SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
______________________
Filed by the Registrant [ x ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [x] Confidential, for Use of
the Commission Only (as
permitted by Rule 14a-
6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
KILLEARN PROPERTIES, INC.
(Name of Registrant as specified in its Charter)
KILLEARN PROPERTIES, INC.
(Name of Persons(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1),
or 14a-6(j)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
[x] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock, par value $.01 ("Common Stock")
(2) Aggregate number of securities to which transaction
applies:
The Proxy Statement relates to the proposed transfer of
certain assets of the Registrant, subject to certain
liabilities, to a shareholder of the Registrant in
exchange for 551,321 shares of Common Stock and an option
to purchase 100,000 shares of Common Stock
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
The filing fee of $1,248.80 was determined pursuant to
Rule 0-11(c)(2)(ii) of the Exchange Act by multiplying
1/50th of 1% by $6,244,000, which amount represents the
Registrant's estimate of the fair market value of the
property to be distributed to the Registrant's security
holder in the transaction.
(4) Proposed maximum aggregate value of transaction:
$6,244,000
(5) Total fee paid: $1,248.80
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration No.:
(3) Filing Party:
(4) Date Filed:
KILLEARN PROPERTIES, INC.
100 Eagle's Landing Way
Stockbridge, Georgia 30281
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held on September ___, 1996
TO THE SHAREHOLDERS OF KILLEARN PROPERTIES, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders
(the "Annual Meeting") of Killearn Properties, Inc. (the "Company")
will be held on September ___, 1996 at 10:00 A.M., local time, at
Eagle's Landing Country Club, 100 Eagle's Landing Way, Stockbridge,
Georgia, for the following purposes:
(1) To consider and act upon a proposal to approve the
proposed transfer (the "Proposed Split-Off") of certain assets
of the Company, comprised principally of the Eagle's Landing
Golf Course and Country Club, the Inn at Eagle's Landing,
approximately $2 million cash and approximately 250 acres of
commercial and industrial real estate, subject to certain
liabilities, to a newly-formed wholly owned subsidiary of the
Company ("NewSub"), and the subsequent transfer of all of the
outstanding capital stock of NewSub to J.T. Williams, Jr., the
Company's Chairman of the Board and Chief Executive Officer,
in exchange for 551,321 shares of Common Stock owned by Mr.
Williams and the cancellation of his option to purchase an
additional 100,000 shares of Common Stock, pursuant to an
Agreement dated as of August 1, 1996, between the Company and
J.T. Williams, Jr. (the "Agreement), and to authorize such
further actions by the Board of Directors and proper officers
as they, in their discretion, deem to be necessary or
desirable to carry out the objects, intents and purposes of
the Agreement. A copy of the Agreement is attached to the
accompanying Proxy Statement as Appendix A.
(2) To elect two directors for terms expiring in 2000
and until their successors are duly elected and qualified.
(3) To transact such other business as may properly
come before the Annual Meeting or any adjournments or
postponements thereof.
The Board of Directors has fixed August ___, 1996 as the
record date for the Annual Meeting. Only shareholders of record at
the close of business on the record date will be entitled to notice
of and to vote at the Annual Meeting or any adjournments or
postponements thereof. It is a condition to consummation of the
Proposed Split-Off that the holders of a majority of the
outstanding Common Stock, other than shares held by J.T. Williams,
Jr., approve the Proposed Split-Off. Shareholders are not entitled
to dissenters' rights in connection with the Proposed Split-Off.
THIS IS AN IMPORTANT MEETING AND ALL SHAREHOLDERS ARE INVITED
TO ATTEND THE MEETING IN PERSON. SHAREHOLDERS WHO ARE UNABLE TO
ATTEND ARE RESPECTFULLY URGED TO EXECUTE AND RETURN THE ENCLOSED
PROXY CARD AS PROMPTLY AS POSSIBLE. SHAREHOLDERS WHO EXECUTE A
PROXY CARD MAY ATTEND THE MEETING, REVOKE THEIR PROXY AND VOTE
THEIR SHARES IN PERSON.
Stockbridge, Georgia By Order of the Board of Directors,
August ___, 1996
David K. Williams
Secretary
KILLEARN PROPERTIES, INC.
100 Eagle's Landing Way
Stockbridge, Georgia 30281
_________________________________
PROXY STATEMENT
_________________________________
Annual Meeting of Shareholders
To Be Held on September ___, 1996
_________________________________
INTRODUCTION
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Killearn Properties,
Inc., a Florida corporation (the "Company"), of proxies from
holders of shares of the Company's common stock, par value $.10 per
share ("Common Stock"), for use at the Annual Meeting of
Shareholders (the "Annual Meeting") of the Company to be held on
September __, 1996 at 10:00 A.M., local time, at Eagle's Landing
Country Club, 100 Eagle's Landing Way, Stockbridge, Georgia, and at
any adjournments or postponements thereof. This Proxy Statement
and the accompanying form of proxy are first being sent or given to
shareholders on or about August ___, 1996.
At the Annual Meeting, shareholders will be asked to consider
and vote upon a proposal to approve the proposed transfer (the
"Proposed Split-Off") of certain assets of the Company, comprised
principally of the Eagle's Landing Golf Course and Country Club,
the Inn at Eagle's Landing, approximately $2 million cash and
approximately 250 acres of commercial and industrial real estate,
subject to certain liabilities, to a newly-formed wholly owned
subsidiary of the Company ("NewSub"), and the subsequent transfer
of all of the outstanding capital stock of NewSub to J.T. Williams,
Jr., the Company's Chairman of the Board and Chief Executive
Officer, in exchange for 551,321 shares of Common Stock owned by
Mr. Williams and the cancellation of his option to purchase an
additional 100,000 shares of Common Stock, pursuant to an Agreement
dated as of August 1, 1996, between the Company and J.T. Williams,
Jr. (the "Agreement), and to authorize such further actions by the
Board of Directors and proper officers as they, in their
discretion, deem to be necessary or desirable to carry out the
objects, intents and purposes of the Agreement. For a more
complete description of the terms of the Proposed Split-Off,
including the assets to be transferred to and liabilities to be
assumed by NewSub, see "The Proposed Split-Off." The complete text
of the Agreement is attached to this Proxy Statement as Appendix A.
In addition to consideration of the Proposed Split-Off, the
shareholders of the Company will be asked to elect two directors
for terms expiring in 2000 and until their successors are duly
elected and qualified. See "Election of Directors."
The Board of Directors has fixed August ___, 1996 as the
record date for the Annual Meeting. Only shareholders of record at
the close of business on the record date will be entitled to notice
of and to vote at the Annual Meeting or any adjournments or
postponements thereof. It is a condition to consummation of the
Proposed Split-Off that the holders of a majority of the
outstanding Common Stock, other than shares held by J.T. Williams,
Jr., approve the Proposed Split-Off. Shareholders are not entitled
to dissenters' rights in connection with the Proposed Split-Off.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith, files reports, proxy statements
and other information with the Securities and Exchange Commission
(the "Commission" or the "SEC"). Such reports, proxy statements
and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at Northwest Atrium Center, 500 West Madison,
Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can
also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, material filed by the Company can
be inspected at the offices of the American Stock Exchange, 86
Trinity Place, New York, NY 10006, on which the Common Stock is
traded.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report of Form 10-KSB for the year ended
April 30, 1996, filed with the Commission pursuant to Section 13(a)
of the Exchange Act, a copy of which is attached to this Proxy
Statement as Appendix C, is incorporated herein by reference.
* * * * *
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY
STATEMENT IN CONNECTION WITH THE SOLICITATION OF PROXIES HEREBY
AND, IF GIVEN OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
SUMMARY
The Annual Meeting
The Proposed Split-Off
Market Prices of the Common Stock
Historical and Pro Forma Per Share Data
THE ANNUAL MEETING
Date, Time and Place of Annual Meeting
Business to be Conducted at Annual Meeting
Outstanding Shares and Voting Rights
Security Ownership and Voting of Certain Holders
Proxies; Voting and Revocation
Proxy Solicitation
Other Matters
THE PROPOSED SPLIT-OFF
Terms of the Agreement
Business of the Company After the Proposed Split-Off
Background of the Proposed Split-Off; Recommendation of
the Independent Committee
Opinion of Financial Advisor
Conflicts of Interest
Governmental and Regulatory Approvals
Federal Income Tax Consequences
Accounting Treatment
Absence of Dissenters' Rights of Appraisal
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Pro Forma Consolidated Balance Sheet
Pro Forma Consolidated Statement of Earnings
Notes to Pro Forma Financial Statements
PRICE RANGE OF COMMON STOCK AND RELATED MATTERS
ELECTION OF DIRECTORS
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Compensation of Executive Officers
Employment Agreements
Deferred Compensation
Compensation of Directors
Certain Relationships and Related Transactions
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
INDEPENDENT PUBLIC ACCOUNTANTS
SHAREHOLDER PROPOSALS FOR ANNUAL MEETING
APPENDIX A
Agreement dated as of August 1, 1996, between
Killearn Properties, Inc. and J.T. Williams, Jr.
APPENDIX B
Opinion of PriceBednar LLP
APPENDIX C
Annual Report on Form 10-KSB for
the Year Ended April 30, 1996
SUMMARY
The following is a summary of certain of the information
contained elsewhere in this Proxy Statement. This summary does not
purport to be complete and should be read in conjunction with, and
is qualified in its entirety by, the full text of this Proxy
Statement and the appendices hereto. Unless otherwise defined
herein, capitalized terms used in this summary have the respective
meanings ascribed to them elsewhere in this Proxy Statement.
Shareholders are urged to read and consider carefully all the
information contained in this Proxy Statement and the appendices
hereto.
THE ANNUAL MEETING
Date, Time and Place The Annual Meeting will be held on
September ___, 1996 at 10:00 A.M.,
local time, at Eagle's Landing
Country Club, 100 Eagle's Landing
Way, Stockbridge, Georgia.
Record Date; Shares
Entitled to Vote The record date for shareholders of
the Company entitled to vote at the
Annual Meeting is August ___, 1996
(the "Record Date"). On the Record
Date, there were 1,438,733 shares of
Common Stock outstanding, each such
share entitled to one vote on each
matter to be acted upon or which may
properly come before the Annual
Meeting.
Business to be Conducted
at the Annual Meeting The purposes of the Annual Meeting
are to: (i) consider and vote upon a
proposal to approve the Proposed
Split-Off, and to authorize such
further actions by the Board of
Directors and proper officers as
they, in their discretion, deem to
be necessary or desirable to carry
out the objects, intents and
purposes of the Agreement; (ii)
elect two directors for terms
expiring in 2000 and until their
successors are duly elected and
qualified; and (iii) transact such
other business as may properly come
before the Annual Meeting or any
adjournments or postponements
thereof.
Vote Required The affirmative vote of the holders
of a majority of the outstanding
Common Stock, other than shares held
by J.T. Williams, Jr., is required
to approve the Proposed Split-Off.
The affirmative vote of the holders
of a plurality of the votes cast is
required to elect the nominees for
director. See "The Annual Meeting-
Outstanding Shares and Voting
Rights."
Security Ownership and Voting
of Certain Holders The 551,321 shares of Common Stock
directly owned by J.T. Williams, Jr.
will not be counted for purposes of
determining whether the shareholders
of the Company have approved the
Proposed Split-Off, but will be
counted in determining whether the
nominees for director are elected.
Proactive Technologies, Inc.
("Proactive"), which beneficially
owned 315,250 shares, or
approximately 21.9%, of the
outstanding Common Stock as of the
Record Date, has advised the Company
that it intends to vote its shares
of Common Stock in favor of the
Proposed Split-Off. In addition,
the Trustee of the Company's
Employee Profit-Sharing Plan (the
"Trustee"), who beneficially owned
93,280 shares, or approximately
6.5%, of the outstanding Common
Stock as of the Record Date, has
advised the Company that she intends
to vote its shares of Common Stock
in favor of the Proposed Split-Off.
Accordingly, the affirmative vote of
the holders of only 35,176
additional shares of Common Stock
(representing approximately 2.4% of
the outstanding shares of Common
Stock) will be required to approve
the Proposed Split-Off. See "The
Annual Meeting-Security Ownership
and Voting of Certain Holders" and
"Security Ownership of Certain
Beneficial Owners and Management."
THE PROPOSED SPLIT-OFF
General Pursuant to the Agreement, the
Company will (i) transfer to NewSub
certain assets, comprised
principally of the Eagle's Landing
Golf Course and Country Club, the
Inn at Eagle's Landing,
approximately $2 million cash and
approximately 250 acres of
commercial and industrial real
estate, subject to certain specified
liabilities, and (ii) subsequently
transfer all of the outstanding
capital stock of NewSub to J.T.
Williams, Jr. in exchange for
551,321 shares of Common Stock owned
by Mr. Williams and the cancellation
of his option to purchase an
additional 100,000 shares of Common
Stock. The Agreement provides for
the transfer by the Company of
assets and liabilities representing
approximately 42% of the Company's
net assets at April 30, 1996. See
"The Proposed Split-Off-Terms of the
Agreement."
Shareholder Approval Shareholder approval of the Proposed
Split-Off is not required by Florida
law; however, the Agreement requires
that the holders of a majority of
the outstanding Common Stock, other
than shares held by J.T. Williams,
Jr., approve the Proposed Split-Off.
See "The Proposed Split-Off-Terms of
the Agreement."
Closing and Effective Date If approved by the shareholders at
the Annual Meeting, the closing of
the Proposed Split-Off will occur as
soon as practicable after date of
the Annual Meeting and the
satisfaction of certain other
conditions set forth in the
Agreement. See "The Proposed Split-
Off-Terms of the Agreement-Closing."
The Agreement provides that the
Proposed Split-Off is to be given
effect as if the transactions
contemplated by the Agreement had
occurred on May 1, 1996 (the
"Effective Date"). See "The
Proposed Split-Off-Terms of the
Agreement-Other Agreements."
Recommendation of the
Independent Committee The Board of Directors appointed an
independent committee of directors,
consisting of Messrs. Horne, Redmon,
Pope and Fuqua (the "Independent
Committee") to review the terms and
conditions of the Proposed Split-
Off. The Independent Committee,
based upon its investigation and the
opinion of PriceBednar LLP
("PriceBednar"), believes that the
Proposed Split-Off is fair to the
Company and its shareholders, has
approved the Agreement and
recommends that the Company's
shareholders approve the Proposed
Split-Off. For a description of the
factors considered by the
Independent Committee in approving
the Proposed Split-Off, see "The
Proposed Split-Off-Background of the
Proposed Split-Off and
Recommendation of the Independent
Committee" and "-Opinion of
Financial Advisor."
Opinion of Financial
Advisor PriceBednar has served as the
Company's financial advisor in
connection with the Proposed Split-
Off. PriceBednar delivered its
written opinion to the Board of
Directors on July 29, 1996 that, as
of the Effective Date and subject to
the considerations set forth
therein, the Proposed Split-Off was
fair, from a financial point of
view, to the shareholders of the
Company other than J.T. Williams,
Jr. A copy of PriceBednar's written
opinion, which sets forth certain of
the assumptions made, matters
considered, the scope and
limitations of the review undertaken
and the procedures followed by
PriceBednar, is attached to this
Proxy Statement as Appendix B and
should be read carefully by
shareholders in its entirety. See
"The Proposed Split-Off-Opinion of
Financial Advisor."
Conflicts of Interests Due to his direct involvement in the
transaction, the interests of J.T.
Williams, Jr. in the Proposed Split-
Off are different from the interests
of other shareholders of the
Company. The Proposed Split-Off was
first proposed by Proactive, and the
material terms of the Agreement were
determined principally in
negotiations between Mr. Williams
and Proactive. Shareholders of the
Company should consider the
interests of Mr. Williams and
Proactive in the Proposed Split-Off
in connection with their vote.
Pursuant to the Agreement, the
Company will (i) enter into
employment agreements with J.T.
Williams, Jr. and David K. Williams,
pursuant to which they will continue
to serve as President and Executive
Vice President, respectively, of the
Company for periods of ten years and
three years, respectively, and (ii)
enter into three-year employment
agreements with three other key
employees of the Company, each of
whom is related to J.T. Williams,
Jr. See "The Proposed Split-Off-
Terms of the Agreement-Other
Agreements."
Mark A. Conner, Chairman of the
Board and President of Proactive,
has been nominated to become a
director of the Company at the
Annual Meeting. See "Election of
Directors." As a result of the
Proposed Split-Off, and assuming
that it does not acquire any
additional shares of Common Stock,
Proactive will beneficially own
approximately 35.5% of the
outstanding Common Stock and become
the largest shareholder of the
Company. In connection with the
Proposed Split-Off, Proactive has
agreed to make a $2 million loan to
the Company, the proceeds of which
will be transferred to NewSub as
part of the Proposed Split-Off. As
a condition to its loan, if the
Proposed Split-Off is consummated,
two of the Company's current
directors will resign and two
nominees of Proactive will become
directors of the Company. Proactive
and the Company also intend to enter
into an agreement for Proactive to
provide sales personnel, sales
training and techniques to the
Company. See "The Proposed Split-
Off-Terms of the Agreement-Other
Agreements" and "Election of
Directors."
There are no material differences
between the benefits to be received
in connection with the Proposed
Split-Off by the executive officers,
directors or affiliates of the
Company other than J.T. Williams,
Jr., David K. Williams and Proactive
and the benefits to be received in
connection with the Proposed Split-
Off by the other shareholders of the
Company.
See "The Proposed Split-Off-
Conflicts of Interest."
Conditions to the Proposed
Split-Off The consummation of the Proposed
Split-Off is subject to a number of
conditions which, if not fulfilled
or waived, permit termination of the
Agreement. Among such conditions
are the approval of the Proposed
Split-Off by the affirmative vote of
the holders of a majority of the
outstanding Common Stock, other than
shares held by J.T. Williams, Jr.
See "The Proposed Split-Off-Terms of
the Agreement-Conditions."
Termination of the
Agreement The Agreement may be terminated in
certain circumstances, including by
mutual consent of the Company and
J.T. Williams, Jr., or by either the
Company or Mr. Williams if the
Proposed Split-Off has not been
consummated on or before October 31,
1996 (unless the failure to
consummate the Proposed Split-Off is
due to the act or failure to act of
the party seeking to terminate).
The Agreement also may be terminated
by the Company if (i) in the
exercise of the Board of Directors'
fiduciary duty, it determines that
such termination is necessary, but
only if, prior to or
contemporaneously with such
determination, the Company enters
into a binding agreement with
respect to certain types of
alternative transactions, or (ii)
the holders of a majority of the
outstanding shares of Common Stock,
other than shares held by J.T.
Williams, Jr., do not approve the
Proposed Split-Off. See "The
Proposed Split-Off-Terms of the
Agreement-Termination."
Governmental and Regulatory
Approvals The Company is not aware of any
material federal or state regulatory
approvals required for consummation
of the Proposed Split-Off. See "The
Proposed Split-Off-Governmental and
Regulatory Approvals."
Federal Income Tax
Consequences The Proposed Split-Off will not have
any federal income tax consequences
to the shareholders of the Company.
For a discussion of the federal
income tax consequences of the
Proposed Split-Off to the Company,
see "The Proposed Split-Off-Federal
Income Tax Consequences."
Accounting Treatment The Proposed Split-Off will be
accounted for as a treasury stock
transaction. Following the Closing,
the business operations transferred
to NewSub in connection with the
Proposed Split-Off will be accounted
for as discontinued operations for
the current and prior periods. No
gain or loss will be recognized in
connection with the Proposed Split-
Off. See "The Proposed Split-Off-
Accounting Treatment."
No Dissenters' Rights Under the Florida Business
Corporation Act (the "FBCA"),
shareholders of the Company are not
entitled to dissenters' rights of
appraisal in connection with the
proposed Split-Off. See "The Split-
Off-Absence of Dissenters' Rights of
Appraisal."
MARKET PRICES OF THE COMMON STOCK
The Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "KPI." On May 20, 1996, the last trading
day before the Proposed Split-Off was publicly announced, the
reported high and low sales prices of the Common Stock were $9.375
and $9.25, respectively, and the closing price was $9.375 per
share. On August 1, 1996, the last trading day before the Company
announced the execution of the Agreement, the reported high and low
sales prices of the Common Stock were $9.0625 and $8.875,
respectively, and the closing price was $8.875 per share. On
August ___, 1996, the last trading day for which information was
available prior to the printing of this Proxy Statement, the
closing sales price of the Common Stock was $0.00 per share. See
"Price Range of Common Stock and Related Matters."
HISTORICAL AND PRO FORMA PER SHARE DATA
The following table presents selected historical per share
data for the Company and pro forma per share data after giving
effect to the Proposed Split-Off, assuming the Proposed Split-Off
had been effective at the dates or during the periods presented.
The pro forma data is based on the number of shares of Common Stock
expected to be outstanding following the Proposed Split-Off. This
data should be read in conjunction with the financial statements
and other financial and pro forma financial information included
elsewhere in this Proxy Statement. The Company has not paid any
cash dividends with respect to the Common Stock during any of the
periods presented.
<TABLE>
<CAPTION>
<S> <C> <C>
Pro
Historical(1) Forma(1)
Book value per share of
Common Stock at April 30,
1996 $13.36 $2.09
Earnings per share of
Common Stock for the year
ended April 30, 1996 $ 0.84 $1.66
</TABLE>
________________
(1) The historical book value and earnings per share of Common
Stock are based on 1,438,733 shares being outstanding; and the
pro forma book value and earnings per share of the Common
Stock are based on 887,912 shares being outstanding, which is
the number of shares of Common Stock expected to be
outstanding following the Proposed Split-Off.
THE ANNUAL MEETING
DATE, TIME AND PLACE OF ANNUAL MEETING
The Annual Meeting will be held on September __, 1996 at 10:00
A.M., local time, at Eagle's Landing Country Club, 100 Eagle's
Landing Way, Stockbridge, Georgia.
BUSINESS TO BE CONDUCTED AT ANNUAL MEETING
At the Annual Meeting, the shareholders will vote upon
proposals to approve the Proposed Split-Off and elect two directors
to the Board of Directors. See "The Proposed Split-Off" and
"Election of Directors." Each copy of this Proxy Statement mailed
to the shareholders of the Company is accompanied by a form of
proxy solicited by the Board of Directors for use at the Annual
Meeting and at any adjournments or postponements thereof.
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of Common Stock at the close of
business on the Record Date are entitled to receive notice of, and
to vote at, the Annual Meeting. On the Record Date, there were
1,438,733 shares of Common Stock outstanding and entitled to vote,
with each such share entitled to one vote on each matter to be
acted upon or which may properly come before the Annual Meeting.
Under the FBCA, the presence in person or by proxy of a
majority of the outstanding shares of Common Stock is necessary to
constitute a quorum at the Annual Meeting. If less than a majority
of the outstanding Common Stock is represented at the Annual
Meeting, a majority of the shares so represented may adjourn the
Annual Meeting from time to time without further notice. Pursuant
to the Agreement, the approval of the Proposed Split-Off requires
an affirmative vote of the holders of a majority of the outstanding
shares of Common Stock, other than the shares of Common Stock held
by J.T. Williams, Jr. To be elected, a nominee for director must
receive a plurality of the votes cast by holders of shares of
Common Stock present or represented at the Annual Meeting.
Neither the Company's Articles of Incorporation nor its Bylaws
contain any provisions with respect to the treatment or effect of
abstentions or broker non-votes. Abstentions will be considered as
shares present and entitled to vote for purposes of determining the
presence of a quorum and the outcome of any matter submitted to the
shareholders for a vote, but will not be counted as votes "for" or
"against" any matter. Broker non-votes (shares held by brokers or
nominees as to which instructions have not been received from the
beneficial owners or persons entitled to vote and the broker or
nominee does not have discretionary voting power on a particular
matter) will be treated as shares that are present and entitled to
vote for purposes of determining the presence of a quorum, but will
not be counted in determining the votes cast on any matter (even
though those shares are considered entitled to vote for quorum
purposes and may be entitled to vote on other matters).
Abstentions and broker non-votes will have the same effect as votes
against the Proposed Split-Off.
SECURITY OWNERSHIP AND VOTING OF CERTAIN HOLDERS
The 551,321 shares of Common Stock directly owned by J.T.
Williams, Jr. will be counted for purposes of determining whether
a quorum is present at the Annual Meeting and whether the nominees
for director are elected, but will not be counted for purposes of
determining whether the shareholders of the Company have approved
the Proposed Split-Off. Both Proactive and the Trustee, which
together beneficially owned 408,530 shares, or approximately 28.4%,
of the outstanding Common Stock as of the Record Date, have advised
the Company that they intend to vote their shares of Common Stock
in favor of the Proposed Split-Off. Accordingly, the affirmative
vote of the holders of only 35,176 additional shares of Common
Stock (representing approximately 2.4% of the outstanding shares of
Common Stock) will be required to approve the Proposed Split-Off.
See "Security Ownership of Certain Beneficial Owners and
Management."
PROXIES; VOTING AND REVOCATION
When a proxy is properly executed and returned, the shares of
Common Stock it represents will be voted in accordance with the
directions indicated on the proxy, or if no directions are
indicated, the shares will be voted for the approval of the
Proposed Split-Off and the election of the nominee for director set
forth under "Election of Directors." Any shareholder giving a
proxy may revoke his or her proxy at any time before its exercise
at the Annual Meeting by (i) giving written notice of such
revocation to David K. Williams, Secretary, Killearn Properties,
Inc., 100 Eagle's Landing Way, Stockbridge, Georgia 30281 or (ii)
signing and delivering to Mr. Williams a proxy bearing a later
date. However, the mere presence at the Annual Meeting of a
shareholder who has delivered a valid proxy will not of itself
revoke that proxy.
Shareholders are requested to complete, date and sign the
accompanying proxy and return it promptly in the enclosed postage-
paid envelope, even if they are planning to attend the Annual
Meeting.
PROXY SOLICITATION
The Company will bear the cost of soliciting proxies from its
shareholders. Proxies will be solicited by personnel of the
Company in person, by telephone or through other forms of
communication without payment of additional compensation to such
personnel. Additionally, arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of
Common Stock held of record by such custodians, nominees and
fiduciaries and for payment of reasonable expense incurred in
connection therewith. The Company may also engage a proxy
solicitation firm for the solicitation of proxies, but had not done
so as of the date of this Proxy Statement.
OTHER MATTERS
The Company is not presently aware of any other business to be
brought before the Annual Meeting. If any matters come before the
Annual Meeting which are not directly referred to in this Proxy
Statement or the enclosed proxy, including matters incident to the
conduct of the Annual Meeting, the proxy holders will vote the
shares represented by the proxies in accordance with the
recommendations of management.
THE PROPOSED SPLIT-OFF
TERMS OF THE AGREEMENT
GENERAL. The terms of the Proposed Split-Off are contained in
the Agreement, a copy of the which is attached to this Proxy
Statement as Appendix A. The descriptions in this Proxy Statement
of the terms and conditions of the Proposed Split-Off and the
Agreement are qualified in their entirety by reference to the
complete text of the Agreement. Shareholders are encouraged to
read the Agreement in its entirety.
ASSETS TO BE TRANSFERRED TO NEWSUB. Pursuant to the
Agreement, the Company will transfer to a newly-formed, wholly
owned subsidiary ("NewSub") certain of its assets, subject to
certain specified liabilities (see "-Assumed Liabilities"). At
April 30, 1996, the assets to be transferred to NewSub, net of the
liabilities to be assumed by NewSub, constituted (based on the
amounts of such assets and liabilities recorded on the Company's
books) approximately 00.0% of the Company's net assets. For the
year ended April 30, 1996 (i) the Company derived $3,164,300, or
approximately 15%, of its total revenues from the assets to be
transferred to NewSub and (ii) such assets resulted in losses that
reduced the Company's net earnings by approximately $227,000. See
"Unaudited Pro Forma Financial Statements."
The following is a brief description of the properties to be
transferred to NewSub:
Eagle's Landing Golf Course and Country Club. Located
within the Company's Eagle's Landing community, the Eagle's
Landing Golf Course and Country Club (the "Country Club")
includes a 51,000 square foot plantation-style clubhouse (with
a restaurant, lounge and meeting facilities, an eighteen hole
Tom Fazio designed golf course, a 7,000 square foot tennis
pavilion with six lighted courts and two swimming pools plus
a kiddie pool. The golf course hosts a LPGA tournament and
numerous charity events. The Country Club is private, with
golf memberships limited to 550 until an additional nine hole
golf course is constructed. Nonresident golf memberships are
limited to 50. Following the Proposed Split-Off, the Company
will also transfer to NewSub approximately 80 acres of land to
construct a new nine hole golf course. See "-Other
Agreements-Additional Nine Hole Golf Course," below.
Inn at Eagle's Landing. The Inn at Eagle's Landing (the
"Inn") is a 60-room facility located adjacent to the Country
Club. The Inn has meeting room facilities to accommodate up
to 75 persons. Construction of the Inn was completed during
July 1996.
Cash and Accounts Receivable. NewSub will receive
approximately $2 million cash for working capital, capital
expenditures and other corporate purposes and approximately
$433,000 of accounts receivable owed to the Country Club. The
actual amount of cash and accounts receivable to be
transferred to NewSub will be subject to adjustment to reflect
to operations of the Company from May 1, 1996 through the
closing of the Proposed Split-Off. See "-Adjustments to
Assets and Liabilities," below.
Joint Venture Interests. The Company will transfer to
NewSub its interests in the following joint ventures, each of
which was entered into with independent third parties:
Eagle's Landing Village Associates -- formed in
fiscal 1995 to develop a 67,000 square foot shopping
center located near the Country Club. The primary tenant
is Publix Supermarket which executed in fiscal 1996 a 20-
year lease for approximately 48,000 square feet.
Approximately 10,000 of the space available in the
shopping center had not been leased at April 30, 1996.
Roland Tract -- formed in 1980 to develop land within
one of the Company's Tallahassee subdivisions. At April
30, 1996, the joint venture's assets consisted
principally of 52 fully developed residential lots.
Champion Partners -- formed in July 1996 to construct
a speculative industrial building. In exchange for its
50% interest, the Company contributed to the joint
venture approximately 131 acres of land with an agreed
price of $4,025,000, to be paid over five years if the
property is purchased by the joint venture. The Company
is a guarantor of a $10.3 million construction loan
obtained by the joint venture. NewSub and Mr. Williams
will indemnify the Company for any payments or losses
associated with the Company's guaranty.
Commercial and Industrial Real Estate. The Company will
transfer to NewSub approximately 254 acres of other land
(including approximately 131 acres subject to the Champion
Partners joint venture), all of which is zoned for commercial
or industrial uses. In addition, approximately 36 additional
acres of land that is undevelopable wetlands or land dedicated
as green areas within the Eagle's Landing community will be
transferred to NewSub. The Company estimates that value of
the land to be transferred to NewSub at April 30, 1996 was
approximately $2.5 million. Approximately 1.1 acres of such
land was under contract for sale with an independent third
party at April 30, 1996 for a purchase price of approximately
$250,000. In addition to the above, the Company will transfer
to NewSub an option to purchase approximately 721 acres of
land in Coweta County, Georgia for which the Company paid
$25,000. The land subject to the option currently is affected
by a building moratorium. The purchase price of the land
subject to the option is approximately $4,5 million, of which
$1 million is payable 30 days after the building moratorium is
lifted.
Other Assets. The Company will transfer to NewSub
insurance policies on the life of Mr. Williams, which had a
cash surrender value at April 30, 1996 of approximately
$112,000. The Company will also transfer to NewSub the
inventories, receivables, prepaid assets, deposits and other
miscellaneous assets related to the Country Club, the
aggregate book value of which was approximately $505,000 at
April 30, 1996.
ASSUMED LIABILITIES. Pursuant to the Agreement, NewSub will
assume certain specified liabilities related to the transferred
assets. Intercompany liabilities related to the transferred assets
will be eliminated as of April 30, 1996. The following is a brief
description of the liabilities to be assumed by NewSub:
Debt Related to the Country Club and Inn. NewSub will
assume the Company's obligations under a $3 million bank loan
(the "Inn Loan"), which was obtained by the Company on June
18, 1996, and the proceeds of which were utilized to finance
a portion of the development costs of the Inn. The Inn Loan
bears interest at the rate of the bank's prime rate plus 1.25%
per annum, is secured by all of the Company's assets
associated with the Inn and is payable in full on September
15, 1996. NewSub will also assume all of the Company's
accounts payable and accrued expenses associated with the
operation of the Country Club and Inn, together with the
Company's obligation to return the refundable portion of
country club initiation fees, which liabilities aggregated
approximately $655,000 and $1.2 million, respectively, at
April 30, 1996.
Amounts Owed to J.T. Williams, Jr. NewSub will assume
all of the Company's obligations under the employment
agreement currently in effect between the Company and Mr.
Williams. The Company's unfunded post-retirement obligations
to Mr. Williams under the employment agreement was
approximately $1.8 million at April 30, 1996. See
"Compensation of Executive Officers and Directors-Employment
Agreements." NewSub will also assume the Company's obligation
to Mr. Williams under a promissory note that had an
outstanding principal balance at April 30, 1996 of $360,000.
See "Compensation of Executive Officers and Directors-Certain
Relationships and Related Transactions."
Liability to Construct Golf Course. Following the
Proposed Split-Off, Newsub will be obligated to construct an
additional nine hole golf course on land to be transferred to
NewSub by the Company. The Company estimates that the total
cost of constructing the additional golf course will be
approximately $2.6 million, $500,000 of which will be paid for
by the Company. See "-Other Agreements-Additional Nine Hole
Golf Course," below.
OTHER AGREEMENTS. The Agreement for the Company and NewSub to
enter into certain other agreements, either prior or subsequent to
the closing of the Proposed Split-Off. The following is a brief
summary of the material agreements to be entered into by the
Company pursuant to the Agreement:
Additional Nine Hole Golf Course. Following the Proposed
Split-Off, the Company will transfer to NewSub approximately
80 acres of land to construct a new nine hole golf course.
Newsub will be obligated to have the layout of the course
completed by May 1, 1997, to commence clearing not later than
six months thereafter or within two months after receipt of
all necessary permits, whichever is later, and to complete the
course within eighteen months after commencement of clearing.
The Company estimates that the total cost of constructing the
additional golf course will be approximately $2.6 million.
The Company will provide NewSub with $500,000 toward the
construction of the course, payable 10% when clearing is
completed, 30% when grading is completed, 30% when grassing is
completed and 30% when golf play commences.
Proactive Loan. Proactive has agreed to make a $2
million loan to the Company (the "Proactive Loan"), the
proceeds of which will be transferred to NewSub prior to the
closing of the Proposed Split-Off. See "-Assets to be
Transferred to NewSub-Cash and Accounts Receivable," above.
The loan will be unsecured, bear interest at the rate of 7%
per annum and be payable in full three years after the closing
of the Proposed Split-Off. Proactive has placed $1 million in
escrow as of the date hereof, and has agreed to place an
additional $1 million in escrow on or before September 30,
1996, to ensure that funds are available to make the loan at
the closing of the Proposed Split-Off. If the closing of the
Proposed Split-Off does not occur prior to October 31, 1996,
the escrowed funds will be used to reduce the outstanding
principal balance due by Capital First Holdings, Inc., a
wholly owned subsidiary of Proactive ("Capital First")(see
"Compensation of Executive Officers and Directors-Certain
Relationships and Related Transactions"), under its notes
payable to the Company (the "Capital First Notes"). As a
condition to the Proactive Loan, if the Proposed Split-Off is
consummated, Messrs. Redmon and Fuqua will resign as directors
of the Company and Langdon S. Flowers, Jr. and Robert E.
Maloney, Jr., nominees of Proactive, will become directors of
the Company. See "Election of Directors."
Employment Agreements. Pursuant to the Agreement, the
Company will enter into employment agreements with J.T.
Williams, Jr. and David K. Williams, pursuant to which they
will continue to serve as President and Executive Vice
President, respectively, of the Company for periods of ten
years and three years, respectively. The employment agreement
with Mr. Williams will provide for an annual salary for the
first five years of $200,000 and $150,000 thereafter, and the
employment agreement with David K. Williams will provide for
an annual salary of $96,242, in each case plus cost of living
increases of 5% per year. In addition, David K. Williams will
be entitled to receive a $20,000 bonus if the Company's pre-
tax earnings are in excess of $600,000 in any fiscal year
during the term of the Agreement. Both employment agreements
provide that the employees will not compete with the Company
within five miles of the Company's Eagle's Landing project for
a period of five years after execution of the agreement. The
Company will also enter into three-year employment agreements
with three other key employees of the Company, one of whom is
the wife of J.T. Williams, Jr. and will receive an annual
salary of $35,490. The other two employees of the Company are
sons of Mr. Williams, who will receive annual salaries of
$70,000 and $60,700, respectively, in each case plus cost of
living increases of 5% per year. In addition, one of such
employees will be paid a sales override for all land sold
(other than residential lots) in accordance with the Company's
current practices. With the exception of the compensation
payable to J.T. Williams, Jr. under his proposed employment
agreement, which represents approximately one-half of the
amount currently payable by the Company under his existing
employment agreement, the amount of compensation payable to
each employee with whom the Company will enter into an
employment agreement is comparable to the amount being paid to
such employee as of the date hereof.
Country Club Memberships. Pursuant to the Agreement,
NewSub will be obligated to offer to all purchasers of
residential lots in the Company's Eagle's Landing Country Club
Community (the "Community") golf, tennis and dining
memberships in the Country Club for initiation fees of
$25,000, $9,000 and $2,750, respectively. NewSub will agree
to not raise the amount of the golf membership initiation fees
for at least one year after the closing of the Proposed Split-
Off, and will agree not to raise the amount of the tennis or
dining membership initiation fees for ten years after the
closing of the Proposed Split-Off without the Company's
consent. Consistent with the Company's current practices, (i)
the Company will be obligated to offer to purchase a tennis
membership for all lot purchasers in the Community and to
purchase a dining membership for all lot purchasers in certain
other subdivisions, and will purchase such memberships from
NewSub if the lot purchasers accept such offers, and (ii)
NewSub will provide the members of the Board of Directors,
without payment of initiation fees or dues, honorary
memberships for as long as the Company is actively developing
and selling property in Eagle's Landing, but in any event for
at least four years. NewSub will also provide the Company for
as long as the Company is actively developing and selling
property in Eagle's Landing, but in no event longer than eight
years up to fifteen memberships for builders without payment
of initiation fees and up to six dining memberships for sales
associates of the Company without the payment of initiation
fees or dues, in each case provided that the Company
guarantees all charges made by such persons.
Adjustments to Assets and Liabilities. The Agreement
provides that the Proposed Split-Off is to be given effect as
if the transactions contemplated by the Agreement had occurred
on May 1, 1996 (the "Effective Date"). Accordingly, the
actual amount of cash and accounts receivable to be
transferred to NewSub will (i) be reduced by NewSub's pro rata
portion of property taxes, insurance premiums and other
expenses associated with the assets to be transferred to
NewSub paid or incurred by the Company between the Effective
Date and the closing of the Proposed Split-Off and (ii) be
increased by the amount of net income generated by the assets
to be transferred to NewSub received by the Company between
the Effective Date and the closing of the Proposed Split-Off,
including the proceeds from the sale of any land which was to
be transferred to NewSub, less closing costs and commissions
in connection with the sale.
Removal of Mortgages and Liens on Transferred Assets.
The Company will use its best efforts to remove from the
assets to be transferred to NewSub all existing mortgages and
liens, other than mortgages or liens granted to the lender of
the Inn Loan. Until the Company has secured the release of
all such mortgages and liens from the transferred assets, the
Company will apply the proceeds of any payments made by
Capital First under its notes payable to the Company to the
payment of debts secured by such liens and mortgages and will
assign the Capital First Notes and related security to NewSub
as security for the Company's obligations. The Company will
covenant to NewSub that it will timely pay all amounts due,
and perform all of its other obligations, under any loan or
other agreements secured by mortgages and liens encumbering
the transferred assets.
CONSIDERATION. The Agreement provides that the Company will
transfer all of the outstanding capital stock of NewSub to J.T.
Williams, Jr. in exchange for 551,321 shares of Common Stock owned
by Mr. Williams and the cancellation of his option to purchase an
additional 100,000 shares of Common Stock. Assuming that (i) each
share of Common Stock surrendered by Mr. Williams to the Company
has a value equal to the closing sale price for the Common Stock on
May 1, 1996 ($9.75), the Effective Date, and (ii) the value of the
options surrendered by Mr. Williams to the Company is equal to the
number of shares subject to the option times the difference between
the closing sales price for the Common Stock on the Effective Date
($9.75) and the exercise price per share of such options ($3.60),
the value of the consideration given by Mr. Williams to the Company
pursuant to the proposed Split-Off as of the Effective Date would
have been approximately $6 million.
CLOSING. The closing of the Proposed Split-Off (the
"Closing") will take place as soon as practical after the
satisfaction of the conditions precedent to the Proposed Split-Off,
on a date mutually agreed upon by the Company and Mr. Williams.
See "-Conditions, below."
REPRESENTATIONS AND WARRANTIES; COVENANTS. The Agreement
contains various customary representations and warranties of the
Company and Mr. Williams. These include representations by the
Company as to corporate organization and good standing, authority
to enter into the Agreement, validity and enforceability of the
Agreement, the absence of conflicts between the Agreement and other
agreements to which the Company is a party, required consents and
approvals and the Company's title to the transferred properties.
Mr. Williams' representations and warranties include, those as to
his authority to enter into the Agreement, validity and
enforceability of the Agreement, the absence of conflicts between
the Agreement and other agreements to which he is a party and
required consents and approvals.
The Company has covenanted, among other things, that it will
not initiate, solicit or encourage any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to
lead to, any Competing Transaction, enter into discussions or
negotiate with any person or entity in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or
endorse any Competing Transaction, or authorize any of its officers
or directors to take any such action. For purposes of the
Agreement, a "Competing Transaction" means: (A) any merger,
consolidation, share exchange, business combination, sale of
securities, recapitalization, liquidation, dissolution or other
similar transaction; (B) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of 10% or more of the assets
of the Company and its subsidiaries, taken as a whole, in a single
transaction or series of transactions; (C) any tender offer or
exchange offer for 10% or more of the outstanding shares of capital
stock of the Company; (D) any person having acquired beneficial
ownership or the right to acquire beneficial ownership of, or any
"group" having been formed which beneficially owns or has the right
to acquire beneficial ownership of, 10% or more of the then
outstanding shares of capital stock of the Company; or (E) any
public announcement of a proposal, plan or intention to do any of
the foregoing or any agreement to engage in any of the foregoing.
The Agreement does not prohibit the Company, subject to
authorization by the Board of Directors, from furnishing
information to, or entering into discussions or negotiations with,
any person or entity that makes a bona fide proposal to enter into
a Competing Transaction, that had not been initiated, solicited or
encouraged by the Company or any of its affiliates (other than Mr.
Williams), or recommending or endorsing any, or entering into any
definitive agreement with respect to any, such Competing
Transaction if, in either case, the Board of Directors determines
in good faith (after considering the written opinion of outside
counsel) that such action is required for the Board of Directors to
comply with its fiduciary duties to the Company's shareholders
under applicable law, the Board of Directors reasonably believes
that the proposal is made in good faith, and prior to furnishing
any information to any such person or entity, the Company receives
from such person or entity an executed confidentiality agreement on
customary terms. The Company has also covenanted to conduct its
business prior to the closing of the Proposed Split-Off only in the
ordinary course, consistent with past practices.
CONDITIONS. Conditions precedent to the obligations of both
the Company and Mr. Williams to effect the Proposed Split-Off
include, but are not limited to, the following:
Shareholder Approval: The Agreement and the transactions
contemplated thereby shall have been approved by the
affirmative vote of the holders of a majority of the
outstanding Common Stock, excluding shares held directly by
Mr. Williams, in accordance with applicable law.
Representations and Covenants: The representations and
warranties of each of the Company and Mr. Williams shall be
true and correct in all material respects at the Closing Date,
and each of the Company and Mr. Williams shall have performed
in all material respects its obligations and agreements, and
complied in all material respects with all covenants and
conditions, required to be performed or complied with by it or
him under the Agreement at or prior to the Closing.
Absence of Certain Action and Litigation: No action,
suit or investigation before any court or governmental
authority shall have been commenced or be pending or
threatened against the Company or Mr. Williams seeking to
prevent, restrain or alter the transactions contemplated by
the Agreement.
Consents: The Company and Mr. Williams shall have
obtained all consents of lenders and other third parties
necessary for the consummation of the Proposed Split-Off.
Additional conditions precedent to the obligations of the
Company are: (i) that the opinion of PriceBednar shall be in
effect, and shall not have been modified in any material adverse
respect or withdrawn on or prior to the date of mailing this Proxy
Statement, and (ii) that the Company shall have received the $2
million proceeds of the Proactive Loan.
TERMINATION. The Agreement may be terminated prior to the
Closing upon certain occurrences, including (i) by mutual written
consent of the Company and Mr. Williams, (ii) by the Company or Mr.
Williams, upon a breach by the other of any representation or
warranty contained in the Agreement or a material breach by the
other of any of the covenants and agreements contained in the
Agreement, in either case which is not cured within thirty days
after written notice is given to the breaching party, (iii) by the
Company or Mr. Williams, if the Proposed Split-Off has not been
consummated on or before October 31, 1996, unless the failure to
consummate the Proposed Split-Off is solely due to the act or
failure to act of the party seeking to terminate the Agreement, or
(iv) by the Company or Mr. Williams, if there shall be a final
nonappealable order of a federal or state court restraining or
prohibiting the consummation of the Proposed Split-Off, or there
shall be any action taken, or any statute, rule or regulation
enacted, promulgated or issued or deemed applicable to the Proposed
Split-Off by any governmental authority, which would make the
consummation of the Proposed Split-Off illegal. In addition, the
Agreement may be terminated by the Company if (i) in the exercise
of the Board of Directors' fiduciary duty, it determines that such
termination is necessary, but only if, prior to or
contemporaneously with such determination, the Company enters into
a binding agreement with respect to a Competing Transaction, or
(ii) the holders of a majority of the outstanding shares of Common
Stock, other than the shares of Common Stock held by Mr. Williams,
do not approve the Proposed Split-Off at the Annual Meeting.
Neither the Company nor Mr. Williams will have any liability to the
other on account of the termination of the Agreement in accordance
with any of the foregoing provisions.
WAIVER AND AMENDMENT. The Company and Mr. Williams may modify
or amend the Agreement by written agreement to the extent permitted
by applicable law. The conditions to each party's obligations to
consummate the Proposed Split-Off may be waived only by a writing
signed by the waiving party. All waivers by the Company must be
approved by a majority of the Board of Directors then in office,
excluding Mr. Williams and David K. Williams.
EXPENSES. Each of the Company and Mr. Williams will bear all
expenses incurred by it or him in connection with the Agreement and
the Proposed Split-Off. The Company will bear all expenses related
to actions required to be taken to effect the Split-Off, including
expenses associated with the transfer of assets to NewSub and
obtaining any necessary third party consents or approvals.
BUSINESS OF THE COMPANY AFTER THE PROPOSED SPLIT-OFF
Following consummation of the Proposed Split-Off, the Company
will continue to be engaged in the development and sale of its
Georgia properties. The Company's principal assets following the
Proposed Split-Off will include approximately 1,263 acres of
undeveloped land (approximately 56% of which is zoned for
residential uses and the balance of which is zoned for commercial
or industrial uses), 241 developed residential lots, the Capital
First Note (which had a balance due of approximately $6.8 million
at April 30, 1996), and accounts and land contracts receivables
from the sale of properties. At April 30, 1996, the Company had
136 full-time employees, 108 of which were engaged in the operation
of the Country Club and Inn. It is anticipated that NewSub will
offer employment to those employees of the Company that are engaged
as of the consummation of the Proposed Split-Off in the operation
of the Country Club and Inn.
BACKGROUND OF THE PROPOSED SPLIT-OFF; RECOMMENDATION OF THE
INDEPENDENT COMMITTEE
BACKGROUND OF THE PROPOSED SPLIT-OFF. The Company has been
engaged in the development of planned communities for over thirty
years. Until 1989, when the Company purchased approximately 2,600
acres of land in what is now known as the Eagle's Landing
development, the Company's operations had been conducted
principally in the vicinity of Tallahassee, Florida. In November
1993, the Company entered into two agreements to sell substantially
all of its Florida assets to Capital First for approximately $25.7
million. Mark A. Conner, the Chairman of the Board and Chief
Executive Officer of Proactive, was President of Capital First at
the time of the sale.
Since a substantial portion of the sale was financed by the
Company (see "Compensation of Executive Officers and Directors-
Certain Relationships and Related Transactions"), the Company
regularly received information concerning Capital First's
operations following the sale. Most significantly, during the
first two years after the sale the Company observed that Capital
First had achieved lot sales of approximately twice the volume that
the Company had experienced prior to the sale. The Company
believed that such increase in sales was attributable principally
to Capital First's sales training and techniques and its selection
of sales personnel.
In the Fall of 1995, Mr. Conner approached J.T. Williams, Jr.
to explore a possible merger between the Company and Capital First.
Mr. Conner indicated to Mr. Williams at that time that his interest
in a merger was to create a public market for Capital First's
shareholders, and that he would propose to retain the Company's
management following the merger. Mr. Williams, who was at the
time, and continues to be, the Company's largest shareholder,
indicated to Mr. Conner that neither he personally nor the Board of
Directors had an interest in such a merger. No formal discussions
or negotiations took place at that time concerning the proposed
merger or any other business combination between the Company and
Capital First.
Capital First became a wholly owned subsidiary of Proactive in
February 1996. During April 1996, Proactive purchased 115,700
shares, or approximately 8.0%, of the Company's Common Stock in
open market transactions. At the end of April 1996, Mr. Conner
contacted J.T. Williams, Jr. and requested a meeting to discuss a
proposed transaction between the Company and Proactive. On May 4,
1996, Mr. Conner and Mr. Williams held a meeting, at which Mr.
Conner made a proposal for the Company to effect the "split-off" of
approximately 42% of its net assets in exchange for Mr. Williams
42% interest in the Company represented by his 551,321 shares of
Common Stock and his option to purchase 100,000 shares of Common
Stock. Mr. Conner also indicated that Proactive was interested
effecting a business combination transaction between Proactive and
the Company once the transaction between the Company and Mr.
Williams was completed. Mr. Conner indicated to Mr. Williams that
Proactive believed that the market value of the Company's Common
Stock could be increased for the benefit of Proactive and the
Company's other shareholders by divesting the Country Club and Inn,
which were not producing significant income for the Company, and by
utilizing Proactive's sales methods and techniques to strengthen
the Company's residential sales in its Georgia operations. The
proposed transactions would also benefit the Company by maintaining
a continuity of management for the Country Club and Inn which,
although not significant to the Company's profitability, increase
the value of the surrounding properties. Mr. Williams indicated to
Mr. Conner during their May 4 meeting that he had an interest in
exploring Proactive's proposal. Messrs. Williams and Conner
discussed their views on the valuations of the Company's assets,
and at the conclusion of that meeting tentatively agreed to pursue
Proactive's proposal further.
During the following week, Proactive executed a
confidentiality agreement with the Company and the Company allowed
Proactive to conduct a "due diligence" review of the Company's
assets, books and records. Various business, financial and other
considerations were also discussed during this period between Mr.
Williams, Mr. Conner and Robert E. Maloney, Jr., Proactive's
Corporate Counsel, including the terms of the proposed "split-off",
the assets and liabilities to be divested by the Company, the
retention of Mr. Williams and certain other employees following the
consummation of the proposed transactions and the terms of the
proposed business combination between the Company and Proactive.
On May 13, 1996, Mr. Williams formally advised the Board of
Directors of the terms and conditions of Proactive's proposal.
During the week of May 13, 1996, Mr. Williams and the Company's
legal counsel had numerous discussions with Mr. Conner and
Proactive's legal counsel regarding the terms and conditions of the
agreement to be entered into among the Company, Mr. Williams and
Proactive to consummate the transactions contemplated by
Proactive's proposal, including the terms of the "split-off"
transaction and the business combination between the Company and
Proactive, the representations and warranties to be made by each
party and the conditions to each party's obligations to consummate
the proposed transactions.
On May 20, 1996, Proactive issued a press release indicating
that it intended to acquire a controlling interest in the Company.
Proactive indicated that it held at that time Common Stock
representing approximately 8.1% of the outstanding Common Stock,
and that it had entered into agreements to acquire an additional 8%
of the outstanding Common Stock. The press release stated
Proactive's intention to propose a business combination transaction
pursuant to which the Company's shareholders would receive four
shares of Proactive common stock for each share of Common Stock.
The press release also stated that Proactive intended to propose a
transaction to the effect of the Proposed Split-Off. The Company
issued its own press release on May 21, 1996, indicating that it
and Mr. Williams had received and were considering Proactive's
proposals and would respond after they had an adequate opportunity
to solicit the advice of their respective legal counsel, to fully
evaluate the terms and conditions of the proposals and to perform
necessary due diligence.
On May 22, 1996, the Company received a proposed agreement,
which had been executed by Proactive and contained the general
terms and conditions that had been discussed between Mr. Williams
and Mr. Conner, which required that Mr. Williams and the Company
accept the agreement on or before May 31, 1996. On May 24, 1996,
Mr. Williams wrote to Mr. Conner to indicate that, although he
agreed to the general terms of the offer, the Board of Directors
was considering the proposal and would respond prior to May 31,
1996.
During the following week, management of the Company provided
the Board of Directors information concerning the material aspects
of the proposed transactions, copies of the communications between
the Company and Proactive and Proactive's proposed agreement. On
May 29, 1996, the Board of Directors held a telephonic meeting to
discuss the proposed transactions. Following presentations by J.T.
Williams, Jr. and David K. Williams on the terms and conditions of
the proposed transaction, the Board of Directors determined that
the members of the Board of Directors other than J.T. Williams, Jr.
and David K. Williams should act as an independent committee (the
"Independent Committee") to review the proposed transactions. J.T.
Williams, Jr. and David K. Williams removed themselves from the
meeting. The Independent Committee then elected Mallory E. Horne
as chairman of the committee and determined that it should retain
an independent firm to render an opinion as to the fairness of the
proposed transactions to the Company's shareholders other than Mr.
Williams.
On May 30, 1996, Mr. Conner contacted Mr. Williams and
indicated that Proactive intended to alter its proposal. Mr.
Conner informed Mr. Williams that Proactive continued to support
the proposed "split-off" of assets and liabilities, but that it had
decided to defer any consideration of the proposed business
combination between the Company and Proactive until a later date.
Proactive subsequently delivered to the Board of Directors a
letter, dated June 2, 1996. Proactive's letter indicted that
Proactive had acquired, or entered into agreements to acquire,
approximately 20% of the outstanding Common Stock. The letter also
stated that, "[Proactive is] convinced that it is in the best
interests of Killearn's shareholders to implement the [Proposed
Split-Off]" and that "we suggest, as the 2nd largest shareholder,
that the Board immediately pursue presenting the [Proposed Split-
Off] to Killearn shareholders." The letter further stated that
Proactive "remain[ed] committed to pursuing a business combination"
with Killearn, requested approval of the Board of Directors to
increase Proactive's stock ownership to 24% of the outstanding
Common Stock, and indicted that "if the Board and the shareholders
approve the [Proposed Split-Off], we would like to pursue
additional proposals with the Board."
On June 6, 1996, the Independent Committee held a telephonic
meeting, at which they considered Proactive's letter. The
Independent Committee determined that it had no objection to
Proactive acquiring up to approximately 22% of the outstanding
Common Stock. The Independent Committee also reviewed the
discussions its chairman had conducted with various firms
concerning the rendering of a fairness opinion and authorized the
chairman of the committee to solicit proposals from several of such
firms. On June 17, 1996, the Independent Committee held a
telephonic meeting to discuss various proposals it had received
from three such firms. The Independent Committee determined that,
given the nature of the Proposed Split-Off and the expertise of the
firms it had interviewed, PriceBednar was best suited to render a
fairness opinion with respect to the Proposed Split-Off. The
Independent Committee formally engaged PriceBednar on June 17,
1996.
During the next two weeks PriceBednar was provided access to
the Company's books and records pertaining to the assets and
liabilities proposed to be transferred to NewSub, as well as those
to be retained by the Company, in connection with the Proposed
Split-Off. At the time, the Company was in the process of
completing its fiscal 1996 audit, and PriceBednar was provided
access to the Company's independent accountants in connection with
its review. On June 28, 1996, PriceBednar completed its review of
the Company's assets and liabilities and submitted to the
Independent Committee a preliminary draft of a report containing
its financial evaluation of the Proposed Split-Off and the opinion
PriceBednar proposed to issue when the Company's independent
auditors completed their audit of the Company's financial
statements. See "-Opinion of Financial Advisor" for a summary of
the factors and analysis included within PriceBednar's draft
report.
At a meeting of the Board of Directors held on July 15, 1996,
PriceBednar discussed selected analyses from its financial
evaluation which had been furnished to the Independent Committee.
Representatives of PriceBednar responded to questions regarding the
procedures and analyses used in connection with PriceBednar's
evaluation of the Proposed Split-Off but did not, at that time,
render any opinion as to the fairness of the Proposed Split-Off.
Following PriceBednar's presentation, the Company's legal counsel
advised the Independent Committee regarding its fiduciary duties
and certain other legal issues regarding the terms of the Proposed
Split-Off. The status of completion of an agreement for the
Proposed Split-Off and the possible schedule for effecting the
transaction were also discussed. At the conclusion of the meeting,
the Independent Committee preliminarily approved the Proposed
Split-Off, subject to the receipt of a satisfactory fairness
opinion from PriceBednar and the execution of a definitive
agreement on satisfactory terms.
During the last two weeks of July, the Company's legal
counsel, on behalf of the Independent Committee, had several
discussions with Mr. Williams regarding the terms and conditions of
the Agreement. These discussions included the terms of the
obligations of the Company and NewSub following the Proposed Split-
Off and of provisions permitting the Company, to the extent
required to fulfill the fiduciary duties of its Board of Directors,
to participate in negotiations or discussions with respect to
alternative offers or proposals and permitting the Board of
Directors to pursue such alternative offers or proposals, if the
Board determined that to do so would be in the best interest of the
Company and its shareholders. The Company's legal counsel also
sought clarifications to the terms and conditions under which
Proactive had agreed to make the Proactive Loan.
On July 29, 1996, the Company's independent auditors completed
their audit of the Company's financial statements. Also on July
29th, PriceBednar delivered to the Board of Directors its written
opinion regarding the fairness of the Proposed Split-Off, from a
financial point of view, to the shareholders of the Company other
than Mr. Williams.
Proactive delivered to the Board of Directors a letter, dated
July 29, 1996, reiterating its desire to have the Company effect
the Proposed Split-Off and confirming its willingness to make the
Proactive Loan. Proactive indicated in its letter that although it
believed that present management of the Company should be retained,
it believed the Company needed improvement in the sale of
residential lots. Proactive proposed that the Company enter into
an agreement with Proactive to provide sales personnel, sales
training and techniques on a basis not to exceed the Company's
current selling costs. Proactive's letter also stated that as a
condition of its proposal, upon the consummation of the Proposed
Split-Off and Proactive's acquisition of approximately 21% of the
outstanding Common Stock, the Board of Directors would consist of
J.T. Williams, Jr., David K. Williams, Mallory E. Horne, Melvin L.
Pope, current directors of the Company, together with Mark A.
Conner (a nominee for director at the Annual Meeting) and Langdon
S. Flowers, Jr. and Robert E. Maloney, Jr., two other
representatives of Proactive. Proactive also requested, although
not as a condition of the Proactive Loan, that members of
Proactive's board of directors and up to six sales associates
selected by Proactive be given honorary memberships in the Country
Club, in each case so long as Proactive is actively selling
property in Eagle's Landing, that Mr. Conner be given a family
membership in the Country Club for as long as NewSub owns the
Country Club and that Mr. Conner be provided a room at the Inn for
a period of six months after the closing of the Proposed Split-Off.
Proactive's proposals were made subject to acceptance no later than
August 2, 1996.
The Independent Committee held a telephonic meeting on July
31, 1996 to consider the Proposed Split-Off. The Independent
review the proposed Agreement and Proactive's proposals. At the
conclusion of the meeting, the Independent Committee unanimously
approved the Agreement and authorized the chairman of the committee
to finalize and execute the Agreement. The Independent Committee
also determined that the Company should accept Proactive's
proposals and authorized Mr. Williams to accept the proposals in
writing prior to August 2nd.
The Company and Mr. Williams entered into the Agreement on
August 2, 1996, and the Company publicly announced its execution of
the Agreement on August 5, 1996.
RECOMMENDATION OF THE INDEPENDENT COMMITTEE. At its meetings
held on July 15th and July 31st, the Independent Committee
considered the terms and structure of and the legal, financial and
other ramifications of the Agreement and the Proposed Split-Off.
The following is a summary of all of the material factors
considered by the Independent Committee in reaching its decision to
enter into and to recommend the adoption of the Agreement and the
Proposed Split-Off:
1. The fact that the proposal to effect the Proposed Split-
Off was made by Proactive, the Company's second largest
shareholder, and had received the approval and support of J.T.
Williams, Jr., the Company's largest shareholder. In particular,
the Board noted that the specific assets and liabilities to be
transferred to NewSub had been determined in negotiations between
Proactive, which would remain as a significant shareholder of the
Company following the Proposed Split-Off, and Mr. Williams.
2. The presentations by PriceBednar to the Independent
Committee and the opinion subsequently issued by PriceBednar to the
effect that the Proposed Split-Off was fair, from a financial point
of view, to the shareholders of the Company other than J.T.
Williams, Jr. The Independent Committee considered the various
financial analyses which had been included in PriceBednar's
presentation and felt that such analyses, taken as a whole,
supported the conclusion that the Proposed Split-Off was fair, from
a financial point of view, to the shareholders of the Company other
than Mr. Williams. See "-Opinion of Financial Advisor"
3. The business and financial effects of the Proposed Split-
Off, including that the Proposed Split-Off would eliminate from the
Company's books assets that had not historically produced earnings
for the Company, allow the Company to retain the services of Mr.
Williams at a reduced cost to the Company and increase the earnings
per share of Common Stock outstanding following the Proposed Split-
Off. The Independent Committee also considered that the Company
would benefit from increasing the Company's relationship with
Proactive, which had demonstrated its ability to achieve
significantly greater residential sales than the Company.
4. The terms of the Agreement generally. In this regard,
the Independent Committee placed special emphasis on certain
provisions of the Agreement, in particular the requirement that the
Proposed Split-Off be approved by the affirmative vote of the
holders of a majority of the outstanding Common Stock, excluding
shares held directly by Mr. Williams, and the ability of the
Company, to the extent required to fulfill the fiduciary duties of
its Board of Directors, to participate in negotiations or
discussions with respect to alternative offers or proposals to
acquire all or substantially all of the assets or capital stock of
the Company and permitting the Board of Directors to pursue such
alternative acquisition proposals, without payment of any penalty
or termination fee. The Independent Committee believed that such
provisions adequately provided the shareholders of the Company
other than Mr. Williams an opportunity to approve or disapprove the
Proposed Split-Off and provided the Board of Directors with the
ability to entertain unsolicited third party acquisition proposals
and thus fulfill its fiduciary duties to the Company's shareholders
should such a proposal be made.
The Independent Committee concluded, in light of the above
factors, that the Proposed Split-Off is fair to the Company and its
shareholders and approved the Agreement and the transactions
contemplated thereby.
In view of the variety of factors considered by the
Independent in connection with its evaluation of the Proposed
Split-Off, the Independent Committee did not find it practicable
to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its
determination. The Independent Committee was not aware of, and
therefore did not consider, any factors that would have led it to
conclude that the Proposed Split-Off was not fair to the Company
and its shareholders.
THE INDEPENDENT COMMITTEE BELIEVES THAT THE PROPOSED SPLIT-OFF
IS FAIR TO THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED THE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS
THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN FAVOR OF THE APPROVAL
OF THE PROPOSED SPLIT-OFF.
OPINION OF FINANCIAL ADVISOR
The Board of Directors retained PriceBednar to render an
opinion as to the fairness to the shareholders of the Company,
other than J.T. Williams, Jr., from a financial point of view, of
the Proposed Split-Off. PriceBednar, as part of its accounting and
consulting business, is frequently engaged in the valuation of
businesses in connection with mergers and acquisitions, private
placements and for other purposes. PriceBednar is independent of
all parties to the Proposed Split-Off and neither PriceBednar nor
its partners beneficially own any Common Stock or common stock of
Proactive.
PriceBednar delivered to the Board of Directors a written
opinion, dated July 29, 1996, which stated that, based on the
assumptions and subject to qualifications set forth therein which
are summarized below, as of the Effective Date, the Proposed Split-
Off was fair, from a financial point of view, to the shareholders
of the Company other than J.T. Williams, Jr. A copy of the full
text of the written opinion of PriceBednar, which sets forth the
assumptions made, procedures followed, matters considered and
limits of PriceBednar's review, is attached to this Proxy Statement
at Appendix B and is incorporated herein by reference.
Shareholders of the Company are urged to, and should, reach such
opinion in its entirety. PriceBednar's opinion is directed only to
the fairness, from a financial point of view, of the Proposed
Split-Off and does not constitute a recommendation to any
shareholder of the Company by PriceBednar as to how such
shareholder should vote at the Annual Meeting. PriceBednar did not
structure, establish or negotiate the terms of the Proposed Split-
Off, did not advise the Company as to the terms of the Proposed
Split-Off and was not requested to, and accordingly did not,
express any opinion with respect to either the underlying business
decision of the Company to effect the Proposed Split-Off or the
availability or advisability of any alternatives to the Proposed
Split-Off. Furthermore, PriceBednar did not evaluate or attempt to
value the stock of the Company. In addition, PriceBednar did not
consider, and did not express any opinion regarding the operations,
business prospects, financial condition or viability as a going
concern of the Company, either before or after the Proposed Split-
Off. In rendering its opinion, PriceBednar was not engaged as an
agent or fiduciary of the shareholders of the Company or any other
third party. The summary of the opinion of PriceBednar set forth
in this Proxy Statement is qualified in its entirety by reference
to the full text of such opinion.
In connection with its opinion, PriceBednar, among other
things, (i) considered financial information concerning the assets
of the Company furnished to PriceBednar by the Company, including
certain internal financial analyses and forecasts prepared by the
Company concerning the Country Club and the Inn; (ii) analyzed
publicly available information; (iii) held discussions with the
management of the Company, including management employees of the
Country Club and the Inn; (iv) considered management's plans and
future prospects for the Inn; (v) read drafts of the definitive
agreement; and (vi) made such other studies and inquiries, and
considered such other data, as it deemed relevant.
Upon the assurance of the Company and management that they
were unaware of any information that would make information
provided to PriceBednar inaccurate or misleading, PriceBednar
relied without independent verification, on the accuracy and
completeness of all financial and other information that was
publicly available or provided to it by the Company. Furthermore,
PriceBednar was not requested to, and did not, obtain any
independent appraisal of the assets and liabilities of the Company.
With respect to the financial and operating forecasts (and the
assumptions and basis therefor) of the Country Club, the Inn and
land which were used by PriceBednar in the development of its
opinion, PriceBednar assumed that such forecasts have been
reasonably prepared in good faith on the basis of reasonable
assumptions, reflect the best available estimates and judgments of
the Company's management and that such projections and forecasts
will be realized in the amounts and in the time periods currently
estimated by management. In addition, PriceBednar relied upon
estimates and judgments of management as to the future financial
performance of the Country Club and the Inn. Further, PriceBednar
assumed that the historical financial statements of the Company
that were made available to them had been prepared and presented in
accordance with generally accepted accounting principles.
PriceBednar's opinion is based solely upon financial, economic and
other conditions that existed, could be evaluated, and was
available to PriceBednar as of the date of the opinion.
PriceBednar performed a discounted cash flow analysis of the
Country Club, the Inn and the Company's other land utilizing the
Company's business plan projections for 1997 and its estimates for
financial performance thereafter. These projections were based
upon several significant assumptions, including (i) the continued
viability of the Country Club, (ii) that the start-up and growth of
the revenues and cash flows of the Inn will occur as anticipated,
(iii) that the land will be sold in an orderly fashion over the
next several years at prices consistent with recent sales activity
and (iv) that a new nine hole golf course will be completed in 1999
at a cost of $2.1 million to NewSub and $500,000 to the Company.
In these analyses, PriceBednar assumed a capitalization rate for
the Inn and Country Club of 13% for fiscal year 2001 and a discount
rate of 15%.
The Company does not make, as a matter of course, public
forecasts or projections as to future performance or earnings.
However, in connection with its ongoing budgetary and financing
activities, management of the Company periodically prepares certain
projections of results of operations of the Country Club and has
prepared a budget for the Inn (the "Projections"). The Projections
were provided to PriceBednar for its due diligence review in
connection with the rendering of its opinion. The Projections were
not prepared for, or with a view toward dissemination to the public
and were not prepared in accordance with published guidelines of
the American Institute of Certified Public Accountants or the
Commission regarding projections and forecasts, nor have the
projections been audited, examined or otherwise reviewed either by
independent auditors of the Company or PriceBednar. In addition,
the Projections are based upon many estimates and are inherently
subject to significant economic and competitive uncertainties and
contingencies, many of which are beyond the control of management
of the Company, including, without limitation, the effect of
economic and market conditions, business conditions, the continued
growth of the communities south of Atlanta and competitive factors
and pricing pressure. Accordingly, actual results may be
materially higher or lower than those projected. The use of the
Projections by PriceBednar should not be regarded as a
representation by the Company or any other person that the
Projections will prove to be correct. Neither PriceBednar or any
party to whom any of the Projections were provided assumes any
responsibility for the accuracy of such information and, in
connection with its review, PriceBednar assumed without independent
verification that the Projections were reasonably prepared on basis
reflecting the best currently available estimates and judgments of
the management which prepared the Projections. PriceBednar also
was provided copies of appraisals of the Company's land and the Inn
which were prepared in 1995 and 1996, respectively.
Based upon its analysis, PriceBednar calculated implied net
asset values of the Company and NewSub immediately following the
Proposed Split-Off, assuming the Split-Off had occurred on the
Effective Date, of $9.3 million and $6.2 million, respectively.
This represented a division of the net assets of the Company which
results in NewSub acquiring approximately 40% of the net assets of
the Company in exchange for shares of Common Stock representing a
42% interest in the Company.
Pursuant to a letter agreement dated June 17, 1996 (the
"Engagement Letter"), the Company engaged PriceBednar to render its
opinion with respect to fairness of the Proposed Split-Off.
Pursuant to the terms of the Engagement Letter, the Company has
agreed to pay PriceBednar upon delivery of their opinion, a fee not
to exceed $35,000. To date, PriceBednar has been paid [$26,870] by
the Company. The Company has also agreed to reimburse PriceBednar
for its reasonable out-of-pocket expenses, including attorney's
fees, and to indemnify PriceBednar against certain liabilities.
CONFLICTS OF INTEREST
Due to his direct involvement in the Proposed Split-Off, the
interests of J.T. Williams, Jr. in the Proposed Split-Off are
different from the interests of other shareholders of the Company.
The Proposed Split-Off was first proposed by Proactive, and the
material terms of the Agreement were determined principally in
negotiations between Mr. Williams and Proactive. Shareholders of
the Company should consider the interests of Mr. Williams and
Proactive in the Proposed Split-Off in connection with their vote.
Except for the interests of J.T. Williams, Jr. in the Proposed
Split-Off and the interests described below, there are no material
differences between the benefits to be received in connection with
the Proposed Split-Off by the executive officers, directors or
affiliates of the Company other than J.T. Williams, Jr. and the
benefits to be received in connection with the Proposed Split-Off
by the other shareholders of the Company.
Employment Agreements. Pursuant to the Agreement, the Company
will (i) enter into employment agreements with J.T. Williams, Jr.
and David K. Williams, pursuant to which they will continue to
serve as President and Executive Vice President, respectively, of
the Company for periods of ten years and three years, respectively,
and (ii) enter into three-year employment agreements with three
other key employees of the Company, each of whom is related to J.T.
Williams, Jr. See "-Terms of the Agreement-Other Agreements."
Proactive. Mark A. Conner, Chairman of the Board and
President of Proactive, has been nominated to become a director of
the Company at the Annual Meeting. See "Election of Directors."
Proactive beneficially owned 315,250, or approximately 21.9%, of
the outstanding Common Stock as of the Record Date, and Mark A.
Conner beneficially owns approximately 70% of the outstanding
voting securities of Proactive. See "Security Ownership of Certain
Beneficial Owners and Management." As a result of the Proposed
Split-Off, and assuming that it does not acquire any additional
shares of Common Stock, Proactive will beneficially own
approximately 35.5% of the outstanding Common Stock and become the
largest shareholder of the Company.
In connection with the Proposed Split-Off, Proactive has
agreed to make a $2 million loan to the Company, the proceeds of
which will be transferred to NewSub as part of the Proposed Split-
Off. As a condition to the Proactive Loan, if the Proposed Split-
Off is consummated, Messrs. Redmon and Fuqua will resign as
directors of the Company and Langdon S. Flowers, Jr. and Robert E.
Maloney, Jr., nominees of Proactive, will become directors of the
Company. Proactive has also requested, although not as a condition
of the Proactive Loan, that members of Proactive's board of
directors and up to six sales associates selected by Proactive be
given honorary memberships in the Country Club, in each case so
long as Proactive is actively selling property in Eagle's Landing,
that Mr. Conner be given a family membership in the Country Club
for as long as NewSub owns the Country Club and that Mr. Conner be
provided a room at the Inn for a period of six months after the
closing of the Proposed Split-Off. Although the terms of this
request have not been incorporated into the Agreement, Mr. Williams
has indicated to the Company that he intends to cause NewSub to
provide such benefits to Proactive. See "-Terms of the Agreement-
Other Agreements" and "Election of Directors."
Proactive and the Company also intend to enter into an
agreement for Proactive to provide sales personnel, sales training
and techniques to the Company on a basis not to exceed the
Company's current selling costs.
Related Party Transactions. For a description of certain
other agreements and transactions between the Company and its
executive officers and directors and their affiliates, see
"Compensation of Executive Officers and Directors-Certain
Relationships and Related Transactions."
GOVERNMENTAL AND REGULATORY APPROVALS
The Company is not aware of any material governmental or
regulatory approvals required for consummation of the Proposed
Split-Off, other than compliance with applicable corporate laws.
FEDERAL INCOME TAX CONSEQUENCES
The Proposed Split-Off will not have any federal income tax
consequences to the shareholders of the Company. The Proposed
Split-Off, when consummated, is expected to be a nontaxable
transaction to the Company for federal income tax purposes.
Accordingly, no gain or loss would be recognized by the Company for
federal income tax purposes as a result of the Proposed Split-Off.
However, circumstances beyond the Company's control, including
additional purchases of Common Stock by Proactive, could result in
the Proposed Split-Off being treated as a taxable transaction to
the Company for federal income tax purposes.
ACCOUNTING TREATMENT
The Proposed Split-Off will be accounted for as a treasury
stock transaction. The consideration for the shares of Common
Stock received by the Company from Mr. Williams in the Proposed
Split-Off will be deemed to be the cost basis of the assets
transferred to NewSub, net of assumed liabilities. No gain or loss
will be recognized in connection with the Proposed Split-Off.
Following the Closing, the business operations transferred to
NewSub in connection with the Proposed Split-Off will be accounted
for as discontinued operations for the current and prior periods.
ABSENCE OF DISSENTERS' RIGHTS OF APPRAISAL
Florida law governs the rights of shareholders in connection
with the Proposed Split-Off. Based upon the Company's Articles of
Incorporation and Bylaws and under the applicable provisions of the
FBCA, holders of Common Stock will not be entitled to rights of
appraisal or similar rights of dissenters in connection with the
Proposed Split-Off.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed balance sheet as
of April 30, 1996 and the pro forma condensed statements of
earnings for the year ended April 30, 1996 have been prepared by
adjusting the Company's historical condensed balance sheet as of
April 30, 1996 and the Company's condensed statement of earnings
for the year ended April 30, 1996. The historical financial
statements have been adjusted to give effect to the Split-Off as if
the Split-Off had occurred as of April 30, 1996 for the Pro Forma
Condensed Balance Sheet and as of May 1, 1995 for the Pro Forma
Condensed Statement of Earnings. Such pro forma adjustments are
described in the accompanying notes to the pro forma financial
statements which should be read in conjunction with the pro forma
financial statements. Such pro forma financial statements should
also be read in conjunction with the Company's historical financial
statements and notes thereto appearing elsewhere herein.
The pro forma financial statements presented herein do not
purport to be indicative of the actual financial position or
results of operations of the Company had the Split-Off actually
been consummated on the dates indicated or of the future financial
position or future results of operations of the Company which will
result from the consummation of the Split-Off.
Killearn Properties, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet
April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Pro
Historical Adjustments Forma
ASSETS
Cash $ 160,147 $(1,973,153)(a) $
2,000,000(b) 186,994
Cash in improvement
trust funds 164,127 - 164,127
Accounts receivable 762,389 (447,618)(a) 314,771
Notes receivable 6,833,066 6,833,066
Land contracts
receivable 556,839 - 556,839
Less: Allowance
for uncollectibles (151,295) 14,216(a) (137,078)
Net receivables 8,000,999 (433,402)(a) 7,567,597
Investment in joint
ventures 76,105 (74,695)(a) 1,410
Residential real
estate held for
sale 158,306 - 158,306
Real estate held
for development
and sale:
Land developed and
under development 30,605,307 (7,263,849)(a) 23,341,458
Real estate under
contract for sale 2,796,104 - 2,796,104
33,401,411 (7,263,849) 26,137,562
Property under contract
for sale 383,193 - 383,193
Property and equipment:
Golf course 1,660,931 (1,660,931)(a) 0
Buildings 8,511,605 (7,482,458)(a) 1,029,147
Machinery, equipment
and vehicles 2,599,651 (2,241,493)(a) 358,158
Furniture and fixtures 216,758 - 216,758
Total property and
equipment 12,988,945 (11,384,882) 1,604,063
Less: Allowance
for depreciation (3,612,472) 3,051,400 (561,072)
Property and
equipment, net 9,376,473 (8,333,482) 1,042,991
Construction under
development 3,949,947 (3,949,947)(a) 0
Other assets 242,490 (182,894)(a) 60,096
Total Assets $ 55,913,698 $(20,211,422) $ 35,702,276
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and
other accrued
expenses $ 5,318,323 $ (1,369,388)(a) $2,117,933
(1,831,002)(c)
Income taxes payable 1,774,335 - 1,774,335
Accrued interest 447,964 - 447,964
Customers' deposits 1,518,737 (1,243,440)(a) 275,297
Debt 19,664,813 (395,713)(a)
2,000,000(b) 21,269,100
Deferred income 2,694,745 - 2,694,745
Deferred income taxes 5,272,197 - 5,272,197
Total Liabilities 36,691,914 (2,839,543) 33,851,571
Stockholders' Equity
Common stock 143,874 - 143,874
Additional paid-in-
capital 6,846,014 - 6,846,014
Retained earnings 12,232,696 - 12,232,696
less: Treasury
Stock - (17,371,880)(d) (17,371,880)
Total Stockholders'
equity 19,222,584 (17,371,880) 1,850,704
Total Liabilities and
Stockholders' Equity $ 55,913,697 $(20,211,422) $ 35,702,276
See Notes to Pro Forma Consolidated Financial
Statements
</TABLE>
Killearn Properties, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Earnings
For the Year Ended April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
<C>
For the Year Ended April 30, 1996
Pro
Historical Adjustments Forma
Revenues:
Sales of lots $ 5,437,540 $ - $5,437,540
Other land sales 10,691,633 55,232(e) 10,746,865
Less:
Estimated
uncollectibles (85,285) - (85,285)
Net land sales 16,043,888 55,232 16,099,120
Sales of residential
construction 45,500 - 45,500
Commission income 321,803 321,803
Revenue from operating
golf and country club 3,122,522 (3,122,522)(f) 0
Interest income 899,115 - 899,115
Equity in income from
joint ventures 563,064 (97,010)(f) 466,054
Other income 31,375 - 31,375
Total revenues 21,027,267 (3,164,300) 17,862,967
Costs and Expenses:
Cost of lots sold 3,833,208 - 3,833,208
Cost of other land
sold 8,059,027 - 8,059,027
Cost of residential
construction sold 42,063 - 42,063
Commissions and
selling expenses 1,078,646 504,990(g) 1,583,636
Operating costs of golf
and country club 3,019,724 (3,019,724)(f) 0
Interest expense 451,766 (7,769)(f) 442,996
Depreciation 735,551 (624,093)(f) 111,458
Property taxes 282,425 (100,209)(f) 182,216
Litigation settlement
and expenses 27,197 - 27,197
General and adminis-
trative expenses 1,589,409 (200,000)(h) 1,389,409
Total costs and
expenses 19,119,016 (3,446,806) 15,672,210
Earnings before
income taxes 1,908,251 282,505 2,190,756
Income taxes 664,896 55,130 720,025
Net earnings $ 1,243,355 $ 227,375 $ 1,470,731
Earnings per share $0.84 $1.66
Weighted average shares
1,438,733 887,412
See Notes to Pro Forma Consolidated Financial
Statements
</TABLE>
Killearn Properties, Inc. and Subsidiaries
Notes to Pro Forma Financial Statements
(Unaudited)
(a) To record the Company's transfer to NewSub of the assets
specified in the Agreement and the assumption by NewSub of the
liabilities related to such assets. The values assigned to
the transferred assets and assumed liabilities are the book
values as of April 30, 1996. The pro forma balance sheet does
not reflect the assumption by NewSub of the $3 million Inn
Loan, which was obtained by the Company subsequent to April
30, 1996. See "The Proposed Split-Off-Terms of the Agreement-
Assumed Liabilities."
(b) To record the receipt by the Company of the Proactive Loan and
the resulting increase in the Company's debt. See "The
Proposed Split-Off-Terms of the Agreement-Other Agreements."
(c) To eliminate the liability associated with post retirement
obligations of the Company under its employment agreement with
J.T. Williams, Jr. See "Compensation of Executive Officers
and Directors-Employment Agreements."
(d) To record the acquisition by the Company of the shares of
Common Stock and options to purchase Common Stock to be
exchanged for the shares of NewSub on the basis of the book
value of the transferred assets, net of the assumed
liabilities.
(e) To record the recognition of deferred profit on land sold to
a joint venture, the Company's interests in which will be
transferred to NewSub.
(f) To eliminate the income and expenses associated with the
assets to be transferred to NewSub.
(g) To reclassify Country Club initiation fees, paid by the
Company on behalf of purchasers of residential lots, as an
expense.
(h) To reduce the salary paid to J.T. Williams to the amount
payable under the new employment agreement to be entered into
by the Company and Mr. Williams in connection with the
Proposed Split-Off. See "The Proposed Split-Off-Terms of the
Agreement-Other Agreements."
PRICE RANGE OF COMMON STOCK AND RELATED MATTERS
Market Information. The Common Stock is traded on the AMEX
under the symbol "KPI." The following table sets forth for the
periods indicated the high and low closing sales prices per share,
as reported by AMEX.
<TABLE>
<CAPTION>
<S> <C> <C>
High Low
FISCAL 1996
Quarter Ended 7/31/95 5 1/8 4 11/16
Quarter Ended 10/31/95 6 1/2 4 9/16
Quarter Ended 1/31/96 6 3/8 5
Quarter Ended 4/30/96 9 3/4 5 3/4
FISCAL 1995
Quarter Ended 7/31/94 4 7/8 4 1/4
Quarter Ended 10/31/94 6 4 1/2
Quarter Ended 1/31/95 4 7/8 4 1/8
Quarter Ended 4/30/95 6 3/8 4 1/8
</TABLE>
On May 20, 1996, the last trading day before the Proposed
Split-Off was publicly announced, the reported high and low sales
prices of the Common Stock were $9.375 and $9.25, respectively, and
the closing price was $9.375 per share. On August 1, 1996, the
last trading day before the Company announced the execution of the
Agreement, the reported high and low sales prices of the Common
Stock were $9.0625 and $8.875, respectively, and the closing price
was $8.875 per share. On August ___, 1996, the last trading day
for which information was available prior to the printing of this
proxy statement, the closing sales price of the Common Stock was
$0.00 per share. Shareholders are encouraged to obtain current
quotations for the market price of the Common Stock before voting
on the Proposed Split-Off.
As of August ___, 1996, there were approximately 000 record
holders of the Common Stock.
DIVIDENDS. The Company has never declared cash dividends and
currently has no plans to declare dividends in the foreseeable
future. Any future determination by the Board of Directors to pay
dividends will be made only after consideration of the Company's
financial condition, results of operations, capital requirements
and other relevant factors. Payment of cash dividends is also
restricted by the Company's credit facilities.
ELECTION OF DIRECTORS
The Company's Articles of Incorporation and Bylaws provide
that the Board of Directors shall consist of not less than three
nor more than fifteen persons. The Board of Directors has fixed
the number of directors of the Company at seven and, at present,
there are six persons serving on the Board. The Articles of
Incorporation provide that the Board of Directors shall be divided
into four classes and that each class shall be as nearly equal in
number as possible. As a result, the Company has four classes of
directors, with one class comprised of one director and three
classes comprised of two directors. Each class of directors serves
for a period of four years. The term of office of the directors
elected at the Annual Meeting expires in 2000, while the terms of
office of the other three classes of directors expire in 1997, 1998
and 1999, respectively.
At the Annual Meeting, the persons named in the enclosed proxy
will vote all shares of Common Stock represented by valid proxies
for the election of the nominees named below, unless such proxy
directs otherwise. The nominees will hold office until the annual
meeting of shareholders in 2000 and until their successors are duly
elected and qualified. The Board of Directors does not expect that
the nominees named below will be unable to stand for election, but,
in the event that they are unable to serve for any reason, the
shares represented by the proxies will be voted for a substitute or
substitutes chosen by the Board of Directors. THE BOARD OF
DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE
NOMINEES NAMED IN THE PROXY STANDING FOR ELECTION TO THE BOARD.
The following table sets forth certain information with
respect to the nominee for election to the Board of Directors and
the directors continuing in office:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Director Term
Name Age Since Expires
Melvin L. Pope, Jr. 63 1977 2000
Mark A. Conner 30 --- 2000
Current Directors Whose Terms of Office Will
Continue Subsequent to the Annual Meeting
J.T. Williams, Jr. 63 1964 1999
David K. Williams 36 1992 1999
Don Fuqua 63 1970 1998
Mallory E. Horne 71 1990 1998
Peter Redmon 56 1983 1997
(continued)
<S> <C>
Name Principal Occupation
Melvin L. Pope, Jr. General Agent, Northwestern
Mutual Life Insurance Company,
for more than twenty years
Mark A. Conner Real estate developer since
1987; President of Capital
First since January 1994;
President and director of
Proactive since February 1996
Current Directors Whose Terms of Office Will
Continue Subsequent to the Annual Meeting
J.T. Williams, Jr. Chairman of the Board and
President of the Company since
1970
David K. Williams Executive Vice President and
Secretary of the Company since
May 1994; President, Florida
Operations from June 1989 to
May 1994
Don Fuqua Association Executive and
Former Member, United States
House of Representatives
Mallory E. Horne Director, Public Employees
Relations Commission, State of
Florida, Former Member, Florida
Senate and Florida House of
Representatives
Peter Redmon President and Chief Executive
Officer of W. C. Redmon Co., a
manufacturer of houseware
products, for more than twenty
years
</TABLE>
If the Proposed Split-Off is consummated, Messrs. Redmon and
Fuqua will resign, and Langdon S. Flowers, Jr. and Robert E.
Maloney, Jr., nominees of Proactive, will be appointed, as
directors. See "The Proposed Split-Off-Terms of the Agreement-
Other Agreements." The following information concerning Messrs.
Flowers and Maloney has been provided by Proactive:
Langdon S. Flowers, Jr. has been engaged through several
private companies in management and development activities
since 1984. From 1974 to 1984, Mr. Flowers served in various
capacities for Flowers Industries, Inc., a baking firm,
including as President of Flowers Baking Company and Schott's
Bakery and a Corporate Regional Vice President.
Robert E. Maloney, Jr. has been Vice President and Corporate
Counsel of Capital First since January 1996 and Corporate
Counsel of Proactive since February 1996. From 1989 to
December 1995, Mr. Maloney was engaged in the private practice
of law with the firm of Fee, Bryan & Koblegard, P.A., Fort
Pierce, Florida.
Meetings of the Board of Directors. The Board of Directors
held four meetings during fiscal 1996. No director attended fewer
than 75% of the aggregate of the total number of meetings of the
Board of Directors and the total number of meetings of the
committees on which he served.
Committees. The Board of Directors has an Audit Committee and
a Compensation Committee. The Board does not have a nominating
committee. This function is performed by the Board of Directors as
a whole.
The Audit Committee is comprised of Messrs. Fuqua, Horne, Pope
and Redmon. During fiscal 1996, the Audit Committee held two
meetings. The Audit Committee's responsibility is to ascertain
that the Company's financial statements reflect fairly the
financial condition of the Company and to appraise the soundness,
adequacy and application of accounting and operating controls. The
Audit Committee recommends independent auditors to the Board of
Directors, reviews the scope of the audit functions of the
independent auditors and reviews audit reports rendered by the
independent auditors.
The Compensation Committee is comprised of Messrs. Fuqua,
Horne, Pope and Redmon. During fiscal 1996, the Compensation
Committee held two meetings. The Compensation Committee's
responsibility is (i) to review all employment agreements and other
compensation arrangements for all of the Company's executive
officers, (ii) to review all agreements between the Company and its
executive officers and directors, (iii) to review and propose
incentive and other compensation plans, such as pension,
retirement, profit sharing and stock option plans, for the benefit
of the Company's employees, and (iv) to administer the Company's
1992 Incentive Stock Option Plan and the award of stock options to
employees of the Company thereunder.
Compliance with Section 16(a) of the Securities Exchange Act
of 1934. Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and executive officers, and
persons who own more than 10 percent of the Common Stock, to file
with the Securities and Exchange Commission (the "SEC") initial
reports of ownership and reports of changes in ownership of Common
Stock. Officers, directors and greater than 10 percent
stockholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file. To the Company's
knowledge, based solely on review of the copies of such reports
furnished to the Company representations that no other reports were
required, during the fiscal year ended April 30, 1996 all Section
16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table. The following table sets forth
information concerning compensation earned for services rendered to
the Company during fiscal 1996, 1995 and 1994 to the Company's
Chief Executive Officer and its only other executive officer (other
than the Chief Executive Officer) whose fiscal 1996 salary and
bonus exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Annual Compensation
Other Annual
Name and Principal Fiscal Salary Bonus Compensation
Position Year ($) ($) ($)(1)
J.T. Williams, Jr. 1996 184,321 126,120 140,000
President and Chief 1995 176,667 124,207 35,000
Executive Officer 1994 172,362 121,337 49,453
David K. Williams 1996 92,834 78,153 --
Executive Vice 1995 91,659 50,000 --
President
(continued)
<S> <C> <C> <C>
Long-Term
Compensation
Option LTIP All Other
Name and Awards Payouts Compensation
Principal Position (#) ($) ($)(2)
J.T. Williams, Jr. 0 -- 9,644
President and Chief 0 -- 9,644
Executive Officer 100,000 -- 9,644
David K. Williams 0 -- 2,304
Executive Vice President 0 -- 2,304
</TABLE>
________________________
(1) The amounts disclosed in this column are the amounts accrued
by the Company during the fiscal year for the post retirement
obligations of the Company under Mr. Williams' employment
agreement. See "-Employment Agreements." The amount of
perquisites and personal benefits provided to each Named
Executive Officer is less than $50,000 or 10% of the total
annual salary and bonus set forth in the columns entitled
"Salary" and "Bonus" for each Named Executive Officer and,
accordingly, has been omitted from the table as permitted by
the rules of the Commission.
(2) The amounts disclosed in this column represent payments by the
Company of premiums for life insurance on behalf of the named
executive officers. See "-Deferred Compensation."
Option Grants During Fiscal 1996. No options were granted to
either of the Named Executive Officers during fiscal 1996.
Aggregated Fiscal Year-End Option Value Table. The following
table sets forth certain information concerning unexercised stock
options held by the Named Executive Officers as of the end of
fiscal 1996. No stock options were exercised by either of the
Named Executive Officers during fiscal 1996, and options to
purchase 5,000 shares of Common Stock held by David K. Williams
expired unexercised during fiscal 1996.
1996 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
<S> <C>
Number of Unexercised Options
at 1996 Fiscal Year End(#)(1)
Name Exercisable Unexercisable
J.T. Williams, Jr. 100,000 --
(continued)
<S> <C>
Value of Unexercised
In-the-Money Options at
1996 Fiscal Year End($)(2)
Name Exercisable Unexercisable
J.T. Williams, Jr. 615,000 --
</TABLE>
___________________
(1) The closing price for the Common Stock on April 30, 1996, as
reported by Amex, was $9.75.
EMPLOYMENT AGREEMENTS
In July 1982, the Company entered into a ten year employment
agreement with J.T. Williams, Jr., Chairman of the Board and
President of the Company, pursuant to which Mr. Williams performs
services for the Company on a substantially full-time basis. This
agreement was extended in April 1992 for an additional five years
on the same terms as the original agreement. The employment
agreement provided for an annual compensation to Mr. Williams for
fiscal 1996 of $310,441 and provides for annual increases or
decreases thereafter based on the Consumer Price Index. Mr.
Williams is entitled to receive, pursuant to the employment
agreement, an annual bonus equal to 10% of the pre-tax income of
the Company on a cumulative basis, the payment of which is not to
exceed $80,000 per year adjusted by changes in the CPI since 1982.
Mr. Williams' employment agreement also provides certain other
benefits to him, including the right to participate in those
benefit plans of the Company which are presently made available by
the Company to its executive personnel.
The employment agreement provides that the above described
additional deferred compensation will be paid to Mr. Williams,
beginning at retirement at the rate of $100,000 per year subject to
adjustment for changes in the CPI since 1982, as retirement income
for the remainder of his life. In the event that Mr. Williams dies
at any time prior to the date of his retirement, the Company is
obligated pursuant to the employment agreement to pay to Mr.
Williams' estate or heirs, as the case may be, the full amount of
such retirement income for a period of ten years after the date of
his death. In the event that Mr. Williams dies at any time
subsequent to the date of his retirement but prior to the date
which is ten years after the date of his retirement, the Company is
obligated pursuant to the employment agreement to continue to pay
Mr. Williams' estate or heirs, or to such person as Mr. Williams
shall designate in writing to the Company, as the case may be, the
full amount of such retirement income for the remainder of such ten
year period. At present, it is anticipated that a substantial
portion of such retirement income will be funded by insurance
policies previously purchased by the Company.
Mr. Williams' employment agreement contains a provision which
requires the Company to purchase annuities or otherwise secure all
future payments to Mr. Williams under the employment agreement in
the event that any person or entity unaffiliated with the Company,
as of July 1982, acquires or gains control, directly or indirectly,
of more than twenty percent of the voting stock of the Company,
either with or without the consent of the Board of Directors.
Pursuant to the Agreement, in connection with the Proposed
Split-Off NewSub will assume the Company's obligations to J.T.
Williams, Jr. under the employment agreement described above. The
Company will also enter into employment agreements with J.T.
Williams, Jr. and David K. Williams, pursuant to which they will
continue to serve as President and Executive Vice President,
respectively, of the Company for periods of ten years and three
years, respectively. The employment agreement with J.T. Williams,
Jr. will provide for an annual salary for the first five years of
$200,000 and $150,000 thereafter, and the employment agreement with
David K. Williams will provide for an annual salary of $96,242, in
each case plus cost of living increases of 5% per year. In
addition, David K. Williams will be entitled to receive a $20,000
bonus if the Company pre-tax earnings are in excess of $600,000 in
any fiscal year during the term of the Agreement. Both employment
agreements provide that the employees will not compete with the
Company within five miles of the Company's Eagle's Landing project
for a period of five years after execution of the agreement. See
"The Proposed Split-Off-Terms of the Agreement-Other Agreements."
DEFERRED COMPENSATION
The Company has in effect an informal deferred compensation
arrangement for the benefit of certain officers of the Company,
pursuant to which the Company pays annually the premiums on life
insurance policies on the lives of these officers. At age 65,
these policies can be converted into annuities to provide funds for
the retirement of these officers. The amounts paid by the Company
for premiums on the policies for the benefit of the named executive
officers are included in the Summary Compensation Table, above.
COMPENSATION OF DIRECTORS
For fiscal 1996, each director received compensation of
$12,000. No additional fees were paid by the Company to the
Directors who served on committees of the Board. All directors are
reimbursed for their out-of-pocket expenses incurred in attending
Board of Directors and committee meetings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
According to a written policy adopted by the Board of
Directors, all directors, officers and employees of the Company and
their associates and affiliates (as those terms are defined by the
federal securities laws) are provided with a discount in connection
with purchases of lots and/or acreage from the Company. Such sales
have been entered into by the Company in the ordinary course of its
business and have been made on substantially the same material
terms as those generally prevailing at the time for comparable
sales of lots and/or acreage to unaffiliated persons. The discount
is equal to eighty percent of the brokerage commission which would
otherwise be payable by the Company to its brokerage subsidiary
and/or to independent real estate brokers. The brokerage
commission is generally equal to ten percent of the retail purchase
price for the lot or acreage being sold. The purchase price for
each lot or tract purchased by the Company employees and their
associates and affiliates is reduced by the amount of the eighty
percent discount on the real estate commission. During fiscal 1996
and 1995, no director or officer purchased a lot from the Company.
It is expected that this discount on the real estate commission
will continue to be given to directors, officers and employees of
the Company and their associates and affiliates in the future. All
directors and officers are provided, at no charge, memberships in
Golden Eagle Country Club, Killearn Golf and Country Club and
Eagle's Landing Country Club.
In 1986, the Company purchased a 2,600 acre parcel of real
estate in Henry County, Georgia, from J.T. Williams, Jr. and a non-
related third party. Pursuant to that purchase, Mr. Williams
received a promissory note from the Company in the principal amount
of $1,764,053, to be paid from one-half of the profits from the
development and sale of the property. In April 1991, the entire
balance was due; however, Mr. Williams approved the extension of
the note and the Company issued new notes which are payable at
prime plus 1% per annum, with a ten year amortization of the
principal. During fiscal 1996 and 1995, $109,758 and $187,617 in
principal, respectively, and $55,018 and $74,982, respectively, in
interest payments were made on the note. At April 30, 1996, the
balance due to Mr. Williams was $492,181.
The Company purchases certain of its life insurance contracts
through an insurance agency which is affiliated with Melvin L.
Pope, Jr., a director of the Company. During fiscal 1996 and 1995,
payments for premiums on all insurance contracts arranged by this
agency were $109,104 and $185,239, respectively. Additional
insurance contracts are expected to be purchased by the Company
from this agency in the future.
Mark A. Conner, a nominee for director, is the Chairman of the
Board and President of Proactive and beneficially owns
approximately 70% of the outstanding voting securities of
Proactive. As of the Record Date, Proactive beneficially owned
315,250, or approximately 21.9% of the outstanding Common Stock.
In connection with the Proposed Split-Off, Proactive has agreed to
make a $2 million loan to the Company, the proceeds of which will
be transferred to NewSub as part of the Proposed Split-Off. See
"The Proposed Split-Off-Terms of the Agreement-Other Agreements."
At April 30, 1996, Capital First, a wholly owned subsidiary of
Proactive, had notes payable to the Company of approximately $6.8
million. Capital First incurred such indebtedness in connection
with the purchase of the Company's Florida assets. In November
1993, the Company entered into two agreements to sell substantially
all of its Florida assets to Capital First for approximately $25.7
million. As of April 30, 1996, approximately $25 million of the
sale had closed, and the remaining portions of the sale are
expected to close in fiscal 1997. In connection with the sale,
Capital First assumed approximately $9.2 million of the Company's
debt, on which the Company remains liable; issued notes to the
Company, secured by a second mortgage on most of the assets
purchased, totalling approximately $8.1 million; and paid
approximately $7.7 million cash. The notes are payable over the
next three years and bear interest at 7% and 10% per annum.
Capital First became a wholly owned subsidiary of Proactive in
February 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August ___, 1996 certain
information with respect to beneficial ownership of Common Stock by
(i) each person who is known by the Company to own beneficially
more than 5% of the Common Stock; (ii) each director and director
nominee; (iii) each Named Executive Officer; and (iv) the directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Beneficial Owner(1) Number of
Shares(2) Percent
J.T. Williams, Jr. (1)(2) 651,321 42.3%
100 Eagle's Landing Way
Stockbridge, GA 30281
Proactive Technologies, 315,250 21.9%
Inc. (3)
7118 Beech Ridge Trail
Tallahassee, Florida 32312
Susan Thompson, Trustee of 93,280 6.5%
the Killearn Properties, Inc.
Employee Profit-Sharing Trust
3520 Thomasville Road, Fourth Floor
Tallahasse, Florida 32308
Southeast Asset Management, 82,000 5.7%
Inc. (3)
860 Ridge Lake Blvd., Ste. 301
Memphis, Tennessee 38119
Don Fuqua (4) 1,695 *
Mallory E. Horne - -
Melvin L. Pope, Jr. (5) 300 *
Peter Redmon - -
David K. Williams (6) 19,250 1.3%
Mark A. Conner (7) 315,250 21.9%
All directors, director
nominees and executive
officers as a group
(7 persons)(1)(2)(4)(5)(6)
(7) 968,566 62.9%
</TABLE>
________________________
(1) Includes 25,500 shares held by Mr. Williams as trustee for his
children and 100,000 shares subject to immediately exercisable
stock options. If the Proposed Split-Off is consummated, such
stock options will be canceled. See "The Proposed Split-Off-
Terms of the Agreement."
(2) Excludes 59,172, 7,301 and 66,473 shares held by the Trustee
of the Company's Employee Profit-Sharing Trust and allocated
to the accounts of J.T. Williams, Jr., David K. Williams and
all executive officers and directors as a group, respectively.
The Trustee has sole voting and dispositive power over such
shares of Common Stock.
(3) Based on filings made with the Securities and Exchange
Commission.
(4) Includes 30 shares held by Mr. Fuqua's wife.
(5) Includes 25 shares held by Mr. Pope's wife and 275 shares held
by Mr. Pope as custodian for his children.
(6) Includes 19,250 shares held by J.T. Williams as trustee for
David K. Williams. See note (1), above.
(7) Includes shares held by Proactive. Mr. Conner is the Chairman
of the Board and President of Proactive and beneficially owns
approximately 70% of the outstanding voting securities of
Proactive.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Coopers & Lybrand, L.L.P. served as the Company's
independent public accountants for the year ended April 30, 1996.
Representatives of Coopers & Lybrand, L.L.P. are expected to be
present at the Annual Meeting to respond to appropriate questions
from shareholders, and will have an opportunity, if they desire, to
make a statement.
SHAREHOLDER PROPOSALS FOR ANNUAL MEETING
Shareholders wishing to submit proposals for inclusion in the
Company's proxy statement relating to its 1997 annual meeting of
shareholders must submit such proposals to the Secretary of the
Company at its principal executive offices, 100 Eagle's Landing
Way, Stockbridge, Georgia 30281, not later than ____________, 1997
for consideration by the Company for possible inclusion in such
proxy materials. Such proposals must comply with the applicable
requirements of the Exchange Act and the Rules and Regulations
thereunder.
APPENDIX A
AGREEMENT DATED AS OF AUGUST 1, 1995, BETWEEN
KILLEARN PROPERTIES, INC. AND J.T. WILLIAMS, JR.
AGREEMENT
This Agreement (the "Agreement"), dated as of August 1, 1996,
by and between Killearn Properties, Inc., a Florida corporation
("Killearn"), and J.T. Williams, Jr. ("Williams").
RECITALS
WHEREAS, Killearn received a proposal from Proactive
Technologies, Inc. ("Proactive"), a significant shareholder of
Killearn, to effect the transactions contemplated by this Agreement
(such transactions being referred to herein as the "Split-Off");
and
WHEREAS, the Board of Directors of Killearn (the "Board") has
considered such proposal, and has approved this Agreement and
authorized the execution hereof; and
WHEREAS, Killearn and Williams desire to enter into this
Agreement for the purpose of setting forth the terms of the Split-
Off and certain representations, warranties and covenants made by
each to the other as an inducement to the execution and delivery of
this Agreement and the conditions precedent to the consummation of
the Split-Off;
NOW, THEREFORE, in consideration of the representations and
warranties and mutual promises and obligations contained herein,
the parties hereto hereby agree as follows:
1. THE SPLIT-OFF; OTHER AGREEMENTS; CLOSING.
(a)THE SPLIT-OFF. Subject to and in accordance with the terms
and
conditions of this Agreement, and in accordance with applicable
law, the parties hereto shall take the following actions (which
actions, taken together, shall constitute the Split-Off):
(i) FORMATION OF NEWSUB; TRANSFER OF ASSETS. Killearn
shall organize and incorporate a Florida corporation ("NewSub").
On or prior to the Closing Date, Killearn will transfer and
contribute to NewSub, in exchange for shares of the capital stock
of NewSub (the "NewSub Shares"), the assets set forth on Exhibit A
attached hereto (the "Transferred Assets"), free and clear of all
mortgages, liens, security interests and other encumbrances
("Liens"), except as otherwise provided herein. The exact legal
descriptions of the real property described on Exhibit A, and
schedules describing all personal property identified on Exhibit A,
have been agreed upon by Killearn and Williams, and such legal
descriptions and schedules shall be utilized for purposes of
identifying the determining the Transferred Assets. Such transfer
shall be effected by means of such deeds, bills of sale and other
instruments of conveyance and assignment as shall be mutually
agreed upon by Killearn and Williams.
(ii) ASSUMPTION OF LIABILITIES. On or prior to the
Closing Date, Killearn shall cause NewSub to assume and agree to
satisfy and discharge as the same become due, the liabilities and
obligations of Killearn set forth on Exhibit B attached hereto (the
"Assumed Liabilities"). Such assumption shall be effected by means
of such assumption agreements, undertakings and other documents or
instruments as shall be mutually agreed upon by Killearn and
Williams.
(iii) EXCHANGE OF SHARES; CANCELLATION OF OPTIONS. On
the Closing Date, the Company shall transfer all of the NewSub
Shares to Williams in exchange for: (i) the 551,321 shares of
Common Stock of Killearn held by Williams and (ii) the cancellation
of the stock options to acquire 100,000 shares of Common Stock of
Killearn held by Williams as of the date hereof. At the Closing,
each party shall deliver to the other certificates representing all
of the shares of stock being transferred by it hereunder, duly
endorsed for transfer.
(iv) EFFECTIVE DATE OF SPLIT-OFF. Notwithstanding the
actual date of Closing, the transactions contemplated by this
Agreement shall be given effect as if such transactions had
occurred on May 1, 1996 (the "Effective Date"). Accordingly, the
actual amount of cash and accounts receivable to be transferred to
NewSub on the Closing Date as part of the Transferred Assets will
(i) be reduced by NewSub's pro rata portion of property taxes,
insurance premiums and other expenses associated with the assets to
be transferred to NewSub paid or incurred by the Company between
the Effective Date and the Closing Date and (ii) be increased by
the amount of income generated by the assets to be transferred to
NewSub received by the Company between the Effective Date and the
Closing Date, including the proceeds from the sale of any land
which was to be transferred to NewSub (less closing costs and
commissions in connection with the sale).
(v) VALUATION OF ASSETS. Killearn and Williams
acknowledge and agree that the Transferred Assets and the Assumed
Liabilities were identified and selected in negotiations and
discussions between Williams and Proactive with the intention that
such assets and liabilities represent approximately 42% of
Killearn's total net assets at April 30, 1996. Notwithstanding the
foregoing, and except as provided in Section 1(a)(iv) hereof, no
adjustments shall be made in the Transferred Assets or the Assumed
Liabilities to give effect to changes in such assets or liabilities
subsequent to April 30, 1996.
(b) AGREEMENTS BETWEEN KILLEARN AND NEWSUB.
(i) NINE HOLE GOLF COURSE. NewSub shall be obligated
to construct an additional nine hole golf course on the following
terms and conditions:
(A) Williams and Killearn shall mutually agree on
the legal description of the land necessary for the golf
course, which is estimated to be approximately 80 acres;
(B) NewSub shall complete and submit to Killearn
for approval the layout of the golf course (to be
designed by Tom Fazio). Killearn shall have the right to
approve the layout, which approval shall not unreasonably
be withheld. NewSub shall submit a final, approved
layout to Killearn no later than May 1, 1997.
(C) Not later than six months after approval of
the layout or within two months after receipt of all
necessary permits, whichever is later, NewSub shall
commence clearing of the land for the golf course.
NewSub shall complete the golf course within eighteen
months after clearing of the land commences.
(D) At the time clearing commences, Killearn
shall transfer to NewSub the land for the golf course,
free and clear of all Liens. Killearn agrees to place on
all property adjacent to the transferred land, as well as
the existing golf course, covenants and restrictions
similar to those recorded at O.R. Book 2022, Page 111 of
the Public Records of Henry County, Georgia. In
addition, Killearn shall place a golf play easement on
other properties owned by it adjacent to the golf
courses, the exact locations and bounds of which shall be
mutually agreed by Killearn and NewSub.
(E) Killearn shall pay to NewSub $500,000 toward
the cost of the golf course, payable 10% when clearing is
completed, 30% when grading is completed, 30% when
grassing is completed and 30% when golf play commences.
(ii) MAINTENANCE OF COUNTRY CLUB; MEMBERSHIPS. With
respect to the Eagle's Landing Golf and Country Club (the "Country
Club"):
(A) NewSub shall maintain the property comprising
the Country Club in accordance with the standards by
which such property currently is being maintained.
(B) NewSub shall offer to all purchasers of
residential lots in the Company's Eagle's Landing Country
Club Community (the "Community") golf, tennis and dining
memberships in the Country Club for initiation fees of
$25,000, $9,000 and $2,750, respectively. NewSub shall
not raise the amount of the golf membership initiation
fees for at least one year after the Closing, and shall
not raise the amount of the tennis or dining membership
initiation fees for ten years after the Closing without
Killearn's consent, which consent shall not unreasonably
be withheld.
(C) Killearn will include in lot sales, at no
cost to the purchaser, a tennis membership for all lot
purchasers in the Community and a dining membership for
all lot purchasers in the Windsong and Villages
subdivisions, and will purchase such memberships from
NewSub if the lot purchasers accept such offers.
Killearn shall not be obligated to purchase any
memberships for lot purchasers who do not desire to
become members of the Country Club. Subject to any
memberships limits then in effect, NewSub shall make golf
memberships available to purchasers of lots from Killearn
who desire to purchase such memberships, even if NewSub
is required to recall such memberships from nonresident
members of the Country Club to do so. Killearn and
Williams acknowledge and agree that the foregoing
procedures have been in effect as a policy of Killearn
for several years; Killearn shall continue such
procedures in effect through the Closing and will pay to
NewSub on a timely basis all fees due for such
memberships for persons joining the Country Club after
April 30, 1996.
(D) NewSub will provide the members of the Board,
without payment of initiation fees, honorary memberships
for as long as Killearn is actively developing and
selling property in Eagle's Landing, but in any event for
at least four years after the Closing Date; provided,
that Killearn shall guarantee all charges made by such
persons.
(E) Provided that NewSub continues to own the
Country Club, NewSub will provide Killearn, for as long
as Killearn is actively developing and selling property
in Eagle's Landing, but in no event longer than eight
years, without payment of initiation fees, up to fifteen
memberships for builders and up to six dining memberships
for sales associates of Killearn; provided, that Killearn
shall guarantee all charges made by such persons.
(iii) GENERAL COVENANTS AND RESTRICTIONS. Each of
Killearn and NewSub shall place on all land transferred by it
subsequent to the Closing to a third party, on or before such
transfer, covenants and restrictions similar to those recorded at
O.R. Book 1070, Page 131 of the Public Records of Henry County,
Georgia.
(iv) JOINDER BY NEWSUB. On or prior to the Closing
Date, Killearn and NewSub shall enter into a written agreement
pursuant to which NewSub shall agree to be bound by the provisions
of this Agreement applicable to it, as if had been a party hereto.
(c) OTHER AGREEMENTS OF KILLEARN.
(i) LIENS ON TRANSFERRED ASSETS. Killearn shall use
its best efforts to remove from the Transferred Assets on or prior
to the Closing any and all Liens, excluding Liens associated with
the Assumed Liabilities. To the extent that Killearn is unable to
do so, until such time as Killearn has secured the release of all
such Liens from the Transferred Assets, Killearn agrees to apply
the proceeds of any payments made by Capital First Holdings, Inc.
under its notes payable to Killearn (the "Capital First Notes") to
the payment of debts secured by such Liens and shall assign to
NewSub, as security for Killearn's obligations under this Section
1(c)(i), the Capital First Notes and all related mortgages and
other security held by Killearn with respect to such notes.
Killearn further agrees for the benefit of NewSub that it will
timely pay all amounts due, and perform all of its other
obligations, under any loan or other agreements secured by such
Liens.
(ii) EMPLOYMENT AGREEMENTS. On or prior to the Closing
Date, Killearn shall enter into employment agreements with Williams
and David K. Williams, pursuant to which they will continue to
serve as President and Executive Vice President, respectively, of
the Company for periods of ten years and three years, respectively.
The employment agreement with Williams will provide for an annual
salary for the first five years of $200,000 and $150,000
thereafter, and the employment agreement with David K. Williams
will provide for an annual salary of $96,242, in each case plus
cost of living increases of 5% per year. In addition, David K.
Williams will be entitled to receive a $20,000 bonus if Killearn's
pre-tax earnings are in excess of $600,000 in any fiscal year
during the term of the Agreement. On or prior to the Closing Date,
Killearn shall enter into employment agreements with Dee Williams,
Joseph T. Williams, III and Bert Williams to serve as Director of
Landscaping and Interior Design, Chief of Construction and Head of
Sales of Eagle's Landing, respectively, for annual salaries of
$35,490, $70,000 and $60,700, respectively, in each case plus cost
of living increases of 5% per year. In addition, Bert Williams
will be paid a sales override for all land sold (other than
residential lots) in accordance with Killearn's current practices.
The agreements for Williams and Dee Williams shall provide that
their employment shall not be full time and that they shall devote
approximately one-half of their business time to the affairs of
Killearn, it being acknowledged by Killearn that the salary amounts
to be payable to them under such agreements represent approximately
one-half of the current compensation. All such agreements shall be
contain customary covenants and agreements of Killearn and the
employee, including an agreement of the employee not to compete
with Killearn within five miles of Killearn's Eagle's Landing
project for a period of five years after execution of the
agreement.
(iii) PROACTIVE LOAN. Killearn represents that
Proactive has agreed to make a $2 million loan to Killearn (the
"Proactive Loan"), the proceeds of which (subject to the
adjustments provided for herein) will be transferred to NewSub
prior to the closing as part of the Transferred Assets. The
Proactive Loan shall be made on or prior to the Closing Date
pursuant to such loan agreements, promissory notes and other
agreements and instruments, and on such terms and conditions, as
may be mutually agreed by Killearn and Proactive.
(d) CLOSING.
(i) Unless this Agreement is terminated pursuant to
Section 5, the closing (the "Closing") of the Split-Off shall be
held at a place and on a date, as soon as practicable after the
satisfaction of the conditions precedent to the Split-Off set forth
in Section 7, mutually agreed upon by Killearn and Williams (the
"Closing Date").
(ii) At the Closing, Killearn and Williams shall
execute and deliver to each other such agreements, instruments,
documents and certificates, make or confirm such filings and take
such other actions as are provided for by the terms hereof or may
otherwise be required to give effect (as of the Closing) to the
Split-Off.
2. REPRESENTATIONS AND WARRANTIES OF KILLEARN. Killearn
covenants, represents and warrants to Williams that:
(a) ORGANIZATION AND GOOD STANDING. Killearn is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Florida, and has full corporate
power and authority to own its assets and to carry on its business
as presently conducted.
(b) AUTHORIZATION; VALIDITY. Killearn has full power,
capacity and authority to execute, deliver and perform this
Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement
have been duly and validly authorized by all necessary corporate
action on the part of Killearn, subject only to the approval of
this Agreement and the transactions contemplated hereby by the
shareholders of Killearn. This Agreement has been duly and validly
executed and delivered by Killearn and is the legal, valid and
binding obligation of Killearn, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization and other laws of general
application affecting the enforcement of creditors' rights
generally and by the availability of equitable remedies.
(c) NO CONFLICTS; VIOLATIONS. The execution, delivery and
performance of this Agreement do not and will not (i) contravene
the Articles of Incorporation or Bylaws of Killearn; (ii) with or
without the giving of notice or the passage of time or both,
constitute a default under, result in a breach of (or would
constitute a default or result in a breach with the giving of
notice, lapse of time or both), result in the termination of,
result in the acceleration of performance of, require any consent,
approval or waiver under, or result in the imposition of any Liens
upon any property or assets of Killearn or its subsidiaries, under
any agreement, contract, commitment, lease or other instrument to
which Killearn or its subsidiaries is a party or by which any of
the property or assets of Killearn or its subsidiaries is bound,
which default, breach, termination, acceleration, consent, approval
or waiver, or imposition could reasonably be expected to,
individually or in the aggregate, materially and adversely affect
the Transferred Assets, (iii) violate any approvals, licenses,
permits, franchises or other governmental authorizations applicable
to the Transferred Assets, or (iv) violate any law, statute or
regulation or any judgment, order, decree, ruling or other decision
of any governmental authority, court or arbitrator applicable to
Killearn or its subsidiaries.
(d) LITIGATION; DISPUTES. There is no action, suit,
proceeding or investigation pending, or to the best knowledge of
Killearn, threatened against or relating to the Transferred Assets,
before any court, governmental, administrative or regulatory
authority or arbitrator, which (i) could reasonably be expected to,
individually or in the aggregate, materially and adversely affect
the Transferred Assets, taken as a whole, or (ii) could reasonably
be expected to prevent the performance in any material respect of
this Agreement or any of the actions contemplated hereby or declare
the same unlawful or cause the rescission thereof.
(e) NO CONSENTS. Except for applicable requirements of the
Securities Act of 1934 (the "1934 Act") and the approval of the
shareholders of Killearn contemplated by this Agreement, and other
than filing and recordation of appropriate title transfer documents
with respect to the Transferred Assets, no filing with or notice
to, and no permit, authorization, consent or approval of, any
public body or authority or any third party, is necessary for the
execution and delivery by Killearn of this Agreement or the
consummation by Killearn of the transactions contemplated hereby.
(f) OPINION OF FINANCIAL ADVISOR. Killearn has received the
opinion of its financial advisor, PriceBednar LLP that the Split-
Off is fair, from a financial point of view, to the shareholders of
Killearn other than Williams.
3. REPRESENTATIONS AND WARRANTIES OF WILLIAMS. Williams
covenants, represents and warrants to Killearn that:
(a) AUTHORIZATION; VALIDITY. Williams has full power,
capacity and authority to execute, deliver and perform this
Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement
have been duly and validly authorized by all necessary action on
the part of Williams. This Agreement has been duly and validly
executed and delivered by Williams and is the legal, valid and
binding obligation of Williams, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization and other laws of general
application affecting the enforcement of creditors' rights
generally and by the availability of equitable remedies.
(b) NO CONFLICTS; VIOLATIONS. The execution, delivery and
performance of this Agreement do not and will not (i) with or
without the giving of notice or the passage of time or both,
constitute a default under, result in a breach of (or would
constitute a default or result in a breach with the giving of
notice, lapse of time or both), result in the termination of,
result in the acceleration of performance of, require any consent,
approval or waiver under, any agreement, contract, commitment,
lease or other instrument to which Williams is a party or by which
any of his property or assets is bound, which default, breach,
termination, acceleration, consent, approval or waiver, or
imposition could reasonably be expected to, individually or in the
aggregate, adversely affect Williams' ability to perform this
Agreement or any of the actions contemplated hereby; or (ii)
violate any law, statute or regulation or any judgment, order,
decree, ruling or other decision of any governmental authority,
court or arbitrator applicable to Williams.
(c) NO CONSENTS. No filing with or notice to, and no permit,
authorization, consent or approval of, any public body or authority
or any third party, is necessary for the execution and delivery by
Williams of this Agreement or the consummation by Williams of the
transactions contemplated hereby.
4. CERTAIN AGREEMENTS.
(a) SHAREHOLDER APPROVAL; PROXY STATEMENT. Killearn shall
duly call, give notice of, convene and hold a meeting of its
shareholders as promptly as practicable (which meeting may be
Killearn's annual meeting of shareholders) for the purpose of
voting upon the Split-Off. As soon as reasonably practicable after
the date hereof, Killearn shall prepare and file with the
Securities and Exchange Commission (the "SEC") a proxy statement in
accordance with the requirements of the 1934 Act for the purpose of
soliciting proxies from the holders of Killearn's Common Stock.
The Proxy Statement shall submit to Killearn's shareholders for
their consideration and approval the transactions contemplated
hereby, and such other matters related to the Split-Off as are
consistent with the terms of this Agreement as Williams shall
reasonably request. Subject to the fiduciary duties of the Board
to Killearn's shareholders under applicable law, as determined by
the Board in good faith after considering the written advice of
outside counsel, Killearn shall, through the Board, recommend to
its shareholders approval of all such matters submitted to the
shareholders for their consideration and vote, and shall use its
best efforts to secure the approval of its shareholders of this
Agreement and the transactions contemplated hereby. Williams and
Killearn shall promptly furnish each other all information and
documents, and take such other actions, as may reasonably be
requested in connection with any action by either of them in
connection with this Section 4(a). If at any time prior to the
Closing Date any event with respect to Killearn or Williams shall
occur which is required to be described in an amendment of, or a
supplement to, the Proxy Statement, then Killearn or Williams, as
the case may be, shall promptly notify the other party in writing
of such event, and an amendment or supplement to the Proxy
Statement describing such event shall be promptly filed with the
SEC and, to the extent required by law, disseminated to the
shareholders of Killearn. Each of Killearn and Williams
represents, warrants and covenants to the other that the
information supplied or to be supplied by it or him for inclusion
in the Proxy Statement, including any amendments or supplements
thereto, will not, either at the date mailed to shareholders or at
the time of such meeting of shareholders, 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, in light of the circumstances under which they
were made, not misleading.
(b) SEC REPORTS. Killearn shall file all reports,
registrations and statements, together with any amendments required
thereto, required to be filed with the SEC under the 1934 Act after
the date hereof and on or before the Closing Date (the "Interim SEC
Reports"), including, but not limited to, reports on Form 10-QSB
and Form 8-K. Such Interim SEC Reports shall, as of their
respective dates, comply in all material respects with all rules
and regulations promulgated by the SEC and will not contain any
untrue statement of a material fact or omit to state a fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
are made, not misleading. No Interim SEC Report containing
information about this Agreement or the transactions contemplated
hereby (except for information generally concerning the terms and
conditions of this Agreement and the status of the transactions
contemplated hereby) shall be filed without Williams's prior review
of such information.
(c) SOLICITATION. Unless this Agreement is terminated
pursuant to Section 5,
(i) Killearn shall not initiate, solicit or encourage
(including by way of furnishing nonpublic information or
assistance) any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any
Competing Transaction, enter into discussions or negotiate with any
person or entity in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize any of its officers or directors to take
any such action, and Killearn shall instruct and use its reasonable
best efforts to cause its directors, officers, agents and
representatives (including, without limitation, any investment
banker, financial advisor, attorney or accountant retained by
Killearn) not to take any such action. If Killearn receives any
offer or proposal, written or otherwise, that constitutes, or may
reasonably be expected to lead to, any Competing Transaction,
Killearn promptly shall inform Williams of such offer or proposal
and furnish Williams with a copy thereof if such offer or proposal
is in writing.
(ii) Nothing contained in this Agreement shall prohibit
Killearn, subject to authorization by the Board, from (A)
furnishing information to, or entering into discussions or
negotiations with, any person or entity that, after the date
hereof, makes a bona fide proposal to enter into a Competing
Transaction, that after the date hereof had not been initiated,
solicited or encouraged by Killearn or any of its affiliates (other
than Williams), or (B) recommending or endorsing any, or entering
into any definitive agreement with respect to any, such Competing
Transaction if, with respect to either (A) or (B) above, (I) the
Board determines in good faith (after considering the written
opinion of outside counsel) that such action is required for the
Board to comply with its fiduciary duties to Killearn's
shareholders under applicable law, (II) the Board reasonably
believes that the proposal is made in good faith, and (III) prior
to furnishing nonpublic information to such person or entity,
Killearn receives from such person or entity an executed
confidentiality agreement on customary terms.
(iii) For purposes of this Agreement, a "Competing
Transaction" shall mean any of the following (other than the
transactions contemplated under this Agreement) involving Killearn
or any of its subsidiaries: (A) any merger, consolidation, share
exchange, business combination, sale of securities,
recapitalization, liquidation, dissolution or other similar
transaction; (B) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 10% or more of the assets of
Killearn and its subsidiaries, taken as a whole, in a single
transaction or series of transactions; (C) any tender offer or
exchange offer for 10% or more of the outstanding shares of capital
stock of Killearn; (D) after the date hereof, any person having
acquired beneficial ownership or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under Section
13(d) of the 1934 Act and the rules and regulations promulgated
thereunder) having been formed which beneficially owns or has the
right to acquire beneficial ownership of, 10% or more of the then
outstanding shares of capital stock of Killearn; or (E) any public
announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
5. TERMINATION.
(a) TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned, but not later
than the Closing Date:
(i) by mutual written consent of Williams and
Killearn; or
(ii) by either Killearn or Williams, in the event of
(a) a breach by the other party of any representation or warranty
contained herein, which breach cannot be or has not been cured
within thirty (30) days after the giving of written notice to the
breaching party of such breach and which breach or breaches would
result in a failure to satisfy any condition set forth in Section
7 or (b) a material breach by the other party of any of the
covenants or agreements contained herein, which breach cannot be or
has not been cured within thirty (30) days after the giving of
written notice to the breaching party of such breach; provided that
the non-breaching party provides the breaching party with a written
notice of termination within ten days after the earlier of the
expiration of such 30-day period or the date it receives a written
notice from the breaching party stating that it is unable or
unwilling to cure such breach; or
(iii) by either Williams or Killearn, if the Closing has
not taken place on or before October 31, 1996, unless the failure
to consummate the Closing on or prior to such date is solely due to
such party's fault; or
(iv) by either Williams or Killearn, if (A) there shall
be a final nonappealable order of a federal or state court
restraining or prohibiting the consummation of the Split-Off, or
(B) there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed
applicable to the Split-Off by any governmental authority, which
would make the consummation of the Split-Off illegal; or
(v) by Killearn if, in the exercise of its good faith
judgment as to its fiduciary duties to Killearn's shareholders
under applicable law, the Board (upon the written advice from its
outside counsel) determines that such termination is required;
provided, however, that the right of termination by Killearn
contemplated by this Section 5(a)(v) may only be exercised if,
prior to or contemporaneously with the determination by the Board
to terminate this Agreement, Killearn shall have entered into a
binding agreement with respect to a Competing Transaction after
having complied with the provisions of Section 4(c); or
(vi) by Killearn, if the shareholders of Killearn do
not approve the Split-Off at the shareholders' meeting, or any
adjournment thereof, referred to in Section 4(a).
(b) EFFECT OF TERMINATION. In the event of a termination of
this Agreement pursuant to Section 5(a), written notice thereof
shall promptly be given to the other party, and this Agreement
shall terminate and the transactions contemplated hereby shall be
abandoned without further action by the parties hereto. In the
event of the termination of this Agreement pursuant to Section
5(a), this Agreement shall forthwith become void, there shall be no
liability on the part of Killearn or any of its officers or
directors to Williams, or on the part of Williams to Killearn or
its officers or directors, and all rights and obligations of any
party hereto shall cease.
6. CONDUCT OF BUSINESS PRIOR TO CLOSING. Except as may otherwise
be contemplated by this Agreement or otherwise consented to or
approved in writing by Williams, after the execution hereof,
Killearn will:
(a) conduct its business only in the ordinary course of
business consistent with past practices and use its best efforts to
preserve its business, organization, goodwill and relationships
with persons having dealings with it;
(b) maintain its properties (including the Transferred
Assets) in good working order and repair (reasonable wear and tear
excepted); and
(c) (i) not amend its Articles of Incorporation or Bylaws;
(ii) not issue or agree to issue any additional shares of capital
stock of any class or series or securities convertible into or
exchangeable for shares of capital stock or issue any options,
warrants or other rights to acquire any shares of capital stock;
(iii) not merge or consolidate with or acquire all or substantially
all of the assets or business of any other corporation or entity;
(iv) not incur, assume or guarantee any indebtedness for money
borrowed secured by the Transferred Assets, other than in the
ordinary course of business; (v) not settle any claims, actions or
proceedings affecting the Transferred Assets or the Assumed
Liabilities, except in the ordinary course of business; (vi) not
make any wage or salary increase or agree to pay any pension or
retirement allowance not required by existing plans or agreements
or enter into any employment or consulting agreement, bonus or
employee benefit plan; (vii) not permit or allow any of the
Transferred Assets to be subjected to any Liens, except for Liens
for taxes not yet due or as otherwise incurred in the ordinary
course of business and consistent with past practices; (viii) not
lease, sell, transfer or otherwise dispose of any of the
Transferred Assets, except in the ordinary course of business and
consistent with past practices; (ix) not declare, pay or set aside
for payment any dividend or other distribution in respect to its
capital stock, or redeem, purchase or otherwise acquire, directly
or indirectly, any shares of its capital stock; (x) not amend or
revise in any material respect any material agreement it may have
with any third party with respect to, or affecting, the Transferred
Assets or the Assumed Liabilities; or (xi) not agree, whether in
writing or otherwise, to take any action described in this Section
6(c).
7. CONDITIONS PRECEDENT TO CLOSING.
(a) CONDITIONS PRECEDENT TO CLOSING BY EACH PARTY. The
respective obligations of Killearn and Williams to effect the
Split-Off is subject to the fulfillment at or prior to the Closing
Date of the following conditions precedent:
(i) SHAREHOLDER APPROVAL. This Agreement and the
transactions contemplated hereby shall have been approved by the
affirmative vote of the holders of a majority of the outstanding
Killearn Common Stock, excluding shares held directly by Williams,
in accordance with applicable law.
(ii) GOVERNMENTAL ACTION. There shall not be in effect
a final nonappealable order of a federal or state court restraining
or prohibiting the consummation of the Split-Off, nor shall any
action have been taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Split-
Off by any governmental authority, which would make the
consummation of the Split-Off illegal.
(iii) CONSENTS. Killearn and Williams shall have
obtained all consents of lenders and other third parties as may be
necessary for the consummation of the transactions contemplated
hereby.
(iv) LITIGATION. No action, suit, investigation or
proceeding before any court or any governmental authority shall
have been commenced, pending or threatened against Killearn or
Williams seeking to prevent, restrain or alter the transactions
contemplated hereby.
(b) CONDITIONS PRECEDENT TO CLOSING BY KILLEARN. The
obligation of Killearn to effect the Split-Off is subject to the
fulfillment at or prior to the Closing Date of the following
conditions precedent, any one or more of which may be waived by
Killearn:
(i) REPRESENTATIONS; COVENANTS. The representations
and warranties of Williams contained in Section 3 hereof shall be
true and correct in all material respects as of the Closing Date.
Williams shall have performed in all material respects all
obligations and agreements, and complied in all material respects
with all covenants and conditions contained in this Agreement to be
performed or complied with by him prior to or at the Closing.
(ii) FAIRNESS OPINION. The fairness opinion referred
to in Section 2(f) shall be in effect, and shall not have been
modified in any material adverse respect or withdrawn on or prior
to the date of mailing of the Proxy Statement.
(iii) PROACTIVE LOAN. Killearn shall have received the
$2 million proceeds of the Proactive Loan.
(b) CONDITIONS PRECEDENT TO CLOSING BY WILLIAMS. The
obligation of Williams to effect the Split-Off is subject to the
fulfillment at or prior to the Closing Date of the following
condition precedent, which may be waived by Williams:
(i) REPRESENTATIONS; COVENANTS. The representations
and warranties of Killearn contained in Section 2 hereof shall be
true and correct in all material respects as of the Closing Date.
Killearn shall have performed in all material respects all
obligations and agreements, and complied in all material respects
with all covenants and conditions contained in this Agreement to be
performed or complied with by it prior to or at the Closing.
8. MISCELLANEOUS.
(a) NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each and
every representation and warranty contained herein shall expire
with, and be terminated and extinguished by, the Split-Off, or the
termination of this Agreement pursuant to Section 5 or otherwise;
and thereafter neither Williams, Killearn, nor any officer or
director of Killearn shall be under any liability whatsoever with
respect to any such representation or warranty. This Section 8(a)
shall have no effect upon any other obligation of the parties
hereto, whether to be performed before or after the Closing.
(b) ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This
Agreement represents the entire understanding of the parties hereto
and thereto with reference to the transactions contemplated hereby
and supersede any and all other oral or written agreements
heretofore made. Nothing in this Agreement expressed or implied,
is intended to confer upon any person, other than the parties
hereto or their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this
Agreement.
(c) MODIFICATION. This Agreement may be modified only by
written instruments properly executed by the parties hereto.
(d) GOVERNING LAW. This Agreement has been entered into and
shall be construed and enforced in accordance with the laws of the
State of Florida without reference to the choice of law principles
thereof.
(e) EXPENSES. Each party hereto will bear all expenses
incurred by it or him in connection with this Agreement and the
transactions contemplated hereby; provided, however, that Killearn
shall bear all expenses related to actions required to be taken to
effect the Split-Off, including expenses associated with the
transfer of assets to NewSub and obtaining any necessary consents
or approvals of third parties.
(f) WAIVER. No waiver by any party hereto, whether express
or implied, of its rights under any provision of this Agreement
shall constitute a waiver of such party's rights under such
provisions at any other time or a waiver of such party's rights
under any other provision of this Agreement. No failure by any
party hereto to take any action with respect to any breach of this
Agreement or default by another party hereto shall constitute a
waiver of the former party's right to enforce any provision of this
Agreement or to take action against such breach or default or any
subsequent breach or default by such other party. All waivers must
be in writing to be effective, and all waivers by the Company must
be approved by a majority of the Board then in office, excluding
Williams and David K. Williams.
(g) SEVERABILITY. In the event that any one or more of the
provisions contained in this Agreement shall be declared invalid,
void or unenforceable, the remainder of the provisions of this
Agreement shall remain in full force and effect.
(h) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same
instrument.
(i) SECTION HEADINGS. The section headings in this Agreement
are for convenience of reference only and shall not be deemed to
alter or affect any provision hereof.
(j) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. No party shall assign its
rights or delegate its obligations under this Agreement, unless and
until any such assignment or delegation shall have first been
consented to in a written instrument executed by the other party.
(k) LITIGATION; PREVAILING PARTY. In the event of any
litigation with regard to this Agreement, the prevailing party
shall be entitled to receive from the non-prevailing party, and the
non-prevailing party shall immediately pay upon demand, all
reasonable fees and expenses of counsel for the prevailing party.
(l) NOTICES. All notices, requests and other communications
hereunder shall be in writing and may be made by (i) certified or
registered mail, return receipt requested; (ii) hand delivery;
(iii) facsimile transmittal; or (iv) by courier service, and shall
be deemed to have been duly given (a) when delivered by hand; (b)
three days after mailing, in the case of certified or registered
mail; (c) when electronic confirmation is received and recorded, in
the case of facsimile; and (d) one business day after being
forwarded to a nationally recognized overnight courier service for
overnight delivery; in each case correctly addressed to such party
at its address set forth below or such other address as such party
may specify by notice to the parties hereto:
in the case of Killearn, to it at: 100 Eagle's Landing Way
Stockbridge, Georgia 30281
Attn: Mallory E. Horne
in the case of Williams, to him at: 100 Eagle's Landing Way
Stockbridge, Georgia 30281
(m) BROKERS OR FINANCIAL ADVISORS. Except with respect to
the fees and expenses payable to PriceBednar LLP by Killearn, each
party represents and warrants that no person has or will have, as
a result of the transactions contemplated by this Agreement, any
right, interest or valid claim against such party for any
commission, fee or other compensation as a broker, finder or
financial advisor in connection with the Split-Off as a result of
any agreement between such party and any other person, and each
party agrees to indemnify the other for, and hold the other
harmless from, the payment of any such commission, fee or other
compensation.
(n) EXHIBITS. The Exhibits attached hereto shall be deemed
an integral part of this Agreement and all references to this
Agreement shall include such exhibits.
(o) PRESS RELEASES. Killearn and Williams shall consult with
each other as to the form and content of any press release or other
public disclosure of matters related to this Agreement or any of
the transactions contemplated hereby, except that nothing in this
Section 8(o) shall be deemed to prohibit Killearn from making any
disclosure which its counsel deems necessary or advisable in order
to fulfill its disclosure obligations under applicable law.
(p) ADDITIONAL AGREEMENTS. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to
use its or his best efforts in good faith to take or cause to be
taken as promptly as practicable all action and to do or cause to
be done all things necessary or advisable to consummate and make
effective the transactions contemplated by this Agreement,
including using its or his reasonable best efforts to lift or
rescind any order, decree or injunction adversely affecting its
ability to consummate the transactions contemplated herein.
Without limiting the generality of the foregoing, each party shall
execute and deliver such other instruments and shall take such
other actions as the other party may reasonably request to
effectuate the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, the undersigned, thereunto duly
authorized, have hereunto set their respective hands as of the day
and year first above written.
KILLEARN PROPERTIES, INC.
By:/s/ Mallory E. Horne
Title: Independent Director
/s/ J.T. Williams, Jr.
J.T. Williams, Jr.
EXHIBIT A
TRANSFERRED ASSETS
1. All assets, real and personal, of Eagle's Landing Country
Club, Inc., including all tangible assets located in the Clubhouse
of Eagles Landing Country Club
2. All assets, real and personal, comprising the Inn at Eagle's
Landing
3. The following real property:
110 acres commercial between I-75 and Rock Quarry Road
(including approx. 30 acres of wetlands)
22.79 acres retail and office, Country Club Drive
Lot between ELSC building and guard house
21.57 acres at Publix (graded)
30.8 acres next to Dunlop/KS and adjoining 27.96 acres
30.3 acres next to Carbonic Industries on Eagle's Landing
Parkway
Eagle's Landing Golf Course and Country Club per survey of
Broward Davies & Associates, plus rear 20 feet of lot 34-
C EL II
31.0 acres next to BellSouth on Highway 42 ( 39 acres less 8
acres wetlands)
2.77 acres (3 outparcels at Publix)
Right of way on Eagle's Landing Way north of Pate's creek
Green areas adjoining the foregoing properties to the center
of creek or to the end of property retained by Killearn
4. Land to construct a new nine hole golf course (approximately
80 acres), to be determined as provided in Section 1(b)(i) of the
Agreement
5. Option to acquire real property in Coweta County, Georgia
6. Insurance policies on the life of J.T. Williams, Jr.
7. Cash in the amount of $2 million
8. Killearn's interest in the Roland Tract, Publix and Champion
Partners joint ventures
EXHIBIT B
ASSUMED LIABILITIES
1. The $3 million debt owed to First Community Bank of Henry
County, Georgia with respect to the Inn at Eagle's Landing
2. All liabilities and obligations of Killearn under the
Employment Agreement dated July 7, 1982, as amended, between
Killearn and J.T. Williams, Jr.
3. Promissory Note dated payable to J.T. Williams ($360,000
outstanding at April 30, 1996)
4. All accounts payable, accrued expenses and other liabilities
and obligations, whether absolute, contingent or otherwise,
associated with the operation of the Eagle's Landing Country Club
or Eagle's Landing Country Club, Inc., excluding First Union
mortgage.
5. All insurance policy obligations and loans with respect to the
insurance policies included within the Transferred Assets.
6. All liabilities and obligations, whether absolute, contingent
or otherwise, of Killearn (i) to the partners of any joint venture
included within the Transferred Assets and (ii) to the creditors of
any such joint venture (whether as a primary obligor, guarantor or
otherwise).
APPENDIX B
OPINION OF PRICEBEDNAR LLP
PRICEBEDNAR LLP
A Regional Accounting, Tax and Consulting Firm Fifteen East
Fifth Street
Suite 2200
Tulsa, Oklahoma
74103-4300
(918) 584-4800
fax
(918) 584-4838
Board of Directors
Killearn Properties, Inc.
We have been engaged to assist you in the determination of the
fairness of the transfer of certain assets and liabilities to a new
corporation to be formed by KPI ("New Sub"), all of the shares of
which are to be exchanged for Mr. J. T. Williams, Jr.'s 551,321
shares of Killearn Properties, Inc. ("KPI") stock and cancellation
of his stock options. Specifically, we have been asked to ascribe
values to the assets of both KPI and on the assets to be
transferred to New Sub in exchange for Mr. Williams' stock and
options, to subtract from those values the debt assumed by New Sub,
and to compare that value to Mr. Williams' interest in the net
equity of KPI, and to determine whether the transaction is fair,
from a financial point of view to the shareholders of KPI, other
than Mr. Williams.
In summary, New Sub is to acquire the assets of the Eagle's Landing
Country Club ("the Club"), the Inn at Eagle's Landing ("the Inn"),
approximately $2 million cash, and certain commercial and
industrial properties. New Sub will assume the liabilities related
to these entities and certain other amounts owed to Mr. J. T.
Williams, Jr.
Our procedures were applied to the April 30, 1996 audited financial
statements after applying certain pro-forma adjustments to them and
were performed as of that date. The procedures are summarized
below.
Among other things we, (i) considered financial information
concerning the assets of the Company furnished to us by the
Company, including certain internal financial analyses and
forecasts prepared by the Company concerning the Country Club and
the Inn; (ii) analyzed publicly available information; (iii) held
discussions with the management of the Company, including
management employees of the Country Club and the Inn; (iv)
considered management's plans and future prospects for the Inn; (v)
read drafts of the definitive agreement; and (vi) made such other
studies and inquiries, and considered such other data, as it deemed
relevant.
The fair value of the net assets of KPI to be distributed, based
upon the April 30, 1996 audited financial statements and our
analysis, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(000's)
Retained by KPI $ 9,349 59.96%
Transferred to New Sub 6,244 40.04%
$15,593 100.00%
</TABLE>
PRICEBEDNAR LLP
Killearn Properties, Inc.
Page 2
Based upon this computation, the fair value of the net assets
transferred to New Sub is less than the 42% of the fair value of
the total net assets. Because Mr. Williams is relinquishing his
42% interest in KPI in exchange for 40.04% of the fair value of the
net assets, the transaction appears fair, from a financial point of
view, to the shareholders of KPI, other than Mr. Williams.
These cash flows were derived from the Company's business plan
projections for 1997 and its estimates for financial performance
thereafter, and were based upon several significant assumptions,
including (i) the continued viability of the Country Club, (ii)
that the start-up and growth of revenues and cash flows of the Inn
will occur as anticipated, (iii) that the land will be sold in an
orderly fashion over the next several years at prices consistent
with recent sales activity and, (iv) that a new nine hole golf
course will be completed in 1999 at a cost of $2.1 million to New
Sub and $500,000 to the Company. In these analyses, we assumed a
capitalization rate for the Inn and Country Club of 13% for fiscal
year 2001 and a discount rate of 15%. In forecasts of future cash
flows, events and circumstances frequently do not occur as expected
and there will usually be differences between the forecasted and
actual results. These differences may be material. We have no
responsibility to update this report for events and circumstances
occurring after the date of this report.
Because the procedures described above do not constitute an audit
made in accordance with generally accepted auditing standards, we
express no opinion on any of the specified accounts referred to
herein. Had we performed additional procedures or made an
examination of KPI's underlying financial statements in accordance
with generally accepted auditing standards, significant matters
which could alter the amounts used in the preparation of this
report might have come to our attention.
This report relates only to the accounts or items referred to
herein and does not extend to any financial statement of KPI taken
as a whole.
PRICEBEDNAR LLP
July 29, 1996
APPENDIX C
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED APRIL 30, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 (FEE REQUIRED)
For the fiscal year ended April 30, 1996
Commission File Number 1-6762
KILLEARN PROPERTIES, INC.
(Exact name of small business issuer in its charter)
Florida 59-1095497
(State or other jurisdiction (I.R.S. Employer Identification No.)
incorporation or organization)
100 Eagle's Landing Way Stockbridge, Georgia 30281
(Address of principal executive offices)
Issuer's telephone number, including area code: (770) 389-2020
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class:
Common Stock Name of Each Exchange on which Registered:
($.10 Par Value) American Stock Exchange, Inc.
Securities registered pursuant to Section 12 (g) of the Act: NONE
Check whether the Issuer (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Exchange Act of 1934 during
the past 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes __X__
No _______.
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form and
no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB ( X )
Revenues for the fiscal year ended April 30, 1996 were
$21,027,267.
As of July 22, 1996, the aggregate market value of the voting
stock held by non-affiliates of the Issuer was approximately
$5,427,747. This is based upon a closing market price of $9.75 per
share of common stock, as reported on the American Stock Exchange
- - - - composite transaction tape.
The number of shares outstanding of the registrant's common
stock as of July 19, 1996 was 1,438,733.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Issuer's Proxy Statement in connection with
its 1996 Annual Meeting of Shareholders (Part III)
Exhibit Index at Page 10 and 11.
1
PART I
ITEM 1. BUSINESS
Killearn Properties, Inc. (the "Company") was organized as a
Florida corporation in 1964. The Company is engaged primarily in
the development of planned communities (see "ITEM 1. BUSINESS -
Land Development," below) in the vicinity of Henry County, Georgia
(see "ITEM 2. PROPERTIES," below.) The Company's principal
executive offices are located at 100 Eagle's Landing Way,
Stockbridge, Georgia 30281, (770) 389-2020.
Recent Developments
In May 1996, Proactive Technologies, Inc. ("Proactive"), the
Company's second largest shareholder, proposed to the Company a
transaction pursuant to which the Company would transfer certain of
its assets and liabilities to a newly-formed wholly owned
subsidiary, and subsequently transfer all of the capital stock of
the subsidiary to J.T. Williams, Jr., the Company's Chairman of the
Board and Chief Executive Officer, in exchange for 551,321 shares
of Common Stock owned by Mr. Williams (approximately 42% of the
outstanding Common Stock) and the cancellation of his option to
purchase an additional 100,000 shares of Common Stock. The assets
proposed to be transferred are comprised principally of the Eagle's
Landing Golf Course and Country Club, the Inn at Eagle's Landing,
approximately 250 acres of commercial and industrial real estate,
land sufficient to construct an additional nine hole golf course,
the Company's interest in certain joint ventures and approximately
$2 million cash. The assets would be transferred subject to
approximately $7 million in liabilities. If consummated, the
transaction would be given effect as of May 1, 1996. It is a
condition to consummation of the proposed transaction that the
holders of a majority of the outstanding Common Stock of the
Company, other than shares held by J.T. Williams, Jr., approve the
transaction.
The proposed transaction is being reviewed by the Company's
Board of Directors, which has engaged an independent firm to render
an opinion as to the fairness of the transaction, from a financial
point of view, to the shareholders of the Company other than Mr.
Williams. If the Board of Directors approves the proposed
transaction, the transaction will be submitted to the shareholders
of the Company for approval at the annual meeting of shareholders
scheduled to be held in September 1996.
Proactive also proposed in May 1996 a business combination
transaction with the Company pursuant to which the Company's
shareholders would receive four shares of Proactive common stock
for each share of the Company's Common Stock. This proposal was
subsequently withdrawn in June 1996.
Henry County, Georgia
In April 1986, the Company purchased approximately 2,600 acres
of property, known as the Eagle's Landing (see ITEM 2 "PROPERTIES,"
below), which is located in Henry County, Georgia. During fiscal
1987, the Company purchased 217 additional acres and obtained
options to purchase 45 additional acres. Henry County is an
attractive location for industrial, commercial and residential
development due to its close proximity to the Atlanta International
Airport and downtown Atlanta. The property is on an I-75
interchange.
Henry County is a part of the metropolitan Atlanta area. Its
principal cities are McDonough and Stockbridge. A portion of the
property is within the City of Stockbridge. It is estimated that
Henry
2
County, at present, has a population of approximately 87,000
persons and is projected to reach a population of approximately
111,200 persons by the year 2000.
The greatest influence on the economy of Henry County is the
service industry, followed by manufacturing, retail and trade
administration.
Sale of Tallahassee, Florida Assets
During fiscal 1994 and the first quarter of fiscal 1995, the
Company sold substantially all of its Tallahassee properties to an
unrelated third party. See Item 2 "Properties", Item 6
"Management's Discussion and Analysis and Summary of Operations"
and Note 12 to Consolidated Financial Statements. Prior to the
sale, the Company had developed communities in Tallahassee for
thirty years, and had been the largest land developer in Leon
County, Florida.
On April 30, 1996, the Company had approximately 28 fully
developed lots remaining to be sold in Tallahassee, Florida. It is
anticipated these lots will be sold in fiscal 1997. In addition,
the Company and a former stockholder participate in a joint venture
for the development and sale of approximately 192 acres of land in
one of the Company's former subdivisions.
Land Development
Historically, the Company has acquired large areas of
unimproved real estate, and has subdivided, developed and then
resold the developed real estate in smaller parcels to individuals
and builders. Following the acquisition of a large area of
unimproved real estate, the Company retains a landscape architect
who, together with personnel of the Company, prepare a master land
use plan for the entire subdivision. The subdivision is platted
and divided into units and the units are further divided into lots.
After securing the necessary zoning and other applicable
regulatory approvals from local, state and federal authorities, the
Company commences the development of the subdivision by developing
one or more units located within each such subdivision.
In units where lots are sold, the Company generally makes
provision for water lines, storm drainage, underground or overhead
electrical service, telephone lines and paved streets. (See "Item
I. BUSINESS - Liability for Improvements," below.) In all units
where lots are sold by the Company, arrangements are made with
appropriate governmental agencies and utility companies for police
and fire protection and for electricity, telephone and water
service.
The Company believes it is the largest land developer in Henry
County, Georgia. At April 30, 1996, the Company had approximately
234 platted lots available for immediate sale and approximately
1,450 acres of undeveloped land available for immediate or future
development in Henry County. In addition, the Company has a
country club and golf course which were developed in prior years.
The property remaining is presently zoned approximately 16% for
industrial uses, 48% residential uses and 36% for commercial and
other uses. The Company intends to develop and divide its Henry
County property into lots and sell certain parcels to other
developers, as development continues.
The management of the Company believes that, if the Company
does not acquire any additional real estate and if the Company
makes no bulk dispositions of real estate, the Company's present
inventory of land is sufficient, at present levels of land sales,
for at least seven years of operation.
3
Liability for Improvements
The Company is obligated to complete the improvements to each
partially developed lot sold by it on a specified date no later
than one year from the date of sale of each such lot.
Pursuant to an agreement with the Leon County Commission and
the Division of Florida Land Sales, the Company maintains an
improvement trust fund as partial assurance to provide funds to
complete improvements to its Florida properties. The cash balance
of this improvement trust fund at April 30, 1996 was $164,127.
The total cost to complete the improvements to units from
which sales of partially developed lots have been made is estimated
to be approximately $460,000 at April 30, 1996, all of which is
expected to be made in fiscal 1997.
The Company is obligated to provide sewer in specified areas
of the Florida property which it previously owned and sold to other
developers for investment and resale. The estimated cost to the
Company is $525,429, all of which is expected to be paid in fiscal
1997 and fiscal 1998.
Residential Construction
In September 1983, the Company began constructing homes in
certain of its subdivisions. During fiscal 1992, the Company
discontinued the direct construction of homes in Henry County which
it had begun in March 1990. During fiscal 1994 the Company
discontinued the construction of homes in Leon County. At April
30, 1996, one house built by the Company remained to be sold.
Sales and Marketing
At present, the Company's sales force consists of 6 full-time
salespersons. These salespersons are compensated by the Company on
a salary plus commission or commission-only basis. Lots are sold
by the Company primarily to builders and to persons who presently
reside or who plan to reside in the Company's developments. The
Company no longer maintains a sales force in Leon County.
The Company sells fully developed lots, or lots which will be
developed within one year, pursuant to installment sales contracts
which generally have provided for a relatively small down payment
and monthly installments, including interest at rates ranging from
8% to 11.5% per annum, over periods which range from one to three
years.
Sales of lots to builders and sales of commercial tracts are
made by the Company primarily for cash. Sales of constructed
homes are made for cash. (See notes 1, 2 and 4 of Notes to
Consolidated Financial Statements of the Company.)
Joint Ventures
The Company is a partner in four separate joint ventures for
the development of land and/or the construction of buildings, all
of which were at different stages of development at April 30, 1996.
For a more complete description of these joint ventures, see Note
3 of Notes to the Consolidated Financial Statements of the Company.
4
Employees
At April 30, 1996, the Company had approximately 136 employees
at its Henry County development, including salespersons. The
Company no longer has any employees in Florida. The management of
the Company believes that its relationship with its employees is
good.
Competition
The land development industry in the State of Georgia is
highly competitive. Land development firms located in all
geographic areas of Georgia, many of which possess greater sales
and financial resources than the Company, compete to attract local
residents, retired persons, and other persons who are relocating.
The Company competes with such firms on the basis of a number of
interrelated factors, including reputation, location, design,
quality and price. Individual resales of residential units and
lots provide additional competition.
The Company believes that it is the largest land developer in
Henry County, but it competes with larger developers in the
metropolitan Atlanta area, as well as with smaller developers.
Regulations
As a land developer, the Company is subject to environmental,
building, zoning and real estate sales regulation by, among others,
local zoning and planning authorities, the Division of Georgia Land
Sales and various state and federal environmental protection
agencies.
All of the necessary local, state and federal regulatory
approvals for the development of its presently active subdivision
projects in Henry County, Georgia have been secured by the Company.
Additional permits and approvals may be required as new
subdivisions are constructed; however, the Company does not
anticipate any difficulty in securing such permits and approvals.
(See "Item 2 Properties", below.)
The Company's management is not presently aware of any
anticipated revocation or amendment of any of its regulatory
approvals. However, in the event that any regulatory approvals
presently secured by the Company are revoked or materially altered,
the business of the Company could be adversely affected.
Economic Conditions
The Company's business, as well as the real estate industry in
general, is affected by a number of economic factors, including
interest rates and inflation. Interest rates affect both the cost
to individuals and builders of purchasing homes and lots from the
Company and the carrying costs of undeveloped land. During the
past fiscal year, interest rates on residential mortgage loans
remained stable. In the past, the Company has increased the price
of lots offered for sale to offset increased inflation. Such
increases reduce the number of persons who are able to afford the
lots and homes offered by the Company. If interest rates and
inflation increase substantially, the real estate and construction
industries would be adversely affected and the Company's ability to
sell its real estate could be significantly adversely affected.
ITEM 2. PROPERTIES
The Company's principal subdivisions are as follows:
Eagle's Landing (formerly known as Atlanta Tech Center)
5
Eagle's Landing comprises approximately 3,000 acres in Henry
County, Georgia, and is approximately 23 miles south of downtown
Atlanta and 15 miles south of the Atlanta International Airport.
This "mixed use" development is presently zoned to allow
development in the categories of office, industrial, retail,
multi-family residential, single-family residential, lodging,
schools, municipal services, religious institutions, parks and
recreation, golf course, open space and lakes. The community is
planned around the Company's Eagle's Landing golf course and
country club.
At April 30, 1996, approximately 721 residential lots and 375
acres of other property had been sold by the Company.
Approximately 234 platted residential lots remained to be sold and
approximately 1,450 acres of other property remained to be platted
and/or sold. In addition, the Company had approximately 229 acres
which will be used for road right-of-way, utility easements and
green areas. At April 30, 1996, approximately 573 houses had been
constructed and 139 houses were under construction by other
builders.
Tallahassee Properties
The Company developed two major subdivisions in northeast
Tallahassee, Florida. During fiscal 1994 and the first quarter of
fiscal 1995, substantially all of the Company's remaining
Tallahassee properties were sold to a party whose parent company
subsequently became a shareholder in the Company, see Item 6
"Management's Discussion and Analysis and Summary of Operations"
and Note 12 to Consolidated Financial Statements.
At April 30, 1996, the Company owned 16 platted lots and 7
acres in Killearn Estates, a mixed use development in northeast
Tallahassee. All of the properties are expected to be sold within
fiscal 1997.
The Company also owns, at April 30, 1996, 11 lots in Killearn
Lakes Plantation, a mixed use development in northeast Tallahassee.
It is anticipated that these properties will be sold in fiscal
1997.
The Company is also a joint venture partner in the development
of approximately 192 acres of land located within the Killearn
Estates subdivision. Under the joint agreement, the Company will
develop, sell and finance the project and will receive one-half of
the profits from the development and sale of the project. (See
Note 3 of Notes to Consolidated Financial Statements.)
Encumbrances
Substantially all of the land owned by the Company in the
above described subdivisions serve as collateral for the
indebtedness of the Company. (See Notes 6 and 12 of Notes to
Consolidated Financial Statements.)
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain legal proceedings in the
ordinary course of business. In the opinion of the management of,
and general counsel to the Company, none of these proceedings,
alone or in the aggregate, should have a material adverse effect
upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by the Company to a vote of its
security holders during the fourth quarter of fiscal 1996.
6
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock has been traded on the American Stock
Exchange since 1980. Quarterly closing sales prices for the fiscal
years ended April 30, 1996 and 1995 were as follows:
Quarter 1996 1995
Fiscal Year High Low High Low
First 5 1/8 4 11/16 4 7/8 4 1/4
Second 6 1/2 4 9/16 6 4 1/2
Third 6 3/8 5 4 7/8 4 1/8
Fourth 9 3/4 5 3/4 6 3/8 4 1/8
The Company has never declared nor paid dividends.
As of July 22, 1996 there were approximately 542 shareholders
of record of the Company's Common Stock, excluding security
position listings.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR SUMMARY OF
OPERATION
Liquidity and Capital Resources
During the two year period ended April 30, 1996, the Company
generated strong cash flows due, in part, to the receipt of
proceeds from the sale of the Tallahassee properties in fiscal 1994
and fiscal 1995. These positive cash flows assisted in funding the
construction of a 60 room Inn located on the Company's Georgia
property. Subsequent to year end, the Company closed a loan for $3
million to provide the remaining cash necessary to complete
construction and furnishings of the Inn, and for working capital
needs. Additionally, a joint venture, in which the Company is a
partner, sold the facility the venture built for a profit of
approximately $492,000.
In December 1995, the Company modified its loan agreement with
a bank, involving its Georgia operations. The modified agreement
effectively changed what was previously three loans totaling $13.5
million into two loans totaling $13.5 million. One of the loans,
for $8.5 million, is collateralized by first mortgages on
substantially all of the undeveloped land in the Company's Georgia
project and certain contracts receivable. Upon the sale of the
property serving as collateral, release prices, which vary with the
development, are applied against the loan balance owed to the bank.
As these properties are developed, the Company has been able to
secure development loans from other lenders in an amount sufficient
to pay the release price and all development costs. Interest on
this loan is payable at the Bank's prime rate plus 1.5%. The other
loan, for $5 million, is collateralized by a first mortgage on a
golf course and country club. The principal is payable at the rate
of $250,000 per year with a maturity of June 10, 1997. Interest on
this loan is payable at the Bank's prime rate plus 2%. The failure
of this lender to extend the Company's loans, or the failure of the
Company to obtain replacement financing, could have a material
adverse affect on the Company's financial condition. Based upon
the Company's past relationship with its lender, management
believes this debt will be extended, as it has been in the past.
During the next two fiscal years, the Company has other debt
maturing in the amounts of approximately $4.0 million and $2.1
million, respectively. The Company normally borrows its
development loans for its Georgia properties from banks. The
Company anticipates that such debt will be paid through funds
generated by its normal operations, an
7
extension of debt, or new borrowings on the same collateral.
During the past fiscal year, the Company reduced its debt by
approximately $7.1 million and had new borrowings totaling
approximately $6.7 million. The Company continues to seek lines of
credit to satisfy its capital requirements.
On November 14, 1993, the Company entered into agreements to
sell substantially all of its Florida assets for $25.7 million. As
of April 30, 1996, $25.0 million of the sale had closed with the
Purchaser assuming $9.2 million of the Company's debt; issuing
notes to the Company, totaling $8.1 million and paying $7.7 million
in cash. The notes are payable over the next 3 years. The
remaining $700,000 of the sale is scheduled to close during fiscal
1997, for cash. Of the amount of debt assumed, the remaining
balance at April 30,1996 was $90,374 (See Note 12 of the Notes to
Consolidated Financial Statements).
During fiscal year 1997, the Company anticipates completing
improvements of partially developed lots and tracts at a cost
estimated to be $460,000 and improving undeveloped land at a cost
of approximately $2.1 million. The Company anticipates financing
these improvements through: (1) funds generated in the normal
course of the Company's business; (2) utilization of existing lines
of credit; and (3) securing additional lines of credit. The
Company anticipates that funds available from these sources will be
sufficient to meet the needs of the Company during fiscal 1997. At
April 30, 1996, the Company had available lines of credit totaling
$5.6 million with its lenders, including the $3 million loan to
complete development of the Inn. The balance of the lines of
credit will be drawn as needed for the development of the Company's
property and operational expenses.
Results of Operations
During fiscal 1996, lots sales decreased $1.2 million (17.6%)
while other land sales increased $3.7 million (52.6%) over fiscal
1995. The decrease in lot sales was primarily the result of the
Company's development of new residential units in its Georgia
project in Fiscal 1995. The increase in the other land sales was
primarily the result of the recognition of the sale to the
purchaser of substantially all of the Florida assets.
Fiscal 1996 sales of residential construction decreased 76.0%
over fiscal 1995. The Company discontinued its residential
construction operation in its Florida property during fiscal 1994
and sold all but one of the homes constructed by it during fiscal
1995 and 1996.
Operating revenues from the golf and country club increased
approximately $104,000 for fiscal 1996 over fiscal 1995. The
operating costs of golf and the country club (as a percentage of
revenues) were 96.7% and 102.2% for fiscal years 1996 and 1995,
respectively, reflecting an increase in memberships and utilization
of these facilities. Although the operation of the golf and
country club is not expected to contribute significantly to the
Company's profitability, the Company believes that these properties
enhance the value of its other properties.
Interest income increased approximately $382,000 due to the
notes receivable from the purchaser of the Tallahassee properties
(see Note 12 to the consolidated financial statements).
Additionally, income from joint ventures increased approximately
$476,000 due to the sale by one of the joint ventures in which the
Company is a partner of an industrial building.
Cost of lots sold as a percentage of lot sales was 70.5% and
60.6%
8
in fiscal 1996 and 1995, respectively. In prior years such
percentage was lower due primarily to the Company's use of third
party contracts in its Florida projects to provide utilities for
those developments, as opposed to normal utility costs incurred by
the Company in its Georgia operations. Cost of other land sales as
a percentage of other land sales was 75.4% and 71.4% in fiscal 1996
and 1995, respectively.
Commissions and selling expenses (net of commission income) as
a percentage of net sales of lots, land and residential
construction decreased to 4.7% during fiscal 1996 compared to 7.3%
in fiscal 1995. This decrease was primarily the result of the bulk
sale of the Florida properties, which required a lower than normal
commission and selling expense. Depreciation increased 8.0% in
fiscal 1996 over fiscal 1995.
General and administrative expenses as a percentage of total
revenues were 7.6% and 8.0% in fiscal 1996 and 1995, respectively.
Inflation
The effect of inflation was negligible in fiscal 1996 and
1995. If inflation and interest rates return to their previously
higher levels, they could have a material adverse effect upon the
real estate and construction industries and could significantly and
adversely affect the Company's ability to sell its real estate.
ITEM 7. FINANCIAL STATEMENTS
To the Board of Directors and Stockholders
Killearn Properties, Inc.
We have audited the consolidated balance sheet of Killearn
Properties, Inc. and subsidiaries as of April 30, 1996, and the
related consolidated statements of earnings, changes in
stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated
financial position of Killearn Properties, Inc. and subsidiaries as
of April 30, 1996 and the consolidated results of its operations
and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Atlanta, Georgia Coopers & Lybrand, L.L.P.
July 2, 1996
9
To the Board of Directors and Stockholders
Killearn Properties, Inc.
We have audited the consolidated balance sheet of Killearn
Properties, Inc. and subsidiaries as of April 30, 1995, and the
related consolidated statements of earnings, changes in
stockholders' equity, and cash flows for the year ended April 30,
1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated
financial position of Killearn Properties, Inc. and subsidiaries as
of April 30, 1995 and the consolidated results of its operations
and its cash flows for the year ended April 30, 1995, in conformity
with generally accepted accounting principles.
Atlanta, Georgia BDO Seidman, L.L.P.
June 30, 1995
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
Year Ended April 30
--------------------
1996 1995
<S> <C> ---- <C> ----
Revenues
Sales of lots $ 5,437,540 $ 6,600,313
Other land sales 10,691,633 7,006,448
Less:
Estimated uncollectible sales (85,285) ( 18,390)
---------- -----------
Net sales of lots and land 16,043,888 13,588,371
Sales of residential construction 45,500 189,500
Commission income 321,803 411,878
Revenues from golf and country club 3,122,522 3,018,539
Interest income 899,115 517,109
Equity in income from joint ventures 563,064 86,732
Other income 31,375 83,837
---------- ----------
Total revenues 21,027,267 17,895,966
---------- ----------
Costs and expenses:
Cost of lots sold 3,833,208 4,002,362
Cost of other land sold 8,059,027 5,000,543
Cost of residential construction sold 42,063 242,854
Commissions and selling expenses 1,078,646 1,398,405
Operating costs of golf and country club 3,019,724 3,085,860
Interest expense 451,766 611,149
10
Depreciation 735,551 681,194
Property taxes 282,425 246,695
Litigation settlement and expenses 27,197 192,732
General and administrative expenses 1,589,409 1,432,738
---------- ----------
Total costs and expenses 19,119,016 16,894,532
---------- ----------
Earnings before income taxes 1,908,251 1,001,434
Income taxes 664,896 380,504
--------- ---------
Net earnings $ 1,243,355 $ 620,930
========= =======
Earnings per share $ .84 $ .42
========= =======
Weighted average number of common shares 1,438,733 1,438,733
</TABLE>
The accompanying notes are integral part of these consolidated
financial statements.
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 30, 1996
<CAPTION>
<S> <C>
ASSETS
Cash (including restricted cash of $12,500) $ 160,147
Cash in improvement trust funds 164,127
Accounts receivable 762,389
Notes receivable 6,833,066
Land contracts receivable
Retail 445,821
Other 111,018
---------
Total receivables 8,152,294
Less: Allowance for uncollectibles
(151,295)
- - - ----------
Net receivables 8,000,999
---------
Investment in joint ventures 76,105
Residential real estate held for sale 158,306
Real estate held for development and sale, at cost
Land developed and under development 30,605,307
Real estate under contract for sale 2,796,104
----------
33,401,411
----------
Property under contract for sale 383,193
----------
Property and equipment, at cost
Golf course 1,660,931
Buildings 8,511,605
11
Machinery, equipment and vehicles 2,599,651
Furniture and fixtures 216,758
---------
Total property and equipment 12,988,945
Less: Allowance for depreciation (3,612,472)
-----------
Property and equipment - net 9,376,473
----------
Construction under development 3,949,947
Other assets 242,990
----------
Total assets $ 55,913,698
==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
Liabilities:
<S> <C>
Accounts payable and other accrued expenses $ 5,318,323
Income taxes payable 1,774,335
Accrued interest 447,964
Customers' deposits 1,518,737
Debt (including current maturities of $11,540,448) 19,664,813
Deferred income 2,694,745
Deferred income taxes 5,272,197
----------
Total liabilities 36,691,114
----------
Stockholders' equity:
Common stock - $ .10 par value - authorized 6,000,000
shares, 1,438,733 shares issued and outstanding 143,874
Additional paid-in capital 6,846,014
Retained earnings 12,232,696
----------
Total stockholders' equity 19,222,584
----------
Total liabilities and stockholders' equity $ 55,913,698
===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
12
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Year Ended April 30
-------------------
1996 1995
---- ----
<S> <C> <C>
Common Stock: $ 143,874 $ 143,874
--------- ---------
Additional paid-in capital: 6,846,014 6,846,014
--------- ---------
Retained earnings:
Balance at beginning of year 10,989,341 10,368,411
Net earnings 1,243,355 620,930
---------- ----------
Balance at end of year 12,232,696 10,989,341
---------- ----------
Total stockholders' equity $ 19,222,584 $17,979,229
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended April 30
-------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,243,355 $ 620,930
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation 735,551 681,194
(Gain) Loss on disposition of assets 4,552 (45,715)
Equity in income from joint ventures (563,064) (86,732)
Changes in operating assets and
liabilities:
Accounts receivable (263,507) 478,489
Notes receivable 703,807 (7,068,130)
Deferred income (2,456,790) 4,924,057
Residential construction in process 537,798 226,906
Real estate held for development
and sale 395,439 6,024,607
Utility deposits 22,000 66,485
Other assets 41,043 (101,162)
Accounts payable 1,614,255 441,495
Current and deferred income
taxes payable 782,599 307,545
Customers' deposits 249,905 (74,716)
Other liabilities 226,351 (279,529)
--------- ---------
Net cash provided by operating
activities 3,273,294 6,115,724
--------- ---------
13
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net of
non-cash transactions (149,006) (126,430)
Investment in joint ventures (297,616) (357,084)
Distributions from joint ventures 1,167,747 266,000
Proceeds from sale of fixed assets 16,574 59,029
Construction under development (3,949,947) -
----------- ---------
Net cash used in investing activities (3,212,248) (158,485)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans 6,716,322 9,214,032
Principal payments on debts (7,124,498) (15,191,521)
----------- ------------
Net cash used in financing activities (408,176) (5,977,489)
----------- -----------
NET DECREASE IN CASH (347,130) (20,250)
Cash - beginning of year 507,277 527,527
--------- -------
Cash - end of year $ 160,147 $ 507,277
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Supplemental Information
Cash paid:
Interest, net of amounts capitalized, was $225,415 and $738,183
in 1996 and 1995, respectively.
Income taxes were $10,000 and $30,000 in 1996 and 1995,
respectively.
Supplemental Schedules of Non-Cash Investing and Financing
Activities, which are not reflected above:
During fiscal 1995, $7,592,343 in debt was assumed by the
purchaser in a land sale transaction, of which $90,374 was
outstanding at April 30, 1996 and $6,450,853 was outstanding at
April 30, 1995.
The accompanying notes are an integral part of these consolidated
financial statements.
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Two Year Period Ended April 30, 1996
NOTE 1 - Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
Killearn Properties, Inc. and its wholly-owned subsidiaries (the
"Company"). Investments in which the Company owns less than a
majority interest, but does not have a unilateral controlling
interest, or has shared control, are accounted for under the equity
method. Additionally, all significant intercompany accounts and
transactions have been eliminated.
14
(b) Revenue Recognition
Lot Sales
The Company sells fully developed and partially developed
homesites primarily in Henry County, Georgia to builders and
individuals under contracts, which generally provide for small down
payments and monthly installments. Profit from lot sales is
recorded on the full accrual, percentage of completion, or cost
recovery method depending upon the terms of the sale. On sales to
builders, a small down payment is made at the time of sale and a
total of 20% to 100% is required at the time the builder receives
a deed and gives the Company a mortgage securing the balance due.
Sales prices are discounted to produce a minimum yield on the
contract balance over its life. The amount of revenue recognized
at the time a sale is recognized is measured by the relationship of
costs already incurred to total estimated costs to be incurred. If
certain improvements are incomplete, the portion of revenue related
to costs not yet incurred is recognized as the costs are incurred.
Until the required down payment percentage (generally 10% for
individuals and 20% to 100% for builders) and other accounting
criteria are met, all collections, including interest, are recorded
as deposits, commissions paid to salesmen, if any, are deferred,
and the related land cost is segregated in inventory. Once the
required down payment has been received, a sale is recognized,
previously deferred commissions are charged to expense, the related
land costs and any improvements are charged to cost of sales, the
interest portion of the deposit is recorded as income and the
balance reduces the principal amount due from the purchaser.
Upon cancellation of a contract, the difference between the
unpaid contract receivable balance and the cost of the related land
is charged to the allowance for uncollectible contracts. When a
contract cancels before qualifying as a sale, deferred selling
costs are charged to expense and deposits forfeited are credited to
income.
The amount of the provision for uncollectible sales is based
on the Company's contract receivable cancellation history.
Additionally, the allowance includes a provision relating to all
other receivables where management believes collection is doubtful.
Other Land Sales
Sales of bulk land tracts are accounted for in accordance with
Statement of Financial Accounting Standards (SFAS) No. 66. Under
the Statement, the buyer's commitment must meet certain minimum
requirements as to initial and continuing investment (generally 10%
to 25%) before revenue and profit are recognized. As appropriate,
some sales are accounted for on the installment basis.
Golf and Country Club
The company recognizes revenues from its golf and country club
when services are performed. Initiation fees are recorded as
revenue to the extent they are non-refundable; otherwise, the
refundable portion of the initiation fee is recorded as a
liability. Recurring membership dues are recognized during the
period earned.
(c) Cash
The Company classifies as cash equivalents any investment
which can be readily converted to cash and have an original
maturity of less than three months. At times, cash balances at a
limited number of banks and financial institutions may exceed
insurable amounts. The Company believes it mitigates its risks by
depositing cash in major financial institutions.
15
(d) Real Estate Held for Development and Sale
Real estate held for development and sale is recorded at the
lower of cost or estimated net realizable value. Expenditures for
land development are capitalized and allocated to development
projects by the specific identification method. Costs are
allocated to specific lots based on the ratio of the lot sales
price to the estimated total project sales price times the total
project costs. Interest and property taxes are capitalized while
development is in progress. Total interest and property taxes
capitalized during 1996 and 1995 were as follows:
1996 1995
--------- ---------
Interest 1,786,914 1,796,806
Property Taxes 187,115 202,517
(e) Property and Equipment, and related depreciation
The Company periodically reviews the carrying value of its
long-lived assets (primarily property and equipment) to assess the
recoverability of these assets; any impairments would be recognized
in operating results if a permanent diminution in value were to
occur. As part of this assessment, the Company reviews the
expected future net operating cash flows from its facilities, as
well as the values included in any of its facilities, which have
periodically been obtained in connection with various refinancings.
Provision for depreciation is made primarily on the
straight-line method over the estimated useful lives of the related
assets, as follows:
Years
-----
Buildings 10-40
Machinery, equipment and vehicles 5-10
Furniture and fixtures 5-10
Golf course improvements 15
Expenditures for repairs and maintenance are charged to
expense as incurred. Additions, improvements, and major renewals
are capitalized. Upon the sale or retirement of properties, the
cost of the assets and accumulated depreciation and amortization
are removed from the accounts, and any resulting gains or losses
are included in income.
(f) Construction under Development
The Company classifies as construction under development the
costs associated with constructing a 60 room Inn located on the
Company's Georgia property. The Company anticipates the entire
cost of the construction, including furnishings, to be $6.2
million. The remaining costs of $2.3 million will be incurred in
fiscal 1997. In anticipation of these costs to be incurred, the
Company obtained financing of $3 million subsequent to year end.
(g) Income Taxes
The Company utilizes the asset and liability method of
accounting for deferred taxes. Deferred income taxes are recognized
for the future tax consequences of temporary differences between
the financial reporting basis and the tax basis of the Company's
assets and liabilities. Valuation allowances are established when
necessary to reduce a deferred tax asset to the amount expected to
be realized. Income tax expense is the tax payable for the period
and the change during the period in deferred tax assets and
liabilities.
16
(h) Disclosures about Fair Value of Financial Instruments:
The amounts recorded in the financial statements for the
Company's receivables, payables, and investment in unconsolidated
joint ventures are carried at amounts that approximate fair value.
Long-term debt is carried at amounts which approximate fair value
based on current borrowing rates for loans with similar terms.
(i) Earnings Per Share
The weighted average number of shares outstanding is adjusted
to recognize the dilutive effect, if any, of outstanding stock
options in calculating earnings per share.
(j) New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed of." This statement is effective for financial
statements for fiscal years beginning after December 15, 1995, but
was adopted by the Company during fiscal 1996. The effect of the
adoption on the consolidated financial statements was not material.
(k) Reclassifications
Certain amounts in the 1995 financial statements and notes to
consolidated financial statements have been reclassified to conform
with the 1996 presentation.
(l) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
NOTE 2 - Land Contracts Receivable
At April 30, 1996, land contracts receivable, arising from
sales of lots to individuals and builders, are generally due over
periods which range from one to three years and provide for stated
interest ranging from 8% to 11.5% per annum. The weighted average
stated interest rate of retail land contracts receivable was 10.26%
at April 30, 1996. Scheduled principal collections of retail
contracts receivable at April 30, 1996 are as follows:
1997 $ 392,699
1998 8,091
1999 45,031
-----------
$ 445,821
===========
NOTE 3 - Investment in Joint Ventures
Rolland Tract
In 1980, the Company and a former stockholder entered into a
development for approximately 192 acres of land in one of the
Company's subdivisions. The land (which was purchased by the
former stockholder
17
from the Company in 1980) is being developed, marketed and sold to
the public by the Company. A portion of the Company's profit on
the sale of the land totaling $55,232 has been deferred and is
included in deferred profit in the accompanying financial
statements. According to the development agreement, earnings and
losses are shared equally by the parties. While the day to day
events are managed by the Company, the former stockholder shares
control in its ability to approve or deny certain transactions. As
a result, the Company accounts for its investment in this venture
under the equity method. The Company has recognized income from
the joint venture of $136,549 and $86,732 for the fiscal years
ended 1996 and 1995, respectively.
Condensed financial information of the Venture as of April 30,
1996 is as follows:
Assets
- - - ------
Cash $ 7,674
Land 766,549
Other assets 7,547
------------
Total $ 781,770
============
Liabilities and Partners' Capital
- - - ---------------------------------
Accounts payable $ 42,379
Other liabilities 11,375
Partners' capital 728,016
------------
Total $ 781,770
============
Results of Operations for the Year ended April 30
-------------------------------------------------
1996 1995
--------- --------
Sales $ 758,550 $ 542,515
Cost of sales (393,703) (328,479)
Other income 3,195 27,289
Other expenses (94,944) (67,861)
---------- --------
Net earnings $ 273,098 $ 173,464
========== ===========
Dunlop Venture
During fiscal 1995, the Company entered into a joint venture
agreement (the "Dunlop Venture") with an independent third party to
construct and lease a 168,000 square foot distribution center. The
Company has a 50% interest in the venture. During fiscal 1996, the
facility was sold to an independent third party for $4.9 million.
Subsequent to the sale, the net gain and remaining net assets of
the venture were distributed to the venture partners and the
venture was effectively dissolved. The Company recognized
approximately $492,000 in income in the accompanying consolidated
statement of earnings for fiscal 1996 resulting from the operations
of the joint venture and the sale of the facility.
Publix Venture
Also during Fiscal 1995 the Company entered into a second
joint venture (the "Publix Venture") with the same independent
third party, as discussed in the Dunlop Venture above, to construct
and lease 67,000 square feet of retail space. The Company has a
50% interest in the
18
venture. The independent third party is the managing partner in
the venture and is responsible for the day to day activities.
Significant transactions, as defined in the agreement, require the
approval of the Company. During fiscal 1996, the venture completed
construction and entered into a 20 year lease agreement with a
grocery store chain for approximately 48,000 square feet. The
Company recognized a loss of $63,949 in the accompanying statement
of earnings for fiscal year ended April 30, 1996.
Condensed financial information of the Joint Venture as of
April 30, 1996 is as follows:
Assets
- - - ------
Cash $ 15,761
Land 587,000
Improvements 4,136,991
Other assets 7,074
----------
Total $ 4,746,826
==========
Liabilities and Partners' Deficit
- - - ---------------------------------
Accounts payable $ 62,127
Loans payable 4,810,598
Partners' deficit (125,899)
----------
Total $ 4,746,826
==========
Results of Operations for the year ended April 30, 1996
- - - -------------------------------------------------------
Lease revenue $ 138,174
Other revenue 14,987
Interest expense (158,520)
Commission expense ( 48,918)
Depreciation ( 31,229)
Other expenses ( 42,125)
---------
Net loss $ (127,631)
=========
The results of operations for the fiscal year ended April 30,
1995 are not presented since they are immaterial. The lender of
the Publix loans payable has recourse to the other assets of the
venture and of the general partner.
Champion Venture
Subsequent to year end, the Company entered into a joint
venture agreement to construct an industrial building with an
independent third party. In exchange for its 50% interest in the
joint venture, the Company contributed property with a net book
value of approximately $1.9 million. In addition, the Company is
a guarantor on a $10.3 million loan to construct the industrial
building.
NOTE 4 - Real Estate Held for Development and Sale
Information with respect to real estate held for development
and sale at April 30, 1996 is as follows:
19
Land developed and under development:
Land fully developed $ 5,894,184
Land under development 24,711,123
-----------
$ 30,605,307
===========
Real estate under contract for sale:
Lot sales $ 211,603
Other land sales 2,584,501
-----------
$ 2,796,104
===========
Included in land under development are portions of the
properties undergoing development activity which have not reached
the stage at which they can be offered for sale.
NOTE 5 - Customers' Deposits
At April 30, 1996, customers' deposits includes receipts
relating to real estate under contract for sale which have not yet
been recorded as sales of approximately $238,500, amounts received
for refundable country club initiation fees of $1,243,440 and
deposits on contracts being negotiated and other miscellaneous
deposits of $36,797.
NOTE 6 - Debt
At April 30, 1996, the company had various note agreements
with financial institutions and individuals. These note agreements
are summarized as follows:
April 30, 1996
Balance
- - - --------------
Term notes payable to Bank (A) $ 11,885,143
Note payable to a Stockholder (B) 492,181
Development notes payable to a Bank (C) 3,003,925
Other notes payable (D) 4,283,564
----------
$ 19,664,813
==========
(A) In December 1995, the Company modified its loan agreement with
a Bank, involving its Georgia operations. One loan, for
$5,000,000 is collateralized by a first mortgage on the golf
course and country club. The terms of the note call for
monthly payments totaling $250,000 per year, with the
remaining balance due June 10, 1997. The current agreement
provides for interest on this loan to be paid at the Bank's
prime rate + 2%. The Bank's prime rate at April 30, 1996 was
8.25%. The other loan for $ 8,500,000, is collateralized by
first mortgages on substantially all of the undeveloped land
in the Company's Georgia project and certain contracts
receivable. Upon the sale of secured property, release
prices, which vary with the development, reduce the principal
balance on this loan. As secured properties are developed by
the Company, the Company has been able to secure development
loans from other lenders in an amount sufficient to pay the
release price and all development costs. The modified current
agreement provides for interest on this loan to be paid at the
Bank's prime rate plus 1.5%. The balance on this loan expires
on December 10, 1996, when the remaining balance becomes due
upon demand. Management of the Company anticipates the terms
to be extended on or before December 10, 1996. The failure of
this lender to extend the Company's loans, or the failure of
the Company to
20
obtain replacement financing, could have a material adverse
affect on the Company's financial condition. Based upon the
Company's relationship with its lender, management believes
this debt will be extended, as it has been in the past.
(B) On April 24, 1986, Killearn Properties, Inc. of Georgia, a
wholly-owned subsidiary of the Company, purchased
approximately 2,600 acres of real estate in Henry County,
Georgia from two individuals. One of the individuals was an
unrelated third party. The other individual is the President
of the Company. In connection with this purchase, the Company
gave a note to the related party in the approximate amount of
$1,764,000, bearing annual interest at prime rate plus 1%.
The prime rate at April 30, 1996 was 8.25%. The Company made
principal payments and incurred interest expense to the
related party during each of the two years ended April 30 as
follows:
Year Principal Interest
---- --------- --------
1996 $ 109,758 $ 55,018
1995 187,617 74,982
(C) The Company normally borrows its development loans for its
Georgia properties from a bank. The approximate balance of
such loans at April 30, 1995 was $4.2 million and at April 30,
1996 was $3 million. The terms of such loans require interest
at the bank's prime rate plus 1.5% or 2%. The bank's prime
rate on April 30, 1996 was 8.25%. The principal reduction of
these loans is from lot release prices which vary with the
development. Normally, the loan is due one year from the date
of the loan and is extended for one year, if necessary.
(D) The Company has other notes payable, which are due in various
installments through 2001 and bear interest at 7.75% to 12% at
April 30, 1996. Maturities of debt outstanding at April 30,
1996 follow:
Fiscal Years of Maturity Amount
------------------------ ------
1997 $ 11,540,448
1998 6,456,878
1999 1,175,653
2000 93,203
2001 90,673
Thereafter 307,958
-------------
$ 19,664,813
=============
Substantially all of the Company's assets are mortgaged or
pledged as collateral for its indebtedness. Most of the
agreements with the lenders provide that the Company will not
declare or pay dividends to its stockholders.
NOTE 7 - Liability for Improvements
On partially developed lots, the Company is obligated to
complete the land improvements on various specified dates. A
portion of the funds received from the sale of partially developed
lots was deposited in improvement trust funds and may only be used
for completing the improvements on these lots. Under the agreement
with the Leon County Commission and the Division of Florida Land
Sales, a monthly deposit is required to be made to the fund in the
amount of 16% of related principal collections. The cash balance
in the fund at April 30, 1996 was $164,127.
21
The total cost to complete the improvements to tracts from
which sales have been made is estimated to be $460,000 at April 30,
1996, which pertains to lots and land previously sold. The Company
has deferred recognition of $394,064 of revenue from the sale of
lots and land for the uncompleted improvements which are included
in the accompanying consolidated balance sheets in deferred income.
The Company is required to provide improvements in settlement
of litigation (see Note 11) regarding future Government permits for
assets sold in its Florida sale. The estimated $525,429 cost of
these improvements is included in the accompanying balance sheet.
Anticipated expenditures for land improvements to complete all
of the areas from which sales have been made through April 30, 1996
are expected to be incurred in the year ending April 30, 1997.
These anticipated expenditures do not include any future
expenditures on new communities or areas in existing communities
which have not yet been offered for sale.
NOTE 8 - Income Taxes
The Company had net operating loss carryforwards for state
income tax purposes of $7,626,356 and $8,416,792 at April 30, 1996
and April 30, 1995, respectively. The state net operating loss
carryforwards expire in years 2002 through 2010. The Company has
recorded a deferred tax liability for the expected reversal of the
taxable temporary differences. For financial reporting purposes,
a valuation allowance has not been recognized to offset the
deferred tax asset related to the net operating loss carryforwards.
The provision for income taxes consists of the following:
Income taxes 1996 1995
Current $ 1,289,010 $ 440,581
Deferred (624,114) (60,077)
---------- ---------
Total provision $ 664,896 $ 380,504
========= ========
Significant components of the Company's deferred tax liability
as of April 30, 1996 and April 30, 1995 are as follows:
Tax effect of 1996 1995
Net Operating Loss
Carryforwards $ (464,715) $ (505,007)
Taxable Temporary Differences:
Differences in the timing
of Profit Recognition of
Sale of Real Estate 914,138 239,734
Differences in Bases of Land 5,111,353 6,424,494
Depreciation 461,363 527,886
Deferred Compensation (699,445) (646,245)
Other (50,497) (144,552)
--------- ----------
Net Deferred Tax Liability $ 5,272,197 $ 5,896,310
========= =========
Deferred tax expenses results from timing differences in the
recognition of certain items for tax and financial reporting
purposes.
The difference between the total income tax expense and the
amount computed by applying the U.S. federal statutory tax rate to
pre-tax income was not material.
22
NOTE 9 - Employee Benefit Plans
During Fiscal 1994, the Company adopted a 401(k) Retirement
Plan. The plan allows substantially all full time employees to make
voluntary contributions from their earnings, and provides for
discretionary contributions by the Company. Contributions by the
Company for the years ended April 30, 1996 and 1995 were $1,778 and
$ 52,873, respectively.
The Company has a defined contribution employee profit-sharing
plan (covering all full-time employees) which provides for
discretionary contributions by the Company based on its
consolidated net earnings. The Company contributed $53,960 for the
year ended April 30, 1996 and $7,043 for the year ended April 30,
1995.
On June 21, 1982, the Board of Directors entered into a
long-term employment agreement (Agreement) with the President of
the Company. On April 24, 1992, the Board extended the Agreement
for an additional 5 years. The Agreement calls for salary payments
initially totaling approximately $120,000 per year plus bonuses not
to exceed $80,000 per year, adjusted annually for increases or
decreases in the Consumer Price Index. Subsequent to retirement,
the President is to receive retirement income (as defined),
adjusted annually for cost of living changes, for the remainder of
his life with a guarantee of ten years of such retirement income.
The unfunded accumulated retirement obligation was $1,831,002 and
$1,605,226 at April 30, 1996 and 1995, respectively, and is
included in accounts payable and other accrued expenses on the
accompanying consolidated balance sheet. The net pension cost
recognized during fiscal years ended April 30, 1996 and 1995 was
$140,000 and $35,000, respectively. The weighted average assumed
discount rate used to measure the accumulated post retirement
obligation was 8.12% for the years ended April 30, 1996 and 1995.
The Board also agreed to a retirement plan for two key
employees of the Company. The required payments to the employees
are being funded by the purchase of insurance.
NOTE 10 - Stock Options
The Company has a Stock Option Plan which provided for
issuance of shares to employees at prices not less than the fair
market value on dates of grant (not less than 110% of fair market
value for options granted to persons owning 10% or more of the
Company's common stock.)
The Company granted 25,000 stock options to certain employees
at an exercise price of $5.125 per share, all of which expired
during the current fiscal year. There were no stock options
exercised or granted under the plan for years ended April 30, 1996
and 1995.
On April 24, 1992, the Board of Directors issued a five year
non-qualified option to the President of the Company to purchase
100,000 shares of the Company's stock for $3.60, which was 10%
above the market value on such date. These options were the only
remaining options outstanding at April 30, 1996.
NOTE 11 - Commitments and Contingencies
In fiscal 1994 the First District Court of Appeals, in
Florida, issued a Final Order in the Company's lawsuit with the
Department of Community Affairs, State of Florida, regarding most
of the Company's undeveloped property in Florida. Among other
things, the court ruled that sanitary sewer had to be extended to
some properties that had been sold and developed by other
developers. As of April 30, 1996 the
23
estimated cost is $525,429, which is included in the accompanying
balance sheet, and is expected to be incurred over the next two
fiscal years.
The Company is a party to certain other legal proceedings, in
the ordinary course of business. In the opinion of management,
none of these proceedings should have a material adverse effect
upon the Company.
The Company is the general partner in various joint ventures
(see Note 3). As the general partner, the Company may be liable
for certain deficiencies which arise in meeting the terms of loan
obligations incurred by the these partnerships and for operating
expenses and other liabilities incurred by these partnerships in
the ordinary course of business. It is the opinion of management
that the Company does not have any exposure related to these
partnerships which should be reflected in the accompanying
financial statements.
The Company remains obligated on two notes that were assumed
by the purchaser referred to in Note 12 below. The balance of such
debt at April 30, 1996 was $90,374.
NOTE 12 - Sale of Florida Properties
On November 14, 1993, the Company entered into two agreements
to sell substantially all of its Florida assets to Capital First,
Inc., whose parent company subsequently became a shareholder of the
Company, for approximately $25.7 million. As of April 30, 1996,
approximately $25.0 million of the sale closed, with the purchaser
assuming approximately $9.2 million of the Company's debt, on which
the Company remains liable; issuing notes to the Company, secured
by a second mortgage on most of the assets purchased, totaling
approximately $8.1 million; and paying approximately $7.7 million
in cash. The notes are payable to the Company over the next 3
years and bear interest at 7% and 10% per annum. The amount of the
notes due the Company at April 30, 1996 was $6.6 million, which is
included in notes receivable in the accompanying consolidated
balance sheet. The remaining $700,000 of the sale is scheduled to
be closed during fiscal 1997, for cash. The Company's cost of the
assets sold, and to be sold, is approximately $18.9 million. The
resulting gross profit is being reported by the Company on the
installment method over 5 fiscal years, beginning with fiscal 1994.
At April 30, 1996, there remains approximately $1.7 million of
gross profit to be recognized over the next 3 years as cash is
collected.
The Company's second mortgage is subordinate to a first
mortgage, which the Company has guaranteed payment, referred to
above. The loan is collateralized by land sold in the sale of
Florida assets, and the loan agreement expires June 30, 1997, when
the balance becomes due. The balance of the first mortgage at
April 30, 1996 was $90,374.
NOTE 13 - Subsequent Event - Offer for Treasury Stock Purchase
Subsequent to fiscal year end, the Company's second largest
shareholder proposed to the Company a transaction pursuant to which
the Company would transfer certain of its assets and liabilities to
a newly-formed wholly owned subsidiary, and subsequently transfer
all of the capital stock of the subsidiary to J.T. Williams, Jr.,
the Company's Chairman of the Board and Chief Executive Officer, in
exchange for 551,321 shares of Common Stock owned by Mr. Williams
and the cancellation of his option to purchase an additional
100,000 shares of Common Stock (see Note 10). The assets proposed
to be transferred are comprised principally of the Eagle's Landing
Golf Course and Country
24
Club, the Inn at Eagle's Landing, approximately 250 acres of
commercial and industrial real estate, land sufficient to construct
an additional nine hole golf course, the Company's interest in
certain joint ventures (see Note 3) and approximately $2 million
cash. The assets would be transferred subject to approximately $7
million in liabilities. If consummated, the transaction would be
given effect as of May 1, 1996. It is a condition to consummation
of the proposed transaction that the holders of a majority of the
outstanding Common Stock of the Company, other than shares held by
J.T. Williams, Jr., approve the transaction.
The proposed transaction is being reviewed by the Company's
Board of Directors, which has engaged an independent firm to render
an opinion as to the fairness of the transaction, from a financial
point of view, to the shareholders of the Company other than Mr.
Williams. If the Board of Directors approves the proposed
transaction, the transaction will be submitted to the shareholders
of the Company for approval at the annual meeting of shareholders
scheduled to be held in September 1996.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND
ACCOUNTING AND FINANCIAL DISCLOSURE.
During the current fiscal year the Company engaged Coopers &
Lybrand, L.L.P. as independent accountants to audit the Company's
financial statements for the fiscal year ending April 30, 1996 and
elected not to renew the engagement of the Company's previous
independent accountants, BDO Seidman, L.L.P. No adverse opinions
or disclaimers of opinion were given by BDO Seidman, L.L.P. during
the fiscal years ended April 30, 1993, 1994, or 1995, nor were
there any of their opinions qualified as to uncertainty, audit
scope, or accounting principle, during the time BDO Seidman, L.L.P.
was engaged. There was no disagreement of any nature between the
Company and BDO Seidman, L.L.P. This decision was approved by the
Company's Audit Committee and Board of Directors.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER
Executive Officers of the Company
Information with respect to the Company's executive officers
as of April 30, 1996 is as follows:
Name Age Position Held Since
- - - ---- ----- -------- ----------
J.T. Williams, Jr. 63 Pres. & Chmn. of the Bd. 1970
David K. Williams 36 Executive Vice Pres. and Scty. 1994
All executive officers of the Company serve at the pleasure of
the Company's Board of Directors, with the exception of J.T.
Williams, Jr., who is employed by the Company pursuant to an
employment agreement.
J.T. Williams, Jr. has been employed by the Company in various
executive capacities since 1964 and has been President of the
Company since September 1970. Mr. Williams is a certified public
accountant.
David K. Williams has been Executive Vice President of the
Company since May 1994. Mr. Williams has been employed by the
Company since June 1983. He served as Vice President of
Construction and Development from January 1987 until June 1989 and
as President of Florida Operations from June 1989 until 1994. Mr.
Williams is the son of J.T. Williams, Jr.
25
The information required by this Item 9 concerning the
Directors of the Company will be contained in the Company's 1996
definitive proxy material to be filed with the Securities and
Exchange Commission and is incorporated herein by this reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item 10 will be contained in
the Company's 1996 definitive proxy material to be filed with the
Securities and Exchange Commission and is incorporated herein by
this reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item 11 will be contained in
the Company's 1996 definitive proxy material to be filed with the
Securities and Exchange Commission and is incorporated herein by
this reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 12 will be contained in
the Company's 1996 definitive proxy material to be filed with the
Securities and Exchange Commission and is incorporated herein by
this reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual
Report on Form 10-KSB:
1. Financial Statements. The following financial statements are
included in Item 7 hereof:
1. Reports of Independent Certified Public Accountants
2. Consolidated Balance Sheet of the Company as of April 30,
1996
3. Consolidated Statements of Earnings for the fiscal years
ended April 30, 1996 and 1995
4. Consolidated Statements of Changes in Stockholders'
Equity for the fiscal years ended April 30, 1996 and 1995
5. Consolidated Statements of Cash Flows for the fiscal
years ended April 30, 1996 and 1995
6. Notes to Consolidated Financial Statements
2. Exhibits.
See Exhibit Index, below.
(b) Reports on form 8 - K
No reports on Form 8-K were filed during the fourth
quarter of fiscal 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities and Exchange Act of 1934, the Issuer has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
26
KILLEARN PROPERTIES, INC.
Date: July 26, 1996 By:/s/ J.T. Williams, Jr.
J.T. Williams, Jr.,
Chairman of the Board
and President
Pursuant to the requirements of the Securities and Exchange
Act of 1934, this Report has been signed below by the following
persons on behalf of the Issuer and in the capacities and on the
date indicated.
DATE: July 26, 1996 /s/ J. T. Williams, Jr.
J.T. WILLIAMS, JR.,
Chairman of the Board
and President
DATE: July 26, 1996 /s/ Don Fuqua
DON FUQUA, Director
DATE: July 26, 1996 /s/ Mallory E. Horne
MALLORY E. HORNE, Director
DATE: July 26, 1996 /s/ Melvin L. Pope, Jr.
MELVIN L. POPE, JR., Director
DATE: July 26, 1996 /s/ Peter Redmon
PETER REDMON, Director
DATE: July 26, 1996 /s/ David K. Williams
DAVID K. WILLIAMS, Director
and Executive Vice President
(Principal Financial
Accounting Officer)
EXHIBIT INDEX
Page No. or Incorporated by Reference
Exhibit No. Description to the Document Listed Below
(3) Articles of Incor-
poration as 1981 Form 10-K
amended and Bylaws of
the Company
(10.1) Executive Compensation
Plan and Arrangements
(10.1)(a) Employee Profit Sharing Plan 1974 Form 10-K
(10.1)(b) Employment Agreement dated as of 1982 Form 10-K
July 7, 1982 by and between the
Company and J.T. Williams, Jr.
(10.1)(c) Modification of Employment 1992 Form 10-K
Agreement by and between the
Company and J.T. Williams,Jr.,
dated April 24, 1992
(10.1)(d) 1992 Incentive Stock Option Plan 1994 Form 10-K
for Employees
(10.2) Promissory notes dated May 1, 1992 Form 10-K
1991 from the Company to J.T.
Williams, Jr.
(10.3) Agreement to Purchase and Sell Report on Form 8-K
between the Company and Capital dated November 22,
First Inc. 1993
27
(10.4) Loan Modification dated July 19, 1994 Form 10-K
1994 between First Union Bank of
Georgia and Killearn Properties, Inc.
(10.5) Loan Agreement dated July 19, 1994 Form 10-K
1994 between First Union Bank
of Georgia and Killearn Properties,
Inc. for $5,000,000
(13) Annual Report to Shareholders for 1996 Form 10-K
the fiscal year ended April 30,
1996
(22) Subsidiaries of the Company 1994 Form 10-K
28
PROXY
KILLEARN PROPERTIES, INC.
100 EAGLE'S LANDING WAY, STOCKBRIDGE, GEORGIA 30281
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of shares of Common Stock of KILLEARN
PROPERTIES, INC., a Florida corporation (the "Company"), hereby
appoints J.T. Williams, Jr. and David K. Williams and each or
either of them, the proxy or proxies of the undersigned, with full
power of substitution to such proxy and substitute, to vote all
shares of Common Stock of the Company which the undersigned is
entitled to vote at the Annual Meeting of Shareholders of the
Company to be held on September ___, 1996, at 10:00 A.M., local
time, at Eagle's Landing Country Club, 100 Eagle's Landing Way,
Stockbridge, Georgia, and at any adjournments or postponements
thereof, with authority to vote said Common Stock on the matters
set forth below:
The shares of Common Stock represented by this Proxy will be
voted in the manner directed herein by the undersigned shareholder,
who shall be entitled to one vote for each share of Common Stock
held. If no direction is made, this Proxy will be voted for each
item listed below.
The Board of Directors recommends a vote FOR each proposal.
1. TO APPROVE AND ADOPT THE AGREEMENT DATED AS OF AUGUST 1,
1996, BETWEEN THE COMPANY AND J.T. WILLIAMS, JR. (THE
"AGREEMENT), AND TO AUTHORIZE SUCH FURTHER ACTIONS BY THE
BOARD OF DIRECTORS AND PROPER OFFICERS AS THEY, IN THEIR
DISCRETION, DEEM TO BE NECESSARY OR DESIRABLE TO CARRY
OUT THE OBJECTS, INTENTS AND PURPOSES OF THE AGREEMENT.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. ELECTION OF DIRECTORS. Election of Melvin L. Pope, Jr.
and Mark A. Conner as Directors of the Company.
[ ] FOR nominees listed above, except vote withheld
from the following nominee (if any)
OR [ ] WITHHOLD AUTHORITY to vote for nominees listed
above.
3. In their discretion, upon such other business as may be
properly brought before the meeting and each adjournment
thereof.
KILLEARN PROPERTIES, INC.
THIS PROXY WILL BE VOTED AS SPECIFIED, IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR EACH OF THE MATTERS MENTIONED.
Dated:__________________, 1996
(Signature)
(Signature)
Note: Please sign your name
exactly as it appears on the
left. Executors,
administrators, trustees,
guardians, corporate officers,
attorneys and agents should
give their full titles and
submit evidence of appointment
unless previously furnished to
the Company or its transfer
agent. All joint owners should
sign.
PLEASE SIGN, DATE AND RETURN
THIS PROXY USING THE ENCLOSED
ENVELOPE. YOUR PROMPT ATTENTION
WILL BE APPRECIATED.
