AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1996
REGISTRATION NO. 333-10375
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -----------------------------------------------------------------------------
AMENDMENT NO. 2
TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- -----------------------------------------------------------------------------
TRANSEASTERN PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 1531 59-2745379
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
<TABLE>
<S> <C>
ARTHUR FALCONE, PRESIDENT AND CHAIRMAN OF THE BOARD
3300 UNIVERSITY DRIVE TRANSEASTERN PROPERTIES, INC.
SUITE 001 3300 UNIVERSITY DRIVE, SUITE 001
CORAL SPRINGS, FLORIDA 33065 CORAL SPRINGS, FLORIDA 33065
TELEPHONE (954) 346-9700 TELEPHONE (954) 346-9700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
- -----------------------------------------------------------------------------
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
STEVEN D. RUBIN, ESQ. BRIAN J. MCCARTHY, ESQ.
STEARNS WEAVER MILLER WEISSLER SKADDEN, ARPS, SLATE, MEAGHER & FLOM
ALHADEFF & SITTERSON, P.A. 300 S. GRAND AVENUE,
150 WEST FLAGLER STREET, SUITE 2200 34TH FLOOR
MIAMI, FLORIDA 33130 LOS ANGELES, CALIFORNIA 90071
(305) 789-3200 (213) 687-5000
- -----------------------------------------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
- -----------------------------------------------------------------------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value .... 3,680,000 Shares(2) $10.00 per Share $36,800,000 $11,151.52
- --------------------------------------------------------------------------------------------------------------------
Representatives' Warrants ....... 320,000 Warrants(3) $ .01 per Warrant $ 320 (4)
- --------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value .... 320,000 Shares(5) $12.00 per Share $ 3,840,000 $ 1,163.64
- --------------------------------------------------------------------------------------------------------------------
Total Registration Fee .......... $12,315.16(6)
====================================================================================================================
<FN>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457.
(2) Includes 480,000 Shares subject to the Underwriters' over-allotment
option.
(3) To be issued to the Representatives, as set forth on the cover page of
the Prospectus comprising a portion of this Registration Statement.
(4) No fee due pursuant to Rule 457(g).
(5) Issuable upon exercise of the Representatives' Warrants, together with
such indeterminate number of shares of Common Stock as may be issuable by
reason of the anti-dilution provisions contained therein.
(6) Previously paid.
</FN>
</TABLE>
- -----------------------------------------------------------------------------
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 THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
TRANSEASTERN PROPERTIES, INC.
Cross-Reference Sheet Pursuant to Item 501(b) of Regulation S-K showing the
location in the Prospectus of the Responses to the Items of Part I of Form S-1.
<TABLE>
<CAPTION>
FORM S-1 ITEM NO. AND ITEM CAPTION LOCATION IN PROSPECTUS
- ---------------------------------- ----------------------
<S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus................................... Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges....................... Prospectus Summary; Risk Factors
4. Use of Proceeds................................... Use of Proceeds
5. Determination of Offering Price................... Underwriting
6. Dilution.......................................... Dilution
7. Selling Security Holders.......................... Principal and Selling Shareholders
8. Plan of Distribution.............................. Underwriting
9. Description of Securities to be Registered........ Description of Capital Stock
10. Interests of Named Experts and Counsel........... Not Applicable
11. Information with Respect to the Registrant....... Prospectus Summary; Risk Factors; The
Company; Capitalization; Selected Financial
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Principal and Selling
Shareholders; Management; Certain
Relationships and Related Transactions;
Description of Capital Stock; Shares
Eligible for Future Sale; Underwriting;
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities. Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. 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 or
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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 19, 1996
P R O S P E C T U S
3,200,000 SHARES
TRANSEASTERN PROPERTIES, INC.
COMMON STOCK
- -----------------------------------------------------------------------------
Of the 3,200,000 shares of common stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Offering"), 2,892,326 shares are being
offered by Transeastern Properties, Inc., a Florida corporation
("Transeastern" or the "Company"), and 307,674 shares are being offered by
certain of the Selling Shareholders (as defined herein). The Company will not
receive any of the proceeds from the sale of the shares by the Selling
Shareholders. See "Principal and Selling Shareholders."
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price for
the Common Stock will be $7.00 per share. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price of
the Common Stock.
The Common Stock has been approved for quotation on the Nasdaq Stock
Market's National Market under the symbol "TEPI."
SEE "RISK FACTORS" BEGINNING AT PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
- -----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
======================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share... $ $ $ $
- --------------------------------------------------------------------------------------
Total(3).... $ $ $ $
======================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters (as defined herein) against certain liabilities, including
certain liabilities under the Securities Act of 1933, as amended.
Excludes the value of the Representatives' Warrants (as defined herein)
to purchase up to 320,000 shares of Common Stock issued to the
Representatives (as defined herein) of the several Underwriters. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $ ,
including the Representatives' non-accountable expense allowance and
including the Selling Shareholders' expenses of $ to be paid by the
Company. An estimated $ of expenses will be payable by the Selling
Shareholders. See "Underwriting."
(3) The Company and certain Selling Shareholders have granted the
Underwriters an option exercisable within 30 days after the date of this
Prospectus to purchase up to an additional 480,000 shares of Common
Stock, on the terms set forth above solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds
to Selling Shareholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
- -----------------------------------------------------------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offers and to reject orders in whole or in part. Delivery of the
shares is expected against payment therefor on or about , 1996, at
the offices of BT Securities Corporation, New York, New York or through the
facilities of the Depository Trust Company.
- -----------------------------------------------------------------------------
BT Securities Corporation
Cruttenden Roth
Incorporated
Janney Montgomery Scott Inc.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
1) Golf Course: This is a photograph of the golf course tenth hole at Aberdeen
Golf & Country Club, a Transeastern community in Boynton Beach, Florida.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH 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.
2
[INSIDE FOLDOUT FLAPS]
Flap (1) This is a collage of photographs of the interiors and exteriors of
homes and amenities developed by the Company.
Flap (2) This is a collage of photographs of the interiors and exteriors of
homes and amenities developed by the Company.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED, (II) ASSUMES AN INITIAL
PUBLIC OFFERING PRICE OF $7.00 PER SHARE, (III) REFLECTS AN 8.2-FOR-1 STOCK
SPLIT OF THE COMMON STOCK EFFECTED ON AUGUST 15, 1996, (IV) ASSUMES THE
REDEMPTION OF ALL 1,819 SHARES OF THE COMPANY'S ISSUED AND OUTSTANDING SERIES
A PREFERRED STOCK, PAR VALUE $.01 PER SHARE (THE "SERIES A PREFERRED STOCK")
AND ALL 33,202 SHARES OF THE COMPANY'S ISSUED AND OUTSTANDING SERIES B
PREFERRED STOCK, PAR VALUE $.01 PER SHARE (THE "SERIES B PREFERRED STOCK")
UPON CONSUMMATION OF THE OFFERING, (V) ASSUMES THE CASHLESS EXERCISE AND
CONVERSION OF ALL OF THE 1,258,774 WARRANTS TO PURCHASE COMMON STOCK OF THE
COMPANY OUTSTANDING AT NOVEMBER 15, 1996 ("WARRANTS"), (VI) ASSUMES NO
EXERCISE OF ANY OF THE REPRESENTATIVES' WARRANTS ISSUED IN CONNECTION WITH
THE OFFERING, (VII) ASSUMES NO EXERCISE OF ANY OPTIONS GRANTED UNDER THE
COMPANY'S 1996 STOCK OPTION AND SHAREHOLDER VALUE PLAN (THE "1996 STOCK
PLAN") AND (VIII) DOES NOT INCLUDE WARRANTS (THE "CONTINGENT WARRANTS") TO
PURCHASE SHARES OF COMMON STOCK, WHICH CONTINGENT WARRANTS ARE ISSUABLE IN
THE EVENT CERTAIN TARGETED COMMON STOCK SHARE PRICES ARE NOT ACHIEVED IN THE
OFFERING (SEE "CAPITALIZATION"). See "Underwriting," "Management--Stock
Option and Shareholder Value Plan," and "Description of Capital
Stock--Contingent Warrants." Investors should carefully consider the
information set forth under the heading "Risk Factors."
THE COMPANY
Transeastern has experienced rapid growth and is engaged primarily in the
acquisition of land and the construction and sale of quality, single-family
and multi-family homes for the move-up and senior home-buying markets in the
State of Florida. Transeastern uses a systematic and disciplined approach to
the acquisition of parcels of land through a rigorous evaluation of each
parcel to determine whether it satisfies the Company's quantitative and
qualitative acquisition criteria. The Company constructs homes with a variety
of designs with standardized option packages in order to cost-effectively
build homes of superior value. Transeastern's approach utilizes innovative
marketing and sales programs and procedures.
Transeastern believes that its disciplined approach coupled with its
emphasis on customer satisfaction, quality, value and pride in workmanship
are largely responsible for its growth. The Company experienced a ten-fold
increase in revenues over the past four years. The Company's objective is to
become a more broadly-diversified real estate company achieving long-term,
stable growth with measured risk. The Company employs the following
strategies in furtherance of its objective: (i) to aggressively target the
move-up and senior home-buying markets, by constructing and selling quality
homes of superior value on distinctive niche properties in growth markets,
primarily featuring waterfront and golf course living and other upscale
recreational amenities; (ii) to strategically acquire land which is
well-suited for the construction and sale of the Company's homes, and which
may also include parcels considered favorable for short-term, profitable
resale to other builders; (iii) to develop multi-family housing, primarily
for sale to institutional investors; (iv) to develop strategic alliances with
leading real estate and institutional investors to further the Company's
ability to opportunistically acquire and finance distinctive niche properties
in growth markets, primarily for single-family home development by the
Company; and (v) to develop ancillary business activities, typical of other
home builders, which traditionally complement single-family home development
businesses.
The Company has experienced significant growth in revenues during the past
four consecutive years. Revenues increased by 1,788% during the fiscal year
ended June 30, 1996 to $105.7 million as compared to $5.6 million in fiscal
year 1992. The Company's pre-tax income increased from $146,000 in 1992 to
$8.1 million in 1996. The Company's net income before income taxes and
extraordinary gain in 1996 of $8.1 million increased by 741% from $963,000 in
1995. The number of home sales closed increased from 25 in 1992 to 375 in
1996.
3
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
COMMON STOCK BEING OFFERED:
<S> <C>
By the Company ................................ 2,892,326 shares
By the Selling Shareholders ................... 307,674 shares
Total ......................................... 3,200,000 shares
Common Stock outstanding immediately prior to
the Offering(1) ............................... 7,523,992 shares
Common Stock to be outstanding immediately after
the Offering(1) ................................ 10,416,318 shares
Use of Proceeds ................................. The redemption of all issued and outstanding Series A Preferred
Stock and Series B Preferred Stock, the purchase of minority
interests in the Company's joint ventures and limited
partnerships, the repayment of existing indebtedness
(including indebtedness to certain affiliates), working
capital and general corporate purposes.
Nasdaq National Market Symbol ................... "TEPI"
<FN>
- --------
(1) Does not include an aggregate of up to 450,000 shares of Common Stock
reserved for issuance upon exercise of stock options which will be
outstanding upon consummation of the Offering under the Company's 1996
Stock Plan. See "Management--Executive Compensation."
</FN>
</TABLE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
the risk factors set forth in "Risk Factors," including the risks described
under the captions "Real Estate and Homebuilding Industries and Economic
Conditions," "Leverage and Future Capital Requirements," "Mortgage Financing
and Interest Rates," "Variability of Results," "Competition," "Dependence on
South Florida Market and Expansion into New Markets," "Governmental
Regulation and Building Moratoriums," "Effect of Natural Disasters;
Availability and Cost of Homeowners' Insurance," "Concentration of
Ownership," "Dependence on Key Personnel," "Dilution," "Absence of Public
Market and Volatility of Common Stock Price," "Shares Eligible for Future
Sale," "Possible Anti-Takeover Effects of Certain Charter Provisions;
Preferred Stock" and "Change in Tax Laws" as well as the other information
set forth in this Prospectus, before making an investment in the Common
Stock.
SUMMARY FINANCIAL DATA
The following table sets forth summary selected financial and operating
information for the Company on a historical basis and pro forma basis and
should be read in conjunction with all of the financial statements and the
notes thereto and the pro forma adjustments included elsewhere in this
Prospectus. The historical financial information presented herein is based
upon the historical financial statements of the Company and the notes thereto
which appear elsewhere in this Prospectus and should be read in conjunction
with such financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The unaudited pro forma
financial information presented herein is based upon the historical financial
statements and the pro forma adjustments of the Company included elsewhere in
this Prospectus.
4
<PAGE>
The pro forma financial information as of and for the three months ended
September 30, 1996 has been presented as if the Company had issued 2,892,326
shares of Common Stock for $7.00 per share in the Offering on July 1, 1996
and utilized the proceeds thereof as described in "Use of Proceeds" on July
1, 1996, including, the proposed acquisition of certain minority interests in
the Company's Parkside Homes joint venture and in Transeastern Hollywood
Apartments, Ltd. and Transeastern Plantation Apartments, Ltd. In management's
opinion, all adjustments necessary to reflect the above transaction have been
made. See "Unaudited Pro Forma Financial Information."
The pro forma financial information is not necessarily indicative of what
the Company's actual financial position and results of operations would have
been as of and for the period indicated, nor does it purport to represent the
future financial position or results of operations of the Company.
5
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------
1994 1995 1996
------------ ------------ -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Revenues ................................ $ 22,595 $ 38,889 $ 105,673
Expenses ................................ 21,019 37,926 96,732
Minority interest in income of
consolidated subsidiaries ............. -- -- (865)
Interest costs incurred ................. 1,120 1,833 5,232
Less: Amounts capitalized ............... 966 1,637 4,994
---------- ---------- ------------
Net interest expense .................... 154 196 238
Net income before income taxes and
extraordinary gain .................... 1,577 963 8,076
Income tax expense ...................... 493 374 3,075
---------- ---------- ------------
Net income before extraordinary gain ... 1,084 589 5,001
Extraordinary gain from early
extinguishment of debt, net of
income taxes .......................... -- 700 --
---------- ---------- ------------
Net income .............................. 1,084 1,289 5,001
Dividends on redeemable preferred stock (352) (271) (411)
Excess of the carrying amount of
redeemable preferred stock over the
amount allocated upon repurchase ...... -- 1,712 --
---------- ---------- ------------
Net income available for common shares . $ 732 $ 2,730 $ 4,590
=========== =========== ============
Net income per common and common
equivalent share:
Net income before extraordinary gain .. $ .08 $ .25 $ .61
Extraordinary gain ...................... -- .09 --
---------- ---------- ------------
Net income .............................. $ .08 $ .34 $ .61
========== ========== ============
Weighted average number of common
stock and common stock equivalents
outstanding ........................... 8,841,128 8,228,341 7,548,443
========== ========== ============
OPERATING DATA:
Homes closed (units) ................. 74 146 375
Average price of homes closed .......... $ 260 $ 244 $ 203
Number of projects owned at
period end ........................... 7 9 13
Net new orders (units) ................. 162 190 385
Backlog (units) (at period end) ....... 141 185 195
Sales value of backlog (at period end) $ 38,181 $ 38,520 $ 45,663
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents ............ $ 470 $ 630 $ 3,769
Total assets ........................... 28,670 36,352 92,703
Total liabilities ...................... 25,754 29,685 74,578
Minority interest in consolidated
subsidiaries ......................... -- -- 3,738
Redeemable preferred stock ............. 2,271 3,373 3,502
Shareholders' equity ................... $ 645 $ 3,294 $ 10,884
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------------
1995 1996 1996
------------ ------------ ----------------
PRO FORMA
AS ADJUSTED
ACTUAL ACTUAL FOR OFFERING
------------ ------------ ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Revenues ................................ $13,154 $18,480 $18,480
Expenses ................................ 12,581 18,072 18,063
Minority interest in income of
consolidated subsidiaries ............. (61) -- --
Interest costs incurred ................. 631 2,428 2,174
Less: Amounts capitalized ............... 562 2,348 2,120
---------- ----------- -------------
Net interest expense .................... 69 80 54
Net income before income taxes and
extraordinary gain .................... 443 408 417
Income tax expense ...................... 168 155 158
---------- ----------- -------------
Net income before extraordinary gain ... 275 253 259
6
<PAGE>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------------
1995 1996 1996
------------ ------------ ----------------
PRO FORMA
AS ADJUSTED
ACTUAL ACTUAL FOR OFFERING
------------ ------------ ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Extraordinary gain from early
extinguishment of debt, net of
income taxes .......................... -- -- --
------------ ------------ ---------------
Net income .............................. 275 253 259
Dividends on redeemable preferred stock (101) (105) --
Excess of the carrying amount of
redeemable preferred stock over the
amount allocated upon repurchase ...... -- -- --
------------ ------------ ---------------
Net income available for common shares . $ 174 $ 148 $ 259
============ ============ ===============
Net income per common and common
equivalent share:
Net income before extraordinary gain .. $ .02 $ .02 $ .02
Extraordinary gain ...................... -- -- --
------------ ------------ ---------------
Net income .............................. $ .02 $ .02 $ .02
============ ============ ===============
Weighted average number of common
stock and common stock equivalents
outstanding ........................... 8,228,341 7,525,410 10,417,736
============ ============= ===============
OPERATING DATA:
Homes closed (units) ................. 50 53 53
Average price of homes closed .......... $ 198 $ 223 $ 223
Number of projects owned at
period end ........................... 11 14 14
Net new orders (units) ................. 85 68 68
Backlog (units) (at period end) ....... 257 210 210
Sales value of backlog (at period end) $ 56,395 $ 49,941 $ 49,941
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents ............ $ 246 $ 750 $ 6,314
Total assets ........................... 70,989 97,905 103,699
Total liabilities ...................... 63,051 79,633 73,307
Minority interest in consolidated
subsidiaries ......................... 1,097 3,738 1,200
Redeemable preferred stock ............. 3,373 3,502 --
Shareholders' equity ................... $ 3,468 $ 11,032 $ 29,192
</TABLE>
6
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, TOGETHER WITH THE INFORMATION SET
FORTH IN THIS PROSPECTUS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
MAKING AN INVESTMENT DECISION.
REAL ESTATE AND HOMEBUILDING INDUSTRIES AND ECONOMIC CONDITIONS
The real estate and homebuilding industries are cyclical and significantly
affected by national, regional and local economic conditions and other
conditions, many of which are beyond the Company's control. In particular,
the real estate and homebuilding industries are adversely affected by
decreases in employment levels, reductions in the availability of financing,
increases in interest rates, increases in inflation, decreases in consumer
confidence and decreases in housing demand. A variety of other risks are also
inherent in the real estate and homebuilding industries, including conditions
of supply and demand in local markets, the demand of institutional investors
for multi-family rental housing, illiquidity of homesite inventory, the risks
inherent in holding and developing land, the carrying costs associated with
holding land and homesite inventory, competitive overbuilding, decreases in
the value of real property, delays in construction schedules, cost overruns,
increases in real estate taxes and other local government fees, the
availability and cost of land, materials and qualified labor and the risks
referenced below. Because of the long-term financial commitment involved in
purchasing a home, adverse economic conditions as well as economic
uncertainties tend to result in fewer home purchases. Moreover, builders are
subject to the risks associated with natural disasters such as hurricanes and
fires. Also, because a significant portion of the Company's customer base is
comprised of move-up buyers (i.e., a buyer selling a less expensive existing
home in order to purchase a more expensive home) and senior buyers, adverse
changes in the resale market for homes may have a material adverse effect
upon the Company. Adverse changes in the economy or any of these other
factors as well as economic uncertainties could have a material adverse
effect on the Company. The homebuilding and real estate industries are also
subject to significant variability and fluctuations in real estate values. No
assurance can be given that write-downs to the net realizable value of some
or all of the Company's assets will not occur from time to time if market
conditions deteriorate. Such write-downs, should they occur, could have a
material adverse effect on the Company's results of operations and financial
condition. See "Business--The Economy and Housing and Real Estate Markets,"
"Business--Business Strategy," "Business--Summary of Residential
Communities," "Business--Land Acquisition" and "Business--Customer Financing
and Title Services."
LEVERAGE AND FUTURE CAPITAL REQUIREMENTS
The homebuilding and real estate industries are capital intensive and
require significant expenditures for land purchases, land development and
housing construction. Primarily as a result of the capital intensive nature
of these industries, the Company has incurred significant indebtedness to
finance its operations. At September 30, 1996, on a pro forma basis after
giving effect to the Offering and the anticipated use of proceeds therefrom,
the Company's total liabilities would have been approximately $73.3 million
and the Company's ratio of indebtedness to net worth would have been
approximately 2.5 to 1. The Company's degree of leverage may limit its
ability to withstand adverse economic or business conditions. Additionally,
the Company's ability to make principal and interest payments on its
indebtedness will be dependent on future operations which may be affected by
financial, economic and other factors beyond the control of the Company.
There can be no assurance that the current level of operations will continue
or that the Company will in the future be able to make principal and interest
payments when due.
The Company believes, based on currently proposed plans and assumptions
relating to its operations and historical results of operations, including
cash required for land acquisitions, additions to its housing inventories,
operating expenses, interest and other costs, that proceeds from the
Offering, borrowings under its existing credit facilities or borrowings under
a proposed new revolving credit facility of up to $75 million (the "Credit
Facility") anticipated to be entered into in connection with the
7
<PAGE>
Offering and internally generated funds will be sufficient to satisfy the
Company's cash requirements for at least 12 months after the consummation of
the Offering. However, there is no assurance that the Company will be
successful in obtaining the Credit Facility. Additionally, the Company will
need to obtain additional financing or capital in the future in order to
implement its growth strategy or refinance its indebtedness upon maturity.
Such capital may be raised by the issuance of additional equity or the
incurrence of indebtedness. The amount and type of such additional financing
or capital may be limited by the terms of the Company's outstanding
indebtedness at that time (whether limited by the terms of the Company's
proposed Credit Facility or other indebtedness). In addition, the
availability of borrowed funds, especially for land acquisition and
construction financing, has been reduced nationally, and lenders are
requiring increased amounts of equity to be invested in a project by the
borrower in connection with both new loans and the extension or refinancing
of existing loans. There can be no assurance that additional financing or
capital will be available on terms satisfactory to the Company, if at all. If
the Company is unable to obtain sufficient additional capital or financing,
it may be forced to adopt alternative strategies that could materially and
adversely effect its operations and prospects, including, but not limited to,
reducing or delaying capital expenditures, reducing the size of its
operations and selling assets. Certain of the Company's indebtedness has
historically been guaranteed by certain of its shareholders and there are no
assurances and it is not currently anticipated that, any such shareholders
will guarantee the Company's indebtedness in the future.
The Company will also be subject to the risks associated with incurring
substantial indebtedness, including the risk that interest rates may
fluctuate and that cash flow may be insufficient to pay principal and
interest on such indebtedness. Additionally, the terms of such indebtedness
will include financial and other covenants with which the Company must remain
in compliance to avoid a default thereunder. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
MORTGAGE FINANCING AND INTEREST RATES
Almost all purchasers of the Company's homes finance their acquisitions
through third-party mortgage financing. Housing demand is generally adversely
affected by increases in interest rates, decreases in the availability of
mortgage financing, increasing housing costs and unemployment. If the
availability of financing decreases or interest rates increase and the
ability of prospective buyers to finance home purchases is adversely
affected, the Company's operating results and financial condition may be
negatively impacted. The Company's homebuilding activities also are dependent
upon the availability and cost of mortgage financing for buyers of homes
owned by potential customers, permitting these potential customers to sell
their existing homes. Also, the Company believes that the availability of
Federal Housing Administration and Veterans Administration mortgage financing
is an important factor in marketing certain of its homes. Any limitation or
restriction on the availability of such financing could materially adversely
affect the Company. See "Business--The Economy and Housing and Real Estate
Markets," "Business--Business Strategy," "Business -Summary of Residential
Communities," "Business--Land Acquisition" and "Business--Customer Financing
and Title Services."
VARIABILITY OF RESULTS
The Company historically has experienced, and expects to continue to
experience, variability in sales and revenues on a quarterly basis and from
year to year. Factors expected to contribute to this variability include,
among others, the Company's ability to acquire land on acceptable terms, the
timing of receipt of regulatory and other governmental approvals for the
construction of homes, the condition of the real estate market and economic
conditions in the Company's markets, the cyclical nature of the real estate
and homebuilding industries, prevailing interest rates, the availability of
mortgage financing, the cost and availability of materials and labor, the
timing of home closings, weather, competitive variables and the stage of
development of the Company's residential communities. The volume of the
Company's new sales contracts and home closings typically vary from quarter
to quarter depending primarily on the stages of development of its projects.
In the early stages of a project's development, the Company incurs
significant start-up costs associated with, among other things, project
design, land
8
<PAGE>
acquisition and development, construction and marketing expenses. Since
revenues from sales of homes are generally recognized only upon the transfer
of title at the closing of a sale of a home, there are no revenues during the
early stages of a project, other than from the sale of land parcels and
residential homesites to other builders. Accordingly, the Company's
historical financial performance is not necessarily a meaningful indicator of
future results, and the Company expects its financial results to vary from
community to community and from time to time. See "Business--The Economy and
Housing and Real Estate Markets" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETITION
The real estate and homebuilding industries are highly competitive and
fragmented. Competitive overbuilding in certain local markets, among other
competitive factors, may materially adversely affect homebuilders in that
market. Homebuilders compete for financing, raw materials and skilled labor,
as well as for the sale of homes. Additionally, competition for prime
properties is intense and the acquisition of such properties may become more
expensive in the future to the extent demand and competition increase. There
can be no assurance that the Company will continue to realize gross profits
from land sales in the future. The Company competes both with other local,
regional and national real estate companies and homebuilders, often within
larger subdivisions designed, planned and developed by such competitors. The
Company also competes for sales with individual resales of existing housing
and with available rental housing. Many of the Company's competitors have
longer operating histories and greater financial, marketing, sales and other
resources than the Company. See "Business--Competition."
DEPENDENCE ON SOUTH FLORIDA MARKET AND EXPANSION INTO NEW MARKETS
To date, substantially all of the Company's homebuilding and real estate
activities have been conducted in markets within South Florida, principally
in Broward County and Palm Beach County, and it is likely that the Company's
activities will continue to include a significant concentration in South
Florida in the near future. Accordingly, the Company's business and earnings
are likely to be dependent upon economic, demographic and other conditions in
South Florida and the Company's ability to achieve growth in that market. The
Company is, however, currently planning homebuilding and real estate ventures
in other areas of Florida where the Company has not previously operated,
including developments in Lee County, on the west coast of Florida and Winter
Park, in central Florida, and is also actively considering expansion into
other growth markets outside of Florida, including Texas and California. See
"Business--Summary of Residential Communities." To the extent the Company
expands into new markets, it will experience risks associated with these
markets, will incur additional costs relating to the employment of personnel
with knowledge of the new markets and will be required to raise additional
capital in order to meet its expansion plans. Such capital may be raised by
the issuance of additional equity or the incurrence of indebtedness. In
addition, in appropriate situations, the Company may seek financing from
other sources or may enter into joint venture and other collaborative
arrangements for the acquisition or development of properties. The expansions
and the methods or arrangements utilized by the Company to finance such
expansions could result in material changes in the Company's financial
condition and operating results. There can be no assurance that the Company
will be able to employ the necessary personnel, obtain the necessary capital
or that it will be successful in its efforts to expand into other areas of
Florida or any other new markets. See "Business Business Strategy."
GOVERNMENTAL REGULATION AND BUILDING MORATORIUMS
The Company and its competitors are subject to various federal, state and
local laws, ordinances and regulations concerning, among other things,
environmental matters, wetland preservation, health and safety, zoning, land
use and other entitlements, building design and density levels, which can,
among other things, limit the number of homes that may be built, result in
substantial compliance, mitigation and other costs, increase the cost of
development and construction, delay development and
9
<PAGE>
construction and otherwise have a material adverse effect on the homebuilding
industry in general. In developing a project and building homes, the Company
must also obtain the approval of numerous governmental authorities regulating
such matters as water and waste disposal, the dedication of acreage for open
space, parks, schools, and the construction design, methods and materials
used. Several governmental authorities have imposed impact fees as a means of
defraying the cost of providing certain governmental services to developing
areas, which fees have increased significantly during recent years.
The Company may be subject to delays or may be precluded from developing
in certain communities because of building moratoriums or changes in statutes
or rules that could be imposed in the future. The State of Florida and
various counties, including Broward County and Palm Beach County, have and
may continue to declare moratoriums on the issuance of building permits and
impose restrictions in areas where the infrastructure (E.G., roads, schools,
parks, water and sewage treatment facilities and other public facilities)
does not reach minimum standards. In addition, as a result of Hurricane
Andrew, Broward County and Palm Beach County and other counties in Florida
have recently enacted new, more stringent building codes which have resulted
in increased costs of construction. There can be no assurance that the
Company will be able to pass through its increased development and
construction costs to home buyers or that existing or new governmental
regulations will not have a material adverse effect on the business or
profitability of the Company. See "Business--Governmental Regulation and
Environmental Matters."
EFFECT OF NATURAL DISASTERS; AVAILABILITY AND COST OF HOMEOWNERS' INSURANCE
The markets in which the Company operates are subject to the risks of
natural disasters. The State of Florida in particular may be affected by
tropical storms and hurricanes such as Hurricane Andrew which struck the
southeast coast of Florida on August 24, 1992, damaging or destroying
thousands of homes and business structures, primarily in southern Dade
County, Florida. The occurrence of tropical storms or other natural disasters
could have a material adverse effect on the Company's business including the
incurrence of uninsured losses, delays in construction, and shortages and
increased costs of labor and building materials. Additionally, primarily as a
result of Hurricane Andrew, numerous insurance carriers have opted either not
to write homeowners' insurance in Florida at all or to only renew existing
policies and not to write new policies. These practices have resulted in
substantial increases in the cost of homeowners' insurance, a widespread
shortage of available private insurance for homeowners in the State of
Florida and the creation of a state joint underwriting association. The
state-provided insurance coverages generally afford homeowners less
protection than typically provided by private insurance carriers at greater
costs. The inability of homeowners to obtain cost effective homeowners'
insurance could have an adverse effect on demand for new homes and, as a
result, on the Company's homebuilding business.
CONCENTRATION OF OWNERSHIP
Immediately after consummation of the Offering, three existing
shareholders will own approximately 57.1% (53.4% if the Underwriters'
over-allotment option is exercised in full and these three existing
shareholders sell 70% of the shares sold in the over-allotment option) of the
Company's outstanding Common Stock. Accordingly, these three shareholders
will have the ability to elect the entire Board of Directors of the Company
and to control the outcome of all issues submitted to a vote of the
shareholders of the Company. Voting control by these shareholders may
discourage certain types of transactions involving an actual or potential
change of control of the Company, including transactions in which the holders
of Common Stock might receive a premium for their shares over prevailing
market prices. See "Principal and Selling Shareholders."
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends to a significant degree on the efforts
of the Company's principal executive officers. The Company's operations may
be adversely affected if one or more of the
10
<PAGE>
Company's current executive officers cease to be employed by the Company. The
Company's success is also dependent upon its ability to attract and retain
qualified personnel. The Company has no employment agreements with any of its
employees. Messrs. Arthur Falcone, Edward Falcone and Philip Cucci have,
however, represented that they will not compete with the Company in its
principal lines of business and that homebuilding and land development
opportunities will be directed to the Company. The Company has obtained
key-person life insurance on the lives of Messrs. Arthur Falcone, Edward
Falcone and Philip Cucci in the amount of $5 million, $4 million and $4
million, respectively. See "Management."
DILUTION
Upon completion of the Offering, investors in the Offering will experience
immediate dilution in the per share net tangible book value of their Common
Stock of $4.21 from the assumed initial public offering price of $7.00 per
share. See "Dilution."
ABSENCE OF PUBLIC MARKET AND VOLATILITY OF COMMON STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Although the Common Stock has been approved for quotation on the
Nasdaq National Market, there is no assurance that any trading market for the
Common Stock will develop, or, if any such market develops, that it will be
sustained. Accordingly, purchasers of the Common Stock may experience
difficulty selling or otherwise disposing of their shares. The initial public
offering price of the Common Stock offered hereby will be determined through
negotiations among the Company, the Selling Shareholders and the
Representatives and may not be indicative of the market price for the Common
Stock after the Offering. Moreover, the market price for the Common Stock
after completion of the Offering may be volatile and will be affected by,
among other things, the Company's performance, industry related factors and
general market conditions. See "Underwriting" for information relating to the
method of determining the initial public offering price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have a total of
10,416,318 shares of Common Stock outstanding. Of such 10,416,318 shares, the
3,200,000 shares of Common Stock being sold in the Offering (together with
any shares sold upon exercise of the Underwriters' over-allotment option) and
shares issued upon exercise of stock options will be immediately eligible for
resale in the public market without restriction, except for shares purchased
by or issued to any "affiliate" of the Company (within the meaning of the
Securities Act of 1933, as amended (the "Securities Act")).
Of such outstanding shares, the remaining 7,216,318 shares will be
"restricted securities" (within the meaning of Rule 144 promulgated under the
Securities Act, in that they were issued by the Company in private
transactions not involving a public offering). The existing holders of these
shares of Common Stock and the Company's officers and directors have agreed
not to sell or otherwise dispose of any of their shares of Common Stock for a
period of six months from the date of the completion of the Offering without
the prior written consent of the Representatives. Upon the expiration of such
six-month period, 6,894,689 of such shares will be eligible for resale under
Rule 144. Management of the Company and each of the holders of Common Stock
issued upon exercise of Warrants issued in connection with the Series A
Preferred Stock and the Series B Preferred Stock and each of the purchasers
of Common Stock in the Company's March, 1996 offering of Common Stock have
been granted certain registration rights with respect to their shares (an
aggregate of 6,697,164 shares) of Common Stock. No prediction can be made as
to the effect, if any, that sales of shares of Common Stock or the
availability of such shares for sale will have on the market prices
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of Common Stock (whether now outstanding or issued in the future) may
be sold in the public market may adversely affect prevailing market prices
for the Common Stock and impair the Company's ability to raise capital
through the sale of its equity securities. See "Shares Eligible for Future
Sale" and "Certain Relationships and Related Transactions--Registration
Rights Agreement."
11
<PAGE>
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS; PREFERRED STOCK
Certain provisions of the Company's Articles of Incorporation and Bylaws,
such as the Company's staggered board, the advance notice requirements for
the nomination of directors and limits on the ability of the shareholders to
call a special meeting, have anti-takeover effects and may delay, defer or
prevent a takeover of the Company. In addition, Florida has enacted
legislation that may deter or frustrate takeovers of Florida corporations.
The Florida Control Share Act generally provides that shares acquired in a
"control share acquisition" will not possess any voting rights unless such
voting rights are approved by a majority of the corporation's disinterested
shareholders or approved by resolution of the Board of Directors. A "control
share acquisition" is an acquisition, directly or indirectly, by any person
or ownership of, or the power to direct the exercise of voting power with
respect to, issued and outstanding, "control shares" of a publicly-held
Florida corporation. "Control shares" are shares, which, except for the
Florida Control Share Act, would have voting power that, when added to all
other shares owned by a person or in respect of which such person may
exercise or direct the exercise of voting power, would entitle such person,
immediately after acquisition of such shares, directly or indirectly, alone
or as a part of a group, to exercise or direct the exercise of voting power
in the election of directors within any of the following ranges: (a) at least
20% but less than 33 1/3 % of all voting power; (b) at least 33 1/3 % but
less than a majority of all voting power; or (c) a majority or more of all
voting power. See "Description of Capital Stock."
The Company's Articles of Incorporation authorize the issuance of 20
million shares of "blank check" preferred stock (the "New Preferred Stock")
with such designations, rights and preferences as may be determined from time
to time by the Board of Directors. No shares of New Preferred Stock are
outstanding as of the date of this Prospectus. Accordingly, the Board of
Directors is empowered, without shareholder approval, to issue New Preferred
Stock with dividend, liquidation, conversion, voting or other rights that
could materially adversely affect the voting power or other rights of the
holders of the Company's Common Stock. In the event of issuance, New
Preferred Stock could be utilized, under certain circumstances, as a method
of discouraging, delaying, or preventing a change in control of the Company.
Although the Company has no present intention to issue any shares of New
Preferred Stock, there can be no assurance that the Company will not do so in
the future. The application of any such provisions or the issuance of New
Preferred Stock could prevent shareholders from realizing a premium upon the
sale of their shares of Common Stock. See "Description of Capital Stock."
CHANGES IN TAX LAWS
Recently, certain proposals have been made, generally in connection with
so-called "flat-tax" proposals, that would eliminate or limit the
deductibility of mortgage interest for federal income tax purposes and would
eliminate or limit tax-free rollover treatment provided under current law
where proceeds of the sale of a principal home are reinvested in a new
principal home. Enactment of such proposals may have a material adverse
effect on the homebuilding industry in general, and on the Company in
particular. There can be no assurance that such proposals will not be enacted
or, if enacted, what particular form such laws would take.
12
<PAGE>
THE COMPANY
The Company was incorporated in 1986 as a Florida corporation. The
Company's executive offices are located at 3300 University Drive, Suite 001,
Coral Springs, Florida 33065 and its telephone number at that address is
(954) 346-9700.
As of the date of this Prospectus, the Company had 6,266,636 shares of
Common Stock held by seven holders of record, 1,819 shares of outstanding
Series A Preferred Stock held by five holders of record and 33,202 shares of
Series B Preferred Stock held by thirty-one holders of record. All of the
Company's Series A Preferred Stock and Series B Preferred Stock which are
currently outstanding will be redeemed promptly after the consummation of the
Offering. Additionally, there were 1,258,774 warrants to purchase Common
Stock outstanding at September 30, 1996 held principally by the holders of
the Company's Series A and Series B Preferred Stock, all of which will be
exercised and converted in a cashless exercise into 1,257,356 shares of
Common Stock prior to the consummation of the Offering. Upon consummation of
the Offering, there will also be an aggregate of up to 450,000 shares of
Common Stock reserved for issuance upon the exercise of stock options granted
under the Company's 1996 Stock Plan and warrants issued to the
Representatives to purchase up to an additional 320,000 shares of Common
Stock (the "Representatives' Warrants"). The Company has also granted an
option to the Underwriters to purchase an additional 480,000 shares of Common
Stock solely to cover over-allotments. The Company has further agreed to
issue to certain of its shareholders Contingent Warrants to purchase
additional shares of Common Stock in the event the shares offered hereby are
not sold at certain targeted Common Stock share prices. See "Capitalization."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 2,892,326
shares of Common Stock by the Company in the Offering (after deducting the
estimated underwriting discounts and commissions and offering expenses) are
estimated to be approximately $18.0 million based on an assumed initial
public offering price of $7.00 per share and $18.7 million if the
Underwriters' over-allotment option is exercised in full (assuming that 20%
of the shares sold in the over-allotment option will be sold by the Company,
with the remaining 80% being sold by Selling Shareholders). The Company
intends to use approximately $3.5 million of the net proceeds of the Offering
for the redemption of all issued and outstanding Series A Preferred Stock and
the Series B Preferred Stock, approximately $4.5 million of the net proceeds
for the repayment of existing indebtedness to unaffiliated parties,
consisting of: $1.8 million principal amount of indebtedness, due in April,
1998, bearing interest at 20% per annum; and $2.7 million principal amount of
indebtedness, due in February, 1999, bearing interest at 20% per annum;
approximately $2.0 million of the net proceeds for the repayment of existing
indebtedness to non-management affiliates and approximately $0.4 million for
the repayment of existing indebtedness to management affiliates, all as
described under "Certain Relationships and Related Transactions--Certain
Loans;" approximately $2.4 million of the net proceeds to acquire the
remaining minority interests in the Company's Parkside Homes joint venture
and in Transeastern Hollywood Apartments, Ltd. and Transeastern Plantation
Apartments, Ltd. and the remaining approximately $5.2 million for working
capital and general corporate purposes. Of such $5.2 million, approximately
$1.0 million may be used to repay additional existing indebtness to
non-management affiliates, although the Company has not presently determined
to repay this indebtedness from the proceeds of this Offering. All of the
indebtedness being repaid from the proceeds of the Offering was utilized by
the Company for land acquisitions and working capital requirements. Pending
utilization of the funds, the proceeds of the Offering will be invested in
short-term United States government securities and other financial
institutions, including, overnight repurchase agreements with financial
institutions. The Company will not receive any of the proceeds from the sale
of Common Stock by the Selling Shareholders.
13
<PAGE>
DIVIDEND POLICY
The Company currently intends to retain any earnings to finance the
development and expansion of the Company's business and does not anticipate
paying any cash dividends in the foreseeable future. The declaration and
payment of dividends by the Company are subject to the discretion of the
Board of Directors of the Company. Any future determination to pay dividends
will depend on the Company's results of operations, financial condition,
capital requirements, contractual restrictions and other factors deemed
relevant at the time by the Board of Directors. The terms of the Credit
Facility may restrict the Company's ability to pay dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth, at September 30, 1996 (i) the actual
capitalization of the Company and (ii) the capitalization of the Company as
adjusted to reflect the authorization of the New Preferred Stock, the
redemption of the Series A Preferred Stock and Series B Preferred Stock and
the payment of dividends thereon and the sale of Common Stock in the Offering
(at an assumed initial public offering price of $7.00 per share). The
following table should be read in conjunction with the financial statements
of the Company and the related notes thereto included elsewhere in this
Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------------------
ACTUAL
---------------------------------
SHORT LONG
TERM TERM TOTAL AS ADJUSTED
--------- ---------- ---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total indebtedness:
Construction loans .................................. $8,951 $20,084 $29,035 $ 29,035
Acquisition and development loans ................... 8,774 12,835 21,609 21,609
Other subordinated debt ............................. -- 7,265 7,265 2,715
Trade accounts payable and accrued expenses ........ 7,388 7,388 7,388
Customer deposits ................................... 4,016 4,016 4,016
Income taxes payable ................................ 2,881 2,881 2,881
Deferred tax liabilities ............................ 1,283 1,283 1,283
Due to affiliates and officers ...................... 2,430 2,430 51
Other liabilities ................................... 3,726 3,726 3,726
--------- ---------- ---------- --------------
Total liabilities ................................... 79,633 72,704
Minority interest in consolidated subsidiaries ...... 3,738 1,200
Redeemable preferred stock ........................... 3,502 --
Shareholders' equity:
Common stock, $.01 par value, 41,000,000 shares
authorized, 6,266,637(1) shares and 10,416,318
shares issued and outstanding, respectively, as of
September 30, 1996 and as adjusted as of September
30, 1996(2)(3) .................................... 63 104
New preferred stock 20,000,000 shares authorized and
zero shares outstanding ........................... -- --
Additional paid-in capital .......................... 4,656 22,664
Retained earnings ................................... 6,313 6,313
---------- --------------
Total shareholders' equity .......................... 11,032 29,081
Total capitalization ................................. 97,905 102,985
========== ==============
</TABLE>
- -------------
(1) Does not include the exercise of 1,258,774 Warrants outstanding as of
September 30, 1996.
(2) Reflects the 8.2-for-1 stock split effected on August 15, 1996. Effective
upon consummation of the Offering, the Company will have 100 million
shares of Common Stock authorized.
(3) Does not include the Contingent Warrants to purchase additional shares of
Common Stock in the event certain targeted Common Stock share prices are
not achieved in the Offering. Assuming an initial public offering price
of $7.00 per share, the Contingent Warrants would be exercisable for
214,115 shares of Common Stock. See "Description of Capital Stock--
Contingent Warrants" and Notes 2(j) and 12(e) to the Company's
Consolidated Financial Statements.
15
<PAGE>
DILUTION
The net tangible book value of the Common Stock as of September 30, 1996,
was approximately $11,032,000 or approximately $1.47 per share (assuming the
cashless exercise and conversion of all of the Company's Warrants outstanding
as of September 30, 1996 into 1,257,356 shares of Common Stock). "Net
tangible book value per share" represents the amount of the Company's
stockholders' equity, less intangible assets, divided by the number of shares
of Common Stock outstanding immediately prior to the Offering. After giving
effect to the sale by the Company of the 2,892,326 shares of Common Stock
offered by the Company hereby (based on an assumed initial public offering
price of $7.00 per share) and after deducting the estimated underwriting
discounts and commissions and offering expenses payable by the Company, the
Company's pro forma net tangible book value as of September 30, 1996 would
have been approximately $29,081,000, or $2.79 per share of Common Stock. This
represents an immediate increase in pro forma net tangible book value of
$1.32 per share to existing holders of Common Stock and an immediate dilution
in net tangible book value of $4.21 per share to new investors purchasing
Common Stock in the Offering at the assumed initial public offering price.
The following table illustrates the foregoing information with respect to
dilution to new shareholders on a per share basis:
<TABLE>
<CAPTION>
<S> <C>
ASSUMED INITIAL PUBLIC OFFERING PRICE PER SHARE ................ $7.00
Net tangible book value per share before the Offering ........ 1.47
Increase per share attributable to new investors .............. 1.32
Pro forma net tangible book value per share after the Offering 2.79
-------
Dilution per share to new investors ........................... $4.21
=======
</TABLE>
The following table sets forth on a pro forma basis as of September 30,
1996, after giving effect to the sale by the Company of 2,892,326 shares of
Common Stock in the Offering, the differences between existing holders of
Common Stock and the purchasers of shares in the Offering (based on an
assumed initial public offering price of $7.00 per share) with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average consideration paid per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing
shareholders(1) ........ 7,523,992 72.2% $ 3,008,509 12.9% $ .40
New investors(1) ....... 2,892,326 27.8% $20,246,282 87.1% 7.00
------------ --------- -------------- ---------- -------------
Total ................ 10,416,318 100.0% $23,254,791 100% $2.23
============ ========= ============== ========== =============
</TABLE>
- ------------
(1) The 307,674 shares sold by the Selling Shareholders will reduce the
number of shares held by the existing holders of Common Stock to
7,216,318 or 69.3% and increase the number of shares held by new
investors to 3,200,000 or 30.7%. The Underwriters have the option to
purchase 480,000 shares (96,000 shares from the Company and 384,000
shares from the Selling Shareholders) of the Company's Common Stock to
cover over-allotments, if any, in connection with the sale of Common
Stock. Assuming the Underwriters exercise the over-allotment option, the
number of shares held by the existing shareholders will be reduced to
6,832,318 or 65.0% and the number of shares of Common Stock held by new
investors will increase to 3,680,000 or 35.0%.
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below under the captions "Statement
of Operations Data" and "Balance Sheet Data (at period-end)" for, and as of
the end of, each of the years in the three-year period ended June 30, 1996,
are derived from the Consolidated Financial Statements of Transeastern, which
financial statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The Consolidated Financial Statements as of
June 30, 1996 and 1995, and for each of the years in the three-year period
ended June 30, 1996, and the report thereon which refers to a change in the
method of accounting for a real estate joint venture, are included elsewhere
in this Prospectus. The selected data presented below as of and for the three
months ended September 30, 1995 and 1996 and the years ended June 30, 1993
and 1992 have been derived from the unaudited consolidated financial
statements of the Company, which in the opinion of management include all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the financial position and results of operations for such dates and
periods. The selected financial information set forth below should be read in
conjunction with the Consolidated Financial Statements and the related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------------------------------
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ---------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Home and land sales ............................ $ 5,597 $ 9,777 $ 22,473 $ 38,431 $ 104,474
Rental and other income ........................ 52 114 173 234 1,199
Equity in income of real estate joint venture . -- -- (51) 224 --
---------- ---------- ---------- ---------- ----------
Total revenues .................................. 5,649 9,891 22,595 38,889 105,673
Expenses: .......................................
Cost of home, land and homesite sales ......... 4,839 8,705 18,903 32,449 86,442
Selling, general and administrative expenses .. 650 1,118 1,962 5,281 10,051
Interest expense, net .......................... 14 170 154 196 238
---------- ---------- ---------- ---------- ----------
Total expenses .................................. 5,503 9,993 21,019 37,926 96,732
Minority interest in income of consolidated
subsidiaries .................................. -- -- -- -- (865)
Net income (loss) before income taxes and
extraordinary gain ............................ 146 (102) 1,577 963 8,076
Income tax expense .............................. -- -- 493 374 3,075
---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary gain .... 146 (102) 1,084 589 5,001
Extraordinary gain from early extinguishment of
debt, net of income taxes ..................... -- -- -- 700 --
---------- ---------- ---------- ---------- ----------
Net income (loss) ............................... $ 146 $ (102) $ 1,084 $ 1,289 $ 5,001
========== ========== ========== ========== ==========
Net income (loss) per common and common
equivalent share .............................. $ .02 $ (.02) $ .08 $ .34 $ .61
========== ========== ========== ========== ==========
Weighted average number of common stock and
common stock equivalents outstanding .......... 6,266,637 6,447,469 8,841,128 8,228,341 7,548,443
========== ========== ========== ========== ==========
OPERATING DATA:
Homes closed (units) ........................... 25 46 74 146 375
Average price of homes closed .................. $ 215 $ 212 $ 260 $ 244 $ 203
Number of communities owned at period end ..... 1 3 7 9 13
Net new orders (units) ......................... 40 66 162 190 385
Backlog (units) (at period end) ................ 33 53 141 185 195
Sales value of homes in backlog (at period end) $ 7,130 $ 11,324 $ 38,181 $ 38,520 $ 45,663
BALANCE SHEET DATA (AT PERIOD END):
Cash ........................................... $ 73 $ 819 $ 470 $ 630 $ 3,769
Total assets ................................... 4,205 8,761 28,670 36,352 92,703
Total liabilities .............................. 4,074 6,898 25,754 29,685 74,578
Minority interest in consolidated subsidiaries -- -- -- -- 3,739
Redeemable preferred stock ..................... -- 2,000 2,271 3,373 3,502
Shareholders' equity ........................... $ 131 $ (137) $ 645 $ 3,294 $ 10,884
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1995 1996
------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Home and land sales ............................ $12,974 $18,214
Rental and other income ........................ 180 266
Equity in income of real estate joint venture . -- --
---------- -----------
Total revenues .................................. 13,154 18,480
Expenses: .......................................
Cost of home, land and homesite sales ......... 10,851 15,660
Selling, general and administrative expenses .. 1,730 2,332
Interest expense, net .......................... 69 80
------------ ------------
Total expenses .................................. 12,650 18,072
Minority interest in income of consolidated
subsidiaries .................................. (61) --
Net income (loss) before income taxes and
extraordinary gain ............................ 443 408
Income tax expense .............................. 168 155
------------ ------------
Net income (loss) before extraordinary gain .... 275 253
Extraordinary gain from early extinguishment of
debt, net of income taxes ..................... -- --
------------ ------------
Net income (loss) ............................... $ 275 $ 253
============ ============
Net income (loss) per common and common
equivalent share .............................. $ .02 $ .02
============ ============
Weighted average number of common stock and
common stock equivalents outstanding .......... 8,228,341 7,525,410
============ ============
OPERATING DATA:
Homes closed (units) ........................... 50 53
Average price of homes closed .................. $ 198 $ 223
Number of communities owned at period end ..... 11 14
Net new orders (units) ......................... 85 68
Backlog (units) (at period end) ................ 257 210
Sales value of homes in backlog (at period end) $ 56,395 $ 49,941
BALANCE SHEET DATA (AT PERIOD END):
Cash ........................................... $ 246 $ 750
Total assets ................................... 70,989 97,905
Total liabilities .............................. 63,051 79,633
Minority interest in consolidated subsidiaries 1,097 3,738
Redeemable preferred stock ..................... 3,373 3,502
Shareholders' equity ........................... $ 3,468 $ 11,032
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes the operations of the Company for each
of the periods presented. This discussion and analysis should be read in
conjunction with "Selected Financial Data" and the Company's Consolidated
Financial Statements and the related notes thereto which are included
elsewhere in this Prospectus.
OVERVIEW
The Company, which was formed in 1986, is engaged primarily in the
acquisition of land and the construction and sale of single-family homes and
rental apartments in the State of Florida. The Company has experienced
substantial growth in recent years as the result of acquiring and developing
several large land parcels. The Company posted record earnings before income
taxes of $8.1 million on total revenue of $105.7 million for the fiscal year
ending June 30, 1996. The Company expects to continue its growth in revenues
in 1997 with the acquisition, development and sale of additional properties
and by expanding its operations into new markets.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
The following tables set forth certain information relating to the
Company's operations for the three months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total revenues ............................. $18,479 100.0% $13,154 100.0%
Cost of home and homesite sales ............ 15,660 84.7 10,852 82.5
--------- ------- --------- ---------
Gross profit ............................... 2,819 15.3 2,302 17.5
Selling, general and administrative
expenses ................................... 2,331 12.6 1,730 13.2
Interest expense, net ...................... 155 0.1 168 1.3
Net income ................................. $ 253 1.3% $ 275 2.1%
</TABLE>
TOTAL REVENUES. Total revenues for the quarter ended September 30, 1996 of
$18.5 million were up 40% from $13.2 million for the quarter ended September
30, 1995. The $5.3 million increase in total revenues was primarily
attributable to a $3.3 million increase in land sales and to a $1.9 million
increase in home sales revenue. The increase in home sales revenue was
attributable to an increase in the number of home deliveries (53 and 50 for
the quarters ended September 30, 1996 and 1995, respectively), and an
increase in the average sales price of homes delivered ($223,000 for the
quarter ended September 30, 1996 versus $198,000 for the quarter ended
September 30, 1995).
COST OF SALES. Cost of sales increased from $10.9 million for the quarter
ended September 30, 1995 to $15.7 million for the quarter ended September 30,
1996, an increase of $4.8 million, or 44%. The increase was primarily caused
by the increase in home deliveries and land parcels sales discussed above.
GROSS PROFIT. Gross profit percentages from the sales of homes and land
were 14.0% and 16.4% for the quarters ended September 30, 1996 and 1995,
respectively. The lower gross profit percentages experienced in the quarter
ended September 30, 1996 were due to the relatively low margins realized on
land sales during the quarter. The Company experienced gross profit
percentages on land parcel sales of 7.6% and 30.7% for the quarters ended
September 30, 1996 and 1995, respectively. The reduction in gross profit
margins on land sales was partially offset by an improvement in margins on
home sales. The Company experienced gross profit percentages on home sales of
17.4% and 11.9% for the quarters ended September 30, 1996 and 1995,
respectively. The higher gross profit percentage experienced in the quarter
ended September 30, 1996 versus September 30, 1995 was attributable to a
change in product
18
<PAGE>
mix. Home deliveries in the quarter ended September 30, 1996 included
significant deliveries in the Company's Aberdeen community, which experienced
11 closings for $2.4 million at relatively high average margins of 23%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administative expenses were $2.3 million and $1.7 million for the quarters
ended September 30, 1996 and 1995, respectively. These expenses as a
percentage of total revenues were 12.6% and 13.2% for the quarters ended
September 30, 1996 and 1995, respectively.
INTEREST EXPENSE, NET. The Company's total interest costs were $2.4
million and $0.6 million for the quarters ended September 30, 1996 and 1995,
respectively. The higher interest costs in 1996 reflect the significant
increase in the Company's acquisition, development and construction loan
indebtedness, resulting from substantial inventory additions during the year.
In accordance with generally accepted accounting principles, interest costs
are capitalized to land and construction in process inventories during the
period while activities necessary to get the property ready for its intended
use are in progress. Interest costs of $2.3 million and $0.5 million were
capitalized to the Company's inventories for the quarters ended September 30,
1996 and 1995, respectively.
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
The following tables set forth certain information relating to the
Company's operations for the years ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------------------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total revenues .............................. $105,673 100.0% $38,889 100.0%
Cost of home and homesite sales ............. 86,442 81.8 32,449 83.4
---------- ------- --------- ---------
Gross profit ................................ 19,231 18.2 6,440 16.6
Selling, general and administrative expenses 10,051 9.5 5,281 13.6
Interest expense, net ....................... 238 0.2 196 0.5
Net income .................................. $ 5,001 4.7% $ 1,289 3.3%
</TABLE>
TOTAL REVENUES. Total revenues in 1996 of $105.7 million were up 172% from
$38.9 million in 1995. The $66.8 million increase in total revenues was
primarily attributable to an increase in home sales revenues, an increase in
revenues from parcel and homesite sales and a change in the accounting method
used in connection with the Company's Parkside joint venture. Revenues from
home sales increased by $40.3 million to $76.0 million in 1996 from $35.7
million in 1995 as a result of a 157% increase in the number of home
deliveries (375 in 1996 versus 146 in 1995) due primarily to an expansion of
the number of residential projects under development (13 in 1996 versus 9 in
1995). The increase in home sales revenues based on higher deliveries was
partially offset by a lower average sales price of homes delivered in 1996
($203,000 in 1996 versus $244,000 in 1995). The lower average home price
reflected the Company's decision to broaden the range of product types it
offers by increasing its emphasis on moderately priced homes directed to the
move-up and senior markets. Management believes, based upon demographic
information published by the University of Florida's Bureau of Business and
Economic Research and the United States Department of Census, that these two
markets represent the largest growth segment of the geographic areas in which
it operates. See "Business--The Economy and Housing and Real Estate Markets."
The increase in parcel and homesite sales was attributable to the sale of
various parcels within the Company's communities to other builders. Land
parcel and unimproved homesite sales totaled $28.4 million in 1996 and $2.7
million in 1995. The Company sells such land parcels and homesites where
appropriate to take advantage of market opportunities and to reduce its
market risk and the carrying costs associated with its owning land. The
Company will continue to seek to identify opportunities to acquire land
parcels as a part of large, mixed-use property acquisitions and to resell
these parcels to other builders. There is no assurance that the Company will
be successful in identifying, acquiring or reselling such parcels in the
future.
19
<PAGE>
The increase in revenues in 1996 as compared to 1995 was also partially
attributable to a change in accounting method used in connection with the
Company's Parkside joint venture, which resulted in a $25.5 million increase
in sales revenues in 1996. The joint venture was accounted for on the equity
method of accounting in 1995 and 1994 but was accounted for as a consolidated
subsidiary in 1996. The change in accounting method was the result of a
modification to the joint venture agreement which gave the Company effective
operating control over the joint venture. Total revenues in 1995 would have
been $45.8 million (195 homes delivered) if the joint venture had been
accounted for as a consolidated subsidiary in that year. The change would not
have affected 1994 revenues as no homes were delivered at Parkside in that
year. Consolidation of the joint venture in 1995 would have had no effect on
the Company's reported earnings relating to the joint venture in that year.
COST OF SALES. Cost of sales increased from $32.4 million in 1995 to $86.4
million in 1996, an increase of $54.0 million, or 167%. The increase was the
result of increased home deliveries, land parcels sales and the change in the
accounting method used in connection with the Parkside joint venture, as
discussed above.
GROSS PROFIT. Gross profit percentages from the sales of homes and land
were 17.3% in 1996 and 15.6% in 1995. The higher gross profit percentage
experienced in 1996 was primarily attributable to the increase in land parcel
sales in 1996. The Company experienced gross profit percentages on land
parcel sales of 31.6% in 1996 and 45.3% in 1995. The relatively high margins
experienced on these parcels in 1996 as compared to margins experienced on
home sales reflects the benefits of purchasing parcels as part of large
mixed-use property acquisitions and then reselling the parcels to other
developers. This allows the Company to acquire parcels at bulk land prices
and to resell a portion of the parcels in a relatively short period of time
on a retail land basis. Land sales in 1995 consisted exclusively of the sale
of homesites in the Cypress Head subdivision, which had a relatively low land
basis, thus resulting in higher margins than those experienced from land
sales in 1996.
Excluding the effects of land sales, the Company experienced gross profit
percentages of 11.9% and 13.3% in 1996 and 1995, respectively. The lower
profit percentage experienced in 1996 on home sales was partially
attributable to low margins on custom home sales in the Coral Springs market.
A significant oversupply of housing inventory developed in the Coral Springs
market in 1996 as a result of a substantial increase in the sale of land
parcels by the area's master developer. This oversupply resulted in a
significant increase in competition in this market which, coupled with
permitting delays and other problems, caused profit margins to significantly
decline in this market in 1996. Management elected to substantially reduce
its involvement in the Coral Springs market, and began to take steps to
accomplish this reduction in late 1995. The Company's remaining inventory
relating to the Coral Springs custom home product line was $2.8 million as of
June 30, 1996. The Company experienced a 13.3% gross profit percentage in
1996 on total home sales excluding Coral Springs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $10.1 million in 1996 and $5.3 million in 1995.
These expenses as a percentage of total revenues were 9.5% and 13.6% in 1996
and 1995, respectively. These expenses as a percentage of revenues in 1995
were higher than 1996 expenses due to management's decision to significantly
increase its management resources and operating systems in preparing for the
anticipated substantial increase in home deliveries in 1996 and 1997. In
particular, the Company focused on building the core of its senior management
team during 1995. The Company had 85 total employees at the end of 1996, up
from approximately 60 in 1995. Management believes that, with its investment
in additional employees in 1996, it is prepared to handle significantly
higher levels of sales and home deliveries with minimal additional new hires
in 1997.
INTEREST EXPENSE, NET. The Company's total interest costs were $5.2
million in 1996 and $1.8 million in 1995. The higher interest costs in 1996
reflect the significant increases in the Company's acquisition, development
and construction loan indebtedness, resulting from substantial inventory
additions during the year. In accordance with generally accepted accounting
principles, interest costs are capitalized to land and construction in
process inventories during the period in which activities necessary to
prepare the property for its intended use are in progress. Interest costs of
$5.0 million and $1.6 million were capitalized in 1996 and 1995,
respectively.
20
<PAGE>
NET INCOME. The Company's net income after tax increased 288% in 1996 to
$5.0 million ($.61 per share) from 1995 net income of $1.3 million ($.34 per
share). Net income in 1995 included a $0.7 million extraordinary item
relating to the early extinguishment of debt. The increase in income was
attributable to the $12.1 million increase in gross profit from sales,
partially offset by a $4.8 million increase in selling, general and
administrative expenses and a $2.7 million increase in income taxes.
The $2.7 million increase in income tax expenses was directly
proportionate to the increase in the Company's income before taxes. The
Company's effective tax rate was 38.1% and 38.2% in 1996 and 1995,
respectively.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
The following tables sets forth certain information relating to the
Company's operations for the years ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total revenues .................................. $38,889 100.0% $22,595 100.0%
Cost of home and sales .......................... 32,449 83.4 18,903 83.7
--------- ------- --------- ---------
Gross profit .................................... 6,440 16.6 3,692 16.3
Selling, general and administrative expense, net 5,281 13.6 1,962 8.7
Interest expense, net ........................... 196 0.5 154 0.7
Net income ...................................... $ 1,289 3.3% $ 1,084 4.8%
</TABLE>
TOTAL REVENUES. Total revenues of $38.9 million in 1995 were 72% higher
than 1994 total revenues of $22.6 million, primarily due to a $16.4 million
increase in home sales revenues. The increase in home sales revenues resulted
from a 97% increase in home deliveries (146 in 1995 versus 74 in 1994),
partially offset by a reduction in the average sales price of homes delivered
from $260,000 in 1994 to $244,000 in 1995. The lower average price reflect
the Company's increased marketing emphasis on moderately priced houses
directed towards move-up and senior buyers versus high-end (over $500,000
average sales price) custom homes.
COST OF SALES. Cost of sales increased from $18.9 million in 1994 to $32.4
million in 1995, an increase of $13.5 million, or 71%. The increase was
directly proportionate to the increase in sales revenues, caused by increased
home deliveries in 1995 as discussed above.
GROSS PROFIT. Gross profit percentages from the sales of homes and land
were 15.6% in 1995 and 15.9% in 1994. Excluding the effects of land sales,
these percentages were 13.3% and 11.1% in 1995 and 1994, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $5.3 million in 1995 and $2.0 million in 1994.
These expenses as a percentage of total revenues were 13.6% and 8.7% in 1995
and 1994, respectively. These expenses in 1995 as a percentage of revenues
were higher than 1994 expenses due to management's decision to significantly
increase its management resources and operating systems in 1995 in preparing
for the anticipated substantial increase in home deliveries in 1996 and 1997.
In particular, the Company focused on building the core of its senior
management team during 1995. The Company had approximately 60 total employees
at the end of 1995 and approximately 40 employees at the end of 1994.
INTEREST EXPENSE, NET. The Company's total interest costs were $1.8
million in 1995 and $1.1 million in 1994. The higher interest costs in 1995
reflected the increases in the Company's acquisition, development and
construction loan indebtedness, resulting from substantial inventory
additions during the year. In accordance with generally accepted accounting
principles, interest costs are capitalized to land and construction in
process inventories during the period in which activities necessary to get
the property ready for its intended use are in progress. Interest costs of
$1.6 million and $1.0 million were capitalized in 1995 and 1994,
respectively.
21
<PAGE>
NET INCOME. The Company's net income of $1.3 million in 1995 ($.34 per
share) was 19% higher than 1994 net income of $1.1 million ($.08 per share).
Net income in 1995 included a $0.7 million extraordinary item relating to the
early extinguishment of debt. The decrease in net income (before the
extraordinary item) was primarily attributable to the $3.3 million increase
in selling, general and administrative expenses, partially offset by a $2.7
million increase in gross profit from sales and a $.3 million increase in
equity in income from the Parkside joint venture.
The Company's income tax expense was $.4 million in 1995 and $.5 million
in 1994. The Company's effective tax rate was 38.2% in 1995 and 31.2% in
1994.
LIQUIDITY AND CAPITAL RESOURCES
Transeastern's operations require cash for land acquisitions, additions to
its housing inventories, operating expenses, interest and other costs. The
following table summarizes cash flows provided by (used in) various
activities of the Company during fiscal years 1994-1996 and for the three
months ended September 30, 1995 and 1996 (dollars in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED
-------------------- ----------------------------------
1996 1995 1996 1995 1994
--------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Net cash used in operating activities .............. $(7.9) $(31.5) $(39.5) $(2.1) $(17.8)
Net cash provided by (used in) investing activities (0.4) 2.1 4.4 (1.1) (0.7)
Net cash provided by financing activities ......... 5.3 29.0 38.2 3.3 18.2
------- --------- ---------- --------- ---------
Net increase in cash ............................... $(3.0) $ (0.4) $ 3.1 $ 0.1 $ (0.3)
------- --------- ---------- --------- ---------
</TABLE>
The Company's most significant ongoing cash requirements for operating
activities relate to its growing inventory levels. The Company's land,
construction in process and completed home inventories increased by $23.8
million on September 30, 1996 as compared to September 30, 1995 and by $53.1
million on June 30, 1996 as compared to June 30, 1995, primarily due to
several large land acquisitions during the year. As with most developers, the
Company experiences a delay between the time it acquires property and the
time it is able to recover its acquisition and development costs, due to,
among other things, the time required to obtain permits, make necessary land
improvements and complete construction of the homes, and due to the time
period from the date customers execute their sales contracts until the home
closings. While customers typically place deposits on home sales contracts
with the Company equal to 10% of the purchase price, these deposits are
generally placed in escrow and are generally not available for the Company's
use until the time that the related home contract closes. Escrow deposits
totalled $2.9 million at September 30, 1996, up from $1.1 million at
September 30, 1995. The Company attempts to minimize the capital resources
needed to acquire additional property through the use of options, phased
closings, and by the short-term resale of selected land parcels acquired as a
part of large, mixed-use property acquisitions.
The Company has historically met the majority of its short-term financing
needs with cash generated from operations and from acquisition, development
and revolving construction loans provided by financial institutions. Interest
rates for these loans typically range from prime plus 1.0% to prime plus
1.5%. The Company obtained $4.3 million and $15.4 million in proceeds from
borrowings on acquisition and development loans and construction loans,
respectively, during the three months ending September 30, 1996. In addition,
the Company obtained $1.9 million in proceeds from borrowings on other
sources during the three months ending September 30, 1996. The Company
obtained $47.1 million and $57.9 million in proceeds from borrowings on
acquisition and development loans and construction loans, respectively,
during the year ending June 30, 1996. The Company will continue to seek
outside financing for its future projects including acquisition and
development loans and construction loans. There can be no assurance, however,
that the Company will be able to obtain sufficient financing for future
developments on terms satisfactory to the Company or at all. Failure of the
Company to obtain additional financing on terms satisfactory to the Company
could have a material adverse effect on the Company's operations and
prospects. Additionally, Messrs. Arthur Falcone, Philip Cucci and Edward
22
<PAGE>
Falcone have personally guaranteed approximately $37.4 million at September
30, 1996 of the Company's existing bank borrowings and there are no
assurances and it is not currently anticipated that, any of such individuals
will guarantee the Company's indebtedness in the future.
The Company's loan agreements include customary representations and
covenants, including limitations on additional indebtedness and limitations
on the ability of the Company's subsidiaries to pay cash dividends or make
loans or advances to the Company. Additionally, under the loans guaranteed by
certain of the Company's shareholders, the death or insolvency of any of the
guarantors will generally be considered an event of default. Additionally,
substantially all of the loan agreements evidencing the Company's
indebtedness include cross-default provisions with respect to the Company's
other indebtedness and provide that a change in control of the Company would
be considered an event of default. If an event of default should occur under
such borrowings, the lender would have the immediate right to accelerate the
loan and there is no assurance the Company would be able to repay or
refinance such borrowings. See Notes (8) and (9) of the Company's
Consolidated Financial Statements.
The Company in 1996 also obtained capital for land acquisitions and
working capital requirements from other sources, including a $3.0 million
private placement of the Company's Common Stock and the placement of $5.7
million of subordinated debt. The Company also privately placed $3.0 million
in preferred stock in 1995, and issued $4.0 and $6.4 million in subordinated
debt in 1995 and 1994, respectively. Terms of the subordinated debt
placements vary and include both interest payments, rate of return
adjustments and profit participation features (see note 10 to the Company's
1996 financial statements for additional information regarding the terms of
these debt agreements). The Company intends to repay substantially all
subordinated debt and preferred stock currently outstanding with the proceeds
of the Offering. See "Use of Proceeds."
During 1996, the Company also obtained a $750,000 secured credit line from
a commercial bank which is used to provide working capital. The facility,
which bears interest at prime plus 1%, was fully drawn and had no available
balance as of the date of this Prospectus
The Company is currently seeking to establish a revolving line of credit
of up to $75 million which would be secured by first mortgages on its land
holdings and would be used as a primary source of working capital in the
future (the "Credit Facility"). It is anticipated that the proposed Credit
Facility would include customary representations and warranties and covenants
with respect to the conduct of the Company's business and require the
maintenance of various financial ratios, which could limit amounts available
to be borrowed under the proposed Credit Facility. There can be no assurance
that the Company will obtain this Credit Facility or as to the amount or
terms of any such Credit Facility. In the event that the Company does not
obtain such a Credit Facility, it intends to continue to use traditional
acquisition, development and revolving construction loans to provide the
majority of funding required on its projects. The Company believes that based
on currently proposed plans and assumptions relating to its operations and
historical results of operations, including cash required for land
acquisitions, additions to housing inventories, operating expenses, interest
and other costs, the capital available from existing credit facilities, cash
generated from operations and the proceeds of this Offering will be
sufficient to fund its obligations for at least 12 months. On a long term
basis, the need to raise additional capital will be primarily dependent on
the number of additional land acquisitions undertaken by the Company, and the
size and purchase terms of those acquisitions. There is no assurance that the
Company will be able to raise additional capital or to borrow funds in a
timely manner on favorable terms or at all. To the extent the Company is not
able to do so, the Company may be forced to adopt alternative strategies that
could materially and adversely affect its operations and prospects,
including, but not limited to, reducing or delaying capital expenditures,
reducing the size of its operations and selling assets. See "Risk Factors--
Leverage and Future Capital Requirements."
23
<PAGE>
SELECTED UNAUDITED QUARTERLY OPERATING DATA
The Company's quarterly financial results are subject to significant
fluctuations due to the timing of land parcel closings, which had a
significant impact on second and fourth quarter fiscal 1996 financial
results. To a lesser extent, quarterly operating profits are impacted by the
timing of home closings and the mix of sales among its product lines. The
following table presents certain selected quarterly operating data of the
Company for the years ended June 30, 1996 and June 30, 1995. This data is not
necessarily indicative of the results of operations for any future period.
See "Risk Factors--Variability of Results."
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
---------------- --------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total revenues ....................... $13,154 $32,188 $16,555 $43,775
Total expenses ....................... 12,711 30,092 16,581 38,228
------------ ------------ ----------- ------------
Net income (loss) before income taxes 443 2,096 (26) 5,547
Income tax expense (benefit) ......... 168 796 (10) 2,108
------------ ------------ ----------- ------------
Net income (loss) .................... $ 275 $ 1,300 $ (16) $ 3,439
============ ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994 1994 1995 1995
---------------- --------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total revenues ........................... $6,489 $6,738 $8,021 $17,641
Total expenses ........................... 6,516 6,318 7,685 17,407
----------- ------------ ----------- ------------
Net income (loss) before income taxes and
extraordinary gain ....................... (27) 420 336 234
Income tax expense (benefit) ............. $ (11) $ 163 $ 130 $ 91
----------- ------------ ----------- ------------
Extraordinary gain ....................... -- 700 -- --
Net income (loss) ........................ $ (16) $ 957 $ 205 $ 143
=========== ============ =========== ============
</TABLE>
Revenues for the quarter ended September 30, 1995 were $6.7 million higher
than for the quarter ended September 30, 1994, primarily due to an increase
in home sales. The Company had net income before taxes of $443,000 in the
quarter ended September 30, 1995 as compared to a net loss of $27,000 in the
quarter ended September 30, 1994, primarily due to higher sales margins in
1995.
Revenues and net income before income taxes for the quarter ended December
31, 1995 were $25.5 and $1.7 million higher than for the quarter ended
December 31, 1994, respectively, primarily due to a $12.0 million parcel sale
in the quarter ended December 31, 1995 which generated $1.9 in net income
before income taxes.
Revenues for the quarter ended March 31, 1996 were $8.5 million higher
than for the quarter ended March 31, 1995, primarily due to an increase in
home sales. The Company had a net loss before income taxes of $26,000 for the
quarter ended March 31, 1996 as compared to net income before income taxes of
$336,000 in the quarter ended March 31, 1995. The lower earnings were caused
by higher sales and marketing expenses for the quarter ended March 31, 1996
due primarily to grand opening, marketing and other costs incurred by the
Company in connection with the introduction of several new communities.
Revenues and net income before taxes for the quarter ended June 30, 1996
were $26.1 million and $5.3 million higher than for the quarter ended June
30, 1995, respectively, primarily due to $12.9 million in parcel and homesite
sales in the quarter ended June 30, 1996, which generated $6.0 million in net
income before income taxes.
24
<PAGE>
INTEREST RATES AND INFLATION
The majority of the Company's home purchasers finance their acquisitions
through third-party lenders who provide mortgage financing. Higher mortgage
interest rates may significantly affect the affordability of permanent
mortgage financing to prospective purchasers. Additionally, increases in
interest rates have a significant effect on the Company's financing costs,
which cannot necessarily be passed on to its customers. The Company seeks to
mitigate the potential impact of rising interest rates on its sales by
directing marketing efforts in several of its communities to the senior
market, which includes a significant percentage of cash buyers. The Company
further seeks to reduce the potential impact of rising interest rates through
its development and marketing of rental apartments, which tend to increase in
demand in periods of rising interest rates.
The Company's financial results may be adversely affected during periods
of high inflation due to higher land and construction costs. The Company
seeks to mitigate the potential short-term effects of inflation on its
construction costs by negotiating fixed price contracts with its
subcontractors and material suppliers for the construction of most of its
projects. The Company will also attempt to pass through to its customers any
increases in costs through increased sales prices. To date, inflation has not
had a material adverse effect on the Company's results of operations.
However, there is no assurance that inflation will not have a material
adverse impact on the Company's future results of operations.
BACKLOG
Sales of the Company's homes are generally made pursuant to a standard
contract which requires a down payment of at least 10% of the sales price.
Sales contracts often contain financing contingencies which permit the
customer to cancel in the event that mortgage financing at the then
prevailing interest rates is unobtainable within a specified period,
typically six weeks. The Company excludes sales contracts containing
financing and house sale contingencies from its sales backlog figures. The
following table summarizes the Company's backlog as of September 30, 1995 and
1996 and as of the end of each of the last three fiscal years (dollars in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
---------------------- ---------------------------------
1996 1995 1996 1995 1994
---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Number of Homes in Backlog .............. 210 257 195 185 141
Aggregate Sales Value of Homes in
Backlog ................................. $49,941 $56,395 $45,663 $38,520 $38,181
</TABLE>
The Company anticipates that substantially all of the homes in the
Company's backlog will be delivered within the current fiscal year.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains forward-looking statements, including statements
regarding, among other things, (i) the Company's growth strategies, (ii)
anticipated trends in the economy and the homebuilding industry and (iii) the
Company's future financing plans. In addition, when used in this Prospectus,
the words "believes," "anticipates," "expects" and similar words often are
intended to identify certain forward-looking statements. These
forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, many of which are
beyond the Company's control. Actual results could differ materially from
these forward-looking statements as a result of changes in trends in the
economy and the homebuilding industry, reductions in the availability of
financing, increases in interest rates and the other factors described in
"Risk Factors," including among others, "Real Estate and Homebuilding
Industries and Economic Conditions," "Mortgage Financing and Interest Rates,"
"Competition," "Leverage and Future Capital Requirements," "Dependence on
South Florida Market and Expansion into New Markets" and "Expansion
Strategy." In light of these risks and uncertainties, there can be no
assurance that the forward-looking statements contained in this Prospectus
will in fact occur. The Company does not undertake any obligation to publicly
release the results of any revisions to these forward-looking statements that
may be made to reflect any future events or circumstances.
25
<PAGE>
BUSINESS
GENERAL
Transeastern has experienced rapid growth and is engaged primarily in the
acquisition of land and the construction and sale of quality, single-family
and multi-family homes for the move-up and senior home-buying markets in the
State of Florida. Transeastern uses a systematic and disciplined approach to
the acquisition of parcels of land through a rigorous evaluation of each
parcel to determine whether it satisfies the Company's quantitative and
qualitative acquisition criteria. The Company constructs homes with a variety
of designs with standardized option packages in order to cost-effectively
build homes of superior value. Transeastern's approach utilizes innovative
marketing and sales programs and procedures.
Transeastern believes that its disciplined approach coupled with its
emphasis on customer satisfaction, quality, value and pride in workmanship
are largely responsible for its growth. The Company experienced a ten-fold
increase in revenues over the past four years. The Company's objective is to
become a more broadly-diversified real estate company achieving long-term,
stable growth with measured risk. The Company employs the following
strategies in furtherance of its objective: (i) to aggressively target the
move-up and senior home-buying markets, by constructing and selling quality
homes of superior value on distinctive niche properties in growth markets,
primarily featuring waterfront and golf course living and other upscale
recreational amenities; (ii) to strategically acquire land which is
well-suited for the construction and sale of the Company's homes, and which
may also include parcels considered favorable for short-term, profitable
resale to other builders; (iii) to develop multi-family housing, primarily
for sale to institutional investors; (iv) to develop strategic alliances with
leading real estate and institutional investors to further the Company's
ability to opportunistically acquire and finance distinctive niche properties
in growth markets, primarily for single-family home development by the
Company; and (v) to develop ancillary business activities, typical of other
home builders, which traditionally complement single-family home development
businesses.
The Company has experienced significant growth in revenues during the past
four consecutive years. Revenues increased by 1,788% during the fiscal year
ended June 30, 1996 to $105.7 million as compared to $5.6 million in fiscal
year 1992. The Company's pre-tax income increased from $146,000 in 1992 to
$8.1 million in 1996. The Company's net income before income taxes and
extraordinary gain in 1996 of $8.1 million increased by 741% from $963,000 in
1995. The number of home sales closed increased from 25 in 1992 to 375 in
1996.
THE ECONOMY AND HOUSING AND REAL ESTATE MARKETS
The economies of different geographic areas in the United States are
characterized by differing rates of economic and population growth.
Similarly, the market in the United States for real estate and homes in
general, and homes for the move-up and senior markets in particular, is also
characterized by differing rates of growth in different geographic areas. The
Company's objective has been to engage in real estate activities in
geographic areas which are projected to have (i) rapid economic and
population growth and (ii) rapid growth in home starts in general, and in
home starts for the move-up and senior markets in particular. All of the
Company's activities have in the past been in the State of Florida, where,
according to statistics published by the University of Florida's Bureau of
Business and Economic Research ("BEBR"), approximately one of twelve new
homes in the United States is currently being built.
As compared to the rest of the United States, South Florida and the
remainder of the State of Florida have favorable economic and demographic
profiles for real estate development and homebuilding in general, and for
homebuilding for the move-up and senior markets in particular.
According to the U.S. Department of Census projections, the population of
the United States is projected to grow by 19 million people from 1990 to
2000, an increase of 7.7%. The BEBR projects that
26
<PAGE>
the Gross Domestic Product will grow approximately 2.8% in 1997 and 2.9% in
1998, compared to 2.1% in 1995 and 2.2% in 1996.The BEBR projects that U.S.
employment will grow by 2.0% per year in 1996-1997, resulting in an
unemployment rate of approximately 5.7%. During the same period, the national
housing market is expected to grow at a rate of 1.2 million to 1.3 million
housing starts annually.
The BEBR forecasts that Florida's population will increase by 265,000
residents, or 1.8% in 1997, and by 249,000, or 1.7%, in 1998. Florida is
expected to add between 118,000 and 155,000 new jobs in 1997 and 1998,
respectively, a growth rate of 2.0% in 1997 and 2.5% in 1998. Florida's
continued population and job growth are expected to favorably impact
Florida's housing markets. The BEBR projects that Florida's housing market
will grow by 109,500 units (79,200 single family and 30,300 multi-family) in
1997, representing approximately 8% of all housing starts nationally. In
1998, Florida's housing market is forecasted to grow by an additional 110,200
units (77,700 single family and 32,500 multi-family).
A substantial portion of the Company's operations are based in Florida's
Broward County and Palm Beach County. The population of Broward County is
projected by BEBR to increase by 22,400, or 1.6% in 1997 and by 20,900, or
1.5%, in 1998. The population of Palm Beach County is projected to increase
by 19,300, or 2.0%, in 1997 and by 16,400, or 1.6% in 1998. The growth in
these counties in 1997 represents over 15% of total projected population
growth of the entire state in each respective year. BEBR forecasts that
Broward County and Palm Beach County will add 9,800 and 9,000 new jobs in
1997, respectively, and 13,200 and 9,900 new jobs in 1998, respectively. BEBR
further forecasts that personal income will increase by 7.5% and 7.7% in
Broward County and Palm Beach County, respectively, in 1997 and 5.1% and
5.2%, respectively, in 1998 and that adjusted labor earnings (earnings net of
social security payments) will increase by 6.3% and 5.1% in Broward County
and Palm Beach County, respectively, in 1997 and 5.4% and 6.3%, respectively,
in 1998. The population and job growth projected in these counties is
expected to favorably impact the area's housing market. The BEBR projects
that total housing starts in Broward County and Palm Beach County will be
10,444 and 9,747, respectively in 1997 and 9,752 and 9,824, respectively in
1998. According to The ARREA Report, which is published by Appraisal and Real
Estate Economic Associates, Inc., the average price of new single family
homes in Broward County and Palm Beach County increased from approximately
$154,100 and $195,200 in 1991, respectively, to $174,698 and $205,120 in
1995, respectively.
The housing markets primarily targeted by the Company are (i) move-up
families with heads of households 35-54 years old, and (ii) seniors buyers,
55-64 years old, purchasing retirement, vacation and second homes in warm
weather locations. Demographic information indicates that these age groups
are experiencing substantial population growth in the Company's targeted
geographic markets. According to U.S. Department of Census and BEBR
projections for the 1990-2000 period, the age group representing the move-up
market will grow by 7% nationally, but will grow by 29% in the state of
Florida, by 45% in Broward County and by 53% in Palm Beach County. For the
same period, the seniors market will grow by 11.5% nationally, 27% in
Florida, 23% in Broward County and 28% in Palm Beach County.
BUSINESS STRATEGY
The Company intends to continue to employ the following strategies in
furtherance of its primary business objectives:
DEVELOPMENT OF QUALITY HOMES ON DISTINCTIVE NICHE PROPERTIES
One of the Company's primary business strategies is to aggressively target
the move-up and senior home-buying markets by constructing and selling
value-based, quality homes which are (i) located on distinctive niche
properties, primarily featuring golf course and waterfront living and other
upscale recreational amenities, (ii) designed in a variety of styles and
price ranges, and (iii) built in a variety of architectural designs with
standardized option packages. The Company constructs and sells homes in a
27
<PAGE>
broad variety of styles (including detached single-family homes, attached
villas, patio homes and townhouses) and throughout a wide range of prices
(primarily, from $100,000 to $500,000), designed to appeal to most lifestyles
and economic and demographic segments of the move-up and senior home-buying
markets. Based on the Company's demographic analyses, the Company believes
that this broad variety of products appeals to significant segments of the
home-buying public and mitigates the Company's exposure to cyclical market
conditions that may affect certain individual demographic or economic
segments of the market. See "Business--Summary of Residential Communities."
STRATEGIC ACQUISITION OF LAND
The Company intends to continue to acquire multi-use parcels of land in
growth markets which are suited for the construction and sale of the
Company's homes, and which may also include parcels which are considered
favorable for resale to other residential and commercial builders.
Transeastern's disciplined approach to the acquisition of parcels of land
involves an evaluation to determine whether the parcel satisfies the
Company's quantitative and qualitative acquisition criteria. Although this
land acquisition strategy is designed to effect prudent land acquisition, it
is also structured to enable the Company to act swiftly in taking advantage
of significant unique opportunities. The Company believes its reputation for
building homes of quality and value enables it to compete for and acquire
distinctive parcels of land. In turn, this creates opportunities for the
Company to sell selected parcels within its communities to other residential
and commercial builders, which provides additional revenue to the Company and
limits the amount of investment in, and the risks associated with, any single
community. See "Business--Land Acquisition" for a detailed description of the
Company's land acquisition policies and procedures.
DEVELOPMENT OF MULTI-FAMILY HOUSING PRIMARILY FOR SALE TO INSTITUTIONAL
INVESTORS
The Company intends to continue to expand its recent activities as a
developer of investment-grade multi-family housing. The Company believes that
multi-family housing development will complement its homebuilding activities
by, among other things, (i) furthering the Company's ability to capture
revenues in another segment of the real estate development industry, (ii)
providing the Company opportunities to acquire and maximize utilization of
multi-use properties, (iii) adding a degree of diversification to the
Company's business by enabling it to devote its resources to a broader
variety of complementary businesses throughout the economic cycle and (iv)
increasing the number of available properties which are both attractive to
the Company and satisfy its land-acquisition criteria. See "Business--Summary
of Residential Communities" and "Business--Land Acquisition."
DEVELOPMENT OF STRATEGIC ALLIANCES WITH LEADING REAL ESTATE AND INSTITUTIONAL
INVESTORS
The Company continually seeks to establish strategic alliances with
leading real estate and institutional investors to further its ability to
opportunistically acquire and finance interests in distinctive niche
properties in growth markets (primarily for single-family home development by
the Company). The Company believes that the successful implementation of this
strategy will also allow it to gain control over desirable properties while
minimizing its capital investment and the related land ownership risks and
carrying costs. Effective implementation of this strategy enhances the
Company's ability to act swiftly in taking advantage of acquisition
opportunities on a greater scale, while mitigating and diversifying the land
ownership risks associated with such acquisitions. See "Business--Land
Acquisition."
DEVELOPMENT OF ANCILLARY BUSINESS ACTIVITIES
In order to increase stability and predictability of the Company's
earnings throughout the business cycle, the Company is continually seeking to
enter into ancillary businesses, both on its own and through strategic
alliances with providers of such services, including residential mortgage
brokerage services, title insurance and closing services and other related
residential services. The Company believes that these activities complement
each other and the Company's core homebuilding activities,
28
<PAGE>
may provide the Company with an additional degree of cyclical diversification
and will enable the Company to capture revenues from a broader spectrum of
activities related to homebuilding. See "Business--Customer Financing and
Title Services."
SUMMARY OF RESIDENTIAL COMMUNITIES
The following tables provide an overview, as of September 30, 1996, of the
communities in which the Company has contracted to acquire land pursuant to
options and arrangements for phased closings, the communities in which the
Company has completed homebuilding activities, the communities in which the
Company is currently engaged in development and homebuilding activities and
the communities in which the Company has plans for development and
homebuilding activities.
COMMUNITIES COMPLETED
<TABLE>
<CAPTION>
RANGE OF BASE
NUMBER OF HOMES HOME PRICES
COMMUNITY LOCATION COMPLETED AND DELIVERED FISCAL YEAR OPENED (000S)
- --------- -------------- ------------------------ ------------------ -------------
<S> <C> <C> <C> <C>
Coopers Pointe Broward County 36 1993 $140-$210
Cypress Cay Broward County 106 1994 $140-$193
------------------------
142
========================
</TABLE>
COMMUNITIES CURRENTLY BEING DEVELOPED
<TABLE>
<CAPTION>
NUMBER OF RANGE OF BASE
NUMBER HOMES HOMESITE FISCAL YEAR HOME PRICES
COMMUNITY OF HOMES SOLD/DELIVERED INVENTORY OPENED (000S)
- --------- -------- -------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Cypress Head 30(1) 29/29 1 1994 $450--$1,400
Eagle Landing at Eagle Trace 55 46/29 26 1994 $190--$300
Mariner's Cove 131 53/4 127 1994 $200--$325
Sunset Pointe on Lake Wellington 68 56/50 18 1995 $115--$160
Aberdeen Golf and Country Club 447(2) 99/43 404 1996 $145--$325
Parkside at Spring Valley(3) 465 250/235 230 1995 $125--$195
Weston(4) 81 81/50 22 1993 $230--$425
Coral Springs/Parkland(4) 216 216/208 7 1989 $235--$500
Wellington Lakes 125 2/0 125 1997 $100--$140
----------- --------------- ------------ ------------ --------------
1,618 832/648 960
=========== =============== ============
</TABLE>
COMMUNITIES PLANNED FOR FUTURE DEVELOPMENT
<TABLE>
<CAPTION>
FISCAL YEAR
LOCATION RANGE OF BASE
NUMBERS EXPECTED HOME PRICES
COMMUNITY LOCATION OF HOMES TO OPEN (000S)
- --------- --------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Egret Walk at Village of Pembroke Pines Broward County 114 1997 $130--$167
Pelican Pointe at Village of Pembroke
Pines(5) Broward County 464 1997 $ 77--$110
Carlyle Club Luxury Apartment Homes(6) Broward County 150 1997 (7)
Pinehurst Club Luxury Apartment Villas(6) Broward County 196 1997 (8)
Cape Coral(9) Lee County 60 1997 $100--$250
Banyan Bay(9) Martin County 750 1997 $100--$180
Aloma Woods(9) Orange County 143 1997 $180--$250
-----------
1,877
===========
</TABLE>
- -----------------------------------------------------------------------------
(1) Does not include 61 homesites sold to other homebuilders.
(2) Does not include 512 homesites sold to other homebuilders.
(3) The Company owns a 50 percent interest in the joint venture which is
developing this community.
(4) The Company acts as a preferred builder for developers in these
communities.
29
<PAGE>
(5) Includes the 108 homesites acquired on July 1, 1996 through the exercise
of the option described in note (1), above.
(6) The Company owns a controlling interest in the limited partnership which
is developing these communities.
(7) Monthly lease rates range from $750 to $1,500 per apartment unit.
(8) Monthly lease rates range from $700 to $1,200 per apartment unit.
(9) The Company has entered into a letter of intent or agreement to acquire
these homesites.
NARRATIVE SUMMARY OF RESIDENTIAL COMMUNITIES
Set forth below is a narrative description of the Company's communities as
of September 30, 1996.
COOPERS POINTE. Coopers Pointe is a community of 36 single-family homes
situated on 15 acres in Cooper City in Broward County. The Company acquired
this property in 1993, acted as the exclusive homebuilder in Coopers Pointe
and sold the last of the 36 single-family homes that were planned for this
community in 1995. The base sales prices of the Company's homes in this
community ranged from approximately $140,000 to $210,000.
CYPRESS CAY. Cypress Cay is located in Parkland, Florida, which the
Company believes is one of Broward County's most prestigious single-family
home communities, and is adjacent to Cypress Head (another of the Company's
communities, which is described below). Cypress Cay encompasses 24 acres of
land which the Company acquired in 1993. The Company was the exclusive
homebuilder in Cypress Cay and sold the last of the 106 single-family homes
planned for this community in 1996. The base price range of homes in Cypress
Cay was approximately $140,000 to $193,000. This community features a wide
range of amenities, including tennis courts, community swimming centers,
sundecks, cabana houses and a private, gated entrance.
CYPRESS HEAD. Cypress Head was the first master-planned community in
Parkland, Florida, which the Company believes is one of Broward County's most
prestigious single-family home communities. In 1993, the Company acquired the
last 130 acres of Cypress Head on which 91 custom homes were planned for
development. The Company sold 61 of the homesites in Cypress Head to other
builders, and has sold 29 of the 30 homes that it intends to build in Cypress
Head. Base prices for the Company's homes in Cypress Head range from
approximately $450,000 to $1,400,000. Cypress Head is an established 670-acre
community featuring towering pines and cypress trees and a 70-acre lake. This
community offers a wide array of recreational amenities, including a lighted
tennis center, nature trails, two private clubhouses, water sports and team
sports facilities.
EAGLE LANDING AT EAGLE TRACE. Eagle Trace is a country club community
located in Coral Springs, Florida, which features a TPC golf course and a
wide variety of upscale recreational amenities. The Company acquired the land
for the 55 single-family homes planned for development in Eagle Landing at
Eagle Trace in 1994. The Company is acting as the exclusive developer and
homebuilder in Eagle Landing, where approximately 70 percent of the homes
will have golf course or waterfront views. The base prices for these homes,
most of which have already been sold, range from approximately $190,000 to
$300,000. Other features of Eagle Landing include championship golf and
tennis facilities and 24-hour security.
MARINER'S COVE. Mariner's Cove is a single-family home community located
in Coral Springs, Florida, in which the Company is the exclusive builder. In
June 1994, the Company acquired the 43 acres of land which encompass
Mariner's Cove. Homes are currently being developed and sold at base prices
ranging from approximately $200,000 to $325,000. Approximately 50 of these
131 homes will have waterfront views. Mariner's Cove provides recreational
opportunities, including boating, canoeing and fishing, and is across the
water from an upscale neighborhood with homes selling for in excess of $1
million.
SUNSET POINTE ON WELLINGTON LAKE. Sunset Pointe on Lake Wellington was the
Company's first community in Palm Beach County. Situated on 15 acres of land
on a 180-acre lake near Wellington Lakes (another of the Company's
communities which is discussed below), this community features
30
<PAGE>
waterfront views on one of Palm Beach County's largest man-made lake. The
Company acquired Sunset Pointe on Wellington Lakes in 1995, and is the
exclusive homebuilder. The base prices of the 68 single-family homes in this
community (most of which have already been sold) range from approximately
$115,000 to $160,000.
ABERDEEN GOLF AND COUNTRY CLUB. Aberdeen Golf and Country Club is a
master-planned senior community located in Boynton Beach, between West Palm
Beach and Boca Raton. In September 1995, the Company acquired 959 homesites
in this 1,441 acre country club community, which features a 40,000 square
foot clubhouse, private-gated entrances, an 18-hole championship golf course
designed by golf course architect Desmond Muirhead, a 15-court tennis complex
and a staffed fitness center. The Company re-sold 512 homesites to other
residential builders in this community in fiscal 1996, of which 486 had been
delivered as of September 30, 1996. The Company has sold a portion of the 447
single-family homes which it plans to build in this community, and is
currently building and selling attached villas, patio homes and single-family
homes. This community also features over 400 acres of lakes, parks and
upscale amenities. Aberdeen's land plan features golf course and waterfront
views and a low density of 1.6 homes per acre. The Company's residences
currently have base prices from approximately $145,000 to $325,000.
PARKSIDE AT SPRING VALLEY. Parkside at Spring Valley is a community in
Broward County's Pembroke Pines in which approximately half of the 465 homes
scheduled for development have already been sold. Amenities in Parkside at
Spring Lake include a community pool and cabana baths. The Company serves as
project manager for the development of this 98-acre community which was
acquired in two phases in 1994 and 1995 through a 50/50 joint venture with
H.A. Cumber of Pembroke Pines, Inc., another builder in Broward County. The
base prices for the Company's homes in Parkside at Spring Valley range from
approximately $125,000 to $195,000.
WESTON. Weston is a master-planned community being developed by Arvida
Corporation in Broward County. Weston is a 10,000 acre country club
community, which features a broad variety of upscale amenities. The amenities
located within Weston include a championship golf course and tennis
facilities that are located at a clubhouse featuring restaurants and pro
shops, waterfront and golf course views, large parks and athletic fields,
schools, shopping centers and places of worship. Arvida has planned to
develop thousands of homes in this community at base prices ranging from
approximately $80,000 to over $2 million, and the base prices of the
Company's homes in Weston have ranged from $230,000 to $425,000. Arvida
controls all of the land in Weston and selected the Company as one of ten
preferred builders which home buyers may select to build their individual
single-family home.
CORAL SPRINGS/PARKLAND. Coral Springs/Parkland is a master-planned
community being developed by WCI Communities in northeast Broward County's
Coral Springs. This community of 35,000 homes features excellent schools,
extensive parks and other recreational amenities. WCI Communities controls
all of the land in this community and selected the Company as one of twenty
preferred builders which home buyers may select to build their individual
single-family home. Base home prices in this community range from
approximately $105,000 to $1,000,000. Since 1989, the Company has built 205
homes in this community and currently has a backlog of 5 homes there.
WELLINGTON LAKES. Wellington Lakes is a community located on Lake
Wellington in Palm Beach County, which will feature a wide array of
recreational amenities, including a community pool, cabana bathhouse located
on Lake Wellington, and water sports facilities. In 1996, the Company
acquired this 25-acre community and anticipates acting as the exclusive
developer and homebuilder in constructing 125 single-family cluster homes.
The Company anticipates that its homes in Wellington Lakes will be offered at
base prices ranging from approximately $100,000 to $140,000. Wellington Lakes
is surrounded by completed neighborhoods with homes offered in a higher price
range and also features water views.
EGRET WALK AND PELICAN POINTE AT THE VILLAGE OF PEMBROKE PINES. In March,
1996, the Company purchased a multi-use parcel encompassing 134 developable
acres, which includes Egret Walk and Pelican Pointe at the Village of
Pembroke Pines in Broward County. Of such 134 acres purchased, the
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Company resold to other developers (i) a 29-acre parcel, on which a 300,000
square foot shopping center is being constructed and (ii) a 26-acre parcel,
on which a 468-unit apartment complex is being developed. The remaining
property has been subdivided into enclaves which include two single-family
residential subdivisions known as Pelican Pointe and Egret Walk which the
Company is developing. Pelican Pointe will be comprised of 464 townhouses
expected to be offered at base prices ranging from approximately $77,000 to
$110,000, and will offer residents a central recreational island, which will
include tennis courts, a recreational building, swimming pool and
cabana/bathhouse. Egret Walk will be a gated neighborhood modeled after the
community the Company is developing at Parkside at Spring Valley and will be
comprised of 114 patio homes at base prices anticipated to range from
approximately $130,000 to $167,000. In connection with this acquisition, the
Company also obtained and exercised an option to acquire a 10-acre
commercially-zoned parcel and an additional six-acre site on which the
Company will build 108 of the 464 townhouses in Pelican Pointe. The Company
exercised this option in July 1996. The Company intends to resell this
commercial parcel to another developer in fiscal 1997. The Company expects to
begin the sales program for Pelican Pointe and Egret Walk in October, 1996.
CARLYLE CLUB LUXURY APARTMENT HOMES. Carlyle Club Luxury Apartment Homes
is situated on 9.8 acres of land in Plantation, Florida, and will consist of
a gated community with 150, one, two and three bedroom apartment homes in
five separate, three-story courtyard buildings. Apartments will be offered
for lease to the public and will provide a wide range of amenities, including
a carport for each apartment, a swimming pool with a large deck and a
jacuzzi, and a club/recreation building, containing a media room, a business
center, management and leasing offices, a bar and kitchen area and exercise
facilities. The Company began construction of this community in November 1995
and intends to complete construction in January 1997. The Company anticipates
that substantially all of these apartments will be leased by March, 1997, and
is already engaged in preliminary discussions with a number of institutional
investors for the resale of all five of these buildings. Monthly rental rates
for these homes range from $750 to $1,500.
PINEHURST CLUB LUXURY APARTMENT VILLAS. The apartment project is situated
on a 7.8-acre parcel in Hollywood in Broward County and will consist of a
gated community with 196, one, two and three bedroom apartment homes in seven
separate, three-story courtyard buildings. Apartments will be offered for
lease to the public and will include use of a wide range of amenities,
including 60 covered parking spaces for rental, an oversized swimming pool
with a large deck and jacuzzi, and a club/ recreation building, containing a
media room, a business center, management and leasing offices, a bar and
kitchen area, exercise facilities and a full size air conditioned racquetball
court. The Company began construction of this community in November 1995 and
intends to complete construction in November 1996. The Company anticipates
that substantially all of these apartments will be leased by March, 1997, and
is already engaged in preliminary discussions with a number of institutional
investors for the resale of all seven of these buildings. Monthly rental
rates for these homes range from $700 to $1,200.
CAPE CORAL. The Company has entered into a letter of intent to acquire
several parcels of land in Cape Coral in Lee County, Florida, which is near
Fort Myers. Subject to a variety of conditions, including the receipt of
governmental development approvals and the satisfactory completion of due
diligence, the closing is expected to occur in mid-1997. The purchase price
for the property is estimated to be approximately $1.5 million dollars, of
which $1 million will be paid in cash at or prior to the closing and the
remainder to be evidenced by a promissory note. The note will bear interest
at the rate at one percent (1%) above the prime rate of interest as
established by Citibank, N.A., and will be secured by a second mortgage on
the property. The Company intends to fund the acquisition of these parcels
through a combination of working capital, including proceeds obtained from
this Offering, and traditional acquisition loans provided by financial
institutions. The rights and obligations of each of the parties in the
above-described transaction will be defined in and subject to the execution
of a definitive purchase and sale agreement. There can be no assurance that
this transaction will be consummated. The Company anticipates that, if
consummated, it will build approximately 50 single-family homes in the
community, with base prices starting at approximately $100,000. This
community will be targeted to the move-up and senior markets, and features
boating, golf, parks and other amenities.
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BANYAN BAY. The Company has entered into a letter of intent to acquire a
251-acre, single-family home community in Martin County, which is north of
Palm Beach County. Subject to a variety of conditions, including the receipt
of governmental development approvals and the satisfactory completion of due
diligence, the closing is expected to occur in mid-1997. The purchase price
for the property is approximately $5.5 million, of which $5 million will be
paid in cash at or prior to the closing and the remainder to be evidenced by
a promissory note. The note will bear interest at the rate at one percent
(1%) above the prime rate of interest as established by Citibank, N.A., and
will be secured by a second mortgage on the property. The Company intends to
fund the acquisition of the property through a combination of working
capital, including proceeds obtained from this Offering, and traditional
acquisition loans provided by financial institutions. The rights and
obligations of each of the parties in the above-described transaction will be
defined in and subject to the execution of a definitive purchase and sale
agreement. There can be no assurance that this transaction will be
consummated. The Company anticipates that it would be the exclusive
homebuilder for all of the approximately 700 single-family homes planned for
this community, with base prices starting at approximately $100,000. This
community will be targeted to senior buyers, and will feature a clubhouse, a
marina and other amenities.
ALOMA WOODS. On September 16, 1996, the Company entered into an agreement
to acquire 143 single-family homesites in Winter Park, an established suburb
of Orlando. This parcel is located in an existing community known as Aloma
Woods, and all zoning and land use approvals have already been obtained.
Subject to certain conditions, including the satisfactory completion of
certain infrastructure improvements, the closing is expected to occur in
stages from October, 1996 through June, 1999. The purchase price for lots
within the parcel is approximately $46,000, per lot, payable in cash at each
lot closing, with escalators at the rate of one and one-half percent (1 1/2
%) per quarter for lots closing after June 10, 1997 and premiums for lots
contiguous to ponds, conservation areas and lakes. The aggregate purchase
price for all lots within the parcel is estimated to be approximately $7.0
million (without consideration of price escalators). The Company intends to
fund the acquisition of these parcels through a combination of working
capital, including proceeds obtained from this Offering, and traditional
acquisition loans provided by financial institutions. There can be no
assurance that all or any portion of this transaction will be consummated.
The Company anticipates that it would be the exclusive homebuilder for all
143 of these homes, with base prices starting at approximately $180,000. This
community will be targeted to the move-up buyer, and will feature a gated
community, a large lake and boat ramp and tennis facilities.
LAND ACQUISITION
The Company aggressively identifies and takes advantage of opportunities
to acquire land in a number of markets where demographic trends, housing
preferences, competitive factors and related economic data are indicative of
opportunities for successful construction and sale of the Company's homes and
investment-grade apartments and for the short-term sale of portions of
certain of the Company's parcels to other residential and commercial
builders.
The Company's approach to land-acquisition requires that before a local
market can be approved for development, the Company's methodology must be
used to evaluate whether that market satisfies the Company's quantitative and
qualitative selection criteria and is therefore deemed favorable for
successful development. This local market approval process includes a
detailed analysis of a variety of factors as they pertain to the Company's
primary target market of move-up and senior buyers, including demographic
trends, historical and projected growth in housing starts, job creation and
personal income, housing preferences, projected supply and demand for
competitive products, acquisition and development costs as they relate to
projected sales prices, and related national, regional and local economic
factors. Only after a particular local market is approved for development
will the Company's senior management team consider acquiring particular
parcels of land within that local market. The Company believes that the
development of relationships between members of the Company's senior
management team and key participants in each local market as well as personal
observation and
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analysis of a local market and particular parcels by members of the Company's
senior management team is critical to identifying and capitalizing on
strategic land acquisition opportunities.
Before acquiring a particular parcel of land within an approved local
market which the Company's senior management team has preliminarily
identified as an acquisition candidate, the Company undertakes simultaneous
(i) comprehensive feasibility, development and marketing studies and (ii)
detailed financial analyses. These studies and analyses evaluate a variety of
factors with the principal objective of determining whether the projected
rate of return on capital for the parcel justifies the anticipated level of
risk. These studies and analyses include the development of a comprehensive
master design theme and marketing concept. The Company also evaluates whether
conditions are favorable for both the short-term profitable resale of a
portion of the acquired land to other residential and commercial builders and
the development and construction of homes (and, where appropriate,
investment-grade apartments) by the Company on the remainder of the land. In
conducting these studies and analyses, the Company evaluates a wide variety
of qualitative and quantitative factors including (i) the competitive
environment, and the projected supply and demand for particular styles and
price ranges of homes, (ii) acquisition and development costs as they relate
to the projected market for fully-developed residential and commercial
communities, (iii) the distinctiveness and attractiveness of the parcel
(e.g., potential for golf course and waterfront living and other desirable
lifestyles and recreational amenities, and proximity to recreational
amenities and other desirable communities), (iv) compatibility of the
Company's product line with the desired lifestyles of targeted buyers, (v)
access to major thoroughfares, (vi) availability of desirable schools, (vii)
where applicable, the market for institutional-grade apartments for purchase
by institutional investors and (viii) the extent to which necessary zoning,
land use, building permit and other governmental entitlements and approvals
have been received. The Company's detailed financial analyses of a particular
parcel use the Company's established financial criteria and homebuilding
models to evaluate whether profitable development is likely. Particular
emphasis in these financial analyses is given to whether the projected return
on investment justifies the anticipated level of risk. While these studies
and analyses are designed to assure prudent land acquisitions, the Company is
able to conduct them quickly so as to enable the Company to act swiftly in
taking advantage of significant opportunities. In practice, even if a
particular parcel satisfies these selection criteria, it is acquired only if
the Company's senior management team believes that, based on its experience,
relationships with key real estate market participants, and personal
observation of the parcel and its surroundings, the parcel is desirable for
acquisition and development.
The Company's land acquisition program is also geared towards undertaking
projects with shorter life cycles in an effort to improve the rate of return
on capital and mitigate the risks inherent in land ownership and development.
The Company maintains a variety of policies designed specifically to shorten
project life cycles, including (i) acquiring land where rapid growth is
projected, (ii) acquiring land only if it has received (or the Company is
reasonably certain that it will soon receive) all necessary zoning, land use,
building permit and other governmental entitlements and approvals, (iii)
where possible, acquiring land through the utilization of options and other
similar non-recourse purchase agreements and (iv) conducting hazardous waste
and other environmental tests and surveys prior to acquiring land. As a
result, the Company is often able to begin marketing for a community soon
after it acquires a parcel of land.
The Company seeks to develop strategic alliances with leading real estate
and institutional investors to further the Company's ability to
opportunistically acquire interests in distinctive niche properties in growth
markets. The Company believes that the successful implementation of this
strategy will also allow it to obtain control over desirable properties while
minimizing its capital investment and the related land-ownership risks and
carrying costs. Effective development of these relationships enhances the
Company's ability to act swiftly in taking advantage of acquisition
opportunities on a greater scale, while mitigating and diversifying the land
ownership risks associated with such acquisitions.
The Company generally seeks to control a homesite inventory of two-to-four
years based on anticipated absorption rates, by options and other
non-recourse arrangements and by outright purchase.
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The following table sets forth a summary of the Company's land/homesite
position at September 30, 1996:
<TABLE>
<CAPTION>
<S> <C>
FINISHED HOMESITES OWNED BY THE COMPANY ....................... 661
Homesites under development owned by the Company .............. 915
-------
Total owned homesites ....................................... 1,576
Homesites available under homesite option and similar
contracts ..................................................... 143
-------
Total land/homesite position ................................ 1,719
=======
</TABLE>
CONSTRUCTION AND COST CONTAINMENT
The Company generally acts as the general contractor for all of its
single-family home construction and utilizes subcontractors for site
improvement and construction. The Company retains independent firms to act as
general contractor for its multi-family home construction. Company employees
monitor site planning for the construction of each community. They also
participate in all material design and building decisions and coordinate the
activities of independent general contractors, subcontractors and suppliers
and subject general contractors' and subcontractors' work to quality and cost
controls. Finally, they monitor compliance with zoning, land use, building,
entitlement regulations and other governmental requirements and coordinate
the closing process. The services of independent architectural, design,
engineering and other consulting firms are engaged throughout this process.
The Company has implemented a broad array of policies and procedures with
its suppliers and subcontractors which are designed to facilitate
cost-effective development of quality homes in a timely manner. Whenever
possible, the Company negotiates agreements for price and volume discounts
with national, regional or local suppliers of materials for itself and its
subcontractors. The Company does not have any long-term contractual
commitments to any of its subcontractors or suppliers, but often obtains
long-term, fixed price commitments from them. Nonetheless, the Company is
still subject to variations in the price of materials which affect the
homebuilding industry in general. The Company generally requires its
subcontractors and suppliers to agree to standard terms such as frequency of
payment and maintenance of insurance. The Company also utilizes multiple
subcontractors and suppliers to minimize cost increases. The Company does not
maintain significant inventories of construction materials, except for homes
under construction and a limited amount of other materials.
The Company has developed an innovative system which enables it to offer a
broad variety of architectural designs and options to satisfy customer
requirements, while maintaining critical operating efficiencies. For each
price range of homes within a community, the Company creates general
architectural designs (which are consistent with the master design theme and
marketing concept for the community), each of which may be semi-customized by
the home buyer by selecting from a menu of standardized value-based option
packages. The Company generally obtains pre-approval from local zoning and
building departments for each of these architectural designs and standardized
option packages, thereby streamlining the process for obtaining building
permits for each particular home. By implementing this system, the Company
succeeds in providing the home buyer with a variety of designs and
standardized option packages which the Company's internal marketing data
suggests is more than broad enough for the targeted home buyer, while (i)
minimizing costly delays in the issuance of building permits and (ii)
avoiding an unduly broad combination of designs and options which is
unnecessary, unmanageable and not cost effective.
The Company develops and implements a number of policies and procedures
designed to facilitate effective communication of each customer's
construction-related desires to the Company's personnel throughout the
pre-sale, sale, closing and post-closing periods. The Company encourages home
buyers to be involved with the design staff and field personnel in all phases
of design and construction. The Company's personnel also maintain
responsibility for pre-closing, quality control inspections and responding to
customers' pre-closing and post-closing needs. In particular, the Company's
field personnel seek to complete all items on a buyer-prepared "punch-list"
simultaneously with the delivery of each home. Additionally, each home owner
is surveyed periodically to ensure that any construction-related matters
arising after the closing are promptly taken care of. The Company believes
that the
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prompt and courteous response to each home buyer's needs during and after
construction reduces pre-closing expenses and post-closing repair costs,
enhances the Company's reputation for quality and service, and ultimately
leads to significant repeat and referral business from the real estate
community and home buyers.
Additionally, to mitigate the risk of holding finished homes and the
related carrying costs, the Company generally does not begin construction
until each of the following steps is completed (i) the customer has chosen a
model, signed a sales contract and provided a cash deposit, (ii) plans have
been finalized and permits have been received, (iii) firm competitive
"fixed-price" bids have been obtained from subcontractors and "fixed-price"
contracts have been entered into with subcontractors and (iv) mortgage
approval has been obtained by the customer from a bank or mortgage company.
Construction time for the Company's homes depends on the time of year,
availability of labor, materials and supplies and other factors. The Company
typically completes the construction of a home within four to eight months
from commencement of construction.
MANAGEMENT INFORMATION SYSTEMS
From its inception, the Company has continually developed and implemented
uniform management information systems and procedures designed to increase
margins, assure quality and customer satisfaction and reduce cost overruns
and construction delays. A primary example is the Company's automated
computerized management information system, which fully integrates the
Company's purchasing, construction management, marketing, sales and
accounting functions into a common data base to maintain the integrity of the
data. This system uses a proven software package developed specifically for
the homebuilding industry and customized to meet the Company's particular
operating needs. Critical path techniques are employed in this system to
detail the integral steps necessary for the complete construction of a home
and to set forth specific milestones and the necessary timing to achieve
these milestones, allowing the Company to carefully track the progress of the
construction of each of its homes. All data is updated on a daily basis
resulting in current management information by community and by individual
home to increase the likelihood of, among other things, timely completion of
homes under construction. At any time during the construction phase, the
Company can provide the home buyer with information regarding the status of
construction and anticipated delivery dates. The Company also utilizes
specialized software packages for special applications that range from
feasibility analyses to construction monitoring and scheduling. These
management information systems also assist the Company in monitoring
expenditures and coordinating subcontractors and suppliers and the delivery
of building materials to further control costs of construction. This system
and the related procedures have been developed to handle the Company's
anticipated growth by providing the capability to significantly increase the
system's capacity in a short period of time at a moderate incremental cost.
Additionally, all of the Company's offices are electronically connected
through dedicated telephone lines and a wide-area computer network. The
Company also has a full complement of experienced financial personnel to
manage these systems and procedures.
SALES AND MARKETING
The Company takes an innovative approach to marketing, using
non-traditional as well as traditional advertising vehicles and media sources
to maximize the impact of its marketing budget. The Company believes that
this has made it a market leader in the industry for unique campaigns and
successful special events. The Company received a total of 37 PRISM
(Professional Recognition in Sales & Marketing) awards in 1995 and 1996 from
the Florida's Gold Coast Builders Association, of which 13 were for
advertising excellence and outstanding creativity in promotions, marketing
and sales merchandising.
Foremost in Transeastern's marketing strategy is the development of
brand-name awareness for Transeastern and its reputation for quality
construction, customer service and outstanding value. The
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Company places an emphasis on ensuring its logo and slogan are integral parts
of all advertising and marketing efforts. The Company also includes its
"Built With Pride" tag line on all ads, community signage, sales centers and
collateral materials. Major promotions are planned for the entire Company and
specific communities during peak seasonal shopping periods annually, such as
a month-long event that featured a free car, boat or other luxury item with
each new home purchase. The Company creates each community with a
comprehensive master design theme and marketing concept which is carried
throughout sales, merchandising and advertising for the life of the project.
By constantly emphasizing the Company's name and this master design theme in
all advertising, the Company continually attempts to reinforce brand-name
awareness.
The Company seeks to increase the effectiveness of its annual marketing
budget by employing cooperative arrangements with leading regional retailers.
This cooperative advertising effort reduces the Company's costs for its
entire marketing program while increasing its effectiveness. The Company
utilizes a broad variety of marketing vehicles, including newspapers, direct
mail, the internet, billboards, radio, corporate sponsorships and home shows.
The Company also relies heavily on customer referrals and repeat purchases
for its business.
The Company also builds model homes, many of which have won awards for
display to prospective home buyers. The Company uses sophisticated model
merchandising techniques and professional designers to create models which
appeal to target buyers in the specific market area. Designs are planned down
to the smallest detail, including personalized scents and music piped in
continuously in every model home and tailored to the specific buyer profile
for which that model is designed.
The Company sells its homes through a staff of approximately 15 sales
associates who typically work from sales offices located at model homes in
each community. Company sales personnel assist prospective home buyers by
providing them with floor plans, information on prices, options and custom
features and tours of model homes. The Company trains its sales personnel on
the availability of financing, construction schedules, marketing and
advertising plans. Keynote speakers and sales trainers are brought in
periodically to conduct personalized training sessions, seminars and
workshops geared toward improving sales effectiveness. Sales personnel are
typically compensated on straight commission with a small draw, and are
evaluated monthly to determine whether they are meeting individual sales
goals.
The Company seeks to retain its sales personnel on a long-term, rather
than community-by-community basis, in order to reduce training costs and
ensure a more experienced sales force. The Company also pays brokers and
agents a fee for referring buyers. In order to assist the Company's sales
personnel, it maintains an ever-increasing and sophisticated data base of
prospects derived from sales registration questionnaires used in every sales
center. This data base also helps the Company to generate demographic and
market profile information about its customers.
Sales of the Company's homes generally are made pursuant to a standard
sales contract which requires a down payment of 10% of the sales price. The
contract includes a financing contingency which permits the customer to
cancel in the event mortgage financing at prevailing interest rates is not
obtainable within a specified period, typically four to six weeks, and may
include other contingencies, such as the sale of an existing home. The
Company includes a home sale in its sales backlog upon execution of the sales
contract and receipt of the initial down payment unless the contract includes
financing or other home sale contingencies. The Company does not recognize
revenue upon the sale of a home until the home is closed and title passes.
The Company also seeks to retain exclusive sales agency rights for homes
within its communities which are built by other builders to whom the Company
sold the underlying land. By doing so, the Company is able to capture
additional revenues in the development process and ensure quality and
consistency in the sales and marketing of all homes within its communities.
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CUSTOMER FINANCING AND TITLE SERVICES
The Company seeks to assist its home buyers in obtaining financing by
arranging with mortgage lenders to offer qualified buyers a variety of
financing options. By making available an array of attractive mortgage
programs to qualified buyers, the Company is able to better coordinate and
expedite the entire sales process by ensuring that the mortgage commitments
are received and the closings take place on a timely and efficient basis. The
Company utilizes a network of preferred financial institutions with
representatives located at sales centers within its communities to assist
customers in the purchase of their homes. Substantially all home buyers
utilize long-term mortgage financing to purchase a home. The Company attempts
to minimize potential risks relating to customer-financing by securing
mortgage financing commitments that lock in the availability of funds and
interest costs at specified levels. Although the Company does not currently
underwrite or otherwise provide any mortgage financing, it is exploring
opportunities to enter into this business with an existing mortgage broker.
By providing mortgage brokerage services, the Company positions itself to
capture revenues from an ancillary business.
As of the closing of the Offering, the Company intends to provide title
insurance services through a wholly-owned subsidiary. Management currently
anticipates that this subsidiary will be an approved agent of one or more
nationally-recognized title insurance underwriters. The Company anticipates
that its provision of title insurance services will enable it to capture
revenues from an additional ancillary business which is complementary to its
core homebuilding activities.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
The Company and its competitors are subject to various local, state and
federal statues, ordinances, rules and regulations concerning zoning, land
use, building design, construction and similar matters including, permitted
land uses and levels of density in order to limit the number of homes that
can ultimately be built within the boundaries of a particular community, the
installation of utility services such as water and waste disposal and the
dedication of acreage for open space, parks, schools and other community
purposes. A number of authorities in Florida (including Broward County and
Palm Beach County) and in other states have imposed impact fees as a means of
defraying the cost of providing certain governmental services to developing
areas, and the amount of these fees has increased significantly during recent
years. Other state and local laws require the use of specific construction
materials which reduce the need for energy-consuming heating and cooling
systems or are expected to withstand certain wind speeds. As a result of
Hurricane Andrew, Dade County and Broward County enacted more stringent
building codes which increased costs of construction. The State of Florida
and other states and counties and cities within the state have also, at
times, declared moratoriums on the issuance of building permits and imposed
other restrictions in areas where the infrastructure (E.G., roads, schools,
parks, water and sewage treatment facilities and other public facilities)
does not reach minimum standards, all of which could have a material adverse
effect on the Company's business. To date, the governmental approval
processes and the restrictive zoning and land use, moratoriums and allocation
system discussed above have not had a material adverse effect on the
Company's development activities, in large part because the Company maintains
a general policy of acquiring land only if zoning, land use, building permits
and other entitlements and governmental approvals have been (or the Company
is reasonably certain will soon be) obtained.
To minimize development risks, the Company restricts land purchases to
tracts that have (or that the Company is reasonably certain will soon have)
all necessary zoning, land use, building permit and other entitlements and
governmental approvals. A variety of permits and other approvals are often
required to complete the residential developments currently being planned by
the Company, including, land development permits (water, sewer, paving and
drainage), sales center permits, model home permits and building permits. The
process of obtaining these permits and other approvals is an ongoing process
in the ordinary course of business that the Company is engaged in as it
develops and constructs homes for its communities. The ability of the Company
to obtain these necessary permits and other approvals for these communities
is often beyond the Company's control, and could restrict the
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development of otherwise desirable property. The length of time necessary to
obtain these permits and other approvals increases the carrying costs of
unimproved property acquired for the purpose of development and construction.
To date, the Company has not encountered any material difficulties in
obtaining these permits and other approvals.
Prior to acquiring property, the Company's current practice is to engage
independent environmental consultants to conduct assessments in order to
evaluate the environmental condition of, and potential environmental
liabilities associated with, such property. Such assessments generally
consist of an investigation of environmental conditions at the subject
property (not including soil or groundwater sampling or analysis), as well as
a review of available information regarding the site and publicly available
data regarding conditions at other sites in the vicinity. In certain cases,
the Company has conducted follow up reviews of certain such properties based
on such assessments. In addition to the risks, if any, identified by such
assessments, certain environmental-related laws and regulations that
typically apply to real estate development (for example, wetlands laws and
regulations, open space requirements, and zoning laws and regulations) may
result in delays, cause the Company to incur substantial compliance or other
costs and prohibit or severely restrict development in certain
environmentally sensitive regions or areas. To date, the Company has not been
materially adversely affected by any such environmental matters.
COMPETITION
The homebuilding industry is highly competitive and competition is based
on a number of interrelated factors, including location, reputation,
amenities, design, quality and price. The Company competes with numerous
large and small builders, including some builders with nationwide operations
and greater financial, marketing, sales and other resources. The Company also
competes for home sales with individual resales of existing homes and
condominiums, including sales of homes at deeply discounted prices by lenders
and other financial institutions. Based on its knowledge and analysis of the
homebuilding market and its knowledge of its competitors, management believes
that the Company's primary competitive strengths have been (i) its ability to
acquire land which meets its acquisition criteria at attractive prices, (ii)
its ability to provide quality homes with customized features at a wide range
of prices, (iii) the distinctive location of its communities and the
lifestyles and recreational amenities offered in its communities and (iv) its
reputation for customer satisfaction, service, innovative design and value
pricing.
The Company also competes with other homebuilders for the acquisition of
land. Competition for available homesites varies from market to market
depending on supply and is based primarily on price, reputation and ability
to build, market and sell homes. Increased competition for land throughout
local markets or for particular parcels may significantly increase
acquisition costs and reduce the Company's ability to profitably build homes
or profitably resell land in such markets.
BONDS, WARRANTIES AND OTHER OBLIGATIONS
In connection with the development of its projects, the Company is often
required to obtain performance or maintenance bonds or letters of credit
which are generally for the benefit of governmental authorities. Lenders
financing these projects typically provide for these bonds and letters of
credit, and because these bonds and letters of credit do not materially
increase these lenders' exposure, the Company's marginal cost of obtaining
these bonds and letters of credit is not material. The amount of such
obligations outstanding at any time varies in accordance with the Company's
pending construction activities. In the event any such obligations are drawn
upon because of the Company's failure to build its required infrastructure,
the Company would be obligated to reimburse the lenders. At September 30,
1996, there were approximately $9 million in letters of credit and bonds
outstanding.
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The Company also has obligations to subsidize homeowners' associations in
certain of its residential developments up to a pro rata portion of expenses
based on the number of homesites which have not been closed in such
developments. These obligations are not a material part of the Company's
operating expenses.
The Company provides its home buyers with a limited one-year warranty on
workmanship and building materials. The subcontractors who perform most of
the actual construction, in turn, provide warranties of workmanship to the
Company, and generally are prepared to respond to the Company and homeowner
promptly upon request. To cover its potential warranty obligations, the
Company accrues an estimated amount for future warranty costs.
EMPLOYEES
At September 30, 1996, the Company employed 85 persons of whom 20 were
sales and marketing personnel, 32 were executive, administrative and clerical
personnel and 33 were involved in construction. Additionally, the Company has
15 salespersons who are independent contractors. The Company's employees are
not covered by any collective bargaining agreements; however, certain of the
subcontractors which the Company engages are represented by labor unions or
are subject to collective bargaining agreements. The Company believes that
its relations with its employees and subcontractors are good.
LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising in the
ordinary course of business, none of which is expected to have a material
adverse effect on the Company.
HEADQUARTERS FACILITIES
The Company currently leases approximately 4,800 square feet of office
space, increasing to 5,900 square feet effective October 1, 1996, for its
corporate headquarters in Coral Springs, Florida from University Financial
Plaza Limited, a limited partnership of which Messrs. Arthur Falcone, Philip
Cucci and Edward Falcone (all of whom are executive officers, directors and
principal shareholders of the Company) are partners. The lease has a
five-year term expiring in September 30, 2001, with a renewal option for an
additional five-year term. Pursuant to the terms of the lease, the Company
has paid rent of approximately $18,000, $59,000 and $60,000 for the years
ended June 30, 1994, 1995 and 1996, respectively. The minimum lease payment
for the year ended June 30, 1997 is approximately $72,000 and increases five
percent per year thereafter. The Company believes that the lease rate
reflects the gross market lease rate for comparable properties. See "Certain
Relationships and Related Transactions."
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The table below sets forth the names and ages of the directors, officers
and certain key employees of the Company as well as the positions and offices
held by such persons. A summary of the background and experience of each of
these individuals is set forth after the table. The officers of the Company
serve at the discretion of the Company's Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Arthur Falcone 37 President and Chairman of the Board
Philip Cucci 37 Executive Vice President, Chief Operating Officer and Direc-
tor
Edward Falcone 43 Executive Vice President and Director
Les Campbell 40 Chief Financial Officer
Neil Eisner 41 Vice President of Real Estate Operations
Daniel Andreacci 50 Vice President of Sales and Marketing
Cora DiFiore 40 Vice President of Administration
Tom Pagnotta 36 Vice President of Construction
Richard Phillips 31 Controller
Christopher Allick 42 Director
Anthony Ciabattoni 52 Director
</TABLE>
ARTHUR FALCONE has been President and a Director of the Company since its
founding in 1986. During that period of time, the Company built and closed
over 700 homes. Mr. Falcone is responsible for overseeing all aspects of the
Company's business, including managing ongoing projects and locating and
securing land parcels for future acquisition and development. Mr. Falcone has
substantial experience in site selection and in the acquisition and
construction of residential and commercial properties. He has owned,
developed and operated over 100 restaurants including McDonald's, Wendy's and
other family style restaurants in New York, Florida and California. Mr.
Falcone also has owned, developed and managed office buildings, health clubs,
hotels and other properties in Florida, Massachusetts and New York. Mr.
Falcone is the brother of Edward Falcone.
PHILLIP CUCCI joined the Company in 1988 as Vice President and a Director
and became Executive Vice President and Chief Operating Officer in 1995.
During the time that Mr. Cucci has been associated with Transeastern, the
Company has built and closed over 700 homes. Mr. Cucci is responsible for
overseeing all aspects of the Company's operations. Mr. Cucci has over 17
years of experience in the homebuilding business. Prior to joining the
Company, Mr. Cucci managed, owned and operated various building firms on Long
Island, New York. From 1979 through 1981, Mr. Cucci was employed by a Nassau
County, New York firm specializing in custom remodeling and commercial
development. From 1982 through 1983, Mr. Cucci was a member of the management
team of a Suffolk, County, New York home building company, and served as
project manager responsible for all home building operations. During this
period he completed and delivered over 115 single family units. From 1984
through 1987, Mr. Cucci owned and operated a home building company which
built and delivered $22 milllion in high end custom estate homes. Mr. Cucci
has also owned and managed several office buildings during his career. Mr.
Cucci is licensed by the State of Florida as a General Contractor and serves
as the Company's general contractor qualifier. From 1978 through 1981, Mr.
Cucci attended C.W. Post College in Brookville, New York.
EDWARD FALCONE has been Vice President and a Director of the Company since
its founding in 1986, and was elected Executive Vice President of the Company
in 1995. During that period of time, the Company built and closed over 700
homes. Mr. Falcone is responsible for coordinating all sales, marketing and
advertising of the Company, as well as locating land for future acquisition
and development. Mr. Falcone has extensive experience in site selection and
acquisition of properties for
41
<PAGE>
commercial and residential construction, and in the marketing and advertising
of products. He has owned, developed and operated over 100 restaurants
including McDonald's, Wendy's and other family style restaurants in New York,
Florida and California. Mr. Falcone also has owned, built and managed hotels,
office buildings, health clubs and other properties in Florida,
Massachusetts, New York, Texas and Washington D.C., and has served in a
variety of management capacities in several businesses and consulting firms.
Mr. Falcone is the brother of Arthur Falcone.
LES CAMPBELL joined the Company as Chief Financial Officer in July 1994.
From 1984 until 1994, he was employed by Coral Ridge Properties, the
developer of Coral Springs, Florida. Mr. Campbell served as Controller with
Coral Ridge Properties for eight years (1986 to 1994) and was Director of
Audits for Westinghouse Communities, Inc., the parent of Coral Ridge
Properties, for two years (1984 to 1986). Mr. Campbell is a certified public
accountant and, from 1978 to 1984, was an auditor with Price Waterhouse in
Fort Lauderdale and West Palm Beach, Florida. Mr. Campbell is a 1977 graduate
of Florida State University.
NEIL EISNER joined the Company during 1994 as Vice President of Real
Estate Operations. Mr. Eisner is responsible for the Company's real estate
operations in Broward County and Palm Beach County. From 1992 to 1994, Mr.
Eisner was Vice President of Real Estate Operations of Weitzer Homes, a
residential builder in Dade County and Broward County. From 1987 to 1992, Mr.
Eisner served as Vice President of Real Estate Operations for a developer of
hotels, office parks and single-family homes in New York. Mr. Eisner is a
1977 graduate of the University of Maryland, with a Bachelor of Science
Degree in Business Administration and Management.
DANIEL ANDREACCI joined the Company in 1993 as Vice President of Sales and
Marketing. Mr. Andreacci is currently responsible for the Company's marketing
and sales operations in Broward County and Palm Beach County. Over the past
20 years, Mr. Andreacci has been involved in many aspects of the real estate
business, including sales, marketing, development and acquisitions. In 1987,
Mr. Andreacci formed ASC Associates and later the Andreacci Group, both real
estate sales, marketing and consulting firms. Mr. Andreacci attended New
York's Pace College for business administration.
CORA DIFIORE has been Vice President of Administration since 1992. Ms.
DiFiore is responsible for coordinating construction, development and
acquisition financing, for coordinating all residential closings and for
managing the Company's corporate offices. Ms. DiFiore has worked with Arthur
Falcone and Edward Falcone in various administrative capacities for over 17
years, and held a variety of administrative positions with the Company until
being named Vice President in 1992. Ms. DiFiore is a 1978 graduate of Stony
Brook University in Stony Brook, New York.
TOM PAGNOTTA joined the Company in 1992 as Purchasing Director. He was
promoted to Vice President of Construction in July, 1996. His
responsibilities include monitoring all construction activities, construction
budgets and quality assurance for all projects in Broward County and Palm
Beach County. Mr. Pagnotta was President and owner of Pagnotta Construction
Corp. of America from 1987 to 1992. Prior to 1987, Mr. Pagnotta was Vice
President of Rolling Hills Development Corporation. Mr. Pagnotta attended New
York Institute of Technology in New York City.
RICHARD PHILLIPS has been Controller of the Company since August 1995.
From 1992 until 1994, Mr. Phillips served as Controller of the Houston
division of Lennar Corporation, one of the largest homebuilders in the United
States. Mr. Phillips is a certified public accountant, and, from 1988 to
1992, was an auditor for KPMG Peat Marwick in Boston, Massachusetts, and Ft.
Lauderdale, Florida. Mr. Phillips is a 1988 graduate of Northeastern
University in Boston, Massachusetts.
CHRISTOPHER ALLICK is an Executive Vice President at Jefferies & Company,
Inc. He is a member of the Corporate Finance Department's Management
Committee and a member of the Executive Committee of Jefferies & Company,
Inc. Prior to joining Jefferies & Company, Inc. in 1990 he was a First Vice
president in the Corporate Finance Department at Drexel Burnham Lambert, Inc.
for four years. From 1977 until 1986, Mr. Allick was a member of Dean Witter
Reynolds' Corporate Finance
42
<PAGE>
Department. Mr. Allick received an M.B.A./M.A. in Economics from the
University of Toronto in 1978 and a B.A. in Economics and English from the
University of Colorado in 1976.
ANTHONY CIABATTONI has been a director of the Company since 1995. Mr.
Ciabattoni is the founder of Pacific Business Interiors, one of the largest
of Steelcase furniture supply companies in Southern California. From 1984
until its sale in 1996, Mr. Ciabattoni was the President and CEO of Pacific
Business Interiors. Mr. Ciabattoni also founded Recycled Office Solutions in
1993. This is the largest re-manufacturer of Steelcase furniture in Southern
California. Mr. Ciabattoni received his Bachelor of Arts Degree from the
University of Delaware in 1967.
BOARD OF DIRECTORS
GENERAL.--The Board of Directors of the Company is currently comprised of
five directors. The directors will be divided into three classes at the first
annual meeting of shareholders after the Offering. At such meeting, one class
will be elected to serve a term expiring one year thereafter, the second
class will be elected to serve for a term expiring two years thereafter and
the third class will be elected to serve for a term expiring three years
thereafter. After expiration of such initial terms, each class will be
elected for a three-year term. Directors may be removed only for cause and
only by the affirmative vote of holders of greater than 66 2/3 % of the
outstanding Common Stock of the Company.
COMMITTEES.--After consummation of the Offering, the Board of Directors
will establish an audit committee and a compensation committee, both of which
shall initially be comprised of Mr. Allick and Mr. Ciabattoni. The audit
committee will, among other things, make recommendations to the Board of
Directors regarding the independent auditors for the Company, approve the
scope of the annual audit activities of the independent auditors, review
audit results and have general responsibility for all auditing-related
matters. The compensation committee will recommend to the Board of Directors
compensation plans and arrangements with respect to the Company's executive
officers and administer certain employee benefit plans, including the
Company's 1996 Stock Plan.
COMPENSATION OF DIRECTORS.--The Company intends to implement a
compensation program for non-employee directors, effective upon consummation
of the Offering, pursuant to which such directors will receive fees and stock
options. Non-employee directors will be entitled to receive $12,000 per year
and $500 per meeting for services as a director plus reimbursement of travel
expenses to board and committee meetings. The Company has granted, under the
Company's 1996 Stock Plan, subject to the consummation of the Offering,
options to purchase 8,000 and 2,000 shares of Common Stock to each of Messrs.
Allick and Ciabattoni, the Company's two non-employee directors. The options
were granted on the basis of 2,000 shares per year of service. These options
vest one year after the date of issuance, are exercisable at an exercise
price equal to the fair market value of the Common Stock on the date of grant
and have a term of ten years. Non-employee directors will be entitled to
participate in and receive further grants of stock options under the
Company's 1996 Stock Plan. Directors who are also employees of the Company
will receive no additional compensation for service as a director other than
reimbursement of any travel expenses to attend meetings. See "Executive
Compensation" for compensation, including stock options, received by
directors who are also employees of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offering, the Company had no separate compensation committee
or other committee of the Board of Directors performing equivalent functions.
The Company's Board of Directors carried out this function. Each of the
directors of the Company participated in deliberations concerning executive
compensation.
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<PAGE>
EXECUTIVE COMPENSATION
The table set forth below sets forth the total compensation earned by the
Company's Chief Executive Officer and the four other most highly compensated
executive officers of the Company for services rendered in all capacities to
the Company for the fiscal year ended June 30, 1996. The Company did not
grant any stock options or restricted stock awards or make any long-term
incentive plan payments to any of these officers during the fiscal year ended
June 30, 1996, and none of such officers executed any stock options during
such year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)
- -------------------------------------- ------- ---------- ------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Arthur Falcone 1996 234,627 0 -- (1)
President and Chairman of the Board
Philip Cucci 1996 203,051 0 -- (1)
Executive Vice President,
Chief Operating Officer and Director
Edward Falcone 1996 195,143 0 -- 0
Executive Vice President and Director
Neil Eisner 1996 100,096 133,922(2) -- 4,800(3)
Vice President of
Real Estate Operations
Daniel Andreacci 1996 82,192 96,657(2) -- 4,800(3)
Vice President of Marketing and Sales
</TABLE>
- -----------------------------------------------------------------------------
(1) In 1996, the Company constructed and sold homes to Messrs. Arthur Falcone
and Philip Cucci for amounts equal to the Company's cost of constructing
the homes, including land. See "Certain Relationship and Related
Transactions--Other Arrangements with Affiliates."
(2) Commissions for housing sales, based on commission rates ranging from
0.25% to 1% of the sales price.
(3) Car allowance.
STOCK OPTION AND SHAREHOLDER VALUE PLAN
The Company's 1996 Stock Option and Shareholder Value Plan is intended
generally to attract, retain and motivate officers, key employees and
non-employee directors and to align their interests with those of the
Company's shareholders. A total of 1,000,000 shares of Common Stock may be
issued under the 1996 Stock Plan, upon exercise of stock options and vesting
of restricted stock awards or performance units. The Company has granted,
under the 1996 Stock Plan, subject to the closing of the Offering, options to
purchase 450,000 shares of Common Stock, exercisable at the initial public
offering price set forth on the cover page hereof. Messrs. Arthur Falcone,
Edward Falcone, Philip Cucci, Neil Eisner, Daniel Andreacci, Christopher
Allick and Anthony Ciabattoni have been granted options to purchase 92,237,
78,000, 81,058, 33,750, 24,750, 8,000 and 2,000 shares of Common Stock,
respectively, pursuant to the 1996 Stock Plan. These options vest over a
three-year period, except for the options granted to Messrs. Allick and
Ciabattoni which vest one year after the date of issuance.
Pursuant to the 1996 Stock Plan, the Company may grant incentive stock
options within the meaning of Section 422A of the Internal Revenue Code of
1986, as amended (the "Code"), to employees and non-qualified stock options
to non-employee directors, independent contractors and agents, as well as to
employees of the Company. The Plan also provides for the grant of awards of
restricted shares of Common Stock to employees of the Company, which awards
will be subject to certain restrictions or the achievement of certain goals
as determined by the Compensation Committee (as hereafter defined).
44
<PAGE>
Additionally, the Plan provides that the Compensation Committee may grant
shareholder value units to participating employees. In the event the
Compensation Committee grants such awards, it will establish objective
performance goals which, depending on the extent to which they are met, will
determine the number and/or value of performance units that will be paid out.
Payouts will be made in cash unless the Compensation Committee determines to
pay awards in shares of Common Stock. Performance goals may be based upon
Company-wide, divisional and/or individual performance.
The 1996 Stock Plan provides for administration by a Compensation
Committee (the "Compensation Committee") of the Board of Directors. The
Compensation Committee of the Board of Directors will administer the 1996
Stock Plan. The Compensation Committee will select the plan's participants,
authorize the grant of options, restricted stock or shareholder value units
and determine the exercise price, terms and vesting schedule for options or
the vesting and other terms of restricted stock awards and the number and/or
value of performance units. The Compensation Committee also has the authority
to prescribe, amend and rescind rules and regulations relating to the 1996
Stock Plan, to accelerate the exercise date of any option or vesting
requirements of any restricted stock award, to delegate authority to specific
members of a committee of management, and to interpret the 1996 Stock Plan
and make all necessary determinations in administering the 1996 Stock Plan.
All options, restricted stock awards or performance units granted under the
1996 Stock Plan shall be evidenced by a written agreement between the Company
and the participant, which shall contain such provisions, including, without
limitation, restrictions upon the exercise of the options, the restricted
stock awards or the performance units as the Compensation Committee shall
determine.
The per share exercise price of an option shall be as determined by the
Compensation Committee, provided that the exercise price of stock options may
not be less than fair market value on the date of grant. The purchase price
for shares acquired pursuant to the exercise of an option shall be as
determined by the Compensation Committee and may consist of cash, check,
surrender of other shares of the Company's capital stock or any combination
thereof.
No stock options, restricted stock awards or performance units may be
transferred other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order, and, except with respect to
a qualified domestic relations order, during the lifetime of a participant,
the option or award will be exercisable only by the participant.
Notwithstanding the foregoing, to the extent permitted by applicable law and
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Compensation Committee may permit a recipient of a
non-qualified stock option to (i) designate in writing during the optionee's
lifetime a family member or a trust established by the optionee or a family
member (a "Beneficiary"), to receive and exercise the optionee's
non-qualified stock options in the event of such optionee's death or (ii)
transfer a non-qualified stock option to a Beneficiary.
In the event that a participant shall die, become disabled, or terminate
employment with the Company for any reason other than retirement, the
participant shall be able to exercise the vested portion of an option, if any
or receive the vested portion of the restricted stock award, if any. In the
event a participant shall terminate employment with the Company for any
reason other than death, disability or retirement, the participant shall
immediately forfeit all unvested and unexercisable options or unvested
restricted stock awards, if any, unless otherwise determined by the
Compensation Committee. In the event that a participant's employment with the
Company shall terminate as the result of death, disability, or retirement,
the Compensation Committee may determine, in its discretion, to vest all or a
portion of the unvested and unexercised options or unvested restricted stock
awards, if any. The exercise of any option or receipt of any restricted stock
award after termination of employment will be subject to the condition that
the participant not compete with or take other employment with or render
services to a competitor of the Company or its affiliates without the written
consent of the Company nor conduct himself or herself in a manner adversely
affecting the Company. In no case may options be exercised later than the
expiration date of the stock options originally specified in the related
written agreements. In the event of change of control of the Company, all
options then outstanding under the 1996 Stock Plan will become immediately
exercisable and all restrictions on any stock awards will immediately lapse.
45
<PAGE>
The 1996 Stock Plan will expire in 2006 unless terminated earlier by the
Board of Directors. No options granted under the 1996 Stock Plan can be
exercised more than 10 years from the date of grant. Shares under any
unexercised options or restricted stock awards that expire or that terminate
upon an employee's ceasing to be employed by the Company become available
again for issuance under the 1996 Stock Plan.
Except as otherwise required by law or regulation, the 1996 Stock Plan may
be amended or terminated by the Board of Directors without shareholder
approval. No amendment or termination of the 1996 Stock Plan will affect
previously granted awards under the 1996 Stock Plan without the participant's
consent unless the Compensation Committee determines that such amendment is
in the best interest of the shareholders or the participants.
INDEMNIFICATION AND LIMITED LIABILITY
Pursuant to the Company's Articles of Incorporation, Bylaws and
indemnification agreements between the Company and each of its officers and
directors the Company is obligated to indemnify each of its directors and
officers to the fullest extent permitted by law with respect to all liability
and loss suffered, and reasonable expense incurred, by such person in any
action, suit or proceeding in which such person was or is made or threatened
to be made a party or is otherwise involved by reason of the fact that such
person is or was a director or officer of the Company. The Company is also
obligated to pay the reasonable expenses of indemnified directors or officers
in defending such proceedings if the indemnified party agrees to repay all
amounts advanced should it be ultimately determined that such person is not
entitled to indemnification.
The Company maintains an insurance policy covering directors and officers
under which the insurer agrees to pay, subject to certain exclusions, for any
claim made against the directors and officers of the Company for a wrongful
act for which they may become legally obligated to pay or for which the
Company is required to indemnify its directors or officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CORPORATE HEADQUARTERS
The Company currently leases approximately 4,800 square feet of office
space, increasing to 5,900 square feet effective October 1, 1996, for its
corporate headquarters in Coral Springs, Florida from University Financial
Plaza Limited, a limited partnership of which Messrs. Arthur Falcone, Philip
Cucci and Edward Falcone (all of whom are executive officers, directors and
principal shareholders of the Company) are partners. The lease has a
five-year term expiring in September 30, 2001, with a renewal option for an
additional five-year term. Pursuant to the terms of the lease, the Company
has paid rent of approximately $18,000, $59,000, and $60,000 for the years
ended June 30, 1994, 1995 and 1996, respectively. The minimum lease payment
for the year ended June 30, 1997 is approximately $72,000 and increases five
percent per year thereafter. The Company believes that the lease rate
reflects the gross market lease rate for comparable properties in the area.
TRANSACTIONS WITH JEFFERIES & COMPANY, INC.
During 1995, the Company paid a $500,000 fee to Jefferies & Company, Inc.,
in which Christopher Allick, a director of the Company, serves as Executive
Vice President, to perform due diligence relating to prospective real estate
acquisitions and financial advisory services for the Company. The Company was
reimbursed by an unrelated third party for such fee in September 1995.
The Company also paid to Jefferies & Company, Inc. a fee of $424,819 for
services rendered in facilitating the Company's repurchase in 1995 of (i)
21,358 shares of Series A Preferred Stock and
46
<PAGE>
related warrants to purchase 2,057,692 shares of Common Stock, (ii)
$2,963,084 of senior subordinated project financing notes and (iii)
$2,500,000 of senior subordinated project financing acquisition notes. See
Notes (11), (12) and (13) to the Company's Consolidated Financial Statements
for the years ended June 30, 1995 and 1994.
During 1995, Jefferies & Company, Inc. also loaned to the Company
$1,000,000 pursuant to senior subordinated project financing notes bearing
interest at 18% per annum and payable quarterly. Such loan has been repaid in
full.
CERTAIN LOANS
In April 1993, B & E Management, Inc., a company controlled by Robert
Falcone, the brother of Messrs. Arthur and Edward Falcone, provided the
Company with a $100,000 loan, which was used in connection with the
acquisition of Coopers Pointe. The loan had a balance on June 30, 1996 of
$70,000. Interest is payable monthly at an annual rate of 12% and principal
is due on demand.
In April 1994, Robert Falcone, as Trustee of the Robert J. Falcone
Revocable Living Trust, provided the Company with a $200,000 loan, which was
used in connection with the acquisition of Eagle Landing. The loan had a
balance on June 30, 1996 of $200,000. Interest on the loan is payable monthly
at an annual rate of 10% and principal is due on demand.
In September 1995, Robert Falcone, as Trustee of the Robert J. Falcone
Revocable Living Trust, provided the Company with a $100,000 loan, which was
used in connection with the acquisition of Aberdeen. The loan had a balance
on June 30, 1996 of $100,000. Interest is payable monthly at an annual rate
of 12% and principal is due in September 1997.
In January 1996, Anthony Ciabattoni, a director of the Company, provided
the Company with a $600,000 loan, which was used for working capital by the
Company. The loan had a balance on June 30, 1996 of $600,000. The loan bears
interest at an annual rate of 13% and principal is due in October 1996.
In June 1996, Anthony Ciabattoni provided the Company with a $1,000,000
loan, which was used by the Company to exercise its option to acquire
additional property at the Village of Pembroke Pines. The loan had a balance
on June 30, 1996 of $1,000,000. The loan bears interest at an annual rate of
13% and principal is due in November 1996.
In October 1996, Anthony Ciabattoni provided the Company with a $1,000,000
loan, which will be used by the Company for land acquisitions and working
capital. The loan bears interest at an annual rate of 12% per annum and
principal is due in April 1997. The Company may, but has not presently
determined to, repay this loan from the proceeds of the Offering.
In September 1994, Arthur Falcone provided the Company with a $124,000
loan, which was used for working capital by the Company. The loan had a
balance on June 30, 1996 of $124,000. Interest on the loan is payable monthly
at an annual rate of 11% and principal is due on demand.
In September 1994, Edward Falcone provided the Company with a $156,512
loan, which was used for working capital by the Company. The loan had a
balance on June 30, 1996 of $156,512. Interest on the loan is payable monthly
at an annual rate of 11% and principal is due on demand.
In September 1994, Philip Cucci provided the Company with a $75,997 loan,
which was used for working capital by the Company. The loan had a balance on
June 30, 1996 of $75,997. Interest on the loan is payable monthly at an
annual rate of 11% and principal is due on demand.
Promptly after consummation of the Offering, the Company intends to
utilize a portion of the proceeds from this Offering to repay all of the
above-described indebtedness other than the October 1996 loan from Mr.
Ciabattoni, as described above. See "Use of Proceeds."
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
Messrs. Arthur J. Falcone, Edward W. Falcone, Philip Cucci, Jr.,
Christopher Allick, Anthony Ciabattoni and each of the other shareholders of
the Company listed under "Principal and Selling Shareholders" and the Company
have entered into a Registration Rights Agreement (the "Registration Rights
Agreement"), pursuant to which each of Messrs. Allick and Ciabattoni has been
granted the right, subject to various restrictions and limitations, at any
time after the date which is one year following consummation of the Offering,
to request that the Company file with the Securities and Exchange Commission
("SEC") a registration statement on Form S-3 for the proposed sale of their
shares of Common Stock (including Common Stock issued upon the exercise of
any Warrants) held by them. The Company may postpone any such requested
registration pursuant to this agreement for a period of up to 120 days if the
Company believes that such registration would not be in the Company's
interest . Each of the parties to the Registration Rights Agreement (other
than the Company) will also have an unlimited number of piggyback
registration rights in respect of their shares of Common Stock (including
Common Stock issued upon the exercise of any Warrants). The piggyback
registration rights will allow the holders to include their shares of Common
Stock in any registration statement filed by the Company, subject to certain
limitations.
The Company will pay all expenses (other than underwriting discounts and
commissions of the selling shareholders, taxes payable by the selling
shareholders and the fees and expenses of the selling shareholders' counsel)
in connection with up to two requested registrations, as well as any
registrations pursuant to the exercise of piggyback rights. The Company also
will agree to indemnify such persons against certain liabilities, including
liabilities arising under the Securities Act. The registration rights granted
pursuant to the Registration Rights Agreement will terminate on the earlier
of the fifth anniversary of the Offering or the date on which all parties to
the Agreement can sell all of their stock under Rule 144(k) promulgated under
the Securities Act. Additionally, each of Messrs. Allick and Ciabattoni shall
only have the right to request registration by the Company as long as he
remains an "affiliate" of the Company for purposes of Rule 144.
EXERCISE OF WARRANTS
It is anticipated that all holders of the Company's outstanding Warrants
as of November 15, 1996 will convert such Warrants into Common Stock prior to
the consummation of the Offering. In connection therewith, the holders of
Warrants issued in connection with the Series A Preferred Stock and Series B
Preferred Stock agreed to sell certain of their shares of Common Stock in the
Offering, to vote in favor of all amendments to the Company's Articles of
Incorporation and Bylaws necessary to effectuate or as contemplated by the
Offering, to vote in favor of the adoption of the Company's 1996 Stock Plan,
to modify certain of their registration rights and to not sell or otherwise
dispose of any of their shares of Common Stock for a period of six months
from the date of the Offering without the consent of the Representatives. The
holders of the Series A and Series B Preferred Stock are entitled to one vote
per share, representing less than one percent of the total outstanding voting
power of the Company. All of the shareholders listed under the caption
"Principal and Selling Shareholders," other than Messrs. Arthur Falcone,
Edward Falcone, Philip Cucci, John Cucci and Bill Mitchell were the holders
of the Warrants. See "Principal and Selling Shareholders." The individuals to
whom the Contingent Warrants may be issued also agreed to sell certain of
their shares of Common Stock in the Offering, to modify certain of their
registration rights and not to sell or otherwise dispose of any of their
shares of Common Stock for a period of six months from the date of the
Offering without the consent of the Representatives.
OTHER ARRANGEMENTS WITH AFFILIATES
In 1996, the Company constructed and sold homes to Messrs. Arthur Falcone
and Philip Cucci. The homes were sold for amounts equal to the Company's cost
of constructing the homes, including land. In connection with the sales, the
Company accepted unsecured notes aggregating $215,873 from Messrs. Arthur
Falcone and Philip Cucci. The loans to Messrs. Arthur Falcone and Philip
Cucci were forgiven
48
<PAGE>
in October 1996 in accordance with the terms and conditions previously
established by the Company's Board of Directors. The loans were repayable two
years from the date of closing and bore interest at the rate of 5.88% per
annum.
FUTURE TRANSACTIONS WITH AFFILIATES
Following the closing of the Offering, the Company intends to submit
transactions between the Company and its directors and their affiliates to a
committee of disinterested members of the Company's Board of Directors or to
require approval of any such transactions by a majority of the disinterested
members of the Board of Directors. Additionally, provisions of the Florida
Business Corporation Act require that certain specified transactions between
the Company and holders of more than 10% of the Company's outstanding Common
Stock will require the approval of disinterested shareholders of the Company,
unless such transactions are approved by a majority of disinterested members
of the Board of Directors.
49
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock immediately prior to and
immediately following the Offering, assuming the exercise of all of the
outstanding Warrants by (i) each person or entity who is the beneficial owner
of five percent or more of the outstanding shares of Common Stock, (ii) each
director and named executive officer of the Company, (iii) all directors and
executive officers of the Company as a group and (iv) all shareholders of the
Company offering Common Stock in the Offering (the "Selling Shareholders").
Except as set forth in the notes to the table, the business address of each
five percent holder is the Company's corporate address. As described in the
notes to the table, voting and/or investment power with respect to certain
shares of Common Stock is shared by the named individuals. Consequently, such
shares are shown as beneficially owned by more than one person.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING
--------------------------
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER OF SHARES OF SHARES
- ------------------------------------- ------------ ------------
<S> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND 5%
SHAREHOLDERS
Arthur Falcone(1) ................... 1,981,669 26.3%
Philip Cucci, Jr.(2) ................ 1,981,669 26.3
Edward Falcone ...................... 1,981,669 26.3
Les Campbell ........................ 4,725 *
Neil Eisner ......................... 4,725 *
Daniel Andreacci .................... 4,725 *
Christopher Allick .................. 34,253 *
Anthony Ciabattoni .................. 356,841 4.7
Patrick Savin(3) .................... 444,929 5.9
OTHER SELLING SHAREHOLDERS
John Cucci .......................... 5,363 *
Robert J. Falcone, Trustee(4) ...... 122,294 1.6
Andrew Whittaker .................... 9,788 *
David F. Eisner ..................... 19,568 *
David J. Losito ..................... 9,788 *
Handler Family Trust ................ 97,873 1.3
Brancaleone Family Partnership ..... 75,594 1.0
Albert Bruno ........................ 47,244 *
Phillip J. Ciabattoni ............... 5,667 *
Otto Claricurzio .................... 4,725 *
Audrey Cohen ........................ 18,896 *
David W. Gove ....................... 9,442 *
Forrest Hamilton .................... 74,308 1.0
Larry T. Nicholson .................. 4,725 *
Bruce and Kim Phillips .............. 11,344 *
Ray Stromback(5) .................... 7,558 *
Stephen R. Day ...................... 4,725 *
Issac Abolafia ...................... 18,896 *
Anthony C. Musto .................... 18,896 *
Bruce R. and Jody A. Johnson ....... 33,075 *
Clay S. Cunningham .................. 4,717 *
Albert A. DiClemente ................ 4,717 *
Neal Katz ........................... 4,717 *
Brooke Jones ........................ 4,717 *
John Murphy ......................... 3,770 *
Marc J. Spizzirri ................... 4,717 *
DuRay E. Stromback, Trustee(6) ..... 4,717 *
John & Irene Passarelli ............. 28,348 *
Philip J. Weiss, Trustee(7) ......... 9,460 *
Arthur J. Falcone, Sr. .............. 6,609 *
All directors and executive officers
as a group (8 persons) ............ 6,350,276 84.4%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER OFFERING
-------------------------------------------------
NAME AND ADDRESS NUMBER OF SHARES NUMBER PERCENT
OF BENEFICIAL OWNER BEING OFFERED OF SHARES OF SHARES
- ------------------------------------- ----------------- ---------------- --------------
<S> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND 5%
SHAREHOLDERS
Arthur Falcone(1) ................... * (8) 1,981,669(8) 19.02%
Philip Cucci, Jr.(2) ................ * (8) 1,981,669(8) 19.02
Edward Falcone ...................... * (8) 1,981,669(8) 19.02
Les Campbell ........................ 0 4,725 *
Neil Eisner ......................... 0 4,725 *
Daniel Andreacci .................... 0 4,725 *
Christopher Allick .................. 18,000 16,253(9) *
Anthony Ciabattoni .................. 0 356,841 3.43
Patrick Savin(3) .................... 100,000 344,929 3.31
OTHER SELLING SHAREHOLDERS
John Cucci .......................... 1,000 4,363 *
Robert J. Falcone, Trustee(4) ...... 31,000 91,294 *
Andrew Whittaker .................... 5,143 4,645(10) *
David F. Eisner ..................... 10,283 9,285(11) *
David J. Losito ..................... 5,143 4,645(10) *
Handler Family Trust ................ 56,431 41,442(12) *
Brancaleone Family Partnership ..... 11,351 64,243 *
Albert Bruno ........................ 11,611 35,633 *
Phillip J. Ciabattoni ............... 1,392 4,275 *
Otto Claricurzio .................... 1,162 3,563 *
Audrey Cohen ........................ 4,645 14,251 *
David W. Gove ....................... 2,322 7,120 *
Forrest Hamilton .................... 5,000 69,308 *
Larry T. Nicholson .................. 1,162 3,563 *
Bruce and Kim Phillips .............. 2,787 8,557 *
Ray Stromback(5) .................... 1,858 5,700 *
Stephen R. Day ...................... 1,162 3,563 *
Issac Abolafia ...................... 4,645 14,251 *
Anthony C. Musto .................... 4,645 14,251 *
Bruce R. and Jody A. Johnson ....... 8,129 24,946 *
Clay S. Cunningham .................. 1,160 3,557 *
Albert A. DiClemente ................ 1,160 3,557 *
Neal Katz ........................... 1,160 3,557 *
Brooke Jones ........................ 1,160 3,557 *
John Murphy ......................... 928 2,847 *
Marc J. Spizzirri ................... 1,160 3,557 *
DuRay E. Stromback, Trustee(6) ..... 1,160 3,557 *
John & Irene Passarelli ............. 6,967 21,381 *
Philip J. Weiss, Trustee(7) ......... 2,324 7,136 *
Arthur J. Falcone, Sr. .............. 1,624 4,985 *
All directors and executive officers
as a group (8 persons) ............ 18,000(13) 6,332,276(13) 60.79%
</TABLE>
50
<PAGE>
- -----------------------------------------------------------------------------
* Represents beneficial ownership of less than 1%.
(1) Reflects shares beneficially owned by Arthur Falcone and Marcy Falcone,
his wife.
(2) Reflects shares beneficially owned by Philip Cucci, Jr. and Linda Cucci,
his wife.
(3) The business address of Mr. Savin is 9777 Wilshire Boulevard, Suite 811,
Beverly Hills, California, 90212.
(4) All shares of Common Stock are held by Mr. Falcone as trustee and
beneficiary of the Robert J. Falcone Revocable Living Trust.
(5) Includes 3,779 shares of Common Stock held by Mr. Stromback as trustee
and beneficiary of the Ray W. and Evelyn M. Stromback Living Trust.
(6) All shares of Common Stock are held by Mr. Stromback as trustee and
beneficiary of the DuRay E. Stromback Trust.
(7) All shares of Common Stock are held by Mr. Weiss as trustee of a trust
for the benefit of his wife. Mr. Weiss disclaims beneficial ownership of
such shares.
(8) Intends to sell 112,000 shares if the Underwriters' over-allotment
option is exercised in full.
(9) Intends to sell 9,600 shares if the Underwriters' over-allotment option
is exercised in full.
(10) Intends to sell 2,743 shares if the Underwriters' over-allotment option
is exercised in full.
(11) Intends to sell 5,484 shares if the Underwriters' over-allotment option
is exercised in full.
(12) Intends to sell 27,430 shares if the Underwriters' over-allotment option
is exercised in full.
(13) Does not include the 345,600 shares which would be sold if the
Underwriters' over-allotment option is exercised in full. See notes (8)
and (9).
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common
Stock. No predictions can be made as to the affect, if any, that market sales
of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial
amounts of Common Stock of the Company in the public market after the lapse
of the restrictions described below, or the potential of such sales, could
materially adversely affect the prevailing market prices for the Common Stock
and the ability of the Company to raise equity capital in the future.
Upon completion of the Offering, the Company will have 10,416,318 shares
of Common Stock outstanding (10,512,318 if the Underwriters' over-allotment
option is exercised in full, assuming that twenty percent (20%) of the shares
sold under the over-allotment option are sold by the Company with the
remaining eighty percent (80%) being sold by certain Selling Shareholders).
All of the 3,200,000 shares of Common Stock offered hereby (3,680,000 if the
Underwriters' over-allotment option is exercised in full), will be freely
tradeable without restriction or further registration under the Securities
Act, unless purchased by "affiliates" of the Company, as that term is defined
in Rule 144, described below. All of the 7,216,318 remaining outstanding
shares of the Company's Common Stock are "restricted securities" as that term
is defined in Rule 144, as they were issued by the Company in private
transactions not involving a public offering.
In general, under Rule 144 as currently in effect, any affiliate of the
Company or any person (or persons whose shares are aggregated in accordance with
Rule 144) who has beneficially owned Common Stock which is treated as restricted
securities for at least two years would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the outstanding shares of Common Stock (approximately 104,163 shares based upon
the number of shares outstanding after the Offering) or the reported average
weekly trading volume in the Common Stock during the four weeks preceding the
date on which notice of such sale was filed under Rule 144. Sales under Rule 144
are also subject to certain manner of sale restrictions and notice requirements
and to the availability of current public information concerning the Company. In
addition, affiliates of the Company must comply with the restrictions and
requirements of Rule 144 (other than the two-year holding period requirements)
in order to sell shares of Common Stock that are not restricted securities (such
as Common Stock acquired by affiliates in market transactions). Further, if a
period of at least three years has elapsed from the date restricted securities
were acquired from the Company or an
51
<PAGE>
affiliate of the Company, a holder of such restricted securities who is not
an affiliate at the time of the sale and who has not been an affiliate for at
least three months prior to such sale would be entitled to sell the shares
immediately without regard to the volume, manner of sale, notice and public
information requirements of Rule 144. Shares of Common Stock held by certain
management of the Company, the Common Stock issued upon exercise of the
Warrants issued in connection with the issuance of the Series A Preferred
Stock and the Series B Preferred Stock (an aggregate of 6,697,164 shares) and
the Common Stock issued upon exercise of any Contingent Warrants carry
certain demand and incidental (I.E., piggyback) rights to require the Company
to register sales of such shares of Common Stock and to participate in
certain subsequent registrations of shares of Common Stock by the Company for
sale to the public. See "Certain Relationships and Related
Transactions--Registration Rights Agreement."
The Company intends to file a registration statement on Form S-8 covering
all shares of Common Stock issuable under the Company's employee benefit
plans in effect on the date of this Prospectus. The Company has outstanding
stock options with respect to an aggregate of approximately 450,000 shares of
Common Stock as of the date of this Prospectus. Accordingly, any shares
issued upon exercise of outstanding options will be eligible for sale in the
public market (subject to the six-month lock-up arrangement described below)
beginning on the effective date of such registration statement.
The existing holders of the Company's Common Stock not being sold hereby,
and the Company's officers and directors have agreed not to sell, offer to
sell, grant any option for the sale of, assign, pledge, grant any security
interest in or otherwise dispose of, or register for sale by others, any
shares of Common Stock which they own prior to the Offering or any security
convertible into or exchangeable or exercisable for shares of Common Stock,
except for intra-family transfers, without the prior written consent of the
Representatives, on behalf of the Underwriters, for a period of six months
after the consummation of the Offering. Upon the expiration of such six-month
period, 6,894,689 of such shares will be eligible for resale under Rule 144.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's shareholders have approved Amended and Restated Articles of
Incorporation and Bylaws to become effective upon consummation of the
Offering. Pursuant to the terms of the Amended and Restated Articles of
Incorporation, effective as of the consummation of the Offering, (i) the
Company's authorized Series A Preferred Stock and Series B Preferred Stock
will be eliminated and (ii) a new class of "blank check" preferred stock, par
value $.01 per share (the "New Preferred Stock"), will be created.
Accordingly, effective as of the consummation of the Offering, the Company's
capital stock will consist of 100 million shares of Common Stock and 20
million shares of New Preferred Stock. All of the Company's Series A
Preferred Stock and Series B Preferred Stock which is issued and outstanding
immediately prior to the consummation of the Offering will be redeemed
immediately prior to the consummation of the Offering. As of the date of this
Prospectus, there were 6,266,637 shares of Common Stock outstanding, 1,819
shares of Series A Preferred Stock outstanding and 33,202 shares of Series B
Preferred Stock outstanding.
The following discussion describes the Company's capital stock, Articles
of Incorporation and Bylaws as anticipated to be in effect upon the
consummation of the Offering. The following description of the Company's
capital stock does not purport to be complete and is subject to and qualified
in its entirety by the provisions of the Company's Amended and Restated
Articles of Incorporation and Bylaws, which are included as exhibits to the
Registration Statement of which this Prospectus is a part, and by the
provisions of applicable law.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held
of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50 percent of the shares voted for the election
of directors can elect all of the directors. The holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor, subject to the dividend
and liquidation rights of any New Preferred Stock that may be issued and
outstanding. In the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining available for distribution to them after payment of
liabilities and after provision has been made for each class of stock, if any
having preference over the Common Stock. Holders of shares of Common Stock,
as such, have no conversion, preemptive or other subscription rights, and
there are no redemption provisions applicable to the Common Stock. All of the
outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby, when issued against the consideration set forth in this
Prospectus will be, fully paid and nonassessable. In the event of
liquidation, after payment of the debts and of the liabilities of the Company
and after making provision for the holders of New Preferred Stock, if any,
the remaining assets of the Company will be distributable ratably among the
holders of Common Stock.
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "TEPI."
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
shareholder action, to divide any or all shares of the authorized New
Preferred Stock into series and fix and determine the designations,
preferences and relative rights and qualifications, limitations, or
restrictions thereon of any series so established, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion
privileges. As of the date of this Prospectus, the Board of Directors has not
authorized any series of New Preferred Stock, and there are no plans,
agreements or understandings for
53
<PAGE>
the authorization or issuance of any shares of Blank Check Preferred Stock.
The issuance of New Preferred Stock with voting rights or conversion rights
may adversely affect the voting power of the Common Stock, including the loss
of voting control to others. The issuance of New Preferred Stock may have the
effect of delaying, deferring or preventing a change of control of the
Company without shareholder approval. See "Risk Factors--Preferred Stock;
Possible Anti-Takeover Effect of Certain Charter Provisions."
CONTINGENT WARRANTS
In connection with the private placement of the Company's Common Stock in
March, 1996, the Company agreed to issue to the purchasers of the Common
Stock Contingent Warrants to purchase additional shares of Common Stock in
the event certain targeted Common Stock share prices are not achieved in the
Offering. The number of shares, if any, for which the Contingent Warrants are
exercisable is based upon the initial public offering price in the Offering.
Assuming an initial public offering price of $7.00 per share, the Contingent
Warrants would be exercisable for an aggregate of 214,115 shares of Common
Stock. The Contingent Warrants are exercisable in whole or part at any time
prior to the first anniversary of the effective date of this Prospectus at an
exercise price equal to $.01 per share and contain customary anti-dilution
adjustments upon the occurrence of certain changes in the Company's capital
structure following the consummation of the Offering.
The holders of Common Stock issuable upon exercise of the Contingent
Warrants will have certain incidental (piggyback) rights to participate in
certain subsequent registrations of shares of Common Stock by the Company for
sale to the public.
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to several anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law, because
the corporation has not elected to opt out of such provisions in its articles
of incorporation or bylaws. The Common Stock of the Company is subject to the
"affiliated transactions" and "control-share acquisition" provisions of the
Florida Business Corporation Act. These provisions require, subject to
certain exceptions, that an "affiliated transaction" be approved by the
holders of two-thirds of the voting shares other than those beneficially
owned by an "interested shareholder" or by a majority of disinterested
directors and that voting rights be conferred on "control shares" acquired in
specified control share acquisitions generally only to the extent conferred
by resolution approved by the shareholders, excluding holders of shares
defined as "interested shares." In addition, Florida law presently limits the
personal liability of a corporate director for monetary damages, except where
the director (i) breaches his or her fiduciary duties and (ii) such breach
constitutes or includes certain unlawful distributions or certain other
reckless, wanton or willful acts or misconduct.
OTHER PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation provide that the Board will be divided into
three classes, with each class, after a transitional period, serving for
three years, and one class being elected each year. A majority of the
remaining directors then in office, though less than a quorum, or the sole
remaining director, will be empowered to fill any vacancy on the Board which
arises during the term of a director. The provision for a classified board
may be altered or repealed only upon the affirmative vote of holders of at
least 66 2/3 % of the total voting power of the Company. The classification
of the Board may discourage a third party from making a tender offer or
otherwise attempting to gain control of the Company and may have the effect
of maintaining the incumbency of the Board.
Special meetings of shareholders may be called by the Company's Board of
Directors, the Chairman of the Board of Directors or the Chief Executive
Officer. Shareholders of the Company may only call a special meeting of
shareholders if the holders of at least 50% of the total voting power of the
Company sign, date and deliver to the Company's secretary one or more written
demands for the meeting describing the purpose or purposes for which it is to
be held.
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<PAGE>
Shareholders of the Company are required to provide advance notice of
nominations of directors to be made at, and of business proposed to be
brought before, a meeting of shareholders. The failure to deliver proper
notice within the periods specified in the Company's Bylaws will result in
the denial of the shareholder's right to make such nominations or propose
such action at the meeting.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership and disposition of Common Stock by
a holder that, for United States Federal income tax purposes, is not a
"United States person" (a "Non-United States Holder"). This discussion is
based upon the United States Federal tax law now in effect, which is subject
to change, possibly retroactively. For purposes of this discussion, a "United
States person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in the United
States or under the laws of the United States or of any political subdivision
thereof or an estate or trust whose income is includible in gross income for
United States Federal income tax purposes regardless of its source. This
discussion does not consider any specific facts or circumstances that may
apply to a particular Non-United States Holder. Prospective investors are
urged to consult their tax advisors regarding the United States Federal tax
consequences of acquiring, holding and disposing of Common Stock, as well as
any tax consequences that may arise under the laws of any foreign state,
local or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30% unless the
dividend is effectively connected with the conduct of a trade or business
within the United States by the Non-United States Holder, in which case the
dividend will be subject to the United States Federal income tax on net
income on the same basis that applies to United States persons generally
(and, with respect to corporate holders and under certain circumstances, the
branch profits tax). Non-United States Holders should consult any applicable
income tax treaties that may provide for a lower rate of withholding or other
rules different from those described above. A Non-United States Holder may be
required to satisfy certain certification requirements in order to claim
treaty benefits or otherwise claim a reduction of or exemption from
withholding under the foregoing rules.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of
Common Stock unless (i) the gain is effectively connected with the conduct of
a trade or business within the United States by the Non-United States Holder,
(ii) in the case of a Non-United States Holder who is a nonresident alien
individual and holds the Common Stock as a capital asset, such holder is
present in the United States for 183 or more days in the taxable year and
certain other requirements are met, or (iii) the Company is or has been a
"United States real property holding corporation" (a "USRPHC") for Federal
income tax purposes at any time during the five year period ending on the
date of disposition. While not free from doubt, the Company currently
believes that it is a USRPHC. Nevertheless, a Non-United States Holder would
generally not be subject to Federal income tax or withholding on the gain
from the sale or other disposition of Common Stock by reason of the Company's
USRPHC status if the Common Stock is regularly traded on an established
securities market ("regularly traded") during the calendar year in which such
sale or disposition occurs provided that such holder does not own, actually
or constructively, Common Stock with a fair market value in excess of 5% of
the fair market value of all Common Stock outstanding at any time during a
required holding period. The Company anticipates that the Common Stock will
be regularly traded.
55
<PAGE>
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for United States Federal estate
tax purposes) of the United States at the date of death will be included in
such individual's estate for United States Federal estate tax purposes,
unless and applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the United States Internal Revenue
Service and to each Non-United States Holder the amount of dividends paid to,
and the tax withheld with respect to, such holder, regardless of whether any
tax was actually withheld. This information may also be made available to the
tax authorities of a country in which the Non-United States Holder resides.
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally
not apply to dividends paid on the Common Stock to a Non-United States Holder
at an address outside the United States. Payments by a United States office
of a broker of the proceeds of a sale of the Common Stock is subject to both
backup withholding at a rate of 31% and information reporting unless the
holder certifies its Non-United States Holder status under penalties of
perjury or otherwise establishes an exemption. Information reporting
requirements (but not backup withholding) will also apply to payments of the
proceeds of sales of the Common Stock by foreign offices of United States
brokers, or foreign brokers with certain types of relationships to the United
States, unless the broker has documentary evidence in its records that the
holder is a Non-United States Holder and certain other conditions are met, or
the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules will be refunded or credited against the
Non-United States Holder's United States Federal income tax liability,
provided that certain required information is furnished to the United States
Internal Revenue Service.
These information reporting and backup withholding rules are under review
by the United States Treasury and their application to the Common Stock could
be changed by future regulations. The United States Internal Revenue Service
has recently issued proposed Treasury regulations concerning these rules
which are presently proposed to be effective for payments made after December
31, 1997. Prospective investors should consult their tax advisors concerning
the potential adoption of such proposed Treasury regulations and the
potential effect on their ownership and disposition of the Common Stock.
56
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
for whom BT Securities Corporation, Cruttenden Roth Incorporated and Janney
Montgomery Scott Inc. acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company and the Selling Shareholders,
and the Company and the Selling Shareholders have agreed to sell to the
Underwriters, the respective number of shares of Common Stock set forth
opposite each Underwriter's name below:
UNDERWRITERS NUMBER OF SHARES
- ------------------------------ -----------------
BT Securities Corporation ...............................
Cruttenden Roth Incorporated .............................
Janney Montgomery Scott Inc. .............................
-----------------
Total .................................................. 3,200,000
=================
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to certain conditions precedent,
including the absence of any material adverse change in the Company's
business and the receipt of certain certificates, opinions and letters from
the Company and its counsel and independent certified public accountants. The
nature of the Underwriters' obligations is such that they are committed to
purchase and pay for all the shares in the Offering if any are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share of Common Stock. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share of Common Stock on
sales to certain brokers and dealers. After the initial public offering of
the shares, the public offering price and other selling terms may be changed
by the Representatives. No change in such terms shall change the amount of
proceeds to be received by the Company and the Selling Shareholders as set
forth on the cover page of this Prospectus.
The Company has granted an option to the Underwriters, exercisable for a
period of 30 days after the date of this Prospectus, to purchase up to an
additional 480,000 shares of Common Stock at the public offering price set
forth on the cover page of this Prospectus, less the underwriting discounts
and commissions. The Underwriters may exercise this option only to cover
over-allotments, if any. To the extent that the Underwriters exercise this
option, each Underwriter will be committed, subject to certain conditions, to
purchase such additional shares of Common Stock in approximately the same
proportion as set forth in the above table.
The Company has agreed to issue to the Representatives, for a total of
$320, warrants (the "Representatives' Warrants") to purchase up to 320,000
shares of Common Stock at an exercise price per share equal to 120% of the
initial public offering price. The Representatives' Warrants are exercisable
for a period of four years beginning one year from the date of this
Prospectus. The holders of the Representatives' Warrants will have no voting,
dividend, or other stockholder rights until the Representatives' Warrants are
exercised.
The Company has agreed to pay the Representatives a non-accountable
expense allowance equal to two percent of the aggregate public offering price
(including with respect to shares of Common Stock underlying the
over-allotment option, if and to the extent it is exercised) set forth on the
front cover of this Prospectus for expenses in connection with this offering,
of which the sum of $30,000 has already been paid. To the extent that the
expenses of the Representatives are less than the non-accountable expense
allowance, the excess may be deemed to be compensation to the
Representatives.
The existing holders of the Company's Common Stock not being sold hereby,
and the holders of the Warrants and the Company's officers and directors have
agreed not to sell, offer to sell, grant any
57
<PAGE>
option for the sale of, assign, pledge, grant any security interest in or
otherwise dispose of, or register for sale by others, any shares of Common
Stock or any security convertible into or exchangeable or exercisable for
shares of Common Stock, except for intra-family transfers, without the prior
written consent of the Representatives, on behalf of the Underwriters, for a
period of six months after the consummation of the Offering. See "Shares
Eligible for Future Sale."
At the request of the Company, the Underwriters have initially reserved up
to 280,000 shares of Common Stock for sale at the initial public offering
price set forth on the cover page of this Prospectus to directors, officers,
employees and business associates of the Company and other persons associated
with the Company or affiliated with any director, officer or employee of the
Company. Messrs. Dan Andreacci and Neil Eisner, executive officers of the
Company, have indicated that they will participate in the reserve share
program. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares which are not so purchased will be
offered by the Underwriters to the general public on the same basis as other
shares offered hereby.
Prior to the Offering, there has been no established trading market for
the shares of Common Stock of the Company. Consequently, the initial public
offering price for the Common Stock offered hereby has been determined by
negotiations between the Company and the Representatives. Among the factors
considered in such negotiations were the preliminary demand for the Common
Stock, the prevailing market and economic conditions, the Company's results
of operations, estimates of the business potential and prospects of the
Company, the present state of the Company's business operations, an
assessment of the Company's management, the consideration of these factors in
relation to the market valuation of comparable companies in related
businesses, the current condition of the markets in which the Company
operates, and other factors deemed relevant. There can be no assurance that
an active market will develop for the Common Stock or that the Common Stock
will trade in the public market subsequent to this Offering at or above the
initial public offering price.
The Company has received approval for quotation of the Common Stock on the
Nasdaq National Market under the trading symbol "TEPI."
The Underwriters do not intend to confirm sales of the Common Stock
offered hereby to any accounts over which they exercise discretionary
authority.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters and their controlling persons
against certain civil liabilities arising in connection with the Offering,
including certain liabilities under the Securities Act, or will contribute to
payments the Underwriters and their controlling persons may be required to
make in respect thereof.
LEGAL MATTERS
The validity of the Common Stock being offered hereby and certain other
legal matters will be passed upon for the Company by Stearns Weaver Miller
Weissler Alhadeff & Sitterson, P.A., Miami, Florida. Certain legal matters
will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher &
Flom LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of Transeastern Properties, Inc. and
subsidiaries as of June 30, 1996 and 1995, and for each of the years in the
three-year period ended June 30, 1996, have been included herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and
upon the
58
<PAGE>
authority of said firm as experts in accounting and auditing. The report of
KPMG Peat Marwick LLP covering the June 30, 1996 consolidated financial
statements refers to a change in the method of accounting for a real estate
joint venture.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company or such Common Stock, reference is made
to such Registration Statement and the exhibits and schedules thereto, certain
portions of which are omitted from this Prospectus as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus regarding
the contents of any contract or other document referred to herein or therein are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
Upon completion of the Offering, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file reports and other information with the Commission. Such reports and
other information, as well as the Registration Statement and the exhibits and
schedules thereto, may be inspected, without charge, at the public reference
facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such information is also available
on the internet at http;//www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements examined and reported upon, with an
opinion expressed by independent certified public accountants, and quarterly
reports containing unaudited financial information for the first three quarters
of each year.
59
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report ........................................................... F-2
Consolidated Balance Sheets as of September 30, 1996 (Unaudited) and
June 30, 1996 and 1995 ................................................................. F-3
Consolidated Statements of Earnings for the Three Months Ended September 30,
1996 and 1995 (Unaudited) and the Years ended June 30, 1996, 1995 and 1994 ............ F-4
Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended
September 30, 1996 (Unaudited) and the Years ended June 30, 1996, 1995 and 1994 ....... F-5
Consolidated Statements of Cash Flows for the Three Months Ended September 30,
1996 and 1995 (Unaudited) and the Years ended June 30, 1996, 1995 and 1994 ............ F-6
Notes to Consolidated Financial Statements ............................................. F-7
Unaudited Pro Forma Financial Information .............................................. P-1
</TABLE>
F-1
<PAGE>
The Board of Directors
Transeastern Properties, Inc.:
We have audited the accompanying consolidated balance sheets of Transeastern
Properties, Inc. and subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of earnings, changes in shareholders' equity and cash
flows for each of the years in the three-year period ended June 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 Transeastern
Properties, Inc. and subsidiaries at June 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1996, in conformity with generally accepted accounting
principles.
The Company, through a modification of the joint venture agreement in 1996,
as discussed in note 5, obtained effective operating control of its 50%-owned
real estate joint venture. Accordingly, the joint venture has been consolidated
for the year ended June 30, 1996 and was carried under the equity method for the
years ended June 30, 1995 and 1994.
KPMG PEAT MARWICK LLP
Fort Lauderdale, Florida
July 19, 1996
F-2
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 (UNAUDITED) AND JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30
---------------- ----------------------------
1996 1996 1995
---------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash ............................................. $ 750,059 $ 3,769,220 629,847
Restricted cash .................................. 2,883,121 2,657,188 1,183,630
Trade and other accounts receivable .............. 790,521 881,538 348,838
Due from affiliates and officers ................. 602,467 637,313 136,792
Land, construction in process and completed homes 90,520,356 82,919,919 29,829,373
Costs and estimated earnings in excess of billings
on uncompleted contracts ....................... -- -- 199,695
Investment in unconsolidated real estate joint
venture ........................................ -- -- 1,478,981
Property and equipment, net ...................... 1,339,348 1,006,715 382,160
Deferred tax asset ............................... 27,500 27,500 188,500
Prepaid assets ................................... 191,234 206,040 480,571
Other assets ..................................... 800,347 597,350 1,494,123
-------------- ------------- -------------
$97,904,953 92,702,783 36,352,510
============== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Trade accounts payable .......................... 1,571,795 853,661 163,517
Accrued expenses ................................ 5,815,596 6,391,406 2,952,909
Customer deposits ............................... 4,015,495 3,791,924 3,124,856
Income taxes payable ............................ 2,880,607 2,725,600 314,480
Deferred tax liability .......................... 1,283,300 1,283,300 840,600
Due to affiliates and officers .................. 2,429,730 2,441,366 885,073
Other liabilities ............................... 3,726,012 2,507,605 148,169
Construction loans payable ...................... 29,035,303 21,470,810 10,785,290
Acquisition and development loans ............... 21,609,271 25,302,389 6,895,377
Subordinated debt ............................... 7,265,296 7,810,030 3,574,993
-------------- ------------- -------------
Total liabilities ............................. 79,632,405 74,578,091 29,685,264
Minority interest in consolidated subsidiaries .. 3,738,375 3,738,375 --
Redeemable preferred stock ....................... 3,502,100 3,502,100 3,372,632
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value, 41,000,000 shares
authorized, 6,266,637 shares at September 30,
1996 (unaudited) and June 30, 1996 and
5,945,008 shares at June 30, 1995 issued and
outstanding ................................... 62,666 62,666 59,450
Additional paid-in capital ...................... 4,656,303 4,656,303 (52,200)
Retained earnings ............................... 6,313,104 6,165,248 3,287,364
-------------- ------------- -------------
Total shareholders' equity .................... 11,032,073 10,884,217 3,294,614
-------------- ------------- -------------
$97,904,953 92,702,783 36,352,510
============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
----------------------------- ---------------------------------------------
1996 1995 1996 1995 1994
-------------- ------------- -------------- -------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Home sales ................................. $11,814,268 9,881,953 76,042,819 35,741,626 19,311,377
Land sales ................................. 6,400,003 3,092,500 28,431,072 2,688,900 3,162,000
Rental and other income .................... 265,327 180,005 1,199,286 234,173 173,277
Equity in income (loss) of real estate
joint venture ............................ -- -- -- 224,089 (51,032)
----------- ----------- ------------ ----------- -----------
Total revenues ........................... 18,479,598 13,154,458 105,673,177 38,888,788 22,595,622
----------- ----------- ------------ ----------- -----------
Expenses:
Cost of home sales ......................... 9,749,396 8,709,887 67,009,518 30,978,813 17,174,873
Cost of land sales ......................... 5,910,547 2,141,788 19,432,828 1,470,000 1,728,000
Selling, general and administrative ....... 2,331,948 1,729,914 10,051,254 5,281,026 1,962,158
Interest expense ........................... 2,427,661 631,037 5,232,383 1,833,272 1,119,764
Less amount capitalized .................... (2,347,869) (562,405) (4,993,970) (1,636,796) (965,905)
----------- ----------- ------------ ----------- -----------
Net interest expense ..................... 79,792 68,632 238,413 196,476 153,859
----------- ----------- ------------ ----------- -----------
Total expenses ........................... 18,071,683 12,650,221 96,732,013 37,926,315 21,018,890
----------- ----------- ------------ ----------- -----------
Minority interest in income of consolidated
subsidiaries .............................. -- (61,004) (865,394) -- --
----------- ----------- ------------ ----------- -----------
Net income before income taxes and
extraordinary gain ..................... 407,915 443,233 8,075,770 962,973 1,576,733
Income tax expense .......................... 155,007 168,429 3,074,820 374,200 492,700
----------- ----------- ------------ ----------- -----------
Net income before
extraordinary gain ..................... 252,908 274,804 5,000,950 588,773 1,084,033
Extraordinary gain from early extinguishment
of debt, net of income taxes of $422,600 .. -- -- -- 700,485 --
----------- ----------- ------------ ----------- -----------
Net income ............................... 252,908 274,804 5,000,950 1,289,258 1,084,033
----------- ----------- ------------ ----------- -----------
Dividends on redeemable preferred stock .... (105,052) (101,179) (411,347) (270,723) (352,404)
Excess of the carrying amount of redeemable
preferred stock over the amount allocated
upon repurchase ........................... -- -- -- 1,711,719 --
----------- ----------- ------------ ----------- -----------
Net income available for
common shares .......................... $ 147,856 173,625 4,589,603 2,730,254 731,629
=========== =========== ============ =========== ===========
Net income per common and common
equivalent share:
Net income before extraordinary gain ..... .02 .02 .61 .25 .08
Extraordinary gain ......................... -- -- -- .09 --
----------- ----------- ------------ ----------- -----------
Net income ............................... $ .02 .02 .61 .34 .08
=========== =========== ============ =========== ===========
Average common and equivalent shares
outstanding ............................... 7,525,410 8,228,341 7,548,443 8,228,341 8,841,128
=========== =========== ============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
PAID-IN (ACCUMULATED
COMMON STOCK CAPITAL DEFICIT) TOTAL
--------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance, June 30, 1993 ................... $ 59,450 (52,200) (144,519) (137,269)
Net income ............................... -- -- 1,084,033 1,084,033
Dividends:
Common stock ............................ -- -- (30,000) (30,000)
Preferred stock ......................... -- -- (352,404) (352,404)
-------- ------- -------- ----------
Balance, June 30, 1994 ................... 59,450 (52,200) 557,110 564,360
-------- --------- ---------- ----------
Net income ............................... -- -- 1,289,258 1,289,258
Excess of carrying amount of redeemable
preferred stock over the amount
allocated
upon repurchase ........................ -- 1,711,719 -- 1,711,719
Dividends:
Preferred stock ......................... -- -- (270,723) (270,723)
-------- --------- ---------- ----------
Balance, June 30, 1995 ................... 59,450 1,659,519 1,575,645 3,294,614
-------- --------- ---------- ----------
Net income ............................... -- -- 5,000,950 5,000,950
Issuance of common stock ................. 3,216 2,996,784 -- 3,000,000
Dividends:
Preferred stock ......................... -- -- (411,347) (411,347)
-------- --------- ---------- ----------
Balance, June 30, 1996 ................... 62,666 4,656,303 6,165,248 10,884,217
-------- --------- ---------- ----------
Net income (Unaudited) ................... -- -- 252,908 252,908
Dividends:
Preferred stock (Unaudited) ............. -- -- (105,052) (105,052)
-------- --------- ---------- ----------
Balance, September 30, 1996 (Unaudited) . 62,666 4,656,303 6,313,104 11,032,073
======== ========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
--------------------------- ------------------------------------
1996 1995 1996 1995 1994
---------- ---------- ------------ ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 252,908 274,804 5,000,950 1,289,258 1,084,033
Adjustments to reconcile net income to net cash used in
operating activities:
Amortization and depreciation ............................ 65,168 42,752 222,220 64,340 43,078
Extraordinary gain from early extinguishment of debt, net
of taxes ............................................... -- -- -- (700,485) --
Equity in (income) loss of real estate joint venture ....... -- -- -- (224,089) 51,032
Deferred income taxes ....................................... -- -- 603,700 682,200 (30,100)
Decrease (increase) in restricted cash ...................... (225,933) 111,997 (1,473,557) 202,871 (355,809)
Decrease (increase) in trade and other accounts receivable . 91,017 (423,033) (532,700) (301,770) 17,713
Decrease (increase) in amounts due from affiliates ......... 34,846 (24,437) (500,521) (24,459) --
Increase in land, construction in process and completed
homes ..................................................... (7,600,437) (36,913,573) (53,090,546) (5,782,056) (18,172,049)
Decrease (increase) in costs and estimated earnings in
excess of billings on uncompleted contracts ............... -- 199,695 199,695 160,099 (359,794)
Decrease (increase) in prepaid expenses ..................... 14,806 92,540 774,531 (723,958) (256,613)
Decrease (increase) in other assets ......................... (202,997) 895,359 396,773 587,211 (719,489)
Increase (decrease) in trade accounts payable ............... 718,134 1,542,621 690,144 (246,544) 302,576
Increase (decrease) in accrued expenses ..................... (575,810) 614,175 3,438,496 3,362,824 7,133
Increase (decrease) in income taxes payable ................. 155,007 108,429 2,411,120 (630,920) 522,800
Increase (decrease) in other liabilities .................... (651,593) 1,946,962 2,359,434 148,171 --
----------- ----------- ----------- ---------- -----------
Net cash used in operating activities ....................... (7,924,884) (31,531,709) (39,500,261) (2,137,307) (17,865,489)
----------- ----------- ----------- ---------- -----------
Cash flows from investing activities:
Additions to property and equipment .......................... (397,801) (479,989) (846,775) (279,132) (182,447)
Receipts from real estate joint venture ...................... -- 1,478,981 2,309,287 599,439 (-)
Advances to real estate joint venture ........................ -- -- (830,306) (1,371,600) (533,763)
Increase (decrease) in minority interest in consolidated
subsidiaries ............................................... -- 1,096,680 3,738,375 -- --
----------- ----------- ----------- ---------- -----------
Net cash provided by (used in) investing activities ........ (397,801) 2,095,672 4,370,581 (1,051,293) (716,210)
----------- ----------- ----------- ---------- -----------
Cash flows from financing activities:
Increase in customer deposits ................................ 223,571 2,014,436 667,070 806,508 1,207,653
Proceeds from affiliate and officers' loans .................. -- 200,000 1,745,000 435,000 --
Payments of affiliate and officers' loans .................... (11,636) (20,000) (188,707) (108,491) (127,674)
Principal payments on construction loans payable ............ (7,855,739) (6,466,594) (47,214,626) (21,753,677) (10,683,563)
Proceeds from borrowings on construction loans payable ...... 15,420,232 12,610,937 57,900,146 25,080,661 13,872,834
Principal payments on acquisition and development loans ..... (8,003,898) (392,529) (28,650,474) (9,410,859) --
Proceeds from borrowings on acquisition and development loans 4,310,780 21,877,534 47,057,486 7,111,662 8,444,574
proceeds from issuance of subordinated debt .................. 400,266 -- 5,658,819 4,028,128 6,360,000
Principal payments on subordinated debt ...................... (945,000) (670,000) (1,423,782) (5,302,650) (810,000)
Proceeds from borrowings on other loans ...................... 1,870,000 -- -- -- --
Proceeds from issuance of preferred stock .................... -- -- -- 3,000,000 --
Proceeds from issuance of common stock ....................... -- -- 3,000,000 -- --
Repurchase of preferred stock, common stock warrants and
senior subordinated notes .................................. -- -- (66,832) (535,000) --
Dividends .................................................... (105,052) (101,179) (215,047) (3,184) (30,592)
----------- ----------- ----------- ---------- -----------
Net cash provided by financing activities ................... 5,303,524 29,052,605 38,269,053 3,348,098 18,233,232
----------- ----------- ----------- ---------- -----------
Net increase (decrease) in cash ............................. (3,019,161) (383,432) 3,139,373 159,498 (348,467)
Cash at beginning of year ..................................... 3,769,220 629,847 629,847 470,349 818,816
----------- ----------- ----------- ---------- -----------
Cash at end of year ........................................... $ 750,059 246,415 3,769,220 629,847 470,349
=========== =========== =========== ========== ===========
F-6
<PAGE>
SEPTEMBER 30, JUNE 30,
------------------------- --------------------------------
1996 1995 1996 1995 1994
----------- ----------- --------- ------- -------
(UNAUDITED) (UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
IMPUTED INTEREST ON NONINTEREST-BEARING LOANS .............. $ -- -- -- -- 305,336
======== ======== ========= ======= =======
PREFERRED STOCK--STOCK DIVIDENDS ........................... $105,052 101,179 196,300 222,600 271,500
======== ======== ========= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID FOR:
TAXES ..................................................... $ -- 9,415 60,000 322,920 --
======== ======== ========= ======= =======
INTEREST .................................................. $728,589 487,550 1,621,855 982,708 498,020
======== ======== ========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Transeastern Properties, Inc. (the "Company") was formed on December 4,
1986. The Company acquires and develops land and constructs single family
homes and rental apartment buildings in South Florida. Subsequent to year-end
the Company changed its name from Transeastern Properties of South Florida,
Inc. to Transeastern Properties, Inc. which has been reflected in these
financial statements.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A)-PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for the year ended June 30, 1996
include the accounts of the Company and the following subsidiaries:
Transeastern Properties at the Cove, Inc., Transeastern Pembroke Properties,
Inc., Transeastern Pembroke Villages, Inc., Transeastern Plantation
Apartments, Inc., Transeastern Plantation Apartments, Ltd., Transeastern
Hollywood Apartments, Inc., Transeastern Hollywood Apartments, Ltd.,
Transeastern Aberdeen Properties, Inc., Transeastern Finance, Inc.,
Transeastern Wellington Properties, Inc. and Parkside Homes.
Transeastern Pembroke Properties, Inc. owns a 50% interest in Parkside
Homes, a real estate joint venture, formed to acquire and develop Parkside at
Spring Valley, a single family community in Pembroke Pines. The Company's
investment in this venture is consolidated for the year ended June 30, 1996
and was accounted for under the equity method for the years ended June 30,
1995 and 1994 (see note 5).
Transeastern Hollywood Apartments, Inc. and Transeastern Plantation
Apartments, Inc. own controlling interests, respectively, in real estate
limited partnerships, Transeastern Hollywood Apartments, Ltd. and
Transeastern Plantation Apartments, Ltd., formed during the year ended June
30, 1996 to acquire, develop and sell multifamily communities. The Company
owns both general and limited partnership interests. As general partner, the
Company has the option to buy out nonaffiliated limited partnership
interests, after one year from date of formation, for an amount equal to a
30% return on the nonaffiliated limited partnership investments. The
operations have been consolidated for the year ended June 30, 1996.
All significant intercompany balances and transactions have been
eliminated in consolidation.
(B)-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 the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and these
differences could have a significant impact on the financial statements.
(C)-BUSINESS RISK
Any substantial change in economic conditions or any significant price
fluctuations related to the real estate industry could affect the Company's
operations and have a material impact on the Company's business. In addition,
the Company is subject to competition from other entities engaged in the
business of building homes and apartments in the South Florida area.
F-8
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(D)-REVENUE RECOGNITION
SALE OF HOMES UNDER SHORT-TERM CONSTRUCTION CONTRACTS
Revenues from sales of homes in which the estimated construction period is
less than one year are recognized under the completed contract method at
closing.
SALE OF HOMES UNDER LONG-TERM CONSTRUCTION CONTRACTS
Revenues from construction contracts in which the estimated construction
period exceeds one year is recognized using the percentage of completion
method, measured by the ratio of costs incurred to total estimated costs
(cost to cost method). Estimated losses are accrued in full during the period
in which losses are determined. The asset entitled costs and estimated
earnings in excess of billings on uncompleted contracts represents revenues
recognized in advance of amounts billed. The liability, if any, entitled
billings in excess of costs and estimated earnings on uncompleted contracts
represents billings in advance of revenues recognized. As of June 30, 1996,
all contracts of this type are completed and no future percentage of
completion contracts are anticipated for the foreseeable future.
PARCEL AND LOT SALES
Revenues from sales of land parcels and residential lots to other builders
are recognized at closing when all contingencies, if any, have been resolved.
(E)-CASH
Cash includes cash deposited in checking and savings accounts, money
market accounts, and overnight investment accounts.
(F)-RESTRICTED CASH
Restricted cash comprises certain customer deposits relating to home
purchases which are held by the Company's escrow agents until closing.
(G)-LAND, CONSTRUCTION IN PROCESS AND COMPLETED HOMES
Land, construction in process and completed homes are stated at the lower
of accumulated costs or net realizable value. Costs related to development of
land or construction are capitalized. Costs of land and related improvements
are allocated to sales under the relative sales value method. Construction
costs include all subcontractor, direct material and labor costs, and utility
connection rights as well as indirect costs related to subcontract
performance, such as indirect labor and supplies. Indirect costs that do not
clearly relate to development or construction, including general and
administrative expenses, are charged to expense as incurred. Real estate
taxes, insurance and interest are capitalized only during the period in which
activities necessary to get the property ready for its intended use are in
progress.
(H)-PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, ranging from three to seven years.
F-9
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(I)-INCOME TAXES
The Company accounts for income taxes under the asset and liability method
of computing deferred income taxes. Under the asset and liability method,
deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amount
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured by using enacted statutory rates
expected to apply to taxable income.
(J)-PER SHARE DATA
Earnings per common and common equivalent shares is computed by dividing
earnings reduced by redeemable preferred stock dividends and increased by the
excess of the carrying amount of redeemable preferred stock over the amount
allocated upon repurchase (see note 11) by the weighted average number of
common shares outstanding considering dilutive common equivalent shares.
Common equivalent shares consist of common stock warrants.
The March, 1996 common stock issuance included a provision which provided
for the issuance of warrants to purchase additional shares of the Company's
common stock in the event certain targeted common stock share prices were not
achieved in the Company's initial public offering. Presuming an offering
price of $7, the warrants would be exercisable for 214,115 shares of common
stock and net income per common and common equivalent share would be modified
for the additional common equivalents as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
-------------------------- ---------------------------------------
1996 1995 1996 1995 1994
------------ ------------ ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income available for
common shares ................. $ 147,856 173,625 4,589,603 2,730,254 731,629
============ ============ ============ ============ ===========
Net income per common and common
equivalent share:
Net income before
extraordinary gain ........ .02 .02 .59 .24 .08
Extraordinary gain .............. -- -- - .08 -
------------ ------------ ------------ ------------ -----------
Net income ................... $ .02 .02 .59 .32 .08
============ ============ ============ ============ ===========
Average common and equivalent
shares outstanding ............ 7,739,525 8,442,456 7,762,558 8,442,456 9,055,243
============ ============ ============ ============ ===========
</TABLE>
In accordance with a Securities and Exchange Commission Staff Accounting
Bulletin, shares and warrants issued within a one-year period prior to the
initial filing of a registration statement relating to an initial public
offering are treated as outstanding for all periods presented. Such
calculation has been retroactively adjusted to reflect the Company's March
1996 common stock issuance (see note 12) and the Company's 8.2 to 1 common
stock split (see note 16).
(K)-REDEEMABLE PREFERRED STOCK
Redeemable preferred stock is stated at redemption value.
F-10
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(L)-FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to
various market data and other valuation techniques as appropriate. The
Company's financial instruments consist of cash equivalents, mortgages and
notes receivable, construction loans payable, acquisition and development
loans, and the subordinated debt. Unless otherwise disclosed, the fair value
of financial instruments approximates their recorded values.
(M)-NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," as of July 1, 1995 and, accordingly, evaluates its real
estate investments periodically to assess whether any impairment indications
are present, including recurring operating losses and significant adverse
changes in legal factors or business climate that affect the recovery of the
recorded value. If any real estate investment is considered impaired, a loss
is provided to reduce the carrying value of the property to its estimated
fair value. The implementation of this standard by the Company on July 1,
1996, prospectively, is not expected to have an initial material effect on
financial position or results of operations.
(N)-UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements at September 30, 1996 and for the three
months ended September 30, 1996 and 1995 are unaudited and reflect all
adjustments which are, in the opinion of management, of normal and recurring
nature necessary for a fair presentation of the financial position and
results of operations of the Company. Results for the 1996 interim period are
not necessarily indicative of the results to be expected for the year ending
June 30, 1997.
(O)-RECLASSIFICATIONS
Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
NOTE 3--LAND, CONSTRUCTION IN PROCESS AND COMPLETED HOMES
A summary of land, construction in process and completed homes is as
follows:
SEPTEMBER 30, JUNE 30,
---------------- -----------------------------
1996 1996 1995
---------------- ------------- -------------
(UNAUDITED)
Land and land improvements $49,728,320 49,904,811 13,792,728
Construction in process ... 37,226,408 29,949,316 14,951,838
Completed homes ............ 3,565,628 3,065,792 826,679
---------------- ------------- -------------
$90,520,356 82,919,919 29,571,245
================ ============= =============
As of September 30, 1996 (unaudited) and June 30, 1996, the construction
in process balance includes $18,887,395 and $13,735,463, respectively,
relating to multifamily apartment complexes under construction.
F-11
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--LAND, CONSTRUCTION IN PROCESS AND COMPLETED HOMES--(CONTINUED)
Substantially all of the land and land improvements, construction in
process and completed homes serve as collateral for the construction loans
payable, acquisition and development loans and subordinated debt.
NOTE 4--CONTRACT BILLING STATUS
Information follows with respect to the billing status of uncompleted
contracts, under which revenue is recognized under the percentage of
completion method, as of June 30, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------ ----------
<S> <C> <C> <C>
Costs incurred on uncompleted contracts $ 1,434,389 648,569 247,691
Estimated earnings ...................... 82,441 70,199 112,103
-------------- ------------ ----------
1,516,830 718,768 359,794
Less billings to date ................... (1,516,830) (519,073) --
-------------- ------------ ----------
Costs and estimated earnings in excess
of billings on uncompleted contracts $ -- 199,695 359,794
============== ============ ==========
</TABLE>
NOTE 5--INVESTMENT IN UNCONSOLIDATED REAL ESTATE JOINT VENTURE
On February 16, 1994, Transeastern Pembroke Properties, Inc. acquired a
50% interest in Parkside Homes, a joint venture with an unrelated party, H.
A. Cumber of Pembroke Pines, Inc., ("Cumber") for purposes of acquiring and
developing land in Pembroke Pines, Florida. Transeastern Pembroke Properties,
Inc. serves as the project manager for the joint venture and received a
management fee of $127,500, $150,000 and $80,000 included in rental and other
income in 1996, 1995 and 1994, respectively. Profits and losses of the joint
venture are allocated equally between the parties.
The joint venture agreement between the parties was modified in 1996,
resulting in Transeastern Pembroke Properties, Inc. obtaining perpetual and
unilateral operating control over the joint venture. Accordingly, the joint
venture has been consolidated for the year ended June 30, 1996 and was
accounted for under the equity method for the years ended June 30, 1995 and
1994.
Subsequent to year-end, the Company entered into an agreement with Cumber
to purchase its interest in the Parkside Homes joint venture. In the event
that the Company consummates the acquisition of Cumber's interest, the
purchase will be accounted for using the purchase method of accounting. Under
this accounting method, the purchase price is allocated to the assets
purchased and the liabilities assumed based upon the fair values at the date
of acquisition.
F-12
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--INVESTMENT IN UNCONSOLIDATED REAL ESTATE JOINT VENTURE--(CONTINUED)
The condensed balance sheet of the joint venture at June 30, 1995 and 1994
is as follows:
1995 1994
--------------- ----------
Cash .................................... $ 490,950 88,517
Restricted cash ......................... 210,000 --
Other current assets .................... 558,473 10,631
Deposit on land ......................... 735,525 832,117
Land .................................... 6,748,840 --
Construction in progress ................ 1,500,189 --
Fixed assets, net ....................... 78,235 34,197
------------- ---------
$10,322,212 965,462
============= =========
Current liabilities ..................... 634,665 --
Customer deposits ....................... 964,422 --
Notes payable ........................... 5,765,163 --
Venturers' capital:
Transeastern Pembroke Properties, Inc. 1,478,981 482,731
H. A. Cumber of Pembroke Pines, Inc. .. 1,478,981 482,731
------------- ---------
$ 10,322,212 965,462
============== =========
The condensed statement of income of the joint venture for the periods
ended June 30, 1995 and 1994 is as follows:
1995 1994
------------- ------------
Sales .................................... $6,998,900 --
Cost of sales and expenses ............... 6,550,721 102,065
------------ ----------
Net income (loss) ........................ $ 448,179 (102,065)
============ ==========
The Company's share of net income (loss) $ 224,089 (51,032)
============ ==========
NOTE 6--PROPERTY AND EQUIPMENT
Property and equipment are as follows at June 30, 1996 and 1995:
1996 1995
---------- ------------
Property and equipment .................... 389,140 173,447
Office and model home furnishings ........ 983,602 352,520
---------- ----------
1,372,742 525,967
Accumulated depreciation and amortization (366,027) (143,807)
---------- ----------
1,006,715 382,160
========== ==========
Depreciation expense was approximately $222,000, $64,000 and $43,000 for
the years ended June 30, 1996, 1995 and 1994, respectively.
F-13
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--INCOME TAXES
During the years ended June 30, 1996, 1995 and 1994, income tax expense
consisted of the following:
1996 1995 1994
-------------- ------------ -----------
Current:
Federal ............ $2,402,220 (263,000) 446,400
State .............. 411,000 (45,000) 76,400
-------------- ------------ -----------
2,813,220 (308,000) 522,800
-------------- ------------ -----------
Deferred:
Federal ............ 223,300 582,500 (27,200)
State .............. 38,300 99,700 (2,900)
-------------- ------------ -----------
261,600 682,200 (30,100)
-------------- ------------ -----------
Income tax expense $ 3,074,820 374,200 492,700
============== ============ ===========
Total income tax expense differed from the amounts computed by applying
the U.S. Federal income tax rate of 34% for 1996, 1995 and 1994 to pre-tax
income as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ---------- -----------
<S> <C> <C> <C>
Computed "expected" tax expense ...................... $2,745,400 327,400 536,090
State income taxes, net of Federal income tax benefit 302,800 36,100 50,400
Decrease in beginning of the year valuation allowance
for deferred tax assets .............................. -- -- (87,400)
Other, net ........................................... 26,620 10,700 (6,390)
------------ --------- ---------
$3,074,820 374,200 492,700
============ ========= =========
</TABLE>
The significant components of deferred income tax (benefit) expense for
the years ended June 30, 1996, 1995 and 1994 follow:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- -----------
<S> <C> <C> <C>
Deferred income tax expense (benefit) ............... $ 261,600 682,200 57,300
Decrease in beginning of the year valuation
allowance for deferred tax assets ................. -- -- (87,400)
---------- --------- ---------
$ 261,600 682,200 (30,100)
=========== ========= =========
</TABLE>
F-14
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- -----------
<S> <C> <C>
Deferred tax assets:
Construction in process due to differences in indirect costs
capitalized ............................................... $ -- 164,500
Property and equipment due to differences in depreciation .. 21,600 --
Adjustment resulting from change in tax status .............. 5,900 7,900
Other ....................................................... -- 16,100
--------------- -----------
Total gross deferred tax assets ............................. 27,500 188,500
Less valuation allowance .................................... -- --
--------------- -----------
Deferred tax assets ....................................... 27,500 188,500
--------------- -----------
Deferred tax liabilities:
Interest capitalized ....................................... 975,500 434,800
Investment in joint venture ................................ 206,700 149,700
Construction in process due to differences in indirect
costs capitalized ........................................ 79,400 --
Profits recognized under percentage of completion method
for financial statement purposes ......................... -- 26,400
Commissions capitalized for tax reporting purposes ........ 21,700 21,700
Deferred cost .............................................. -- 188,200
Property and equipment due to differences
in depreciation .......................................... -- 19,800
--------------- -----------
Total gross deferred tax liabilities ...................... 1,283,300 840,600
--------------- -----------
Net deferred tax liabilities .............................. $(1,255,800) (652,100)
=============== ===========
</TABLE>
During the year ended June 30, 1996, there was no change to the valuation
on deferred tax assets.
NOTE 8--CONSTRUCTION LOANS PAYABLE
Construction loans payable were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
---------------- ----------------------------
1996 1996 1995
---------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Construction first mortgage loans for various
communities payable to various lenders, secured
by construction in process and completed homes,
with interest rates ranging from prime plus 1%
to prime plus 1.5%, maturing as follows at June
30, 1997--$13,295,297, 1998--$8,175,513 ........ $29,035,303 21,470,810 10,785,290
================ ============= ============
</TABLE>
Approximately $38.6 million of the Company's construction, acquisition and
development loans has been personally guaranteed by the principal owners of
the Company. The prime rate at June 30, 1996 and 1995 was 8.25 percent and 9
percent, respectively.
F-15
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--ACQUISITION AND DEVELOPMENT LOANS PAYABLE
Acquisition and development loans payable were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
---------------- ----------------------------
1996 1996 1995
---------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Acquisition and development first mortgage loans
payable, interest ranging from prime plus 1% to
prime plus 1.5% with maturities ranging from August
28, 1996 to November 30, 1998, secured by various
underlying real estate parcels ..................... $19,130,052 21,878,922 6,399,947
Acquisition and development first mortgage loan
payable, interest accruing at 20% per annum (an
amount equal to prime plus 2% to be paid monthly
during the term of the loan with the difference to
be calculated and paid by the Company at the time
the loan is paid in full). The loan agreement
provides that net cash flow generated from the
project securing the loan, after direct expenses and
overhead payments, will be paid to the lender to
reduce the loan balance. The loan matures on
September 25, 2000 ................................. 2,061,082 2,941,320 --
Acquisition and development second mortgage loans
payable, noninterest-bearing with maturities from
the lesser of 6 to 24 months or upon the sale of the
home, secured by construction in process, completed
homes or lots within various communities ........... 418,137 482,147 495,430
---------------- ------------- ------------
$21,609,271 25,302,389 6,895,377
================ ============= ============
</TABLE>
The prime rate at June 30, 1996 and 1995 was 8.25 percent and 9 percent,
respectively.
Aggregate scheduled principal maturities are as follows:
YEAR ENDING JUNE 30,
---------------------
1997 ....................................$ 6,600,400
1998 .................................... 15,053,169
1999 .................................... 707,500
2000 .................................... --
2001 .................................... 2,941,320
------------
$ 25,302,389
============
F-16
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--SUBORDINATED DEBT
Subordinated debt were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
---------------- ---------------------------
1996 1996 1995
---------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Subordinated loan payable, interest at 10% with an
additional 10% interest participation (subject to a
minimum additional participation of $800,000), maturing
February 28, 1999, secured by a collateral assignment of
all the common stock of Transeastern Properties at the
Cove, Inc. ............................................ $3,121,785 3,121,785 2,821,212
Subordinated loan payable with a base interest rate of
20%. An additional 4% interest is payable to the lender
subject to the generation of sufficient net profits from
the property. In addition, to the extent that the
property generated net profits after the payment of the
4% additional interest, the lender is entitled to an
additional 5% of net profits generated on the
residential parcels and 2.5% of net profits generated on
other mixed-use parcels. In the event that a $1,000,000
principal payment on the loan is not made by September
1, 1996, the 5% and 2.5% are increased to 10% and 5%,
respectively. The lender is still entitled to receive
the contingent returns even in the event of prepayment
of the loan. The loan matures on March 29, 1998 and is
secured by a pledge assignment of all the common stock
of Transeastern Pembroke Villages, Inc. ............... 2,189,921 2,800,000 --
Subordinated loan payable, interest at 10% with an
additional participation ranging from 30% to 45% of
excess cash flow over the term of the loan, subject to a
minimum additional participation of $500,000. The loan
matures on November 28, 2000 and is secured by a
collateral assignment of all of the general and limited
partnership interest of Transeastern Plantation
Apartments, Ltd. ...................................... $1,953,590 1,888,245 --
Subordinated loans payable, interest ranging from 14% to
18% with various maturity dates. ...................... -- -- 753,781
---------------- ------------ ------------
$7,265,296 7,810,030 3,574,993
================ ============ ============
</TABLE>
F-17
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--SUBORDINATED DEBT--(CONTINUED)
Aggregate scheduled principal maturities are as follows:
YEAR ENDING JUNE 30,
--------------------
1997 ................................... $ --
1998 ................................... 2,800,000
1999 ................................... 3,121,785
2000 ................................... --
2001 ................................... 1,888,245
-----------
$ 7,810,030
===========
NOTE 11--REDEEMABLE PREFERRED STOCK
A summary of redeemable preferred stock follows as of June 30, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
-------------- ------------
<S> <C> <C>
Series A redeemable preferred stock, $.01 par value,
redeemable at $100 per share plus cumulative unpaid
dividends, 29,000 shares authorized, 1,819 and 2,215 shares
issued and outstanding in 1996 and 1995, respectively ...... $ 181,900 235,832
Series B redeemable preferred stock, $.01 par value,
redeemable at $100 per share plus cumulative unpaid
dividends, 46,500 shares authorized, 33,202 and 31,368
shares issued and outstanding in 1996 and 1995, respectively $ 3,320,200 3,136,800
------------- -----------
$3,502,100 3,372,632
============= ===========
</TABLE>
The Series A Redeemable Preferred Stock (the "Series A Preferred Stock")
contained a provision in which the Company retained the right to repurchase a
stipulated amount of shares and related warrants prior to November 30, 1995.
On an annual basis the Company has adjusted the carrying amount of the
redeemable preferred stock eligible for redemption by November 30, 1995 by
the amount representing the required rate of return of 25% less dividends
actually paid. This has been reflected with a charge against retained
earnings and a related adjustment to the preferred stock dividend amount. In
redeeming these Series A Preferred Stock shares and warrants, the Company was
required to redeem the same percentage of outstanding Series A preferred
stock as the percentage of warrants redeemed. Certain eligible shares and
warrants were redeemed as part of the repurchase in 1995 as described below.
In the current year, the Company repurchased all shares and warrants eligible
for redemption.
In 1995, the Company repurchased (1) 21,358 shares of Series A Preferred
Stock and related warrants to purchase 2,057,692 shares of common stock for
$.01, (2) $2,963,084 of senior subordinated project financing notes, and (3)
$2,500,000 of senior subordinated project financing acquisition notes for an
aggregate price of $4,500,000. Such repurchase transaction was facilitated
through an entity in which a director is an officer (note 13). Based on the
above, the Company recognized an extraordinary gain of $700,485, net of
related taxes of $422,600, relative to the extinguishment of the above
mentioned senior subordinated project financing and acquisition notes. The
Series A Preferred Stock and related common stock warrants had been issued
for an aggregate price of $2,135,800 and had a book value of $2,246,719 as of
the date of the repurchase, due to the rate of return adjustment described in
the previous
F-18
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--REDEEMABLE PREFERRED STOCK--(CONTINUED)
paragraph. These securities were re-acquired for a total cost of $535,000,
including related tax effects. Such $1,711,719 excess of the carrying amount
of redeemable preferred stock over the amount allocated upon repurchase,
including related tax effects, has been reflected as a credit to
shareholders' equity.
During 1995, the Company authorized 46,500 and issued 30,000 shares of
Series B redeemable preferred stock (the "Series B Preferred Stock"), par
value $.01, at a price of $100 per share. Holders of the Series B or Series A
Preferred Stock (the "preferred stock") are entitled to receive cumulative
dividends at the rate of $12 per share per annum. Dividends are payable
quarterly in cash, except for the first twelve quarterly dividends for Series
A Preferred Stock and the first five quarterly dividends for Series B
Preferred Stock which were, at the option of the Company, paid by the
issuance of additional shares of preferred stock, based on a $100 share
value. Series A Preferred Stock has a dividend and liquidation preference
over Series B Preferred Stock. Holders of preferred stock shall have the
right as a class to elect one member of the Company's Board of Directors or
additional members in order to retain at least 25% of the total number of
directors. Upon a default in payment of dividends on preferred stock for two
consecutive quarters, the preferred stockholders shall have the right to
elect a majority of the number of directors constituting a full board. Series
A Preferred Stock and Series B Preferred Stock which remains outstanding
until June 1, 2005 and December 31, 2004, respectively, shall be redeemed at
$100 per share plus cumulative unpaid dividends. The Company retains the
right to call for redemption any or all preferred stock at any time at a
price equal to $100 per share plus cumulative unpaid dividends. Additionally,
all preferred stock must be redeemed at a price equal to $100 per share plus
cumulative unpaid dividends, by the Company in the event that the Company
completes a sale of its common stock resulting in gross proceeds in excess of
$5,000,000 or $10,000,000, triggering redemption of Series A and Series B
Preferred Stock, respectively.
NOTE 12--WARRANTS
Information relating to common stock warrants issued by the Company is
summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES REPRESENTED
BY OUTSTANDING WARRANTS AT JUNE 30,
----------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Issued in connection with:
Series A redeemable preferred stock(a) 171,462 197,308 2,255,000
Series B redeemable preferred stock(b) 567,580 567,580 --
Subordinated debt(c) ................... 445,424 445,424 445,424
Other(d) ............................... 74,308 74,308 74,308
Common stock-contingent shares(e) ..... -- -- --
----------- ----------- ----------
1,258,774 1,284,620 2,774,732
=========== =========== ==========
</TABLE>
As of June 30, 1996, the exercise price on all outstanding warrants was
$.01 per warrant share. Management did not allocate value to the warrants
related to subordinated debt based upon its determination that the value of
the warrants on date of issuance was deminimus. This determination was based
on the absence of a liquid market for the resale of the warrants, and the
level of profits generated by the Company prior to the date of issuance of
such of warrants.
(a) In 1993, in connection with the issuance of Series A preferred stock,
the Company issued warrants initially exercisable for 2,255,000 shares of
common stock (27.5% of fully diluted common
F-19
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--WARRANTS--(CONTINUED)
stock) at an exercise price of $.01 per warrant share (the "Series A
Warrants"). As part of the aforementioned repurchase of the Series A
preferred stock, warrants to purchase 2,057,692 shares of common stock were
redeemed from the original 2,255,000 leaving outstanding 197,308 warrants to
purchase common stock, associated with Series A Preferred Stock. The Company
redeemed 53,808 Series A Warrants on November 30, 1995 in connection with a
special redemption right as described in note 11. The remaining Series A
Warrants expire on June 1, 2005 if unexercised. The Series A Warrants contain
an anti-dilution provision which allows the warrantholder to purchase
additional shares of common stock (additional warrants for 27,962 shares of
common stock were issued due to the 1996 common stock issuance) in the event
that the warrantholder's potential ownership percentage in the Company would
otherwise be reduced as the result of the sale of common stock to other
parties. The additional warrants were retroactively adjusted as outstanding
for all periods presented in the table above.
(b) In connection with the issuance of the Series B Preferred Stock, the
Company issued warrants initially exercisable for 540,733 shares of common
stock at an exercise price of $.01 per warrant share (the "Series B
Warrants"). The Series B Warrants are exercisable through the expiration date
of December 31, 2003. The Series B Warrants contain an anti-dilution
provision which allows the warrantholder to purchase additional shares of
common stock (additional warrants for 26,847 shares of common stock are
issuable to the warrantholders due to the 1996 common stock issuance) in the
event that the warrantholder's potential ownership percentage in the Company
would otherwise be reduced as the result of the sale of common stock for cash
to other parties in the aggregate amount not to exceed $5 million. The
additional warrants were retroactively adjusted as outstanding for all
periods presented in the table above.
(c) As additional consideration for the purchase of the $2,500,000 senior
subordinated project acquisition notes issued in 1994, the Company issued
warrants to purchase 445,424 shares of common stock at an exercise price of
$.01 per share. The warrants expire on June 1, 2005 if unexercised. As
described in note 11, the $2,500,000 subordinated project acquisition notes
were prepaid at a discount during 1995 but the warrants remain outstanding.
(d) In October, 1993, the Company also issued warrants to purchase 74,308
shares of common stock at an exercise price of $.01 per share. These warrants
were issued to an unrelated party for assistance in completing the Series A
preferred stock placement. The warrants expire on May 31, 2005 if
unexercised.
(e) The March, 1996 common stock issuance included a provision which
provided for the issuance of warrants to purchase additional shares of the
Company's common stock in the event certain targeted common stock share
prices were not achieved in the Company's initial public offering. Presuming
an offering price of $7, the warrants would be exercisable for 214,115 shares
of common stock. As of June 30, 1996, none of the warrants have been
exercised.
NOTE 13--RELATED PARTY TRANSACTIONS
During 1995, the Company had the following transactions with an entity in
which a director is an officer: (1) a $500,000 fee, which was paid to the
entity for due diligence relating to prospective real estate acquisitions and
financial advisory services. The acquisition effort was abandoned and the
company targeted for acquisition reimbursed the Company for the $500,000 fee
subsequent to June 30,
F-20
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--RELATED PARTY TRANSACTIONS--(CONTINUED)
1995. The fee was accounted for as a deferred cost included in other assets
at June 30, 1995; (2) the entity received $424,819 for facilitating a
repurchase of Series A preferred stock, warrants and senior subordinated
project financing and acquisition notes from an investor (note 11); and (3)
the entity loaned the Company $1,000,000 pursuant to senior subordinated
project financing notes of which $670,000 was outstanding as of June 30, 1995
(note 10). Interest on such notes aggregated $88,000 for 1995.
Loans payable to affiliates and officers includes $2,441,366 of
interest-bearing unsecured loans at annual interest rates ranging from prime
plus 1% to 13% and maturities ranging from due on demand to November, 1996.
In March, 1994, the Company entered into a five-year lease for office
space with an affiliated corporation. The lease agreement was modified
subsequent to year end and provides for a new five-year lease term expiring
in the year 2001. Rent expense under the lease was approximately $58,000 for
the year ended June 30, 1996 (see note 15).
In 1996, the Company constructed and sold homes to two of the Company's
principal shareholders and officers. The homes were sold for amounts equal to
the Company's cost of constructing the homes, including land. In connection
with the sales, the Company accepted unsecured notes aggregating $215,873
from the officers. The loans are repayable two years from the date of closing
and bear interest at 5.88%. Subsequent to June 30, 1996, it was determined by
the Company's Board of Directors that such loans will be forgiven contingent
upon the successful consummation of the Company's initial public offering, as
described in note 16. Compensation expense will be recognized upon resolution
of the contingency. The Company was owed an additional $67,449 on one of the
homes as of June 30, 1996 which was repaid subsequent to year end.
NOTE 14--EMPLOYEE BENEFITS
(A)-401(K) PLAN
In March, 1996, the Company adopted a defined contribution retirement plan
which complies with Section 401(k) of the Internal Revenue Code.
Substantially all employees who have completed 120 days of service with the
Company are eligible to participate in the plan. The plan provides for
Company matching contributions of 25% of the employee's voluntary
contributions, up to a maximum of 6% of the employee's compensation. The
amount expensed for the Company's 25% matching contribution during 1996 was
$2,586.
(B)-INCENTIVE COMPENSATION PLANS (UNAUDITED)
In August, 1996, the Board of Directors adopted, subject to shareholder
approval, an incentive compensation program for its employees. One million
shares of the Company's common stock have been reserved for issuance. Under
the program, the Company may periodically grant nonqualified stock options
for common stock to key employees and/or award restricted common stock shares
to certain non-management employees. The restricted common stock awards would
vest over a three-year period, subject to the employee's continued employment
with the Company.
The program also provides for long-term incentive awards in which cash
awards will be paid to key employees at the end of three-year rolling
performance periods, based upon total shareholder return achieved by the
Company as compared to shareholder returns achieved by a broad index of other
publicly held companies.
F-21
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--COMMITMENTS AND CONTINGENCIES
Rent expense for 1996 aggregated approximately $60,000. Future minimum
lease payments for the years ending June 30 are approximated as follows:
AFFILIATED
COMPANY
OTHER (SEE NOTE 13) TOTAL
----------- -------------- ---------
1997 ..................... $ 21,000 72,000 93,000
1998 ..................... 21,000 76,000 97,000
1999 ..................... 20,000 79,000 99,000
2000 ..................... -- 83,000 83,000
2001 ..................... -- 22,000 22,000
-------- ------- -------
$ 62,000 332,000 394,000
======== ======= =======
Minimum lease payments to the affiliated company relate to a lease on the
Company's corporate office space, and are based upon a lease modification
executed in September 1996 (unaudited) as described in note 13.
Rent expense is recognized on a straight-line basis for financial
statement purposes.
The Company and certain subsidiaries are parties to various claims, legal
actions and complaints arising in the ordinary course of business. In the
opinion of management, the disposition of these matters will not have a
material adverse effect on the financial condition of the Company.
The Company is subject to the usual obligations associated with entering
into contracts for the purchase, development and sale of real estate in the
routine conduct of its business. However, at June 30, 1996, the Company was
subject to specific significant project construction and development
contracts with a remaining aggregate commitment of $8,640,000.
The Company is committed, under various letters of credit and performance
bonds, to perform certain development and construction activities and provide
certain guarantees in the normal course of business. Outstanding letters of
credit under these arrangements totaled approximately $3.5 million at June
30, 1996. Performance bonds outstanding as of June 30, 1996 totaled $491,155.
NOTE 16--SUBSEQUENT EVENTS
Effective August, 1996 (unaudited), the Company's Board of Directors
approved an 8.2 to 1 common stock split and an increase in the number of
shares authorized to 41,000,000. Amounts in the accompanying consolidated
financial statements have been restated to give retroactive effect to the
stock split. Due to the retroactive restatement, additional paid-in capital
was negative at June 30, 1994 and 1993, because total amounts paid for shares
at those dates did not exceed restated common stock outstanding amounts,
after the 8.2 to 1 stock split, times the applicable par value.
On July 1, 1996, the Company exercised an option to acquire a parcel of
land in Pembroke Pines, Florida. The purchase price was $3,500,000, funded in
part with a $2,485,000 first mortgage bearing interest at prime plus 1 1/2 %
and due and payable on October 1, 1996 with an option to extend to January 1,
1997.
F-22
<PAGE>
TRANSEASTERN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--SUBSEQUENT EVENTS--(CONTINUED)
The Company intends to conduct an initial public offering by filing a
registration statement on Form S-1 for 3.2 million shares of common stock,
par value $.01 per share, with 2,892,326 shares being sold by the Company and
307,674 shares being sold by certain shareholders of the Company. The Company
will not receive any of the proceeds from the sale of common stock by selling
shareholders. However, there can be no assurances that such offering will be
consummated.
During January, 1996, the Company entered into an agreement with a lender
to provide a $750,000 revolving credit line, interest at prime plus 1%,
maturing on February 1, 1998. The line of credit is secured by various
underlying real estate parcels. Borrowings outstanding under this line of
credit totaling $741,000 and $1,000 were classified as other liabilities at
September 30, 1996 (unaudited) and June 30, 1996, respectively. In addition,
the Company obtained $1.9 million in proceeds from borrowings on other
sources during the three months ended September 30, 1996.
F-23
<PAGE>
TRANSEASTERN PROPERTIES, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
P-1
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Financial Information as of and for the
three months ended September 30, 1996 has been presented as if the Company
had issued 2,892,326 shares of Common Stock for $7.00 per share in the
Offering on July 1, 1996 and utilized the proceeds thereof as described in
"Use of Proceeds" on July 1, 1996, including, the proposed acquisition of
certain minority interests in the Company's Parkside Homes joint venture and
in Transeastern Hollywood Apartments, Ltd. and Transeastern Plantation
Apartments, Ltd. In management's opinion, all adjustments necessary to
reflect the above transactions have been made.
The pro forma financial information is not necessarily indicative of what
the Company's actual financial position and results of operations would have
been as of and for the period indicated, nor does it purport to represent the
future financial position or results of operations of the Company.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1996
-----------------------------------------------
PRO FORMA PRO FORMA
ADJUSTMENTS AS ADJUSTED
ACTUAL FOR OFFERING FOR OFFERING
------------ --------------- ---------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Revenues ................................................ $ 18,480 $ 18,480
Expenses ................................................ 18,072 $ (9)(A) 18,063
Minority interest in income of consolidated subsidiaries -- -- --
Interest costs incurred ................................. 2,428 (254) 2,174
Less: Amounts capitalized ............................... 2,348 (228) 2,120
Net interest expense .................................... 80 (26) 54
Net income before income taxes and extraordinary gain .. 408 9 417
Income tax expense ...................................... 155 3 (C) 158
Net income before extraordinary gain .................... 253 6 259
Net income .............................................. 253 6 259
Dividends on redeemable preferred stock ................. (105) 105 (D) --
Net income available for common shares .................. $ 148 $ 111 $ 259
Net income per common and common equivalent share:
Net income before extraordinary gain .................. $ .02 $ -- $ .02
Weighted average number of common stock and common stock
equivalents outstanding ............................... 7,525,410 2,892,326 10,417,736
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents ............................ $ 750 $ 5,564 (E) $ 6,314
Total assets ........................................... 97,905 5,794 (F) 103,699
Total liabilities ...................................... 79,633 (6,326)(G) 73,307
Minority interest in consolidated subsidiaries ........ 3,738 (2,538)(H) 1,200
Redeemable preferred stock ............................. 3,502 (3,502)(I) --
Shareholders' equity ................................... 11,032 18,160 (J) 29,192
<FN>
- ----------
All of the dollar amounts in the following notes are in thousands, except per
share data.
(A) Reflects a $26 reduction of interest costs expensed, net of amounts
capitalized, relating to the repayment of debt offset by a $17 increased
cost of sales due to purchase accounting adjustments relating to the
Company's purchase of minority interests in the Company's joint ventures
and limited partnerships.
(B) Not used.
(C) Reflects adjustment to income tax expense at statutory rate.
(D) Reflects the elimination of dividends on preferred stock as the result of
the assumed redemption of the stock as of July 1, 1996.
(E) Reflects increase to cash as the result of the initial public offering,
representing the net effect of the following transactions:
P-2
<PAGE>
Proceeds of initial public offering, net of offering costs .......... $18,049
Purchase of minority interests in joint ventures and limited
partnerships (see note (K)) ...................................... (2,413)
Redemption of preferred stock ...................................... (3,502)
Repayment of debt (see note (G) below) ............................. (6,929)
----------
Net increase in cash and cash equivalents resulting from
public offering ................................................. $ 5,205
Additional cash flow adjustments which would have resulted if Company had
completed the Offering on July 1, 1996:
Increase in cash due to elimination of preferred stock cash dividends 105
Increase in cash due to interest cost savings on acquisition and
development loans, subordinated debt and loans to affiliates ........ 254
-------
Pro forma adjustment to cash and cash equivalents ..................... 5,564
(F) Reflects the following transactions:
Increase in cash and cash equivalents ................................ $5,564
Increase in land inventory relating to purchase accounting adjustments
associated with purchase of minority interests in joint ventures,
net of increase in cost of sales .................................. 458
Reduction in land inventory relating to a decrease in interest costs
capitalized ...................................................... (228)
---------
$5,794
=========
(G) Reflects the following transactions:
Reduction in subordinated debt payable as the result of debt payments $(4,550)
Reduction in other liabilities relating to the repayment of loans
payable to affiliates and officers ............................... (2,379)
-----------
(6,929)
Increase in notes payable relating to purchase of minority interest
in joint venture (see note (K)) ................................. 600
Increase in income taxes payable per note (C) above ................ 3
-----------
(6,326)
(H) Reflects the purchase of minority ownership interests in the Company's
joint ventures.
(I) Reflects the redemption of the Company's preferred stock as of July 1,
1995.
(J) Reflects the following transactions:
Increase in common stock and additional paid in capital resulting
from the Company's initial public offering ....................... $18,049
Increase in net income for fiscal year ending June 30, 1996 ....... 6
Increase in retained earnings relating to the elimination of
dividends on preferred stock paid during fiscal 1996 ............. 105
----------
$18,160
(K) The aggregate purchase price of the minority interests in consolidated
subsidiaries of $3,013 will be paid $2,413 in cash from the proceeds of
the offering and $600 one year from the date of the purchase of these
interests.
</FN>
</TABLE>
P-3
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Financial Information as of and for the
year ended June 30, 1996 has been presented as if the Company had issued
2,892,326 shares of Common Stock for $7.00 per share in the Offering on July
1, 1995 and utilized the proceeds thereof as described in "Use of Proceeds"
on July 1, 1995, including, the proposed acquisition of certain minority
interests in the Company's Parkside Homes joint venture and in Transeastern
Hollywood Apartments, Ltd. and Transeastern Plantation Apartments, Ltd. In
management's opinion, all adjustments necessary to reflect the above
transaction have been made.
The pro forma financial information is not necessarily indicative of what
the Company's actual financial position and results of operations would have
been as of and for the period indicated, nor does it purport to represent the
future financial position or results of operations of the Company.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
-----------------------------------------------
PRO FORMA PRO FORMA
ADJUSTMENTS AS ADJUSTED
ACTUAL FOR OFFERING FOR OFFERING
------------ --------------- ---------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Revenues ................................................ $ 105,673 $ 105,673
Expenses ................................................ 96,732 $ (13) (A) 96,719
Minority interest in income of consolidated subsidiaries (865) 865 (B) --
Interest costs incurred ................................. 5,232 (545) 4,687
Less: Amounts capitalized ............................... 4,994 (441) 4,553
Net interest expense .................................... 238 (104) 134
Net income before income taxes and extraordinary gain .. 8,076 878 8,954
Income tax expense ...................................... 3,075 333 (C) 3,408
Net income before extraordinary gain .................... 5,001 545 5,546
Net income .............................................. 5,001 545 5,546
Dividends on redeemable preferred stock ................. (411) 411 (D) --
Net income available for common shares .................. $ 4,590 $ 956 $ 5,546
Net income per common and common equivalent share:
Net income before extraordinary gain .................. $ .61 $ (.08) $ .53
Weighted average number of common stock and common stock
equivalents outstanding ............................... 7,548,443 2,892,326 10,440,769
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents ............................ $ 3,769 $ 7,025 (E) $ 10,794
Total assets ........................................... 92,703 6,968 (F) 99,671
Total liabilities ...................................... 74,578 (5,996) (G) 68,582
Minority interest in consolidated subsidiaries ........ 3,738 (2,538) (H) 1,200
Redeemable preferred stock ............................. 3,502 (3,502) (I) --
Shareholders' equity ................................... 10,884 19,004 (J) 29,888
<FN>
- ----------
All of the dollar amounts in the following notes are in thousands, except per
share data.
(A) Reflects a $104 reduction of interest costs expensed, net of amounts
capitalized, relating to the repayment of debt offset by a $91 increased
cost of sales due to purchase accounting adjustments relating to the
Company's purchase of minority interests in the Company's joint ventures
and limited partnerships.
(B) Reflects the elimination of the minority interest in income of
consolidated subsidiaries relating to the Company's purchase of minority
interests in the Company's joint ventures and limited partnerships.
(C) Reflects adjustment to income tax expense at statutory rate.
(D) Reflects the elimination of dividends on preferred stock as the result of
the assumed redemption of the stock as of July 1, 1995.
(E) Reflects increase to cash as the result of the initial public offering,
representing the net effect of the following transactions:
P-4
<PAGE>
Proceeds of initial public offering, net of offering costs ........ $18,048
Purchase of minority interests in joint ventures and limited
partnerships (see note (K)) ..................................... (2,413)
Redemption of preferred stock ..................................... (3,502)
Repayment of debt (see note (G) below) ............................ (6,929)
----------
Net increase in cash and cash equivalents resulting from public
offering ....................................................... $ 5,204
Additional cash flow adjustments which would have resulted if Company had
completed the Offering on July 1, 1995:
Increase in cash distributions from joint ventures during fiscal
1996 as the result of purchase of minority interests in joint
ventures ........................................................... 865
Increase in cash due to elimination of preferred stock cash dividends 411
Increase in cash due to interest cost savings on acquisition and
development loans, subordinated debt and loans to affiliates ....... 545
-------
Pro forma adjustment to cash and cash equivalents .................... 7,025
(F) Reflects the following transactions:
Increase in cash and cash equivalents ............................... $7,025
Increase in land inventory relating to purchase accounting adjustments
associated with purchase of minority interests in joint ventures,
net of increase in cost of sales ................................. 384
Reduction in land inventory relating to a decrease in interest costs
capitalized, net of reduction in cost of sales ................... (441)
-------
$6,968
(G) Reflects the following transactions:
Reduction in subordinated debt payable as the result of debt payments $(4,550)
Reduction in other liabilities relating to the repayment of loans
payable to affiliates and officers ............................... (2,379)
-------
(6,929)
Increase in notes payable relating to purchase of minority interest
in joint venture (see note (K)) .................................. 600
Increase in income taxes payable per note (C) above ................ 333
-------
(5,996)
(H) Reflects the purchase of minority ownership interests in the Company's
joint ventures.
(I) Reflects the redemption of the Company's preferred stock as of July 1,
1995.
(J) Reflects the following transactions:
Increase in common stock and additional paid in capital resulting
from the Company's initial public offering ...................... $18,048
Increase in net income for fiscal year ending June 30, 1996 ...... 545
Increase in retained earnings relating to the elimination of
dividends on preferred stock paid during fiscal 1996 ............ 411
-------
$19,004
(K) The aggregate purchase price of the minority interests in consolidated
subsidiaries of $3,013 will be paid $2,413 in cash from the proceeds of
the offering and $600 one year from the date of the purchase of these
interests.
</FN>
</TABLE>
P-5
<PAGE>
[INSIDE BACK COVER]
1) This is a picture of various PRISM Awards presented to the Company in 1995
and 1996, and several inset pictures of entry signage at certain communities
developed by the Company.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE
HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. 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 DATE SUBSEQUENT TO THE
DATE HEREOF.
-------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ........................... 3
The Offering ................................. 4
Summary Financial Data ....................... 4
Risk Factors ................................. 7
The Company .................................. 13
Use of Proceeds .............................. 13
Dividend Policy .............................. 14
Capitalization ............................... 15
Dilution ..................................... 16
Selected Financial Data ...................... 17
Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
Business ..................................... 26
Management ................................... 41
Certain Relationships and Related
Transactions ................................. 46
Principal and Selling Shareholders ........... 50
Shares Eligible for Future Sale .............. 51
Description of Capital Stock ................. 53
Certain United States Federal Tax
Considerations for Non-U.S. Holders of Common
Stock ........................................ 55
Underwriting ................................. 57
Legal Matters ................................ 58
Experts ...................................... 58
Additional Information ....................... 59
Index to Financial Statements ................ F-1
Unaudited Pro Forma Financial Information ... P-1
</TABLE>
- -----------------------------------------------------------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BY 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.
3,200,000 SHARES
TRANSEASTERN
PROPERTIES, INC.
COMMON STOCK
- -----------------------------------------------------------------------------
P R O S P E C T U S
- -----------------------------------------------------------------------------
BT Securities Corporation
Cruttenden Roth
Incorporated
Janney Montgomery Scott Inc.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the estimated expenses (other than underwriting
discounts and commissions and the Representative's non-accountable expense
allowance) to be paid by the Registrant in connection with the issuance and
distribution of the securities being registered herein.
SEC Registration Fee ............................ $ 14,014(1)
NASD Filing Fee ................................. 3,663
NASDAQ National Market Quotation Fee ............ 50,000
Legal Fees and Expenses* ........................ 160,000
Registrar and Transfer Agent Fees and Expenses* 7,000
Accounting Fees and Expenses* ................... 75,000
Printing and Engraving Expenses* ................ 60,000
Blue Sky Qualification Fees and Expenses ....... 40,000
Miscellaneous ................................... 50,000
-------------
Total* ........................................ $459,677
=============
- ----------
* Estimated
(1) Of such expenses, approximately $11,639 is expected to be paid by the
Registrant and approximately $2,375 is expected to be paid by the
shareholders who are selling Common Stock of the Registrant in this
Offering.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0831 of the Florida Business Corporation Act (the "Florida
Act") provides that a director is not personally liable for monetary damages
to the corporation or any person for any statement, vote, decision or failure
to act regarding corporate management or policy, by a director, unless: (a)
the director breached or failed to perform his duties as a director; and (b)
the director's breach of, or failure to perform, those duties constitutes:
(i) a violation of criminal law unless the director had reasonable cause to
believe his conduct was lawful or had no reasonable cause to believe his
conduct was unlawful; (ii) a transaction from which the director derived an
improper personal benefit, either directly or indirectly; (iii) a
circumstance under which the director is liable for an improper distribution;
(iv) in a proceeding by, or in the right of the corporation to procure a
judgment in its favor or by or in the right of a shareholder, conscious
disregard for the best interests of the corporation, or willful misconduct;
or (v) in a proceeding by or in the right of someone other than the
corporation or a shareholder, recklessness or an act or omission which was
committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety or property.
Section 607.0850 of the Florida Act provides that a corporation shall have
the power to indemnify any person who was or is a party to any proceeding
(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 or employee or agent of the
corporation against liability incurred in connection with such proceeding if
he acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Section 607.0850 also provides that a corporation shall
have the power to indemnify any person, who was or is a party to any
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 or agent of the corporation, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof. Under Section 607.0850,
indemnification is authorized if such person acted in good faith
II-1
<PAGE>
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue, or matter as to which such person is adjudged to
be liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability, but
in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such court deems
proper. To the extent that a director, officer, employee or agent has been
successful on the merits or otherwise in defense of any of the foregoing
proceedings, or in defense of any claim, issue or matter therein Section
607.0850 provides that, he shall be indemnified against expenses actually and
reasonably incurred by him in connection therewith. Under Section 607.0850,
any indemnification, unless pursuant to a determination by a court, shall be
made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper under the circumstances because he has met the applicable
standard of conduct. Notwithstanding the failure of a corporation to provide
indemnification, and despite any contrary determination by the corporation in
a specific case, Section 607.0850 permits a director, officer, employee or
agent of the corporation who is or was a party to a proceeding to apply for
indemnification to the appropriate court and such court may order
indemnification if it determines that such person is entitled to
indemnification under the applicable standard.
Section 607.0850 also provides that a corporation has the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation against any liability
asserted against him and 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 Section
607.0850.
The Registrant's bylaws provide that it shall indemnify its officers and
directors and former officers and directors to the full extent permitted by
law.
The Registrant has entered into indemnification agreements with its
directors and certain of its officers. The indemnification agreements
generally provide that the Registrant will pay certain amounts incurred by an
officer or director in connection with any civil or criminal action or
proceeding and specifically including actions by or in the name of the
Registrant (derivative suits) where the individual's involvement is by reason
of the fact that he was or is an officer or director. Under the
indemnification agreements, an officer or director will not receive
indemnification if such person is found not to have acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Registrant. The agreements provide a number of procedures
and presumptions used to determine the officer's or director's right to
indemnification and include a requirement that in order to receive an advance
of expenses, the officer or director must submit an undertaking to repay any
expenses advanced on his behalf that are later determined he was not entitled
to receive.
The Registrant's directors and officers are covered by insurance policies
indemnifying them against certain liabilities, including liabilities under
the federal securities laws (other than liability under Section 16(b) of the
Exchange Act), which might be incurred by them in such capacities.
The Underwriting Agreement, filed as Exhibit 1.1 to this Registration
Statement, provides for indemnification by the Underwriter of the
Registrant's directors, officers and controlling persons against certain
liabilities that may be incurred in connection with the offering, including
liabilities under the Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Except as hereinafter set forth, there have been no sales of unregistered
securities during the last three years by the Registrant. (The following
information has been adjusted to reflect an 8.2-for-1 stock split of the
Common Stock effected on August 15, 1996). The following transactions were
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof.
II-2
<PAGE>
(a) On October 20, 1993 the Registrant issued a warrant to purchase up to
74,308 shares of Common Stock at an exercise price of $.01 per share to
Forrest Hamilton in exchange for his performance of certain services on the
Registrant's behalf.
(b) On January 3, 1994 the Registrant issued a warrant to purchase up to
445,424 shares of Common Stock at an exercise price of $.01 per share to G.
Patrick Savin as an inducement to him to provide certain financial
accommodations to the Registrant.
(c) On December 6, 1994, the Registrant sold an aggregate of 30,000 shares
of its Series B Preferred Stock, par value $.01 per share (the "Series B
Preferred") at a price of $100 per share (yielding gross proceeds of
$3,000,000), and warrants to purchase an aggregate of approximately 567,587
shares of Common Stock at an exercise price of $.01 per share (the "Series B
Warrants"). The number of shares of Series B Preferred and Series B Warrants
sold and the names of the Registrant's shareholders to whom such Series B
Preferred and Series B Warrants were issued are set forth on the following
table:
<TABLE>
<CAPTION>
NUMBER OF SERIES B NUMBER OF SERIES B
NAME PREFERRED SHARES WARRANTS
- ---- ------------------- -------------------
<S> <C> <C>
Daniel J. Andreacci ............................... 250 4,733
Brancaleone Family Partnership .................... 4,000 75,676
Albert Bruno, Jr. ................................. 1,000 18,918
Les Campbell ...................................... 250 4,733
Anthony Ciabattoni ................................ 2,000 37,837
Philip J. Ciabattoni .............................. 300 5,670
Otto Claricurzio .................................. 250 4,736
Audrey Cohen ...................................... 1,000 18,918
Neil Eisner ....................................... 250 4,733
Robert J. Falcone, Trustee of the Robert J.
Falcone Revocable Living Trust 9/1/93 ........... 5,000 94,596
Kenneth Ginsberg .................................. 1,500 28,377
David W. Gove ..................................... 250 4,733
Larry T. Nicholson ................................ 250 4,733
Bruce Phillips, M.D. & Kim Phillips, JTWROS ...... 600 11,351
Anthony Prezzamolo ................................ 1,000 18,918
Ray Stromback ..................................... 200 3,787
Robert J. Falcone, Trustee of the Robert J.
Falcone Revocable Living Trust 9/1/93 ........... 11,900 225,138
TOTAL ........................................... 30,000 567,587
</TABLE>
(d) In March and April, 1996, the Registrant sold to 4 private investors
an aggregate of 321,629 shares of Common Stock for $9.33 per share, yielding
gross proceeds of approximately $3,000,798. The names of such Common Stock
shareholders and the amount of shares received by each are set forth on the
following table:
NUMBER OF SHARES OF
NAME COMMON STOCK
- ---- --------------------
Anthony Ciabattoni ................................ 300,169
John Cucci ........................................ 5,363
Bill Mitchell ..................................... 5,363
Robert J. Falcone, Trustee of the Robert J.
Falcone Revocable Living Trust 9/1/93 ........... 10,734
TOTAL ........................................... 321,629
In April and May, 1996, in connection with the Registrant's sale of such
Common Stock, the Registrant agreed to issue to such investors warrants to
purchase additional shares of Common Stock (the "Common Stock Warrants") at
an exercise price of $.01 per share if the initial public offering price
II-3
<PAGE>
is less than certain targeted amounts. The number of shares, if any, for
which the Common Stock Warrants are exercisable shall be determined on the
effective date of this offering. Assuming an initial public offering price of
$7.00 per share, the Common Stock Warrants will be exercisable for an
aggregate of 214,115 shares of Common Stock.
(e) On May 30, 1996, the Registrant reissued warrants to the holders of
outstanding shares of its Series A Redeemable Preferred Stock, par value $.01
per share (the "Series A Preferred") to purchase an aggregate of 171,462
shares of its Common Stock at an exercise price of $.01 per share (the
"Series A Warrants"). The Series A Warrants were reissued in connection with
the redemption of certain shares of the Series A Preferred by the Registrant
pursuant to certain of its contractual redemption rights and the related
cancellation of certain warrants held by the holders of the Series A
Warrants. The number of Series A Warrants issued and the names of the
Registrant's shareholders to whom the Series A Warrants were issued are set
forth on the following table:
NUMBER OF
NAME SERIES A WARRANTS
- ---- ------------------
Christopher Allick ......... 34,292
Andrew Whittaker ........... 9,799
David Eisner ............... 19,590
David Losito ............... 9,799
The Handler Family Trust ... 97,982
TOTAL .................... 171,462
ITEM 16. EXHIBITS
The following exhibits either are filed herewith or incorporated by
reference to documents previously filed or will be filed by amendment, as
indicated below:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation of the Registrant*
3.2 Amended and Restated Bylaws of the Registrant*
4.1 Form of Common Stock Certificate*
4.2 Form of Warrant Agreement between Transeastern Properties, Inc. and the Representatives (including
the form of Representatives' Warrant Certificate)
5.1 Opinion of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.*
10.1 Series A Redeemable Preferred Stock and Warrant Purchase Agreement dated June 2, 1993, with schedules
and exhibits*
10.2 Form of Amended and Restated Series A Warrant to Purchase Common Stock dated May 30, 1996*
10.3 Shareholders' Agreement dated June 2, 1993 between Transeastern Properties, Inc., Arthur J. Falcone
and Marcy Falcone, Edward W. Falcone and Diana Falcone, Philip Cucci, Jr. and Linda Cucci, Mezzonen,
S.A., The Handler Family Trust DTD 9/12/91, Christopher Allick, Andrew Whittaker, David F. Eisner and
David J. Losito*
10.4 Series B Redeemable Preferred Stock and Warrant Purchase Agreement dated December 6, 1994, with schedules
and exhibits*
10.5 Form of Series B Warrant to Purchase Common Stock*
10.6 Common Stock Purchase Agreement dated April 15, 1996 between Transeastern Properties, Inc., Arthur
J. Falcone, Edward W. Falcone, Philip Cucci, Jr., Anthony Ciabattoni, John Cucci, Bill Mitchell and
Robert J. Falcone, Trustee of the Robert J. Falcone Revocable Living Trust 9/1/93, with schedules and
exhibits*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.7 Form of Common Stock Warrant to Purchase Common Stock*
10.8 Joint Venture Agreement dated February 16, 1994 between Transeastern Pembroke Properties, Inc. and
H.A. Cumber of Pembroke Pines, Inc., as amended*
10.9 Aberdeen Acquisition and Development Loan Agreement dated September 25, 1995 between Transeastern Aberdeen
Properties, Inc. and Berkeley Federal Bank & Trust, F.S.B., including related Promissory Note, Unconditional
Guaranty and Purchase Money First Mortgage, Security Agreement, Financing Statement and Assignment
of Leases, Rent and Income*
10.10 Loan Agreement dated March 29, 1996 between Transeastern Pembroke Villages, Inc. and AMRESCO Funding
Corporation (with exhibits), including related letter, Promissory Note, two Security Agreements, two
Assignments of Leases, Rents and Profits, two Collateral Assignments of Rights and Agreements Affecting
Real Estate, Pledge Agreement, two Mortgage, Assignment of Rents and Security Agreements, and Guaranty*
10.11 Loan Agreement and two Construction Loan Agreements dated September 1996 between Transeastern Pembroke
Villages, Inc. and Chase Federal Bank, including related Tri-Party Agreement, three Guaranty Agreements,
three Real Estate Mortgage Assignment and Security Agreements and two Promissory Notes*
10.12 Loan Agreement dated November 29, 1995 between Transeastern Plantation Apartments, Ltd. and Heller
Financial, Inc., including related Promissory Note, Assignment of Partnership Interest and Guaranty*
10.13 Loan Agreement dated February 23, 1995 between Transeastern Properties at the Cove, Inc. and Heller
Financial, Inc., including related Promissory Note and Stock Pledge Agreement*
10.14 Form of Indemnification Agreement dated June 2, 1993*
10.15 Registration Rights Agreement among the Registrant and certain shareholders of the Registrant*
10.16 Notice of Election and Consent of Holders of the Series A Redeemable Preferred Stock, Series B Redeemable
Preferred Stock and Common Stock*
10.17 Transeastern Properties, Inc. 1996 Stock Option and Shareholder Value Plan*
10.18 Lease Agreement between University Financial Plaza Limited and the Registrant*
10.19 Promissory Note of the Registrant to B & E Management, Inc. in the original principal amount of $100,000*
10.20 Promissory Note of the Registrant to Robert Falcone, as Trustee, in the original principal amount of
$200,000*
10.21 Promissory Note of the Registrant to Robert Falcone, as Trustee, in the original principal amount of
$100,000*
10.22 Promissory Note of the Registrant to Anthony Ciabottani in the original principal amount of $600,000*
10.23 Promissory Note of the Registrant to Anthony Ciabottani in the original principal amount of $1,000,000*
10.24 Promissory Note of the Registrant to Anthony Ciabottani in the original principal amount of $1,000,000
10.25 Promissory Note of the Registrant to Arthur Falcone in the original principal amount of $124,000*
10.26 Promissory note of the Registrant to Edward Falcone in the original principal amount of $156,512*
10.27 Promissory Note of the Registrant to Philip Cucci in the original principal amount of $75,997*
21.1 Subsidiaries of the Registrant*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
23.1 Consent of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.
23.2 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney (included with signature pages to this Registration Statement)*
27.1 Financial Data Schedule
<FN>
- ----------
* Previously filed
</FN>
</TABLE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, 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
Securities 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 the 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
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus 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.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such name as required by the Underwriters to
permit prompt delivery to each purchaser.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Coral Springs, State of Florida, on the 19th day of November, 1996.
TRANSEASTERN PROPERTIES, INC.
By: /s/ ARTHUR FALCONE
--------------------------------------
Arthur Falcone
President and Chairman of the
Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ARTHUR FALCONE President and Chairman of the Board November 19, 1996
- ---------------------
Arthur Falcone
* Director, Executive Vice President November 19, 1996
- --------------------- and Chief Operating Officer
Philip Cucci
* Director and Executive Vice President November 19, 1996
- ---------------------
Edward Falcone
/s/ LES CAMPBELL Chief Financial Officer November 19, 1996
- --------------------- (Principal Financial and
Les Campbell Accounting Officer)
* Director November 19, 1996
- ---------------------
Christopher Allick
* Director November 19, 1996
- ---------------------
Anthony Ciabattoni
<FN>
- ----------
*By: /s/ EDWARD FALCONE
------------------------
Edward Falcone
(attorney-in-fact pursuant
to Power of Attorney)
</FN>
</TABLE>
II-7
EXHIBIT 1.1
3,200,000 SHARES
TRANSEASTERN PROPERTIES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
November __, 1996
BT Securities Corporation
Cruttenden Roth Incorporated
Janney Montgomery Scott Inc.
As Representatives of the Several Underwriters
Named in Schedule I Attached Hereto
c/o BT Securities Corporation
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
Transeastern Properties, a Florida corporation (the "Company"),
proposes to issue and sell, and certain of its selling shareholders named in
Schedule II hereto (the "Selling Shareholders") severally propose to sell, an
aggregate of 3,200,000 shares (the "Offered Shares") of the Company's common
stock, $0.01 par value (the "Common Stock"), to BT Securities Corporation,
Cruttenden Roth Incorporated and Janney Montgomery Scott Inc. (collectively, the
"Representatives") and the underwriters named in Schedule I hereto (collectively
with the Representatives, the "Underwriters" and individually, an "Underwriter,"
which terms shall also include any Underwriter substituted as hereinafter
provided in Section 12). The Offered Shares consist of 2,892,326 shares of
Common Stock to be issued and sold by the Company and 307,674 outstanding shares
of Common Stock to be sold by the Selling Shareholders. The Offered Shares shall
be offered to the public at an initial offering price of $_____ per Offered
Share (the "Offering Price")
In addition, the several Underwriters, solely in order to cover
over-allotments in the sale of the Offered Shares, may purchase from the Company
and the Selling Shareholders within 30 days after the Effective Date (as
hereinafter defined), for their own account for offering to the public at the
Offering Price, up to 96,000 and 384,000, respectively, additional shares of
Common
<PAGE>
Stock (the "Optional Shares"), upon the terms and conditions set forth in
Section 5 hereof. The Offered Shares and the Optional Shares are hereinafter
collectively referred to as the "Shares." In addition, the Company proposes to
sell to the Representatives, individually and not in their capacity as
Representatives, five-year warrants (the "Representatives' Warrants") to
purchase up to 320,000 shares of Common Stock of the Company (the
"Representatives' Warrant Stock"), which sale will be consummated in accordance
with the terms and conditions of the Representatives' Warrant Agreement (the
"Representatives' Warrant Agreement"), the form of which is filed as an exhibit
to the Registration Statement described below. Unless the context otherwise
requires, references herein to the "Company" include Transeastern Properties,
Inc. together with its subsidiaries described in the Prospectus (hereinafter
defined). The Company, intending to be legally bound hereby, confirms its
agreement with each of the Underwriters as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to, and agrees with, the several
Underwriters that:
(a) The Company has prepared in conformity with the
requirements of the Securities Act of 1933, as amended (the
"Act") , and the rules, regulations, releases and instructions
(the "Regulations") of the Securities and Exchange Commission
(the "SEC") under the Act in effect at all applicable times and
has filed with the SEC a registration statement on Form S-1 (File
No. 333-10375) and one or more amendments thereto registering the
Shares under the Act. Any preliminary prospectus included in such
registration statement or filed with the SEC pursuant to Rule
424(a) of the Regulations is hereinafter called a "Preliminary
Prospectus." The various parts of such registration statement,
including all exhibits thereto and the information contained in
any form of final prospectus filed with the SEC pursuant to Rule
424(b) of the Regulations in accordance with Section 6(a) of this
Agreement and deemed by virtue of Rule 430A of the Regulations to
be part of such registration statement at the time it was
declared effective, each as amended at the time such registration
statement became effective, and each registration statement, if
any, filed pursuant to Rule 462(b) under the Act increasing the
size of the offering registered under the Act, are hereinafter
collectively referred to as the "Registration Statement." The
final prospectus in the form included in the Registration
Statement or first filed with the SEC pursuant to Rule 424(b) of
the Regulations and any amendments or supplements thereto is
hereinafter referred to as the "Prospectus."
2
<PAGE>
(b) The Registration Statement has or will become
effective under the Act as of the Effective Date, and the SEC has
not issued any stop order suspending the effectiveness of the
Registration Statement or preventing or suspending the use of any
Preliminary Prospectus nor has the SEC instituted, threatened to
institute or, to the Company's knowledge, contemplated
proceedings with respect to such an order. The Company has not
received any stop order suspending the sale of the Shares in any
jurisdiction designated by the Representatives pursuant to
Section 6(f) hereof, and no proceedings for that purpose have
been instituted or, to the Company's knowledge, are threatened or
contemplated. The Company has complied with any request of the
SEC and any state securities commission in a state designated by
the Representatives pursuant to Section 6(f) hereof, for
additional information to be included in the Registration
Statement or Prospectus or otherwise. Each Preliminary Prospectus
conformed to the requirements of the Act and the Regulations as
of its date and did not as of its date contain an untrue
statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading, except the foregoing shall not apply to
statements in or omissions from any Preliminary Prospectus in
reliance upon and in conformity with information furnished to the
Company in writing by or on behalf of any Underwriters through
the Representatives expressly for use therein. The Registration
Statement on the date on which it was declared effective by the
SEC (the "Effective Date") conformed, and any post-effective
amendment thereof on the date it shall become effective, and the
Prospectus at the time it is filed with the SEC pursuant to Rule
424(b) of the Regulations and on the Closing Date (as defined in
Section 4 hereof) and any Option Closing Date (as defined in
Section 5(b) hereof) will conform, to the requirements of the Act
and the Regulations, and neither the Registration Statement, any
post-effective amendment thereof nor the Prospectus will, on any
of such respective dates, 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 not
misleading, except that this representation and warranty does not
apply to statements in or omissions from the Registration
Statement or the Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing
by or on behalf of any Underwriter through the Representatives
expressly for use therein. It is understood that the written
information described in
3
<PAGE>
Section 13 constitutes the only information furnished in writing
by or on behalf of any Underwriters for inclusion in any
Preliminary Prospectus, the Prospectus or the Registration
Statement.
(c) The consolidated financial statements (including the
notes thereto) filed as part of any Preliminary Prospectus, the
Prospectus and the Registration Statement present fairly the
consolidated financial position of the Company and each
corporation or other entity of which the Company owns or will own
fifty percent or more of the outstanding equity securities as of
the Closing Date (individually a "Subsidiary," and collectively
the "Subsidiaries"), as of the respective dates thereof, and the
consolidated results of operations and cash flows of the Company
and its Subsidiaries, for the periods indicated therein, all in
conformity with generally accepted accounting principles
("GAAP"), consistently applied through the periods involved,
except as may be otherwise stated therein. The supporting
schedules included in the Registration Statement fairly state the
information required to be stated therein in relation to the
basic financial statements taken as a whole. The other financial
and statistical information included in the Prospectus, including
without limitation the data under the captions "Prospectus
Summary" and "Selected Financial Data," presents fairly the
information shown therein and has been compiled on a basis
consistent with that of the audited financial statements included
in the Registration Statement and the books and records of the
Company. No other financial statements or schedules are required
to be included in the Registration Statement.
(d) The Company does not have any Subsidiaries other than
Transeastern Properties at the Cove, Inc., a Florida corporation;
Transeastern Wellington Properties, Inc., a Florida corporation;
Transeastern Aberdeen Properties, Inc., a Florida corporation;
Transeastern Pembroke Villages, Inc., a Florida corporation;
Transeastern Pembroke Properties, a Florida corporation;
Transeastern Plantation Apartments, Inc., a Florida corporation;
Transeastern Hollywood Apartments, Inc., a Florida corporation;
and Transeastern Finance, Inc., a Florida corporation, and the
Company does not own any stock or other equity interest in, or
control, directly or indirectly, any other corporation,
partnership or other entity.
(e) Each of the Company and the Subsidiaries is
a corporation duly incorporated, validly existing and
4
<PAGE>
in good standing under the laws of its jurisdiction of
incorporation with all necessary corporate power and authority,
and all required licenses, permits, certifications,
registrations, approvals, consents and franchises to own or lease
and operate its properties and to conduct its business as
described in the Prospectus and to execute, deliver and perform
this Agreement. Each of the Company and the Subsidiaries is duly
qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would
not have a material adverse effect on the Company.
(f) The Company has all necessary corporate power and
authority to execute and deliver this Agreement and the
Representatives' Warrants to purchase the shares of Common Stock
to be issued and sold to the Representatives under the terms of
the Warrant Agreement (as hereinafter defined) in accordance with
Section 6(p) of this Agreement.
(g) This Agreement and the Warrant Agreement have been
duly authorized, executed and delivered by the Company and,
assuming due authorization and execution by the other respective
parties thereto, constitute its valid and binding obligations,
enforceable against the Company in accordance with their
respective terms, except as rights to indemnity and contribution
hereunder or thereunder may be limited by federal or state
securities laws or principles of public policy, and except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles.
(h) The execution, delivery and performance of this
Agreement, the Warrant Agreement and the Representatives'
Warrants by the Company does not and will not, with or without
the giving of notice or the lapse of time, or both, (A) conflict
with any terms or provisions of the Certificate of Incorporation
or Bylaws of the Company, as amended to the date hereof and the
Closing Date or Option Closing Date, as the case may be; (B)
result in a breach of, constitute a default under, result in the
termination or modification of or result in the creation or
imposition of any lien, security interest, charge or encumbrance
upon any of the properties of the Company pursuant to any
indenture, mortgage, deed of trust, contract, commitment or other
agreement or instrument to which the Company is a
5
<PAGE>
party or by which any of its properties or assets are bound or
affected, the effect of which would have a material adverse
effect on the business or properties of the Company; (C) violate
any law, rule, regulation, judgment, order or decree of any
government or governmental agency, instrumentality or court,
domestic or foreign, having jurisdiction over the Company or any
of its properties or businesses; or (D) result in a breach,
termination or lapse of the power and authority of the Company to
own or lease and operate its properties and conduct its business
as described in the Prospectus, the effect of which would have a
material adverse effect on the business or properties of the
Company.
(i) The Company has authorized and outstanding capital
stock and, as of the date or dates indicated the Company had the
capitalization, set forth under the caption "Capitalization" in
the Prospectus and will have the as-adjusted capitalization set
forth under the caption "Capitalization" in the Prospectus
assuming the purchase and sale of the Offered Shares pursuant to
this Agreement is consummated. On the Effective Date, the Closing
Date and any Option Closing Date, there will be no options or
warrants for the purchase of, other outstanding rights to
purchase, agreements or obligations to issue or agreements or
other rights to convert or exchange any obligation or security
into, capital stock of the Company or securities convertible into
or exchangeable for capital stock of the Company (except for
subsequent issuances, if any, pursuant to employee benefit plans
referred to in the Prospectus) except as described in the
Prospectus.
(j) The authorized capital stock of the Company,
including, without limitation, the outstanding shares of Common
Stock and the Shares being issued on the Closing Date and Option
Closing Date (if any and to the extent applicable), conforms to
the descriptions thereof in the Prospectus, and such descriptions
conform to the descriptions thereof set forth in the instruments
defining the same. The information in the Prospectus insofar as
it relates to outstanding options that have been granted to
employees and directors and the Representatives' Warrants, in
each case as of the Effective Date, the Closing Date and any
Option Closing Date, is true, correct and complete in all
material respects. As of the Closing Date, all of the outstanding
capital stock or other securities evidencing equity ownership of
the Subsidiaries will have been duly and validly authorized and
issued and will be fully paid and nonassessable and will be
owned, directly or indi-
6
<PAGE>
rectly, by the Company, free and clear of any security interest,
claim, lien or encumbrance, except as disclosed in the
Prospectus; there are no outstanding rights, warrants or options
to acquire, or instruments convertible into or exchangeable for,
any shares of capital stock or other equity interest in any
Subsidiary.
(k) The outstanding shares of Common Stock (including the
Shares to be sold by the Selling Shareholders) have been duly
authorized and are validly issued, fully paid and non-assessable.
The Representatives' Warrants, as of the Closing Date, will have
been duly authorized and validly issued and, when executed and
delivered by the Company, will be a valid and binding obligation
enforceable against the Company in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by
general equitable principles. The shares of Common Stock issuable
pursuant to the Representatives' Warrants, when issued in
accordance with the respective terms thereof, will be duly
authorized, validly issued, fully paid and nonassessable. None of
such outstanding shares of Common Stock were, and none of the
Representatives' Warrants or the shares of Common Stock issuable
upon exercise of the Representatives' Warrants will be, issued in
violation of any preemptive rights of any security holder of the
Company. The Company has reserved a sufficient number of shares
of Common Stock for issuance pursuant to the Representatives'
Warrants. The holders of the outstanding shares of Common Stock
are not, and will not be, subject to personal liability solely by
reason of being such holders, and the holders of shares of Common
Stock issuable pursuant to the Representatives' Warrants will not
be subject to personal liability solely by reason of being such
holders. The offers and sales of the outstanding shares of Common
Stock were, and the issuance of Common Stock upon exercise of the
Representatives' Warrants will be, made in conformity with
applicable registration requirements or exemptions therefrom
under federal and applicable state securities laws.
(l) The issuance and sale of the Shares by the Company
have been duly authorized and, when the Shares have been duly
delivered against payment there for as contemplated by this
Agreement, the Shares will be validly issued, fully paid and
nonassessable, and the holders thereof will not be subject to
personal liability solely by reason of being such holders. None
of
7
<PAGE>
the Shares will be issued in violation of any preemptive rights
of any security holder of the Company. The certificates
representing the Shares are in proper legal form under, and
conform to the requirements of the Florida Business Corporation
Act, as amended (the "FBCA"). Except with respect to the Shares
being sold by the Selling Stockholders hereby, neither the filing
of the Registration Statement nor the offering or sale of the
Shares as contemplated by this Agreement gives any security
holder of the Company any rights, other than those which have
been waived, for or relating to the registration of any shares of
Common Stock or other security of the Company.
(m) No consent, approval, authorization, order,
registration, license or permit of any court, government,
governmental agency, instrumentality or other regulatory body or
official is required for the valid authorization, issuance, sale
and delivery by the Company of any of the Shares (including the
anticipated use of proceeds therefrom), or for the execution,
delivery or performance by the Company of this Agreement, except
such as may be required for the registration of the Shares under
the Act, the Regulations and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), which consent and authorization
have been obtained, and for compliance with the applicable state
securities or Blue Sky laws, or the By-laws, rules and other
pronouncements of the National Association of Securities Dealers,
Inc. (the "NASD"). The Common Stock is registered under Section
12(g) of the Exchange Act and all necessary filings have been
made to include the Shares in such registration. Upon the
effectiveness of the Registration Statement, the Shares will be
listed on Nasdaq's National Market. The Company has taken no
action designed, or is likely, to have the effect of terminating
the registration of the Common Stock under Section 12(g) of the
Exchange Act, nor has the Company received any notification that
the SEC is contemplating terminating such registration.
(n) The statements in the Registration Statement and
Prospectus, insofar as they are descriptions of or references to
contracts, agreements or other documents, are accurate in all
material respects and present or summarize fairly, the
information required to be disclosed under the Act and the
Regulations, and there are no contracts, agreements or other
documents required to be described or referred to in the
Registration Statement or Prospectus or to be filed as exhibits
to the Registration Statement under the act or the Regulations
8
<PAGE>
that have not been so described, referred to or filed, as
required.
(o) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated therein, there has not been (A) any material
adverse change (including, whether or not insured against, any
material loss or damage to any assets), or development involving
a prospective material adverse change, in the general affairs,
properties, assets, management, condition (financial or
otherwise), results of operations, stockholders' equity, business
or prospects of the Company and the Subsidiaries, considered as
one enterprise, (B) any transaction entered into by the Company
or any Subsidiary that is material to the Company and the
Subsidiaries, considered as one enterprise, and not in the
ordinary course of business, (C) any dividend or distribution of
any kind declared, paid or made by the Company on its capital
stock, (D) any liabilities or obligations, direct or indirect,
incurred by the Company or any Subsidiary that are material to
the Company and the Subsidiaries, or (E) any material change in
the short-term debt or long-term debt of the Company or any
Subsidiary. The Company and the Subsidiaries do not have any
contingent liabilities or obligations that are material and that
are not disclosed in the Prospectus.
(p) The Company has not distributed and, prior to the
later to occur of the Closing Date, the Option Closing Date or
the completion of the distribution of the Shares, will not
distribute any offering material in connection with the offering
or sale of the Shares other than the Registration Statement, each
Preliminary Prospectus and the Prospectus, in any such case only
as permitted by the Act and the Regulations.
(q) Each of the Company and the Subsidiaries has filed
with the appropriate federal, state and local governmental
agencies, and all foreign countries and political subdivisions
thereof, all tax returns that are required to be filed, or has
duly obtained extensions of time for the filing thereof. All such
tax returns are true, complete and correct in all material
respects. All material taxes that are due or claimed to be due
from the Company and the Subsidiaries have been paid other than
those (i) currently payable without penalty or interest or (ii)
being contested in good faith and by appropriate proceedings and
for which adequate reserves have been established in accordance
with GAAP. None of the Company or the Subsidiaries has executed
or filed with any taxing authority, foreign or
9
<PAGE>
domestic, any agreement extending the period for assessment or
collection of any income taxes or is a party to any pending
action or proceeding by any foreign or domestic governmental
agencies for the assessment or collection of taxes, and no claims
for assessment or collection of taxes have been asserted against
the Company or the Subsidiaries that might materially adversely
affect the general affairs, properties, assets, condition
(financial or otherwise), results of operations, shareholders'
equity, business or prospects of the Company and the
Subsidiaries, considered as one enterprise.
(r) KPMG Peat Marwick LLP, which has examined the
financial statements of the Company, together with the related
schedules and notes, as of June 30, 1996 and 1995 and for each of
the years in the three (3) year period ended June 30, 1996 filed
with the SEC as a part of the Registration Statement, which are
included in the Prospectus, are independent accountants within
the meaning of the Act and the Rules and Regulations.
(s) None of the Company or the Subsidiaries is in
violation of, or in default under, any of the terms or
provisions, of (A) its Articles or Certificate of Incorporation
or By-laws, as applicable, each as amended to the date hereof,
the Closing Date or the Option Closing Date, as the case may be,
(B) any indenture, mortgage, deed of trust, contract, loan or
credit agreement, commitment or other agreement or instrument to
which the Company or the Subsidiaries is a party or by which any
of them or any of their properties are bound or affected, (C) any
law, rule, regulation, judgment, order or decree of any
government or governmental agency, instrumentality or court,
domestic or foreign, having jurisdiction over the Company or the
Subsidiaries or any of their properties or businesses or (D) any
license, permit, certification, registration, approval, consent
or franchise referred to in subsection (e) or (m) of this Section
1, except where such violation or default would not have a
material adverse effect on the business or properties of the
Company and the Subsidiaries, considered as one enterprise.
(t) Except as disclosed in the Prospectus, there are no
claims, actions, suits, proceedings, arbitrations, investigations
or inquiries pending before or, to the Company's knowledge,
threatened or contemplated by, any governmental agency,
instrumentality, court or tribunal, domestic or foreign, or
before any private arbitrational tribunal, relating to or
affecting the
10
<PAGE>
Company or the Subsidiaries or their properties or businesses
that might affect the issuance or validity of any of the Shares
or the validity of any of the outstanding shares of Common Stock,
or that, if determined adversely to the Company or the
Subsidiaries, respectively, would, individually or in the
aggregate, result in any material adverse change in the general
affairs, properties, assets, condition (financial or otherwise),
results of operations, shareholders' equity, business or
prospects, of the Company and the Subsidiaries, considered as one
enterprise; nor, to the Company's knowledge, is there any
reasonable basis for any such claim, action, suit, proceeding,
arbitration, investigation or inquiry; all pending legal or
governmental proceedings to which the Company or any Subsidiary
is a party or of which any of their property is the subject which
are not described in the Registration Statement and the
Prospectus, including ordinary routine litigation incidental to
the business, are, considered in the aggregate, not material to
the Company and the Subsidiaries, considered as one enterprise.
There are no outstanding orders, judgments or decrees of any
court, governmental agency, instrumentality or other tribunal
enjoining the Company or the Subsidiaries from, or requiring the
Company or the Subsidiaries to take or refrain from taking any
action, or to which the Company or the Subsidiaries, or any of
their properties, assets or businesses is bound or subject.
(u) Except as otherwise stated in the Prospectus, the
Company and the Subsidiaries own or possess adequate rights to
use all patents, patent applications, trademarks, trademark
registrations, applications for trademark registration, trade
names, service marks, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential technology, information, systems,
design methodologies and devices or procedures developed or
derived from the Company's or the Subsidiaries' businesses),
trade secrets, confidential information, processes and
formulations necessary for, used in or proposed to be used in the
conduct of their businesses as described in the Prospectus
(collectively, the "Intellectual Property") that, if not so owned
or possessed, would materially adversely affect the general
affairs, properties, condition (financial or otherwise), results
of operations, shareholders' equity, business or prospects of the
Company and the Subsidiaries, considered as one enterprise. None
of the Company or the Subsidiaries has infringed, is infringing
or has received any notice of conflict with the asserted rights
of others with re-
11
<PAGE>
spect to the Intellectual Property, and, to the Company's
knowledge, no others have infringed upon or are in conflict with
the Intellectual Property.
(v) The Company and the Subsidiaries have obtained all
permits, licenses and other authorizations that are required
under all environmental laws (collectively, the "Environmental
Laws"), other than any permits, licenses or other authorizations
which, if not obtained, would not have a material adverse effect
on the business or properties of the Company and the
Subsidiaries, considered as one enterprise. Each of the Company
and the Subsidiaries is in compliance with all terms and
conditions of any required permits, licenses and authorizations,
and is in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws,
except where the failure to so comply would not have a material
adverse effect on the Company and the Subsidiaries, considered as
one enterprise, or otherwise require disclosure in the
Registration Statement.
(w) There are no present or past events, conditions,
circumstances, activities, practices, incidents, actions or plans
relating to the business as currently being conducted by the
Company and the Subsidiaries that interfere with or prevent
compliance with or continued compliance with the Environmental
Laws, the non-compliance with which would have a material adverse
effect on the Company and the Subsidiaries, considered as one
enterprise, or which would be reasonably likely to give rise to
any material legal liability (whether statutory or common law) or
otherwise would be reasonably likely to form the basis of any
claim, action, demand, suit, proceeding, hearing, notice of
violation, study, investigation, remediation, or clean up based
on or related to the generation, manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge, release into the workplace,
community or environment of any pollutant, contaminant, chemical
or industrial, toxic, or hazardous substance or waste, which
claim, action, demand, suit, proceeding, hearing, notice of
violation, study, investigation, remediation, or clean up would
have a material adverse effect on the Company and the
Subsidiaries, considered as one enterprise.
(x) Each of the Company and the Subsidiaries has good and
marketable title in fee simple to all real property, interests in
real property and personal property (tangible and intangible)
described in the
12
<PAGE>
Prospectus as being owned by them, in each case, free and clear
of all liens, security interests, charges or encumbrances, except
such as are described in the Prospectus or which do not
materially affect the aggregate value of such property and
interests taken as a whole and do not interfere in any material
respect with the use made and proposed to be made of such
property and interests by the Company or any of its Subsidiaries.
Each of the Company and the Subsidiaries has adequately insured
the property of the Company and the Subsidiaries, respectively,
against loss or damage by fire or other casualty and maintains,
in adequate amounts customary for the business engaged in by the
Company, insurance against such other risks as management of the
Company deems appropriate. Except as described in the Prospectus,
none of the Company or the Subsidiaries owns any real property,
and all real property used or leased by the Company and the
Subsidiaries, as described in the Prospectus (the "Premises"), is
held by the Company or the Subsidiaries, as applicable, under a
valid, subsisting and enforceable lease, and except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles. There is no, and the Company and the Subsidiaries
have not received notice (written or oral) of any, claim, demand,
investigation, regulatory action, suit or other action instituted
or, to the best knowledge of the Company after due inquiry,
threatened against any of them or the Premises relating to any of
the Environmental Laws. The Company has not received any notice
(written or oral) of material violation, citation, complaint,
order, directive, request for information or response thereto,
notice letter, demand letter or compliance schedule to or from
any governmental or regulatory agency arising out of or in
connection with hazardous substances (as defined by applicable
Environmental Laws) on, about, beneath, arising from, or
generated at the Premises. The Company and the Subsidiaries have
conducted environmental investigations of, and have reviewed
reasonably available information, as appropriate, regarding the
business, properties and operations of the Company and the
Subsidiaries, and of other properties within the vicinity of
their business, properties and operations, as appropriate for the
circumstances of each such property and operation. On the basis
of such review, investigations and inquiries, the Company has
reasonably concluded that, except as disclosed in the
Registration Statement, any costs and liabilities associated with
such matters would not have, singularly or in the aggregate,
13
<PAGE>
a material adverse effect on the Company and its Subsidiaries,
taken as a whole, or otherwise require disclosure in the
Registration Statement.
(y) The Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with
management's general or specific authorization, (B) transactions
are recorded as necessary in order to permit preparation of
financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets,
(C) access to assets is permitted only in accordance with
management's general or specific authorization and (D) the
recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(z) No unregistered securities of the Company have been
sold by the Company or on behalf of the Company by any person or
persons controlling, controlled by or under common control with
the Company within the three years prior to the date hereof,
except as disclosed in the Registration Statement.
(aa) Each contract or other instrument (however
characterized or described) to which the Company or the
Subsidiaries is a party or by which any of the properties or
business of it or them is bound or affected and to which
reference has been made in the Prospectus or which has been filed
as an exhibit to the Registration Statement has been duly and
validly executed by the Company or the Subsidiaries, as
applicable, and, to the best knowledge of the Company, by the
other parties thereto. Except as described in the Prospectus,
each such contract or other instrument is in full force and
effect and is enforceable against the parties thereto in
accordance with its terms, except as enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles, and none of the
Company, the Subsidiaries or, to the best knowledge of the
Company, any other party is in default thereunder and no event
has occurred to the best knowledge of the Company that, with the
lapse of time or the giving of notice, or both, would constitute
a default thereunder.
(ab) Except as disclosed in the Prospectus, and
except for the Company's 401(k) plan, none of the
Company or the Subsidiaries has any employee benefit
14
<PAGE>
plan, profit sharing plan, employee pension benefit plan or
employee welfare benefit plan or deferred compensation
arrangements (collectively, "Plans") that is subject to the
provisions of the Employee Retirement Income Security Act of
1974, as amended, or the rules and regulations thereunder
("ERISA"). To the Company's knowledge, all Plans that are subject
to ERISA are, and have been at all times since their
establishment, in compliance in all material respects with ERISA
and, to the extent required by the Internal Revenue Code of 1986,
as amended (the "Code"), in compliance in all material respects
with the Code. To the Company's knowledge, none of the Company or
the Subsidiaries has had any employee pension benefit plan that
is subject to Part 3 of Subtitle B of Title l of ERISA or any
defined benefit plan or multiemployer plan. To the Company's
knowledge, none of the Company or the Subsidiaries has maintained
retiree life and retiree life and retiree health insurance plans
that are employee welfare benefit plans providing for continuing
benefit or coverage for any employee or any beneficiary of any
employee after such employee's termination of employment, except
as required by Section 4980B of the Code. To the Company's
knowledge, no fiduciary or other party in interest with respect
to any of the Plans has caused any of such Plans to engage in a
"prohibited action" as defined in Section 406 of ERISA. As used
in this subsection, the terms "defined benefit plan," "employee
benefit plan," "employee pension benefit plan," "employee welfare
benefit plan," "fiduciary" and "multiemployer plan" shall have
the respective meanings assigned to such terms in Section 3 of
ERISA.
(ac) To the best of their knowledge, neither the Company
nor any of its Subsidiaries is engaged in any unfair labor
practice which would have a material adverse effect on the
Company and its Subsidiaries considered as one enterprise. Except
for matters which are not material in the aggregate to the
Company and its Subsidiaries, considered as one enterprise, (A)
there is (x) no unfair labor practice complaint pending or, to
the best of their knowledge, threatened against the Company or
any of its Subsidiaries before the National Labor Relations
Board, and no grievance or arbitration proceeding arising out of
or under collective bargaining agreements is pending or, to the
best of their knowledge, threatened, (y) no strike, labor
dispute, slowdown or stoppage pending or, to the best knowledge
of the Company or any of its Subsidiaries after due inquiry,
threatened against the Company or any of its Subsidiaries and (z)
no union representation question existing with respect to the
employees of the
15
<PAGE>
Company or any of its Subsidiaries and, to the best knowledge of
the respective managements of the Company or any of its
Subsidiaries, no union organizing activities are taking place and
(B) there has been no violation of any federal, state or local
law relating to discrimination in the hiring, promotion or pay of
employees, of any applicable wage or hour laws, nor any
provisions of ERISA or the rules and regulations promulgated
thereunder.
(ad) Except as described in the Prospectus, the Company
has not incurred any liability for any finder's fees or similar
payments in connection with the transactions contemplated herein.
(ae) Except as described in the Prospectus, none of the
Company or the Subsidiaries is a party to, or is bound by, any
agreement pursuant to which any material royalties, honoraria or
fees are payable by the Company or the Subsidiaries to any person
by reason of the ownership or use of any Intellectual Property.
(af) Except as disclosed in the Prospectus, there are no
business relationships or related party transactions required to
be disclosed therein by Item 404 of Regulation S-K of the
Regulations.
(ag) The Company is familiar with the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and
intends in the future to continue to conduct, its affairs in such
a manner to ensure that it will not become an "investment
company" within the meaning of the 1940 Act and such rules and
regulations.
(ah) None of the Company, the Subsidiaries or director,
officer, agent, employee or other person associated with or
acting on behalf of the Company or the Subsidiaries has, directly
or indirectly, (A) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses
relating to any political activity, (B) made any unlawful payment
to foreign or domestic governments or governmental officials or
employees or to foreign or domestic political parties or
campaigns from corporate funds, (C) violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (D) made
any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment.
(ai) The Company and its Subsidiaries have all
governmental licenses, certificates, permits, authori-
16
<PAGE>
zations, approvals, franchises or other rights necessary to carry
on their business as such business is presently conducted by
them. Neither the Company nor any of its Subsidiaries has any
reason to believe that any governmental body or agency is
considering limiting, suspending or revoking any such license,
certificate, permit, authorization, approval, franchise or right
in any material respect. Neither the Company nor any of its
Subsidiaries has any reason to believe that any such license,
permit or approval necessary in the future to conduct the
business of the Company and its Subsidiaries as described in the
Prospectus will not be granted upon application, or that any
governmental agencies are investigating the Company or any of its
Subsidiaries other than in ordinary course administrative reviews
or an ordinary course review of the transactions contemplated
hereby.
(aj) Except as disclosed in the Prospectus, no holder of
any security of the Company has any right to require registration
of shares of Common Stock or any other security of the Company.
(ak) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of
business) or guarantees of indebtedness by the Company to or for
the benefit of any of the officers or directors of the Company or
any of the members of the families of any of them, except as
disclosed in the Registration Statement and the Prospectus.
(al) Except as set forth in the Registration Statement and
Prospectus, the Company has not consummated the acquisition or
disposition of any business or property which is "significant" to
the Company within the meaning of Regulation S-X under the Act,
and no such acquisition or disposition is probable.
Any certificate signed by any officer of the Company in such
capacity and delivered to the Representatives or to counsel for the Underwriters
pursuant to this Agreement shall be deemed a representation and warranty by the
Company to the several Underwriters as to the matters covered thereby.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. The
Selling Shareholders each severally represents and warrants to each Underwriter
that:
(a) Such Selling Shareholder is the lawful owner of the
Shares to be sold by such Selling Shareholder pursuant to this
Agreement and has, and on the Closing
17
<PAGE>
Date (and Option Closing Date, if applicable) will have, good and
clear title to such Shares, free of all restrictions on transfer,
liens, encumbrances, security interests and claims whatsoever
(other than restrictions imposed by applicable federal and state
securities laws).
(b) Upon delivery of and payment for such Shares pursuant
to this Agreement, good and clear title to such Shares will pass
to the Underwriters, free of all restrictions on transfer, liens,
encumbrances, security interests and claims whatsoever (other
than restrictions imposed by applicable federal and state
securities laws).
(c) Certificates in negotiable form for such Selling
Shareholder's Shares have been placed in custody for delivery
pursuant to the terms of this Agreement, under a Custody
Agreement duly authorized, executed and delivered by such Selling
Shareholder in the form heretofore furnished to you (the "Custody
Agreement") with American Stock Transfer & Trust Company, as
Custodian (the "Custodian"); the Shares represented by the
certificates so held in custody for such Selling Shareholder are
subject to the interests hereunder of the Underwriters, the
Company and the other Selling Shareholders; the arrangements for
custody and delivery of such certificates made by such Selling
Shareholder hereunder and under the Custody Agreement, are not
subject to termination by any acts of such Selling Shareholder,
or by operation of law, whether by the death or incapacity of
such Selling Shareholder or the occurrence of any other event;
and if any such death, incapacity or any other such event shall
occur before the delivery of such Shares hereunder, certificates
for the Shares will be delivered by the Custodian in accordance
with the terms and conditions of this Agreement and the Custody
Agreement as if such death, incapacity or other event had not
occurred, regardless of whether or not the Custodian shall have
received notice of such death, incapacity or other event.
(d) The Selling Shareholder has, and on the Closing Date
will have, full legal right, power and authority to enter into
this Agreement and the Custody Agreement and to sell, assign,
transfer and deliver such Shares in the manner provided herein
and therein, and this Agreement and the Custody Agreement have
been duly authorized, executed and delivered by or on behalf of
the Selling Shareholder and each of this Agreement and the
Custody Agreement is a valid and binding agreement of the Selling
Shareholder enforceable in accor-
18
<PAGE>
dance with its terms, except as rights to indemnity and
contribution hereunder may be limited by applicable law.
(e) The Selling Shareholder has not taken, and will not
take, directly or indirectly, any action designed to, or which
might reasonably be expected to, cause or result in stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares pursuant to the
distribution contemplated by this Agreement, and other than as
permitted by the Act, the Selling Shareholder has not distributed
and will not distribute any prospectus or other offering material
in connection with the offering and sale of the Shares.
(f) The execution, delivery and performance of this
Agreement by the Selling Shareholder, compliance by the Selling
Shareholder with all the provisions hereof and the consummation
of the transactions contemplated hereby will not require any
consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body
(except as such may be under the Act, state securities laws or
Blue Sky laws) and will not conflict with or constitute a breach
of any of the terms or provisions of any agreement, indenture or
other instrument to which the Selling Shareholder is a party or
by which the Selling Shareholder or property of the Selling
Shareholder is bound, or violate or conflict with any laws,
administrative regulation or ruling or court decree applicable to
the Selling Shareholder or property of the Selling Shareholder.
(g) Such-parts of the Registration Statement under the
caption "Principal and Selling Shareholders" which specifically
relate to the Selling Shareholder do not, and will not on the
Closing Date (and any Option Closing Date, if applicable),
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 circumstances under
which they were made, not misleading.
(h) At any time during the period described in paragraph
6(b) hereof, if there is any change in the information referred
to in paragraph 2(g) above with respect to a Selling Shareholder,
such Selling Shareholder will immediately notify you of such
change.
(i) The Selling Shareholder is not aware, and
has no reason to believe, that any representation or
19
<PAGE>
warranty of the Company set forth in Section 1 above is untrue or
inaccurate in any material respect.
3. PURCHASE AND SALE OF OFFERED SHARES. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, (i) the Company shall sell
2,892,326 Offered Shares; and (ii) each of the Selling Shareholders, severally
and not jointly, agrees to sell the number of Offered Shares listed next to his
or her name on Schedule II hereto, to the several Underwriters at the Offering
Price less the underwriting discount shown on the cover page of the Prospectus
(the "Underwriting Discount"), and the Underwriters, severally and not jointly,
shall purchase from the Company and the Selling Shareholders, on a firm
commitment basis, at the Offering Price less the Underwriting Discount, the
respective Offered Shares set forth opposite their names on Schedule I hereto.
In making this Agreement, each Underwriter is contracting severally, and not
jointly, and, except as provided in Sections 5 and 12 hereof, the agreement of
each Underwriter is to purchase only that number of Offered Shares specified
with respect to that Underwriter in Schedule I hereto. The Underwriters shall
offer the Offered Shares to the public as set forth in the Prospectus.
4. PAYMENT AND DELIVERY. Payment for the Offered Shares shall be made to
the Company and the Selling Shareholders by certified or official bank check
payable to the order of the Company and the Selling Shareholders in next day
funds, at the offices of Stearns Weaver Miller Weissler Alhadeff & Sitterson,
Miami, Florida, or at such other location as shall be agreed upon by the Company
and the Representatives, or in immediately available funds wired to such account
or accounts as the Company and the Selling Shareholders may specify (with all
costs and expenses incurred by the Underwriters in connection with such
settlement (including, but not limited to, interest or cost of funds expenses)
to be borne by the Company and the Selling Shareholders), against delivery of
the Offered Shares to the Representatives at such place as the Representatives
shall designate, for the respective accounts of the Underwriters. Such payments
and delivery will be made by 10:00 a.m., Eastern time, on the fourth business
day after the date of this Agreement or at such other time and date thereafter
as the Representatives and the Company shall agree upon. Such time and date are
referred to herein as the "Closing Date." The certificates representing the
Offered Shares to be sold and delivered will be in such denominations and
registered in such names as the Representatives request not less than two full
business days prior to the Closing Date, and will be made available to the
Representatives for inspection, checking and packaging at the office of the
Company's Transfer Agent, on the business day prior to the Closing Date. The
Representatives have advised the Company that each Underwriter has authorized
the
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Representatives to accept delivery of the Offered Shares and to make payment and
receipt therefor.
5. OPTION TO PURCHASE OPTIONAL SHARES.
(a) Solely for the purposes of covering any
over-allotments in connection with the distribution and sale of
the Offered Shares as contemplated by the Prospectus, subject to
the terms and conditions herein set forth, the several
Underwriters are hereby granted an option by the Company and the
Selling Shareholders to purchase all or any part of the Optional
Shares from the Company and the Selling Shareholders in the
amounts set forth in the second paragraph of this Agreement (the
"Over-allotment Option"). The purchase price per share to be paid
for the Optional Shares shall be the Offering Price less the
Underwriting Discount. The Over-allotment Option granted hereby
may be exercised by the Representatives on behalf of the several
Underwriters as to all or any part of the Optional Shares at any
time (but not more than once) within 30 days after the Effective
Date after which time it shall expire. No Underwriter shall be
under any obligation to purchase any Optional Shares prior to an
exercise of the Over-allotment Option.
(b) The Over-allotment Option granted hereby may be
exercised by the Representatives on behalf of the several
Underwriters by giving notice to the Company by a letter sent by
registered or certified mail, postage prepaid, telex, telegraph,
telegram or facsimile (such notice to be effective when sent,
unless such notice is sent by registered or certified mail, in
which case such notice will be effective two business days after
it is sent), addressed as provided in Section 14 hereof, setting
forth the number of Optional Shares to be purchased, the date and
time for delivery of and payment for the Optional Shares and
stating that the Optional Shares referred to therein are to be
used for the purpose of covering over-allotments in connection
with the distribution and sale of the Offered Shares. If such
notice is given prior to the Closing Date, the date set forth
therein for such delivery and payment shall not be earlier than
either two full business days thereafter or the Closing Date,
whichever occurs later. If such notice is given on or after the
Closing Date, the date set forth therein for such delivery and
payment shall be a date selected by the Representatives that is
not later than three full business days after the exercise of the
Over-allotment Option. The date and time set forth in such a
notice is referred to herein as the "Option Closing Date," and a
closing held
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pursuant to such a notice is referred to herein as the "Option
Closing." The number of Optional Shares to be sold to each
Underwriter pursuant to the exercise of the Over-allotment Option
shall be the number that bears the same ratio to the aggregate
number of Optional Shares being purchased through such
Over-allotment Option exercise as the number of Offered Shares
opposite the name of such Underwriter in Schedule I hereto bears
to the total number of all Offered Shares; subject, however, to
such adjustment as the Representatives may approve to eliminate
fractional shares. Upon the exercise of the Over-allotment
Option, the Company and the Selling Shareholders, each severally
and not jointly, shall become obligated to sell to the
Representatives for the respective accounts of the Underwriters,
and on the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and
conditions herein set forth, and the several Underwriters shall
become severally, but not jointly, obligated to purchase from the
Company and the Selling Shareholders, the number of Optional
Shares specified in each notice of exercise of the Over-allotment
Option.
(c) Payment for the Optional Shares shall be made to the
Company and the Selling Shareholders by certified or official
bank check payable to the order of the Company and the Selling
Shareholders in next day funds, at the office of Stearns Weaver
Miller Weissler Alhadeff & Sitterson, Miami, Florida, or such
other location as shall be agreed upon by the Company and the
Representatives, or in immediately available funds wired to such
accounts as the Company and the Selling Shareholders may specify
(with all costs and expenses incurred by the Underwriters in
connection with such settlement in immediately available funds
(including, but not limited to, interest or cost of funds
expenses) to be borne by the Company and the Selling
Shareholders), against delivery of the Optional Shares to the
Representatives at such place as you shall designate, for the
respective accounts of the Underwriters. The certificates
representing the Optional Shares to be issued and delivered will
be in such denominations and registered in such names as the
Representatives request not less than two full business days
prior to the Option Closing Date, and will be made available to
the Representatives for inspection, checking and packaging at the
office of the Company's Transfer Agent on the business day prior
to the Option Closing Date.
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6. CERTAIN COVENANTS AND AGREEMENTS OF THE COMPANY. The Company
covenants and agrees with the several Underwriters as follows:
(a) If Rule 430A of the Regulations is employed, the
Company will timely file the Prospectus pursuant to and in
compliance with Rule 424(b) of the Regulations and will advise
the Representatives of the time and manner of such filing.
(b) The Company will not at any time, whether before or
after the Registration Statement shall have become effective,
during such period as, in the opinion of counsel for the
Underwriters, the Prospectus is required by law to be delivered
in connection with sales by the Underwriters or a dealer, file or
publish any amendment or supplement to the Registration Statement
or Prospectus of which the Representatives has not been
previously advised and furnished a copy, or which is not in
compliance with the Regulations, or, during the period before the
distribution of the Offered Shares and the Optional Shares is
completed, file or publish any amendment or supplement to the
Registration Statement or Prospectus to which the Representatives
reasonably objects in writing.
(c) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time and date
that this Agreement is executed and delivered by the parties
hereto, to become effective and will advise the Representatives
immediately, and confirm such advice in writing, (i) when the
Registration Statement, or any post-effective amendment to the
Registration Statement, is filed with the SEC, (ii) of the
receipt of any comments from the SEC, (iii) when the Registration
Statement has become effective and when any post-effective
amendment thereto becomes effective, or when any supplement to
the Prospectus or any amended Prospectus has been filed, (iv) of
any request of the SEC for amendment or supplementation of the
Registration Statement or Prospectus or for additional
information, (v) during the period when the Prospectus is
required to be delivered under the Act and Regulations, of the
happening of any event which in the Company's judgment makes any
material statement in the Registration Statement or the
Prospectus untrue or which requires any changes to be made in the
Registration Statement or Prospectus in order to make any
material statements therein not misleading and (vi) of the
issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or of any order
preventing or suspending the use of any
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<PAGE>
Preliminary Prospectus or the Prospectus, the suspension of the
qualification of any of the Shares for offering or sale in any
jurisdiction in which the Underwriters intend to make such offers
or sales, or of the initiation or threatening of any proceedings
for any such purposes. The Company will use its best efforts to
prevent the issuance of any such stop order or of any order
preventing or suspending such use and, if any such order is
issued, to obtain as soon as possible the lifting thereof.
(d) The Company has delivered to the Representatives,
without charge, and will continue to deliver from time to time
until the Effective Date, as many copies of each Preliminary
Prospectus as the Representatives may reasonably request. The
Company will deliver to the Representatives, without charge, as
soon as possible after the Effective Date, and thereafter from
time to time during the period when delivery of the Prospectus is
required under the Act, such number of copies of the Prospectus
(as supplemented or amended, if the Company makes any supplements
or amendments to the Prospectus) as the Representatives may
reasonably request. The Company hereby consents to the use of
such copies of each Preliminary Prospectus and the Prospectus for
purposes permitted by the Act, the Regulations and the securities
or Blue Sky laws of the jurisdictions in which the Shares are
offered or sold by the several Underwriters and by all dealers to
whom Shares may be offered or sold, both in connection with the
offering and sale of the Shares and for such period of time
thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer.
The Company has furnished or will furnish to the Representatives
two signed copies of the Registration Statement as originally
filed and of all amendments thereto, whether filed before or
after the Effective Date, two copies of all exhibits filed
therewith and two signed copies of all consents and certificates
of experts, and will deliver to the Representatives such number
of conformed copies of the Registration Statement, including
financial statements and exhibits, and all amendments thereto, as
the Representatives may reasonably request.
(e) The Company will comply with the Act, the Regulations,
the Exchange Act and the rules and regulations thereunder so as
to permit the continuance of offers and sales of, and dealings
in, the Shares for as long as may be necessary to complete the
distribution of the Shares as contemplated hereby.
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<PAGE>
(f) The Company will furnish such information as may be
required and otherwise cooperate in the registration or
qualification of the Shares, or exemption therefrom, for offering
and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions in which the
Representatives determines to offer the Shares, after
consultation with the Company, and will file such consents to
service of process or other documents necessary or appropriate in
order to effect such registration or qualification; provided,
however, that no such qualification shall be required in any
jurisdiction where, solely as a result thereof, the Company would
be subject to taxation or qualification as a foreign corporation
doing business in such jurisdiction where it is not now so
qualified or to take any action which would subject it to service
of process in suits, other than those arising out of the offering
or sale of the Shares, in any jurisdiction where it is not now so
subject. 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 is required
under the laws of such jurisdiction for such offering and sale.
(g) Subject to subsection (b) of this Section 6, in case
of any event, at any time within the period during which, in the
opinion of counsel for the Underwriters, a prospectus is required
to be delivered under the Act and Regulations, as a result of
which event any Preliminary Prospectus or the Prospectus, as then
amended or supplemented, would contain, in the judgment of the
Company or in the opinion of counsel for the Underwriters, an
untrue statement of a material fact, or omit to state any
material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading, or, if it is necessary at any time to amend any
Preliminary Prospectus or the Prospectus to comply with the Act
and Regulations or any applicable securities or Blue Sky laws,
the Company promptly will prepare and file with the SEC, and any
applicable state securities commission, an amendment or
supplement that will correct such statement or omission or an
amendment that will effect such compliance and will furnish to
the Representatives such number of copies of such amendment or
amendments or supplement or supplements to such Preliminary
Prospectus or the Prospectus (in form and substance satisfactory
to the Representatives and counsel for Underwriters) as the
Representatives may reasonably request. For purposes of this
subsection, the Company will furnish such information to the
Representatives, the
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Underwriters' counsel and counsel for the Company as shall be
necessary to enable such persons to consult with the Company with
respect to the need to amend or supplement any Preliminary
Prospectus or the Prospectus, and shall furnish to the
Representatives and the Underwriters' counsel such further
information as each may from time to time reasonably request. If
the Company and the Representatives agree that any Preliminary
Prospectus or the Prospectus should be amended or supplemented,
the Company, if requested by the Representatives, will, if and to
the extent required by law, promptly issue a press release
announcing or disclosing the matters to be covered by the
proposed amendment or supplement.
(h) The Company will make generally available to its
security holders as soon as practicable and in any event not
later than 45 days after the end of the period covered thereby,
an earnings statement of the Company (which need not be audited
unless required by the Act, the Regulations, the Exchange Act or
the rules or regulations thereunder) that shall comply with
Section 11(a) of the Act and cover a period of at least 12
consecutive months beginning not later than the first day of the
Company's fiscal quarter next following the Effective Date.
(i) For a period of five years from the Effective Date,
the Company will deliver to the Representatives: (A) a copy of
each report or document, including, without limitation, reports
on Forms 8-K, 10-C, 10-K and 10-Q (or such similar forms as may
be designated by the SEC), registration statements and any
exhibits thereto, filed with or furnished to the SEC or any
securities exchange or the NASD, as soon as practicable after the
date each such report or document is so filed or furnished, (B)
as soon as practicable, copies of any reports or
communications(financial or other) of the Company mailed to its
security holders and (C) every material press release in respect
of the Company or the Subsidiaries or their affairs that was
released or prepared by the Company or the Subsidiaries.
(j) During the course of the distribution of the Shares,
the Company has not taken, nor will it take, directly or
indirectly, any action designed to or that might, in the future,
reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock.
(k) The Company will cause each person listed on
Schedule II hereto to execute a legally binding and
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<PAGE>
enforceable agreement (a "lockup agreement") to, for the period
commencing on the Effective Date and ending 180 days after the
Effective Date, not sell, offer to sell, contract to sell, grant
any option for the sale of or otherwise transfer or dispose of
any shares of Common Stock (except for the sale of the Shares as
contemplated by this Agreement), any options or warrants to
purchase Common Stock or any securities convertible into or
exchangeable for Common Stock without the prior written consent
of the Representatives, which lockup agreement shall be in form
and substance satisfactory to the Representatives and the
Underwriters' counsel, and deliver such lockup agreement to the
Representatives prior to the Effective Date. Appropriate stop
transfer instructions will be issued by the Company to the
transfer agent for the securities affected by the lockup
agreements.
(l) The Company will not sell, issue, contract to sell,
offer to sell or otherwise dispose of any Common Stock, options
to purchase Common Stock or any other security convertible into
or exchangeable for Common Stock, from the date of the Effective
Date through 180 days after the Effective Date, without the prior
written consent of the Representatives, except for the sale of
the Shares as contemplated by this Agreement, the granting of
options and the issuance of Common Stock upon their exercise,
under the Company's stock option plans described in the
Prospectus and the issuance of the Representatives' Warrants.
(m) The Company will use all reasonable efforts to
maintain the inclusion of the Common Stock on the Nasdaq National
Market (or a national securities exchange) for a period of five
years after the date hereof.
(n) The Company shall, at its sole cost and expense,
supply and deliver to the Representatives and the Underwriters'
counsel, within a reasonable period after the Closing Date, six
transaction binders, each of which shall include the Registration
Statement, as amended or supplemented, all exhibits to the
Registration Statement, each Preliminary Prospectus, the
Prospectus, the Preliminary Blue Sky Memorandum and any
supplement thereto and all underwriting and other closing
documents.
(o) The Company will use the net proceeds from the sale of
the Shares to be sold by it hereunder substantially in accordance
with the description thereof set forth in the Prospectus and
shall file such
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<PAGE>
reports with the SEC with respect to the sale of such Shares and
the application of the proceeds therefrom as may be required in
accordance with Rule 463 under the Act.
(p) On the Closing Date, the Company shall sell to the
Representatives, at a purchase price of $0.001 per warrant, the
Representatives' Warrants to purchase 320,000 shares of Common
Stock. Such Representatives' Warrant shall be issued pursuant to
the terms of the Warrant Agreement and shall have an exercise
price per share equal to $_____, shall be exercisable during the
period beginning on the first anniversary of the Effective Date
and ending on the fifth anniversary of the Effective Date, and
shall contain customary anti-dilution and registration rights
provisions.
(q) The Company confirms as of the date hereof that it is
in compliance with all provisions of Section 1 of Laws of
Florida, Chapter 92-198, AN ACT RELATING TO DISCLOSURE OF DOING
BUSINESS WITH CUBA, and the Company further agrees that if it
commences engaging in business with the government of Cuba or
with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the
Securities and Exchange Commission or with the Florida Department
of Banking and Finance (the "Department"), whichever date is
later, or if the information reported in the Prospectus, if any,
concerning the Company's business with Cuba or with any person or
affiliate located in Cuba changes in any material way, the
Company will provide the Department notice of such business or
change, as appropriate, in a form acceptable to the Department.
(r) The Company will use its best efforts to do and
perform all things required to be done and performed by it prior
to or after the Closing Date and to satisfy all conditions
precedent on its part to the delivery of the Shares.
7. PAYMENT OF EXPENSES.
(a) Whether or not the transactions contemplated by this
Agreement are consummated and regardless of the reason this
Agreement is terminated, the Company will pay or cause to be
paid, and bear or cause to be borne, all costs and expenses
incident to the performance of the obligations of the Company
under this Agreement, including: (i) the fees and expenses of the
accountants and counsel for the Company incurred in the
preparation of the Registration Statement and any post-effective
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<PAGE>
amendments thereto (including financial statements and exhibits),
each Preliminary Prospectus and the Prospectus and any amendments
or supplements thereto; (ii) printing and mailing expenses
associated with the Registration Statement and any post-effective
amendments thereto, each Preliminary Prospectus, the Prospectus
(including any supplement thereto), this Agreement, the Agreement
Among Underwriters, the Underwriters' Questionnaire, the Selected
Dealer Agreement and related documents and the Preliminary Blue
Sky Memorandum and any supplement thereto; (iii) the costs
incident to the authentication, issuance, delivery and transfer
of the Shares to the Underwriters; (iv) all taxes, if any, on the
issuance, delivery and transfer of the Shares to be sold by the
Company to the Underwriters; (v) the fees, expenses and all other
costs of qualifying the Shares for the sale under the securities
or Blue Sky laws of those jurisdictions in which the Shares are
to be offered or sold including the fees and disbursements of
Underwriters' counsel and such local counsel as may have been
reasonably required and retained for such purpose; (vi) the fees,
expenses and other costs of, or incident to, securing any review
or approvals by or from the NASD including the fees of the
Underwriters' counsel up to a maximum of $20,000; (vii) the
filing fees of the SEC; (viii) the cost of furnishing to the
Underwriters copies of the Registration Statement, each
Preliminary Prospectus and the Prospectus (including any
supplement or amendment thereto) as herein provided; (ix) the
Company's travel expenses in connection with meetings with the
brokerage community and institutional investors and expenses
associated with hosting such meetings, including meeting rooms,
meals, facilities and ground transportation expenses; (x) the
costs and expenses associated with settlement in same day funds
(including, but not limited to, interest or cost of funds
expenses), if desired by the Company; (xi) the fees for inclusion
of the Shares on the Nasdaq National Market; (xii) the cost of
printing and engraving certificates for the Shares; (xiii) the
cost and charges of any transfer agent; and (xiv) all other costs
and expenses reasonably incident to the performance of its
obligations hereunder that are not otherwise specifically
provided for in this Section 7.
(b) In addition to the foregoing expenses, the Company
shall at the Closing Date pay to the Representatives a
non-accountable expense allowance equal to two percent (2%) of
the gross proceeds received from the sale of the Offered Shares.
In the event the Over-allotment Option is exercised,
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the Company shall pay to the Representatives at the Option
Closing Date an additional amount equal to two percent (2%) of
the gross proceeds received upon exercise of the Over-allotment
Option.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligation of each
Underwriter to purchase and pay for the Offered Shares that it has agreed to
purchase hereunder on the Closing Date, and to purchase and pay for any Optional
Shares as to which its right to purchase under Section 5 has been exercised on
an Option Closing Date, is subject at the date hereof, the Closing Date and any
Option Closing Date to the continuing accuracy in all material respects of the
representations and warranties of the Company and the Selling Shareholders set
forth herein, to the performance by the Company and the Selling Shareholders of
its or their covenants, agreements and obligations hereunder and to the
following additional conditions:
(a) 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 the Representatives may agree
to in writing; if required by the Regulations, the Prospectus shall have
been filed with the SEC pursuant to Rule 424 (b) of the Regulations
within the applicable time period prescribed for such filing by the
Regulations and in accordance with subsection (a) of Section 6 hereof;
on or prior to the Closing Date or any Option Closing Date, as the case
may be, no stop order or other order preventing or suspending the
effectiveness of the Registration Statement or the sale of any of the
Shares shall have been issued under the Act or any state securities law
and no proceedings for that purpose shall have been initiated or shall
be pending or, to the Representatives' knowledge or the knowledge of the
Company, shall be contemplated by the SEC or any authority in any
jurisdiction designated by the Representatives pursuant to subsection
(f) of Section 6 hereof and any request on the part of the SEC for
additional information shall have been complied with to the reasonable
satisfaction of counsel for the Underwriters.
(b) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of Company,
dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectus, any supplement to the Prospectus and this Agreement and
that:
(i) the representations and warranties of the Company in
this Agreement are true and correct in all material respects on
and as of the Closing Date and the
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Option Closing Date, if any, with the same effect as if made on
the Closing Date and the Option Closing Date, if any, and the
Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or
prior to the Closing Date and the Option Closing Date, if any;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial
statements included in the Prospectus (exclusive of any
supplement thereto), there has been no material adverse change in
the condition (financial or other), earnings, business or
properties of the Company and its subsidiaries, whether or not
arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(c) Each of the Selling Shareholders shall have furnished to the
Representatives a certificate, signed by such Selling Shareholder, dated
the Closing Date and the Option Closing Date, if any, to the effect that
the signer of such certificate has carefully examined the Registration
Statement, the Prospectus, any supplement to the Prospectus and this
Agreement and that the representations and warranties of such Selling
Shareholder in this Agreement are true and correct in all material
respects on and as of the Closing Date to the same effect as if made on
the Closing Date.
(d) All corporate proceedings and other matters incident to the
authorization, form and validity of this Agreement, the Warrant
Agreement, the Representatives' Warrants and the Shares and the form of
the Registration Statement, each Preliminary Prospectus and the
Prospectus, and all other legal matters relating to this Agreement and
the transactions contemplated hereby, shall be satisfactory in all
respects to counsel to the Underwriters; the Company shall have
furnished to such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters; and the
Representatives shall have received from the Underwriters' counsel,
Skadden, Arps, Slate, Meagher & Flom, a customary opinion, dated as of
the Closing Date and any Option Closing Date, as the case may be, and
addressed to the Representatives individually and as the Representatives
of the several Underwriters.
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(e) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of any of the Shares.
(f) The Representatives shall have received copies of the lockup
agreements described in subsection (k) of Section 6 signed by those
persons set forth on Schedule II hereto.
(g) The Representatives shall have received on the Closing Date
and on the Option Closing Date, if any, an opinion from Stearns Weaver
Miller Weissler Alhadeff & Sitterson, counsel for the Company, dated the
Closing Date and the Option Closing Date, if any, and addressed to the
Underwriters and with reproduced copies or signed counterparts thereof
for each of the Underwriters, substantially in the form attached hereto
as "Exhibit A."
(h) The Representatives shall have received on the Closing Date
and on the Option Closing Date, if any, an opinion from Balboni Ashley &
Schoenberg LLC, counsel for the Selling Shareholders, dated the Closing
Date and the Option Closing Date, if any, and addressed to Underwriters
and with reproduced copies or signed counterparts thereof for each of
the Underwriters, substantially in the form attached hereto as "Exhibit
B."
(i) The Representatives shall have received on the Closing Date
and on the Option Closing Date, if any, an opinion from the Law Offices
of John Kinsey, real estate counsel to the Company, dated the Closing
Date and the Option Closing Date, if any, and addressed to the
Underwriters and with reproduced copies or signed counterparts thereof
for each of the Underwriters, substantially in the form attached hereto
as "Exhibit C."
(j) At the Closing Date and any Option Closing Date: (A) the
Registration Statement and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto shall contain all
statements that are required to be stated therein in accordance with the
Act and the Regulations and shall conform, in all material respects, to
the requirements of the Act and the Regulations, and neither the
Registration Statement nor any post-effective amendment thereto nor the
Prospectus and any amendments or supplements 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 circumstances under which they were made, not
misleading; (B) since the respective dates as of which information is
given in the Registration Statement and any post-effective amendment
thereto and the Prospectus and any amendments or supplements thereto,
except as otherwise
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stated therein, there shall have been no material adverse change in the
properties, condition (financial or otherwise), results of operations,
shareholders' equity, business or management of the Company, from that
set forth therein, whether or not arising in the ordinary course of
business, other than as referred to in the Registration Statement or
Prospectus; (C) since the respective dates as of which information is
given in the Registration Statement and any post-effective amendment
thereto and the Prospectus or any amendment or supplement thereto, there
shall have been no transaction, contract or agreement entered into by
the Company or the Subsidiaries, other than in the ordinary course of
business and as set forth in the Registration Statement or Prospectus,
that has not been, but would be required to be, set forth in the
Registration Statement or Prospectus; (D) no action, suit or proceeding
at law or in equity shall be pending or, to the knowledge of the Company
or the Subsidiaries, threatened against the Company that would be
required to be set forth in Prospectus, other than as set forth therein,
and no proceedings shall be pending or, to the knowledge of the Company,
threatened against the Company or the Subsidiaries before or by any
federal, state or other commission, board or administrative agency
wherein an unfavorable decision, ruling or finding would materially
adversely affect the properties, condition (financial or otherwise),
results of operations, shareholders' equity or business of the Company
or the Subsidiaries, considered as one enterprise, other than as set
forth in the Prospectus.
(k) At the time this Agreement is executed and at the Closing
Date and any Option Closing Date, the Representatives shall have
received a letter addressed to the Representatives, individually and as
the Representatives of the several Underwriters, and in form and
substance satisfactory to the Representatives in all respects (including
the nonmaterial nature of the changes or decreases, if any, referred to
in clause (iii) below) from KPMG Peat Marwick LLP, dated as of the date
of this Agreement, the Closing Date or Option Closing Date, as the case
may be:
(i) confirming that they are independent certified public
accountants within the meaning of the Act and the related
published Rules and Regulations thereunder;
(ii) stating that, in their opinion, the financial
statements of the Company audited by them and included in the
Registration Statement comply in form in all material respects
with the applicable accounting requirements of the Act and the
related published Rules and Regulations;
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(iii) stating that, on the basis of specified procedures,
which included a reading of the latest available unaudited
interim financial statements of the Company (with an indication
of the date of the latest available unaudited interim financial
statements), a reading of the minutes of the meetings of the
shareholders and the Board of Directors of the Company and audit
and compensation committees of such Board, if any, and inquiries
to certain officers and other employees of the Company who are
responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to their
attention that would cause them to believe that (A) the unaudited
financial statements and related schedules of the Company
included in the Registration Statement, if any, (I) do not comply
in form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations or (II) were not fairly presented in conformity with
generally accepted accounting principles on a basis substantially
consistent with that of the audited financial statements and
related schedules included in the Registration Statement or
(B)(I) at a specified date, not more than five business days
prior to the date of such letter there was any change in the
common or redeemable preferred stock, or construction loans
payable, acquisition and development loans, or subordinated debt
of the Company, or any decrease in total assets or shareholders'
equity as compared with the amounts shown in the June 30, 1996
balance sheet of the Company included in the Registration
Statement, other than as set forth in or contemplated by the
Registration Statement and Prospectus, and (II) during the period
from June 30, 1996 to a specified date not more than five
business days prior to the date of such letter, there has been
any decrease as compared with the corresponding period in the
preceding year, in revenues, or income before income taxes and
extraordinary gains or in total or per common and common
equivalent share amounts of net income of the Company or, if
there was any such decrease setting forth the amount of such
decrease; and
(iv) stating that they have compared specific dollar
amounts, numbers of shares and other information pertaining to
the Company set forth in the Registration Statement and
Prospectus that have been specified by the Representatives prior
to the date of this Agreement, to the extent that such amounts,
numbers, percentages and information may be derived from the
general accounting or other records of the Company with the
result obtained from the application of specified
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<PAGE>
readings, inquiries and other appropriate procedures (which
procedures do not constitute an audit in accordance with
generally accepted auditing standards) set forth in the letter,
and found them to be in agreement.
(l) The Company shall have executed and delivered an agreement
memorializing the Representatives' Warrants in a form satisfactory to
the Representatives (the "Warrant Agreement") and there shall have been
tendered to the Representatives, against delivery of the consideration
therefor, certificates representing all of the Representatives' Warrants
described in subsection (p) of Section 6, to be purchased by the
Representatives on the Closing Date.
(m) At the Closing Date and any Option Closing Date, the
Representatives shall have been furnished such additional documents and
certificates as they shall reasonably request.
(n) Other than as a result of actions taken by or on behalf of
any Underwriter, no action shall have been taken by the NASD, the effect
of which is to make it improper, at any time prior to the Closing Date
or any Option Closing Date, for members of the NASD to execute
transactions as principal or as agent in the Shares or to trade or deal
in the Shares, and no proceedings for the purpose of taking such action
shall have been instituted or shall be pending or, to the Company's or
the Representatives' knowledge, shall be contemplated by the NASD.
If any conditions to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date shall not have been fulfilled, the
Representatives may on behalf of the several Underwriters terminate this
Agreement or, if they so elect, waive any such conditions which have not been
fulfilled or extend the time for their fulfillment.
9. INDEMNIFICATION.
(a) The Company and each of the Selling Shareholders, jointly and
severally, agree to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), from and against any and all
losses, claims, damages, liabilities and judgments, joint or several,
caused by any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or the Prospectus (as
amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary prospectus, or
caused by any omission or alleged omission to state therein a material
35
<PAGE>
fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission which is based upon
information furnished in writing to the Company by or on behalf of any
Underwriter through the Representatives expressly for use therein.
Notwithstanding the foregoing, the liability of each of the Selling
Shareholders under this paragraph shall be limited to an amount equal to
the net proceeds of the Shares sold by such Selling Shareholder to the
Underwriters; PROVIDED, HOWEVER, that the foregoing indemnity agreement
with respect to any preliminary prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such
losses, claims, damages and liabilities and judgments purchased Shares,
or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf
of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended and
supplemented) would have cured the defect giving rise to such loss,
claim, damage, liability or judgment.
(b) In case any action shall be brought against any Underwriter
or any person controlling such Underwriter, based upon any preliminary
prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto and with respect to which indemnity may
be sought against the Company and the Selling Shareholders, such
Underwriter shall promptly notify the parties against whom
indemnification is being sought (the "Indemnifying Parties") in writing
and the Indemnifying Parties shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such indemnified
party and payment of all fees and expenses. Any Underwriter or any such
controlling person shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Underwriter or
such controlling person unless (i) the employment of such counsel has
been specifically authorized in writing by the Indemnifying Parties,
(ii) the Indemnifying Parties shall have failed to assume the defense
and employ counsel or (iii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the Indemnifying Parties and such Underwriter or
such controlling person shall have been advised by such counsel that
there may be one or more legal defenses available to it which are
different from or additional to those available to
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<PAGE>
the Indemnifying Parties (in which case the Indemnifying Parties shall
not have the right to assume the defense of such action on behalf of
such Underwriter or such controlling person, it being understood,
however, that the Indemnifying Parties 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 (in addition to any local counsel)
for all such Underwriters and controlling persons, which firm shall be
designated in writing by the Representatives and that all such
reasonable fees and expenses shall be reimbursed as they are incurred).
The Indemnifying Parties shall not be liable for any settlement of any
such action effected without their written consent. If settled with such
written consent, the Indemnifying Parties agree to indemnify and hold
harmless any Underwriter and any such controlling person from and
against any loss or liability by reason of such settlement.
Notwithstanding the immediately preceding sentence, if in any case where
the fees and expenses of counsel are at the expense of the Indemnifying
Parties and an indemnified party shall have requested the Indemnifying
Parties to reimburse the indemnified party for such fees and expenses of
counsel as incurred, the Indemnifying Parties agree that they shall be
liable for any settlement of any action effected without its written
consent if (i) such settlement is entered into more than ten business
days after the receipt by such indemnifying party of the aforesaid
request and (ii) such indemnifying party shall have failed to reimburse
the indemnified party in accordance with such request for reimbursement
prior to the date of such settlement. No Indemnifying Party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which
any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such
proceeding.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement, any person controlling the Company
within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, each of the Selling Shareholders and each person, if any,
controlling such Selling Shareholder within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company and each of the Selling
Shareholders to each Underwriter but only with reference to information
furnished in writing by or on
37
<PAGE>
behalf of such Underwriter through you expressly for use in the
Registration Statement, the Prospectus or any preliminary prospectus. In
case any action shall be brought against the Company, any of its
directors, any such officer or any person controlling the Company or the
Selling Shareholders or any person controlling the Selling Shareholders
based on the Registration Statement, the Prospectus or any preliminary
prospectus and in respect of which indemnity may be sought against any
Underwriter, the Underwriter shall have the rights and duties given to
the Company and the Selling Shareholders by paragraph (b) above (except
that if any of the Company or the Selling Shareholders shall have
assumed the defense thereof, such Underwriter shall not be required to
do so, but may employ separate counsel therein and participate in the
defense thereof but the fees and expenses of such counsel shall be at
the expense of such Underwriter), and the Company, its directors, any
such officers and any person controlling the Company and each of the
Selling Shareholders and any person controlling such Selling
Shareholders shall have the rights and duties given to the Underwriter
by Section 9(b) hereof.
(d) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities and judgments
(i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and each of the Selling Shareholders on
the one hand and the Underwriters on the other hand from the offering of
the Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of the Company and the Selling Shareholders
and the Underwriters in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Shareholders
and the Underwriters shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses)
received by the Company and each of the Selling Shareholders, and the
total underwriting discounts and commissions received by the
Underwriters, bear to the total price to the public of the Shares, in
each case as set forth in the table on the cover page of the Prospectus.
The relative fault of the Company and each of the Selling Shareholders
and the Underwriters shall be determined by reference to, among other
things, whether the untrue or
38
<PAGE>
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company, each of
the Selling Shareholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and each of the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if
contribution pursuant to this Section 9(d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party
as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the amount by which
the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The Underwriters' obligations to contribute pursuant to this Section 9
(d) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date and any Option Closing Date; and such
representations, warranties and agreements of the Underwriters and the Company,
including without limitation the indemnity and contribution agreements contained
in Section 9 hereof and the agreements contained in Sections 7, 10, 11 and 13
hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person,
and shall survive delivery of the Shares and termination of this Agreement,
whether before or after the Closing Date or any Option Closing Date.
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<PAGE>
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective immediately as to
Sections 7, 9, 10, 11 and 13 and, as to all other provisions, (i) if at
the time of execution and delivery of this Agreement the Registration
Statement has not become effective, at 6:30 a.m., Pacific time, on the
first business day following the Effective Date, or (ii) if at the time
of execution and delivery of this Agreement the Registration Statement
has been declared effective, at 6:30 a.m., Pacific time, on the date of
execution of this Agreement; but this Agreement shall nevertheless
become effective at such earlier time after the Registration Statement
becomes effective as the Representatives may determine by notice to the
Company or by release of any of the Shares for sale to the public. For
the purposes of this Section 11, the Shares shall be deemed to have been
so released upon the release for publication of any newspaper
advertisement relating to the Shares or upon the release by the
Representatives of telegrams (i) advising the Underwriters that the
Shares are released for public offering or (ii) offering the Shares for
sale to securities dealers, whichever may occur first. The
Representatives may prevent the provisions of this Agreement (other than
those contained in Sections 7, 9, 10, 11 and 13) hereof from becoming
effective without liability of any party to any other party, except as
noted below, by giving the notice indicated in subsection (c) of this
Section 10 before the time the other provisions of this Agreement become
effective.
(b) The Representatives shall have the right to terminate this
Agreement at any time prior to the Closing Date as provided in Sections
8 and 12 hereof or if any of the following have occurred: (i) since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company, or the
earnings, business affairs, management or business prospects of the
Company, whether or not arising in the ordinary course of business; (ii)
any outbreak of hostilities or other national or international calamity
or crisis or change in economic, political or financial market
conditions if such outbreak, calamity, crisis or change would, in the
Representatives' reasonable judgment, make it impractical or inadvisable
to commence or continue the offering of the Shares; (iii) suspension of
trading generally in securities on the New York Stock Exchange, Inc.
("NYSE") or on the Nasdaq National Market System or minimum or maximum
prices shall have been established thereon (other than limitations on
hours or numbers of days of trading) for
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<PAGE>
securities or the promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority
which in the Representatives' reasonable opinion materially and
adversely affects trading on either such NYSE or on the Nasdaq National
Market System; (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order
of any court or other governmental authority which in the
Representatives' reasonable opinion materially and adversely affects or
will materially and adversely affect the business or operations of the
Company; (v) declaration of a banking moratorium by either federal or
California, New York or Florida authorities; (vi) the taking of any
action by any federal, state or local government or agency in respect of
its monetary or fiscal affairs which in the Representatives' reasonable
opinion has a material adverse effect on the securities markets in the
United States; (vii) trading in any securities of the Company shall have
been suspended or halted by the NASD or the SEC; or (viii) any
securities of the Company shall have been downgraded or placed on any
"watch list" for possible downgrading by any nationally recognized
statistical rating organization.
(c) If the Representatives elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 11, the Representatives shall notify the Company thereof
promptly by telephone, telex, telegraph or facsimile, confirmed by
letter.
12. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Offered Shares or Optional Shares
hereunder, and if the Offered Shares or Optional Shares with respect to
which such default relates do not exceed the aggregate of ten percent
(10%) of the number of Offered Shares or Optional Shares, as the case
may be, that all Underwriters have agreed to purchase hereunder, then
such Offered Shares or Optional Shares to which the default relates
shall be purchased severally by the non-defaulting Underwriters in
proportion to their respective commitments hereunder.
(b) If such default relates to more than ten percent (10%) of the
Offered Shares or Optional Shares, as the case may be, the
Representatives may in its discretion arrange for another party or
parties (including a non-defaulting Underwriter) to purchase such
Offered Shares or Optional Shares to which such default relates, on the
terms contained herein. In the event that the Representatives do not
arrange for the purchase of the Offered Shares or Optional
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<PAGE>
Shares to which a default relates as provided in this Section 12 within
36 hours after such default, this Agreement may be terminated by the
Representatives or by the Company without liability on the part of the
nondefaulting Underwriters (except as provided in Section 9 hereof) or
the Company (except as provided in Sections 7 and 9 hereof), but nothing
herein shall relieve a defaulting Underwriter of its liability, if any,
to the other several Underwriters and to the Company or the Selling
Shareholders for damages occasioned by its default hereunder.
(c) If the Offered Shares or Optional Shares to which the default
relates are to be purchased by the non-defaulting Underwriters, or are
to be purchased by another party or parties as aforesaid, the
Representatives or the Company shall have the right to postpone the
Closing Date or any Option Closing Date, as the case may be, for a
reasonable period but not in any event exceeding seven days, in order to
effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus or in any other documents and
arrangements, and the Company agrees to file promptly any amendment to
the Registration Statement or supplement to the Prospectus which in the
opinion of counsel for the Underwriters may thereby be made necessary.
The terms "Underwriters" and "Underwriter" as used in this Agreement
shall include any party substituted under this Section 12 with like
effects as if it had originally been a party to this Agreement with
respect to such Offered Shares or Optional Shares.
13. INFORMATION FURNISHED BY UNDERWRITERS. The Representatives, on
behalf of the Underwriters, represent and warrant to the Company that the
information appearing in any preliminary prospectus, the Prospectus or the
Registration Statement (a) on the cover page of the Prospectus with respect to
price, underwriting discounts and commissions and terms of offering, (b) on the
inside front cover page with respect to stabilization, (c) in the section
entitled "Underwriting," and (d) in the section entitled "Legal Matters" with
respect to the identity of counsel for the Underwriters was furnished to the
Company by and on behalf of the Underwriters for use in connection with the
preparation of the Registration Statement and the Prospectus and is correct in
all material respects. The parties acknowledge that this information constitutes
the only information furnished in writing by or on behalf of any Underwriter for
inclusion in any preliminary prospectus, the Prospectus or the Registration
Statement referred to in subsection (b) of Section 1 hereof and subsection (a)
of Section 9 hereof.
14. NOTICES. All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, telexed,
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<PAGE>
telegrammed, telegraphed or telecopied and confirmed to such Underwriter, c/o BT
Securities, 130 Liberty Street, New York, New York 10006, Attention: President,
with a copy to Skadden, Arps, Slate, Meagher & Flom, 300 South Grand Avenue,
34th Floor, Los Angeles, California 90071, Attention: Brian J. McCarthy, Esq.;
if sent to the Company shall be mailed, delivered, telexed, telegrammed,
telegraphed or telecopied and confirmed to Transeastern Properties, Inc., 3300
University Drive, Suite 001, Coral Springs, Florida 33065, Attention: President,
with a copy to Stearns Weaver Miller Weissler Alhadeff & Sitterson, Museum
Tower, 150 West Flagler Street, Suite 2200, Miami, Florida 33130, Attention:
Steven D. Rubin, Esq.
15. PARTIES. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the several Underwriters, the Company, the Selling
Shareholders and the controlling persons, directors and officers referred to in
Section 9 hereof, and their respective successors, assigns, heirs and legal
representatives, and no other person shall have or be construed to have any
legal or equitable right, remedy or claim under or in respect of or by virtue of
this Agreement or any provision herein contained. The term "successors" and
"assigns" shall not include any purchaser of the Shares merely because of such
purchase.
16. DEFINITION OF BUSINESS DAY. For purposes of this Agreement,
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and all such counterparts will constitute one and the same
instrument.
18. CONSTRUCTION. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and performed entirely within such state.
If the foregoing correctly sets forth the understanding among the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement by and
among the Underwriters and the Company.
Very truly yours,
TRANSEASTERN PROPERTIES, INC.
By:__________________________
Its:______________________
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<PAGE>
SELLING SHAREHOLDERS
By:__________________________
Its:______________________
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
BT SECURITIES CORPORATION
CRUTTENDEN ROTH INCORPORATED
JANNEY MONTGOMERY SCOTT INC.
By: BT Securities Corporation
By: __________________________
Authorized Signatory
For each of themselves and as Representatives of the several
Underwriters named in Schedule I hereto
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SCHEDULE I
UNDERWRITERS
NUMBER OF OFFERED SHARES
UNDERWRITER TO BE PURCHASED
----------- ---------------
BT Securities
Cruttenden Roth Incorporated
Janney Montgomery Scott Inc.
-----------------
Total 3,200,000
=================
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SCHEDULE II
SELLING SHAREHOLDERS AND
PERSONS SUBJECT TO LOCKUP AGREEMENTS
NUMBER OF SHARES
1. SELLING SHAREHOLDERS BEING OFFERED
-------------------- ----------------
a. John Cucci 1,000
b. Robert J. Falcone, trustee 30,000
c. Christopher Allick 18,000(1)
d. Andrew Whittaker 5,143(2)
e. David F. Eisner 10,283(3)
f. David J. Losito 5,143(2)
g. Handler Family Trust 56,431(4)
h. Brancaleone Family Partnership 11,351
i. Albert Bruno 11,611
j. Phillip J. Ciabattoni 1,392
k. Otto Claricurzio 1,162
l. Audrey Cohen 4,645
m. David W. Gove 2,322
n. Forest Hasmilton 5,000
o. Larry T. Nicholson 1,162
p. Bruce and Kim Phillips 2,787
q. Ray Stromback 1,858
r. Stephen R. Day 1,162
s. Issac Abolofia 4,645
t. Anthony C. Musto 4,645
u. Bruce R. and Jody A. Johnson 8,129
v. Clay S. Cunningham 1,160
w. Albert A. DiClemente 1,160
x. Neal Katz 1,160
y. Brooke Jones 1,160
z. John Murphy 928
aa. Marc J. Spizzirri 1,160
aa. DuRay E. Stromback, trustee 1,160
bb. John & Irene Passarelli 6,967
cc. Phillip J. Weiss, trustee 2,324
dd. Arthur J. Falcone, Sr. 1,624
ee. Patrick Savin 100,000
- --------
(1) Intends to sell 9,600 shares if the over-allotment
option is exercised in full.
(2) Intends to sell 2,743 shares if the over-allotment
option is exercised in full.
(3) Intends to sell 5,484 shares if the over-allotment
option is exercised in full.
(4) Intends to sell 27,430 shares if the over-allotment
option is exercised in full.
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ff. Arthur Falcone (5)
gg. Phillip Cucci (5)
hh. Edward Falcone (5)
-------
Total 307,674
- --------
(5) Intends to sell 112,000 shares if the over-allotment
option is exercised in full.
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EXHIBIT A
FORM OF OPINION OF
STEARNS WEAVER MILLER WEISSLER ALHADEFF & SITTERSON,
COUNSEL FOR THE COMPANY
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Florida.
(ii) The Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Underwriting
Agreement and the Warrant Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not have a material adverse effect on the Company
and the Subsidiaries, taken as a whole.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus in the column entitled "Actual" under
the caption "Capitalization" (except for subsequent issuances, if any, pursuant
to the Underwriting Agreement); the shares of issued and outstanding capital
stock have been duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights of any
securityholder of the Company arising by operation of law, under the charter or
bylaws of the Company or, to the best of our knowledge, under any agreement to
which the Company is a party.
(v) The Shares have been duly authorized for issuance and sale to
the Underwriters pursuant to the Underwriting Agreement and, when issued and
delivered by the Company pursuant to the Underwriting Agreement against payment
of the consideration set forth in the Underwriting Agreement, will be validly
issued and fully paid and non-assessable.
(vi) The issuance of the Shares is not subject to pre-emptive or
other similar rights arising by operation of law, under the charter or bylaws of
the Company or, to the best of our knowledge and information, otherwise.
(vii) 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, has corporate
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power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a Material
Adverse Effect; except as otherwise disclosed in the Registration Statement, all
of the issued and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and, to the best
of our knowledge and information, is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity; none of the outstanding shares of capital stock of
any Subsidiary was issued in violation of the preemptive or similar rights of
any securityholder of such Subsidiary.
(viii) The Underwriting Agreement, the Warrant Agreement and the
Representatives' Warrant have each been duly authorized, executed and delivered
by the Company.
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and, to the best of
our knowledge and information, no stop order suspending the effectiveness of the
Registration Statement has been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434 Information,
as applicable, the Prospectus and each amendment or supplement to the
Registration Statement and Prospectus, as of their respective effective or issue
dates (other than the financial statements, financial information and supporting
schedules included therein or omitted therefrom, as to which no opinion need be
rendered) complied as to form in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations.
(xi) If Rule 434 has been relied upon, the Prospectus was not
"materially different," as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective.
(xii) The form of certificate used to evidence the Common Stock
complies in all material respects with all applicable statutory requirements,
with any applicable requirements of the charter and by-laws of the Company and
the requirements of the Nasdaq National Market.
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(xiii) To the best of our knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or any Subsidiary is a party, or to which the property of the Company or
any Subsidiary is subject, before or brought by any court or governmental agency
or body, domestic or foreign, which are required to be described in the
Prospectus that are not described as required, or which could reasonably be
expected to materially and adversely affect the consummation of the Underwriting
Agreement or the performance by the Company of its obligations thereunder.
(xiv) The information in the Prospectus under "Description of
Capital Stock," "Shares Eligible for Future Sale," "Business--Summary of
Residential Communities," "Business--Land Acquisition," "Business--Legal
Proceedings," "Certain Federal Income Tax Considerations For Non-U.S. Holders of
Common Stock" and in the Registration Statement under Item 14, to the extent
that it constitutes matters of law, summaries of legal matters, the Company's
charter and bylaws or legal proceedings, or legal conclusions, has been reviewed
by us and is correct in all material respects.
(xv) To the best of our knowledge, there are no statutes or
regulations that are required to be described in the Prospectus that are not
described as required;
(xvi) All descriptions in the Prospectus of contracts and other
documents to which the Company or its subsidiaries are a party are accurate in
all material respects; to the best of our knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments or agreements required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than those
described or referred to therein or filed or incorporated by reference as
exhibits thereto, and the descriptions thereof or references thereto are correct
in all material respects.
(xvii) To the best of our knowledge, neither the Company nor any
Subsidiary is in violation of its charter or by-laws and no default by the
Company or any Subsidiary exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xviii) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign (other than under the 1933
Act and the 1933 Act Regulations, which have been obtained, or as may be
required under the securities or blue sky laws of the various states or the laws
and rules of the NASD, as to which we need express no opinion) is
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necessary or required in connection with the due authorization, execution and
delivery of the Underwriting Agreement, the Warrant Agreement or the
Representatives' Warrants, or for the offering, issuance or sale of the Shares
by the Company to the Underwriters.
(xix) The execution, delivery and performance of the Underwriting
Agreement, the Warrant Agreement or the Representatives' Warrants, and the
consummation of the transactions contemplated in the Underwriting Agreement and
in the Registration Statement (including the issuance and sale of the Shares and
the use of the proceeds from the sale of the Shares as described in the
Prospectus under the caption "Use Of Proceeds") and compliance by the Company
with its obligations under the Underwriting Agreement will not, whether with or
without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default under or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company or
any Subsidiary pursuant to any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or any other agreement or instrument,
known to us, to which the Company or any Subsidiary is a party or by which it or
any of them may be bound, or to which any of the property or assets of the
Company or any Subsidiary is subject (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of the provisions
of the charter or by-laws of the Company or any Subsidiary, or any applicable
law, statute, rule, regulation, judgment, order, writ or decree, known to us, of
any government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their respective
properties, assets or operations.
(xx) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.
(xxi) To the best of our knowledge and information, there are no
persons with registration or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise registered by the
Company under the 1933 Act.
We have participated in conferences with directors, officers and other
representatives of the Company, the Representatives, the Company's independent
accountants and counsel for the Underwriters at which conferences the contents
of the Registration Statement and the Prospectus and related matters were
discussed and, although we have not verified and are not opining upon or
assuming any responsibility for the accuracy or completeness of the information
contained in the Registration Statement or the Prospectus (except as otherwise
specifically stated herein), on the basis of the foregoing (and relying as to
materiality to a
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large extent upon the certificates of officers and other representatives of the
Company and Subsidiaries), nothing has come to our attention that would lead us
to believe that the Registration Statement or any amendment thereto, including
the Rule 430A Information and Rule 434 Information (if applicable), (except for
financial statements and schedules and other financial data included therein or
omitted therefrom, as to which we make no statement), at the time such
Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading or that the
Prospectus or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which such counsel need make no statement), at the time the
Prospectus was issued, at the time any such amended or supplemented prospectus
was issued or at the Closing Time, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
52
<PAGE>
EXHIBIT B
FORM OF OPINION OF BALBONI ASHLEY & SCHOENBERG LLC, COUNSEL FOR THE
SELLING SHAREHOLDERS
(i) No filing with, or consent, approval, authorization, order,
registration, qualification or decree of, any court or governmental authority or
agency, domestic or foreign (other than the issuance of the order of the
Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state securities
laws, as to which we need express no opinion) is necessary or required to be
obtained by the Selling Shareholders for the performance by each Selling
Shareholder of its obligations under the Underwriting Agreement or in the Power
of Attorney and the Custody Agreement, or in connection with the offer, sale or
delivery of the Shares.
(ii) Each Power of Attorney and Custody Agreement has been duly executed
and delivered by the respective Selling Shareholder named therein and
constitutes the valid and binding agreement of such Selling Shareholder in
accordance with its terms.
(iii) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of each Selling Shareholder.
(iv) The sale of the Shares by the Selling Shareholders is not subject
to preemptive or similar rights of any securityholder of the Company.
(v) Each Attorney-in-Fact has been duly authorized by the Selling
Shareholders to deliver the Shares on behalf of the Selling Shareholders in
accordance with the terms of the Underwriting Agreement.
(vi) The execution, delivery and performance of the Underwriting
Agreement and the Power of Attorney and Custody Agreement and the sale and
delivery of the Shares and the consummation of the transactions contemplated in
the Underwriting Agreement and in the Registration Statement and compliance by
the Selling Shareholders with its obligations under the Underwriting Agreement
have been duly authorized by all necessary action on the part of the Selling
Shareholders and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of, or
default under or result in the creation or imposition of any tax, lien, charge
or encumbrance upon the Shares or any property or assets of the Selling
Shareholders pursuant to, any contract, indenture, mortgage, deed of trust, loan
or credit agreement, note, license, lease or other instrument or agreement to
which any Selling Shareholder is a party or by which they may be bound, or to
which any of the property or assets of the Selling Shareholders may be
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subject nor will such action result in any violation of the provisions of the
charter or by-laws of the Selling Shareholders, if applicable, or any law,
administrative regulation, judgment or order of any governmental agency or body
or any administrative or court decree having jurisdiction over such Selling
Shareholder or any of its properties.
(vii) Each Selling Shareholder is, and immediately prior to Closing time
will be, the sole registered owner of the Shares to be sold by such Selling
Shareholder; upon consummation of the sale of the Shares pursuant to the
Underwriting Agreement, each of the Underwriters will be the registered owner of
the Shares purchased by it from such Selling Shareholder and, assuming the
Underwriters purchased the Shares for value in good faith and without notice of
any adverse claim, the Underwriters will have acquired all rights of such
Selling Shareholder in the Shares free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity, and the owner of the
Shares, if other than such Selling Shareholder, is precluded from asserting
against the Underwriters the ineffectiveness of any unauthorized endorsement;
and such Selling Shareholder has the full right, power and authority (a) to
enter into the Underwriting Agreement and the Power of Attorney and Custody
Agreement and (B) to sell, transfer and deliver the Shares to be sold by such
Selling Shareholder under the Underwriting Agreement.
(viii) The information in the Prospectus under "Principal and Selling
Shareholders" and in the Registration Statement under Item 15, to the extent
that it constitutes matters of law, summaries of legal matters, the Company's
charter and bylaws or legal proceedings, or legal conclusions, has been reviewed
by me and is correct in all material respects.
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EXHIBIT C
FORM OF OPINION OF
JOHN KINSEY, REAL ESTATE COUNSEL
FOR THE COMPANY
(i) Each of the Company and the Subsidiaries has good and marketable
title in fee simple to all real property and interests in real property
described in the Prospectus as being owned by them, in each case, free and clear
of all liens, security interests, charges and encumbrances, except as described
in the Prospectus which do not materially affect the aggregate value of such
property and interests taken as a whole and do not interfere with the use made
and proposed to be made of such property and interests by the Company or any of
its Subsidiaries.
(ii) The information on the number of homes completed, sold and
delivered by the Company, as of the date or dates indicated in the Prospectus,
is as set forth under the caption "Summary of Residential Communities" in the
Business Section of the Prospectus and to the extent that it constitutes matters
of law, summaries of legal matters or legal conclusions, has been reviewed by me
and is correct in all material respects.
(iii) The Company's communities are as set forth under the caption
"Narrative Summary of Residential Communities" in the Business Section of the
Prospectus and to the extent that it constitutes matters of law, summaries of
legal matters or legal conclusions, has been reviewed by me and is correct in
all material respects.
(iv) The total land/homesite position of the Company at June 30, 1996 is
as set forth under the caption "Land Acquisition" in the Business Section of the
Prospectus and to the extent that it constitutes matters of law, summaries of
legal matters or legal conclusions, has been reviewed by me and is correct in
all material respects.
55
EXHIBIT 4.2
REPRESENTATIVES' WARRANT AGREEMENT
between
TRANSEASTERN PROPERTIES, INC.
and
BT SECURITIES CORPORATION
and
CRUTTENDEN ROTH INCORPORATED
and
JANNEY MONTGOMERY SCOTT INC.
DATED as of November , 1996
<PAGE>
REPRESENTATIVES' WARRANT AGREEMENT
This REPRESENTATIVES' WARRANT AGREEMENT (this "Agreement"), dated as of
November __, 1996, is made and entered into by and between TRANSEASTERN
PROPERTIES, INC., a Florida corporation (the "Company"), BT SECURITIES
CORPORATION ("BT" ), CRUTTENDEN ROTH INCORPORATED ("Cruttenden") and JANNEY
MONTGOMERY SCOTT INC. ("Janney") (collectively, BT, Cruttenden and Janney are
hereinafter referred to as the "Warrantholders").
The Company agrees to issue and sell, and the Warrantholders agree to
purchase, for the collective price of $320, receipt of which is hereby
acknowledged by the Company, warrants, as hereinafter described (the
"Warrants"), of which Cruttenden shall receive 128,000 Warrants, BT shall
receive 128,000 Warrants and Janney shall receive 64,000 Warrants, to purchase
up to an aggregate of 320,000 shares (the "Shares") of the Company's Common
Stock, par value $.01 per share (the "Common Stock"), in connection with a
public offering (the "Public Offering") by the Company and certain of its
selling shareholders (the "Selling Shareholders"), collectively of an aggregate
of 3,200,000 shares of Common Stock pursuant to an Underwriting Agreement (the
"Underwriting Agreement"), dated as of November __, 1996, between the Company
and the Warrantholders, as Representatives of the Underwriters named in the
Underwriting Agreement. The purchase and sale of the Warrants shall occur on the
Closing Date (as defined in the Underwriting Agreement) and shall be subject to
the conditions to the Underwriters' obligations to purchase shares of Common
Stock thereunder.
In consideration of the foregoing, and for the purpose of defining the
terms and provisions of the Warrants and the respective rights and obligations
thereunder, the Company and the Warrantholders, for value received, hereby agree
as follows:
Section 1. TRANSFERABILITY AND FORM OF WARRANTS.
1.1 REGISTRATION. The Warrants shall be numbered and shall be
registered on the books of the Company when issued.
1.2 TRANSFER. The Warrants shall be transferable only on the
books of the Company maintained at its principal office in Coral Springs,
Florida, or wherever its principal office may then be located, upon delivery
thereof duly endorsed by the Warrantholder or by its duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer.
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Upon any registration of transfer, the Company shall execute and deliver new
Warrants to the person entitled thereto.
1.3 LIMITATIONS ON TRANSFER OF THE WARRANTS. Subject to the
provisions of Section 11 hereof, the Warrants shall not be sold, transferred,
assigned or hypothecated by the Warrantholder until November __, 1997, except to
(i) one or more persons, each of whom on the date of transfer is an officer of
one of the Warrantholders; (ii) a general partnership or general partnerships,
the general partners of which are one of the Warrantholders and one or more
persons, each of whom on the date of transfer is an officer of one of the
Warrantholders; (iii) a successor to one of the Warrantholders in any merger or
consolidation; (iv) a purchaser of all or substantially all of one of the
Warrantholders' assets; or (v) any person receiving the Warrants from one or
more of the persons listed in this Subsection 1.3 at such person's or persons'
death pursuant to will, trust or the laws of intestate succession. The Warrants
may be divided or combined, upon request to the Company by the Warrantholders,
into a certificate or certificates representing the right to purchase the same
aggregate number of Shares. Unless the context indicates otherwise, the term
"Warrantholders" shall include any transferee or transferees of the Warrants
pursuant to this Subsection 1.3, and the term "Warrants" shall include any and
all warrants outstanding pursuant to this Agreement, including those evidenced
by a certificate or certificates issued upon division, exchange, substitution or
transfer pursuant to this Agreement.
1.4 FORM OF WARRANTS. The text of the Warrants and of the form
of election to purchase Shares shall be substantially as set forth in Exhibit A
attached hereto. The number of Shares issuable upon exercise of the Warrants is
subject to adjustment upon the occurrence of certain events, all as hereinafter
provided. The Warrants shall be executed on behalf of the Company by its
President or by a Vice President and attested to by its Secretary or an
Assistant Secretary. A Warrant bearing the signature of an individual who was at
any time the proper officer of the Company shall bind the Company,
notwithstanding that such individual shall have ceased to hold such office prior
to the delivery of such Warrant or did not hold such office on the date of this
Agreement.
The Warrants shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
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<PAGE>
1.5 LEGEND ON SHARES. Each certificate for Shares initially
issued upon exercise of the Warrants shall bear the following legend, unless, at
the time of exercise, such Shares are subject to an effective registration
statement under the Securities Act of 1933, as amended (the "Act"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN
COMPLIANCE WITH SECTION 11 OF THE AGREEMENT PURSUANT TO WHICH THEY WERE
ISSUED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution of the securities represented thereby pursuant to an
effective registration statement under the Act) shall also bear the above legend
unless, in the opinion of counsel satisfactory to the Company, the securities
represented thereby need no longer be subject to such restrictions.
Section 2. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate may
be exchanged for another certificate or certificates entitling the Warrantholder
to purchase a like aggregate number of Shares as the certificate or certificates
surrendered then entitled such Warrantholder to purchase. Any Warrantholder
desiring to exchange a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, with
signatures guaranteed, the certificate evidencing the Warrant to be so
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant certificate as so requested.
Section 3. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Subject to the terms of this Agreement, the
Warrantholder shall have the right, at any time during the period commencing at
9:00 A.M., California time, on November __, 1997, and ending at 5:00 P.M.,
California time, on November __, 2001 (the "Termination Date"), to purchase from
the Company up to the number of fully paid and nonassessable Shares to which the
Warrantholder may at the time be entitled to purchase pursuant to this
Agreement, upon surrender to the Company, at its principal office, of the
certificate evidencing the Warrants to be exercised, together with the purchase
form on the reverse thereof duly filled in and signed, with signatures
guaranteed, and upon payment to the Company of the
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Warrant Price (as defined in and determined in accordance with the provisions of
this Section 3 and Sections 7 and 8 hereof), for the number of Shares in respect
of which such Warrants are then exercised, but in no event for less than 100
Shares (unless less than an aggregate of 100 Shares are then purchasable under
all outstanding Warrants held by a Warrantholder).
(b) Payment of the aggregate Warrant Price shall be
made in cash or by check or through the use of Appreciation Currency (as defined
below) or any combination thereof. Upon such surrender of the Warrants and
payment of such Warrant Price as aforesaid, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
Warrantholder and in such name or names as the Warrantholder may designate a
certificate or certificates for the number of full Shares so purchased upon the
exercise of the Warrants, together with cash, as provided in Section 9 hereof,
in respect of any fractional Share otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such securities as of the date of surrender of the Warrants and
payment of the Warrant Price, as aforesaid, notwithstanding that the certificate
or certificates representing such securities shall not actually have been
delivered or that the stock transfer books of the Company shall then be closed.
The Warrants shall be exercisable, at the election of the Warrantholder, either
in full or from time to time in part and, in the event that a certificate
evidencing the Warrants is exercised in respect of less than all of the Shares
specified therein at any time prior to the Termination Date, a new certificate
evidencing the remaining portion of the Warrants will be issued by the Company.
(c) As used herein, "Appreciation Currency" shall
mean the consideration given by the surrender of a Warrant for such number of
shares of Common Stock as is determined by multiplying the number of Shares with
respect to which the Warrant is being exercised by a fraction, the numerator of
which shall be the Warrant Price per share of Common Stock and the denominator
of which shall be the Current Market Price (as defined in Section 9 hereof) per
share of Common Stock. For purposes of determining Appreciation Currency, the
Warrant Price shall mean the Warrant Price defined in Section 7 hereof as
adjusted and readjusted as set forth in Section 8 hereof.
Section 4. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants or the
Shares; provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any secondary transfer of the Warrants or the
Shares.
4
<PAGE>
Section 5. MUTILATED OR MISSING WARRANTS. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant and a bond of indemnity, if requested, also
satisfactory in form and amount to the Company at the applicant's cost.
Applicants for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
Section 6. RESERVATION OF SHARES. There has been reserved, and the
Company shall at all times keep reserved so long as the Warrants remain
outstanding, out of its authorized Common Stock, such number of shares of Common
Stock as shall be subject to purchase under the Warrants. Every transfer agent
for the Common Stock and other securities of the Company issuable upon the
exercise of the Warrants will be irrevocably authorized and directed at all
times to reserve such number of authorized shares and other securities as shall
be requisite for such purpose. The Company will keep a copy of this Agreement on
file with every transfer agent for the Common Stock and other securities of the
Company issuable upon the exercise of the Warrants. The Company will supply
every such transfer agent with duly executed stock and other certificates, as
appropriate, for such purpose and will provide or otherwise make available any
cash which may be payable as provided in Section 9 hereof.
Section 7. WARRANT PRICE. The price per Share at which Shares shall be
purchasable upon the exercise of the Warrants (the "Warrant Price") shall be
$______ [insert 120% of initial public offering price of common stock] subject
to further adjustment pursuant to Section 8 hereof.
Section 8. ADJUSTMENT OF NUMBER OF SHARES. The number and kind of
securities purchasable upon the exercise of the Warrants and the Warrant Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
8.1 ADJUSTMENTS. In case the Company shall (i) pay a
dividend in Common Stock or make a distribution in Common Stock, (ii) subdivide
its outstanding Common Stock, (iii) combine its outstanding Common Stock into a
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<PAGE>
smaller number of shares of Common Stock, (iv) effect any increase or decrease
in the number of outstanding shares of Common Stock without receipt of
consideration by the Company, or (v) issue by reclassification of its Common
Stock other securities of the Company, the Warrant Price and the number of
Shares purchasable upon exercise of the Warrants immediately prior thereto shall
be proportionally adjusted so that the Warrantholder shall be entitled to
receive the kind and number of Shares or other securities of the Company which
it would have owned or would have been entitled to receive immediately after the
happening of any of the events described above, had the Warrants been exercised
at the Warrant Price immediately prior to the happening of such event or any
record date with respect thereto. Any adjustment made pursuant to this
Subsection 8.1 shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
Except for purposes of this Subsection 8.1, the term "Common Stock"
shall mean (i) the class of stock designated as the Common Stock of the Company
at the date of this Agreement, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value or from par value to no par value or from no par value
to par value.
8.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in
Subsection 8.1, no adjustment in respect of any dividends or distributions out
of earnings shall be made during the term of the Warrants or upon exercise of
the Warrants.
8.3 CERTIFICATE OF ADJUSTMENTS. Whenever the Warrant Price
and/or the number of Shares purchasable upon the exercise of the Warrants is
adjusted as herein provided, the Company shall cause to be promptly mailed to
the Warrantholder by first class mail, postage prepaid, notice of such
adjustment and a certificate of the chief financial officer of the Company
setting forth the Warrant Price and the number of Shares purchasable upon the
exercise of the Warrants after such adjustment, a brief statement of the facts
requiring such adjustment and the computation by which such adjustment was made.
8.4 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the Warrantholder
an agreement
6
<PAGE>
that the Warrantholder shall have the right thereafter upon payment of the
Warrant Price in effect immediately prior to such action to purchase, upon
exercise of the Warrants, the kind and amount of shares and other securities and
property which it would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale or conveyance had the Warrants
been exercised immediately prior to such action. In the event of a merger
described in Section 368(a)(2)(E) of the Internal Revenue Code of 1986, in which
the Company is the surviving corporation, the right to purchase Shares under the
Warrants shall terminate on the date of such merger and thereupon the Warrants
shall become null and void, but only if the controlling corporation shall agree
to substitute for the Warrants its warrant which entitles the holder hereof to
purchase upon its exercise the kind and amount of shares and other securities
and property which it would have owned or been entitled to receive had the
Warrants been exercised immediately prior to such merger. Any such agreements
referred to in this Subsection 8.4 shall provide for adjustments that are
equivalent, to the extent practicable, to the adjustments provided for in
Section 8 hereof. The provisions of this Subsection 8.4 shall similarly apply to
successive consolidations, mergers, sales or conveyances.
8.5 PAR VALUE OF SHARES OF COMMON STOCK. Before taking any
action which would cause an adjustment effectively reducing the Warrant Price
per Share below the then par value per share of the Common Stock issuable upon
exercise of the Warrants, the Company will take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable Common Stock upon
exercise of the Warrants.
8.6 INDEPENDENT PUBLIC ACCOUNTANT. The Company may retain a
firm of independent public accountants of recognized national standing (which
may be any such firm regularly employed by the Company) to make any computation
required under this Section 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
Section 8.
8.7 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the number of securities issuable upon exercise of Warrants,
Warrant certificates theretofore or thereafter issued may continue to express
the same number of securities as are stated in the similar Warrant certificates
initially issuable pursuant to this Agreement. However, the Company may, at any
time in its sole discretion (which shall be conclusive), make any change in the
form of Warrant certificate that it may deem appropriate and that does not
affect the substance
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<PAGE>
thereof, and any Warrant certificate thereafter issued, whether upon
registration or transfer of, or in exchange or substitution for, an outstanding
Warrant certificate, may be in the form so changed.
Section 9. FRACTIONAL INTERESTS; CURRENT MARKET PRICE. The Company
shall not be required to issue fractional Shares on the exercise of the
Warrants. If any fraction of a Share would, except for the provisions of this
Section 9, be issuable on the exercise of the Warrants (or specified portion
thereof), the Company shall, in lieu of issuing such fraction of a Share, pay an
amount in cash equal to the then Current Market Price multiplied by such
fraction. For purposes of this Agreement, the term "Current Market Price" shall
mean (i) if the Common Stock is traded in the over-the-counter market and not in
the NASDAQ National Market System nor on any national securities exchange, the
average of the per share closing bid prices of the Common Stock on the 30
consecutive trading days immediately preceding the date in question, as reported
by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the
Common Stock is traded in the NASDAQ National Market System or on a national
securities exchange, the average for the 30 consecutive trading days immediately
preceding the date in question of the daily per share closing prices of the
Common Stock in the NASDAQ National Market System or on the national securities
exchange on which it is listed, as the case may be. For purposes of clause (i)
above, if trading in the Common Stock is not reported by NASDAQ, the bid price
referred to in said clause shall be the lowest bid price as reported in the
"pink sheets" published by the National Quotation Bureau, Incorporated. The
closing price referred to in clause (ii) above shall be the last reported sale
price or, in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices, in either case in the NASDAQ National
Market System or on the national securities exchange on which the Common Stock
is then listed.
Section 10. NO RIGHTS AS SHAREHOLDER; NOTICES TO WARRANTHOLDER. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Warrantholder as such or its transferees any rights as a shareholder of
the Company, including the right to vote, receive dividends, consent or receive
notices as a shareholder in respect of any meeting of shareholders for the
election of directors of the Company or any other matter. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, (a)
any action shall occur which would require an adjustment pursuant to Section
8.1, or (b) a dissolution, liquidation or winding up of the Company (other than
in connection with a consolidation, merger or sale of its property, assets and
business as an entirety or substantially as an entirety) shall be proposed, then
the Company shall give notice
8
<PAGE>
in writing of such event to the Warrantholder, as provided in Section 14 hereof,
at least 20 days prior to the date fixed as a record date or the date of closing
the transfer books for the determination of the shareholders entitled to any
relevant dividend, distribution, subscription rights or other rights or for the
determination of shareholders entitled to vote on such proposed dissolution,
liquidation or winding up. Such notice shall specify such record date or the
date of closing the transfer books, as the case may be. Failure to mail or
receive such notice or any defect therein shall not affect the validity of any
action taken with respect thereto.
Section 11. RESTRICTION ON TRANSFER; REGISTRATION RIGHTS.
(a) The Warrantholders agree that prior to making any
disposition of the Warrants or the Shares, other than to persons or entities
identified in clauses (i) through (v), inclusive, of Section 1.3 hereof, the
Warrantholders shall give written notice to the Company describing briefly the
manner in which any such proposed disposition is to be made; and no such
disposition shall be made if the Company has notified the Warrantholder that in
the opinion of counsel reasonably satisfactory to the Warrantholder a
registration statement or other notification or post-effective amendment thereto
(hereinafter, collectively, a "Registration Statement") under the Act is
required with respect to such disposition and no such Registration Statement has
been filed by the Company, and declared effective, if necessary, by, the
Securities and Exchange Commission (the "Commission").
(b) The Company shall be obligated to the owners of
the Warrants and the Shares to file a Registration Statement as follows:
(i) Whenever during the five-year period
beginning on November __, 1996, and ending on November __, 2001, the Company
proposes to file with the Commission a Registration Statement (other than as to
securities issued pursuant to an employee benefit plan or as to a transaction
subject to Rule 145 promulgated under the Act or with respect to which a Form
S-4 Registration Statement could be used), it shall, at least 30 days prior to
each such filing, give written notice of such proposed filing to the
Warrantholder and each holder of Shares at their respective addresses as they
appear on the records of the Company, and shall offer to include and shall
include in such filing any proposed disposition of the Shares upon receipt by
the Company, not less than 10 days prior to the proposed filing date, of a
request therefor setting forth the facts with respect to such proposed
disposition and all other information with respect to such person reasonably
necessary to be included in such Registration Statement. In the event that the
managing underwriter for said offering advises the Company in writing that the
9
<PAGE>
inclusion of such securities in the offering would be materially detrimental to
the offering, such securities shall nevertheless be included in the Registration
Statement, provided that the Warrantholder and each holder of Warrants and
Shares desiring to have their Shares included in the Registration Statement
agree in writing, for a period of 90 days following such offering, not to sell
or otherwise dispose of such Shares pursuant to such Registration Statement,
which Registration Statement the Company shall keep effective for a period of at
least nine months following the expiration of such 90-day period.
(ii) In addition to any Registration
Statement pursuant to subparagraph (i) above, during the four-year period
beginning on November __, 1997 and ending on November __, 2001, the Company
will, as promptly as practicable (but in any event within 60 days), after
written request (the "Request") by either of the Warrantholders, or by a person
or persons holding (or having the right to acquire by virtue of holding the
Warrants) at least 50% of the shares of Common Stock which have been (or may be)
issued upon exercise of the Warrants, prepare and file at its own expense a
Registration Statement with the Commission and appropriate "blue sky"
authorities sufficient to permit the public offering of the Shares and will use
its best efforts at its own expense through its officers, directors, auditors
and counsel, in all matters necessary or advisable, to cause such Registration
Statement to become effective as promptly as practicable and to maintain such
effectiveness so as to permit resale of the Shares covered by the Request until
the earlier of the time that all such Shares have been sold or the expiration of
90 days from the effective date of the Registration Statement, provided,
however, that the Company shall only be obligated to file one such Registration
Statement under this Section 11(b)(ii).
(c) All fees, disbursements and out-of-pocket
expenses (other than Warrantholders' brokerage fees and commissions and legal
fees of counsel to the Warrantholders, if any) in connection with the filing of
any Registration Statement under Section 11(b) (or obtaining the opinion of
counsel and any no-action position of the Commission with respect to sales under
Rule 144) and in complying with applicable securities and blue sky laws shall be
borne by the Company. The Company at its expense will supply any Warrantholder
and any holder of Shares with copies of such Registration Statement and the
prospectus included therein and other related documents and any opinions and
no-action letters in such quantities as may be reasonably requested by the
Warrantholders or holders of Shares.
10
<PAGE>
(d) The Company shall not be required by this Section
11 to file such Registration Statement if, in the opinion of counsel for the
Warrantholders and holders of Shares and the Company (or, should they not agree,
in the opinion of another counsel experienced in securities law matters
acceptable to counsel for such holders and the Company), the proposed public
offering or other transfer as to which such Registration Statement is requested
is exempt from applicable federal and state securities laws and would result in
all purchasers or transferees obtaining securities which (i) are not "restricted
securities" as defined in Rule 144 under the Act and (ii) could thereafter be
sold publicly without limitation under Rule 144 under the Act.
(e) The Company agrees that until all Shares have
been sold under a Registration Statement or pursuant to Rule 144 under the Act,
it will keep current in filing all materials required to be filed with the
Commission in order to permit the holders of such securities to sell the same
under Rule 144.
Section 12. INDEMNIFICATION.
(a) In the event of the filing of any Registration
Statement with respect to the Shares pursuant to Section 11 hereof, the Company
agrees to indemnify and hold harmless the Warrantholders or any holder of such
Shares and each person, if any, who controls the Warrantholders or any holder of
such Shares 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 costs of defense and
investigation and all attorneys' fees), to which the Warrantholder or any holder
of such Shares 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 any such Registration
Statement, or any related preliminary prospectus, final prospectus, or amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein 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 case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such Registration Statement, preliminary prospectus, final prospectus or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by such Warrantholder or the holder
of such Shares specifically for use
11
<PAGE>
in the preparation thereof. This indemnity will be in addition to any liability
which the Company may otherwise have.
(b) The Warrantholders and the holders of the Shares
agree that they will indemnify and hold harmless the Company, each other person
referred to in subparts (1), (2) and (3) of Section 11(a) of the Act in respect
of 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, 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
such Registration Statement, or any related preliminary prospectus, final
prospectus or 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,
but in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such Registration
Statement, preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Warrantholder or such holder of Shares specifically for
use in the preparation thereof. This indemnity will be in addition to any
liability which the Warrantholder or such holder of Shares may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section 12 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 12, notify the indemnifying party of the
commencement thereof, but the omission so to notify the indemnifying party will
not relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than as to the particular item as to which
indemnification is then being sought solely pursuant to this Section 12. 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, reasonably assume the defense
thereof, subject to the provisions herein stated, 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 12 for any legal or other expenses subsequently
incurred by such indemnified party
12
<PAGE>
in connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action to its
final conclusion. 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 a Warrantholder or a holder of Shares or a
person who controls a Warrantholder or a holder of Shares 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 a Warrantholder or a
holder of Shares or such controlling person and the indemnifying party, and a
Warrantholder or a holder of Shares or such controlling person shall have been
advised by such counsel that there may be one or more legal defenses available
to a Warrantholder or a holder of Shares or controlling person which are not
available to or in conflict with any legal defenses which may be available to
the indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of a Warrantholder or a
holder of Shares 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 the
Warrantholders, the holders of the Shares and controlling persons, which firm
shall be designated in writing by a majority in interest of such holders and
controlling persons based upon the value of the securities included in the
Registration Statement). No settlement of any action against an indemnified
party shall be made without the consent of the indemnified and the indemnifying
parties, which shall not be unreasonably withheld in light of all factors of
importance to such parties.
Section 13. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which (i) a Warrantholder or a holder
of the Shares or controlling person makes a claim for indemnification pursuant
to Section 12 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 12 hereof provide for indemnification in such
case or (ii) contribution under the Act may be required on the part of any
Warrantholder or any holder of the Shares or controlling
13
<PAGE>
person, then the Company and any Warrantholder or any such holder of the Shares
or controlling person 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 costs of defense and
investigation and all attorneys' fees), in either such case (after contribution
from others) on the basis of relative fault as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or a
Warrantholder or a holder of Shares or controlling person, on the other, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and such holders or
such controlling persons agree that it would not be just and equitable if
contribution pursuant to this Section 13 were determined by pro rata allocation
or by any other method which does not take account of the equitable
considerations referred to in this Section 13. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this Section 13 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Section 14. NOTICES. Any notice pursuant to this Agreement by the
Company or by a Warrantholder or a holder of Shares shall be in writing, and
shall be deemed to have been duly given if delivered or mailed by certified
mail, return receipt requested, as applicable:
(a) If to a Warrantholder or a holder of Shares
addressed to BT Securities Corporation, Equity Capital Markets, 130 Liberty
Street, 30th Floor, New York, New York 10006; to Cruttenden Roth Incorporated,
18301 Von Karman, Suite 100, Irvine, California 92715, Attention: Corporate
Finance Department; or to Janney Montgomery Scott Inc., 1801 Market Street,
Suite 830, Philadelphia, Pennsylvania 19103, as applicable.
(b) If to the Company addressed to it at Transeastern
Properties, Inc., 3300 University Drive, Suite 001, Coral Springs, Florida
33065, Attention: President.
14
<PAGE>
Each party may from time to time change the address to which notices to it are
to be delivered or mailed hereunder by notice in accordance herewith to the
other party.
Section 15. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company, the Warrantholders or the
holders of Shares shall bind and inure to the benefit of their respective
successors and assigns hereunder.
Section 16. MERGER OR CONSOLIDATION OF THE COMPANY. The Company will
not merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless the provisions
of Section 8.4 hereof are complied with.
Section 17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in any schedule, exhibit, certificate or other instrument delivered by
or on behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf of
the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
Section 18. APPLICABLE LAW. This Agreement shall be deemed to be a
contract made under the laws of the State of California and for all purposes
shall be construed in accordance with the laws of said State.
Section 19. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrantholders and the holders of Shares any legal or equitable right, remedy or
claim under this Agreement. This Agreement shall be for the sole and exclusive
benefit of the Company, the Warrantholders and the holders of Shares.
15
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
TRANSEASTERN PROPERTIES, INC.
By: ________________________________
Title: President
BT SECURITIES CORPORATION
By: ________________________________
Title:
CUTTENDEN ROTH INCORPORATED
By: ________________________________
Title:
JANNEY MONTGOMERY SCOTT INC.
By: ________________________________
Title
16
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED,
HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH
SECTION 11 OF THE AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED.
Warrant Certificate No. ___
REPRESENTATIVES' WARRANTS TO PURCHASE ________ SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.,
CALIFORNIA TIME, ON NOVEMBER __, 2001
--------------------------
This certifies that, for value received, ___________________, the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from Transeastern Properties, Inc. (the "Company"), at any time during
the period commencing at 9:00 A.M., California Time, on November __, 1997, and
before 5:00 P.M., California time, on November __, 2001, at the purchase price
per share of $____ (the "Warrant Price"), the number of shares of Common Stock
of the Company set forth above (the "Shares"). The number of Shares issuable
upon exercise of each Warrant evidenced hereby shall be subject to adjustment
from time to time as set forth in the Representatives' Warrant Agreement
referred to below.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature guarantee as provided thereon) and simultaneous
payment of the Warrant Price at the principal office of the Company. Payment of
such price shall be made at the option of the Warrantholder in cash or by check
or through the use of Appreciation Currency (as defined in Section 3(c) of the
Representatives' Warrant Agreement).
The Warrants evidenced hereby represent the right to purchase an
aggregate of up to _______ Shares and are issued under and in accordance with a
Representative's Warrant Agreement, dated as of November __, 1996 (the
"Representatives' Warrant Agreement"), between the Company, BT Securities
Corporation and Cruttenden Roth Incorporated and are subject to the terms and
provisions contained in the Representatives' Warrant Agreement, to all of which
the Warrantholder by acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificate in respect
of the Shares of Common Stock as to which the Warrants evidenced hereby shall
not have been exercised. These Warrants may be exchanged at the office of the
Company by surrender of this Warrant Certificate properly endorsed for one or
more new Warrants of the same aggregate number of Shares of Common Stock as are
evidenced by the Warrant or Warrants exchanged. No fractional Share of Common
Stock will be issued upon the exercise of rights to purchase hereunder, but the
Company shall pay the cash value of any fraction upon the exercise of one or
more Warrants. These Warrants are transferable at the office of the Company in
the manner and subject to the limitations set forth in the Representatives'
Warrant Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of
the rights of a shareholder of the Company.
TRANSEASTERN PROPERTIES, INC.
By: ______________________________________
Title: President
Dated: November __, 1996
ATTEST: [Seal]
17
<PAGE>
---------------------
PURCHASE FORM
---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the within Warrant Certificate for,
and to purchase thereunder, ________ shares of Common Stock (the
"Shares") provided for therein, and requests that certificates for the
Shares be issued in the name of:
------------------------------------------------------------------
(Please Print or Type Name, Address and Social Security Number)
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
and, if said number of shares shall not be all the Shares purchasable
hereunder, that a new Warrant Certificate for the balance of the Shares
purchasable under the within Warrant Certificate be registered in the
name of the undersigned Warrantholder or his Assignee as below
indicated and delivered to the address stated below.
Dated: ______________________
Name of Warrantholder or Assignee: ____________________________________
(Please Print)
Address: ____________________________________________________________
____________________________________________________________
Signature: ____________________________________________________________
Note: The above signature must correspond with the name as written
upon the face of this Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever,
unless these Warrants have been assigned.
Signature Guaranteed: ____________________________________________
(Signature must be guaranteed by a bank or trust company having an
office or correspondent in the United States or by a member firm of a
registered securities exchange or the National Association of
Securities Dealers, Inc.)
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(Name and Address of Assignee Must Be Printed or Typewritten)
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
the within Warrants hereby irrevocably constituting and appointing
_____________________ Attorney to transfer said Warrants on the books
of the Company, with full power of substitution in the premises.
Dated: __________________ ____________________________________
Signature of Registered Holder
Note: The signature on this assignment must correspond with the name as
it appears upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change whatsoever.
Signature Guaranteed: __________________________________
<PAGE>
(Signatures must be guaranteed by a bank or trust company having an
office or correspondent in the United States or by a member firm of a
registered securities exchange or the National Association of
Securities Dealers, Inc.)
18
PROMISSORY NOTE
$1,000,000.00 at Coral Springs, Florida this 11th day of October, 1996.
FOR VALUE RECEIVED, the undersigned (jointly and severally, if more
than one) promise to pay to the order of Anthony Ciabattoni at 16 Lagunita,
Laguna Beach, California 92651 or at such other place within the United States
as the holder hereof may in writing designate, in lawful money of the United
States of America, the sum of ONE MILLION DOLLARS AND 00/100 ($1,000,000.00),
together with interest thereon from the date hereof at the rate of twelve (12%)
percent per annum, payable as follows:
PRINCIPAL AND ACCRUED INTEREST DUE APRIL 11, 1997.
If any payment due hereunder is not made within thirty (30) days from
the date it is due, this Note shall be in default and the unpaid balance
hereunder shall bear interest at the highest rate permitted by law from the date
of such payment. If this Note shall be in default then, at the option of the
holder hereof the entire principal sum remaining unpaid, together with accrued
interest, shall become immediately due and payable without notice, the principal
sum and accrued interest shall both bear interest at the highest rate allowable
by law from the date of the default until paid, and any failure to exercise this
option shall not constitute a waiver of the right to exercise it at any other
time. Upon any default hereunder all persons liable hereon jointly and severally
promise to pay all costs of collection whether with or without suit including
reasonable attorney's fees, which fees shall include any arising by reason of
appellate proceedings. Presentment for payment, demand, notice of dishonor,
protest and notice of protest are hereby waived by all makers and endorsers
hereof. Payments hereunder shall be applied first to accrued interest, with the
balance, if any, applied to principal. This note may be prepaid at any time
without penalty.
This note is payable at the address listed above and shall be governed
by the internal laws of the State of Florida.
PAYMENT GUARANTEED:
DATE: ____________________ _________________________________
Edward Falcone, Vice President (Seal)
Transeastern Properties, Inc.
3300 University Drive
Coral Springs, FL 33065
DATE: ____________________ _________________________________
Arthur Falcone, Individually
3300 University Drive
Coral Springs, FL 33065
<PAGE>
DATE: ____________________ _________________________________
Edward Falcone, Individually
3300 University Drive
Coral Springs, FL 33065
DATE: ____________________ _________________________________
Phil Cucci, Individually
3300 University Drive
Coral Springs, FL 33065
STATE OF FLORIDA
COUNTY OF BROWARD
The foregoing instrument was sworn and subscribed to me by ARTHUR
FALCONE, President of Transeastern Properties of South Florida, Inc. who is
personally known to me on this 11th day of October, 1996.
- -------------------------------------
NOTARY PUBLIC
STATE OF FLORIDA
COUNTY OF BROWARD
The foregoing instrument was sworn and subscribed to me by ARTHUR
FALCONE who is personally known to me on this 11th day of October, 1996.
- -------------------------------------
NOTARY PUBLIC
STATE OF FLORIDA
COUNTY OF BROWARD
The foregoing instrument was sworn and subscribed to me by EDWARD
FALCONE who is personally known to me on this 11th day of October, 1996.
- -------------------------------------
NOTARY PUBLIC
<PAGE>
STATE OF FLORIDA
COUNTY OF BROWARD
The foregoing instrument was sworn and subscribed to me by PHIL CUCCI
who is personally known to me on this 11th day of October, 1996.
- -------------------------------------
NOTARY PUBLIC
EXHIBIT 23.1
CONSENT OF COUNSEL
We hereby consent to the use of our opinion included herein and to the
incorporation by reference in this Registration Statement on Form S-1 of all
references to this firm under the heading "Legal Matters" in the Prospectus
constituting a part of the Registration Statement on Form S-1 of Transeastern
Properties, Inc. (File No. 333-10375).
STEARNS WEAVER MILLER WEISSLER
ALHADEFF & SITTERSON, P.A.
Miami, Florida
November 19, 1996
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
Transeastern Properties, Inc.:
We consent to the use of our report dated July 19, 1996, on the consolidated
financial statements of Transeastern Properties, Inc. as of June 30, 1996 and
1995, and for each of the years in the three-year period ended June 30, 1996
included herein. Our report refers to a change in the method of accounting for a
real estate joint venture. We consent to the reference to our firm under the
headings "Selected Financial Data" and "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
West Palm Beach, Florida
November 19, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,633,180
<SECURITIES> 0
<RECEIVABLES> 1,392,988
<ALLOWANCES> 0
<INVENTORY> 90,520,356
<CURRENT-ASSETS> 0
<PP&E> 1,770,543
<DEPRECIATION> 431,195
<TOTAL-ASSETS> 97,904,953<F1>
<CURRENT-LIABILITIES> 20,439,235<F2>
<BONDS> 57,909,870
3,502,100
0
<COMMON> 62,666
<OTHER-SE> 10,969,407
<TOTAL-LIABILITY-AND-EQUITY> 97,904,953<F3>
<SALES> 18,214,271
<TOTAL-REVENUES> 18,479,598
<CGS> 15,659,943
<TOTAL-COSTS> 2,331,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,792
<INCOME-PRETAX> 407,915
<INCOME-TAX> 155,007
<INCOME-CONTINUING> 252,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 252,908
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<FN>
<F1>Includes deferred tax asset of $27,500, prepaid assets of $191,234 and other
assets of $800,347 which is not identified above.
<F2>Includes trade accounts payable of $1,571,795, accrued expenses of
$5,815,596, customer deposits of $4,015,495, income tax payable of $2,880,607,
due to affiliates and officers of $2,429,730 and other liabilities of $3,726,012
although Company's balance sheet is unclassified.
<F3>Includes deferred tax liability of $1,283,300 and minority interest in
consolidated subsidiaries $3,738,375 which is not identified above.
</FN>
</TABLE>
