10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________.
Commission File Number 20418
KENNEDY-WILSON, INC.
(Exact name of registrant as specified in its charter)
Delaware		95-4364537
(State or other jurisdiction of incorporation or organization)		(I.R.S Employer Identification No.)
9601 Wilshire Blvd., Suite 220 Beverly Hills, CA		90210
(Address of principal executive offices)		(Zip Code)
(310) 887-6400
(Registrant’s telephone number, including area code)

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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes   o No   x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common stock, $.01 par value; 9,616,165 shares outstanding at May 12, 2003.

KENNEDY-WILSON, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

MARCH 31, 2003

		Page
PART I	Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2003 (Unaudited) and December 31, 2002	3
	Consolidated Statements of Income for the Three-Month Periods ended March 31, 2002 and 2001 (Unaudited)	4
	Consolidated Statements of Cash Flow for the Three-Month Periods ended March 31, 2002 and 2001 (Unaudited)	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	19
Item 4.	Controls and Procedures	19
Item 6.	Exhibits and Reports on Form 8-K	19
Certifications		21

2

Kennedy-Wilson, Inc. and Subsidiaries
Consolidated Balance Sheets

	March 31, 2003 (Unaudited)			December 31, 2002
Assets
Cash and cash equivalents	$	6,374,000		$	11,852,000
Cash – restricted		959,000			42,000
Accounts receivable		4,272,000			4,788,000
Investment in Kennedy-Wilson Japan		10,991,000			13,286,000
Notes receivable		24,765,000			15,662,000
Real estate		16,740,000			—
Investments in joint ventures		47,959,000			48,458,000
Contracts and other assets, net		10,542,000			11,022,000
Goodwill, net		23,965,000			23,965,000
Total Assets	$	146,567,000		$	129,075,000
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable	$	522,000		$	861,000
Accrued expenses and other liabilities		3,027,000			2,850,000
Accrued salaries and benefits		2,157,000			2,713,000
Deferred and accrued income taxes		2,331,000			2,367,000
Notes payable		22,534,000			15,983,000
Joint venture financing		5,580,000			—
Borrowings under lines of credit		22,443,000			24,224,000
Mortgage loans payable		11,120,000			—
Senior unsecured notes		14,805,000			14,606,000
Subordinated debt		2,773,000			2,773,000
Total liabilities		87,292,000			66,377,000
Commitments and Contingencies
Stockholders’ Equity
Preferred stock, $0.01 par value: 5,000,000 shares authorized; none issued as of December 31, 2002 and 2001		—			—
Common stock, $0.01 par value: 50,000,000 shares authorized; 10,277,392 and 11,215,992 shares issued and outstanding as of March 31, 2003 and December 31, 2002, respectively		103,000			112,000
Additional paid-in capital		53,095,000			57,473,000
Restricted stock – deferred compensation		(7,380,000	)		(7,633,000	)
Retained earnings		13,207,000			12,461,000
Accumulated other comprehensive income		250,000			285,000
Total stockholders’ equity		59,275,000			62,698,000
Total Liabilities and Stockholders’ Equity	$	146,567,000		$	129,075,000

See accompanying notes to consolidated financial statements.

3

Kennedy-Wilson, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)

	Three months ended March 31,
	2003			2002
Revenue
Property management and leasing fees	$	3,696,000		$	5,772,000
Property management and leasing fees –related party		996,000			894,000
Commissions		644,000			2,674,000
Commissions – related party		139,000			215,000
Interest and other income		532,000			487,000
Total revenue		6,007,000			10,042,000
Operating Expenses
Commissions and marketing expenses		879,000			1,127,000
Compensation and related expenses		4,316,000			5,888,000
General and administrative		2,064,000			3,075,000
Depreciation and amortization		694,000			880,000
Non-recurring, non-cash Japan IPO expense		—			1,100,000
Total operating expenses		7,953,000			12,070,000
Equity income		567,000			594,000
Total operating loss		(1,379,000	)		(1,434,000	)
Non-operating income (expense)
Gain on sale of stock of subsidiary		3,514,000			8,822,000
Interest expense		(506,000	)		(533,000	)
Valuation adjustment – warrants		35,000			(480,000	)
Loss on extinguishment of debt		(454,000)			—
Income before minority interest and provision for income taxes		1,210,000			6,375,000
Minority interest		—			(202,000	)
Income before provision for income taxes		1,210,000			6,173,000
Provision for income taxes		(464,000	)		(2,208,000	)
Net Income	$	746,000		$	3,965,000
Share Data:
Net income per share, basic	$	0.08		$	0.45
Basic weighted average shares		9,513,581			8,794,449
Net income per share, diluted	$	0.08		$	0.41
Diluted weighted average shares		9,537,397			9,804,880

See accompanying notes to consolidated financial statements.

4

Kennedy-Wilson, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

	Three months ended March 31,
	2003			2002
Cash flows from operating activities:
Net income	$	746,000		$	3,965,000
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		694,000			880,000
Loss on extinguishment of debt - non cash		199,000			—
Equity income		(567,000	)		(594,000	)
Minority interest in income of subsidiary		—			202,000
Gain on sale of stock of subsidiary		(3,514,000	)		(8,822,000	)
Non-recurring Japan IPO expense		—			1,100,000
Valuation adjustment – warrants		(35,000	)		480,000
Amortization of deferred compensation		253,000			74,000
Change in assets and liabilities:
Accounts receivable		516,000			1,257,000
Contracts and other assets		(214,000	)		183,000
Accounts payable		(339,000	)		190,000
Accrued expenses and other liabilities		(380,000	)		(507,000	)
Net cash used in operating activities		(2,641,000	)		(1,592,000	)
Cash flows from investing activities:
Purchase of contracts and other assets		—			(1,869,000	)
Settlements of notes receivable		1,990,000			1,675,000
Purchases of notes receivable and redemption of joint venture partner in note receivable venture		(11,093,000	)		(655,000	)
Purchases of and additions to real estate		(7,520,000	)		(658,000	)
Distributions from joint ventures		1,500,000			2,812,000
Contributions to joint ventures		(874,000	)		(4,298,000	)
Proceeds from sale of investment in Kennedy-Wilson Japan		6,249,000			18,718,000
Cash – restricted decrease		(917,000	)		495,000
Net cash (used in) provided by investing activities		(10,665,000	)		16,220,000
Cash flow from financing activities:
Borrowings under notes payable		8,974,000			1,043,000
Repayment of notes payable		(5,168,000	)		(2,337,000	)
Joint venture financing		5,580,000			—
Borrowings under lines of credit		3,219,000			985,000
Repayment of lines of credit		(5,000,000	)		(3,563,000	)
Issuance of mortgage payable		1,900,000			—
Repayment of mortgage loans payable		—			(5,000	)
Repayment of senior unsecured notes		(5,000,000)			—
Borrowings under senior unsecured notes		5,000,000			42,000
Issuance of common stock		—			58,000
Repurchase of common stock		(1,642,000	)		—
Net cash provided by (used in) financing activities		7,863,000			(3,777,000	)
Accumulated other comprehensive loss – foreign currency translation		(35,000	)		—
Net (decrease) increase in cash and cash equivalents		(5,478,000	)		10,851,000
Cash and cash equivalents, beginning of period		11,852,000			11,121,000
Cash and cash equivalents, end of period	$	6,374,000		$	21,972,000

Supplemental disclosure of non-cash financing activity:

Mortgage payable of approximately $9.22 million was assumed in the acquisition of real estate.

Stock was repurchased by issuing a new note payable in the amount of $2,745,000.

See accompanying notes to consolidated financial statements.

5

Kennedy-Wilson, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Three months ended March 31, 2003 and 2002
(unaudited)

NOTE 1 - ACCOUNTING POLICIES

The Company’s unaudited interim financial statements have been prepared in conformity with generally accepted accounting principles used in the preparation of the Company’s annual financial statements.  In the opinion of the Company, all adjustments, consisting of normal and recurring items, necessary for a fair presentation of the results of operations for the three months ended March 31, 2003 and 2002 have been made.  The results of operations for these periods are not necessarily indicative of results that might be expected for the full year.  The interim statements are condensed and do not include some of the information necessary for a more complete understanding of the financial data.  Accordingly, your attention is directed to the footnote disclosures found in the Company’s 2002 Annual Report on Form 10-K.

BASIS OF PRESENTATION - The consolidated financial statements include the accounts of the Company and its consolidated joint ventures.  All material intercompany balances and transactions have been eliminated.  Assets and liabilities denominated in foreign currencies are translated at rates of exchange prevailing on the date of the consolidated balance sheet, while income statement items are translated at average rates of exchange for the year.

USE OF ESTIMATES - The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.  The Company bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

RECLASSIFICATION - Certain amounts for prior periods have been reclassified to conform to the current period presentation.

REVENUE RECOGNITION - The Company’s real estate services revenues are generally recorded when the related services are performed or at closing in the case of real estate sales commissions.  Property management fees are recognized over time as earned based upon the terms of the management agreement.

Leasing commission revenues are accounted for in accordance with the provisions of SAB 101.  Accordingly, leasing commissions that are payable upon tenant occupancy, payment of rent or other events beyond the Company’s control are recognized upon the occurrence of such events.  In accordance with EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, the Company records brokerage commission revenues and expenses on a gross basis.  Of the criteria listed in the EITF, the Company is the primary obligor in the transaction, does not have inventory risk, performs all, or part, of the service, has credit risk, and has wide latitude in establishing the price

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of services rendered, discretion in selection of agents and determination of service specifications.  Due to these factors, gross reporting is appropriate.

Revenues on notes receivable are recognized as follows: The Company accounts for performing discounted loan portfolios that it began acquiring in 2001 on an effective interest basis under the provisions of Practice Bulletin 6.  Through 1999, the Company acquired pools of claims, judgements, and other defaulted credit transactions.  Revenues on these assets are accounted for as follows: Cash payments on defaulted notes are applied to the cost basis until fully recovered before any revenue is recognized.  When claims and judgements purchased are subsequently structured into performing collateralized notes, the difference between the cost basis of the asset and the fair value of the resulting note is accreted into interest and other income over the life of the note.

INVESTMENTS IN JOINT VENTURES - The Company has a number of partnership and joint venture interests ranging from 2% to 50% that were formed to acquire, manage, develop and/or sell real estate.  These investments are accounted for under the equity method.

The Company reviews each of its investments on a periodic basis for evidence of impairment.  Impairment losses are recognized whenever events or changes in circumstances indicate declines in value of an investment below its carrying value and the related undiscounted cash flows are not sufficient to recover the asset’s carrying amount.  No impairment losses were recorded by the Company in the three month periods ended March 31, 2003 and 2002.

GOODWILL - Goodwill is reviewed for impairment on an annual basis, and more frequently if there is a triggering event, by Company management in accordance with the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”).

CASH AND CASH EQUIVALENTS - Cash and cash equivalents consists of cash and all highly liquid investments purchased with maturities of three months or less.

RESTRICTED CASH - Restricted cash consists of nonrefundable deposits on acquisitions of real estate, marketing funds advanced by clients and reserve accounts required in connection with real estate related loans.

LONG-LIVED ASSETS - Long-lived assets and assets held for sale are reviewed for impairment whenever events or changes in circumstances indicate that an impairment may have occurred.  No impairment loss was

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recorded in either of the three month periods ended March 31, 2003 and 2002.

NOTES RECEIVABLE - The Company accounts for any impairment to our basis in notes receivable in accordance with Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, as amended by Statement of Financial Accounting Standards No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures.  Accordingly, impaired loans are measured based upon the present value of expected future cash flows, discounted at the loans’ effective interest rate or, if readily determinable, the loans’ observable market price or the fair value of the collateral if the loan is collateral dependent.

CAPITALIZED INTEREST - The Company capitalizes interest in accordance with FAS 58 for qualifying equity investments.  Interest is capitalized on investment assets that are undergoing construction or entitlement activities in preparation for their planned principal operations.  An appropriate interest rate is applied to the Company’s cash investment in the qualifying asset.  The interest is credited against interest expense and added to the basis in the investment.  Interest is capitalized when the development or entitlement activity commences and ceases when the investment has begun its planned principal operations or development is halted for any reason. 

EARNINGS PER SHARE - Basic earnings per share is computed based upon the weighted average number of shares of common stock outstanding during the periods presented.  Shares of restricted stock are included in the computation only after the shares become vested.  Diluted earnings per share is computed based upon the weighted average number of shares of common stock and dilutive securities outstanding during the periods presented.  The diluted earnings per share computation also includes the dilutive impact of options and warrants to purchase common stock which were outstanding during the period calculated by the “treasury stock” method, unvested restricted stock grants and the assumed conversion of the Company’s convertible subordinated debt in 2002 as if conversion to common shares had occurred at the beginning of the year.  Earnings have also been adjusted for interest expense on the convertible subordinated debt in 2002.

RECENT ACCOUNTING PRONOUNCEMENTS - In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS 146”).  SFAS 146, which is effective for exit or disposal activities initiated after December 31, 2002, requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred.  The Company’s adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34 (“FIN 45”).  FIN 45 requires that upon issuance of a guarantee, the entity must recognize a liability for the fair value of the obligation it assumes under that guarantee.  FIN 45 requires disclosure about each guarantee even if the likelihood of the

8

guarantor’s having to make any payments under the guarantee is remote.  The provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002.  The Company has certain guarantees associated with loans secured by assets held in various joint venture partnerships.  The maximum potential amount of future payments (undiscounted) the Company could be required to make under the guarantees is approximately $35 million.  The guarantees expire through 2005 and the Company’s performance under the guarantees would be required to the extent there is a shortfall in liquidation between the principal amount of the loan and the net sales proceeds of the property.  In one joint venture partnership, the entire loan of approximately $9 million is collateralized by the property and the Company indemnifies the lender under certain conditions such as fraud or bankruptcy.  The Company also has a leasing guarantee agreement which expires in 2009.  The maximum amount that the Company could be responsible for under the guarantee is approximately $2.6 million. During the three month period ended March 31, 2003, the Company issued no new guarantees to unconsolidated entities.

In December 2002, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB 51 (“FIN 46”).  The primary objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights (variable interest entities, or VIEs) and how to determine when and which business enterprise should consolidate the VIE (the primary beneficiary).  The provisions of FIN 46 are effective immediately for VIEs created after January 31, 2003 and no later than July 1, 2003 for VIEs created before February 1, 2003.  In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest make additional disclosure in financial statements issued after January 31, 2003.  We expect a certain previously unconsolidated special purpose entity to be consolidated under the provisions of this interpretation.  The special purpose entity which is expected to be consolidated under the provisions of FIN 46 comprises $1,504,000 of the Company’s total $47,959,000 investments in joint ventures as of March 31, 2003.  This investment is engaged in the development, operation and ultimate disposition of four office and industrial properties located in San Antonio, Texas.  The Company’s maximum exposure to loss as a result of its involvement is limited to its capital investment.

During the first quarter of 2003, the Company entered into a joint venture investment that is consolidated (see Notes 5, 8 and 9). The consolidation of this entity had no impact on the Company's net income.

9

STOCK-BASED EMPLOYEE COMPENSATION - Stock-based employee compensation is accounted for using the intrinsic value method allowed under APB Opinion No. 25, Accounting for Stock Issued to Employees.  No stock-based employee compensation expense is reflected in net income for options granted under the Company’s stock options plans, as options granted under the plans have exercise prices equal to the market value of the Company’s common shares on the date of grant.  Restricted stock grants are valued at the market value of the stock on the date of the grant. This amount is recorded as deferred compensation and is amortized over the vesting period of the grant. The following table illustrates the effect on net income and net income per share if the Company had applied the fair value provisions of SFAS No. 123, Accounting for Stock-Based Compensation to stock-based employee compensation.

	Three months ended March 31,
	2003			2002
Net income, as reported	$	746,000		$	3,965,000
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		156,000			55,000
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(183,000	)		(124,000	)
Net income, pro forma—Basic		719,000			3,896,000
Income effect of dilutive securities, tax effected		—			79,000
Net income, pro forma—Diluted	$	719,000		$	3,975,000
Net income per share:
Basic, as reported	$	0.08		$	0.45
Basic, pro forma	$	0.08		$	0.44
Diluted, as reported	$	0.08		$	0.44
Diluted, pro forma	$	0.08		$	0.41

NOTE 3 - INVESTMENT IN KENNEDY-WILSON JAPAN

During the first quarter of 2003, the Company sold 5,000 shares (as adjusted for a 2-for-1 stock split) of its investment in Kennedy-Wilson Japan at per share prices ranging from approximately $1,210 to $1,260 for total gross cash consideration of approximately $6.3 million.  After the share sales, the Company’s ownership of Kennedy-Wilson Japan was 29.5%. During the first quarter of 2003, the Company's equity in earnings of Kennedy-Wilson Japan was $440,000, which is included in equity income in the consolidated statements of income.

NOTE 4 - NOTES RECEIVABLE

Notes receivable consists primarily of discounted loan portfolios and other related assets acquired from financial institutions, and notes resulting from the sale of assets to third parties or joint ventures.  A majority of these notes are collateralized by real estate, personal property or guarantees.

NOTE 5 - REAL ESTATE

In March 2003, the Company invested in a joint venture that is being consolidated and the joint venture partner's contribution accounted for as financing (see Note 8). The joint venture purchased an apartment project and the acquisition price of approximately $16.7 million is recorded as real estate.

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NOTE 6- INVESTMENTS IN JOINT VENTURES

The Company has a number of partnership and joint venture interests ranging from 2% to 50% that were formed to acquire, manage, develop and/or sell real estate. As of March 31, 2003, the Company also had an investment in one special purpose entity in which it had a 97% ownership interest.  Under the provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities, we expect to consolidate this entity, but do not expect it to materially impact our financial position and to have no impact on net income. During the first quarter of 2003, the Company's equity in earnings of joint ventures was $127,000 and is included in equity income in the accompanying consolidated statements of income.

NOTE 7 - NOTES PAYABLE

Notes payable were incurred primarily in connection with the acquisition of discounted loan portfolios, redemption of a joint venture investment partner, and in connection with a stock repurchase discussed in note 11.

NOTE 8 - JOINT VENTURE FINANCING

As described in Note 5, in March 2003 the Company invested in a joint venture that acquired an apartment project. The joint venture partner's contribution is accounted for as mezzanine financing in the amount of approximately $5.6 million which bears a preferred return at a rate of 17% per annum, compounded monthly until sale of the property or 36 months, whichever is sooner.

NOTE 9 - MORTGAGE LOANS PAYABLE

As described in Notes 5 and 8, in March 2003 the Company invested in a joint venture that acquired an apartment project. The joint venture assumed a loan with the remaining principal balance of approximately $9.3 million that bears interest at the rate of 6.96% per annum. The note requires monthly payments of principal and interest and matures in 2011. The joint venture also obtained a second mortgage in the amount of $1.9 million that bears interest at the rate of 6.20% per annum. The mortgage requires monthly payments of principal and interest and matures in 2013. These mortgages are secured by the property.

NOTE 10 - SENIOR UNSECURED NOTES

During the first quarter of 2003, the Company entered into a loan agreement with Pacific Western National Bank in the principal amount of $5 million.  The loan bears interest at the Bank’s base rate plus 1%, payable monthly, which was 5.25% at March 31, 2003.  The loan matures in 2006.  The principal repayments under this loan for the years 2004, 2005 and 2006 are $1,667,000, $1,667,000 and $1,666,000, respectively.

The $5 million of borrowings discussed above were used to repay a portion of the outstanding balance of the 12% Senior Notes (the “notes”).  One half of the remaining warrants that were originally issued with the notes were re-priced to the fair market value of the Company’s shares at the date of the repayment, or $3.72 per share.

NOTE 11 - CAPITAL STOCK TRANSACTIONS

During the first quarter of 2003, the Company purchased 749,000 shares of its common stock.  The total consideration of the share purchase was $3,745,000.  The seller of the shares received cash of $1 million and a note payable for the balance of the purchase price, payable in equal quarterly installments through March 2004.  The Company also acquired 189,600 of common shares under its previously announced stock buy back program.

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NOTE 12 - COMPREHENSIVE INCOME

Comprehensive income consists of net income and other comprehensive income.  Accumulated other comprehensive income consists of foreign currency translation adjustments.  The tax benefit associated with items included in other comprehensive income for the Company was $22,000 for the three months ended March 31, 2003.  The following table provides a summary of the comprehensive income:

	Three months ended March 31,
	2003			2002
Net income	$	746,000		$	3,965,000
Foreign currency translation loss, net of taxes		(35,000	)		—
Comprehensive income	$	711,000		$	3,965,000

NOTE 13 - SEGMENT INFORMATION

The Company’s business activities currently consist of property management, commercial and residential brokerage, and various type of real estate and note pool investments.  The Company’s segment disclosure with respect to the determination of segment profit or loss and segment assets is based on these services and its various investments:

PROPERTY MANAGEMENT - The Company is a nationwide commercial and residential property management and leasing Company, providing a full range of services relating to property management.  The Company also provides asset management services for some of our joint ventures.

BROKERAGE - Through its various offices, the Company provides specialized brokerage services for both commercial and residential real estate and provides other real estate services such as property valuations, development and implementation of marketing plans, arranging financing, sealed bid auctions and open bid auctions. 

INVESTMENTS - With joint venture partners and on its own, the Company invests in commercial and residential real estate and purchases and manages pools of discounted notes. 

The Company did not generate material intersegment revenues for the periods ended March 31, 2003 and 2002.  The Company does not include capital expenditures by segment as part of the decision making process.  The amounts representing investments with related parties and non-affiliates are included in the investment segment.  No single external customer provided the Company with 10% or more of its revenues during any period presented in these financial statements.

The following tables reconcile the Company’s income and expense activity for the three months ended March 31, 2003 and balance sheet data as of March 31, 2003.

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2003 Reconciliation of Reportable Segment Information

	Property Management		Brokerage		Investments		Corporate			Consolidated
Property management and leasing fees	$	4,133,000	$	248,000	$	324,000	$	(13,000	)	$	4,692,000
Commissions		439,000		205,000		139,000		—			783,000
Interest and other income		—		—		548,000		(16,000	)		532,000
Total revenue		4,572,000		453,000		1,011,000		(29,000	)		6,007,000
Operating expenses		4,463,000		381,000		636,000		2,473,000			7,953,000
Equity income		—		57,000		510,000		—			567,000
		109,000		129,000		885,000		(2,502,000	)		(1,379,000	)
Non-operating income (expense)		—		—		—		2,589,000			2,589,000
Income (loss) before provision for income taxes	$	109,000	$	129,000	$	885,000	$	87,000		$	1,210,000
Total assets	$	9,828,000	$	5,374,000	$	96,950,000	$	34,415,000		$	146,567,000

The following tables reconcile the Company’s income and expense activity for the three months ended March 31, 2002 and balance sheet data as of March 31, 2002.

2002 Reconciliation of Reportable Segment Information

	Property Management		Brokerage		Investments			Corporate			Consolidated
Property management and leasing fees	$	5,366,000	$	928,000	$	372,000					$	6,666,000
Commissions		267,000		2,333,000		207,000		$	82,000			2,889,000
Interest and other income		—		281,000		431,000			(225,000	)		487,000
Total revenue		5,633,000		3,542,000		1,010,000			(143,000	)		10,042,000
Operating expenses		4,922,000		2,112,000		915,000			4,121,000			12,070,000
Equity income		—		—		594,000			—			594,000
		711,000		1,430,000		689,000			(4,264,000	)		(1,434,000	)
Non-operating income (expense)		—		—		(52,000	)		7,861,000			7,809,000
Income (loss) before minority interest and provision for income taxes	$	711,000	$	1,430,000	$	637,000		$	3,597,000		$	6,375,000
Total assets	$	14,207,000	$	39,864,000	$	44,716,000		$	41,692,000		$	140,479,000

13

NOTE 14 - EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net income per share:

	Three months ended March 31,
	2003		2002
Basic earnings per share:
Net income available to stockholders	$	746,000	$	3,965,000
Weighted average shares		9,513,581		8,794,449
Net income per share, basic	$	0.08	$	0.45
Diluted earnings per share:
Net income	$	746,000	$	3,965,000
Income effect of dilutive securities, tax effected		—		79,000
Net income available to stockholders	$	746,000	$	4,044,000
Weighted average shares		9,513,581		8,794,449
Convertible debentures		—		750,000
Options		23,816		260,431
Total diluted shares		9,537,397		9,804,880
Net income per share, diluted	$	0.08	$	0.41

Potentially dilutive securities excluded from the diluted earnings per share calculation for being anti-dilutive are as follows:

	Three months ended March 31,
	2003		2002
Options		884,560		639,230
Warrants		727,727		927,023
Restricted stock - unvested		1,424,812		612,500

NOTE 15 - SUBSEQUENT EVENT

In May 2003, the Company repurchased 660,127 shares of its common stock for total consideration of approximately $3 million.

14

Item 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We are an integrated real estate services and investment Company with headquarters in Beverly Hills, California.  Through our subsidiaries, we provide a complementary array of real estate services, including fund management, property management and leasing, real estate brokerage services including auction marketing, and asset management.  We also invest in commercial and residential real estate and discounted loan portfolios.  Our investments in real estate are made primarily through joint venture funds. 

In 2002, the Company completed two public stock offerings and two private sales of shares of its formerly wholly-owned subsidiary, Kennedy-Wilson Japan.  The sale of stock reduced the Company’s ownership in the Japan subsidiary to 37% at December 31, 2002. This change in ownership necessitated a change in the accounting treatment for Kennedy-Wilson Japan from a consolidated entity to an equity investment beginning in the fourth quarter of 2002.  Instead of including the various components of Kennedy-Wilson Japan’s revenue and expenses in the individual revenue and expense categories on the income statement, the Company’s share of the net income of the Japan subsidiary is included in equity income.  Likewise, on the balance sheet the Company’s investment in Kennedy-Wilson Japan is shown as a single separate line item. Subsequent sales of shares in 2003 have reduced the Company ownership to 29.5% at March 31, 2003. 

Our current real estate investment strategy favors joint venture investments; however, in the future, we may still acquire and sell commercial real estate on a wholly owned basis.  We are no longer involved in single-family residential development and sales but are investing, through joint venture partnerships, in multi-family apartment projects.  We also invest in discounted loan portfolios secured primarily by real estate on our own account and through joint venture partnerships.  The discounted asset portfolios acquired prior to 2001 consisted primarily of claims, judgements and guarantees.

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002

Total operating revenue for the three months ended March 31, 2003 was approximately $6 million compared to approximately $10 million for the three months ended March 31, 2002 due to a decrease in property management and commission revenue.  The decrease was due, in part, because the revenue generated from the Japan subsidiary during the first quarter of 2002 was being recorded in the property management and commissions categories but, as previously discussed, is now being accounted for under equity income.  Total operating expenses for the three months ended March 31, 2003 decreased 34% to approximately $8 million compared to approximately $12.1 million for the same period in 2002.  This decrease in expenses was also due, in part, to the change in accounting for the Kennedy-Wilson Japan subsidiary from consolidation to the equity method.  Net income for the first quarter of 2003 and 2002 was $746,000 and $4.0 million respectively.

15

REVENUE

Property management and leasing operations generated approximately $4.7 million of revenue (including related party fees of $1.0 million), in the first quarter of 2003, representing 78% of our total revenue, compared to approximately $6.7 million (including related party fees of $894,000), and 66% of total revenue for the same period in 2002.  The Japan subsidiary, which is now being accounted for as an equity method investment, contributed approximately $687,000 of property management related fees in the first quarter of 2002.  During the first quarter of 2003, property management revenue in the U.S., which includes property management and leasing revenue, asset management, construction management, and engineering services, declined 22% compared to the first quarter of 2002.  The decline in revenue was due, in part, to the decrease in the total square footage of properties under management.  Lower interest rates and favorable loan terms during 2002 resulted in a number of sales of buildings managed by the Company.  Leasing commission revenue, construction management and development fees, and engineering services have similarly declined as a result the building sales and were also effected by the overall downturn in the economy.

Brokerage commission revenue for the first quarter of 2003 was $783,000 (including related party fees of $139,000), representing 13% of total revenue compared to approximately $2.9 million (including related party fees of $215,000) and 29% of total revenue for the first quarter of 2002.  The Japan subsidiary, which is now being accounted for as an equity investment, contributed approximately $1.7 million of brokerage commissions in the first quarter of 2002.

Interest and other income totaled $532,000 for the three months ended March 31, 2003, compared to $487,000 for the same period in 2002. 

OPERATING EXPENSES

As discussed above, the Company’s formerly wholly-owned subsidiary, Kennedy-Wilson Japan, was consolidated through September 2002.  Subsequent to September 2002, the investment is accounted for on the equity method.  Therefore, operating expenses for 2003 do not include activity on a consolidated basis compared to the consolidated activity of Kennedy-Wilson Japan included for the first three quarters of 2002.

Brokerage commissions and marketing expenses were $879,000 for the three months ended March 31, 2003, compared to approximately $1.1 million for the same period in 2002. The decline relates to the decline in US brokerage commission revenue discussed above.

Compensation and related expenses were approximately $4.3 million for the first quarter of 2003, a decrease of 27% when compared to approximately $5.9 million for the first quarter of 2002.  The decrease relates, in part, to the effect of the deconsolidation of our Japan subsidiary; however, there was also a substantial decline of approximately 18% in compensation related expense in the U.S.  This was substantially due to reductions in our Texas offices.

General and administrative expenses were approximately $2.1 million for the first quarter of 2003, a decrease of 33% when compared to the same

16

period in 2002 expenses of approximately $3.1 million.  In addition to the effect of the deconsolidation of our Japan subsidiary, there was a decrease of approximately 14% in expenses related to the U.S. operations, due to the Company's continuing cost reduction measures.

Depreciation and amortization expense was $694,000 for the three months ended March 31, 2003, a decrease of 21% when compared to $880,000 for the same period of 2002.  The change results from assets becoming fully depreciated since the first quarter of 2002 without significant additions of new depreciable assets during the same period.

There were no non-recurring, non-cash Japan IPO expenses in the first quarter of 2003, compared to $1.1 million in the same period of 2002.  The expenses in 2002 related to the successful initial public offering of the shares of the Company’s Japan subsidiary.

Equity income totaled $567,000 for the first quarter in 2003, compared to $594,000 realized in the first quarter of 2002.  The decrease was due to the deconsolidation of our Japan subsidiary and the sale of the Company’s interest in a ski resort during 2002 which had generated substantial income during the first quarter of 2002. During the first quarter of 2003, none of the joint ventures completed significant property sale transactions.

Equity income for the first three months of 2003 included $440,000 from the Company's investment in Kennedy-Wilson Japan.  As discussed above, the Company’s Japan subsidiary is accounted for under the equity method subsequent to September 2002.

NON-OPERATING ITEMS

Gain on sale of stock of subsidiary was approximately $3.5 million for the first quarter of 2003, compared to a gain of approximately $8.8 million in the same period of 2002.  The gain in the first quarter of 2003 resulted from the sale of 5,000 shares owned in Kennedy-Wilson Japan at an average price of approximately $1,255 per share, compared to the 5,000 shares (adjusted for a 2-for-1 stock spilt) sold by the Company at a split-adjusted price of approximately $1,660 as part of the initial public offering, plus the related gain on sale of minority interest, during the first quarter of 2002.

Interest expense was $506,000 for the three months ended March 31, 2003, compared to $533,000 during the same period in 2002.

The change in the fair value of warrants resulted in a benefit of $35,000 in the first quarter of 2003 compared to an expense of $480,000 during the same period in 2002.  The change represents a decrease in the value of certain warrants issued in connection with the 12% senior unsecured notes and a reduction in the liability related to the warrants.

Loss on extinguishment of debt in the amount of $454,000 related primarily to prepayment penalties and write-off of unamortized capitalized loan fees associated with the early retirement of a portion of the 12% senior notes payable.

The provision for income taxes was $464,000 for the first quarter in 2003, compared to approximately $2.2 million for the same period in 2002.  The higher provision in 2002 related to the larger gain for the sale of the Japan subsidiary’s shares in 2002.

17

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital resource requirements include expenditures for joint venture fund investments, distressed note pools, real estate, and working capital needs.  Historically, we have not required significant capital resources to support our brokerage operations.  We finance our operations with internally generated funds and borrowings under our revolving lines of credit as described below.  Our recent acquisitions of note pools are financed with notes payable.

Cash used in operating activities during the three months ended March 31, 2003 was approximately $2.6 million, compared to approximately $1.6 million in cash used in operating activities for the same period in 2002.  The change is a result of a decrease in net income from the operating units as a result of the decreased volume as previously discussed.

Cash used in investing activities during the three months ended March 31, 2003 was approximately $10.7 million, compared to approximately $16.2 million in cash provided by investing activities during the same period in 2002.  The change resulted primarily from the acquisition of note pools and real estate in 2003 compared to the proceeds from the sale of shares in Kennedy-Wilson Japan in 2002 which provided $18 million in cash compared to $6.3 million in cash from sales of stock in 2003.

Cash provided by financing activities was approximately $7.9 million for the first three months of 2003, compared to approximately $3.8 million in cash used by financing activities for the same period of 2002.  The change resulted from borrowings used for the acquisition of note pools and real estate, offset by repayment of lines of credit and repurchases of shares of the Company’s common stock in the first quarter of 2003 compared to debt repayment for the same period in 2002.

To the extent that we engage in additional strategic investments, we may need to obtain third party financing which could include bank financing or the public sale or private placement of debt or equity securities.  We believe that existing cash, plus capital generated from property management and leasing, brokerage, sales of real estate owned, collections from notes receivable, as well as our current unsecured lines of credit, will provide us with sufficient capital requirements for the foreseeable future.

Our need, if any, to raise additional funds to meet our working capital and capital requirements will depend on numerous factors, including the success and pace of the implementation of our strategy for growth.  We regularly monitor capital raising alternatives to be able to take advantage of other available avenues to support our working capital and investment needs, including strategic partnerships and other alliances, bank borrowings, and the sale of equity or debt securities.  We intend to retain earnings to finance our growth and, therefore, do not anticipate paying any dividends.

18

Item 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company’s exposure to market risk has not materially changed from what was reported on the Company’s Form 10-K for the year ended December 31, 2002.

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements as well as historical information.  Forward looking statements, which are included in accordance with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, may involve known and unknown risks, uncertainties and other factors that may cause the company’s actual results and performance to be materially different from any results or performance suggested by the statements in this report.  When used in our documents or oral presentations, the words “plan,” “believe,” “anticipate,” “estimate,” “expect,” “objective,” “projection,” “ forecast,” “goal,” or similar words are intended to identify forward-looking statements.

Item 4.     CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, Kennedy-Wilson, Inc. carried out an evaluation, under the supervision and with the participation of Kennedy-Wilson, Inc.’s management, including Kennedy-Wilson, Inc.’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Kennedy-Wilson, Inc.’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Kennedy-Wilson, Inc.’s disclosure controls and procedures are effective in timely alerting them to material information relating to Kennedy-Wilson, Inc. required to be included in Kennedy-Wilson, Inc.’s periodic Securities and Exchange Commission filings.  There have been no significant changes in Kennedy-Wilson, Inc.’s internal controls or in other factors that could significantly affect these controls subsequent to the evaluation date.

PART II – OTHER INFORMATION

Item 6.     EXHIBITS AND REPORTS ON FORM 8-K

          (a)    Exhibits

The following exhibits are included herein:

10.57	Business Loan Agreement and Promissory Note dated as of January 27, 2003 by and between Kennedy-Wilson, Inc. and Pacific Western National Bank.
99.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

          (b)    Reports on Form 8-K

          None

19

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.

	KENNEDY-WILSON, INC.
	Registrant
Date: May 15, 2003
/s/ FREEMAN A. LYLE
Freeman A. Lyle Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer)

20

SECTION 302 CERTIFICATIONS

I, William J. McMorrow, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Kennedy-Wilson, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)     designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls;

6.     The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003	/s/ WILLIAM J. MCMORROW
	Chief Executive Officer

21

SECTION 302 CERTIFICATIONS

I, Freeman A. Lyle, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Kennedy-Wilson, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)     designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls;

6.     The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003	/s/ FREEMAN A. LYLE
	Chief Financial Officer

22

EX-10.57

                                                                   EXHIBIT 10.57

                             BUSINESS LOAN AGREEMENT


- ------------------------------------------------------------------------------------------
Principal      Loan Date   Maturity    Loan No  Call/Coll  Account Officer   Initials
                                                            
$5,000,000.00  01-27-2003  01-27-2006  02014155                    710
- ------------------------------------------------------------------------------------------


     References in the shaded area are for Lender's use only and do not limit
     the applicability of this document to any particular loan or item. Any item
     above containing " *** " has been omitted due to text length limitations.
- --------------------------------------------------------------------------------

                                                         
    Borrower: Kennedy-Wilson, Inc., a Delaware Corporation      Lender: Pacific Western National Bank
              9601 Wilshire Boulevard Suite 220                 Beverly Hills Office
              Beverly Hills, CA  90210                          9454 Wilshire Boulevard
                                                                Beverly Hills, CA 90212
=====================================================================================================


    

THIS BUSINESS LOAN AGREEMENT dated January 27, 2003, is made and executed
between Kennedy-Wilson, Inc. ("Borrower") and Pacific Western National Bank
("Lender") on the following terms and conditions. Borrower has received prior
commercial loans from Lender or has applied to Lender for a commercial loan or
loans or other financial accommodations, including those which may be described
on any exhibit or schedule attached to this Agreement ("Loan"). Borrower
understands and agrees that: (A) in granting, renewing, or extending any Loan,
Lender is relying upon Borrower's representations, warranties, and agreements as
set forth in this Agreement; (B) the granting, renewing, or extending of any
Loan by Lender at all times shall be subject to Lender's sole judgment and
discretion; and (C) all such Loans shall be and remain subject to the terms and
conditions of this Agreement.

TERM. This Agreement shall be effective as of January 27, 2003, and shall
continue in full force and effect until such time as all of Borrower's Loans in
favor of Lender have been paid in full, including principal, interest, costs,
expenses, attorneys' fees, and other fees and charges, or until such time as the
parties may agree in writing to terminate this Agreement.

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to Lender's satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.

     Loan Documents. Borrower shall provide to Lender the following documents
     for the Loan: (1) the Note; (2) together with all such Related Documents as
     Lender may require for the Loan; all in form and substance satisfactory to
     Lender and Lender's counsel.

     Borrower's Authorization. Borrower shall have provided in form and
     substance satisfactory to Lender properly certified resolutions, duly
     authorizing the execution and delivery of this Agreement, the Note and the
     Related Documents. In addition, Borrower shall have provided such other
     resolutions, authorizations, documents and instruments as Lender or its
     counsel, may require.

     Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
     charges, and other expenses which are then due and payable as specified in
     this Agreement or any Related Document.

     Representations and Warranties. The representations and warranties set
     forth in this Agreement, in the Related Documents, and in any document or
     certificate delivered to Lender under this Agreement are true and correct.

     No Event of Default. There shall not exist at the time of any Advance a
     condition which would constitute an Event of Default under this Agreement
     or under any Related Document.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:

     Organization. Borrower is a corporation for profit which is, and at all
     times shall be, duly organized, validly existing, and in good standing
     under and by virtue of the laws of the State of Delaware. Borrower is duly
     authorized to transact business in all other states in which Borrower is
     doing business, having obtained all necessary filings, governmental
     licenses and approvals for each state in which Borrower is doing business.
     Specifically, Borrower is, and at all times shall be, duly qualified as a
     foreign corporation in all states in which the failure to so qualify would
     have a material adverse effect on its business or financial condition.
     Borrower has the full power and authority to own its properties and to
     transact the business in which it is presently engaged or presently
     proposes to engage. Borrower maintains an office at 9601 Wilshire Boulevard
     Suite 220, Beverly Hills, CA 90210. Unless Borrower has designated
     otherwise in writing, the principal office is the office at which Borrower
     keeps its books and records including its records concerning the
     Collateral. Borrower will notify Lender prior to any change in the location
     of Borrower's state of organization or any change in Borrower's name.
     Borrower shall do all things necessary to preserve and to keep in full
     force and effect its existence, rights and privileges, and shall comply
     with all regulations, rules, ordinances, statutes, orders and decrees of
     any governmental or quasi-governmental authority or court applicable to
     Borrower and Borrower's business activities.

     Assumed Business Names. Borrower has filed or recorded all documents or
     filings required by law relating to all assumed business names used by
     Borrower. Excluding the name of Borrower, the following is a complete list
     of all assumed business names under which Borrower does business: None.

     Authorization. Borrower's execution, delivery, and performance of this
     Agreement and all the Related Documents have been duly authorized by all
     necessary action by Borrower and do not conflict with, result in a
     violation of, or constitute a default under (1) any provision of Borrower's
     articles of incorporation or organization, or bylaws, or any agreement or
     other instrument binding upon Borrower or (2) any law, governmental
     regulation, court decree, or order applicable to Borrower or to Borrower's
     properties.

     Financial Information. Each of Borrower's financial statements supplied to
     Lender truly and completely disclosed Borrower's financial condition as of
     the date of the statement, and there has been no material adverse change in
     Borrower's financial condition subsequent to the date of the most recent
     financial statement supplied to Lender. Borrower has no material contingent
     obligations except as disclosed in such financial statements.

     Legal Effect. This Agreement constitutes, and any instrument or agreement
     Borrower is required to give under this Agreement when delivered will
     constitute legal, valid, and binding obligations of Borrower enforceable
     against Borrower in accordance with their respective terms.

     Properties. Except as contemplated by this Agreement or as previously
     disclosed in Borrower's financial statements or in writing to Lender and as
     accepted by Lender, and except for property tax liens for taxes not
     presently due and payable, Borrower owns and has good title to all of
     Borrower's properties free and clear of all Security Interests, and has not
     executed any security documents or financing statements relating to such
     properties. All of Borrower's properties are titled in Borrower's legal
     name, and Borrower has not used or filed a financing statement under any
     other name for at least the last five (5) years.

     Hazardous Substances. Except as disclosed to and acknowledged by Lender in
     writing, Borrower represents and warrants that: (1) During the period of
     Borrower's ownership of Borrower's Collateral, there has been no use,
     generation, manufacture, storage, treatment, disposal, release or
     threatened release of any Hazardous Substance by any person on, under,
     about or from any of the Collateral. (2) Borrower has



                             BUSINESS LOAN AGREEMENT
Loan No: 02014155                 (Continued)                             Page 2
================================================================================

     no knowledge of, or reason to believe that there has been (a) any breach or
     violation of any Environmental Laws; (b) any use, generation, manufacture,
     storage, treatment, disposal, release or threatened release of any
     Hazardous Substance on, under, about or from the Collateral by any prior
     owners or occupants of any of the Collateral; or (c) any actual or
     threatened litigation or claims of any kind by any person relating to such
     matters. (3) Neither Borrower nor any tenant, contractor, agent or other
     authorized user of any of the Collateral shall use, generate, manufacture,
     store, treat, dispose of or release any Hazardous Substance on, under,
     about or from any of the Collateral; and any such activity shall be
     conducted in compliance with all applicable federal, state, and local laws,
     regulations, and ordinances, including without limitation all Environmental
     Laws. Borrower authorizes Lender and its agents to enter upon the
     Collateral to make such inspections and tests as Lender may deem
     appropriate to determine compliance of the Collateral with this section of
     the Agreement. Any inspections or tests made by Lender shall be at
     Borrower's expense and for Lender's purposes only and shall not be
     construed to create any responsibility or liability on the part of Lender
     to Borrower or to any other person. The representations and warranties
     contained herein are based on Borrower's due diligence in investigating the
     Collateral for hazardous waste and Hazardous Substances. Borrower hereby
     (1) releases and waives any future claims against Lender for indemnity or
     contribution in the event Borrower becomes liable for cleanup or other
     costs under any such laws, and (2) agrees to indemnify and hold harmless
     Lender against any and all claims, losses, liabilities, damages, penalties,
     and expenses which Lender may directly or indirectly sustain or suffer
     resulting from a breach of this section of the Agreement or as a
     consequence of any use, generation, manufacture, storage, disposal, release
     or threatened release of a hazardous waste or substance on the Collateral.
     The provisions of this section of the Agreement, including the obligation
     to indemnify, shall survive the payment of the Indebtedness and the
     termination, expiration or satisfaction of this Agreement and shall not be
     affected by Lender's acquisition of any interest in any of the Collateral,
     whether by foreclosure or otherwise.

     Litigation and Claims. No litigation, claim, investigation, administrative
     proceeding or similar action (including those for unpaid taxes) against
     Borrower is pending or threatened, and no other event has occurred which
     may materially adversely affect Borrower's financial condition or
     properties, other than litigation, claims, or other events, if any, that
     have been disclosed to and acknowledged by Lender in writing.

     Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns
     and reports that are or were required to be filed, have been filed, and all
     taxes, assessments and other governmental charges have been paid in full,
     except those presently being or to be contested by Borrower in good faith
     in the ordinary course of business and for which adequate reserves have
     been provided.

     Lien Priority. Unless otherwise previously disclosed to Lender in writing,
     Borrower has not entered into or granted any Security Agreements, or
     permitted the filing or attachment of any Security Interests on or
     affecting any of the Collateral directly or indirectly securing repayment
     of Borrower's Loan and Note, that would be prior or that may in any way be
     superior to Lender's Security Interests and rights in and to such
     Collateral.

     Binding Effect. This Agreement, the Note, all Security Agreements (if any),
     and all Related Documents are binding upon the signers thereof, as well as
     upon their successors, representatives and assigns, and are legally
     enforceable in accordance with their respective terms.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long
as this Agreement remains in effect, Borrower will:

     Notices of Claims and Litigation. Promptly inform Lender in writing of (1)
     all material adverse changes in Borrower's financial condition, and (2) all
     existing and all threatened litigation, claims, investigations,
     administrative proceedings or similar actions affecting Borrower or any
     Guarantor which could materially affect the financial condition of Borrower
     or the financial condition of any Guarantor.

     Financial Records. Maintain its books and records in accordance with GAAP,
     applied on a consistent basis, and permit Lender to examine and audit
     Borrower's books and records at all reasonable times.

     Financial Statements. Furnish Lender with the following:

          Annual Statements. As soon as available, but in no event later than
          ninety (90) days after the end of each fiscal year, Borrower's balance
          sheet and income statement for the year ended, audited by a certified
          public accountant satisfactory to lender.

          Interim Statements. As soon as available, but in no event later than
          45 days after the end of each fiscal quarter, Borrower's balance sheet
          and profit and loss statement for the period ended, prepared by
          Borrower.

          Tax Returns. As soon as available after the applicable filing date for
          the tax reporting period ended, Federal and other governmental tax
          returns, prepared by a tax professional satisfactory to Lender.

     All financial reports required to be provided under this Agreement shall be
     prepared in accordance with GAAP, applied on a consistent basis, and
     certified by Borrower as being true and correct.

     Additional Information. Furnish such additional information and statements,
     as Lender may request from time to time.

     Financial Covenants and Ratios. Comply with the following covenants and
     ratios:

          Minimum Income and Cash Flow Requirements. Maintain not less than the
          following Minimum Net Income level: $1.00 per quarter.

          Tangible Net Worth Requirements. Other Net Worth requirements are as
          follows: Minimum Net Worth: $20,000.000. at any time during the
          agreement. In addition, Borrower shall comply with the following net
          worth ratio requirements:

               Debt / Worth Ratio. Maintain a ratio of Debt / Worth not in
               excess of 3.000 to 1.000. The ratio "Debt / Worth" means
               Borrower's Total Liabilities divided by Borrower's Tangible Net
               Worth. This leverage ratio should be maintained at all times and
               may be evaluated at any time.

          Except as provided above, all computations made to determine
          compliance with the requirements contained in this paragraph shall be
          made in accordance with generally accepted accounting principles,
          applied on a consistent basis, and certified by Borrower as being true
          and correct.

     Insurance. Maintain fire and other risk insurance, public liability
     insurance, and such other insurance as Lender may require with respect to
     Borrower's properties and operations, in form, amounts, coverages and with
     insurance companies acceptable to Lender. Borrower, upon request of Lender,
     will deliver to Lender from time to time the policies or certificates of
     insurance in form satisfactory to Lender, including stipulations that
     coverages will not be cancelled or diminished without at least thirty (30)
     days prior written notice to Lender. Each insurance policy also shall
     include an endorsement providing that coverage in favor of Lender will not
     be impaired in any way by any act, omission or default of Borrower or any
     other person. In connection with all policies covering assets in which
     Lender holds or is offered a security interest for the Loans, Borrower will
     provide Lender with such lender's loss payable or other endorsements as
     Lender may require.

     Insurance Reports. Furnish to Lender, upon request of Lender, reports on
     each existing insurance policy showing such information as Lender may
     reasonably request, including without limitation the following: (1) the
     name of the insurer; (2) the risks insured; (3) the amount of the policy;
     (4) the properties insured; (5) the then current property values on the
     basis of which insurance has been obtained,



                             BUSINESS LOAN AGREEMENT
Loan No: 02014155                  (Continued)                            Page 3
================================================================================

     and the manner of determining those values; and (6) the expiration date of
     the policy. In addition, upon request of Lender (however not more often
     than annually), Borrower will have an independent appraiser satisfactory to
     Lender determine, as applicable, the actual cash value or replacement cost
     of any Collateral. The cost of such appraisal shall be paid by Borrower.

     Subordination. Prior to disbursement of any Loan proceeds, deliver to
     Lender a subordination agreement on Lender's forms, executed by Borrower's
     creditor named below, subordinating all of Borrower's indebtedness to such
     creditor, or such lesser amount as may be agreed to by Lender in writing,
     and any security interests in collateral securing that indebtedness to the
     Loans and security interests of Lender.



     Name of Creditor                                     Total Amount of Debt
     ----------------                                     --------------------
                                                       
     Cahill, Warnock Strategic Partners Funds, L.P.       $2,773,000.00



     Other Agreements. Comply with all terms and conditions of all other
     agreements, whether now or hereafter existing, between Borrower and any
     other party and notify Lender immediately in writing of any default in
     connection with any other such agreements.

     Loan Proceeds. Use all Loan proceeds solely for Borrower's business
     operations, unless specifically consented to the contrary by Lender in
     writing.

     Taxes, Charges and Liens. Pay and discharge when due all of its
     indebtedness and obligations, including without limitation all assessments,
     taxes, governmental charges, levies and liens, of every kind and nature,
     imposed upon Borrower or its properties, income, or profits, prior to the
     date on which penalties would attach, and all lawful claims that, if
     unpaid, might become a lien or charge upon any of Borrower's properties,
     income, or profits.

     Performance. Perform and comply, in a timely manner, with all terms,
     conditions, and provisions set forth in this Agreement, in the Related
     Documents, and in all other instruments and agreements between Borrower and
     Lender. Borrower shall notify Lender immediately in writing of any default
     in connection with any agreement.

     Operations. Maintain executive and management personnel with substantially
     the same qualifications and experience as the present executive and
     management personnel; provide written notice to Lender of any change in
     executive and management personnel; conduct its business affairs in a
     reasonable and prudent manner.

     Environmental Studies. Promptly conduct and complete, at Borrower's
     expense, all such investigations, studies, samplings and testings as may be
     requested by Lender or any governmental authority relative to any
     substance, or any waste or by-product of any substance defined as toxic or
     a hazardous substance under applicable federal, state, or local law, rule,
     regulation, order or directive, at or affecting any property or any
     facility owned, leased or used by Borrower.

     Compliance with Governmental Requirements. Comply with all laws,
     ordinances, and regulations, now or hereafter in effect, of all
     governmental authorities applicable to the conduct of Borrower's
     properties, businesses and operations, and to the use or occupancy of the
     Collateral, including without limitation, the Americans With Disabilities
     Act. Borrower may contest in good faith any such law, ordinance, or
     regulation and withhold compliance during any proceeding, including
     appropriate appeals, so long as Borrower has notified Lender in writing
     prior to doing so and so long as, in Lender's sole opinion, Lender's
     interests in the Collateral are not jeopardized. Lender may require
     Borrower to post adequate security or a surety bond, reasonably
     satisfactory to Lender, to protect Lender's interest.

     Inspection. Permit employees or agents of Lender at any reasonable time to
     inspect any and all Collateral for the Loan or Loans and Borrower's other
     properties and to examine or audit Borrower's books, accounts, and records
     and to make copies and memoranda of Borrower's books, accounts, and
     records. If Borrower now or at any time hereafter maintains any records
     (including without limitation computer generated records and computer
     software programs for the generation of such records) in the possession of
     a third party, Borrower, upon request of Lender, shall notify such party to
     permit Lender free access to such records at all reasonable times and to
     provide Lender with copies of any records it may request, all at Borrower's
     expense.

     Compliance Certificates. Unless waived in writing by Lender, provide Lender
     at least annually, with a certificate executed by Borrower's chief
     financial officer, or other officer or person acceptable to Lender,
     certifying that the representations and warranties set forth in this
     Agreement are true and correct as of the date of the certificate and
     further certifying that, as of the date of the certificate, no Event of
     Default exists under this Agreement.

     Environmental Compliance and Reports. Borrower shall comply in all respects
     with any and all Environmental Laws; not cause or permit to exist, as a
     result of an intentional or unintentional action or omission on Borrower's
     part or on the part of any third party, on property owned and/or occupied
     by Borrower, any environmental activity where damage may result to the
     environment, unless such environmental activity is pursuant to and in
     compliance with the conditions of a permit issued by the appropriate
     federal, state or local governmental authorities; shall furnish to Lender
     promptly and in any event within thirty (30) days after receipt thereof a
     copy of any notice, summons, lien, citation, directive, letter or other
     communication from any governmental agency or instrumentality concerning
     any intentional or unintentional action or omission on Borrower's part in
     connection with any environmental activity whether or not there is damage
     to the environment and/or other natural resources.

     Additional Assurances. Make, execute and deliver to Lender such promissory
     notes, mortgages, deeds of trust, security agreements, assignments,
     financing statements, instruments, documents and other agreements as Lender
     or its attorneys may reasonably request to evidence and secure the Loans
     and to perfect all Security Interests.

RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except federal, state or local income or franchise taxes
imposed on Lender), reserve requirements, capital adequacy requirements or other
obligations which would (A) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (B) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(C) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefore, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Borrower fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Borrower's failure to discharge or pay when due any amounts
Borrower is required to discharge or pay under this Agreement or any Related
Documents, Lender on Borrower's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on any Collateral and paying all
costs for insuring, maintaining and preserving any Collateral. All such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Borrower. All such expenses will become a
part of the Indebtedness and, at Lender's option, will (A) be payable on demand;
(B) be added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Note's
maturity.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

     Indebtedness and Liens. (1) Except for trade debt incurred in the normal
     course of business and indebtedness to Lender contemplated by



                             BUSINESS LOAN AGREEMENT
 Loan No: 02014155                (Continued)                             Page 4
================================================================================

     this Agreement, create, incur or assume indebtedness for borrowed money,
     including capital leases, (2) sell, transfer, mortgage, assign, pledge,
     lease, grant a security interest in, or encumber any of Borrower's assets
     (except as allowed as Permitted Liens), or (3) sell with recourse any of
     Borrower's accounts, except to Lender.

     Continuity of Operations. (1) Engage in any business activities
     substantially different than those in which Borrower is presently engaged,
     (2) cease operations, liquidate, merge, transfer, acquire or consolidate
     with any other entity, change its name, dissolve or transfer or sell
     Collateral out of the ordinary course of business, or (3) pay any dividends
     on Borrower's stock (other than dividends payable in its stock), provided,
     however that notwithstanding the foregoing, but only so long as no Event of
     Default has occurred and is continuing or would result from the payment of
     dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
     Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends
     on its stock to its shareholders from time to time in amounts necessary to
     enable the shareholders to pay income taxes and make estimated income tax
     payments to satisfy their liabilities under federal and state law which
     arise solely from their status as Shareholders of a Subchapter S
     Corporation because of their ownership of shares of Borrower's stock, or
     purchase or retire any of Borrower's outstanding shares or alter or amend
     Borrower's capital structure.

     Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or
     assets, (2) purchase, create or acquire any interest in any other
     enterprise or entity, or (3) incur any obligation as surety or guarantor
     other than in the ordinary course of business.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(A) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes
incompetent or becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse
change in Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; or (D) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
debt against any and all such accounts.

DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:

     Payment Default. Borrower fails to make any payment when due under the
     Loan.

     Other Defaults. Borrower fails to comply with or to perform any other term,
     obligation, covenant or condition contained in this Agreement or in any of
     the Related Documents or to comply with or to perform any term, obligation,
     covenant or condition contained in any other agreement between Lender and
     Borrower.

     False Statements. Any warranty, representation or statement made or
     furnished to Lender by Borrower or on Borrower's behalf under this
     Agreement or the Related Documents is false or misleading in any material
     respect, either now or at the time made or furnished or becomes false or
     misleading at any time thereafter.

     Insolvency. The dissolution or termination of Borrower's existence as a
     going business, the insolvency of Borrower, the appointment of a receiver
     for any part of Borrower's property, any assignment for the benefit of
     creditors, any type of creditor workout, or the commencement of any
     proceeding under any bankruptcy or insolvency laws by or against Borrower.

     Defective Collateralization. This Agreement or any of the Related Documents
     ceases to be in full force and effect (including failure of any collateral
     document to create a valid and perfected security interest or lien) at any
     time and for any reason.

     Creditor or Forfeiture Proceedings. Commencement of foreclosure or
     forfeiture proceedings, whether by judicial proceeding, self-help,
     repossession or any other method, by any creditor of Borrower or by any
     governmental agency against any collateral securing the Loan. This includes
     a garnishment of any of Borrower's accounts, including deposit accounts,
     with Lender. However, this Event of Default shall not apply if there is a
     good faith dispute by Borrower as to the validity or reasonableness of the
     claim which is the basis of the creditor or forfeiture proceeding and if
     Borrower gives Lender written notice of the creditor or forfeiture
     proceeding and deposits with Lender monies or a surety bond for the
     creditor or forfeiture proceeding, in an amount determined by Lender, in
     its sole discretion, as being an adequate reserve or bond for the dispute.

     Events Affecting Guarantor. Any of the preceding events occurs with respect
     to any Guarantor of any of the Indebtedness or any Guarantor dies or
     becomes incompetent, or revokes or disputes the validity of, or liability
     under, any Guaranty of the Indebtedness. In the event of a death, Lender,
     at its option, may, but shall not be required to, permit the Guarantor's
     estate to assume unconditionally the obligations arising under the guaranty
     in a manner satisfactory to Lender, and, in doing so, cure any Event of
     Default.

     Change in Ownership. Any change in ownership of twenty-five percent (25%)
     or more of the common stock of Borrower.

     Adverse Change. A material adverse change occurs in Borrower's financial
     condition, or Lender believes the prospect of payment or performance of the
     Loan is impaired.

     Right to Cure. If any default, other than a default on Indebtedness, is
     curable and if Borrower or Grantor, as the case may be, has not been given
     a notice of a similar default within the preceding twelve (12) months, it
     may be cured (and no Event of Default will have occurred) if Borrower or
     Grantor, as the case may be, after receiving written notice from Lender
     demanding cure of such default: (1) cure the default within fifteen (15)
     days; or (2) if the cure requires more than fifteen (15) days, immediately
     initiate steps which Lender deems in Lender's sole discretion to be
     sufficient to cure the default and thereafter continue and complete all
     reasonable and necessary steps sufficient to produce compliance as soon as
     reasonably practical.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
further Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.

ADDITIONAL PROVISION TO COMPLIANCE CERTIFICATE PROVISION. Lender hereby waives
the compliance certificate requirement outlined in this Loan Agreement.



                             BUSINESS LOAN AGREEMENT
Loan No: 02014155                   (Continued)                           Page 5
================================================================================

SUBORDINATED DEBT.

All debt categorized as subordinated debt as listed on financial statements of
the Company shall be subordinate to Lender on terms and conditions reasonably
required by Bank and identified in a Convertible Subordinated Note Due 2006
dated 4/99; the subordinated debt consists of $2,773,000.00 due 6/06 bearing a
6.00% annual interest rate. The debt is due to Cahill, Warnock Strategic
Partners Fund, L.P., or its assignees.

PRIMARY DEPOSITORY RELATIONSHIP.

Borrower agrees to maintain its primary depository relationship with lender
subject to the Bank's applicable fees and charges.

DOWN-STREAMING OF FUNDS.

Borrower agrees to no down streaming of funds to affiliated entities -
KWIC-Japan or any of its subsidiaries.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

     Amendments. This Agreement, together with any Related Documents,
     constitutes the entire understanding and agreement of the parties as to the
     matters set forth in this Agreement. No alteration of or amendment to this
     Agreement shall be effective unless given in writing and signed by the
     party or parties sought to be charged or bound by the alteration or
     amendment.

     Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of
     Lender's costs and expenses, including Lender's attorneys' fees and
     Lender's legal expenses, incurred in connection with the enforcement of
     this Agreement. Lender may hire or pay someone else to help enforce this
     Agreement, and Borrower shall pay the costs and expenses of such
     enforcement. Costs and expenses include Lender's attorneys' fees and legal
     expenses whether or not there is a lawsuit, including attorneys' fees and
     legal expenses for bankruptcy proceedings (including efforts to modify or
     vacate any automatic stay or injunction), appeals, and any anticipated
     post-judgment collection services. Borrower also shall pay all court costs
     and such additional fees as may be directed by the court.

     Caption Headings. Caption headings in this Agreement are for convenience
     purposes only and are not to be used to interpret or define the provisions
     of this Agreement.

     Consent to Loan Participation. Borrower agrees and consents to Lender's
     sale or transfer, whether now or later, of one or more participation
     interests in the Loan to one or more purchasers, whether related or
     unrelated to Lender. Lender may provide, without any limitation whatsoever,
     to any one or more purchasers, or potential purchasers, any information or
     knowledge Lender may have about Borrower or about any other matter relating
     to the Loan, and Borrower hereby waives any rights to privacy Borrower may
     have with respect to such matters. Borrower additionally waives any and all
     notices of sale of participation interests, as well as all notices of any
     repurchase of such participation interests. Borrower also agrees that the
     purchasers of any such participation interests will be considered as the
     absolute owners of such interests in the Loan and will have all the rights
     granted under the participation agreement or agreements governing the sale
     of such participation interests. Borrower further waives all rights of
     offset or counterclaim that it may have now or later against Lender or
     against any purchaser of such a participation interest and unconditionally
     agrees that either Lender or such purchaser may enforce Borrower's
     obligation under the Loan irrespective of the failure or insolvency of any
     holder of any interest in the Loan. Borrower further agrees that the
     purchaser of any such participation interests may enforce its interests
     irrespective of any personal claims or defenses that Borrower may have
     against Lender.

     Governing Law. This Agreement will be governed by, construed and enforced
     in accordance with federal law and the laws of the State of California.
     This Agreement has been accepted by Lender in the State of California.

     Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender's
     request to submit to the jurisdiction of the courts of Los Angeles County,
     State of California.

     No Waiver by Lender. Lender shall not be deemed to have waived any rights
     under this Agreement unless such waiver is given in writing and signed by
     Lender. No delay or omission on the part of Lender in exercising any right
     shall operate as a waiver of such right or any other right. A waiver by
     Lender of a provision of this Agreement shall not prejudice or constitute a
     waiver of Lender's right otherwise to demand strict compliance with that
     provision or any other provision of this Agreement. No prior waiver by
     Lender, nor any course of dealing between Lender and Borrower, or between
     Lender and any Grantor, shall constitute a waiver of any of Lender's rights
     or of any of Borrower's or any Grantor's obligations as to any future
     transactions. Whenever the consent of Lender is required under this
     Agreement, the granting of such consent by Lender in any instance shall not
     constitute continuing consent to subsequent instances where such consent is
     required and in all cases such consent may be granted or withheld in the
     sole discretion of Lender.

     Notices. Any notice required to be given under this Agreement shall be
     given in writing, and shall be effective when actually delivered, when
     actually received by telefacsimile (unless otherwise required by law), when
     deposited with a nationally recognized overnight courier, or, if mailed,
     when deposited in the United States mail, as first class, certified or
     registered mail postage prepaid, directed to the addresses shown near the
     beginning of this Agreement. Any party may change its address for notices
     under this Agreement by giving formal written notice to the other parties,
     specifying that the purpose of the notice is to change the party's address.
     For notice purposes, Borrower agrees to keep Lender informed at all times
     of Borrower's current address. Unless otherwise provided or required by
     law, if there is more than one Borrower, any notice given by Lender to any
     Borrower is deemed to be notice given to all Borrowers.

     Severability. If a court of competent jurisdiction finds any provision of
     this Agreement to be illegal, invalid, or unenforceable as to any
     circumstance, that finding shall not make the offending provision illegal,
     invalid, or unenforceable as to any other circumstance. If feasible, the
     offending provision shall be considered modified so that it becomes legal,
     valid and enforceable. If the offending provision cannot be so modified, it
     shall be considered deleted from this Agreement. Unless otherwise required
     by law, the illegality, invalidity, or unenforceability of any provision of
     this Agreement shall not affect the legality, validity or enforceability of
     any other provision of this Agreement.

     Subsidiaries and Affiliates of Borrower. To the extent the context of any
     provisions of this Agreement makes it appropriate, including without
     limitation any representation, warranty or covenant, the word "Borrower" as
     used in this Agreement shall include all of Borrower's subsidiaries and
     affiliates. Notwithstanding the foregoing however, under no circumstances
     shall this Agreement be construed to require Lender to make any Loan or
     other financial accommodation to any of Borrower's subsidiaries or
     affiliates.

     Successors and Assigns. All covenants and agreements contained by or on
     behalf of Borrower shall bind Borrower's successors and assigns and shall
     inure to the benefit of Lender and its successors and assigns. Borrower
     shall not, however, have the right to assign Borrower's rights under this
     Agreement or any interest therein, without the prior written consent of
     Lender.

     Survival of Representations and Warranties. Borrower understands and agrees
     that in making the Loan, Lender is relying on all representations,
     warranties, and covenants made by Borrower in this Agreement or in any
     certificate or other instrument delivered by Borrower to Lender under this
     Agreement or the Related Documents. Borrower further agrees that regardless
     of any investigation made by Lender, all such representations, warranties
     and covenants will survive the making of the Loan and delivery to Lender of
     the Related Documents, shall be continuing in nature, and shall remain in
     full force and effect until such time as Borrower's Indebtedness shall be
     paid in full, or until this Agreement shall be terminated in the manner
     provided above, whichever is the last to occur.

     Time is of the Essence. Time is of the essence in the performance of this
     Agreement.

     Waive Jury. All parties to this Agreement hereby waive the right to any
     jury trial in any action, proceeding, or counterclaim brought by any party
     against any other party.

DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. Accounting
words and terms not



                             BUSINESS LOAN AGREEMENT
Loan No: 02014155                  (Continued)                            Page 6
================================================================================

otherwise defined in this Agreement shall have the meanings assigned to them in
accordance with generally accepted accounting principles as in effect on the
date of this Agreement:

     Advance. The word "Advance" means a disbursement of Loan funds made, or to
     be made, to Borrower or on Borrower's behalf on a line of credit or
     multiple advance basis under the terms and conditions of this Agreement.

     Agreement. The word "Agreement" means this Business Loan Agreement, as this
     Business Loan Agreement may be amended or modified from time to time,
     together with all exhibits and schedules attached to this Business Loan
     Agreement from time to time.

     Borrower. The word "Borrower" means Kennedy-Wilson, Inc., and all other
     persons and entities signing the Note in whatever capacity.

     Collateral. The word "Collateral" means all property and assets granted as
     collateral security for a Loan, whether real or personal property, whether
     granted directly or indirectly, whether granted now or in the future, and
     whether granted in the form of a security interest, mortgage, collateral
     mortgage, deed of trust, assignment, pledge, crop pledge; chattel mortgage,
     collateral chattel mortgage, chattel trust, factor's lien, equipment trust,
     conditional sale, trust receipt, lien, charge, lien or title retention
     contract, lease or consignment intended as a security device, or any other
     security or lien interest whatsoever, whether created by law, contract, or
     otherwise.

     Environmental Laws. The words "Environmental Laws" mean any and all state,
     federal and local statutes, regulations and ordinances relating to the
     protection of human health or the environment, including without limitation
     the Comprehensive Environmental Response, Compensation, and Liability Act
     of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
     Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
     ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
     1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
     Section 6901, et seq.. Chapters 6.5 through 7.7 of Division 20 of the
     California Health and Safety Code, Section 25100, et seq., or other
     applicable state or federal laws, rules, or regulations adopted pursuant
     thereto.

     Event of Default. The words "Event of Default" mean any of the events of
     default set forth in this Agreement in the default section of this
     Agreement.

     GAAP. The word "GAAP" means generally accepted accounting principles.

     Grantor. The word "Grantor" means each and all of the persons or entities
     granting a Security Interest in any Collateral for the Loan, including
     without limitation all Borrowers granting such a Security Interest.

     Guarantor. The word "Guarantor" means any guarantor, surety, or
     accommodation party of any or all of the Loan.

     Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender,
     including without limitation a guaranty of all or part of the Note.

     Hazardous Substances. The words "Hazardous Substances" mean materials that,
     because of their quantity, concentration or physical, chemical or
     infectious characteristics, may cause or pose a present or potential hazard
     to human health or the environment when improperly used, treated, stored,
     disposed of, generated, manufactured, transported or otherwise handled. The
     words "Hazardous Substances" are used in their very broadest sense and
     include without limitation any and all hazardous or toxic substances,
     materials or waste as defined by or listed under the Environmental Laws.
     The term "Hazardous Substances" also includes, without limitation,
     petroleum and petroleum by-products or any fraction thereof and asbestos.

     Indebtedness. The word "Indebtedness" means the indebtedness evidenced by
     the Note or Related Documents, including all principal and interest
     together with all other indebtedness and costs and expenses for which
     Borrower is responsible under this Agreement or under any of the Related
     Documents.

     Lender. The word "Lender" means Pacific Western National Bank, its
     successors and assigns.

     Loan. The word "Loan" means any and all loans and financial accommodations
     from Lender to Borrower whether now or hereafter existing, and however
     evidenced, including without limitation those loans and financial
     accommodations described herein or described on any exhibit or schedule
     attached to this Agreement from time to time.

     Note. The word "Note" means the Note executed by Kennedy-Wilson, Inc. in
     the principal amount of $5,000,000.00 dated September 25, 2002, together
     with all renewals of, extensions of, modifications of, refinancing of,
     consolidations of, and substitutions for the note or credit agreement.

     Permitted Liens. The words "Permitted Liens" mean (1) liens and security
     interests securing Indebtedness owed by Borrower to Lender; (2) liens for
     taxes, assessments, or similar charges either not yet due or being
     contested in good faith; (3) liens of materialmen, mechanics, warehousemen,
     or carriers, or other like liens arising in the ordinary course of business
     and securing obligations which are not yet delinquent; (4) purchase money
     liens or purchase money security interests upon or in any property acquired
     or held by Borrower in the ordinary course of business to secure
     indebtedness outstanding on the date of this Agreement or permitted to be
     incurred under the paragraph of this Agreement titled "Indebtedness and
     Liens"; (5) liens and security interests which, as of the date of this
     Agreement, have been disclosed to and approved by the Lender in writing;
     and (6) those liens and security interests which in the aggregate
     constitute an immaterial and insignificant monetary amount with respect to
     the net value of Borrower's assets.

     Related Documents. The words "Related Documents" mean all promissory notes,
     credit agreements, loan agreements, environmental agreements, guaranties,
     security agreements, mortgages, deeds of trust, security deeds, collateral
     mortgages, and all other instruments, agreements and documents, whether now
     or hereafter existing, executed in connection with the Loan.

     Security Agreement. The words "Security Agreement" mean and include without
     limitation any agreements, promises, covenants, arrangements,
     understandings or other agreements, whether created by law, contract, or
     otherwise, evidencing, governing, representing, or creating a Security
     Interest.

     Security Interest. The words "Security Interest" mean, without limitation,
     any and all types of collateral security, present and future, whether in
     the form of a lien, charge, encumbrance, mortgage, deed of trust, security
     deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel
     mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
     trust receipt, lien or title retention contract, lease or consignment
     intended as a security device, or any other security or lien interest
     whatsoever whether created by law, contract, or otherwise.

     Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total
     assets excluding all intangible assets (i.e., goodwill, trademarks,
     patents, copyrights, organizational expenses, and similar intangible items,
     but including leaseholds and leasehold improvements) less total debt.



                             BUSINESS LOAN AGREEMENT
Loan No: 02014155                  (Continued)                            Page 7
================================================================================

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS
DATED JANUARY 27, 2003.

BORROWER:

KENNEDY-WILSON, INC.

                                                       
By: /s/ William J. McMorrow                               By: /s/ Freeman A. Lyle
   ---------------------------------------------             -------------------------------------------
   William J. McMorrow, Chairman of the Board of             Freeman A. Lyle, Chief Financial Officer of
   Kennedy-Wilson,Inc.                                       Kennedy-Wilson,Inc.




LENDER:

PACIFIC WESTERN NATIONAL BANK

By: /s/ [ILLEGIBLE]
   ---------------------------------------------
   Authorized Signer

================================================================================



                                 PROMISSORY NOTE



- -----------------------------------------------------------------------------------------
Principal     Loan Date   Maturity    Loan No  Call/Coll  Account Officer Initials
                                                           
$5,000,000.00 01-27-2003  01-27-2006  02014155                      710   /s/ [ILLEGIBLE]
- -----------------------------------------------------------------------------------------


- --------------------------------------------------------------------------------
     References in the shaded area are for Lender's use only and do not limit
     the applicability of this document to any particular loan or item. Any item
     above containing " *** " has been omitted due to text length limitations
- --------------------------------------------------------------------------------

                                             
    Borrower: Kennedy-Wilson, Inc.                  Lender: Pacific Western National Bank
              9601 Wilshire Boulevard Suite 220             Beverly Hills Office
              Beverly Hills, CA  90210                      9454 Wilshire Boulevard
                                                            Beverly Hills, CA 90212
================================================================================


    

Principal Amount:   $5,000,000.00              Date of Note:  January 27, 2003

PROMISE TO PAY. Kennedy-Wilson, Inc. ("Borrower") promises to pay to Pacific
Western National Bank ("Lender"), or order, in lawful money of the United States
of America, the principal amount of Five Million & 00/100 Dollars
($5,000,000.00), together with interest on the unpaid principal balance from
January 27, 2003, until paid in full.

PAYMENT. Subject to any payment changes resulting from changes in the Index,
Borrower will pay this loan on demand. Payment in full is due immediately upon
Lender's demand. If no demand is made, Borrower will pay this loan in accordance
with the following payment schedule: 35 monthly consecutive interest payments,
beginning February 25, 2003, with interest calculated on the unpaid principal
balances at an interest rate based on the Pacific Western National Bank Base
Rate (currently 4.250%), plus a margin of 1.000 percentage points, resulting in
an initial interest rate of 5.250%; 2 annual consecutive principal payments of
$1,666,667.00 each, beginning January 27, 2004, with interest calculated on the
unpaid principal balances at an interest rate based on the Pacific Western
National Bank Base Rate (currently 4.250%), plus a margin of 1.000 percentage
points, resulting in an initial interest rate of 5.250%; and one principal and
interest payment of $1,674,686.83 on January 27, 2006, with interest
calculated on the unpaid principal balances at an interest rate based on the
Pacific Western National Bank Base Rate (currently 4.250%), plus a margin of
1.000 percentage points, resulting in an initial interest rate of 5.250%. This
estimated final payment is based on the assumption that all payments will be
made exactly as scheduled and that the Index does not change; the actual final
payment will be for all principal and accrued interest not yet paid, together
with any other unpaid amounts under this Note. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges. The annual interest rate for this Note is computed on a
365/360 basis; that is, by applying the ratio of the annual interest rate over a
year of 360 days, multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender may
designate in writing.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the Pacific Western National
Bank Base Rate (the "Index"). The Index is not necessarily the lowest rate
charged by Lender on its loans and is set by Lender in its sole discretion. If
the Index becomes unavailable during the term of this loan, Lender may designate
a substitute index after notifying Borrower. Lender will tell Borrower the
current Index rate upon Borrower's request. The interest rate change will not
occur more often than each day. Borrower understands that Lender may make loans
based on other rates as well. The Index currently is 4.250%. The interest rate
or rates to be applied to the unpaid principal balance of this Note will be the
rate or rates set forth herein in the "Payment" section. Notwithstanding any
other provision of this Note, after the first payment stream, the interest rate
for each subsequent payment stream will be effective as of the last payment date
of the just-ending payment stream. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law. Whenever increases occur in the interest rate, Lender, at its option, may
do one or more of the following: (A) increase Borrower's payments to ensure
Borrower's loan will pay off by its original final maturity date, (B) increase
Borrower's payments to cover accruing interest, (C) increase the number of
Borrower's payments, and (D) continue Borrower's payments at the same amount and
increase Borrower's final payment.

PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender is entitled to a
minimum interest charge of $100.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to continue
to make payments under the payment schedule. Rather, early payments will reduce
the principal balance due and may result in Borrower's making fewer payments.
Borrower agrees not to send Lender payments marked "paid in full", "without
recourse", or similar language. If Borrower sends such a payment, Lender may
accept it without losing any of Lender's rights under this Note, and Borrower
will remain obligated to pay any further amount owed to Lender. All written
communications concerning disputed amounts, including any check or other payment
instrument that indicates that the payment constitutes "payment in full" of the
amount owed or that is tendered with other conditions or limitations or as full
satisfaction of a disputed amount must be mailed or delivered to: Pacific
Western National Bank, Beverly Hills Office, 9454 Wilshire Boulevard, Beverly
Hills, CA 90212.

LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $10.00, whichever is greater.

INTEREST AFTER DEFAULT. Upon Borrower's failure to pay all amounts declared due
pursuant to this section, including failure to pay upon final maturity, Lender,
at its option, may, if permitted under applicable law, increase the variable
interest rate on this Note by 5.000 percentage points.

DEFAULT. Each of the following shall constitute an event of default ("Event of
Default") under this Note:

     Payment Default. Borrower fails to make any payment when due under this
     Note.

     Other Defaults. Borrower fails to comply with or to perform any other term,
     obligation, covenant or condition contained in this Note or in any of the
     related documents or to comply with or to perform any term, obligation,
     covenant or condition contained in any other agreement between Lender and
     Borrower.

     False Statements. Any warranty, representation or statement made or
     furnished to Lender by Borrower or on Borrower's behalf under this Note or
     the related documents is false or misleading in any material respect,
     either now or at the time made or furnished or becomes false or misleading
     at any time thereafter.

     Insolvency. The dissolution or termination of Borrower's existence as a
     going business, the insolvency of Borrower, the appointment of a receiver
     for any part of Borrower's property, any assignment for the benefit of
     creditors, any type of creditor workout, or the commencement of any
     proceeding under any bankruptcy or insolvency laws by or against Borrower.

     Creditor or Forfeiture Proceedings. Commencement of foreclosure or
     forfeiture proceedings, whether by judicial proceeding, self-help,
     repossession or any other method, by any creditor of Borrower or by any
     governmental agency against any collateral securing the loan.



                                 PROMISSORY NOTE
Loan Np:02014155                   (Continued)                            Page 2
================================================================================

     This includes a garnishment of any of Borrower's accounts, including
     deposit accounts, with Lender. However, this Event of Default shall not
     apply if there is a good faith dispute by Borrower as to the validity or
     reasonableness of the claim which is the basis of the creditor or
     forfeiture proceeding and if Borrower gives Lender written notice of the
     creditor or forfeiture proceeding and deposits with Lender monies or a
     surety bond for the creditor or forfeiture proceeding, in an amount
     determined by Lender, in its sole discretion, as being an adequate reserve
     or bond for the dispute.

     Events Affecting Guarantor. Any of the preceding events occurs with respect
     to any guarantor, endorser, surety, or accommodation party of any of the
     indebtedness or any guarantor, endorser, surety, or accommodation party
     dies or becomes incompetent, or revokes or disputes the validity of, or
     liability under, any guaranty of the indebtedness evidenced by this Note.
     In the event of a death, Lender, at its option, may, but shall not be
     required to, permit the guarantor's estate to assume unconditionally the
     obligations arising under the guaranty in a manner satisfactory to Lender,
     and, in doing so, cure any Event of Default.

     Change In Ownership. Any change in ownership of twenty-five percent (25%)
     or more of the common stock of Borrower.

     Adverse Change. A material adverse change occurs in Borrower's financial
     condition, or Lender believes the prospect of payment or performance of
     this Note is impaired.

     Cure Provisions. If any default, other than a default in payment is curable
     and if Borrower has not been given a notice of a breach of the same
     provision of this Note within the preceding twelve (12) months, it may be
     cured (and no event of default will have occurred) if Borrower, after
     receiving written notice from Lender demanding cure of such default: (1)
     cures the default within fifteen (15) days; or (2) if the cure requires
     more than fifteen (15) days, immediately initiates steps which Lender deems
     in Lender's sole discretion to be sufficient to cure the default and
     thereafter continues and completes all reasonable and necessary steps
     sufficient to produce compliance as soon as reasonably practical.

LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, and then
Borrower will pay that amount.

ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect
this Note if Borrower does not pay. Borrower will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees, expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), and appeals. Borrower also
will pay any court costs, in addition to all other sums provided by law.

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower against
the other.

GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of California. This Note
has been accepted by Lender in the State of California.

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of Los Angeles County, State of
California.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
debt against any and all such accounts.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and
upon Borrower's heirs, personal representatives, successors and assigns, and
shall inure to the benefit of Lender and its successors and assigns.

NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES.
Please notify us if we report any inaccurate information about your account(s)
to a consumer reporting agency. Your written notice describing the specific
inaccuracy(ies) should be sent to us at the following address: Pacific Western
National Bank P. 0. Box 131207 Carlsbad, CA 92013-1207

GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statute of limitations, presentment, demand
for payment, and notice of dishonor. Upon any change in the terms of this Note,
and unless otherwise expressly stated in writing, no party who signs this Note,
whether as maker, guarantor, accommodation maker or endorser, shall be released
from liability. All such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this loan or release any party or
guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made. The obligations
under this Note are joint and several.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

BORROWER:

KENNEDY-WILSON, INC.


                                                       
By: /s/ William J. McMorrow                               By: /s/ Freeman A. Lyle
   ---------------------------------------------             -------------------------------------------
   William J. McMorrow, Chairman of the Board of             Freeman A. Lyle, Chief Financial Officer of
   Kennedy-Wilson,Inc.                                       Kennedy-Wilson,Inc.




================================================================================



                 CORPORATE RESOLUTION TO BORROW



- ------------------------------------------------------------------------------------------
Principal      Loan Date   Maturity    Loan No  Call/Coll  Account  Officer   Initials
                                                              
$5,000,000.00  01-27-2003  01-27-2006  02014155                      710     /s/ [ILLEGIBLE]
- ------------------------------------------------------------------------------------------


- --------------------------------------------------------------------------------
     References in the shaded area are for Lender's use only and do not limit
     the applicability of this document to any particular loan or item. Any item
     above containing " *** " has been omitted due to text length limitations
- --------------------------------------------------------------------------------

                                             
    Borrower: Kennedy-Wilson, Inc.                  Lender: Pacific Western National Bank
              9601 Wilshire Boulevard Suite 220             Beverly Hills Office
              Beverly Hills, CA  90210                      9454 Wilshire Boulevard
                                                            Beverly Hills, CA 90212
================================================================================


    

WE, THE UNDERSIGNED, DO HEREBY CERTIFY THAT:

THE CORPORATION'S EXISTENCE. The complete and correct name of the Corporation is
Kennedy-Wilson, Inc. ("Corporation"). The Corporation is a corporation for
profit which is, and at all times shall be, duly organized, validly existing,
and in good standing under and by virtue of the laws of the State of Delaware.
The Corporation is duly authorized to transact business in all other states in
which the Corporation is doing business, having obtained all necessary filings,
governmental licenses and approvals for each state in which the Corporation is
doing business. Specifically, the Corporation is, and at all times shall be,
duly qualified as a foreign corporation in all states in which the failure to so
qualify would have a material adverse effect on its business or financial
condition. The Corporation has the full power and authority to own its
properties and to transact the business in which it is presently engaged or
presently proposes to engage. The Corporation maintains an office at 9601
Wilshire Boulevard Suite 220, Beverly Hills, CA 90210. Unless the Corporation
has designated otherwise in writing, the principal office is the office at which
the Corporation keeps its books and records. The Corporation will notify Lender
prior to any change in the location of the Corporation's state of organization
or any change in the Corporation's name. The Corporation shall do all things
necessary to preserve and to keep in full force and effect its existence, rights
and privileges, and shall comply with all regulations, rules, ordinances,
statutes, orders and decrees of any governmental or quasi-governmental authority
or court applicable to the Corporation and the Corporation's business
activities.

RESOLUTIONS ADOPTED. At a meeting of the Directors of the Corporation, or if the
Corporation is a close corporation having no Board of Directors then at a
meeting of the Corporation's shareholders, duly called and held on January 27,
2003, at which a quorum was present and voting, or by other duly authorized
action in lieu of a meeting, the resolutions set forth in this Resolution were
adopted.

OFFICERS. The following named persons are officers of Kennedy-Wilson, Inc.:




          NAMES                  TITLES                      AUTHORIZED              ACTUAL SIGNATURES
          -----                  ------                      ----------              -----------------
                                                                    
     William J. McMorrow         Chairman of the Board           Y           X  /s/ William J. McMorrow
                                                                               ----------------------------

     Freeman A. Lyle             Chief Financial Officer         Y           X  /s/ Freeman A. Lyle
                                                                               ----------------------------


ACTIONS AUTHORIZED. Any two (2) of the authorized persons listed above may enter
into any agreements of any" nature with Lender, and those agreements will bind
the Corporation. Specifically, but without limitation any two (2) of such
authorized persons are authorized, empowered, and directed to do the following
for and on behalf of the Corporation:

     Borrow Money. To borrow, as a cosigner or otherwise, from time to time from
     Lender, on such terms as may be agreed upon between the Corporation and
     Lender, such sum or sums of money as in their judgment should be borrowed,
     without limitation.

     Execute Notes. To execute and deliver to Lender the promissory note or
     notes, or other evidence of the Corporation's credit accommodations, on
     Lender's forms, at such rates of interest and on such terms as may be
     agreed upon, evidencing the sums of money so borrowed or any of the
     Corporation's indebtedness to Lender, and also to execute and deliver to
     Lender one or more renewals, extensions, modifications, refinancings,
     consolidations, or substitutions for one or more of the notes, any portion
     of the notes, or any other evidence of credit accommodations.

     Execute Security Documents. To execute and deliver to Lender the forms of
     mortgage, deed of trust, pledge agreement, hypothecation agreement, and
     other security agreements and financing statements which Lender may require
     and which shall evidence the terms and conditions under and pursuant to
     which such liens and encumbrances, or any of them, are given; and also to
     execute and deliver to Lender any other written instruments, any chattel
     paper, or any other collateral, of any kind or nature, which Lender may
     deem necessary or proper in connection with or pertaining to the giving of
     the liens and encumbrances. Notwithstanding the foregoing, any one of the
     above authorized persons may execute, deliver, or record financing
     statements.

     Negotiate Items. To draw, endorse, and discount with Lender all drafts,
     trade acceptances, promissory notes, or other evidences of indebtedness
     payable to or belonging to the Corporation or in which the Corporation may
     have an interest, and either to receive cash for the same or to cause such
     proceeds to be credited to the Corporation's account with Lender, or to
     cause such other disposition of the proceeds derived there from as they may
     deem advisable.

     Further Acts. In the case of lines of credit, to designate additional or
     alternate individuals as being authorized to request advances under such
     lines, and in all cases, to do and perform such other acts and things, to
     pay any and all fees and costs, and to execute and deliver such other
     documents and agreements, including agreements waiving the right to a trial
     by jury, as the officers may in their discretion deem reasonably necessary
     or proper in order to carry into effect the provisions of this Resolution.

ASSUMED BUSINESS NAMES. The Corporation has filed or recorded all documents or
filings required by law relating to all assumed business names used by the
Corporation. Excluding the name of the Corporation, the following is a complete
list of all assumed business names under which the Corporation does business:
None.

NOTICES TO LENDER. The Corporation will promptly notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (A) change in the Corporation's name; (B) change
in the Corporation's assumed business name(s); (C) change in the management of
the Corporation; (D) change in the authorized signer(s); (E) change in the
Corporation's



                         CORPORATE RESOLUTION TO BORROW
Loan No: 02014155                   (Continued)                           Page 2
================================================================================

principal office address; (F) change in the Corporation's state of organization;
(G) conversion of the Corporation to a new or different type of business entity;
or (H) change in any other aspect of the Corporation that directly or indirectly
relates to any agreements between the Corporation and Lender. No change in the
Corporation's name or state of organization will take effect until after Lender
has received notice

CERTIFICATION CONCERNING OFFICERS AND RESOLUTIONS. The officers named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set opposite their respective names. This
Resolution now stands of record on the books of the Corporation, is in full
force and effect, and has not been modified or revoked in any manner whatsoever.

NO CORPORATE SEAL. The Corporation has no corporate seal, and therefore, no seal
is affixed to this Resolution.

CONTINUING VALIDITY. Any and all acts authorized pursuant to this Resolution and
performed prior to the passage of this Resolution are hereby ratified and
approved. This Resolution shall be continuing, shall remain in full force and
effect and Lender may rely on it until written notice of its revocation shall
have been delivered to and received by Lender at Lender's address shown above
(or such addresses as Lender may designate from time to time). Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.

IN TESTIMONY WHEREOF, We have hereunto set our hand and attest that the
signatures set opposite the names listed above are their genuine signatures.

We each have read all the provisions of this Resolution, and we each personally
and on behalf of the Corporation certify that all statements and representations
made in this Resolution are true and correct. This Corporate Resolution to
Borrow / Grant Collateral is dated January 27, 2003.

THIS RESOLUTION IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS RESOLUTION IS
AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO
LAW.

                                    CERTIFIED TO AND ATTESTED BY:

                                    By: /s/ William J. McMorrow
                                      ----------------------------------(Seal)
                                     Authorized Signer for Kennedy-Wilson,Inc.

                                   By: /s/ Freeman A. Lyle
                                      ----------------------------------(Seal)
                                     Authorized Signer for Kennedy-Wilson,Inc.

NOTE: If the officers signing this Resolution are designated by the foregoing
document as one of the officers authorized to act on the Corporation's behalf,
it is advisable to have this Resolution signed by at least one non-authorized
officer of the Corporation.

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EX-99.1

Exhibit 99.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

In connection with the quarterly report on Form 10-Q of Kennedy-Wilson, Inc. (the “Company”) for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, William J. McMorrow, Chief Executive Officer and Freeman A. Lyle, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ WILLIAM J. MCMORROW
Name:	William J. McMorrow
Title:	Chief Executive Officer
Date:	May 15, 2003

	/s/ FREEMAN LYLE
Name:	Freeman A. Lyle
Title:	Chief Financial Officer
Date:	May 15, 2003