-----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, D/Vmo1YAftphYjTWLodl1Cjz+9DrykXRxvT3ihfE43Sg8JyuZ1yv2JIdmJZGrvN8 VWRL3Mi6iUgkRIcbrFCJnw== 0000912057-95-009941.txt : 19951119 0000912057-95-009941.hdr.sgml : 19951119 ACCESSION NUMBER: 0000912057-95-009941 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KOLL REAL ESTATE GROUP INC CENTRAL INDEX KEY: 0000840216 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 020426634 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17189 FILM NUMBER: 95592175 BUSINESS ADDRESS: STREET 1: 4343 VON KARMAN AVENUE CITY: NEWPORT BEACH STATE: CA ZIP: 92660- BUSINESS PHONE: 7148333030 MAIL ADDRESS: STREET 1: 4343 VON KARMAN AVENUE CITY: NEWPORT BEACH STATE: CA ZIP: 92660- FORMER COMPANY: FORMER CONFORMED NAME: BOLSA CHICA CO/ DATE OF NAME CHANGE: 19921229 FORMER COMPANY: FORMER CONFORMED NAME: HENLEY GROUP INC/DE/ DATE OF NAME CHANGE: 19910415 FORMER COMPANY: FORMER CONFORMED NAME: HENLEY NEWCO INC DATE OF NAME CHANGE: 19900109 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 ------------------ Commission file number 0-17189 ------- KOLL REAL ESTATE GROUP, INC. ---------------------------- (Exact name of registrant as specified in its charter) DELAWARE 02-0426634 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization.) Identification No.) 4343 VON KARMAN AVENUE NEWPORT BEACH, CALIFORNIA 92660 ------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (714) 833-3030 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 ----- ----- The number of shares of Class A Common Stock outstanding at November 1, 1995 were 47,412,587. KOLL REAL ESTATE GROUP, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995 INDEX
Page No. -------- PART I -- Financial Information: Item 1 -- Financial Statements Introduction to the Financial Statements........... 3 Balance Sheets -- December 31, 1994 and September 30, 1995........... 4 Statements of Operations -- Three Months and Nine Months Ended September 30, 1994 and 1995...................................... 5 Statements of Cash Flows -- Nine Months Ended September 30, 1994 and 1995...... 6 Notes to Financial Statements...................... 7 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations................ 12 PART II -- Other Information: Item 1 -- Legal Proceedings.................................. 15 Item 6 -- Exhibits and Reports on Form 8-K................... 16 SIGNATURE.................................................................. 16
2 KOLL REAL ESTATE GROUP, INC. PART I -- FINANCIAL INFORMATION ITEM 1 -- FINANCIAL STATEMENTS INTRODUCTION TO THE FINANCIAL STATEMENTS The condensed financial statements included herein have been prepared by Koll Real Estate Group, Inc. and its consolidated subsidiaries (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures are adequate to make the information presented not misleading when read in conjunction with the financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and the current year's previously issued Quarterly Reports on Form 10-Q. The financial information presented herein reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The results for interim periods are not necessarily indicative of the results to be expected for the full year. 3 KOLL REAL ESTATE GROUP, INC. BALANCE SHEETS (in millions)
December 31, September 30, 1994 1995 ------------ ------------- ASSETS Cash and cash equivalents (including restricted cash of 7.5 and 2.7, respectively) $ 20.5 $ 5.2 Real estate held for development or sale 42.7 38.5 Operating properties, net 10.2 8.9 Land held for development 325.8 332.7 Other assets 23.8 15.8 ------ ------ $423.0 $401.1 ------ ------ ------ ------ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities $ 31.8 $ 8.8 Senior debt -- 16.1 Subordinated debentures 152.9 167.8 Other liabilities 92.8 79.7 ------ ------ Total liabilities 277.5 272.4 ------ ------ Stockholders' equity: Series A Preferred Stock .4 .4 Class A Common Stock 2.3 2.4 Capital in excess of par value 230.5 230.4 Deferred proceeds from stock issuance (1.6) (1.5) Minimum pension liability (2.0) (2.0) Accumulated deficit (84.1) (101.0) ------ ------ Total stockholders' equity 145.5 128.7 ------ ------ $423.0 $401.1 ------ ------ ------ ------
See the accompanying notes to financial statements. 4 KOLL REAL ESTATE GROUP, INC. STATEMENTS OF OPERATIONS (in millions, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1995 1994 1995 ------ ------ ------ ------ REVENUES: Asset Sales $ 4.9 $ 3.6 $ 8.4 $ 12.9 Operations 3.5 3.2 8.2 6.0 ------ ------ ------ ------ 8.4 6.8 16.6 18.9 ------ ------ ------ ------ COSTS OF: Asset Sales 4.8 3.1 8.3 10.9 Operations 3.1 2.8 7.6 7.5 ------ ------ ------ ------ 7.9 5.9 15.9 18.4 ------ ------ ------ ------ Gross operating margin .5 .9 .7 .5 General and administrative expenses 2.0 1.8 6.5 5.9 Interest expense 4.7 5.9 13.7 16.8 Other expense (income), net .5 8.9 1.2 6.2 ------ ------ ------ ------ Loss from continuing operations before income taxes (6.7) (15.7) (20.7) (28.4) Provision (benefit) for income taxes (2.3) (7.2) (7.1) (11.5) ------ ------ ------ ------ Loss from continuing operations (4.4) (8.5) (13.6) (16.9) Gain on disposition of discontinued operation, net of income taxes -- -- .7 -- ------ ------ ------ ------ Net loss $ (4.4) $(8.5) $(12.9) $(16.9) ------ ------ ------ ------ ------ ------ ------ ------ Earnings (loss) per common share: Continuing operations $ (.10) $(.18) $ (.32) $(.36) Discontinued operations -- -- .02 -- ------ ------ ------ ------ Net loss per common share $ (.10) $(.18) $ (.30) $(.36) ------ ------ ------ ------ ------ ------ ------ ------
See the accompanying notes to financial statements. 5 KOLL REAL ESTATE GROUP, INC. STATEMENTS OF CASH FLOWS (in millions)
Nine Months Ended September 30, 1994 1995 ------ ------ Cash flows from operating activities: Net loss $(12.9) $(16.9) Adjustments to reconcile to cash used by operating activities: Depreciation and amortization .9 .9 Non-cash interest expense 13.3 15.4 Asset revaluations -- 7.5 Gains on sales (.1) (2.0) Gain on disposition of discontinued operation (.7) -- Proceeds from asset sales, net 7.9 12.2 Investments in real estate held for development or sale (3.2) (10.5) Investments in land held for development (7.5) (6.9) Decrease in other assets 1.8 5.0 Decrease in accounts payable, accrued and other liabilities (7.1) (36.1) ------ ------ Cash used by operating activities (7.6) (31.4) Cash flows from investing activities: Sale of short-term investments, net 18.7 -- Proceeds from disposition of discontinued operation 1.0 -- ------ ------ Cash provided by investing activities 19.7 -- ------ ------ Cash flows from financing activities: Borrowings of senior debt -- 20.3 Repayments of senior debt (7.0) (4.2) ------ ------ Cash provided (used) by financing activities (7.0) 16.1 ------ ------ Net increase (decrease) in cash and cash equivalents 5.1 (15.3) Cash and cash equivalents -- beginning of period 21.8 20.5 ------ ------ Cash and cash equivalents -- end of period $26.9 $ 5.2 ------ ------ ------ ------
See the accompanying notes to financial statements. 6 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 -- BASIS OF PRESENTATION The accompanying financial statements should be read in conjunction with the Financial Statements and Notes thereto included in the Annual Report on Form 10-K of Koll Real Estate Group, Inc. (the "Company") for the year ended December 31, 1994, and the current year's previously issued Quarterly Reports on Form 10-Q. NOTE 2 -- LOSS PER COMMON SHARE The weighted average number of common shares outstanding for both the three and nine month periods ended September 30, 1994 was 43.3 million shares. The weighted average number of common shares outstanding for each of the three and nine month periods ended September 30, 1995 was 47.3 million and 47.0 million, respectively. The Series A Preferred Stock is not included in the loss-per-share calculations because the effect would be anti-dilutive. NOTE 3 -- LAND HELD FOR DEVELOPMENT Land held for development consists of approximately 1,200 acres known as Bolsa Chica located in Orange County, California, adjacent to the Pacific Ocean, surrounded by the City of Huntington Beach and approximately 35 miles south of downtown Los Angeles ("Bolsa Chica"). The Company is currently seeking approvals from state and federal agencies for a Local Coastal Plan ("LCP") for wetlands restoration and residential development of up to 3,300 homes at Bolsa Chica, which was unanimously approved by the Orange County Board of Supervisors in December 1994. The related Development Agreement was unanimously approved by the Orange County Board of Supervisors in April 1995. The project still requires approvals of the California Coastal Commission and the U.S. Army Corps of Engineers. The Company, working with various governmental, community and environmental groups, has developed a quality master plan which reflects a 42% reduction in density (from 5,700 to 3,300 units) and a wetlands restoration plan to be funded by development of up to 900 units in the lowlands. In July 1995, the Company was informed that the Ports of Long Beach and Los Angeles and various federal and state agencies expected to enter into a Memorandum of Agreement ("MOA") specifying the terms under which the various agencies would grant mitigation credits, which are needed by the Ports to expand their facilities, in exchange for Ports' funds to be used for restoration, maintenance and monitoring of the wetlands in the Bolsa Chica lowlands. Consistent with the objectives of the MOA, the Company 7 announced that it had entered into an agreement with the American Land Conservancy, a nonprofit conservation organization, to sell approximately 930 acres of its 1,200-acre Bolsa Chica property, representing substantially all of the Company's lowland ownership at the site. Confidentiality arrangements prevent the Company from releasing the price of the proposed sale. While the agreement between the Company and the American Land Conservancy has expired, discussions are continuing. However, there can be no assurance that a new agreement will be entered into or that any transaction will be completed. The ability of the Company to complete any such transaction would be subject to substantial contingencies, including: (i) obtaining all final approvals from various governmental agencies for development of up to 2,500 residential units on the Company's approximately 200 acres (and approximately 21 acres owned by third parties) on the Bolsa Chica mesa; (ii) Coastal Commission approval of (a) the Ports' Master Plan amendments, including the amount of mitigation credits to be granted in exchange for the Ports funding a $62 million wetlands restoration escrow account and (b) a wetlands restoration plan for Bolsa Chica; and (iii) the American Land Conservancy securing sufficient funds to complete the proposed transaction. Under the 3,300 unit LCP which was approved by the Orange County Board of Supervisors, the Company is committed to restoring the wetlands at Bolsa Chica provided that state and federal agencies approve development of up to 900 homes in the lowlands. On November 3, 1995 the staff of the California Coastal Commission released its report on the Bolsa Chica LCP. The Commission's staff report recommends various modifications to the County's LCP, which are unacceptable to both the County of Orange and the Company. Due to the volume of the 261 page staff report and the fact that it was released only eight business days before the scheduled hearing, the County of Orange, which is the Coastal Commission applicant for the LCP, has determined that more time is required to adequately address and refute the various erroneous statements and infeasible recommendations made in the staff report. The County has therefore requested a continuance of the Coastal Commission's hearing to the Commission's next Southern California meeting in January 1996. If the Coastal Commission approves the 3,300 unit LCP in January 1996, the Company expects to commence infrastructure construction on the mesa in 1997. However, due to a number of factors beyond the Company's control, including possible objections of various environmental and so-called public interest groups that may be made in legislative, administrative or judicial forums, the required approvals could be delayed substantially; and there can be no assurance that the project will receive final approvals as currently proposed. In this regard, on January 13, 1995, two lawsuits challenging the Orange County Board of Supervisors approval of the Bolsa Chica project were filed in Orange County Superior Court. Although the lawsuits differ in the particular issues they raise, generally they each allege, among other things, violations of the California Environmental Quality Act and violations of the California Government Code planning and zoning laws. The plaintiffs in 8 both actions are not seeking monetary damages, but are instead asking the Court to set aside the approval of the Bolsa Chica project. The plaintiffs in both lawsuits also seek attorneys' fees in unspecified amounts if they prevail. The Company and the County of Orange believe these lawsuits are without merit and are vigorously defending them. In the event that the County approved LCP is modified by the Coastal Commission to materially reduce the number of residential units below 3,300, a significant reduction in the book value of the Bolsa Chica project currently reflected in the Company's financial statements would result. Any such potential impact on the statement of operations and stockholders' equity would be partially offset by a decrease in deferred taxes. Realization of the Company's investment in Bolsa Chica will also depend upon various economic factors, including the demand for residential housing in the Southern California market and the availability of credit to the Company and to the housing industry. While the December 1994 bankruptcy filing by the County of Orange is not indicative of the state of the overall Orange County economy, it appears to have had an adverse effect on residential real estate and could also impair the Company's ability to secure municipal bond financing for infrastructure improvements necessary to develop Bolsa Chica. NOTE 4 -- DEBT SENIOR DEBT In February 1995, the Company borrowed $15.5 million under a letter of credit and reimbursement agreement with Nomura Asset Capital Corporation ("Nomura") which was used along with $6.5 million of restricted cash to settle litigation with Abex Inc. and Wheelabrator Technologies Inc. As of September 30, 1995, approximately $5 million was available under a construction loan agreement with Nomura to fund infrastructure construction at the Company's Rancho San Pasqual (formerly Eagle Crest) project. The Company also borrowed $4.8 million under a construction loan agreement with Bank of Boston during the nine months ended September 30, 1995 and applied $4.2 million in proceeds from sales of residential homes at the Company's Wentworth By The Sea project in New Hampshire to satisfy required prepayments, resulting in an outstanding balance of $.6 million as of September 30, 1995. On November 2, 1995, the Company sold all of its interest in the Wentworth residential land to its development manager for $4.1 million in cash plus the buyer's prepayment of amounts outstanding under the Bank of Boston credit agreement, which terminated this credit facility. Cash payments for interest on senior debt were approximately $.4 million and $.9 million for the nine months ended September 30, 1994 and 1995, respectively. 9 SUBORDINATED DEBT Subordinated debt was comprised of the following (in millions):
December 31, September 30, 1994 1995 ------------ ------------- Senior subordinated debentures $123.0 $ 138.2 Subordinated debentures 30.7 34.5 ------ ------- Total face amount 153.7 172.7 Less unamortized discount (6.2) (5.7) Plus accrued interest 5.4 .8 ------ ------- $152.9 $167.8 ------ ------- ------ -------
NOTE 5 -- INCOME TAXES The Internal Revenue Service ("IRS") has completed its examinations of the tax returns of the Company and its consolidated subsidiaries, including formerly affiliated entities, for the years ended December 31, 1989, 1990 and 1991. With respect to each examination, the IRS has proposed material audit adjustments. The Company disagrees with the positions taken by the IRS and has filed a protest with the IRS to vigorously contest the proposed adjustments. After review of the IRS's proposed adjustments, the Company estimates that, if upheld, the adjustments could result in Federal tax liability, before interest, of approximately $17,000,000 (net of amounts which may be payable by former affiliates pursuant to tax sharing agreements) and a disallowance of up to $83,000,000 of recognized net operating loss carryforwards. The Company has not determined the extent of potential accompanying state tax liability adjustments should the proposed IRS adjustments be upheld. The Company's protest was filed on August 11, 1995 and has not yet been considered by the IRS Appeals Division. Management currently believes that the IRS's positions will not ultimately result in any material adjustments to the Company's financial statements. Therefore, the Company has not made any adjustments to its existing reserves for any prospective tax liability or adverse tax consequence at this time. The Company is prepared to pursue all available administrative and judicial appeal procedures with regard to this matter and the Company is advised that its dispute with the IRS could take up to five years to resolve. Cash payments for federal, state and local income taxes were approximately $.4 million and $.2 million for the nine months ended September 30, 1994 and 1995, respectively. Tax refunds received were $.8 million and $.4 million for the nine months ended September 30, 1994 and 1995, respectively. 10 NOTE 6 -- COMMITMENTS AND CONTINGENCIES As described in the Company's Form 10-K for the year ended December 31, 1994, the United States Environmental Protection Agency ("EPA") has designated Universal Oil Products ("UOP"), among others, as a Potentially Responsible Party ("PRP") with respect to an area of the Upper Peninsula of Michigan (the "Torch Lake Site") under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"). UOP is allegedly the successor in interest to one of the companies that conducted mining operations in the Torch Lake area and an affiliate of Allied Signal Inc., a predecessor of the Company. The Company has not been named as a PRP at the site. However, Allied Signal has, through UOP, asserted a contractual indemnification claim against the Company for all claims that may be asserted against UOP by EPA or other parties with respect to the site. EPA has proposed a clean-up plan which would involve covering certain real property both contiguous and non-contiguous to Torch Lake with soil and vegetation in order to address alleged risks posed by copper tailings and slag at an estimated cost between $6 and $7.5 million. EPA estimates that it has spent between $3 and $4 million to date in performing studies of the site. Under CERCLA, EPA could assert claims against the Torch Lake PRP's, including UOP, to recover the cost of these studies, the cost of all remedial action required at the site, and natural resources damages. An earlier settlement in principle with EPA staff pursuant to which UOP would pay $1.7 million in exchange for a release similar to those normally granted by EPA in such circumstances was rejected by certain other governmental authorities in July 1993. Settlement negotiations between the Company, on behalf of UOP, and EPA resumed shortly thereafter. In June 1995, EPA proposed a CERCLA settlement pursuant to which UOP would pay approximately $2.9 million in exchange for a limited covenant by EPA not to sue UOP in the future. The Company, without admission of any obligation to UOP, has since determined to vigorously defend UOP's position that the EPA's proposed clean-up plan is unnecessary and inconsistent with the requirements of CERCLA given that the EPA's own Site Assessment and Record of Decision found no immediate threat to human health. In the Company's view the proposed remediation costs would be in excess of any resulting benefits. 11 ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The principal activity of the Company is to obtain zoning and other entitlements for land it owns and to improve the land for residential development. Once the land is entitled, the Company may sell unimproved land to other developers or investors; sell improved land to homebuilders; or participate in joint ventures with other developers, investors or homebuilders to finance and construct infrastructure and homes. The Company's principal activities also include single and multi-family residential construction and providing residential, retail, office and industrial development services to third parties, including feasibility studies, entitlement coordination, project planning, construction management, financing, marketing, acquisition, disposition and asset management services on a national and international basis, through its offices throughout California, and in Dallas, Denver, Mexico City, Phoenix and Seattle. The Company intends to consider additional real estate acquisition and joint venture opportunities; however, over the next year the Company's principal objective is to maintain adequate liquidity to fully support the Bolsa Chica project development efforts. Real estate held for development or sale and land held for development (real estate properties) are carried at the lower of cost or estimated net realizable value based on undiscounted cash flows. The Company's real estate properties are subject to a number of uncertainties which can affect the future values of those assets. These uncertainties include delays in obtaining zoning and regulatory approvals, withdrawals or appeals of regulatory approvals and availability of adequate capital, financing and cash flow. See "Item 1 --Financial Statements: Note 3 -- Land Held for Development" for a description of Bolsa Chica, the Company's principal development project. In addition, future values may be adversely affected by heightened environmental scrutiny, limitations on the availability of water in Southern California, increases in property taxes, increases in the costs of labor and materials and other development risks, changes in general economic conditions, including higher mortgage interest rates, and other real estate risks such as the demand for housing generally and the supply of competitive products. While the December 1994 bankruptcy filing by the County of Orange is not indicative of the state of the overall Orange County economy, it appears to have had an adverse effect on residential real estate and could also impair the Company's ability to secure municipal bond financing for infrastructure improvements at Bolsa Chica. Real estate properties do not constitute liquid assets and, at any given time, it may be difficult to sell a particular property for an appropriate price. The state of California's economy has had a negative impact on the real estate market generally, on the availability of potential purchasers for 12 such properties and upon the availability of sources of financing for carrying and developing such properties. LIQUIDITY AND CAPITAL RESOURCES The principal assets in the Company's portfolio are residential land which must be held over an extended period of time in order to be developed to a condition that, in management's opinion, will ultimately maximize the return to the Company. Consequently, the Company requires significant capital to finance its real estate development operations. On February 6, 1995 the Company entered into an agreement with Abex Inc. and Wheelabrator Technologies, Inc. which settled litigation (the "Abex litigation") regarding certain tax sharing agreements. Under the terms of the agreement, the Company paid an aggregate of $22 million, $15.5 million of which was funded by borrowings under a financing agreement with Nomura Asset Capital Corporation ("Nomura") and the balance of $6.5 million was funded from restricted cash. During the nine months ended September 30, 1995, the Company generated an aggregate of approximately $12.2 million in cash from asset sales, principally through the sale of wharfage rights in Coronado, California, the sale of industrial property in Murrieta, California and sales of residential homes at its Wentworth By The Sea project in New Hampshire ("Wentworth"), before utilizing approximately $4.2 million of Wentworth proceeds to make required prepayments of senior debt. At September 30, 1995 the Company's unrestricted cash and cash equivalents aggregated $2.5 million and restricted cash of $2.7 million was available to fund infrastructure improvements at the Company's Rancho San Pasqual (formerly Eagle Crest) project. On November 2, 1995, the Company sold all of its residential property at Wentworth for approximately $4.1 million in cash plus the buyer's prepayment of $.6 million of bank debt and assumption of other related liabilities. The Company continues to own the Wentworth marina, which is being actively marketed for sale. Historically, sources of capital have included bank lines of credit, specific property financings, asset sales and available internal funds. The Company has reported losses since 1991, with the exception of 1993 results which included gains on dispositions and extinguishment of debt, and expects to report losses in the foreseeable future. While a significant portion of such losses is attributable to non-cash interest expense on the Company's subordinated debentures, the Company's capital expenditures for project development are significant. Given the limited availability of capital to the Company until the Bolsa Chica project approvals are obtained, the Company will continue to be dependent primarily on real estate asset sales, existing financing arrangements (see Note 4) and cash and cash equivalents on-hand to fund project development and general and administrative costs during 1995. 13 FINANCIAL CONDITION SEPTEMBER 30, 1995 COMPARED WITH DECEMBER 31, 1994 The $15.3 million decrease in cash and cash equivalents primarily reflects the funding of project development costs during the nine months ended September 30, 1995, as well as other activity presented in the Statements of Cash Flows. Restricted cash of $2.7 million at September 30, 1995 reflects funds deposited into an escrow account, as required under the construction loan agreement with Nomura, to be used solely for funding infrastructure costs at the Company's Rancho San Pasqual residential project in San Diego County. The $8.0 million decrease in other assets primarily reflects the March 1995 collection of a note receivable from AV Partnership, equity in net losses from AV Partnership during the pre-sales phase, the reclassification of a note receivable to real estate held for development or sale upon acquisition of title to industrial property in Ontario, California and the refund of a deposit upon termination of a purchase contract for property adjacent to the Bolsa Chica site. The $23.0 million decrease in accounts payable and accrued liabilities primarily reflects the February 1995 payment of $22 million to settle the Abex litigation. Senior debt of $16.1 million reflects the February 1995 borrowing of $15.5 million under a letter of credit and reimbursement agreement with Nomura to settle the Abex litigation discussed above and $.6 million of net borrowings under a construction loan agreement with Bank of Boston for development and construction of single-family homes at the Company's Wentworth project. RESULTS OF OPERATIONS The nature of the Company's business is such that individual transactions often cause significant fluctuations in operating results from year to year. THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1994 The $1.3 million decrease in asset sales revenues from $4.9 million in 1994 to $3.6 million in 1995 and the related decrease in the costs of asset sales from $4.8 million in 1994 to $3.1 million in 1995 principally reflects reduced residential sales at Wentworth, partially offset by the September 1995 sale of a leasehold interest in Grand Caribe Island in Coronado, California and residential sales at the Company's Oceanside Hills project. The decrease in revenues from operations from $3.5 million in 1994 to $3.2 million in 1995 primarily reflects lower revenues from golf operations due to the September 1994 sale of the Company's Wentworth golf course. 14 The change in other expense (income), net from $.5 million of expense in 1994 to $8.9 million of expense in 1995 primarily reflects $7.5 million in asset revaluation losses on the Company's Wentworth project and the golf course at Rancho San Pasqual (formerly Eagle Crest) to reflect estimated net realizable values. NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1994 The $4.5 million increase in asset sales revenues from $8.4 million in 1994 to $12.9 million in 1995 and the increase in the related costs of asset sales from $8.3 million in 1994 to $10.9 million in 1995 principally reflects the March 1995 sale of industrial property in Murrieta, California and the May 1995 sale of wharfage rights in Coronado, California. The decrease in revenues from operations from $8.2 million in 1994 to $6.0 million in 1995 primarily reflects an absence of revenues from the Wentworth golf course which was sold in September 1994 and lower revenues from the Company's domestic development business. The increase in interest expense from $13.7 million in 1994 to $16.8 million in 1995 principally reflects higher outstanding balances of subordinated debentures and senior debt during 1995. The change in other expense (income), net from $1.2 million of expense in 1994 to $6.2 million of income for 1995 primarily reflects $7.5 million in asset revaluation losses on the Company's Wentworth project and the golf course at Rancho San Pasqual to reflect estimated net realizable values, partially offset by non-recurring income from reductions in excess environmental reserves due to favorable governmental agency rulings in 1995. The gain on disposition of discontinued operations, net of income taxes for the 1994 period reflects the receipt of cash for the February 1994 termination of the contingent payment provision of a December 1993 agreement with Libra Invest & Trade Ltd. ("Libra") whereby the Company exchanged its Lake Superior Land Company subsidiary for approximately $42.4 million face amount of the Company's senior subordinated debentures held by Libra and other consideration. PART II -- OTHER INFORMATION ITEM 1 -- LEGAL PROCEEDINGS "Item 3 -- Legal Proceedings" in the Company's Annual Report on Form 10-K for the Year Ended December 31, 1994 is incorporated herein by this reference. See also Notes 5 and 6 of Notes to Financial Statements set forth above in Part I -- Item 1. 15 ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 4.1 Amendment to Construction Loan Agreement dated as of September 12, 1995 between the Registrant, Signal Landmark and Nomura Asset Capital Corporation ("Nomura"). 4.2 Amendment to Letter of Credit and Reimbursement Agreement dated as of September 12, 1995 between the Registrant and Nomura. 27.1 Financial Data Schedule. (b) Reports on Form 8-K: None. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KOLL REAL ESTATE GROUP, INC. Date November 14, 1995 /s/ RAYMOND J. PACINI ----------------------------- ---------------------------------------- RAYMOND J. PACINI Executive Vice President -- Chief Financial Officer 16 EX-4.1 2 FIRST AMENDMENT TO CONSTRUCTION LOAN AGREEMENT FIRST AMENDMENT TO CONSTRUCTION LOAN AGREEMENT THIS FIRST AMENDMENT TO CONSTRUCTION LOAN AGREEMENT (this "Amendment") is made as of September 12, 1995, by and among Koll Real Estate Group, Inc., a Delaware corporation ("KREG"), Signal Landmark, a California corporation ("Signal" and, collectively with KREG, the "Borrower") and Nomura Asset Capital Corporation, a Delaware corporation (together with its successors and assigns, the "Lender"). WHEREAS, Borrower and the Lender have entered into that certain Construction Loan Agreement, dated as of December 20, 1995, and whereas the terms of such agreement were modified by that certain Modification to Construction Loan Agreement, dated as of April 5, 1995 (as so modified, the "Loan Agreement"). WHEREAS, Borrower and the Lender now desire to amend the Loan Agreement, upon the terms and conditions set forth herein. NOW THEREFORE, in consideration of the foregoing, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and the Lender agree to amend the Loan Agreement as follows: 1. Section 1.1 of the Loan Agreement is hereby amended by adding the following definitions: "APPROVED BUDGET" shall mean the budget for Construction Costs for the Eagle Crest Project approved by the Lender pursuant to this Agreement. "CATEGORY" shall mean each of the scope of work categories set forth in the Approved Budget, which categories may include, by way of example and without limitation: Off-Site Improvements, On-Site Common Area Improvements, On-Site Grading, Bonds, City, County and Utility Fees, Soil Engineering Fees,and Architectural and other Engineering Fees, and Contingency. "CONTRACTOR" shall mean Koll Construction Company. "CONSTRUCTION COSTS" shall mean the actual costs incurred by Borrower in connection with the construction of any Infrastructure (but in no event including build-out costs of residential home units) including all capitalized soft costs which are allowable under GAAP. "CONSTRUCTION FUNDS" shall have the meaning assigned to such term in Section 6.2(f) hereof. "CONSTRUCTION PLANS" shall mean the plans and specifications for the Eagle Crest Project approved by the Lender pursuant to this Agreement. "DEVELOPMENT MANAGER" shall mean Akins Eagle Crest, Inc. "ENGINEER" shall mean the City Engineer of the City of Escondido, California or other independent construction inspector approved by the Lender in its sole and absolute discretion. 2. Section 1.1 of the Loan Agreement is hereby amended by inserting the following definitions in lieu of the definitions set forth for such terms in the Loan Agreement: "DRAW" shall mean each disbursement requested by Borrower to be made by the Lender pursuant to the terms of this Agreement. "DRAW FEE" shall have the meaning set forth in Section 2.2(b) hereof. "EAGLE CREST SECURITIES ACCOUNT" shall mean that certain securities account # 324-141517, established with Wells Fargo Bank, N.A. in the name of the Lender, as secured party, which, together with the KREG Securities Account is the subject of the Securities Account Agreement, as amended. "INFRASTRUCTURE" shall mean infrastructure improvements to real property, including, without limitation, road, walkways, sewers, storm drains, water mains, community walls and landscaping and all improvements for the Eagle Crest Project set forth on the Construction Plans. "NACC SHARE" shall mean, (i) from and after the date hereof, eighty percent (80%) of all Net Cash Proceeds from each and every Permitted 2 Sale; and (ii) from and after six months from the date hereof, ninety percent (90%) of all Net Cash Proceeds from each and every Permitted Sale. 3. Section 2.1 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: Section 2.1 DISBURSEMENT PROCEDURES. (a) DISBURSEMENT REQUESTS. The Loan proceeds (which in the aggregate shall not exceed $5,000,000) shall be disbursed on a Category by Category basis in accordance with the Approved Budget and subject to the terms and conditions hereof solely for the purposes of funding Eagle Crest Project Construction Costs. Draws shall be funded only upon Borrower's written request in the form attached hereto as Exhibit G-1 (a "Disbursement Request") showing all costs which Borrower intends to fund with such Draw, itemized in such detail as the Lender may reasonably require, accompanied in each case by (i) an Application and Certificate for Payment (AIA Documents G702 and G703) or other document acceptable to the Lender containing certifications of the Contractor and the Engineer, that construction which has been competed as of the date of the Disbursement Request has been completed in accordance with the Construction Plans, (ii) invoices and lien releases satisfactory to the Lender, including, in any event, partial lien releases executed by each contractor and subcontractor who has received any payment for work performed, and (iii) all other documents and information reasonably required by the Lender. Disbursement Requests shall be submitted in duplicate no less than five (5) Business Days prior to the date of the requested Draw, and shall not be submitted more often than monthly. Notwithstanding anything to the contrary contained herein, except as provided in clause (c) below, in no event shall the Lender have any obligation to fund a Draw with respect to any Category if such Draw, when taken in the aggregate with all prior Draws would exceed the amount originally set forth in the Approved Budget for such Category. Further, notwithstanding anything herein to the contrary, the Lender may, in its absolute discretion, fund Draws from time to time, in the absence of a Disbursement Request, to pay the Lender fees and interest on the Loan and to make payments reasonably deemed advisable by the Lender to protect the Collateral Property, the Bolsa Chica Project or the Lender's interests under any Loan Document or any LOC Document and to fulfill any obligation of Borrower hereunder, including under Section 13.3 that Borrower has not timely fulfilled. 3 (b) MANNER OF DISBURSEMENT. The Lender may fund any Draw by wire transfer, or check payable to Borrower, or on a voucher basis, or by check payable jointly to Borrower and any contractor, subcontractor or other claimant, or by any other means reasonably selected by the Lender. (c) COST-OVERRUNS AND COST SAVINGS. (i) In the event that, at any time and for any reason, the actual cost (the "Actual Cost") reasonably estimated by the Lender or Borrower to be required to complete all matters included in any Category in the Approved Budget exceeds the amount allocated to that Category in the Approved Budget (the "Approved Cost"), Borrower shall immediately notify the Lender and shall, within thirty (30) days after it learns of the cost overrun, do one or more of the following: (1) provide satisfactory evidence to the Lender that Borrower has previously paid the amount of the Actual Cost in excess of the Approved Cost (the "Excess Cost") with funds from a source other than the Loan; (2) reallocate sufficient funds to such Category from funds allocated to "contingency" in the Approved Budget; provided, however, that the Lender's consent to any such reallocation shall be required (which consent shall not be unreasonably withheld, conditioned or delayed) unless the reallocated funds were originally transferred to "Contingency" from cost savings pursuant to this Agreement; or (3) deposit an amount equal to the Excess Cost in an interest- bearing account (the "Overrun Account") from which withdrawals may be made only with the consent of the Lender (which consent shall not be unreasonably withheld, conditioned or delayed), or otherwise provide the Lender with reasonable assurance that sufficient Net Cash Proceeds will be available from Permitted Sales to allow Borrower to pay for such cost overruns. The Lender shall have no obligation to fund further Draws until Borrower has paid or otherwise provided for the cost overrun as required above. Amounts deposited by Borrower in the Overrun Account for any Category shall 4 be disbursed by the Lender prior to the disbursement of any remaining Loan proceeds for such Category. (iii) COST SAVINGS. Upon completion of and disbursement for all matters within any Category in the Approved Budget, any remaining undisbursed amounts allocated to that Category shall be reallocated to the "Contingency" Category and thereafter be available for disbursement in accordance with the terms of this Agreement. (d) RETAINAGE. As to each item in the Approved Budget designated thereon as being subject to retainage, the Lender shall fund Draws for such item in the amount of 90% of the costs of such item properly incurred and substantiated by Borrower during the course of construction, with a retainage of 10% of the total cost of work then completed. All amounts so retained shall be disbursed upon satisfaction of all conditions to the final Draw; provided, however, that Borrower may require the Lender to release a portion of such retainage to any subcontractor that has fully performed under each and all of its contracts relating to the Eagle Crest Project if all of the following conditions precedent have been satisfied: (i) Engineer shall have certified in writing to the Lender that all of the work provided for in the applicable subcontract(s) has been completed in accordance with the Construction Plans, and that all supplies to be delivered by such subcontractor have been delivered; (ii) The Contractor or the Development Manager and/or the subcontractor shall have supplied the Lender with full and complete waivers and lien releases in statutory form of all mechanics' lien claims in form and substance reasonably satisfactory to the Lender and the title company; (iii) Such subcontractor shall have completed all work and supplied all materials it was obligated to complete and supply; and (iv) Contractor, Development Manager and the Lender shall have approved the work completed by such subcontractor, such approval not to be unreasonably withheld, conditioned or delayed. (e) OFFSITE MATERIALS. In the event that any Disbursement Request includes the cost of materials stored at a location other than the Eagle Crest 5 Project ("Offsite Materials"), such Disbursement Request shall include each of the following: (i) evidence that the Offsite Materials have been segregated from other materials in the facility where held and have been appropriately marked to indicate Borrower's ownership thereof and the Lender's security interest therein; and (ii) evidence that the Offsite Materials are insured as required hereunder. (f) WAIVER OF DISBURSEMENT CONDITIONS. Unless the Lender otherwise agrees in writing, the funding by the Lender of any Draw with the knowledge that any condition to such Draw is not fulfilled shall constitute a waiver of such condition only with respect to the particular Draw made, and such condition shall continue to be a condition to all further Draws until fulfilled. 4. Section 2.2(b) of the Loan Agreement is hereby deleted in its entirety and replaced with the following Sections 2.2(b) and (c): (b) AMENDMENT FEE. Concurrently with the execution and delivery of the First Amendment to Loan Agreement, KREG shall pay to the Lender an Amendment Fee equal to Thirty Thousand Dollars ($30,000). (c) AMENDED DRAW FEES. Concurrently with the execution and delivery of the First Amendment to Loan Agreement, KREG shall pay to the Lender a Draw Fee equal to Seventy-Five Thousand Dollars ($75,000). KREG shall pay a second Draw Fee equal to Seventy-Five Thousand Dollars ($75,000) together with the first Disbursement Request made after an aggregate of Five Million Dollars have been disbursed (and repaid) pursuant to the terms hereof. 5. Section 2.4 of the Loan Agreement is hereby amended by adding the following at the end of such Section: "In the event that SBC elects to sell all or any portion of the Bolsa Chica Project to the American Land Conservancy, or any other purchaser thereof, then the Lender shall permit such sale provided that Net Proceeds therefrom are (i) sufficient to repay any and all amounts then outstanding under the LOC Documents and the Loan Documents and (ii) actually applied to the repayment of such amounts. In the event that all amounts then outstanding hereunder are so repaid, 6 Borrower shall nonetheless be entitled to draw an amount equal to $10,000,000 minus all amounts previously disbursed pursuant to the terms hereof (provided, further, that in no event shall the total amount outstanding hereunder exceed $5,000,000 at any time)." 6. Section 6.2 of the Loan Agreement is hereby amended by deleting subsections 6.2(f) and 6.2(g) and replacing them with the following: (f) APPROVED BUDGET AND CONSTRUCTION REQUIREMENTS. (i) The Lender shall have received and approved the Approved Budget and the Construction Plans, together with any modifications or change orders thereto, which approval shall not be unreasonably withheld conditioned or delayed. (ii) No stop notice or similar notice shall have been asserted against the Eagle Crest Project which has not been released. (iii) The Lender shall be satisfied, based on its own inspections or other reliable information, that the development of the Eagle Crest Project is progressing satisfactorily and in conformance with all applicable laws and other requirements. (iv) The Lender shall have received, at Borrower's sole expense, in form and substance satisfactory to the Lender, from the Title Company all endorsements to the Title Policy as the Lender may reasonably require, including, without limitation, CLTA Form 122 (priority of advances). (g) ADDITIONAL REQUIREMENTS FOR DRAWS SUBSEQUENT TO DISBURSEMENT OF THE INITIAL DRAW PROCEEDS. KREG shall have the right to re-Draw up to an additional $5,000,000 in the aggregate (after an aggregate of $5,000,000 of Initial Draw Proceeds have been disbursed in accordance with Section 2.4 and provided that such Initial Draw Proceeds have theretofore been repaid and no Event of Default has occurred hereunder or under any of the LOC Documents) for Eagle Crest Project Construction Costs, if and only if: (1) the Initial Draw Proceeds, together with all interest, fees and other charges thereon have been repaid in full and no Event of Default has occurred and is continuing under the Loan Documents or the LOC Documents; (2) no fewer than eighty (80) home sites at the Eagle Crest Project have been sold in accordance with the terms and conditions 7 hereof; (3) not more than two hundred (200) home sites at the Eagle Crest Project have been sold in total; and (4) all matters relating to the Henley Facilities Audit have been satisfactorily resolved or no Assessment (including, without limitation, any Assessment resulting from the Henley Facilities Audit) has been made, filed, or otherwise assessed against KREG, any of its Affiliates, the Collateral, or any of the property, assets or revenues of KREG. 7. Section 8.2 of the Loan Agreement is hereby amended by adding the following language after the word "liabilities)" in the tenth line of such Section: "other than up to $30,000,000 for actual Bolsa Chica development costs incurred since January 1, 1995 (which costs may be included in the calculation of Signal's assets and liabilities for purposes of calculating the Minimum Net Worth Amount)" 8. Section 8.6 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: 8.6 USE OF REMAINING NET CASH PROCEEDS; COMPLETION OF EAGLE CREST PROJECT INFRASTRUCTURE. (a) Signal agrees that it shall allocate and apply any and all Net Cash Proceeds resulting from any Permitted Sale remaining after the proper payment and application of the NACC Share in accordance with the terms hereof, to the payment of Construction Costs in connection with the construction of the Eagle Crest Project Infrastructure. (b) Borrower covenants and agrees that it shall complete construction (or cause the completion of construction) of the Eagle Crest Project Infrastructure on or before the Maturity Date. 9. Section 9.1 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: 9.1 PROHIBITION AGAINST FUNDAMENTAL CHANGES. Signal and its Subsidiaries will not enter into any transaction of sale, transfer, merger, consolidation or amalgamation of its ownership interests, or (except with respect to any Exempt Guarantors which are Subsidiaries) liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution). Signal and its Subsidiaries will not acquire any business or assets from, or capital stock of, or be a party to any acquisition of, 8 any Person except for (a) purchases of non-real property inventory and other assets to be used in the ordinary course of business, (b) Investments permitted under the Securities Account Agreement or Section 9.4 hereof, and (c) purchases of real property or companies involved in the development, entitlement or construction of residential housing, provided, however, that such purchases shall be made through special purpose Subsidiaries and shall not exceed $2,5000,000 per year in the aggregate. Subject to Signal's right to effect a Permitted Sale in accordance with Section 13.13 hereof, Signal and its Subsidiaries will not engage in any Assets Sales, in one transaction or a series of transactions, whether to Affiliates of Signal or otherwise; provided, however, that Signal or its Subsidiaries may engage in Asset Sales with respect to (i) any non-real property inventory or other assets sold or disposed of in the ordinary course of business; (ii) obsolete or worn-out property, tools or equipment no longer used or useful in its business so long as the amount thereof sold in any single fiscal year by Signal shall not have a fair market value in excess of $50,000 in aggregate; or (iii) assets (other than the Collateral Property, the Bolsa Chica Stock, the Bolsa Chica Project or other Collateral) having an aggregate value of $5,000,000 or less per year as to any one transaction or series of transactions; provided, however, that the proceeds of any such sales are either applied to the repayment of the Loan Amount and/or the Reimbursement Amount or are otherwise used by Signal for the development of the Collateral Property or the Bolsa Chica Project; further, Signal or SBC shall have the right to sell or to grant an option to acquire up to fifty acres of the wetland portion of the Bolsa Chica Project to Fieldstone Company (which owns property adjacent to the Bolsa Chica Project) and to use any proceeds therefrom as part of a mitigation credit in connection with the implementation of the Wetlands Restoration Plan required as a condition to securing the entitlements of the Bolsa Chica Project and the certification of the Environmental Impact Report for the Bolsa Chica Project by the Orange County Board of Supervisors. Notwithstanding anything to the contrary herein or in the other Loan Documents or the LOC Documents, in the event that Signal fails to obtain any forecast entitlements or approvals or satisfy any development targets or cash flow forecasts with respect to the Collateral Properties and the Bolsa Chica Project, all as set forth and projected on EXHIBIT C hereto, then ninety percent (90%) of the Net Cash Proceeds from any and all Asset Sales of Signal and each of its Subsidiaries shall be deposited into the Securities Account. 10. Section 9.3(f) of the Loan Agreement is hereby deleted in its entirety and replaced with the following Sections 9.3(f) and (g): 9 (f) Indebtedness incurred by a Subsidiary of KREG in connection with the acquisition of a company involved in the development, entitlement or construction of residential housing or commercial projects or in connection with a Quick Flip Transaction, or an Asset Purchase Transaction permitted hereunder; provided that such Indebtedness is expressly non-recourse to KREG, Signal and the Guarantors and is not secured by any of the Collateral or the Bolsa Chica Project and provided further that the Lender shall have consented to the incurrence of such Indebtedness, which consent shall not be unreasonably withheld, conditioned or delayed; and (g) Indebtedness in connection with build-to-suit transactions incurred by KREG Operating Company or its Subsidiaries, including guarantees of completion made in connection with such build-to-suit transactions; provided that the Indebtedness resulting from such build-to-suit transactions does not in the aggregate exceed $20,000,000. 11. Section 9.6 of the Loan Agreement is hereby deleted in its entirety and replaced with the following 9.6 USE OF LOAN PROCEEDS. The amounts funded hereunder shall be used solely for the purpose of paying for Construction Costs incurred by Signal and approved by the Lender, which approval shall not be unreasonably withheld, conditioned, or delayed, in connection with the construction of the Eagle Crest Project Infrastructure. KREG and Signal agree that the Loan is a "construction loan" as used in Section 6323(c)(2) of the Code. 12. Section 13.13 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: 13.13 RELEASE OF CERTAIN COLLATERAL. Signal will from time to time during the term of the Loan have the right to sell (i) home sites at the Eagle Crest Project in accordance with a disposition plan approved by the Lender for not less than: (1) $53,000 in Net Cash Proceeds per individual Product I lot (77 lots total); (2) $53,000 in Net Cash Proceeds per individual Product II lot (126 lots total); 10 (3) $40,000 in Net Cash Proceeds per individual Product III lot (136 lots total); (4) $30,000 in Net Cash Proceeds per individual Product IV lot (109 lots total); and (5) $120,000 in Net Cash Proceeds per individual Custom Lot (20 lots total); (which lots are set forth in the existing subdivision plans therefor), (ii) the golf course at the Eagle Crest Project for not less than $7,000,000 in Net Cash Proceeds and (iii) the Fairbanks Highlands Project for not less than $7,000,000 in Net Cash Proceeds (any of the foregoing shall be referred to herein as a "PERMITTED SALE"). Signal and the Lender contemplate that the real property that is the subject of any such Permitted Sale shall be Released from the Lien of the Mortgage encumbering such Collateral Property. Provided that the NACC Share of Net Cash Proceeds resulting from each and every Permitted Sale is delivered to the Lender or deposited into the Securities Account as required under this Agreement, the Securities Account Agreement, and the LOC Documents, the Lender agrees to execute a request for partial reconveyance and deliver such request for partial reconveyance to the Trustee for any portion of the Collateral Properties so sold, upon the sale of such portion of the Collateral Properties to a bona fide third party purchaser or to a KGT Affiliate or special purpose Subsidiary as permitted by the terms hereof. Upon receipt of such partial release request and prior to recording any partial release, Trustee shall obtain from Signal and deliver to the Lender: (i) a copy of the preliminary closing statement for the applicable Permitted Sale (with a copy of the final closing statement to follow as soon as available after the closing of such Permitted Sale); and (ii) a completed partial release request for execution by the Lender. The Lender shall have no obligation to execute a partial release request with respect to any portion of the Collateral Properties unless and until that portion of sale proceeds relating thereto which are required to be delivered to the Lender hereunder or under the LOC Documents have been so delivered to the Lender. Notwithstanding the foregoing, KREG and Signal agree that if at any time KREG or Signal obtains knowledge of any Federal tax lien or Assessment (including, without limitation, any tax lien or Assessment in connection with the Henley Facilities Audit), then KREG and Signal shall immediately notify the Lender thereof telephonically and in writing. In no event shall any otherwise Permitted Sales be permitted, and all pending Permitted Sales shall be stayed, immediately upon KREG's or Signal's knowledge of any Federal tax lien or Assessment (including, without limitation, any tax lien 11 or Assessment in connection with the Henley Facilities Audit) until such time as the Lender, in its sole and absolute discretion, agrees in writing to permit further Permitted Sales to occur. 13. The Lender shall agree to execute a letter, in substantially the form of Exhibit K attached hereto. 14. Exhibit G to the Loan Agreement is hereby deleted in its entirety and replaced with Exhibit G-1 attached hereto. 15. In addition to those expenses set forth in Section 13.3 of the Loan Agreement, KREG agrees to pay or reimburse the Lender for paying: (a) all reasonable out-of-pocket expenses of the Lender and any servicer of the Loan (including, without limitation, the reasonable fees, charges and disbursements of Skadden, Arps, Slate, Meagher & Flom, counsel to the Lender, in connection with the negotiation, preparation, execution and delivery of this Amendment) and the Lender's due diligence in connection with the Collateral Properties; (b) all reasonable out-of-pocket travel and third party due diligence expenses of the Lender and any servicer (including the reasonable fees, charges and disbursements of counsel to the Lender and such servicer ) in connection with the preparation, negotiation, review and execution of any documents required pursuant hereto or to the Loan Documents; and (c) all reasonable costs and expenses of the Lender and such servicer (including reasonable counsel fees, charges and disbursements) in connection with any Default and any enforcement or collection proceedings resulting therefrom, including, without limitation, in connection with any bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar proceedings involving KREG, Signal or the Guarantors or a "workout" of the Loan. 16. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute but one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. 17. Except as expressly amended hereby, the Loan Agreement shall continue unmodified and remain in full force and effect. 12 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date and year first above written. KOLL REAL ESTATE GROUP, INC., a Delaware corporation By: /s/ RAYMOND J. PACINI _____________________________ Raymond J. Pacini Chief Financial Officer and Executive Vice President SIGNAL LANDMARK, a California corporation By: /s/ RAYMOND J. PACINI _____________________________ Raymond J. Pacini Chief Financial Officer and Executive Vice President NOMURA ASSET CAPITAL CORPORATION a Delaware corporation By: /s/ RICHARD A. MAGNUSON _____________________________ Richard A. Magnuson Vice President 13 EXHIBIT G-1 FORM OF DISBURSEMENT REQUEST G-1 EXHIBIT K FORM OF SURETY LETTER G-2 EX-4.2 3 FIRST AMENDMENT TO LETTER OF CREDIT AND REIMBUR. FIRST AMENDMENT TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT THIS FIRST AMENDMENT TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT (this "Amendment") is made as of September 12, 1995, by and between Koll Real Estate Group, Inc., a Delaware corporation ("KREG") and Nomura Asset Capital Corpora- tion, a Delaware corporation (together with its successors and assigns, "NACC"). WHEREAS, KREG and NACC have entered into that certain Letter of Credit and Reimbursement Agreement, dated as of December 20, 1994 (the "Loan Agreement"). WHEREAS, KREG and NACC now desire to amend the Loan Agreement, upon the terms and conditions set forth herein. NOW THEREFORE, in consideration of the foregoing, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, KREG and NACC agree to amend the Loan Agreement as follows: 1. Section 1.1 of the Loan Agreement is hereby amended by inserting the following definitions in lieu of the definitions set forth for such terms in the Loan Agreement: "EAGLE CREST SECURITIES ACCOUNT" shall mean that certain securities account # 324-141517, established with Wells Fargo Bank, N.A. in the name of NACC, as secured party, which, together with the KREG Securities Account is the subject of the Securities Account Agreement, as amended. "INFRASTRUCTURE" shall mean infrastructure improvements to real property, including, without limitation, road, walkways, sewers, storm drains, water mains, community walls and landscaping and all improvements for the Eagle Crest Project set forth on the "Construction Plans" (as such term is defined in the Construction Loan Agreement). "NACC SHARE" shall mean, (i) from and after the date hereof, eighty percent (80%) of all Net Cash Proceeds from each and every Permitted Sale; and (ii) from and after six months from the date hereof, ninety percent (90%) of all Net Cash Proceeds from each and every Permitted Sale. 2. Section 7.4 of the Loan Agreement is hereby amended by: (a) deleting the phrase in the fifth line of such section which reads: "eighty percent (80%) of all Net Cash Proceeds from such permitted sale (the "NACC SHARE")" and inserting in its place the phrase "the NACC Share"; and (b) adding the following at the end of such Section: "In the event that SBC elects to sell all or any portion of the Bolsa Chica Project to the American Land Conservancy, or any other purchaser thereof, then NACC shall permit such sale provided that Net Cash Proceeds therefrom are (i) sufficient to repay any and all amounts then outstanding under the Loan Documents and the Construction Loan Documents and (ii) actually applied to the repayment of such amounts." 3. Section 10.3 of the Loan Agreement is hereby amended by deleting subsection 10.3 (f). 4. Section 12.2 of the Loan Agreement is hereby amended by adding the following language after the word "liabilities" in the fourth line of such Section: "(other than up to $30,000,000 for actual Bolsa Chica development costs incurred since January 1, 1995 (which costs may be included in the calculation of Signal's assets and liabilities for purposes of calculating the Minimum Net Worth Amount))" 5. Section 12.6 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: 12.6 USE OF REMAINING NET CASH PROCEEDS; COMPLETION OF EAGLE CREST PROJECT INFRASTRUCTURE. (a) KREG shall cause Signal to allocate and apply any and all Net Cash Proceeds resulting from any Permitted Sale remaining after the proper payment and application of the NACC Share in accordance with the terms hereof, to the payment of "Construction Costs" (as such term is defined in the Construc- 2 tion Loan Agreement) in connection with the construction of the Eagle Crest Project Infrastructure. (b) KREG covenants and agrees that it shall complete construction (or cause the completion of construction) of the Eagle Crest Project Infrastructure on or before the Maturity Date of the Construction Loan. 6. Section 13.1(c) of the Loan Agreement is hereby modified by deleting clause (v) thereof and replacing it with the following: "(v) any other assets (other than the Collateral or the Bolsa Chica Project) having an aggregate value of $5,000,000 or less per year; provided, however, that the proceeds of any such sales are either applied to the repayment of the Construction Loan and/or the Repayment Amount or are otherwise used by Signal for the development of the Collateral Property or the Bolsa Chica Project." 7. Section 13.3(h) of the Loan Agreement is hereby deleted in its entirety and replaced with the following Sections 13.3(h): "(h)(i) Indebtedness incurred by a Subsidiary of KREG in connection with the acquisition of a company involved in the development, entitlement or con- struction of residential housing or commercial projects or in connection with a Quick Flip Transaction, or an Asset Purchase Transaction permitted hereunder; provided that such Indebtedness is expressly non-recourse to KREG, Signal and the Guarantors and is not secured by any of the Collateral or the Bolsa Chica Project and provided further that NACC shall have consented to the incurrence of such Indebtedness, which consent shall not be unreasonably withheld, conditioned or delayed; and (ii) Indebtedness in connection with build-to-suit transactions incurred by KREG Operating Company or its Subsidiaries, including guarantees of completion made in connection with such build-to-suit transactions; provided that the Indebtedness resulting from such build-to-suit transactions does not in the aggregate exceed $20,000,000." 8. In addition to those expenses set forth in Section 17.5 of the Loan Agree- ment, KREG agrees to pay or reimburse NACC for paying: (a) all reasonable out- of-pocket expenses of NACC and any servicer of the Loan (including, without limitation, the reasonable fees, charges and disbursements of Skadden, Arps, Slate, Meagher & Flom, counsel to NACC, in connection with the negotiation, preparation, execution and delivery of this Amendment) and NACC's due diligence in connection with the Collateral Properties; (b) all reasonable out-of- 3 pocket travel and third party due diligence expenses of NACC and any servicer (including the reasonable fees, charges and disbursements of counsel to NACC and such servicer ) in connection with the preparation, negotiation, review and execution of any documents required pursuant hereto or to the Loan Documents; and (c) all reasonable costs and expenses of NACC and such servicer (including reasonable counsel fees, charges and disbursements) in connection with any Default and any enforcement or collection proceedings resulting therefrom, including, without limitation, in connection with any bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar proceedings involving KREG, Signal or the Guarantors or a "workout" of the Loan. 9. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute but one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. 10. Except as expressly amended hereby, the Loan Agreement shall continue unmodified and remain in full force and effect. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date and year first above written. KOLL REAL ESTATE GROUP, INC., a Delaware corporation By: /s/ RAYMOND J. PACINI _____________________________ Raymond J. Pacini Chief Financial Officer and Executive Vice President NOMURA ASSET CAPITAL CORPORATION a Delaware corporation By: /s/ RICHARD A. MAGNUSON _____________________________ Richard A. Magnuson Vice President 5 EX-27.1 4 EXHIBIT 27.1
5 1,000,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 5 0 0 0 371 0 0 0 401 0 168 2 0 0 127 401 13 19 11 18 6 0 17 (28) (11) (17) 0 0 0 (17) .36 0
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