any proposed sublease; (ii) the business and operations of the
proposed assignee or subtenant are not of comparable quality to the business and
operations being conducted by other tenants in the Building; (iii) the proposed
assignee or subtenant intends to use any part of the Premises for a purpose not
permitted under this Lease; (iv) either the proposed assignee or subtenant, or
any person which directly or indirectly controls, is controlled by, or is under
common control with the proposed assignee or subtenant occupies space in the
Building, or is negotiating with Landlord to lease space in the Building; (v)
the proposed assignee or subtenant is disreputable; or (vi) the use of the
Premises or the Building by the proposed assignee or subtenant would, in
Landlord's reasonable judgment, impact the Building in a negative manner
including but not limited to significantly increasing the pedestrian traffic in
and out of the Building or requiring any alterations to the Building to comply
with applicable laws; (vii) the subject space is not regular in shape with
appropriate means of ingress and egress suitable for normal renting purposes;
(viii) the transferee is a government (or agency or instrumentality thereof) or
(ix) Tenant has failed to cure a default at the time Tenant requests consent tot
the proposed Transfer.
14.05 Additional Rent. If Landlord consents to any such assignment or
subletting, two-thirds (2/3) of the amount by which all sums or other economic
consideration received by Tenant in connection with such assignment or
subletting, whether denominated as rental or otherwise, exceeds, in the
aggregate, the total sum which Tenant is obligated to pay Landlord under this
Lease (prorated to reflect obligations allocable to less than all of the
Premises under a sublease) shall be paid to Landlord promptly after receipt as
additional Rent under the Lease without affecting or reducing any other
obligation of Tenant hereunder.
14.06 Landlord's Costs. If Tenant shall Transfer this Lease or all or
any part of the Premises or shall request the consent of Landlord to any
Transfer, Tenant shall pay to Landlord as additional rent Landlord's costs
related thereto, including Landlord's reasonable attorneys' fees and a minimum
fee to Landlord of Five Hundred Dollars ($500,00).
14.07 Continuing Liability of Tenant. Notwithstanding any Transfer,
including an assignment or sublease to an affiliate, Tenant shall remain as
fully and primarily liable for the payment of Rent and for the performance of
all other obligations of Tenant contained in this Lease to the same extent as if
the Transfer had not occurred; provided, however, that any act or omission of
any transferee, other than Landlord, that violates the terms of this Lease shall
be deemed a violation of this Lease by Tenant.
14.08 Non-Waiver. The consent by Landlord to any Transfer shall not
relieve Tenant, or any person claiming through or by Tenant, of the obligation
to obtain the consent of Landlord, pursuant to this Article XIV, to any further
Transfer. In the event of an assignment or subletting, Landlord may collect rent
from the assignee or the subtenant without waiving any rights hereunder and
collection of the rent from a person other than Tenant shall not be deemed a
waiver of any of Landlord's rights under this Article XIV, an acceptance of
assignee or subtenant as Tenant, or a release of Tenant from the performance of
Tenant's obligations under this Lease. If Tenant shall default under this Lease
and fail to cure within the time permitted, Landlord is irrevocably authorized,
<PAGE>
as Tenant's agent and attorney-in-fact, to direct any transferee to make all
payments under or in connection with the Transfer directly to Landlord (which
Landlord shall apply towards Tenant's obligations under this Lease) until such
default is cured.
ARTICLE XV - DEFAULT AND REMEDIES
15.01 Events of Default By Tenant. The occurrence of any of the
following shall constitute a material default and breach of this Lease by
Tenant:
(A) The failure by Tenant to pay Base Rent or make any other
payment required to be made by Tenant hereunder as and when due.
(B) The abandonment of the Premises by Tenant or the vacation
of the Premises by Tenant for fourteen (14) consecutive days (with or without
the payment of Rent).
(C) The making by Tenant of any assignment of this Lease or
any sublease of all or part of the Premises, except as expressly permitted under
Article XIV of this Lease.
(D) The failure by Tenant to observe or perform any other
provision of this Lease to be observed or performed by Tenant, other than those
described in Sections 15.01(A), 15.01(B) or 15.01 (C) above, if such failure
continues for ten (10) days after written notice thereof by Landlord to Tenant;
provided, however, that if the nature of the default is such that it cannot be
cured within the ten (10) day period, no default shall exist if Tenant commences
the curing of the default within the ten (10) day period and thereafter
diligently prosecutes the same to completion. The ten (10) day notice described
herein shall be in lieu of, and not in addition to, any notice required under
Section 1161 of the California Civil Code of Procedure or any other law now or
hereafter in effect requiring that notice of default be given prior to the
commencement of an unlawful detainer or other legal proceeding.
(E) The making by Tenant or its Guarantor of any general
assignment for the benefit of creditors, the filing by or against Tenant or its
Guarantor of a petition under any federal or state bankruptcy or insolvency laws
(unless, in the case of a petition filed against Tenant or its Guarantor the
same is dismissed within thirty (30) days after filing); the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
at the Premises or Tenant's interest in this Lease or the Premises, when
possession is not restored to Tenant within thirty (30) days; or the attachment,
execution or other seizure of substantially all of Tenant's assets located at
the Premises or Tenant's interest in this Lease or the Premises, if such seizure
is not discharged within thirty (30) days.
(F) Any material misrepresentation herein, or material
misrepresentation or omission in any financial statements or other materials
provided by Tenant or any Guarantor in connection with negotiating or entering
into this Lease or in connection with any Transfer under Section 14.01.
15.02 Landlord's Right to Terminate Upon Tenant Default. In the event
of any default by Tenant as provided in Section 15.01 above, Landlord shall have
the right to terminate this Lease and recover possession of the Premises by
giving written notice to Tenant of Landlord's election to terminate this Lease,
in which event Landlord shall be entitled to receive from Tenant:
(A) The worth at the time of award of any unpaid Rent which
had been earned at the time of such termination; plus
(B) The worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Tenant proves could have been
reasonably avoided; plus
(C) The worth at the time of award of the amount by which the
unpaid Rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; plus
(D) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom; and
(E) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by applicable
law.
As used in subparagraphs (A) and (B) above, "worth at the time of
award" shall be computed by allowing interest on such amounts at the then
highest lawful rate of interest, but in no event to exceed one percent (1%) per
annum plus the rate established by the Federal Reserve Bank of San Francisco on
advances made to member banks under Sections of the Federal Reserve Act
("discount rate") prevailing at the time of the award. As used in paragraph (C)
above, "worth at the time of award" shall be computed by discounting such amount
by (i) the discount rate of the Federal Reserve Bank of San Francisco prevailing
at the time of award plus (ii) one percent (1%).
<PAGE>
15.03 Mitigation of Damages. If Landlord terminates this Lease or
Tenant's right to possession of the Premises, Landlord shall have no obligation
to mitigate Landlord's damages except to the extent required by applicable law.
If Landlord has not terminated this Lease or Tenant's right to possession of the
Premises, Landlord shall have no obligation to mitigate under any circumstances
and may permit the Premises to remain vacant or abandoned. If Landlord is
required to mitigate damages as provided herein: (i) Landlord shall be required
only to use reasonable efforts to mitigate, which shall not exceed such efforts
as Landlord generally uses to lease other space in the Building, (ii) Landlord
will not be deemed to have failed to mitigate if Landlord or its affiliates
lease any other portions of the Building or other projects owned by Landlord or
its affiliates in the same geographic area, before reletting all or any portion
of the Premises, and (iii) any failure to mitigate as described herein with
respect to any period of time shall only reduce the Rent and other amounts to
which Landlord is entitled hereunder by the reasonable rental value of the
Premises during such period. In recognition that the value of the Building
depends on the rental rates and terms of leases therein, Landlord's rejection of
a prospective replacement tenant based on an offer of rentals below Landlord's
published rates for new leases of comparable space at the Building at the time
in question, or at Landlord's option, below the rates provided in this Lease, or
containing terms less favorable than those contained herein, shall not give rise
to a claim by Tenant that Landlord failed to mitigate Landlord's damages.
15.04 Landlord's Right To Continue Lease Upon Tenant Default. In the
event of a default of this Lease and abandonment of the Premises by Tenant, if
Landlord does not elect to terminate this Lease as provided in Section 15.02
above, Landlord may from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease. Without limiting the foregoing,
Landlord has the remedy described in California Civil Code Section 1951.4
(Landlord may continue this Lease in effect after Tenant's default and
abandonment and recover Rent as it becomes due, if Tenant has the right to
Transfer, subject to reasonable limitations). In the event Landlord re-lets the
Premises, to the fullest extent permitted by law, the proceeds of any reletting
shall be applied first to pay to Landlord all costs and expenses of such
reletting (including without limitation, costs and expenses of retaking or
repossessing the Premises, removing persons and property therefrom, securing new
tenants, including expenses for redecoration, alterations and other costs in
connection with preparing the Premises for the new tenant, and if Landlord shall
maintain and operate the Premises, the costs thereof) and receivers' fees
incurred in connection with the appointment of and performance by a receiver to
protect the Premises and Landlord's interest under this Lease and any necessary
or reasonable alterations; second, to the payment of any indebtedness of Tenant
to Landlord other than Rent due and unpaid hereunder; third, to the payment of
Rent due and unpaid hereunder; and the residue, if any, shall be held by
Landlord and applied in payment of other or future obligations of Tenant to
Landlord as the same may become due and payable, and Tenant shall not be
entitled to receive any portion of such revenue.
15.05 Right of Landlord to Perform. All covenants and agreements to be
performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense. If Tenant shall fail to pay any sum of money, other than
Rent, required to be paid by it hereunder or shall fail to perform any other act
on its part to be performed hereunder, Landlord may, but shall not be obligated
to, make any payment or perform any such other act on Tenant's part to be made
or performed, without waiving or releasing Tenant of its obligations under this
Lease. Any sums so paid by Landlord and all necessary incidental costs, together
with interest thereon at the lesser of the maximum rate permitted by law if any
or twelve percent (12%) per annum from the date of such payment, shall be
payable to Landlord as additional rent on demand and Landlord shall have the
same rights and remedies in the event of nonpayment as in the case of default by
Tenant in the payment of Rent.
15.06 Default Under Other Leases. If the term of any lease, other than
this Lease, heretofore or hereafter made by Tenant for any office space in the
Building shall be terminated or terminable after the making of this Lease
because of any default by Tenant under such other lease, such fact shall empower
Landlord, at Landlord's sole option, to terminate this Lease by notice to Tenant
or to exercise any of the rights or remedies set forth in Section 15.02.
15.07 Non-Waiver. Nothing in this Article shall be deemed to affect
Landlord's rights to indemnification for liability or liabilities arising prior
to termination of this Lease or Tenant's right to possession of the Premises for
personal injury or property damages under the indemnification clause or clauses
contained in this Lease. No acceptance by Landlord of a lesser sum than the Rent
then due shall be deemed to be other than on account of the earliest installment
of such rent due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or pursue any other
remedy in the Lease provided. The delivery of keys to any employee of Landlord
or to Landlord's agent or any employee thereof shall not operate as a
termination of this Lease or a surrender of the Premises.
15.08 Cumulative Remedies. The specific remedies to which Landlord may
resort under the terms of the Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which it may be lawfully
entitled in case of any breach or threatened breach by Tenant of any provisions
of the Lease. In addition to the other remedies provided in the Lease, Landlord
shall be entitled to a restraint by injunction of the violation or attempted or
<PAGE>
threatened violation of any of the covenants, conditions or provisions of the
Lease or to a decree compelling specific performance of any such covenants,
conditions or provisions.
15.09 Default by Landlord. Landlord's failure to perform or observe any
of its obligations under this Lease shall constitute a default by Landlord under
this Lease only if such failure shall continue for a period of thirty (30) days
(or the additional time, if any, that is reasonably necessary to promptly and
diligently cure the failure) after Landlord receives written notice from Tenant
specifying the default. The notice shall give in reasonable detail the nature
and extent of the failure and shall identify the Lease provision(s) containing
the obligation(s). If Landlord shall default in the performance of any of its
obligations under this Lease (after notice and opportunity to cure as provided
herein), Tenant may pursue any remedies available to it under the law and this
Lease, except that, in no event, shall Landlord be liable for punitive damages,
lost profits, business interruption, speculative, consequential or other such
damages. In recognition that Landlord must receive timely payments of Rent and
operate the Building, Tenant shall have no right of self-help to perform repairs
or any other obligation of Landlord, and shall have no right to withhold,
set-off, or abate Rent.
ARTICLE XVI - ATTORNEYS' FEES: COSTS OF SUIT
16.01 Attorneys Fees. If either Landlord or Tenant shall commence any
action or other proceeding against the other arising out of, or relating to,
this Lease or the Premises, the prevailing party shall be entitled to recover
from the losing party, in addition to any other relief, its actual attorneys'
fees irrespective of whether or not the action or other proceeding is prosecuted
to judgment and irrespective of any court schedule of reasonable attorneys'
fees. In addition, Tenant shall reimburse Landlord, upon demand, for all
reasonable attorneys' fees incurred in collecting Rent, resolving any actual
default by Tenant, securing indemnification as provided in Article X and
paragraphs, 16.02, 23.01 and 25.01 herein or otherwise seeking enforcement
against Tenant, its sublessees and assigns, of Tenant's obligations under this
Lease.
16.02 Indemnification. Should Landlord be made a party to any
litigation instituted by Tenant against a party other than Landlord, or by a
third party against Tenant, Tenant shall indemnify, hold harmless and defend
Landlord from any and all loss, cost, liability, damage or expense incurred by
Landlord, including attorneys' fees, in connection with the litigation.
ARTICLE XVII - SUBORDINATION AND ATTORNMENT
17.01 Subordination. This Lease, and the rights of Tenant hereunder,
are and shall be subject and subordinate to the interest of (i) all present and
future ground leases and master leases of all or any part of the Building; (ii)
present and future mortgages and deeds of trust encumbering all or any part of
the Building; (iii) all past and future advances made under any such mortgages
or deeds of trust; and (iv) all renewals, modifications, replacements and
extensions of any such ground leases, master leases, mortgages and deeds of
trust; provided, however, that any lessor under any such ground lease or master
lease or any mortgagee or beneficiary under any such mortgage or deed of trust (
any such lessor, mortgagee or beneficiary is hereinafter referred to as a
"Mortgagee") shall have the right to elect, by written notice given to Tenant,
to have this Lease made superior in whole or in part to any such ground lease,
master lease, mortgage or deed of trust (or subject and subordinate to such
ground lease, master lease, mortgage or deed of trust but superior to any junior
mortgage or junior deed of trust). Upon demand, Tenant shall execute,
acknowledge and deliver any instruments reasonably requested by Landlord or any
such Mortgagee to effect the purposes of this Section 17.01. Such instruments
may contain, among other things, provisions to the effect that such Mortgagee
(hereafter, for the purposes of this Section 17.01, a "Successor Landlord")
shall (i) not be liable for any act or omission of Landlord or its predecessors,
if any, prior to the date of such Successor Landlord's succession to Landlord's
interest under this Lease; (ii) not be subject to any offsets or defenses which
Tenant might have been able to assert against Landlord or its predecessors, if
any, prior to the date of such Successor Landlord's succession to Landlord's
interest under this Lease; (iii) not be liable for the return of any security
deposit under the Lease unless the same shall have actually been deposited with
such Successor Landlord; (iv) be entitled to receive notice of any Landlord
default under this Lease plus a reasonable opportunity to cure such default
prior to Tenant having any right or ability to terminate this Lease as a result
of such Landlord default; (v) not be bound by any rent or additional rent which
Tenant might have paid for more than the current month to Landlord; (vi) not be
bound by any amendment or modification of the Lease or any cancellation or
surrender of the same made without Successor Landlord's prior written consent;
(vii) not be bound by any obligation to make any payment to Tenant which was
required to be made prior to the time such Successor Landlord succeeded to
Landlord's interest and (viii) not be bound by any obligation under the Lease to
perform any work or to make any improvements to the demised Premises. Any
obligations of any Successor Landlord under its respective lease shall be
non-recourse as to any assets of such Successor Landlord other than its interest
in the Premises and improvements.
17.02 Attornment. If the interests of Landlord under the Lease shall be
transferred to any superior Mortgagee or other purchaser or person taking title
to the Building by reason of the termination of any superior lease or the
foreclosure of any superior mortgage or deed of trust, Tenant shall be bound to
<PAGE>
such Successor Landlord under all of the terms, covenants and conditions of the
Lease for the balance of the term thereof remaining and any extensions or
renewals thereof which may be effected in accordance with any option therefor in
the Lease, with the same force and effect as if Successor Landlord were the
landlord under the Lease, and Tenant shall attorn to and recognize as Tenant's
landlord under this Lease such Successor Landlord, as its landlord, said
attornment to be effective and self-operative without the execution of any
further instruments upon Successor Landlord's succeeding to the interest of
Landlord under the Lease. Tenant shall, upon demand, execute any documents
reasonably requested by any such person to evidence the attornment described in
this Section 17.02. Concurrently, upon written request from Tenant, and provided
Tenant is not in default under this Lease, Landlord agrees to use diligent,
commercially reasonable efforts to obtain a Non-Disturbance Agreement from the
Successor Landlord. Such Non-Disturbance Agreement may be embodied in the
Mortgagee's customary form of Subordination and Non-Disturbance Agreement. If,
after exerting diligent, commercially reasonable efforts, Landlord is unable to
obtain a Non-Disturbance Agreement from any such Mortgagee, Landlord shall have
no further obligation to Tenant with respect thereto.
17.03 Mortgagee Protection. Tenant agrees to give any Mortgagee, by
registered or certified mail, a copy of any notice of default served upon
Landlord by Tenant, provided that prior to such notice Tenant has been notified
in writing (by way of service on Tenant of a copy of Assignment of Rents and
Leases, or otherwise) of the address of such Mortgagee (hereafter the "Notified
Party"). Tenant further agrees that if Landlord shall have failed to cure such
default within twenty (20) days after such notice to Landlord (or if such
default cannot be cured or corrected within that time, then such additional time
as may be necessary if Landlord has commenced within such twenty (20) days and
is diligently pursuing the remedies or steps necessary to cure or correct such
default), then the Notified Party shall have an additional thirty (30) days
within which to cure or correct such default (or if such default cannot be cured
or corrected within that time, then such additional time as may be necessary if
the Notified Party has commenced within such thirty (30) days and is diligently
pursuing the remedies or steps necessary to cure or correct such default). Until
the time allowed, as aforesaid, for the Notified Party to cure such default has
expired without cure, Tenant shall have no right to, and shall not, terminate
this Lease on account of Landlord's default.
ARTICLE XVIII - QUIET ENJOYMENT
18.01 Provided that Tenant performs all of its obligations hereunder,
Tenant shall have and peaceably enjoy the Premises during the Lease Term free of
claims by or through Landlord, subject to all of the terms and conditions
contained in this Lease.
ARTICLE XIX - RULES AND REGULATIONS
19.01 The Rules and Regulations attached hereto as Exhibit C are hereby
incorporated by reference herein and made a part hereof. Tenant shall abide by,
and faithfully observe and comply with the Rules and Regulations and any
reasonable and non-discriminatory amendments, modifications and/or additions
thereto as may hereafter be adopted and published by written notice to tenants
by Landlord for the safety, care, security, good order and/or cleanliness of the
Premises and/or the Building. Landlord shall not be liable to Tenant for any
violation of such rules and regulations by any other tenant or occupant of the
Building.
ARTICLE XX - ESTOPPEL CERTIFICATES
20.01 Tenant agrees at any time and from time to time upon not less
than ten (10) days' prior written notice from Landlord to execute, acknowledge
and deliver to Landlord a statement in writing addressed and certifying to
Landlord, to any current or prospective Mortgagee or any assignee thereof, to
any prospective purchaser of the land, improvements or both comprising the
Building, and to any other party designated by Landlord, that this Lease is
unmodified and in full force and effect (of if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications); that Tenant has accepted possession of the Premises, which are
acceptable in all respects, and that any improvements required by the terms of
this Lease to be made by Landlord have been completed to the satisfaction of
Tenant; that Tenant is in full occupancy of the Premises; that no rent has been
paid more than thirty (30) days in advance; that the first month's Base Rent has
been paid; that Tenant is entitled to no free rent or other concessions except
as stated in this Lease; that Tenant has not been notified of any previous
assignment of Landlord's or any predecessor landlord's interest under this
Lease; the dates to which Base Rent, additional rental and other charges have
been paid; that Tenant, as of the date of such certificate, has no charge, lien
or claim of setoff under this Lease or otherwise against Base Rent, additional
rental or other charges due or to become due under this Lease; that Landlord is
not in default in performance of any covenant, agreement or condition contained
in this Lease; or any other matter relating to this Lease or the Premises or, if
so, specifying each such default. If there is a Guaranty under this Lease, said
Guarantor shall confirm the validity of the Guaranty by joining in the execution
of the Estoppel Certificate or other documents so requested by Landlord or
Mortgagee. In addition, in the event that such certificate is being given to any
Mortgagee, such statement may contain any other provisions customarily required
by such Mortgagee including, without limitation, an agreement on the part of
Tenant to furnish to such Mortgagee, written notice of any Landlord default and
a reasonable opportunity for such Mortgagee to cure such default prior to Tenant
<PAGE>
being able to terminate this Lease. Any such statement delivered pursuant to
this Section may be relied upon by Landlord or any Mortgagee, or prospective
purchaser to whom it is addressed and such statement, if required by its
addressee, may so specifically state. If Tenant does not execute, acknowledge
and deliver to Landlord the statement as and when required herein, Landlord is
hereby granted an irrevocable power-of-attorney, coupled with an interest, to
execute such statement on Tenant's behalf, which statement shall be binding on
Tenant to the same extent as if executed by Tenant.
ARTICLE XXI - ENTRY BY LANDLORD
21.01 Landlord may enter the Premises at all reasonable times to:
inspect the same; exhibit the same to prospective purchasers, Mortgagees or
tenants; determine whether Tenant is complying with all of its obligations under
this Lease; supply janitorial and other services to be provided by Landlord to
Tenant under this Lease; post notices of non-responsibility; and make repairs or
improvements in or to the Building or the Premises; provided, however, that all
such work shall be done as promptly as reasonably possible and so as to cause as
little interference to Tenant as reasonably possible. Tenant hereby waives any
claim for damages for any injury or inconvenience to, or interference with,
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises or
any other loss occasioned by such entry. Landlord shall at all times have and
retain a key with which to unlock all of the doors in, on or about the Premises
(excluding Tenant's vaults, safes and similar areas designated by Tenant in
writing in advance), and Landlord shall have the right to use any and all means
by which Landlord may deem proper to open such doors to obtain entry to the
Premises, and any entry to the Premises obtained by Landlord by any such means,
or otherwise, shall not under any circumstances be deemed or construed to be a
forcible or unlawful entry into or a detainer of the Premises or an eviction,
actual or constructive, of Tenant from any part of the Premises. Such entry by
Landlord shall not act as a termination of Tenant's duties under this Lease. If
Landlord shall be required to obtain entry by means other than a key provided by
Tenant, the cost of such entry shall by payable by Tenant to Landlord as
additional rent.
ARTICLE XXII
LANDLORD'S LEASE UNDERTAKINGS-EXCULPATION FROM PERSONAL LIABILITY;
TRANSFER OF LANDLORD'S INTEREST
22.01 Landlord's Lease Undertakings. Notwithstanding anything to the
contrary contained in this Lease or in any exhibits, Riders or addenda hereto
attached (collectively the "Lease Documents"), it is expressly understood and
agreed by and between the parties hereto that: (a) the recourse of Tenant or its
successors or assigns against Landlord with respect to the alleged breach by or
on the part of Landlord of any representation, warranty, covenant, undertaking
or agreement contained in any of the Lease Documents or otherwise arising out of
Tenant's use of the Premises or the Building (collectively, "Landlord's Lease
Undertakings") shall extend only to Landlord's interest in the real estate of
which the Premises demised under the Lease Documents are a part ("Landlord's
Real Estate") and not to any other assets of Landlord or its constituent
partners; and (b) except to the extent of Landlord's interest in Landlord's Real
Estate, no personal liability or personal responsibility of any sort with
respect to any of Landlord's Lease Undertakings or any alleged breach thereof is
assumed by, or shall at any time be asserted or enforceable against, Landlord,
its constituent partners, Heitman Capital Management Corporation or
Kennedy-Wilson Properties Ltd., or against any of their respective directors,
officers, employees, agents, constituent partners, beneficiaries, trustees or
representatives.
22.02 Transfer of Landlord's Interest. In the event of any transfer of
Landlord's interest in the Building, Landlord shall be automatically freed and
relieved from all applicable liability with respect to performance of any
covenant or obligation on the part of Landlord, provided any deposits or advance
rents held by Landlord are turned over to the grantee and said grantee expressly
assumes, subject to the limitations of this Section 22, all the terms, covenants
and conditions of this Lease to be performed on the part of Landlord, it being
intended hereby that the covenants and obligations contained in this Lease on
the part of Landlord shall, subject to all the provisions of this Section 22, be
binding on Landlord, its successors and assigns, only during their respective
periods of ownership.
ARTICLE XXIII - HOLDOVER TENANCY
23.01 If Tenant holds possession of the Premises after the expiration
or termination of the Lease Term, by lapse of time or otherwise, Tenant shall
become a tenant at sufferance upon all of the terms contained herein, except as
to Lease Term and Rent. During such holdover period, Tenant shall pay to
Landlord a monthly rental equivalent to two hundred percent (200%) of the Rent
Payable by Tenant to Landlord with respect to the last month of the Lease Term.
The monthly rent payable for such holdover period shall in no event be construed
as a penalty or as liquidated damages for such retention of possession. Without
limiting the foregoing, Tenant hereby agrees to indemnify, defend and hold
harmless Landlord, its beneficiary, and their respective agents, contractors and
employees, from and against any and all claims, liabilities, actions, losses,
damages (including without limitation, direct, indirect, incidental and
consequential) and expenses (including, without limitation, court costs and
reasonable attorneys' fees) asserted against or sustained by any such party and
arising from or by reason of such retention of possession, which obligations
<PAGE>
shall survive the expiration or termination of the Lease Term.
ARTICLE XXIV - NOTICES
24.01 All notices which Landlord or Tenant may be required, or may
desire, to serve on the other may be served, as an alternative to personal
service, by mailing the same by registered or certified mail, postage prepaid,
addressed to Landlord at the address for Landlord set forth in Section 1.12
above and to Tenant at the address for Tenant set forth in Section 1.13 above,
or, from and after the Commencement Date, to Tenant at the Premises whether or
not Tenant has departed from, abandoned or vacated the Premises, or addressed to
such other address or addresses as either Landlord or Tenant may from time to
time designate to the other in writing. Any notice shall be deemed to have been
served at the time the same was posted.
ARTICLE XXV - BROKERS
25.01 The parties recognize as the broker(s) who procured this Lease
the firm(s) specified in Section 1.14 and agree that Landlord shall be solely
responsible for the payment of any brokerage commissions to said broker(s), and
that Tenant shall have no responsibility therefor unless written provision to
the contrary has been made a part of this Lease. If Tenant has dealt with any
other person or real estate broker in respect to leasing, subleasing or renting
space in the Building, Tenant shall be solely responsible for the payment of any
fee due said person or firm and Tenant shall protect, indemnify, hold harmless
and defend Landlord from any liability in respect thereto. Notwithstanding the
foregoing, there shall be no leasing commissions due to any parties under the
terms of this Lease.
ARTICLE XXVI - ELECTRONIC SERVICES
26.01 Tenant's Lines. Tenant may, in a manner consistent with the
provisions and requirements of this Lease, install, maintain, replace, remove or
use any communications or computer or other electronic service wires, cables and
related devices (collectively the "Lines") at the Building in or serving the
Premises, provided: (a) Tenant shall obtain Landlord's prior written consent,
which consent may be conditioned as required by Landlord, (b) if Tenant at any
time uses any equipment that may create an electromagnetic field exceeding the
normal insulation ratings of ordinary twisted pair riser cable or cause
radiation higher than normal background radiation, the Lines therefor (including
riser cables) shall be appropriately insulated to prevent such excessive
electromagnetic fields or radiation, and (c) Tenant shall pay all costs in
connection therewith. Landlord reserves the right to require that Tenant remove
any Lines which are installed in violation of these provisions. Tenant shall
not, without the prior written consent of Landlord in each instance, grant to
any third party a security interest or lien in or on the Lines, and any such
security interest or lien granted without Landlord's written consent shall be
null and void.
26.02 Definition of Electronic Services. As used herein "Electronic
Services Provider" means a business which provides telephone, telegraph, telex,
video, other telecommunications or other services which permit Tenant to receive
or transmit information by the use of electronics and which require the use of
wires, cables, antennas or similar devices in or on the Building. The services
of Electronic Services Providers are sometime referred to herein as "Electronic
Services."
26.03 No Right to Specific Services. Landlord shall have no obligation
(i) to install any Electronic Services equipment or facilities, (ii) to make
available to Tenant the services of any particular Electronic Services Provider,
(iii) to allow any particular Electronic Services Provider access to the
Building, (iv) to continue to grant access to an Electronic Services Provider
once such provider has been given access to the Building. Landlord may (but
shall not have the obligation to): (x) install new Lines at the property, (y)
create additional space for Lines at the property, and (z) adopt reasonable and
uniform rules and regulations with respect to Lines.
26.04 Limitation of Landlord's Responsibility. Tenant acknowledges and
agrees that all Electronic Services desired by Tenant shall be ordered and
utilized at the sole expense of Tenant. Unless Landlord otherwise requests or
consents in writing, all of Tenant's Electronic Services equipment shall be and
remain solely in the Tenant's premises and the telephone closet(s) on the
floor(s) on which the Tenant's premises is located, in accordance with rules and
regulations adopted by Landlord from time to time. Unless otherwise specifically
agreed to in writing, Landlord shall have no responsibility for the maintenance
of Tenant's Electronic Services equipment, including Lines; nor for any Lines or
other infrastructure to which Tenant's Electronic Services equipment may be
connected. Tenant agrees that, to the extent any Electronic Services are
interrupted, curtailed or discontinued, Landlord shall have no obligation or
liability with respect thereto and it shall be the sole obligation of Tenant at
its own expense to obtain substitute service. Except to the extent arising from
the intentional or grossly negligent acts of Landlord or Landlord's agents or
employees, Landlord shall have no liability for damages arising from, and
Landlord does not warrant that Tenant's use of any Lines will be free from the
following (collectively called "Line Problems"): (x) any eavesdropping or
wire-tapping by unauthorized parties, (y) any failure of any Lines to satisfy
Tenant's requirements, or (z) any shortages, failures, variations,
interruptions, disconnections, loss or damage caused by the installation,
maintenance, replacement, use or removal of Lines by or for other tenants or
<PAGE>
occupants at the property. Under no circumstances shall any Line Problems be
deemed an actual or constructive eviction of Tenant, render Landlord liable to
Tenant for abatement of Rent, or relieve Tenant from performance of Tenant's
obligations under this Lease. Landlord in no event shall be liable for damages
by reason of loss of profits, business interruption or other consequential
damage arising from any Line Problems.
26.05 Necessary Service Interruptions. Landlord shall have the right,
upon reasonable prior notice to Tenant, to interrupt or turn off Electronic
Services facilities in the event of emergency or as necessary in connection with
maintenance, repairs or construction at the Building or installation of
Electronic Services equipment for other Tenants of the Building or on account of
violation by the Electronic Services Provider or owner of the Electronic
Services equipment of any obligation to Landlord or in the event that Tenant's
use of the Electronic Services infrastructure of the Building materially
interferes with the Electronic Services of other tenants of the Building.
26.06 Removal of Equipment, Wiring and Other Facilities. Any and all
Electronic Services equipment installed in the Tenant's Premises or elsewhere in
the Building by or on behalf of Tenant, including Lines, or other facilities for
Electronic Services reception or transmittal, shall be removed prior to the
expiration or earlier termination of the Lease term, by Tenant at its sole cost
or, at Landlord's election, by Landlord at Tenant's sole cost, with the cost
thereof to be paid as additional rent. Landlord shall have the right, however,
upon written notice to Tenant given no later than thirty (30) days prior to the
expiration or earlier termination of the Lease term (except that the notice
period shall extend to thirty (30) days beyond the date of termination of the
Lease if it is terminated by either party due to a default by the other), to
require Tenant to abandon and leave in place, without additional payment to
Tenant or credit against rent, any and all Electronic Services Lines and related
infrastructure, or selected components thereof, whether located in the Tenant's
premises or elsewhere in the Building.
26.07 New Provider Installations. In the event that Tenant wishes at
any time to utilize the services of an Electronic Services Provider whose
equipment is not then servicing the Building, no such Electronic Services
Provider shall be permitted to install its Lines or other equipment within the
Building without first securing the prior written approval of the Landlord.
Landlord's approval shall not be deemed any kind of warranty or representation
by Landlord, including, without limitation, any warranty or representation as to
the suitability, competence, or financial strength of the Electronic Services
Provider. Without limitation of the foregoing standard, unless all of the
following conditions are satisfied to Landlord's satisfaction, it shall be
reasonable for Landlord to refuse to give its approval: (i) Landlord shall incur
no current expense or risk or future expense whatsoever with respect to any
aspect of the Electronic Services Provider's provision of its Electronic
Services, including without limitation, the costs of installation, materials and
services; (ii) prior to commencement of any work in or about the Building by the
Electronic Services Provider, the Electronic Services Provider shall supply
Landlord with such written indemnities, insurance, financial statements, and
such other items as Landlord reasonably determines to be necessary to protect
its financial interests and the interests of the Building relating to the
proposed activities of the Electronic Services Provider; (iii) the Electronic
Services Provider agrees to abide by such rules and regulations, Building and
other codes, job site rules and such other requirements as are reasonably
determined by Landlord to be necessary to protect the interests of the Building,
the Tenants in the Building and Landlord, in the same or similar manner as
Landlord has the right to protect itself and the Building with respect to
proposed alterations as described in Article IX of this Lease; (iv) Landlord
reasonably determines that, considering other potential uses for space in the
Building, there is sufficient space in the Building for the placement of all of
the provider's equipment, conduit, Lines and other materials; (v) the Electronic
Services Provider agrees to abide by Landlord's requirements, if any, that
provider use existing Building conduits and pipes or use Building contractors
(or other contractors approved by Landlord); (vi) Landlord receives from the
Electronic Services Provider such compensation as is reasonably determined by
Landlord to compensate it for space used in the Building for the storage and
maintenance of the Electronic Services Provider's equipment, for the fair market
value of a Electronic Services Provider's access to the Building, for the use of
common or core space within the Building and the costs which may reasonably be
expected to be incurred by Landlord; (vii) the provider agrees to deliver to
Landlord detailed "as built" plans immediately after the installation of the
provider's equipment is complete; and (viii) all of the foregoing matters are
documented in a written license agreement between Landlord and the provider, the
form and content of which is reasonably satisfactory to Landlord."
26.08 Limit of Default or Breach. Notwithstanding any provision of the
proceeding paragraphs to the contrary, the refusal of Landlord to grant its
approval to any prospective Electronic Services Provider shall not be deemed a
default or breach by Landlord of its obligation under this Lease unless and
until Landlord is adjudicated to have acted recklessly or maliciously with
respect to Tenant's request for approval, and in that event, Tenant shall still
have no right to terminate the Lease or claim an entitlement to rent abatement,
but may as Tenant's sole and exclusive recourse seek a judicial order of
specific performance compelling Landlord to grant its approval as to the
prospective provider in question. The provisions of this paragraph may be
enforced solely by Tenant and Landlord, are not for the benefit of any other
party, and specifically but without limitation, no telephone or other Electronic
Services Provider shall be deemed a third party beneficiary of this Lease.
<PAGE>
26.09 Installation and Use of Wireless Technologies. Tenant shall not
utilize any wireless Electronic Services equipment (other than usual and
customary cellular telephones), including antennae and satellite receiver
dishes, within the Tenant's premises, within the Building or attached to the
outside walls or roof of the Building, without Landlord's prior written consent.
Such consent may be conditioned in such a manner so as to protect Landlord's
financial interests and the interests of the Building, and the other tenants
therein, in a manner similar to the arrangements described in the immediately
preceding paragraphs.
26.10 Limitation of Liability For Equipment Interference. In the event
that Electronic Services equipment, Lines and facilities or satellite and
antennae equipment of any type installed by or at the request of Tenant within
the Tenant's premises, on the roof, or elsewhere within or on the Building
causes interference to equipment used by another party, Tenant shall cease using
such equipment, Lines and facilities or satellite and antennae equipment until
the source of the interference is identified and eliminated and Tenant shall
assume all liability related to such interference. Tenant shall cooperate with
Landlord and other parties, to eliminate such interference promptly. In the
event that Tenant is unable to do so, Tenant will substitute alternative
equipment which remedies the situation. If such interference persists, Tenant
shall, at Landlord's sole discretion, remove such equipment.
ARTICLE XXVII - MISCELLANEOUS
27.01 Entire Agreement. This Lease contains all of the agreements and
understandings relating to the leasing of the Premises and the obligations of
Landlord and Tenant in connection with such leasing. Landlord has not made, and
Tenant is not relying upon, any warranties, or representations, promises or
statements made by Landlord or any agent of Landlord, except as expressly set
forth herein. This Lease supersedes any and all prior agreements and
understandings between Landlord and Tenant and alone expresses the agreement of
the parties.
27.02 Amendments. This Lease shall not be amended, changed or modified
in any way unless in writing executed by Landlord and Tenant. Landlord shall not
have waived or released any of its rights hereunder unless in writing and
executed by Landlord.
27.03 Successors. Except as expressly provided herein, this Lease and
the obligations of Landlord and Tenant contained herein shall bind and benefit
the successors and assigns of the parties hereto.
27.04 Force Majeure. Landlord shall incur no liability to Tenant with
respect to, and shall not be responsible for any failure to perform, any of
Landlord's obligations hereunder if such failure is caused by any reason beyond
the control of Landlord including, but not limited to, strike, labor trouble,
governmental rule, regulations, ordinance, statute or interpretation, or by
fire, earthquake, civil commotion, or failure or disruption of utility services.
The amount of time for Landlord to perform any of Landlord's obligations shall
be extended by the amount of time Landlord is delayed in performing such
obligation by reason of any force majeure occurrence whether similar to or
different from the foregoing types of occurrences.
27.05 Survival of Obligations. Any obligations of Tenant accruing prior
to the expiration of the Lease shall survive the expiration or earlier
termination of the Lease, and Tenant shall promptly perform all such obligations
whether or not this Lease has expired or been terminated.
27.06 Light and Air. No diminution or shutting off of any light, air or
view by any structure now or hereafter erected shall in any manner affect this
Lease or the obligations of Tenant hereunder, or increase any of the obligations
of Landlord hereunder.
27.07 Governing Law. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.
27.08 Severability. In the event any provision of this Lease is found
to be unenforceable, the remainder of this Lease shall not be affected, and any
provision found to be invalid shall be enforceable to the extent permitted by
law. The parties agree that in the event two different interpretations may be
given to any provision hereunder, one of which will render the provision
unenforceable, and one of which will render the provision enforceable, the
interpretation rendering the provision enforceable shall be adopted.
27.09 Captions. All captions, headings, titles, numerical references
and computer highlighting are for convenience only and shall have no effect on
the interpretation of this Lease.
27.10 Interpretation. Tenant acknowledges that it has read and reviewed
this Lease and that it has had the opportunity to confer with counsel in the
negotiation of this Lease. Accordingly, this Lease shall be construed neither
for nor against Landlord or Tenant, but shall be given a fair and reasonable
interpretation in accordance with the meaning of its terms and the intent of the
parties.
27.11 Independent Covenants. Each covenant, agreement, obligation or
other provision of this Lease to be performed by Tenant are separate and
<PAGE>
independent covenants of Tenant, and not dependent on any other provision of the
Lease.
27.12 Number and Gender. All terms and words used in this Lease,
regardless of the number or gender in which they are used, shall be deemed to
include the appropriate number and gender, as the context may require.
27.13 Time is of the Essence. Time is of the essence of this Lease and
the performance of all obligations hereunder.
27.14 Joint and Several Liability. If Tenant comprises more than one
person or entity, or if this Lease is guaranteed by any party, all such persons
shall be jointly and severally liable for payment of rents and the performance
of Tenant's obligations hereunder. If Tenant comprises more than one person or
entity and fewer than all of the persons or entities comprising Tenant abandon
the Premises, Landlord, at its sole option, may treat the abandonment by such
person or entities as an event of default and exercise with respect to such
persons the rights and remedies provided in Article XV without affecting the
right or obligations of the persons or entities comprising Tenant which have not
abandoned the property.
27.15 Exhibits. Exhibits A (Outline of Premises), B (Work Letter
Agreement), C (Rules and Regulations), D (Guaranty) and E (Suite Acceptance
Letter) are incorporated into this Lease by reference and made a part hereof.
27.16 Offer to Lease. The submission of this Lease to Tenant or its
broker or other agent, does not constitute an offer to Tenant to lease the
Premises. This Lease shall have no force and effect until (a) it is executed and
delivered by Tenant to Landlord and (b) it is fully reviewed and executed by
Landlord; provided, however, that, upon execution of this Lease by Tenant and
delivery to Landlord, such execution and delivery by Tenant, shall, in
consideration of the time and expense incurred by Landlord in reviewing the
Lease and Tenant's credit, constitute an offer by Tenant to lease the Premises
upon the terms and conditions set forth herein (which offer to Lease shall be
irrevocable for twenty (20) business days following the date of delivery).
27.17 No Counterclaim; Choice of Laws. It is mutually agreed that in
the event Landlord commences any summary proceeding for non-payment of Rent,
Tenant will not interpose any counterclaim of whatever nature or description in
any such proceeding. In addition, Tenant hereby submits to local jurisdiction in
the State of California and agrees that any action by Tenant against Landlord
shall be instituted in the State of California and that Landlord shall have
personal jurisdiction over Tenant for any action brought by Landlord against
Tenant in the State of California.
27.18 Electrical Service to the Premises. Anything set forth in Section
7.01 or elsewhere in this Lease to the contrary notwithstanding, electricity to
the Premises shall not be furnished by Landlord, but shall be furnished by the
approved electric utility company serving the Building. Landlord shall permit
Tenant to receive such service directly from such utility company at Tenant's
cost (except as otherwise provided herein) and shall permit Landlord's wire and
conduits, to the extent available, suitable and safely capable, to be used for
such purposes.
27.19 Rights Reserved by Landlord. Landlord reserves the following
rights exercisable without notice (except as otherwise expressly provided to the
contrary in this Lease) and without being deemed an eviction or disturbance of
Tenant's use or possession of the Premises or giving rise to any claim for
set-off or abatement of Rent: (i ) to change the name or street address of the
Building; (ii) to install, affix and maintain all signs on the exterior and/or
interior of the Building; (iii) to designate and/or approve prior to
installation, all types of signs, window shades, blinds, drapes, awnings or
other similar items, and all internal lighting that may be visible from the
exterior of the Premises and, notwithstanding the provisions of Article IX, the
design, arrangement, style, color and general appearance of the portion of the
Premises visible from the exterior, and contents thereof, including, without
limitation, furniture, fixtures, signs, art work, wall coverings, carpet and
decorations, and all changes, additions and removals thereto, shall, at all
times have the appearance of premises having the same type of exposure and used
for substantially the same purposes that are generally prevailing in comparable
office buildings in the area. Any violation of this provision shall be deemed a
material breach of this Lease; (iv) to change the arrangement of entrances,
doors, corridors, elevators and/or stairs in the Building, provided no such
change shall materially adversely affect access to the Premises; (v) to grant
any party the exclusive right to conduct any business or render any service in
the Building, provided such exclusive right shall not operate to prohibit Tenant
from using the Premises for the purposes permitted under this Lease; (vi) to
prohibit the placement of vending or dispensing machines of any kind in or about
the Premises other than for use by Tenant's employees; (vii) to prohibit the
placement of video or other electronic games in the Premises; (viii) to have
access for Landlord and other tenants of the Building to any mail chutes and
boxes located in or on the Premises according to the rules of the United States
Post Office and to discontinue any mail chute business in the Building; (ix) to
close the Building after normal business hours, except that Tenant and its
employees and invitees shall be entitled to admission at all times under such
rules and regulations as Landlord prescribes for security purposes; (x) to
install, operate and maintain security systems which monitor, by close circuit
television or otherwise, all persons entering or leaving the Building; (xi) to
install and maintain pipes, ducts, conduits, wires and structural elements
<PAGE>
located in the Premises which serve other parts or other tenants of the
Building; and (xii) to retain at all times master keys or pass keys to the
Premises.
IN WITNESS WHEREOF, the parties hereto have executed this lease as of
the date first above written.
LANDLORD: TENANT:
WILSHIRE-CAMDEN ASSOCIATES, KENNEDY-WILSON, INC.,
a California limited partnership a Delaware corporation
By: KENNEDY-WILSON PROPERTIES LTD.,
an Illinois corporation, its duly
authorized agent and attorney-in-fact
By: /s/ William J. McMorrow
Its: Chief Executive Officer
By: By: /s/ Freeman Lyle
--------------------------------- Its: Chief Financial Officer
Its:
--------------------------------
<PAGE>
EXHIBIT A
FLOOR PLAN OF PREMISES
<PAGE>
PARKING COMMITMENT
1. Landlord agrees to cause Century Parking, Inc., a California
corporation, or such other person to whom Landlord shall hereafter lease the
Garage (the "Garage Lessee") to enter into parking agreement ("Parking
Agreement") with Tenant, on the Garage Lessee's standard form of parking
agreement, for the use of up to seventy-eight (78) parking spaces in the
Property Garage (referred to herein as the "Garage") during the Term of this
Lease, as it may be extended or as it may be terminated prior to its scheduled
expiration date. Tenant shall pay Garage Lessee the monthly charges established
from time to time by the Garage Lessee for parking in the Garage. The initial
monthly or each such space is per the following schedule:
<TABLE>
<C> <C>
P1 Reserved $200.00
P1 Unreserved $145.00
P2 Unreserved $125.00
P3 & P4 Unreserved $105.00
</TABLE>
Notwithstanding the foregoing, Tenant shall be granted three (3)
reserved spaces on the P-1 level at no charge. In addition, up to 35 unreserved
spaces on the P-3 and P-4 levels shall be made available to Tenant at $50.00 per
month per stall and shall increase at the same rate as the rates on the balance
of the garage. At such time as the space currently leased to Wells Fargo Bank
becomes occupied or the average occupancy for the parking garage (monthly and
transient parking) reaches 90%, the rates shall revert to the then current
market rates.
2. Tenant acknowledges that the Garage Lessee is an independent
contractor, not affiliated with Landlord, and further acknowledges that Landlord
shall have no liability for claims arising through act or omissions of Garage
Lessee.
3. If Tenant's rights under the Parking Agreement are terminated
pursuant to the terms of such agreement, Landlord shall have the right to
immediately terminate Tenant's rights under this Agreement.
4. It is understood and agreed that the identity of the Garage Lessee
may change from time to time during the Term of the Lease and/or the Parking
Agreement. Tenant hereby consents to the assignment, from time to time, of the
initial or any successor Garage Lessee's interest in the Parking Agreement to
another Garage Lessee or at Landlord's option. Tenant shall, from time to time
enter into a new parking agreement with another Garage Lessee.
LANDLORD:
WILSHIRE-CAMDEN ASSOCIATES,
a California limited partnership
By: HEITMAN PROPERTIES LTD., an Illinois
corporation, its duly authorized agent and
attorney-in-fact
By:
----------------------------------
TENANT:
KENNEDY-WILSON INC.,
a California corporation
By:
----------------------------------
Its:
---------------------------------
By:
----------------------------------
Its:
---------------------------------
<PAGE>
RENEWAL OPTION
RENEWAL OPTION. Tenant shall have an option (the "Renewal Option") to
renew the initial term with respect to all (but not less than all) of the
Premises demised under or pursuant to this Lease as of the expiration date of
the Term for one additional term (the "Renewal Term") of five (5) years,
commencing on the day immediately following the expiration date of the initial
Term, under the following terms and conditions and subject to credit approval by
Landlord:
(1) Tenant gives Landlord written notice of its election to exercise
the Renewal Option no earlier than the date which is three hundred sixty-five
(365) days prior to the expiration date of the initial Term and no later than
the date which is two hundred seventy (270) days prior to the expiration date of
the initial Term.
(2) Terms is not in breach or default under this Lease either on the
date Tenant exercises the Renewal Option or at any time through and including
the proposed commencement date of the Renewal Term.
34.02 TERM. If Tenant timely and properl6y exercises the Renewal Option
in accordance with the above provisions:
(1) the Rent payable for the Renewal Term shall be based on the then
prevailing rent for similar space in this property, but in no event shall the
rental rate be less than the adjusted rental rate payable under this Lease on
the expiration date of the initial Term. For purposes of the preceding sentence,
"prevailing rental rate" shall mean the total rental then being quoted by
Landlord to third party tenants for reasonably comparable space in the Building
for leases approximately as long, and commencing at approximately the same time,
as the Renewal Term, subject to reasonable adjustment for the desirability of
the applicable floor or area of the Building. If Landlord is not then quoting
rental rates for comparable space, the rates used for purposes of this provision
shall be those rates Landlord would have used if Landlord had quoted such rates.
Landlord's good faith determination of the "prevailing rental rate" shall be
conclusive and binding as to landlord and Tenant. If Tenant timely and properly
exercises the Renewal Option, Landlord agrees to give Tenant written notice
setting forth the prevailing rental rate, when notice shall be given prior to
the commencement date of the Renewal Term.
(2) Tenant shall have no further options to renew the initial Term of
this Lease beyond the expiration date of the Renewal Term.
(3) Landlord will not be required to give any economic concession in
connection with the exercise of this option. Without limiting the generality of
the foregoing, Landlord will not be obligated to perform or give an allowance
for leasehold improvements.
(4) Except as otherwise provided herein, all of the terms and
provisions of this Lease shall remain the same and in full force and effect
during the Renewal Term.
AMENDMENT. If Tenant exercises the Renewal Option, Landlord and Tenant
shall execute and deliver an amendment to this Lease (or, at Landlord's option,
a new lease on the form then in use for the Building) reflecting the lease of
the Premises by Landlord to Tenant for the Renewal Term on the terms provided
above, which amendment (or new lease, as the case may be) shall be executed and
delivered prior to the commencement date of the Renewal Term.
TERMINATION. The Renewal Option shall automatically terminate and
become null and void and of no force or effect upon the earlier to occur of (1)
the expiration or termination of this Lease, (2) the termination of the Tenant's
right to possession of the Premises, (3) the assignment of this Lease by Tenant,
(4) the sublease by Tenant of all of the Premises, or (5) the failure of Tenant
to timely or properly exercise the Renewal Option or (6) the occurrence of an
Event of Default by Tenant under the Lease.
<PAGE>
EXHIBIT B
WORK LETTER AGREEMENT
[Landlord Performs Work]
[Allowance]
This Work Letter Agreement ("Work Letter") is executed simultaneously
with that certain Office Lease (the "Lease") between KENNEDY-WILSON, INC., a
Delaware corporation , as "Tenant", and WILSHIRE-CAMDEN ASSOCIATES, a California
limited partnership, as "Landlord", relating to demised premises ("Premises") at
the building commonly known as 9601 WILSHIRE (the "Building"), which Premises
are more fully identified in the Lease. Capitalized terms used herein, unless
otherwise defined in this Work Letter, shall have the respective meanings
ascribed to them in the Lease.
For and in consideration of the agreement to lease the Premises and the
mutual covenants contained herein and in the Lease, Landlord and Tenant hereby
agree as follows:
1. Tenant's Initial Plans; the Work. Tenant desires Landlord to perform
certain leasehold improvement work in the Premises in substantial accordance
with the plan or plans (collectively, the "Initial Plan") prepared by
Architectural Charettes dated ___ and last revised _______, a copy or copies of
which is/are attached hereto as Schedule 1. Such work, as shown in the Initial
Plan and as more fully detailed in the Working Drawings (as defined and
described in Paragraph 2 below), shall be hereinafter referred to as the "Work".
Not later than August 15, 1998, Tenant shall furnish to Landlord such additional
plans, drawings, specifications and finish details as Landlord may reasonably
request to enable Landlord's architects and engineers to prepare mechanical,
electrical and plumbing plans and to prepare the Working Drawings, including a
final telephone layout and special electrical connection requirements, if any.
All plans, drawings, specifications and other details describing the Work which
have been or are hereafter furnished by or on behalf of Tenant shall be subject
to Landlord's approval, which Landlord agrees shall not be unreasonably
withheld. Landlord shall not be deemed to have acted unreasonably if it
withholds its approval of any plans, specifications, drawings or other details
or of any Additional Work (as defined in Paragraph 7 below) because, in
Landlord's reasonable opinion, the work, as described in any such item, or the
Additional Work, as the case may be: (a) is likely to adversely affect Building
systems, the structure of the Building or the safety of the Building and/or its
occupants; (b) might impair Landlord's ability to furnish services to Tenant or
other tenants in the Building; (c) would increase the cost of operating the
Building; (d) would violate any governmental laws, rules or ordinances (or
interpretations thereof); (e) contains or uses hazardous or toxic materials or
substances; (f) would adversely affect the appearance of the Building; (g) might
adversely affect another tenant's premises; (h) is prohibited by any ground
lease affecting the Building or any mortgage, trust deed or other instrument
encumbering the Building; or (i) is likely to be substantially delayed because
of unavailability or shortage of labor or materials necessary to perform such
work or the difficulties or unusual nature of such work. The foregoing reasons,
however, shall not be the only reasons for which Landlord may withhold its
approval, whether or not such other reasons are similar or dissimilar to the
foregoing. Neither the approval by Landlord of the Work or Initial Plan or any
other plans, drawings, specifications or other items associated with the Work
nor Landlord's performance, supervision or monitoring of the Work shall
constitute any warranty by Landlord to Tenant of the adequacy of the design for
Tenant's intended use of the Premises. Landlord shall be entitled to a payment
of 5% of the cost associated with the completion of Tenant's buildout, which
cost shall include architectural and engineering and similar fees and all costs
associated with the construction of the space as charged by the general
contractor selected to perform the work. This payment is for the coordination
and day to day supervision performed by Landlord's staff in completing Tenant's
buildout. This payment will be part of the Turn Key package.
2. Working Drawings. If necessary for the performance of the Work and
not included as part of the Initial Plan attached hereto, Landlord shall prepare
or cause to be prepared final working drawings and specifications for the Work
(the "Working Drawings") based on and consistent with the Initial Plan and the
other plans, drawings, specifications, finish details and other information
furnished by Tenant to Landlord and approved by Landlord pursuant to Paragraph 1
above. So long as the Working Drawings are consistent with the Initial Plan,
Tenant shall approve the Working Drawings within three (3) days after receipt of
same from Landlord by initialing and returning to Landlord each sheet of the
Working Drawings or by executing Landlord's approval form then in use, whichever
method of approval Landlord may designate.
3. Performance of the Work. Landlord, at its expense, shall cause the
Work to be performed using building standard materials, quantities and
procedures then in use by Landlord ("Building Standards"), except as may be
stated or shown otherwise in the Working Drawings.
4. Authorization to Proceed. Landlord may proceed with the Work at any
time after the execution of this Work Letter and the completion of the Working
Drawings, if applicable; provided, however, that Landlord, at it option, may
request Tenant to execute and deliver to Landlord a separate written
authorization (in the form then in use by Landlord) to proceed with the Work, in
which event Tenant shall execute and deliver such written authorization within
<PAGE>
three (3) days after Landlord's request therefor, and, at Landlord's option, no
Work shall be commenced until Tenant has executed and delivered to Landlord such
authorization.
5. Substantial Completion. Landlord shall cause the Work to be
"substantially completed" on or before the scheduled date of commencement of the
term of the Lease as specified in Section 1.05 of the Lease, subject to delays
caused by strikes, lockouts, boycotts or other labor problems, casualties,
discontinuance of any utility or other service required for performance of the
Work, unavailability or shortages of materials or other problems in obtaining
materials necessary for performance of the Work or any other matter beyond the
control of Landlord (or beyond the control of Landlord's contractors or
subcontractors performing the Work) and also subject to "Tenant Delays" (as
defined and described in Paragraph 6 of this Work Letter). The Work shall be
deemed to be "substantially completed" for all purposes under this Work Letter
and the Lease if and when Landlord's architect issues a written certificate to
Landlord and Tenant, certifying that the Work has been substantially completed
(i.e., completed except for "punchlist" items listed in such architect's
certificate) in substantial compliance with the Working Drawings, or when Tenant
first takes occupancy of the Premises, whichever first occurs. If the Work is
not deemed to be substantially completed on or before the scheduled date of the
commencement of the term of the Lease as specified in Section 1.05 of the Lease,
(a) Landlord agrees to use reasonable efforts to complete the Work as soon as
practicable thereafter, (b) the Lease shall remain in full force and effect, (c)
Landlord shall not be deemed to be in breach or default of the Lease or this
Work Letter as a result thereof and Landlord shall have no liability to Tenant
as a result of any delay in occupancy (whether for damages, abatement of Rent or
otherwise), and (d) except in the event of Tenant Delays, and notwithstanding
anything contained in the Lease to the contrary, the Commencement Date of the
Lease Term as specified in Section 1.05 of the Lease shall be extended to the
date on which the Work is deemed to be substantially completed and the
Expiration Date of the Lease Term as specified in Section 1.06 of the Lease
shall be extended by an equal number of days. At the request of either Landlord
or Tenant in the event of such extensions in the commencement and expiration
dates of the term of the Lease, Tenant and Landlord shall execute and deliver an
amendment to the Lease reflecting such extensions. Landlord agrees to use
reasonable diligence to complete all punchlist work listed in the aforesaid
architect's certificate promptly after substantial completion.
6. Tenant Delays. There shall be no extension of the scheduled
commencement or expiration date of the term of the Lease (as otherwise
permissibly extended under Paragraph 5 above) if the Work has not been
substantially completed on said scheduled commencement date by reason of any
delay attributable to Tenant ("Tenant Delays"), including without limitation:
(i) the failure of Tenant to furnish all or any plans,
drawings, specifications, finish details or the other information required under
Paragraph 1 above on or before the date stated in Paragraph 1;
(ii) the failure of Tenant to grant approval of the Working
Drawings within the time required under Paragraph 2 above;
(iii) the failure of Tenant to comply with the requirements of
Paragraph 4 above;
(iv) Tenant's requirements for special work or materials,
finishes, or installations other than the Building Standards or Tenant's
requirement for special construction staging or phasing;
(v) the performance of any Additional Work (as defined in
Paragraph 7 below) requested by Tenant or the performance of any work in the
Premises by any person, firm or corporation employed by or on behalf of Tenant,
or any failure to complete or delay in completion of such work; or
(vi) any other act or omission of Tenant that causes a delay.
7. Additional Work. Upon Tenant's request and submission by Tenant (at
Tenant's sole cost and expense) of the necessary information and/or plans and
specifications for work other than the Work described in the Working Drawings
("Additional Work") and the approval by Landlord of such Additional Work, which
approval Landlord agrees shall not be unreasonably withheld, Landlord shall
perform such Additional Work, at Tenant's sole cost and expense, subject,
however, to the following provisions of this Paragraph 7. Prior to commencing
any Additional Work requested by Tenant, Landlord shall submit to Tenant a
written statement of the cost of such Additional Work, which cost shall include
a fee payable to Landlord in the amount of 15% of the total cost of such
Additional Work as compensation to Landlord for monitoring the Additional Work
and for administration, overhead and field supervision associated with the
Additional Work and an additional charge payable to Landlord in the amount of 5%
of the total Cost of the Additional Work as compensation for Landlord's general
conditions (such fee and additional charge being hereinafter referred to
collectively as "Landlord's Additional Compensation"), and, concurrently with
such statement of cost, Landlord shall also submit to Tenant a proposed tenant
extra order (the "TEO") for the Additional Work in the standard form then in use
by Landlord. Tenant shall execute and deliver to Landlord such TEO and shall pay
to Landlord the entire cost of the Additional Work, including Landlord's
Additional Compensation (as reflected in Landlord's statement of such cost),
within five (5) days after Landlord's submission of such statement and TEO to
Tenant. If Tenant fails to execute or deliver such TEO or pay the entire cost of
<PAGE>
such Additional Work within such 5-day period, then Landlord shall not be
obligated to do any of the Additional Work and may proceed to do only the Work,
as specified in the Working Drawings.
8. Tenant Access. Landlord, in Landlord's reasonable discretion and
upon request by Tenant, may grant to Tenant a license to have access to the
Premises prior to the date designated in the Lease for the commencement of the
term of the Lease to allow Tenant to do other work required by Tenant to make
the Premises ready for Tenant's use and occupancy (the "Tenant's Pre-Occupancy
Work"). It shall be a condition to the grant by Landlord and continued
effectiveness of such license that:
(a) Tenant shall give to Landlord a written request to have
such access to the Premises not less than five (5) days prior to the date on
which such access will commence, which written request shall contain or shall be
accompanied by each of the following items, all in form and substance reasonably
acceptable to Landlord: (i) a detailed description of and schedule for Tenant's
Pre-Occupancy Work; (ii) the names and addresses of all contractors,
subcontractors and material suppliers and all other representatives of Tenant
who or which will be entering the Premises on behalf of Tenant to perform
Tenant's Pre-Occupancy Work or will be supplying materials for such work, and
the approximate number of individuals, itemized by trade, who will be present in
the Premises; (iii) copies of all contracts, subcontracts and material purchase
orders pertaining to Tenant's Pre-Occupancy Work; (iv) copies of all plans and
specifications pertaining to Tenant's Pre-Occupancy Work; (v) copies of all
licenses and permits required in connection with the performance of Tenant's
Pre-Occupancy Work; (vi) certificates of insurance (in amounts satisfactory to
Landlord and with the parties identified in, or required by, the Lease named as
additional insureds) and instruments of indemnification against all claims,
costs, expenses, damages and liabilities which may arise in connection with
Tenant's Pre-Occupancy Work; and (vii) assurances of the ability of Tenant to
pay for all of Tenant's Pre-Occupancy Work and/or a letter of credit or other
security deemed appropriate by Landlord securing Tenant's lien-free completion
of Tenant's Pre-Occupancy Work.
(b) Such pre-term access by Tenant and its representatives
shall be subject to scheduling by Landlord.
(c) Tenant's employees, agents, contractors, workmen,
mechanics, suppliers and invitees shall work in harmony and not interfere with
Landlord or Landlord's agents in performing the Work and any Additional Work in
the Premises, Landlord's work in other premises and in common areas of the
Building, or the general operation of the Building. If at any time any such
person representing Tenant shall cause or threaten to cause such disharmony or
interference, including labor disharmony, and Tenant fails to immediately
institute and maintain such corrective actions as directed by Landlord, then
Landlord may withdraw such license upon twenty-four (24) hours' prior written
notice to Tenant.
(d) Any such entry into and occupancy of the Premises by
Tenant or any person or entity working for or on behalf of Tenant shall be
deemed to be subject to all of the terms, covenants, conditions and provisions
of the Lease, specifically including the provisions of Section IX thereof
(regarding Tenant's improvements and alterations to the Premises), and excluding
only the covenant to pay Rent. Landlord shall not be liable for any injury, loss
or damage which may occur to any of Tenant's Pre-Occupancy Work made in or about
the Premises or to property placed therein prior to the commencement of the term
of the Lease, the same being at Tenant's sole risk and liability. Tenant shall
be liable to Landlord for any damage to the Premises or to any portion of the
Work or Additional Work caused by Tenant or any of Tenant's employees, agents,
contractors, workmen or suppliers. In the event that the performance of Tenant's
Pre-Occupancy Work causes extra costs to Landlord or requires the use of
elevators during hours other than ___________a.m. to __________ p.m. on Monday
through Friday (excluding holidays) or of other Building services, Tenant shall
reimburse Landlord for such extra cost, and/or shall pay Landlord for such
elevator service or other Building services at Landlord's standard rates then in
effect.
9. Lease Provisions. The terms and provisions of the Lease, insofar as
they are applicable to this Work Letter are hereby incorporated herein by
reference. All amounts payable by Tenant to Landlord hereunder shall be deemed
to be additional Rent under the Lease and, upon any default in the payment of
same, Landlord shall have all of the rights and remedies provided for in the
Lease.
10. Miscellaneous.
(a) This Work Letter shall be governed by the laws of the
state in which the Premise are located.
(b) This Work Letter may not be amended except by a written
instrument signed by the party or parties to be bound thereby.
(c) Any person signing this Work Letter on behalf of Tenant
warrants and represents he/she has authority to sign and deliver this Work
Letter and bind Tenant.
(d) Notices under this Work Letter shall be given in the same
manner as under the Lease.
<PAGE>
(e) The headings set forth herein are for convenience only.
(f) This Work Letter sets forth the entire agreement of
Tenant and Landlord regarding the Work.
(g) In the event that the final working drawings and
specifications are included as part of the Initial Plan attached hereto, or in
the event Landlord performs the Work without the necessity of preparing working
drawings and specifications, then whenever the term "Working Drawings" is used
in this Agreement, such term shall be deemed to refer to the Initial Plan and
all supplemental plans and specifications approved by Landlord.
11. Exculpation of Landlord and Kennedy-Wilson. Notwithstanding
anything to the contrary contained in this Work Letter, it is expressly
understood and agreed by and between the parties hereto that:
(a) The recourse of Tenant or its successors or assigns
against Landlord with respect to the alleged breach by or on the part of
Landlord of any representation, warranty, covenant, undertaking or agreement
contained in this Work Letter or the Lease (collectively "Landlord's Work Letter
Undertakings") shall extend only to Landlord's interest in the real estate, of
which the Premises demised under the Lease Documents are a part (hereinafter,
"Landlord's Real Estate") and not to any other assets of Landlord or its
constituent partners; and
(b) Except to the extent of Landlord's interest in Landlord's
Real Estate, no personal liability or personal responsibility of any sort with
respect to any of Landlord's Work Letter Undertakings or any alleged breach
thereof is assumed by, or shall at any time be asserted or enforceable against,
Landlord, its constituent partners, Heitman Capital Management Corporation or
Kennedy-Wilson Properties Ltd., or against any of their respective directors,
officers, employees, agents, constituent partners, beneficiaries, trustees or
representatives.
IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the
_______________ day of ______________________________, 19 _________.
TENANT: LANDLORD:
KENNEDY-WILSON, INC. WILSHIRE-CAMDEN ASSOCIATES,
a Delaware corporation a California limited partnership
By: KENNEDY-WILSON PROPERTIES LTD., an
Illinois corporation, its duly
authorized agent and
By: /s/ William J. McMorrow attorney-in-fact
Its: Chief Executive Officer
By: /s/ Freeman Lyle By:
Its: Chief Financial Officer -------------------------------
Its:
------------------------------
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or used for any purpose
other than ingress and egress. The halls, passages, entrances, elevators,
stairways, balconies and roof are not for the use of the general public, and
Landlord shall in all cases retain the right to control or prevent access
thereto by all persons whose presence in the judgment of Landlord shall be
prejudicial to the safety, character, reputation or interests of Landlord and
its tenants, provided that nothing herein contained shall be construed to
prevent such access by persons with whom the tenant normally deals in the
ordinary course of its business unless such persons are engaged in illegal
activities. No tenant and no employees of any tenant shall go upon the roof of
the Building without the written consent of Landlord.
2. No awnings or other projections shall be attached to the outside
walls or surfaces of the Building nor shall the interior or exterior of any
windows be coated without the prior written consent of Landlord. Except as
otherwise specifically approved by Landlord, all electrical ceiling fixtures
hung in offices or spaces along the perimeter of the Building must be
fluorescent and of a quality, type, design and bulb color approved by Landlord.
Tenant shall not place anything or allow anything to be placed near the glass of
any window, door, partition or wall which may appear unsightly from outside the
Premises.
3. No sign, picture, plaque, advertisement, notice or other material
shall be exhibited, painted, inscribed or affixed by any tenant on any part of,
or so as to be seen from the outside of, the Premises or the Building without
the prior written consent of Landlord. In the event of the violation of the
foregoing by any tenant, Landlord may remove the same without any liability, and
may charge the expense incurred in such removal to the tenant violating this
rule. Interior signs on doors and the directory tablet shall be inscribed,
painted or affixed for each tenant by Landlord at the expense of such tenant,
and shall be of a size, color and style acceptable to Landlord.
4. The toilets and wash basins and other plumbing fixtures shall not be
used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags or other substances shall be thrown therein. All damage
resulting from any misuse of the fixtures shall be borne by tenant who, or whose
servants, employees, agents, visitors or licensees, shall have caused the same.
5. No tenant or its officers, agents, employees or invitees shall mark,
paint, drill into, or in any way deface any part of the Premises or the
Building. No boring, cutting or stringing of wires or laying of linoleum or
other similar floor coverings shall be permitted except with the prior written
consent of Landlord and as Landlord may direct.
6. No bicycles, vehicles or animals of any kind shall be brought into
or kept in or about the Premises and no cooking shall be done or permitted by
any tenant on the Premises except that microwave cooking in a UL-approved
microwave oven and the preparation of coffee, tea, hot chocolate and similar
items for the tenant and its employees and business visitors shall be permitted.
Tenant shall not cause or permit any unusual or objectionable odors to escape
from the Premises.
7. The Premises shall not be used for manufacturing or for the storage
of merchandise except as such storage may be incidental to the use of the
Premises for general office purposes. No tenant shall engage or pay any
employees on the Premises except those actually working for such tenant on the
Premises nor advertise for laborers giving an address at the Premises. The
Premises shall not be used for lodging or sleeping or for any immoral or illegal
purposes.
8. No tenant or its officers, agents, employees or invitees shall make,
or permit to be made any unseemly or disturbing noises, sounds or vibrations or
disturb or interfere with occupants of this or neighboring buildings or Premises
or those having business with them whether by the use of any musical instrument,
radio, phonograph, unusual noise, or in any other way.
9. No tenant or its officers, agents, employees or invitees shall throw
anything out of doors, balconies or down the passageways.
10. Tenant shall not maintain armed security in or about the Premises
nor possess any weapons, explosives, combustibles or other hazardous devices in
or about the Building and/or Premises.
11. No tenant or its officers, agents, employees or invitees shall at
any time use, bring or keep upon the Premises any flammable, combustible,
explosive, foul or noxious fluid, chemical or substance, or do or permit
anything to be done in the leased Premises, or bring or keep anything therein,
which shall in any way increase the rate of fire insurance on the Building, or
on the property kept therein, or obstruct or interfere with the rights of other
tenants, or in any way injure or annoy them, or conflict with the regulations of
the Fire Department or the fire laws, or with any insurance policy upon the
Building, or any part thereof, or with any rules and ordinances established by
the Board of Health or other governmental authority.
<PAGE>
12. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by any tenant, nor shall any changes be made in existing
locks or the mechanism thereof. Each tenant must, upon the termination of this
tenancy, restore to Landlord all keys of stores, offices, and toilet rooms,
either furnished to, or otherwise procured by, such tenant, and in the event of
the loss of any keys so furnished, such tenant shall pay to Landlord the cost of
replacing the same or of changing the lock or locks opened by such lost key if
Landlord shall deem it necessary to make such change.
13. All removals, or the carrying in or out of any safes, freight,
furniture, or bulky matter of any description must take place during the hours
which Landlord may determine form time to time. The moving of safes or other
fixtures or bulky matter of any kind must be made upon previous notice to the
manager of the Building and under his or her supervision, and the persons
employed by any tenant for such work must be acceptable to Landlord. Landlord
reserves the right to inspect all safes, freight or other bulky articles to be
brought into the Building and to exclude from the Building all safes, freight or
other bulky articles which violate any of these Rules and Regulations or the
Lease of which these Rules and Regulations are a part. Landlord reserves the
right to prohibit or impose conditions upon the installation in the Premises of
heavy objects which might overload the building floors. Landlord will not be
responsible for loss of or damage to any safes, freight, bulky articles or other
property from any cause, and all damage done to the Building by moving or
maintaining any such safe or other property shall be repaired at the expense of
the tenant.
14. No tenant shall purchase or otherwise obtain for use in the
Premises water, ice, towel, vending machine, janitorial, maintenance or other
like services, or accept barbering or bootblacking services, except from persons
authorized by Landlord, and at hours and under regulations fixed by Landlord.
15. Landlord shall have the right to prohibit any advertising by any
tenant which, in Landlord's opinion, tends to impair the reputation of the
Building or its desirability as an office building and upon written notice from
Landlord any tenant shall refrain from or discontinue such advertising. No
tenant shall use any graphic image of the Building or any part of the Building
for advertising or public relations without Landlord's written permission.
16. Landlord reserves the right to exclude from the Building between
the hours of 10:00 p.m. and 7:00 a.m. and at all hours of Saturdays, Sundays and
legal holidays all persons who do not present a pass signed by Landlord.
Landlord shall furnish passes to persons for whom any tenant requests the same
in writing. Each tenant shall be responsible for all persons for whom he
requests passes and shall be liable to Landlord for all acts of such persons.
Landlord shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In the case of
invasion, mob, riot, public excitement or other commotion, Landlord reserves the
right to prevent access to the Building during the continuance of the same, by
closing of the gates and doors or otherwise, for the safety of the tenants and
others and the protection of the Building and the property therein.
17. Any outside contractor employed by any tenant, shall, while in the
Building, be subject to the prior written approval of Landlord and subject to
the Rules and Regulations of the Building. Tenant shall be responsible for all
acts of such persons and Landlord shall not be responsible for any loss or
damage to property in the Premises, however occurring.
18. All doors opening onto public corridors shall be kept closed,
except when in use for ingress and egress, and left locked when not in use.
19. The requirements of tenants will be attended to only upon
application to the Office of the Building.
20. Canvassing, soliciting and peddling in the Building are prohibited
and each tenant shall cooperate to prevent the same.
21. All office equipment of any electrical or mechanical nature shall
be placed by tenants in the Premises in setting approved by Landlord, to absorb
or prevent any vibration, noise or annoyance.
22. No air conditioning unit or other similar apparatus shall be
installed or used by any tenant without the written consent of Landlord.
23. There shall not be used in any space, or in the public halls of the
Building either by any tenant or others, any hand trucks except those equipped
with rubber tires and side guards.
24. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires or
stringing of wires will be allowed without written consent of Landlord. The
location of telephones, call boxes and other office equipment affixed to the
Premises shall be subject to the approval of Landlord. All such work shall be
effected pursuant to permits issued by all applicable governmental authorities
having jurisdiction.
25. No vendor with the intent of selling such goods shall be allowed to
transport or carry beverages, food, food containers, etc., on any passenger
elevators. The transportation of such items shall be via the service elevators
<PAGE>
in such manner as prescribed by Landlord.
26. Tenants shall cooperate with Landlord in the conservation of energy
used in or about the Building, including without limitation, cooperating with
Landlord in obtaining maximum effectiveness of the cooling system by closing
drapes or other window coverings when the sun's rays fall directly on windows of
the Premises, and closing windows and doors to prevent heat loss. Tenant shall
not obstruct, alter or in any way impair the efficient operation of Landlord's
heating, lighting, ventilating and air conditioning system and shall not place
bottles, machines, parcels or any other articles on the induction unit enclosure
so as to interfere with air flow. Tenant shall not tamper with or change the
setting of any thermostats or temperature control valves, and shall in general
use heat, gas, electricity, air conditioning equipment and heating equipment in
a manner compatible with sound energy conservation practices and standards.
27. All parking ramps and areas, pedestrian walkways, plazas, and other
public areas forming a part of the Building shall be under the sole and absolute
control of Landlord with the exclusive right to regulate and control these
areas. Tenant agrees to conform to the rules and regulations that may be
established by Landlord for these areas from time to time.
28. Landlord reserves the right to exclude or expel from the Building
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the rules and regulations of the Building.
29. Tenant and its employees, agents, subtenants, contractors and
invitees shall comply with all applicable "no-smoking" ordinances and,
irrespective of such ordinances, shall not smoke or permit smoking of
cigarettes, cigars or pipes outside of Tenant's Premises (including plaza areas)
in any portions of the Building except areas specifically designated as smoking
areas by Landlord. If required by applicable ordinance, Tenant shall provide
smoking areas within Tenant's Premises.
<PAGE>
EXHIBIT D
Intentionally Omitted
<PAGE>
EXHIBIT E
Suite Acceptance Agreement
Building Name/Address: _________________________________________________________
Tenant Name: ___________________________________________________________________
Tenant Code: __________________________________ Suite Number: __________________
Management's Tenant Contact: _________________________________ Phone: __________
Gentlemen:
As a representative of the above referenced tenant, I/we have physically
inspected the suite noted above and its improvements with
_______________________, a representative of ______________________ (name of KWI
Corporation). I/we accept the suite improvements as to compliance with all the
requirements indicated in our lease, also including the following verified
information below:
Lease Commencement Date: _______________________,Occupancy Date ______________
Lease Rent Start Date*: _____________________, Actual Rent Start*: __________
Lease Expiration Date: ____________________, Actual Expiration Date: ______
Date Keys Delivered: ______________________________
Items requiring attention: _____________________________________________________
________________________________________________________________________________
________________________________________________________________________________
*If these dates are not the same, attach documentation.
NOTE: This inspection is to be made prior to tenant move-in.
Very truly yours,
______________________________________
By: __________________________________
Its: _____________________________
Date: _________________________
Distribution
Tenant
Tenant Lease File
Leasing Manager: _____________________________
KWP Document Control: _____________________________
Regional Construction Manager: _____________________________
Regional Engineering Manager: _____________________________
<PAGE>
Exhibit 10.17
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is entered into
as of September 10, 1998 by KENNEDY-WILSON, INC., a Delaware corporation
("Borrower"), and EAST-WEST BANK, a California banking corporation ("Lender").
ARTICLE I
LOANS
1.1. The Credit. Lender agrees, on the terms and conditions set forth
in this Agreement, from the date of this Agreement to June 5, 2000 (the
"Commitment Termination Date"), to extend credit to Borrower by making advances
to Borrower (each such advance, a "Loan" and collectively, the "Loans") or by
issuing letters of credit for the account of Borrower (each, a "Letter of
Credit" and collectively, the "Letters of Credit"), as provided in Section 1.4
below, The sum of (a) the aggregate amount of all Loans outstanding, (b) the
aggregate amount of all Letters of Credit outstanding and (c) the aggregate
amount of all unreimbursed drawings under all Letters of Credit shall not exceed
the lesser of (i) $20,000,000 or (ii) the maximum amount Lender may legally lend
to Borrower under legal lending limit statutes and regulations applicable to
Lender, after taking into account other loans and commitments to persons and
entities related to Borrower that must be aggregated with loans and commitments
to Borrower for legal lending limit purposes (the "Legal Leading Limit").
Borrower and Lender intend the credit extended by this Agreement to be revolving
and as such, until the Commitment Termination Date and otherwise subject to the
terms and conditions of this Agreement, Borrower may borrow, repay and reborrow
the Loans and request Letters of Credit to be issued for its account. After the
Commitment Termination Date, Lender will not make any Loans or issue any Letters
of Credit.
1.2. Interest and Commitment Fee.
(a) On the first day of the month following the month in which the
first Loan is disbursed and on the first day of each month after such date (each
a "Payment Date"), Borrower shall pay to Lender the amount of interest which
shall have accrued during the calendar month (or portion of such calendar month,
as applicable) immediately preceding such Payment Date. The aggregate amount of
Loans outstanding from time to time shall bear interest at the rate which is the
sum of (i) the Libor Rate published from time to time by The Wall Street Journal
as the interest rate now quoted each business day for obligations of three
months' maturity, under the caption "Money Rates, London Interbank Offered Rates
(Libor)" and (ii) 2.00% per annum. If The Wall Street Journal discontinues
publishing Libor rates, Lender shall select a comparable rate in its place.
Borrower's monthly payment amount shall be calculated based on the following:
(1) interest shall be fixed for each month at the interest rate based on the
applicable Libor rate published on the last business day of the preceding
calendar month; and (2) interest shall be payable in arrears.
(b) Borrower shall on the date of this Agreement pay Lender a
commitment fee in the amount of $60,417. Such fee shall be earned by Lender in
full on the date of this Agreement and shall be nonrefundable.
1.3. Principal Repayment.
(a) Borrower shall make a payment to Lender promptly following
Lender's demand to the extent that the sum of (a) the aggregate amount of all
Loans outstanding, (b) the aggregate amount of all Letters of Credit outstanding
and (c) the aggregate amount of all unreimbursed drawings under all Letters of
Credit exceeds the lesser of (i) $20.000,000 or (ii) the Legal Lending Limit.
Any amounts so paid may, at Lender's election, be applied to the repayment of
outstanding Loans or retained as security for Borrower's obligations under the
Loan Documents. Borrower grants a security interest in any such amounts paid to
Lender and held by Lender as security.
(b) Borrower may, in a minimum amount of $25,000, prepay the
outstanding principal amount of the Loans on any Payment Date.
(c) Borrower shall repay the principal amount of all Loans
outstanding, together with all accrued interest thereon and all other amounts
owing under this Agreement, the Amended and Restated Promissory Note made by
Borrower on the date of this Agreement in the principal amount of $20,000,000
payable to the order of Lender (the "Note") and all other documents executed in
connection with the Loans (the "Loan Documents") on June 6, 2000 (the "Maturity
Date"), unless the maturity of the Note shall have been accelerated pursuant to
the terms of this Agreement.
1.4. Letters of Credit.
(a) Lender agrees, on the terms and conditions of this Agreement, to
issue Letters of Credit for the account of Borrower and for the benefit of
beneficiaries designated by Borrower, from time to time from the date of this
Agreement to the Commitment Termination Date. No Letter of Credit may have an
expiration date beyond the Maturity Date.
(b) Borrower shall fully reimburse Lender for each drawing under each
<PAGE>
Letter of Credit on the date that such drawing is made.
(c) Borrower shall issue and maintain the Letters of Credit upon such
terms as it shall state to Borrower upon Borrower's request that Lender issue a
Letter of Credit. Lender's issuance of Letters of Credit shall also be governed
by any letter of credit application or letter of credit agreement that Lender
prescribes to Borrower.
1.5. Manner of Payment. All payments received by Lender later than
1:00 p.m. (Los Angeles time) shall be considered received on the following
business day. Receipt of a check for any payments in and of itself shall not
constitute payment. Lender may apply any payments made pursuant to the terms of
this Agreement and the other Loan Documents in such order as it shall determine
in its sole and absolute discretion.
1.6. Evidence of Debt.
(a) Borrower's indebtedness resulting from all Loans made from time to
time shall be evidenced by the Note.
(b) The books and accounts of Lender shall be conclusive evidence,
absent manifest error, of the amounts of all Loans and Letters of Credit,
repayments, interest, fees, reimbursement payments and other charges advanced,
due, outstanding or paid pursuant to this Agreement.
1.7. Overdue Payments. Except as otherwise expressly provided in this
Agreement, any amount payable under this Agreement or any other Loan Document
which is not paid when due (whether as a result of maturity, acceleration or
otherwise) shall bear interest, payable on demand, at a rate equal to the sum of
the interest rate provided for in Section 1.2(a) above plus five percent per
annum.
1.8. Use of Loan Proceeds. The first Loan under this Agreement shall
be used to repay all amounts owing under the Loan Agreement dated as of June 1,
1998 between Borrower and Lender (the "Original Loan Agreement"), in the
approximate amount of $4,769,554. Thereafter, Loans may be used to facilitate
Borrower's investment in real property, interests in real property and evidences
of indebtedness secured by real property and for general working capital
purposes.
1.9. Net Payments. All payments made by Borrower under this Agreement
and the other Loan Documents shall be made without setoff or counterclaim and in
such amounts as may be necessary in order that all such payments (after
deduction or withholding for or on account of any future taxes, levies, imposts,
duties or other charges of whatsoever nature imposed by any government, any
political subdivision or any taxing authority, including future taxes made
effective retroactively, other than any tax on or measured by the overall net
income of Lender pursuant to the income, bank or franchise tax laws of the
United States or the State of California (collectively, "Taxes")) shall not be
less than the amounts otherwise specified to be paid under this Agreement and
the other Loan Documents. A certificate as to any additional amounts payable to
Lender under this Section 1.9 submitted to Borrower by Lender shall show in
reasonable detail the amount payable and the calculations used to determine in
good faith such amount and shall be conclusive absent manifest error. Any
amounts payable by Borrower under this Section 1.9 with respect to past payments
shall be due within five business days following receipt by Borrower of such
certificate from Lender, any such amounts payable with respect to future
payments shall be due concurrently with such future payments. With respect to
each deduction or withholding for or on account of any Taxes, Borrower shall
promptly furnish to Lender such certificates, receipts and other documents as
may be required (in the reasonable judgment of Lender) to establish any tax
credit to which Lender may be entitled. Without any way affecting any of its
rights under this Section 1.9, Lender agrees that, upon its becoming aware that
any of the present or future payments due under this Agreement would be subject
to deduction for Taxes, it will notify borrower in writing, and Lender further
agrees that it will use reasonable efforts not disadvantageous to it (in its
sole determination) in order to avoid or minimize, as the case may be, the
payment by borrower of any additional amount for Taxes pursuant to this section
1.9.
ARTICLE II
CREDIT ADVANCES AND CONDITIONS
2.1. Requests for Loans. Lender shall make each Loan to Borrower on
the business day following Borrower's request therefor if such request is given
by 2:00 p.m. on any business day (or on the second following business day if
such request is given after 2:00 p.m. on any business day), which request shall
(a) be in writing, (b) state the amount of the Loan being requested and (c)
include a certification by Borrower in the form of Exhibit A to this Agreement.
2.2. Requests for Letters of Credit. Borrower shall request the
issuance of a Letter of Credit in writing on such form as Lender shall prescribe
from time to time on not less than two business days before the requested date
of issuance of such Letter of Credit. Any Letter of Credit request received by
Lender later than 2:00 p.m., Los Angeles time, shall be deemed to have been
received on the next business day.
2.3. Conditions Precedent to Initial Loan. Lender's obligation to make
<PAGE>
the initial Loan referred to in Section 1.8 above shall be subject to the
satisfaction of the conditions precedent set forth in this Section 2.3.
(a) Loan Documents. Lender shall have received this Agreement and the
Note duly executed by Borrower.
(b) Borrower. Lender shall have received the following concerning
Borrower, in form and substance satisfactory to Lender: (i) a copy of Borrower's
bylaws certified to be true and complete by Borrower's secretary or assistant
secretary; (ii) a copy of Borrower's articles of incorporation and any
amendments, certified by the Delaware Secretary of State; (iii) a recent
good-standing certificate regarding Borrower issued by the California and
Delaware Secretaries of State, (iv) a certificate of Borrower's secretary or
assistant secretary, including a copy of resolutions, indicating that Borrower
is authorized to execute and deliver the Loan Documents and to perform its
obligations under the Loan Documents; (v) a certificate with respect to the
incumbency and signature of each person authorized to execute and deliver the
Loan Documents and Loan requests; and (vi) such other documents as Lender shall
reasonably request with respect to Borrower's existence and authorization.
(c) Other Conditions Precedent. Lender shall have received the
following, in form and substance satisfactory to Lender:
(i) such financial statements of Borrower and Borrower's
affiliates as Lender shall require;
(ii) if required by Lender, an opinion of counsel to Borrower
satisfactory to Lender concerning the existence and power of Borrower, the due
authorization, execution, delivery and enforceability of the Loan Documents and
such other matters as Lender shall require;
(iii) payment of the commitment fee referred to in Section 1.2
above and the payment of all of Lender's costs of entering into this Agreement
and making the initial Loan, including, without limitation, legal costs;
(iv) a consent signed by Colony K-W, LLC confirming that the
loans, made by Colony K-W, LLC to Borrower are subordinate to the credit
extended pursuant to this Agreement, and
(v) such other documents, agreements, certificates and assurances
as Lender shall require.
2.4. Conditions Precedent to All Loans and Letter of Credit Issuances.
Lender's obligation to make any Loan (including the initial Loan) or issue any
Letter of Credit is subject to all of the following conditions precedent:
(a) the Loan or Letter of Credit shall be in an amount not less than
$10,000;
(b) the proposed Loan or Letter of Credit, when aggregated with all
outstanding Loans, Letters of Credit and unreimbursed Letter of Credit draws,
shall not exceed the lesser of (i)$20,000,000 or (ii) the Legal Lending Limit;
(c) there shall exist no "Event of Default" (as defined in Section 6.1
below) or content which, with the passage of time or the giving of notice, or
both would become an Event of Default (a "Potential Event of Default");
(d) Lender is satisfied that no material adverse change in the
business or financial condition or management of Borrower or any material
"Subsidiary" (as defined below) has occurred; and
(e) all of the representations and warranties given by Borrower in the
Loan Documents shall be deemed to have been made on each date that a Loan is
made and such representations and warranties shall be true on such date.
For purposes of this Agreement, "Subsidiary" means any corporation,
partnership, limited liability company or other entity of which more than 50% of
the outstanding ownership interests having voting or consent power to effect
control of such corporation, partnership, limited liability company or other
entity is at the time directly or indirectly owned by Borrower, by Borrower and
one or more other Subsidiaries, or by one or more Subsidiaries.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Borrower makes the representations and warranties set forth in this
Article III to Lender.
3.1. Existence. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of Delaware and has been duly
qualified to transact business as a foreign corporation in California.
3.2. Power. Borrower has all necessary corporate power to enter into
the Loan Documents and perform its obligations under such Loan Documents.
3.3. Enforceability of Loan Documents. The Loan Documents have been
duly executed and delivered by Borrower and are the legal, valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms.
<PAGE>
3.4. Approvals. (a) Borrower and the Subsidiaries have obtained all
material approvals, licenses, exemptions and other authorizations from, and have
accomplished all material filings, registrations and qualifications with, all
applicable governmental authorities that are necessary for the transaction of
their business: and (b) no authorization or approval or other action by, and no
notice to or filing with any governmental authority or regulatory body is
required for the due execution, delivery and performance by Borrower of the Loan
Documents.
3.5. No Conflict. Borrower's execution and delivery of, and its
performance of its obligations under, the Loan Documents do not and will not
conflict with (a) any (i) contractual or legal restriction or obligation, or
(ii) court or regulatory order, binding on or affecting Borrower or any
Subsidiary, or (b) any restriction contained in any of Borrower's or any
Subsidiary's constituent or governing documents.
3.6. Pending Litigation or Other Proceedings. There is no pending or,
to the knowledge of Borrower, threatened action, proceeding or investigation
before any court, governmental agency or arbitrator against or affecting
Borrower, any Subsidiary or any of Borrower's or any Subsidiary's material
assets which, if decided adversely to Borrower or any Subsidiary, would
materially and adversely affect the financial condition of Borrower, or would
materially and adversely affect the present or future ability of Borrower to
perform its obligations under the Loan Documents.
3.7. Solvency. Neither borrower nor any Subsidiary is insolvent and
none will be rendered insolvent by the transactions contemplated by the Loan
Documents. After giving effect to such transactions, neither borrower nor any
subsidiary will be left with an unreasonably small amount of capital with which
to engage in its business or undertakings, nor will Borrower nor any Subsidiary
have intended to incur, or believe that it has incurred, debts beyond its
ability to pay such debts as they mature.
3.8. Taxes. Borrower and the Subsidiaries have filed all required
federal, state and local tax returns, Borrower and the Subsidiaries have paid
all federal, state and local taxes due (including any interest and penalties)
other than taxes being promptly and actively contested in good faith and by
appropriate proceedings. Borrower and the Subsidiaries have established and are
maintaining adequate reserves for tax liabilities (including contested
liabilities) in accordance with generally accepted accounting principles.
3.9. Laws. Borrower and the Subsidiaries are in material compliance
with all laws, regulations and court orders applicable to them and their
businesses, including all state and federal securities laws. Except as disclosed
in the 1996 Loan Agreement, neither Borrower nor any Subsidiary has any
liability, contingent or otherwise, under any applicable law governing the use
or disposal of hazardous materials.
3.10. Insurance. Borrower and the Subsidiaries have insurance coverage
for their properties in prudent amounts provided by prudent insurers given the
nature of their businesses and the kinds of properties they own.
3.11. No Contractual Defaults. There are no material defaults by
Borrower or any Subsidiary under any material contract to which Borrower or such
Subsidiary. None of Borrower or any Subsidiary has received notice or has any
knowledge of any existing circumstances in respect of which it could receive any
notice of default or breach in respect of any of Borrower's or such Subsidiary's
material contracts.
3.12. Financial Position. The financial statements and all financial
data delivered to Lender relating to Borrower and the Subsidiaries are true,
correct and complete in all material respects. Such financial statements fairly
present the financial position of the parties or properties who are their
subjects as of the dates indicated. No material adverse change has occurred in
such financial position since the date of such financial statements, and, except
for the Loans, Borrower has incurred no indebtedness since the date of any such
statements.
3.13. Disclosure. None of Borrower's representations or warranties
contained in this Agreement or any other document, certificates or written
statement furnished to Lender by or on behalf of Borrower contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained in this Agreement or in such other
document, certificate or written statement (when taken in their entirety) not
misleading. There is no fact known to Borrower which materially or adversely
affects the business, operations, assets or condition (financial or otherwise)
of Borrower or any Subsidiary, which has not been disclosed in this Agreement or
in any other written statement delivered to Lender by Borrower.
3.14. ERISA. Borrower has not incurred any material accumulated
funding deficiency within the meaning of ERISA, and has not incurred any
material liability to the Pension Benefit Guaranty Company ("PBGC") in
connection with any employee benefit plan subject to the provisions of ERISA or
other class of benefit that PBGC has elected to insure.
ARTICLE IV
COVENANTS
<PAGE>
While any obligation of Borrower under the Loan Documents remains
outstanding, Borrower shall comply with the following covenants.
4.1. Organization and Status of Borrower. Borrower shall, and shall
cause each Subsidiary to, maintain its corporate existence and all licenses and
permits relating thereto in good standing in every jurisdiction in which the
nature of its business makes qualification necessary or where failure to qualify
would have a material adverse effect on its financial condition or the
performance of its obligations under the Loan Documents.
4.2. Compliance with Laws. Borrower shall, and shall cause each
Subsidiary to, remain in compliance in all material respects with all laws and
requirements applicable to its business, including all applicable federal and
state securities laws, and obtain all authorizations, consents, approvals,
orders, licenses, exemptions from, and accomplish all filings or registrations
or qualifications with, any governmental agency that are necessary for the
transaction of its business.
4.3. Books and Records. Borrower shall, and shall cause each
Subsidiary to, maintain full and complete books of account and other records
reflecting the results of its operations and the operations of each Subsidiary,
in accordance with generally accepted accounting principles applied on a
consistent basis, and permit Lender and its agents, at all reasonable times and
from time to time, to inspect and copy any such books and records.
4.4. Notice of Certain Matters. Borrower shall give notice to Lender,
promptly upon learning thereof, of each of the following:
(a) any litigation or claim of any kind that might subject Borrower to
liability in excess of $100,000, whether covered by insurance or not;
(b) any material dispute between Borrower or any Subsidiary and any
governmental agency;
(c) the existence of any "reportable event" as defined in ERISA; and
(d) any other event or condition causing a material adverse change in
the financial condition of Borrower or any Subsidiary.
4.5. Further Assurances. Borrower shall execute and acknowledge (or
cause to be executed and acknowledged) and deliver to Lender all documents, and
take all actions, required by Lender from time to time to confirm the rights
created or now or hereafter intended to be created under the Loan Documents and
the transactions contemplated thereunder, to maintain, protect, perfect and
further the validity and enforceability of the Loan Documents or other
collateral for Borrower's obligations under the Loan Documents.
4.6. Taxes. Borrower shall, and shall cause each Subsidiary to, pay
and discharge all taxes, assessments and governmental charges or levies imposed
on it, on its income or profits or on any of its property prior to the date on
which penalties attach thereto.
4.7. Tangible Net Worth. Borrower's "Tangible Net Worth" (as defined
below) by December 31, 1998 shall not be less than $23,000,000.
"Tangible Net Worth" means the excess of total assets over total
liabilities (except debt subordinated to Lender by agreement satisfactory to
Lender), total assets and total liabilities each to be determined in accordance
with generally accepted accounting principles consistent with those applied in
the preparation of the financial statements referred to in Section 4.9 below,
excluding, however, from the determination of total assets, (a) goodwill,
organizational expenses, research and development expenses, trademarks, trade
names, copyrights, patents, patent applications, licenses and rights in any
thereof, and other similar intangibles, (b) all prepaid expenses, deferred
charges or unamortized debt discount and expense, (c) all reserves carried and
not deducted from assets, (d) all notes or accounts receivable from any
affiliate of Borrower or any officer of Borrower or any of Borrower's
affiliates, (e) securities which are not readily marketable, (f) cash held in a
sinking or other analogous fund established for the purpose of redemption,
retirement or prepayment of capital stock or indebtedness, (g) any write-up in
the book value of any asset resulting from a revaluation thereof subsequent to
the date of this Agreement and (h) any items not included in clauses (a) through
(g) above which are treated as intangibles in conformity with generally accepted
accounting principles.
4.8. Information.
(a) Borrower shall deliver the following information to Lender:
(i) as soon as available and in any event not later than 90 days
following the end of each fiscal year of Borrower, a consolidated and
consolidating balance sheet of Borrower as of the end of such year and
consolidated and consolidating statements of income, shareholders' equity and
cash flow of Borrower for such year, setting forth in each case in comparative
form corresponding consolidated and consolidating figures from the preceding
fiscal year and certified in accordance with generally accepted accounting
principles by independent certified public accountants satisfactory to Lender,
together with Borrower's report to the Securities and Exchange Commission on
<PAGE>
Form 10K;
(ii) as soon as available and in any event within 60 days after
the end of the first three quarters of each fiscal year of Borrower, a
consolidated and consolidating balance sheet of Borrower as of the end of such
quarter and the related consolidated and consolidating statement of income of
Borrower for such quarter and the portion of Borrower's fiscal year ended at the
end of such quarter, setting forth in each case in comparative form the figures
for the corresponding portion of Borrower's previous fiscal year, all certified
(subject to normal year-end adjustments) as to fairness of presentation and
preparation in accordance with generally accepted accounting principles by the
chief financial officer of Borrower, together with Borrower's report to the
Securities and Exchange Commission on Form 10Q;
(iii) simultaneously with delivery of each set of financial
statements referred to in Sections 4.8(a)(i) and (ii) above, a certificate of
the chief financial officer of Borrower stating whether there exists on the date
of such certificate any Event of Default or Potential Event of Default, setting
forth the details thereof and the action that Borrower is taking or proposes to
take with respect thereto; and
(iv) such other information concerning Borrower and the
Subsidiaries, as Lender shall reasonably request.
(b) If Borrower fails to furnish promptly any information or report
required by Section 4.8(a) above or any other person fails to furnish promptly
any information or report required by any other provision of any of the Loan
Documents, or if Lender reasonably determines such reports to be unacceptable,
Lender may elect (in addition to exercising any other right or remedy it has
under the Loan Documents), to make an audit of all the books and records of
Borrower or any Subsidiary and to prepare the information or report which
Borrower failed to deliver. Such audit shall be performed and such information
or report shall be prepared by an independent firm of certified public
accountants to be selected by Lender. Borrower shall pay all expenses of the
audit and other related services.
4.9. Insurance. Borrower shall maintain, and shall cause each
Subsidiary to maintain, insurance with responsible and reputable insurance
companies in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which Borrower and such Subsidiary operates.
4.10. Cross-Default. Borrower shall not permit a default under this
Agreement in and of itself to be a default under any other credit obligation to
any other creditor.
4.11. Maintenance of Properties. Borrower shall maintain and preserve,
and cause each Subsidiary to maintain and preserve, all of its properties in
good working order and condition in accordance with the terms of all leases of
space in such properties and otherwise in accordance with prudent standards or
business conduct.
4.12. Recourse Debt Ratio. Borrower shall maintain a ratio of (a)
"Debt" (as defined below) for which the lender or other creditor with respect to
such Debt has recourse to Borrower to (b) Borrower's Tangible Net Worth of not
greater than five to one.
"Debt" means, with respect to Borrower, (a) indebtedness or liability
for borrowed money whether or not evidenced by a written instrument, (b)
obligations under any guarantee or other agreement to become secondarily liable
for any obligation of another, endorsements (other than for collection or
deposit in the ordinary course of business) and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest or otherwise
to assure a creditor against loss; or (c) obligations secured by a lien on
Borrower's property, whether or not the obligations have been assumed by
Borrower. Debt shall not include current accounts payable incurred by Borrower
in reasonable amounts in the ordinary course of Borrower's business.
4.13. Additional Unsecured Borrowing. Borrower shall not incur, and
shall not permit any Subsidiary to incur, any unsecured Debt other than
unsecured Debt outstanding on the date of this Agreement.
4.14. Stock Repurchases. Borrower shall not purchase any capital stock
issued by Borrower or any affiliate of Borrower nor shall it make any loans or
advances to, or any investment in, any person for the purpose of facilitating
such a purchase.
ARTICLE V
EVENTS OF DEFAULT
5.1. Events of Default. The occurrence of any of the following shall
be an "Event of Default":
(a) Borrower's failure to pay when due any installment of principal,
reimbursement or interest under the this Agreement or any other sum required to
be paid by the terms of any Loan Document;
(b) the failure of Borrower, within 30 days following written notice
<PAGE>
from Lender, to observe or perform any covenant or other agreement contained in
any Loan Document (other than the covenants or agreements referred to above in
Section 5.1(a)); provided however, that the notice and 30-day grace period set
forth above shall be applicable only to a failure to observe or perform any
covenant or other agreement which is reasonably susceptible of being cured;
provided further, that should Borrower be unable to cure its failure within such
30-day period despite beginning to cure such failure promptly after receipt of
notice and prosecuting such attempt diligently during such 30-day period, the
cure period shall be extended an additional 30 days so long as Borrower
continues diligently to prosecute the cure during such additional period;
(c) any writing representation, warranty or financial statement given
by Borrower shall have been untrue in any material respect when given;
(d) the occurrence of a default under any of the Loan Documents and
the failure of any such default to be cured during the defined time, if any, for
such cure;
(e) Borrower or any material Subsidiary shall be unable or shall admit
in writing its inability to pay its debts when due, or shall make an assignment
for the benefit of creditors; or any of them shall apply for or consent to the
appointment of any receiver, trustee or similar officer for such person or for
all or any substantial part of such person's property; or any of them shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debts,
dissolution, liquidation, or similar proceedings relating to such person under
the laws of any jurisdiction;
(f) if a receiver, trustee or similar officer shall be appointed for
Borrower or any material Subsidiary, or for all or any substantial part of any
such person's property without the application or consent of such person, and
such appointment shall continue undischarged for a period of 60 days (whether or
not consecutive); or any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceedings shall be
instituted (by petition, application or otherwise) against any such person and
shall remain undismissed for a period of 60 days (whether or not consecutive);
(g) all or any material pan of the assets of Borrower or any material
Subsidiary shall become subject to attachment, execution or judicial seizure
(whether by enforcement of money judgment, by writ or warrant of attachment, or
by any other process) in an amount greater than $25,000;
(h) Borrower or any material Subsidiary., as applicable, shall be in
default in the payment of any indebtedness or the performance of any other
obligation secured by a lien on any material asset of such entity and such
default is not cured within the time, if any, specified for such a cure in any
applicable agreement;
(i) any of the Loan Documents shall cease to be a valid, binding and
enforceable obligation of the person purported to be bound, or Borrower shall
assert such cessation or failure in writing;
(j) Borrower shall incur a net loss in any fiscal year; or
(k) any material adverse change shall occur in Borrower's financial
condition, business or operations.
5.2. Remedies upon Default. Upon the occurrence of any Event of
Default. Lender may, at its option, do any of the following:
(a) terminate its obligation to make any Loans or Issue any Letters
of Credit;
(b) declare the principal of all amounts owing under the Loan
Documents, together with all accrued interest thereon and all other amounts
owing in connection therewith, to be immediately due and payable, regardless of
any other specified maturity or due date, without notice of default, presentment
or demand for payment, notice or demand of any kind, and without the necessity
of prior recourse to any security; provided, that any Event of Default with
respect to Borrower described in Sections 5.1(e) or (f) shall automatically,
without declaration or other action on Lender's part, cause all such amounts to
be immediately due and payable without notice or demand;
(c) If the Event of Default may be cured by the payment of money,
Lender may (but shall not be obligated) to make such payment from its own funds;
provided, that the making of such payment by Lender shall not be deemed to cure
such Event of Default, and that the same shall not be cured unless and until
Borrower reimburses Lender for such payment. If Lender advances its own funds
for such purposes, the funds advanced shall be considered advances under the
Note, notwithstanding that such advances may cause the total amount advanced
under this Agreement to exceed the aggregate face amount of the Note or the
amount committed to be advanced pursuant to this Agreement;
(d) to the extent any Letters of Credit are outstanding, Borrower
shall deposit with and pledge to Lender cash, or other collateral reasonably
satisfactory to Lender, in the aggregate amount of all such Letters of Credit;
(e) exercise any of its rights under the Loan Documents, including the
right to foreclose on any security, and exercise any other rights with respect
<PAGE>
to any security, whether under the Loan Documents or as provided by law, all in
such order and in such manner as Lender in its sole discretion may determine.
5.3. Cumulative Remedies; No Waiver. Lender's remedies under the Loan
Documents are cumulative and shall be in addition to all rights and remedies
provided by law or in equity from time to time. The exercise by Lender of any
right or remedy shall not constitute a cure or waiver of any default nor
invalidate any notice of default or any act done pursuant to any such notice.
nor prejudice Len4er in the exercise of any other right or remedy. No Waiver by
Lender of any default shall be implied from any omission by Lender to take
action on account of such default if such default persists or is repeated. No
express waiver by Lender of any default shall affect any default other than the
default expressly waived and any such express waiver shall be operative only for
the time and to the extent of any Loan Document shall be construed as a waiver
of any subsequent breach of the same covenant, term or condition. Lender's
consent to or approval of any act by Borrower requiring further consent or
approval shall not be deemed to waive or render unnecessary Lender's consent to
or approval of any subsequent act.
ARTICLE VI
MISCELLANEOUS
6.1. Notices. Any notice, demand or request required under this
agreement shall be given in writing at the addresses set forth below by personal
service; telecopy, overnight courier or registered or certified, first class
mail, return receipt requested.
If to Borrower:
Kennedy-Wilson, Inc.
9601 Wilshire Boulevard, Suite 220
Beverly Hills, California 90210
Attention: William J. McMorrow
Fax No.: (310) 887-6414
If to Lender:
East-West Bank
415 Huntington Drive
San Marino, California 91108
Attention: Donald Chow or Kathleen Kwan
Fax No.: (626) 441-3035
Such addresses may be changed by notice to the other parties given in the same
manner as required above. Any notice, demand or request shall be deemed received
as follows: (i) if sent by personal service, at the time such personal service
is effected: (ii) if sent by telecopy, upon the sender's receipt of a
confirmation report generated by the sender's telecopier indicating receipt by
the recipient's telecopier; (iii) if sent by overnight courier, on the business
day immediately following deposit with the overnight courier; and (iv) if sent
by mail 48 hours following deposit in the mail.
6.2. Governing Law. All questions with respect to the construction of
this Agreement and the rights and liabilities of the parties to this Agreement
shall be governed by the laws of the State of California.
6.3. Binding on Successors. This Agreement shall inure to the benefit
of, and shall be binding upon, the successors and assigns of each of the parties
to this Agreement.
6.4. Attorneys' Fees.
(a) Borrower shall reimburse Lender for all reasonable attorney's
fees, costs and expenses incurred by Lender in connection with the enforcement
of Lender's rights under this Agreement and each of the other Loan Documents
including, without limitation, reasonable attorneys' fees, costs and expenses
for trial, appellate proceedings, out-of-court negotiations, workouts and
settlements or for enforcement of rights under any state or federal statute
including, without limitation, reasonable attorneys' fees, costs and expenses
incurred to protect Lender's security and attorneys' fees, costs and expenses
incurred in bankruptcy and insolvency proceedings such as (but not limited to)
seeking relief from stay in a bankruptcy proceeding. The term "expenses" means
any expenses incurred by Lender in connection with any of the out-of-court, or
state, federal or bankruptcy proceedings referred to above, including, without
limitation, the fees and expenses of any appraisers, consultants and expert
witnesses retained or consulted by Lender in connection with any such
proceeding.
(b) Lender shall also be entitled to its attorneys' fees, costs and
expenses incurred in any post-judgment proceedings to collect and enforce the
judgment. This provision is separate and several and shall survive the merger of
this Agreement into any judgment on this Agreement.
6.5. Counterparts. This Agreement may be executed in any number of
original counterparts, each of which shall be deemed an original, but all of
which when taken together shall constitute one instrument. The original
signature page of any counterpart may be detached from such counterpart and
attached to any other counterpart identical to such counterpart (except having
additional signature pages executed by other parties to this Agreement) without
<PAGE>
impairing the legal effect of any such signature(s).
6.6. Entire Agreement. This Agreement and the other Loan Documents
constitute the entire agreement and understanding between the parties in respect
of the subject matter of this Agreement and supersede all prior agreements and
understandings with respect to such subject matter, whether oral or written.
6.7. Waivers. Waiver by Lender of any term covenant or condition under
this Agreement or the Loan Documents or of any default by Borrower under this
Agreement or the Loan Documents, or any failure by Lender to insist upon strict
performance by Borrower of any term, covenant or condition contained in this
Agreement or the Loan Documents shall be effective or binding on Lender only if
made in writing by Lender; no such wavier shall be implied from any omission by
Lender to take action with respect to any such term, covenant, condition or
default. No express written waiver by Lender of any term, covenant, condition or
default shall affect any other term, covenant, condition or default or cover any
other time period than the application of any such term, covenant or condition
to the matter as to which a waiver has been given or the default or time period
specified in such express waiver. This Agreement may be amended only by an
instrument in writing signed by the parties to this Agreement.
6.8. Severability. If any part of this Agreement is declared invalid
for any reason, such shall not affect the validity of the rest of the Agreement.
The other parts of this Agreement shall remain in effect as if this Agreement
had been executed without the invalid part. The parties declare that they intend
and desire that the remaining parts of this Agreement continue to be effect
without any part or parts that have been declared invalid.
6.9. Expenses. Borrower shall pay promptly all costs, charges and
expenses incurred by Lender in connection with the Loans, including, without
limitation, commitment fees, loan fees, service charges, title charges, tax and
lien service charges, costs of inspection, costs of consulting engineers,
recording fees, processing fees, appraisal fees, attorneys' fees, real property
taxes and assessments and insurance premiums, and any fees in consideration of
Lender's commitment to provide the Loan.
6.10. Amendment and Restatement. This Agreement is the successor to
the Loan Agreement dated as of June 1, 1998 between Borrower and Lender (the
"Original Loan Agreement"). This Agreement is an amendment and restatement of
the Original Loan Agreement, is not intended to be a novation or evidence a new
obligation or indebtedness and continues to evidence the obligations formerly
evidenced by the Original Loan Agreement.
EAST-WEST BANK, a California banking
corporation
By: /s/ Kathleen Kawn
Kathleen Kwan,
Vice President
KENNEDY-WILSON, INC., a Delaware
corporation
By: /s/ William J. McMorrow
William J. McMorrow, President
<PAGE>
EXHIBIT A
FORM OF CERTIFICATION FOR LOAN REQUEST
Kennedy-Wilson, Inc. ("Borrower") certifies as follows to East-West
Bank ("Lender") pursuant to Section 2.1 of the Amended and Restated Loan
Agreement dated as of September __, 1998 between Borrower and Lender (the "Loan
Agreement"), with the understanding that Lender is relying on this certification
in determining whether to make a "Loan" (as defined in the Loan Agreement) to
Borrower:
1. No Event of Default or any Potential Event of Default has occurred
and is continuing.
2. The representations and warranties contained in the Loan Agreement
are or will be true on the date on which the requested Loan is to be made; and
3. The aggregate amount of all Loans outstanding (including the amount
of the Loan being requested) does not exceed the lessor of (i) $20,000,000 or
(ii) the Legal Lending Limit.
All capitalized terms used in this Certificate without definition are
used as defined in the Loan Agreement.
Date:_____________ KENNEDY-WILSON, INC., a Delaware corporation
By:
-------------------------------------
<PAGE>
Exhibit 10.18
LOAN AGREEMENT
THIS LOAN AGREEMENT is entered into as of July 28, 1998 by
KENNEDY-WILSON PROPERTIES LTD., an Illinois corporation ("Borrower"), and
EAST-WEST BANK, a California banking corporation ("Lender").
ARTICLE I
LOANS
1.1 The Loans. Lender agrees, on the terms and conditions set forth in
this Agreement, to make advances of the credit available under this Agreement
(each such advance, a "Loan" and collectively, the "Loans") to Borrower from the
date of this Agreement to June 5, 1999 (the "Commitment Termination Date"). The
aggregate amount of Loans outstanding at any time shall not exceed $1,000,000.
Borrower and Lender intend the Loans to be revolving and as such, until the
Commitment Termination Date, Borrower may borrow, repay and reborrow the Loans.
After the Commitment Termination Date, Borrower will not have the right to
borrow, and Lender will not make, any Loans.
1.2 Interest and Fees.
(a) On the first day of the month following the month in which
the first Loan is disbursed and on the first day of each month after such date
(each a "Payment Date"), Borrower shall pay to Lender the amount of interest
which shall have accrued during the calendar month (or portion of such calendar
month, as applicable) immediately preceding such Payment Date. The aggregate
amount of Loans outstanding from time to time shall bear interest at the rate
which is the sum of (i) the Libor Rate published from time to time by The Wall
Street Journal as the interest rate now quoted each business day for obligations
of three months' maturity, under the caption "Money Rates, London Interbank
Offered Rates (Libor)" and (ii) 3.25% per annum. If The Wall Street Journal
discontinues publishing Libor rates, Lender shall select a comparable rate in
its place. Borrower's monthly payment amount shall be calculated based on the
following: (1) interest shall be fixed for each month at the interest rate based
on the applicable Libor rate published on the last business day of the preceding
calendar month; and (2) interest shall be payable in arrears.
(b) Borrower shall on the date of this Agreement pay Lender a
loan fee in the amount of $5,000.
1.3 Principal Repayment.
(a) Borrower shall promptly prepay the principal amount of the
Loans at any time and to the extent that the aggregate principal amount of all
Loans outstanding exceeds $1,000,000, together with accrued interest on the
amount prepaid.
(b) Borrower may, in a minimum amount of $10,000, prepay the
outstanding principal amount of the Loans on any Payment Date.
(c) Borrower shall repay the principal amount of each Loan
outstanding, together with all accrued interest thereon, on the earlier of 45
days from the date such Loan was made and June 6, 1999. All Loans, all accrued
interest thereon and all other amounts owing under this Agreement, the
Promissory Note made by Borrower on the date of this Agreement in the principal
amount of $1,000,000 payable to the order of Lender (the "Note") and all other
documents executed in connection with the Loans (the "Loan Documents") shall be
due and payable on June 6, 1999, unless the maturity shall have been accelerated
pursuant to the terms of this Agreement.
(d) All principal payments received pursuant to Sections 1.3(a),
(b) or (c) shall be applied to repay Loans in descending order of time
outstanding, beginning with the Loan which has been outstanding the longest.
1.4 Manner of Payment. All payments received by Lender later than 1:00
p.m. (Los Angeles time) shall be considered received on the following business
day. Receipt of a check for any payments in and of itself shall not constitute
payment. Lender may apply any payments made pursuant to the terms of this
Agreement and the other Loan Documents in such order as it shall determine in
its sole and absolute discretion.
1.5 Evidence of Debt.
(a) Borrower's indebtedness resulting from all Loans made from
time to time shall be evidenced by the Note.
(b) The books and accounts of Lender shall be conclusive
evidence, absent manifest error, of the amounts of all Loans, repayments,
interest, fees and other charges advanced, due, outstanding or paid pursuant to
this Agreement.
<PAGE>
1.6 Overdue Payments. Except as otherwise expressly provided in this
Agreement, any amount payable under this Agreement or any other Loan Document
which is not paid when due (whether as a result of maturity, acceleration or
otherwise) shall bear interest, payable on demand, at a rate equal to the sum of
the interest rate provided for in Section 1.2(a) above plus five percent per
annum.
1.7 Use of Loan Proceeds. Loans may be used only for Borrower's
general working capital purposes.
1.8 Net Payments. All payments made by Borrower under this Agreement
and the other Loan Documents shall be made without setoff or counterclaim and in
such amounts as may be necessary in order that all such payments (after
deduction or withholding for or on account of any future taxes, levies, imposts,
duties or other charges of whatsoever nature imposed by any government, any
political subdivision or any taxing authority, including future taxes made
effective retroactively, other than any tax on or measured by the overall net
income of Lender pursuant to the income, bank or franchise tax laws of the
United States or the State of California (collectively, "Taxes")) shall not be
less than the amounts otherwise specified to be paid under this Agreement and
the other Loan Documents. A certificate as to any additional amounts payable to
Lender under this Section 1.8 submitted to Borrower by Lender shall show in
reasonable detail the amount payable and the calculations used to determine in
good faith such amount and shall be conclusive absent manifest error. Any
amounts payable by Borrower under this Section 1.8 with respect to past payments
shall be due within five business days following receipt by Borrower of such
certificate from Lender; any such amounts payable with respect to future
payments shall be due concurrently with such future payments. With respect to
each deduction or withholding for or on account of any Taxes, Borrower shall
promptly furnish to Lender such certificates, receipts and other documents as
may be required (in the reasonable judgment of Lender) to establish any tax
credit to which Lender may be entitled. Without any way affecting any of its
rights under this Section 1.8, Lender agrees that, upon its becoming aware that
any of the present or future payments due it under this Agreement would be
subject to deduction for Taxes, it will notify Borrower in writing, and Lender
further agrees that it will use reasonable efforts not disadvantageous to it (in
its sole determination) in order to avoid or minimize, as the case may be, the
payment by Borrower of any additional amount for Taxes pursuant to this Section
1.8.
ARTICLE II
LOAN ADVANCES AND CONDITIONS
2.1 Requests for Loans. Lender shall make each Loan to Borrower on the
business day following Borrower's request therefor if such request is given by
2:00 p.m. on any business day (or on the second following business day if such
request is given after 2:00 p.m. on any business day), which request shall (a)
be in writing, (b) state the amount of the Loan being requested and (c) include
a certification by Borrower in the form of Exhibit A to this Agreement.
2.2 Conditions Precedent to Initial Loan. Lender's obligation to make
the initial Loan shall be subject to the satisfaction of the conditions
precedent set forth in this Section 2.2.
(a) Loan Documents. Lender shall have received this Agreement and
the Note duly executed by Borrower and a Guaranty (the "Guaranty") duly executed
by Kennedy-Wilson, Inc. (the "Guarantor").
(b) Borrower. Lender shall have received the following concerning
Borrower and Guarantor, in form and substance satisfactory to Lender: (i) a copy
of Borrower's bylaws certified to be true and complete by Borrower's secretary
or assistant secretary; (ii) a copy of Borrower's articles of incorporation and
any amendments, certified by the Illinois Secretary of State; (iii) recent
good-standing certificates regarding Borrower issued by the California and
Illinois Secretaries of State; (iv) certificates of Borrower's and Guarantor's
secretary or assistant secretary, including a copy of resolutions, indicating
that Borrower is authorized to execute and deliver the Loan Documents and to
perform its obligations under the Loan Documents and the Guarantor is authorized
to execute and deliver the Guaranty and perform its obligations under the
Guaranty; (v) a certificate with respect to the incumbency and signature of each
person authorized to execute and deliver the Loan Documents and Loan requests;
and (vi) such other documents as Lender shall reasonably request with respect to
Borrower's existence and authorization.
(c) Other Conditions Precedent. Lender shall have received the
following, in form and substance satisfactory to Lender:
(i) such financial statements of Borrower and the Guarantor
and Borrower's affiliates as Lender shall require;
(ii) if required by Lender, an opinion of counsel to
Borrower and the Guarantor satisfactory to Lender concerning the existence and
power of Borrower and the Guarantor, the due authorization, execution, delivery
and enforceability of the Loan Documents and such other matters as Lender shall
require;
(iii) payment of the loan fee referred to in Section 1.2
<PAGE>
above and the payment of all of Lender's costs of closing the Loan, including,
without limitation, legal costs; and
(iv) such other documents, agreements, certificates and
assurances as Lender shall require.
2.3 Conditions Precedent to All Loans. Lender's obligation to make any
Loan (including the initial Loan) is subject to all of the following conditions
precedent:
(a) Lender shall not have previously made a Loan in the week in
which Borrower is proposing a Loan to be made;
(b) the Loan shall be in an amount not less than $10,000;
(c) the Loan, when aggregated with all outstanding Loans, shall
not exceed $1,000,000;
(d) there shall exist no "Event of Default" (as defined in
Section 6.1 below) or event which, with the passage of time or the giving of
notice, or both would become an Event of Default (a "Potential Event of
Default");
(e) Lender is satisfied that no material adverse change in the
business or financial condition or management of Borrower or the Guarantor has
occurred; and
(f) all of the representations and warranties given by Borrower
and the Guarantor in the Loan Documents shall be deemed to have been made on
each date that a Loan is made and such representations and warranties shall be
true on such date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Borrower makes the representations and warranties set forth in this
Article III to Lender.
3.1 Existence. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of Illinois and has been duly
qualified to transact business as a foreign corporation in California.
3.2 Power. Borrower has all necessary corporate power to enter into
the Loan Documents and perform its obligations under such Loan Documents.
3.3 Enforceability of Loan Documents. The Loan Documents have been
duly executed and delivered by Borrower and are the legal, valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms.
3.4 Approvals. (a) Borrower has obtained all material approvals,
licenses, exemptions and other authorizations from, and have accomplished all
material filings, registrations and qualifications with, all applicable
governmental authorities that are necessary for the transaction of their
business; and (b) no authorization or approval or other action by, and no notice
to or filing with any governmental authority or regulatory body is required for
the due execution, delivery and performance by Borrower of the Loan Documents.
3.5 No Conflict. Borrower's execution and delivery of, and its
performance of its obligations under, the Loan Documents do not and will not
conflict with (a) any (i) contractual or legal restriction or obligation, or
(ii) court or regulatory order, binding on or affecting Borrower, or (b) any
restriction contained in any of Borrower's constituent or governing documents.
3.6 Pending Litigation or Other Proceedings. There is no pending or,
to the knowledge of Borrower, threatened action, proceeding or investigation
before any court, governmental agency or arbitrator against or affecting
Borrower or any of Borrower's material assets which, if decided adversely to
Borrower, would materially and adversely affect the financial condition of
Borrower, or would materially and adversely affect the present or future ability
of Borrower to perform its obligations under the Loan Documents.
3.7 Solvency. Borrower is not insolvent and will not be rendered
insolvent by the transactions contemplated by the Loan Documents. After giving
effect to such transactions, Borrower will not be left with an unreasonably
small amount of capital with which to engage in its business or undertakings,
nor will Borrower have intended to incur, or believe that it has incurred, debts
beyond its ability to pay such debts as they mature.
3.8 Taxes. Borrower has filed all required federal, state and local
tax returns. Borrower has paid all federal, state and local taxes due (including
any interest and penalties) other than taxes being promptly and actively
contested in good faith and by appropriate proceedings. Borrower has established
and is maintaining adequate reserves for tax liabilities (including contested
liabilities) in accordance with generally accepted accounting principles.
3.9 Laws. Borrower is in material compliance with all laws,
<PAGE>
regulations and court orders applicable to it and its business, including all
state and federal securities laws. Borrower has no any liability, contingent or
otherwise, under any applicable law governing the use or disposal of hazardous
materials.
3.10 Insurance. Borrower has insurance coverage for its properties in
prudent amounts provided by prudent insurers given the nature of its business
and the kinds of properties it owns.
3.11 No Contractual Defaults. There are no material defaults by
Borrower under any material contract to which Borrower is a party. Borrower has
not received an notice nor does it have any knowledge of any existing
circumstances in respect of which it could receive any notice of default or
breach in respect of any of its material contracts.
3.12 Financial Position. The financial statements and all financial
data delivered to Lender relating to Borrower and the Guarantor are true,
correct and complete in all material respects. Such financial statements fairly
present the financial position of the parties or properties who are their
subjects as of the dates indicated. No material adverse change has occurred in
such financial position since the date of such financial statements, and, except
for the Loans, Borrower has incurred no indebtedness since the date of any such
statements.
3.13 Disclosure. None of Borrower's representations or warranties
contained in this Agreement or any other document, certificate or written
statement furnished to Lender by or on behalf of Borrower contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained in this Agreement or in such other
document, certificate or written statement (when taken in their entirety) not
misleading. There is no fact known to Borrower which materially or adversely
affects the business, operations, assets or condition (financial or otherwise)
of Borrower which has not been disclosed in this Agreement or in another written
statement delivered to Lender by Borrower.
3.14 ERISA. Borrower has not incurred any material accumulated funding
deficiency within the meaning of ERISA, and has not incurred any material
liability to the Pension Benefit Guaranty Company ("PBGC") in connection with
any employee benefit plan subject to the provisions of ERISA or other class of
benefit that PBGC has elected to insure.
ARTICLE IV
COVENANTS
While any obligation of Borrower under the Loan Documents remains
outstanding, Borrower shall comply with the following covenants.
4.1 Organization and Status of Borrower. Borrower shall maintain its
corporate existence and all licenses and permits relating thereto in good
standing in every jurisdiction in which the nature of its business makes
qualification necessary or where failure to qualify would have a material
adverse effect on its financial condition or the performance of its obligations
under the Loan Documents.
4.2 Compliance with Laws. Borrower shall remain in compliance in all
material respects with all laws and requirements applicable to its business,
including all applicable federal and state securities laws, and obtain all
authorizations, consents, approvals, orders, licenses, exemptions from, and
accomplish all filings or registrations or qualifications with, any governmental
agency that are necessary for the transaction of its business.
4.3 Books and Records. Borrower shall maintain full and complete books
of account and other records reflecting the results of its operations, in
accordance with generally accepted accounting principles applied on a consistent
basis, and permit Lender and its agents, at all reasonable times and from time
to time, to inspect and copy any such books and records.
4.4 Notice of Certain Matters. Borrower shall give notice to Lender,
promptly upon learning thereof, of each of the following:
(a) any litigation or claim of any kind that might subject
Borrower to liability in excess of $50,000, whether covered by insurance or not;
(b) any material dispute between Borrower and any governmental
agency;
(c) the occurrence of an Event of Default;
(d) the existence of any "reportable event" as defined in ERISA;
and
(e) any other event or condition causing a material adverse
change in the financial condition of Borrower or the Guarantor.
4.5 Further Assurances. Borrower shall execute and acknowledge (or
cause to be executed and acknowledged) and deliver to Lender all documents, and
take all actions, required by Lender from time to time to confirm the rights
created or now or hereafter intended to be created under the Loan Documents and
the transactions contemplated thereunder, to maintain, protect, perfect and
<PAGE>
further the validity and enforceability of the Loan Documents or other
collateral for Borrower's obligations under the Loan Documents.
4.6 Taxes. Borrower shall pay and discharge all taxes, assessments and
governmental charges or levies imposed on it, on its income or profits or on any
of its property prior to the date on which penalties attach thereto.
4.7 Information.
(a) Borrower shall deliver the following information to Lender:
(i) as soon as available and in any event not later than 90
days following the end of each fiscal year of Guarantor, a consolidated and
consolidating (including separate information for Borrower) balance sheet of
Guarantor as of the end of such year and consolidated and consolidating
(including separate information for Borrower) statements of income,
shareholders' equity and cash flow of Guarantor for such year, setting forth in
each case in comparative form corresponding consolidated and consolidating
figures from the preceding fiscal year and certified in accordance with
generally accepted accounting principles by independent certified public
accountants satisfactory to Lender, together with Guarantor's report to the
Securities and Exchange Commission on Form 10K;
(ii) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal year of
Guarantor, a consolidated and consolidating (including separate information for
Borrower) balance sheet of Guarantor as of the end of such quarter and the
related consolidated and consolidating (including separate information for
Borrower) statement of income of Guarantor for such quarter and the portion of
Guarantor's fiscal year ended at the end of such quarter, setting forth in each
case in comparative form the figures for the corresponding portion of
Guarantor's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation and preparation in accordance with
generally accepted accounting principles by the chief financial officer of
Guarantor, together with Guarantor's report to the Securities and Exchange
Commission on Form 10Q;
(iii) simultaneously with delivery of each set of financial
statements referred to in Sections 4.8(a)(i) and (ii) above, a certificate of
the chief financial officer of Borrower stating whether there exists on the date
of such certificate any Event of Default or Potential Event of Default, setting
forth the details thereof and the action that Borrower is taking or proposes to
take with respect thereto; and
(iv) such other information concerning Borrower and
Guarantor, as Lender shall reasonably request.
(b) If Borrower fails to furnish promptly any information or
report required by Section 4.8(a) above or any other person fails to furnish
promptly any information or report required by any other provision of any of the
Loan Documents, or if Lender reasonably determines such reports to be
unacceptable, Lender may elect (in addition to exercising any other right or
remedy it has under the Loan Documents) to make an audit of all the books and
records of Borrower and to prepare the information or report which Borrower
failed to deliver. Such audit shall be performed and such information or report
shall be prepared by an independent firm of certified public accountants to be
selected by Lender. Borrower shall pay all expenses of the audit and other
related services.
4.8 Insurance. Borrower shall maintain insurance with responsible and
reputable insurance companies in such amounts and covering such risks as is
usually carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which Borrower operates.
4.9 Maintenance of Properties. Borrower shall maintain and preserve
all of its properties in good working order and condition in accordance with the
terms of all leases of space in such properties and otherwise in accordance with
prudent standards or business conduct.
4.10 Debt. Borrower shall not incur any "Debt" (as defined below)
other than pursuant to this Agreement and Borrower's debt incurred in connection
with the acquisition of Heitman Properties Ltd. in the approximate amount of
$22,000,000. "Debt" means any of (a) indebtedness or liability for borrowed
money whether or not evidenced by a written instrument, or for the deferred
purchase price of property or services; (b) obligations as lessee under leases
which should have been or should be, in accordance with generally accepted
accounting principles, recorded as capital leases; (c) obligations under any
guarantee or other agreement to become secondarily liable for any obligation of
another, endorsements (other than for collection or deposit in the ordinary
course of business) and other contingent obligations to purchase, to provide
funds for payment, to supply funds to invest or otherwise to assure a creditor
against loss; or (d) obligations secured by a lien on Borrower's property,
whether or not the obligations have been assumed by Borrower. Debt shall not
include current accounts payable incurred by Borrower in reasonable amounts in
the ordinary course of Borrower's business.
4.11 Liens. Borrower shall not create, incur, assume or suffer to
exist any lien, security interest or other charge or encumbrance (including the
lien or retained security title of a conditional vendor) of any kind, upon or
<PAGE>
with respect to any of its properties of any character (including, without
limitation, accounts) whether now owned or hereafter acquired, or sign or file
under the Uniform Commercial Code of any jurisdiction a financing statement
which names Borrower as debtor, or sign any security agreement authorizing any
secured party thereunder to file such financing statement, or assign any
accounts.
ARTICLE V
EVENTS OF DEFAULT
5.1 Events of Default. The occurrence of any of the following shall be
an "Event of Default":
(a) Borrower's failure to pay when due any installment of
principal or interest under this Agreement or any other sum required to be paid
by the terms of any Loan Document;
(b) the failure of Borrower, within 30 days following written
notice from Lender, to observe or perform any covenant or other agreement
contained in any Loan Document (other than the covenants or agreements referred
to above in Section 5.1(a)); provided, however, that the notice and 30-day grace
period set forth above shall be applicable only to a failure to observe or
perform any covenant or other agreement which is reasonably susceptible of being
cured; provided further, that should Borrower be unable to cure its failure
within such 30-day period despite beginning to cure such failure promptly after
receipt of notice and prosecuting such attempt diligently during such 30-day
period, the cure period shall be extended an additional 30 days so long as
Borrower continues diligently to prosecute the cure during such additional
period;
(c) any written representation, warranty or financial statement
given by Borrower or Guarantor shall have been untrue in any material respect
when given;
(d) the occurrence of a default under any of the Loan Documents
and the failure of any such default to be cured during the permitted time, if
any, for such cure;
(e) either of Borrower or Guarantor shall be unable or shall
admit in writing its inability to pay its debts when due, or shall make an
assignment for the benefit of creditors; or either of them shall apply for or
consent to the appointment of any receiver, trustee or similar officer for such
person or for all or any substantial part of such person's property; or either
of them shall institute (by petition, application, answer, consent or otherwise)
any bankruptcy, insolvency, reorganization, arrangement, readjustment of debts,
dissolution, liquidation, or similar proceedings relating to such person under
the laws of any jurisdiction;
(f) if a receiver, trustee or similar officer shall be appointed
for Borrower or Guarantor, or for all or any substantial part of any such
person's property without the application or consent of such person, and such
appointment shall continue undischarged for a period of 60 days (whether or not
consecutive); or any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceedings shall be
instituted (by petition, application or otherwise) against any such person and
shall remain undismissed for a period of 60 days (whether or not consecutive);
(g) all or any material part of the assets of Borrower or
Guarantor shall become subject to attachment, execution or judicial seizure
(whether by enforcement of money judgment, by writ or warrant of attachment, or
by any other process) in an amount greater than $25,000;
(h) Borrower or Guarantor, as applicable, shall be in default in
the payment of any indebtedness (whether or not secured) or the performance of
any other obligation secured by a lien on any material asset of such entity and
such default is not cured within the time, if any, specified for such a cure in
any applicable agreement;
(i) any of the Loan Documents shall cease to be a valid, binding
and enforceable obligation of the person purported to be bound; or Borrower or
Guarantor shall assert such cessation or failure in writing; or
(j) the occurrence of a material adverse change in the financial
condition of Guarantor.
6.2 Remedies upon Default. Upon the occurrence of any Event of
Default, Lender may, at its option, do any of the following:
(a) terminate its obligation to make any Loans;
(b) declare the principal of all amounts owing under the Loan
Documents, together with all accrued interest thereon and all other amounts
owing in connection therewith, to be immediately due and payable, regardless of
any other specified maturity or due date, without notice of default, presentment
or demand for payment, notice or demand of any kind, and without the necessity
of prior recourse to any security; provided, that any Event of Default with
<PAGE>
respect to Borrower described in Sections 6.1(e) or (f) shall automatically,
without declaration or other action on Lender's part, cause all such amounts to
be immediately due and payable without notice or demand;
(c) if the Event of Default may be cured by the payment of money,
Lender may (but shall not be obligated) to make such payment from its own funds;
provided, that the making of such payment by Lender shall not be deemed to cure
such Event of Default, and that the same shall not be cured unless and until
Borrower reimburses Lender for such payment. If Lender advances its own funds
for such purposes, the funds advanced shall be considered advances under the
Note, notwithstanding that such advances may cause the total amount advanced
under this Agreement to exceed the aggregate face amount of the Note or the
amount committed to be advanced pursuant to this Agreement; and
(d) exercise any of its rights under the Loan Documents,
including the right to foreclose on any security, and exercise any other rights
with respect to any security, whether under the Loan Documents or as provided by
law, all in such order and in such manner as Lender in its sole discretion may
determine.
6.3 Cumulative Remedies; No Waiver. Lender's remedies under the Loan
Documents are cumulative and shall be in addition to all rights and remedies
provided by law or in equity from time to time. The exercise by Lender of any
right or remedy shall not constitute a cure or waiver of any default, nor
invalidate any notice of default or any act done pursuant to any such notice,
nor prejudice Lender in the exercise of any other right or remedy. No waiver by
Lender of any default shall be implied from any omission by Lender to take
action on account of such default if such default persists or is repeated. No
express waiver by Lender of any default shall affect any default other than the
default expressly waived, and any such express waiver shall be operative only
for the time and to the extent of any Loan Document shall be construed as a
waiver of any subsequent breach of the same covenant, term or condition.
Lender's consent to or approval of any act by Borrower requiring further consent
or approval shall not be deemed to waive or render unnecessary Lender's consent
to or approval of any subsequent act.
ARTICLE VII
MISCELLANEOUS
7.1 Notices. Any notice, demand or request required under this
Agreement shall be given in writing at the addresses set forth below by personal
service; telecopy; overnight courier; or registered or certified, first class
mail, return receipt requested.
If to Borrower:
Kennedy-Wilson Properties Ltd.
530 Wilshire Blvd., Suite 101
Santa Monica, California 90401
Attention: William J. McMorrow
Fax No.: (310) 314-8514
If to Lender:
East-West Bank
415 Huntington Drive
San Marino, California 91108
Attention: Donald Chow or Kathleen Kwan
Fax No.: (626) 441-3035
Such addresses may be changed by notice to the other parties given in the same
manner as required above. Any notice, demand or request shall be deemed received
as follows: (i) if sent by personal service, at the time such personal service
is effected; (ii) if sent by telecopy, upon the sender's receipt of a
confirmation report generated by the sender's telecopier indicating receipt by
the recipient's telecopier; (iii) if sent by overnight courier, on the business
day immediately following deposit with the overnight courier; and (iv) if sent
by mail, 48 hours following deposit in the mail.
7.2 Governing Law. All questions with respect to the construction of
this Agreement and the rights and liabilities of the parties to this Agreement
shall be governed by the laws of the State of California.
7.3 Binding on Successors. This Agreement shall inure to the benefit
of, and shall be binding upon, the successors and assigns of each of the parties
to this Agreement.
7.4 Attorneys' Fees.
(a) Borrower shall reimburse Lender for all reasonable attorneys'
fees, costs and expenses, incurred by Lender in connection with the enforcement
of Lender's rights under this Agreement and each of the other Loan Documents,
including, without limitation, reasonable attorneys' fees, costs and expenses
for trial, appellate proceedings, out-of-court negotiations, workouts and
settlements or for enforcement of rights under any state or federal statute,
including, without limitation, reasonable attorneys' fees, costs and expenses
incurred to protect Lender's security and attorneys' fees, costs and expenses
incurred in bankruptcy and insolvency proceedings such as (but not limited to)
<PAGE>
seeking relief from stay in a bankruptcy proceeding. The term "expenses" means
any expenses incurred by Lender in connection with any of the out-of-court, or
state, federal or bankruptcy proceedings referred to above, including, without
limitation, the fees and expenses of any appraisers, consultants and expert
witnesses retained or consulted by Lender in connection with any such
proceeding.
(b) Lender shall also be entitled to its attorneys' fees, costs
and expenses incurred in any post-judgment proceedings to collect and enforce
the judgment. This provision is separate and several and shall survive the
merger of this Agreement into any judgment on this Agreement.
7.5 Counterparts. This Agreement may be executed in any number of
original counterparts, each of which shall be deemed an original, but all of
which when taken together shall constitute one instrument. The original
signature page of any counterpart may be detached from such counterpart and
attached to any other counterpart identical to such counterpart (except having
additional signature pages executed by other parties to this Agreement) without
impairing the legal effect of any such signature(s).
7.6 Entire Agreement. This Agreement and the other Loan Documents
constitute the entire agreement and understanding between the parties in respect
of the subject matter of this Agreement and supersede all prior agreements and
understandings with respect to such subject matter, whether oral or written.
7.7 Waivers. Waiver by Lender of any term, covenant or condition under
this Agreement or the Loan Documents, or of any default by Borrower under this
Agreement or the Loan Documents, or any failure by Lender to insist upon strict
performance by Borrower of any term, covenant or condition contained in this
Agreement or the Loan Documents, shall be effective or binding on Lender only if
made in writing by Lender; no such wavier shall be implied from any omission by
Lender to take action with respect to any such term, covenant, condition or
default. No express written waiver by Lender of any term, covenant, condition or
default shall affect any other term, covenant, condition or default or cover any
other time period than the application of any such term, covenant or condition
to the matter as to which a waiver has been given or the default or time period
specified in such express waiver. This Agreement may be amended only by an
instrument in writing signed by the parties to this Agreement.
7.8 Severability. If any part of this Agreement is declared invalid
for any reason, such shall not affect the validity of the rest of the Agreement.
The other parts of this Agreement shall remain in effect as if this Agreement
had been executed without the invalid part. The parties declare that they intend
and desire that the remaining parts of this Agreement continue to be effective
without any part or parts that have been declared invalid.
7.9 Expenses. Borrower shall pay promptly all costs, charges, and
expenses incurred by Lender in connection with the Loans, including, without
limitation, commitment fees, loan fees, service charges, title charges, tax and
lien service charges, costs of inspection, costs of consulting engineers,
recording fees, processing fees, appraisal fees, attorneys' fees, real property
taxes and assessments and insurance premiums, and any fees in consideration of
Lender's commitment to provide the Loan.
EAST-WEST BANK, a California banking corporation
By:
-----------------------------------------
Kathleen Kwan, Vice President
KENNEDY-WILSON PROPERTIES LTD., an Illinois corporation
By:
-----------------------------------------
Freeman Lyle, Chief Financial Officer
<PAGE>
EXHIBIT A
FORM OF CERTIFICATION FOR LOAN REQUEST
Kennedy-Wilson Properties Ltd. ("Borrower") certifies as follows to
East-West Bank ("Lender") pursuant to Section 2.1 of the Loan Agreement dated as
of July 28, 1998 between Borrower and Lender (the "Loan Agreement"), with the
understanding that Lender is relying on this certification in determining
whether to make a "Loan" (as defined in the Loan Agreement) to Borrower:
1. No Event of Default or any Potential Event of Default has occurred
and is continuing;
2. The representations and warranties contained in the Loan Agreement
are or will be true on the date on which the requested Loan is to be made; and
3. The aggregate amount of all Loans outstanding (including the amount
of the Loan being requested) does not exceed $1,000,000.
All capitalized terms used in this Certificate without definition are
used as defined in the Loan Agreement.
Date: _________
KENNEDY-WILSON PROPERTIES LTD., an
Illinois corporation
By:
-----------------------------------
<PAGE>
Exhibit 10.19
GUARANTY
THIS GUARANTY is entered into as of July 28, 1998 by KENNEDY-WILSON,
INC., a Delaware corporation ("Guarantor"), in favor of EAST-WEST BANK, a
California banking corporation ("Lender").
RECITALS
A. Lender and Kennedy-Wilson Properties Ltd. ("Borrower") are entering
into the Revolving Loan Agreement dated as of July 28, 1998 pursuant to which
Lender is making loans to Borrower up to an aggregate amount of $1,000,000
("Loans"). The Loans are evidenced by the Promissory Note of this date in the
principal amount of $1,000,000 made by Borrower and payable to the order of
Lender (the "Note"). The Note and all other documents, agreements and
instruments evidencing, securing or otherwise delivered in connection with the
Loans are referred to as the "Loan Documents."
B. Guarantor's execution and delivery of this Guaranty are conditions
precedent to Lender's making the Loans. Guarantor is willing to enter into this
Guaranty to induce Lender to make the Loans to Borrower.
C. Guarantor owns all of the outstanding stock of Borrower and will
benefit from Lender's making the Loans to Borrower.
AGREEMENT
1. Guaranty.
(a) Guarantor unconditionally and irrevocably guarantees the full
and prompt payment of all principal, interest, fees, costs and other sums owed
under the Loan Documents at the times and according to the terms expressed in
the Loan Documents, including any interest, late charges, default interest, fees
and costs (including reasonable attorneys' fees) that would have accrued under
the Loan Documents but for the commencement of a case under Title 11 of the
United States Code or any successor statute (the "Bankruptcy Code").
(b) Guarantor's liability under this Guaranty is a guaranty of
payment and performance of the Note and not of collectibility only.
2. Changes Do Not Affect Liability. Guarantor agrees that Lender may
without notice to Guarantor and without limiting Guarantor's liability under, or
affecting the enforceability of, this Guaranty:
(a) grant extensions of time, renewals or other indulgences and
modifications to Borrower or any other party under the Loan Documents;
(b) change the rate of interest provided for in the Loan
Agreement;
(c) change, amend or modify the Loan Documents;
(d) authorize the sale, exchange, release or subordination of any
security or collateral in which Lender has an interest or fail to create,
perfect or maintain the priority of any security interest in any such
collateral;
(e) take additional security for any obligation in connection
with the Loans;
(f) discharge or release any party or parties liable under the
Loan Documents;
(g) accept or make compositions or other arrangements or file or
refrain from filing a claim in any bankruptcy proceeding of Borrower, any other
guarantor of the Loans, any pledgor of collateral for any person's obligations
to Lender or any other person related to the Loans;
(h) make other or additional loans to Borrower in such amounts
and at such times as Lender may determine;
(i) credit payments in such manner and order of priority to
principal, interest or other obligations as Lender may determine; and
(j) otherwise deal with Borrower, any other guarantor of the
Loans, any pledgor of collateral for any person's obligations to Lender or any
other person related to the Loans as Lender may determine in its discretion.
3. Additional Waivers.
<PAGE>
(a) Guarantor waives all benefits and defenses it may have under
California Civil Code Section 2809 and agrees that Guarantor's liability may be
larger in amount and more burdensome than that of Borrower. Guarantor's
liability under this Guaranty shall continue until all sums due under the Loan
Documents have been paid in full and shall not be limited or affected in any way
by any impairment or any diminution or loss of value of any security or
collateral for the Loans, from whatever cause, including, without limitation,
Lender's failure to perfect a security interest in any such security or
collateral or any disability or other defense of Borrower, any other guarantor
of the Loans, any pledgor of collateral for any person's obligations to Lender
or any other person related to the Loans.
(b) Guarantor agrees that its liability under, and the
enforceability of, this Guaranty are absolute and are not contingent upon the
genuineness, validity or enforceability of any of the Loan Documents or the
availability of any defense to Borrower, any other guarantor of the Loans, any
pledgor of collateral for any person's obligations to Lender or any other person
related to the Loans. Guarantor waives all benefits and defenses it may have
under California Civil Code Section 2810 and agrees that Guarantor shall be
liable even if Borrower, any other guarantor of the Loans, any pledgor of
collateral for any person's obligations to Lender or any other person related to
the Loans had no liability at the time of execution of the Note or later ceases
to be liable.
(c) Guarantor waives its rights under California Civil Code
Section 2815 and agrees that by doing so Guarantor has no right to revoke this
Guaranty until all obligations under the Loan Documents have been fully
satisfied.
(d) Guarantor waives its rights under California Civil Code
Section 2819 and agrees that by doing so Guarantor's liability and the
enforceability of this Guaranty shall continue even if Lender alters any
obligations under the Loan Agreement or any of the other Loan Documents in any
respect.
(e) Guarantor waives its rights under California Civil Code
Section 2839 and agrees that by doing so (i) its obligations under this Guaranty
shall not be deemed satisfied by a mere offer of payment by Borrower or any
other person of the principal obligations under the Loan Documents and (ii)
Guarantor's liability under and the enforceability of this Guaranty shall
continue until all obligations under the Loan Documents have been fully
satisfied.
(f) Guarantor waives all benefits and defenses it may have under
California Civil Code Sections 2845, 2849 and 2850, including, without
limitation, the right to require Lender to (i) proceed against Borrower, any
other guarantor of the Loans, any pledgor of collateral for any person's
obligations to Lender or any other person related to the Loans, (ii) proceed
against or exhaust any other security or collateral Lender may hold, or (iii)
pursue any other right or remedy for any Guarantor's benefit, and agrees that
Lender may foreclose against all or a part of the Property or any other security
Lender may hold without taking any action against Borrower, any other guarantor
of the Loans, any pledgor of collateral for any person's obligations to Lender
or any other person related to the Loans, and without proceeding against or
exhausting any security or collateral Lender holds.
(g) Guarantor waives its rights under California Civil Code
Sections 2899 and 3433 and agrees that by doing so Lender has no obligation
regarding the order in which it exercises its remedies.
(h) Guarantor waives diligence and all demands, protests,
presentments and notices of every kind or nature, including notices of protest,
dishonor, nonpayment, acceptance of this Guaranty and creation, renewal,
extension, modification or accrual of any of the obligations under the Loan
Agreement or the other Loan Documents. Guarantor also waives the right to plead
all statutes of limitation as a defense to Guarantor's liability under, or the
enforceability of, this Guaranty.
4. Guarantor Informed of Borrower's Condition. Guarantor acknowledges
that it has had an opportunity to review the Loan Documents, the value of the
security for the Loans and Borrower's financial condition and ability to repay
the Loans. Guarantor agrees to keep itself fully informed of all aspects of
Borrower's financial condition and the performance of Borrower's obligations to
Lender and that Lender has no duty to disclose to Guarantor any information
pertaining to Borrower or any security for the Loans.
5. Subrogation, Reimbursement and Contribution Rights. Guarantor
agrees that its rights of subrogation and reimbursement against Borrower, its
right of subrogation against any other collateral or security for the Loans or
the pledgor of such collateral or security and its right of contribution from
any guarantor of the Loans shall be subordinate to Lender's rights against
Borrower, in such collateral or security, against any such pledgor and against
any such guarantor. Guarantor shall have no such rights of subrogation,
reimbursement or contribution until all amounts due under the Loan Documents
have been paid in full and Lender has released, transferred or disposed of all
of its rights in any collateral or security. Guarantor waives its rights under
California Civil Code Sections 2847, 2848 and 2849 to the extent inconsistent
<PAGE>
with the foregoing.
6. Guaranty Continues if Payments Are Avoided or Recovered from
Lender. If all or any portion of the obligations guaranteed under this Guaranty
are paid or performed, Guarantor's obligations under this Guaranty shall
continue and remain in full force and effect if all or any part of such payment
or performance is avoided or recovered directly or indirectly from Lender as a
preference, fraudulent transfer or otherwise, irrespective of (a) any notice of
revocation given by Guarantor prior to such avoidance or recovery, and (b)
payment in full of the Loans.
7. Representations and Warranties. Guarantor makes the following
representations and warranties to Lender:
(a) This Guaranty has been duly executed and delivered and is the
legal, valid and binding obligations of Guarantor, enforceable against Guarantor
in accordance with its terms.
(b) Guarantor's execution and delivery of, and its performance of
its obligations under, this Guaranty do not and will not conflict with any (i)
contractual or legal restriction or obligation, or (ii) court or regulatory
order, binding on or affecting Guarantor.
(c) There is no pending or, to the actual knowledge of Guarantor,
threatened action, proceeding or investigation before any court, governmental
agency or arbitrator against or affecting Guarantor or any of Guarantor's other
assets which, if decided adversely to Guarantor, would materially and adversely
affect the financial condition of Guarantor or of any of Guarantor's assets or
would materially and adversely affect the present or future ability of Guarantor
to perform its obligations under the Guaranty.
(d) Guarantor is not and will not be rendered insolvent by the
transactions contemplated by the Loan Documents. After giving effect to the
transactions contemplated by the Loan Documents, Guarantor will not be left with
an unreasonably small amount of capital with which to engage in its business or
undertakings, nor will Guarantor have intended to incur, or believe that it has
incurred, debts beyond its ability to pay such debts as they mature.
(e) Except as disclosed to Lender in writing, the financial
statements and all financial data delivered to Lender relating to Guarantor are
true, correct and complete in all material respects. Such financial statements
fairly present the financial position of Guarantor as of the dates indicated. No
material adverse change has occurred in Guarantor's financial position since the
date of such financial statements, and Guarantor has not incurred any
indebtedness since the date of any such statements.
(f) Guarantor has filed all required federal, state and local tax
returns. Guarantor has paid all federal, state and local taxes prior to
delinquency (including any interest and penalties) other than taxes being
promptly and actively contested in good faith and by appropriate proceedings.
(g) Guarantor is in material compliance with all laws,
regulations and court orders applicable to it or its business.
(h) None of Guarantor's representations or warranties contained
in this Guaranty or any other document, certificate or written statement
furnished to Lender on behalf of Guarantor contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained in this Agreement or in such other document, certificate or
written statement (when taken in their entirety) not misleading. There is no
fact known to Guarantor which materially or adversely affects the business,
operations, assets or condition (financial or otherwise) of Guarantor which has
not been disclosed in this Agreement or in another written statement delivered
to Lender by Borrower or Guarantor.
8. Borrower. As used in this Guaranty, "Borrower" shall include any
successor to Borrower with respect to the Loans and any estate created by the
commencement of a case under the Bankruptcy Code or any other insolvency,
bankruptcy, reorganization or liquidation proceeding, or by any trustee under
the Bankruptcy Code, liquidator, sequestrator or receiver of Borrower or
Borrower's property or similar person duly appointed pursuant to any law
generally governing any insolvency, bankruptcy, reorganization, liquidation,
receivership or like proceeding.
9. Opportunity to Review. Guarantor acknowledges that it has had the
opportunity to review the matters discussed and contemplated by the Loan
Documents, including the remedies Lender may pursue against Borrower in the
event of a default under the Loan Documents, the value of any security or
collateral for the Loans and Borrower's financial condition and ability to
perform under the Loans. Guarantor further has had the opportunity to review
this Guaranty with its counsel.
10. Miscellaneous.
(a) Notices. Any notice, demand or request required under this
Guaranty shall be given in writing at the addresses set forth below by personal
service; telecopy; overnight courier; or registered or certified, first class
mail, return receipt requested.
<PAGE>
If to Guarantor:
Kennedy-Wilson, Inc.
530 Wilshire Blvd., Suite 101
Santa Monica, California 90401
Attention: William J. McMorrow
Fax No.: (310) 314-8514
If to Lender:
East-West Bank
415 Huntington Drive
San Marino, California 91108
Attention: Kathleen Kwan
Fax No.: (626) 441-3035
Such addresses may be changed by notice to the other parties given in the same
manner as required above. Any notice, demand or request shall be deemed received
as follows: (i) if sent by personal service, at the time such personal service
is effected; (ii) if sent by telecopy, upon the sender's receipt of a
confirmation report indicating receipt by the recipient's telecopier; (iii) if
sent by overnight courier, on the business day immediately following deposit
with the overnight courier; and (iv) if sent by mail, 48 hours following deposit
in the mail.
(b) Governing Law. All questions with respect to the construction
of this Guaranty and the rights and liabilities of the parties to this Guaranty
shall be governed by the laws of the State of California.
(c) Binding on Successors. This Guaranty shall inure to the
benefit of, and shall be binding upon, the successors and assigns of each of the
parties to this Guaranty. Lender may assign this Guaranty with one or more of
the Loan Documents, without in any way affecting Guarantor's liability under it
or them.
(d) Attorneys' Fees.
(i) Guarantor shall reimburse Lender for all reasonable
attorneys' fees, costs and expenses, incurred by Lender in connection with the
enforcement of Lender's rights under this Guaranty and each of the other Loan
Documents, including, without limitation, reasonable attorneys' fees, costs and
expenses for trial, appellate proceedings, out-of-court negotiations, workouts
and settlements or for enforcement of rights under any state of federal statute,
including, without limitation, reasonable attorneys' fees, costs and expenses
incurred to protect Lender's security and attorneys' fees, costs and expenses
incurred in bankruptcy and insolvency proceedings such as (but not limited to)
seeking relief from stay in a bankruptcy proceeding. The term "expenses" means
any expenses incurred by Lender in connection with any of the out-of-court, or
state, federal or bankruptcy proceedings referred to above, including, without
limitation, the fees and expenses of any appraisers, consultants and expert
witnesses retained or consulted by Lender in connection with any such
proceeding.
(ii) Lender shall also be entitled to its attorneys' fees,
costs and expenses incurred in any post-judgment proceedings to collect and
enforce the judgment. This provision is separate and several and shall survive
the merger of this Guaranty into any judgment on this Guaranty.
(e) Counterparts. This Guaranty may be executed in any number of
original counterparts, each of which shall be deemed an original, but all of
which when taken together shall constitute one instrument. The original
signature page of any counterpart may be detached from such counterpart and
attached to any other counterpart identical to such counterpart (except having
additional signature pages executed by other parties to this Guaranty) without
impairing the legal effect of any such signature(s).
(f) Entire Agreement. This Guaranty constitutes the entire
agreement and understanding between the parties in respect of the subject matter
of this Guaranty and supersedes all prior agreements and understandings with
respect to such subject matter, whether oral or written.
(g) Waivers. Waiver by Lender of any term, covenant or condition
under this Guaranty or the Loan Documents, or of any default by Guarantor under
this Guaranty or the Loan Documents, or any failure by Lender to insist upon
strict performance by Guarantor of any term, covenant or condition contained in
this Guaranty or the Loan Documents, shall be effective or binding on Lender
only if made in writing by Lender; no such wavier shall be implied from any
omission by Lender to take action with respect to any such term, covenant,
condition or default. No express written waiver by Lender of any term, covenant,
condition or default shall affect any other term, covenant, condition or default
or cover any other time period than the application of any such term, covenant
or condition to the matter as to which a waiver has been given or the default or
time period specified in such express waiver. This Guaranty may be amended only
by an instrument in writing signed by the parties to this Guaranty.
(h) Severability. If any part of this Guaranty is declared
invalid for any reason, such shall not affect the validity of the rest of the
Guaranty. The other parts of this Guaranty shall remain in effect as if this
Guaranty had been executed without the invalid part. The parties declare that
<PAGE>
they intend and desire that the remaining parts of this Guaranty continue to be
effective without any part or parts that have been declared invalid.
11. Waiver of Trial by Jury. EACH OF LENDER AND GUARANTOR WAIVES TRIAL
BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT OF OR
ARISING OUT OF THIS GUARANTY OR THE OTHER LOAN DOCUMENTS OR THE CONDUCT OF THE
RELATIONSHIP BETWEEN LENDER AND GUARANTOR. BOTH LENDER AND GUARANTOR HAVE
OBTAINED THE ADVICE OF THEIR RESPECTIVE LEGAL COUNSEL BEFORE SIGNING THIS
GUARANTY AND ACKNOWLEDGE THAT THEY VOLUNTARILY AGREED TO THIS WAIVER OF THEIR
RIGHT TO TRIAL BY JURY WITH FULL KNOWLEDGE OF ITS SIGNIFICANCE AND LEGAL
CONSEQUENCE.
KENNEDY-WILSON, INC., a Delaware corporation
By:
---------------------------------------
William J. McMorrow, President
<PAGE>
LOAN COMMITMENT
TO: KENNEDY WILSON INTERNATIONAL, INC.
MR. FREEMAN LYLE, CHIEF FINANCIAL OFFICER
MR. STEVEN DOME, SENIOR VICE PRESIDENT
FROM: OLD STANDARD LIFE INSURANCE COMPANY
PROJECT NAME: MAKALEI PLANTATIONS: 100 +/- LOT SUBDIVISION
PROJECT LOCATION: MAMALAHOA HIGHWAY, KIALUA-KONA, HAWAII
DATE: JULY 2, 1998
Dear Mssrs. Lyle & Dome:
This is a commitment to provide financing subject to the following terms and
conditions, as outlined in verbal discussions and written correspondence between
your offices and The Mortgage Group, (Mr. Michael Nekoba, President). Your
acceptance of the terms of this loan, or terms mutually agreeable to you and OLD
STANDARD LIFE INSURANCE COMPANY will be significant by you by signing this loan
commitment and returning it with a non-refundable Loan Funding and Commitment
and Acceptance Fee in the amount of $23,000 (1% loan amount). The loan will be
subject to the following terms and conditions:
1) LOAN AMOUNT, TERM AND INTEREST RATE:
An interim loan in the amount of $2,300,000 with a 12-month term. the
interest rate (note rate) shall be fixed upon loan funding at 12.00%.
The disbursement details are outlined in Exhibit "A" -- Loan Request /
Allocation of Funds, attached to this commitment.
2) METHOD OF REPAYMENT:
Monthly interest only payments (actual day's basis) commencing the
first month following Loan closing. The entire remaining principal
balance will be due and payable 12 months from the date of Loan
closing.
3) DESCRIPTION OF MORTGAGE SECURITY COLLATERAL:
The property which comprises the collateral for this loan is an $18
million purchase money note, which is in turn secured by a 999.03 acre
parcel encumbered by that note and a deed of trust. The property
includes single family residential lot entitlements for 81 home sites
to be developed on approximately 270 +/- acres, in accordance with the
A-3A and AG-3 zoning in place, and Conditions of Approval previously
granted by Hawaii County. Applications to secure additional
entitlements to develop 19 more home sites will be submitted to Hawaii
County after Kennedy Wilson International, Inc., perfects free and
clear title to the property on or about December 31. 1998. This loan
will include an assignment of all agreements and/or contracts that
currently benefit or encumber the underlying real estate.
4) VESTING / TITLE TO PROPERTY AND MORTGAGE:
Title to the purchase money note is vested in Kw-Kau, LLC, a wholly
owned subsidiary. Loan Documents including the Note and Deed of Trust,
will be signed by Freeman Lyle,
<PAGE>
Chief Financial Officer. Satisfactory authorizations, including
Articles of Incorporation, Certificates of Good Standing and Corporate
Resolution and Authorization to Borrow, will be supplied by
Kennedy-Wilson International, Inc., to OLD STANDARD LIFE INSURANCE
COMPANY.
5) GUARANTORS:
The loan (Note, Trust Deed, and other security documents) shall be
guaranteed by Kennedy-Wilson International, Inc., a Delaware
Corporation, which shall be jointly and severally liable for its
repayment.
6) LOAN FUNDING AND COMMITMENT ACCEPTANCE:
The loan commitment is to provide for funding not later than Friday,
July 10, 1998, although funding is presently being scheduled for
Wednesday, July 8, 1998. Upon acceptance of the Loan Commitment,
$23,000 (1.0%) of the Loan fee is earned and payable. Upon acceptance
of this loan commitment or one mutually acceptable to Kennedy-Wilson
International, Inc., and OLD STANDARD LIFE INSURANCE COMPANY, we will
provide written acceptance, and the 1% Commitment Acceptance Fee within
five (5) days of its issuance to us. The balance of the OLD STANDARD
LIFE INSURANCE COMPANY Loan Fee, earned and payable, will be withheld
from Loan proceeds at closing.
7) OLD STANDARD LIFE INSURANCE COMPANY LOAN FEE:
In consideration of our issuance and your acceptance of this loan, you
agree to pay OLD STANDARD LIFE INSURANCE COMPANY a fee equal to 4% of
the Gross Loan Proceeds ($92,000). OLD STANDARD LIFE INSURANCE COMPANY
assumes all liability for compensating its Hawaii correspondent, THE
MORTGAGE GROUP, Michael Nekoba, President. The prepaid Loan Funding and
Commitment Acceptance will be applied toward the payment of the OLD
STANDARD LIFE INSURANCE COMPANY Fee. The balance of the OLD STANDARD
LIFE INSURANCE COMPANY Loan Fee, earned and payable, will be withheld
from Loan proceeds at closing.
8) APPRAISAL:
OLD STANDARD LIFE INSURANCE COMPANY has completed their review of the
relevant appraisal date, submitted by the borrower. a Restricted
Appraisal prepared in a summary/letter format, dated June 26, 1998, by
Bill M. Brodbeck, MAI, identifies the fee-simple market value of the
collateral real estate as being not less than Five Million Dollars
($5,000,000). We have agreed to fund this loan prior to receipt of the
final written copy of the appraisal.
9) BORROWERS' EQUITY:
It is understood that the difference between the "As-Is" Market Value
of the subject property and the loan amount is the borrowers' accrued
equity.
<PAGE>
10) ASSIGNMENT LEASES, RENTS:
As Owner/Lessor and Borrower, you agree to assign to you any and all
our interest in leases and/or rents executed before and during the term
of your loan, if such leasehold interests should be created. At
this time there is no leases on the described Property.
11) LATE CHARGES AND DEFAULT RATE OF INTEREST:
Installments to be due under this loan agreement not received by OLD
STANDARD LIFE INSURANCE COMPANY within five (5) calendar days after the
installment is due will incur a late charge of ten percent (10%) of
such installment. In the event of default, the interest rate shall be
increased from the date of default until the default is cured, to a
rate equal to ten percent (10%) per annum higher than the Note Rate
specified above, or the maximum rate allowed in the state in which the
property is located, whichever is the lower.
12) SURVEY:
If it is required by the title company issuing the title insurance
prior to the loan closing, we will furnish you with two copies of a
current survey of plat or an ALTA survey, by a licenses surveyor,
certified to OLD STANDARD LIFE INSURANCE COMPANY, delineating lot lines
and areas which may be affected by easements, rights of way,
reservations, restrictions, or other conditions; and showing the
location of all improvements other physical features which may be
discovered by physical inspection, and which may affect the title and
uses of the premises. The surveyor will also confirm and certify the
legal description as shown in the title policy as being a correct and
accurate description of the subject property.
CLARIFICATION: THE SURVEY REQUIREMENT MAY BE MET WITH ANY OFFICIALLY
RECORDED ENGINEERED TRACT MAP OR SURVEY OF THE SUBJECT PARCEL, SO LONG
AS SAID SURVEY OR MAP IS SATISFACTORY OR FACILITATE THE ISSUANCE OF AN
ALTA LENDERS POLICY OF TITLE INSURANCE FROM AN APPROVED INSURER.
13) INSURANCE:
The borrower will furnish fire, flood, and extended coverage insurance,
loss of rents, and such other forms for insurance as may be required,
in amounts and in forms, issued by companies acceptable to OLD STANDARD
LIFE INSURANCE COMPANY, which policies shall contain a mortgage clause
in your ???_______. In the event of an insurable loss, which results in
the damage or destruction of the insured property, OLD STANDARD LIFE
INSURANCE COMPANY will retain the sole right and discretion to either
apply such proceeds to reduce the loan balance, or to apply the same to
repair or rebuild the Property.
14) TITLE POLICY:
The borrower has furnished a satisfactory title insurance policy (ALTA
extended liability lender's form), issued by a company satisfactory to
OLD STANDARD LIFE INSURANCE COMPANY, insuring the subject mortgage or
deed of trust as a first lien against the against the subject property.
The title policy shall include certified copies (identified by book and
document page filing number), of all documents referred to in the
<PAGE>
title policy, which may affect title to, or the value of, the subject
property. These documents shall include, but shall not be limited to
recorded litigation settlements, which establish the development
entitlements for the subject collateral property.
15) ZONING CERTIFICATE:
The borrower has already supplied satisfactory evidence that proposed
or existing improvements comply with all applicable zoning ordinances,
building and use restrictions, codes, specific entitlements and any
requirements with respect to licenses, permits, and agreements
necessary for the lawful operation and development of the premises. The
analyses of these issues prepared by Envicom Corporation and Gary
Weber, already submitted to OLD STANDARD LIFE INSURANCE COMPANY, have
been accepted as conclusive evidence of the development entitlements.
16) DOCUMENTS AND COUNSEL:
The borrower shall furnish such security and credit instruments, and
other documentation as OLD STANDARD LIFE INSURANCE COMPANY may deem
necessary and expedient for it's protection, as the lender. All
documentation submitted to OLD STANDARD LIFE INSURANCE COMPANY shall be
subject to the review and approval of its legal counsel. The borrower
agrees to pay all reasonable attorney fees incurred in the review of
the same, as well as the costs of preparation of the required loan
documents and other security agreements. OLD STANDARD LIFE INSURANCE
COMPANY will retain California Counsel in documenting and closing this
transaction.
17) ESCROW PAYMENTS:
The borrower shall pay, during the Loan term, all taxes and assessments
levied against the Property, all premiums for insurance covering the
property, and duly required expenses ("escrow expenses"). OLD STANDARD
LIFE INSURANCE COMPANY may, in its sole discretion, at any time during
the term of the Loan, require that the borrower make monthly escrow
payments to it or any successor for these items, in amounts sufficient
to pay such items when due. Said escrow expenses may be increased by a
maximum of no more than (3%) "annual inflation adjustment factor."
18) EXPENSES:
The borrower is to pay all expenses incurred incidental to the making
of this loan. These include, but are not limited to, appraisal, title
and escrow charges, taxes, attorney fees, recording fees, site
inspection costs and other costs, which may be incurred to satisfy
requirements of the Loan Commitment.
19) FUTURE SALE OR ENCUMBRANCE:
The borrower agrees not to transfer, assign, nor further encumber the
Property without the prior written approval of OLD STANDARD LIFE
INSURANCE COMPANY.
20) HAZARDOUS USE AND MATERIALS:
The borrower shall not permit hazardous or dangerous objects, materials
or products to be located upon or generated, stored, disposed of or
used in any portion of the Property, nor permit any hazardous or
dangerous use to be made of the Property, and shall keep the
<PAGE>
Property is a safe condition in full compliance with all safety, health
and environmental statutes, ordinances and regulations. The borrower
may be required to present evidence that no asbestos, formaldehyde,
toxic chemical, radioactive or other hazardous materials have been or
shall be used, incorporated, stored, disposed of, leached or disposed
of on the Property.
21) RIGHT TO PARTICIPATE:
OLD STANDARD LIFE INSURANCE COMPANY retains the right to sell or
arrange a participation of all or part of this loan to another lender,
and that the financial and credit information related to this Loan
request now held by it, may be disclosed to such participant lenders or
investors.
22) UPDATED FINANCIAL INFORMATION:
The borrower agrees to provide, upon request, updated financial
information, tax returns, and other credit information that may require
in the underwriting and administration of this loan during the loan
term.
23) APPLICATION DURATION/EXCLUSIVITY:
The commitment has been drafted in accordance with terms and
conditions, as outlined in verbal discussions and written
correspondence between the offices of Kennedy-Wilson International,
Inc., and the Hawaii correspondent of OLD STANDARD LIFE INSURANCE
COMPANY, The Mortgage Group (Mr. Michael Nekoba, President). If the
loan represented in this commitment has not been funded by July 10,
1998, this commitment will expire automatically at that time and OLD
STANDARD LIFE INSURANCE COMPANY shall have no further obligation to
honor the terms of this loan commitment and Commitment Acceptance
________ will be returned to K_____. If loan funding is delayed by
circumstances beyond the reasonable contemplation or control of either
Kennedy-Wilson International, Inc. or OLD STANDARD LIFE INSURANCE
COMPANY, then both parties may, by mutual agreement, extend this loan
commitment to July 31, 1998, after which time it shall automatically
terminate, and OLD STANDARD LIFE INSURANCE COMPANY shall have no
further obligation to honor the terms of this loan commitment.
24) COMMITMENT TERMINATION:
This Commitment must be accepted no later than July 6, 1998. An
original executed counterpart (initialed by you on each page and signed
in the space provided below) must be received by OLD STANDARD LIFE
INSURANCE COMPANY on or before said date, or this Commitment shall
terminate and be of no further force or effect. This Commitment will be
canceled on July 16, 1998, if the Loan is not closed, or if a written
commitment extension mutually acceptable to both borrower and lender
has not been issued by OLD STANDARD LIFE INSURANCE COMPANY. Upon our
receipt of this Commitment, it shall constitute an agreement obligating
OLD STANDARD LIFE INSURANCE COMPANY to make the Loan in accordance with
the terms and conditions referenced herein.
<PAGE>
This commitment shall be immediately terminated in the event a petition
for bankruptcy, creditor protection, insolvency or reorganization is
filed by the entity which owns the property, and which is the subject
of this commitment; or the event of court appointment of a receiver or
trustee; or in the event of a making of an assignment by borrower; for
the benefit of creditors; or in the event of a filing of a petition for
reorganization by the borrower, which is not withdrawn or dismissed,
and/or terminated within sixty (60) days after its filing or entry.
If borrower elects not to fund the loan identified by this commitment,
after indicating acceptance by signing and posting the required
Commitment Acceptance Fee; or if the Commitment is terminated under the
provisions of this section, after acceptance and tender of the
irrevocable Commitment Acceptance Fee, then Commitment Acceptance Fee
stipulated in Paragraph 6 shall constitute an absolute and
unconditional partial payment to OLD STANDARD LIFE INSURANCE COMPANY of
its earned fees, without right or claim of offset against the same, and
without right of recovery by the borrower, of the whole or any part
thereof.
25) INTERPRETATION:
This Application shall be governed by, construed and enforced in
accordance with the laws of the state of Washington. In the event of
any lawsuits or other legal or judicial proceedings related to this
Application, each party hereby (1) waives its right to trial by jury,
(2) consents to exclusive jurisdiction in the state and federal courts
located in the County of Spokane, State of Washington, and (3) agrees
that the prevailing party shall be entitled to recover from the
non-prevailing party its attorney's fees and costs.
26) WARRANTIES AND REPRESENTATIONS:
WE HEREBY CERTIFY THAT:
A. To the best of borrowers knowledge, there are no legal actions
or proceedings pending or imminent, which would materially
affect the loan or the property which is the security for this
loan, except those previously disclosed by us, which issues,
have also been indemnified against by separate agreement, or
purchase of suitable insurance.
B. The consummation of the transactions contemplated herein, and
the performance of the terms and conditions of this
Commitment, including the delivery of the mortgage and/or
other security and credit instruments, will not result in any
breach of contractual or fiduciary obligation, nor constitute
a default under any indenture, bank loan or credit agreement,
or other instruments to which the borrower may be bound.
C. All borrower covenants, agreements, and representations made
herein, and in any and all documents which may be delivered
pursuant to this commitment, shall survive delivery to OLD
STANDARD LIFE INSURANCE COMPANY, of the mortgage, note, and
other documents furnished in accordance herewith, and the
provisions hereof shall continue to accrue to the benefit of
OLD STANDARD LIFE INSURANCE COMPANY, its successors and
assigns.
<PAGE>
D. Neither this Commitment nor the proceeds of any loan advanced
pursuant to this commitment shall be assignable by the
borrower unless prior written consent is obtained from OLD
STANDARD LIFE INSURANCE COMPANY. If there are any material
changes in the property which is the security for this loan,
or if representations made by the borrower are not correct, or
if the borrower fails to disclose any material facts, property
execute the required documentation, or perform any of the
terms or conditions required in this Commitment, OLD STANDARD
LIFE INSURANCE COMPANY shall not be required to disburse any
party of the loan proceeds; and it may thereupon cancel this
commitment, and no liability of any kind shall attach to it by
reason thereof.
E. The security instruments to be recorded pursuant to this
transaction shall stand as security for the earned fees and
expenses set forth in Paragraph 18 incurred by you in the
making of the loan and the processing of this Application, and
shall constitute a lien on the premises to the extent thereof.
F. The loan evidenced by this commitment is made based on the
following further warranties and representations of the
borrowers, some of which may require completion prior to
funding;
1) The Loan shall be evidenced by a Promissory Note, a
deed of Trust, an Assignment of Leases and cash
collateral, UCC-1 and 2 Financing statements, and
other security and credit instruments and loan
documents required by OLD STANDARD LIFE INSURANCE
COMPANY. Guaranty of repayment of the Note shall be
evidenced by guaranties in form and substance to OLD
STANDARD LIFE INSURANCE COMPANY.
2) Prior to closing the loan, all taxes and assessments
affecting the Property shall have been paid and
discharged whether or not payable in installments or
constituting a lien against the property.
3) The Loan will be made in reliance upon statements and
representations contained in your Loan Application,
Loan Commitment and in financial statements and other
documentation submitted to OLD STANDARD LIFE
INSURANCE COMPANY by you and any guarantors. You
represent and warrant to OLD STANDARD LIFE INSURANCE
COMPANY that all such statements and representations
are true in all material respects. At the closing of
the Loan your credit and all other aspects of the
transaction shall be as represented to us without
material adverse change from the time of application
for the Loan.
4) This commitment may not be terminated or changed
except by written agreement by both parties. OLD
STANDARD LIFE INSURANCE COMPANY shall be under no
obligation to close the loan, if at the time of
closing, facts exist, or an event has occurred, which
would then, (or upon the passage of time or lapse of
grace period), constitute a default under the Loan
Application, this Commitment or any of the Loan
documents.
<PAGE>
5) At the date of closing, no part of the Property shall
have been taken in condemnation or other proceedings,
nor shall any such proceedings be pending. In
addition, no part of the improvements shall have been
destroyed or damaged in any manner.
6) Neither the Loan Application, this Commitment nor
Loan proceeds may be assigned without the written
consent of OLD STANDARD LIFE INSURANCE COMPANY.
7) You and OLD STANDARD LIFE INSURANCE COMPANY agree
that time is of the essence and that all obligations
hereunder shall be timely performed on the dates on
which complete performance is specified according to
the provisions of the loan Application and this
Commitment.
8) At this point the conditions of this Loan Commitment,
which supercede the original Loan Application have
not been fully satisfied. This Commitment presumes
satisfactory fulfillment of each one of these
conditions as a contingency to funding the loan.
9) In the event of any conflicting provision between the
Application, this Commitment and any Loan documents
executed subsequent to the issuance of this
Commitment, the provisions of such subsequent Loan
documents shall control. This Commitment may not be
amended except by written agreement by both parties.
Very Truly yours,
OLD STANDARD LIFE INSURANCE COMPANY, (LENDER)
By
--------------------------------------------------
Tom Turner, Secretary/Treasurer
COMMITMENT APPROVED AND ACCEPTED:
DATED this _____ day of ______________, 1998.
KW-KAU, LLC
(BORROWER)
By
--------------------------------------------------
Freeman Lyle, Chief Financial Officer
<PAGE>
KENNEDY-WILSON INTERNATIONAL, INC., A DELAWARE CORPORATION
(GUARANTOR)
By
--------------------------------------------------
Freeman Lyle, Chief Financial Officer
<PAGE>
EXHIBIT A
Loan Request/Allocation of Funds
Interim Funding to repay equity investment in underlying first Deed of Trust
held by The Long Term Credit Bank of Japan, currently in default. The loan is to
provide interim funding for up to 12 months, during which time the note holders
(Kennedy Wilson International, Inc.) will perfect their security interest in the
collateral property, complete the entitlement process and obtain
construction/development financing to complete the subdivision process. Interim
funds are to be applied as follows:
<TABLE>
<S> <C> <C>
Net Funding to Kennedy-Wilson Intntl. $2,175,000
Appraisals, Legal, Closing (Est.) $ 15,000
Subtotal $2,190,000
Title Insurance, Escrow, Close (Est.) 0.75% $ 17,244
Interest Reserve - 1 Yr. @: 0.00% $
----------
Loan Fees - OSL/The Mortgage Group 4.00% $ 91,969
Brokers - N/A 0.00% $
----------
Subtotal 4.75% $ 2,299,213
Total Value: $ 5,000,000
Total Debt: $ 2,300,000
Total LTV%: 46.00%
</TABLE>
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement entered into this 30TH day of
November, 1998, is by and between Kennedy-Wilson, Inc., a Delaware corporation
(the "Company"), and FBR Asset Investment Corporation, a Virginia corporation
(the "Investor").
RECITALS
Reference is made to the Loan and Warrant Agreement, dated June 3,
1998, by and between the Company and the Investor (the "Original Agreement").
Pursuant to the Original Agreement, the Company has borrowed $10,000,000 from
the Investor and has issued to the Investor the Company's promissory note dated
June 3, 1998 (the "Promissory Note") to evidence the indebtedness. Capitalized
terms used herein and not otherwise defined shall have the meaning assigned to
them in the Original Agreement.
Under the terms of Original Agreement and the Promissory Note, all
outstanding principal and interest accrued and unpaid is due and payable at the
close of business or the first to occur of (i) a Public Offering and (ii)
December 3, 1998. The Company desires to extend the maturity date of the
Promissory Note and the Investor is willing to grant an extension on the terms
and conditions set forth herein.
Now, therefore, in consideration of the premises, the parties agree as
follows:
Agreement
1. Payment of Principal and Interest on December 3, 1998. Before the
close of business on December 3, 1998, the Company shall pay the Investor all
interest accrued and unpaid on the Promissory Note through December 3, 1998 and
principal in the amount necessary to reduce the outstanding principal amount of
the Promissory Note on December 3, 1998 to $7,500.000.
2. Promissory Note Modification. On December 3, 1998 (the "New Closing
Date") the Company will execute and deliver to the Investor a new promissory
note in the form of Exhibit A hereto (the "New Promissory Note") in exchange for
the delivery by the Investor to the Company of the Promissory Note marked
canceled. Principal and interest on the New Promissory Note shall be payable as
provided therein.
3. Commitment Fee. In consideration for the extension, the Company
shall pay the Investor a commitment fee of $37,500 on the execution and delivery
of this Loan Modification Agreement.
4. Representations and Warranties of the Company. The Company
represents and warrants that:
4.1. Financial Statements. The Company has furnished to the
Investor balance sheets of the Company and its consolidated subsidiaries as of
September 30, 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 September 30, 1998 and 1997, 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.
4.2. Indebtedness. Neither the Company nor any subsidiary of the
Company has any indebtedness for borrowed money except (i) as shown in Exhibit
__ and, (ii) non-recourse indebtedness incurred in connection with the
acquisition of assets in the ordinary course of business, and (iii) indebtedness
to the Investor.
4.3. Changes, etc. Except as listed in Exhibit B, since December
31, 1997, there has been no material adverse change in the business or financial
condition of the Company and its consolidated subsidiaries.
5. Conditions to Closing. The Investor's obligation to deliver the
Promissory Note marked canceled to the Company is subject to the fulfillment to
the Investor's reasonable satisfaction of the following conditions:
5.1. Representations and Warranties Correct. Except as may be set
forth in Exhibit B, the representations and warranties of the Company made
herein and in the Original Agreement shall be correct in all material respects
at and as of the New Closing Date as if made on and as of the New 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 New Closing Date.
<PAGE>
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 New Closing Date, certifying that the
conditions specified in Sections 5.1 and 5.2 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
New 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. Original Agreement Confirmed. Except as modified hereby, the
agreements, terms and provisions of the Original Agreement shall remain in full
force and effect.
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/ Freeman Lyle
----------------------
Name: Freeman Lyle
Title: Executive VP, CFO
THE INVESTOR: FBR ASSET INVESTMENT CORPORATION
By:__________________________
Name:________________________
Title:_______________________
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT __
Schedule of Corporate Indebtedness
(After FBR Paydown)
Lender Debt Comments
<S> <C> <C>
EastWest Bank (Kennedy-Wilson L.O.C.) $22,000,000} Current outstanding approx. $800,000
EastWest Bank (Kennedy- Wilson Properties L.O.C.) 1,000,000}
FBR 7,500,000
Hawthorne Savings 4,000,000
Old Republic Life 2,200,000} Residential financing to be repaid within 9 months
Tokal Bank 1,300,000}
National Bank of California (Westlake) 1,800,000}
CLCA (Vista Paseo) 800,000}
Century Bank (Katz Homes) 900,000}
Diachi Kangyo Bank 300,000} Current outstanding for our Japanese
Sumitomo Bank 300,000} subsidiaries lines of credit approx.
Tokyo-Mitsubishi 300,000} $200,000
Colony-KW LLC Subordinated Debt 21,000,000} Already consented to by FBR
-----------
Total: $63,400,000
</TABLE>
<PAGE>
Exhibit A
Promissory Note
$7,500,000 December 3, 1998
FOR VALUED RECEIVED, the undersigned, KENNEDY-WILSON, INC., a Delaware
corporation ("the Company"), hereby promises to pay to the order of FBR ASSET
INVESTMENT CORPORATION, a Virginia corporation (the "Lender"), or to order, the
principal sum of SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000), 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 17% 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 as amended by a Loan
Modification Agreement dated November __, 1998 (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:
(a) principal shall be payable at Maturity,
(b) interest at the rate of 13% per annum shall be payable monthly on
the last day of each month until Maturity, commencing December 31, 1998,
and
(c) interest at the rate of 4% per annum shall be accrued monthly and
added on the last day of each month, commencing December 31, 1998, to
principal amount of this Note on which interest accrues.
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) June 3,
1999, the date on which all outstanding principal and accrued but unpaid
interest is due under this Note.
4. 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.
5. 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, releases or changes.
6. 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.
7. 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 any 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.
8. 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.
9. 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 and calculated at the Maximum Rate (defined below), and, in the
<PAGE>
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.
10. 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.
11. 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.
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.
KENNEDY-WILSON, INC.
By:
-----------------------
Name:
----------------------
Title:
---------------------
<PAGE>
Promissory Note
$7,500,000 December 3, 1998
FOR VALUED RECEIVED, the undersigned, KENNEDY-WILSON, INC., a Delaware
corporation ("the Company"), hereby promises to pay to the order of FBR ASSET
INVESTMENT CORPORATION, a Virginia corporation (the "Lender"), or to order, the
principal sum of SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000), 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 17% per annum (the "Interest Rate").
1. This Note is issued pursuant to the Loan and Warrant Agreement
dated June 1998, between the Company and the Lender as amended by a Loan
Modification Agreement dated November ___, 1998 (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:
(a) principal shall be payable at Maturity,
(b) interest at the rate of 13% per annum shall be payable monthly on
the last day of each month until Maturity, commencing December 31, 1998,
and
(c) interest at the rate of 4% per annum shall be accrued monthly and
added on the last day of each month, commencing December 31, 1998, to
principal amount of this Note on which interest accrues.
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) June 3,
1999, the date on which all outstanding principal and accrued but unpaid
interest is due under this Note.
4. 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.
5. 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, releases or changes.
6. 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.
7. 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 any 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.
8. 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.
9. 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
<PAGE>
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.
10. 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 construction, enforcement and interpretation of this Note.
11. 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.
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.
KENNEDY-WILSON, INC.
By:
-----------------------
Name:
----------------------
Title:
---------------------
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
COLONY-KW PARTNERS, L.P.
AGREEMENT dated as of June 5, 1998 by and among COLONY-KW GENPAR LTD., a
British Virgin Islands limited company having an office at 1999 Avenue of the
Stars, Suite 1200, Los Angeles, California 90067, and any successor and assign
permitted pursuant to this Agreement (hereinafter called "Colony General
Partner"), COLONY-KW, L.P., a Delaware limited partnership having an office at
1999 Avenue of the Stars, Suite 1200, Los Angeles, California 90067, and any
successor and assign permitted pursuant to this Agreement (hereinafter called
"Colony Limited Partner" and, collectively with Colony General Partner, the
"Colony Partners"), KW JAPAN INVESTMENTS, INC., a Delaware corporation having an
office at c/o The United States Corporation Company, CSC-Wilmington, 1013 Centre
Road, Wilmington, Delaware 19805, and any successor and assign permitted
pursuant to this Agreement (hereinafter called "KWI Limited Partner") and EBISU
INVESTORS I, LLC, a Delaware limited liability company having an office at c/o
The United States Corporation Company, CSC-Wilmington, 1013 Centre Road,
Wilmington, Delaware 19805 (hereinafter called "KWI Special Limited Partner"
and, collectively with KWI Limited Partner, the "KWI Partners").
RECITALS
A. The Partners wish to form the Partnership pursuant to the terms of the
Uniform Act for the purposes set forth in Section 2.2 below.
B. In accordance with the terms and conditions of this Agreement, KWJ
Management (as hereinafter defined), a Related Entity of the KWI Partners, will
source opportunities to acquire Japanese loans and real estate investments (the
"Investments") and will present such opportunities to Colony General Partner for
Colony General Partner's review and approval. Upon Colony General Partner's
approval, in its sole discretion, of a proposed Investment, the Partnership will
underwrite, finance, own and dispose of such Investments and KWJ Management
under the direction of the Partnership will be responsible for the day-to-day
management of the Investments, all in accordance with this Agreement and the
approved Partnership Budget and Operating Plan and the applicable Investment
Budgets, Investment Plans and the Management Agreement (as such terms are
hereinafter defined).
C. In accordance with the terms and conditions of this Agreement, the
Partners will commit to provide equity or loans to fund all or a portion of the
costs and expenses in connection with sourcing, underwriting, financing, owning
and disposing of the Investments.
D. The Partners wish to enter into this Agreement to set forth their
agreements with respect to the Partnership and the matters set forth herein.
E. Capitalized terms used herein but not otherwise defined above shall have
the meaning ascribed to them in Article 1 below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in consideration of the mutual
covenants herein contained, the Partners hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
Unless the context otherwise specifies or requires, the terms defined in
this Article 1 shall, for the purposes of this Agreement, have the meanings
herein specified. Unless otherwise specified, all references herein to Articles
or Sections are to Articles or Sections of this Agreement.
"Accountant" - As defined in Section 13.3.
"Acquisition Fee" - The acquisition fees payable by the Partnership and/or
the Investment Entities, as the case may be, in connection with the acquisition
management services to be provided by KWJ Management pursuant to the Management
Agreements. [*]
"Adjusted Capital Account Deficit" - With respect to any Partner, the
[*] = redacted text
<PAGE>
deficit balance, if any, in such Partner's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:
(i)Credit to such Capital Account any amounts which such Partner is
obligated to restore pursuant to this Agreement or is deemed to be
obligated to restore to the Partnership pursuant to the penultimate
sentences of Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5).
(ii)Debit to such Capital Account the items described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
Except as otherwise modified herein, the foregoing definition of Adjusted
Capital Account Deficit is intended to comply with the provisions of Regulations
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Agreement" - This Agreement of Limited Partnership of "Colony-KW Partners,
L.P.", as amended or otherwise modified from time to time.
"Alternative Investment" - As defined in Section 7.6.
"Asset Management Fee" - The asset management fees payable by the
Partnership and/or the Investment Entities, as the case may be, in connection
with the asset management services to be provided by KWJ Management pursuant to
the Management Agreements. [*]
"Assets" - The Investment Entity Assets and, to the extent not duplicative,
the Partnership Assets.
"Business Day" - Any day except a Saturday, a Sunday, or a legal holiday on
which banks are required or permitted to be closed in Los Angeles, California or
New York, New York.
"Capital Account" - The Capital Account maintained for each Partner
pursuant to Section 5.4.
"Capital Contributions" - With respect to any Partner, the amount of cash
and the initial Gross Asset Value of any other property or contract rights
contributed or deemed contributed to the capital of the Partnership by or on
behalf of such Partner reduced by the amount of any liability assumed by the
Partnership relating to such property and any liability to which such property
is subject (including, without limitation, Investment Contributions), provided
that in no event shall Capital Contributions include or be deemed to include any
In Lieu Of Loan.
"Cash Available for Distribution" - For each Fiscal Year or other period,
(a) all cash received by the Partnership from any source (including borrowings
by the Partnership, Capital Contributions and proceeds of the sale, exchange or
other disposition of the Partnership Assets) less (b) cash expended or then
required for debts and expenses (including amounts due under Investment Loans
and under any Partner Default Loans made by, or fees owed to, Partners and their
Related Entities, but subject to any deferral of the repayment of the principal
of such items), interest and principal payments on any indebtedness, capital
expenditures, taxes, fees, Reserves or other requirements of the Partnership, in
each case as determined by Colony General Partner pursuant to this Agreement.
"Closing Date" - As defined in Article 11.
"Code" - The Internal Revenue Code of 1986, as amended from time to time
(or any corresponding provisions of succeeding law) together with the
Regulations promulgated thereunder.
"Colony General Partner" - As defined in the Preamble.
"Colony Limited Partner" - As defined in the Preamble.
"Colony Partners" - As defined in the Preamble.
"Contributing Partner" - As defined in Section 5.3(a).
"Contribution Percentages" - The percentages set forth in Schedule 2
hereto.
"Control" - The ability (subject to the provisions of any applicable law)
and the authority to take action and make decisions on behalf of a corporation,
partnership, limited liability company or other entity or person.
"Defaulting Partner" - As defined in Section 5.3(a).
"Depreciation" - For each Fiscal Year or other period, an amount equal to
the depreciation, amortization or other cost recovery deduction allowable for
Federal income tax purposes with respect to an asset for such Fiscal Year or
other period; provided, however, that if the Gross Asset Value of an asset
differs from its adjusted basis for Federal income tax purposes at the beginning
of such Fiscal Year or other period, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the Federal income tax
[*] = redacted text
<PAGE>
depreciation, amortization, or other cost recovery deduction for such Fiscal
Year or other period bears to such beginning adjusted tax basis; provided,
further, that if the Federal income tax depreciation, amortization, or other
cost recovery deduction for such Fiscal Year is zero, Depreciation shall be
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the General Partner.
"ERISA" - The Employee Retirement Income Security Act of 1974, as amended
from time to time. A reference to a section of ERISA shall be deemed to include
a reference to any amendatory or successor provision thereto.
"Fiscal Year" - With respect to the Partnership, the taxable year of the
Partnership for Federal income tax purposes.
"Foreign Person" - Any person or entity that is not a "United States
person" within the meaning of Code Section 7701(a)(30).
"General Partner" - As defined in Section 4.1.
"Gross Asset Value" - With respect to any asset, the asset's adjusted basis
for Federal income tax purposes, except as follows:
(i)The initial Gross Asset Value of any asset contributed by a Partner
to the Partnership shall be the gross fair market value of such asset at
the time of contribution, as determined by the contributing Partner and the
General Partner; provided, however, that if the contributing Partner is the
General Partner, the determination of the fair market value of a
contributed asset shall require the consent of KWI Limited Partner;
(ii)The Gross Asset Values of all Partnership Assets shall be adjusted
to equal their respective gross fair market values, as reasonably
determined by the General Partner, as of the following times: (a) the
acquisition of more than a de minimis additional interest in the
Partnership by any new or existing Partner; (b) the distribution by the
Partnership to a Partner of more than a de minimis amount of property of
the Partnership; and (c) the liquidation of the Partnership within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided, however,
that adjustments pursuant to clauses (a) and (b) above shall be made only
if the General Partner reasonably determines that such adjustments are
necessary or appropriate to reflect the relative economic interests of the
Partners in the Partnership;
(iii)The Gross Asset Value of any Partnership Asset distributed to any
Partner shall be adjusted to equal the gross fair market value of such
asset on the date of distribution as determined by the distributee and the
General Partner, provided that, if the distributee is the General Partner,
the determination of the fair market value of the distributed asset shall
require the consent of KWI Limited Partner; and
(iv)The Gross Asset Values of Partnership Assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m);
provided, however, that the Gross Asset Values of Partnership Assets shall
not be so adjusted to the extent that such Gross Asset Values were adjusted
in connection with a transaction described in clause (ii) of this
definition of Gross Asset Values.
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to this provision, such Gross Asset Value shall thereafter be adjusted
by the Depreciation taken into account with respect to such asset for purposes
of computing Profits and Losses.
[*]
"In Lieu Of Loan" - Any loan made by a Partner to the Partnership in lieu
of a portion of such Partner's Capital Contribution or an Investment
Contribution by such Partner in accordance with Section 5.2(e).
"Investment Amount" - With respect to each Investment, the amount invested
in such Investment, on an Investment Asset by Investment Asset basis, by the
Partnership or an Investment Entity, as the case may be, as determined by Colony
General Partner pursuant to Section 7.5(b).
"Investment Asset" - With respect to each Investment, each individual
Japanese loan or real estate investment to be included as part of an overall
Investment.
"Investment Budget" - With respect to each Investment, the budget, as may
be amended from time to time, prepared by KWJ Management on an annual basis, and
which will be subject to the approval of Colony General Partner pursuant to
Section 7.5. Each Investment Budget will set forth, among other things, the
[*] = redacted text
<PAGE>
anticipated Pre-Acquisition Costs for each Investment Asset included as part of
such Investment and for the Investment as a whole, as well as the anticipated
income to be derived from each such Investment Asset and from the Investment as
a whole. Each Investment Budget will be reviewed on a quarterly basis to
determine the accuracy of the budgeted amounts.
"Investment CAD" - As defined in Section 9.1.
"Investment Contributions" - With respect to any Partner, the amounts, if
any, of Capital Contributions made to the Partnership by or on behalf of such
Partner subsequent to the date hereof pursuant to Section 5.2 hereof.
"Investment Entity" - Each limited liability company, limited partnership,
corporation or other entity hereafter formed or created, if any, by the
Partnership or the Partners for the purpose of pursuing an Investment, as
provided in Sections 7.3 and 7.5(c).
"Investment Entity Agreement" - For each Investment Entity, its agreement
of limited partnership, operating agreement or other formation agreement, as
applicable.
"Investment Entity Assets" - The assets and property, whether tangible or
intangible and whether real, personal, or mixed, at any time owned by or held
for the benefit of any Investment Entity, including, without limitation, the
applicable Investment.
"Investment Loan" - With respect to each Investment, any financing obtained
by the Partnership, pursuant to Section 5.2(b) for the acquisition of such
Investment, in the form of acquisition and/or non-recourse and/or non-guaranteed
financings, from a lender suitable to Colony General Partner, in amounts and on
market terms and conditions which are reasonably acceptable to Colony General
Partner, in its sole and absolute discretion, all in accordance with the
approved Partnership Budget and applicable Investment Budget.
"Investment Plan" - With respect to each Investment, the investment plan
for such Investment setting forth, among other things, the plan for the
underwriting, financing, owning and disposing of each Investment Asset included
as part of such Investment and for the Investment as a whole. Each Investment
Plan will be prepared by KWJ Management on an annual basis and will be subject
to the approval of Colony General Partner pursuant to Section 7.5.
"Investments" - As defined in Recital "B".
"IRR" - Internal rate of return based on quarterly compounding.
"IRS" - The Internal Revenue Service or such other governmental agency
which performs the functions that are performed as of the date of this Agreement
by the Internal Revenue Service.
"KWI Limited Partner" - As defined in the Preamble.
"KWI Maximum Amount" - As defined in Section 5.2(a).
"KWI Partners" - As defined in the Preamble.
[*]
"KWI Special Limited Partner" - As defined in the Preamble.
"KWJ Management" - Kennedy-Wilson Japan K.K., a Japanese affiliate of
Kennedy-Wilson, Inc. and the KWI Partners, together with its wholly-owned
subsidiaries.
"Limited Partners" - As defined in Section 4.2.
"Liquidating Partner" - As defined in Section 17.2(c).
"Losses" - As defined in the definition of Profits.
"Management Agreement" - A management agreement, in the form annexed hereto
as Exhibit A, as amended from time to time, to be entered into by the
Partnership and/or the Investment Entities, as the case may be, and KWJ
Management, pursuant to which KWJ Management will perform, or will delegate
(without relieving KWJ Management of any of its obligations or responsibilities
under the Management Agreement) to others that, under KWJ Management's
supervision, will perform, among other things, management, leasing and sales
agent duties and obligations in connection with the Investments, pursuant to,
and in accordance with, the applicable Investment Plan and Investment Budget and
this Agreement.
"Management Fees" - The Acquisition Fees, the Asset Management Fees and the
Incentive Fee, and all other fees payable to KWJ Management by the Partnership
and/or the Investment Entities, as the case may be, pursuant to the Management
Agreements.
"Measuring Group" - As defined in Section 20.8.
"Net Profits" - All revenues from all sources received by the Partnership
[*] = redacted text
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less any and all fees (other than Incentive Fees), costs and expenses incurred
by the Partnership in generating such revenues.
"Nonrecourse Deductions" - As defined in Regulations Section 1.704-2(b)(1).
The amount of Nonrecourse Deductions for a Fiscal Year equals the net increase,
if any, in the amount of Partnership Minimum Gain during such Fiscal Year
reduced by any distributions during such Fiscal Year of proceeds of a
Nonrecourse Liability that are allocable to an increase in Partnership Minimum
Gain, determined according to the provisions of Regulations Section 1.704-2(c)
and 1.704-2(h).
"Nonrecourse Liability" - As defined in Regulations Section 1.704-2(b)(3).
"Notice" - As defined in Section 20.2.
"Offer Notice" - As defined in Section 11(a).
"Offer Price" - As defined in Section 11(a).
"Offer Terms" - As defined in Section 11(a).
"Offeree" - As defined in Section 11(a).
"Offeror" - As defined in Section 11(a).
"Offered Assets" - As defined in Section 11(a).
"Operating Plan" - The operating plan of the Partnership setting forth,
among other things, the plans for the acquisition, financing, managing and
disposition of the Investments and other operating guidelines of the
Partnership. The Operating Plan will be prepared by KWJ Management on an annual
basis and will be subject to the approval of Colony General Partner pursuant to
Section 7.4. A copy of the Initial Operating Plan is annexed hereto as Exhibit
C-1.
"Original Partner Lender" - As defined in Section 5.2(e).
"Partner Default Loan" - As defined in Section 5.3.
"Partner Minimum Gain" - An amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" - As defined in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" - As defined in Regulations
Section 1.704-2(i)(2). The amount of Partner Nonrecourse Deductions with respect
to a Partner Nonrecourse Debt for a Fiscal Year equals the net increase, if any,
in the amount of Partner Minimum Gain during such Fiscal Year attributable to
such Partner Nonrecourse Debt, reduced by any distributions during that Fiscal
Year to the Partner that bears the economic risk of loss for such Partner
Nonrecourse Debt to the extent that such distributions are from the proceeds of
such Partner Nonrecourse Debt and are allocable to an increase in Partner
Minimum Gain attributable to such Partner Nonrecourse Debt, determined according
to the provisions of Regulations Section 1.704-2(h) and 1.704-2(i).
"Partners" - The Limited Partners and General Partners of the Partnership.
"Partnership" - Colony-KW Partners, L.P., the Delaware limited partnership
governed by this Agreement.
"Partnership Assets" - The assets and property, whether tangible or
intangible and whether real, personal, or mixed, at any time owned by or held
for the benefit of the Partnership, including, without limitation, the
Partnership's interest in each Investment and in the Investment Entities, if
any, and all right, title, and interest, if any, held and owned by the
Partnership in other entities.
"Partnership Budget" - The Partnership operating budget for each Fiscal
Year of the Partnership, as may be amended from time to time, to be prepared by
KWJ Management on an annual basis, and which will be subject to the approval of
Colony General Partner pursuant to Section 7.4. The Partnership Budget will set
forth, among other things, all anticipated income, operating expenses and
capital and other costs and expenses of the Partnership. A copy of the Initial
Partnership Budget is annexed hereto as Exhibit C-2.
"Partnership Interest" - As to any Partner, all of the interest of that
Partner in the Partnership including, without limitation, such Partner's (i)
right to an allocable share of the Profits and Losses of the Partnership and a
distributive share of Cash Available for Distribution in accordance with Article
9 hereof, (ii) right to a distributive share of Partnership Assets and (iii)
right to participate in the management of the business and affairs of the
Partnership as provided for in this Agreement, provided that in no event shall
the Partnership Interest of any Limited Partner include the right to participate
in the control of the Partnership or the Partnership's business within the
meaning of Section 17-303 of the Uniform Act.
<PAGE>
"Partnership Minimum Gain" - As defined in Regulations Section 1.704-2(d).
"Percentage Interest" - With respect to any Partner and any Investment, the
ratio of such Partner's Capital Contributions made in respect of such Investment
to the aggregate Capital Contributions of all Partners made in respect of such
Investment.
"Person" - Any individual, partnership, corporation, limited liability
company, trust or other entity.
"Plan Assets Regulations" - As defined in Section 19.1.
"Pooling Agreement" - As defined in Section 9.3.
"Pre-Acquisition Costs" - With respect to any potential Investment, all
third-party costs, fees, and expenses incurred in the review and consideration
of such potential Investment, as approved by Colony General Partner.
"Profits" and "Losses" - For each Fiscal Year or other period, an amount
equal to the Partnership's taxable income or loss for such Fiscal Year or
period, determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss, deduction, or expenditure required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i)Any income of the Partnership that is exempt from Federal income
tax or excluded from Federal gross income and not otherwise taken into
account in computing Profits or Losses pursuant to this definition of
Profits and Losses shall be added to such taxable income or loss;
(ii)Any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses pursuant to this
definition of Profits and Losses, shall be subtracted from such taxable
income or loss;
(iii)In the event the Gross Asset Value of any Partnership Asset is
adjusted pursuant to any provision of this Agreement in accordance with the
definition of Gross Asset Value, the amount of such adjustment shall be
taken into account as gain or loss from the disposition of such Asset for
purposes of computing Profits or Losses;
(iv)Gain or loss resulting from any disposition of any Partnership
Asset with respect to which gain or loss is recognized for Federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
Asset differs from its Gross Asset Value;
(v)In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year or
other period, computed in accordance with the definition of Depreciation;
(vi)To the extent an adjustment to the adjusted tax basis of any
Partnership Asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4)
to be taken into account in determining Capital Accounts as a result of a
distribution other than in complete liquidation of a Partner's interest,
the amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset) from the disposition of the asset and
shall be taken into account for purposes of computing Profits or Losses;
(vii)Notwithstanding any other provision of this Section, any items
which are allocated pursuant to Section 8.2 shall not be taken into account
in computing Profits or Losses; and
(viii)Profits and Losses will be calculated separately for each
Investment.
"Promote Distributions" - With respect to any Investment, the amount of
Investment CAD to be distributed to the KWI Partners pursuant to Section 9.1 in
excess of the amounts that would be distributed to the KWI Partners pursuant to
such Section if such distributions were to be made in accordance with the
Percentage Interests of the KWI Partners.
"Reasonable Consultation" or "Consult Reasonably" - A written or oral
solicitation and consideration by one Person (the "First Person") of the
position, views and opinions of another Person regarding a particular matter or
topic; provided that the obligation of any First Person to consult with such
other Person shall not require such First Person to obtain the consent of such
other Person or to follow the directions or desires expressed by such other
Person during any such consultation regarding such particular matter or topic;
provided, further that the First Person shall not be liable in any way
whatsoever for not following the directions or desires expressed by such other
Person.
"Regulations" - The income tax regulations promulgated under the Code as
<PAGE>
such regulations may be amended from time to time (including temporary
regulations).
"Related Entity" - With respect to any Partner, any other Partner,
corporation, partnership, limited liability company, entity or person directly
or indirectly Controlled by, Controlling or under common Control with such
Partner and any director, officer, manager, executive employee, shareholder or
partner of such Partner or other entity or person, which (i) in the case of the
Colony Partners, on the date hereof includes Colony Capital, Inc., Colony
Advisors, Inc., Colony Investors II, L.P. and Colony Investors III, L.P.;
provided, however, that for purposes of this Agreement, the limited partners of
Colony Investors II, L.P. or Colony Investors III, L.P. or of other funds formed
by affiliates of the Colony Partners shall not be deemed to be Related Entities
of the Colony Partners, and (ii) in the case of the KWI Partners, includes KWJ
Management.
"Reserves" - Amounts held by the Partnership in anticipation of future
debts, expenses, capital expenditures, taxes, fees or other requirements of the
Partnership, in each case as set forth in the then currently approved
Partnership Budget for the Partnership or as otherwise determined by Colony
General Partner.
"Residual Percentages" - As defined in Section 5.7.
"Responsible Partner" - As defined in Section 10.4.1(a).
"Tax Liability" - With respect to each Partner, for each Fiscal Year
commencing with the Year ending on December 31, 1998, an amount equal to the
product of (i) the net income of the Partnership allocated to such Partner for
such Fiscal Year pursuant to Article 8 hereof, after accounting for any
cumulative net losses allocated to such Partner pursuant to Article 8 hereof for
prior Fiscal Years that previously were not taken into account in determining a
Partner's Tax Liability, and (ii) the lesser of such Partner's then-current
combined federal, state and local income tax rate, which combined rate shall
include state and local income taxes on an after-tax basis (or if such Partner
is taxed as a "flow through entity" for income tax purposes, the weighted
average of the then-current income tax rate of the owners of such entity) or
forty percent (40%).
"Total Capitalization" - With respect to any Investment for purposes of
calculating the Acquisition Fee and the Asset Management Fee in respect of such
Investment, the total investment in such Investment and the cost of making such
Investment, including, without limitation, the Investment Amount, Investment
Loan, any and all costs, expenses and fees incurred or payable pursuant to the
terms of this Agreement in connection with the closing of the Investment and any
closing or other taxes, fees, assessments, levies or similar amounts or charges
payable pursuant to the terms of this Agreement in connection with such closing.
"Transfer" - As defined in Section 10.1(a).
"Uniform Act" - The Delaware Revised Uniform Limited Partnership Act, 6
Del.C. Section 17-101, et seq., as amended, and any successor statute. A
reference to a section of the Uniform Act shall be deemed to include a reference
to any amendatory or successor provision thereto.
"Unreturned Capital Contributions" - With respect to any Partner, the
amount equal to the Capital Contributions made by such Partner hereunder less
the Capital Contributions that have been returned to such Partner, if any, in
the form of distributions made to such Partner pursuant to Article 9 or
otherwise pursuant to the terms of this Agreement.
"Withholding Funds" - As defined in Section 20.9.
ARTICLE 2
NAME, PRINCIPAL OFFICE, PURPOSE
Section 2.1. Name and Principal Office
The name of the partnership formed pursuant to this Agreement is Colony-KW
Partners, L.P. The Partnership shall have its principal office at 1999 Avenue of
the Stars, Suite 1200, Los Angeles, California 90067 or at such other place as
Colony General Partner shall select upon ten (10) Business Days notice to the
Limited Partners. The Registered Agent (as defined in the Uniform Act) for the
Partnership shall be Corporation Service Company. The Registered Office (as
defined in the Uniform Act) of the Partnership shall be 1013 Centre Road,
Wilmington, New Castle County, Delaware 19805-1297.
Section 2.2. Purpose
Subject to and in accordance with this Agreement, the purposes of the
Partnership shall be as follows:
(i)Following the sourcing of Investments by KWJ Management, pursuant
to Section 7.5(a), meeting the criteria set forth in the Partnership Budget
and the Operating Plan, and upon approval of any Investment by the Colony
General Partner pursuant to Section 7.5, to pursue, either directly or
through the creation of an Investment Entity with respect to such
<PAGE>
Investment, through the provision of Investment Contributions and the
proceeds of Investment Loans, the underwriting, financing, acquisition,
owning, management and disposing of the applicable Investment in accordance
with the Partnership Budget and the Operating Plan and the applicable
Investment Budgets and Investment Plans;
(ii)Acting either directly or through the Investment Entities, as the
case may be, and pursuant to Section 5.2(b), to obtain any and all
Investment Loans and to incur other indebtedness deemed necessary or
desirable in the furtherance of such purposes;
(iii)To enter into, either directly or through the Investment
Entities, as the case may be, the Management Agreement(s) and such other
agreements relating to the Investments as are consistent with this
Agreement;
(iv)To make distributions to the Partners; and
(v)To conduct such other activities consistent with this Agreement as
may be necessary or appropriate in connection with or in furtherance of the
foregoing.
Section 2.3. Statutory Compliance
The Partnership shall exist under and be governed by the Uniform Act. The
Partnership shall qualify to do business as a foreign limited partnership in
each jurisdiction in which the conduct of its business so requires. The General
Partner and the Limited Partners, as the case may be, shall execute, if required
under governing law, and the General Partner shall file and/or publish on behalf
and at the expense of the Partnership, all appropriate certificates required by
law to be filed and/or published in connection with the matters described in
this Article 2. Prior to the time that all such certificates have been filed, no
Person shall represent to third parties the existence of the Partnership or hold
itself out as a Partner.
ARTICLE 3
TERM
The term of the Partnership shall commence on the date the certificate of
limited partnership described in Section 201 of the Uniform Act (the
"Certificate") is filed in the office of the Secretary of State of Delaware in
accordance with the Act and shall continue until December 31, 2015, on which
date the Partnership shall dissolve, unless sooner dissolved upon the occurrence
of any of the events specified in Article 11 or Section 17.1.
ARTICLE 4
GENERAL AND LIMITED PARTNERS
Section 4.1. General Partner
The General Partner is Colony General Partner, any permitted successors and
assigns who are admitted as a General Partner pursuant to this Agreement and
such additional or substitute persons or entities that become General Partners
from time to time in accordance with the provisions of this Agreement (each, a
"General Partner" and collectively, the "General Partners"). No General Partner
may withdraw from the Partnership or assign or transfer its Partnership
Interest, in whole or in part, except as provided in Article 10 and Article 11.
Section 4.2. Limited Partners
The Limited Partners are Colony Limited Partner, KWI Limited Partner and
KWI Special Limited Partner, any permitted successors and assigns who are
admitted as a Limited Partner pursuant to this Agreement and such additional or
substitute persons or entities who are admitted as Limited Partners from time to
time in accordance with the provisions of this Agreement (each, a "Limited
Partner" and collectively, the "Limited Partners"). No Limited Partner may
withdraw from the Partnership or assign or transfer its Partnership Interest, in
whole or in part, except as provided in Article 10 and Article 11.
[*]
[*] = redacted text
<PAGE>
ARTICLE 5
CAPITAL CONTRIBUTIONS AND FINANCINGS
Section 5.1. Capital Contributions of the Partners
Except as provided in Section 5.2, unless a Partner otherwise agrees, no
Partner shall be required to make a Capital Contribution or loan to the
Partnership.
Section 5.2. Investment Contributions
(a) (i) Upon a determination by Colony General Partner (x) pursuant to
Section 7.5, that the Partnership will acquire an Investment and that the
Partnership will require funds for such Investment or (y) that the Partnership
requires funds to protect the Partners' investment in the Partnership in
addition to any Investment Contributions and/or any Investment Loans (other than
to provide funds to make a distribution to the Partners), the Colony Partners
and, subject to clause (ii) of this Section 5.2(a), the KWI Partners will make
Investment Contributions to fund such Investment pro rata in accordance with
each of their respective Contribution Percentages and subject to the following
provisions; provided, however, that, subject to clause (ii) of this Section
5.2(a), in the event KWI Special Limited Partner fails to make its share of such
Additional Investment Contribution, KWI Limited Partner will make an Additional
Investment Contribution in an amount equal to KWI Special Limited Partner's
required share.
(ii) The amount and timing of such Investment Contributions shall be
determined by Colony General Partner in its sole and absolute discretion. In the
event Colony General Partner determines that Investment Contributions are
required, Colony General Partner will provide written notice of such requirement
to the other Partners. [*] In the event KWI Limited Partner elects to provide
Capital Contributions in excess of the KWI Maximum Amount, KWI Limited Partner
shall notify Colony General Partner of such election within ten (10) Business
Days of KWI Limited Partner's receipt of the notice provided by Colony General
Partner pursuant to this Section 5.2 in respect of the Additional Investment
Contribution. If KWI Limited Partner does not provide such notice within such
ten (10) Business Day period, it shall be deemed that KWI Limited Partner has
elected not to make any Investment Contributions in excess of the KWI Maximum
Amount.
(b) The Partnership, or the applicable Investment Entity, as the case may
be, may seek to obtain Investment Loans for each approved Investment as deemed
necessary or appropriate by Colony General Partner.
[*](c) Notwithstanding the foregoing, to the extent that any portion of
the Capital Contributions provided hereunder or committed to be provided
hereunder is not invested in an Investment at the end of each six month period
commencing with the period ending December 6, 1998, or is not committed to be
invested within ninety (90) days of the last Business Day of such six (6) month
period, in either case in an Investment that has been sourced by KWJ Management
pursuant to Section 7.5(a) and which Colony General Partner has decided to
acquire pursuant to Section 7.5(a), (i) one hundred (100%) percent of such
funded but non-invested Capital Contributions shall be returned to the Partners,
and (ii) the Partners' respective committed Capital Contribution amounts will be
reduced pro rata in accordance with their relative Contribution Percentages by
an amount equal to $25 million (or such lesser amount as determined by Colony
General Partner) less the amount of such funded but non-invested Capital
Contributions to be returned to the Partners pursuant to clause (i) above. In
the event the aggregate total of Unreturned Capital Contributions plus committed
Capital Contributions is equal to $0 as a result of such return of funded but
non-invested Capital Contributions and/or of such reduction of the committed
Capital Contributions, the Colony Partners shall have the right, in their sole
and absolute discretion, to seek to cause the sale of the Partnership Assets
pursuant to Article 11 and to terminate this Agreement and any Investment Entity
agreement(s). Further, in such event, the provisions of Section 4.3 in respect
of the Partners' obligations thereunder shall terminate at such time as such
sale of the Partnership Assets is consummated (i.e., closed).
(d) In the event an Investment Entity is formed with respect to a
particular Investment, the Investment Amount for such Investment shall be funded
[*] = redacted text
<PAGE>
at the Investment Entity level in accordance with the applicable Investment
Budget (i) by Investment Contributions made by the Partners to the Partnership
pursuant to Sections 5.2(a) and 5.2(c), and/or (ii) by Investment Loans as
provided in Section 5.2(b).
(e) Notwithstanding anything to the contrary in this Section 5.2 or
elsewhere in this Agreement (other than as set forth in Section 5.3), if Colony
General Partner determines that a Partner (the "Original Partner Lender") may
make an In Lieu Of Loan to the Partnership in lieu of a portion of such Original
Partner Lender's Capital Contribution or an Investment Contribution by such
Partner, (i) each other Partner shall have the right to make an In Lieu Of Loan
in an amount up to an amount equal to the product obtained by multiplying (x)
the Capital Contribution to be made by such other Partner times (y) a fraction,
the numerator of which is the amount of the In Lieu Of Loan being made by the
Original Partner Lender and the denominator of which is the sum of (1) the
Capital Contribution to be made by the Original Partner Lender and (2) the In
Lieu Of Loan to be made by the Original Partner Lender and (ii) such In Lieu Of
Loan shall bear interest at a rate per annum that will result in such Partner
receiving interest equal to the return such Partner would have earned had such
Partner made only a Capital Contribution. For purposes of clarity, in no event
shall the foregoing apply to Partner Default Loans.
Section 5.3. Default Contributions; Adjustments to Residual Percentages
(a) In the event that any Partner shall fail to timely make an Investment
Contribution which such Partner elected to make or was obligated to make
pursuant to Section 5.2(a) (such Partner is hereinafter referred to as a
"Defaulting Partner") and such default shall continue for five (5) Business Days
following notice from Colony General Partner in the event the Defaulting Partner
is a KWI Partner, or from KWI Limited Partner in the event the Defaulting
Partner is a Colony Partner, then the Partners which did not default with
respect to the making of such Additional Investment Contribution (a
"Contributing Partner") may, within thirty (30) days of the end of such five (5)
Business Day period make Investment Contributions to the Partnership which in
the aggregate equal such defaulted amount in proportion to their respective
Contribution Percentages (or in such other proportions as they mutually agree).
Such Investment Contributions in respect of such default together with the
corresponding Investment Contributions of the Contributing Partner may be made
in the form of equity or loans, as determined by the Contributing Partner, as
set forth in Section 5.3(b); provided that portion of any Additional Investment
Contribution that is in the form of a loan shall not affect the Partners'
Capital Accounts.
(b) Subject to Section 5.3(c), in the event the non-Defaulting Partners
make Investment Contributions in the form, either in whole or in part, of equity
pursuant to Section 5.3(a), the then-current Residual Percentage of each
Defaulting Partner shall be reduced automatically by the number of percentage
points equal to the product of (I) one hundred (100), multiplied by (II) a
fraction, the numerator of which is equal to the product of (A) one and
three-tenths (1.3) multiplied by (B) the amount of the Investment Contribution
which the Defaulting Partner did not provide and the denominator of which is the
aggregate amount of the Capital Contributions made by all of the Partners
(including those made in connection with the subject default) less all
distributions made pursuant to Article 9 hereof which serve to return the
Capital Contributions of the Partners. If such a reduction occurs pursuant to
the above clause, the Residual Percentage of each Contributing Partner shall be
increased by its proportionate share of any such reduction based on the
Investment Contributions provided by the Contributing Partners in respect of the
then-current defaulted amount. [*]
(c) In addition to the foregoing, in the event KWI Special Limited Partner
fails to timely make an Investment Contribution which KWI Special Limited
Partner was obligated to make pursuant to Section 5.2(a) and KWI Limited Partner
does not make such Investment Contribution in lieu of KWI Special Limited
Partner's required Capital Contribution amount pursuant to Section 5.2(a), the
Colony Partners' Residual Percentage shall increase by two (2) percentage points
and KWI Special Limited Partner's Residual Percentage shall decrease by two (2)
percentage points.
(d) The provisions of this Section 5.3 are intended to comply with the
provisions of Section 17-502(c) of the Uniform Act. The Partners, each for
itself and its Related Entities, mutually acknowledge that the Investment
Contributions are critical to the Partnership's business; that the interest of
the Partners may be at risk by reason of the failure of the Partners to make
required or agreed upon Investment Contributions; that the Partners may be
forced to borrow funds or invade other assets to fund the shortfall created by
[*] = redacted text
<PAGE>
the default of a Defaulting Partner; that the extent of the risk and the damage
and loss to the Partners resulting from such default by a Defaulting Partner is
impossible to foresee or predict at this time, but that such risk, damage and
loss could imperil the Partnership; and that in view of the serious consequences
that could arise from a default in making any required or agreed upon Investment
Contributions, the provisions of this Section 5.3 relating to such a default are
reasonable.
Section 5.4. Capital Accounts
(a) The Partnership shall establish and maintain a separate Capital Account
for each Partner in accordance with the following provisions:
(i)To each Partner's Capital Account there shall be credited such
Partner's Capital Contributions, such Partner's distributive share of
Profits and any items in the nature of income or gain which are allocated
to such Partner pursuant to Section 8.2, and the amount of any Partnership
liabilities that are assumed by such Partner or which are secured by any
Partnership Asset distributed to such Partner.
(ii)To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Partnership Asset
distributed to such Partner pursuant to any provision of this Agreement,
such Partner's distributive share of Losses and any items in the nature of
expenses or losses which are allocated to such Partner pursuant to Section
8.2, and the amount of any liabilities of such Partner that are assumed by
the Partnership or which are secured by any property contributed to the
Partnership by such Partner (except to the extent already reflected in the
amount of such Partner's Capital Contributions).
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with Code
Section 704(b) and Code Section 514(c)(9) and the Regulations thereunder, and
shall be interpreted and applied in a manner consistent with such Regulations.
In the event Colony General Partner shall determine that it is prudent to modify
the manner in which the Capital Accounts, or any debits or credits thereto, are
computed in order to comply with such Regulations, Colony General Partner may
make such modification, provided that it is not likely to have a material effect
on the amounts distributable to any Partner pursuant to Section 17.2 upon the
dissolution of the Partnership.
(b) Any transferee of a Partnership Interest or a portion thereof shall
succeed to the Capital Account relating to the Partnership Interest transferred
or the corresponding portion thereof.
Section 5.5. Negative Capital Accounts
No Partner shall be required to pay to the Partnership or to any other
Partner any deficit or negative balance which may exist from time to time in
such Partner's Capital Account.
Section 5.6. Return of Capital; No Interest on Amounts in Capital Account
Except upon dissolution of the Partnership or as may be expressly set forth
in this Agreement, no Partner shall have the right to demand or receive the
return of its Capital Contributions or any part of its Capital Account or be
entitled to receive any interest on its outstanding Capital Account balance.
Section 5.7. Residual Interests
"Residual Percentages" of the Partners as of the date of this Agreement are
as set forth in annexed Schedule 1. Any change in the Residual Percentages of
the Partners shall be made in accordance with the terms of this Agreement and
shall be reflected in an amendment to such Schedule 1, approved and executed by
Colony General Partner.
Section 5.8. Management Fees and Reimbursements; Partnership General and
Administrative Costs and Expenses; Pre-Acquisition Costs
(a) The Partnership or the applicable Investment Entity, as the case may
be, shall pay KWJ Management and the Person designated in writing by Colony
General Partner the Management Fees and shall reimburse KWJ Management and
Colony General Partner for out-of-pocket third-party costs and expenses on
commercially reasonable market terms incurred in connection with each
Investment, in the manner and as set forth in the applicable Management
Agreements and this Partnership Agreement; provided that such out-of-pocket
costs and expenses are within the then approved Partnership Budget and
applicable Investment Budget or are otherwise incurred with the express written
consent of all Partners. Notwithstanding the foregoing or anything contained in
the Management Agreements to the contrary, in no event shall the amounts payable
to KWJ Management in respect of Asset Management Fees and Acquisition Fees (but
not Incentive Fees) hereunder and thereunder exceed $3.5 million annually in the
aggregate.
(b) Pre-Acquisition Costs approved by Colony General Partner for each
potential Investment shall be paid by the Colony Partners and KWI Limited
Partner pursuant to Section 7.5(b). Upon the acquisition of such Investment by
the Partnership or Investment Entity, as the case may be, the applicable
Pre-Acquisition Costs shall be deemed to be Capital Contributions of the Colony
<PAGE>
Partners and KWI Limited Partner, as applicable, and the Colony Partners and KWI
Limited Partner, as applicable, shall be reimbursed for such Pre-Acquisition
Costs pro rata in the form of distributions made to the Colony Partners and KWI
Limited Partner, as applicable, pursuant to Article 9. Pre-Acquisition Costs
which are incurred in connection with a potential Investment which is not
acquired by the Partnership, or an Investment Entity, as the case may be, will
be accumulated and will be deemed to be Capital Contributions in respect of the
next acquired Investment; provided, however, that the Colony Partners shall
retain the right to reallocate such Pre-Acquisition Costs in a reasonable manner
so that such Pre-Acquisition Costs may be more evenly allocated among one or
more subsequent Investments acquired by the Partnership, and/or the Investment
Entities, as the case may be.
(c) In the event an Investment Entity is formed for an Investment, at the
time of such formation all Management Fees, Pre-Acquisition Costs and all
approved third-party out-of-pocket costs and expenses and approved general and
administrative costs incurred to date for such Investment but not previously
allocated to such Investment, and all approved costs incurred in forming such
Investment Entity, will be charged to such Investment Entity in accordance with
the applicable Investment Budget and thereafter an allocable portion of the cost
of providing Investment management services and general and administrative
services to such Investment Entity shall be charged to such Investment Entity in
accordance with the Partnership Budget.
ARTICLE 6
LIMITATION OF LIABILITY
(a) Except as provided by applicable law, this Agreement, in agreements
entered into by the Limited Partners, or in the Investment Entity agreements, no
Limited Partner shall be liable for any debts, liabilities or obligations of the
Partnership and no Limited Partner shall have to make any contributions or
deliver any other property to the Partnership.
(b) No Related Entity of any Partner shall have personal liability for the
obligations of such Partner hereunder, except as provided in a written guaranty
executed by such Related Entity.
ARTICLE 7
GENERAL PARTNER AND MANAGEMENT OF THE PARTNERSHIP
Section 7.1. Power and Authority of the General Partner
(a) Except as expressly provided otherwise in this Agreement, the right to
manage, control and conduct the business and affairs of the Partnership shall be
vested completely and exclusively in Colony General Partner, who shall have all
of the powers of a general partner under the Uniform Act, including all
necessary power to carry out the purposes of the Partnership, pursuant to and in
accordance with the terms of this Agreement, including the express rights of the
KWI Partners under this Agreement. All documents and instruments to be executed
by the Partnership shall be signed by Colony General Partner unless otherwise
approved by it or as otherwise permitted under this Agreement. Except as
expressly provided for in this Agreement, the KWI Partners shall not take part
in the management of the business or affairs of the Partnership or conduct or
control the Partnership business and the KWI Partners may not under any
circumstances sign for or bind the Partnership. Colony General Partner shall
have the exclusive authority to act for and on behalf of the Partnership, and no
third party shall ever be required to inquire into the authority of Colony
General Partner to take such action on behalf of the Partnership. Without
limiting the generality of the foregoing, Colony General Partner shall be
authorized to cause the Partnership to take any and all actions it determines
necessary in furtherance of the provisions of Section 2.2 hereof.
(b) Notwithstanding the foregoing, and in addition to the limitations set
forth elsewhere in this Agreement, no General Partner may, without the consent
of each other Partner:
(i)do any act in contravention of this Agreement or any applicable law
or regulation (except Colony General Partner may rely on advice of counsel
with respect to whether any action violates applicable law or regulation);
(ii)do any act which would make it impossible to carry on the ordinary
business of the Partnership (other than in connection with the exercise of
their rights pursuant to Section 10.6 or Articles 11 or 17 hereof);
(iii)possess Partnership Assets other than in the name of the
Partnership or Investment Entities; or
(iv)commingle the funds of the Partnership with those of any other
person or entity.
(c) Except as expressly provided otherwise in this Agreement, no Limited
Partner in its capacity as such shall participate in making the decisions of the
Partnership, and in no event shall any Limited Partner in such capacity have the
power to manage or transact any Partnership business or act for or in the name
of, or otherwise bind, the Partnership.
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(d) In connection with any actions under this Agreement requiring the
consent of the Limited Partners, the KWI Partners will act in a unified fashion,
and the Colony Partners will be entitled to rely upon the decision of KWI
Limited Partner as being the binding joint decision of each of the KWI Partners.
Section 7.2. Management of the Partnership Assets
(a) KWJ Management shall be responsible for the day-to-day management of
the Investments pursuant to, and in accordance with this Agreement and the
approved Operating Plan and Partnership Budget and the applicable Investment
Budgets, Investment Plans and Management Agreements. In connection therewith,
KWJ Management shall carry out the decisions of the General Partner made in
accordance with this Agreement.
(b) KWI Limited Partner shall cause KWJ Management to exercise its
management functions under the Management Agreements in such manner as it
believes in good faith to be in the best interests of the Partnership and each
Investment Entity, as applicable, and shall cause KWJ Management to, subject to
the terms of this Agreement, the Management Agreements and in accordance with
the approved Operating Plan and Partnership Budget, Investment Budgets and
Investment Plans, at all times, on behalf of, in the name of and at the expense
of the Partnership and each Investment Entity, as applicable (provided
Partnership funds or Investment Entity funds, as applicable, for such purposes
are available, it being the understanding of the Partners that the KWI Partners
are not required to contribute or lend to the Partnership or any Investment
Entity any funds other than pursuant to the terms of this Agreement or as they
otherwise may agree in writing):
(i)Use all reasonable efforts under the circumstances to protect the
interests of the Partnership and each Investment Entity, as applicable, in
the Investments and the related Partnership Assets.
(ii)Use all reasonable efforts under the circumstances to source and
investigate the Investments and function as the management, leasing and
sales agent thereof.
(iii)Comply with the Operating Plan and Partnership Budget for the
Partnership and the Investment Budgets and Investment Plans as are then in
effect (without the requirement of expending its own funds, unless
otherwise agreed in writing).
(c) In furtherance of the provisions of Section 7.1(a), Colony General
Partner shall, subject to the provisions of this Agreement and after Reasonable
Consultation with KWI Limited Partner, make all major decisions on behalf of the
Partnership, including, but not limited to:
(i) All decisions regarding acquisitions, financings and refinancings
of each Investment;
(ii) All capital expenditures plans, leasing and other decisions
relating to the Partnership or any Investment Entity;
(iii) All decisions regarding the sale or other transfer of the
Partnership Assets or any portion thereof (including without limitation the
sale of any Investment in accordance with the applicable Investment Plan)
at any time during the term of the Partnership;
(iv) All decisions regarding the sale, merger, financing,
recapitalization or business combination of the Partnership or any
Investment Entity;
(v) The approval of the annual Partnership Budget and Operating Plan
and each Investment Budget and Investment Plan;
(vi) All decisions regarding distributions to the Partners of Cash
Available for Distribution;
(vii) The making of any expenditure or the incurring of any obligation
that exceeds any expenditure line item in the approved Partnership Budget
or any Investment Budget by more than five percent (5%);
(viii) All decisions regarding the hiring and/or termination of
employees, consultants, accountants, auditors, custodians, investment
advisers, attorneys and any and all other agents and assistants, both
professional and nonprofessional, for the Partnership or any Investment
Entity, and all decisions regarding compensation thereof, provided that, so
long as the KWI Partners and KWJ Management are not in default under this
Agreement or the applicable Management Agreement, the applicable Management
Agreement has not otherwise been terminated in accordance with its terms
and KWJ Management has not terminated the applicable Management Agreement
pursuant to Section 19.1, Colony General Partner shall not hire, or cause
the Partnership, the applicable Investment Entity or Entities or the
applicable Investment(s) to hire, any Person other than KWJ Management to
manage the applicable Investment(s), or terminate, or cause the
Partnership, the applicable Investment Entity or Entities or Investment(s)
to terminate, the applicable Management Agreement(s) with KWJ Management
other than as provided for hereunder and/or in the applicable Management
Agreement(s);
<PAGE>
(ix) The institution of any legal proceedings in the name of the
Partnership or any Investment Entity, settlement of any legal proceedings
against the Partnership or any Investment Entity and confession of any
judgment against the Partnership, any Partnership Assets, any Investment
Entity or any Investment Entity Assets; and
(x) The filing of any voluntary petition in bankruptcy on behalf of
the Partnership or any Investment Entity, the consenting to the filing of
any involuntary petition in bankruptcy against the Partnership or any
Investment Entity, the filing of any petition seeking, or the consenting
to, reorganization or relief under any applicable federal or state law
relating to bankruptcy or insolvency, the consenting to the appointment of
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Partnership or a substantial part of the Partnership
Assets or of any Investment Entity or a substantial part of any Investment
Entity Assets, the making of any assignment for the benefit of creditors,
the admission in writing of the Partnership's or any Investment Entity's
inability to pay its debts generally as they become due or the taking of
any action by the Partnership or any Investment Entity in furtherance of
any such action.
Section 7.3. Investment Entities.
(a) Colony General Partner shall be authorized to cause the formation of
one or more Investment Entities to acquire or own some or all of the Investments
under Section 7.5(c). In determining budgets, the need for additional funds,
business plans and other similar matters and in making any other decisions
hereunder, the needs of the Investment Entities shall be taken into
consideration as if they were direct needs of the Partnership. It is further
intended that Capital Contributions to the Partnership shall be further
contributed or loaned to the Investment Entities as necessary or appropriate to
meet the needs of the Investment Entities in accordance with this Agreement.
Each Investment Entity shall be formed upon generally the same terms and
conditions as are contained herein, and otherwise so as to preserve to the
Colony Partners on the one hand, and the KWI Partners on the other, the overall
economic benefits and risks provided in this Agreement, including, without
limitation, Article 9 hereof, with respect to all Investments undertaken by the
Partnership and/or the Investment Entities, as applicable, while reasonably
seeking to achieve the most efficient tax structure with respect to each
Investment, and, if so required by the Colony Partners, to permit the Investment
Entities or Investments, as applicable, to constitute qualifying investments for
a "venture capital operating company" under the "Plan Assets Regulations" (as
defined in Section 19.1). The Partnership in exercising its rights in respect of
the Investment Entities shall act in accordance with, or consistent with, the
applicable terms of this Agreement. In connection with the formation of any
Investment Entity or the making of any Investment, Colony General Partner shall
Consult Reasonably with KWI Limited Partner and with experienced international
tax and ERISA counsel regarding the international tax and ERISA objectives in
connection with the organization, financing, operation and disposition of the
Investment Entity and/or Investment and the manner in which such objectives may
be achieved and Colony General Partner shall prepare a tax and ERISA plan
reflecting such consultations (the "Tax and ERISA Plan"), which shall contain
measures intended (in light of the structure and intended operations of the
relevant Investment) (i) to minimize inclusions of income under Sections 951 and
956 of the Code and (ii) to avoid the imposition of tax under Sections 882 or
884 of the Code (other than as a result of the receipt by the Partnership or an
Investment Entity of fee income otherwise permitted under this Agreement).
Colony General Partner and KWJ Management shall use their respective reasonable
best efforts to comply with the Tax and ERISA Plan, provided that Colony General
Partner shall have no obligation to comply with the Tax and ERISA Plan for an
Investment in which KWI Limited Partner and KWI Special Limited Partner do not
participate pursuant to Section 7.3(b).
(b) Notwithstanding anything to the contrary contained in Section 7.3(a),
KWI Limited Partner shall have the right, on behalf of itself and KWI Special
Limited Partner, to elect not to participate in a particular Investment if KWI
Limited Partner concludes, in its reasonable judgment, that the structure of the
Investment and/or the applicable Investment Entity, or any aspect of such
structure, will be adverse to either or both the KWI Partners or KWJ Management.
In the event KWI Limited Partner makes such an election, the Colony Partners
shall have the sole and exclusive right to cause any of its Related Entities to
invest in such investment and the KWI Partners shall have no rights in respect
of such investment or the applicable investment entity, if any.
Section 7.4. Operating Plan and Partnership Budget
A copy of the initial Operating Plan and the initial Partnership Budget are
attached hereto as Exhibits C-1 and C-2, respectively. KWI Limited Partner
shall, not less than sixty (60) days prior to the commencement of each Fiscal
Year, commencing with the Fiscal Year commencing January 1, 1999, cause KWJ
Management to prepare and present to Colony General Partner for its approval a
revised Operating Plan (if there are any amendments to the then-current
Operating Plan) and a revised Partnership Budget (if there are any amendments to
the then-current Partnership Budget) for such Fiscal Year. Not less than thirty
(30) days prior to the commencement of each Fiscal Year, the Colony General
Partner shall determine whether it approves the revised Operating Plan (if any)
and the revised Partnership Budget (if any) for such Fiscal Year. If Colony
General Partner does not approve the revised Operating Plan, then either, as
<PAGE>
determined by Colony General Partner in its sole and absolute discretion and
after Reasonable Consultation with KWI Limited Partner, the current Operating
Plan or an Operating Plan provided by Colony General Partner shall be placed in
effect. If Colony General Partner does not approve the revised Partnership
Budget, then (i) with respect to any disputed line items, the amount set forth
in the Partnership Budget for the previous Fiscal Year shall be controlling
until Colony General Partner provides, after Reasonable Consultation with KWI
Limited Partner, a revised Budget, in its sole and absolute discretion, for such
disputed line items, and (ii) with respect to any line items which are not in
dispute, the undisputed amount shall be controlling. Colony General Partner and
KWI Limited Partner will review the then approved Budget on a quarterly basis to
determine whether the Partnership is operating within such Budget. Amendments to
the then approved Operating Plan and Partnership Budget may be made only upon
the approval of Colony General Partner after Reasonable Consultation with KWI
Limited Partner.
Section 7.5. Services of Related Entities of the KWI Partners to the
Partnership; Services of Related Entities of the KWI Partners to the Investment
Entities
(a) The KWI Partners will cause KWJ Management to use its reasonable best
efforts to source potential Investments satisfying the general criteria set
forth in the Operating Plan, and to present such potential Investments to Colony
General Partner for its approval. Such presentation shall include all
information as may be necessary, including without limitation a preliminary
Investment Budget and preliminary Investment Plan, for Colony General Partner to
determine whether the Partnership should acquire such Investment, which
determination shall be made by Colony General Partner in its sole and absolute
discretion.
(b) Colony General Partner shall review the preliminary Investment Budget
and Investment Plan as prepared and submitted by KWJ Management, and such other
information, reports, studies and data as Colony General Partner may deem
necessary or desirable. [*] The Colony Partners and KWI Limited Partner will
be reimbursed for such approved Pre-Acquisition Costs in accordance with
Section 5.8. Notwithstanding that KWI Limited Partner and/or the Colony Partners
may have funded Pre-Acquisition Costs with respect to a prospective Investment,
Colony General Partner has the right, at any time prior to the actual investment
by the Partnership in the Investment, to determine, in its sole and absolute
discretion, that such prospective Investment should not be acquired or invested
in by the Partnership or an Investment Entity, as the case may be. In the event
Colony General Partner determines that the Partnership should acquire such
prospective Investment, Colony General Partner shall then determine, subject
always to Section 7.3(b) hereof, the capital structure and the other terms of
the Investment, including, without limitation, the amount that the Partnership
should invest in such Investment, and shall have the right to approve or
disapprove the Investment Budget and/or Investment Plan prepared by KWJ
Management. [*]
(c) If Colony General Partner elects to invest in a proposed Investment as
provided in Section 7.5(a) above, the Partnership shall either acquire the
Investment itself or shall create an Investment Entity to acquire the
Investment. In the event an Investment Entity is formed, the Partnership will
assign any contracts for the acquisition of the respective Investment to such
Investment Entity. To the extent KWI Limited Partner, KWJ Management or any of
their respective Related Entities receives, or is entitled to receive, any
commissions and/or other fees whatsoever in connection with the acquisition of
such Investment, KWI Limited Partner will pay, or assign the right to receive,
as the case may be, or will cause KWJ Management or such Related Entity, as the
case may be, to pay, or assign the right to receive, as the case may be, such
commissions and/or other fees to the Partnership or the applicable Investment
Entity, as the case may be. The Partnership, or the Investment Entity, as the
case may be, will enter into a Management Agreement with KWJ Management for the
provision of day-to-day management services, including, without limitation,
management, leasing and sales agent services, for such Investment in accordance
with the applicable Management Agreement and the applicable Investment Budget
and Investment Plan.
[*]
[*] = redacted text
<PAGE>
[*]
Section 7.7. Related Entities
In addition to any rights Colony General Partner has pursuant to Section
10.6 hereof, Colony General Partner shall have the right to cause the
Partnership and any Investment Entity to enter into contracts, amend or modify
such contracts, or otherwise deal with any Related Entities of any Partner in
any capacity, including, without limitation, in connection with the business and
operations of the Partnership or such Investment Entity, as applicable, except
that the terms of any such arrangement shall be commercially reasonable and
competitive with amounts that would be paid to third parties on an "arms-length"
basis and any payments to be made to such Related Entity shall be set forth in
the approved applicable Operating Plan or then applicable Partnership Budget.
Section 7.8. Compensation to the Partners
(a) No fees shall be payable to any Partner or any Related Entity of a
Partner for performance of services to or on behalf of the Partnership, except
as may be set forth in or approved pursuant to this Agreement and the Management
Agreements (including fees paid pursuant to any transaction or agreement
permitted by Section 7.7 hereof).
(b) The Partnership shall reimburse each Partner and its Related Entities
on a current basis for its out-of-pocket expenditures made on behalf of the
Partnership in accordance with the approved applicable Operating Plan and then
applicable Partnership Budget upon submission to the Partnership of reasonably
detailed evidence of such expenditures. All reimbursements for out-of-pocket
expenditures shall be in the advancement of Partnership purposes, which purposes
are, to the maximum extent possible, not duplicative of other parties' or
persons' efforts or in furtherance of interests or concerns particular to one or
more individual Partners rather than the Partnership as a whole. Any
out-of-pocket expenditure made by a Partner or its Related Entity and eligible
for reimbursement pursuant to this Section 7.8(b) shall not be treated as a
Capital Contribution or otherwise result in a credit to such Partner's Capital
Account and any reimbursement of such expenditure shall not be treated as a
Partnership distribution to such Partner or otherwise result in a debit to such
Partner's Capital Account.
Section 7.9. Exculpation and Indemnification
(a) Neither (i) the General Partner, (ii) any Related Entity of such
General Partner, nor (iii) any director, officer, manager, partner, shareholder,
employee or agent of a General Partner or such Related Entity, acting on behalf
of the Partnership or any Investment Entity in connection with any business or
activity of the Partnership or any Investment Entity shall be liable to the
[*] = redacted text
<PAGE>
Partnership or such Investment Entity or to any Partner for any loss arising out
of or in connection with the management, operation or conduct of the
Partnership's or such Investment Entity's business and affairs, except by reason
of willful misconduct, fraud or gross negligence, a material breach of this
Agreement or any other agreements contemplated hereunder or the payment to or
receipt of benefits in violation of this Agreement or any other agreements
contemplated hereunder; provided that the foregoing shall not apply to any
Related Entity's actions in connection with providing services to the
Partnership or to such Investment Entity pursuant to the Management Agreements
or any other agreements between such Related Entity and the Partnership, which
include indemnification provisions, the indemnification for which shall be as
provided in the Management Agreements or such other agreements between such
Related Entity and the Partnership. Subject to the provisions of the immediately
preceding sentence, the Partnership and/or such Investment Entity, as the case
may be, shall indemnify and hold harmless each General Partner, any Related
Entity of them and their respective officers, managers, directors, shareholders,
agents, employees, successors, heirs and personal representatives (each, an
"indemnified person") from and against any and all claims, costs, losses,
damages, expenses (including, without limitation, the expense of defending,
investigating or preparing to defend any claim) or liabilities (including, but
not limited to, reasonable attorneys' fees) suffered or sustained by them by
reason of any acts performed or omitted to be performed by the General Partner
or its agents, employees or independent contractors or on behalf of the
Partnership or such Investment Entity or in furtherance of the interest of the
Partnership or such Investment Entity, provided that the indemnified person's
actions (or failure to act) in respect of the matter on which the claim is based
did not constitute willful misconduct, fraud, or gross negligence, a material
breach of this Agreement or any other agreements contemplated hereunder or the
payment to or receipt of benefits in violation of this Agreement or any other
agreements contemplated hereunder. The obligation of the Partnership and/or such
Investment Entity, as the case may be, to provide such indemnification shall be
satisfied solely from the assets of the Partnership and/or such Investment
Entity, as the case may be, and the Partnership Interests of the Partners. In
the event that any indemnified person becomes involved in any capacity in any
suit, action, proceeding or investigation in connection with any matter arising
out of or in connection with the Partnership's or such Investment Entity's
operations or affairs, the Partnership or such Investment Entity, as the case
may be, will periodically reimburse such indemnified person for its reasonable
legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith.
(b) Each General Partner shall indemnify and hold harmless the Partnership
from and against any and all claims, costs, losses, damages, expenses
(including, without limitation, the expense of defending, investigating or
preparing to defend any claim) or liabilities (including, but not limited to,
reasonable attorneys' fees) suffered or sustained by it by reason of any willful
misconduct, fraud, or gross negligence by, or a material breach of this
Agreement or any other agreements contemplated hereunder caused by, or the
payment to or receipt of benefits in violation of this Agreement or any other
agreements contemplated hereunder by, such General Partner.
(c) No claim, action or proceeding, or any appeal therefrom which is
subject to the provisions of this Section 7.9 shall be settled on behalf of the
indemnifying party without the consent of the indemnified person affected
thereby, unless the settlement of such claim, action or proceeding requires
solely the payment of money, but if the indemnifying party is also a defendant
in any such claim, action, proceeding or appeal, the indemnifying party may
enter into any settlement for itself without the consent of any other defendant.
(d) No (i) Limited Partner, (ii) Related Entity of any Limited Partner, or
(iii) director, officer, manager, partner, shareholder, employee or agent of any
Limited Partner or any such Related Entity, acting in their capacity as or on
behalf of any such Limited Partner, shall be liable to the Partnership or to any
Partner for any loss arising out of or in connection with the actions of such
Limited Partner or such other party as or on behalf of such Limited Partner in
the Partnership, except by reason of any individual's own willful misconduct,
fraud or gross negligence, a material breach of this Agreement or any other
agreements contemplated hereunder or the payment to or receipt of benefits in
violation of this Agreement or any other agreements contemplated hereunder.
ARTICLE 8
ALLOCATIONS OF PROFITS AND LOSSES
Section 8.1. Profits and Losses
After giving effect to the mandatory allocations set forth in Section 8.2,
Profits or Losses for any Fiscal Year or other applicable period realized from
an Investment shall be allocated among the Partners pro rata in accordance with
their Percentage Interests in such Investment (the "Preliminary Allocations"),
except that if the KWI Partners receive a distribution of Promote Distributions
with respect to such Investment, then Profits in an amount equal to such Promote
Distributions shall be reallocated from the Colony Partners to the KWI Partners,
and if there are insufficient Profits, the balance shall be carried forward and
subject to allocation in the next succeeding Fiscal Year.
Section 8.2. Mandatory Allocations
<PAGE>
(a) The following mandatory allocations shall be made in the following
order:
(i) Minimum Gain Chargeback. Notwithstanding any other provision of
this Article 8, if there is a net decrease in Partnership Minimum Gain
during any Fiscal Year or other applicable period, then, subject to the
exceptions set forth in Regulations Section 1.704-2(f)(2), (3), (4) and
(5), each Partner shall be specially allocated items of Partnership income
and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years)
in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, as determined in accordance with Regulations
Section 1.704-2(g). Allocations pursuant to the previous sentence shall be
determined in accordance with Regulations Section 1.704-2(f). This Section
8.2(a)(i) is intended to comply with the minimum gain chargeback
requirement in Regulations Section 1.704-2(f) and the safe-harbor for such
chargebacks and offsets contained in Regulations Section
1.514(c)-2(e)(1)(ii) and shall be interpreted consistently therewith.
(ii) Partner Minimum Gain Chargeback. Notwithstanding any other
provision of this Article 8 except Section 8.2(a)(i), if there is a net
decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt
during any Fiscal Year or other applicable period, then, subject to the
exceptions set forth in Regulations Section 1.704-2(i)(4), each Partner who
has a share of the Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of Partnership income and
gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in
an amount equal to such Partner's share of the net decrease in Partner
Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to
the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Partner pursuant thereto. The items to be
so allocated shall be determined in accordance with Regulations Section
1.704-2(i)(4). This Section 8.2(a)(ii) is intended to comply with the
minimum gain chargeback requirement in Regulations Section 1.704-2(i)(4)
and the safe-harbor for such chargebacks and offsets contained in
Regulations Section 1.514(c)-2(e)(1)(iii) and shall be interpreted
consistently therewith.
(b) Qualified Income Offset. Notwithstanding any provision of this Article
8, except Section 8.2(a), in the event any Partner receives any adjustments,
allocations, or distributions described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), that cause or increase an Adjusted
Capital Account Deficit of such Partner, items of Partnership income and gain
shall be specially allocated to such Partner in an amount and manner sufficient
to eliminate, to the extent required by the Regulations, the Adjusted Capital
Account Deficit of such Partner as quickly as possible. This Section 8.2(b) is
intended to comply with the qualified income offset provision of Regulations
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(c) No Excess Deficit. Although not considered as likely to occur based
upon all of the information now available to the Partners, to the extent that
any Partner has or would have, as a result of an allocation of Loss (or item
thereof), an Adjusted Capital Account Deficit, such amount of Loss (or item
thereof) shall be allocated to the other Partners in accordance with Section
8.1, but in a manner which will not produce an Adjusted Capital Account Deficit
as to such Partner. To the extent such allocation would result in all Partners
having Adjusted Capital Account Deficits, such Loss shall be allocated equally
to the General Partners.
(d) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year or
other applicable period shall be allocated to the Partners pro rata in
accordance with their relative Residual Percentages as of the end of the Fiscal
Year.
(e) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for
any Fiscal Year or other applicable period shall be specially allocated to the
Partner who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Regulations Section 1.704-2(i)(1).
(f) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership Asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be treated
as an item of gain (if the adjustment increases the basis of the asset) or loss
(if the adjustment decreases such basis) and such gain or loss shall be
specially allocated to the Partners in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to such
section of the Regulations.
(g) Curative Allocations. Any mandatory allocations of items of income,
gain, loss or deduction pursuant to Sections 8.2(a), (b), (c) and (e) above
shall be taken into account for the purpose of equitably adjusting subsequent
allocations of income, gain, loss or deduction so that the net allocations, in
the aggregate, allocated to each Partner pursuant to this Article 8, and the
Capital Accounts of each Partner, shall as quickly as possible and to the extent
possible, be the same as if no mandatory allocations had been made.
<PAGE>
(h) Code Section 514(c) (9) (B) (vi) Limitation. Notwithstanding the
foregoing, if any mandatory allocation otherwise required pursuant to this
Section 8.2 would cause the Partnership's allocations to violate Code Section
514(c)(9)(B)(vi) (taking into account its incorporation by reference of the
"substantial economic effect" requirement of Code Section 704(b)(2)) and the
applicable Regulations, then such mandatory allocation or deduction shall not be
made, provided that in complying with the foregoing, it is the intent of the
Partners that allocations of Profits and Losses comply with the requirements of
Code Section 514(c)(9)(E) and the Regulations issued thereunder to the extent
the cumulative results of such allocations permit the Capital Accounts of the
Partners to be in proportion to distributions that would occur if liquidating
distributions were made in accordance with Article 9 of this Agreement.
Section 8.3. Other Allocation Rules
(a) For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by Colony General
Partner using any permissible method under Code Section 706 and the Regulations
thereunder.
(b) The Partners are aware of the income tax consequences of the
allocations made by this Article 8 and hereby agree to be bound by the
provisions thereof in reporting their shares of Partnership income and loss for
income tax purposes.
Section 8.4. Tax Allocations
(a) Except as otherwise provided for in this Section 8.4, for Federal
income tax purposes, each item of income, gain, loss and deduction shall be
allocated among the Partners so as to take account of any variation between the
adjusted basis of such property to the Partnership for Federal income tax
purposes and its initial Gross Asset Value (computed in accordance with the
definition of Gross Asset Value).
(b) In the event the Gross Asset Value of any Partnership Asset is adjusted
as described in the definition of Gross Asset Value, subsequent allocations of
income, gain, loss and deduction with respect to such Partnership Asset shall
take into account any variation between the adjusted basis of such Partnership
Asset for Federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Regulations thereunder using a
method selected by Colony General Partner which complies with Code
Section 514(c)(9) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be made
by Colony General Partner in a manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 8.4 are solely
for purposes of Federal, state, and local taxes and shall not affect, or in any
way be taken into account in computing, any Partner's Capital Account or share
of Profits, Losses, other items, or distributions pursuant to any provision of
this Agreement.
ARTICLE 9
DISTRIBUTIONS OF CASH
[*]
Section 9.2. Partner Default Loans; Unreturned Capital Contributions
In the event that any Partner Default Loan made by a Partner to the
Partnership hereunder, or any portion thereof, is outstanding, no amounts shall
[*] = redacted text
<PAGE>
be distributable to any other Partner pursuant to Section 9.1 until all interest
and principal on the outstanding Partner Default Loan, or such outstanding
portion, have been repaid in full. Further, to the extent any Partner has
Unreturned Capital Contributions, or to the extent a Partner has made a Partner
Default Loan to the Partnership, or the applicable Investment Entity, as the
case may be, Colony General Partner shall have the right to cause the
Partnership to obtain additional financing or refinance an existing Investment
Loan; provided, however, that such additional financing may be obtained by the
Partnership upon Colony General Partner's request without the approval of any
other Partner. The proceeds of such additional financing will be used to pay off
the remaining principal balance, and any interest accrued thereon, of any
Partner Default Loan made by a Partner to the Partnership hereunder and to
reimburse the Partners for any Unreturned Capital Contributions, with any
remainder being used for Partnership purposes or distributed to the Partners, as
determined by Colony General Partner subject to Section 9.4.
Section 9.3. Pooled Investments
[*]
Section 9.4. Partners' Tax Liability
Notwithstanding anything to the contrary contained herein, the Partnership
shall make distributions to the Partners on a quarterly basis in an amount at
least equal to each Partners' respective Tax Liability for the applicable
quarter from the Cash Available for Distribution, if any; provided, however,
that if the total amount available for distribution from Cash Available for
Distribution, if any, is less than the aggregate amount of such Tax Liabilities,
then such distribution will be made pro rata based on the respective amount of
each Partner's Tax Liability. Such distributions shall be made not later than
five (5) days prior to the date on which estimated tax payments are required to
be made by the Partners for the applicable quarter. In the event Colony General
Partner elects to make distributions pursuant to Section 9.1, the amount of any
Tax Liability distributions made pursuant to this Section 9.4 shall be reduced
by the amount of the distributions made during such Fiscal Year pursuant to
Section 9.1. Any Tax Liability distributions made pursuant to this Section 9.4
shall be applied toward the amount of the distributions required to be made to
the Partners pursuant to Section 9.1.
ARTICLE 10
TRANSFER OF PARTNER INTERESTS
Section 10.1. Prohibited Transfers
(a) Except in accordance with, and as permitted by, Section 10.2, a Partner
may not, directly or indirectly, sell, assign, transfer, pledge, hypothecate,
collaterally assign, or otherwise dispose of (collectively, "Transfer") all or
any part of its Partnership Interest, whether voluntarily or by foreclosure,
assignment in lieu thereof or other enforcement of a pledge, hypothecation or
collateral assignment, without the prior written consent of the General Partner,
which the General Partner may withhold in its sole and absolute discretion.
(b) For purposes of this Agreement, any direct or indirect sale,
assignment, transfer, pledge, hypothecation, collateral assignment, or other
disposition of the capital stock or other equity interest in any Partner shall
constitute a Transfer unless (i) the capital stock or other equity interest so
sold, assigned, transferred, pledged, hypothecated, collaterally assigned or
otherwise disposed of consists only of a class of stock then publicly traded, or
(ii) after giving effect to such sale, assignment, transfer, pledge,
hypothecation, collateral assignment or other disposition, there has been no
change in Control of such Partner, or (iii) such direct or indirect sale,
assignment, transfer, pledge, hypothecation, collateral assignment or other
disposition (1) relates solely to the limited partnership interests in Colony
Investors II, L.P. or Colony Investors III, L.P., or the transfer of the assets
of Colony Investors II, L.P. or Colony Investors III, L.P. to its or their
respective partners or (2) relates solely to the direct or indirect Transfer of
the Partnership Interests held by the Colony Partners to an investment fund
[*] = redacted text
<PAGE>
managed by substantially the same principals who manage Colony Investors II,
L.P. or Colony Investors III, L.P., or (3) was made in a manner which would
otherwise be permitted under Section 10.2 below, or (4) was designated by will,
intestacy or other disposition in the nature of a testamentary disposition.
Section 10.2. Permitted Transfers by All Partners
(a) Subject to the other provisions of this Article 10, a Partner may,
without the consent of the other Partners, Transfer its Partnership Interest or
any portion thereof (i) to a Related Entity (provided that the majority of the
ownership interests in such Related Entity are held by the same persons who hold
the majority of the ownership interests in the Transferring Partner), (ii) as a
pledge of its Partnership Interest to the maker of the Investment Loan, (iii) in
accordance with the Pooling Agreement or any pledge agreement entered into
pursuant to the terms of this Agreement, (iv) with respect to the Colony
Partners, to The Chase Manhattan Bank, N.A., as administrative agent, to Bankers
Trust Company, as documentation agent, and to Chase Securities and BT Alex Brown
Incorporated, as arrangers, pursuant to the revolving credit agreement among
them or to any successor lender in connection with a replacement revolving
credit agreement or similar financing and (v) with respect to either KWI
Partner, in the form of a pledge to any bank, financial institution or similar
Person for the purpose of securing any debt, loan, credit, credit facility,
financing, guarantee or similar arrangement.
(b) Notwithstanding any other provision of this Article 10, in the event of
the death, permanent incapacity, bankruptcy or dissolution of any Limited
Partner, the legal representatives or successors of such Limited Partner shall
succeed to such Limited Partner's Partnership Interest and be admitted as a
substitute Limited Partner. Any admission of additional Limited Partners in
accordance with the provisions of Article 10 of this Agreement shall be
reflected in an amendment to Schedule 1.
Section 10.3. Effective Date of Transfers
For financial and tax reporting purposes, every voluntary Transfer (as
distinguished from the original issuance) of any Partnership Interest or portion
thereof shall be deemed to have occurred as of the close of business on the day
on which such Transfer shall have in fact occurred and shall have no effect
prior to the close of business on such day, and every involuntary Transfer
(whether by bequest, operation of law or any other method) of any Partnership
Interest shall be deemed to have occurred as of the close of business on the day
on which the Partnership shall have received evidence of such Transfer and shall
have no effect prior to the close of business on such day.
Section 10.4. Conditions Applicable to Transfers
1. Compliance with Laws, etc.
(a) Notwithstanding anything to the contrary contained in this Agreement,
any Transfer of any Partner's interest permitted by this Section 10 shall be
made in full compliance with (i) all applicable statutes, laws, ordinances,
rules and regulations (x) of all United States, Japanese and other Federal,
state and local governmental bodies, agencies and subdivisions having
jurisdiction over the Partnership and the Partnership Assets, and (y) of the
jurisdiction in which any Investment Entity, or any Person organized by any
Partner for the purpose of investing in any Investment, is organized, and (ii)
the terms and conditions of the Investment Loans and each other contract or
agreement affecting the Partnership and the Partnership Assets which such
Partner consented to (the General Partner agrees to notify the Limited Partners,
prior to the execution thereof, of any terms and conditions thereof which would
be applicable), so that the operation of the Partnership can continue without
interruption and without violation of any applicable law, or if any approval or
consent is required in connection with any such Transfer, the "Responsible
Partner" (hereinafter defined) shall promptly make such filing or application or
obtain such approval or consent at its sole expense, and shall reimburse the
Partnership for any costs or expenses (including attorneys' fees) incurred by
the Partnership in connection with any filing, application, approval or consent.
The "Responsible Partner" shall be the Partner transferring its interest in
the Partnership; provided, however, that should the transferring Partner fail or
refuse to perform hereunder, the General Partner, at the cost and expense of the
transferring Partner, shall act as "Responsible Partner" hereunder.
(b) Notwithstanding anything to the contrary contained in this Agreement,
each Partner and each transferee of all or any part of its Partnership Interest
shall at all times maintain an office or agent for the service of process in the
State of New York.
(c) Notwithstanding any provision hereof to the contrary, unless otherwise
approved by the General Partner:
(i) no Transfer of a Partnership Interest may be made to an entity
exempt from Federal income tax under Code Section 501(a); and
(ii) no Transfer of a Partnership Interest shall be permitted if it
would impose fiduciary responsibility on any Partner or Related Entity
under ERISA.
Neither a Partner's request for such consent to a proposed Transfer nor the
<PAGE>
giving of such consent shall obviate the necessity of complying with the other
provisions contained in this Article 10.
(d) As a condition to any Transfer by a Partner permitted by this Article
10, the transferring Partner, at its expense, shall obtain all consents that may
be required from third parties (including lenders and mortgagees), if any, or
waivers thereof. At no expense to the other Partners, the other Partners shall
cooperate with the transferring Partner in obtaining all such consents or
waivers if they have consented to the Transfer or if their consent is not
required.
(e) Notwithstanding any provision hereof to the contrary, no Transfer shall
be made pursuant to this Article 10 to any Foreign Person unless and until the
transferee agrees in writing in advance of the Transfer that (i) the transferee
and the Partnership shall comply with all applicable Federal, state and local
laws pertaining to the acquisition, ownership or disposition of United States
real property (or of directly or indirectly held interests therein) by any
Foreign Person and with all Federal, state and local laws of similar import
pertaining to Foreign Persons; (ii) the Partnership may comply with any and all
income and other withholding obligations that may be imposed on the Partnership
without regard to other provisions of this Agreement that may otherwise govern
the transferee's rights to its share of Partnership income and loss and to
receive distributions from the Partnership; and (iii) the transferee shall
indemnify and hold the Partnership and the non-transferring Partners harmless
from and against any and all expense or liability that is or may be imposed on
the Partnership or the non-transferring Partners attributable to or arising out
of such Transfer because of such status of the transferee. Any agreement of a
transferee Partner required by this Section 10.4.1(e) shall be in such form and
shall contain such additional provisions as the General Partner in the exercise
of its reasonable discretion shall request as a condition precedent to such
Transfer.
2. Instruments of Transfer
Notwithstanding anything to the contrary contained in this Agreement, no
change in ownership of the Partnership Interest of any Partner shall be binding
upon the other Partners or the Partnership unless and until (i) true copies of
the instruments of transfer executed and delivered pursuant to or in connection
with such Transfer shall have been delivered to the General Partner, (ii) the
transferee shall have delivered to the General Partner an executed and
acknowledged assumption agreement, in form and substance reasonably satisfactory
to counsel to the Partnership, pursuant to which the transferee assumes from and
after the date of the Transfer all the obligations of the transferor hereunder
thereafter accruing, makes all representations, warranties and covenants as were
made pursuant to Article 15 by the transferor, and agrees to be bound by all the
provisions of this Agreement, (iii) the transferee shall have executed,
acknowledged and delivered any instruments required under the Uniform Act or the
laws of any State in which the Partnership is authorized to do business to
effect such Transfer and its admission to the Partnership, and (iv) the
Partnership shall have received an opinion of counsel as provided in Section
10.4.3 if the Transfer is to any person or entity that is not at the time a
Partner or a Related Entity. Upon compliance with the foregoing, the transferor
shall have no further obligation hereunder thereafter accruing except that the
transferor shall remain primarily liable for all accrued obligations (as of the
date of Transfer) of the transferor under this Agreement notwithstanding any
Transfer pursuant to this Article 10.
3. Opinion of Counsel
(a) If a Transfer is proposed to any person or entity that is not at the
time a Partner or a Related Entity, then, prior to any such Transfer, the
transferor shall give a notice to the Partnership setting forth the material
terms and conditions of such Transfer, the name of the proposed transferee and
the name of its and/or the transferee's counsel (which counsel shall be
reasonably satisfactory to counsel for the Partnership), and the following
provisions shall apply:
(i) Within ten (10) days after receipt of such notice, the General
Partner shall submit to such counsel a copy of each document governing the
terms of any mortgage on any portion of the Partnership Assets or any
Investment Entity's Assets, or other document which the General Partner
believes might be violated by the proposed Transfer. The Partnership shall
cooperate with any reasonable request of such proposed transferee, the
transferor or counsel to either of them, to obtain any third party consent
or approval necessary to the Transfer, provided any cost or expense related
thereto is paid by the transferor or the transferee.
(ii) The General Partner shall furnish to counsel for the transferor,
at the transferor's expense, such documents, information and cooperation as
such counsel may reasonably request in connection with the preparation of
the opinion referred to in clause (iii) below.
(iii) There shall be delivered to the Partnership an opinion of counsel
to the transferor or transferee, reasonably satisfactory in form and
substance to counsel for the Partnership (but which may be limited to the
information disclosed in the documents furnished to such counsel as
hereinabove provided), to the effect that the proposed Transfer shall not:
(A) result in the violation of the Securities Act of 1933, as amended, or
any other applicable Federal or state laws or the order of any court having
<PAGE>
jurisdiction over the Partnership or require registration of the
Partnership Interest to be transferred under the Securities Act of 1933, as
amended, as then in force or the taking of any similar action under any
similar Federal or state law then in force; (B) be a breach, violation or
default under, or give rise to an unwaived right to accelerate any
indebtedness of the Partnership, including without limitation any
indebtedness under any Financing; (C) result in or create a prohibited
transaction under ERISA, or cause the Partnership to become a "party in
interest" as defined in Section 3(14) of ERISA, or otherwise result in the
holder of any interest in the Partnership or the Assets of the Partnership
or any Investment Entity being subject to the provisions of such statute;
(D) cause the Partnership to become "publicly traded" for purposes of Code
Section 7704; (E) cause the allocations in this Agreement to cease to be
"qualified allocations" under Code Section 514(c)(9) and the Regulations
thereunder; or (F) cause the Partnership to become an investment company
under the Investment Company Act of 1940, as amended.
(b) The transferring Partner and the transferee shall pay to the
Partnership and the other Partners all reasonable costs incurred by the
Partnership or the other Partners as a result of such Transfer, and shall
indemnify the Partnership and the other Partners (in a manner which is
reasonably satisfactory to the Partnership and the other Partners) for any such
costs which are or may be incurred by them thereafter as a result of such
Transfer.
4. Cooperation. The Partners and the Partnership shall cooperate with any
Partner wishing to satisfy the conditions for a Transfer set forth in this
Article 10 by providing to the transferor and its counsel all information in
their possession or readily obtainable by them reasonably requested by the
transferor.
5. Transferees by Operation of Law. If any party or entity acquires all or
any part of a Partnership Interest in violation of this Article 10 by operation
of law or judicial proceeding, the holder(s) of the affected interest shall have
no right to take action under this Agreement, and the Partner whose interest was
affected shall be subject to the restrictions provided in Section 10.5.
Section 10.5. Transfers Void
Any attempted withdrawal, sale, assignment, pledge, hypothecation,
collateral assignment, transfer, encumbrance, mortgage or other disposition by,
or substitution of a Partner made in violation of this Agreement shall be
automatically void ab initio. Without limiting the foregoing, any direct or
indirect sale, assignment, pledge, hypothecation, collateral assignment,
transfer, encumbrance, mortgage or other disposition of the capital stock or
other equity interest in any Partner in violation of this Agreement shall result
in the Partnership Interest of such Partner (including, without limitation, its
Residual Percentages), being reduced by fifty percent (50%), and the Partnership
Interests of the other Partners being increased pro rata in accordance with
their Residual Percentages in the aggregate by the amount of such reduction,
after such Partner is given written notice of such violation by a General
Partner and has not cured such violation within thirty (30) days (or such longer
period as may be required to cure such violation if such Partner is using its
best efforts to cure such violation) of receipt of such notice.
Section 10.6. Sale Approved by the General Partners
Notwithstanding anything to the contrary contained in this Agreement, the
Partners irrevocably agree that if all or substantially all of the Partnership
Assets are to be transferred pursuant to this Agreement or as the General
Partner otherwise agrees, and the General Partner determines in its reasonable
discretion, after Reasonable Consultation with KWI Limited Partner, to cause the
transaction to be structured as a transfer of Partnership Interests, then each
of the Partners shall take all action determined necessary by the General
Partner to transfer to the purchaser its Partnership Interest free and clear of
all liens and encumbrances, and shall make all representations and deliver all
covenants, undertakings and instruments in connection therewith as the General
Partner, shall reasonably determine for transactions of such type, provided that
no Limited Partner shall be required to make any representations and warranties
or deliver any covenants, undertakings or instruments other than with respect to
itself and its Partnership Interest. In furtherance of the foregoing, pursuant
to Article 18, each Partner irrevocably constitutes and appoints the General
Partner as its attorney-in-fact to execute all instruments necessary to
consummate the foregoing.
Section 10.7. Pledge of Partnership Interests
If required by an institutional lender of an Investment Loan or any other
loans made to the Partnership, the Partners shall pledge their Partnership
Interests as security for such Investment Loan and/or each such other loan.
ARTICLE 11
SALE OF PARTNERSHIP INTERESTS AND/OR
PARTNERSHIP AND/OR INVESTMENT ENTITY ASSETS
[*]
[*] = redacted text
<PAGE>
(b) The purchase price for the Offered Assets (or, in the case of the sale
of all or substantially all of the Partnership Assets, the Partnership Interests
of the Offeror) shall equal (x) if the Offeree is purchasing the Offered Assets,
the Offer Price or (y) if the Offeree is purchasing the Partnership Interests of
the Offeror, the amount the Offeror would have been entitled to receive if the
Partnership had sold the Partnership Assets for the Offer Price, and the
Partnership had immediately paid all of its liabilities (including any loans
made by the Partners to the Partnership, but excluding prepayment of any
outstanding Investment Loans only if the Offer Terms contemplate that such
Investment Loans would remain in place after such purchase and the terms of such
Investment Loans would permit them to remain in place), allocated any Profits or
Losses resulting from such sale and distributed the net proceeds pursuant to the
provisions of Article 17 hereof. Any election to purchase the Offered Assets or
the Partnership Interests of the Offeror, as the case may be, shall be made upon
the Offer Terms, and shall be made in writing and accompanied by a good faith
deposit to be held in escrow with an escrow agent selected by the Offeror in an
amount equal to two percent (2%) of the price to be paid by the Offeree pursuant
to this Section 11(b). The deposit will not be treated as a capital contribution
in any respect. Notwithstanding the foregoing, if the Offeree has made Partner
Default Loans to the Partnership which are then outstanding and/or Capital
Contributions which have not been repaid pursuant to Article 9, and the
outstanding aggregate amount of such Partner Default Loans (together with
accrued interest) and Capital Contributions (including the unpaid return
thereon) which have not been repaid, if any, is greater than the deposits
described above, then in lieu of making such deposits, such Offeree may issue a
promissory note to the Offeror in the amount of the deposits, which promissory
note would be secured by their right to receive payments from the Partnership
with respect to such loans and/or distributions from the Partnership with
respect to such Capital Contributions. If the Offeree defaults in its obligation
to purchase the Offered Assets or the Partnership Interests of the Offeror, as
applicable, then the deposit made by the Offeree will be distributed to the
Offeror as a special distribution. If the Offeree (i) does not so elect to
purchase the Offered Assets or such Partnership Interests of the Offeror, as
applicable, within the foregoing period or (ii) defaults in its obligation to
purchase the Offered Assets, or the Partnership Interests of the Offeror, as
applicable, Colony General Partner and KWI Limited Partner shall seek to cause
the Partnership to sell all or substantially all of the Partnership Assets
pursuant to Section 11(f) below.
(c) If the Offeree elects to purchase the Offered Assets or the Partnership
Interests of the Offeror, as applicable, and make the deposits as provided in
clause (b) above, the closing of the purchase of the Offered Assets or such
Partnership Interests, as applicable, shall take place on a date to be agreed
upon by the parties (the "Closing Date"), which Closing Date shall not be more
than the later of (i) one hundred twenty (120) days from the date of the Offer
Notice or (ii) thirty (30) days after the closing date set forth in the Offer
Terms.
(d) On the Closing Date, the Offeror and/or the Partnership shall execute
and deliver to the Offeree assignments of interest, bills of sale, instruments
of conveyance, and other instruments as the Offeree may reasonably require, to
give the Offeree good and clear title to all of the Offeror's right, title and
<PAGE>
interest in and to the Partnership, Partnership Interests and the Offered
Assets, as applicable (provided that the Partners shall only be obligated to
make representations and warranties relating to itself and its Partnership
Interest), and the Offeror hereby irrevocably constitutes and appoints the
Offeree its attorney-in-fact to execute, acknowledge and deliver such
instruments as may be necessary or appropriate to carry out and enforce the
provisions of this Article 11. On the Closing Date, the Offeree shall transfer
to the Offeror in immediately available funds the amount which the Offeror is
entitled to pursuant to clause (b) (which shall include all amounts necessary to
repay principal and interest in full for any loans made by the Offeror to the
Partnership).
(e) In the event the Colony Partners purchase all or substantially all of
the Partnership Assets or the Partnership Interests of the Offeror, as
applicable, then on the closing date of such purchase, some or all rights of the
KWI Partners and their Related Entities under any agreement with the Partnership
may be terminated at Colony General Partner's option at no cost or expense to
the Partnership or the other Partners (other than the payment of fees and
reimbursement of expenses which are theretofore earned or accrued but are not
yet paid or payable on such closing date in accordance with the terms of such
agreements). In the event the KWI Partners purchase all or substantially all of
the Partnership Assets or the Partnership Interests of the Offeror, as
applicable, then on the closing date of such purchase, some or all rights of the
Colony Partners and their Related Entities under any agreement with the
Partnership may be terminated at KWI Limited Partner's option at no cost or
expense to the Partnership or the other Partners (other than the payment of fees
and reimbursement of expenses which are theretofore earned or accrued but are
not yet paid or payable on such closing date in accordance with the terms of
such agreements).
(f) If the Colony Partners are the Offeree and they do not purchase the
Offered Assets or the Partnership Interests of the Offeror, as applicable,
within the period set forth in Section 11(b), Colony General Partner, on behalf
of and at the expense of the Partnership, shall engage the services of an
Investment Banking firm as Colony General Partner shall reasonably determine and
shall allow one or more purchasers to make an offer for the Partnership Assets
and, for a period of at least sixty (60) days following the listing of the
Partnership Assets for sale, Colony General Partner shall neither accept nor
reject any offers. Following the expiration of such sixty (60) day period, or
such longer period as Colony General Partner and KWI Limited Partner may
determine (but not to exceed one hundred eighty (180) days), Colony General
Partner and KWI Limited Partner shall evaluate any and all offers to purchase
the Partnership Assets and will mutually agree in good faith upon which offer(s)
to accept. In the event Colony General Partner and KWI Limited Partner are
unable to reach such an agreement in good faith, Colony General Partner may
select the offer(s) which in Colony General Partner's reasonable judgment shall
maximize the net cash proceeds to which the Partners may be entitled as compared
to the other offers.
(g) If the KWI Partners are the Offeree and they do not purchase the
Offered Assets or the Partnership Interests of the Offeror, as applicable, in
accordance with this Article 11, Colony General Partner may elect to seek to
cause the Partnership to sell all or substantially all of the Partnership Assets
to a third party pursuant to Section 11(a).
ARTICLE 12
[INTENTIONALLY OMITTED]
ARTICLE 13
ACCOUNTS AND RECORDS; ACCOUNTANTS
Section 13.1. Fiscal Year
The taxable year of the Partnership for Federal income tax purposes shall
be the calendar year or such other year as may be selected by Colony General
Partner in accordance with the rules of the Code.
Section 13.2. Records
(a) Subject to Colony General Partner's receipt of all relevant information
from KWJ Management, Colony General Partner shall maintain, or cause to be
maintained, complete and accurate records of all transactions of the
Partnership. Colony General Partner shall provide KWI Limited Partner with
copies of such records and such other data, information and reports in such a
format as KWI Limited Partner may reasonably request.
(b) The primary books, records and accounts of the Partnership, together
with an executed copy of this Partnership Agreement and any amendments hereto
shall, at all times, be kept at the principal office of the Partnership and
shall be open for the inspection and examination (and making copies) by the
Partners or their authorized representatives during regular business hours.
Section 13.3. Accountants; Income Tax Returns
<PAGE>
The accountant for the Partnership (the "Accountant") shall be chosen by
Colony General Partner from among the six largest accounting firms in the United
States of America on the date hereof or a successor to any thereof. The initial
Accountant shall be Ernst & Young. The Accountant shall annually audit the
Partnership's books and records and prepare all applicable tax returns,
including any schedules or additional information reasonably required by any
Partner in order to file its tax returns, all of the foregoing at the expense of
the Partnership. Subject to Colony General Partner's receipt of all relevant
information from KWJ Management, Colony General Partner shall provide the
Accountant such information as is reasonably necessary to permit the Accountant
to prepare such tax returns within seventy-five (75) days of the end of each
Fiscal Year, and Colony General Partner shall timely file such tax returns,
subject to its right to so file an extension. Notwithstanding the foregoing, if
the KWI Partners do not agree with any item in the tax return at the time that
the tax return is initially required to be filed, Colony General Partner shall
file one extension to permit Colony General Partner and the KWI Partners to
resolve such matter, and if Colony General Partner and the KWI Partners do not
agree on such matter reasonably prior to the expiration of such extension
period, after good faith efforts to so agree, then such matters shall be
resolved by an accounting firm mutually agreeable to each of Colony General
Partner and the KWI Partners (the "Arbitrator"). The Arbitrator shall be one of
the six largest accounting firms in the United States of America on the date
hereof or a successor to any thereof and shall not be the Accountant or the
accounting firm regularly retained by either Colony General Partner or the KWI
Partners. The reasonable costs and expenses of the Arbitrator shall be borne by
the Partnership in accordance with the terms of this Agreement.
ARTICLE 14
STATEMENTS, INFORMATION AND TAX MATTERS
Section 14.1. Reporting
(a) Subject to Colony General Partner's receipt of all relevant information
from KWJ Management, Colony General Partner shall deliver to each Partner within
seventy-five (75) days after the end of each Fiscal Year a statement with
respect to the Partnership prepared or reported on by the Accountant, which
statement shall include, as of the end of and for such Fiscal Year, the
following:
(i) financial statements prepared in accordance with generally accepted
accounting principles, together with the Accountant's audit report thereon;
(ii) an analysis of the Capital Contributions and the distributions and
payments under Articles 5, 9 and 17; and
(iii) the then current balances in the Capital Accounts of each
Partner.
(b) Subject to Colony General Partner's receipt of all relevant information
from KWJ Management, Colony General Partner shall deliver to each Partner within
sixty (60) days after the end of each Fiscal Year, unaudited financial
statements for the Partnership prepared in accordance with generally accepted
accounting principles.
(c) Subject to Colony General Partner's receipt of all relevant information
from KWJ Management, Colony General Partner shall deliver to the Partners within
ninety (90) days from the end of each Fiscal Year any information relating to
the Partnership necessary for the preparation by the Partners of their Federal
and state and local income or other tax returns and shall deliver to the
Partners any other information (i) promptly upon the request therefor by KWI
Limited Partner or (ii) required to be furnished to the Partners by law within
the time period for furnishing such information.
(d) The cost of all such reporting shall be paid by the Partnership as a
Partnership expense. Any Partner may, at any time, and at its sole expense,
cause an audit of the Partnership books to be made by a certified public
accountant of such Partner's own selection.
Section 14.2. Tax Matters
(a) Colony General Partner shall be the Tax Matters Partner, as that term
is defined in Code Section 6321(a)(7), but each Partner shall otherwise be
considered to have retained such rights (and obligations, if any) as are
provided for under the Code with respect to any examination, proposed adjustment
or proceeding relating to Partnership items. The Tax Matters Partner will give
prompt notice to all Partners of any audit or other proceeding involving income
tax liability of the Partnership of which the Tax Matters Partner is notified or
becomes aware and shall not settle or otherwise compromise any such audit or
other proceeding without the written consent of the KWI Partners.
(b) The Tax Matters Partner shall, in its sole and absolute discretion,
determine whether to make any available election pursuant to the Code, provided
that the Tax Matters Partner shall consult with the other General Partner prior
to making any such election and the Tax Matters Partner shall make an election
under Section 754 of the Code upon the request of any Partner that is a
<PAGE>
transferee of an Interest in the Partnership.
(c) The Partnership will reimburse the Tax Matters Partner for all expenses
reasonably incurred by it in connection with any administrative or judicial
proceeding with respect to the tax liabilities of the Partners.
ARTICLE 15
REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE PARTNERS
Section 15.1. Representations, Warranties and Covenants by Each Partner
Each Partner represents and warrants to, and covenants and agrees with, the
other Partners as follows:
(a) Its Partnership Interest has been acquired under this Agreement
for its own account, for investment, and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention
of distributing or selling such Partnership Interest, and that it will not
make or offer to make a transfer of its Partnership Interest in violation
of the Securities Act of 1933, as amended, or any other applicable United
States, Japanese, or other Federal or state law or the laws of any
jurisdiction in which the Investment Entity, or any Person organized by any
Partner for the purpose of investing in any Investment, is organized.
(b) (i) It is not acquiring its Partnership Interest with funds of a
pension plan subject to ERISA, and (ii) its acquisition of its Partnership
Interest pursuant to this Agreement does not result in or create a
prohibited transaction under, or result in the Partnership becoming a
"party in interest" as defined in Section 3(14) of ERISA, or otherwise
result in any other holder of a Partnership Interest or the Partnership
Assets being subject to such statute.
(c) (i) It is a corporation, partnership, limited liability company,
trustee or individual, as indicated on the first pages of this Agreement,
duly organized, validly existing and in good standing under the laws of the
state of its organization, as also indicated on the first page of this
Agreement, (ii) the execution, delivery, and performance of this Agreement
and the consummation of the transactions provided for in this Agreement
have been duly authorized and upon its execution and delivery will
constitute its valid and binding agreement, enforceable in accordance with
its terms and (iii) its execution and delivery of this Agreement and its
performance hereunder will not conflict with, or breach or result in a
default under, any laws or any agreement to which it is bound.
(d) No consent, approval or other authorization, except for such as
have been obtained or waived on or prior to the date hereof, is required in
connection with the execution and delivery by such Partner of this
Agreement or the performance by such Partner of its obligations hereunder.
(e) It will be liable to the General Partner and the Limited Partners
in the event that (i) it ever claims or interposes a defense, or causes the
Partnership to claim or interpose a defense, that the General Partner or
any of the Limited Partners, directly or indirectly, or in whole or in
part, is not a Partner of, or does not possess a Partnership Interest in,
the Partnership, but is a creditor of the Partnership, or (ii) it fails, or
causes the Partnership to fail, to fully and completely cooperate with (or
interposes a defense or seeks to avail itself of any injunction, stay or
moratorium against) the General Partner or any of the Limited Partners in
connection with the exercise of any remedies pursuant to this Agreement.
Section 15.2. Additional Representations, Warranties and Covenants by the
KWI Partners
KWI Limited Partner hereby further represents and warrants to the Colony
Partners that the management and other personnel of KWJ Management have the
necessary skill and qualifications to perform all underwriting, acquisition,
asset management, servicing and related functions in respect of the Investments
in performance of their obligations and responsibilities under and pursuant to
this Agreement and the Management Agreements.
ARTICLE 16
BANK ACCOUNTS
The Capital Contributions of the Partners and other funds of the
Partnership shall be deposited in a segregated bank account or accounts in the
name of the Partnership, which bank account or accounts shall be controlled
solely by Colony General Partner. All withdrawals from any such accounts may be
made only upon the signature of Colony General Partner by its executive officers
or such other persons designated by Colony General Partner in its sole
discretion. KWI Limited Partner shall cause KWJ Management to provide Colony
General Partner with all support documentation required by Colony General
Partner for all draws to be made on such account(s) for a particular Investment,
which draws shall be subject to the prior approval of Colony General Partner.
Approval of such draws shall be deemed approval of any disbursements from such
account made in accordance with such draw.
<PAGE>
ARTICLE 17
DISSOLUTION
Section 17.1. Events of Dissolution
The Partnership shall be dissolved upon the occurrence of any of the
following events:
(a) the expiration of the term of the Partnership as provided in
Article 3;
(b) a sale or other disposition of all or substantially all of the
Partnership Assets and the collection of all proceeds resulting from such
sale or other disposition;
(c) (i) the filing by the Partnership of a voluntary petition for
relief under Title 11 of the United States Code or any successor or
amendatory provisions thereto, or (ii) ninety (90) days after the filing of
an involuntary petition against the Partnership for relief under Title 11
of the United States Code or any successor or amendatory provisions
thereto, or (iii) ninety (90) days after the appointment of a trustee or
receiver of the Partnership or the assignment of the Partnership or any
material part of the Partnership's Assets for the benefit of creditors by,
of, or with respect to the Partnership, unless any such event referred to
in this subsection (c)(ii) or (c)(iii) is remedied within ninety (90) days
of its occurrence or unless within ninety (90) days after the occurrence of
an event referred to in subsection (c)(i) or the expiration of the ninety
(90)-day period referred to in subsection (c)(ii) or (c)(iii) Colony
General Partner determines to continue the Partnership; or
(d) the determination of Colony General Partner to dissolve the
Partnership.
Section 17.2. Liquidation of Partnership
(a) In the event of the dissolution of the Partnership, the affairs of the
Partnership shall be wound up and there shall be an orderly liquidation of the
Partnership Assets, unless the Colony General Partner determines that an
immediate sale of all or part of the Partnership Assets would cause undue loss
to the Partners, in which event (i) the liquidation may be deferred for a
reasonable time, except as to those Assets necessary to satisfy the Partnership
debts, and the Partners shall be deemed to have elected to reconstitute the
Partnership for such period, or (ii) all or part of the Partnership Assets may
be distributed in kind, pro rata to each of the Partners, provided that each
Partnership Asset which is distributed in kind shall be distributed subject to
the provisions of and in the same manner as cash under the applicable provisions
of this Section 17.2. If Partnership Assets are distributed in kind, the Capital
Accounts of the Partners shall be adjusted to reflect the gain or loss that
would have been recognized by the Partnership if those Assets had been sold for
an amount equal to their fair market value at the time of distribution.
(b) Upon any dissolution of the Partnership, the Accountants shall prepare
a statement setting forth the Assets and liabilities of the Partnership as of
the date of dissolution, and such statement shall be furnished to all Partners.
(c) In the event of liquidation of the Partnership Assets, they shall be
liquidated as promptly as possible, and Colony General Partner shall designate
one or more of the Partners to supervise such liquidation ("Liquidating
Partner"), which shall be conducted in an orderly and business-like manner so as
not to involve undue sacrifice, as the Liquidating Partner shall determine in
its reasonable discretion. The proceeds thereof shall be applied and distributed
in the following order of priority:
(i) for the payment of the debts and liabilities of the Partnership (in
the order of priority as described in this Agreement) and any other debts
and liabilities owed to the Partners and their Related Entities and the
expenses of liquidation;
(ii) to the setting up of any reserves which Colony General Partner
reasonably may deem necessary for any contingent or unforeseen liabilities
or obligations of the Partnership arising out of or in connection with the
Partnership. Said reserves may be paid over by the Liquidating Partner to
an attorney-at-law, as escrowee, to be held by him for the purpose of
disbursing such reserves in payment of any of the aforementioned
contingencies and, at the expiration of such period as the Liquidating
Partner shall deem advisable, to distribute the balance of such reserves to
the Partners in proportion to the positive balances of their respective
Capital Accounts; and
(iii) thereafter, to the Partners and their successors in proportion to
the positive balances of their respective Capital Accounts (after giving
effect to all contributions, distributions and allocations for all
periods).
(d) No dissolution of the Partnership shall release or relieve any of the
Partners of their obligations under this Agreement.
<PAGE>
ARTICLE 18
POWER OF ATTORNEY; RESTRICTIONS
Each Partner hereby irrevocably constitutes and appoints Colony General
Partner (or such person as Colony General Partner shall designate to act in the
capacity as each Partner's trustee) as its true and lawful attorney to make,
execute, acknowledge and file with respect to, for and on behalf of the
Partnership:
(a) Such Certificates of Limited Partnership, Applications for
Authority and, where applicable, Certificates of Cancellation or
Certificates of Dissolution as may be required by the laws of the State of
Delaware or any other jurisdiction where the same are required to be filed.
(b) Such amendments of the certificates referred to in subsection (a)
as may be required by law or otherwise pursuant to the provisions of this
Agreement.
(c) Such amendments to this Agreement and such other instruments as
may be necessary or desirable pursuant to Section 10.6 hereof.
The grant of this power of attorney is irrevocable and is coupled with an
interest by reason of the fact, among others, that Colony General Partner is
relying and will be relying on this power as contemplated by these provisions,
and will not be affected by the subsequent death, legal incompetency,
disability, incapacity, bankruptcy or withdrawal of any Partner.
ARTICLE 19
CERTAIN ERISA MATTERS
Section 19.1. Operating Company
Unless otherwise consented to by Colony Limited Partner, each of Colony
General Partner and the KWI Partners shall use its best efforts to conduct the
affairs of the Partnership in compliance with the exception for "real estate
operating companies" under, or otherwise with the exception for other "operating
companies" under the first sentence of paragraph (c) of, the regulations
contained in 29 CFR Section 2510.3-101 or successor regulations (the "Plan
Assets Regulations"). The Colony Partners agree to notify the KWI Partners
promptly in the event that the Colony Partners conclude that, for purposes of
the Plan Assets Regulations, any of the assets of the Colony Partners constitute
or in the immediately foreseeable future will constitute the assets of any
"plan" as defined in and subject to ERISA or Section 4975 of the Code. In the
event of such notice, and if at or after the time of such notice the assets of
the Partnership or the affected Investment Entity are likely to be deemed (then
or in the immediately foreseeable future) to be the assets of such a plan, KWI
Limited Partner may, in its reasonable discretion, elect to cause KWJ Management
to terminate the affected Management Agreement(s), in which case KWJ Management
shall be relieved of its management obligations under Article 7 in respect of
the affected Investment(s).
Section 19.2. ERISA Opinion
If Colony Limited Partner provides to the Partnership, Colony General
Partner and the KWI Partners an opinion of counsel to the effect that there is a
material likelihood that the Partnership will cease to be a "real estate
operating company" under, or otherwise be an "operating company" under the first
sentence of paragraph (c) of, the Plan Assets Regulations, then each of Colony
General Partner and the KWI Partners shall take such actions as may be necessary
to cause the Partnership not to be adversely affected with respect to its status
as a "real estate operating company" or otherwise as such an "operating
company."
ARTICLE 20
MISCELLANEOUS
Section 20.1. Recipient of Distributions
All distributions of cash or property to be made to the Partners pursuant
to the provisions of this Agreement shall be made directly to the parties
entitled thereto at the addresses set forth on the first page of this Agreement,
or at such other address as shall have been set forth in a notice sent pursuant
the provisions of Section 20.2.
Section 20.2. Notices, Etc.
Any offer, acceptance, election, approval, consent, request, waiver, notice
or other document (collectively, "Notice") required or permitted to be given
pursuant to any provisions of this Agreement, shall be deemed duly given only
when in writing, signed by or on behalf of the person giving the same, and
either (i) personally delivered (with receipt acknowledged), (ii) sent by
telefax (with appropriate confirmation of receipt), (iii) sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) sent by
<PAGE>
overnight courier, addressed to the person or persons to whom such Notice is to
be given, in each case at the address, telephone number and/or facsimile number
set forth for such party in annexed Schedule 3, or at such other address as
shall have been set forth in a Notice sent pursuant to the provisions of this
Article. Notwithstanding any provision herein to the contrary, any routine
reports required by this Agreement to be submitted to the Partners at specified
times may be sent by first-class mail. All Notices shall be deemed given
(i) when received or receipt is refused, (ii) if delivery is by facsimile, upon
confirmation of transmission, or (iii) upon failure of delivery because notice
of such Partner's change of address has not been given in accordance with the
terms of this Section 20.2. Any Partner may change its address and/or telephone
number for the receipt of Notices at any time by giving Notice thereof to all
other Partners; but no such Notice of change of address and telephone number
shall be effective until received by the Partners, and any Partner which is
prevented from giving any Notice pursuant hereto to any Partner on account of
such Partner changing its address and/or telephone number without having given
Notice thereof to all the other Partners shall nevertheless be deemed to have
given such Notice in accordance with this Section 20.2 to such Partner, provided
such Notice is sent to the most recent address of such Partner of which Notice
has been given pursuant hereto. A copy of any Notice shall be delivered to the
respective attorneys for the parties as indicated in Schedule 3 hereto, as
amended from time to time.
Section 20.3. Binding Effect
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective personal representatives,
heirs, successors and permitted assigns.
Section 20.4. Modification, Waiver or Termination
No amendment, modification, waiver or termination of this Agreement, or any
part hereof, shall be effective unless made in writing and signed by each party
hereto, and no failure to pursue or elect any remedy or waiver with respect to
any default under or breach of any provision of this Agreement shall be deemed
to be a waiver of any other subsequent similar or different default, breach or
provision, or of any election of remedies available in connection therewith.
Receipt by any party of any money or other consideration due under this
Agreement shall not constitute a waiver of any provision of this Agreement.
Section 20.5. Counterparts
This Agreement may be executed in any number of counterparts, all of which
shall for all purposes constitute one Agreement binding on all of the parties
hereto, notwithstanding that all of the other parties did not execute the same
counterpart.
Section 20.6. Applicable Laws; Venue
(a) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware without reference to
any conflict of law or choice of law principles of such State that might apply
the law of another jurisdiction. The Partners desire that such internal laws of
the State of Delaware be applied to all matters regarding the relationship among
the Partners and the interpretation of this Agreement, regardless of the
location in which there is sitting a court, arbitrator or other tribunal before
which a dispute is pending.
(b) Each of the Partners for itself and each of its Related Entities hereby
irrevocably agrees that the courts of the State of California and the Federal
Courts for the Central District in the State of California shall have exclusive
jurisdiction in connection with any actions or proceedings arising between the
Partners and/or their Related Entities under, relating to, arising out of or in
connection with this Agreement. Each of the Partners for itself and each of its
Related Entities hereby irrevocably consents and submits to the jurisdiction of
said courts for any such action or proceeding. Each of the Partners for itself
and each of its Related Entities hereby waives the defense of an inconvenient
forum to the maintenance of any such action or proceeding in said courts. In the
event of any action or proceeding arising between the Partners and/or their
Related Entities under, relating to, arising out of or in connection with this
Agreement, the non-prevailing party or parties in such action or proceeding
shall be responsible for any and all legal fees, expenses and court costs
incurred by the prevailing party or parties in connection with such action or
proceeding.
Section 20.7. Captions; Exhibits
Article, section and other titles or captions contained in this Agreement
are inserted only as a matter of convenience and for reference, and shall not be
construed in any way to define, limit, extend or describe the scope of this
Agreement or the intention of the provisions thereof. All schedules and exhibits
annexed hereto are herewith expressly made a part of this Agreement, as fully as
though completely set forth herein.
Section 20.8. Prohibition Re Partition
The Partners each hereby waive and relinquish any and all rights they may
have to cause any Partnership Assets now existing or hereafter acquired to be
partitioned, it being the intention of each of the Partners to prohibit any
<PAGE>
Partner from bringing a suit for partition against the other Partners so long as
the Partnership Assets are held by the Partnership. The effect of this Section
20.8 shall be limited to a period of time measured by the life of the person
last surviving all of the persons in the "Measuring Group" (hereinafter
defined), plus twenty-one (21) years. The "Measuring Group" shall mean, for
purposes of this Section 20.8 the partners, and all of the presently living
lawful issue of the partners, as of the date hereof, of the law firm of Rogers &
Wells LLP.
Section 20.9. Certain IRS Withholding Requirements
In the event any Partner is a Foreign Person, the Partnership and any such
Partner shall comply with the terms and provisions of all Code Sections relating
to the status of the Partner as a Foreign Person and shall execute and deliver
to the IRS such information, returns, and statements as may be required pursuant
thereto. In the event withholding is required pursuant to any Section of the
Code on account of any Partner resulting from or in connection with allocations
of Profits and Losses, distributions of cash flow or the disposition of the
Investments or any portion thereof or any other Partnership Assets or pursuant
to Code Section 1446 with respect to any Partner's share of Partnership income,
(a) any and all amounts so withheld and paid to the IRS shall be treated as a
cash distribution to the Partner from whom such amounts were withheld, and (b)
if the amount required to be withheld in respect of such Partner exceeds the
amount of such Partner's share of, in the case of Code Section 1445, all amounts
distributed from such disposition of the Investments or any portion thereof, or,
in the case of Code Section 1446, any Cash Available for Distribution that is
distributed to such Partner with respect to the year in question, such Partner
shall promptly fund the difference between the amount of such Partner's
distributive share pursuant to Article 9 and the withholding requirement (the
"Withholding Funds") to the Partnership or in the event the Partnership shall
fund the Withholding Funds, such Partner shall promptly reimburse the
Partnership therefor.
Section 20.10. Limitation on Rights of Others
No person or entity other than a Partner is, nor is it intended that any
such other person or entity be treated as, a direct, indirect, intended or
incidental third party beneficiary of this Agreement for any purpose whatsoever,
nor shall any other person or entity have any legal or equitable right, remedy
or claim under or in respect of this Agreement.
Section 20.11. Gender; Number
As used in this Agreement, the masculine, feminine or neuter gender, and
the singular or plural number, shall be deemed to be or include the other
genders or number, as the case may be, whenever the context so indicates or
requires.
Section 20.12. Partnership Votes
Any reference in this Agreement to a decision to be made by the Partners
shall be made by the Partners entitled, pursuant to this Agreement at the time
of such decision, to participate therein in accordance with the provisions
hereof.
Section 20.13. No Broker
KWI Limited Partner represents and warrants that it has not dealt with any
broker in connection with this Agreement or the transactions contemplated hereby
in such a manner as would result in a payment being owed to any person as a fee
or commission in connection therewith. KWI Limited Partner agrees to indemnify,
defend and hold harmless each Colony Partner and its Related Entities from all
claims or damages as a result of this representation and warranty being false.
Section 20.14. Services to Partners
Each Partner hereby acknowledges and recognizes that the Partnership has
retained, and may in the future retain, the services of various professionals,
including, without limitation, general and special legal counsel, accountants,
architects and engineers, for the purposes of representing and providing
services to the Partnership in the investigation, analysis, acquisition,
renovation, development, renting, marketing and operation of the Partnership
Assets or otherwise. Each Partner hereby acknowledges that such persons or
entities may have in the past represented and performed and currently and/or may
in the future represent or perform services for certain of the Partners or their
Related Entities. Accordingly, each Partner and the Partnership consents to the
performance by such persons or entities of services for the Partnership and
waives any right to claim a conflict of interest based on such past, present or
future representation or services to any of the Partners or their Related
Entities.
Section 20.15. Costs
Except as otherwise provided herein, each Partner shall bear its own costs
and expenses relating to this Agreement. Notwithstanding the foregoing, each
Partner's reasonable costs and expenses for negotiating and entering into this
Agreement and in connection with (i) the formation of the Partnership and (ii)
the preparation, review, negotiation and entering into of the Management
Agreements, the Pooling Agreement, any Investment Entity Agreements and any
<PAGE>
pledge agreements, including legal fees and expenses and due diligence expenses
shall be deemed to be Capital Contributions of the Partners and the Partners
shall be reimbursed for such costs and expenses pro rata on an
Investment-by-Investment basis in the form of distributions made to the Partners
pursuant to Article 9; provided, however, that any such costs and expenses which
are incurred prior to the Partnership acquiring its first Investment shall be
allocated to the first Investment.
Section 20.16. Partnership's Right of Withholding
Colony General Partner is hereby authorized on behalf of the Partnership at
any time and from time to time, to the fullest extent permitted by law, to
withhold and set aside until resolved any and all amounts owing from or payable
by the Partnership to any Partner or its Related Entities against any and all
obligations of such Partner or its Related Entities to the Partnership which
have matured, whether now existing or hereafter arising, irrespective of whether
the Partnership or its Related Entities shall have made demand on such Partner
for payment of such outstanding obligation.
Section 20.17. No KWI Partner or KWJ Management Employee Solicitation
During the term of this Partnership and for a period of one (1) year
thereafter, no Colony Partner, and no Related Entity of any Colony Partner, may
directly or indirectly through another Person, without the express consent of
KWI Limited Partner and KWJ Management, (i) solicit, encourage or entice any
director, officer or employee (a "KWI Employee") of any KWI Partner or KWJ
Management, or any Related Entity of any KWI Partner or KWJ Management (the "KWI
Employer") to leave the employ of the KWI Employer, (ii) offer any position of
employment to any KWI Employee or (iii) have any discussions with any KWI
Employee in furtherance of any of the foregoing.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Limited Partnership of Colony-KW Partners, L.P. as of the day and year first
above written.
GENERAL PARTNER
COLONY-KW GENPAR LTD.
By: Colony Investors III, L.P.,
its beneficial owner
By: Colony Capital III, L.P.,
its general partner
By: ColonyGP III, Inc.,
its general partner
By: ______________________
Name:
Title:
LIMITED PARTNERS:
COLONY-KW, L.P. EBISU INVESTORS I, LLC
By: Colony-KW Genpar Ltd.,
its general partner
By: Colony Investors By:_____________________________
III, L.P., its Name:
beneficial owner Title:
By: Colony Capital III,
L.P., its general partner
By: ColonyGP III, Inc.,
its general partner
By: _______________________
Name:
Title:
<PAGE>
KW JAPAN INVESTMENTS, INC.
By:__________________________________
Name:
Title:
<PAGE>
SCHEDULE 1
THE PARTNERS' RESIDUAL PERCENTAGES
[*]
[*] = redacted text
<PAGE>
SCHEDULE 2
CONTRIBUTION PERCENTAGES
[*]
[*] = redacted text
<PAGE>
SCHEDULE 3
NAMES AND ADDRESSES FOR NOTICES
All notices and other communications required or permitted hereunder shall be
deemed duly given only when in writing, signed by or on behalf of the person
giving the same, and either (1) personally delivered (with receipt
acknowledged), (ii) sent by telefax (with appropriate automatic confirmation of
receipt), (iii) sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) sent by overnight next business day courier, to the
following addresses:
Any notice to the KWI Partners shall be sent to:
Kennedy Wilson International
1270 Avenue of the Americas
Suite 1818
New York, New York 10020
Telefax: (212) 218-2885
Attention: Mr. Richard Mandel
With a copy to:
Kennedy-Wilson Japan
Kojimachi M Building 5F
3-12-12 Kojimachi
Chiyoda-ku, Tokyo 102, Japan
Telefax: (03) 3262, 8857
Attention: Mr. Ryosuke Homma
Any notice to the Colony Partners shall be sent to:
Colony Capital
1999 Avenue of the Stars
Los Angeles, California 90067
Telefax: (310) 282-8813
Attention: John C. Brady
Mark M. Hedstrom
With a copies to:
Colony Capital, Inc.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
Telefax: (817) 871-4088
Attention: Richard A. Ekleberry, Esq.
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Telefax: (212) 878-8375
Attention: Craig S. Medwick, Esq.
or such other address as any party hereto shall have specified by notice in
writing to the other parties hereto. All such notices and communications shall
be deemed given, (i) when received or receipt refused, (ii) if given by telefax,
when transmitted to the telefax number specified above and confirmation of
transmission is received, or (iii) upon failure of delivery because notice of
such Partner's change of address has not been given in accordance with the terms
of Section 20.2 of the Agreement.
<PAGE>
EXHIBIT A
FORM OF MANAGEMENT AGREEMENT
<PAGE>
EXHIBIT B
FORM OF MASTER POOLING AGREEMENT
<PAGE>
EXHIBIT C-1
[*]
[*] = redacted text
<PAGE>
EXHIBIT C-2
[*]
[*] = redacted text
<PAGE>
TABLE OF CONTENTS
Article and Section Number Page
RECITALS 2
ARTICLE 1.....................................................................
ARTICLE 2.....................................................................
2.1. Name and Principal Office.......................................
2.2. Purpose.........................................................
2.3. Statutory Compliance............................................
ARTICLE 3.....................................................................
ARTICLE 4.....................................................................
4.1. General Partner.................................................
4.2. Limited Partners................................................
4.3. Other Business Ventures of the Partners.........................
ARTICLE 5.....................................................................
5.1. Capital Contributions of the Partners...........................
5.2. Investment Contributions........................................
5.3. Default Contributions; Adjustments..............................
5.4. Capital Accounts................................................
5.5. Negative Capital Accounts.......................................
5.6. Return of Capital; No Interest..................................
5.7. Residual Interests..............................................
5.8. Management Fees and Reimbursements;.............................
ARTICLE 6.....................................................................
ARTICLE 7.....................................................................
7.1. Power and Authority of the General Partner......................
7.2. Management of the Partnership...................................
7.3. Investment Entities.............................................
7.4. Operating Plan and Partnership Budget...........................
7.5. Services of Related Entities of the KWI.........................
7.6. Exclusivity; Alternative Investments............................
7.7. Related Entities................................................
7.8. Compensation to the Partners....................................
7.9. Exculpation and Indemnification.................................
ARTICLE 8.....................................................................
8.1. Profits and Losses..............................................
8.2. Mandatory Allocations...........................................
8.3. Other Allocation Rules..........................................
8.4. Tax Allocations.................................................
ARTICLE 9.....................................................................
9.1. Distributions from Cash Flow....................................
9.2. Partner Default Loans; Unreturned...............................
9.3. Pooled Investments..............................................
9.4. Partners' Tax Liability.........................................
ARTICLE 10....................................................................
10.1. Prohibited Transfers...........................................
10.2. Permitted Transfers by All Partners............................
10.3. Effective Date of Transfers....................................
10.4. Conditions Applicable to Transfers.............................
10.5. Transfers Void.................................................
10.6. Sale Approved by the General Partners..........................
10.7. Pledge of Partnership Interests................................
ARTICLE 11....................................................................
ARTICLE 12....................................................................
ARTICLE 13....................................................................
13.1. Fiscal Year....................................................
13.2. Records........................................................
13.3. Accountants; Income Tax Returns................................
ARTICLE 14....................................................................
14.1. Reporting......................................................
14.2. Tax Matters....................................................
<PAGE>
ARTICLE 15....................................................................
15.1. Representations, Warranties and................................
15.2. Additional Representations, Warranties and.....................
ARTICLE 16....................................................................
ARTICLE 17....................................................................
17.1. Events of Dissolution..........................................
17.2. Liquidation of Partnership.....................................
ARTICLE 18....................................................................
ARTICLE 19....................................................................
19.1. Operating Company..............................................
19.2. ERISA Opinion..................................................
ARTICLE 20....................................................................
20.1. Recipient of Distributions.....................................
20.2. Notices, Etc...................................................
20.3. Binding Effect.................................................
20.4. Modification, Waiver or Termination............................
20.5. Counterparts...................................................
20.6. Applicable Laws; Venue.........................................
20.7. Captions; Exhibits.............................................
20.8. Prohibition Re Partition.......................................
20.9. Certain IRS Withholding Requirements...........................
20.10. Limitation on Rights of Others................................
20.11. Gender; Number................................................
20.12. Partnership Votes.............................................
20.13. No Broker.....................................................
20.14. Services to Partners..........................................
20.15. Costs.........................................................
20.16. Partnership's Right of Withholding............................
20.17. No KWI Partner or KWJ Management Employee Solicitation........
Exhibits
A. Form of Management Agreement
B. Form of Master Pooling Agreement
C-1. Initial Operating Plan
C-2. Initial Partnership Budget
Schedules
1. The Partners' Residual Percentages
2. Contribution Percentages
3. Names and Addresses for Notices
<PAGE>
EX-21
KENNEDY-WILSON, INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Name State or Other
Jurisdiction of
Incorporation
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Carriage Villas Group, Inc. CA
Dealco One, Inc. CA
Dealco Two, Inc. CA
KW Management Svs. Inc. CA
Edinger Business Centre Group, Inc. CA
Kuhio Group, Inc. CA
KW Properties CA
KW Capital Corporation CA
Kennedy-Wilson International CA
KW Hilltop, Inc. CA
KW Properties I CA
KWP Financial I CA
KWP Financial II CA
KWP Financial III CA
Monarch Investors, Inc. CA
Mutual Capital Mortgage Company CA
- 1 -
<PAGE>
Plaza Centre Group, Inc. CA
Prestonwood Group, Inc. CA
Rancho Del Valle Properties Group Inc. CA
Southwood Townhomes Group, Inc. CA
Stonegate Group, Inc. CA
VDE Corona Group, Inc. CA
Vista Waikoloa Group, Inc. CA
Westborough Court Group, Inc. CA
Wilshire & 7th Properties, Inc. CA
KWP Financial IV CA
KW Reno Equity, Inc. CA
KW Maple Partners, Inc. CA
KW-LP Investments, Inc. CA
Kona Surf Group, Inc. CA
Kona Surf Investors, LLC CA
KW Upland Equities, Inc. CA
5900 Sepulveda Property Group, Inc. CA
KW Portfolio Group I, Inc. DE
KW Portfolio Group II, Inc. DE
<PAGE>
Kennedy-Wilson Portfolio Fund I, LLC DE
Kennedy-Wilson Portfolio Fund II, LLC DE
301 South Fair Oaks, LLC CA
Del Mar Pasadena, LLC CA
KW Del Mar Group, Inc. CA
K-W Laurel Wood, Inc. CA
Hilltop Colony, LLC CA
K-W Hilltop, Inc. CA
KW Paseo Heights, Inc. CA
KW Paseo Heights, LLC CA
KW Paseo Group, Inc. CA
KW 1055 Wilshire Group, Inc. CA
Vista Del Valle, LLC CA
Beverly Crescent LLC CA
KW Crescent Group, Inc. CA
KW Puako Group, Inc. CA
KW Puako, LLC CA
<PAGE>
K-W 6380 Wilshire Group, Inc. CA
KW Rochester, Inc. CA
KW Rochester Group, Inc. CA
KW Rochester 24, LLC CA
KW Westlake 15, Inc. CA
801 Flower Group, Inc. CA
SFR Properties, LLC CA
KWP Financial V CA
KW Japan Investments DE
KW Kau Group, Inc. CA
KW Kau LLC CA
KW Kohanaiki Group, Inc. CA
KW Kohanaiki LLC CA
KW Courtyard Homes, LLC CA
KW Courtyard Homes Group, Inc. CA
Kennedy-Wilson Properties, Ltd. IL
KW 7080 Hollywood Group CA
KW 6255 Sunset Group, Inc. CA
KW Santiago, Inc. CA
Woodcreek, Inc. CA
KW Valencia Group, Inc. CA
<PAGE>
Kennedy-Wilson Tech, Ltd. CA
e-KWIC, Inc. CA
K-W Black Oak, Inc. CA
K-W Mitchell, Inc. CA
K-W Euclid, Inc. CA
K-W Falcon Crest, Inc. CA
Downtown Properties NY LLC CA
Kennedy-Wilson International of New York, Inc. CA
Kennedy-Wilson Japan K.K. Japan
Kennedy-Wilson Hong Kong, Ltd. Hong Kong
K-W Vista Del Valle, LLC CA
Kennedy-Wilson RHA Holding Company, Inc.
Kennedy-Wilson Properties, Inc.
Kennedy-Wilson Ohio Management Inc. OH
Kennedy-Wilson Wisconsin Management Inc. WI
Kennedy-Wilson Properties of Oregon, Ltd. OR
Kennedy-Wilson Properties of Delaware, Ltd. DE
Kennedy-Wilson D.C. Properties Ltd. DC
Kennedy-Wilson Nevada Management Inc. NV
Kennedy-Wilson Minnesota Management Inc. MN
Kennedy-Wilson Properties of Louisiana Ltd. LA
Kennedy-Wilson Properties of Maryland MD
<PAGE>
Kennedy-Wilson Properties of Georgia Ltd. GA
Kennedy-Wilson Properties of Oklahoma Ltd. OK
Kennedy-Wilson Properties of Connecticut Ltd. CT
Kennedy-Wilson Properties of Arizona Ltd. AZ
Kennedy-Wilson Properties Houston Center Ltd. TX
Kennedy-Wilson Properties of Texas Ltd. TX
Kennedy-Wilson Properties of Colorado Ltd. CO
Kennedy-Wilson Properties of Rhode Island Ltd. RI
Kennedy-Wilson Florida Management Inc. FL
Kennedy-Wilson Kentucky Management Inc. KY
Kennedy-Wilson Properties of Indiana Ltd. IN
Kennedy-Wilson Properties of Michigan Ltd. MI
Kennedy-Wilson Properties of Missouri Ltd. MO
Kennedy-Wilson Properties of New York Ltd. NY
Kennedy-Wilson Properties of Massachusetts MA
Kennedy-Wilson Virginia Management Inc. VA
</TABLE>
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
No. 33-73324 of Kennedy-Wilson, Inc. on Form S-8 of our report dated February
26, 1999 appearing in the Annual Report on Form 10-K of Kennedy Wilson, Inc.
for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,838,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 6,674,000
<INVESTMENTS-HELD-FOR-SALE> 131,616,000
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 23,115,000
<ALLOWANCE> 0
<TOTAL-ASSETS> 204,816,000
<DEPOSITS> 0
<SHORT-TERM> 14,291,000
<LIABILITIES-OTHER> 18,101,000
<LONG-TERM> 140,644,000
0
0
<COMMON> 66,000
<OTHER-SE> 22,714,000
<TOTAL-LIABILITIES-AND-EQUITY> 204,816,000
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,283,000
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 8,396,000
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 36,314,000
<INCOME-PRETAX> 6,162,000
<INCOME-PRE-EXTRAORDINARY> 5,325,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,325,000
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.78
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
