U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from ______ to _____
Commission file number 1-10324
Issuer's telephone number: (310) 556-1999
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 outstanding of the issuer's Common Stock, $.01 par value, as of October 31, 1998 was 2,107,363 shares.
Transitional Small Business Disclosure Format (check one): YES__ NO X
THE INTERGROUP CORPORATION
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet (unaudited)
September 30, 1998 3
Consolidated Statements of Operations (unaudited)
Three Months Ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information 13
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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THE INTERGROUP CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
As of September 30, 1998
---------
Assets
Investment in real estate, at cost:
Land $ 6,454,000
Buildings, improvements and equipment 37,600,000
Property held for sale or development 2,136,000
-----------
46,190,000
Less accumulated depreciation (15,750,000)
-----------
30,440,000
Cash and cash equivalents 2,723,000
Restricted cash 1,648,000
Marketable securities:
Available-for-sale 18,924,000
Trading 4,804,000
Investment in Justice Investors 9,892,000
Other investments 2,375,000
Rent and other receivables 330,000
Prepaid expenses and other assets 2,018,000
-----------
Total assets $ 73,154,000
===========
Liabilities and Shareholders' Equity
Liabilities:
Mortgage notes payable $ 38,922,000
Obligation for securities sold 9,196,000
Due securities broker 931,000
Accounts payable and accrued expenses 3,051,000
Deferred income taxes 1,301,000
-----------
Total liabilities 53,401,000
-----------
Minority interest 10,362,000
-----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 2,500,000 shares authorized;
none issued -
Common stock, $.01 par value, 4,000,000 shares authorized;
2,129,288 issued, 2,110,913 outstanding 21,000
Common stock, class A $.01 par value, 2,500,000 authorized;
None issued -
Additionl paid-in capital 8,686,000
Retained earnings 289,000
Unrealized gain on investment securities,
net of deferred taxes 2,077,000
Note receivable - stock options ( 1,438,000)
Treasury stock, at cost, 18,375 shares ( 244,000)
----------
Total shareholders' equity 9,391,000
----------
Total liabilities & shareholders' equity $ 73,154,000
==========
The accompanying notes are an integral part of the consolidated financial
statements
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THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Restated)
For the Three Months ended September 30, 1998 1997
-------- --------
Real estate operations:
Rental income $ 3,335,000 $ 2,951,000
Rental expenses:
Mortgage interest expense 789,000 726,000
Property operating expenses 1,669,000 1,418,000
Real estate taxes 270,000 252,000
Depreciation 529,000 431,000
---------- ---------
Income from real estate operations 78,000 124,000
---------- ---------
Investment transactions:
Dividend and interest income 74,000 296,000
Investment gains 1,055,000 2,986,000
Investment losses (1,558,000) (1,057,000)
Margin interest, trading and management
expenses ( 186,000) ( 216,000)
Equity in net income of Justice Investors 781,000 755,000
----------- -----------
166,000 2,764,000
----------- -----------
Other income (expense):
General and administrativ ( 394,000) ( 411,000)
Miscellaneous income (expense) ( 98,000) 35,000
----------- ----------
( 492,000) ( 376,000)
----------- ----------
Income(loss)before provision for income taxes
and minority interest ( 248,000) 2,512,000
Benefit (provision) for income taxes 338,000 (1,042,000)
----------- ---------
Income before minority interest 90,000 1,470,000
Minority interest expense ( 89,000) ( 213,000)
---------- ---------
Net income $ 1,000 $ 1,257,000
========== =========
Basic earnings per share $ .00 $ .58
========== =========
Weighted average number of shares outstanding 2,120,663 2,158,535
========== =========
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Comprehensive Income:
Net income $ 1,000 $ 1,257,000
Unrealized gain (loss) on securities arising
during period (4,808,000) 3,376,000
Income tax benefit(expense) 1,737,000 (1,127,000)
---------- ---------
Comprehensive income (loss) $(3,070,000) $ 3,506,000
========== =========
The accompanying notes are an integral part of the consolidated financial
statement
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THE INTEGROUP CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Restated)
For the Three Months Ended September 30, 1998 1997
Cash flows from operating activities: _____________ ____________
Net income $ 1,000 $ 1,257,000
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation of real estate 529,000 432,000
Amortization of investments and other assets 26,000 14,000
Equity in net income from Justice Investors ( 781,000) ( 755,000)
Equity in loss income from other investments 107,000 4,000
Minority interest 89,000 213,000
Changes in assets and liabilities:
Receivables 36,000 23,000
Prepaid expenses and other assets ( 724,000) ( 29,000)
Accounts payable and other liabilities 33,000 ( 42,000)
Income taxes payable ( 8,000) 1,089,000
------------ ------------
Net cash provided(used)by operating activities ( 692,000) 2,206,000
------------ ------------
Cash flows from investing activities
Additions to buildings, improvements
and equipment ( 519,000) ( 1,158,000)
Investment in real estate ( 8,000) ( 265,000)
Reduction (increase)in other investments ( 49,000) 714,000
Distributions from Justice Investors 418,000 418,000
Reduction(investment) in marketable securities 3,387,000 (5,289,000)
Investment in Santa Fe stock ( 49,000) -
Purchase of Portsmouth stock ( 125,000) -
---------- ----------
Net cash provided by (used for) investing
activities 3,055,000 (5,580,000)
---------- -----------
Cash flows from financing activities:
Principal payments on mortgage notes payable ( 122,000) ( 121,000)
Decrease (increase) in restricted cas 83,000 ( 35,000)
Decrease (increase)in securities sold (1,424,000) 1,052,000
(Decrease)increase in due to securities brokers(3,273,000) 1,738,000
Dividends paid to minority shareholders ( 63,000) ( 133,000)
Purchase of treasury stock ( 154,000) -
---------- ----------
Net cash provided by (used for) financing
activities (4,953,000) 2,501,000
---------- -----------
Net decrease in cash and cash equivalents (2,590,000) ( 873,000)
Cash and cash equivalents at beginning of
period 5,313,000 4,188,000
---------- -----------
Cash and cash equivalents at end of period $ 2,723,000 $ 3,315,000
========== ===========
The accompanying notes are an integral part of the consolidated financial
statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the three months ended September 30, 1998
1. General:
The consolidated financial statements included herein are unaudited; however, in the opinion of The InterGroup Corporation (the "Company"), the interim financial information contains all adjustments, including normal recurring adjustments, necessary to present fairly the results for the interim period. These consolidated financial statements include the accounts of the Company and its subsidiaries and should be read in conjunction with the Company's June 30, 1998 audited consolidated financial statements and notes thereto.
During fiscal year 1998 the Company's Chairman and President entered into a voting trust agreement with the Company giving the Company the power to vote the shares of Santa Fe common stock that he owns. As a result of this agreement the Company has the power to vote 51.5% of the voting shares as of September 30, 1998. Santa Fe's revenue is primarily generated through its 66.9% interest in Portsmouth Square, Inc. ("Portsmouth"), which derives its revenues primarily through its 49.8% interest in Justice Investors ("Justice"), a limited partnership. Justice owns the land improvements and leasehold known as the Financial District Holiday Inn, a 556-room hotel in San Francisco, California.
On August 31, 1998 the Board of Directors approved a three-for-two stock split of the Company's $.01 par value Common Stock in the form of a stock dividend. The dividend was paid in shares of the Company's Common Stock on October 9, 1998 to the shareholders of record as of September 23, 1998. The accounts of the Company and related share information have been adjusted to reflect the stock split as of September 30, 1998.
2. Marketable Securities:
Marketable securities are stated at market value as determined by the most recently traded price of each security at the balance sheet date. All marketable securities are defined as trading or available-for-sale securities. The Company determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designations at each balance sheet date.
Securities classified as available-for-sale are carried at fair market value, with the unrealized holding gains and losses reported as a separate component of shareholders' equity. Certain securities are classified as trading securities when they are transferred to cover corresponding obligations of the same security sold short. These securities and the related obligations are marked to market with unrealized holding gains and losses included in earnings. The cost of investments sold is determined on the specific identification or the first-in, first-out method.
At September 30, 1998 marketable securities available-for-sale included $1,785,000 of debt securities. At September 30, 1998, the aggregate market value of marketable securities exceeded the aggregate cost by approximately $3,549,000. The net unrealized gain is comprised of gross unrealized gains of approximately $7,421,000 reduced by gross unrealized losses of $3,872,000. The net unrealized gain, net of deferred taxes of approximately $1,472,000, is included as a separate item in shareholders' equity. As September 30, 1998 the Company had no naked short positions.
3. Investment in Justice Investors:
The consolidated accounts include a 49.8% interest in Justice Investors ("Justice"), a limited partnership. Justice owns the land improvements and leasehold known as the Financial District Holiday Inn, a 556-room hotel in San Francisco, California. Portsmouth is both a limited and general partner in Justice and records its investment in Justice on the equity basis.
Condensed financial statements for Justice Investors are as follows.
Justice Investors Condensed Balance Sheet as of September 30, 1998
Assets
Total current assets $ 1,404,000
Property, plant and equipment
net of accumulated depreciation 5,674,000
Other assets 201,000
---------
Total Assets $ 7,279,000
=========
Liabilities and partners' capital
Total current liabilities $ 100,000
Long-term debt 1,434,000
Partners' capital 5,745,000
---------
Total Liabilities and Partners' Capital $ 7,279,000
=========
Justice Investors
Condensed Results of Operations
for the three months ended September 30,
1998 1997
-------- ---------
Revenues $ 1,802,000 $ 1,781,000
Net Income 1,569,000 1,516,000
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4. Investment in Healthy Planet Products, Inc.
On August 5, 1998 the Company's Chairman and President became the Chairman of Healthy Planet Products, Inc. ("Healthy Planet") and one of the Company's directors became a director of Healthy Planet. As a result, the Company exercises significant influence over Healthy Planet and, therefore, the Company's consolidated operating results and cash flows for the three months ended September 30, 1997, have been restated to account for the Company's 9.8% ownership interest in Healthy Planet on the equity method. Previously the Company accounted for its investment in Healthy Planet for this period on the cost method. The effect of this restatement is to decrease previously reported net income and retained earnings by $4,000.
5. Commitments and Contingencies:
On February 22, 1995, the Company was named as a defendant in a shareholders' derivative suit filed against Santa Fe and certain directors of Santa Fe, arising out of the Company's investment in Santa Fe. On December 31, 1996, a final judgment was entered in favor of the Company. On June 9, 1997, the Company was awarded $296,000 in attorneys' fees and costs as a prevailing party in that litigation, effective as of April 25, 1997. The judgment and the award of attorneys have been appealed. The action will continue to be vigorously defended and every effort will be made by the Company to recover the fees and costs it incurred.
On July 3, 1997, the Court of Appeal, granted the director defendants' petition for a writ of mandate and directed the trial court to vacate its prior order denying the director defendants' motion for summary judgment and to enter a new order granting the motion. The Court of Appeal's decision became final on August 2, 1997; however, plaintiffs filed a petition for review to the California Supreme Court on August 12, 1997. That petition was denied by the Supreme Court on October 15, 1997.
As prevailing parties, the director defendants and Santa Fe also made application to the Superior Court for recovery of the attorneys' fees and costs expended in their successful defense of this litigation. On March 13, 1998, the trial court confirmed a prior tentative ruling and granted the applications for attorneys' fees and costs in the total amount of $936,000. On March 24, 1998 a judgment was entered in favor of the director defendants and Santa Fe which made the award of costs effective as of February 20, 1998. That judgment was appealed and is waiting to be briefed.
On March 27, 1998, a wrongful termination action was filed by an ex-employee, officer and director against the Company and its President and Chairman. The Complaint, as originally filed, sought an award of back and future pay, employee benefits, restitution, unspecified punitive and special damages and attorneys' fees. In June of 1998, a demurrer to the Complaint was sustained without leave to amend, with respect to plaintiff's tort claim for breach of implied covenant of good faith. On or about August 3, 1998, a demurrer to a First Amended Complaint was sustained without leave to amend with respect to plaintiff's claim of violation of section 17200 et seq. of the California Business and Professions Code. Plaintiff filed a petition for a writ of mandate challenging that decision, which was summarily denied by the court of appeal. Plaintiff also filed an appeal from an order denying his motion to disqualify the law firm representing the Company and its Chairman and President. The filing of that appeal has resulted in a stay of all trial court proceedings in that action. The case is in its very early stages and discovery has just commenced, so it is not possible to predict the outcome at this time.
As an officer and director, the Company's President and Chairman has requested indemnification from the Company as permitted by law and under the Bylaws and Articles of the Company. The case will be vigorously defended and there may be insurance coverage for all or part of the costs of the defense of this action and for all or part of any liability that may be imposed on the Company.
On March 27, 1996 an action was filed against the Company and others arising out of alleged construction defects in two Indio, California apartment complexes formerly owned by the Company. The Complaint alleges damages in the amount of $2,000,000. The Company has filed cross-complaints against the subcontractors and the architect. The case is still in its early stages and only limited discovery has taken place. Accordingly, it is not possible to assess what exposure, if any, the Company may have at this time. There may be insurance coverage for all of part of the costs of defense and for all or part of any liability that may be imposed on the Company.
On October 15, 1997, a related action for Declaratory Relief was filed by the insurance carrier alleging that the Company has no coverage with respect to at least one of the apartment complexes. The Company has filed an answer and cross-complaint for breach of contract, breach of the covenant of good faith and fair dealing and for declaratory relief. Truck Insurance Company has filed a motion to strike the punitive damages claims in the cross-complaint, which was granted. To date, no discovery has occurred. The Company intends to vigorously defend against the complaint and prosecute its cross-complaint in this action. It is not possible to predict the outcome of this action at this time.
6. Related Party Transactions:
In May 1996, the Company's Chairman and President exercised an options to purchase 281,250 shares (adjusted for split) of the Company's Common Stock at an exercise price of $5.11 per share (adjusted for split) through a full recourse note due to the Company on demand, but in no event later than May 2001. The note bears interest floating at the lower of 10% or the prime rate (8.50% at September 30, 1998) with interest payable quarterly. The balance of the note receivable of $1,438,000 is reflected as a reduction of shareholders' equity at September 30, 1998.
The Company's Chairman and President directs the investment activity of the Company, Santa Fe and Portsmouth in public and private markets pursuant to authority granted by the Board of Directors of each entity. Depending on certain market conditions and various risk factors, the President and members of his immediate family may at times invest in the same companies in which the Company, Santa Fe and Portsmouth invest. The Company, Santa Fe and Portsmouth encourage such investments because it places personal resources of the President and his family members at risk in connection with investment decisions made on behalf of the Company, Santa Fe and Portsmouth. Following allegations concerning the President made by a former officer and director of the Company, the Board of Directors authorized committees of the Board to conduct a thorough and independent review of such matters, including the Company's practices in this regard. The committee advised the Board of Directors that it found the material allegations of improprieties made by the former officer and director could not be substantiated. The committee made recommendations that the Company institute certain modifications to its existing procedures to reduce the potential for conflicts of interest. The Company's Board of Directors has adopted these recommendations.
THE INTERGROUP CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND PROJECTIONS
The discussion below and elsewhere in this report includes forward-looking statements about the future business results and activities of the Company, which, by their very nature, involve a number of risks and uncertainties. When used in this discussion, the words "estimate", "project", "anticipate" and similar expressions, are subject to certain risks and uncertainties, such as changes in general economic conditions, local real estate markets, and competition, as well as uncertainties relating to uninsured losses, securities markets, and litigation, including those discussed below that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
For the three months ended September 30, 1998 compared to September 30, 1997
(Restated)
Income from real estate operations for the three months ended September 30, 1998 compared to the three months ended September 30, 1997 was primarily impacted by the Company's properties in San Antonio, Texas, Houston, Texas, and Middletown, Ohio.
Rental income from real estate operations increased 13.0% to $3,335,000 from $2,951,000 for the three months ended September 30, 1998 and 1997, respectively. The increase was primarily due to three Texas properties, including the Houston, Texas property which experienced significantly lower vacancy levels following the rehabilitation which was substantially complete as of September 30, 1998.
Mortgage interest expense increased 8.7% to $789,000 from $726,000 for the three months ended September 30, 1998 and 1997, respectively. This is due to higher mortgage payments associated with three properties refinanced with higher levearge offset by lower interest rates during the previous fiscal year.
Property operating expenses increased 17.7% to $1,669,000 from $1,418,000 for the three months ended September 30, 1998 and 1997, respectively. This is primarily due to the Houston, Texas and Middletown, Ohio properties. Expenses at the Company's Cincinnati, Ohio and Harrisburg, Pennsylvania properties were also up but to a lesser extent. These increases include personnel, leasing and repair and maintenance expenses required to prepare and maintain apartments for rental.
Real estate taxes increased 7.2% to $270,000 from $252,000 for the three months ended September 30, 1998 and 1997, respectively. This increase is primarily due to increases in assessed property values.
Depreciation expense increased 22.5% to $529,000 from $431,000 for the three months ended September 30, 1998 and 1997, respectively. This increase is due to property improvements made during the previous fiscal year.
Investment gains decreased 64.7% to $1,055,000 from $2,986,000 for the three months ended September 30, 1998 and 1997, respectively and investment losses increased 47.4% to $1,558,000 from $1,057,000 for the three months ended September 30, 1998 and 1997, respectively. Realized gains and losses may fluctuate significantly from period to period, with a meaningful effect upon the Company's net earnings. However, in the opinion of management the amount of realized investment gain or loss for any given period has no predictive value, and variations in amounts from period to period have no practical analytical value, particularly in view of the net unrealized gain in the Company's overall investment portfolio.
Margin interest and trading expenses decreased 13.7% to 186,000 from $216,000 due to a decrease in margin interest expense to $62,000 from $131,000 for the three months ended September 30, 1998 and 1997, respectively. The Company's overall investment portfolio, which includes marketable securities, the Company's investment in Santa Fe and Healthy Planet based on the equity method and other investments, had a negative return of 20.6% for the three months ended September 30, 1998 compared to a positive return of 25.0% for the three months ended September 30, 1997. The return is calculated by dividing the net realized and unrealized gains and losses net of associated expenses by the average monthly investment balance of the overall investment portfolio. For the five years ended September 30, 1998, the overall investment portfolio achieved a positive average annual compounded return of 2.1%. It should be noted that other investments primarily includes investments that are not traded on any exchange and, accordingly, the return calculations do not reflect any increases or decreases in value of other investments until such gains or losses are realized or there is an other than temporary decline in value below the cost of the investment.
The Company's equity in the net income of Justice investors increased 3.5% to $781,000 from $755,000 for the three months ended September 30, 1998 and 1997, respectively.
General and administrative expenses decreased 4.1% to $394,000 from $411,000 for the three months ended September 30, 1998 and 1997, respectively.
Miscellaneous expense increased to $98,000 compared to miscellaneous income of $35,000 for the three months ended September 30, 1998 and 1997, respectively. The increase in expense is primarily due to legal fees incurred by the Company in connection with defense of allegations made by a former officer and director of the Company and in connection with defense of alleged construction defects in two apartment complexes formerly owned by the Company.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash flows are generated primarily from its real estate activities, sales of investment securities and borrowings related to both. The Company and Santa Fe used net cash flow of $692,000 for operating activities, generated net cash flow of $3,055,000 from investing activities and used net cash flow of $4,953,000 for financing activities during the three months ended September 30, 1998.
During the three months ended September 30, 1998 the Company improved properties in the aggregate amount of $519,000. Management believes the improvements to the properties should enhance market values, maintain the competitiveness of the company's properties and potentially enable the company to obtain a higher yield through higher rents.
The Company's outstanding indebtedness includes mortgages on real estate which amounted to $38,922,000 as of September 30, 1998. Management may pursue property refinancing activities as considered necessary or when deemed economically favorable to the Company.
On September 21, 1998 the Company entered into an agreement to borrow up to $2,000,000 at a rate equal to the prime rate at the time funds are borrowed. Payment, including accrued interest, is due on September 21, 1999. The loan is secured by the Company's unimproved land in St. Louis, Missouri. As of September 30, 1998 there were no amounts owing under this agreement.
YEAR 2000 ISSUES
The Company has been aware of the potential implications of the "Year 2000" issue could have on its business and as a result, has been in the process of determining what, if any, steps the Company must take to cure any potential computer software or hardware problems associated with the year 2000. Based on preliminary discussions with the Company's outside service providers and software and hardware vendors, the Company has determined that it should not incur any material liability to upgrade computer software and hardware to accommodate the year 2000.
SUBSEQUENT EVENTS
On August 18, 1998 the Company entered into a contract to sell its Harrisburg, Pennsylvania property. On October 2, 1998 the Company completed the sale for gross sales proceeds of $3,763,000 and realized a gain of approximately $2,150,000. A portion or all of the proceeds may be utilized to acquire other real estate investments.
On August 31, 1998 the Board of Directors approved a three-for-two stock split of the Company's $.01 par value Common Stock in the form of a stock dividend. The dividend was paid in shares of the Company's Common Stock on October 9, 1998 to the shareholders of record as of September 23, 1998. The accounts of the Company and related share information have been adjusted to reflect the stock split as of September 30, 1998.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Guinness Peat Group plc v. Robert N. Gould, et al., San Diego County Superior Court Case No. 685760. The appeal from the summary judgement and the award of attorneys' fees and costs in the amount of $296,000, which were granted in favor of the Company, has now been fully briefed. Oral argument and a subsequent decision on that appeal are not expected to occur for at least another 12 to 18 months. The appeal of the award of attorneys' fees in favor of Santa Fe and the director defendants in the aggregate amount of $936,000 also remains on appeal, with only the opening brief filed to date. The parties have participated in a Court of Appeal settlement program, but no progress has been made to date as to settlement.
Howard A. Jaffe v. The InterGroup Corporation, et al., Los Angeles County Superior Court Case No. BC188323. On or about August 3, 1998, a demurrer to plaintiff's First Amended Complaint was sustained without leave to amend with respect to plaintiff's claim of violation of section 17200 et seq. of the California Business and Professions Code. Plaintiff filed a petition for a writ of mandate challenging that ruling which was summarily denied by the Court of Appeal. Plaintiff also filed an appeal from an order denying his motion seeking to disqualify the law firm representing the Company and its President and Chairman. The filing of that appeal has resulted in a stay of all trial court proceedings in that action.
7709 Lankershim Ltd. v. Carreon Villa Apartments I, et al., Riverside County Superior Court Case No. 088325. That action is still in its early stages and only limited discovery has taken place to date.
Truck Insurance Exchange v. Carreon Villa Apartments I, et al., Riverside County Superior Court No. 004158. Plaintiff's motion to strike the punitive damages claims in the cross-complaint filed by defendants was granted. The Company intends to vigorously defend against the complaint and to prosecute the remaining claims in its cross-complaint and seek appellate review if appropriate.
The Company is a defendant or co-defendant in various other legal actions involving various claims incident to the conduct of its business. Most of these claims are covered by insurance. Management does not anticipate the Company to suffer any material liability by reason of such actions.
Item 4. Submission of Matters to a Vote of Security Holders.
On October 2, 1998 a Special Meeting of the Company's Shareholders was held at the Company's headquarters located at 2121 Avenue of the Stars, Suite 2020, Los Angeles, California with the following results: (1) The Company's Certificate of Incorporation was amended to provide that (a) the total number of shares that the Company is authorized to issue shall be 9,000,000 shares, of which 4,000,000 shares shall be Common Stock, $.01 par value per share ("Common Stock"), 2,500,000 shares shall be Class A Common Stock, $.01 par value per share ("Class A Common Stock") and 2,500,000 shares shall be Preferred Stock, $.01 par value per share (Preferred Stock); (b) each share of Common Stock shall be entitled to ten (10) votes per share and each share of Class A Common Stock shall be entitled to one vote per share; (c) following the initial issuance of Class A Common Stock by the Company, each share of Common Stock shall be convertible into one share of Class A Common Stock at the option of the holder thereof; and (d) the holders of the Class A common Stock shall have the same rights and privileges as the holders of the common Stock, with the exception of voting power. A tabulation of the votes follows:
Proposal (1) Votes For Against Abstained 747,491 47,770 4,897
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Exhibit No. 3, Restated Certificate of Incorporation
Exhibit No. 27, Financial Data Schedule
(b) Form 8-K - Filed during the quarter ended September 30, 1998
September 10, 1998 - relating to approved a three-for-two stock split of the Company's $.01 par value Common Stock in the form of a stock dividend.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE INTERGROUP CORPORATION
(Registrant)
Date: November 13, 1998
By /s/ John V. Winfield
--------------------
Chairman, President and Chief Executive Officer
Date: November 13, 1998
By /s/ Gregory C. McPherson
------------------------
Executive Vice President, Assistant Treasurer and
Assistant Secretary
Date: November 13, 1998
By /s/ Mary E. Arnold
------------------
Vice President Finance
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CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
THE INTERGROUP CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is "The InterGroup Corporation".
2. The Certificate of Incorporation is hereby amended by striking out Article FOURTH thereof and by substituting in lieu of said Article the following new Article:
FOURTH
"The total of shares of stock which the Corporation shall have the authority to issue is Nine Million (9,000,0000) shares, of which Four Million (4,000,000) shares shall be Common Stock, $0.01 par value per share, Two Million Five Hundred Thousand (2,500,000) shares shall be Class A Common Stock, $0.01 par value, and Two Million Five Hundred Thousand (2,500,000) shares shall be Preferred Stock, $0.01 par value per share.
Holders of the Common Stock shall have the right to cast ten (10) votes for each share held of record and holders of Class A Common Stock shall have the right to cast one vote for each share held of record on all matters submitted to a vote of the holders of common stock. The Common Stock and the Class A Common Stock shall vote together as a single class on all matters on which stockholders may vote, including the election of directors, except when class voting is required by applicable law.
Following the initial issuance of Class A Common Stock by the Company, each share of Common Stock shall be convertible, at the election of the holder thereof, into one share of Class A Common Stock.
Holders of Class A Common Stock shall be entitled to the same rights, privileges and opportunities (other than voting rights) as holders of Common Stock in any merger, reorganization, recapitalization or similar transaction to which the Corporation is a party. The Corporation shall not support any tender offer or exchange offer which treats Class A Common Stock differently (except in respect of voting rights) from Common Stock.
The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation is hereby expressly authorized to provide by resolution or resolutions duly adopted by it prior to issuance, for the creation of each such series and to fix the designation and the powers and preferences, rights, qualifications, limitations and restrictions relating to the shares of each such series. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, determining the following:
a. the designation of such series, the number of shares to constitute such series and the stated value if different from the par value thereof;
b. whether the shares of such series shall have voting rights, in addition to any voting rights provided by law and, if so, the terms of such voting rights, which shall be general or limited;
c. the dividends, if any, payable on such series, whether any such dividends shall be cumulative and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preferences or relation which such dividends shall bear to the dividends payable on any shares of stock of any other class or any other series of Preferred Stock;
d. whether the shares of such series shall be subject to redemption by the Corporation and, if so, the times, prices and other conditions of such redemption;
e. the amount or amounts payable upon shares of such series upon, and the rights of the holders of such series in, the voluntary winding up, or upon any dissolution of the assets, of the Corporation;
f. whether the shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and the manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such series for retirement or other corporate purposes and the terms and provisions relating to the operation thereof;
g. whether the shares of such series shall be convertible into, or exchangeable for shares of stock of any other class or any other series of Preferred Stock or any other securities and, if so, the price or prices, or rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange;
h. the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Corporation of, the common stock or shares of stock of any other class or any other series of Preferred Stock;
i. the conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issue of any additional stock, including additional shares of such series or of any other series of Preferred stock or of any other class; and
j. any other powers, preferences and relative participating, optional and other special rights, and any qualifications, limitations and restrictions, thereof.
The powers, preferences and relative, participating, optional or other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. All shares of any one series of Preferred Stock shall be identical in all respects with all other shares of such series, except that the shares from any one series issued at different times may differ as to the dates from which dividends thereof shall be cumulative.
Subject to the protective conditions and restrictions of any outstanding Preferred Stock, any amendment to this Certificate of Incorporation which increases or decreases the authorized capital stock of any class or classes may be adopted by the affirmative vote of the holders of a majority of the outstanding shares of the voting stock of the corporation."
3. The amendment of the Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Sections 242 of the General Corporation Law of the State of Delaware.
Signed on October 2, 1998
/s/ John V. Winfield ---------------------- John V. Winfield President and Chairman |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<PERIOD-TYPE> QUARTER <FISCAL-YEAR-END> JUN-30-1999 <PERIOD-END> SEP-30-1998 <CASH> 2,723,000 <SECURITIES> 26,103,000 <RECEIVABLES> 330,000 <ALLOWANCES> 0 <INVENTORY> 0 <CURRENT-ASSETS> 42,714,000 <PP&E> 46,190,000 <DEPRECIATION> 15,750,000 <TOTAL-ASSETS> 73,154,000 <CURRENT-LIABILITIES> 14,478,000 <BONDS> 38,922,000 <COMMON> 21,000 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <OTHER-SE> 9,370,000 <TOTAL-LIABILITY-AND-EQUITY> 73,154,000 <SALES> 0 <TOTAL-REVENUES> 2,906,000 <CGS> 0 <TOTAL-COSTS> 2,654,000 <OTHER-EXPENSES> 492,000 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 789,000 <INCOME-PRETAX> (248,000) <INCOME-TAX> (338,000) <INCOME-CONTINUING> 1,000 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 1,000 <EPS-PRIMARY> (0.00) <EPS-DILUTED> (0.00) |