-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ILypUVmJP6kVdQPLADwxO3SpRjuYdD5ov0jh7oVXpwZyy3gAb67QrGCb0WF1gryG hcKO7h2DYuDhJLUPWGDtXg== 0000096223-02-000006.txt : 20020415 0000096223-02-000006.hdr.sgml : 20020415 ACCESSION NUMBER: 0000096223-02-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMEFED CORP CENTRAL INDEX KEY: 0000833795 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330304982 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10153 FILM NUMBER: 02584243 BUSINESS ADDRESS: STREET 1: 1903 WRIGHT PLACE STREET 2: STE 220 CITY: CARLSBAD STATE: CA ZIP: 92008 BUSINESS PHONE: 7609188200 MAIL ADDRESS: STREET 1: 1903 WRIGHT PLACE STREET 2: STE 220 CITY: CARLSBAD STATE: CA ZIP: 92008 10-K 1 homefed10k.txt HOMEFED CORPORATION 2001 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 Or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number: 1-10153 HOMEFED CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 33-0304982 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 1903 Wright Place Suite 220 Carlsbad, California 92008 (760) 918-8200 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share (Title of Class) 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 is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [x]. Based on the average bid and asked prices of the Registrant's Common Stock as published by the OTC Bulletin Board Service as of March 12, 2002, the aggregate market value of the Registrant's Common Stock held by non-affiliates was approximately $34,371,000 on that date. As of March 12, 2002, there were 56,808,076 outstanding shares of the Registrant's Common Stock, par value $.01 per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive proxy statement, to be filed with the Commission for use in connection with the 2002 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. PART I Item 1. Business. - ------ -------- THE COMPANY Introduction HomeFed Corporation ("HomeFed" or the "Company") was incorporated in Delaware in 1988. The Company is engaged, directly and through subsidiaries, in the investment in and development of residential real estate projects in the State of California. The executive office of the Company is located at 1903 Wright Place, Suite 220, Carlsbad, California 92008. The Company's development projects consist of two master planned communities located in San Diego County, California: San Elijo Hills, and a portion of the larger Otay Ranch planning area. As development manager for these projects, the Company is responsible for the completion of a wide range of activities, including design engineering, grading raw land, constructing public infrastructure such as streets, utilities and public facilities, and finishing individual lots for home sites or other facilities. The Company will develop its communities in phases to allow itself the flexibility to sell finished lots to suit market conditions and to enable it to create stable and attractive neighborhoods. Consequently, at any particular time, the various phases of a project will be in different stages of land development and construction. For any master-planned community, plans must be prepared that provide for infrastructure, neighborhoods, commercial and industrial areas, educational and other institutional or public facilities, as well as open space. Once preliminary plans have been prepared, numerous governmental approvals, licenses, permits and agreements, referred to as "entitlements," must be obtained before development and construction may commence. These often involve a number of different governmental jurisdictions and agencies, challenges through litigation, considerable risk and expense, and substantial delays. Unless and until the requisite entitlements are received and substantial work has been commenced in reliance upon such entitlements, a developer generally does not have any "vested rights" to develop a project. In addition, as a precondition to receipt of building-related permits, master-planned communities such as San Elijo Hills typically are required in California to pay impact and capacity fees, or to otherwise satisfy mitigation requirements. Current Development Projects San Elijo Hills. In August 1998, the Company entered into a Development Management Agreement (the "Development Agreement") with San Elijo Hills Development Company, LLC, an indirect subsidiary of Leucadia National Corporation (together with its subsidiaries, "Leucadia") that owns certain real property located in the City of San Marcos, in San Diego County, California. Pursuant to the Development Agreement, this project, which is known as San Elijo Hills, will be a master-planned community of approximately 3,400 homes and apartments as well as commercial properties which are expected to be completed during the course of this decade. The Company is the development manager of this project with responsibility for the overall management of the project, including, among other things, preserving existing entitlements and obtaining any additional entitlements required for the project, arranging financing for the project, coordinating marketing and sales activity, and acting as the construction manager. The Development Agreement provides that the Company will participate in the net profits of the project through the payment of a success fee as described in this Report, and that the Company will receive fees for the field overhead, management and marketing services it is to provide, based on the revenues of the project. The Development Agreement is terminable by either Leucadia or the Company. For additional information, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Report. 2 During 2000, 528 residential sites in six neighborhoods were sold to builders for aggregate consideration, net of closing costs, of $71,100,000. These sales were the first residential lot sales at San Elijo Hills. During 2001, 691 residential sites in seven neighborhoods were sold to builders and a school site was sold to the local school district for aggregate consideration, net of closing costs, of $83,500,000. The Company earned and collected an aggregate of approximately $5,800,000 and $3,500,000 in fees on this project for the years ended December 31, 2001 and 2000. As of December 31, 2001, 2,179 residential dwelling units, consisting of 1,420 single family sites and 759 multi-family units remain to be sold in the project. In addition, the project has certain commercial lots and school sites which it expects to sell. The Company has the ability to earn fees on all such sales should they actually occur. In order for the Company to sell the next phase of the San Elijo Hills project, improvements to certain off site roads need to be under construction. The construction of certain of these improvements requires environmental permits prior to the commencement of construction. Although the Company has been informed that these permits will be obtained and will not materially delay the project, no assurance can be given that they will be received in a timely manner. As the development manager of the San Elijo Hills project, the Company has prepared an internal projection of the net cash flow which might be realized during the course of the projected remaining seven years of the development and sale of the project. The Company does not update this projection regularly, but reviews and updates the projection annually. The Company does not prepare a projection for its Otay Ranch project because that project is in the early stages of development. The projection is based upon many estimates and assumptions, including but not limited to, the timing of the sales of the various phases of the project, the prices at which lots can be sold, the cost of financing the project, construction and land improvement costs, the costs and availability of public utilities, infrastructure costs, marketing and selling expenses, property taxes and environmental and other regulatory compliance expenditures. In addition, the projection is based on the assumption that the Company is the development manager through the completion of the project. Based upon this cash flow projection, for the period from January 1, 2002 through the completion of the project, future sales from the project are projected to aggregate approximately $260,000,000, and aggregate net cash flow, after payment of all debt service and other liabilities, is projected to be approximately $99,000,000. Based on these assumptions, it is projected that the Company would receive fees for field overhead, management and marketing services in addition to those received through December 31, 2001, totaling approximately $24,000,000, and a success fee of approximately $69,000,000. The foregoing does not reflect expenses (which have not been projected or estimated) that the Company will be required to incur to fulfill its obligations under the Development Agreement. The Company believes that any success fee that it may receive will be its principal source of revenue earned through its participation in the San Elijo Hills project pursuant to the Development Agreement. All of the foregoing amounts are not discounted and are derived solely from the assumptions used in the projection, which are based on the Company's best estimates, as of November 2001, of the results of the San Elijo Hills project for the remaining seven years of the project's development. The projection was not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants or generally accepted accounting principles and has not been examined or compiled by the Company's independent auditors. The Company's independent auditors do not express an opinion or any other form of assurance with respect to the projection. Their report included in this Report relates to the Company's historical financial information. It does not extend to the projection and should not be read to do so. The projection is based on a number of assumptions and estimates that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Company, and upon assumptions with respect to future business decisions which are subject to change. Among the factors that could cause actual results to differ materially from those projected include, but are not limited to, changes in general economic and market conditions, changes in domestic laws and government regulations or requirements, changes in real estate pricing environments, demographic and economic changes in the United States generally 3 and California in particular, significant competition from other real estate developers and homebuilders, decreased consumer spending for housing, delays in construction schedules and cost overruns, increased material and labor costs, increased development costs, many of which the Company would not be able to control, the occurrence of significant natural disasters, the imposition of limitations on the Company's ability to develop the San Elijo Hills project resulting from developments in or new applications of environmental laws and regulations, increases in prevailing interest rates, including mortgage rates, increased interest costs for the project as a result of a delay in completion of the project requiring the financing to remain outstanding for a longer than projected period of time, and the availability of reliable energy sources and consumer confidence in the dependability of such energy sources. The degree of uncertainty inherent in projections increases significantly with each year that the projections cover. This projection covers a seven year period and accordingly, is even more uncertain than projections covering a shorter period of time. Therefore, the projection is only an estimate and actual results will vary from the projection. These variations may be, and, in fact, are likely to be material. Consequently, the inclusion of the foregoing projections in this Report should not be regarded as representations by the Company or any other person that the projected results will be achieved. Projections are necessarily speculative in nature and it is usually the case that one or more significant assumptions in projections do not materialize. Therefore, the projections should not be relied upon. Otay Ranch. On October 14, 1998, the Company and Leucadia formed Otay Land Company, LLC (the "Otay Land Company") to purchase 4,800 non-adjoining acres of land located within the larger 22,900 acre Otay Ranch master-planned community south of San Diego, California. Otay Land Company acquired this land for $19,500,000. The Company has contributed $11,825,000 as capital and Leucadia has contributed $10,000,000 as a preferred capital interest; the Company is development manager of this project. The City of Chula Vista and the County of San Diego have approved a general development plan for the larger planning area. Although there is no minimum time within which implementation of the general development plan must be completed, it is expected that full development of the larger planning area will take decades. This general development plan establishes land use goals, objectives and policies within the larger planning area. Any development within the larger Otay Ranch master-planned community must be consistent with this general development plan. The general development plan for the larger planning area contemplates home sites, a golf-oriented resort and residential community, commercial retail centers, a proposed university site and a network of infrastructure, including roads and highways, a rail transportation system, park systems and schools. Actual development of any of these will require that further entitlements and approvals be obtained. Because the larger planning area will be developed by several independent developers in addition to the Company, developers working in the Otay Ranch planning area will need to coordinate their activities to develop their respective projects. Of the 4,800 acres owned by Otay Land Company, 1,400 acres are developable and 3,400 acres are zoned as various qualities of non-developable "open space mitigation land." The Company entered into an option to sell 85 acres of developable land for a sales price of $4,100,000. The Company has received a non-refundable payment of $500,000 for this option, which will be applied against the purchase price upon closing. This option, which was scheduled to expire in December 2000, is extendable for up to eighteen months for a non-refundable monthly fee of $60,000. The monthly extension fees will not reduce the purchase price. As of March 12, 2002, the Company received $960,000 of such fees. The non-refundable option fee and the monthly extension fees were used to pay for operating expenses and development costs of Otay Land Company. The Company will either develop or sell the remaining developable land; until such determination is made, the Company will not know the nature or extent of the entitlements or approvals that may be required. Under the general development plan, approximately 1.18 acres of open space mitigation land from within the Otay Ranch project must be set aside and conveyed to a preserve for each 1.0 acre of land that is developed. Some owners 4 of development land have adequate or excess mitigation land, while other owners lack sufficient acreage of mitigation land to cover their inventory of development land. The Company currently has substantially more mitigation land than it would need to develop its property at this project. Based upon the general development plan conditions, the Company believes that a market for this land is likely to develop within the larger Otay Ranch development area as development progresses. The current schedule under the general development plan calls for conveyance of mitigation land from an identified initial area in which the Company holds a substantial amount of acreage. Some owners of development land do not have enough mitigation land in the area of initial conveyance to cover their land available for immediate development. Strict compliance with the conveyance schedule would create an immediate market for the Company's excess mitigation land within the area of initial conveyance. It is not clear whether the City of Chula Vista and the County of San Diego will strictly enforce the current conveyance schedule; there is also a petition pending to expand the area of initial conveyance to encompass more mitigation land from the Otay Ranch. Failure to strictly enforce the current conveyance schedule or an expansion of the initial conveyance area could have a material adverse impact on the current sale value of the Company's excess mitigation land. A market for the Company's excess open space mitigation land also exists among buyers of such land in the San Diego County region. It is unclear whether the County of San Diego would accept sales of Otay Ranch mitigation land to mitigate for development unrelated to Otay Ranch. Pending a resolution of this issue, the Company is not pursuing such sales. The Company continues to evaluate how to maximize the value of this investment while pursuing land sales and processing further entitlements on portions of the property. The Company cannot predict when revenues will be derived from this project. As indicated above, the ultimate development of projects of this type is subject to significant governmental and environmental approval. Recently, the United States Fish & Wildlife Service proposed designating a portion of the Otay Ranch project already planned primarily for non-development/habitat preservation as a critical habitat for an endangered species. In addition, the project is within the area identified by a draft United States Fish & Wildlife Service recovery plan for this endangered species. Although the designation and plan are not final, there can be no assurance that if the designation and plan are adopted in this or another form, any such final designation or plan will not have a material adverse impact on the Company's ability to develop or sell the project. Other Projects Paradise Valley. The Company owns a 10 acre site, zoned for public facilities, at the Paradise Valley project, a community located in Fairfield, California. This site was previously subject to a purchase option held by the local school district. In February 2001, they terminated their option to purchase the site. At December 31, 2001, the book value of this site was $1,067,000. The Company has applied for approval to rezone this site into twenty-four minimum 8,000 square foot lots and a 5 acre park. If approved, the Company believes it can sell the lots in 2002 and the park within two years at an aggregate price in excess of the book value. Competition Real estate development is a highly competitive business. There are numerous residential real estate developers and development projects operating in the same geographic area in which the Company operates. Competition among real estate developers and development projects is determined by the location of the real estate, the market appeal of the development master plan, and the developer's ability to build, market and deliver project segments on a timely basis. Residential developers sell to homebuilders, who compete based on location, price, market segmentation, product design and reputation. 5 Government Regulation The residential real estate development industry is subject to increasing environmental, building, zoning and real estate regulations that are imposed by various federal, state and local authorities. In developing a community, the Company must obtain the approval of numerous governmental agencies regarding such matters as permitted land uses, housing density, the installation of utility services (such as water, sewer, gas, electric, telephone and cable television) and the dedication of acreage for open space, parks, schools and other community purposes. Regulations affect homebuilding by specifying, among other things, the type and quality of building materials that must be used, certain aspects of land use and building design and the manner in which homebuilders may conduct their sales, operations, and overall relationships with potential home buyers. Furthermore, changes in prevailing local circumstances or applicable laws may require additional approvals, or modifications of approvals previously obtained. Timing of the initiation and completion of development projects depends upon receipt of necessary authorizations and approvals. Delays could adversely affect the Company's ability to complete its projects, significantly increase the costs of doing so or drive potential customers to purchase competitors' products. Environmental Compliance Environmental laws may cause the Company to incur substantial compliance, mitigation and other costs, may restrict or prohibit development in certain areas and may delay completion of the Company's development projects. Delays arising from compliance with environmental laws and regulations could adversely affect the Company's ability to complete its projects, significantly increase the costs of doing so or cause potential customers to purchase competitors' products. To date, environmental laws have not had a material adverse effect on the Company, and management is not currently aware, except as otherwise disclosed, of any environmental compliance matters that would have a material adverse effect on the Company. Employees At December 31, 2001, the Company and its consolidated subsidiaries had 20 full-time employees. Relationship with Leucadia; Administrative Services Agreement Since emerging from bankruptcy in 1995, administrative services and, prior to November 2000, certain managerial support services, have been provided to HomeFed by a subsidiary of Leucadia. Leucadia funded HomeFed's bankruptcy plan by purchasing stock and debt of the Company. As of December 31, 2001, the Company owed $26,462,000 principal amount to Leucadia, which is payable on December 31, 2004 and bears interest at 6% per year. Leucadia has also contributed $10,000,000 as a preferred capital interest to Otay Land Company. For additional information, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." 6 In 1999, Leucadia National Corporation completed the distribution of HomeFed Common Stock to shareholders of Leucadia. As a result, Joseph S. Steinberg, Chairman of the Board of HomeFed, and Ian M. Cumming, a director of HomeFed, together with their respective family members (excluding trusts for the benefit of Mr. Steinberg's children) beneficially own approximately 12.7% and 13.6%, respectively, of the Company's outstanding Common Stock. Mr. Steinberg is also President and a director of Leucadia National Corporation and Mr. Cumming is Chairman of the Board of Leucadia National Corporation. At March 12, 2002, Mr. Steinberg and Mr. Cumming beneficially owned (together with their respective family members but excluding trusts for the benefit of Mr. Steinberg's children) approximately 16.8% and 18.0%, respectively, of Leucadia National Corporation's outstanding common shares. Under the current administrative services agreement, Leucadia provides services to the Company on a month-to-month basis. Pursuant to this agreement, Leucadia provides the services of Ms. Corinne A. Maki, the Company's Treasurer and Secretary, in addition to various administrative functions. Ms. Maki is an officer of subsidiaries of Leucadia National Corporation. The cost of services provided by Leucadia during 2001 aggregated $107,000. In March 2001, the Company entered into a $3,000,000 line of credit agreement with Leucadia. Loans outstanding under this line of credit bear interest at 10% per year; in 2001, the Company incurred and paid $24,000 in interest. Effective March 1, 2002, this agreement was amended to extend the maturity to February 28, 2007, unless earlier terminated by Leucadia not later than November 15 of any year, effective February 28 of the following year. As of March 12, 2002, no amounts were outstanding under this facility. Item 2. Properties. - ------ ---------- The Company owns approximately 10 acres at the Paradise Valley project and approximately 4,800 non-adjoining acres at the Company's Otay Ranch project, as described under Item 1 - "Business." Land held for development and sale has an aggregate book value of $23,890,000 at December 31, 2001. The Company's corporate headquarters are located at 1903 Wright Place, Suite 220, Carlsbad, California 92008 in part of an office building sub-leased from Leucadia for a monthly amount equal to its share of Leucadia's cost for such space and furnishings. The agreement pursuant to which the space and furnishings are provided extends through February 28, 2005 (coterminous with Leucadia's occupancy of the space) and provides for a monthly rental of $19,000 effective March 1, 2001, which increased to $20,000 effective March 1, 2002. Item 3. Legal Proceedings. - ------ ----------------- The Company is not a party to legal proceedings other than ordinary, routine litigation, incidental to its business or not material to the Company's consolidated financial position or results of operations. 7 Item 10. Executive Officers of the Registrant. - ------- ------------------------------------ As of March 12, 2002, the executive officers of the Company, their ages, the positions held by them and the periods during which they have served in such positions are as follows:
Name Age Position with HomeFed Office Held Since - ---- --- --------------------- ----------------- Paul J. Borden 53 President 1998 Corinne A. Maki 45 Secretary and Treasurer 1995 Curt R. Noland 45 Vice President 1998 R. Randy Goodson 36 Vice President 2000 Simon G. Malk 32 Vice President 2000 Erin N. Ruhe 36 Vice President and Controller 2000
The officers serve at the pleasure of the Board of Directors of HomeFed. The recent business experience of our executive officers is summarized as follows: Paul J. Borden. Mr. Borden has served as a director and President of HomeFed since May 1998. Mr. Borden had been a Vice President of Leucadia from August 1988 through October 2000, responsible for overseeing many of Leucadia's real estate investments. Corinne A. Maki. Ms. Maki, a certified public accountant, has served as Treasurer of HomeFed since February 1995 and Secretary since February 1998. Prior to that, Ms. Maki served as an Assistant Secretary of HomeFed since August 1995. Ms. Maki has also been a Vice President of Leucadia Financial Corporation, a subsidiary of Leucadia, holding the offices of Controller, Assistant Secretary and Treasurer since October 1992. Ms. Maki has been employed by Leucadia since December 1991. Curt R. Noland. Mr. Noland has served as Vice President of HomeFed since October 1998. He spent the last 22 years in the land development industry in San Diego County as a design consultant, merchant builder and a master developer. From November 1997 until joining HomeFed, Mr. Noland was employed by the prior development manager of San Elijo Hills and served as Director of Development for San Elijo Hills. Prior to November 1997, Mr. Noland was employed for eight years by Aviara Land Associates, LP, a 1,000 acre master-planned resort community in Carlsbad, California. He is also a licensed civil engineer and real estate broker. R. Randy Goodson. Mr. Goodson has served as Vice President of HomeFed since April 2000. Mr. Goodson has spent 16 years as a real estate consultant, developer and investor. Prior to joining HomeFed, he was a principal in a San Diego company involved in real estate development and consulting, which provided consulting services to San Elijo Hills and HomeFed. Mr. Goodson is a licensed California real estate broker and a member of the Urban Land Institute. Simon G. Malk. Mr. Malk has served as Vice President of HomeFed since April 2000. For the prior seven years, Mr. Malk was a principal of a San Diego company involved in residential real estate development and consulting. Erin N. Ruhe. Ms. Ruhe has served as Vice President of HomeFed since April 2000 and has been employed by HomeFed as Controller since January 1999. Previously, Ms. Ruhe was Vice President since December 1995 and Controller since November 1994 of HSD Venture, a real estate subsidiary of Leucadia. 8 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. - ------ ---------------------------------------------------- The following table sets forth certain information concerning the market price of the Company's Common Stock for each quarterly period within the two most recent fiscal years. High Low ---- --- Year ended December 31, 2000 First Quarter $ .875 $ .062 Second Quarter .720 .550 Third Quarter .730 .600 Fourth Quarter .875 .570 Year ended December 31, 2001 First Quarter $1.250 $ .790 Second Quarter .960 .750 Third Quarter 1.000 .900 Fourth Quarter .940 .820 Year ending December 31, 2002 First quarter (through March 12, 2002) $ .940 $ .800 The Company's Common Stock is traded in the over-the-counter market. The Company's Common Stock is not listed on any stock exchange, and price information for the Common Stock is not regularly quoted on any automated quotation system. The prices above are based on the high and low sales price per share, as published by the National Association of Securities Dealers OTC Bulletin Board Service. On March 12, 2002, the closing bid price for the Company's Common Stock was $.83 per share. As of this date, there were 8,094 stockholders of record. The Company did not declare dividends on its Common Stock during 2000 or 2001 and it does not anticipate that it will pay dividends for the foreseeable future. The Company's Common Stock does not currently meet the minimum requirements for listing on a national securities exchange or inclusion on the Nasdaq Stock Market. If the Company's Common Stock becomes eligible to be listed or included on the Nasdaq Stock Market, the Company will consider its alternatives with respect to the trading market for the Company's Common Stock. The transfer agent for the Company's Common Stock is American Stock Transfer & Trust Company, 59 Maiden Lane, New York, New York 10038. Item 6. Selected Financial Data. - ------ ----------------------- The following selected financial data have been summarized from the Company's consolidated financial statements and are qualified in their entirety by reference to, and should be read in conjunction with, such consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations," contained in Item 7 of this Report. Effective September 20, 1999, Otay Land Company is included in the Company's consolidated financial statements; previously this investment had been accounted for under the equity method. 9
Year Ended December 31, ------------------------------------------------------------------- 2001 2000 1999 1998 1997 -------- ------- ------- ------- ------ (In thousands, except per share amounts) SELECTED INCOME STATEMENT DATA: Fee income from San Elijo Hills $ 5,803 $ 3,508 $ -- $ -- $ -- Sales of residential properties -- 1,575 2,600 5,752 4,011 Income from options on real estate properties 720 92 43 -- -- Interest expense 2,646 2,510 2,404 2,828 2,997 Loss from operations (414) (2,579) (6,415) (4,545) (3,864) Net loss (1,377) (3,409) (7,282) (4,481) (3,577) Basic loss per common share $ (0.02) $ (0.06) $ (0.22) $ (0.45) $ (0.36) ======= ======= ======= ======= ======= Diluted loss per common share $ (0.02) $ (0.06) $ (0.22) $ (0.45) $ (0.36) ======= ======= ======= ======= =======
Year Ended December 31, ------------------------------------------------------------------- 2001 2000 1999 1998 1997 -------- ------- ------- ------- ------ (In thousands, except per share amounts) SELECTED BALANCE SHEET DATA: Cash and cash equivalents $ 1,454 $ 1,631 $ 2,795 $ 3,120 $ 4,195 Land and real estate held for development and sale 23,890 22,979 23,707 5,008 10,408 Total assets 25,804 24,818 27,528 19,415 16,213 Notes payable to Leucadia Financial Corporation 22,508 21,474 20,552 19,736 26,085 Stockholders' deficit (11,623) (10,421) (7,107) (8,205) (10,739) Shares outstanding 56,808 56,808 56,558 10,000 10,000 Book value per common share $ (0.20) $ (0.18) $ (0.13) $ (0.82) $ (1.07)
Basic and diluted loss per share of Common Stock was calculated by dividing the net loss by the weighted average shares of Common Stock outstanding. The number of shares used to calculate basic and diluted loss per Common Share was 56,807,903, 56,762,061 and 32,577,357 for the years ending December 31, 2001, 2000 and 1999, respectively. The calculation of diluted loss per share does not include common stock equivalents of 359,841 and 25,372 for the years ending December 31, 2001 and 2000, respectively, which are antidilutive. The number of shares used to calculate book value per Common Share was 56,808,076, 56,807,826 and 56,557,826 for the years ended December 31, 2001, 2000 and 1999, respectively. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. - ------ ----------------------------------------------------------- The purpose of this section is to discuss and analyze the Company's consolidated financial condition, liquidity and capital resources and results of operations. This analysis should be read in conjunction with the consolidated financial statements and related notes which appear elsewhere in this Report. Liquidity and Capital Resources For the years ended December 31, 2001 and December 31, 2000, net cash was used for operating activities, principally to pay interest and general and administrative expenses. The Company's principal sources of funds are fee income earned from the San Elijo Hills project, proceeds from the sale of real estate, its $3,000,000 line of credit from Leucadia and dividends or borrowings from its subsidiaries. 10 For each of the three years in the period ended December 31, 2001, the Company has reported a net loss and experienced a net decrease in cash and cash equivalents. The Company expects that its cash on hand, together with the sources described above, will be sufficient to meet its cash flow needs for the foreseeable future. If, at any time in the future, the Company's cash flow is insufficient to meet its then current cash requirements, the Company could accelerate its subsidiaries' sale of real estate projects held for development or seek to borrow funds. However, because all of the Company's assets are pledged to Leucadia to collateralize its $26,462,000 borrowing from Leucadia, it may be unable to obtain financing from sources other than Leucadia. Further, if the Company were to sell its real estate projects in order to meet its liquidity needs, it may have to do so at a time when the potential sales prices are not attractive or are not reflective of the values which the Company believes are inherent in the projects. Accordingly, while the Company believes it can generate sufficient liquidity to meet its obligations through sales of assets, any such sales could be at prices that would not maximize the Company's value to its shareholders. In March 2001, the Company entered into a $3,000,000 line of credit agreement with Leucadia. Effective March 1, 2002, this agreement was amended to extend the maturity to February 28, 2007, unless earlier terminated by Leucadia not later than November 15 of any year, effective February 28 of the following year. Loans outstanding under this line of credit bear interest at 10% per year. As of March 12, 2002, no amounts were outstanding under this facility. Under the Development Agreement, the Company is responsible for the overall management of the San Elijo Hills project, including arranging financing, coordinating marketing and sales activity, and acting as construction manager. The Development Agreement provides that the Company will receive certain fees in connection with the project. These fees consist of field overhead and management service fees (the "development management fees"). These fees are based on a fixed percentage, aggregating 5.72%, of gross revenues of the project, less certain expenses allocated to the project, and are expected to cover the Company's cost of providing services under the Development Agreement. The Company also receives co-op marketing and advertising fees that are paid at the time builders sell homes, are generally based upon a fixed percentage of the homes' selling price and are recorded as revenue when the home is sold. For the year ended December 31, 2001, the Company received approximately $5,800,000 in fees under the Development Agreement, including approximately $1,000,000 in co-op marketing and advertising fees. The Development Agreement also provides for a success fee to the Company out of the project's net cash flow, if any, as described below, up to a maximum amount. Whether the success fee, if it is earned, will be paid to the Company prior to the conclusion of the project will be at the discretion of the project owner. The Development Agreement is terminable by either the project owner or the Company. In a termination, the Company would receive the accrued but unpaid portion of the development management fees and the success fee. The accrued development management fees will only include the fee for sales that have already closed escrow or that are in escrow for sale on the termination date and actually close pursuant to such escrow within 120 days after the termination date. The Development Agreement provides that the project owner will make a reasonable determination of the amount of the accrued success fee payable with respect to such sales that have closed on or before 120 days after the termination date based upon the project owner's reasonable estimates of the then existing net cash flow minus the amount of the Indebtedness as defined below. To determine "net cash flow" for purposes of calculating the success fee, all cash expenditures of the project will be deducted from total revenues of the project. Examples of "expenditures" for these purposes include land development costs, current period operating costs, and indebtedness, either collateralized by the project (which cannot exceed $23,959,000, the balance at December 31, 2001, including interest), or owed by the project's owner to Leucadia ($12,753,000 at December 31, 2001) (collectively, "Indebtedness"). As a success 11 fee, the Company is entitled to receive payments out of net cash flow, if any, up to the aggregate amount of the Indebtedness (as of the date the Development Agreement was signed). The balance of the net cash flow, if any, will be paid to the Company and the project owner in equal amounts. However, the amount of the success fee cannot be more than 68% of net cash flow minus the amount of the Indebtedness. The Company believes that any success fee that it may receive will be its principal source of revenue earned through its participation in the San Elijo Hills project pursuant to the Development Agreement. There can be no assurance, however, that the Company will receive any success fee at all for this project. As of December 31, 2001, the Company has not recognized any success fee income as none would have been contractually earned. As shown below, at December 31, 2001, the Company's contractual cash obligations totaled $27,229,000. The Company's note payable is collateralized by a security interest in all assets of the borrower, whether now owned or hereafter acquired. No principal payments are due until its maturity on December 31, 2004. At December 31, 2001, the Company did not have any commercial commitments.
Payments Due by Period (in thousands) --------------------------------------------------------------------- Total Amounts Less Than 1 After 5 Contractual Obligations Committed Year 1-3 Years 4-5 Years Years - ----------------------- --------- ---- --------- --------- ----- Note payable $ 26,462 $ -- $ 26,462 $ -- $ -- Operating Lease 767 235 490 42 -- -------- ----- --------- ------- ------ Total Contractual Cash Obligations $ 27,229 $ 235 $ 26,952 $ 42 $ -- ======== ===== ========= ======= ======
As of December 31, 2001, the Company owed $26,462,000 principal amount to Leucadia, which is payable on December 31, 2004 and bears interest at 6% per year (the "note payable"). This obligation is reflected in the consolidated balance sheet, net of debt discount, at $22,508,000 as of December 31, 2001. During the year ended December 31, 2001, the Company paid Leucadia $1,588,000 in interest on the note payable. In addition, Leucadia has invested $10,000,000 as a preferred capital interest in Otay Land Company, a consolidated subsidiary of the Company. Distributions of net income, if any, from Otay Land Company first will be paid to Leucadia until it has received an aggregate annual cumulative preferred return of 12% on, and repayment of, its preferred investment. Any remaining funds will be distributed to the Company. In accordance with the terms of a partnership agreement entered into in 1990 and amended in November 2000, a subsidiary of the company is required to maintain a minimum net worth of $1,000,000, which the subsidiary currently meets. The partners agreed on the minimum net worth requirement in connection with an indemnity agreement with a third party surety that has provided surety bonds for the construction of infrastructure in a development in La Quinta, California. As of December 31, 2001, the Company has net operating loss carryovers ("NOLs") of $254,542,000 available to reduce its future federal income tax liabilities and NOLs of $17,792,000 available to reduce its future state income tax liabilities. Most of these NOLs are not available to reduce federal alternative minimum taxable income, which is currently taxed at the rate of 20%. As a result, once the Company's NOLs that are available to reduce federal alternative minimum taxable income are either used or expire, the Company will pay federal income tax at a rate of 20% during future periods, even if NOLs are available to reduce regular taxable income. 12 Results of Operations Critical Accounting Policies and Estimates The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates all of these estimates and assumptions. Actual results could differ from those estimates. The Company's land and real estate held for development and sale is carried at the lower of cost or fair value less costs to sell. The process involved in the determination of fair value requires estimates as to future events and market conditions. This estimation process assumes the Company has the ability to complete development and dispose of its real estate properties in the ordinary course of business based on management's present plans and intentions. When management determines that the carrying value of specific real estate investments should be reduced to properly record these assets at fair value less costs to sell, this write-down is recorded as a charge to current period operations. The provisions are based on estimates and the ultimate loss may differ from those estimates. The Company records a valuation allowance to reduce its deferred taxes to the amount that is more likely than not to be realized. If the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment would increase income in such period. Statement of Operations Fee income from San Elijo Hills increased in 2001 as compared to 2000 due to increased lot sales and less direct expense incurred by the project owner (which reduces the amount of development management fees), and increased co-op marketing and advertising fees relating to the sale of homes by builders. Sales of residential properties decreased in 2000 as compared to 1999. In 2000, the Company sold two clustered housing development sites at the Paradise Valley project, while in 1999, the Company sold 75 lots and one clustered housing development site at the Paradise Valley project. Income from options on real estate properties in 2001 and 2000 reflects non-refundable fees received to extend the closing date on 85 acres of developable land at the Otay Ranch project. The Company received and recognized $720,000 and $60,000 of such fees in 2001 and 2000, respectively. Income from options on real estate properties in 2000 and 1999 reflect extension fees relating to home site sales at the Paradise Valley project. Land and real estate held for development and sale is carried at the lower of cost or fair value less costs to sell. The provision for losses for the year ended December 31, 1999 reflected estimated additional costs to build the recreation center at the Paradise Valley project and estimates to reduce the carrying value of real estate investments to fair value. Actual cost of sales recorded during these periods reflects the level of sales activity, as well as provisions for losses. Interest expense for all years presented primarily reflects the annual interest due on the note payable to Leucadia of $1,588,000, which was paid by the Company. Interest expense also includes $1,034,000, $922,000, and $816,000 for 2001, 2000 and 1999, respectively, for amortization of debt discount related to the note payable. For 2001, interest expense also reflects $24,000 of interest due to Leucadia under the line of credit, which was paid by the Company. General and administrative expenses increased in 2001 as compared to the prior year primarily due to increased salaries expense. This increase principally reflects the employment of the Company's chief executive officer during the third quarter of 2000 and of another executive officer during the second quarter of 2000, as well as higher bonuses and salary increases. General and administrative expenses increased in 2000 as compared to 1999 due to increased operating activities in connection with the San Elijo Hills project and Otay Ranch project. 13 Other income increased in 2001 as compared to 2000 primarily due to reimbursement for fees and improvements totaling $678,000 related to property that was previously sold, partially offset by reduced interest income. Income taxes for 2001 principally relates to the payment of federal and state minimum taxes. Income taxes for 2000 and 1999 principally relate to state franchise taxes. The Company has not recognized income tax benefits for its operating losses due to the uncertainty of sufficient future taxable income which is required in order to recognize such tax benefits. Recently Issued Accounting Standards In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"), which is effective for all business combinations after June 30, 2001, Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which is effective for fiscal years beginning after December 15, 2001, and Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), which is effective for fiscal years beginning after June 15, 2002. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which is effective for fiscal years beginning after December 15, 2001. SFAS 141 requires that companies use the purchase method of accounting for all business combinations initiated after June 30, 2001 and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS 142 addresses the initial recognition and measurement of intangible assets acquired outside a business combination and the recognition and measurement of goodwill and other intangible assets subsequent to acquisition. SFAS 143 requires recognition of the fair value of liabilities associated with the retirement of long-lived assets when a legal obligation to incur such costs arises as a result of the acquisition, construction, development and/or the normal operation of a long-lived asset. Upon recognition of the liability, a corresponding asset is recorded and depreciated over the remaining life of the long-lived asset. SFAS 144 requires that one accounting model be used for the long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions and resolves implementation issues. The Company has reviewed the impact of the implementation of SFAS 142, 143 and 144, and does not expect them to have a material effect on the Company's financial position or results of operations. Inflation The Company, as well as the real estate development and homebuilding industry in general, may be adversely affected by inflation, primarily because of either reduced rates of savings by consumers during periods of low inflation or higher land and construction costs during periods of high inflation. Low inflation could adversely affect consumer demand by limiting growth of savings for down payments, ultimately affecting demand for real estate and the Company's revenues. High inflation increases the Company's costs of labor and materials. The Company would attempt to pass through to its customers any increases in its costs through increased selling prices. To date, high or low rates of inflation have not had a material adverse effect on the Company's results of operations. However, there is no assurance that high or low rates of inflation will not have a material adverse impact on the Company's future results of operation. Interest Rates The Company's operations are interest-rate sensitive. Overall housing demand is adversely affected by increases in interest costs. If mortgage interest rates increase significantly, this may negatively impact the ability of a home buyer to secure adequate financing. This could adversely affect the Company's revenues, gross margins and profitability. 14 Cautionary Statement for Forward-Looking Information Statements included in this Report may contain forward-looking statements. Such statements may relate, but are not limited, to projections of revenues, income or loss, capital expenditures, plans for growth and future operations, competition and regulation as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified. When used in this Report, the words "estimates", "expects", "anticipates", "believes", "plans", "intends" and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. The factors that could cause actual results to differ materially from those suggested by any such statements include, but are not limited to, those discussed or identified from time to time in the Company's public filings, including changes in general economic and market conditions, changes in domestic laws and government regulations or requirements, changes in real estate pricing environments, regional or general changes in asset valuation, demographic and economic changes in the United States generally and California in particular, increases in real estate taxes and other local government fees, significant competition from other real estate developers and homebuilders, decreased consumer spending for housing, delays in construction schedules and cost overruns, availability and cost of land, materials and labor, increased development costs, many of which the Company would not be able to control, damage to properties or condemnation of properties, the occurrence of significant natural disasters, imposition of limitations on the Company's ability to develop its properties resulting from developments in or new applications of environmental laws and regulations, the inability to insure certain risks economically, the adequacy of loss reserves, increases in prevailing interest rate levels, including mortgage rates, increased interest costs as a result of a delay in project completion requiring the financing to remain outstanding for a longer than projected period of time, the availability of reliable energy sources and consumer confidence in the dependability of such energy sources, and changes in the composition of the Company's assets and liabilities through acquisitions or divestitures. Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date hereof. The Company undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this Report or to reflect the occurrence of unanticipated events. Item 7A. Quantitative and Qualitative Disclosure About Market Risk. - ------- --------------------------------------------------------- The Company does not have material market risk exposures. Item 8. Financial Statements and Supplementary Data. - ------ ------------------------------------------- Financial Statements and supplementary data required by this Item 8 are set forth at the pages indicated in Item 14(a) below. Item 9. Disagreements on Accounting and Financial Disclosure. - ------ ---------------------------------------------------- Not applicable. 15 PART III Item 10. Directors and Executive Officers of the Registrant. - ------- -------------------------------------------------- The information to be included under the caption "Nominees for Election as Directors" in HomeFed's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the 1934 Act in connection with the 2002 annual meeting of stockholders of HomeFed (the "Proxy Statement") is incorporated herein by reference. In addition, reference is made to Item 10 in Part I of this Report. Item 11. Executive Compensation. - ------- ---------------------- The information to be included under the caption "Executive Compensation" in the Proxy Statement is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------- -------------------------------------------------------------- The information to be included under the caption "Present Beneficial Ownership of Common Stock" in the Proxy Statement is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. - ------- ---------------------------------------------- The information to be included under the caption "Executive Compensation - Certain Relationships and Related Transactions" in the Proxy Statement is incorporated herein by reference. 16 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. - ------- ---------------------------------------------------------------- (a)(1) Financial Statements. Report of Independent Accountants F-1 Consolidated Balance Sheets at December 31, 2001 and 2000 F-2 Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999 F-3 Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2001, 2000 and 1999 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 F-5 Notes to Consolidated Financial Statements F-6 (a)(2) Financial Statement Schedules. Schedules are omitted because they are not required or are not applicable or the required information is shown in the financial statements or notes thereto. (a)(3) Executive Compensation Plans and Arrangements. 1999 Stock Incentive Plan (filed as Annex A to the Company's Proxy Statement dated November 22, 1999). 2000 Stock Incentive Plan (filed as Annex B to the Company's Proxy Statement dated June 20, 2000). (b) Reports on Form 8-K. None. (c) Exhibits. 2.1 Amended Disclosure Statement to the Company's Fourth Amended Plan of Reorganization Dated July 15, 1994 (incorporated by reference to Exhibit 2.1 to the Company's current report on Form 8-K dated June 14, 1995). 2.2 The Company's Fourth Amended Plan of Reorganization Dated July 15, 1994 (incorporated by reference to Exhibit 2.2 to the Company's current report on Form 8-K dated June 14, 1995). 2.3 Order Modifying and Confirming the Company's Fourth Amended Plan of Reorganization Dated July 15, 1994 (incorporated by reference to Exhibit 2.3 to the Company's current report on Form 8-K dated June 14, 1995). 3.1 Restated Certificate of Incorporation, as restated July 3, 1995 of the Company (incorporated by reference to Exhibit 3.1 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1995). 17 3.2 By-laws of the Company as amended through December 14, 1999. 10.1 Loan Agreement dated July 3, 1995 between the Company and Leucadia Financial Corporation ("LFC") and Form of 12% Secured Convertible Note due July 3, 2003 (incorporated by reference to Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1995). 10.2 Paradise Valley Unit 1 First Closing Purchase Agreement and Escrow Instructions, dated October 3, 1996, between Paradise Valley Communities No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated by reference to Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1996). 10.3 Paradise Valley Unit 2 First Closing Purchase Agreement and Escrow Instructions, dated October 3, 1996, between Paradise Valley Communities No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated by reference to Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1996). 10.4 Paradise Valley Unit 1 Second Closing Purchase Agreement and Escrow Instructions, dated October 3, 1996, between Paradise Valley Communities No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated by reference to Exhibit 10.3 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1996). 10.5 Paradise Valley Unit 2 Second Closing Purchase Agreement and Escrow Instructions, dated October 3, 1996, between Paradise Valley Communities No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated by reference to Exhibit 10.4 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1996). 10.6 Paradise Valley Unit 3 Option to Purchase Real Property and Escrow Instructions, dated October 3, 1996, between Paradise Valley Communities No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated by reference to Exhibit 10.5 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1996). 10.7 Paradise Valley Unit 4 Option to Purchase Real Property and Escrow Instructions, dated October 3, 1996, between Paradise Valley Communities No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated by reference to Exhibit 10.6 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1996). 10.8 Real Estate Purchase Agreement and Escrow Instructions between Southfork Partnership and Northfork Communities (incorporated by reference to Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1998). 10.9 Purchase and Sale Agreement and Escrow Instructions, dated as of September 21, 1999, by and between Paradise Valley Communities No. 1 and Western Pacific Housing, Inc. (incorporated by reference to Exhibit 10 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1999). 10.10 Amended and Restated Loan Agreement between the Company and LFC, dated as of August 14, 1998 (incorporated by reference to Exhibit 10.2 to the Company's report on Form 8-K dated August 14, 1998). 10.11 Development Management Agreement between the Company and Provence Hills Development Company, LLC, dated as of August 14, 1998 (incorporated by reference to Exhibit 10.3 to the Company's report on Form 8-K dated August 14, 1998). 18 10.12 Stock Purchase Agreement between the Company and Leucadia National Corporation, dated as of August 14, 1998 (incorporated by reference to Exhibit 10.1 to the Company's report on Form 8-K dated August 14, 1998). 10.13 Amended and Restated Limited Liability Company Agreement of Otay Land Company, LLC, dated as of September 20, 1999, between the Company and Leucadia National Corporation (incorporated by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-2 (No. 333-79901) (the "Registration Statement")). 10.14 Stock Purchase Agreement, dated as of October 20, 1998, between the Company and Leucadia National Corporation (incorporated by reference to Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended September 30, 1998). 10.15 Administrative Services Agreement, dated as of March 1, 2000, between LFC, the Company, HomeFed Resources Corporation and HomeFed Communities, Inc. (incorporated by reference to Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended June 30, 2000). 10.16 Transitional Management Agreement, dated as of August 14, 1998, by and between HomeFed and Accretive Investments, LLC (incorporated by reference to Exhibit 10.17 to the Registration Statement). 10.17 Option and Purchase Agreement and Escrow Instructions, dated as of October 15, 1999, by and between Otay Land Company, LLC and Lakes Kean Argovitz Resorts-California, LLC. (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the "1999 10-K")). 10.18 First Amendment to Option and Purchase Agreement and Escrow Instructions, dated as of December 8, 1999, by and between Otay Land Company, LLC and Lakes Kean Argovitz Resorts-California, LLC (incorporated by reference to Exhibit 10.18 to the Company's 1999 10-K). 10.19 Second Amendment to Option and Purchase Agreement and Escrow Instructions, dated as of December 14, 1999, by and between Otay Land Company, LLC and Lakes Kean Argovitz Resorts-California, LLC (incorporated by reference to Exhibit 10.19 to the Company's 1999 10-K). 10.20 Purchase and Sale Agreement and Joint Escrow Instructions, dated as of September 30, 1998, by and between Paradise Valley Communities No. 1 and Richmond American Homes of California, Inc. (incorporated by reference to Exhibit 10.15 to the Registration Statement). 10.21 Amendment No. 1 dated as of November 1, 2000 to the Administrative Services Agreement dated as of March 1, 2000 (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (the "2000 10-K")). 10.22 Amendment No. 2 dated as of February 28, 2001 to the Administrative Services Agreement dated as of March 1, 2000 (incorporated by reference to Exhibit 10.22 to the Company's 2000 10-K). 10.23 Line Letter dated as of March 1, 2001 from LFC to the Company (incorporated by reference to Exhibit 10.23 to the Company's 2000 10-K). 10.24 Deferred Compensation Agreement, dated as of March 6, 2000, between the Company and Joseph S. Steinberg (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2000). 19 10.25 Amendment No. 1 dated as of March 1, 2002 to the Line Letter dated as of March 1, 2001 from LFC to the Company. 10.26 Amendment No. 3 dated as of December 31, 2001 to the Administrative Services Agreement dated as of March 1, 2000. 21 Subsidiaries of the Company. 20 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. HOMEFED CORPORATION Date: March 25, 2002 By /s/ Erin N. Ruhe ----------------------------------- Erin N. Ruhe Vice President and Controller 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 and in the capacities and on the dates indicated. Date: March 25, 2002 By /s/ Joseph S. Steinberg ----------------------------------- Joseph S. Steinberg, Chairman of the Board and Director Date: March 25, 2002 By /s/ Paul J. Borden ----------------------------------- Paul J. Borden, President and Director (Principal Executive Officer) Date: March 25, 2002 By /s/ Erin N. Ruhe ----------------------------------- Erin N. Ruhe Vice President and Controller (Principal Financial and Accounting Officer) Date: March 25, 2002 By /s/ Patrick D. Bienvenue ----------------------------------- Patrick D. Bienvenue, Director Date: March 25, 2002 By /s/ Timothy Considine ----------------------------------- Timothy Considine, Director Date: March 25, 2002 By /s/ Ian M. Cumming ----------------------------------- Ian M. Cumming, Director Date: March 25, 2002 By /s/ Michael A. Lobatz ----------------------------------- Michael A. Lobatz, Director 21 EXHIBIT INDEX
Exhibit Exemption Number Description Indication - ------ ----------- ----------
2.1 Amended Disclosure Statement to the Company's Fourth Amended Plan of Reorganization Dated July 15, 1994 (incorporated by reference to Exhibit 2.1 to the Company's current report on Form 8-K dated June 14, 1995). 2.2 The Company's Fourth Amended Plan of Reorganization Dated July 15, 1994 (incorporated by reference to Exhibit 2.2 to the Company's current report on Form 8-K dated June 14, 1995). 2.3 Order Modifying and Confirming the Company's Fourth Amended Plan of Reorganization Dated July 15, 1994 (incorporated by reference to Exhibit 2.3 to the Company's current report on Form 8-K dated June 14, 1995). 3.1 Restated Certificate of Incorporation, as restated July 3, 1995 of the Company (incorporated by reference to Exhibit 3.1 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1995). 3.2 By-laws of the Company as amended through December 14, 1999. 10.1 Loan Agreement dated July 3, 1995 between the Company and Leucadia Financial Corporation ("LFC") and Form of 12% Secured Convertible Note due July 3, 2003 (incorporated by reference to Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1995). 10.2 Paradise Valley Unit 1 First Closing Purchase Agreement and Escrow Instructions, dated October 3, 1996, between Paradise Valley Communities No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated by reference to Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1996). 10.3 Paradise Valley Unit 2 First Closing Purchase Agreement and Escrow Instructions, dated October 3, 1996, between Paradise Valley Communities No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated by reference to Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1996). 10.4 Paradise Valley Unit 1 Second Closing Purchase Agreement and Escrow Instructions, dated October 3, 1996, between Paradise Valley Communities No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated by reference to Exhibit 10.3 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1996). 10.5 Paradise Valley Unit 2 Second Closing Purchase Agreement and Escrow Instructions, dated October 3, 1996, between Paradise Valley Communities No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated by reference to Exhibit 10.4 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1996). 10.6 Paradise Valley Unit 3 Option to Purchase Real Property and Escrow Instructions, dated October 3, 1996, between Paradise Valley Communities No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated by reference to Exhibit 10.5 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1996). 10.7 Paradise Valley Unit 4 Option to Purchase Real Property and Escrow Instructions, dated October 3, 1996, between Paradise Valley Communities No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated by reference to Exhibit 10.6 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1996). E-1 10.8 Real Estate Purchase Agreement and Escrow Instructions between Southfork Partnership and Northfork Communities (incorporated by reference to Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1998). 10.9 Purchase and Sale Agreement and Escrow Instructions, dated as of September 21, 1999, by and between Paradise Valley Communities No. 1 and Western Pacific Housing, Inc. (incorporated by reference to Exhibit 10 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1999). 10.10 Amended and Restated Loan Agreement between the Company and LFC, dated as of August 14, 1998 (incorporated by reference to Exhibit 10.2 to the Company's report on Form 8-K dated August 14, 1998). 10.11 Development Management Agreement between the Company and Provence Hills Development Company, LLC, dated as of August 14, 1998 (incorporated by reference to Exhibit 10.3 to the Company's report on Form 8-K dated August 14, 1998). 10.12 Stock Purchase Agreement between the Company and Leucadia National Corporation, dated as of August 14, 1998 (incorporated by reference to Exhibit 10.1 to the Company's report on Form 8-K dated August 14, 1998). 10.13 Amended and Restated Limited Liability Company Agreement of Otay Land Company, LLC, dated as of September 20, 1999, between the Company and Leucadia National Corporation (incorporated by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-2 (No. 333-79901) (the "Registration Statement")). 10.14 Stock Purchase Agreement, dated as of October 20, 1998, between the Company and Leucadia National Corporation (incorporated by reference to Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended September 30, 1998). 10.15 Administrative Services Agreement, dated as of March 1, 2000, between LFC, the Company, HomeFed Resources Corporation and HomeFed Communities, Inc. (incorporated by reference to Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended June 30, 2000). 10.16 Transitional Management Agreement, dated as of August 14, 1998, by and between HomeFed and Accretive Investments, LLC (incorporated by reference to Exhibit 10.17 to the Registration Statement). 10.17 Option and Purchase Agreement and Escrow Instructions, dated as of October 15, 1999, by and between Otay Land Company, LLC and Lakes Kean Argovitz Resorts-California, LLC (incorporated by reference to Exhibit 10.17 to the Company's 1999 10-K). 10.18 First Amendment to Option and Purchase Agreement and Escrow Instructions, dated as of December 8, 1999, by and between Otay Land Company, LLC and Lakes Kean Argovitz Resorts-California, LLC (incorporated by reference to Exhibit 10.18 to the Company's 1999 10-K). 10.19 Second Amendment to Option and Purchase Agreement and Escrow Instructions, dated as of December 14, 1999, by and between Otay Land Company, LLC and Lakes Kean Argovitz Resorts-California, LLC (incorporated by reference to Exhibit 10.19 to the Company's 1999 10-K). 10.20 Purchase and Sale Agreement and Joint Escrow Instructions, dated as of September 30, 1998, by and between Paradise Valley Communities No. 1 and Richmond American Homes of California, Inc. (incorporated by reference to Exhibit 10.15 to the Registration Statement). E-2 10.21 Amendment No. 1 dated as of November 1, 2000 to the Administrative Services Agreement dated as of March 1, 2000 (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (the "2000 10-K")). 10.22 Amendment No. 2 dated as of February 28, 2001 to the Administrative Services Agreement dated as of March 1, 2000 (incorporated by reference to Exhibit 10.22 to the Company's 2000 10-K). 10.23 Line Letter dated as of March 1, 2001 from LFC to the Company (incorporated by reference to Exhibit 10.23 to the Company's 2000 10-K). 10.24 Deferred Compensation Agreement, dated as of March 6, 2000, between the Company and Joseph S. Steinberg (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2000). 10.25 Amendment No. 1 dated as of March 1, 2002 to the Line Letter dated as of March 1, 2001 from LFC to the Company. 10.26 Amendment No. 3 dated as of December 31, 2001 to the Administrative Services Agreement dated as of March 1, 2000. 21 Subsidiaries of the Company. E-3 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of HomeFed Corporation: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in stockholders' deficit and cash flows, present fairly, in all material respects, the financial position of HomeFed Corporation and Subsidiaries (the "Company") as of December 31, 2001 and 2000, and the results of their operations, changes in stockholders' deficit and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York March 13, 2002 HOMEFED CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2001 and 2000 (Dollars in thousands, except par value)
2001 2000 ---- ---- ASSETS - ------ Land and real estate held for development and sale $ 23,890 $ 22,979 Cash and cash equivalents 1,454 1,631 Deposits and other assets 460 208 --------- --------- TOTAL $ 25,804 $ 24,818 ========= ========= LIABILITIES - ----------- Note payable to Leucadia Financial Corporation $ 22,508 $ 21,474 Recreation center liability -- 41 Accounts payable and accrued liabilities 1,711 1,516 --------- --------- Total liabilities 24,219 23,031 --------- --------- COMMITMENTS AND CONTINGENCIES - ----------------------------- MINORITY INTEREST 13,208 12,208 - ----------------- --------- --------- STOCKHOLDERS' DEFICIT - --------------------- Common stock, $.01 par value, 100,000,000 shares authorized; 56,808,076 and 56,807,826 shares outstanding 568 568 Additional paid-in capital 355,377 355,277 Deferred compensation pursuant to stock incentive plans (276) (351) Accumulated deficit (367,292) (365,915) --------- --------- Total stockholders' deficit (11,623) (10,421) --------- --------- TOTAL $ 25,804 $ 24,818 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-2 HOMEFED CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations For the years ended December 31, 2001, 2000 and 1999 (In thousands, except per share amounts)
2001 2000 1999 ---- ---- ---- REVENUES - -------- Fee income from San Elijo Hills $ 5,803 $ 3,508 $ -- Sales of residential properties -- 1,575 2,600 Income from options on real estate properties 720 92 43 ------- ------- ------- 6,523 5,175 2,643 ------- ------- ------- EXPENSES - -------- Cost of sales -- 1,544 2,636 Provision for losses on real estate investments -- -- 365 Interest expense relating to Leucadia Financial Corporation 2,646 2,510 2,404 General and administrative expenses 4,184 3,445 3,357 Administrative services fees to Leucadia Financial Corporation 107 255 296 ------- ------- ------- 6,937 7,754 9,058 ------- ------- ------- Loss from operations (414) (2,579) (6,415) Equity in losses from Otay Land Company, LLC -- -- (779) Other income, net 704 162 216 ------- ------- ------- Income (loss) before income taxes and minority interest 290 (2,417) (6,978) Income tax (provision) benefit (667) 8 (24) ------- ------- ------- Loss before minority interest (377) (2,409) (7,002) Minority interest (1,000) (1,000) (280) ------- ------- ------- Net loss $(1,377) $(3,409) $(7,282) ======= ======= ======= Basic loss per common share $ (0.02) $ (0.06) $ (0.22) ======= ======= ======= Diluted loss per common share $ (0.02) $ (0.06) $ (0.22) ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-3 HOMEFED CORPORATION AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Deficit For the years ended December 31, 2001, 2000 and 1999 (Dollars in thousands, except par value)
Deferred Common Compensation Stock Additional Pursuant to Total $.01 Par Paid-in Stock Incentive Accumulated Stockholders' Value Capital Plans Deficit Deficit ----- ------- ----- ------- ------- Balance, January 1, 1999 $100 $346,919 $(355,224) $(8,205) Issuance of 46,557,826 shares of Common Stock 466 7,914 8,380 Net loss (7,282) (7,282) ---- -------- ----- --------- -------- Balance, December 31, 1999 566 354,833 (362,506) (7,107) Issuance of 250,000 shares of Common Stock related to restricted stock grants 2 186 $(188) -- Amortization of restricted stock grants 51 51 Grant of 25,000 stock options 18 (18) -- Grant of 1,000,000 stock options 240 (240) -- Amortization related to stock options 44 44 Net loss (3,409) (3,409) ---- -------- ----- --------- -------- Balance, December 31, 2000 568 355,277 (351) (365,915) (10,421) Amortization of restricted stock grants 63 63 Amortization related to stock options 112 112 Change in value of 1,000,000 stock options 100 (100) -- Net loss (1,377) (1,377) ---- -------- ----- --------- -------- Balance, December 31, 2001 $568 $355,377 $(276) $(367,292) $(11,623) ==== ======== ===== ========= ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 HOMEFED CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended December 31, 2001, 2000 and 1999 (In thousands)
2001 2000 1999 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,377) $(3,409) $(7,282) Adjustments to reconcile net loss to net cash used for operating activities: Provision for losses on real estate investments -- -- 365 Minority interest 1,000 1,000 280 Amortization of deferred compensation pursuant to stock incentive plans 175 95 -- Amortization of debt discount on note payable to Leucadia Financial Corporation 1,034 922 816 Equity in losses from Otay Land Company, LLC -- -- 779 Changes in operating assets and liabilities: Land and real estate held for development and sale (911) 728 1,912 Deposits and other assets (252) (50) 6 Recreation center liability (41) (929) 95 Accounts payable and accrued liabilities 195 (389) 1,546 Increase in restricted cash -- 868 259 ------- ------- ------- Net cash used for operating activities (177) (1,164) (1,224) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Contributions to Otay Land Company, LLC -- -- (850) Increase in other investments -- -- 79 ------- ------- ------- Net cash used for investing activities -- -- (771) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds received from the sale of Common Stock -- -- 1,670 Borrowings under credit agreement with Leucadia Financial Corporation 900 -- -- Payments related to credit agreement with Leucadia Financial Corporation (900) -- -- ------- ------- ------- Net cash provided by financing activities -- -- 1,670 ------- ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS (177) (1,164) (325) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,631 2,795 3,120 ------- ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,454 $ 1,631 $ 2,795 ======= ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 1,612 $ 1,588 $ 1,588 ======= ======= ======= Cash paid (refunded) for income taxes $ 668 $ (16) $ 44 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-5 HOMEFED CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The accompanying consolidated financial statements include the accounts of HomeFed Corporation (the "Company"), Otay Land Company, LLC ("Otay Land Company") and the Company's wholly-owned subsidiaries, HomeFed Communities, Inc. ("HomeFed Communities") and HomeFed Resources Corporation. The Company is engaged, directly and through its subsidiaries, in the investment in and development of residential real estate properties in California. All significant intercompany balances and transactions have been eliminated in consolidation. During the third quarter of 1999, the limited liability agreement governing Otay Land Company was amended and as a result, the Company now has the ability to control Otay Land Company. Accordingly, effective September 20, 1999, Otay Land Company has been included in the Company's consolidated financial statements. The Company previously had accounted for this investment under the equity method of accounting. Certain amounts for prior periods have been reclassified to be consistent with the 2001 presentation. Land and Real Estate Held for Development and Sale - Land and real estate held for development and sale is carried at the lower of cost or fair value less costs to sell. The cost of land and real estate held for development and sale includes all expenditures incurred in connection with the acquisition, development and construction of the property, including interest and property taxes. Land costs included in land and real estate held for development and sale are allocated to lots based on relative fair values prior to development and are charged to cost of sales at the time of sale. Cash and Cash Equivalents - Cash and cash equivalents include short-term, highly liquid investments that are readily convertible to cash. Critical Accounting Policies and Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates all of these estimates and assumptions. Actual results could differ from those estimates. Revenue Recognition - Fee income for field overhead and management services provided, and success fee income, are recognized when contractually earned. The Company has not recognized any success fee income as none would have been contractually earned. The Company receives co-op marketing and advertising fees that are paid at the time builders sell homes, are generally based upon a fixed percentage of the homes' selling price, and are recorded as revenue when the home is sold. Revenue from the sale of real estate is recognized at the time title is conveyed to the buyer at the close of escrow, minimum down payment requirements are met, the terms of any notes received satisfy continuing payment requirements, and there are no requirements for continuing involvement with the properties. When it is determined that the earning process is not complete, income is deferred using the installment, cost recovery or percentage of completion methods of accounting, as appropriate. Provisions for Losses on Real Estate Investments - Management periodically assesses the recoverability of its real estate investments by comparing the carrying amount of the investments with their fair value less costs to sell. The process involved in the determination of fair value requires estimates as to future events and market conditions. This estimation process assumes the Company has the ability to complete development and dispose of its real estate properties in the ordinary course of business based on management's present plans and intentions. When management determines that the carrying value of specific real estate investments should be reduced to properly record these assets at fair value less costs to sell, this write-down is recorded as a charge to current period operations. The provisions are based on estimates and the ultimate loss may differ from those estimates. F-6 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Capitalization of Interest and Real Estate Taxes - Interest and real estate taxes attributable to land and property construction are capitalized and added to the cost of those properties while the properties are being actively developed. Income Taxes - The Company records a valuation allowance to reduce its deferred taxes to the amount that is more likely than not to be realized. If the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment would increase income in such period. Recently Issued Accounting Standards - In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"), which is effective for all business combinations after June 30, 2001, Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which is effective for fiscal years beginning after December 15, 2001, and Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), which is effective for fiscal years beginning after June 15, 2002. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which is effective for fiscal years beginning after December 15, 2001. SFAS 141 requires that companies use the purchase method of accounting for all business combinations initiated after June 30, 2001 and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS 142 addresses the initial recognition and measurement of intangible assets acquired outside a business combination and the recognition and measurement of goodwill and other intangible assets subsequent to acquisition. SFAS 143 requires recognition of the fair value of liabilities associated with the retirement of long-lived assets when a legal obligation to incur such costs arises as a result of the acquisition, construction, development and/or the normal operation of a long-lived asset. Upon recognition of the liability, a corresponding asset is recorded and depreciated over the remaining life of the long-lived asset. SFAS 144 requires that one accounting model be used for the long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions and resolves implementation issues. The Company has reviewed the impact of the implementation of SFAS 142, 143 and 144, and does not expect them to have a material effect on the Company's financial position or results of operations. 2. LAND AND REAL ESTATE HELD FOR DEVELOPMENT AND SALE A summary of land and real estate held for development and sale by project follows: December 31, ------------------------- 2001 2000 ---- ---- Paradise Valley $ 1,067,000 $ 1,060,000 Otay Ranch 22,823,000 21,919,000 ---------- ---------- Total $23,890,000 $22,979,000 =========== =========== No interest was capitalized in land and real estate held for development and sale during 2001 and 2000. All land and real estate held for development and sale is property in California and is pledged as collateral under the Company's debt agreement. The Company expects that its cash on hand and cash generated from operations will be sufficient to meet its cash flow needs for the foreseeable future. If, at any time in the future, the Company's cash flow is insufficient to meet its then current cash requirements, the Company could seek to accelerate its subsidiaries' sale of real estate projects held for development or seek to borrow funds. However, because all of the Company's assets are pledged to Leucadia to collateralize its $26,462,000 borrowing from Leucadia, it may be unable to obtain financing from sources other than Leucadia. F-7 3. INDEBTEDNESS As of August 14, 1998, the Company and Leucadia Financial Corporation ("LFC"), a subsidiary of Leucadia National Corporation ("Leucadia"), entered into an Amended and Restated Loan Agreement pursuant to which the Company and LFC amended the original loan agreement dated July 3, 1995 and restructured the Company's outstanding 12% Secured Convertible Note due 2003 ("Convertible Note") held by LFC. The restructured note dated August 14, 1998 (the "Restructured Note") has a principal amount of $26,462,000 (reflecting the original $20,000,000 principal balance of the Convertible Note, together with additions to principal resulting from accrued and unpaid interest thereon to the date of the restructuring, as allowed under the terms of the Convertible Note), extends the maturity date from July 3, 2003 to December 31, 2004, reduces the interest rate from 12% to 6% and eliminates the convertibility feature of the Convertible Note. The Restructured Note is collateralized by a security interest in all assets of the borrower, whether now owned or hereafter acquired. No principal payments are due under the Restructured Note until its maturity date. As a result of the restructuring of the Convertible Note, the Restructured Note was recorded at fair value and the approximate $7,015,000 difference between the fair value of the Restructured Note and the carrying value of the Convertible Note was reflected as additional paid-in capital. This difference will be amortized as interest expense over the term of the Restructured Note using the interest method. Approximately $1,034,000, $922,000 and $816,000 was amortized to interest expense during 2001, 2000 and 1999, respectively. Additional interest of $1,588,000 was expensed and paid during each of the years in the three year period ended December 31, 2001. In March 2001, the Company entered into a $3,000,000 line of credit agreement with LFC. Loans outstanding under this line of credit bear interest at 10% per annum. Effective March 1, 2002, this agreement was amended to extend the maturity to February 28, 2007, unless earlier terminated by Leucadia not later than November 15 of any year, effective February 28 of the following year. At December 31, 2001, no amounts were outstanding under this facility. Interest on the line of credit of approximately $24,000 was expensed and paid during the year ended December 31, 2001. 4. STOCK INCENTIVE PLANS Under the Company's 1999 Stock Incentive Plan (the "Plan"), the Company may grant options, stock appreciation rights and restricted stock to non-employee directors, certain non-employees and employees up to a maximum grant of 300,000 shares to any individual in a given taxable year. The maximum number of Common Shares which may be acquired through the exercise of options or rights under the Plan cannot exceed, in the aggregate, 750,000; the maximum number of Common Shares that may be awarded as restricted stock cannot exceed, in the aggregate, 250,000. The Plan provides for the issuance of options and rights at not less than 100% of the fair market value of the underlying stock at the date of grant. Options generally become exercisable in five equal instalments starting one year from the date of grant. No stock appreciation rights have been granted. During 2000, 250,000 shares of restricted Common Stock were issued to eligible participants, subject to certain forfeiture provisions. In connection with this issuance of restricted stock, the Company recorded deferred compensation of $188,000 representing the value of stock on the date of issuance based upon market price. This amount will be amortized over the three year vesting period of the restricted stock at which time all remaining forfeiture provisions will end. In addition, during 2000, options to purchase an aggregate of 25,000 shares of Common Stock were granted to non-employees at an exercise price of $.75 per share (market price). In connection with this issuance, the Company recorded deferred compensation of $18,000 based upon the estimated fair value of these options at the time of grant, using the modified Black Scholes model. This amount will be amortized over the five year vesting period of the options. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", ("SFAS 123"), establishes a fair value method for accounting for stock-based compensation plans, either through recognition in the statements of operations or disclosure. As permitted, the Company applies ABP Opinion No. 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized in the statements of operations related to employees and directors under its stock compensation plans. Had compensation cost for the Company's fixed stock options been recorded in the statements of operations consistent with the provisions of SFAS 123, the Company's net loss and loss per share would not have been materially different from that reported in 2001 and 2000. F-8 4. STOCK INCENTIVE PLANS, continued A summary of activity with respect to the Company's stock options for employees and directors for 2001 and 2000 is as follows:
Common Weighted Available Shares Average Options for Future Subject to Exercise Exercisable Option Option Price at Year-End Grants ------ ----- ----------- ------ Balance at January 1, 2000 0 $0.00 0 725,000 ====== ======= Granted 161,000 $0.75 ------- Balance at December 31, 2000 161,000 $0.75 0 564,000 ====== ======= Granted 6,000 $0.93 Exercised (250) $0.70 ------- Balance at December 31, 2001 166,750 $0.75 32,250 558,000 ======= ====== =======
The weighted-average fair value of the options granted was $.73 per share for 2001 and 2000 as estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: (1) expected volatility of 117.7% for 2001 and 172.1% for 2000; (2) risk-free interest rate of 4.84% for 2001 and 6.61% for 2000; (3) expected lives of 4.0 years for 2001 and 5.9 years for 2000; and (4) dividend yield of 0% for 2001 and 2000. The following table summarizes information about fixed stock options outstanding at December 31, 2001.
Options Outstanding Options Exercisable ---------------------------------------------------- --------------------------- Common Weighted Weighted Common Weighted Shares Average Average Shares Average Range of Subject to Remaining Exercise Subject to Exercise Exercise Prices Option Contractual Life Price Option Price - --------------- ------ ---------------- ----- ------ ----- $0.70 - $0.93 166,750 4.2 years $0.75 32,250 $0.75
In 2000, under the Company's 2000 Stock Incentive Plan (the "2000 Plan"), the Company granted to two key employees options to purchase an aggregate of 1,000,000 shares of Common Stock at an exercise price of $.61 per share, the then current market price per share. No additional options are available to be granted under the 2000 Plan. The options are subject to achievement of performance goals as determined by the Board of Directors and are exercisable over a six year period. Options and stock issued on exercise of an option are subject to forfeiture if the performance goals are not met within three years from the date of grant. Deferred compensation, representing the difference between the exercise price and the then current market price, is subject to change based upon fluctuations in the Company's stock price. The deferred compensation will be amortized over the expected performance period of three years. F-9 5. OTHER INCOME, NET Other income, net for each of the three years in the period ended December 31, 2001 consists of the following (in thousands):
2001 2000 1999 ---- ---- ---- Interest income $ 21 $114 $216 Reimbursement for fees and improvements for previously sold property 678 -- -- Other 5 48 -- ---- ---- ---- $704 $162 $216 ==== ==== ====
6. INCOME TAXES Income taxes for 2001 principally relates to the payment of federal and state minimum taxes. The amount of minimum taxes in 2001 primarily reflects the recognition of success fee income for tax purposes that is not recognized as income for accounting purposes. Income taxes for 2000 and 1999 principally relate to state franchise taxes. The Company has not recognized any tax benefit from its operating losses in all years presented. The Company and its wholly-owned subsidiaries have net operating loss carryforwards ("NOLs") available for federal income tax purposes of $254,542,000 as of December 31, 2001. These carryforwards were generated during 1987 to 1999 and expire in 2002 to 2019. For state income tax purposes, available NOLs as of December 31, 2001 total $17,792,000 and expire in 2002 to 2014. Most of these NOLs are not available to reduce federal alternative minimum taxable income, which is currently taxed at the rate of 20%. As a result, once the Company's NOLs that are available to reduce federal alternative minimum taxable income are either used or expire, the Company will pay federal income tax at a rate of 20% during future periods, even if these NOLs are available to reduce regular taxable income. At December 31, the net deferred tax asset consisted of the following: 2001 2000 ---- ---- NOL carryforwards $ 90,591,000 $ 99,685,000 Land basis 911,000 911,000 Other 6,599,000 30,000 --------- ------------ 98,101,000 100,626,000 Valuation allowance (98,101,000) (100,626,000) ----------- ------------ $ 0 $ 0 ============ ============= For all years presented, the valuation allowance has been provided on the total amount of the deferred tax asset due to the uncertainty of future taxable income necessary for realization of the deferred tax asset. 7. PROVISION FOR LOSSES ON REAL ESTATE INVESTMENTS For the year ended December 31, 1999, the Company recorded a loss of $365,000 due to the increase in estimated costs to build the recreation center at the Paradise Valley project and for the revaluation of residential properties. The loss was determined by comparing the carrying value of the investment to its fair value less costs to sell based on offers the Company had received and sales of comparable real estate. F-10 8. EARNINGS PER SHARE Basic and diluted loss per share of Common Stock was calculated by dividing the net loss by the weighted average shares of Common Stock outstanding. The number of shares used to calculate basic and diluted loss per Common Share was 56,807,903, 56,762,061 and 32,577,357 for 2001, 2000 and 1999, respectively. Options to purchase 359,841 and 25,372 weighted average shares of common stock outstanding during 2001 and 2000, respectively, were not included in the computation of diluted loss per share as those options were antidilutive. 9. COMMITMENTS AND CONTINGENCIES In accordance with the terms of a partnership agreement entered into in 1990 and amended in November 2000, a subsidiary of the Company is required to maintain a minimum net worth of $1,000,000, which the subsidiary currently meets. The partners agreed on the minimum net worth requirement in connection with an indemnity agreement with a third party surety that has provided surety bonds for the construction of infrastructure in a development in La Quinta, California. The Company is subject to various litigation which arises in the course of its business. Based on discussions with counsel, management is of the opinion that such litigation will have no material adverse effect on the consolidated financial position of the Company, its consolidated results of operations or liquidity. 10. OTHER RELATED PARTY TRANSACTIONS The Company has entered into the following related party transactions with Leucadia and LFC. (a) Development Agreement. As of August 14, 1998, the Company entered into a Development Management Agreement ("Development Agreement") with an indirect subsidiary of Leucadia that owns certain real property located in the City of San Marcos, County of San Diego, California, to develop a master-planned residential project on such property. The project, known as San Elijo Hills, is expected to be developed into a community of approximately 3,400 homes during the course of the decade. The Development Agreement provides that the Company will act as the development manager with responsibility for the overall management of the project, including arranging financing for the project, coordinating marketing and sales activity, and acting as the construction manager. The Development Agreement provides for the Company to receive a profit participation (as determined in accordance with the Development Agreement), and fee income for field overhead, project management and marketing services based on the revenues derived from the project. In 2001 and 2000, the Company recorded $5,803,000 and $3,508,000, respectively, in fee income under the Development Agreement, of which $1,029,000 and $44,000 was for co-op marketing and advertising fees from builders in 2001 and 2000, respectively. (b) Otay Land Company, LLC. As of October 14, 1998, the Company and Leucadia formed Otay Land Company. The Company has contributed $11,825,000 as capital and Leucadia has contributed $10,000,000 as a preferred capital interest. The Company is the manager of Otay Land Company. Otay Land Company has acquired, for approximately $19,500,000, approximately 4,800 acres of land, which is part of a 22,900 acre project located south of San Diego, California, known as Otay Ranch. All distributions by Otay Land Company shall be distributed to the Company and Leucadia in the following order of priority: (i) to pay Leucadia an annual minimum cumulative preferred return of 10% on all preferred capital contributed by Leucadia; (ii) to pay Leucadia an annual cumulative preferred return of 2% on all preferred capital provided by Leucadia, but payable only out of and to the extent there are profits; (iii) to repay all preferred capital provided by Leucadia; and (iv) any remaining funds are to be distributed to the Company. Leucadia's preferred capital interest and cumulative preferred return is reflected as minority interest in the consolidated balance sheets. (c) Administrative Services Agreement. Pursuant to administrative services agreements, LFC provides administrative services to the Company on a month-to-month basis, including providing the services of one of the Company's executive officers. Administrative fees paid to LFC in 2001, 2000 and 1999 were $107,000, $255,000 and $296,000, respectively. F-11 10. OTHER RELATED PARTY TRANSACTIONS, continued (d) The Company's corporate office is in part of an office building subleased from Leucadia for a monthly amount equal to its share of Leucadia's cost for such space and furniture. The agreement pursuant to which the space and furnishings are provided extends through February 28, 2005 (coterminous with Leucadia's occupancy of the space) and provides for a monthly rental of $19,000 effective March 1, 2001, which increased to $20,000 effective March 1, 2002. In connection with these rentals, the Company paid Leucadia $246,000 in 2001 and $219,000 in 2000. (e) In March 2001, the Company entered into a $3,000,000 line of credit agreement with Leucadia. Loans outstanding under this line of credit bear interest at 10% per year. Effective March 1, 2002, this agreement was amended to extend the maturity to February 28, 2007, unless earlier terminated by Leucadia not later than November 15 of any year, effective February 28 of the following year. At December 31, 2001, no amounts were outstanding under this facility. Interest incurred and paid on the line of credit was approximately $24,000 for the year ended December 31, 2001. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's material financial instruments include cash and cash equivalents, and notes payable. In all cases, the carrying amounts of such financial instruments approximate their fair values. In cases where quoted market prices are not available, fair values are based on estimates using present value techniques. 12. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- (In thousands, except per share amounts) 2001: Fee income from San Elijo Hills $ 168 $ 1,601 $ 1,974 $ 2,060 ======== ======= ======= ======= Income from options on real estate properties $ 180 $ 180 $ 180 $ 180 ======== ======= ======= ======= Income (loss) from operations $ (1,316) $ 129 $ 514 $ 259 ======== ======= ======= ======= Net income (loss) $ (1,564) $ (113) $ 11 $ 289 ======== ======= ======= ======= Basic income (loss) per common share $ (0.03) $ (0.00) $ 0.00 $ 0.01 ======== ======= ======= ======= Diluted income (loss) per common share $ (0.03) $ (0.00) $ 0.00 $ 0.01 ======== ======= ======= ======= 2000: Fee income from San Elijo Hills $ 878 $ 260 $ 944 $ 1,426 ======== ======== ======= ======= Sales of residential properties $ -- $ 1,575 $ -- $ -- ======== ======== ======= ======= Income from options on real estate properties $ 32 $ -- $ -- $ 60 ======== ======== ======= ======= Income (loss) from operations $ (659) $ (1,272) $ (901) $ 253 ======== ======== ======= ======= Net income (loss) $ (875) $ (1,450) $(1,100) $ 16 ======== ======== ======= ======= Basic income (loss) per common share $ (0.02) $ (0.03) $ (0.02) $ 0.00 ======== ======== ======= ======= Diluted income (loss) per common share $ (0.02) $ (0.03) $ (0.02) $ 0.00 ======== ======== ======= =======
In 2000, the total of quarterly per share amounts does not necessarily equal the annual per share amount. F-12 EX-10 3 hflineletter.txt 10.25 HOMEFED LINE LETTER Exhibit 10.25 LEUCADIA FINANCIAL CORPORATION 529 EAST SOUTH TEMPLE SALT LAKE CITY, UTAH 84102 AMENDED AND RESTATED LINE LETTER -------------------------------- Dated as of March 1, 2002 HomeFed Corporation 1903 Wright Place Suite 220 Carlsbad, CA 92008 Ladies and Gentlemen: Leucadia Financial Corporation ("Leucadia") hereby confirms that it is holding available for HomeFed Corporation, a Delaware corporation (the "Company"), subject to the restrictions outlined below and in the Term Note (as defined below), a line of credit for the purpose of funding proposed business projects, (i) which projects are satisfactory to and have been approved in advance in writing by Leucadia in its sole discretion, and (ii) for which Company has submitted to Leucadia business plans, projections, and any other documentation reasonably requested by Leucadia. So long as said line is not cancelled as hereinafter provided, credit shall be available, from the date hereof, in the amount of $3,000,000.00. Any drawing by you hereunder shall only be made in writing signed by your President, Paul J. Borden, or your Controller, Erin N. Ruhe. Such draw shall be mailed to us at the address written above, attention: Corinne A. Maki, or sent by facsimile to us at 801-524-1761, attention: Corinne A. Maki, no later than 10:00 A.M. (Salt Lake City time) on the date of such draw. Any requests received after such time will be considered to have been made on the following date. Any loans made by Leucadia under this line of credit shall be evidenced by the Company's term note substantially in the form of Exhibit A attached hereto (the "Term Note"), executed by a duly authorized officer of the Company, which shall represent the Company's obligation to pay the principal amount of $3,000,000.00 or, if greater or less, the aggregate unpaid principal amount of all loans made by Leucadia under this line of credit, with interest thereon. The date and amount of any borrowing from Leucadia under this line of credit and each payment of principal in respect thereof shall be (i) endorsed by Leucadia at the date thereof on the schedule annexed to and made a part of the Term Note, which endorsement shall constitute a part of the Term Note, or (ii) recorded on the books and records of Leucadia (provided such entries shall be endorsed on the schedule annexed thereto prior to any negotiation thereof). Any endorsement on the schedule annexed hereto or record of borrowing or payment of principal on the books and records of Leucadia, in either case, shall constitute prima facie evidence of the accuracy of the information endorsed or recorded, as the case may be. As set forth therein, the Term Note shall bear interest (based upon the principal amount then outstanding) at a rate per annum equal to ten percent (10.00%) (calculated on the basis of a 360 day year for the actual number of days elapsed). The Term Note may be prepaid, in whole or in part, at any time without premium or penalty. The Company agrees to pay to Leucadia a quarterly commitment fee in an amount equal to the average of the daily excess of $3,000,000.00 over the aggregate principal amount of loans outstanding multiplied by 0.375% per annum, calculated on the basis of a 360 day year for the actual number of days elapsed, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of any year, commencing on March 31, 2001 and ending on the Expiration Date. 1 This credit facility will remain available until February 28, 2007 unless earlier terminated by: (i) written notice of cancellation by the Company, effective as of the date specified in the notice; (ii) written notice of cancellation by Leucadia after the occurrence of an Event of Default as defined in the Term Note, effective as of the date specified in the notice; or (iii) written notice of cancellation by Leucadia given no later than November 15 in any calendar year for termination effective February 28 of the following calendar year (such effective date of termination being the "Expiration Date"). No other document shall evidence the indebtedness to Leucadia which may be created pursuant to the terms of this Line Letter, other than the Term Note. This Line Letter shall be governed by, construed and interpreted in accordance with the laws of the State of New York. Very truly yours, LEUCADIA FINANCIAL CORPORATION By: /s/ Joseph A. Orlando ----------------------------- Name: Joseph A. Orlando Title: Vice President Agreed and Accepted as of March 1, 2002. HOMEFED CORPORATION By:/s/ Paul J. Borden ---------------------- Name: Paul J. Borden Title: President 2 Exhibit A AMENDED AND RESTATED TERM NOTE ------------------------------ $3,000,000.00 Carlsbad, CA Dated as of March 1, 2002 FOR VALUE RECEIVED, the undersigned, HomeFed Corporation, a Delaware corporation (the "Company"), hereby unconditionally promises to pay to the order of Leucadia Financial Corporation, a Utah corporation ("Leucadia"), at c/o Leucadia National Corporation, 315 Park Avenue South, New York, New York 10010, on the Maturity Date (as defined below) and in the manner set forth below, in lawful money of the United States of America and in immediately available funds, the principal amount of (a) THREE MILLION DOLLARS ($3,000,000.00) or (b) if greater or less, the aggregate unpaid principal amount of all loans made by Leucadia to the Company pursuant to the Line Letter hereinafter referred to. The Company further agrees to pay interest in like money on the unpaid principal amount hereof from time to time outstanding, until paid in full (both before and after judgment), at a rate per annum equal to ten percent (10.00%) (calculated on the basis of a 360 day year for the actual number of days elapsed). Interest shall be payable quarterly in arrears on each March 31, June 30, September 30 and December 31, commencing on March 31, 2002, and shall accrue on all unpaid principal amounts and will be payable in the manner set forth in this Note. The holder of this Note is authorized to (i) endorse the date and amount of each loan pursuant to the Line Letter and each principal payment with respect thereto on the schedule annexed hereto and made a part hereof, or (ii) record on its books and records each loan pursuant to the Line Letter and each principal payment with respect thereto (provided such entries shall be endorsed on the schedule annexed hereto prior to any negotiation hereof), which endorsement or entry on the books and records of the holder hereof shall constitute prima facie evidence of the accuracy of the information endorsed or recorded, as the case may be. This Note is the Term Note referred to in the Line Letter dated of even date herewith from Leucadia to the Company and is entitled to the benefits and obligations thereof. Principal and interest due on this Note shall be payable at the Maturity Date. The "Maturity Date" of this note shall be the later of March 3, 2003 and the Expiration Date (as defined in the Line Letter). This Note may be prepaid in whole or in part, at any time without premium or penalty, but with interest on the amount prepaid. Upon the happening of an Event of Default (as defined below) Leucadia may declare the entire unpaid balance of the amount owed by the Company under this Note, together with all accrued and unpaid interest, to be immediately due and payable. An "Event of Default" shall mean the commencement by or against the Company of any proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law seeking to adjudicate the Company bankrupt or insolvent, or seeking liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of the Company or its debts, or seeking the entry of an order for relief or the appointment of a receiver, liquidator, assignee, trustee, sequestrator, agent or custodian (or other similar official) for it or any substantial part of its property, and relief against it is ordered in such proceeding or in the event the appointment or petition is not contested by the Company. The Company, for itself and all other persons who now are or who may become liable for the payment of all or any part of the obligations evidenced by this Note, jointly, severally and irrevocably, hereby waive presentment for payment, demand, protest, notice of protest, notice of dishonor and any and all other notices and demands whatsoever. This Note shall be governed by, construed and interpreted in accordance with the laws of the State of New York. HOMEFED CORPORATION By:/s/ Paul J Borden ----------------------------------- Name: Paul J. Borden Title: President 3 SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL UNDER THE TERM NOTE ISSUED TO LEUCADIA FINANCIAL CORPORATION BY HOMEFED CORPORATION
Amount Amount Unpaid of Of Principal Notation Date Loan Principal Paid Balance Made By ---- ---- -------------- ------- ------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
4 AMENDED AND RESTATED TERM NOTE ------------------------------ $3,000,000.00 Carlsbad, CA Dated as of March 1, 2002 FOR VALUE RECEIVED, the undersigned, HomeFed Corporation, a Delaware corporation (the "Company"), hereby unconditionally promises to pay to the order of Leucadia Financial Corporation, a Utah corporation ("Leucadia"), at c/o Leucadia National Corporation, 315 Park Avenue South, New York, New York 10010, on the Maturity Date (as defined below) and in the manner set forth below, in lawful money of the United States of America and in immediately available funds, the principal amount of (a) THREE MILLION DOLLARS ($3,000,000.00) or (b) if greater or less, the aggregate unpaid principal amount of all loans made by Leucadia to the Company pursuant to the Line Letter hereinafter referred to. The Company further agrees to pay interest in like money on the unpaid principal amount hereof from time to time outstanding, until paid in full (both before and after judgment), at a rate per annum equal to ten percent (10.00%) (calculated on the basis of a 360 day year for the actual number of days elapsed). Interest shall be payable quarterly in arrears on each March 31, June 30, September 30 and December 31, commencing on March 31, 2002, and shall accrue on all unpaid principal amounts and will be payable in the manner set forth in this Note. The holder of this Note is authorized to (i) endorse the date and amount of each loan pursuant to the Line Letter and each principal payment with respect thereto on the schedule annexed hereto and made a part hereof, or (ii) record on its books and records each loan pursuant to the Line Letter and each principal payment with respect thereto (provided such entries shall be endorsed on the schedule annexed hereto prior to any negotiation hereof), which endorsement or entry on the books and records of the holder hereof shall constitute prima facie evidence of the accuracy of the information endorsed or recorded, as the case may be. This Note is the Term Note referred to in the Line Letter dated of even date herewith from Leucadia to the Company and is entitled to the benefits and obligations thereof. Principal and interest due on this Note shall be payable at the Maturity Date. The "Maturity Date" of this note shall be the later of March 3, 2003 and the Expiration Date (as defined in the Line Letter). This Note may be prepaid in whole or in part, at any time without premium or penalty, but with interest on the amount prepaid. Upon the happening of an Event of Default (as defined below) Leucadia may declare the entire unpaid balance of the amount owed by the Company under this Note, together with all accrued and unpaid interest, to be immediately due and payable. An "Event of Default" shall mean the commencement by or against the Company of any proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law seeking to adjudicate the Company bankrupt or insolvent, or seeking liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of the Company or its debts, or seeking the entry of an order for relief or the appointment of a receiver, liquidator, assignee, trustee, sequestrator, agent or custodian (or other similar official) for it or any substantial part of its property, and relief against it is ordered in such proceeding or in the event the appointment or petition is not contested by the Company. The Company, for itself and all other persons who now are or who may become liable for the payment of all or any part of the obligations evidenced by this Note, jointly, severally and irrevocably, hereby waive presentment for payment, demand, protest, notice of protest, notice of dishonor and any and all other notices and demands whatsoever. This Note shall be governed by, construed and interpreted in accordance with the laws of the State of New York. HOMEFED CORPORATION By: /s/ Paul J. Borden --------------------------- Name: Paul J. Borden Title: President 5 SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL UNDER THE TERM NOTE ISSUED TO LEUCADIA FINANCIAL CORPORATION BY HOMEFED CORPORATION
Amount Amount Unpaid of Of Principal Notation Date Loan Principal Paid Balance Made By ---- ---- -------------- ------- ------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
6 EX-10 4 hfadserv.txt 10.26 HOMEFED ADMINISTRATIVE SERVICES AGREEMENT Exhibit 10.26 AMENDMENT to the ADMINISTRATIVE SERVICES AGREEMENT THIS AMENDMENT NO. 3 dated as of December 31, 2001 to the ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") dated as of March 1, 2000 (such agreement as amended is referred to herein as the "Agreement") between Leucadia Financial Corporation, a Utah corporation ("Leucadia"), HomeFed Corporation, a Delaware corporation ("HomeFed"), HomeFed Resources Corporation, a California corporation ("HomeFed Resources") and HomeFed Communities, Inc., a California corporation ("HomeFed Communities"). The following new paragraph shall replace in its entirety paragraph 4 of the Agreement as reflected in the Second Amendment dated as of February 28, 2001: "4. Term and Termination. The term of this Agreement shall continue on a month-to-month basis from December 31, 2001. HomeFed and Leucadia each shall have the right to terminate this Agreement, without restriction or penalty, upon 30 days prior written notice to the other party. In all events, the provisions of Section 7. "Indemnification" shall survive the termination of this Agreement, whether as a result of the passage of time or the election of HomeFed or otherwise." In all other respects, the Agreement shall remain unchanged. IN WITNESS WHEREOF, this Agreement has been executed as of the date first hereinabove written. LEUCADIA FINANCIAL CORPORATION Address: 529 East South Temple Salt Lake City, UT 84102 By: /s/ Joseph A. Orlando ---------------------------------- Name: Joseph A. Orlando Title: Vice President HOMEFED CORPORATION Address: 1903 Wright Place, Suite 220 Carlsbad, CA 92008 By: /s/ Paul J. Borden ---------------------------------- Name: Paul J. Borden Title: President HOMEFED RESOURCES CORPORATION Address: 1903 Wright Place, Suite 220 Carlsbad, CA 92008 By: /s/ Paul J. Bordden ---------------------------------- Name: Paul J. Borden Title: President HOMEFED COMMUNITIES, INC. Address: 1903 Wright Place, Suite 220 Carlsbad, CA 92008 By: /s/ Paul J. Borden ---------------------------------- Name: Paul J. Borden Title: President 1 EX-21 5 subsidiaries.txt HOMEFED SUBSIDIARIES HomeFed Corporation Subsidiaries as of December 31, 2001 Name State of Incorporation/Organization - ---- ----------------------------------- HomeFed Communities, Inc. California HomeFed Resources Corporation California Paradise Valley Communities No.1 California Otay Land Company, LLC Delaware Northfork Communities California -----END PRIVACY-ENHANCED MESSAGE-----