<PAGE> 1
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2))
[X] Definitive Information Statement
--------------------------------------------
MAJOR REALTY CORPORATION
--------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g)
and 0-11.
(1) Title of each class of securities to which transaction
applies: Common Stock
(2) Aggregate number of securities to which transaction applies:
6,893,378
(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): $1.25
(4) Proposed maximum aggregate value of transaction: $8,616,722
(5) Total fee paid: $1,723.34
[X] Fee paid previously with preliminary materials.
[ ] 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 Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
MAJOR REALTY CORPORATION
5728 Major Blvd., Suite 306
Orlando, FL 32819
April 20, 1998
Dear Stockholder:
As you may be aware, MAJOR REALTY CORPORATION (the "Company") has
entered into an Agreement and Plan of Merger (the "Merger Agreement"), dated
March 4, 1998, with PBD Holdings, L.P., an affiliate of Pembroke Companies,
Inc., Blackacre Capital Group, L.P. and Millennium Capital LLC. Pursuant to the
terms of the Merger Agreement, Pembroke Acquisition, Inc., a subsidiary of PBD
Holdings, L.P., will be merged into the Company, and all of the outstanding
shares of the common stock of the Company will be converted into the right to
receive $1.25 per share in cash. The Merger Agreement is attached as Annex A to
the accompanying Information Statement. The closing of the Merger is expected to
occur during April 1998, subject to the satisfaction of certain closing
conditions. YOU WILL BE RECEIVING ADDITIONAL INFORMATION AT A LATER TIME ON HOW
TO RECEIVE PAYMENT FOR YOUR SHARES OF COMMON STOCK IN CONNECTION WITH THE
MERGER.
The Board of Directors of the Company has approved the Merger of
Pembroke Acquisition, Inc. with and into the Company. Stockholders of the
Company owning beneficially and of record approximately 50.2% of the issued and
outstanding shares of the Company's Common Stock (including Acceptance Insurance
Company, which owns approximately 33.1% of the outstanding shares) have provided
their written consent and approval of the Merger, thereby satisfying the
requirements of the Delaware General Corporation Law and the Company's
Certificate of Incorporation for stockholder approval of the Merger. For this
reason, the Company is not calling a special meeting of the stockholders in
respect of the proposed Merger and is not asking you for a proxy or consent.
Stockholders of the Company do have the right to dissent from the Merger under
and pursuant to Section 262 of the Delaware General Corporation Law. WE ARE NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
STOCKHOLDERS ARE URGED TO READ CAREFULLY THIS INFORMATION STATEMENT IN ITS
ENTIRETY. The attached Information Statement is being provided to you pursuant
to Rule 14c-2 under the Securities Exchange Act of 1934, as amended. The
Information Statement contains a more detailed description of the Merger.
Very truly yours,
/s/ David L. Treadwell
David L. Treadwell, Chairman
<PAGE> 3
MAJOR REALTY CORPORATION
5728 Major Blvd., Suite 306
Orlando, FL 32819
INFORMATION STATEMENT
INTRODUCTION
This Information Statement is being furnished by the Board of Directors
of Major Realty Corporation, a Delaware corporation (the "Company"), to holders
of the outstanding shares of Common Stock, par value $.01 per share, of the
Company (the "Common Stock"), in connection with the Agreement and Plan of
Merger, dated as of March 4, 1998 (the "Merger Agreement"), by and among the
Company, PBD Holdings, L.P., a Delaware limited partnership ("Holdings"), and
Pembroke Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary
of Holdings ("Merger Sub"), pursuant to which Merger Sub will be merged with and
into the Company, and the Company will be the surviving corporation (the
"Merger"). As a result of the Merger, the Company will be a wholly-owned
subsidiary of Holdings, and each outstanding share of Common Stock (other than
shares owned by the Company, Holdings or any subsidiary of Holdings or by
stockholders who have validly perfected their appraisal rights under Delaware
law) will be converted into the right to receive $1.25 in cash without interest
(the "Merger Consideration"). A copy of the Merger Agreement is attached hereto
as Annex A. In accordance with the Delaware General Corporation Law (the
"DGCL"), the Merger Agreement requires the approval and adoption by the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock. As of March 2, 1998, there were 6,893,378 shares of Common Stock
issued and outstanding, each share of which was entitled to one vote on the
proposal to approve and adopt the Merger Agreement. On March 10, 1998,
stockholders of the Company owning of record and beneficially 3,461,111 shares,
or approximately 50.2%, of the outstanding shares of Common Stock (including
Acceptance Insurance Company ("Acceptance"), which owns approximately 33.1% of
the outstanding shares), executed written consents in favor of the approval and
adoption of the Merger Agreement (the "Stockholders' Consents"). Pursuant to
Section 228 of the DGCL and the Company's Certificate of Incorporation, no
additional approval by the Company's stockholders is required with respect to
the Merger Agreement and the Merger.
The effective date of the Merger will be the date and time of the
filing of a Certificate of Merger with the Secretary of State of the State of
Delaware (the "Effective Time"), which is scheduled to occur following
satisfaction of certain closing conditions, including receipt of certain
regulatory approvals, but not earlier than 20 days after the mailing of this
Information Statement to the Company's stockholders.
THE TRANSACTION DESCRIBED HEREIN HAS NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") NOR HAS THE SEC PASSED
UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
<PAGE> 4
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
This Information Statement is being mailed on or about April 23, 1998,
to holders of record of Common Stock on March 2, 1998.
THIS INFORMATION STATEMENT IS DATED APRIL 20, 1998
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Information Statement Summary...............................................................4
Market for the Shares and Related Stockholder Matters.......................................9
Required Vote; Written Consent in Lieu of Meeting...........................................9
Procedure for Receipt of Merger Consideration..............................................10
Appraisal Rights...........................................................................12
The Merger.................................................................................14
Regulatory Matters.........................................................................20
The Merger Agreement.......................................................................20
Source and Amount of Funds.................................................................23
Principal Stockholders and Stock Ownership of Management...................................23
Available Information......................................................................26
Other Information About the Company; Incorporation of Certain Documents by Reference.......26
</TABLE>
Annex A: The Merger Agreement
Annex B: Section 262 of the General Corporation Law of Delaware
Annex C: Annual Report of Major Realty Corporation on Form 10-KSB for
the year ended December 31, 1997.
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INFORMATION STATEMENT SUMMARY
The following is a brief summary of more detailed information contained
elsewhere, or incorporated by reference, in this Information Statement. Certain
capitalized terms used in this Summary are defined elsewhere in this Information
Statement. Reference is made to, and this Summary is qualified in its entirety
by, the more detailed information contained in this Information Statement and in
the Annexes hereto. Stockholders are urged to read carefully this Information
Statement, including the Annexes hereto, in its entirety.
The Companies
Major Realty Corporation (the "Company") is a Delaware corporation with
its principal executive offices at 5728 Major Blvd., Suite 306, Orlando, Florida
32819, and its telephone number is 407/351-1111. The Company's principal line of
business is the ownership and development of real estate. At December 31, 1997,
the Company owned approximately 161 developable acres of real property in the
City of Orlando, Florida, in an area known as "Florida Center," a 2,700 acre
planned community which contains the Universal Studios Florida studio complex
and tourist attraction and is located close to downtown Orlando and such
attractions as Walt Disney World's Magic Kingdom, Epcot Center and Sea World.
Pembroke Acquisition, Inc. ("Merger Sub") is a Delaware corporation and
a wholly-owned subsidiary of PBD Holdings, L.P. ("Holdings"). It was organized
to acquire the Company and has not conducted any unrelated activities since its
organization. The principal offices of Merger Sub are located at 1325 Avenue of
the Americas, Suite 1200, New York, New York 10019, and its telephone number is
212/399-9193.
All outstanding shares of the capital stock of Merger Sub are owned by
Holdings, a Delaware limited partnership. Holdings is a newly formed limited
partnership which was organized in connection with the Merger and has not
conducted any unrelated activities since its organization. Holdings is an
affiliate of Pembroke Companies, Inc., a private investment company
("Pembroke"), Blackacre Capital Group, L.P., a real estate investment fund
("Blackacre") and Millennium Capital LLC, a private investment company
("Millennium"). The principal offices of Holdings are located at 1325 Avenue of
the Americas, Suite 1200, New York, New York 10019, and its telephone number is
212/399-9193.
Required Vote; Written Consent in Lieu of Meeting
The DGCL provides that the adoption of any plan of merger by the
Company requires the approval of the Company's Board of Directors and the
affirmative vote of the holders of a majority of the outstanding shares of the
Common Stock entitled to vote thereon. The Board of Directors of the Company has
authorized and approved the Merger Agreement and the Merger. Stockholders of the
Company owning of record and beneficially 3,461,111 shares of Common Stock, or
approximately 50.2% of the outstanding shares thereof (including Acceptance,
which owns approximately 33.1% of the outstanding shares), have executed written
consents dated
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March 10, 1998, in favor of the approval and adoption of the Merger Agreement
and the Merger. Pursuant to Section 228 of the DGCL and the Company's
Certificate of Incorporation and Bylaws, no additional approval by Company
stockholders is required with respect to the Merger Agreement or the Merger.
Procedure for Receipt of Merger Consideration
At the Effective Time, each outstanding share of Common Stock (other
than shares owned by the Company, Holdings or any subsidiary of Holdings or by
stockholders who have validly perfected their appraisal rights under Delaware
law) automatically will be converted into the right to receive the Merger
Consideration. A Letter of Transmittal will be sent by an Exchange Agent to be
appointed by Holdings to all stockholders of the Company under separate cover
promptly following the Effective Time. The Letter of Transmittal must be
completed and returned as directed therein, along with certificates representing
the shares of Common Stock covered thereby. Checks for the Merger Consideration
will be sent to stockholders as soon as practicable after receipt of Letters of
Transmittal and stock certificates. Detailed instructions concerning the
procedure for receipt of the Merger Consideration will be set forth in the
Letter of Transmittal. See "PROCEDURE FOR RECEIPT OF MERGER CONSIDERATION."
Appraisal Rights
Under the DGCL, holders of shares of Common Stock who otherwise
strictly comply with the applicable requirements of the DGCL may dissent from
the Merger and demand payment in cash of the fair value of their shares of
Common Stock. See "APPRAISAL RIGHTS." Holdings will have the right to terminate
the Merger Agreement in the event that holders of more than 15% of the
outstanding shares dissent from the Merger and demand payment in cash of the
fair value of their shares of Common Stock. See "THE MERGER AGREEMENT --
Conditions to Each Party's Obligation to Effect the Merger."
The Merger
Background of the Merger. For a description of events leading to the
approval of the Merger Agreement by the Board of the Company, see "THE MERGER --
Background of the Merger." On March 2, 1998, the Board of the Company, having
been informed that stockholders owning of record and beneficially over 50% of
the outstanding shares of Common Stock (including Acceptance, which owns
approximately 33.1% of the outstanding shares) were in favor of the Merger,
approved and adopted the Merger Agreement and the Merger. The members of the
Board believe that the Merger Consideration represents a fair price for the
Common Stock, but did not, and are not now, making any recommendation with
respect to the Merger, due to the conflict of interest presented by their
concurrent service as members of the board of directors of Acceptance, which is
in favor of the Merger. See "THE MERGER -- Recommendation of Board" and "--
Interests of Certain Persons in the Merger."
Interests of Certain Parties. The DGCL permits a company to indemnify
its officers and directors under certain specified circumstances and also
requires such indemnification under
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specified circumstances. In addition, as permitted by law, the Company's
Certificate of Incorporation contains a provision eliminating the personal
liability of a director to the Company and its stockholders for monetary damages
for breach of fiduciary duty as a director, subject to certain statutory
exceptions. The Company's Certificate of Incorporation and Bylaws and separate
Indemnity Agreements also contain provisions providing for mandatory
indemnification of officers and directors in certain circumstances. However,
there are no provisions in the Merger Agreement requiring Holdings to cause the
Company, as the surviving corporation, to indemnify and hold harmless the
present and former officers and directors of the Company in respect of any of
their acts or omissions occurring prior to the Effective Time. All such officers
and directors also are entitled to receive indemnification from Acceptance with
respect to the aforesaid acts or omissions. See "THE MERGER --No Contractual
Indemnification Rights."
Opinions of Financial Advisors. The Board of Directors of the Company
did not obtain any opinions from any financial advisors that the consideration
to be received by the stockholders of the Company in the Merger is fair from a
financial point of view. See "THE MERGER -- Recommendation of Board."
Conditions to the Merger. The Merger Agreement provides that the
respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver on or prior to the Merger becoming effective (the
"Effective Time") of the following conditions: (i) no provision of any
applicable law or regulation and no judgment, injunction, order or decree shall
prohibit the consummation of the Merger or impose material limitations on the
ability of Holdings to exercise full rights of ownership of the Company's assets
or business; (ii) all actions by or in respect of or filings with any
governmental body, agency, official or authority required to permit the
consummation of the Merger shall have been obtained; and (iii) the performance
by the parties in all material respects of their respective obligations under
the Merger Agreement prior to the Effective Time and the truth in all material
respects of the parties' representations and warranties at the Effective Time.
In addition, the obligations of Holdings and Merger Sub to effect the
Merger are subject to the satisfaction or waiver of the further following
conditions: (i) no action or proceeding shall have been instituted by any
government or governmental authority or agency, domestic or foreign, or by any
other person, domestic or foreign, before any court or governmental authority or
agency, domestic or foreign, (a) challenging or seeking to make illegal, to
delay materially or otherwise directly or indirectly to restrain or prohibit the
consummation of the Merger, seeking to obtain material damages or otherwise
directly or indirectly relating to the transactions contemplated by the Merger,
(b) seeking to restrain or prohibit Holdings' ownership or operation (or that of
its affiliates) of all or any material portion of the business or assets of the
Company and its subsidiaries, taken as a whole, or of Holdings and its
affiliates, taken as a whole, or to compel Holdings or any of its affiliates to
dispose of or hold separate all or any material portion of the business or
assets of the Company and its subsidiaries, taken as a whole, or of Holdings and
its affiliates, taken as a whole, or (c) that otherwise is likely to materially
adversely affect the Company and its subsidiaries, taken as a whole, or Holdings
and its affiliates, taken as a whole; (ii) no action shall have been taken, or
any statute, rule, regulation, injunction, order or decree
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<PAGE> 9
proposed, enacted, enforced, promulgated, issued or deemed applicable to the
Merger, by any court, government or governmental authority or agency, domestic
or foreign, that is likely, directly or indirectly, to result in any of the
consequences referred to in clauses (a) through (c) of paragraph (i) above;
(iii) the Company shall have received all consents required for the Merger in
form and substance reasonably satisfactory to Holdings; (iv) Holdings shall have
received the resignation of the officers and directors of the Company; (v) at
any time after the date of the Merger Agreement, there shall not have occurred
any event or series of events having a material adverse effect on the condition
(financial or otherwise), business, assets or results of operations of the
Company and its subsidiaries taken as a whole; and (vi) holders of more than 15%
of the outstanding shares of Common Stock shall not have delivered to the
Company, within 20 days after the date on which this Information Statement is
mailed to the stockholders of the Company, written notice of their intent to
seek, or demand for, appraisal of their shares under Section 262 of the DGCL.
Termination of the Merger Agreement. The Merger Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, notwithstanding approval thereof by the stockholders of the Company, (i)
by mutual written consent of the Company and Holdings; (ii) by either the
Company or Holdings, if (a) the other party commits a material breach of the
Merger Agreement which is not cured within 10 days after notice thereof is given
to the breaching party, or (b) the Merger has not been consummated by May 15,
1998 (the "Termination Date"); provided that the right to terminate this
Agreement pursuant to this clause (ii) is not available to any party whose
breach of any provision of the Merger Agreement results in the failure of the
Merger to be consummated by the Termination Date; or (iii) by either the Company
or Holdings, if there shall be any law or regulation that makes consummation of
the Merger illegal or otherwise prohibited or if any judgment, injunction, order
or decree enjoining Holdings or the Company from consummating the Merger is
entered and such judgment, injunction, order or decree shall become final and
nonappealable.
Break-Up Fees. If the Merger Agreement is terminated by either party
due to the material breach thereof by the other party, the breaching party is
required promptly to pay to the other party as liquidated damages a fee in cash
in an amount equal to $500,000, plus all out-of-pocket expenses incurred in
connection with the negotiation of the Merger by the nonbreaching party,
including, without limitation, reasonable fees and expenses of legal counsel,
accountants and other professionals in connection with the negotiation and
execution of the Agreement in Principle, the Merger Agreement and all of the
transactions contemplated therein. See "THE MERGER AGREEMENT -- Payment of the
Breakup Fee."
Regulatory Matters. No federal or state regulatory approval is required
for the Merger.
Certain Federal Income Tax Consequences. The receipt of the right to
receive cash by stockholders of the Company upon the consummation of the Merger
will be a taxable transaction for Federal income tax purposes under the Internal
Revenue Code of 1986, as amended (the "Code"), and may also be a taxable
transaction under applicable state, local, foreign and other tax laws. See "THE
MERGER -- Certain Federal Income Tax Consequences."
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Source and Amount of Funds
The total amount of funds required from Holdings for the Merger
Consideration, to pay fees and expenses related to the Merger and to assume or
repay existing debt of the Company is estimated to be approximately $11.2
million. Such funds will be furnished to Holdings by affiliates of Pembroke,
Blackacre and Millennium, as capital contributions from their general funds. See
"SOURCE AND AMOUNT OF FUNDS."
Selected Historical Financial Data of the Company
Set forth below is certain selected consolidated financial information
with respect to the Company and its subsidiaries excerpted or derived from the
information contained in the Company's audited consolidated financial
statements. The following selected financial data is qualified in its entirety
by reference to such financial statements and all the financial information
(including any related notes) contained therein.
MAJOR REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues
Sales of real estate $ 875 $ 411 $ 6,810 $ 3,618 $54,825
Lease income 131 131 150 186 181
Interest and other income 285 297 295 283 194
------- ------- ------- ------- -------
Total revenues 1,291 839 7,255 4,087 55,200
Net Income (loss) $ (766) $ (579) $ 2,664 $ 1,089 $ 891
PER SHARE DATA
Net income (loss) $ (.11) $ (.08) $ .39 $ .16 $ .13
</TABLE>
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<TABLE>
<CAPTION>
As of December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Total assets $ 8,582 $ 9,126 $ 9,722 $10,752 $10,904
======= ======= ======= ======= =======
Short-term debt $ 718 $ 848 $ 865 $ 1,462 $ 983
Long-term debt 5,416 5,064 5,064 8,038 9,438
Stockholders' equity 2,422 3,188 3,767 1,103 14
------- ------- ------- ------- -------
Total capital $ 8,556 $ 9,100 $ 9,696 $10,603 $10,435
======= ======= ======= ======= =======
</TABLE>
MARKET FOR THE SHARES AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq SmallCap Market
under the symbol "MAJR." The high and low closing prices for the Common Stock as
reported by Nasdaq for the periods indicated and the approximate number of
shareholders are presented below:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1997
---- ----
High Low High Low
<S> <C> <C> <C> <C> <C> <C>
1st Quarter 2-3/8 1-7/8 1-15/32 1-5/16
2nd Quarter 2-1/8 1-11/16 1-5/8 1-1/16
3rd Quarter 2-3/16 1-9/16 1-3/32 1-1/16
4th Quarter 2 1-7/16 1-1/8 1
Approximate Number of
Shareholders 2,366 2,294
</TABLE>
On March 5, 1998, the day before the announcement of the execution of
the Merger Agreement, the high, low and closing bid for the Common Stock was
$1.00 per share and the high, low and closing asking price for the Common Stock
was $1.125 per share.
No dividends were paid during the years ended December 31, 1997 or
1996. The Company's credit facility with Acceptance Insurance Companies Inc.
contains a covenant which expressly prohibits the payment of dividends.
REQUIRED VOTE; WRITTEN CONSENT IN LIEU OF MEETING
The DGCL provides that the adoption of any plan of merger by the
Company requires the approval of the Company's Board of Directors and the
affirmative vote of the holders of a majority of the outstanding shares of the
Common Stock entitled to vote thereon. The Board of Directors of the Company has
authorized and approved the Merger Agreement and the Merger. Stockholders owning
of record and beneficially 3,461,111 shares of Common Stock, or
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approximately 50.2% of the outstanding shares thereof (including Acceptance,
which owns approximately 33.1% of the outstanding shares), have executed written
consents dated March 10, 1998, in favor of the approval and adoption of the
Merger Agreement and the Merger. Pursuant to Section 228 of the DGCL and the
Company's Certificate of Incorporation, no additional approval by the Company's
stockholders is required with respect to the Merger Agreement or the Merger.
The Merger will become effective upon the filing of a certificate of
merger with the Secretary of State of the State of Delaware in accordance with
the DGCL. As used in this Information Statement, "Effective Time" means the
effective time of the Merger under the DGCL.
PROCEDURE FOR RECEIPT OF MERGER CONSIDERATION
Valid Surrender of Shares. At the Effective Time, each outstanding
share of Common Stock (other than shares owned by the Company, Holdings or any
subsidiary of Holdings or by stockholders who have validly perfected their
appraisal rights under Delaware law) automatically will be converted into the
right to receive the Merger Consideration. A Letter of Transmittal will be sent
to the Company's stockholders under separate cover promptly following the
Effective Time. The Transmittal Letter will contain instructions with respect to
obtaining the Merger Consideration in exchange for shares of the Common Stock.
For a stockholder validly to surrender shares of Common Stock pursuant to the
Merger, a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), together with any required signature guarantees and any
other required documents, must be received by the Exchange Agent at one of its
addresses set forth on the Letter of Transmittal and either certificates for
tendered shares must be received by the Exchange Agent named in the Letter of
Transmittal at one of such addresses or such shares must be delivered pursuant
to the procedure for book-entry transfer set forth below (and a Book-Entry
Confirmation (as defined below) received by the Exchange Agent).
Book-Entry Transfer. The Exchange Agent will establish an account with
respect to the shares of Common Stock at The Depository Trust Company and the
Philadelphia Depository Trust Company (the "Book-Entry Transfer Facilities") for
purposes of the Merger. Any financial institution that is a participant in any
of the Book-Entry Transfer Facilities' systems may make book-entry delivery of
such shares by causing a Book-Entry Transfer Facility to transfer such shares
into the Exchange Agent's account in accordance with such Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of shares
may be effected through book-entry transfer into the Exchange Agent's account at
a Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees and any other required documents, must, in any case, be transferred
to, and received by, the Exchange Agent at one of its addresses set forth on the
Transmittal Letter, or the surrendering stockholder must comply with the
guaranteed delivery procedure described below. The confirmation of a book-entry
transfer of shares into the Exchange Agent's account at a Book-Entry Transfer
Facility as described above is referred to herein as a "Book-Entry
Confirmation." DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN
ACCORDANCE WITH SUCH BOOK-ENTRY
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TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
Signature Guarantees. No signature guarantee is required on the Letter
of Transmittal if (i) the Letter of Transmittal is signed by the registered
holder of shares (which term, for purposes of this Section, includes any
participant in any of the Book-Entry Transfer Facilities' systems whose name
appears on a security position listing as the owner of the shares) tendered
therewith and such registered holder has not completed either the box entitled
"Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal or (ii) such shares are tendered for
the account of a firm that is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. (the
"NASD"), or a commercial bank or trust company having an office or correspondent
in the United States or by any other "eligible guarantor institution", as such
term is defined in Rule 17Ad-15 under the Exchange Act (each, an "Eligible
Institution"). In all other cases, all signatures on the Letters of Transmittal
must be guaranteed by an Eligible Institution. If the certificates for shares
are registered in the name of a person other than the signer of the Letter of
Transmittal, or if payment is to be made or certificates for shares not tendered
or not accepted for payment are to be issued to a person other than the
registered holder of the certificates surrendered, the surrendered certificates
must be endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name or names of the registered holders or owners appear
on the certificates, with the signatures on the certificates or stock powers
guaranteed as aforesaid.
Determination of Validity. All questions as to the validity, form,
eligibility and acceptance of any surrender of shares will be determined by
Holdings in its sole discretion, which determination will be final and binding.
Backup Withholding. In order to avoid "backup withholding" of Federal
income tax on payments of cash pursuant to the Merger, a stockholder
surrendering shares in the Merger must provide the Exchange Agent with such
stockholder's correct taxpayer identification number ("TIN") on a Substitute
Form W-9 and certify under penalties of perjury that such TIN is correct and
that such stockholder is not subject to backup withholding. Certain stockholders
(including, among others, all corporations and certain foreign individuals and
entities) are not subject to backup withholding. If a stockholder does not
provide its correct TIN or fails to provide the certifications described above,
the Internal Revenue Service ("IRS") may impose a penalty on such stockholder
and payment of cash to such stockholder pursuant to the Merger may be subject to
backup withholding at the rate of 31%. All stockholders surrendering shares
pursuant to the Merger should complete and sign the main signature form and the
Substitute Form W-9 included as part of the Letter of Transmittal to provide the
information and certification necessary to avoid backup withholding (unless an
applicable exemption exists and is proved in a manner satisfactory to Holdings
and the Exchange Agent). Noncorporate foreign stockholders should complete and
sign the main signature form and a Form W-8, Certificate of Foreign Status, a
copy of which may be obtained from the Depositary, in order to avoid backup
withholding.
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APPRAISAL RIGHTS
Holders of shares of Common Stock are entitled to appraisal rights in
accordance with Section 262 ("Section 262") of the DGCL (which is reproduced in
full in Annex B hereto). Holdings will have the right to terminate the Merger
Agreement in the event that holders of more than 15% of the outstanding shares
of Common Stock dissent from the Merger and seek appraisal rights. See "THE
MERGER AGREEMENT - Conditions to Each Party's Obligation to Effect the Merger."
In the event the Merger is consummated, such appraisal rights, if the statutory
procedures are complied with, would result in a judicial determination by the
Delaware Court of Chancery of the "fair value" of the shares of Common Stock
("Shares") owned by such holders, together with a fair rate of interest, if any,
to be paid upon the amount determined to be fair value. Any such judicial
determination of the fair value of the Shares could be based upon considerations
other than or in addition to the price to be paid in the Merger and the market
value of the Shares, including asset values, the investment value of the Shares
and any other valuation considerations generally accepted in the investment
community. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered in an appraisal proceeding. The Weinberger court also noted that
under Section 262 of the DGCL, fair value is to be determined "exclusive of any
element of value arising from the accomplishment or expectation of the merger."
As a consequence of the foregoing, the fair value determined for Shares could be
the same as or more or less than the value of the consideration per Share paid
pursuant to the Merger and payment of such consideration would take place
subsequent to payment pursuant to the Merger.
No provision has been made by the Company, Holdings or Merger Sub to
allow access to the Company's files by unaffiliated stockholders or to obtain
counsel or appraisal services at the expense of the Company, Holdings or Merger
Sub. THE FOLLOWING SUMMARY IS NOT A COMPLETE STATEMENT OF THE LAW RELATING TO
APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ANNEX B. THIS
SUMMARY AND ANNEX B SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO WISHES TO
EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO
BECAUSE FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH HEREIN AND
THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
In accordance with Section 262, any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of this Information
Statement, demand in writing from the Company the appraisal of the fair value of
such stockholder's Shares. Such demand must reasonably inform the Company of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of the fair value of such stockholder's Shares. Any stockholder
(other than a record owner who is acting as a nominee holder for different
beneficial owners) seeking to exercise appraisal rights for a portion, but not
all, of such stockholder's Shares should consult with legal counsel before
taking any such action. The Company believes that Delaware law has not clearly
addressed the ability of such a stockholder to exercise
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<PAGE> 15
appraisal rights with respect to a portion, but not all, of such stockholder's
Shares. Stockholders should be aware of the risk that should a stockholder seek
to exercise appraisal rights with respect to a portion, but not all, of such
stockholder's Shares, the Company may assert that by doing so such stockholder
has waived such stockholder's appraisal rights and a Delaware court may find
that such stockholder has so waived such stockholder's appraisal rights. A
stockholder who elects to exercise appraisal rights must mail or deliver such
stockholder's written demand to the Company at 5728 Major Blvd., Suite 306,
Orlando, Florida 32819, Attention: Secretary.
A demand for appraisal must be executed by or for the stockholder of
record, fully and correctly, as such stockholder's name appears on the
certificate or certificates representing the stockholder's Shares. If the Shares
are owned of record in a fiduciary capacity, such as by a trustee, guardian, or
custodian, such demand must be executed by the fiduciary. If the Shares are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand,
such person is acting as agent for the record owner.
A record owner, such as a broker, who holds Shares as a nominee for
others, may exercise appraisal rights with respect to the Shares held for all or
less than all beneficial owners of Shares as to which such person is the record
owner. In such case, the written demand must set forth the number of Shares
covered by such demand. Where the number of Shares is not expressly stated, the
demand will be presumed to cover all Shares outstanding in the name of such
record owner. Beneficial owners who are not record owners and who intend to
exercise appraisal rights should instruct the record owner to comply strictly
with the statutory requirements with respect to the exercise of appraisal
rights.
Within 120 days after the Effective Time, either the Company, as the
surviving corporation in the Merger (the "Surviving Corporation"), or any
stockholder who has complied with the required conditions of Section 262 may
file a petition in the Delaware Court of Chancery (the "Delaware Chancery
Court") demanding a determination of the fair value of the Shares of the
dissenting stockholders. If a petition for an appraisal is timely filed, after a
hearing on such petition, the Delaware Chancery Court will determine which
stockholders are entitled to appraisal rights and will appraise the Shares
formerly owned by such stockholders, determining the fair value of such Shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Delaware Chancery Court is to take into account all relevant factors.
Stockholders considering seeking appraisal should note that the "fair
value" of their Shares determined under Section 262 could be more than, the same
as or less than $1.25 per Share. The cost of the appraisal proceeding may be
determined by the Delaware Chancery Court and taxed against the parties as the
Delaware Chancery Court deems equitable in the circumstances. Upon application
of a dissenting stockholder, the Delaware Chancery Court may
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<PAGE> 16
order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding, including without
limitation, reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rata against the value of all Shares entitled to appraisal.
From and after the Effective Time, no stockholder who has duly demanded
appraisal in compliance with Section 262 will be entitled to vote for any
purpose the Shares subject to such demand or to receive payment of dividends or
other distributions on such Shares, except for dividends or distributions
payable to stockholders of record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder
shall have the right to withdraw such stockholder's demand for appraisal and to
accept the terms offered in the Merger Agreement. After such period, a
stockholder may withdraw such stockholder's demand for appraisal only with the
consent of the Company. If no petition for appraisal is filed with the Delaware
Chancery Court within 120 days after the Effective Time, stockholders' rights to
appraisal shall cease, and all stockholders who had previously demanded
appraisal shall thereafter be entitled to receive the Merger Consideration in
cash, without interest thereon, upon surrender of the certificates that formerly
represented their Shares. The Company has no obligation to file such a petition,
and has no present intention to do so; therefore, any stockholder who desires
such a petition to be filed is advised to file it on a timely basis. However, no
petition timely filed in the Delaware Chancery Court demanding appraisal shall
be dismissed as to any stockholder without the approval of the Delaware Chancery
Court, and such approval may be conditioned upon such terms as the Delaware
Chancery Court deems just. FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET
FORTH IN SECTION 262 OF THE DGCL FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN
THE LOSS OF SUCH RIGHTS. CONSEQUENTLY, ANY STOCKHOLDER WISHING TO EXERCISE
APPRAISAL RIGHTS IS URGED TO CONSULT LEGAL COUNSEL IN CONNECTION WITH EXERCISING
SUCH RIGHTS.
THE MERGER
Background of the Merger
Set forth below is a description of the background of the Merger.
On January 19, 1998, representatives of Holdings approached the Company
about a possible business combination. Preliminary discussions between the
parties ensued and Holdings indicated it had a serious interest in pursuing the
acquisition of the Company in an all cash transaction. Thereafter, Holdings was
given certain confidential information concerning the Company's business and
assets which it used to value the Company and to formulate an offer to acquire
the Company.
Between January 20, 1998, and February 10, 1998, representatives of
Holdings, the Company and Acceptance discussed various issues regarding the
Merger, including the price per
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<PAGE> 17
share Holdings was willing to pay in the Merger. Members of the Company's Board
of Directors also discussed the proposed Merger and the Merger Consideration
with a small number of other significant stockholders of the Company to
determine whether they would support the Merger based upon the Merger
Consideration.
On February 11, 1998, the Company and Holdings entered into an
Agreement in Principle (the "Agreement in Principle"), pursuant to which
Holdings and the Company agreed to negotiate the terms of a definitive merger
agreement and to use their best efforts to consummate the Merger, with Merger
Consideration of $1.25 per share for each share of Common Stock to be paid to
all stockholders of the Company equally. The Company agreed to pay a break-up
fee of $500,000, plus all of Holdings' expenses incurred in connection with the
proposed Merger if the Company breached the Agreement in Principle or the
definitive merger agreement. Holdings agreed that, upon the execution of a
definitive merger agreement, it would deposit $500,000 (the "Deposit") with the
Company's attorneys, as escrow agent, to demonstrate its financial condition and
commitment to consummate the Merger. Holdings also agreed that it would pay a
break-up fee to the Company equal to $500,000, plus all of the Company's
expenses incurred in connection with the proposed Merger, if Holdings breached
the definitive merger agreement, and that the Deposit would secure the
obligation of Holdings to pay such fee.
Pursuant to the terms of the Agreement in Principle, Holdings was
entitled to terminate the Agreement in Principle if holders of Common Stock
representing at least 50% of the outstanding Common Stock did not enter into
agreements pursuant to which they agreed to vote in favor of the Merger and
against any competing proposal, and pursuant to which they granted Holdings an
option to acquire their Common Stock for the Merger Consideration under certain
conditions (the "Stockholder Agreement"). The Agreement in Principle was also
terminable by Holdings if Acceptance did not agree to enter into an agreement to
sell the Company's convertible promissory note held by Acceptance to Holdings
under the same conditions (the "Addendum to the Stockholder Agreement").
Between February 11, 1998, and March 4, 1998, the terms of the Merger
Agreement, the Stockholder Agreement and the Addendum to the Stockholder
Agreement were negotiated in final form between the respective parties thereto
and discussions concerning due diligence, document preparation and various legal
issues were concluded.
A special meeting of the Board of Directors of the Company was held on
March 2, 1998, at which time the Merger and the terms of the Merger Agreement
were approved by the Board of Directors after a presentation by the management
of the Company. On March 4, 1998, the Merger Agreement, the Stockholder
Agreement and the Addendum to the Stockholder Agreement were executed and
Holdings wired the Deposit to the Escrow Agent. The funds representing the
Deposit were received on March 5, 1998, and the transaction was publicly
announced on March 6, 1998.
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<PAGE> 18
Recommendation of Board
On March 2, 1998, the Board of Directors of the Company met and
approved the Merger and authorized the execution and delivery of the Merger
Agreement. The members of the Board believe that the Merger Consideration
represents a fair price for the Common Stock, but did not, and are not now,
making any recommendation with respect to the Merger, due to the conflict of
interest presented by their concurrent service as members of the board of
directors of Acceptance, which is in favor of the Merger. On March 4, 1998,
Acceptance and other significant stockholders of the Company owning of record
and beneficially 50.2% of the outstanding shares of Common Stock, executed and
delivered the Stockholders' Consents approving the Merger under the DGCL. The
Board of Directors of the Company, in connection with the actions taken to
approve the Merger, considered a number of factors, including the following:
Financial Condition, Results of Operations, Business and Prospects of
the Company. The Board considered the financial condition, results of
operations, business and prospects of the Company. The Board considered the fact
that, historically, the Company had attempted to realize the value in its
properties through a combination of land sales, joint ventures, land leases and
other transactions. However, the combination of adverse market conditions,
equity requirements for development projects and the Company's financial status
made transactions other than land sales difficult to accomplish. Due both to
financial need and the ability to achieve value by property sales rather than
development activity, the Company's primary source of revenues during the past
eight years has been the sale of land.
In October 1995, the Board had determined that it was in the best
interests of the stockholders to seek a merger partner or otherwise seek a
transaction for the sale of the Company. Capital constraints limiting the
feasibility of independently developing the Company's existing properties and
the Company's inability to find joint venturers interested in assisting the
Company in developing its properties were primary factors in the Board's
decision to seek a merger or sale transaction.
Other Potential Transactions. The Board considered the fact that no
other firm offers for the entire Company had been received at the price Holdings
was willing to pay. Although other parties met with representatives of the
Company from time to time and expressed an interest in structuring transactions
in which they would acquire a controlling interest in the Company, the Board
felt that their proposals were subject to too many contingencies, with no
assurance that the current stockholders of the Company would ever receive value
for their Common Stock equal to or in excess of $1.25 per share.
Approval by a Majority of the Stockholders. The Board considered the
fact that a small group of stockholders, owning beneficially in excess of 50% of
the outstanding Common Stock, indicated their approval of the Merger, and agreed
with Holdings to enter into the Stockholder Agreement and to vote in favor of
the Merger.
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<PAGE> 19
Value Remaining in the Company. The Board considered the fact that the
Company has no operations, and its assets currently consist primarily of
approximately 140 acres of vacant land and a ground lease on a 20 acre developed
parcel. As reported in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997 (a copy of which is included with this Information
Statement as Annex C), at March 20, 1998, the Company had nine parcels of
property, representing approximately 52.2 developable acres, under contract to
be sold for an aggregate sales price of $13,100,000. Such transactions, however,
are each subject to certain conditions and, accordingly, there can be no
assurance that any of them will be consummated. The last appraisal on these
properties was obtained in October 1996, and they were appraised at an aggregate
value of approximately $12,208,000. At March 20, 1998, the Company had an
additional four parcels, representing approximately 16.8 developable acres, in
inventory. These properties had also been appraised in October 1996, at an
aggregate value of approximately $4,607,000. Also as described in the Annual
Report, the Company owns a 20.3 acre parcel of property within the Turkey
Lake/Windhover area of Orlando, Florida, which is leased, pursuant to a ground
lease entered into in June 1983, to the Kirkman-Oxford Associates Limited
Partnership, which has developed on the property a 272-unit apartment complex
known as West Winds. The Company believes that the present value of its interest
in this property is approximately $800,000, based upon prior offers and a
discounted cash flow analysis of future lease payments.
The Board also considered the following facts: that the Company
typically has to pay expenses relating to the sale of property in the amount of
approximately 10% of the gross contract price (excluding any income taxes that
might be payable on the gain over the Company's income tax basis in the
property); that there is no assurance that all of the outstanding contracts for
sales of Company property will close, that any property subject to a contract
which does not close, or which is not currently under contract, can be sold in a
timely fashion for the previous contract price or its appraised value; that the
Company has approximately $2.5 million of outstanding debt to Acceptance due in
May 1998; and that the Company continues to incur significant fixed expenses,
including interest on the Acceptance debt, property taxes and legal and
accounting fees connected with the Company's operation as a public company, and
continued operation as an independent company likely would continue to reduce
the value of the Company and the price of the Common Stock.
Historical Stock Price Performance. The Board reviewed the historical
stock price performance of the Company and noted that the consideration to be
received by the Company's stockholders pursuant to the Merger would represent a
premium of approximately 20% over the average sales price during the six months
prior to the announcement of the Merger Transaction ($1.06 per share). The
Common Stock traded in very low volumes over such time period.
Terms and Conditions of the Merger. The Board considered the terms and
conditions of the Merger Agreement, including the fact that the transaction was
structured as a cash offer for all shares of Common Stock which would permit all
holders of shares of Common Stock to participate on the same basis.
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<PAGE> 20
Other Considerations. The Board also considered the financial ability
of Holdings to consummate the Merger, and the fact that there is no financing
contingency in the Merger Agreement and that Holdings has deposited $500,000 in
cash to pay the break-up fee which would be due to the Company if Holdings
breaches the Merger Agreement and fails to consummate the Merger.
The foregoing discussion of the information and factors considered and
given weight by the Board of Directors of the Company is not intended to be
exhaustive. In view of the variety of factors considered in connection with
their evaluation of the Merger, they did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching their determination. In addition, individual members of
the Board of the Company may have given different weights to different factors.
Interests of Certain Persons in the Merger
Acceptance is currently the owner of approximately 33.1% of the
outstanding shares of Common Stock. It is also the Company's primary creditor.
At February 20, 1998, the Company owed Acceptance approximately $2,541,000.
Acceptance acquired the debt of the Company from the Company's prior commercial
lenders when they refused to extend the term of their loans to the Company and
the Company was without sufficient funds to repay such indebtedness. Holdings
has agreed to repay, or cause the Company to repay, the full amount of the debt
of the Company to Acceptance upon the consummation of the Merger. Acceptance has
agreed to sell to Holdings the Common Stock owned by Acceptance and the notes
representing the Company's debt to Acceptance in the event that the Merger
Agreement is terminated due to a breach by the Company. The purchase price for
the shares of Common Stock will be $1.25 per share and the notes will be sold
for the amounts then owing thereunder. Each of the current directors of the
Company also serves as a director on the board of Acceptance, and one of the
Company's directors, Kenneth C. Coon, is a director, President and Chief
Executive Officer of Acceptance.
The DGCL permits a company to indemnify its officers and directors
under certain specified circumstances and also requires such indemnification
under specified circumstances. In addition, as permitted by law, the Company's
Certificate of Incorporation contains a provision eliminating the personal
liability of a director to the Company and its stockholders for monetary damages
for breach of fiduciary duty as a director, subject to certain statutory
exceptions. The Company's Certificate of Incorporation and Bylaws and separate
Indemnity Agreements also contain provisions providing for mandatory
indemnification of officers and directors in certain circumstances. However,
there are no provisions in the Merger Agreement requiring Holdings to cause the
Company, as the surviving corporation, to indemnify and hold harmless the
present and former officers and directors of the Company in respect of any of
their acts or omissions occurring prior to the Effective Time. All such officers
and directors also are entitled to receive indemnification from Acceptance with
respect to the aforesaid acts or omissions.
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<PAGE> 21
Certain Federal Income Tax Consequences
The receipt of the right to receive cash by stockholders of the Company
upon the consummation of the Merger will be a taxable transaction for Federal
income tax purposes and may also be a taxable transaction under applicable
state, local, foreign and other tax laws. The tax consequences may vary
depending upon, among other things, the particular circumstances of the
individual stockholder. For Federal income tax purposes, a stockholder will
generally recognize gain or loss equal to the difference between the amount of
cash received by the stockholder pursuant to the Merger and the stockholder's
aggregate tax basis in the shares of Common Stock converted pursuant to the
Merger. Gain or loss will be calculated separately for each block of such shares
(i.e., shares acquired at different times or prices) converted into cash
pursuant to the Merger.
If shares are held by a stockholder as capital assets, gain or loss
recognized by the stockholder will be capital gain or loss, which will be
long-term capital gain or loss if the stockholder's holding period for such
shares exceeds eighteen months. If the holding period for such shares is less
than eighteen months but more than twelve months, then the gain or loss will be
mid-term capital gain or loss. If the holding period for such shares is less
than twelve months, then the gain or loss will be short-term capital gain or
loss. Under present law, long-term capital gains recognized by an individual
stockholder will generally be taxed at a maximum Federal marginal tax rate of
20%; mid-term capital gains will generally be taxed at a maximum Federal
marginal tax rate of 28%; and short-term capital gains will generally be taxed
at a maximum Federal marginal tax rate of 39.6%. Capital gains recognized by a
corporate stockholder will generally be taxed at a maximum Federal marginal tax
rate of 35% regardless of the holding period for the shares.
Stockholders (other than certain exempt stockholders including, among
others, all corporations and certain foreign individuals) may be subject to
backup withholding on their Merger Consideration at the rate of 31% unless the
stockholder provides its TIN and certifies that such number is correct or
properly certifies that it is awaiting a TIN. A stockholder that does not
furnish its TIN may be subject to a penalty imposed by the IRS. Each stockholder
should complete and sign the Substitute Form W-9 included as part of the Letter
of Transmittal so as to provide the information and certification necessary to
avoid backup withholding.
If backup withholding applies to a stockholder, the Exchange Agent is
required to withhold 31% from payments to such stockholder. Backup withholding
is not an additional tax. Rather, the amount of the backup withholding can be
credited against the Federal income tax liability of the person subject to the
backup withholding, provided that the required information is given to the IRS.
If backup withholding results in an overpayment of tax, a refund can be obtained
by the stockholder upon filing an income tax return.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO HOLDERS
OF SHARES WHO ARE SUBJECT TO SPECIAL TAX TREATMENT UNDER THE CODE, SUCH AS
NON-U.S. PERSONS, LIFE INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS AND
FINANCIAL INSTITUTIONS, AND MAY NOT APPLY TO A HOLDER OF SHARES IN LIGHT OF ITS
INDIVIDUAL CIRCUMSTANCES.
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<PAGE> 22
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE MERGER.
Accounting Treatment of the Merger
The Merger will be accounted for under the "purchase" method of
accounting, whereby the purchase price for the Company will be allocated to the
identifiable assets and liabilities of the Company and its subsidiaries based on
their respective fair values.
REGULATORY MATTERS
There are no federal or state regulatory approvals necessary for the
consummation of the Merger.
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger
Agreement. This summary is not a complete description of the terms and
conditions of the Merger Agreement and is qualified in its entirety by reference
to the full text thereof, which is attached hereto as Annex A. Capitalized terms
used and not otherwise defined herein shall have the meanings assigned to them
in the Merger Agreement.
Conversion of the Common Stock. At the Effective Time, each outstanding
share of Common Stock (other than shares owned by the Company, Holdings or any
subsidiary of Holdings or by stockholders who have validly perfected their
appraisal rights under Delaware law) automatically will be converted into the
right to receive the Merger Consideration. A Letter of Transmittal will be sent
by an Exchange Agent to be appointed by Holdings to all stockholders of the
Company under separate cover promptly following the Effective Time. The Letter
of Transmittal must be completed and returned as directed therein along with
certificates representing the shares of Common Stock covered thereby. Checks for
the Merger Consideration will be sent to stockholders as soon as practicable
after receipt of Letters of Transmittal and stock certificates. Detailed
instructions concerning the procedure for receipt of the Merger Consideration
will be set forth in the Letter of Transmittal. See "PROCEDURE FOR RECEIPT OF
MERGER CONSIDERATION."
Conditions to Each Party's Obligation to Effect the Merger. The Merger
Agreement provides that the respective obligations of each party to effect the
Merger are subject to the satisfaction or waiver on or prior to the Merger
becoming effective (the "Effective Time") of the following conditions: (i) no
provision of any applicable law or regulation and no judgment, injunction, order
or decree shall prohibit the consummation of the Merger or impose material
limitations on the ability of Holdings to exercise full rights of ownership of
the Company's assets or business; (ii) all actions by or in respect of or
filings with any governmental body,
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<PAGE> 23
agency, official or authority required to permit the consummation of the Merger
shall have been obtained; and (iii) the performance by the parties in all
material respects of their respective obligations under the Merger Agreement
prior to the Effective Time and the truth in all material respects of the
parties' representations and warranties at the Effective Time.
In addition, the obligations of Holdings and Merger Sub to effect the
Merger are subject to the satisfaction or waiver of the further following
conditions: (i) no action or proceeding shall have been instituted by any
government or governmental authority or agency, domestic or foreign, or by any
other person, domestic or foreign, before any court or governmental authority or
agency, domestic or foreign, (a) challenging or seeking to make illegal, to
delay materially or otherwise directly or indirectly to restrain or prohibit the
consummation of the Merger, seeking to obtain material damages or otherwise
directly or indirectly relating to the transactions contemplated by the Merger,
(b) seeking to restrain or prohibit Holdings' ownership or operation (or that of
its affiliates) of all or any material portion of the business or assets of the
Company and its subsidiaries, taken as a whole, or of Holdings and its
affiliates, taken as a whole, or to compel Holdings or any of its affiliates to
dispose of or hold separate all or any material portion of the business or
assets of the Company and its subsidiaries, taken as a whole, or of Holdings and
its affiliates, taken as a whole, or (c) that otherwise is likely to materially
adversely affect the Company and its subsidiaries, taken as a whole, or Holdings
and its affiliates, taken as a whole; (ii) no action shall have been taken, or
any statute, rule, regulation, injunction, order or decree proposed, enacted,
enforced, promulgated, issued or deemed applicable to the Merger, by any court,
government or governmental authority or agency, domestic or foreign, that is
likely, directly or indirectly, to result in any of the consequences referred to
in clauses (a) through (c) of paragraph (i) above; (iii) the Company shall have
received all consents required for the Merger in form and substance reasonably
satisfactory to Holdings; (iv) Holdings shall have received the resignation of
the officers and directors of the Company; (v) at any time after the date of the
Merger Agreement, there shall not have occurred any event or series of events
having a material adverse effect on the condition (financial or otherwise),
business, assets or results of operations of the Company and its subsidiaries
taken as a whole; and (vi) holders of more than 15% of the outstanding Shares
shall not have delivered to the Company, within 20 days after the date on which
this Information Statement is mailed to the stockholders of the Company, written
notice of their intent to seek, or demand for, appraisal of their shares under
Section 262 of the DGCL.
Termination of the Merger Agreement. The Merger Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, notwithstanding approval thereof by the stockholders of the Company, (i)
by mutual written consent of the Company and Holdings; (ii) by either the
Company or Holdings, if (a) the other party commits a material breach of the
Merger Agreement which is not cured within 10 days after notice thereof is given
to the breaching party or (b) the Merger has not been consummated by May 15,
1998 (the "Termination Date"); provided that the right to terminate this
Agreement pursuant to this clause (ii) is not available to any party whose
breach of any provision of the Merger Agreement results in the failure of the
Merger to be consummated by the Termination Date; or (iii) by either the Company
or Holdings, if there shall be any law or regulation that makes consummation of
the Merger illegal or otherwise prohibited or if any judgment, injunction, order
or decree enjoining
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<PAGE> 24
Holdings or the Company from consummating the Merger is entered and such
judgment, injunction, order or decree shall become final and nonappealable.
Payment of the Break-Up Fee. If the Merger Agreement is terminated by
the Company due to the material breach thereof by Holdings, Holdings is required
promptly to pay to the Company as liquidated damages a fee in cash in an amount
equal to $500,000, plus all out-of-pocket expenses incurred in connection with
the negotiation of the Merger by the Company, including, without limitation,
reasonable fees and expenses of legal counsel, accountants and other
professionals in connection with the negotiation and execution of the Agreement
in Principle, the Merger Agreement and all of the transactions contemplated
therein. The Deposit of $500,000 held by the Escrow Agent shall be paid to the
Company as a portion of such fee.
If the Merger Agreement is terminated by Holdings due to the material
breach thereof by the Company, the Company is required promptly to pay to
Holdings as liquidated damages a fee in cash in an amount equal to $500,000,
plus all out-of-pocket expenses incurred in connection with the negotiation of
the Merger by Holdings, including, without limitation, reasonable fees and
expenses of legal counsel, accountants and other professionals in connection
with the negotiation and execution of the Agreement in Principle, the Merger
Agreement and all of the transactions contemplated therein.
Fees and Expenses. The Merger Agreement provides that all costs and
expenses in connection with the Merger Agreement and the transaction
contemplated by the Merger Agreement shall be paid by the party incurring such
cost or expense, whether or not the Merger is consummated, except as provided
above under "Payment of the Break-Up Fee." None of the Company or any of the
stockholders who consented to the Merger is paying a fee to an investment
banker, broker or other entity in connection with the Merger.
Conduct of Business by the Company. The Merger Agreement provides that
the Company and its subsidiaries will conduct their business in the ordinary
course consistent with past practice and use their best efforts to preserve
intact their business organizations and relationships with third parties and to
keep available the services of their officers and employees. The Merger
Agreement further provides that, without limiting the generality of the
foregoing, during the period from the date of the Merger Agreement to the
Effective Time of the Merger, (i) the Company will not adopt or propose, or
permit any subsidiary to adopt or propose, any change in its certificate of
incorporation, bylaws or other constituent documents; (ii) the Company will not,
and will not permit any subsidiary to, merge or consolidate with any other
person or acquire a material amount of assets of any other person; (iii) the
Company will not, and will not permit any subsidiary to, sell, lease, license or
otherwise dispose of any material assets or property except (a) pursuant to
existing contracts or commitments and (b) in the ordinary course consistent with
past practice; (iv) the Company will not, and will not permit any subsidiary to,
agree or commit to do any of the foregoing; or (v) the Company will not, and
will not permit any subsidiary to (a) take or agree to commit to take any action
that would make any representation and warranty of the Company inaccurate in any
respect at, or as of any time prior to, the
-22-
<PAGE> 25
Effective Time or (b) omit or agree or commit to omit to take any action
necessary to prevent any such representation or warranty from being inaccurate
in any respect at any such time.
Board of Directors. The Merger Agreement provides that from and after
the Effective Time, until successors are duly elected or appointed and qualified
in accordance with applicable law, the directors of the Merger Sub at the
Effective Time shall be the directors of the Company as the Surviving
Corporation.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by Holdings to fund the Merger
Consideration, to pay fees and expenses related to the Merger and to assume or
repay the existing debt of the Company to Acceptance is estimated to be
approximately $11.2 million. Such funds will be furnished to Holdings by
affiliates of Pembroke, Blackacre and Millennium, as capital contributions from
their general funds.
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table provides information as of March 6, 1998, unless
otherwise indicated, with respect to beneficial ownership of the Company's
Common Stock by each person known by the Company to be the beneficial owner of
more than 5% of its outstanding Common Stock.
-23-
<PAGE> 26
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------------------------ -------------------- ----------------
<S> <C> <C>
PBD Holdings, L.P. 3,461,111(1) 50.2%
c/o Pembroke Companies, Inc.
Suite 1200
1325 Avenue of the Americas,
New York, New York 10019
Acceptance Insurance Company 2,280,500(2) 33.1%
Suite 600 North
222 South 15th Street
Omaha, NE 68102
Third Capital, LLC 680,000(3) 9.87%
314 Church Street, 9th Floor
Nashville, TN 37201
George F. Valassis 671,641(4) 9.7%
2000 North Woodward
Suite 200
Bloomfield Hills, MI 48304
Allied Domecq Pension Funds 445,370(5) 6.46%
Wyndham Court
Pritchard Street
Bristol, England BS2 8RH
</TABLE>
- --------------------
(1) Represents shares owned by Acceptance Insurance Company, George F.
Valassis and certain other stockholders of the Company which PBD
Holdings has a current right to vote, and a contingent right to
purchase under certain circumstances if the Merger Agreement between
the Company and PBD Holdings is terminated, under that certain
Stockholder Agreement dated as of March 4, 1998, with Acceptance
Insurance Company, George F. Valassis and certain other stockholders of
the Company.
(2) According to Amendment No. 25 to Schedule 13D filed March 9, 1998, by
Acceptance Insurance Companies Inc. ("Acceptance") and Acceptance
Insurance Company ("AIC"), a wholly-owned subsidiary of Acceptance,
amending a Schedule 13D previously filed by Samelson Real Estate
Partners, Inc. and Acceptance Insurance Holdings, Inc., AIC is shown as
beneficially owning 2,280,500 shares of the Common Stock.
(3) According to Schedule 13G filed December 11, 1997, by Third Capital,
LLC, PAG Corp. and PAG Partners, L.P.
(4) According to Amendment No. 2 to Schedule 13D filed April 12, 1990, by
George F. Valassis.
(5) According to the Schedule 13D filed November 5, 1993, by Tamanda II
Corporation ("Tamanda"), Denmark Street (Bristol) Pension Trust Limited
("Denmark Street") and Allied-Lyons Pension Funds, consisting of
Allied-Lyons Pension Fund and Allied-Lyons
-24-
<PAGE> 27
Executives Pension Fund (the "Pension Funds"). Tamanda, a wholly-owned
subsidiary of Denmark Street, is the record owner of all of the shares
of Common Stock. The Pension Funds, through their subsidiaries, own all
of the capital stock of Denmark Street and, accordingly, the Pension
Funds may be deemed to be the controlling persons of Tamanda and
Denmark Street. Each of Tamanda, Denmark Street and the Pension Funds
has shared power to vote or direct the vote of and to dispose or direct
the disposition of all of the shares of Common Stock. (The Allied-Lyons
funds are now known as the Allied Domecq funds.)
The following table provides information as of March 6, 1998, unless
otherwise indicated, with respect to the beneficial ownership of the Company's
Common Stock by (i) each Director of the Company individually, (ii) the
Company's sole executive officer, (iii) all Directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership(1) of Class
------------------- ----------------------- --------
<S> <C> <C>
Jay A. Bielfield(2)(3) 2,400 *
Little Caesar
International, Inc.
2211 Woodward Avenue
Detroit, MI 48201-3400
Kenneth C. Coon(4) 1,000 *
Acceptance Insurance
Companies Inc.
Suite 600 North
222 South 15th Street
Omaha, NE 68102
Michael R. McCarthy(3)(5) 5,500 *
McCarthy & Co.
1125 South 103rd Street
Suite 450
Omaha, NE 68124
David L. Treadwell(3)(6) 100,000 1.4
Prechter Holdings, Inc.
One Heritage Place
Suite 400
Southgate, MI 48195
All Directors and Officers 108,900 1.6
as a Group (4 Persons)
</TABLE>
- --------------------------------------------------------------------------------
* Less than one percent.
-25-
<PAGE> 28
(1) This column sets forth shares of common stock which are deemed to be
"beneficially owned" by the persons named in the table under Rule 13d-3
of the Securities and Exchange Commission. Each of the persons named in
the table have sole voting and investment power with respect to all
shares beneficially owned by them except as otherwise described in the
following footnotes.
(2) Includes 2,400 shares held in an individual retirement account.
(3) Does not include 2,280,500 shares held by Acceptance Insurance
Companies Inc. ("Acceptance"), representing approximately 33% of the
outstanding shares, beneficial ownership of which is disclaimed.
Although beneficial ownership of the shares owned by Acceptance is
disclaimed, as a director of Acceptance, he may be deemed to share
voting and investment power with respect to such shares of common stock
with Acceptance.
(4) Does not include 2,280,500 shares held by Acceptance Insurance Company
("Acceptance"), representing approximately 33% of the outstanding
shares. Mr. Coon is Chairman, President, Chief Executive Officer and a
Director of Acceptance. Although Mr. Coon disclaims beneficial
ownership of the shares owned by Acceptance, as Chairman, President,
Chief Executive Officer and a Director of Acceptance, he may be deemed
to share voting and investment power with respect to such shares of
common stock with Acceptance.
(5) McCarthy & Co. d/b/a LongView Capital Management, a registered
investment advisor, shares authority to vote and to sell 5,500 shares
of common stock, which securities are held in a discretionary
investment managed account at First National Bank of Omaha f/b/o James
P. Wands.
(6) Represents presently exercisable options to purchase 100,000 shares.
None of such shares are exercisable at a price of $1.25 or less.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Exchange
Act and, in accordance therewith, is required to file reports and other
information with the Commission relating to its business, financial condition
and other matters. Such reports and other information should be available for
inspection at the public reference facilities of the Commission located at 450
Fifth Street, N.W., Washington, DC 20549, and at the regional offices of the
Commission located in the Northwestern Atrium Center, 500 West Madison Street
(Suite 1400), Chicago, Illinois 60661, and Seven World Trade Center, 13th Floor,
New York, New York 10048. Such reports, proxy statements and other information
may also be obtained at the web site that the Commission maintains at
http://www.sec.gov. Copies should be obtainable, by mail, upon payment of the
Commission's customary charges, by writing to the Commission's principal office
at 450 Fifth Street, N.W., Washington, DC 20549.
OTHER INFORMATION ABOUT THE COMPANY;
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Information concerning the Company's business, properties, directors
and officers, their remuneration, stock options and other matters, the principal
holders of the Company's securities and any material interest of such persons in
transactions with the Company is disclosed in the
-26-
<PAGE> 29
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997, a
copy of which is attached hereto as Annex C, and which is incorporated herein by
reference.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Information
Statement and prior to the Effective Time shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Information Statement to the extent that a statement
contained herein or in any other reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Information
Statement. The Company will provide without charge to each person, including any
beneficial owner of such person, to whom a copy of this Information Statement
has been delivered, on written or oral request, a copy of any and all of the
documents referred to above that may be incorporated by reference herein other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference herein). Requests for such copies should be directed
to Major Realty Corporation, 5728 Major Blvd., Suite 306, Orlando, Florida
32819.
-27-
<PAGE> 30
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
MAJOR REALTY CORPORATION
(the "Company")
PBD HOLDINGS, L.P.
("BUYER")
and
PEMBROKE ACQUISITION, INC.
("MERGER SUBSIDIARY")
DATED AS OF MARCH 4, 1998
<PAGE> 31
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
ARTICLE 1 THE MERGER......................................................................................2
SECTION 1.01. The Merger................................................................................2
SECTION 1.02. Conversion of Shares At the Effective Time................................................2
SECTION 1.03. Surrender and Payment.....................................................................2
SECTION 1.04. Dissenting Shares.........................................................................4
SECTION 1.05. Stock Options.............................................................................4
SECTION 1.06. Lost Certificates.........................................................................5
SECTION 1.07. Adjustments...............................................................................5
SECTION 1.08. FIRPTA....................................................................................5
ARTICLE 2 THE SURVIVING CORPORATION.......................................................................5
SECTION 2.01. Certificate of Incorporation..............................................................5
SECTION 2.02. Bylaws....................................................................................5
SECTION 2.03. Directors and Officers....................................................................6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................6
SECTION 3.01. Corporate Existence and Power.............................................................6
SECTION 3.02. Corporate Authorization...................................................................6
SECTION 3.03. Governmental Authorization................................................................6
SECTION 3.04. Non-contravention.........................................................................7
SECTION 3.05. Capitalization............................................................................7
SECTION 3.06. Subsidiaries..............................................................................7
SECTION 3.07. SEC Filings...............................................................................8
SECTION 3.08. Financial Statements......................................................................8
SECTION 3.09. Disclosure Documents......................................................................9
SECTION 3.10. Absence of Certain Changes................................................................9
SECTION 3.11. No Undisclosed Material Liabilities......................................................10
SECTION 3.12. Litigation...............................................................................11
SECTION 3.13. Taxes....................................................................................11
SECTION 3.14. ERISA....................................................................................11
SECTION 3.15. Compliance with Laws.....................................................................14
SECTION 3.16. Finders' Fees............................................................................15
SECTION 3.17. Other Information........................................................................15
SECTION 3.18. Environmental Matters....................................................................15
SECTION 3.19. Vote Required............................................................................16
SECTION 3.20. Anti-Takeover Plan; State Takeover Statutes..............................................16
SECTION 3.21. Material Contracts.......................................................................16
SECTION 3.22. Properties...............................................................................17
SECTION 3.23. Licenses and Permits.....................................................................18
SECTION 3.24. Receivables..............................................................................18
SECTION 3.25. Labor Matters............................................................................18
SECTION 3.26. Required and Other Consents..............................................................19
SECTION 3.27. Intellectual Property....................................................................19
SECTION 3.28. Insurance................................................................................19
SECTION 3.29. Related Party Transactions...............................................................19
</TABLE>
<PAGE> 32
<TABLE>
<S> <C>
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER........................................................20
SECTION 4.01. Existence and Power......................................................................20
SECTION 4.02. Authorization............................................................................20
SECTION 4.03. Governmental Authorization...............................................................20
SECTION 4.04. Non-contravention........................................................................20
SECTION 4.05. Disclosure Documents.....................................................................21
SECTION 4.06. Finders' Fees............................................................................21
ARTICLE 5 COVENANTS OF THE COMPANY.......................................................................21
SECTION 5.01. Conduct of the Company...................................................................21
SECTION 5.02. Company Information Statement............................................................23
SECTION 5.03. Access to Information....................................................................24
SECTION 5.04. Other Offers.............................................................................24
SECTION 5.05. Notices of Certain Events................................................................24
SECTION 5.06. State Takeover Laws......................................................................25
SECTION 5.07. Resignations.............................................................................25
ARTICLE 6 COVENANTS OF BUYER.............................................................................25
SECTION 6.01. Confidentiality..........................................................................25
SECTION 6.02. Obligations of Merger Subsidiary.........................................................26
ARTICLE 7 COVENANTS OF BUYER AND THE COMPANY.............................................................26
SECTION 7.01. Best Efforts.............................................................................26
SECTION 7.02. Certain Filings..........................................................................26
SECTION 7.03. Public Announcements.....................................................................26
SECTION 7.04. Further Assurances.......................................................................26
ARTICLE 8 CONDITIONS TO THE MERGER.......................................................................27
SECTION 8.01. Conditions to the Obligations of Each Party..............................................27
SECTION 8.02. Conditions to the Obligations of Buyer and Merger Subsidiary.............................27
SECTION 8.03. Conditions to the Obligations of the Company.............................................28
ARTICLE 9 TERMINATION....................................................................................29
SECTION 9.01. Termination..............................................................................29
SECTION 9.02. Effect of Termination....................................................................29
SECTION 9.03. Payment of Breakup Fees and Expenses Upon Termination....................................30
ARTICLE 10 MISCELLANEOUS.................................................................................30
SECTION 10.01. Notices.................................................................................30
SECTION 10.02. Nonsurvival of Representations and Warranties...........................................31
SECTION 10.03. Amendments; No Waivers..................................................................31
SECTION 10.04. Expenses................................................................................31
SECTION 10.05. Successors and Assigns..................................................................31
SECTION 10.06. Governing Law...........................................................................32
SECTION 10.07. WAIVER OF JURY TRIAL....................................................................32
SECTION 10.08. Counterparts; Effectiveness; Third Party Beneficiaries..................................32
SECTION 10.09. Severability............................................................................32
SECTION 10.10. Specific Performance....................................................................32
SECTION 10.11. Entire Agreement........................................................................32
</TABLE>
-ii-
<PAGE> 33
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of March 4, 1998, among Major
Realty Corporation, a Delaware corporation (the "Company"), PBD Holdings, L.P.,
a Delaware limited partnership ("BUYER"), and Pembroke Acquisition, Inc., a
Delaware corporation and a wholly owned subsidiary of Buyer ("MERGER
SUBSIDIARY").
WHEREAS, the Board of Directors of each of Buyer, the Company and
Merger Subsidiary have determined that it is advisable and in the best interests
of their respective stockholders to engage in the transactions contemplated
hereby; and
WHEREAS, the Board of Directors of the Company has unanimously approved
the merger (the "MERGER") of the Merger Subsidiary with and into the Company in
accordance with the terms of this Agreement and the General Corporation Law of
the State of Delaware (the "DELAWARE LAW") and other applicable law; and
WHEREAS, this Agreement and the Merger shall be approved by the
stockholders of the Company for purposes of Delaware Law at such time as the
Company is in receipt of written consents approving this Agreement and the
Merger executed by the holders of that number of shares of common stock, par
value $.01 per share, of the Company (each, a "SHARE") representing the right to
cast a majority of the votes entitled to be cast at a meeting to consider the
Agreement and the Merger; and
WHEREAS, holders of a majority of the issued and outstanding Shares are
delivering to the Company concurrently with the execution of this Agreement
written consents approving this Agreement and the Merger as permitted by the
certificate of incorporation and bylaws of the Company and Delaware Law; and
WHEREAS, such consent constitutes the only action necessary by
stockholders of the Company required in order to authorize this Agreement and
the Merger under the Company's certificate of incorporation and bylaws and
Delaware Law;
WHEREAS, as a condition to the willingness of Buyer and Merger
Subsidiary to enter into this Agreement, the holders of 3,461,111 Shares have
entered into Stockholders Agreements, each dated as of the date hereof (the
"Stockholders Agreements") with the Buyer.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
<PAGE> 34
ARTICLE 1
THE MERGER
SECTION 1.01. THE MERGER.
(a) At the Effective Time (as defined below), Merger Subsidiary shall
be merged with and into the Company in accordance with Delaware Law, whereupon
the separate existence of Merger Subsidiary shall cease, and the Company shall
be the surviving corporation (the "SURVIVING CORPORATION").
(b) As soon as practicable after the later of (i) satisfaction or
waiver of all conditions to the Merger and (ii) the 20th calendar day after the
Company Information Statement (as defined below) is first sent or given to the
stockholders of the Company, the Company and Merger Subsidiary will file a
certificate of merger with the Secretary of State of the State of Delaware and
make all other filings or recordings required by Delaware Law in connection with
the Merger. The Merger shall become effective at such time as the certificate of
merger is duly filed with the Secretary of State of the State of Delaware or at
such later time as is specified in the certificate of merger (the "EFFECTIVE
TIME").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of the Company and Merger
Subsidiary, all as provided under Delaware Law.
SECTION 1.02. CONVERSION OF SHARES AT THE EFFECTIVE TIME.
(a) Each Share held by the Company as treasury stock or owned by Buyer
or any subsidiary of Buyer immediately prior to the Effective Time shall be
canceled and cease to exist, and no payment shall be made with respect thereto;
(b) Each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock of the Surviving Corporation with the same rights, powers
and privileges as the shares so converted and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation; and
(c) Each Share outstanding immediately prior to the Effective Time
shall, except as otherwise provided in Section 1.02(a) or as provided in Section
1.04 with respect to Shares as to which appraisal rights have been exercised, by
virtue of the Merger and without any action on the part of the holder thereof be
converted into, exchanged for and represent the right to receive an amount equal
to $1.25 in cash, without interest (the "MERGER CONSIDERATION").
SECTION 1.03. SURRENDER AND PAYMENT.
(a) Prior to the Effective Time, Buyer shall appoint an agent (the
"EXCHANGE AGENT") for the purpose of exchanging certificates representing Shares
for the Merger Consideration. Buyer will make available to the Exchange Agent,
in such amounts as may be needed from time to time, the Merger Consideration to
be paid in respect of the Shares. Such funds
-2-
<PAGE> 35
shall be invested by the Exchange Agent as directed by the Buyer, provided that
such investments shall be in obligations of or guaranteed by the United States
of America or any agency thereof and backed by the full faith and credit of the
United States of America, or in deposit accounts, certificates of deposit or
banker's acceptances of, repurchase or reverse repurchase agreement with, or
Eurodollar time deposits purchased from, commercial banks with capital, surplus
and undivided profits aggregating in excess of $150 million (based on the most
recent financial statements of such bank which are then publicly available).
Promptly after the Effective Time, Buyer will send, or will cause the Exchange
Agent to send, to each holder of Shares (other than the holders of Shares to be
canceled as set forth in Section 1.02(a) or Dissenting Shares (as defined in
Section 1.04)) at the Effective Time a letter of transmittal for use in such
exchange (which shall specify that the delivery shall be effected, and risk of
loss and title shall pass, only upon proper delivery of the certificates
representing Shares to the Exchange Agent).
(b) Each holder of Shares that have been converted into a right to
receive the Merger Consideration, upon surrender to the Exchange Agent of a
certificate or certificates representing such Shares, together with a properly
completed and duly executed letter of transmittal covering such Shares, will be
entitled to receive the Merger Consideration payable in respect of such Shares.
From and after the Effective Time, all shares which have been so converted shall
no longer be outstanding and shall automatically be canceled and retired and
each such certificate shall, after the Effective Time, represent for all
purposes, only the right to receive such Merger Consideration. From and after
the Effective Time, the holders of Shares outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such Shares except
as otherwise provided in this Agreement or by applicable law. All cash paid upon
the surrender of certificates in accordance with the terms of this Section 1.03
shall be deemed to have been paid in full satisfaction of all rights pertaining
to the Shares previously represented by such certificates. No interest shall
accrue or be paid on the Merger Consideration payable upon the surrender of any
certificate.
(c) If any portion of the Merger Consideration is to be paid to a
Person (as defined below) other than the registered holder of the Shares
represented by the certificate or certificates surrendered in exchange therefor,
it shall be a condition to such payment that the certificate or certificates so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the Person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required as a result of such payment to a
Person other than the registered holder of such Shares or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable. For purposes of this Agreement, "PERSON" means an individual, a
corporation, a limited liability company, a partnership, an association, a trust
or any other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
(d) After the Effective Time, the stock transfer books of the Company
shall be closed and there shall be no further registration of transfers of
Shares. If, after the Effective Time, certificates representing Shares are
presented to the Surviving Corporation, they shall be canceled and exchanged for
the consideration provided for, and in accordance with the procedures set forth,
in this Article 1.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 1.03(a) that remains unclaimed by the holders
of Shares nine months after the
-3-
<PAGE> 36
Effective Time shall be returned to Buyer, upon demand, and any such holder who
has not exchanged his Shares for the Merger Consideration in accordance with
this Section prior to that time shall thereafter look only to Buyer for payment
of the Merger Consideration in respect of his Shares. Notwithstanding the
foregoing, Buyer shall not be liable to any holder of Shares for any amount paid
to a public official pursuant to applicable abandoned property, escheat or other
similar laws. Any amounts remaining unclaimed by holders of Shares two years
after the Effective Time (or such earlier date immediately prior to such time as
such amounts would otherwise escheat to or become property of any governmental
entity) shall, to the extent permitted by applicable law, become the property of
Buyer free and clear of any claims or interest of any Person previously entitled
thereto.
(f) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 1.03(a) to pay for Shares for which appraisal
rights have been perfected shall be returned to Buyer, upon demand.
SECTION 1.04. DISSENTING SHARES.
Notwithstanding Section 1.02, Shares outstanding immediately prior to
the Effective Time and held by a holder who has not voted in favor of the Merger
or consented thereto in writing and who has demanded appraisal for such Shares
in accordance with Delaware Law shall not be converted into a right to receive
the Merger Consideration but instead shall be converted into the right to
receive payment from the Surviving Corporation with respect to such shares
("Dissenting Shares") in accordance with Delaware law, unless such holder fails
to perfect or withdraws or otherwise loses his right to appraisal. If after the
Effective Time such holder fails to perfect or withdraws or loses his right to
appraisal, such Shares shall be treated as if they had been converted as of the
Effective Time into a right to receive the Merger Consideration. The Company
shall give Buyer prompt written notice of any demands received by the Company
for appraisal of Shares, and Buyer shall have the right to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Buyer, make any payment with
respect to, or settle or offer to settle, any such demands.
SECTION 1.05. STOCK OPTIONS.
(a) At or immediately prior to the Effective Time, each outstanding
employee stock option to purchase Shares granted under any employee stock option
or compensation plan or arrangement of the Company shall be canceled, and each
holder of any such option, whether or not then vested or exercisable, shall be
paid by the Company promptly after the Effective Time for each such option an
amount determined by multiplying (i) the excess, if any, of the Merger
Consideration over the applicable exercise price of such option by (ii) the
number of Shares such holder could have purchased (assuming full vesting of all
options) had such holder exercised such option in full immediately prior to the
Effective Time, less any taxes required to be withheld by the Company with
respect thereto.
(b) Prior to the Effective Time, the Company shall (i) obtain any
consents from holders of options to purchase Shares granted under the Company's
stock option or compensation plans or arrangements and (ii) make any amendments
to the terms of such stock option or compensation
-4-
<PAGE> 37
plans or arrangements that, in the case of either clauses 1.05(b)(i) or
1.05(b)(ii), are necessary to give effect to the transactions contemplated by
Section 1.05(a). Notwithstanding any other provision of this Section, payment
may be withheld in respect of any employee stock option until necessary consents
are obtained. From and after the date hereof no additional options or warrants
shall be granted under any Company stock option plans.
SECTION 1.06. LOST CERTIFICATES. If any certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
holder claiming such certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such holder of a bond, in
such reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made against it with respect to such certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
certificate the Merger Consideration to be paid in respect of the Shares
represented by such certificate as contemplated by this Article.
SECTION 1.07. ADJUSTMENTS. If at any time during the period between the
date of this Agreement and the Effective Time, any change in the outstanding
Shares shall occur, including by reason of any reclassification,
recapitalization, stock dividend, stock split or combination, exchange or
readjustment of Shares, or any stock dividend thereon with the record date
during such period, the price per share to be paid to holders of Shares in the
Merger shall be appropriately adjusted.
SECTION 1.08. FIRPTA. The Buyer, the Merger Subsidiary and the Exchange
Agent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Shares such amounts as the
Buyer, the Merger Subsidiary or the Exchange Agent is required to deduct and
withhold with respect to the making of such payment under the United States
Internal Revenue Code of 1986, as amended, and the rules and regulations
thereunder (the "Code"), or any provision of United States state or local or
foreign tax law. To the extent that amounts are so deducted or withheld, such
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the Shares in respect of which such deduction and withholding
was made.
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.01. CERTIFICATE OF INCORPORATION. The certificate of
incorporation of Merger Subsidiary in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law, except that the name of the Surviving
Corporation shall be changed to "Major Realty Corporation".
SECTION 2.02. BYLAWS. The bylaws of Merger Subsidiary in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 2.03. DIRECTORS AND OFFICERS. From and after the Effective
Time, until successors are duly elected or appointed and qualified in accordance
with applicable law, (a) the directors of Merger Subsidiary at the Effective
Time shall be the directors of the Surviving Corporation, and (b) the officers
of the Company at the Effective Time shall be the officers of the Surviving
Corporation.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the letter of the Company dated the date hereof
and delivered to Buyer in connection with this Agreement (the "Disclosure
Letter") and making reference to the particular section of this Agreement to
which exception is being taken, the Company represents and warrants to Buyer
that:
SECTION 3.01. CORPORATE EXISTENCE AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
material adverse effect on the condition (financial or otherwise), business,
assets or results of operations of the Company and the Subsidiaries (as defined
below) taken as a whole (a "MATERIAL ADVERSE EFFECT"). The Company has
heretofore delivered to Buyer true and complete copies of the Company's
certificate of incorporation and bylaws as currently in effect.
SECTION 3.02. CORPORATE AUTHORIZATION. (a) The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby are within the Company's corporate
powers and have been duly authorized by all necessary corporate action. This
Agreement has been duly and validly executed and delivered by the Company, and
assuming the due authorization, execution and delivery by Buyer and Merger
Subsidiary, constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as may be
limited by bankruptcy, reorganization, fraudulent conveyance, insolvency and
similar laws of general application relating to or affecting the enforcement of
creditors' rights and subject to general principles of equity.
(b) The Company's Board of Directors has approved the Merger and this
Agreement, and such approval is sufficient to render inapplicable to the Merger
and this Agreement and the transactions contemplated by this Agreement the
provisions of Section 203 of the Delaware General Corporation Law. To the
knowledge of the Company, no other state takeover statute or similar statute or
regulation applies or purports to apply to the Merger, this Agreement or any of
the transactions contemplated by this Agreement.
SECTION 3.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and the consummation of the Merger
by the Company require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than (a) the filing of a
certificate of merger in accordance with Delaware Law; (b) compliance with any
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR ACT"); and (c) compliance with any applicable requirements of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (the "EXCHANGE ACT").
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SECTION 3.04. NON-CONTRAVENTION. Except as set forth in Section 3.04 of
the Disclosure Letter, the execution, delivery and performance by the Company of
this Agreement and the consummation by the Company of the transactions
contemplated hereby do not and will not (a) contravene or conflict with the
certificate of incorporation or bylaws of the Company, (b) assuming compliance
with the matters referred to in Section 3.03, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Company or any
Subsidiary, (c) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of the
Company or any Subsidiary or to a loss of any benefit to which the Company or
any Subsidiary is entitled under any provision of any agreement, contract or
other instrument binding upon the Company or any Subsidiary or any license,
franchise, permit or other similar authorization held by the Company or any
Subsidiary, or (d) result in the creation or imposition of any Lien on any asset
of the Company or any Subsidiary. For purposes of this Agreement, "LIEN" means,
with respect to any asset, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset.
SECTION 3.05. CAPITALIZATION. The authorized capital stock of the
Company consists of 12,000,000 Shares, and 1,500,000 shares of preferred stock,
par value $1.00 per share. As of January 31, 1998, there were outstanding
6,893,378 Shares, no shares of preferred stock and employee stock options to
purchase an aggregate of 100,000 Shares. As of January 31, 1998, Acceptance
Insurance Companies held a promissory note of the Company. The note is
convertible into Common Stock at a conversion price of $1.00 per share. The
amount due under such note at February 20, 1998 was $2,541,409.76 ($2,513,511.14
principal amount, $27,898.62 accrued interest). All outstanding shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. Except as set forth in this Section, there are
outstanding (a) no shares of capital stock or other voting securities of the
Company, (b) no securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company, and (c) no options
or other rights to acquire from the Company, and no obligation of the Company to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company (the items in
clauses 3.05(a), 3.05(b) and 3.05(c) being referred to collectively as the
"COMPANY SECURITIES"). There are no outstanding obligations of the Company or
any Subsidiary to repurchase, redeem or otherwise acquire any Company
Securities.
SECTION 3.06. SUBSIDIARIES.
(a) Each Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where failure to be so qualified would
not, individually or in the aggregate, have a Material Adverse Effect. For
purposes of this Agreement, "SUBSIDIARY" means any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are directly or indirectly owned
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<PAGE> 40
by the Company. All Subsidiaries and their respective jurisdictions of
incorporation are identified in the Company's annual report on Form 10-KSB for
the fiscal year ended December 31, 1996 (the "COMPANY 10-K").
(b) All of the outstanding capital stock of, or other ownership
interests in, each Subsidiary, is owned by the Company, directly or indirectly,
free and clear of any Lien and free of any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests). There are no outstanding (i)
securities of the Company or any Subsidiary convertible into or exchangeable for
shares of capital stock or other voting securities or ownership interests in any
Subsidiary, and (ii) options or other rights to acquire from the Company or any
Subsidiary, and no other obligation of the Company or any Subsidiary to issue,
any capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, any Subsidiary (the items in clauses
3.06(b)(i) and 3.06(b)(ii) being referred to collectively as the "SUBSIDIARY
SECURITIES"). There are no outstanding obligations of the Company or any
Subsidiary to repurchase, redeem or otherwise acquire any outstanding Subsidiary
Securities.
SECTION 3.07. SEC FILINGS.
(a) The Company has delivered to Buyer (i) the annual reports on Form
10-KSB for its fiscal years ended December 31, 1996, 1995 and 1994, (ii) the
quarterly report of the Company on Form 10-QSB for the fiscal quarters ended
September 30, June 30 and March 31, 1997 (such annual reports and quarterly
reports are referred to hereinafter as the "Company SEC Filings"), and (iii) its
proxy or information statements relating to meetings of, or actions taken
without a meeting by, the stockholders of the Company since December 31, 1996.
(b) As of its filing date, each such report or statement filed pursuant
to the Exchange Act was prepared in accordance with the applicable requirements
of the Exchange Act and the rules and regulations thereunder and did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
SECTION 3.08. FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in its annual reports on Form 10-KSB and the quarterly report
on Form 10-QSB referred to in Section 3.07 fairly present, in conformity with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated in the notes thereto), the consolidated financial position
of the Company and its consolidated Subsidiaries as of the dates thereof and
their consolidated results of operations and changes in financial position for
the periods then ended (subject to normal year-end adjustments in the case of
any unaudited interim financial statements). For purposes of this Agreement,
"BALANCE SHEET" means the consolidated balance sheet of the Company as of
September 30, 1997, as set forth in the quarterly report of the Company on Form
10-QSB for the quarter ended September 30, 1997 and "BALANCE SHEET DATE" means
September 30, 1997.
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SECTION 3.09. DISCLOSURE DOCUMENTS.
(a) Each document required to be filed by the Company with the SEC in
connection with the transactions contemplated by this Agreement (the "COMPANY
DISCLOSURE DOCUMENTS"), including, without limitation, the information statement
of the Company (the "COMPANY INFORMATION STATEMENT") to be filed with the SEC in
connection with the Merger, and any amendments or supplements thereto will, when
filed, comply as to form in all material respects with the applicable
requirements of the Exchange Act.
(b) At the time the Company Information Statement or any amendment or
supplement thereto is first mailed to stockholders of the Company, and at the
Effective Time, the Company Information Statement, as supplemented or amended,
if applicable, will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. At the time of the filing of any Company Disclosure Document other
than the Company Information Statement and at the time of any distribution
thereof, such Company Disclosure Document will not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. The representations and warranties contained in this
Section 3.09(b) will not apply to statements or omissions included in the
Company Disclosure Documents based upon information furnished to the Company in
writing by Buyer specifically for use therein.
SECTION 3.10. ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date,
the Company and Subsidiaries have conducted their business in the ordinary
course consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably could be expected to have a Material Adverse
Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
issuance, grant, sale, repurchase, redemption or other acquisition by the
Company or any Subsidiary of any outstanding shares of capital stock or other
securities of, or other ownership interests (including options, rights or
warrants) in, the Company or any Subsidiary;
(c) any amendment of any material term of any outstanding security of
the Company or any Subsidiary or any subdivision, reclassification,
recapitalization, split, combination or exchange of any shares of capital stock
of the Company (other than in connection with outstanding options);
(d) any incurrence, assumption or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money;
(e) any creation or assumption by the Company or any Subsidiary of any
Lien on any material asset other than in the ordinary course of business
consistent with past practices;
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(f) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital contributions to
or investments in wholly-owned Subsidiaries made in the ordinary course of
business consistent with past practices;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company or any
Subsidiary which, individually or in the aggregate, has had or would reasonably
be expected to have a Material Adverse Effect;
(h) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any Subsidiary relating to its assets or
business (including the acquisition or disposition of any assets) or any
relinquishment by the Company or any Subsidiary of any contract or other right,
in either case, material to the Company and the Subsidiaries taken as a whole,
other than transactions and commitments in the ordinary course of business
consistent with past practice (including the contracts for the sale of real
property by the Company set forth in Section 3.21 of the Disclosure Letter) and
those contemplated by this Agreement;
(i) any change in any method of accounting or accounting practice by
the Company or any Subsidiary, except for any such change required by reason of
a concurrent change in generally accepted accounting principles;
(j) any tax election, other than those consistent with past practice,
not required by law or any settlement or compromise of any tax liability in
either case that is material to the Company and the Subsidiaries;
(k) any (i) grant of any severance or termination pay to any director,
officer or employee of the Company or any Subsidiary, (ii) entering into of any
employment, severance or termination, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of the Company or any Subsidiary, (iii) increase in benefits
payable under any existing severance or termination pay policies or employment
agreements or (iv) increase in compensation, bonus or other benefits payable to
directors, officers or employees of the Company or any Subsidiary, other than in
the ordinary course of business consistent with past practice; or
(l) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of the Company or any Subsidiary, which employees were not subject
to a collective bargaining agreement at the Balance Sheet Date, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with respect to such
employees.
SECTION 3.11. NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities or obligations of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability or obligation,
other than:
(a) liabilities or obligations disclosed or provided for in the Balance
Sheet;
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(b) liabilities or obligations incurred in the ordinary course of
business consistent with past practice since the Balance Sheet Date, which in
the aggregate are not material to the Company and the Subsidiaries, taken as a
whole; and
(c) liabilities or obligations under this Agreement.
SECTION 3.12. LITIGATION. Except as set forth in the Disclosure Letter
or Company SEC Filings, there is no action, suit, investigation or proceeding
(or any basis therefor) pending against, or to the knowledge of the Company,
threatened against or affecting, the Company or any Subsidiary or any of their
respective properties before any court or arbitrator or any governmental body,
agency or official (i) as of the date hereof and (ii) which, if determined or
resolved adversely to the Company or any Subsidiary in accordance with the
plaintiff's demands, would reasonably be expected to have a Material Adverse
Effect or which in any manner challenges or seeks to prevent, enjoin, alter or
delay the Merger or any of the other transactions contemplated hereby.
SECTION 3.13. TAXES. Except as set forth in the Balance Sheet
(including the notes thereto) and except as would not, individually or in the
aggregate, have a Material Adverse Effect, (i) all tax returns, statements,
reports and forms (collectively, the "COMPANY RETURNS") required to be filed
with any taxing authority by, or with respect to, the Company and its
Subsidiaries have been filed in accordance with all applicable laws, (ii) the
Company and its Subsidiaries have timely paid all taxes shown as due and payable
on such Company Returns that have been so filed, and, as of the time of filing,
the Company Returns correctly reflected the facts regarding the income,
business, assets, operations, activities and the status of the Company and its
Subsidiaries, (iii) the Company and its Subsidiaries have made adequate
provision on their books for all taxes payable by the Company and its
Subsidiaries for which no Company Return has yet been filed, (iv) the charges,
accruals and reserves for taxes with respect to the Company and its Subsidiaries
reflected on the Balance Sheet (excluding any provision for deferred income
taxes) are adequate under United States generally accepted accounting principles
("GAAP") to cover the tax liabilities accruing through the date thereof, (v)
there is no action, suit, proceeding, audit, or claim with respect to tax
matters now proposed or pending against or with respect to the Company or any of
its Subsidiaries, (vi) there are no outstanding waivers or other agreements
extending any statutory periods of limitation for the assessment of taxes of the
Company and its Subsidiaries, (vii) neither the Company nor any of its
Subsidiaries has been a member of an affiliated, consolidated, combined or
unitary group.
SECTION 3.14. ERISA.
(a) Definitions. For purposes hereof the following terms have the
following meanings:
"BENEFIT ARRANGEMENT" means any employment, severance or
similar contract or arrangement (whether or not written) providing for
compensation, bonus, profit-sharing, stock option, or other stock
related rights or other forms of incentive or deferred compensation,
vacation benefits, insurance coverage (including any self-insured
arrangements), health or medical benefits, disability benefits,
worker's compensation, supplemental unemployment
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benefits, workers' compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance or
other benefits) that (i) is not an Employee Plan (as defined below),
(ii) is entered into, maintained, administered, contributed to or
required to be contributed to, as the case may be, by the Company or
any of its ERISA Affiliates (as defined below) and (iii) covers any
employee or former employee of the Company or any Subsidiary.
"EMPLOYEE PLAN" means any "employee benefit plan", as defined
in Section 3(3) of ERISA, that (i) is subject to any provision of
ERISA, (ii) is maintained, administered, contributed to or required to
be contributed to by the Company or any of its ERISA Affiliates and
(iii) covers any employee or former employee of the Company or any
Subsidiary.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA AFFILIATE" of any entity means any other entity which,
together with such entity, would be treated as a single employer under
Section 414 of the Code.
"MULTIEMPLOYER PLAN" means each Employee Plan that is a
multiemployer plan, as defined in Section 3(37) of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation.
"TITLE IV PLAN" means an Employee Plan subject to Title IV of
ERISA other than any Multiemployer Plan.
(b) The Company has provided, or will provide prior to the Effective
Time, Buyer with a list and copies of the Employee Plans (and, if applicable,
related trust agreements) and all amendments thereto and written interpretations
thereof together with the most recent annual report (Form 5500 including all
required Schedules thereto) and the most recent actuarial valuation report
prepared in connection with any Employee Plan. Such list identifies each
Employee Plan which is (i) a Multiemployer plan, (ii) a Title IV Plan or (iii)
maintained in connection with any trust described in Section 501(c)(9) of the
Code. The Company has provided, or will provide prior to the Effective Time,
Buyer with complete age, salary, service and related data as of the most recent
practicable date for all employees and former employees covered under any Title
IV Plan.
(c) The fair market value of the assets of each Title IV Plan
(excluding for these purposes any accrued but unpaid contributions) exceeds the
present value of all benefits accrued under such Title IV Plan determined on a
termination basis using the assumptions established by the PBGC. There is no
unfunded liability of the Company or any Subsidiary in respect of any Employee
Plans or Benefit Arrangements described under Sections 4(b)(5) of ERISA or
401(a)(1) of the Code, as computed using reasonable actuarial assumptions and
determined as if all benefits under such plans are vested and payable.
(d) No transaction prohibited by Section 406 of ERISA or Section 4975
of the Code has occurred with respect to any employee benefit plan or
arrangement which is covered by Title I of
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<PAGE> 45
ERISA, which transaction has or will cause the Company or any of its
Subsidiaries to incur any liability under ERISA, the Code or otherwise,
excluding transactions effected pursuant to and in compliance with a statutory
or administrative exemption. No "accumulated funding deficiency", as defined in
Section 412 of the Code, has been incurred with respect to any Employee Plan or
any trust established thereunder subject to such Section 412, whether or not
waived. No "reportable event", within the meaning of Section 4043 of ERISA,
other than a "reportable event" that will not have a Material Adverse Effect,
and no event described in Section 4062 or 4063 of ERISA, has occurred in
connection with any Employee Plan. Neither the Company nor any ERISA Affiliate
of the Company has (i) engaged in, or is a successor or parent corporation to an
entity that has engaged in, a transaction described in Sections 4069 or 4212(c)
of ERISA or (ii) incurred, or reasonably expects to incur prior to the Effective
Time, (A) any liability under Title IV of ERISA arising in connection with the
termination of, or a complete or partial withdrawal from, any plan covered or
previously covered by Title IV of ERISA or (B) any liability under Section 4971
of the Code that in either case could become a liability of the Company or any
Subsidiary or Buyer or any of its ERISA Affiliates after the Effective Time. No
condition exists that (i) could constitute grounds for termination by the PBGC
of any employee benefit plan that is subject to Title IV of ERISA that is
maintained by the Company, any Subsidiary or any of their ERISA Affiliates or
(ii) presents a material risk of complete or partial withdrawal from any
multiemployer plan, as defined in Section 3(37) of ERISA, which could result in
the Company, any Subsidiary or Buyer or any ERISA Affiliate of any of them
incurring a withdrawal liability within the meaning of Section 4201 of ERISA.
The assets of the Company and all of its Subsidiaries are not now, nor will they
after the passage of time be, subject to any lien imposed under Code Section
412(n) by reason of a failure of the Company or any Subsidiary to make timely
installments or other payments required under Code Section 412. If a "complete
withdrawal" by the Company and all of its ERISA Affiliates were to occur as of
the Effective Time with respect to all Multiemployer Plans, none of the Company,
any Subsidiary or any of their ERISA Affiliates would incur any material
withdrawal liability under Title IV of ERISA.
(e) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
since its adoption; each trust created under any such Plan is exempt from tax
under Section 501(a) of the Code and has been so exempt since its creation. The
Company has provided, or will provide prior to the Effective Time, Buyer with
the most recent determination letter of the Internal Revenue Service relating to
each such Employee Plan. Each Employee Plan has been maintained in material
compliance with its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations, including but not limited to
ERISA and the Code.
(f) The Company has provided, or will provide prior to the Effective
Time, Buyer with a list and copies or descriptions of each Benefit Arrangement
(and, if applicable, related trust agreements) and all amendments thereto and
written interpretations thereof. Each Benefit Arrangement has been maintained in
material compliance with its terms and with the requirements prescribed by any
and all applicable statutes, orders, rules and regulations and has been
maintained in good standing with applicable regulatory authorities.
(g) Neither the Company nor any Subsidiary has any current or projected
liability in respect of post-employment or post-retirement health or medical or
life insurance benefits for
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<PAGE> 46
retired, former or current employees of the Company or any Subsidiary, except as
required to avoid excise tax under Section 4980B of the Code. No condition
exists that would prevent the Company or any Subsidiary from amending or
terminating any Employee Plan or Benefit Arrangement providing health or medical
benefits in respect of any active employee of the Company or any Subsidiary
other than limitations imposed under the terms of a collective bargaining
agreement.
(h) All contributions and payments which have either become due and
payable or should be accrued under each Employee Plan and Benefit Arrangement,
determined in accordance with prior funding and accrual practices, will be
discharged and paid or accrued, respectively, on or prior to the Effective Time
in accordance with such practices. There has been no amendment to, written
interpretation of or announcement (whether or not written) by the Company or any
Subsidiary relating to, or change in employee participation or coverage under,
any Employee Plan or Benefit Arrangement that would increase materially the
expense of maintaining such Employee Plan or Benefit Arrangement above the level
of the expense incurred in respect thereof for the most recent fiscal year ended
prior to the date hereof.
(i) There is no contract, plan or arrangement (written or otherwise)
covering any employee or former employee of the Company or any Subsidiary that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to the terms of Section 280G of the Code.
(j) There has been no failure of a group health plan (as defined in
Section 5000(b)(1) of the Code) to meet the requirements of Code Section
4980B(f) with respect to a qualified beneficiary (as defined in Section
4980B(g)). Neither the Company nor any of its Subsidiaries has contributed to a
nonconforming group health plan (as defined in Section 5000(c)) and no ERISA
Affiliate of the Company or any of its Subsidiaries has incurred a tax under
Section 5000(a) which is or could become a liability of the Company or any of
its Subsidiaries.
(k) No employee or former employee of the Company or any Subsidiary
will become entitled to any bonus, retirement, severance, job security or
similar benefit or enhanced such benefit (including acceleration of vesting or
exercise of an incentive award) as a result of the transactions contemplated
hereby, either alone or in combination with another event, except as
contemplated by this Agreement.
(l) There are no pending, threatened or anticipated claims by or on
behalf of any Employee Plan or Benefit Arrangement, by any employee or
beneficiary under any such Employee Plan or Benefit Arrangement, or otherwise
involving any such Employee Plan or Benefit Arrangement (other than routine
claims for benefits).
SECTION 3.15. COMPLIANCE WITH LAWS. The Company and each of its
Subsidiaries is and has been in compliance with, and to the knowledge of the
Company is not under investigation with respect to and has not been threatened
to be charged with or given notice of any violation of, any applicable law,
rule, regulation, judgment, injunction, order or decree, except for matters that
have not had and could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
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SECTION 3.16. FINDERS' FEES. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf, of the Company or any Subsidiary who might be entitled to any fee or
commission from Buyer or any of its affiliates upon consummation of the
transactions contemplated by this Agreement.
SECTION 3.17. OTHER INFORMATION. None of the documents or information
delivered to Buyer in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein not
misleading. The financial projections relating to the Company and the
Subsidiaries delivered to Buyer constitute the Company's best estimate of the
information purported to be shown therein and the Company is not aware of any
fact or information that would lead it to believe that such projections are
incorrect or misleading in any material respect.
SECTION 3.18. ENVIRONMENTAL MATTERS.
(a) Definitions. For purposes hereof the following terms have the
following meanings:
"ENVIRONMENTAL LAWS" means any federal, state, local or
foreign law (including, without limitation, common law), treaty,
judicial decision, regulation, rule, judgment, order, decree,
injunction, permit or governmental restriction or requirement or any
agreement with any governmental authority or other third party,
relating to human health and safety, the environment or to pollutants,
contaminants, wastes or chemicals or any toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances, wastes or
materials.
"ENVIRONMENTAL PERMITS" means all permits, licenses,
franchises, certificates, approvals and other similar authorizations of
governmental authorities relating to or required by Environmental Laws
and affecting, or relating in any way to, the business of the Company
or any Subsidiary as currently conducted.
(b) Except as set forth in the Company 10-K:
(i) no notice, notification, demand, request for
information, citation, summons or order has been received, no complaint
has been filed, no penalty has been assessed, and no investigation,
action, claim, suit, proceeding or review (or any basis therefor) is
pending or, to the knowledge of the Company or any Subsidiary, is
threatened by any governmental entity or other Person with respect to
any matters relating to the Company or any Subsidiary and relating to
or arising out of any Environmental Law which, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse
Effect;
(ii) The Company is in compliance with all Environmental Laws
and has been and is in compliance with all Environmental Permits,
except where any noncompliance or failure to receive Environmental
Permits could not reasonably be expected to result in a Material
Adverse Effect; and
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(iii) there are no liabilities of or relating to the Company
or any Subsidiary of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise arising under or
relating to any Environmental Law that have had or may reasonably be
expected to have a Material Adverse Effect, and there are no facts,
conditions, situations or set of circumstances which could reasonably
be expected to result in or be the basis for any such liability.
(c) There has been no environmental investigation, study, audit, test,
review or other analysis conducted of which the Company has knowledge in
relation to the current or prior business of the Company or any Subsidiary or
any property or facility now or previously owned or leased by the Company or any
Subsidiary which has not been delivered to Buyer at least five days prior to the
Effective Time.
(d) For purposes of this Section, the terms "COMPANY" and "SUBSIDIARY"
shall include any entity which is, in whole or in part, a predecessor of the
Company or any Subsidiary.
SECTION 3.19. VOTE REQUIRED. The only vote of the holders of any class
or series of capital stock of the Company necessary to approve the Merger is the
affirmative vote of the holders of a majority of the outstanding Shares.
SECTION 3.20. ANTI-TAKEOVER PLAN; STATE TAKEOVER STATUTES. Neither the
Company nor any Subsidiary has in effect any plan, scheme, device or
arrangement, commonly or colloquially known as a "poison pill" or
"anti-takeover" plan or any similar plan, scheme, device or arrangement. The
Board of Directors of the Company has approved the Merger and this Agreement.
Except for Section 203 of Delaware Law, no state takeover statute or similar
statute or regulation applies or purports to apply to the Merger, this Agreement
or any of the transactions contemplated by this Agreement.
SECTION 3.21. MATERIAL CONTRACTS.
(a) Except as set forth in the Company SEC Filings and Section 3.21 of
the Disclosure Letter, neither the Company nor any Subsidiary is a party to or
bound by:
(i) any lease (whether of real or personal property)
providing for annual rentals of $25,000 or more;
(ii) any agreement with a term of at least one year for the
purchase of materials, supplies, goods, services, equipment or other
assets providing for either (A) annual payments by the Company and the
Subsidiaries of $50,000 or more or (B) aggregate payments by the
Company and the Subsidiaries of $50,000 or more;
(iii) any sales, distribution or other similar agreement with
a term of at least six months, providing for the sale by the Company or
any Subsidiary of materials, supplies, goods, services, equipment or
other assets that provides for (A) annual payments to the Company and
the Subsidiaries of $100,000 or more and (B) does not by its terms
permit the
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Company or any Subsidiary to pass any increase in the costs of such
materials, supplies, goods, services, equipment or other assets on to
the counterparty thereto;
(iv) any partnership, joint venture or other similar
agreement or arrangement;
(v) any agreement relating to the acquisition or
disposition of any business (whether by merger, sale of stock, sale of
assets or otherwise);
(vi) any agreement relating to asset sale programs,
indebtedness for borrowed money or the deferred purchase price of
property (in either case, whether incurred, assumed, guaranteed or
secured by any asset);
(vii) any option, license, franchise or similar agreement;
(viii) any agency, dealer, sales representative, marketing or
other similar agreement;
(ix) any agreement that limits the freedom of the Company or
any Subsidiary or any officer or key employee to compete in any line of
business or with any Person or in any area or which would so limit the
freedom of the Company or any Subsidiary after the Effective Time;
(x) any other agreement, commitment, arrangement or plan
not made in the ordinary course of business that is material to the
Company and the Subsidiaries, taken as a whole.
As used herein, the term "AFFILIATE" means, with respect to any Person, any
other Person directly or indirectly controlling, controlled by or under common
control with such Person.
(b) Each agreement, contract, plan, lease, arrangement or commitment
disclosed in any Section of the Disclosure Letter or required to be disclosed
pursuant to this Section is a valid and binding agreement of the Company or a
Subsidiary, as the case may be, and is in full force and effect, and none of the
Company, any Subsidiary or, to the knowledge of the Company, any other party
thereto is in default or breach in any material respect under the terms of any
such agreement, contract, plan, lease, arrangement or commitment, and, to the
knowledge of the Company, no event or circumstance has occurred that, with
notice or lapse of time or both, would constitute any event of default
thereunder. True and complete copies of each such agreement, contract, plan,
lease, arrangement or commitment have been delivered to Buyer.
SECTION 3.22. PROPERTIES.
(a) The Company and the Subsidiaries have good and marketable,
indefeasible, fee simple title to, or in the case of leased property and assets
have valid leasehold interests in, all property and assets (whether real,
personal, tangible or intangible) reflected on the Balance Sheet or acquired
after the Balance Sheet Date, except for properties and assets sold since the
Balance
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Sheet Date in the ordinary course of business consistent with past practices.
None of such property or assets is subject to any Lien, except:
(i) Liens disclosed on the Balance Sheet;
(ii) Liens for taxes not yet due or being contested in good
faith (and for which adequate accruals or reserves have been
established on the Balance Sheet); or
(iii) Liens which do not materially detract from the value or
materially interfere with any present or intended use of such property
or assets.
(b) There are no developments affecting any such property or assets
pending or, to the knowledge of the Company threatened, which might materially
detract from the value, materially interfere with any present or intended use or
materially adversely affect the marketability of any such property or assets.
The Company has delivered or made available to the Buyer complete and correct
copies of all leases of real property and material personal property to which it
or any of its Subsidiaries is a party. All such leases are valid, subsisting and
effective in accordance with their terms and there does not exist thereunder any
material default or event or condition which, after notice or lapse of time or
both, would constitute a material default thereunder. All physical properties
owned or used by Company or any of its Subsidiaries and all equipment necessary
for the operation of its businesses are in good operating condition.
SECTION 3.23. LICENSES AND PERMITS. Section 3.23 of the Disclosure
Letter correctly describes each material license, franchise, permit,
certificate, approval or other similar authorization affecting, or relating in
any way to, the assets or business of the Company and its Subsidiaries together
with the name of the government agency or entity issuing such permit. All
permits or other similar authorizations (whether material or not) are valid and
in full force and effect and neither the Company nor any Subsidiary is in
default under, and no condition exists that with notice or lapse of time or both
would constitute a default under, the Permits. No permits or other similar
authorizations (whether material or not) will be terminated or impaired or
become terminable, in whole or in part, as a result of the transactions
contemplated hereby.
SECTION 3.24. RECEIVABLES. All accounts, notes receivable and other
receivables (other than receivables collected since the Balance Sheet Date)
reflected on the Balance Sheet are, and all accounts and notes receivable
arising from or otherwise relating to the business of the Company and its
Subsidiaries as of the Effective Time will be, valid, genuine and fully
collectible in the aggregate amount thereof, subject to normal and customary
trade discounts, less any reserves for doubtful accounts recorded on the Balance
Sheet. All accounts, notes receivable and other receivables arising out of or
relating to such business of the Company and its Subsidiaries as of the Balance
Sheet Date have been included in the Balance Sheet, and all accounts, notes
receivable and other receivables arising out of or relating to the Business as
of the Effective Time will be included on the books of the Company in accordance
with generally accepted accounting principles applied on a consistent basis.
SECTION 3.25. LABOR MATTERS. The Company and the Subsidiaries are in
compliance with all currently applicable laws respecting employment and
employment practices, terms and
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conditions of employment and wages and hours, and are not engaged in any unfair
labor practice, failure to comply with which or engagement in which, as the case
may be, would reasonably be expected to have a Material Adverse Effect. There is
no unfair labor practice complaint pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary before the National Labor
Relations Board. Neither the Company nor any of its Subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of Company of any of its
Subsidiaries which could have a Material Adverse Effect.
SECTION 3.26. REQUIRED AND OTHER CONSENTS.
(a) Section 3.26(a) of the Disclosure Letter sets forth each agreement,
contract or other instrument binding upon the Company or its Affiliates
requiring a consent as a result of the execution, delivery and performance of
this Agreement, except such consents as would not, individually or in the
aggregate, have, or reasonably be expected to have, a Material Adverse Effect if
not received by the Effective Time (each such consent, a "REQUIRED CONSENT" and
together the "REQUIRED CONSENTS").
(b) Section 3.26(b) of the Disclosure Letter sets forth every other
consent (each such consent, an "OTHER CONSENT" and together the "OTHER
CONSENTS") under such agreements, contracts or other instruments or such Permits
that is necessary or desirable with respect to the execution, delivery and
performance of this Agreement.
SECTION 3.27. INTELLECTUAL PROPERTY. The Company and its Subsidiaries
own, or are licensed or otherwise have the rights to use, all patents,
trademarks, trade names, copyrights, technology, trade secrets, know-how and
processes (collectively, "INTELLECTUAL PROPERTY RIGHTS") material to or
necessary for the conduct of their respective businesses, as presently
conducted. No claims are pending by any person against the Company or any of its
Subsidiaries as to the use of any Intellectual Property Rights and, to the
Company's best knowledge, the use by the Company or any of its Subsidiaries of
all Intellectual Property Rights does not infringe on the rights of any person.
To the Company's best knowledge, no third person is infringing on the
Intellectual Property Rights of the Company or any of its Subsidiaries.
SECTION 3.28. INSURANCE. The Company maintains, and has maintained,
without interruption, during the past three years, policies or binders of
insurance covering such risks, and events, including personal injury, property
damage and general liability, in amounts the Company reasonably believes
adequate for its business and operations.
SECTION 3.29. RELATED PARTY TRANSACTIONS. Except as described in the
Company's reports filed with the SEC, there have been no transactions between
the Company and any officer, director or 10% stockholder which have involved an
amount in excess of $60,000 ("Related Party Transaction").
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company that:
SECTION 4.01. EXISTENCE AND POWER. Buyer is a limited partnership duly
organized, and Merger Subsidiary is a corporation duly incorporated, under the
laws of the State of Delaware, and each is validly existing and in good standing
under the laws of the State of Delaware and has all necessary powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted. Since the date of its incorporation,
Merger Subsidiary has not engaged in any activities other than in connection
with or as contemplated by this Agreement or in connection with arranging any
financing required to consummate the transactions contemplated hereby.
SECTION 4.02. AUTHORIZATION. The execution, delivery and performance by
Buyer and Merger Subsidiary of this Agreement and the consummation by Buyer and
Merger Subsidiary of the transactions contemplated hereby are within each of
Buyer's and Merger Subsidiary's respective powers and have been duly authorized
by all necessary action (including all necessary action of their respective
partners and stockholders). This Agreement has been duly and validly executed
and delivered by Buyer and Merger Subsidiary, and assuming the due
authorization, execution and delivery by the Company, constitutes a valid and
binding agreement of Buyer and Merger Subsidiary, enforceable against Buyer and
Merger Subsidiary in accordance with its terms, except as may be limited by
bankruptcy, reorganization, fraudulent conveyance, insolvency and similar laws
of general application relating to or affecting the enforcement of creditors'
rights and subject to general principles of equity.
SECTION 4.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and the
consummation by Buyer and Merger Subsidiary of the transactions contemplated by
this Agreement require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than (a) the filing of a
certificate of merger in accordance with Delaware Law, (b) compliance with any
applicable requirements of the HSR Act and (c) compliance with any applicable
requirements of the Exchange Act.
SECTION 4.04. NON-CONTRAVENTION. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and the
consummation by Buyer and Merger Subsidiary of the transactions contemplated
hereby do not and will not (a) contravene or conflict with the certificate of
limited partnership or partnership agreement or certificate of incorporation or
bylaws of Buyer or Merger Subsidiary, respectively, (b) assuming compliance with
the matters referred to in Section 4.03, contravene or conflict with any
provision of law, regulation, judgment, order or decree binding upon Buyer or
Merger Subsidiary, or (c) constitute a default under or give rise to any right
of termination, cancellation or acceleration of any right or obligation of Buyer
or Merger Subsidiary or to a loss of any benefit to which Buyer or Merger
Subsidiary is entitled under any agreement, contract or other instrument binding
upon Buyer or Merger Subsidiary, except, in the case of clause (b) and (c), for
such matters as would not materially adversely affect the ability of Buyer and
Merger Subsidiary to consummate the transactions contemplated by this Agreement.
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SECTION 4.05. DISCLOSURE DOCUMENTS. The information with respect to
Buyer and its subsidiaries that Buyer furnishes to the Company in writing
specifically for use in any Company Disclosure Document will not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading (i) in the case of the Company
Information Statement at the time the Company Information Statement or any
amendment or supplement thereto is first mailed to stockholders of the Company
and (ii) in the case of any Company Disclosure Document other than the Company
Information Statement, at the time of the filing thereof and at the time of any
distribution thereof.
SECTION 4.06. FINDERS' FEES. There is no investment banker, broker,
finder or other intermediary who might be entitled to any fee or commission from
the Company or any of its affiliates upon consummation of the transactions
contemplated by this Agreement.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 5.01. CONDUCT OF THE COMPANY. From the date hereof until the
Effective Time, the Company and the Subsidiaries shall conduct their business in
the ordinary course consistent with past practice and shall use their best
efforts to preserve intact their business organizations and relationships with
third parties and to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, from the date
hereof until the Effective Time, the Company shall:
(a) carry on its business in, and only in, the ordinary course of
business in the same manner as heretofore and, to the extend consistent with
such business, use all reasonable efforts to preserve intact its present
business organization, keep available the services of its present officers and
employees, and preserve its goodwill and its relationships with customers,
suppliers and others having business dealings with it;
(b) consistent with prior practice, maintain all of its structures,
equipment and other tangible personal property in good repair, order and
condition, except for depletion, depreciation, ordinary wear and tear and damage
by unavoidable casualty;
(c) keep in full force and effect insurance comparable in amount and
scope of coverage to insurance now carried by it;
(d) perform in all respects all of its obligations under agreements,
contracts and instruments relating to or affecting its properties, assets and
business, except to the extent that the failure to do so in any instance or in
the aggregate would not have a Material Adverse Effect;
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(e) continue to collect amounts receivable and pay accounts payable
utilizing normal procedures and without discounting or accelerating payment of
such accounts except in the ordinary course of business consistent with prior
practice;
(f) maintain its books of accounts and records in the usual, regular
and ordinary manner consistent with past practice and not make any change to its
accounting (including tax accounting) methods, principles or practices, except
as may be required by GAAP or by applicable tax laws;
(g) comply in all respects with all statutes, laws, ordinances, rules
and regulations applicable to it and to the conduct of its business, except to
the extent that the failure to do so in any instance or in the aggregate would
not have a Material Adverse Effect;
(h) not amend its Certificate of Incorporation or By-Laws;
(i) not materially increase the annual level of compensation of any of
its employees, increase the annual level of compensation payable or to become
payable by it to any of its executive officers, or grant any unusual or
extraordinary bonus, benefit or other direct or indirect compensation to any
employee, director or consultant, other than to non-executive employees in the
ordinary course of business consistent with past practice;
(j) except in the ordinary course, consistent with past practice, not
enter into, assume or amend in any respect any agreement, contract or commitment
of the character referred to in Section 3.21;
(k) not merge or consolidate with, or agree to merge or consolidate
with, or purchase substantially all the assets of, or otherwise acquire any
business or any corporation, partnership, association or other business
organization or division thereof;
(l) not acquire any material properties or assets or sell, assign,
transfer, convey, lease or otherwise dispose of any of its material properties
or assets, except for fair consideration in the ordinary course of business
consistent with prior practice, which includes sales of real property pursuant
to contracts described in Section 3.21 of the Disclosure Letter;
(m) not purchase for cash and cancel any options outstanding under
Company stock option plans or otherwise amend such plans;
(n) promptly advise Buyer in writing of any materially adverse change
in the financial condition, operations or business of Company or any of its
Subsidiaries;
(o) not declare or pay dividends (cash or otherwise) or make any
distribution on, or directly or indirectly redeem, purchase or otherwise
acquire, any of its outstanding capital shares;
(p) not affect any recapitalization or any split or other
reclassification of shares;
(q) not authorize the creation or issuance of or issue, sell or dispose
of, or create any obligation to issue, sell or dispose of, any of its capital
shares or any securities or obligations
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convertible into or exchangeable for, any of its capital shares (other than
pursuant to stock options or warrants heretofore outstanding);
(r) not create, incur, assume, guarantee or otherwise become directly
or indirectly liable with respect to any indebtedness for borrowed money, other
than indebtedness incurred in the ordinary course of business consistent with
past practice under agreements existing on the date hereof and identified in
writing to Buyer;
(s) not subject any of its properties or assets (whether tangible or
intangible) to any encumbrance, other than in the ordinary course of business;
(t) not engage in any Related Party Transaction;
(u) not enter into any agreement or understanding to do or engage in
any of the foregoing;
(v) not, and shall not permit any Subsidiary to, make any material tax
election or settle or compromise any material contested tax liability (whether
with respect to amount or timing), in each case without the prior written
consent of Buyer which consent shall not be unreasonably withheld; and
(w) not, and shall not permit any Subsidiary to, (i) take or agree or
commit to take any action that would make any representation and warranty of the
Company hereunder inaccurate in any respect at, or as of any time prior to, the
Effective Time or (ii) omit or agree or commit to omit to take any action
necessary to prevent any such representation or warranty from being inaccurate
in any respect at any such time.
SECTION 5.02. COMPANY INFORMATION STATEMENT. As promptly as practicable
following the date hereof, the Company (a) will prepare and file with the SEC,
will use its best efforts to have cleared by the SEC and will thereafter mail to
its stockholders as promptly as practicable the Company Information Statement
and all other related materials, if any, (b) include in any Company Information
Statement the determination of the Board of Directors to the effect that the
Board of Directors, having determined that each of them, by virtue of his
service on the Board of Directors of Acceptance Insurance Companies, has a
conflict of interest that will prevent him from passing on the fairness of this
Agreement and the transactions contemplated hereby and (c) will otherwise comply
with all legal requirements applicable to such action. Buyer, Merger Subsidiary
and the Company shall cooperate with each other in the preparation of the
Company Information Statement, and the Company shall notify Buyer of the receipt
of any comments of the SEC with respect to the Company Information Statement and
of any request by the SEC for any amendment or supplement thereto or for
additional information and shall provide to Buyer promptly copies of all
correspondence between the Company or any representative of the Company and the
SEC. The Company shall give Buyer and its counsel the opportunity to review the
Company Information Statement prior to its being filed with the SEC and shall
give Buyer and its counsel the opportunity to review all amendments and
supplements to the Company Information Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the SEC. If at any time prior to the Effective Time any event
or circumstance
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relating to any party hereto, or their respective officers or directors, any
party hereto, or their respective officers or directors, should be discovered by
such party which should be set forth in an amendment or a supplement to the
Company Information Statement, such party shall promptly inform the Company and
Buyer thereof and take appropriate action in respect thereof.
SECTION 5.03. ACCESS TO INFORMATION. From the date hereof until the
Effective Time, the Company will give Buyer, its counsel, financial advisors,
auditors and other authorized representatives full access to the offices,
properties, books and records of the Company and the Subsidiaries, will furnish
to Buyer, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
Persons may reasonably request and will instruct the Company's employees,
counsel and financial advisors to cooperate with Buyer in its investigation of
the business of the Company and the Subsidiaries; provided that no investigation
pursuant to this Section shall affect any representation or warranty given by
the Company to Buyer hereunder.
SECTION 5.04. OTHER OFFERS. From the date hereof until the termination
hereof, the Company and the Subsidiaries and the officers, directors, employees
or other agents of the Company and the Subsidiaries will not, directly or
indirectly, (i) take any action to solicit, initiate, facilitate or encourage
any Acquisition Proposal (as defined below), (ii) engage in negotiations with,
or disclose any nonpublic information relating to the Company or any Subsidiary
or afford access to the properties, books or records of the Company or any
Subsidiary to, any Person that may be considering making, or has made, an
Acquisition Proposal or (iii) enter into any agreement or understanding
requiring the Company to abandon, terminate or fail to consummate the Merger or
the other transactions contemplated hereby. The Company will promptly (and in no
event later than 24 hours after receipt of the relevant Acquisition Proposal)
notify (which notice shall be provided orally and in writing and shall identify
the Person making the relevant Acquisition Proposal and set forth the material
terms thereof) Buyer after receipt of any Acquisition Proposal or any indication
that any Person is considering making an Acquisition Proposal or any request for
nonpublic information relating to the Company or any Subsidiary or for access to
the properties, books or records of the Company or any Subsidiary by any Person
that may be considering making, or has made, an Acquisition Proposal and will
keep Buyer fully informed of the status and details of any such Acquisition
Proposal, indication or request. The Company shall, and shall cause the
Subsidiaries and the Company's directors, officers, employees, financial
advisors and other agents and representatives to, cease immediately and cause to
be terminated all activities, discussions or negotiations, if any, with any
Persons conducted heretofore with respect to any Acquisition Proposal. For
purposes of this Agreement, "Acquisition Proposal" means any offer or proposal
for, or any indication of interest in, a merger or other business combination
involving the Company or any Subsidiary or the acquisition of any equity
interest in, or a substantial portion of the assets of, the Company or any
Subsidiary, other than the transactions contemplated by this Agreement.
SECTION 5.05. NOTICES OF CERTAIN EVENTS. The Company shall promptly
notify Buyer in writing of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;
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(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement;
(c) any actions, suits, claims, investigations or proceedings commenced
or, to the best of its knowledge threatened against, relating to or involving or
otherwise affecting the Company or any Subsidiary which, if pending on the date
of this Agreement, would have been required to have been disclosed pursuant to
Section 3.12 or which relate to the consummation of the transactions
contemplated by this Agreement; and
(d) the occurrence of any event which will or may result in the failure
to satisfy, the conditions specified in Article 8.
SECTION 5.06. STATE TAKEOVER LAWS. The Company shall, upon the request
of Buyer or Merger Subsidiary, take all reasonable steps to assist in any
challenge by Buyer or Merger Subsidiary in respect of the validity or
applicability to the transactions contemplated by this Agreement, including the
Merger, of any state takeover law.
SECTION 5.07. RESIGNATIONS. At or prior to the Effective Time, the
Company will deliver to Buyer the resignations of David Treadwell from all
positions held with the Company and of all of the other directors of the
Company.
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
SECTION 6.01. CONFIDENTIALITY. Prior to the Effective Time and after
any termination of this Agreement, Buyer will hold, and will use its best
efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law
or the rules of the Nasdaq Stock Market, all confidential documents and
information concerning the Company and the Subsidiaries furnished to Buyer in
connection with the transactions contemplated by this Agreement, including,
without limitation, any stockholder lists furnished by the Company, except to
the extent that such information can be shown to have been (a) previously known
on a nonconfidential basis by Buyer, (b) in the public domain through no fault
of Buyer, (c) later lawfully acquired by Buyer from sources other than the
Company or (d) developed independently by Buyer; provided that Buyer may
disclose such information to its officers, directors, employees, accountants,
counsel, consultants, advisors and agents in connection with the transactions
contemplated by this Agreement and to its lenders in connection with obtaining
the financing for the transactions contemplated by this Agreement so long as
such Persons are informed by Buyer of the confidential nature of such
information and are directed by Buyer to treat such information confidentially.
Buyer's obligation to hold any such information in confidence shall be satisfied
if it exercises the same care with respect to such information as it would take
to preserve the confidentiality of its own similar information. If this
Agreement is terminated (a) Buyer will, and will use its best efforts to cause
its officers, directors, employees, accountants, counsel, consultants,
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advisors and agents to, destroy or deliver to the Company, upon request, all
documents and other materials, and all copies thereof, obtained by Buyer or on
its behalf from the Company in connection with this Agreement that are subject
to such confidence and (b) for a period of one year after the date hereof, Buyer
will not solicit the employment of any management or sales employee of the
Company.
SECTION 6.02. OBLIGATIONS OF MERGER SUBSIDIARY. Buyer will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
ARTICLE 7
COVENANTS OF BUYER AND THE COMPANY
The parties hereto agree that:
SECTION 7.01. BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each party will use its commercially reasonable best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement.
SECTION 7.02. CERTAIN FILINGS. The Company and Buyer shall cooperate
with one another (a) in connection with the preparation of the Company
Disclosure Documents and (b) in determining whether any action by or in respect
of, or filing with, any governmental body, agency or official, or authority is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by this Agreement and (c) in
seeking any such actions, consents, approvals or waivers or making any such
filings, furnishing information required in connection therewith or with the
Company Disclosure Documents and seeking timely to obtain any such actions,
consents, approvals or waivers.
SECTION 7.03. PUBLIC ANNOUNCEMENTS. Buyer and the Company will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby and,
except as may be required by applicable law or any listing agreement with any
national securities exchange, will not issue any such press release or make any
such public statement prior to such consultation.
SECTION 7.04. FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
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<PAGE> 59
ARTICLE 8
CONDITIONS TO THE MERGER
SECTION 8.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of the Company, Buyer and Merger Subsidiary to consummate the Merger
are subject to the satisfaction of the following conditions:
(a) this Agreement shall have been adopted by the stockholders of the
Company in accordance with Delaware Law and the Company's Certificate of
Incorporation;
(b) any applicable waiting period under the HSR Act relating to the
Merger shall have expired;
(c) no provision of any applicable United States federal or state
statute, rule or regulation and no judgment, preliminary or permanent
injunction, order or decree shall prohibit the consummation of the Merger or
impose material limitations on the ability of Buyer to exercise full rights of
ownership of the Company's assets or business; and
(d) all actions by or in respect of or filings with any governmental
body, agency, official, or authority or any other third party required or
necessary to permit the consummation of the Merger shall have been obtained.
SECTION 8.02. CONDITIONS TO THE OBLIGATIONS OF BUYER AND MERGER
SUBSIDIARY. The obligations of Buyer and Merger Subsidiary to consummate the
Merger are subject to the satisfaction of the following further conditions:
(a) (i) the Company shall have performed in all material
respects all of its obligations hereunder required to be performed by
it at or prior to the Effective Time,
(ii) the representations and warranties of the Company
contained in this Agreement and in any certificate or other writing
delivered by the Company pursuant hereto, disregarding all
qualifications contained therein relating to materiality or Material
Adverse Effect, shall be true in all material respects at and as of the
Effective Time as if made at and as of such time and
(iii) Buyer shall have received a certificate signed by the
Chairman of the Company to the foregoing effect;
(b) there shall not be instituted or pending any action or proceeding
by any government or governmental authority or agency, domestic or foreign, or
by any other Person, domestic or foreign, before any court or governmental
authority or agency, domestic or foreign, (i) challenging or seeking to make
illegal, to delay materially or otherwise directly or indirectly to restrain or
prohibit the consummation of the Merger, seeking to obtain material damages or
otherwise directly or indirectly relating to the transactions contemplated by
the Merger, (ii) seeking to restrain or prohibit Buyer's ownership or operation
(or that of its Affiliates) of all or any material portion of the business or
assets of the Company and its Subsidiaries, taken as a whole, or of Buyer and
its Affiliates, taken as a whole, or to compel Buyer or any of its Affiliates to
dispose of or hold separate all or any material portion of the business or
assets of the Company and its Subsidiaries, taken as a whole, or of Buyer and
its
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<PAGE> 60
Affiliates, taken as a whole or (iii) that otherwise is likely to materially
adversely affect the Company and its Subsidiaries, taken as a whole, or Buyer
and its Affiliates, taken as a whole;
(c) there shall not be any action taken, or any statute, rule,
regulation, injunction, order or decree proposed, enacted, enforced,
promulgated, issued or deemed applicable to the Merger, by any court, government
or governmental authority or agency, domestic or foreign, other than the
application of the waiting period provisions of the HSR Act to the Merger, that
is likely, directly or indirectly, to result in any of the consequences referred
to in clauses (i) through (iii) of paragraph (b) above;
(d) The Company shall have received all Required Consents in form and
substance reasonably satisfactory to Buyer;
(e) Buyer shall have received the resignation of the officers and
directors of the Company as contemplated by Section 5.07;
(f) Buyer shall have received all documents it may reasonably request
relating to the existence of the Company and the Subsidiaries and the authority
of the Company for this Agreement, all in form and substance satisfactory to
Buyer;
(g) Buyer shall have received the opinion of counsel to the Company
relating to the due organization of the Company, its good standing in Delaware
and Florida, the due authorization, execution and enforceability of this
Agreement, and the fact that, to the present knowledge of such counsel after
inquiry of the officers of the Company, but without any other independent
investigation, the representations set forth in Section 3.04 hereof are true;
(h) At any time after the date of this Agreement, there shall not have
occurred any event or series of events having a Material Adverse Effect; and
(i) Holders of more than 15% of the outstanding Shares shall not have
delivered to the Company, within 20 days after the date on which the Company
Information Statement is mailed to the stockholders of the Company, written
notice of their intent to seek, or demand for, appraisal of their shares under
Section 262 of the Delaware General Corporation Law.
SECTION 8.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) (i) Buyer and Merger Subsidiary shall have performed in all
material respects all of their respective obligations hereunder
required to be performed by them at or prior to the Effective Time,
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<PAGE> 61
(ii) the representations and warranties of Buyer and Merger
Subsidiary contained in this Agreement and any certificate or other
writing delivered by Buyer or Merger Subsidiary pursuant hereto,
disregarding all qualifications contained therein relating to
materiality or material adverse effect, shall be true in all material
respects at and as of the Effective Time as if made at and as of such
time and
(iii) the Company shall have received a certificate signed by
the President of Buyer and an equivalent officer of Merger Subsidiary
to the foregoing effect; and
(b) The Company shall have received all documents it may reasonably
request relating to the existence of Buyer or Merger Subsidiary and the
authority of Buyer or Merger Subsidiary for this Agreement, all in form and
substance satisfactory to the Company.
ARTICLE 9
TERMINATION
SECTION 9.01. TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any approval of this Agreement by the stockholders of the Company):
(a) by mutual written consent of the Company and Buyer;
(b) by either the Company or Buyer, if (i) the other party hereto
commits a material breach of this Agreement which is not cured within 10 days
after notice thereof is given to the breaching party or (ii) the Merger has not
been consummated by April 20, 1998 (the "Termination Date"); provided that the
right to terminate this Agreement pursuant to this Section 9.01(b) shall not be
available to any party whose breach of any provision of this Agreement results
in the failure of the Merger to be consummated by such time, and provided
further that in the event that the Securities and Exchange Commission (the
"Commission") reviews the Company Information Statement, the Termination Date
shall be extended by a number of days equal to the number of days between the
date that the Commission informs the Company that it intends to review the
Company Information Statement and the date on which the Commission informs the
Company that it has no further comments on the Company Information Statement; or
(c) by either the Company or Buyer, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise prohibited
or if any judgment, injunction, order or decree enjoining Buyer or the Company
from consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable. The party desiring to terminate
this Agreement pursuant to clauses 9.01(b) or 9.01(c) shall give written notice
of such termination to the other party in accordance with Section 10.01.
SECTION 9.02. EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 9.01, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except that the agreements
contained in Sections 6.01, 9.03, 10.01, 10.02, 10.04, 10.05, 10.06, 10.07,
10.08, 10.10 and 10.11 shall survive the termination hereof.
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<PAGE> 62
SECTION 9.03. PAYMENT OF BREAKUP FEES AND EXPENSES UPON TERMINATION.
(a) If this Agreement is terminated by the Company pursuant to Section
9.01(b) due to the material breach hereof by Buyer, Buyer shall promptly pay to
the Company as liquidated damages a fee in cash in an amount equal to $500,000,
plus all out-of-pocket expenses incurred in connection with the negotiation of
the Merger by the Company, including, without limitation, reasonable fees and
expenses of legal counsel, accountants and other professionals in connection
with the negotiation and execution of the Agreement in Principle, this Agreement
and all of the transactions contemplated herein. The deposit of $500,000 held by
Shumaker, Loop & Kendrick, LLP, as escrow agent, shall be paid to the Company by
the escrow agent as a portion of such fee.
(b) If this Agreement is terminated by the Buyer pursuant to Section
9.01(b) due to the material breach hereof by the Company, the Company shall
promptly pay to Buyer as liquidated damages a fee in cash in an amount equal to
$500,000, plus all out-of-pocket expenses incurred in connection with the
negotiation of the Merger by Buyer, including, without limitation, reasonable
fees and expenses of legal counsel, accountants and other professionals in
connection with the negotiation and execution of the Agreement in Principle,
this Agreement and all of the transactions contemplated herein.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including telecopy or similar
writing) and shall be given,
<TABLE>
<S> <C>
if to Buyer or Merger Subsidiary, to: c/o Pembroke Companies, Inc.
1325 Avenue of the Americas, Suite 1200
New York, New York
Attention: Lawrence J. Cohen
Telecopy: 212/399-9199
with a copy to: Blackacre Capital Group
450 Park Avenue, 28th Floor
New York, New York 10022
Attention: Ronald J. Kravit
Telecopy: 212/750-5305
and Skadden, Arps, Slate, Meagher & Flom, LLP
919 Third Avenue
New York, NY 10022-3897
Attention: Patrick J. Foye
Telecopy: (212) 735-2000
</TABLE>
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<PAGE> 63
<TABLE>
<S> <C>
if to the Company, to: Major Realty Corporation
5728 Major Blvd.
Orlando, Florida
Attention: David L. Treadwell, Chairman
Telecopy: (407) 345-0439
with a copy to: Shumaker, Loop & Kendrick, LLP
Barnett Plaza - Suite 2800
101 East Kennedy Boulevard
Tampa, Florida 33602
Attention: Gregory C. Yadley
Telecopy No.: (813) 229-1660
</TABLE>
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (a) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and the
appropriate telecopy confirmation is received or (b) if given by any other
means, when delivered at the address specified in this Section.
SECTION 10.02. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of
the representations and warranties of the Company, Buyer and Merger Subsidiary
contained herein or in any certificate or other writing delivered pursuant
hereto shall survive the Effective Time.
SECTION 10.03. AMENDMENTS; NO WAIVERS.
(a) Any provision of this Agreement may be amended or waived prior to
the Effective Time if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Company, Buyer and Merger Subsidiary
or in the case of a waiver, by the party against whom the waiver is to be
effective; provided that no such amendment or waiver shall, without the further
approval of the stockholders of the Company, alter or change (i) the amount or
kind of consideration to be received in exchange for any Shares, (ii) any term
of the certificate of incorporation of the Surviving Corporation or (iii) any of
the terms or conditions of this Agreement, if such alteration or change would
adversely affect the holders of any shares of capital stock of the Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 10.04. EXPENSES. All costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost or expense.
SECTION 10.05. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and
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<PAGE> 64
assigns; provided that no party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement without the consent of the
other parties hereto.
SECTION 10.06. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware without regard
to the conflict of law provisions of such State. All actions and proceedings
arising out of or relating to this Agreement shall be heard and determined in
any Delaware state or federal court.
SECTION 10.07. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 10.08. COUNTERPARTS; EFFECTIVENESS; THIRD PARTY BENEFICIARIES.
This Agreement may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument. This Agreement shall become effective when each
party hereto shall have received counterparts hereof signed by all of the other
parties hereto. No provision of this Agreement is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
SECTION 10.09. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. Upon such a determination, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby be consummated as originally
contemplated to the fullest extent possible.
SECTION 10.10. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement is
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof in addition to any other
remedy to which they are entitled at law or in equity.
SECTION 10.11. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.
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<PAGE> 65
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
"BUYER"
PBD HOLDINGS, L.P.
By: PBD Holdings, Inc., General Partner
By:/s/ Lawrence J. Cohen
-------------------------------------
Name: Lawrence J. Cohen
Title:
"MERGER SUBSIDIARY"
PEMBROKE ACQUISITION, INC.
By:/s/ Lawrence J. Cohen
-------------------------------------
Name: Lawrence J. Cohen
Title:
MAJOR REALTY CORPORATION
By:/s/ David L. Treadwell
-------------------------------------
David L. Treadwell, Chairman
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<PAGE> 66
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 to that certain AGREEMENT AND PLAN OF MERGER
dated as of March 4, 1998 (the "Merger Agreement"), among Major Realty
Corporation, a Delaware corporation (the "Company"), PBD Holdings, L.P., a
Delaware limited partnership ("BUYER"), and Pembroke Acquisition, Inc., a
Delaware corporation and a wholly owned subsidiary of Buyer ("MERGER
SUBSIDIARY") is made and entered into as of this 26th day of March, 1998, by
and among the Company, Buyer and Merger Subsidiary.
WHEREAS, the Company, Buyer and the Merger Subsidiary have entered
into the Merger Agreement and now mutually desire to amend certain provisions
thereof in order to accomplish the purposes thereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Section 9.01 of the Merger Agreement is hereby
amended by changing the Termination Date of April 20, 1998 set forth in
subparagraph (b)(ii) thereof to May 15, 1998.
2. Except as otherwise provided herein, the Agreement
shall remain in full force and effect.
3. This Amendment No. 1 may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
4. This Amendment No. 1 shall become effective upon
execution by all of the parties hereto, and thereafter any reference to the
Agreement shall be deemed to be a reference to the Agreement as amended hereby.
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<PAGE> 67
IN WITNESS WHEREOF, each of the corporate parties
hereto have caused this Amendment to the Agreement to be executed by their
respective duly authorized officer or officers as of the day and year first
above written.
"BUYER"
PBD HOLDINGS, L.P.
By: PBD Holdings, Inc., General Partner
By: /s/ Lawrence J. Cohen
----------------------------------
Name: Lawrence J. Cohen
Title: President
"MERGER SUBSIDIARY"
PEMBROKE ACQUISITION, INC.
By: /s/ Lawrence J. Cohen
----------------------------------
Name: Lawrence J. Cohen
Title: President
MAJOR REALTY CORPORATION
By: /s/ David L. Treadwell
----------------------------------
David L. Treadwell, Chairman
<PAGE> 68
ANNEX B
Title 8 Delaware General Corporation Law Section (1997)
Section 262. Appraisal rights
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection
(d) of this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As
used in this section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a nonstock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by
those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Section 251 (other than a merger
effected pursuant to Section 251(g) of this title), Section 252, Section
254, Section 257, Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect thereof, at
the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to act
upon the agreement of merger or consolidation, were either (i) listed
on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares
of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to Sections 251, 252, 254, 257, 258,
263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving
or resulting from such merger or consolidation, or depository
receipts in respect thereof;
<PAGE> 69
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock
(or depository receipts in respect thereof) or depository
receipts at the effective date of the merger or consolidation
will be either listed on a national securities exchange or
designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or
fractional depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares or
fractional depository receipts described in the foregoing
subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section 253 of
this title is not owned by the parent corporation immediately prior to
the merger, appraisal rights shall be available for the shares of the
subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those set
forth in subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be submitted
for approval at a meeting of stockholders, the corporation, not less
than 20 days prior to the meeting, shall notify each of its
stockholders who was such on the record date for such meeting with
respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for
any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or
<PAGE> 70
consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant
to Section 228 or Section 253 of this title, each constituent
corporation, either before the effective date of the merger or
consolidation or within ten days thereafter, shall notify each of the
holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be
given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or
after the effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the effective
date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection.
An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is
given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective
<PAGE> 71
date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the petition
shall be accompanied by such a duly verified list. The Register in Chancery, if
so ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such
<PAGE> 72
is required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of
any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
his demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
<PAGE> 73
ANNEX C
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-1748
MAJOR REALTY CORPORATION
(Name of Small Business Issuer in Its Charter)
DELAWARE 59-0898509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5728 MAJOR BOULEVARD, SUITE 306, ORLANDO, FLORIDA 32819
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 407/351-1111
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.01 PAR VALUE PER SHARE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 ]
The Issuer's revenues for its most recent fiscal year, ended December
31, 1997, were $1,291,000.00.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant (3,432,267 shares) on March 17, 1998, was $4,084,398. The
aggregate market value was computed by reference to the closing price per share
on the Nasdaq SmallCap Market on that date.
The number of shares of Common Stock, par value $.01 per share, of the
Registrant outstanding as of March 17, 1998, was 6,893,378.
<PAGE> 74
[This page left blank intentionally]
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<PAGE> 75
MAJOR REALTY CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-KSB
<TABLE>
<CAPTION>
Part I Page
<S> <C> <C>
Item 1. - Description of Business......................................... 4
Item 2. - Description of Property......................................... 13
Item 3. - Legal Proceedings............................................... 14
Item 4. - Submission of Matters to a Vote of Security Holders............. 15
Part II
Item 5. - Market for Common Equity and Related Stockholder Matters........ 15
Item 6. - Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 15
Item 7. - Financial Statements............................................ 19
Item 8. - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 40
Part III
Item 9. - Directors, Executive Officers; Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act............... 40
Item 10.- Executive Compensation.......................................... 41
Item 11.- Security Ownership of Certain Beneficial Owners and Management.. 44
Item 12.- Certain Relationships and Related Transactions.................. 47
Part IV
Item 13.- Exhibits and Reports on Form 8-K................................ 49
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTION
Major Realty Corporation (together with its subsidiaries referred to
herein as "Major Realty" or the "Company") is a Delaware corporation qualified
to do business in the State of Florida. At December 31, 1997, the Company owned
approximately 161 gross acres of real property in the City of Orlando, Florida,
in an area known as "Florida Center," a 2,700 acre planned community which
contains the Universal Studios Florida studio complex and tourist attraction and
is located close to downtown Orlando and such attractions as Walt Disney World's
Magic Kingdom, Epcot Center and Sea World.
The Company's properties, the majority of which were acquired prior to
1969, are located in areas where extensive development activity has been
occurring, and, for the most part, are believed to provide desirable locations
for the development of residential, commercial or tourist attraction projects.
The Company, historically, has attempted to realize the value in its
properties through a combination of land sales, joint ventures, land leases and
other transactions. However, the combination of adverse market conditions,
equity requirements for development projects and the Company's financial status
made transactions other than land sales difficult to accomplish. Due both to
financial need and the ability to achieve value by property sales rather than
development activity, the Company's primary source of revenues during the past
three fiscal years has been the sale of land.
In October 1995, the Company announced that its Board of Directors had
determined that it was in the best interests of the stockholders to seek a
merger partner or otherwise seek a transaction for the sale of the Company.
Capital constraints limiting the feasibility of independently developing the
Company's existing properties were cited as a primary factor in the Board's
decision to seek a merger or sale transaction. On February 11, 1998, the Company
signed an Agreement in Principle with Pembroke Acquisition, Inc. concerning a
proposed acquisition of the Company. On March 5, the Company entered into an
agreement and plan of merger with PBD Holdings, L.P., an affiliate of Pembroke
Companies, Inc. and Blackacre Capital Group, L.P., pursuant to which a
subsidiary of PBD Holdings will be merged into the Company, and all of the
outstanding shares of common stock of the Company ("Common Stock") will be
converted into the right to receive $1.25 per share in cash (the "Merger
Transaction"). The Merger Transaction has been approved by stockholders holding
a majority of the outstanding shares of Common Stock, and the Company is
currently preparing an Information Statement to be distributed in early April
1998 to all stockholders describing their rights with respect to the Merger
Transaction. See "Recent Developments."
The Company was incorporated in Delaware in 1959. Its principal
executive offices are located at 5728 Major Boulevard, Suite 306, Orlando,
Florida 32819, and its telephone number is (407) 351-1111. The Company's Common
Stock is traded on the Nasdaq SmallCap Market.
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<PAGE> 77
SALE AND DISPOSITION OF CERTAIN PROPERTY
During the three year period ended December 31, 1997, the Company sold
a number of parcels of real property, as described below. All of the Company's
property is secured by a mortgage in favor of its lender which contains partial
paydown and release provisions. Accordingly, a portion of the proceeds from each
of these land sales was used to retire debt and the remainder was used or
available for general operations and working capital purposes.
Recent Land Transactions:
In March 1998, the Company signed a contract for the sale of 42.03
acres gross (15 acres net) of multi-family land located on Conroy Road in
Orlando, Florida for $1,500,000. The buyer made a $10,000 deposit and has a
90-day no risk inspection period to look at the property to determine if it
wishes to proceed with the contract. If the buyer proceeds with the contract, an
additional $90,000 deposit will be required and the closing would occur in
September 1998.
In March 1998, the Company signed a contract for the sale of 6.36 acres
of commercial land located at the northeast intersection of Interstate 4 and
Kirkman Road in Orlando, Florida for $4,770,000. The buyer has made a $50,000
deposit and has a 60-day no risk inspection period to look at the property to
determine if it wishes to proceed with the contract. If the buyer proceeds with
the contract, an additional $50,000 deposit will be required and the closing
would occur in August 1998.
In February 1998, the Company signed a contract for the sale of 1.74
acres of commercial land located on the west side of Major Boulevard in Orlando,
Florida for $665,000. The buyer has made a $10,000 deposit and has a 60-day no
risk inspection period to look at the property to determine if it wishes to
proceed with the contract. If the buyer proceeds with the contract, an
additional $40,000 deposit will be required and the closing would occur in July
1998.
In February 1998, the Company signed a contract for the sale of 55
acres gross (16.42 acres net) of multi-family land in the southwestern sector of
Orlando, Florida for $2,040,000. The buyer has made a $10,000 deposit and has a
90-day no risk inspection period to look at the property to determine if it
wishes to proceed with the contract. If the buyer proceeds with the contract, an
additional $90,000 deposit will be required and the closing would occur in
August 1998.
In February 1998, the Company signed a contract for the sale of 2.63
acres of commercial land located on the northeast corner of Republic Drive and
Carrier Drive located in Orlando, Florida for $750,000. The buyer has made a
$10,000 deposit and has a 60-day no risk inspection period to look at the
property to determine if it wishes to proceed with the contract. If the buyer
proceeds with the contract, an additional $40,000 deposit will be required and
the closing would occur in July 1998.
In January 1998, the Company signed a contract for the sale of 3 acres
of commercial land located on the west side of Major Boulevard in Orlando,
Florida for $1,200,000. The buyer has made a $10,000 deposit and has a 90-day no
risk inspection period to look at the property to determine if it wishes to
proceed with the contract. If the buyer proceeds with the contract, an
additional $50,000 deposit will be required and the closing would occur in
September 1998.
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Land Transactions During 1997
In November 1997, the Company signed a contract for $700,000, for 2
acres of commercial land located on the east side of Major Boulevard in Orlando,
Florida. The buyer made a $10,000 deposit and had a 60-day risk free inspection
period to look at the property to determine if it wished to proceed with the
contract. During January, 1998, the Buyer made an additional $50,000 deposit and
the inspection period was extended until February 5, 1998. The full $60,000
deposit is now non-refundable. On February 5, 1998 the contract was amended to
reduce the sales price to $675,000. Closing is scheduled for May 1998.
In November 1997, the Company signed a contract for $800,000, for 3
acres of commercial land located on the east side of Major Boulevard in Orlando,
Florida. The buyer made a $10,000 deposit and had a 45-day risk free inspection
period to look at the property to determine if it wished to proceed with the
contract. During December, 1997, the Buyer made an additional $20,000 deposit.
The full $30,000 deposit became non-refundable at that time. Closing is
scheduled for April 1998.
In November 1997, the Company signed a contract for $700,000, for 2
acres of commercial land located on the east side of Major Boulevard in Orlando,
Florida. The buyer made a $10,000 deposit and had a 45-day risk free inspection
period to look at the property to determine if it wished to proceed with the
contract. During December, 1997, the Buyer made an additional $50,000 deposit.
The full $60,000 deposit became non-refundable at that time. Closing is
scheduled for April 1998.
In October 1997, the Company signed a contract for $700,000, for 1.75
acres of commercial land located on the west side of Major Boulevard in Orlando,
Florida. The buyer made a $10,000 deposit and had a 60-day risk free inspection
period to look at the property to determine if it wished to proceed with the
contract. In December, 1997, the Buyer notified the Company of its wish to
terminate the contract. The deposit was refunded to the Buyer.
In May 1997, the Company signed a contract for $850,000 for the sale of
10.09 acres of multi-family land located on Cason Cove Drive in Orlando,
Florida. The sale closed in August 1997. The sale price was paid in cash at
closing.
Land Transactions During 1996
In September 1996, the Company signed two contracts for the sale of
multi-family land in the southwestern sector of Orlando, Florida. One contract
was for approximately 55 acres gross (17 acres net) in the amount of $1,800,000.
The other contract was for approximately 43 acres gross (15 acres net) in the
amount of $1,350,000. The buyer placed a $10,000 deposit on each parcel and had
a 60 day inspection period during which it could cancel one or both of the
contracts. On November 13, 1996, the Company received notice from the buyer that
it was canceling the contracts. The deposits were refunded to the buyer.
In August 1996, the Company signed a contract for approximately
$1,050,000, for the sale of approximately 2.5 acres of commercial property
located on the west side of Major Boulevard in Orlando, Florida. The buyer made
a $40,000 deposit and had a 90 day inspection period to determine if
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<PAGE> 79
it wished to proceed with the contract. On October 15, 1996, the Company
received notice from the buyer that it was canceling the contract. The deposit
was refunded to the buyer.
In February 1996, the Company signed a contract for approximately
$411,000 for approximately 2.34 acres of commercial property located at the
northwest corner of the intersection of Conroy Road and Vineland Road in
Orlando, Florida. The sale closed in September 1996. The sales price was paid in
cash at closing.
Land Transactions During 1995
In September 1995, the Company sold 1.06 acres of vacant commercial
land located at the southeast corner of Vineland Road and Major Boulevard,
Orlando, Florida, to Orlando Foods, Ltd. for the construction of a Wendy's fast
food restaurant for $350,000. The sales price was paid in cash at closing.
In September 1995, the Company sold 1.38 acres of vacant commercial
land located at the northwest corner of the intersection of Conroy Road and
Vineland Road in Orlando, Florida for $750,000 to San Alto Construction for the
construction of a 7-11 convenience store. The sales price was paid in cash at
closing.
In September 1995, the Company sold 10.36 acres of vacant commercial
land located at the northeast intersection of Interstate 4 and Kirkman Road in
Orlando, Florida to Cracker Barrel Old Country Store, Inc. ("Cracker Barrel")
for $6,280,000. The Company received $2,700,000 in cash at closing plus a
$3,580,000 non-interest bearing promissory note, secured by a mortgage on the
property, which was due in two equal payments, one in April 1996 and the other
in April 1997. On March 27, 1996, Cracker Barrel formally notified the Company
of its intent to default on the note and reconvey the property to the Company.
Consequently, the Company recorded the sale of only 4.0 acres of land for
$2,700,000 in 1995 and included the remaining 6.36 acres of land subject to the
sale as "Land held for sale or development" at December 31, 1995.
In August 1995, the Company sold 12.95 acres of vacant land located at
the northeast corner of Cason Cove Road and Mission Road in Orlando, Florida for
$1,000,000 to National HealthCare, L.P. The sales price was paid in cash at
closing.
In May 1995, the Company sold 6.12 acres of vacant land at the
northwest intersection of Major Boulevard and Vineland Road in Orlando, Florida
to Bara Vineland, Inc. for $2,010,000. The Company received a deposit of $50,000
and an additional $650,000 at closing. The balance of the purchase price,
$1,310,000, was represented by a promissory note originally due in May 1996. The
note was satisfied at a discount on October 18, 1995 for $1,234,000.
PROPERTY DESCRIPTIONS
All of the Company's properties are located in Orlando, Florida, in the
area known as Florida Center. The summaries below describing the Company's
properties are categorized based upon the location and current zoning or use of
the properties.
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The following table sets forth information with respect to the real
property in Florida Center owned by the Company as of December 31, 1997:
<TABLE>
<CAPTION>
Land Zoning or Use (in acres)
-----------------------------
Multi-family Lakes and
Commercial Residential Conservation Total
---------- ------------ ------------ -----
<S> <C> <C> <C> <C>
Held primarily for development 38.2 32 70.2 140.4
or sale
Property leased to third parties* -0- 20.3 -0- 20.3
--------------------------------------------------------------------
38.2 52.3 70.2 160.7
</TABLE>
* See "Item 1. Description of Business -- Property Descriptions - 4.
Turkey Lake/Windhover Area" for a description of the terms of the
lease.
Florida Center is a 2,700 acre planned community located within the
city limits of Orlando in the southwest quadrant around the intersection of the
Florida Turnpike and Interstate 4. It lies approximately seven miles south of
downtown Orlando, seven miles north of the Walt Disney World complex and seven
miles west of the Orlando International Airport.
There has been a significant amount of development on properties owned
by others within Florida Center, beginning as early as 1969. Currently, the
developed properties within the original 2,700 acres known as Florida Center
include hotels and motels, light industrial and office projects, apartment and
condominium buildings, restaurants and retail shopping, a championship golf
course, and major tourist attractions, including Universal Studios Florida and
Wet `n Wild.
Universal Studios Florida, located in the heart of Florida Center,
contains a full scale operating motion picture and television studio and an
entertainment-theme park attraction. The facility employs over 6,400 people
during peak periods and is designed to accommodate over six million visitors a
year. Universal Studios opened in October 1988, and the theme park attraction
opened in June 1990. Universal Studios Florida is undergoing a major expansion
phase, with a new nighttime entertainment district, CityWalk, scheduled to open
later in 1998, and a new theme park, Islands of Adventure, scheduled to open in
1999. Both CityWalk and Islands of Adventure are adjacent to Universal Studios
Florida
1. CORE AREA COMMERCIAL
The core area of Florida Center (the "Core Area") is bordered by the
Florida Turnpike, Interstate 4 and Kirkman Road, all of which thoroughfares
provide easy access to and from the Company's properties in this area. The Core
Area is located directly across Kirkman Road from the Kirkman Road entrance to
Universal Studios Florida. Existing developments in the Core Area on property
owned by
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others include the Mystery Funhouse, a number of hotels, office buildings and
other support facilities. In the Core Area, the Company owns 25 vacant acres in
various platted parcels.
All roads and utilities are in place on the Core Area properties. These
properties are zoned to permit high density development of hotels, office
buildings, commercial retail and tourist attraction facilities.
2. REPUBLIC DRIVE AREA
In the Republic Drive Area of Florida Center, the Company owns a vacant
7.6 acre parcel platted for commercial use. The Florida Department of
Environmental Protection ("DEP") and the U.S. Army Corps of Engineers made a
determination that the entire parcel is environmentally sensitive and within its
jurisdiction and, accordingly, could not be developed in its present state
without offsite mitigation. The Company has obtained permits from the DEP, the
U.S. Army Corps of Engineers and the South Florida Water Management District to
develop approximately 2.6 acres of the site. In accordance with the requirements
of the permits for off-site mitigation, the Company acquired approximately 27
acres of off-site wetlands in February 1995, which will be deeded to an
appropriate governmental agency.
The Republic Drive area is located approximately two miles north of the
1,500,000 square foot Orange County Convention Center, Sea World Orlando and the
Harcourt Brace Jovanovich, Inc. corporate complex. Already developed by others
in this area are a large number of hotels and motels, restaurants, retail and
gift shops, tourist attractions, banks and other service facilities. Also in
this area, close to the Company's property, are a Martin-Marietta facility and
several office/warehouse facilities.
3. THE LAKES AND CYPRESS CREEK AREA
The Company owns two tracts of vacant land in the Lakes and Cypress
Creek area north of the Florida Turnpike and west of Interstate 4.
The first tract of land, referred to as the "Lakes" property, currently
contains 25.5 acres, which acreage is platted into a 10.5 acre commercial lot
and 15 acres for multi-family residential use. An additional 95.2 acres
represent existing conservation and lake areas. All roads and utilities are in
place.
The second tract contains 55.4 acres, approximately 17.0 of which may
be developed, and lies between Cypress Creek Golf Course, a championship golf
course, and Florida's Turnpike and is near a number of condominium and apartment
complexes.
4. TURKEY LAKE/WINDHOVER AREA
The Company owns 20.3 acres within the Turkey Lake/Windhover area,
which is located west of Kirkman Road and south of the Florida Turnpike. The
land is leased, pursuant to a ground lease (the "Ground Lease") entered into in
June 1983, to the Kirkman-Oxford Associates Limited Partnership
("Kirkman-Oxford"), which has developed on the property a 272-unit apartment
complex known as West Winds.
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The Ground Lease had an initial lease term of 12 years, and,
thereafter, the Ground Lease is automatically renewed for successive six month
periods, unless the lessee gives a 30-day notice of termination to the Company.
The maximum lease term, including all extensions, may not extend beyond June
2003. The base rent payable under the Ground Lease is $130,560 per year.
If the apartment complex is sold by the lessee, the Company is required
by the terms of the Ground Lease to sell the property subject to the ground
lease for a price which provides (i) a guaranteed minimum payment of
approximately $1 million, and (ii) a 9% equity participation in the amount by
which the proceeds from the sale exceeds approximately $12 million. The lessee
also has an option to purchase the property from the Company at any time at a
price to be negotiated based upon independent real estate appraisals.
The Company's fee interest in the property that is the subject of the
Ground Lease is subordinated to a mortgage with an original principal amount of
$7,700,000 in favor of Cardinal Federal Savings Bank.
ENVIRONMENTAL AND OTHER REGULATION
All real estate development in Florida is subject to extensive
governmental regulation, with increasing emphasis on regulation relating to
environmental considerations. It is likely that increasingly stringent
requirements will be imposed on real estate developers in the future. The costs
of such increased environmental regulation may materially add to the cost of the
Company's operations. However, such additional costs, if any, should not apply
more stringently to the Company's properties and operations than to the
properties and operations of others engaged in similar activities in the areas
in which properties of the Company are located. To the best of management's
knowledge, the Company has complied with all governmental and environmental
regulations material to its business.
In 1985, the State of Florida enacted the Growth Management Act which
requires that all local governments adopt regulations to ensure that public
facilities are available to serve new development when that development occurs.
Roadway capacity is normally the most critical element of the Growth Management
Plan. The City of Orlando Growth Management Plan and Concurrency Management
System became effective on January 1, 1992. The Company negotiated a settlement
agreement with the City of Orlando on April 15, 1993, resolving certain disputed
issues regarding the Company's vested rights and providing for the allocation of
a specified transportation capacity to the Company. Management believes that,
under the terms of the settlement agreement, the Company, or any purchaser of
any of the Company's Florida Center properties, will have the right to develop
such properties, generally without concern for roadway capacity.
EMPLOYEES AND ADVISORS
The Company's management is provided by David L. Treadwell, Chairman of
the Board and Chief Executive Officer, pursuant to an employee lease agreement
with Prechter Holdings, Inc., Mr. Treadwell's employer. See "Item 10. Executive
Compensation."
Gary E. Jahraus served as Vice President of the Company until April 1,
1994, at which time he entered into a one year agreement for the performance of
consulting services to the Company. Under the consulting agreement, Mr. Jahraus
is paid a monthly fee of $5,000 and will earn a success fee of .5%
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with respect to transactions consummated during the term of the consulting
agreement and transactions contracted for which are closed within a specified
period of time after termination of the consulting agreement with a minimum
success fee of $5,000 per transaction. Mr. Jahraus has the use of the Company's
offices but pays for expenses directly related to his outside business
activities. The consulting services agreement with Mr. Jahraus has been renewed
through December 31, 1998.
The Company has two additional employees.
COMPETITION
The real estate operations of the Company, including the value of its
real estate holdings, may be affected by many factors over which the Company has
limited control, among them, changes in general and local economic conditions,
interest rate levels, availability and terms of financing, changes in tax laws
and fluctuations in development and operating costs. The Company conducts its
real estate operations in the active and highly competitive Florida real estate
market, where it competes with many other owners of commercial property suitable
for development in seeking to attract investors for real estate investment and
development opportunities. This competition is primarily based on property
location and permitted uses.
The development and construction of properties are subject to various
risks, including, among others, the continued availability of suitable
undeveloped land at reasonable prices, adverse local and national real estate
market conditions, changing environmental and other governmental regulations,
the level of real estate taxes, the cost of materials and labor, and the
availability of construction and long-term financing.
The development of real estate is subject to extensive governmental
regulations, including those relating to zoning, environmental, water, sewage
and other similar matters. Such governmental regulations should not have a
materially different impact on the properties or operations of the Company than
on those of its competitors. Real estate business operations are subject to
competition from similar types of properties operated or located in the general
vicinity.
RECENT DEVELOPMENTS
On February 11, 1998, the Company signed an Agreement in
Principle with Pembroke Acquisition, Inc. concerning a proposed acquisition of
the Company. On March 5, the Company entered into an agreement and plan of
merger with PBD Holdings, L.P., an affiliate of Pembroke Companies, Inc. and
Blackacre Capital Group, L.P., pursuant to which a subsidiary of PBD Holdings
will be merged into Major, and all of the outstanding shares of Common Stock
will be converted into the right to receive $1.25 per share in cash (the "Merger
Transaction"). The Merger Transaction has been approved by stockholders holding
a majority of the outstanding shares of Common Stock, and the Company is
currently preparing an Information Statement to be distributed in early April
1998 to all stockholders describing their rights with respect to the Merger
Transaction.
The following is a summary of the other material terms of the Merger
Agreement. This summary is not a complete description of the terms and
conditions of the Merger Agreement and is qualified in its entirety by reference
to the full text thereof, which is filed as an Exhibit to this
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Report. Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Merger Agreement.
Conditions to Each Party's Obligation to Effect the Merger. The Merger
Agreement provides that the respective obligations of each party to effect the
Merger are subject to the satisfaction or waiver on or prior to the Merger
becoming effective (the "Effective Time") of the following conditions: (i) no
provision of any applicable law or regulation and no judgment, injunction, order
or decree shall prohibit the consummation of the Merger or impose material
limitations on the ability of Holdings to exercise full rights of ownership of
the Company's assets or business; and (ii) the performance by the parties in all
material respects of their respective obligations under the Merger Agreement
prior to the Effective Time and the truth in all material respects of the
parties' representations and warranties at the Effective Time.
In addition, the obligations of Holdings and Merger Sub to effect the
Merger are subject to the satisfaction or waiver of the further following
conditions: (i) no action or proceeding shall have been instituted by any
government or governmental authority or agency, domestic or foreign, or by any
other person, domestic or foreign, before any court or governmental authority or
agency, domestic or foreign, (a) challenging or seeking to make illegal, to
delay materially or otherwise directly or indirectly to restrain or prohibit the
consummation of the Merger, seeking to obtain material damages or otherwise
directly or indirectly relating to the transactions contemplated by the Merger,
(b) seeking to restrain or prohibit Holding's ownership or operation (or that of
its affiliates) of all or any material portion of the business or assets of the
Company and its subsidiaries, taken as a whole, or of Holdings and its
affiliates, taken as a whole, or to compel Holdings or any of its affiliates to
dispose of or hold separate all or any material portion of the business or
assets of the Company and its subsidiaries, taken as a whole, or of Holdings and
its affiliates, taken as a whole or (c) that otherwise is likely to materially
adversely affect the Company and its subsidiaries, taken as a whole, or Holdings
and its affiliates, taken as a whole; (ii) no action shall have been taken, or
any statute, rule, regulation, injunction, order or decree proposed, enacted,
enforced, promulgated, issued or deemed applicable to the Merger, by any court,
government or governmental authority or agency, domestic or foreign, that is
likely, directly or indirectly, to result in any of the consequences referred to
in clauses (a) through (c) of paragraph (i) above; (iii) Holdings shall have
received the resignation of the officers and directors of the Company; (iv) at
any time after the date of the Merger Agreement, there shall not have occurred
any event or series of events having a material adverse effect on the condition
(financial or otherwise), business, assets or results of operations of the
Company and its subsidiaries taken as a whole; and (v) holders of more than 15%
of the outstanding Shares shall not have delivered to the Company, within 20
days after the date on which the Information Statement is mailed to the
stockholders of the Company, written notice of their intent to seek, or demand
for, appraisal of their shares under Section 262 of the Delaware General
Corporation Law.
Termination of the Merger Agreement. The Merger Agreement may be
terminated and the Merger contemplated thereby may be abandoned at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company, (i) by mutual written consent of the Company and
Holdings; (ii) by either the Company or Holdings, if (a) the other party hereto
commits a material breach of the Merger Agreement which is not cured within 10
days after notice thereof is given to the breaching party or (b) the Merger has
not been consummated by May 15, 1998 (the "Termination Date"); provided that the
right to terminate the Agreement pursuant to this
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<PAGE> 85
clause (ii) is not available to any party whose breach of any provision of the
Merger Agreement results in the failure of the Merger to be consummated by the
Termination Date, and provided further that in the event that the Securities and
Exchange Commission (the "Commission") reviews the Information Statement, the
Termination Date shall be extended by a number of days equal to the number of
days between the date that the Commission informs the Company that it intends to
review the Information Statement and the date on which the Commission informs
the Company that it has no further comments on the Information Statement; or
(iii) by either the Company or Holdings, if there shall be any law or regulation
that makes consummation of the Merger illegal or otherwise prohibited or if any
judgment, injunction, order or decree enjoining Holdings or the Company from
consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable.
Break-Up Fees. If the Merger Agreement is terminated by the Company due
to the material breach thereof by Holdings, Holdings is required promptly to pay
to the Company as liquidated damages a fee in cash in an amount equal to
$500,000, plus all out-of-pocket expenses incurred in connection with the
negotiation of the Merger by the Company, including, without limitation,
reasonable fees and expenses of legal counsel, accountants and other
professionals in connection with the negotiation and execution of the Agreement
in Principle, the Merger Agreement and all of the transactions contemplated
therein. Holdings has deposited $500,000 in cash with an escrow agent to
partially secure the obligation of Holdings to pay this fee.
If the Merger Agreement is terminated by Holdings due to the material
breach thereof by the Company, the Company is required promptly to pay to
Holdings as liquidated damages a fee in cash in an amount equal to $500,000,
plus all out-of-pocket expenses incurred in connection with the negotiation of
the Merger by Holdings, including, without limitation, reasonable fees and
expenses of legal counsel, accountants and other professionals in connection
with the negotiation and execution of the Agreement in Principle, the Merger
Agreement and all of the transactions contemplated therein.
Fees and Expenses. The Merger Agreement provides that all costs and
expenses in connection with the Merger Agreement and the transaction
contemplated by the Merger Agreement shall be paid by the party incurring such
cost or expense, whether or not the Merger is consummated, except as provided
above under "Break-Up Fees." None of the Company or any of the stockholders who
consented to the Merger is paying a fee to an investment banker, broker or other
entity in connection with the Merger.
Conduct of Business by the Company. The Merger Agreement provides that
the Company and its subsidiaries will conduct their business in the ordinary
course consistent with past practice and use their best efforts to preserve
intact their business organizations and relationships with third parties and to
keep available the services of their officers and employees.
ITEM 2. DESCRIPTION OF PROPERTY.
Information with respect to the properties of the Company is set forth
under "Item 1. Description of Business - Property Descriptions."
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<PAGE> 86
All of the Company's properties, the majority of which were acquired
prior to 1969, are located in Orlando, Florida. The Company believes that they
provide desirable locations for the development of residential, commercial or
tourist attraction projects; however, development has been slowed in recent
years due to the lack of availability to the Company of construction and
long-term financing, increasing environmental and other government regulation.
See "Item 1. Description of Business - Environmental and Other Regulation" and
"- Competition."
All of the Company's real property is encumbered by a mortgage to
Acceptance Insurance Companies Inc., the Company's largest shareholder. See
"Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Financial Condition and Liquidity" and "Item 12. Certain
Relationships and Related Transactions."
The Company historically has not invested in real estate mortgages or
securities or other interests in entities primarily engaged in real estate
activities and does not anticipate doing so in the future. There are no specific
present plans for the construction of improvements on any unimproved property
which the Company now holds, although the Company continues to move forward to
obtain various approvals and determinations from the applicable regulatory
agencies and governmental bodies which are necessary to develop the Company's
properties. Unless the Company is able to implement one or more transactions
which will permit it to pursue a more diversified business plan, it is unlikely
to acquire new real estate assets in the near future.
The Company maintains general liability insurance policies and, in the
opinion of management, such insurance coverage is adequate to protect the
Company and its properties.
For 1997, the Company's real estate taxes for its properties were
approximately $230,000.
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of business, the Company, its subsidiaries and the
joint ventures in which the Company and its subsidiaries have or have had an
interest are involved in certain litigation. In the opinion of management, with
the possible exception of the matters described below, there are no pending
material legal proceedings to which the Company, its subsidiaries or the joint
ventures in which the Company and its subsidiaries have an interest, are a
party, or to which any of their respective properties are subject.
Florida Department of Revenue/The Prudential Insurance Company of
America. In connection with its routine audit of documents recorded relating to
an agreement to extend a mortgage from The Prudential Insurance Company of
America ("Prudential") in 1992, the Florida Department of Revenue (the
"Department") issued an assessment for unpaid intangible and documentary stamp
taxes in February 1994. The amount assessed for documentary stamp tax was
$119,640 plus interest and penalties, and the amount assessed for intangible tax
was $12,774 plus interest and penalties, for a total amount due of $197,172
through April 24, 1994. Prudential, over objection from the Company, paid the
Department $43,562 in April 1994, and unsuccessfully sought to get the
Department to withdraw its assessment of the balance.
Prudential, based on provisions of the loan documents with the Company,
has demanded that the Company indemnify it and hold it harmless for any taxes
paid or owing. While reserving its rights
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<PAGE> 87
to contest Prudential's claim for indemnification, the Company formally
requested a hearing before the Department and informally sought to resolve the
matter through negotiation with representatives of the Department. The
Department ultimately agreed to reduce its claim by an aggregate amount of
$149,004, and in July, 1995, in a closing agreement accepted the payments
previously made, plus additional interest in the amount of $668. Prudential,
through its counsel, has reserved its right to seek indemnification from the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the Nasdaq SmallCap Market
under the symbol MAJR.
The high and low closing prices for the Company's stock as reported by
Nasdaq for the periods indicated and the approximate number of shareholders are
presented below:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1997
---- ----
High Low High Low
<S> <C> <C> <C> <C>
1st Quarter 2-3/8 1-7/8 1-15/32 1-5/16
2nd Quarter 2-1/8 1-11/16 1-5/8 1-1/16
3rd Quarter 2-3/16 1-9/16 1-3/32 1-1/16
4th Quarter 2 1-7/16 1-1/8 1
Approximate Number of
Shareholders 2,366 2,294
</TABLE>
No dividends were paid during the years ended December 31, 1997 or 1996. The
Company's credit facility with Acceptance Insurance Companies Inc. contains a
covenant which expressly prohibits the payment of dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NET INCOME
The Company recorded a net loss of $766,000 in 1997, as related to a
net loss of $579,000 in 1996. The loss in 1997 and 1996 was due primarily to the
fact that the Company was able to sell only
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<PAGE> 88
one parcel of land during each year for approximately $850,000 and $411,000,
respectively. See Note 2 to Consolidated Financial Statements detailing land
sales in 1997 and 1996.
REVENUES
The Company's revenues in 1997 and 1996 were derived from land sales,
interest income from a mortgage note receivable and payments under a ground
lease. See "Item 1. Sale and Disposition of Certain Property" and Note 2 to
Consolidated Financial Statements.
COSTS AND EXPENSES
The cost of real estate sold in 1997 was $813,000, as compared to
$198,000 in 1996, reflecting the difference in acquisition cost of the various
parcels sold.
Selling, general and administrative costs in 1997 were $621,000 as
compared to $674,000 in 1996. The reduction in selling, general and
administrative costs primarily was attributed to the generally reduced scope of
the Company's operations.
Interest cost for 1997 was $623,000, as compared to interest cost of
$546,000 for 1996. The increase was due to the increased interest rate of the
loan restructure agreement with Acceptance on April 1, 1997. See "Financial
Condition and Liquidity" below. The Company did not capitalize interest in 1997
or 1996.
FINANCIAL CONDITION AND LIQUIDITY
The Company relies on internal sources of capital to meet its operating
and debt service requirements. Current internal sources of funds are cash on
hand, proceeds from land sales and lease payments. Due to the lack of
availability to the Company of construction and long-term financing, development
activities with respect to the Company's properties have been significantly
reduced, with none of the Company's properties currently designated for any
significant above-ground development activity.
At December 31, 1996, the Company was indebted to Acceptance pursuant
to a loan restructure arrangement entered into on October 18, 1995, in the
principal amount of $5,064,144, comprised of $747,313 due to Acceptance under
the terms of a February 1995 restructuring and $4,316,881 previously owed to
Citizens Fidelity Bank and Trust Company, now known as PNC Bank, Kentucky, Inc.
("PNC"), which indebtedness was acquired by Acceptance immediately prior to the
restructuring. The aggregate indebtedness of the restructured loan was
represented by a single promissory note, due May 1, 1998, unless there was a
change in control of the Company prior to such time, in which event the maturity
of the loan will be accelerated. The interest rate on the restructured loan was
prime plus 1.5%, with interest payable quarterly in arrears. In January 1996,
the Company made a payment of $106,000 for interest relating to the fourth
quarter of 1995. The Company obtained permission to defer the remaining
quarterly interest payments due in 1996 and 1997 to Acceptance on its $5.1
million mortgage note in the event the Company's cash flow was insufficient to
make such payments, pending the receipt of funds from the sale of additional
properties or other sources. Accordingly, the Company did not make the $126,000
quarterly interest payments due on April 1, July 1, or October 1, 1996, and
January 1 and April 1, 1997. In September 1996, the Company made a payment to
Acceptance in the
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<PAGE> 89
amount of $240,000 which was applied to the deferred interest due from the first
two quarters of 1996. The balance of the deferred interest as of December 31,
1996, was approximately $263,000.
The Company's obligation to pay the foregoing amount, as well as
additional interest of $123,614 accrued from January 1 through March 31, 1997,
was restructured in April 1997, and such aggregate accrued interest and the $5.1
million principal amount due to Acceptance have been consolidated into a new
promissory note due May 31, 1998, unless there is a change in control of the
Company prior to such time, in which event the maturity of the loan will be
accelerated. The interest rate on the restructured loan is prime plus 2.5%, with
interest accruing and added to principal on a quarterly basis in arrears.
Subject to the Company's right to prepay the note, the outstanding principal
amount of the note (or any portion thereof), plus accrued but unpaid interest,
is convertible into common stock of the Company at the option of Acceptance at
any time upon 20 days prior notice, based upon a price per share equal to the
average closing price of the common stock during the 30-day period immediately
preceding the date of Acceptance's notice of its election to convert. The
Company's indebtedness to Acceptance is secured by a first mortgage on
substantially all of the Company's property, including the certain notes and
mortgages payable to the Company from third parties.
In April 1997, Acceptance provided the Company a $500,000 line of
credit. Under this revolving credit facility, the Company may borrow and
reborrow up to $500,000. All borrowings are due May 31, 1998, unless there is a
change in control of the Company prior to such time, in which event the maturity
of the loan will be accelerated. The interest rate on the line of credit is
prime plus 2.5%, with interest accruing and added to principal on a monthly
basis in arrears. The Company is required to pay a fee to Acceptance on December
31, 1997, and on the maturity date of the note, equal to 0.5% of the average
unused portion of the line of credit during each period. The Company paid
Acceptance a fee of $15,000 in connection with the restructuring of the $5.1
million mortgage loan and the establishment of the line of credit.
Acceptance has agreed to extend the terms of the original promissory
note and the line of credit promissory note until May 31, 1999, in the event the
Merger Transaction with PBD Holdings, described below, is not consummated.
Under an amendment to the employee lease agreement with Prechter
Holdings, Inc. (formerly, Heritage Network, Incorporated) ("Prechter Holdings"),
effective April 1, 1996, pursuant to which David L. Treadwell provides services
to the Company as its Chairman of the Board and Chief Executive Officer, the fee
to Prechter Holdings was reduced to $25,000 per annum, payable monthly, plus a
success fee of .5% with respect to transactions consummated during the term of
the Agreement and transactions contracted for which are closed within a
specified period of time after termination of the Agreement. The employee lease
agreement is terminable by either party on thirty days notice. See "Item 10.
Executive Compensation" below and "Note 10 - Related Party Transactions" to
Notes to Consolidated Financial Statements.
On March 5, 1998, the Company entered into an agreement and plan of
merger with PBD Holdings, L.P., an affiliate of Pembroke Companies, Inc. and
Blackacre Capital Group, L.P., pursuant to which a subsidiary of PBD Holdings
will be merged into the Company, and all of the outstanding shares of Common
Stock will be converted into the right to receive $1.25 per share in cash (the
"Merger Transaction"). The Merger Transaction has been approved by stockholders
holding a majority of the outstanding shares of Common Stock, and the Company is
currently
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<PAGE> 90
preparing an Information Statement to be distributed in early April 1998 to all
stockholders describing their rights with respect to the Merger Transaction. See
"Recent Developments."
In the event that the Merger Transaction is not consummated, the
Company's future operations will be dependent upon its ability to generate
sufficient cash flow to meet its obligations and operating costs on a timely
basis. Management believes that, with reduced operations and the deferrals
previously described, the Company has sufficient capital to allow it to continue
to meet its obligations through May 31, 1999. Thereafter, operations will depend
upon the Company's ability to obtain additional capital through joint venture
arrangements, additional loans, sales of additional securities or additional
properties, or some combination of the foregoing. There can be no assurance that
the Company would be successful in any of such endeavors.
IMPACT OF INFLATION AND CHANGING PRICES
The Company's revenues can be affected by inflation in a number of
ways. To the extent that general inflation in the economy has the effect of
increasing the general level of interest rates, the Company's revenues could be
adversely affected, inasmuch as prospective purchasers of land held for sale by
the Company may be unable to secure suitable financing for their purchases.
Also, higher interest rates could affect the ability of the Company to secure
suitable financing for development projects. Conversely, inflation which results
in higher real estate values could serve to enhance the Company's revenues
resulting from sales of property.
Inflation had no material effect on the results of operations in 1997
and 1996.
OTHER
Income Taxes
At December 31, 1997, the Company had net operating loss carryforwards
of approximately $6,908,000 million for income tax purposes that expire through
2012, and investment tax credit carryforwards of $172,000 that expire through
2000. These amounts are subject to annual limitations pursuant to provisions of
the Internal Revenue Code relating to cumulative changes in ownership. For
financial reporting purposes a valuation allowance has been recognized to offset
the portion of the deferred tax assets related to those carryforwards which are
dependent upon future events primarily related to the sale or development of
land. See Note 7 to the Consolidated Financial Statements included under Item 7
- - Financial Statements.
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<PAGE> 91
ITEM 7. FINANCIAL STATEMENTS.
The Company's Financial Statements included herein, at December 31,
1997 and 1996 and for the years ended December 31, 1997 and 1996, consist of the
following:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants ..................... 20
Consolidated Balance Sheets ........................... 21
Consolidated Statements of Operations ................. 22
Consolidated Statements of Stockholders' Equity ....... 23
Consolidated Statements of Cash Flows ................. 24
Notes to Consolidated Financial Statements ............ 25
</TABLE>
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<PAGE> 92
COOPERS & LYBRAND L.L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders of Major Realty Corporation and Subsidiaries
We have audited the consolidated balance sheets of Major Realty Corporation and
subsidiaries (the Company) as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Tampa, Florida
March 11, 1998, except as to the information in Note 6 for which the date is
March 25, 1998
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<PAGE> 93
MAJOR REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, December 31, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 242 $ 320
Mortgage notes receivable 2,750 2,750
Land held for sale or development 4,231 4,970
Land under lease 171 171
Other assets 1,188 915
------- -------
Total assets $ 8,582 $ 9,126
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable - trade $ 13 $ 58
Accrued expenses 705 790
Convertible mortgage notes payable due to related party 5,416 5,064
Deferred income taxes 26 26
------- -------
Total liabilities 6,160 5,938
------- -------
Commitments and contingencies (Notes 8, 10 and 11)
Stockholders' equity:
Series A Junior participating preferred stock - $1.00 par value;
authorized, 80,000 shares, none outstanding -- --
Common stock - $.01 par value; authorized,
12,000,000 shares; issued and outstanding,
6,893,378 shares 69 69
Capital in excess of par value 7,822 7,822
Accumulated deficit (5,469) (4,703)
------- -------
Total stockholders' equity 2,422 3,188
------- -------
Total liabilities and stockholders' equity $ 8,582 $ 9,126
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 94
MAJOR REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1997 and 1996
(in thousands except per share data)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Revenues:
Sales of real estate $ 875 $ 411
Lease income 131 131 131
Interest and other income 285 297
------- -------
Total revenues 1,291 839
------- -------
Costs and Expenses:
Costs of real estate sold:
Improved and unimproved land 783 174
Commissions and other expenses 30 24
Selling, general & administrative 621 674
Interest cost 623 546
------- -------
Total costs and expenses 2,057 1,418
------- -------
Loss before provision for income taxes (766) (579)
Provision for income taxes -- --
------- -------
Net loss $ (766) $ (579)
======= =======
Net loss per common share (basic) $ (.11) $ (.08)
======= =======
Average number of
common and common equivalent
shares outstanding (basic) 6,893 6,893
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 95
MAJOR REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
Common Stock Capital in
---------------- Excess of Accumulated Stockholders'
Shares Amount Par Value Deficit Equity
------ ------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 6,893 $69 $7,822 $(4,124) $3,767
Net loss (579) (579)
----- --- ------ ------- ------
Balance, December 31, 1996 6,893 69 7,822 (4,703) 3,188
Net loss (766) (766)
----- --- ------ ------- ------
Balance, December 31, 1997 6,893 $69 $7,822 $(5,469) $2,422
===== === ====== ======= ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 96
MAJOR REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (766) $ (579)
------- -------
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization of deferred changes 13 26
Net gain on sales of real estate (63) (235)
Increase in other assets
and other receivables (286) (266)
(Decrease) increase in accounts payable
and accrued expenses (129) 61
Decrease in income taxes payable -- (78)
------- -------
Total adjustments (465) (492)
------- -------
Net cash used for operating activities (1,231) (1,071)
------- -------
Cash flows from investing activities:
Additions to land held for sale or development (43) (23)
Proceeds from the sale of land held for sale
or development 846 409
Additions to property and equipment (1) (1)
------- -------
Net cash provided by
investing activities 802 385
------- -------
Cash flows from financing activities:
Proceeds from convertible mortgage notes
payable due to related party 686 --
Principal payments on mortgage notes
payable to related party (335) --
------- -------
Net cash provided by
financing activities 351 --
------- -------
Net decrease in cash and cash equivalents (78) (686)
Cash and cash equivalents at beginning of year 320 1,006
------- -------
Cash and cash equivalents at end of year $ 242 $ 320
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 646 $ 346
======= =======
</TABLE>
See Notes 3, 6 and 10 for non-cash activities.
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Description of Operations - The Company operates within the State of
Florida in the real estate industry. The Company is engaged in the
ownership and development of real estate.
In October, 1995, the Company announced that its Board of Directors had
determined that it was in the best interests of the shareholders to seek a
merger partner or otherwise seek a transaction for the sale of the Company.
The Company, cited capital constraints limiting the feasibility of
independently developing the Company's existing properties as a primary
factor in the Board's decision to seek a merger or sale transaction. On
March 5, 1998, the Company entered into an Agreement and Plan of Merger
with PBD Holdings, Inc. and Pembroke Acquisition, Inc. (see Note 11).
The Company's operations are dependent upon its ability to generate
sufficient cash flow to meet its obligations and operating costs on a
timely basis. Management believes the Company has sufficient capital to
allow it to continue to meet its obligations through May 31, 1999.
Thereafter, operations will depend upon the Company's ability to obtain
additional capital through joint venture arrangements, additional loans,
sales of additional securities or additional properties, merger partner,
transaction for the sale of the Company or some combination of the
foregoing. The Company's loan from Acceptance in the amount of
approximately $5.4 million is due on May 31, 1998 (see Note 6 and Note 11).
There can be no assurance that the Company will be able to secure
sufficient funds to repay or refinance the loan.
Recognition of Sales - Sales of real estate are generally recorded under
the accrual method. Under this method, profit is not recognized until the
collectibility of the sales price is reasonably assured and the earnings
process is virtually complete. When the sale does not meet the requirements
for recognition of income, profit is deferred until such requirements are
met.
Generally, collectibility of the sales price is considered assured for this
purpose if there is a cash down payment of 20% or more. The earnings
process generally is considered virtually complete when the sale has
closed, the cash down payment has been received, the mortgage notes
receivable are not subject to existing or future subordination and the
Company has no continuing involvement in the property that results in the
retention of substantial risks or rewards of ownership.
Cost of Land Held for Sale or Development - Real estate is carried at the
lower of cost or net realizable value. The cost of real estate includes
capitalized interest, real estate taxes and development costs which are
allocated to individual parcels and charged to cost of real estate sold on
a basis approximating the relative sales value method. These costs were
primarily incurred prior to fiscal 1993.
(Continued)
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<PAGE> 98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property and Equipment - Property and equipment is carried at cost, less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives (3 to 10 years) of the assets.
Additions and major replacements or betterments are added to the asset
cost. Repairs and maintenance costs are charged to expense as incurred. The
cost and related allowance for depreciation and amortization of assets sold
or otherwise disposed of are removed from the related accounts and the
resulting gains or losses are reflected in income.
Deferred Debt Issuance Costs - Debt issuance costs are being amortized over
the life of the related debt on a basis approximating the interest method.
Computation of Loss Per Share - Effective December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("FAS 128") which replaces the presentation of primary earnings per
share with basic earnings per share and which requires dual presentation of
basic and diluted earnings per share on the Consolidated Statements of
Operations. FAS 128 requires restatement of all prior-period earnings per
share data presented. Basic net earnings per share is computed by dividing
net income by the weighted average number of shares of common stock
outstanding during the period, and diluted net earnings per share includes
the effect of unexercised stock options using the treasury stock method.
The treasury stock method assumes that common stock was purchased at the
average market price during the period. Because the assumed exercise of
stock options would have an antidilutive effect on the net loss per share
for the years ended December 31, 1997 and 1996, no exercise of stock
options was assumed and no diluted net loss per share was presented.
Cash Equivalents - Generally, for purposes of the consolidated statements
of cash flows, the Company considers all short-term, highly liquid
investments with a maturity of 3 months or less to be cash equivalents.
Concentration of Credit Risk - The Company has no financial instruments
which subject it to off-balance sheet risk. Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of cash, cash equivalents and the mortgage notes receivable
(see Note 2). The Company maintains its cash and cash equivalents with high
credit quality financial institutions as determined by management.
Uses of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
-26-
<PAGE> 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Mortgage Notes Receivable:
Mortgage notes receivable as of December 31, 1997 and 1996 represents the
principal balance due on an 8% non-recourse note with principal and
interest due in April, 1998. The note was collateralized by a first
mortgage on the property received in exchange for the note.
3. Land Held for Sale or Development:
As of December 31, 1997, the aggregate carrying cost of land held for sale
or development which was under contract to be sold was approximately
$562,000.
During May 1997, the Company signed a contract for $850,000, for 10.09
acres of multi-family land located on Cason Cove Drive in Orlando, Florida.
The sale closed in August, 1997. The sale price was paid in cash at
closing. Approximately $595,000 of the proceeds was used to repay company
debt and the remainder will be used for company operations.
During October, 1997, the Company signed a contract for $700,000, for 1.75
acres of commercial land located on the west side of Major Boulevard in
Orlando, Florida. The buyer made a $10,000 deposit and had a 60-day risk
free inspection period to determine if it wished to proceed with the
contract. In December, 1997, the Buyer notified the Company of its wish to
terminate the contract. The deposit was refunded to the Buyer.
During November 1997, the Company signed a contract for $700,000, for 2
acres of commercial land located on the east side of Major Boulevard in
Orlando, Florida. The buyer made a $10,000 deposit and had a 45-day risk
free inspection period to look at the property to determine if it wished to
proceed with the contract. During December, 1997, the Buyer made an
additional $50,000 deposit. The full $60,000 deposit became non-refundable
at that time. Closing is scheduled for April 1998.
During November 1997, the Company signed a contract for $800,000, for 3
acres of commercial land located on the east side of Major Boulevard in
Orlando, Florida. The buyer made a $10,000 deposit and had a 45-day risk
free inspection period to look at the property to determine if it wished to
proceed with the contract. During December, 1997, the Buyer made an
additional $20,000 deposit. The full $30,000 deposit became non-refundable
at that time. Closing is scheduled for April 1998.
During November 1997, the Company signed a contract for $700,000, for 2
acres of commercial land located on the east side of Major Boulevard in
Orlando, Florida. The buyer made a $10,000 deposit and had a 60-day risk
free inspection period to look at the property to determine if it wished to
proceed with the contract. During January, 1998, the Buyer made an
additional
-27-
<PAGE> 100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$50,000 deposit and the inspection period was extended until February 5,
1998. The full $60,000 deposit is now non-refundable. On February 5, 1998
the contract was amended to reduce the sales price to $675,000. The closing
is scheduled for May 1998.
During February, 1996, the Company signed a contract for approximately
$411,000, for approximately 2.34 acres of commercial property located at
the northwest corner of the intersection of Conroy Road and Vineland Road
in Orlando, Florida. The sale closed in September, 1996. The sales price
was paid in cash at closing. Approximately $240,000 of the net proceeds was
used to repay company debt.
During August, 1996, the Company signed a contract for approximately
$1,050,000, for the sale of approximately 2.5 acres of commercial property
located on the west side of Major Boulevard in Orlando, Florida. The Buyer
made a $40,000 deposit and had a 90 day inspection period to determine if
it wished to proceed with the contract. On October 15, 1996, the Company
received notice from the Buyer it was canceling the contract. The deposit
was refunded to the Buyer.
During September, 1996, the Company signed two contracts for the sale of
multi-family land in the southwestern sector of Orlando, Florida. One
contract was for approximately 55 acres gross (17 acres net) in the amount
of $1,800,000. The other contract was for approximately 43 acres gross (15
acres net) in the amount of $1,350,000. The Buyer had placed a $10,000
deposit on each parcel and had a 60 day inspection period during which it
could cancel one or both of the contracts. On November 13, 1996, the
Company received notice from the Buyer it was canceling the contracts. The
deposits were refunded to the Buyer.
During September, 1995, the Company sold 10.36 acres of commercial land
located at the northeast intersection of Interstate 4 and Kirkman Road in
Orlando, Florida to Cracker Barrel Old Country Store, Inc. for $6,280,000.
The Company received $2,700,000 in cash at closing plus a $3,580,000
non-interest bearing promissory note, secured by a mortgage on the
property, which was due in two equal payments, one in April 1996 and the
other in April 1997. On March 27, 1996, Cracker Barrel formally notified
the Company of its intent to default on the note and reconvey the property
to the Company. Consequently, the Company recorded the sale of only 4.0
acres of land subject to the sale as "Land held for sale or development" at
December 31, 1995. Approximately $2,000,000 of the net proceeds was used to
repay company debt.
4. Land Under Lease:
The Company leases certain of its land under an operating lease. The ground
lease provides for an initial lease term of 12 years which expired during
1995 with options for automatic renewal for six (6) month increments,
unless the lessee gives a 30-day notice of termination to the Company. The
maximum lease term, including all extensions, may not extend beyond June
-28-
<PAGE> 101
2003. Revenues recognized under the operating lease approximated $131,000
for both years ended December 31, 1997 and 1996. Land under lease is
subordinated to the mortgages of the lessee.
5. Other Assets:
The components of other assets as of December 31, 1997 and 1996 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Accrued interest receivable $1,165 $904
Property and equipment, net of accumulated
depreciation of $61 and $63 in
1997 and 1996, respectively 2 5
Deferred debt issuance costs, net of
accumulated amortization of $10 and
$20 in 1997 and 1996, respectively 5 --
Other 16 6
------ ----
$1,188 $915
====== ====
</TABLE>
6. Convertible Mortgage Notes Payable:
Convertible Mortgage notes payable as of December 31, 1997 and 1996
represents the mortgage note payable due Acceptance (See Note 10). During
the years ended December 31, 1997 and 1996 the Company paid interest of
$646,000 and $346,000, respectively.
During February 1995, the Company entered into a loan arrangement with
Acceptance Insurance Companies Inc. ("Acceptance") whereby Acceptance
acquired the Company's promissory note and mortgage to Valassis
Enterprises, L.P. of $282,000, including accrued interest, and provided
additional funds which were used to repay two promissory notes in the
aggregate amount of $103,000, including accrued interest, held by
Acceptance, fund the interest reserve of $770,000 due in connection with
the Company's indebtedness to PNC Bank, Kentucky, Inc. (the "PNC Bank
Note"), pay real estate taxes in the amount of $327,000, pay loan closing
and extension costs of $75,000 and provide working capital of approximately
$43,000. The aggregate indebtedness to Acceptance in connection with these
transactions was $1,600,000, represented by a single promissory note due in
January 1996, which provided for interest, at the rate of twelve percent
(12%) per annum, to accrue monthly and be paid at maturity.
-29-
<PAGE> 102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During October 1995, Acceptance acquired the PNC Bank Note with an
outstanding balance of approximately $4,317,000, executing a first mortgage
securing the note and other associated loan documents. As a result, the
Company entered into a debt restructuring agreement with Acceptance for the
Company's $5,064,000 debt to Acceptance ($747,000 due from the February
1995 loan plus the PNC Bank Note). The interest rate on the restructured
loan was prime plus 1.5%, with interest payable quarterly in arrears. The
maturity of the loan, which prior to the restructuring was January 31,
1996, was extended to May 1, 1998, unless there was a change in control
prior to such time, in which event the maturity of the loan would be
accelerated. In April 1996, the Company received permission from Acceptance
to defer the quarterly interest payments due to Acceptance in the event the
Company's cash flow is insufficient to make such payments, pending the
receipt of funds from the sale of additional properties or other sources.
The Company's obligation to pay the foregoing amount, as well as additional
interest of $124,000 accrued from January 1 through March 31, 1997, was
restructured in April 1997, and such aggregate accrued interest and the
$5.1 million principal amount due to Acceptance have been consolidated into
a new promissory note due May 31, 1998, unless there is a change in control
of the Company prior to such time, in which event the maturity of the loan
will be accelerated. The interest rate on the restructured loan is prime
plus 2.5%, with interest accruing and added to principal on a quarterly
basis in arrears. The Company's indebtedness to Acceptance is secured by a
first mortgage on substantially all of the Company's property, including
certain notes and mortgages payable to the Company from third parties.
Subject to the Company's right to repay the note, the outstanding principal
amount of the note (or any portion thereof), plus accrued but unpaid
interest, is convertible into Common Stock at the option of Acceptance at
any time upon 20 days prior notice, based upon a price per share equal to
the average closing price of the Common Stock during the 30-day period
immediately preceding the date of Acceptance's notice of its election to
convert. The accrued interest on the note at December 31, 1997 was
$213,000.
Acceptance has agreed to extend the terms of the original promissory note
and the line of credit promissory note until May 31, 1999, in the event the
Merger Transaction with PBD Holdings, Inc. is not consummated (see Note
11).
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. Fair value is defined as the price at which a financial
instrument could be liquidated in an orderly manner over a reasonable time
period under present market conditions. The Company's adjustable rate loans
reprice frequently at current market rates. The rates of the Company's
fixed obligations (also see Note 10) approximate those rates of the
adjustable loans. Therefore, the fair value of these loans has been
estimated to be approximately equal to their carrying value.
-30-
<PAGE> 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
---------------------
7. Income Taxes:
A summary of the provision for income taxes for the years ended December
31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Federal and state income taxes
Current 0 0
Deferred 0 0
- -
0 0
</TABLE>
During the year ended December 31, 1997 and 1996 the Company paid income
taxes of $0 and $79,000, respectively.
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $6,908,000 for income tax purposes that expire through 2012,
and investment tax credit carryforwards of $172,000 that expire through
2000. Additionally, the Company had alternative minimum tax credits at
December 31, 1997 of $824,000 available to offset future regular tax
liabilities. These amounts are subject to annual limitations pursuant to
provision of the Internal Revenue Code relating to cumulative changes in
ownership. For financial reporting purposes, a valuation allowance has been
recognized to offset the portion of the deferred tax assets related to
those carryforwards which are dependent upon future events primarily
related to the sale or development of land. The net change in the valuation
allowance for the years ended December 31, 1997 and 1996 is ($289,000) and
$219,000, respectively.
Deferred income taxes primarily relate to basis differences between the
amounts recorded for financial reporting purposes and the amounts recorded
for income tax purposes. Significant components of the Company's deferred
tax liabilities and assets as of December 31, 1997 and 1996 are as follows
(all dollar amounts are in thousands):
-31-
<PAGE> 104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax liabilities:
Book over tax basis of land held for development $ 211 $ 96
------- -------
Deferred tax assets:
Net operating loss carryforwards 2,600 2,412
Investment tax credit carryforwards 172 172
Alternative minimum tax credit carryforwards 824 824
Deferred compensation liability 59 75
Accrued litigation costs 0 (6)
Deferred loan costs 3 6
Valuation allowance (3,895) (3,605)
------- -------
$ (237) $ (122)
------- -------
Net deferred tax liability $ (26) $ (26)
======= =======
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate for the following reasons:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
Amount % Amount %
------ --- ------ ----
<S> <C> <C> <C> <C>
Tax at statutory rate $(261) 34 $(198) 34
State taxes, net of
federal benefit (28) 4 (21) 4
Change in valuation allowance 289 (38) 219 (38)
----- --- ----- ----
Total $ 0 0 $ 0 0
===== === ===== ====
</TABLE>
8. Commitments and Contingencies:
The Company's corporate offices are located in the Major Center Plaza
office building. The lease expires in July, 1998. The estimated future
minimum lease obligation for 1998 is $8,900.
Rent expense for 1997 and 1996 was $15,000 and $14,000, respectively.
The Company from time to time is involved in legal actions arising in the
ordinary course of business. With respect to these matters, management
believes that it has adequate legal defenses
-32-
<PAGE> 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
---------------------
and/or has provided adequate accruals for related costs such that the
ultimate outcome will not have a material adverse effect on the Company's
future financial position.
9. Capital Stock:
During 1990, the Company adopted a Stock Option Plan (the "1990 Plan") to
replace the 1983 Employee Incentive Stock Option Plan. The 1990 Plan
provides for grants of both incentive stock options and non-qualified stock
options to key employees. The 1990 Plan also provided for the grant of
options to one of the Company's non-employee directors, who has since
resigned.
The purchase price of the common stock covered by each option granted shall
not be less than the fair market value of the Company's common stock on the
date the option is granted. No option granted may be exercised more than 10
years after the date of grant.
Options are exercisable at dates established by the Board of Directors.
Under the 1990 Plan, an employee may not be granted incentive stock options
first exercisable during any one calendar year for common stock with a fair
market value (at date of grant) in excess of $100,000. Options expire upon
termination of employment.
The Company applies APB Opinion No.25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for stock options.
Accordingly, no compensation cost has been recognized in connection with
the issuance of these options. In the opinion of management of the Company,
had the Company's stock options been determined based on the fair value at
the grant date for awards under the plan consistent with the method of SFAS
Statement No. 123, "Accounting for Stock Based Compensation," there would
be no effect to net income (loss) and income (loss) per share for the years
ended December 31, 1997 and 1996.
-33-
<PAGE> 106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a summary of changes in all options during the two years
ended December 31, 1997.
<TABLE>
<CAPTION>
Weighted Average
Exercise Price
Shares Per Share
------ ---------
<S> <C> <C>
Outstanding at December 31, 1995 150,000 $2.7679 - $12.50
Expired 0 $0
-------
Outstanding at December 31, 1996 150,000 $2.7679 - $12.50
Expired 50,000 $12.50
-------
Outstanding at December 31, 1997 100,000 $2.7679
=======
</TABLE>
At December 31, 1997 and 1996, exercisable options were 100,000 and
150,000, respectively.
During 1990, a non-employee member of the Board of Directors was granted
options to purchase 50,000 shares of common stock. The options could be
exercised at any time for a period not to exceed ten years, however, the
options terminated at the discontinuance of his services as a director. The
non-employee member of the Board of Directors tendered his resignation in
February, 1997. During 1992, the Chairman of the Board (the "Chairman") was
granted options to purchase 100,000 shares of common stock. Options to
purchase 50,000 of these shares vested in March, 1993 and options to
purchase the remaining 50,000 shares vested in March, 1994. The options
expire upon termination of the agreement between the Company and Prechter
Holdings, Inc. (see Note 10). During 1994, the Chairman was granted an
option to purchase an additional 100,000 shares of common stock which were
exercisable at any time until the earlier of the option expiration date of
June 30, 1995, or the termination of the Chairman's relationship with the
Company. The shares were not exercised and expired on June 30, 1995. No
options were exercised during 1997 or 1996.
10. Related Party Transactions:
During February 1995, the Company entered into a loan arrangement with
Acceptance Insurance Companies Inc. ("Acceptance") whereby Acceptance
acquired the Company's promissory note and mortgage to Valassis
Enterprises, L.P. of $282,000, including accrued interest, and provided
additional funds which were used to repay two promissory notes in the
aggregate amount of $103,000, including accrued interest, held by
Acceptance, fund the interest reserve of $770,000 due in connection with
the Company's indebtedness to PNC Bank, Kentucky, Inc. (the "PNC Bank
Note"), pay real estate taxes in the amount of $327,000, pay loan closing
and extension
-34-
<PAGE> 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
costs of $75,000 and provide working capital of approximately $43,000. The
aggregate indebtedness to Acceptance in connection with these transactions
was $1,600,000, represented by a single promissory note due in January
1996, which provided for interest, at the rate of twelve percent (12%) per
annum, to accrue monthly and be paid at maturity.
During October 1995, Acceptance acquired the PNC Bank Note with an
outstanding balance of approximately $4,317,000, executing a first mortgage
securing the note and other associated loan documents. As a result, the
Company entered into a debt restructuring agreement with Acceptance for the
Company's $5,064,000 debt to Acceptance ($747,000 due from the February
1995 loan plus the PNC Bank Note).
The interest rate on the restructured loan was prime plus 1.5%, with
interest payable quarterly in arrears. The maturity of the loan which prior
to the restructuring was January 31, 1996, was extended to May 1, 1998,
unless there was a change in control prior to such time, in which event the
maturity of the loan would be accelerated. In April 1996, the Company
received permission from Acceptance to defer the quarterly interest
payments due to Acceptance in the event the Company's cash flow is
insufficient to make such payments, pending the receipt of funds from the
sale of additional properties or other sources.
The Company's obligation to pay the foregoing amount, as well as additional
interest of $124,000 accrued from January 1 through March 31, 1997, was
restructured in April 1997, and such aggregate accrued interest and the
$5.1 million principal amount due to Acceptance have been consolidated into
a new promissory note due May 31, 1998, unless there is a change in control
of the Company prior to such time, in which event the maturity of the loan
will be accelerated. The interest rate on the restructured loan is prime
plus 2.5%, with interest accruing and added to principal on a quarterly
basis in arrears. The Company's indebtedness to Acceptance is secured by a
first mortgage on substantially all of the Company's property, including
certain notes and mortgages payable to the Company from third parties.
Subject to the Company's right to repay the note, the outstanding principal
amount of the note (or any portion thereof), plus accrued but unpaid
interest, is convertible into Common Stock at the option of Acceptance at
any time upon 20 days prior notice, based upon a price per share equal to
the average closing price of the Common Stock during the 30-day period
immediately preceding the date of Acceptance's notice of its election to
convert. The accrued interest on the note at December 31, 1997 was
$213,000.
In April 1997, Acceptance provided the Company a $500,000 line of credit.
Under this revolving credit facility, the Company may borrow and reborrow
up to $500,000. All borrowings are due May 31, 1998, unless there is a
change in control of the Company prior to such time, in which event the
maturity of the loan will be accelerated. The interest rate on the line of
credit is prime plus 2.5%, with interest accruing and added to principal on
a monthly basis
-35-
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
in arrears. The Company is required to pay a fee to Acceptance on December
31, 1997, and on the maturity date of the note, equal to 0.5% of the
average unused portion of the line of credit during each period. The
Company paid Acceptance a fee of $15,000 in connection with the
restructuring of the $5.1 million mortgage loan and the establishment of
the line of credit.
On April 23, 1997, the Company borrowed $300,000 on the line of credit to
pay 1996 real estate taxes due in the amount of $261,000 and to provide
working capital. On August 25, 1997, the Company repaid Acceptance the
$300,000 on the line of credit and $12,000 in accrued interest on the
advance and the unused portion of the line of credit. At December 31, 1997,
the interest accrued on the line of credit was $900.
Acceptance has agreed to extend the terms of the original promissory note
and the line of credit promissory note until May 31, 1999, in the event the
Merger Transaction with PBD Holdings, Inc. is not consummated (see Note
11).
Acceptance beneficially owns 33.1% of the common stock of the Company. All
of the Company's directors also are directors of Acceptance. George F.
Valassis, who beneficially owns 9.7% of the common stock of the Company,
also beneficially owns 23.1% of the common stock of Acceptance. By virtue
of such positions with or interests in Acceptance, such persons may have a
material indirect interest in the transactions described above between the
Company and Acceptance.
David L. Treadwell, Chairman of the Board of Directors, serves as the
Company's Chief Executive Officer pursuant to an Employee Lease Agreement
(the "Agreement") with Mr. Treadwell's primary employer, Prechter Holdings,
Inc. (formerly, Heritage Network, Incorporated) ("Prechter Holdings"). The
Agreement, which commenced on March 27, 1992, requires Mr. Treadwell to
devote such time to his duties as Chief Executive Officer as he and the
Board of Directors determine to be necessary. The Agreement, as currently
amended, provides for an annual fee of $25,000, payable monthly. The
Company also is required to pay a success fee of .5% with respect to
transactions which are consummated during the term of the Agreement or
closed within a specified period of time after termination of the
Agreement, up to a maximum success fee of $75,000. The last amendment to
the Agreement, executed in March 1997, extended the term of the Agreement
until December 31, 1997, with automatic successive one month extensions.
Either party may terminate the Agreement at any time, with or without
cause, upon 30 days' notice. The Agreement will automatically terminate in
the event that Mr. Treadwell ceases to be employed by Prechter Holdings or
he ceases to serve as Chief Executive Officer of the Company, either
voluntarily, due to his illness, incapacity or death, or his removal as
Chief Executive Officer by the Board of Directors of the Company. Prechter
Holdings was owed $30,000 and $43,800 under the Agreement for 1997 and
1996, respectively. At December 31, 1997, the Company owed Prechter
Holdings approximately $19,000 for unpaid fees and interest previously
deferred under the Agreement. In February, 1998, the
-36-
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company paid its obligation to Prechter Holdings in the amount of $19,123,
including $373 accrued interest.
As part of the original Agreement, Mr. Treadwell was granted the right to
purchase from the Company 100,000 shares of common stock of the Company,
par value $0.01 per share, for $2.7679 per share. These options, all of
which are vested, terminate upon Mr. Treadwell's resignation as Chief
Executive Officer of the Company or upon termination of the Agreement.
11. Subsequent Events.
The 8% mortgage note receivable due in April 1998, reflected on the
balance sheets as of December 31, 1997 and 1996, was satisfied in January
1998, in the amount of $3,927,941, including $1,177,941 of interest, which
was discounted. Proceeds were used to retire Company debt in the amount of
$3,142,353, pay real estate taxes in the amount of $229,725, with the
balance to be used for Company operations.
During January, 1998, the Company signed a contract for the sale of 3 acres
of commercial land located on the west side of Major Boulevard in Orlando,
Florida for $1,200,000. The buyer made a $10,000 deposit and has a 90-day
no risk inspection period in which to look at the property to determine if
it wants to go forward with the purchase. If the Buyer proceeds with the
contract an additional $50,000 deposit will be required. Closing is
estimated for September, 1998.
During February, 1998, the Company signed a contract for the sale of 2.63
acres of commercial land located on the north east corner of Republic Drive
and Carrier Drive located in Orlando, Florida for $750,000. The buyer has a
60-day risk free inspection period in which to look at the property to
determine if it wants to go forward with the purchase. If the Buyer
proceeds with the contract an additional $40,000 deposit will be required.
Closing is estimated for July, 1998.
During February, 1998, the Company signed a contract for the sale of 55
acres gross (16.42 acres net) of multi-family land in the southwestern
sector of Orlando, Florida for $2,040,000. The buyer has 90-day risk free
inspection period in which to look at the property to determine if it wants
to go forward with the purchase. If the Buyer proceeds with the contract an
additional $90,000 deposit will be required. Closing is estimated for
August, 1998.
During February, 1998, the Company signed a contract for the sale of 1.74
acres of commercial land located on the west side of Major Boulevard in
Orlando, Florida for $665,000. The buyer has made a $10,000 deposit and has
a 60-day no risk inspection period in which to determine if it wants to go
forward with the purchase. If the Buyer proceeds with the contract an
additional $40,000 deposit will be required. Closing is estimated for July,
1998.
-37-
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During March 1998, the Company signed a contract for the sale of 6.36 acres
of commercial land located at the northeast intersection of Interstate 4
and Kirkman Road in Orlando, Florida for $4,770,000. The buyer has made a
$50,000 deposit and has a 60-day no risk inspection period in which to
determine if it wants to go forward with the purchase. If the buyer
proceeds with the contract an additional $50,000 deposit will be required
and the closing would occur in August, 1998.
During March 1998, the Company signed a contract for the sale of 42.03
acres gross (15 acres net) of multi-family land located on Conroy Road in
Orlando, Florida for $1,500,000. The buyer has made a $10,000 deposit and
has a 90-day no risk inspection period in which to determine if it wants to
go forward with the purchase. If the buyer proceeds with the contract an
additional $90,000 deposit will be required and the closing would occur in
September, 1998.
On March 5, 1998, the Company entered into an agreement and plan of merger
with PBD Holdings, L.P. ("Holdings"), an affiliate of Pembroke Companies,
Inc. and Blackacre Capital Group, L.P., pursuant to which a subsidiary of
Holdings will be merged into the Company, and all of the outstanding shares
of common stock of the Company ("Common Stock") will be converted into the
right to receive $1.25 per share in cash (the "Merger Transaction"). The
Merger Transaction has been approved by stockholders holding a majority of
the outstanding shares of Common Stock, and the Company is currently
preparing an Information Statement to be distributed in early April 1998 to
all stockholders describing their rights with respect to the Merger
Transaction. If the Merger Agreement is terminated by the Company due to
the material breach thereof by Holdings, Holdings is required promptly to
pay to the Company as liquidated damages a fee in cash in an amount equal
to $500,000, plus all out-of-pocket expenses incurred in connection with
the negotiation of the Merger by the Company, including, without
limitation, reasonable fees and expenses of legal counsel, accountants and
other professionals in connection with the negotiation and execution of the
Agreement in Principle, the Merger Agreement and all of the transactions
contemplated therein. Holdings has deposited $500,000 with an escrow agent
to be used as part of the consideration to be paid to the Company's
stockholders in the Merger Transaction or as a portion of such fee. If the
Merger Agreement is terminated by Holdings due to the material breach
thereof by the Company, the Company is required promptly to pay to Holdings
as liquidated damages a fee in cash in an amount equal to $500,000, plus
all out-of-pocket expenses incurred in connection with the negotiation of
the Merger by Holdings, including, without limitation, reasonable fees and
expenses of legal counsel, accountants and other professionals in
connection with the negotiation and execution of the Agreement in
Principle, the Merger Agreement and all of the transactions contemplated
therein.
The Company's loan from Acceptance, with an outstanding balance of
approximately $2.5 million, is currently due on May 31, 1998. Acceptance
has agreed to extend the term of the loan
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<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
until May 31, 1999, if the merger transaction with PBD Holdings, Inc. is
not consummated (see Note 6).
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<PAGE> 112
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Directors
The following table sets forth information regarding the Company's
Board of Directors.
<TABLE>
<CAPTION>
Position with Company, Principal
Name Age Occupation and Other Directorships
---- --- ----------------------------------
<S> <C> <C>
Jay A. Bielfield 52 Mr. Bielfield has served as a Director since
September 1992. Mr. Bielfield is an employee
and a member of the board of directors of
Little Caesar Enterprises, Inc. He also is a
director of Detroit Tigers, Inc. and
Acceptance Insurance Companies Inc. Mr.
Bielfield is an Alternate Governor of the
National Hockey League on behalf of the
Detroit Red Wings, Inc.
Kenneth C. Coon 47 Mr. Coon has served as a Director since July
1993. He has been chairman, president, chief
executive officer and a director of
Acceptance Insurance Companies Inc., a 33.1%
owner of the Company, since December 1992,
and served as interim chief executive
officer of Acceptance prior to that time,
beginning in February 1992. He has been
president and a director of Acceptance's
insurance subsidiaries since their formation
or acquisition.
Michael R. McCarthy 46 Mr. McCarthy has served as a Director since
July 1993. He has been chairman and a
director of McCarthy & Co., a firm engaged
in the investment banking business in Omaha,
Nebraska, since it was organized in 1986. He
is also a director and chairman of McCarthy
Group, Inc., which is the parent of both
McCarthy & Co. and McCarthy Group Asset
Management and a director of Acceptance
Insurance Companies Inc.
</TABLE>
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<PAGE> 113
<TABLE>
<CAPTION>
Position with Company, Principal
Name Age Occupation and Other Directorships
---- --- ----------------------------------
<S> <C> <C>
David L. Treadwell 43 Mr. Treadwell has served as Chairman, Chief
Executive Officer and a Director since March
1992. He has served as president and chief
executive officer of Prechter Holdings, Inc.
(formerly, Heritage Network, Incorporated),
which provides management services for
publishing, residential home building and
other investment related businesses since
January 1991. Since 1986, Mr. Treadwell also
has served as president of Heritage
Development Company, a real estate portfolio
management and development company. Mr.
Treadwell is a director of Acceptance
Insurance Companies Inc.
</TABLE>
No family relationships exist between any of the Company's Directors.
Executive Officers
The following table sets forth information regarding the Company's sole
executive officer, who was appointed by the Board of Directors and serves at the
pleasure of the Board.
<TABLE>
<CAPTION>
Position with Company, Principal
Name Age Occupation and Other Directorships
---- --- ----------------------------------
<S> <C> <C>
David L. Treadwell 43 Chairman of the Board, Director and Chief
Executive Officer. See "Directors" above for
biographical information.
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's Directors, officers and holders of more than 10% of the
Company's Common Stock to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and any other equity securities of the Company. To the Company's knowledge,
based solely upon a review of the forms and certificates filed with the Company
by such persons, all persons who were Directors, executive officers or holders
of more than 10% of the Company's Common Stock complied with such Section 16(a)
filing requirements during fiscal year 1997.
ITEM 10. EXECUTIVE COMPENSATION.
David L. Treadwell, Chairman of the Board of Directors, serves as the
Company's Chief Executive Officer pursuant to an Employee Lease Agreement (the
"Agreement") with Mr. Treadwell's primary employer, Prechter Holdings, Inc.
(formerly, Heritage Network, Incorporated) ("Prechter Holdings"). The Agreement,
which commenced
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<PAGE> 114
on March 27, 1992, requires Mr. Treadwell to devote such time to his duties as
Chief Executive Officer as he and the Board of Directors determine to be
necessary.
Under the original Agreement, the Company paid Prechter Holdings at an
annual rate of $100,000 per year for Mr. Treadwell's services as Chief Executive
Officer of the Company. Prechter Holdings is responsible for all of Mr.
Treadwell's salary and bonus, if any, all administrative employment matters,
such as the payment of all federal, state and local employment taxes and
providing workers' compensation coverage, and all non-obligatory fringe benefit
programs, such as health insurance, holidays and vacation. The Company pays Mr.
Treadwell's reasonable travel expenses, including transportation to and from his
home city of Southgate, Michigan.
To assist the Company's cash flow, Prechter Holdings proposed in April
1994, that $75,000 of the $100,000 annual fee due under the Agreement for 1994
be deferred pending the closing of future property sales or other transactions.
The Agreement was modified by Amendment No. 1 dated as of April 1, 1994, to
extend the agreement through December 31, 1994, and defer payment of
seventy-five percent (75%) of each monthly installment, without interest, for
the period April 1 through December 31, 1994, until the earlier of (a) such time
as the Company received cash from a property sale or other real estate
transaction and the Compensation and Options Committee determined that the
Company has sufficient cash flow to permit payment of such accrued fee, or (b)
December 31, 1994.
Amendment No. 2 to the Agreement, dated as of January 1, 1995, extended
the Agreement through March 31, 1995. Under the amendment, beginning on December
31, 1994, interest on all deferred amounts accrued at the rate of twelve percent
(12%) per annum. Amendment No. 3 to the Agreement, dated as of April 1, 1995,
extended the Agreement through March 31, 1996. Under a fourth amendment to the
Agreement effective April 1, 1996, the fee to Prechter Holdings was reduced to
$25,000 per annum, payable monthly. The Company is also required to pay a
success fee of .5% with respect to transactions consummated during the term of
the Agreement and for transactions contracted for which are closed within a
specified period of time after termination of the Agreement, up to a maximum
success fee of $75,000. The renewal extended the Agreement until March 31, 1997.
A fifth amendment executed in March 1997 extended the term of the Agreement
until December 31, 1997, with automatic successive one month extensions. Either
party may terminate the Agreement at any time, with or without cause, upon 30
days' notice. The Agreement will automatically terminate in the event that Mr.
Treadwell ceases to be employed by Prechter Holdings or he ceases to serve as
Chief Executive Officer of the Company, either voluntarily, due to his illness,
incapacity or death, or his removal as Chief Executive Officer by the Board of
Directors of the Company.
As part of the original Agreement, Mr. Treadwell was granted the right
to purchase from the Company 100,000 shares of the common stock of the Company,
par value $0.01 per share, for $2.7679 per share. Options to purchase 50,000
shares vested on March 27, 1993, and options to purchase the remaining 50,000
shares vested on March 27, 1994. These options terminate upon Mr. Treadwell's
resignation as Chief Executive Officer of the Company or upon termination of the
Agreement. Mr. Treadwell has 10 days following termination of the Agreement to
exercise the options granted to him. On June 14, 1994, Mr. Treadwell was granted
options to purchase an additional 100,000 shares of
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<PAGE> 115
the Company's common stock for $2.00 per share. These options expired
unexercised on June 30, 1995.
The following table is a summary of the compensation paid by the
Company to Mr. Treadwell for 1997, 1996 and 1995.
<TABLE>
<CAPTION>
==============================================================================================================
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term
Compensation
- --------------------------------------------------------------------------------------------------------------
Awards
- --------------------------------------------------------------------------------------------------------------
Name and Principal Position Year Salary ($) Bonus($) Options (#)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David L. Treadwell
Chairman of the Board and Chief Executive 1997 $ 30,000(1)
Officer 1996 43,800(1)
1995 100,000(1)
==============================================================================================================
</TABLE>
(1) This amount was paid or has been accrued to Prechter Holdings for
Mr. Treadwell's services as Chief Executive Officer pursuant to an
Employee Lease Agreement, which provides for Mr. Treadwell's services
to the Company.
The following table details aggregated stock option exercises in 1997
and stock option values as of December 31, 1997, for unexercised stock options
held by the Company's executive officers:
<TABLE>
<CAPTION>
==================================================================================================================
AGGREGATED STOCK OPTION EXERCISES IN 1997
AND STOCK OPTION VALUES AS OF DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------
Value of
Name Shares Acquired on Value Realized Number of Unexercised in-
Exercise (#) ($) Unexercised the-Money
Options Options
at FY-End at FY-End
(#) Exercisable/ ($) Exerciable/
Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David L. Treadwell 0 N/A 100,000/-0- N/A (1)
==================================================================================================================
</TABLE>
(1) At fiscal year end, December 31, 1997, the closing price of the Common
Stock was $1.06 per share, based on the closing sale price on the
Nasdaq SmallCap Market, which price was less than the exercise price of
the stock options.
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<PAGE> 116
DIRECTORS' COMPENSATION
Directors who are not employees of the Company are paid $2,500 for each
meeting of the Board of Directors attended in person and $500 for each committee
meeting attended in person, except that no separate compensation is paid for
attendance at a committee meeting held on the same day as, or within one day of,
a Board of Directors' meeting. Reasonable out-of-pocket expenses related to the
Directors' attendance at all meetings or incurred in connection with their
duties as a Director or committee member are also reimbursed by the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table provides information as of March 6, 1998, unless
otherwise indicated, with respect to beneficial ownership of the Company's
common stock by each person known by the Company to be the beneficial owner of
more than 5% of its outstanding common stock.
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership Percent of Class
------------------------------------ -------------------- ----------------
<S> <C> <C>
PBD Holdings, L.P. 3,461,111(1) 50.2%
c/o Pembroke Companies, Inc.
Suite 1200
1325 Avenue of the Americas,
New York, New York
Acceptance Insurance 2,280,500(2) 33.1%
Companies Inc.
Suite 600 North
222 South 15th Street
Omaha, NE 68102
Third Capital, LLC 680,000(3) 9.87%
314 Church Street, 9th Floor
Nashville, TN 37201
George F. Valassis 671,641(4) 9.7%
2000 North Woodward
Suite 200
Bloomfield Hills, MI 48304
Allied Domecq Pension Funds 445,370(5) 6.46%
Wyndham Court
Pritchard Street
Bristol, England BS2 8RH
</TABLE>
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<PAGE> 117
- --------------------
(1) Represents shares owned by Acceptance Insurance Company, George F.
Valassis and certain other stockholders of the Company which PBD
Holdings has a current right to vote, and a contingent right to
purchase under certain circumstances if the Merger Agreement between
the Company and PBD Holdings is terminated, under that certain
Stockholder Agreement dated as of March 4, 1998, with Acceptance
Insurance Company, George F. Valassis and certain other stockholders of
the Company.
(2) According to Amendment No. 25 to Schedule 13D filed March 9, 1998, by
Acceptance Insurance Companies Inc. ("Acceptance") and Acceptance
Insurance Company ("AIC"), a wholly-owned subsidiary of Acceptance,
amending a Schedule 13D previously filed by Samelson Real Estate
Partners, Inc. and Acceptance Insurance Holdings, Inc., AIC is shown as
beneficially owning 2,280,500 shares of the Common Stock.
(3) According to Schedule 13G filed December 11, 1997, by Third Capital,
LLC, PAG Corp. and PAG Partners, L.P.
(4) According to Amendment No. 2 to Schedule 13D filed April 12, 1990, by
George F. Valassis.
(5) According to the Schedule 13D filed November 5, 1993, by Tamanda II
Corporation ("Tamanda"), Denmark Street (Bristol) Pension Trust Limited
("Denmark Street") and Allied-Lyons Pension Funds, consisting of
Allied-Lyons Pension Fund and Allied-Lyons Executives Pension Fund (the
"Pension Funds"). Tamanda, a wholly-owned subsidiary of Denmark Street,
is the record owner of all of the shares of Common Stock. The Pension
Funds, through their subsidiaries, own all of the capital stock of
Denmark Street and, accordingly, the Pension Funds may be deemed to be
the controlling persons of Tamanda and Denmark Street. Each of Tamanda,
Denmark Street and the Pension Funds have shared power to vote or
direct the vote of and to dispose or direct the disposition of all of
the shares of Common Stock. (The Allied-Lyons funds are now known as
the Allied Domecq funds.)
The following table provides information as of March 6, 1998, unless
otherwise indicated, with respect to the beneficial ownership of the Company's
Common Stock by (i) each Director of the Company individually, (ii) the
Company's sole executive officer, (iii) all Directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership (1) of Class
------------------- ------------------------ --------
<S> <C> <C>
Jay A. Bielfield (2)(3) 2,400 *
Little Caesar
International, Inc.
2211 Woodward Avenue
Detroit, MI 48201-3400
</TABLE>
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<PAGE> 118
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership (1) of Class
------------------- ------------------------ --------
<S> <C> <C>
Kenneth C. Coon (4) 1,000 *
Acceptance Insurance
Companies Inc.
Suite 600 North
222 South 15th Street
Omaha, NE 68102
Michael R. McCarthy (3)(5) 5,500 *
McCarthy Group Asset Management
1125 South 103rd Street
Suite 450
Omaha, NE 68124
David L. Treadwell (3)(6) 100,000 1.4
Prechter Holdings, Inc.
One Heritage Place
Suite 400
Southgate, MI 48195
All Directors and Officers 108,900 1.6
as a Group (4 Persons)
</TABLE>
- --------------------------------------------------------------------------------
* Less than one percent.
(1) This column sets forth shares of common stock which are deemed to be
"beneficially owned" by the persons named in the table under Rule 13d-3
of the Securities and Exchange Commission. Each of the persons named in
the table have sole voting and investment power with respect to all
shares beneficially owned by them except as otherwise described in the
following footnotes.
(2) Includes 2,400 shares held in an individual retirement account.
(3) Does not include 2,280,500 shares held by Acceptance Insurance
Companies Inc. ("Acceptance"), representing approximately 33% of the
outstanding shares, beneficial ownership of which is disclaimed.
Although beneficial ownership of the shares owned by Acceptance is
disclaimed, as a director of Acceptance, he may be deemed to share
voting and investment power with respect to such shares of common stock
with Acceptance.
(4) Does not include 2,280,500 shares held by Acceptance Insurance
Companies Inc. ("Acceptance"), representing approximately 33% of the
outstanding shares. Mr. Coon is Chairman, President, Chief Executive
Officer and a Director of Acceptance. Although Mr. Coon disclaims
beneficial ownership of the shares owned by Acceptance, as Chairman,
President, Chief Executive Officer and a Director of Acceptance, he may
be deemed to share voting and investment power with respect to such
shares of common stock with Acceptance.
(5) McCarthy Group Asset Management f/k/a LongView Capital Management, a
registered investment advisor, shares authority to vote and to sell
5,500 shares of common stock, which
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<PAGE> 119
securities are held in a discretionary investment managed account at
First National Bank of Omaha f/b/o James P. Wands.
(6) Represents presently exercisable options to purchase 100,000 shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
A description of the relationships and affiliations of the directors,
officers and holders of more than 5% of the Common Stock of the Company with the
parties identified in this section are contained in the last paragraph of this
section.
Loan from Acceptance
On February 1, 1995, the Company entered into a loan arrangement with
Acceptance Insurance Companies Inc., ("Acceptance") whereby Acceptance acquired
the Company's promissory note and mortgage to Valassis Enterprises, L.P. (which
had a balance of approximately $282,000 on such date) and provided additional
funds which were used to repay the Major Group Notes held by Acceptance in the
aggregate amount of approximately $103,000, fund the interest reserve for the
Company's loan with PNC Bank ($770,000), pay real estate taxes in the amount of
$326,597, pay loan closing and extension costs of $75,000, and provide working
capital of approximately $43,000. The aggregate indebtedness to Acceptance in
connection with these transactions was $1,600,000, represented by a single
promissory note due January 31, 1996, which provided for interest, at the rate
of twelve percent (12%) per annum, to accrue and be paid at maturity. The note
was secured by a second mortgage on substantially all of the Company's property.
At December 31, 1996, the Company was indebted to Acceptance pursuant
to a loan restructure arrangement entered into on October 18, 1995, in the
principal amount of $5,064,144, comprised of $747,313 due to Acceptance under
the terms of a February 1995 restructuring and $4,316,881 previously owed to
Citizens Fidelity Bank and Trust Company, now known as PNC Bank, Kentucky, Inc.
("PNC"), which indebtedness was acquired by Acceptance immediately prior to the
restructuring. The aggregate indebtedness of the restructured loan was
represented by a single promissory note, due May 1, 1998, unless there was a
change in control of the Company prior to such time, in which event the maturity
of the loan will be accelerated. The interest rate on the restructured loan was
prime plus 1.5%, with interest payable quarterly in arrears. In January 1996,
the Company made a payment of $106,000 for interest relating to the fourth
quarter of 1995. The Company obtained permission to defer the remaining
quarterly interest payments due in 1996 and 1997 to Acceptance on its $5.1
million mortgage note in the event the Company's cash flow was insufficient to
make such payments, pending the receipt of funds from the sale of additional
properties or other sources. Accordingly, the Company did not make the $126,000
quarterly interest payments due on April 1, July 1, or October 1, 1996, and
January 1 and April 1, 1997. In September 1996, the Company made a payment to
Acceptance in the amount of $240,000 which was applied to the deferred interest
due from the first two quarters of 1996. The balance of the deferred interest as
of December 31, 1996, was approximately $263,000.
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<PAGE> 120
The Company's obligation to pay the foregoing amount, as well as
additional interest of $123,614 accrued from January 1 through March 31, 1997,
was restructured in April 1997, and such aggregate accrued interest and the $5.1
million principal amount due to Acceptance have been consolidated into a new
promissory note due May 31, 1998, unless there is a change in control of the
Company prior to such time, in which event the maturity of the loan will be
accelerated. The interest rate on the restructured loan is prime plus 2.5%, with
interest accruing and added to principal on a quarterly basis in arrears.
Subject to the Company's right to prepay the note, the outstanding principal
amount of the note (or any portion thereof), plus accrued but unpaid interest,
is convertible into common stock of the Company at the option of Acceptance at
any time upon 20 days prior notice, based upon a price per share equal to the
average closing price of the common stock during the 30-day period immediately
preceding the date of Acceptance's notice of its election to convert. The
Company's indebtedness to Acceptance is secured by a first mortgage on
substantially all of the Company's property, including the certain notes and
mortgages payable to the Company from third parties.
In April 1997, Acceptance provided the Company a $500,000 line of
credit. Under this revolving credit facility, the Company may borrow and
reborrow up to $500,000. All borrowings are due May 31, 1998, unless there is a
change in control of the Company prior to such time, in which event the maturity
of the loan will be accelerated. The interest rate on the line of credit is
prime plus 2.5%, with interest accruing and added to principal on a monthly
basis in arrears. The Company is required to pay a fee to Acceptance on December
31, 1997, and on the maturity date of the note, equal to 0.5% of the average
unused portion of the line of credit during each period. The Company paid
Acceptance a fee of $15,000 in connection with the restructuring of the $5.1
million mortgage loan and the establishment of the line of credit.
Acceptance has agreed to extend the terms of the original promissory
note and the line of credit promissory note for a year, until May 31, 1999, if
the Merger Transaction with PBD Holdings is not consummated.
Employee Lease Agreement regarding David Treadwell
David L. Treadwell, Chairman of the Board of Directors, serves as the
Company's Chief Executive Officer pursuant to an Employee Lease Agreement (the
"Agreement") with Mr. Treadwell's primary employer, Prechter Holdings, Inc.
(formerly, Heritage Network, Incorporated) ("Prechter Holdings"). See "Item 10.
Executive Compensation."
The Agreement, which commenced on March 27, 1992, requires Mr.
Treadwell to devote such time to his duties as Chief Executive Officer as he and
the Board of Directors determine to be necessary. The Agreement, as currently
amended, provides for a fee of $25,000 per annum, payable monthly. The Company
also is required to pay a success fee of .5% with respect to transactions
consummated during the term of the Agreement and for transactions contracted for
which are closed within a specified period of time after termination of the
Agreement, up to a maximum success fee of $75,000. The last amendment, executed
in March 1997, extended the term of the Agreement until December 31, 1997, with
automatic successive one month extensions. Either party may terminate the
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<PAGE> 121
Agreement at any time, with or without cause, upon 30 days' notice. The
Agreement will automatically terminate in the event that Mr. Treadwell ceases to
be employed by Prechter Holdings or he ceases to serve as Chief Executive
Officer of the Company, either voluntarily, due to his illness, incapacity or
death, or upon his removal as Chief Executive Officer by the Board of Directors
of the Company. The Company paid Prechter Holdings $30,000 under the Agreement
in 1997 and $43,800 in 1996.
As part of the original Agreement, Mr. Treadwell was granted the right
to purchase from the Company 100,000 shares of the common stock of the Company,
par value $0.01 per share, for $2.7679 per share. Options to purchase 50,000
shares vested on March 27, 1993, and options to purchase the remaining 50,000
shares vested on March 27, 1994. These options terminate upon Mr. Treadwell's
resignation as Chief Executive Officer of the Company or upon termination of the
Agreement.
Acceptance beneficially owns 33.1% of the common stock of the Company.
Messrs. Bielfield, Coon, McCarthy and Treadwell are directors of Acceptance.
George F. Valassis, who beneficially owns 9.7% of the common stock of the
Company, also beneficially owns 23.1% of the common stock of Acceptance. By
virtue of such positions with or interests in Acceptance, such persons may have
a material indirect interest in the transactions described above between the
Company and Acceptance.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger among the Company, PBD Holdings,
L.P. and Pembroke Acquisition, Inc., dated as of March 4,
1998.
2.2 Amendment No. 1 dated as of March 26, 1998, to Agreement and
Plan of Merger, among the Company, PBD Holdings, L.P. and Pembroke
Acquisition, Inc., dated as of March 4, 1998.
3.1 Certificate of Incorporation of the Company, as amended
(previously filed as an exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987 and
as Exhibit 3.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987).
3.2 Bylaws of the Company, as amended (previously filed as an
exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990).
4 Other instruments, notes or extracts from agreements defining
the rights of holders of long-term debt of the Company or its
subsidiaries have not been filed because (i) in each case the
total amount of long-term debt permitted thereunder does not
exceed 10% of the Company's consolidated assets, and (ii) the
Company hereby agrees that it will furnish such instruments,
notes and extracts to the Securities and Exchange Commission
upon its request.
</TABLE>
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<PAGE> 122
<TABLE>
<S> <C>
10.1 Form of Indemnity Agreement between the Company and its
directors and certain officers, as utilized since December 12,
1988, (previously filed as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988).
10.2* Salary Continuation Agreement dated November 19, 1986, between
the Company and Alvin L. Lawing, Jr. (previously filed as an
exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987).
10.3 Agreements dated July 8, 1982, between the Company and Oxford
Development Enterprises, Inc., as amended (previously filed as
an exhibit to Registration Statement Number 2-84680).
10.4 Agreement dated June 16, 1978, between the Company, American
Television and Communications Corporation and others
(previously filed as an exhibit to Registration Statement
Number 2-84680).
10.5* 1990 Stock Option Plan (previously filed as an exhibit to the
Company's Proxy Statement dated November 6, 1990, relating to
the Annual Meeting held on November 30, 1990).
10.6 Assumption and Indemnification Agreement dated April 30, 1990,
by and between the Company, MPJV Corporation, a Florida
corporation for the benefit of The Prudential Insurance
Company of America, a New Jersey corporation (previously filed
as an exhibit to the Company's Current Report on Form 8-K
dated April 30, 1990).
10.7 Loan Agreement dated as of October 11, 1989, between the
Company and Citizens Fidelity Bank and Trust Company (now
known as PNC Bank, Kentucky, Inc.), Louisville, Kentucky
(previously filed as an exhibit to the Company's Annual Report
on Form 10-K for the year ended December 31, 1989).
10.8 Indemnification Agreement dated April 30, 1990, by and between
Major Center, a Joint Venture, a Florida general partnership,
MPJV Corporation, a Florida corporation, and The Prudential
Insurance Company of America, a New Jersey corporation
(previously filed as an exhibit to the Company's Current
Report on Form 8-K dated April 30, 1990).
10.9 Mortgage Deed and Security Agreement granted October 11, 1989,
by the Company in favor of Citizens Fidelity Bank and Trust
Company, Louisville, Kentucky (previously filed as an exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.10 Security Agreement dated November 30, 1990, granted by the
Company in favor of Citizens Fidelity Bank and Trust Company,
Louisville, Kentucky (previously filed as an
</TABLE>
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<PAGE> 123
<TABLE>
<S> <C>
exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990).
10.11 Amendment to Loan Agreement, dated as of November 30, 1990,
between the Company and Citizens Fidelity Bank and Trust
Company, Louisville, Kentucky (previously filed as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990).
10.12 Second Amendment to Loan Agreement, dated as of August 29,
1991, between the Company and Citizens Fidelity Bank and Trust
Company, Louisville, Kentucky (previously filed as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
10.13 Amendment to Mortgage Deed and Security Agreement, dated
August 29, 1991, granted by the Company in favor of Citizens
Fidelity Bank and Trust Company, Louisville, Kentucky
(previously filed as an exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991).
10.14 Loan Agreement, dated as of March 25, 1992, between the
Company and Valassis Enterprises, L.P. (previously filed as an
exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991).
10.15 Note, dated March 25, 1992, given by the Company to Valassis
Enterprises, L.P., in the original principal sum of
$3,000,000.00 (previously filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1991).
10.16 Second Mortgage and Security Agreement, dated as of March 25,
1992, given by the Company to The Major Group, Inc. and
Valassis Enterprises, L.P. (previously filed as an exhibit to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991).
10.17 Hazardous Materials Indemnification Agreement, dated as of
March 25, 1992, between the Company and Valassis Enterprises,
L.P. (previously filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1991).
10.18* Employee Lease Agreement executed as of the 26th day of March,
1992, between the Company, Heritage Network Incorporated and
David L. Treadwell (previously filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1992).
10.19 Nonrecourse Purchase Money Mortgage by Chavez
Properties-Garrison Channel, Limited Partnership, a Georgia
limited partnership, in favor of Major Center, A Joint
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Venture, dated April 26, 1993 (previously filed as an exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1993).
10.20 Nonrecourse Purchase Money Promissory Note for $2,750,000 from
Chavez Properties-Garrison Channel, Limited Partnership, a
Georgia limited partnership, in favor of Major Center, A Joint
Venture, dated April 26, 1993 (previously filed as an exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1993).
10.21 Amendment to Mortgage Deed and Security Agreement, dated
January 31, 1994, granted by the Company in favor of PNC Bank,
Kentucky, Inc., formerly Citizens Fidelity Bank and Trust
Company, Louisville, Kentucky (previously filed as an exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1993).
10.22 Second Amendment to Mortgage Note, dated January 31, 1994, by
the Company and PNC Bank, Kentucky, Inc., formerly Citizens
Fidelity Bank and Trust Company, Louisville, Kentucky
(previously filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1993).
10.23 Third Amendment to Loan Agreement, dated as of January 31,
1994, by the Company and PNC Bank, Kentucky, Inc., formerly
Citizens Fidelity Bank and Trust Company, Louisville, Kentucky
(previously filed as an exhibit to the Company's Amendment No.
1 to Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993).
10.24* Consultant Services Agreement, effective April 1, 1994,
between the Company and Development Consultants, Inc. of
Orlando (previously filed as an exhibit to the Company's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994).
10.25* Amendment No. 1 to Employee Lease Agreement, as of the first
day of April, 1994, between the Company and David L. Treadwell
(previously filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1994).
10.26* Amendment No. 2 to Employee Lease Agreement, as of January 1,
1995, between the Company and David L. Treadwell (previously
filed as an exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994).
10.27 Amendment to Citizens Agreement, dated as of the first day of
February, 1995, among Valassis Enterprises, L.P., Acceptance
Insurance Companies Inc., the Company and PNC Bank, Kentucky,
Inc., formerly known as Citizens Fidelity Bank and Trust
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Company (previously filed as an exhibit to the Company's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994).
10.28 Mortgage Modification and Future Advance Agreement, dated
February 1, 1995, between Acceptance Insurance Companies Inc.
and the Company (previously filed as an exhibit to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1994).
10.29 Assignment of Mortgage and Other Security Documents, dated
January 25, 1995, from Valassis Enterprises, L.P. to
Acceptance Insurance Companies Inc. (previously filed as an
exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994).
10.30 Renewal and Consolidation Promissory Note, dated February 1,
1995, made by the Company in favor of Acceptance Insurance
Companies Inc. in the original principal sum of $1,600,000.00
(previously filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1994).
10.31 Third Amendment to Mortgage Note, dated January 31, 1995, by
the Company and PNC Bank, Kentucky, Inc., formerly Citizens
Fidelity Bank and Trust Company, Louisville, Kentucky
(previously filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1994).
10.32 Fourth Amendment to Loan Agreement, dated as of January 31,
1995, by the Company and PNC Bank, Kentucky, Inc., formerly
Citizens Fidelity Bank and Trust Company, Louisville, Kentucky
(previously filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1994).
10.33 Amendment to Mortgage Deed and Security Agreement, dated
January 31, 1995, granted by the Company in favor of PNC Bank,
Kentucky, Inc., formerly Citizens Fidelity Bank and Trust
Company, Louisville, Kentucky (previously filed as an exhibit
to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994).
10.34 Purchase Money Mortgage and Promissory Note for $1,310,000
from Bara Vineland, Inc., a Florida corporation, in favor of
Major Realty Corporation, dated May 5, 1995 (previously filed
as an exhibit to the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1995).
10.35 Collateral Assignment of Nonrecourse Purchase Money Promissory
Note and Mortgage for $1,310,000 from Bara Vineland, Inc., a
Florida corporation, in favor of Major Realty Corporation,
dated May 5, 1995, to PNC Bank, Kentucky, Inc. (previously
filed as an
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exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1995).
10.36 Fifth Amendment to Loan Agreement, dated as of September 1,
1995, by the Company and PNC Bank, Kentucky, Inc., formerly
Citizens Fidelity Bank and Trust Company, Louisville, Kentucky
(previously filed as an exhibit to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30,
1995).
10.37 Purchase Money Mortgage and Promissory Note for $3,580,000
from Cracker Barrel Old Country Store, Inc., a Kentucky
corporation, in favor of Major Realty Corporation, dated
September 1, 1995 (previously filed as an exhibit to the
Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1995).
10.38 Restated and Consolidated Promissory Note, dated October 18,
1995, made by the Company in favor of Acceptance Insurance
Companies Inc. in the original principal sum of $5,064,144
(previously filed as an exhibit to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30,
1995).
10.39 Sixth Amendment to Loan Agreement, dated as of October 18,
1995, by the Company and Acceptance Insurance Companies Inc.
(previously filed as an exhibit to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30,
1995).
10.40 Mortgage and Note Modification Agreement, dated as of October
18, 1995, by the Company and Acceptance Insurance Companies
Inc. (previously filed as an exhibit to the Company's
Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1995).
10.41 Indemnity Agreement, dated as of April 1, 1994, between the
Company and Development Consultants of Orlando, Inc.
(previously filed as Exhibit 10.61 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1995).
10.42* Amendment No. 1 to Consultant Services Agreement, dated as of
April 1, 1995, between the Company and Development Consultants
of Orlando, Inc. (previously filed as Exhibit 10.62 to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995).
10.43* Amendment No. 3 to Employee Lease Agreement, dated April 1,
1995, between the Company, Heritage Network Incorporated and
David L. Treadwell (previously filed as Exhibit 10.63 to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995).
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10.44* Amendment No. 4 to Employee Lease Agreement, dated as of April
1, 1996, between the Company, Heritage Network Incorporated
and David L. Treadwell (previously filed as Exhibit 10.64 to
the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995).
10.45* Amendment No. 2 to Consultant Services Agreement, dated March
20, 1997, between the Company and Development Consultants of
Orlando, Inc. (previously filed as Exhibit 10.45 to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996).
10.46* Amendment No. 5 to Employee Lease Agreement, dated March 20,
1997, between the Company, Heritage Network Incorporated and
David L. Treadwell (previously filed as Exhibit 10.46 to the
Company's Amendment No. 1 to Annual Report on Form 10-KSB/A
for the fiscal year ended December 31, 1996).
10.47 Mortgage Modification Agreement, dated as of April 1, 1997, by
the Company and Acceptance Insurance Companies Inc.
(previously filed as Exhibit 10.47 to the Company's Amendment
No. 1 to Annual Report on Form 10-KSB/A for the fiscal year
ended December 31, 1996).
10.48 Restated and Consolidated Promissory Note, dated as of April
1, 1997, made by the Company in favor of Acceptance Insurance
Companies Inc. in the original principal sum of $5,450,728.32
(previously filed as Exhibit 10.48 to the Company's Amendment
No. 1 to Annual Report on Form 10-KSB/A for the fiscal year
ended December 31, 1996).
10.49 Line of Credit Promissory Note, dated as of April 1, 1997,
made by the Company in favor of Acceptance Insurance Companies
Inc. in the original principal sum of $500,000 (previously
filed as Exhibit 10.49 to the Company's Amendment No. 1 to
Annual Report on Form 10-KSB/A for the fiscal year ended
December 31, 1996).
10.50* Amendment No. 3 to Consultant Services Agreement, dated
January 1, 1998, between the Company and Development
Consultants of Orlando, Inc.
21 Subsidiaries of the Company.
27 Financial Data Schedule (for SEC use only).
</TABLE>
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* Management contract or compensatory plan or arrangement.
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(B) REPORTS ON FORM 8-K
None.
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<PAGE> 129
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized on this 30 day of March, 1998.
MAJOR REALTY CORPORATION
By: /s/ David L. Treadwell
----------------------------
David L. Treadwell, Chairman
and Chief Executive Officer
In accordance with the requirements of the Exchange Act, this Report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
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Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David L. Treadwell Chairman of the Board of Directors, March 30, 1998
- -------------------------------------------- Chief Executive Officer, Principal
David L. Treadwell Financial Officer, Principal
Accounting Officer
/s/ Jay A. Bielfield Director March 30, 1998
- --------------------------------------------
Jay A. Bielfield
/s/ Kenneth C. Coon Director March 30, 1998
- --------------------------------------------
Kenneth C. Coon
/s/ Michael R. McCarthy Director March 30, 1998
- --------------------------------------------
Michael R. McCarthy
</TABLE>
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