-----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, HJo1ilEY9yfpQbbncyRVp1khY70JMaE8Va0zL5C0MX+/xAB37bm/an7tSZ2g6qcv L1ilNigLfDQvuwoblAjM0Q== 0001104659-01-500661.txt : 20010516 0001104659-01-500661.hdr.sgml : 20010516 ACCESSION NUMBER: 0001104659-01-500661 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA COASTAL COMMUNITIES INC CENTRAL INDEX KEY: 0000840216 STANDARD INDUSTRIAL CLASSIFICATION: LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES) [6552] IRS NUMBER: 020426634 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17189 FILM NUMBER: 1634763 BUSINESS ADDRESS: STREET 1: 6 EXECUTIVE CIRCLE STREET 2: SUITE 250 CITY: IRVIN STATE: CA ZIP: 92614 BUSINESS PHONE: 9492507700 MAIL ADDRESS: STREET 1: 6 EXECUTIVE CIRCLE STREET 2: SUITE 250 CITY: IRVIN STATE: CA ZIP: 92614 FORMER COMPANY: FORMER CONFORMED NAME: KOLL REAL ESTATE GROUP INC DATE OF NAME CHANGE: 19931006 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 10-Q 1 j0308_10q.htm Prepared by MerrillDirect

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2001

Commission file number 0-17189

CALIFORNIA COASTAL COMMUNITIES, 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.)
   
   
6 Executive Circle, Suite 250  
Irvine, California
 92614
(Address of principal executive offices) (Zip Code)


Registrant's telephone number, including area code: (949) 250-7700

             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  o

             Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes  x      No  o

The number of shares of Common Stock outstanding at April 30, 2001 was 10,058,589.

 

CALIFORNIA COASTAL COMMUNITIES, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2000

 I N D E X

Part I - Financial Information:
     
  Item 1 - Consolidated Financial Statements
     
    Consolidated Balance Sheets - December 31, 2000 and March 31, 2001
     
    Consolidated Statements of Operations - Three Months Ended March 31, 2000 and 2001
     
    Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and 2001
     
    Notes to Consolidated Financial Statements
     
     
  Item 2 - Management's Discussion and Analysis of FinancialCondition and Results of Operations
     
     
  Item 3 - Quantitative and Qualitative Disclosures AboutMarket Risk
   
   
Part II Other Information:
     
     
  Item 1 - Legal Proceedings
     
     
  Item 6 - Exhibits and Reports on Form 8-K
     
     
SIGNATURE

 

CALIFORNIA COASTAL COMMUNITIES, INC.

CONSOLIDATED BALANCE SHEETS

(in millions)

 

  December 31, 2000
 March 31, 2001
    (Unaudited)
     
         ASSETS    
     
Cash and cash equivalents $6.9 $8.9
Restricted cash 1.9 1.9
Real estate held for current development or sale 21.4 17.1
Land held for future development 142.0 143.1
Other assets 6.5
5.6
     
  $178.7
$176.6
     
         LIABILITIES AND STOCKHOLDERS' EQUITY    
     
Liabilities:    
         Accounts payable and accrued liabilities $4.0 $2.8
         Project debt 9.0 6.4
         Other liabilities 23.1
23.0
     
         Total liabilities 36.1
32.2
Commitments and contingencies    
     
Stockholders' equity:    
         Common stock .5 .5
         Capital in excess of par value 134.4 135.1
         Retained earnings 7.7
8.8
         Total stockholders' equity 142.6
144.4
     
  $178.7
$176.6

 

 

See the accompanying notes to consolidated financial statements.

 

CALIFORNIA COASTAL COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in millions, except per share amounts)

  Three Months Ended
  March 31,
  2000
 2001
     
Revenues $— $12.0
     
Costs of sales —
10.0
     
         Gross operating margin — 2.0
     
Selling, general and administrative expenses .9 .8
Interest expense .1 .1
Income from unconsolidated joint venture (.5) (.6)
Other income, net (1.2)
(.2)
     
Income before income taxes .7
1.9
     
Provision for income taxes:    
         Income taxes – equivalent benefit credited to capital in excess of par .3 .7
         Income taxes – alternative minimum tax —
.1
               Total provision for income taxes .3
.8
     
Net income $.4
$1.1
     
Earnings per common share - basic and diluted $.04
$.11

 

 

See the accompanying notes to consolidated financial statements.

CALIFORNIA COASTAL COMMUNITIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)

  Three Months Ended
  March 31,
  2000
 2001
     
Cash flows from operating activities:    
         Net income $.4 $1.1
         Adjustments to reconcile to cash usedby operating activities:    
               Non-cash interest expense .1 .1
               Deferred income taxes .3 .7
               Gains on sales of real estate held for current development or sale — (2.0)
               Proceeds from asset sales, net — 11.9
         Changes in assets and liabilities:    
               Investments in real estate held for current development or sale (4.7) (5.6)
               Investments in land held for future development (1.2) (1.1)
               Decrease in other assets .4 .9
               Decrease in accounts payable, accrued and other liabilities, net (.4)
(1.4)
     
                     Cash provided by (used in) operating activities (5.1)
4.6
     
Cash flows from investing activities:    
         Maturity of short-term investments 3.0
—
                     Cash provided by investing activities 3.0
—
     
Cash flows from financing activities:    
         Borrowings of project debt 5.4 5.0
         Repayments of project debt — (7.6)
         Return of interest income from restricted cash .2
—
     
                     Cash provided by (used in) financing activities 5.6
(2.6)
     
Net increase in cash and cash equivalents 3.5 2.0
     
Cash and cash equivalents - beginning of period 5.8
6.9
     
Cash and cash equivalents - end of period $9.3
$8.9

 

 

See the accompanying notes to consolidated financial statements. CALIFORNIA COASTAL COMMUNITIES, INC.

NOTES TO FINANCIAL STATEMENTS

 

Note 1 - Basis of Presentation

             The accompanying financial statements have been prepared by California Coastal Communities, 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 these unaudited consolidated financial statements reflect all material adjustments (consisting only of normal recurring adjustments) and disclosures necessary for the fair presentation of the results of operations and statements of financial position when read in conjunction with the Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10–K for the year ended December 31, 2000. The results for interim periods are not necessarily indicative of the results to be expected for the full year. This report contains forward looking statements. Readers are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties that actual events or results may differ materially from those described herein as a result of various factors, including without limitation, the factors discussed generally in this report.

             The Company completed its recapitalization (the "Recapitalization") which became effective on September 2, 1997, pursuant to a prepackaged plan of reorganization which was confirmed by the U.S. Bankruptcy Court for the District of Delaware. The prepackaged plan was filed by the Company, excluding all of its subsidiaries and affiliates, contemporaneously with a voluntary petition for relief under Chapter 11 of the bankruptcy code. On the effective date of the Recapitalization, the Company adopted the provisions of Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("Fresh-Start Reporting") as promulgated by the American Institute of Certified Public Accountants. Accordingly, all assets and liabilities were revalued to reflect their reorganization value, approximating their fair value at the effective date of the Recapitalization. In addition, the accumulated deficit of the Company was eliminated and its capital structure recast in conformity with the Recapitalization.

Note 2 – Significant Accounting Policies

Earnings Per Common Share

             For the three months ended March 31, 2000 and 2001, the weighted average common shares outstanding were 10.1 million. Earnings per share, assuming dilution, is computed using the weighted average number of common shares outstanding and the dilutive effect of potential common shares outstanding.

New Accounting Pronouncements

             In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS 133 was adopted on January 1, 2001 as required. The Company does not currently hold derivatives or engage in hedging activities; therefore, the adoption of this standard did not have a material effect on the Company.

Impairment of Long-Lived Assets

             The Company assesses the impairment of land held for future development and other long-lived assets in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long–Lived Assets and Long–Lived Assets to Be Disposed Of" ("SFAS 121"), which requires an impaired asset to be written down to fair value. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As provided by SFAS 121, impairment is evaluated by comparing an asset’s carrying value to the undiscounted estimated cash flows expected from the asset’s operations and eventual disposition. If the sum of the undiscounted estimated future cash flows is less than the carrying value of the asset, an impairment loss is recognized based on the fair value of the asset. If an impairment occurs, the fair value of an asset for purposes of SFAS 121 is deemed to be the amount a willing buyer would pay a willing seller for such asset in a current transaction. On September 2, 1997, the Company completed its recapitalization pursuant to court confirmation of a Prepackaged Plan of Reorganization, and the Company applied the principles required by the American Institute of Certified Public Accountant’s SOP 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("Fresh-Start Reporting") and the carrying value of real estate properties was adjusted to fair value (Note 1). Following the Coastal Commission’s November 2000 suggested modifications to the Bolsa Chica Local Coastal Program to limit development to only 65 acres of the Company’s 208 acre Bolsa Chica Mesa (see Note 4), the Company evaluated this asset’s carrying value. Since the undiscounted estimated future cash flows from the upper bench of the Bolsa Chica Mesa and the Company’s additional 285 acres at Bolsa Chica exceed its carrying value, there has been no impairment.

Note 3 – Restricted Cash

             Restricted cash as of March 31, 2001 reflects a mortgage-backed security recorded at amortized cost, maturing in June 2001.  The security is held as collateral for a letter of credit obtained by the Company to secure certain indemnity obligations under a tax sharing agreement with a former affiliate.

Note 4 - Land Held for Future Development

             The Company owns approximately 350 acres located in Orange County, California overlooking the Pacific Ocean and the Bolsa Chica wetlands (which were sold by the Company to the State of California in 1997), surrounded by the City of Huntington Beach and approximately 35 miles south of downtown Los Angeles. The Company’s holdings include 208 acres on a mesa north of the Bolsa Chica wetlands ("Bolsa Chica Mesa"), approximately 100 acres on, or adjacent to, the Huntington Mesa and 42 acres of lowlands which were acquired by the Company in September 1997.

             The planned community at Bolsa Chica Mesa is expected to offer a broad mix of home choices, including primarily single-family homes. A Local Coastal Program ("LCP") for development of up to 2,500 homes on the Bolsa Chica Mesa was approved by the Orange County Board of Supervisors in December 1994 and by the California Coastal Commission (the "Coastal Commission") in January 1996. In October 1997, in response to a trial court decision in connection with a lawsuit which challenged the 1996 approvals of the Coastal Commission (the "Coastal Act Lawsuit"), the Coastal Commission approved modifications to the LCP which eliminated the filling of Warner Pond and thereby reduced the maximum number of homes to be built from 2,500 to no more than 1,235 homes on the Bolsa Chica Mesa. The Orange County Board of Supervisors subsequently accepted the Coastal Commission’s suggested modifications.

             In response to the April 1999 Court of Appeal’s decision in the Coastal Act Lawsuit which prohibited relocation of a 14-acre grove of dying eucalyptus trees which serves as raptor habitat, on November 16, 2000, the Coastal Commission held another public hearing on the LCP and approved suggested modifications to the LCP which would limit development to only 65 acres of the Bolsa Chica Mesa (the "Upper Mesa"). The Coastal Commission’s latest suggested modifications would prohibit the Company and other landowners from development on the approximately 140-acre remainder of the Bolsa Chica Mesa (the "Lower Mesa"). On January 12, 2001 the Company’s subsidiaries filed a complaint in Orange County Superior Court challenging the Coastal Commission’s November 2000 suggested modifications to the County’s Bolsa Chica LCP. The complaint includes causes of action for violation of the Company’s constitutional rights of equal protection and due process, and for a public taking of its private property without compensation in contravention of the U.S. and California Constitutions. The complaint alleges that the Coastal Commission arbitrarily abandoned decades of prior approvals which would have permitted development on the entire Bolsa Chica Mesa. On February 28, 2001, the Orange County Superior Court ordered that the case be reassigned to San Diego Superior Court based on the request of the Coastal Commission. Due to the uncertainty of the litigation process, the Company cannot predict how long it will take to pursue its claims, or the probability for success.

             On May 8, 2001, the County of Orange declined to consider the Coastal Commission’s November 2000 suggested modifications. In their response to the Coastal Commission, the County stated that the Commission's suggested modifications were infeasible and unacceptable. In particular, the County noted that the Commission's suggested modifications would remove 140 acres of viable residentially-zoned land from the County's plan.

             While the Company vigorously pursues its litigation to obtain entitlement for residential construction on the Lower Mesa, it is also pursuing approval of permits for development of the Upper Mesa. After review of environmental, economic, marketing, construction and political considerations, the Company is currently planning to apply for permits to build approximately 400 single family homes on the Upper Mesa.  However, the Company is continuing to evaluate alternative development plans which could result in higher density development. If a plan is approved by the County of Orange in early 2002, the Company could then seek approval from the Coastal Commission during the second quarter of 2002 and expect to commence infrastructure construction on the Upper Mesa during the third quarter of 2002 provided that County and Coastal Commission approvals are obtained on a timely basis, followed by the start of home construction during the first quarter of 2003. The Company does not believe that the Coastal Commission process will ultimately prevent it from developing a planned community at Bolsa Chica, however, there can be no assurance in that regard, or as to the number of acres the Company would be permitted to develop, or that further litigation or administrative delay will not result.

             The estimation process involved in the determination of value is inherently uncertain since it requires estimates as to future events and market conditions. Such estimation process assumes the Company’s 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. Economic, market, environmental and political conditions may affect management’s development and marketing plans. In addition, the implementation of such development and marketing plans could be affected by the availability of future financing for development and construction activities. At such time as the Company’s home-building activities at Bolsa Chica commence, the Company would be required to account for such property at the lower of cost or market, which may necessitate a write-down of its carrying value. Accordingly, the ultimate values of the Company’s land held for future development are dependent upon future economic and market conditions, the availability of financing, and the resolution of political, environmental and other related issues. The development of the Company’s Bolsa Chica Mesa project is dependent upon various governmental approvals, results of litigation and economic factors. Accordingly, the amount ultimately realized from such project may differ materially from current estimates, as well as the project’s carrying value.

Note 5 - - Project Debt

             In March 2000, Signal Landmark, a subsidiary of the Company, entered into a construction loan agreement with a commercial bank to finance the construction of infrastructure and 16 homes at the Company’s Sandover project on the Bolsa Chica Mesa. The $9 million loan facility, secured by a deed of trust on the Sandover project, required principal repayments upon the sale of homes. As of March 31, 2001, approximately $8.4 million was drawn on this facility, and repayments upon the sale of homes aggregated $6.2 million, resulting in a remaining balance of approximately $2.2 million. The interest rate of prime plus three-fourths percent was 8.75% as of March 31, 2001, and the loan was repaid in full on April 4, 2001. Construction period interest capitalized to the project was approximately $.1 million for each of the three months ended March 31, 2000 and 2001.

             Following the full repayment in January 2001 of an earlier construction loan, in March 2001, Signal Landmark entered into an additional construction loan agreement with a commercial bank to finance construction of final phases and the model homes at the Company’s 112-home Rancho San Pasqual project in Escondido, California. The $6 million loan facility is secured by a deed of trust on the Rancho San Pasqual project and requires principal repayments upon the sale of homes. The loan bears an interest rate of prime plus three-fourths percent (8.75% at March 31, 2001), and matures on September 19, 2001. As of March 31, 2001, approximately $4.2 million had been drawn on this facility. For the three months ended March 31, 2000 and 2001, approximately $.5 million and less than $.1 million, respectively, of construction period interest was capitalized to the project.

Note 6 – Income Taxes

             The Internal Revenue Code (the "Code") generally limits the availability of net operating losses ("NOLs") if an ownership change occurs within any three-year period under Section 382. If the Company were to experience an ownership change, the Company’s annual use of its NOLs would generally be limited to the value of the Company’s equity immediately before the ownership change multiplied by the long-term tax-exempt rate. The first date upon which the Company experienced an ownership shift subsequent to the Recapitalization (a Section 382(l)(5) protected ownership change), was June 16, 1998. The Company estimates that after giving effect to various transactions by stockholders who hold a 5% or greater interest in the Company, and the Company’s repurchase of an aggregate of approximately 1.9 million shares in December 1998 and June 1999, it has experienced a cumulative ownership shift as computed in accordance with Section 382 of approximately 40%. The federal NOLs available as of March 31, 2001 are approximately $196 million, which expire beginning in 2005.

             In response to an unsolicited written consent from a majority of its stockholders, the Company amended its certificate of incorporation on October 14, 1999 in order to preserve the ability of the Company to utilize its $197 million of tax loss carryforwards as of that date. Since the Company’s use of its NOLs would be severely restricted if it experiences an ownership change of 50% or more, the Company’s majority stockholders requested that the Board of Directors enact the amendments, which have been determined to be in the best interest of the Company and its stockholders. The amendments prohibit future purchases of the Company’s common stock by persons who would become new 5% holders, and also prohibit current holders of over 5% from increasing their positions, except in certain permissible circumstances which would not jeopardize the Company’s ability to use its NOLs. While these amendments reduced the Company’s risk of an ownership change occurring due to the acquisition of shares by 5% stockholders, the risk remains that an ownership change could result from the sale of shares by existing 5% stockholders.

             In 1995, the Internal Revenue Service ("IRS") proposed material audit adjustments with respect to the tax returns of the Company and its consolidated subsidiaries, including formerly affiliated entities, for the years ended December 31, 1989, 1990 and 1991. The adjustments proposed by the IRS, if upheld, could have resulted in Federal tax liability, before interest, of approximately $17 million and disallowance of up to $132 million of NOL carryforwards. The Company disagreed with the positions taken by the IRS and filed protests with the IRS to contest the proposed adjustments. In December 1998, the Company executed a settlement agreement with the IRS with respect to the proposed adjustments described above. As a result of this agreement, in February 1999 the Company paid $759,000 (which includes $280,000 of tax and $479,000 of interest through January 1999), net of the Company’s refund claim for 1992 NOL carrybacks of approximately $1.6 million, in full settlement of such claims. Under this settlement agreement approximately $10 million of the Company’s NOL carryforwards was disallowed. The Company utilized $8.1 million of NOL carryback from 1992 to 1991 in connection with its refund claim. The Company has reviewed the extent of potential accompanying state tax liability adjustments and does not believe that any such adjustments would have a material impact on the Company’s financial statements.

             Cash payments for federal, state and local income taxes were less than $.1 million during the three months ended March 31, 2000 and 2001.

Note 7 - Commitments and Contingencies

             The Company and its predecessors have, through a variety of transactions effected since 1986, disposed of several assets and businesses, many of which are unrelated to the Company's current operations. By operation of law or contractual indemnity provisions, the Company has retained liabilities relating to certain of these assets and businesses.  May of such liabilities are supported by insurance or by indemnities from certain of the Company's predecessors and currently or previously affiliated companies.  The Company believes its balance sheet reflects adequate reserves for these matters.

ITEM 2 -           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                           FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General

             The Company is a residential land development and homebuilding company with properties located primarily in Southern California. The principal activities of the Company and its consolidated subsidiaries include: (i) obtaining zoning and other entitlements for land it owns and improving the land for residential development; and (ii) single-family residential construction in Southern California. Once the residential land owned by the Company is entitled, the Company may build homes, sell unimproved land to other developers or homebuilders, sell improved land to homebuilders, or participate in joint ventures with other developers, investors or homebuilders to finance and construct infrastructure and homes. During 2001, the Company will focus its immediate efforts to (i) obtain approval from the County of Orange and the California Coastal Commission ("Coastal Commission") for  development permits for the 65-acre upper bench of the Bolsa Chica Mesa ("Upper Mesa") project, as further described in Note 4 to the Company’s Financial Statements; (ii) vigorously pursue litigation (the “Coastal Commission Lawsuit”) challenging the Coastal Commission’s November 2000 suggested modifications to the County’s Local Coastal Program ("LCP") which would prohibit development on the 140-acre lower bench of the Bolsa Chica Mesa ("Lower Mesa"); and (iii) prepare to commence infrastructure construction on the Upper Mesa in the third quarter of 2002 provided that County and Coastal Commission approvals are obtained on a timely basis; however, the Company may also consider other strategic and joint venture opportunities. There can be no assurance that the Company will accomplish, in whole or in part, all or any of these strategic goals.

             During 2000 and the first quarter of 2001, the Company generated significant gross operating margins and cash flows from home-building activities on assets other than Bolsa Chica. The Company currently has on-going Southern California projects in Huntington Beach, Escondido and Yucaipa, and a significant venture interest in a project in San Diego. These home-building projects are expected to generate significant gross operating margins and cash flows in the second and third quarters of 2001. However, the Company expects that its current inventory of entitled land available for home-building projects will be fully developed during the next six months, except for completion of the Yucaipa project. Due to delays in approvals for home-building at Bolsa Chica, continuation of home-building operations during 2002 is dependent upon acquisition of suitable, entitled residential lots within the Southern California area.

             Bolsa Chica is the Company’s principal asset. It has required and continues to require significant investments for entitlement and land development activities. Due to the November 2000 Coastal Commission approval of suggested modifications to the LCP which would limit residential development to only 65 acres on the Upper Mesa, the Company is faced with further delays in implementing its plans for residential development on the Bolsa Chica Mesa. While the Company vigorously pursues its litigation to obtain entitlement for residential construction on the Lower Mesa, it is also pursuing approval of development permits on the Upper Mesa. After review of environmental, economic, marketing, construction and political considerations, the Company is currently planning to apply to the County of Orange for permits to build approximately 400 single family homes on the Upper Mesa.  However, the Company is continuing to evaluate alternative development plans which could result in higher density development. If a plan is approved by the County of Orange in early 2002, the Company could then seek approval from the Coastal Commission in the second quarter of 2002 and expect to commence infrastructure construction on the Upper Mesa during the third quarter of 2002 provided that County and Coastal Commission approvals are obtained on a timely basis, followed by the start of home construction during the first quarter of 2003. The Company does not believe that the Coastal Commission process will ultimately prevent it from developing a planned community at Bolsa Chica, however, there can be no assurance in that regard, or as to the number of acres the Company will be permitted to develop, or that further litigation or administrative delay will not result.

             In addition to the Upper Mesa land, the Company holds several other Bolsa Chica parcels aggregating approximately 285 acres which may be developed as residential lots or sold as park lands to various governmental agencies, subject to the outcome of litigation against the Coastal Commission and negotiations, if any, with potential purchasers of the various parcels. The Company believes that those additional parcels represent substantial value to be realized upon resolution of litigation and/or through sales to third parties.

             Real estate held for current development or sale and land held for future development (real estate properties) are carried at fair value as of September 2, 1997, following adoption of Fresh-Start Reporting as discussed in Note 1, as adjusted by subsequent activity. The Company's real estate properties are subject to a number of uncertainties which can affect the values of those assets. These uncertainties include litigation or appeals of regulatory approvals (as discussed above) and availability of adequate capital, financing and cash flow. In addition, future values may be adversely affected by 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 general demand for housing and the supply of competitive products. 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. During the last three years, the robust economy of California has resulted in improvement in the real estate market, and the number of potential purchasers interested in Southern California residential properties has increased, resulting in improved prices.  However, there can be no assurance regarding the continued health of the California economy and the strength and longevity of current conditions affecting the residential real estate market. In particular, the recent apparent slow-down in the national economy and electricity shortages in California could put recessionary pressures on the California economy and have a negative impact on the Southern California housing market.

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. Historically, sources of capital have included bank lines of credit, specific property financings, asset sales and available internal funds. The Company is utilizing project debt to fund construction on the Rancho San Pasqual project and following the April repayment of the Sandover loan, is utilizing internally generated cash to fund the Sandover, Yucaipa and Bolsa Chica projects. The Company’s cash on hand as of April 3, 2001 was approximately $5.2 million, following the $3.75 million payment to settle litigation with AV Partnership as agreed in January 2001. The Company believes that its cash on hand, future sales proceeds and funds available under its credit agreements will be sufficient to meet anticipated cash and capital requirements, primarily project development costs for home-building projects and Bolsa Chica, and general and administrative expenses, for the next 12 months. The Company expects that its Fairbanks Highlands joint venture, Rancho San Pasqual and Sandover projects will generate positive cash flow aggregating approximately $20 million during 2001, based on present economic conditions and market assumptions.

Financial Condition

       March 31, 2001 Compared with December 31, 2000

             The $2.0 million increase in cash and cash equivalents primarily reflects net proceeds, after repayments of project debt, from sales at the Rancho San Pasqual project, funding under construction loans on the Company’s Sandover and Rancho San Pasqual projects, and cash distributions received from the Fairbanks Highlands joint venture, partially offset by spending on project development costs, as well as other activity presented in the Statements of Cash Flows.

             Restricted cash as of March 31, 2001 reflects collateral for a letter of credit obtained by the Company to secure certain indemnity obligations under a tax sharing agreement with a former affiliate.

             The $4.3 million decrease in real estate held for current development or sale reflects $9.9 million charged to cost of sales for deliveries of an aggregate of 20 homes at all three projects during the quarter. These charges were partially offset by an aggregate of $5.6 million of infrastructure and home-building costs for the Company’s 112-home Rancho San Pasqual project in Escondido, California, the 16-home Sandover project in Huntington Beach, California and the Yucaipa project.

             The $1.1 million increase in land held for future development reflects investment in the Bolsa Chica Mesa project during the first three months of the year.

             Other assets decreased by $.9 million, primarily reflecting cash distributions received in excess of investment income from the Fairbanks Highlands joint venture.

             Accounts payable and accrued liabilities decreased by $1.2 million, to a balance of $2.8 million as of March 31, 2001, primarily reflecting decreased accounts payable for construction activities at the Rancho San Pasqual project and a decrease in consulting costs for the Bolsa Chica project.

             The $2.6 million decrease in project debt reflects aggregate repayments of $7.6 million made primarily in conjunction with home deliveries at the Rancho San Pasqual and Sandover projects, partially offset by $5.0 million borrowed under bank loans for infrastructure and home construction costs at the Rancho San Pasqual and Sandover projects.

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 March 31, 2001 Compared with the Three Months Ended March 31, 2000

             The Company reported revenues of $12.0 million and gross operating profit of $2.0 million for the first quarter of 2001, compared with no revenues or gross operating profit for the first quarter of 2000. Revenues in the current period reflect deliveries of nine homes at the Company’s 112-home Rancho San Pasqual project in Escondido, California, nine homes at the Sandover project on the Bolsa Chica Mesa in Huntington Beach, California and the first two homes at the Yucaipa project.

             The increase in income from unconsolidated joint ventures in the three months ended March 31, 2001 as compared to the first quarter of 2000 reflects the Company’s share of profits from deliveries of seven homes at Fairbanks Highlands during the current period, as compared with deliveries of four homes in the comparable period of last year.

             The decrease in other income, net from $1.2 million in the 2000 period to $.2 million in the three months ended March 31, 2001 primarily reflects the absence of recognition in the 2000 period of $1.1 million of non-recurring other income from a January 2000 transaction whereby the Company donated approximately 160 acres of its land in Michigan, and certain other assets, in exchange for an assumption of certain liabilities and certain indemnities related to a superfund site. The Company believes its liabilities, if any, with respect to this superfund site have been discharged as a result of this transaction.

             For the three months ended March 31, 2000 and 2001, pursuant to Fresh-Start reporting, a deferred income tax provision of $.3 and $.7 million, respectively, is reflected in the statement of operations, while the offsetting realization of a tax benefit from utilization of pre-Reorganization NOL is reflected by increasing the Company’s capital in excess of par value.

ITEM 3  -               QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

             None.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

             Certain of the foregoing information contains forward-looking statements that relate to future events or the Company's future financial performance.  These statements involve known and unknown risks, uncertainties and other factors which may cause the Company's actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.  In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", "continue", or the negative of such terms or other comparable terminology.  These forward-looking statements include, but are not limited to, statements about the Company's plans, objectives, goals, expectations and intentions, the number and types of homes and number of acres of land that the Company may develop and sell, outcomes of litigation, regulatory approval processes or administrative proceedings (including, but not limited to ongoing litigation and administrative proceedings in the Coastal Commission Lawsuit related to the Company's principal asset, the Bolsa Chica Mesa), the Company's ability to continue relationships with current or future partners, the Company's ability to expend resources to comply with environmental regulations and local permitting requirements, the effect of certain costs, contractual obligations and tax liabilities, both known and unknown, on the Company's business, results of operations and financial condition, the condition and adequacy of the Company's properties, the Company's ability to estimate cash flow projections due to uncertainties in valuing real property, the Company's ability to acquire residential lots in order to continue home-building operations, the adequacy of capital, financing and cash flow required to continue the Company's operations and land development activities, the future condition of the real estate market in Southern California, and other statements contained herein that are not historical facts.

PART II - OTHER INFORMATION

ITEM 1 -           Legal Proceedings

                           See "Item 1 - Business - Corporate Indemnification Matters" and "Item 3 - Legal Proceedings" in the
                           Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

ITEM 6 -           Exhibits and Reports on Form 8-K

(a)    Exhibits:
   
10.1 Agreement of Settlement, Compromise, and Release between AV Partnership and AV Development Corporation and the Registrant and Subsidiaries, dated as of March 27, 2001.
   
10.2 Extension and Modification of Employment Agreement between the Registrant and Mr. Raymond J. Pacini, dated as of April 30, 2001.
   
10.3 Extension and Modification of Employment Agreement between the Registrant and Ms. Sandra G. Sciutto, dated as of April 30, 2001.
   
10.4 Extension and Modification of Independent Contractor Consulting Agreement among the Registrant, GSSW-REO, L.C., a Texas limited liability company and Thomas W. Sabin, Jr., dated as of April 30, 2001.
   
(b) Reports on Form 8-K:
     
  (1) Current report on Form 8-K dated January 12, 2001 attaching a press release announcing that the subsidiaries of the Registrant had commenced litigation challenging the California Coastal Commission’s suggested modifications to the Bolsa Chica Local Coastal Program which would limit development of the 230-acre Bolsa Chica Mesa to only 65 acres.
     
  (2) Current Report on Form 8-K dated March 30, 2001 attaching a press release announcing the Registrant’s fourth quarter and year-end financial results. The press release also includes certain preliminary cash flow projections for the Registrant’s Bolsa Chica Upper Mesa Development Plan.

 

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.

 

           CALIFORNIA COASTAL COMMUNITIES, INC.
   
   
   
Date   May 15, 2001
By  /s/  Sandra G. Sciutto
           SANDRA G. SCIUTTO
           Senior Vice President and
           Chief Financial Officer

 

 EX-10.1 2 j0308_exh101.htm Prepared by MerrillDirect

 

EXHIBIT 10.1

AGREEMENT OF SETTLEMENT, COMPROMISE, AND RELEASE
BETWEEN
AV PARTNERSHIP AND AV DEVELOPMENT CORPORATION
AND
CALIFORNIA COASTAL COMMUNITIES, INC., HEARTHSIDE HOMES, INC. AND
HEARTHSIDE HOLDINGS, INC.

                           This agreement of settlement, compromise, and release (“Settlement Agreement”) is entered into as of March 27, 2001 by and between, on the one hand, plaintiff and cross-defendant AV PARTNERSHIP and cross-defendant AV DEVELOPMENT CORPORATION (“AVD Corp.”) (collectively, the “AVP Parties”) and, on the other hand, defendant and cross-complainant CALIFORNIA COASTAL COMMUNITIES, INC., (“CCC”) and cross-complainants HEARTHSIDE HOMES, INC., (“Homes, Inc.”) and HEARTHSIDE HOLDINGS, INC. (“Holdings, Inc.”) (collectively, the “CCC Parties”) [the AVP Parties and the CCC Parties each individually are referred to as “Party” and collectively are referred to as the “Parties”] with FS Equity Partners III, L.P., a Delaware limited partnership, in its capacity as the holder of the Secured Promissory Notes (as hereinafter defined) made by AV Partnership (in such capacity “FSEP”), joining in solely for the limited purposes set forth in Section 2.8 hereof.

                           This Settlement Agreement is entered into with reference to the following facts:

                           A.         On or about October 28, 1994, CC C (formerly known as Koll Real Estate Group, Inc.) and Holdings, Inc. formerly known as Kathryn G. Thompson Company, Inc., a Delaware corporation, executed a written guarantee with AV Partnership whereby they guaranteed payment and performance of four promissory notes that Homes, Inc. had executed and delivered to AV Partnership for the purposes of evidencing its contribution of its share of equity capital to AV Partnership (“Equity Notes”).  The Equity Notes in the aggregate total Four Million, Seven Hundred and Seventy-Five Thousand Dollars ($4,775,000) in principal amount  and carry interest accruing at Ten Percent (10%) per annum since the deemed dates of disbursement, all due and payable on or prior to April 4, 1999.

                           B.          The CCC Parties disputed the enforceability of the written guarantee on the grounds that a certain financial projection pre-dating the execution of the guarantee should have been, but was not, disclosed to them, and had such projection been disclosed, it would have caused the CCC Parties to not execute the guarantee.  Consequently, the CCC Parties refused to pay the monies due and owing on April 4, 1999.  In order to have sufficient time to conduct informal negotiations to attempt a voluntary resolution of this dispute, the Parties extended the due date on the promissory notes and guarantee to October 31, 1999.

                           C.          Unable to resolve the dispute, on November 1, 1999 AV Partnership filed its verified complaint against CCC, AV Partnership v. California Coastal Communities, Inc. (Case No. BC 219402).  The complaint alleges a single cause of action to enforce the collection of the principal and interest due and payable on the four promissory notes pursuant to the written guarantee.

                           D.         On December 2, 1999, CCC answered AV Partnership’s verified complaint and, together with Homes, Inc. and Holdings, Inc. filed a cross-complaint against AV Partnership and AVD Corp., among others.  The cross-complaint contains six causes of action, four of which are brought against the AVP Parties: (1) fraud; (2) rescission of the guarantee; (3) breach of fiduciary duty; and (4) declaratory relief.

                           E.          These matters came on for a mandatory settlement conference before the Honorable Owen L. Kwong on January 25, 2001.  At that conference, the Parties reached a settlement and compromise of all the claims asserted in the complaint and cross-complaint, and entered that settlement and compromise on the record pursuant to California Code of Civil Procedure Section 664.6.

                           F.           The Parties desire to provide for the liquidation, final dissolution and orderly winding up of the business of AV Partnership and desire to dissolve AV Partnership on or prior to December 31, 2001.  In connection therewith, the Parties have agreed that (i) AVD Corp. shall be the successor-in-interest to, and shall receive all of the Assets (as hereinafter defined) on behalf of, AV Partnership and the AVP Affiliates, and shall assume and undertake to perform the obligations of the AV Partnership and the AVP Affiliates to FSEP pursuant to the Secured Promissory Notes (as hereinafter defined) made payable to FSEP and other FSEP Loan Documents (the “FS Obligations”), and (ii) the CCC Parties shall assume and undertake to perform all Obligations (as hereinafter defined) of AV Partnership and the AVP Affiliates (other than the FS Obligations and any Federal or state income taxes that may be payable by AVD Corp., AV Development Corporation-2, a Delaware corporation (“AVDC-2”) and/or RSB Investment, Inc., a California corporation (“RSB”) and their respective shareholders and any other parent Persons thereof (the “AVP Tax Obligations”).

                           G.          In connection with the activities of the AV Partnership, AV Partnership and FSEP entered into that certain Loan Agreement dated as of March 4, 1994 (as amended, the “Loan Agreement”) pursuant to which FSEP agreed to make, from time to time, certain loans (the “Loans”) to AV Partnership and its affiliates, which Loans were evidenced by five secured promissory notes made payable to the order of FSEP (the “Secured Promissory Notes”).  The Loans and Secured Promissory Notes were secured by various deeds of trust, security agreements and guarantees made by AV Partnership, its general partners and their respective affiliates in favor of FSEP as secured party and/or beneficiary (collectively, with the Loan Agreement and the Secured Promissory Notes, the “FSEP Loan Documents”).  Some or all of the indebtedness and obligations of AV Partnership and its affiliates evidenced by and as set forth in the Secured Promissory Notes and the other Loan Documents remain outstanding and owing to FSEP.

                           In consideration of the mutual promises and respective agreements and conditions contained in this Settlement Agreement, and intending to be mutually bound thereby, the AVP Parties and the CCC Parties agree as follows:

             1.          Definitions and Rules of Construction

                           As used in this Settlement Agreement, and for the purpose of this Settlement Agreement only, the following terms have the following meanings:

                           1.1        “AVP Group” means AV Partnership, AV Development Corporation, RSB Investment, Inc. and their past, present, and future employees, officers, directors, principals, parent entities, subsidiaries, affiliates, divisions, joint ventures, agents, servants, shareholders, attorneys, representatives, predecessors, successors, assigns, and acquired entities (including, without limitation, the past, present, and future employees, officers, directors, principals, parent entities, subsidiaries, affiliates, divisions, joint ventures, agents, servants, shareholders, attorneys, representatives, predecessors, successors, and assigns of any such acquired entities), and all Persons acting by, through, under or in concert with any of them, and each of them other than the CCC Group.

                           1.2        “CCC Group” means California Coastal Communities, Inc., Hearthside Homes, Inc. and Hearthside Holdings, Inc. and their past, present, and future employees, officers, directors, principals, parent entities, subsidiaries, affiliates, divisions, joint ventures, agents, servants, shareholders, attorneys, representatives, predecessors, successors, assigns, and acquired entities (including, without limitation, the past, present, and future employees, officers, directors, principals, parent entities, subsidiaries, affiliates, divisions, joint ventures, agents, servants, shareholders, attorneys, representatives, predecessors, successors, and assigns of any such acquired entities), and all Persons acting by, through, under or in consent with any of them, and each of them.

                           1.3        “Person” means any individual, corporation, partnership, association, trust, or any other entity (or estate, guardian, or beneficiary thereof) or organization.

                           1.4        “Action” means the complaint and cross-complaint filed in the Superior Court of Los Angeles under Case No. BC 219402.

                           1.5        “AVP Affiliates” shall mean AVP Partners Corporation, AVP Partners Corporation-2, Ridge/Meadows, L.P., AV/Sea Country, L.L.C. and Vistas Audubon.

                           1.6        “Guarantee” means the Third Amended and Restated Guarantee Agreement executed by the partners of the AV Partnership and Koll Real Estate Group, Inc. (n.k.a. CCC) and Kathryn G. Thompson Company, a Delaware corporation (n.k.a. Holdings, Inc.), a copy of which is attached as Exhibit “A” to the verified complaint in this Action.

                           1.7        “Equity Notes” means the four Amended and Restated Promissory Notes executed by Kathryn G. Thompson Company, a California corporation (n.k.a. Homes, Inc.), copies of which are attached as Exhibits “B,” “C,” “D” and “E” to the verified complaint in this Action.

                           1.8        “Claims” means any past, present, or future actual, threatened, or potential claims, insurance claims, cross complaints, third-party claims, rights, proceedings, demands, requests, suits, law suits, administrative proceedings, causes of actions, orders, actions, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, torts, controversies, judgments, executions, liabilities, and obligations whatsoever whether in law or equity, whether formal or informal, whether in tort or breach of contract, and whether in writing.

                           1.9        “Assets” shall have the meaning set forth in Section 2.4.

                           1.10     “Obligation” shall have the meaning set forth in Section 2.6.

                           1.11     Rules of Construction:  Capitalized terms in this Settlement Agreement shall have their respective meanings specified in Section 1 of the Settlement Agreement or as defined elsewhere in this Settlement Agreement.  The definitions in Section 1 of this Settlement Agreement apply equally to both the singular and plural forms of the terms defined.  The words “shall” and “will” are used interchangeably throughout this Settlement Agreement.  The use of either connotes a mandatory requirement and does not connote a different degree, right, or obligation for either party.  Use of the word “and” shall include in its meaning the word “or” and vice versa.  Use of the word “any” shall include within its meaning the word “all” and vice versa.

             2.          Payment and Releases

                          2.1        Each of the undersigned desires to provide for the liquidation, final dissolution and orderly winding up of the business of AV partnership and hereby agree to dissolve AV Partnership on or prior to December 31, 2001.  In connection therewith, the AVP Group and the CCC Group hereby agree that (i) AVD Corp. shall be the successor-in-interest to, and shall receive all of the Assets on behalf of, AV Partnership and the AVP Affiliates, and shall assume and undertake to perform the FS Obligations of AV Partnership and the AVP Affiliates to FSEP pursuant to the Secured Promissory Notes, and (ii) the CCC Parties shall assume and undertake to perform all Obligations of AV Partnership and the AVP Affiliates (other than the FS Obligations and the AVP Tax Obligations).  The dissolution and distributions shall be accomplished in the manner set forth herein irrespective of the capital accounts of the partners.  Debts and liabilities of AV Partnership shall be paid or provided for in accordance with these provisions.  All interests in Assets shall be distributed to AVD Corp. and are hereby assigned to AVD Corp. and all Obligations (other than the FS Obligations and the AVP Tax Obligations) are hereby assumed by the CCC Parties.  The CCC Parties shall be responsible for all legal fees and other costs for dissolving, terminating and/or winding up AV Partnership and the AVP Affiliates, provided, that, the CCC Parties shall have no responsibility for the legal fees and other costs for dissolving, terminating and/or winding up AVD Corp., AVDC-2, RSB and/or their respective shareholder Persons and/or any other parent Persons thereof.

                           2.2        In consideration for the releases and agreements and covenants contained in this Settlement Agreement, the CCC Parties hereby agree to pay AV Partnership Three Million, Seven Hundred and Fifty Thousand Dollars ($3,750,000.00) on or before April 2, 2001, which will be paid by check made payable to AVD Corp. or its designee.

                           2.3        In addition, the Parties agree to split in equal shares the petty cash and cash on deposit in the AV Partnership cash accounts as of the opening of business on January 25, 2001.  The Parties agree that the amount on deposit at that time was Four Hundred and Seventy-Four Thousand, Seven Hundred Sixty-Three Dollars and Eighty-Eight Cents ($474,763.88).  Upon the execution of this Settlement Agreement, the CCC Parties shall cause to be issued from the AV Partnership account two checks, each in the amount of Two Hundred and Thirty-Seven Thousand, Three Hundred and Eighty-One Dollars and Ninety-Four Cents ($237,381.94), one of which shall be made payable to AVD Corp. or its designee and which shall be delivered to AVD Corp. or its designee on or before April 2, 2001, and the other check made payable to Homes, Inc. and which shall be delivered to Homes, Inc. on or before April 2, 2001.  Interest on said cash accounts of AV Partnership which accrues on the opening of business on January 25, 2001, through April 2, 2001 shall be retained by and payable to Homes, Inc.

                           2.4        Further, except as expressly provided in Section 2.3 above or this Section 2.4 below, all money and other things of value of any kind or character received by the AV Partnership or by any of the AVP Group and/or CCC Group on behalf of or relating to AV Partnership or the AVP Affiliates after the opening of business on January 25, 2001, in excess of the cash on deposit in the AV Partnership cash accounts at the start of business on that date, shall be the sole and exclusive property of the AVP Parties (collectively, the “Assets”), and the CCC Group hereby:  (i) assign to AVD Corp. or its designee the Assets and all rights to the Assets; and (ii) expressly waive any interest in or Claim to such money or property; and (iii) agree to take or cause to be taken all actions, including the execution of all documents, as may be necessary or desirable to effect the foregoing.  The Parties currently understand, but the CCC Parties do not warrant, that such anticipated receipts include, without limitation,

          (1)         Approximately Five Hundred and Forty-Eight Thousand, Nine Hundred and Seventy-Seven Dollars and Eighty-Three Cents ($548,977.83) plus interest minus bank fees and charges on deposit with Imperial Bank which serves as collateral for an AV Partnership line of credit;

             (2)         Approximately $70,000 due from Sea Country Homes; and

             (3)         Approximately $25,000 due from the proceeds of the sale to the CCC Parties of the stocks and assets of Hearthside Funding.

Starting on April 2, 2001, and on the first business day of every month thereafter until all Assets have been collected, the CCC Group will remit or cause to be remitted to AVD Corp. or its designee any such monies or other things of value received since the last distribution to AVD Corp. or its designee together with an accounting of the source of all such Assets; provided, that, any interest that accrues on Assets which are collected by the CCC Parties from the time of the last distribution until the next monthly scheduled distribution shall be retained by and shall be payable to Homes, Inc. (with the understanding that interest accruing on the Imperial Bank deposit identified in Section 2.4(1), minus any bank fees or charges incurred to maintain said line of credit, and on the Zurich Insurance Co. premiums identified in Section 2.5 are the sole and exclusive property of AVD Corp. or its designee).  Notwithstanding the foregoing, if, and to the extent that, the CCC Parties shall receive a payment on the insurance which is described in Section 2.5 below for claims made under the described policies and which relates to a reimbursement of actual expenses incurred by the CCC Parties, said payments shall be retained by and payable to Homes, Inc.  All checks shall be made payable to AVD Corp. or its designee.

                           2.5        The Parties agree that the excess insurance premiums paid by or on behalf of the AV Partnership or the CCC Group and currently held by the Zurich Insurance Co. (which the Parties estimate to be approximately Five Hundred and Forty Thousand Dollars ($540,000.00)) including any interest accruing thereon are the sole and exclusive property of AVD Corp. or its designee and the CCC Group does hereby irrevocably transfer and assign all such amounts or rights to AVD Corp. or its designee.  The CCC Parties shall execute all documents and take all other reasonable steps necessary to secure and deliver payment by Zurich Insurance Co. of those excess premiums to AVD Corp. or its designee.  The CCC Parties represent and warrant that attached as Exhibit A hereto is a true and correct copy of the irrevocable written instruction and direction by the CCC Parties to Zurich Insurance Co. to pay said amounts to AVD Corp. or its designee and that they do not presently have knowledge of any fact or reason why Zurich Insurance Co. would not honor such instruction.  The CCC Parties shall take or cause to be taken all other requests or requirements of Zurich Insurance Co. to effect the payments to AVD Corp. or its designee.  If litigation with Zurich Insurance Co. is needed to obtain these funds, either in whole or in part, the CCC Parties will participate in and prosecute an action at law or equity to its final nonappealable resolution at the direction of the AVP Parties by and through attorneys that the AVP Parties will select in their sole discretion; provided that the AVP Parties shall fund the costs of said litigation, including attorneys fees.  In addition, the CCC Parties agree to maintain in place without modification insurance policies numbers UMB8321-901-00 and WC8321-903-00 with Zurich to cover the potential liabilities related to the operations of AV Partnership.

                           2.6        From the opening of business on January 25, 2001 and forever more, the CCC Parties further agree to assume, undertake, perform and be solely responsible for, and shall indemnify, defend and hold the AVP Group harmless from, any and all (i) obligations, liabilities, duties, responsibilities, commitments, assessments, taxes (other than the AVP Tax Obligations) and tasks of or relating to AV Partnership and/or the AVP Affiliates, whether now existing or hereinafter arising, other than the FS Obligations, without any set-off, deduction, deferment or reduction of any Asset (collectively, the “Obligations”), and (ii) Claims, known and unknown, whether now existing or hereinafter arising, brought against the AVP Group arising out of or relating to the AV Partnership and/or AVP Affiliates, including without limitation:

             (1)         All Claims related to or arising from construction defects;

             (2)         All Claims related to or arising from home purchaser warranties;

             (3)         All Claims related to or arising from customer service liabilities;

             (4)         All Claims related to or arising out of the performance or failure to perform any Obligations; and

             (5)         All Claims relating to or arising out of the business undertaken by the AV Partnership and/or the AVP Affiliates, including without limitation, the acquisition of land, grading of land, and development, construction and sales of homes.

                           In connection with the Obligations, the CCC Parties agree to keep or cause to be kept adequate books of account of AV Partnership and the AVP Affiliates.  The AVP Group and their authorized representatives shall have at all times, during normal business hours, free access to and the right to inspect and copy, at its expense, the books of account.  The CCC Parties shall cause to be prepared all tax returns and statements, if any, which must be filed on behalf of AV Partnership, the AVP Affiliates and AV Holdings Corp., a Delaware corporation and its subsidiaries, for tax years 2000 and 2001 and shall submit such returns and statements to the AVP Parties for their approval prior to filing and, when approved by the AVP Parties, shall make timely filing thereof.  The CCC Parties shall be paid a fee of $17,000.00 upon completion of the 2000 tax returns for all of the AVP Group and a fee of $8,000.00 upon completion of the 2001 tax returns.  In addition, the CCC Parties shall cause to be furnished to the AVP Parties such additional information regarding the business of AV Partnership and the AVP Affiliates as may be necessary to enable the AVP Parties to prepare their federal, state and local tax returns.  Each of the CCC Parties and the AVP Parties hereby agrees to use its best efforts to resolve any disputes with respect to the proposed treatment of any item on a tax return of AV Partnership and/or the AVP Affiliates prior to the required filing date therefor.  The AVP Parties shall be responsible for any and all costs incurred in obtaining an independent review of the tax returns.

                           2.7        In consideration of the promises contained in this Settlement Agreement, both Parties and each of them agree to dismiss with prejudice, on or before April 6, 2001, the complaint and cross-complaint filed in this Action.  Each Party is to bear its own attorneys’ fees, expenses, and all other costs in connection with the conduct and dismissal of the Action.

                           2.8        In consideration of the promises contained in this Settlement Agreement and the compromise of the amounts due and payable on the Equity Notes and Guarantee, the CCC Group hereby release and forever discharge the AVP Group from any claims, obligations, liabilities or duties, known or unknown, regardless of whether such claims were included in the Action including, without limitation, any and all claims against FSEP.  Likewise, in consideration for the promises contained in this Settlement Agreement and the payment of the Settlement Sum, the AVP Parties Group releases and forever discharges the CCC Group from any claims, liabilities, duties, or obligations, known or unknown, regardless of whether such claims were included in the Action except as otherwise expressly provided in this Settlement Agreement.  Further, both Parties and each of them waive any claims for malicious prosecution and abuse of process arising from the filing, prosecution, or defense of this Action.  In consideration of the promises contained in this Settlement Agreement and the payment of the Settlement Sum, FSEP hereby agrees to look solely to AVD Corp. for the payment and performance of the FS Obligations and does hereby release and forever discharge the CCC Group from any claims, liabilities, duties or obligations, known or unknown, relating to or arising out of the Secured Promissory Notes and the other Loan Documents (provided, however, that the foregoing release is not, and shall not be deemed to be, a novation or satisfaction of the indebtedness and obligations evidenced by the Secured Promissory Notes and the other Loan Documents).  To the maximum extent allowed by law, the release provided in this Section 2.8 to the CCC Group will be void ab initio and will be of no force or effect and the obligations of the CCC Group will be automatically reinstated if the proceeds obtained by the AVP Group must be restored or returned by the AVP Group as a preference, fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar law by or on behalf of any of the CCC Group.

                           2.9        Each Party represents, warrants, and agrees that it is the sole and lawful owner of all rights, titles, and interests in and to every claim or matter released herein; and has not assigned or transferred or purported to or attempted to assign or transfer to any person or entity any claim or other matter related herein.  A Party shall defend, indemnify and hold the other Party harmless from any and all claims arising out of or relating to any assignment or transfer and any purported or attempted assignment or transfer contrary to the terms of this paragraph.

                           2.10     It is the intention of the Parties that the foregoing releases shall be effective as a bar to all matters released herein.  In furtherance, and not in limitation, of such intention the releases described herein shall be, and shall remain in effect as, full and complete releases, notwithstanding the discovery or existence of any additional or different claims or facts.  To further effectuate this intention, both Parties and each of them hereby waives any rights under California Civil Code Section 1542 for any and all matters released herein.  California Civil Code Section 1542 reads as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

In waiving the provisions of Section 1542 of the California Civil Code, the Parties acknowledge that they may hereafter discover claims or facts in addition to or different from those which they now believe to be true with respect to the subject matter of the Action and other matters released herein, but agree that they have taken that possibility into account in reaching this Settlement Agreement and that the releases given herein shall be and remain in effect as full and complete releases notwithstanding the discovery or existence of such additional or different claims or facts, as to which each Party expressly assumes the risk.

                           2.11     Notwithstanding paragraph 2.10 above, nothing in said paragraph is intended to waive or modify and shall not be deemed to be a waiver or modification of the Party’s respective rights, remedies or obligations under this Settlement Agreement.  Further, nothing in this instrument shall limit the right of any Party to enforce the terms of this Settlement Agreement.  Accordingly, pursuant to California Code of Civil Procedure Section 664.6, the Parties request, and hereby agree and stipulate to, the Court's retention of jurisdiction to enforce the terms of the Settlement Agreement until performance in full of its terms.

                           2.12     Nothing in this Settlement Agreement is or should be construed to be an acknowledgement or admission by CCC that it is liable with respect to Persons not a party to this Settlement Agreement for the business of the AV Partnership or Hearthside Homes, Inc.  CCC’s joint and several liability and duty to defend and indemnify as provided in Sections 2.3, 2.4, 2.5 and 2.6 of this Settlement Agreement do not create or confer any benefit on Persons not a party to the Settlement Agreement, but are solely and exclusively for the benefit of the AVP Group.  Further, these provisions (1) do not reflect any obligation to the AV Partnership that CCC had prior to the date of the Settlement Agreement; and (2) do not create any obligation or duty to Persons not a party to this Settlement Agreement that did not previously exist between CCC and that Person prior to the date of the Settlement Agreement.

             3.          Other Terms and Conditions

                           3.1        In consideration of the mutual promises set forth in this Settlement Agreement, the Parties have agreed to settle all Claims strictly as a business accommodation unrelated to the merits of the respective Claims of the Parties.  The Parties represent, warrant and agree that neither the execution of this Settlement Agreement nor the provision of any consideration pursuant thereto is intended as, nor shall it be construed or referred to in any way as, an admission of the liability or responsibility at any time or for any purpose whatsoever, including as an admission of the truth of the allegations, interpretations, claims, or contentions of either Party.

                           3.2        The Parties agree that this Settlement Agreement has been negotiated at arm’s length by parties of equal bargaining power, each of whom was represented by competent counsel of its own choosing.  Accordingly, it is acknowledged that each Party, with the assistance of competent counsel, has participated in the drafting of this Settlement Agreement, and that any ambiguity should not be construed for or against any Party on account of such drafting.  The Parties further acknowledge that the obligations and releases herein described are in good faith and are reasonable in the context of the matters released.

                           3.3        Except as required pursuant to corporate securities laws, the existence of this Settlement Agreement and the terms and conditions of this Settlement Agreement are confidential and shall not be disclosed by either Party to any Person unless, upon advice of counsel, either Party or both are compelled or required by applicable law; provided, that the foregoing shall not preclude a party from discussing this Settlement Agreement or disclosing the contents thereof to said Parties’ accountants, lawyers, lenders, advisors, and others who may have a reason to know, each of whom shall be bound by the confidentiality provisions of this Settlement Agreement.  The provisions of this Section 3.3 shall not, however, include any information which either (a) is demonstrated by a Party to have been independently developed by said Party (or independently developed by a third party, and lawfully disclosed to said Party) and is in said Party’s possession prior to the disclosure by the other Party, (b) is or becomes part of the general public or industry knowledge, other than as a result of said Party’s violation of this Settlement Agreement, or (c) has been disclosed by said Party following approval by the other Party.  Prior to any disclosure compelled or required by applicable law, the disclosing Party shall to the extent possible provide notice to the nondisclosing Party in time sufficient for the nondisclosing Party to seek a protective order.  Attached as Exhibit B is a draft of disclosure to be included in CCC’s Annual Report and Form 10-K.  Furthermore, this agreement will be filed as an exhibit to CCC’s Form 10-K.  The Parties agree that disclosure (not legally compelled or required) shall be a material breach of the Settlement Agreement and cause irreparable harm to the nondisclosing Party, and that the nondisclosing Party may seek equitable, as well as legal, relief to enforce this provision provided, that, the terms and provisions of Section 2 of this Settlement Agreement shall not be altered or amended in any fashion.  Further, nothing herein prohibits a Party from disclosing the Settlement Agreement to a court of competent jurisdiction in an action to enforce the terms and conditions of the Settlement Agreement.

                           3.4        No amendment, modification, addendum, or revision of this Settlement Agreement shall be valid unless it is in writing and signed by the Party or Parties to be bound, in which event there need be no separate consideration therefor.

                           3.5        No waiver or indulgence of any breach or series of breaches of this Settlement Agreement shall be deemed or construed as a waiver of any other breach of the same or any other provision hereof or affect the enforceability of any part or all of this Settlement Agreement, and no waiver shall be valid unless executed in writing by the waiving Party.

                           3.6        This Settlement Agreement shall be subject to any statute or rule of court that restricts or prohibits the admission into evidence of any offer or agreement to compromise.  Notwithstanding the foregoing sentence, this Settlement Agreement may be admitted into evidence in any action to enforce its terms or secure its benefits.

                           3.7        The Parties represent, warrant, and agree to execute all documents and to do all things necessary to fully effectuate the terms of this Settlement Agreement.

                           3.8        Each Party to this Settlement Agreement agrees to bear its own costs, expenses and attorneys’ fees with respect to all matters encompasses in the Action and with respect to the negotiation and drafting of this Settlement Agreement.

                           3.9        This Settlement Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed one and the same instrument.  However, this Settlement Agreement is not and shall not be effective unless and until each Party executes the original or a counterpart.

                           3.10     The Parties represent, warrant and agree that this Settlement Agreement shall bind them and each of their personal and legal representatives, successors, assigns, executors and administrators, and all other Persons who may claim under or through them and shall inure to the benefit of each Party released herein, and to their personal and legal representatives, successors, assigns, executors, and administrators, and all other Persons who may claim under or through them.

                           3.11     This Settlement Agreement shall be deemed made and entered into in the State of California, and shall in all respects be governed, enforced, and construed in accordance with the laws of the State of California.

                           3.12     Each Party acknowledges and represents that it has fully and carefully read this Settlement Agreement prior to execution; that it has been fully apprised by its attorneys of the legal effect and meaning of this document and all terms and conditions hereof; that it has had the opportunity to make whatever investigation or inquiry it deemed necessary or appropriate in connection with the subject matter of this Settlement Agreement; that it has been afforded the opportunity to negotiate as to any and all terms hereof; and that it is executing this Settlement Agreement voluntarily, free from any undue influence, coercion, duress, or menace of any kind.

                           3.13     The Parties represent, warrant, and agree that this Settlement Agreement contains the entire Settlement Agreement between the Parties; that this Settlement Agreement supersedes any and all prior agreements or understandings relating to the comprise that is the subject matter of this Settlement Agreement between the Parties; that the terms of this Settlement Agreement are contractual and not a mere recital; that in executing this Settlement Agreement, no Party is relying on any statement or representation made by the other Party, or the other Party’s agents, servants, or attorneys concerning the subject matter, basis, or effect of this Settlement Agreement other than as set forth herein; and that each Party is relying solely on its own judgment and knowledge.

                           3.14     The Parties shall not use the documents produced by the other party (for which said Party did not already have a copy) and depositions taken during the course of litigation of the Action for any purpose without the written consent of the other Party.  Each Party agrees to destroy or cause to be destroyed all copies of documents produced by the other Party and that within thirty (30) days of executing the Settlement Agreement counsel for each party shall send written confirmation that those documents have been destroyed.  Copies of the documents attached as exhibits to depositions are excluded from the obligation to destroy such documents; provided however, that all deposition transcripts and their exhibits will be kept confidential if not destroyed.

                           3.15     It is the express intention of all Parties hereto that this Settlement Agreement shall not create in or convey to any Person who or which is not a Party to this Settlement Agreement any rights against the AVP Parties or the CCC Parties.

                           3.16     Each of the undersigned further declares and represents that he or she is competent to execute this instrument and that he or she is duly authorized, and has the full right and authority, to execute this Settlement Agreement on behalf of the Party for whom he or she is signing.

                           3.17     If a provision of this Settlement Agreement or the application thereof is held invalid or unenforceable, its invalidity or unenforceability shall not affect any other provisions or applications of this Settlement Agreement, and such other provisions or applications shall be given effect without the invalid or unenforceable provision or application, and to this end the Settlement Agreement is deemed to be severable.

                           3.18     The representations, warranties, agreements, and promises made by each Party to this Settlement Agreement and contained herein shall survive the execution of this Settlement Agreement.

             IN WITNESS WHEREFORE, this Settlement Agreement has been read and signed in duplicate originals by the duly authorized representative of the Parties as of the date first above written.

AV PARTNERSHIP
By: AV Development Corporation
  Its General Partner
  By: /s/  WILLIAM M. WARDLAW
  Name: William M. Wardlaw
  Title: President
  Date:
     
By: RSB Investment, Inc.
  Its General Partner
  By: /s/ ROBERT S. BENNETT
  Name: Robert S. Bennett
  Title: President
  Date: 3/30/01
     
By: Hearthside Homes, Inc.
  By:  /s/ RAYMOND J. PACINI
  Name: Raymond J. Pacini
  Title: CEO
  Date: 3/29/01
     
AV DEVELOPMENT CORPORATION, INC.
By: /s/  WILLIAM M. WARDLAW
  Name: William M. Wardlaw
  Title: President
  Date
     

 

 

CALIFORNIA COASTAL COMMUNITIES, INC.
     
By: /s/ RAYMOND J. PACINI
     
  Raymond J. Pacini
  Name
  President and CEO
  Title
  3/29/01
  Date
     
HEARTHSIDE HOMES, INC.
     
By: /s/ RAYMOND J. PACINI
     
  Raymond J. Pacini
  Name
  CEO
  Title
  3/29/01
  Date
   
HEARTHSIDE HOLDINGS, INC.
     
By: /s/ RAYMOND J. PACINI
     
  Raymond J. Pacini
  Name
  President and CEO
  Title
  3/29/01
  Date
     

JOINING IN SOLELY FOR THE LIMITED PURPOSES SET FORTH IN SECTION 2.8 HEREOF;

FS EQUITY PARTNERS III, L.P., a Delaware limited partnership
By: FS Capital Partners, L.P.
  A California limited partnership
  Its General Partner
  By: FS Holdings, Inc.
    A Delaware corporation
    Its General Partner
       
By: /s/  WILLIAM M. WARDLAW
       
  William M. Wardlaw
  Name
  Vice President
  Title
 
  Date
       
       
APPROVED AS TO FORM AND CONTENT
O’MELVENY & MYERS LLP
By: /s/  THOMAS M. RIORDAN
  Thomas M. Riordan
Attorneys for Plaintiff and Cross-Defendants
AV PARTNERSHIP and AV DEVELOPMENT CORPORATION
         3/30/01
Date      

 

 

ALLEN MATKINS LECK GAMBLE & MALLORY LLP
By /s/ GREORY G. GORMAN
  Gregory G. Gorman    
Attorneys for Defendant and Cross-Complainants
CALIFORNIA COASTAL COMMUNITIES, INC.,
HEARTHSIDE HOMES, INC., and
HEARTHSIDE HOLDINGS INC.
         4/4/01
Date
       

 
EX-10.2 3 j0308_exh102.htm Prepared by MerrillDirect

EXHIBIT 10.2

SECOND
EXTENSION AND MODIFICATION
OF
EMPLOYMENT AGREEMENT

             THIS SECOND EXTENSION AND MODIFICATION OF EMPLOYMENT AGREEMENT (the "Extension") is entered into as of April 30, 2001 by and between California Coastal Communities, Inc., a Delaware corporation ("Employer"), and RAYMOND J. PACINI ("Executive").

W I T N E S S E T H:

             WHEREAS, Executive and Employer have entered into an Employment Agreement dated as of May 1, 1998 and Extension and Modification of Employment Agreement dated December 7, 1999 (collectively, the "Employment Agreement") through which Executive has provided various executive capacities to Employer and Employer has obtained various executive services by Executive; and

             WHEREAS, Employer desires to obtain the benefit of continued service from Executive by extending the Employment Agreement, and Executive desires to render continued services to Employer by extending the Employment Agreement pursuant to the terms and conditions of this Extension;

             NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises and covenants herein contained, the parties agree as follows:

             SECTION 1.     CONTINUING EFFECTIVENESS OF EMPLOYMENT AGREEMENT.  Except to the extent of any modification made pursuant to the terms of this Extension, the Employment Agreement shall continue to remain in full force and effect following the date hereof.

             SECTION 2.     EXTENSION OF TERM.  Employer and Executive hereby agree to extend the term of the Employment Agreement until April 30, 2003.

             SECTION 3.     BASE SALARY.  From the date hereof and until the expiration of the term set forth in Section 2 above, Employer agrees to pay Executive a base salary of at least Two Hundred and Seventy-Five Thousand Dollars ($275,000) per year in semi–monthly installments on the same dates the other senior officers of Employer are paid.

 

             IN WITNESS WHEREOF, the parties have executed this Extension as of the date first above written.

"EMPLOYER"
CALIFORNIA COASTAL COMMUNITIES, INC.
By /s/  SANDRA G. SCIUTTO
  Sandra G. Sciutto
  Chief Financial Officer
"EXECUTIVE"
       /s/  RAYMOND J. PACINI
Raymond J. Pacini

 

 EX-10.3 4 j0308_exh103.htm Prepared by MerrillDirect

EXHIBIT 10.3

SECOND
EXTENSION AND MODIFICATION
OF
EMPLOYMENT AGREEMENT

             THIS SECOND EXTENSION AND MODIFICATION OF EMPLOYMENT AGREEMENT (the "Extension") is entered into as of April 30, 2001 by and between California Coastal Communities, Inc., a Delaware corporation ("Employer"), and SANDRA G. SCIUTTO ("Executive").

W I T N E S S E T H:

             WHEREAS, Executive and Employer have entered into an Employment Agreement dated as of May 1, 1998 and Extension and Modification of Employment Agreement dated December 7, 1999 (collectively, the "Employment Agreement") through which Executive has provided various executive capacities to Employer and Employer has obtained various executive services by Executive; and

             WHEREAS, Employer desires to obtain the benefit of continued service from Executive by extending the Employment Agreement, and Executive desires to render continued services to Employer by extending the Employment Agreement pursuant to the terms and conditions of this Extension;

             NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises and covenants herein contained, the parties agree as follows:

             SECTION 1.     CONTINUING EFFECTIVENESS OF EMPLOYMENT AGREEMENT.  Except to the extent of any modification made pursuant to the terms of this Extension, the Employment Agreement shall continue to remain in full force and effect following the date hereof.

             SECTION 2.     EXTENSION OF TERM.  Employer and Executive hereby agree to extend the term of the Employment Agreement until April 30, 2003.

             SECTION 3.     BASE SALARY.  From the date hereof and until the expiration of the term set forth in Section 2 above, Employer agrees to pay Executive a base salary of at least One Hundred and Sixty-Five Thousand Dollars ($165,000) per year in semi–monthly installments on the same dates the other senior officers of Employer are paid.

             SECTION 4.     BONUS.  From the date hereof and until the expiration of the term set forth in Section 2 above, Employer agrees to provide Executive with the opportunity to earn an incentive bonus of up to Seventy-Five Thousand Dollars ($75,000), based upon the amounts for each performance target which will be mutually agreed upon and set forth on Schedule A attached hereto.

 

             IN WITNESS WHEREOF, the parties have executed this Extension as of the date first above written.

"EMPLOYER"
CALIFORNIA COASTAL COMMUNITIES, INC.
By /s/  RAYMOND J. PACINI
  Raymond J. Pacini
  Chief Executive Officer
   
"EXECUTIVE"
        /s/  SANDRA G. SCIUTTO
Sandra G. Sciutto

 
EX-10.4 5 j0308_exh104.htm Prepared by MerrillDirect

EXHIBIT 10.4

SECOND EXTENSION AND MODIFICATION OF
INDEPENDENT CONTRACTOR CONSULTING AGREEMENT

             This SECOND EXTENSION AND MODIFICATION OF INDEPENDENT CONTRACTOR CONSULTING AGREEMENT ("Extension") is entered into as of April 30, 2001 between California Coastal Communities, Inc., a Delaware corporation  (the "Company"), GSSW-REO, L.L.C., a Texas limited liability company ("GSSW") and Thomas W. Sabin, Jr. ("Consultant").

             WHEREAS, the Company and GSSW have entered into an Independent Contractor Consulting Agreement dated as of May 20, 1998 and Extension and Modification of Independent Contractor Consulting Agreement dated as of December 7, 1999 (collectively, the "Consulting Agreement") through which Consultant has provided various consulting capacities to the Company and the Company has obtained various consulting services by Consultant; and;

             WHEREAS, the Company desires to obtain the benefit of continued service from Consultant by extending the Consulting Agreement, and GSSW desires to render continued services to the Company by extending the Consulting Agreement pursuant to the terms and conditions of this Extension;

             NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and obligations set forth herein, the parties hereto hereby agree as follows:

             1.          CONTINUING EFFECTIVENESS OF CONSULTING AGREEMENT.  Except to the extent of any modification made pursuant to the terms of this Extension, the Consulting Agreement shall continue to remain in full force and effect following the date hereof.

             2.          EXTENSION OF TERM.  Employer and Executive hereby agree to extend the term of the Consulting Agreement until April  30, 2003.

             IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written, in the case of the Corporation and GSSW by an officer thereunto duly authorized, and in the case of Consultant, by Consultant individually.

"COMPANY"
CALIFORNIA COASTAL COMMUNITIES, INC.
By /s/  RAYMOND J. PACINI
  Chief Executive Officer
  Raymond J. Pacini
"CONSULTANT"
     /s/  THOMAS W. SABIN, JR.
     Thomas W. Sabin, Jr.
"GSSW"
GSSW-REO, L.C.
a Texas limited liability company
By /s/  THOMAS W. SABIN, JR.
  Thomas W. Sabin, Jr.
  Manager

 
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