Registration No. 33-
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GATEWAY AMERICAN PROPERTIES CORPORATION
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(Exact name of registrant as specified in its charter)
Colorado 84-139-1336
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
9145 East Kenyon Avenue, Suite 200
Denver, Colorado 80237
303/694-1982
(Address, including zip code and telephone number,
including area code, of registrant's principal executive
offices and principal place of business)
Gilbert L. McSwain, Esq.
1660 South Albion Street, Suite 309
Denver, Colorado 80222
303/753-8805
(name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
David A. Carter, P.A. Gilbert L. McSwain
2300 Glades Road, Suite 210 1660 S. Albion St. Suite 309
Boca Raton, Florida 33431 Denver, Colorado 80222
561/750-6999 303/753-8805
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective.
<TABLE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Each Amount Offering Aggregate Amount of
Class of Securities to be Price Offering Registration
to be Registered Registered Per Unit(1) Price Fee
<S> <C> <C> <C> <C>
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Common Stock, $.01 par value (2) 2,052,000 $4.00 $8,208,000 $2,487.00
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Common Stock Purchase Warrants 3,450,000 .1875 646,875 196.00
("Warrants")(3)
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Common Stock Underlying Warrants 3,450,000 4.50 15,525,000 4,705.00
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Common Stock Representative 150,000 --- 10 (5)
Warrants
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Common Stock Issuable Upon Exer- 150,000 6.00 900,000 273.00
cise of Representative Warrants
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Warrant Representative Warrants(4) 300,000 --- --- ---
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Underlying Warrants 300,000 .28125 84,375 26.00
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Common Stock Issuable Upon Exer- 300,000 6.00 1,800,000 545.00
cise of Underlying Warrants
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Common Stock Underlying Founders 300,000 4.50 1,350,000 409.00
Warrants
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Total $28,514,260 $8,641.00
</TABLE>
(Footnotes on next page)
<PAGE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) Includes a maximum of 225,000 shares of Common Stock and 450,000 Warrants
that may be issued to the Underwriter pursuant to an over-allotment, as
well as 327,000 shares of Common Stock being registered on behalf of
certain Selling Shareholders.
(3) Includes 3,000,000 Common Stock Purchase Warrants to be offered to the
public and 450,000 Common Stock Purchase Warrants which may be offered to
the public pursuant to an overallotment.
(4) The Representative Warrants allow the holder to purchase 300,000 Underlying
Warrants and 300,000 shares of Common Stock, with each Underlying Warrant
permitting the Representative to purchase an additional share of Common
Stock.
(5) No fee required pursuant to Rule 457(g).
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall become effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
The form of Prospectus filed as part of this Registration Statement has two
versions, the first of which will be utilized in connection with the
underwritten public offering of 1,500,000 shares of common stock and 3,000,000
redeemable common stock purchase warrants, and the second of which (the
Alternate Prospectus) will be utilized by the Selling Stockholders. Copies of
each prospectus in the exact form in which it will be used after effectiveness
will be filed with the Securities and Exchange Commission pursuant to Rule
424(b).
<PAGE>
SUBJECT TO COMPLETION DATED __________________, 1997
PROSPECTUS
GATEWAY AMERICAN PROPERTIES CORPORATION
1,500,000 Shares of Common Stock
3,000,000 Redeemable Common Stock
Purchase Warrants
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GATEWAY AMERICAN PROPERTIES CORPORATION (the "Company") is offering
1,500,000 shares of Common Stock, $.01 par value (the "Shares" or the "Common
Stock"), and 3,000,000 Redeemable Common Stock Purchase Warrants (the "Purchase
Warrants" or "Warrants") by means of this Prospectus. Prior to this offering,
there has been no public market for the Common Stock or the Warrants of the
Company. For information regarding the factors considered in determining the
initial public offering prices of the Common Stock and the Warrants, see "RISK
FACTORS" and "UNDERWRITING".
The Common Stock and the Warrants of the Company are being offered
separately and after the offering, may be separately transferred. Each Warrant
entitles the holder to purchase one share of Common Stock at a price of $4.50 at
any time until ________________, 2002, provided the shares underlying the
Warrants are then subject to an effective Registration Statement and current
Prospectus. The Warrants are redeemable by the Company at a price of $.35 each
upon 30 days notice if the closing bid price of the Common Stock shall have been
at least $6.40 per share for 30 consecutive trading days, as reported on the
Nasdaq SmallCap Market ("Nasdaq SmallCap"); provided: (a) the notice of
redemption is mailed within ten days after the end of such period; and (b) there
is then a current, effective Registration Statement under the Securities Act of
1933, as amended (the "Act") relating to the Common Stock issuable upon exercise
of the Warrants. Application has been made to list the Common Stock and Warrants
of the Company on Nasdaq SmallCap under the symbols ____ and ____ W
respectively. Prior to the first anniversary of the Effective Date, the Purchase
Warrants will not be redeemable by the Company without the written consent of
Barron Chase Securities, Inc. (The "Representative") acting as representative of
the several underwriters identified elsewhere herein (the "Underwriters"). See
"RISK FACTORS - Possible Lack of Value of Warrants; Possible Inability to
Exercise Warrants."
The Registration Statement of which this Prospectus is a part, also include
327,000 shares of Common Stock and 300,000 shares underlying outstanding
Founders Warrants ("Selling Stockholders Shares") for resale by certain
stockholders of the Company ("Selling Stockholders"). Of the 627,000 Selling
Stockholders Shares, 27,000 shares may not be sold for 90 days from the date of
this Prospectus and the balance may not be sold until 15 months from the date of
the Prospectus. None of these 627,000 shares are being underwritten by the
Underwriters and the Company will not receive any of the proceeds from the sale
of the Selling Stockholders Shares. See "SELLING STOCKHOLDERS".
The Shares and Warrants constitute a speculative investment and are subject
to material risks. The Common Stock is also subject to substantial immediate
dilution. The Shares and Warrants should only be purchased by persons who can
bear the continuing risk of a speculative investment. See "RISK FACTORS",
"DILUTION" and "DESCRIPTION OF SECURITIES" on pages 7, 21 and 47, respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
Price to Public Underwriting Discount(1) Proceeds to Company (2)
Per Share ........................ $ 4.00 $ .40 $ 3.60
Per Warrant ...................... .1875 .01875 .16875
Total (3) ........................ $6,562,500.00 $656,250.00 $5,906,250.00
</TABLE>
BARRON CHASE SECURITIES, INC.
The date of this Prospectus is __________________, 1997
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A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. Information
contained herein is subject to completion or amendment. These securities may not
be sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer to
sell of the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
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<PAGE>
Footnotes to Table:
(1) Does not include additional compensation in the form of (a) a
non-accountable expense allowance of $196,875 of which $30,000 has been
paid,($226,406 if the Underwriters' over-allotment option is exercised in
full as described in Note (3) below); (b) Common Stock Representative
Warrants to purchase up to 150,000 shares of Common Stock at $6.00 per
Share, and Warrant Representative Warrants exercisable at $.28125 per
warrant to acquire up to 300,000 additional Warrant Representative
Warrants to purchase up to 300,000 shares of common stock at $6.00 per
share, all exercisable over a period of five years commencing on the date
of this Prospectus, and (c) a Financial Advisory Agreement for the
Representative to act as an investment banker for and on behalf of the
Company at a fee of $108,000, payable at the closing of this offering of
Common Stock and Warrants. In addition, the Company has agreed to
indemnify the Underwriters against certain civil liabilities, including
liabilities under the Act. See "UNDERWRITING".
(2) Before deducting expenses of this offering payable by the Company and
estimated at $420,000 (of which $80,000 has been paid and which is
approximately 6% of the gross proceeds of this offering), which amount
includes the Representative's non-accountable expense allowance described
in Note (1) above.
(3) The Company has granted to the Underwriters an option, exercisable within
45 days from the date of the consummation of this offering of Common Stock
and Warrants, to purchase up to an additional 225,000 shares of Common
Stock and an additional 450,000 Warrants on the same terms and conditions
as set forth above in order to cover over-allotments, if any (the
"Over-Allotment Option"). If all of such additional shares of Common Stock
and Warrants are purchased, the price to the public, Underwriting
discounts and proceeds to the Company as indicated in the table on the
cover page hereof, will be increased to $7,546,875, $754,687.50 and
$6,792,187.50 respectively. See "UNDERWRITING".
The Common Stock and Warrants are being offered by the Underwriters
subject to prior sale, when, as and if delivered to, and accepted by, the
Underwriters, and subject to the approval of certain legal matters by counsel
and certain other conditions. It is expected that delivery of the Common Stock
and the Warrants will be made at the offices of Barron Chase Securities, Inc.,
7700 West Camino Real, Suite 200, Boca Raton, Florida 33433-5541 on or about
_____________, 1997.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER ALLOT OR
EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON
STOCK AND THE WARRANTS OF THE COMPANY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
At the Effective Date, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
("Exchange Act") and, in accordance therewith, will be required to file reports,
proxy or information statements and other information with the Securities and
Exchange Commission (the "Commission"). At the Effective Date, the Securities
will be listed on Nasdaq SmallCap. Accordingly, such reports, proxy statements
and other information can be inspected and copied at the Commission's principal
office, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549; the Northeast Regional Office of the Commission at 7 World Trade Center,
Suite 1300, New York, New York 10048; and the Midwest Regional Office of the
Commission, Citicorp Center, 500 West Madison street, Suite 1400, Chicago,
Illinois 60661, where copies may be obtained upon payment of the fees prescribed
by the Commission, as well as at the offices of The Nasdaq Stock Market, Inc.,
1735 K Street, N.W., Washington, D.C. Such documents may also be obtained
through the website maintained by the Commission at http://www.sec.gov. Holders
of the Company's Common Stock and Warrants will be able to obtain the most
recent such reports by making written requests therefore to the Company's
offices located at 9145 East Kenyon Avenue, Suite 200, Denver, Colorado 80237,
Attention: Joel H. Farkas. The Company's telephone number at such address is
303/843-9742.
2
<PAGE>
INTRODUCTORY STATEMENT
Apollo III, Inc., a Florida corporation ("Apollo") was organized on
December 23, 1992 for the purpose of acquiring or consolidating with one or more
other business entities. On January 12, 1995, Gateway American Properties
Corporation, a Florida corporation ("Gateway-Florida") was formed as an
affiliate of Apollo for the purpose of entering a business combination
involving; (i) the merger of Apollo into Gateway-Florida; (ii) the acquisition
by Gateway-Florida of all the outstanding membership interests in Gateway
American Properties, LLC a Colorado limited liability company; and (iii) the
acquisition of capital from a public offering of securities of Gateway-Florida.
After filing a Registration Statement with respect to proposed public offering
of Gateway-Florida securities to be underwritten by the Representative, the
project was delayed by the parties. Prior to the resumption of the project,
Apollo was merged into Gateway-Florida in exchange for 274,000 shares of the
Common Stock of Gateway-Florida. Gateway-Florida later redomesticated into a
Colorado corporation through a statutory merger with the Company as the
surviving corporation. In this merger the shareholders of Gateway-Florida
received 327,000 shares of the Company's Common Stock and Common Stock Purchase
Warrants to purchase 300,000 shares of the Common Stock ("Founders Warrants").
The Founders Warrants are exercisable at $4.50 per share on the same terms and
conditions as the Purchase Warrants offered to the public by this Prospectus.
Gateway-Florida and Apollo are both considered as "predecessors" of the Company
as that term is defined under the Securities Act of 1933, as amended.
Immediately prior to the Effective Date of the Registration Statement of
which this Prospectus is a part, the Company will complete and consummate a
business combination transaction whereby it will acquire (i) all of the
outstanding membership interests of Gateway American Properties, LLC, a Colorado
limited liability company, ("Gateway") in exchange for 2,025,000 shares of
Common Stock. The offering of the Common Stock and Warrants by means of this
Prospectus is an integral part of the business combination transaction and such
transaction is conditioned upon successful completion of this offering. Such
transaction is referred to in this Prospectus as the "Transaction". See "CERTAIN
TRANSACTIONS".
Upon completion of the Transaction, including the offering described in
this Prospectus, the Company will continue the business activities of Gateway
directly or through Gateway as a wholly owned subsidiary. See "PROSPECTUS
SUMMARY" and "BUSINESS". Unless otherwise indicated, the information presented
in this Prospectus reflects and assumes the consummation of the Transaction and
refers to the Company and Gateway as a combined entity.
The remainder of this page left intentionally blank
3
<PAGE>
PROSPECTUS SUMMARY
Set forth below is a summary of certain information contained in this
Prospectus. Such information is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
The Company
The Company was formed pursuant to Colorado law on March 21, 1997. For the
past four years its subsidiary, Gateway, has been engaged in the business of
purchasing and developing real property into platted, finished and semi-finished
lots for sale to residential homebuilders. Gateway typically purchases real
property that is zoned for residential use and develops such property into
finished lots for sale to homebuilders who will construct single family detached
or multi-family attached homes on the finished lots. Homes constructed on these
lots are generally priced between $100,000 and $250,000. Gateway seeks to
provide its home builder customers with (i) approved and platted finished or
semi-finished residential building sites, (ii) a variety of geographical
locations, and (iii) delivery within time frames which meet the home builders'
needs. The Company was formed for the purpose of acquiring Gateway and the
capital funds from this offering and continuing Gateway's operations directly or
through it as a subsidiary. See "INTRODUCTORY STATEMENT" and "CERTAIN
TRANSACTIONS".
Gateway (including GV Development, LLC, a predecessor of Gateway which was
merged into Gateway on December 31, 1994) was organized in June, 1993. From its
organization through June 30, 1997, the Company's lot sales have increased from
fewer than 20 lots sold in 1994, to 194 lots sold in 1995 and to 478 lots in
1996. For the period ending June 30, 1997, Gateway has sold 277 lots. As of June
30, 1997, it had an inventory of 629 lots under development and an additional
550 that have been developed. Its lots in inventory and lots under contract are
located in eight cities and counties in the greater Denver metropolitan area and
in Fort Collins, Colorado.
Presently the home builders who have acquired lots, or are presently under
contract to acquire lots from the Company are PrideMark Home Building Group LLC
("PrideMark"), US Home, Melody Homes, Sheffield Homes, Continental Homes,
Sundown Development, Paul Adam Custom Homes, d/b/a Odyssey Homes, Meadow Homes
and Strauss Homes. PrideMark is principally owned by Michael A. Messina, who is
also a director, officer and principal shareholder of the Company. Accordingly,
PrideMark is an "affiliate" of the Company as that term is defined under the
Securities Act of 1933, as amended. The Company is also engaged in building
luxury townhomes in Roxborough Park in Douglas County, Colorado, on property it
owns and has developed. The Company may, from time to time, engage in such
building activities. See "BUSINESS", "CERTAIN TRANSACTIONS", "MANAGEMENT" and
"PRINCIPAL SHAREHOLDERS".
Certain Transactions with Affiliates
Historically, over 50% of the Company's real property purchases have been
from affiliated parties. The Company plans to reduce such transactions in the
future and has taken steps over the past two years toward that end. The Company
and the involved affiliated parties have agreed that on such purchases the
Company will pay a purchase price of 10% below the fair market value of the
properties, based upon independent expert appraisals.
4
<PAGE>
For the 30 month period beginning January 1, 1995, 72% of the finished and
semi-finished lots sold by the Company have been sold to the affiliate,
PrideMark. Over the next 12 months it is anticipated that the Company will
continue to sell between one-third and one-half of its platted, semi-finished
and finished lots to PrideMark.
In addition, the Company utilizes legal services from a law firm of which
Mr. Deutsch, an officer, director and principal shareholder of the Company, is a
shareholder and principal. Mr. Deutsch has agreed that commencing on the
Effective Date, he will have no economic interest in any legal fees paid by the
Company to the law firm for services rendered subsequent to the Effective Date.
For additional information on transactions with affiliated parties, see
"RISK FACTORS" and "CERTAIN TRANSACTIONS".
The Offering
Common Stock offered 1,500,000 Shares
Warrants offered 3,000,000 Warrants
Common Stock to be outstanding after
the Offering(without any Warrant Exercise) 3,852,000 Shares
Proposed Nasdaq SmallCap Symbols Common Stock Warrants
_______ _____-W
The number of shares of Common Stock and Warrants to be outstanding as
reflected above does not take into account additional shares of Common Stock and
Warrants which may be outstanding to the extent that the Over-Allotment Option
granted to the Underwriters is utilized. The information presented above also
does not take into account warrants which are being granted to the
Representative.
Use of Proceeds
The net proceeds to be received by the Company as a result of this offering
are estimated at approximately $5.5 million. The net proceeds are expected to be
utilized by the Company in the acquisition and development of real estate
properties, including off-site development improvements, for reduction of debt,
for marketing and advertising, and as general working capital. See "USE OF
PROCEEDS".
5
<PAGE>
Risk Factors
An investment in the Common Stock and Warrants of the Company involves a
substantial degree of risk and should not be made by investors who cannot afford
the loss of their entire investment in such securities. See "RISK FACTORS".
Unaudited Selected Pro Forma Financial Data
The unaudited pro forma selected financial data as of June 30, 1997 and
for the year ended December 31, 1996 and the six months ended June 30, 1997 are
derived from the unaudited pro forma condensed balance sheet and statements of
operations set forth subsequently in this Prospectus, which give effect to the
Transaction in the manner described in the notes to the pro forma condensed
financial statements. The pro forma selected financial data presented below and
the pro forma condensed financial statements should be read in conjunction with
the accompanying notes to the pro forma condensed financial statements, the
historical financial statements and the notes of each of the respective
companies, all of which are included subsequently in this Prospectus. The
unaudited pro forma condensed statements of operations are not necessarily
indicative of future operations or the actual results that would have occurred
had the Transaction been consummated at the beginning of each period presented.
Gateway American Properties, Corp.
(A Colorado Corp.)
Unaudited Pro Forma Selected Financial Data
Giving Effect to the Transaction and Offering
Year Ended Six Months
December 31, Ended June 30,
1996 1997
Income Statement Data:
Sales $10,500,606 $5,049,043
Gross Profit(1) 951,526 1,131,804
Operating Income (Loss) (306,730) 434,490
Net Income (Loss) (386,802) 229,477
Net Income (Loss) per Common Share(2) (.10) .06
As adjusted for
June 30, 1997 Offering
Balance Sheet Data:
Total Assets(3) $20,070,300 $22,556,550
Debt(3) 16,800,825 13,800,825
Stockholders' Equity 803,731 6,289,981
6
<PAGE>
__________
(1) Gross profit is defined as total sales less cost of sales.
(2) Net income per common share reflects the 1,500,000 Shares that will be
outstanding after the consummation of the Transaction and the offering
described in this Prospectus which will occur in conjunction with and as a
part of the Transaction. These income calculations do not give any effect
to the proceeds that will be received pursuant to the offering described in
this Prospectus.
(3) Consistent with industry standards, assets and liabilities are not
classified as either current or long term and, therefore, information
relating to such classifications is not presented.
The SELECTED FINANCIAL INFORMATION section of this Prospectus sets forth
selected historical financial data for Gateway, and the Company and pro forma
financial data, assuming the consummation of the Transaction described in the
Prospectus sections "INTRODUCTORY STATEMENT" and "CERTAIN TRANSACTIONS", all as
of the dates described in the historical financial statements of Gateway, Apollo
and the Company and in the pro forma financial statements.
RISK FACTORS
The securities offered by this Prospectus involve a high degree of risk and
should be considered speculative securities. Additionally, the business
activities of the Company which relate to the acquisition of real property for
further development into platted, semi-finished and finished residential
building lots are subject to being affected in an adverse material way by the
risk factors set forth below. Interested investors should carefully consider the
following risks relative to the Company, its business and the offered securities
in determining whether to purchase the Common Stock and Warrants of the Company.
Limited History of Operations. The Company was formed in March of 1997 for
the express purpose of effecting the Transaction, upon completion of which the
Company will continue the business of Gateway. Gateway was formed as a Colorado
limited liability company in June, 1994. Effective December 31, 1994, GV
Development, LLC, a Colorado limited liability company which was formed in June,
1993, was merged into Gateway pursuant to the applicable provisions of the
Colorado Limited Liability Company Act. GV Development, LLC's business
activities were similar to Gateway and GV Development, LLC was under the control
of substantially the same members as Gateway. Accordingly, the activities of GV
Development, LLC, are included as those of Gateway for purposes of this
Prospectus and the consolidated financial statements of Gateway contained
herein. During the fiscal years ending December 31, 1995 and 1996, Gateway
experienced net incomes of approximately $9,748 and $109,444 respectively and of
$401,075 for the six months ended June 30, 1997. While profitable operations
have, accordingly, occurred during the 30 month period ending June 30, 1997
there can be no assurance that the Company will continue to operate profitably
with respect to the business previously conducted by Gateway. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
7
<PAGE>
Outstanding Debt Obligation, Encumbrance of Assets. From Gateway's
inception through June 30, 1997, Gateway sold its 12% Secured Promissory Notes
as follows: principal amount of $6 million, due September 30, 1996; principal
amount of $3 million due April 30, 1997; and principal amount of $4 million due
September 30, 1999 (the "Notes"). For further information concerning such Notes,
see "CERTAIN TRANSACTIONS". As of June 30, 1997, the $6 million Note due
September 30, 1996 and the $3 million Note due April 30, 1997 have been paid in
full. The $4 million Note (the "Note") due September 30, 1999 is outstanding and
a principal payment of $500,000 is due December 31, 1997 and at the end of each
calendar quarter thereafter with any unpaid balance due September 30, 1999. The
Company will pay a total of $1,000,000 on the principal of the Note from the
proceeds of the offering and the balance will be paid from funds from operations
or debt financing. The obligation represented by the Note is secured by deeds of
trust which encumber a substantial portion of the inventory of platted, finished
and semi-finished residential building lots held by the Company presently and
from time to time. The obligation represented by the Note has been expressly
assumed by the Company. The principal and interest obligation of the Note is
presently unconditionally guaranteed by Messrs. Deutsch, Farkas and Messina. The
Company has agreed to indemnify Messrs. Deutsch, Farkas and Messina from and
against any liability, cost or expense incurred by them under any loan or
obligation obtained by or for the benefit of the Company, including their
guarantees of the Note. The possibility exists that additional private
placements of debt obligations may be conducted by the Company. In the private
placement of the Note, the Company received assistance from Phillips & Tober,
Inc. of Denver, Colorado, a securities broker-dealer. Phillips & Tober, Inc. has
certain rights of first refusal with respect to any future private offerings of
debt participation obligations of the Company. This first right of refusal does
not apply to loans by financial institutions. In addition to the Note, the
Company had other outstanding debt as of June 30, 1997, totaling $12,800,825
made up of $7,419,537 due to banks, $1,396,565 due to related parties and to
others $3,984,723. Of the total other debt, $11,895,532 is secured by liens
against the real property of the Company under arrangements providing for the
payment of substantial portions of the proceeds received upon the sale of
platted, finished or semi-finished lots. For further information concerning such
debt and the related maturity dates, see Note 3 to the consolidated financial
statements of Gateway included elsewhere in this Prospectus.
Status of Properties Acquired and to be Acquired. With respect to any real
property acquired by the Company, investigatory processes customarily used in
the development industry will have to be accomplished in order to assure to the
extent reasonably practicable that such properties are not contaminated by any
hazardous waste, or, if there is a contamination, that such contamination can be
eliminated or mitigated and does not affect the building lots. The Company
believes, as of the date of this Prospectus, that the properties constituting
its inventory of platted, semi-finished and finished residential building lots
are not contaminated by any hazardous waste. However, there can be no absolute
assurances that hazardous waste that cannot be effectively removed or mitigated
does not or will not in the future be found to exist under any of the properties
owned by the Company or on properties located close enough to such properties to
allow migration of hazardous materials onto the Company's properties. In such
event, the Company may be required to expend substantial funds to remedy and
clean up hazardous waste and the presence of hazardous waste may adversely
affect the ability of the Company to sell or refinance such properties or to
continue to develop such properties. As indicated subsequently in this
Prospectus section and elsewhere herein, a substantial portion of the Company's
inventory of platted, semi-finished and finished residential building lots is
subject to a lien securing the principal and interest obligation of certain
outstanding debt obligations of the Company. In the event that any of such lots
are found to be contaminated by any hazardous waste, the Company will be
obligated to replace such contaminated lots with uncontaminated lots pursuant to
the terms of issuance of such outstanding debt obligations. The Company does not
presently carry insurance against losses caused by hazardous waste or other
catastrophe such as earthquakes or tornadoes.
8
<PAGE>
Geographic Concentration. The residential lot development activities of
the Company and Gateway have been concentrated in the greater Denver
metropolitan area and in Fort Collins, Colorado. The residential lot development
and home building market in such areas has fluctuated greatly during the past
approximate ten years. The markets in which Gateway has operated and in which
the Company will operate have experienced substantial fluctuation in local
economic conditions which have been both adverse and favorable. The market area
is also affected by regional and national economic conditions such as interest
and rates of inflation, relative levels of employment, and local, state and
federal governmental policies and regulations. Presently the Company believes
that the markets in which the Company presently operates are experiencing
favorable economic conditions but no assurance can be given that such
circumstance will continue over the near or mid future time.
Regulatory Factors. In its development activities relating to residential
building lots, the Company operates in a strict regulatory environment which
will involve the procurement of necessary zoning classifications, permits and
other authorities permitting the development and further development of real
property acquired. As part of the zoning and subdivision processes, a developer
such as the Company generally is required to agree to complete certain
improvements to the subdivided property ("on-site improvements") which provide
service to the property, and, in some instances, improvements to neighboring
properties ("off-site improvements") which service the proposed subdivision,
before the lots will qualify for issuance of a building permit. Until a lot can
qualify for issuance of a building permit, it is not ordinarily marketable by
the Company to a home builder. The required off-site improvements can include
such matters as acquisition and completion of service roads and utilities to the
subject property, acquisition of off-site storm water drainage facilities and
dedication (or payment in lieu of dedication) of lands and improvements for
parks or other greenbelt or open space areas. On-site improvement requirements
can include completion of streets and service utilities to each lot and
completion of on-site drainage facilities, parks or open space areas. Once
installation requirements are met and building permits are issued, developers
such as the Company, in most instances are required to provide maintenance of
the improvements for a period of time following their installation (usually one
year) before the governing bodies will accept the improvements for public
maintenance. To secure the obligation to maintain, developers are required to
post collateral with the governing agencies in the form of bonds, cash or
letters of credit in a percentage of the total cost of the improvements. If more
than one developer is involved in a subdivision, the development obligations are
generally joint and several to the several developers. Sometimes such
development obligations are allowed to be phased as lots are completed and
houses built and sold, and sometimes the development obligations are apportioned
among the developers by agreement. Gateway has, and the Company will have
substantial "on-site" and "off-site" improvement obligations with respect to
real property intended to be developed. Adequate capital may not always be
available for such purposes. Regardless of the private placement of the debt
obligations described below in Outstanding Debt Obligations, Encumbrance of
Assets and the completion of this offering, the Company estimates that
additional development funds will be required to provide for the total costs of
development of the platted, unfinished and semi-finished lots intended to be
acquired and developed by the Company in the future. Such additional required
funds are anticipated to be provided from the sales of lots in a finished state
and the creation of additional debt obligations. In the event that sufficient
proceeds are not available from those sources, lots in an unfinished status may
have to be sold at significantly reduced prices.
Other Operational Risks. In addition to the improvement obligation risks
enumerated above, there are other development risks associated with completing
the improvements to the subdivision and lots and making the lots finished and
marketable to the home builder at a price that is profitable to the Company and
within a time frame that will allow the Company and the home builder to take
advantage of cyclical fluctuations in the market. See Market Risks below. Delays
related to governmental regulation, weather, availability of labor and
materials, ability and capacity of utility companies to connect utility service
and supply the volume of service necessary to meet the subdivision needs, and
increases in costs of labor and materials, all can adversely impact the value of
the residential building lots held by the Company.
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Market Risks. The market for residential real estate is cyclical. A strong
or rising new home sales market creates demand for lot development. Often, in an
attempt to reach this market first, developers initiate new projects all at once
creating an oversupply of available lots when the lots are finished months later
after completion of the development process. Whether the demand for new lots
will keep pace with the competitive effort to supply lots is dependent on many
factors beyond the control of the Company. Consequently, there is a risk that
the Company may purchase property that it subsequently is unable to sell at a
profit or at all as a result of adverse conditions which develop in the market.
Also, in the normal course of business, it will be necessary for the Company to
expend funds to investigate and evaluate potential properties to be acquired by
the Company, to pay option deposits to secure purchase contracts for properties,
and to expend funds to obtain plats for properties (the costs of the platting
process can range from $50,000 to $500,000 per property), even though the
Company ultimately may not actually acquire the properties due to a downturn in
the market.
Dependence on PrideMark and Other Home Builder Customers. For the 30 month
period beginning January 1, 1995, 72% of the finished and semi-finished lots
sold by the Company have been sold to PrideMark, a home building company owned
by Michael A. Messina, who is an officer, director and principal stockholder of
the Company. It is anticipated that the Company will continue to sell between
one-third to one-half of its platted, finished and semi-finished lots to
PrideMark. The Company currently has eight other existing home builder
customers. As a consequence, the Company's success is heavily dependent upon the
economic health of PrideMark and its other customers and a bankruptcy or other
reorganization of any of these customers could have a material adverse effect
upon the Company's business. Even some of the largest production home builders
operating in the Denver metropolitan area have experienced reorganization
proceedings under the bankruptcy laws during the past approximate ten years.
Dependence on Key Personnel. Messrs. Harvey E. Deutsch, Joel H. Farkas and
Michael A. Messina presently serve as members of the Board of Directors of the
Company and as the executive officers of the Company. See "MANAGEMENT". The
ability of the Company to successfully conduct its business is largely dependent
upon the continuing availability of such persons in their managerial capacities.
Loss of the services of Messrs. Deutsch, Farkas or Messina could have a material
adverse affect on the Company's ability to achieve its business objectives. The
Company has obtained key-person life insurance upon these three individuals in
the amount of $1,500,000 each.
Possible Conflicts of Interest. In the past, Gateway has purchased real property
from entities (usually limited partnerships or limited liability companies) in
which the officers and directors of the Company have had an interest. The
officers and directors having an interest in entities conveying properties to
the Company are Harvey E. Deutsch, Joel H. Farkas and Michael A. Messina. As a
result, possible conflict of interest circumstances may arise with respect to
the establishment of the terms and price of any real property purchase
transaction between the Company and any such affiliated entity. Any possible
conflict of interest circumstances, however, are mitigated by the Company's
policy that residential real estate property acquired by the Company be acquired
at a cost which will be 10% below the fair market value based on an appraisal
conducted by an independent appraiser and/or as a result of the circumstances
and requirements which relate to the ultimate price of a platted, semi-finished
or finished lot as developed by the Company and which will be paid by
residential home builders. With respect to land acquired for immediate
development into lots and as to which the Company has a sales contract with a
home builder for sale of the finished lots, the sales price of the platted,
finished or semi finished lots to the home builder will be a significant factor
in determining the price per lot which can be paid by the Company, taking into
account the development costs which are required to be incurred by the Company
prior to the lot being sold in a platted, semi-finished or finished status to
10
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the residential home builder. With respect to land purchased for development but
as to which no current sales contract has been negotiated, an independent
appraisal will be a significant factor in determining the price per lot that
will be paid by Company. The Company has historically sold a substantial portion
of its platted, semi-finished or finished lots to PrideMark, a home construction
firm owned by Michael A. Messina, who is also an officer, principal shareholder,
and a member of the Board of Directors of the Company. It is anticipated that
the Company will continue to sell a portion of lots to PrideMark in the future.
Commencing in 1992, PrideMark began developing, platting and acquiring lots to
serve its own building needs. In addition, the Company has and will make lot
sales to Strauss Homes, a firm in which Jeffrey K. Prager, a key employee of the
Company is a principal owner. See "CERTAIN TRANSACTIONS", "MANAGEMENT" and
"PRINCIPAL SHAREHOLDERS".
Competition. The residential lot development industry is highly competitive. In
times of strong demand for residential building lots, developers are inclined to
initiate a number of developments at substantially the same time thereby
potentially creating an oversupply of residential building lots in a particular
area. When demand for such residential building lots slackens, downward pressure
with respect to the pricing of such residential lots usually occurs. Other
factors will affect the relative competitive position of the Company, including
the location of the Company's platted, semi-finished and finished lots, the
presence of other competing entities in the Company's areas of operations and
the relative level of acceptance of the lots platted, finished or semi-finished
by the Company from an aesthetic point of view by the consumer. Ultimate pricing
of the lots will also be a competitive factor. Entities in competition with the
activities of the Company may be vested with substantially greater financial,
managerial and other resources than those available to the Company at the
conclusion of this offering. There can be no assurance that the Company will
effectively meet such competition on a continuing basis.
Determination of Share and Warrant Offering Price. Prior to the offering
made hereby, there has been no public market for the Common Stock or Warrants of
the Company and there is no assurance that an active trading market for such
Common Stock and Warrants will develop or be sustained after the offering is
concluded or that the shares of Common Stock or the Warrants will be traded at
or above their initial public offering prices of $4.00 and $.1875, respectively.
The initial public offering price of the Common Stock and the Warrants has been
determined through negotiations between the Company and the Representative based
upon the factors described herein and may not be indicative of the market prices
for the Common Stock or the Warrants subsequent to the conclusion of the
offering. The price of the Common Stock and Warrants offered hereby takes into
account the present and future earnings of the Company, the Company's business
potential and its real estate activities and other factors. See "UNDERWRITING".
Nasdaq Listing and Maintenance. At the conclusion of the public sale of
the Common Stock and Warrants offered hereby, it is anticipated that such Common
Stock and Warrants will be eligible for listing on the Nasdaq SmallCap. In order
to continue to be listed on Nasdaq SmallCap, however, the Company must maintain,
among other criteria, $2 million in net tangible assets, $35 million in market
capitalization or $500,000 in net income (in the latest fiscal year or in two of
the last three fiscal years). In addition, the ability to have such Common Stock
and Warrants listed on a continual basis requires the presence of two market
makers and a minimum bid price of $1.00 per share. The failure to satisfy these
criteria on a continuous basis may result in the delisting of the Common Stock
of the Company from Nasdaq SmallCap, in which event trading, if any, in the
Common Stock would thereafter be conducted on the OTC Bulletin Board or in the
over-the-counter market. As a result of any such delisting, investors may find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Common Stock and Warrants.
11
<PAGE>
Risks Relating to Low Priced Stocks. In the event that the Common Stock of
the Company were to be delisted from trading on Nasdaq SmallCap and no other
exclusion from the definition of "penny stock" under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") were available, trading in the Common
Stock of the Company would also be subject to the requirements of certain rules
promulgated under the Exchange Act by the Commission, which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a penny stock. Such rules require delivery, prior to any penny stock
transaction, of a disclosure document explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell or deal in penny stocks to persons who are other than
established customers of such broker-dealers or Accredited Investors. For these
types of transactions, the broker-dealer must make special suitability
determinations with respect to the purchaser and have received the purchaser's
written consent to the transactions prior to sale. The additional burdens
imposed upon broker-dealers by such requirements relating to penny stocks could,
most likely, discourage broker-dealers from effecting transactions in the Common
Stock and Warrants of the Company, which would severely limit and restrict the
market liquidity attributable to the Common Stock and the Warrants and the
ability of purchasers in this offering to sell the Common Stock and Warrants in
any secondary market.
Market for Common Stock and Warrants. In connection with this offering of
Common Stock and Warrants, the Underwriters may engage in stabilization
activities. The effect of such activities may result in the bid price for the
Common Stock and Warrants of the Company to be artificially maintained at a
price which is the same as or is slightly above the public offering price of
$4.00 per share of Common Stock and $.1875 per Warrant. Additionally, the
Underwriters are expected to sell the Common Stock and Warrants to the their
customers and to engage in market making activities with respect to the after
market for the Common Stock and the Warrants. No assurance can be given that
such market making activities of the Underwriters will continue for any length
of time and the withdrawal of one or more of the Underwriters as market makers
for the Company's Common Stock and Warrants could have an adverse effect on the
price of such securities and the after market for such securities.
Shares Eligible for Future Sale. As of the Effective Date and prior to the
completion of this public offering there will be outstanding 2,352,000 shares of
Common Stock of the Company and Founders Warrants to purchase 300,000 shares of
Common Stock exercisable at $4.50 per share up to five years from the date of
this Prospectus. Of such shares and Founders Warrants, 327,000 shares of Common
Stock and all the shares underlying the Founders Warrants to purchase 300,000
shares have been registered under the Act simultaneous with this offering of
Common Stock and Warrants. Of such 327,000 shares of Common Stock, 27,000 shares
may not be sold for a period of 90 days from the Effective Date. The balance of
300,000 shares of the Common Stock and the Founders Warrants to purchase 300,000
Shares are subject to "lock-up provisions" which preclude the ability of the
holders of such securities from selling into the market without the prior
consent of the Representative for the 15 month period subsequent to the
Effective Date. The remaining 2,025,000 shares of Common Stock of the Company
presently outstanding constitute Restricted Securities, as that term is defined
in Rule 144 promulgated under the Act. These Restricted Securities will be
eligible for public sale pursuant to Rule 144 at such time as such shares have
been held for a period of one year from the time of acquisition thereof.
Accordingly, the Restricted Securities may become eligible for future sale
during 1998. The holder of Restricted Securities may effect sales under Rule 144
if such holder complies with certain notice provisions with respect to any such
sale transactions and complies with certain volume restrictions.
See "DESCRIPTION OF SECURITIES".
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<PAGE>
Substantial and Immediate Dilution and Benefit to Present Stockholders.
This offering involves immediate dilution of $2.45 per share (approximately 61%
of the per share offering price) between the pro forma net tangible book value
per share of Common Stock after the offering of $1.55 and the public offering
price of $4.00 per share. The existing stockholders of the Company have acquired
their shares of Common Stock at an average consideration per share of $.34,
which is nominal in comparison to the $4.00 per share public offering price.
Accordingly, purchasers of the Common Stock and Warrants offered hereby will
bear substantially all of the financial risks inherent in an investment in the
Company during the immediate to near term future time. See "DILUTION".
Possible Adverse Effects of Redemption of Warrants. The Warrants offered
hereby may be redeemed by the Company at any time upon notice of not less than
30 days at a price of $.35 per Warrant, provided the closing bid quotation of
the Common Stock of the Company on 30 consecutive trading days has been at least
$6.40 and provided that such notice is mailed within ten days after the end of
such period in which such price exists. Prior to the first anniversary of the
Effective Date, the Purchase Warrants will not be redeemable by the Company
without the written consent of the Representative. Such redemption provisions
and the utilization thereof by the Company could compel the holders of the
Warrants to exercise the Warrants and pay the exercise price of $4.50 per share
issuable at a time when it may be disadvantageous for them to do so; to sell the
Warrants at the then current market price for the Warrants then prevailing in
the market therefor, if any, when they might otherwise wish to hold the
Warrants; or to accept the redemption price of $.35 per Warrant, which may be
substantially less than the market value of the Warrants at the time of any such
redemption. See "DESCRIPTION OF SECURITIES - Warrants".
Possible Lack of Value of Warrants; Possible Inability to Exercise
Warrants. The Warrants are exercisable at $4.50 per share of Common Stock and
expire five years from the date of this Prospectus. Should the market price for
the Common Stock not materially exceed $4.50 prior to that date or should the
Company be sold, merged, or otherwise reorganized in the transaction in which
its stockholders consideration at less than $4.50 per Share, the Warrants will
have no value. With respect to the public offering thereof, the Company intends
to qualify the sale of the Common Stock and Warrants described in this
Prospectus in a specified number of states. Although exemptions in the
securities laws of certain states may permit Warrants to be transferred to
purchasers in states other than those in which the Warrants were initially
qualified, the Company will be prevented from issuing Common Stock in such other
states upon the exercise of the Warrants unless an exemption from the
qualification requirements of such state or states is available or unless the
issuance of Common Stock upon exercise of the Warrants is qualified. Although
the Company will endeavor to qualify the Common Stock underlying the Warrants
for sale in a state where qualification is required and may be reasonably
obtained, there is no assurance that the Common Stock will be qualified for sale
in all of the states in which the ultimate purchase of Warrants reside. In such
event, the Warrants will expire and will have no value if they cannot be sold.
Accordingly, the market for the Warrants may be limited because of these
restrictions. Further, a current Registration Statement covering the Common
Stock issuable upon the exercise of the Warrants must be in effect before the
Company may permit the exercise of Warrants. For various reasons, no assurance
can be given that the Company will be in a position to file and process to
effectiveness a Registration Statement covering the Common Stock issuable upon
exercise of the Warrants. See "DESCRIPTION OF SECURITIES - Warrants".
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<PAGE>
Representative Warrants. Pursuant to the Underwriting Agreement existing
between the Company and the Representative, the Representative will be granted
150,000 Common Stock Representative Warrants and 300,000 Warrant Representative
Warrants for which the Representative will pay a nominal consideration. The
300,000 Warrant Representative Warrants provide, upon full exercise and for the
payment of a purchase price of $.28125 per warrant, for the issuance of 300,000
Underlying Warrants. The Common Stock Representative Warrants and the Underlying
Warrants shall each be exercisable into one share of the Company's Common Stock
at an exercise price of $6.00 per share during the five year period commencing
on the Effective Date. With respect to the Representative's Warrants, the
Company will grant to the Representative certain registration rights which could
result in substantial expense to the Company and may be a hindrance to the
Company's ability to obtain future financing when needed. In the event that the
Representative's Warrants are exercised, sales of shares of the Common Stock
underlying the Representative's Warrants could have a depressive effect on the
market price of the Common Stock in the event that a public market develops. See
"UNDERWRITING".
Additional Warrants/Stock Options. In addition to the Warrants offered by
this Prospectus and the Representative's Warrants to be granted to the
Representative, there will be outstanding Founders Warrants for the purchase of
up to 300,000 shares of Common Stock. The exercise price with respect to
Founders Warrants is $4.50 per Share and the Warrant exercise period concludes
five years from the Effective Date. The shares of Common Stock issuable upon
exercise of the 300,000 Founders Warrants have been registered contemporaneous
to the registration of the Common Stock and Warrants being offered hereby but,
to the extent that such Warrants are exercised during the 15 month "lock-up"
period relating to the restriction on the transfer of certain outstanding Common
Stock of the Company, such restrictions on transfer shall be applicable to such
Common Stock. The Company has also reserved 375,000 shares of Common Stock for
issuance in connection with a Stock Option Plan which it anticipates will be
adopted subsequent to the conclusion of the sale of the Common Stock and
Warrants offered hereby. With respect to such Founders' Warrants and any holders
of stock options subsequently granted, the holders of such Warrants and options
may be afforded at a relatively nominal cost, the opportunity to profit from a
rise in the market price of the Common Stock of the Company. Additionally, while
such Founders' Warrants and options are outstanding, the terms pursuant to which
the Company may obtain additional required capital may be adversely affected
since the holders of such Warrants and options may be expected to exercise such
Warrants and options at a time when the Company could obtain needed capital by
an offering of securities on terms more favorable than those provided by such
Warrants or options. See "PRINCIPAL SHAREHOLDERS".
Dividends. The Company does not anticipate paying dividends with
respect to its outstanding Common Stock in the foreseeable future time. See
"DIVIDEND POLICY".
Voting Control. As of the Effective Date, the officers and directors,
members of their families and trusts created for members of their families, own
of record and beneficially 1,822,500 shares of Common Stock of the Company,
constituting 47.3% of all Shares to be outstanding at the conclusion of the
offering made hereby if the Over-Allotment Option is not utilized and 45.5% of
Shares to be outstanding at the conclusion of the offering if the Over-Allotment
Option is utilized in its entirety. All 2,025,000 shares of Common Stock issued
for the membership interests in Gateway are subject to a Voting Trust Agreement,
pursuant to which Messrs. Deutsch, Farkas and Messina have the voting rights for
such Shares. The Voting Trust Agreement gives Messrs. Deutsch, Farkas and
Messina voting control over 52.5% of all Shares to be outstanding at the
conclusion of the offering made hereby if the Over-Allotment Option is not
utilized and 50.6% of the Shares to be outstanding at the conclusion of this
offering if the Over-Allotment Option is exercised in its entirety. Accordingly,
as a practical matter Messrs. Deutsch, Farkas and Messina will be able to elect
the Company's entire Board of Directors and to determine the disposition of all
matters submitted to a voting of the Company's shareholders. See "PRINCIPAL
SHAREHOLDERS" and "DESCRIPTION OF SECURITIES".
The remainder of this page left intentionally blank
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SELECTED FINANCIAL INFORMATION
The following selected financial data for the years ended December 31, 1995 and
1996 for Gateway, the two years ended December 31, 1995 and 1996 for the Company
(including its predecessors, Gateway American Properties Corporation, a Florida
corporation and Apollo III, Inc., for the period from January 12, 1995 (date of
inception) through June 30, 1997 are derived from the financial statements of
each respective company. The financial data for the six month periods ended June
30, 1997 and 1996 are derived from unaudited financial statements. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals for each company considered necessary for a fair presentation of the
financial position and results of operations for these periods. Operating
results for the six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the entire year ending December 31, 1997.
The data should be read in conjunction with the consolidated financial
statements, related notes and other financial information included herein.
The pro forma selected financial data as of June 30, 1997 and for the year
ended December 31, 1996 and the six months ended June 30, 1997 are derived from
the unaudited pro forma condensed balance sheet and statements of operations set
forth subsequently in this Prospectus, which give effect to the Transaction in
the manner described in the notes to the pro forma condensed financial
statements. The pro forma selected financial data presented below and the pro
forma condensed financial statements should be read in conjunction with the
accompanying notes to the pro forma condensed financial statements, the
historical financial statements and the notes of each of the respective
companies, all of which are included subsequently in this Prospectus. The
unaudited pro forma condensed statements of operations are not necessarily
indicative of future operations or the actual results that would have occurred
had the Transaction been consummated at the beginning of each period presented.
Gateway American Properties, LLC
(a Colorado limited liability company)
Consolidated
Year Ended Six month period
December 31 Ended June 30
----------- -------------
1995 1996 1996 1997
---- ---- ---- ----
Statement of Operations
Data:
Sales $4,375,359 $10,500,606 $5,020,015 $5,049,043
Gross Profit(1) 628,074 951,526 267,541 1,131,804
Operating Income (Loss) 38,169 160,004 (46,972) 449,783
Net Income (Loss) 9,748 109,444 (48,083) 401,075
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December 31, June 30,
1996 1997
---- ----
Balance Sheet Data:
Total Assets(2) $18,936,406 $19,986,314
Debt(2) 16,189,195 16,800,825
Members' Equity 404,298 802,873
Gateway American Properties, Corp.
(A Florida Corp.)
Year Ended Six month period
December 31 Ended June 30
----------- -------------
1995 1996 1996 1997
---- ---- ---- ----
Statement of Operations
Data:
Sales $ -0- $-0- $ -0- $ -0-
Gross Profit -0- -0- -0- -0-
Operating Income (Loss) (173,966) (464,846) (27,716) (15,198)
Net Income (Loss) (173,996) (464,846) (27,716) (15,198)
December 31, June 30,
1996 1997
---- ----
Balance Sheet Data:
Total Assets $51,854 $83,986
Debt $35,798 $83,128
Stockholders' Equity 16,056 858
Gateway American Properties, Corp.
(A Colorado Corp.)
Inception
Through
June 30, 1997
-------------
Statement of Operations
Data:
Sales $ -0-
Gross Profit -0-
Operating Income (Loss) -0-
Net Income (Loss) -0-
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June 30,
1997
----
Balance Sheet Data:
Total Assets -0-
Debt -0-
Stockholders' Deficiency -0-
Unaudited Pro Forma Selected Financial Data
Giving Effect to the Transaction
Year Ended Six month
December 31, Ended June 30,
1996 1997
---- ----
Income Statement Data:
Sales $10,500,606 $5,049,043
Gross Profit(1) 951,526 1,131,804
Operating Income (Loss) (306,730) 434,490
Net Income (Loss) (386,802) 229,477
Net Income (Loss) per Common Share(2) (.10) .06
As adjusted for
June 30, 1997 Offering
------------- ---------------
Balance Sheet Data:
Total Assets(3) $20,070,300 $22,556,550
Debt(3) 16,800,825 13,800,825
Stockholders' Equity 803,731 6,289,981
- ------------
(1) Gross profit is defined as total sales less cost of sales.
(2) Net income per common share reflects the 1,500,000 Shares that will be
outstanding after the consummation of the Transaction and the offering
described in this Prospectus which will occur in conjunction with and as a
part of the Transaction. These income calculations do not give any effect
to the proceeds that will be received pursuant to the offering described in
this Prospectus.
(3) Consistent with industry standards, assets and liabilities are not
classified as either current or long term and, therefore, information
relating to such classifications is not presented.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In General
The Company, on and after the Effective Date, will continue the business
operations of Gateway, directly or through Gateway. Gateway is a Colorado
limited liability company formed in June, 1994. In December, 1994, GV
Development, LLC, a Colorado limited liability company formed in June, 1993, was
merged into Gateway. The business of GV Development, LLC, was similar to the
business of Gateway and was under control of substantially the same members.
Consequently, GV Development, LLC, is treated as a predecessor of Gateway and
all references to Gateway in this Prospectus and the financial statements
included herein include the activities of GV Development, LLC. Gateway acquires
suitable real estate properties for development as platted, semi-finished or
finished residential building lots intended primarily for sale to home builders
who intend to construct on such lots single or multi family residential
structures for sale to the ultimate occupant. Gateway also engages in home
construction and related marketing activities. See "SUMMARY" and "BUSINESS".
The Company's and Gateway's income has been previously derived from the
sale of platted, semi-finished or finished lots to home builders at lot prices
usually determined at the time that the Company commences development of the
lots. The Company's and Gateway's profits have been derived as a result of the
difference between the gross selling price of the lots sold to various home
builders and the cost of such lot acquisition and the development activities
undertaken by Gateway. It is anticipated that the Company's income will continue
to be substantially derived from the sale of lots as described above. Income may
also be derived from other business, including the home building business. The
entire process relating to Gateway's development activities is largely driven by
the ultimate price of the lot to the dwelling occupant. The ultimate price of
the lot is substantially controlled by such factors as market demand, location,
dwelling size and quality, type and extent of common development amenities and
aesthetic considerations. Factors which affect the home building industry in a
more general way, such as the level of long and short term interest rates,
relative availability of development and long term financing, local and national
economic conditions and competition, will also reflect the amount of the
ultimate price of the residential building lot to the dwelling occupant.
In the light of such environment, Gateway undertakes analysis with respect
to any real estate property being considered for acquisition and/or development.
Considerations and factors utilized in such analysis include the formulation of
development cost budgets with respect to required on site and off site
development, estimates of the cost and time required to accomplish required
regulatory matters (zoning, permitting, etc.), the level of interest on the part
of home builders to whom the Company has sold lots in the past and the
determination of the ultimate home price to the home buyer which in most cases
is provided as a result of an independent appraisal of the property in its
undeveloped state and of the projected value of the lots to be developed on the
property, assuming the completion of development activities.
Gateway's residential lot acquisition and development activities have been
concentrated in the greater Denver, Colorado metropolitan area and in Fort
Collins, Colorado. Such concentration is expected to continue during the near
future time.
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The results of operations of Gateway American Properties, LLC for year ended
December 31, 1995 compared to the year ended December 31, 1996 and for the six
month period ended June 30, 1996 compared to the six month period ended June 30,
1997.
Gateway (including its predecessor, GV Development, LLC) commenced
operations on June 24, 1993.
For the year ended December 31, 1995, Gateway experienced sales of
$4,375,359, of which, $2,800,535 were to related parties. See "CERTAIN
TRANSACTIONS". Cost of sales were $3,747,285 and general and administrative
expenses were $589,905, resulting in an operating income of $38,169.
For the year ended December 31, 1996, Gateway experienced sales of
$10,500,606, of which, $7,901,928 were to related parties. See "CERTAIN
TRANSACTIONS". Cost of sales were $9,549,080 and general and administrative
expenses were $791,522, resulting in an operating income of $160,004.
For the six month period ended June 30, 1996, Gateway experienced lot
sales of $5,020,015 of which 3,591,620 was to related parties. See "CERTAIN
TRANSACTIONS". The costs of such lot sales for such six month period ended June
30, 1996, were $4,752,474 which, when taken with general and administrative
expenses of $314,513, resulted in an operating and net income of ($46,972).
For the six month period ended June 30, 1997, Gateway experienced lot
sales of $5,049,043 of which $4,067,199 was to related parties. See "CERTAIN
TRANSACTIONS". The costs of such lot sales for such six month period ended June
30, 1997, was $3,917,239, which, when taken with general and administrative
expenses of $682,021, resulted in an operating and net income of $449,783.
The results of operations of Gateway American Properties Corporation, a Colorado
limited liability corporation, its predecessors Gateway American Properties
Corporation, a Florida corporation, and Apollo III, Inc. for the year ended
December 31, 1995 compared to the year ended December 31, 1996 and for the six
month period ended June 30, 1996 compared to the six month period ended June 30,
1997.
For the years ended December 31, 1995 and 1996 respectively the Company
experienced an operating loss of $185,472 and $466,734 and had interest income
of $11,476 and $1,888 respectively. It experienced a net loss of $173,996 for
the year ended December 31, 1995 and a net loss of $464,846 for the year ended
December 31, 1996. The Company sustained an operating loss of $28,810 and
$15,243 for the six month periods ended June 30, 1996 and 1997 and had interest
income of $1,094 and $95, resulting in a net loss of $27,716 and $15,198 for the
six months.
Liquidity and Capital Resources
Gateway financed its lot acquisition and development activities through the
proceeds derived from the capital contributions made by the members of Gateway,
through the net proceeds realized from the sale of platted, semi-finished and
finished lots, and through the net proceeds realized by Gateway as a result of
the private and limited offer and sale of certain debt securities. The
continuing operations of the Company and Gateway will be financed through a
portion of the net proceeds of the offering made hereby, See "USE OF PROCEEDS"
through the proceeds from the sale of lots, through bank loans and possibly
through the private sale of debt securities.
At June 30, 1997, the holders of the outstanding membership interests of
Gateway had contributed (net of distributions) cash and property to Gateway in
the amount of $215,448.
19
<PAGE>
From Gateway's inception through the period ended June 30, 1997 Gateway
sold its 12% Secured Promissory Notes as follows: principal amount of $6
million, due September 30, 1996, principal amount of $3 million due April 30,
1997; and principal amount of $4 million due September 30, 1999 (the "Notes").
For further information concerning such Notes, see "CERTAIN TRANSACTIONS". As of
June 30, 1997, the $6 million Note due September 30, 1996 and the $3 million
Note due April 30, 1997 have been paid in full. The Note due September 30, 1999
("Note") is outstanding and a principal payment of $500,000 is due December 31,
1997 and at the end of each calendar quarter thereafter with any unpaid balance
due September 30, 1999. The Company will pay a total of $1,000,000 on the
principal of the Note from the proceeds of the offering and the balance will be
paid from funds from operations or debt financing. On the Effective Date, the
Company will unconditionally assume the obligation of Gateway with respect to
the Note. The principal obligation of the Note is unconditionally guaranteed by
Harvey E. Deutsch, Joel H. Farkas and Michael A. Messina. See "MANAGEMENT". The
Company has agreed to indemnify Messrs. Deutsch, Farkas and Messina from and
against any liability, cost or expense incurred by them under any loan or
obligation obtained by or for the benefit of the Company, including their
guarantees of the Note.
The Note was issued under the authority of and is subject to the
provisions and terms of a loan agreement existing between Gateway, Phillips &
Tober, Inc., the placement agent for the Note, and MegaBank of Arapahoe (the
"Agent"), a deposit institution maintaining its offices in Denver, Colorado.
MegaBank of Arapahoe acts as agent with respect to the Note and acts in the
collective benefit of the holders of the Note. The Note was privately offered
and sold by Gateway through the facilities of Phillips & Tober, Inc., as
placement agent, to suitable and "Accredited Investors" (as defined under the
Securities Act of 1933) on the basis of $100,000 units of participation in the
Note.
Interest is paid monthly at 12% on the Note. The Agent is required to
undertake certain notice and corrective action in the event that default occurs
with respect to the payment of any interest or principal payment when due.
The obligation represented by the Note is secured by deeds of trust
(mortgages) encumbering various real estate parcels and projects with which
Gateway is involved. The deeds of trust have a first priority status, subject
only to certain exceptions as are set forth in the governing loan agreement,
which exceptions include development agreements which may be entered into
between Gateway and certain cities and counties where the encumbered projects
are located, and other existing matters of record. The Agent, as nominee and
agent for the Note and the holders of the units of participation therein, is the
beneficiary of such deeds of trust.
The properties to which the deeds of trust relate are comprised of
platted, semi-finished or finished lots, or lots in the process of being
platted. In order for lots to become finished lots, Gateway is obligated to
accomplish certain development activities, including providing access to all
utilities with a capacity to service the lots in question, providing ingress and
egress to and from public roads and otherwise making the lots fully qualified
for the issuance of building permits for the construction of a residential
dwelling on a lot or lots.
Gateway must also meet certain obligations in order for the Agent to
disburse Note proceeds for the acquisition of any particular parcel which
Gateway intends to acquire and develop into platted, finished or semi-finished
lots. Such requirements include the requirement that (a) the parcel be zoned and
platted, (b) there is a mortgagee title insurance policy in the amount of the
appraised value of the parcel and insuring the priority of the lien of the deeds
of trust which is available and is being delivered, (c) there is evidence of
ingress and egress via finished public roads and (d) there is available capacity
for service from and access to all necessary and required utilities.
20
<PAGE>
As of the Effective Date, Gateway is in full compliance with the
requirements of the loan agreement and the Company and Gateway believes that
compliance will continue.
Gateway has also historically utilized bank lines of credit and financing
proceeds made available by certain affiliates. At June 30, 1997, Gateway had
aggregate outstanding debt of approximately $12.8 million in addition to the $4
million on the Note described above. Such additional loans have various interest
rates, terms and maturities. See Note 3 to the consolidated financial statements
of Gateway included elsewhere in this Prospectus.
The Company believes that the funds made available from the sources
described above and those anticipated to be received by the Company as a result
of the conclusion of the offering of Common Stock and Warrants made hereby,
together with anticipated cash flows to be derived from the sale of platted,
semi-finished or finished lots, will be sufficient to meet Gateway's and the
Company's liquidity requirements during the 12 months following the date of this
Prospectus. To the extent that such sources of funds are insufficient, Gateway
and the Company will be required to seek additional sources of funds and there
can be no assurance that Gateway and the Company will be able to procure
additional funds on acceptable terms or will be able to procure additional funds
at all.
The acquisition and lot development activities of Gateway and the Company
are affected to a certain degree by weather conditions, availability of
necessary materials and labor, and other factors which can fluctuate on a
seasonal basis. Generally, the lot development activities must be conducted
under favorable weather conditions and adverse weather conditions can interrupt
or cause a temporary cessation in such activities. Delays, when encountered, may
diminish or eliminate the anticipated profit margin with respect to any lot
project then being conducted.
Gateway and the Company may experience fluctuations in future operations
as a result of a number of factors, including local and general economic
conditions, the cyclical nature of the real estate market, the economic health
of the Company's home builder customers, the relative availability of suitable
real estate parcels for development into residential lot subdivisions, the
availability of development and long term financing for home builders and the
purchasers of residential dwellings, governmental policies and regulations,
weather, shortages of labor or materials, increases in on-site and off-site
development costs, and other factors. See "RISK FACTORS - Factors Affecting
Business of the Company".
DILUTION
The pro forma information and data presented in this Prospectus section
assumes the consummation of the Transaction. Accordingly, such information and
data regarding existing stockholders of the Company takes into account the
consideration paid by Gateway members for their membership interests in Gateway
and the consideration paid by the other present stockholders for their shares.
See "INTRODUCTORY STATEMENT" and "CERTAIN TRANSACTIONS". The pro forma net
tangible book value of the Common Stock at June 30, 1997, assuming the
Transaction occurred but without giving effect to sale of Common Stock and
Warrants in this offering, was $421,213 or $.18 per share. Net tangible book
value per share of Common Stock is defined as the tangible assets of the
Company, less all liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect as of June 30, 1997 to the sale of the
21
<PAGE>
1,500,000 shares of Common Stock offered hereby and after deducting the unpaid
estimated offering expenses, the pro forma net tangible book value of the Common
Stock at June 30, 1997 would have been $5,987,463 or $1.55 per share. This
represents an immediate increase in net tangible book value of $1.37 per share
to existing stockholders and an immediate dilution of $2.45 per share to new
investors purchasing the Shares offered hereby. The following table illustrates
this per share dilution:
Initial public offering price............................ $4.00
Pro forma net tangible book value per share
before offering................................... $.18
Increase in pro forma net tangible book value
per share attributable to new investors........... $1.37
-----
Pro forma net tangible book value per share after
giving effect to public offering................... $1.55
=====
Dilution per share to new investors...................... $2.45
=====
Neither the foregoing nor the following table gives effect to the exercise
of any of the Warrants to purchase of 4,125,000 of Common Stock included in the
3,000,000 Warrants offered hereby, the outstanding 300,000 Founders Warrants,
the 450,000 Representative's Warrants and the 375,000 options which may be
issued pursuant to a stock option plan subsequently adopted by the Company.
These two tables also do not give effect to the use of the Over-Allotment Option
granted to the Underwriters under which they may purchase up to an additional
225,000 shares of Common Stock and Warrants to purchase 450,000 shares.
The following table summarizes, on a pro forma basis as of June 30, 1997,
the total shares of Common Stock purchased and the total consideration and
average price per share paid by existing stockholders and paid by the new
investors purchasing the shares offered hereby without giving any effect to the
$562,500 paid by new investors for the Warrants.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration(1)
---------------- ----------------------
Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
New investors............ 1,500,000 38.9% $6,000,000 88.2% $4.00
Existing stockholders.... 2,352,000 61.1% $803,731 11.8% .34
--------- ----- -------- -----
Total.............. 3,852,000 100.0% $6,803,731 100.0%
========= ====== ========== ======
</TABLE>
(1) Does not include the $562,500 paid by new investors for the Warrants.
USE OF PROCEEDS
The net proceeds of this offering of Common Stock and Warrants is expected
to be approximately $5.5 million or $6.4 million if the Over-Allotment Option is
exercised in full. The table set forth below reflects the utilization of the net
proceeds of this offering by the Company.
22
<PAGE>
Upon the Sale of 1,500,000
Shares and 3,000,000 Warrants
-----------------------------
Acquisition and Development of Properties $1,700,000
Debt Reduction (1) 3,000,000
Marketing and Advertising 100,000
Working Capital and General Corporate
Purposes (1) 700,000
-------
TOTAL (1) $5,500,000
==========
(1) If the over-allotment option is exercised in full, of the additional
proceeds $300,000 will be used for debt reduction and the remainder will be used
as working capital.
Acquisition and Development of Properties. The Company intends to use a
portion of the net proceeds from the offering to purchase and develop land and
lots for ultimate sale to residential home builders, including development of
off - site infrastructure. Off - site infrastructure costs include entry
monumentation, collector roads adjacent to and within the projects, culverts,
bridges, and main line utilities for water, sanitary sewer and storm sewer. In
certain projects, improvement districts or building authorities have been
created for reimbursement of major infrastructure costs Upon issuance of bonds
or other debt obligations, the Company will be entitled to a reimbursement of a
portion of these costs. A significant amount of the Company's real property
purchases and sales will be with affiliated parties. See "CERTAIN TRANSACTIONS".
Debt Reduction. The Company will use approximately $1 million for
repayment of its outstanding 12% Secured Promissory Notes and $2 million for
payment of other secured or unsecured debt including $1,450,000 of which will be
paid to affiliates. The payment to affiliates includes $489,000 in accrued
salaries. See "MANAGEMENT - Employment Agreements'.
Marketing and Advertising. The Company intends to utilize a portion of the
net proceeds to increase its marketing and advertising activities with respect
to its Master Planned Communities. The Company intends to develop lots for sale
to residential home builders and its marketing program is intended, at least in
part, to augment the marketing and advertising already undertaken and conducted
by such residential home builders.
Working Capital and General Corporate Purposes. The balance of the net
proceeds realized by the Company from the offering will be utilized for working
capital and general corporate purposes. Such utilization will include the
payment of the costs and expenses incurred in connection with the Company's
operations, including the executive compensation to be paid to certain of the
executive officers of the Company during the current fiscal year. Such
utilization may also include the capitalization of joint ventures in which the
Company may engage or for the initiation of compatible business activities or
acquisition transactions, none of which are identified as of the date of this
Prospectus.
The management of the Company is of the opinion that the net proceeds from
this offering of Common Stock and Warrants, and proceeds realized from the
on-going sale of platted, semi-finished and finished lots will be sufficient to
meet the Company's anticipated cash needs and finance its operations for at
least 12 months from the date of this Prospectus. However, no assurance can be
given that the Company will not require additional financing or if such
additional financing is required, that such will be available in amounts and
upon terms acceptable to the Company.
23
<PAGE>
PRO FORMA CAPITALIZATION
The table set forth below presents the pro forma capitalization of the
Company as of June 30, 1997 which takes into account the consummation of the
Transaction, including the sale of the 1,500,000 shares of Common Stock and
3,000,000 Warrants offered hereby. See "INTRODUCTORY STATEMENT" and "CERTAIN
TRANSACTIONS".
June 30, 1997
-------------
Prior to
Consummation As Adjusted
of Offering for Offering
----------- ------------
Debt $16,800,825 $13,800,825
----------- -----------
Stockholders' Equity:
Common Stock, $.01 par value,
20,000,000 Shares authorized,
2,352,000 Shares outstanding on a pro forma
basis prior to consummation of the offering
and 3,852,000 Shares outstanding on a pro
forma basis as adjusted for this offering 23,520 38,520
Additional Paid-in Capital 776,211 6,647,461
Founders Warrants 4,000 4,000
Accumulated Deficit -0- -0-
----- -----
Total Stockholders' Equity 803,731 6,289,981
------- ---------
Total Capitalization 17,604,556 20,090,806
========== ==========
__________
DIVIDEND POLICY
The Company does not expect to pay dividends on its Common Stock during
the foreseeable future time. Any future decision of the Company's Board of
Directors to pay dividends will be made in the light of the Company's earnings,
financial position, capital requirements and other relevant factors then
existing.
BUSINESS
Introduction
Gateway has primarily engaged in the furnishing of platted, semi-finished
and unfinished lots to the home building industry since its inception in June,
24
<PAGE>
1993. Its activities have been concentrated in eight cities and counties in the
greater Denver metropolitan area and in the City of Fort Collins, Colorado. The
Company will continue the business activities of Gateway, either directly or
through Gateway, which is expected to continue as a subsidiary entity of the
Company for a now indeterminable period. Accordingly, the information presented
below in this Prospectus section of the activities of the Company, and all
references to the Company, from and after the Effective Date include the
activities of Gateway.
The Company's business activities are the outgrowth of the business
activities of Harvey E. Deutsch, Joel H. Farkas and Michael A. Messina, which
involved the acquisition and development of real property to the status of
residential building lots for sale to and use by PrideMark. PrideMark is a
Denver, Colorado based residential home builder controlled by Michael A.
Messina, who is also a director, officer and principal shareholder of the
Company. See "CERTAIN TRANSACTIONS" and "MANAGEMENT". Such activity assisted
PrideMark in assuring an adequate supply of suitable, developed residential lots
for use in the home construction activity of PrideMark without an immediate
requirement that PrideMark contemporaneously commit its capital to the lot
development process.
From this activity, the present business activity of the Company has
developed which involves the acquisition and development of land as residential
subdivisions containing platted, finished or semi-finished building lots
suitable for acquisition, usually on a phased basis, by the residential
production home builders who are or become customers of the Company. Finished
lots are lots as to which all required subdivision improvements have been
completed and which have adjacent access to all utilities with capacity to serve
the lots, have a means of ingress and egress over public roads, and are fully
qualified for issuance of a building permit for construction of a home on the
lot. Semi-finished lots are lots with respect to which subdivision improvements
for utilities, ingress and egress and other required improvements have been
completed to or through a portion of the subdivision, but such improvements have
not been completed to each lot itself. The home builder completes the
development of semi-finished lots into finished lots, in connection with its
construction of homes thereon. From time to time, Gateway also sells parcels of
real property that have been zoned and platted, but are substantially
undeveloped, to home builders. The Company may, from time to time, may also
engage in the home building business.
Presently the home builders who have acquired lots, or are presently under
contract to acquire from the Company are PrideMark Homes, US Home, Melody Homes,
Sheffield Homes, Continental Homes, Sundown Development, Paul Adam Custom Homes,
d/b/a Odyssey Homes, Meadow Homes and Strauss Homes. Substantially all of the
lots developed to date by Gateway have been intended for use for single family
residential production homes and townhomes or duplexes.
The Residential Home Building Industry
The residential home building industry has three primary components: land
acquisition, land development, and home construction and sales. There is
considerable overlap among those who participate in one or more of the
components of the industry. Investors purchase undeveloped or under utilized
real estate with a view to realizing appreciation in value as a result of urban
or suburban growth, but usually do not engage in development activities.
Developers, such as the Company, typically purchase real property which is
usually unimproved and unplatted but is appropriately zoned for development and
develop such property into subdivisions containing platted, semi-finished or
finished lots for sale to home builders. Home builders either acquire finished
lots or acquire and develop land into finished lots for their own home building
activities.
25
<PAGE>
In the home construction and sales component of the industry, there are
four major areas of activity: (i) building custom homes; (ii) building
production homes; (iii) building town homes, condominiums and apartments; and
(iv) remodelings. Smaller home builders generally concentrate their activities
in two or three of these areas while larger home builders tend to have
operations in almost all activity areas. Home builders classified as production
home builders dominate the market. A production home builder builds a
substantial number of homes each year from standard plans and specifications
that have limited structural options but generally offer various floor plans,
elevations or upgrade options.
The activities of Gateway to date have been concentrated in the greater
Denver, Colorado metropolitan area and the City of Fort Collins, Colorado, and a
significant portion of the Company's activities during the future time are also
expected to be concentrated in these areas.
Denver is the capital city of the State of Colorado and the Denver
metropolitan area is the principal economic center of the Rocky Mountain region.
The metropolitan Denver area is comprised of six counties: Denver, Adams,
Arapahoe, Boulder, Douglas and Jefferson. The City of Fort Collins is located in
northern Colorado along the eastern slope of the Rocky Mountains. It is the
largest city of the northern Colorado region and the seat of Larimer County. Ft.
Collins is located 65 miles north of Denver via Interstate Highway No. 25 and 30
miles south of the Wyoming border.
The management of the Company believes, based upon information available
to the Company and believed reliable, that the residential construction industry
in the Denver, Colorado metropolitan area and in the City of Fort Collins is
very fragmented with many individual businesses that have small dollar or unit
sales volumes. The Denver metropolitan area also is characterized, however, by
the presence of several large production home building companies that construct
the majority of single family homes in the area. The Company believes that for
the period ending September 1997, the largest ten home builders in the
metropolitan Denver, Colorado area constituted approximately 67% of the single
family home construction activity that occurs in the area during such period.
The residential home building industry in the Denver, Colorado
metropolitan area has experienced dramatic changes during the period 1975-1996.
In the late 1970's and early 1980's, the Denver metropolitan area experienced
rapid growth and substantial residential construction activity. The period
1985-1989 was characterized by deteriorating economic conditions and an
increasing oversupply of homes in the Denver, Colorado area. During this period
there were record foreclosures, bankruptcies and financial institution failures.
The demise of numerous financial institutions in the mid to late 1980's
resulted in the imposition of stringent regulatory restrictions on commercial
banks and other financial institutions engaged in real estate lending. As a
result, sources of financing became more limited and restricted. Other
regulatory factors relating to environmental concerns and concerns regarding the
pace and rate of development in the Denver metropolitan area have, in the
opinion of the Company, significantly increased the regulatory impact which is
presently experienced by firms engaged in residential home building.
26
<PAGE>
Commencing in late 1989 and through the present time, economic conditions
in the Denver, Colorado metropolitan area have improved. From 1990 through
December 31, 1996, the Denver metropolitan area experienced substantial growth
in home construction and sales. For the year of 1995, sales in the Denver market
maintained a steady pace, with an increase of 16.3% over 1994. For the year
1996, sales were up 21% over 1995. Second quarter sales results for 1997 were
also favorable at a 7.7% gain in single family starts over second quarter 1996.
The management of the Company anticipates that the rate of economic growth in
the greater Denver, Colorado metropolitan area will be at a moderate level
through 1997 as a result of various factors. The materially adverse economic
conditions characterizing the period 1985-1989 are not expected to reoccur in
the foreseeable future time. However, no assurance can be given that favorable
economic conditions will be sustained and will continue.
Until very recently, there has been very little accessible data available
regarding the volume of new home sales in the City of Fort Collins. However,
based upon the information available to the Company and believed reliable, it
appears that home sales in the City of Fort Collins generally follow the same
trend as for the Denver metropolitan area. The City of Fort Collins experienced
a period of strong growth in the late 1970's and early 1980's, a decline in home
sales in the mid 1980's, and a recovery and corresponding increase in home sales
beginning in late 1988 and 1989. Home sales for the period 1989 through 1995
exceeded those of prior years, and 1996 saw an increase of 24.2% over 1995.
Second quarter sales results also show an increase of 15.4% over the same period
in 1996.
Property Acquisition by the Company
The business activities of Gateway have been, and the business activities
of the Company primarily will be, the purchase of real property that is zoned or
can be zoned for residential use and the development of such purchased property
into platted, finished or semi-finished lots for sale to home builders who will
construct a single family detached or multi-family attached homes on such lots.
See Introduction above for a description of what constitutes "platted",
"finished" and "semi-finished" lots. The developed lots generally are between
5,000 and 6,000 square feet in size and homes constructed on these lots
generally are priced between $100,000 and $250,000, including the lots. From
time to time, the Company will acquire parcels of real property, complete the
platting process and then sell the zoned and platted parcels to home builders
who will develop such properties themselves.
The Company seeks to maintain purchase option contracts for real estate
properties covering a four to seven year supply of lots, based upon current lot
absorption information. In that manner, the Company seeks to assure that there
are sufficient lots under its control to provide a supply for its business in
the reasonably foreseeable future. Generally, the Company will exercise options
to purchase properties at a level intended to meet its home builder customers'
demands for a two to four year period based upon sales contracts with such home
builders. In the normal course of business, the Company will purchase properties
for which there are no contracts for sale to home builders.
The Company seeks to achieve a sales price to its home builder customers
which will yield to the Company an adequate gross margin, before selling
expenses, general and administrative expenses, financing costs and other
non-capitalized costs of the Company, taking into account the amount of money
expended by the Company for property acquisition and development of the property
as a platted subdivision containing finished and semi-finished lots. In its
effort to achieve such a gross margin, with respect to property intended to be
developed in the immediate future, the Company utilizes independent appraisals
to verify the fair market value of the property when acquired. For properties
that will not be developed immediately and/or for which the Company has no sales
contracts with home builder customers, the Company obtains independent
appraisals to verify the fair market value of the property upon acquisition. The
Company then uses development budget estimates and management's estimates of the
potential selling price of lots based upon management's experience with the
market and the Company's home builder customers to determine the estimated fair
market value of finished and semi-finished lots. From its organization through
December 31, 1996, the Company's lot sales have increased from fewer than 20
lots sold in 1994, to 194 lots sold in 1995, to 478 lots sold in 1996. For the
six month period ending June 30, 1997, Gateway has sold 277 lots.
27
<PAGE>
A significant amount of the Company's real property purchases and sales
have previously been with affiliated parties. See "CERTAIN TRANSACTIONS". The
Company uses the same procedures and policies in determining the sales prices of
lots sold to affiliated parties as those used in setting the sales prices for
transactions with non-affiliated parties.
Present Development Activities
The development activities of the Company will include the accomplishment
of all legal and regulatory requirements for the subdivision plat and
substantial completion of the subdivision infrastructure (streets, water and
sewer systems, gas and electric lines, curb and gutter, landscaping, entry
monumentation and related improvements).
The Company is presently developing and/or platting lots for the nine home
builders, listed in Marketing of Subdivision lots below. Since its inception,
Gateway's annual sales have increased from less than 20 lots sold in 1994 to 478
lots in 1996 to 277 lots for the first half of 1997.
The Company's inventory of lots under development is presently contained
in subdivisions known as Sterling Hills, Aurora, Colorado; Country Hills,
Thornton, Colorado; Willow Run, Broomfield, Colorado; and Gateway Village,
Denver, Colorado; all of which subdivisions are located in the greater Denver,
Colorado metropolitan area. In addition, the Company is currently planning lots
in the Riverdale subdivision in Thornton, Colorado. Also, the Company is
presently building in Roxborough Park in Douglas County, Colorado. The West Star
Subdivision, in Lakewood, Colorado, has been platted and sold. Also, Downing
Park, Thornton, Colorado, and Quail Run, Aurora, Colorado have been developed
and sold. The Company also has lots under development in the Harmony Crossing
and Overland Trail subdivisions which are located in Fort Collins, Colorado.
28
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29
<PAGE>
Marketing of Subdivision Lots
The Company sells its platted, finished and semi-finished lots primarily to
production home builders. Production home builders are believed by the Company
to be the dominant factor in the residential home building industry as conducted
in the greater Denver, Colorado metropolitan area. The Company estimates that in
such area, the largest ten home builders constituted approximately 48% of new
home sales which occurred in the six month period ended June 30, 1997. In
summary, a production home builder is a home builder building a substantial
number of homes each year from standard plans and specifications that have
limited structural options but generally offer various floor plans, elevation or
upgrade options.
From its inception through December 31, 1996, Gateway sold or has
contracted to sell platted, finished and semi-finished lots to nine home
builders conducting their operations in the greater Denver, and Ft. Collins,
Colorado metropolitan areas. Such home builders are PrideMark Homes, US Home,
Melody Homes, Sheffield Homes, Continental Homes, Paul Adam Custom Homes, d/b/a
Odyssey Homes, Meadow Homes, Sundown Development, and Strauss Homes. From
Gateway's inception through December 31, 1994, virtually all of Gateway's lot
sales were to PrideMark. For the 30 month period beginning January 1, 1995,
approximately 72% of the Company's lot sales were to PrideMark. It is
anticipated that the sales to PrideMark Homes will constitute approximately
one-third to one-half of the Company's future lot sales over the next 12 months.
PrideMark is principally owned by Michael A. Messina who also is a
principal shareholder, director and officer of the Company. See "CERTAIN
TRANSACTIONS" and "MANAGEMENT". PrideMark was formed in late 1987 and since
formation has purchased finished lots primarily from various financial
institutions. Commencing in 1992, PrideMark began developing, platting and
acquiring lots to serve its own home building needs. Homes built by PrideMark
are primarily single family homes for middle income families and range in price
from $80,000 to $200,000. The majority of homes constructed by PrideMark Homes
are in the $90,000 to $150,000 range. According to "The Front Range Housing
Market Letter" published by David Laffoon, September 1997, PrideMark was ranked
fourth among Denver area builders for new home closings for the first seven
months of 1997 and closed 390 homes during that period.
US Home was established in 1954 and is currently believed to build homes
primarily for first time home buyers and retirement second home buyers. It is
estimated that US Home has built more than 250,000 homes during the past
approximately 40 years. Presently US Home is believed to construct residential
dwelling units in approximately 200 communities in 32 metropolitan areas located
in 12 states throughout the United States, including Arizona, California,
Colorado, Florida, Maryland, Minnesota, Nevada, New Jersey, Texas and Virginia.
The management of the Company believes that US Home is one of the ten largest
single family on-site home builders in the United States. According to "The
Front Range Housing Market Letter" published by David Laffoon, September 1997,
US Home was ranked first among Denver area builders for new home closings for
the first seven months of 1997 and closed 554 homes during that period.
Melody Homes is one of the largest builders of single family detached homes
in the Denver metro area. According to "The Front Range Housing Market Letter"
published by David Laffoon, September 1997, Melody Homes was ranked third among
Denver area builders for new home closings for the first seven months of 1997
and closed 478 homes during that period.
Continental Homes was founded in Denver in 1986 and has been the only
builder to join the ten best selling builders in the Denver metro area.
According to "The Front Range Housing Market Letter" published by David Laffoon,
September 1997, Continental was ranked sixth among Denver area builders for new
home closings for the first seven months of 1997 and closed 308 homes during
that period.
30
<PAGE>
Sheffield Homes was founded in 1978 and builds single family detached homes
for the first home and move-up home buyer.
Sundown Development builds single-family detached homes for the first-time
home buyer.
Strauss Homes, founded in 1994 builds affordable housing in the Denver
metro area.
Paul Adam Custom Homes/DBA Odyssey Homes began building in this region in
1996 and builds single family detached homes in the Denver metro area.
Meadow Homes began in Denver in 1984 is one of the metro areas providers of
single family homes. According to "The Front Range Housing Market Letter"
published by David Laffoon, September 1997, Meadow Homes was ranked among the
top 25 Denver area builders for new home closings for the first seven months of
1997 and closed 64 homes during that period.
The Company's sales transactions involving its inventory of platted,
finished and semi-finished lots result from negotiated transactions that are
usually undertaken by the Company at a time contemporaneous or prior to the
development of such property. The sales contracts entered into between the
Company and its home builder customers are generally option contracts. In some
cases, the lot sales contracts contain specific performance provisions requiring
the homebuilder to close on the subject lots. In other cases, homebuilders have
made a deposit of funds on executed sales contracts. Under such option
contracts, home builders who are customers of the Company may only be required
to purchase a minimum number of lots at specified times and prices. See "RISK
FACTORS - Factors Affecting Business of Company, Other Operational Risks and
Market Risks".
Competition
In the acquisition of real property suitable for development as platted,
finished and semi-finished residential building lots and the marketing of such
lots, the Company encounters significant competition from other development
entities, from home builders who conduct their own lot development activities
and from investors who compete with the Company with respect to the acquisition
of suitable sites for development. The Company's competitive position in its
industry will be largely dependent upon the ability of the management of the
Company to identify suitable sites for acquisition at a time when such sites are
not being actively pursued for acquisition by any competitive entity or person.
This will require that the Company continually investigate suitable sites for
acquisition in its areas of operation. The Company's competitive position will
also be substantially dependent upon the relative amount of capital available to
it with respect to its ability to acquire suitable real estate sites for
development as finished and semi-finished lots and to engage in the necessary
development activities within a period of time permitting the sale of platted,
semi-finished and finished lots to its lot purchase customers.
The Company's acquisition and development activities will also be affected
by the relative financial condition of its home builder customers and by the
competitive factors which affect the home building and home marketing activities
of its home builder customers. Factors such as location, relative price,
subdivision attractiveness and amenities, available home design options and
aesthetic factors may have a pronounced affect on the acceptance of homes
constructed in subdivisions which have been developed by the Company and
acquired by its home builder customers.
31
<PAGE>
The management of the Company is of the opinion that: its present
competitive posture is good; it has adequate capital to pursue its business
activities; and the capital from the offering made hereby will enhance its
competitive status.
The Company's competitive position will also be affected by the general
conditions existing in the residential home building industry, as such exists in
the Company's area of operations. See "THE RESIDENTIAL HOME BUILDING INDUSTRY"
and "RISK FACTORS - Factors Affecting Business of the Company".
Employees
In addition to its executive personnel and key management employees, the
Company has 12 employees, which are primarily engaged in administrative
activities. The Company considers its relations with its employees to be good.
See "MANAGEMENT".
Other Activities
In addition to its land acquisition and development activities, Gateway
has provided, on a fee basis, services involved in forming special districts,
building authorities and homeowners' associations relating to properties
developed by it and has performed administrative, accounting and management
services in connection with those districts, building authorities and
homeowners' associations, pending completion of the subdivision and sales of
finished lots to home builders or subdivision residents. The Company will
continue to engage in these activities conducted by Gateway.
Future Activities
Subsequent to the completion of the offering made hereby, the Company will
continue to explore suitable real estate properties for acquisition and
development into semi-finished and finished lots for sale to residential home
builders. The Company will also consider opportunities to acquire and develop
non-residential properties, i.e. rental, commercial, warehouse and office, and
may engage in development, sales and leasing of such properties. Such activities
are expected to be conducted in Colorado, principally in the greater Denver,
Colorado metropolitan area, and surrounding communities such as Fort Collins.
Currently, the Company acquires most of its real estate properties for
development and sale to its home builder customers. It is anticipated that the
Company in the future may acquire a greater number of real estate properties as
long term holdings for which the Company has no immediate development plans and
no contracts for the sale of finished lots therein to home builders. Similarly,
while the Company's operations currently are conducted in Colorado, the Company
in the future may expand its operations to other states.
32
<PAGE>
CERTAIN TRANSACTIONS
The Transaction
Apollo III, Inc., a Florida Corporation ("Apollo") was organized on
December 23, 1992 for the purpose of acquiring or consolidating with one or more
other business entities. On January 12, 1995, Gateway American Properties
Corporation, a Florida Corporation ("Gateway-Florida") was formed as an
affiliate of Apollo for the purpose of entering a business combination
involving; (i) the merger of Apollo into Gateway-Florida; (ii) the acquisition
by Gateway-Florida of all the outstanding membership interests in Gateway
American Properties, LLC a Colorado limited liability; and (iii) the acquisition
of capital fund from a public offering of securities of Gateway-Florida. After
filing a Registration Statement with respect to proposed public offering of
Gateway-Florida securities to be underwritten by the Representative, the project
was voluntarily delayed. Prior to the resumption of the project, Apollo was
merged into Gateway-Florida in exchange for 274,000 shares of the Common Stock
of Gateway-Florida. Gateway-Florida later redomesticated into a Colorado
corporation through a statutory merger with the Company as the surviving
corporation. In this merger the shareholders of Gateway-Florida received 327,000
shares of the Company's Common Stock and 300,000 Founders Warrants.
Gateway-Florida and Apollo are both considered as "predecessors" of the Company
as that term is defined under the Securities Act of 1933, as amended.
The Company immediately prior to the Effective Date, and as an integral
part of the offering made in this Prospectus, consummated the Transaction
provided for pursuant to an agreement styled Amended and Restated Agreement
Providing for Sale and Exchange of Capital Stock ("Agreement") which was made
and entered into by and between the Company and Gateway effective January 27,
1997. Pursuant to the provisions of the Agreement, the Company acquired all of
the outstanding membership interests of Gateway which were outstanding as of the
Closing Date (as specified in the Agreement) in exchange for 2,025,000 shares of
Common Stock. Of such Shares 1,822,500 were issued to Harvey E. Deutsch, Joel H.
Farkas and Michael A. Messina or members of their families. See "MANAGEMENT" and
"PRINCIPAL SHAREHOLDERS".
The shares of Common Stock and Founders Warrants of the Company issued with
respect to the merger with Gateway-Florida and the shares of common stock
underlying the Founders Warrants have been registered pursuant to the
Registration Statement of which this Prospectus is a part are subject to certain
restrictions upon their sale. With respect to 27,000 shares of the Company's
stock, they may not be sold for 90 days from the Effective Date. The remaining
300,000 shares of the outstanding Common Stock of and the 300,000 shares
underlying the Warrants are subject to "lock-up" provisions for 15 months from
the Effective Date. In summary, the lock-up provisions affecting such shares
prohibit the holders thereof from effecting any sales transactions in the market
for such shares except upon the written consent of the Representative. The
2,025,000 shares issued by the Company in connection with its acquisition of all
of the membership interests of Gateway have not been registered and constitute
Restricted Securities. As Restricted Securities, such shares may only be sold
subsequent to the time that the holders thereof have held the shares for a
period of one year, and upon compliance with certain reporting requirements
established by the Commission. See "RISK FACTORS - Shares Eligible for Future
Sale" and "DESCRIPTION OF SECURITIES".
Certain Purchase/Sale Transactions
From its inception in June 1993 to date, Gateway has effected purchases of
real estate properties which it has developed or will develop into platted,
finished and semi-finished lots from limited liability companies and limited
partnership entities in which certain of the executive officers of the Company
had an interest. In the past, it was the practice of Messrs. Deutsch, Farkas and
Messina to form limited liability companies or limited partnerships in which
they and others would have an economic interest in order to acquire real estate
properties which were in a condition or state of development making their
acquisition by Gateway and presently the Company inappropriate or premature.
During the period of time that such real estate properties were held by such
entities, appropriate and necessary regulatory approvals and other development
activities were undertaken and if successfully accomplished, permitted the real
estate properties acquired to be qualified for purchase by Gateway. The prices
paid by Gateway with respect to such real estate properties purchased were
determined by real property appraisals provided by sources of expert appraisal
or on a negotiated basis and are believed in all respects to fairly relate to
the prices that would have been paid by Gateway with respect to any transaction
with a non-affiliated person or entity. After the Public Offering, any purchases
made by Gateway from Messrs. Deutsch, Farkas, or Messina will be 10% below the
fair market value based on independent expert appraisals. The table set forth
below summarizes these historical acquisition transactions.
33
<PAGE>
<TABLE>
<CAPTION>
Conveying Affiliated Conveying Entity Approx. Approximate Approximate
Entity, Project and Interest Held by Purchase Affiliate Profit to
Property Conveyed Affiliated Party Price to Cost of Affiliated
Gateway the Property Party
Affiliate % Interest
<S> <C> <C> <C> <C> <C>
Downing Park, LLC, Harvey E. Deutsch 25% $792,000 $373,000 $104,750
Downing Park, 132 Lots Joel H. Farkas 25% $104,750
Michael A. Messina 50% $209,500
PrideMark Homes, Michael A. Messina 93% $1,089,11 $1,089,113 ---
Harmony Crossing, 221
Lots
PrideMark Homes, Willow Michael A. Messina 93% $342,000 $342,000 ---
Run, Filing I, Phase 2
& 3 57 Lots
Willow Run Holdings, Harvey E. Deutsch 1.8% $342,273 $342,273 ---
LLC, Willow Run II, 88 Joel H. Farkas 1.8%
Lots(1)
Willow Run Holdings, Harvey E. Deutsch 1.8% $1,511,400 922,500 $16,663
LLC, Willow Run IV & V, Joel H. Farkas 1.8% $16,663
295 Lots(1)
Gateway Village, LLC, Harvey E. Deutsch 41.6% $567,800 $61,400 $210,662
Gateway Village, Filing Joel H. Farkas 41.6% $210,662
I, 128 Lots
Gateway Village, LLC, Harvey E. Deutsch 41.6% $778,180 $55,220 $300,750
Gateway Village, Filing Joel H. Farkas 41.6% $300,750
II, 146 Lots
Gateway Village, LLC, Harvey E. Deutsch 41.6% $687,500 $46,500 $266,650
Gateway Joel H. Farkas 41.6% $266,650
Village, Filing III,
124 Lots
Sterling Hills Ltd. Harvey E. Deutsch See 5 See 5 below See 5
Buyout Joel H. Farkas below below
Michael A. Messina
PrideMark Homes, Michael A. Messina 93% $693,750 $693,750 ---
Sterling Hills (No. 1),
75 Lots
Sterling Hills Ltd., Harvey E.Deutsch 16%(2) $576,000 $347,000 $36,640
Sterling Hills (No. 2), Joel H. Farkas 16%(2) $36,640
96 Lots Michael A. Messina 16.5%(3) $37,785
612 Corporation 1%(2) $ 2,290
612 Corp., Country Harvey E. Deutsch 50%(4) $541,400 $468,000 $36,700
Hills (No. 6), 78 Joel H. Farkas 50%(4) $36,700
Lots(4)
</TABLE>
__________
(1) Messrs. Deutsch and Farkas each own a 32.5% shareholder interest in Wilrun
Corp. Wilrun Corp. was the beneficial owner of an 11.11% membership
interest in the conveying entity, Willow Run Holdings LLC.
34
<PAGE>
(2) Messrs. Deutsch and Farkas each own 50% of the outstanding common stock of
612 Corp. 612 Corp. held 1% general partnership interest in the conveying
entity, Sterling Hills, Ltd. Messrs. Deutsch and Farkas also held a 16%
interest as limited partners in the conveying entity, Sterling Hills, Ltd.
(3) Mr. Messina's 16.5% interest in the conveying entity, Sterling Hills, Ltd.
was a limited partnership interest.
(4) Messrs. Deutsch and Farkas each own 50% of the outstanding common stock of
612 Corp., the conveying entity in this transaction.
(5) Gateway American Properties, LLC bought out Sterling Hills, Ltd. on
7-31-96 in an amount equal to partners' capital accounts with principal
payments due quarterly beginning 9-15-97:
612 Corp. -- received a note for $5,391.76
515 Capital " " $86,186.65
DSR LLC " " $85,202.65
Michael A. Messina" " $88,882.53
Also since the inception of Gateway, Gateway has sold finished or
semi-finished lots to PrideMark Homes, a home construction firm substantially
owned by Michael A. Messina, a principal shareholder, director and officer of
the Company. As indicated elsewhere in this Prospectus, the prices paid by
PrideMark Homes to Gateway and which in the future may be paid to the Company
have or will relate to the appraised value of such platted, finished or
semi-finished lots as determined by fair market value appraisals provided by
independent sources of expert appraisal. The table set forth below summarizes
the lot sales transactions made by Gateway to PrideMark Homes which have
occurred since the inception of Gateway to December 31, 1996.
Approximate cost
(including carry)
# of Lots Price to Gateway.
Property Conveyed as of 12-31-96
Country Hills, Filing 6, Phase 1 26 $714,086.55 $505,759.24
Downing Park, Phase 1 64 $1,537,658.22 $765,147.12
Downing Park, Phase 2 10 $215,000.00 $220,000.00
Gateway Village, Filing 1, Phase 5 45 $756,388.00 $502,747.35
Gateway Village, Filing 1, Phase 4 41 $726,923.28 $588,304.77
Gateway Village (17 Lots) 17 $212,500.00 $212,500.00
Sterling Hills, Filing 1, Phases 1 & 2 75 $1,995,337.25 $1,737,348.44
Willow Run, Filing 1, Phase 2 28 $700,698.22 $503,596.48
Willow Run, Filing 1, Phase 3 29 $726,292.42 $501,370.97
Willow Run, Filing 2 55 $1,361,250.00 $811,865.93
Quail Run 103 $1,165,086.96 $969,585.14
35
<PAGE>
As of the date of this Prospectus, Harvey E. Deutsch and Joel H. Farkas
continue to own equity interests in certain limited liability companies or
limited partnerships which may in the future convey real estate properties to
the Company for development by the Company into finished or semi-finished lots.
Such entities include those entities identified in the table presented above.
The purchase price to be paid by the Company to such entities in the event of
the purchase of real estate properties by the Company from such entities will be
largely determined, if not entirely determined and governed by fair market
appraisals provided by sources of independent expert appraisal and will be at a
price 10% below the fair market value so determined.
Competing Development Activities. Michael A. Messina, a director,
principal shareholder and officer of the Company and the principal owner of
PrideMark, is also the principal owner of Richland Development Company, LLC,
("Richland Development"), a Colorado limited liability company. Richland
Development is engaged in the same lot development business as the Company and
in the same area. Thus, Richland Development directly competes with the Company;
and an expansion of the activities of Richland Development could have a direct
impact upon the Company's future lot sales to its present largest customer.
In 1995, the Company furnished land development services to Richland
Development on a fee basis for which the Company was paid $188,475. It is not
now anticipated that the Company will furnish any services to Richland
Development in the future.
Harvey E. Deutsch, Joel H. Farkas, and Michael A. Messina also have
interest in other parcels of real property in the Denver metro area which may
compete with the Company.
Company Headquarters
As of the date of this Prospectus, the Company's administrative
headquarters are located at 9145 East Kenyon Avenue, Suite 200, Denver, Colorado
80237. Such commercial space occupied and utilized by the Company consists of
approximately 4,288 square feet and is leased in accordance with a written lease
existing between Gateway (now assumed by the Company) and 9145 E. Kenyon, LLC,
of which Harvey E. Deutsch is a manager and member. In June 1997, the Company
renewed its lease for a three year period beginning October 31, 1997. Under the
terms of the new agreement, the Company is to pay $5,773 per month for the first
year with escalation clauses in years two and three. The Company also has an
agreement with the related party law firm, whereby the law firm will reimburse
the Company $1,325 per month for office space occupied by the law firm.
36
<PAGE>
Providing of Certain Legal Services
Harvey E. Deutsch, Esq. is a shareholder and principal of the law firm of
Deutsch, Spillane & Reutzel, P.C. The firm also maintains its offices at the
same location as the Company as identified above. Since inception, the firm has
provided various legal services to Gateway and will continue to provide various
legal services to the Company relating to the development activities of Gateway
and the Company, which services will include permitting, zoning matters,
negotiations with municipalities and other governmental units, land acquisition,
subdivision platting and filings and similar matters. During the past three
fiscal years ending on December 31 of each year, Gateway has paid the following
legal fees to the firm; $64,600 in 1994; $241,159 in 1995; and $432,636 in 1996.
Immediately subsequent to the consummation of the Transaction, Harvey E. Deutsch
is expected to devote substantially all of his business time to the position of
President and Chief Executive Officer of the Company and will alter his position
with his law firm to that of "of counsel." In all events, Mr. Deutsch's
attention to the practice of law is expected to be substantially reduced in the
light of his duties to the Company and Mr. Deutsch will then have no further
economic interest in the fees paid to the law firm by the Company for services
rendered subsequent to the Effective Date. See "MANAGEMENT".
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name and Age Positions Held With the Company
------------ -------------------------------
Harvey E. Deutsch, age 57 Chairman, President and Chief
Executive Officer and Director
Joel H. Farkas, age 36 Director, Vice
President-Finance/ Marketing and
Treasurer (Chief Operating Officer) and
Secretary
Michael A. Messina, age 49 Director and Vice President
of Development
All director terms expire June 30, 1998.
Harvey E. Deutsch was a founding member of Gateway and has been active in
the business operations of Gateway since its inception in June 1993. After
graduating from Southern Methodist University, Mr. Deutsch went on to obtain a
law degree from the University of Texas. Additionally, Mr. Deutsch has practiced
law for approximately 30 years in Denver, Colorado and has specialized
principally in real estate law. His practice experience includes significant
real estate property acquisitions, development law, matters relating to
financing and leasing transactions, as well as planning, zoning, land use,
water, sewer, general utility district law, environmental matters and legal
matters relating to municipal and quasi-municipal financing of real property
project infrastructures. Mr. Deutsch is presently a principal of Deutsch,
Spillane & Reutzel, P.C., Denver, Colorado, a firm specializing in real estate,
zoning and land use matters.
Joel H. Farkas was also a founding member of Gateway and has been active
in the business operations of Gateway since its inception in June, 1993. Mr.
Farkas has been engaged in land acquisition, development and finance in Colorado
and Arizona since December, 1984, first as an employee of Farkas Group, Inc., a
family-owned company from 1984 to 1990 and then individually from 1990 to the
present. Mr. Farkas holds a Bachelor of Science degree from the University of
California, Los Angeles.
37
<PAGE>
Michael A. Messina was also a founding member of Gateway and has been a
member of Gateway since its inception in June 1993. Mr. Messina is a Manager and
controlling member of PrideMark Home Building Group, LLC and Richland
Development Company, LLC (collectively "Richland Homes"), which he founded in
1987. PrideMark is a Denver Metropolitan area home builder and the largest
purchaser of developed lots from the Company in its operations to date. Richland
Development Company, LLC is engaged in the same property acquisitions and lot
development business and in the same areas as the Company. In addition to this
general management responsibilities for those companies, Mr. Messina's focus and
principal activities have related to land acquisition and residential dwelling
product development. Mr. Messina began his career in 1966 with Perl-Mack
Companies, a contracting firm which constructed commercial and residential
projects in the greater Denver, Colorado area. Over the course of his career,
Mr. Messina has developed and built over 5,000 residential dwellings and several
commercial and multi-family projects.
Additional Directors. The Company intends to elect two additional members
to its Board of Directors to serve as independent directors. The independent
directors will not be employees of the Company or otherwise associated with the
Company except for any stock interests they may acquire. It is anticipated the
independent directors will be elected prior to the Effective Date of the
Registration statement of which this Prospectus is a part.
Committees of the Board of Directors
The Board of Directors of the Company anticipates establishing an Audit
Committee constituting of Harvey E. Deutsch and the two independent directors.
The Audit Committee will make recommendations for selection of the Company's
independent auditors, review the annual audit reports of the Company and review
audit and any non-audit fees paid to the Company's independent auditors. See
"EXPERTS". As indicated in the Prospectus section captioned "RISK FACTORS", the
Company has reserved 375,000 shares of its Common Stock for possible issuance in
connection with a Stock Option Plan which it anticipates will be adopted
subsequent to this offering. Such Plan, if adopted, will be administered by a
Stock Option Committee constituted by three members of the Board of Directors,
which members are yet to be determined. The Company also anticipates
establishing a Compensation Committee, which committee will oversee and make
recommendations with respect to the compensation of the Executive Officers and
managerial and staff personnel of the Company. The Compensation Committee is
expected to be comprised of three members, which members are yet to be selected.
Executive Compensation
The compensation paid or accrued to the three directors and executive
officers of the Company by Gateway during the year ended December 31, 1996 and
the six months ended June 30, 1997 is set forth in the table below. None of this
compensation was paid or accrued to the directors for their services as such.
All of this compensation was paid or accrued as annual compensation and there
was no long term compensation paid or accrued to any of the officers.
38
<PAGE>
<TABLE>
<CAPTION>
Name and Period Salary Payment of Other
Principal Prior Years Compensation
Position Salaries
Paid Accrued Paid Accrued Paid Accrued
- --------- ------ ---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Harvey E. Year Ended 1996 $10,000 $110,000 $230,000 -0- $8,000 -0-
Deutsch, President
and Chief Execu- 6 Months ended
tive Officer June 30, 1997 $5,000 $55,000 -0- -0- $33,742 -0-
Joel H. Farkas, Year Ended 1996 -0- $108,000 $216,000 -0- $234,268(1) -0-
Vice-President -
Finance and Chief 6 Months ended
Financial Officer June 30, 1997 -0- $54,000 -0- -0- $151,962(1) -0-
Michael A. Year Ended 1996 -0- $108,000 $26,212 -0- $22,000 -0-
Messina, Vice-
President of De- 6 Months ended
velopment June 30, 1997 -0- $54,000 -0- -0- $34,787 -0-
</TABLE>
(1) Pursuant to a consulting agreement with the Company dated January 15, 1996,
Mr. Farkas receives additional compensation for acquisition and financial
services in the amount of 1% of the loan amounts for financing him on behalf of
the Company. The Company and Mr. Farkas have agreed to terminate the consulting
agreement on the Effective Date.
The table set forth below reflects the compensation to be paid to Harvey
E. Deutsch in his capacity as President and Chief Executive Officer and to Joel
H. Farkas and Michael A. Messina in their positions as Vice President-Finance
and Vice President-Development, respectively. Other than Messrs. Deutsch,
Messina and Farkas, no other executive officer of the Company will receive
compensation in an amount of $100,000 or more during the fiscal year ending
December 31, 1997.
Summary Compensation Table
Annual
Compensation
Name and Principal Position - Salary
- --------------------------- ----------
Harvey E. Deutsch $120,000
Joel H. Farkas 108,000
Michael A. Messina 108,000
39
<PAGE>
Employment Agreements
The Company, as of the Effective Date, will assume and be bound by
employment agreements which have been entered into by Gateway and each of
Messrs. Deutsch, Farkas and Messina. The employment agreements are all on
similar terms, except for salary rates as indicated above, and each provide: (a)
annual salaries at the respective rates specified in the table above; (b) for an
initial term through December 31, 2000; (c) for an automatic extension for an
additional one year term after the initial term unless terminated by either
party; (d) for health and disability insurance coverage at the Company's
expense; (e) for an automobile expense allowance of $750 per month; (f) for key
person insurance at Company expense in the face amount of $1,500,000 payable to
the Company; (g) for payment of an annual premium of $25,000 on additional life
insurance payable to a beneficiary designated by each officer; (h) for payment
of six-months salary in the event the agreement is terminated by the Company for
the disability of the officer; (i) for payment of three years of salary to the
decedent's estate in the event of death during the term of the agreement, or
termination of the agreement without cause (as defined in the agreement) by the
Company; (j) for the employee to devote the time required to carry out his
duties to the Company; (k) the recognition by the Company that each employee has
other business interests which will require portions of the employee's time and
some of which may compete with the Company; (l) for reimbursement of accountable
out-of-pocket expenses incurred in the performance of their duties; and (m) for
incentive compensation as may be determined by the Board of Director's
including, stock options, a retirement plan or bonuses.
The employment agreements provide that on the Effective Date (also the
date the Company assumes the agreements), the Company will assume any unpaid
amounts due to the three officers thereunder. As of June 30, 1997, this unpaid
liability aggregated $489,000 which will be paid from proceeds of this offering.
See "USE OF PROCEEDS".
Director Compensation
The independent directors may be entitled to receive director fees for
their attendance at regular and special meetings of the Board of Directors of
the Company or committees thereof. The amount of such fees have not yet been
determined, but are not expected to exceed $750 per meeting attended. They may
also be compensated for any services rendered to the Company outside their
normal duties as directors. All directors will be reimbursed for their cash
expenses, including travel expenses, incurred in the performance of their
services. The directors may also participate in any stock incentive or stock
option programs developed by the Company.
Key Personnel
Jeffrey K. Prager, is in charge of all financial reporting for the
Company. Mr. Prager has been a full time employee of the Company since June,
1995. He was a part time employee of the Company from its inception in June,
1994 through May, 1995. From August, 1983 to June, 1995, Mr. Prager operated a
public accounting firm which provided a full range of financial services for
clients engaged in small to medium size businesses. Mr. Prager is a Certified
Public Accountant and has held such designation since 1975. In addition to
providing traditional accounting services, Mr. Prager's firm also provided
economic analysis, real estate analysis, business planning and financing. Mr.
Prager served as corporate Controller for the Alpert Corporation during the
period May, 1978 to November, 1991. During such time, the Alpert Corporation was
one of the largest privately owned home builders in the greater Denver, Colorado
metropolitan area. Mr. Prager graduated with a degree in economics from the
University of Colorado and did post-graduate work in accounting.
40
<PAGE>
Mark R. Traver, is the Director of Development, which includes forward
planning, platting, engineering design, and overseeing field construction which
position he has held since April of 1997. Mr. Traver has been in the land
development industry since 1983, and began as a field superintendent for Talley
Corporation and eventually became Vice President of Land Development before
being transferred to Florida in the same capacity for Good Property Company in
1986. Mr. Traver graduated from Iowa State University with a degree in Landscape
Architecture. From 1992 to 1993 he worked for Richardson, Nagy,
Martin-Architects and Planners in Newport Beach, California as Project Director
for Master Planning and Community Development. From 1994 to 1997 he worked as
Director of Development for Continental Homes.
Geoffrey J. Phillips, is the managing partner of Gateway American
Properties Brokerage, LLC. (a Colorado limited liability company in which
Messrs. Deutsch, Farkas and Messina each own a 17.5% membership interest).
Mr. Phillips has been the broker for Gateway American Properties Brokerage,
LLC since its inception in September, 1994 and is also employed with Gateway
American Properties, LLC. He as been involved in the residential/commercial
real estate profession for 25 years and has spent ten years managing his own
real estate company. Mr. Phillips graduated with a B.A. in economics from
the University of Wisconsin. Mr. Phillips is responsible for all the
marketing of developed and undeveloped parcels for Gateway American
Properties, LLC. Mr. Phillips maintains a continuing relationship with the
builder communities and coordinates the completion and delivery of lots to
the end purchaser
Indemnification
Under the Articles of Incorporation of the Company, officers and directors
of the Company, and former officers and directors, are entitled to
indemnification from the Company to the full extent permitted by law. The
Company's bylaws and the Colorado Business Corporation Act generally provide for
such indemnification for claims arising out of the acts or omissions of Company
directors and officers (and certain other persons) in their capacity as such and
undertaken in good faith and in a manner reasonably believed to be in, or not
opposed to, the best interests of the Company, and further specify the
circumstances under which such indemnification shall be available. The Company
also has entered into an Indemnification Agreement with Messrs. Deutsch, Farkas
and Messina pursuant to which the Company has agreed to indemnify these
individuals from and against any liability, cost or expense incurred by them
under any loan or obligation obtained by or for the benefit of the Company,
including their guarantees of the Notes. Insofar as such provisions of the
Articles of Incorporation or Bylaws of the Company, the Colorado Business
Corporation Act or the Indemnification Agreement purport to protect any director
or officer of the Company from liability to the Company and its holders of
Common Stock and arising from the willful misfeasance, bad faith, gross
negligence or reckless disregard of such directors' or officers' duties of
office, the Company has been informed that, in the opinion of the Commission,
such indemnification provisions violate public policy as expressed in the Act
and are therefore unenforceable.
Conflicts of Interests
As discussed in "PROSPECTUS SUMMARY", "RISK FACTORS", "BUSINESS", "CERTAIN
TRANSACTIONS", and "MANAGEMENT", Messrs. Deutsch, Farkas, and Messina, the
officers and three of the directors of the Company, are involved in several
situations which involve possible conflicts of interests between themselves and
the Company. They all have interests in entities which have conveyed and will
convey real property to the Company. For the 30 month period beginning January
1, 1995, 72% of the finished and sem-finished lots sold by the Company have been
sold to PrideMark, a home building company owned by Mr. Messina. It is
anticipated that the Company will continue to sell between one-third and
one-half of its platted, finished and semi-finished lots to PrideMark during the
next year. In addition, PrideMark Homes began direct competition with the
Company in 1992, when it began developing, platting and acquiring lots to serve
its own homebuilding needs.
Mr. Farkas has provided loan acquisition and financial consulting
services to Gateway for which he has received a consulting fee equal to 1% of
loans acquired through his services.
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The Company has and intends to continue to obtain legal services from a
law firm in which Mr. Deutsch is a shareholder and principal.
In recognition of the potential conflicts of interest, the Company has;
(a) reached an understanding with Messrs. Deutsch, Farkas and Messina that any
real estate purchased from them will be purchased at 10% below fair market
value, based upon independent expert appraisals; (b) developed a property
marketing program designed to decrease the Company's dependence on PrideMark for
lot sales; (c) reached an agreement with Mr. Farkas to terminate his consulting
agreement on the Effective Date; and (d) reached an understanding with Mr.
Deutsch that he will have no further economic interest in any legal fees paid to
his firm for legal services performed after the Effective Date.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the Effective Date and as adjusted
to reflect: (i) the completion of the Transaction involving the requisition of
Gateway LLC; and (ii) the sale of the Common Stock offered hereby (assuming no
exercise of the Over-Allotment Option) by (a) each stockholder known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (b) each director of the Company, (c) each executive officer of the
Company as identified in this Prospectus, and (d) all executive officers and
directors as a group. Except as otherwise indicated, the Company believes that
the beneficial owners of the Common Stock listed below have sole investment and
voting power with respect to such Shares subject to community property laws
where applicable. The business address of each individual listed below is the
same as the address of the Company's principal executive offices in Denver,
Colorado.
Shares Owned Percentage of Percentage of
Beneficially as Beneficial Beneficial
of the Effective Ownership before Ownership after
Date (1) Offering (1) Offering(1)
-------- ------------ -----------
Harvey E. 493,594 20.98% 12.81%
Deutsch(2)
Joel H. Farkas(3) 493,594 20.98% 12.81%
Michael A. Messina 835,312 35.51% 21.68%
Officers & 1,822,500 77.47% 47.30%
Directors as a
group (5 persons)
(1)
__________
(1) The 1,822,500 shares owned by Messrs. Deutsch, Farkas and Messina along
with 202,500 shares owned by other members of Gateway LLC are deposited
under a Voting Trust Agreement described below. Under that Agreement, any
two of these three individuals can vote the entire 2,025,000 deposited
shares or 77.47% of the shares outstanding prior to the Offering and
52.57% afterwards.
(2) Of these Shares 330,075 are owned by family members or trusts for the
benefit of family members of Mr. Deutsch. Mr. Deutsch exercises voting
control over such Shares, as well as shared voting control with Messrs.
Farkas and Messina over 202,500 additional Shares owned by other members
of Gateway, by virtue of the Voting Trust Agreement described in note 1
above and below.
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(3) Of these Shares 149,344 are owned by a trust for the benefit of family
members of Mr. Farkas. Mr. Farkas exercised voting control over such
Shares, as well as shared voting control with Messrs. Deutsch and Messina
over 202,500 additional Shares owned by other members of Gateway LLC, by
virtue of the Voting Trust Agreement described in Note 1 above and below.
Messrs. Deutsch, Farkas and Messina have entered into a Voting Trust
Agreement pursuant to which, on and after the Effective Date, the shares of
Common Stock of the Company beneficially owned by them and members of their
respective families or family trusts will be voted by them as voting trustees
serving pursuant to such Agreement. Under the terms of the Voting Trust
Agreement, Messrs. Deutsch, Farkas and Messina have shared voting control (in
proportion to the percentage of Shares owned by each of them and their
respective family members and family trusts) over a total of 2,025,000 Shares
which includes 202,500 Shares owned by other members of Gateway. The Voting
Trust Agreement has a term of ten years, and is renewable for an additional ten
year period. During its term, the Voting Trust Agreement can be terminated only
by agreement of the voting trustees. By virtue of its terms, the existence of
such Voting Trust Agreement is not expected to diminish the voting control of
the Company vested in Messrs. Deutsch, Farkas and Messina.
Messrs. Deutsch, Farkas and Messina, their family members and the trusts
for the benefit of their family members, as well as the other members of
Gateway, also have entered into a Cross Purchase Agreement providing for the
sale and purchase of the Company's Common Stock among such persons and their
representatives.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Barron Chase Securities,
Inc. (The "Representative") is acting as representative have severally agreed to
purchase from the Company an aggregate of 1,500,000 Shares and 3,000,000
Purchase Warrants (collectively, the "Securities"). The number of Securities
which each Underwriter has agreed to purchase is set forth opposite its name.
Number of Number of
Underwriter Shares Warrants
----------- ------ --------
Barron Chase Securities, Inc.............
Total........................ 1,500,000 3,000,000
========= =========
The Securities are offered by the Underwriters subject to prior sale,
when, as and if delivered to and accepted by the Underwriters and subject to
approval of certain legal matters by counsel and certain other conditions. The
Underwriters are committed to purchase all Securities offered by the Prospectus,
if any are purchased.
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The Company has been advised by the Representative that the Underwriters
propose to offer the Securities to the public at the offering price set forth in
the cover page of this Prospectus, and that the Underwriters may allow
concessions to certain selected dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD"), all of whom agree to sell the
Securities in conformity with the NASD's Conduct Rules. Such concessions will
not exceed the amount of the underwriting discount that the Underwriters are to
receive.
The Company has granted to the Representative an Over-Allotment Option,
exercisable for 45 days from the Effective Date, to purchase up to an additional
225,000 Shares and an additional 450,000 Purchase Warrants at the public
offering price less the Underwriting Discount set forth on the cover page of
this Prospectus. The Representative may exercise this option solely to cover
over-allotments in the sale of the Securities being offered by this Prospectus.
Officers and directors of the Company may introduce the Representative to
persons to consider this Offering and to purchase Securities either through the
Representative, other Underwriters or through participating dealers. In this
connection, no shares have been reserved for these purchases and officers and
directors will not receive any commissions or any other compensation.
The Company has agreed to pay to the Representative a commission of 10% of
the gross proceeds of this Offering (the "Underwriting Discount"), including the
gross proceeds from the sale of the over-allotment option, if exercised. In
addition, the Company has agreed to pay to the Representative the
non-accountable expense allowance of 3% of the gross proceeds of this Offering,
including proceeds from any Securities purchased pursuant to the over-allotment
option. The Representative's expenses in excess of the Non-Accountable Expense
Allowance will be paid by the Representative. To the extent that the expenses of
the Representative are less than the amount of the Non-Accountable Expense
Allowance received, such excess shall be deemed to be additional compensation to
the Representative. The Representative has informed the Company that it does not
expect sales to discretionary accounts to exceed 5% of the total number of
Securities offered by the Company hereby.
The Company has agreed pursuant to the terms of a Financial Advisor
Agreement to be entered into at the Closing (the "Financial Advisor Agreement")
to engage the Representative as a financial advisor at a fee of $108,000 all of
which is payable to the Representative at the Closing. Pursuant to the terms of
a financial advisory agreement, the Representative has agreed to provide, at the
Company's request, advice to the Company concerning potential merger and
acquisition and financing proposals, whether by public financing or otherwise.
There are currently no plans, proposals, arrangements or understandings with
respect to any potential merger, acquisition, financial proposal or joint
venture.
Prior to this Offering, there has been no public market for the shares of
Common Stock or Purchase Warrants. Consequently, the initial public offering
price for the Securities, and the terms of the Purchase Warrants (including the
exercise price of the Purchase Warrants), have been determined by negotiations
between the Company and the Representative. Among the factors considered in
determining the public offering price were the history of, and the prospects
for, the Company's business, an assessment of the Company's management, its past
and present operations, the Company's development and the general condition of
the securities market at the time of this Offering. The initial public offering
price does not necessarily bear any relationship to the Company's assets, book
value, earnings or other factors, and no assurance can be given that public
market for the Shares or the Purchase Warrants will develop after the Closing,
or if a public market in fact develops, that such public market will be
sustained, or that the Shares or Purchase Warrants can be resold at any time at
the offering or any other price. See "RISK FACTORS -Determination of Share and
Warrant Offering Price."
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At the Closing, the Company will issue to the Representative or persons
related to the Representative, for nominal consideration, the Common Stock
Representative Warrants to purchase up to 150,000 shares of Common Stock and the
Warrant Representative Warrants to purchase up to 300,000 warrants (the
"Underlying Warrants"). The Common Stock Representative Warrants, and the
Warrant Representative Warrants are sometimes referred to in this Prospectus as
the "Representative Warrants." The Representative Warrants will be exercisable
for a five-year period commencing on the Effective Date. The exercise price of
each Common Stock Representative Warrant shall be $6.00 per share (150% of the
public offering price). The exercise price of each Warrant Representative
Warrant shall be $.28125 per warrant (150% of the public offering price). Each
Underlying Warrant will be exercisable for a five-year period commencing on the
Effective Date to purchase one share of Common stock at an exercise price of
$6.00 per share of Common Stock. The Representative Warrants will not be
transferable for 12 months from the Effective Date by the holder, except (i) to
officers of the Representative, other Underwriters and members of the selling
group and officers and partners thereof; (ii) by will; or (iii) by operation of
law.
The Common Stock Representative Warrants and the Warrant Representative
Warrants contain provisions providing to appropriate adjustment in the event of
any merger, consolidation, recapitalization, reclassification, stock dividend,
stock split of similar transaction. The Representative Warrants contain net
issuance provisions permitting the holders thereof to elect to exercise the
Representative Warrants in whole or in part and instruct the Company to withhold
from the securities issuable upon exercise, a number of securities, valued at
the current fair market value on the date of exercise, to pay the exercise
price. Such net exercise provision has the effect of requiring the Company to
issue shares of Common Stock without a corresponding increase in capital. A net
exercise of the Representative Warrants will have the same dilutive effect on
the interests of the Company's stockholders as will a cash exercise. The
Representative Warrants do not entitle the Representative to any rights as a
stockholder of the Company until such Representative Warrants are exercised and
shares of Common Stock are purchased thereunder.
The Representative Warrants and the securities issuable thereunder may not
be offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that if it shall cause a post-effective
amendment, a new registration statement, or similar offering document to be
filed with the Commission, the holders shall have the right, for seven years
from the Effective Date, to include in such registration statement or offering
statement the Representative Warrants and the securities issuable upon their
exercise at no expense to the holders. Additionally, the Company has agreed
that, upon request, by the holders of 50% or more of the Representative Warrants
during the period commencing 12 months from the Effective Date and expiring four
years thereafter, the Company will, under certain circumstances, register the
Representative Warrants and any of the securities issuable upon their exercise.
The Company has also agreed that if the Company participates in any
transaction which the Representative has introduced in writing to the Company
during a period of five years after the Closing (including mergers,
acquisitions, joint ventures and any other business transaction for the Company
introduced in writing by the representative), and which is consummated after the
Closing (including an acquisition of assets or stock for which it pays, in whole
or in part, with shares or other securities of the Company), or if the Company
retains the services of the Representative in connection with any such
transaction (an "Introduced Consummated Transaction"), then the Company will pay
for the Representative's services in amount equal to 5% of up to one million
dollars of value paid or received in the transaction, 4% of the next million of
such value, 3% of the next million of such value, 2% of the next million of such
value, and 1% of the next million dollars of such value and of all such value
above $4,000,000.
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The Company has agreed to indemnify the Underwriters against any costs or
liabilities incurred by the Underwriters by reasons of misstatements or
omissions to state material facts in connection with the statements made in the
Registration Statement on Form SB-2 and this Prospectus filed by the Company
with the Commission (the "Registration Statement") under the Securities Act .
The Underwriters have in turn agreed to indemnify the Company against any costs
or liabilities by reason of misstatements or ommissions to state material facts
in connection with the statements made in the Registration Statement and this
Prospectus, based on information relating to the Underwriters and furnished in
writing by the Underwriters. To the extent that this section may purport to
provide exculpation from possible liabilities arising from the federal
securities laws, in the opinion of the Commission, such indemnification is
contrary to public policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement. See "ADDITIONAL INFORMATION."
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DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $.01 par value. Upon consummation of this offering, there will
be 3,852,000 shares of Common Stock outstanding and if the Over-Allotment Option
is utilized to its full extent, there will be 4,077,000 shares of Common Stock
outstanding.
Common Stock
Holders of shares of the Common Stock are entitled to one vote per Share
on all matters to be voted upon by the stockholders. Cumulative voting is not
permitted in the election of directors. In summary, cumulative voting permits
the holders of voting securities to cumulate the vote attributable to such
securities by multiplying the number of Shares held times the number of
candidates standing for election to a corporation's board of directors and then
allocating the resulting number of votes among one or more of such candidates.
The absence of cumulative voting and the number of Shares beneficially owned by
the present directors and officers of the Company will vest voting control of
the Company in such persons. See "PRINCIPAL SHAREHOLDERS". The holders of shares
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. See "DIVIDEND POLICY".
In the event of liquidation, dissolution, or winding up of the Company,
the holders of shares of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities. Shares of Common Stock have no
preemptive, conversion or other subscription rights and there are no redemption
or sinking fund provisions applicable to the Common Stock. All of the shares of
Common Stock sold in this offering will be fully paid and non-assessable.
Warrants
General. The Warrants offered hereby will be issued in registered form
pursuant to the terms of a warrant agreement (the "Warrant Agreement"), dated as
of the Effective Date, between the Company and American Securities Transfer,
Inc., as warrant agent (the "Warrant Agent"). An aggregate of 3,000,000 Warrants
(up to 3,450,000 Warrants if the Over-Allotment option is exercised in full)
will be issued pursuant to the Warrant Agreement.
The following statements and summaries of certain provisions of the
Warrant Agreement are subject to the more detailed provisions of the Warrant
Agreement, copies of which may be examined at the principal offices of the
Warrant Agent and a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Right to Purchase Shares of Common Stock. Each Warrant will entitle the
registered holder to purchase from the Company one share of Common Stock at an
exercise price of $4.50 per Share during the period commencing on the date of
this Prospectus and ending on the fifth anniversary of such date.
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Exercise. Each holder of a Warrant may exercise such Warrant by
surrendering the certificate evidencing such Warrant, with the form of election
to purchase on the reverse side of such certificate properly completed and
executed, together with payment of the exercise price, to the Warrant Agent. No
Warrants may be exercised unless at the time of exercise there is a current
prospectus covering the shares of Common Stock issuable upon the exercise of
such Warrants under an effective registration statement. The Company is required
to maintain an effective registration statement, including such current
prospectus, so long as any of the exercisable Warrants remain outstanding. While
it is the Company's intention to comply with this obligation, there can be no
assurance that it will be able to do so. See "RISK FACTORS".
The exercise price will be payable in cash or by certified or official
bank check payable to the Company. If fewer than all of the Warrants evidenced
by a warrant certificate are exercised, a new certificate will be issued for the
remaining number of Warrants. Certificates evidencing the Warrants may be
exchanged for new certificates of different denominations by presenting the
Warrant certificate at the office upon exercise of any Warrants and the number
of Warrants are subject to adjustment upon the occurrence of certain events,
including stock dividends, reclassifications, reorganizations, consolidations,
merger, and certain issuances and redemptions of Common Stock and securities
convertible into or exchangeable for Common Stock. No adjustment in the exercise
price will be required to be made with respect to the Warrants until cumulative
adjustments amount to $.05. In the event of any capital reorganization, certain
reclassification of the Common Stock, any consolidation or merger involving the
Company (other than a consolidation or merger which does not result in any
reclassification or change in the outstanding shares of Common Stock), or sale
of the properties and assets of the Company, as, or substantially as, an
entirety to any other corporations, Warrants will thereupon become exercisable
only for the number of shares of stock or other securities, assets, or cash to
which a holder of the number of shares of Common Stock of the Company
purchasable (at the time of such reorganization, reclassification,
consolidation, merger or sale) upon exercise of such Warrants would have ben
entitled upon such reorganization, reclassification, consolidation, merger or
sale.
Other Rights. In the event of an adjustment in the number of shares of
Common Stock issuable upon exercise of the Warrants, the Company will not be
required to issue fractional shares of Common Stock upon exercise of the
Warrants. In lieu of fractional shares of Common Stock, there will be paid to
the holder of the Warrants at the time of such exercise an amount in cash equal
to the same fraction of the current market value of a share of Common Stock of
the Company.
Warrant holders do not have voting or any other rights of shareholders of
the Company and are not entitles to dividends, if any.
Redemption of Warrants. If the closing price of the Common Stock shall
have equaled or exceeded $6.40 per Share for a period of 30 consecutive trading
days at any time after the date of this Prospectus, the Company may redeem the
Warrants by paying holders $.35 per Warrant, provided that notice of such
redemption is mailed within ten days after the end of such period and prescribes
a redemption date at least 30 days thereafter. Warrant holders will be entitled
to exercise Warrants at any time up to the business day next preceding the
redemption date.
Modification of the Warrant Agreement. The Warrant Agreement contains
provisions permitting the Company and the Warrant Agent, without the consent of
the Warrant holders, to supplement or amend the Warrant Agreement in order to
cure any ambiguity or defect, or to make any other provision in regard to
matters or questions arising thereunder that the Company and the Warrant Agent
may deem necessary or desirable and that does not adversely affect the interests
of the Warrant holders.
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Transfer Agent and Registrar and Warrant Agent
The Transfer Agent and Registrar and Warrant Agent for the Common Stock is
American Securities Transfer & Trust, Inc., Denver, Colorado.
Shares Eligible for Future Sale
Prior to this offering, there has been no public market for the Common
Stock or the Warrants. Sales of substantial amounts of shares of Common Stock in
the public market could adversely affect market prices of the Shares and make it
more difficult for the Company to sell equity securities in the future at a time
and price it deems appropriate. See "RISK FACTORS".
Upon completion of the offering, there will be 3,852,000 shares of Common
Stock outstanding excluding an aggregate of 4,125,000 shares issuable upon
exercise of; (i) the Warrants (3,000,000 Shares); (ii) the Over-Allotment Option
and the Warrants issuable thereunder (675,000 shares); (iii) the Founders'
Warrants (300,000 shares); (iv) the Representative's Warrants (450,000 shares);
and (v) shares possibly issuable under the Stock Option Plan which may be
adopted by the Company (a maximum of 375,000 Shares). Of these shares, the
1,500,000 shares sold in this offering, the 3,000,000 shares underlying the
Warrants, and the maximum of 675,000 shares issuable upon full exercise of the
Over-Allotment Option and the exercise of the Warrants issuable thereunder, will
be freely tradeable without restriction or further registration under the Act,
except for any such shares purchased by an "affiliate" of the Company, which
will be subject to the resale limitations of Rule 144 under the Act. As defined
in Rule 144, an affiliate of the issuer is a person who, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such issuer, and generally includes members of the Board of
Directors and senior management. Additionally, the 300,000 shares underlying the
Founders' Warrants and the 327,000 shares of the Company's Common Stock issued
prior to the Transaction, will also be registered under the Act. Of such 327,000
shares of Common Stock, 27,000 shares may not be sold for a period of 90 days
from the Effective Date. The remaining 300,000 outstanding shares and the
300,000 Shares issuable upon full exercise of the Founders' Warrants, while
registered under the Act, are subject to "lock-up provisions" existing between
the holders thereof and the Representative which preclude their sale into the
market without the Representatives prior consent for 15 months from the
Effective Date.
Of the 2,352,000 shares of Common Stock outstanding on the Effective Date,
2,025,000 Shares the 450,000 Shares issuable upon full exercise of the
Representative's Warrants, and the maximum of 375,000 Shares possibly issuable
upon any Stock Option Plan adopted by the Company are or will be "Restricted
Securities" as defined in Rule 144 under the Act ("Rule 144") (collectively the
"Restricted shares") and may not be sold without registration under the Act
unless pursuant to an applicable exemption therefrom. The Company has granted
certain registration rights with respect to the shares of Common stock
underlying the Representative's Warrants. In addition, the Company expects to
register under the Act at any appropriate time, the Shares reserved for issuance
under any Stock Option Plan adopted.
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In general, Rule 144 allows a stockholder who has beneficially owned
Restricted Shares for at least one year to sell a number of Restricted Shares
within any three-month period that does not exceed the greater of (i) one
percent of the then outstanding shares of Common Stock (approximately 38,520
Shares after giving effect to this offering) or (ii) the average weekly trading
volume in the Common Stock during the four calendar weeks immediately preceding
such sale. Sales under Rule 144 are also subject to certain requirements as to
the manner and notice of sale and the availability of public information about
the Company. A stockholder who is not an "affiliate" of the Company at any time
during the 90 days immediately preceding a sale, and who has beneficially owned
his Shares for at least two years (as computed under Rule 144) is entitled to
sell such Shares under Rule 144 without regard to the volume and manner of sale
limitations described above.
SELLING STOCKHOLDERS
The Registration Statement of which this Prospectus forms a part includes
627,000 shares of Common Stock (the "Selling Stockholder Shares") for resale by
certain stockholders of the Company (the "Selling Stockholders"). Of the Selling
Stockholders Shares, 327,000 are outstanding shares of Common Stock and 300,000
are shares of Common Stock underlying the Founders Warrants. Under certain
"lock-up provisions" between the Representative and the Selling Stockholders,
the 300,000 outstanding shares and the 300,000 shares underlying the Founders
Warrants may not be sold without the Representatives consent for 15 months from
the Effective Date. The remaining 27,000 Selling Stockholders Shares may not be
sold for 90 days from the Effective Date. See "DESCRIPTION OF SECURITIES -
Shares Eligible for Future Sale." Subject to these restrictions, the Selling
Stockholders may from time to time sell or otherwise dispose of such shares of
common Stock on their own behalf at market prices then prevailing or otherwise
at prices then available. None of these shares are being sold in the offering
which is being underwritten by the Underwriters, and the Company will not
receive any of the proceeds from the sale of these Selling Stockholders' Shares.
The Company is paying substantially all of the expenses of registration of the
Selling Stockholders' Shares. Brokers' commissions, taxes and other selling
expenses are to be borne by the Selling Stockholders and are not expected to
exceed normal selling expenses. Sales of the Selling Stockholders' Shares will
be subject to the prospectus delivery requirements and other requirements of the
Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock and Warrants
offered hereby are being passed upon for the Company by William T. Kirtley,
P.A., Sarasota, Florida and Gilbert L. McSwain, Esq., Denver, Colorado. Certain
legal matters will be passed upon for the Underwriters by David A.
Carter, P.A., Boca Raton, Florida,
EXPERTS
The consolidated financial statements of Gateway American properties, LLC
as of December 31, 1996, and for each of the years in the two-year period ended
December 31, 1996, and the balance sheet of Gateway American Properties
Corporation (a Colorado Corporation), included in this Registration Statement
have been audited by Gelfond Hochstadt Pangburn & Co., independent certified
public accountants, Denver, Colorado, as stated in their reports appearing
herein, and are included in reliance upon the reports of such firm, given upon
their authority as experts in accounting and auditing.
The financial statements of Gateway American Properties Corporation (a
Florida Corporation) as of December 31, 1995 and 1996, and for the period from
January 12, 1995 (date of inception) to December 31, 1995, and for the year
ended December 31, 1996, included in this Registration Statement have been
audited by Beatty & Company, P.A., independent certified public accountants,
Sarasota, Florida, as stated in their report appearing herein, and are included
in reliance upon the report of such firm, given upon their authority as experts
in accounting and auditing.
50
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission the Registration Statement under
the Securities Act of 1933 with respect to the Securities, among other
securities. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the Rules and Regulations of the Commission. For further information with
respect to the Company and this Offering, reference is made to the Registration
Statement, including the exhibits filed therewith, which may be examined at the
Commission's principal office, Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; the Northeast Regional Office of the Commission at
7 World Trade Center, Suite 1300, New York, New York 10048; and the Midwest
Regional Office of the Commission, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, where copies may be obtained upon payment
of the fees prescribed by the Commission, Such documents may also be obtained
through the website maintained by the Commission at http://www.sec.gov.
Descriptions contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement are not
necessarily complete and each such description is qualified by reference to such
contract or document. The Company will provide without charge to each person who
receives a Prospectus, upon written or oral request of such person to the
Company at the following address or telephone number, a copy of any of the
information that is incorporated by reference in this Prospectus: 9145 East
Kenyon Avenue, Suite 200, Denver, Colorado 80237, Attention: Joel H. Farkas,
telephone (303)843-9742.
51
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION,
a Colorado Corporation
INDEX TO FINANCIAL STATEMENTS
GATEWAY AMERICAN PROPERTIES, LLC,
Page
Independent Auditors Report............................... F-3
Consolidated Balance Sheets............................... F-4
Consolidated Statements of Income......................... F-5
Consolidated Statements of Members' Equity................ F-6
Consolidated Statements of Cash Flows..................... F-7
Notes to Consolidated Financial Statements................ F-9
GATEWAY AMERICAN PROPERTIES CORPORATION,
(a Colorado Corporation)
Independent Auditors' Report.............................. F-24
Balance Sheet............................................. F-25
Note to Balance Sheet..................................... F-26
GATEWAY AMERICAN PROPERTIES CORPORATION,
(a Florida Corporation)
Report of Independent Certified Public Accountant......... F-28
Balance Sheet............................................. F-30
Statement of Operations................................... F-31
Statement of Shareholder's Equity......................... F-32
Statement of Cash Flows................................... F-33
Notes to Financial Statements............................. F-34
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF
GATEWAY AMERICAN PROPERTIES CORPORATION (Colorado)
GATEWAY AMERICAN PROPERTIES, LLC and
GATEWAY AMERICAN PROPERTIES CORPORATION (Florida)
Introduction.......................................... F-38
Pro forma Condensed Balance Sheet..................... F-39
Pro forma Condensed Statements of Operations.......... F-40
Notes to Pro forma Condensed Financial Statements..... F-42
F-1
<PAGE>
Gateway American Properties, LLC
(A Colorado Limited Liability Company)
Years Ended December 31, 1995 and 1996 Six Months Ended June
30, 1996 and 1997 (Unaudited)
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
CONTENTS
Independent auditors' report............................................. F-3
Financial statements:
Consolidated balance sheets........................................... F-4
Consolidated statements of income..................................... F-5
Consolidated statements of members' equity............................ F-6
Consolidated statements of cash flows................................. F-7
Notes to consolidated financial statements............................ F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Gateway American Properties, LLC
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Gateway American
Properties, LLC and subsidiaries as of December 31, 1996, and the related
consolidated statements of income, members' equity and cash flows for each of
the years in the two year period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Gateway American
Properties, LLC and subsidiaries as of December 31, 1996, the results of their
operations, and their cash flows for each of the years in the two year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
September 22, 1997
F-3
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
1996 1997
------------ ----------
(Unaudited)
Cash $ 133,523 $ 48,757
Restricted cash 534,729 689,710
Accounts receivable 69,709 40,911
Accounts receivable, related party 84,650 184,392
Deposits 62,700 65,000
Land under development 16,081,225 17,055,929
Due from metro and
general improvement districts (Note 2):
Related parties 1,415,593 1,403,385
Other 161,038 161,638
Loan fees, net of amortization of $520,408 and
$618,322 in 1996 and 1997, respectively 364,420 250,376
Deferred offering costs 43,822
Other assets 28,819 42,394
------------ ----------
Total assets $ 18,936,406 $19,986,314
============ ===========
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Accounts payable $ 860,650 $ 1,010,370
Accounts payable, related parties (Note 5) 1,011,754 910,171
Property taxes payable 77,563 38,800
Customer deposits (Note 4) 236,000 338,500
Notes payable (Note 3):
Private placements 5,500,000 4,000,000
Banks 4,858,817 7,419,537
Related parties 1,047,433 1,396,565
Other 4,782,945 3,984,723
------------ ----------
Total notes payable 16,189,195 16,800,825
------------ ----------
Total liabilities 18,375,162 19,098,666
------------ ----------
Commitments and contingencies (Notes 2, 4, 5, and 6)
Minority interest 156,946 84,775
Members' equity 404,298 802,873
------------ ----------
Total liabilities and members' equity $ 18,936,406 $19,986,314
============ ===========
See notes to consolidated financial statements.
F-4
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF INCOME
Year ended Six months ended
December 31, June 30,
------------ --------
1995 1996 1996 1997
---------- ---------- ---------- ------------
(Unaudited) (Unaudited)
Sales:
Related party (Note 5) $2,800,535 $7,901,928 $3,591,620 $4,067,199
Other 1,574,824 2,598,678 1,428,395 981,844
---------- ---------- --------- -----------
4,375,359 10,500,606 5,020,015 5,049,043
Cost of sales (Note 5) 3,747,285 9,549,080 4,752,474 3,917,239
- ---------- ---------- --------- -----------
628,074 951,526 267,541 1,131,804
General and
administrative expenses 589,905 791,522 314,513 682,021
---------- ---------- ---------- -----------
Operating income (loss) 38,169 160,004 (46,972) 449,783
Interest income 10,728 1,450
---------- ---------- ---------- -----------
Income (loss) before
minority interest 48,897 161,454 (46,972) 449,783
Minority interest in
income of
consolidated
joint ventures 39,149 52,010 1,111 48,708
---------- ---------- ---------- -----------
Net income (loss) $ 9,748 $ 109,444 $ (48,083) $ 401,075
========== =========== =========== ===========
See notes to consolidated financial statements.
F-5
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Total
Member Member Accumulated members'
contributions distributions earnings equity
------------- ------------- -------- ------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $296,074 $(113,792) $67,158 $249,440
Contributions from members 30,500 30,500
Net income 9,748 9,748
-------- -------- -------- --------
Balance, December 31, 1995 326,574 (113,792) 76,906 289,688
Contributions from members 5,166 5,166
Net income 109,444 109,444
-------- -------- -------- --------
Balance, December 31, 1996 331,740 (113,792) 186,350 404,298
Distributions to members (unaudited) (2,500) (2,500)
Net income for the six months
ended June 30, 1997 (unaudited) 401,075 401,075
-------- --------- -------- --------
Balance, June 30, 1997 (unaudited) $331,740 $(116,292) $587,425 $802,873
======== ========= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended Six months ended
December 31, June 30,
1995 1996 1996 1997
---------- ---------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 9,748 $ 109,444 $ (48,083) $401,075
---------- ---------- ---------- --------
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 4,551 6,496 3,248 2,225
Amortization 232,618 266,909 108,429 98,243
Minority interest in income
of consolidated joint ventures 39,149 52,010 1,111 48,708
Changes in operating assets and liabilities:
Restricted cash 1,979,079 (181,304) 266,180 (154,981)
Accounts receivable (258,123) 125,941 (78,216) (70,944)
Deposits (62,700) (2,300)
Land under development (6,341,433) (3,896,108) (2,346,144) (974,704)
Due from metro and general
improvement districts (503,806) (1,072,825) 11,608
Loan fees (210,354) (370,491) (600)
Other assets (27,693) 108,339 39,388
Accounts payable 866,859 611,820 (345,958) 48,137
Property taxes payable 81,873 (27,437) (71,348) (38,763)
Customer deposits 86,313 (73,333) (49,999) 2,500
---------- ---------- ---------- --------
Net cash flows used
in operating activities (4,041,219) (4,403,239) (2,521,391) (629,796)
---------- ---------- ---------- --------
Cash flows from investing activities:
Distributions to minority interest (12,040) (59,667) (34,667) (120,878)
---------- ---------- ---------- --------
Net cash flows
used in investing activities (12,040) (59,667) (34,667) (120,878)
---------- ---------- ---------- --------
Cash flows from financing activities:
Deferred offering costs (43,822)
Issuance of notes payable 6,599,343 19,456,461 11,553,725 6,468,233
Payments of notes payable (2,781,389) (14,867,850) (8,971,114) (5,856,603)
Financing deposit 100,000
Contributions from members 30,500 5,166 175
Distributions to members (2,500)
---------- ---------- ---------- --------
Net cash flows provided
by financing activities 3,848,454 4,593,777 2,582,786 665,908
---------- ---------- ---------- --------
Net increase (decrease) in cash (204,805) 130,871 26,729 (84,766)
Cash beginning 207,457 2,652 2,652 133,523
---------- ---------- ---------- --------
Cash ending $ 2,652 $ 133,523 $ 29,381 $ 48,757
========== ========== ========== ========
(Continued)
F-7
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended Six months ended
December 31, June 30,
1995 1996 1996 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
Supplemental disclosure of
cash flows information:
Cash paid during the
period for interest $ 1,062,285 $2,261,129 $ 1,474,916 $1,001,808
=========== ========== =========== ==========
Disclosure of noncash
financing activities:
During 1996, the Company
assumed indebtedness of
members totaling $433,212
related to development
costs they had incurred
which has been included as
costs of land under
development (Note 5).
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1. Nature of business and summary of accounting policies:
a. Capitalization and organization of the limited liability company:
Gateway American Properties LLC (Gateway LLC or the Company) was formed in
June 1994 for the purpose of acquiring, zoning, platting, and developing
real property for residential use, into lots available for sale to
homebuilders. In certain subdivisions, the Company also constructs homes
or other buildings on properties it has developed instead of selling the
improved lots to other homebuilders. Land under development is
concentrated in the greater Denver metropolitan area and in Fort Collins,
Colorado. The builders may construct single family detached homes or
multifamily attached townhomes. The Company also plans to purchase other
real estate; complete the annexation, zoning, platting and infrastructure;
and sell the properties in bulk as platted, or as separate finished lots.
The Company may also engage in the development of commercial properties.
As more fully described in the accompanying notes, a substantial portion of
the land acquisition and sales transactions is with related parties.
Effective December 1994, the Company acquired a 50% ownership in the Land
Investors Acquisition Fund (LIAF), a Colorado limited liability company
formed in March 1994. The 50% membership interest in LIAF was acquired
from the Company's three principal members, one of whom is also a 93%
owner of Richland Development Company, LLC (RDC) and PrideMark, a
significant customer of the Company. The Company paid an amount equal to
50% of the net historical book value of LIAF. Since the Company's
principal members have exercised significant control over LIAF, the
accounts of LIAF have been consolidated with accounts of the Company since
the inception of LIAF.
Effective May 31, 1995, the Company acquired the remaining 50% interest in
LIAF for $235,000, consisting of cash and notes payable, from unrelated
third parties. The acquisition has been accounted for as a purchase and
the assets and liabilities have been recorded at fair value which
approximated historical costs.
F-9
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1. Nature of business and summary of accounting policies (continued):
a. Capitalization and organization of the limited liability company
(continued):
During 1995, the Company formed Rampart Townhomes at Roxborough, LLC. in
which the Company retained a 61.66% interest. In addition, during 1995 the
Company formed Townhomes at Quail Run, LLC. in which the Company retained
a 75% interest. Both LLCs have been consolidated in the accompanying
financial statements and the results of their operations have been
included in the financial statements since acquisition. Both entities are
in the business of developing land for sale to homebuilders.
Effective July 31, 1996, the Company acquired a 100% interest in Sterling
Hills, LTD. for $645,869 of which $354,546 was paid to related parties,
$63,782 was paid to a party related to the underwriter of the Company's
private placements and the remaining amount was paid to unrelated third
parties. Sterling Hills, Ltd. was merged into Gateway American Properties,
LLC as of July 31, 1996. The results of its operations have been included
in the financial statements since acquisition.
During 1996, the Company formed a new subsidiary, Willow Run Properties,
LLC in which the Company owns 99.999% with the remaining .001% owned by a
member of the Company.
All significant intercompany accounts and transactions have been
eliminated.
b. Limited Liability Company (LLC):
An LLC is an unincorporated association of one or more persons whose
members have limited personal liability for the obligations or debts of
the entity. For federal income tax purposes, the Company is classified as
a partnership.
F-10
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1. Nature of business and summary of accounting policies (continued):
c. Revenue and cost recognition:
Revenue and profit are recognized at the time a sale is closed, ownership
is transferred to the buyer, and the Company is not obligated to perform
significant activities subsequent to the closing date. Capitalized costs
are charged to cost of sales upon closing. Consideration received by the
Company for sales is generally cash.
During development, all direct material and labor costs and those indirect
costs related to acquisition and development are capitalized. Costs
incurred in connection with completed lots are expensed as incurred.
Provisions for estimated losses on uncompleted development projects are
recorded in the period in which such losses are determined. All customer
deposits are recorded as liabilities until the sale is completed.
d. Cash equivalents:
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of three
months or less when purchased to be cash equivalents.
e. Restricted cash:
Restricted cash represents funds held in escrow accounts with a bank for
certain designated purposes in connection with the Company's issuance of
12% secured promissory notes with a balance of $5,500,000 at December 31,
1996 ($4,000,000 at June 30, 1997 (unaudited)) (see Note 3). These escrow
accounts include funds designated for acquisition of the properties,
development of the lots, and payment of interest on the note.
Additionally, all proceeds from sales of finished lots are deposited in
the escrow account to be used for development of additional lots unless
and until funds held in the escrow account are considered sufficient to
cover development costs for all lots pledged as collateral on the note.
F-11
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1. Nature of business and summary of accounting policies (continued):
f. Due from metro and general improvement districts:
Amounts due from metro and general improvement districts consist of costs
incurred by the Company on behalf of certain districts in order to begin
the construction of necessary infrastructure items while the districts are
being established and the houses in the corresponding areas are being
sold. The collectibility of such advances is dependent on the related
districts' ability to successfully raise sufficient funds in order to
complete the construction of the infrastructure and reimburse the costs of
the Company. Management anticipates that all advances will be collected
from the metro general improvement districts.
As of December 31, 1996 and June 30, 1997 (unaudited), included in due from
metro and general improvement districts on the accompanying balance sheets
are $1,415,593 and $1,403,385, respectively, from metro districts of which
three members of the Company comprise the board of directors (see Note 2).
g. Land under development:
Land under development represents inventory consisting principally of lots
which the Company is zoning, platting, and readying for housing
construction. Inventories are stated at the lower of cost or net
realizable value. Costs of inventory include all land acquisition costs,
studies, site development, surveys, direct costs of land development, and
indirect costs including financing and other carrying costs incurred
during the period of development. Development costs are allocated to
specific parcels of land.
The Company is developing several projects which it is selling pursuant to
specific performance contracts and option contracts with related and
unrelated parties. Most contracts provide for price escalations based on
the date of closing. These projects are in various stages of development
and will require additional costs before the projects will be completed
and be available for sale.
F-12
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1. Nature of business and summary of accounting policies (continued):
h. Capitalization of interest:
The Company capitalizes interest on land under development during the
period of development and includes such costs as cost of sales when the
related real estate is sold. During the years ended December 31, 1996 and
1995, the Company incurred and capitalized interest of $2,261,129 and
$1,062,285, respectively, of which $63,540 and $3,320 was incurred to
related parties.
During the six month periods ended June 30, 1996 and 1997, the Company
incurred and capitalized interest of $1,474,916 and $1,001,808,
respectively, of which $31,735 and $18,148 was incurred to related parties
(unaudited).
i. Loan fees:
Loan fees relating to the private placement notes payable are capitalized
and amortized over the life of the respective loans.
j. Income taxes:
No provision for income taxes has been provided since the members report
their distributive shares of income and deductions of the limited
liability company in their personal capacities, pursuant to election under
Subchapter K of the Internal Revenue Code.
k. Fair value of financial instruments:
The Company's financial instruments consist of cash, accounts receivable,
due from general improvement districts, accounts payable and notes
payable. The carrying value of cash and accounts receivable approximates
fair value due to their short-term nature. Amounts due from and due to
non-related parties, including due from general improvement districts,
accounts payable and notes payable approximate fair value. The fair value
of amounts due from and due to related parties is not practicable to
estimate due to the related party nature of the underlying transactions.
F-13
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1. Nature of business and summary of accounting policies (continued):
l. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
m. Reclassifications:
Certain amounts reported in the 1995 financial statements have been
reclassified to conform to classifications in the 1996 financial
statements.
n. Interim financial statements (unaudited):
The financial statements as of June 30, 1997, and for the six months ended
June 30, 1996 and 1997, are unaudited. However, in the opinion of the
Company's management, the interim financial statements contain all
adjustments, including normal recurring adjustments, necessary for a fair
presentation of the Company's financial position, results of operations,
and cash flows.
2. Due from metro and general improvement districts:
Included in due from metro and general improvement districts are limited
tax bonds which the Company received in 1995 from a metro district as
payment for costs incurred by the Company on behalf of the metro district
for the construction of certain infrastructure items. The bonds bear
interest at 8% which is payable on a semiannual basis. The bonds will
mature at a rate of $5,000 per year beginning December 1, 1996 with the
remaining amount of $320,330 due on December 1, 2005. As of December 31,
1996 and June 30, 1997 (unaudited), the Company had $337,768 recorded in
due from metro and general improvement districts on the accompanying
balance sheets related to this metro district.
F-14
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
3. Notes payable:
The Company has notes payable as follows:
December 31, June 30,
1996 1997
---- ----
(Unaudited)
Notes payable, private placement, due
September 30, 1999, payments in eight
equal installments of $500,000 beginning
December 31, 1997, and each three
months thereafter, interest at 12%
payable monthly, collateralized by deed of
trust on various parcels of real property
and guaranteed by certain members of
the Company $4,000,000 $4,000,000
Notes payable, private placement, due
April 30, 1997, payments in two equal
installments of $1,500,000 on April 30,
1996 and 1997, interest at 12% payable
monthly, collateralized by deed of trust on
various parcels of real property and
guaranteed by certain members of the
Company 1,500,000
Notes payable, bank, due from March 24,
1997 through December 14, 1997,
interest at 1% to 2% above prime rate
with either quarterly payments or due at
maturity, collateralized by deeds of trust
on various parcels of real property 1,724,037 5,165,199
F-15
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
3. Notes payable (continued):
December 31, June 30,
1996 1997
---- ----
(Unaudited)
Notes payable, bank, under lines of credit
due from July 31, 1997 through June 30,
1998, interest at 1.5% above prime,
payable monthly, collateralized by deeds
of trust on various parcels of real property 2,234,976 2,254,338
Notes payable, bank, due from March
29, 1997 through June 1, 1997,
interest at 12% (or 4% over bank
rate, whichever is greater), payable
monthly, collateralized by various
parcels of real property and
guaranteed by certain members
of the
Company 899,804
Notes payable, related parties, due from
March 31, 1998 through January 2, 1999,
interest at 6% to 10% payable monthly or
quarterly, uncollateralized 897,433 986,565
Note payable, related party, due
January 2, 1999, interest at .75%
above prime payable monthly,
collateralized by deed of
trust on various parcels of real property 150,000 410,000
Notes payable, other, due February 28,
1997 through May 15, 2004, interest at
8% to 15%, payable monthly or quarterly,
collateralized by deeds of trust on various
parcels of real property 2,864,449 613,577
F-16
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
3. Notes payable (continued):
December 31, June 30,
1996 1997
---- ----
(Unaudited)
Notes payable, other, due through June 12,
1999, interest at 8.5% to 15%, payable
quarterly or deferred until maturity,
uncollateralized 1,918,496 3,371,146
--------- ---------
$ 16,189,195 $16,800,825
============ ===========
Notes payable, private placements provide financing for land acquisition
and development projects. The terms of the private placements require the
Company to maintain certain loan to collateral value ratios and cash
reserves (see Note 1). Notes payable, related parties, are payable to
members, their related companies, and affiliates.
Aggregate maturities for notes payable outstanding at June 30, 1997
(unaudited) are as follows:
1997 $ 3,261,046
1998 9,304,385
1999 2,645,804
2000 0
Thereafter 1,589,590
---------
Total notes payable $16,800,825
===========
F-17
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
4. Option contracts:
The Company has entered into option contracts with unrelated entities to
sell properties which it is developing into lots available for sale to
homebuilders. At December 31, 1996, the Company has committed to sell 119
remaining lots to these parties upon completion of development activity
for a total sales price of $2,971,250 (400 lots at a total sales price of
$9,490,400 at June 30, 1997 (unaudited)). These option contracts generally
include escalation clauses at various rates. Based on costs incurred
through December 31, 1996 (and June 30, 1997 (unaudited)), and
management's estimate of costs to complete the development, the Company
does not anticipate incurring any losses resulting from these option
contracts. Sales to one of these entities in 1996 comprised approximately
16% of total sales.
At December 31, 1996, the Company has received $236,000 ($238,500 at June
30, 1997, unaudited) as option deposits to be applied against the lots
available for sale.
In June 1997, the Company received $100,000 under an installment land
contract to sell a 10% undivided interest in a land parcel. Under the
agreement, the Company may be required to repurchase the parcel at its
fair market value over the next four years, with agreed upon minimum
appreciation. Consequently, the amount received is shown as a liability
and the minimum appreciation (or increase in fair market value, if
greater) will accrete over four years (unaudited).
5. Related party transactions:
a. Related party land purchases:
During 1996, the Company and its subsidiaries purchased unimproved land at
a cost of approximately $1,995,000 from affiliated entities. Upon
purchase, the cost of the land is included in land under development.
During 1995, the Company purchased unimproved land from affiliates with a
cost of approximately $2,220,000. During the six months ended June 30,
1997, the Company acquired no additional land from affiliated entities
(unaudited).
F-18
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
5. Related party transactions (continued):
b. Related party lot sales:
During 1996 and 1995, the Company sold improved lots to an affiliate which
is owned by a member and manager of the Company for cash of $7,809,928 and
$2,800,535 ($3,303,219 and $3,647,710 for the six months periods ended
June 30, 1996 and 1997 (unaudited), respectively). At December 31, 1996,
pursuant to specific performance contracts, the Company has committed to
sell 556 lots under specific performance contracts to the affiliate upon
completion of the development process for $11,488,350 (501 lots for
$12,158,300 at June 30, 1997 (unaudited)). The option contracts generally
include escalation clauses at various rates. Based on costs incurred
through June 30, 1997, and management's estimate of costs to complete the
development, the Company does not anticipate incurring any losses
resulting from these contracts. In 1996, an additional $92,000 ($419,489
during the six months ended June 30, 1997 (unaudited)) of lot sales were
made to an entity which is one-third owned by a member of the Company.
c. Indemnification agreement:
During 1995, the Company entered into an indemnification agreement whereby
the Company indemnifies the three principal members from any liability or
expense incurred by the members under loans obtained for the benefit of
the Company for which the members provided personal guarantees.
d. Legal fees:
Three members of the Company are attorneys in a law firm which provided
significant legal services to the Company, primarily pertaining to zoning,
platting and other related services in connection with developing real
estate. Approximately $470,000 of related party legal fees were incurred
by the Company in 1996, $680,000 in 1995, $337,100 (unaudited)) and
$70,244 (unaudited) for the six months ended June 30, 1996 and 1997,
respectively. At December 31, 1996, there were outstanding legal bills due
the law firm of $433,568 ($374,230 at June 30, 1997 (unaudited)).
F-19
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
5. Related party transactions (continued):
d. Legal fees (continued):
The Company has agreements with the law firm for legal fees related to
specific projects to be developed by the Company. These fees are
contingent on the completion of zoning and platting of some or all the
parcels involved. The fees incurred for such contingent legal work is
approximately $164,000 at December 31, 1996 ($185,000 at June 30, 1997
(unaudited)). However, these fees have not been billed by the law firm and
are not recorded in these financial statements.
e. Office lease:
The Company is leasing its office space under a noncancellable operating
lease expiring September 30, 1997, from an entity controlled by a member
of the Company. Rent expense under the lease for 1996 and 1995 was $45,852
and $43,364 ($19,575 and $38,870 for the six months ended June 30, 1996
and 1997 (unaudited)), respectively. The future minimum rental commitment
under this lease at December 31, 1996 is $27,972, all of which is due in
1997.
In June 1997, the Company renewed the lease for a three year period
beginning October 31, 1997. Under the terms of the new agreement, the
Company is to pay $5,773 per month for the first year with escalation
clauses in years two and three. The Company also has an agreement with the
related party law firm, whereby the law firm will reimburse the Company
$1,325 per month for office space occupied by the law firm (unaudited).
Minimum future rental commitments under this lease at June 30, 1997 are as
follows (unaudited):
Six months ended December 31, 1997 $25,226
Year ended December 31, 1998 70,029
Year ended December 31, 1999 73,041
Year ended December 31, 2000 56,475
F-20
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
5. Related party transactions (continued):
f. Other related party transactions:
During 1995, the Company entered into employment agreements with three
members of the Company to pay them aggregate annual compensation of
$336,000 per year beginning July 1, 1994. In 1996, compensation to the
three members totaled $1,052,591, of which $293,379 was paid to or on
behalf of the members, $433,212 was paid through the assumption by the
Company of indebtedness of the managers related to development costs they
had incurred on behalf of the Company, and $326,000 has been accrued at
December 31, 1996. During the six months ended June 30, 1996 and 1997,
compensation to the three members was $541,500 and $388,491, respectively;
$489,000 remains unpaid at June 30, 1997 (unaudited). In addition,
$183,500 was paid in 1996 as consulting fees to entities controlled by the
members.
During the six months ended June 30, 1996 and 1997, consulting fees paid to
affiliates were $20,000 and $26,400 (unaudited), respectively.
6. Proposed public offering:
In January 1997, the Company was party to an agreement whereby the Company
would acquire a controlling interest in Gateway American Properties
Corporation (GAPC) (a reverse acquisition). According to the agreement,
the members of the Company are to contribute their ownership interest in
the Company to GAPC in return for 2,025,000 shares of GAPC common stock,
out of a total outstanding common stock of 2,352,000 shares. The exchange
is to be effective contemporaneous with the closing of a proposed public
offering. The 327,000 shares of common stock not owned by the members of
the Company will be registered contemporaneous with the shares offered in
the proposed public offering.
F-21
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
6. Proposed public offering (continued):
The proposed offering will sell 1,500,000 shares of common stock of GAPC to
the public at $4.00 per share and 3,000,000 warrants at $.1875 per
warrant, with each warrant exercisable to acquire a share of common stock
at $4.50 per share for a period of three years. The underwriter for the
proposed public offering is to receive a commission equal to ten percent
of the proceeds of the public offering plus a three percent
non-accountable expense allowance. In addition, GAPC has agreed to engage
the underwriter as a financial advisor for three years at a total fee of
$108,000, payable at the closing of the public offering. The underwriter
will also receive warrants to purchase 150,000 shares of common stock at
$6.00 per share during the five-year period commencing on the date of the
offering and warrants to purchase for $.28125 per warrant additional
warrants to purchase up to 300,000 shares of common stock exercisable at
$6.00 per share during the three-year period commencing on the date of the
offering.
F-22
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION
(A COLORADO CORPORATION)
JUNE 30, 1997
CONTENTS
Independent auditors' report............................................. F-24
Balance sheet........................................................... F-25
Note to balance sheet................................................... F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Gateway American Properties Corporation
Denver, Colorado
We have audited the balance sheet of Gateway American Properties Corporation as
of June 30, 1997. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Gateway American Properties
Corporation as of June 30, 1997, in conformity with generally accepted
accounting principles.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
August 28, 1997
F-24
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION
(A COLORADO CORPORATION)
BALANCE SHEET
JUNE 30, 1997
ASSETS
Assets $ None
==========
LIABILITIES AND MEMBERS' EQUITY
Liabilities $ None
==========
Shareholders' equity:
Common stock, $0.01 par value;
authorized 20,000,000 shares;
issued and outstanding 100 shares 1
Additional paid-in capital 99
Stock subscription receivable (100)
----------
Total liabilities and shareholders' equity $ 0
==========
See notes to balance sheet.
F-25
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION
(A COLORADO CORPORATION)
NOTE TO BALANCE SHEET
JUNE 30, 1997
1. Organization and nature of business:
Gateway American Properties Corporation (the Company) was incorporated in
March 1997 for the purpose of acquiring all of the assets of Gateway
American Properties Corporation- Florida (GAPC-F), in exchange for 327,000
shares of the Company's common stock. In addition, the Company is party to
an agreement whereby the Company is to acquire Gateway American Properties,
LLC (Gateway LLC) subsequent to its acquisition of GAPC-F, and
contemporaneous with the closing of a proposed public offering of the
Company's stock. According to the agreement, the members of Gateway LLC are
to contribute their ownership interest in Gateway LLC in return for
2,025,000 shares of the Company's common stock.
Gateway LLC was formed in June 1994 for the purpose of acquiring, zoning,
platting, and developing real estate for residential use, into lots
available for sale to homebuilders. In certain subdivisions, the Company
also constructs homes or other buildings on properties it has developed
instead of selling the improved lots to other homebuilders.
GAPC-F is a development stage company incorporated in Florida which has not
had any significant operations.
The Company has entered into a letter of intent with an underwriter for a
public offering of its stock, whereby the Company will sell 1,500,000
shares of common stock to the public at $4.00 per share, and 3,000,000
warrants at $.1875 per warrant, with each warrant exercisable to acquire a
share of common stock at $4.50 per share for a period of three years. The
underwriter for the proposed public offering is to receive a commission
equal to ten percent of the proceeds of the public offering plus a three
percent non-accountable expense allowance. In addition, the Company has
agreed to engage the underwriter as a financial advisor for three years at
a total fee of $108,000, payable at the closing of the public offering. The
underwriter will also receive warrants to purchase 150,000 shares of common
stock at $6.00 per share during the five-year period commencing on the date
of the offering and warrants to purchase for $.28125 per warrant additional
warrants to purchase up to 300,000 shares of common stock exercisable at
$6.00 per share during the three period commencing on the date of the
offering.
F-26
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Interim Financial Report
June 30,1997
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Gateway American Properties Corporation
We have audited the accompanying balance sheet of Gateway American
Properties Corporation as of December 31, 1995 and 1996, and the related
statements of operations, shareholders' equity, and cash flows for the period
from January 12, 1995 (date of inception) to December 31, 1995 and for the year
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gateway American Properties
Corporation as of December 31, 1995 and 1996, and the results of its operations
and cash flows for the periods then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company's continued operations are dependent upon the
receipt of additional capital and the success of future operations, which raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Beatty & Company, P.A.
Certified Public Accountants
Sarasota, Florida
March 27, 1997 (except for Notes 5, 6, and 7, as to which the date is July 14,
1997)
F-28
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Balance Sheet
ASSETS
As of December 31 As of June 30
1995 1996 1996 1997
---- ---- ---- ----
(Unaudited)(Unaudited)
Current Assets:
Cash & Equivalents $ 76,715 $20,433 $ 46,419 $ 2,668
--------- ------- --------- --------
Other Assets:
Deferred Offering Costs $ 403,848 $31,210 $ 406,963 $ 81,142
Deposits 30,000 0 30,000 0
Organization Costs (Net) 282 211 246 176
--------- ------- --------- --------
Total Other Assets $ 434,130 $31,421 $ 437,209 $81,318
--------- ------- --------- --------
Total Assets $ 510,845 $51,854 $ 483,628 $83,986
========= ======= ========= ========
LIABILITIES & SHAREHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ 28,318 $ 33,548 $ 30,067 $ 79,878
Accrued Liabilities 1,625 2,250 375 3,250
-------- -------- -------- --------
Total Liabilities $ 29,943 $35,798 $ 30,442 $ 83,128
-------- -------- -------- --------
Shareholders' Equity:
Common Stock, $.01 par value,
10,000,000 shares authorized
436,000 shares issued &
outstanding $ 4,360 $ 4,360 $ 4,360 $ 4,360
Purchase Warrants 4,000 4,000 4,000 4,000
Additional Paid-In Capital 646,538 646,538 646,538 646,538
Accumulated Development Stage
Deficit (173,996) (639,842) (201,712 (654,040)
-------- -------- -------- --------
Total Shareholders' Equity $480,902 $16,056 $453,186 $858
-------- -------- -------- --------
Total Liabilities &
Shareholders' Equity $510,845 $ 51,854 $483,628 $ 83,986
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Statement of Operations
<TABLE>
<CAPTION>
For the For the
Period from For the For the Period from
Inception For the Six Months Six Months Inception
Through Year Ended Ended Ended Through
12-31-95 12-31-96 6-30-96 6-30-97 6-30-97
-------- --------- --------- --------- ---------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Development Stage Revenues:
Investment income $ 11,476 $ 1,888 $ 1,094 $ 95 $ 13,459
--------- --------- -------- -------- ---------
Expenses Incurred During Development Stage:
Costs of Withdrawn Public Offering $ 0 $ 406,963 $ 0 $ 0 $ 406,963
General & Administrative Expenses 61,314 23,250 13,716 8,325 92,889
Office Expenses 48,996 10,705 5,103 4,968 64,669
Legal & Professional 18,686 20,376 6,675 1,965 41,027
Travel & Related Costs 33,684 4,812 3,000 0 38,496
Other Miscellaneous Expenses 22,792 628 316 35 23,455
--------- --------- -------- -------- ---------
Total Expenses $ 185,472 $ 466,734 $ 28,810 $ 15,293 $ 667,499
--------- --------- -------- -------- ---------
Deficit Accumulated During Development
Stage $(173,996) $(464,846) $(27,716) $(15,198) $(654,040)
========= ========= ======== ======== =========
Earnings (Loss) Per Share $ (0.48) $ (1.07) $ (0.06) $ (0.03) $ (1.61)
========= ========= ======== ======== =========
Number of shares outstanding for purposes
of computing net loss per share 361,673 436,000 436,000 436,000 406,269
========= ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Statement of Shareholders' Equity
For the Period from Inception to December 31, 1995,
for the Year Ended December 31, 1996,
and for the Six Months Ended June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Development Total
Stock Purchase Paid-in Stage Shareholders'
$.01 Par Value Warrants Capital Deficit Equity
-------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sale of 287,346 shares of $.01
par value Common Stock and
251,346 Stock Purchase Warrants
for $384,998 less offering costs
of $59,722 $ 2,873 $ 2,513 $319,890 325,276
Sale of 22,654 shares of $.01
par value Common Stock and
22,654 Stock Purchase Warrants
for $26,000 227 227 25,546 26,000
Sale of 126,000 shares of $.01
par value Common Stock and
126,000 Stock Purchase Warrants
for $315,000 less offering costs
of $11,378 1,260 1,260 301,102 303,622
Development Stage Deficit
from inception through
December 31, 1995 (173,996) (173,996)
-------------- ----------- ---------- ------- ---------
Totals - December 31, 1995 $ 4,360 $ 4,000 $646,538 $(173,996) $ 480,902
Development Stage Deficit
accumulated from January 1, 1996
throughDecember 31, 1996 (464,846) (464,846)
-------------- ----------- ---------- ------- ---------
Totals -December 31, 1996 $ 4,360 $ 4,000 $646,538 $(638,842) $ 16,056
Development Stage Deficit
accumulated from January 1, 1997
through June 30, 1997 (Unaudited) (15,198) (15,198)
-------------- ----------- ---------- ------- --------
Totals - June 30, 1997 (Unaudited) $ 4,360 $ 4,000 $646,538 $(654,040) $858
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
For the For the
Period from For the For the Period from
Inception For the Six Months Six Months Inception
Through Year Ended Ended Ended Through
12-31-95 12-31-96 6-30-96 6-30-97 6-30-97
----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Cash Flows From (Used In) Financing Activities:
Sale of Common Stock & Purchase Warrants $ 725,998 $ 0 $ 0 $ 0 $ 725,998
Less Offering Costs for Private Placements (71,100) 0 0 0 (71,100)
--------- --------- --------- --------- ----------
Net Cash Flows From (Used In)Financing Activities $ 654,898 $ 0 $ 0 $ 0 $ 654,898
--------- --------- --------- --------- ----------
Cash Flows From (Used In) Investing Activities:
Deferred Offering Costs $(403,848) $ 372,638 $ (3,115) $ (49,932) $ (81,142)
Deposits (30,000) 30,000 0 0 0
Organization Cost (352) 0 0 0 (352)
--------- --------- --------- --------- ----------
Net Cash Flows From (Used In) investing Activities $(434,200) $ 402,638 $ (3,115) $ (49,932) $ (81,494)
--------- --------- --------- --------- ----------
Cash Flows From (Used In ) Operating Activities:
Development Stage Earnings (Deficit) $(173,996) $(464,846) $ (27,716) $ (15,198) $ (654,040)
Adjustments:
Amortization 70 71 36 35 176
Accounts Payable 28,318 5,230 1,749 46,330 79,878
Accrued Liabilities 1,625 625 (1,250) 1,000 3,250
--------- --------- --------- --------- ----------
Net Cash Flows From (Used In) Operating Activities $(143,983) $(458,920) $ (27,181) $ 32,167 $ (570,736)
--------- --------- --------- --------- ----------
Net Increase (Decrease) In Cash $ 76,715 $ (56,282) $ (30,296) $ (17,765) $ 2,668
Plus Beginning Cash Balance 0 76,715 76,715 20,433 0
--------- --------- --------- --------- ----------
Ending Cash Balance $ 76,715 $ 20,433 46,419 $ 2,668 $ 2,668
========= ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-32
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Notes To Financial Statements
1. Significant Accounting Policies
A. Development Stage Operations - The Company has been in the development
stage since its inception in late 1994 and subsequent incorporation in January,
1995 as a Florida corporation. The Company's proposed business activity is to
acquire one or more other business entities and/or develop business and
investment activities satisfactory to its shareholders. Since the Company has
not yet commenced full-scale operations and no significant revenues have been
realized through December 3 1, 1996, the financial statements have been reported
as those of a development stage company.
B. Principles of Consolidation - In connection with its formation, the
Company merged with an affiliated entity (also a development stage company)
effective January 13, 1995. The transaction has been accounted for as a pooling
of interests and, accordingly, the financial statements have been consolidated
to include the accounts of both companies, after elimination of all significant
intercompany balances and transactions.
C. Income Taxes - The Company's accounting policies for financial statement
purposes and income tax reporting purposes may vary due to timing and other
differences. Certain operating losses sustained to date may be offset against
taxable income of future periods.
D. Private Offering Costs - Since the Company has successfully completed
its initial private offerings of common stock, the related costs (which consist
primarily of placement and legal fees) have been offset against the additional
paid-in capital as of December 31, 1995 and 1996,
E. Organization Costs - The costs of organizing the Company, which consist
primarily of legal and filing fees incurred in the process of incorporation,
have been capitalized and are being amortized over a period of sixty months.
F. Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
various estimates and assumptions that affect the amounts reported in the
financial statements and the disclosures in the accompanying footnotes. Actual
results may differ from such estimates and the differences may be significant.
G. Reclassifications - Certain amounts reported in the 1995 financial
statements have been reclassified to conform to classifications used in the 1996
financial statements.
F-33
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Notes To Financial Statements
2. Related Party Transactions
A. Legal Matters - An individual who is an officer, director, and
shareholder of the Company is also an officer, director, and shareholder of the
law firm which was engaged by the Company to handle its incorporation, offerings
of securities, and other legal matters. Additionally, the Company intends to
further use such professional services with regard to future legal matters. The
total of all such related party legal fees (inclusive of expense reimbursements)
was $204,441 through December 31, 1995 and $15,802 for the year ended December
31, 1996.
B. Executive Employment Agreement - Subsequent to the approval of the
Company's Compensation Committee, an executive employment agreement was reached
with an individual who is an officer, director, and shareholder of the Company.
Although the contract requires annual basic compensation of $120,000, plus
various benefits, for a two-year period of time beginning upon the successful
completion of the Company's anticipated public offering, management intends to
replace such contract with an agreement for a one-time payment of $37,500 as
specified in the Letter of Intent with the Company's underwriter.
C. Office Rent Agreement - An informal agreement was entered into to rent
furnished office space from a company that is controlled by an individual who is
also an officer, director, and shareholder of the Company. The agreement, which
has been classified as an operating lease, requires weekly payments of $125 and
has no definitive time period.
3. Shareholders' Equity
A. Common Stock - As of December 31, 1995 and 1996, the Company has issued
436,000 shares of its 10,000,000 authorized shares of common stock with a par
value of $.01 per share.
B. Stock Purchase Warrants - The Company has also issued 400,000 stock purchase
warrants in connection with the organization of the Company. Terms of the
warrants entitle holders to purchase one additional share of the Company's
common stock for each warrant at a price of $3.3 75 per share at any time during
the three-year exercise period.
F-34
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Notes To Financial Statements
4. Uss Per Share
For the periods from inception through December 31, 1995 and 1996, the loss
per share is based upon the weighted average number of common shares
outstanding. The Company's stock purchase warrants have not been considered to
be common stock equivalents in the computation of loss per share because they
are anti-dilutive.
5. Deferred Offering Costs
As of December 3 1, 1996, the Company has deferred $3 1,2 1 0 in costs
incurred which pertain to its revised proposed public offering. If the offering
is successful, those costs will be charged against the proceeds of the offering.
In the event the offering is withdrawn (as the initial proposed public offering
was during 1996), such costs will be charged to current operations. Such public
offering is not expected to proceed further, however, until the outcome of the
business combination discussed below in Note 6 is determined.
6. Subsequent Events
Subsequent to the date of the financial statements, the Company
entered into agreements involving two other companies, both of which are
domiciled in the state of Colorado. The agreements, one of which is contingent
upon the successful completion of a proposed public offering, would result in
all three companies combining, in effect, to become a single business entity. In
the event such agreements are successfully concluded, the Company's shareholders
will have the right to exchange their common shares and purchase warrants for
common shares and warrants in the new publicly traded entity.
7. Anticipated Business Combination & Use of Cash
Although the December 31, 1996 cash balance of $20,433 has not been
formally restricted, the Company expects to consume the majority of its cash
reserves to facilitate its anticipated business combinations as discussed in
Note 6. Therefore, the amount of funds available for use in the Company's
proposed business activities (as outlined in Note 1) will be limited to those
funds, if any, available subsequent to such expenditures. Continued operations
are thus dependent upon the receipt of additional capital and the success of
future operations.
F-35
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Notes To Financial Statements
8. Interim Financial Statements (Unaudited)
The financial statements as of June 30, 1996 and 1997, and for the periods then
ended are unaudited. However, it is the opinion of the Company's management that
all adjustments necessary for a fair presentation of the financial statements
have been appropriately included.
F-36
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION (COLORADO),
GATEWAY AMERICAN PROPERTIES, LLC
GATEWAY AMERICAN PROPERTIES CORPORATION (FLORIDA)
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AND STATEMENTS OF OPERATIONS
The following unaudited pro forma condensed financial statements give effect to
the proposed business combination of Gateway American Properties Corporation
(Colorado) (the Registrant), Gateway American Properties, LLC, and Gateway
American Properties Corporation (Florida) on a purchase accounting basis. The
pro forma condensed balance sheet assumes that the business combination was
effective on June 30, 1997, and combines the audited June 30, 1997 balance sheet
of Gateway American Properties Corporation (Colorado) and the unaudited interim
June 30, 1997 balance sheets of Gateway American Properties, LLC and Gateway
American Properties Corporation (Florida). The pro forma condensed statement of
operations for the year ended December 31, 1996, was prepared based upon the
historical audited statements of operations of Gateway American Properties, LLC
and Gateway American Properties Corporation (Florida) for the year ended
December 31, 1996. The pro forma condensed statement of operations for the six
months ended June 30, 1997, was prepared based upon the unaudited interim
statements of operations of Gateway American Properties, LLC, and Gateway
American Properties Corporation (Florida) for the six months ended June 30,
1997. The pro forma statement of operations for each period was prepared
assuming the business combination was effective at the beginning of each period
presented.
These pro forma condensed financial statements should be read in conjunction
with the accompanying notes to the pro forma condensed financial statements, the
historical financial statements and notes of Gateway American Properties
Corporation (Colorado), Gateway American Properties, LLC, and Gateway American
Properties Corporation (Florida), all of which are included elsewhere herein.
The unaudited pro forma condensed statements of operations are not necessarily
indicative of future operations or the actual results that would have occurred
had the business combination been consummated at the beginning of each period
presented. Also, because of seasonal and other factors, the results of
operations for the six months ended June 30, 1997, are not necessarily
indicative of expected results for the fiscal year ending December 31, 1997.
F-38
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION (COLORADO),
GATEWAY AMERICAN PROPERTIES, LLC
GATEWAY AMERICAN PROPERTIES CORPORATION (FLORIDA)
PRO FORMA CONDENSED BALANCE SHEET
(Unaudited)
JUNE 30, 1997
<TABLE>
<CAPTION>
Gateway Gateway
American American
Properties Gateway Properties Pro Forma
Corporation American Corporation Adjustments
(Colorado) Properties LLC (Florida) (Note 2) Pro Forma
------------ -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash $ 48,757 $ 2,668 $ 51,425
Restricted cash 689,710 689,710
Accounts receivable 40,911 40,911
Accounts receivable,
related party 184,392 184,392
Deposits 65,000 65,000
Land under development 17,055,929 17,055,929
Due from Metro and general
improvement districts
Related parties 1,403,385 1,403,385
Other 161,638 161,638
Loan fees and other assets 336,592 81,318 417,910
------------ ----------- ---------- ------------ -----------
Total assets $19,986,314 $ 83,986 $ $20,070,300
============ =========== ========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable $ 1,010,370 $ 83,128 $ 1,093,498
Accounts payable,
related parties 910,171 910,171
Property taxes payable 38,800 38,800
Customer deposits 338,500 338,500
Notes payable:
Private placements 4,000,000 4,000,000
Banks 7,419,537 7,419,537
Related parties 1,396,565 1,396,565
Other 3,984,723 3,984,723
------------ ----------- ---------- ------------ -----------
Total notes payable 16,800,825 16,800,825
------------ ----------- ---------- ------------ -----------
Total liabilities 19,098,666 83,128 19,181,794
------------ ----------- ---------- ------------ -----------
Minority interest 84,775 84,775
Shareholders' equity:
Preferred stock
Common stock 1 4,360 19,159 (a) 23,520
Additional paid-in capital 99 646,538 129,574 (a) 776,211
Common stock
subscriptions receivable (100) 100 (a)
Stock purchase warrants 4,000 4,000
Accumulated deficit (654,040) 654,040 (a)
Members' equity 802,873 (802,873)(a)
------------ ----------- ---------- ------------ ----------
Shareholders' equity 802,873 858 803,731
------------ ----------- ---------- ------------ ----------
Total liabilities and
shareholders' equity $ $19,986,314 $ 83,986 $ $20,070,300
============ =========== ========== ============ ===========
</TABLE>
See notes to unaudited pro forma condensed financial statements.
F-39
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION (COLORADO),
GATEWAY AMERICAN PROPERTIES, LLC
GATEWAY AMERICAN PROPERTIES CORPORATION (FLORIDA)
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Gateway Gateway
American American
Properties Gateway Properties Pro Forma
Corporation American Corporation Adjustments
(Colorado) Properties LLC (Florida) (Note 2) Pro Forma
------------ -------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Sales:
Related party $4,067,199 $4,067,199
Other 981,844 981,844
---------- ----------
5,049,043 5,049,043
Cost of sales 3,917,239 3,917,239
---------- ----------
1,131,804 1,131,804
General and
administrative expenses 682,021 $ 15,293 697,314
---------- --------- ----------
Operating income (loss) 449,783 (15,293) 434,490
Interest income 95 95
---------- --------- ----------
Income (loss) before
minority interest 449,783 (15,198) 434,585
Minority interest in
income of consolidated
joint ventures 48,708 48,708
---------- --------- ----------
Income (loss) before
income taxes 401,075 (15,198) 385,877
Provision for income taxes $ 156,400 (b) 156,400
---------- --------- ------------- -----------
Net income (loss) $ 401,075 $ (15,198) $(156,400) $ 229,477
========== ========= ============= ===========
Net income (loss) per
common share before
initial public offering $ (.05) $ .10
========= ===========
Average shares outstanding 327,000 2,025,000 2,352,000
========== ========= ============= ===========
Net income (loss) per
common share after
initial public offering $ (.05) $ .06
========= ===========
Average shares outstanding 327,000 3,525,000 3,852,000
========== ========= ============= ===========
</TABLE>
See notes to unaudited pro forma condensed financial statements.
F-40
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION (COLORADO),
GATEWAY AMERICAN PROPERTIES, LLC
GATEWAY AMERICAN PROPERTIES CORPORATION (FLORIDA)
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (CONTINUED)
(Unaudited)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Gateway Gateway
American American
Properties Gateway Properties Pro Forma
Corporation American Corporation Adjustments
(Colorado) Properties LLC (Florida) (Note 2) Pro Forma
------------ -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Sales:
Related party $ 7,901,928 $ 7,901,928
Other 2,598,678 2,598,678
------------ ------------
10,500,606 10,500,606
Cost of sales 9,549,080 9,549,080
------------ ------------
951,526 951,526
General and
administrative expenses 791,522 $ 466,734 1,258,256
------------ ----------- -----------
Operating income (loss) 160,004 (466,734) (306,730)
Interest income 1,450 1,888 3,338
------------ ----------- -----------
Income (loss) before
minority interest 161,454 (464,846) (303,392)
Minority interest in
income of consolidated
joint ventures 52,010 52,010
------------ ----------- -----------
Income (loss) before
income taxes 109,444 (464,846) (355,402)
Provisions for income taxes $ 31,400 (b) 31,400
------------ ----------- ------------- -----------
Net income (loss) $ 109,444 $ (464,846) $ (31,400) $ (386,802)
============ =========== ============= ==========
Net income (loss) per
common share before
initial public offering $ (1.42) $ (.16)
=========== ============= ===========
Average shares outstanding 327,000 2,025,000 (c) 2,352,000
Net income (loss) per
common share after
initial public offering $ (1.42) $ (.10)
=========== ============= ===========
Average shares outstanding 327,000 3,525,000 (d) 3,852,000
=========== ============= ===========
</TABLE>
See notes to unaudited pro forma condensed financial statements.
F-41
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION (COLORADO),
GATEWAY AMERICAN PROPERTIES, LLC
GATEWAY AMERICAN PROPERTIES CORPORATION (FLORIDA)
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Merger
Pursuant to the terms of the Agreement Providing for Sale and Exchange of
Capital Stock as amended (the Transaction Agreement), effective October 1,
1997, the shareholders of Gateway American Properties Corporation
(Florida) received 327,000 shares of Gateway American Properties
Corporation (Colorado) common stock in exchange for the net assets of
Gateway American Properties Corporation (Florida). In addition, members of
Gateway American Properties, LLC will receive 2,025,000 shares of Gateway
American Properties Corporation common stock in exchange for their
membership interest which will occur on the effective date of the initial
public offering contemplated by this registration statement. Under the
terms of the Transaction Agreement, the issuance of 1,500,000 shares of
Gateway American Properties Corporation common stock at $4.00 per share to
purchasers in the initial public offering in exchange for the offering
proceeds is an integral part of the business combination transaction, and
the business combination transaction that is to be completed on the
effective date or immediately prior to the initial public offering is
conditional upon the successful completion of the initial public offering.
For financial accounting purposes, the pro forma financial statements
assume that the business combination transaction will be accounted for
under purchase accounting: for statement of operations purposes, the
business combination transaction was effective as of the beginning of each
period presented; and for balance sheet purposes, the business combination
transaction was effective on June 30, 1997. Furthermore, notwithstanding
that the initial public offering is an integral part of the business
combination transaction, the pro forma financial statements give no effect
to the proceeds of the initial public offering except that the net income
(loss) per common share after the initial public offering assumes that
1,500,000 common shares will be outstanding in conjunction with the
proposed initial public offering.
2. Pro forma adjustments:
a. For financial accounting purposes, the business combination is assumed to
be a reverse acquisition. Since 2,352,000 shares of Gateway American
Properties Corporation (Colorado) common stock (par value $.01) will be
outstanding, common stock was increased $19,159 and additional paid-in
capital was increased by $129,574. This was offset against the elimination
of Gateway American Properties, LLC members' equity of $802,873, and the
reclassification of Gateway American Properties Corporation (Florida)
accumulated deficit into additional paid-in capital.
F-42
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION (COLORADO),
GATEWAY AMERICAN PROPERTIES, LLC
GATEWAY AMERICAN PROPERTIES CORPORATION (FLORIDA)
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
2. Pro forma adjustments (continued):
The balance sheet does not give effect to the increase in cash, common
stock and additional paid-in capital that would be realized with the
proposed initial public offering of 1,500,000 common shares and 3,000,000
warrants. The initial public offering will occur in conjunction with the
business combination.
b. Gateway American Properties, LLC, as a limited liability corporation, did
not pay income taxes. For purposes of determining the pro forma effect of
the business combination, income tax expense has been computed as if
Gateway American Properties, LLC had been a C corporation. The income tax
provision assumes that Gateway American Properties, LLC had adopted SFAS
No. 109, Accounting for Income Taxes. The balance sheet effect of adopting
SFAS No. 109 would not be material.
c. The pro forma net income (loss) per common share before initial public
offering reflects the additional common shares that will be outstanding
after the business combination (see note 1), but does not give effect to
additional common shares that would be issued under the initial public
offering.
d. The pro forma net income (loss) per common share after initial public
offering reflects the additional common shares that will be outstanding
after the consummation of the business combination (see Note 1) and the
proposed initial public offering which will occur in conjunction with the
business combination. The calculation does not give any effect to the
proceeds that will be received under the initial public offering.
F-43
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or the Underwriter. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy the Units
of the Company to any person in any jurisdiction or in any circumstances in
which such offering would be unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create any implication
that the information contained herein is correct as of any time subsequent to
the date hereof.
TABLE OF CONTENTS
Introductory Statement........................ 3
Prospectus Summary............................ 4
Risk Factors.................................. 7
Selected Financial Information................ 15
Management's Discussion and Anal-
ysis of Results of Operations............... 18
Dilution...................................... 21
Use of Proceeds............................... 22
Pro Forma Capitalization...................... 24
Dividend Policy............................... 24
Business...................................... 24
Certain Transactions.......................... 32
Management.................................... 37
Principal Shareholders........................ 42
Underwriting.................................. 43
Description of Securities..................... 47
Selling Shareholders.......................... 50
Legal Matters................................. 50
Experts....................................... 50
Additional Information........................ 51
Index to Financial Statements................ F-1
Until [________________], 1998, all dealers affecting transactions in the
registered securities, whether or not participating in the distribution thereof,
may be required to deliver a Prospectus. This is in addition to the obligation
of dealers to deliver a Prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
1,500,000 shares of Common Stock
and
3,000,000 Redeemable Common
Stock Purchase Warrants
GATEWAY AMERICAN PROPERTIES
CORPORATION
------------------------------------
P R O S P E C T U S
------------------------------------
BARRON CHASE SECURITIES, INC.
7700 West Camino Real, Suite 200
Boca Raton, Florida 33433-5541
(561) 347-1200
Atlanta, Georgia
Beverly Hills, California
Boston, Massachusetts
Chicago, Illinois
Clearwater, Florida
Denver, Colorado
East Boca Raton, Florida
Edison, New Jersey
Eureka Springs, Arkansas
Fort Lauderdale, Florida
Hoopeston, Illinois
La Jolla, California
Minneapolis, Minnesota
Naples, Florida
New York, New York
Orlando, Florida
Sarasota, Florida
Tampa, Florida
Tulsa, Oklahoma
[_____________], 1997
<PAGE>
(ALTERNATE PROSPECTUS)
SUBJECT TO COMPLETION DATED __________________, 1997
PROSPECTUS
GATEWAY AMERICAN PROPERTIES CORPORATION
627,000 Shares of Common Stock
--------------------
This Prospectus relates to 627,000 shares of Common Stock (the "Selling
Stockholders Shares") for resale by certain of its stockholders (the "Selling
Stockholders"). The Selling Stockholders Shares include 327,000 presently
outstanding shares of Common Stock and 300,000 shares underlying outstanding
Common Stock Purchase Warrants ("Founders Warrants") exercisable at $4.50 per
share during a five-year period beginning with the effective date ("Effective
Date") of the Registration Statement of which this Prospectus is a part.
Pursuant to certain "lock-up provisions" between the Selling Stockholders and
Barron Chase Securities, Inc. (the "Representative") acting as representative of
the several underwriters ("Underwriters") of the public offering hereinafter
described, 300,000 of the presently outstanding Selling Stockholders Shares and
the 300,000 shares underlying the Founders Warrants may not be sold for 15
months from the Effective Date without the consent of the Representative. The
remaining 27,000 Selling Stockholders Shares may not be sold for 90 days from
the Effective Date. See ADESCRIPTION OF SECURITIES - Shares Eligible for Future
Sale".
The Registration Statement of which this Prospectus is a part also
includes 1,500,000 shares of Common Stock and 3,000,000 Redeemable Common Stock
Purchase Warrants (the "Warrants") being offered by the Company through an
offering underwritten by the Underwriters. The Company has granted the
Underwriters an option, exercisable within 45 days after the Effective Date to
purchase up to 225,000 additional shares of Common Stock and 450,000 additional
Warrants. See "Underwriting".
None of the 627,000 Selling Stockholders Shares are being underwritten by
the Underwriter and the Company will not receive any of the proceeds from the
sale of the Selling Stockholders Shares. See "SELLING STOCKHOLDERS".
Application has been made to list the Common Stock and Warrants of the
Company on Nasdaq SmallCap under the symbols _____ and _____W respectively.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. See
"RISK FACTORS" beginning on page 7 for a discussion of certain risk factors that
should be considered by prospective investors of the securities offered hereby.
The date of this Prospectus is ____________, 1997
- --------------------------------------------------------------------------------
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. Information
contained herein is subject to completion or amendment. These securities may not
be sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer to
sell of the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
- --------------------------------------------------------------------------------
<PAGE>
At the Effective Date, the Company will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended ("Exchange Act")
and, in accordance therewith, will be required to file reports, proxy or
information statements and other information with the Securities and Exchange
Commission (the "Commission"). At the Effective Date, the Securities will be
listed on Nasdaq SmallCap. Accordingly, such reports, proxy statements and other
information can be inspected and copied at the Commission's principal office,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; the
Northeast Regional Office of the Commission at 7 World Trade Center, Suite 1300,
New York, New York 10048; and the Midwest Regional Office of the Commission,
Citicorp Center, 500 West Madison street, Suite 1400, Chicago, Illinois 60661,
where copies may be obtained upon payment of the fees prescribed by the
Commission, as well as at the offices of The Nasdaq Stock Market, Inc., 1735 K
Street, N.W., Washington, D.C. Such documents may also be obtained through the
website maintained by the Commission at http://www.sec.gov. Holders of the
Company's Common Stock and Warrants will be able to obtain the most recent such
reports by making written requests therefore to the Company's offices located at
9145 East Kenyon Avenue, Suite 200, Denver, Colorado 80237, Attention: Joel H.
Farkas. The Company's telephone number at such address is 303/843-9742.
<PAGE>
INTRODUCTORY STATEMENT
Apollo III, Inc., a Florida corporation ("Apollo") was organized on
December 23, 1992 for the purpose of acquiring or consolidating with one or more
other business entities. On January 12, 1995, Gateway American Properties
Corporation, a Florida corporation ("Gateway-Florida") was formed as an
affiliate of Apollo for the purpose of entering a business combination
involving; (i) the merger of Apollo into Gateway-Florida; (ii) the acquisition
by Gateway-Florida of all the outstanding membership interests in Gateway
American Properties, LLC a Colorado limited liability company; and (iii) the
acquisition of capital from a public offering of securities of Gateway-Florida.
After filing a Registration Statement with respect to proposed public offering
of Gateway-Florida securities to be underwritten by the Representative, the
project was delayed by the parties. Prior to the resumption of the project,
Apollo was merged into Gateway-Florida in exchange for 274,000 shares of the
Common Stock of Gateway-Florida. Gateway-Florida later redomesticated into a
Colorado corporation through a statutory merger with the Company as the
surviving corporation. In this merger the shareholders of Gateway-Florida
received 327,000 shares of the Company's Common Stock and Common Stock Purchase
Warrants to purchase 300,000 shares of the Common Stock ("Founders Warrants").
The Founders Warrants are exercisable at $4.50 per share on the same terms and
conditions as the Purchase Warrants offered to the public by this Prospectus.
Gateway-Florida and Apollo are both considered as "predecessors" of the Company
as that term is defined under the Securities Act of 1933, as amended.
Immediately prior to the Effective Date of the Registration Statement of
which this Prospectus is a part, the Company will complete and consummate a
business combination transaction whereby it will acquire (i) all of the
outstanding membership interests of Gateway American Properties, LLC, a Colorado
limited liability company, ("Gateway") in exchange for 2,025,000 shares of
Common Stock. The offering of the Common Stock and Warrants by means of this
Prospectus is an integral part of the business combination transaction and such
transaction is conditioned upon successful completion of this offering. Such
transaction is referred to in this Prospectus as the "Transaction". See "CERTAIN
TRANSACTIONS".
Upon completion of the Transaction, including the offering described in
this Preliminary Prospectus, the Company will continue the business activities
of Gateway directly or through Gateway as a wholly owned subsidiary. See
"PROSPECTUS SUMMARY" and "BUSINESS". Unless otherwise indicated, the information
presented in this Preliminary Prospectus reflects and assumes the consummation
of the Transaction and refers to the Company and Gateway as a combined entity.
The remainder of this page left intentionally blank
3
<PAGE>
PROSPECTUS SUMMARY
Set forth below is a summary of certain information contained in this
Prospectus. Such information is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
The Company
The Company was formed pursuant to Colorado law on March 21, 1997. For the
past four years its subsidiary, Gateway, has been engaged in the business of
purchasing and developing real property into platted, finished and semi-finished
lots for sale to residential homebuilders. Gateway typically purchases real
property that is zoned for residential use and develops such property into
finished lots for sale to homebuilders who will construct single family detached
or multi-family attached homes on the finished lots. Homes constructed on these
lots are generally priced between $100,000 and $250,000. Gateway seeks to
provide its home builder customers with (i) approved and platted finished or
semi-finished residential building sites, (ii) a variety of geographical
locations, and (iii) delivery within time frames which meet the home builders'
needs. The Company was formed for the purpose of acquiring Gateway and the
capital funds from this offering and continuing Gateway's operations directly or
through it as a subsidiary. See "INTRODUCTORY STATEMENT" and "CERTAIN
TRANSACTIONS".
Gateway (including GV Development, LLC, a predecessor of Gateway which was
merged into Gateway on December 31, 1994) was organized in June, 1993. From its
organization through June 30, 1997, the Company's lot sales have increased from
fewer than 20 lots sold in 1994, to 194 lots sold in 1995 and to 478 lots in
1996. For the period ending June 30, 1997, Gateway has sold 277 lots. As of June
30, 1997, it had an inventory of 629 lots under development and an additional
550 that have been developed. Its lots in inventory and lots under contract are
located in eight cities and counties in the greater Denver metropolitan area and
in Fort Collins, Colorado.
Presently the home builders who have acquired lots, or are presently under
contract to acquire lots from the Company are PrideMark Home Building Group LLC
("PrideMark"), US Home, Melody Homes, Sheffield Homes, Continental Homes,
Sundown Development, Paul Adam Custom Homes, d/b/a Odyssey Homes, Meadow Homes
and Strauss Homes. PrideMark is principally owned by Michael A. Messina, who is
also a director, officer and principal shareholder of the Company. Accordingly,
PrideMark is an "affiliate" of the Company as that term is defined under the
Securities Act of 1933, as amended. The Company is also engaged in building
luxury townhomes in Roxborough Park in Douglas County, Colorado, on property it
owns and has developed. The Company may, from time to time, engage in such
building activities. See "BUSINESS", "CERTAIN TRANSACTIONS", "MANAGEMENT" and
"PRINCIPAL SHAREHOLDERS".
Certain Transactions with Affiliates
Historically, over 50% of the Company's real property purchases have been
from affiliated parties. The Company plans to reduce such transactions in the
future and has taken steps over the past two years toward that end. The Company
and the involved affiliated parties have agreed that on such purchases the
Company will pay a purchase price of 10% below the fair market value of the
properties, based upon independent expert appraisals.
4
<PAGE>
For the 30 month period beginning January 1, 1995, 72% of the finished and
semi-finished lots sold by the Company have been sold to the affiliate,
PrideMark. Over the next 12 months it is anticipated that the Company will
continue to sell between one-third and one-half of its platted, semi-finished
and finished lots to PrideMark.
In addition, the Company utilizes legal services from a law firm of which
Mr. Deutsch, an officer, director and principal shareholder of the Company, is a
shareholder and principal. Mr. Deutsch has agreed that commencing on the
Effective Date, he will have no economic interest in any legal fees paid by the
Company to the law firm for services rendered subsequent to the Effective Date.
For additional information on transactions with affiliated parties, see
"RISK FACTORS" and "CERTAIN TRANSACTIONS".
The Offering
Common Stock offered 1,500,000 Shares
Warrants offered 3,000,000 Warrants
Common Stock to be outstanding after
the Offering(without any Warrant Exercise) 3,852,000 Shares
Proposed Nasdaq SmallCap Symbols Common Stock Warrants
_______ _____-W
The number of shares of Common Stock and Warrants to be outstanding as
reflected above does not take into account additional shares of Common Stock and
Warrants which may be outstanding to the extent that the Over-Allotment Option
granted to the Underwriters is utilized. The information presented above also
does not take into account warrants which are being granted to the
Representative.
Use of Proceeds
The net proceeds to be received by the Company as a result of this offering
are estimated at approximately $5.5 million. The net proceeds are expected to be
utilized by the Company in the acquisition and development of real estate
properties, including off-site development improvements, for reduction of debt,
for marketing and advertising, and as general working capital. See "USE OF
PROCEEDS".
5
<PAGE>
Risk Factors
An investment in the Common Stock and Warrants of the Company involves a
substantial degree of risk and should not be made by investors who cannot afford
the loss of their entire investment in such securities. See "RISK FACTORS".
Unaudited Selected Pro Forma Financial Data
The unaudited pro forma selected financial data as of June 30, 1997 and
for the year ended December 31, 1996 and the six months ended June 30, 1997 are
derived from the unaudited pro forma condensed balance sheet and statements of
operations set forth subsequently in this Prospectus, which give effect to the
Transaction in the manner described in the notes to the pro forma condensed
financial statements. The pro forma selected financial data presented below and
the pro forma condensed financial statements should be read in conjunction with
the accompanying notes to the pro forma condensed financial statements, the
historical financial statements and the notes of each of the respective
companies, all of which are included subsequently in this Prospectus. The
unaudited pro forma condensed statements of operations are not necessarily
indicative of future operations or the actual results that would have occurred
had the Transaction been consummated at the beginning of each period presented.
Gateway American Properties, Corp.
(A Colorado Corp.)
Unaudited Pro Forma Selected Financial Data
Giving Effect to the Transaction and Offering
Year Ended Six Months
December 31, Ended June 30,
1996 1997
------------ --------------
Income Statement Data:
Sales $10,500,606 $5,049,043
Gross Profit(1) 951,526 1,131,804
Operating Income (Loss) (306,730) 434,490
Net Income (Loss) (386,802) 229,477
Net Income (Loss) per Common Share(2) (.10) .06
As adjusted for
June 30, 1997 Offering
Balance Sheet Data: ------------- ---------------
Total Assets(3) $20,070,300 $22,556,550
Debt(3) 16,800,825 13,800,825
Stockholders' Equity 803,731 6,289,981
6
<PAGE>
__________
(1) Gross profit is defined as total sales less cost of sales.
(2) Net income per common share reflects the 1,500,000 Shares that will be
outstanding after the consummation of the Transaction and the offering
described in this Prospectus which will occur in conjunction with and as a
part of the Transaction. These income calculations do not give any effect
to the proceeds that will be received pursuant to the offering described in
this Prospectus.
(3) Consistent with industry standards, assets and liabilities are not
classified as either current or long term and, therefore, information
relating to such classifications is not presented.
The SELECTED FINANCIAL INFORMATION section of this Prospectus sets forth
selected historical financial data for Gateway, and the Company and pro forma
financial data, assuming the consummation of the Transaction described in the
Prospectus sections "INTRODUCTORY STATEMENT" and "CERTAIN TRANSACTIONS", all as
of the dates described in the historical financial statements of Gateway, Apollo
and the Company and in the pro forma financial statements.
RISK FACTORS
The securities offered by this Prospectus involve a high degree of risk and
should be considered speculative securities. Additionally, the business
activities of the Company which relate to the acquisition of real property for
further development into platted, semi-finished and finished residential
building lots are subject to being affected in an adverse material way by the
risk factors set forth below. Interested investors should carefully consider the
following risks relative to the Company, its business and the offered securities
in determining whether to purchase the Common Stock and Warrants of the Company.
Limited History of Operations. The Company was formed in March of 1997 for
the express purpose of effecting the Transaction, upon completion of which the
Company will continue the business of Gateway. Gateway was formed as a Colorado
limited liability company in June, 1994. Effective December 31, 1994, GV
Development, LLC, a Colorado limited liability company which was formed in June,
1993, was merged into Gateway pursuant to the applicable provisions of the
Colorado Limited Liability Company Act. GV Development, LLC's business
activities were similar to Gateway and GV Development, LLC was under the control
of substantially the same members as Gateway. Accordingly, the activities of GV
Development, LLC, are included as those of Gateway for purposes of this
Prospectus and the consolidated financial statements of Gateway contained
herein. During the fiscal years ending December 31, 1995 and 1996, Gateway
experienced net incomes of approximately $9,748 and $109,444 respectively and of
$401,075 for the six months ended June 30, 1997. While profitable operations
have, accordingly, occurred during the 30 month period ending June 30, 1997
there can be no assurance that the Company will continue to operate profitably
with respect to the business previously conducted by Gateway. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
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Outstanding Debt Obligation, Encumbrance of Assets. From Gateway's
inception through June 30, 1997, Gateway sold its 12% Secured Promissory Notes
as follows: principal amount of $6 million, due September 30, 1996; principal
amount of $3 million due April 30, 1997; and principal amount of $4 million due
September 30, 1999 (the "Notes"). For further information concerning such Notes,
see "CERTAIN TRANSACTIONS". As of June 30, 1997, the $6 million Note due
September 30, 1996 and the $3 million Note due April 30, 1997 have been paid in
full. The $4 million Note (the "Note") due September 30, 1999 is outstanding and
a principal payment of $500,000 is due December 31, 1997 and at the end of each
calendar quarter thereafter with any unpaid balance due September 30, 1999. The
Company will pay a total of $1,000,000 on the principal of the Note from the
proceeds of the offering and the balance will be paid from funds from operations
or debt financing. The obligation represented by the Note is secured by deeds of
trust which encumber a substantial portion of the inventory of finished and
platted, semi-finished residential building lots held by the Company presently
and from time to time. The obligation represented by the Note has been expressly
assumed by the Company. The principal and interest obligation of the Note is
presently unconditionally guaranteed by Messrs. Deutsch, Farkas and Messina. The
Company has agreed to indemnify Messrs. Deutsch, Farkas and Messina from and
against any liability, cost or expense incurred by them under any loan or
obligation obtained by or for the benefit of the Company, including their
guarantees of the Note. The possibility exists that additional private
placements of debt obligations may be conducted by the Company. In the private
placement of the Note, the Company received assistance from Phillips & Tober,
Inc. of Denver, Colorado, a securities broker-dealer. Phillips & Tober, Inc. has
certain rights of first refusal with respect to any future private offerings of
debt participation obligations of the Company. This first right of refusal does
not apply to loans by financial institutions. In addition to the Note, the
Company had other outstanding debt as of June 30, 1997, totaling $12,800,825
made up of $7,419,537 due to banks, $1,396,565 due to related parties and to
others $3,984,723. Of the total other debt, $11,895,532 is secured by liens
against the real property of the Company under arrangements providing for the
payment of substantial portions of the proceeds received upon the sale of
platted, finished or semi-finished lots. For further information concerning such
debt and the related maturity dates, see Note 3 to the consolidated financial
statements of Gateway included elsewhere in this Prospectus.
Status of Properties Acquired and to be Acquired. With respect to any real
property acquired by the Company, investigatory processes customarily used in
the development industry will have to be accomplished in order to assure to the
extent reasonably practicable that such properties are not contaminated by any
hazardous waste, or, if there is a contamination, that such contamination can be
eliminated or mitigated and does not affect the building lots. The Company
believes, as of the date of this Prospectus, that the properties constituting
its inventory of platted, semi-finished and finished residential building lots
are not contaminated by any hazardous waste. However, there can be no absolute
assurances that hazardous waste that cannot be effectively removed or mitigated
does not or will not in the future be found to exist under any of the properties
owned by the Company or on properties located close enough to such properties to
allow migration of hazardous materials onto the Company's properties. In such
event, the Company may be required to expend substantial funds to remedy and
clean up hazardous waste and the presence of hazardous waste may adversely
affect the ability of the Company to sell or refinance such properties or to
continue to develop such properties. As indicated subsequently in this
Prospectus section and elsewhere herein, a substantial portion of the Company's
inventory of platted, semi-finished and finished residential building lots is
subject to a lien securing the principal and interest obligation of certain
outstanding debt obligations of the Company. In the event that any of such lots
are found to be contaminated by any hazardous waste, the Company will be
obligated to replace such contaminated lots with uncontaminated lots pursuant to
the terms of issuance of such outstanding debt obligations. The Company does not
presently carry insurance against losses caused by hazardous waste or other
catastrophe such as earthquakes or tornadoes.
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Geographic Concentration. The residential lot development activities of
the Company and Gateway have been concentrated in the greater Denver
metropolitan area and in Fort Collins, Colorado. The residential lot development
and home building market in such areas has fluctuated greatly during the past
approximate ten years. The markets in which Gateway has operated and in which
the Company will operate have experienced substantial fluctuation in local
economic conditions which have been both adverse and favorable. The market area
is also affected by regional and national economic conditions such as interest
and rates of inflation, relative levels of employment, and local, state and
federal governmental policies and regulations. Presently the Company believes
that the markets in which the Company presently operates are experiencing
favorable economic conditions but no assurance can be given that such
circumstance will continue over the near or mid future time.
Regulatory Factors. In its development activities relating to residential
building lots, the Company operates in a strict regulatory environment which
will involve the procurement of necessary zoning classifications, permits and
other authorities permitting the development and further development of real
property acquired. As part of the zoning and subdivision processes, a developer
such as the Company generally is required to agree to complete certain
improvements to the subdivided property ("on-site improvements") which provide
service to the property, and, in some instances, improvements to neighboring
properties ("off-site improvements") which service the proposed subdivision,
before the lots will qualify for issuance of a building permit. Until a lot can
qualify for issuance of a building permit, it is not ordinarily marketable by
the Company to a home builder. The required off-site improvements can include
such matters as acquisition and completion of service roads and utilities to the
subject property, acquisition of off-site storm water drainage facilities and
dedication (or payment in lieu of dedication) of lands and improvements for
parks or other greenbelt or open space areas. On-site improvement requirements
can include completion of streets and service utilities to each lot and
completion of on-site drainage facilities, parks or open space areas. Once
installation requirements are met and building permits are issued, developers
such as the Company, in most instances are required to provide maintenance of
the improvements for a period of time following their installation (usually one
year) before the governing bodies will accept the improvements for public
maintenance. To secure the obligation to maintain, developers are required to
post collateral with the governing agencies in the form of bonds, cash or
letters of credit in a percentage of the total cost of the improvements. If more
than one developer is involved in a subdivision, the development obligations are
generally joint and several to the several developers. Sometimes such
development obligations are allowed to be phased as lots are completed and
houses built and sold, and sometimes the development obligations are apportioned
among the developers by agreement. Gateway has, and the Company will have
substantial "on-site" and "off-site" improvement obligations with respect to
real property intended to be developed. Adequate capital may not always be
available for such purposes. Regardless of the private placement of the debt
obligations described below in Outstanding Debt Obligations, Encumbrance of
Assets and the completion of this offering, the Company estimates that
additional development funds will be required to provide for the total costs of
development of the platted, unfinished and semi-finished lots intended to be
acquired and developed by the Company in the future. Such additional required
funds are anticipated to be provided from the sales of lots in a finished state
and the creation of additional debt obligations. In the event that sufficient
proceeds are not available from those sources, lots in an unfinished status may
have to be sold at significantly reduced prices.
Other Operational Risks. In addition to the improvement obligation risks
enumerated above, there are other development risks associated with completing
the improvements to the subdivision and lots and making the lots finished and
marketable to the home builder at a price that is profitable to the Company and
within a time frame that will allow the Company and the home builder to take
advantage of cyclical fluctuations in the market. See Market Risks below. Delays
related to governmental regulation, weather, availability of labor and
materials, ability and capacity of utility companies to connect utility service
and supply the volume of service necessary to meet the subdivision needs, and
increases in costs of labor and materials, all can adversely impact the value of
the residential building lots held by the Company.
9
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Market Risks. The market for residential real estate is cyclical. A strong
or rising new home sales market creates demand for lot development. Often, in an
attempt to reach this market first, developers initiate new projects all at once
creating an oversupply of available lots when the lots are finished months later
after completion of the development process. Whether the demand for new lots
will keep pace with the competitive effort to supply lots is dependent on many
factors beyond the control of the Company. Consequently, there is a risk that
the Company may purchase property that it subsequently is unable to sell at a
profit or at all as a result of adverse conditions which develop in the market.
Also, in the normal course of business, it will be necessary for the Company to
expend funds to investigate and evaluate potential properties to be acquired by
the Company, to pay option deposits to secure purchase contracts for properties,
and to expend funds to obtain plats for properties (the costs of the platting
process can range from $50,000 to $500,000 per property), even though the
Company ultimately may not actually acquire the properties due to a downturn in
the market.
Dependence on PrideMark and Other Home Builder Customers. For the 30 month
period beginning January 1, 1995, 72% of the finished and semi-finished lots
sold by the Company have been sold to PrideMark, a home building company owned
by Michael A. Messina, who is an officer, director and principal stockholder of
the Company. It is anticipated that the Company will continue to sell between
one-third to one-half of its platted, finished and semi-finished lots to
PrideMark. The Company currently has eight other existing home builder
customers. As a consequence, the Company's success is heavily dependent upon the
economic health of PrideMark and its other customers and a bankruptcy or other
reorganization of any of these customers could have a material adverse effect
upon the Company's business. Even some of the largest production home builders
operating in the Denver metropolitan area have experienced reorganization
proceedings under the bankruptcy laws during the past approximate ten years.
Dependence on Key Personnel. Messrs. Harvey E. Deutsch, Joel H. Farkas and
Michael A. Messina presently serve as members of the Board of Directors of the
Company and as the executive officers of the Company. See "MANAGEMENT". The
ability of the Company to successfully conduct its business is largely dependent
upon the continuing availability of such persons in their managerial capacities.
Loss of the services of Messrs. Deutsch, Farkas or Messina could have a material
adverse affect on the Company's ability to achieve its business objectives. The
Company has obtained key-person life insurance upon these three individuals in
the amount of $1,500,000 each.
Possible Conflicts of Interest. In the past, Gateway has purchased real property
from entities (usually limited partnerships or limited liability companies) in
which the officers and directors of the Company have had an interest. The
officers and directors having an interest in entities conveying properties to
the Company are Harvey E. Deutsch, Joel H. Farkas and Michael A. Messina. As a
result, possible conflict of interest circumstances may arise with respect to
the establishment of the terms and price of any real property purchase
transaction between the Company and any such affiliated entity. Any possible
conflict of interest circumstances, however, are mitigated by the Company's
policy that residential real estate property acquired by the Company be acquired
at a cost which will be 10% below the fair market value based on an appraisal
conducted by an independent appraiser and/or as a result of the circumstances
and requirements which relate to the ultimate price of a platted, semi-finished
or finished lot as developed by the Company and which will be paid by
residential home builders. With respect to land acquired for immediate
development into lots and as to which the Company has a sales contract with a
home builder for sale of the finished lots, the sales price of the platted,
finished or semi finished lots to the home builder will be a significant factor
in determining the price per lot which can be paid by the Company, taking into
account the development costs which are required to be incurred by the Company
prior to the lot being sold in a platted, semi-finished or finished status to
10
<PAGE>
the residential home builder. With respect to land purchased for development but
as to which no current sales contract has been negotiated, an independent
appraisal will be a significant factor in determining the price per lot that
will be paid by Company. The Company has historically sold a substantial portion
of its platted, semi-finished or finished lots to PrideMark, a home construction
firm owned by Michael A. Messina, who is also an officer, principal shareholder,
and a member of the Board of Directors of the Company. It is anticipated that
the Company will continue to sell a portion of lots to PrideMark in the future.
Commencing in 1992, PrideMark began developing, platting and acquiring lots to
serve its own building needs. In addition, the Company has and will make lot
sales to Strauss Homes, a firm in which Jeffrey K. Prager, a key employee of the
Company is a principal owner. See "CERTAIN TRANSACTIONS", "MANAGEMENT" and
"PRINCIPAL SHAREHOLDERS".
Competition. The residential lot development industry is highly competitive. In
times of strong demand for residential building lots, developers are inclined to
initiate a number of developments at substantially the same time thereby
potentially creating an oversupply of residential building lots in a particular
area. When demand for such residential building lots slackens, downward pressure
with respect to the pricing of such residential lots usually occurs. Other
factors will affect the relative competitive position of the Company, including
the location of the Company's platted, semi-finished and finished lots, the
presence of other competing entities in the Company's areas of operations and
the relative level of acceptance of the lots platted, finished or semi-finished
by the Company from an aesthetic point of view by the consumer. Ultimate pricing
of the lots will also be a competitive factor. Entities in competition with the
activities of the Company may be vested with substantially greater financial,
managerial and other resources than those available to the Company at the
conclusion of this offering. There can be no assurance that the Company will
effectively meet such competition on a continuing basis.
Determination of Share and Warrant Offering Price. Prior to the offering
made hereby, there has been no public market for the Common Stock or Warrants of
the Company and there is no assurance that an active trading market for such
Common Stock and Warrants will develop or be sustained after the offering is
concluded or that the shares of Common Stock or the Warrants will be traded at
or above their initial public offering prices of $4.00 and $.1875, respectively.
The initial public offering price of the Common Stock and the Warrants has been
determined through negotiations between the Company and the Representative based
upon the factors described herein and may not be indicative of the market prices
for the Common Stock or the Warrants subsequent to the conclusion of the
offering. The price of the Common Stock and Warrants offered hereby takes into
account the present and future earnings of the Company, the Company's business
potential and its real estate activities and other factors. See "UNDERWRITING".
Nasdaq Listing and Maintenance. At the conclusion of the public sale of
the Common Stock and Warrants offered hereby, it is anticipated that such Common
Stock and Warrants will be eligible for listing on the Nasdaq SmallCap. In order
to continue to be listed on Nasdaq SmallCap, however, the Company must maintain,
among other criteria, $2 million in net tangible assets, $35 million in market
capitalization or $500,000 in net income (in the latest fiscal year or in two of
the last three fiscal years). In addition, the ability to have such Common Stock
and Warrants listed on a continual basis requires the presence of two market
makers and a minimum bid price of $1.00 per share. The failure to satisfy these
criteria on a continuous basis may result in the delisting of the Common Stock
of the Company from Nasdaq SmallCap, in which event trading, if any, in the
Common Stock would thereafter be conducted on the OTC Bulletin Board or in the
over-the-counter market. As a result of any such delisting, investors may find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Common Stock and Warrants.
11
<PAGE>
Risks Relating to Low Priced Stocks. In the event that the Common Stock of
the Company were to be delisted from trading on Nasdaq SmallCap and no other
exclusion from the definition of "penny stock" under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") were available, trading in the Common
Stock of the Company would also be subject to the requirements of certain rules
promulgated under the Exchange Act by the Commission, which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a penny stock. Such rules require delivery, prior to any penny stock
transaction, of a disclosure document explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell or deal in penny stocks to persons who are other than
established customers of such broker-dealers or Accredited Investors. For these
types of transactions, the broker-dealer must make special suitability
determinations with respect to the purchaser and have received the purchaser's
written consent to the transactions prior to sale. The additional burdens
imposed upon broker-dealers by such requirements relating to penny stocks could,
most likely, discourage broker-dealers from effecting transactions in the Common
Stock and Warrants of the Company, which would severely limit and restrict the
market liquidity attributable to the Common Stock and the Warrants and the
ability of purchasers in this offering to sell the Common Stock and Warrants in
any secondary market.
Market for Common Stock and Warrants. In connection with this offering of
Common Stock and Warrants, the Underwriters may engage in stabilization
activities. The effect of such activities may result in the bid price for the
Common Stock and Warrants of the Company to be artificially maintained at a
price which is the same as or is slightly above the public offering price of
$4.00 per share of Common Stock and $.1875 per Warrant. Additionally, the
Underwriters are expected to sell the Common Stock and Warrants to the their
customers and to engage in market making activities with respect to the after
market for the Common Stock and the Warrants. No assurance can be given that
such market making activities of the Underwriters will continue for any length
of time and the withdrawal of one or more of the Underwriters as market makers
for the Company's Common Stock and Warrants could have an adverse effect on the
price of such securities and the after market for such securities.
Shares Eligible for Future Sale. As of the Effective Date and prior to the
completion of this public offering there will be outstanding 2,352,000 shares of
Common Stock of the Company and Founders Warrants to purchase 300,000 shares of
Common Stock exercisable at $4.50 per share up to five years from the date of
this Prospectus. Of such shares and Founders Warrants, 327,000 shares of Common
Stock and all the shares underlying the Founders Warrants to purchase 300,000
shares have been registered under the Act simultaneous with this offering of
Common Stock and Warrants. Of such 327,000 shares of Common Stock, 27,000 shares
may not be sold for a period of 90 days from the Effective Date. The balance of
300,000 shares of the Common Stock and the Founders Warrants to purchase 300,000
Shares are subject to "lock-up provisions" which preclude the ability of the
holders of such securities from selling into the market without the prior
consent of the Representative for the 15 month period subsequent to the
Effective Date. The remaining 2,025,000 shares of Common Stock of the Company
presently outstanding constitute Restricted Securities, as that term is defined
in Rule 144 promulgated under the Act. These Restricted Securities will be
eligible for public sale pursuant to Rule 144 at such time as such shares have
been held for a period of one year from the time of acquisition thereof.
Accordingly, the Restricted Securities may become eligible for future sale
during 1998. The holder of Restricted Securities may effect sales under Rule 144
if such holder complies with certain notice provisions with respect to any such
sale transactions and complies with certain volume restrictions.
See "DESCRIPTION OF SECURITIES".
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Substantial and Immediate Dilution and Benefit to Present Stockholders.
This offering involves immediate dilution of $2.45 per share (approximately 61%
of the per share offering price) between the pro forma net tangible book value
per share of Common Stock after the offering of $1.55 and the public offering
price of $4.00 per share. The existing stockholders of the Company have acquired
their shares of Common Stock at an average consideration per share of $.34,
which is nominal in comparison to the $4.00 per share public offering price.
Accordingly, purchasers of the Common Stock and Warrants offered hereby will
bear substantially all of the financial risks inherent in an investment in the
Company during the immediate to near term future time. See "DILUTION".
Possible Adverse Effects of Redemption of Warrants. The Warrants offered
hereby may be redeemed by the Company at any time upon notice of not less than
30 days at a price of $.35 per Warrant, provided the closing bid quotation of
the Common Stock of the Company on 30 consecutive trading days has been at least
$6.40 and provided that such notice is mailed within ten days after the end of
such period in which such price exists. Prior to the first anniversary of the
Effective Date, the Purchase Warrants will not be redeemable by the Company
without the written consent of the Representative. Such redemption provisions
and the utilization thereof by the Company could compel the holders of the
Warrants to exercise the Warrants and pay the exercise price of $4.50 per share
issuable at a time when it may be disadvantageous for them to do so; to sell the
Warrants at the then current market price for the Warrants then prevailing in
the market therefor, if any, when they might otherwise wish to hold the
Warrants; or to accept the redemption price of $.35 per Warrant, which may be
substantially less than the market value of the Warrants at the time of any such
redemption. See "DESCRIPTION OF SECURITIES - Warrants".
Possible Lack of Value of Warrants; Possible Inability to Exercise
Warrants. The Warrants are exercisable at $4.50 per share of Common Stock and
expire five years from the date of this Prospectus. Should the market price for
the Common Stock not materially exceed $4.50 prior to that date or should the
Company be sold, merged, or otherwise reorganized in the transaction in which
its stockholders consideration at less than $4.50 per Share, the Warrants will
have no value. With respect to the public offering thereof, the Company intends
to qualify the sale of the Common Stock and Warrants described in this
Prospectus in a specified number of states. Although exemptions in the
securities laws of certain states may permit Warrants to be transferred to
purchasers in states other than those in which the Warrants were initially
qualified, the Company will be prevented from issuing Common Stock in such other
states upon the exercise of the Warrants unless an exemption from the
qualification requirements of such state or states is available or unless the
issuance of Common Stock upon exercise of the Warrants is qualified. Although
the Company will endeavor to qualify the Common Stock underlying the Warrants
for sale in a state where qualification is required and may be reasonably
obtained, there is no assurance that the Common Stock will be qualified for sale
in all of the states in which the ultimate purchase of Warrants reside. In such
event, the Warrants will expire and will have no value if they cannot be sold.
Accordingly, the market for the Warrants may be limited because of these
restrictions. Further, a current Registration Statement covering the Common
Stock issuable upon the exercise of the Warrants must be in effect before the
Company may permit the exercise of Warrants. For various reasons, no assurance
can be given that the Company will be in a position to file and process to
effectiveness a Registration Statement covering the Common Stock issuable upon
exercise of the Warrants. See "DESCRIPTION OF SECURITIES - Warrants".
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Representative Warrants. Pursuant to the Underwriting Agreement existing
between the Company and the Representative, the Representative will be granted
150,000 Common Stock Representative Warrants and 300,000 Warrant Representative
Warrants for which the Representative will pay a nominal consideration. The
300,000 Warrant Representative Warrants provide, upon full exercise and for the
payment of a purchase price of $.28125 per warrant, for the issuance of 300,000
Underlying Warrants. The Common Stock Representative Warrants and the Underlying
Warrants shall each be exercisable into one share of the Company's Common Stock
at an exercise price of $6.00 per share during the five year period commencing
on the Effective Date. With respect to the Representative's Warrants, the
Company will grant to the Representative certain registration rights which could
result in substantial expense to the Company and may be a hindrance to the
Company's ability to obtain future financing when needed. In the event that the
Representative's Warrants are exercised, sales of shares of the Common Stock
underlying the Representative's Warrants could have a depressive effect on the
market price of the Common Stock in the event that a public market develops. See
"UNDERWRITING".
Additional Warrants/Stock Options. In addition to the Warrants offered by
this Prospectus and the Representative's Warrants to be granted to the
Representative, there will be outstanding Founders Warrants for the purchase of
up to 300,000 shares of Common Stock. The exercise price with respect to
Founders Warrants is $4.50 per Share and the Warrant exercise period concludes
five years from the Effective Date. The shares of Common Stock issuable upon
exercise of the 300,000 Founders Warrants have been registered contemporaneous
to the registration of the Common Stock and Warrants being offered hereby but,
to the extent that such Warrants are exercised during the 15 month "lock-up"
period relating to the restriction on the transfer of certain outstanding Common
Stock of the Company, such restrictions on transfer shall be applicable to such
Common Stock. The Company has also reserved 375,000 shares of Common Stock for
issuance in connection with a Stock Option Plan which it anticipates will be
adopted subsequent to the conclusion of the sale of the Common Stock and
Warrants offered hereby. With respect to such Founders' Warrants and any holders
of stock options subsequently granted, the holders of such Warrants and options
may be afforded at a relatively nominal cost, the opportunity to profit from a
rise in the market price of the Common Stock of the Company. Additionally, while
such Founders' Warrants and options are outstanding, the terms pursuant to which
the Company may obtain additional required capital may be adversely affected
since the holders of such Warrants and options may be expected to exercise such
Warrants and options at a time when the Company could obtain needed capital by
an offering of securities on terms more favorable than those provided by such
Warrants or options. See "PRINCIPAL SHAREHOLDERS".
Dividends. The Company does not anticipate paying dividends with
respect to its outstanding Common Stock in the foreseeable future time. See
"DIVIDEND POLICY".
Voting Control. As of the Effective Date, the officers and directors,
members of their families and trusts created for members of their families, own
of record and beneficially 1,822,500 shares of Common Stock of the Company,
constituting 47.3% of all Shares to be outstanding at the conclusion of the
offering made hereby if the Over-Allotment Option is not utilized and 45.5% of
Shares to be outstanding at the conclusion of the offering if the Over-Allotment
Option is utilized in its entirety. All 2,025,000 shares of Common Stock issued
for the membership interests in Gateway are subject to a Voting Trust Agreement,
pursuant to which Messrs. Deutsch, Farkas and Messina have the voting rights for
such Shares. The Voting Trust Agreement gives Messrs. Deutsch, Farkas and
Messina voting control over 52.5% of all Shares to be outstanding at the
conclusion of the offering made hereby if the Over-Allotment Option is not
utilized and 50.6% of the Shares to be outstanding at the conclusion of this
offering if the Over-Allotment Option is exercised in its entirety. Accordingly,
as a practical matter Messrs. Deutsch, Farkas and Messina will be able to elect
the Company's entire Board of Directors and to determine the disposition of all
matters submitted to a voting of the Company's shareholders. See "PRINCIPAL
SHAREHOLDERS" and "DESCRIPTION OF SECURITIES".
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SELECTED FINANCIAL INFORMATION
The following selected financial data for the years ended December 31, 1995 and
1996 for Gateway, the two years ended December 31, 1995 and 1996 for the Company
(including its predecessors, Gateway American Properties Corporation, a Florida
corporation and Apollo III, Inc., for the period from January 12, 1995 (date of
inception) through June 30, 1997 are derived from the financial statements of
each respective company. The financial data for the six month periods ended June
30, 1997 and 1996 are derived from unaudited financial statements. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals for each company considered necessary for a fair presentation of the
financial position and results of operations for these periods. Operating
results for the six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the entire year ending December 31, 1997.
The data should be read in conjunction with the consolidated financial
statements, related notes and other financial information included herein.
The pro forma selected financial data as of June 30, 1997 and for the year
ended December 31, 1996 and the six months ended June 30, 1997 are derived from
the unaudited pro forma condensed balance sheet and statements of operations set
forth subsequently in this Prospectus, which give effect to the Transaction in
the manner described in the notes to the pro forma condensed financial
statements. The pro forma selected financial data presented below and the pro
forma condensed financial statements should be read in conjunction with the
accompanying notes to the pro forma condensed financial statements, the
historical financial statements and the notes of each of the respective
companies, all of which are included subsequently in this Prospectus. The
unaudited pro forma condensed statements of operations are not necessarily
indicative of future operations or the actual results that would have occurred
had the Transaction been consummated at the beginning of each period presented.
Gateway American Properties, LLC
(a Colorado limited liability company)
Consolidated
Year Ended Six month period
December 31 Ended June 30
----------- -------------
1995 1996 1996 1997
---- ---- ---- ----
Statement of Operations
Data:
Sales $4,375,359 $10,500,606 $5,020,015 $5,049,043
Gross Profit(1) 628,074 951,526 267,541 1,131,804
Operating Income (Loss) 38,169 160,004 (46,972) 449,783
Net Income (Loss) 9,748 109,444 (48,083) 401,075
15
<PAGE>
December 31, June 30,
1996 1997
---- ----
Balance Sheet Data:
Total Assets(2) $18,936,406 $19,986,314
Debt(2) 16,189,195 16,800,825
Members' Equity 404,298 802,873
Gateway American Properties, Corp.
(A Florida Corp.)
Year Ended Six month period
December 31 Ended June 30
----------- -------------
1995 1996 1996 1997
---- ---- ---- ----
Statement of Operations
Data:
Sales $ -0- $-0- $ -0- $ -0-
Gross Profit -0- -0- -0- -0-
Operating Income (Loss) (173,966) (464,846) (27,716) (15,198)
Net Income (Loss) (173,996) (464,846) (27,716) (15,198)
December 31, June 30,
1996 1997
---- ----
Balance Sheet Data:
Total Assets $51,854 $83,986
Debt $35,798 $83,128
Stockholders' Equity 16,056 858
Gateway American Properties, Corp.
(A Colorado Corp.)
Inception
Through
June 30, 1997
-------------
Statement of Operations
Data:
Sales $ -0-
Gross Profit -0-
Operating Income (Loss) -0-
Net Income (Loss) -0-
16
<PAGE>
June 30,
1997
----
Balance Sheet Data:
Total Assets -0-
Debt -0-
Stockholders' Deficiency -0-
Unaudited Pro Forma Selected Financial Data
Giving Effect to the Transaction
Year Ended Six month
December 31, Ended June 30,
1996 1997
---- ----
Income Statement Data:
Sales $10,500,606 $5,049,043
Gross Profit(1) 951,526 1,131,804
Operating Income (Loss) (306,730) 434,490
Net Income (Loss) (386,802) 229,477
Net Income (Loss) per Common Share(2) (.10) .06
As adjusted for
June 30, 1997 Offering
------------- ---------------
Balance Sheet Data:
Total Assets(3) $20,070,300 $22,556,550
Debt(3) 16,800,825 17,800,825
Stockholders' Equity 803,731 6,289,981
- ------------
(1) Gross profit is defined as total sales less cost of sales.
(2) Net income per common share reflects the 1,500,000 Shares that will be
outstanding after the consummation of the Transaction and the offering
described in this Prospectus which will occur in conjunction with and as a
part of the Transaction. These income calculations do not give any effect
to the proceeds that will be received pursuant to the offering described in
this Prospectus.
(3) Consistent with industry standards, assets and liabilities are not
classified as either current or long term and, therefore, information
relating to such classifications is not presented.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In General
The Company, on and after the Effective Date, will continue the business
operations of Gateway, directly or through Gateway. Gateway is a Colorado
limited liability company formed in June, 1994. In December, 1994, GV
Development, LLC, a Colorado limited liability company formed in June, 1993, was
merged into Gateway. The business of GV Development, LLC, was similar to the
business of Gateway and was under control of substantially the same members.
Consequently, GV Development, LLC, is treated as a predecessor of Gateway and
all references to Gateway in this Prospectus and the financial statements
included herein include the activities of GV Development, LLC. Gateway acquires
suitable real estate properties for development as platted, semi-finished or
finished residential building lots intended primarily for sale to home builders
who intend to construct on such lots single or multi family residential
structures for sale to the ultimate occupant. Gateway also engages in home
construction and related marketing activities. See "SUMMARY" and "BUSINESS".
The Company's and Gateway's income has been previously derived from the
sale of platted, semi-finished or finished lots to home builders at lot prices
usually determined at the time that the Company commences development of the
lots. The Company's and Gateway's profits have been derived as a result of the
difference between the gross selling price of the lots sold to various home
builders and the cost of such lot acquisition and the development activities
undertaken by Gateway. It is anticipated that the Company's income will continue
to be substantially derived from the sale of lots as described above. Income may
also be derived from other business, including the home building business. The
entire process relating to Gateway's development activities is largely driven by
the ultimate price of the lot to the dwelling occupant. The ultimate price of
the lot is substantially controlled by such factors as market demand, location,
dwelling size and quality, type and extent of common development amenities and
aesthetic considerations. Factors which affect the home building industry in a
more general way, such as the level of long and short term interest rates,
relative availability of development and long term financing, local and national
economic conditions and competition, will also reflect the amount of the
ultimate price of the residential building lot to the dwelling occupant.
In the light of such environment, Gateway undertakes analysis with respect
to any real estate property being considered for acquisition and/or development.
Considerations and factors utilized in such analysis include the formulation of
development cost budgets with respect to required on site and off site
development, estimates of the cost and time required to accomplish required
regulatory matters (zoning, permitting, etc.), the level of interest on the part
of home builders to whom the Company has sold lots in the past and the
determination of the ultimate home price to the home buyer which in most cases
is provided as a result of an independent appraisal of the property in its
undeveloped state and of the projected value of the lots to be developed on the
property, assuming the completion of development activities.
Gateway's residential lot acquisition and development activities have been
concentrated in the greater Denver, Colorado metropolitan area and in Fort
Collins, Colorado. Such concentration is expected to continue during the near
future time.
18
<PAGE>
The results of operations of Gateway American Properties, LLC for year ended
December 31, 1995 compared to the year ended December 31, 1996 and for the six
month period ended June 30, 1996 compared to the six month period ended June 30,
1997.
Gateway (including its predecessor, GV Development, LLC) commenced
operations on June 24, 1993.
For the year ended December 31, 1995, Gateway experienced sales of
$4,375,359, of which, $2,800,535 were to related parties. See "CERTAIN
TRANSACTIONS". Cost of sales were $3,747,285 and general and administrative
expenses were $589,905, resulting in an operating income of $38,169.
For the year ended December 31, 1996, Gateway experienced sales of
$10,500,606, of which, $7,901,928 were to related parties. See "CERTAIN
TRANSACTIONS". Cost of sales were $9,549,080 and general and administrative
expenses were $791,522, resulting in an operating income of $160,004.
For the six month period ended June 30, 1996, Gateway experienced lot
sales of $5,020,015 of which 3,591,620 was to related parties. See "CERTAIN
TRANSACTIONS". The costs of such lot sales for such six month period ended June
30, 1996, were $4,752,474 which, when taken with general and administrative
expenses of $314,513, resulted in an operating and net income of ($46,972).
For the six month period ended June 30, 1997, Gateway experienced lot
sales of $5,049,043 of which $4,067,199 was to related parties. See "CERTAIN
TRANSACTIONS". The costs of such lot sales for such six month period ended June
30, 1997, was $3,917,239, which, when taken with general and administrative
expenses of $682,021, resulted in an operating and net income of $449,783.
The results of operations of Gateway American Properties Corporation, a Colorado
limited liability corporation, its predecessors Gateway American Properties
Corporation, a Florida corporation, and Apollo III, Inc. for the year ended
December 31, 1995 compared to the year ended December 31, 1996 and for the six
month period ended June 30, 1996 compared to the six month period ended June 30,
1997.
For the years ended December 31, 1995 and 1996 respectively the Company
experienced an operating loss of $185,472 and $466,734 and had interest income
of $11,476 and $1,888 respectively. It experienced a net loss of $173,996 for
the year ended December 31, 1995 and a net loss of $464,846 for the year ended
December 31, 1996. The Company sustained an operating loss of $28,810 and
$15,243 for the six month periods ended June 30, 1996 and 1997 and had interest
income of $1,094 and $95, resulting in a net loss of $27,716 and $15,198 for the
six months.
Liquidity and Capital Resources
Gateway financed its lot acquisition and development activities through the
proceeds derived from the capital contributions made by the members of Gateway,
through the net proceeds realized from the sale of platted,semi-finished and
finished lots, and through the net proceeds realized by Gateway as a result of
the private and limited offer and sale of certain debt securities. The
continuing operations of the Company and Gateway will be financed through a
portion of the net proceeds of the offering made hereby, See "USE OF PROCEEDS"
through the proceeds from the sale of lots, through bank loans and possibly
through the private sale of debt securities.
At June 30, 1997, the holders of the outstanding membership interests of
Gateway had contributed (net of distributions) cash and property to Gateway in
the amount of $215,448.
19
<PAGE>
From Gateway's inception through the period ended June 30, 1997 Gateway
sold its 12% Secured Promissory Notes as follows: principal amount of $6
million, due September 30, 1996, principal amount of $3 million due April 30,
1997; and principal amount of $4 million due September 30, 1999 (the "Notes").
For further information concerning such Notes, see "CERTAIN TRANSACTIONS". As of
June 30, 1997, the $6 million Note due September 30, 1996 and the $3 million
Note due April 30, 1997 have been paid in full. The Note due September 30, 1999
("Note") is outstanding and a principal payment of $500,000 is due December 31,
1997 and at the end of each calendar quarter thereafter with any unpaid balance
due September 30, 1999. The Company will pay a total of $1,000,000 on the
principal of the Note from the proceeds of the offering and the balance will be
paid from funds from operations or debt financing. On the Effective Date, the
Company will unconditionally assume the obligation of Gateway with respect to
the Note. The principal obligation of the Note is unconditionally guaranteed by
Harvey E. Deutsch, Joel H. Farkas and Michael A. Messina. See "MANAGEMENT". The
Company has agreed to indemnify Messrs. Deutsch, Farkas and Messina from and
against any liability, cost or expense incurred by them under any loan or
obligation obtained by or for the benefit of the Company, including their
guarantees of the Note.
The Note was issued under the authority of and is subject to the
provisions and terms of a loan agreement existing between Gateway, Phillips &
Tober, Inc., the placement agent for the Note, and MegaBank of Arapahoe (the
"Agent"), a deposit institution maintaining its offices in Denver, Colorado.
MegaBank of Arapahoe acts as agent with respect to the Note and acts in the
collective benefit of the holders of the Note. The Note was privately offered
and sold by Gateway through the facilities of Phillips & Tober, Inc., as
placement agent, to suitable and "Accredited Investors" (as defined under the
Securities Act of 1933) on the basis of $100,000 units of participation in the
Note.
Interest is paid monthly at 12% on the Note. The Agent is required to
undertake certain notice and corrective action in the event that default occurs
with respect to the payment of any interest or principal payment when due.
The obligation represented by the Note is secured by deeds of trust
(mortgages) encumbering various real estate parcels and projects with which
Gateway is involved. The deeds of trust have a first priority status, subject
only to certain exceptions as are set forth in the governing loan agreement,
which exceptions include development agreements which may be entered into
between Gateway and certain cities and counties where the encumbered projects
are located, and other existing matters of record. The Agent, as nominee and
agent for the Note and the holders of the units of participation therein, is the
beneficiary of such deeds of trust.
The properties to which the deeds of trust relate are comprised of
platted, semi-finished or finished lots, or lots in the process of being
platted. In order for lots to become finished lots, Gateway is obligated to
accomplish certain development activities, including providing access to all
utilities with a capacity to service the lots in question, providing ingress and
egress to and from public roads and otherwise making the lots fully qualified
for the issuance of building permits for the construction of a residential
dwelling on a lot or lots.
Gateway must also meet certain obligations in order for the Agent to
disburse Note proceeds for the acquisition of any particular parcel which
Gateway intends to acquire and develop into platted, finished or semi-finished
lots. Such requirements include the requirement that (a) the parcel be zoned and
platted, (b) there is a mortgagee title insurance policy in the amount of the
appraised value of the parcel and insuring the priority of the lien of the deeds
of trust which is available and is being delivered, (c) there is evidence of
ingress and egress via finished public roads and (d) there is available capacity
for service from and access to all necessary and required utilities.
20
<PAGE>
As of the Effective Date, Gateway is in full compliance with the
requirements of the loan agreement and the Company and Gateway believes that
compliance will continue.
Gateway has also historically utilized bank lines of credit and financing
proceeds made available by certain affiliates. At June 30, 1997, Gateway had
aggregate outstanding debt of approximately $12.8 million in addition to the $4
million on the Note described above. Such additional loans have various interest
rates, terms and maturities. See Note 3 to the consolidated financial statements
of Gateway included elsewhere in this Prospectus.
The Company believes that the funds made available from the sources
described above and those anticipated to be received by the Company as a result
of the conclusion of the offering of Common Stock and Warrants made hereby,
together with anticipated cash flows to be derived from the sale of platted,
semi-finished or finished lots, will be sufficient to meet Gateway's and the
Company's liquidity requirements during the 12 months following the date of this
Prospectus. To the extent that such sources of funds are insufficient, Gateway
and the Company will be required to seek additional sources of funds and there
can be no assurance that Gateway and the Company will be able to procure
additional funds on acceptable terms or will be able to procure additional funds
at all.
The acquisition and lot development activities of Gateway and the Company
are affected to a certain degree by weather conditions, availability of
necessary materials and labor, and other factors which can fluctuate on a
seasonal basis. Generally, the lot development activities must be conducted
under favorable weather conditions and adverse weather conditions can interrupt
or cause a temporary cessation in such activities. Delays, when encountered, may
diminish or eliminate the anticipated profit margin with respect to any lot
project then being conducted.
Gateway and the Company may experience fluctuations in future operations
as a result of a number of factors, including local and general economic
conditions, the cyclical nature of the real estate market, the economic health
of the Company's home builder customers, the relative availability of suitable
real estate parcels for development into residential lot subdivisions, the
availability of development and long term financing for home builders and the
purchasers of residential dwellings, governmental policies and regulations,
weather, shortages of labor or materials, increases in on-site and off-site
development costs, and other factors. See "RISK FACTORS - Factors Affecting
Business of the Company".
DILUTION
The pro forma information and data presented in this Prospectus section
assumes the consummation of the Transaction. Accordingly, such information and
data regarding existing stockholders of the Company takes into account the
consideration paid by Gateway members for their membership interests in Gateway
and the consideration paid by the other present stockholders for their shares.
See "INTRODUCTORY STATEMENT" and "CERTAIN TRANSACTIONS". The pro forma net
tangible book value of the Common Stock at June 30, 1997, assuming the
Transaction occurred but without giving effect to sale of Common Stock and
Warrants in this offering, was $421,213 or $.18 per share. Net tangible book
value per share of Common Stock is defined as the tangible assets of the
Company, less all liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect as of June 30, 1997 to the sale of the
21
<PAGE>
1,500,000 shares of Common Stock offered hereby and after deducting the unpaid
estimated offering expenses, the pro forma net tangible book value of the Common
Stock at June 30, 1997 would have been $5,987,463 or $1.55 per share. This
represents an immediate increase in net tangible book value of $1.37 per share
to existing stockholders and an immediate dilution of $2.45 per share to new
investors purchasing the Shares offered hereby. The following table illustrates
this per share dilution:
Initial public offering price............................ $4.00
Pro forma net tangible book value per share
before offering................................... $.18
Increase in pro forma net tangible book value
per share attributable to new investors........... $1.37
-----
Pro forma net tangible book value per share after
giving effect to public offering................... $1.55
=====
Dilution per share to new investors...................... $2.45
=====
Neither the foregoing nor the following table gives effect to the exercise
of any of the Warrants to purchase of 4,125,000 of Common Stock included in the
3,000,000 Warrants offered hereby, the outstanding 300,000 Founders Warrants,
the 450,000 Representative's Warrants and the 375,000 options which may be
issued pursuant to a stock option plan subsequently adopted by the Company.
These two tables also do not give effect to the use of the Over-Allotment Option
granted to the Underwriters under which they may purchase up to an additional
225,000 shares of Common Stock and Warrants to purchase 450,000 shares.
The following table summarizes, on a pro forma basis as of June 30, 1997,
the total shares of Common Stock purchased and the total consideration and
average price per share paid by existing stockholders and paid by the new
investors purchasing the shares offered hereby without giving any effect to the
$562,500 paid by new investors for the Warrants.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration(1)
---------------- ----------------------
Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
New investors............ 1,500,000 38.9% $6,000,000 88.2% $4.00
Existing stockholders.... 2,352,000 61.1% $803,731 11.8% .34
--------- ----- -------- -----
Total.............. 3,852,000 100.0% $6,803,731 100.0%
========= ====== ========== ======
</TABLE>
(1) Does not include the $562,500 paid by new investors for the Warrants.
USE OF PROCEEDS
The net proceeds of this offering of Common Stock and Warrants is expected
to be approximately $5.5 million or $6.4 million if the Over-Allotment Option is
exercised in full. The table set forth below reflects the utilization of the net
proceeds of this offering by the Company.
22
<PAGE>
Upon the Sale of 1,500,000
Shares and 3,000,000 Warrants
-----------------------------
Acquisition and Development of Properties $1,700,000
Debt Reduction (1) 3,000,000
Marketing and Advertising 100,000
Working Capital and General Corporate
Purposes (1) 700,000
-- -------
TOTAL (1) $5,500,000
== ==========
(1) If the over-allotment option is exercised in full, of the additional
proceeds $300,000 will be used for debt reduction and the remainder will be used
as working capital.
Acquisition and Development of Properties. The Company intends to use a
portion of the net proceeds from the offering to purchase and develop land and
lots for ultimate sale to residential home builders, including development of
off site infrastructure. Off site infrastructure costs include entry
monumentation, collector roads adjacent to and within the projects, culverts,
bridges, and main line utilities for water, sanitary sewer and storm sewer. In
certain projects, improvement districts or building authorities have been
created for reimbursement of major infrastructure costs Upon issuance of bonds
or other debt obligations, the Company will be entitled to a reimbursement of a
portion of these costs. A significant amount of the Company's real property
purchases and sales will be with affiliated parties. See "CERTAIN TRANSACTIONS".
Debt Reduction. The Company will use approximately $1 million for
repayment of its outstanding 12% Secured Promissory Notes and $2 million for
payment of other secured or unsecured debt including $1,450,000 of which will be
paid to affiliates. The payment to affiliates includes $489,000 in accrued
salaries. See "MANAGEMENT - Employment Agreements'.
Marketing and Advertising. The Company intends to utilize a portion of the
net proceeds to increase its marketing and advertising activities with respect
to its Master Planned Communities. The Company intends to develop lots for sale
to residential home builders and its marketing program is intended, at least in
part, to augment the marketing and advertising already undertaken and conducted
by such residential home builders.
Working Capital and General Corporate Purposes. The balance of the net
proceeds realized by the Company from the offering will be utilized for working
capital and general corporate purposes. Such utilization will include the
payment of the costs and expenses incurred in connection with the Company's
operations, including the executive compensation to be paid to certain of the
executive officers of the Company during the current fiscal year. Such
utilization may also include the capitalization of joint ventures in which the
Company may engage or for the initiation of compatible business activities or
acquisition transactions, none of which are identified as of the date of this
Prospectus.
The management of the Company is of the opinion that the net proceeds from
this offering of Common Stock and Warrants, and proceeds realized from the
on-going sale of platted, semi-finished and finished lots will be sufficient to
meet the Company's anticipated cash needs and finance its operations for at
least 12 months from the date of this Prospectus. However, no assurance can be
given that the Company will not require additional financing or if such
additional financing is required, that such will be available in amounts and
upon terms acceptable to the Company.
23
<PAGE>
PRO FORMA CAPITALIZATION
The table set forth below presents the pro forma capitalization of the
Company as of June 30, 1997 which takes into account the consummation of the
Transaction, including the sale of the 1,500,000 shares of Common Stock and
3,000,000 Warrants offered hereby. See "INTRODUCTORY STATEMENT" and "CERTAIN
TRANSACTIONS".
June 30, 1997
-------------
Prior to
Consummation As Adjusted
of Offering for Offering
----------- ------------
Debt $16,800,825 $13,800,825
----------- -----------
Stockholders' Equity:
Common Stock, $.01 par value,
20,000,000 Shares authorized,
2,352,000 Shares outstanding on a pro forma
basis prior to consummation of the offering
and 3,852,000 Shares outstanding on a pro
forma basis as adjusted for this offering 23,520 38,520
Additional Paid-in Capital 776,211 6,647,461
Founders Warrants 4,000 4,000
Accumulated Deficit -0- -0-
----- -----
Total Stockholders' Equity 803,731 6,289,981
------- ---------
Total Capitalization 17,604,556 20,090,806
========== ==========
__________
DIVIDEND POLICY
The Company does not expect to pay dividends on its Common Stock during
the foreseeable future time. Any future decision of the Company's Board of
Directors to pay dividends will be made in the light of the Company's earnings,
financial position, capital requirements and other relevant factors then
existing.
BUSINESS
Introduction
Gateway has primarily engaged in the furnishing of platted, semi-finished
and unfinished lots to the home building industry since its inception in June,
24
<PAGE>
1993. Its activities have been concentrated in eight cities and counties in the
greater Denver metropolitan area and in the City of Fort Collins, Colorado. The
Company will continue the business activities of Gateway, either directly or
through Gateway, which is expected to continue as a subsidiary entity of the
Company for a now indeterminable period. Accordingly, the information presented
below in this Prospectus section of the activities of the Company, and all
references to the Company, from and after the Effective Date include the
activities of Gateway.
The Company's business activities are the outgrowth of the business
activities of Harvey E. Deutsch, Joel H. Farkas and Michael A. Messina, which
involved the acquisition and development of real property to the status of
residential building lots for sale to and use by PrideMark. PrideMark is a
Denver, Colorado based residential home builder controlled by Michael A.
Messina, who is also a director, officer and principal shareholder of the
Company. See "CERTAIN TRANSACTIONS" and "MANAGEMENT". Such activity assisted
PrideMark in assuring an adequate supply of suitable, developed residential lots
for use in the home construction activity of PrideMark without an immediate
requirement that PrideMark contemporaneously commit its capital to the lot
development process.
From this activity, the present business activity of the Company has
developed which involves the acquisition and development of land as residential
subdivisions containing platted, finished or semi-finished building lots
suitable for acquisition, usually on a phased basis, by the residential
production home builders who are or become customers of the Company. Finished
lots are lots as to which all required subdivision improvements have been
completed and which have adjacent access to all utilities with capacity to serve
the lots, have a means of ingress and egress over public roads, and are fully
qualified for issuance of a building permit for construction of a home on the
lot. Semi-finished lots are lots with respect to which subdivision improvements
for utilities, ingress and egress and other required improvements have been
completed to or through a portion of the subdivision, but such improvements have
not been completed to each lot itself. The home builder completes the
development of semi-finished lots into finished lots, in connection with its
construction of homes thereon. From time to time, Gateway also sells parcels of
real property that have been zoned and platted, but are substantially
undeveloped, to home builders. The Company may, from time to time, may also
engage in the home building business.
Presently the home builders who have acquired lots, or are presently under
contract to acquire from the Company are PrideMark Homes, US Home, Melody Homes,
Sheffield Homes, Continental Homes, Sundown Development, Paul Adam Custom Homes,
d/b/a Odyssey Homes, Meadow Homes and Strauss Homes. Substantially all of the
lots developed to date by Gateway have been intended for use for single family
residential production homes and townhomes or duplexes.
The Residential Home Building Industry
The residential home building industry has three primary components: land
acquisition, land development, and home construction and sales. There is
considerable overlap among those who participate in one or more of the
components of the industry. Investors purchase undeveloped or under utilized
real estate with a view to realizing appreciation in value as a result of urban
or suburban growth, but usually do not engage in development activities.
Developers, such as the Company, typically purchase real property which is
usually unimproved and unplatted but is appropriately zoned for development and
develop such property into subdivisions containing platted, semi-finished or
finished lots for sale to home builders. Home builders either acquire finished
lots or acquire and develop land into finished lots for their own home building
activities.
25
<PAGE>
In the home construction and sales component of the industry, there are
four major areas of activity: (i) building custom homes; (ii) building
production homes; (iii) building town homes, condominiums and apartments; and
(iv) remodelings. Smaller home builders generally concentrate their activities
in two or three of these areas while larger home builders tend to have
operations in almost all activity areas. Home builders classified as production
home builders dominate the market. A production home builder builds a
substantial number of homes each year from standard plans and specifications
that have limited structural options but generally offer various floor plans,
elevations or upgrade options.
The activities of Gateway to date have been concentrated in the greater
Denver, Colorado metropolitan area and the City of Fort Collins, Colorado, and a
significant portion of the Company's activities during the future time are also
expected to be concentrated in these areas.
Denver is the capital city of the State of Colorado and the Denver
metropolitan area is the principal economic center of the Rocky Mountain region.
The metropolitan Denver area is comprised of six counties: Denver, Adams,
Arapahoe, Boulder, Douglas and Jefferson. The City of Fort Collins is located in
northern Colorado along the eastern slope of the Rocky Mountains. It is the
largest city of the northern Colorado region and the seat of Larimer County. Ft.
Collins is located 65 miles north of Denver via Interstate Highway No. 25 and 30
miles south of the Wyoming border.
The management of the Company believes, based upon information available
to the Company and believed reliable, that the residential construction industry
in the Denver, Colorado metropolitan area and in the City of Fort Collins is
very fragmented with many individual businesses that have small dollar or unit
sales volumes. The Denver metropolitan area also is characterized, however, by
the presence of several large production home building companies that construct
the majority of single family homes in the area. The Company believes that for
the period ending September 1997, the largest ten home builders in the
metropolitan Denver, Colorado area constituted approximately 67% of the single
family home construction activity that occurs in the area during such period.
The residential home building industry in the Denver, Colorado
metropolitan area has experienced dramatic changes during the period 1975-1996.
In the late 1970's and early 1980's, the Denver metropolitan area experienced
rapid growth and substantial residential construction activity. The period
1985-1989 was characterized by deteriorating economic conditions and an
increasing oversupply of homes in the Denver, Colorado area. During this period
there were record foreclosures, bankruptcies and financial institution failures.
The demise of numerous financial institutions in the mid to late 1980's
resulted in the imposition of stringent regulatory restrictions on commercial
banks and other financial institutions engaged in real estate lending. As a
result, sources of financing became more limited and restricted. Other
regulatory factors relating to environmental concerns and concerns regarding the
pace and rate of development in the Denver metropolitan area have, in the
opinion of the Company, significantly increased the regulatory impact which is
presently experienced by firms engaged in residential home building.
26
<PAGE>
Commencing in late 1989 and through the present time, economic conditions
in the Denver, Colorado metropolitan area have improved. From 1990 through
December 31, 1996, the Denver metropolitan area experienced substantial growth
in home construction and sales. For the year of 1995, sales in the Denver market
maintained a steady pace, with an increase of 16.3% over 1994. For the year
1996, sales were up 21% over 1995. Second quarter sales results for 1997 were
also favorable at a 7.7% gain in single family starts over second quarter 1996.
The management of the Company anticipates that the rate of economic growth in
the greater Denver, Colorado metropolitan area will be at a moderate level
through 1997 as a result of various factors. The materially adverse economic
conditions characterizing the period 1985-1989 are not expected to reoccur in
the foreseeable future time. However, no assurance can be given that favorable
economic conditions will be sustained and will continue.
Until very recently, there has been very little accessible data available
regarding the volume of new home sales in the City of Fort Collins. However,
based upon the information available to the Company and believed reliable, it
appears that home sales in the City of Fort Collins generally follow the same
trend as for the Denver metropolitan area. The City of Fort Collins experienced
a period of strong growth in the late 1970's and early 1980's, a decline in home
sales in the mid 1980's, and a recovery and corresponding increase in home sales
beginning in late 1988 and 1989. Home sales for the period 1989 through 1995
exceeded those of prior years, and 1996 saw an increase of 24.2% over 1995.
Second quarter sales results also show an increase of 15.4% over the same period
in 1996.
Property Acquisition by the Company
The business activities of Gateway have been, and the business activities
of the Company primarily will be, the purchase of real property that is zoned or
can be zoned for residential use and the development of such purchased property
into platted, finished or semi-finished lots for sale to home builders who will
construct a single family detached or multi-family attached homes on such lots.
See Introduction above for a description of what constitutes "platted",
"finished" and "semi-finished" lots. The developed lots generally are between
5,000 and 6,000 square feet in size and homes constructed on these lots
generally are priced between $100,000 and $250,000, including the lots. From
time to time, the Company will acquire parcels of real property, complete the
platting process and then sell the zoned and platted parcels to home builders
who will develop such properties themselves.
The Company seeks to maintain purchase option contracts for real estate
properties covering a four to seven year supply of lots, based upon current lot
absorption information. In that manner, the Company seeks to assure that there
are sufficient lots under its control to provide a supply for its business in
the reasonably foreseeable future. Generally, the Company will exercise options
to purchase properties at a level intended to meet its home builder customers'
demands for a two to four year period based upon sales contracts with such home
builders. In the normal course of business, the Company will purchase properties
for which there are no contracts for sale to home builders.
The Company seeks to achieve a sales price to its home builder customers
which will yield to the Company an adequate gross margin, before selling
expenses, general and administrative expenses, financing costs and other
non-capitalized costs of the Company, taking into account the amount of money
expended by the Company for property acquisition and development of the property
as a platted subdivision containing finished and semi-finished lots. In its
effort to achieve such a gross margin, with respect to property intended to be
developed in the immediate future, the Company utilizes independent appraisals
to verify the fair market value of the property when acquired. For properties
that will not be developed immediately and/or for which the Company has no sales
contracts with home builder customers, the Company obtains independent
appraisals to verify the fair market value of the property upon acquisition. The
Company then uses development budget estimates and management's estimates of the
potential selling price of lots based upon management's experience with the
market and the Company's home builder customers to determine the estimated fair
market value of finished and semi-finished lots. From its organization through
December 31, 1996, the Company's lot sales have increased from fewer than 20
lots sold in 1994, to 194 lots sold in 1995, to 478 lots sold in 1996. For the
six month period ending June 30, 1997, Gateway has sold 277 lots.
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A significant amount of the Company's real property purchases and sales
have previously been with affiliated parties. See "CERTAIN TRANSACTIONS". The
Company uses the same procedures and policies in determining the sales prices of
lots sold to affiliated parties as those used in setting the sales prices for
transactions with non-affiliated parties.
Present Development Activities
The development activities of the Company will include the accomplishment
of all legal and regulatory requirements for the subdivision plat and
substantial completion of the subdivision infrastructure (streets, water and
sewer systems, gas and electric lines, curb and gutter, landscaping, entry
monumentation and related improvements).
The Company is presently developing and/or platting lots for the nine home
builders, listed in Marketing of Subdivision lots below. Since its inception,
Gateway's annual sales have increased from less than 20 lots sold in 1994 to 478
lots in 1996 to 277 lots for the first half of 1997.
The Company's inventory of lots under development is presently contained
in subdivisions known as Sterling Hills, Aurora, Colorado; Country Hills,
Thornton, Colorado; Willow Run, Broomfield, Colorado; and Gateway Village,
Denver, Colorado; all of which subdivisions are located in the greater Denver,
Colorado metropolitan area. In addition, the Company is currently planning lots
in the Riverdale subdivision in Thornton, Colorado. Also, the Company is
presently building in Roxborough Park in Douglas County, Colorado. The West Star
Subdivision, in Lakewood, Colorado, has been platted and sold. Also, Downing
Park, Thornton, Colorado, and Quail Run, Aurora, Colorado have been developed
and sold. The Company also has lots under development in the Harmony Crossing
and Overland Trail subdivisions which are located in Fort Collins, Colorado.
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Marketing of Subdivision Lots
The Company sells its finished and platted, semi-finished lots primarily to
production home builders. Production home builders are believed by the Company
to be the dominant factor in the residential home building industry as conducted
in the greater Denver, Colorado metropolitan area. The Company estimates that in
such area, the largest ten home builders constituted approximately 48% of new
home sales which occurred in the six month period ended June 30, 1997. In
summary, a production home builder is a home builder building a substantial
number of homes each year from standard plans and specifications that have
limited structural options but generally offer various floor plans, elevation or
upgrade options.
From its inception through December 31, 1996, Gateway sold or has
contracted to sell platted, finished and semi-finished lots to nine home
builders conducting their operations in the greater Denver, and Ft. Collins,
Colorado metropolitan areas. Such home builders are PrideMark Homes, US Home,
Melody Homes, Sheffield Homes, Continental Homes, Paul Adam Custom Homes, d/b/a
Odyssey Homes, Meadow Homes, Sundown Development, and Strauss Homes. From
Gateway's inception through December 31, 1994, virtually all of Gateway's lot
sales were to PrideMark. For the 30 month period beginning January 1, 1995,
approximately 72% of the Company's lot sales were to PrideMark. It is
anticipated that the sales to PrideMark Homes will constitute approximately
one-third to one-half of the Company's future lot sales over the next 12 months.
PrideMark is principally owned by Michael A. Messina who also is a
principal shareholder, director and officer of the Company. See "CERTAIN
TRANSACTIONS" and "MANAGEMENT". PrideMark was formed in late 1987 and since
formation has purchased finished lots primarily from various financial
institutions. Commencing in 1992, PrideMark began developing, platting and
acquiring lots to serve its own home building needs. Homes built by PrideMark
are primarily single family homes for middle income families and range in price
from $80,000 to $200,000. The majority of homes constructed by PrideMark Homes
are in the $90,000 to $150,000 range. According to "The Front Range Housing
Market Letter" published by David Laffoon, September 1997, PrideMark was ranked
fourth among Denver area builders for new home closings for the first seven
months of 1997 and closed 390 homes during that period.
US Home was established in 1954 and is currently believed to build homes
primarily for first time home buyers and retirement second home buyers. It is
estimated that US Home has built more than 250,000 homes during the past
approximately 40 years. Presently US Home is believed to construct residential
dwelling units in approximately 200 communities in 32 metropolitan areas located
in 12 states throughout the United States, including Arizona, California,
Colorado, Florida, Maryland, Minnesota, Nevada, New Jersey, Texas and Virginia.
The management of the Company believes that US Home is one of the ten largest
single family on-site home builders in the United States. According to "The
Front Range Housing Market Letter" published by David Laffoon, September 1997,
US Home was ranked first among Denver area builders for new home closings for
the first seven months of 1997 and closed 554 homes during that period.
Melody Homes is one of the largest builders of single family detached homes
in the Denver metro area. According to "The Front Range Housing Market Letter"
published by David Laffoon, September 1997, Melody Homes was ranked third among
Denver area builders for new home closings for the first seven months of 1997
and closed 478 homes during that period.
Continental Homes was founded in Denver in 1986 and has been the only
builder to join the ten best selling builders in the Denver metro area.
According to "The Front Range Housing Market Letter" published by David Laffoon,
September 1997, Continental was ranked sixth among Denver area builders for new
home closings for the first seven months of 1997 and closed 308 homes during
that period.
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<PAGE>
Sheffield Homes was founded in 1978 and builds single family detached homes
for the first home and move-up home buyer.
Sundown Development builds single-family detached homes for the first-time
home buyer.
Strauss Homes, founded in 1994 builds affordable housing in the Denver
metro area.
Paul Adam Custom Homes/DBA Odyssey Homes began building in this region in
1996 and builds single family detached homes in the Denver metro area.
Meadow Homes began in Denver in 1984 is one of the metro areas providers of
single family homes. According to "The Front Range Housing Market Letter"
published by David Laffoon, September 1997, Meadow Homes was ranked among the
top 25 Denver area builders for new home closings for the first seven months of
1997 and closed 64 homes during that period.
The Company's sales transactions involving its inventory of platted,
finished and semi-finished lots result from negotiated transactions that are
usually undertaken by the Company at a time contemporaneous or prior to the
development of such property. The sales contracts entered into between the
Company and its home builder customers are generally option contracts. In some
cases, the lot sales contracts contain specific performance provisions requiring
the homebuilder to close on the subject lots. In other cases, homebuilders have
made a deposit of funds on executed sales contracts. Under such option
contracts, home builders who are customers of the Company may only be required
to purchase a minimum number of lots at specified times and prices. See "RISK
FACTORS - Factors Affecting Business of Company, Other Operational Risks and
Market Risks".
Competition
In the acquisition of real property suitable for development as platted,
finished and semi-finished residential building lots and the marketing of such
lots, the Company encounters significant competition from other development
entities, from home builders who conduct their own lot development activities
and from investors who compete with the Company with respect to the acquisition
of suitable sites for development. The Company's competitive position in its
industry will be largely dependent upon the ability of the management of the
Company to identify suitable sites for acquisition at a time when such sites are
not being actively pursued for acquisition by any competitive entity or person.
This will require that the Company continually investigate suitable sites for
acquisition in its areas of operation. The Company's competitive position will
also be substantially dependent upon the relative amount of capital available to
it with respect to its ability to acquire suitable real estate sites for
development as finished and semi-finished lots and to engage in the necessary
development activities within a period of time permitting the sale of platted,
semi-finished and finished lots to its lot purchase customers.
The Company's acquisition and development activities will also be affected
by the relative financial condition of its home builder customers and by the
competitive factors which affect the home building and home marketing activities
of its home builder customers. Factors such as location, relative price,
subdivision attractiveness and amenities, available home design options and
aesthetic factors may have a pronounced affect on the acceptance of homes
constructed in subdivisions which have been developed by the Company and
acquired by its home builder customers.
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<PAGE>
The management of the Company is of the opinion that: its present
competitive posture is good; it has adequate capital to pursue its business
activities; and the capital from the offering made hereby will enhance its
competitive status.
The Company's competitive position will also be affected by the general
conditions existing in the residential home building industry, as such exists in
the Company's area of operations. See "THE RESIDENTIAL HOME BUILDING INDUSTRY"
and "RISK FACTORS - Factors Affecting Business of the Company".
Employees
In addition to its executive personnel and key management employees, the
Company has 12 employees, which are primarily engaged in administrative
activities. The Company considers its relations with its employees to be good.
See "MANAGEMENT".
Other Activities
In addition to its land acquisition and development activities, Gateway
has provided, on a fee basis, services involved in forming special districts,
building authorities and homeowners' associations relating to properties
developed by it and has performed administrative, accounting and management
services in connection with those districts, building authorities and
homeowners' associations, pending completion of the subdivision and sales of
finished lots to home builders or subdivision residents. The Company will
continue to engage in these activities conducted by Gateway.
Future Activities
Subsequent to the completion of the offering made hereby, the Company will
continue to explore suitable real estate properties for acquisition and
development into semi-finished and finished lots for sale to residential home
builders. The Company will also consider opportunities to acquire and develop
non-residential properties, i.e. rental, commercial, warehouse and office, and
may engage in development, sales and leasing of such properties. Such activities
are expected to be conducted in Colorado, principally in the greater Denver,
Colorado metropolitan area, and surrounding communities such as Fort Collins.
Currently, the Company acquires most of its real estate properties for
development and sale to its home builder customers. It is anticipated that the
Company in the future may acquire a greater number of real estate properties as
long term holdings for which the Company has no immediate development plans and
no contracts for the sale of finished lots therein to home builders. Similarly,
while the Company's operations currently are conducted in Colorado, the Company
in the future may expand its operations to other states.
32
<PAGE>
CERTAIN TRANSACTIONS
The Transaction
Apollo III, Inc., a Florida Corporation ("Apollo") was organized on
December 23, 1992 for the purpose of acquiring or consolidating with one or more
other business entities. On January 12, 1995, Gateway American Properties
Corporation, a Florida Corporation ("Gateway-Florida") was formed as an
affiliate of Apollo for the purpose of entering a business combination
involving; (i) the merger of Apollo into Gateway-Florida; (ii) the acquisition
by Gateway-Florida of all the outstanding membership interests in Gateway
American Properties, LLC a Colorado limited liability; and (iii) the acquisition
of capital fund from a public offering of securities of Gateway-Florida. After
filing a Registration Statement with respect to proposed public offering of
Gateway-Florida securities to be underwritten by the Representative, the project
was voluntarily delayed. Prior to the resumption of the project, Apollo was
merged into Gateway-Florida in exchange for 274,000 shares of the Common Stock
of Gateway-Florida. Gateway-Florida later redomesticated into a Colorado
corporation through a statutory merger with the Company as the surviving
corporation. In this merger the shareholders of Gateway-Florida received 327,000
shares of the Company's Common Stock and 300,000 Founders Warrants.
Gateway-Florida and Apollo are both considered as "predecessors" of the Company
as that term is defined under the Securities Act of 1933, as amended.
The Company immediately prior to the Effective Date, and as an integral
part of the offering made in this Prospectus, consummated the Transaction
provided for pursuant to an agreement styled Amended and Restated Agreement
Providing for Sale and Exchange of Capital Stock ("Agreement") which was made
and entered into by and between the Company and Gateway effective January 27,
1997. Pursuant to the provisions of the Agreement, the Company acquired all of
the outstanding membership interests of Gateway which were outstanding as of the
Closing Date (as specified in the Agreement) in exchange for 2,025,000 shares of
Common Stock. Of such Shares 1,822,500 were issued to Harvey E. Deutsch, Joel H.
Farkas and Michael A. Messina or members of their families. See "MANAGEMENT" and
"PRINCIPAL SHAREHOLDERS".
The shares of Common Stock and Founders Warrants of the Company issued with
respect to the merger with Gateway-Florida and the shares of common stock
underlying the Founders Warrants have been registered pursuant to the
Registration Statement of which this Prospectus is a part are subject to certain
restrictions upon their sale. With respect to 27,000 shares of the Company's
stock, they may not be sold for 90 days from the Effective Date. The remaining
300,000 shares of the outstanding Common Stock of and the 300,000 shares
underlying the Warrants are subject to "lock-up" provisions for 15 months from
the Effective Date. In summary, the lock-up provisions affecting such shares
prohibit the holders thereof from effecting any sales transactions in the market
for such shares except upon the written consent of the Representative. The
2,025,000 shares issued by the Company in connection with its acquisition of all
of the membership interests of Gateway have not been registered and constitute
Restricted Securities. As Restricted Securities, such shares may only be sold
subsequent to the time that the holders thereof have held the shares for a
period of one year, and upon compliance with certain reporting requirements
established by the Commission. See "RISK FACTORS - Shares Eligible for Future
Sale" and "DESCRIPTION OF SECURITIES".
Certain Purchase/Sale Transactions
From its inception in June 1993 to date, Gateway has effected purchases of
real estate properties which it has developed or will develop into platted,
finished and semi-finished lots from limited liability companies and limited
partnership entities in which certain of the executive officers of the Company
had an interest. In the past, it was the practice of Messrs. Deutsch, Farkas and
Messina to form limited liability companies or limited partnerships in which
they and others would have an economic interest in order to acquire real estate
properties which were in a condition or state of development making their
acquisition by Gateway and presently the Company inappropriate or premature.
During the period of time that such real estate properties were held by such
entities, appropriate and necessary regulatory approvals and other development
activities were undertaken and if successfully accomplished, permitted the real
estate properties acquired to be qualified for purchase by Gateway. The prices
paid by Gateway with respect to such real estate properties purchased were
determined by real property appraisals provided by sources of expert appraisal
or on a negotiated basis and are believed in all respects to fairly relate to
the prices that would have been paid by Gateway with respect to any transaction
with a non-affiliated person or entity. After the Public Offering, any purchases
made by Gateway from Messrs. Deutsch, Farkas, or Messina will be 10% below the
fair market value based on independent expert appraisals. The table set forth
below summarizes these historical acquisition transactions.
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<PAGE>
<TABLE>
<CAPTION>
Conveying Affiliated Conveying Entity Approx. Approximate Approximate
Entity, Project and Interest Held by Purchase Affiliate Profit to
Property Conveyed Affiliated Party Price to Cost of Affiliated
Gateway the Property Party
Affiliate % Interest
<S> <C> <C> <C> <C> <C>
Downing Park, LLC, Harvey E. Deutsch 25% $792,000 $373,000 $104,750
Downing Park, 132 Lots Joel H. Farkas 25% $104,750
Michael A. Messina 50% $209,500
PrideMark Homes, Michael A. Messina 93% $1,089,11 $1,089,113 ---
Harmony Crossing, 221
Lots
PrideMark Homes, Willow Michael A. Messina 93% $342,000 $342,000 ---
Run, Filing I, Phase 2
& 3 57 Lots
Willow Run Holdings, Harvey E. Deutsch 1.8% $342,273 $342,273 ---
LLC, Willow Run II, 88 Joel H. Farkas 1.8%
Lots(1)
Willow Run Holdings, Harvey E. Deutsch 1.8% $1,511,400 922,500 $16,663
LLC, Willow Run IV & V, Joel H. Farkas 1.8% $16,663
295 Lots(1)
Gateway Village, LLC, Harvey E. Deutsch 41.6% $567,800 $61,400 $210,662
Gateway Village, Filing Joel H. Farkas 41.6% $210,662
I, 128 Lots
Gateway Village, LLC, Harvey E. Deutsch 41.6% $778,180 $55,220 $300,750
Gateway Village, Filing Joel H. Farkas 41.6% $300,750
II, 146 Lots
Gateway Village, LLC, Harvey E. Deutsch 41.6% $687,500 $46,500 $266,650
Gateway Joel H. Farkas 41.6% $266,650
Village, Filing III,
124 Lots
Sterling Hills Ltd. Harvey E. Deutsch See 5 See 5 below See 5
Buyout Joel H. Farkas below below
Michael A. Messina
PrideMark Homes, Michael A. Messina 93% $693,750 $693,750 ---
Sterling Hills (No. 1),
75 Lots
Sterling Hills Ltd., Harvey E.Deutsch 16%(2) $576,000 $347,000 $36,640
Sterling Hills (No. 2), Joel H. Farkas 16%(2) $36,640
96 Lots Michael A. Messina 16.5%(3) $37,785
612 Corporation 1%(2) $ 2,290
612 Corp., Country Harvey E. Deutsch 50%(4) $541,400 $468,000 $36,700
Hills (No. 6), 78 Joel H. Farkas 50%(4) $36,700
Lots(4)
</TABLE>
__________
(1) Messrs. Deutsch and Farkas each own a 32.5% shareholder interest in Wilrun
Corp. Wilrun Corp. was the beneficial owner of an 11.11% membership
interest in the conveying entity, Willow Run Holdings LLC.
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<PAGE>
(2) Messrs. Deutsch and Farkas each own 50% of the outstanding common stock of
612 Corp. 612 Corp. held 1% general partnership interest in the conveying
entity, Sterling Hills, Ltd. Messrs. Deutsch and Farkas also held a 16%
interest as limited partners in the conveying entity, Sterling Hills, Ltd.
(3) Mr. Messina's 16.5% interest in the conveying entity, Sterling Hills, Ltd.
was a limited partnership interest.
(4) Messrs. Deutsch and Farkas each own 50% of the outstanding common stock of
612 Corp., the conveying entity in this transaction.
(5) Gateway American Properties, LLC bought out Sterling Hills, Ltd. on
7-31-96 in an amount equal to partners' capital accounts with principal
payments due quarterly beginning 9-15-97:
612 Corp. -- received a note for $5,391.76
515 Capital " " $86,186.65
DSR LLC " " $85,202.65
Michael A. Messina" " $88,882.53
Also since the inception of Gateway, Gateway has sold finished or
semi-finished lots to PrideMark Homes, a home construction firm substantially
owned by Michael A. Messina, a principal shareholder, director and officer of
the Company. As indicated elsewhere in this Prospectus, the prices paid by
PrideMark Homes to Gateway and which in the future may be paid to the Company
have or will relate to the appraised value of such platted, finished or
semi-finished lots as determined by fair market value appraisals provided by
independent sources of expert appraisal. The table set forth below summarizes
the lot sales transactions made by Gateway to PrideMark Homes which have
occurred since the inception of Gateway to December 31, 1996.
Approximate cost
(including carry)
# of Lots Price to Gateway.
Property Conveyed as of 12-31-96
Country Hills, Filing 6, Phase 1 26 $714,086.55 $505,759.24
Downing Park, Phase 1 64 $1,537,658.22 $765,147.12
Downing Park, Phase 2 10 $215,000.00 $220,000.00
Gateway Village, Filing 1, Phase 5 45 $756,388.00 $502,747.35
Gateway Village, Filing 1, Phase 4 41 $726,923.28 $588,304.77
Gateway Village (17 Lots) 17 $212,500.00 $212,500.00
Sterling Hills, Filing 1, Phases 1 & 2 75 $1,995,337.25 $1,737,348.44
Willow Run, Filing 1, Phase 2 28 $700,698.22 $503,596.48
Willow Run, Filing 1, Phase 3 29 $726,292.42 $501,370.97
Willow Run, Filing 2 55 $1,361,250.00 $811,865.93
Quail Run 103 $1,165,086.96 $969,585.14
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<PAGE>
As of the date of this Prospectus, Harvey E. Deutsch and Joel H. Farkas
continue to own equity interests in certain limited liability companies or
limited partnerships which may in the future convey real estate properties to
the Company for development by the Company into finished or semi-finished lots.
Such entities include those entities identified in the table presented above.
The purchase price to be paid by the Company to such entities in the event of
the purchase of real estate properties by the Company from such entities will be
largely determined, if not entirely determined and governed by fair market
appraisals provided by sources of independent expert appraisal and will be at a
price 10% below the fair market value so determined.
Competing Development Activities. Michael A. Messina, a director,
principal shareholder and officer of the Company and the principal owner of
PrideMark, is also the principal owner of Richland Development Company, LLC,
("Richland Development"), a Colorado limited liability company. Richland
Development is engaged in the same lot development business as the Company and
in the same area. Thus, Richland Development directly competes with the Company;
and an expansion of the activities of Richland Development could have a direct
impact upon the Company's future lot sales to its present largest customer.
In 1995, the Company furnished land development services to Richland
Development on a fee basis for which the Company was paid $188,475. It is not
now anticipated that the Company will furnish any services to Richland
Development in the future.
Harvey E. Deutsch, Joel H. Farkas, and Michael A. Messina also have
interest in other parcels of real property in the Denver metro area which may
compete with the Company.
Company Headquarters
As of the date of this Prospectus, the Company's administrative
headquarters are located at 9145 East Kenyon Avenue, Suite 200, Denver, Colorado
80237. Such commercial space occupied and utilized by the Company consists of
approximately 4,288 square feet and is leased in accordance with a written lease
existing between Gateway (now assumed by the Company) and 9145 E. Kenyon, LLC,
of which Harvey E. Deutsch is a manager and member. In June 1997, the Company
renewed its lease for a three year period beginning October 31, 1997. Under the
terms of the new agreement, the Company is to pay $5,773 per month for the first
year with escalation clauses in years two and three. The Company also has an
agreement with the related party law firm, whereby the law firm will reimburse
the Company $1,325 per month for office space occupied by the law firm.
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<PAGE>
Providing of Certain Legal Services
Harvey E. Deutsch, Esq. is a shareholder and principal of the law firm of
Deutsch, Spillane & Reutzel, P.C. The firm also maintains its offices at the
same location as the Company as identified above. Since inception, the firm has
provided various legal services to Gateway and will continue to provide various
legal services to the Company relating to the development activities of Gateway
and the Company, which services will include permitting, zoning matters,
negotiations with municipalities and other governmental units, land acquisition,
subdivision platting and filings and similar matters. During the past three
fiscal years ending on December 31 of each year, Gateway has paid the following
legal fees to the firm; $64,600 in 1994; $241,159 in 1995; and $432,636 in 1996.
Immediately subsequent to the consummation of the Transaction, Harvey E. Deutsch
is expected to devote substantially all of his business time to the position of
President and Chief Executive Officer of the Company and will alter his position
with his law firm to that of "of counsel." In all events, Mr. Deutsch's
attention to the practice of law is expected to be substantially reduced in the
light of his duties to the Company and Mr. Deutsch will then have no further
economic interest in the fees paid to the law firm by the Company for services
rendered subsequent to the Effective Date. See "MANAGEMENT".
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name and Age Positions Held With the Company
------------ -------------------------------
Harvey E. Deutsch, age 57 Chairman, President and Chief
Executive Officer and Director
Joel H. Farkas, age 36 Director, Vice
President-Finance/ Marketing and
Treasurer (Chief Operating Officer) and
Secretary
Michael A. Messina, age 49 Director and Vice President
of Development
All director terms expire June 30, 1998.
Harvey E. Deutsch was a founding member of Gateway and has been active in
the business operations of Gateway since its inception in June 1993. After
graduating from Southern Methodist University, Mr. Deutsch went on to obtain a
law degree from the University of Texas. Additionally, Mr. Deutsch has practiced
law for approximately 30 years in Denver, Colorado and has specialized
principally in real estate law. His practice experience includes significant
real estate property acquisitions, development law, matters relating to
financing and leasing transactions, as well as planning, zoning, land use,
water, sewer, general utility district law, environmental matters and legal
matters relating to municipal and quasi-municipal financing of real property
project infrastructures. Mr. Deutsch is presently a principal of Deutsch,
Spillane & Reutzel, P.C., Denver, Colorado, a firm specializing in real estate,
zoning and land use matters.
Joel H. Farkas was also a founding member of Gateway and has been active
in the business operations of Gateway since its inception in June, 1993. Mr.
Farkas has been engaged in land acquisition, development and finance in Colorado
and Arizona since December, 1984, first as an employee of Farkas Group, Inc., a
family-owned company from 1984 to 1990 and then individually from 1990 to the
present. Mr. Farkas holds a Bachelor of Science degree from the University of
California, Los Angeles.
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<PAGE>
Michael A. Messina was also a founding member of Gateway and has been a
member of Gateway since its inception in June 1993. Mr. Messina is a Manager and
controlling member of PrideMark Home Building Group, LLC and Richland
Development Company, LLC (collectively "Richland Homes"), which he founded in
1987. PrideMark is a Denver Metropolitan area home builder and the largest
purchaser of developed lots from the Company in its operations to date. Richland
Development Company, LLC is engaged in the same property acquisitions and lot
development business and in the same areas as the Company. In addition to this
general management responsibilities for those companies, Mr. Messina's focus and
principal activities have related to land acquisition and residential dwelling
product development. Mr. Messina began his career in 1966 with Perl-Mack
Companies, a contracting firm which constructed commercial and residential
projects in the greater Denver, Colorado area. Over the course of his career,
Mr. Messina has developed and built over 5,000 residential dwellings and several
commercial and multi-family projects.
Additional Directors. The Company intends to elect two additional members
to its Board of Directors to serve as independent directors. The independent
directors will not be employees of the Company or otherwise associated with the
Company except for any stock interests they may acquire. It is anticipated the
independent directors will be elected prior to the Effective Date of the
Registration statement of which this Prospectus is a part.
Committees of the Board of Directors
The Board of Directors of the Company anticipates establishing an Audit
Committee constituting of Harvey E. Deutsch and the two independent directors.
The Audit Committee will make recommendations for selection of the Company's
independent auditors, review the annual audit reports of the Company and review
audit and any non-audit fees paid to the Company's independent auditors. See
"EXPERTS". As indicated in the Prospectus section captioned "RISK FACTORS", the
Company has reserved 375,000 shares of its Common Stock for possible issuance in
connection with a Stock Option Plan which it anticipates will be adopted
subsequent to this offering. Such Plan, if adopted, will be administered by a
Stock Option Committee constituted by three members of the Board of Directors,
which members are yet to be determined. The Company also anticipates
establishing a Compensation Committee, which committee will oversee and make
recommendations with respect to the compensation of the Executive Officers and
managerial and staff personnel of the Company. The Compensation Committee is
expected to be comprised of three members, which members are yet to be selected.
Executive Compensation
The compensation paid or accrued to the three directors and executive
officers of the Company by Gateway during the year ended December 31, 1996 and
the six months ended June 30, 1997 is set forth in the table below. None of this
compensation was paid or accrued to the directors for their services as such.
All of this compensation was paid or accrued as annual compensation and there
was no long term compensation paid or accrued to any of the officers.
38
<PAGE>
<TABLE>
<CAPTION>
Name and Period Salary Payment of Other
Principal Prior Years Compensation
Position Salaries
Paid Accrued Paid Accrued Paid Accrued
- --------- ------ ---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Harvey E. Year Ended 1996 $10,000 $110,000 $230,000 -0- $8,000 -0-
Deutsch, President
and Chief Execu- 6 Months ended
tive Officer June 30, 1997 $5,000 $55,000 -0- -0- $33,742 -0-
Joel H. Farkas, Year Ended 1996 -0- $108,000 $216,000 -0- $234,268(1) -0-
Vice-President -
Finance and Chief 6 Months ended
Financial Officer June 30, 1997 -0- $54,000 -0- -0- $151,962(1) -0-
Michael A. Year Ended 1996 -0- $108,000 $26,212 -0- $22,000 -0-
Messina, Vice-
President of De- 6 Months ended
velopment June 30, 1997 -0- $54,000 -0- -0- $34,787 -0-
</TABLE>
(1) Pursuant to a consulting agreement with the Company dated January 15, 1996,
Mr. Farkas receives additional compensation for acquisition and financial
services in the amount of 1% of the loan amounts for financing him on behalf of
the Company. The Company and Mr. Farkas have agreed to terminate the consulting
agreement on the Effective Date.
The table set forth below reflects the compensation to be paid to Harvey
E. Deutsch in his capacity as President and Chief Executive Officer and to Joel
H. Farkas and Michael A. Messina in their positions as Vice President-Finance
and Vice President-Development, respectively. Other than Messrs. Deutsch,
Messina and Farkas, no other executive officer of the Company will receive
compensation in an amount of $100,000 or more during the fiscal year ending
December 31, 1997.
Summary Compensation Table
Annual
Compensation
Name and Principal Position - Salary
- --------------------------- ----------
Harvey E. Deutsch $120,000
Joel H. Farkas 108,000
Michael A. Messina 108,000
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<PAGE>
Employment Agreements
The Company, as of the Effective Date, will assume and be bound by
employment agreements which have been entered into by Gateway and each of
Messrs. Deutsch, Farkas and Messina. The employment agreements are all on
similar terms, except for salary rates as indicated above, and each provide: (a)
annual salaries at the respective rates specified in the table above; (b) for an
initial term through December 31, 2000; (c) for an automatic extension for an
additional one year term after the initial term unless terminated by either
party; (d) for health and disability insurance coverage at the Company's
expense; (e) for an automobile expense allowance of $750 per month; (f) for key
person insurance at Company expense in the face amount of $1,500,000 payable to
the Company; (g) for payment of an annual premium of $25,000 on additional life
insurance payable to a beneficiary designated by each officer; (h) for payment
of six-months salary in the event the agreement is terminated by the Company for
the disability of the officer; (i) for payment of three years of salary to the
decedent's estate in the event of death during the term of the agreement, or
termination of the agreement without cause (as defined in the agreement) by the
Company; (j) for the employee to devote the time required to carry out his
duties to the Company; (k) the recognition by the Company that each employee has
other business interests which will require portions of the employee's time and
some of which may compete with the Company; (l) for reimbursement of accountable
out-of-pocket expenses incurred in the performance of their duties; and (m) for
incentive compensation as may be determined by the Board of Director's
including, stock options, a retirement plan or bonuses.
The employment agreements provide that on the Effective Date (also the
date the Company assumes the agreements), the Company will assume any unpaid
amounts due to the three officers thereunder. As of June 30, 1997, this unpaid
liability aggregated $489,000 which will be paid from proceeds of this offering.
See "USE OF PROCEEDS".
Director Compensation
The independent directors may be entitled to receive director fees for
their attendance at regular and special meetings of the Board of Directors of
the Company or committees thereof. The amount of such fees have not yet been
determined, but are not expected to exceed $750 per meeting attended. They may
also be compensated for any services rendered to the Company outside their
normal duties as directors. All directors will be reimbursed for their cash
expenses, including travel expenses, incurred in the performance of their
services. The directors may also participate in any stock incentive or stock
option programs developed by the Company.
Key Personnel
Jeffrey K. Prager, is in charge of all financial reporting for the
Company. Mr. Prager has been a full time employee of the Company since June,
1995. He was a part time employee of the Company from its inception in June,
1994 through May, 1995. From August, 1983 to June, 1995, Mr. Prager operated a
public accounting firm which provided a full range of financial services for
clients engaged in small to medium size businesses. Mr. Prager is a Certified
Public Accountant and has held such designation since 1975. In addition to
providing traditional accounting services, Mr. Prager's firm also provided
economic analysis, real estate analysis, business planning and financing. Mr.
Prager served as corporate Controller for the Alpert Corporation during the
period May, 1978 to November, 1991. During such time, the Alpert Corporation was
one of the largest privately owned home builders in the greater Denver, Colorado
metropolitan area. Mr. Prager graduated with a degree in economics from the
University of Colorado and did post-graduate work in accounting.
40
<PAGE>
Mark R. Traver, is the Director of Development, which includes forward
planning, platting, engineering design, and overseeing field construction which
position he has held since April of 1997. Mr. Traver has been in the land
development industry since 1983, and began as a field superintendent for Talley
Corporation and eventually became Vice President of Land Development before
being transferred to Florida in the same capacity for Good Property Company in
1986. Mr. Traver graduated from Iowa State University with a degree in Landscape
Architecture. From 1992 to 1993 he worked for Richardson, Nagy,
Martin-Architects and Planners in Newport Beach, California as Project Director
for Master Planning and Community Development. From 1994 to 1997 he worked as
Director of Development for Continental Homes.
Geoffrey J. Phillips, is the managing partner of Gateway American
Properties Brokerage, LLC. (a Colorado limited liability company in which
Messrs. Deutsch, Farkas and Messina each own a 17.5% membership interest).
Mr. Phillips has been the broker for Gateway American Properties Brokerage,
LLC since its inception in September, 1994 and is also employed with Gateway
American Properties, LLC. He as been involved in the residential/commercial
real estate profession for 25 years and has spent ten years managing his own
real estate company. Mr. Phillips graduated with a B.A. in economics from
the University of Wisconsin. Mr. Phillips is responsible for all the
marketing of developed and undeveloped parcels for Gateway American
Properties, LLC. Mr. Phillips maintains a continuing relationship with the
builder communities and coordinates the completion and delivery of lots to
the end purchaser
Indemnification
Under the Articles of Incorporation of the Company, officers and directors
of the Company, and former officers and directors, are entitled to
indemnification from the Company to the full extent permitted by law. The
Company's bylaws and the Colorado Business Corporation Act generally provide for
such indemnification for claims arising out of the acts or omissions of Company
directors and officers (and certain other persons) in their capacity as such and
undertaken in good faith and in a manner reasonably believed to be in, or not
opposed to, the best interests of the Company, and further specify the
circumstances under which such indemnification shall be available. The Company
also has entered into an Indemnification Agreement with Messrs. Deutsch, Farkas
and Messina pursuant to which the Company has agreed to indemnify these
individuals from and against any liability, cost or expense incurred by them
under any loan or obligation obtained by or for the benefit of the Company,
including their guarantees of the Notes. Insofar as such provisions of the
Articles of Incorporation or Bylaws of the Company, the Colorado Business
Corporation Act or the Indemnification Agreement purport to protect any director
or officer of the Company from liability to the Company and its holders of
Common Stock and arising from the willful misfeasance, bad faith, gross
negligence or reckless disregard of such directors' or officers' duties of
office, the Company has been informed that, in the opinion of the Commission,
such indemnification provisions violate public policy as expressed in the Act
and are therefore unenforceable.
Conflicts of Interests
As discussed in "PROSPECTUS SUMMARY", "RISK FACTORS", "BUSINESS", "CERTAIN
TRANSACTIONS", and "MANAGEMENT", Messrs. Deutsch, Farkas, and Messina, the
officers and three of the directors of the Company, are involved in several
situations which involve possible conflicts of interests between themselves and
the Company. They all have interests in entities which have conveyed and will
convey real property to the Company. For the 30 month period beginning January
1, 1995, 72% of the finished and sem-finished lots sold by the Company have been
sold to PrideMark, a home building company owned by Mr. Messina. It is
anticipated that the Company will continue to sell between one-third and
one-half of its platted, finished and semi-finished lots to PrideMark during the
next year. In addition, PrideMark Homes began direct competition with the
Company in 1992, when it began developing, platting and acquiring lots to serve
its own homebuilding needs.
Mr. Farkas has provided loan acquisition and financial consulting
services to Gateway for which he has received a consulting fee equal to 1% of
loans acquired through his services.
41
<PAGE>
The Company has and intends to continue to obtain legal services from a
law firm in which Mr. Deutsch is a shareholder and principal.
In recognition of the potential conflicts of interest, the Company has;
(a) reached an understanding with Messrs. Deutsch, Farkas and Messina that any
real estate purchased from them will be purchased at 10% below fair market
value, based upon independent expert appraisals; (b) developed a property
marketing program designed to decrease the Company's dependence on PrideMark for
lot sales; (c) reached an agreement with Mr. Farkas to terminate his consulting
agreement on the Effective Date; and (d) reached an understanding with Mr.
Deutsch that he will have no further economic interest in any legal fees paid to
his firm for legal services performed after the Effective Date.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the Effective Date and as adjusted
to reflect: (i) the completion of the Transaction involving the requisition of
Gateway LLC; and (ii) the sale of the Common Stock offered hereby (assuming no
exercise of the Over-Allotment Option) by (a) each stockholder known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (b) each director of the Company, (c) each executive officer of the
Company as identified in this Prospectus, and (d) all executive officers and
directors as a group. Except as otherwise indicated, the Company believes that
the beneficial owners of the Common Stock listed below have sole investment and
voting power with respect to such Shares subject to community property laws
where applicable. The business address of each individual listed below is the
same as the address of the Company's principal executive offices in Denver,
Colorado.
Shares Owned Percentage of Percentage of
Beneficially as Beneficial Beneficial
of the Effective Ownership before Ownership after
Date (1) Offering (1) Offering(1)
-------- ------------ -----------
Harvey E. 493,594 20.98% 12.81%
Deutsch(2)
Joel H. Farkas(3) 493,594 20.98% 12.81%
Michael A. Messina 835,312 35.51% 21.68%
Officers & 1,822,500 77.47% 47.30%
Directors as a
group (5 persons)
(1)
__________
(1) The 1,822,500 shares owned by Messrs. Deutsch, Farkas and Messina along
with 202,500 shares owned by other members of Gateway LLC are deposited
under a Voting Trust Agreement described below. Under that Agreement, any
two of these three individuals can vote the entire 2,025,000 deposited
shares or 77.47% of the shares outstanding prior to the Offering and
52.57% afterwards.
(2) Of these Shares 330,075 are owned by family members or trusts for the
benefit of family members of Mr. Deutsch. Mr. Deutsch exercises voting
control over such Shares, as well as shared voting control with Messrs.
Farkas and Messina over 202,500 additional Shares owned by other members
of Gateway, by virtue of the Voting Trust Agreement described in note 1
above and below.
42
<PAGE>
(3) Of these Shares 149,344 are owned by a trust for the benefit of family
members of Mr. Farkas. Mr. Farkas exercised voting control over such
Shares, as well as shared voting control with Messrs. Deutsch and Messina
over 202,500 additional Shares owned by other members of Gateway LLC, by
virtue of the Voting Trust Agreement described in Note 1 above and below.
Messrs. Deutsch, Farkas and Messina have entered into a Voting Trust
Agreement pursuant to which, on and after the Effective Date, the shares of
Common Stock of the Company beneficially owned by them and members of their
respective families or family trusts will be voted by them as voting trustees
serving pursuant to such Agreement. Under the terms of the Voting Trust
Agreement, Messrs. Deutsch, Farkas and Messina have shared voting control (in
proportion to the percentage of Shares owned by each of them and their
respective family members and family trusts) over a total of 2,025,000 Shares
which includes 202,500 Shares owned by other members of Gateway. The Voting
Trust Agreement has a term of ten years, and is renewable for an additional ten
year period. During its term, the Voting Trust Agreement can be terminated only
by agreement of the voting trustees. By virtue of its terms, the existence of
such Voting Trust Agreement is not expected to diminish the voting control of
the Company vested in Messrs. Deutsch, Farkas and Messina.
Messrs. Deutsch, Farkas and Messina, their family members and the trusts
for the benefit of their family members, as well as the other members of
Gateway, also have entered into a Cross Purchase Agreement providing for the
sale and purchase of the Company's Common Stock among such persons and their
representatives.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Barron Chase Securities,
Inc. (The "Representative") is acting as representative have severally agreed to
purchase from the Company an aggregate of 1,500,000 Shares and 3,000,000
Purchase Warrants (collectively, the "Securities"). The number of Securities
which each Underwriter has agreed to purchase is set forth opposite its name.
Number of Number of
Underwriter Shares Warrants
----------- ------ --------
Barron Chase Securities, Inc.............
Total........................ 1,500,000 3,000,000
========= =========
The Securities are offered by the Underwriters subject to prior sale,
when, as and if delivered to and accepted by the Underwriters and subject to
approval of certain legal matters by counsel and certain other conditions. The
Underwriters are committed to purchase all Securities offered by the Prospectus,
if any are purchased.
43
<PAGE>
The Company has been advised by the Representative that the Underwriters
propose to offer the Securities to the public at the offering price set forth in
the cover page of this Prospectus, and that the Underwriters may allow
concessions to certain selected dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD"), all of whom agree to sell the
Securities in conformity with the NASD's Conduct Rules. Such concessions will
not exceed the amount of the underwriting discount that the Underwriters are to
receive.
The Company has granted to the Representative an Over-Allotment Option,
exercisable for 45 days from the Effective Date, to purchase up to an additional
225,000 Shares and an additional 450,000 Purchase Warrants at the public
offering price less the Underwriting Discount set forth on the cover page of
this Prospectus. The Representative may exercise this option solely to cover
over-allotments in the sale of the Securities being offered by this Prospectus.
Officers and directors of the Company may introduce the Representative to
persons to consider this Offering and to purchase Securities either through the
Representative, other Underwriters or through participating dealers. In this
connection, no shares have been reserved for these purchases and officers and
directors will not receive any commissions or any other compensation.
The Company has agreed to pay to the Representative a commission of 10% of
the gross proceeds of this Offering (the "Underwriting Discount"), including the
gross proceeds from the sale of the over-allotment option, if exercised. In
addition, the Company has agreed to pay to the Representative the
non-accountable expense allowance of 3% of the gross proceeds of this Offering,
including proceeds from any Securities purchased pursuant to the over-allotment
option. The Representative's expenses in excess of the Non-Accountable Expense
Allowance will be paid by the Representative. To the extent that the expenses of
the Representative are less than the amount of the Non-Accountable Expense
Allowance received, such excess shall be deemed to be additional compensation to
the Representative. The Representative has informed the Company that it does not
expect sales to discretionary accounts to exceed 5% of the total number of
Securities offered by the Company hereby.
The Company has agreed pursuant to the terms of a Financial Advisor
Agreement to be entered into at the Closing (the "Financial Advisor Agreement")
to engage the Representative as a financial advisor at a fee of $108,000 all of
which is payable to the Representative at the Closing. Pursuant to the terms of
a financial advisory agreement, the Representative has agreed to provide, at the
Company's request, advice to the Company concerning potential merger and
acquisition and financing proposals, whether by public financing or otherwise.
There are currently no plans, proposals, arrangements or understandings with
respect to any potential merger, acquisition, financial proposal or joint
venture.
Prior to this Offering, there has been no public market for the shares of
Common Stock or Purchase Warrants. Consequently, the initial public offering
price for the Securities, and the terms of the Purchase Warrants (including the
exercise price of the Purchase Warrants), have been determined by negotiations
between the Company and the Representative. Among the factors considered in
determining the public offering price were the history of, and the prospects
for, the Company's business, an assessment of the Company's management, its past
and present operations, the Company's development and the general condition of
the securities market at the time of this Offering. The initial public offering
price does not necessarily bear any relationship to the Company's assets, book
value, earnings or other factors, and no assurance can be given that public
market for the Shares or the Purchase Warrants will develop after the Closing,
or if a public market in fact develops, that such public market will be
sustained, or that the Shares or Purchase Warrants can be resold at any time at
the offering or any other price. See "RISK FACTORS -Determination of Share and
Warrant Offering Price."
44
<PAGE>
At the Closing, the Company will issue to the Representative or persons
related to the Representative, for nominal consideration, the Common Stock
Representative Warrants to purchase up to 150,000 shares of Common Stock and the
Warrant Representative Warrants to purchase up to 300,000 warrants (the
"Underlying Warrants"). The Common Stock Representative Warrants, and the
Warrant Representative Warrants are sometimes referred to in this Prospectus as
the "Representative Warrants." The Representative Warrants will be exercisable
for a five-year period commencing on the Effective Date. The exercise price of
each Common Stock Representative Warrant shall be $6.00 per share (150% of the
public offering price). The exercise price of each Warrant Representative
Warrant shall be $.28125 per warrant (150% of the public offering price). Each
Underlying Warrant will be exercisable for a five-year period commencing on the
Effective Date to purchase one share of Common stock at an exercise price of
$6.00 per share of Common Stock. The Representative Warrants will not be
transferable for 12 months from the Effective Date by the holder, except (i) to
officers of the Representative, other Underwriters and members of the selling
group and officers and partners thereof; (ii) by will; or (iii) by operation of
law.
The Common Stock Representative Warrants and the Warrant Representative
Warrants contain provisions providing to appropriate adjustment in the event of
any merger, consolidation, recapitalization, reclassification, stock dividend,
stock split of similar transaction. The Representative Warrants contain net
issuance provisions permitting the holders thereof to elect to exercise the
Representative Warrants in whole or in part and instruct the Company to withhold
from the securities issuable upon exercise, a number of securities, valued at
the current fair market value on the date of exercise, to pay the exercise
price. Such net exercise provision has the effect of requiring the Company to
issue shares of Common Stock without a corresponding increase in capital. A net
exercise of the Representative Warrants will have the same dilutive effect on
the interests of the Company's stockholders as will a cash exercise. The
Representative Warrants do not entitle the Representative to any rights as a
stockholder of the Company until such Representative Warrants are exercised and
shares of Common Stock are purchased thereunder.
The Representative Warrants and the securities issuable thereunder may not
be offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that if it shall cause a post-effective
amendment, a new registration statement, or similar offering document to be
filed with the Commission, the holders shall have the right, for seven years
from the Effective Date, to include in such registration statement or offering
statement the Representative Warrants and the securities issuable upon their
exercise at no expense to the holders. Additionally, the Company has agreed
that, upon request, by the holders of 50% or more of the Representative Warrants
during the period commencing 12 months from the Effective Date and expiring four
years thereafter, the Company will, under certain circumstances, register the
Representative Warrants and any of the securities issuable upon their exercise.
The Company has also agreed that if the Company participates in any
transaction which the Representative has introduced in writing to the Company
during a period of five years after the Closing (including mergers,
acquisitions, joint ventures and any other business transaction for the Company
introduced in writing by the representative), and which is consummated after the
Closing (including an acquisition of assets or stock for which it pays, in whole
or in part, with shares or other securities of the Company), or if the Company
retains the services of the Representative in connection with any such
transaction (an "Introduced Consummated Transaction"), then the Company will pay
for the Representative's services in amount equal to 5% of up to one million
dollars of value paid or received in the transaction, 4% of the next million of
such value, 3% of the next million of such value, 2% of the next million of such
value, and 1% of the next million dollars of such value and of all such value
above $4,000,000.
45
<PAGE>
The Company has agreed to indemnify the Underwriters against any costs or
liabilities incurred by the Underwriters by reasons of misstatements or
omissions to state material facts in connection with the statements made in the
Registration Statement on Form SB-2 and this Prospectus filed by the Company
with the Commission (the "Registration Statement") under the Securities Act .
The Underwriters have in turn agreed to indemnify the Company against any costs
or liabilities by reason of misstatements or ommissions to state material facts
in connection with the statements made in the Registration Statement and this
Prospectus, based on information relating to the Underwriters and furnished in
writing by the Underwriters. To the extent that this section may purport to
provide exculpation from possible liabilities arising from the federal
securities laws, in the opinion of the Commission, such indemnification is
contrary to public policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement. See "ADDITIONAL INFORMATION."
46
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $.01 par value. Upon consummation of this offering, there will
be 3,852,000 shares of Common Stock outstanding and if the Over-Allotment Option
is utilized to its full extent, there will be 4,077,000 shares of Common Stock
outstanding.
Common Stock
Holders of shares of the Common Stock are entitled to one vote per Share
on all matters to be voted upon by the stockholders. Cumulative voting is not
permitted in the election of directors. In summary, cumulative voting permits
the holders of voting securities to cumulate the vote attributable to such
securities by multiplying the number of Shares held times the number of
candidates standing for election to a corporation's board of directors and then
allocating the resulting number of votes among one or more of such candidates.
The absence of cumulative voting and the number of Shares beneficially owned by
the present directors and officers of the Company will vest voting control of
the Company in such persons. See "PRINCIPAL SHAREHOLDERS". The holders of shares
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. See "DIVIDEND POLICY".
In the event of liquidation, dissolution, or winding up of the Company,
the holders of shares of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities. Shares of Common Stock have no
preemptive, conversion or other subscription rights and there are no redemption
or sinking fund provisions applicable to the Common Stock. All of the shares of
Common Stock sold in this offering will be fully paid and non-assessable.
Warrants
General. The Warrants offered hereby will be issued in registered form
pursuant to the terms of a warrant agreement (the "Warrant Agreement"), dated as
of the Effective Date, between the Company and American Securities Transfer,
Inc., as warrant agent (the "Warrant Agent"). An aggregate of 3,000,000 Warrants
(up to 3,450,000 Warrants if the Over-Allotment option is exercised in full)
will be issued pursuant to the Warrant Agreement.
The following statements and summaries of certain provisions of the
Warrant Agreement are subject to the more detailed provisions of the Warrant
Agreement, copies of which may be examined at the principal offices of the
Warrant Agent and a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Right to Purchase Shares of Common Stock. Each Warrant will entitle the
registered holder to purchase from the Company one share of Common Stock at an
exercise price of $4.50 per Share during the period commencing on the date of
this Prospectus and ending on the fifth anniversary of such date.
47
<PAGE>
Exercise. Each holder of a Warrant may exercise such Warrant by
surrendering the certificate evidencing such Warrant, with the form of election
to purchase on the reverse side of such certificate properly completed and
executed, together with payment of the exercise price, to the Warrant Agent. No
Warrants may be exercised unless at the time of exercise there is a current
prospectus covering the shares of Common Stock issuable upon the exercise of
such Warrants under an effective registration statement. The Company is required
to maintain an effective registration statement, including such current
prospectus, so long as any of the exercisable Warrants remain outstanding. While
it is the Company's intention to comply with this obligation, there can be no
assurance that it will be able to do so. See "RISK FACTORS".
The exercise price will be payable in cash or by certified or official
bank check payable to the Company. If fewer than all of the Warrants evidenced
by a warrant certificate are exercised, a new certificate will be issued for the
remaining number of Warrants. Certificates evidencing the Warrants may be
exchanged for new certificates of different denominations by presenting the
Warrant certificate at the office upon exercise of any Warrants and the number
of Warrants are subject to adjustment upon the occurrence of certain events,
including stock dividends, reclassifications, reorganizations, consolidations,
merger, and certain issuances and redemptions of Common Stock and securities
convertible into or exchangeable for Common Stock. No adjustment in the exercise
price will be required to be made with respect to the Warrants until cumulative
adjustments amount to $.05. In the event of any capital reorganization, certain
reclassification of the Common Stock, any consolidation or merger involving the
Company (other than a consolidation or merger which does not result in any
reclassification or change in the outstanding shares of Common Stock), or sale
of the properties and assets of the Company, as, or substantially as, an
entirety to any other corporations, Warrants will thereupon become exercisable
only for the number of shares of stock or other securities, assets, or cash to
which a holder of the number of shares of Common Stock of the Company
purchasable (at the time of such reorganization, reclassification,
consolidation, merger or sale) upon exercise of such Warrants would have ben
entitled upon such reorganization, reclassification, consolidation, merger or
sale.
Other Rights. In the event of an adjustment in the number of shares of
Common Stock issuable upon exercise of the Warrants, the Company will not be
required to issue fractional shares of Common Stock upon exercise of the
Warrants. In lieu of fractional shares of Common Stock, there will be paid to
the holder of the Warrants at the time of such exercise an amount in cash equal
to the same fraction of the current market value of a share of Common Stock of
the Company.
Warrant holders do not have voting or any other rights of shareholders of
the Company and are not entitles to dividends, if any.
Redemption of Warrants. If the closing price of the Common Stock shall
have equaled or exceeded $6.40 per Share for a period of 30 consecutive trading
days at any time after the date of this Prospectus, the Company may redeem the
Warrants by paying holders $.35 per Warrant, provided that notice of such
redemption is mailed within ten days after the end of such period and prescribes
a redemption date at least 30 days thereafter. Warrant holders will be entitled
to exercise Warrants at any time up to the business day next preceding the
redemption date.
Modification of the Warrant Agreement. The Warrant Agreement contains
provisions permitting the Company and the Warrant Agent, without the consent of
the Warrant holders, to supplement or amend the Warrant Agreement in order to
cure any ambiguity or defect, or to make any other provision in regard to
matters or questions arising thereunder that the Company and the Warrant Agent
may deem necessary or desirable and that does not adversely affect the interests
of the Warrant holders.
48
<PAGE>
Transfer Agent and Registrar and Warrant Agent
The Transfer Agent and Registrar and Warrant Agent for the Common Stock is
American Securities Transfer & Trust, Inc., Denver, Colorado.
Shares Eligible for Future Sale
Prior to this offering, there has been no public market for the Common
Stock or the Warrants. Sales of substantial amounts of shares of Common Stock in
the public market could adversely affect market prices of the Shares and make it
more difficult for the Company to sell equity securities in the future at a time
and price it deems appropriate. See "RISK FACTORS".
Upon completion of the offering, there will be 3,852,000 shares of Common
Stock outstanding excluding an aggregate of 4,125,000 shares issuable upon
exercise of; (i) the Warrants (3,000,000 Shares); (ii) the Over-Allotment Option
and the Warrants issuable thereunder (675,000 shares); (iii) the Founders'
Warrants (300,000 shares); (iv) the Representative's Warrants (450,000 shares);
and (v) shares possibly issuable under the Stock Option Plan which may be
adopted by the Company (a maximum of 375,000 Shares). Of these shares, the
1,500,000 shares sold in this offering, the 3,000,000 shares underlying the
Warrants, and the maximum of 675,000 shares issuable upon full exercise of the
Over-Allotment Option and the exercise of the Warrants issuable thereunder, will
be freely tradeable without restriction or further registration under the Act,
except for any such shares purchased by an "affiliate" of the Company, which
will be subject to the resale limitations of Rule 144 under the Act. As defined
in Rule 144, an affiliate of the issuer is a person who, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such issuer, and generally includes members of the Board of
Directors and senior management. Additionally, the 300,000 shares underlying the
Founders' Warrants and the 327,000 shares of the Company's Common Stock issued
prior to the Transaction, will also be registered under the Act. Of such 327,000
shares of Common Stock, 27,000 shares may not be sold for a period of 90 days
from the Effective Date. The remaining 300,000 outstanding shares and the
300,000 Shares issuable upon full exercise of the Founders' Warrants, while
registered under the Act, are subject to "lock-up provisions" existing between
the holders thereof and the Representative which preclude their sale into the
market without the Representatives prior consent for 15 months from the
Effective Date.
Of the 2,352,000 shares of Common Stock outstanding on the Effective Date,
2,025,000 Shares the 450,000 Shares issuable upon full exercise of the
Representative's Warrants, and the maximum of 375,000 Shares possibly issuable
upon any Stock Option Plan adopted by the Company are or will be "Restricted
Securities" as defined in Rule 144 under the Act ("Rule 144") (collectively the
"Restricted shares") and may not be sold without registration under the Act
unless pursuant to an applicable exemption therefrom. The Company has granted
certain registration rights with respect to the shares of Common stock
underlying the Representative's Warrants. In addition, the Company expects to
register under the Act at any appropriate time, the Shares reserved for issuance
under any Stock Option Plan adopted.
In general, Rule 144 allows a stockholder who has beneficially owned
Restricted Shares for at least one year to sell a number of Restricted Shares
within any three-month period that does not exceed the greater of (i) one
percent of the then outstanding shares of Common Stock (approximately 38,520
Shares after giving effect to this offering) or (ii) the average weekly trading
volume in the Common Stock during the four calendar weeks immediately preceding
such sale. Sales under Rule 144 are also subject to certain requirements as to
the manner and notice of sale and the availability of public information about
the Company. A stockholder who is not an "affiliate" of the Company at any time
during the 90 days immediately preceding a sale, and who has beneficially owned
his Shares for at least two years (as computed under Rule 144) is entitled to
sell such Shares under Rule 144 without regard to the volume and manner of sale
limitations described above.
49
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholders may from time to time sell or otherwise dispose
of such shares of Common Stock on their own behalf at market prices then
prevailing or otherwise at prices then available. None of these shares are being
sold in the offering which is being underwritten by the Underwriter, and the
Company will not receive any of the proceeds from the sale of these Selling
Stockholders Shares. The Company is paying substantially all of the expenses of
registration of the Selling Stockholders Shares. Brokers' commissions, taxes and
other selling expenses are to be borne by the Selling Stockholders and are not
expected to exceed normal selling expenses. Sales of the Selling Stockholders
Shares will be subject to the prospectus delivery requirements and other
requirements of the Securities Act.
The Selling Stockholders may not sell 27,000 of their shares for 90 days
from the date of this Prospectus and the remaining 600,000 shares may not be
sold for 15 months from the date of this Prospectus without the Representative's
consent. Information with respect to the Selling Stockholders Shares and
Founders Warrants held by each is set forth below and assumes all the shares are
sold.
Number of Founders
Name of Investor Number of Shares Held (1) Warrants Held (1)
- ---------------- ------------------------- ------------------
Robert B. Abel 2,459 2,459
Anna S. Beeler 6,614 6,614
Aime G. Begin 614 614
Kenneth Benedict and Wanda Benedict, JTWROS 1,229 1,229
James A. Bird 737 737
Bizz Mark, Inc. 614 614
James E. Brassfield 11,063 11,063
Robert M. Brodbeck 922 922
Marilyn S. Brown 2,459 2,459
Cynthia C. Butler 1,500 1,500
Lawrence Castle 1,500 1,500
Kent B. Connally 6,074 6,074
Corporate Communication Network, Inc. 12,000 12,000
Randall J. Coyne 9,221 9,221
Marshall D. Davis, Esq. 15,291 15,291
Robert R. DeMaris 461 461
Paul DeMaris 461 461
Donna Dryman & Joe Stumbo, as Trustees of the
Alfred G. DeMaris, Sr. Trust FBO
Alfred G. DeMaris, Jr. 461 461
Larry Eagle 2,459 2,459
Geraldine C. Elliot (Cocciardi) 614 614
Richard L. Fisher 614 614
5 I Partnership 6,147 6,147
General Acceptance Corp. 7,377 7,377
Granite Laurel, Inc. S.A. 16,993 16,993
Kristen, Darron, Kia Graves 1,844 1,844
50
<PAGE>
Number of Founders
Name of Investor Number of Shares Held (1) Warrants Held (1)
John P. Graves, Jr. 922 922
Gail M. Graves 922 922
Pamela J. Grier 1,229 1,229
Ralph H. Grills, Jr. 6,147 6,147
Barry J. Higgins 3,000 3,000
Sibert M. Hill 3,000 3,000
Russell Holzman 614 614
William T. Kirtley 9,221 9,221
William T. Kirtley, P.A. Profit Sharing Plan
William T. Kirtley, Trustee 3,000 3,000
Ellen Lane 1,844 1,884
Joseph R. Lariviere 614 614
Maurice L. Lariviere 9,221 9,221
Gabriel Lotan 3,000 3,000
Howard J. Manetti 17,208 17,208
James T. McDonough 63,876 36,876
Clark Morton 614 614
Mari Morton 1,844 1,844
Margaret Mountain 12,291 12,291
Sam Newton 15,000 15,000
Robert M. Nieder 2,250 2,250
Allyson Palmer 4,500 4,500
George D. Phillips 1,844 1,844
Leonard A. Pluss 7,500 7,500
The Prager Irrevocable Trust 3,750 3,750
William Lee Pryor III 3,689 3,689
ROMED 3,000 3,000
C. Lawrence Schmidt 4,844 4,844
Willard D. Sheffield 1,844 1,844
Norman Sheldon 3,000 3,000
Theresa Shulman 5,533 5,533
Carroll V. SoRelle 5,533 5,533
Sheldon Spector 3,000 3,000
Mervin F. Stelter 1,229 1,229
Terry L. Stewart 614 614
Dianne Van Etten 461 461
H. E. Bud Van Orden 3,000 3,000
Vego Larsen Hamfen Imhoff IRA 4,500 4,500
M. Rean Wegley 614 614
Jerry P. Youmans 3,000 3,000
------- -------
TOTAL 327,000 300,000
_______________
(1) Assumes that all shares offered are sold by the Selling Stockholders.
51
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Common Stock and Warrants
offered hereby are being passed upon for the Company by William T. Kirtley,
P.A., Sarasota, Florida and Gilbert L. McSwain, Esq., Denver, Colorado. Certain
legal matters will be passed upon for the Underwriters by David A.
Carter, P.A., Boca Raton, Florida,
EXPERTS
The consolidated financial statements of Gateway American properties, LLC
as of December 31, 1996, and for each of the years in the two-year period ended
December 31, 1996, and the balance sheet of Gateway American Properties
Corporation (a Colorado Corporation), included in this Registration Statement
have been audited by Gelfond Hochstadt Pangburn & Co., independent certified
public accountants, Denver, Colorado, as stated in their reports appearing
herein, and are included in reliance upon the reports of such firm, given upon
their authority as experts in accounting and auditing.
The financial statements of Gateway American Properties Corporation (a
Florida Corporation) as of December 31, 1995 and 1996, and for the period from
January 12, 1995 (date of inception) to December 31, 1995, and for the year
ended December 31, 1996, included in this Registration Statement have been
audited by Beatty & Company, P.A., independent certified public accountants,
Sarasota, Florida, as stated in their report appearing herein, and are included
in reliance upon the report of such firm, given upon their authority as experts
in accounting and auditing.
52
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission the Registration Statement under the
Securities Act of 1933 with respect to the Securities, among other securities.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the Rules and Regulations of the Commission. For further information with
respect to the Company and this Offering, reference is made to the Registration
Statement, including the exhibits filed therewith, which may be examined at the
Commission's principal office, Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; the Northeast Regional Office of the Commission at
7 World Trade Center, Suite 1300, New York, New York 10048; and the Midwest
Regional Office of the Commission, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, where copies may be obtained upon payment
of the fees prescribed by the Commission, Such documents may also be obtained
through the website maintained by the Commission at http://www.sec.gov.
Descriptions contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement are not
necessarily complete and each such description is qualified by reference to such
contract or document. The Company will provide without charge to each person who
receives a Prospectus, upon written or oral request of such person to the
Company at the following address or telephone number, a copy of any of the
information that is incorporated by reference in this Prospectus: 9145 East
Kenyon Avenue, Suite 200, Denver, Colorado 80237, Attention: Joel H. Farkas,
telephone (303)843-9742.
53
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION,
a Colorado Corporation
INDEX TO FINANCIAL STATEMENTS
GATEWAY AMERICAN PROPERTIES, LLC,
Page
Independent Auditors Report............................... F-3
Consolidated Balance Sheets............................... F-4
Consolidated Statements of Income......................... F-5
Consolidated Statements of Members' Equity................ F-6
Consolidated Statements of Cash Flows..................... F-7
Notes to Consolidated Financial Statements................ F-9
GATEWAY AMERICAN PROPERTIES CORPORATION,
(a Colorado Corporation)
Independent Auditors' Report.............................. F-24
Balance Sheet............................................. F-25
Note to Balance Sheet..................................... F-26
GATEWAY AMERICAN PROPERTIES CORPORATION,
(a Florida Corporation)
Report of Independent Certified Public Accountant......... F-28
Balance Sheet............................................. F-30
Statement of Operations................................... F-31
Statement of Shareholder's Equity......................... F-32
Statement of Cash Flows................................... F-33
Notes to Financial Statements............................. F-34
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF
GATEWAY AMERICAN PROPERTIES CORPORATION (Colorado)
GATEWAY AMERICAN PROPERTIES, LLC and
GATEWAY AMERICAN PROPERTIES CORPORATION (Florida)
Introduction.......................................... F-38
Pro forma Condensed Balance Sheet..................... F-39
Pro forma Condensed Statements of Operations.......... F-40
Notes to Pro forma Condensed Financial Statements..... F-42
F-1
<PAGE>
Gateway American Properties, LLC
(A Colorado Limited Liability Company)
Years Ended December 31, 1995 and 1996 Six Months Ended June
30, 1996 and 1997 (Unaudited)
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
CONTENTS
Independent auditors' report............................................. F-3
Financial statements:
Consolidated balance sheets........................................... F-4
Consolidated statements of income..................................... F-5
Consolidated statements of members' equity............................ F-6
Consolidated statements of cash flows................................. F-7
Notes to consolidated financial statements............................ F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Gateway American Properties, LLC
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Gateway American
Properties, LLC and subsidiaries as of December 31, 1996, and the related
consolidated statements of income, members' equity and cash flows for each of
the years in the two year period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Gateway American
Properties, LLC and subsidiaries as of December 31, 1996, the results of their
operations, and their cash flows for each of the years in the two year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
September 22, 1997
F-3
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
1996 1997
------------ ----------
(Unaudited)
Cash $ 133,523 $ 48,757
Restricted cash 534,729 689,710
Accounts receivable 69,709 40,911
Accounts receivable, related party 84,650 184,392
Deposits 62,700 65,000
Land under development 16,081,225 17,055,929
Due from metro and
general improvement districts (Note 2):
Related parties 1,415,593 1,403,385
Other 161,038 161,638
Loan fees, net of amortization of $520,408 and
$618,322 in 1996 and 1997, respectively 364,420 250,376
Deferred offering costs 43,822
Other assets 28,819 42,394
------------ ----------
Total assets $ 18,936,406 $19,986,314
============ ===========
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Accounts payable $ 860,650 $ 1,010,370
Accounts payable, related parties (Note 5) 1,011,754 910,171
Property taxes payable 77,563 38,800
Customer deposits (Note 4) 236,000 338,500
Notes payable (Note 3):
Private placements 5,500,000 4,000,000
Banks 4,858,817 7,419,537
Related parties 1,047,433 1,396,565
Other 4,782,945 3,984,723
------------ ----------
Total notes payable 16,189,195 16,800,825
------------ ----------
Total liabilities 18,375,162 19,098,666
------------ ----------
Commitments and contingencies (Notes 2, 4, 5, and 6)
Minority interest 156,946 84,775
Members' equity 404,298 802,873
------------ ----------
Total liabilities and members' equity $ 18,936,406 $19,986,314
============ ===========
See notes to consolidated financial statements.
F-4
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF INCOME
Year ended Six months ended
December 31, June 30,
------------ --------
1995 1996 1996 1997
---------- ---------- ---------- ------------
(Unaudited) (Unaudited)
Sales:
Related party (Note 5) $2,800,535 $7,901,928 $3,591,620 $4,067,199
Other 1,574,824 2,598,678 1,428,395 981,844
--------- --------- --------- -------
4,375,359 10,500,606 5,020,015 5,049,043
Cost of sales (Note 5) 3,747,285 9,549,080 4,752,474 3,917,239
--------- --------- --------- ---------
628,074 951,526 267,541 1,131,804
General and
administrative expenses 589,905 791,522 314,513 682,021
---------- ---------- ---------- -----------
Operating income (loss) 38,169 160,004 (46,972) 449,783
Interest income 10,728 1,450
---------- ---------- ---------- -----------
Income (loss) before
minority interest 48,897 161,454 (46,972) 449,783
Minority interest in
income of
consolidated
joint ventures 39,149 52,010 1,111 48,708
---------- ---------- ---------- -----------
Net income (loss) $ 9,748 $ 109,444 $ (48,083) $ 401,075
========== =========== =========== ===========
See notes to consolidated financial statements.
F-5
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Total
Member Member Accumulated members'
contributions distributions earnings equity
------------- ------------- -------- ------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $296,074 $(113,792) $67,158 $249,440
Contributions from members 30,500 30,500
Net income 9,748 9,748
-------- -------- -------- --------
Balance, December 31, 1995 326,574 (113,792) 76,906 289,688
Contributions from members 5,166 5,166
Net income 109,444 109,444
-------- -------- -------- --------
Balance, December 31, 1996 331,740 (113,792) 186,350 404,298
Distributions to members (unaudited) (2,500) (2,500)
Net income for the six months
ended June 30, 1997 (unaudited) 401,075 401,075
-------- --------- -------- --------
Balance, June 30, 1997 (unaudited) $331,740 $(116,292) $587,425 $802,873
======== ========= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended Six months ended
December 31, June 30,
1995 1996 1996 1997
---------- ---------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 9,748 $ 109,444 $ (48,083) $401,075
---------- ---------- ---------- --------
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 4,551 6,496 3,248 2,225
Amortization 232,618 266,909 108,429 98,243
Minority interest in income
of consolidated joint ventures 39,149 52,010 1,111 48,708
Changes in operating assets and liabilities:
Restricted cash 1,979,079 (181,304) 266,180 (154,981)
Accounts receivable (258,123) 125,941 (78,216) (70,944)
Deposits (62,700) (2,300)
Land under development (6,341,433) (3,896,108) (2,346,144) (974,704)
Due from metro and general
improvement districts (503,806) (1,072,825) 11,608
Loan fees (210,354) (370,491) (600)
Other assets (27,693) 108,339 39,388
Accounts payable 866,859 611,820 (345,958) 48,137
Property taxes payable 81,873 (27,437) (71,348) (38,763)
Customer deposits 86,313 (73,333) (49,999) 2,500
---------- ---------- ---------- --------
Net cash flows used
in operating activities (4,041,219) (4,403,239) (2,521,391) (629,796)
---------- ---------- ---------- --------
Cash flows from investing activities:
Distributions to minority interest (12,040) (59,667) (34,667) (120,878)
---------- ---------- ---------- --------
Net cash flows
used in investing activities (12,040) (59,667) (34,667) (120,878)
---------- ---------- ---------- --------
Cash flows from financing activities:
Deferred offering costs (43,822)
Issuance of notes payable 6,599,343 19,456,461 11,553,725 6,468,233
Payments of notes payable (2,781,389) (14,867,850) (8,971,114) (5,856,603)
Financing deposit 100,000
Contributions from members 30,500 5,166 175
Distributions to members (2,500)
---------- ---------- ---------- --------
Net cash flows provided
by financing activities 3,848,454 4,593,777 2,582,786 665,908
---------- ---------- ---------- --------
Net increase (decrease) in cash (204,805) 130,871 26,729 (84,766)
Cash beginning 207,457 2,652 2,652 133,523
---------- ---------- ---------- --------
Cash ending $ 2,652 $ 133,523 $ 29,381 $ 48,757
========== ========== ========== ========
(Continued)
F-7
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended Six months ended
December 31, June 30,
1995 1996 1996 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
Supplemental disclosure of
cash flows information:
Cash paid during the
period for interest $ 1,062,285 $2,261,129 $ 1,474,916 $1,001,808
=========== ========== =========== ==========
Disclosure of noncash
financing activities:
During 1996, the Company
assumed indebtedness of
members totaling $433,212
related to development
costs they had incurred
which has been included as
costs of land under
development (Note 5).
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1. Nature of business and summary of accounting policies:
a. Capitalization and organization of the limited liability company:
Gateway American Properties LLC (Gateway LLC or the Company) was formed in
June 1994 for the purpose of acquiring, zoning, platting, and developing
real property for residential use, into lots available for sale to
homebuilders. In certain subdivisions, the Company also constructs homes
or other buildings on properties it has developed instead of selling the
improved lots to other homebuilders. Land under development is
concentrated in the greater Denver metropolitan area and in Fort Collins,
Colorado. The builders may construct single family detached homes or
multifamily attached townhomes. The Company also plans to purchase other
real estate; complete the annexation, zoning, platting and infrastructure;
and sell the properties in bulk as platted, or as separate finished lots.
The Company may also engage in the development of commercial properties.
As more fully described in the accompanying notes, a substantial portion of
the land acquisition and sales transactions is with related parties.
Effective December 1994, the Company acquired a 50% ownership in the Land
Investors Acquisition Fund (LIAF), a Colorado limited liability company
formed in March 1994. The 50% membership interest in LIAF was acquired
from the Company's three principal members, one of whom is also a 93%
owner of Richland Development Company, LLC (RDC) and PrideMark, a
significant customer of the Company. The Company paid an amount equal to
50% of the net historical book value of LIAF. Since the Company's
principal members have exercised significant control over LIAF, the
accounts of LIAF have been consolidated with accounts of the Company since
the inception of LIAF.
Effective May 31, 1995, the Company acquired the remaining 50% interest in
LIAF for $235,000, consisting of cash and notes payable, from unrelated
third parties. The acquisition has been accounted for as a purchase and
the assets and liabilities have been recorded at fair value which
approximated historical costs.
F-9
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1. Nature of business and summary of accounting policies (continued):
a. Capitalization and organization of the limited liability company
(continued):
During 1995, the Company formed Rampart Townhomes at Roxborough, LLC. in
which the Company retained a 61.66% interest. In addition, during 1995 the
Company formed Townhomes at Quail Run, LLC. in which the Company retained
a 75% interest. Both LLCs have been consolidated in the accompanying
financial statements and the results of their operations have been
included in the financial statements since acquisition. Both entities are
in the business of developing land for sale to homebuilders.
Effective July 31, 1996, the Company acquired a 100% interest in Sterling
Hills, LTD. for $645,869 of which $354,546 was paid to related parties,
$63,782 was paid to a party related to the underwriter of the Company's
private placements and the remaining amount was paid to unrelated third
parties. Sterling Hills, Ltd. was merged into Gateway American Properties,
LLC as of July 31, 1996. The results of its operations have been included
in the financial statements since acquisition.
During 1996, the Company formed a new subsidiary, Willow Run Properties,
LLC in which the Company owns 99.999% with the remaining .001% owned by a
member of the Company.
All significant intercompany accounts and transactions have been
eliminated.
b. Limited Liability Company (LLC):
An LLC is an unincorporated association of one or more persons whose
members have limited personal liability for the obligations or debts of
the entity. For federal income tax purposes, the Company is classified as
a partnership.
F-10
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1. Nature of business and summary of accounting policies (continued):
c. Revenue and cost recognition:
Revenue and profit are recognized at the time a sale is closed, ownership
is transferred to the buyer, and the Company is not obligated to perform
significant activities subsequent to the closing date. Capitalized costs
are charged to cost of sales upon closing. Consideration received by the
Company for sales is generally cash.
During development, all direct material and labor costs and those indirect
costs related to acquisition and development are capitalized. Costs
incurred in connection with completed lots are expensed as incurred.
Provisions for estimated losses on uncompleted development projects are
recorded in the period in which such losses are determined. All customer
deposits are recorded as liabilities until the sale is completed.
d. Cash equivalents:
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of three
months or less when purchased to be cash equivalents.
e. Restricted cash:
Restricted cash represents funds held in escrow accounts with a bank for
certain designated purposes in connection with the Company's issuance of
12% secured promissory notes with a balance of $5,500,000 at December 31,
1996 ($4,000,000 at June 30, 1997 (unaudited)) (see Note 3). These escrow
accounts include funds designated for acquisition of the properties,
development of the lots, and payment of interest on the note.
Additionally, all proceeds from sales of finished lots are deposited in
the escrow account to be used for development of additional lots unless
and until funds held in the escrow account are considered sufficient to
cover development costs for all lots pledged as collateral on the note.
F-11
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1. Nature of business and summary of accounting policies (continued):
f. Due from metro and general improvement districts:
Amounts due from metro and general improvement districts consist of costs
incurred by the Company on behalf of certain districts in order to begin
the construction of necessary infrastructure items while the districts are
being established and the houses in the corresponding areas are being
sold. The collectibility of such advances is dependent on the related
districts' ability to successfully raise sufficient funds in order to
complete the construction of the infrastructure and reimburse the costs of
the Company. Management anticipates that all advances will be collected
from the metro general improvement districts.
As of December 31, 1996 and June 30, 1997 (unaudited), included in due from
metro and general improvement districts on the accompanying balance sheets
are $1,415,593 and $1,403,385, respectively, from metro districts of which
three members of the Company comprise the board of directors (see Note 2).
g. Land under development:
Land under development represents inventory consisting principally of lots
which the Company is zoning, platting, and readying for housing
construction. Inventories are stated at the lower of cost or net
realizable value. Costs of inventory include all land acquisition costs,
studies, site development, surveys, direct costs of land development, and
indirect costs including financing and other carrying costs incurred
during the period of development. Development costs are allocated to
specific parcels of land.
The Company is developing several projects which it is selling pursuant to
specific performance contracts and option contracts with related and
unrelated parties. Most contracts provide for price escalations based on
the date of closing. These projects are in various stages of development
and will require additional costs before the projects will be completed
and be available for sale.
F-12
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1. Nature of business and summary of accounting policies (continued):
h. Capitalization of interest:
The Company capitalizes interest on land under development during the
period of development and includes such costs as cost of sales when the
related real estate is sold. During the years ended December 31, 1996 and
1995, the Company incurred and capitalized interest of $2,261,129 and
$1,062,285, respectively, of which $63,540 and $3,320 was incurred to
related parties.
During the six month periods ended June 30, 1996 and 1997, the Company
incurred and capitalized interest of $1,474,916 and $1,001,808,
respectively, of which $31,735 and $18,148 was incurred to related parties
(unaudited).
i. Loan fees:
Loan fees relating to the private placement notes payable are capitalized
and amortized over the life of the respective loans.
j. Income taxes:
No provision for income taxes has been provided since the members report
their distributive shares of income and deductions of the limited
liability company in their personal capacities, pursuant to election under
Subchapter K of the Internal Revenue Code.
k. Fair value of financial instruments:
The Company's financial instruments consist of cash, accounts receivable,
due from general improvement districts, accounts payable and notes
payable. The carrying value of cash and accounts receivable approximates
fair value due to their short-term nature. Amounts due from and due to
non-related parties, including due from general improvement districts,
accounts payable and notes payable approximate fair value. The fair value
of amounts due from and due to related parties is not practicable to
estimate due to the related party nature of the underlying transactions.
F-13
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1. Nature of business and summary of accounting policies (continued):
l. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
m. Reclassifications:
Certain amounts reported in the 1995 financial statements have been
reclassified to conform to classifications in the 1996 financial
statements.
n. Interim financial statements (unaudited):
The financial statements as of June 30, 1997, and for the six months ended
June 30, 1996 and 1997, are unaudited. However, in the opinion of the
Company's management, the interim financial statements contain all
adjustments, including normal recurring adjustments, necessary for a fair
presentation of the Company's financial position, results of operations,
and cash flows.
2. Due from metro and general improvement districts:
Included in due from metro and general improvement districts are limited
tax bonds which the Company received in 1995 from a metro district as
payment for costs incurred by the Company on behalf of the metro district
for the construction of certain infrastructure items. The bonds bear
interest at 8% which is payable on a semiannual basis. The bonds will
mature at a rate of $5,000 per year beginning December 1, 1996 with the
remaining amount of $320,330 due on December 1, 2005. As of December 31,
1996 and June 30, 1997 (unaudited), the Company had $337,768 recorded in
due from metro and general improvement districts on the accompanying
balance sheets related to this metro district.
F-14
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
3. Notes payable:
The Company has notes payable as follows:
December 31, June 30,
1996 1997
---- ----
(Unaudited)
Notes payable, private placement, due
September 30, 1999, payments in eight
equal installments of $500,000 beginning
December 31, 1997, and each three
months thereafter, interest at 12%
payable monthly, collateralized by deed of
trust on various parcels of real property
and guaranteed by certain members of
the Company $4,000,000 $4,000,000
Notes payable, private placement, due
April 30, 1997, payments in two equal
installments of $1,500,000 on April 30,
1996 and 1997, interest at 12% payable
monthly, collateralized by deed of trust on
various parcels of real property and
guaranteed by certain members of the
Company 1,500,000
Notes payable, bank, due from March 24,
1997 through December 14, 1997,
interest at 1% to 2% above prime rate
with either quarterly payments or due at
maturity, collateralized by deeds of trust
on various parcels of real property 1,724,037 5,165,199
F-15
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
3. Notes payable (continued):
December 31, June 30,
1996 1997
---- ----
(Unaudited)
Notes payable, bank, under lines of credit
due from July 31, 1997 through June 30,
1998, interest at 1.5% above prime,
payable monthly, collateralized by deeds
of trust on various parcels of real property 2,234,976 2,254,338
Notes payable, bank, due from March
29, 1997 through June 1, 1997,
interest at 12% (or 4% over bank
rate, whichever is greater), payable
monthly, collateralized by various
parcels of real property and
guaranteed by certain members
of the
Company 899,804
Notes payable, related parties, due from
March 31, 1998 through January 2, 1999,
interest at 6% to 10% payable monthly or
quarterly, uncollateralized 897,433 986,565
Note payable, related party, due
January 2, 1999, interest at .75%
above prime payable monthly,
collateralized by deed of
trust on various parcels of real property 150,000 410,000
Notes payable, other, due February 28,
1997 through May 15, 2004, interest at
8% to 15%, payable monthly or quarterly,
collateralized by deeds of trust on various
parcels of real property 2,864,449 613,577
F-16
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
3. Notes payable (continued):
December 31, June 30,
1996 1997
---- ----
(Unaudited)
Notes payable, other, due through June 12,
1999, interest at 8.5% to 15%, payable
quarterly or deferred until maturity,
uncollateralized 1,918,496 3,371,146
--------- ---------
$ 16,189,195 $16,800,825
============ ===========
Notes payable, private placements provide financing for land acquisition
and development projects. The terms of the private placements require the
Company to maintain certain loan to collateral value ratios and cash
reserves (see Note 1). Notes payable, related parties, are payable to
members, their related companies, and affiliates.
Aggregate maturities for notes payable outstanding at June 30, 1997
(unaudited) are as follows:
1997 $ 3,261,046
1998 9,304,385
1999 2,645,804
2000 0
Thereafter 1,589,590
---------
Total notes payable $16,800,825
===========
F-17
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
4. Option contracts:
The Company has entered into option contracts with unrelated entities to
sell properties which it is developing into lots available for sale to
homebuilders. At December 31, 1996, the Company has committed to sell 119
remaining lots to these parties upon completion of development activity
for a total sales price of $2,971,250 (400 lots at a total sales price of
$9,490,400 at June 30, 1997 (unaudited)). These option contracts generally
include escalation clauses at various rates. Based on costs incurred
through December 31, 1996 (and June 30, 1997 (unaudited)), and
management's estimate of costs to complete the development, the Company
does not anticipate incurring any losses resulting from these option
contracts. Sales to one of these entities in 1996 comprised approximately
16% of total sales.
At December 31, 1996, the Company has received $236,000 ($238,500 at June
30, 1997, unaudited) as option deposits to be applied against the lots
available for sale.
In June 1997, the Company received $100,000 under an installment land
contract to sell a 10% undivided interest in a land parcel. Under the
agreement, the Company may be required to repurchase the parcel at its
fair market value over the next four years, with agreed upon minimum
appreciation. Consequently, the amount received is shown as a liability
and the minimum appreciation (or increase in fair market value, if
greater) will accrete over four years (unaudited).
5. Related party transactions:
a. Related party land purchases:
During 1996, the Company and its subsidiaries purchased unimproved land at
a cost of approximately $1,995,000 from affiliated entities. Upon
purchase, the cost of the land is included in land under development.
During 1995, the Company purchased unimproved land from affiliates with a
cost of approximately $2,220,000. During the six months ended June 30,
1997, the Company acquired no additional land from affiliated entities
(unaudited).
F-18
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
5. Related party transactions (continued):
b. Related party lot sales:
During 1996 and 1995, the Company sold improved lots to an affiliate which
is owned by a member and manager of the Company for cash of $7,809,928 and
$2,800,535 ($3,303,219 and $3,647,710 for the six months periods ended
June 30, 1996 and 1997 (unaudited), respectively). At December 31, 1996,
pursuant to specific performance contracts, the Company has committed to
sell 556 lots under specific performance contracts to the affiliate upon
completion of the development process for $11,488,350 (501 lots for
$12,158,300 at June 30, 1997 (unaudited)). The option contracts generally
include escalation clauses at various rates. Based on costs incurred
through June 30, 1997, and management's estimate of costs to complete the
development, the Company does not anticipate incurring any losses
resulting from these contracts. In 1996, an additional $92,000 ($419,489
during the six months ended June 30, 1997 (unaudited)) of lot sales were
made to an entity which is one-third owned by a member of the Company.
c. Indemnification agreement:
During 1995, the Company entered into an indemnification agreement whereby
the Company indemnifies the three principal members from any liability or
expense incurred by the members under loans obtained for the benefit of
the Company for which the members provided personal guarantees.
d. Legal fees:
Three members of the Company are attorneys in a law firm which provided
significant legal services to the Company, primarily pertaining to zoning,
platting and other related services in connection with developing real
estate. Approximately $470,000 of related party legal fees were incurred
by the Company in 1996, $680,000 in 1995, $337,100 (unaudited)) and
$70,244 (unaudited) for the six months ended June 30, 1996 and 1997,
respectively. At December 31, 1996, there were outstanding legal bills due
the law firm of $433,568 ($374,230 at June 30, 1997 (unaudited)).
F-19
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
5. Related party transactions (continued):
d. Legal fees (continued):
The Company has agreements with the law firm for legal fees related to
specific projects to be developed by the Company. These fees are
contingent on the completion of zoning and platting of some or all the
parcels involved. The fees incurred for such contingent legal work is
approximately $164,000 at December 31, 1996 ($185,000 at June 30, 1997
(unaudited)). However, these fees have not been billed by the law firm and
are not recorded in these financial statements.
e. Office lease:
The Company is leasing its office space under a noncancellable operating
lease expiring September 30, 1997, from an entity controlled by a member
of the Company. Rent expense under the lease for 1996 and 1995 was $45,852
and $43,364 ($19,575 and $38,870 for the six months ended June 30, 1996
and 1997 (unaudited)), respectively. The future minimum rental commitment
under this lease at December 31, 1996 is $27,972, all of which is due in
1997.
In June 1997, the Company renewed the lease for a three year period
beginning October 31, 1997. Under the terms of the new agreement, the
Company is to pay $5,773 per month for the first year with escalation
clauses in years two and three. The Company also has an agreement with the
related party law firm, whereby the law firm will reimburse the Company
$1,325 per month for office space occupied by the law firm (unaudited).
Minimum future rental commitments under this lease at June 30, 1997 are as
follows (unaudited):
Six months ended December 31, 1997 $25,226
Year ended December 31, 1998 70,029
Year ended December 31, 1999 73,041
Year ended December 31, 2000 56,475
F-20
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
5. Related party transactions (continued):
f. Other related party transactions:
During 1995, the Company entered into employment agreements with three
members of the Company to pay them aggregate annual compensation of
$336,000 per year beginning July 1, 1994. In 1996, compensation to the
three members totaled $1,052,591, of which $293,379 was paid to or on
behalf of the members, $433,212 was paid through the assumption by the
Company of indebtedness of the managers related to development costs they
had incurred on behalf of the Company, and $326,000 has been accrued at
December 31, 1996. During the six months ended June 30, 1996 and 1997,
compensation to the three members was $541,500 and $388,491, respectively;
$489,000 remains unpaid at June 30, 1997 (unaudited). In addition,
$183,500 was paid in 1996 as consulting fees to entities controlled by the
members.
During the six months ended June 30, 1996 and 1997, consulting fees paid to
affiliates were $20,000 and $26,400 (unaudited), respectively.
6. Proposed public offering:
In January 1997, the Company was party to an agreement whereby the Company
would acquire a controlling interest in Gateway American Properties
Corporation (GAPC) (a reverse acquisition). According to the agreement,
the members of the Company are to contribute their ownership interest in
the Company to GAPC in return for 2,025,000 shares of GAPC common stock,
out of a total outstanding common stock of 2,352,000 shares. The exchange
is to be effective contemporaneous with the closing of a proposed public
offering. The 327,000 shares of common stock not owned by the members of
the Company will be registered contemporaneous with the shares offered in
the proposed public offering.
F-21
<PAGE>
GATEWAY AMERICAN PROPERTIES, LLC
(A COLORADO LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
6. Proposed public offering (continued):
The proposed offering will sell 1,500,000 shares of common stock of GAPC to
the public at $4.00 per share and 3,000,000 warrants at $.1875 per
warrant, with each warrant exercisable to acquire a share of common stock
at $4.50 per share for a period of three years. The underwriter for the
proposed public offering is to receive a commission equal to ten percent
of the proceeds of the public offering plus a three percent
non-accountable expense allowance. In addition, GAPC has agreed to engage
the underwriter as a financial advisor for three years at a total fee of
$108,000, payable at the closing of the public offering. The underwriter
will also receive warrants to purchase 150,000 shares of common stock at
$6.00 per share during the five-year period commencing on the date of the
offering and warrants to purchase for $.28125 per warrant additional
warrants to purchase up to 300,000 shares of common stock exercisable at
$6.00 per share during the three-year period commencing on the date of the
offering.
F-22
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION
(A COLORADO CORPORATION)
JUNE 30, 1997
CONTENTS
Independent auditors' report............................................. F-24
Balance sheet........................................................... F-25
Note to balance sheet................................................... F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Gateway American Properties Corporation
Denver, Colorado
We have audited the balance sheet of Gateway American Properties Corporation as
of June 30, 1997. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Gateway American Properties
Corporation as of June 30, 1997, in conformity with generally accepted
accounting principles.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
August 28, 1997
F-24
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION
(A COLORADO CORPORATION)
BALANCE SHEET
JUNE 30, 1997
ASSETS
Assets $ None
==========
LIABILITIES AND MEMBERS' EQUITY
Liabilities $ None
==========
Shareholders' equity:
Common stock, $0.01 par value;
authorized 20,000,000 shares;
issued and outstanding 100 shares 1
Additional paid-in capital 99
Stock subscription receivable (100)
----------
Total liabilities and shareholders' equity $ 0
==========
See notes to balance sheet.
F-25
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION
(A COLORADO CORPORATION)
NOTE TO BALANCE SHEET
JUNE 30, 1997
1. Organization and nature of business:
Gateway American Properties Corporation (the Company) was incorporated in
March 1997 for the purpose of acquiring all of the assets of Gateway
American Properties Corporation- Florida (GAPC-F), in exchange for 327,000
shares of the Company's common stock. In addition, the Company is party to
an agreement whereby the Company is to acquire Gateway American Properties,
LLC (Gateway LLC) subsequent to its acquisition of GAPC-F, and
contemporaneous with the closing of a proposed public offering of the
Company's stock. According to the agreement, the members of Gateway LLC are
to contribute their ownership interest in Gateway LLC in return for
2,025,000 shares of the Company's common stock.
Gateway LLC was formed in June 1994 for the purpose of acquiring, zoning,
platting, and developing real estate for residential use, into lots
available for sale to homebuilders. In certain subdivisions, the Company
also constructs homes or other buildings on properties it has developed
instead of selling the improved lots to other homebuilders.
GAPC-F is a development stage company incorporated in Florida which has not
had any significant operations.
The Company has entered into a letter of intent with an underwriter for a
public offering of its stock, whereby the Company will sell 1,500,000
shares of common stock to the public at $4.00 per share, and 3,000,000
warrants at $.1875 per warrant, with each warrant exercisable to acquire a
share of common stock at $4.50 per share for a period of three years. The
underwriter for the proposed public offering is to receive a commission
equal to ten percent of the proceeds of the public offering plus a three
percent non-accountable expense allowance. In addition, the Company has
agreed to engage the underwriter as a financial advisor for three years at
a total fee of $108,000, payable at the closing of the public offering. The
underwriter will also receive warrants to purchase 150,000 shares of common
stock at $6.00 per share during the five-year period commencing on the date
of the offering and warrants to purchase for $.28125 per warrant additional
warrants to purchase up to 300,000 shares of common stock exercisable at
$6.00 per share during the three period commencing on the date of the
offering.
F-26
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Interim Financial Report
June 30,1997
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Gateway American Properties Corporation
We have audited the accompanying balance sheet of Gateway American
Properties Corporation as of December 31, 1995 and 1996, and the related
statements of operations, shareholders' equity, and cash flows for the period
from January 12, 1995 (date of inception) to December 31, 1995 and for the year
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gateway American Properties
Corporation as of December 31, 1995 and 1996, and the results of its operations
and cash flows for the periods then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company's continued operations are dependent upon the
receipt of additional capital and the success of future operations, which raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Beatty & Company, P.A.
Certified Public Accountants
Sarasota, Florida
March 27, 1997 (except for Notes 5, 6, and 7, as to which the date is July 14,
1997)
F-28
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Balance Sheet
ASSETS
As of December 31 As of June 30
1995 1996 1996 1997
---- ---- ---- ----
(Unaudited)(Unaudited)
Current Assets:
Cash & Equivalents $ 76,715 $20,433 $ 46,419 $ 2,668
--------- ------- --------- --------
Other Assets:
Deferred Offering Costs $ 403,848 $31,210 $ 406,963 $ 81,142
Deposits 30,000 0 30,000 0
Organization Costs (Net) 282 211 246 176
--------- ------- --------- --------
Total Other Assets $ 434,130 $31,421 $ 437,209 $81,318
--------- ------- --------- --------
Total Assets $ 510,845 $51,854 $ 483,628 $83,986
========= ======= ========= ========
LIABILITIES & SHAREHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ 28,318 $ 33,548 $ 30,067 $ 79,878
Accrued Liabilities 1,625 2,250 375 3,250
-------- -------- -------- --------
Total Liabilities $ 29,943 $35,798 $ 30,442 $ 83,128
-------- -------- -------- --------
Shareholders' Equity:
Common Stock, $.01 par value,
10,000,000 shares authorized
436,000 shares issued &
outstanding $ 4,360 $ 4,360 $ 4,360 $ 4,360
Purchase Warrants 4,000 4,000 4,000 4,000
Additional Paid-In Capital 646,538 646,538 646,538 646,538
Accumulated Development Stage
Deficit (173,996) (639,842) (201,712 (654,040)
-------- -------- -------- --------
Total Shareholders' Equity $480,902 $16,056 $453,186 $858
-------- -------- -------- --------
Total Liabilities &
Shareholders' Equity $510,845 $ 51,854 $483,628 $ 83,986
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Statement of Operations
<TABLE>
<CAPTION>
For the For the
Period from For the For the Period from
Inception For the Six Months Six Months Inception
Through Year Ended Ended Ended Through
12-31-95 12-31-96 6-30-96 6-30-97 6-30-97
-------- --------- --------- --------- ---------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Development Stage Revenues:
Investment income $ 11,476 $ 1,888 $ 1,094 $ 95 $ 13,459
--------- --------- -------- -------- ---------
Expenses Incurred During Development Stage:
Costs of Withdrawn Public Offering $ 0 $ 406,963 $ 0 $ 0 $ 406,963
General & Administrative Expenses 61,314 23,250 13,716 8,325 92,889
Office Expenses 48,996 10,705 5,103 4,968 64,669
Legal & Professional 18,686 20,376 6,675 1,965 41,027
Travel & Related Costs 33,684 4,812 3,000 0 38,496
Other Miscellaneous Expenses 22,792 628 316 35 23,455
--------- --------- -------- -------- ---------
Total Expenses $ 185,472 $ 466,734 $ 28,810 $ 15,293 $ 667,499
--------- --------- -------- -------- ---------
Deficit Accumulated During Development
Stage $(173,996) $(464,846) $(27,716) $(15,198) $(654,040)
========= ========= ======== ======== =========
Earnings (Loss) Per Share $ (0.48) $ (1.07) $ (0.06) $ (0.03) $ (1.61)
========= ========= ======== ======== =========
Number of shares outstanding for purposes
of computing net loss per share 361,673 436,000 436,000 436,000 406,269
========= ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Statement of Shareholders' Equity
For the Period from Inception to December 31, 1995,
for the Year Ended December 31, 1996,
and for the Six Months Ended June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Development Total
Stock Purchase Paid-in Stage Shareholders'
$.01 Par Value Warrants Capital Deficit Equity
-------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sale of 287,346 shares of $.01
par value Common Stock and
251,346 Stock Purchase Warrants
for $384,998 less offering costs
of $59,722 $ 2,873 $ 2,513 $319,890 325,276
Sale of 22,654 shares of $.01
par value Common Stock and
22,654 Stock Purchase Warrants
for $26,000 227 227 25,546 26,000
Sale of 126,000 shares of $.01
par value Common Stock and
126,000 Stock Purchase Warrants
for $315,000 less offering costs
of $11,378 1,260 1,260 301,102 303,622
Development Stage Deficit
from inception through
December 31, 1995 (173,996) (173,996)
-------------- ----------- ---------- ------- ---------
Totals - December 31, 1995 $ 4,360 $ 4,000 $646,538 $(173,996) $ 480,902
Development Stage Deficit
accumulated from January 1, 1996
throughDecember 31, 1996 (464,846) (464,846)
-------------- ----------- ---------- ------- ---------
Totals -December 31, 1996 $ 4,360 $ 4,000 $646,538 $(638,842) $ 16,056
Development Stage Deficit
accumulated from January 1, 1997
through June 30, 1997 (Unaudited) (15,198) (15,198)
-------------- ----------- ---------- ------- --------
Totals - June 30, 1997 (Unaudited) $ 4,360 $ 4,000 $646,538 $(654,040) $858
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
For the For the
Period from For the For the Period from
Inception For the Six Months Six Months Inception
Through Year Ended Ended Ended Through
12-31-95 12-31-96 6-30-96 6-30-97 6-30-97
----------- ---------- ---------- ---------- ------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows From (Used In) Financing Activities:
Sale of Common Stock & Purchase Warrants $ 725,998 $ 0 $ 0 $ 0 $ 725,998
Less Offering Costs for Private Placements (71,100) 0 0 0 (71,100)
--------- --------- --------- --------- ----------
Net Cash Flows From (Used In)Financing Activities $ 654,898 $ 0 $ 0 $ 0 $ 654,898
--------- --------- --------- --------- ----------
Cash Flows From (Used In) Investing Activities:
Deferred Offering Costs $(403,848) $ 372,638 $ (3,115) $ (49,932) $ (81,142)
Deposits (30,000) 30,000 0 0 0
Organization Cost (352) 0 0 0 (352)
--------- --------- --------- --------- ----------
Net Cash Flows From (Used In) investing Activities $(434,200) $ 402,638 $ (3,115) $ (49,932) $ (81,494)
--------- --------- --------- --------- ----------
Cash Flows From (Used In ) Operating Activities:
Development Stage Earnings (Deficit) $(173,996) $(464,846) $ (27,716) $ (15,198) $ (654,040)
Adjustments:
Amortization 70 71 36 35 176
Accounts Payable 28,318 5,230 1,749 46,330 79,878
Accrued Liabilities 1,625 625 (1,250) 1,000 3,250
--------- --------- --------- --------- ----------
Net Cash Flows From (Used In) Operating Activities $(143,983) $(458,920) $ (27,181) $ 32,167 $ (570,736)
--------- --------- --------- --------- ----------
Net Increase (Decrease) In Cash $ 76,715 $ (56,282) $ (30,296) $ (17,765) $ 2,668
Plus Beginning Cash Balance 0 76,715 76,715 20,433 0
--------- --------- --------- --------- ----------
Ending Cash Balance $ 76,715 $ 20,433 46,419 $ 2,668 $ 2,668
========= ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-32
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Notes To Financial Statements
1. Significant Accounting Policies
A. Development Stage Operations - The Company has been in the development
stage since its inception in late 1994 and subsequent incorporation in January,
1995 as a Florida corporation. The Company's proposed business activity is to
acquire one or more other business entities and/or develop business and
investment activities satisfactory to its shareholders. Since the Company has
not yet commenced full-scale operations and no significant revenues have been
realized through December 3 1, 1996, the financial statements have been reported
as those of a development stage company.
B. Principles of Consolidation - In connection with its formation, the
Company merged with an affiliated entity (also a development stage company)
effective January 13, 1995. The transaction has been accounted for as a pooling
of interests and, accordingly, the financial statements have been consolidated
to include the accounts of both companies, after elimination of all significant
intercompany balances and transactions.
C. Income Taxes - The Company's accounting policies for financial statement
purposes and income tax reporting purposes may vary due to timing and other
differences. Certain operating losses sustained to date may be offset against
taxable income of future periods.
D. Private Offering Costs - Since the Company has successfully completed
its initial private offerings of common stock, the related costs (which consist
primarily of placement and legal fees) have been offset against the additional
paid-in capital as of December 31, 1995 and 1996,
E. Organization Costs - The costs of organizing the Company, which consist
primarily of legal and filing fees incurred in the process of incorporation,
have been capitalized and are being amortized over a period of sixty months.
F. Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
various estimates and assumptions that affect the amounts reported in the
financial statements and the disclosures in the accompanying footnotes. Actual
results may differ from such estimates and the differences may be significant.
G. Reclassifications - Certain amounts reported in the 1995 financial
statements have been reclassified to conform to classifications used in the 1996
financial statements.
F-33
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Notes To Financial Statements
2. Related Party Transactions
A. Legal Matters - An individual who is an officer, director, and
shareholder of the Company is also an officer, director, and shareholder of the
law firm which was engaged by the Company to handle its incorporation, offerings
of securities, and other legal matters. Additionally, the Company intends to
further use such professional services with regard to future legal matters. The
total of all such related party legal fees (inclusive of expense reimbursements)
was $204,441 through December 31, 1995 and $15,802 for the year ended December
31, 1996.
B. Executive Employment Agreement - Subsequent to the approval of the
Company's Compensation Committee, an executive employment agreement was reached
with an individual who is an officer, director, and shareholder of the Company.
Although the contract requires annual basic compensation of $120,000, plus
various benefits, for a two-year period of time beginning upon the successful
completion of the Company's anticipated public offering, management intends to
replace such contract with an agreement for a one-time payment of $37,500 as
specified in the Letter of Intent with the Company's underwriter.
C. Office Rent Agreement - An informal agreement was entered into to rent
furnished office space from a company that is controlled by an individual who is
also an officer, director, and shareholder of the Company. The agreement, which
has been classified as an operating lease, requires weekly payments of $125 and
has no definitive time period.
3. Shareholders' Equity
A. Common Stock - As of December 31, 1995 and 1996, the Company has issued
436,000 shares of its 10,000,000 authorized shares of common stock with a par
value of $.01 per share.
B. Stock Purchase Warrants - The Company has also issued 400,000 stock purchase
warrants in connection with the organization of the Company. Terms of the
warrants entitle holders to purchase one additional share of the Company's
common stock for each warrant at a price of $3.3 75 per share at any time during
the three-year exercise period.
F-34
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Notes To Financial Statements
4. Uss Per Share
For the periods from inception through December 31, 1995 and 1996, the loss
per share is based upon the weighted average number of common shares
outstanding. The Company's stock purchase warrants have not been considered to
be common stock equivalents in the computation of loss per share because they
are anti-dilutive.
5. Deferred Offering Costs
As of December 3 1, 1996, the Company has deferred $3 1,2 1 0 in costs
incurred which pertain to its revised proposed public offering. If the offering
is successful, those costs will be charged against the proceeds of the offering.
In the event the offering is withdrawn (as the initial proposed public offering
was during 1996), such costs will be charged to current operations. Such public
offering is not expected to proceed further, however, until the outcome of the
business combination discussed below in Note 6 is determined.
6. Subsequent Events
Subsequent to the date of the financial statements, the Company
entered into agreements involving two other companies, both of which are
domiciled in the state of Colorado. The agreements, one of which is contingent
upon the successful completion of a proposed public offering, would result in
all three companies combining, in effect, to become a single business entity. In
the event such agreements are successfully concluded, the Company's shareholders
will have the right to exchange their common shares and purchase warrants for
common shares and warrants in the new publicly traded entity.
7. Anticipated Business Combination & Use of Cash
Although the December 31, 1996 cash balance of $20,433 has not been
formally restricted, the Company expects to consume the majority of its cash
reserves to facilitate its anticipated business combinations as discussed in
Note 6. Therefore, the amount of funds available for use in the Company's
proposed business activities (as outlined in Note 1) will be limited to those
funds, if any, available subsequent to such expenditures. Continued operations
are thus dependent upon the receipt of additional capital and the success of
future operations.
F-35
<PAGE>
Gateway American Properties Corporation
(A Development Stage Company)
Notes To Financial Statements
8. Interim Financial Statements (Unaudited)
The financial statements as of June 30, 1996 and 1997, and for the periods then
ended are unaudited. However, it is the opinion of the Company's management that
all adjustments necessary for a fair presentation of the financial statements
have been appropriately included.
F-36
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION (COLORADO),
GATEWAY AMERICAN PROPERTIES, LLC
GATEWAY AMERICAN PROPERTIES CORPORATION (FLORIDA)
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AND STATEMENTS OF OPERATIONS
The following unaudited pro forma condensed financial statements give effect to
the proposed business combination of Gateway American Properties Corporation
(Colorado) (the Registrant), Gateway American Properties, LLC, and Gateway
American Properties Corporation (Florida) on a purchase accounting basis. The
pro forma condensed balance sheet assumes that the business combination was
effective on June 30, 1997, and combines the audited June 30, 1997 balance sheet
of Gateway American Properties Corporation (Colorado) and the unaudited interim
June 30, 1997 balance sheets of Gateway American Properties, LLC and Gateway
American Properties Corporation (Florida). The pro forma condensed statement of
operations for the year ended December 31, 1996, was prepared based upon the
historical audited statements of operations of Gateway American Properties, LLC
and Gateway American Properties Corporation (Florida) for the year ended
December 31, 1996. The pro forma condensed statement of operations for the six
months ended June 30, 1997, was prepared based upon the unaudited interim
statements of operations of Gateway American Properties, LLC, and Gateway
American Properties Corporation (Florida) for the six months ended June 30,
1997. The pro forma statement of operations for each period was prepared
assuming the business combination was effective at the beginning of each period
presented.
These pro forma condensed financial statements should be read in conjunction
with the accompanying notes to the pro forma condensed financial statements, the
historical financial statements and notes of Gateway American Properties
Corporation (Colorado), Gateway American Properties, LLC, and Gateway American
Properties Corporation (Florida), all of which are included elsewhere herein.
The unaudited pro forma condensed statements of operations are not necessarily
indicative of future operations or the actual results that would have occurred
had the business combination been consummated at the beginning of each period
presented. Also, because of seasonal and other factors, the results of
operations for the six months ended June 30, 1997, are not necessarily
indicative of expected results for the fiscal year ending December 31, 1997.
F-38
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION (COLORADO),
GATEWAY AMERICAN PROPERTIES, LLC
GATEWAY AMERICAN PROPERTIES CORPORATION (FLORIDA)
PRO FORMA CONDENSED BALANCE SHEET
(Unaudited)
JUNE 30, 1997
<TABLE>
<CAPTION>
Gateway Gateway
American American
Properties Gateway Properties Pro Forma
Corporation American Corporation Adjustments
(Colorado) Properties LLC (Florida) (Note 2) Pro Forma
------------ -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash $ 48,757 $ 2,668 $ 51,425
Restricted cash 689,710 689,710
Accounts receivable 40,911 40,911
Accounts receivable,
related party 184,392 184,392
Deposits 65,000 65,000
Land under development 17,055,929 17,055,929
Due from Metro and general
improvement districts
Related parties 1,403,385 1,403,385
Other 161,638 161,638
Loan fees and other assets 336,592 81,318 417,910
------------ ----------- ---------- ------------ -----------
Total assets $19,986,314 $ 83,986 $ $20,070,300
============ =========== ========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable $ 1,010,370 $ 83,128 $ 1,093,498
Accounts payable,
related parties 910,171 910,171
Property taxes payable 38,800 38,800
Customer deposits 338,500 338,500
Notes payable:
Private placements 4,000,000 4,000,000
Banks 7,419,537 7,419,537
Related parties 1,396,565 1,396,565
Other 3,984,723 3,984,723
------------ ----------- ---------- ------------ -----------
Total notes payable 16,800,825 16,800,825
------------ ----------- ---------- ------------ -----------
Total liabilities 19,098,666 83,128 19,181,794
------------ ----------- ---------- ------------ -----------
Minority interest 84,775 84,775
Shareholders' equity:
Preferred stock
Common stock 1 4,360 19,159 (a) 23,520
Additional paid-in capital 99 646,538 129,574 (a) 776,211
Common stock
subscriptions receivable (100) 100 (a)
Stock purchase warrants 4,000 4,000
Accumulated deficit (654,040) 654,040 (a)
Members' equity 802,873 (802,873)(a)
------------ ----------- ---------- ------------ ----------
Shareholders' equity 802,873 858 803,731
------------ ----------- ---------- ------------ ----------
Total liabilities and
shareholders' equity $ $19,986,314 $ 83,986 $ $20,070,300
============ =========== ========== ============ ===========
</TABLE>
See notes to unaudited pro forma condensed financial statements.
F-39
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION (COLORADO),
GATEWAY AMERICAN PROPERTIES, LLC
GATEWAY AMERICAN PROPERTIES CORPORATION (FLORIDA)
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Gateway Gateway
American American
Properties Gateway Properties Pro Forma
Corporation American Corporation Adjustments
(Colorado) Properties LLC (Florida) (Note 2) Pro Forma
------------ -------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Sales:
Related party $4,067,199 $4,067,199
Other 981,844 981,844
---------- ----------
5,049,043 5,049,043
Cost of sales 3,917,239 3,917,239
---------- ----------
1,131,804 1,131,804
General and
administrative expenses 682,021 $ 15,293 697,314
---------- --------- ----------
Operating income (loss) 449,783 (15,293) 434,490
Interest income 95 95
---------- --------- ----------
Income (loss) before
minority interest 449,783 (15,198) 434,585
Minority interest in
income of consolidated
joint ventures 48,708 48,708
---------- --------- ----------
Income (loss) before
income taxes 401,075 (15,198) 385,877
Provision for income taxes $ 156,400 (b) 156,400
---------- --------- ------------- -----------
Net income (loss) $ 401,075 $ (15,198) $(156,400) $ 229,477
========== ========= ============= ===========
Net income (loss) per
common share before
initial public offering $ (.05) $ .10
========= ===========
Average shares outstanding 327,000 2,025,000 2,352,000
========== ========= ============= ===========
Net income (loss) per
common share after
initial public offering $ (.05) $ .06
========= ===========
Average shares outstanding 327,000 3,525,000 3,852,000
========== ========= ============= ===========
</TABLE>
See notes to unaudited pro forma condensed financial statements.
F-40
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION (COLORADO),
GATEWAY AMERICAN PROPERTIES, LLC
GATEWAY AMERICAN PROPERTIES CORPORATION (FLORIDA)
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (CONTINUED)
(Unaudited)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Gateway Gateway
American American
Properties Gateway Properties Pro Forma
Corporation American Corporation Adjustments
(Colorado) Properties LLC (Florida) (Note 2) Pro Forma
------------ -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Sales:
Related party $ 7,901,928 $ 7,901,928
Other 2,598,678 2,598,678
------------ ------------
10,500,606 10,500,606
Cost of sales 9,549,080 9,549,080
------------ ------------
951,526 951,526
General and
administrative expenses 791,522 $ 466,734 1,258,256
------------ ----------- -----------
Operating income (loss) 160,004 (466,734) (306,730)
Interest income 1,450 1,888 3,338
------------ ----------- -----------
Income (loss) before
minority interest 161,454 (464,846) (303,392)
Minority interest in
income of consolidated
joint ventures 52,010 52,010
------------ ----------- -----------
Income (loss) before
income taxes 109,444 (464,846) (355,402)
Provisions for income taxes $ 31,400 (b) 31,400
------------ ----------- ------------- -----------
Net income (loss) $ 109,444 $ (464,846) $ (31,400) $ (386,802)
============ =========== ============= ==========
Net income (loss) per
common share before
initial public offering $ (1.42) $ (.16)
=========== ============= ===========
Average shares outstanding 327,000 2,025,000 (c) 2,352,000
Net income (loss) per
common share after
initial public offering $ (1.42) $ (.10)
=========== ============= ===========
Average shares outstanding 327,000 3,525,000 (d) 3,852,000
=========== ============= ===========
</TABLE>
See notes to unaudited pro forma condensed financial statements.
F-41
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION (COLORADO),
GATEWAY AMERICAN PROPERTIES, LLC
GATEWAY AMERICAN PROPERTIES CORPORATION (FLORIDA)
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Merger
Pursuant to the terms of the Agreement Providing for Sale and Exchange of
Capital Stock as amended (the Transaction Agreement), effective October 1,
1997, the shareholders of Gateway American Properties Corporation
(Florida) received 327,000 shares of Gateway American Properties
Corporation (Colorado) common stock in exchange for the net assets of
Gateway American Properties Corporation (Florida). In addition, members of
Gateway American Properties, LLC will receive 2,025,000 shares of Gateway
American Properties Corporation common stock in exchange for their
membership interest which will occur on the effective date of the initial
public offering contemplated by this registration statement. Under the
terms of the Transaction Agreement, the issuance of 1,500,000 shares of
Gateway American Properties Corporation common stock at $4.00 per share to
purchasers in the initial public offering in exchange for the offering
proceeds is an integral part of the business combination transaction, and
the business combination transaction that is to be completed on the
effective date or immediately prior to the initial public offering is
conditional upon the successful completion of the initial public offering.
For financial accounting purposes, the pro forma financial statements
assume that the business combination transaction will be accounted for
under purchase accounting: for statement of operations purposes, the
business combination transaction was effective as of the beginning of each
period presented; and for balance sheet purposes, the business combination
transaction was effective on June 30, 1997. Furthermore, notwithstanding
that the initial public offering is an integral part of the business
combination transaction, the pro forma financial statements give no effect
to the proceeds of the initial public offering except that the net income
(loss) per common share after the initial public offering assumes that
1,500,000 common shares will be outstanding in conjunction with the
proposed initial public offering.
2. Pro forma adjustments:
a. For financial accounting purposes, the business combination is assumed to
be a reverse acquisition. Since 2,352,000 shares of Gateway American
Properties Corporation (Colorado) common stock (par value $.01) will be
outstanding, common stock was increased $19,159 and additional paid-in
capital was increased by $129,574. This was offset against the elimination
of Gateway American Properties, LLC members' equity of $802,873, and the
reclassification of Gateway American Properties Corporation (Florida)
accumulated deficit into additional paid-in capital.
F-42
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION (COLORADO),
GATEWAY AMERICAN PROPERTIES, LLC
GATEWAY AMERICAN PROPERTIES CORPORATION (FLORIDA)
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
2. Pro forma adjustments (continued):
The balance sheet does not give effect to the increase in cash, common
stock and additional paid-in capital that would be realized with the
proposed initial public offering of 1,500,000 common shares and 3,000,000
warrants. The initial public offering will occur in conjunction with the
business combination.
b. Gateway American Properties, LLC, as a limited liability corporation, did
not pay income taxes. For purposes of determining the pro forma effect of
the business combination, income tax expense has been computed as if
Gateway American Properties, LLC had been a C corporation. The income tax
provision assumes that Gateway American Properties, LLC had adopted SFAS
No. 109, Accounting for Income Taxes. The balance sheet effect of adopting
SFAS No. 109 would not be material.
c. The pro forma net income (loss) per common share before initial public
offering reflects the additional common shares that will be outstanding
after the business combination (see note 1), but does not give effect to
additional common shares that would be issued under the initial public
offering.
d. The pro forma net income (loss) per common share after initial public
offering reflects the additional common shares that will be outstanding
after the consummation of the business combination (see Note 1) and the
proposed initial public offering which will occur in conjunction with the
business combination. The calculation does not give any effect to the
proceeds that will be received under the initial public offering.
F-43
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or the Underwriter. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy the Units
of the Company to any person in any jurisdiction or in any circumstances in
which such offering would be unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create any implication
that the information contained herein is correct as of any time subsequent to
the date hereof.
TABLE OF CONTENTS
Introductory Statement........................ 3
Prospectus Summary............................ 4
Risk Factors.................................. 7
Selected Financial Information................ 15
Management's Discussion and Anal-
ysis of Results of Operations............... 18
Dilution...................................... 21
Use of Proceeds............................... 22
Pro Forma Capitalization...................... 24
Dividend Policy............................... 24
Business...................................... 24
Certain Transactions.......................... 32
Management.................................... 37
Principal Shareholders........................ 42
Underwriting.................................. 43
Description of Securities..................... 47
Selling Shareholders.......................... 50
Legal Matters................................. 52
Experts....................................... 52
Additional Information........................ 53
Index to Financial Statements................ F-1
Until [________________], 1998, all dealers affecting transactions in the
registered securities, whether or not participating in the distribution thereof,
may be required to deliver a Prospectus. This is in addition to the obligation
of dealers to deliver a Prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
627,000 shares of Common Stock
GATEWAY AMERICAN PROPERTIES
CORPORATION
------------------------------------
ALTERNATE
P R O S P E C T U S
FOR
SELLING STOCKHOLDERS
------------------------------------
[_____________], 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 7-3-101.5 of the Colorado Corporation Code contains broad
provisions for the mandatory and permissive (at the election of the Company)
indemnification of the Company's directors and officers (and certain other
persons) for liabilities and claims arising out of the acts of omissions of
Company directors and officers (and certain other persons) in their capacity as
such if the actions were undertaken in good faith in a manner reasonably
believed to be in or not opposed to, the best interests of the Company, and
further specifies the circumstances under which such indemnification shall be
available.
As permitted by the cited section of the Colorado Corporation Code, the
Company has adopted provisions in its Articles of Incorporation and Bylaws
providing for indemnification of directors and officers (and certain other
persons) to the extent legally permitted.
Article XI of the Company's Articles of Incorporation reads:
"Section 1. Right to Indemnification. The corporation shall indemnify any
person who was, is , or is threatened, pending or completed action, suit, or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee, fiduciary
or agent of the corporation or who, while a director, officer, employee,
fiduciary or a agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, employee, fiduciary, or agent of
another corporation, partnership, joint venture, trust, or other enterprise or
employee benefit plan, against expenses (including attorneys' fees), judgments,
fines and amounts pain in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding, to the extent that and under
the circumstances in which the Act permits such indemnification. The corporation
shall indemnify any person who was, is, or is threatened to be made a party to
any threatened, pending, or completed cation, suit or proceeding by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee, fiduciary or agent of the
corporation or who, while a director, officer, employee, fiduciary or agent of
the corporation, is or was serving at the request of the corporation as a
director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan,
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with such action, suit or proceeding, to the extent that and
under the circumstances which the Act permits such indemnification.
II-1
<PAGE>
Section 2. Manner of Indemnification. Any indemnification under this
Article (unless ordered by a court) shall be made as authorized in a specific
case upon a determination that indemnification of the director, officer,
employee, fiduciary, or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in the Act with respect to
indemnification of directors. Such determination may be made: (a) by the Board
of Directors by a majority vote of a quorum consisting of Directors who were not
parties to such action, suit, or proceeding, or (b) if such a quorum is not
obtainable, by a majority vote of a committee of the Board designated by the
Board, which committee shall consist of two (2) or more Directors who were not
parties to the action, suit, or proceeding, except that Directors who were
parties to the action, suit, or proceeding may participate in the designation of
Directors for the committee. If such quorum is not obtainable or such committee
cannot be established pursuant to (a) and (b) above, or even if such quorum is
obtained or such committee is designated if such quorum or committee so directs,
such determination shall be made: (a) by independent legal counsel selected by
vote of the Board of Directors or the committee in the manner specified in (a)
or (b) above (as the case may be) or, if a quorum cannot be obtained and a
committee cannot be established pursuant to (a) and (b) above, by independent
legal counsel selected by a majority vote of the full Board. Authorization of
indemnification and evaluation as to reasonableness of expenses may be made in
the same manner as the determination that indemnification is proper is made;
except that, if the determination that indemnification is proper is made by
independent legal counsel (as set forth above), authorization of indemnification
and evaluation as to reasonableness of expenses may be made by the body that
selected said counsel.
Section 3. Non-Exclusive Right. The foregoing right of indemnification
shall not be deemed exclusive of any other right to which those seeking
indemnification may be entitled and shall continue as to a person who has ceased
to be a director, officer, employee, fiduciary, or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 4. Personal Liability. The personal liability of a director to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director is hereby eliminated, except that such provision shall not
eliminate or limit the liability of a director to the corporation or its
shareholders for monetary damages for: any breach of the director's duty of
loyalty to the corporation or to its shareholders; acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
acts specified in Section 7-108-403 of the Act; or any transaction from which
the director derived an improper personal benefit.
Section 5. Vote to Amend. A vote of two-thirds (2/3) of each class of stock
entitled to vote shall be required to amend this article."
Article IX of the Company's Bylaws reads:
ARTICLE IX. INDEMNIFICATION AND RELATED MATTERS
Section 1. Indemnification-Third Party Actions. The Corporation shall
indemnify any person who was, is, or is threatened to be
made a part of any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or
informal (other than an action by or in the right of the
Corporation). Such indemnification shall arise only be
reason of the fact that the person is or was a Director,
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officer, employee, fiduciary, or agent of the Corporation or
who, while a Director, officer, employee, fiduciary, or
agent of the Corporation, is or was serving at the request
of the Corporation as a director, officer, partner,
employee, fiduciary, or agent of another corporation,
partnership, joint venture, trust, other enterprise, or
employee benefit plan. Such indemnification shall be against
expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit, or
proceeding, to the extent that and under the circumstances
wherefore the Act permits indemnification of directors.
Section 2. Indemnification -Actions Brought in the Right of the
Corporation. The Corporation shall indemnify any person who
was, is, or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding
by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that he is or was a
Director, officer, employee, fiduciary, or agent of the
Corporation or who, while a Director, officer, employee,
fiduciary, or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer,
employee, fiduciary, or agent of another corporation,
partnership, joint venture, trust, other enterprise, or
employee benefit plan. Such indemnification shall be against
expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with such action,
suit, or proceeding, to the extent that and under the
circumstances wherefore the Act permits indemnification of
directors.
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Section 3. Determination of Entitlement to Indemnification. Any
indemnification under Sections IX.1 and IX.2 (unless ordered
by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that
indemnification of the Director, officer, employee,
fiduciary, or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in
the Act with respect to indemnification of directors. Such
determination shall be made; (a) by the Board of Directors
by a majority vote of a quorum consisting of Directors who
were not parties to such action, suit, or proceeding, or (b)
if such a quorum is not obtainable, by a majority vote of a
committee of the Board of Directors designated by the Board
of Directors, which committee shall consist of two or more
Directors who were not parties to the action, suit, or
proceeding, except that Directors who were parties to the
action, suit, or proceeding may participate in the
designation of Directors for the committee. If such quorum
is not obtainable or such committee cannot be established
pursuant to Section IX.3(a) and Section IX.3(b) above, or
even if such quorum is obtained or such committee is
designated if such quorum or committee so directs, such
determination shall be made; (x) by independent legal
counsel selected by vote of the Board of Directors or the
committee in the manner specified in Section IX.3(a) or
Section IX.3(b) above (as the case may be) or, if a quorum
cannot be obtained and a committee cannot be established
pursuant to Section IX.3(a) and Section IX.3(b) above, by
independent legal counsel selected by a majority vote of the
full Board of Directors, or (y) by the shareholders.
Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made the same manner as
the determination that indemnification is proper is made;
except that, if the determination that indemnification is
proper is made by independent legal counsel (as set forth
above), authorization of indemnification and evaluation as
to reasonableness of expenses may be made by the body that
selected said counsel.
Section 4. Advancemen of Expenses. Reasonable expenses incurred in
defending a civil or criminal action, suit, or proceeding
may be paid by the Corporation in advance of the final
disposition of such action, suit, or proceeding, to the
extent that and under the circumstances wherefore the Act
permits such advancement for directors.
Section 5. Savings clause. The indemnification provided by this article
ix shall not be deemed exclusive of any other rights to
which those indemnified may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors
or otherwise, both as to action in the person's official
capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has
ceased to be a director, officer, employee, fiduciary, or
agent and shall inure to the benefit of the hears and legal
representatives of such a person.
Section 6. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a
Director, officer, employee, fiduciary, or agent of the
Corporation or who, while a Director, officer, employee,
fiduciary, or agent of the Corporation, is or was serving at
the request of the Corporation as a Director, officer,
partner, employee, or agent of another corporation,
partnership, joint venture, trust, other enterprise, or
employee benefit plan, against any liability asserted
against him or incurred by him in any such capacity or
arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against
such liability under the provisions of the Article IX and
the Act.
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Section 7. Disallowed Deductions. With respect to any payment made by
the Corporation to any employee or any officer of the
Corporation for compensation, bonus, interest, rent, travel,
entertainment, or other expenses incurred by such employee
or officer that is determined to be excessive, unreasonable,
or otherwise unallowable, in whole or in part as a tax
deductible expense by any governmental agency, such employee
shall have an unconditional obligation to reimburse the
Corporation to the full extent of such unallowable expense.
In lieu of payment by the officer, subject to the
determination of the Directors, proportionate amounts may be
withheld from his future compensation payments until the
amount owed to the Corporation has been recovered.
The Company is in the process of applying for liability insurance coverage
in the face amount of $2,000,000 for its directors and officers for claims and
liabilities arising out of their actions taken in those capacities. It is
anticipated that this coverage will be in place prior to the Effective Date of
the Registration Statement.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers or persons
controlling the Company pursuant to the referenced provisions, the Company has
been informed that in the opinion of the United States Securities and Exchange
Commission, such indemnification violates public policy as expressed in such Act
and is therefore unenforceable."
Item 25. Other Expenses of Issuance and Distribution
Securities and Exchange Commission Registration Fee $8,641
NASD Filing Fee $3,351
Accounting Fees and Expenses $85,000
Blue Sky Filing Fees and Expenses $10,000
Legal Fees and Expenses $80,000
Printing Fees and Expenses $25,000
Transfer Agent Fees $7,500
Miscellaneous $3,633
TOTAL $223,125
Item 26. Recent Sales of Unregistered Securities
Information with respect to all securities sold by the Company during the
past three years prior to the filing of the Registration Statement and with
respect to securities to be sold by the Company contemporaneously with the
effectiveness of the Registration Statement, all without registration of any
such sales under the Securities Act of 1933, as amended ("Act") is as follows:
1. (a)On March 21,1997 the Company sold 10 shares of its $.01 per value
Common Stock ("Common Stock");
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(b) No person or entity acted as an underwriter with respect to this
transaction. The 10 shares were sold to Harvey E. Deutsch, President
and a director of the Company;
(c) The 10 shares were sold for cash at $1.00 per share or a total of
$10.00. There was no underwriting or other discount or commission paid
on the sale;
(d) Mr. Deutsch acquired the 10 shares for investment and not with a
view to distribution and as "restricted securities" as that term is
defined under the Act. The certificates issued to reflect these 10
shares contains an appropriate legend denoting their status as
restricted securities. In this transaction, the Company relied upon
the exemption from the Registration Requirements of Section 5 of the
Act provided in Section 4(2) thereof as a transaction by an issuer not
involving a public offering. Mr. Deutsch will donate these 10 shares
back to the Company upon the completion of the transaction described
in 3 below;
2. (a) On September 8, 1997 the Company issued 327,000 shares of its
Common Stock and Warrants to purchase 300,000 Shares of its Common
Stock ("Founders Warrants")in a transaction involving the corporate
statutory merger of Gateway American Properties Corporation, a Florida
corporation ("Gateway - Florida") into the Company;
(b) No person or entity acted as an underwriter with respect to the
transaction. The securities were issued to the 66 persons who were the
shareholders of Gateway - Florida;
(c) These securities were issued in consideration for the assets of
Gateway - Florida acquired in the merger by the Company (the assets
are reflected in the Financial Statements of Gateway - Florida
included in the Registration Statement). The securities were issued
pursuant to the Agreement, Plan and Articles of Merger filed as
Exhibit 10(d) to the Registration Statement, and in certain respects,
subject to the provisions of the Amended and Restated Agreement
Providing for Sale and Exchange of Capital Stock between and among
Gateway - Florida, the Company, Gateway American Properties LLC, a
Colorado limited liability company ("Gateway") and the holders of
Membership Interests in Gateway which is filed with the Registration
Statement as Exhibit 10(e);
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(d) These securities were acquired by the recipients for investment
and not with a view to distribution and as restricted securities.
The 327,000 shares of Common Stock issued in the transaction and the
300,000 shares of Common Stock underlying the Warrants are included
in the Registration Statement; but are subject to certain "lock-up"
provisions prohibiting their sale, without the prior consent of the
Representative of the Underwriters for 90 days from the "Effective
Date" of the Registration Statement in the case of Date Shares and
15 months from the Effective Date for the balance of the shares. The
certificates issued to represent these shares have a legend denoting
these "lock-up" provisions. These securities were issued by the
Company in reliance upon the exemption from the registration
requirements of Section 5 of the Act provided in Section 4(2)
thereof as a transaction by an issuer not involving a public
offering.
3. (a) Immediately prior to the effectiveness of the Registration
Statement, the Company will issue an aggregate of 2,025,000 shares
of its Common Stock in a transaction involving the requisition of
100% of the outstanding Membership Interests in Gateway American
Properties, LLC, a Colorado limited liability company ("Gateway");
(b) No person or entity will act as an underwriter with respect to
this Transaction.
The securities will be issued to the Company's three officers and
directors (including their immediate family members and/or trusts
for the benefit of such persons) and four other holders of
Membership Interests in Gateway, all of whom are employees of
Gateway and/or the Company;
(c) These securities will be issued in consideration for the
Membership Interests of Gateway pursuant to the provisions of the
Amended and Restated Agreement for the Sale and Exchange of Capital
Stock between and among Gateway-Florida, The Company, Gateway and
the Holders of Membership Interests in Gateway which is filed with
the Registration Statement as EXHIBIT 10(c);
(d) These securities will be acquired by the recipients for
investment and not with a view to distribution and as restricted
securities. The certificates issued to represent these securities
will contain an appropriate legend denoting their status as
restricted securities and a stock transfer order on these will be
placed with the Company's Transfer Agent. These securities were
issued by the Company in reliance upon the exemption from the
registration requirements of Section 5 of the Act provided in
Section 4(2) thereof as a transaction by an issuer not involving a
public offering.
Item 27. Exhibits
(1)(a) Form of Underwriting Agreement between the Registrant and the
Representative
(1)(b) Form of Agreement Among Underwriters
(1)(c) Form of Selected Dealers Agreement
(2)(a) Agreement, Plan and Articles of Merger of Gateway American
Properties Corporation, a Florida corporation into Gateway American
Properties Corporation, a Colorado corporation and the Registrant
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(2)(b) Amended and Restated Agreement Providing for the Sale and Exchange
of Capital Stock dated as of January 27, 1997
(3)(a) Articles of Incorporation of the Registrant, as amended to date
(3)(b) Bylaws of the Registrant
(5) Opinion relative to legality of the issuance of the securities
offered by the Registration Statement
(9) Voting Trust Agreement as amended to date
(10)(a) Employment Agreement between Gateway American Properties, LLC and
Harvey E. Deutsch, as amended to date
(10)(b) Employment Agreement between Gateway American Properties, LLC and
Joel H. Farkas, as amended to date
(10)(c) Employment Agreement between Gateway American Properties, LLC and
Michael A. Messina, as amended to date
(10)(d) *Form of Stock Certificate for Common Stock of the Registrant
(10)(e) Form of Common Stock Purchase Warrant (included in offering)
(10)(f) *Form of Warrant Agreement Between Transfer Agent and Registrant
Relative to Common Stock Purchase Warrant (EXHIBIT (10)(e)
(10)(g) Form of Outstanding Stock Purchase Warrant (Founders Warrants)
(10)(h) Form of Representative Warrant Agreement
(10)(i) Form of Financial Advisory Agreement Between Registrant and the
Representative
(10)(j) Form of Merger and Acquisition Agreement Between Registrant and the
Representative
(23)(a) Consent of Counsel issuing Exhibit 5 - Gilbert L. McSwain,
Attorney-at-Law
(23)(b) Consent of Counsel - William T. Kirtley, P.A.
(23)(c) Consent of Accountants - Beatty & Company, P.A.
(23)(d) Consent of Accountants - Gelfond Hochstadt Pangburn & Co.
* To be filed by Amendment
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Item 28. Undertakings
1. The undersigned Registrant hereby undertakes;
(a) to file during any period in which offers or sales of the
securities are being made, a post-effective amendment to this
Registration Statement including any Prospectus required by Section
10(a)(3) of the Securities Act of 1933, reflecting any facts or events
arising after the Effective Date (or most recent post-effective
amendment) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration
Statement, and including any material information with respect to the
plan of distribution not previously disclosed or any material change
to such information set forth in the Registration Statement;
(b)that, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(c) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering: and;
(d) the Registrant will at the closing specified in the underwriting
agreement deliver to the underwriter certificates and warrants in such
denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser of the offered
securities.
2. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions of
the Bylaws of Registrant and the Florida General Corporation Act set
forth in Item 24 of this Part II, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel
that matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable to believe that it meets all of the
requirements of filing on Form SB-2 and authorizes this registration statement
to be signed on its behalf by the undersigned, in the City of Denver, State of
Colorado, on October 1, 1997.
GATEWAY AMERICAN PROPERTIES
CORPORATION, a Colorado corporation
By /s/ Harvey E.
Deutsch
Harvey E. Deutsch, President and
Chief Executive Officer
By /s/ Joel H. Farkas
Joel H. Farkas, Vice-President -
Finance/Marketing, Treasurer and
Chief Operating and Accounting
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Harvey E. Deutsch Director October 1, 1997
- --------------------------
Harvey E. Deutsch
/s/ Joel H. Farkas Director October 1, 1997
- --------------------------
Joel H. Farkas
/s/ Michael A. Messina Director October 1, 1997
- --------------------------
Michael A. Messina
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EXHIBIT (1)(a)
GATEWAY AMERICAN PROPERTIES CORPORATION
1,500,000 Shares of Common Stock and
3,000,000 Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
Boca Raton, Florida
__________, 1997
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Gentlemen:
Gateway American Properties Corporation (the "Company"), on the basis of
the representations, warranties, covenants and conditions contained herein,
hereby proposes to issue and sell to such Underwriters as named in Schedule A
(the "Underwriters") to the Underwriting Agreement (the "Agreement"), for whom
Barron Chase Securities, Inc. is acting as a representative (the
"Representative"), pursuant to the terms of this Agreement, on a "firm
commitment" basis, 1,500,000 shares of Common Stock (the "Shares") at $4.00 per
Share and 3,000,000 Redeemable Common Stock Purchase Warrants (the "Warrants")
at $.1875 per Warrant. The Shares and the Warrants are collectively referred to
as the "Securities". Each Warrant is exercisable to purchase one (1) share of
Common Stock (the "Common Stock") at $4.50 per share at any time during the
period between the Effective Date and five (5) years from the Effective Date.
The date upon which the Securities and Exchange Commission ("Commission") shall
declare the Registration Statement of the Company effective shall be the
"Effective Date". The Warrants are subject to redemption under certain
circumstances. In addition, the Company proposes to grant to the Underwriters
(or, at the option of the Representative, to the Representative, individually)
the option referred to in Section 2(b) to purchase all or any part of an
aggregate of 225,000 additional Shares and/or 450,000 additional Warrants (the
"Option Securities").
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You have advised the Company that you and the other Underwriters desire to
purchase, severally, the Securities, and that you have been authorized by the
Underwriters to execute this Agreement on their behalf. The Company confirms the
agreements made by it with respect to the purchase of the Securities by the
several Underwriters on whose behalf you are signing this Agreement, as follows:
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with each of the
Underwriters as of the Effective Date (as defined above), the Closing Date (as
hereinafter defined) and the Option Closing Date (as hereinafter defined) that:
(a) A registration statement (File No._______ on Form SB-2 relating to the
public offering of the Securities, including a preliminary form of the
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Commission thereunder, and has been filed with the
Commission under the Act. The Company has prepared in the same manner and
proposes to file, prior to the Effective Date of such registration statement, an
additional amendment or amendments to such registration statement, including a
final form of Prospectus, copies of which shall be delivered to you.
"Preliminary Prospectus" shall mean each prospectus filed pursuant to the Rules
and Regulations under the Act prior to the Effective Date. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement" and the "Prospectus",
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) of the Rules and Regulations shall differ from said prospectus as then
amended, the term "Prospectus" shall mean the prospectus first filed pursuant to
Rule 424(b), and (ii) if such registration statement or prospectus is amended or
such prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined), the
terms "Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up to the
Option Closing Date, if any, and during such longer period as the Prospectus may
be required to be delivered in connection with sales by the Underwriters or
Selected Dealers: (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
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the Company makes no representations, warranties or agreement as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriters specifically for use in the preparation thereof. It
is understood that the statements set forth in the Prospectus with respect to
stabilization, under the heading "Underwriting" and regarding the identity of
counsel to the Underwriters under the heading "Legal Matters" constitute the
only information furnished in writing by the Underwriters for inclusion in the
Prospectus.
(c) Each of the Company and each subsidiary has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign corporation and is
in good standing in all other jurisdictions in which the nature of its business
or the character or location of its properties requires such qualification,
except where failure to so qualify will not materially affect the Company's
business, properties or financial condition.
(d) The authorized, issued and outstanding securities of the Company as of
the date of the Prospectus is as set forth in the Prospectus under
"Capitalization"; all of the issued and outstanding securities of the Company
have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances and
sales of all such securities complied in all material respects with applicable
Federal and state securities laws; the holders thereof have no rights of
rescission against the Company with respect thereto, and are not subject to
personal liability by reason of being such holders; none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company; except as set
forth in the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any securities of the Company have been granted or
entered into by the Company; and all of the securities of the Company, issued
and to be issued as set forth in the Registration Statement, conform to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and paid
for pursuant to this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights of any security holder of
the Company. Neither the filing of the Registration Statement nor the offering
or sale of the Securities as contemplated in this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any securities of the Company, except as described in the
Registration Statement.
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The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock issuable
upon exercise of the Warrants have been reserved for issuance and when issued in
accordance with the terms of the Warrants and Warrant Agreement, will be duly
and validly authorized, validly issued, fully paid and non-assessable, free of
pre-emptive rights and no personal liability will attach to the ownership
thereof. The Warrant exercise period and the Warrant exercise price may not be
changed or revised by the Company without the prior written consent of the
Representative. The Warrant Agreement has been duly authorized and, when
executed and delivered pursuant to this Agreement, will have been duly executed
and delivered and will constitute the valid and legally binding obligation of
the Company enforceable in accordance with its terms.
The Common Stock Representative Warrants, the Warrant Representative
Warrants, the Underlying Warrants, the shares of Common Stock issuable upon
exercise of the Common Stock Representative Warrants, and the shares of Common
Stock issuable upon exercise of the Underlying Warrants (all as defined in the
Representative's Warrant Agreement described in Section 12 herein), have been
duly authorized and, when issued, delivered and paid for, will be validly
issued, fully paid, non-assessable, free of pre-emptive rights and no personal
liability will attach to the ownership thereof, and will constitute valid and
legally binding obligations of the Company enforceable in accordance with their
terms and entitled to the benefits provided by the Representative's Warrant
Agreement.
(f) This Agreement, the Warrant Agreement, the Financial Advisory
Agreement, the Merger and Acquisition Agreement (the "M/A Agreement") and the
Representative's Warrant Agreement have been duly and validly authorized,
executed and delivered by the Company, and assuming due execution of this
Agreement by the other party hereto, constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally. The Company has full power and
lawful authority to authorize, issue and sell the Securities to be sold by it
hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is required
in connection with such authorization, execution and delivery or with the
authorization, issue and sale of the Securities or the securities to be issued
pursuant to the Representative's Warrant Agreement, except such as may be
required under the Act or state securities laws, or as otherwise have been
obtained.
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(g) Except as described in the Prospectus, neither the Company nor any
subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the property or assets of the
Company or any subsidiary or any of the terms or provisions of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any subsidiary is a party or by which the Company or any
subsidiary may be bound or to which any of the property or assets of the Company
or any subsidiary is subject, nor will such action result in any material
violation of the provisions of the articles of incorporation or by-laws of the
Company or any subsidiary, as amended, or any statute or any order, rule or
regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the Company
and each subsidiary have good and marketable title to all properties and assets
described in the Prospectus as owned by each of them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not material to
its business, financial condition or results of operation; all of the material
leases and subleases under which the Company or each subsidiary is the lessor or
sublessor of properties or assets or under which the Company or each subsidiary
holds properties or assets as lessee or sublessee as described in the Prospectus
are in full force and effect, and, except as described in the Prospectus,
neither the Company nor each subsidiary is in default in any material respect
with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company or any subsidiary as lessor, sublessor, lessee, or sublessee under any
of the leases or subleases mentioned above, or affecting or questioning the
right of the Company or any subsidiary to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company and each subsidiary
owns or leases all such properties described in the Prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
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(i) Gelfond Hochstadt Pangburn & Co., who have given its report on certain
financial statements filed and to be filed with the Commission as part of the
Registration Statement, and which are included in the Prospectus, are with
respect to the Company, independent public accountants as required by the Act
and the Rules and Regulations.
(j) The financial statements and schedules, together with related notes,
set forth in the Prospectus and the Registration Statement present fairly the
financial condition, results of operations and cash flows of the Company on the
basis stated in the Registration Statement, at the respective dates and for the
respective periods to which they apply. Said statements and related notes and
schedules have been prepared in accordance with generally accepted accounting
principles applied on a basis which is consistent during the periods involved.
The Company's internal accounting controls and procedures are sufficient to
cause the Company and each subsidiary to prepare financial statements which
comply in all material respects with generally accepted accounting principles
applied on a basis which is consistent during the periods involved. During the
preceding five (5) year period, nothing has been brought to the attention of the
Company's management that would result in any reportable condition relating to
the Company's internal accounting procedures, weaknesses or controls.
(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) neither the Company nor any subsidiary has
incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than in the ordinary course of business and/or
as contemplated in the Registration Statement and the Prospectus; (ii) neither
the Company nor any subsidiary has and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company or any subsidiary; (iv) neither the Company nor any
subsidiary has issued any options, warrants or other rights to purchase the
capital stock of the Company or any subsidiary; and (v) there has not been and
will not have been any material adverse change in the business, financial
condition or results of operations of the Company or any subsidiary, or in the
book value of the assets of the Company or any subsidiary, arising for any
reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or, to the
knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
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(m) Except as disclosed in the Prospectus, each of the Company and each
subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against the Company or any subsidiary that has not been provided for in
the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and each
subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use all
material patents, patent applications, trademarks, service marks, trade-names,
trademark registrations, service mark registrations, copyrights, and licenses
necessary for the conduct of such business and has not received any notice of
conflict with the asserted rights of others in respect thereof. To the best of
the Company's knowledge, none of the activities or business of the Company or
any subsidiary are in violation of, or cause the Company or any subsidiary to
violate, any law, rule, regulation or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) Neither the Company nor any subsidiary has, directly or indirectly, at
any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution, in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Securities to the several Underwriters
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
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(q) All contracts and other documents which are required to be described
in or filed as exhibits to the Registration Statement have been so described
and/or filed.
(r) Except as described in the Registration Statement and Prospectus, no
holders of Common Stock or of any other securities of the Company have the right
to include such Common Stock or other securities in the Registration Statement
and Prospectus.
(s) Except as set forth in or contemplated by the Registration Statement
and the Prospectus, neither the Company nor any subsidiary has any material
contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in the
Registration Statement and Prospectus, nor has it any equity interest in any
partnership, joint venture, association or other entity except as disclosed in
the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending the
use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately discloses
all unregistered securities sold by the Company within the three year period
prior to the date as of which information is presented in the Registration
Statement. All of such securities were sold in transactions which were exempt
from the registration provisions of the Act and not in violation of Section 5
thereof.
(x) Other than as set forth in the Prospectus, the Company has not entered
into any agreement pursuant to which any person is entitled, either directly or
indirectly, to compensation from the Company for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Underwriters against any losses, claims, damages or
liabilities, joint or several, which shall include, but not be limited to, all
costs to defend against any such claim, so long as such claim arises out of
agreements made or allegedly made by the Company.
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(y) Based upon written representations received by the Company, no
officer, director or five percent (5%) or greater stockholder of the Company or
any subsidiary has any direct or indirect affiliation or association with any
member of the National Association of Securities Dealers, Inc. ("NASD"), except
as disclosed to the Representative in writing, and no beneficial owner of the
Company's unregistered securities has any direct or indirect affiliation or
association with any NASD member except as disclosed to the Representative in
writing. The Company will advise the Representative and the NASD if any five
percent (5%) or greater shareholder of the Company or any subsidiary is or
becomes an affiliate or associated person of an NASD member participating in the
distribution.
(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. There are no pending
investigations involving the Company or any subsidiary by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company or any subsidiary pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to the knowledge of the Company, threatened
against or involving the Company or any subsidiary or any predecessor entity. No
question concerning representation exists respecting the employees of the
Company or any subsidiary and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company or any subsidiary. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company or any subsidiary, if any.
(aa) Neither the Company nor any subsidiary maintains, sponsors nor
contributes to, nor is it required to contribute to, any program or arrangement
that is an "employee pension benefit plan", an "employee welfare benefit plan",
or a "multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). Neither the Company nor any subsidiary
maintained or contributed to a defined benefit plan, as defined in Section 3(35)
of ERISA.
(ab) Based upon written representations received from the officers and
directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of the
Company or any subsidiary have been:
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(1) Subject of a petition under the federal bankruptcy laws or
any state insolvency law filed by or against them, or by a receiver,
fiscal agent or similar officer appointed by a court for their
business or property, or any partnership in which either or them was a
general partner at or within two years before the time of such filing,
or any corporation or business association of which either of them was
an executive officer at or within two years before the time of such
filing;
(2) Convicted in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining any of them from,
or otherwise limiting, any of the following activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity
pool operator, floor broker, leverage transaction merchant,
any other person regulated by the Commodity Futures Trading
Commission, or an associated person of any of the foregoing,
or as an investment adviser, underwriter, broker or dealer
in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or
continuing any conduct or practice in connection with any
such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in
connection with any violation of federal or state securities
law or federal commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or state
authority barring, suspending or otherwise limiting for more than
sixty (60) days their right to engage in any activity described in
paragraph (3)(i) above, or be associated with persons engaged in any
such activity;
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(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have violated
any federal or state securities law, and the judgment in such civil
action or finding by the Commission has not been subsequently
reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any
federal commodities law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated.
(ac) Based upon written representations received from the officers and
directors of the Company, each of the officers and directors of the Company has
reviewed the sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information contained therein
is true and accurate.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement and upon the
basis of the representations, warranties and agreements herein contained, the
Company hereby agrees to issue and sell to the Underwriters an aggregate of
1,500,000 Shares at $3.60 per Share and 3,000,000 Warrants at $.16875 per
Warrant, (the public offering price less ten percent (10%)). at the place and
time hereinafter specified, in accordance with the number of Shares and/or
Warrants set forth opposite the names of the Underwriters in Schedule A attached
hereto, plus any additional Securities which such Underwriters may become
obligated to purchase pursuant to the provisions of Section 9 hereof. The
Securities shall consist of 1,500,000 Shares and 3,000,000 Warrants to be
purchased from the Company, and the price at which the Underwriters shall sell
the Securities to the public shall be $4.00 per Share and $.1875 per Warrant.
Delivery of the Securities against payment therefor shall take place at
the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Boca Raton,
Florida 33433 (or at such other place as may be designated by the
Representative) at 10:00 a.m., Eastern Time, on such date after the Registration
Statement has become effective as the Representative shall designate, but not
later than ten (10) business days (holidays excepted) following the first date
that any of the Securities are released to you, such time and date of payment
and delivery for the Securities being herein called the "Closing Date".
11
<PAGE>
(b) In addition, subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to the Underwriters (or, at the
option of the Representative, to the Representative, individually) to purchase
all or any part of an aggregate of an additional 225,000 Shares and 450,000
Warrants at the same price per Share and Warrant as the Underwriters shall pay
for the Securities being sold pursuant to the provisions of subsection (a) of
this Section 2 (such additional Securities being referred to herein as the
"Option Securities"). This option may be exercised within forty-five (45) days
after the Effective Date of the Registration Statement upon notice by the
Underwriters to the Company advising as to the amount of Option Securities as to
which the option is being exercised, the names and denominations in which the
certificates for such Option Securities are to be registered and the time and
date when such certificates are to be delivered. Such time and date shall be
determined by the Underwriters (or the Representative, individually) but shall
not be later than ten (10) full business days after the exercise of said option,
nor in any event prior to the Closing Date, and such time and date is referred
to herein as the "Option Closing Date". Delivery of the Option Securities
against payment therefor shall take place at the offices of the Representative.
The Option granted hereunder may be exercised only to cover overallotments in
the sale by the Underwriters of the Securities referred to in subsection (a)
above. In the event the Company declares or pays a dividend or distribution on
its Common Stock, whether in the form of cash, shares of Common Stock or any
other consideration, prior to the Option Closing Date, such dividend or
distribution shall also be paid on the Option Closing Date.
(c) The Company will make the certificates for the Securities to be sold
hereunder available to you for inspection at least two (2) full business days
prior to the Closing Date at the offices of the Representative, and such
certificates shall be registered in such names and denominations as you may
request. Time shall be of the essence and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company or
by wire transfer in New York Clearing House funds.
In addition, in the event the Underwriters (or the Representative
individually) exercises the option to purchase from the Company all or any
portion of the Option Securities pursuant to the provisions of subsection (b)
above, payment for such Securities shall be made payable in New York Clearing
House funds at the offices of the Representative, or by wire transfer, at the
time and date of delivery of such Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Securities by
the Representative for the respective accounts of the several Underwriters
registered in such names and in such denominations as the Representative may
request.
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It is understood that the Representative, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this Section 2 on behalf of any
Underwriters whose check or checks shall not have been received by the
Representative at the time of delivery of the Securities to be purchased by such
Underwriter or Underwriters. Any such payment by the Representative shall not
relieve any such Underwriter or Underwriters of any of its or their obligations
hereunder. It is also understood that the Representative individually, rather
than all of the Underwriters, may (but shall not be obligated to) purchase the
Option Securities referred to in subsection (b) of this Section 2, but only to
cover overallotments.
It is understood that the several Underwriters propose to offer the
Securities to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement is
declared effective by the Commission.
3. Covenants of the Company. The Company covenants and agrees with the
several Underwriters that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (i) the completion by the Underwriters of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary or advisable in connection with the distribution of the Securities
and as mutually agreed by the Company and the Representative.
After the Effective Date and as soon as the Company is advised thereof,
the Company will advise you, and confirm the advice in writing, of the receipt
of any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
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The Company has caused to be delivered to you copies of each Preliminary
Prospectus and Definitive Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriters and Selected Dealers to use the Prospectus
in connection with the sale of the Securities for such period as in the opinion
of counsel to the Underwriters the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a Prospectus is required under the
Act to be delivered in connection with sales by the Underwriters or Selected
Dealers, of any event of which the Company has knowledge and which materially
affects the Company or the securities of the Company, or which in the opinion of
counsel for the Company or counsel for the Underwriters, should be set forth in
an amendment to the Registration Statement or a supplement to the Prospectus, in
order to make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be delivered to
a purchaser of the Securities, or in case it shall be necessary to amend or
supplement the Prospectus to comply with law or with the Act and the Rules and
Regulations, the Company will notify you promptly and forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material facts
necessary in order to make the statements in the Prospectus, in the light of the
circumstances under which they are made, not misleading. The preparation and
furnishing of any such amendment or supplement to the Registration Statement or
amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriters.
The Company will comply with the Act, the Rules and Regulations
thereunder, the Securities Exchange Act of 1934 (the "1934 Act"), and the rules
and regulations thereunder in connection with the offering and issuance of the
Securities.
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<PAGE>
(b) The Company will act in good faith and use its best efforts and
cooperate with you and your counsel to qualify to register the Securities for
sale under the securities or "blue sky" laws of such jurisdictions as the
Representative may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent to service of process
in any jurisdiction in any action other than one arising out of the offering or
sale of the Securities. The Company will, from time to time, prepare and file
such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriters may reasonably
request.
(c) If the sale of the Securities provided for herein is not consummated,
the Company shall pay all costs and expenses incident to the performance of the
Company's obligations hereunder, including, but not limited to, all such
expenses itemized in Section 8(a) and 8(c) hereof, and either (i) the
out-of-pocket expenses of the Representative, not to exceed the $30,000
previously paid if the Representative elects to terminate the offering for any
reason; or (ii) the out-of-pocket expenses of the Representative if the Company
elects to terminate the offering for any reason. For the purposes of this
sub-paragraph, the Representative shall be deemed to have assumed such expenses
when they are billed or incurred, regardless of whether such expenses have been
paid. The Representative shall not be responsible for any expenses of the
Company or others, or for any charges or claims relative to the proposed public
offering if it is not consummated.
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial statements
and exhibits filed therewith, and of each amendment or supplement thereto. The
Company will deliver to or upon the order of the several Underwriters, from time
to time until the Effective Date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the Effective
Date of the Registration Statement as the Underwriters may reasonably request.
The Company will deliver to the Underwriters on the Effective Date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented as the several
Underwriters may from time to time reasonably request.
(e) For so long as the Company is a reporting company under either Section
12 or 15 of the 1934 Act, the Company, at its expense, will furnish to the
Representative during the period ending five (5) years from the Effective Date,
(i) as soon as practicable after the end of each fiscal year, a balance sheet of
the Company and any of its subsidiaries as at the end of such fiscal year,
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together with statements of income, surplus and cash flow of the Company and any
subsidiaries for such fiscal year, all in reasonable detail and accompanied by a
copy of the certificate or report thereon of independent accountants; (ii) as
soon as they are available, a copy of all reports (financial or other) mailed to
security holders; (iii) as soon as they are available, a copy of all
non-confidential documents, including annual reports, periodic reports and
financial statements, furnished to or filed with the Commission under the Act
and the 1934 Act; (iv) copies of each press release, news item and article with
respect to the Company's affairs released by the Company; and (v) such other
information as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will make generally available to its stockholders and to
the registered holders of its Warrants and deliver to you as soon as it is
practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (which need
not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the necessary action
to become a reporting company under Section 12 of the 1934 Act, and the Company
will make all filings required to, and will have obtained approval for, the
listing of the Shares and Warrants on The Nasdaq Small Cap Market System, and
will use its best efforts to maintain such listing for at least seven (7) years
from the date of this Agreement.
(i) For such period as the Company's securities are registered under the
1934 Act, the Company will hold an annual meeting of stockholders for the
election of Directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by Rule 14a-3 under
the 1934 Act and shall be included in an annual report pursuant to the
requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption "Use
of Proceeds" in the Prospectus, and will file such reports with the Commission
with respect to the sale of the Securities and the application of the proceeds
therefrom as may be required by Sections 12, 13 and/or 15 of the 1934 Act and
pursuant to Rule 463 under the Act.
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(k) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of counsel to the Underwriters and the Company may be
reasonably necessary or advisable in connection with the distribution of the
Securities and will use its best efforts to cause the same to become effective
as promptly as possible.
(l) On the Closing Date, the Company shall execute and deliver to you the
Representative's Warrant Agreement. The Representative's Warrant Agreement and
Warrant Certificates will be substantially in the form of the Representative's
Warrant Agreement filed as an Exhibit to the Registration Statement.
(m) The Company will reserve and keep available for issuance that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Representative's Warrants outstanding from time to time.
(n) All beneficial owners of the Company's securities (including Warrants,
Options and Common Stock of the Company), as of the Effective Date, shall agree
in writing, in a form satisfactory to the Representative, not to sell, transfer
or otherwise dispose of any of such securities or underlying securities for a
period of at least fifteen (15) months from the Effective Date, or any longer
period required by the NASD, Nasdaq, or any State. Excepted from such transfer
restrictions are the 27,000 shares of Common Stock beneficially owned by James
T. McDonough which shall be subject to a restrictive period in which such 27,000
shares may not be sold, transferred or otherwise disposed of for a period of
ninety (90) days from the Effective Date. Any other shares of Common Stock owned
by James T. McDonough, however, shall be subject to such restrictions on
transfer.
(o) The Company will obtain, on or before the Closing Date, key person
life insurance on each of the lives of Michael A. Messina, Harvey E. Deutsch,
and Joel M. Farkas in an amount of not less than $1,500,000 each, and will use
its best efforts to maintain such insurance for a period of at least five (5)
years from the Effective Date.
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(p) Prior to the Closing Date, the Company shall, at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and such
other manuals as the Representative may designate, such listings to contain the
information required by such manuals and the Uniform Securities Act. The Company
hereby agrees to use its best efforts to maintain such listing for a period of
not less than five (5) years. The Company shall take such action as may be
reasonably requested by the Representative to obtain a secondary market trading
exemption in such states as may be reasonably requested by the Representative.
(q) During the one hundred eighty (180) day period commencing on the
Closing Date, the Company will not, without the prior written consent of the
Representative, grant options or warrants to purchase the Company's Common Stock
at a price less than the initial per share public offering price.
(r) Prior to the Closing Date, neither the Company nor any subsidiary will
issue, directly or indirectly, without your prior consent, any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering of the Securities other than routine customary
advertising of the Company's products and services, and except as required by
any applicable law or the directives of any relevant regulatory authority in any
relevant jurisdiction.
(s) At the Closing Date, the Company will engage the Representative as a
non-exclusive financial advisor to the Company for a period of twelve (12)
months commencing on the first day of the month following the Company's receipt
of the proceeds of this offering, at an aggregate fee of $108,000, all of which
shall be payable to the Representative on the Closing Date. The financial
advisory agreement will provide that the Representative shall, at the Company's
request, provide advice and consulting services to the Company concerning
potential merger and acquisition proposals and the obtaining of short or
long-term financing for the Company, whether by public financing or otherwise.
(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the financial
statements to be included in any registration statement or similar disclosure
document to be filed by the Company hereunder, or any amendment or supplement
thereto. For a period of five (5) years from the Effective Date, the Company, at
its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's quarterly report
and the mailing of quarterly financial information to stockholders.
(u) The Company shall retain American Securities Transfer & Trust, Inc. as
the transfer agent for the securities of the Company, or such other transfer
agent as you may agree to in writing. In addition, the Company shall direct such
transfer agent to furnish the Representative with daily transfer sheets as to
each of the Company's securities as prepared by the Company's transfer agent and
copies of lists of stockholders and warrantholders as reasonably requested by
the Representative, for a five (5) year period commencing from the Closing Date.
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(v) The Company shall cause the Depository Trust Company, or such other
depository of the Company's securities, to deliver a "special security position
report" to the Representative on a daily and weekly basis at the expense of the
Company, for a five (5) year period from the Effective Date.
(w) Following the Effective Date, the Company shall, at its sole cost and
expense, prepare and file such Blue Sky applications with such jurisdictions as
the Representative shall designate and the Company may reasonably agree.
(x) On the Effective Date and for a period of three (3) years thereafter,
the Company's Board of Directors shall consist of a minimum of five (5) persons,
two (2) of whom shall be independent and not otherwise affiliated with the
Company or associated with any of the Company's affiliates. The Representative
shall have the opportunity to invite an observer to attend Board of Directors
meetings of the Company at the expense of the Company.
(y) On the Closing Date, the Company shall execute and deliver to you a
non-exclusive M/A Agreement with the Representative in a form satisfactory to
the Representative, providing:
(1) that the Representative will be paid a finder's fee, of from
five percent (5%) of the first $1,000,000 ranging in $1,000,000 increments
down to one percent (1%) of the excess, if any, over $4,000,000 of the
consideration involved in any transaction introduced by the Representative
(including mergers, acquisitions, joint ventures, and any other business
for the Company introduced by the Representative) consummated by the
Company, as an "Introduced, Consummated Transaction", by which the
Representative introduced the other party to the Company during a period
ending five (5) years from the date of the M/A Agreement; and
(2) that any such finder's fee due to the Representative will be
paid in cash or stock as mutually agreed at the closing of the particular
Introduced, Consummated Transaction for which the finder's fee is due.
(z) After the Closing Date, the Company shall prepare and publish
"tombstone" advertisements of at least 5 x 5 inches in publications to be
designated by the Representative at a total cost not to exceed $7,000.
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(aa) For such period as any Warrants are outstanding, the Company shall
use its best efforts to cause post-effective amendments to the Registration
Statement or a new Registration Statement to become effective in compliance with
the Act and without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a Warrant and to furnish to each of
the Underwriters and each dealer as many copies of each such Prospectus as such
Underwriter or such dealer may reasonably request. Such post-effective
amendments or new Registration Statements shall also register the
Representative's Warrants and all the securities underlying the Representative's
Warrants. The Company shall not call for redemption any of the Warrants unless a
Registration Statement covering the securities underlying the Warrants has been
declared effective by the Commission and remains current at least until the date
fixed for redemption. In addition, the Warrants shall not be redeemable during
the first year after the Effective Date without the written consent of the
Representative.
(ab) Until such time as the securities of the Company are listed or quoted
on either the New York Stock Exchange or the American Stock Exchange, the
Company shall engage the Company's legal counsel to deliver to the
Representative a written opinion detailing those states in which the Shares and
Warrants of the Company may be traded in non-issuer transactions under the Blue
Sky laws of the fifty states ("Secondary Market Trading Opinion"). The initial
Secondary Market Trading Opinion shall be delivered to the Representative on the
Effective Date, and the Company shall continue to update such opinion and
deliver same to the Representative on a timely basis, but in any event at the
beginning of each fiscal quarter, for a five (5) year period, if required.
(ac) As promptly as practicable after the Closing Date, the Company will
prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute such volumes to the individuals designated by the
Representative or counsel to the Representative.
4. Conditions of Underwriters' Obligations. The obligations of the several
Underwriters to purchase and pay for the Securities which they have agreed to
purchase hereunder from the Company are subject, as of the date hereof and as of
the Closing Date and the Option Closing Date, to the execution of this Agreement
by the Representative, to the continuing accuracy of, and compliance with, the
representations and warranties of the Company herein, to the accuracy of
statements of officers of the Company made pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder, and to the
following additional conditions:
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(a) (i) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such later
time or on such later date as you may agree to in writing; (ii) at or prior to
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission and no proceeding for that
purpose shall have been initiated or pending, or shall be threatened, or to the
knowledge of the Company, contemplated by the Commission; (iii) no stop order
suspending the effectiveness of the qualification or registration of the
Securities under the securities or "blue sky" laws of any jurisdiction (whether
or not a jurisdiction which you shall have specified) shall be threatened or to
the knowledge of the Company contemplated by the authorities of any such
jurisdiction or shall have been issued and in effect; (iv) any request for
additional information on the part of the Commission or any such authorities
shall have been complied with to the satisfaction of the Commission and any such
authorities, and to the satisfaction of counsel to the Underwriters; and (v)
after the date hereof no amendment or supplement to the Registration Statement
or the Prospectus shall have been filed unless a copy thereof was first
submitted to the Underwriters and the Underwriters did not object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any subsidiary except as set forth in or
contemplated by the Registration Statement, (ii) there shall not have been any
material adverse change in the general affairs, business, properties, condition
(financial or otherwise), management, or results of operations of the Company or
any subsidiary, whether or not arising from transactions in the ordinary course
of business, in each case other than as set forth in or contemplated by the
Registration Statement or Prospectus; (iii) neither the Company nor any
subsidiary shall have sustained any material interference with its business or
properties from fire, explosion, flood or other casualty, whether or not covered
by insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree, which is not set forth in the Registration
Statement and Prospectus; and (iv) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstance under
which they are made, not misleading.
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<PAGE>
(c) Except as set forth in the Prospectus, there is not pending or, to the
knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(d) Each of the representations and warranties of the Company contained
herein shall be true and correct as of this date and at the Closing Date as if
made at the Closing Date, and all covenants and agreements herein contained to
be performed on the part of the Company and all conditions herein contained to
be fulfilled or complied with by the Company at or prior to the Closing Date
shall have been duly performed, fulfilled or complied with.
(e) At each Closing Date, you shall have received the opinion, together
with copies of such opinion for each of the other several Underwriters, dated as
of each Closing Date, from William T. Kirtley, Esq. and/or Gilbert L. McSwain,
Esq., counsel for the Company, in form and substance satisfactory to counsel for
the Underwriters, to the effect that:
(i) the Company and each subsidiary has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, with full corporate power and authority
to own its properties and conduct its business as described in the
Registration Statement and Prospectus and is duly qualified or licensed to
do business as a foreign corporation and is in good standing in each other
jurisdiction in which the ownership or leasing of its properties or
conduct of its business requires such qualification except for
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the Company and each subsidiary as a whole;
(ii) the authorized capitalization of the Company is as set forth
under "Capitalization" in the Prospectus; all shares of the Company's
outstanding stock and other securities requiring authorization for
issuance by the Company's Board of Directors have been duly authorized,
validly issued, are fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the outstanding shares of
Common Stock of the Company and other securities have not been issued in
violation of the preemptive rights of any shareholder and the shareholders
of the Company do not have any preemptive rights or, to such counsel's
knowledge, other rights to subscribe for or to purchase securities of the
Company, nor, to such counsel's knowledge, are there any restrictions upon
the voting or transfer of any of the securities of the Company, except as
22
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disclosed in the Prospectus; the Common Stock, the Shares, the Warrants,
and the securities contained in the Representative's Warrant Agreement
conform to the respective descriptions thereof contained in the
Prospectus; the Common Stock, the Shares, the Warrants, the shares of
Common Stock to be issued upon exercise of the Warrants and the securities
contained in the Representative's Warrant Agreement, have been duly
authorized and, when issued, delivered and paid for, will be duly
authorized, validly issued, fully paid, non-assessable, free of
pre-emptive rights and no personal liability will attach to the ownership
thereof; all prior sales by the Company of the Company's securities have
been made in compliance with or under an exemption from registration under
the Act and applicable state securities laws and no shareholders of the
Company have any rescission rights against the Company with respect to the
Company's securities; a sufficient number of shares of Common Stock has
been reserved for issuance upon exercise of the Warrants and the
Representative Warrants, and to the best of such counsel's knowledge,
neither the filing of the Registration Statement nor the offering or sale
of the Securities as contemplated by this Agreement gives rise to any
registration rights or other rights, other than those which have been
waived or satisfied or described in the Registration Statement;
(iii) this Agreement, the Representative's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement, and the M/A Agreement
have been duly and validly authorized, executed and delivered by the
Company and, assuming the due authorization, execution and delivery of
this Agreement by the Representative, are the valid and legally binding
obligations of the Company, enforceable in accordance with their terms,
except (a) as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws from time to time
in effect which effect creditors' rights generally; and (b) no opinion is
expressed as to the enforceability of the indemnity provisions or the
contribution provisions contained in this Agreement;
(iv) the certificates evidencing the outstanding securities of the
Company, the Shares, the Common Stock and the Warrants are in valid and
proper legal form;
(v) to the best of such counsel's knowledge, except as set forth in
the Prospectus, there is not pending or, to the knowledge of the Company,
threatened, any material action, suit, proceeding, inquiry, arbitration or
investigation against the Company or any subsidiary or any of the officers
of directors of the Company or any subsidiary, nor any material action,
suit, proceeding, inquiry, arbitration, or investigation, which might
materially and adversely affect the condition (financial or otherwise),
business prospects, net worth, or properties of the Company or any
subsidiary;
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<PAGE>
(vi) the execution and delivery of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement, the Financial
Advisory Agreement, and the M/A Agreement, and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, will not result in a
violation of, or constitute a default under (a) the Articles of
Incorporation or By-Laws of the Company and each subsidiary; (b) to the
best of such counsel's knowledge, any material obligations, agreement,
covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to which
the Company or any subsidiary is a party or by which it or any of its
properties is bound; or (c) to the best of such counsel's knowledge, any
material order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality or court, domestic or foreign;
(vii) the Registration Statement has become effective under the Act,
and to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are pending before,
or threatened by, the Commission; the Registration Statement and the
Prospectus (except for the financial statements and other financial data
contained therein, or omitted therefrom, as to which such counsel need
express no opinion) comply as to form in all material respects with the
applicable requirements of the Act and the Rules and Regulations; and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection
with the authorization, issuance, transfer, sale or delivery of the
Securities by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the
taking of any action contemplated herein, or the issuance of the
Representative's Warrants or the Securities underlying the
Representative's Warrants, other than registrations or qualifications of
the Securities under applicable state or foreign securities or Blue Sky
laws and registration under the Act.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriter or counsel for the Underwriter shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law, upon opinions of counsel
satisfactory to you and counsel to the Underwriters. The opinion of such counsel
to the Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and that the Representative and they are justified
in relying thereon.
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<PAGE>
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment thereto
at the time it became effective contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make
statements therein, in light of the circumstances under which they are made, not
misleading (except, in the case of both the Registration Statement and any
amendment thereto and the Prospectus and any supplement thereto, for the
financial statements, notes thereto and other financial information and
statistical data contained therein, as to which such counsel need express no
opinion).
(f) You and the several Underwriters shall have received on each Closing
Date a certificate dated as of each Closing Date, signed by the Chief Executive
Officer and the Chief Financial Officer of the Company and such other officers
of the Company as the Underwriters may request, certifying that:
(i) No Order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities in effect and
no proceedings for such purpose are pending or are, to their knowledge,
threatened by the Commission;
(ii) They do not know of any litigation instituted or, to their
knowledge, threatened against the Company or any subsidiary or any officer
or director of the Company or any subsidiary of a character required to be
disclosed in the Registration Statement which is not disclosed therein;
they do not know of any contracts which are required to be summarized in
the Prospectus which are not so summarized; and they do not know of any
material contracts required to be filed as exhibits to the Registration
Statement which are not so filed;
(iii) They have each carefully examined the Registration Statement
and the Prospectus and, to the best of their knowledge, neither the
Registration Statement nor the Prospectus nor any amendment or supplement
to either of the foregoing contains an untrue statement of any material
fact or omits to state any material fact required to be stated therein or
necessary to make the statement therein, in light of the circumstances
under which they are made, not misleading; and since the Effective Date,
to the best of their knowledge, there has occurred no event required to be
set forth in an amended or supplemented Prospectus which has not been so
set forth;
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(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
material adverse change in the condition of the Company or any subsidiary,
financial or otherwise, or in the results of its operations, except as
reflected in or contemplated by the Registration Statement and the
Prospectus and except as so reflected or contemplated since such date,
there has not been any material transaction entered into by the Company or
any subsidiary;
(v) The representations and warranties set forth in this Agreement
are true and correct in all material respects and the Company has complied
with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in the
filing of any federal, state and other tax return or the payment of any
federal, state or other taxes; they know of no proposed redetermination or
re-assessment of taxes, adverse to the Company or any subsidiary, and the
Company and each subsidiary has paid or provided by adequate reserves for
all known tax liabilities;
(vii) They know of no material obligation or liability of the
Company or any subsidiary, contingent or otherwise, not disclosed in the
Registration Statement and Prospectus;
(viii) This Agreement, the Representative's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement, and the M/A
Agreement, the consummation of the transactions therein contemplated, and
the fulfillment of the terms thereof, will not result in a breach by the
Company of any terms of, or constitute a default under, its Articles of
Incorporation or By-Laws, any indenture, mortgage, lease, deed or trust,
bank loan or credit agreement or any other material agreement or
undertaking of the Company or any subsidiary including, by way of
specification but not by way of limitation, any agreement or instrument to
which the Company or any subsidiary is now a party or pursuant to which
the Company or any subsidiary has acquired any right and/or obligations by
succession or otherwise;
26
<PAGE>
(ix) The financial statements and schedules filed with and as part
of the Registration Statement present fairly the financial position of the
Company as of the dates thereof all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved. Since the respective dates of such financial statements, there
have been no material adverse change in the condition or general affairs
of the Company, financial or otherwise, other than as referred to in the
Prospectus;
(x) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, except as may
otherwise be indicated therein, neither the Company nor any subsidiary
has, prior to the Closing Date, either (i) issued any securities or
incurred any material liability or obligation, direct or contingent, for
borrowed money, or (ii) entered into any material transaction other than
in the ordinary course of business. The Company has not declared, paid or
made any dividend or distribution of any kind on its capital stock;
(xi) They have reviewed the sections in the Prospectus relating to
their biographical data and equity ownership position in the Company, and
all information contained therein is true and accurate; and
(xii) Except as disclosed in the Prospectus, during the past five
years, they have not been:
(1) Subject of a petition under the federal bankruptcy
laws or any state insolvency law filed by or against them, or by a
receiver, fiscal agent or similar officer appointed by a court for
their business or property, or any partnership in which either or
them was a general partner at or within two years before the time of
such filing, or any corporation or business association of which
either of them was an executive officer at or within two years
before the time of such filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining any of
them from, or otherwise limiting, any of the following activities:
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(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the
Commodity Futures Trading Commission, or an associated
person of any of the foregoing, or as an investment
adviser, underwriter, broker or dealer in securities,
or as an affiliated person, director or employee of any
investment company, bank, savings and loan association
or insurance company, or engaging in or continuing any
conduct or practice in connection with any such
activity;
(ii) engaging in any type of business
practice; or
(iii) engaging in any activity in connection
with the purchase or sale of any security or commodity
or in connection with any violation of federal or state
securities law or federal commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or state
authority barring, suspending or otherwise limiting for more than
sixty (60) days their right to engage in any activity described in
paragraph (3)(i) above, or be associated with persons engaged in any
such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to have
violated any federal or state securities law, and the judgment in
such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to have
violated any federal commodities law, and the judgment in such civil
action or finding by the Commodity Futures Trading Commission has
not been subsequently reversed, suspended or vacated.
(g) The Underwriters shall have received from Gelfond Hochstadt Pangburn &
Co., independent auditors to the Company, certificates or letters, one dated and
delivered on the Effective Date and one dated and delivered on the Closing Date,
in form and substance satisfactory to the Underwriters, stating that:
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(i) they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable Rules and
Regulations;
(ii) the financial statements and the schedules included in the
Registration Statement and the Prospectus were examined by them and, in
their opinion, comply as to form in all material respects with the
applicable accounting requirements of the Act, the Rules and Regulations
and instructions of the Commission with respect to Registration Statements
on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by them
(not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available unaudited
interim financial statements or other financial information of the Company
(with an indication of the date of the latest available unaudited interim
financial statements), inquiries of officers of the Company who have
responsibility for financial and accounting matters, review of minutes of
all meetings of the shareholders and the Board of Directors of the Company
and other specified inquiries and procedures, nothing has come to their
attention as a result of the foregoing inquiries and procedures that
causes them to believe that:
(a) during the period from (and including) the date of the
financial statements in the Registration Statement and the
Prospectus to a specified date not more than five days prior to the
date of such letters, there has been any change in the Common Stock,
long-term debt or other securities of the Company (except as
specifically contemplated in the Registration Statement and
Prospectus) or any material decreases in net current assets, net
assets, shareholder's equity, working capital or in any other item
appearing in the Company's financial statements as to which the
Underwriters may request advice, in each case as compared with
amounts shown in the balance sheet as of the date of the financial
statement in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have occurred
or will occur;
(b) during the period from (and including) the date of the
financial statements in the Registration Statement and the
Prospectus to such specified date there was any material decrease in
revenues or in the total or per share amounts of income or loss
before extraordinary items or net income or loss, or any other
material change in such other items appearing in the Company's
financial statements as to which the Underwriters may request
advice, in each case as compared with the fiscal period ended as of
the date of the financial statement in the Prospectus, except in
each case for increases, changes or decreases which the Prospectus
discloses have occurred or will occur;
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<PAGE>
(c) the unaudited interim financial statements of the Company
appearing in the Registration Statement and the Prospectus (if any)
do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with generally
accepted accounting principles and practices on a basis
substantially consistent with the audited financial statements
included in the Registration Statements or the Prospectus.
(iv) they have compared specific dollar amounts, numbers of shares,
percentages of revenues and earnings, statements and other financial
information pertaining to the Company set forth in the Prospectus in each
case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including
work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in the
letter and found them to be in agreement; and
(v) they have not during the immediately preceding five (5) year
period brought to the attention of the Company's management any reportable
condition related to the Company's internal accounting procedures,
weaknesses and/or controls. Such letters shall also set forth such other
information as may be requested by counsel for the Underwriters. Any
changes, increases or decreases in the items set forth in such letters
which, in the judgment of the several Underwriters, are materially
adverse with respect to the financial position or results of operations
of the Company shall be deemed to constitute a failure of the Company to
comply with the conditions of the obligations to the several
Underwriters hereunder.
(h) Upon exercise of the option provided for in Section 2(b) hereof,
the obligation of the several Underwriters (or, at its option, the
Representative, individually) to purchase and pay for the Option
Securities referred to therein will be subject (as of the date hereof and
as of the Option Closing Date) to the following additional conditions:
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(i) The Registration Statement shall remain effective at the Option
Closing Date, and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to your knowledge or the knowledge of
the Company, shall be contemplated by the Commission, and any reasonable
request on the part of the Commission for additional information shall have
been complied with to the satisfaction of counsel to the Underwriters.
(ii) At the Option Closing Date, there shall have been delivered to
you the signed opinion from William T. Kirtley, Esq. and/or Gilbert L.
McSwain, Esq., counsel for the Company, dated as of the Option Closing
Date, in form and substance satisfactory to counsel to the Underwriters,
which opinion shall be substantially the same in scope and substance as the
opinion furnished to you at the Closing Date pursuant to Section 4(e)
hereof, except that such opinion, where appropriate, shall cover the Option
Securities.
(iii) At the Option Closing Date, there shall have been delivered to
you a certificate of the Chief Executive Officer and Chief Financial
Officer of the Company, dated the Option Closing Date, in form and
substance satisfactory to counsel to the Underwriters, substantially the
same in scope and substance as the certificate furnished to you at the
Closing Date pursuant to Section 4(f) hereof.
<PAGE>
(iv) At the Option Closing Date, there shall have been delivered to
you a letter in form and substance satisfactory to you from , independent
auditors to the Company, dated the Option Closing Date and addressed to the
several Underwriters confirming the information in their letter referred to
in Section 4(g) hereof and stating that nothing has come to their attention
during the period from the ending date of their review referred to in said
letter to a date not more than five business days prior to the Option
Closing Date, which would require any change in said letter if it were
required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Securities shall be
satisfactory in form and substance to the Underwriters, and the
Underwriters and counsel to the Underwriters shall have been furnished with
all such documents, certificates, and opinions as you may request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company or its compliance with any of the covenants or conditions contained
herein.
(i) No action shall have been taken by the Commission or the NASD, the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Common Stock and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the several Underwriters
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or the Company, shall be contemplated by the Commission or the NASD. The Company
represents that at the date hereof it has no knowledge that any such action is
in fact contemplated by the Commission or the NASD. The Company shall advise the
Representative of any NASD affiliations of any of its officers, directors, or
stockholders or their affiliates in accordance with paragraph 1(y) of this
Agreement.
(j) At the Effective Date, you shall have received from counsel to the
Company, dated as of the Effective Date, in form and substance satisfactory to
counsel for the Underwriter, a written Secondary Market Trading Opinion
detailing those states in which the Shares and Warrants may be traded in
non-issuer transactions under the Blue Sky laws of the fifty (50) states after
the Effective Date, in accordance with paragraph 3(aa) of this Agreement.
(k) The authorization and issuance of the Securities and delivery thereof,
the Registration Statement, the Prospectus, and all corporate proceedings
incident thereto shall be satisfactory in all respects to counsel for the
several Underwriters, and such counsel shall be furnished with such documents,
certificates and opinions as they may reasonably request to enable them to pass
upon the matters referred to in this sub-paragraph.
(l) Prior to the Effective Date, the Representative shall have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Representative, as described in the Registration Statement.
(m) If any of the conditions provided for in this Section shall not have
been fulfilled as of the date indicated, this Agreement and all obligations of
the several Underwriters under this Agreement may be canceled at, or at any time
prior to, the Closing Date and/or the Option Closing Date by the Representative
and/or the Underwriters notifying the Company of such cancellation in writing or
by facsimile at or prior to the applicable Closing Date. Any such cancellation
shall be without liability of the several Underwriters to the Company.
5. Conditions of the Obligations of the Company. The obligation of the
Company to sell and deliver the Securities is subject to the execution of this
Agreement by the Company, and to the following conditions:
(i) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement, or on such
later time or date as the Company and the Representative may agree in
writing; and
(ii) At the Closing Date and the Option Closing Date, no stop orders
suspending the effectiveness of the Registration Statement shall have been
issued under the Act or any proceedings therefore initiated or threatened
by the Commission.
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If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the Closing Date but are not fulfilled after the
Closing Date and prior to the Option Closing Date, then only the obligation of
the Company to sell and deliver the Securities on exercise of the option
provided for in Section 2(b) hereof shall be affected.
6. Indemnification. (a) The Company indemnifies and holds harmless each
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
(i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, (ii) any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such cases to the extent, but only to the
extent, that any such losses, claim, damages or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. Notwithstanding the foregoing, the Company shall have no
liability under this section if such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus and the Prospectus is not
delivered to the person or persons alleging the liability upon which
indemnification is being sought. This indemnity will be in addition to any
liability which the Company may otherwise have.
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(b) Each Underwriter, severally, but not jointly, indemnifies and holds
harmless the Company, each of its directors, each nominee (if any) for director
named in the Prospectus, each of its officers who have signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages or liabilities (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statements or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by you or by any Underwriter through you specifically
for use in the preparation thereof. Notwithstanding the foregoing, the
Underwriters shall have no liability under this section if such untrue statement
or omission made in a Preliminary Prospectus is cured in the Prospectus and the
Prospectus is not delivered to the person or persons alleging the liability upon
which indemnification is being sought through no fault of the Underwriter. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
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<PAGE>
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the reasonable judgment of
the Representative, it is advisable for the Representative or such Underwriters
or controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Underwriter or such controlling person, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all such Underwriters and controlling persons, which firm shall be
designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnifying party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnifying and indemnified parties.
7. Contribution. In order to provide for just and equitable contribution
under the Act in any case in which (i) each Underwriter makes claim for
indemnification pursuant to Section 6 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case, notwithstanding the fact
that the express provisions of Section 6 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per Share appearing on the cover page of the Prospectus
35
<PAGE>
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the Underwriter and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company, or the Underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriters and their
controlling persons in the aggregate were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of this Section; and
(b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of
Securities purchased by such Underwriter to the number of Securities purchased
by all contributing Underwriters) of the portion of such losses, claims, damages
or liabilities for which the Underwriters are responsible. No person ultimately
determined to be guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
is not ultimately determined to be guilty of such fraudulent misrepresentation.
As used in this paragraph, the term "Underwriter" includes any officer,
director, or other person who controls the Underwriter within the meaning of
Section 15 of the Act, and the word "Company" includes any officer, director, or
person who controls the Company within the meaning of Section 15 of the Act. If
the full amount of the contribution specified in this paragraph is not permitted
by law, then the Underwriter and each person who controls the Underwriter shall
be entitled to contribution from the Company, its officers, directors and
controlling persons to the full extent permitted by law. This foregoing
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriter. No contribution shall be requested with regard to the settlement of
any matter from any party who did not consent to the settlement; provided,
however, that such consent shall not be unreasonably withheld in light of all
factors of importance to such party.
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8. Costs and Expenses. (a) Whether or not this Agreement becomes effective
or the sale of the Securities to the Underwriters is consummated, the Company
will pay all costs and expenses incident to the performance of this Agreement by
the Company including but not limited to the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or
supplemented; the fee of the National Association of Securities Dealers, Inc.
("NASD") in connection with the filing required by the NASD relating to the
offering of the Securities contemplated hereby; all state filing fees, expenses
and disbursements and legal fees of counsel to the Company who shall serve as
Blue Sky counsel to the Company in connection with the filing of applications to
register the Securities under the state securities or blue sky laws; the cost of
printing and furnishing to the several Underwriters copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, the
Selected Dealers Agreement, the Agreement Among Underwriters, Underwriters
Questionnaire, Underwriters Power of Attorney and the Blue Sky Memorandum; the
cost of printing the certificates evidencing the securities comprising the
Securities; the cost of preparing and delivering to the Underwriters and its
counsel bound volumes containing copies of all documents and appropriate
correspondence filed with or received from the Commission and the NASD and all
closing documents; and the fees and disbursements of the transfer agent for the
Company's securities. The Company shall pay any and all taxes (including any
original issue, transfer, franchise, capital stock or other tax imposed by any
jurisdiction) on sales to the Underwriters hereunder. The Company will also pay
all costs and expenses incident to the furnishing of any amended Prospectus or
of any supplement to be attached to the Prospectus. The Company shall also
engage the Company's counsel to provide the Representative with a written
Secondary Market Trading Opinion in accordance with paragraphs 3(aa) and 4(j) of
this Agreement.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Representative a non-accountable expense allowance equal
to three percent (3%) of the gross proceeds received from the sale of the
Securities, of which an advance of $30,000 has been paid to date. In the event
the overallotment option is exercised, the Company shall pay to the
Representative at the Option Closing Date an additional amount equal to three
percent (3%) of the gross proceeds received upon exercise of the overallotment
option.
(c) Other than as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Representative or from any other person for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Representative and the other Underwriters against any losses,
37
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claims, damages or liabilities, joint or several which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees, to which the Representative or such other
Underwriter may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Substitution of Underwriters. If any of the Underwriters shall for any
reason not permitted hereunder cancel their obligations to purchase the
Securities hereunder, or shall fail to take up and pay for the number of
Securities set forth opposite their respective names in Schedule A hereto upon
tender of such Securities in accordance with the terms hereof, then:
(a) if the aggregate number of Securities which such Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of Securities, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Securities which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed number of
Securities with respect to which such default or defaults occurs is more than
ten percent (10%) of the total number of Securities, the remaining Underwriters
shall have the right to take up and pay for (in such proportion as may be agreed
upon among them) the Securities which the defaulting Underwriter or Underwriters
agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase, the time for delivery
of the Securities shall be extended to the next business day to allow the
several Underwriters the privilege of substituting within twenty-four hours
(including non-business hours) another Underwriter or Underwriters satisfactory
to the Company. If no such Underwriter or Underwriters shall have been
substituted as aforesaid, within such twenty-four period, the time of delivery
of the Securities may, at the option of the Company, be again extended to the
next following business day, if necessary, to allow the Company the privilege of
finding within twenty-four hours (including non-business hours) another
Underwriter or Underwriters to purchase the Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted Underwriters to take up
the Securities of the defaulting Underwriter or Underwriters as provided in this
Section, (i) the Company or the Representative shall have the right to postpone
the time of delivery for a period of not more than seven (7) business days, in
order to effect whatever changes may thereby be made necessary in the
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Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary; and (ii) the respective numbers of Securities to be purchased by
the remaining Underwriters or substituted Underwriters shall be taken at the
basis of the underwriting obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and the remaining
Underwriters shall not take up and pay for all the Securities agreed to be
purchased by the defaulting Underwriters or substitute another Underwriter or
Underwriters as aforesaid, and the Company shall not find or shall not elect to
seek another Underwriter or Underwriters for such Securities as aforesaid, then
this Agreement shall terminate.
If, following exercise of the option provided in Section 2(b) hereof, any
Underwriter or Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase Option Securities at the Option Closing Date, or
shall fail to take up and pay for the number of Option Securities, which they
become obligated to purchase at the Option Closing Date upon tender of such
Option Securities in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Option
Securities of the defaulting Underwriters in the manner provided in Section 9(b)
hereof. If the remaining Underwriters or substituted Underwriters shall not take
up and pay for all Option Securities, the Underwriters shall be entitled to
purchase the number of Option Securities for which there is no default or, at
their election, the option shall terminate, the exercise thereof shall be of no
effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. Effective Date. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the execution
of this Agreement; or at such earlier time after the Effective Date of the
Registration Statement as you in your discretion shall first commence the public
offering by the Underwriters of any of the Securities. The time of the public
offering shall mean the time after the effectiveness of the Registration
Statement when the Securities are first generally offered by you to the other
Underwriters and Selected Dealers. This Agreement may be terminated by you at
any time before it becomes effective as provided above, except that Sections
3(c), 6, 7, 8, 13, 14, 15, 16, 17 and 18 shall remain in effect notwithstanding
such termination.
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11. Termination. (a) This Agreement, except for Sections 3(c), 6, 7, 8,
13, 14, 15, 16, 17, and 18 hereof, may be terminated at any time prior to the
Closing Date, and the option referred to in Section 2(b) hereof, if exercised,
may be cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriters for the resale of the Securities agreed to be purchased
hereunder by reason of: (i) the Company having sustained a material adverse
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree; (ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited; (iii) material
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date hereof); (iv) a banking moratorium having
been declared by Federal or New York or Florida state authorities; (v) an
outbreak of major international hostilities or other national or international
calamity having occurred; (vi) the passage by the Congress of the United States
or by any state legislative body of similar impact, of any act or measure, or
the adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by the Representative to have a material
adverse impact on the business, financial condition or financial statements of
the Company or the market for the securities offered hereby; (vii) any material
adverse change in the financial or securities markets beyond normal market
fluctuations having occurred since the date of this Agreement; (viii) any
material adverse change having occurred, since the respective dates as of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business; (ix) a
pending or threatened legal or governmental proceeding or action relating
generally to the Company's business, or a notification having been received by
the Company of the threat of any such proceeding or action, which could, in the
reasonable judgment of the Representative, materially adversely affect the
Company; (x) except as contemplated by the Prospectus, the Company is merged or
consolidated into or acquired by another company or group or there exists a
binding legal commitment for the foregoing or any other material change of
ownership or control occurs; or (xi) the Company shall not have complied in all
material respects with any term, condition or provisions on their part to be
performed, complied with or fulfilled (including but not limited to those set
forth in this Agreement) within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section, the Company shall be
promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
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12. Representative's Warrant Agreement. At the Closing Date, the Company
will issue to the Representative and/or persons related to the Representative,
for an aggregate purchase price of $10, and upon the terms and conditions set
forth in the form of Representative's Warrant Agreement annexed as an exhibit to
the Registration Statement, Representative Warrants to purchase up to an
aggregate of 150,000 Shares and 300,000 Warrants, in such denominations as the
Representative shall designate. In the event of conflict in the terms of this
Agreement and the Representative's Warrant Agreement, the language of the form
of Representative's Warrant Agreement shall control.
13. Representations, Warranties and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where appropriate, and the
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriters, the Company or any of its officers or directors or any controlling
person and will survive delivery of and payment for the Securities and the
termination of this Agreement.
14. Notice. All communications hereunder will be in writing and, except as
otherwise expressly provided herein, will be mailed, delivered or telefaxed, and
confirmed:
If to the Underwriters: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
If to the Company: Harvey E. Deutsch, President
Gateway American Properties Corporation
9145 East Kenyan Avenue, Suite 200
Denver, Colorado 80237
Copy to: Gilbert L. McSwain, Esq.
1660 South Albion Street, Suite 309
Denver, Colorado 80222
15. Parties in Interest. This Agreement herein set forth is made solely
for the benefit of the several Underwriters, the Company and, to the extent
expressed, any person controlling the Company or of the Underwriters, and
directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser of the Securities, as
such purchaser, from the several Underwriters. All of the obligations of the
Underwriters hereunder are several and not joint.
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16. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed entirely within the State of Florida. The parties agree that
any action brought by any party against another party in connection with any
rights or obligations arising out of this Agreement shall be instituted properly
in a federal or state court of competent jurisdiction with venue only in the
Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the
United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the other party to refile such action in an
appropriate court in the above designated county or federal district.
17. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
18. Entire Agreement. This Agreement and the agreements referred to within
this Agreement constitute the entire agreement of the parties, and supersedes
all prior agreement, understanding, negotiations and discussions, whether
written or oral, of the parties hereto.
19. Representative as Underwriter. In the event the Representative acts as
the sole Underwriter ("Underwriter") in connection with the underwriting of the
securities being offered pursuant to the Registration Statement, all references
to the Representative in this Agreement shall be replaced by reference to the
"Underwriter", and (i) any consents required to be obtained from the
Representative shall be required to be obtained solely from the Underwriter;
(ii) all compensation to be received by the Representative shall instead be
received by the Underwriter; and (iii) the provisions of section nine (9) of
this Agreement shall not apply.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the several Underwriters in accordance
with its terms.
Very truly yours,
GATEWAY AMERICAN
PROPERTIES CORPORATION
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BY:_____________________________
Harvey E. Deutsch, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
BARRON CHASE SECURITIES, INC.
BY:_____________________________
Robert T. Kirk, President
For itself and as Representative
of the several Underwriters
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SCHEDULE A
TO THE UNDERWRITING AGREEMENT
Underwriter Shares
- ----------- --------------
Barron Chase Securities, Inc. . . . . . . . . . . 1,500,000
Underwriter Warrants
- ----------- --------------
Barron Chase Securities, Inc. . . . . . . . . . . 3,000,000
44
EXHIBIT (1)(b)
GATEWAY AMERICAN PROPERTIES CORPORATION
1,500,000 Shares of Common Stock and
3,000,000 Common Stock Purchase Warrants
AGREEMENT AMONG UNDERWRITERS
Boca Raton, Florida
______________, 1997
Dr. Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Dear Sirs:
1. Underwriting Agreement. We understand that Gateway American Properties
Corporation (the "Company"), proposes to enter into an underwriting agreement
attached hereto as Exhibit A (the "Underwriting Agreement") with Barron Chase
Securities, Inc. (the "Representative") and the other underwriters named in
Schedule A to the Underwriting Agreement (the "Underwriters"), acting severally
and not jointly, with respect to the purchase of an aggregate of 1,500,000
Shares of Common Stock (the "Shares") and 3,000,000 Warrants (the "Warrants").
The Shares and Warrants are hereinafter also referred to collectively as the
"Securities". The Securities and the terms under which they are to be offered
for sale by the several Underwriters are more particularly described in the
Registration Statement, Underwriting Agreement and Prospectus.
Unless the context indicates otherwise, the term Securities shall also
include an additional 225,000 Shares and an additional 450,000 Warrants (the
"Option Securities"), all or any part of which the Representative and/or the
Underwriters are entitled to purchase from the Company upon exercise of the
Representative's over-allotment option referred to in Section 2(b) of the
Underwriting Agreement.
This is to confirm that we agree to purchase, in accordance with the terms
hereof and of the Underwriting Agreement, the number of Securities set forth
opposite our name in Schedule A, plus such number of Securities, if any, which
we may become obligated to purchase pursuant to Section 2(b) of the Underwriting
Agreement and Section 4 hereof ("our Securities"). The ratio which the number of
our Securities bears to the total number of Securities purchased pursuant to the
Underwriting Agreement is herein called "our underwriting proportion".
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2. Registration Statement and Prospectus. We have heretofore received and
examined a copy of the registration statement, as amended to the date hereof,
and the related prospectus in respect of the Securities, as filed with the
Securities and Exchange Commission. The registration statement as amended at the
time it becomes effective, including financial statements and exhibits, is
hereafter referred to as the "Registration Statement", and the prospectus in the
form first filed with the Securities and Exchange Commission pursuant to its
Rule 424(b) after the Registration Statement becomes effective is referred to as
the "Prospectus".
We confirm that the information furnished to you by us for use in the
Registration Statement and in the Prospectus is correct and is not misleading
insofar as it relates to us. We consent to being named as an Underwriter in such
Registration Statement and we are willing to accept our responsibilities under
the Securities Act of 1933 (the "Act"), as a result thereof. We confirm that we
have authorized you to advise the Company on our behalf (a) as to the statements
to be included in any Preliminary Prospectus and in the Prospectus under the
heading "Underwriting" insofar as they relate to us and (b) that there is no
other information about us required to be stated in the Registration Statement
or Prospectus. We further confirm that, upon request by you as Representative,
we have furnished a copy of any amended Preliminary Prospectus to each person to
whom we have furnished a copy of any previous Prospectus, and we confirm that we
have delivered, and we agree that we will deliver, all preliminary and final
Prospectuses required for compliance with the provisions of Rule 15c2-8 under
the Securities Exchange Act of 1934 (the "1934 Act").
3. Authority of the Representative. We authorize you, acting as
Representative of the Underwriters, to execute and deliver on our behalf, the
Underwriting Agreement, and to agree to any variation of its terms (except as to
the purchase price and the number of our Securities) which, in your judgment, is
not a variation which materially and adversely affects our rights and
obligations. We also authorize you, in your discretion and on our behalf, with
approval of counsel for the Underwriters, to approve the Prospectus and to
approve of, or object to, any further amendments to the Registration Statement,
or amendments or supplements to the Prospectus. We further authorize you to
exercise all the authority and discretion vested in the Underwriters and in you
by the provisions of the Underwriting Agreement and to take all such action as
you in your discretion may believe desirable to carry out the provisions of the
Underwriting Agreement and of this Agreement including the extension of any date
specified in the Underwriting Agreement, the exercise of any right of
cancellation or termination and to determine all matters relating to the public
advertisement of the Securities; provided, however, that, except with the
consent of Underwriters who shall have agreed to purchase in the aggregate 50%
or more of the Securities, no extension of the time by which the Registration
Statement is to become effective as provided in the Underwriting Agreement shall
be for a period in excess of two business days. We authorize you to take such
action as in your discretion may be necessary or desirable to effect the sale
and distribution of the Securities, including, without limiting the generality
of the foregoing, the right to determine the terms of any proposed offering, the
concession to Selected Dealers (as hereinafter defined) and the reallowance, if
any, to other dealers and the right to make the judgments provided for in the
Underwriting Agreement.
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<PAGE>
4. Authority of Representative as to Defaulting Underwriters. Until the
termination of this Agreement, we authorize you to arrange for the purchase by
other persons, who may include you or any of the other Underwriters, of any
Securities not taken up by any defaulting Underwriter. In the event that such
arrangements are made, the respective amounts of the Securities to be purchased
by the non-defaulting Underwriters and by such other person or persons, if any,
shall be taken as the basis for all rights and obligations hereunder; but this
shall not in any way affect the liability of any defaulting Underwriter to the
other Underwriters for damages resulting from its default, nor shall any such
default relieve any other Underwriter of any of its obligations hereunder or
under the Underwriting Agreement except as herein or therein provided.
In the event of default by one or more Underwriters in respect of their
obligations (a) under the Underwriting Agreement to purchase the Securities
agreed to be purchased by them thereunder, (b) under this Agreement to take up
and pay for any Securities purchased or (c) to deliver any Securities sold or
over-allotted by you for the respective accounts of the Underwriters pursuant to
this Agreement, or to bear their respective share of expenses or liabilities
pursuant to this Agreement, and to the extent that arrangements shall not have
been made by you for any persons to assume the obligations of such defaulting
Underwriter or Underwriters, we agree to assume our proportionate share of the
obligations of each defaulting Underwriter (subject in the case of clause (a)
above to the limitations contained in the Underwriting Agreement) without
relieving any such defaulting Underwriter of its liability therefor.
5. Offering of Securities. We understand that you will notify us when the
public offering of the Securities is to be made and of the initial public
offering price. We hereby authorize you to fix the concession to dealers and the
reallowance to dealers and in your sole discretion after the public offering to
change the public offering price, the concession and the reallowance. The
offering price at any time in effect is hereinafter referred to as the "public
offering price". We agree that we will not offer any of the Securities for sale
at a price other than the public offering price or allow any discount therefrom
except as herein otherwise specifically provided.
We agree that public advertisement of the offering shall be made by you on
behalf of the Underwriters on such date as you shall determine. We have not
advertised the offering and will not do so until after such date. We understand
that any advertisement we may then make will be on our own responsibility and at
our own expense.
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<PAGE>
We authorize you to reserve and offer for sale to institutions and other
retail purchasers and to dealers (the "Selected Dealers") to be selected by you
(such dealers may include any Underwriter ) such of our Securities as you in
your sole discretion shall determine. Any such offering to Selected Dealers may
be made pursuant to a Selling Agreement, in the form attached hereto as Exhibit
B, or otherwise , as you may determine. The form of Selling Agreement attached
hereto as Exhibit B is satisfactory to us.
We authorize you to make purchases and sales of the Securities from or to
any Selected Dealers or Underwriters at the public offering price less all or
any part of the concession and, with your consent, any Underwriter may make
purchases or sales of the Securities from or to any Selected Dealer or
Underwriter at the public offering price less all or any of the concession.
We understand that you will notify each Underwriter promptly upon the
release of the Securities for public offering as to the amount of Securities
reserved for sale to Selected Dealers and retail purchasers. Securities not so
reserved may be sold by each Underwriter for its own account, except that from
time to time you may, in your discretion, add to the Securities reserved for
sale to Selected Dealers and retail purchasers any Securities retained by an
Underwriter remaining unsold. We agree to notify you from time to time upon
request of the amount of our Securities retained by us remaining unsold. If all
the Securities reserved for offering to Selected Dealers and retail purchasers
are not promptly sold by you, any Underwriter may from time to time, with your
consent, obtain a release of all or any Securities of such Underwriter then
remaining unsold and Securities so released shall thereafter be deemed not to
have been reserved. Securities of any Underwriter so reserved which remain
unsold, or, if sold, have not been paid for at any time prior to the termination
of this Agreement may, in your discretion or upon the request of such
Underwriter, be delivered to such Underwriter for carrying purposes only, but
such Securities shall remain subject to redelivery to you upon demand for
disposition by you until this Agreement is terminated.
We agree that in connection with sales and offers to sell the Securities,
if any, made by us outside the United States or its territories or possessions,
(a) we will furnish to each person to whom any such offer or sale is made such
Prospectus, advertisement or other offering document containing information
relating to the Securities or the Company as may be required under the laws of
the jurisdiction in which such offer or sale is made and (b) we will furnish to
each person to whom any such offer is made a copy of the then current
Preliminary Prospectus and to each person to whom any such sale is made a copy
of the Prospectus referred to in the Underwriting Agreement (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto). Any Prospectus, advertisement or other offering document (other than
any such preliminary Prospectus or Prospectus) furnished by us to any person in
accordance with the preceding sentence and all such additional offering
material, if any, as we may furnish to any person (i) shall comply in all
respects with the laws of the jurisdiction in which it is so furnished, (ii)
shall be prepared and so furnished at our sole risk and expense, and (iii) shall
not contain information relating to the Securities or the Company which is
inconsistent in any respect with information contained in the then current
Preliminary Prospectus or in the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto), as the
case may be.
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We recognize the importance of a broad distribution of the Securities
among bona fide investors and we agree to use our best efforts to obtain such
broad distribution and to that end, to the extent we deem practicable, to give
priority to small orders.
We agree that we will not sell to any account over which we exercised
discretionary authority any of the Securities which we have agreed to purchase
pursuant to the Underwriting Agreement.
6. Compensation to Representative. We authorize you to charge to our
account, as compensation for your services as Representative in connection with
this offering, including the purchase from the Company of the Securities and the
management of the offering, an amount equal to $ per Share and/or $ per Warrant
in respect to each of our Securities.
7. Payment and Delivery. At or about 9:00 a.m., Eastern Time, on the
Closing Dates (including the first Closing Date and any Option Closing Date, as
defined in the Underwriting Agreement), we agree to deliver to you at your
office by wire transfer to the account of the Representative or by a certified
or official bank check payable in New York Clearing House funds to your order in
an amount equal to the initial public offering price, less the concession to the
Selected Dealers in respect of that portion of our Securities which has been
retained by or released to us for direct sales.
In the event that our funds are not received by you when required, you are
authorized, in your discretion, but shall not be obligated, to make payment for
our account pursuant to the Underwriting Agreement by advancing your own funds.
Any such payment by you shall not relieve us from any of our obligations
hereunder or under the Underwriting Agreement.
We authorize you to hold and deliver against payment any of our Securities
which have been sold or reserved for sale to Selected Dealers or retail
purchasers. Any of our Securities not sold or reserved by you as aforesaid, will
be available for delivery to us at your office as soon as practicable after such
Securities have been delivered to you.
Upon the termination of this Agreement, or prior thereto at your
discretion, you will deliver to us any of our Securities reserved by you for
sale to Selected Dealers or retail purchasers but not sold and paid for against
payment by us of an amount equal to the initial public offering price of such
Securities, less the concession to the Selected Dealers in respect thereof.
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<PAGE>
8. Authority to Borrow. We authorize you to arrange loans for our account
and to execute and deliver any notes or other instruments in connection
therewith, and to pledge as security therefor all or any part of our Securities,
as you may deem necessary or advisable to carry out the purchase, carrying and
distribution of the Securities, and to advance your own funds, charging current
interest rates.
9. Over-allotment; Stabilization. We authorize you, for the account of
each Underwriter, prior to the termination of this Agreement, and for such
longer period as may be necessary to cover any short position incurred for the
accounts of the several Underwriters pursuant to this Agreement, (a) to
over-allot in arranging for sales of Securities to Selected Dealers and others
and, if necessary, to purchase Securities (whether pursuant to exercise of the
option set forth in Section 2(b) of the Underwriting Agreement or otherwise) at
such prices as you may determine for the purpose of covering such
over-allotments, and (b) for the purpose of stabilizing the market in the
Securities, to make purchases and sales of Securities on the open market or
otherwise, for long or short account, on a when-issued basis or otherwise, at
such prices, in such amounts and in such manner as you may determine; provided,
however, that at no time shall our net commitment, either for long or short
account, under this Section exceed 15% of the amount of our Securities. Such
purchases, sales and over-allotments shall be made for the respective accounts
of the several Underwriters as nearly as practicable to their respective
underwriting proportions. We agree to take up on demand at cost any Securities
so purchased for our account and deliver on demand any Securities so sold or
over-allotted for our account. We authorize you to sell for the account of the
Underwriters any Securities purchased pursuant to this Section, upon such terms
as you may deem advisable, and any Underwriter, including yourselves, may
purchase such Securities. You are authorized to charge the respective accounts
of the Underwriters with broker's commissions or dealer's mark-up on purchases
and sales effected by you.
If pursuant to the provisions of the preceding paragraph and prior to the
termination of this Agreement (or prior to such earlier date as you may have
determined) you purchase or contract to purchase for the account of any
Underwriter in the open market or otherwise any Securities which were retained
by, or released to, us for direct sale, or any Securities which may have been
issued in exchange for such Securities, we authorize you either to charge our
account with an amount equal to the concession to Selected Dealers with respect
thereto, which amount shall be credited against the cost of such Securities, or
to require us to repurchase such Securities at a price equal to the total cost
of such purchase, including transfer taxes and broker's commissions or dealer's
mark-up, if any. In lieu of such action you may, in your discretion, withhold
any Underwriting fees in the event an Underwriter fails to retain all of the
Securities received as an allocation by such Underwriter. In addition, in your
discretion, you may sell for our account the Securities so purchased and debit
or credit our account for the loss or profit resulting from such sale.
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<PAGE>
You will notify us promptly if and when you engage in any stabilization
transaction pursuant to this Section or otherwise and will notify us of the date
of termination of stabilization. We agree to file with you any reports required
of us including "Not as Manager" reports pursuant to Rule 17a-2 under the 1934
Act not later than five business days following the date upon which
stabilization was terminated, and we authorize you to file on our behalf with
the Securities and Exchange Commission any reports required by such Rule.
10. Limitation on Transactions by Underwriters. Except as permitted by
you, we will not during the term of this Agreement bid for, purchase, sell or
attempt to induce others to purchase or sell, directly or indirectly, any
Securities other than (i) as provided in the Underwriting Agreement and in this
agreement, (ii) purchases from or sales to dealers of the Securities at the
public offering price less all or any part of the reallowance to dealers or
(iii) purchases or sales by us of any Securities as broker or unsolicited orders
for the account of others.
We represent that we have not participated in any transaction prohibited
by the preceding paragraph and that we have at all times complied with the
provisions of Regulation M and the other rules and regulations of the Commission
applicable to this offering.
We may, with your prior consent, make purchases of the Securities from and
sales to other Underwriters at the public offering price, less all or any part
of the concession to dealers.
11. Allocation and Payment of Expenses. We understand that all expenses of
a general nature incurred by you, as Representative, in connection with the
purchase, carrying, marketing and sale of the Securities shall be borne by the
Underwriters in accordance with their respective share of the underwriting
obligations. We authorize you to charge our account with our share, based on our
underwriting obligation, of the aforesaid expenses including all transfer taxes
paid of our behalf on sales or transfers made for our account.
As promptly as possible after the termination of this Agreement, the
accounts arising pursuant hereto shall be settled and paid. Your ascertainment
of all expenses and the apportionment thereof shall be conclusive.
Notwithstanding any settlement or settlements hereunder, we will remain liable
for our share of all expenses and liabilities which may be incurred by or the
accounts of the Underwriters, including any expenses and liabilities referred to
in Sections 13 and 14 hereof, which shall be determined as provided in this
Section.
12. Termination. Unless this Agreement or any provision hereof is earlier
terminated by you and except for provisions herein that contemplate obligations
surviving the termination hereof as noted in the next paragraph, this Agreement
will terminate at the close of business on the 45th day after the date hereof,
but in your discretion may be extended by you for a further period not exceeding
30 days with the consent of the Underwriters who have agreed to purchase in the
aggregate 50% or more of the Securities. No termination or suspension pursuant
to this Section shall affect your authority to cover any short position under
this Agreement.
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Upon termination of this Agreement, all authorizations, rights and
obligations hereunder shall cease, except (i) the mutual obligations to settle
accounts under Section 11, (ii) our obligation to pay any transfer taxes which
may be assessed and paid on account of any sales thereunder for our account,
(iii) our obligation with respect to purchases which may be made by you from
time to time thereafter to cover any short position incurred under this
Agreement, (iv) the provisions of Sections 13 and 14 and (v) the obligations of
any defaulting Underwriter, all of which shall continue until fully discharged.
13. Liability of Representative and Underwriters. Neither as
Representative nor individually shall you be under any liability whatsoever to
any other Underwriter nor shall you be under any liability in respect of any
matters connected herewith or action taken by you pursuant hereto, except for
the obligations expressly assumed by you in this Agreement. You shall be under
no liability for or in respect of the value for the Securities or the validity
of the form thereof, the Registration Statement, the Prospectus, or agreements
or other instruments executed by the Company or others; or for or in respect of
the delivery of the Securities; or for the performance by the Company or others
of any agreement on its or their part.
Nothing herein contained shall constitute the several Underwriters an
association, or partners with us or with each other, or, except as herein
expressly provided, render any Underwriter liable for the obligation of any
other Underwriter. The rights, obligations and liabilities of each of the
Underwriters are several, in accordance with their respective obligations, and
not joint. Notwithstanding any settlement of accounts under this Agreement, we
agree to pay our underwriting proportion of the amount of any claim demand or
liability which may be asserted against and discharged by the Underwriters or
any of them, based on the claim that the Underwriters constitute an association,
unincorporated business or other entity, and also to pay our underwriting
proportion of expenses approved by you incurred by the Underwriters, or any of
them, in contesting any such claims, demands or liabilities. If the Underwriters
shall be deemed to constitute a partnership for income tax purposes, it is the
intent of each Underwriter to be excluded from the application of Subchapter K,
Chapter 1, Subtitle A of the Internal Revenue Code of 1954, as amended. Each
Underwriter elects to be so excluded and agrees not to take any position
inconsistent with such election. Each Underwriter authorizes you, in your
discretion, to execute and file on behalf of the Underwriters such evidence of
election as may be required by the Internal Revenue Service.
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<PAGE>
14. Indemnification and Future Claims.
(a) We agree to indemnify and hold harmless you and each other
Underwriter, and each person, if any, who controls you and such other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, and
to reimburse their expenses, to the extent and upon the terms that we agree to
indemnify and hold harmless the Company and to reimburse expenses as set forth
in the Underwriting Agreement. Our indemnity agreement set forth in this Section
remain in full force and effect regardless of any investigation made by or on
behalf of such other Underwriter or controlling person and shall survive the
delivery of and payment for the Securities and the termination of this
Agreement.
(b) In the event that at any time any claim or claims shall be asserted
against you, as Representative, or otherwise involving the Underwriters
generally, relating to the Registration Statement or any Preliminary Prospectus
or the Prospectus, as such may be from time to time amended or supplemented, the
public offering of the Securities or any of the transactions contemplated by
this Agreement, we authorize you to take such other action as you shall deem
necessary or desirable under the circumstances, including settlement of any such
claim or claims if such course of action shall be recommended by counsel
retained by you. We agree to pay to you on request, our underwriting proportion
of all expenses incurred by you (including, but not limited to, disbursements
and fees of counsel so retained) in investigating and defending against such
claim or claims and our underwriting proportion of any liability incurred by you
in respect of such claim or claims, whether such liability shall be the result
of a judgment or as a result of any such settlement.
15. Title to Securities. The Securities purchased by, or on behalf of, the
respective Underwriters shall remain the property of such Underwriters until
sold, and title to any such Securities shall not in any event pass to the
Representative by virtue of any of the provisions of this Agreement.
16. Blue Sky Matters. It is understood that you assume no responsibility
with respect to the right of any Underwriter or other person to offer or to sell
Securities in any jurisdiction, not withstanding any information which you may
furnish as to the jurisdictions under the securities laws of which it is
believed the Securities may be sold.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Florida.
18. Capital Requirements. We confirm that the incurrence by us of our
obligation under this Agreement and under the Underwriting Agreement will not
place us in violation of the net capital requirements of Rule 15c3-1 under the
1934 Act or of any applicable rules relating to capital requirements of any
securities exchange to which we are subject.
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19. Miscellaneous. Any notice from you to us shall be deemed to have been
duly given if telefaxed or telegraphed, and confirmed by mail to us at the
address set forth in the Underwriters Questionnaire furnished by us to you. Any
notice from us to you shall be deemed to have been duly given if telefaxed or
telegraphed, and confirmed by mail to you at 7700 West Camino Real, Boca Raton,
Florida 33433, Attention: Robert T. Kirk.
We understand that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"). We hereby confirm that we are
actually engaged in the investment banking or securities business and are either
(i) a member in good standing of the NASD or (ii) a dealer with its principal
place of business located outside the United States, its territories and its
possession and not registered as a broker or dealer under the 1934 Act who
agrees not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein (except
that we may participate in sales to Selected Dealers and others under Section 5
of this Agreement). We hereby agree that if we are members of the NASD, we will
comply with all of the provisions of the NASD Conduct Rules. If we are a foreign
dealer, we agree to comply with Rule 2740 of the NASD Conduct Rules. If we are a
foreign dealer and not a member of the NASD, we agree to comply with the NASD's
interpretation with respect to free-riding and withholding, as though we were a
member of the NASD, with the provisions of Rules 2730 and 2750 of the NASD
Conduct Rules, and to comply with Rule 2420 of the NASD Conduct Rules as that
applies to a non-member foreign dealer. In connection with sales and offers to
sell Securities made by us outside the United States, its territories and
possessions (i) we will either furnish to each person to whom any such sale or
offer is made a copy of the then current Preliminary Prospectus or the
Prospectus, as the case may be, or inform such person that such Preliminary
Prospectus or Prospectus will be available upon request, and (ii) we will
furnish to each person to whom any such sale or offer is made such Prospectus,
advertisement or other offering document containing information relating to the
Securities or the Company as may be required under the law of the jurisdiction
in which such sale or offer is made. Any Prospectus, advertisement or other
offering document furnished by us to any person in accordance with the preceding
sentence and any such additional offering material as we may furnish to any
person (i) shall comply in all respects with the law of the jurisdiction in
which it is so furnished, (ii) shall be prepared and so furnished at our sole
risk and expenses and (iii) shall not contain information relating to the
Securities or the Company which is inconsistent in any respect with the
information contained in the then current preliminary Prospectus or in the
Prospectus, as the case may be.
We understand that, in consideration of your services in connection with
the public offering of the Securities, the Company has agreed with you
individually, and not as Representative of the Underwriters (a) to sell to you
the Representative's Warrants referred to in the Underwriting Agreement for the
sum of $10; (b) to pay to you a non-accountable expense allowance referred to in
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the Underwriting Agreement; (c) to pay you a financial advisory fee referred to
in the Underwriting Agreement; and (d) to enter into the Merger and Acquisition
Agreement (the "M/A Agreement") referred to in the Underwriting Agreement. In
addition, you may, at your sole discretion, elect to exercise the over-allotment
option individually. We confirm to you that we shall make no claim to the
Representative's Warrants (or any offering of the Company's securities related
thereto, or any right to participate in any capacity in any offering resulting
therefrom), any rights related thereto, the Company's securities underlying the
Representative's Warrants, the non-accountable expense allowance, the financial
advisory fee, or, to the over-allotment option to the extent you elect to
exercise such option individually, or the M/A Agreement. You confirm to us that
we shall have no obligation or liabilities with respect to the purchase of the
Representative's Warrants, the exercise thereof, the Company's securities
underlying the Representative's Warrants (or any offering of the Company's
securities related thereto, unless we shall subsequently agree to become an
underwriter for, or otherwise participate in any such offering) or the
non-accountable expense allowance, the financial advisory agreement, the M/A
Agreement, or, the over-allotment option, to the extent you elect to exercise
such option individually.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
By:______________________________________
(Attorney-in-fact for each of the
several Underwriters named in Schedule
A to the attached Underwriting
Agreement.)
Confirmed as of the date first above written:
BARRON CHASE SECURITIES, INC.
By:_________________________
Robert T. Kirk, President
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby
irrevocably constitute and appoint Robert T. Kirk and/or Barron Chase
Securities, Inc., the true and lawful agent and attorney-in-fact of the
undersigned with respect to all matters arising in connection with the
undersigned's acting as one of the Underwriters of the proposed offering of an
aggregate of
1,500,000 Shares of Common Stock and
3,000,000 Common Stock Purchase Warrants
of
GATEWAY AMERICAN PROPERTIES CORPORATION
(such securities being more fully described in the Registration Statement
No.________ filed by Gateway American Properties Corporation pursuant to the
Securities Act of 1933) with full power and authority to execute and deliver for
and on behalf of the undersigned all such agreements, consents and documents in
connection therewith as said agent and attorney-in-fact may deem advisable. The
undersigned hereby gives to said agent and attorney-in-fact full power and
authority to act in the premises, including, but not limited to, the power an
authority to execute and deliver an Agreement Among Underwriters relating to
such financing, to agree to increase or decrease the size of the offering to an
amount as shall be approved by Barron Chase Securities, Inc., as Representative
of the Underwriters, and to appoint a substitute or substitutes to act hereunder
with the same power and authority as said agent and attorney-in-fact would have
if personally acting. The undersigned hereby ratifies and confirms all that said
agent and attorney-in-fact, or any substitute or substitutes, may do by virtue
hereof.
WITNESS the due execution hereof at ___________________________________
______________________________________________________________________________
(Street) (City)
this _______ day of _____________________ , 1997.
__________________________
Firm Name
By:
_________________________ ___________________________
Witness Partner, Officer or
Sole Proprietor
(indicate which)
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<PAGE>
CORPORATE ACKNOWLEDGEMENT
STATE OF )
) ss.:
COUNTY OF )
On this _____ day of_____________, 1997, before me personally
came____________________, to me know, who being by me duly sworn, deposes and
say that he resides at No._____________________________________________________
____________________________________ : that he is the of _______________ , the
aforementioned corporation, which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; and that it was so affixed by order the Board of Directors
of said corporation; and that he signed his name thereto by like order.
_______________________________
Notary Public
My Commission Expires:
PARTNERSHIP ACKNOWLEDGEMENT
STATE OF )
) ss.:
COUNTY OF )
On this ________ day of _______________ , 1997, before me personally came
__________________, one of the members of the firm of
___________________________ , to me known and known to me to be the individual
who executed the foregoing instrument and acknowledged that he executed, and was
duly authorized to execute, the same as and for the act and deed of said firm.
________________________
Notary Public
My Commission Expires:
________________________
Unless prior to 5:00 p.m. Eastern Time, on the date immediately preceding
the proposed public offering date, Robert T. Kirk of the Syndicate Department of
Barron Chase Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433
receives a telegram or letter from you revoking the Power of Attorney, the power
and authority granted by such Power of Attorney may be exercised in accordance
with the terms thereof.
13
EXHIBIT (1)(c)
GATEWAY AMERICAN PROPERTIES CORPORATION
1,500,000 Shares of Common Stock and
3,000,000 Common Stock Purchase Warrants
SELECTED DEALER AGREEMENT
Boca Raton, Florida
________________, 1997
Gentlemen:
1. Barron Chase Securities, Inc. (the "Representative") and the other
Underwriters named in the Prospectus (collectively the "Underwriters"), acting
through us as the Representative, are severally offering for sale an aggregate
of 1,500,000 Shares of Common Stock (the "Shares") and 3,000,000 Warrants (the
"Warrants") (collectively the "Firm Securities") of Gateway American Properties
Corporation (the "Company"), which we have agreed to purchase from the Company,
and which are more particularly described in the Registration Statement,
Underwriting Agreement and Prospectus. In addition, the several Underwriters
have been granted an option to purchase from the Company up to an additional
225,000 Shares and an additional 450,000 Warrants (the "Option Securities") to
cover overallotments in connection with the sale of the Firm Securities. The
Firm Securities and any Option Securities purchased are herein called the
"Securities". The Securities and the terms under which they are to be offered
for sale by the several Underwriters are more particularly described in the
Prospectus.
2. The Securities are to be offered to the public by the several
Underwriters at the price per Share and price per Warrant set forth on the cover
page of the Prospectus (the "Public Offering Price"), in accordance with the
terms of offering set forth in the Prospectus.
3. Some or all of the several Underwriters are severally offering, subject to
the terms and conditions hereof, a portion of the Securities for sale to certain
dealers who are actually engaged in the investment banking or securities
business and who are either (a) members in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"), or (b) dealers with their
principal places of business located outside the United States, its territories
and its possessions and not registered as brokers or dealers under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), who have agreed
not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein (such
dealers who shall agree to sell Securities hereunder being herein called
"Selected Dealers") at the public offering price, less a selling concession
(which may be changed) of not in excess of $________ per Share and/or $____
per Warran payable as hereinafter provided, out of which concession an amount
1
<PAGE>
not exceeding$_____ per Share and/or $_____ per Warrant may be reallowed by
Selected Dealers to members of the NASD or foreign dealers qualified as
aforesaid. The Selected Dealers who are members of the NASD agree to comply with
all of the provisions of the NASD Conduct Rules. Foreign Selected Dealers agree
to comply with the provisions of Rule 2740 of the NASD Conduct Rules, and, if
any such dealer is a foreign dealer and not a member of the NASD, such Selected
Dealer also agrees to comply with the NASD's Interpretation with Respect to
Free-Riding and Withholding, and to comply, as though it were a member of the
NASD, with the provisions of Rules 2730 and 2750 of the NASD Conduct Rules, and
to comply with Rule 2420 of the NASD Conduct Rules as that Rule applies to
non-member foreign dealers. Some or all of the Underwriters may be included
among the Selected Dealers. Each of the Underwriters has agreed that, during the
term of this Agreement, it will be governed by the terms and conditions hereof
whether or not such Underwriter is included among the Selected Dealers.
4. Barron Chase Securities, Inc. shall act as Representative on behalf of
the Underwriters and shall have full authority to take such action as we may
deem advisable in respect to all matters pertaining to the public offering of
the Securities.
5. If you desire to act as a Selected Dealer, and purchase any of the
Securities, your application should reach us promptly by facsimile, letter or
telegraph at the offices of Barron Chase Securities, Inc., 7700 West Camino
Real, Boca Raton, Florida 33433, Attention: Robert T. Kirk. We reserve the right
to reject subscriptions in whole or in part, to make allotments, and to close
the subscription books at any time without notice. The Securities allotted to
you will be confirmed, subject to the terms and conditions of this Selected
Dealer Agreement ("Agreement").
6. The privilege of subscribing for the Securities is extended to you only
on behalf of such of the Underwriters, if any, as may lawfully sell the
Securities to Selected Dealers in your state or other applicable jurisdiction.
7. Any Securities to be purchased by you under the terms of this Agreement
may be immediately reoffered to the public in accordance with the terms of
offering as set forth herein and in the Prospectus, subject to the securities or
Blue Sky laws of the various states or other jurisdictions.
You agree to pay us on demand for the accounts of the several Underwriters
an amount equal to the Selected Dealer concession as to any Securities purchased
by you hereunder which, prior to the completion of the public offering as
defined in paragraph 8 below, we may purchase or contract to purchase for the
account of any Underwriter and, in addition, we may charge you with any broker's
commission and transfer tax paid in connection with such purchase or contract to
purchase. Certificates for Securities delivered on such repurchases need not be
the identical certificates originally purchased.
2
<PAGE>
You agree to advise us from time to time, upon request, of the number of
Securities purchased by you hereunder and remaining unsold at the time of such
request, and, if in our opinion any such Securities shall be needed to make
delivery of the Securities sold or overallotted for the account of one or more
of the Underwriters, you will, forthwith upon our request, grant to us for the
account or accounts of such Underwriter or Underwriters the right, exercisable
promptly after receipt of notice from you that such right has been granted, to
purchase, at the Public Offering Price less the selling concession or such part
thereof as we shall determine, such number of Securities owned by you as shall
have been specified in our request.
No expenses shall be charged to Selected Dealers. A single transfer tax,
if payable, upon the sale of the Securities by the respective Underwriters to
you will be paid when such Securities are delivered to you. However, you shall
pay any transfer tax on sales of Securities by you and you shall pay your
proportionate share of any transfer tax (other than the single transfer tax
described above) in the event that any such tax shall from time to time be
assessed against you and other Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Securities other than as contained in the Prospectus.
8. The first three paragraphs of Section 7 hereof will terminate when we
shall have determined that the public offering of the Securities has been
completed and upon telefax notice to you of such termination, but, if not
theretofore terminated, they will terminate at the close of business on the 30th
full business day after the date hereof; provided, however, that we shall have
the right to extend such provisions for a further period or periods, not
exceeding an additional 30 days in the aggregate upon facsimile notice to you.
9. For the purpose of stabilizing the market in the Securities, we have
been authorized to make purchases and sales of the Securities of the Company, in
the open market or otherwise, for long or short account, and, in arranging for
sales, to overallot.
10. On becoming a Selected Dealer, and in offering and selling the
Securities, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You
confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating to
the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act) and confirm that you have complied and will
comply therewith.
3
<PAGE>
We hereby confirm that we will make available to you such number of copies
of the Prospectus (as amended or supplemented) as you may reasonably request for
the purposes contemplated by the 1933 Act or the 1934 Act, or the rules and
regulations thereunder.
11. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Securities are qualified
for sale under the respective securities or Blue Sky laws of such states and
other jurisdictions, but neither we nor any of the Underwriters assume any
obligation or responsibility as to the right of any Selected Dealer to sell the
Securities in any state or other jurisdiction or as to the eligibility of the
Securities for sale therein. We will, if requested, file a Further State Notice
in respect of the Securities pursuant to Article 23-A of the General Business
Law of the State of New York.
12. No Selected Dealer is authorized to act as our agent or as agent for
the Underwriters, or otherwise to act on our behalf or on behalf of the
Underwriters, in offering or selling the Securities to the public or otherwise
or to furnish any information or make any representation except as contained in
the Prospectus.
13. Nothing will constitute the Selected Dealers an association or other
separate entity or partners with the Underwriters, or with each other, but you
will be responsible for your share of any liability or expense based on any
claim to the contrary. We and the several Underwriters shall not be under any
liability for or in respect of value, validity or form of the Securities, or the
delivery of the certificates for the Securities, or the performance by anyone of
any agreement on its part, or the qualification of the Securities for sale under
the laws of any jurisdiction, or for or in respect of any other matter relating
to this Agreement, except for lack of good faith and for obligations expressly
assumed by us or by the Underwriters in this Agreement and no obligation on our
part shall be implied herefrom. The foregoing provisions shall not be deemed a
waiver of any liability imposed under the 1933 Act.
14. Payment for the Securities sold to you hereunder is to be made at the
Public Offering Price less the above-mentioned selling concession on such time
and date as we may advise, at the office of Barron Chase Securities, Inc., 7700
West Camino Real, Boca Raton, Florida 33433, Attention: Robert T. Kirk, by wire
transfer to the account of the Representative or by a certified or official bank
check in current New York Clearing House funds, payable to the order of Barron
Chase Securities, Inc., as Representative, against delivery of certificates for
the Securities so purchased. If such payment is not made at such time, you agree
to pay us interest on such funds at the prevailing broker's loan rate.
4
<PAGE>
15. Notices to us should be addressed to us at the offices of Barron Chase
Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433, Attention:
Robert T. Kirk. Notices to you shall be deemed to have been duly given if
telephoned, telefaxed, telegraphed or mailed to you at the address to which this
Agreement or accompanying Selected Dealer letter is addressed.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida without giving effect to the choice of law or
conflicts of law principles thereof.
17. If you desire to purchase any Securities and act as a Selected Dealer,
please confirm your application by signing and returning to us your confirmation
on the duplicate copy of the Selected Dealer letter enclosed herewith, even
though you may have previously advised us thereof by telephone, letter or
telegraph. Our signature hereon may be by facsimile.
Very truly yours,
BARRON CHASE SECURITIES, INC.
As Representative of the Several
Underwriters
BY:______________________________
Authorized Officer
5
<PAGE>
SELECTED DEALER LETTER
Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
We hereby subscribe for _________ Shares and/or ______ Warrants of
Gateway American Properties Corporation in accordance with the terms and
conditions stated in the foregoing Selected Dealers Agreement and this
Selected Dealer Letter. We hereby acknowledge receipt of the Prospectus
referred to in the Selected Dealers Agreement and this Selected Dealer
Letter. We further state that in purchasing said Shares and/or Warrants we
have relied upon said Prospectus and upon no other statement whatsoever,
whether written or oral. We confirm that we are a dealer actually engaged
in the investment banking or securities business and that we are either (i)
a member in good standing of the National Association of Securities
Dealers, Inc. ("NASD"); or (ii) a dealer with its principal place of
business located outside the United States, its territories and its
possessions and not registered as a broker or dealer under the Securities
Exchange Act of 1934, as amended, who hereby agrees not to make any sales
within the United States, its territories or its possessions or to persons
who are nationals thereof or residents therein. As a member of the NASD, we
hereby agree to comply with all of the provisions of NASD Conduct Rules. If
we are a foreign Selected Dealer, we agree to comply with the provisions of
Rule 2740 of the NASD Conduct Rules, and if we are a foreign dealer and not
a member of the NASD, we agree to comply with the NASD's interpretation
with respect to free-riding and withholding, and agree to comply, as though
we were a member of the NASD, with provisions of Rules 2730 and 2750 of the
NASD Conduct Rules, and to comply with Rule 2420 of the NASD Conduct Rules
as that Rule applies to non-member foreign dealers.
Firm:___________________________
By:_____________________________
(Name and Position)
Address:_________________________________
_________________________________
Telephone No.:___________________________
Dated:______________________, 1997
6
EXHIBIT (2)(a)
AGREEMENT, PLAN AND ARTICLES OF MERGER
THIS AGREEMENT, PLAN AND ARTICLES OF MERGER, is made and entered into as
of June 30, 1997 between GATEWAY AMERICAN PROPERTIES CORPORATION, a Florida
corporation (hereinafter called "GAPC-Florida") and GATEWAY AMERICAN PROPERTIES
CORPORATION, a Colorado corporation (hereinafter called "GAPC-Colorado" or the
"Surviving Corporation") (GAPC-Florida and GAPC-Colorado being sometimes
collectively referred to herein as the "Constituent Corporations").
R E C I T A L S
A. GAPC-Florida is a corporation duly organized and existing under the
laws of the State of Florida, having its offices at Sarasota, Florida.
B. GAPC-Colorado is a corporation organized and existing under the laws of
the State of Colorado, having its offices in Denver, Colorado.
C. GAPC-Florida, under its Articles of Incorporation, as amended, has
authorized capital of 10,000,000 shares of Common Stock, $.01 par value per
share. As of the date hereof, GAPC-Florida has outstanding 436,000 shares of its
Common Stock.
D. GAPC-Colorado, under its Articles of Incorporation has authorized
capital of 20,000,000 shares of Common Stock, $.01 par value per share, of which
327,010 shares of Common Stock will be issued and outstanding on the Effective
Date of the Merger (as described herein) and Common Stock Purchase Warrants
providing for the issuance, upon full exercise thereof, of 300,000 additional
shares of its Common Stock. Additionally, at a time subsequent to the Effective
Date of the Merger, GAPC-Colorado anticipates the issuance of an additional
maximum 1,725,000 shares of its Common Stock and 3,450,000 Common Stock Purchase
Warrants as a result of the conclusion of a public offering of such shares and
warrants and 2,025,000 shares of the Common Stock in connection with the
acquisition by GAPC-Colorado of all of the outstanding Membership Interest of
Gateway American Properties, L.L.C., a Colorado limited liability company.
E. The respective Boards of Directors and shareholders of GAPC-Florida and
GAPC-Colorado have determined that it is desirable and in the best interests of
such shareholders to merge GAPC-Florida into GAPC-Colorado pursuant to the
provisions of the Florida Business Corporation Act and the Colorado Business
Corporation Act.
<PAGE>
NOW, THEREFORE, GAPC-Florida and GAPC-Colorado, in consideration of the
mutual covenants, agreements and conditions set forth herein, and in accordance
with the laws of the States of Florida and Colorado, hereby agree as follows:
ARTICLE I - Effect of Merger
Upon the Effective Date of the Merger (as described herein), which for
financial accounting and reporting services shall be deemed to be June 30, 1997:
1.01. GAPC-Florida shall be merged with and into GAPC-Colorado, which
shall be the Surviving Corporation, and GAPC-Colorado shall merge GAPC-Florida
into itself (such merger being sometimes called herein the "Merger"). The
separate existence of GAPC-Florida shall cease except to the extent provided by
the laws of the State of Florida in the case of a corporation after its merger
into another corporation. As appropriate, the directors of GAPC-Florida shall
take such action, or allow such events to occur, as shall effect the dissolution
of GAPC-Florida except as its continued existence may be required pursuant to
the laws of the State of Florida or otherwise, including, without limitation,
the provisions of Chapter 607.1404 and 607.1405, Florida Statutes, as amended.
The corporate existence of GAPC-Colorado shall continue unaffected and
unimpaired by the Merger, and as the Surviving Corporation, GAPC-Colorado shall
continue to be governed by the laws of the State of Colorado.
1.02. As the Surviving Corporation, GAPC-Colorado shall thereupon and
thereafter possess all the rights, privileges, immunities and franchises of a
public as well as a private nature of the Constituent Corporations with the
exception of certain claims proprietary to GAPC-Florida which shall be preserved
to GAPC-Florida pursuant to the statutory provisions cited in Section 1.01 above
except to the extent released or discharged. Subject only to the provisions of
the immediately preceding sentence, all property, real, personal and mixed, all
debts due on whatever account, including without limitation subscriptions to
shares, all other choses in action, and all and every other interest of or
belonging to or due to the Constituent Corporations shall be taken and deemed to
be transferred to and invested in the Surviving Corporation without further act
or deed; and the title to any real estate, or any interest therein, vested in
the Constituent Corporations shall not revert or in any way be impaired by
reason of the Merger.
1.03. The Surviving Corporation shall thenceforth be responsible and
liable for all the liabilities and obligations of the respective Constituent
Corporations, and any claim existing or action or proceeding pending against
either of the Constituent Corporations may be prosecuted as if the Merger had
not taken place, or the Surviving Corporation may be substituted in its place.
Neither the rights of creditors nor any liens upon the property of either of the
Constituent Corporations shall be impaired by the Merger.
2
<PAGE>
1.04. All corporate acts, plans, policies, arrangements, approvals and
authorizations of GAPC-Florida, its respective shareholders, Board of Directors,
officers and agents, which were valid and effective immediately prior to the
Effective Date of the Merger, shall be taken for all purposes as the acts,
plans, policies, arrangements, approvals and authorizations of the Surviving
Corporation, and shall be as effective and binding thereon as they were with
respect to GAPC-Florida.
1.05. From time to time thereafter, as and when requested by
GAPC-Colorado, or by its successors and assigns, the officers and directors of
GAPC-Florida last in office shall and will execute and deliver such deeds and
other instruments, and take or cause to be taken such further action as shall be
necessary in order to vest, perfect, or confirm, of record or otherwise,
GAPC-Colorado's title to and possession of all the properties, rights,
privileges, immunities, powers and franchises of GAPC-Florida and to otherwise
carry out the purposes of this Agreement, Plan and Articles of Merger.
ARTICLE II - Articles of Incorporation,
Bylaws and Directors
2.01. The Articles of Incorporation of GAPC-Colorado, as in effect on the
Effective Date of the Merger, shall continue in full force and effect as the
Articles of Incorporation of the Surviving Corporation, subject always to the
right of the Surviving Corporation to amend, alter, change or repeal its
Articles of Incorporation in accordance with the laws of the State of Colorado.
2.02. The Bylaws of GAPC-Colorado, as existing and constituted on the
Effective Date of the Merger, shall constitute the Bylaws of the Surviving
Corporation until such Bylaws are altered, amended or repealed in accordance
with the provisions thereof and the provisions of the laws of the State of
Colorado.
2.03. The directors and officers of the Surviving Corporation, from and
after the Effective Date of the Merger shall be:
Harvey E. Deutsch - Chairman, President and Director
Joel H. Farkas - Vice President-Finance Marketing,
Treasurer, Secretary and Director
3
<PAGE>
Michael A. Messina - Vice President-Development and
Director
ARTICLE III - Exchange of Shares
As of the Effective Date of the Merger, the record holders of the
outstanding Common Stock of GAPC-Florida shall be issued an aggregate of 327,000
shares of the Common Stock, $.01 par value, of GAPC-Colorado, allocated to the
respective record holders on the basis of .75 of a share of GAPC-Colorado for
each one share of GAPC-Florida; provided, however, that no fractional shares of
GAPC-Colorado will be issued and any resultant fractional shares will be rounded
off to the nearest full share with any remaining shares allocated among the
record holders by the President of GAPC-Florida in his sole discretion. Such
record holders shall also be issued Common Stock Purchase Warrants providing
for, upon full exercise in accordance with the terms thereof, the issuance of
400,000 shares of Common Stock, $.01 par value, of GAPC-Colorado.
ARTICLE IV - Execution, Effect and Effectiveness
4.01. Upon the execution of this Agreement, Plan and Articles of Merger by
the directors and shareholders of the Constituent Corporations, this document
shall serve as minutes of written action of such directors and of the record
holders of all of the outstanding Common Stock, $.01 par value, of GAPC-Colorado
(as permitted by the Colorado Business Corporation Act), and of the record
holders of a majority of the outstanding Common Stock of GAPC-Florida, as
permitted pursuant to the Florida Business Corporation Act, evidencing the
adoption by such directors and shareholders of the Plan of Merger incorporated
herein as of the date hereof.
4.02. The date of adoption of this Agreement, Plan and Articles of Merger
shall be June 30, 1997 and such has been adopted by the members of the Boards of
Directors and the holders of a majority of the outstanding shares of the
Con-stituent Corporations as of such date, which number was sufficient for
approval.
4.03. This Agreement, Plan and Articles of Merger shall be filed with the
Department of State of the State of Florida and the Secretary of State of
Colorado in accordance with the provisions of the Florida Business Corporation
Act and the Colorado Business Corporation Act. The Merger shall become effective
in accordance with applicable law, and as described above (such date of
effectiveness being called herein the "Effective Date of the Merger").
4
<PAGE>
ARTICLE V - Miscellaneous Matters
5.01. This Agreement, Plan and Articles of Merger may be executed in one
or more counterparts, all of which shall be considered one and the same
Agreement, and shall become a binding agreement when one or more counterparts
have been signed by each of the parties and delivered to the other party.
5.02. This Agreement, Plan and Articles of Merger shall be governed by,
and construed in accordance with, the laws of the States of Florida and Colorado
and in the event of a conflict of laws, Colorado law shall prevail except with
respect to the provisions of Section 1.01 hereof.
5.03. The headings of the several Articles herein are inserted for the
convenience of reference only, and are not intended to be a part of, or to
affect the meaning or interpretation of, this instrument.
5.04. This instrument shall be binding upon, and inure to the benefit of,
the parties hereto and their respective successors, assigns, heirs and
representatives.
IN WITNESS WHEREOF, this Agreement, Plan and Articles of Merger has been
adopted by the directors and shareholders of each of the Constituent
Corporations and has been executed by the President and Secretary of each of the
Constituent Corporations, and acknowledged by the President of each of the
Constituent Corporations, all as of the date first above written.
GATEWAY AMERICAN PROPERTIES
CORPORATION, a Florida corporation
By /s/ James T. McDonough
-------------------------------
James T. McDonough,
constituting the sole director
and Record Holder
of 85,180 shares of Common Stock
By /s/ William T. Kirtley
-------------------------------
William T. Kirtley, the Record
Holder of 16,295 shares of Common
Stock
5
<PAGE>
By /s/ William Lee Pryor III
-------------------------------
William Lee Pryor III, the Record
Holder of 4,918 shares of Common
Stock
By /s/ Maurice L. Lariviere
-------------------------------
Maurice L. Lariviere, the Record
Holder of 12,295 shares of Common
Stock
By /s/ Margaret Mountain
-------------------------------
Margaret Mountain, the Record
Holder of 16,393 shares of Common
Stock
By /s/ Randall J. Coyne
-------------------------------
Randall J. Coyne, the Record
Holder of 12,295 shares of Common
Stock
By /s/ Marshall D. Davis
-------------------------------
Marshall D. Davis, the Record
Holder of 20,393 shares of Common
Stock
By /s/ Ralph H. Grills, Jr.
-------------------------------
Ralph H. Grills, Jr., the Record
Holder of 8,196 shares of Common
Stock
6
<PAGE>
By /s/ Ralph H. Grills, Jr.
-------------------------------
5 I Partnership, Ralph H. Grills,
Jr., General Partner, the Record
Holder of 8,196 shares of Common
Stock
By /s/ Howard J. Manetti
-------------------------------
Howard J. Manetti, the Record
Holder of 22,951 shares of Common
Stock
By /s/ Allyson Palmer
-------------------------------
Allyson Palmer, the Record Holder
of 6,000 shares of Common Stock
By /s/ Carroll V. SoRelle
-------------------------------
Carroll F. SoRelle, the Record
Holder of 7,377 shares of Common
Stock
GATEWAY AMERICAN PROPERTIES
CORPORATION, a Colorado corporation
By /s/ Harvey E. Deutsch
-------------------------------
Harvey E. Deutsch, Director and
the sole shareholder of GAPC-
Colorado
7
<PAGE>
By /s/ Joel H. Farkas
-------------------------------
Joel H. Farkas, Director
By /s/ Michael A. Messina
-------------------------------
Michael A. Messina, Director
8
EXHIBIT (2)(b)
AMENDED AND RESTATED
AGREEMENT PROVIDING FOR SALE AND EXCHANGE
OF CAPITAL STOCK
By and Among
Gateway American Properties Corporation,
a Florida corporation; Gateway American
Properties Corporation, a Colorado
corporation; Gateway American Properties,
L.L.C., a Colorado limited liability
company and the Holders of all Outstanding
Membership Interest of Gateway American
Properties, L.L.C.
As of January 27, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - Sale and Exchange of GAPC Shares........................... 6
1.1 With Respect to GAPC............................................. 6
1.2 With the Holders................................................. 7
1.3 With the Public.................................................. 8
ARTICLE II - Certain Matters Affecting GAPC Shares..................... 8
2.1 Certain Shares Restricted........................................ 8
2.2 Registration of GAPC Shares and Public Warrants.................. 9
ARTICLE III - Action Prior to Closing Date............................. 10
3.1 Corporate Action of GAPC......................................... 10
3.2 Corporate Action of GAPC-Florida................................. 10
3.3 Action by Gateway and Holders.................................... 10
3.4 Public Offering of GAPC Shares and Public Warrants............... 11
3.5 Allocation and Responsibility of Transaction Costs and Expenses.. 12
ARTICLE IV - Representations of Gateway and the Holders................ 13
4.1 Entity Status.................................................... 13
4.2 Business Activities.............................................. 13
4.3 Capitalization - Outstanding Membership Interests................ 14
4.4 Material Contracts............................................... 14
4.5 Financial Condition.............................................. 14
4.6 Environmental Matters............................................ 15
4.7 Taxes - Returns.................................................. 16
4.8 Sale of Gateway Securities....................................... 16
4.9 Litigation....................................................... 16
4.10 Finder's Fees.................................................... 17
4.11 Accuracy of Provided Information................................. 17
ARTICLE V - Representations of GAPC-Florida............................ 17
5.1 Corporate Status................................................. 17
5.2 Corporation Action............................................... 18
5.3 Subsidiaries..................................................... 18
5.4 Financial Condition.............................................. 18
5.5 Capitalization of GAPC-Florida................................... 20
5.6 Title to Properties.............................................. 20
5.7 Business Activities of Apollo and GAPC-Florida................... 20
5.8 Taxes and Tax Returns............................................ 21
5.9 Litigation....................................................... 21
5.10 Material Contracts............................................... 21
5.11 Registration Statement on Form SB-2.............................. 22
5.12 Environmental Matters............................................ 22
i
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Page
ARTICLE VI - Representations of GAPC................................... 23
6.1 Corporate Status................................................. 23
6.2 Corporate Action................................................. 23
6.3 Subsidiaries..................................................... 23
6.4 Financial Condition.............................................. 23
6.5 Capitalization of GAPC........................................... 25
6.6 Title to Properties.............................................. 25
6.7 Business Activities of GAPC...................................... 25
6.8 Taxes and Tax Returns............................................ 25
6.9 Litigation....................................................... 26
6.10 Material Contracts............................................... 26
6.11 Registration Statement on Form SB-2.............................. 26
6.12 Environmental Matters............................................ 27
ARTICLE VII - Pre-Closing Covenants of Gateway and Holders............. 27
7.1 No Change in Business............................................ 27
7.2 No Contracts..................................................... 28
7.3 Issuance of Additional Membership Interest....................... 28
7.4 In General....................................................... 28
7.5 Action Contemplated by Article III, Section 3.4.................. 29
ARTICLE VIII - Pre and Post-Closing Covenants of GAPC.................. 29
8.1 Action Contemplated by Article III, Section 3.5.................. 29
8.2 Basic Documents.................................................. 29
8.3 No Contracts..................................................... 29
8.4 Composition of Board of Directors of GAPC........................ 30
8.5 Officers of GAPC................................................. 31
8.6 Remuneration to James T. McDonough............................... 31
8.7 Stock Option Plan of GAPC........................................ 31
ARTICLE IX - Closing of Agreement Transactions and Public Offering..... 32
9.1 Concurrent Closing of Sale, Exchange and Public Offering......... 32
9.2 Time and Place of Closing........................................ 33
9.3 Deliveries at Closing............................................ 33
ARTICLE X - Conditions Precedent to Obligations of GAPC-Florida
and GAPC................................................... 35
10.1 Execution by all Holders......................................... 35
10.2 No Adverse Development........................................... 35
10.3 No Breach of Representations, Warranties or Covenants of the
Agreement....................................................... 35
10.4 Accomplishment of Action Described in Article III, Section 3.4... 36
10.5 Opinion of Counsel............................................... 36
10.6 Employment Agreements............................................ 36
10.7 Certificate Required by Representative of the Underwriters....... 36
ii
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Page
ARTICLE XI - Conditions Precedent to Obligation of Gateway and Holders. 37
11.1 No Adverse Development........................................... 37
11.2 Time of Consummation............................................. 37
11.3 No Breach of Representations, Warranties and Covenants........... 37
11.4 Matters Relating to the Public Offering.......................... 38
11.5 Treatment of Transaction......................................... 38
11.6 Opinion of Counsel............................................... 39
11.7 Deliveries in Connection with the Public Offering................ 39
11.8 Appointment to GAPC Board of Directors........................... 39
11.9 Assumption of Gateway Liabilities................................ 39
ARTICLE XII - Indemnification, Survival of Representations and
Warranties............................................... 40
12.1 Indemnification by Deutsch, Farkas and Messina................... 40
12.2 Indemnification by GAPC-Florida and GAPC......................... 40
12.3 Limitations Regarding Indemnification............................ 40
12.4 Procedures for Third Party Indemnification....................... 41
12.5 Survival of Representations, Warranties and Indemnities.......... 42
ARTICLE XIII - Miscellaneous Provisions................................ 42
13.1 Notices.......................................................... 42
13.2 Successors and Assigns........................................... 42
13.3 Execution in Counterparts........................................ 43
13.4 Background Statement, Schedules and Exhibits..................... 43
13.5 Entire Agreement................................................. 43
13.6 Publicity........................................................ 43
13.7 Attorneys' Fees in Connection with Litigation.................... 43
13.8 Cooperation...................................................... 43
13.9 Applicable Law................................................... 43
iii
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EXHIBIT (2)(b)
AMENDED AND RESTATED
AGREEMENT PROVIDING FOR THE SALE AND
EXCHANGE OF CAPITAL STOCK
THIS AMENDED AND RESTATED AGREEMENT PROVIDING FOR THE SALE AND EXCHANGE
OF CAPITAL STOCK (the "Agreement") is made as of the 27th day of January, 1997
by and between the following entities and natural persons:
Agreement Party and Reference General Description of Agreement Party
- ------------------------------ -----------------------------------------
GATEWAY AMERICAN PROPERTIES A Florida corporation presently having its
CORPORATION ("GAPC-Florida") sole office in Sarasota, Florida
GATEWAY AMERICAN PROPERTIES A Colorado corporation with its principal
CORPORATION ("GAPC-Colorado") office in Denver, Colorado
GATEWAY AMERICAN PROPERTIES, LLC A limited liability
company formed and ex- ("Gateway")isting
under Colorado law having its principal
office at Denver, Colorado
HARVEY E. DEUTSCH, JOEL H. FARKAS, The holders of all outstanding membership
MICHAEL A. MESSINA and all other interest (an "Interest or collectively the
signatories to this Agreement "Interests") of Gateway on the date of the
("Deutsch", "Farkas" and "Mes- consummation of all of the transactions
sina", respectively or a "Holder" governed or contemplated by this Agreement
individually or "Holders" collec-
tively)
The foregoing-described entities and natural persons are sometimes described
herein collectively as the "Agreement Parties".
B A C K G R O U N D
This Agreement is being made and entered into as of the 27th day of
January 1997 and is intended by the Agreement Parties to completely and
absolutely replace and supersede that agreement styled "Amended and Restated
Agreement Providing for the Sale and Exchange of Common Stock' which was made
between and among all of the Agreement Parties except GAPC-Colorado as of
January 27, 1995 with a First Addendum thereto which was made as of the first
day of March 1996 (collectively the "Prior Agreement"). With respect to such
Prior Agreement, the Agreement Parties acknowledge that:
<PAGE>
(i)Their respective obligations under the Prior Agreement
have extinguished and are no longer binding as of the date of this
Agreement; and
(ii)The Agreement Parties to the Prior Agreement included the
corporate entity APOLLO III, INC. ("Apollo"), an affiliate of GAPC,
but that Apollo has been consolidated and merged with and into
GAPC-Florida prior to the execution of this Agreement.
The Prior Agreement provided that Deutsch, Farkas, Messina and any other
Holders of Membership Interest of Gateway would, in accordance with the Prior
Agreement, become the record and beneficial Holders of a certain number of
shares of Common Stock of GAPC-Florida (the "GAPC-Florida Shares") as specified
in the Prior Agreement. The Prior Agreement also contemplated that GAPC-Florida,
contemporaneous to such business combination between GAPC-Florida and Gateway,
would utilize the investment banking services of Barron Chase Securities, Inc.
(the "Underwriter") in accordance with the terms of an intended public offering
(the "Underwriting Arrangements") as were set forth in a certain Letter of
Intent dated April 10, 1995 (the "Prior Letter of Intent").
In connection with the business combination transaction and the intended
public offering, GAPC-Florida proceeded to prepare and file with the United
States Securities and Exchange Commission a Registration Statement on Form SB-2,
Commission File No. 33-98054-A (the "Prior Registration Statement"), which Prior
Registration Statement contained a prospectus which set forth the offer of the
Common Stock and Common Stock Purchase Warrants of GAPC-Florida. During the
latter half of calendar 1995, the Underwriter suggested that the terms of the
underwriting be changed and that the number of shares of Common Stock of
GAPC-Florida issuable to the shareholders of Apollo and GAPC-Florida and the
2
<PAGE>
Members of Gateway be altered. Additionally, the Underwriter suggested that the
number of shares of GAPC-Florida Common Stock and Common Stock Purchase Warrants
providing for the purchase of GAPC-Florida Common Stock be altered. Negotiations
with respect to such proposed changes were conducted between GAPC-Florida and
the Underwriter with monitoring by the legal counsel to Gateway and the Members
and as a result, a new Letter of Intent was entered between GAPC-Florida and the
Underwriter which is dated January 27, 1997 and which was amended in certain
respects on May 29, 1997 (which letter, as amended, is hereinafter referred to
as the "New Letter of Intent"). A copy of the New Letter of Intent is included
herewith as Exhibit A hereto for informational purposes. After the execution of
the New Letter of Intent, the Agreement Parties were advised that, since all of
the assets and operations of Gateway are located in Colorado and there are no
operations presently contemplated to be conducted in Florida, it would be
advantageous from a taxation standpoint to redomesticate GAPC-Florida in
Colorado. Accordingly, GAPC-Colorado was organized as a Colorado corporation on
March 21, 1997 with an authorized capital of 20,000,000 shares of $.01 par value
Common Stock. GAPC-Florida and GAPC-Colorado have entered into a Plan and
Agreement of Merger dated as of June 30, 1997 pursuant to which GAPC-Florida
will be merged into GAPC-Colorado with GAPC-Colorado being the surviving
corporation. In this merger, GAPC-Colorado will acquire all of the assets and
will assume all of the liabilities and obligations of GAPC-Florida. The
Underwriter has consented to the merger of GAPC-Florida into GAPC-Colorado and
has agreed that GAPC-Colorado shall, upon completion of the merger, be fully
substituted for GAPC-Florida in the New Letter of Intent. (Accordingly, all
references in this Agreement to "GAPC" set forth herein subsequent to this
sentence shall be to GAPC-Colorado unless otherwise indicated.) The parties to
the New Letter of Intent and GAPC-Colorado (which has joined therein) have also
amended it to replace all June 30, 1997 references thereto to November 12, 1997.
The New Letter of Intent governs the intended public offering of the shares of
Common Stock and Common Stock Purchase Warrants of GAPC and, in connection with
such intended public offering as now structured, GAPC, GAPC-Florida, Gateway and
the Members desire to set forth the terms and conditions relative to the
business combination between GAPC, GAPC-Florida and Gateway and matters relating
to the public offering of the shares of Common Stock and the Common Stock
Purchase Warrants of GAPC. The New Letter of Intent refers to this Agreement as
the Amended and Restated Agreement Providing for the Sale and Exchange of
Capital Stock with First and Second Addendums.
3
<PAGE>
In acknowledging the restructure of the business combination and the
intended public offering of the shares of Common Stock and the Common Stock
Purchase Warrants of GAPC, the Agreement Parties acknowledge that at the
conclusion of the business combination between GAPC, GAPC-Florida and Gateway
and the public offering of the Common Stock and Common Stock Purchase Warrants
of GAPC (herein sometimes collectively referred to as the "Securities"), the
shares of Common Stock and Common Stock Purchase Warrants of GAPC will be held
by the following categories of holders:
4
<PAGE>
Shares of Number of Common
GAPC Common Stock Purchase
Stock to be Warrants to be
Held of Record Held of Record
Category of Holder and Beneficially and Beneficially
- -------------------- ------------------ ------------------
Holders of GAPC-Florida Common
Stock as of the date of this
Agreement 327,000 300,000
Holders of outstanding Member-
ship Interests of Gateway 2,025,000 ---
The Public 1,500,000 3,000,000
The Underwriter 150,000*
- ------------------
*The Underwriter will also hold 300,000 Warrants under which it may
acquire an additional 300,000 Common Stock Purchase Warrants. The shares
of Common Stock and Common Stock Purchase Warrants to be held by the
Public and by the Underwriter will be increased to the extent the
Underwriter exercises its over-allotment right set forth in the New Letter
of Intent.
The terms and conditions of the Common Stock Purchase Warrants to be held by the
category of Holder indicated above will be as described in the New Letter of
Intent, which New Letter of Intent is included with this Agreement for
informational purposes and, where appropriate, incorporated herein.
Accordingly, the Agreement Parties wish to set forth by means of this
Agreement the terms and conditions of the business combination which shall occur
between GAPC, GAPC-Florida, Gateway and the Members, as well as the respective
entitlements of the various category of Holders, as such entitlements relate to
the number of shares of GAPC Common Stock to be issued to such category of
Holder and the number of Common Stock Purchase Warrants to be issued to such
category of Holder. Gateway is a party to this Agreement for the purpose of
facilitating the transactions herein described and in connection with certain
representations and warranties of Gateway as set forth in this Agreement.
5
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Agreement Parties hereby agree
as follows:
ARTICLE I
Sale and Exchange of GAPC Securities
Prior to or on the Closing Date established pursuant to Article VIII
hereof, the following sale and/or exchange transactions involving the Securities
shall be consummated in conformance to the terms, conditions and provisions of
this Agreement.
1.1 With Respect to GAPC. Before the filing of the Registration Statement
for the public offering of Common Stock and Common Stock Purchase Warrants of
GAPC, GAPC shall complete the consummation of the combination and merger of
GAPC-Florida with and into GAPC and as a result, the former holders of the
outstanding Common Stock of GAPC-Florida shall hold of record and beneficially
327,000 shares of the Common Stock and 300,000 Common Stock Purchase Warrants of
GAPC having the characteristics set forth in the New Letter of Intent. Of those
327,000 shares, 27,000 shares shall be held of record and beneficially by James
T. McDonough who has served as the sole director and officer of GAPC-Florida.
Such 27,000 shares are also subject to the terms and conditions attributable to
such shares in the New Letter of Intent. It is acknowledged by the Agreement
Parties that Messrs. Deutsch, Farkas and Messina shall constitute the members of
the Board of Directors of GAPC and the officers thereof as hereinafter
specified. GAPC, Gateway and the Members acknowledge that, as a result of the
combination and merger of GAPC-Florida with and into GAPC, GAPC shall have
acquired all of the assets of every kind and character of GAPC-Florida free and
7
<PAGE>
clear of any and all liabilities, liens and other encumbrances except those
liabilities described herein, which assets shall have a value sufficient to
permit GAPC-Florida to have been a property transferor for purposes of Section
351 of the Internal Revenue Code, as amended, as such cited Section is
applicable to the business combination between GAPC-Florida, GAPC, the Holders
of Gateway and the purchasers in the public offering. The shares of GAPC Common
Stock, the Common Stock Purchase Warrants of GAPC and the shares of GAPC Common
Stock issuable upon exercise of such Warrants shall be subject to the terms and
conditions, including, without limitation, the holding periods set forth in the
New Letter of Intent. However, the foregoing notwithstanding, such 327,000 GAPC
Shares, the 300,000 Common Stock Purchase Warrants of GAPC and the 300,000
shares of Common Stock of GAPC issuable upon exercise of such Warrants shall be
registered simultaneous to the registration of the Common Stock and Common Stock
Purchase Warrants of GAPC to be registered in connection with the public
offering described and contemplated by this Agreement.
1.2 With the Holders. On or before the Closing Date, as hereinafter
defined, GAPC shall issue to the Holders 2,025,000 GAPC Shares in consideration
for the conveyance by the Holders of all of the outstanding Membership Interest
of Gateway as issued and outstanding on the Closing Date. The 2,025,000 GAPC
Shares shall be issued to the Holders in the proportion as such Holders hold the
Membership Interest of Gateway on the Closing Date. The 2,025,000 GAPC Shares to
be issued to the Holders shall constitute "Restricted Securities" as that term
is defined in the Act. To the extent that any of the 2,025,000 GAPC Shares are
conveyed to Holders who are other than Deutsch, Farkas or Messina, such GAPC
Shares shall be registered under the Securities Act of 1933, as amended (the
"Act") and the securities laws of the several states in which the Securities are
qualified for sale (collectively, the "Blue Sky Statutes") in the same manner as
provided herein subject to any applicable provisions of the New Letter of Intent
and Underwriting Arrangements.
1.3 With the Public. On the Closing Date and concurrently but subsequent
to the transactions called for by Sections 1.1 and 1.2 above, GAPC shall
consummate with the Underwriter the sale to the public, on a firm commitment
underwriting basis, of 1,500,000 GAPC Shares at a per Share price to the public
of $4.00 and 3,000,000 Common Stock Purchase Warrants (the "Public Warrants") at
a per Warrant price of $.17, subject to the over-allotment provisions set forth
in the New Letter of Intent and Underwriting Arrangements, less applicable
underwriting discounts and commissions. The consummation of such public offering
shall be conducted pursuant to the terms and provisions of the governing
documents relating to such public offering, including, without limitation, an
underwriting agreement which shall supersede the New Letter of Intent described
earlier in this Agreement (the "Governing Documents"). The Governing Documents
shall be subject to approval, when in final definitive form, by Messrs. Deutsch,
Farkas and Messina and legal counsel to Gateway. The approval of the Underwriter
and the Governing Documents by Messrs. Deutsch, Farkas and Messina shall be on
the basis of the majority vote of such Members and shall not be unreasonably
withheld.
ARTICLE II
Certain Matters Affecting GAPC Shares
2.1 Certain Shares Restricted. Messrs. Deutsch, Farkas and Messina
acknowledge and agree that the GAPC Shares received by them pursuant to the
provisions of this Agreement will, at the time of issuance and receipt thereof,
8
<PAGE>
constitute Restricted Securities pursuant to the provisions of the Act and Rule
144 promulgated thereunder in that such GAPC Shares will not have been
registered pursuant to the Act and any Blue Sky Statutes and as a result of the
affiliate status of Messrs. Deutsch, Farkas and Messina with Gateway prior to
the Closing Date and as a result of the service of Messrs. Deutsch, Farkas and
Messina as directors and officers of GAPC on and subsequent to the Closing Date.
The 327,000 GAPC Shares issued in connection with the organization of GAPC and
the combination and merger of GAPC-Florida with and into GAPC also constitute
Restricted Securities.
2.2 Registration of GAPC Shares and Public Warrants. Except for the GAPC
Shares issued to Messrs. Deutsch, Farkas and Messina in accordance with the
provisions of Section 1.2 of this Agreement, all Securities of GAPC issued under
the terms and provisions of this Agreement and the Underwriting Arrangements as
embodied by the New Letter of Intent and the Governing Documents shall be
registered under the Act and the Blue Sky Statutes simultaneously with the
registration of the 1,725,000 GAPC Shares and 3,450,000 Public Warrants to be
offered and sold to the public on the Closing Date, which number of GAPC Shares
and Pubic Warrants takes into account the over-allotment option afforded to the
Underwriting pursuant to the New Letter of Intent. Such Securities shall
constitute, on and after the Closing Date, freely tradeable securities which
may, subject to any sale restrictions as set forth in the New Letter of Intent,
be sold in any market which comes into being subsequent to the completion of the
public offering of the GAPC Shares and Public Warrants to the public. In that
regard, the New Letter of Intent provides that, with the exception of 27,000
GAPC Shares which are beneficially held by James T. McDonough, the GAPC Shares,
Common Stock Purchase Warrants and the GAPC Shares issuable upon the exercise of
such Common Stock Purchase Warrants and held by James T. McDonough and the
previous holders of the Common Stock of GAPC-Florida shall be subject to the
restrictions on transfer as imposed by the New Letter of Intent. Such is the
case also for the 27,000 GAPC Shares beneficially held by James T. McDonough.
Such Securities, however, shall not be included in the GAPC Shares which are
included in the public offering of GAPC Shares and Public Warrants.
9
<PAGE>
ARTICLE III
Action Prior to Closing Date
3.1 Corporate Action of GAPC. From the date of this Agreement to the
Closing Date, GAPC shall undertake and complete all requisite action, including
all action required pursuant to the Colorado Business Corporation Act, the Act
and applicable Blue Sky Statutes including, without limitation, the securities
laws of Florida and Colorado, in order to permit GAPC to prepare for and to
consummate the transactions called for by this Agreement, including the public
offering of the GAPC Shares and Public Warrants as described in Section 3.4 of
this Article III.
3.2 Corporate Action of GAPC-Florida. From the date of this Agreement to
the Closing Date, GAPC-Florida shall undertake and complete all requisite
action, including all action required pursuant to the Florida Business
Corporation Act, the Act and applicable Blue Sky Statutes including, without
limitation, the securities laws of Florida and Colorado, in order to permit
GAPC-Florida and GAPC to prepare for and to consummate the transactions called
for by this Agreement, including the public offering of the GAPC Shares and
Public Warrants as described in Section 3.4 of this Article III.
3.3 Action by Gateway and Holders. From the date of this Agreement to the
Closing Date, Gateway and the Holders shall undertake all action as may be
required under applicable law, including the laws of the State of Colorado, in
order to permit Gateway and the Holders to consummate the transactions called
for by this Agreement including, without limitation, the conveyance of all of
the Membership Interest of Gateway which is outstanding on the Closing Date in
accordance with Section 1.2 of Article I of this Agreement. Such action on the
part of Gateway shall include the providing by Gateway, through the action of
the Members, of all necessary cooperation with respect to the public offering of
the GAPC Shares and Public Warrants in the public offering described in Section
3.4 of this Article III. Such cooperation by Gateway with respect to such public
offering shall be subject to the provisions of Section 3.5 of this Article III.
Such cooperation shall include but not be limited to the participation by the
Holders and other employees and agents of Gateway in the providing of necessary
information and the preparation of any necessary documentation for inclusion in
the Registration Statement on Form SB-2 (the "Registration Statement") to be
filed by GAPC in connection with such public offering and the timely preparation
and delivery by Gateway of audited/unaudited financial statements required to be
included in such Registration Statement, in accordance with the appropriate form
instructions relating thereto and the rules and regulations of the United States
Securities and Exchange Commission (the "SEC").
10
<PAGE>
3.4 Public Offering of GAPC Shares and Public Warrants. As indicated in
the foregoing and subsequent provisions of this Agreement, GAPC, concurrently
with, but immediately subsequent to, the exchange of GAPC Shares for the entire
Membership Interest of Gateway outstanding on the Closing Date, shall consummate
a public offering, on a firm commitment underwriting basis, of 1,500,000 GAPC
Shares and 3,000,000 Public Warrants at a per Share public offering price of
$4.00 and a per Public Warrant price of $.17 (to be increased to 1,725,000 GAPC
Shares and 3,450,000 Public Warrants in the event that the over-allotment option
of the Underwriter is utilized) before deduction of any underwriting discounts
and commissions and subject to the provisions of Article I and Article VIII of
this Agreement. Gateway, GAPC and the Holders acknowledge that the principal and
primary responsibility for the undertaking and completion of such public
offering will be that of GAPC with the assistance of Gateway, the Members and
Gilbert L. McSwain, Esq. In that regard, GAPC shall promptly and continuously
advise the Holders and their counsel as to the progress occurring with respect
to the public offering and the Registration Statement.
11
<PAGE>
3.5 Allocation and Responsibility of Transaction Costs and Expenses.
GAPC-Florida, GAPC, Gateway and the Holders, to the extent of their respective
resources, shall bear their respective costs and expenses in connection with the
preparation for consummation of the transactions provided for in this Agreement.
With respect to the processes involved in the public offering of the GAPC Shares
and Public Warrants, costs and other expenses (including accounting and legal
fees, filing fees and printing costs and expenses) shall be borne by
GAPC-Florida, GAPC and Gateway as shall be determined by GAPC, Gateway and the
Members during the period commencing with the date of this Agreement through the
Closing Date. GAPC-Colorado has agreed to pay $20,000 for the audit fee for the
financial statements of GAPC-Florida to be included in the Registration
Statement. In such regard, GAPC-Florida, GAPC, Gateway and the Holders
acknowledge that GAPC, GAPC-Florida (together with Apollo now combined with and
merged into GAPC-Florida) expended substantial sums on behalf of GAPC-Florida,
GAPC, Gateway and the Holders with respect to the initial efforts to initiate
and consummate the business combination of GAPC-Florida, GAPC and Gateway and
the related public offering as contemplated by the Prior Letter of Intent.
Accordingly, it is anticipated that the consummation of the combination of
GAPC-Florida, GAPC and Gateway and the completion of the public offering
attendant costs and expenses will substantially be borne by GAPC or Gateway.
William T. Kirtley, counsel to GAPC-Florida has agreed to defer payment of fees
accrued and to be accrued until the consummation of the public offering.
12
<PAGE>
ARTICLE IV
Representations of Gateway and the Holders
4.1 Entity Status. Gateway and the Holders represent and warrant to
GAPC-Florida and GAPC that Gateway is a validly formed and existing limited
liability company under the laws of the State of Colorado as of the date of this
Agreement and such will also be the case on the Closing Date; and as of the date
of this Agreement and as of the Closing Date, Gateway has and will have all
necessary authority and power to conduct its business and to own its properties,
possesses all necessary permits, licenses and other documents or authorities
required in connection with the conduct of its business, and the consummation of
the transactions contemplated by this Agreement will not constitute a breach or
event of default under the terms of any contract or agreement to which Gateway
is a party or pursuant to which it is bound or under which its assets are
subject or be in violation of its basic governing documents. The consummation of
the transactions contemplated and called for by this Agreement will not
invalidate any required permit, license or other document issued or to be issued
to Gateway and necessary for the conduct of its business as currently conducted
or as such business is contemplated to be conducted during the future time.
Gateway is not an affiliate (as said term is defined in the Securities Exchange
Act of 1934, as amended) of any other entity, except as reflected in Schedule I
hereto.
4.2 Business Activities. The business activities of Gateway, as presently
conducted and as contemplated to be conducted, are in all material respects as
described and set forth in that certain private placement memorandum of Gateway
dated September 20, 1994, this Agreement, the section captioned "Business of
Gateway" as set forth in the Business Plan of Gateway and the Prior Registration
Statement, all of which documents have been previously provided to GAPC-Florida
or are being updated at times contemporaneous to the date of this Agreement.
13
<PAGE>
4.3 Capitalization - Outstanding Membership Interests. As of December 31,
1997, the capitalization of Gateway is constituted by the capital contributed by
its present members (which includes a merger of an affiliated entity), Deutsch,
Farkas and Messina and four additional Members in the amount of approximately
$182,250 and retained earnings of approximately $212,048. The Membership
Interest outstanding as of the date of this Agreement is held in its entirety by
Deutsch, Farkas and Messina and four additional Holders. As of the date of this
Agreement and as of the Closing Date, there are not and there will not be any
outstanding rights or options to acquire authorized but unissued Membership
Interest of Gateway except as reflected in Schedule II hereto.
4.4 Material Contracts. Listed and described on Schedule III to this
Agreement are all material contracts to which Gateway is a party, excluding this
Agreement. The term "material contract" means a contract to which Gateway is a
party and which has been entered into by Gateway other than in connection with
the conduct of the ordinary course of business of Gateway.
4.5 Financial Condition. Gateway has, with the assistance of its
independent certified public accountants, prepared its audited financial
statements reflecting the financial condition of Gateway, the operations of
Gateway, as well as other related financial statements and schedules for the two
fiscal years ended December 31, 1996. It is in the process of preparing such
financial statements for the interim financial reporting periods which are
required to be included in the Registration Statement (the "Financial
Statements), which Financial Statements will be delivered to GAPC for
utilization and inclusion in the preparation of the Registration Statement to be
prepared, filed and processed to effectiveness in connection with the Public
Offering. With respect to such Financial Statements, Gateway and the Holders
represent and warrant that such Financial Statements will fairly present in all
material respects the financial condition of Gateway as of the date of such
Financial Statements and its results of operations for the periods indicated,
all to the best of the knowledge of the Holders and such Financial Statements
will have been prepared in accordance with generally accepted accounting
principles consistently applied except as may be indicated in such Financial
Statements, the related notes thereto and other information relating thereto.
14
<PAGE>
Except as set forth in Schedule IV to this Agreement, Gateway has no liabilities
or obligations of any nature which, in accordance with generally accepted
accounting principles, must be set forth in the Financial Statements except
those liabilities which are incurred as a result of the conduct of the ordinary
course of business of Gateway after the date of the most recent such Financial
Statements furnished or those liabilities which would not either singularly or
in the aggregate have a material adverse affect on the financial condition of
Gateway and the conduct of its business in the ordinary course. The referenced
Schedule IV shall reflect any material liabilities not identified on the
Financial Statements which exist on the Closing Date.
4.6 Environmental Matters. Gateway, in connection with its properties and
the conduct of its business in the ordinary course, to the best of the knowledge
of the Holders, is in compliance with all governmental guidelines, laws and
ordinances concerning the use and storage of hazardous materials including,
without limitation, fuel or similar oils. To the best of the Holders' knowledge,
no hazardous materials contamination is present on any property owned or to be
acquired by Gateway.
4.7 Taxes - Returns. Except as set forth on Schedule V, Gateway has filed
in a timely fashion all federal, state, county and local tax returns which it is
obligated to file pursuant to any taxing authority and all taxes reflected on
any such returns filed have been paid in their entirety by Gateway, except in
the instance of a validly asserted contest with respect to any such tax, as such
contest may be identified on Schedule V to this Agreement.
4.8 Sale of Gateway Securities. All Notes previously sold by Gateway were
privately offered and sold to suitable and Accredited Investors as such latter
term is defined under the Act and the offer and sale of such Gateway Note, to
the best of the knowledge and belief of the Holders, constituted a transaction
exempt from the registration requirements of the Act and any applicable Blue Sky
Statute. In the event that, in the sole discretion of Deutsch, Farkas and
Messina, additional Membership Interests or other securities of Gateway are sold
subsequent to the date of this Agreement and prior to the Closing Date, such
sale of additional Membership Interest or other securities shall also be made to
suitable and Accredited Investors as such latter term is defined in the Act and
in a transaction or transactions which are reasonably claimed exempt from the
registration requirements of the Act and Blue Sky Statutes.
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<PAGE>
4.9 Litigation. Except as disclosed on Schedule VI to this Agreement,
Gateway and the Holders are not involved as a party to, nor are any of the
assets of Gateway the subject of, any judicial or administrative proceedings
before any court or governmental agency. Except as set forth in such Schedule
VI, the Holders are not aware of any factual circumstances or situations which
might reasonably be expected to result in the assertion of a claim or the
commencement of litigation or any administrative proceeding at any time between
the date of this Agreement and the Closing Date.
4.10 Finder's Fees. Gateway and the Holders are not obligated to pay any
finder's fee or commission to any person or persons as a result of the execution
of this Agreement and the consummation of the transactions provided for herein.
4.11 Accuracy of Provided Information. No representation or warranty given
or made by Gateway or the Holders pursuant to this Agreement or in any
statement, certificate or other document required to be furnished by Gateway or
the Holders to GAPC-Florida or GAPC pursuant to the terms of this Agreement
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements contained
herein or therein not misleading.
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ARTICLE V
Representations of GAPC-Florida
GAPC-Florida represents to GAPC, Gateway and the Holders as follows:
5.1 Corporate Status. As of the date of this Agreement and on the Closing
Date, GAPC-Florida is and will be a validly existing corporation organized
pursuant to the laws of the State of Florida and has and will have all legal
corporate authority and power to conduct its business activities, to own its
properties and possesses all necessary permits, licenses and other documents or
authorities required in connection with its business activities and, assuming
that the requisite corporate action contemplated by this Agreement has been
accomplished prior to the Closing Date, the consummation of the transactions
provided for by this Agreement will not constitute a breach or event of default
under the terms of any contract or agreement to which GAPC-Florida is a party or
pursuant to which GAPC-Florida is bound or by which its assets are subject or be
in violation of its respective Articles of Incorporation as amended to date and
their respective Bylaws. The consummation of the transactions contemplated and
called for by this Agreement will not invalidate any required permit, license or
other document issued or to be issued to GAPC-Florida and necessary for the
conduct of its business activities as currently conducted or as such business is
contemplated to be conducted during the future time.
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5.2 Corporate Action. Prior to the Closing Date, GAPC-Florida will
undertake and complete all required corporate action which may be required in
order to permit the consummation of the transactions called for by this
Agreement. With respect to the combination and merger of Apollo with and into
GAPC-Florida, all corporate action has been taken with respect to such
transaction as is set forth in the Florida Business Corporation Act and in such
regard, the previous holders of the outstanding Preferred Stock - First Series
of Apollo have agreed to the exchange of such shares of Preferred Stock - First
Series of Apollo for a like number of GAPC-Florida shares of Common Stock. With
respect to the holders of the outstanding Common Stock of Apollo, such holders
are not entitled to any rights of dissent or appraisal as such may be provided
under the Florida Business Corporation Act due to the nature of the business of
GAPC-Florida which, in summary, was to identify, negotiate and consummate a
combination transaction with an entity actively engaged in the conduct of one or
more lines of business and that such business objective is being realized and
accomplished by reason of the consummation of the combination of GAPC-Florida,
GAPC and Gateway.
5.3 Subsidiaries. GAPC-Florida has no corporate subsidiaries.
5.4 Financial Condition. GAPC-Florida is a Florida corporation formed
for the purpose of consolidating with Apollo and merging with GAPC which was
formed to acquire all of the outstanding Membership Interest of Gateway from the
Holders and for the purpose of continuing the business activities of Gateway.
Consequently, GAPC-Florida, as of the date of this Agreement and immediately
prior to the Closing Date, does not have and will not have significant assets,
stockholders' equity or liabilities (other than the liabilities incurred and to
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be incurred in connection with the transactions called for by this Agreement and
the Prior Agreement, including, without limitation, the public offering of GAPC
Shares and Public Warrants). The financial statements of GAPC-Florida, and to
the extent required, of Apollo, as certified by Beatty & Company, P.A.,
independent certified public accountants or any successor accountants, furnished
to Gateway and the Holders pursuant to the terms of this Agreement or which may
be furnished to Gateway and the Holders in accordance with the terms of this
Agreement or for utilization in the Registration Statement to be prepared, filed
and processed to effectiveness with respect to the public offering of the GAPC
Shares and Public Warrants and reflecting the financial conditions and results
of operations of GAPC-Florida (and to the extent required, Apollo) at and for
the fiscal years indicated or for such other periods indicated, fairly present
or will fairly present in all material respects the financial condition of
GAPC-Florida (and to the extent required, Apollo) as of the date of such
Financial Statements (whether audited or unaudited), all to the best of the
knowledge of GAPC-Florida in accordance with generally accepted accounting
principles consistently applied except as may be indicated in such Financial
Statements, the related notes thereto and other information relating thereto.
Except as set forth in Schedule VII hereto, GAPC-Florida has no liabilities or
obligations of any nature which, in accordance with generally accepted
accounting principles, must be set forth in the described financial statements
except those liabilities which are incurred as a result of the ordinary course
of business of GAPC-Florida after the date of the most recent financial
statements (which liabilities will be reflected in an amendment to Schedule VII
on the Closing Date), which are incurred by GAPC-Florida in connection with the
preparation, filing and processing to effectiveness of the Registration
Statement relating to the described public offering of the GAPC Shares and
Public Warrants or are liabilities which would not either singularly or in the
aggregate have a material adverse affect on GAPC-Florida.
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5.5 Capitalization of GAPC-Florida. Set forth as Schedule VIII to this
Agreement are the Articles of Incorporation of GAPC-Florida (as amended to date
and which include the Agreement, Plan and Articles of Merger relating to the
combination and merger of Apollo with and into GAPC-Florida) which reflect the
capital structure of GAPC-Florida as of the date of this Agreement.
5.6 Title to Properties. Except as indicated in the financial statements
described in Section 5.4 above, or in Schedule IX to this Agreement,
GAPC-Florida has good and valid title to the assets reflected in the financial
statements of GAPC-Florida at the periods indicated therein, as described in
Section 5.4 of this Agreement.
5.7 Business Activities of Apollo and GAPC- Florida. Apollo conducted no
business activities during its corporate existence other than to seek and
consummate an appropriate business combination. Its amended business plan
provided for the investigation of various lines of business to be initiated and
conducted and/or the combination of Apollo with one or more other business
entities such as GAPC and Gateway. GAPC-Florida and GAPC have been specifically
formed in order to facilitate the transactions called for by this Agreement and
as of the date of this Agreement and as of the Closing Date, GAPC-Florida has
not and will not have conducted any business activities other than those
relating to the consolidation and merger of Apollo with and into GAPC-Florida,
the combination with GAPC, Gateway and those activities relating to the conduct
of the public offering of GAPC Shares and Public Warrants.
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5.8 Taxes and Tax Returns. Except as set forth in Schedule X to this
Agreement, GAPC-Florida and Apollo have filed in a timely fashion all federal,
state, county and local tax returns relative to any taxes required to be paid by
GAPC-Florida and Apollo and have timely paid any such taxes due pursuant to such
returns. GAPC-Florida and Apollo, as of the date of this Agreement and on the
Closing Date, are not and will not be involved in any asserted contest with
respect to any tax.
5.9 Litigation. Except as described on Schedule XI hereto, GAPC-Florida
and the members of the Board of Directors of GAPC-Florida are not, as of the
time of the full execution of this Agreement by the Agreement Parties, involved
as a party to, nor are its assets the subject of, any judicial or administrative
proceedings before any court or governmental agency. Except as set forth and
described in such Schedule XI, GAPC-Florida is not aware of any factual
circumstances or situations which might reasonably be expected to result in the
assertion of any claim by way of litigation or administrative proceeding at any
time on and subsequent to the date of this Agreement and as of the Closing Date.
5.10 Material Contracts. Except as set forth in Schedule XII to this
Agreement, GAPC-Florida is not, with the exception of this Agreement, a party to
any material contract. The term "material contract" means any contract which
involves the future payment of a consideration by GAPC-Florida in an amount in
excess of $25,000 and a term of performance concluding 12 or more months from
the date of this Agreement. The Agreement parties acknowledge that GAPC-Florida
has or is expected to enter into one or more material contracts which will
govern and relate to the public offering of the GAPC Shares and Public Warrants.
Other than those contracts described on Schedule XII hereto and except as
provided in Article VIII, any material contract intended to be created and of
which GAPC-Florida shall be a party, including those contracts which will govern
and relate to the public offering of the GAPC Shares and Public Warrants shall
be subject to the approval of Deutsch, Farkas and Messina (such approval being
accomplished by a majority vote of such Members).
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5.11 Registration Statement on Form SB-2. GAPC-Florida will participate
and cooperate in the preparation of the Registration Statement for GAPC on Form
SB-2 which relates to the public offering of 1,725,000 GAPC Shares and 3,450,000
Public Warrants (which includes the over-allotment GAPC Shares and Public
Warrants as well as additional securities being registered pursuant to the
Underwriting Arrangements) and will use its best diligent efforts to cause such
Registration Statement to be filed and processed to effectiveness with the SEC
and such blue sky authorities as appropriate. Such described Registration
Statement will be meticulously and carefully prepared in compliance with the Act
and rules and regulations thereunder, as well as Blue Sky Statutes and rules and
regulations thereunder. Such Registration Statement will set forth all material
information which may reasonably be required in connection with any investment
decision to purchase the offered GAPC Shares and Public Warrants and such
Registration Statement will, prior to the filing thereof, be furnished to GAPC,
Gateway, the Holders and their counsel and other experts for examination,
comment and amendment. In connection with the preparation, filing and processing
to effectiveness of such Registration Statement with the SEC and the several
blue sky authorities, GAPC-Florida, Gateway and the Members acknowledge that
GAPC and its counsel will be materially assisted by counsel for GAPC-Florida.
Counsel for GAPC-Florida with respect to such undertaking shall be William T.
Kirtley, Esq.
5.12 Environmental Matters. GAPC-Florida is not subject to any
governmental guidelines, laws or ordinances relating to hazardous materials as
of the date of this Agreement.
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ARTICLE VI
Representations of GAPC
GAPC represents to GAPC-Florida, Gateway and the Holders as follows:
6.1 Corporate Status. As of the date of this Agreement and on the Closing
Date, GAPC is and will be a validly existing corporation organized pursuant to
the laws of the State of Colorado and has and will have all legal corporate
authority and power to conduct its business activities, to own its properties
and possesses all necessary permits, licenses and other documents or authorities
required in connection with its business activities and, assuming that the
requisite corporate action contemplated by this Agreement has been accomplished
prior to the Closing Date, the consummation of the transactions provided for by
this Agreement will not constitute a breach or event of default under the terms
of any contract or agreement to which GAPC is a party or pursuant to which GAPC
is bound or by which its assets are subject or be in violation of its respective
Articles of Incorporation as amended to date and their respective Bylaws. The
consummation of the transactions contemplated and called for by this Agreement
will not invalidate any required permit, license or other document issued or to
be issued to Gateway and necessary for the conduct of its business activities as
currently conducted or as such business is contemplated to be conducted during
the future time.
6.2 Corporate Action. Prior to the Closing Date, GAPC will undertake and
complete all required corporate action which may be required in order to permit
the consummation of the transactions called for by this Agreement.
6.3 Subsidiaries. GAPC has no corporate subsidiaries.
6.4 Financial Condition. GAPC is a Colorado corporation formed for the
purpose of merging with GAPC-Florida, acquiring all of the outstanding
Membership Interest of Gateway from the Members and for the purpose of
continuing the business activities of Gateway. Consequently, GAPC, as of the
date of this Agreement and immediately prior to the Closing Date, does not have
and will not have significant assets, stockholders' equity or liabilities (other
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than the liabilities incurred and to be incurred in connection with the
transactions called for by this Agreement and the Prior Agreement, including,
without limitation, the public offering of GAPC Shares and Public Warrants). The
financial statements of GAPC, as certified by Gelfond Hochstadt Pangburn & Co.,
independent certified public accountants, furnished to GAPC-Florida, Gateway and
the Holders pursuant to the terms of this Agreement or which may be furnished to
Gateway and the Holders in accordance with the terms of this Agreement or for
utilization in the Registration Statement to be prepared, filed and processed to
effectiveness with respect to the public offering of the GAPC Shares and Public
Warrants and reflecting the financial conditions and results of operations of
GAPC at and for the fiscal years indicated or for such other periods indicated,
fairly present or will fairly present in all material respects the financial
condition of GAPC as of the date of such Financial Statements (whether audited
or unaudited), all to the best of the knowledge of GAPC in accordance with
generally accepted accounting principles consistently applied except as may be
indicated in such Financial Statements, the related notes thereto and other
information relating thereto. Except as set forth in Schedule VII hereto, GAPC
has no liabilities or obligations of any nature which, in accordance with
generally accepted accounting principles, must be set forth in the described
financial statements except those liabilities which are incurred as a result of
the ordinary course of business of GAPC after the date of the most recent
financial statements (which liabilities will be reflected in an amendment to
Schedule VII on the Closing Date), which are incurred by GAPC in connection with
the preparation, filing and processing to effectiveness of the Registration
Statement relating to the described public offering of the GAPC Shares and
Public Warrants or are liabilities which would not either singularly or in the
aggregate have a material adverse affect on GAPC.
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6.5 Capitalization of GAPC. Set forth as Schedule VIII to this Agreement
are the Articles of Incorporation of GAPC (as amended to date and which include
the Agreement, Plan and Articles of Merger relating to the combination and
merger of GAPC-Florida with and into GAPC) which reflect the capital structure
of GAPC as of the date of this Agreement. On and after the Closing Date, the
capitalization of GAPC shall be constituted by the GAPC Shares to be in the
merger with GAPC-Florida and to be outstanding in the amount of 327,000 GAPC
Shares, and the GAPC Shares to be issued to the Holders and to the public as a
result of the public offering.
6.6 Title to Properties. Except as indicated in the financial statements
described in Section 6.4 above, or in Schedule IX to this Agreement, GAPC has
good and valid title to the assets reflected in the financial statements of GAPC
at the periods indicated therein, as described in Section 6.4 of this Agreement.
6.7 Business Activities of GAPC. GAPC has been specifically formed in
order to facilitate the transactions called for by this Agreement and as of the
date of this Agreement and as of the Closing Date, GAPC has not and will not
have conducted any business activities other than those relating to the
consolidation and merger of GAPC-Florida with and into GAPC, the combination
with Gateway and those activities relating to the conduct of the public offering
of GAPC Shares and Public Warrants.
6.8 Taxes and Tax Returns. Except as set forth in Schedule X to this
Agreement, GAPC has filed in a timely fashion all federal, state, county and
local tax returns relative to any taxes required to be paid by GAPC and has
timely paid any such taxes due pursuant to such returns. GAPC, as of the date of
this Agreement and on the Closing Date, is not and will not be involved in any
asserted contest with respect to any tax.
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6.9 Litigation. Except as described on Schedule XI hereto, GAPC and the
members of the Board of Directors of GAPC are not, as of the time of the full
execution of this Agreement by the Agreement Parties, involved as a party to,
nor are its assets the subject of, any judicial or administrative proceedings
before any court or governmental agency. Except as set forth and described in
such Schedule XI, GAPC is not aware of any factual circumstances or situations
which might reasonably be expected to result in the assertion of any claim by
way of litigation or administrative proceeding at any time on and subsequent to
the date of this Agreement and as of the Closing Date.
6.10 Material Contracts. Except as set forth in Schedule XII to this
Agreement, GAPC is not, with the exception of this Agreement, a party to any
material contract. The term "material contract" means any contract which
involves the future payment of a consideration by GAPC in an amount in excess of
$25,000 and a term of performance concluding 12 or more months from the date of
this Agreement. The Agreement parties acknowledge that GAPC has or is expected
to enter into one or more material contracts which will govern and relate to the
public offering of the GAPC Shares and Public Warrants. Other than those
contracts described on Schedule XII hereto and except as provided in Article IX,
any material contract intended to be created and of which GAPC shall be a party,
including those contracts which will govern and relate to the public offering of
the GAPC Shares and Public Warrants shall be subject to the approval of Deutsch,
Farkas and Messina (such approval being accomplished by a majority vote of such
Members).
6.11 Registration Statement on Form SB-2. GAPC will undertake the
preparation of the Registration Statement on Form SB-2 which relates to the
public offering of 1,725,000 GAPC Shares and 3,450,000 Public Warrants (which
includes the over-allotment GAPC Shares and Public Warrants as well as
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additional securities being registered pursuant to the Underwriting
Arrangements) and will use its best diligent efforts to cause such Registration
Statement to be filed and processed to effectiveness with the SEC and such blue
sky authorities as appropriate. Such described Registration Statement will be
meticulously and carefully prepared in compliance with the Act and rules and
regulations thereunder, as well as Blue Sky Statutes and rules and regulations
thereunder. Such Registration Statement will set forth all material information
which may reasonably be required in connection with any investment decision to
purchase the offered GAPC Shares and Public Warrants and such Registration
Statement will, prior to the filing thereof, be furnished to GAPC-Florida,
Gateway, the Holders and their counsel and other experts for examination,
comment and amendment. In connection with the preparation, filing and processing
to effectiveness of such Registration Statement with the SEC and the several
blue sky authorities, GAPC-Florida acknowledges that GAPC-Florida and its
counsel will materially assist counsel to GAPC and Gateway. Counsel for
GAPC-Florida with respect to such undertaking shall be William T. Kirtley, Esq.
6.12 Environmental Matters. GAPC is not subject to any governmental
guidelines, laws or ordinances relating to hazardous materials as of the date of
this Agreement.
ARTICLE VII
Pre-Closing Covenants of Gateway and Holders
7.1 No Change in Business. Gateway and the Holders shall not
materially modify or change the operations or business as conducted by Gateway
as of the date hereof except as such changes are presently contemplated in the
ordinary course of business of Gateway and as such will be described in the
Registration Statement.
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7.2 No Contracts. Except as contemplated and described herein, any
Schedule hereto or the Registration Statement, Gateway shall not enter into any
material agreement or contract or make any material modifications to existing
contracts or agreements.
7.3 Issuance of Additional Membership Interest. Except as determined in
the sole discretion of Deutsch, Farkas and Messina, Gateway shall not from the
date of this Agreement to the Closing Date cause to be issued any new Membership
Interest except in accordance with the circumstances contemplated by this
Agreement. The issuance of such additional Membership Interest shall not result
in any increase in the number of shares to be issued to the members of Gateway
on the Closing Date, that number of shares being established at 2,025,000 GAPC
Shares. Additionally, at the conclusion of the issuance of any Membership
Interest by Gateway, Deutsch, Farkas and Messina shall own at least 80% of such
outstanding Membership Interest unless a lesser percentage of ownership of such
Membership Interest is agreed to by Deutsch, Farkas and Messina (by unanimous
vote of such Members).
7.4 In General. Except as otherwise provided for in this Agreement:
a. No change will be made in the basic documents which provide for the
formation and existence of Gateway;
b. No distributions shall be effected by Gateway to the Holders except
as may be contemplated by this Agreement and as is set forth in a schedule
hereto; and
c. Gateway and the Holders shall use their respective best efforts to
preserve intact the business organization of Gateway, its business and goodwill,
as well as the availability to it of its managing members and other key
employees and the goodwill of persons having business relations with Gateway.
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7.5 Action Contemplated by Article III, Section 3.4. Gateway and the
Holders shall use their best diligent efforts to undertake and complete the
action contemplated by Article III, Section 3.4, which relates to the
preparation and providing of audited and unaudited financial statements
reflecting the financial condition and results of operations of Gateway at and
for the periods required in connection with the preparation, filing and
processing to effectiveness of the Registration Statement which relates to the
public offering of the GAPC Shares and Public Warrants.
ARTICLE VIII
Pre and Post-Closing Covenants of GAPC
8.1 Action Contemplated by Article III, Section 3.5. On and subsequent to
the date of this Agreement, GAPC, as assisted by GAPC-Florida, Gateway, the
Holders and their respective legal counsel, shall use its best diligent efforts
in connection with the preparation, filing and processing to effectiveness of
the Registration Statement on Form SB-2, which relates to the public offering of
1,725,000 GAPC Shares and 3,450,000 Public Warrants (which includes the
over-allotment GAPC Shares and Public Warrants in the amounts of 225,000 GAPC
Shares and 450,000 Public Warrants, respectively).
8.2 Basic Documents. Included herewith as Schedule XIII are the Articles
of Incorporation (as amended to date) and Bylaws of GAPC. GAPC, by action of its
Board of Directors and shareholder, shall not effect any amendments to such
Articles of Incorporation or Bylaws from the date of this Agreement to the
Closing Date without the express written consent of all of the Holders.
8.3 No Contracts. With the exception of this Agreement and those
contractual arrangements which must be established in order to facilitate and
conclude the conduct of the public offer of the GAPC Shares and Public Warrants,
GAPC shall not enter into any material contract as the term "material contract"
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is described elsewhere in this Agreement. Excepted from this Section 8.3 will be
any contractual arrangements existing between GAPC and William T. Kirtley, P.A.
with respect to legal representation and services provided in connection with
the Prior Registration Statement and the Registration Statement or with other
service providers who provide services relating to such Prior Registration
Statement and the Registration Statement. With respect to material contracts
which may be entered into by GAPC with various service and professional service
providers relating to the public offering of the GAPC Shares and Public
Warrants, including any contractual arrangements established with William T.
Kirtley, P.A., relating to the public offering, GAPC shall use its best diligent
efforts to obtain the most reasonable prices and level of fees possible in
connection with such service and professional service providers, including
William T. Kirtley, P.A., and shall inform Deutsch, Farkas and Messina of the
import of any such contracts and shall provide copies of same to Deutsch, Farkas
and Messina. Deutsch, a Member, and the Managing Partner of Gateway, has
received information from William T. Kirtley, Esq. of William T. Kirtley, P.A.,
Sarasota, Florida with respect to the outstanding fees which are accrued and
unpaid with respect to the combination transaction and the public offering of
the GAPC Shares and Public Warrants, as well as the estimate of additional fees
to be accrued, which outstanding and accrued fees and additional fees shall be
paid on the Closing Date by GAPC to William T.
Kirtley, P.A.
8.4 Composition of Board of Directors of GAPC. As of the date of this
Agreement, the Board of Directors of GAPC is constituted by three members namely
Deutsch, Farkas and Messina. It is acknowledged that the New Letter of Intent
contemplates that two additional persons shall serve as members of the Board of
Directors of GAPC together with Deutsch, Farkas and Messina on and subsequent to
the Closing Date, which two additional members shall be approved by the
Underwriter.
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8.5 Officers of GAPC. During the period from the date of this Agreement to
the Closing Date, the officers of GAPC shall be comprised of: Harvey E. Deutsch,
President and Chief Executive Officer; Michael A. Messina, Vice President -
Development; and Joel H. Farkas, Vice President - Finance, Treasurer and
Secretary.
8.6 Remuneration to James T. McDonough. The Agreement Parties acknowledge
that James T. McDonough has served as President and Chief Executive Officer of
Apollo from the time of its formation and until the merger and consolidation of
Apollo with and into GAPC-Florida and that McDonough has also served as the sole
director, President and Treasurer of GAPC-Florida. As a result of such service,
compensation is accrued and is owing by GAPC-Florida to James T. McDonough which
GAPC has agreed to assume at the closing. In that regard, on the Closing Date
James T. McDonough shall be paid in cash the amount of $37,500 by GAPC. The
payment of such $37,500 amount shall completely discharge and eliminate any
obligation of GAPC-Florida, GAPC, Apollo, Gateway or any Member or collectively
the Members with respect to any financial obligations owing by such entities or
persons to James T. McDonough. James T. McDonough shall acknowledge the import
of this Section 8.6 by executing this Agreement or a counterpart thereof in his
individual capacity.
8.7 Stock Option Plan of GAPC. On and subsequent to the Closing Date, it
is anticipated that the Board of Directors of GAPC, as constituted on and
subsequent to the Closing Date, will develop, create and adopt a Stock Option
Plan providing for the issuance upon exercise of options granted thereunder, of
a number of GAPC Shares as determined by the Board of Directors of GAPC (subject
to the terms of the Underwriting Arrangements) from time to time or by any
committee created by such Board of Directors for such purpose. As determined in
accordance with such procedure, Deutsch, Farkas and Messina may be optionees
under such Stock Option Plan with respect to the grant of options at such
exercise price, period of exercise, vesting requirements and other terms as may
subsequently be determined by the Board of Directors of GAPC or any committee
empowered by such Board of Directors.
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ARTICLE IX
Closing of Agreement Transactions and Public Offering
9.1 Concurrent Closing of Sale, Exchange and Public Offering.
GAPC-Florida, GAPC, Gateway and the Holders agree that the exchange and sale of
the GAPC Shares contemplated by Article I of this Agreement shall be consummated
concurrently and simultaneously at a closing, the time of which is established
by Section 9.2 of this Article IX. Such closing with respect to the exchange of
the GAPC Shares shall be concluded immediately prior to the Effective Date of
the Registration Statement covering the GAPC Shares and Public Warrants
described elsewhere in this Agreement. With respect to the consummation of such
exchange transaction, GAPC-Florida, GAPC, Gateway and the Members agree that an
escrow procedure may be utilized which, among other things, shall utilize the
services of an Escrow Agent, the appointment of which shall be mutually
determined by GAPC-Florida, GAPC and Deutsch, Farkas and Messina. Assuming a
willingness to serve as Escrow Agent, William R. Fishman, Esq., an attorney
practicing in Denver, Colorado, is deemed a satisfactory Escrow Agent for such
purpose. The Agreement Parties acknowledge that the closing of the public
offering of the GAPC Shares and the Public Warrants will occur immediately
subsequent to the closing of the exchange of the GAPC Shares. Subject to the
foregoing, unless the transactions called for by Article I of this Agreement can
be consummated concurrently and in a simultaneous manner on or before the
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Closing Date as defined in Section 9.2, none of such transactions called for by
Article I of this Agreement shall be consummated, this Agreement shall be null
and void and of no effect, and the parties shall be released from any further
obligations to each other hereunder. In the event of any such failure to
consummate concurrently and in a simultaneous manner on or before the Closing
Date, the business combination of GAPC-Florida, GAPC and Gateway and the public
offering of the GAPC Shares and Public Warrants, the Escrow Agent is anticipated
to be empowered to take such action as is appropriate and necessary to nullify
the transaction relating to the combination of GAPC-Florida, GAPC and Gateway,
thereby restoring GAPC-Florida, GAPC, Gateway and the Members to the status held
by them immediately prior to the execution and delivery of this Agreement.
9.2 Time and Place of Closing. GAPC-Florida, GAPC and the Holders, with
consultation from the Underwriter, shall mutually determine the date and time of
closing for the transactions called for by this Agreement (the "Closing Date").
The place at which such closing and consummation of the transactions called for
by this Agreement shall be conducted shall also be determined by the mutual
agreement of GAPC-Florida, GAPC and the Holders, with consultation from the
Underwriter. In no event shall the Closing Date be established on a date
subsequent to November 12, 1997 unless this Agreement is amended by an Addendum
executed and delivered by GAPC-Florida, GAPC, Gateway and the Holders. The
facilities of the United States mail or other acceptable, publicly available
means of delivery, may be utilized to effect the closing of the transactions
called for by this Agreement.
9.3 Deliveries at Closing.
a. On the Closing Date, the Holders shall deliver instruments of
conveyance in form and content satisfactory to counsel for GAPC conveying to
GAPC good and valid title to all of the outstanding Membership Interest of
Gateway, as such Membership Interest is outstanding on the Closing Date. The
Holders shall make such additional deliveries and provide such additional
documents as may be reasonably required in order to facilitate the consummation
of the transactions called for by this Agreement.
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b. On the Closing Date, Gateway shall deliver to GAPC all of its records,
files and entity paraphernalia which is required in connection with the entity
existence and conduct of the business of GAPC. Gateway shall also deliver the
opinion of counsel as required by Article X, Section 10.5 of this Agreement.
c. On the Closing Date, GAPC shall deliver an aggregate 2,025,000 GAPC
Shares in such individual Share amounts and certificates as shall be instructed
by the Holders and Gateway in writing immediately prior to the Closing Date.
With respect to share certificates evidencing GAPC Shares delivered to Deutsch,
Farkas and Messina, such certificates shall bear an appropriate restrictive
endorsement indicating that such shares have not been registered under the Act
or applicable Blue Sky Statutes. With respect to the consummation of the public
offering of the GAPC Shares and the Public Warrants, GAPC shall effect the
delivery of those documents required by the Governing Documents existing between
GAPC and the Underwriter on the Closing Date specified in the Governing
Documents. GAPC shall also deliver the opinion of its counsel as required by
Article XI, Section 11.6 of this Agreement, as well as the required certificates
of the officers of GAPC as provided by Article XI, Section 11.3 hereof.
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ARTICLE X
Conditions Precedent to Obligations of GAPC-Florida and GAPC
The obligations of GAPC-Florida and GAPC under the terms and provisions
of this Agreement and the consummation of the transactions called for by this
Agreement are subject to the following conditions:
10.1 Execution by all Holders. To the extent that additional Membership
Interest is issued and sold by Gateway, such additional Holders shall also
become signatories to this Agreement within five days of the issuance of such
additional Membership Interest.
10.2 No Adverse Development. There shall have occurred no material,
adverse change in the business, financial condition or composition of the assets
of Gateway since the date of this Agreement and Gateway shall not have sustained
since the date of this Agreement any loss on account of fire, flood, accident,
strike or other calamity of such a character as to interfere materially with the
continuous operation of Gateway's business or which materially adversely affects
the financial position or business of Gateway, regardless of whether any such
loss shall have been insured.
10.3 No Breach of Representations, Warranties or Covenants of the
Agreement. The representations and warranties made by Gateway and the Holders,
as set forth in this Agreement, shall be correct and complete in all material
respects when made and shall be deemed to have been made again on and as of the
Closing Date and shall then be true and correct in all material respects on and
as of the Closing Date. With respect to the representations and warranties made
by the Holders in this Agreement, such Holders shall have delivered to GAPC a
certificate to the foregoing effect dated as of the Closing Date. Additionally,
each of the Holders and Gateway shall have performed all of the obligations
required to be performed by them under this Agreement prior to and as of the
Closing Date.
35
<PAGE>
10.4 Accomplishment of Action Described in Article III, Section 3.4.
Gateway and the Holders shall have effectively accomplished, on a diligent and
timely basis, all action required of Gateway and the Holders with respect to the
preparation, filing and processing to effectiveness of the Registration
Statement relating to the public offer of the GAPC Shares and Public Warrants as
is contemplated by Article III, Section 3.4 of this Agreement and elsewhere
herein.
10.5 Opinion of Counsel. On the Closing Date, GAPC-Florida and GAPC shall
receive the opinion of counsel of Gateway substantially in the form of Schedule
XIV hereto.
10.6 Employment Agreements. On or before the Closing Date, Deutsch, Farkas
and Messina shall have entered into appropriate written employment agreements
with GAPC providing for the services of such Holders in the capacity as
President, one or more Vice Presidents, Secretary and Treasurer-Chief Financial
Officer. Such written employment agreements shall have such terms as may be
determined by Deutsch, Farkas and Messina and as are described in the New Letter
of Intent and shall be approved by the Board of Directors of GAPC as constituted
on and subsequent to the Closing Date and shall be effective as of the Closing
Date. The form of such proposed Employment Agreements shall be included as an
Exhibit to the Registration Statement relating to the public offering of the
GAPC Shares and Public Warrants. Such employment agreements may be the three
employment agreements presently existing between Deutsch, Farkas, Messina and
Gateway and GAPC shall assume the obligations and duties of Gateway arising from
such employment agreements.
10.7 Certificates Required by Representative of the Underwriters. GAPC
shall have prepared the GAPC Share and Public Warrant certificates required by
the Underwriter in connection with the consummation of the public offering of
the 1,500,000 GAPC Shares and 3,000,000 Public Warrants or such greater number
of GAPC Shares and Public Warrants as may be sold to the public pursuant to
over-allotment option which is set forth in the New Letter of Intent and shall
have satisfied such further conditions as may be imposed by the Underwriter with
respect to any lock-up provisions as is set forth in the New Letter of Intent.
36
<PAGE>
ARTICLE XI
Conditions Precedent to Obligation of Gateway and Holders
The obligations of Gateway and each of the Holders to convey their
Membership Interest in Gateway are, in each of their discretion, subject to the
following conditions:
11.1 No Adverse Development. There shall have occurred no material,
adverse change in the status, financial condition or asset composition of
GAPC-Florida or GAPC since the date of this Agreement except as contemplated by
this Agreement.
11.2 Time of Consummation. The transactions called for by this Agreement,
specifically those transactions enumerated in Article I hereof, shall be
scheduled for consummation and closing and shall be consummated and closed no
later than November 12, 1997.
11.3 No Breach of Representations, Warranties and Covenants. The
representations and warranties made by GAPC-Florida or GAPC in this Agreement
shall be correct and complete in all material respects when made and shall be
deemed to have been made again at and as of the Closing Date and shall then be
true and correct in all material respects on and as of that date. GAPC-Florida
and GAPC shall have performed in all material respects the obligations required
to be performed by them under this Agreement prior to and as of the Closing Date
37
<PAGE>
including, without limitation, the obligation of GAPC-Florida and GAPC to
diligently use its best efforts to prepare, file and process to effectiveness
the Registration Statement relating to the public offer of the GAPC Shares and
Public Warrants. GAPC-Florida and GAPC shall each have delivered to the Holders
a certificate to the effect contemplated by this Section 11.3 signed by the
Chief Executive Officers of GAPC-Florida and GAPC and dated immediately prior to
the Closing Date.
11.4 Matters Relating to the Public Offering. Unless otherwise agreed to
by the Holders, upon the consummation of the transactions called for by Article
I of this Agreement, the record ownership of the GAPC Shares sold, issued and
exchanged pursuant to the provisions of Article I of this Agreement, shall be
held by the categories of Holders as set forth in the Agreement section
captioned BACKGROUND on and after the Closing Date without taking into account
the utilization of any over-allotment provisions by the Underwriter as provided
in the Governing Documents or the exercise of any Public Warrant or any other
warrant which may be outstanding on and immediately subsequent to the Closing
Date.
11.5 Treatment of Transaction. On or before the Closing Date, Deutsch,
Farkas and Messina shall receive the advisement of their counsel in form and
content satisfactory to them that the transactions called for by this Agreement
will satisfy the conditions and will be eligible for the treatment afforded
pursuant to Section 351 of the Internal Revenue Code of 1986, as amended to
date. Such opinion may be conditioned upon the consummation of the public
offering of the GAPC Shares and Public Warrants as described herein and in the
Governing Documents.
38
<PAGE>
11.6 Opinion of Counsel. The Holders shall, on the Closing Date, be in
receipt of the opinion of counsel for GAPC-Florida and GAPC substantially in the
form of Schedule XV hereto.
11.7 Deliveries in Connection with the Public Offering. GAPC shall, on the
Closing Date, have or be capable of performing all required acts and effecting
the delivery of all required documents as are required by the terms of the
Underwriting Agreement existing between GAPC and the Underwriter and other
governing and binding agreements relating to the public offering of the GAPC
Shares and Public Warrants and all other conditions and requirements imposed in
connection with the public offering of the GAPC Shares and Public Warrants shall
have been met or shall be capable of being complied with.
11.8 Appointment to GAPC Board of Directors. Immediately prior to the
Closing Date and subject to the Governing Documents, corporate and board of
Director action of GAPC shall be in place appointing Deutsch, Farkas and Messina
as members of the Board of Directors of GAPC to serve until the next subsequent
meeting of the shareholders of GAPC at which directors are to be elected is
convened or until the successors of such persons are elected or appointed.
11.9 Assumption of Gateway Liabilities. On the Closing Date, GAPC shall
assume and agree to pay in accordance with its terms the obligation constituted
by the Gateway Note to the extent that such obligation remains unpaid and shall
agree to indemnify Deutsch, Farkas and Messina with respect to their joint and
several obligation to guarantee the obligation constituted by the Gateway Note
and the additional indebtedness of Gateway herein-described, if any, and
existing on the Closing Date. Such undertaking of GAPC shall be by written
instrument in form and content satisfactory to counsel to Gateway and the
Holders.
39
<PAGE>
ARTICLE XII
Indemnification, Survival of Representations and Warranties
12.1 Indemnification by Deutsch, Farkas and Messina. Deutsch, Farkas
and Messina, jointly and severally, agree to and do hereby indemnify and hold
GAPC-Florida and GAPC and persons controlling GAPC-Florida and GAPC harmless
from and against any and all liability, loss, damage, expense, cost or injury,
including, without limitation, those resulting from and an all actions, suits,
proceedings, and judgments, together with reasonable costs and expenses,
including, without imitation, reasonable legal expenses relating thereto
(collectively "Losses") arising out of resulting from any breach of the
representations, warranties and covenants made by Gateway, Deutsch, Farkas
and/or Messina in this Agreement.
12.2 Indemnification by GAPC-Florida and GAPC. GAPC-Florida and GAPC agree
to and do hereby indemnify and hold Gateway, Deutsch, Farkas and/or Messina
harmless from and against Losses arising out of or resulting from any breach of
the representations, warranties and covenants made by GAPC-Florida and GAPC in
this Agreement.
12.3 Limitations Regarding Indemnification. GAPC-Florida and GAPC shall
not be entitled to recover any Loss in respect of the representations and
warranties made by Gateway, Deutsch, Farkas and/or Messina in Article IV, unless
the aggregate of all such Losses arising out of Article IV exceed $50,000, in
which case recovery shall be limited to the amount of all such Losses in excess
of $50,000. Any recovery for breaches under Article IV shall be subject to
offset to the extent that Gateway and its financial condition was better than as
represented in Article IV. Alternatively, GAPC may elect as the sole recourse
for a breach by Gateway, Deutsch, Farkas and/or Messina of the representations
and warranties contained in Article IV the recovery and return to GAPC of the
GAPC Shares received by Gateway, Deutsch, Farkas and/or Messina pursuant to
Article I hereof and not otherwise transferred by them.
40
<PAGE>
12.4 Procedures for Third Party Indemnification. If any action, suit or
proceeding shall be commenced against, or any claim or demand be asserted
against GAPC-Florida, GAPC or its controlling persons or Gateway, Deutsch,
Farkas and/or Messina, as the case may be, in respect of which such party
proposes to demand indemnification under this Section 12.4, as a condition
precedent thereto, the party seeking indemnification ("Indemnitee") shall
promptly notify the other party ("Indemnitor") in writing to that effect, and
with reasonable particularity containing a reference to the provisions of this
Agreement. The Indemnitor shall have the right to assume the entire control of,
including the selection of counsel, subject to the right of the Indemnitee to
participate (at its expense and with the counsel of its choice) in, the defense,
compromise or settlement thereof, and in connection therewith, the Indemnitee
shall cooperate fully in all respects with the Indemnitor in any such defense,
compromise or settlement thereof, and Indemnitee shall make available to
Indemnitor all pertinent information and documents under the control of the
Indemnitee. So long as the Indemnitor is defending in good faith any such claim
or demand asserted by a third party against the Indemnitee, the Indemnitee shall
not settle or compromise such claim or demand without the prior written consent
of the Indemnitor, which consent will not be unreasonably withheld or delayed.
If the Indemnitor shall fail to defend any such action, suit, proceeding, claim
or demand, then the Indemnitee may defend, through counsel of its own choosing,
such action, suit, proceeding, claim or demand and (so long as Indemnitee gives
the Indemnitor at least five (5) days written notice of the terms of the
proposed settlement thereof and permits the Indemnitor to then undertake the
defense thereof if Indemnitor objects to the proposed settlement) to settle such
action, suit, proceeding, claim or demand and to recover from the Indemnitor the
amount of such losses.
41
<PAGE>
12.5 Survival of Representations, Warranties and Indemnities. The
representations and warranties of this Agreement, and indemnification in respect
of the same, shall survive the Closing Date for a period of three (3) years,
after which time such representations and warranties, and indemnification in
respect thereof, shall be of no further force and effect unless prior to such
time, the party claiming a breach has served on the other written notice of such
claim or breach.
ARTICLE XIII
Miscellaneous Provisions
13.1 Notices. All notices or other communications required or permitted
under this Agreement shall be in writing and shall be given by mail or by
facsimile transmission (in the event of facsimile transmission, a conforming
copy shall be mailed postage prepaid simultaneously therewith). If notice is to
be given to GAPC, Gateway or any Holder, such notice shall be deemed given when
provided in the manner provided herein to such Holder in care of Gilbert L.
McSwain, Esq., 1660 South Albion Street, Suite 309, Denver, Colorado 80222,
facsimile number 303/758-9203 with a copy to Harvey E. Deutsch, Esq., Gateway
American Properties, L.L.C., 9145 East Kenyon Avenue, Suite 200, Denver,
Colorado 80237, facsimile number: 303/694-3831; and if to GAPC-Florida, c/o
William T. Kirtley, Esq., William T. Kirtley, P.A., 2940 South Tamiami Trail,
Sarasota, Florida 34239, facsimile number: 941/955-4027.
13.2 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns, heirs and representatives.
42
<PAGE>
13.3 Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original of this Agreement,
but all of which together shall constitute one and the same instrument.
13.4 Background Statement, Schedules and Exhibits. The BACKGROUND
statement of the Agreement, the annexed Exhibits and Schedules shall be
construed with and as an integral part of this Agreement to the same extent as
if such Background statement, Exhibits and Schedules had been set forth verbatim
herein.
13.5 Entire Agreement. This Agreement constitutes the entire understanding
on the part of the parties hereto, and all previous agreements and
understandings are superseded by this Agreement.
13.6 Publicity. No publicity, release or announcement concerning this
Agreement or the transactions contemplated hereby shall be issued without
advance approval of the form and substance thereof by GAPC-Florida, GAPC and
Deutsch, Farkas and Messina (by the majority vote of such Members), which
approval shall not be unreasonably withheld, provided that this restriction
shall not apply to normal communications of the parties with their employees.
13.7 Attorneys' Fees in Connection with Litigation. In the event of any
litigation arising out of or in connection with this Agreement, the prevailing
party shall be entitled to recover from the other its reasonable attorney's fees
and costs.
13.8 Cooperation. GAPC-Florida, GAPC, Gateway and the Holders agree to
execute such instruments and take such other actions as contemplated by this
Agreement to effectuate closing.
13.9 Applicable Law. This Agreement shall be governed by the laws of the
State of Florida except in those instances where the laws of Colorado are
applicable to circumstances relating to GAPC, Gateway or with respect to the
public offering of the GAPC Shares and Public Warrants as to which the
applicable provisions of the Act or any Blue Sky Statute are applicable.
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
GATEWAY AMERICAN PROPERTIES CORPORA-
TION, a Florida corporation
By /s/ James T. McDonough
----------------------------
James T. McDonough, President
ATTEST:
/s/ William T. Kirtley
- -----------------------------------
William T. Kirtley, Secretary
GATEWAY AMERICAN PROPERTIES CORPORA-
TION, a Colorado corporation
By /s/ Harvey E. Deutsch
----------------------------
Harvey E. Deutsch, President
ATTEST:
/s/ Joel H. Farkas
- -----------------------------------
Joel H. Farkas, Secretary
GATEWAY AMERICAN PROPERTIES, L.L.C.
By /s/ Harvey E. Deutsch
----------------------------
Harvey E. Deutsch, Managing Partner
HOLDERS OF OUTSTANDING MEMBERSHIP
INTEREST
/s/ Harvey E. Deutsch
----------------------------
Harvey E. Deutsch
/s/ Joel H. Farkas
----------------------------
Joel H. Farkas
44
<PAGE>
/s/ Michael A. Messina
----------------------------
Michael A. Messina
/s/ Jack E. Reutzel
----------------------------
Jack E. Reutzel
/s/ James T. Weigel
----------------------------
James T. Weigel
/s/ Jeffrey Kenneth Prager
----------------------------
Jeffrey Kenneth Prager
/s/ John M. Spillane
----------------------------
John M. Spillane
45
EXHIBIT (3)(a)
ARTICLES OF INCORPORATION
OF
GATEWAY AMERICAN PROPERTIES CORPORATION
ARTICLE I - Name
The name of the corporation is GATEWAY AMERICAN PROPERTIES CORPORATION.
19971044938 C
$ 50.00
SECRETARY OF STATE
03-21-97 13:55:08
ARTICLE II - Initial Principal Office
The initial principal office of the corporation shall be 9145 East Kenyon
Avenue, Suite 200, Denver, CO 80237-1810.
ARTICLE III - Period of Duration
The corporation shall exist in perpetuity, from and after the date of
filing these Articles of Incorporation with the Secretary of State of the State
of Colorado unless dissolved according to law.
ARTICLE IV - Purposes and Powers
Section 1. Purposes. Except as restricted by these Articles of
Incorporation, the corporation is organized for the purpose of transacting all
lawful business for which corporations may be incorporated pursuant to the
Colorado Business Corporation Act, as amended (the "Act")
<PAGE>
Section 2. General Powers. The corporation shall have and may exercise any
and all powers and rights which a corporation may exercise legally pursuant to
the Act.
ARTICLE V - Capital Stock
Section 1. Shares Authorized. This corporation is authorized to issue one
class of shares of stock to be designated as "Common Stock." The total number of
shares that may be issued by this corporation is 20,000,000 shares having a par
value of $0.01. All or any part of the shares of the Common Stock may be issued
by the corporation from time to time for such consideration as may be determined
and fixed by the Board of Directors, as provided by law, and when such
consideration has been received by the corporation, such shares shall be deemed
fully paid.
Section 2. Dividends. Dividends in cash, property, or shares of the
corporation may be paid upon the Common stock, as and when declared by the Board
of Directors, out of funds of the corporation to the extent and in the manner
permitted by law.
Section 3. Liquidation. In the event of voluntary or involuntary
liquidation, dissolution or winding up of the corporation, and after paying or
adequately providing for the payment of all its obligations, the holders of the
Common Stock shall be entitled to receive all the remaining assets of the
corporation available for distribution to its stockholders ratably in proportion
to the number of shares of Common Stock held by them respectively.
Section 4. Voting Rights; Non-Cumulative Voting. Each outstanding share of
Common Stock shall be entitled to one (1) vote and each fractional share of
Common Stock shall be entitled to a corresponding fractional vote on each matter
submitted to a vote of shareholders. A majority of the outstanding shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. When, with respect to any action taken by
shareholders of this corporation, the Act requires the vote or concurrence of
the holders of greater than a majority of the outstanding shares of the
corporation, the Act shall control. Except as otherwise provided by these
Articles of Incorporation or the Act, if a quorum is present, the affirmative
vote of a majority of the shares represented at the meeting and entitled to vote
on the subject matter shall be the act of the shareholders. Cumulative voting in
the election of directors will not be allowed.
2
<PAGE>
Section 5. Preemptive Rights. No holder of any shares of the corporation
shall, as such, have any preemptive right to purchase or to subscribe for any
shares of the Common Stock or any other securities of the corporation which it
may issue or sell, whether out of the number of shares authorized by the
Articles of Incorporation of the corporation as originally filed, or by any
amendment thereof, or out of shares of the Common Stock of the corporation
acquired by it after the issue thereof, nor shall any holder of any such share,
as such, have any right to purchase or subscribe for any obligation which the
corporation may issue or sell that shall be convertible into or exchangeable for
any shares of the Common Stock of the corporation, or which shall be attached or
appertain to any warrant or warrants or any instrument or instruments that shall
confer upon the owner of such obligation, warrant or instrument the right to
subscribe for or to purchase from the corporation any shares of its Common
Stock.
ARTICLE VI - Corporate Opportunity
The officers, directors, and other members of management of this
corporation shall be subject to the doctrine of "corporate opportunities" only
insofar as it applies to business opportunities in which this corporation has
expressed an interest as determined from time to time by this corporation's
Board of Directors as evidenced by resolutions appearing in the corporation's
minutes. Once such areas of interest are delineated, all such business
opportunities within such areas of interest which come to the attention of the
3
<PAGE>
officers, directors and other members of management of this corporation shall be
disclosed promptly to this corporation and made available to it. The Board of
Directors may reject any business opportunity presented to it and thereafter any
officer, director or other member of management may avail himself of such
opportunity. Until such time as this corporation, through its Board of
Directors, has designated an area of interest, the officers, directors and other
members of management of this corporation shall be free to engage in such areas
of interest on their own and this doctrine shall not limit the rights of any
officer, director or other member of management of this corporation to continue
a business existing prior to the time that such area of interest is designated
by the corporation. This provision shall not be construed to release any
employee of this corporation (other than an officer, director or member of
management) from any duties which he may have to this corporation.
ARTICLE VII - Initial Registered Office and Agent
The street address of the initial registered office of this corporation is
9145 East Kenyon Avenue, Suite 200, Denver, CO 80237-1810, and the name of the
initial registered agent of this corporation at that address is HARVEY E.
DEUTSCH.
ARTICLE VIII - Incorporator
The name and address of the person signing these Articles is: HARVEY E.
DEUTSCH, 9145 East Kenyon Avenue, Suite 200, Denver, CO 80237-1810.
ARTICLE IX - Bylaws
The initial Bylaws of the corporation shall be adopted by its Board of
Directors. The power to adopt, alter, amend or repeal Bylaws of this corporation
shall be vested in either the Board of Directors or shareholders; provided,
however, that the Board of Directors may not alter, amend or repeal any Bylaw
adopted by the shareholders if the shareholders specifically provide that the
Bylaw is not subject to alteration, amendment or repeal by the Board of
Directors.
4
<PAGE>
ARTICLE X - Amendment
The corporation reserves the right to amend its Articles of Incorporation
from time to time in accordance with the Colorado Business Corporation Act.
ARTICLE XI - Indemnification
Section 1. Right to Indemnification. The corporation shall indemnify any
person who was, is, or is threatened to be made a party to any threatened,
pending or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal (other than an
action by or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee, fiduciary or agent of the corporation or
who, while a director, officer, employee, fiduciary or agent of the corporation,
is or was serving at the request of the corporation as a director, officer,
partner, employee, fiduciary, or agent of another corporation, partnership,
joint venture, trust, other enterprise or employee benefit plan, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, to the extent that and under the circumstances in
which the Act permits such indemnification. The corporation shall indemnify any
person who was, is, or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, fiduciary or agent of the corporation or
who, while a director, officer, employee, fiduciary or agent of the corporation,
is or was serving at the request of the corporation as a director, officer,
employee, fiduciary or agent of another corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with such
action, suit or proceeding, to the extent that and under the circumstances which
the Act permits such indemnification.
5
<PAGE>
Section 2. Manner of Indemnification. Any indemnification under this
Article (unless ordered by a court) shall be made as authorized in a specific
case upon a determination that indemnification of the director, officer,
employee, fiduciary, or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in the Act with respect to
indemnification of directors. Such determination may be made: (a) by the Board
of Directors by a majority vote of a quorum consisting of Directors who were not
parties to such action, suit, or proceeding, or (b) if such a quorum is not
obtainable, by a majority vote of a committee of the Board designated by the
Board, which committee shall consist of two (2) or more Directors who were not
parties to the action, suit, or proceeding, except that Directors who were
parties to the action, suit, or proceeding may participate in the designation of
Directors for the committee. If such quorum is not obtainable or such committee
cannot be established pursuant to (a) and (b) above, or even if such quorum is
obtained or such committee is designated if such quorum or committee so directs,
such determination shall be made: (a) by independent legal counsel selected by
vote of the Board of Directors or the committee in the manner specified in (a)
or (b) above (as the case may be) or, if a quorum cannot be obtained and a
committee cannot be established pursuant to (a) and (b) above, by independent
legal counsel selected by a majority vote of the full Board. Authorization of
indemnification and evaluation as to reasonableness of expenses may be made in
the same manner as the determination that indemnification is proper is made;
except that, if the determination that indemnification is proper is made by
independent legal counsel (as set forth above), authorization of indemnification
and evaluation as to reasonableness of expenses may be made by the body that
selected said counsel.
6
<PAGE>
Section 3. Non-Exclusive Right. The foregoing right of indemnification
shall not be deemed exclusive of any other right to which those seeking
indemnification may be entitled and shall continue as to a person who has ceased
to be a director, officer, employee, fiduciary, or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 4. Personal Liability. The personal liability of a director to the
corporation or to its shareholders for monetary damages for breach of fiduciary
duty as a director is hereby eliminated, except that such provision shall not
eliminate or limit the liability of a director to the corporation or its
shareholders for monetary damages for: any breach of the director's duty of
loyalty to the corporation or to its shareholders; acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
acts specified in Section 7-108-403 of the Act; or any transaction from which
the director derived an improper personal benefit.
Section 5. Vote to Amend. A vote of two-thirds (2/3) of each class of stock
entitled to vote shall be required to amend this article.
7
<PAGE>
ARTICLE XII - BOARD OF DIRECTORS
Section 1. Number. The number of Directors of the corporation shall be
between three (3) and five (5), which number may be increased or decreased
pursuant to the bylaws of the corporation but shall never be less than one (1),
provided that:
(a) If there is no stock outstanding, the number of Directors may be
less than three (3) but not less than one (1); and
(b) If there is stock outstanding, and so long as there are less
than two (2) shareholders, the number of Directors may be less than two (2) but
not less than the number of shareholders.
Section 2. Initial Board. The initial Board of Directors of the
corporation shall consist of three (3) directors. The names and addresses of the
persons who shall serve as such directors until the first annual meeting of the
shareholders and until their successors are elected and shall qualify are as
follows:
NAME ADDRESS
Harvey E. Deutsch 9145 East Kenyon Avenue
Suite 200
Denver, CO 80237-1810
Michael A. Messina 9145 East Kenyon Avenue
Suite 200
Denver, CO 80237-1810
Joel H. Farkas 9145 East Kenyon Avenue
Suite 200
Denver, CO 80237-1810
8
<PAGE>
IN WITNESS WHEREOF, I have signed these Articles of Incorporation on this
20th day of March, 1997.
/s/ Harvey E. Deutsch
----------------------------
HARVEY E. DEUTSCH
The undersigned, having been designated in the foregoing Articles of
Incorporation as Registered Agent, hereby agrees to accept said designation.
/s/ Harvey E. Deutsch
----------------------------
HARVEY E. DEUTSCH
9
Exhibit 3 (b)
BYLAWS
of
GATEWAY AMERICAN PROPERTIES CORPORATION
A COLORADO CORPORATION
ARTICLE I. OFFICES
Section 1. Business Offices. GATEWAY AMERICAN PROPERTIES CORPORATION
(hereinafter referred to as the "Corporation"), may have such offices, either
within or without the State of Colorado, as the Board of Directors may designate
from time to time. The initial principal office of the Corporation is 9145 East
Kenyon Avenue, Suite 200, Denver, CO 80237-1810
Section 2. Registered Office. The Corporation shall maintain a registered
office in the State of Colorado, which may be changed from time to time by the
Board of Directors. The street address of the initial registered office of the
Corporation is 9145 East Kenyon Avenue, Suite 200, Denver, CO 80237-1810, and
the name of the initial registered agent of the Corporation at that address is
Harvey E. Deutsch.
ARTICLE II. PURPOSES AND POWERS
Section 1. Purposes. Except as restricted by these Bylaws, the Corporation
is organized for the purpose of transacting all lawful business for which
corporations may be incorporated pursuant to the Colorado Business Corporation
Act, as amended (the "Act").
Section 2. General Powers. Except as restricted by these Articles of
Incorporation, the Corporation shall have and may exercise any and all powers
and rights which a corporation may exercise legally pursuant to the Act.
ARTICLE III. SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of shareholders of the
Corporation shall be held subsequent to the end of each fiscal year of the
Corporation on such date and at such hour as the Board of Directors shall
annually determine. If the election of Directors shall not be held on the day
designated herein for an annual meeting of the shareholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as may be
convenient.
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Section 2. Special Meetings. Special meetings of the shareholders may be
called by the President or the Board of Directors, and shall be called by the
President or Secretary upon the written request of the holders of not less than
one-tenth (1/10) of all outstanding shares of the Corporation entitled to vote
at the meeting. No business shall be transacted at any special meeting unless
such business is stated in the notice of the meeting as one of the purposes of
that special meeting.
Section 3. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Colorado, as the place of meeting
for any annual meeting or for any special meeting of the shareholders. A waiver
of notice signed by all shareholders entitled to vote at a meeting may designate
any place, either within or without the State of Colorado, as the place for the
holding of such meeting. If no such designation is made, the place of meeting
shall be the principal place of business of the Corporation in the State of
Colorado.
Section 4. Notice of Meeting. Written notice stating the place, day and
hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called shall, unless otherwise prescribed by
statute, be delivered not less than ten (10) nor more than sixty (60) days
before the date of the meeting, either personally or by first class mail, by or
at the direction of the President, the Secretary, or the other person(s) calling
the meeting, to each shareholder of record entitled to vote at such meeting;
except that if the number of authorized shares is to be increased, at least
thirty (30) days' notice shall be given. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid.
Section 5. Notice of Adjourned Meeting. When a meeting is adjourned to
another time or place, it shall not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and at this
adjourned meeting any business may be transacted that might have been transacted
on the original date of the meeting.
Section 6. Waiver of Notice of Meetings of Shareholders. Whenever any
notice is required to be given to any shareholder of the Corporation under the
provisions of any statute or under the provisions of the Bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a person at a meeting, whether in person or
by proxy, (a) shall constitute a waiver of an objection by such shareholder to
lack of notice or defective notice of such meeting unless the shareholder, at
the beginning of the meeting, objects to the holding of the meeting or the
transacting of business at the meeting, and (b) shall constitute a waiver of an
objection by such shareholder to consideration at such meeting of a particular
matter not within the purpose or purposes described in the meeting notice unless
the shareholder objects to considering the matter when it is presented. Neither
the business to be transacted at, nor the purpose of, any annual or special
meeting of the shareholders need be specified in any written waiver of notice.
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Section 7. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in the order to make a determination of
shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, sixty (60) days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
(10) days immediately preceding such meeting. In lieu of closing the stock
transfer books, the Board of Directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than sixty (60) days and, in the case of a meeting of shareholders, not
less than ten (10) days prior to the date on which the particular action
requiring such determination of shareholders is to be taken. If the stock
transfer books are not closed and no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
or shareholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the Board
of Directors declaring such dividend is adopted, as the case may be, shall be
the record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this Section III.7, such determination shall apply to any
adjournment thereof, unless the Board of Directors fixes a new record date for
the adjourned meeting. All notice and record periods established herein shall be
adjusted where required to conform to any prescribed periods now or hereafter
provided by the Act.
Section 8. Shareholder Quorum and Action.
(a) A majority of the outstanding shares of the Corporation entitled
to vote, represented in person or by proxy, shall constitute a quorum at a
meeting of shareholders for the transaction of any business; provided, however,
that when a specified item of business is required to be voted on by a class or
classes, representatives of a majority of the shares of such class or classes
shall constitute a quorum for the transaction of such specified item of
business. Unless otherwise required by law, the vote of a majority of the shares
present at the time of a vote, if a quorum is or has been present, shall be the
act of the shareholders.
(b) If less than a majority of the outstanding shares entitled to
vote thereat are represented at a meeting, or for any valid business reason at a
meeting where such majority is present, a majority in interest of the
shareholders present may adjourn the meeting from time to time to a fixed date
without further notice as to the time and place of such adjourned meeting, but
each adjournment shall be for a period not in excess of sixty (60) days. At any
such adjourned meeting at which a quorum shall be present or represented, only
such business may be transacted which might have been transacted at a meeting as
originally scheduled, unless all shares are represented and do not object.
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(c) When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any shareholder and those remaining may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
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Section 9. Voting.
(a) At all meetings of shareholders, voting may be viva voce;
however, any qualified voter may demand a stock vote, whereupon such vote shall
be taken by ballot and the Secretary shall record the name of the shareholder
voting, the number of shares voted, and, if such vote shall be by proxy, the
name of the proxy holder.
(b) Each shareholder shall have one vote for each whole share of
stock of the Corporation entitled to vote issued and outstanding which is
registered in his name on the books of the Corporation, except as otherwise
provided in the Articles of Incorporation or the Act and except where the
transfer books of the Corporation shall have been closed or a date shall have
been fixed as a record date for the determination of shareholders entitled to
vote prior to his becoming a shareholder. A complete list of shareholders
entitled to vote at such meeting of the shareholders or any adjournment thereof,
arranged in alphabetical order and setting forth the number of voting shares
held by each shareholder, shall be prepared by the Secretary or the transfer
agent of the Corporation who shall have charge of the stock ledger and stock
transfer books of the Corporation. Such list shall be subject to inspection by
any shareholder at the principal office of the Corporation during business hours
for ten (10) days prior to such meeting and throughout the meeting or any
adjournment thereof.
(c) Shares of stock of the Corporation entitled to vote standing in
the name of another corporation may be voted by such officer, agent or proxy as
the bylaws of such corporation may prescribe or, in the absence of such
provision, as the board of directors of such corporation may determine.
(d) Shares of stock of the Corporation entitled to vote held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares of
stock of the Corporation entitled to vote standing in the name of a trustee may
be voted by him without a transfer of such shares into his name. Shares of stock
of the Corporation entitled to vote standing in the name of a receiver may be
voted by such receiver and shares of stock of the Corporation entitled to vote
held by or under the control a receiver may be voted by such receiver, without
the transfer thereof into his name if authority to so do is contained in an
appropriate order of the Court by which the receiver was appointed. A
shareholder whose shares are pledged shall be entitled to vote such shares of
stock of the Corporation entitled to vote until the shares have been transferred
into the name of the pledgee and, thereafter, the pledgee shall be entitled to
vote the shares so transferred.
(e) Shares of its own stock belonging to the Corporation or held by
it in a fiduciary capacity shall not be voted, directly or indirectly, at any
meeting and shall not be counted in determining the total number of outstanding
shares at any given time.
Section 10. Proxies. Every shareholder entitled to vote at a meeting of
the shareholders or to express consent or dissent without a meeting or a
shareholder's duly authorized attorney-in-fact may authorize another person or
persons to act for him by proxy. Every proxy must be signed by the shareholder
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or his attorney-in-fact and delivered to the Secretary of the Corporation prior
to or during the roll call at the meeting, or be returned to the Corporation
with the signed consent to action without a meeting. No proxy shall be valid
after the expiration of eleven (11) months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the shareholder executing it, except as otherwise provided by law.
Section 11. Action by Shareholders Without a Meeting. Any action that may
be taken by vote may be taken without a meeting if the action is evidenced by
one or more written consents describing the action taken, signed by each
shareholder entitled to vote and delivered to the Secretary of the Corporation
for inclusion in the minutes or for filing with the corporate records. Action
taken under this Section III.11 is effective when all shareholders entitled to
vote have signed the consent, unless the consent specifies a different effective
date. Such written consent of the shareholders entitled to vote has the same
force and effect as a unanimous vote of such shareholders and may be stated as
such in any document. The record date for determining shareholders entitled to
take action without a meeting is the date the first shareholder signs a consent
in accordance with this Section III.11.
Section 12. No Cumulative Voting. Cumulative voting for the election of
Directors of the Corporation shall not be available to the shareholders of the
Corporation.
Section 13. Inspectors. The Board may, in advance of any meeting of
shareholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots,
or consents; hear and determine all challenges and questions arising in
connection with the right to vote; count and tabulate all votes, ballots, or
consents; determine the result; and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the chairman
of the meeting or any shareholder entitled to vote thereat, the inspectors shall
make a report in writing of any challenge, request, or matter determined by them
and shall execute a certificate of any fact found by them. No Director or
candidate for the office of Director shall act as an inspector of an election of
Directors. Inspectors need not be shareholders.
ARTICLE IV. DIRECTORS
Section 1. Powers. The business and affairs of the Corporation shall be
managed by its Board of Directors.
(a) The Board of Directors shall have the power from time to time to
provide for the management of the offices of the Corporation at home or abroad
in such manner as they see fit and, in particular, from time to time to delegate
any of the powers of the Board in the course of the current business of the
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Corporation to any standing or special committee or to any officer or agent and
to appoint any persons as agents of the Corporation with such powers (including
the power to sub-delegate) and upon such terms as may be deemed fit.
(b) In addition to the powers and authorities conferred by the
Articles of Incorporation and by these Bylaws upon them, the Board may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or the Articles of Incorporation or by these Bylaws directed or
required to be exercised or done by the shareholders.
Section 2. Number, Tenure and Qualifications. The number of Directors of
the Corporation shall initially be three (3). From time to time, the number of
Directors may be increased or decreased (if the number of Directors then
provided for is more than one) by shareholder action or by resolution of a
majority of the full Board of Directors. Each Director shall hold office until
the next annual meeting of shareholders and until his successor shall have been
elected and qualified. Directors shall be at least eighteen (18) years of age,
but need not be residents of the State of Colorado or shareholders of the
Corporation.
Section 3. Duties of Directors. A Director shall perform his duties as a
director, including his duties as a member of any committee of the Board of
Directors upon which he may serve, in good faith, in a manner he reasonably
believes to be in the best interest of the Corporation, and with such care as an
ordinary prudent person in a like position would use under similar
circumstances. In performing his duties, a Director shall be entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, in each case prepared or presented by:
(a) One or more officers or employees of the Corporation whom the
Director reasonably believes to be reliable and competent in the matters
presented,
(b) Legal counsel, public accountants or other persons as to matters
which the Director reasonably believes to be within such person's professional
or expert competence, or
(c) A committee of the Board of Directors upon which he does not
serve, duly designated in accordance with a provision of the Articles of
Incorporation or the Bylaws, as to matters within its designated authority,
which committee the Director reasonably believes to merit confidence.
A Director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause such reliance
described above to be unwarranted. A person who performs his duties in
compliance with this Section IV.3 shall have no liability by reason of being or
having been a Director of the Corporation.
Section 4. Election and Term of Directors. At the annual meeting of
shareholders, Directors shall be elected by the affirmative vote of the majority
of the shares represented at the meeting and entitled to vote for the election
of Directors. Each Director shall hold office until the next annual meeting of
the shareholders and until his successor has been elected and qualified, or
until his death, resignation, or removal.
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Section 5. Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this Bylaw immediately after, and at the
same place as, the annual election of Directors. The Board of Directors may,
from time to time, by resolution appoint the time and place, either within or
without the State of Colorado, for holding other regular meetings of the Board,
if by it deemed advisable; and such regular meetings shall thereupon be held at
the time and place so appointed, without the giving of any notice with regard
thereto. In case the day appointed for a regular meeting shall fall upon a
Saturday, Sunday or legal holiday in the State of Colorado, such meeting shall
be held on the next succeeding day not a Saturday, Sunday or legal holiday in
the State of Colorado, at the regularly appointed hour.
Section 6. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman, the President or any two
Directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
Colorado, as the place for holding any special meeting of the Board of Directors
called by him or them.
Section 7. Place and Time of Board Meetings. The Board of Directors may
hold its meetings at the offices of the Corporation or at such other places,
either within or without the State of Colorado, as it may from time to time
determine. If the meeting is held without the State of Colorado, notice must be
given by certified mail not less than five (5) days before the meeting, and said
notice shall contain the date, place, and purpose of the meeting. Notice is
given when deposited in the United States mail with postage prepaid.
Section 8. Notice of Meetings of the Board of Directors, Adjournment.
(a) Regular meetings of the Board of Directors may be held without
notice at such time and place as the Board of Directors shall from time to time
determine. Special meetings of the Board of Directors shall be held upon notice
to the Directors and may be called by the President upon two (2) days' notice to
each Director either personally or by mail, telegraph, telephone, telefacsimile,
cable, or wireless, except as provided by Section IV.7. Special meetings shall
be called by the President or by the Secretary in a like manner at the written
request of at least two (2) Directors. Notice of a meeting need not be given to
any Director who submits a waiver of notice, whether before or after the
meeting, or who attends the meeting without objecting at the beginning of the
meeting to the holding of the meeting or the transacting of business at the
meeting.
(b) A majority of the Directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. Notice of the
adjournment shall be given to all Directors who were absent at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other Directors.
Section 9. Waiver of Notice. A Director may waive the requirement of
notice of a special meeting of the Board of Directors by signing a waiver of
notice either before or after the meeting. The attendance of a Director at a
meeting shall constitute a waiver of notice of such meeting and a waiver of any
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and all objections to the place or time of such meeting or the manner in which
it has been called or convened, except when the Director states, at the
beginning of the meeting, any objection to the transaction of business because
the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
Section 10. Quorum and Action. A majority of the number of Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, but if less than such majority is present at the meeting, a
majority of the Directors present may adjourn the meeting from time to time
without further notice. Directors shall be deemed present at a meeting of the
Board of Directors if a conference telephone or similar communications
equipment, by means of which all persons participating in the meeting can hear
each other, is used. Except as otherwise required by statute, by the Articles of
Incorporation or by these Bylaws, the affirmative vote of the majority of the
Directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 11. Presumption of Assent. A Director of the Corporation who is
present at a meeting of the Board of Directors or a committee of the Board of
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless (a) he objects at the beginning of such
meeting to the holding of the meeting or the transacting of business at the
meeting, (b) he contemporaneously requests that his dissent from the action
taken be entered in the minutes of such meeting, or (c) he files his written
dissent to such action with the person presiding at the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
The right of a Director to dissent as to a specific action taken in a meeting of
the Board of Directors or a committee of the Board of Directors pursuant to this
Section IV.11 is not available to a Director who votes in favor of such action.
Section 12. Action Without a Meeting. Any action that may be taken by vote
at a meeting of the Board of Directors or a committee of the Board of Directors
may be taken without a meeting if the action is evidenced by one (1) or more
written consents describing the action taken, signed by each Director or
committee member and delivered to the Secretary of the Corporation for inclusion
in the minutes or for filing with the corporate records. Action taken under this
Section IV.12 is effective when all Directors or committee members have signed
the consent, unless the consent specifies a different effective date. Such
written consent has the same force and effect as a unanimous vote of the
Directors or committee members and may be stated as such in any document.
Section 13. Director Conflicts of Interest. No contract or other
transaction between the Corporation and one or more of its Directors or any
other corporation, firm, association or entity in which one or more of its
Directors are directors or officers or are financially interested, shall be
either void or voidable because of such relationship or interest or because such
Director or Directors are present at the meeting of the Board of Directors or a
committee thereof which authorizes, approves or ratifies such contract or
transaction or because his or their votes are counted for such purpose, if:
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(a) The material facts of such relationship or interest is disclosed
or known to the Board of Directors or committee which, in good faith,
authorizes, approves or ratifies the contract or transaction by the affirmative
vote of a majority, or greater number if required by statute, by the Articles of
Incorporation or by these Bylaws, of the disinterested Directors, even though
the disinterested Directors are less than a quorum; or
(b) The material facts of such relationship or interest is disclosed
or known to the shareholders entitled to vote and they, in good faith,
authorize, approve or ratify such contract or transaction by vote or written
consent; or
(c) The contract or transaction is fair and reasonable to the
Corporation at the time it is authorized by the Board of Directors, a committee
or the shareholders.
Common or interested Directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction. For this purpose,
a "Common Director" is Director of the Corporation that is also a director of
any other corporation, firm, association or entity.
Section 14. Compensation of Directors. The Board of Directors may pay each
Director a stated salary as such or a fixed sum for attendance at meetings of he
Board of Directors or any committee thereof, or both, and may reimburse each
Director for his expenses of attendance at each such meeting. The Board of
Directors may also pay to each Director rendering services to the Corporation
not ordinarily rendered by Directors, as such, special compensation appropriate
to the value of such services, as determined by the Board of Directors from time
to time. None of these payments shall preclude any Director form serving the
Corporation in any other capacity and receiving compensation therefor. The Board
of Directors may determine the compensation of a Director who is an officer for
service as an officer as well as for service as a Director.
Section 15. Resignations. Any Director of the Corporation may resign at
any time either by oral tender of resignation at any meeting of the Board of
Directors or by giving written notice thereof to the Chairman, the President or
the Secretary. Such resignation shall take effect at the time specified
therefor, and unless otherwise specified with respect thereto, the acceptance of
such resignation shall not be necessary to make it effective.
Section 16. Removal. Any Director may be removed with or without cause, at
any time, by the affirmative vote of the holders of record of a majority of the
shares then entitled to vote at an election of Directors, at a meeting of the
shareholders called for the purpose. The vacancy on the Board of Directors
caused by the removal may be filled by the shareholders or, if the shareholders
fail to do so, by the affirmative vote of a majority of the remaining Directors.
Section 17. Vacancies. Any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the number of
Directors, may be filled by the affirmative vote of a majority of the remaining
Directors though less than a quorum of the Board of Directors. A Director chosen
to fill a position resulting from an increase in the number of Directors shall
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hold office until the next annual meeting of shareholders and until his
successor shall have been elected and qualified, or until his death,
resignation, or removal. A Director elected to fill a vacancy caused by
resignation, death, or removal shall be elected to hold office for the unexpired
term of his predecessor.
Section 18. Executive and Other Committees. The Board of Directors, by
resolution adopted by a majority of the entire Board of Directors, may designate
from among its members an executive committee and other committees, each
consisting of two (2) or more Directors. Each such committee shall serve at the
pleasure of the Board of Directors. The Board of Directors, by resolution
adopted in accordance with this Section IV.18, may designate one or more
Directors as alternate members of any such committee, who may act in the place
and stead of any absent member or members at any meting of the committee.
ARTICLE V. OFFICERS
Section 1. Officers. The Board of Directors shall elect or appoint a
President, a Secretary, and a Treasurer, and such other officers (including one
(1) or more Vice Presidents), assistant officers, agents, and employees that the
Board of Directors may deem necessary who shall have such duties, powers, and
functions as hereinafter provided. Any two (2) or more offices may be held by
the same person.
Section 2. Election and Term of Office. As far as practicable, the
officers of the Corporation shall be elected at the regular meeting of the Board
of Directors following the annual election of Directors. If the election of
officers is not held at such meeting, the election shall be held as soon
thereafter as conveniently may be. Officers shall hold office until their
successors shall have been elected, appointed, or chosen and have qualified or
until their death, or until they shall resign or are removed in the manner
provided by these Bylaws. Administrative assistant officers shall hold office at
the pleasure of the President.
Section 3. Removal. Any officer or agent elected or appointed by the Board
of Directors may be removed by the Board of Directors whenever, in its judgment,
the best interests of the Corporation will be served thereby, but the removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
Section 4. Vacancies. A vacancy in any office because of resignation,
removal, death, disqualification or otherwise may be filled by the Board of
Directors for the unexpired portion of the term.
Section 5. Chairman. The Chairman shall preside, when available, at all
meetings of the shareholders and the Board of Directors. He shall have general
executive powers as well as the specific powers conferred by these Bylaws and he
shall also have and may exercise such further powers and duties as from time to
time may be conferred upon or assigned to him by the Board of Directors.
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Section 6. President. The President shall be the chief executive officer of
the Corporation and, under the direction of the Board of Directors, shall have
general responsibility for the management and direction of the business,
properties and affairs of the Corporation. He shall have general executive
powers, including all powers required by law to be exercised by a President of a
Corporation as such, as well as the specific powers conferred by these Bylaws or
by the Board of Directors.
Section 7. Vice President. In the absence of the President or in the event
of his death, inability or refusal to act, the Vice President, if one has been
appointed or elected by the Board of Directors (or in the event there be more
than one Vice President, the Vice Presidents in the order designated at the time
of their appointment or election, or in the absence of any designation, then in
the order of their appointment or election), shall perform the duties of the
President and when so acting, shall have all the powers of and be subject to all
the restrictions upon the President. Each Vice President shall have general
executive powers as well as the specified powers conferred by these Bylaws. He
shall also have such further powers and duties as may from time to time be
conferred upon, or assigned to, him by the Board of Directors or the President.
Any Vice President may sign, with the Secretary or Assistant Secretary,
certificates for shares of the Corporation.
Section 8. Secretary. The Secretary shall (a) keep the minutes of the
proceedings of the Board of Directors and the shareholders in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the Corporation and see that the seal
of the Corporation is affixed to all documents the executive of which on behalf
of the Corporation under its seal is duly authorized; (d) be registrar of the
Corporation and keep a register of the post office addresses of all shareholders
which shall be furnished to the Secretary by the shareholders; (e) have general
charge of the stock transfer books of the Corporation; and (f) in general
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned to him by the Board of Directors.
Section 9. Treasurer. The Treasurer shall (a) keep correct and complete
books and records of account on file in the principal place of business of the
Corporation; (b) have custody of and be responsible for all funds and securities
of the Corporation; (c) receive moneys due and payable to the Corporation from
any source whatsoever; (d) immediately deposit all corporate funds in a bank or
other depository as may be designated by the Board of Directors; (e) disburse
the funds of the Corporation as may be ordered by the President or the Board of
Directors; (f) render to the President or the Board of Directors, at any time,
an account of all the transactions of the Treasurer and of the financial
condition of the Corporation; and (g) in general, perform the duties of the
office of Treasurer and such other duties as may be assigned by the President or
by the Board of Directors. If required by the Board of Directors, the Treasurer
shall give a bond for the faithful discharge of his duties in such sum and with
such surety or sureties as the Board of Directors shall determine.
Section 10. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries, when authorized by the President, may sign with the President or a
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Vice President certificates for shares or the Corporation, the issuance of which
shall have been authorized by a resolution of the Board of Directors. The
Assistant Treasurers shall respectively, if required by the Board of Directors,
give bonds for the faithful discharge of their duties in such sums and with
sureties as the Board of Directors shall determine. The Assistant Secretaries
and Assistant Treasurers, in general, shall perform such duties as shall be
assigned to them by the Secretary or the Treasurer, respectively, or by the
President.
Section 11. Salaries. The salaries of the executive officers shall be
fixed from time to time by the Board of Directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
Director of the Corporation. The salaries of the administrative assistant
officers shall be fixed by the President and Chief Executive Officer.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
the Corporation shall be in such form as shall be determined by the Board of
Directors. The certificates shall be signed by the President or a Vice President
and by the Secretary or an Assistant Secretary and sealed with the corporate
seal or a facsimile thereof certifying the number of shares owned in the
Corporation. The signatures of such officers upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar, other than the Corporation itself or one of its employees. Each
certificate for shares shall be consecutively numbered or otherwise identified.
The certificate representing shares shall state on the face that the Corporation
is organized under the laws of the State of Colorado; the name of the person to
whom issued; the number and class of shares and the designation of the series,
if any, which such certificate represents; the par value of each share
represented by the certificate or a statement that the shares are without par
value. The name and address of the person to whom the shares represented thereby
are issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Corporation. No certificate shall be issued for any
share until such share is fully paid.
Section 2. Transfer of Shares.
(a) Transfers of shares of stock of the Corporation shall be made on
the stock records of the Corporation only upon authorization by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary or with a transfer agent or transfer
clerk, and on surrender of the certificate or certificates for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon.
(b) The Corporation shall be entitled to treat the holder of record
of any share as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share on the
part of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of Colorado.
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Section 3. Lost, Destroyed or Wrongfully Taken Stock Certificates. The
Board of Directors may direct a new certificate for shares to be issued in place
of any certificate theretofore issued by the Corporation alleged to have been
lost, destroyed, or wrongfully taken, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, destroyed, or
wrongfully taken. When authorizing such issue of a new certificate, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, destroyed, or wrongfully taken
certificate, or that person's legal representative, or attorney-in-fact, to give
the Corporation a bond in twice the value of the shares as indemnity against any
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost or destroyed.
ARTICLE VII. BOOKS, RECORDS AND REPORTS
Section 1. Books and Records. The Corporation shall keep correct and
complete books and records of accounts and shall keep minutes of the proceedings
of its Board of Directors and shareholders. The Corporation shall also keep, at
its registered office, a record of its shareholders, giving names and addresses
of all shareholders and the number of shares held by each.
Section 2. Shareholders' Inspection Rights. Any person who shall have been
a holder of record any outstanding shares of the Corporation shall have those
rights to inspect the books and records of the Corporation granted to such
shareholder in conformance with section 7-116-102 of the Act.
ARTICLE VIII. MISCELLANEOUS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors upon consultation with the Corporation's
accountants.
Section 2. Dividends. Dividends may be declared and paid out of any funds
legally available therefor under the laws of Colorado, as may be deemed
advisable from time to time by the Board of Directors of the Corporation. Before
declaring any dividends, the Board of Directors may set aside out of net profits
or earned or other surplus such sums as the Board of Directors may think proper
as a reserve fund to meet contingencies or for other purposes deemed proper and
in the best interests of the Corporation.
Section 3. Corporate Seal. The seal of the Corporation shall be circular
in form and shall bear the name of the Corporation, the state of incorporation
and the word "seal." The seal may be used by causing it to be impressed directly
on the instrument or writing to be sealed, or upon an adhesive substance affixed
thereto. The seal on the certificates for shares or on any corporate obligation
for the payment of money may be a facsimile, engraved, or printed.
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Section 4. Execution of Instruments. All bills, notes, checks, other
instruments for the payment of money, agreements, indentures, mortgages, deeds,
conveyances, transfers, certificates, declarations, receipts, discharges,
releases, satisfactions, settlements, petitions, schedules, accounts,
affidavits, bonds, undertakings, proxies and other instruments or documents may
be signed, executed, acknowledged, verified, delivered, or accepted on behalf of
the Corporation by the President, any Vice President, the Secretary or the
Treasurer. Any such instruments may also be signed, executed, acknowledged,
verified, delivered or accepted on behalf of the Corporation in such other
manner and by such other officers, employees or agents of the Corporation an the
Board of Directors may from time to time direct.
Section 5. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation and such authority
may be general or confined to specific instances.
Section 6. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
ARTICLE IX. INDEMNIFICATION AND RELATED MATTERS
Section 1. Indemnification--Third Party Actions. The Corporation shall
indemnify any person who was, is, or is threatened to be made a part to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative and whether formal or informal (other
than an action by or in the right of the Corporation). Such indemnification
shall arise only by reason of the fact that the person is or was a Director,
officer, employee, fiduciary, or agent of the Corporation or who, while a
Director, officer, employee, fiduciary, or agent of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
employee, fiduciary, or agent of another corporation, partnership, joint
venture, trust, other enterprise, or employee benefit plan. Such indemnification
shall be against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit, or proceeding, to the extent that and under
the circumstances wherefore the Act permits indemnification of directors.
Section 2. Indemnification--Actions Brought in the Right of the
Corporation. The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that he is or was a Director, officer,
employee, fiduciary, or agent of the Corporation or who, while a Director,
officer, employee, fiduciary, or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, employee, fiduciary, or
agent of another corporation, partnership, joint venture, trust, other
enterprise, or employee benefit plan. Such indemnification shall be against
expenses (including attorneys' fees) actually and reasonably incurred by such
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person in connection with such action, suit, or proceeding, to the extent that
and under the circumstances wherefore the Act permits indemnification of
directors.
Section 3. Determination of Entitlement to Indemnification. Any
indemnification under Sections IX.1 and IX.2 (unless ordered by a court) shall
be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the Director, officer, employee,
fiduciary, or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in the Act with respect to
indemnification of directors. Such determination shall be made: (a) by the Board
of Directors by a majority vote of a quorum consisting of Directors who were not
parties to such action, suit, or proceeding, or (b) if such a quorum is not
obtainable, by a majority vote of a committee of the Board of Directors
designated by the Board of Directors, which committee shall consist of two (2)
or more Directors who were not parties to the action, suit, or proceeding,
except that Directors who were parties to the action, suit, or proceeding may
participate in the designation of Directors for the committee. If such quorum is
not obtainable or such committee cannot be established pursuant to Section
IX.3(a) and Section IX.3(b) above, or even if such quorum is obtained or such
committee is designated if such quorum or committee so directs, such
determination shall be made: (x) by independent legal counsel selected by vote
of the Board of Directors or the committee in the manner specified in Section
IX.3(a) or Section IX.3(b) above (as the case may be) or, if a quorum cannot be
obtained and a committee cannot be established pursuant to Section IX.3(a) and
Section IX.3(b) above, by independent legal counsel selected by a majority vote
of the full Board of Directors, or (y) by the shareholders. Authorization of
indemnification and evaluation as to reasonableness of expenses shall be made in
the same manner as the determination that indemnification is proper is made;
except that, if the determination that indemnification is proper is made by
independent legal counsel (as set forth above), authorization of indemnification
and evaluation as to reasonableness of expenses may be made by the body that
selected said counsel.
Section 4. Advancement of Expenses. Reasonable expenses incurred in
defending a civil or criminal action, suit, or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit, or
proceeding, to the extent that and under the circumstances wherefore the Act
permits such advancement for directors.
Section 5. Savings Clause. The indemnification provided by this Article IX
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any Bylaw, agreement, vote of shareholders or disinterested
Directors or otherwise, both as to action in the person's official capacity and
as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a Director, officer, employee, fiduciary, or
agent and shall inure to the benefit of the heirs and legal representatives of
such a person.
Section 6. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a Director, officer,
employee, fiduciary, or agent of the Corporation or who, while a Director,
officer, employee, fiduciary, or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, employee, or
agent of another corporation, partnership, joint venture, trust, other
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enterprise, or employee benefit plan, against any liability asserted against him
or incurred by him in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article IX and the Act.
Section 7. Disallowed Deductions. With respect to any payment made by the
Corporation to any employee or any officer of the Corporation for compensation,
bonus, interest, rent, travel, entertainment, or other expenses incurred by such
employee or officer that is determined to be excessive, unreasonable, or
otherwise unallowable, in whole or in part as a tax deductible expense by any
governmental agency, such employee shall have an unconditional obligation to
reimburse the Corporation to the full extent of such unallowable expense. In
lieu of payment by the officer, subject to the determination of the Directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the Corporation has been recovered.
ARTICLE X.
UNIFORMITY OF INTERPRETATION
AND SEVERABILITY
These Bylaws shall be so interpreted and construed as to conform to the
Articles of Incorporation and the statutes of the State of Colorado or of any
other state in which conformity may become necessary by reason of the
qualification of the Corporation to do business in such foreign state. Where
conflict between these Bylaws and the Articles of Incorporation or the statutes
of the state of incorporation has arisen or shall arise, these Bylaws shall be
considered to be modified to the extent, but only to the extent, conformity
shall require. If any provision hereof or the application thereof shall be
deemed to be invalid by reason of the foregoing sentence, such invalidity shall
not effect the validity of the remainder of the Bylaws without the invalid
provision or the application thereof, and the provisions of these Bylaws are
declared to be severable.
ARTICLE XI.
REFERENCES TO ARTICLES OF INCORPORATION
Reference to the Articles of Incorporation in these Bylaws shall include
all amendments thereto or changes thereof unless specifically excepted.
ARTICLE XII. AMENDMENTS
The initial Bylaws of the Corporation shall be adopted by its Board of
Directors. The power to adopt, alter, amend or repeal Bylaws of this Corporation
shall be vested in either the Board of Directors or shareholders; provided,
however, that the Board of Directors may not alter, amend or repeal any Bylaw
adopted by the shareholders if the shareholders specifically provide that the
Bylaw is not subject to alteration, amendment or repeal by the Board of
Directors.
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ARTICLE XIII. PREEMPTIVE RIGHTS
The shareholders shall not have preemptive rights to acquire unissued or
treasury shares or securities convertible into such shares or carrying a right
to subscribe to or acquire such shares, including the right to acquire any
shares sold for consideration other than cash.
ARTICLE XIV. EMERGENCY BYLAWS
The Emergency Bylaws provided in this Article XIV shall be operative
during any emergency in the conduct of the business of the Corporation resulting
from an attack on the United States or any nuclear or atomic disaster,
notwithstanding any different provision in the preceding Articles of the Bylaws
or in the Act. To the extent not inconsistent with the provisions of this
Article XIV, the Bylaws provided in the preceding Articles shall remain in
effect during such emergency and upon its termination the Emergency Bylaws shall
cease to be operative.
During any such emergency:
(a) A meeting of the Board of Directors may be called by any officer or
Director of the Corporation. Notice of the time and place of the meeting shall
be given by the person calling the meeting to such of the Directors as it may be
feasible to reach by any available means of communication. Such notice shall be
given at such time in advance of the meeting as circumstances permit in the
judgment of the person calling the meeting.
(b) At any such meeting of the Board of Directors, a quorum shall consist
of the number of Directors in attendance at such meeting.
(c) The Board of Directors, either before or during any such emergency,
may, effective in the emergency, change the principal office or designate
several alternative principal offices or regional offices, or authorize the
officers so to do.
(d) The Board of Directors, either before or during any such emergency,
may provide, and from time to time modify, lines of succession in the event that
during such emergency any or all officers or agents of the Corporation shall for
any reason be rendered incapable of discharging their duties.
(e) No officer, Director, or employee acting in accordance with these
Emergency Bylaws shall be liable except for willful misconduct.
(f) These Emergency Bylaws shall be subject to repeal or change by further
action of the Board of Directors or by action of the shareholders, but no such
repeal or change shall modify the provisions of the next preceding paragraph
with regard to action taken prior to the time of such repeal or change. Any
amendment to these Emergency Bylaws may make any further or different provision
that may be practical and necessary for the circumstances of the emergency.
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Adopted by the Board of Directors on March 20, 1997.
/s/ Harvey E. Deutsch
---------------------------
Harvey E. Deutsch
/s/ Micheal Messina
---------------------------
Michael A. Messina
/s/ Joel H. Farkas
---------------------------
Joel H. Farkas
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EXHIBIT (5) Gilbert L. McSwain
Attorney-at-Law
1660 So. Albion St. Suite 309
Denver, Colorado 80222
Tel. (303) 753-8805
Fax (303) 758-9203
October 8, 1997
Gateway American Properties Corporation
9145 E. Kenyon Avenue, Suite 200
Denver, Colorado 80237
Gentlemen:
I have acted as special counsel for Gateway American Properties
Corporation, a Colorado corporation ("Company") in connection with a public
offering of securities to be offered and sold pursuant to a Registration
Statement on Form SB-2 ("Registration Statement") to be filed with the United
States Securities and Exchange Commission under the Securities Act of 1933, as
amended ("Act").
The Registration Statement relates to the offer and sale of the following
securities by the Company and certain "Selling Stockholders":
(a) Upto 2,052,000 shares of the Company's $.01 par value Common Stock
("Common Stock"), including: (i) 1,500,000 shares to be issued by the
Company and sold to the public; (ii) up to an additional 225,000
shares which may be issued and sold to the public upon exercise of the
Underwriters' over-allotment option; and (iii) 327,000 presently
outstanding shares which may be sold by the Selling Stockholders;
(b) Common Stock Purchase Warrants ("Public Warrants") to purchase up to
3,450,000 shares of Common Stock, including (i) Public Warrants to
purchase 3,000,000 shares of Common Stock to be issued and sold to the
public; and (ii) Public Warrants to purchase up to 450,000 shares of
Common Stock which may be issued and sold to the public upon exercise
of the Underwriters' over-allotment option;
(c) 3,450,000 shares of Common Stock underlying the Public Warrants
described in (b) immediately proceeding;
(d Common Stock Representative Warrants ("Representative Warrants") to
purchase up to 150,000 shares of Common Stock to be issued to the
representative of the Underwriters;
<PAGE>
Gilbert L. McSwain
Attorney-at-Law
1660 So. Albion St. Suite 309
Denver, Colorado 80222
Tel. (303) 753-8805
Fax (303) 758-9203
(e) 150,000 shares of Common Stock underlying the Representative
Warrants;
(f) Warrant Representative Warrants to acquire up to an additional
300,000 Representative Warrants which may be issued to the
Representative of the Underwriters;
(g) The Representative Warrants to acquire up to 300,000 shares of
Common Stock which underlie the Warrants describer in (f)
immediately preceding and may be issued to the Representative of
the Underwriters;
(h 300,000 shares of Common Stock underlying the Representative
Warrants described in (g) immediately preceding which may be
issued pursuant to exercise of the Representative Warrants; and
(i) 300,000 shares of Common Stock underlying presently Common Stock
Purchase Warrants ("Founders Warrants") which may be issued upon
exercise of the Founders Warrants and sold by the Selling
Stockholders.
All of the securities listed in (a) through (i) immediately preceding are
hereinafter "Registered Securities".
This letter is governed by, and shall be interpreted in accordance with,
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991).
I have examined the Articles of Incorporation of the Company as filed with
the Colorado Secretary of State, the Bylaws of the Company, and the minutes of
the meetings and records of proceedings of the Board of Directors of the
Company, the applicable laws of the State of Colorado and a copy of the
Registration Statement and the Exhibits thereto.
Based upon the foregoing, and having due regard for such legal
considerations as I deemed relevant, I am of the opinion that: (i) the 327,000
shares of presently outstanding Common Stock described in item (a)(iii) above
are legally issued, fully paid and non-assessable; and (ii) the remaining
Registered Securities, when issued as set forth in the Registration Statement,
will be legally issued, fully paid and non-assessable.
You are hereby authorized to the use of this opinion as an Exhibit to the
Registration Statement.
Very Truly Yours,
/s/ Gilbert L. McSwain
Gilbert L. McSwain
Attorney-at-Law
EXHIBIT (9)
GATEWAY AMERICAN PROPERTIES CORPORATION
VOTING TRUST AGREEMENT
THIS AGREEMENT (this "Agreement") is made effective this 1st day of
October, 1997, by and among Gateway American Properties Corporation, a Colorado
corporation (the "Corporation"), those stockholders of the Corporation listed on
Exhibit A hereto (the "Stockholders"), and HARVEY E. DEUTSCH ("Deutsch"),
MICHAEL A. MESSINA ("Messina") and JOEL H. FARKAS ("Farkas"), as Co-trustees
(hereinafter collectively referred to as "Voting Trustee"):
EXPLANATORY STATEMENT
A. The members of the Harvey E. Deutsch family group, the Michael A.
Messina family group, and the Joel H. Farkas family group are identified on
Exhibit A, attached hereto and made a part hereof (hereinafter respectively the
"HED Family Group," the "MAM Family Group," and the "JHF Family Group").
B. The Stockholders are listed on Exhibit A, attached hereto and made a
part hereof, owning that number of shares in the Corporation (hereinafter
"Shares") reflected opposite such Stockholder's name on said Exhibit A.
C. The HED Family Group, the MAM Family Group and the JHF Family Group
together own a majority of the Shares and hereinafter may be referred to as the
"Majority Stockholders," and all other Stockholders may hereinafter be referred
to as the "Minority Stockholders."
D. The Stockholders deem it to be in the best interest of the Stockholders
and the Corporation to have the Shares voted during the term of the Voting Trust
by Voting Trustee.
E. The Stockholders are parties to that certain Cross Purchase Agreement
executed effective as of September 15, 1995, as amended, relating to the Shares,
a copy of which is attached hereto as Exhibit B and incorporated herein by
reference.
NOW, THEREFORE, the Stockholders, in order to assure the voting of the
Shares by Voting Trustee do hereby transfer all of the Shares to Voting Trustee
for the purpose of vesting in Voting Trustee the right to vote thereon and to
act in respect thereof for a period not to exceed ten (10) years, upon the
following terms and conditions:
<PAGE>
1. Assignment of Shares. Each Stockholder agrees immediately to assign and
transfer to Voting Trustee the number of Shares set opposite his/her respective
signature hereto, for the purpose of placing in Voting Trustee, as trustee of an
active trust, the right to vote thereon and act in respect thereof, for a period
of ten (10) years from the date of this Agreement, subject to earlier
termination by the Voting Trustee pursuant to Sections 6 and 9, hereof. Each
Stockholder represents that the Shares shown opposite his/her signature are all
of the Shares now owned by him/her. Each Stockholder agrees that all shares of
stock hereafter issued to him/her by the Corporation during the term of this
Agreement shall be subject to this Voting Trust, such subsequently acquired
shares to be included under the defined term "Shares."
2. Issuance of Voting Trust Certificate. Upon surrender and cancellation
of the stock certificates representing the Shares held by the Stockholders,
Voting Trustee shall cause to be issued, in respect of the Shares of the
Corporation held by him, pursuant to the terms of this Agreement, a voting trust
certificate in substantially the form attached hereto as Exhibit C (hereinafter
referred to as the "Voting Trust Certificate").
3. Stock Dividends. In the event that Voting Trustee shall receive any
additional stock certificates of the Corporation by way of dividend upon Shares
held by him under this Agreement, Voting Trustee shall hold such stock
certificates likewise subject to the terms of this Agreement, and shall issue
Voting Trust Certificates representing such stock certificates to the respective
registered holder of the then outstanding Voting Trust Certificate entitled to
such dividend.
4. Transfer or Loss of Voting Trust Certificate. Voting Trustee shall
execute any and all of the said Voting Trust Certificates, and no Voting Trust
Certificate shall be valid unless duly signed by Voting Trustee. Subject to the
restrictions set forth herein, each Voting Trust Certificate shall be
transferable on the Voting Trust Certificate books of Voting Trustee (which
shall be kept for that purpose at the office of the said Voting Trustee) by the
registered holder thereof, either in person or by duly authorized attorney, upon
the surrender of such Voting Trust Certificate properly endorsed for transfer.
Until so transferred, the Voting Trustee may treat the registered holder of
Voting Trust Certificates as owner thereof for all purposes, except that the
delivery of stock certificates hereunder and certain payments hereunder, as
hereinafter provided, shall not be made without surrender of such Voting Trust
Certificates. The holder of any Voting Trust Certificate shall immediately
notify Voting Trustee of any mutilation, loss or destruction thereof, and Voting
Trustee may, in his discretion, cause one (1) or more new Voting Trust
Certificates representing the same number of shares in the aggregate, to be
issued to such holder upon the surrender of the mutilated Voting Trust
Certificate, or in case of loss or destruction, upon satisfactory proof of such
loss or destruction, and the deposit of indemnity by way of bond or otherwise,
in such form and amount and with such surety or sureties as Voting Trustee may
require to indemnify him against loss or liability by reason of the issuance of
such new Voting Trust Certificate; but Voting Trustee may, in his discretion,
refuse to issue such new Voting Trust Certificate, save upon the order of a
court having jurisdiction in such matters.
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5. Payment of Dividends; Closing of Voting Trust Certificate Books. Except
as provide in Section 3 hererof, until the termination of this Agreement each
registered holder of a Voting Trust Certificate shall be entitled to receive
promptly from the Voting Trustee payments equal to the amount of dividends or
other distributions, if any, collected by Voting Trustee upon the number of
shares of stock of the Corporation standing in the name of such registered
holder, and any payment representing the amount received upon redemption or sale
of any common stock, represented by the Voting Trust Certificate or Voting Trust
Certificates held by him/her, subject, however, to the terms and conditions of
this Agreement. Those registered as holders of Voting Trust Certificates on the
dates fixed as record dates by the Corporation for dividends and for the
allotment of rights shall be entitled to such payments and to any rights to the
benefit of which holders of Voting Trust Certificates may be entitled under this
Agreement. Voting Trustee may, in his discretion, from time to time, close the
Voting Trust Certificate books for the purpose of determining the Voting Trust
Certificate holders entitled to such payments or to such rights, or for the
purpose of determining the Voting Trust Certificate holders entitled to vote at
any meeting thereof or to do any thing or act to be done or performed by said
holders.
6. Termination of Agreement. This Agreement shall terminate, in any event,
ten (10) years from date of this Agreement or an earlier agreed upon date
without notice by or action of the Voting Trustee; but, at any earlier time, it
may be terminated by the written action of the Voting Trustee, in his
uncontrolled discretion, by signing a declaration to that effect and sending a
copy of the same to each registered holder of Voting Trust Certificates issued
hereunder. Ten (10) years from date of this Agreement, or upon the earlier
termination of this Agreement as above specified, Voting Trustee, in exchange
for, or upon surrender of, any Voting Trust Certificate then outstanding, shall,
in accordance with the terms hereof, and out of the Shares held by him
hereunder, deliver proper certificates of stock of the Corporation to the
holders of Voting Trust Certificates and thereupon all liability of Voting
Trustee, or his successors, or successor, or of any of them, for the delivery of
said stock certificates shall cease and terminate. Voting Trustee may call upon
and require the holders of Voting Trust Certificates to surrender them in
exchange for certificates of stock of the number of shares to which they are
entitled hereunder. Notwithstanding the foregoing provisions of this Section 6,
pursuant to ' 7-107-301(3), Colorado Revised Statutes, all of the then owners
and holders of Voting Trust Certificates with the consent of the Voting Trustee,
may by written agreement at any time within the two (2)-year period immediately
prior to the expiration of the original ten (10)-year period extend the term of
this voting trust for an additional period of not to exceed ten (10) years from
the expiration of the original ten (10)-year term.
7. Voting Rights of Voting Trustees. The Voting Trustees shall not have an
equal vote, but instead the Voting Trustees shall have the right to vote based
on each Voting Trustee's "Voting Percentage," as that term is defined herein.
For purposes of this Agreement, a Voting Trustee's Voting Percentage shall
equal, at any given time, that number of Shares or Voting Trust Certificates
owned by the Voting Trustee and all of his Family Members, over all Shares or
Voting Trust Certificates owned by all Voting Trustees and all of their
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<PAGE>
respective Family Members. All decisions of the Voting Trustees shall be made
based on a majority of the Voting Percentages voting in the affirmative.
8. Voting of Shares. Until the actual transfer of stock certificates to
the holders of Voting Trust Certificates hereunder, Voting Trustee shall, in his
uncontrolled discretion, in respect of any and all of the Shares held by him
hereunder, except as in this Agreement expressly limited, possess and be
entitled to exercise the right to vote thereon for every purpose, in person or
by proxy, to waive any Stockholder's privilege in respect thereof, excluding any
right or privilege to subscribe for any increased stock, and to consent to any
lawful corporate act of the Corporation, as though absolute owner of said stock,
it being expressly agreed that no voting right shall pass to others by or under
said Voting Trust Certificates, or by or under this Agreement, or by or under
any other agreement, express or implied. Voting Trustee is specifically
authorized by way of example, without limiting his rights hereunder, to vote the
Shares held by him for, or to consent in respect thereof to, any increase or
reduction of the stock of the Corporation, any agreement of consolidation,
merger, share exchange or the sale or other disposition of all, substantially
all, or any part of the property, assets and franchises of the Corporation and
the granting, ratification or confirmation of any option or options thereof
(whether executed before or after the execution of this Agreement), or the
dissolution of the Corporation, and the judgment of Voting Trustee as to the
adequacy of the consideration thereby to be received by the Corporation and each
Stockholder (provided each Stockholder and each holder of a Voting Trust
Certificate of each class is treated uniformly, share for share) shall be
conclusive and binding upon each Stockholder and the holders of Voting Trust
Certificates and all persons claiming through or under them. Any person acting
as a Voting Trustee under this Agreement may, directly or indirectly, transact
any lawful business with the Corporation, notwithstanding his position as Voting
Trustee. Voting Trustee may also be a Voting Trust Certificate holder or serve
as a director and compensated officer of the Corporation and may vote for
himself, as such.
9. Increase/Decrease in Stock of the Corporation. In case any increased or
additional voting stock of the Corporation shall be offered to the Stockholders
for subscription, then, in such case, upon receiving from the holder of any
Voting Trust Certificate, prior to the time limited by the Corporation for
subscription and payment, a request to subscribe in his/her behalf and the money
to pay for a stated amount of such increased stock (not in excess of the ratable
amount subscribable in respect of the stock represented by such Voting Trust
Certificate), Voting Trustee shall make such subscription and payment, and upon
receiving from the Corporation the certificate or certificates for the stock so
subscribed for, shall issue a Voting Trust Certificate or Voting Trust
Certificates in respect thereof to the Voting Trust Certificate holder, who
shall have made such request and payment. Voting Trustee shall be free either
for his own account, or for the account of any other party, to exercise the
right to subscribe for any stock not subscribed. In case any reduction of the
stock of the Corporation shall have been duly authorized, Voting Trustee is
hereby authorized to make such surrender of stock of the Corporation held by him
hereunder, pro rata on behalf of all holders of Voting Trust Certificates, as
may be required under the terms pursuant to which such reduction is to be
effected, and to receive and hold any and all stock of the Corporation issued in
exchange for such surrendered stock. Following any such action, the Voting Trust
4
<PAGE>
Certificates issued and outstanding pursuant hereto shall be deemed to represent
a proportionately reduced number of shares. Upon any duly authorized agreement
of consolidation, merger or share exchange becoming effective, Voting Trustee is
authorized to make such surrender of Shares held by him hereunder as may be
required thereby, and to receive and hold hereunder any and all stock or
securities issued to him in exchange for such surrendered stock or otherwise.
The Voting Trust Certificates shall thereupon be deemed to represent a
proportionate number of the securities then received in exchange by Voting
Trustee. In the event of the distribution of the assets of the Corporation upon
the dissolution thereof, Voting Trustee shall promptly distribute the amount
thereof received by him according to the interests of such registered holders,
upon the surrender of the Voting Trust Certificates held by them respectively.
Upon the distribution of such assets by Voting Trustee, as aforesaid, this
Agreement shall terminate and all liability of the Voting Trustee, or of any of
the persons acting as such, for the delivery of stock certificates hereunder
shall cease and terminate.
10. Successor Voting Trustees. In the event of death, resignation or other
permanent inability to serve as Voting Trustee of any one (1) of the Voting
Trustees, the surviving Voting Trustees or Voting Trustee shall continue to
serve hereunder.
11. Manner of Voting. At any meeting of the shareholders of the
Corporation any person then acting as a Voting Trustee may vote or act in person
or by proxy to any other person whether or not such other person is a Voting
Trustee, and any person acting as a Voting Trustee may give a power of attorney
to any other person, whether or not such other person is acting as a Voting
Trustee, to sign for him in case of action taken in writing without a meeting.
Voting Trustee may adopt his own rules of procedure and may vote as a
shareholder of the Corporation in person or by proxy.
12. Best Judgment. In voting the Shares represented by the stock
certificates issued to the Voting Trustee as hereinbefore provided, the person
acting as Voting Trustee shall exercise his best judgment to the end that the
business and affairs of the Corporation shall be properly managed; but no person
acting as a Voting Trustee assumes any responsibility or liability in respect of
such management, or in respect of any action taken by the Voting Trustee, or
taken in pursuance of his consent thereto, or in pursuance of his vote so cast,
and any person acting as a Voting Trustee shall not incur any responsibility or
liability, as a shareholder, Voting Trustee or otherwise, by reason of any error
of fact, or law, or of any matter or thing done or omitted to be done, except
for his own willful misconduct.
13. Compensation/Cost. Each person acting as Voting Trustee shall not be
entitled to any compensation for his services as such, unless such compensation
is authorized by a majority vote of the persons then holding Voting Trust
Certificates hereunder; but it is expressly agreed that said person acting as
Voting Trustee shall be reimbursed for, and indemnified against and saved
harmless from, any and all liabilities, costs, damages, and expenses arising out
of his ownership in trust of any or all of the Shares held by him as Voting
Trustee; and the said Voting Trustee shall be entitled from time to time to be
reimbursed by the holders of Voting Trust Certificates for any such liabilities,
5
<PAGE>
costs, damages and expenses, or the said Voting Trustee may deduct the same pro
rata from any dividends received by him or from any other payments to which such
holders of Voting Trust Certificates may be entitled hereunder.
14. Restrictions on Transfers. No Stockholder shall transfer, or suffer
the transfer of any of the Shares, or Voting Trust Certificates, now or
hereafter owned by such Stockholder without complying with the terms of this
Agreement. For purposes of this Section 14, all references to "Shares" shall
include Voting Trust Certificates.
a. In this Agreement, the word "transfer" shall include, but not by
way of limitation, any sale, assignment, exchange, gift, pledge, hypothecation,
attachment, transfer of title by operation of the any bankruptcy law or state
corporation laws and any other voluntary or involuntary transfer or encumbrance
or transfer or encumbrance by operation of the law; provided, however, that the
word "transfer" shall not include any form of transfer of a Stockholder's Voting
Trust Certificate to a Family Member of the Stockholder, or a transfer of Shares
or Voting Trust Certificates occurring as a result of the death of a
Stockholder. For purposes of this Agreement, the term "Family Member" shall mean
those current members of the HED Family Group, the MAM Family Group, and the JHF
Family Group, the spouse or lineal descendants of a Stockholder, or trusts for
the benefit of the Stockholder, Stockholder's spouse and/or lineal descendants,
or corporations, limited liability companies or partnerships in which the
Stockholder, the Stockholder's spouse and/or lineal descendants, or trusts for
the benefit of the Stockholder, Stockholder's spouse and/or lineal descendants
own capital or voting interests.
b. A Stockholder who wishes to make a transfer (a "Transferring
Stockholder") must promptly send notice to the Corporation with regard to such
proposed transfer. Such notice shall be deemed to be an offer to sell his or her
Shares to the Corporation and the non-Transferring Stockholders at the Agreement
Price, as defined herein, and on the proposed terms of the offer. Such notice
shall include among its terms a statement of the type of proposed transfer, the
number of Shares subject to the proposed transfer (the "Offered Stock"), the
terms of the contemplated transfer, the name, address (both home and office),
and business or occupation of the person to whom such Shares would be
transferred, and any other facts that are or would reasonably be deemed material
to the proposed transfer.
c. The Corporation and the non-Transferring Stockholders shall have
the right to purchase the Shares which is the subject of the proposed transfer
by a Transferring Stockholder, as provided herein. The Corporation shall have
three (3) business days from receipt of notice of the proposed transfer in which
to elect to buy all, but not less than all, of the Offered Stock. If the
Corporation does not elect to buy all of the Offered Stock within such three (3)
business day period, the non-Transferring Stockholders shall have four (4)
business days from the Corporation's receipt of notice of the proposed transfer
in which to elect to buy all or any of the Offered Stock the Corporation did not
elect to buy. The option shall be given to the non-Transferring Stockholders as
a group, in proportion to their ownership of stock in the Corporation which
shall equal a fraction, the numerator of which is the total number of shares of
6
<PAGE>
stock in the Corporation held by any specific Stockholder and the denominator of
which is the total number of issued and outstanding shares of stock in the
Corporation, other than the Offered Stock, which are subject to the terms and
restrictions of this Agreement. If any non-Transferring Stockholder declines to
exercise his pro rata share of any option to purchase, the remaining
non-Transferring Stockholders shall be able to exercise the declining
non-Transferring Stockholder's option in the proportion which each
non-Transferring Stockholder's total number of shares of stock in the
Corporation bears to the total number of shares of stock in the Corporation of
those desiring to exercise the option or in such other proportion as may be
agreed upon by the non-Transferring Stockholders exercising the option.
d. Except as otherwise provided herein, with regard to a proposed
transfer of Shares, the Agreement Price shall be the per share bid price for
such Shares as of the date notice of intent to transfer Shares in the
Corporation is given to the Corporation and the non-Transferring Stockholders by
the Transferring Stockholder proposing such transfer. With respect to a proposed
transfer of Shares occurring within two (2) years of the date hereof by a
Stockholder, such Agreement Price shall be fifty percent (50%) of the per share
bid price for such Shares as of the date notice of intent to transfer Shares in
the Corporation is given as provided herein. The Agreement Price shall be paid
within five (5) days from receipt by the Corporation and non-Transferring
Stockholders of notice of the proposed transfer. Such Agreement Price shall be
paid in cash or by certified check.
e. If the non-Transferring Stockholders and the Corporation do not
agree to buy in the aggregate all of the Offered Stock within the option period,
or in the event payment of the Agreement Price is not made within five (5) days
from receipt by the Corporation and non-Transferring Stockholders of notice of
the proposed transfer, the Transferring Stockholder's proposed transfer may be
completed. In such instance, this Agreement shall terminate with respect to such
Shares and the provisions of Section 6, hereof, shall apply, solely to such
Shares, as if this Agreement had been terminated thereunder. If a transfer is
not consummated within thirty (30) days after the expiration of such option
period, the provisions of this Agreement will again apply to such Offered Stock
as if no such transfer had been contemplated and no notice had been given, and
such Shares shall again be assigned to the Voting Trustees. A transfer is
consummated when the Corporation has been given notice that legal title to the
Shares has been transferred, subject to recordation on its books.
f. A Minority Stockholder shall not transfer more than twenty-five
percent (25%) of such Stockholder's Shares, as reflected on Exhibit A, attached
hereto and made a part hereof. Upon transfer by a Minority Stockholder of said
twenty-five percent (25%) of the Stockholder's Shares, such Minority Stockholder
shall not transfer any additional Shares for a period of six (6) months from the
date of the transfer which resulted in the Minority Stockholder making such
twenty-five percent (25%) transfer. Following the six (6)-month period, the
Minority Stockholder may again transfer a portion of such Stockholder's Shares;
provided, however, that the twenty-five percent (25%) limitation and the six
(6)-month limitation described herein shall apply to any subsequent transfer.
Such transfers may continue in such fashion until the Stockholder has
transferred all of his/her Shares.
g. A Majority Stockholder and his/her family group shall not
transfer more than ten percent (10%) of such Stockholder's Shares, as reflected
on Exhibit A, attached hereto and made a part hereof. Upon transfer by a
7
<PAGE>
Majority Stockholder of said ten percent (10%) of the Stockholder's Shares, such
Majority Stockholder shall not transfer any additional Shares for a period of
six (6) months from the date of the transfer which resulted in the Majority
Stockholder making such ten percent (10%) transfer. Following the six (6)-month
period, the Majority Stockholder may again transfer a portion of such
Stockholder's Shares; provided, however, that the ten percent (10%) limitation
and the six (6)-month limitation described herein shall apply to any subsequent
transfer. Such transfers may continue in such fashion until the Stockholder has
transferred all of his/her Shares.
15. Miscellaneous.
a. The term "Corporation," for the purposes of this Agreement and
all rights hereunder, including the issue and delivery of stock certificates,
shall be taken to mean Gateway American Properties Corporation, a Colorado
corporation, or any corporation successor to it.
b. The term "Voting Trustee," as used in this Agreement and in the
Voting Trust Certificates, shall apply to Deutsch, Messina and Farkas, or the
survivor of them.
c. When appropriately indicated or required by the context, the male
gender shall be deemed to refer to the female gender or neuter, and vice-versa.
d. Each and all of the terms and provisions of this Agreement shall
be and are hereby made binding upon the parties hereto, their heirs, legatees,
personal representatives, guardians, conservators, and assigns.
e. Voting Trustee shall have no duty to hold meetings of holders of
Voting Trust Certificates, but he shall be entitled to do so if he wishes. Ten
(10) days' written notice of every meeting of holders of Voting Trust
Certificates shall be given and such notice shall state the place, day and hour
and the purpose, if any, of such meeting, but any holder of Voting Trust
Certificates may waive such notice in writing, either before or after the
holding of the meeting. Every such meeting shall be held in the State of
Colorado at a place designated by Voting Trustee, unless the holders of Voting
Trust Certificates representing two-thirds (b) of the Shares held by the Voting
Trustee consent in writing to the holding thereof at another place. The failure
to hold meetings shall not in any manner or degree impair or reduce the
authority of Voting Trustee hereunder.
f. All notices to be given to the holders of Voting Trust
Certificates may be given by mailing the same to the registered holders thereof
at their addresses as the same last appear on the Voting Trust Certificate books
of Voting Trustee, and any notice, mailed as herein provided, shall be taken as
though personally served on all the holders of Voting Trust Certificates, and
such mailing shall be the only notice required to be given under any provisions
of this Agreement.
g. This Agreement shall be filed with Voting Trustee, and a
duplicate hereof shall be filed in the principal office of the Corporation.
8
<PAGE>
16. Text to Control. The headings of sections are solely for convenience
of reference. If any conflict between any heading and the text of this Agreement
exists, the text shall control.
17. Voting Trustees Acceptance. Deutsch, Messina and Farkas, as Voting
Trustees, hereby accept the above trust, subject to all of the terms,
conditions, and reservations herein contained, and agree that they will exercise
the powers and perform the duties of Voting Trustee as herein set forth,
according to their best judgment.
IN WITNESS WHEREOF, this Agreement is executed as of the day and year
first above mentioned.
/s/ Harvey E. Deutsch
---------------------------------
GATEWAY AMERICAN PROPERTIES Harvey E. Deutsch, Voting Trustee
CORPORATION, a Colorado Corporation
/s/ Michael A. Messina
---------------------------------
By:/s/ Harvey E. Deutsch Michael A. Messina, Voting Trustee
- ---------------------------------
Harvey E. Deutsch, its president
president /s/ Joel H. Farkas
---------------------------------
Joel H. Farkas, Voting Trustee
9
<PAGE>
NUMBER OF SHARES
STOCKHOLDER VOTING
SIGNATURE COMMON STOCK
Harvey E. Deutsch
/s/ Harvey E. Deutsch
- ---------------------
Michael A. Messina
/s/ Michael A. Messina
- ---------------------
Joel H. Farkas
/s/ Joel H. Farkas
- ---------------------
/s/ Pauls K. Deutsch
- ---------------------
/s/ Steven H. Deutsch
- ---------------------
Steven H. Deutsch
STACIA F. DEUTSCH TRUST - 1995
By:/s/ Joel H. Farkas
- ---------------------
Joel H. Farkas, Trustee
By:/s/ Theodore z. Gelt
- ---------------------
Theodore Z. Gelt, Trustee
By:/s/ Robert A. Lembke
- ---------------------
Robert A. Lembke, Trustee
STEVEN H. DEUTSCH TRUST - 1995
By:/s/ Joel H. Farkas
- ---------------------
Joel H. Farkas, Trustee
By:/s/ Theodore Z. Gelt
- ---------------------
Theodore Z. Gelt, Trustee
10
<PAGE>
By:/s/ Robert A. Lembke
- ---------------------
Robert A. Lembke, Trustee
KAREN G. DEUTSCH TRUST - 1995
By:/s/ Joel H. Farkas
- ---------------------
Joel H. Farkas, Trustee
By:/s/ Theodore Z. Gelt
- ---------------------
Theodore Z. Gelt, Trustee
By:/s/ Robert A. Lembke
- ---------------------
Robert A. Lembke, Trustee
THE KENYON TRUST
By:/s/ Harvey E. Deutsch
- ---------------------
Harvey E. Deutsch, Trustee
By:/s/ Robert A. Lembke
- ---------------------
Robert A. Lembke, Trustee
By:/s/ Theodore Z. Gelt
- ---------------------
Theodore Z. Gelt, Trustee
/s/ Jeffrey Kenneth Prager
- ---------------------
Jeffrey Kenneth Prager
/s/ John M. Spillane
- ---------------------
John M. Spillane
/s/ Jack E. Reutzel
- ---------------------
Jack E. Reutzel
/s/ James J. Weigel
- ---------------------
James J. Weigel
11
<PAGE>
EXHIBIT A
FAMILY GROUPS & STOCK OWNERSHIP
Majority Stockholders:
======================
The HED Family Group
Name of Stockholder # of Shares % of Outstanding Stock
- ------------------- ----------- ----------------------
Harvey E. Deutsch 8.075%
Paula K. Deutsch 8.050%
Steven H. Deutsch 1.375%
Robert A. Lembke, Joel H. Farkas 2.750%
and Theodore Z. Gelt, Trustees,
Stacia F. Deutsch Trust - 1995
Robert A. Lembke, Joel H. Farkas 1.375%
and Theodore Z. Gelt, Trustees,
Steven H. Deutsch Trust - 1995
Robert A. Lembke, Joel H. Farkas 2.750%
and Theodore Z. Gelt, Trustees,
Karen G. Deutsch Trust - 1995
TOTAL 24.375%
The MAM Family Group
Name of Stockholder # of Shares % of Outstanding Stock
- ------------------- ----------- ----------------------
Michael A. Messina 41.25%
<PAGE>
EXHIBIT A (cont.)
The JHF Family Group
Name of Stockholder # of Shares % of Outstanding Stock
- ------------------- ----------- ----------------------
Joel H. Farkas 17.00%
Harvey E. Deutsch, Robert Lembke
and Theodore Z. Gelt, Trustees 7.375%
The Kenyon Trust
TOTAL 24.375%
Minority Stockholders
Jeffrey Kenneth Prager 2.5%
John M. Spillane 2.5%
Jack E. Reutzel 2.5%
James J. Weigel 2.5%
<PAGE>
EXHIBIT B
CROSS PURCHASE AGREEMENT
See attached
<PAGE>
EXHIBIT C
VOTING TRUST CERTIFICATE
------------------------
This Voting Trust Certificate is subject to the terms, restrictions, and
conditions of a Voting Trust Agreement on file with Gateway American Properties
Corporation, dated _______________, 1997 (the "Voting Trust Agreement"). The
securities represented by this Voting Trust Certificate have been registered
under the Securities Act of 1933 and applicable state securities law, and may be
sold, pledged, hypothecated, donated or otherwise transferred (whether or not
for considerations) by the holder subject to the restrictions contained in the
Cross Purchase Agreement, dated September 15, 1995, as amended from time to
time, among Harvey E. Deutsch, Michael A. Messina and Joel H. Farkas (the "Cross
Purchase Agreement"), a copy of which is on file with the Secretary of the
Corporation.
Gateway American Properties Corporation
Voting Trust Certificate
THIS IS TO CERTIFY that on the date of termination of the Voting Trust
Agreement ___________________ shall be entitled to receive a certificate or
certificates, expressed to be fully paid and nonassessable, for
__________________ (________) shares of the voting common stock, without par
value of Gateway American Properties Corporation (hereinafter referred to as the
"Stock") and, in the meantime, to receive payments equal to the amount of
dividends or other distributions, if any, collected by the undersigned Voting
Trustee upon a like number of such shares standing in his name, subject to the
terms and conditions of the Voting Trust Agreement dated _____________, 1997.
Until the actual transfer of such stock certificate or certificates, the Voting
Trustee shall possess and shall be entitled in his discretion, to exercise all
rights of stockholders of every nature, including the right to vote in respect
of any or all of such Stock except as in the Voting Trust Agreement expressly
limited; it being expressly agreed that no voting right shall pass to others by
or under this Voting Trust Certificate, or by or under any agreement express or
implied. This Voting Trust Certificate is issued pursuant to, and the rights of
the holder is subject to and limited by, the terms and conditions of the Voting
Trust Agreement, which Voting Trust Agreement is on file in the office of the
Voting Trustee at________, Colorado, and a duplicate of which is on file in the
principal office of the Corporation at the same address. The holder hereof,
his/her heirs, legatees, guardians, conservators, personal and legal
representatives and assigns, by the acceptance hereof, expressly assents to all
of the terms and conditions of the Voting Trust Agreement, including the
assumption of such obligations and liabilities as are mentioned therein. Except
with regard to a transfer described in Section 14.e. of the Voting Trust
Agreement to a person other than the Corporation or a "non-Transferring
Stockholder," as that latter term is used in the Voting Trust Agreement, no
stock certificate shall be due or deliverable hereunder before the date of
termination of the Voting Trust Agreement, but the Voting Trustee may, in his
uncontrollable discretion, make earlier delivery thereof. This Voting Trust
Certificate is transferable on the Voting Trust Certificate books of the Voting
Trustee, which shall be kept for that purpose at the office of the Voting
Trustee, by the registered holder hereof in person or by duly authorized
attorney, upon surrender of this Voting Trust Certificate properly endorsed.
Until so transferred, the Voting Trustee may treat the registered holder as
owner hereof for all purposes except as otherwise provided in the Voting Trust
Agreement.
<PAGE>
No assignment, transfer, sale or alienation of this Voting Trust
Certificate or the Stock represented hereby shall be valid or effective unless
all terms, conditions and provisions hereof and in the Voting Trust Agreement
and the Cross Purchase Agreement above referred have been satisfied in full.
IN WITNESS WHEREOF, the undersigned Voting Trustee has signed and sealed
this Voting Trust Certificate, this ______ day of _____________, 19____.
- ------------------------------ ---------------------------------
Witness Harvey E. Deutsch, Voting Trustee
- ------------------------------ ---------------------------------
Witness Michael A. Messina, Voting Trustee
- ------------------------------ ---------------------------------
Witness Joel H. Farkas, Voting Trustee
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns,
and transfers unto ______________________________ this Voting Trust Certificate
representing __________ shares of the voting common stock of the Corporation and
does hereby irrevocably constitute and appoint _______________________________
as Attorney-in-Fact to transfer the said shares on the books of the within named
Voting Trustee with full power of substitution in the premises.
DATED _________________________, 19_____.
- ------------------------------ ---------------------------------
Witness [Voting Trust Certificate Holder]
EXHIBIT (10)(a)
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment (the "Amendment") to the Employment Agreement
originally executed by Gateway American Properties, LLC, a Colorado limited
liability company ("GAPLLC"), and Harvey E. Deutsch (the "Employee"), which
agreement was effective as of September 15, 1995, and a copy of which is
attached as Exhibit I hereto (the "Employment Agreement"), is effective as of
the 1st day of October, 1997 (the "Operative Date"), by and between Gateway
American Properties Corporation, a Colorado corporation ("GAPC-Colo"), and the
Employee.
EXPLANATORY STATEMENT
WHEREAS, pursuant to Section 15 of the Employment Agreement, GAPC-Colo has
become the assignee of any and all interests, rights, and obligations of GAPLLC
in and under the Employment Agreement.
WHEREAS, pursuant to Section 21 of the Employment Agreement, GAPC-Colo and
the Employee wish to amend the Employment Agreement to reflect the assignment of
any and all interests, rights, and obligations of GAPLLC in and under the
Employment Agreement.
WHEREAS, pursuant to Section 21 of the Employment Agreement, GAPC-Colo and
the Employee wish to amend the Employment Agreement to extend the term of the
Employment Agreement.
NOW THEREFORE, in consideration of the Explanatory Statement that shall be
deemed to be a substantive part of this Amendment, the mutual covenants,
promises, agreements, representations and warranties contained in this
Amendment, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby
covenant, promise, agree, represent and warrant as follows:
1. General Amendments. To the extent not inconsistent with the more
specific amendments to the Employment Agreement set forth in Section 2
herein, the following amendments to the Employment Agreement shall apply
generally:
a. Substitution of Name. All references in the Employment Agreement to
the phrase "Gateway American Properties, LLC, a Colorado limited
liability company" shall be replaced by the phrase "Gateway American
Properties Corporation, a Colorado corporation." Throughout the entire
Employment Agreement, references to the phrase "the Company" shall,
after the Operative Date of this Amendment, be interpreted as
references to GAPC-Colo and not to GAPLLC.
b. Substitution of "Managers". All references to the phrase "the
Managers" shall be replaced by the phrase "the Company's Board of
Directors."
<PAGE>
2. Specific Amendments.
a. Amendment to Section 2 of the Employment Agreement. Section 2 of the
Employment Agreement is deleted in its entirety and replaced by the
following:
2. Term. The initial term of this Agreement commenced as of
September 15, 1995 (the "Effective Date"), and shall be in effect
through December 31, 2000, unless sooner terminated as hereinafter
set forth (the "Initial Term"). After expiration of the Initial
Term, and subject to the termination provisions hereinafter
contained, this Agreement will be automatically renewed for
additional one-year periods (each a "Renewal Term") as of December
31, 2000, and each year thereafter (each a "Renewal Date"); provided
neither party has given written notice to the other party of his or
its intent not to renew at least 90 days prior to any Renewal Date.
b. Amendment to Section 3(a) of the Employment Agreement. Section 3(a)
of the Employment Agreement is deleted in its entirety and replaced
by the following:
(a) Faithfully and diligently do and perform all such reasonable
acts and duties and furnish such reasonable services as the Board of
Directors and officers of the Company shall direct. In performing
the assigned duties, the Employee shall do and perform all acts in
the ordinary course of the Company's business (with such limits as
the Company's Board of Directors may prescribe necessary and
conducive to the Company's bests interests); and
c. Amendment to Section 5 of the Employment Agreement. Section 5 of the
Employment Agreement is deleted in its entirety and replaced by the
following:
5. Additional Incentives. The Company will provide Employee with
additional incentives including stock options, a retirement plan and
bonus benefits. Such additional incentives shall be consistent with
those additional incentives provided the Employee by Gateway
American Properties, LLC ("GAPLLC") prior to the assignment by
GAPLLC to the Company of any and all of its interests, rights, and
obligations in and under this Agreement.
d. Amendment to Section 6 of the Employment Agreement. Section 6 of the
Employment Agreement is amended by deleting the last sentence of
such section and replacing it with the following:
The Company shall pay the Employee any amount of the accrued salary
not paid by GAPLLC prior to, and as of, the date that GAPLLC
2
<PAGE>
assigned to the Company any and all of its interests, rights, and
obligations in and under this Agreement at such time as determined
by the Board of Directors of the Company, but in any event prior to
the termination of the Initial Term.
e. Amendment to Section 8 of the Employment Agreement. Section 8 of the
Employment Agreement is deleted in its entirety and replaced by the
following:
8. Automobile Expenses. Employee shall receive an amount of Seven
Hundred Fifty and 00/100 Dollars ($750.00) per month as
reimbursement for automobile expenses incurred in the use of
Employee's automobile for business purposes. Such reimbursement
amount represents a pro rata share of the following potential
expenses: lease, fuel, insurance and general maintenance.
f. Amendment to Section 9 of the Employment Agreement. Section 9 of the
Employment Agreement is amended by adding a new Section 9(c) thereto
stating as follows:
(c) In the event that GAPLLC, prior to the assignment by GAPLLC to
the Company of any and all of its interests, rights, and obligations
in and under this Agreement, had obtained any health insurance
policy and/or any life insurance policy in accord with the
provisions of this Section 9 (any such health insurance policy or
life insurance policy to be referenced hereinafter as an "Insurance
Policy"), the Company shall not be obligated to obtain another
separate such Insurance Policy to the extent that the Company
assumes and maintains the responsibilities and obligations of GAPLLC
under such pre-existing Insurance Policy.
g. Amendment to Section 13 (c) of the Employment Agreement. Section 13
(c) of the Employment Agreement is deleted in its entirety and
replaced by the following:
(c) Except as otherwise specifically provided in this Agreement,
including this paragraph (c) and Section 11, hereof, in the event of
the Employee's termination of employment for any reason, other than
a termination for cause or in the event of death, the Employee shall
receive in lump sum that amount of compensation provided in Section
4, hereof, based on the remaining term of this Agreement as
determined under Section 2, hereof. Notwithstanding the foregoing,
in the event of the Employee's termination of employment for cause,
as defined herein, then all obligations of the GAPC-Colo hereunder
shall terminate, and the Employee shall not be entitled to any
further payment.
3
<PAGE>
h. Amendment to Section 14 of the Employment Agreement. Section 14 of
the Employment Agreement is deleted in its entirety and replaced by
the following:
14. Indemnification. The parties recognize that the Company has
assumed the obligations of GAPLLC pursuant to which obligation
GAPLLC had agreed to indemnify the Employee from and against any
liability, cost, or expense, whatsoever, incurred by the Employee on
and under any loan or obligation obtained by or for benefit of
GAPLLC for which the Employee executed personally or executed
guarantees providing for the personal liability of the Employee
under such loans. A copy of the original Indemnification Agreement
between the Employee and GAPLLC is attached as Exhibit A hereto and
incorporated herein by reference. A copy of the Company's Assumption
of Indemnification Agreement between the Employee, GAPLLC, and the
Company is attached as Exhibit B hereto and incorporated herein by
reference.
3. Other Sections of the Employment Agreement. Except as generally amended by
Section 1 of this Amendment or specifically amended pursuant to the terms
of Section 2 of this Amendment, provisions of the Employment Agreement
shall be unchanged as a result of the execution of this Amendment; and
GAPC-Colo and the Employee shall be bound thereby as if GAPC-Colo and the
Employee had been the original signatories of the Employment Agreement.
4. Accrued, But Unpaid, Obligations. GAPC-Colo specifically represents and
warrants to the Employee that, as a consequence of the assignment by GAPLLC
to GAPC-Colo of any and all of its interests, rights, and obligations in
and under the Employment Agreement, GAPC-Colo shall, as of the Operative
Date of this Amendment, assume, and become liable, for any and all accrued,
but unpaid, obligations of GAPLLC to the Employee arising prior to, and as
of, the Operative Date under the terms of the Employment Agreement, as in
effect prior to the execution of this Amendment.
5. Company Approval. This Amendment has been approved by the Board of
Directors of GAPC-Colo, and been duly executed and delivered by the
Employee and on behalf of the GAPC-Colo by its duly authorized
representative.
6. Governing Law. This Amendment shall be construed and enforced in accordance
with the laws of the State of Colorado, excluding any conflict-of-laws rule
or law that might refer such construction or governance to the law of
another jurisdiction.
7. Severability. In the event a court of competent jurisdiction finds any
of the provisions of this Amendment to be prohibited or unenforceable, it
is the intent that such provision be reduced in scope by the court, but
only to the extent deemed necessary by the court to render the provision
enforceable. Moreover, to the extent that this Amendment may be executed
4
<PAGE>
and performance of the obligations of the parties may be accomplished
within the intent of this Amendment, the terms of this Amendment are
severable, and should any term or provision hereof be declared invalid or
become inoperative for any reason, such invalidity or failure shall not
affect the validity of any other term or provision hereof.
8. Counterparts; Telefacsimile Signatures. This Amendment may be executed in
multiple counterparts, each of which shall be deemed to be an original,
but which together shall constitute one and the same instrument. Signature
pages may be delivered by telefacsimile, each of which shall be binding
and enforceable, to the same effect as if the original signature pages
were executed and delivered.
9. Further Action. Each of the parties hereto agrees and covenants to take or
to cause to be taken such further actions, to execute, acknowledge, seal
and deliver such further instruments, documents and further assurances as
any one or more of the other parties may, from time to time, reasonably
request in order to effectuate fully the purposes, terms, and conditions
of this Amendment and to fulfill the intent of this Amendment and the
transactions contemplated herein and provided hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective on the date first set forth above.
Gateway American Properties Corporation,
a Colorado corporation
By:/s/ Harvey E. Deutsch
--------------------------------
Harvey E. Deutsch, Its President
/s/ Joel H. Farkas /s/ Harvey E. Deutsch
- ------------------ --------------------------------
Joel H. Farkas, Its Secretary Harvey E. Deutsch, as "Employee"
5
<PAGE>
EXHIBIT (10)(a)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is effective the 15th day of September, 1995, by and
between GATEWAY AMERICAN PROPERTIES, LLC, a Colorado limited liability company
(the "Company"), and HARVEY E. DEUTSCH (the "Employee").
RECITALS:
WHEREAS, the Employee's services are valued by the Company and the Company
and the Employee desire to set forth in this Agreement the terms and conditions
for employment of the Employee by the Company during the term hereof; and
WHEREAS, the Employee and the Company agree that the Employee shall be
compensated on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
1. Employment. Subject to the terms and conditions set forth in this
Agreement, the Company hereby engages and employs Employee and Employee hereby
accepts such engagement and employment with the Company. The primary place of
employment shall be at the Company's principal offices in Denver, Colorado, or
at such other location as the Company and the Employee may agree.
2. Term. The initial term of this Agreement shall be for a three (3) year
period and shall commence as of September 15, 1995 (the "Effective Date"), and
shall be in effect through September 14, 1998, unless sooner terminated as
hereinafter set forth (the "Initial Term"). After expiration of the Initial
Term, and subject to the termination provisions hereinafter contained, this
Agreement will be automatically renewed for additional one-year periods (each a
"Renewal Term") as of September 15th, 1998, and each year thereafter (each a
"Renewal Date"); provided neither party has given written notice to the other
party of their intent not to renew at least 90 days prior to any Renewal Date.
3. Duties. The Employee will, during the Initial Term and each Renewal
Term:
(a) Faithfully and diligently do and perform all such reasonable
acts and duties and furnish such reasonable services consistent with the
Employee's position as a Manager of the Company, and as the Managers of
the Company shall direct. In performing the assigned duties, the Employee
shall do and perform all acts in the ordinary course of the Company's
business (with such limits as the Managers of the Company may prescribe
necessary and conducive to the Company's best interests); and
(b) Devote the Employee's energies and skills to the business of the
Company and to the promotion of the Company's best interests. The Company
<PAGE>
understands and recognizes that the Employee may have other business
activities which take a portion of Employee's time devoted to business
matters. Accordingly, Employee is required to expend on behalf of the
Company only such efforts as the Managers of the Company shall determine
to be appropriate for the proper conduct of Company affairs. Further, it
is acknowledged that the Employee may engage in or possess interests in
other business ventures of every nature and description, independently or
with others, some of which may compete with the business of the Company,
and the Company shall not have any right in or to any such independent
ventures or to the income or profits derived therefrom. For the purpose of
avoidance of costly and prolonged litigation which may result in undue
damage to the Employee and the Company, any claims based on any such
activities or conflicts of interest of the Employee are hereby expressly
waived by the Company.
4. Compensation. The Employee's salary, for the term provided in this
Agreement, shall be an amount of One Hundred Twenty Thousand and 00/100 Dollars
($120,000.00) on an annual basis.
5. Additional Incentive. The Company will provide Employee with additional
incentives including stock options, a retirement plan and bonus benefits. The
Company's Managers shall, within one year from the Effective Date, determine the
exact form of such additional incentives, the formula to be utilized in
determining the monetary benefit, and the performance criteria in awarding such
work incentives.
6. Payments. Payment of compensation made under Section 4 shall be payable
monthly. All payments under this Agreement will be subject to withholding
deductions as may be required to be made pursuant to law, government regulation
or order, or by written agreement with, or written consent of, the Employee. The
parties acknowledge that the Employee has been employed by the Company prior to
the Effective Date, and Employee is entitled to approximately one year's accrued
salary related to this prior employment from July 1, 1994. The Company shall pay
the Employee the accrued salary at such time as determined by the Managers of
the Company, but in any event prior to the termination of the Initial Term.
7. Reimbursements. If Employee reasonably incurs any bona fide business
expenses in the performance of the duties authorized by the Company (other than
personal living expenses, including, but not limited to personal automobile
transportation and other such expenses, house mortgage, rental, meals and other
such expenses), the Company shall reimburse the Employee for reasonable expenses
subject to reasonable guidelines from time to time established by the Company
within thirty (30) days after the Employer receives an itemized statement as to:
a. the date that such expenses were incurred;
b. the business purpose for which such expenses were
incurred;
2
<PAGE>
c. the name of all persons who benefited from such
expenses; and
d. the amount of each expense.
Expenses shall only be reimbursed upon the furnishing of such information and
any other information which the Company deems necessary to verify the accuracy
and reasonableness of said expenditures, and to justify to the Internal Revenue
Service the deductibility of such expenditures. The Company shall provide
Employee with a corporate credit card for purposes of paying such business
expenses.
8. Automobile Expenses. Employee shall receive an amount of Seven Hundred
Fifty and 00/100 Dollars ($750.00) per month as reimbursement for automobile
expenses incurred in the use of Employee's automobile for business purposes,
including a pro rata share of the following expenses: lease, fuel, insurance and
general maintenance.
9. Health and Life Insurance Benefits. The Company shall provide Employee
with health insurance. In addition, the Company shall provide the following life
insurance policies on the life of the Employee:
(a) Split-Dollar. The Company shall purchase life insurance on the
life of the Employee having a face value in such amount as is available
for an annual premium payment of approximately Twenty-five Thousand
Dollars ($25,000.00) under a split-dollar arrangement with the Employee.
The Employee will be entitled to designate the beneficiary to receive any
and all insurance proceeds under such policy. The Company and Employee
shall cooperate and use its/his best efforts in obtaining such policy.
(b) Key Man Insurance. The Company shall purchase life insurance on
the life of the Employee having a face value of One Million Five Hundred
Thousand and 00/100 Dollars (($1,500,000.00) as "key man insurance." The
Company shall be designated as the beneficiary of such policy. The Company
and Employee shall cooperate and use its/his best efforts in obtaining
such policy.
10. Disability. The Company shall provide Employee with disability
insurance, and the Company and Employee shall cooperate and use its/his best
efforts in obtaining such disability insurance coverage. In the event that the
Employee is disabled, at the Company's election and upon 30 day's notice to the
Employee, the Company may terminate this Agreement, whereupon, the Employee's
obligation to perform such services will terminate. For purposes of this
Agreement, disability will be determined as provided under the Employee's
disability insurance policy. In the event of a determination of disability as
provided herein, the Employee shall continue to receive his salary for a period
of six (6) months commencing from the date of termination by the Company of
Employee's employment.
3
<PAGE>
11. Death. In the event of the death of the Employee during the term of
this Agreement, his employment pursuant to this Agreement shall terminate. In
the accounting between the Company and the Employee's personal representative,
the Employee's estate shall receive that amount of compensation provided in
Section 4, hereof, for the three year period following the Employee's date of
death, payable as provided in Section 6, hereof. This death benefit shall be
payable to Employee's estate for the period stated herein regardless of the
termination date of the Initial Term.
12. Absence from Work. Employee will be entitled to vacation each year, as
may be determined by the Company's Managers. During vacations, Employee shall be
entitled to receive his regular monthly compensation amount. Employee shall be
entitled to be absent from work due to sickness and holidays as determined by
the Company from time to time.
13. Termination.
(a) The Employee's employment with the Company shall be terminated:
(i) by reason of the Employee's death;
(ii) by reason of the Employee becoming disabled as set forth in
Section 10;
(iii upon the voluntary termination of this Agreement by the Company
and the Employee; or
(iv) for cause.
(b) For purposes of this Agreement, "cause" shall be deemed to exist if
the Employee is shown to have engaged in any act of embezzlement, theft or fraud
upon the Company, any of its affiliated companies, or any of its customers or
clients. The Company shall have the sole discretion to determine whether the
conditions constituting a termination for cause have occurred, and the Employee
agrees that a decision by the Managers of the Company, that cause exists for
termination of the Employee, explained by the Company Managersby written notice
to the Employee, shall be binding on the Employee.
(c) Except as otherwise specifically provided in this Agreement, in the
event of the Employee's termination of employment for any reason, then all
obligations of the Company hereunder shall terminate.
14. Indemnification. The parties recognize that the Company has entered
into an agreement with the Employee to indemnify the Employee from and against
any liability, cost, or expense, whatsoever, incurred by the Employee on and
under any loan or obligation obtained by or for the benefit of the Company for
which the Employee executed personally or executed guarantees providing for the
personal liability of the Employee under such loans. A copy of such
4
<PAGE>
Indemnification Agreement is attached hereto as Exhibit A and incorporated
herein by reference.
15. Nonassignment. This Agreement is personal to the Employee and shall
not be assigned by the Employee. The Employee shall not hypothecate, delegate,
encumber, alienate, transfer or otherwise dispose of the Employee's rights and
duties hereunder. The Company may assign the Agreement without the Employee's
consent to any other entity who, in connection with such assignment, acquires
all or substantially all of the Company's assets or into or with which the
Company is merged or consolidated.
16. Waiver. The waiver by either party of a breach by the other party of
any provision of this Agreement shall not be construed as a waiver of a breach
of any other provision or any subsequent breach.
17. Severability. If any clause, phrase, provision or portion of this
Agreement or the application thereof to any person or circumstance shall be
invalid or unenforceable under any applicable law, such event shall not affect
or render invalid or unenforceable the remainder of this Agreement and shall not
affect the application of any clause, provision, or portion hereof to any other
person or circumstance.
18. Benefit. The provisions of this Agreement shall inure to the benefit
of the Company, its successors and assigns, and shall be binding upon the
Company and the Employee, his heirs, personal representatives and successors and
assigns, including without limitation the Employee's estate and the executors,
administrators, or trustees of such estate.
19. Relevant Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Colorado.
20. Notices. All notices, requests, demands and other communications in
connection with this Agreement shall be made in writing and shall be deemed to
have been given when delivered by hand or 48 hours after mailing at any general
or branch United States Post Office, by registered mail, postage prepaid, return
receipt requested, addressed as follows, or to such other address as shall have
been designated in writing by the addressee:
(a) If to the Company:
Gateway American Properties Corporation
9145 East Kenyon Avenue
Suite 200
Denver, Colorado 80237-1810
5
<PAGE>
(b) If to the Employee:
Harvey E. Deutsch
Deutsch, Spillane & Reutzel, P.C.
9145 East Kenyon Avenue
Suite 200
Denver, Colorado 80237-1810
21. Entire Agreement. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements, arrangements, and
communications, whether oral or written, pertaining to the subject matters
hereof. This Agreement may only be amended or modified by a writing signed by
both parties. Oral promises or assurances are not effective to enforce, amend or
modify this Agreement.
22. Company Approval. This Agreement has been approved by the Managers of
the Company, and has been duly executed and delivered by the Employee and on
behalf of the Company by its duly authorized representative.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective on the date first set forth above.
The "Company"
GATEWAY AMERICAN PROPERTIES, LLC, a
Colorado limited liability company
By:/s/ Harvey E. Deutsch
---------------------------
Harvey E. Deutsch, Manager
By:/s/ Michael A. Messina
---------------------------
Michael A. Messina, Manager
By:/s/ Joel H. Farkas
---------------------------
Joel H. Farkas, Manager
The "Employee":
/s/ Harvey E. Deutsch
---------------------------
Harvey E. Deutsch
6
<PAGE>
EXHIBIT A
COPY OF INDEMNIFICATION AGREEMENT
(see attached)
7
EXHIBIT (10)(b)
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment (the "Amendment") to the Employment Agreement
originally executed by Gateway American Properties, LLC, a Colorado limited
liability company ("GAPLLC"), and Joel H. Farkas (the "Employee"), which
agreement was effective as of September 15, 1995, and a copy of which is
attached as Exhibit I hereto (the "Employment Agreement"), is effective as of
the 1st day of October, 1997 (the "Operative Date"), by and between Gateway
American Properties Corporation, a Colorado corporation ("GAPC-Colo"), and the
Employee.
EXPLANATORY STATEMENT
WHEREAS, pursuant to Section 15 of the Employment Agreement, GAPC-Colo has
become the assignee of any and all interests, rights, and obligations of GAPLLC
in and under the Employment Agreement.
WHEREAS, pursuant to Section 21 of the Employment Agreement, GAPC-Colo and
the Employee wish to amend the Employment Agreement to reflect the assignment of
any and all interests, rights, and obligations of GAPLLC in and under the
Employment Agreement.
WHEREAS, pursuant to Section 21 of the Employment Agreement, GAPC-Colo and
the Employee wish to amend the Employment Agreement to extend the term of the
Employment Agreement.
NOW THEREFORE, in consideration of the Explanatory Statement that shall be
deemed to be a substantive part of this Amendment, the mutual covenants,
promises, agreements, representations and warranties contained in this
Amendment, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby
covenant, promise, agree, represent and warrant as follows:
1. General Amendments. To the extent not inconsistent with the more specific
amendments to the Employment Agreement set forth in Section 2 herein, the
following amendments to the Employment Agreement shall apply generally:
a. Substitution of Name. All references in the Employment Agreement to
the phrase "Gateway American Properties, LLC, a Colorado limited
liability company" shall be replaced by the phrase "Gateway American
Properties Corporation, a Colorado corporation." Throughout the entire
Employment Agreement, references to the phrase "the Company" shall,
after the Operative Date of this Amendment, be interpreted as
references to GAPC-Colo and not to GAPLLC.
b. Substitution of "Managers". All references to the phrase "the
Managers" shall be replaced by the phrase "the Company's Board of
Directors."
<PAGE>
2. Specific Amendments.
a. Amendment to Section 2 of the Employment Agreement. Section 2 of the
Employment Agreement is deleted in its entirety and replaced by the
following:
2. Term. The initial term of this Agreement commenced as of
September 15, 1995 (the "Effective Date"), and shall be in effect
through December 31, 2000, unless sooner terminated as hereinafter
set forth (the "Initial Term"). After expiration of the Initial
Term, and subject to the termination provisions hereinafter
contained, this Agreement will be automatically renewed for
additional one-year periods (each a "Renewal Term") as of December
31, 2000, and each year thereafter (each a "Renewal Date"); provided
neither party has given written notice to the other party of his or
its intent not to renew at least 90 days prior to any Renewal Date.
b. Amendment to Section 3(a) of the Employment Agreement. Section 3(a)
of the Employment Agreement is deleted in its entirety and replaced
by the following:
(a) Faithfully and diligently do and perform all such reasonable
acts and duties and furnish such reasonable services as the Board of
Directors and officers of the Company shall direct. In performing
the assigned duties, the Employee shall do and perform all acts in
the ordinary course of the Company's business (with such limits as
the Company's Board of Directors may prescribe necessary and
conducive to the Company's bests interests); and
c. Amendment to Section 5 of the Employment Agreement. Section 5 of the
Employment Agreement is deleted in its entirety and replaced by the
following:
5. Additional Incentives. The Company will provide Employee with
additional incentives including stock options, a retirement plan and
bonus benefits. Such additional incentives shall be consistent with
those additional incentives provided the Employee by Gateway
American Properties, LLC ("GAPLLC") prior to the assignment by
GAPLLC to the Company of any and all of its interests, rights, and
obligations in and under this Agreement.
d. Amendment to Section 6 of the Employment Agreement. Section 6 of the
Employment Agreement is amended by deleting the last sentence of
such section and replacing it with the following:
The Company shall pay the Employee any amount of the accrued salary
not paid by GAPLLC prior to, and as of, the date that GAPLLC
2
<PAGE>
assigned to the Company any and all of its interests, rights, and
obligations in and under this Agreement at such time as determined
by the Board of Directors of the Company, but in any event prior to
the termination of the Initial Term.
e. Amendment to Section 8 of the Employment Agreement. Section 8 of the
Employment Agreement is deleted in its entirety and replaced by the
following:
8. Automobile Expenses. Employee shall receive an amount of Seven
Hundred Fifty and 00/100 Dollars ($750.00) per month as
reimbursement for automobile expenses incurred in the use of
Employee's automobile for business purposes. Such reimbursement
amount represents a pro rata share of the following potential
expenses: lease, fuel, insurance and general maintenance.
f. Amendment to Section 9 of the Employment Agreement. Section 9 of the
Employment Agreement is amended by adding a new Section 9(c) thereto
stating as follows:
(c) In the event that GAPLLC, prior to the assignment by GAPLLC to
the Company of any and all of its interests, rights, and obligations
in and under this Agreement, had obtained any health insurance
policy and/or any life insurance policy in accord with the
provisions of this Section 9 (any such health insurance policy or
life insurance policy to be referenced hereinafter as an "Insurance
Policy"), the Company shall not be obligated to obtain another
separate such Insurance Policy to the extent that the Company
assumes and maintains the responsibilities and obligations of GAPLLC
under such pre-existing Insurance Policy.
g. Amendment to Section 13 (c) of the Employment Agreement. Section 13
(c) of the Employment Agreement is deleted in its entirety and
replaced by the following:
(c) Except as otherwise specifically provided in this Agreement,
including this paragraph (c) and Section 11, hereof, in the event of
the Employee's termination of employment for any reason, other than
a termination for cause or in the event of death, the Employee shall
receive in lump sum that amount of compensation provided in Section
4, hereof, based on the remaining term of this Agreement as
determined under Section 2, hereof. Notwithstanding the foregoing,
in the event of the Employee's termination of employment for cause,
as defined herein, then all obligations of the GAPC-Colo hereunder
shall terminate, and the Employee shall not be entitled to any
further payment.
3
<PAGE>
h. Amendment to Section 14 of the Employment Agreement. Section 14 of
the Employment Agreement is deleted in its entirety and replaced by
the following:
14. Indemnification. The parties recognize that the Company has
assumed the obligations of GAPLLC pursuant to which obligation
GAPLLC had agreed to indemnify the Employee from and against any
liability, cost, or expense, whatsoever, incurred by the Employee on
and under any loan or obligation obtained by or for benefit of
GAPLLC for which the Employee executed personally or executed
guarantees providing for the personal liability of the Employee
under such loans. A copy of the original Indemnification Agreement
between the Employee and GAPLLC is attached as Exhibit A hereto and
incorporated herein by reference. A copy of the Company's Assumption
of Indemnification Agreement between the Employee, GAPLLC, and the
Company is attached as Exhibit B hereto and incorporated herein by
reference.
3. Other Sections of the Employment Agreement. Except as generally amended by
Section 1 of this Amendment or specifically amended pursuant to the terms
of Section 2 of this Amendment, provisions of the Employment Agreement
shall be unchanged as a result of the execution of this Amendment; and
GAPC-Colo and the Employee shall be bound thereby as if GAPC-Colo and the
Employee had been the original signatories of the Employment Agreement.
4. Accrued, But Unpaid, Obligations. GAPC-Colo specifically represents and
warrants to the Employee that, as a consequence of the assignment by GAPLLC
to GAPC-Colo of any and all of its interests, rights, and obligations in
and under the Employment Agreement, GAPC-Colo shall, as of the Operative
Date of this Amendment, assume, and become liable, for any and all accrued,
but unpaid, obligations of GAPLLC to the Employee arising prior to, and as
of, the Operative Date under the terms of the Employment Agreement, as in
effect prior to the execution of this Amendment.
5. Company Approval. This Amendment has been approved by the Board of
Directors of GAPC-Colo, and been duly executed and delivered by the
Employee and on behalf of the GAPC-Colo by its duly authorized
representative.
6. Governing Law. This Amendment shall be construed and enforced in accordance
with the laws of the State of Colorado, excluding any conflict-of-laws rule
or law that might refer such construction or governance to the law of
another jurisdiction.
7. Severability. In the event a court of competent jurisdiction finds any of
the provisions of this Amendment to be prohibited or unenforceable, it is
the intent that such provision be reduced in scope by the court, but only
to the extent deemed necessary by the court to render the provision
enforceable. Moreover, to the extent that this Amendment may be executed
4
<PAGE>
and performance of the obligations of the parties may be accomplished
within the intent of this Amendment, the terms of this Amendment are
severable, and should any term or provision hereof be declared invalid or
become inoperative for any reason, such invalidity or failure shall not
affect the validity of any other term or provision hereof.
8. Counterparts; Telefacsimile Signatures. This Amendment may be executed in
multiple counterparts, each of which shall be deemed to be an original, but
which together shall constitute one and the same instrument. Signature
pages may be delivered by telefacsimile, each of which shall be binding and
enforceable, to the same effect as if the original signature pages were
executed and delivered.
9. Further Action. Each of the parties hereto agrees and covenants to take or
to cause to be taken such further actions, to execute, acknowledge, seal
and deliver such further instruments, documents and further assurances as
any one or more of the other parties may, from time to time, reasonably
request in order to effectuate fully the purposes, terms, and conditions of
this Amendment and to fulfill the intent of this Amendment and the
transactions contemplated herein and provided hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective on the date first set forth above.
Gateway American Properties
Corporation, a Colorado corporation
By:/s/ Harvey E. Deutsch
--------------------------------
Harvey E. Deutsch, Its President
/s/ Joel H. Farkas /s/ Joel H. Farkas
- ----------------------------- --------------------------------
Joel H. Farkas, Its Secretary Joel H. Farkas, as "Employee"
5
<PAGE>
EXHIBIT (10)(b)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is effective the 15th day of September, 1995, by and
between GATEWAY AMERICAN PROPERTIES , LLC, a Colorado limited liability company
(the "Company"), and JOEL H. FARKAS (the "Employee").
RECITALS:
WHEREAS, the Employee's services are valued by the Company and the Company
and the Employee desire to set forth in this Agreement the terms and conditions
for employment of the Employee by the Company during the term hereof; and
WHEREAS, the Employee and the Company agree that the Employee shall be
compensated on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
1. Employment. Subject to the terms and conditions set forth in this
Agreement, the Company hereby engages and employs Employee and Employee hereby
accepts such engagement and employment with the Company. The primary place of
employment shall be at the Company's principal offices in Denver, Colorado, or
at such other location as the Company and the Employee may agree.
2. Term. The initial term of this Agreement shall be for a three (3) year
period and shall commence as of September 15, 1995 (the "Effective Date"), and
shall be in effect through September 14, 1998, unless sooner terminated as
hereinafter set forth (the "Initial Term"). After expiration of the Initial
Term, and subject to the termination provisions hereinafter contained, this
Agreement will be automatically renewed for additional one-year periods (each a
"Renewal Term") as of September 15th, 1998, and each year thereafter (each a
"Renewal Date"); provided neither party has given written notice to the other
party of their intent not to renew at least 90 days prior to any Renewal Date.
3. Duties. The Employee will, during the Initial Term and each Renewal
Term:
(a) Faithfully and diligently do and perform all such reasonable
acts and duties and furnish such reasonable services consistent with the
Employee's position as a Manager of the Company, and as the Managers of
the Company shall direct. In performing the assigned duties, the Employee
shall do and perform all acts in the ordinary course of the Company's
business (with such limits as the Managers of the Company may prescribe
necessary and conducive to the Company's best interests); and
(b) Devote the Employee's energies and skills to the business of the
Company and to the promotion of the Company's best interests. The Company
<PAGE>
understands and recognizes that the Employee may have other business
activities which take a portion of Employee's time devoted to business
matters. Accordingly, Employee is required to expend on behalf of the
Company only such efforts as the Managers of the Company shall determine
to be appropriate for the proper conduct of Company affairs. Further, it
is acknowledged that the Employee may engage in or possess interests in
other business ventures of every nature and description, independently or
with others, some of which may compete with the business of the Company,
and the Company shall not have any right in or to any such independent
ventures or to the income or profits derived therefrom. For the purpose of
avoidance of costly and prolonged litigation which may result in undue
damage to the Employee and the Company, any claims based on any such
activities or conflicts of interest of the Employee are hereby expressly
waived by the Company.
4. Compensation. The Employee's salary, for the term provided in this
Agreement, shall be an amount of One Hundred Eight Thousand and 00/100 Dollars
($108,000.00) on an annual basis.
5. Additional Incentive. The Company will provide Employee with additional
incentives including stock options, a retirement plan and bonus benefits. The
Company's Managers shall, within one year from the Effective Date, determine the
exact form of such additional incentives, the formula to be utilized in
determining the monetary benefit, and the performance criteria in awarding such
work incentives.
6. Payments. Payment of compensation made under Section 4 shall be payable
monthly. All payments under this Agreement will be subject to withholding
deductions as may be required to be made pursuant to law, government regulation
or order, or by written agreement with, or written consent of, the Employee. The
parties acknowledge that the Employee has been employed by the Company prior to
the Effective Date, and Employee is entitled to approximately one year's accrued
salary related to this prior employment from July 1, 1994. The Company shall pay
the Employee the accrued salary at such time as determined by the Managers of
the Company, but in any event prior to the termination of the Initial Term.
7. Reimbursements. If Employee reasonably incurs any bona fide business
expenses in the performance of the duties authorized by the Company (other than
personal living expenses, including, but not limited to personal automobile
transportation and other such expenses, house mortgage, rental, meals and other
such expenses), the Company shall reimburse the Employee for reasonable expenses
subject to reasonable guidelines from time to time established by the Company
within thirty (30) days after the Employer receives an itemized statement as to:
a. the date that such expenses were incurred;
b. the business purpose for which such expenses were
incurred;
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c. the name of all persons who benefited from such
expenses; and
d. the amount of each expense.
Expenses shall only be reimbursed upon the furnishing of such information and
any other information which the Company deems necessary to verify the accuracy
and reasonableness of said expenditures, and to justify to the Internal Revenue
Service the deductibility of such expenditures. The Company shall provide
Employee with a corporate credit card for purposes of paying such business
expenses.
8. Automobile Expenses. Employee shall receive an amount of Seven Hundred
Fifty and 00/100 Dollars ($750.00) per month as reimbursement for automobile
expenses incurred in the use of Employee's automobile for business purposes,
including a pro rata share of the following expenses: lease, fuel, insurance and
general maintenance.
9. Health and Life Insurance Benefits. The Company shall provide Employee
with health insurance. In addition, the Company shall provide the following life
insurance policies on the life of the Employee:
(a) Split-Dollar. The Company shall purchase life insurance on the
life of the Employee having a face value in such amount as is available
for an annual premium payment of approximately Twenty-five Thousand
Dollars ($25,000.00) under a split-dollar arrangement with the Employee.
The Employee will be entitled to designate the beneficiary to receive any
and all insurance proceeds under such policy. The Company and Employee
shall cooperate and use its/his best efforts in obtaining such policy.
(b) Key Man Insurance. The Company shall purchase life insurance on
the life of the Employee having a face value of One Million Five Hundred
Thousand and 00/100 Dollars (($1,500,000.00) as "key man insurance." The
Company shall be designated as the beneficiary of such policy. The Company
and Employee shall cooperate and use its/his best efforts in obtaining
such policy.
10. Disability. The Company shall provide Employee with disability
insurance, and the Company and Employee shall cooperate and use its/his best
efforts in obtaining such disability insurance coverage. In the event that the
Employee is disabled, at the Company's election and upon 30 day's notice to the
Employee, the Company may terminate this Agreement, whereupon, the Employee's
obligation to perform such services will terminate. For purposes of this
Agreement, disability will be determined as provided under the Employee's
disability insurance policy. In the event of a determination of disability as
provided herein, the Employee shall continue to receive his salary for a period
of six (6) months commencing from the date of termination by the Company of
Employee's employment.
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11. Death. In the event of the death of the Employee during the term of
this Agreement, his employment pursuant to this Agreement shall terminate. In
the accounting between the Company and the Employee's personal representative,
the Employee's estate shall receive that amount of compensation provided in
Section 4, hereof, for the three year period following the Employee's date of
death, payable as provided in Section 6, hereof. This death benefit shall be
payable to Employee's estate for the period stated herein regardless of the
termination date of the Initial Term.
12. Absence from Work. Employee will be entitled to vacation each year, as
may be determined by the Company's Managers. During vacations, Employee shall be
entitled to receive his regular monthly compensation amount. Employee shall be
entitled to be absent from work due to sickness and holidays as determined by
the Company from time to time.
13. Termination.
(a) The Employee's employment with the Company shall be terminated:
(i) by reason of the Employee's death;
(ii) by reason of the Employee becoming disabled as set forth in
Section 10;
(iii)upon the voluntary termination of this Agreement by the Company
and the Employee; or
(iv) for cause.
(b) For purposes of this Agreement, "cause" shall be deemed to exist if
the Employee is shown to have engaged in any act of embezzlement, theft or fraud
upon the Company, any of its affiliated companies, or any of its customers or
clients. The Company shall have the sole discretion to determine whether the
conditions constituting a termination for cause have occurred, and the Employee
agrees that a decision by the Managers of the Company, that cause exists for
termination of the Employee, explained by the Company Managersby written notice
to the Employee, shall be binding on the Employee.
(c) Except as otherwise specifically provided in this Agreement, in the
event of the Employee's termination of employment for any reason, then all
obligations of the Company hereunder shall terminate.
14. Indemnification. The parties recognize that the Company has entered
into an agreement with the Employee to indemnify the Employee from and against
any liability, cost, or expense, whatsoever, incurred by the Employee on and
under any loan or obligation obtained by or for the benefit of the Company for
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<PAGE>
which the Employee executed personally or executed guarantees providing for the
personal liability of the Employee under such loans. A copy of such
Indemnification Agreement is attached hereto as Exhibit A and incorporated
herein by reference.
15. Nonassignment. This Agreement is personal to the Employee and shall
not be assigned by the Employee. The Employee shall not hypothecate, delegate,
encumber, alienate, transfer or otherwise dispose of the Employee's rights and
duties hereunder. The Company may assign the Agreement without the Employee's
consent to any other entity who, in connection with such assignment, acquires
all or substantially all of the Company's assets or into or with which the
Company is merged or consolidated.
16. Waiver. The waiver by either party of a breach by the other party of
any provision of this Agreement shall not be construed as a waiver of a breach
of any other provision or any subsequent breach.
17. Severability. If any clause, phrase, provision or portion of this
Agreement or the application thereof to any person or circumstance shall be
invalid or unenforceable under any applicable law, such event shall not affect
or render invalid or unenforceable the remainder of this Agreement and shall not
affect the application of any clause, provision, or portion hereof to any other
person or circumstance.
18. Benefit. The provisions of this Agreement shall inure to the benefit
of the Company, its successors and assigns, and shall be binding upon the
Company and the Employee, his heirs, personal representatives and successors and
assigns, including without limitation the Employee's estate and the executors,
administrators, or trustees of such estate.
19. Relevant Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Colorado.
20. Notices. All notices, requests, demands and other communications in
connection with this Agreement shall be made in writing and shall be deemed to
have been given when delivered by hand or 48 hours after mailing at any general
or branch United States Post Office, by registered mail, postage prepaid, return
receipt requested, addressed as follows, or to such other address as shall have
been designated in writing by the addressee:
(a) If to the Company:
Gateway American Properties Corporation
9145 East Kenyon Avenue
Suite 200
Denver, Colorado 80237-1810
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(b) If to the Employee:
Joel H. Farkas
9145 East Kenyon Avenue
Suite 200
Denver, Colorado 80237-1810
21. Entire Agreement. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements, arrangements, and
communications, whether oral or written, pertaining to the subject matters
hereof. This Agreement may only be amended or modified by a writing signed by
both parties. Oral promises or assurances are not effective to enforce, amend or
modify this Agreement.
22. Company Approval. This Agreement has been approved by the Managers of
the Company, and has been duly executed and delivered by the Employee and on
behalf of the Company by its duly authorized representative.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective on the date first set forth above.
The "Company"
GATEWAY AMERICAN PROPERTIES, LLC, a
Colorado limited liability company
By:/s/ Harvey E. Deutsch
---------------------------
Harvey E. Deutsch, Manager
By:/s/ Michael A. Messina
---------------------------
Michael A. Messina, Manager
By:/s/ Joel H. Farkas
---------------------------
Joel H. Farkas, Manager
The "Employee":
/s/ Joel H. Farkas
---------------------------
Joel H. Farkas
6
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EXHIBIT A
COPY OF INDEMNIFICATION AGREEMENT
(see attached)
7
EXHIBIT (10)(c)
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment (the "Amendment") to the Employment Agreement
originally executed by Gateway American Properties, LLC, a Colorado limited
liability company ("GAPLLC"), and Michael A. Messina (the "Employee"), which
agreement was effective as of September 15, 1995, and a copy of which is
attached as Exhibit I hereto (the "Employment Agreement"), is effective as of
the 1st day of October, 1997 (the "Operative Date"), by and between Gateway
American Properties Corporation, a Colorado corporation ("GAPC-Colo"), and the
Employee.
EXPLANATORY STATEMENT
WHEREAS, pursuant to Section 15 of the Employment Agreement, GAPC-Colo has
become the assignee of any and all interests, rights, and obligations of GAPLLC
in and under the Employment Agreement.
WHEREAS, pursuant to Section 21 of the Employment Agreement, GAPC-Colo and
the Employee wish to amend the Employment Agreement to reflect the assignment of
any and all interests, rights, and obligations of GAPLLC in and under the
Employment Agreement.
WHEREAS, pursuant to Section 21 of the Employment Agreement, GAPC-Colo and
the Employee wish to amend the Employment Agreement to extend the term of the
Employment Agreement.
NOW THEREFORE, in consideration of the Explanatory Statement that shall be
deemed to be a substantive part of this Amendment, the mutual covenants,
promises, agreements, representations and warranties contained in this
Amendment, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby
covenant, promise, agree, represent and warrant as follows:
1. General Amendments. To the extent not inconsistent with the more specific
amendments to the Employment Agreement set forth in Section 2 herein, the
following amendments to the Employment Agreement shall apply generally:
a. Substitution of Name. All references in the Employment Agreement to
the phrase "Gateway American Properties, LLC, a Colorado limited
liability company" shall be replaced by the phrase "Gateway American
Properties Corporation, a Colorado corporation." Throughout the entire
Employment Agreement, references to the phrase "the Company" shall,
after the Operative Date of this Amendment, be interpreted as
references to GAPC-Colo and not to GAPLLC.
b. Substitution of "Managers". All references to the phrase "the
Managers" shall be replaced by the phrase "the Company's Board of
Directors."
<PAGE>
2. Specific Amendments.
a. Amendment to Section 2 of the Employment Agreement. Section 2 of the
Employment Agreement is deleted in its entirety and replaced by the
following:
2. Term. The initial term of this Agreement commenced as of September 15,
1995 (the "Effective Date"), and shall be in effect through December
31, 2000, unless sooner terminated as hereinafter set forth (the
"Initial Term"). After expiration of the Initial Term, and subject to
the termination provisions hereinafter contained, this Agreement will
be automatically renewed for additional one-year periods (each a
"Renewal Term") as of December 31, 2000, and each year thereafter
(each a "Renewal Date"); provided neither party has given written
notice to the other party of his or its intent not to renew at least
90 days prior to any Renewal Date.
b. Amendment to Section 3(a) of the Employment Agreement. Section 3(a) of
the Employment Agreement is deleted in its entirety and replaced by
the following:
(a) Faithfully and diligently do and perform all such reasonable acts
and duties and furnish such reasonable services as the Board of
Directors and officers of the Company shall direct. In performing the
assigned duties, the Employee shall do and perform all acts in the
ordinary course of the Company's business (with such limits as the
Company's Board of Directors may prescribe necessary and conducive to
the Company's bests interests); and
c. Amendment to Section 5 of the Employment Agreement. Section 5 of the
Employment Agreement is deleted in its entirety and replaced by the
following:
5. Additional Incentives. The Company will provide Employee with
additional incentives including stock options, a retirement plan and
bonus benefits. Such additional incentives shall be consistent with
those additional incentives provided the Employee by Gateway American
Properties, LLC ("GAPLLC") prior to the assignment by GAPLLC to the
Company of any and all of its interests, rights, and obligations in
and under this Agreement.
d. Amendment to Section 6 of the Employment Agreement. Section 6 of the
Employment Agreement is amended by deleting the last sentence of such
section and replacing it with the following:
The Company shall pay the Employee any amount of the accrued salary
not paid by GAPLLC prior to, and as of, the date that GAPLLC
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<PAGE>
assigned to the Company any and all of its interests, rights, and
obligations in and under this Agreement at such time as determined
by the Board of Directors of the Company, but in any event prior to
the termination of the Initial Term.
e. Amendment to Section 8 of the Employment Agreement. Section 8 of the
Employment Agreement is deleted in its entirety and replaced by the
following:
8. Automobile Expenses. Employee shall receive an amount of Seven
Hundred Fifty and 00/100 Dollars ($750.00) per month as
reimbursement for automobile expenses incurred in the use of
Employee's automobile for business purposes. Such reimbursement
amount represents a pro rata share of the following potential
expenses: lease, fuel, insurance and general maintenance.
f. Amendment to Section 9 of the Employment Agreement. Section 9 of the
Employment Agreement is amended by adding a new Section 9(c) thereto
stating as follows:
(c) In the event that GAPLLC, prior to the assignment by GAPLLC to
the Company of any and all of its interests, rights, and obligations
in and under this Agreement, had obtained any health insurance
policy and/or any life insurance policy in accord with the
provisions of this Section 9 (any such health insurance policy or
life insurance policy to be referenced hereinafter as an "Insurance
Policy"), the Company shall not be obligated to obtain another
separate such Insurance Policy to the extent that the Company
assumes and maintains the responsibilities and obligations of GAPLLC
under such pre-existing Insurance Policy.
g. Amendment to Section 13 (c) of the Employment Agreement. Section 13
(c) of the Employment Agreement is deleted in its entirety and
replaced by the following:
(c) Except as otherwise specifically provided in this Agreement,
including this paragraph (c) and Section 11, hereof, in the event of
the Employee's termination of employment for any reason, other than
a termination for cause or in the event of death, the Employee shall
receive in lump sum that amount of compensation provided in Section
4, hereof, based on the remaining term of this Agreement as
determined under Section 2, hereof. Notwithstanding the foregoing,
in the event of the Employee's termination of employment for cause,
as defined herein, then all obligations of the GAPC-Colo hereunder
shall terminate, and the Employee shall not be entitled to any
further payment.
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<PAGE>
h. Amendment to Section 14 of the Employment Agreement. Section 14 of
the Employment Agreement is deleted in its entirety and replaced by
the following:
14. Indemnification. The parties recognize that the Company has
assumed the obligations of GAPLLC pursuant to which obligation
GAPLLC had agreed to indemnify the Employee from and against any
liability, cost, or expense, whatsoever, incurred by the Employee on
and under any loan or obligation obtained by or for benefit of
GAPLLC for which the Employee executed personally or executed
guarantees providing for the personal liability of the Employee
under such loans. A copy of the original Indemnification Agreement
between the Employee and GAPLLC is attached as Exhibit A hereto and
incorporated herein by reference. A copy of the Company's Assumption
of Indemnification Agreement between the Employee, GAPLLC, and the
Company is attached as Exhibit B hereto and incorporated herein by
reference.
3. Other Sections of the Employment Agreement. Except as generally amended by
Section 1 of this Amendment or specifically amended pursuant to the terms
of Section 2 of this Amendment, provisions of the Employment Agreement
shall be unchanged as a result of the execution of this Amendment; and
GAPC-Colo and the Employee shall be bound thereby as if GAPC-Colo and the
Employee had been the original signatories of the Employment Agreement.
4. Accrued, But Unpaid, Obligations. GAPC-Colo specifically represents and
warrants to the Employee that, as a consequence of the assignment by GAPLLC
to GAPC-Colo of any and all of its interests, rights, and obligations in
and under the Employment Agreement, GAPC-Colo shall, as of the Operative
Date of this Amendment, assume, and become liable, for any and all accrued,
but unpaid, obligations of GAPLLC to the Employee arising prior to, and as
of, the Operative Date under the terms of the Employment Agreement, as in
effect prior to the execution of this Amendment.
5. Company Approval. This Amendment has been approved by the Board of
Directors of GAPC-Colo, and been duly executed and delivered by the
Employee and on behalf of the GAPC-Colo by its duly authorized
representative.
6. Governing Law. This Amendment shall be construed and enforced in accordance
with the laws of the State of Colorado, excluding any conflict-of-laws rule
or law that might refer such construction or governance to the law of
another jurisdiction.
7. Severability. In the event a court of competent jurisdiction finds any of
the provisions of this Amendment to be prohibited or unenforceable, it is
the intent that such provision be reduced in scope by the court, but only
to the extent deemed necessary by the court to render the provision
4
<PAGE>
enforceable. Moreover, to the extent that this Amendment may be executed
and performance of the obligations of the parties may be accomplished
within the intent of this Amendment, the terms of this Amendment are
severable, and should any term or provision hereof be declared invalid or
become inoperative for any reason, such invalidity or failure shall not
affect the validity of any other term or provision hereof.
8. Counterparts; Telefacsimile Signatures. This Amendment may be executed in
multiple counterparts, each of which shall be deemed to be an original, but
which together shall constitute one and the same instrument. Signature
pages may be delivered by telefacsimile, each of which shall be binding and
enforceable, to the same effect as if the original signature pages were
executed and delivered.
9. Further Action. Each of the parties hereto agrees and covenants to take or
to cause to be taken such further actions, to execute, acknowledge, seal
and deliver such further instruments, documents and further assurances as
any one or more of the other parties may, from time to time, reasonably
request in order to effectuate fully the purposes, terms, and conditions of
this Amendment and to fulfill the intent of this Amendment and the
transactions contemplated herein and provided hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective on the date first set forth above.
Gateway American Properties
Corporation, a Colorado corporation
By:/s/ Harvey E. Deutsch
----------------------------------
Harvey E. Deutsch, Its President
/s/ Joel H. Farkas /s/ Michael A. Messina
- ----------------------------- ----------------------------------
Joel H. Farkas, Its Secretary Michael A. Messina, as "Employee"
5
<PAGE>
EXHIBIT (10)(c)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is effective the 15th day of September, 1995, by and
between GATEWAY AMERICAN PROPERTIES, LLC, a Colorado limited liability company
(the "Company"), and MICHAEL A. MESSINA (the "Employee").
RECITALS:
WHEREAS, the Employee's services are valued by the Company and the Company
and the Employee desire to set forth in this Agreement the terms and conditions
for employment of the Employee by the Company during the term hereof; and
WHEREAS, the Employee and the Company agree that the Employee shall be
compensated on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
1. Employment. Subject to the terms and conditions set forth in this
Agreement, the Company hereby engages and employs Employee and Employee hereby
accepts such engagement and employment with the Company. The primary place of
employment shall be at the Company's principal offices in Denver, Colorado, or
at such other location as the Company and the Employee may agree.
2. Term. The initial term of this Agreement shall be for a three (3) year
period and shall commence as of September 15, 1995 (the "Effective Date"), and
shall be in effect through September 14, 1998, unless sooner terminated as
hereinafter set forth (the "Initial Term"). After expiration of the Initial
Term, and subject to the termination provisions hereinafter contained, this
Agreement will be automatically renewed for additional one-year periods (each a
"Renewal Term") as of September 15th, 1998, and each year thereafter (each a
"Renewal Date"); provided neither party has given written notice to the other
party of their intent not to renew at least 90 days prior to any Renewal Date.
3. Duties. The Employee will, during the Initial Term and each Renewal
Term:
(a) Faithfully and diligently do and perform all such reasonable
acts and duties and furnish such reasonable services consistent with the
Employee's position as a Manager of the Company, and as the Managers of
the Company shall direct. In performing the assigned duties, the Employee
shall do and perform all acts in the ordinary course of the Company's
business (with such limits as the Managers of the Company may prescribe
necessary and conducive to the Company's best interests); and
<PAGE>
(b) Devote the Employee's energies and skills to the business of the
Company and to the promotion of the Company's best interests. The Company
understands and recognizes that the Employee may have other business
activities which take a portion of Employee's time devoted to business
matters. Accordingly, Employee is required to expend on behalf of the
Company only such efforts as the Managers of the Company shall determine
to be appropriate for the proper conduct of Company affairs. Further, it
is acknowledged that the Employee may engage in or possess interests in
other business ventures of every nature and description, independently or
with others, some of which may compete with the business of the Company,
and the Company shall not have any right in or to any such independent
ventures or to the income or profits derived therefrom. For the purpose of
avoidance of costly and prolonged litigation which may result in undue
damage to the Employee and the Company, any claims based on any such
activities or conflicts of interest of the Employee are hereby expressly
waived by the Company.
4. Compensation. The Employee's salary, for the term provided in this
Agreement, shall be an amount of One Hundred Eight Thousand and 00/100 Dollars
($108,000.00) on an annual basis.
5. Additional Incentive. The Company will provide Employee with additional
incentives including stock options, a retirement plan and bonus benefits. The
Company's Managers shall, within one year from the Effective Date, determine the
exact form of such additional incentives, the formula to be utilized in
determining the monetary benefit, and the performance criteria in awarding such
work incentives.
6. Payments. Payment of compensation made under Section 4 shall be payable
monthly. All payments under this Agreement will be subject to withholding
deductions as may be required to be made pursuant to law, government regulation
or order, or by written agreement with, or written consent of, the Employee. The
parties acknowledge that the Employee has been employed by the Company prior to
the Effective Date, and Employee is entitled to approximately one year's accrued
salary related to this prior employment from July 1, 1994. The Company shall pay
the Employee the accrued salary at such time as determined by the Managers of
the Company, but in any event prior to the termination of the Initial Term.
7. Reimbursements. If Employee reasonably incurs any bona fide business
expenses in the performance of the duties authorized by the Company (other than
personal living expenses, including, but not limited to personal automobile
transportation and other such expenses, house mortgage, rental, meals and other
such expenses), the Company shall reimburse the Employee for reasonable expenses
subject to reasonable guidelines from time to time established by the Company
within thirty (30) days after the Employer receives an itemized statement as to:
a. the date that such expenses were incurred;
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<PAGE>
b. the business purpose for which such expenses were
incurred;
c. the name of all persons who benefited from such
expenses; and
d. the amount of each expense.
Expenses shall only be reimbursed upon the furnishing of such information and
any other information which the Company deems necessary to verify the accuracy
and reasonableness of said expenditures, and to justify to the Internal Revenue
Service the deductibility of such expenditures. The Company shall provide
Employee with a corporate credit card for purposes of paying such business
expenses.
8. Automobile Expenses. Employee shall receive an amount of Seven Hundred
Fifty and 00/100 Dollars ($750.00) per month as reimbursement for automobile
expenses incurred in the use of Employee's automobile for business purposes,
including a pro rata share of the following expenses: lease, fuel, insurance and
general maintenance.
9. Health and Life Insurance Benefits. The Company shall provide Employee
with health insurance. In addition, the Company shall provide the following life
insurance policies on the life of the Employee:
(a) Split-Dollar. The Company shall purchase life insurance on the
life of the Employee having a face value in such amount as is available
for an annual premium payment of approximately Twenty-five Thousand
Dollars ($25,000.00) under a split-dollar arrangement with the Employee.
The Employee will be entitled to designate the beneficiary to receive any
and all insurance proceeds under such policy. The Company and Employee
shall cooperate and use its/his best efforts in obtaining such policy.
(b) Key Man Insurance. The Company shall purchase life insurance on
the life of the Employee having a face value of One Million Five Hundred
Thousand and 00/100 Dollars (($1,500,000.00) as "key man insurance." The
Company shall be designated as the beneficiary of such policy. The Company
and Employee shall cooperate and use its/his best efforts in obtaining
such policy.
10. Disability. The Company shall provide Employee with disability
insurance, and the Company and Employee shall cooperate and use its/his best
efforts in obtaining such disability insurance coverage. In the event that the
Employee is disabled, at the Company's election and upon 30 day's notice to the
Employee, the Company may terminate this Agreement, whereupon, the Employee's
obligation to perform such services will terminate. For purposes of this
Agreement, disability will be determined as provided under the Employee's
disability insurance policy. In the event of a determination of disability as
3
<PAGE>
provided herein, the Employee shall continue to receive his salary for a period
of six (6) months commencing from the date of termination by the Company of
Employee's employment.
11. Death. In the event of the death of the Employee during the term of
this Agreement, his employment pursuant to this Agreement shall terminate. In
the accounting between the Company and the Employee's personal representative,
the Employee's estate shall receive that amount of compensation provided in
Section 4, hereof, for the three year period following the Employee's date of
death, payable as provided in Section 6, hereof. This death benefit shall be
payable to Employee's estate for the period stated herein regardless of the
termination date of the Initial Term.
12. Absence from Work. Employee will be entitled to vacation each year, as
may be determined by the Company's Managers. During vacations, Employee shall be
entitled to receive his regular monthly compensation amount. Employee shall be
entitled to be absent from work due to sickness and holidays as determined by
the Company from time to time.
13. Termination.
(a) The Employee's employment with the Company shall be terminated:
(i) by reason of the Employee's death;
(ii) by reason of the Employee becoming disabled as set forth in
Section 10;
(iii) upon the voluntary termination of this Agreement by the
Company and the Employee; or
(iv) for cause.
(b) For purposes of this Agreement, "cause" shall be deemed to exist if
the Employee is shown to have engaged in any act of embezzlement, theft or fraud
upon the Company, any of its affiliated companies, or any of its customers or
clients. The Company shall have the sole discretion to determine whether the
conditions constituting a termination for cause have occurred, and the Employee
agrees that a decision by the Managers of the Company, that cause exists for
termination of the Employee, explained by the Company Managersby written notice
to the Employee, shall be binding on the Employee.
(c) Except as otherwise specifically provided in this Agreement, in the
event of the Employee's termination of employment for any reason, then all
obligations of the Company hereunder shall terminate.
4
<PAGE>
14. Indemnification. The parties recognize that the Company has entered
into an agreement with the Employee to indemnify the Employee from and against
any liability, cost, or expense, whatsoever, incurred by the Employee on and
under any loan or obligation obtained by or for the benefit of the Company for
which the Employee executed personally or executed guarantees providing for the
personal liability of the Employee under such loans. A copy of such
Indemnification Agreement is attached hereto as Exhibit A and incorporated
herein by reference.
15. Nonassignment. This Agreement is personal to the Employee and shall
not be assigned by the Employee. The Employee shall not hypothecate, delegate,
encumber, alienate, transfer or otherwise dispose of the Employee's rights and
duties hereunder. The Company may assign the Agreement without the Employee's
consent to any other entity who, in connection with such assignment, acquires
all or substantially all of the Company's assets or into or with which the
Company is merged or consolidated.
16. Waiver. The waiver by either party of a breach by the other party of
any provision of this Agreement shall not be construed as a waiver of a breach
of any other provision or any subsequent breach.
17. Severability. If any clause, phrase, provision or portion of this
Agreement or the application thereof to any person or circumstance shall be
invalid or unenforceable under any applicable law, such event shall not affect
or render invalid or unenforceable the remainder of this Agreement and shall not
affect the application of any clause, provision, or portion hereof to any other
person or circumstance.
18. Benefit. The provisions of this Agreement shall inure to the benefit
of the Company, its successors and assigns, and shall be binding upon the
Company and the Employee, his heirs, personal representatives and successors and
assigns, including without limitation the Employee's estate and the executors,
administrators, or trustees of such estate.
19. Relevant Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Colorado.
20. Notices. All notices, requests, demands and other communications in
connection with this Agreement shall be made in writing and shall be deemed to
have been given when delivered by hand or 48 hours after mailing at any general
or branch United States Post Office, by registered mail, postage prepaid, return
receipt requested, addressed as follows, or to such other address as shall have
been designated in writing by the addressee:
(a) If to the Company:
Gateway American Properties Corporation
9145 East Kenyon Avenue
5
<PAGE>
Suite 200
Denver, Colorado 80237-1810
(b) If to the Employee:
Michael A. Messina
Richland Homes, Inc.
8791 Wolff Court, Suite 200
Westminster, Colorado 80030
21. Entire Agreement. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements, arrangements, and
communications, whether oral or written, pertaining to the subject matters
hereof. This Agreement may only be amended or modified by a writing signed by
both parties. Oral promises or assurances are not effective to enforce, amend or
modify this Agreement.
22. Company Approval. This Agreement has been approved by the Managers of
the Company, and has been duly executed and delivered by the Employee and on
behalf of the Company by its duly authorized representative.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective on the date first set forth above.
The "Company"
GATEWAY AMERICAN PROPERTIES, LLC, a
Colorado limited liability company
By:/s/ Harvey E. Deutsch
---------------------------
Harvey E. Deutsch, Manager
By:/s/ Michael A. Messina
---------------------------
Michael A. Messina, Manager
By:/s/ Joel H. Farkas
---------------------------
Joel H. Farkas, Manager
The "Employee":
/s/ Michael A. Messina
---------------------------
Michael A. Messina
6
<PAGE>
EXHIBIT A
COPY OF INDEMNIFICATION AGREEMENT
(see attached)
7
EXHIBIT (10)(e)
WARRANT TO PURCHASE_______________ SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON TBD, 2002
GATEWAY AMERICAN PROPERTIES CORPORATION
This certifies that, for value received__________________________________ ,
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Common Stock Purchase Warrants (the "Warrants") specified above. Each
Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
$.01 par value, of Gateway American Properties Corporation, a Colorado
corporation (the "Company"), of the Company at any time prior to the Expiration
Date (as hereinafter defined), upon the presentation and surrender of this
Warrant Certificate with the Purchase Form on the reverse hereof duly executed
at the corporate office of American Securities Transfer & Trust, Inc. as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $4.50
(the "Purchase Price") in lawful money of the United States of America in cash
or by official bank or certified check made payable to the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated TBD between the
Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term AExpiration Date" shall mean 5:00 P.M. (New York City time) on ,
2002, or such earlier date as stated in a notice advising that the Warrants
shall be redeemed. If such date shall in the State of New York be a holiday or a
day on which the bank are authorized to close, then the Expiration Date shall
mean 5:00 P.M. (New York City time) the next following day which in the State of
New York is not a holiday or a day which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
<PAGE>
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective, unless the Company receives an opinion of counsel, satisfactory to
the Company's counsel, that an exemption from registration is available. The
Company has covenanted and agreed that it will file a registration statement and
will use its best efforts to cause the same to become effective and to keep such
registration statement current where any of the Warrants are outstanding. This
Warrant shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any tax or other governmental
charge imposed in connection therewith, for registration of transfer of this
Warrant certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Warrants will be issued
to the transferee in exchange therefor, subject to the limitations provided in
the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends of
other distructions, and shall not be entitled to receive notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.35 per Warrant, provided the market price (as defined in the Warrant
Agreement) for the securities issuable upon exercise of such Warrant shall
average in excess of $6.40 per share for thirty consecutive trading days, ending
within ten days of the day on which notice is given, as reported on the Nasdaq
Stock Market, Inc. or such other primary exchange upon which the Common Stock is
traded. Notice of redemption shall be given not later than the thirtieth day
before the date fixed for redemption, all as provided in the Warrant Agreement.
On and after the date fixed for redemption, the Registered Holder shall have no
rights with respect to this Warrant except to receive the $.35 per Warrant upon
surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations or writing hereon made by anyone other than a duly authorized officer
of the Company or the Warrant Agent) for all purposes and shall not be affected
by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Colorado.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
<PAGE>
duly executed manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: GATEWAY AMERICAN PROPERTIES CORPORATION
ATTEST: By:
----------------------------- ------------------------------
SECRETARY CHAIRMAN &
CHIEF EXECUTIVE
OFFICER
COUNTERSIGNED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
(DENVER, COLORADO)
BY WARRANT AGENT
AUTHORIZED SIGNATURE
<PAGE>
GATEWAY AMERICAN PROPERTIES CORPORATION
EXERCISE AGREEMENT
To Be Executed by the Registered Holder in Order to Exercise Warrants The
undersigned Registered Holder, pursuant to the provisions of the within Warrant,
hereby subscribes for and purchases ___________ Shares of Common Stock covered
by such Warrant and herewith makes full cash payment of $____________ For such
Warrant Stock at the Exercise Price pers hare provided by such Warrant.
Dated:_______________________ ______________________________________
(Address for Delivery)
_____________________________ ______________________________________
(Address for Delivery) (Print or type name)
_____________________________ ______________________________________
_____________________________
ASSIGNMENT FORM
To be Executed by the Registered Holder in Order to Transfer Warrants FOR
VALUE RECEIVED, the undersigned Registered holder hereby sells, assigns and
transfers all of the rights of the undersigned under and to the within Warrant
with respect to the number of shares of Common Stock covered thereby set forth
below, unto the Assignee Identified below, and does hereby irrevocably
constitute and appoint To effect such transfer of rights on the books of the
Company, with full power of substitution:
Name of Assignee Address of Assignee No. of Warrants
---------------- ------------------- ---------------
Dated:_______________________ ______________________________________
(Signature of Registered Holder)
______________________________________
(Print or type name)
______________________________________
NOTICE: The signature(s) of the Registered Holder above must correspond with the
name as written upon the face of the within Warrant, or upon the Assignment
thereof if applicable, in every particular, without alteration, enlargement or
any change whatsoever, and must be guaranteed by an Eligible Guarantor
Institution which is a participant in a securities transfer association
recognized program, having an office or correspondent in New York, New York.
SIGNATURE GUARANTEE
(Required in each Exercise or Assignment)
Authorized Signature:________________________________________________________
Name of Bank or Firm:________________________________________________________
Dated:_______________________________________________________________________
EXHIBIT (10)(g)
[FORM OF WARRANT CERTIFICATE TO BE UTILIZED FOR
FOUNDERS COMMON STOCK PURCHASE WARRANT]
FOUNDERS WARRANT
For the Purchase of ________
Shares of Common Stock, Par Value $.01
Per Share of
GATEWAY AMERICAN PROPERTIES CORPORATION
a Colorado corporation
This is to certify that, for value received, ___________________________,
("Warrant Holder") or registered assigns, is entitled, subject to the terms and
conditions hereinafter set forth, commencing ________________________ and on or
before the expiration date specified herein, but not thereafter, to purchase the
number of shares set forth above of Common Stock, of the par value of $.01 per
share (the "Shares") of GATEWAY AMERICAN PROPERTIES CORPORATION (the "Company")
from the Company at the purchase price of $4.50 per Share, and to receive a
certificate or certificates for the Shares so purchased, upon presentation and
surrender of this Warrant to American Securities Transfer & Trust, Inc., Denver,
Colorado, as Warrant Agent, with the form of subscription duly executed, and
accompanied by payment of the purchase price of each Share purchased either in
cash or by certified or bank cashier's check payable to the order of "American
Securities Transfer & Trust, Inc. - Warrant Agent". This Warrant shall be void
and no longer exercisable unless extended by a written instrument made and
executed by the Company and delivered to the registered holder hereof, at
midnight, ____________, 2002.
The Company covenants and agrees that all Shares which may be delivered
upon the exercise of this Warrant will, upon delivery, be free from all taxes,
liens, and charges with respect to the purchase thereof hereunder, and without
limiting the generality of the foregoing, the Company covenants and agrees that
it will from time to time take all such action as may be required to assure that
the par value per Share of the Shares is at all times equal to or less than the
Warrant purchase price per Share of the Shares issuable pursuant to this
Warrant.
The purchase rights represented by this Warrant are exercisable at the
option of the registered owner hereof in whole at any time, or in part from time
to time, within the period above specified; provided, however, that such
purchase rights shall not be exercisable with respect to a fraction of a Share.
In case of the purchase of less than all of the Shares purchasable under this
Warrant, the Company shall cancel this Warrant upon the surrender hereof and
shall execute and deliver a new Warrant of like tenor and date for the balance
of the Shares purchasable hereunder.
<PAGE>
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective, unless the Company receives an opinion of counsel, satisfactory to
the Company's counsel that an exemption from registration is available. The
Company has covenanted and agreed that it will file a registration statement
with respect to the Common Stock of the Company which underlies this Warrant and
all like Warrants and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a Warrant
Holder in any state where such exercise would be unlawful.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated
_________________, 1997 between the Company and the Warrant Agent.
The Common Stock Purchase Warrants of GATEWAY AMERICAN PROPERTIES
CORPORATION represented by this Certificate have not been registered under the
Securities Act of 1933, as amended, or any state statutes. Such Warrants have
been acquired by the Warrant Holder for his own account, for investment, and may
not be sold or transferred in the absence of an effective registration statement
for such Warrants under the Securities Act of 1933, as amended (and various
state securities statutes as required), or the receipt by GATEWAY AMERICAN
PROPERTIES CORPORATION of an opinion of its legal counsel to the effect that
registration of such Warrants in connection with any such transaction is not
required under the Securities Act of 1933, as amended, or applicable state
securities statutes.
The number of Shares purchasable upon the exercise of this Warrant and the
purchase price per Share shall be subject to adjustment from time to time as set
forth herein.
The Company agrees at all times to reserve or hold available a sufficient
number of Shares to cover the number of Shares issuable upon the exercise of
this and all other Warrants of like tenor then outstanding.
This Warrant shall not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company, or to any other rights whatsoever
except the rights herein expressed and such as are set forth, and no dividends
shall be payable or accrue in respect of this Warrant or the interest
represented hereby or the Shares purchasable hereunder until or unless, and
except to the extent that, this Warrant shall be exercised.
This Warrant is exchangeable upon the surrender hereof by the registered
owner to the Company for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Shares purchasable hereunder, each
of such new Warrants to represent the right to purchase such number of Shares as
shall be designated by the registered owner at the time of such surrender.
2
<PAGE>
Subject to the provisions hereof, this Warrant and all rights hereunder
are transferable by the registered owner hereof in person or by his duly
authorized attorney on the books of the Company upon surrender of this Warrant,
properly endorsed, to the Company. The Company may deem and treat the registered
owner of this Warrant at any time as the absolute owner hereof for all purposes
and shall not be affected by any notice to the contrary.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
the signatures of its duly authorized officers and the corporate seal hereunder
affixed.
Dated: _________________, 1997
GATEWAY AMERICAN PROPERTIES
CORPORATION, a Colorado corporation
By___________________________________
Harvey E. Deutsch, President
ATTEST:
- --------------------------------------
Joel H. Farkas, Secretary
(CORPORATE SEAL)
Countersigned by
AMERICAN SECURITIES TRANSFER & TRUST,
INC., as Warrant Agent
By___________________________________
Its________________________________
3
<PAGE>
ASSIGNMENT
(To be executed by the registered holder to effect a transfer of the foregoing
Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto _________________________________________________________________ this
Warrant and the rights represented thereby to purchase Shares in accordance with
the terms and conditions thereof, and does hereby irrevocably constitute and
appoint _____________________________ his attorney to transfer this Warrant on
the books of the Company, with full power of substitution.
Dated: ___________________________
Signed: ________________________________________
4
<PAGE>
SUBSCRIPTION FORM
(To be executed by the registered holder to exercise the
right to purchase Shares evidenced by the foregoing Warrant)
GATEWAY AMERICAN PROPERTIES
CORPORATION
c/o American Securities
Transfer & Trust, Inc.
Suite 444
1825 Lawrence Street
Denver, CO 80202-1817
The undersigned hereby irrevocably subscribes for _______________ Shares
of Common Stock of GATEWAY AMERICAN PROPERTIES CORPORATION pursuant to and in
accordance with the terms and conditions of this Warrant, and herewith makes
payment of $_______________ therefor, and requests that a certificate evidencing
ownership of such Shares be issued in the name of the undersigned and be
delivered to the undersigned at the address stated below, and, if such number of
Shares shall not be all of the Shares purchasable hereunder, that a new Warrant
of like tenor for the balance of the remaining Shares purchasable hereunder be
delivered to the undersigned at the address stated below.
Dated: ___________________________
Signed: ________________________________________
Address: ________________________________________
________________________________________
5
EXHIBIT (10)(h)
REPRESENTATIVE'S WARRANT AGREEMENT (the "Representative's Warrant
Agreement" or "Agreement"), dated as of ___________, 1997, between GATEWAY
AMERICAN PROPERTIES CORPORATION (the "Company"), and BARRON CHASE SECURITIES,
INC. (the "Representative").
W I T N E S S E T H:
--------------------
WHEREAS, the Representative has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and the Representative, to act as the Representative of the Underwriters
in connection with the Company's proposed public offering of 1,500,000 shares of
the Company's Common Stock at $4.00 per share and 3,000,000 Warrants ("Public
Warrants") at $.1875 per warrant (the "Public Offering"); and
WHEREAS, the Company proposes to issue to the Representative and/or
persons related to the Representative as those persons are defined in Rule 2710
of the NASD Conduct Rules (the "Holder"), 150,000 warrants ("Common Stock
Representative Warrants") to purchase 150,000 shares of the Company's Common
stock (the "Shares") and 300,000 warrants ("Warrant Representative Warrants") to
purchase 300,000 Common Stock Purchase Warrants ("Underlying Warrants")
exercisable to purchase 300,000 shares of the Company's Common Stock. The
"Common Stock Representative Warrants" and the "Warrant Representative Warrants"
are collectively referred to as the "Warrants". The "Shares" and the "Underlying
Warrants" are collectively referred to as the "Warrant Securities"; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Holders in consideration for, and as part of
the compensation in connection with, the Representative acting as Representative
pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment to the
Company of TEN DOLLARS AND NO CENTS ($10.00), the agreements herein set forth
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Grant and Period.
The Public Offering has been registered under a Registration Statement on
Form SB-2 (File No. _________) and declared effective by the Securities and
1
<PAGE>
Exchange Commission (the "SEC" or "Commission") on _____________, 1997 (the
"Effective Date"). This Agreement, relating to the purchase of the Warrants, is
entered into pursuant to the Underwriting Agreement between the Company and the
Representative, as representative of the Underwriters, in connection with the
Public Offering.
Pursuant to the Warrants, the Holders are hereby granted the right to
purchase from the Company, at any time during the period commencing on the
Effective Date and expiring five (5) years thereafter (the "Expiration Time"),
up to 150,000 Shares at an initial exercise price (subject to adjustment as
provided in Article 8 hereof) of $6.00 per share (150% of the public offering
price) and/or 300,000 non-redeemable Underlying Warrants at an initial exercise
price of $.28125 per warrant (150% of the public offering price) (the "Exercise
Price" or "Purchase Price"), subject to the terms and conditions of this
Agreement. Each Underlying Warrant is exercisable to purchase one (1) share of
Common Stock at $6.00 per share during the five (5) year period commencing on
the Effective Date.
Except as specifically otherwise provided herein, the Shares and the
Underlying Warrants constituting the Warrant Securities shall bear the same
terms and conditions as such securities described under the caption "Description
of Securities" in the Registration Statement, and as designated in the Company's
Articles of Incorporation and any amendments thereto, and the Underlying
Warrants shall be governed by the terms of the Warrant Agreement executed in
connection with the Company's public offering (the "Warrant Agreement"), except
as provided herein, and the Holders shall have registration rights under the
Securities Act of 1933, as amended (the "Act"), for the Warrants, the Shares,
the Underlying Warrants, and the shares of Common Stock underlying the
Underlying Warrants, as more fully described in paragraph seven (7) of this
Representative's Warrant Agreement. In the event of any extension or change of
the expiration date or reduction or change of the exercise price of the Public
Warrants, the same such changes to the Underlying Warrants shall be
simultaneously effected, except that the Underlying Warrants shall expire no
later than five (5) years from the Effective Date.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificate") delivered and to be
delivered pursuant to this Agreement shall be in the form set forth in the form
of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
2
<PAGE>
3. Exercise of Warrant.
3.1 Full Exercise.
(i) The Holder hereof may effect a cash exercise of the Common Stock
Representative Warrants and/or the Warrant Representative Warrants and/or
the Underlying Warrants by surrendering the Warrant Certificate, together
with a Subscription in the form of Exhibit "A" attached thereto, duly
executed by such Holder to the Company, at any time prior to the
Expiration Time, at the Company's principal office, accompanied by payment
in cash or by certified or official bank check payable to the order of the
Company in the amount of the aggregate purchase price (the "Aggregate
Price"), subject to any adjustments provided for in this Agreement. The
aggregate price hereunder for each Holder shall be equal to the exercise
price as set forth in Section six (6) hereof multiplied by the number of
Warrants, Underlying Warrants or Shares that are the subject of each
Holder's Warrant (as adjusted as hereinafter provided).
(ii) The Holder hereof may effect a cashless exercise of the Common
Stock Representative Warrants and/or the Underlying Warrants by delivering
the Warrant Certificate to the Company together with a Subscription in the
form of Exhibit "B" attached thereto, duly executed by such Holder, in
which case no payment of cash will be required. Upon such cashless
exercise, the number of Shares to be purchased by each Holder hereof shall
be determined by dividing: (i) the number obtained by multiplying the
number of Shares that are the subject of each Holder's Warrant Certificate
by the amount, if any, by which the then Market Value (as hereinafter
defined) exceeds the Purchase Price; by (ii) the per share purchase price.
In no event shall the Company be obligated to issue any fractional
securities and, at the time it causes a certificate or certificates to be
issued, it shall pay the Holder in lieu of any fractional securities or
shares to which such Holder would otherwise be entitled, by the Company
check, in an amount equal to such fraction multiplied by the Market Value.
The Market Value shall be determined on a per Share basis as of the close
of the business day preceding the exercise, which determination shall be
made as follows: (a) if the Common Stock is listed for trading on a
national or regional stock exchange or is included on the NASDAQ National
Market or Small-Cap Market, the average closing sale price quoted on such
exchange or the NASDAQ National Market or Small-Cap Market which is
3
<PAGE>
published in The Wall Street Journal for the ten (10) trading days
immediately preceding the date of exercise, or if no trade of the Common
Stock shall have been reported during such period, the last sale price so
quoted for the next day prior thereto on which a trade in the Common Stock
was so reported; or (b) if the Common Stock is not so listed, admitted to
trading or included, the average of the closing highest reported bid and
lowest reported ask price as quoted on the National Association of
Securities Dealer's OTC Bulletin Board or in the "pink sheets" published
by the National Daily Quotation Bureau for the first day immediately
preceding the date of exercise on which the Common Stock is traded.
3.2 Partial Exercise. The securities referred to in paragraph 3.1 above
also may be exercised from time to time in part by surrendering the Warrant
Certificate in the manner specified in Section 3.1 hereof, except that with
respect to a cash exercise, the Purchase Price payable shall be equal to the
number of securities being purchased hereunder multiplied by the per security
Purchase Price, subject to any adjustments provided for in this Agreement. Upon
any such partial exercise, the Company, at its expense, will forthwith issue to
the Holder hereof a new Warrant Certificate or Warrants of like tenor calling in
the aggregate for the number of securities (as constituted as of the date
hereof) for which the Warrant Certificate shall not have been exercised, issued
in the name of the Holder hereof or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct.
4. Issuance of Certificates.
Upon the exercise of the Warrants and/or the Underlying Warrants, the
issuance of certificates for the shares of Common Stock and/or other securities
shall be made forthwith (and in any event within three (3) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Sections 5 and 7 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
4
<PAGE>
The Warrant Certificates and the certificates representing the shares of
Common Stock and/or other securities shall be executed on behalf of the Company
by the manual or facsimile signature of the then present Chairman or Vice
Chairman of the Board of Directors or President or Vice President of the Company
under its corporate seal reproduced thereon, attested to by the manual or
facsimile signature of the then present Secretary or Assistant Secretary of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants.
The Holder of a Warrant Certificate, by acceptance thereof, covenants and
agrees that the Warrants may not be sold, transferred, assigned, hypothecated or
otherwise disposed of, in whole or in part, for a period of one (1) year from
the Effective Date of the Public Offering, except (a) to officers of the
Representative or to officers and partners of the other Underwriters or Selected
Dealers participating in the Public Offering; (b) by will; or (c) by operation
of law.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices.
The initial exercise price of each Common Stock Representative Warrant
shall be $6.00 per share (150% of the public offering price). The initial
exercise price of each Warrant Representative Warrant shall be $.28125 per
Underlying Warrant (150% of the public offering price). The initial exercise
price of each Underlying Warrant shall be $6.00 per share. The adjusted exercise
price shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Section 8 hereof. The Warrant Representative Warrants and the Underlying
Warrants are exercisable during the five (5) year period commencing on the
Effective Date.
6.2 Exercise Price.
The term "Exercise Price" herein shall mean the initial exercise price or
the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933.
5
<PAGE>
The Warrants, the Shares, the Underlying Warrants and the shares of Common
Stock issuable upon exercise of the Underlying Warrants (collectively the
"Registrable Securities") have been registered under the Securities Act of 1933,
as amended (the "Act"). Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares, the Underlying Warrants and/or the shares
of Common Stock issuable upon exercise of the Underlying Warrants shall bear the
following legend in the event there is no current registration statement
effective with the Commission at such time as to such securities:
The securities represented by this certificate may not be offered or sold
except pursuant to (i) an effective registration statement under the Act,
(ii) to the extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or (iii) an
opinion of counsel, if such opinion shall be reasonably satisfactory to
counsel to the issuer, that an exemption from registration under such Act
and applicable state securities laws is available.
7.2 Piggyback Registration.
If, at any time commencing after the Effective Date of the offering and
expiring seven (7) years thereafter, the Company prepares and files a
post-effective amendment to the Registration Statement, or a new Registration
Statement under the Act, or files a Notification on Form 1-A or otherwise
registers securities under the Act, or files a similar disclosure document with
the Commission (collectively the "Registration Documents") as to any of its
securities under the Act (other than under a Registration Statement pursuant to
Form S-8), it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such Registration Document, to the
Representative and to all other Holders of the Registrable Securities of its
intention to do so. If the Representative and/or other Holders of the
Registrable Securities notify the Company within twenty (20) days after receipt
of any such notice of its or their desire to include any such Registrable
Securities in such proposed Registration Documents, the Company shall afford the
Representative and such Holders of such Registrable Securities the opportunity
to have any Registrable Securities registered under such Registration Documents
or any other available Registration Document.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any such
6
<PAGE>
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing one (1) year after the Effective Date of the
Public Offering, and expiring four (4) years thereafter, the Holders of
Registrable Securities representing more than 50% of such securities at that
time outstanding shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement and/or such other documents, including a
prospectus, and/or any other appropriate disclosure document as may be
reasonably necessary in the opinion of both counsel for the Company and counsel
for the Representative and Holders, in order to comply with the provisions of
the Act, so as to permit a public offering and sale of their respective
Registrable Securities for nine (9) consecutive months (or such longer period of
time as permitted by the Act) by such Holders and any other Holders of any of
the Registrable Securities who notify the Company within ten (10) days after
being given notice from the Company of such request. A Demand Registration shall
not be counted as a Demand Registration hereunder until such Demand Registration
has been declared effective by the SEC and maintained continuously effective for
a period of at least nine months or such shorter period when all Registrable
Securities included therein have been sold in accordance with such Demand
Registration, provided that a Demand Registration shall be counted as a Demand
Registration hereunder if the Company ceases its efforts in respect of such
Demand Registration at the request of the majority Holders making the demand for
a reason other than a material and adverse change in the business, assets,
prospects or condition (financial or otherwise) of the Company and its
subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by the majority of the Holders to
all other registered Holders of any of the Registrable Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing one (1) year after
the Effective Date of the offering, and expiring four (4) years thereafter, the
Holders of a majority of the Registrable Securities shall have the right,
exercisable by written request to the Company, to have the Company prepare and
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file, on one occasion, with the Commission a registration statement or any other
appropriate disclosure document so as to permit a public offering and sale for
nine (9) consecutive months (or such longer period of time as permitted by the
Act) by any such Holder of Registrable Securities; provided, however, that the
provisions of Section 7.4(b) hereof shall not apply to any such registration
request and registration and all costs incident thereto shall be at the expense
of the Holder or Holders participating in the offering pro-rata.
(d) Any written request by the Holders made pursuant to this Section 7.3
shall:
(i) specify the number of Registrable Securities which the Holders
intend to offer and sell and the minimum price at which the Holders intend
to offer and sell such securities;
(ii) state the intention of the Holders to offer such securities for
sale;
(iii) describe the intended method of distribution of such
securities; and
(iv) contain an undertaking on the part of the Holders to provide
all such information and materials concerning the Holders and take all
such action as may be reasonably required to permit the Company to comply
with all applicable requirements of the Commission and to obtain
acceleration of the effective date of the registration statement.
7.4 Covenants of the Company With Respect to Registration.
In connection with any registration under Section 7.2 or 7.3 hereof,
the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) days of receipt of any demand pursuant to
Section 7.3, and shall use its best efforts to have any such registration
statement declared effective at the earliest practicable time. The Company will
promptly notify each seller of such Registrable Securities and confirm such
advice in writing, (i) when such registration statement becomes effective, (ii)
when any post-effective amendment to such registration statement becomes
effective and (iii) of any request by the SEC for any amendment or supplement to
such registration statement or any prospectus relating thereto or for additional
information.
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The Company shall furnish to each seller of such Registrable Securities
such number of copies of such registration statement and of each such amendment
and supplement thereto (in each case including each preliminary prospectus and
summary prospectus) in conformity with the requirements of the Act, and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if any, and
fees and expenses of Holder(s)' counsel and the Holder's pro-rata portion of the
selling discount or commissions), fees and expenses in connection with all
registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and
expenses in connection with any registration statement filed pursuant to Section
7.3(c). If the Company shall fail to comply with the provisions of Section
7.3(a), the Company shall, in addition to any other equitable or other relief
available to the Holder(s), be liable for any or all special and consequential
damages sustained by the Holder(s) requesting registration of their Registrable
Securities.
(c) The Company shall prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be reasonably necessary to keep such registration statement
effective for at least nine months (or such longer period as permitted by the
Act), and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the seller or
sellers of Registrable Securities set forth in such registration statement. If
at any time the SEC should institute or threaten to institute any proceedings
for the purpose of issuing a stop order suspending the effectiveness of any such
registration statement, the Company will promptly notify each seller of such
Registrable Securities and will use all reasonable efforts to prevent the
issuance of any such stop order or to obtain the withdrawal thereof as soon as
possible. The Company will use its good faith reasonable efforts and take all
reasonably necessary action which may be required in qualifying or registering
the Registrable Securities included in a registration statement for offering and
sale under the securities or blue sky laws of such states as reasonably are
required by the Holder(s), provided that the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction. The
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<PAGE>
Company shall use its good faith reasonable efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities of the United States
or any State thereof as may be reasonably necessary to enable the seller or
sellers thereof to consummate the disposition of such Registrable Securities.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Representative as contained in the
Underwriting Agreement.
(e) If requested by the Company prior to the filing of any registration
statement covering the Registrable Securities, each of the Holder(s) of the
Registrable Securities to be sold pursuant to a registration statement, and
their successors and assigns, shall severally, and not jointly, indemnify the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the Act,
the Exchange Act or otherwise, arising from written information furnished by
such Holder, or their successors or assigns, for specific inclusion in such
registration statement to the same extent and with the same effect as the
provisions contained in the Underwriting Agreement pursuant to which the
Representative has agreed to indemnify the Company, except that the maximum
amount which may be recovered from each Holder pursuant to this paragraph or
otherwise shall be limited to the amount of net proceeds received by the Holder
from the sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants or Underlying Warrants prior to the
filing of any registration statement or the effectiveness thereof.
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(g) The Company shall not permit the inclusion of any securities other
than the Registrable Securities to be included in any registration statement
filed pursuant to Section 7.3 hereof without the prior written consent of the
Holders of the Registrable Securities representing a majority of such
securities.
(h) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(i) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and the
managing underwriter copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder shall reasonably request.
(j) With respect to a registration statement filed pursuant to Section
7.3, the Company, if requested, shall enter into an underwriting agreement with
the managing underwriter, reasonably satisfactory to the Company, selected for
such underwriting by Holders holding a majority of the Registrable Securities
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<PAGE>
requested to be included in such underwriting. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders, if required by the
Underwriter to be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities, may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(k) Notwithstanding the provisions of paragraph 7.2 or paragraph 7.3 of
this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to paragraph 7.2 or paragraph
7.3 hereof if, within thirty (30) days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holders requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder(s), to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder(s) may otherwise be sold, in the manner proposed by such Holder(s),
without registration under the Securities Act, or (ii) the SEC shall have issued
a no-action position, in form and substance satisfactory to counsel for the
Holder(s) requesting registration of such Registrable Securities, to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder(s) may be sold by it, in the manner proposed by such Holder(s), without
registration under the Securities Act.
(l) After completion of the Public Offering, the Company shall not,
directly or indirectly, enter into any merger, business combination or
consolidation in which (a) the Company shall not be the surviving corporation
and (b) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which the Holders would be
entitled to receive in exchange for Registrable Securities under any such
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<PAGE>
merger, business combination or consolidation, provided that to the extent such
securities to be received are convertible into shares of Common Stock of the
issuer thereof, then any such shares of Common Stock as are issued or issuable
upon conversion of said convertible securities shall also be included within the
definition of "Registrable Securities".
(m) In the event the Company receives from the Holders of any Registrable
Securities representing more than 50% of such securities at that time
outstanding, a request that the Company effect a registration on Form S-3 with
respect to the Registrable Securities and if Form S-3 is available for such
offering, the Company shall, as soon as practicable, effect such registration as
would permit or facilitate the sale and distribution of the Registrable
Securities as are specified in the request. All expenses incurred in connection
with a registration requested pursuant to this Section shall be borne by the
Company. Registrations effected pursuant to this Section 7.3(e) shall not be
counted as registrations pursuant to Section 7.3(a) and 7.3(c) hereof.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Adjustment for Dividends, Subdivisions, Combinations or
Reclassifications.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Exercise Price and the number of Warrant Securities in
effect immediately prior to such action shall be adjusted so that the Holder of
this Warrant thereafter upon the exercise hereof shall be entitled to receive
the number and kind of shares of the Company which such Holder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this Section, the Holder of this Warrant shall
become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
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<PAGE>
conclusive) shall determine the allocation of the adjusted Exercise Price
between or among shares of such class of capital stock.
Immediately upon any adjustment of the Exercise Price pursuant to this
Section, the Company shall send written notice thereof to the Holder of Warrant
Certificates (by first class mail, postage prepaid), which notice shall state
the Exercise Price resulting from such adjustment, and any increase or decrease
in the number of Warrant Securities to be acquired upon exercise of the
Warrants, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
8.2 Adjustment For Reorganization, Merger or Consolidation.
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such reorganization, consolidation, merger,
conveyance, sale or transfer. Such supplemental Warrant agreement shall provide
for adjustments which shall be identical to the adjustments provided in Section
8 and such registration rights and other rights as provided in this Agreement.
The Company shall not effect any such consolidation, merger, or similar
transaction as contemplated by this paragraph, unless prior to or simultaneously
with the consummation thereof, the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing, receiving, or leasing such assets or other appropriate corporation
or entity shall assume, by written instrument executed and delivered to the
Holders, the obligation to deliver to the Holders, such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase, and to perform the other obligations of the
Company under this Agreement. The above provision of this Subsection shall
similarly apply to successive consolidations or successively whenever any event
listed above shall occur.
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8.3 Dividends and Other Distributions.
In the event that the Company shall at any time prior to the exercise of
all of the Warrants and/or Underlying Warrants distribute to its stockholders
any assets, property, rights, evidences of indebtedness, securities (other than
a distribution made as a cash dividend payable out of earnings or out of any
earned surplus legally available for dividends under the laws of the
jurisdictions of incorporation of the Company), whether issued by the Company or
by another, the Holders of the unexercised Warrants shall thereafter be
entitled, in addition to the shares of Common Stock or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such distribution as if the Warrants had been exercised
immediately prior to such distribution. At the time of any such distribution,
the Company shall make appropriate reserves to ensure the timely performance of
the provisions of this subsection or an adjustment to the Exercise Price, which
shall be effective as of the day following the record date for such
distribution.
8.4 Adjustment in Number of Securities.
Upon each adjustment of the Exercise Price pursuant to the provisions of
this Section 8, the number of securities issuable upon the exercise of each
Warrant and/or Underlying Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of securities issuable upon exercise of the
Warrants and/or the Underlying Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
8.5 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than 5 cents ($.05) per Share, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least 5 cents ($.05) per Share.
8.6 Accountant's Certificate of Adjustment.
In each case of an adjustment or readjustment of the Exercise Price or the
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number of any securities issuable upon exercise of the Warrants and/or
Underlying Warrants, the Company, at its expense, shall cause independent
certified public accountants of recognized standing selected by the Company (who
may be the independent certified public accountants then auditing the books of
the Company) to compute such adjustment or readjustment in accordance herewith
and prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first class mail, postage prepaid, to any Holder of
the Warrants and/or Underlying Warrants at the Holder's address as shown on the
Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based including, but not limited to, a statement of (i) the
Exercise Price at the time in effect, and (ii) the number of additional
securities and the type and amount, if any, of other property which at the time
would be received upon exercise of the Warrants and/or Underlying Warrants.
8.7 Adjustment of Underlying Warrant Exercise Price.
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlying Warrant
exercise price and the number of shares of Common Stock underlying such
Underlying Warrants shall be automatically adjusted in accordance with the
Warrant Agreement between the Company and the Company's transfer agent, upon
occurrence of any of the events relating to adjustments described therein.
Thereafter, the Underlying Warrants shall be exercisable at such adjusted
Underlying Warrant exercise price for such adjusted number of underlying shares
of Common Stock or other securities, properties or rights.
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
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incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interest.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrants and/or
Underlying Warrants, nor shall it be required to issue script or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests may be eliminated, at the Company's option, by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights, or in lieu thereof paying cash equal to such
fractional interest multiplied by the current value of a share of Common Stock.
11. Reservation, Validity and Listing.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants and the Underlying Warrants, such number of shares of
Common Stock or other securities, properties or rights as shall be issuable upon
the exercise thereof. The Company covenants and agrees that, upon exercise of
the Warrants and/or the Underlying Warrants, and payment of the Exercise Price
therefor, all shares of Common Stock and other securities issuable upon such
exercise shall be duly authorized, validly issued, fully paid, non-assessable
and not subject to the preemptive rights of any stockholder. As long as the
Warrants and/or Underlying Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants and the Underlying Warrants to be listed and quoted (subject to
official notice of issuance) on all securities Exchanges and Systems on which
the Common Stock and/or the Public Warrants may then be listed and/or quoted,
including Nasdaq.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring upon
the Holders of the Warrants and/or Underlying Warrants the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
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prior to the expiration of the Warrants and/or Underlying Warrants and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings,
as indicated by the accounting treatment of such dividend or distribution
on the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date of the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notices shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Underlying Warrants.
The form of the certificate representing the Underlying Warrants (and the
form of election to purchase shares of Common Stock upon the exercise of the
Underlying Warrants and the form of assignment printed on the reverse thereof)
shall be substantially as set forth in the exhibits to the Warrant Agreement.
Subject to the terms of this Agreement, one (1) Underlying Warrant shall
evidence the right to initially purchase one (1) fully-paid and non-assessable
share of Common Stock at an initial purchase price of $6.00 during the five (5)
year period commencing on the Effective Date of the Registration Statement, at
which time the Underlying Warrants, unless the exercise period has been
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extended, shall expire. The exercise price of the Underlying Warrants and the
number of shares of Common Stock issuable upon the exercise of the Underlying
Warrants are subject to adjustment, whether or not the Warrants have been
exercised and the Underlying Warrants have been issued, in the manner and upon
the occurrence of the events set forth in the Warrant Agreement, which is hereby
incorporated herein by reference and made a part hereof as if set forth in its
entirety herein. Subject to the provisions of this Agreement and upon issuance
of the Underlying Warrants, each registered holder of such Underlying Warrant
shall have the right to purchase from the Company (and the Company shall issue
to such registered holders) up to the number of fully-paid and non-assessable
shares of Common Stock (subject to adjustment as provided in the Warrant
Agreement) set forth in such Warrant Certificate, free and clear of all
preemptive rights of stockholders, provided that such registered Holder complies
with the terms governing exercise of the Underlying Warrant set forth in the
Warrant Agreement, and pays the applicable exercise price, determined in
accordance with the terms of the Warrant Agreement. Upon exercise of the
Underlying Warrants, the Company shall forthwith issue to the registered Holder
of any such Underlying Warrant in his name or in such name as may be directed by
him, certificates for the number of shares of Common Stock so purchased. Except
as otherwise provided herein and in this Agreement, the Underlying Warrants
shall be governed in all respects by the terms of the Warrant Agreement. The
Underlying Warrants shall be transferrable in the manner provided in the Warrant
Agreement, and upon any such transfer, a new Underlying Warrant certificate
shall be issued promptly to the transferee. The Company covenants to send to
each Holder, irrespective of whether or not the Warrants have been exercised,
any and all notices required by the Warrant Agreement to be sent to holders of
Underlying Warrants.
14. Notices.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly given when personally
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the Registrable
Securities, to the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth below or to such
other address as the Company may designate by notice to the Holders.
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Harvey E. Deutsch, President
Gateway American Properties Corporation
9145 East Kenyan Avenue, Suite 200
Denver, Colorado 80237
Copy to: Gilbert L. McSwain, Esq.
1660 South Albion Street, Suite 309
Denver, Colorado 80222
and
David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
15. Entire Agreement: Modification.
This Agreement (and the Underwriting Agreement and Warrant Agreement to
the extent applicable) contain the entire understanding between the parties
hereto with respect to the subject matter hereof, and the terms and provisions
of this Agreement may not be modified, waived or amended except in a writing
executed by the Company and the Holders of at least a majority of Registrable
Securities (based on underlying numbers of shares of Common Stock). Notice of
any modification, waiver or amendment shall be promptly provided to any Holder
not consenting to such modification, waiver or amendment.
16. Successors.
All the covenants and provisions of this Agreement shall be binding upon
and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
17. Termination.
This Agreement shall terminate at the close of business on , 2004.
Notwithstanding the foregoing, the indemnification provisions of Section 7 shall
survive such termination.
18. Governing Law; Submission to Jurisdiction.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Florida and for all
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<PAGE>
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws. The
Company, the Representative and the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the Fifteenth Judicial Circuit Court in and for
Palm Beach County, Florida or the United States District Court for the Southern
District of Florida, West Palm Beach Division, and irrevocably submits to such
jurisdiction, which jurisdiction shall be exclusive. The Company, the
Representative and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. A party to this Agreement named as
a Defendant in any action brought in connection with this Agreement in any court
outside of the above named designated county or district shall have the right to
have the venue of said action changed to the above designated county or district
or, if necessary, have the case dismissed, requiring the other party to refile
such action in an appropriate court in the above designated county or federal
district.
19. Severability.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
20. Captions.
The caption headings of the Sections of this Agreement are for convenience
of reference only and are not intended, nor should they be construed as, a part
of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Representative and any other
registered Holder(s) of the Warrant Certificates or Registrable Securities any
legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Representative and any other Holder(s) of the Warrant Certificates or
Registrable Securities.
22. Counterparts.
This Agreement may be executed in any number of counterparts and each of
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such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
GATEWAY AMERICAN
PROPERTIES CORPORATION
By:____________________________
Harvey E. Deutsch, President
Attest:
____________________________________
_________________________, Secretary
BARRON CHASE SECURITIES, INC.
By:____________________________
Robert Kirk, President
GATEWAY AMERICAN PROPERTIES CORPORATION
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
22
<PAGE>
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M, EASTERN TIME ON ____________, 2002
NO. W-________
__________Common Stock __________ Warrant
Representative Representative
Warrants Warrants
or
__________ Underlying
Warrants
This Warrant Certificate certifies that __________________, or registered
assigns, is the registered holder of __________ Common Stock Representative
Warrants and/or __________ Warrant Representative Warrants and/or __________
Underlying Warrants of Gateway American Properties Corporation (the "Company").
Each Common Stock Representative Warrant permits the Holder hereof to purchase
initially, at any time from __________________, 1997 ("Purchase Date") until
5:30 p.m. Eastern Time on __________________, 2002 ("Expiration Date"), one (1)
share of the Company's Common Stock at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $6.00 per share (150% of
the public offering price). Each Warrant Representative Warrant permits the
Holder hereof to purchase initially, at any time from the Purchase Date until
five (5) years from the Purchase Date, one (1) Underlying Warrant at the
Exercise Price of $.28125 per Underlying Warrant. Each Underlying Warrant
permits the Holder thereof to purchase, at any time from the Purchase Date until
five (5) years from the Purchase Date, one (1) share of the Company's Common
Stock at the Exercise Price of $6.00 per share. Any exercise of Common Stock
Representative Warrants and/or Warrant Representative Warrants and/or Underlying
Warrants shall be effected by surrender of this Warrant Certificate and payment
of the Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Representative's Warrant Agreement dated
as of __________, 1997, between the Company and Barron Chase Securities, Inc.
(the "Representative's Warrant Agreement"). Payment of the Exercise Price shall
be made by certified check or official bank check in New York Clearing House
23
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funds payable to the order of the Company in the event there is no cashless
exercise pursuant to Section 3.1(ii) of the Representative's Warrant Agreement.
The Common Stock Representative Warrants, the Warrant Representative Warrants,
and the Underlying Warrants are collectively referred to as "Warrants".
No Warrant may be exercised after 5:30 p.m., Eastern Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Representative's Warrant
Agreement, which Representative's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Representative's Warrant Agreement provides that upon the occurrence
of certain events, the Exercise Price and the type and/or number of the
Company's securities issuable thereupon may, subject to certain conditions, be
adjusted. In such event, the Company will, at the request of the holder, issue a
new Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Representative's Warrant Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the
Representative's Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
24
<PAGE>
absolute owner(s) of this Warrant certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Representative's Warrant Agreement shall have the meanings assigned to them in
the Representative's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ___________________, 1997
GATEWAY AMERICAN
PROPERTIES CORPORATION
By:____________________________
Harvey E. Deutsch, President
Attest:
____________________________________
_________________________, Secretary
25
<PAGE>
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: Gateway American Properties Corporation
9145 East Kenyan Avenue, Suite 200
Denver, Colorado 80237
The undersigned, the Holder of Warrant Certificate number _____(the
"Warrant"), representing __________ Common Stock Representative Warrants and/or
__________ Warrant Representative Warrants and/or __________ Underlying Warrants
of GATEWAY AMERICAN PROPERTIES CORPORATION (the "Company"), which Warrant
Certificate is being delivered herewith, hereby irrevocably elects to exercise
the purchase right provided by the Warrant Certificate for, and to purchase
thereunder, __________ Shares and/or __________ Underlying Warrants of the
Company, and herewith makes payment of $__________ therefor, and requests that
the certificates for such securities be issued in the name of, and delivered to,
_____________________________________________________________, whose address is
________________________________________________________________________________
____________________________, all in accordance with the Representative's
Warrant Agreement and the Warrant Certificate.
Dated:______________________________
_________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
_________________________________
(Address)
26
<PAGE>
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: Gateway American Properties Corporation
9145 East Kenyan Avenue, Suite 200
Denver, Colorado 80237
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing __________ Common Stock Representative Warrants and/or
______________ Underlying Warrants GATEWAY AMERICAN PROPERTIES CORPORATION (the
"Company"), which Warrant is being delivered herewith, hereby irrevocably elects
the cashless exercise of the purchase right provided by the Representative's
Warrant Agreement and the Warrant Certificate for, and to purchase thereunder,
Shares of the Company in accordance with the formula provided at Section three
(3) of the Representative's Warrant Agreement. The undersigned requests that the
certificates for such Shares be issued in the name of, and delivered to,
________________________________________________________________________ , whose
address is, ____________________________________________________________________
_________________________________________ , all in accordance with the Warrant
Certificate.
Dated:______________________________
_________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
_________________________________
(Address)
27
<PAGE>
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such holder desires
to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________________ hereby sells, assigns and
transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________________
_____________________________ Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, and full power of
substitution.
Dated: Signature:
_____________________________ ____________________________________
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
____________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
28
EXHIBIT (10)(i) FINANCIAL ADVISORY AGREEMENT
This Agreement is made and entered into as of the ____ day of __________,
1997, between Gateway American Properties Corporation (the "Company") and Barron
Chase Securities, Inc. (the "Financial Advisor").
W I T N E S S E T H :
---------------------
WHEREAS, The Company has engaged the Financial Advisor to act as the
Representative of the Underwriters in connection with the public offering of the
Company's securities; and
WHEREAS, the Financial Advisor has experience in providing financial
and business advice to public and private companies; and
WHEREAS, the Company is seeking and the Financial Advisor is willing to
furnish business and financial related advice and services to the Company on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of, and for the mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
1. Purpose. The Company hereby engages the Financial Advisor on a
non-exclusive basis for the term specified in this Agreement to render financial
advisory and consulting advice to the Company as an investment banker relating
to financial and similar matters upon the terms and conditions set forth herein.
However, the advisory will only be rendered if specifically requested in writing
by the CEO of the Company.
2. Representations of the Financial Advisor and the Company. The Financial
Advisor represents and warrants to the Company that (i) it is a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD") and
that it is engaged in the securities brokerage business; (ii) in addition to its
securities brokerage business, the Financial Advisor provides consulting
advisory services; and (iii) it is free to enter into this Agreement and the
services to be provided pursuant to this Agreement are not in conflict with any
other contractual or other obligation to which the Financial Advisor is bound.
The Company acknowledges that the Financial Advisor is in the business of
providing financial services and consulting advice (of the type contemplated by
this Agreement) to others and that nothing herein contained shall be construed
to limit or restrict the Financial Advisor in conducting such business with
respect to others, or rendering such advice to others.
1
<PAGE>
3. Duties of the Financial Advisor. During the term of this Agreement, the
Financial Advisor will provide the Company with consulting advice as specified
below at the request of the Company, provided that the Financial Advisor shall
not be required to undertake duties not reasonably within the scope of the
consulting advisory service in which the Financial Advisor is engaged generally.
In performance of these duties, the Financial Advisor shall provide the Company
with the benefits of its best judgment and efforts. It is understood and
acknowledged by the parties that the value of the Financial Advisor's advice is
not measurable in any quantitative manner, and that the amount of time spent
rendering such consulting advice shall be determined according to the Financial
Advisor's discretion.
The Financial Advisor's duties may include, but will not necessarily be
limited to:
1) Advice relating to corporate financing activities;
2) Recommendations relating to specific business operations and
investments;
3) Advice relating to financial planning; and
4) Advice regarding future financings involving securities of
the Company or any subsidiary.
4. Term. The term of this Agreement shall be for twelve (12) months
commencing on the first day of the month following the Company's receipt of the
proceeds from the contemplated public offering (the "Commencement Date");
provided, however, that this Agreement may be renewed or extended upon such
terms and conditions as may be mutually agreed upon by the parties hereto.
5. Fee. The Company shall pay the Financial Advisor a fee of $108,000 for
the financial services to be rendered pursuant to this Agreement, all of which
shall be payable at the Closing Date of the Company's proposed public offering.
6. Expenses. In addition to the fees payable hereunder, the Company shall
reimburse the Financial Advisor, within five (5) business days of its request,
for any and all reasonable out-of-pocket expenses incurred in connection with
the services performed by the Financial Advisor and its counsel pursuant to this
Agreement, including (i) reasonable hotel, food and associated expenses; (ii)
reasonable charges for travel; (iii) reasonable long-distance telephone calls;
and (iv) other reasonable expenses spent or incurred on the Company's behalf.
All such expenses in excess of $500 shall be pre-approved by the Company.
7. Introduction of Customers, Origination of Line of Credit and Similar
Transactions. In the event the Financial Advisor originates a line of credit
with a lender or a corporate partner, the Company and the Financial Advisor will
2
<PAGE>
mutually agree on a satisfactory fee and the terms of payment of such fee. In
the event the Financial Advisor introduces the Company to a joint venture
partner or customer and sales develop as a result of the introduction, the
Company agrees to pay a fee of five percent (5%) of total sales generated
directly from this introduction during the first two years following the date of
the first sale. Total sales shall mean cost receipts less any applicable
refunds, returns, allowances, credits and shipping charges and monies paid by
the Company by way of settlement or judgment arising out of claims made by or
threatened against the Company. Commission payments shall be paid on the 15th
day of each month following the receipt of customers' payments. In the event any
adjustments are made to the total sales after the commission has been paid, the
Company shall be entitled to an appropriate refund or credit against future
payments under this Agreement.
All fees to be paid pursuant to this paragraph, except as otherwise
specified, are due and payable to the Financial Advisor in cash at the closing
or closings of any transaction specified in this paragraph. In the event that
this Agreement shall not be renewed or if terminated for any reason,
notwithstanding any such non-renewal or termination, the Financial Advisor shall
be entitled to a full fee as provided under this paragraph for any transaction
for which the discussions were initiated during the term of this Agreement and
which is consummated within a period of twelve months after non-renewal or
termination of this Agreement. Nothing herein shall impose any obligation on the
part of the Company to enter into any transaction or to use any services of the
Financial Advisor offered pursuant to this paragraph or this Agreement.
8. Use of Advice by the Company; Public Market for the Company's
Securities. The Company acknowledges that all opinions and advice (written or
oral) given by the Financial Advisor to the Company in connection with the
engagement of the Financial Advisor are intended solely for the benefit and use
of the Company in considering the transaction to which they relate, and the
Company agrees that no person or entity other than the Company shall be entitled
to make use of or rely upon the advice of the Financial Advisor to be given
hereunder, and no such opinion or advice shall be used for any other purpose or
reproduced, disseminated, quoted or referred to at any time, in any manner or
for any purpose, nor may the Company make any public references to the Financial
Advisor, or use of the Financial Advisor's name in any annual reports or any
other reports or releases of the Company without the prior written consent of
the Financial Advisor.
The Company acknowledges that the Financial Advisor makes no commitment
whatsoever as to making a public trading market in the Company's securities or
to recommending or advising its clients to purchase the Company's securities.
Research reports or corporate finance reports that may be prepared by the
Financial Advisor will, when and if prepared, be done solely on the merits or
judgment and analysis of the Financial Advisor or any senior corporate finance
3
<PAGE>
personnel of the Financial Advisor.
9. Company Information; Confidentially. The Company recognizes and
confirms that, in advising the Company and in fulfilling its engagement
hereunder, the Financial Advisor will use and rely on data, material and other
information furnished to the Financial Advisor by the Company. The Company
acknowledges and agrees that in performing its services under this engagement,
the Financial Advisor may rely upon the data, material and other information
supplied by the Company without independently verifying the accuracy,
completeness or veracity of same. In addition, in the performance of its
services, the Financial Advisor may look to such others for such factual
information, economic advice and/or research upon which to base its advice to
the Company hereunder as the Financial Advisor shall in good faith deem
appropriate.
Except as contemplated by the terms hereof or as required by applicable
law, the Financial Advisor shall keep confidential all non-public information
provided to it by the Company, and shall not disclose such information to any
third party without the Company's prior written consent, other than such of its
employees and advisors as the Financial Advisor determines to have a need to
know.
10. Indemnification. The Company shall indemnify and hold harmless the
Financial Advisor against any and all liabilities, claims, lawsuits, including
any and all awards and/or judgments to which it may become subject under the
Securities Act of 1933, (the "Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act") or any other federal or state statute, at common law or
otherwise, insofar as said liabilities, claims and lawsuits (including costs,
expenses, awards and/or judgments) arise out of or are in connection with the
services rendered by the Financial Advisor or any transactions in connection
with this Agreement, except for any liabilities, claims and lawsuits (including
awards and/or judgments), arising out of willful misconduct or willful omissions
of the Financial Advisor. In addition, the Company shall also indemnify and hold
harmless the Financial Advisor against any and all reasonable costs and
expenses, including reasonable counsel fees, incurred relating to the foregoing.
The Financial Advisor shall give the Company prompt notice of any such
liability, claim or lawsuit which the Financial Advisor contends is the subject
matter of the Company's indemnification and the Company thereupon shall be
granted the right to take any and all necessary and proper action, at its sole
cost and expense, with respect to such liability, claim and lawsuit, including
the right to settle, compromise and dispose of such liability, claim or lawsuit,
excepting therefrom any and all proceedings or hearings before any regulatory
bodies and/or authorities.
The Financial Advisor shall indemnify and hold the Company harmless
against any and all liabilities, claims and lawsuits, including any and all
awards and/or judgments to which it may become subject under the Act, the 1934
4
<PAGE>
Act or any other federal or state statute, at common law or otherwise, insofar
as said liabilities, claims and lawsuits (including costs, expenses, awards
and/or judgments) arise out of or are based upon willful misconduct or willful
omissions of the Financial Advisor. In addition, the Financial Advisor shall
also indemnify and hold the Company harmless against any and all reasonable
costs and expenses, including reasonable counsel fees, incurred relating to the
foregoing.
The Company shall give the Financial Advisor prompt notice of any such
liability, claim or lawsuit which the Company contends is the subject matter of
the Financial Advisor's indemnification and the Financial Advisor thereupon
shall be granted the right to take any and all necessary and proper action, at
its sole cost and expense, with respect to such liability, claim and lawsuit,
including the right to settle, compromise or dispose of such liability, claim or
lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
11. The Financial Advisor as an Independent Contractor. The Financial
Advisor shall perform its services hereunder as an independent contractor and
not as an employee of the Company or an affiliate thereof. It is expressly
understood and agreed to by the parties hereto that the Financial Advisor shall
have no authority to act for, represent or bind the Company or any affiliate
thereof in any manner, except as may be agreed to expressly by the Company in
writing from time to time.
12. Miscellaneous.
(a) This Agreement between the Company and the Financial Advisor
constitutes the entire agreement and understanding of the parties hereto, and
supersedes any and all previous agreements and understandings, whether oral or
written, between the parties with respect to the matters set forth herein.
(b) Any notice or communication permitted or required hereunder shall be
in writing and shall be deemed sufficiently given if hand-delivered or sent
postage prepaid by certified or registered mail, return receipt requested, to
the respective parties as set forth below, or to such other address as either
party may notify the other in writing:
If to the Company: Harvey E. Deutsch, President
Gateway American Properties Corporation
9145 East Kenyan Avenue, Suite 200
Denver, Colorado 80237
Copy to: Gilbert L. McSwain, Esq.
1660 South Albion Street, Suite 309
Denver, Colorado 80222
5
<PAGE>
If to the
Financial Advisor: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
(c) This Agreement shall be binding upon and inure to the benefit of each
of the parties hereto and their respective successors, legal representatives and
assigns.
(d) This Agreement may be executed in any number of counterparts, each of
which together shall constitute one and the same original document.
(e) No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
(f) This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida applicable to contracts made and to be
performed entirely within the State of Florida. The parties agree that any
action brought by any party against another party in connection with any rights
or obligations arising out of this Agreement shall be instituted properly in a
federal or state court of competent jurisdiction with venue only in the
Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the
United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the other party to refile such action in an
appropriate court in the above designated county or federal district.
(g) This Agreement has been duly authorized, executed and delivered by and
on behalf of the Company and the Financial Advisor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
Very truly yours,
GATEWAY AMERICAN
PROPERTIES CORPORATION
6
<PAGE>
BY:_______________________________
Harvey E. Deutsch, President
BARRON CHASE SECURITIES, INC.
BY:_______________________________
Robert T. Kirk, President
7
EXHIBIT (10)(j)
______________ , 1997
Harvey E. Deutsch, President
Gateway American Properties Corporation
9145 East Kenyan Avenue, Suite 200
Denver, Colorado 80237
Re: Merger and Acquisition Agreement
Gentlemen:
You have agreed that Barron Chase Securities, Inc., (the "Finder") may act
as a non-exclusive finder or financial consultant for you in various
transactions in which Gateway American Properties Corporation (the "Company")
may be involved, such as mergers, acquisitions, joint ventures, debt or equity
placements and similar or other on-balance or off-balance sheet corporate
finance transactions. The Company hereby agrees that in the event that the
Finder shall first introduce to the Company another party or entity, and that as
a result of such introduction, a transaction between such entity and the Company
is consummated ("Consummated Transaction"), then the Company shall pay to the
Finder a finder's fee as follows:
a. Five percent (5%) of the first $1,000,000 of the
consideration paid in such transaction;
b. Four percent (4%) of the consideration in excess of
$1,000,000 and up to $2,000,000;
c. Three percent (3%) of the consideration in excess of
$2,000,000 and up to $3,000,000;
d. Two percent (2%) of any consideration in excess of $3,000,000
and up to $4,000,000; and
e. One percent (1%) of any consideration in excess of $4,000,000.
The fee due the Finder shall be paid by the Company in cash and/or in
stock at the closing of the Consummated Transaction as mutually agreed between
the Company and the Finder, without regard to whether the Consummated
Transaction involves payments in cash, in stock, or a combination of stock and
cash, or is made on an installment sale basis. By way of example, if the
Consummated Transaction involves securities of the acquiring entity (whether
securities of the Company, if the Company is the acquiring party, or securities
of another entity, if the Company is the selling party) having a value of
$5,000,000, the consideration to be paid by the Company to the Finder at closing
shall be $150,000.
<PAGE>
However, both parties agree that it is the purpose of the Company to use
the proceeds of the offering in the acquisition, merger, purchase of shares or
any other kind of association with foreign companies as described in the
prospectus. To the extent that the Company has any prior relationships with such
foreign companies these foreign companies are specifically excluded from this
Agreement.
In the event that for any reason the Company shall fail to pay to the
Finder all or any portion of the finder's fee payable hereunder when due,
interest shall accrue and be payable on the unpaid balance due hereunder from
the date when first due through and including that date when actually collected
by the Finder, at a rate equal to two (2) points over the prime rate of
Citibank, N.A. in New York, New York, computed on a daily basis and adjusted as
announced from time to time.
This agreement shall be effective on the date hereof and shall expire on
the fifth anniversary of the date hereof.
Notwithstanding anything herein to the contrary, if the Company shall,
within 180 days immediately following the termination of the five year period
provided above, conclude a Consummated Transaction with any party introduced by
the Finder to the Company prior to the termination of said five year period, the
Company shall also pay the Finder the fee determined above.
The Company represents and warrants to the Finder that the engagement of
the Finder hereunder has been duly authorized and approved by the Board of
Directors of the Company and this letter agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company.
This agreement has been executed and delivered in the State of Florida and
shall be governed by the laws of such state, without giving effect to the
conflicts of laws rules thereunder.
This agreement shall be binding upon, and enforceable against, the
successors and assigns of each of the undersigned.
Please sign this letter at the place indicated below, whereupon it will
constitute our mutually binding agreement with respect to the matters contained
herein.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY: _________________________________
Robert T. Kirk, President
Agreed to and Accepted:
GATEWAY AMERICAN PROPERTIES CORPORATION
By:____________________________________
Harvey E. Deutsch, President
EXHIBIT (23)(a) Gilbert L. McSwain
Attorney-at-Law
1660 So. Albion St. Suite 309
Denver, Colorado 80222
Tel. (303) 753-8805
Fax (303) 758-9203
October 14, 1997
Gateway American Properties Corporation
9145 E. Kenyon Avenue, Suite 200
Denver, Colorado 80237
Gentlemen:
I have acted as special counsel for Gateway American Properties
Corporation, a Colorado corporation ("Company") in connection with a public
offering of securities to be offered and sold pursuant to a Registration
Statement on Form SB-2 ("Registration Statement") to be filed with the United
States Securities and Exchange Commission under the Securities Act of 1933, as
amended ("Act").
As a part of this assignment I have issued a written opinion dated October
8, 1997 ("Opinion") as to the legality and validity of the issuance of the
securities to be included in the Registration Statement.
I hereby consent to the use of the Opinion as an Exhibit to the
Registration Statement and to the reference to my name under the heading "Legal
Matters" in the Prospectus and Alternative Prospectus constituting a part of the
Registration Statement.
Very truly yours,
/s/ Gilbert L. McSwain
Gilbert L. McSwain
Attorney-at-Law
EXHIBIT (23)(b)
CONSENT OF ATTORNEYS
The undersigned are named as the attorneys for Gateway American Properties
Corporation (the "Registrant") in the Prospectus which is a part of the
Registration Statement on Form SB-2 of the Registrant filed under the Securities
Act of 1933, as amended. The undersigned consents to the reference to the
undersigned in the Prospectus.
/s/ William T. Kirtley, P.A.
WILLIAM T. KIRTLEY, P.A.
Sarasota, Florida
October 13, 1997
EXHIBIT (23)(c)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report on the December 31, 1995 and 1996
financial statements of Gateway American Properties Corporation (a Florida
corporation) in the Form SB-2 Registration Statement of Gateway American
Properties Corporation (a Colorado corporation), and to the reference made to us
under the caption "Experts" in the Prospectus.
/s/Beatty & Company
----------------------------
Beatty & Company, P.A.
Certified Public Accountants
Sarasota, Florida
October 14, 1997
EXHIBIT (23)(d)
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated September 22, 1997, relating to the consolidated financial
statements of Gateway American Properties, LLC and subsidiaries, and our report
dated August 28, 1997, related to the balance sheet of Gateway American
Properties Corporation (a Colorado corporation), and to the reference to our
Firm under the caption "Experts'" in the Prospectus.
/s/ Gelfond Hochstadt Pangburn & Co.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
October 13, 1997
