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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): May 23, 2000
Southmark Corporation
(Exact name of registrant as specified in its charter)
Georgia 0-518704 58-1456944
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2711 LBJ Freeway, Suite 950
Dallas, Texas 75234
(Address, including zip code, of principal executive offices)
Registrant's telephone number, including area code: (972) 241-8787
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Item 1. Changes of Control of Registrant
Stock Purchase Agreement
Purchase and Sale of Shares. On May 23, 2000, Charles B. Brewer ("Brewer")
and A&B Capital Corporation ("A&B") entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") pursuant to which A&B agreed, subject to the terms
and conditions of the Stock Purchase Agreement, to purchase from Brewer at the
closing of the transaction (the "Closing") 178,270.25 shares of Redeemable
Series A Preferred Stock, par value $0.01 per share (the "Preferred Stock"), of
Southmark Corporation ("Southmark"), and 2,358 shares of Common Stock, par value
$0.01 per share (the "Common Stock"), of Southmark. The purchase price paid by
A&B to Brewer for his shares of Preferred Stock and Common Stock is calculated
on the basis of $1.50 cash for each Preferred Share. A&B will separately acquire
787,271 shares of Preferred Stock and 7,343,156 shares of Common Stock owned by
Grace Brothers Ltd. ("Grace") at a purchase price calculated on the basis of
$2.00 cash per share of Preferred Stock. Subject to the occurrence of the
Closing, A&B will own approximately 34 percent of the outstanding shares of
Preferred Stock and approximately 20 percent of the outstanding shares of Common
Stock.
Distribution to Preferred Stockholders (other than A&B Capital). Following
the Closing, A&B has agreed to cause Southmark to have an amount of funds or
other value sufficient to enable Southmark to make a distribution of $1.50 cash
for each outstanding share of Preferred Stock (other than those owned by A&B).
A&B has agreed to cause Southmark to be able to make this distribution by no
later than July 31, 2000 (the "Distribution Date"). A&B may loan funds to
Southmark to make the distribution. If A&B loans funds to enable Southmark to
effect the cash distribution, the loan will be repaid from the potential
recoveries from items of pending litigation in which Southmark is claimant.
Changes in Management. Brewer is currently the President, Chief Executive
Officer and Chairman of the Board of Southmark. Brewer presently intends to
remain in these capacities at least until the distribution to the holders of
the Preferred Stock has been effected in accordance with the terms of the Stock
Purchase Agreement. Brewer will also appoint Ronald F. Akin and Ronald F. Bruce,
designees of A&B, to serve as members of the Board of Directors of Southmark. In
the event A&B does not cause Southmark to effect the cash distribution on or
before the Distribution Date, Brewer may rescind the sale of the Shares to A&B
by returning the consideration paid for the Shares and, in such event, A&B
agrees to cause its designees to promptly resign from the Board and to appoint
Brewer as President, Chief Executive Officer and Chairman of the Board of
Southmark.
Springing Proxy in favor of Brewer with respect to shares acquired by A&B.
In the event A&B does not cause Southmark to have sufficient funds to enable
Southmark to effect the cash distribution on or before the Distribution Date (or
such later date as to which Brewer agrees in writing) and Brewer exercises his
right of rescission, Brewer will be granted a "Springing Proxy" by A&B with
respect to the shares of Common Stock and Preferred Stock acquired by A&B from
Brewer and Grace. If the Springing Proxy becomes effective, Brewer may vote all
of the shares of Preferred Stock and Common Stock acquired by A&B from Grace on
all matters presented to stockholders, except for matters that would (i) cause
the loss to Southmark of any loss carry-forward, (ii) materially adversely
affect the ownership interests of A&B in Southmark, (iii) cause
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the approval of a merger, sale of all or substantially all of Southmark's
assets, or liquidation involving Southmark, or (iv) cause an automatic
conversion of the Preferred Stock into Common Stock. If, however, A&B does not
cause Southmark to have sufficient funds to enable Southmark to effect the
distribution to the Preferred Stockholders for more than a year after Brewer
elects to rescind the sale of the shares to A&B, Brewer will have full authority
to vote the shares on any matter presented to stockholders.
Conditions to Closing. The Closing is conditioned, among other things, upon
the approval of the transactions described herein by the Board of Directors of
Southmark, the consummation of the sale by Grace to A&B of Preferred Stock and
Common Stock, the receipt by Brewer of the cash consideration for his shares of
Preferred Stock and Common Stock, the delivery of the Springing Proxy to Brewer,
and certain other conditions.
Termination of Stock Purchase Agreement. The Stock Purchase Agreement may
be terminated prior to the Closing (i) by mutual consent of A&B and Brewer, (ii)
by A&B upon notice in writing to Brewer if the conditions precedent to the
obligations of A&B to consummate the transactions have not been fulfilled or
waived, (iii) by Brewer upon notice in writing to A&B if the condition precedent
to the obligations of Brewer to consummate the transactions have not been
fulfilled or waived, or (iv) by either A&B or Brewer if the Closing has not
taken place by the close of business on May 31, 2000.
* * * * *
The preceding summary of the Stock Purchase Agreement is qualified in its
entirety by reference to such agreement, a copy of which is attached hereto as
Exhibit 10.1, and is incorporated in this summary by reference.
A form of the Company's letter to stockholders describing the terms of the
transaction with A&B is attached hereto as Exhibit 99.1. The Company's press
release announcing the transaction is attached hereto as Exhibit 99.2.
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Item 7. Financial Statements and Exhibits.
(c) Exhibits
Item Exhibit
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10.1* Stock Purchase Agreement dated as of May 23, 2000
between Brewer and A&B (including form of
Springing Proxy attached as Exhibit 2).
99.1* Form of Letter to Stockholders.
99.2* Press Release dated May 24, 2000.
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*filed herewith
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHMARK CORPORATION
Date: May 24, 2000 By: /s/ Charles B. Brewer
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Charles B. Brewer
President, Chief Executive Officer and
Chairman of the Board
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INDEX TO EXHIBITS
Item
Number Exhibit
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10.1 Stock Purchase Agreement dated as of May 23, 2000
between Brewer and A&B (including form of Springing
Proxy attached as Exhibit 2).
99.1 Form of Letter to Stockholders.
99.2 Press Release dated May 24, 2000.
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Exhibit 10.1
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into on
and effective as of May 23, 2000, by and among A&B CAPITAL CORPORATION, a Nevada
corporation ("Purchaser") and CHARLES B. BREWER, an individual ("Brewer").
W I T N E S S E T H :
WHEREAS, pursuant to Findings of Fact and Conclusions of Law and Order
Confirming Southmark Corporation's Fourth Amended and Restated Plan of
Reorganization, as modified, entered July 23, 1990 (the "Order") in the case
styled In Re: Southmark Corporation, Debtor, Case No. 389-36324-SAF-11, in the
United States Bankruptcy Court for the Northern District of Texas, Dallas
Division (the "Proceeding"), Southmark Corporation ("Southmark") canceled "all
existing Equity Securities" and issued certain additional securities, including
shares of its Redeemable Series A Preferred Stock, par value $0.01 per share
(the "Preferred Stock") and new Common Stock, par value $0.01 per share (the
"Common Stock");
WHEREAS, the Preferred Stock is subject to the obligations under and is the
benefit of the rights granted pursuant to that certain Certificate of
Designation, Preferences and Rights of Redeemable Series A Cumulative
Liquidation Preference Preferred Stock dated August 10, 1990, as filed with and
accepted by the Secretary of State of Georgia (the "Certificate");
WHEREAS, Brewer acquired and presently holds 178,270.25 shares of Preferred
Stock (which constitutes approximately 6.3% of the 2,831,997 shares of Preferred
Stock of Southmark presently outstanding) and 2,358 shares of Common Stock
(which constitutes less than 0.01% of the 36,761,096 shares of Southmark Common
Stock outstanding) and Brewer has no options, warrants, calls or rights to
acquire any shares of Preferred Stock or Common Stock of Southmark;
WHEREAS, Purchaser desires to acquire from Brewer, and Brewer desires to
sell all of the shares of Preferred Stock and Common Stock of Southmark
presently held by Brewer, all under and subject to the terms and conditions
hereinafter set forth.
ACCORDINGLY, in consideration of the foregoing premises, the mutual
promises, covenants, representations and warranties contained herein, and on the
terms and subject to the conditions set forth herein, and for other good and
valuable consideration, the receipt,
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sufficiency and adequacy of which is hereby acknowledged by all of the parties
hereto, Purchaser and Brewer hereby agree as follows:
1. Adoption of Recitals. The parties hereto do hereby adopt and confirm
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the foregoing recitals in the same manner as if fully re-copied herein.
2. Purchase and Sale of Stock. Subject to the terms and conditions of
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this Agreement, including the approval by the Board of Directors of Southmark
pursuant to Article Tenth of the Articles of Incorporation, Brewer hereby agrees
to sell, convey, transfer and assign to Purchaser, and the Purchaser hereby
agrees to purchase and acquire at the "Closing" (as that term is defined below)
for the "Consideration" set forth or determined as provided in paragraph 3 of
this Agreement, all of the shares of Preferred Stock and Common Stock of
Southmark owned by Brewer, same to be at least 178,270.25 shares of Preferred
Stock, and at least 2,358 shares of Common Stock of Southmark, all free and
clear of any liens or encumbrances of any kind or character. At Closing, Brewer
will deliver or cause to be delivered to Purchaser, free and clear of all liens
and encumbrances(other than any restrictions imposed by applicable federal and
state securities laws) of any kind or character, certificates representing the
number of shares of Preferred Stock and Common Stock to be sold as set forth
below, together with appropriate Stock Powers separate from certificates
executed in blank sufficient for transfer into the name of Purchaser or, in the
alternative, appropriate irrevocable instructions to make book-entry transfers
under the Depository Trust Company ("DTC") system to transfer all of such shares
to Purchaser, same to constitute at Closing, in the aggregate, all of the shares
of Preferred Stock and Common Stock of Southmark held at the Closing by Brewer.
At the time of such transfer at the Closing, Brewer shall have obtained any and
all necessary and appropriate releases of any liens or encumbrances (other than
any restrictions imposed by applicable federal and state securities laws) prior
to (or simultaneously with) the Closing relating to the shares of Preferred
Stock and Common Stock to be sold to Purchaser hereunder which shall be in a
form and substance satisfactory to Purchaser and its counsel.
3. Consideration. The Purchase Price to be paid by Purchaser to Brewer
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for all of the shares of Preferred Stock and Common Stock shall be calculated on
a basis equal to $1.50 per share of Preferred Stock, in cash, up to a maximum of
$267,405.37, it being intended that the total Purchase Price for all shares of
Preferred Stock and Common Stock transferred shall be for such total, but if
less than 178,270.25 shares of Preferred Stock are sold, such amount may be
proportionately reduced on the basis of $1.50 per share. Purchaser intends that
Brewer may allocate at he deems appropriate between the Common Stock and
Preferred Stock, recognizing that Purchaser is not paying a premium to Brewer
for the number of shares of Preferred Stock of Southmark held by Brewer.
4. Closing of this Agreement. The closing of the transaction contemplated
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by this Agreement (herein called the "Closing") shall take place at a location
mutually acceptable to Purchaser and Brewer
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at 2:00 p.m., local Dallas, Texas time on a mutually acceptable date prior to
the earlier of May 31, 2000, or five "Business Days" (as that term is defined
below) following the date that the Board of Directors of Southmark has approved
in writing such transaction pursuant to Article Tenth of the Articles of
Incorporation, as amended, of Southmark, or at such other place, time and date
as shall be fixed by mutual agreement among the parties hereto. The date on
which the Closing shall take place shall be hereinafter referred to as the
"Closing Date." The term "Business Day" shall mean a day on which business is
regularly transacted by national banks in Dallas, Dallas County, Texas, and
shall not be a Saturday, Sunday or national holiday.
5. Representations, Warranties and Covenants of Brewer. Brewer hereby
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represents and warrants to Purchaser and covenants and agrees with the
Purchaser, that the following representations and warranties are true, complete
and correct on the date of this Agreement (except for those representations and
warranties which expressly speak to the Closing Date) and shall be true,
complete and correct on the Closing Date (except for those representations and
warranties which expressly speak to the date of this Agreement only) and shall
survive the Closing to the extent provided in paragraph 7 hereof.
(a) Capacity and Binding Obligations. Brewer has all
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requisite capacity, power and authority to execute, deliver and
perform his obligations under this Agreement and each of the
other documents contemplated hereby to be executed by Brewer.
This Agreement has been duly executed and delivered on behalf of
Brewer and constitutes a legal, valid and binding obligation,
enforceable in accordance with its terms. The execution, delivery
and performance of this Agreement by Brewer in the consummation
of the transactions contemplated hereby, do not require the
consent, waiver, approval, license or authorization of any
"Person" (as defined below) or any regulatory authority and will
not, with or without the giving of notice, or lapse of time,
conflict with, violate, result in a breach or acceleration of any
obligation under or constitute a default under any provision of
any mortgage, lien, lease, agreement, contract, instrument,
order, judgment, decree, law, ordinance or regulation or any
restriction by which Brewer for the shares of Preferred Stock or
Common Stock of Southmark is bound or affected, except, in each
instance for any required approval of the Board of Directors of
Southmark pursuant to Article Tenth of its Articles of
Incorporation as amended. The term "Person" shall mean an
individual, corporation, general partnership, limited
partnership, limited liability company, trust or incorporated
organization or a government or any agency or political
subdivision thereof.
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(b) Ownership of and Title to Stock. Brewer has and at
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Closing, will have indefeasible title and full beneficial and
record ownership of at least 178,270.25 shares of Preferred Stock
of Southmark and 2,358 shares of Common Stock of Southmark, in
each instance, free and clear of any liens, claims, charges,
options or encumbrances, with full power and authority to
transfer (subject only to applicable federal and state securities
laws and approval by the Board of Directors of Southmark) all of
such shares of Preferred Stock and Common Stock which will be
sold and delivered to Purchaser pursuant to this Agreement, and
Purchaser will receive good and marketable title thereto, free
and clear of any liens, charges, options or other encumbrances
created by or attributable to Brewer, except to the extent that
applicable federal and state securities laws and any required
approval by the Board of Directors of Southmark constitute an
encumbrance.
(c) Compliance with Applicable Law. Including his reliance
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upon the Purchaser's representations in paragraph 6 below, Brewer
will use his best lawful efforts to comply with all applicable
legal requirements in connection with this Agreement and the
Closing hereunder, including all provisions of the Securities and
Exchange Act of 1934, the Securities Act of 1933, as same has
been amended, and all rules and regulations promulgated
thereunder and any and all other federal and state laws and
regulations that may be applicable to the transactions referred
to herein.
(d) No Brokers or Finders. Brewer represents and warrants
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that he has not incurred nor is he liable for any finders,
brokers, or similar fees or commissions to any third Person
whatsoever as the result of the execution and delivery of this
Agreement or the consummation of the transaction contemplated
hereby. Brewer shall indemnify and hold Purchaser harmless from
and against any and all claims for fees based on any alleged
retention of any such Person by or on behalf of or with respect
to Brewer.
(e) Covenants of Access. Brewer will permit representatives
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of the Purchaser to have the opportunity to review information
relating to and involving the litigation, other assets and
opportunities and obligations of Southmark and will coordinate
with representatives of the Purchaser the timing of various
matters, record retention and replacement and all of the matters
involving Southmark from and after the date of this Agreement.
Brewer shall not cause Southmark to terminate any employee or
discard any records without the prior consent of the authorized
representative of the Purchaser unless this Agreement has been
terminated pursuant to paragraph 9 below.
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(f) Covenant to Remain in Position and Appoint Other
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Designees. Brewer intends to remain in his present capacities as
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the Chairman of the Board, President and Chief Executive Officer
of Southmark until at least the later of May 22, 2000, or five
days after the distribution to be made to the "Other Preferred
Shareholders" (as defined below) described in paragraph 6(d)
below is effective in accordance with this Agreement and
applicable law, provided, however, that Brewer may resign or
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otherwise depart the employ at such time as he deems appropriate
at any time but not before appointing at least two designees of
the Purchaser as members of the Board of Directors of Southmark
following the approval of the transaction represented by this
Agreement by Board of Directors (or Transfer Review Committee or
Transfer Review Officer) of Southmark. Brewer further covenants
that in his capacity as the sole member of the Board of Directors
he will approve the transaction reflected by this Agreement and
the "GBL Transaction" (as that phrase is defined in paragraph
8(b)(iv) below). Brewer will make the appointment to the Board of
Directors of at least the two individuals designated by the
Purchaser at the Closing.
6. Representations, Warranties and Covenants of Purchaser. Purchaser
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hereby represents and warrants to Brewer covenants and agrees with Brewer that
the following representations and warranties are true, correct and complete on
the date of this Agreement (except for those representations and warranties
which expressly speak to the Closing Date) and shall be true, correct and
complete on the Closing Date (except for those representations and warranties
which expressly speak to the date of this Agreement only) and shall survive the
Closing to the extent provided in paragraph 7 hereof.
(a) Organization. Purchaser is a corporation duly
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organized, validly existing and in good standing under the laws
of its state of incorporation with the corporate power and
authority to acquire and own the shares of Preferred Stock and
Common Stock of Southmark. This Agreement is a valid and binding
obligation of Purchaser enforceable in accordance with its terms
and Purchaser has the full power and authority (corporate and
other) to perform its obligations under this Agreement.
(b) Compliance with Applicable Law. Purchaser will use its
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best lawful efforts to comply with all applicable legal
requirements in connection with this Agreement and the ownership
of shares of Preferred Stock and Common Stock, including all
provisions of the Securities and Exchange Act of 1934, the
Securities Act of 1933, as same have been amended, and all rules
and regulations promulgated thereunder and any and all federal
and state laws and regulations that may be applicable to the
transactions referred to herein.
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(c) Exempt Transaction. The shares of Preferred Stock and
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Common Stock of Southmark are being acquired hereunder by
Purchaser in a transaction exempt from registration under
applicable federal and state securities laws and in accordance
therewith, Purchaser advises that its acquisition of the shares
of Common Stock and Preferred Stock is for investment purposes
only and not with a view toward the distribution thereof to any
other Person except in compliance with the provisions of
applicable federal and state securities laws. Purchaser
acknowledges that the shares of Preferred and Common Stock of
Southmark Purchaser acquires under this Agreement may be
"restricted securities" (as that term is defined in Rule 144
under the Securities Act of 1933) and may not be sold or
transferred except in compliance with applicable federal and
state securities laws.
(d) Covenant of Distribution. The Purchaser hereby commits
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to cause Southmark following the Closing under this Agreement,
but in no event later than July 31, 2000, to have an amount of
funds or other value calculated on the basis of $1.50 per share
of Preferred Stock (other than shares purchased from Brewer and
Grace Brothers, Ltd.) sufficient to enable Southmark to make a
cash distribution to all "Other Preferred Shareholders" (defined
to be all holders of Southmark Preferred Stock except Brewer,
Grace Brothers, Ltd. and/or the Purchaser) in an amount equal to
$1.50 per share of Preferred Stock held by the Other Preferred
Shareholders. Any funds required for such advance may be in the
form of a loan or other advance from or on behalf of the
Purchaser to Southmark secured by a pledge of the first recovery,
if any, from the items of litigation currently in process for
Southmark, such that if collected dollars result from such
litigation, such funds would first be utilized to repay any loan
or advance with any excess remaining as an asset of Southmark.
7. Survival of Representations, Warranties and Covenants. All
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representations, warranties and covenants and agreements of Brewer and Purchaser
hereunder shall, except as otherwise expressly stated in such item, survive the
date of this Agreement and the Closing Date until the applicable expiration of
the statute of limitations and all other documents delivered hereunder or to be
delivered by one party to the other party are true or will be true when
delivered and will survive the date of this Agreement and the Closing Date until
the applicable expiration of the statute of limitations except as otherwise
expressly stated in each such item or waived in writing. Each of Brewer and
Purchaser agree to indemnify, save and hold the
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other harmless from and against any loss, claim, expense, damage or liability
arising from or related to a breach of any one or more of the representations,
warranties, covenants and agreements set forth in this Agreement.
8. Conditions of Closing.
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(a) Conditions Precedent to the Obligations of All Parties.
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The respective obligations of each and all parties to consummate
the transactions contemplated by this Agreement at the Closing
are subject to the fulfillment prior to or at the Closing of each
of the following conditions, except as such parties may legally
waive such conditions in writing, and at Closing the duly
authorized representatives of each of Brewer and Purchaser shall
each execute and deliver to the other a certificate or
certificates certifying as to such satisfaction or specific
waiver of same:
(i) On the Closing Date, there shall not be
pending or threatened any claim, action, suit or
proceeding against any of the parties hereto
which, if adversely determined, might prevent or
materially hinder the consummation of the
transactions contemplated by this Agreement or any
of them or result in the payment of substantial
damages as a result of any of the transactions
contemplated by this Agreement, or cause any party
to violate any order or judgment or otherwise
materially impair the benefits of any party or
parties contemplated hereby, and no investigation
by any governmental agency shall be pending or
threatened which might eventually result in any
such suit, action or proceeding.
(ii) The Board of Directors of Southmark
shall have approved unconditionally in writing the
transactions contemplated by this Agreement
pursuant to Article Tenth of the Articles of
Incorporation, as amended, of Southmark.
(iii) The Board of Directors of Southmark
shall have approved unconditionally in writing the
"GBL Transaction" (as that phrase is defined
below) pursuant to Article Tenth of the Articles
of Incorporation, as amended, of Southmark.
(b) Conditions Precedent to the Obligations of the
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Purchaser. All obligations of the Purchaser to consummate the
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transactions contemplated by this Agreement are subject to the
fulfillment, prior to or at the Closing of each of the following
conditions, except as the Purchaser may legally waive such
conditions in writing:
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(i) Other than any representation or
warranty made as of the specified date (each of
which needs to be true and correct only as of such
specified date) and except as otherwise
contemplated or permitted by this Agreement, all
representations and warranties of Brewer contained
in this Agreement shall be true and correct in all
respects on and as of the Closing Date as if made
on and as of the Closing Date and Brewer shall
deliver to Purchaser a certificate or certificates
dated at the Closing Date and executed on behalf
of Brewer to such effect.
(ii) The Purchaser shall have received
appropriate documents evidencing the transfer of
all shares of Preferred Stock and Common Stock of
Southmark owned by Brewer which shall consist of
at least 178,270.25 shares of Preferred Stock and
2,358 shares of Common Stock of Southmark in
accordance with the requirements of this
Agreement.
(iii) There shall not have occurred a
material adverse change since the date of this
Agreement in the condition, financial or
otherwise, of Southmark at Closing; provided that
the ultimate conclusion or outcome of any
litigation pending on the date of this Agreement
to which Southmark is a party shall not be deemed
---
a material adverse change.
(iv) Any other consents, waivers,
acknowledgments, etc., of all third Persons,
including those set forth on Exhibit "1" attached
hereto and incorporated herein, shall have been
received on or prior to the Closing Date and
copies thereof delivered to the Purchaser.
(v) Grace Brothers, Ltd., an Illinois
Partnership ("GBL") shall have closed (or will
simultaneously with the Closing hereunder, close)
the transaction between Purchaser and GBL
resulting in Purchaser acquiring from GBL at least
787,271 shares of Preferred Stock and 7,343,156
shares of Common Stock of Southmark (the "GBL
Transaction").
(c) Conditions Precedent to Obligations of Brewer. All
---------------------------------------------
obligations of Brewer to consummate the transactions contemplated
by this Agreement are subject to the
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fulfillment prior to or at the Closing of each of the following
conditions, except as Brewer may legally waive such conditions in
writing:
(i) Other than a representation or warranty
made as of a specified date (each of which need to
be true and correct only as of such specified
date) and except as otherwise contemplated or
permitted by this Agreement, all representations
and warranties of the Purchaser contained in this
Agreement shall be true and correct in all
respects on and as of the Closing Date as if made
on and as of the Closing Date, and Purchaser shall
deliver to Brewer a certificate or certificates
dated as of the Closing Date and executed by an
authorized representative of the Purchaser to such
effect.
(ii) Purchaser shall have delivered to
Brewer the cash consideration required pursuant to
paragraph 3 above in a form satisfactory to the
Purchaser and Brewer against delivery of
certificates for the shares of Preferred Stock and
Common Stock or DTC transfer on a "payment versus
delivery" basis and all other documents or
instruments required to be so delivered to Brewer
pursuant to the terms of this Agreement shall have
been delivered.
(iii) Purchaser shall have executed and
delivered to Brewer the "Springing Proxy"
substantially in the form attached hereto as
Exhibit "2."
9. Termination. Notwithstanding any other provision of this Agreement,
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this Agreement may be terminated by written notice of termination at any time
before, but not later than, the Closing hereunder as follows:
(a) By mutual consent of the Purchaser and Brewer acting
through their authorized representatives; or
(b) By the Purchaser upon notice in writing to Brewer if
all other conditions precedent set forth in paragraphs 8(a)
and/or 8(b) have not been fulfilled or waived; or
(c) By Brewer upon notice in writing to the Purchaser if
all other conditions precedent set forth in paragraphs 8(a)
and/or 8(c) have not been fulfilled or waived; or
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(d) By either Purchaser or Brewer if the Closing has not
taken place by the close of business on May 31, 2000.
In the event this Agreement is terminated, this Agreement shall forthwith become
void and of no further force or effect and there shall be no obligation on the
part of Brewer or the Purchaser except as specifically set forth in this
Agreement. The power of termination provided for in this paragraph when
exercised as herein provided, should only be effective upon delivery to the
other party of a notice in writing of such exercise signed on behalf of the
terminating party by its duly authorized representative. In the event this
Agreement is terminated in accordance with this paragraph by any of the parties
hereto, any such termination shall be without obligation or liability to any of
the other parties hereto except as expressly set forth in this Agreement.
10. Brewer Opportunity to Rescind. Assuming the purchase and sale of stock
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described in paragraph 2 of this Agreement has been completed at the Closing and
not otherwise terminated pursuant to paragraph 9, in the event that the
Purchaser for any reason does not satisfy the covenants set forth in paragraph
6(d) above, prior to the close of business on July 31, 2000, unless Brewer shall
have agreed to an extension of such time, Brewer shall have the option at his
sole discretion to rescind the transaction ab initio upon written notice to the
Purchaser at any time prior to 4:00 p.m., local Dallas, Texas time on August 10,
2000. Such notice of rescission shall be accompanied by a tender to the
Purchaser of all consideration paid by Purchaser to Brewer pursuant to paragraph
3 of this Agreement, and upon receipt thereof, the Purchaser shall deliver to
Brewer all shares of Preferred Stock and Common Stock Purchaser acquired from
Brewer pursuant to paragraphs 2 and 3 of this Agreement. In the event Brewer
exercises such right of rescission on the basis of the failure of the occurrence
of the event required in paragraph 6(d) above, Brewer shall also again become
the sole Director of Southmark in the event he has resigned, and the Purchaser
will use its best lawful efforts to cause Brewer to be reelected as the Chairman
of the Board, President and Chief Executive Officer of Southmark and any
deputies or designees of the Purchaser serving as directors of Southmark shall
be deemed to have resigned from the Board, and Purchaser shall use its best
lawful efforts to cause such persons to submit any necessary written
resignations confirming same to Southmark. In the event such rescission occurs,
the parties to this Agreement, following completion of such rescission shall
have no further liability to each other with respect to the subject of this
Agreement. In the event Brewer does not elect rescission within the requisite
time period (as same may be extended), such opportunity to rescind shall be null
and void and of no further force or effect.
11. Miscellaneous.
-------------
(a) Costs and Expenses. Except as otherwise expressly
------------------
provided for this Agreement, each party hereto shall bear its own
costs and expenses and fees incurred or
-10-
<PAGE>
assumed by such party in the preparation or execution of this
Agreement and in compliance with the covenants and conditions
herein, whether or not the transactions contemplated hereby shall
be consummated.
(b) Further Cooperation. To the extent that either of the
-------------------
Purchaser's or Brewer's further approval or other action is
deemed necessary or desirable by any of other parties in order to
effectuate the terms, conditions and purposes of this Agreement
and the conveyance of the shares of Common Stock and Preferred
Stock to the Purchaser, each of the parties hereto hereby agree
to execute all reasonable documents and take all actions
reasonably requested by the other party.
(c) Notices. Any notice or other communication required or
-------
permitted to be given by this Agreement or any other document or
instrument referred to herein which has been executed in
connection herewith must be given in writing (which may be by
telecopy, followed by mail or personal delivery) and must be
personally delivered or mailed by pre-paid certified or
registered mail, to the party to whom such notice or
communication is directed, at the address of such party set forth
opposite his or its name on the signature page to this Agreement.
Subject to the other provisions of this Agreement, any party may
change its address (or redesignate the person to whom such notice
shall be delivered) for purposes of this Agreement by giving
notice of such change to the other party pursuant to this
provision. In all instances, any notice or other communication
required or permitted to be given by this Agreement shall only be
effective upon actual receipt thereof by the person intended to
receive same.
(d) Amendments. Neither this Agreement nor any term hereof
----------
may be changed, waived, discharged or terminated orally, but only
by written agreement among the parties hereto.
(e) Headings. The headings of sections or paragraphs of
--------
this Agreement are inserted for convenience of reference only,
and shall not be deemed to constitute a part of this Agreement.
(f) Binding Effect. All terms and provisions of this
--------------
Agreement shall be binding upon and enure to the benefit of and
be enforceable by the heirs, legal representatives, successors
and assigns of the parties hereto, wherever applicable to such
party.
(g) Entire Agreement. This Agreement and the Commitment
----------------
Agreement constitute the entire agreement among the parties
hereto, supercedes any and all prior
-11-
<PAGE>
understandings and arrangements, and may not be modified or
amended except on or after the date hereof by a writing executed
by the party against whom such modification or amendment is
sought to be enforced. The failure of any of the parties of this
Agreement to insist upon strict adherence to any term of this
Agreement on one or more occasions shall not be deemed to be a
waiver or deprive such person or entity of the right thereafter
to insist upon strict adherence to that term or any other term of
this Agreement. No waiver of this Agreement, the obligations or
conditions herein, shall be valid unless the writing is signed by
the party against whom said waiver is sought to be enforced.
(h) Governing Law and Enforcement. This Agreement shall be
-----------------------------
construed and enforced in accordance with the laws of the State
of Texas, the state in which it was negotiated, executed and
delivered; provided that matters relating to the obligations
and/or duties of the Board of Directors of Southmark may be
governed by Georgia law. Should any clause, sentence or paragraph
of this Agreement be judicially or administratively declared to
be invalid, unenforceable or void under the laws of the State of
Texas or the United States of America or any agency or
subdivision thereof, such decision shall not have the effect of
invalidating or voiding the remainder of this Agreement and the
parties hereto agree that the part or parts of this Agreement so
held to be invalid, unenforceable or void shall be deemed to have
been deleted herefrom and the remainder shall have been included
herein. In the event any party hereto shall fail to perform any
of its obligations under this Agreement, such party hereby agrees
to pay all reasonable expenses, including reasonable attorneys'
fees, which may be incurred by any party hereto which is
successful in enforcing this Agreement, whether or not any suit
or legal proceeding shall be brought.
(i) No Third-Party Beneficiaries. This Agreement does not
----------------------------
create and shall not be construed as creating any rights
enforceable by any person other than the undersigned parties and
their respective lawful successors and assigns and other persons
named herein and does not comply or release and shall not be
construed as implying or releasing, that any rights are
enforceable against any person or entity other than the
undersigned parties and their respective successors and assigns
and the persons named herein.
(j) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original for
all purposes and all of which constitute one and the same
instrument and it shall not be necessary
-12-
<PAGE>
for the proof of this Agreement that any party produces or
accounts for more than one such counterpart.
(k) Facsimile. This Agreement or any notices hereunder may
---------
be transmitted by facsimile and it is the intent of the parties
for the facsimile of any autograph reproduced by a receiving
facsimile machine to be an original signature, and for the
facsimile and any complete photocopy of this Agreement or notice
to be deemed an original counterpart.
EXECUTED of the date first above written.
Address for Notices:
A&B CAPITAL CORPORATION, a
Nevada corporation
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231
Attn: President By: /s/ RONALD AKIN
214-692-4865 ----------------------------
214-750-0779 (facsimile) Name: Ronald Akin
--------------------------
Title: President
-------------------------
9027 Woodhurst
Dallas, Texas 75234
(972)406-6775 (telephone)
(972) 406-6724 (facsimile) /s/ CHARLES B. BREWER
(214) 341-2542 (facsimile) --------------------------------
Charles B. Brewer, individually
-13-
<PAGE>
EXHIBIT "1"
CONSENTS OF THIRD PERSONS TO BE OBTAINED
<PAGE>
EXHIBIT "2"
SPRINGING PROXY
This is a Springing Proxy made by A&B Capital Corporation, a Nevada
corporation (the "Holder"), which is effective only as provided herein and at
the times specified herein.
1. Definitions. As used in this Springing Proxy, the following terms have
-----------
the following meanings:
(a) "Proxy" shall mean the proxy granted by the Holder
under paragraph 2 hereof.
(b) "Stock Purchase Agreement" shall mean the Stock
Purchase Agreement dated as of May ___, 2000 between Holder and
Charles B. Brewer ("Brewer") pursuant to which Holder has
purchased certain shares of Redeemable Series A Preferred Stock
(the "Preferred Stock") and shares of Common Stock issued by
Southmark Corporation ("Southmark") from Brewer.
(c) "Shares" shall be and mean all of the shares of
Preferred Stock and Common Stock acquired by Holder from Brewer
or acquired by Holder from Grace Brothers, Ltd., same
constituting in the aggregate as of the date of this Springing
Proxy 965,541.25 shares of Preferred Stock and 7,346,114 shares
of Common Stock of Southmark or any securities issued in
replacement thereof or therefor pursuant to any merger or
consolidation of Southmark into another entity.
(d) "Event" shall be and mean (i) the failure by Holder to
satisfy (to the satisfaction of Brewer) the covenant set forth in
paragraph 6(d) of the Stock Purchase Agreement on or before July
31, 2000, or such later date as may be agreed to in writing by
Brewer, and (ii) the covenant set forth in paragraph 6(d) remains
unsatisfied for a period of 30 calendar days after the date
Brewer notifies Holder in writing of Brewer's decision to
exercise his right of recission under paragraph 10 of the Stock
Purchase Agreement and (iii) at the end of such 30 calendar day
period, Brewer does in fact exercise such right of recission.
2. Irrevocable Proxy. Immediately upon the occurrence of the Event, but
-----------------
not otherwise, Holder hereby irrevocably appoints Brewer as its attorney and
proxy on its behalf and in its name to vote the Shares at any meeting of
stockholders of Southmark
<PAGE>
and where any consent or action by stockholders is to be taken by written
consent or other action rather than at a meeting of stockholders, to execute on
Holder's behalf any such written consent or action by stockholders with respect
to any and all matters involving the election of directors or voting upon any
action required to be approved by stockholders of Southmark, except that such
------ ----
proxy may not vote the Shares in favor of any action which, (m) if taken by such
stockholders would cause the loss to Southmark of any loss carry-forward or (n)
materially adversely affects the percentage interest of Holder represented by
such Shares or (o) would or could cause approval of a merger involving Southmark
or disposition of substantially all of Southmark's assets or a liquidation of
Southmark or (p) would or could cause an automatic conversion of the Preferred
Stock with or into Common Stock (each an "Excluded Item"); provided, however,
-------- -------
that if the Event continues for a period of one calendar year after the date
Brewer exercises his right of recission under paragraph 10 of the Stock Purchase
Agreement, the Excluded Items shall no longer be excluded from the Proxy, and
after such time, Brewer shall have the full power and authority to vote all of
the Shares at any meeting of stockholders of Southmark or if any consent or
action by stockholders is to be taken by written consent or action other than at
a meeting of stockholders, to execute on Holder's behalf any written consent or
action by stockholders without restriction.
3. Term. The Proxy, once effective, shall nevertheless terminate
----
immediately upon the first to occur of (x) the satisfaction of the covenant in
paragraph 6(d) to the satisfaction of Brewer or (y) the date which is one
calendar day following the date a distribution is actually made by Southmark to
the "Other Preferred Shareholders" (as that term is defined in the Stock
Purchase Agreement) of assets of a value of $1.50 per share of Preferred Stock
(such time is to be the "Expiration Time"). On the occurrence of the Expiration
Time, this Proxy shall be deemed to be null, void and of no further force or
effect.
4. Miscellaneous. This Proxy, once effective, is irrevocable until the
-------------
Expiration Time, is coupled with an interest in the Shares and has been granted
in connection with the Stock Purchase Agreement. This Proxy shall be binding
upon the heirs, successors and assigns of Holder (including any transferee of
the Shares). This Proxy shall not otherwise affect or restrict the sale,
transfer or other disposition by Holder of any or all of the Shares. If for any
reason of incapacity or death, Brewer ceases to be able to act as the attorney
and proxy, ________________________ shall replace Brewer as the attorney and
proxy of Holder, but neither Brewer nor his substitute may substitute any other
person to act under
<PAGE>
this Proxy. This Proxy and any other matter relating to this Proxy may be filed
with Southmark with respect to the Shares.
IN WITNESS WHEREOF, the undersigned has executed this Springing Proxy on
May ______, 2000, effective only as provided herein.
A&B CAPITAL CORPORATION
By:___________________________
Name:_________________________
Title:________________________
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
SUBSCRIBED AND SWORN TO BEFORE ME by ____________________, ________________
of A&B Capital Corporation, on this ____ day of May, 2000, as the act and deed
of such entity.
______________________________
Notary Public, State of Texas
My Commission Expires:________
<PAGE>
EXHIBIT 99.1
CONFIDENTIAL
[Southmark Corporation Letterhead]
May ___, 2000
Dear Stockholder:
Enclosed is a copy of a Current Report on Form 8-K recently filed with the
Securities and Exchange Commission that discloses a recent transaction affecting
your ownership of Common Stock and Redeemable Series A Preferred Stock of
Southmark Corporation.
As described in more detail in the enclosed Report, the Board of Directors
of Southmark has approved a transaction where I, individually, will sell
178,270.25 shares of Redeemable Series A Preferred Stock and 2,358 shares of
Common Stock of Southmark (constituting all of the shares of Southmark's capital
stock that I own) to A&B Capital Corporation for a purchase price calculated on
the basis of $1.50 per share of Redeemable Series A Preferred Stock. The Board
has also approved the sale by Grace Bros. Ltd. of 787,271 shares of Redeemable
Series A Preferred Stock and 7,343,156 shares of Common Stock to A&B Capital
Corporation. Since Grace's shares will allow A&B Capital to obtain a controlling
interest in Southmark, A&B Capital has agreed to pay Grace an additional 50
cents per share of Redeemable Series A Preferred Stock. Upon the closing of
these transactions, A&B Capital will own approximately 34 percent of the
outstanding shares of Redeemable Series A Preferred Stock and approximately 20
percent of the outstanding shares of Common Stock. In addition, I intend to
resign from my positions as President, Chief Executive Officer and Chairman of
the Board, and appoint two individuals designated by A&B Capital as members of
the Board of Directors of Southmark.
It was a condition to the Board's approval of these transactions that all
other holders of Redeemable Series A Preferred Stock receive at least the same
consideration per share as I receive from A&B Capital. Therefore, A&B Capital
agreed to cause Southmark to have an amount of funds or other value sufficient
to enable Southmark to make a distribution of $1.50 in cash for each outstanding
share of Redeemable Series A Preferred Stock by no later than July 31, 2000.
Although not obligated to do so, I presently intend to remain in my current
capacities with Southmark until this distribution is made. A&B will contribute
or loan funds to Southmark to enable Southmark to make the distribution. If A&B
loans funds to enable Southmark to effect the cash distribution, the loan will
be repaid from the potential recoveries from items of pending litigation
described below. After the distribution, Southmark stockholders will continue to
own their shares of Redeemable Series A Preferred Stock and/or Common Stock.
<PAGE>
As Chairman of the Board of Southmark, my goal has been to maximize the
ultimate distribution in liquidation to the holders of the Southmark's Series A
Redeemable Preferred Stock. For this reason, I have postponed the planned
liquidation and dissolution of Southmark in order to continue to pursue various
litigation claims in which Southmark has a high probability of recovering
significant damages. Southmark has recovered a total of $5,953,834 since January
1997 in connection with a successful outcome in Securities and Exchange
Commission v. Drexel Burnham Lambert Incorporated, et al. Further, Southmark
recovered $580,918 in the settlement of Harmon Envicon Associates v. Southmark
Corporation.
As of the date hereof, Southmark is currently pursuing two claims in which
the potential recovery is approximately $3 million in the aggregate. In
Southmark Corporation v. Shulte, Roth & Zabel, L.L.P., Southmark has a judgment
in the amount of $1 million in its favor, plus pre-judgment interest. The
defendants in this action have obtained an irrevocable standby letter of credit
in favor of Southmark in the amount of $1,419,652.22 on December 9, 1999 to
cover the required bond pending defendants' appeal of the judgment. The judgment
has, in fact, been appealed to the Fifth Circuit and it is expected that oral
arguments on the appeal will be heard in the next six months. In Southmark
Corporation v. Jerri Coppa-Knudson, Liquidation Agent, the bankruptcy court
following a trial in November 1998 determined that Southmark has a claim for
damages against Double Diamond Ranch Limited Partnership in the approximate
amount of $1,251,868. The bankruptcy court also ruled, however, that Southmark
is entitled to no distributions of assets on account of that claim in that the
Partnership has no right of contribution against its affiliated debtors.
Southmark appealed this ruling and the amount of Southmark's damages to the
District Court. On March 21, 2000, the District Court affirmed the bankruptcy
court's calculation of Southmark's damages at $1,251,868, but vacated the
portion of the bankruptcy court ruling denying the Partnership's right of
contribution. We expect that this issue should be resolved in the next few
months.
In approving the transaction with A&B Capital, the Board carefully
considered the timing and amount of potential recoveries in the two outstanding
claims of Southmark, as compared with the opportunity for the holders of
Redeemable Series A Preferred stock to receive $1.50 cash per share by July 31,
2000. The Board determined that the transaction with A&B Capital presented the
best course of action for the Southmark stockholders, especially in light of the
fact that you are not being asked to sell or otherwise part with your shares of
Redeemable Series A Preferred Stock or your Common Stock and, therefore, you may
participate as a continuing stockholder in any potential opportunities created
by Southmark's new management. Although A&B has not provided us with specific
details on its plans for Southmark, we understand that A&B intends to explore
the possibility of adding to Southmark one or more business operations not yet
identified.
<PAGE>
Stockholders of Southmark Corporation
May __, 2000
Page 3
If you have any questions about how this transaction affects your ownership
of capital stock in Southmark, please do not hesitate to call me.
Sincerely,
Charles B. Brewer
Chief Executive Officer, President
and Chairman of the Board
<PAGE>
EXHIBIT 99.2
NEWS RELEASE
Southmark Announces Purchase by A&B Capital Corporation
of Shares Owned by Brewer and Grace Bros.
DALLAS, May 24-Southmark Corporation (Pink Sheets: SMRK/SMRKP) announced today
that Charles B. Brewer has agreed to sell 178,270.25 shares of Southmark's
Redeemable Series A Preferred Stock and 2,358 shares of Southmark's Common Stock
(constituting all the shares of Southmark's capital stock owned by Brewer) to
A&B Capital Corporation for a purchase price calculated on the basis of $1.50
cash for each share of Southmark's Preferred Stock. The terms and conditions of
A&B Capital Corporation's acquisition of Brewer's shares are set forth in a
Stock Purchase Agreement dated May 23, 2000, a copy of which will be filed with
the Securities and Exchange Commission. A&B Capital Corporation will separately
acquire 787,271 shares of Southmark's Preferred Stock and 7,343,156 shares of
Southmark's Common Stock from Grace Bros. Ltd. at a purchase price calculated on
the basis of $2.00 per share. At the closing of these transactions, A&B Capital
Corporation will own approximately 34% of the outstanding shares of Southmark's
Preferred Stock and 20% of the outstanding shares of Southmark's Common Stock.
As a part of the transaction with Brewer, A&B Capital Corporation has agreed to
cause Southmark to have an amount of funds or other value sufficient to enable
Southmark to distribute $1.50 cash for each outstanding share of Southmark's
Preferred Stock (the same consideration received by Brewer for the sale of his
shares to A&B Capital Corporation) on or before July 31, 2000. Brewer intends
to remain as the President, Chief Executive Officer and Chairman of the Board of
Southmark until such time as this distribution is made. Brewer also will
appoint Ronald F. Akin and Ronald F. Bruce to the Southmark Board upon closing
of the sale. Once the distribution is effected, Brewer intends to resign from
his capacities. Akin and Bruce are designees of A&B Capital Corporation.
Charlie Brewer said "the payment of the dividend to Southmark's preferred
stockholders based upon the existing assets is assured through this transaction.
As a result, my long tenure at Southmark will be concluded and I will resign
accordingly."
Prior to this transaction, Southmark Corporation, headquartered in Dallas, has
been engaged in the liquidation of its assets in accordance with its court-
approved Plan of Reorganization. A&B Capital Corporation has indicated its
intention to explore the possibility of adding to Southmark one or more business
operations, although A&B has no specific plans or proposals for doing so at this
time.
CONTACT: Charles B. Brewer, President, 972-406-6775.
