<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1998
REGISTRATION NO. 333-41923
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AVATAR HOLDINGS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 6552 23-1739078
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
255 ALHAMBRA CIRCLE
CORAL GABLES, FLORIDA 33134
(305) 442-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JUANITA I. KERRIGAN
VICE PRESIDENT AND SECRETARY
AVATAR HOLDINGS INC.
255 ALHAMBRA CIRCLE
CORAL GABLES, FLORIDA 33134
(305) 442-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
ROBERT TODD LANG HOWARD L. SHECTER
WEIL, GOTSHAL & MANGES LLP MORGAN, LEWIS & BOCKIUS LLP
767 FIFTH AVENUE 101 PARK AVENUE
NEW YORK, NEW YORK 10153 NEW YORK, NEW YORK 10178
(212) 310-8000 (212) 309-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this 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, other than securities offered only in connection with a dividend or
interest reinvestment plan, 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 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. [ ]
------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT WITHOUT
NOTICE. 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 STATE.
SUBJECT TO COMPLETION, DATED JANUARY 27, 1998
$100,000,000
AVATAR HOLDINGS INC.
% CONVERTIBLE SUBORDINATED NOTES DUE 2005
------------------------
The % Convertible Subordinated Notes due 2005 (the "Notes") offered
hereby (the "Offering") are convertible at any time prior to maturity at the
option of the holder, unless previously redeemed, into shares of Common Stock,
par value $1.00 per share (the "Common Stock"), of Avatar Holdings Inc.
("Avatar") at a conversion price of $ per share, subject to
adjustment in certain events. See "Description of the Notes -- Conversion
Rights." On January 23, 1998, the last reported sale price for the Common Stock
on The Nasdaq National Market (Symbol: AVTR) was $29 1/2 per share.
Interest on the Notes is payable on April 1 and October 1 of each year,
commencing on April 1, 1998. The Notes are not redeemable by Avatar prior to
April 6, 2001. On or after April 6, 2001, the Notes are redeemable, in whole or
in part, at the option of Avatar on at least 30 days' prior written notice, at
the redemption prices set forth herein, plus accrued and unpaid interest, to the
date of redemption. Upon the occurrence of a Change in Control (as defined),
holders of Notes can require Avatar to repurchase their Notes, in whole or in
part, at a purchase price equal to 100% of the principal amount thereof plus
accrued and unpaid interest through the date of repurchase. See "Description of
the Notes -- Certain Rights to Require Repurchase of Notes". The Notes are
unsecured obligations of Avatar and are subordinated in right of payment to all
Senior Indebtedness (as defined) of Avatar and are effectively subordinated to
all liabilities of Avatar's subsidiaries. As of November 30, 1997, Senior
Indebtedness of Avatar was $48.0 million, of which $33.0 million will be repaid
or retired with the net proceeds from the Offering, and the aggregate amount of
indebtedness and other balance sheet liabilities of Avatar's subsidiaries to
which the Notes are effectively subordinated was $116.5 million, which includes
$38.7 million of indebtedness of Avatar's utilities subsidiaries. See
"Capitalization" for a description of certain liabilities of Avatar and its
subsidiaries. The Indenture will not restrict the ability of Avatar or its
subsidiaries to incur any indebtedness or liabilities. See "Description of the
Notes -- Subordination."
Leon Levy, Chairman of the Board of Avatar and a general partner of Odyssey
Partners, L.P. (which is a principal stockholder of Avatar), has advised the
Company of his intention to purchase $20.0 million aggregate principal amount of
Notes offered hereby, net of underwriting fees and commissions.
Application has been made to qualify the Notes for quotation on The Nasdaq
Stock Market ("Nasdaq") under the symbol "AVTRG."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS IN EVALUATING AN INVESTMENT IN THE NOTES,
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
------------------------
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.
<TABLE>
<CAPTION>
=========================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2)(3) COMPANY(1)(4)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note................................. 100% % %
Total(5)................................. $100,000,000 $ $
=========================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) Avatar has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) The $20,000,000 aggregate principal amount of the Notes to be purchased by
Leon Levy will not be subject to any Underwriting Discount.
(4) Before deducting expenses of the Offering payable by Avatar estimated at
$ .
(5) The Underwriters have been granted an option, exercisable within 30 days of
the date hereof, to purchase from Avatar up to an additional $15,000,000
aggregate principal amount of Notes at the Price to Public less the
Underwriting Discount, for the purpose of covering over-allotments, if any.
If the Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Avatar will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The Notes are offered by the Underwriters when, as and if delivered to and
accepted by them, subject to their right to withdraw, cancel or reject orders in
whole or in part and subject to certain conditions. It is expected that delivery
of the Notes will be made against payment on or about ,
1998 at the offices of CIBC Oppenheimer Corp., CIBC Oppenheimer Tower, One World
Financial Center, New York, New York 10281.
------------------------
CIBC OPPENHEIMER SBC WARBURG DILLON READ INC.
The date of this Prospectus is , 1998.
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, THE COMMON
STOCK, OR BOTH. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH
THE OFFERING, MAY BID FOR AND PURCHASE THE NOTES, THE COMMON STOCK, OR BOTH, IN
THE OPEN MARKET AND MAY IMPOSE PENALTY BIDS DURING AND AFTER THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK AND/OR THE NOTES ON THE NASDAQ
STOCK MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(the "Commission") by Avatar (File No. 0-7616) pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), are incorporated by
reference in this Prospectus:
(i) Avatar's Annual Report on Form 10-K for the year ended December
31, 1996 (the "1996 10-K");
(ii) Avatar's Quarterly Reports on Form 10-Q for the period ended
September 30, 1997 (the "September 30 10-Q") and for the periods ended
March 31 and June 30, 1997;
(iii) Avatar's Proxy Statement dated April 29, 1997 in connection with
its Annual Meeting of Stockholders held on May 29, 1997; and
(iv) the description of Avatar's Common Stock contained in Avatar's
Registration Statement on Form 8-A filed with the Commission, pursuant to
Section 12 of the Exchange Act, on October 15, 1980, including any
amendment or report filed for the purpose of updating such description.
All documents and reports filed by Avatar pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof from
the date of filing of such documents or reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or replaced, to constitute
a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. Copies of any such documents, other than exhibits
to such documents unless they are specifically incorporated by reference, are
available, without charge, to any person to whom this Prospectus is delivered,
upon written or oral request directed to Juanita I. Kerrigan, Vice President and
Secretary, Avatar Holdings Inc., 255 Alhambra Circle, Coral Gables, Florida
33134, telephone: (305) 442-7000 (ext. 229).
AVAILABLE INFORMATION
Avatar is subject to the informational requirements of the Exchange Act,
and, with respect to the indentures relating to Avatar's 8% Senior Debentures
due 2000 and 9% Senior Debentures due 2000, the Trust Indenture Act of 1939, as
amended, and in accordance therewith files reports, proxy statements and other
information with the Commission. The reports, proxy statements and other
information filed with the Commission, as well as the Registration Statement (as
defined below), may be inspected and copied at the public reference facilities
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at
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<PAGE> 4
500 West Madison Street, Suite 1400, Chicago, Illinois 60601-2511. Copies of
such material also can be obtained by mail from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding reporting companies under
the Exchange Act including Avatar, at http://www.sec.gov.
Avatar has filed a Registration Statement on Form S-3 (the "Registration
Statement") with the Commission under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the securities offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information contained in the Registration Statement and incorporates by
reference certain additional information previously filed with the Commission.
Reference is hereby made to the Registration Statement and related exhibits for
further information with respect to Avatar and the Notes. Such additional
information can be inspected at and obtained from the Commission in the manner
set forth above. Statements contained in this Prospectus or in any document
incorporated by reference herein as to the terms 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.
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Prospectus
Summary," "The Company," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Results of Operations and Financial Condition,"
"Business" and elsewhere constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of results to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other important factors include, among
others: implementation of the Company's new business strategy; shifts in
demographic trends affecting retirement communities and other real estate
development; the level of immigration and in-migration to the Company's regional
market areas; national and local economic conditions and events, including
employment levels, interest rates, consumer confidence, the availability of
mortgage financing and demand for new and existing housing; the Company's access
to future financing; competition; changes in, or the failure or inability to
comply with, government regulations; and other factors referenced in this
Prospectus. See "Risk Factors."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
elsewhere in this Prospectus or incorporated herein by reference. Unless
otherwise noted, all financial information, share and per share data in this
Prospectus assume no exercise of the Underwriters' over-allotment option and no
issuance of shares of Common Stock covered by Avatar's options outstanding as of
the date hereof. Except as otherwise noted, as used in this Prospectus, the term
"Company" refers to Avatar and its consolidated subsidiaries.
THE COMPANY
GENERAL
The Company is engaged in two principal business activities: real estate
development and the ownership and operation of water and wastewater utilities.
The Company owns and develops land, primarily in various locations in Florida
and Arizona. Current and planned real estate operations include: the
development, sale and management of active adult/retirement communities; the
development and sale of single- and multi-family homes and communities; and the
development, leasing and management of improved commercial and industrial
properties.
The Company's substantial land holdings represent the potential for
residential development of 102,000 to more than 145,000 single- and multi-family
units. These land holdings include over 32,600 developed or developable acres,
of which 26,400 acres have been platted and/or zoned for the building of over
43,000 single-family homes and over 38,200 multi-family units, and approximately
6,200 acres of partially developed and developable land which have not been
platted on which the Company anticipates developing more than an additional
20,800 residential units. In addition, the Company owns over 3,000 acres of land
upon which over 42.7 million square feet of commercial and industrial property
may be built.
The Company's major land holdings are located in Poinciana (near Disney
World and Orlando), Cape Coral on Florida's west coast (near Fort Myers and
Naples), Ocala Springs in central Florida, Harbor Islands (one of the last large
undeveloped properties along the Intracoastal Waterway, on Florida's east coast
near Ft. Lauderdale), and Rio Rico, south of Tucson, Arizona.
Utilities operations include the purification and distribution of water and
the treatment and disposal of wastewater through plants in Florida and Arizona
and contract management services for affiliated and unaffiliated water and
wastewater utilities.
NEW REAL ESTATE BUSINESS STRATEGY
During the third quarter of 1997, new management of the Company began
implementing a real estate business strategy designed to capitalize on the
Company's competitive strengths and current and projected demographic trends in
Florida and Arizona and which focuses on real estate businesses which have
potentially higher profit margins.
Strategy. The Company's new real estate business strategy is focused on
three primary areas:
- Development and management of active adult/retirement communities;
- Development of upscale custom and semi-custom homes and communities;
and
- Development of its commercial and industrial properties.
Competitive Advantages. The Company believes that it has four principal
competitive advantages:
- It owns large contiguous tracts of land.
- Its land holdings are substantially zoned and/or platted, are either
exempt from applicable regulatory requirements or such regulatory
requirements have been substantially fulfilled, and have overall
vesting with regard to costly and time-consuming regulatory and
growth management
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<PAGE> 6
requirements such as concurrency, development of regional impact studies and
regulatory planning and environmental permitting.
- Its extensive land holdings are substantially debt-free.
- It has expended more than $150 million on land infrastructure
improvements, including roads, drainage and utilities installations,
and has invested substantial funds in the development of amenities,
such as parks and other open areas, club houses, golf courses,
swimming pools, tennis courts, hotels, shopping centers and marinas.
Demographic Trends. The Company believes that it will benefit from a
number of recent and anticipated demographic trends:
- The continued high population growth of both Florida and Arizona as
a result of the growing number of retirees choosing Florida and
Arizona for retirement or second homes, population migration from
the Caribbean and Latin America to Florida and increasing commerce
between the U.S. and Latin America.
- The growth of the greater Orlando metropolitan area as a business
and entertainment center.
- The aging of the "baby-boom" generation, which management believes
will significantly increase demand for amenitized pre-retirement and
retirement communities.
The Company's new real estate business strategy focuses on three primary
businesses:
Development and Management of Active Adult/Retirement Communities
A substantial portion of the Company's land holdings is located in areas
where management believes there is significant opportunity to develop active
adult/retirement communities. The Company owns more than 10,700 acres in several
large contiguous parcels which are entirely debt-free and which it believes are
suitable for the development of active adult/retirement communities and upon
which an estimated 36,200 units may be built.
To assist in the development of its active adult/retirement communities,
the Company recently entered into a consulting contract with H. Irwin Levy, the
founder of the Century Village concept of active adult/ retirement communities,
and acquired an option to purchase the rights to the Century Village name. At
the same time, the Company hired the entire Century Village executive management
team: the Chief Operating Officer, the Chief Financial Officer, and the heads of
marketing and construction. Century Village is one of the nation's leading
developers of active adult/retirement communities. Collectively, these
executives have been responsible for the development of approximately 50,000
housing units in approximately 20 communities, including four Century Village
communities located in southeast Florida.
Over the next five years, the Company intends to create a brand name in the
active adult/retirement community business and to distinguish its active
adult/retirement communities from those of other developers by establishing a
consumer product-oriented approach. Specifically, the Company intends to develop
resort-like communities with a broad array of amenities and entertainment,
sports, recreational, social, educational and cultural activities. Each
community will be designed and operated as a lifestyle experience developed for
its particular location and market. In addition, management seeks to identify
additional sites which are suitable for development of active adult/retirement
communities and anticipates that it will acquire such sites for cash or stock or
develop them through joint venture or management arrangements.
Development of Upscale Custom and Semi-Custom Homes and Communities
Certain of the Company's land holdings are suitable for development of
upscale custom and semi-custom homes and communities. The Company estimates that
approximately 2,000 upscale homes may be developed on its homesites which are
located along or near fresh or salt water. The Company has targeted custom and
semi-custom homebuilding as an important component of its new real estate
strategy because this business has potentially higher profit margins than the
sale of mid-priced single-family homes and because the Company
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<PAGE> 7
believes that it possesses the requisite levels of technical expertise and
experience in upscale and custom homebuilding.
In order to expand its upscale homebuilding business, the Company recently
acquired certain assets of Brookman-Fels, Jeff Ian, Inc. ("Brookman-Fels"), a
well-known regional developer of custom and semi-custom homes and single-family
residential communities in south Florida, and entered into employment contracts
with its three principals, Jonathan Fels, Michael Levy and Bernard Offenberg.
Brookman-Fels is one of south Florida's leading custom homebuilders and a winner
of many national design awards, including being named one of America's Best
Builders by the National Association of Homebuilders in 1994. Founded in 1980,
Brookman-Fels was responsible for developing some of south Florida's most
successful upscale communities such as Oak Hammock, Arboretum, The Sanctuary and
Treasure Trove. In addition, Brookman-Fels has gained recognition for building
single-family luxury homes in such upscale south Florida areas as Pinecrest, Old
Cutler, Cocoplum, Snapper Creek, Miami Beach, Plantation Acres and Weston's
Windmill Ranches. Brookman-Fels has developed more than 600 single-family homes,
representing over $250 million in sales.
Development of Commercial and Industrial Properties
The development of commercial and industrial properties is a significant
element in the Company's long-term business strategy. The Company owns over
3,000 acres of land which are zoned and/or planned for over 42.7 million square
feet of commercial and industrial property. A substantial portion of the
Company's commercial and industrial properties is located in areas of Florida
which have historically experienced, and are projected to continue to
experience, high rates of population growth. In addition, the development by
both the Company and other developers of homes and planned communities is
expected to generate further population growth. The Company anticipates that
this growth will create additional demand for its commercial and industrial
properties. Similarly, further development of the Company's commercial and
industrial properties is expected to generate employment, recreational and
entertainment opportunities and, therefore, to increase demand for the Company's
residential communities.
UTILITIES BUSINESS
The Company's utilities business provides for the purification,
distribution and sale of water for public and private use and the treatment and
disposal of wastewater. The Company owns and operates 17 water utilities plants
serving more than 42,000 customers and 12 wastewater treatment facilities
serving more than 32,000 customers residing in seven communities, which include
the Company's communities of Poinciana, Florida and Rio Rico, Arizona. The
Company also provides meter reading and customer-related services to its own
utilities operating units, as well as to 26 unaffiliated companies and public
utilities.
The Company believes that its utilities operations will benefit from
population growth from development by both the Company and other developers of
homes and planned communities within the areas which are serviced by the
utilities facilities. For the year ended December 31, 1996 and the nine months
ended September 30, 1997, the Company's utilities had EBITDA of $10.5 million
and $9.5 million, respectively.
DEVELOPMENT OF MID-PRICED HOMES AND COMMUNITIES
Prior to the third quarter of 1997, the Company's business plan emphasized
the construction and sale of mid-priced single-family homes. Although the
Company has implemented a new real estate strategy emphasizing potentially
higher profit-margin businesses, it intends to continue the construction and
sale of mid-priced homes, both on scattered lots and on contiguous parcels as
part of planned communities.
RECENT OCCURRENCE
In connection with the Company's new business strategy, the new senior
executives employed in December 1997 who are responsible for residential
development, have revised the existing development plan for the Harbor Islands
community. As a result, the Company intends to incur non-cash charges
attributable to such revised development program against current income of
approximately $15.0 million for the fourth
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<PAGE> 8
quarter of 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent Occurrence."
------------------------
Leon Levy, Chairman of the Board of Avatar and a general partner of Odyssey
Partners, L.P., a private investment partnership ("Odyssey"), has advised the
Company of his intention to purchase $20 million aggregate principal amount of
the Notes offered hereby, net of underwriting fees and commissions. At November
30, 1997, Mr. Levy owned approximately 3.0% of Avatar's Common Stock, and
Odyssey owned approximately 23.2% of Avatar's Common Stock.
Avatar, a Delaware corporation, is located at 255 Alhambra Circle, Coral
Gables, Florida 33134, and its telephone number is (305) 442-7000.
6
<PAGE> 9
THE OFFERING
Securities Offered......... $100 million principal amount of % Convertible
Subordinated Notes due 2005 (the "Notes"), plus up
to an additional $15 million principal amount
issuable upon the exercise of the Underwriters'
over-allotment option.
Maturity................... , 2005.
Payment of Interest........ April 1 and October 1, commencing April 1, 1998.
Conversion................. The Notes are convertible into Common Stock of
Avatar at the option of the holder at any time at
or before maturity, unless previously redeemed, at
a conversion price of $ per share, subject to
adjustment in certain events. See "Description of
the Notes -- Conversion Rights."
Optional Redemption........ The Notes will be redeemable, in whole or in part,
at the option of Avatar, at any time on or after
April 6, 2001 at the redemption prices set forth
herein, together with accrued interest to the date
of redemption. See "Description of the
Notes -- Optional Redemption."
Repurchase at Holder's
Option..................... Upon the occurrence of a Change in Control (as
defined), holders of Notes may elect to require the
Company to repurchase their Notes, in whole or in
part, at a purchase price equal to 100% of the
principal amount thereof plus accrued and unpaid
interest through the date of repurchase. The term
Change in Control is limited to certain specified
transactions and does not include other events that
might adversely affect the financial condition of
Avatar or result in a downgrade in the credit
rating (if any) of the Notes. See "Risk
Factors -- Limitations on Repurchase of Notes Upon
a Change in Control" and "Description of the
Notes -- Certain Rights to Require Repurchase of
Notes."
Subordination.............. The Notes are subordinated to all present and
future Senior Indebtedness of Avatar and are
effectively subordinated to all indebtedness and
other liabilities of subsidiaries of Avatar. As of
November 30, 1997, Senior Indebtedness of Avatar
was $48.0 million, of which $33.0 million will be
repaid or retired with proceeds from the Offering,
and the aggregate amount of indebtedness and other
balance sheet liabilities of Avatar's subsidiaries
to which the Notes are effectively subordinated was
$116.5 million. See "Capitalization." The Indenture
will not restrict the ability of Avatar or its
subsidiaries to incur any indebtedness or
liabilities. See "Description of the
Notes -- Subordination" and "Risk Factors --
Subordination of Notes; Holding Company Structure."
Use of Proceeds............ Avatar will use the net proceeds from the Offering
to retire certain Senior Indebtedness, to fund real
estate development and acquisition activities, and
for working capital and general corporate purposes.
See "Use of Proceeds."
Market for Notes........... Application has been made to qualify the Notes for
quotation on Nasdaq under the symbol "AVTRG."
Common Stock Trading....... The Common Stock is traded on The Nasdaq National
Market under the symbol "AVTR."
RISK FACTORS
For a discussion of certain factors that should be considered by
prospective purchasers in evaluating an investment in the Notes, see "Risk
Factors."
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<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
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NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Real estate revenues:
Homebuilding........................ $ 6,077 $ 7,268 $ 7,400 $ 13,260 $ 49,672 $ 34,412 $ 40,975
Other, including deferred gross
profit............................ 28,483 31,451 33,232 34,237 46,477 27,548 22,319
Real estate expenses.................. (44,900) (47,494) (48,954) (58,626) (91,939) (61,525) (66,308)
--------- --------- --------- --------- --------- --------- ---------
Real estate, net...................... (10,340) (8,775) (8,322) (11,129) 4,210 435 (3,014)
Utilities revenues.................... 53,209 45,957 28,664 29,669 32,749 24,245 26,153
Utilities operating expenses.......... (36,772) (34,781) (24,651) (24,923) (25,505) (19,022) (19,207)
Utilities interest
expense -- direct................... (6,780) (5,832) (3,312) (3,031) (3,288) (2,427) (2,539)
Utilities other expenses(1)........... (1,544) (1,261) (811) (811) (814) (611) (518)
--------- --------- --------- --------- --------- --------- ---------
Utilities, net........................ 8,113 4,083 (110) 904 3,142 2,185 3,889
Other revenues and expenses:
Gain on sale of subsidiaries.......... -- 21,822(2) -- -- -- -- --
Other revenues........................ 996 5,565 564 663 2,405 471 601
General and administrative expenses... (7,809) (8,620) (10,224) (9,210) (8,784) (6,660) (6,919)
Interest income and trading account
profit, net......................... 16,396 13,985 11,467 16,339 10,056 8,082 4,367
Corporate and real estate interest
expense............................. (11,698) (9,824) (7,848) (8,487) (8,765) (5,926) (6,204)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)..................... $ (6,744) $ 4,898 $ (14,621) $ (10,339) $ 1,040 $ (1,340) $ (6,581)
========= ========= ========= ========= ========= ========= =========
Earnings (loss) per share............. $ (0.91) $ 0.50 $ (1.61) $ (1.14) $ 0.11 $ (0.15) $ (0.72)
Weighted average number of shares
outstanding......................... 7,403,848 9,840,251 9,095,102 9,095,102 9,095,102 9,095,102 9,095,102
OTHER DATA:
EBITDA(3)............................. $ 19,341 $ 39,840 $ 2,194 $ 7,053 $ 19,356 $ 11,728 $ 7,127
Number of residential units
sold(4)(5).......................... N/A N/A 101 243 444 362 472
Number of residential units
closed(6)........................... 73 91 86 150 293 192 316
Number of residential units in
backlog(4)(7)....................... N/A N/A 59 152 303 322 459
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
DECEMBER 31, --------------------------
1996 ACTUAL AS ADJUSTED(8)
------------ -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.............................................................. $443,185 $449,251 $516,279
Notes, mortgages and other debt(9):
Corporate............................................................... 33,148 44,669 114,350
Real estate............................................................. 27,462 35,728 35,728
Notes collateralized by contracts and mortgage notes receivables........ 36,030 26,766 26,766
Utilities............................................................... 42,152 38,747 38,747
Stockholders' equity...................................................... 159,452 152,871 150,218
</TABLE>
(Notes on following page)
8
<PAGE> 11
- ---------------
(1) Other expenses relate to preferred stock dividends of utilities
subsidiaries.
(2) In 1993 the Company sold its midwest water utilities located in Indiana,
Missouri, Ohio, and Michigan for an aggregate of $62,000.
(3) EBITDA represents income (loss) before interest, income taxes, depreciation
and amortization (including amortization of intangible assets and
contributions in aid of construction). EBITDA is frequently used by
securities analysts and is presented here to provide additional information
about the Company's operations. EBITDA is not a measurement presented in
accordance with generally accepted accounting principles ("GAAP"). EBITDA
should not be considered in isolation or as a substitute for net income
(loss), cash flow provided by operating activities or other income or cash
flow data prepared in accordance with GAAP or as a measure of a company's
profitability or liquidity.
(4) Data not available for years noted.
(5) Indicates the number of residential units for which an agreement of sale has
been executed during each period.
(6) Indicates the number of residential units for which a closing has taken
place during each period.
(7) Indicates the aggregate number of residential units sold which were subject
to an executed agreement of sale but had not closed as of the end of each
period.
(8) Adjusted to reflect the issuance of Notes offered hereby and the application
of the net proceeds therefrom.
(9) Does not include debt related to discontinued vacation ownership operations
of $10,191 and $14,973 at December 31, 1996 and September 30, 1997,
respectively. It is anticipated that upon the sale of such operations, such
debt will be assumed by the purchaser of the Company's vacation ownership
operations.
9
<PAGE> 12
RISK FACTORS
An investment in the Notes offered by this Prospectus involves a high
degree of risk. In addition, this Prospectus contains forward-looking statements
that involve risks and uncertainties. Discussions containing such
forward-looking statements may be found in the material set forth under
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Business" as well as
elsewhere in this Prospectus. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and elsewhere in the Prospectus. Accordingly, prospective investors
should consider carefully the following risk factors, in addition to the other
information concerning the Company and its business contained in this
Prospectus, before purchasing the Notes.
HISTORY OF LOSSES; NEGATIVE CASH FLOW
The Company has had negative cash flows and negative ratios of earnings to
fixed charges and has incurred significant operating and net losses. Net losses
for 1994 and 1995 were approximately $14.6 million and $10.3 million,
respectively. As of September 30, 1997, the Company had an accumulated deficit
of $5.1 million. The Company historically has sold non-strategic assets to fund
its operating deficits and has utilized short-term borrowings to provide working
capital.
Real estate development requires investment of substantial capital, a
significant portion of which is expended before any revenues may be realized.
The Company does not anticipate that it will achieve or sustain profitability or
positive cash flows from operating activities until the year 2000. If the
Company cannot achieve operating profitability or positive cash flows from
operating activities, it may not be able to service the Notes or meet its other
debt service or working capital requirements.
NEW REAL ESTATE BUSINESS STRATEGY
The Company's recently adopted real estate business strategy is unproven,
with little or no operating history to serve as the basis for a prediction of
its probable success or failure. Implementation of the business strategy has
required, and will continue to require, among other things, the addition of new
management personnel and employees, as well as the development of additional
expertise by existing management personnel and employees and the expenditure of
significant amounts of capital. The loss of the services of certain members of
the Company's senior management team could have a material adverse effect on the
Company and, in particular, on the success of the new real estate business
strategy. In addition, the Company's ability to manage growth and to redeploy
its resources effectively will require it to continue to implement and improve
its operational, financial and sales systems. There can be no assurance that the
Company will be able to compete successfully with its current or potential
competitors or that the implementation of the new business strategy will be
successful.
REAL ESTATE, ECONOMIC AND OTHER CONDITIONS GENERALLY
The real estate industry is highly cyclical and is affected by changes in
national, global and local economic conditions and events, such as employment
levels, availability of financing, interest rates, consumer confidence and the
demand for housing and other types of construction. Real estate developers are
subject to various risks, many of which are outside the control of the
developer, including real estate market conditions (both where its communities
and homebuilding operations are located and in areas where its potential
customers reside), and changing demographic conditions, adverse weather
conditions and natural disasters, such as hurricanes, tornados and wildfires,
delays in construction schedules, cost overruns, changes in government
regulations or requirements, increases in real estate taxes and other local
government fees and availability and cost of land, materials and labor. The
occurrence of any of the foregoing could have a material adverse effect on the
financial condition of the Company.
10
<PAGE> 13
INTEREST RATES; MORTGAGE FINANCING
Certain purchasers of the Company's homes finance their purchases through
third-party lenders providing mortgage financing. In general, housing demand is
dependent on home equity, consumer savings and third-party financing and will be
adversely affected by increases in interest rates, unavailability of mortgage
financing, increasing housing costs and unemployment levels. The amount or value
of discretionary income and savings, including retirement assets, available to
home purchasers can be affected by a decline in the capital markets. If mortgage
interest rates increase or the capital markets decline or undergo a major
correction, the ability of prospective buyers to finance home purchases will be
adversely affected, which may have an adverse effect on the financial condition
of the Company.
GEOGRAPHIC CONCENTRATION
The Company's development activities are primarily focused on locations in
Florida and therefore depend to a significant degree on the levels of
immigration to Florida from outside the United States and in-migration to
Florida from within the United States in addition to other local market
conditions. The Company's geographic concentration and limited number of
projects may create increased vulnerability to regional economic downturns or
other adverse project-specific matters. A decline in the economy in Florida
could have an adverse effect on the financial condition of the Company.
DEVELOPMENT OF COMMUNITIES
The Company's communities will be developed over time. Therefore, the
medium- and long-term future of the Company will be dependent on the Company's
ability to develop and market future communities successfully. Committing the
financial and managerial resources to develop a community involves significant
risks. Before a community generates any revenues, material expenditures are
required, among other things, to obtain development approvals to construct
project infrastructure, recreation centers, model homes and sales facilities
and, where opportunities are suitable and appropriate, to acquire land. It
generally takes several years for a community development to achieve cumulative
positive cash flow. No assurance can be given that the Company will successfully
develop and market communities in the future. The inability of the Company to
develop and market its communities successfully and to generate positive cash
flows from such operations in a timely manner would have an adverse effect on
the ability of the Company to service its debt, including the Notes, and to meet
its working capital requirements.
ACCESS TO FINANCING
The Company's business is capital intensive and requires expenditures for
land and infrastructure development, housing construction and working capital.
Accordingly, the Company anticipates incurring additional indebtedness to fund
its real estate development activities. As of November 30, 1997, the Company's
total consolidated indebtedness was $164.5 million, of which $33.0 million will
be repaid or retired with proceeds from this Offering. There can be no assurance
that the amounts available from internally generated funds, cash on hand, the
Company's existing credit facilities, sale of non-strategic assets and the net
proceeds from the Offering will be sufficient to fund the Company's anticipated
operations. The Company may be required to seek additional capital in the form
of equity or debt financing from a variety of potential sources, including
additional bank financing and sales of debt or equity securities. No assurance
can be given that such financing will be available or, if available, will be on
terms favorable to the Company. If the Company is not successful in obtaining
sufficient capital to fund the implementation of its business strategy and other
expenditures, development projects may be delayed or abandoned. Any such delay
or abandonment could result in a reduction in sales and would adversely affect
the Company's future results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
11
<PAGE> 14
DEBT COVENANTS
Under its credit facilities the Company is subject to certain covenants
that restrict its operational and financial flexibility, including covenants
requiring the maintenance of certain financial ratios and restrictions on
distributions, indebtedness, liens, acquisitions and other significant actions.
Failure to comply with certain covenants would, among other things, permit the
Company's lenders to accelerate the maturity of the obligations thereunder and
could result in cross-defaults permitting the acceleration of debt under other
Company credit facilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
JOINT VENTURE RISKS
In connection with its new business strategy, the Company has entered into,
and in the future will continue to seek, joint venture arrangements with
entities whose complementary resources or other business strengths will
contribute to the competitive position of the Company. A joint venture may
involve special risks associated with the possibility that a venture partner (i)
at any time may have economic or business interests or goals that are
inconsistent with those of the Company, (ii) may take actions contrary to the
instructions or requests of the Company or contrary to the Company's policies or
objectives with respect to its real estate investments or (iii) could experience
financial difficulties.
Actions by a venture partner of the Company may have the result of
subjecting property owned by the joint venture to liabilities in excess of those
contemplated by the terms of the joint venture agreement or have other adverse
consequences. As a participant in certain joint ventures, the Company may be
jointly and severally liable for the debts and liabilities of the joint venture.
No assurance can be given that any joint venture arrangements entered into by
the Company will achieve the results anticipated or otherwise prove successful.
PERIOD-TO-PERIOD FLUCTUATIONS
The Company's real estate projects are long-term in nature. Sales activity
at the Company's newly planned retirement communities and other real estate
developments varies from period to period, and the ultimate success of any
community cannot be determined from results in any particular period or periods.
A community may generate significantly higher sales levels at inception (whether
because of local pent-up demand or other reasons) than it does during later
periods over the life of the community. Revenues and earnings of the Company
will also be affected by period-to-period fluctuations in the mix of product,
subdivisions and home closings among the Company's communities and conventional
homebuilding operations. Thus, the timing and amount of revenues arising from
capital expenditures are subject to considerable uncertainty. The inability of
the Company to manage effectively its cash flows from operations would have an
adverse effect on its ability to service its debt, including the Notes, and to
meet its working capital requirements.
COMPETITION
The Company's homebuilding, planned community development and other real
estate operations are subject to substantial existing and potential competition
(including increased competition from a number of national homebuilders that are
entering or expanding their presence in planned community development). Some of
the Company's current and potential competitors have longer operating histories
and greater financial, sales, marketing, technical and other competitive
resources. Existing and future competition may have an adverse effect on the
financial condition of the Company.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL CONSIDERATIONS
The Company's business is subject to extensive federal, state and local
regulatory requirements, the broad discretion that governmental agencies have in
administering those requirements and "no growth" or "slow growth" policies, all
of which can prevent, delay, make uneconomic or significantly increase the costs
of its developments. Various governmental approvals and permits are required
throughout the development process (to the extent they have not already been
obtained), and no assurance can be given as to the receipt (or timing of
receipt) of these approvals or permits. The incurrence of substantial compliance
costs and the imposition of
12
<PAGE> 15
delays and other regulatory burdens on the Company could have a material adverse
effect on the operations of the Company.
Furthermore, various federal, state and local laws subject property owners
or operators to liability for the costs of removal or remediation of certain
hazardous substances released on a property. Such laws often impose liability
without regard to whether the owner knew of, or was responsible for, the release
of the hazardous substances. The presence of such hazardous substance at one or
more of the Company's properties, and the requirement to remove or remediate
such substances, may result in significant cost to the Company.
SUBORDINATION OF NOTES; HOLDING COMPANY STRUCTURE
The Notes are subordinate in right of payment to all current and future
Senior Indebtedness of Avatar. Senior Indebtedness consists of all indebtedness
of Avatar, whether existing on or created or incurred after the date of the
issuance of the Notes, that is not made subordinate to or pari passu with the
Notes by the instrument creating the indebtedness. As of November 30, 1997,
Avatar had Senior Indebtedness in the amount of approximately $48.0 million,
which includes approximately $15.0 million outstanding under Avatar's $20.0
million credit facility. The Indenture does not limit the amount of additional
indebtedness, including Senior Indebtedness, which Avatar can create, incur,
assume or guarantee. Because the Notes are subordinated, in the event of
insolvency, bankruptcy, liquidation, reorganization, dissolution or winding up
of the business of Avatar or upon a default in payment with respect to any
Senior Indebtedness of Avatar or any other event of default with respect to such
indebtedness resulting in the acceleration thereof, the assets of Avatar will be
available to pay the amounts due on the Notes only after all Senior Indebtedness
of Avatar has been paid in full. See "Description of the
Notes -- Subordination."
Avatar is a holding company whose principal assets are the shares of
capital stock of its real estate and utilities subsidiaries. Because Avatar does
not generate any operating revenues of its own, it depends on dividends,
advances and payments from its subsidiaries to fund its activities and meet its
cash needs, including its debt service requirements. The subsidiaries are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Notes or to make funds
available therefor. Their ability to pay dividends or make other payments or
advances to Avatar will depend on their operating results and will be subject to
various business considerations, applicable state laws, restricted payments and
other debt covenants governing certain project financing arrangements of the
subsidiaries and, in the case of the water and wastewater utilities, government
regulations restricting payments of dividends and other distributions to parent
companies.
The Notes will be effectively subordinated in right of payment to all
existing and future indebtedness and liabilities of Avatar's subsidiaries. As of
November 30, 1997, the aggregate amount of indebtedness and other balance sheet
liabilities of Avatar's subsidiaries to which the Notes are effectively
subordinated was approximately $116.5 million, including $38.7 million of
indebtedness from utilities operations. Consequently, in the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceeding with
respect to Avatar's subsidiaries, the holders of any indebtedness of Avatar's
subsidiaries may be entitled to payment thereof from the assets of such
subsidiaries prior to the holders of any general unsecured obligation of Avatar,
including the Notes.
LIMITATIONS ON REPURCHASE OF NOTES UPON A CHANGE IN CONTROL
In the event of a Change in Control, each holder of Notes will have the
right, at the holder's option, to require Avatar to repurchase all or a portion
of such holder's Notes at a price equal to 100% of the principal amount thereof
plus accrued and unpaid interest to the date of repurchase. Avatar's ability to
repurchase the Notes upon a Change in Control may be limited by the terms of
Avatar's Senior Indebtedness and the subordination provisions of the Indenture.
Further, the ability of Avatar to repurchase Notes upon a Change in Control will
be dependent on the availability of sufficient funds and subject to compliance
with applicable securities laws. Accordingly, there can be no assurance that
Avatar will be able to repurchase the Notes upon a Change in Control. The term
"Change in Control" is defined to include only certain specified transactions
and does not include other events, such as a highly-leveraged business
combination not involving a Change in Control, that would adversely affect the
holders of Notes.
13
<PAGE> 16
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICE
Sale of substantial amounts of shares in the public market or the prospect
of such sale could adversely affect the market price of Avatar's Common Stock.
As of November 30, 1997, Avatar had 9,170,102 shares of Common Stock
outstanding, of which 6,705,097 shares are currently available for public sale
without restriction. Avatar's officers and directors and Odyssey, who
beneficially own an aggregate of 2,390,005 shares of Common Stock and an option
which will become exercisable for the purchase of 45,000 shares of Common Stock,
have agreed not to sell, distribute, pledge, grant any option for the sale of,
or otherwise dispose of, directly or indirectly, or encumber or exercise
registration rights with respect to such securities for 180 days after the date
of the Offering without the prior written consent of CIBC Oppenheimer Corp. In
its sole discretion and at any time without notice, CIBC Oppenheimer Corp. may
release all or any portion of the shares subject to these restrictions. The
Company intends to grant to Leon Levy registration rights with respect to the
Notes, the shares of Common Stock issuable upon conversion thereof and all
shares of Common Stock which he currently owns, excluding shares held through
his ownership or other interest in, or receivable upon liquidation of, Odyssey.
If such registration rights are exercised, a large number of shares of Common
Stock could be sold in the public market. Such sale (or the perception that such
sale could occur) could have an adverse effect on the market price for Avatar's
Common Stock. See "Underwriting."
ANTI-TAKEOVER ISSUES
The Board of Directors of Avatar may issue up to 5,000,000 shares of
Preferred Stock in the future without stockholder approval upon such terms as
the Board of Directors may determine. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying or
preventing a change in control of the Company without further action by the
stockholders. Avatar has no present plans to issue any shares of Preferred
Stock. Avatar is also subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law (the "DGCL"), which prohibits Avatar from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. The application of Section 203 of the DGCL also could have
the effect of delaying or preventing a change in control of the Company. In
addition, the Change in Control repurchase feature of the Notes may also, in
certain circumstances, discourage or make more difficult a sale or takeover of
the Company.
NO PRIOR MARKET FOR THE NOTES
Although the Company has applied to qualify the Notes for quotation on
Nasdaq, the Notes are a new issue of securities, have no established trading
market and may not be widely distributed. The Company has been advised by the
Underwriters that they currently intend to make a market in the Notes. However,
such entities are not obligated to do so and any market-making activity may be
discontinued at any time without notice. In addition, any such market-making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act. Accordingly, no assurance can be given as to the liquidity of, or
trading market for, the Notes or that the Notes will not trade below their face
amount.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price for the Common Stock may be volatile and subject to
fluctuations resulting from news announcements concerning the Company or its
industry, general securities market conditions or other factors.
14
<PAGE> 17
USE OF PROCEEDS
The net proceeds derived from the Offering are estimated to be
approximately $96.0 million ($110.6 million if the Underwriters' over-allotment
option is exercised in full). The net proceeds of the Offering will be used to
retire the $33.0 million aggregate principal amount of Avatar's 8% Senior
Debentures due 2000 and 9% Senior Debentures due 2000, and, together with
Avatar's existing cash and cash generated from operations, to fund real estate
development and acquisition activities and for working capital and general
corporate purposes.
Pending application, the net proceeds of the Offering will be invested in
short-term, high quality investments.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on The Nasdaq National Market. The following
table sets forth through December 31, 1997, the high and low closing prices for
the Common Stock as reported by The Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1995
1st Quarter........................................................ 37 1/2 35 1/4
2nd Quarter........................................................ 37 3/4 35 1/2
3rd Quarter........................................................ 38 1/4 35
4th Quarter........................................................ 38 34 1/4
1996
1st Quarter........................................................ 40 1/2 32 5/8
2nd Quarter........................................................ 40 1/4 34 1/4
3rd Quarter........................................................ 34 3/4 29 1/2
4th Quarter........................................................ 32 1/2 30
1997
1st Quarter........................................................ 38 32
2nd Quarter........................................................ 34 3/8 30 3/8
3rd Quarter........................................................ 36 3/4 29 1/2
4th Quarter........................................................ 34 3/4 27
</TABLE>
On January 23, 1998, the closing price of the Common Stock was $29 1/2. The
number of record holders of Common Stock as of January 23, 1998 was 7,848. The
number of record holders may not be representative of the number of beneficial
owners because many shares are held by depositories, brokers or other nominees.
DIVIDEND POLICY
The Company does not currently pay cash dividends on its Common Stock. Its
current dividend policy is to retain earnings to support the growth of its
businesses. In addition, the Company is restricted from paying cash dividends
under the terms of certain of its loan agreements.
The terms of the Notes do not restrict the Company from paying dividends on
its Common Stock. However, under certain circumstances, distributions of cash or
property to holders of Common Stock may result in an adjustment in the
conversion price of the Notes. See "Description of the Notes."
15
<PAGE> 18
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company at September 30, 1997 (except as otherwise noted), and as adjusted
to give effect to the sale of the Notes.
This table should be read in conjunction with the Company's consolidated
financial statements, including the notes thereto, included elsewhere or
incorporated by reference in the Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
NOTES, MORTGAGE NOTES AND OTHER DEBT:
CORPORATE:
Bank credit lines................................................... $ 14,350 $ 14,350
8% Senior Debentures due 2000, net of unamortized discount of
$750............................................................. 6,876 --
9% Senior Debentures due 2000, net of unamortized discount of
$1,903........................................................... 23,442 --
% Convertible Subordinated Notes due 2005.......................... -- 100,000
-------- -----------
Total corporate....................................................... $ 44,668 $ 114,350
REAL ESTATE:
Development and construction loans, interest rates ranging from 8%
to 10.5%(1)...................................................... $ 29,746 $ 29,746
Mortgage note obligations, interest rates ranging from 8.8% to 10%,
due from 1997 - 2002............................................. 5,982 5,982
Bank credit lines................................................... 26,766 26,766
-------- -----------
Total real estate..................................................... $ 62,494 $ 62,494
UTILITIES:
Bank credit lines................................................... $ 325 $ 325
Utilities first mortgage bonds due serially from 1997 - 2007,
interest rates ranging from 7.8% to 9.2%......................... 14,730 14,730
7.3% utilities senior notes due 2000 - 2010................. 18,000 18,000
Utilities promissory notes due 2002 - 2004.................. 5,692 5,692
-------- -----------
Total utilities....................................................... $ 38,747 $ 38,747
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 15,500,000 shares authorized, 12,715,448
issued........................................................... $ 12,715 $ 12,715
Additional paid-in capital.......................................... 207,271 207,271
Retained earnings (deficit)......................................... (5,142) (7,795)(2)
-------- -----------
214,844 212,191
Less cost of 3,620,346 treasury shares.............................. 61,973 61,973
-------- -----------
Total stockholders' equity....................................... 152,871 150,218
-------- -----------
Total capitalization........................................ $298,780 $ 365,809
======== =========
</TABLE>
- ---------------
(1) Does not include $15.0 million of debt related to the Company's discontinued
vacation ownership operations. It is anticipated that upon sale of such
operations, such debt will be assumed by the purchaser of such operations.
(2) The increased deficit reflects the write-off of the aggregate net
unamortized discount on the 8% and 9% Senior Debentures which will be repaid
with a portion of the net proceeds from the Offering.
16
<PAGE> 19
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The following selected financial data for the five years ended December 31,
1996 are derived from the consolidated financial statements of the Company which
have been audited by Ernst & Young LLP, independent auditors. The financial data
for the nine month periods ended September 30, 1996 and 1997 are derived from
unaudited financial statements of the Company. The unaudited financial
statements include all adjustments, consisting of normal recurring adjustments,
which the Company considers necessary for a fair presentation of the financial
position and the results of operations for these periods.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ended December 31, 1997. The data should be read in conjunction with the
consolidated financial statements, related notes, and other financial
information included herein and incorporated by reference. Such financial
information should also be read in conjunction with the Company's consolidated
historical financial statements (and accompanying notes and schedules) and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this Prospectus, the 1996 10-K and the September 30 10-Q.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenues:
Real estate sales................... $ 34,794 $ 39,997 $ 42,351 $ 48,217 $ 93,510 $ 60,373 $ 60,284
Deferred gross profit............... (234) (1,278) (1,719) (720) 2,639 1,587 3,010
Utilities revenues.................. 53,209 45,957 28,664 29,669 32,749 24,245 26,153
Interest income..................... 16,396 13,985 11,125 9,427 7,846 6,035 4,110
Gain on sale of subsidiaries........ -- 21,822(2) -- -- -- -- --
Trading account profit, net......... -- -- 342 6,912 2,210 2,047 257
Other revenues...................... 996 5,565 564 663 2,405 471 601
-------- -------- -------- -------- -------- -------- --------
Total revenues................. 105,161 126,048 81,327 94,168 141,359 94,758 94,415
Expenses:
Real estate expenses................ 44,900 47,494 48,954 58,626 91,939 61,525 66,308
Utilities expenses.................. 36,772 34,781 24,651 24,923 25,505 19,022 19,207
General and administrative
expenses.......................... 7,809 8,620 10,224 9,210 8,784 6,660 6,919
Interest expense.................... 18,478 15,656 11,160 11,518 12,053 8,353 8,743
Other expenses(3)................... 1,544 1,261 811 811 814 611 518
-------- -------- -------- -------- -------- -------- --------
Total expenses................. 109,503 107,812 95,800 105,088 139,095 96,171 101,695
Income (loss) from continuing
operations before income taxes.... (4,342) 18,236 (14,473) (10,920) 2,264 (1,413) (7,280)
Provision for income taxes.......... -- 12,762 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations........................ (4,342) 5,474 (14,473) (10,920) 2,264 (1,413) (7,280)
Extraordinary item:
Loss on extinguishment of 8%
debentures........................ (2,402) -- -- -- -- -- --
Cumulative effect of change in
method of accounting for income
taxes............................. -- (964) -- -- -- -- --
Cumulative effect of change in
method of accounting for
investments (net of income taxes
of $238).......................... -- 388 -- -- -- -- --
Discontinued operations(4):
Income (loss) from vacation
ownership operations, net of tax
expense........................... -- -- (148) 581 (1,224) 73 699
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................... $ (6,744) $ 4,898 $(14,621) $(10,339) $ 1,040 $ (1,340) $ (6,581)
======== ======== ======== ======== ======== ======== ========
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) per share........... $ (0.91) $ 0.50 $ (1.61) $ (1.14) $ 0.11 $ (0.15) $ (0.72)
Weighted average number of shares
outstanding....................... 7,403,848 9,840,251 9,095,102 9,095,102 9,095,102 9,095,102 9,095,102
OTHER DATA:
EBITDA(5)........................... $ 19,341 $ 39,840 $ 2,194 $ 7,053 $ 19,356 $ 11,728 $ 7,127
Ratio of earnings to fixed
charges(6)........................ 0.79 2.06 (0.18) 0.14 1.17 0.85 0.24
BALANCE SHEET DATA:
Cash (including restricted cash).... $ 4,253 $ 8,620 $ 6,037 $ 4,439 $ 8,046 $ 7,488 $ 5,039
Investments -- trading.............. 17,314 51,184 51,582 48,258 4,535 4,365 4,358
Total assets........................ 474,448 457,747 446,577 470,632 443,185 442,558 449,251
Notes, mortgages and other
debt(7)........................... 194,416 135,557 139,827 165,665 138,792 143,935 145,910
Stockholders' equity................ 144,639 183,372 168,751 158,412 159,452 157,072 152,871
</TABLE>
- ---------------
(1) The Company's consolidated financial statements as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996
have been reclassified to show the effect of discontinued operations for
which a disposition plan was adopted in the third quarter of 1997.
(2) In 1993 the Company sold its midwest water utilities located in Indiana,
Missouri, Ohio and Michigan for an aggregate of $62,000.
(3) Other expenses relate to preferred stock dividends of subsidiaries.
(4) Vacation ownership operations commenced in 1994, and the Company is
currently negotiating the sale of this business.
(5) EBITDA represents income (loss) before interest, income taxes, depreciation
and amortization (including amortization of intangible assets and
contributions in aid of construction). EBITDA is frequently used by
securities analysts and is presented here to provide additional information
about the Company's operations. EBITDA is not a measurement presented in
accordance with GAAP. EBITDA should not be considered in isolation or as a
substitute for net income (loss), cash flow provided by operating activities
or other income or cash flow data prepared in accordance with GAAP or as a
measure of a company's profitability or liquidity.
(6) For purposes of calculating the ratio of earnings to fixed charges (i)
earnings represent pretax income from continuing operations plus fixed
charges and (ii) fixed charges consist of interest on all indebtedness,
including amortization of debt expense and discount relating to any
indebtedness, that portion of rental expense (one-fifth) that the Company
believes to be representative of interest, and preferred stock dividend
requirements of Avatar's subsidiaries. The Company's earnings were
insufficient to cover fixed charges, and the deficiencies in coverage
amounted to $4,300, $14,500 and $10,900 for the years ended December 31,
1992, 1994 and 1995, respectively, and $1,400 and $7,300 for the nine months
ended September 30, 1996 and 1997, respectively.
(7) Does not include debt related to discontinued vacation ownership operations
of $1,135, $6,931 and $10,191 at December 31, 1994, 1995 and 1996,
respectively, and $9,221 and $14,973 at September 30, 1996 and 1997,
respectively. It is anticipated that upon the sale of such operations, such
debt will be assumed by the purchaser of the Company's vacation ownership
operations.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the
Consolidated Financial Statements, including the notes thereto, included
elsewhere or incorporated by reference in this Prospectus.
OVERVIEW
The Company is engaged in a number of real estate related businesses and in
the ownership and operation of water and wastewater utilities.
Since 1980 the Company has expended more than $150.0 million to improve its
land holdings by installing infrastructure, such as roads, sewers, landscaping,
utility lines and drainage. In addition, the Company has expended substantial
funds to build or improve golf courses, hotels, tennis courts, shopping centers
and other amenities on its properties.
Until 1994, through its national and international retail installment land
sales program, the Company was primarily engaged in the business of selling
lots. In 1993 the Company expanded into the homebuilding business, and, until
the third quarter of 1997, the Company's real estate business plan emphasized
the sale of individual homesites and the construction and sale of mid-priced
single family homes. This strategy increased annual closings of home sales from
86 in 1994 to 293 in 1996 and increased home sale revenues from $7.4 million in
1994 to $50.0 million in 1996. In 1996 the Company decided to terminate its
national and international retail installment land sales program. The Company is
still in the process of winding down this program and collecting related
receivables which, as of September 30, 1997, were approximately $45.0 million
and which collateralize debt of approximately $26.8 million.
While the Company intends to remain in the mid-priced homebuilding
business, the Company's new management has implemented a new real estate
business strategy to capitalize on its distinct competitive advantages and
emphasize higher profit margin businesses. Under its new strategy, the Company
intends to concentrate on development and management of active adult/retirement
and other planned communities, construction of custom and semi-custom homes and
development and acquisition of commercial and industrial properties. As a
consequence of implementing its new real estate business strategy, the Company
believes that its operations and the financial results thereof will change
significantly over the next several years. Accordingly, the results of
operations reflected in the historical financial statements may not be
indicative of the future results of operations of the Company.
RESIDENTIAL DEVELOPMENT. In 1993 the Company commenced residential
development activities at its properties in Poinciana and Cape Coral, Florida,
commenced planning for development of Harbor Islands in Hollywood, Florida, and
began preliminary plans for homebuilding programs in Rio Rico, Arizona.
Growth of the Company's homebuilding business is demonstrated by the
following operating results:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
------ ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues.......................... $7,400 $13,260 $49,672 $34,412 $40,925
Other data:
Number of units sold............ 101 243 444 362 472
Number of units closed.......... 86 150 293 192 316
Number of units in backlog...... 59 152 303 322 459
</TABLE>
COMMERCIAL AND INDUSTRIAL LAND SALES. Prior to the third quarter of 1997,
the Company's policy was to sell commercial and industrial land at market prices
whenever possible. Under the new real estate business strategy, the Company
intends to develop land and lease and operate such developed properties rather
than to
19
<PAGE> 22
sell them. Revenues from commercial and industrial land sales declined from $4.0
million in 1994 to $1.7 million in 1996. Future demand for commercial and
industrial land and facilities at the Company's properties is expected to
increase as the result of the development by both the Company and other
developers of homes and planned communities.
WATER AND WASTEWATER UTILITIES. The Company's utilities subsidiaries
provide water and wastewater treatment services to customers in Florida and
Arizona. From 1994 to 1996, annual revenues have increased by approximately $4.1
million or 14%. The Company also provides data processing, customer billing and
related services to affiliated and non-affiliated companies and public entities.
Growth of the Company's utilities is anticipated to come from increases in
the number of customers as its service areas become more fully developed and
from third-party management contracts in the Company's meter reading and billing
service business.
The following table sets forth revenues and income derived from water and
wastewater utilities for the years ended December 31, 1994, 1995 and 1996 and
for the nine months ended September 30, 1996 and 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................................. $28,664 $29,669 $32,749 $24,245 $26,153
Approximate number of water
customers........................... 38,000 39,000 41,000 41,000 42,000
Approximate number of wastewater
customers........................... 30,000 31,000 32,000 31,000 32,000
Income (loss) before income taxes........ $ (210) $ 804 $ 3,042 $ 2,110 $ 3,814
Income before income taxes and
non-recurring expense.................. $ 1,324 $ 2,054 $ 3,892 $ 2,460 $ 3,814
</TABLE>
RESORT OPERATIONS. Resort operations are intended to enhance the value of
the Company's land in the communities in which they are located. Such
operations, which include the Cape Coral Golf and Country Club, the Poinciana
Golf and Racquet Club and the Rio Rico Resort and Country Club, have generated
increased revenues on an annual basis, from $13.2 million in 1994 to $16.1
million in 1996.
VACATION OWNERSHIP. While revenues from vacation ownership operations
increased from $1.5 million in 1994 to $11.3 million in 1996, these operations
are not considered by management to be a complementary component of the
Company's new business strategy. The Company intends to sell the vacation
ownership business; in such sale it is anticipated that the purchaser will
assume approximately $15.0 million of associated debt. As of September 30, 1997,
the vacation ownership business is accounted for as a discontinued operation.
RETAIL INSTALLMENT LAND SALES. Prior to 1997, the Company sold homesites
under retail land sales programs, which were terminated in the second quarter of
1996. Receivables, which collateralize debt of approximately $26.8 million, due
from such sales aggregated approximately $45.0 as of September 30, 1997 and are
payable over the next nine years. Revenues from these programs decreased from
$11.9 in 1994 to $4.0 million in 1996.
OTHER REAL ESTATE REVENUES. The Company's rental, leasing and other real
estate revenues, which are primarily generated through the lease of the
Company's community shopping centers and commercial operations in Cape Coral,
Poinciana and Rio Rico, the Tarpon Point Marina in Cape Coral, cable television
operations at Poinciana and property management services, have approximated $5.5
million annually since 1994.
TRADING ACCOUNT PROFIT. From 1993 to the fourth quarter of 1997, the
Company invested unused funds in fixed-income and other debt securities. Prior
to 1997, trading account profit had declined due to the
20
<PAGE> 23
Company's use of the principal of its trading account to fund operations and
maintain and enhance its land holdings. The Company has liquidated its trading
account and used such funds, net of related debt, as working capital.
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors that have affected the Company during the periods included
in the accompanying consolidated statements of operations.
A summary of the period to period changes in the items included in the
consolidated statements of income is shown below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1994 AND 1995 1995 AND 1996 1996 AND 1997
------------- ------------- -------------------
INCREASE (DECREASE) INCREASE (DECREASE)
------------------------------- -------------------
CHANGE CHANGE CHANGE
------------- ------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Real estate sales....................... $ 5,866 $45,293 $ (89)
Deferred gross profit on homesite
sales................................. 999 3,359 1,423
Utilities revenues...................... 1,005 3,080 1,908
Interest income......................... (1,698) (1,581) (1,925)
Trading account profit, net............. 6,570 (4,702) (1,790)
Other................................... 99 1,742 130
-------- -------- -------
Total revenues..................... 12,841 47,191 (343)
EXPENSES
Real estate expenses.................... 9,672 33,313 4,783
Utilities expenses...................... 272 582 185
General and administrative expenses..... (1,014) (426) 259
Interest expense........................ 358 535 390
Other................................... -- 3 (93)
-------- -------- -------
Total expenses..................... 9,288 34,007 5,524
-------- -------- -------
Income from continuing operations....... 3,533 13,184 (5,867)
-------- -------- -------
(Loss) income from discontinued
operations............................ 729 (1,805) 626
-------- -------- -------
Net income.............................. $ 4,262 $11,379 $(5,241)
======== ======== =======
</TABLE>
The Company uses the installment method of profit recognition for homesite
sales. Under the installment method the gross profit on recorded homesite sales
is deferred and recognized in income of future periods, as principal payments on
contracts are received. Fluctuations in deferred gross profit result from
deferred gross profit on current homesite sales less recognized deferred gross
profit on prior years' homesite sales.
21
<PAGE> 24
Data from homebuilding operations for the nine months ended September 30,
1996 and 1997 and for the years ended December 31, 1994, 1995 and 1996 are
summarized below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
------ ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
UNITS SOLD, NET
Number of units................. 101 243 444 362 472
Aggregate dollar volume......... $7,919 $39,917 $59,078 $47,755 $60,586
Average price per unit.......... $ 78 $ 164 $ 133 $ 132 $ 128
UNITS CLOSED
Number of units................. 86 150 293 192 316
Aggregate dollar volume......... $7,354 $12,989 $49,894 $34,358 $41,411
Average price per unit.......... $ 86 $ 87 $ 170 $ 179 $ 131
BACKLOG
Number of units................. 59 152 303 322 459
Aggregate dollar volume......... $5,050 $31,978 $41,349 $44,674 $60,524
Average price per unit.......... $ 86 $ 210 $ 136 $ 139 $ 132
</TABLE>
Data from the national and international retail land sales programs,
terminated in the second quarter of 1996, is set forth below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -----------------
1994 1995 1996 1996 1997
------- ------- ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
RETAIL LAND SALES OPERATIONS DATA
Sales volume........................ $11,866 $11,424 $3,998 $4,364 $ --
Cost of sales....................... 1,879 1,923 705 718 --
Selling expense..................... 6,440 6,697 3,773 3,522 --
Deferred gross profit............... (1,719) (720) 2,639 1,587 3,010
Interest income..................... 11,125 9,427 7,846 6,035 4,110
Loss on contract cancellations...... 1,281 1,257 1,035 856 872
Contract servicing expense.......... 729 768 785 623 437
Interest expense.................... 2,876 2,781 2,865 2,242 2,173
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- -------------------
1995 1996 1996 1997
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Principal amount of contracts and mortgage
notes receivable........................ $82,521 $61,534 $68,484 $45,021
Debt collateralized by contracts and
mortgages receivable.................... 28,630 36,030 32,284 26,766
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1996
Operations for the nine month period ended September 30, 1997 resulted in a
net loss of $6.6 million or $.72 per share, compared to a net loss of $1.3
million or $.15 per share for the same period of 1996. The decrease in operating
results was primarily attributable to a decrease in real estate operating
results and trading account profits as well as an increase in net interest
expense, partially offset by an increase in deferred gross profit recognition
and utilities operating results.
22
<PAGE> 25
The Company's real estate revenues for the nine months ended September 30,
1997 decreased $89,000 or 0.2%, while real estate expenses increased $4.8
million or 7.8% when compared to the same period of 1996. The decrease in real
estate revenues is generally a result of the reduced closings at the Company's
Harbor Islands project and the termination of the retail land sales program,
partially mitigated by the overall increase in closings of homes sold. The
increase in real estate expenses, when compared to the same period of 1996, is
essentially a result of increased selling expenses associated with the increased
homebuilding sales volume as well as nonrecurring expenditures associated with
product development at the Company's Poinciana project. The aggregate dollar
volume of homes sold increased to $60.6 million from $47.8 million or 26.8%.
Utilities revenues for the nine months ended September 30, 1997 increased
$1.9 million or 7.9% when compared to the same period of 1996, primarily due to
customer growth, the implementation of rate increases that were not effective
during the first nine months of 1996, and increased revenues from contract
services. Utilities expenses for the nine months ended September 30, 1997
increased $185,000 or 1.0% when compared to the same period of 1996, primarily
due to increases in general, and administrative expenses and operating expenses,
mitigated by a decrease in legal fees.
Interest income for the nine months ended September 30, 1997 decreased $1.9
million or 31.9% when compared to the same period for 1996. The decline in
interest income is attributable to lower average aggregate amounts outstanding
in the Company's contract and mortgage notes receivable portfolio. The Company's
contracts and mortgage notes receivable portfolio amounted to $45.0 million at
September 30, 1997, compared to $68.5 million at September 30, 1996.
Trading account profit, net, for the nine months ended September 30, 1997
decreased $1.8 million or 87.4% compared to the same period for 1996, primarily
due to the lower average balance of investment securities. Trading account
profit represents interest income and realized and unrealized gains and losses
related to the trading investment portfolio, net of commissions payable to
brokers.
General and administrative expenses for the nine month period ended
September 30, 1997 increased $259,000 or 3.9% compared to the same period of
1996. The increase for the nine months ended September 30, 1997 is primarily
attributable to increased executive compensation, as well as an increase in the
accrual for incentive compensation.
Interest expense for the nine months ended September 30, 1997 increased
$390,000 or 4.7%, compared to the same period of 1996, primarily attributable to
a reduction in capitalized interest, as well as additional borrowings.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO
YEAR ENDED DECEMBER 31, 1995 AND
YEAR ENDED DECEMBER 31, 1994
Operations for the years ended December 31, 1996, 1995 and 1994 resulted in
pre-tax income (loss) of $1.0 million, ($10.3 million) and ($14.6 million),
respectively. The improvement in income (loss) from continuing operations before
income taxes for 1996 compared to 1995 is primarily attributable to an increase
in real estate contribution margin, recognition of deferred gross profit on
homesite sales, and improved utilities contribution margins which was partially
mitigated by a decrease in net trading account profits. The decrease in pre-tax
loss during 1995 compared to 1994 is primarily attributable to an increase in
the pre-tax gain from net trading account profits of $6.6 million which was
partially mitigated by increased selling expenses and start-up costs
attributable to housing programs.
Gross real estate revenues increased $45.3 million or 93.9% during 1996
when compared to 1995 and $5.9 million or 13.9% during 1995 when compared to
1994. The increase in real estate revenues for 1996 when compared to 1995 is
primarily a result of increased homebuilding, the sale of the recreation
facilities and other assets at the Company's former Barefoot Bay community and a
bulk land sale at Leisure Lakes. Homebuilding revenues increased $36.4 million
or 274.6% in 1996 when compared to 1995. The improvement in homebuilding
revenues is primarily due to closings at the Company's Harbor Islands project,
as well as the other sites. Harbor Islands closed 70 units with sales volume of
$27.3 million during 1996 compared to no
23
<PAGE> 26
closings in 1995. Housing units closed, excluding Harbor Islands totaled 223
units with sales volume of $22.6 million compared to 150 units with a sales
volume of $13.0 million in 1995. The increase in real estate revenues for 1995
when compared to 1994 is primarily a result of increased closings. Housing
revenues increased $5.9 million or 79.2% in 1995 when compared to 1994. Real
estate expenses increased $33.3 million or 58.8% in 1996 when compared to 1995
and $9.7 million or 19.8% in 1995 when compared to 1994. The increase in real
estate expenses for 1996 is primarily a result of increased real estate revenues
and an inventory write down of the Company's Banyan Bay property. The increase
in real estate expenses for 1995 when compared to 1994 is primarily a result of
increased selling expenses and start-up costs attributable to increased housing
programs. Homebuilding margins for 1996 were comparable to those of 1995 and
1994.
The average selling price of housing units closed for 1996 was $170,000, an
increase of 95.0% when compared to 1995. This increase is due to closings at
Harbor Islands, which had an average selling price on closed units of $390,000
for 1996 compared to no closings in 1995. The 1995 average selling prices of
housing units closed were consistent with 1994 levels. The average selling price
of housing units in backlog of $136,000 at December 31, 1996 decreased by 35.0%
from 1995 prices due to the reduced number of sales in backlog at Harbor
Islands. The average selling price of housing units in backlog of $210,000 at
December 31, 1995 increased by 144.0% over 1994 prices due to sales at Harbor
Islands, which had an average sales price of $412,000.
Utilities revenues increased $3.1 million or 10.4% during 1996 when
compared to 1995 and $1.0 million or 3.5% during 1995 when compared to 1994.
Utilities expenses increased $582,000 or 2.3% during 1996 when compared to 1995
and $272,000 or 1.1% during 1995 when compared to 1994. Utilities revenues
increased as a result of rate increases, customer growth and increased contract
management operations. Utilities expenses increased correspondingly to the
customer growth.
Interest income decreased $1.6 million or 16.8% during 1996 when compared
to 1995 and $1.7 million or 15.3% during 1995 when compared to 1994. The
declines in interest income are primarily attributable to lower average
aggregate balances of the Company's contracts and mortgage notes receivable
portfolio caused by collections, cancellations and reductions in new land sales.
The average balance of the Company's receivables portfolio was $72.3 million,
$90.7 million, and $106.8 million for 1996, 1995 and 1994, respectively.
Trading account profit, net, decreased $4.7 million for 1996 when compared
to 1995 and increased $6.6 million in 1995 when compared to 1994. Trading
account profit, net, represents interest income and realized and unrealized
gains and losses related to the trading investment portfolio, net of commissions
payable to investment advisors.
Other revenues for 1996 include a sale of water rights at Rio Rico for $1.6
million.
General and administrative expenses decreased $426,000 or 4.6% in 1996
compared to 1995 and $1.0 million or 9.9% in 1995 compared to 1994. The decrease
for 1996 compared to 1995 results primarily from a reduction in the accrual for
incentive compensation recorded for executive officers. The decrease for 1995
compared to 1994 results from reductions in the accrual for incentive
compensation recorded for executive officers and expenses related to a legal
settlement in 1994.
Interest expense increased $535,000 or 4.6% in 1996 when compared to 1995
and $358,000 or 3.2% in 1995 when compared to 1994. The increase in 1996 when
compared to 1995 is primarily due to an increase in interest expense in the
homebuilding operations, mitigated in part by a decrease in the outstanding
balance of notes, mortgage notes and other debt, as well as an increase in
capitalization of interest which totaled $4.0 million in 1996. The increase in
1995 is primarily due to the increase in the outstanding balance of notes,
mortgage notes and other debt, which was partially offset by capitalization of
interest associated with the development and construction costs of approximately
$3.2 million for 1995 and $1.6 million for 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary business activities are capital intensive in nature.
Significant capital resources are required to finance homebuilding construction
in process, infrastructure for roads, water and wastewater utilities, selling
expenses and working capital needs, including funding of debt service
requirements, operating
24
<PAGE> 27
deficits and the carrying cost of land. The Company anticipates capital
expenditures totalling approximately $36.0 million for 1998. Of this amount,
approximately $16.0 million of the Company's total capital expenditures relates
to the Company's real estate business, primarily for infrastructure and
amenities. Approximately $20.0 million relates to the Company's utilities
businesses and will be funded by cash flow provided by the utilities businesses
and additional borrowings by the Company's utilities subsidiaries. The Company
intends to develop and manage several active adult/retirement communities that
are likely to require significant capital resources. In addition, the Company
anticipates that it will need to expand its utilities operations to accommodate
the population increases in the communities it serves.
Historically, the Company has funded operating deficits and its liquidity
requirements through the sale of non-strategic assets, homebuilding project
borrowings, utilities borrowings and general corporate borrowings. The Company
does not anticipate that its new real estate business strategy will achieve or
sustain profitability or positive cash flow until the year 2000 or later.
Accordingly, the Company will use the net proceeds of the Offering, the proceeds
of the sale of non-strategic assets, and real estate project borrowings to fund
the Company's operating deficits and the carrying cost of land.
At September 30, 1997, the Company's secured real estate lines of credit,
exclusive of timeshare credit facilities, amounted to $26.8 million all of which
were fully utilized. These real estate lines, which are secured by contracts and
mortgage receivables aggregating $45.0 million, mature with respect to $21.0
million in the second quarter of 1998 and $5.8 million in the second quarter of
2001. Corporate secured lines of credit were $23.4 million at September 30, 1997
and the unused and available portions were $9.0 million. One of the corporate
lines in the amount of $3.4 million was repaid in the fourth quarter of 1997.
The other corporate line in the amount of $20.0 million matures in the third
quarter of 1998.
At September 30, 1997, utilities unsecured lines of credit were $15.0
million and the unused and available portion was $14.7 million. The utilities
lines mature in the second quarter of 2000.
Management does not anticipate a significant increase in interest rates for
1998, and, accordingly, does not expect the Company's primary business
activities to be adversely affected by interest rates. A high interest rate
environment would be likely to adversely affect the Company's real estate
results of operations and liquidity because of its negative impact on the
housing industry and because certain of the Company's debt obligations are tied
to prevailing interest rates. Increases in interest rates affecting the
Company's utilities operations generally are passed on to the consumer through
the regulatory process.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share", which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share, disclose both primary and diluted
earnings per share and restate all prior periods. Under the new requirements,
primary earnings per share will be renamed basic earnings per share and will
exclude the dilutive effect of stock options. The impact of SFAS No. 128 on both
primary and diluted earnings per share is not expected to be significant.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the reporting of financial information from operating segments in annual and
interim financial statements issued to shareholders. SFAS No. 131 also
establishes standards for related disclosures with respect to products and
services, geographic areas of operations and major customers. SFAS No. 131,
which is effective for fiscal years beginning after December 15, 1997, will have
no impact on the Company's consolidated results of operations, financial
position or cash flows. However, SFAS No. 131 may affect reported segments and
the Company is reviewing this matter.
RECENT OCCURRENCE
In connection with the Company's new business strategy, the new senior
executives employed in December 1997 who are responsible for residential
development, have revised the existing development plan
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<PAGE> 28
for the Harbor Islands community. As a result, it has been determined that there
are present "indicators of impairment" within the meaning of FAS 121 Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. FAS 121 requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by these assets are less than the assets'
carrying amount. FAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of, and requires that assets to be disposed of
be reported in the balance sheet at the lower of their carrying amount or fair
value less the estimated cost of sale. The Company intends to report an
impairment loss of approximately $15.0 million to the carrying value of its
Harbor Islands community for the fourth quarter of 1997.
That portion of the Harbor Islands community that the Company does not plan
to develop has been valued based on an independent appraisal less the estimated
cost of sale. Certain land held for future development by the Company has been
valued at the estimated discounted cash flows in accordance with FAS 121 as the
undiscounted cash flows were less than the carrying amount of the assets.
26
<PAGE> 29
BUSINESS
GENERAL
The Company is engaged in two principal business activities: real estate
development and the ownership and operation of water and wastewater utilities.
The Company owns and develops land, primarily in various locations in Florida
and Arizona. Current and planned real estate operations include: the
development, sale and management of active adult/retirement communities; the
development and sale of single- and multi-family homes and communities; and the
development, leasing and management of improved commercial and industrial
properties.
The Company's substantial land holdings represent the potential for
residential development of 102,000 to more than 145,000 single- and multi-family
units. These land holdings include over 32,600 developed or developable acres,
of which 26,400 acres have been platted and/or zoned for the building of over
43,000 single-family homes and over 38,200 multi-family units, and approximately
6,200 acres of partially developed and developable land which have not been
platted on which the Company anticipates developing more than an additional
20,800 residential units. In addition, the Company owns over 3,000 acres of land
upon which over 42.7 million square feet of commercial/industrial property may
be built.
The Company's major land holdings are located in Poinciana (near Disney
World and Orlando), Cape Coral on Florida's west coast (near Fort Myers and
Naples), Ocala Springs in central Florida, Harbor Islands (one of the last large
undeveloped properties along the Intracoastal Waterway, on Florida's east coast
near Ft. Lauderdale), and Rio Rico, south of Tucson, Arizona.
Utilities operations include the purification and distribution of water and
the treatment and disposal of wastewater through plants in Florida and Arizona
and contract management services for affiliated and unaffiliated water and
wastewater utilities.
The Company's assets totalled over $449.0 million as of September 30, 1997.
NEW REAL ESTATE BUSINESS STRATEGY
During the third quarter of 1997, new management of the Company began
implementing a real estate business strategy designed to capitalize on the
Company's competitive strengths and current and projected demographic trends in
Florida and Arizona and which focuses on real estate businesses which have
potentially higher profit margins.
STRATEGY. The Company's new real estate business strategy is focused on
three primary areas:
- Development and management of active adult/retirement communities;
- Development of upscale custom and semi-custom homes and communities;
and
- Development of its commercial and industrial properties.
COMPETITIVE ADVANTAGES. The Company believes that it has four principal
competitive advantages:
- It owns large contiguous tracts of land.
- Its land holdings are substantially zoned and/or platted, are either
exempt from applicable regulatory requirements or such regulatory
requirements have been substantially fulfilled, and have overall
vesting with regard to costly and time-consuming regulatory and
growth management requirements such as concurrency, development of
regional impact studies and regulatory planning and environmental
permitting.
- Its extensive land holdings are substantially debt-free.
- It has expended more than $150.0 million on land infrastructure
improvements, including roads, drainage and utilities installations,
and has invested substantial funds in the development of
27
<PAGE> 30
amenities, such as parks and other open areas, club houses, golf
courses, swimming pools, tennis courts, hotels, shopping centers and
marinas.
DEMOGRAPHIC TRENDS. The Company believes that it will benefit from a
number of favorable long-term trends in the geographic areas in which the
Company's land holdings are located. Such trends include:
Projected Population Growth
- Florida ranks as the fourth most populous state; it is third in
total job creation. (Arizona State University survey).
- Florida is projected to become the third most populous state after
California and Texas, surpassing New York by 2015. (U.S. Census
Bureau).
- By 2025 Florida's population is projected to increase by
approximately 6.0 million, or 41.0%, the majority of which is
attributable to immigration and in-migration. (U.S. Census Bureau).
- The bulk of the Company's homebuilding activities is concentrated in
five counties in central and southern Florida which have averaged
approximately 14.0% annual growth in population since 1990. (U.S.
Census Bureau).
- Arizona is projected to be ranked sixth among the states in terms of
the largest net population increase and among the 10 fastest growing
states ranked by percentage population growth for the period from
1995 to 2025. (U.S. Census Bureau).
Retirement Age Demographics
- Aging of the "baby-boom" generation should increase demand for
amenitized pre-retirement and retirement communities.
Growth of Orlando as a Business and Entertainment Center
- Orlando is one of the fastest growing major markets in the United
States, driven primarily by its central location in Florida, dynamic
tourist industry and relatively low cost of living. (Melaniphy &
Associates). The Company's Poinciana community is located just 21
miles from Orlando and nine miles from Disney World.
Latin American Commerce
- Florida and Arizona have benefited economically from the growth in
commerce between the U.S. and Latin America.
The Company's new real estate strategy focuses on three primary businesses:
DEVELOPMENT AND MANAGEMENT OF ACTIVE ADULT/RETIREMENT COMMUNITIES
A substantial portion of the Company's land holdings is located in areas
where management believes there is significant opportunity to develop active
adult/retirement communities. The Company owns more than 10,700 acres in several
large contiguous parcels which are entirely debt-free and which it believes are
suitable for the development of active adult/retirement communities, and upon
which an estimated 36,200 units may be built.
To assist in the development of its active adult/retirement communities, in
October 1997, the Company entered into a consulting contract with H. Irwin Levy,
the founder of the Century Village concept of active adult/retirement
communities, and acquired an option to purchase the rights to the Century
Village name. At the same time, the Company hired the entire Century Village
executive management team: the Chief Operating Officer, the Chief Financial
Officer, and the heads of marketing and construction. Century Village is one of
the nation's leading developers of active adult/retirement communities.
Collectively, these executives have been responsible for the development of
approximately 50,000 housing units in approximately 20 communities, including
four Century Village communities located in southeast Florida. As an incentive
to
28
<PAGE> 31
establish and grow the Company's active adult/retirement community business,
these executives were granted stock appreciation rights which are based on the
increase in the fair market value of the common stock of the Company's
newly-formed subsidiary, Avatar Retirement Communities, Inc.
Over the next five years, the Company intends to create a brand name in the
active adult/retirement community business and to distinguish its active
adult/retirement communities from those of other developers by establishing a
consumer product-oriented approach. Specifically, the Company intends to develop
resort-like communities with a broad array of amenities and entertainment,
sports, recreational, social, educational and cultural activities. Each
community will be designed and operated as a lifestyle experience developed for
its particular location and market. The Company believes that its extensive land
holdings will enable it to offer its customers more land and amenities than its
competitors. Through the use of market research and other marketing techniques,
the Company intends to identify those amenities, home styles and features,
community layouts and other factors that will attract buyers. In addition,
management seeks to identify additional sites which are suitable for development
of active adult/retirement communities and anticipates that it will acquire such
sites for cash or stock or develop them through joint venture or management
arrangements.
The Company is formulating a plan to develop its first active
adult/retirement community at Poinciana. The Company anticipates obtaining
appropriate land use approvals without any significant delay and commencing
construction in mid-1999, with the first closings of home sales scheduled to
occur during mid-2000. It is expected that development of active
adult/retirement communities at Cape Coral, Ocala Springs and Rio Rico will
commence approximately 6 to 18 months after the initial phase of development at
Poinciana is completed.
The following is a description of the locations where the Company initially
plans to develop active adult/retirement communities:
POINCIANA, FLORIDA: At Poinciana, located in central Florida approximately
21 miles south of Orlando and ten miles from Disney World, the Company has
approximately 18,000 acres of land, of which at least 4,300 acres of large
contiguous entirely debt-free parcels are suitable for active adult/retirement
community development of up to 15,000 units.
From 1990 to 1996, Poinciana experienced population growth of more than
332% and is one of Florida's fastest growing master-planned communities.
Management believes that Poinciana should remain a growing market for real
estate development due to the rapid growth of Orlando as a business and
entertainment center.
In addition to the 4,300 acres planned for active adult/retirement
community development, the Company owns more than 1,900 acres of land for
residential development and approximately 1,900 acres of land zoned and/or
planned for industrial and commercial development of up to 28.9 million square
feet.
Recreational facilities owned and operated by the Company at Poinciana
include a golf and racquet club with a swimming pool, restaurant, 18-hole Devlin
Von-Hagge championship golf course, tennis courts, a community center and a
series of nature walks and trails. At Poinciana, the Company also owns and
operates a cable television subsidiary and water and wastewater facilities.
CAPE CORAL, FLORIDA: At Cape Coral, located on Florida's west coast
several miles from Fort Myers, the Company owns approximately 3,900 acres, of
which approximately 700 acres are suitable for an active adult/retirement
community development of at least 3,000 units.
Cape Coral is a 60,700-acre, canal-laced community in southwest Florida,
which has experienced rapid population growth. Since its incorporation in 1970,
the city's population has grown from 11,470 to 91,560 as of September 1997.
The Company owns 5,300 single-family homesites and 400 acres zoned for
commercial and industrial development into as much as 6.1 million square feet.
This community was recognized as one of Money Magazine's top spots in its "Best
Places to Live in America" 1997 annual survey.
The Company's construction activities in Cape Coral include gated and
waterfront communities, featuring such high-end amenities as private yacht
mooring, with direct deep water access to the Gulf of
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<PAGE> 32
Mexico. Recreational facilities at Cape Coral include two marinas: the 175-slip
Tarpon Point Marina with dockmaster facilities, and the Camelot Marina which,
upon completion, will include 76 boat slips. Other amenities owned and operated
by the Company include the recently renovated Cape Coral Golf and Tennis Resort,
featuring an 18-hole championship golf course, a 9-hole executive golf course,
eight tennis courts and a 100-room hotel.
OCALA SPRINGS, FLORIDA: At Ocala Springs, located in north-central Florida
five miles northeast of Ocala in Marion County, Florida, the Company owns
approximately 4,600 acres of land, of which approximately 4,200 acres would
accommodate an active adult/retirement community of at least 14,700 units. The
remaining 400 acres would be available for development of a golf course,
recreational facilities and up to 2.9 million square feet of commercial and
industrial facilities.
RIO RICO, ARIZONA: At Rio Rico, the Company owns approximately 16,000
acres of land, of which approximately 1,500 acres represent an opportunity to
develop an active adult/retirement community of approximately 3,500 units.
Of the Company's land holdings, 8,900 acres are developed or developable
for a variety of uses, including the 1,500 acres considered suitable for an
active adult/retirement community, as well as approximately 300 acres designated
for development of commercial and industrial facilities of up to 4.7 million
square feet.
The Company owns and operates a 180-room hotel complex, which was rated a
Four-Diamond resort by the American Automobile Association, an 18-hole Robert
Trent Jones designed championship golf course and a swim and racquet club.
DEVELOPMENT OF UPSCALE CUSTOM AND SEMI-CUSTOM HOMES AND COMMUNITIES
Certain of the Company's land holdings are suitable for development of
upscale custom and semi-custom homes and communities. The Company estimates that
approximately 2,000 upscale homes may be developed on its homesites which are
located along or near fresh or salt water. The Company has targeted custom and
semi-custom homebuilding as an important component of its new real estate
strategy because this business has higher profit margins than the sale of
mid-priced single-family homes and because the Company believes that it
possesses the requisite levels of technical expertise and experience in upscale
and custom homebuilding.
In order to expand its upscale homebuilding business, the Company recently
acquired certain assets of Brookman-Fels, a well-known regional developer of
custom and semi-custom homes and single-family residential communities in south
Florida, and entered into employment contracts with its three principals,
Jonathan Fels, Michael Levy and Bernard Offenberg. Brookman-Fels is one of south
Florida's leading custom homebuilders and a winner of many national design
awards, including being named one of America's Best Builders by the National
Association of Homebuilders in 1994. Founded in 1980, Brookman-Fels was
responsible for developing some of south Florida's most successful upscale
communities such as Oak Hammock, Arboretum, The Sanctuary and Treasure Trove. In
addition, Brookman-Fels has gained recognition for building single-family luxury
homes in such upscale south Florida areas as Pinecrest, Old Cutler, Cocoplum,
Snapper Creek, Miami Beach, Plantation Acres and Weston's Windmill Ranches.
Brookman-Fels has developed more than 600 single-family homes, representing over
$250.0 million in sales. In addition, the Company recently employed Michael
Greenberg, a former executive of Toll Brothers, a national homebuilder. Jonathan
Fels, Michael Greenberg, Michael Levy and Bernard Offenberg constitute the
senior management team of the Company's homebuilding business.
The Company is developing upscale home communities at its Harbor Islands
and Cape Coral properties. As part of its long-term business plan, the Company
also expects to acquire additional sites for cash or stock to build upscale
homes and communities or to develop such sites through joint ventures and
management arrangements.
HARBOR ISLANDS, FLORIDA: Harbor Islands is a gated, master-planned boating
and tennis community, located along the Intracoastal Waterway in the City of
Hollywood, Florida. The community encompasses approximately 192 acres and is one
of the largest undeveloped tracts of land on the Intracoastal Waterway in south
Florida. When completed, Harbor Islands will consist of distinctive, separate
Mediterranean-style
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<PAGE> 33
villages on three connected islands. The community includes 30 acres conveyed to
the City of Hollywood for future parks. Community amenities include a clubhouse
with fitness center, pool, jacuzzi and lighted tennis courts and, when
completed, will also include a 196-boat slip marina and yacht club.
The property is currently under development, with 94 semi-custom homes
having been built as of September 30, 1997, and another 18 homes under
construction. The Company has zoning permits for up to 2,400 residential units,
including single-family homes, town-homes, villas and mid- and high-rise
condominium units. It is anticipated that homes will be priced in the $275,000
to over $1.0 million range.
CAPE CORAL, FLORIDA: The Company's land holdings include approximately
1,500 homesites, located along or near fresh or salt water, which are ideally
suited for upscale homes. Homes priced in excess of $200,000 are currently being
developed by the Company.
DEVELOPMENT OF COMMERCIAL AND INDUSTRIAL PROPERTIES
The development of commercial and industrial properties is a significant
element in the Company's long-term business strategy. The Company owns over
3,000 acres of land which are zoned and/or planned for over 42.7 million square
feet of commercial and industrial property. A substantial portion of the
Company's commercial property is located in areas of Florida which have
historically experienced, and are projected to continue to experience, high
rates of population growth. In addition, the development by both the Company and
other developers of homes and planned communities is expected to generate
further population growth. The Company anticipates that this growth will create
additional demand for its commercial and industrial properties. Similarly,
further development of the Company's commercial and industrial properties is
expected to generate employment, recreational and entertainment opportunities
and, therefore, increased demand for the Company's residential communities.
POINCIANA: The Company owns approximately 1,900 acres zoned and/or planned
for the development of up to 28.9 million square feet of commercial and
industrial property in Poinciana. As central Florida continues to experience
business expansion and low industrial vacancy rates, the Company's Poinciana
Office and Industrial Park is well located to attract light manufacturing and
distribution facilities. With over 1.2 million square feet of office and
industrial space currently under-roof, 700 acres of the 1,200-acre park remain
available for future development.
CAPE CORAL: In Cape Coral, the Company owns over 400 acres suitable for
the development of up to 6.2 million square feet of commercial and industrial
space. The Company's existing commercial operations include a 70,000 square foot
neighborhood shopping center, which was 98.0% occupied as of September 30, 1997.
RIO RICO: In Rio Rico, the Company has developed the South Industrial
Park, a one million square foot industrial park which houses more than 40
commercial and industrial enterprises. Another 300 acres remain available for
the development of up to 4.7 million square feet of commercial and industrial
space.
Such properties may be developed through internal operations or through
joint ventures with third parties. In addition, the Company may acquire
additional land holdings for development of commercial and industrial properties
or developed or partially developed commercial or industrial properties.
OTHER REAL ESTATE ASSETS
The Company owns additional real estate that includes more than 9,800 acres
which are not currently considered primary properties for future development.
These properties (listed below) may be available for sale unless changing
circumstances indicate development would benefit the Company's operations.
GOLDEN GATE, FLORIDA: The Company's land holdings in Golden Gate City,
located just east of Naples, Florida includes 42 homesites, 48 acres of land
zoned for multi-family use and 12 acres of commercially zoned land. Remaining
land holdings at Golden Gate Estates and Golden Gate Acres consist of 144
homesites and over 9,000 undeveloped acres.
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<PAGE> 34
BANYAN BAY, FLORIDA: Located in Marion County, along the St. Lucie River,
this property consists of 250 acres suitable for the development of a
water-oriented planned community.
WOODLAND HILLS, CALIFORNIA: This 350-acre tract of land is located in the
mountains of northwestern Los Angeles County. The land is planned for 59 luxury
homesites.
------------------------
The chart on the following page summarizes the Company's land holdings as
of September 30, 1997:
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<PAGE> 35
AVATAR HOLDINGS INC.
SUMMARY TABLE OF DEVELOPMENT SITES
(NUMBERS EXPRESSED IN ACRES EXCEPT FOR REFERENCES TO POTENTIAL UNITS)
<TABLE>
<CAPTION>
PARTIALLY
DEVELOPED AND RESIDENTIAL
LOCATION TOTAL DEVELOPED (A) DEVELOPABLE UNDEVELOPABLE DEVELOPED
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
POINCIANA, FLORIDA(C)
(21 miles south of Orlando and 10 miles
south of Walt Disney World).............. 18,256 2,675 5,434 10,147 1,893
CAPE CORAL, FLORIDA(D)
(7 miles west of Fort Myers and 32 miles
north of Naples)......................... 3,976 2,485 1,238 253 2,192
OCALA SPRINGS, FLORIDA
(5 miles northeast of Ocala)............... 4,663 4,663
RIO RICO, ARIZONA(E)
(51 miles south of Tucson)................. 16,184 4,957 3,965 7,262 4,670
BANYAN BAY, FLORIDA
(Marion County)............................ 250 250
HARBOR ISLANDS(F)
(Hollywood, Florida)....................... 169 83 43 43 77
BAREFOOT BAY, FLORIDA
(midway between Vero Beach and
Melbourne)............................... 124 23 98 3 16
GOLDEN GATE CITY, ESTATES AND ACRES, FLORIDA
(7 miles east of Naples)................... 9,214 192 9,022 180
LEISURE LAKES, FLORIDA
(5 miles northwest of Lake Placid)......... 201 198 3 198
WOODLAND HILLS, CALIFORNIA
(Northwestern Los Angeles County).......... 349 349
OTHER FLORIDA PROPERTIES.................... 2,510 2,510
------ ------ ------ ------ -----
TOTALS...................................... 55,896 10,613 25,065 20,218 9,226
<CAPTION>
RESIDENTIAL
PARTIALLY DEVELOPED POTENTIAL UNITS (B) COMMERCIAL/INDUSTRIAL
LOCATION AND DEVELOPABLE (RANGE) DEVELOPED/DEVELOPABLE(G)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
POINCIANA, FLORIDA(C)
(21 miles south of Orlando and 10 miles
south of Walt Disney World).............. 4,322 44,345 - 51,437 782 1,112
CAPE CORAL, FLORIDA(D)
(7 miles west of Fort Myers and 32 miles
north of Naples)......................... 1,124 11,517 - 16,717 293 114
OCALA SPRINGS, FLORIDA
(5 miles northeast of Ocala)............... 4,279 14,700 384
RIO RICO, ARIZONA(E)
(51 miles south of Tucson)................. 3,944 23,679 - 51,864 287 21
BANYAN BAY, FLORIDA
(Marion County)............................ 250 876 - 2,754
HARBOR ISLANDS(F)
(Hollywood, Florida)....................... 43 1,703 - 2,303 6
BAREFOOT BAY, FLORIDA
(midway between Vero Beach and
Melbourne)............................... 64 353 - 397 7 34
GOLDEN GATE CITY, ESTATES AND ACRES, FLORIDA
(7 miles east of Naples)................... 9,022 4,727 12
LEISURE LAKES, FLORIDA
(5 miles northwest of Lake Placid)......... 3 281
WOODLAND HILLS, CALIFORNIA
(Northwestern Los Angeles County).......... 349 59
OTHER FLORIDA PROPERTIES....................
------ ----------------- ----- -----
TOTALS...................................... 23,400 102,240 - 145,239 1,387 1,665
</TABLE>
Notes:
(A) Developed acreage is defined as land which has infrastructure
improvements, including roads and utility installations.
(B) Potential units represents the aggregate of single and multi-family zoned
homesites, plus unzoned acreage at a single-family conversion factor of
3.5 for average potential units and a multi-family conversion factor of
11.0 for average potential units.
(C) Avatar-owned amenities include: The Poinciana Golf and Racquet Club,
featuring a Bruce Devlin Robert Von Hagge designed par 72, 18-hole
championship golf course, a driving range, putting greens, half-way house
and pro shop, a full-service restaurant, banquet and meeting rooms. Other
amenities include an olympic-size swimming pool, lighted Har-Tru and hard
tennis courts, shuffleboard, volleyball courts, pool bar, grill and
children's playground.
(D) Avatar-owned amenities include: The 100 room Cape Coral Golf and Tennis
Resort, which features a recently renovated, Dick Wilson designed, 18
hole championship golf course, 8 lighted Har-Tru tennis courts, heated
pool with pool bar and grill. Other amenities are a 9-hole executive golf
course, the 175-slip Tarpon Point Marina with dockmaster's facilities and
the Camelot Marina.
(E) Avatar-owned amenities include: The Four-Diamond rated 180 room Rio Rico
Resort, which features a Robert Trent Jones Sr. championship golf course,
a full pro-shop, driving range, and putting greens. The recently
renovated resort also includes a tennis center with lighted courts,
horseback riding, a heated olympic size pool, sauna, jacuzzi and fitness
center, dining room, lounge and banquet/meeting facilities.
(F) Amenities include: Swimming pool, tennis courts, recreation center, and
fitness center.
(G) Commercial and industrial properties at Poinciana, Cape Coral, Ocala
Springs and Rio Rico are developed or developable into up to 28.9
million, 6.2 million, 2.9 million and 4.7 million square feet,
respectively.
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<PAGE> 36
UTILITIES BUSINESS
The Company's utilities business provides for the purification,
distribution and sale of water for public and private use and the treatment and
disposal of wastewater. The Company owns and operates 17 water utilities plants
serving more than 42,000 customers and 12 wastewater treatment facilities
serving more than 32,000 customers residing in seven communities, which include
the Company's communities of Poinciana, Florida and Rio Rico, Arizona. The
Company also provides meter reading and customer-related services to its own
utilities operating units, as well as to 26 unaffiliated companies and public
utilities.
The Company believes that its utilities operations will benefit from
population growth from development by both the Company and other developers of
homes and planned communities within the areas which are serviced by the
utilities facilities. For the year ended December 31, 1996 and the nine months
ended September 30, 1997, the Company's utilities had EBITDA of $10.5 million
and $9.5 million, respectively.
DEVELOPMENT OF MID-PRICED HOMES AND COMMUNITIES
Prior to the third quarter of 1997, the Company's business plan emphasized
the construction and sale of mid-priced single-family homes. In 1996, the
Company sold 293 homes, generating revenues of $50.0 million, the majority of
which were mid-priced single-family homes. Sales of mid-priced homes represented
45.0% of homebuilding revenues in 1996. Although the Company has implemented a
new real estate strategy emphasizing potentially higher profit-margin
businesses, it intends to continue the construction and sale of mid-priced
homes, both on scattered lots and on contiguous parcels as part of planned
communities.
POINCIANA, FLORIDA: Housing sales at Poinciana during 1996 totalled 269
units. Through the third quarter of 1997, sales were 288 units.
CAPE CORAL, FLORIDA: At Cape Coral the Company sold 97 housing units
during 1996 and 102 units through the third quarter of 1997.
RIO RICO, ARIZONA: Housing programs which commenced at Rio Rico during
1996 resulted in sales of 31 units by year end and 49 units through the third
quarter of 1997.
OCALA SPRINGS, FLORIDA: The Company's plans for its 4,600-acre Ocala
Springs property provide for development of an active adult/retirement community
of approximately 14,700 units, some of which may be converted to conventional
primary housing depending upon market demand.
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<PAGE> 37
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The following table sets forth the Directors and executive officers of
Avatar and certain consultants, members of management, and other key personnel
of Avatar's subsidiaries.
<TABLE>
<CAPTION>
NAME AGE POSITION(1) OFFICER SINCE
- ---------------------------- --- ------------------------------------------- ----------------------
<S> <C> <C> <C>
AVATAR EXECUTIVE OFFICERS
Leon Levy................... 72 Director and Chairman of the Board 1981
Gerald D. Kelfer............ 52 Chief Executive Officer; President; Vice 1997
Chairman of the Board; and Director
Dennis J. Getman............ 53 Executive Vice President and General 1981
Counsel
Charles L. McNairy.......... 51 Executive Vice President; Treasurer and 1985
Chief Financial Officer
Juanita I. Kerrigan......... 51 Vice President and Secretary 1973
G. Patrick Settles.......... 48 Vice President and Assistant General 1983
Counsel
Lawrence L. Colditz......... 33 Controller 1995
RETIREMENT COMMUNITIES KEY
PERSONNEL
H. Irwin Levy............... 71 Director and Consultant -- Avatar 1997(2)
Retirement Communities, Inc.
Michael S. Rubin............ 54 Director and President -- Avatar Retirement 1997
Communities, Inc.
Jack Jaiven................. 51 Executive Vice President; Treasurer and 1997
Chief Financial Officer -- Avatar
Retirement Communities, Inc.
Michael A. Rich............. 51 Executive Vice 1997
President -- Marketing -- Avatar Retirement
Communities, Inc.
James A. Geddes............. 59 Executive Vice President -- Construction -- 1997
Avatar Retirement Communities, Inc.
HOMEBUILDING KEY PERSONNEL
Jonathan E. Fels............ 45 President -- Avatar Properties Inc. and 1997
Brookman-Fels Communities, Inc.
Michael Greenberg........... 43 Executive Vice President -- Avatar 1997
Properties Inc.
Michael Levy................ 39 Executive Vice President and Chief 1997
Operating Officer -- Avatar Properties Inc.
and Brookman-Fels Communities, Inc.
Bernard Offenberg........... 46 Vice President -- Avatar Properties Inc. 1997
and Brookman-Fels Communities, Inc.
DIRECTOR SINCE
OTHER AVATAR DIRECTORS
Edwin Jacobson.............. 68 Director 1992
Milton Dresner.............. 72 Director 1995
Leon T. Kendall............. 69 Director 1983
Martin Meyerson............. 75 Director 1981
Gernot H. Reiners........... 55 Director 1997
Kenneth T. Rosen............ 49 Director 1994
Fred Stanton Smith.......... 69 Director 1980
Henry King Stanford......... 81 Director 1980
</TABLE>
- ---------------
(1) Unless otherwise indicated, each person is an officer or Director of Avatar.
(2) Indicates year in which Mr. Levy became a Director of and consultant to
Avatar Retirement Communities, Inc.
35
<PAGE> 38
LEON LEVY has served as Chairman of the Board of Avatar since January 1981.
In addition, he is a General Partner of Odyssey. He has also served as Chairman
of the Board of the New York-based Oppenheimer Funds since December 1994;
Chairman of the Board of Oppenheimer Management Corp. from 1974 to 1985; and
Director of S.G. Warburg & Co., Ltd. (Jersey Funds) from February 1983 to
October 1996.
GERALD D. KELFER has served as President of Avatar since February 1997;
Chief Executive Officer since July 1997; Vice Chairman of the Board of Directors
since December 1996; and a member of the Board of Directors since October 1996.
He was a principal of Odyssey from July 1994 to February 1997 and Executive Vice
President, Senior General Counsel and Director of Olympia & York Companies
(U.S.) from 1985 to 1994. Prior to 1985, he was a partner of the law firm of
Roberts & Holland.
DENNIS J. GETMAN has served as Executive Vice President of Avatar since
March 1984 and General Counsel since September 1981. He was Senior Vice
President from September 1981 to March 1984.
CHARLES L. MCNAIRY has served as Executive Vice President of Avatar since
September 1993. He has also served as Treasurer and Chief Financial Officer
since September 1992. He was Senior Vice President from September 1992 to
September 1993 and, except from April 1987 to September 1988, Vice President --
Finance from January 1985 to September 1992.
JUANITA I. KERRIGAN has served as Vice President and Secretary of Avatar
since September 1980.
G. PATRICK SETTLES has served as Vice President of Avatar since November
1986 and Assistant General Counsel since September 1983.
LAWRENCE L. COLDITZ has served as Controller of Avatar since September
1995. He was formerly Assistant Controller from October 1992 to September 1995;
Director of Financial Accounting from October 1991 to October 1992; and
Accounting Manager from October 1990 to October 1991.
H. IRWIN LEVY has served as a Director of, and consultant to, Avatar
Retirement Communities, Inc. since October 1997. Mr. Levy, who is the founder of
the Century Village concept of active adult/retirement communities, has been
Chairman of the Board and Chief Executive Officer of Hilcoast Development Corp.
since August 1992; and was Chairman of the Board and Chief Executive Officer of
CV Reit from 1985 to July 1992. He is currently of counsel to the West Palm
Beach law firm of Levy, Kneen, Mariani, Curtin, Wiener, Kornfeld & del Russo.
Since October 1995, Mr. Levy has been a Director of IMGE, Inc.
MICHAEL S. RUBIN has served as a Director and President of Avatar
Retirement Communities, Inc. since October 1997. He was President and Chief
Operating Officer of Hilcoast Development Corp. from August 1992 to October
1997; and Vice President -- Real Estate Management of CV Reit from May 1991 to
July 1992.
JACK JAIVEN has served as Executive Vice President, Treasurer and Chief
Financial Officer of Avatar Retirement Communities, Inc. since October 1997. He
was Director, Executive Vice President and Chief Financial Officer of Hilcoast
Development Corp. from August 1992 to October 1997; and was Vice President and
Treasurer of CV Reit from December 1988 to July 1992.
MICHAEL A. RICH has served as Executive Vice President -- Marketing of
Avatar Retirement Communities, Inc. since October 1997. He was Vice
President -- Marketing of Hilcoast Development Corp. from August 1992 to October
1997; and Vice President -- Sales and Marketing of F.W.D.C., Inc., a wholly
owned subsidiary of Cenvill Development Corp., from March 1991 until July 1992.
JAMES A. GEDDES has served as Executive Vice President -- Construction of
Avatar Retirement Communities, Inc. since October 1997. He was Vice
President -- Construction of Hilcoast Development Corp. from August 1992 to
October 1997. He was also Vice President of Construction of F.W.D.C., Inc. and
Vice President of Construction of Coconut Creek Developers, Inc., a wholly owned
subsidiary of Hilcoast Development Corp., for more than five years prior to his
resignation in July 1992.
JONATHAN E. FELS has served as President of Avatar Properties Inc. and
Brookman-Fels Communities, Inc. since December 1997. He is a founding partner
and has served as President of the various Brookman-Fels companies since July
1980. From June 1977 to June 1979, he was a Director of Construction of Adler
Ross Associates; and from 1976 to 1977, he was Project Manager of Arvida Corp.
and Cost and Scheduling Engineer of Stone & Webster.
36
<PAGE> 39
MICHAEL GREENBERG has served as Executive Vice President of Avatar
Properties Inc. since September 1997. He was Vice President of Toll Brothers
from February 1995 to September 1997; Assistant Vice President from January 1994
to February 1995; Senior Manager from February 1993 to January 1994 and Project
Manager from June 1991 to February 1993.
MICHAEL LEVY has served as Executive Vice President and Chief Operating
Officer of Avatar Properties Inc. and Brookman-Fels Communities, Inc. since
December 1997. He is a partner and has served as Vice President of the various
Brookman-Fels companies since April 1983.
BERNARD OFFENBERG has been Vice President of Avatar Properties Inc. and
Brookman-Fels Communities, Inc. since December 1997. He is a partner and has
served as Director of Construction of the various Brookman-Fels companies since
August 1994. He was also a principal and Senior Vice President of Signature
Capital Corporation, a custom homebuilder, from October 1989 to May 1994; and
Director of Construction of Shear Homes from April 1987 to October 1989.
EDWIN JACOBSON has served as Chairman of Avatar's Executive Committee since
June 1992. He was Chief Executive Officer of Avatar from February 1994 to July
1997 and President from February 1994 to February 1997. He is also President and
Chief Executive Officer of CMC Heartland Partners, a partnership engaged in the
real estate industry, since September 1990; and President and Chief Executive
Officer of Heartland Technology, Inc. (formerly known as Milwaukee Land
Company), a non-diversified, closed-end management investment company, since
June 1985. In addition, he was President and Chief Executive Officer of Chicago
Milwaukee Corporation, an open-end investment company, from June 1985 to May
1996.
MILTON DRESNER has served as a Director of Avatar since July 1995. In
addition, he is a partner of The Highland Companies, a diversified real estate
development and managerial organization which he co-founded in 1960; and a
Director of Hudson General Corporation and Childtime Childcare.
LEON T. KENDALL has served as a Director of Avatar since May 1983. In
addition, he has been a Professor of Finance and Real Estate, Kellogg School of
Management, Northwestern University, since September 1988. He was Chairman of
the Board, Mortgage Guaranty Insurance Corporation, and Vice Chairman of the
Board, MGIC Investment Corporation, from December 1981 to December 1989; and
currently serves as a Director of Universal Foods Corporation, Asset Management
Funds, and Chicago Board -- Options Exchange.
MARTIN MEYERSON has served as a Director of Avatar since May 1981. In
addition, he has been Chairman, University of Pennsylvania Foundation,
University of Pennsylvania Professor of Public Policy and Planning, and
President Emeritus, The University of Pennsylvania, since February 1981. He
served The University of Pennsylvania as its President from 1970 to 1981. He
also is President of FISCIT (Switzerland/U.S.); a Director of Universal Health
Services, Inc. and of First Union North; and Chairman of the Board of Directors
of Marconi International Foundation.
GERNOT H. REINERS has served as a Director of Avatar since October 1997. He
was a Managing Partner and a member of the Board of Managers of the BHF-BANK AG
from 1972 to 1997 and Co-Manager of the Bank's New York Branch from 1987 to
1992.
KENNETH T. ROSEN has served as a Director of Avatar since September 1994.
In addition, he has served the University of California at Berkley as Professor
of Business Administration since 1979; and as Chairman of the Fisher Center for
Real Estate and Urban Economics since 1981. He has also served as President of
Rosen Consulting Group, a real estate consulting business, since 1990; as Chief
Executive Officer of ERE Rosen Real Estate Securities, a registered investment
adviser, since February 1995; and as a Director of Golden West Financial
Corporation, since January 1984, and The PMI Group, Inc., since January 1995.
FRED STANTON SMITH has served as a Director of Avatar since September 1980.
In addition, he has been the Vice Chairman of the Board of Directors of The
Keyes Company, a real estate brokerage, financing, management, insurance and
development firm, since January 1992. He was President of The Keyes Company; and
currently serves as Director of the Eagle National Bank.
HENRY KING STANFORD has served as a Director of Avatar since September
1980. In addition, he has been President Emeritus, The University of Miami,
since July 1981; and President Emeritus, University of Georgia, since July 1987.
He was President, The University of Miami, from July 1962 to June 1981; and
Interim President, University of Georgia, from July 1986 to June 1987.
37
<PAGE> 40
PRINCIPAL STOCKHOLDERS
The following table sets forth at November 30, 1997, certain information
regarding the beneficial ownership of Common Stock held by (i) each person known
by Avatar to own beneficially more than five percent of the outstanding Common
Stock, (ii) each of Avatar's directors, (iii) certain named executive officers
and (iv) all directors and executive officers of Avatar as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-------------------------------- STOCK OPTIONS
NUMBER OF SHARES PERCENT AND SARS(9)
---------------- ------- -------------
<S> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Odyssey Partners, L.P. ......................... 2,107,763(2)(3) 23.0
Spears, Benzak, Salomon & Farrell, Inc.......... 1,887,476(4) 20.6
Ronald Baron.................................... 964,282(5) 10.5
DIRECTORS AND EXECUTIVE OFFICERS:
Leon Levy....................................... 2,385,758(6) 26.0%
Gerald D. Kelfer................................ -- 225,000(10)
Milton Dresner.................................. 500 *
Edwin Jacobson.................................. -- 225,000(11)
Leon T. Kendall................................. 200(7) *
Martin Meyerson................................. 2,347(8) *
Gernot H. Reiners............................... --
Kenneth T. Rosen................................ 1,000 *
Fred Stanton Smith.............................. --
Henry King Stanford............................. 200 *
Dennis J. Getman................................ -- 15,000(11)
Charles L. McNairy.............................. -- 15,000(11)
G. Patrick Settles.............................. --
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(CONSISTING OF 15 PERSONS OF WHOM SIX
BENEFICIALLY OWN SHARES OF COMMON STOCK)........ 2,390,005(6)(7)(8) 26.1
</TABLE>
- ---------------
* Indicates beneficial ownership of less than 1% of the outstanding shares of
Common Stock.
(1) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage owned
by such person, but not deemed outstanding for the purpose of calculating
the percentage owned by each other person listed. As of November 30, 1997,
the Company had 9,170,102 shares of Common Stock outstanding. The
information as to securities owned by directors and executive officers was
furnished to the Company by such directors and executive officers.
(2) Does not include shares owned by Leon Levy, Chairman of the Board and
member of the Executive Committee of the Company and general partner of
Odyssey. Leon Levy, Jack Nash, Stephen Berger, Joshua Nash and Brian
Wruble, by virtue of being general partners of Odyssey, share voting and
dispositive power with respect to the Common Stock owned by Odyssey and,
accordingly, may each be deemed to own beneficially the Common Stock owned
by Odyssey. Each of the aforesaid persons has expressly disclaimed any such
beneficial ownership (within the meaning of Exchange Act Rule 13d-3(d)(1))
which exceeds the proportionate interest in the Common Stock which he may
be deemed to own as a general partner of Odyssey. The Company has been
advised that no other person exercises (or may be deemed to exercise) any
voting or investment control over the Common Stock owned by Odyssey.
Odyssey is a private investment partnership located at 31 West 52nd Street,
New York, New York 10019.
(3) By virtue of its present Common Stock ownership, Odyssey may be deemed to
be a "control" person of the Company within the meaning of that term as
defined in Rule 12b-2 under the Exchange Act.
38
<PAGE> 41
(4) Based upon information set forth in the Schedule 13G, dated February 14,
1997, filed by KeyCorp., the parent holding company of Spears, Benzak,
Salomon & Farrell, Inc. (a registered investment adviser, "Spears,
Benzak"), such shares are held for the benefit of various of its clients;
it has revocable shared dispositive power with such clients; and it has no
power to vote or direct the vote of such shares. The address of Spears,
Benzak is 45 Rockefeller Plaza, New York, New York 10111.
(5) Based upon information provided to the Company by Baron Capital, Inc.,
Ronald Baron owns 15,000 shares of Avatar and may be deemed to own an
additional 41,000 by reason of his position as a General Partner of an
investment partnership. Mr. Baron also may be deemed to own an additional
908,282 shares on behalf of investment advisory clients of Baron Capital
Management, Inc. and BAMCO, Inc., both registered investment advisers of
which he is the controlling person, and he expressly disclaims beneficial
ownership of such shares. The address of Ronald Baron is c/o Baron Capital
Management, 767 Fifth Avenue, New York, New York 10153.
(6) Includes 2,107,763 shares owned by Odyssey. Mr. Levy is a general partner
of Odyssey and, therefore, may be deemed to own beneficially the shares of
Common Stock owned by Odyssey. See Notes (1) and (2).
(7) Does not include 200 shares owned by Mr. Kendall's wife for her own
account, as to which shares Mr. Kendall disclaims beneficial ownership.
(8) Does not include 847 shares owned by Mr. Meyerson's wife, as to which
shares Mr. Meyerson disclaims beneficial ownership.
(9) Indicates the aggregate number of underlying shares of Common Stock subject
to options, warrants, rights or conversion privileges owned by such person
(whether or not exercisable within 60 days) plus, in the case of stock
appreciation rights ("SARs"), the number of such shares used to calculate
the value of all SARs held by such person.
(10) Represents 225,000 shares of Common Stock issuable upon the exercise of
stock options, 20% of which become exerciseable on February 13, 1998, and
on each of the four anniversaries thereof.
(11) Represents the aggregate number of shares of Common Stock used to calculate
the value of both vested and unvested SARs issued to such person.
39
<PAGE> 42
DESCRIPTION OF THE NOTES
The Notes will be issued under an indenture to be dated as of ,
1998 (the "Indenture") between Avatar and The Chase Manhattan Bank, as trustee
(the "Trustee"). The summaries of certain provisions of the Notes and the
Indenture do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Indenture,
including the definitions therein of certain terms. Wherever terms defined in
the Indenture are referred to in this Prospectus, the applicable definition for
such terms is incorporated herein by reference. A copy of the proposed form of
Indenture is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
GENERAL
The Notes will be unsecured obligations of Avatar, will be limited to
$100.0 million in aggregate principal amount (up to $115.0 million if the
Underwriters' over-allotment option is exercised in full) and will mature on
, 2005. The Notes will bear interest at the rate per annum shown on
the front cover hereof from the date of original issuance of Notes under the
Indenture, or from the most recent Interest Payment Date on which interest has
been paid or provided for, payable semiannually on April 1 and October 1 of each
year, commencing April 1, 1998, to Holders of record at the close of business on
the relevant Regular Record Date (other than with respect to a Note or portion
thereof (i) called for redemption on a Redemption Date, or repurchased in
connection with a Change in Control on a Repurchase Date (as defined below),
during the period from the Regular Record Date to (but excluding) the next
succeeding Interest Payment Date (in which case accrued interest shall be
payable with respect to the Note or portion thereof redeemed or repurchased on
the relevant Redemption Date or Repurchase Date) or (ii) converted after the
Regular Record Date and before the next succeeding Interest Payment Date except
to the extent that, at the time such Note or portion thereof is submitted for
conversion, such Note or portion thereof was required to be accompanied by funds
equal to interest payable on such succeeding Interest Payment Date on the
principal amount so converted; see "-- Conversion Rights" below). Interest on
the Notes will be paid on the basis of a 360-day year of twelve 30-day months.
Principal of, and premium, if any, and interest on, the Notes will be
payable (i) in same-day funds on or prior to the payment dates with respect to
such amounts in the case of Notes held of record by the Depository Trust Company
("DTC") or its nominee and (ii) at the office of the Trustee in New York, New
York, in the case of Notes held of record by Holders other than DTC or its
nominee, and the Notes may be surrendered for registration of transfer, exchange
or conversion at the office of the Trustee in New York, New York. Avatar may, at
its option, pay interest on Notes held of record by Holders other than DTC or
its nominee by checks mailed to the addresses of the Persons entitled thereto as
they appear in the Register for the Notes on the Regular Record Date for that
interest.
The Notes will be issued only in registered form, without coupons, and in
denominations of $1,000 or any integral multiple thereof. No service fee will be
charged for any registration of transfer or exchange of the Notes, but Avatar
may require payment of a sum sufficient to cover any tax or other governmental
charge and any other expenses (including the fees and expenses of the Trustee)
payable in connection therewith. Avatar is not required (i) to issue, register
the transfer of or exchange any Notes during a period beginning at the opening
of business 15 days before the day of the mailing of a notice of redemption and
ending at the close of business on the day of each mailing or (ii) to register
the transfer of or exchange any Notes selected for redemption in whole or in
part, except the unredeemed portion of Notes being redeemed in part or (iii) to
register the transfer or exchange of any Notes surrendered for conversion or
repurchase upon the occurrence of a Change in Control.
All monies paid by Avatar to the Trustee or any Paying Agent for the
payment of principal of and premium and interest on any Note which remain
unclaimed for two years after such principal, premium or interest becomes due
and payable may be repaid to Avatar. After such repayment, the Holder of such
Note may, as an unsecured general creditor, look only to Avatar for payment
thereof.
The Indenture does not contain any covenants or financial restrictions on
the payment of dividends, the incurrence of Senior Indebtedness or the issuance
or repurchase of securities of Avatar or its subsidiaries. The
40
<PAGE> 43
Indenture does not contain any covenants or other provisions that would afford
protection to Holders of the Notes in the event of a highly leveraged
transaction or a Change in Control of Avatar, except as described below under
"-- Certain Rights to Require Repurchase of Notes."
CONVERSION RIGHTS
The Notes will be convertible, in whole or from time to time in part (in
denominations of $1,000 or integral multiples thereof), into shares of Common
Stock, at the option of the Holder, at any time after 60 days following the
original issuance of the Notes prior to redemption or final maturity, at the
conversion price of $ per share, adjusted as described in the following
paragraph. The right to convert Notes that have been called for redemption will
terminate at the close of business on the second business day preceding the
Redemption Date unless Avatar defaults in making the payment due on that
redemption. See "-- Optional Redemption."
If any Notes are surrendered for conversion during the period from the
close of business on any Regular Record Date to (but excluding) the next
succeeding Interest Payment Date (except any such Note called for redemption on
a Redemption Date occurring within such period), those Notes when surrendered
for conversion must be accompanied by payment to Avatar in New York Clearing
House funds, or other funds acceptable to Avatar, of an amount equal to the
interest thereon which the registered Holder on that Regular Record Date is to
receive. Except as described in the preceding sentence, no interest will be
payable by Avatar on converted Notes with respect to any Interest Payment Date
subsequent to the date of conversion. No other payment or adjustment for
interest or dividends is to be made on conversion. A Note in respect of which a
Holder is exercising its option to require repurchase upon a Change in Control
may be converted only if such Holder withdraws its election to exercise its
option in accordance with the terms of the Indenture.
The initial conversion price will be subject to adjustment upon certain
events, including the following: (i) the subdivision, combination or
reclassification of outstanding shares of Common Stock; (ii) the issuance of
Common Stock as a dividend or distribution on capital stock, including Common
Stock; (iii) the issuance of rights, warrants or options to all holders of
Common Stock entitling them to subscribe for or purchase shares of Common Stock
(or securities convertible into Common Stock) at a price per share less than the
then Current Market Price; (iv) the distribution to all holders of Common Stock
of shares of capital stock of Avatar (other than Common Stock), evidences of
indebtedness, cash or other assets (including securities, but excluding (a)
dividends or distributions paid exclusively in cash, (b) dividends or
distributions provided for in clause (ii) above and (c) rights, warrants and
options provided for in clause (iii) above); (v) a distribution consisting
exclusively of cash (excluding any cash distributions referred to in clause (iv)
above or made in connection with a transaction described in the next succeeding
paragraph) to all holders of Common Stock in an aggregate amount that, together
with (a) all other cash distributions (excluding any cash distributions referred
to in clause (iv) above and any other distributions in respect of which a
conversion price adjustment has been made previously) made exclusively within
the 12 months preceding the record date for that distribution and (b) any cash
and the fair market value of other consideration (excluding any cash or other
consideration in respect of which a conversion price adjustment has been made
previously) paid in respect of any tender offer subject to the provisions of the
Exchange Act, made by Avatar or a subsidiary of Avatar for Common Stock
consummated within the 12 months preceding that distribution, exceeds 10% of
Avatar's market capitalization (being at any time the product of the then
Current Market Price multiplied by the number of shares of Common Stock then
outstanding) on the record date fixed for determining the shareholders entitled
to such distribution; and (vi) the consummation of a tender offer made by Avatar
or any subsidiary of Avatar for Common Stock which involves an aggregate
consideration that, together with (x) any cash and the fair market value of any
other consideration (excluding any cash or other consideration in respect of
which a conversion price adjustment has been made previously) paid or payable in
respect of any previous tender offer made by Avatar or a subsidiary of Avatar
for Common Stock consummated within the 12 months preceding the expiration of
such tender offer and (y) the aggregate amount of all cash distributions
(excluding those referred to in (iv) above), exceeds 10% of Avatar's market
capitalization on the date of consummation of such tender offer. No adjustment
of the conversion price will be required to be made until cumulative
41
<PAGE> 44
adjustments amount to at least 1.0% of the conversion price, as last adjusted.
Any adjustment that would otherwise be required to be made will be carried
forward and taken into account in any subsequent adjustment.
In the case of any reclassification of the Common Stock, or any
consolidation or merger of Avatar with or into any other corporation (other than
one in which no change is made in the outstanding Common Stock), or the sale or
transfer of all or substantially all the properties and assets of Avatar, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property, the Holder of any Note then outstanding will, with
certain exceptions, have the right thereafter to convert that Note only into the
kind and amount of securities, cash and other property receivable upon the
reclassification, consolidation, merger, sale, transfer or share exchange by a
holder of the number of shares of Common Stock into which that Note might have
been converted immediately prior to that reclassification, consolidation,
merger, sale, transfer or share exchange, provided that the Holder of Notes has
not exercised any other right of election as to the stock, other securities or
other property or assets receivable in connection therewith; and, if the right
of conversion is not exercised, adjustments will be provided for events
subsequent thereto which are as nearly equivalent as practical to the conversion
price adjustments described above.
Avatar, in its discretion, will be permitted to reduce the conversion price
in order that any event treated for federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of Common Stock or, if
that is not possible, to diminish any income taxes that are otherwise payable
because of that event.
Fractional shares of Common Stock will not be issued on conversion, but, in
lieu thereof, Avatar will pay a cash adjustment based on the Closing Price at
the close of business on the day of conversion.
OPTIONAL REDEMPTION
The Notes are not entitled to any sinking fund. The Notes are not
redeemable by Avatar prior to , 2001. Thereafter, the Notes may be
redeemed at the option of Avatar in whole or in part, at any time and from time
to time prior to Maturity, upon not less than 30 nor more than 60 days' notice
to each Holder at the following Redemption Prices (expressed as percentages of
the principal amount) plus accrued and unpaid interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on an Interest Payment Date that is on or prior to the
Redemption Date):
If redeemed during the 12-month period beginning in the year
indicated ( , in the case of 2001), the redemption price shall be:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------------------------------- ----------
<S> <C>
2001.............................................. %
2002..............................................
2003..............................................
2004..............................................
2005..............................................
</TABLE>
If all accrued and payable interest on the Notes has not been paid, the
Notes may not be redeemed in part and Avatar may not purchase or acquire any
Notes otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Notes. If less than all of the Notes are to be
redeemed, the Trustee will select those to be redeemed by lot, pro rata or such
other method as the Trustee in its discretion shall deem appropriate and fair.
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
Notes and any other payment obligations of Avatar in respect of the Notes
(including any obligation to repurchase the Notes) will, to the extent set forth
in the Indenture, be subordinated in right of payment to the prior payment in
full of all Senior Indebtedness whether outstanding on the date of the Indenture
or thereafter incurred. If there is a payment or distribution of assets to
creditors on any liquidation, dissolution, winding up, receivership,
reorganization,
42
<PAGE> 45
assignment for the benefit of creditors, marshaling of assets and liabilities or
any bankruptcy, insolvency or similar case or proceeding of Avatar, the holders
of all Senior Indebtedness will be entitled to receive payment in full of all
Obligations due or to become due or in respect thereof before the Holders of the
Notes will be entitled to receive any payment in respect of the principal of or
premium, if any, or interest on the Notes, and until all Obligations with
respect to the Senior Indebtedness are paid in full, any distribution to which
the Holders of the Notes would be entitled shall be made to the holders of the
Senior Indebtedness.
Avatar also may not make any payment (whether by redemption, purchase,
retirement, defeasance or otherwise) upon or in respect of the Notes if (i) a
default in the payment of the principal of or premium, if any, or interest on
any Senior Indebtedness (a "Payment Default") occurs and is continuing beyond
any applicable grace period or (ii) any other default occurs and is continuing
beyond any applicable grace period with respect to any Designated Senior
Indebtedness which permits holders of Designated Senior Indebtedness as to which
that default relates to accelerate its maturity (a "Nonpayment Default") and the
Trustee receives notice of that default (a "Payment Blockage Notice") from
Avatar or other person permitted to give such notice under the Indenture. The
payments on or in respect of the Notes shall be resumed (i) in the case of a
Payment Default respecting Senior Indebtedness, on the date on which that
default is cured or waived and (ii) in the case of a Nonpayment Default
respecting Designated Senior Indebtedness, the earliest of (a) the date on which
that Nonpayment Default is cured or waived, (b) the date the applicable Payment
Blockage Notice is retracted by written notice to the Trustee from a
representative of the holders of the Designated Senior Indebtedness which have
given that Payment Blockage Notice and (c) 179 days after the date on which the
applicable Payment Blockage Notice is received by the Trustee, if the maturity
of such Designated Senior Indebtedness has not been accelerated. No new period
of payment blockage may be commenced unless and until (i) 365 days have elapsed
since the date of commencement of the payment blockage period resulting from the
immediately prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest on the Notes that have come due have
been paid in full in cash. No Nonpayment Default that existed or was continuing
on the date of delivery of any Payment Blockage Notice to the Trustee shall be,
or be made, the basis for a subsequent Payment Blockage Notice whether or not
within a period of 365 days, unless such default shall have been cured or waived
for a period of not less than 90 consecutive days (it being acknowledged that
any subsequent action, or any breach of any financial covenants for a period
commencing after receipt by the Trustee of a Payment Blockage Notice, which, in
either case, would give rise to an event of default pursuant to any provisions
under which an event of default previously existed or was continuing shall
constitute a new event of default for this purpose).
If the Maturity of the Notes is accelerated because of an Event of Default,
the Indenture requires Avatar to promptly notify holders of Designated Senior
Indebtedness of that event.
"Senior Indebtedness" is defined in the Indenture as the principal of and
premium, if any, and interest on and other Obligations in respect of (i) all
indebtedness of Avatar for money borrowed, whether outstanding on the date of
execution of the Indenture or thereafter created, incurred or assumed, except
any such other indebtedness that, by the terms of the instrument or instruments
by which it was created or incurred, expressly provides that it (a) is junior in
right of payment to the Notes or (b) ranks pari passu in right of payment with
the Notes, and (ii) any amendments, renewals, extensions, modifications,
refinancings and refundings of any of the foregoing. For purposes of this
definition, "indebtedness for money borrowed" when used with respect to Avatar
means (i) any obligation of, or any obligation guaranteed by, Avatar for the
repayment of borrowed money (including, without limitation, fees, penalties and
other obligations in respect thereof), whether or not evidenced by bonds,
debentures, notes or other written instruments, (ii) any deferred payment
obligation of, or any such obligation guaranteed by, Avatar for the payment of
the purchase price of property or assets evidenced by a note or similar
instrument and (iii) any obligation of, or any such obligation guaranteed by,
Avatar for the payment of rent or other amounts under a lease of property or
assets, which obligation is required to be classified and accounted for as a
capitalized lease on the balance sheet of Avatar under generally accepted
accounting principles. As used in the Indenture: (i) "Obligations" in respect of
the Senior Indebtedness include any principal, interest, premiums, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any such indebtedness; and (ii) "Designated Senior
Indebtedness" means Senior Indebtedness (a) under any debt facility with banks
or other lenders
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which provide for revolving credit loans, term loans, receivables financing
(including through the sale of receivables) or letters of credit to Avatar or
(b) the principal amount of which is $25.0 million or more and that has been
designated by Avatar as "Designated Senior Indebtedness."
The Notes are obligations exclusively of Avatar. Certain operations of
Avatar are currently conducted through its subsidiaries, which are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due in respect of the Notes or to make any funds available therefor,
whether by dividends, loans or other payments. The ability of any subsidiary of
Avatar to loan or advance funds or pay dividends to Avatar (i) may be subject to
contractual or statutory restrictions, (ii) will be contingent on the
subsidiary's earnings and cash flows and (iii) will be subject to various
business considerations.
The Notes will be effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
subsidiaries of Avatar. Any right of Avatar to receive assets of any of its
subsidiaries on the liquidation or reorganization of that subsidiary (and any
consequent right of the Holders of the Notes to participate in those assets)
will be effectively subordinated to the claims of that subsidiary's creditors,
except to the extent that Avatar is itself recognized as a creditor of that
subsidiary, in which case the claims of Avatar would still be subordinated to
any security in the assets of that subsidiary and any indebtedness of that
subsidiary senior to that held by Avatar.
The Indenture does not limit or prohibit the incurrence of (i) Senior
Indebtedness or (ii) other indebtedness, liabilities or other commitments by
Avatar or its subsidiaries. As of November 30, 1997, the aggregate amount of
Senior Indebtedness to which the Notes are subordinated was approximately $48.0
million, and the aggregate amount of indebtedness and other balance sheet
liabilities of Avatar's subsidiaries to which the Notes are effectively
subordinated was approximately $116.5 million. Avatar also expects to incur
Senior Indebtedness from time to time in the future. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
In the event that, notwithstanding the foregoing, the Trustee or any Holder
of the Notes receives any payment or distribution of assets of Avatar of any
kind in contravention of any of the subordination provisions of the Indenture,
whether in cash, property or securities, including, without limitation, by way
of set-off or otherwise, in respect of the Notes before all Senior Indebtedness
is paid in full, then such payment or distribution will be held by the recipient
in trust for the benefit of holders of Senior Indebtedness or their
representatives to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of Senior
Indebtedness.
Avatar is obligated to pay reasonable compensation to the Trustee and to
indemnify the Trustee against certain losses, liabilities or expenses incurred
by it in connection with its duties relating to the Notes. The Trustee's claims
for such payments will generally be senior to those of Holders of the Notes in
respect of all funds collected or held by the Trustee.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Avatar will not consolidate with or merge into any other Person or convey,
transfer or lease its properties and assets substantially as an entirety to any
Person in one transaction or a series of related transactions, or permit any
Person to consolidate with or merge into Avatar, unless (i) if applicable, the
Person formed by such consolidation or into which Avatar is merged or the Person
or corporation which acquires the properties and assets of Avatar substantially
as an entirety is a corporation, limited liability company, partnership or trust
organized and validly existing under the laws of the United States or any state
thereof or the District of Columbia and expressly assumes payment of the
principal of and premium, if any, and interest on the Notes and the performance
or observance of each obligation of Avatar under the Indenture, (ii) immediately
after giving effect to such transaction no Event of Default will have occurred
and be continuing and (iii) such consolidation, merger, conveyance, transfer or
lease does not adversely affect the validity or enforceability of the Notes.
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CERTAIN RIGHTS TO REQUIRE REPURCHASE OF NOTES
If any Change in Control (as defined below) occurs after the date of
issuance of the Notes and on or prior to Maturity, each Holder of Notes will
have the right, at the Holder's option, to require Avatar to repurchase all or
any part of the Holder's Notes on the date (the "Repurchase Date") that is 30
days after the date Avatar gives notice of the Change in Control as described
below at a price (the "Repurchase Price") equal to 100% of the principal amount
thereof, together with accrued and unpaid interest to the Repurchase Date. On or
prior to the Repurchase Date, Avatar is required to deposit with the Trustee or
a Paying Agent an amount of money in same-day funds sufficient to pay the
Repurchase Price of the Notes to be repaid on the Repurchase Date.
Failure by the Company (i) to provide timely notice of a Change in Control,
as provided for below, or (ii) to repurchase the Notes when required will result
in an Event of Default under the Indenture whether or not that repurchase is
permitted by the subordination provisions of the Indenture.
On or before the 15th day after a Change in Control occurs, Avatar (or the
Trustee at Avatar's request) is obligated to mail to all Holders of Notes a
notice of that occurrence which states the Repurchase Date, the date by which
the repurchase right must be exercised, the Repurchase Price and the procedures
the Holder must follow to exercise its repurchase right. To exercise this right,
a Holder must deliver to Avatar or its designated agent and to the Trustee, on
or before the close of business on the Repurchase Date, written notice of the
Holder's exercise of that right, together with the certificates evidencing the
Notes to be repurchased, duly endorsed for transfer to Avatar. Any such notice
of exercise may be withdrawn by the Holder by a written notice of withdrawal
delivered to the Trustee at any time prior to the close of business on the
Repurchase Date. In addition, if the Repurchase Date falls between any Regular
Record Date and the next succeeding Interest Payment Date, Notes to be purchased
must be accompanied by payment of an amount equal to the interest thereon that
is to be paid on such Interest Payment Date.
A "Change in Control" will occur when: (i) all or substantially all the
assets of Avatar or of Avatar and its subsidiaries, taken as a whole, are sold
in one transaction or any series of related transactions as an entirety to any
Person or related group of Persons; (ii) any consolidation or merger of the
Company occurs (a) in which Avatar is not the continuing or surviving
corporation (other than a consolidation or merger with a wholly owned subsidiary
of Avatar in which all shares of Common Stock outstanding immediately prior to
the effectiveness thereof are changed into or exchanged for the same
consideration) or (b) pursuant to which the Common Stock would be converted into
cash, securities or other property, in each case other than a consolidation or
merger of Avatar in which the holders of the Common Stock immediately prior to
the consolidation or merger have, directly or indirectly, at least a majority of
the total voting power of all classes of capital stock entitled to vote
generally in the election of directors of the continuing or surviving
corporation immediately after such consolidation or merger in substantially the
same proportion as their ownership of Common Stock immediately before such
transaction; (iii) any Person (other than a director, officer or beneficial
owner currently known by Avatar to own more than 5% of the outstanding Common
Stock), or any such Persons acting together that would constitute a "group" for
purposes of Section 13(d) of the Exchange Act, together with any affiliates
thereof, shall beneficially own (as defined in Exchange Act Rule 13d-3) at least
50% of the total voting power of all classes of capital stock of Avatar entitled
to vote generally in the election of directors of Avatar; (iv) at any time
during any consecutive two-year period, individuals who at the beginning of that
period constituted the Board of Directors of Avatar (the "Board") (together with
any new directors whose election by the Board or whose nomination for election
by the stockholders of Avatar was approved by a vote of more than 50% of the
directors then still in office who were either directors at the beginning of
that period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board then in
office; or (v) the Company is liquidated or dissolved.
The right of Holders to require Avatar to repurchase Notes if a Change in
Control occurs could create an event of default under Senior Indebtedness, as a
result of which any repurchase could, absent a waiver of such repurchase right,
be blocked by the subordination provisions of the Indenture. See
"-- Subordination." Failure by Avatar to repurchase the Notes when required will
result in an Event of Default with respect to the Notes whether or not such
repurchase is permitted by those subordination provisions. The ability of Avatar
to pay cash to the Holders of Notes upon a repurchase may be limited by certain
financial covenants contained in
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Senior Indebtedness. No assurance can be given that Avatar would have sufficient
funds to pay the Repurchase Price for all Notes tendered by Holders upon the
occurrence of a Change in Control.
The foregoing provisions (i) may not afford Holders protection in the event
of highly leveraged or other transaction involving the Company which may
adversely affect Holders and (ii) may discourage open market purchases of the
Common Stock or a non-negotiated tender or exchange offer for such stock and,
accordingly, may limit a stockholder's ability to realize a premium over the
market price of the Common Stock in connection with any such transaction.
EVENTS OF DEFAULT
The following are Events of Default with respect to the Notes under the
Indenture: (i) default in the payment of principal of or any premium on any Note
when due (even if such payment is prohibited by the subordination provisions of
the Indenture); (ii) default in the payment of any interest on any Note when
due, which default continues for 30 days (even if that payment is prohibited by
the subordination provisions of the Indenture); (iii) default in the performance
or breach of any other covenant or warranty of Avatar in the Indenture which
continues for 30 days after written notice as provided in the Indenture; (iv)
default under one or more bonds, debentures, notes or other evidences of
indebtedness for money borrowed by Avatar or any of its subsidiaries or under
one or more mortgages, indentures or instruments under which there may be issued
or by which there may be secured or evidenced any indebtedness for money
borrowed by Avatar or any of its subsidiaries, whether such indebtedness now
exists or is hereafter created, which default individually or in the aggregate
constitutes a failure to pay the principal of indebtedness in excess of $10
million when due and payable after the expiration of any applicable grace period
with respect thereto or results in indebtedness in excess of $10 million
becoming or being declared due and payable prior to the date on which it would
otherwise have become due and payable, without such indebtedness having been
discharged, or such acceleration having been rescinded or annulled, within a
period of 30 days after written notice as provided in the Indenture; (v) entry
of a final judgment or judgments against Avatar or any of its subsidiaries in
the amount of at least $10 million (net of insurance proceeds) that remain
undischarged and unstayed for a period of 30 days; and (vi) certain events
involving bankruptcy or reorganization of or similar events respecting Avatar or
any of its subsidiaries.
If an Event of Default shall occur and be continuing, the Trustee or
Holders of not less than 25% in aggregate principal amount of the Outstanding
Notes may declare the principal of and premium, if any, on all the Notes to be
due and payable immediately but if a majority in principal amount of Holders of
Outstanding Notes waive any past default (except the nonpayment of principal of,
premium, if any, and interest on any Note and certain other limitations), then
such default will cease to exist and any Event of Default arising therefrom will
be deemed cured for every purpose of the Indenture; but no such waiver will
extend to any subsequent or other default. If an Event of Default occurs and is
continuing as a result of an event of bankruptcy or reorganization of Avatar or
any of its subsidiaries, the principal of, premium, if any, and accrued and
unpaid interest on the Notes will automatically become due and payable without
any declaration or other act on the part of the Trustee or any Holder of Notes.
Avatar is required to furnish to the Trustee annually a statement as to the
performance by Avatar of certain of its obligations under the Indenture and as
to any default in that performance. The Indenture provides that the Trustee may
withhold notice to Holders of the Notes of any continuing default (except in the
case of a default in payment of the principal of or premium, if any, or interest
on any Notes) if the Trustee considers it in the interest of Holders of the
Notes to do so.
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders of the Notes, unless
such Holders have offered to the Trustee security or indemnity satisfactory to
the Trustee. Subject to such provision for security or indemnification, the
Holders of a majority in principal amount of the Outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee, provided that the Trustee will have the right to decline to follow
any such direction if the Trustee is advised by counsel that the action or
proceeding so directed may not lawfully be taken or the Trustee determines that
the action or proceeding so directed could involve the
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Trustee in personal liability or would be unduly prejudicial to the rights of
the holders not joining in such directions or would conflict with the Indenture.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting Avatar and the Trustee, with
the consent of the Holders of not less than a majority in principal amount of
Outstanding Notes, to modify the Indenture or any supplemental indenture or the
rights of the Holders of the Notes, except that no such modification shall (i)
extend the fixed maturity of any Note, reduce the rate or extend the time for
payment of interest thereon, reduce the principal amount thereof or premium, if
any, thereon, reduce any amount payable upon redemption or repurchase thereof,
change the obligation of Avatar to repurchase any Note upon the happening of any
Change in Control in a manner materially adverse to Holders of Notes, impair the
right of a Holder to institute suit for payment thereof, change the currency in
which the Notes are payable, impair the right to convert the Notes into Common
Stock subject to the terms set forth in the Indenture, or modify the provisions
of the Indenture with respect to the subordination of the Notes in a manner
adverse to the Holders of the Notes in any material respect, without the consent
of each Holder of a Note so affected, or (ii) reduce the aforesaid percentage of
Notes whose Holders are required to consent to any such supplemental indenture,
without the consent of the Holders of all then Outstanding Notes. The Indenture
also provides for certain modifications of its terms without the consent of
Holders of the Notes.
GOVERNING LAW
The Indenture and the Notes will be governed by and construed in accordance
with the laws of the State of New York, without giving effect to that state's
conflicts of laws principles.
BOOK-ENTRY
The Notes will be issued in the form of a global note or notes (together,
the "Global Note") deposited with, or on behalf of, DTC and registered in the
name of Cede & Co. as DTC's nominee. Owners of beneficial interests in the Notes
represented by the Global Note will hold such interests pursuant to the
procedures and practices of DTC and must exercise any rights in respect of their
interests (including any right to convert or require repurchase of their
interests) in accordance with those procedures and practices. Such beneficial
owners will not be deemed Holders of Notes, and will not be entitled to any
rights under the Global Note or the Indenture, with respect to the Global Note,
and Avatar and the Trustee, and any of their respective agents, may treat DTC as
the sole Holder and owner of the Global Note.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers (including the Underwriters), banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly. The rules
applicable to DTC and its participants are on file with the Securities and
Exchange Commission.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form as set forth below, the Global Note may not be transferred
except as a whole by DTC to a nominee of DTC, or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any such nominee of DTC to a successor
depository or nominee of such successor depository.
The Notes represented by the Global Note will not be exchangeable for
certificated Notes, provided that if (i) DTC is at any time unwilling, unable or
ineligible to continue as depository (unless the Company has
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approved a successor depository within 90 days) or (ii) there shall have
occurred or be continuing an Event of Default with respect to such Global Note,
Avatar will issue individual Notes in definitive form in exchange for the Global
Note. In addition, Avatar may at any time and in its sole discretion determine
not to have a Global Note, and, in such event, will issue individual Notes in
definitive form in exchange for the Global Note previously representing all such
Notes. In such instances, an owner of a beneficial interest in a Global Note
will be entitled to physical delivery of Notes in definitive form equal in
principal amount to such beneficial interest and to have such Notes registered
in its name. Individual Notes so issued in definitive form will be issued in
denominations of $1,000 and any larger amount that is an integral multiple of
$1,000 and will be issued in registered form only, without coupons.
Payments of interest on and premium, if any, and principal of the Notes
will be made by Avatar through the Trustee to DTC or its nominee, as the case
may be, as the registered owner of the Global Note. Neither Avatar nor the
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of the
Global Note or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. Avatar expects that DTC, upon receipt of
any payment of interest premium, if any, or principal in respect of the Global
Note, will credit the accounts of DTC's Direct Participants with payment in
amounts proportionate to their respective holdings and not of Avatar, subject to
any statutory or regulatory requirements as may be in effect from time to time
as shown on the records of DTC. Avatar also expects that payments by
Participants to owners of beneficial interests in the Global Note will be
governed by standing customer instructions and customary practices, as is now
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
Participants.
So long as the Notes are represented by the Global Note, DTC or its nominee
will be the only entity that can exercise a right to repayment pursuant to the
Holder's option to elect repayment of its Notes or the right of conversion of
the Notes. Notice by Participants or by owners of beneficial interests in a
Global Note held through such Participants of the exercise of the option to
elect repayment, or the right of conversion, of beneficial interests in Notes
represented by the Global Note must be transmitted to DTC in accordance with its
procedures on a form required by DTC and provided to Participants. In order to
ensure that DTC's nominee will timely exercise a right to repayment, or the
right of conversion, with respect to a particular Note, the beneficial owner of
such Notes must instruct the broker or other participant through which it holds
an interest in such Notes to notify DTC of its desire to exercise a right to
repayment, or the right of conversion. Different firms have different cut-off
times for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other Participant through which it
holds an interest in a Note in order to ascertain the cut-off time by which such
an instruction must be given in order for timely notice to be delivered to DTC.
Avatar will not be liable for any delay in delivery of such notice to DTC.
MARKET FOR NOTES
Application has been made to qualify the Notes for quotation on Nasdaq
under the symbol "AVTRG."
INFORMATION CONCERNING THE TRUSTEE
The Chase Manhattan Bank, as the Trustee under the Indenture, has been
appointed by Avatar as paying agent, conversion agent and registrar with regard
to the Notes. The Indenture provides that, except during the continuance of an
Event of Default, the Trustee thereunder will exercise such rights and powers
vested in it under the Indenture and use the same degree of care and skill in
its exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and the provisions of the Trust Indenture Act of 1939, as
amended (the "TIA"), incorporated by reference therein contain certain
limitations on the rights of the Trustee thereunder, should it become a creditor
of Avatar, to obtain payment of certain claims in certain cases or to realize on
certain property received by it in respect of any such claims, as security or
otherwise. The Trustee is permitted to engage in other transactions; provided,
however, that if it acquires any conflicting interest (within the meaning of the
TIA) it must eliminate such conflicting interest or resign.
TAXATION OF NOTES
See "Certain Federal Income Tax Considerations" for a discussion of certain
federal income tax matters.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the principal U.S. federal income
tax consequences of the purchase, ownership and disposition of the Notes or
Common Stock issued on conversion thereof. This discussion is a summary for
general information only and does not consider all aspects of U.S. federal
income tax that may be relevant to the purchase, ownership and disposition of
the Notes or Common Stock by a prospective investor in light of such investor's
personal circumstances. The discussion also does not address the U.S. federal
income tax consequences of ownership of Notes or Common Stock not held as
capital assets within the meaning of Section 1221 of the U.S. Internal Revenue
Code of 1986, as amended (the "Code"), or the U.S. federal income tax
consequences to investors subject to special treatment under the U.S. federal
income tax laws, such as dealers in securities or foreign currency, tax-exempt
investors, real estate investment trusts, regulated investment companies, banks,
thrifts, insurance companies or other financial institutions, persons that hold
the Notes or Common Stock as a position in a "straddle", as part of a "synthetic
security" or "hedge", "conversion transaction" or other integrated investment,
persons that have a "functional currency" other than the U.S. dollar, or
investors in pass-through entities. In addition, this discussion is generally
limited to the tax consequences to initial holders. Moreover, the effect of any
applicable state, local or foreign tax laws is not discussed.
This discussion is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing is subject to change, possibly on a retroactive basis, and any such
change could affect the continuing validity of this discussion.
PERSONS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE APPLICATION OF FEDERAL INCOME TAX LAWS, AS WELL AS THE
LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR
SITUATIONS.
U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Note that is (i) a citizen or resident
(as defined in Section 7701(b)(1) of the Code) of the United States, (ii) a
corporation organized under the laws of the U.S. or any political subdivision
thereof or therein, (iii) an estate, the income of which is subject to U.S.
federal income tax regardless of its source, or (iv) a trust with respect to
which a court within the United States is able to exercise primary supervision
over its administration and one or more United States persons have the authority
to control all of its substantial decisions (a "U.S. Holder"). Certain U.S.
federal income tax consequences relevant to a holder other than a U.S. Holder
are discussed separately below.
STATED INTEREST
The stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income either at the time it accrues or is received depending upon such
U.S. Holder's method of accounting for federal income tax purposes. For this
purpose, interest will be deemed to accrue without regard to conversion of the
Notes.
MARKET DISCOUNT
Gain recognized on the disposition (including a redemption) by a subsequent
purchaser of a Note that has accrued market discount will be treated as ordinary
income, and not capital gain, to the extent of the accrued market discount,
provided that the amount of the market discount exceeds a statutorily defined de
minimis amount. "Market discount" is defined as the excess, if any, of (i) the
stated redemption price at maturity over (ii) the tax basis of the debt
obligation in the hands of the holder immediately after its acquisition.
Under the de minimis exception, there is no market discount if the excess
of the stated redemption price at maturity of the obligation over the holder's
tax basis in the obligation is less than 0.25% of the stated redemption price at
maturity multiplied by the number of complete years after the acquisition date
to the Note's date of maturity. Unless a holder elects otherwise, the accrued
market discount would be the amount
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calculated by multiplying the market discount by a fraction, the numerator of
which is the number of days the obligation has been held by a holder and the
denominator of which is the number of days after the holder's acquisition of the
obligation up to and including its maturity date.
If a U.S. Holder of a Note acquired at market discount disposes of such
Note in any transaction other than a sale, exchange or involuntary conversion,
even though not otherwise taxable (e.g., a gift), such U.S. Holder will be
deemed to have realized an amount equal to the fair market value of the Note and
would be required to recognize as ordinary income any accrued market discount to
the extent of the deemed gain. A U.S. Holder of a Note acquired at a market
discount may also be required to defer the deduction of all or a portion of the
interest on any indebtedness incurred or maintained to carry the Note until it
is disposed of in a taxable transaction.
A U.S. Holder of a Note acquired at market discount may elect to include
the market discount in income as it accrues. This election would apply to all
market discount obligations acquired by the electing U.S. Holder on or after the
first day of the first taxable year to which the election applies. The election
may be revoked only with the consent of the Service. If a U.S. Holder of a Note
so elects to include market discount in income currently, the above-discussed
rules with respect to ordinary income recognition resulting from sales and
certain other disposition transactions and to deferral of interest deductions
would not apply.
BOND PREMIUM
If a U.S. Holder purchases a Note at a cost that is in excess of the amount
payable at maturity (which will be determined by reference to an earlier call
date if the call price would reduce the amount of the premium) (such excess
being the "bond premium"), a U.S. Holder may elect to amortize such bond premium
on a constant interest basis over the period from the acquisition date to the
maturity date of such Note (or, in certain circumstances, until an earlier call
date) and, except as future Treasury Regulations may otherwise provide, reduce
the amount of interest included in income in respect of the Note by such amount.
A U.S. Holder who elects to amortize bond premium must reduce its adjusted basis
in the Note by the amount of such allowable amortization. An election to
amortize bond premium would apply to all amortizable bond premiums on all
taxable bonds held at or acquired after the beginning of the U.S. Holder's
taxable year as to which the election is made, and may be revoked only with the
consent of the Service. No amortization is allowed for any premium attributable
to the conversion feature of the Note.
If an election to amortize bond premium is not made, a U.S. Holder must
include the full amount of each interest payment in income in accordance with
its regular method of accounting and will generally receive a tax benefit from
the bond premium only upon computing its gain or loss upon the sale or other
disposition or payment of the principal amount of the Note.
TAX BASIS
A U.S. Holder's initial tax basis in a Note will be equal to the purchase
price paid by such U.S. Holder for such Note.
SALE OR REDEMPTION
Unless a nonrecognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by the Company) or other disposition of a Note
will be a taxable event for federal income tax purposes. In such event, a U.S.
Holder will recognize gain or loss equal to the difference between (i) the
amount of cash plus the fair market value of any other property received upon
the sale, exchange, redemption or other taxable disposition (other than in
respect of accrued and unpaid interest thereon) and (ii) the U.S. Holder's
adjusted tax basis therein (other than any tax basis attributable to accrued and
unpaid interest). Subject to the discussion above under the caption "Market
Discount", any such gain or loss generally will be short-term, mid-term or
long-term capital gain or loss depending on the length of time the Note had been
held.
50
<PAGE> 53
CONVERSION OF THE NOTE INTO COMMON STOCK
No gain or loss will be recognized for federal income tax purposes on
conversion of Notes solely into shares of Common Stock, except with respect to
any cash received in lieu of a fractional share or, in the case of both cash and
accrual basis taxpayers, any accrued interest not previously included in income.
A U.S. Holder's tax basis in the Common Stock received upon conversion will
generally be equal to the U.S. Holder's tax basis in the Notes converted into
Common Stock less the basis allocated to any fractional share for which cash is
received, and a U.S. Holder's holding period in the Common Stock will generally
include the holding period of the Notes converted. Any accrued market discount
not previously included in income as of the date of the conversion of the Notes
and not recognized upon the conversion (e.g., as a result of the receipt of cash
in lieu of a fractional interest in the Note) should carry over onto the Common
Stock received on conversion and be treated as ordinary income upon the
subsequent disposition of such Common Stock.
ADJUSTMENT OF CONVERSION PRICE
Section 305 treats as a distribution taxable as a dividend (to the extent
of the issuing corporation's current or accumulated earnings and profits)
certain actual or constructive distributions of stock with respect to stock or
convertible securities. Under Treasury Regulations, an adjustment in the
conversion price, or the failure to make such an adjustment, may, under certain
circumstances be treated as a constructive dividend. Generally, a U.S. Holder's
tax basis in a Note will be increased by the amount of any such constructive
dividend.
BACK-UP WITHHOLDING
A U.S. Holder of Notes or Common Stock may be subject to "back-up
withholding" at a rate of 31% with respect to certain "reportable payments"
including interest payments, dividend payments and, under certain circumstances,
principal payments on the Notes or proceeds from the disposition of Common Stock
issued on conversion of the Notes. These back-up withholding rules apply if the
U.S. Holder, among other things, (i) fails to furnish a social security number
or other taxpayer identification number (TIN) certified under penalties of
perjury within a reasonable time after the request therefor, (ii) furnishes an
incorrect TIN, (iii) fails to report properly interest or dividends, or (iv)
under certain circumstances, fails to provide a certified statement, signed
under penalties of perjury, that the TIN furnished is the correct number and
that such holder is not subject to back-up withholding. A U.S. Holder who does
not provide the Company with its correct TIN also may be subject to penalties
imposed by the Internal Revenue Service ("Service"). Any amount withheld from a
payment to a U.S. Holder under the back-up withholding rules is creditable
against the U.S. Holder's federal income tax liability, provided the required
information is furnished to the Service. Back-up withholding will not apply,
however, with respect to payments made to certain holders, including
corporations and tax-exempt organizations, provided their exemption from back-up
withholding is properly established.
The Company will report to the U.S. Holders of Notes and Common Stock and
to the Service the amount of any "reportable payments" for each calendar year
and the amount of tax withheld, if any, with respect to such payments.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Holder of a Note that is not a U.S. Holder, as
defined above ("Non-U.S. Holder").
For purposes of withholding tax on interest and dividends discussed below,
a non-resident alien or other non-resident fiduciary of an estate or trust will
be considered a Non-U.S. Holder. For purposes of the following discussion,
interest, dividends and gain on the sale or exchange or other disposition of a
Note or Common Stock will be considered to be "U.S. trade or business income" if
such income or gain is (i) effectively connected with the conduct of a U.S.
trade or business or (ii) in the case of a treaty resident, attributable to a
permanent establishment (or, in the case of an individual, a fixed base) in the
United States.
51
<PAGE> 54
STATED INTEREST
Generally any interest paid to a Non-U.S. Holder that is not U.S. trade or
business income will not be subject to U.S. tax if the interest qualifies as
"portfolio interest". Generally interest on the Notes will qualify as portfolio
interest if (i) the Non-U.S. Holder does not actually or constructively own 10%
or more of the total voting power of all voting stock of the Company and is not
a "controlled foreign corporation" with respect to which the Company is a
"related person" within the meaning of the Code, and (ii) the beneficial owner
(a) under penalty of perjury, certifies that the beneficial owner is not a U.S.
person and such certificate provides the beneficial owner's name and address,
and (b) is not a bank receiving interest on an extension of credit made pursuant
to a loan agreement made in the ordinary course of its trade or business.
The gross amount of payments to a Non-U.S. Holder of interest that do not
qualify for the portfolio interest exception, and that are not U.S. trade or
business income will be subject to U.S. federal income tax at the rate of 30%,
unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S.
trade or business income will be taxed at regular U.S. rates rather than the 30%
gross rate. In the case of a Non-U.S. Holder that is a corporation, such United
States trade or business income may also be subject to the "branch profits tax"
(which is generally imposed on a foreign corporation on the actual or deemed
repatriation from the U.S. of earnings and profits attributable to U.S. trade or
business income) at a rate of 30%. The branch profits tax may not apply (or may
apply at a reduced rate) if the recipient is a qualified resident of certain
countries with which the U.S. has an income tax treaty. To claim the benefit of
a tax treaty or to claim exemption from withholding because the income is U.S.
trade or business income, the Non-U.S. Holder must provide a properly executed
Form 1001 or 4224 (or such successor forms as the Service designates), as
applicable, prior to the payment of interest. These forms must be periodically
updated. Under final regulations that will be effective for payments after
December 31, 1998, the Forms 1001 and 4224 may be replaced by Form W-8. Also,
under the final regulations, a Non-U.S. Holder who is claiming the benefit of a
treaty in certain circumstances may be required to obtain a U.S. taxpayer
identification number and to provide certain documentary evidence issued by
foreign governmental authorities to prove residence in the foreign country.
Certain special procedures are provided in the final regulations for payments
through qualified intermediaries.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder of Common Stock will be
subject to withholding of U.S. federal income tax at a 30% rate unless such is
reduced by an applicable income tax treaty. Dividends that are connected with
such holder's conduct of a trade or business in the U.S. (U.S. trade or business
income) are generally subject to the U.S. federal income tax at regular rates,
but are not generally subject to the 30% withholding tax if the Non-U.S. Holder
files the appropriate form with the payor, as discussed above. Any U.S. trade or
business income received by a Non-U.S. Holder that is a corporation may also,
under certain circumstances, be subject to an additional "branch profits tax" at
a 30% rate or such lower rate as may be applicable under an income tax treaty.
Dividends paid to an address in a foreign country generally are presumed (absent
actual knowledge to the contrary) to be paid to a resident of such country for
purposes of the withholding discussed above and for purposes of determining the
applicability of a tax treaty rate. Under final regulations that are effective
for payments after December 31, 1998, however, a Non-U.S. Holder of Common Stock
who wishes to claim the benefit of an applicable treaty rate would be required
to satisfy applicable certification and other requirements, which would include
the requirement that the Non-U.S. Holder file a form which contains the holder's
name and address. In some circumstances, a Non-U.S. Holder may also be required
to provide a U.S. taxpayer identification number and a certificate of residence
in the foreign country (or other acceptable proof of such residence) to claim
the benefits of an applicable treaty rate.
A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for a refund
with the Service.
52
<PAGE> 55
CONVERSION
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
on the conversion of the Notes into Common Stock, except with respect to cash
(if any) received in lieu of a fractional share or interest not previously
included in income. Cash in lieu of a fractional share may give rise to gain
that would be subject to the rules described below for the sale of Notes. Cash
or Common Stock treated as issued for accrued interest would be treated as
interest under the rules described above.
SALE, EXCHANGE OR REDEMPTION OF NOTES OR COMMON STOCK
Except as described below and subject to the discussion concerning back-up
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a Note or Common Stock generally will not be subject to U.S.
federal income tax, provided that: (i) such gain is not U.S. trade or business
income; (ii) the Non-U.S. Holder is not an individual who holds the Note or
Common Stock as a capital asset, is present in the U.S. for 183 days or more in
the taxable year of the disposition and who meets certain other requirements;
(iii) the Non-U.S. Holder is not subject to tax pursuant to the provisions of
U.S. tax law applicable to certain U.S. expatriates (including certain former
citizens or residents of the U.S.); (iv) the Notes and the Common Stock are
"regularly traded on an established securities market" (within the meaning of
the Regulations under Section 897 of the Code); and (v) the Non-U.S. Holder has
not held directly or indirectly at any time during the five year period ending
on the date of the disposition more than 5% of the Notes or the Common Stock, as
the case may be. For this purpose, the determination of whether the Notes or the
Common Stock will be treated as "regularly traded on an established securities
market" will depend upon the extent of trading volume in the Notes or the Common
Stock as the case may be, or upon the existence of a broker or dealer making a
market in such Notes or Common Stock.
FEDERAL ESTATE TAX
Notes held (or treated as held) by an individual who is not a citizen or
resident of the U.S. (for federal estate tax purposes) at the time of his or her
death will not be subject to the U.S. federal estate tax provided that the
individual does not actually or constructively own 10% or more of the total
voting power of all voting stock of the Company and income on the Notes was not
U.S. trade or business income. Common Stock owned or treated as owned by an
individual who is not a citizen or resident of the U.S. (for federal estate tax
purposes) will be included in such individual's estate for U.S. federal income
tax purposes unless an applicable estate tax treaty otherwise applies.
INFORMATION REPORTING AND BACK-UP WITHHOLDING
The Company must report annually to the Service and to each Non-U.S. Holder
any interest or dividend that is subject to withholding, or that is exempt from
U.S. withholding tax pursuant to a tax treaty, or interest that is exempt from
U.S. tax under the portfolio interest exception. Copies of these information
returns may also be made available under the provisions of a specific treaty or
agreement to the tax authorities of the country in which the Non-U.S. Holder
resides.
The Treasury Regulations provide that back-up withholding and information
reporting will not apply to payments of principal on the Notes or Common Stock
by the Company to a Non-U.S. Holder, if the Holder certifies as to its non-U.S.
status under penalties of perjury or otherwise establishes an exemption
(provided that neither the Company nor its paying agent has actual knowledge
that the holder is a U.S. person or that the conditions of any other exemption
are not, in fact, satisfied).
The payment of the proceeds from the disposition of Notes or Common Stock
to or through the U.S. office of any broker, U.S. or foreign, will be subject to
information reporting and possible back-up withholding unless the owner
certifies as to its non-U.S. status under penalty of perjury or otherwise
establishes an exemption, provided that the broker does not have actual
knowledge that the Holder is a U.S. person or that the conditions of any other
exemptions are not, in fact, satisfied. The payment of the proceeds from the
disposition of a Note to or through a non-U.S. office of a non-U.S. broker will
not be subject to information reporting or back-up withholding unless the
non-U.S. broker has certain types of relationships with the U.S.
53
<PAGE> 56
In the case of the payment of proceeds from the disposition of the Notes or
Common Stock to or through a non-U.S. office of a broker that is either a U.S.
person or a U.S. related person, the Treasury Regulations require information
reporting on the payment unless the broker has documentary evidence in its files
that the owner is a Non-U.S. Holder and the broker has no knowledge to the
contrary. Back-up withholding will not apply to payments made through foreign
offices of a broker that is not a U.S. person or a U.S. related person (absent
actual knowledge that the payee is a U.S. person).
Any amounts withheld under the back-up withholding rules from a payment to
a Non-U.S. Holder will be allowed as a refund or credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISER AS TO PARTICULAR TAX
CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND THE
COMMON STOCK OF THE COMPANY, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE
LAWS.
THE COMPANY
EFFECT OF NEW LEGISLATION
Under recently enacted legislation, no deduction is permitted for interest
paid or accrued on any indebtedness of a corporation that is "payable in equity"
of the issuer or related party. Debt is treated as payable in equity of the
issuer if the debt is part of an arrangement designed to result in payment of
the instrument with or by reference to the equity. Such arrangements could
include debt instruments that are convertible at the holder's option when it is
substantially certain that the right will be exercised. However, it is not
expected that the provision will affect debt with a conversion feature where the
conversion price is significantly higher than the market price of the stock on
the date of the debt issuance. Accordingly, the Company does not believe that
its interest deduction will be adversely affected by these rules.
EFFECT ON TAX CARRYOVERS
The Code contains provisions that can reduce the federal income tax benefit
to the Company from its carryovers of net operating losses (and certain tax
credits) if the ownership of the stock of the Company were to change by more
than a statutorily prescribed threshhold amount during any three year period.
While the issuance of the Notes (or their conversion) could contribute to such a
"change in ownership", the Company believes that the effect of the issuance
and/or conversion of the Notes on such tax benefits should not be material.
54
<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
the Underwriters has severally agreed to purchase from the Company, the
principal amount of Notes set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
UNDERWRITER
------------
<S> <C>
CIBC Oppenheimer Corp.......................................... $
SBC Warburg Dillon Read Inc. .................................. $
------------
Total................................................ $100,000,000
============
</TABLE>
The Underwriters propose to offer part of the Notes directly to the public
initially at the public offering price set forth on the cover page of this
Prospectus and part of the Notes to certain securities dealers at such price
less a concession not in excess of % of the principal amount per Note. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of % per Note to certain brokers and dealers. After the Notes are released for
sale to the public, the offering price and other selling terms may from time to
time be changed by the Underwriters. The Underwriters are obligated to take and
pay for all of the Notes offered hereby (other than those covered by the
over-allotment option described below) if any are taken.
The Company has granted the Underwriters an option, exercisable for up to
30 days after the date of this Prospectus, to purchase up to an aggregate of
$15,000,000 principal amount of additional Notes of the public offering price
set forth on the cover page hereof, less Underwriters' discounts and
commissions. If the Underwriters exercise such option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage of such additional Notes that the principal amount of Notes
purchased by each of them as shown in the foregoing table bears to the
$100,000,000 principal amount of Notes offered hereby. The Underwriters may
exercise such option only to cover over-allotments, if any, incurred in
connection with the sale of the Notes offered hereby.
Leon Levy, Chairman of the Board of the Company and a General Partner of
Odyssey (a privately-held investment partnership which is a principal
stockholder of the Company), has advised the Company of his intention to
purchase $20,000,000 aggregate principal amount of Notes offered hereby, net of
underwriting fees and commissions.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including, without limitation, liabilities under the Securities Act
or to contribute to payments which the Underwriters may be required to make in
respect thereof.
The Company has agreed not to offer, sell, contract to sell, or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or any rights to acquire Common
Stock (other than shares issuable upon exercise of outstanding options) for a
period of 180 days after the date of this Prospectus, without the prior written
consent of CIBC Oppenheimer Corp. The Company's officers and directors and
Odyssey have also agreed not to offer, sell, contract to sell, pledge or grant
any option to purchase or otherwise dispose of such securities for 180 days
after the date of this Prospectus, without the prior written consent of CIBC
Oppenheimer Corp. See "Risk Factors -- Shares Eligible for Future Sale."
In connection with the Offering and in compliance with applicable law, the
Underwriters may effect transactions which stabilize or maintain the market
price of the Notes, the Common Stock, or both at levels above those which might
otherwise prevail in the open market. Specifically, the Underwriters may
overallot in connection with the Offering creating a short position in the Notes
for their own account. For the purposes of covering a short position or
stabilizing the price of the Notes, the Underwriters may place bids for the
Notes, the Common Stock, or both or effect purchases of the Notes, the Common
Stock, or both in the open market. A short position may also be covered by
exercise of the over-allotment option described above. The Underwriters are not
required to engage in any of these activities and any such activities, if
commenced, may be discontinued at any time.
55
<PAGE> 58
The Company has applied to qualify the Notes for quotation on Nasdaq.
However, the Notes are a new issue of securities, have no established trading
market and may not be widely distributed. The Company has been advised by the
Underwriters that they currently intend to make a market in the Notes. However,
such entities are not obligated to do so, and any market making may be
discontinued at any time without notice. There can be no assurance as to whether
an active trading market for the Notes will develop.
LEGAL OPINIONS
Certain legal matters with respect to the Notes offered hereby will be
passed upon for the Company by Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New
York, New York 10153. Robert Todd Lang, the sole shareholder of a professional
corporation that is a member of Weil, Gotshal & Manges LLP, is a limited partner
of Odyssey, a principal stockholder of Avatar. As of the date of this
Prospectus, an aggregate of 12,739 shares of Avatar's Common Stock were owned
beneficially by certain members of Weil, Gotshal & Manges LLP. Certain legal
matters will be passed upon for the Underwriters by Morgan, Lewis & Bockius LLP,
101 Park Avenue, New York, New York 10178.
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996, included in
this Prospectus have been so included in reliance on the report of Ernst & Young
LLP, independent auditors, given on the authority of said firm as experts in
auditing and accounting.
56
<PAGE> 59
AVATAR HOLDINGS INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Report of Independent Certified Public Accountants.................................... F-2
Consolidated Balance Sheets -- December 31, 1996 and December 31, 1995................ F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and
1994................................................................................ F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996,
1995 and 1994....................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994................................................................................ F-6
Notes to Consolidated Financial Statements for the years ended December 31, 1996, 1995
and 1994............................................................................ F-7
Consolidated Balance Sheets (unaudited) -- September 30, 1997 and December 31, 1996... F-23
Consolidated Statements of Operations (unaudited) -- Nine and three months ended
September 30, 1997 and 1996......................................................... F-24
Consolidated Statements of Cash Flows (unaudited) -- Nine months ended September 30,
1997 and 1996....................................................................... F-25
Notes to Consolidated Financial Statements............................................ F-26
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Board of Directors
Avatar Holdings Inc.
We have audited the accompanying consolidated balance sheets of Avatar
Holdings Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 27. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Avatar Holdings Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Miami, Florida
February 28, 1997 except for Notes H and S,
as to which the dates are March 18, 1997
and December 2, 1997, respectively
F-2
<PAGE> 61
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash............................................................... $ 6,463 $ 2,436
Restricted cash.................................................... 1,583 2,003
Investments -- trading............................................. 4,535 48,258
Contracts, mortgage notes and other receivables, net............... 45,266 58,272
Land and other inventories......................................... 162,204 144,907
Property, plant and equipment, net................................. 186,378 182,614
Other assets....................................................... 12,916 13,474
Regulatory assets.................................................. 3,768 4,021
Net assets of discontinued operations.............................. 20,072 14,647
-------- --------
Total Assets............................................. $443,185 $470,632
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes, mortgage notes and other debt:
Real estate and corporate........................................ $ 74,148 $103,408
Development and construction loans............................... 22,492 19,093
Utilities........................................................ 42,152 43,164
Estimated development liability for sold land...................... 8,459 13,033
Accounts payable................................................... 7,116 8,876
Accrued and other liabilities...................................... 30,842 31,913
Deferred customer betterment fees.................................. 18,430 18,997
Minority interest in consolidated subsidiaries..................... 9,064 9,060
Net liabilities of discontinued operations......................... 11,785 8,334
-------- --------
Total Liabilities........................................ 224,488 255,878
Commitments and contingent liabilities
Contributions in aid of construction............................... 59,245 56,342
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share
Authorized: 15,500,000 shares
Issued: 12,715,448 shares........................................ 12,715 12,715
Additional paid-in capital......................................... 207,271 207,271
Retained earnings.................................................. 1,439 399
-------- --------
221,425 220,385
Treasury stock, at cost, 3,620,346 shares.......................... 61,973 61,973
-------- --------
Total Stockholders' Equity.................................... 159,452 158,412
-------- --------
Total Liabilities and Stockholders' Equity............... $443,185 $470,632
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 62
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Real estate sales.......................................... $ 93,510 $ 48,217 $ 42,351
Deferred gross profit on homesite sales.................... 2,639 (720) (1,719)
Utility revenues........................................... 32,749 29,669 28,664
Interest income............................................ 7,846 9,427 11,125
Trading account profit, net................................ 2,210 6,912 342
Other...................................................... 2,405 663 564
-------- -------- --------
Total revenues................................... 141,359 94,168 81,327
EXPENSES
Real estate expenses....................................... 91,939 58,626 48,954
Utility expenses........................................... 25,505 24,923 24,651
General and administrative expenses........................ 8,784 9,210 10,224
Interest expense........................................... 12,053 11,518 11,160
Other...................................................... 814 811 811
-------- -------- --------
Total expenses................................... 139,095 105,088 95,800
-------- -------- --------
Income (loss) from continuing operations before income
taxes.................................................... 2,264 (10,920) (14,473)
Provision for income taxes................................. -- -- --
-------- -------- --------
Net income (loss) from continuing operations............... 2,264 (10,920) (14,473)
Discontinued operations:
Income (loss) from operations, less income tax expense of
$0.................................................... (1,224) 581 (148)
-------- -------- --------
Net income (loss).......................................... $ 1,040 $(10,339) $(14,621)
======== ======== ========
Per share amounts:
Net income (loss) from continuing operations............... $ 0.25 $ (1.20) $ (1.59)
======== ======== ========
Income (loss) from discontinued operations................. $ (0.14) $ 0.06 $ (0.02)
======== ======== ========
Net income (loss).......................................... $ 0.11 $ (1.14) $ (1.61)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 63
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
------- ---------- -------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1994........................ $12,715 $ 207,271 $ 25,359 $ 61,973
Net income...................................... -- -- (14,621) --
Balance at December 31, 1994...................... 12,715 207,271 10,738 61,973
Net (loss)...................................... -- -- (10,339) --
------- -------- ------- -------
Balance at December 31, 1995...................... 12,715 207,271 399 61,973
Net income...................................... -- -- 1,040 --
------- -------- ------- -------
Balance at December 31, 1996...................... $12,715 $ 207,271 $ 1,439 $ 61,973
======= ======== ======= =======
</TABLE>
There are 5,000,000 authorized shares of preferred stock, none of which are
issued.
See notes to consolidated financial statements.
F-5
<PAGE> 64
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................................................... $ 1,040 $(10,339) $(14,621)
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation and amortization.................................... 10,278 9,654 8,453
Deferred gross profit............................................ (2,639) 720 1,719
Cost of sales not requiring cash................................. 3,956 3,590 3,010
Inventory write down............................................. 1,464 -- --
Trading account profit, net...................................... (2,210) (6,912) (342)
Changes in operating assets and liabilities:
Restricted cash................................................ 420 (731) 170
Investments -- trading......................................... 45,554 11,000 --
Principal payments on contracts receivable..................... 14,391 17,571 19,423
Receivables.................................................... 1,616 (6,560) (8,748)
Other receivables.............................................. (362) (1,174) (526)
Inventories.................................................... (27,291) (34,711) (6,175)
Other assets................................................... 884 2,591 (375)
Assets/liabilities of discontinued operations, net............. (1,974) (3,622) 246
Accounts payable and accrued and other liabilities............. (2,766) 4,228 6,612
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.................. 42,361 (14,695) 8,846
INVESTING ACTIVITIES
Investment in property, plant and equipment.......................... (11,465) (13,473) (15,530)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES................................ (11,465) (13,473) (15,530)
FINANCING ACTIVITIES
Net proceeds from revolving lines of credit and long-term
borrowings......................................................... 73,931 68,348 25,342
Principal payments on revolving lines of credit and long-term
borrowings......................................................... (100,800) (42,122) (21,071)
Purchase of 9% debentures............................................ -- (387) --
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.................. $(26,869) $ 25,839 $ 4,271
-------- -------- --------
INCREASE (DECREASE) IN CASH.......................................... $ (2,413) $ 4,027 $ (2,329)
Cash at beginning of year............................................ 2,436 4,765 7,178
-------- -------- --------
CASH AT END OF YEAR.................................................. $ 6,463 $ 2,436 $ 4,765
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
Contributions in aid of construction................................. $ 5,584 $ 5,000 $ 1,344
======== ======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest -- Continuing operations (net of amount capitalized of
$3,573, $3,234, and $1,625 in 1996, 1995, and 1994,
respectively)...................................................... $ 7,702 $ 9,336 $ 10,899
======== ======== ========
Interest -- Discontinued operations (net of amount capitalized of
$430 in 1996 and $0 in 1995 and 1994).............................. $ 473 $ 221 $ 22
======== ======== ========
Income taxes......................................................... $ -- $ -- $ 255
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 65
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include Avatar Holdings Inc. and its
subsidiaries ("Avatar"). All significant intercompany accounts and transactions
have been eliminated in consolidation.
General:
Avatar is principally engaged in the business of developing and selling
single and multifamily residential housing, vacation ownership intervals,
improved and unimproved real estate, and providing water and wastewater utility
services.
Restricted Cash:
Restricted cash represents housing deposits of $1,537 and utility deposits
of $46. The housing deposits will become available to the Company when the
housing contracts close.
Land Inventories:
Land inventories are stated at the lower of cost or estimated net
realizable value. Cost includes expenditures for acquisition, construction,
development and carrying charges. Interest costs incurred during the period of
land development, when applicable, are capitalized as part of the cost of such
projects. Land acquisition costs are allocated to individual land parcels based
upon the relationship that the estimated sales prices of specific parcels bear
to the total sales price of the entire community. Construction and development
costs are added to the value of the specific parcels for which the costs are
incurred.
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121 in
the first quarter of 1996, and there was no material impact on the Company's
operations or financial position.
Revenues:
Sales of housing units are recognized in full upon the transfer of title to
a purchaser. Revenues from commercial land and bulk land sales are recognized in
full at closing, provided the purchaser's initial investment is adequate, all
financing is considered collectible and Avatar is not obligated to perform
significant future activities.
The Company uses the installment method of profit recognition for sales of
homesites, the accrual method of profit recognition for sales of completed
vacation ownership intervals, and the percentage of completion method for sales
of those vacation ownership intervals, which are under construction. Under the
installment method, the gross profit on recorded sales is deferred and
recognized in income of future periods as principal payments on related
contracts are received, and deferred profit is included in the balance sheet, as
a reduction of contracts receivable, until recognized. Under the percentage of
completion method, the gross profit on recorded sales is recognized based upon
the percentage of construction completed.
Utility revenues are recorded as the service is provided.
F-7
<PAGE> 66
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment:
Property, plant and equipment are stated at cost and depreciation is
computed principally by the straight-line method over the estimated useful lives
of the assets. Depreciation, maintenance and operating expenses of equipment
utilized in the development of land are capitalized as land inventory cost.
Income Taxes:
Income taxes have been provided using the liability method in accordance
with Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Under Statement No. 109, the
liability method is used in accounting for income taxes where deferred income
tax assets and liabilities are determined based on differences between financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to be in effect when the
differences reverse.
The cumulative effect of adopting Statement No. 109 for Avatar's utility
subsidiaries was not credited or charged to net income, but was recorded as a
regulatory liability or regulatory asset in accordance with accounting
procedures applicable to regulated enterprises. The regulatory liabilities and
regulatory assets will generally be amortized to income or expense over the
useful lives of the utility systems and reflects probable future revenue
reductions or increases from ratepayers.
Deferred Customer Betterment Fees:
Amounts collected from customers for utility improvements are classified as
"Deferred Customer Betterment Fees". These fees will be reclassified to
"Contributions in Aid of Construction" when service to the customer begins.
Contributions in Aid of Construction:
Advances from real estate developers and other direct contributions to
utility subsidiaries for plant construction are recorded as "Contributions in
Aid of Construction". To the extent required by regulatory agencies, the account
balance is amortized over the depreciable life of the utility plant as an offset
to depreciation expense.
Investments:
The Company classifies its entire investment portfolio as trading. This
category is defined as including debt and marketable equity securities held for
resale in anticipation of earning profits from short-term movements in market
prices. Trading account securities are carried at fair value that was $4,535 at
December 31, 1996 and $48,258 at December 31, 1995.
Postretirement Benefits:
The Company accrues postretirement benefits (such as health care benefits)
during the years an employee provides services. These benefits for retirees are
currently provided only to the employees of the Company's utility subsidiaries.
Advertising Costs:
Advertising costs are expensed as incurred. For the years ended December
31, 1996, 1995 and 1994, advertising costs totaled $3,758, $3,265 and $1,304,
respectively.
F-8
<PAGE> 67
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net Income/Loss Per Common Share:
For 1996, 1995 and 1994, net income/loss per common share is computed on
the basis of the weighted average number of shares outstanding of 9,095,102.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results, however, could differ from those estimates.
Reclassifications:
Certain 1995 and 1994 financial statement items have been reclassified to
conform with 1996 presentations.
NOTE B -- REAL ESTATE SALES
The components of real estate sales are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues from homebuilding activities................. $49,672 $13,260 $ 7,400
Resort revenues....................................... 16,087 14,151 13,222
Gross homesite sales*................................. 12,387 12,561 12,271
Proceeds from sales of recreation facility............ 8,300 -- --
Rental, leasing, cable and other real estate
operations.......................................... 5,362 5,621 5,457
Commercial/Industrial land sales...................... 1,702 2,624 4,001
------- ------- -------
Total real estate sales............................. $93,510 $48,217 $42,351
======= ======= =======
</TABLE>
- ---------------
* 1996 includes $3,714 of land sales generated by the Homebuilding Division and
$4,276 for bulk land sales.
NOTE C -- INVESTMENTS
The Company classifies its entire investment portfolio as trading. This
category is defined as including debt and marketable equity securities held for
resale in anticipation of earning profits from short-term movements in market
prices. Trading account securities are carried at fair market value and both
realized and unrealized gains and losses are included in net trading account
profit. Fair values for actively traded debt securities and equity securities
are based on quoted market prices on national markets. Fair values for thinly
traded investment securities are generally based on prices quoted by investment
brokerage companies.
Avatar's investment portfolio at December 31, 1996 and 1995 included
corporate bonds and other bonds rated B- or above by Moody's and/or Standard and
Poor's, non-rated bonds of companies which are in bankruptcy and have defaulted
as to payments of principal and interest on such bonds, equity securities, money
market accounts and U.S. Government and Agency securities. The portfolio at
December 31, 1995, also included obligations for securities that had been sold
that the Company did not own and was, therefore, obligated to purchase at a
future date. Such obligations were recorded at the fair market value of the
securities.
F-9
<PAGE> 68
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the fair values of investments (including
securities sold short which are valued at the cost to purchase as of December
31):
<TABLE>
<CAPTION>
1996 1995
------ -------
<S> <C> <C>
Corporate bonds................................................... $ -- $21,985
Non-rated bonds................................................... 77 8,472
Equity securities................................................. 81 2,045
Other rated bonds................................................. 2,172 4,753
Money market accounts............................................. 2,205 11,519
Less: Securities sold short....................................... -- (516)
------ -------
Total market value........................................... $4,535 $48,258
====== =======
Aggregate cost............................................... $3,975 $44,116
====== =======
</TABLE>
NOTE D -- CONTRACTS, MORTGAGE NOTES AND OTHER RECEIVABLES
Contracts, mortgage notes and other receivables are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Contracts and mortgage notes receivable.......................... $61,534 $82,521
Notes and other receivables...................................... 8,543 7,466
------- -------
70,077 89,987
------- -------
Less:
Allowance for doubtful accounts................................ 848 648
Market valuation reserve....................................... 140 704
Deferred gross profit.......................................... 21,878 27,589
Other.......................................................... 1,945 2,774
------- -------
24,811 31,715
------- -------
$45,266 $58,272
======= =======
</TABLE>
Contracts and mortgage notes receivable were generated through the sale of
homesites at various sales offices located throughout the northeast, midwest and
west coast of the United States. A significant portion of the contracts and
mortgage notes receivable at December 31, 1996, resulted from sales made to
customers in the northeast.
Contracts receivable are collectible primarily over a ten year period and
bear interest at rates primarily ranging from 7 1/2% to 12% per annum (weighted
average rate 9.9%). The Company generally requires that customers pledge the
homesites as collateral for contracts and mortgages receivable and such
collateral can be repossessed by the Company in the event of default. A contract
receivable is considered delinquent if the scheduled installment payment remains
unpaid 30 days after its due date. Delinquent principal amounts of contracts and
mortgage notes receivable at December 31, 1996 and 1995 were $7,099 or 9.6% and
$11,619 or 13.0%, respectively. Estimated maturities for the five years
subsequent to 1996 are: 1997 -- $17,142; 1998 -- $14,862; 1999 -- $10,822;
2000 -- $7,786 and 2001 -- $6,501.
F-10
<PAGE> 69
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- LAND AND OTHER INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Land developed and in process of development........... $105,617 $ 94,196
Land held for future development or sale............... 33,544 34,790
Dwelling units completed or under construction......... 22,270 14,800
Other.................................................. 773 1,121
-------- --------
$162,204 $144,907
======== ========
</TABLE>
In 1996, the Company recorded an impairment loss of $1,464 on a certain
tract of land located at the Company's Banyan Bay site. Fair value was
determined based on a purchase offer received for the land.
NOTE F -- ESTIMATED DEVELOPMENT LIABILITY FOR SOLD LAND
The estimated cost to complete consists of required land and utility
improvements in all areas designated for homesite sales and are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Gross unexpended costs (net of recoveries of $11,941 in
1996 and $11,495 in 1995).............................. $11,685 $19,022
Less costs relating to unsold homesites.................. 3,226 5,989
------- -------
Estimated development liability for sold land............ $ 8,459 $13,033
======= =======
</TABLE>
These estimates are based on engineering studies of quantities of work to
be performed based on current estimated costs. These estimates are reevaluated
annually and adjusted accordingly.
A major portion of the estimated development liability for sold land
relates to utility extensions for homesites at Avatar's Arizona community (Rio
Rico) which were sold prior to 1980.
At Rio Rico, Avatar entered into various service and construction
agreements with Citizens Utilities Company (Citizens), a non-related company,
generally providing for Avatar to construct certain utility facilities and deed
them to Citizens. Avatar's expenditures, related to the construction of some of
these facilities, are expected to be reimbursed from Citizens' present and
future customers. Some of these reimbursable amounts are determined by specific
formulas. The recovery of these expenditures is dependent upon the community
attaining an occupancy and/or usage level sufficient to allow reimbursement
prior to the expiration of the agreements. During 1993, Avatar purchased
Citizens Utilities water and wastewater treatment division thereby voiding the
portion of the existing agreement relating to water and wastewater extensions,
leaving only the electrical portion.
Avatar may be obligated to expend approximately $8,394 (current costs) to
complete water and wastewater utility facilities at its Poinciana subdivision.
These possible future obligations are based on internal engineering studies and
are not included in the estimated development liability discussed above. As
such, past and future expenditures are expected to be recovered from customers'
fees and future revenues.
Expenditures, net of recoveries, for homesite improvement costs totaling
$11,685 are estimated as follows: 1997-$3,849 and thereafter-$7,836. Because the
timing of the expenditures after 1997 is dependent upon certain future
occurrences beyond Avatar's control, projection by year after 1997 is not
presently practicable.
F-11
<PAGE> 70
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Utility land, plant and equipment...................... $230,600 $219,271
Land and improvements.................................. 12,395 12,844
Buildings and improvements............................. 17,941 19,165
Machinery, equipment and fixtures...................... 13,513 14,803
Other.................................................. 639 418
-------- --------
275,088 266,501
Less accumulated depreciation.......................... 88,710 83,887
-------- --------
$186,378 $182,614
======== ========
</TABLE>
Depreciation charged to operations during 1996, 1995 and 1994 was $6,315,
$5,833 and $5,655, respectively, net of amortization of contributions and
advances in aid of construction of $4,289, $4,051 and $2,798 during 1996, 1995
and 1994, respectively.
NOTE H -- NOTES, MORTGAGE NOTES AND OTHER DEBT
Notes, mortgage notes and other debt are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
------- --------
<S> <C> <C>
Real estate and corporate
Bank credit lines............................................. $39,381 $ 56,024
8% senior debentures, due 2000, net of unamortized discount of
$899 and $1,080, respectively.............................. 6,728 6,547
9% senior debentures, due 2000, net of unamortized discount of
$2,275 and $2,725, respectively............................ 23,070 22,619
Mortgage note obligations, interest rates from 8.875% to 10%,
due from 1999-2002......................................... 4,969 9,612
Avatar Homesite Mortgage Trust 1992-2002, 7% Notes............ -- 8,606
------- --------
$74,148 $103,408
======= ========
Development and construction loans, interest rates from 8% to
10.5%......................................................... $22,492 $ 19,093
======= ========
Utilities
Bank credit lines............................................. $ 4,350 $ 2,975
Utility first mortgage bonds due serially from 1997-2007,
interest rates from 7.79% to 9.19%......................... 15,608 16,820
Utility senior notes, 7.27%, due 2000-2010.................... 18,000 18,000
Utility promissory notes, due 1997-2002....................... 4,194 5,369
------- --------
$42,152 $ 43,164
======= ========
</TABLE>
At December 31, 1996, Avatar had secured bank credit lines of $59,379 and
unsecured bank credit lines of $15,000. The unused portions of secured and
unsecured credit lines were $20,000 and $10,650, respectively, at December 31,
1996. The weighted average interest rate on short term borrowing at December 31,
1996 was 9.1%. Interest rates for borrowings under these lines range from 6.43%
to 8.25% on the unsecured bank credit
F-12
<PAGE> 71
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
lines and from 8% to 10.5% on the secured bank credit lines at December 31,
1996. Additionally, certain credit lines provide for fixed rate borrowings
pursuant to Eurodollar interest rates. Under the terms of these agreements,
Avatar is restricted from paying dividends and is required to maintain a minimum
net worth, as defined. The secured lines are collateralized by certain real
property, and contracts and mortgage, notes receivable of $57,436 and
investments of $3,964 at December 31, 1996.
In 1992, Avatar issued $51,160 of 7% Mortgage Trust Notes, rated "A" by
Standard & Poor's Corporation, pursuant to the securitization of a portion of
its homesite receivables. These notes were paid in full during the third quarter
of 1996.
During 1996, an Avatar subsidiary and Stanco Partners Ltd. entered into a
joint venture agreement (the Joint Venture) and acquired Casa Del Mar (CDM), an
Ormond Beach, Florida beachfront hotel. In connection with the acquisition of
Casa Del Mar, the Joint Venture entered into a loan agreement with $5,674
outstanding at December 31, 1996. The debt is guaranteed by a subsidiary of
Avatar as well as the Joint Venture Partners.
Maturities of notes, mortgage notes and other debt at December 31, 1996,
are as follows:
<TABLE>
<CAPTION>
DEVELOPMENT
AND
REAL ESTATE CONSTRUCTION UTILITIES TOTAL
----------- ----------- --------- --------
<S> <C> <C> <C> <C>
1997................................... $ 176 $14,756 $ 7,618 $ 22,550
1998................................... 32,813 5,239 2,184 40,236
1999................................... 209 565 2,184 2,958
2000................................... 29,951 1,140 3,821 34,912
2001................................... 6,854 -- 3,820 10,674
thereafter............................. 4,145 792 22,525 27,462
------- ------- ------- --------
$74,148 $22,492 $ 42,152 $138,792
======= ======= ======= ========
</TABLE>
Maturities for 1997 include approximately $4,350 related to the Company's
bank credit lines.
Interest capitalized during 1996, 1995 and 1994 amounted to $4,003, $3,234
and $1,625, respectively.
Property, plant and equipment and inventory pledged as collateral for
notes, mortgage notes and other indebtedness had a net book value of
approximately $159,000 at December 31, 1996.
NOTE I -- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
As of December 31, 1996 and 1995, preferred stock outstanding is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
9% cumulative preferred stock.............................. $9,000 $9,000
Other...................................................... 64 60
------ ------
$9,064 $9,060
====== ======
</TABLE>
Avatar's utility subsidiary's 9% cumulative preferred stock issue provides
for redemption to occur no earlier than March 1, 1997, in whole or in part;
however, a minimum of $1,800 of the preferred stock must be redeemed per annum
beginning in 1997. A redemption of all outstanding shares shall occur no later
than March 1, 2001.
Charges to operations recorded as "Other Expenses" relating to preferred
stock dividends of subsidiaries amounted to $814 in 1996, $811 in 1995, and $811
in 1994.
F-13
<PAGE> 72
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- RETIREMENT PLANS
Avatar has two defined contribution savings plans that cover substantially
all employees. Under one of the savings plans, Avatar contributes to the plan
based upon specified percentages of employees' voluntary contributions. The
other savings plan does not provide for contributions by Avatar.
Avatar's non-contributory defined benefit pension plan covers substantially
all employees of its subsidiary, Avatar Utilities Inc. The benefits are based on
years of service and the employees' compensation during the five highest years
of earnings. Avatar's funding policy is to contribute amounts to the plan
sufficient to meet the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974.
The following table sets forth the defined benefit plan's funded status as
of December 31, 1996, 1995 and 1994 and the retirement expense recognized in the
consolidated statements of income for the years then ended.
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $3,288, $2,924, and $2,382,
respectively..................................... $ 3,367 $ 3,025 $ 2,526
======= ======= =======
Projected benefit obligation for services rendered to
date................................................ $(3,885) $(3,646) $(3,159)
Plan assets at fair value............................. 4,060 3,642 3,036
------- ------- -------
Projected benefit obligation less than (in excess of)
plan assets......................................... 175 (4) (123)
Unrecognized net gain................................. (515) (413) (413)
Prior service cost not yet recognized in net periodic
pension cost........................................ 362 409 456
Unrecognized net assets at January 1, 1986, net of
amortization........................................ (58) (73) (87)
------- ------- -------
Accrued pension cost included in accrued and other
liabilities......................................... $ (36) $ (81) $ (167)
======= ======= =======
Net retirement cost included the following components:
Defined Benefit Plan:
Service cost -- benefits earned during the
period......................................... $ 204 $ 190 $ 209
Interest cost on projected benefit obligation.... 284 250 229
Actual return on plan assets..................... (406) (495) (362)
Net amortization and deferral.................... 139 245 169
------- ------- -------
Net pension cost................................. 221 190 245
Defined contribution plan........................... 122 117 102
------- ------- -------
Total retirement expense.................... $ 343 $ 307 $ 347
======= ======= =======
</TABLE>
The actuarial assumptions used in determining the present value of the
projected benefit obligation were: weighted average discount rate of 7.5% in
1996, 1995 and 1994, rate of increase in future compensation levels of 5% in
1996, 1995 and 1994, and expected long-term rate of return on plan assets of 8%
in 1996, 1995 and 1994.
Plan assets are invested in the general asset fund of a major insurance
company, which is composed primarily of fixed income securities, and a separate
account, which is composed of equity securities, public bonds or cash
equivalents.
F-14
<PAGE> 73
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
A utility subsidiary of Avatar sponsors a defined non-contributory benefit
postretirement plan that provides medical and life insurance benefits to both
salaried and nonsalaried employees after retirement. Participants contribute a
portion of such benefits. The utility's funding policy for its postretirement
plan is to fund on a pay-as-you-go basis.
The following table sets forth the plan's status as of December 31, 1996,
1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................ $ (882) $ (948) $ (766)
Fully eligible active plan participants............. (496) (768) (865)
Other active plan participants...................... (1,460) (2,299) (2,307)
------- ------- -------
(2,838) (4,015) (3,938)
Plan assets at fair value............................. 0 0 0
------- ------- -------
Accumulated postretirement benefit obligation in
excess of plan assets............................... (2,838) (4,015) (3,938)
Unrecognized net gain from past experience different
from that assumed and from changes in assumptions... (2,281) (715) (195)
Unrecognized transition obligation.................... 2,645 2,798 2,793
------- ------- -------
Accrued postretirement benefit cost................... $(2,474) $(1,932) $(1,340)
======= ======= =======
Net periodic postretirement benefit cost included the
following components:
Service cost........................................ $ 244 $ 273 $ 315
Interest cost on accumulated postretirement benefit
obligation....................................... 277 283 271
Amortization of transition obligation over 20
years............................................ 155 155 155
Other............................................... (88) (35) (23)
------- ------- -------
Net periodic postretirement benefit cost.............. $ 588 $ 676 $ 718
======= ======= =======
</TABLE>
For measurement purposes, the annual rate of increase in the per capita
cost of covered health care benefits assumed for 1996, 1995 and 1994 was 10%,
11% and 12%, respectively; the rate of increase was assumed to decrease
gradually to 6% by the year 2000 and remain at that level thereafter;
termination rates calculations, except those at December 31, 1996, used the
Crocker-Sarason Straight T-6 tables less 51GAM deaths; the T-8 tables were used
for the December 31, 1996 calculation. This change in termination rates will
decrease the net periodic benefit cost in future years. The health care cost
trend rate assumption has a significant effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rates by 1 percentage
point each year would increase the accumulated postretirement benefit obligation
as of December 31, 1996 by $516 and the aggregate of the service and interest
cost components of net periodic postretirement benefit for the year then ended
by $113.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation for 1996, 1995 and 1994 was 7.5%, 7.5% and
8.0%, respectively.
NOTE L -- LEASE COMMITMENTS
Avatar leases the majority of its administration and sales offices under
operating leases that expire at varying times through 2001. Rental expenses for
the years 1996, 1995 and 1994 were $1,838, $1,562, and
F-15
<PAGE> 74
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$1,235, respectively. Minimum rental commitments under noncancelable operating
leases as of December 31, 1996 were as follows: 1997 -- $2,110; 1998 -- $1,837;
1999 -- $1,478; 2000 -- $575; 2001 -- $280.
NOTE M -- ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Property taxes........................................... $ 5,788 $ 5,886
Customer deposits and advances........................... 5,225 5,596
Interest................................................. 1,027 1,573
Other.................................................... 18,802 18,858
------ ------
$30,842 $31,913
====== ======
</TABLE>
As of December 31, 1996, the Company had certain incentive compensation
agreements providing for a cash payment (to the extent vested), within ten days
following the respective fifth anniversary date (payment terms are subject to
renewal agreements) of the respective agreement (or the termination date, if
earlier), in an amount equal to the excess of a formula amount based upon the
closing prices of Avatar common stock during a specified period prior to the
respective fifth anniversary date (or termination date, if earlier) over the
closing price of Avatar common stock on the date of the respective agreement.
Each eligible employee will vest in the rights to this incentive compensation
with respect to one-fifth thereof in each of the first through fifth
anniversaries, subject to certain terms and conditions of the contracts should
their employment status change prior to the fifth anniversary. For the years
ended December 31, 1996, 1995 and 1994, the Company recorded incentive
compensation of ($213), $39 and $763, respectively, associated with these
agreements. The liability for incentive compensation included in other
liabilities at December 31, 1996 and 1995 is $822 and $1,035, respectively.
NOTE N -- INCOME TAXES
Under the installment method of tax reporting for homesite and vacation
ownership sales, Avatar anticipates that its 1996 consolidated federal income
tax return will reflect a net operating loss carryforward of approximately
$40,000, which expires in years 2003 through 2010. In addition, investment tax
credits and alternative minimum tax credit carryforwards of approximately $5,000
are available, a portion of which expires in years 1997 to 2001. The Internal
Revenue Service has not examined these carryforwards.
The Company has recorded a valuation allowance of $41,000 with respect to
the deferred income tax assets that remain after offset by the deferred income
tax liabilities. Included in the valuation allowance for deferred income tax
assets is approximately $9,000 which, if utilized, will be credited to
additional paid-in capital.
F-16
<PAGE> 75
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liabilities as of December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred income tax assets
Net operating loss carryover................................. $ 15,000 $ 16,000
Tax over book basis of land inventory........................ 24,000 23,000
Unrecoverable land development costs......................... 3,000 4,000
Tax over book basis of depreciable assets.................... 7,000 7,000
Alternative minimum tax and investment tax credit
carryforward.............................................. 5,000 5,000
Other........................................................ 2,000 2,000
-------- --------
Total deferred income taxes.......................... 56,000 57,000
Valuation allowance for deferred income tax assets........... (41,000) (42,000)
-------- --------
Deferred income tax assets after valuation allowance........... 15,000 15,000
Deferred income tax liabilities
Book over tax income recognized on homesite sales............ (3,000) (4,000)
Book over tax income recognized on vacation ownership
sales..................................................... (3,000) (1,000)
Deferred carrying charges on utility plant................... (2,000) (3,000)
Other........................................................ (7,000) (7,000)
-------- --------
Total deferred income tax liabilities.......................... (15,000) (15,000)
-------- --------
Net deferred income taxes.................................... $ -- $ --
======== ========
</TABLE>
A reconciliation of income tax expense (credit) from continuing operations
to the expected income tax expense (credit) at the federal statutory rate of 34%
for the year ended December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income tax expense (credit) computed at statutory
rate................................................ $ 770 $(3,713) $(4,921)
Income tax effect of non-deductible dividends on
preferred stock of subsidiary....................... 277 276 275
State income tax (credit), net of federal effect...... 147 (381) (515)
Other................................................. (194) (182) 161
Change in valuation allowance on deferred tax
assets.............................................. (1,000) 4,000 5,000
------- ------- -------
Provision for income taxes............................ $ -- $ -- $ --
======= ======= =======
</TABLE>
In years 1988 through 1995, the Company elected the installment method for
recording a substantial amount of its homesite and vacation ownership sales in
its federal income tax return, which deferred taxable income into future fiscal
periods. As a result of such election, the Company may be required to pay
compound interest on certain federal income taxes in future fiscal periods
attributable to the taxable income deferred under the installment method. The
Company believes that the potential interest amount, if any, will not be
material to its financial position and results of operations of the affected
future periods.
NOTE O -- CONTINGENCIES
Avatar is involved in various pending litigation matters primarily arising
in the normal course of its business. Although the outcome of these and the
following matter cannot be determined, management
F-17
<PAGE> 76
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
believes that the resolution of these matters will not have a material effect on
Avatar's business or financial position.
On October 1, 1993, the United States, on behalf of the U.S. Environmental
Protection Agency, filed a civil action against Florida Cities Water Company
("Florida Cities"), a utility subsidiary of Avatar Holdings Inc. ("Avatar"), in
the U.S. District Court for the Middle District of Florida, United States v.
Florida Cities Water Company, Civil Action No. 93-281-CIV-FTM-21, alleging that
Florida Cities' Waterway Estates treatment plant, located in Lee County, Florida
operated in violation of the Federal Clean Water Act ("Act"), 33 U.S.C. sec.1251
et seq. On May 5 and June 26, 1995, the United States amended its complaint to
include allegations against Florida Cities for violations of the Act at two
other Florida wastewater treatment plants, Barefoot Bay, located in Brevard
County, and Carrollwood, located in Hillsborough County. In addition, the
government amended the complaint to include Avatar, the parent corporation, as a
defendant. A trial was held in March and April 1996. On August 20, 1996, the
Court issued its final judgment, incorporating earlier rulings. The Court found
Avatar not liable on any of the government's claims and entered judgment in
Avatar's favor. The Court found Florida Cities not liable on certain of the
government's claims, but liable on other claims, and awarded the government $310
in civil penalties against Florida Cities. On October 18, 1996, the government
filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit.
Avatar and Florida Cities believe that there are strong arguments to support the
affirmance of the judgment of the District Court on appeal.
NOTE P -- FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Real estate
Unaffiliated customers..................................... $108,610 $ 64,499 $ 52,663
Intersegment............................................... 100 100 100
-------- -------- --------
108,710 64,599 52,763
Utility
Unaffiliated customers..................................... 32,749 29,669 28,664
-------- -------- --------
32,749 29,669 28,664
Elimination of intersegment revenues....................... (100) (100) (100)
-------- -------- --------
Total Revenues............................................. $141,359 $ 94,168 $ 81,327
======== ======== ========
Operating profit:
Real estate................................................ $ 7,987 $ (3,237) $ (6,415)
Utility.................................................... 6,330 3,835 3,102
-------- -------- --------
Total operating profit..................................... 14,317 598 (3,313)
Interest expense........................................... (12,053) (11,518) (11,160)
-------- -------- --------
Income (loss) from continuing operations before income
taxes and effect of changes in methods of accounting..... $ 2,264 $(10,920) $(14,473)
======== ======== ========
Depreciation and amortization:
Real estate................................................ $ 2,506 $ 2,347 $ 1,957
Utility.................................................... 3,809 3,486 3,698
-------- -------- --------
Total...................................................... $ 6,315 $ 5,833 $ 5,655
======== ======== ========
</TABLE>
F-18
<PAGE> 77
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Capital expenditures:
Real estate................................................ $ 3,324 $ 2,138 $ 5,599
Utility.................................................... 12,336 17,382 10,745
-------- -------- --------
$ 15,660 $ 19,520 $ 16,344
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Identifiable assets:
Real estate................................................ $252,273 $239,459 $221,384
Utility.................................................... 186,020 182,661 173,357
-------- -------- --------
Total Identifiable Assets.................................. 438,293 422,120 394,741
General corporate assets................................... 4,892 48,512 51,836
-------- -------- --------
Total Assets............................................... $443,185 $470,632 $446,577
======== ======== ========
</TABLE>
- ---------------
(a) Avatar's businesses are primarily conducted in the United States.
(b) In computing operating profit, interest has been reflected separately.
(c) Intersegment revenues contain primarily intercompany interest and management
fees charged to affiliates.
(d) Identifiable assets by segment are those assets that are used in the
operations of each segment. General corporate assets are principally cash,
receivables and investments.
(e) No significant part of the business is dependent upon a single customer or
group of customers.
(f) Cable TV, mortgage and hotel and recreational operations which primarily
serve Avatar communities do not qualify individually as separate reportable
segments and are included in the real estate segment.
(g) General corporate expenses are included in the real estate segment.
F-19
<PAGE> 78
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE Q -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial
instruments, all of which are held for purposes other than trading except for
investments -- trading at December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Cash and restricted cash.......................... $ 8,046 $ 8,046 $ 4,439 $ 4,439
Investments -- trading............................ 4,535 4,535 48,258 48,258
Contracts, mortgage notes and other receivables... 45,266 46,365 58,272 59,250
Notes, mortgage notes and other debt:
Bank credit lines:
Short term bank credit lines.................... -- -- 16,799 16,799
Long term bank credit lines..................... 39,381 39,465 39,225 38,905
------- ------- ------- -------
Total bank credit lines................. 39,381 39,465 56,024 55,704
Mortgage obligations and promissory notes......... 4,969 5,018 9,612 9,888
Senior debentures................................. 29,798 30,936 29,166 30,936
Mortgage trust notes.............................. -- -- 8,606 7,107
------- ------- ------- -------
Total real estate and corporate......... $ 74,148 $75,419 $103,408 $103,635
======= ======= ======= =======
Development & Construction Loans:
Short term development and construction loans..... 7,353 7,353 2,916 2,916
Long term development and construction loans...... 15,139 24,117 16,177 16,681
------- ------- ------- -------
Total development and construction loans.......... $ 22,492 $31,470 $ 19,093 $ 19,597
======= ======= ======= =======
Avatar Utilities Inc.:
Short term bank credit lines...................... 4,350 4,350 2,975 2,975
Mortgage obligations, first mortgage bonds, and
promissory notes................................ 37,802 35,618 40,189 37,851
------- ------- ------- -------
Total Utilities................................... $ 42,152 $39,968 $ 43,164 $ 40,826
======= ======= ======= =======
</TABLE>
The Company in estimating the fair value of financial instruments used the
following methods and assumptions:
Cash and restricted cash: The carrying amount reported in the balance
sheet for cash approximates its fair value.
Investments -- trading: The carrying amount in the balance sheet for
investments is at fair market value (See Note A).
Contracts, mortgage notes and other receivables: The fair value amounts
of the Company's contracts, mortgage notes and other receivables are
estimated based on a discounted cash flow analysis.
Notes, mortgage notes and other debt: The carrying amounts of the
Company's borrowings under its short term bank credit lines and short
term development and construction loans approximate their fair value.
The fair values of the Company's mortgage obligations, mortgage bonds
and promissory notes are estimated using discounted cash flow analysis
based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
F-20
<PAGE> 79
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Senior and subordinated debentures: The fair values of the Company's
senior and subordinated debentures are estimated based on quoted market
prices.
Mortgage trust notes: The fair value amount of the Company's mortgage
trust notes are estimated using discounted cash flow analysis based on
the Company's current incremental borrowing rate.
NOTE R -- QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 QUARTER
-------------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues........................................ $27,315 $36,065 $31,378 $46,601
Expenses............................................ 27,975 36,027 32,169 42,924
------- ------- ------- -------
(Loss) income before income taxes................... (660) 38 (791) 3,677
(Loss) income from discontinued operations.......... (416) 55 434 (1,297)
Provision for income taxes.......................... -- -- -- --
------- ------- ------- -------
Net (loss) income................................... $(1,076) $ 93 $ (357) $ 2,380
======= ======= ======= =======
Per share amounts:
Net (loss) income................................. $ (0.12) $ 0.01 $ (0.04) $ 0.26
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1995 QUARTER
-------------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues........................................ $24,639 $23,884 $22,336 $22,529
Expenses............................................ 25,137 25,348 25,890 27,933
------- ------- ------- -------
(Loss) income before income taxes................... (386) (1,594) (3,464) (4,895)
Income (loss) from discontinued operations.......... 112 (130) 90 509
Provision for income taxes.......................... -- -- -- --
------- ------- ------- -------
Net (loss) income................................... $ (386) $(1,594) $(3,464) $(4,895)
======= ======= ======= =======
Per share amounts:
Net (loss) income.............................. $ (0.04) $ (0.18) $ (0.38) $ (0.54)
======= ======= ======= =======
</TABLE>
The financial statements for the year ended December 31, 1995 include the
following amounts recorded in the fourth quarter:
(a) a decline due to an adjustment to the market value of investments
of $1,315 (or $.14 per share).
(b) a provision of $1,250 (or $.14 per share) due to an increase in
the accrual related to pending litigation.
NOTE S -- SUBSEQUENT EVENT
Discontinued Operations
During 1997, the Company developed a formal plan for the disposition of its
timeshare business. A letter of intent for the sale of the business was executed
in the third quarter of 1997. The expected sales price is approximately $11.0
million. Accordingly, net assets and liabilities of the time share business have
been segregated from continuing operations in the accompanying consolidated
balance sheets, and operating results are segregated and reported as
discontinued operations in the accompanying consolidated statements of
operations and cash flows.
F-21
<PAGE> 80
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information relating to the discontinued operations for the years ended
December 31, 1996, 1995 and 1994 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
-----------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
REVENUES
Real estate sales....................................... $10,011 $7,764 $1,512
Deferred gross profit on homesite sales................. -- 7 9
Interest income......................................... 972 226 --
Other................................................... 356 -- --
------- ------ ------
Total revenues.......................................... 11,339 7,997 1,521
EXPENSES
Real estate expenses.................................... 11,679 7,269 1,622
General and administrative expenses..................... -- 38 --
Interest expense........................................ 884 109 47
------- ------ ------
Total expenses.......................................... 12,563 7,416 1,669
------- ------ ------
(Loss) income before income taxes....................... (1,224) 581 (148)
Provision for income taxes.............................. -- -- --
------- ------ ------
Net (loss) income....................................... $(1,224) $ 581 $ (148)
======= ====== ======
</TABLE>
The net assets and liabilities of the discontinued operations included in
the accompanying balance sheets as of December 31, 1996 and 1995 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash....................................................... $ 53 $ 31
Restricted cash............................................ 198 2,045
Contracts, mortgage notes and other receivables, net....... 11,278 6,243
Land and other inventories................................. 6,007 4,363
Property, plant and equipment, net......................... 237 230
Other assets............................................... 2,299 1,735
------- -------
Total Assets..................................... $ 20,072 $ 14,647
======= =======
LIABILITIES
Notes, mortgage notes and other debt:
Real estate and corporate................................ $ 995 $ 1,489
Development and construction loan........................ 9,196 5,442
Accounts payable........................................... 349 430
Accrued and other liabilities.............................. 1,245 973
------- -------
Total Liabilities................................ $ 11,785 $ 8,334
======= =======
</TABLE>
F-22
<PAGE> 81
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Cash............................................................... $ 3,311 $ 6,463
Restricted cash.................................................... 1,728 1,583
Investments - trading.............................................. 4,358 4,535
Contracts and mortgage notes receivables, net...................... 27,080 38,200
Other receivables, net............................................. 5,498 7,066
Land and other inventories......................................... 175,862 162,204
Property, plant and equipment, net................................. 187,839 186,378
Other assets....................................................... 13,609 12,916
Regulatory assets.................................................. 3,405 3,768
Net assets of discontinued operations.............................. 26,561 20,072
-------- --------
Total Assets............................................. $ 449,251 $443,185
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes, mortgage notes and other debt:
Corporate........................................................ $ 44,669 $ 33,149
Notes, collateralized by contracts and mortgage notes
receivable.................................................... 26,766 36,030
Real Estate...................................................... 35,727 27,461
Utilities........................................................ 38,747 42,152
Estimated development liability for sold land...................... 8,778 8,459
Accounts payable................................................... 5,136 7,116
Accrued and other liabilites....................................... 33,558 30,842
Deferred customer betterment fees.................................. 17,897 18,430
Minority interest in consolidated subsidiaries..................... 7,264 9,064
Net liabilities of discontinued operations......................... 16,235 11,785
-------- --------
Total Liabilities........................................ 234,777 224,488
Commitments and contingent liabilities
Contributions in aid of construction............................... 61,603 59,245
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share
Authorized: 15,500,000 shares
Issued: 12,715,448 shares........................................ 12,715 12,715
Additional paid-in capital......................................... 207,271 207,271
(Deficit) retained earnings........................................ (5,142) 1,439
-------- --------
214,844 221,425
Treasury stock, at cost, 3,620,346 shares.......................... 61,973 61,973
-------- --------
Total Stockholders' Equity.................................... 152,871 159,452
-------- --------
Total Liabilities and Stockholders' Equity............... $ 449,251 $443,185
======== ========
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE> 82
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
-------------------- -------------------
1997 1996 1997 1996
-------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Real estate sales.................................. $ 60,284 $60,373 $17,535 $19,761
Deferred gross profit.............................. 3,010 1,587 935 1,210
Utility revenues................................... 26,153 24,245 8,242 7,810
Interest income.................................... 4,110 6,035 1,188 1,918
Trading account profit, net........................ 257 2,047 50 450
Other.............................................. 601 471 217 229
-------- ------- ------- -------
Total revenues........................... 94,415 94,758 28,167 31,378
EXPENSES
Real estate expenses............................... 66,308 61,525 20,955 20,827
Utility expenses................................... 19,207 19,022 6,315 6,202
General and administrative expenses................ 6,919 6,660 2,141 1,976
Interest expense................................... 8,743 8,353 3,558 2,961
Other.............................................. 518 611 163 203
-------- ------- ------- -------
Total expenses........................... 101,695 96,171 33,132 32,169
-------- ------- ------- -------
Loss from continuing operations before income
taxes............................................ (7,280) (1,413) (4,965) (791)
Provision for income taxes......................... -- -- -- --
-------- ------- ------- -------
Net loss from continuing operations................ (7,280) (1,413) (4,965) (791)
Discontinued operations:
Income (loss) from operations, less income tax
expenses of $0................................ 699 73 (48) 434
-------- ------- ------- -------
Net loss........................................... $ (6,581) $(1,340) $(5,013) $ (357)
======== ======= ======= =======
Per share amounts:
Net loss from continuing operations................ $ (0.80) $ (0.16) $ (0.54) $ (0.09)
======== ======= ======= =======
Income (loss) from discontinued operations......... $ 0.08 $ 0.01 $ (0.01) $ 0.05
======== ======= ======= =======
Net loss........................................... $ (0.72) $ (0.15) $ (0.55) $ (0.04)
======== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE> 83
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss............................................................... $ (6,581) $ (1,340)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization........................................ 7,551 7,487
Deferred gross profit................................................ (3,010) (1,587)
Inventory writedown.................................................. 200 --
Cost of homesite sales not requiring cash............................ 5,172 3,591
Trading account profit, net.......................................... (257) (2,047)
Changes in operating assets and liabilities:
Restricted cash................................................... (145) 1,418
Investments -- trading............................................ 528 45,554
Principal payments on contracts receivable........................ 13,876 10,714
Receivables....................................................... 289 (484)
Other receivables................................................. 1,533 (132)
Inventories....................................................... (18,711) (22,210)
Other assets...................................................... 363 (202)
Assets/liabilities of discontinued operations, net................ (2,039) (2,276)
Accounts payable and accrued and other liabilities................ (584) (2,116)
-------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES.......... (1,815) 36,370
INVESTING ACTIVITIES
Investment in property, plant and equipment............................ (6,654) (10,173)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES........................ (6,654) (10,173)
FINANCING ACTIVITIES
Net proceeds from revolving lines of credit and long-term borrowings... 46,070 50,283
Principal payments on revolving lines of credit and long-term
borrowings........................................................... (38,953) (72,013)
Redemption of 9% cumulative preferred stock............................ (1,800) --
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.......... 5,317 (21,730)
-------- --------
(DECREASE) INCREASE IN CASH............................................ (3,152) 4,467
Cash at beginning of period............................................ 6,463 2,436
-------- --------
CASH AT END OF PERIOD.................................................. $ 3,311 $ 6,903
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest -- Continuing operations (net of amount capitalized of
$2,289 and $2,850 in 1997 and 1996 respectively)......... $ 6,485 $ 6,106
-------- --------
Interest -- Discontinued operations (net of amount capitalized of $13
and $127 in 1997 and 1996 respectively).................. $ 811 $ 616
======== ========
Income taxes......................................................... $ -- $ --
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Contributions in aid of construction................................... $ 4,401 $ 3,085
======== ========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 84
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
BASIS OF STATEMENT PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated balance sheets as of September 30, 1997 and December 31,
1996, and the related consolidated statements of operations for the nine month
and three month periods ended September 30, 1997 and 1996 and the consolidated
statements of cash flows for the nine month periods ended September 30, 1997 and
1996 have been prepared in accordance with generally accepted accounting
principles for interim financial information, the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statement presentation. In the opinion of management, all
adjustments necessary for a fair presentation of such financial statements have
been included. Such adjustments consisted only of normal recurring items.
Interim results are not necessarily indicative of results for a full year.
For a complete description of the Company's other accounting policies,
refer to Avatar Holdings Inc.'s 1996 Annual Report on Form 10-K and the notes to
Avatar's consolidated financial statements included therein.
RECLASSIFICATIONS
Certain amounts presented for 1996 have been reclassified in the financial
statements for comparative purposes.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share", which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share, disclose both primary and diluted
earnings per share and restate all prior periods. Under the new requirements,
primary earnings per share will be renamed basic earnings per share and will
exclude the dilutive effect of stock options. The impact of SFAS No. 128 on both
primary and diluted earnings per share, is not expected to be significant.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the reporting of financial information from operating segments in annual and
interim financial statements issued to shareholders. SFAS No. 131 also
establishes standards for related disclosures with respect to products and
services, geographic areas of operations, and major customers. SFAS No. 131,
which is effective for fiscal years beginning after December 15, 1997, will have
no impact on the Company's consolidated results of operations, financial
position or cash flows. However, SFAS No. 131 may affect reported segments and
the Company is reviewing this matter.
NET (LOSS) INCOME PER COMMON SHARE
For the nine and three months ended September 30, 1997 and 1996, net
(loss)/ income per common share is computed on the basis of the weighted average
number of shares outstanding of 9,095,102.
RESTRICTED CASH
Restricted cash, at September 30, 1997, includes utility deposits of $57,
as well as housing deposits of $1,671, which have been placed in escrow. The
housing deposits will become available to the Company when the housing contracts
close. Net assets from discontinued operations, at September 30, 1997, includes
$332 in restricted cash.
F-26
<PAGE> 85
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options.
The Company's 1997 Incentive and Capital Accumulation Plan (the "Incentive
Plan") was adopted by the Incentive Plan Committee, ratified by the Board of
Directors on February 13, 1997 and approved by the stockholders at the Annual
Meeting on May 29, 1997. The Incentive Plan makes available 425,000 shares of
Avatar Common Stock subject to certain adjustments. On February 13, 1997 Avatar
entered into a Nonqualified Stock Option Agreement with the Company's President
and granted him an option to purchase 225,000 shares of Avatar Common Stock at
$34.00 per share (such price being in the judgment of an appointed committee of
the Board not less than 100% of the Fair Market Value as defined in the
Incentive Plan). The Option will become exerciseable with respect to 45,000
shares on February 13, 1998 and on each February 13 thereafter through 2002, and
any unexercised portion of the Option will expire on February 13, 2007.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Accordingly, actual results could differ from those
reported.
INVESTMENTS -- TRADING
The Company classifies all of its investment portfolio as trading. This
category is defined as including debt and marketable equity securities held for
resale in anticipation of earning profits from short-term movements in market
prices. Trading account securities are carried at fair market value, and both
realized and unrealized gains and losses are included in net trading account
profit. Fair values for actively traded debt securities and equity securities
are based on quoted market prices on national markets. Fair values for thinly
traded investment securities are generally based on prices quoted by investment
brokerage companies.
Avatar's investment portfolio at September 30, 1997 and December 31, 1996
included bonds rated B- or above by Moody's and/or Standard & Poor's, non-rated
bonds and money market accounts. At December 31, 1996, the portfolio also
included equity securities and non-rated bonds of companies which are in
bankruptcy and have defaulted as to payments of principal and interest on such
bonds.
The following table sets forth the fair values of investments:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Non-rated bonds.................................... $ 100 $ 77
Equity securities.................................. -- 81
Other rated bonds.................................. 2,212 2,172
Money market accounts.............................. 2,046 2,205
------ ------
Total market value....................... $ 4,358 $4,535
====== ======
Aggregate cost........................... $ 3,657 $3,975
====== ======
</TABLE>
F-27
<PAGE> 86
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
CONTRACTS AND MORTGAGE NOTES RECEIVABLES
Contracts and mortgage notes receivable (net of receivables from
discontinued operations, refer to Discontinued Operations note on page F-30) is
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Contracts and mortgage notes receivable............ $45,021 $ 61,534
Less:
Deferred gross profit*........................... 17,109 21,878
Allowance for doubtful accounts.................. 832 1,456
------- -------
17,941 23,334
------- -------
$27,080 $ 38,200
======= =======
</TABLE>
- ---------------
* Under the installment sales method, the gross profit on recorded sales is
deferred and recognized in income of future periods as principal payments on
contracts receivable are received; deferred gross profit is included on the
balance sheet, as a reduction of contracts receivable, until recognized.
LAND AND OTHER INVENTORIES
Inventories (net of inventories from discontinued operations, refer to
Discontinued Operations note on page F-30) consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Land developed and in process of development....... $ 110,715 $105,617
Land held for future development or sale........... 33,544 33,544
Dwelling units completed or under construction..... 30,850 22,270
Other.............................................. 753 773
-------- --------
$ 175,862 $162,204
======== ========
</TABLE>
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
Minority interest in consolidated subsidiaries is represented by preferred
stock of Avatar Utilities' subsidiaries. Total preferred stock outstanding is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
9% Cumulative preferred stock...................... $ 7,200 $9,000
Other.............................................. 64 64
------ ------
$ 7,264 $9,064
====== ======
</TABLE>
Avatar's utility subsidiary's 9% cumulative preferred stock issue provides
for mandatory redemption of a minimum of $1,800 per annum beginning in 1997.
During the first quarter Avatar redeemed $1,800 of the preferred stock. A
redemption of all outstanding shares shall occur no later than March 1, 2001.
Charges to operations recorded as "Other expenses" relate to preferred
stock dividends of subsidiaries for the nine months ended September 30, 1997 and
1996, which amounted to $518 and $611, respectively, and for the three months
ended September 30, 1997 and 1996, which amounted to $163 and $203,
respectively.
F-28
<PAGE> 87
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liabilities as of September 30,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred income tax assets
Net operating loss carryforward.............................. $ 19,000 $ 16,000
Tax over book basis of land inventory........................ 23,000 24,000
Unrecoverable land development costs......................... 3,000 3,000
Tax over book basis of depreciable assets.................... 6,000 7,000
Alternative minimum tax and investment tax credit
carryforward.............................................. 4,000 4,000
Other........................................................ 3,000 3,000
-------- --------
Total deferred income taxes.......................... 58,000 57,000
Valuation allowance for deferred income tax assets........... (43,000) (42,000)
-------- --------
Deferred income tax assets after valuation allowance........... 15,000 15,000
Deferred income tax liabilities
Book over tax income recognized on homesite sales............ (2,000) (3,000)
Book over tax income recognized from discontinued
operations................................................ (4,000) (3,000)
Deferred carrying charges on utility plant................... (2,000) (2,000)
Other........................................................ (7,000) (7,000)
-------- --------
Total deferred income tax liabilities................ (15,000) (15,000)
-------- --------
Net deferred income taxes............................ $ 0 $ 0
======== ========
</TABLE>
A reconciliation of income tax expense before discontinued operations to
the expected income tax expense (credit) at the federal statutory rate of 34%
for the nine months ended September 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------- -----
<S> <C> <C>
Income tax (credit) computed at statutory rate............ $(2,475) $(480)
Income tax effect of non-deductible dividends on preferred
stock of subsidiary..................................... 176 207
State income tax (credit), net of federal effect.......... (265) (21)
Other, net................................................ 564 294
Change in valuation allowance on deferred tax assets...... 2,000 --
------- -----
Provision for income taxes................................ $ 0 $ 0
======= =====
</TABLE>
CONTINGENCIES
Avatar is involved in various pending litigation matters primarily arising
in the normal course of its business. Although the outcome of these and the
following matters cannot be determined, management believes that the resolution
of these matters will not have a material effect on Avatar's business or
financial position.
F-29
<PAGE> 88
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
On October 1, 1993, the United States, on behalf of the U.S. Environmental
Protection Agency, filed a civil action against Florida Cities Water Company
("Florida Cities"), a utility subsidiary of Avatar Holdings Inc. ("Avatar"), in
the U.S. District Court for the Middle District of Florida, United States v.
Florida Cities Water Company, Civil Action No. 93-281-CIV-FTM-21, alleging that
Florida Cities' Waterway Estates treatment plant, located in Lee County, Florida
operated in violation of the Federal Clean Water Act ("Act"), 33 U.S.C.
sec. 1251 et seq. On May 5 and June 26, 1996, the United States amended its
complaint to include allegations against Florida Cities for violations of the
Act at two other Florida wastewater treatment plants, Barefoot Bay, located in
Brevard County, and Carrollwood, located in Hillsborough County. In addition,
the government amended the complaint to include Avatar, the Parent Corporation,
as a defendant. A trial was held in March and April 1996. On August 20, 1996,
the Court issued its final judgment, incorporating earlier rulings. The Court
found Avatar not liable on any of the government's claims and entered judgment
in Avatar's favor. The Court found Florida Cities not liable on certain of the
government's claims, but liable on other claims, and awarded the government $310
in civil penalties against Florida Cities. On October 18, 1996, the government
filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit.
In June of 1997, the parties filed a joint motion to dismiss all related appeals
with prejudice. The U.S. Court of Appeals dismissed all appeals with prejudice
on August 6, 1997, and the civil penalties have been paid by Florida Cities.
DISCONTINUED OPERATIONS
During 1997, the Company developed a formal plan for the disposition of its
timeshare business. In the third quarter of 1997, the Company executed a letter
of intent to sell this business. The expected sales price is approximately $11.0
million. Accordingly, net assets and liabilities of the timeshare business have
been segregated from continuing operations in the accompanying consolidated
balance sheets, and operating results are segregated and reported as
discontinued operations in the accompanying consolidated statements of
operations and cash flows.
Information relating to the discontinued operations for the nine and three
months ended September 30, 1997 and 1996 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
------------------ -----------------
1997 1996 1997 1996
------- ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES
Real estate sales.............................. $ 9,827 $7,824 $3,412 $4,293
Interest income................................ 1,228 632 479 263
Other.......................................... 284 292 43 64
------- ------ ------ ------
Total revenues....................... 11,339 8,748 3,934 4,620
EXPENSES
Real estate expenses........................... 9,476 8,200 3,516 4,093
Interest expense............................... 1,164 475 466 93
------- ------ ------ ------
Total expenses....................... 10,640 8,675 3,982 4,186
Income (loss) before income taxes.............. 699 73 (48) 434
Provision for income taxes..................... -- -- -- --
------- ------ ------ ------
Net income (loss).............................. $ 699 $ 73 $ (48) $ 434
======= ====== ====== ======
</TABLE>
F-30
<PAGE> 89
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The net assets and liabilities of the discontinued operations included in
the accompanying consolidated balance sheets as of September 30, 1997 and
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Cash......................................................... $ 49 $ 53
Restricted cash.............................................. 332 198
Contracts, mortgage notes and other receivables, net......... 15,452 11,278
Land and other inventories................................... 8,024 6,007
Property, plant and equipment, net........................... 278 237
Other assets................................................. 2,426 2,299
------ ------
Total Assets....................................... $26,561 $ 20,072
====== ======
LIABILITIES
Notes, mortgage notes and other debt:
Real estate................................................ $14,973 $ 10,191
Accounts payable............................................. 785 349
Accrued and other liabilities................................ 477 1,245
------ ------
Total Liabilities.................................. $16,235 $ 11,785
====== ======
</TABLE>
SUBSEQUENT EVENT
In accordance with the Company's plan to develop active adult/retirement
communities at various properties, the Company acquired, on October 3, 1997, key
executives, systems and software from Hilcoast Development Corp. (Hilcoast), the
developers of Century Village, in exchange for 75,000 shares of Avatar Common
Stock. Additionally, Avatar acquired an option to purchase from a direct wholly
owned subsidiary of Hilcoast, all rights to use the name "Century Village",
together with any trademarks or other intellectual property rights. The option
is exercisable by the Company until October 3, 1998, and upon closing the
purchase, the Company would be obligated to issue a number of shares of Avatar
Common Stock having a fair market value on the day immediately preceding the
closing equal to $1,719.
F-31
<PAGE> 90
============================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference....... 1
Available Information................................. 1
Forward-looking Statements............................ 2
Prospectus Summary.................................... 3
Risk Factors.......................................... 10
Use of Proceeds....................................... 15
Price Range of Common Stock........................... 15
Dividend Policy....................................... 15
Capitalization........................................ 16
Selected Financial Data............................... 17
Management's Discussion and Analysis of Results of
Operations and Financial Condition.................. 19
Business.............................................. 27
Management............................................ 35
Principal Stockholders................................ 38
Description of the Notes.............................. 40
Certain Federal Income Tax Consequences............... 49
Underwriting.......................................... 55
Legal Opinions........................................ 56
Experts............................................... 56
Index to Financial Statements......................... F-1
</TABLE>
============================================================
============================================================
$100,000,000
AVATAR HOLDINGS INC.
% CONVERTIBLE
SUBORDINATED NOTES DUE 2005
------------------------
PROSPECTUS
------------------------
CIBC OPPENHEIMER
SBC WARBURG DILLON READ INC.
, 1998
============================================================
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses in
connection with the issuance and distribution of the securities being
registered, other than underwriting discounts. All of the following costs and
expenses are estimated except the Securities and Exchange Commission
Registration Fee and the NASD Filing Fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 33,925
NASD Filing Fee................................................... 12,500
Accountants' Fees and Expenses.................................... 82,500
Counsel Fees and Expenses......................................... 450,000
Printing and Engraving Expenses................................... 170,000
Blue Sky Fees and Expenses........................................ 5,000
-------
Total................................................... $758,925
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Generally, Section 145 of the General Corporation Law permits a corporation
to provide indemnification to its directors and officers under certain
circumstances. Reference is also made to Article Sixth of the Company's
Certificate of Incorporation which provides that the Company shall indemnify any
person who was or is a party or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that he is
or was a director, officer, employee or agent of the Company. In addition, the
Company maintains liability insurance which, subject to certain exceptions and
limitations, insures directors and officers against any claim or claims made
against them for any actual or alleged error, misstatement or misleading
statement, act or omission, neglect or breach of duty while acting in their
capacities as such directors and officers.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed as part of the Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <C> <S>
1 -- Form of Underwriting Agreement.*
4.1 -- Form of Indenture between the Company and The Chase Manhattan Bank, as Trustee, in
respect of the Company's % Convertible Subordinated Notes due 2005.*
4.2 -- Form of Convertible Subordinated Note (included in the form of Indenture filed as
Exhibit 4.1 to this Registration Statement).
4.3 -- Certificate of Incorporation, as amended -- incorporated by reference to Exhibit
3(a) to the Registrant's Form 10-K for the year ended December 31, 1986 (File No.
0-7616).
4.4 -- By-laws, as amended and restated February 13, 1997 -- incorporated by reference to
Exhibit 3(b) to the Registrant's Form 10-K for the year ended December 31, 1996
(File No. 0-7616).
4.5 -- Specimen Common Stock Certificate -- incorporated by reference to Exhibit 1(a) to
the Registrant's Registration Statement on Form 8-A, filed with the Commission on
October 15, 1980. (File No. 0-7616).
5 -- Opinion of Weil, Gotshal & Manges LLP.*
12 -- Statement of Computation of Ratio of Earnings to Fixed Charges.**
23.1 -- Consent of Ernst & Young LLP.*
23.2 -- Consent of Weil, Gotshal & Manges LLP (included in its opinion which appears as
Exhibit 5 to this Registration Statement).
24 -- Power of Attorney.**
25 -- Statement of Eligibility and Qualification of The Chase Manhattan Bank, as Trustee
on Form T-1 with respect to the % Convertible Subordinated Notes due 2005.*
27 -- Financial Data Schedule.**
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
II-1
<PAGE> 92
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions in Item 15 above, 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 of 1933 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 of 1933 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
of 1933, 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 of 1933, 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 undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act (the "Act") in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
II-2
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 26th day of
January, 1998.
AVATAR HOLDINGS INC.
By: /s/ JUANITA I. KERRIGAN
------------------------------------
Juanita I. Kerrigan
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------- -----------------
<C> <S> <C>
* President, Chief Executive January 26, 1998
- ------------------------------------------ Officer and Director
Gerald D. Kelfer
* Executive Vice President, January 26, 1998
- ------------------------------------------ Treasurer and Chief Financial
Charles L. McNairy Officer
* Director and Chairman of the January 26, 1998
- ------------------------------------------ Board of Directors
Leon Levy
* Director and Chairman of the January 26, 1998
- ------------------------------------------ Executive Committee
Edwin Jacobson
* Director January 26, 1998
- ------------------------------------------
Milton Dresner
* Director January 26, 1998
- ------------------------------------------
Leon T. Kendall
* Director January 26, 1998
- ------------------------------------------
Martin Meyerson
* Director January 26, 1998
- ------------------------------------------
Kenneth T. Rosen
* Director January 26, 1998
- ------------------------------------------
Fred Stanton Smith
</TABLE>
II-3
<PAGE> 94
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------- -----------------
<C> <S> <C>
* Director January 26, 1998
- ------------------------------------------
Henry King Stanford
* Director January 26, 1998
- ------------------------------------------
Gernot H. Reiners
</TABLE>
*By: /s/ JUANITA I. KERRIGAN
------------------------------
Juanita I. Kerrigan
Attorney-in-Fact
II-4
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ --------------------------------------------------------------------- ------------
<C> <C> <S> <C>
1 -- Form of Underwriting Agreement.*
4.1 -- Form of Indenture between the Company and The Chase Manhattan Bank,
as Trustee, in respect of the Company's % Convertible
Subordinated Notes due 2005.*
4.2 -- Form of Convertible Subordinated Note (included in the form of
Indenture filed as Exhibit 4.1 to this Registration Statement).
4.3 -- Certificate of Incorporation, as amended -- incorporated by reference
to Exhibit 3(a) to the Registrant's Form 10-K for the year ended
December 31, 1986 (File No. 0-7616).
4.4 -- By-laws, as amended and restated February 13, 1997 -- incorporated by
reference to Exhibit 3(b) to the Registrant's Form 10-K for the year
ended December 31, 1996 (File No. 0-7616).
4.5 -- Specimen Common Stock Certificate -- incorporated by reference to
Exhibit 1(a) to the Registrant's Registration Statement on Form 8-A,
filed with the Commission on October 15, 1980. (File No. 0-7616).
5 -- Opinion of Weil, Gotshal & Manges LLP.*
12 -- Statement of Computation of Ratio of Earnings to Fixed Charges.**
23.1 -- Consent of Ernst & Young LLP.*
23.2 -- Consent of Weil, Gotshal & Manges LLP (included in its opinion which
appears as Exhibit 5 to this Registration Statement).
24 -- Power of Attorney.**
25 -- Statement of Eligibility and Qualification of The Chase Manhattan
Bank, as Trustee on Form T-1 with respect to the % Convertible
Subordinated Notes due 2005.*
27 -- Financial Data Schedule.**
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
<PAGE> 1
AVATAR HOLDINGS INC.
$100,000,000
___% Convertible Subordinated Notes due 2005
UNDERWRITING AGREEMENT
January __, 1998
CIBC Oppenheimer Corp.
SBC Warburg Dillon Read Inc.
c/o CIBC Oppenheimer Corp.
CIBC Oppenheimer Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Avatar Holdings Inc., a Delaware corporation (the "Company"),
proposes to sell to you (together, the "Underwriters"), $100,000,000 aggregate
principal amount of the Company's ___% Convertible Subordinated Notes due 2005
(the "Firm Notes") which are to be issued by the Company pursuant to the
provisions of an indenture, to be dated as of January __, 1998 (such indenture,
as amended or supplemented, is herein referred to as the "Indenture"), between
the Company and The Chase Manhattan Bank (the "Trustee"). In addition, the
Company proposes to grant to the Underwriters an option to purchase additional
Notes in an aggregate principal amount of up to $15,000,000 (the "Additional
Notes") from it for the purpose of covering over-allotments in connection with
the sale of the Firm Notes. The Firm Notes and the Additional Notes are together
called the "Notes." The Notes and the shares of the Company's common stock, par
value $1.00 per share (the "Common Stock") issuable upon conversion of the Notes
(the "Conversion Shares"), are herein sometimes referred to as the "Securities."
1. Sale and Purchase of the Notes. On the basis of the
representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:
<PAGE> 2
(a) The Company agrees to sell to each of the Underwriters,
and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at a purchase price of ___% of the principal
amount thereof (the "Initial Price"), the principal amount of Firm
Notes set forth opposite the name of such Underwriter in Schedule I to
this Agreement.
(b) The Company grants to the Underwriters an option to
purchase, severally and not jointly, all or any part of the Additional
Notes at the Initial Price. The principal amount of Additional Notes to
be purchased by each Underwriter shall be the same percentage (adjusted
by the Underwriters to eliminate fractions) of the total principal
amount of Additional Notes to be purchased by the Underwriters as such
Underwriter is purchasing of the Firm Notes. Such option may be
exercised only to cover over-allotments in connection with the sales of
the Firm Notes by the Underwriters and may be exercised in whole or in
part at any time on or before 12:00 noon, New York City time, on the
business day before the Firm Notes Closing Date (as defined below), and
only once thereafter within 30 days after the date of this Agreement,
in each case upon written or telegraphic notice, or verbal or
telephonic notice confirmed by written or telegraphic notice, by the
Underwriters to the Company no later than 12:00 noon, New York City
time, on the business day before the Firm Notes Closing Date or at
least two and no more than five business days before the Additional
Notes Closing Date (as defined below), as the case may be, setting
forth the principal amount of Additional Notes to be purchased and the
time and date (if other than the Firm Notes Closing Date) of such
purchase.
2. Delivery and Payment. Delivery by the Company of the Notes
to the Underwriters, and payment of the purchase price by certified or official
bank check or checks payable in New York Clearing House (same day) funds to the
Company, shall take place at the offices of CIBC Oppenheimer Corp., at CIBC
Oppenheimer Tower, World Financial Center, New York, New York 10281, at 10:00
a.m., New York City time, on the third business day (the fourth business day,
should the Notes be priced after 4:00 p.m., New York City time) following the
date of this Agreement. Payment and delivery in respect of the Firm Notes may
occur at such time on such other date, not later than 10 business days after the
date of this Agreement, as shall be agreed upon by the Company and the
Underwriters (such time and date of delivery and payment are called the "Firm
Notes Closing Date").
In the event the option with respect to the Additional Notes
is exercised, delivery by the Company of the Additional Notes to the
Underwriters and payment of the purchase price by certified or official bank
check or checks payable in New York Clearing House (same day) funds to the
Company shall take place at the offices of CIBC Oppenheimer Corp. specified
above at the time and on the date (which may be the same date as, but in no
event shall be earlier than, the Firm Notes Closing Date) specified in the
notice referred to in Section 1(b) (such time and date of delivery and payment
are called the "Additional Notes Closing Date"). The Firm Notes Closing Date and
the Additional Notes Closing Date are called, individually, a "Closing Date"
and, together, the "Closing Dates."
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<PAGE> 3
Notes issued in book-entry form will be issued to Cede & Co.
as nominee of The Depository Trust Company ("DTC") pursuant to a letter
agreement (the "DTC Agreement") among the Company, the Trustee and DTC.
Certificates evidencing the Notes shall be registered in the name of Cede & Co.
pursuant to the DTC Agreement and shall be made available to the Underwriters
for examination, at such place as is designated by the Underwriters, at least
one full business day before the Firm Notes Closing Date (or the Additional
Notes Closing Date in the case of the Additional Notes).
3. Registration Statement and Prospectus; Public Offering. The
Company has prepared in conformity with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and the published rules and
regulations thereunder (the "Rules") adopted by the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (No.
333-41923), including a preliminary prospectus relating to the Securities, and
has filed with the Commission the registration statement and such amendments
thereto as may have been required to the date of this Agreement. Copies of such
Registration Statement (including all amendments thereto) and of the related
preliminary prospectus have heretofore been delivered by the Company to you. The
term "Registration Statement" means the Registration Statement as amended at the
time and on the date it becomes effective (the "Effective Date"), including all
exhibits and information, if any, deemed to be part of the Registration
Statement pursuant to Rule 424(a), Rule 430A and Rule 462(b) of the Rules. The
term "preliminary prospectus" means any preliminary prospectus (as described in
Rule 430 of the Rules) included at any time as a part of the Registration
Statement that omits information with respect to the Notes permitted pursuant to
paragraph (a) of Rule 430A of the Rules to be omitted from the form of
Prospectus included in the Registration Statement at the time it is declared
effective by the Commission. The term "Prospectus" means the prospectus in the
form first used to confirm sales of the Notes (whether such prospectus was
included in the Registration Statement at the time of effectiveness or was
subsequently filed with the Commission pursuant to Rule 424(b) of the Rules) or
the preliminary prospectus forming part of the Registration Statement at the
time it was declared effective together with the term sheet permitted under Rule
434(b) and filed with the Commission pursuant to Rule 424(b), as applicable. For
purposes of this Agreement, all references to the Registration Statement, any
preliminary prospectus, the Prospectus or any amendment or supplement to any of
the foregoing shall be deemed to include the documents incorporated by reference
thereto pursuant to Item 12 of Form S-3 under the Securities Act as of the date
of the Registration Statement, preliminary prospectus or Prospectus as well as
the copy filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR"). Any reference to any amendment or
supplement to the Registration Statement, any preliminary prospectus or the
Prospectus shall be deemed to refer to and include any documents filed after
such date under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") which, upon filing, are incorporated by reference therein, as required by
paragraph (b) of Item 12 of Form S-3.
The Company understands that the Underwriters propose to make
a public offering of the Notes, as set forth in and pursuant to the Prospectus,
as soon after the Effective Date and the date of this Agreement and the
qualification of the Indenture under the Trust Indenture Act of 1939,
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<PAGE> 4
as amended (the "TIA") as the Underwriters deem advisable. The Company hereby
confirms that the Underwriters and dealers have been authorized to distribute or
cause to be distributed each preliminary prospectus and are authorized to
distribute the Prospectus (as from time to time amended or supplemented if the
Company furnishes amendments or supplements thereto to the Underwriters) during
any period in which a preliminary prospectus or Prospectus is required by law to
be distributed.
4. Representations and Warranties of the Company. The Company
hereby represents and warrants to each Underwriter as follows:
(a) On the Effective Date the Registration Statement complied,
and on the date of the Prospectus, on the date any post-effective
amendment to the Registration Statement or any related registration
statement filed with the Commission pursuant to Rule 462(b) of the
Rules shall become effective, on the date any supplement or amendment
to the Prospectus is filed with the Commission and on each Closing
Date, the Registration Statement and the Prospectus (and any amendment
thereof or supplement thereto) will comply in all material respects
with the applicable provisions of the Securities Act and the Rules and
the Exchange Act and the rules and regulations of the Commission
thereunder; the Registration Statement did not, as of the Effective
Date, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order
to make the statements therein not misleading; and on the other dates
referred to above neither the Registration Statement nor the
Prospectus, nor any amendment thereof or supplement thereto, will
contain any untrue statement of a material fact or will omit to state
any material fact required to be stated therein or necessary in order
to make the statements therein not misleading. When any related
preliminary prospectus was first filed with the Commission (whether
filed as part of the Registration Statement or any amendment thereto or
pursuant to Rule 424(a) of the Rules) and when any amendment thereof or
supplement thereto was first filed with the Commission, such
preliminary prospectus as amended or supplemented complied in all
material respects with the applicable provisions of the Securities Act
and the Rules and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading.
The Company makes no representation or warranty as to any information
in the Registration Statement, the preliminary prospectus, the
Prospectus or any amendment or supplement thereto contained in or
omitted from (i) the paragraphs with respect to stabilization or
affiliate transactions on the inside front cover page of the Prospectus
and (ii) the statements contained under the caption "Underwriting" in
the preliminary prospectus and the Prospectus. The Company acknowledges
that such statements constitute the only information furnished in
writing by the Underwriters specifically for inclusion in the
Registration Statement, any preliminary prospectus or the Prospectus.
(b) All contracts and other documents required to be filed as
exhibits to the Registration Statement or the documents incorporated by
reference therein have been filed
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<PAGE> 5
with the Commission as exhibits to the Registration Statement or the
documents incorporated by reference therein.
(c) When the Registration Statement became effective, the
Indenture was, and at all times thereafter has been and will be, duly
qualified under the TIA, and conformed and at all times thereafter will
conform, to the requirements of the TIA.
(d) The documents incorporated or deemed to be incorporated by
reference in the Registration Statement and the Prospectus, when each
was filed (or, if any amendment with respect to any such document was
filed, when such amendment was filed) with the Commission, complied and
will comply in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission
thereunder, as applicable, and, when read together with the other
information in the Prospectus, at the time the Registration Statement
became effective, at the time the Prospectus was issued and on the
Closing Date (and, if any Additional Notes are purchased, at the
Additional Notes Closing Date), did not and will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
(e) The financial statements and schedules of the Company
(including all notes thereto) included in the Registration Statement
and Prospectus fairly present the financial position, the results of
operations, stockholders' equity and cash flows and the other
information purported to be shown therein of the Company at the
respective dates and for the respective periods to which they apply;
and such financial statements have been prepared in conformity with
generally accepted accounting principles, consistently applied
throughout the periods involved, and all adjustments necessary for a
fair presentation of the results for such periods have been made. No
other financial statements or schedules of the Company are required by
the Securities Act or the Rules to be included in the Registration
Statement. There are no schedules required to be included in the
Registration Statement in order to present fairly in all material
respects the information required to be stated therein; and the
historical financial information and statistical data set forth in the
Prospectus under the captions "Summary Consolidated Financial
Information," "Capitalization" and "Selected Financial Data" are fairly
stated in all material respects in relation to the financial statements
from which they have been derived. The pro forma financial data
included in the Registration Statement and the Prospectus present
fairly the information shown therein, comply in all material respects
with the requirements of the Securities Act and the Rules and
Regulations with respect to pro forma financial statements, have been
properly compiled on the pro forma basis described therein and the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein.
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<PAGE> 6
(f) To the knowledge of the Company, Ernst & Young LLP, whose
separate reports have been filed with the Commission as a part of the
Registration Statement, is and, during the periods covered by its
reports, was an independent public accountant with respect to the
Company as required by the Securities Act and the Rules.
(g) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Delaware. The Company's subsidiaries which are or would be required
to be listed pursuant to Item 601 of Regulation S-K and Rule 1-02(w) of
Regulation S-X under the Securities Act ("Rule 1-02(w)") on the
Company's Annual Report on Form 10-K (the "Subsidiaries"), are set
forth on Schedule II hereto. Each other subsidiary of the Company is
not a "significant subsidiary" as defined in Rule 1-02(w). Each
Subsidiary of the Company has been duly incorporated or formed and is
an existing corporation in good standing under the laws of the
jurisdiction of its incorporation or organization. Each of the Company
and its Subsidiaries is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the character or
location of its assets or properties (owned, leased or licensed) or the
nature of its business makes such qualification necessary, except for
such jurisdictions where the failure to so qualify individually or in
the aggregate would not have a material adverse effect on the assets or
properties, business, results of operations or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole, and
the Company has not received any claim or notice from any official
authority in any jurisdiction that it is required to be qualified or
licensed to do business in any such jurisdiction in which it is not so
qualified or licensed. The Company and its Subsidiaries do not own,
lease or license any material asset or property or, other than through
independent sales agents, conduct any business outside the United
States of America. Each of the Company and its Subsidiaries has all
requisite corporate power and authority, and all necessary
authorizations, approvals, consents, orders, licenses, franchises,
certificates and permits of and from all governmental or regulatory
bodies or any other person or entity, to own, lease and operate its
assets and properties and conduct its businesses as now being conducted
and as described in the Registration Statement and the Prospectus,
except for such authorizations, approvals, consents, orders, licenses,
franchises, certificates and permits which, if not obtained, would not
have a material adverse effect on the assets or properties, business,
results of operations or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole; no such authorization,
approval, consent, order, license, certificate or permit contains a
materially burdensome restriction other than as disclosed in the
Registration Statement and the Prospectus; and the Company has all such
corporate power and authority, and such authorizations, approvals,
consents, orders, licenses, franchises, certificates and permits
necessary to enter into, deliver and perform this Agreement and the
Indenture and to issue, execute, deliver and sell the Notes and to
issue the Conversion Shares in accordance with the Indenture (except as
may be required under the Securities Act, the Exchange Act and state
and foreign Blue Sky laws and the TIA).
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<PAGE> 7
(h) The Company owns or possesses adequate and enforceable
rights to use all (to the extent any of them exist) patents, patent
applications, trademarks, trademark applications, service marks,
copyrights, copyright applications, licenses and other similar rights
(collectively, the "Intangibles") necessary for the conduct of its
business as now being conducted and as described in the Registration
Statement and the Prospectus. The Company has not infringed, is not
infringing, and has not received any notice of infringement of, any
Intangible of any other person and the Company does not know of any
basis therefor except for such infringements which individually or in
the aggregate would not have a material adverse effect on the assets or
properties, business, results of operations or financial condition of
the Company and its Subsidiaries, taken as a whole. The Company has not
received any notice of infringement of any of its Intangibles and the
Company does not know of any basis therefor.
(i) Each of the Company and its Subsidiaries has good and
valid title in fee simple to each of the items of personal property
which are reflected in the financial statements referred to in Section
4(e) or are referred to in the Registration Statement and the
Prospectus as being owned by it and valid and enforceable leasehold
interests in each of the items of real and personal property which are
referred to in the Registration Statement and the Prospectus as being
leased by it, in each case free and clear of all liens, encumbrances,
claims, security interests and defects, other than those described in
the Registration Statement and the Prospectus and other than those that
could not materially affect the value thereof or materially interfere
with the use made or presently contemplated to be made by them.
(j) Except as disclosed in the Registration Statement and the
Prospectus, there is no material litigation or governmental or other
proceeding or investigation before any court or before or by any public
body or board pending or, to the best of the Company's knowledge,
threatened (and the Company does not know of any basis therefor)
against, or involving the assets, properties or businesses of, the
Company or any of its Subsidiaries which, if determined adversely to
the Company or any of its Subsidiaries, would materially adversely
affect the value or the operation of any such assets or properties or
the business, results of operations or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole, or
would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as
described therein, there has not been any material adverse change in
the assets or properties, business, results of operations or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as
a whole, whether or not arising from transactions in the ordinary
course of business; each of the Company and its Subsidiaries has not
entered into any transaction, other than in the ordinary course of
business, that is material to the Company and its Subsidiaries, taken
as a whole; each of the Company and its Subsidiaries has not sustained
any material loss
-7-
<PAGE> 8
or interference with its assets, businesses or properties from fire,
explosion, earthquake, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree. Since the date of the
latest balance sheet included in the Registration Statement and the
Prospectus, except as reflected in the Registration Statement and the
Prospectus, each of the Company and its Subsidiaries has not undertaken
any material liability or obligation, direct or contingent, except for
liabilities or obligations undertaken in the ordinary course of
business consistent with past practice.
(l) Each agreement listed in the Exhibits to the Registration
Statement is in full force and effect and is valid and enforceable by
the Company or one of its Subsidiaries in accordance with its terms
(subject to bankruptcy, insolvency, fraudulent transfer, fraudulent
conveyance, reorganization, moratorium or other similar laws affecting
the enforcement of creditors' rights generally and to general equitable
principles, whether considered in proceedings in equity or at law),
except where the failure of any such agreement to be in full force and
effect and valid and enforceable by the Company or one of its
Subsidiaries in accordance with its terms would not have a material
adverse effect on the assets or properties, business, results of
operations or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, assuming the due authorization,
execution and delivery thereof by each of the other parties thereto.
Neither the Company, nor to the best of the Company's knowledge, any
other party is in default in the observance or performance of any term
or obligation to be performed by it under any such agreement, and no
event has occurred which with notice or lapse of time or both would
constitute such a default which default or event would have a material
adverse effect on the assets or properties, business, results of
operations or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole. No default exists, and no event has
occurred which with notice or lapse of time or both would constitute a
default, in the due performance and observance of any term, covenant or
condition, by the Company of any other indenture, mortgage, deed of
trust, note or any other agreement or instrument to which the Company
or any of its Subsidiaries is a party or by which any of them or their
properties or businesses is bound or affected which default or event
would have a material adverse effect on the assets or properties,
business, results of operations or condition (financial or otherwise)
of the Company and its Subsidiaries, taken as a whole.
(m) Each of the Company and its Subsidiaries is not in
violation of any term or provision of its charter or by-laws or
partnership or joint venture agreement or of any judgment, decree,
order, statute, rule or regulation, where the consequences of such
violation would have a material adverse effect on the assets or
properties, business, results of operations or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole.
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<PAGE> 9
(n) Neither the execution, delivery and performance of this
Agreement or the Indenture by the Company nor the consummation of any
of the transactions contemplated hereby or thereby (including, without
limitation, the issuance and sale by the Company of the Notes and the
issuance of the Conversion Shares in accordance with the Indenture)
will (i) give rise to a right to terminate or accelerate the due date
of any payment due under, or conflict with or result in the breach of
any term or provision of, or constitute a default (or any event which
with notice or lapse of time or both would constitute a default) under,
or require any consent or waiver under, or result in the execution or
imposition of any lien, charge or encumbrance upon any properties or
assets of the Company or any of its Subsidiaries pursuant to the terms
of, any indenture, mortgage, deed of trust, note or other agreement or
instrument to which the Company or any of its Subsidiaries is a party
or by which any of them or their properties or businesses is bound, or
any franchise, license, permit, judgment, decree, order, statute, rule
or regulation applicable to the Company or any of its Subsidiaries,
except for such terminations, accelerations, conflicts, breaches,
defaults and events which would not, individually or in the aggregate,
result in a material adverse effect on the assets or properties,
business, results of operations or condition (financial or otherwise)
of the Company and its Subsidiaries, taken as a whole, or (ii) violate
any provision of the charter or by-laws or partnership or joint venture
agreement of the Company or any of its Subsidiaries.
(o) As of September 30, 1997, the Company had an authorized
and outstanding capitalization as set forth under the caption
"Capitalization" in the Registration Statement and the Prospectus. All
of the outstanding shares of Common Stock have been duly and validly
authorized and have been duly and validly issued and are fully paid and
nonassessable and none of them was issued in violation of any
preemptive or other similar right. The Conversion Shares have been duly
and validly authorized and reserved for issuance and, when delivered
upon conversion of the Notes, will be duly and validly issued, fully
paid and non-assessable and none of them will be issued in violation of
any preemptive or similar right. Except as disclosed in the
Registration Statement and the Prospectus, there is no outstanding
option, warrant or other right calling for the issuance of, and no
commitment, plan or agreement to issue, any share of stock of the
Company or any security convertible into, or exercisable or
exchangeable for, stock of the Company.
(p) The Notes have been duly authorized and, when executed by
the Company and authenticated by the Trustee in accordance with the
Indenture and delivered to the Underwriters against payment therefor
pursuant to this Agreement, will be duly and validly issued and will
constitute valid and binding obligations of the Company entitled to the
benefit of the Indenture and enforceable in accordance with its terms,
except as the enforceability thereof may be limited by applicable
bankruptcy, reorganization, insolvency, fraudulent conveyance,
moratorium and other similar laws affecting creditors' rights or
remedies generally and general equitable principles.
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<PAGE> 10
(q) The Common Stock, the Notes and the Indenture conform to
all statements in relation thereto contained in the Registration
Statement and the Prospectus. No shares of Preferred Stock are issued
and outstanding.
(r) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as
described or referred to therein, the Company has not (i) issued any
securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any material
transaction not in the ordinary course of business consistent with past
practice or (iii) declared or paid any dividend or made any
distribution on any shares of its stock or redeemed, purchased or
otherwise acquired or agreed to redeem, purchase or otherwise acquire
any shares of its stock.
(s) 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 because of the filing of the Registration Statement or the
consummation of the transactions contemplated hereby, other than the
right of Hilcoast Development Corp. ("Hilcoast") which is subject to
the Company's right to defer such registration as set forth in the
Registration Rights Agreement dated as of October 3, 1997 between the
Company and Hilcoast. The Company has obtained from all officers and
directors of the Company and from Odyssey Partners, L.P., their
enforceable written agreement that for a period of at least 180 days
from the date of this Agreement they will not, without the prior
written consent of CIBC Oppenheimer Corp., sell, offer to sell,
distribute, pledge, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, or encumber, or exercise any
registration rights with respect to, any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock
(including, without limitation, the Notes) now owned by them or
hereafter acquired or with respect to which they have or hereafter
acquire the power of disposition.
(t) All necessary corporate action has been duly and validly
taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the Notes.
This Agreement has been duly and validly executed and delivered by the
Company and constitutes and will constitute the legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except (A) as the enforceability thereof may
be limited by bankruptcy, insolvency, fraudulent transfer, fraudulent
conveyance, reorganization, moratorium or other similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles (whether considered in proceedings in equity or at law) and
(B) with respect to this Agreement, to the extent that rights to
indemnity or contribution under this Agreement may be limited by
federal, state or foreign securities laws or the public policy
underlying such laws.
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<PAGE> 11
(u) All necessary corporate action has been duly and validly
taken by the Company to authorize the execution, delivery and
performance by the Company of the Indenture and the Notes. The
Indenture and the Notes, when executed by the Company and authenticated
by the Trustee in accordance with the terms of the Indenture (assuming
the due authorization, execution and delivery of the Indenture by the
Trustee) and delivered to and paid for by the Underwriters in
accordance with the terms of this Agreement, constitute and will
constitute the legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except
(A) as the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent transfer, fraudulent conveyance, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles
(whether considered in proceedings in equity or at law), (B) with
respect to the Indenture to the extent that rights to indemnity or
contribution may be limited by federal, state or foreign securities
laws or the public policy underlying such laws and (C) that in the case
of the Notes such enforcement may be subject to the discretion of the
court before which any proceedings therefor may be brought as to
whether the Notes will be entitled to the benefits provided by the
Indenture.
(v) Each of the Company and its Subsidiaries is conducting its
business in compliance with all applicable laws, rules and regulations
of the jurisdictions in which it is conducting business, including,
without limitation, all applicable local, state and federal
environmental laws and regulations, except where the failure to be so
in compliance would not have a material adverse effect on the assets or
properties, business, results of operations or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole.
(w) Neither the Company nor any of its Subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company, is
any such dispute threatened, which dispute would have a material
adverse effect on the assets or properties, business, results of
operations or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole.
(x) No transaction has occurred between or among the Company
and its Subsidiaries and any of its or their officers or directors or
any affiliate or affiliates of any such officer or director that is
required to be described in and is not described in the Registration
Statement and the Prospectus.
(y) Each of the Company and its Subsidiaries has not taken,
nor will it take, directly or indirectly, any action designed to or
which might reasonably be expected to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Common Stock or the
Notes to facilitate the sale or resale of any of the Notes.
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<PAGE> 12
(z) The Company and its Subsidiaries have timely filed all
federal, state, local and foreign tax returns which are required to be
filed, other than those filings being contested in good faith and as to
which adequate reserves have been provided, through the date hereof,
which returns are complete and correct in all material respects and, to
the Company's best knowledge, not the subject of any audit proceedings
other than those set forth on Schedule III hereto, or have received
extensions thereof. The audits set forth on Schedule III hereto,
individually or in the aggregate, would not have a material adverse
effect on the assets or properties, business, results of operations or
condition (financial or otherwise) of the Company and its Subsidiaries,
taken as a whole. The Company and its Subsidiaries have paid all taxes
shown on such returns and all assessments received by them, except
where the failure to file, extend the due date of or pay the same,
individually or in the aggregate would not have a material adverse
effect on the assets or properties, business, results of operations or
condition (financial or otherwise) of the Company and its Subsidiaries,
taken as a whole.
(aa) Subject only to notice of issuance, the Notes have been
qualified for inclusion on the Nasdaq SmallCap Market.
(bb) The Company and each of its Subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's authorizations and are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles in the United States; (ii) access to
assets is permitted only in accordance with management's authorization;
and (iii) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(cc) The Company has not distributed and, prior to the later
of (i) the Closing Date and (ii) the completion of the distribution of
the Notes, will not distribute any offering material in connection with
the offering and sale of the Notes other than the Registration
Statement or any amendment thereto, any preliminary prospectus or the
Prospectus or any amendment or supplement thereto, or other materials,
if any, permitted by the Securities Act.
(dd) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Prospectus and the Registration
Statement will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended.
(ee) The present and fair salable value of the assets of the
Company exceeds the amount that will be required to be paid or in
respect of the existing debts and other liabilities (including
contingent liabilities) of the Company as they become absolute and
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<PAGE> 13
mature, and, following the issuance of the Notes, the present fair and
salable value of the assets of the Company will exceed the amount that
will be required to be paid on or in respect of the existing debts and
other liabilities (including contingent liabilities) of the Company as
they become absolute and mature. The assets of the Company do not
constitute unreasonably small capital to carry out its business as
presently conducted (and will not constitute unreasonably small capital
to carry out its business as proposed to be conducted) including the
capital needs of the Company, taking into account the projected capital
requirements and capital availability of the Company.
5. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters under this Agreement are several and not joint.
The respective obligations of the Underwriters to purchase the Notes are subject
to each of the following terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(A)(a).
(b) No order preventing or suspending the use of any
preliminary prospectus or the Prospectus shall have been or shall be in
effect, and no order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such purpose shall
be pending before or threatened by the Commission, and any requests for
additional information on the part of the Commission (to be included in
the Registration Statement or the Prospectus or otherwise) shall have
been complied with to the satisfaction of the Underwriters.
(c) The representations and warranties of the Company
contained in this Agreement and in the certificates delivered pursuant
to Section 5(d) and 5(k) shall be true and correct in all respects (as
to representations qualified by materiality) and in all material
respects (as to representations not so qualified) when made and on and
as of each Closing Date as if made on such date, except for
representations and warranties that speak as of a specific date other
than the Closing Date (which need only be true and correct as of such
date) and the Company shall have performed all covenants and agreements
and satisfied all the conditions contained in this Agreement required
to be performed or satisfied by it at or before such Closing Date.
(d) The Underwriters shall have received on each Closing Date
a certificate, addressed to the Underwriters and dated such Closing
Date, of the chief executive or chief operating officer and the chief
financial officer or chief accounting officer of the Company, to the
effect that the signers of such certificate have carefully examined the
Registration Statement, the Prospectus, this Agreement and the
Indenture and that the representations and warranties of the Company in
this Agreement are true and correct in all respects (as to
representations qualified by materiality) and in all material respects
(as to representations not so qualified) on and as of such Closing Date
with the same effect as if made on such Closing Date, except for
representations and warranties that speak as
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<PAGE> 14
of a specific date other than the date hereof (which need only be true
and correct as of such date) and the Company has performed all
covenants and agreements and satisfied all conditions contained in this
Agreement and the Indenture required to be performed or satisfied by it
at or prior to such Closing Date.
(e) The Indenture shall have been duly executed and delivered
by the parties thereto.
(f) The Underwriters shall have received at the time this
Agreement is executed and on each Closing Date, a letter or letters
signed by Ernst & Young LLP, addressed to the Underwriters and dated,
respectively, the date of this Agreement and each such Closing Date, in
form and substance satisfactory to the Underwriters, confirming that
they are independent accountants within the meaning of the Securities
Act and the Rules, that the response to Item 10 of the Registration
Statement is correct insofar as it relates to them and containing
statements and information of the type ordinarily included in
accountant's "comfort letters" to Underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus. References to the
Registration Statement and the Prospectus in this paragraph (f) are to
such documents as amended and supplemented at the date of the letter.
(g) The Underwriters shall have received on each Closing Date
from Weil, Gotshal & Manges LLP, counsel for the Company, an opinion,
addressed to the Underwriters and dated such Closing Date,
substantially to the effect of Exhibit A attached hereto.
(h) The Underwriters shall have received on each Closing Date
from Dennis Getman, Esq., general counsel of the Company, an opinion,
addressed to the Underwriters and dated such Closing Date,
substantially to the effect of Exhibit B attached hereto.
(i) The Underwriters shall have received on each Closing Date
from Cravath, Swaine & Moore, counsel to the Trustee, an opinion,
addressed to the Underwriters and dated such Closing Date, and stating
in effect that:
(i) The Trustee has been duly incorporated and is
validly existing as a banking corporation in good standing
under the laws of the State of New York.
(ii) The Trustee has the corporate trust power and
authority to execute, deliver and perform its duties under the
Indenture, has duly executed and delivered the Indenture and,
insofar as the laws governing the trust powers of the Trustee
are concerned and assuming due authorization, execution and
delivery thereof by the Company, the Indenture constitutes a
legal, valid and binding agreement of the Trustee, enforceable
against the Trustee in accordance with its
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<PAGE> 15
terms, subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other laws
affecting creditors' rights generally from time to time in
effect and to general principles of equity (including, without
limitation, concepts of materiality, reasonableness, good
faith and fair dealing), regardless of whether considered in a
proceeding in equity or at law;
(iii) The Notes have been duly authenticated and
delivered by the Trustee.
(iv) The execution, delivery and performance by the
Trustee of the Indenture do not conflict with or constitute a
breach of the charter or by-laws of the Trustee.
(v) No approval, authorization or other action by, or
filing with, any governmental authority of the United States
of America or the State of New York having jurisdiction over
the trust powers of the Trustee is required in connection with
the execution and delivery by the Trustee of the Indenture or
the performance by the Trustee of its duties thereunder,
except such as have been obtained, taken or made.
(j) All proceedings taken in connection with the sale of the
Firm Notes and the Additional Notes as herein contemplated shall be
reasonably satisfactory in form and substance to the Underwriters and
their counsel and the Underwriters shall have received from Morgan,
Lewis & Bockius LLP a favorable opinion, addressed to the Underwriters
and dated such Closing Date, with respect to the Notes, the
Registration Statement and the Prospectus, and such other related
matters, as the Underwriters may reasonably request. The Company shall
have furnished to Morgan, Lewis & Bockius LLP such documents as they
may reasonably request for the purpose of enabling them to pass upon
such matters.
(k) The Underwriters shall have received on each Closing Date
a certificate, including exhibits thereto, addressed to the
Underwriters and dated such Closing Date, of the secretary or an
assistant secretary of the Company, signed in such officer's capacity
as such officer, as to the (i) certificate of incorporation and bylaws
of the Company, (ii) resolutions authorizing the execution and delivery
of the Registration Statement, this Agreement, the Indenture, the Notes
and the performance of the transactions contemplated by this Agreement,
the Indenture, the Registration Statement, the Prospectus and the
offering of the Notes, and (iii) incumbency of the person or persons
authorized to execute and deliver the Registration Statement, this
Agreement, the Indenture and any other documents contemplated by the
offering of the Notes.
(l) The Underwriters shall have received on each Closing Date
certificates of the Secretaries of State of each State where the
Company or any of its Subsidiaries is incorporated and doing business
as to the good standing of the Company or such
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<PAGE> 16
Subsidiary, listing all charter documents on file, if applicable,
qualification of the Company or such Subsidiary to do business as a
foreign corporation, if applicable, payment of taxes and filing of
annual reports. In addition, the Underwriters shall have received
copies of all charter documents of the Company certified by the
Secretary of State of the State of such corporation's incorporation.
6. Covenants of the Company. (A) The Company covenants and
agrees as follows:
(a) The Company shall prepare the Prospectus in a form
approved by the Underwriters and file such Prospectus pursuant to Rule
424(b) under the Securities Act not later than the Commission's close
of business on the second business day following the execution and
delivery of this Agreement, or, if such second business day would be
more than fifteen business days after the Effective Date of the
Registration Statement or any post-effective amendment thereto, such
earlier date as would permit such Prospectus to be filed without filing
a post- effective amendment as set forth in Rule 430A(a)(3) under the
Securities Act and shall promptly advise the Underwriters (i) when the
Registration Statement shall have become effective, (ii) when any
amendment thereof or any related registration statement filed with the
Commission pursuant to Rule 462(b) of the Rules shall have become
effective, (iii) of any request by the Commission for any amendment of
the Registration Statement or the Prospectus or for any additional
information, (iv) of the prevention or suspension of the use of any
preliminary prospectus or the Prospectus or of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any
proceeding for that purpose and (v) of the receipt by the Company of
any notification with respect to the suspension of the qualification of
the Notes for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose. The Company shall not file any
amendment of the Registration Statement or amendment or supplement to
the Prospectus unless the Company has furnished the Underwriters a copy
for its review prior to filing and shall not file any such proposed
amendment or supplement to which the Underwriters reasonably object. If
at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order
suspending the qualification or exemption of the Securities under any
state securities or Blue Sky laws, the Company shall, if requested by
you, use every reasonable effort to obtain the withdrawal or lifting of
such order at the earliest possible time.
(b) If, at any time when a prospectus relating to the Notes is
required to be delivered under the Securities Act and the Rules, any
event occurs as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein in the light of the circumstances under which they were made
not misleading, or if it shall be necessary to amend or supplement the
Prospectus to comply with the Securities Act
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<PAGE> 17
or the Rules, the Company promptly shall prepare and file with the
Commission, subject to the third sentence of paragraph (a) of this
Section 6(A), an amendment or supplement which shall correct such
statement or omission or an amendment which shall effect such
compliance.
(c) The Company shall make generally available to its security
holders and to the Underwriters as soon as practicable, but not later
than 45 days after the end of the 12-month period beginning at the end
of the fiscal quarter of the Company during which the Effective Date
occurs (or 90 days if such 12-month period coincides with the Company's
fiscal year), a consolidated earnings statement (which need not be
audited) of the Company, covering such 12-month period, which shall
satisfy the provisions of Section 11(a) of the Securities Act or Rule
158 of the Rules.
(d) The Company shall furnish to each Underwriter and counsel
for the Underwriters, without charge, at least one (1) signed copy of
the Registration Statement (including all exhibits filed therewith or
incorporated by reference therein and amendments thereof and documents
incorporated or deemed to be incorporated by reference therein) and to
each other Underwriter a copy of the Registration Statement (without
exhibits thereto) and all amendments thereof and, so long as delivery
of a prospectus by an Underwriter or dealer may be required by the
Securities Act or the Rules, as many copies of any preliminary
prospectus and the Prospectus and any amendments thereof and
supplements thereto as the Underwriters may reasonably request.
(e) The Company shall cooperate with the Underwriters and
their counsel in endeavoring to qualify the Notes for offer and sale
under the laws of such jurisdictions as the Underwriters may designate
and shall maintain such qualifications in effect so long as required
for the distribution of the Notes; provided, however, that the Company
shall not be required in connection therewith, as a condition thereof,
to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction or subject itself to taxation as
doing business in any jurisdiction.
(f) For a period of five years after the date of this
Agreement, the Company shall supply to the Underwriters who may so
request in writing, copies of such financial statements and other
periodic and special reports as the Company may from time to time
distribute generally to the holders of any class of its capital stock
and to furnish to the Underwriters a copy of each annual or other
report it shall be required to file with the Commission.
(g) Without the prior written consent of CIBC Oppenheimer
Corp., for a period of 180 days after the date of this Agreement, the
Company shall not issue, sell or register with the Commission, or
otherwise encumber or dispose of, directly or indirectly, any equity
securities of the Company (or any securities convertible into or
exercisable or exchangeable for equity securities of the Company),
except for (i) the issuance of the
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<PAGE> 18
Notes pursuant to the Registration Statement, and (ii) the issuance of
Conversion Shares and the issuance of shares pursuant to the exercise
of outstanding options not otherwise the subject of lockup agreements
pursuant to Section 4(s) hereof under the Company's existing stock
option plans.
(h) On or before completion of this offering, the Company
shall cause the Notes to be included for trading on the Nasdaq SmallCap
Market and any shares of Common Stock issuable upon conversion of the
Notes to be included for trading on the Nasdaq Stock Market National
Market.
(B) The Company agrees to pay, or reimburse if paid by the
Underwriters, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses of the
Company incident to the public offering of the Notes and the performance of the
obligations of the Company under this Agreement including those relating to (i)
the preparation, printing, filing and distribution of the Registration Statement
including all exhibits thereto, each preliminary prospectus, the Prospectus, all
amendments and supplements to the Registration Statement and the Prospectus, and
the printing, duplicating, filing and distribution of this Agreement; (ii) the
preparation and delivery of certificates for the Notes to the Underwriters;
(iii) the registration or qualification of the Notes for offer and sale under
the securities or Blue Sky laws of the various jurisdictions referred to in
Section 6(A)(e), including the fees and disbursements of counsel for the
Underwriters in connection with such registration and qualification and the
preparation, printing, distribution and shipment of preliminary and
supplementary Blue Sky memoranda; (iv) the furnishing (including costs of
shipping and mailing) to the Underwriters of copies of each preliminary
prospectus, the Prospectus and all amendments or supplements to the Prospectus,
and of the several documents required by this Section to be so furnished, as may
be reasonably requested for use in connection with the offering and sale of the
Notes by the Underwriters or by dealers to whom Notes may be sold; (v) the
filing fees of the National Association of Securities Dealers, Inc. in
connection with its review of the terms of the public offering; (vi) the
furnishing (including costs of shipping and mailing) to the Underwriters of
copies of all reports and information required by Section 6(A)(f); and (vii)
inclusion of the Notes for quotation on the Nasdaq SmallCap Market.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement
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<PAGE> 19
of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment thereof or
supplement thereto, or arise out of or are based upon any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
arise out of or are based upon any misrepresentation or breach of any
representation or warranty by the Company contained in this Agreement;
provided, however, that such indemnity shall not inure to the benefit
of any Underwriter (or any person controlling such Underwriter) on
account of any losses, claims, damages or liabilities arising from the
sale of the Notes to any person by such Underwriter (i) if such untrue
statement or omission or alleged untrue statement or omission was made
in such preliminary prospectus, the Registration Statement or the
Prospectus, or such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the Company by any
Underwriter specifically for use therein or, (ii) as to any preliminary
prospectus, with respect to any Underwriter, to the extent that any
such loss, claim, damage or liability of such Underwriter results from
an untrue statement of a material fact contained in, or the omission of
a material fact from, such preliminary prospectus, which untrue
statement or omission was corrected in the Prospectus, if such
Underwriter sold Notes to the person alleging such loss, claim, damage
or liability without sending or giving, at or prior to the written
confirmation of such sale, a copy of the Prospectus, unless such
failure resulted from the failure of the Company to deliver copies of
the Prospectus to such Underwriter on a timely basis to permit such
sending or giving. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each person, if any, who
controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, each director of the Company,
and each officer of the Company who signs the Registration Statement,
to the same extent as the foregoing indemnity from the Company to each
Underwriter, but only insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in any
preliminary prospectus, the Registration Statement or the Prospectus,
or any amendment thereof or supplement thereto, contained in the last
paragraph of the cover page of the Prospectus, in the paragraph
relating to stabilization and the statements with respect to the public
offering of the Notes under the caption "Underwriting" in the
Prospectus provided, however, that the obligation of each Underwriter
to indemnify the Company (including any controlling person, director or
officer thereof) shall be limited to the net proceeds received by the
Company from such Underwriter.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or
parties under this Section, notify each such indemnifying party of
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<PAGE> 20
the commencement of such action, suit or proceeding, enclosing a copy
of all papers served. No indemnification provided for in Section 7(a)
or 7(b) shall be available to any party who shall fail to give notice
as provided in this Section 7(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have
related and was prejudiced by the failure to give such notice but the
omission so to notify such indemnifying party of any such action, suit
or proceeding shall not relieve it from any liability that it may have
to any indemnified party for contribution or otherwise than under this
Section. In case any such action, suit or proceeding shall be brought
against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and
the approval by the indemnified party of such counsel, the indemnifying
party shall not be liable to such indemnified party for any legal or
other expenses, except as provided below and except for the reasonable
costs of investigation subsequently incurred by such indemnified party
in connection with the defense thereof. The indemnified party shall
have the right to employ its counsel in any such action, but the fees
and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded
that there may be a conflict of interest between the indemnifying
parties and the indemnified party in the conduct of the defense of such
action (in which case the indemnifying parties shall not have the right
to direct the defense of such action on behalf of the indemnified
party) or (iii) the indemnifying parties shall not have employed
counsel to assume the defense of such action within a reasonable time
after notice of the commencement thereof, in each of which cases the
fees and expenses of counsel shall be at the expense of the
indemnifying parties. An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without
its written consent; provided, however, that such consent shall not be
unreasonably withheld.
8. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Sections 7(a) and 7(b) is due in accordance with its terms but for any reason is
held to be unavailable from the Company or the Underwriters, as the case may be,
the Company and the Underwriters shall contribute to the aggregate losses,
claims, damages and liabilities (including any investigation, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting any contribution received by any person entitled hereunder to
contribution from any person who may be liable for contribution) to which the
Company and one or more of the Underwriters may be subject in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Notes or, if
such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having
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<PAGE> 21
received notice as provided in Section 7 hereof, in such
proportion as is appropriate to reflect not only the relative benefits referred
to above but also the relative fault of the Company on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Underwriters shall be deemed to be in the same proportion as
(x) the total proceeds from the offering (net of underwriting discounts but
before deducting expenses) received by the Company, as set forth in the table on
the cover page of the Prospectus, bear to (y) the underwriting discounts
received by the Underwriters, as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement or omission or alleged omission of a material fact related to
information supplied by the Company 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 the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8
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 above. Notwithstanding
the provisions of this Section 8, (i) in no case shall any Underwriter (except
as may be provided in the Agreement Among Underwriters) be liable or responsible
for any amount in excess of the underwriting discount applicable to the Notes
purchased by such Underwriter hereunder, and (ii) the Company shall be liable
and responsible for any amount in excess of such underwriting discount;
provided, however, that no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as such Underwriter, and each person, if any, who controls the Company within
the meaning of the Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) in the
immediately preceding sentence of this Section 8. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section 8,
notify such party or parties from whom contribution may be sought, but the
failure so to notify such party or parties from whom contribution may be sought
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
Section. No party shall be liable for contribution with respect to any action,
suit, proceeding or claim settled without its written consent. The Underwriter's
obligations to contribute pursuant to this Section 8 are several in proportion
to their respective underwriting commitments and not joint.
9. Termination. This Agreement may be terminated with respect
to the Notes to be purchased on a Closing Date by the Underwriters by notifying
the Company at any time
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<PAGE> 22
(a.) in the absolute discretion of the Underwriters at or
before any Closing Date: (i) if, subsequent to the date the
Registration Statement is declared effective by the Commission or the
date of this Agreement, there has been any material adverse change in
the condition (financial or otherwise), earnings, business affairs or
business prospects of the Company, whether or not arising in the
ordinary course of business; (ii) if on or prior to such date, any
domestic or international event or act or occurrence has materially
disrupted, or in the opinion of the Underwriters will in the future
materially disrupt, the securities markets; (iii) if there has occurred
any new outbreak or material escalation of hostilities or other
calamity or crisis the effect of which on the financial markets of the
United States is such as to make it, in the judgment of the
Underwriters, inadvisable to proceed with the offering; (iv) if there
shall be such a material adverse change in general financial, political
or economic conditions or the effect of international conditions on the
financial markets in the United States is such as to make it, in the
judgment of the Underwriters, inadvisable or impracticable to market
the Notes; (v) if trading in the Notes has been suspended by the
Commission or trading generally on the New York Stock Exchange, Inc. or
on the American Stock Exchange, Inc. has been suspended or limited, or
minimum or maximum ranges for prices for securities shall have been
fixed, or maximum ranges for prices for securities have been required,
by said exchanges or by order of the Commission, the National
Association of Securities Dealers, Inc., or any other governmental or
regulatory authority; or (vi) if a banking moratorium has been declared
by any state or federal authority, or
(b.) at or before any Closing Date, that any of the conditions
specified in Section 5 shall not have been fulfilled when and as
required by this Agreement.
If this Agreement is terminated pursuant to any of its
provisions, the Company shall not be under any liability to any Underwriter, and
no Underwriter shall be under any liability to the Company, except that (x) if
this Agreement is terminated by the Underwriters because of any failure, refusal
or inability on the part of the Company to comply with the terms or to fulfill
any of the conditions of this Agreement, the Company will, upon their request,
reimburse the Underwriters for all out-of-pocket expenses (including the fees
and disbursements of their counsel) incurred by them in connection with the
proposed purchase and sale of the Notes or in contemplation of performing their
obligations hereunder and (y) no Underwriter who shall have failed or refused to
purchase the Notes agreed to be purchased by it under this Agreement, without
some reason sufficient hereunder to justify cancellation or termination of its
obligations under this Agreement, shall be relieved of liability to the Company
or to the other Underwriters for damages occasioned by its failure or refusal.
10. Substitution of Underwriters. If one of the Underwriters
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
the Notes agreed to be purchased by it on such Closing Date, the nondefaulting
Underwriter may find one or more substitute underwriters to purchase such Notes
or make such other arrangements as such nondefaulting Underwriter may deem
advisable or the
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<PAGE> 23
remaining Underwriter may agree to purchase a portion of such Notes, in each
case upon the terms set forth in this Agreement. If no such arrangements have
been made by the close of business on the business day following such Closing
Date,
(a) if the number of Notes to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Notes
that all the Underwriters are obligated to purchase on such Closing
Date, then the nondefaulting Underwriters shall be obligated to
purchase such Notes on the terms herein set forth in proportion to
their respective obligations hereunder; provided, that in no event
shall the maximum principal amount of Notes that any Underwriter has
agreed to purchase pursuant to Section 1 be increased pursuant to this
Section 10 by more than one-ninth of such principal amount of Notes
without the written consent of such Underwriter, or
(b) if the number of Notes to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Notes that
the Underwriters are obligated to purchase on such Closing Date, then
the Company shall be entitled to an additional business day within
which it may, but is not obligated to, find one or more substitute
underwriters reasonably satisfactory to the nondefaulting Underwriter
to purchase such Notes upon the terms set forth in this Agreement.
In any such case, either the Underwriters or the Company shall
have the right to postpone the applicable Closing Date for a period of not more
than five business days in order that necessary changes and arrangements
(including any necessary amendments or supplements to the Registration Statement
or Prospectus) may be effected by the Underwriters and the Company. If the
number of Notes to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Notes that all the
Underwriters are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements pursuant to
this Section within the period stated for the purchase of the Notes that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Notes to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company and without liability
on the part of the Company, except in both cases as provided in Sections 6(B),
7, 8 and 9. The provisions of this Section shall not in any way affect the
liability of any defaulting Underwriter to the Company or the nondefaulting
Underwriters arising out of such default. A substitute underwriter hereunder
shall become an Underwriter for all purposes of this Agreement.
11. Miscellaneous. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers and
of the Underwriters set forth in or made pursuant to this Agreement shall remain
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Sections 7 and 8 hereof, and shall survive
delivery of and payment for the Notes. The provisions of Sections 6(B), 7, 8 and
9 shall survive the termination or cancellation of this Agreement.
-23-
<PAGE> 24
This Agreement has been and is made for the benefit of the
Underwriters and the Company and their respective successors and assigns, and,
to the extent expressed herein, for the benefit of persons controlling any of
the Underwriters or the Company and directors and officers of the Company, and
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Notes from any Underwriter merely
because of such purchase.
All notices and communications hereunder shall be in writing
and mailed or delivered or by telephone or telegraph if subsequently confirmed
in writing, (a) if to the Underwriters, c/o CIBC Oppenheimer Corp., CIBC
Oppenheimer Tower, World Financial Center, New York, New York 10281, Attention:
Richard D. White, with copies to Morgan, Lewis & Bockius LLP, 101 Park Avenue,
New York, New York 10178, Attention: Howard L. Shecter, Esq. and (b) if to the
Company, to its agent for service as such agent's address appears on the cover
page of the Registration Statement, with copies to Weil, Gotshal & Manges LLP,
767 Fifth Avenue, New York, New York 10153, Attention: Robert Todd Lang, Esq.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
-24-
<PAGE> 25
Please confirm that the foregoing correctly sets forth the
agreement among us.
Very truly yours,
AVATAR HOLDINGS INC.
By
----------------------------------
Name:
Title:
Confirmed:
CIBC OPPENHEIMER CORP.
By
-----------------------------------
Name:
Title:
SBC WARBURG DILLON READ INC.
By
-----------------------------------
Name:
Title:
<PAGE> 1
- --------------------------------------------------------------------------------
AVATAR HOLDINGS INC.
and
THE CHASE MANHATTAN BANK,
as Indenture Trustee
---------------------------
INDENTURE
Dated as of January __, 1998
---------------------------
$100,000,000*
__% Convertible Subordinated Notes due 2005
- --------------------------------------------------------------------------------
<PAGE> 2
* Plus up to an additional $15,000,000 aggregate principal amount of __%
Convertible Subordinated Notes issuable upon exercise of the over-allotment
option granted to the Underwriters of the Notes.
<PAGE> 3
TABLE OF CONTENTS
PAGE
ARTICLE I.
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION................ 3
SECTION 1.01 Definitions............................................... 3
SECTION 1.02 Compliance Certificates and Opinions...................... 10
SECTION 1.03 Form of Documents Delivered to Trustee.................... 10
SECTION 1.04 Acts of Holders; Record Dates............................. 11
SECTION 1.05 Notices, Etc., to Trustee and Company..................... 12
SECTION 1.06 Notice to Holders; Waiver................................. 13
SECTION 1.07 Conflict with Trust Indenture Act......................... 13
SECTION 1.08 Effect of Headings and Table of Contents.................. 13
SECTION 1.09 Successors and Assigns.................................... 13
SECTION 1.10 Separability Clause....................................... 14
SECTION 1.11 Benefits of Indenture..................................... 14
SECTION 1.12 GOVERNING LAW............................................. 14
SECTION 1.13 Legal Holidays............................................ 14
SECTION 1.15 Limitation on Individual Liability........................ 14
ARTICLE II.
SECURITY FORMS......................................................... 15
SECTION 2.01 Forms Generally........................................... 15
SECTION 2.03 Form of Reverse of Security............................... 18
SECTION 2.04 Form of Trustee's Certificate of Authentication........... 25
ARTICLE III.
THE SECURITIES......................................................... 25
SECTION 3.01 Title and Terms........................................... 25
SECTION 3.02 Denominations............................................. 26
SECTION 3.03 Execution, Authentication, Delivery and Dating............ 26
SECTION 3.04 Temporary Securities...................................... 27
SECTION 3.05 Registration, Registration of Transfer and Exchange....... 27
SECTION 3.06 Mutilated, Destroyed, Lost and Stolen Securities.......... 29
SECTION 3.07 Payment of Interest; Interest Rights Preserved............ 30
SECTION 3.08 Persons Deemed Owners..................................... 32
SECTION 3.09 Cancellation.............................................. 32
SECTION 3.10 Computation of Interest................................... 32
ARTICLE IV.
SATISFACTION AND DISCHARGE............................................. 32
SECTION 4.01 Satisfaction and Discharge of Indenture................... 32
<PAGE> 4
SECTION 4.02 Application of Trust Money................................ 34
SECTION 4.03 Reinstatement............................................. 34
ARTICLE V.
REMEDIES............................................................... 35
SECTION 5.01 Events of Default......................................... 35
SECTION 5.02 Acceleration of Maturity; Rescission and Annulment........ 37
SECTION 5.03 Collection of Indebtedness and Suits for Enforcement by
Trustee................................................... 38
SECTION 5.04 Trustee May File Proofs of Claim.......................... 39
SECTION 5.05 Trustee May Enforce Claims Without Possession of
Securities................................................ 40
SECTION 5.06 Application of Money Collected............................ 40
SECTION 5.07 Limitation on Suits....................................... 40
SECTION 5.08 Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert....................... 41
SECTION 5.09 Restoration of Rights and Remedies........................ 41
SECTION 5.10 Rights and Remedies Cumulative............................ 42
SECTION 5.11 Delay or Omission Not Waiver.............................. 42
SECTION 5.12 Control by Holders........................................ 42
SECTION 5.13 Waiver of Past Defaults................................... 43
SECTION 5.14 Undertaking for Costs..................................... 43
ARTICLE VI.
THE TRUSTEE............................................................ 43
SECTION 6.01 Certain Duties and Responsibilities....................... 44
SECTION 6.02 Notice of Defaults........................................ 45
SECTION 6.03 Certain Rights of Trustee................................. 45
SECTION 6.04 Not Responsible for Recitals or Issuance of Securities.... 46
SECTION 6.05 May Hold Securities....................................... 46
SECTION 6.06 Money Held in Trust....................................... 47
SECTION 6.07 Compensation and Reimbursement............................ 47
SECTION 6.08 Disqualification; Conflicting Interests................... 48
SECTION 6.09 Corporate Trustee Required; Eligibility................... 48
SECTION 6.10 Resignation and Removal; Appointment of Successor......... 48
SECTION 6.11 Acceptance of Appointment by Successor.................... 49
SECTION 6.12 Merger, Conversion, Consolidation or Succession to
Business.................................................. 50
SECTION 6.13 Preferential Collection of Claims Against Company......... 50
SECTION 6.14 Appointment of Authenticating Agent....................... 50
<PAGE> 5
ARTICLE VII.
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY...................... 53
SECTION 7.01 Company to Furnish Trustee Names and Addresses of Holders. 53
SECTION 7.02 Preservation of Information; Communication to Holders..... 53
SECTION 7.03 Reports by Trustee........................................ 53
SECTION 7.04 Reports by Company........................................ 54
ARTICLE VIII.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE................... 54
SECTION 8.01 Company May Consolidate, Etc., Only on Certain Terms...... 54
SECTION 8.02 Successor Substituted..................................... 55
ARTICLE IX.
SUPPLEMENTAL INDENTURES................................................ 55
SECTION 9.01 Supplemental Indentures Without Consent of Holders........ 55
SECTION 9.02 Supplemental Indentures with Consent of Holders........... 56
SECTION 9.03 Execution of Supplemental Indentures...................... 57
SECTION 9.04 Effect of Supplemental Indentures......................... 57
SECTION 9.05 Conformity with Trust Indenture Act....................... 57
SECTION 9.06 Reference in Securities to Supplemental Indentures........ 57
ARTICLE X.
COVENANTS.............................................................. 58
SECTION 10.01 Payment of Principal, Premium and Interest............... 58
SECTION 10.02 Maintenance of Office or Agency.......................... 58
SECTION 10.03 Money for Security Payments to Be Held in Trust.......... 58
SECTION 10.04 Statement by Officers as to Default...................... 60
SECTION 10.05 Existence................................................ 60
SECTION 10.06 Waiver of Certain Covenants.............................. 60
ARTICLE XI.
REDEMPTION OF SECURITIES............................................... 60
SECTION 11.01 Right of Redemption...................................... 61
SECTION 11.02 Applicability of Article................................. 61
SECTION 11.03 Election to Redeem; Notice to Trustee.................... 61
SECTION 11.04 Selection by Trustee of Securities to be Redeemed........ 61
SECTION 11.05 Notice of Redemption..................................... 62
SECTION 11.06 Deposit of Redemption Price.............................. 62
SECTION 11.07 Securities Payable on Redemption Date.................... 63
SECTION 11.08 Securities Redeemed in Part.............................. 63
SECTION 11.09 Conversion Arrangements on Call for Redemption........... 64
<PAGE> 6
ARTICLE XII.
SUBORDINATION OF SECURITIES............................................ 64
SECTION 12.01 Securities Subordinated to Senior Indebtedness........... 64
SECTION 12.02 Payment Over of Proceeds Upon Dissolution, Etc........... 64
SECTION 12.03 Acceleration of Securities............................... 65
SECTION 12.04 No Payment When Senior Indebtedness in Default........... 66
SECTION 12.05 Subrogation to Rights of Holders of Senior Indebtedness.. 67
SECTION 12.06 Obligations of the Company Unconditional................. 68
SECTION 12.07 Trustee to Effectuate Subordination...................... 68
SECTION 12.08 No Waiver of Subordination Provisions.................... 68
SECTION 12.09 Notice to Trustee........................................ 69
SECTION 12.10 Reliance on Judicial Order or Certificate of Liquidating
Agent.................................................... 69
SECTION 12.11 Trustee Not Fiduciary for Holders of Senior Indebtedness. 70
SECTION 12.12 Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights......................... 70
SECTION 12.13 Article Applicable to Paying Agents...................... 70
SECTION 12.14 Rights with Respect to Conversion and Certain Payments... 71
SECTION 12.15 Certain Conversions Deemed Payment....................... 71
ARTICLE XIII.
CONVERSION OF SECURITIES............................................... 72
SECTION 13.01 Conversion Privilege and Conversion Price................ 72
SECTION 13.02 Exercise of Conversion Privilege......................... 72
SECTION 13.03 Fractions of Shares...................................... 73
SECTION 13.04 Adjustment of Conversion Price........................... 74
SECTION 13.05 Notice of Adjustments of Conversion Price................ 78
SECTION 13.06 Notice of Certain Corporate Action....................... 79
SECTION 13.07 Company to Reserve Common Stock.......................... 80
SECTION 13.08 Taxes on Conversions..................................... 80
SECTION 13.09 Covenant as to Common Stock.............................. 80
SECTION 13.10 Cancellation of Converted Securities..................... 81
SECTION 13.11 Provisions of Consolidation, Merger or Sale of Assets.... 81
SECTION 13.12 Trustee's Disclaimer..................................... 81
ARTICLE XIV.
RIGHT TO REQUIRE REPURCHASE............................................ 82
SECTION 14.01 Right to Require Repurchase.............................. 82
SECTION 14.02 Notice; Method of Exercising Repurchase Right............ 82
SECTION 14.03 Withdrawal of Repurchase Notice.......................... 83
SECTION 14.04 Deposit of Repurchase Price.............................. 84
SECTION 14.05 Securities Not Repurchased on Repurchase Date............ 84
<PAGE> 7
SECTION 14.06 Securities Repurchased in Part........................... 84
SECTION 14.07 Certain Definitions...................................... 85
<PAGE> 8
Certain Sections of this Indenture relating to
Sections 310 through 318 of the Trust Indenture Act of 1939:
Section 310(a)(1) 6.09
(a)(2) 6.09
(a)(3) Not Applicable
(a)(4) Not Applicable
(a)(5) 6.09
(b) 6.08
Section 311(a) 6.13
(b) 6.13
Section 312(a) 7.01
7.02(a)
(b) 7.02(b)
(c) 7.02(c)
Section 313(a) 7.03(a)
(b) 7.03(a)
(c) 7.03(a)
(d) 7.03(b)
Section 314(a) 7.04
(a)(4) 10.04
(b) Not Applicable
(c)(1) 1.02
(c)(2) 1.02
(c)(3) Not Applicable
(d) Not Applicable
(e) 1.02
Section 315(a) 6.01
(b) 6.02
(c) 6.01
(d) 6.01
(e) 5.14
Section 316(a)(1)(A) 5.02
5.12
(a)(1)(B) 5.13
(a)(2) Not Applicable
(b) 5.08
(c) 1.04(c)
i
<PAGE> 9
Section 317(a)(1) 5.03
(a)(2) 5.04
(b) 10.03
Section 318(a) 1.07
- ------------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
ii
<PAGE> 10
INDENTURE, dated as of January__, 1998 between AVATAR HOLDINGS INC., a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal executive offices at 255
Alhambra Circle, Coral Gables, Florida 33134, and THE CHASE MANHATTAN BANK, a
New York banking corporation, as Indenture Trustee (herein called the
"Trustee").
Whereas, the Company has duly authorized the creation of an issue of its
__% Convertible Subordinated Notes due 2005 (herein called the "Securities") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
Whereas, all things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH: for and in consideration of
the premises and the purchase of the Securities by the Holders thereof, it is
mutually agreed, for the equal and proportionate benefit of all Holders of the
Securities, as follows:
ARTICLE 1.
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION a. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
i. the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the
singular;
ii. all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have
the meanings assigned to them therein;
iii. all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally
accepted accounting principles, and, except as otherwise
herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation
required and permitted hereunder shall mean United States
1
<PAGE> 11
accounting principles as are generally accepted at the date of
this Indenture; and
iv. the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not
to any particular Article, Section or other subdivision.
Certain terms used in Articles XII, XIII and XIV are defined in such
Articles.
"Act", when used with respect to any Holder, has the meaning specified in
Section 1.04.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such specified Person. For the purposes of this definition, "control" when
used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of the Depositary for such Global Security to the extent applicable
to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.14 to act on behalf of the Trustee to authenticate Securities.
The terms "Beneficial Owner" and "beneficially owns" are determined in
accordance with Rule 13d-3, promulgated by the Commission under the Exchange
Act.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated to close by law or executive order.
"Change in Control" has the meaning specified in Section 14.06.
2
<PAGE> 12
"Closing Date" means _____________, 1998.
"Commission" means the Securities and Exchange Commission as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" includes any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which is not subject to redemption by the Company. However, subject to the
provisions of Section 13.11, shares issuable on conversion of Securities shall
include only shares of the class designated as Common Stock of the Company at
the date of this Indenture or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which are
not subject to redemption by the Company; provided, that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Chief Financial Officer, Controller, its Treasurer
or an Assistant Treasurer, or its Secretary or an Assistant Secretary, and
delivered to the Trustee.
"Consolidated Subsidiary" means a Subsidiary of the Company whose
financial statements are included in the most recent annual consolidated
financial statements of the Company and its Subsidiaries.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall principally be administered,
which office at the date hereof is located at 450 West 33rd Street, New York,
New York 10001.
"Credit Facility" means, in each case as amended, restated, modified,
renewed, increased, refunded, replaced or refinanced in whole or in part from
time to time, the Revolving Credit Agreement dated August 27, 1996 between the
Company and BHF Bank, Grand Cayman Branch, as Lender.
3
<PAGE> 13
"Current Market Price" has the meaning specified in Section 13.04.
"DTC" means The Depository Trust Company, a New York limited purpose trust
company.
"Defaulted Interest" has the meaning specified in Section 3.07.
"Depositary" means, with respect to any Global Securities, a clearing
agency that is registered as such under the Exchange Act and is designated by
the Company to act as a Depositary for such Global Securities (or any successor
securities clearing agency so registered).
"Designated Senior Indebtedness" means Senior Indebtedness (a) under any
debt facility with banks or other lenders which provides for revolving credit
loans, term loans, receivables financing (including through the sale of
receivables) or letters of credit to the Company or (b) the principal amount of
which is $25.0 million or more and that has been designated by the Company as
"Designated Senior Indebtedness."
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Global Security" means a Security that is registered in the Security
Register in the name of a Depositary or nominee thereof.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and to
govern this instrument and any such supplemental indenture, respectively.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Maturity," when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity thereof or by declaration of
acceleration, redemption or otherwise.
"Obligations" in respect of Senior Indebtedness means any principal,
interest, premiums, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any such indebtedness.
4
<PAGE> 14
"Officers' Certificate" means a certificate, in form reasonably
satisfactory to the Trustee, signed by the Chairman of the Board, the Chief
Executive Officer, the President or a Vice President, and by the Chief Financial
Officer, Controller, the Treasurer or an Assistant Treasurer, the Secretary or
an Assistant Secretary, of the Company, and delivered to the Trustee. One of the
officers signing an Officers' Certificate given pursuant to Section 10.04 shall
be the principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion, in form reasonably
satisfactory to the Trustee, of counsel, who may be counsel for or an employee
of the Company, and who shall be reasonably acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(a) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for the payment
or redemption of which moneys in the necessary
amount have been theretofore deposited with the
Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in
trust by the Company (if the Company shall act as
its own Paying Agent) for the Holders of such
Securities; provided, that if such Securities, or
portions thereof, are to be redeemed, notice of
such redemption has been duly given pursuant to
this Indenture or provision therefor satisfactory
to the Trustee has been made; and
(c) Securities which have been paid pursuant to
Section 3.06 or in exchange for or in lieu of
which other Securities have been authenticated and
delivered pursuant to this Indenture, other than
any such Securities in respect of which there
shall have been presented to the Trustee proof
satisfactory to it that such Securities are held
by a bona fide purchaser in whose hands such
Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver,
5
<PAGE> 15
only Securities which the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of and premium, if any, or interest on any Securities on behalf of the
Company.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization or government or
any agency or political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.06 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Record Date" means either a Regular Record Date or a Special Record
Date, as applicable.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture on the
applicable Redemption Date.
"Regular Record Date", for the interest payable on any Interest Payment
Date means March 15 or September 15 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Indebtedness.
"Repurchase Date" has the meaning specified in Section 14.01.
"Repurchase Notice" has the meaning specified in Section 14.02.
"Repurchase Price" has the meaning specified in Section 14.01.
"Responsible Officer" means, when used with respect to the Trustee, the
chairman of the Board of Directors, any vice chairman of the Board of Directors,
the chairman of the trust
6
<PAGE> 16
committee, the chairman of the executive committee, any vice chairman of the
executive committee, the president, any vice president (whether or not
designated by numbers or words added before or after the title "vice
president"), the cashier, the secretary, the treasurer, any senior trust
officer, any trust officer, any assistant trust officer, any assistant cashier,
any assistant secretary, any assistant treasurer, or any other officer or
assistant officer of the Trustee customarily performing functions similar to
those performed by the Persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred because of his
or her knowledge of and familiarity with the particular subject.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 3.05.
"Senior Indebtedness" means the principal of and premium, if any, and
interest on (a) all indebtedness of the Company for money borrowed, whether
outstanding on the date of execution of this Indenture or hereafter created,
incurred or assumed, except any such other indebtedness that by the terms of the
instrument or instruments by which such indebtedness was created or incurred
expressly provides that it (i) is junior in right of payment to the Securities
or (ii) ranks pari passu in right of payment with the Securities, and (b) any
amendments, renewals, extensions, modifications, refinancings and refundings of
the foregoing. For the purposes of this definition, "indebtedness for money
borrowed" when used with respect to the Company means (i) any obligation of, or
any obligation guaranteed by, the Company for the repayment of borrowed money
(including without limitation fees, penalties or other obligations in respect
thereof), whether or not evidenced by bonds, debentures, notes or other written
instruments, (ii) any deferred payment obligation of, or any such obligation
guaranteed by, the Company for the payment of the purchase price of property or
assets evidenced by a note or similar instrument, and (iii) any obligation of,
or any such obligation guaranteed by, the Company for the payment of rent or
other amounts under a lease of property or assets which obligation is required
to be classified and accounted for as a capitalized lease on the balance sheet
of the Company under generally accepted accounting principles.
"Significant Subsidiary" means at any time a Subsidiary that is at that
time a "significant subsidiary" of the Company within the meaning of Rule
1.02(w) of Regulation S-X under the Securities Act as in effect on the date of
this Indenture.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.07.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries or
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<PAGE> 17
by the Company and one or more other Subsidiaries. For the purposes of this
definition, "voting stock" means stock which ordinarily has voting power for the
election of directors, whether at all times or only so long as no senior class
of stock has such voting power by reason of any contingency.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
SECTION b. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirement set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
i. a statement that each individual or firm signing such
certificate or opinion has read such covenant or condition and
the definitions herein relating thereto;
ii. a brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
iii. a statement that, in the opinion of each such individual or
such firm, he has or they have made such examination or
investigation as is necessary to enable him or them to express
an informed opinion as to whether or not such covenant or
condition has been complied with; and
iv. a statement as to whether, in the opinion of each such
individual or such firm, such condition or covenant has been
complied with.
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<PAGE> 18
SECTION c. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any Person may certify to
give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certification or Opinion of
Counsel, unless such officer knows, or in the exercise of reasonable care should
know, that the certificate or opinion with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate of public officials or upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION d. Acts of Holders; Record Dates.
(1) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this
Indenture to be given or taken by Holders may be
embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in
person or by agents duly appointed in writing; and,
except as herein otherwise expressly provided, such
action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it
is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied
therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such
instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.01) conclusive in
favor of the Trustee and the Company, if made in the
manner provided in this Section.
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<PAGE> 19
(2) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the
affidavit of a witness of such execution or by a
certificate of a notary public or other officer
authorized by law to take acknowledgments of deeds,
certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity
other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any
such instrument or writing, or the authority of the
Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
(3) The Company may fix any day as the record date for the
purpose of determining the Holders entitled to give or
take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on
any action, authorized or permitted to be given or taken
by Holders. If not set by the Company prior to the first
solicitation of a Holder made by any Person in respect
of any such action, or, in the case of any such vote,
prior to such vote, the record date for any such action
or vote shall be the 30th day (or, if later, the date of
the most recent list of Holders required to be provided
pursuant to Section 7.01) prior to such first
solicitation or vote, as the case may be. With regard to
any record date, only the Holders on such date (or their
duly designated proxies) shall be entitled to give or
take, or vote on, the relevant action. Notwithstanding
the foregoing, the Company shall not set a record date
for, and the provisions of this paragraph shall not
apply with respect to, any Act by the Holders pursuant
to Section 5.01, 5.02 or 5.12.
(4) The ownership of Securities shall be proved by the
Security Register.
(5) Any Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of
every Security issued upon the registration of transfer
therefor or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done
by the Trustee or the Company in reliance thereon,
whether or not notation of such action is made upon such
Security.
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<PAGE> 20
(6) Without limiting the foregoing, a Holder entitled
hereunder to give or take any action hereunder with
regard to any particular Security may do so with regard
to all or any part of the principal amount of such
Security or by one or more duly appointed agents each of
which may do so pursuant to such appointment with regard
to all or any different part of such principal amount.
SECTION e. Notices, Etc., to Trustee and Company.
Any Act of Holders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
i. the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its
Corporate Trust Office, Attention: Corporate Trustee
Administration, or at any other address previously furnished
in writing to the Holders and the Company by the Trustee; or
ii. the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if in writing and mailed,
first-class postage prepaid, to the Company, addressed to it
at the address of its principal executive offices specified in
the first paragraph of this instrument or at any other address
previously furnished in writing to the Trustee by the Company.
All such notices and communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered; three Business Days after
being deposited in the mail, first class, registered or certified with postage
prepaid, if mailed; when answered back if telexed; when receipt acknowledged, if
telecopied; and the next Business Day after timely delivery to the courier, if
sent by nationally recognized overnight air courier guaranteeing next day
delivery.
SECTION f. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if made, given, furnished or filed in writing to each Holder affected by such
event, at his address as it appears in the Security Register, not later than the
latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver. All
such notices and communications shall be deemed to have been duly given: at the
time delivered by hand, if personally delivered;
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<PAGE> 21
three Business Days after being deposited in the mail, first class, registered
or certified with postage prepaid, if mailed; when answered back if telexed;
when receipt acknowledged, if telecopied; and the next Business Day after timely
delivery to the courier, if sent by nationally recognized overnight air courier
guaranteeing next day delivery.
In the case of any notice this Indenture provides shall be given by mail,
if, by reason of the suspension of regular mail service or by reason of any
other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
SECTION g. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act which is required under such Act to be a part of and
govern this Indenture if this Indenture were subject thereto, the latter
provision shall control. If any provision of this Indenture modifies or excludes
any provision of the Trust Indenture Act that may be so modified or excluded,
the latter provision shall be deemed to apply to this Indenture as so modified
or to be excluded, as the case may be.
SECTION h. Effect of Headings and Table of Contents.
The Article and Section headings herein and in the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION i. Successors and Assigns.
All covenants and agreements in this Indenture by the Company and the
Trustee shall bind each of their respective successors and assigns, whether so
expressed or not.
SECTION j. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION k. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, the Holders of Securities and, with respect to Article XII, the
holders of Senior Indebtedness, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION l. GOVERNING LAW.
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<PAGE> 22
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
SECTION m. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, Repurchase
Date or Stated Maturity of any Security or the last date on which a Holder has
the right to convert his Securities shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal and premium if any, or conversion of the
Securities need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or Redemption Date, Repurchase Date or at the Stated Maturity, or on such
last day for conversion; provided, that no interest shall accrue for the period
from and after such Interest Payment Date, Redemption Date, Repurchase Date or
Stated Maturity, as the case may be, to the next succeeding Business Day.
SECTION n. No Security Interest Created.
Nothing in this Indenture or in the Securities, express or implied, shall
be construed to constitute a security interest under the Uniform Commercial Code
or similar legislation, as now or hereafter enacted and in effect in any
jurisdiction where property of the Company or its Subsidiaries is or may be
located.
SECTION o. Limitation on Individual Liability.
No recourse under or upon any obligation, covenant or agreement contained
in this Indenture or in any Security, or for any claim based thereon or
otherwise in respect thereof, shall be had against any incorporator,
stockholder, officer, director or employee, as such, past, present or future, of
the Company or any successor Person, either directly or through the Company,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Indenture and the obligations issued hereunder are solely
corporate obligations, and that no such personal liability whatever shall attach
to, or is or shall be incurred by, the incorporators, stockholders, officers,
directors or employees, as such, of the Company or any successor Person, or any
of them, because of the creation of the indebtedness hereby authorized, or under
or by reason of the obligations, covenants or agreements contained in this
Indenture or in any Security or implied therefrom; and that any and all such
personal liability of every name and nature, either at common law or in equity
or by constitution or statute, of, and any and all such rights and claims
against, every such incorporator, stockholder, officer, director or employee, as
such, because of the creation of the indebtedness hereby authorized, or under or
by reason of the obligations, covenants or agreements contained in this
Indenture or in any Security or implied therefrom, are
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<PAGE> 23
hereby expressly waived and released as a condition of, and as a consideration
for, the execution of this Indenture and the issuance of such Security. Each and
every Holder of the Securities, by receiving and holding the same, agrees to the
provisions of this Section and waives and releases any and all such recourse,
claim and liability.
ARTICLE 2.
SECURITY FORMS
SECTION a. Forms Generally.
The Securities (including the Conversion Notice and the Option of Holder
to Elect Purchase upon a Change of Control) and the Trustee's certificate of
authentication shall be in substantially the forms set forth in this Article,
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture, and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with any organizational document, any
applicable law or with the rules of any securities exchange on which the
Securities are listed or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution of the
Securities.
The definitive Securities (other than a Global Security) may be printed,
lithographed or engraved or produced by any combination of these methods on
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing the Securities, as evidenced by their
execution of such Securities.
SECTION b. Form of Face of Security.
A legend in substantially the following form shall appear on the face of
each Global Security:
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
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<PAGE> 24
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE REGISTERED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY.
AVATAR HOLDINGS INC.
__% Convertible Subordinated Note due 2005
Cusip No.
No. ________ $___________
Avatar Holdings Inc., a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company", which term includes
any successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to __________________________, or registered
assigns, the principal sum of ________________ Dollars on [___________], 2005,
and to pay interest thereon from and including the date of original issuance of
Securities pursuant to the Indenture or from and including the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually on April 1 and October 1 in each year, commencing April 1, 1998 at
the rate of __% per annum, until the principal hereof is paid or made available
for payment. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be March 15 or September 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture. Notice
of a Special Record Date shall be given to Holders of Securities not less than
10 days prior to such Special Record Date. Payment of the principal of and
premium, if any, and interest on this Security will be made (i) in respect of
Securities held of record by the Depositary or its nominee in same day funds on
or prior to the respective payment dates and (ii) in respect of Securities held
of record by Holders other than the Depositary or its nominee at the offices of
the Trustee in New York, New York (or such other office maintained for that
purpose pursuant to Section 10.02 of the Indenture), in each case in such coin
or currency of the United
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<PAGE> 25
States of America as of the time of payment is legal tender for payment of
public and private debts; provided, however, that at the option of the Company
payment of interest in respect of Securities held of record by Holders other
than the Depositary or its nominee may be made by check mailed to the address of
the Person entitled thereto as such address shall appear in the Security
Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: _________________ AVATAR HOLDINGS INC.
By _________________________
Name
Title
Attest:
________________________
Name
Title
SECTION c. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of the
Company designated as its [___]% Convertible Subordinated Notes due 2005 (herein
called the "Securities"), limited in aggregate principal amount to $115,000,000
(including $15,000,000 principal amount of the Securities issuable upon exercise
of an underwriters' over-allotment option), issued and to be issued under an
Indenture, dated as of January __, 1998 (herein called the "Indenture"), between
the Company and The Chase Manhattan Bank, as Indenture Trustee (herein called
the "Trustee", which term includes any successor trustee under the Indenture),
to which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee, the holders of Senior
Indebtedness and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
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<PAGE> 26
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at his option, at any time after 60 days
following the date of original issuance of Securities pursuant to the Indenture
and on or before the close of business on [____________], 2005 or in case this
Security or a portion hereof is called for redemption, then in respect of this
Security or such portion hereof until and including, but (unless the Company
defaults in making the payment due upon redemption) not after, the close of
business on the second Business Day immediately preceding the Redemption Date,
to convert this Security (or any portion of the principal amount hereof which is
$1,000 or an integral multiple thereof), at the principal amount hereof, or of
such portion, into fully paid and non-assessable shares (calculated as to each
conversion to the nearest 1/100th of a share) of Common Stock at a conversion
price equal to $[_______] principal amount for each share of Common Stock (or at
the current adjusted conversion price if an adjustment has been made as provided
in Article XIII of the Indenture) by surrender of this Security, duly endorsed
or assigned to the Company or in blank, to the Company at its office or agency
maintained for that purpose pursuant to Section 10.02 of the Indenture,
accompanied by written notice to the Company in the form provided in this
Security (or such other notice as is acceptable to the Company) that the Holder
hereof elects to convert this Security, or if less than the entire principal
amount hereof is to be converted, the portion hereof to be converted, and, in
case such surrender shall be made during the period from the close of business
on any Regular Record Date next preceding any Interest Payment Date to the
opening of business on such Interest Payment Date (unless this Security or
portion thereof being converted has been called for redemption on a Redemption
Date occurring within such period), also accompanied by payment in New York
Clearing House funds, or other funds acceptable to the Company of an amount
equal to the interest payable on such Interest Payment Date on the principal
amount of this Security then being converted. Subject to the aforesaid
requirement for payment and, in the case of a conversion after the Regular
Record Date next preceding any Interest Payment Date and on or before such
Interest Payment Date, to the right of the Holder of this Security (or any
Predecessor Security) of record at such Regular Record Date to receive an
installment of interest (with certain exceptions provided in the Indenture), no
payment or adjustment is to be made upon conversion on account of any interest
accrued hereon or on account of any dividends on the Common Stock issued upon
conversion. No fractional shares or scrip representing fractions of shares will
be issued on conversion, but instead of any fractional share the Company shall
pay a cash adjustment as provided in the Indenture. The conversion price is
subject to adjustment as provided in Article XIII of the Indenture. In addition,
the Indenture provides that in case of certain consolidations or mergers to
which the Company is a party or the sale or transfer of the properties and
assets substantially as an entirety of the Company in one transaction or a
series of related transactions, the Indenture shall be amended, without the
consent of any Holders of Securities, so that this Security, if then
outstanding, will be convertible thereafter, during the period this Security
shall be convertible as specified above, only into the kind and amount of
securities, cash and other property receivable upon the consolidation, merger,
sale or transfer by a holder of the number of shares of Common Stock into which
this Security might have been converted immediately prior to such consolidation,
merger, sale or transfer (assuming such holder of Common Stock failed to
exercise any rights of election
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<PAGE> 27
and received per share the kind and amount received per share by a plurality of
non-electing shares).
The Securities are subject to redemption upon not less than 30 and not
more than 60 days' notice by mail, at any time on or after April 1, 2001, as a
whole or in part, at the election of the Company, at the Redemption Prices set
forth below (expressed as percentages of the principal amount), plus accrued and
unpaid interest to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date).
If redeemed during the 12-month period beginning October 1, in the year
indicated, the redemption price shall be:
Redemption
Year Price
---- -----------
2001 ................... %
2002 ................... %
2003 ................... %
2004 ................... %
2005 ................... %
If all accrued interest on the Securities has not been paid, the
Securities may not be redeemed in part and the Company may not purchase or
acquire any Security otherwise than pursuant to a purchase or exchange offer
made on the same terms to all holders of the Securities.
In certain circumstances involving the occurrence of a Change in Control
(as defined in the Indenture), the Holder hereof shall have the right to require
the Company to repurchase this Security at 100% of the principal amount hereof,
together with accrued and unpaid interest to the Repurchase Date, but interest
installments whose Stated Maturity is on or prior to such Repurchase Date will
be payable to the Holders of such Securities, or one or more Predecessor
Securities, of record at the close of business on the relevant Record Dates
referred to on the face hereof, all as provided in the Indenture. The Holder
shall have the right to withdraw its election to exercise the repurchase right
by delivering a written notice of withdrawal in accordance with the terms of the
Indenture.
In the event of redemption, conversion or repurchase of this Security in
part only, a new Security or Securities for the unredeemed, unconverted or
unrepurchased portion hereof will be issued in the name of the Holder hereof
upon the cancellation hereof.
Any Securities called for redemption, unless surrendered for conversion by
the close of business on the second Business Day immediately preceding the date
fixed for redemption, are subject to being purchased from the Holder of such
Securities at the redemption price by one or
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<PAGE> 28
more investment banking firms or other purchasers who may agree with the Company
to purchase such Securities and convert them into Common Stock.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided, and (c)
appoints the Trustee his attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared due and payable in the manner and with the effect
provided in Article V of the Indenture.
The Indenture provides that no Holder of any Securities may enforce any
remedy under the Indenture except in the case of failure of the Trustee to act
after notice of default and after request of the Holders of 25% in principal
amount of Outstanding Securities and the offer to the Trustee of indemnity
satisfactory to it; provided, however, that such provision shall not prevent the
Holder hereof from enforcing payment of the principal of and premium, if any,
and interest on this Security after the same shall have become due.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount of the Securities at the time
Outstanding, and, under certain limited circumstances, by the Company and the
Trustee without the consent of the Holders. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all the Securities, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed or to convert this Security as provided in Article
XIII of the Indenture.
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<PAGE> 29
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and any
premium and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Securities are issuable only in fully registered form without coupons
in denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange except as provided in the Indenture, and the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, except as provided in this Security, whether or not this Security be
overdue, and neither the Company, the Trustee nor any such agent shall be
affected by notice to the contrary.
Interest on this Security shall be computed on the basis of a 360-day year
of twelve 30- day months.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture. The Indenture and this
Security shall be governed by and construed in accordance with the laws of the
State of New York without regard to the conflicts of laws principles thereof. To
the extent this Security conflicts with a provision of the Indenture, the
Indenture governs.
FORM OF CONVERSION NOTICE
TO: AVATAR HOLDINGS INC.
The undersigned registered owner of this Security hereby irrevocably
exercises the option to convert this Security, or the portion hereof
(which is $1,000 principal amount or an integral multiple thereof)
designated below, into shares of Common Stock of Avatar Holdings Inc. in
accordance with the terms of the Indenture referred to in this Security,
and directs that the shares issuable and
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<PAGE> 30
deliverable upon the conversion, together with any check in payment for a
fractional share and any Security representing any unconverted principal
amount hereof, be issued and delivered to the registered owner hereof
unless a different name has been indicated below. If this Notice is being
delivered on a date after the close of business on a Regular Record Date
and prior to the close of business on the related Interest Payment Date,
this Notice is accompanied by payment in New York Clearing House funds, or
other funds acceptable to the Company, of an amount equal to the interest
payable on such Interest Payment Date on the principal of this Security to
be converted (unless this Security has been called for redemption within
such period). If shares or any portion of this Security not converted are
to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto. Any
amount required to be paid by the undersigned on account of interest
accompanies this Security.
Dated: _________________________
_________________________
Signature(s)
(Sign exactly as your name appears on the face of
this Security)
Signature(s) must be guaranteed by a
commercial bank or trust company or a
member firm of a national stock
exchange if shares of Common Stock
are to be delivered, or Securities to be
issued, other than to and in the name of
the registered owner.
_________________________________
Signature Guarantee
Fill in for registration of shares of
Common Stock if they are to be delivered,
or Securities if they are to be issued,
other than to and in the name of the
registered owner:
______________________________
(Name)
______________________________
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<PAGE> 31
(Street Address)
______________________________
(City, State and zip code)
(Please print name and address)
Register: _____ Common Stock
_____ Securities
(Check appropriate line(s)).
Principal amount to be converted (if less than all):
$__________,000
_________________________________
Social Security or other Taxpayer
Identification Number of owner
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<PAGE> 32
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
UPON A CHANGE IN CONTROL
TO: AVATAR HOLDINGS INC.
The undersigned registered owner of this Security hereby irrevocably
acknowledges receipt of a notice from Avatar Holdings Inc. (the "Company") as to
the occurrence of a Change in Control with respect to the Company and requests
and instructs the Company to repay the entire principal amount of this Security,
or the portion thereof designated below (which is $1,000 principal amount or an
integral multiple thereof), in accordance with the terms of the Indenture
referred to in this Security at the Repurchase Price.
Principal amount to be repurchased
(if less than all):
$_______________________________
Signature(s): ___________________________
Date: ___________________ ___________________________
(Sign exactly as your name
appears on the face of this
Security)
Tax Identification No.: ___________________________
Signature Guarantee: ____________________________________
(commercial bank, trust company or
member firm of a national securities
exchange)
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<PAGE> 33
SECTION d. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in substantially the
following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
THE CHASE MANHATTAN BANK,
as Trustee
By ____________________________
Authorized Officer
ARTICLE 3.
THE SECURITIES
SECTION a. Title and Terms.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is limited to $115,000,000 (including
$15,000,000 aggregate principal amount of Securities that may be sold by the
Company pursuant to the over-allotment option granted pursuant to the
Underwriting Agreement, dated January __, 1998, among the Company, CIBC
Oppenheimer Corp. and SBC Warburg Dillon Read Inc.), except for Securities
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities pursuant to Section 3.04, 3.05, 3.06, 9.06,
11.08, 13.02 or 14.05.
The Securities shall be known and designated as the "[___]% Convertible
Subordinated Notes due 2005" of the Company. Their Stated Maturity shall be
[_________], 2005 and they shall bear interest at the rate of [___]% per annum,
from the date of original issuance of Securities pursuant to this Indenture or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, as the case may be, payable semi-annually on April 1 and
October 1 commencing April 1, 1998, until the principal thereof is paid or made
available for payment.
The principal of and premium, if any, and interest on the Securities shall
be payable (i) in respect of Securities held of record by the Depositary or its
nominee in same day funds on or prior to the respective payment dates and (ii)
in respect of Securities held of record by Holders other than the Depositary or
its nominee at the offices of the Trustee in New York, New York (or at such
other office or agency of the Company maintained for such purpose pursuant to
Section 10.02); provided, however, that at the option of the Company payment of
interest to Holders of record other than the Depositary may be made by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
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<PAGE> 34
The Securities shall be redeemable as provided in Article XI.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XII.
The Securities shall be convertible as provided in Article XIII.
The Securities shall be subject to repurchase at the option of the Holder
as provided in Article XIV.
SECTION b. Denominations.
The Securities shall be issuable only in fully registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION c. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Chief Executive Officer, its President, its Chief Financial
Officer or one of its Vice Presidents, under its corporate seal or a facsimile
thereof reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities; and the Trustee in accordance with such Company
Order shall either at one time or from time to time pursuant to such
instructions as may be described therein authenticate and deliver such
Securities as in this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is
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<PAGE> 35
entitled to the benefits of the Indenture. The Trustee may appoint an
Authenticating Agent pursuant to the terms of Section 6.14.
SECTION d. Temporary Securities.
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Securities in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities may determine, as evidenced by their
execution of such Securities. Every such temporary Security shall be executed by
the Company and shall be authenticated and delivered by the Trustee upon the
same conditions and in substantially the same manner, and with the same effect,
as the definitive Security or Securities in lieu of which it is issued.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
Definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 10.02, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor one or more definitive Securities of a like
principal amount of authorized denominations. Until so exchanged the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities.
SECTION e. Registration, Registration of Transfer and Exchange.
(1) The Company shall cause to be kept at the Corporate
Trust Office of the Trustee a register (the register
maintained in such office or in any other office or
agency designated pursuant to Section 10.02 being herein
sometimes referred to as the "Security Register") in
which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the
registration of Securities and of transfers of
Securities. The Trustee is hereby appointed "Security
Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided. At all
reasonable times the Security Register shall be open for
inspection by the Company.
Upon surrender for registration of transfer of any Security at an office
or agency of the Company designated pursuant to Section 10.02 for such purpose,
the Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or
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<PAGE> 36
transferees, one or more new Securities of any authorized denomination and of a
like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at the office or agency
maintained for that purpose. Whenever Securities are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
(2) All Securities issued upon any registration of transfer
or exchange of Securities shall be the valid obligations
of the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the
Securities surrendered upon such registration of
transfer or exchange. Every Security presented or
surrendered for registration of transfer or for exchange
shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument
of transfer in form satisfactory to the Company and the
Security Registrar duly executed by the Holder thereof
or its attorney duly authorized in writing, and, in the
case of a transfer, with an appropriate guarantee of
signature.
No service charge shall be made for any registration or transfer or
exchange of Securities except as provided in Section 3.06. The Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Securities, other than exchanges pursuant to Sections 3.04, 9.06,
11.08, 13.02 or 14.05 not involving any transfer.
The Company shall not be required to (i) issue, register the transfer of
or exchange any Security during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 11.04 and ending at the close of business
on the day of such mailing, (ii) register the transfer of or exchange of any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part, or (iii) to register the
transfer or exchange of any Securities surrendered for conversion or repurchase
upon the occurrence of a Change in Control.
The provisions of clauses (1), (2), (3), (4) and (5) below shall apply
only to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Security or
a nominee thereof and delivered
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<PAGE> 37
to such Depositary or a nominee thereof or custodian therefor, and each such
Global Security shall constitute a single Security for all purposes of this
Indenture.
(2) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (A) such Depositary (i) has notified the Company that it is
unwilling or unable to continue as Depositary for such Global Security or (ii)
has ceased to be a clearing agency registered under the Exchange Act at a time
when the Depositary is required to be so registered to act as depositary, in
each case unless the Company has approved a successor Depositary within 90 days,
(B) there shall have occurred and be continuing an Event of Default with respect
to such Global Security or (C) the Company in its sole discretion determines
that such Global Security will be so exchangeable or transferable.
(3) Subject to clause (2) above, any exchange of a Global Security for
other Securities may be made in whole or in part, and all Securities issued in
exchange for a Global Security or any portion thereof shall be registered in
such names as the Depositary for such Global Security shall direct.
(4) Every Security authenticated and delivered upon registration of
transfer of , or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article III or otherwise, shall be
authenticated and delivered in the form of, and shall be, a Global Security,
unless such Security is registered in the name of a Person other than the
Depositary for such Global Security or a nominee thereof.
(5) The Depositary or its nominee, as registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security will be
shown only on, and the transfer of such interest shall be effected only through
records maintained by the Depositary or its nominee or its Agent Members and
such owners of beneficial interests in a Global Security will not be considered
the owners or holders thereof. Neither the Company nor the Trustee will have any
responsibility or obligation to the Depositary or any of its Agent Members with
respect to (i) the accuracy of any records maintained by the Depositary, (ii)
the payment by the Depositary or any Agent Members of any amount due to any
owner of beneficial interests in a Global Security in respect of any Securities,
(iii) the delivery of any notice by the Depositary or any Agent Member, or (iv)
any other action taken by the Depositary or any Agent Members.
SECTION f. Mutilated, Destroyed, Lost and Stolen Securities.
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<PAGE> 38
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
replacement Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a replacement
Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a replacement Security, pay such Security.
Upon the issuance of any replacement Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every replacement Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION g. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest. Payment of
interest will be made (i) in respect of Securities held by the Depositary or its
nominee, in same day funds on or prior to the respective Interest Payment Dates
and (ii) in respect of Securities held of record by Holders other than the
Depositary or its nominee, at the office of the Trustee in New York, New York or
at such other office or agency of the Company as it shall maintain for that
purpose pursuant to Section 10.02, provided, however, that, at the option of the
Company, interest on any Security held of record by Holders other than the
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<PAGE> 39
Depositary or its nominee may be paid by mailing checks to the addresses of the
Holders thereof as such addresses appear in the Securities Register.
If the Company shall be required by law to deduct any taxes from any sum
of interest payable hereunder to a Holder, (i) the Company shall make such
deductions and shall pay the full amount deducted to the relevant taxing
authority in accordance with applicable law and (ii) the amount of such
deduction shall be treated for purposes hereof as a payment of interest.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:
i. The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or
their respective Predecessor Securities) are registered at the
close of business on a Special Record Date for the payment of
such Defaulted Interest which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same
time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held
in trust for the benefit of the Persons entitled to such
Defaulted Interest as in this Clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of
such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company of such Special Record Date
and, in the name and at the expense of the Company, shall
cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as
it appears in the Security Register, not less than 10 days
prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date
therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close
of business on such Special Record Date and shall no longer be
payable pursuant to the following Clause (2).
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ii. The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, if,
after notice given by the Company to the Trustee of the
proposed payment pursuant to this Clause, such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued,
and to accrue, which were carried by such other Security.
In the case of any Security which is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Security whose Maturity is prior to such Interest Payment Date), interest
whose Stated Maturity is on such Interest Payment Date shall be payable on such
Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on such Regular Record Date, provided,
however, that Securities so surrendered for conversion (except in the case of
Securities or portions thereof called for redemption on a Redemption Date
occurring within such period) shall be accompanied by payment in New York
Clearing House funds or other funds acceptable to the Company of an amount equal
to the interest payable on such Interest Payment Date on the principal amount
being surrendered for conversion. Except as otherwise expressly provided in the
immediately preceding sentence, in the case of any Security which is converted,
interest whose Stated Maturity is after the date of conversion of such Security
shall not be payable.
SECTION h. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of and premium, if any, and
(subject to Section 3.07) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
SECTION i. Cancellation.
All Securities surrendered for payment, redemption, repurchase,
registration of transfer, exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be promptly
canceled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Securities
so delivered shall
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<PAGE> 41
be promptly canceled by the Trustee. No Securities shall be authenticated in
lieu of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All canceled Securities held by
the Trustee shall be disposed of as directed by a Company Order.
SECTION j. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
ARTICLE 4.
SATISFACTION AND DISCHARGE
SECTION a. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as expressly provided for in this Article IV), and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
i. either
1) all Securities theretofore
authenticated and delivered (other
than (i) Securities which have been
destroyed, lost or stolen and which
have been replaced or paid as provided
in Section 3.06 and (ii) Securities
for whose payment money has
theretofore been deposited in trust or
segregated and held in trust by the
Company and thereafter repaid to the
Company or discharged from such trust,
as provided in Section 10.03) have
been delivered to the Trustee for
cancellation; or
2) all such Securities not theretofore
delivered to the Trustee for
cancellation
(a) have become due and payable, or
(b) will become due and payable at their Stated
Maturity within one year, or
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<PAGE> 42
(c) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee
in the name, and at the expense, of the Company,
or
(d) are delivered to the Trustee for conversion in
accordance with Article XIII,
and the Company, in the case of (B)(i), (ii) or (iii) above, has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust for
the purpose an amount in cash sufficient (without consideration of any
investment of such cash) to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation for
principal and premium, if any, and interest to the date of such deposit (in the
case of Securities which have become due and payable) or to the Stated Maturity
or Redemption Date, as the case may be; provided that the Trustee is irrevocably
instructed to apply such amount to said payments with respect to the Securities;
ii. the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
iii. the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been
complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
following rights or obligations under the Securities and this Indenture shall
survive until otherwise terminated or discharged hereunder: (a) Article XIII,
Article XIV and the Company's obligations under Sections 3.04, 3.05, 3.06, 10.02
and 10.03, in each case with respect to any Securities described in subclause
(B) of Clause (1) of this Section, (b) this Article IV, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder, including the
obligations of the Company to the Trustee under Section 6.07, and the
obligations of the Company to any Authenticating Agent under Section 6.14 and
(d) if money shall have been deposited with the Trustee pursuant to subclause
(B) of Clause (1) of this Section, the rights of Holders of any Securities
described in subclause (B) of Clause (1) of this Section to receive, solely from
the trust fund described in such subclause (B), payments in respect of the
principal of, and premium (if any) and interest on, such Securities when such
payment are due.
SECTION b. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.03, all
money deposited with the Trustee pursuant to Section 4.01 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any
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<PAGE> 43
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal and
premium, if any, and interest for whose payment such money has been deposited
with the Trustee. All moneys deposited with the Trustee pursuant to Section 4.01
(and held by it or any Paying Agent) for the payment of Securities subsequently
converted shall be returned to the Company upon Company Request.
SECTION c. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article IV by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article IV until such time as the Trustee or Paying Agent is
permitted to apply all money held in trust with respect to the Securities;
provided, however, that if the Company makes any payment of principal of or any
premium or interest on any Security following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of the
Securities to receive such payment from the money so held in trust.
ARTICLE 5.
REMEDIES
SECTION a. Events of Default.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article XII or be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body);
i. default in the payment of the principal of or premium, if any,
on any Security at its Maturity, whether or not such payment
is prohibited by the provisions of Article XII; or
ii. default in the payment of any interest upon any Security when
it becomes due and payable, whether or not such payment is
prohibited by the provisions of Article XII, and continuance
of such default for a period of 30 days; or
iii. failure to provide timely notice of a Change in Control as
required in accordance with the provisions of Article XIV; or
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iv. default in the payment of the Repurchase Price in respect of
any Security on the Repurchase Date therefor in accordance
with the provisions of Article XIV, whether or not such
payment is prohibited by the provisions of Article XII; or
v. default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a
covenant or warranty a default in whose performance or whose
breach is elsewhere in this Section specifically dealt with),
and continuance of such default or breach for a period of 30
days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in principal amount of
the Outstanding Securities a written notice specifying such
default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder; or
vi. default under one or more bonds, notes, debentures or other
evidences of indebtedness for money borrowed by the Company or
any Consolidated Subsidiary or under one or more mortgages,
indentures or instruments under which there may be issued or
by which there may be secured or evidenced any indebtedness
for money borrowed by the Company or any Consolidated
Subsidiary, whether such indebtedness now exists or shall
hereafter be created, which default individually or in the
aggregate shall constitute a failure to pay the principal of
indebtedness in excess of $10 million when due and payable
after the expiration of any applicable grace period with
respect thereto or shall have resulted in indebtedness in
excess of $10 million becoming or being declared due and
payable prior to the date on which it would otherwise have
become due and payable, without such indebtedness having been
discharged, or such acceleration having been rescinded or
annulled, within a period of 30 days after there shall have
been given, by registered or certified mail, to the Company by
the Trustee or to the Company and the Trustee by the Holders
of at least 25% in principal amount of the Outstanding
Securities a written notice specifying such default and
requiring the Company to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or
annulled and stating that such notice is a "Notice of Default"
hereunder; or
vii. a final judgment or final judgments for the payment of money
against the Company or any Consolidated Subsidiary the entry
by a court or courts of competent jurisdiction of which remain
undischarged for a period (during which execution shall not be
effectively stayed, the posting of any required bond not being
deemed an execution for purposes hereof)
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of 30 days, provided that the aggregate amount of all such
judgments exceeds $10 million (net of amounts to which the
Company or such Subsidiary is entitled pursuant to insurance
policies which can reasonably be expected to be paid in the
ordinary course); or
viii. the filing or commencement of an involuntary case or other
proceeding against the Company or any Significant Subsidiary
of the Company seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or thereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial
part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period
of 90 days; or an order for relief shall be entered against
the Company or any Significant Subsidiary of the Company under
the federal bankruptcy laws as now or hereafter in effect; or
ix. the filing or commencement by the Company or any Significant
Subsidiary of the Company of a voluntary case or other
proceeding seeking liquidation, reorganization or other
similar relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter
in effect, or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, or the Company or any
Significant Subsidiary of the Company shall consent to any
such relief or to the appointment of or taking possession by
any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for
the benefit of creditors.
Upon receipt by the Trustee of any Notice of Default pursuant to this
Section 5.01, a record date shall automatically and without any other action by
any Person be set for the purpose of determining the Holders of Outstanding
Securities entitled to join in such Notice of Default, which record date shall
be the close of business on the day the Trustee receives such Notice of Default.
The Holders of Outstanding Securities on such record date (or their duly
appointed agents), and only such Persons, shall be entitled to join in such
Notice of Default, whether or not such holders remain Holders after such record
date; provided that unless such Notice of Default shall have become effective by
virtue of the Holders of the requisite principal amount of Outstanding
Securities on such record date (or their duly appointed agents) having joined
therein on or prior to the 90th day after such record date, such Notice of
Default shall automatically and without any action by any Person be canceled and
of no further force or effect.
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SECTION b. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than as specified in subparagraph (8) or (9)
of Section 5.01) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities to be due
and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders), and upon any such declaration such principal plus
any interest accrued on the Securities to the date of declaration shall become
immediately due and payable. If an Event of Default specified in subparagraph
(8) or (9) of Section 5.01 occurs and is continuing, then the principal of,
premium, if any, and accrued and unpaid interest, if any, on all of the
Securities shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder of
Securities.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
i. the Company has paid or deposited with the Trustee a sum
sufficient to pay
1) all overdue interest on all
Securities,
2) the principal of and premium, if any,
on any Securities which have become
due otherwise than by such declaration
of acceleration and interest thereon
at the rate borne by the Securities,
3) to the extent that payment of such
interest is lawful, interest upon
overdue interest at the rate borne by
the Securities, and
4) all sums paid or advanced by the
Trustee and each predecessor Trustee,
their respective agents and counsel
hereunder and the reasonable
compensation, expenses, disbursements
and advances of the Trustee and each
predecessor Trustee, their respective
agents and counsel;
and
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ii. all Events of Default, other than the nonpayment of the
principal of, premium, if any, and interest on the Securities
that has become due solely by such declaration of
acceleration, have been cured or waived as provided in Section
5.13.
No such rescission and waiver shall affect any subsequent default or impair any
right consequent thereon.
Upon receipt by the Trustee of any declaration of acceleration, or any
rescission and annulment of any such declaration, pursuant to this Section 5.02,
a record date shall automatically and without any other action by any Person be
set for the purpose of determining the Holders of Outstanding Securities
entitled to join in such declaration or rescission and annulment, as the case
may be, which record date shall be the close of business on the day the Trustee
receives such declaration, or rescission and annulment, as the case may be. The
Holders of Outstanding Securities on such record date (or their duly appointed
agents), and only such persons, shall be entitled to join in such declaration,
or rescission and annulment, as the case may be, whether or not such Holders
remain Holders after such record date; provided that unless such declaration, or
rescission and annulment, as the case may be, shall have become effective by
virtue of Holders of the requisite principal amount of Outstanding Securities on
such record date (or their duly appointed agents) having joined therein on or
prior to the 90th day after such record date, such declaration, or rescission
and annulment, as the case may be, shall automatically and without any action by
any Person be canceled and of no further force or effect.
SECTION c. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
i. default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default
continues for a period of 30 days, or
ii. default is made in the payment of the principal of or premium,
if any, on any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and premium, if any, and interest, and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal and premium, if any, and on any overdue interest, at the rate
borne by the Securities, and, in addition thereto, such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee and
each predecessor Trustee, their respective agents and counsel, and any other
amounts due the Trustee or any predecessor Trustee under Section 6.07.
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If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid and may
prosecute any such proceeding to judgment or final decree, and may enforce the
same against the Company (or any other obligor upon the Securities) and collect
the moneys adjudged or decreed to be payable in the manner provided by law out
of the property of the Company (or any other obligor upon the Securities),
wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION d. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its property or its creditors, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise, to
take any and all actions authorized under the Trust Indenture Act in order to
have the claims of the Holders and the Trustee allowed in any such proceeding.
In particular, the Trustee shall be authorized to collect and receive any moneys
or other property payable or deliverable on any such claims and to distribute
the same; and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar official in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it and each predecessor Trustee
for the reasonable compensation, expenses, disbursements and advances of the
Trustee and each predecessor Trustee and their respective agents and counsel,
and any other amounts due the Trustee under Section 6.07.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and may be a member of the Creditors'
Committee.
SECTION e. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements
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and advances of the Trustee and each predecessor Trustee and their respective
agents and counsel, be for the ratable benefit of the Holders of the Securities
in respect of which such judgment has been recovered.
SECTION f. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or premium, if
any, or interest, upon presentation of the Securities and the notation thereon
of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To payment of all amounts due the Trustee under Section 6.07;
SECOND: Subject to Article XII, to the payment of the amounts then
due and unpaid for principal of and premium, if any, and interest on the
Securities in respect of which or for the benefit of which such money has
been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for principal
and premium, if any, and interest, respectively; and
THIRD: The balance, if any, to the Company or any other Person or
Persons determined to be entitled thereto.
SECTION g. Limitation on Suits.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
i. such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
ii. the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of
Default in its own name as Trustee hereunder;
iii. such Holder or Holders have offered to the Trustee reasonable
indemnity satisfactory to it against the costs, expenses and
liabilities to be incurred in compliance with such request;
iv. the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any
such proceeding; and
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v. no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders
of a majority in principal amount of the Outstanding
Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION h. Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and premium, if any, and (subject to Section 3.07)
interest on such Security on the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date or, in the case
of a repurchase pursuant to Article XIV, on the Repurchase Date) and to convert
such Security in accordance with Article XIII and to institute suit for the
enforcement of any such payment and right to convert, and such rights shall not
be impaired without the consent of such Holder.
SECTION i. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION j. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in Section 3.06, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
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SECTION k. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION l. Control by Holders.
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided, that
i. such direction shall not be in conflict with any rule of law
or with this Indenture; and
ii. the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; and
iii. subject to the provisions of Section 6.01, the Trustee shall
have the right to decline to follow any such direction if the
Trustee in good faith shall determine that the action so
directed would involve the Trustee in personal liability or
would be unduly prejudicial to Holders not joining in such
direction.
Upon receipt by the Trustee of any direction, a record date shall
automatically and without any other action by any Person be set for the purpose
of determining the Holders of Outstanding Securities entitled to join in such
direction, which record date shall be the close of business on the day the
Trustee receives such direction. The Holders of Outstanding Securities on such
record date (or their duly appointed agents), and only such Persons, shall be
entitled to join in such direction, whether or not such holders remain Holders
after such record date; provided that unless such direction shall have become
effective by virtue of the Holders of the requisite principal amount of
Outstanding Securities on such record date (or their duly appointed agents)
having joined therein on or prior to the 90th day after such record date, such
direction shall automatically and without any action by any Person be canceled
and of no further force or effect.
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SECTION m. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
i. in the payment of the principal of or premium, if any, or
interest on any Security (including, without limitation,
pursuant to any optional redemption or repurchase obligation
hereunder); or
ii. in respect of a covenant or provision hereof which under
Article IX cannot be modified or amended without the consent
of the Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION n. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; provided, that this Section
shall not be deemed to authorize any court to require such an undertaking or to
make such an assessment in any suit instituted by the Company, in any suit
instituted by the Trustee, a suit by a Holder pursuant to Section 5.08, or a
suit by a Holder or Holders of more than 10% in the principal amount of the
Outstanding Securities.
ARTICLE 6.
THE TRUSTEE
SECTION a. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
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(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to
be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the
effect of paragraph (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be
proved that the Trustee was negligent in ascertaining the pertinent
facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of a majority in principal amount of
the Outstanding Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee, under
this Indenture; and
(4) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in
the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or
adequate indemnity satisfactory to it against such risk or liability
is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
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SECTION b. Notice of Defaults.
If a default or Event or Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to each Holder a notice of the
default or Event of Default within 60 days after it occurs; provided, however,
that, except in the case of a default in payment of principal of, premium, if
any, or interest on any Securities, the Trustee may withhold notice if and so
long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of the Holders of Securities. For the
purpose of this Section, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default.
SECTION c. Certain Rights of Trustee.
Subject to the provisions of Section 6.01:
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or
Company Order and any resolution of the Board of
Directors may be sufficiently evidenced by a Board
Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved
or established prior to taking, suffering or omitting
any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence
of bad faith on its part, rely upon an Officers'
Certificate;
(4) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture
at the request or
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direction of any of the Holders pursuant to this
Indenture, unless such Holders shall have offered to the
Trustee reasonable security or indemnity satisfactory to
it against the costs, expenses and liabilities which
might be incurred by it in compliance with such request
or direction;
(6) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other
paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or
investigation, it shall be entitled to examine the
books, records and premises of the Company, personally
or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either
directly or by or through agents or attorneys and the
Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney
appointed with due care by it hereunder; and
(8) the Trustee shall not be deemed to have knowledge or
notice of any default or Event of Default hereunder
unless a Responsible Officer of the Trustee assigned to
and working in its Corporate Trustee Administration
Department shall have actual knowledge thereof or the
Trustee shall have received written notice thereof in
accordance with Section 1.05 from the Company, any
Holder, any holder of Senior Indebtedness or any
Representative.
SECTION d. Not Responsible for Recitals or Issuance of Securities.
The statements and recitals contained herein and in the Securities and in
any other document in connection with the sale of the Securities, except the
Trustee's certificate of authentication, shall be taken as the statements of the
Company, and the Trustee and any Authenticating Agent assume no responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. The Trustee and any
Authenticating Agent shall not be accountable for the use or application by the
Company of Securities or the proceeds thereof.
SECTION e. May Hold Securities.
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The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
6.08 and 6.13, may otherwise deal with the Company or any Affiliate of the
Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Security Registrar or such other agent.
SECTION f. Money Held in Trust.
Money held by the Trustee or any Paying Agent in trust hereunder need not
be segregated from other funds except to the extent required by law. The Trustee
or any Paying Agent shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed with the Company.
SECTION g. Compensation and Reimbursement.
The Company agrees:
i. to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder
(including its services as Security Registrar or Paying Agent,
if so appointed by the Company) as may be mutually agreed upon
in writing by the Company and the Trustee (which compensation
shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
ii. except as otherwise expressly provided herein, to reimburse
the Trustee and each predecessor Trustee promptly upon its
request for all reasonable expenses, disbursements and
advances incurred or made by or on behalf of it in connection
with the performance of its duties under any provision of this
Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel and all
other persons not regularly in its employ and its duties as
Security Registrar or Paying Agent, if so appointed by the
Company) except to the extent any such expense, disbursement
or advance may be attributable to its negligence or bad faith;
and
iii. to indemnify the Trustee and each predecessor Trustee (each,
an "indemnitee") for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad
faith on its part, arising out of or in connection with the
acceptance or administration of this Indenture or the trusts
hereunder and its duties hereunder (including its services as
Security Registrar or Paying Agent, if so appointed by the
Company). The Trustee shall notify the Company promptly of any
claim asserted against it
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for which it may seek indemnity. The Company need not pay for
any settlement made without its written consent.
As security for the performance of the obligations of the Company under
this Section 6.07, the Trustee shall have a lien prior to the Securities upon
all property and funds held or collected by the Trustee as such, except funds
held in trust for the benefit of the Holders of particular Securities, and the
Securities are hereby subordinated to such prior lien. The obligations of the
Company under this Section to compensate and indemnify the Trustee and any
predecessor Trustee and to pay or reimburse the Trustee and any predecessor
Trustee for expenses, disbursements and advances, and any other amounts due the
Trustee or any predecessor Trustee under Section 6.07, shall constitute an
additional obligation hereunder and shall survive the satisfaction and discharge
of this Indenture.
SECTION h. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION i. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a Person
that (i) is eligible pursuant to the Trust Indenture Act to act as such and (ii)
has (or, in the case of a corporation included in a bank holding company system,
whose related bank holding company has) a combined capital and surplus of at
least $50,000,000. If such Person publishes reports of conditions at least
annually, pursuant to law or to the requirements of a Federal or state
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Person shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
SECTION j. Resignation and Removal; Appointment of Successor.
(1) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this
Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with
the applicable requirements of Section 6.11.
(2) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of
acceptance by a successor Trustee required by Section
6.11 shall not have been
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delivered to the resigning Trustee within 30 days after
the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction
for the appointment of a successor Trustee.
(3) The Trustee may be removed at any time by an Act of the
Holders of a majority in principal amount of the
Outstanding Securities delivered to the Trustee and to
the Company.
(4) If at any time:
i. the Trustee shall fail to comply with Section 6.08 after
written request therefor by the Company or by any Holder who
has been a bona fide Holder of a Security for the last six
months, or
ii. the Trustee shall cease to be eligible under Section 6.09 and
shall fail to resign after written request therefor by the
Company or by any such Holder, or
iii. the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee
or of its property shall be appointed or any public officer
shall take charge or control of the Trustee or of its property
or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 5.14, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(5) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the
office of Trustee for any cause, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee
and such successor Trustee shall comply with the
requirements of Section 6.11. If, within one year after
such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities delivered
to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its
acceptance of such appointment in accordance with the
applicable requirements of Section 6.11 become the
successor Trustee and supersede the successor Trustee
appointed by the Company. If no
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successor Trustee shall have been so appointed by the
Company or the Holders and accepted appointment in the
manner required by Section 6.11, any Holder who has been
a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction
for the appointment of a successor Trustee.
(6) The Company shall give notice of each resignation and
each removal of the Trustee and each appointment of a
successor Trustee to all Holders in the manner provided
in Section 1.06. Each notice shall include the name of
the successor Trustee and the address of its Corporate
Trust Office.
SECTION k. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION l. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
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SECTION m. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION n. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents acceptable to
and at the expense of the Company which shall be authorized to act on behalf of
the Trustee to authenticate Securities issued upon exchange, registration of
transfer, partial conversion or partial redemption or pursuant to Section 3.06,
and Securities so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if authenticated
by the Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a Person organized and doing business under
the laws of the United States of America, any State thereof or the District of
Columbia, authorized under such laws to act as Authenticating Agent, having a
combined capital and surplus of not less than $50,000,000 and subject to
supervision or examination by Federal or State authority. If such Authenticating
Agent publishes reports of condition at least annually, pursuant to law or to
the requirements of said supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any Person into which an Authenticating Agent may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Authenticating Agent shall be a party,
or any Person succeeding to the corporate agency or corporate trust business of
an Authenticating Agent, shall continue to be an Authenticating Agent, provided
such Person shall be otherwise eligible under this Section, without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be
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acceptable to the Company and shall mail notice of such appointment by
first-class mail, postage prepaid, to all Holders as their names and addresses
appear in the Security Register. Any successor Authenticating Agent upon
acceptance of its appointment under this Section shall become vested with all
the rights, powers and duties of its predecessor hereunder, with like effect as
if originally named as an Authenticating Agent. No successor Authenticating
Agent shall be appointed unless eligible to act as such under the provisions of
this Section.
Any Authenticating Agent by the acceptance of its appointment shall be
deemed to have represented to the Trustee that it is eligible for appointment as
Authenticating Agent under this Section and to have agreed with the Trustee
that: it will perform and carry out the duties of an Authenticating Agent as
herein set forth, including, among other duties, the duties to authenticate
Securities when presented to it in connection with exchanges, registrations of
transfer or redemptions or conversions thereof or pursuant to Section 3.06; it
will keep and maintain, and furnish to the Trustee from time to time as
requested by the Trustee, appropriate records of all transactions carried out by
it as Authenticating Agent and will furnish the Trustee such other information
and reports as the Trustee may reasonably require; and it will notify the
Trustee promptly if it shall cease to be eligible to act as Authenticating Agent
in accordance with the provisions of this Section. Any Authenticating Agent by
the acceptance of its appointment shall be deemed to have agreed with the
Trustee to indemnify the Trustee against any loss, liability or expense incurred
by the Trustee and to defend any claim asserted against the Trustee by reason of
any acts or failures to act of such Authenticating Agent, but such
Authenticating Agent shall have no liability for any action taken by it in
accordance with the specific written direction of the Trustee.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
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This is one of the Securities referred to in the within-mentioned
Indenture.
THE CHASE MANHATTAN BANK,
As Trustee
By:_________________________
As Authenticating Agent
By:_________________________
Authorized Officer
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ARTICLE 7.
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION a. Company to Furnish Trustee Names and Addresses of
Holders.
The Company will furnish or cause to be furnished to the Trustee:
(1) semi-annually, not more than 15 days after each Regular
Record Date, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the
Holders as of such Regular Record Date, and
(2) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Company
of any such request, a list of similar form and content
as of a date not more than 15 days prior to the time
such list is furnished.
Notwithstanding the foregoing, so long as the Trustee is the Security Registrar,
no such list shall be required to be furnished.
SECTION b. Preservation of Information; Communication to Holders.
(1) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of
Holders contained in the most recent list furnished to
the Trustee as provided in Section 7.01 and the names
and addresses of Holders received by the Trustee in its
capacity as Security Registrar. The Trustee may destroy
any list furnished to it as provided in Section 7.01
upon receipt of a new list so furnished.
(2) The rights of Holders to communicate with other Holders
with respect to their rights under this Indenture or
under the Securities, and the corresponding rights and
duties of the Trustee, shall be as provided by the Trust
Indenture Act.
(3) Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that
neither the Company nor the Trustee nor any agent of
either of them shall be held accountable by reason of
any disclosure of information as to names and addresses
of Holders made pursuant to the Trust Indenture Act or
otherwise in accordance with this Indenture.
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SECTION c. Reports by Trustee.
(1) The Trustee shall transmit to Holders such reports
concerning the Trustee and its actions under this
Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided
pursuant thereto.
Reports so required to be transmitted at stated intervals of not
more than 12 months shall be transmitted no later than 60 days following May 15
in each calendar year, commencing in 1998 and shall be dated as of such May 15.
(2) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with
each stock exchange upon which the Securities are
listed, with the Commission and with the Company. The
Company will notify the Trustee when the Securities are
listed on any stock exchange.
SECTION d. Reports by Company.
The Company shall file with the Trustee and the Commission, and transmit
to Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times and
in the manner provided pursuant to such Act; provided, that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the
Trustee within 15 days after the same is so required to be filed with the
Commission.
ARTICLE 8.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION a. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person in one transaction or a series of related transactions, and the
Company shall not permit any Person to consolidate with or merge into the
Company, unless:
i. in case the Company shall consolidate with or merge into
another Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person in one
transaction or a series of related transactions, the Person
formed by such consolidation or into which the Company is
merged or the Person which acquires by conveyance or transfer,
or which leases, the properties and assets of the Company
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substantially as an entirety shall be a corporation,
partnership, limited liability company or trust, shall be
organized and validly existing under the laws of the United
States of America, any State thereof or the District of
Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, the due and punctual payment
of the principal of and premium, if any, and interest on all
the Securities and the performance or observance of every
covenant of this Indenture on the part of the Company to be
performed or observed and shall have provided for conversion
rights in accordance with Section 13.11 to the extent
applicable;
ii. immediately after giving effect to such transaction, no Event
of Default, and no event which, after notice or lapse of time
or both, would become an Event of Default, shall have occurred
and be continuing;
iii. such consolidation, merger, conveyance, transfer or lease does
not adversely affect the validity or enforceability of the
Securities; and
iv. the Company or the successor Person has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger, conveyance,
transfer or lease and, if a supplemental indenture is required
in connection with such transaction, such supplemental
indenture comply with this Article and that all conditions
precedent herein provided for relating to such transaction
have been complied with.
SECTION b. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety to any Person in one
transaction or a series of related transactions in accordance with Section 8.01,
the successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor Person had been
named as the Company herein, and thereafter, except in the case of a transfer by
lease, the predecessor Person shall be relieved of all obligations and covenants
under this Indenture and the Securities.
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ARTICLE 9.
SUPPLEMENTAL INDENTURES
SECTION a. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
i. to cause this Indenture to be qualified under the Trust
Indenture Act; or
ii. to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants of
the Company herein and in the Securities; or
iii. to add to the covenants of the Company for the benefit of the
Holders or an additional Event of Default, or to surrender any
right or power conferred herein or in the Securities upon the
Company; or
iv. to provide collateral for or guarantors of Securities; or
v. to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Article XIII; or
vi. to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the
Securities; or
vii. to cure any ambiguity or omission, to correct or supplement
any provision herein or in the Securities which may be
defective or inconsistent with any other provision herein or
in the Securities, or to make any other provisions with
respect to matters or questions arising under this Indenture
which shall not be inconsistent with the provisions of this
Indenture; provided, that such action pursuant to this Clause
(7) shall not adversely affect the interests of the Holders in
any material respect and the Trustee may rely upon an Opinion
of Counsel to that effect.
SECTION b. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities, by Act of said Holders delivered to the
Company and the Trustee, the
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Company, when authorized by a Board Resolution, and the Trustee may enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders under
this Indenture; provided, however, that no such supplemental indenture shall,
without the consent of the Holder of each Outstanding Security affected thereby,
i. change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the
principal amount thereof or the rate of interest thereon or
any premium payable upon the redemption thereof, or change the
place of payment where, or the coin or currency in which, any
Security or any premium or interest thereon is payable, or
impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or
adversely affect the right to convert any Security as provided
in Article XIII (except as permitted by Section 9.01(5) or to
require repurchase of Securities pursuant to the provisions of
Article XIV, or to modify, directly or indirectly, the
provisions of this Indenture with respect to the subordination
of the Securities, in a manner adverse to the Holders, or
ii. reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders
is required for any waiver of compliance with certain
provisions of this Indenture or certain defaults hereunder and
their consequences provided for in this Indenture, or
iii. modify any of the provisions of this Section 9.02, Section
5.13 or Section 10.06, except to increase any such percentage
or to provide that certain other provisions of this Indenture
cannot be modified or waived without the consent of the Holder
of each Outstanding Security affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION c. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.01) shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel stating that the execution of
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such supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which adversely affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise.
SECTION d. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION e. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION f. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and (at the specific direction of the Company) authenticated and
delivered by the Trustee in exchange for Outstanding Securities.
SECTION g. Notice of Supplemental Indenture.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to Section 9.02, the Company shall transmit to
the Holders a notice setting forth the substance of such supplemental indenture
or, in lieu thereof, a copy of such supplemental indenture.
ARTICLE 10.
COVENANTS
SECTION a. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of and premium, if
any, and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION b. Maintenance of Office or Agency.
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The Company will maintain in New York, New York an office or agency where
Securities may be presented or surrendered for payment, where Securities may be
surrendered for registration of transfer, where Securities may be surrendered
for exchange or conversion and where notices and demands to or upon the Company
in respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in New York, New York
for such purposes. The Company will give prompt written notice to the Trustee of
any such designation or rescission and of any change in the location of any such
other office or agency.
SECTION c. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on
or before each due date of the principal of and premium, if any, or interest on
any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal and premium, if
any, or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, on or
prior to 11:00 a.m. (New York City time) on each due date of the principal of
and premium, if any, or interest on any Securities, deposit with a Paying Agent
a sum in same day funds sufficient to pay the principal and any premium and
interest so becoming due, such sum to be held as provided by the Trust Indenture
Act, and (unless such Paying Agent is the Trustee) the Company will promptly
notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee or the
Company to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent will (i) comply with the provisions of the Trust
Indenture Act and this Indenture applicable to it as a Paying Agent and hold all
sums held by it for the payment of principal of or any premium or interest on
the Securities in trust for the benefit of the Persons entitled thereto until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided; (ii) give the Trustee notice of any
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default by the Company (or any other obligor upon the Securities) in the making
of any payment in respect of the Securities; and (iii) at any time during the
continuance of any default by the Company (or any other obligor upon the
Securities) in the making of any payment in respect of the Securities, upon the
written request of the Trustee, forthwith pay to the Trustee all sums held in
trust by such Paying Agent for payment in respect of the Securities, and account
for any funds disbursed.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of and premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal and premium, if any, or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in New York, New York,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
SECTION d. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, an Officers'
Certificate stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
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SECTION e. Existence.
Subject to Article VIII, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises and the existence, rights (charter
and statutory) and franchises of each Significant Subsidiary; provided, however,
that the Company shall not be required to preserve any such right or franchise
if the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION f. Waiver of Certain Covenants.
Subject to Article VIII, the Company may omit in any particular instance
to comply with any covenant or condition set forth in Section 10.05, if before
the time for such compliance the Holders of at least a majority in principal
amount of the Outstanding Securities shall, by Act of such Holders, either waive
such compliance in such instance or generally waive compliance with such
covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect.
ARTICLE 11.
REDEMPTION OF SECURITIES
SECTION a. Right of Redemption.
The Securities may be redeemed at the election of the Company, in whole or
from time to time in part, upon not less than 30 and not more than 60 days'
notice to each Holder by mail, at any time on or after April 1, 2001, at the
Redemption Prices specified in the form of Security hereinbefore set forth,
together with accrued and unpaid interest, to the Redemption Date; provided,
however, that if all accrued interest on the Securities has not been paid, (i)
the Securities may not be redeemed in part and (ii) the Company may not purchase
or acquire any Security other than pursuant to a purchase or exchange offer to
all holders of the Securities.
SECTION b. Applicability of Article.
Redemption of Securities at the election of the Company as permitted by
any provision of this Indenture shall be made in accordance with such provision
and this Article.
SECTION c. Election to Redeem; Notice to Trustee.
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The election of the Company to redeem any Securities pursuant to Section
11.01 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company of less than all the Securities, the Company shall, at
least 60 days prior to the Redemption Date fixed by the Company (unless a
shorter period shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount of Securities to be redeemed. In
case of any redemption at the election of the Company of all the Securities, the
Company shall, at least 45 days prior to the Redemption Date fixed by the
Company (unless a shorter period shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date.
SECTION d. Selection by Trustee of Securities to be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 65 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by lot or pro rata or by such other method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to $1,000 or any integral multiple thereof) of the
principal amount of Securities of a denomination larger than $1,000.
If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed (so
far as may be) to be the portion selected for redemption. Securities which have
been converted during a selection of Securities to be redeemed shall be treated
by the Trustee as Outstanding for the purpose of such selection. In any case
where more than one Security is registered in the same name, the Trustee in its
discretion may treat the aggregate principal amount so registered as if it were
represented by one Security.
The Trustee shall promptly notify the Company and each Security Registrar
in writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION e. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
the Trustee and to each Holder of Securities to be redeemed, at his address
appearing in the Security Register.
All notices of redemption shall state:
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(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities are to be
redeemed, the identification (and, in the case of
partial redemption of any Securities, the principal
amounts) of the particular Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be
redeemed and that (unless the Company shall default in
payment of the Redemption Price) interest thereon will
cease to accrue on and after said date,
(5) the conversion price, the date on which the right to
convert the Securities to be redeemed will terminate and
the place or places where such Securities may be
surrendered for conversion, and
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION f. Deposit of Redemption Price.
At or prior to 11:00 a.m. (New York City time) on any Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.03) an amount of money in same day funds sufficient to
pay the Redemption Price of, and (except if the Redemption Date shall be an
Interest Payment Date) accrued interest on, all the Securities or portions
thereof which are to be redeemed on that date other than any Securities called
for redemption on that date which have been converted prior to the Redemption
Date.
If any Security called for redemption is converted, any money deposited
with the Trustee or with any Paying Agent or so segregated and held in trust for
the redemption of such Security shall (subject to any right of the Holder of
such Security or any Predecessor Security to receive interest as provided in the
last paragraph of Section 3.07) be paid to the Company upon Company Request or,
if then held by the Company, shall be discharged from such trust.
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SECTION g. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued and unpaid
interest to the Redemption Date; provided, however, that installments of
interest whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 3.07.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and premium, if any, shall, until paid,
bear interest from the Redemption Date at the rate borne by the Security.
SECTION h. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at
an office or agency of the Company maintained for that purpose pursuant to
Section 10.02 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
SECTION i. Conversion Arrangements on Call for Redemption.
In connection with any redemption of Securities, the Company may arrange
for the purchase and conversion of any Securities surrendered for redemption by
an agreement with one or more investment banking firms or other purchasers to
purchase such Securities by paying to the Holders thereof, or to the Trustee or
Paying Agent in trust for such Holders, at or before 11:00 a.m. on the
Redemption Date, an amount not less than the Redemption Price, together with
interest accrued to the Redemption Date, payable by the Company on redemption of
such Securities. Notwithstanding anything to the contrary contained in this
Article XI, the obligation of the Company to pay the Redemption Price of such
Securities, together with interest accrued to the Redemption Date, shall be
satisfied and discharged to the extent such amount is so paid by such
purchasers. Pursuant to such an agreement, any Securities surrendered by the
Holder thereof for redemption or not duly surrendered for conversion by such
Holder shall be deemed acquired by such purchasers from such Holders and
surrendered by such purchasers for
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conversion, all as of immediately prior to the close of business of the
Redemption Date, subject to payment of the above amount as aforesaid.
ARTICLE 12.
SUBORDINATION OF SECURITIES
SECTION a. Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article, the indebtedness represented
by the Securities and the payment of the principal of and premium, if any, and
interest on each and all of the Securities are hereby expressly made subordinate
and subject in right of payment to the prior payment in full of all Senior
Indebtedness. .
SECTION b. Payment Over of Proceeds Upon Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding, relative to the Company or to its creditors, as such, or to a
substantial part of its assets, or (b) any proceeding for the liquidation,
dissolution or other winding up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any general
assignment for the benefits of creditors or any other marshaling of assets and
liabilities of the Company, then and in any such event the holders of Senior
Indebtedness shall be entitled to receive payment in full of all Obligations due
or to become due on or in respect of all Senior Indebtedness before the Holders
of the Securities are entitled to receive any payment or distribution of any
kind or character, whether in cash, property or securities, on account of
principal of or premium, if any, or interest on the Securities, and to that end
the holders of Senior Indebtedness shall be entitled to receive, for application
to the payment thereof, any payment or distribution of any kind or character,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other indebtedness of the Company being
subordinated to the payment of the Securities, which may be payable or
deliverable in respect of the Securities in any such case, proceeding,
dissolution, liquidation or other winding up or event.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of any kind or character in respect of the Securities,
whether in cash, property or securities, including any such payment or
distribution which may be payable or deliverable by reason of the payment of any
other indebtedness of the Company being subordinated to the payment of the
Securities, before all Senior Indebtedness is paid in full, such payment or
distribution shall be held by the Trustee (if the Trustee has knowledge that
such payment or distribution is prohibited by this Section) or by such Holder in
trust for the holders of Senior Indebtedness, and shall be paid forthwith over
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and delivered to, the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payment or distribution of
assets of the Company for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in
full, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Indebtedness.
For purposes of this Article only, the words "cash, property or
securities" shall not be deemed to include securities of the Company as
reorganized or readjusted or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, which securities are
subordinated in right of payment to all Senior Indebtedness which may at the
time be outstanding to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the conveyance
or transfer of its properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article VIII shall not be
deemed a dissolution, winding up, liquidation, reorganization, general
assignment for the benefit of creditors or marshaling of assets and liabilities
of the Company for the purposes of this Section if the Person formed by such
consolidation or into which the Company is merged or which acquires by
conveyance or transfer such properties and assets substantially as an entirety,
as the case may be, shall, as a part of such consolidation, merger, conveyance
or transfer, comply with the conditions set forth in Article VIII.
SECTION c. Acceleration of Securities.
Notwithstanding anything in this Indenture to the contrary, neither the
Trustee nor any Holder shall exercise any right either may have to accelerate
the maturity of the Securities at any time when payment of any amount owing on
the Securities is prohibited; provided, however, that such right may
nevertheless be exercised upon the earliest of (i) the acceleration of the
maturity of any Senior Indebtedness, (ii) the exercise by any holder of Senior
Indebtedness of any remedies available to it upon a default with respect to the
Senior Indebtedness, or (iii) the occurrence of an Event of Default described in
Section 5.01(8) or (9).
SECTION d. No Payment When Senior Indebtedness in Default.
(1) The Company may not make any payment (whether by
redemption, purchase, retirement, defeasance or
otherwise) to the Trustee or any Holder on account of
the principal of or premium, if any, or interest on the
Securities (other than payments and other distributions
made from any defeasance trust created pursuant to
Section 4.01 if the applicable deposit does not violate
Article IV of this Indenture) until all principal and
other Obligations with respect to the Senior
Indebtedness of the Company have been paid in full if:
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(i) a default in the payment of any principal of, premium, if any,
or interest on Senior Indebtedness occurs and is continuing beyond any
applicable grace period (a "Payment Default"); or
(ii) a default, other than a payment default, on Designated Senior
Indebtedness occurs and is continuing beyond any applicable grace period
(a "Nonpayment Default") that then permits holders of the Designated
Senior Indebtedness as to which such default relates to accelerate its
maturity, and the Trustee receives a notice of the default (a "Payment
Blockage Notice") from (1) the Company, (2) the lender under the Credit
Facility if such default relates to the Credit Facility or (3) the
holders, or a Representative of the holders, of at least 25% in principal
amount of such other Designated Senior Indebtedness if such default
relates to any other issue of Designated Senior Indebtedness; provided,
that if such Designated Senior Indebtedness is of the type referred to in
clause (b) of the definition thereof, the Payment Blockage Notice shall be
given by a Representative of the holders of at least 25% of such
Designated Senior Indebtedness. If the Trustee receives any such Payment
Blockage Notice, no subsequent Payment Blockage Notice shall be effective
for purposes of this Section unless and until 365 days shall have elapsed
since the date of commencement of the payment blockage period resulting
from the immediately prior Payment Blockage Notice and all scheduled
payments of principal, premium, if any, and interest on the Securities
that have come due have been paid in full in cash. No nonpayment default
in respect of any Designated Senior Indebtedness that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice whether or not within a period of 365 days, unless such default
shall have been cured or waived for a period of not less than 90
consecutive days (it being acknowledged that any subsequent action, or any
breach of any financial covenants for a period commencing after receipt by
the Trustee of a Payment Blockage Notice, which, in either case, would
give rise to an event of default pursuant to any provisions under which an
event of default previously existed or was continuing shall constitute a
new event of default for this purpose).
(2) The Company shall resume payments on and distributions
in respect of the Securities upon:
(1) in the case of a Payment Default, the date on which the default
is cured or waived, or
(2) in the case of a Nonpayment Default, the earliest of (x) the
date on which such Nonpayment Default is cured or waived, (y) the date the
applicable Payment Blockage Notice is retracted by written notice to the
Trustee from the Representative of the holders of the relevant Designated
Senior Indebtedness which have given that Payment Blockage Notice and (z)
179 days after the date on which the applicable
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Payment Blockage Notice is received by the Trustee, if the maturity of
such Designated Senior Indebtedness has not been accelerated,
if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
(3) In the event that, notwithstanding the foregoing, the
Company shall make any payment to the Trustee or the
Holder of any Security prohibited by the foregoing
provisions of this Section, then and in such event such
payment shall be paid over and delivered forthwith to
the Company; provided, however, that the Trustee shall
only be required to return to the Company such payment
or any portion thereof that is held by the Trustee.
The provisions of this Section shall not apply to any payment with respect
to which Section 12.02 would be applicable.
SECTION e. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all Obligations in respect of Senior
Indebtedness, the Holders of the Securities shall be subrogated to the extent of
the payments or distributions made to the holders of Senior Indebtedness
pursuant to the provisions of this Article (equally and ratably with the holders
of all indebtedness of the Company which by its express terms is subordinated to
other indebtedness of the Company to substantially the same extent as the
Securities are subordinated and is entitled to like rights of subrogation) to
the rights of the holders of Senior Indebtedness to receive payments and
distributions applicable to the Senior Indebtedness until the principal of and
premium, if any, and interest on the Securities shall be paid in full. For
purposes of such subrogation, no payments or distributions to the holders of the
Senior Indebtedness to which the Holders of the Securities or the Trustee would
be entitled except for the provisions of this Article, and no payments over
pursuant to the provisions of this Article to the holders of Senior Indebtedness
by Holders of the Securities or the Trustee, shall, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, be deemed to be a payment or distribution by the Company to or on
account of the Senior Indebtedness.
SECTION f. Obligations of the Company Unconditional.
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Securities, the obligation of the
Company, which is absolute and unconditional, to pay to the Holders of the
Securities the
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principal of and premium, if any, and interest on the Securities as and when the
same shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company or the Holders of the Securities and
creditors of the Company other than the holders of Senior Indebtedness; or (c)
prevent the Trustee or the Holder of any Security from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article of the holders of Senior Indebtedness
to receive distributions otherwise payable or deliverable to the Trustee or such
Holder.
SECTION g. Trustee to Effectuate Subordination.
Each holder of a Security by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article and appoints the
Trustee his attorney-in-fact for any and all such purposes.
SECTION h. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act by any such holder, or by any noncompliance by
the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Trustee or the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Trustee or the Holders of the Securities to the
holders of Senior Indebtedness, do any one or more of the following: (i) change
the manner, place or terms of payment or extend the time of payment of, or renew
or alter, Senior Indebtedness, or otherwise amend or supplement in any manner
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; (iv) exercise or refrain from exercising any rights
against the Company and any other Person; and (v) apply any and all sums
received from time to time to the Senior Indebtedness.
SECTION i. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the
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Securities. Notwithstanding the provisions of this Article or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts which would prohibit the making of any payment to or
by the Trustee in respect of the Securities, unless and until the Trustee shall
have received written notice thereof from the Company or a holder of Senior
Indebtedness or from any Representative therefor; and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of Section 6.01,
shall be entitled in all respects to assume that no such facts exist; provided
that, if prior to the second Business Day preceding the date upon which by the
terms hereof any monies become payable hereunder, or in the event of the
execution of an instrument pursuant to Section 4.01 acknowledging satisfaction
and discharge of this Indenture, then if prior to the second Business Day
preceding the date of such execution, the Trustee or any Paying Agent shall not
have received with respect to such monies the notice provided for in this
Section, then, anything herein contained to the contrary notwithstanding, the
Trustee or such Paying Agent shall have full power and authority to receive such
monies and apply the same to the purpose for which they were received and shall
not be affected by any notice to the contrary which may be received by it on or
after such date.
Subject to the provisions of Section 6.01, the Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself to be a holder of Senior Indebtedness (or a Representative therefor) to
establish that such notice has been given by a holder of Senior Indebtedness (or
a Representative therefor). In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any Person
as a holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
SECTION j. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution in respect of the Securities or Senior
Indebtedness referred to in this Article, the Trustee, subject to the provisions
of Section 6.01, and the Holders of the Securities shall be entitled to rely
upon any order or decree entered by any court of competent jurisdiction in which
such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other Person making
such payment or distribution, delivered to the Trustee or to the Holders of
Securities, for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article.
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SECTION k. Trustee Not Fiduciary for Holders of Senior
Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders
of Senior Indebtedness and shall not be liable to any such holders if it shall,
in good faith, mistakenly pay over or distribute to Holders of Securities or to
the Company or to any other Person cash, property or securities to which holders
of Senior Indebtedness shall be entitled by virtue of this Article or otherwise.
With respect to the holders of Senior Indebtedness, the Trustee undertakes to
perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article, and no implied covenants or obligations
with respect to the holders of Senior Indebtedness shall be read into this
Article against the Trustee.
SECTION l. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness which may at
any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 6.07.
SECTION m. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; provided,
however, that Section 12.12 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
SECTION n. Rights with Respect to Conversion and Certain Payments.
Nothing contained in this Article or elsewhere in this Indenture, or in
any of the Securities, shall prevent (x) the application by the Trustee or any
Paying Agent (including the Company if it shall then be acting as Paying Agent)
of any moneys deposited with it hereunder to the payment of or on account of the
principal of and premium, if any, or interest on Securities, including without
limitation, redemptions or repurchases pursuant to Articles XI or XIV if, at the
time of such deposit (which deposit was not more than 10 days prior to the time
of such payment), such payment would not have been prohibited by the foregoing
provisions of this Article or (y) conversion of the Securities.
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SECTION o. Certain Conversions Deemed Payment.
For purposes of this Article only, (1) the issuance and delivery of junior
securities upon conversion of Securities in accordance with Article XII shall
not be deemed to constitute a payment or distribution on account of the
principal of, or premium, if any, or interest on Securities or on account of the
purchase or other acquisition of Securities, and (2) the payment, issuance or
delivery of cash, property or securities (other than junior securities) upon
conversion of a Security shall be deemed to constitute payment on account of
principal of such Security. For purposes of this Section, the term "junior
securities" means (a) shares of any stock of any class of the Company and (b)
securities of the Company which are subordinated in right of payment to the
prior payment in full of all Senior Indebtedness which may be outstanding at the
time of issuance or delivery of such securities to substantially the same extent
as, or to a greater extent than, the Securities are so subordinated as provided
in this Article. Nothing contained in this Article or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as among the
Company, its creditors other than holders of Senior Indebtedness and the Holders
of the Securities, the right, which is absolute and unconditional, of the Holder
of any Security to convert such Security in accordance with Article XIII.
SECTION p. No Suspension of Remedies.
Except as provided in Section 12.03, nothing contained in this Article
shall limit the right of the Trustee or the Holders of the Securities to take
any action to accelerate the maturity of the Securities pursuant to the
provisions described under Article V and as set forth in this Indenture or to
pursue any rights or remedies hereunder or under applicable law, subject to the
rights, if any, under this Article of the holders, from time to time, of Senior
Indebtedness to receive the cash, property or securities receivable upon the
exercise of such rights or remedies.
ARTICLE 13.
CONVERSION OF SECURITIES
SECTION a. Conversion Privilege and Conversion Price.
Subject to and upon compliance with the provisions of this Article, at the
option of the Holder thereof, any Security or any portion of the principal
amount thereof which equals $1,000 or any integral multiple thereof may be
converted at any time after 60 days following the date of original issuance of
Securities under this Indenture at the principal amount thereof, or of such
portion thereof, into fully paid and nonassessable shares (calculated as to each
conversion to the nearest 1/100 of a share) of Common Stock, at the conversion
price, determined as hereinafter provided, in effect at the time of conversion.
Such conversion right shall expire at the close of business on [___________,
2005]. In case a Security or portion thereof is called for redemption, such
conversion right in respect of the Security or portion so called shall expire at
the close of
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business on the second Business Day immediately preceding the applicable
Redemption Date, unless the Company defaults in making the payment due upon
redemption.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "conversion price") shall be initially [$_______]
per share of Common Stock. The conversion price shall be adjusted in certain
instances as provided in Section 13.04.
SECTION b. Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of any Security
shall surrender such Security, duly endorsed or assigned to the Company or in
blank, at any office or agency of the Company maintained pursuant to Section
10.02, accompanied by written notice to the Company in the form provided in the
Security (or such other notice as is acceptable to the Company) at such office
or agency that the Holder elects to convert such Security or, if less than the
entire principal amount thereof is to be converted, the portion thereof to be
converted. Securities surrendered for conversion during the period from the
close of business on any Regular Record Date next preceding any Interest Payment
Date to the opening of business on such Interest Payment Date (except in the
case of Securities or portions thereof which have been called for redemption on
a Redemption Date occurring within such period) must be accompanied by payment
in New York Clearing House funds or other funds acceptable to the Company of an
amount equal to the interest payable on such Interest Payment Date on the
principal amount of Securities being surrendered for conversion. Except as
provided in the immediately preceding sentence and subject to the last paragraph
of Section 3.07, no payment or adjustment shall be made upon any conversion on
account of any interest accrued on the Securities surrendered for conversion or
on account of any dividends on the Common Stock issued upon conversion.
Securities shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Securities for conversion in
accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock as and
after such time. As promptly as practicable on or after the conversion date, the
Company shall issue and shall deliver at such office or agency a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share, as
provided in Section 13.03.
A Security in respect of which a Holder has delivered a Repurchase Notice
pursuant to Section 14.02(b) exercising the option of such Holder to require the
Company to repurchase such Security may be converted only if such Repurchase
Notice is withdrawn by a written notice of withdrawal delivered in accordance
with Section 14.03.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the
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expense of the Company, a new Security or Securities of authorized denominations
in aggregate principal amount equal to the unconverted portion of the principal
amount of such Security.
SECTION c. Fractions of Shares.
No fractional share of Common Stock shall be issued upon conversion of
Securities. If more than one Security shall be surrendered for conversion at one
time by the same Holder, the number of full shares which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate principal
amount of the Securities (or specified portions thereof) so surrendered. Instead
of any fractional share of Common Stock which would otherwise be issuable upon
conversion of any Security or Securities (or specified portions thereof), the
Company shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction of the Closing Price (as hereinafter defined) at the
close of business on the day of conversion (or, if such day is not a Trading Day
(as hereafter defined), on the Trading Day immediately preceding such day).
For purposes of this Indenture, "Closing Price" shall mean the closing
price per share of Common Stock as quoted on the composite tape of the principal
national securities exchange upon which the Common Stock is listed or on the
Nasdaq National Market or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices regular way, in
either case on such principal national securities exchange or on the Nasdaq
National Market or, if the Common Stock is not listed or admitted to trading on
any national securities exchange or quoted on the Nasdaq National Market, the
average of the closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm selected from time to time
by the Company for that purpose, or, if such prices are not available, the fair
market value set by, or in a manner established by, the Board of Directors of
the Company in good faith. For purposes of this Indenture, "Trading Day" shall
mean any day on which (i) trading in the Common Stock is not suspended on any
national securities exchange or association or over-the-counter market at the
close of business and (ii) the Common Stock has traded at least once on the
national securities exchange or association or over-the-counter market that is
the primary market for trading of the Common Stock.
SECTION d. Adjustment of Conversion Price.
(1) In case the Company shall (i) issue Common Stock as a
dividend or distribution on its capital stock, including
the Common Stock, (ii) combine its outstanding shares of
Common Stock into a smaller number of shares, (iii)
subdivide its outstanding shares of Common Stock into a
greater number of shares, or (iv) issue by
reclassification of its Common Stock any shares of
capital stock of the Company, the conversion price in
effect immediately prior to such action shall be
adjusted so that the holder of any Security thereafter
surrendered for conversion shall be entitled to receive
the
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number of shares of Common Stock or other capital stock
of the Company that it would have owned or been entitled
to receive immediately following such action had such
Security been converted immediately prior to the
occurrence of such action. An adjustment made pursuant
to this subsection (a) shall become effective
immediately after the record date, in the case of a
dividend or distribution, or immediately after the
effective date, in the case of a subdivision,
combination or reclassification. If as a result of an
adjustment made pursuant to this subsection (a), the
holder of any Securities thereafter surrendered for
conversion shall become entitled to receive shares of
two or more classes of capital stock or shares of Common
Stock and other capital stock of the Company, the Board
of Directors (whose determination shall be conclusive
and shall be described in a statement filed by the
Company with the Trustee and with any conversion agent
as soon as practicable) shall determine the allocation
of the adjusted conversion price between or among shares
of such classes of capital stock or shares of Common
Stock and other capital stock.
(2) Subject to paragraph (f) of this Section, in case the
Company shall issue to all holders of the Common Stock,
rights, warrants or options entitling them to subscribe
for or purchase shares of Common Stock (or securities
convertible into Common Stock) at a price per share less
than the Current Market Price (determined as provided in
paragraph (g) of this Section) on the date fixed for the
determination of stockholders entitled to receive such
rights or warrants, the conversion price in effect at
the opening of business on the day following the date
fixed for such determination shall be reduced by
multiplying such conversion price by a fraction of which
the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the date
fixed for such determination plus the number of shares
of Common Stock which the aggregate of the offering
price of the total number of shares of Common Stock so
offered for subscription or purchase would purchase at
such Current Market Price and the denominator shall be
the number of shares of Common Stock outstanding at the
close of business on the date fixed for such
determination plus the number of shares of Common Stock
so offered for subscription or purchase, such reduction
to become effective immediately after the opening of
business on the day following the date fixed for such
determination. For the purposes of this paragraph (b),
the number of shares of Common Stock at any time
outstanding shall not include shares held in the
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treasury of the Company. The Company shall not issue any
rights or warrants in respect of shares of Common Stock
held in the treasury of the Company.
(3) Subject to the last sentence of this paragraph (c) and
to paragraph (f) of this Section, in case the Company
shall, by dividend or otherwise, distribute to all
holders of the Common Stock shares of any class of its
capital stock (other than Common Stock), evidences of
indebtedness, cash or other assets (including
securities, but excluding (i) any dividend or
distribution paid exclusively in cash, (ii) any dividend
or distribution referred to in paragraph (a) of this
Section, and (iii) any rights or warrants referred to in
paragraph (b) of this Section), the conversion price
shall be reduced by multiplying the conversion price in
effect immediately prior to the close of business on the
date fixed for the determination of stockholders
entitled to such distribution by a fraction of which the
numerator shall be the Current Market Price (determined
as provided in paragraph (g) of this Section) on such
date less the fair market value (as determined by the
Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) on such
date of the portion of the evidences of indebtedness,
shares of capital stock, cash and other assets to be
distributed applicable to one share of Common Stock and
the denominator shall be such Current Market Price, such
reduction to become effective immediately prior to the
opening of business on the day following such date. If
the Board of Directors determines the fair market value
of any distribution for purposes of this paragraph (c)
by reference to the actual or when-issued trading market
for any securities comprising part or all of such
distribution, it must in doing so consider the prices in
such market over the same period used in computing the
Current Market Price pursuant to paragraph (g) of this
Section, to the extent possible. For purposes of this
paragraph (c), any dividend or distribution that
includes shares of Common Stock, rights or warrants to
subscribe for or purchase shares of Common Stock or
securities convertible into or exchangeable for shares
of Common Stock shall be deemed to be (x) a dividend or
distribution of the evidences of indebtedness, cash,
assets or shares of capital stock other than such shares
of Common Stock, such rights or warrants or such
convertible or exchangeable securities (making any
conversion price reduction required by this paragraph
(c)) immediately followed by (y) in the case of such
shares of Common Stock or such rights or warrants, a
dividend or distribution thereof (making
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any further conversion price reduction required by
paragraph (a) and (b) of this Section, except any shares
of Common Stock included in such dividend or
distribution shall not be deemed "outstanding at the
close of business on the date fixed for such
determination" within the meaning of paragraph (a) of
this Section), or (z) in the case of such convertible or
exchangeable securities, a dividend or distribution of
the number of shares of Common Stock as would then be
issuable upon the conversion or exchange thereof,
whether or not the conversion or exchange of such
securities is subject to any conditions (making any
further conversion price reduction required by paragraph
(a) of this Section, except the shares deemed to
constitute such dividend or distribution shall not be
deemed "outstanding at the close of business on the date
fixed for such determination" within the meaning of
paragraph (a) of this Section).
(4) In case the Company shall, by dividend or otherwise, at
any time distribute to all holders of the Common Stock
cash (excluding any cash that is distributed as part of
a distribution referred to in paragraph (c) of this
Section or in connection with a transaction to which
Section 13.11 applies) in an aggregate amount that,
together with (A) the aggregate amount of any other
distributions to all holders of the Common Stock made
exclusively in cash within the 12 months preceding the
date fixed for the determination of stockholders
entitled to such distribution and in respect of which no
conversion price adjustment pursuant to this paragraph
(d) has been made previously and (B) the aggregate of
any cash plus the fair market value (as determined by
the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) as of
such date of determination of any other consideration
payable in respect of any tender offer by the Company or
a Subsidiary for all or any portion of the Common Stock
consummated within the 12 months preceding such date of
determination and in respect of which no conversion
price adjustment pursuant to paragraph (e) of this
Section has been made previously, exceeds 10% of the
product of the Current Market Price (determined as
provided in paragraph (g) of this Section) on such date
of determination times the number of shares of Common
Stock outstanding on such date, the conversion price
shall be reduced by multiplying the conversion price in
effect immediately prior to the close of business on
such date of determination by a fraction of which the
numerator shall be the Current Market Price (determined
as provided in paragraph (g) of this Section) on such
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date less the amount of such cash previously distributed
or to be distributed at such time applicable to one
share of Common Stock and the denominator shall be such
Current Market Price, such reduction to become effective
immediately prior to the opening of business on the day
after such date.
(5) In case a tender offer made by the Company or any
Subsidiary for all or any portion of the Common Stock
shall be consummated and such tender offer shall involve
an aggregate consideration having a fair market value
(as determined by the Board of Directors, whose
determination shall be conclusive and described in a
Board Resolution) as of the last time (the "Expiration
Time") that tenders may be made pursuant to such tender
offer (as it shall have been amended) that, together
with (A) the aggregate of the cash plus the fair market
value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a
Board Resolution) as of the Expiration Time of the other
consideration paid in respect of any other tender offer
by the Company or a Subsidiary for all or any portion of
the Common Stock consummated within the 12 months
preceding the Expiration Time and in respect of which no
conversion price adjustment pursuant to this paragraph
(e) has been made previously and (B) the aggregate
amount of any distributions to all holders of the Common
Stock made exclusively in cash within the 12 months
preceding the Expiration Time and in respect of which no
conversion price adjustment pursuant to paragraph (d) of
this Section has been made previously, exceeds 10% of
the product of the Current Market Price (determined as
provided in paragraph (g) of this Section) immediately
prior to the Expiration Time times the number of shares
of Common Stock outstanding (including any tendered
shares) at the Expiration Time, the conversion price
shall be reduced by multiplying the conversion price in
effect immediately prior to the Expiration Time by a
fraction of which the numerator shall be (x) the product
of the Current Market Price (determined as provided in
paragraph (g) of this Section) immediately prior to the
Expiration Time times the number of shares of Common
Stock outstanding (including any tendered shares at the
Expiration Time) minus (y) the fair market value
(determined as aforesaid) of the aggregate consideration
payable to stockholders upon consummation of such tender
offer and the denominator shall be the product of (A)
such Current Market Price times (B) such number of
outstanding shares at the Expiration Time minus the
number of shares accepted for payment in such
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tender offer (the "Purchased Shares"), such reduction to
become effective immediately prior to the opening of
business on the day following the Expiration Time;
provided, that if the number of Purchased Shares or the
aggregate consideration payable therefor have not been
finally determined by such opening of business, the
adjustment required by this paragraph (e) shall, pending
such final determination, be made based upon the
preliminarily announced results of such tender offer,
and, after such final determination shall have been
made, the adjustment required by this paragraph (e)
shall be made based upon the number of Purchased Shares
and the aggregate consideration payable therefor as so
finally determined.
(6) Rights, warrants or options issued by the Company to all
holders of the Common Stock entitling the holders
thereof to subscribe for or purchase shares of Common
Stock (either initially or under certain circumstances),
which rights, warrants or options (i) are deemed to be
transferred with such shares of Common Stock, (ii) are
not exercisable and (iii) are also issued in respect of
future issuances of Common Stock, in each case in
clauses (i) through (iii) until the occurrence of a
specified event or events ("Trigger Event"), shall for
purposes of this Section 13.04 not be deemed issued
until the occurrence of the earliest Trigger Event. If
any such rights, warrants or options, including any such
existing rights, warrants or options distributed prior
to the date of this Indenture, are subject to subsequent
events, upon the occurrence of each of which such
rights, warrants or options shall become exercisable to
purchase different securities, evidences of indebtedness
or other assets, then the occurrence of each such event
shall be deemed to be such date of issuance and record
date with respect to new rights, warrants or options
(and a termination or expiration of the existing rights,
warrants or options without exercise by the holder
thereof). In addition, in the event of any distribution
(or deemed distribution) of such rights, warrants or
options, or any Trigger Event with respect thereto, that
was counted for purposes of calculating a distribution
amount for which an adjustment to the conversion price
under this Section 13.04 was made, (1) in the case of
any such right, warrant or option which shall all have
been redeemed or repurchased without exercise by any
holders thereof, the conversion price shall be
readjusted upon such final redemption or repurchase to
give effect to such distribution or Trigger Event, as
the case may be, as though it were a cash distribution,
equal to the per share redemption or repurchase
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price received by a holder or holders of Common Stock
with respect to such rights or warrants (assuming such
holder had retained such rights or warrants), made to
all holders of Common Stock as of the date of such
redemption or repurchase, and (2) in the case of such
rights, warrants or options which shall have expired or
been terminated without exercise by any holders thereof,
the conversion price shall be readjusted as if such
rights, warrants and options had not been issued.
Notwithstanding any other provision of this Section 13.04 to the contrary,
rights, warrants, evidences of indebtedness, other securities, cash or other
assets (including, without limitation, any rights distributed pursuant to any
stockholder rights plan) shall be deemed not to have been distributed for
purposes of this Section 13.04 if the Company makes proper provision so that
each holder of Securities who converts a Security (or any portion thereof) after
the date fixed for determination of stockholders entitled to receive such
distribution shall be entitled to receive upon such conversion, in addition to
the shares of Common Stock issuable upon such conversions, the amount and kind
of such distributions that such holder would have been entitled to receive if
such holder had, immediately prior to such determination date, converted such
Security into Common Stock.
(7) For the purpose of any computation under this paragraph
and paragraphs (b), (c), (d) and (e) of this Section,
the current market price per share of Common Stock (the
"Current Market Price") on any date shall be deemed to
be the average of the daily Closing Prices for the
shorter of (i) 30 consecutive Business Days ending on
the last full Trading Day on the exchange or market
referred to in determining such daily Closing Prices
prior to the time of determination or (ii) the period
commencing on the date next succeeding the first public
announcement of the issuance of such rights or warrants,
such distribution or such tender offer, as the case may
be, through such last full Trading Day prior to the time
of determination.
(8) The Company may make such reductions in the conversion
price, in addition to those required by the foregoing
paragraphs of this Section, as it considers to be
advisable (as evidenced by a Board Resolution) in order
that any event treated for federal income tax purposes
as a dividend of stock or stock rights shall not be
taxable to the recipients or, if that is not possible,
to diminish any income taxes that are otherwise payable
because of such event.
(9) No adjustment in the conversion price shall be required
unless such adjustment (plus any other adjustments not
previously
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made by reason of this paragraph (i)) would require an
increase or decrease of at least 1% in the conversion
price; provided, however, that any adjustments which by
reason of this paragraph (i) are not required to be made
shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this
Section 13.04 shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be.
(10) In the event that at any time as a result of an
adjustment made pursuant to subsection (a) of this
Section 13.04, the holder of any Security thereafter
surrendered for conversion shall become entitled to
receive any shares of the Company other than Common
Stock, thereafter the conversion price of such other
shares so receivable upon conversion of any Security
shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable
to the provisions with respect to Common Stock contained
in this Article XIII.
(11) Notwithstanding any other provision of this Section
13.04, no adjustment to the conversion price shall
reduce the conversion price below the then par value per
share of the Common Stock, and any such purported
adjustment shall instead reduce the conversion price to
such par value. The Company hereby covenants not to take
any action to increase the par value per share of the
Common Stock.
SECTION e. Notice of Adjustments of Conversion Price.
Whenever the conversion price is adjusted as herein provided:
(1) the Company shall compute the adjusted conversion price
in accordance with Section 13.04 or 13.11, as
applicable, and shall prepare an Officers' Certificate
signed by the Treasurer of the Company setting forth the
adjusted conversion price and showing in reasonable
detail the facts upon which such adjustment is based,
and such certificate shall forthwith be filed (with a
copy to the Trustee) at each office or agency maintained
for the purpose of conversion of Securities pursuant to
Section 10.02; and
(2) a notice stating that the conversion price has been
adjusted and setting forth the adjusted conversion price
shall forthwith be prepared, and as soon as practicable
after it is prepared, such notice
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shall be mailed by the Company to all Holders at their
last addresses as they shall appear in the Security
Register.
SECTION f. Notice of Certain Corporate Action.
In case:
(1) the Company shall take an action that would require a
conversion price adjustment pursuant to Section
13.04(b), (c), (d) or (e); or
(2) the Company shall authorize the granting to the holders
of its Common Stock of rights or warrants to subscribe
for or purchase any shares of capital stock of any class
or of any other rights (excluding shares of capital
stock or options for capital stock issued pursuant to a
benefit plan for employees, officers or directors of the
Company); or
(3) of any reclassification of the Common Stock (other than
a subdivision or combination of the outstanding shares
of Common Stock), or of any consolidation, merger or
share exchange to which the Company is a party and for
which approval of any stockholders of the Company is
required, or of the sale or transfer of all or
substantially all of the assets of the Company; or
(4) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(5) the Company or any Subsidiary shall commence a tender
offer for all or a portion of the outstanding shares of
Common Stock (or shall amend any such tender offer to
change the maximum number of shares being sought or the
amount or type of consideration being offered therefor);
then the Company shall cause to be filed at each office or agency maintained
pursuant to Section 10.02, and shall cause to be mailed to all Holders at their
last addresses as they shall appear in the Security Register, at least 21 days
(or 10 days in any case specified in clause (a), (b) or (e) above) prior to the
applicable record, effective or expiration date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or granting of rights or warrants, or, if a record is not
to be taken, the date as of which the holders of Common Stock of record who will
be entitled to such dividend, distribution, rights or warrants are to be
determined, (y) the date on which such reclassification, consolidation, merger,
share exchange, sale, transfer, dissolution, liquidation or winding up is
expected to become effective,
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and the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities, cash
or other property deliverable upon such reclassification, consolidation, merger,
share exchange, sale, transfer, dissolution, liquidation or winding up, or (z)
the date on which such tender offer commenced, the date on which such tender
offer is scheduled to expire unless extended, the consideration offered and the
other material terms thereof (or the material terms of any amendment thereto).
Neither the failure to give any such notice nor any defect therein shall affect
the legality or validity of any action described in clauses (a) through (e) of
this Section 13.06.
SECTION g. Company to Reserve Common Stock.
The Company shall at all times reserve and keep available, free from
preemptive and other rights, out of the authorized but unissued Common Stock or
out of the Common Stock held in treasury, for the purpose of effecting the
conversion of Securities, the full number of shares of Common Stock then
issuable upon the conversion of all outstanding Securities. Shares of Common
Stock issuable upon conversion of outstanding Securities shall be issued out of
the Common Stock held in Treasury to the extent available.
SECTION h. Taxes on Conversions.
The Company will pay any and all taxes that may be payable in respect of
the issue or delivery of shares of Common Stock on conversion of Securities
pursuant hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that of the Holder of
the Security or Securities to be converted, and no such issue or delivery shall
be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax, or has established to the satisfaction of
the Company that such tax has been paid.
SECTION i. Covenant as to Common Stock.
The Company covenants that all shares of Common Stock which may be issued
upon conversion of Securities will upon issue be fully paid and nonassessable
and, except as provided in Section 13.08, the Company will pay all taxes, liens
and charges with respect to the issue thereof.
SECTION j. Cancellation of Converted Securities.
All Securities delivered for conversion shall be delivered to the Trustee
to be canceled by or at the direction of the Trustee, which shall dispose of the
same as provided in Section 3.09.
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SECTION k. Provisions of Consolidation, Merger or Sale of Assets.
In case of any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company (other
than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock) or any sale or
transfer of all or substantially all of the assets of the Company (other than to
a wholly-owned subsidiary), the Person formed by such consolidation or resulting
from such merger or which acquires such assets, as the case may be, shall
execute and deliver to the Trustee a supplemental indenture providing that the
Holder of each Security then Outstanding shall have the right thereafter, during
the period such Security shall be convertible as specified in Section 13.01, to
convert such Security only into the kind and amount of securities, cash and
other property, if any, receivable upon such consolidation, merger, sale or
transfer by a holder of the number of shares of Common Stock into which such
Security might have been converted immediately prior to such consolidation,
merger, sale or transfer, assuming such holder of Common Stock (i) is not a
Person with which the Company consolidated or into which the Company merged or
which merged into the Company or to which such sale or transfer was made, as the
case may be (a "Constituent Person"), or an Affiliate of a Constituent Person
and (ii) failed to exercise his rights of election, if any, as to the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer (provided that if the kind or amount of
securities, cash and other property receivable upon such consolidation, merger,
sale or transfer is not the same for each share of Common Stock held immediately
prior to such consolidation, merger, sale or transfer by other than a
Constituent Person or an Affiliate thereof and in respect of which such rights
of election shall not have been exercised ("nonelecting share"), then for the
purpose of this Section the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by each
nonelecting share shall be deemed to be the kind and amount so receivable per
share by a plurality of the nonelecting shares). Such supplemental indenture
shall provide for adjustments which, for events subsequent to the effective date
of such supplemental indenture, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. The above
provisions of this Section shall similarly apply to successive consolidations,
mergers, sales or transfers.
SECTION l. Trustee's Disclaimer.
The Trustee has no duty to determine when an adjustment under this Article
XIII should be made, how it should be made or what such adjustment should be,
but may accept as conclusive evidence of the correctness of any such adjustment,
and shall be protected in relying upon, the Officers' Certificate with respect
thereto which the Company is obligated to file with the Trustee pursuant to
Section 13.05. The Trustee makes no representation as to the validity or value
of any securities or assets issued upon conversion of Securities, and the
Trustee shall not be responsible for the Company's failure to comply with any
provisions of this Article XIII.
The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture executed
pursuant to Section 13.11, but may
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accept as conclusive evidence of the correctness thereof, and shall be protected
in relying upon, the Officers' Certificate with respect thereto which the
Company is obligated to file with the Trustee pursuant to Section 13.11.
ARTICLE 14.
RIGHT TO REQUIRE REPURCHASE
SECTION a. Right to Require Repurchase.
In the event that there shall occur a Change in Control (as defined in
Section 14.06), then each Holder shall have the right, at such Holder's option,
to require the Company to purchase, and upon the exercise of such right, the
Company shall, subject to the provisions of Section 12.04, purchase, all or any
part of such Holder's Securities on the date (the "Repurchase Date") that is 30
days after the date the Company gives notice of the Change in Control as
contemplated in Section 14.02(a) at a price (the "Repurchase Price") equal to
100% of the principal amount thereof, together with accrued and unpaid interest
to the Repurchase Date.
SECTION b. Notice; Method of Exercising Repurchase Right.
(1) On or before the 15th day after the occurrence of a
Change in Control, the Company, or at the request of the
Company, the Trustee (in the name and at the expense of
the Company), shall give notice of the occurrence of the
Change in Control and of the repurchase right set forth
herein arising as a result thereof by first-class mail,
postage prepaid, to the Trustee and to each Holder of
the Securities at such Holder's address appearing in the
Security Register. The Company shall also deliver a copy
of such notice of a repurchase right to the Trustee.
Each notice of a repurchase right shall state:
(1) the event constituting the Change in Control and the date thereof,
(2) the Repurchase Date,
(3) the date by which the repurchase right must be exercised,
(4) the Repurchase Price,
(5) that Securities surrendered for repurchase pursuant to this Article
may be converted into Common Stock only to the extent that the
Repurchase Notice has been withdrawn in accordance with the terms of
this Indenture, and
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(6) the instructions a Holder must follow to exercise a repurchase right
and to withdraw a Repurchase Notice.
No failure of the Company to give the foregoing notice shall limit any
Holder's right to exercise a repurchase right. The Trustee shall have no
affirmative obligation to determine if there shall have occurred a Change in
Control.
(2) To exercise a repurchase right, a Holder shall deliver
to the Company (or an agent designated by the Company
for such purpose in the notice referred to in (a) above)
or to the Trustee on or before the close of business on
the Repurchase Date (i) written notice (a "Repurchase
Notice") of the Holder's exercise of such right, which
Repurchase Notice shall set forth the name of the
Holder, the principal amount of the Security or
Securities (or portion of a Security) to be repurchased,
and a statement that an election to exercise the
repurchase right is being made thereby, and (ii) the
Security or Securities with respect to which the
repurchase right is being exercised, duly endorsed for
transfer to the Company.
(3) Upon receipt by the Company, its agent or the Trustee of
a Repurchase Notice specified in Section 14.02(b), the
Holder of any Security in respect of which such
Repurchase Notice was given shall (unless such
Repurchase Notice is withdrawn as specified in Section
14.03) thereafter be entitled to receive solely the
Repurchase Price with respect to such Security or
portion thereof as to which the repurchase right has
been exercised. In the event a repurchase right shall be
exercised in accordance with the terms hereof, the
Company shall on the Repurchase Date pay or cause to be
paid in cash to the Holder thereof the Repurchase Price
of the Security or Securities as to which the repurchase
right had been exercised; provided, however, that
installments of interest whose Stated Maturity is on or
prior to the Repurchase Date shall be payable to the
Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business
on the relevant Record Date according to their terms and
the provisions of Section 3.07. Securities in respect of
which a Repurchase Notice has been given by the Holder
thereof may not be converted into shares of Common Stock
on or after the date of the delivery of such Repurchase
Notice unless such notice has first been validly
withdrawn.
SECTION c. Withdrawal of Repurchase Notice.
87
<PAGE> 97
A Repurchase Notice may be withdrawn by means of a written notice of
withdrawal delivered by the Holder to the Company (or an agent designated by the
Company for such purpose in the notice referred to in Section 14.02(a)) or to
the Trustee at any time prior to the close of business on the Repurchase Date,
specifying:
(i) the certificate number of each Security in respect of which such
notice of withdrawal is being submitted;
(ii) the principal amount of the Security or portion thereof with
respect to which such notice of withdrawal is being submitted; and
(iii) the principal amount, if any, of such Security that remains
subject to the original Repurchase notice and that has been or will be
delivered for purchase by the Company.
SECTION d. Deposit of Repurchase Price.
On or prior to the Repurchase Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 10.03) an amount of
money in same day funds sufficient to pay the Repurchase Price of the Securities
which are to be repaid on the Repurchase Date.
If and to the extent that the aggregate amount of money so deposited with
the Trustee or with any Paying Agent or so segregated and held in trust for the
purchase of Securities exceeds the aggregate Repurchase Price of the Securities
or portion thereof that the Company is obligated to purchase, any such excess
funds shall be paid to the Company upon Company Request or, if then held by the
Company, shall be discharged from such trust.
SECTION e. Securities Not Repurchased on Repurchase Date.
If any Security surrendered for repurchase shall not be so paid on the
Repurchase Date, the principal shall, until paid, bear interest to the extent
permitted by applicable law from the Repurchase Date at the rate per annum borne
by such Security.
SECTION f. Securities Repurchased in Part.
Any Security which is to be repurchased only in part shall be surrendered
at any office or agency of the Company designated for that purpose pursuant to
Section 10.02 (with, if the Company or the Trustee so requires, due endorsement
by, or written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or
88
<PAGE> 98
Securities of any authorized denomination as requested by such Holder, in
aggregate principal amount equal to and in exchange for the unrepurchased
portion of the principal of the Security so surrendered.
SECTION g. Certain Definitions.
For purposes of this Article: a "Change in Control" shall occur when :
(a) all or substantially all of the assets of the
Company or of the Company and its Subsidiaries,
taken as a whole, are sold in one transaction or
any series of related transactions as an entirety
to any Person or related group of Persons;
(b) there shall be consummated any consolidation or
merger of the Company (A) in which the Company is
not the continuing or surviving corporation (other
than a consolidation or merger with a wholly owned
subsidiary of the Company in which all shares of
Common Stock outstanding immediately prior to the
effectiveness thereof are changed into or
exchanged for the same consideration) or (B)
pursuant to which the Common Stock would be
converted into cash, securities or other property,
in each case, other than a consolidation or merger
of the Company in which the holders of the Common
Stock immediately prior to the consolidation or
merger have, directly or indirectly, at least a
majority of the total voting power of all classes
of capital stock entitled to vote generally in the
election of directors of the continuing or
surviving corporation immediately after such
consolidation or merger in substantially the same
proportion as their ownership of Common Stock
immediately before such transaction;
(c) any Person (other than a director, officer or
beneficial owner currently known by the Company to
own more than 5% of the outstanding shares of
Common Stock), or any such Persons acting together
which would constitute a "group" for purposes of
Section 13(d) of the Exchange Act (a "Group"),
together with any Affiliates thereof, shall
beneficially own (as defined in Rule 13d-3 under
the Exchange Act) at least 50% of the total voting
power of all classes of capital stock of the
Company entitled to vote generally in the election
of directors of the Company;
89
<PAGE> 99
(d) at any time during any consecutive two-year
period, individuals who at the beginning of such
period constituted the Board of Directors
(together with any new directors whose election by
the Board of Directors or whose nomination for
election by the stockholders of the Company was
approved by a vote of 50% of the directors then
still in office who were either directors at the
beginning of such period or whose election or
nomination for election was previously so
approved) cease for any reason to constitute a
majority of the Board of Directors then in office;
or
(e) the Company is liquidated or dissolved.
90
<PAGE> 100
This instrument may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
AVATAR HOLDINGS INC.
By:_________________________________________
Gerald D. Kelfer
President and Chief Executive Officer
Attest:
________________________
Juanita I. Kerrigan
Secretary
THE CHASE MANHATTAN BANK,
as Indenture Trustee
By__________________________________________
Name:
Title:
Attest:
_____________________________
<PAGE> 101
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the ___ day of _______ 1998, before me personally came Gerald D.
Kelfer, to me known, who, being by me duly sworn, did depose and say that he is
President and Chief Executive Officer of Avatar Holdings Inc., one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation; and that he signed his name thereto by like
authority.
_______________________________
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the ___ day of January 1998, before me personally
came_________________________ to me known, who, being by me duly sworn, did
depose and say that he is a ___________________________ of The Chase Manhattan
Bank, a New York banking corporation, described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said corporation; and that he signed his
name thereto by like authority.
_________________________________
Notary Public
<PAGE> 1
Exhibit 5
January 26, 1998
Avatar Holdings Inc.
255 Alhambra Circle
Coral Gables, Florida 33134
Ladies and Gentlemen:
We have acted as counsel to Avatar Holdings Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission of the Company's Registration Statement
on Form S-3, File No. 333-41923 (as amended, the "Registration Statement"),
under the Securities Act of 1933, as amended (the "Securities Act"), relating
to the proposed registration of (i) $115,000,000 aggregate principal amount
(inclusive of the Underwriters' over-allotment option) of the Company's __%
Convertible Subordinated Notes due 2005 (the "Notes") and (ii) the shares of
the Company's common stock, par value $1.00 (the "Common Stock"), issuable upon
conversion thereof.
In so acting, we have examined originals or copies, certified
or otherwise identified to our satisfaction, of the (i) Registration Statement,
(ii) the form of Indenture (the "Indenture") between the Company and The Chase
Manhattan Bank of New York (the "Trustee"), pursuant to which the Notes will be
issued, (iii) the form of Note included as Exhibit 4.2 to the Registration
Statement, (iv) the form of Underwriting Agreement (the "Underwriting
Agreement") among CIBC Oppenheimer Corp., SBC Warburg Dillon Read, Inc.
(collectively, the "Underwriters") and the Company, and (v) such corporate
records, agreements, documents and other instruments, and such certificates or
comparable documents of public officials and of officers and representatives of
the Company, and have made such inquiries of such officers and representatives,
as we have deemed relevant and necessary as a basis for the opinions hereinafter
set forth.
<PAGE> 2
Avatar Holdings Inc.
January 26, 1998
Page 2
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. As to all questions
of fact material to this opinion that have not been independently established,
we have relied upon certificates or comparable documents of officers and
representatives of the Company.
Based on the foregoing, and subject to the qualifications
stated herein, we are of the opinion that:
1. The Notes have been duly authorized by the Company for
issuance and, when executed (assuming the due authorization, execution and
delivery of the Indenture by the Trustee and the execution and delivery of
certificates of authentication of the Notes in the manner prescribed by the
Indenture by one of the Trustee's duly authorized officers) and delivered by the
Company to and paid for by the Underwriters in accordance with the Underwriting
Agreement, will be duly executed, authenticated, issued and delivered and will
constitute legal, valid and binding obligations of the Company enforceable
against it in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors rights and remedies generally and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether a
proceeding is sought at law or in equity).
2. The Notes to be delivered pursuant to the Underwriting
Agreement are convertible into shares of Common Stock in accordance with their
terms and the conditions thereto prescribed by the Indenture and the shares of
Common Stock issuable upon conversion of such Notes have been duly authorized
and reserved for issuance upon such conversion and, when issued and delivered in
accordance with their terms and the conditions thereto prescribed by the
Indenture, will be validly issued, fully paid and nonassessable.
The opinions expressed herein are limited to the laws of the
State of New York, the corporate laws of the
<PAGE> 3
Avatar Holdings Inc.
January 26, 1998
Page 3
State of Delaware and the federal laws of the United States, and we express no
opinion as to the effect on the matters covered by this letter of the laws of
any other jurisdiction.
The opinions expressed herein are rendered solely for your
benefit in connection with the transactions described herein. Those opinions
may not be used or relied upon by any other person, nor may this letter or any
copies thereof be furnished to a third party, filed with a governmental agency,
quoted, cited or otherwise referred to without our prior written consent,
except that we hereby consent to the use of this opinion as an exhibit to the
Registration Statement and any additional registration statements relating to
the same offering of Notes filed pursuant to Rule 462(b) under the Securities
Act. We further consent to the reference to our name under the caption "Legal
Opinions" in the prospectus which is a part of the Registration Statement.
Very truly yours,
Weil, Gotshal & Manges LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated February 28, 1997
(except for Notes H and S, as to which the dates are March 18, 1997, and
December 2, 1997, respectively) with respect to the consolidated financial
statements and schedule, as amended, included in Amendment No. 2 to the
Registration Statement (Form S-3 No. 333-41923) and related Prospectus of
Avatar Holdings Inc. dated January 27, 1998.
Ernst & Young LLP
Miami, Florida
January 26, 1998
<PAGE> 1
Exhibit 25
-------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
----------------------------------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
--------------------------------------------
AVATAR HOLDINGS, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 23-1739078
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
255 ALHAMBRA CIRCLE
CORAL GABLES, FLORIDA 33134 33134
(Address of principal executive offices) (Zip Code)
CONVERTIBLE SUBORDINATED NOTES
(Title of the indenture securities)
<PAGE> 2
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany, New
York 12110.
Board of Governors of the Federal Reserve System, Washington,
D.C., 20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C.,
20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
None.
<PAGE> 3
- 3 -
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in
connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee,
published pursuant to law or the requirements of its supervising or examining
authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 26th day of January, 1998.
THE CHASE MANHATTAN BANK
By /s/ Gregory P. Shea
Gregory P. Shea
Senior Trust Officer
