AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1997
REGISTRATION NO. 333-__________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ATLANTIC GULF COMMUNITIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
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2601 South Bayshore Drive
Miami, Florida 33133-5461
(305) 859-4000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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59-0720444
(I.R.S. Employer Identification No.)
Thomas W. Jeffrey
Executive Vice President
2601 South Bayshore Drive
Miami, Florida 33133-5461
(305) 859-4000
(Name, address, including zip code and telephone number
including area code, of agent for service)
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
Carter Strong, Esq.
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
(202) 857-6252
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
<PAGE>
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended ("Securities Act"), other than securities
offered only in connection with dividend or interest reinvestment plans, check
the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
343, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
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Title of Securities Amount to be Proposed Maximum Proposed Maximum Amount
to be Registered Registered Offering Price Per Aggregate Offering of Fee
Unit (1) Price
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<S> <C> <C> <C> <C>
Rights, each right ("Right") 1,000,000 -- -- (2)
consisting of the right to
purchase a unit of one share of
Series B 20% Cumulative
Convertible Preferred Stock,
par value $.01 per share
("Series B Preferred Stock")
and warrants ("Series B
Warrants") to purchase two
shares of common stock, par
value $.10 per share
("Common Stock") (2)
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Series B Preferred Stock 1,000,000 $9.88 $9,880,000 $2,993.94
issuable upon exercise of
Rights
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Series B Warrants (consisting 2,000,000 $0.06 $120,000 $36.36
of 666,667 Class A Warrants,
666,667 Class B Warrants and
666,666 Class C Warrants)
issuable upon exercise of
Rights (3)
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Common Stock issuable upon 3,739,130 -- -- (3)
conversion of Series B
Preferred Stock and exercise of
Series B Warrants (3)(4)
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TOTAL $10.00 $10,000,000 $3,030.30
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</TABLE>
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(1) Estimated solely for purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(2) No additional filing fee is required in respect of the Rights.
(3) The Common Stock being registered hereby is issuable upon conversion of
Series B Preferred Stock and exercise of Series B Warrants. Accordingly,
pursuant to Rule 457(i) under the Securities Act, no additional filing fee
is required.
(4) Includes such undetermined additional shares as may become issuable pursuant
to the anti-dilution provisions of the Series B Preferred Stock and the
Series B Warrants.
The registrant hereby amends the registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 23, 1997
ATLANTIC GULF COMMUNITIES CORPORATION
1,000,000 UNITS
$10 PER UNIT
Each unit ("Unit") consists of one share of 20% Series B Cumulative
Redeemable Convertible Preferred Stock, par value $.01 per share ("Series B
Preferred Stock"), and warrants ("Series B Warrants") to purchase two shares of
common stock, par value $.10 per share ("Common Stock"). The Series B Warrants
will be issued pro rata in three classes as follows: 666,667 Class A Warrants,
666,667 Class B Warrants and 666,666 Class C Warrants. The Class A, Class B and
Class C Warrants are identical except that they have different minimum exercise
prices.
Atlantic Gulf Communities Corporation (the "Company") is distributing
on a pro rata basis to the holders (the "Stockholders") of its Common Stock of
record as of June 20, 1997 (the "Record Date"), transferable rights (the
"Rights") to subscribe for and purchase an aggregate of 1,000,000 Units for a
price of $10.00 per Unit (the "Subscription Price"). Each holder of Common Stock
as of the Record Date is entitled to receive .10274 (representing 1,000,000
divided by the number of shares of Common Stock outstanding as of the Record
Date) of a Right for each share of Common Stock held as of such date. One Right
and $10.00 in cash entitle the holder to purchase one Unit. Each Right also
carries the right to subscribe at the Subscription Price for Units that are not
otherwise purchased pursuant to the exercise of Rights. No fractional Rights or
cash in lieu thereof will be distributed by the Company. The number of Rights
distributed to each record holder will be rounded down to the nearest whole
number that is a multiple of three. The Rights will be evidenced by transferable
certificates (each, a "Subscription Certificate"). The distribution of the
Rights and sale of Units are referred to herein as the "Rights Offering."
The Company and AP-AGC, LLC, a Delaware limited liability company
("Apollo" or the "Investor"), entered into an Amended and Restated Investment
Agreement dated as of February 7, 1997, amended as of March 20, 1997, and
amended and restated as of May 15, 1997 (the "Investment Agreement"), and the
Company, certain of its subsidiaries and Apollo entered into a Secured Agreement
dated as of February 7, 1997, and amended and restated as of May 15, 1997 (the
"Secured Agreement" and, together with the Investment Agreement, the
"Agreements"). Apollo is an affiliate of Apollo Real Estate Investment Fund II,
L.P. ("Apollo Fund II"), a private real estate investment fund, the general
partner of which is Apollo Real Estate Advisors II, L.P., a New York-based
investment fund. Pursuant to the Agreements, Apollo agreed to purchase from the
Company up to 2,500,000 shares of 20% Series A Cumulative Redeemable Convertible
Preferred Stock (the "Series A Preferred Stock"), at a per share price of $9.88,
and certain warrants to purchase up to 5,000,000 shares of Common Stock
(consisting of 1,666,667 Class A Warrants, 1,666,667 Class B Warrants and
1,666,666 Class C Warrants) (the "Investor Warrants"), at a per Warrant price of
$.06, for an aggregate purchase price of up to $25,000,000 (the "Apollo
Transaction"). On June 24, 1997, pursuant to the Agreements, Apollo purchased
553,475 shares of Series A Preferred Stock and 1,106,950 Investor Warrants
(consisting of 368,983 Class A Warrants, 368,983 Class B Warrants and 368,984
Class C Warrants) for an aggregate purchase price of $5,534,752, and the
Company's board of directors (the "Board") was reduced from 10 to seven members,
three of whom are Apollo designees (the "Apollo Closing"). From time to time
thereafter and until Apollo has acquired all of the 2,500,000 shares of Series A
Preferred Stock and
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the 5,000,000 Investor Warrants, Apollo will purchase, subject to the terms and
conditions of the Investment Agreement, additional Series A Preferred Stock and
a proportionate number of Investor Warrants to enable the Company to invest in
real estate development projects approved by the Board and Apollo. If the
Company has not presented Apollo with real estate development projects pursuant
to which Apollo has invested the aggregate purchase price of $25,000,000, on the
terms and subject to the conditions set forth in the Investment Agreement, (a)
Apollo will be entitled at any time to acquire all of the Series A Preferred
Stock and Investor Warrants not acquired by it prior thereto and (b) from and
after June 30, 1998, the Company will be entitled at any time to require Apollo
to purchase all of such Series A Preferred Stock and Investor Warrants, provided
that no Event of Default (as defined in the Secured Agreement) shall have
occurred and, except for an Event of Default which is or results from a
Bankruptcy Event (as defined), shall then exist. See "The Apollo Transaction."
The terms of the Series A Preferred Stock and the Series B Preferred
Stock (collectively, the "Preferred Stock") are substantially the same except as
described below and except for differences necessitated by the wider
distribution of the Series B Preferred Stock. The Preferred Stock will rank
senior to the Common Stock with respect to dividends and distributions. Holders
of Preferred Stock will be entitled to receive, when, as and if declared by the
Board, cash dividends on a quarterly basis at an annual rate equal to 20% of the
liquidation preference, which is $10 per share for each of the Series A
Preferred Stock and the Series B Preferred Stock, plus any accrued and unpaid
dividends. Upon certain events of default, dividends will accumulate at an
annual rate of 23%. The Preferred Stock will be redeemable by the Company in
whole or in part after three years from the issuance date at a redemption price
in cash equal to the liquidation preference. Holders of the Preferred Stock will
have certain "put rights" which will entitle them to require the Company to
repurchase the Preferred Stock in certain amounts and at certain times: up to an
aggregate of one-third of the shares of each of the Series A Preferred Stock and
the Series B Preferred Stock after the end of the fourth year following the
issuance date and before the end of the fifth year, up to an aggregate of
two-thirds of the shares of each of the Series A Preferred Stock and the Series
B Preferred Stock after the end of the fifth year following the issuance date
and before the end of the sixth year, and up to the entire amount after the
sixth year following the issuance date, at a repurchase price in cash equal to
the liquidation preference. Certain events of default, including a Default
Change of Control (as defined below) of the Company, would accelerate the put
rights. The Preferred Stock will be convertible into such number of shares of
Common Stock as is obtained by dividing the liquidation preference by the
conversion price of $5.75 per share, subject to certain adjustments. The Series
A Preferred Stock put rights will be secured by certain liens on substantially
all of the assets of the Company and its subsidiaries, while the Series B
Preferred Stock put rights will not be secured. Holders of Series A Preferred
Stock will be entitled to elect three of the Company's seven directors and will
otherwise have no voting rights except as may be required by applicable law.
Holders of Series B Preferred Stock will have no voting rights except as may be
required by applicable law. As long as Apollo holds at least 500,000 shares of
Series A Preferred Stock, it will have certain consent rights in respect of the
Company engaging in "Major Transactions" (as defined). Holders of Series B
Preferred Stock will have no such consent rights. Apollo may not, except under
specified circumstances, transfer or assign the Series A Preferred Stock or the
Common Stock issuable upon conversion thereof until February 7, 1999. The Series
B Preferred Stock issued in the Rights Offering and the Common Stock issuable
upon conversion thereof will be immediately transferable subject to certain
restrictions applicable to affiliates of the Company. For a description of the
rights and preferences of the Series A and B Preferred Stock, see "The Apollo
Transaction -- The Series A Preferred Stock" and "Description of the Units --
Series B Preferred Stock."
On June 24, 1997, the Company and certain purchasers (the "Private
Purchasers") consummated a private placement pursuant to which the Private
Purchasers purchased for an aggregate price of $20,000,000, (a) 1,776,199 shares
of Common Stock for $10,000,000, and (b) 1,000,000 shares of Series B Preferred
Stock
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<PAGE>
and 2,000,000 Series B Warrants (consisting of 666,667 Class A Warrants, 666,667
Class B Warrants and 666,666 Class C Warrants) for $10,000,000. See "The Private
Placement."
On June 30, 1997, the Company issued to Apollo, for an aggregate
purchase price of $3,340,000, 334,000 additional shares of Series A Preferred
Stock and Investor Warrants (consisting of 222,666 Class A Warrants, 222,667
Class B Warrants and 222,667 Class C Warrants) to purchase an additional 668,000
shares of Common Stock at a per share purchase price of $5.75 (subject to
adjustment).
The terms of the Series B Warrants are substantially the same as those
of the Investor Warrants except for differences necessitated by the wider
distribution of the Series B Warrants. Each Warrant entitles the holder to
purchase one share of Common Stock, commencing immediately, until the close of
business on June 23, 2004 at an exercise price of $5.75 per share subject to
certain antidilution and other adjustments, and will be issued in the Rights
Offering pro rata in three classes: up to 666,667 Class A Warrants, 666,667
Class B Warrants and 666,666 Class C Warrants. See "Description of the Units --
The Series B Warrants."
The Company intends to use the proceeds of the Rights Offering for
working capital purposes, including the payment of certain indebtedness to
Foothill Capital Corporation ("Foothill Debt"). See "Use of Proceeds."
The Rights will expire at 5:00 p.m., New York City time, on August __,
1997 (the "Expiration Date"), and thereafter will be void and of no effect. All
subscriptions are irrevocable. No minimum sale of Units by the Company is
required. If at the Expiration Date fewer than all of the Units offered hereby
shall have been subscribed for, subscriptions which have been accepted by the
Company shall remain effective, and the Rights Offering shall terminate with
respect to the unsubscribed Units.
The Rights are transferable, and it is expected that they will trade on
the National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System until the close of business on the last National Market
System trading day prior to the Expiration Date. The Company will not apply for
listing of the Units on the National Market System, but the Series B Preferred
Stock and the Series B Warrants will be immediately detachable from each other
and separately tradeable. The Company has applied for listing of the Rights, the
Series B Preferred Stock and the three classes (A, B and C) of Series B Warrants
on the National Market System under the trading symbols "AGLFR," "AGLFP,"
"AGLFW," "AGLFZ" and "AGLFL," respectively. The Company expects the Series B
Preferred Stock to be accepted for quotation on the National Market System if
there are an adequate number of publicly held shares of Series B Preferred Stock
to meet the requirements of NASDAQ. The Company also expects the Rights and the
three classes of Series B Warrants will be accepted for quotation on the
National Market System if there are adequate numbers thereof to meet the
requirements of NASDAQ. No assurance can be given that there will be an adequate
number of publicly held shares of Series B Preferred Stock, Rights or Series B
Warrants, or that a market will develop for the Series B Preferred Stock, the
Rights or the Series B Warrants.
Each share of Series B Preferred Stock shall be immediately convertible
at the holder's option into 1.739 shares of Common Stock (subject to
adjustment), which is included for quotation on the National Market System under
the symbol "AGLF." On July 21, 1997, the last reported sale price of the Common
Stock on the National Market System was $6.375 per share. See "Price Range of
Common Stock and Dividends."
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<PAGE>
-------------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 23 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY STOCKHOLDERS IN CONNECTION WITH AN INVESTMENT IN THE
UNITS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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SUBSCRIPTION PRICE UNDERWRITING PROCEEDS TO
DISCOUNTS AND COMPANY (1)
COMMISSIONS
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Per Unit $10.00 -- $10,000,000
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(1) Before deducting expenses payable by the Company with respect to the
Rights Offering, estimated at approximately $635,000.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
The date of this Prospectus is July 23, 1997.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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<PAGE>
TABLE OF CONTENTS
PAGE
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Available Information ................................................ 9
Documents Incorporated by Reference .................................. 9
Prospectus Summary.................................................... 10
Summary Historical and Pro Forma Financial Data....................... 20
Risk Factors.......................................................... 23
The Rights Offering .................................................. 29
Description of the Units ............................................. 36
The Private Placement................................................. 45
The Apollo Transaction................................................ 47
Use of Proceeds....................................................... 53
Capitalization........................................................ 53
Dilution.............................................................. 57
Unaudited Pro Forma Financial Information............................. 57
Selected Historical Financial Data.................................... 63
Price Range of Common Stock and Dividends ............................ 66
Description of Capital Stock.......................................... 66
Certain Federal Income Tax Consequences............................... 68
Legal Matters ........................................................ 73
Experts .............................................................. 73
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission,
including the Registration Statement on Form S-3 of which this Prospectus is a
part, may be inspected and copied at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Seven World
Trade Center, New York, New York 10048 and 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Common Stock is traded in the over-the-counter
market and is traded on the NASDAQ National Market System. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants, such as the
Company, that file electronically with the Commission. Copies of the Company's
reports, proxy statements and other information filed with the Commission can
also be inspected at the offices of the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto, certain parts of which are omitted as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information regarding
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the exhibits thereto.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by this
reference:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1996, filed April 14, 1997, and Amendment No. 1 thereto filed on
Form 10-K/A on April 30, 1997 (collectively, the "Company's 1996 10-K").
(2) The Company's Current Report on Form 8-K filed February 18, 1997.
(3) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, filed May 15, 1997.
(4) The Company's Proxy Statement dated May 21, 1997.
(5) The Company's Current Report on Form 8-K filed June 5, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to
termination of the Rights Offering shall be deemed to be
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incorporated by reference in this Prospectus and to be a part hereof from the
date any such document is filed. All documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the
initial Registration Statement and prior to the effectiveness of the
Registration Statement shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date any such document is filed. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any subsequently filed
document which is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon written or oral request, a copy of any and
all of the documents incorporated by reference herein, other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into such documents. Any such request may be directed to Atlantic Gulf
Communities Corporation, Attention: Thomas W. Jeffrey, Chief Financial Officer,
at the Company's principal executive offices, which are located at 2601 South
Bayshore Drive, Miami, Florida 33133-5461, telephone number (305) 859-4000.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "ATLANTIC GULF" MEANS ATLANTIC
GULF COMMUNITIES CORPORATION AND THE TERM THE "COMPANY" MEANS ATLANTIC GULF AND
ITS SUBSIDIARIES TAKEN AS A WHOLE AND INCLUDES THE COMPANY'S PREDECESSORS.
THE COMPANY
The Company is a Florida-based real estate development and asset
management company. The Company's primary lines of business are acquisition,
development and sale of new subdivision and scattered developed homesites, sale
of land tracts and residential construction and sales. Additional lines of
business which contribute to the Company's overall operations include portfolio
management of mortgages and contracts receivable and environmental services.
The Company acquires and develops real estate to: (a) enhance the value
of certain properties, (b) maintain a continuing inventory of marketable tracts
and (c) supply finished homesites to builders in Florida's fastest growing
markets. The Company's acquisition and development activities are comprised of
four primary functions: business development, planning, community development
and residential construction.
Atlantic Gulf and its predecessors have been operating as community
developers in Florida since 1955. Atlantic Gulf's immediate predecessor, General
Development Corporation (the "Predecessor Company"), was among the largest
community developers in Florida. In 1990, the Predecessor Company and certain of
its subsidiaries commenced proceedings under Chapter 11 of the Bankruptcy Code
(the "Reorganization Proceedings") to reorganize their business. Atlantic Gulf
emerged from the Reorganization Proceedings pursuant to a plan of reorganization
(the "POR" that became effective on March 31, 1992 (the "POR Effective Date")).
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The Company was incorporated in Delaware in 1928. Its executive offices
are located at 2601 South Bayshore Drive, Miami, Florida 33133-5461, and its
telephone number is (305) 859-4000.
BUSINESS PLAN
As described in the Company's 1996 10-K, the Company's business plan is
(a) to retire the Company's remaining corporate debt (debt not specifically
associated with a performing asset), including the Foothill Debt, through the
sale of Predecessor Company assets, (b) to become the leading supplier of
finished homesites to national and regional homebuilders in Florida's fastest
growing markets and in selected primary markets throughout the Southeast, and
(c) to continue residential construction and sales.
The Company has been successful in monetizing (by sale or financing
transactions) Predecessor Company assets to reduce corporate debt, and
anticipates that the remaining Predecessor Company assets will be monetized
during the balance of 1997 and 1998. In 1996, the Company's $167 million in
gross revenue included over $55 million of Predecessor Company tract and
scattered homesite sales and the Company reduced its corporate debt by
approximately $65 million. The Company's receipt of proceeds from the Apollo
Transaction, Private Placement and the anticipated consummation of the Rights
Offering is expected to enable the Company to satisfy its near term corporate
debt amortization without being required to accelerate Predecessor Company asset
sales in a manner that would not maximize proceeds from such sales.
Since 1993, the Company has acquired or started development on 11 new
primary market finished homesite subdivision projects and two new oceanfront
condominium projects. Management believes that the success of the new primary
market subdivision projects has confirmed the Company's business strategy of
becoming a leading supplier of finished homesites to large independent
homebuilders. Of the 28 homebuilders who are currently building or under
contract in the Company's primary market subdivisions, five are building in
multiple projects. Prior to the consummation of the Apollo Transaction and
Private Placement, capital restrictions relating to the Company's highly
leveraged balance sheet and near term debt amortization have required the
Company to acquire and develop most of its largest and most profitable primary
market subdivisions with joint venture equity partners. The Company's cost in
obtaining such joint venture equity, both in terms of lost operating profits and
preferred cash distributions, significantly reduced the Company's anticipated
operating gross margins if it did not require such joint venture equity.
Furthermore, the cost of obtaining joint venture equity on a project-by-project
basis and complying with joint venture reporting and other requirements
unnecessarily contributed to the Company's overhead expenses.
There is no assurance that the Company will implement fully its
business plan nor that it will realize the anticipated benefits from the Apollo
Transaction, Private Placement and Rights Offering discussed below.
CERTAIN POTENTIAL EFFECTS OF THE APOLLO TRANSACTION, PRIVATE PLACEMENT AND
RIGHTS OFFERING ON THE BUSINESS PLAN
The Company's receipt of up to $55 million from its sale of Preferred
Stock, Warrants and Common Stock pursuant to the Apollo Transaction, Private
Placement and Rights Offering is expected to enhance significantly the Company's
ability to implement its business plan, including the negotiation of Predecessor
Company asset sales on customary market terms and the maximization of profits
from such sales. The Company is also exploring various possibilities to augment
its business plan by adding new real estate-related business lines which could
be expected to produce recurring operating income. Central to its analysis of
new business lines is the Company's ability to lever successfully off its
significant real estate asset position and expertise. In this regard, on June
30, 1997, the Company acquired through a subsidiary a 2.9-acre parcel in
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the downtown business district of Fort Lauderdale, Florida for $5.5 million on
which the subsidiary anticipates constructing a high-rise luxury apartment
tower. See "The Apollo Transaction - Recent Developments."
In June 1997, the Company paid its scheduled $21.67 million Foothill
amortization obligation and prepaid an additional $7.7 million of Foothill
revolving debt. Approximately $23.7 million of these June debt payments were
made with proceeds from the Private Placement and, to a lesser extent, from the
Apollo Closing. Furthermore, any new equity capital available for corporate
purposes, including the up to $10 million of proceeds from the Rights Offering,
will relieve further the timing pressures on Predecessor Company asset sales
caused by the Company's near term debt amortization.
Management also believes that as a result of the Company's access to
new equity capital, including proceeds from the Apollo Transaction and Rights
Offering, the Company will be able to acquire new real estate development
projects more promptly and without the need for joint venture equity partners.
While the Company may continue to obtain joint venture equity on a
project-by-project basis if business circumstances warrant such participation,
even in those circumstances the Company's ability to co-invest significant
equity together with the joint venture partner's equity will enhance the
Company's bargaining capacity, operating flexibility and profit participation in
respect of any such joint venture participation.
OTHER POTENTIAL BENEFITS OF THE APOLLO TRANSACTION TO THE COMPANY
The Company believes that it will realize intangible benefits from the
Apollo Transaction, in addition to the use of up to $25 million in proceeds from
the sale of Series A Preferred Stock and Investor Warrants. The Company also
believes that these intangible benefits will redound to the holders of Common
Stock and Preferred Stock.
SPONSORSHIP. Apollo is a nationally successful and respected corporate
and real estate investor. The Company believes that Apollo's investment in and
association with the Company will provide it with sponsorship and credibility in
the securities and financial markets as well as in dealings with buyers and
sellers in the real estate development market.
ABILITY OF APOLLO TO GENERATE REAL ESTATE OPPORTUNITIES FOR THE
COMPANY. Due to its visibility in the industry and the funds at its disposal,
Apollo is presented with a significant number of real estate development
opportunities that may not otherwise come to the Company's attention, or for
which the Company by itself may not be considered a qualified participant.
Because, however, Apollo does not have significant equity holdings in any other
community development company, the Company believes that Apollo will present to
the Company numerous attractive real estate development opportunities that come
to Apollo's attention.
APOLLO IS A POTENTIAL SOURCE OF ADDITIONAL CAPITAL. As evidence of
Apollo's desire to invest additional capital with the Company, Apollo negotiated
for the right of first offer on up to $60 million of future joint venture
opportunities in respect of Company real estate development projects. Under the
Investment Agreement between Apollo and the Company, the Company has the
discretion to seek joint venture equity on any proposed transaction and the
Company has the right to accept third party joint venture equity on terms more
favorable than those offered by Apollo on any particular transaction.
APOLLO IS A POTENTIAL SOURCE FOR MANAGEMENT ASSIGNMENTS. The Company
believes that Apollo would consider contracting with the Company for the Company
to provide management services for certain of Apollo's future real estate
acquisitions, thereby providing the Company additional market exposure and fee
revenue, although there can be no assurance this will happen.
- 12 -
<PAGE>
THE APOLLO TRANSACTION
Under the Investment Agreement, subject to certain conditions,
including Stockholders' approval, the Company agreed to issue and sell to
Apollo, and Apollo agreed to purchase from the Company, for an aggregate
purchase price of up to $25,000,000, up to 2,500,000 shares of Series A
Preferred Stock at a per share price of $9.88 and 5,000,000 Investor Warrants at
a per warrant price of $0.06. On June 23, 1997, the Stockholders approved the
Investment Agreement and the transactions contemplated thereby, and on June 24,
1997, Apollo purchased 553,475 shares of Series A Preferred Stock (the "Initial
Preferred Shares") and 1,106,950 Investor Warrants (the "Apollo Closing"). From
time to time thereafter and until Apollo has acquired all of the 2,500,000
shares of Series A Preferred Stock and the 5,000,000 Investor Warrants, Apollo
will purchase, subject to the terms and conditions of the Investment Agreement,
additional Series A Preferred Stock and two Investor Warrants for each share of
Series A Preferred Stock purchased (the "Proportionate Number of Investor
Warrants") to enable the Company to invest in real estate development projects
approved by the Board and Apollo. If the Company has not presented Apollo with
real estate development projects pursuant to which Apollo has invested the
aggregate purchase price of $25,000,000, under the Investment Agreement, (a)
Apollo will be entitled at any time to acquire all of the Series A Preferred
Stock and Investor Warrants not acquired by it prior thereto and (b) from and
after June 30, 1998, the Company will be entitled at any time to require Apollo
to purchase all of such Series A Preferred Stock and Investor Warrants, provided
that no Event of Default (as defined in the Secured Agreement) shall have
occurred and, except for an Event of Default which is or results from a
Bankruptcy Event (as defined), shall then exist. The Investment Agreement
contemplates that the Company will make available for sale to the Stockholders
in a Rights Offering 1,000,000 shares of Series B Preferred Stock with a
liquidation preference of $10 per share, and Warrants to purchase 2,000,000
shares of Common Stock, for an aggregate purchase price of $10 million.
At the Apollo Closing on June 24, 1997, the following transactions
occurred:
1. CHARTER AMENDMENTS. The Company filed with the State of Delaware
an Amended and Restated Certificate of Incorporation (the "Charter
Amendments") which, among other things, increased the number of
authorized shares of Common Stock from 15,665,000 to 70,000,000
and authorized the issuance of 4,500,000 shares of Preferred
Stock, 2,500,000 of which are designated Series A Preferred Stock
and 2,000,000 of which are designated Series B Preferred Stock.
The Charter Amendments also eliminated the restriction on the
Company issuing nonvoting stock and the provision requiring
certain mandatory dividends on the Common Stock, each of which
would be inconsistent with the rights of the holders of the
Preferred Stock.
2. SALE OF SERIES A PREFERRED STOCK AND INVESTOR WARRANTS. For an
aggregate purchase price of $5,534,752, the Company issued to
Apollo 553,475 shares of Series A Preferred Stock and Investor
Warrants (consisting of 368,983 Class A Warrants, 368,983 Class B
Warrants and 368,984 Class C Warrants) to purchase 1,106,950
shares of Common Stock at a per share purchase price of $5.75
(subject to adjustment).
3. THE BOARD. The number of directors was reduced from 10 to seven
and three Apollo designees were appointed to the Board by the
incumbent directors.
4. COMMITMENT FEE. Apollo refunded to the Company the $1,000,000
commitment fee the Company had paid to Apollo in connection with
entering into the Investment Agreement.
- 13 -
<PAGE>
On June 30, 1997, the Company issued and sold to Apollo under the
Investment Agreement an additional 334,000 shares of Series A Preferred Stock
and Investor Warrants to purchase an additional 668,000 shares of Common Stock,
for an aggregate purchase price of $3,340,000.
THE PRIVATE PLACEMENT
Concurrently with the Apollo Closing, the Company sold to the
Private Purchasers, in a private placement, for an aggregate purchase price of
$20 million, (a) 1,776,199 shares of Common Stock for $10 million, and (b)
1,000,000 shares of Series B Preferred Stock and Series B Warrants (consisting
of 666,667 Class A Warrants, 666,667 Class B Warrants and 666,666 Class C
Warrants) to purchase 2,000,000 shares of Common Stock, for $10 million. See
"The Private Placement."
THE RIGHTS OFFERING
Securities Offered 1,000,000 Units. Each Unit consists of one
share of Series B Preferred Stock and Series B
Warrants to purchase two shares of Common
Stock, issuable upon the exercise of Rights.
Rights Each holder of Common Stock will receive at no
cost to such holder .10274 of a Right for each
share of Common Stock held of record by such
holder on June 20, 1997 (the "Record Date").
No fractional Rights or cash in lieu thereof
will be distributed by the Company. Fractional
Rights will be rounded down to the nearest
whole number that is a multiple of three. An
aggregate of approximately 1,000,000 Rights
will be distributed pursuant to the Rights
Offering. One Right plus $10.00 in cash will
entitle the holder to one Unit. An aggregate
of 1,000,000 shares of Series B Preferred
Stock and Series B Warrants to purchase
2,000,000 shares of Common Stock (consisting
of 666,667 Class A Warrants, 666,667 Class B
Warrants and 666,666 Class C Warrants) will be
sold upon exercise of the Rights at the
completion of the Rights Offering (the "Unit
Closing"), assuming all 1,000,000 Rights are
exercised. See "The Rights Offering -- The
Rights."
Basic Subscription Privilege One Right will entitle the holder thereof to
receive, upon payment of the Subscription
Price, one Unit (the "Basic Subscription
Privilege"). Rights must be exercised in
integral multiples of three. See "The Rights
Offering -- Subscription Privileges -- Basic
Subscription Privilege."
Oversubscription Privilege Each holder of Rights who exercises in full
such holder's Basic Subscription Privilege may
also subscribe at the Subscription Price for
additional Units available as a result of
unexercised Rights, if any (the
"Oversubscription Privilege"). If an
insufficient number of Units is available to
satisfy fully all exercises of the
Oversubscription Privilege, the available
Units will be prorated among holders who
exercise their Oversubscription Privilege in
proportion to the number of Units each
beneficial holder subscribed for pursuant to
the Basic Subscription Privilege up to the
amount so subscribed for. See "The Rights
Offering -- Subscription Privileges --
Oversubscription Privilege."
- 14 -
<PAGE>
Record Date June 20, 1997.
Subscription Price $10.00 in cash per Unit.
Expiration Date 5:00 p.m., New York City time, on August __,
1997. Rights not exercised prior to the
Expiration Date will be void and will no
longer be exercisable by any Rights holder and
will be worthless.
Procedure for Exercising Rights The Basic Subscription Privilege and the
Oversubscription Privilege may be exercised by
properly completing and signing the
Subscription Certificate evidencing the Rights
(each, a "Subscription Certificate"), and
forwarding such Subscription Certificate (or
following the guaranteed delivery procedures),
together with payment of the Subscription
Price for each Unit subscribed for pursuant to
the Basic Subscription Privilege and the
Oversubscription Privilege, to American Stock
Transfer & Trust Company, as subscription
agent (the "Subscription Agent"), on or prior
to the Expiration Date. If forwarding
Subscription Certificates by mail, it is
recommended that insured, registered mail be
used. No interest will be paid on funds
delivered in payment of the Subscription
Price. See "The Rights Offering -- Exercise of
Rights."
NO REVOCATION ONCE A HOLDER OF RIGHTS HAS EXERCISED THE
BASIC SUBSCRIPTION PRIVILEGE OR THE
OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY
NOT BE REVOKED. SEE "THE RIGHTS OFFERING -- NO
REVOCATION."
Persons Holding Common Stock Persons holding Common Stock beneficially and
Wishing to Exercise Rights receiving the or Rights issuable with respect
Through Others thereto, through a broker, dealer, commercial
bank, trust company or other nominee, as well
as persons holding certificates for Common
Stock directly who would prefer to have such
institutions effect transactions relating to
the Rights on their behalf, should contact the
appropriate institution or nominee and request
it to effect such transaction for them. See
"The Rights Offering -- Exercise of Rights."
Procedure for Exercising Rights Subscription Certificates will not be mailed
to Stockholders whose addresses are outside
the United States, but will be held by the
Subscription Agent for their accounts. To
exercise the Rights represented thereby, such
holders must notify the Subscription Agent and
take all other steps which are necessary to
exercise the Rights on or prior to 5:00 p.m.,
New York City time on the Expiration Date. If
no contrary instructions have been received by
such time, the Rights of such holders will
expire. See "Description of the Rights
Offering -- Foreign and Certain Other
Stockholders."
- 15 -
<PAGE>
Transfer The Rights are transferable, and it is
expected that they will trade on the NASDAQ
National Market System until the close of
business on the last National Market System
trading day prior to the Expiration Date.
There can be no assurance, however, that a
market for the Rights will develop or, if a
market develops, that the market will remain
available throughout the period during which
the Rights may be exercised, or as to the
price at which the Rights will trade. See "The
Rights Offering -- Method of Transferring
Rights."
Escrow of Oversubscription Funds received upon exercise of the Basic
Funds Subscription Privilege will not be held in
escrow pending conclusion of this offering and
will be immediately available to the Company.
Funds received upon exercise of the
Oversubscription Privilege will be held in a
segregated account pending conclusion of the
offering.
Preferred Stock The terms of the Series A Preferred Stock
purchased by Apollo at the Apollo Closing and
of the Series B Preferred Stock offered
pursuant to the Rights Offering and issued in
the Private Placement are substantially the
same except as discussed herein.
CONVERSION. Each share of Preferred Stock will
be convertible into such number of shares of
Common Stock as is obtained by dividing the
liquidation preference (initially $10 per
share for each of the Series A Preferred Stock
and the Series B Preferred Stock) by the
conversion price (initially $5.75 per share).
Accordingly, each share of Series A Preferred
Stock and Series B Preferred Stock will be
convertible initially into 1.739 shares of
Common Stock, in each case subject to
adjustment and at the holder's option at any
time prior to redemption.
DIVIDENDS. Dividends on the Preferred Stock
will be cumulative from the date of issuance
and will be payable, when, as and if declared
by the Board, quarterly at the rate of 20% per
annum of the liquidation preference ($10 per
share, plus any accrued and unpaid dividends)
(the " Liquidation Preference"), beginning on
September 30, 1997. Under the Foothill Debt
agreements, the Company has agreed not to
declare or pay any dividend (other than
dividends payable solely in its common stock
or preferred stock) on any capital stock of
the Company. There can be no assurance whether
or when the Company will be able to declare or
pay dividends on the Preferred Stock in the
foreseeable future.
- 16 -
<PAGE>
REDEMPTION. The Preferred Stock is redeemable
by the Company, in whole or in part, after
three years from the issuance date at a
redemption price in cash equal to the
Liquidation Preference. The Company has agreed
in the Investment Agreement that without
Apollo's consent, the Company will not redeem
Series A Preferred Stock except that Apollo's
consent is not required so long as the ratio
of the aggregate amount being paid on the
Series A Preferred Stock to the aggregate
amount being paid on the Series B Preferred
Stock is both (A) greater than or equal to the
ratio of the aggregate outstanding liquidation
preference of the Series A Preferred Stock to
the aggregate outstanding liquidation
preference of the Series B Preferred Stock
issued in the Rights Offering and the Private
Placement and (B) less than or equal to the
ratio of the aggregate outstanding liquidation
preference of the Series A Preferred Stock to
the aggregate outstanding liquidation
preference of the Series B Preferred Stock
issued in the Rights Offering. The Company may
redeem Series B Preferred Stock (subject to
certain consent rights of Apollo) without
proration in accordance to the number of
shares held by each holder.
PUT RIGHTS. Holders of Preferred Stock will
have certain put rights, which entitle them to
require the Company to repurchase the
Preferred Stock as follows: (a) up to an
aggregate of one-third of the shares of each
of the Series A Preferred Stock and the Series
B Preferred Stock after the end of the fourth
year following the issuance date and before
the end of the fifth year; (b) up to an
aggregate of two-thirds of the shares of each
of the Series A Preferred Stock and the Series
B Preferred Stock after the end of the fifth
year following the issuance date and before
the end of the sixth year; and (c) up to the
entire amount after the sixth year following
the issuance date, at a repurchase price in
cash equal to the Liquidation Preference. The
put rights of the Series A Preferred Stock are
secured by (a) a junior lien on substantially
all of the assets of the Company and its
subsidiaries, except for the outstanding
capital stock of the SP Subsidiary and its
assets and (b) a senior lien on the
outstanding capital stock of the SP Subsidiary
and on its assets. The put rights of the
Series B Preferred Stock will not be secured.
Under the Foothill Debt Agreements, the
Company has agreed not to purchase, redeem,
retire or otherwise acquire any capital stock
of the Company (other than solely for common
stock or preferred stock of the Company).
LIQUIDATION. The Liquidation Preference for
the Series A Preferred Stock and the Series B
Preferred Stock is $10 per share, plus any
accrued and unpaid dividends.
VOTING RIGHTS. Holders of the Series A
Preferred Stock will be entitled to elect
three directors to the Board out of a
seven-member Board, but will have no other
rights to vote on matters submitted to a vote
of Stockholders, except as may be required by
applicable law. Holders of Series B Preferred
Stock will have no right to vote on matters
submitted to a vote of Stockholders, including
the election of directors, except as may be
required by applicable law.
- 17 -
<PAGE>
CONSENT RIGHTS. As long as Apollo holds at
least 500,000 shares of Series A Preferred
Stock, Apollo will have certain consent rights
in respect of the Company engaging in Major
Transactions (as defined below), including
(subject to certain exceptions):
recapitalizations, redemptions or
reclassifications of the Company's capital
stock; distributions or dividends on the
Company's capital stock; liquidation,
winding-up or dissolutions of the Company or
any Subsidiary; amendments of the Company's
certificate of incorporation or by-laws;
mergers or consolidations; sales of a
significant amount of assets not contemplated
by an Approved Business Plan (as defined
below); special dividends or distributions;
entering into or amending material contracts;
significant new financings or refinancings;
issuances of securities; unplanned major
investments or capital expenditures;
transactions which would result in a change of
control of the Company; or the commencement,
undertaking or acquisition of real estate
development projects by the SP Subsidiary (as
defined below) and related financing or joint
venture arrangements. See "The Apollo
Transaction -- Consent Rights." Holders of the
Series B Preferred Stock will have no such
consent rights.
TRANSFERABILITY. Pursuant to the Investment
Agreement, the Series A Preferred Stock will
not be transferable before February 7, 1999
unless certain defaults or change of control
events have occurred. See "The Apollo
Transaction -- Transferability Restrictions."
There are no such restrictions on the
transferability of the Series B Preferred
Stock issued in the Rights Offering, which
will be immediately transferable (subject to
restrictions imposed by the securities laws in
the case of affiliates of the Company). See
"Description of the Units -- Transferability."
Series B Warrants Series B Warrants to purchase 2,000,000 shares
of Common Stock (consisting of 666,667 Class A
Warrants, 666,667 Class B Warrants and 666,666
Class C Warrants), the terms of which are
substantially the same as the terms of the
Investor Warrants issued to Apollo and
identical to the Series B Warrants issued in
the Private Placement.
Exercise Terms Each Series B Warrant entitles the holder
thereof to purchase one share of Common Stock
for $5.75 (the "Exercise Price") subject to
certain antidilution and other adjustments,
exercisable immediately.
Expiration Date June 23, 2004.
- 18 -
<PAGE>
Ownership Percentages Upon consummation of the Rights Offering
(assuming all Rights are exercised in
full), (a) the Series A Preferred Stock
(assuming all 2,500,000 shares are issued
to Apollo) and the Investor Warrants will
constitute 30.47% of the outstanding
Common Stock and (b) the Series B
Preferred Stock and Series B Warrants
will constitute 24.38% of the outstanding
Common Stock (in each case on a fully
diluted basis assuming the conversion of
the Preferred Stock and the exercise of
all outstanding warrants and stock
options). See "The Apollo Transaction --
Ownership by Apollo."
Federal Income Tax Considerations For United States federal income tax
purposes, Rights holders generally will
not recognize taxable income in
connection with the issuance to them or
exercise by them of Rights. Rights
holders may incur gain or loss upon the
sale of the Rights or the Series B
Preferred Stock and Series B Warrants
acquired upon exercise of the Rights. See
"Certain Federal Income Tax
Considerations."
Use of Proceeds The Company intends to use the proceeds
of the Rights Offering for working
capital purposes, including the payment
of a portion or all of the Foothill Debt.
NMS Symbols The Common Stock is traded on the NASDAQ
National Market System under the symbol "
AGLF ." The Company has filed an
application to have the Rights, the
Series B Preferred Stock and each class
(A, B and C) of the Series B Warrants
approved for quotation on the NASDAQ
National Market System under the symbols
"AGLFR," "AGLFP" and "AGLFW," "AGLFZ" and
AGLFL," respectively. No assurance can be
given that such application will be
approved.
No Board An investment in Units must be made
Recommendation pursuant to each investor's evaluation of
such investor's best interests.
ACCORDINGLY, THE COMPANY'S BOARD OF
DIRECTORS DOES NOT MAKE ANY
RECOMMENDATION TO RIGHTS HOLDERS
REGARDING WHETHER THEY SHOULD EXERCISE
THEIR RIGHTS.
Right to Terminate Rights Offering The Company expressly reserves the right,
in its sole and absolute discretion, at
any time prior to the delivery of the
Units offered hereby, to terminate the
Rights Offering if the Rights Offering is
prohibited by law or regulation or the
Board concludes, in its judgment, that it
is not in the Company's best interests to
complete the Rights Offering under the
circumstances. If the Rights Offering is
terminated, all funds received pursuant
to the Rights Offering will be promptly
refunded, without interest.
- 19 -
<PAGE>
SUMMARY HISTORICAL DATA AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical consolidated
financial data with respect to Atlantic Gulf for the periods ended and as of the
dates indicated. The summary historical consolidated statement of operations
data for the years ended December 31, 1994, 1995 and 1996 and the historical
consolidated balance sheet as of December 31, 1994, 1995 and 1996 are derived
from the audited Consolidated Financial Statements incorporated by reference
into this Prospectus. The summary historical consolidated statement of
operations data for the years ended December 31, 1992 and 1993 and the
historical consolidated balance sheet as of December 31, 1992 and 1993 are
derived from the audited Consolidated Financial Statements not incorporated by
reference into this Prospectus. The summary historical consolidated statement of
operations data for the three months ended March 31, 1996 and March 31, 1997 and
the summary historical consolidated balance sheet data as of March 31, 1997 are
derived from unaudited consolidated financial statements of Atlantic Gulf
incorporated by reference into this Prospectus. This information should be read
in conjunction with such financial statements. See "Selected Historical
Financial Data."
The following table also sets forth certain unaudited summary pro forma
financial data of Atlantic Gulf for the periods ended and as of the dates
indicated. The unaudited summary pro forma statement of operations data give
effect to the Apollo Transaction, the Private Placement and the Rights Offering
as if the Apollo Transaction, the Private Placement and the Rights Offering had
occurred on January 1, 1996. The unaudited summary proforma balance sheet data
give effect to the Apollo Transaction, the Private Placement and the Rights
Offering as if the Apollo Transaction, the Private Placement and the Rights
Offering had occurred on March 31, 1997. See "Use of Proceeds." The unaudited
summary pro forma financial data does not purport to represent what Atlantic
Gulf's results of operations or financial condition would actually have been had
the Apollo Transaction, the Private Placement and the Rights Offering been
consummated as of such dates or to project Atlantic Gulf's results of operations
or financial condition for any future period or as of any future date. The
unaudited summary pro forma financial data should be read in conjunction with
the Unaudited Pro Forma Financial Information and the notes thereto. See
"Unaudited Pro Forma Financial Information" and the separate historical
Consolidated Financial Statements and notes thereto incorporated by reference
into this Prospectus.
- 20 -
<PAGE>
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, DECEMBER 31, YEARS ENDED DECEMBER 31, MARCH 31,
---- ---- ------------------------------------ -------------
1992 1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Sales:
Homesite $ .2 $ 5.1 $ 11.8 $ 15.0 $ 24.1 $ 43.9 $ 14.6 $ 2.5
Tract 4.6 16.1 24.7 25.8 31.1 62.7 5.7 6.7
Residential .5 4.5 8.3 11.5 27.7 21.0 2.9 7.1
-------- -------- -------- -------- -------- -------- -------- --------
Total real estate sales 5.3 25.7 44.8 52.3 82.9 127.6 23.2 16.3
Utility revenue 3.7 9.9 4.5 2.9 -- -- -- --
Other operating revenue 3.3 7.4 8.9 6.9 6.7 4.9 1.1 .6
Interest Income 2.2 8.6 11.0 8.3 7.8 6.3 1.3 1.4
Other Income:
Reorganization reserves -- -- -- .7 10.7 18.6 1.3 .4
Other income -- 14.3 1.4 34.9 5.3 7.9 4.9 --
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues 14.5 65.9 70.6 106.0 113.4 165.3 31.8 18.7
-------- -------- -------- -------- -------- -------- -------- --------
Cost and expenses:
Direct cost of real estate sales:
Homesite .2 3.5 8.5 10.5 17.2 35.2 10.9 2.0
Tract 2.4 6.7 15.5 17.9 26.1 51.4 4.7 6.2
Residential .4 4.0 7.2 10.1 23.1 16.7 2.2 5.3
-------- -------- -------- -------- -------- -------- -------- --------
Total direct cost of real estate sales 3.0 14.2 31.2 38.5 66.4 103.3 17.8 13.5
Inventory valuation reserves -- -- -- -- 4.9 12.3 -- --
Selling expense 1.2 4.0 7.5 7.5 9.8 13.5 2.6 2.1
Utility operating expense 2.4 8.1 5.0 2.0 -- -- -- --
Other operating expense 2.6 7.8 5.9 5.1 4.0 2.0 .7 .3
Other real estate costs 3.3 5.5 15.5 22.6 20.5 19.4 4.3 2.9
General and administrative expense 2.9 8.5 9.8 10.6 10.4 11.5 3.1 2.2
Depreciation 1.2 3.2 2.1 1.1 1.2 .9 .2 .2
Cost of borrowing, net of amounts capitalized 1.3 10.8 10.9 14.8 14.3 13.4 3.3 4.0
Other (income) expense, net 5.7 27.7 1.2 2.7 2.5 1.5 .2 .8
-------- -------- -------- -------- -------- -------- -------- --------
Total costs and expenses 23.6 89.8 89.1 104.9 134.0 177.8 32.2 26.0
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before reorganization items (9.1) (23.9) (18.5) 1.1 (20.6) (12.5) (.4) (7.3)
Income from reorganization items 12.9 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary items 3.8 (23.9) (18.5) 1.1 (20.6) (12.5) (.4) (7.3)
Extraordinary items 950.6 -- -- -- -- -- -- --
Extraordinary gains on extinguishment of debt -- -- -- -- -- 13.7 3.8 --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 954.4 $ (23.9) $ (18.5) $ 1.1 $ (20.6) $ 1.2 $ 3.4 $ (7.3)
======== ======== ======== ======== ======== ======== ======== ========
Income (loss) before extraordinary items
per common share $ .46 $ -- $ -- $ .11 $ (2.12) $ (1.29) $ (.04) $ (.75)
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) per common share $ 114.11 $ (2.45) $ (1.91) $ .11 $ (2.12) $ .12 $ .35 $ (.75)
======== ======== ======== ======== ======== ======== ======== ========
Weighted average common shares outstanding 8.4 9.8 9.7 9.6 9.7 9.7 9.7 9.7
======== ======== ======== ======== ======== ======== ======== ========
Pro forma net income (loss) $ 6.5 $ (5.7)
Preferred Dividends Earned $ (9.0) (2.2)
-------- --------
Pro forma net income (loss) available to
Common Stock (2.5) (7.9)
======== ========
Pro forma net income (loss) per common share $ .22 $ (.69)
======== ========
- 21 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, DECEMBER 31, YEARS ENDED DECEMBER 31, MARCH 31,
---- ---- ------------------------------------ -------------
1992 1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
OTHER FINANCIAL DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA (a) 956.9 (1.1) 4.7 27.4 9.3 27.4 10.3 (0.3)
Cash flows from operating activities 41.9 14.8 (17.9) (33.2) (24.9) 15.0 7.8 7.5
Cash flows from investing activities 0.1 43.6 17.2 43.9 2.2 30.4 1.2 12.0
Cash flows from financing activities 37.3 (12.6) (34.7) (12.1) 13.9 (41.9) (10.2) (9.2)
Net cash interest expense (b) 1.3 13.6 18.3 14.6 14.7 13.5 3.7 3.8
Capital expenditures (0.4) (1.1) (1.1) (3.6) (1.6) (0.2) (0.1) (0.1)
Ratios:
EBITDA to net interest expense 736.1x (0.1)x 0.4x 1.9x 0.7x 2.0x 3.1x (0.1)x
EBITDA to net cash interest expense 736.1x (0.1)x 0.3x 1.9x 0.6x 2.0x 2.8x (0.1)x
Earnings to fixed charges (c) 204.1x (0.0)x 0.4x 1.0x 0.1x 1.1x 1.6x (0.4)x
Total debt to EBITDA 0.2x (207.5)x 43.3x 6.9x 23.8x 6.2x 20.4x (540.7)x
Pro Forma:
EBITDA 29.6 12.3
Net interest expense (d) 8.8 3.0
Net cash interest expense 10.4 3.6
Pro Forma Ratios:
EBITDA to net interest expense 3.4 4.1
EBITDA to net cash interest expense 2.8 3.4
Earnings to fixed charges and
preferred stock dividends 1.2 1.8
BALANCE SHEET DATA (END OF PERIOD):
Cash and investments 3.5 49.2 13.8 12.3 3.6 7.1 2.3 2.5
Total assets 476.5 439.2 367.2 348.6 332.8 263.4 315.8 239.9
Long term debt, including current maturities 235.9 228.2 203.3 190.3 221.0 169.2 210.1 162.2
Stockholders' equity 119.9 94.5 73.2 74.7 54.4 56.4 57.8 49.2
Pro Forma:
Cash and investments 2.5
Long term debt, including current maturities 132.2
Cumulative redeemable convertible preferred stock 40.5
Stockholders' equity 59.7
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</TABLE>
<PAGE>
- ----------
(a) EBITDA - represents net income (loss) plus (i) cost of borrowing, net
of amount capitalized (net interest expense), (ii) income taxes, (iii)
depreciation, and (iv) amortization. EBITDA is not presented as an
indicator of Atlantic Gulf's operating performance or as a measure of
liquidity.
(b) NET CASH INTEREST EXPENSE - represents net interest expense plus
interest capitalized less amortized finance costs and accreted interest
costs.
(c) EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS - for the
purpose of computing the ratio of earnings to fixed charges, earnings
are defined as net income (loss) plus fixed charges. Fixed charges
include (i) net cash interest expense, (ii) property taxes, (iii)
rental expense, and (iv) preferred stock dividends.
(d) NET INTEREST EXPENSE - is also described as cost of borrowing, net of
amounts capitalized and represents actual interest charges incurred
during the period plus amortization of certain non-cash debt issuance
costs and accretion of interest on certain discounted notes less
interest capitalized to real estate projects.
RISK FACTORS
Prior to making an investment decision, holders of Rights should
consider carefully the following factors relating to the Company's business and
the Rights Offering, together with the information and financial data set forth
elsewhere in this Prospectus or incorporated by reference herein.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking" statements that are subject
to risks and uncertainties. Such forward-looking statements include (a)
expectations and estimates as to the Company's future financial performance,
including growth and opportunities for growth in revenues, net income and cash
flow; (b) the advantages and benefits and disadvantages and costs of the Apollo
Transaction, the Private Placement and the Rights Offering; (c) the
opportunities for cash flow growth through the use of the net proceeds from the
Apollo Transaction, the Private Placement and the Rights Offering; and (d) those
other statements preceded by, followed by or that include the words "believes,"
"expects," "intends," "anticipates," "potential" or similar expressions. For
these statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. The following important factors, in addition to those discussed
elsewhere in this Prospectus, could affect the Company's future results and
could cause those results to differ materially from those expressed in the
forward-looking statements: (a) the inability to generate growth in revenues and
net income; (b) the inability to generate sufficient cash flows from operations
to fund capital expenditures and debt service; (c) unanticipated capital
expenditures, including costs associated with real estate development projects;
(d) the inability to realize significant benefits as a result of the Apollo
Transaction, the Private Placement and the Rights Offering or to realize
increases in revenues, net income or cash flow as a result of such transactions;
(e) unanticipated costs, difficulties or delays in completing or realizing the
intended benefits of development projects; (f) adverse changes in current
financial market and general economic conditions, including interest rate
increases; and (g) actions by competitors.
- 23 -
<PAGE>
HIGH LEVEL OF DEBT; CAPITAL RESOURCES
The Company has a high level of debt. Approximately $21.67 million of
Foothill Debt matures on December 31, 1997. The balance of approximately $41.7
million of Foothill Debt and an additional $39.6 million in certain unsecured
cash flow notes mature in 1998. The Company currently does not have sufficient
liquidity and capital resources to satisfy such indebtedness and to implement
fully its business plan. Management believes, however, that sufficient liquidity
and capital resources to satisfy such indebtedness and to implement fully the
Company's business plan will be provided by a combination of sources, including
the Apollo Transaction, the Private Placement and the Rights Offering, the
accelerated disposition of non-core tract and scattered homesite assets, the
monetizing of Predecessor Company assets, refinancings, and revenues from
operations.
LOSSES
During the year ended December 31, 1996, the Company had net income of
approximately $1.2 million, including an extraordinary gain of approximately
$13.7 million resulting from the extinguishment of debt and an operating loss of
$12.5 million. The Company had a net loss of $20.6 million for the year ended
December 31, 1995. During the first quarter of 1997, the Company incurred a net
loss of $7.3 million compared to net income of $3.4 million during the first
quarter of 1996 primarily due to a $5.7 million decrease in other income and a
$3.8 million extraordinary gain in the first quarter of 1996 resulting from the
cancellation of debt. The Company expects to achieve operating profitability
through some combination of growth in revenues and reductions in debt, fixed
expenses and overhead.
FLORIDA REAL ESTATE MARKET
The Company's success is affected by the risks generally incident to
the real estate business, including risks generally incident to the Florida real
estate market. The Florida real estate market historically has been cyclical,
and the Company's business may be affected by changes in the Florida and
national economy and changes in the levels of interest rates. Any downturn in
the Florida or national economy or increase in interest rates can have adverse
effects on sales and profitability and on the Company's ability to make required
payments on debt.
REGULATORY AND ENVIRONMENTAL MATTERS
The Company's real estate operations are regulated by various local,
regional, state and federal agencies. The extent and nature of these regulations
include matters such as planning, zoning, design, construction of improvements,
environmental considerations and sales activities. Local, regional, state and
federal laws, regulations and policies regarding the protection of the
environment directly affect the Company and its business. The Company has
permits for certain of its development projects, issued by a variety of
governmental entities. Ongoing permitting obligations may include a range of
environmental, maintenance and monitoring obligations, including water quality
monitoring, surface water management and wetlands mitigation.
A small portion of the Company's land holdings contain residues or
contaminants from current and past activities by the Company, its lessees, prior
owners and operators of the properties and/or unaffiliated parties. Some of
these areas have been the subject of cleanup action by the Company voluntarily
or following the involvement of regulatory agencies. Additional cleanup in the
future also may be required. The Company's business is subject to additional
obligations under the environmental laws, relating to both ongoing operations as
well as past activities. Compliance with environmental restrictions is likely to
become more costly and time
- 24 -
<PAGE>
consuming for the Company in the future. The Company believes, however, that its
obligations under the environmental laws will not have a material adverse affect
on its business, results of operations or financial position.
Certain of the Company's tract inventory is subject to permits and
regulatory approvals which enhance the marketability of the property. In some
cases, preserving the permits and approvals prior to sale could require
additional development in the future, subject to growth thresholds such as
traffic patterns. To the extent the Company chooses not to undertake development
work required by a permit or approval for a specific tract within the indicated
time period, the Company's targeted gross margins for that tract could be
adversely affected based upon a revised development plan or land use.
COMPETITION
Real estate operations, particularly in Florida, are highly
competitive. Competition with respect to tract sales of Florida real estate has
been heightened by the general lack of available bank financing for real estate
acquisition and development which reduces the number of buyers who have the
financial resources and development expertise to transform these tracts into
finished homesites. For tract sales, the Company competes with other real estate
sellers for developers/builders and other real estate investors on the basis of
location, permitted uses, financing and price.
In the development and sale of new homesite subdivisions, the Company
has focused on acquiring new properties in Florida's primary markets and in
selected primary markets in the Southeast. The supply of finished lots in the
primary markets has been significantly reduced from its levels in recent years
due to a combination of several factors, including a reduction in the capital
available for the acquisition and development of new homesites and a reduction
in the number of real estate developers active in new subdivision acquisition
and development. Also, homebuilders are reluctant to acquire and develop
finished homesites due to a lack of expertise and the substantial cost
associated with carrying finished inventory. Nevertheless, the Company continues
to compete on the basis of price, product and location with other developers and
homebuilders in those markets.
The secondary Florida markets, where the Company's scattered homesite
inventory is located, are also highly competitive. With respect to the sale of
scattered homesites in the secondary Florida markets, there is a significant
oversupply of buildable homesites developed by the Predecessor Company remaining
on the market. Because the primary buyers for the scattered buildable homesites
are small independent homebuilders, the Company competes for their business on
the basis of price and location.
MARKET RISK IN EXERCISING RIGHTS
There can be no assurance that the market value of the Series B
Preferred Stock, the Series B Warrants or the Common Stock into which the Series
B Preferred Stock may be converted or for which the Series B Warrants may be
exercised will not be below the allocated portion of the Subscription Price or
the implied conversion price of the Common Stock, as the case may be, between
the time a Stockholder exercises a Right and the time the Stockholder takes
delivery of the Series B Preferred Stock or thereafter. The exercise of a Right
is irrevocable.
- 25 -
<PAGE>
POSSIBLE DILUTION OF OWNERSHIP INTEREST
Each share of the Series B Preferred Stock may be converted into 1.739
shares of Common Stock (subject to adjustment) and will be entitled to vote on
all matters presented to Stockholders if converted. Similarly, each Series B
Warrant is exercisable for one share of Common Stock (subject to adjustment) and
will be entitled to vote on all matters presented to Stockholders if exercised.
Accordingly, Stockholders who do not exercise their Rights in full may realize a
dilution in their voting rights and percentage interest in future net earnings,
if any, of the Company. Moreover, the conversion of the Series A Preferred Stock
and the exercise of the Investor Warrants and the Bank Warrants (as defined
below) would increase the amount of Common Stock outstanding and thereby further
dilute the percentage ownership interests and voting rights of the holders of
Common Stock immediately prior to such conversion or exercise.
ABSENCE OF DIVIDENDS
No dividends have been declared or paid by the Company on its Common
Stock. Based upon the Company's existing debt obligations, its anticipated net
cash flows and its business plan, management does not anticipate the Company
having available cash to pay any cash dividends on the Common Stock in the
foreseeable future. Also, no cash dividends can be paid on Common Stock while
any dividend arrearages exist on the Preferred Stock. Furthermore, the Company's
current debt obligations prohibit the payment of any dividend (other than
dividends payable solely in common stock or preferred stock of the Company,
including Common Stock and Preferred Stock). There can also be no assurance that
the Company will be able to pay accumulated dividends on the Series B Preferred
Stock.
EFFECT ON COMMON STOCK OF SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Unit Closing (assuming all Rights are
exercised), a total of approximately 19,166,586 shares of Common Stock will be
issuable upon conversion of the Preferred Stock and upon exercise of outstanding
warrants (including the Series B Warrants) and options. The conversion of such
Preferred Stock and the exercise of such warrants and options, along with the
issuance of Common Stock under other Company compensation plans, would result in
the issuance of a substantial amount of Common Stock, thereby diluting the
proportionate equity interests of the holders of the Common Stock. No prediction
can be made as to the effect, if any, that future sales of Common Stock, or the
availability of shares for future sales, will have on the market price of the
Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock (including shares issued upon the conversion of Preferred Stock or
exercise of warrants or options), or the perception that such sales could occur,
could adversely affect prevailing market prices for the Common Stock.
- 26 -
<PAGE>
ABSENCE OF TRADING MARKET FOR THE SERIES B PREFERRED STOCK AND THE
SERIES B WARRANTS
The Series B Preferred Stock and the Series B Warrants are immediately
detachable from each other, will be represented by separate certificates and are
separately tradeable. The Company will not apply for a listing of the Units on
NASDAQ and, as a result, such Units are not likely to be tradeable, although it
is possible that some broker-dealers may seek to have the Units listed on the
NASD Electronic Bulletin Board or, in the National Quotation Bureau's pink
sheets at some time in the future. Prior to this Offering, there has been no
market for the Series B Preferred Stock or the Series B Warrants and there can
be no assurance that a market will develop at the conclusion of the Offering, or
if developed, that it will be sustained. In addition, although the Company will
seek a NASDAQ listing for the Series B Preferred Stock and the Series B
Warrants, the Series B Preferred Stock and the Series B Warrants may not be
quoted for trading on the NASDAQ National Market System or on any other market.
If any market does develop, the market price of these securities might be
volatile. Factors such as announcements by the Company or its competitors
concerning proposed plans, procedures and proposed government regulations,
losses and litigation may have a significant effect on the market price of the
Company's securities. Changes in the market price of the Company's securities
may have no connection with the Company's actual financial results.
The Subscription Price is not based on any estimate of the market value
of the Series B Preferred Stock and no representation is made that the Series B
Preferred Stock and Series B Warrants offered hereby have a market value
equivalent to, or could be resold at, the Subscription Price. Investors desiring
to dispose of Series B Preferred Stock may be required to convert their shares
into Common Stock to dispose of them.
ABSENCE OF COLLATERAL FOR SERIES B PREFERRED STOCK PUT RIGHTS
Holders of each of the Series A Preferred Stock and the Series B
Preferred Stock have certain put rights which permit them to require the Company
under certain circumstances to purchase the Preferred Stock then held by them at
a price in cash equal to the Liquidation Preference. See "Description of the
Units -- Series B Preferred Stock" and "The Apollo Transaction -- The Series A
Preferred Stock." The put rights of the holders of the Series A Preferred Stock
are secured by a junior lien on substantially all of the assets of the Company
and its subsidiaries, except for the outstanding capital stock and assets of the
SP Subsidiary, and by a senior lien on the outstanding capital stock of the SP
Subsidiary and on its assets. The put rights of the holders of the Series B
Preferred Stock are not secured. Therefore, the holders of the Series B
Preferred Stock will be in a significantly weaker position vis-a-vis the holders
of the Series A Preferred with respect to the enforcement of their put rights if
the Company defaults in its repurchase obligations. Also, under the Foothill
Debt Agreements, the Company agreed not to purchase, redeem, retire or otherwise
acquire any capital stock of the Company (other than solely for common stock or
preferred stock of the Company).
CONTROL OF THE COMPANY BY APOLLO
As long as Apollo holds at least 500,000 shares of Series A Preferred
Stock, (a) the holder(s) of the Series A Preferred Stock will have the right to
elect three of the seven Board members and (b) without Apollo's consent, the
Company will not have the right to engage in or enter into any agreement with
respect to a Major Transaction. See "The Apollo Transaction -- Consent Rights ."
In addition to Apollo's right to elect three Board members, Apollo could obtain
sufficient ownership of Common Stock having the power to elect one or more
additional Board members, or otherwise significant voting power on matters other
than the election of directors. Based upon certain assumptions, Apollo's
percentage ownership of Common Stock could range up to approximately 49%. See
"The Apollo Transaction -- Ownership By Apollo." There can be no assurance
regarding the effect that Apollo's influence on and participation in the
Company's management will have on the Company's financial condition and
performance. The foregoing, along with the issuance of the Series B Preferred
Stock, could also have certain anti-takeover effects. Such effects could
discourage and
- 27 -
<PAGE>
frustrate an attempt to acquire the Company, thus depriving Stockholders of the
benefits that could result from such an attempt including a merger or tender
offer in which Stockholders might receive a premium over the market price of
their Common Stock.
AVAILABILITY OF NET OPERATING LOSS CARRYFORWARDS
Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), limits a corporation's ability to carry forward its net operating
losses and other tax attributes following a transfer of stock or changes in a
corporation's equity structure which results in a "change of ownership." The
determination of whether a change of ownership occurs is made by determining for
each "five-percent shareholder" of the corporation the excess, if any, of his
percentage ownership of the corporation's stock over his smallest percentage
ownership during the three prior years. If the total of such increases exceeds
50 percentage points, there has been a change of ownership for purposes of
Section 382. A five-percent shareholder generally refers to any person that
directly or indirectly owns five percent or more of the total value of the
corporation's stock at any time during the three years analysis period. As a
result of certain transactions, several less than five percent shareholders may
be aggregated and treated as a single five-percent shareholder whose increase in
ownership is taken into account. At December 31, 1996, the Company had
approximately $207 million of unused net operating loss ("NOL") carry forwards
which expire in years 1999 through 2010. Included in this amount is
approximately $24.1 million of net operating loss attributable to certain legal
entities that may only be used against future taxable income of these same
entities.
The Company cannot determine at this time whether the Apollo
Transaction, the Private Placement and the Rights Offering will result in a
Section 382 change of ownership. That determination is dependent on several
factors that are not known at this time (e.g., the portion of the stock issued
in such transactions that will be acquired by actual or deemed five-percent
shareholders and the Common Stock prices prevailing at the time the transactions
are consummated). Once these factors are known, the Company may determine that
the consummation of such transactions will result or have resulted in a change
of ownership. Further, even if a change of ownership does not result
immediately, such transactions will result in an increase in ownership of
five-percent shareholders of the Company, and , therefore, will significantly
increase the risk that a subsequent transaction within three years (over which
the Company may not have control) would cause a change of ownership of the
Company. If a change of ownership were to occur, the Company's ability to carry
forward its existing NOLs to offset future income and gain would be subject to
an annual limitation. The impact of this limitation cannot be predicted with any
certainty because the amount of the limitation would depend on the value of the
Common Stock and on interest rates in effect at the time the change of ownership
occurred. However, based on recent Common Stock trading prices of $5.50 to $6.00
per share and on current interest rates, the Company's ability to utilize its
existing NOLs would be limited to approximately $2.9 million to $3.2 million per
year (reduced in the first five years following the change of ownership to the
extent necessary to permit the deduction of certain realized tax operating
losses that were built-in as of the change of ownership). If the restriction on
the utilization of the NOLs did apply, a significant portion of the NOLs would
expire before the Company was able to utilize them. Any unused annual NOL
limitations as well as any tax operating losses generated after the change of
ownership, adjusted for tax attributes existing prior to the change of ownership
date, would carry forward for use in future years without restriction by Section
382.
REVERSE AND FORWARD STOCK SPLITS
The Stockholders approved at their annual meeting on June 23, 1997 (the
"Annual Meeting") an amendment to the Company's certificate of incorporation
which authorizes the Board in its discretion to effect, prior to the annual
meeting of Stockholders in 1998, either of two different reverse stock splits of
the Common
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<PAGE>
Stock, followed by a forward stock split. Pursuant to the reverse stock split,
each 100 or 200 shares, as determined by the Board, of the then outstanding
Common Stock would be converted into one share. Stockholders who own fewer than
100 or 200 shares would no longer be stockholders of the Company but instead
would be entitled to receive from the Company a cash payment based on the
closing price of the Common Stock in lieu of receiving less than one whole
share. Pursuant to the forward stock split, on the day following the reverse
stock split, Common Stock then outstanding would be converted into the number of
shares of Common Stock that such shares represented prior to the reverse stock
split. Thus, if the stock split is effected, Stockholders who currently own
fewer than 100 or 200 shares of Common Stock, as applicable, would cease to be
Stockholders unless in the interim they acquire sufficient additional Common
Stock on the open market or through the purchase and conversion of Series B
Preferred Stock.
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing transferable Rights to the record holders
of its outstanding Common Stock as of the Record Date, at no cost to such record
holders. The Company will distribute .10274 of a Right for each share of Common
Stock held on the Record Date. One Right plus $10.00 in cash will entitle the
holder to purchase one Unit, consisting of one share of Series B Preferred Stock
and two Series B Warrants. The Rights will be evidenced by transferable
Subscription Certificates.
No fractional Rights or cash in lieu thereof will be issued or paid.
Instead, the number of Rights distributed to each holder of Common Stock will be
rounded down to the nearest whole number that is a multiple of three. No
Subscription Certificate may be divided in such a way as to permit the holder of
such Certificate to receive a greater number of Rights than the number to which
such Subscription Certificate entitles its holder, except that a depository,
bank, trust company or securities broker or dealer holding Common Stock on the
Record Date for more than one beneficial owner may, upon proper showing to the
Subscription Agent, exchange its Subscription Certificate to obtain a
Subscription Certificate for the number of Rights to which all such beneficial
owners in the aggregate would have been entitled had each been a record holder
of Common Stock on the Record Date. The Company reserves the right to refuse to
issue any such Subscription Certificate if such issuance would be inconsistent
with the principle that each beneficial owner's holdings will be rounded to the
nearest whole number of Rights that is a multiple of three.
Because the number of Rights distributed to each record holder will be
rounded to the nearest whole number that is a multiple of three, beneficial
owners of Common Stock who are also the record holders of such shares will
receive more Rights under certain circumstances than beneficial owners of Common
Stock who are not the record holders of their shares and who do not obtain (or
cause the record holder of their shares to obtain) a separate Subscription
Certificate with respect to the Common Stock beneficially owned by them,
including shares held in an investment advisory or similar account. To the
extent that record holders or beneficial owners of Common Stock who obtain a
separate Subscription Certificate receive more Rights, they will be able to
subscribe for more Units.
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<PAGE>
SUBSCRIPTION PRIVILEGES
BASIC SUBSCRIPTION PRIVILEGE. One Right will entitle the holder thereof
to receive, upon payment of the Subscription Price, one Unit, consisting of one
share of Series B Preferred Stock and two Series B Warrants. Rights must be
exercised in integral multiples of three.
OVERSUBSCRIPTION PRIVILEGE. Subject to the allocation described below,
each Right also carries the right to subscribe at the Subscription Price for
additional Units not subscribed for through the exercise of the Basic
Subscription Privilege by other Rights holders (the "Excess Units"). Only Rights
holders who exercise the Basic Subscription Privilege in full will be entitled
to exercise the Oversubscription Privilege.
If the Excess Units are not sufficient to satisfy all subscriptions
pursuant to the Oversubscription Privilege, the Excess Units will be allocated
pro rata (subject to the elimination of fractional Units) among those Rights
holders exercising the Oversubscription Privilege, in proportion, not to the
number of shares requested pursuant to the Oversubscription Privilege, but to
the number of Units each beneficial holder subscribed for pursuant to the Basic
Subscription Privilege; provided, however, that if such pro rata allocation
results in any Rights holder being allocated a greater number of Excess Units
than such holder subscribed for pursuant to the exercise of such holder's
Oversubscription Privilege, then such holder will be allocated only such number
of Excess Units as such holder subscribed for and the remaining Excess Units
will be allocated among all other holders exercising the Oversubscription
Privilege.
Banks, brokers and other nominee holders of Rights who exercise the
Basic Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company in connection with the exercise of the Oversubscription
Privilege, as to the aggregate number of Rights that have been exercised and the
number of Units that are being subscribed for pursuant to the Oversubscription
Privilege by each beneficial owner of Rights on whose behalf such nominee holder
is acting.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., New York City time, on August __,
1997. After the Expiration Date, unexercised Rights will be null and void. The
Company will not be obligated to honor any purported exercise of Rights received
by the Subscription Agent after the Expiration Date, regardless of when the
documents relating to such exercise were sent, except pursuant to the Guaranteed
Delivery Procedures described below.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price was determined by the Company and its Board as a
result of the Company agreeing with Apollo that the Series B Preferred Stock
should be the economic equivalent of the Series A Preferred Stock. The
Subscription Price should not be considered an indication of the actual value of
the Company, the Common Stock, the Series B Preferred Stock or the Series B
Warrants. There can be no assurance that the market price of the Common Stock
will not decline during the subscription period or that, following the issuance
of the Rights and of the Units upon exercise of Rights, a subscribing Rights
holder will be able to sell Series B Preferred Stock and Series B Warrants
purchased in the Rights Offering at an aggregate price equal to or greater than
the Subscription Price.
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<PAGE>
EXERCISE OF RIGHTS
Rights may be exercised by delivery to the Subscription Agent, on or
prior to the Expiration Date, of the properly completed and duly executed
Subscription Certificate evidencing such Rights (together with any required
signature guarantees), accompanied by payment in full of the Subscription Price
for each Unit subscribed for pursuant to the Basic Subscription Privilege and
the Oversubscription Privilege (the total number of which Units must be an
integral multiple of three). Such payment in full must be made by (a) check or
bank draft drawn upon a United States bank or postal, telegraphic or express
money order payable to "American Stock Transfer & Trust Company, as Subscription
Agent"; or (b) wire transfer of funds to the account maintained by the
Subscription Agent for such purpose at [Chemical Bank, 55 Water Street, New
York, New York, Account No. ___________, ABA No. 021 000 128]. Payment of the
Subscription Price will be deemed to have been received by the Subscription
Agent only upon (a) clearance of any uncertified check, (b) receipt by the
Subscription Agent of any certified check or bank draft drawn upon a U.S. bank
or of any postal, telegraphic or express money order, or (c) receipt of good
funds in the Subscription Agent's account designated above. PLEASE NOTE THAT
FUNDS PAID BY UNCERTIFIED PERSONAL CHECK MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR. ACCORDINGLY, HOLDERS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF
UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF
THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH
DATE, AND ARE URGED TO CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S
CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
Subscription Certificates and payment of the Subscription Price should
be delivered to one of the addresses set forth below under "-- Subscription
Agent."
If a Rights holder wishes to exercise Rights, but time will not permit
such holder to cause the Subscription Certificate(s) evidencing such Rights to
reach the Subscription Agent on or prior to the Expiration Date, such Rights may
nevertheless be exercised if all of the following conditions (the "Guaranteed
Delivery Procedures") are met:
(a) such holder has caused payment in full of the Subscription Price
for each Unit being subscribed for pursuant to the Basic Subscription Privilege
and the Oversubscription Privilege to be received (in the manner set forth
above) by the Subscription Agent on or prior to the Expiration Date;
(b) the Subscription Agent receives, on or prior to the Expiration
Date, a notice of guaranteed delivery (a "Notice of Guaranteed Delivery"),
substantially in the form provided with the Instructions distributed with the
Subscription Certificates, from a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States, stating the name of the exercising Rights
holder, the number of Rights represented by the Subscription Certificate(s) held
by such exercising holder, the number of Units being subscribed for pursuant to
the Basic Subscription Privilege and the number of Units, if any, being
subscribed for pursuant to the Oversubscription Privilege, and guaranteeing the
delivery to the Subscription Agent of any Subscription Certificate(s) evidencing
such Rights within three National Market System trading days following the date
of the Notice of Guaranteed Delivery; and
(c) the properly completed and duly executed Subscription
Certificate(s), including any required signature guarantees, evidencing the
Rights being exercised is received by the Subscription Agent within
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three National Market System trading days following the date of the Notice of
Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may be
delivered to the Subscription Agent in the same manner as Subscription
Certificates at the addresses set forth below, or may be transmitted to the
Subscription Agent by facsimile transmission (facsimile no. (718) 234-5001)
Additional copies of the form of Notice of Guaranteed Delivery are available
upon request from the Information Agent.
Unless a Subscription Certificate (a) provides that the Units to be
issued pursuant to the exercise of Rights represented thereby are to be
delivered to the record holder of such Rights or (b) is submitted for the
account of a member firm of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the United States,
signatures on such Subscription Certificate must be guaranteed by an eligible
guarantor institution ("Eligible Guarantor Institution") as defined in Rule
17Ad-15 of the Exchange Act, subject to the standards and procedures adopted by
the Subscription Agent.
Funds received in payment of the Subscription Price for Units pursuant
to the Basic Subscription Privilege will not be held in escrow pending the
distribution of Units and will be immediately available to the Company.
Certificates representing Units purchased pursuant to the Basic Subscription
Privilege will be delivered to the purchasers as soon as practicable after the
corresponding Rights have been validly exercised and full payment for such Units
has been received and cleared.
Funds received in payment of the Subscription Price for Excess Units
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such Excess Units. If a Rights holder
exercising the Oversubscription Privilege is allocated less than all of the
Excess Units that such holder wished to subscribe for pursuant to the
Oversubscription Privilege, the excess funds paid by such holder in respect of
the Subscription Price for shares not issued will be returned by mail without
interest or deduction as soon as practicable after the Expiration Date.
Certificates representing Units purchased pursuant to the Oversubscription
Privilege will be delivered to the purchaser as soon as practicable after the
Expiration Date and after all allocations have been affected. It is expected
that such certificates will be available for delivery three business days
following the Expiration Date.
A holder who holds Common Stock for the account of others, such as a
broker, a trustee or a depository for securities, should notify the respective
beneficial owners of such shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights beneficially owned by them. Beneficial owners of Common Stock or Rights
held through such a holder of record should contact the holder and request the
holder to effect transactions in accordance with the beneficial owner's
instructions.
If either the number of Rights being exercised is not specified on a
Subscription Certificate, or the payment delivered is not sufficient to pay the
full aggregate Subscription Price for all Units stated to be subscribed for, the
Rights holder will be deemed to have exercised the maximum number of Rights that
could be exercised for the amount of the payment delivered by such Rights
holder. If the payment delivered by the Rights holder exceeds the aggregate
Subscription Price for the number of Rights evidenced by the Subscription
Certificate(s) delivered by such Rights holder, the payment will be applied,
until depleted, to subscribe for Units in the following order: (a) to subscribe
for the number of Units, if any, indicated on the Subscription Certificate(s)
pursuant to the Basic Subscription Privilege; (b) to subscribe for Units until
the Basic Subscription Privilege has been fully exercised with respect to all of
the Rights represented by the Subscription Certificate; and (c) to subscribe for
additional Units pursuant
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to the Oversubscription Privilege (subject to any applicable proration). Any
excess payment remaining after the foregoing allocation will be returned to the
Rights holder as soon as practicable by mail, without interest or deduction.
The Instructions accompanying the Subscription Certificates should be
read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO
THE COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION DATE.
BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR, RIGHTS HOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY
MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
Certain directors and officers of the Company will assist the Company
in the Rights Offering by, among other things, participating in informational
meetings regarding the Rights Offering, generally being available to answer
questions of potential subscribers and soliciting orders in the Rights Offering.
None of such directors or officers will receive additional compensation for such
services. None of such directors and officers are registered as securities
brokers or dealers under the federal or applicable state securities laws, nor
are any of such persons affiliated with any broker or dealer. Because none of
such persons are in the business of either effecting securities transactions for
others or buying and selling securities for their own account, they are not
required to register as brokers or dealers under the federal securities laws. In
addition, the proposed activities of such directors and officers are exempted
from registration pursuant to a specific safe harbor provision under Rule 3a4-1
under the Exchange Act. Substantially similar exemptions from registration are
available under applicable state securities laws.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Company, whose
determinations will be final and binding. The Company, in its sole discretion,
may waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any Right by reason of any defect or irregularity in such exercise.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Company
determines in its sole discretion. Neither the Company nor the Subscription
Agent will be under any duty to give notification of any defect or irregularity
in connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus, the
Instructions or the Notice of Guaranteed Delivery should be directed to the
Information Agent, American Stock Transfer & Trust Company, at its address set
forth on the back cover page of this Prospectus.
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NO REVOCATION
AFTER A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE
OR THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED BY SUCH
RIGHTS HOLDER.
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment channels,
including banks and brokers. It is anticipated that the Rights will be quoted
for trading on the NASDAQ National Market System until the close of business on
the last National Market System trading day preceding the Expiration Date.
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the Instructions. A portion of the Rights evidenced by a single
Subscription Certificate (which portion must be an integral multiple of three)
may be transferred by delivering to the Subscription Agent a Subscription
Certificate properly endorsed for transfer, with instructions to register such
portion of the Rights evidenced thereby in the name of the transferee (and to
issue a new Subscription Certificate to the transferee evidencing such
transferred Rights). In such event, a new Subscription Certificate evidencing
the balance of the Rights will be issued to the Rights holder or, if the holder
so instructs, to an additional transferee.
Rights holders wishing to sell all or a portion of their Rights should
allow a sufficient amount of time prior to the Expiration Date for (a) the
transfer instructions to be received and processed by the Subscription Agent,
(b) a new Subscription Certificate to be issued and transmitted to the
transferee or transferees with respect to transferred Rights, and to the
transferor with respect to retained Rights, if any, and (c) the Rights evidenced
by such new Subscription Certificates to be exercised or sold by the recipients
thereof. Neither the Company nor the Subscription Agent shall have any liability
to a transferee or transferor if Subscription Certificates are not received in
time for exercise or sale prior to the Expiration Date.
Except for fees charged by the Subscription Agent (which will be paid
by the Company as described herein), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will be
paid by the Company or the Subscription Agent.
PROCEDURES FOR BOOK ENTRY TRANSFER FACILITY PARTICIPANTS
The Company anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Basic Subscription Privilege may be
effected through, the facilities of Depository Trust Company ("DTC"). Rights
exercised through DTC are referred to herein as "DTC Exercised Rights." The
holder of a DTC Exercised Right may exercise the Oversubscription Privilege in
respect of such DTC Exercised Right by properly executing and delivering to the
Subscription Agent on or prior to the Expiration Date, a DTC Participant
Oversubscription Exercise Form, together with payment of the appropriate
Subscription Price for the number of Units for which the Oversubscription
Privilege is to be exercised. Copies of the DTC Participant Oversubscription
Exercise Form may be obtained from the Information Agent.
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FOREIGN AND CERTAIN OTHER STOCKHOLDERS
Subscription Certificates will not be mailed to Stockholders whose
addresses are outside the United States, but will be held by the Subscription
Agent for each such Stockholder's account. To exercise their Rights, such
persons must notify the Subscription Agent at or prior to 5:00 p.m., New York
time, on the Expiration Date. Such holders Rights expire at the Expiration Date.
SUBSCRIPTION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Subscription Agent for the Rights Offering. The Subscription Agent's address,
which is the address to which the Subscription Certificates and payment of the
Subscription Price should be delivered, as well as the address to which Notice
of Guaranteed Delivery must be delivered, is:
40 Wall Street, 46th Floor
New York, New York 10005
Attn: Corporate Stock Transfer Department
The Subscription Agent's telephone number is (718) 921-8200 and its
facsimile number is (718) 234-5001.
The Company will pay the fees and expenses of the Subscription Agent,
and has also agreed to indemnify the Subscription Agent from any liability which
it may incur in connection with the Rights Offering.
INFORMATION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Information Agent for the Rights Offering. Any questions or requests for
additional copies of this Prospectus, the Instructions or the Notice of
Guaranteed Delivery may be directed to the Information Agent at the following
address and telephone number:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Telephone: (800) [_____________]
The Company will pay the fees and expenses of the Information Agent and
has also agreed to indemnify the Information Agent from certain liabilities that
it may incur in connection with the Rights Offering.
The Company has not employed any brokers, dealers or underwriters in
connection with the solicitation of exercises of Rights in the Rights Offering,
and, except as described above, no other commissions, fees or discounts will be
paid in connection with the Rights Offering. Certain employees of the Company
may solicit responses from Rights holders, but such employees will not receive
any commissions or compensation for such services other than their normal
employment compensation.
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NO BOARD RECOMMENDATION
An investment in the Units must be made pursuant to each Rights holders
evaluation of his, her or its best interests. ACCORDINGLY, THE BOARD DOES NOT
MAKE ANY RECOMMENDATION TO ANY RIGHTS HOLDER REGARDING THE EXERCISE OF HIS, HER
OR ITS RIGHTS.
DESCRIPTION OF THE UNITS
The Units offered in the Rights Offering each consist of one share of
Series B Preferred Stock and two Series B Warrants.
The Series B Warrants are immediately detachable, transferable and
separately tradeable from the Series B Preferred Stock with which they are
issued. The Units will be evidenced by separate certificates for the Series B
Preferred Stock and the Series B Warrants which comprise the Units.
SERIES B PREFERRED STOCK
The preferences, powers, and rights of the Series B Preferred Stock are
set forth in a Statement of Preferences and Rights ("Series B Statement of
Designations") attached hereto as Appendix A. This summary is qualified in its
entirety by reference to the full text of the Series B Statement of
Designations.
Assuming all Rights are exercised, the Company will issue pro rata to
purchasers of Units an aggregate of 1,000,000 shares of Series B Preferred
Stock. There are currently outstanding 1,000,000 shares of Series B Preferred
Stock issued in the Private Placement.
NUMBER OF SHARES. The number of authorized shares of Series B Preferred
Stock is 2,000,000.
RANK. With respect to dividends and distributions upon the voluntary or
involuntary liquidation, winding-up or dissolution of the Company, the Series B
Preferred Stock will rank senior to the Common Stock and PARI PASSU with any
Parity Stock (subject to any differing security interests between different
classes of Parity Stock). "Parity Stock" means any class or series of stock the
terms of which provide that it is entitled to participate PARI PASSU with the
Series B Preferred Stock with respect to any dividend or distribution or upon
voluntary or involuntary liquidation, dissolution or winding-up of the Company.
Parity Stock includes the Series A Preferred Stock (except insofar as the Series
A Preferred Stock has certain security rights and interests that are not
applicable to the Series B Preferred Stock). See "The Apollo Transaction --
Series A Preferred Stock."
DIVIDENDS. The holders of record of the Series B Preferred Stock will
be entitled to receive, when, as and if declared by the Board, out of funds
legally available therefor, cash dividends on each share of Series B Preferred
Stock at an annual rate (the "Dividend Rate") equal to 20% of the Liquidation
Preference in effect from time to time. "Liquidation Preference" means, at any
time, $10 per share of Series B Preferred Stock, plus accumulated and unpaid
dividends thereon through the date of such determination, whether or not
declared and whether or not funds are legally available therefor. All dividends
will be cumulative, whether or not declared, on a daily basis from the date on
which the Series B Preferred Stock is originally issued by the Company (the
"Original Issue Date") and will be payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year (the "Dividend Payment
Date"), commencing on September 30, 1997.
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Dividends will cease to accumulate in respect of Series B Preferred
Stock on the Redemption Date (see "Optional Redemption" below), the Conversion
Date (see "Conversion" below) or the Repurchase Date (see "Repurchase
Obligations" below) for such shares, as the case may be, unless, in the case of
a Redemption Date or Repurchase Date, the Company defaults in the payment of the
amounts necessary for such redemption, or in its obligation to deliver
certificates representing Common Stock issuable upon such conversion, as the
case may be, in which case, dividends will continue to accumulate at an annual
rate of 23% of the Liquidation Preference in effect from time to time (the
"Default Dividend Rate") until such payment or delivery is made. If the Company
defaults in the payment of amounts due upon a Repurchase Date, interest will
accrue on the amount of such obligation at the Default Rate until such payment
is made (with all interest due).
Following an Event of Default, the holders will be entitled to receive
dividends on each share of Series B Preferred Stock at an annual rate equal to
the Default Dividend Rate, payable in cash. Event of Default, as defined in the
Series B Statement of Designations, means (a) any event of default (whatever the
reason for such event of default and whether it is voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any governmental authority) under any
instrument creating, evidencing, or securing any indebtedness for borrowed money
of the Company or any Significant Subsidiary (as defined below) in an amount in
excess of $2,500,000 that would enable the creditors or secured parties under
such instrument to declare the principal amount of such indebtedness due and
payable prior to its scheduled maturity, which event of default has not been
waived, (b) the occurrence of a Default Change of Control (as defined below), or
(c) any Bankruptcy Event giving rise to each holder of Series B Preferred Stock
being deemed automatically to have delivered a Repurchase Notice as described
below under "Repurchase Obligations." "Significant Subsidiary" means a
subsidiary as defined in Regulation S-X under the Exchange Act; provided that SP
Subsidiary will be a Significant Subsidiary. Regulation S-X under the Exchange
Act defines a Significant Subsidiary as a subsidiary which meets any of the
following conditions: (a) the Company's and its other Subsidiaries' investments
in and advances to the subsidiary exceed 10% of the total assets of the Company
and its Subsidiaries consolidated as of the end of the most recently completed
fiscal year; (b) the Company's and its other Subsidiaries' proportionate share
of the total assets of the subsidiary exceeds 10% of the total assets of the
Company and its Subsidiaries consolidated as of the end of the most recently
completed fiscal year; and (c) the Company's and its other Subsidiaries' equity
in the income from continuing operations before income taxes, extraordinary
items and cumulative effect of a change in accounting principle of the
subsidiary exceeds 10% of such income of the Company and its Subsidiaries
consolidated for the most recently completed fiscal year.
While any Series B Preferred Stock is outstanding, the Company will not
declare, pay or set apart for payment any dividend on any Junior Stock or make
any payment on account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other retirement of, any Junior
Stock, or any warrants, rights, calls or options exercisable for any Junior
Stock or make any distribution in respect thereof (other than, prior to the
occurrence of an Event of Default, dividends, payments, purchases, acquisitions,
redemptions, retirements or distributions in Junior Stock) and will not permit
any Subsidiary to do any of the same in respect of such Junior Stock (other
than, prior to the occurrence of an Event of Default, dividends, payments,
purchases, acquisitions, redemptions, retirements or distributions in Junior
Stock) unless and until all dividend arrearages, if any, on the Series B
Preferred Stock have been paid in full in cash and the Company is not in default
of any of its redemption obligations or Repurchase Obligations. "Junior Stock"
means Common Stock and all other classes of capital stock of the Company and
series of preferred stock of the Company after the Unit Closing Date which is
not Senior Stock or Parity Stock. "Senior Stock" means any class or series of
stock the terms of which provide that it is entitled to a preference to the
Series B Preferred Stock with respect to any dividend or distribution or upon
voluntary or involuntary liquidation, dissolution or winding-up of the Company.
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Under the Foothill Debt Agreements, the Company has agreed not to
declare or pay any dividend (other than dividends payable solely on its common
stock or preferred stock) on any capital stock of the Company.
LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, the holders of the Series
B Preferred Stock will be entitled to be paid out of the Company's assets
available for distribution to its Stockholders an amount in cash equal to the
then Liquidation Preference, for each share outstanding, before any payment will
be made or any assets distributed to the holders of any Junior Stock. If the
Company's assets are not sufficient to pay in full the liquidation payments
payable to the holders of the Series B Preferred Stock and the holders of any
Parity Stock outstanding, then, subject to the rights of the holders of Series B
Preferred Stock to require the Company to purchase their shares as described
under "Repurchase Obligations" below, and subject to any differing security
interests between different classes of Parity Stock, the holders of all such
shares will share ratably in such distribution of assets. Each holder agrees
that it will respect the security rights and priorities of any holder of shares
of any Parity Stock or Senior Stock and will not challenge the right of any
holder of Parity Stock or Senior Stock to be paid in respect of any obligations
of the Company under any instruments between such holder and the Company or any
of its Subsidiaries, including the right to be paid by any Subsidiary of the
Company under any guarantee by such Subsidiary of the obligations of the
Company. For the purposes of the foregoing, neither the sale, conveyance,
exchange or transfer of all or substantially all of the property or assets of
the Company nor the consolidation or merger of the Company with or into one or
more corporations will be deemed to be a voluntary or involuntary liquidation,
dissolution or winding-up of the Company.
OPTIONAL REDEMPTION. At the Board's option, the Company may redeem,
upon 30 days notice, at any time on or after the third anniversary of the
Original Issue Date, from any source of funds legally available therefor, in
whole or in part, any or all of the Series B Preferred Stock, at a redemption
price in cash equal to the then Liquidation Preference. No optional redemption
will be made unless full dividends have been or contemporaneously are declared
and paid or declared and a sum set apart sufficient for such payment, on the
Series B Preferred Stock for all dividend periods terminating on or prior to the
redemption date. In addition, no partial redemption will be made for an amount
of shares less than such number of shares of Series B Preferred Stock as have an
aggregate Liquidation Preference equal to the lesser of $1,000,000 or the
aggregate Liquidation Preference of all outstanding Series B Preferred Stock.
The Company has agreed in the Investment Agreement that, without Apollo's
consent, the Company will not redeem Series B Preferred Stock except that
Apollo's consent is not required so long as the ratio of the aggregate amount
being paid on the Series A Preferred Stock to the aggregate amount being paid on
the Series B Preferred Stock is both (A) greater than or equal to the ratio of
the aggregate outstanding liquidation preference of the Series A Preferred Stock
to the aggregate outstanding liquidation preference of the Series B Preferred
Stock issued in the Rights Offering and the Private Placement and (B) less than
or equal to the ratio of the aggregate outstanding liquidation preference of the
Series A Preferred Stock to the aggregate outstanding liquidation preference of
the Series B Preferred Stock in the Rights Offering. See "The Apollo Transaction
- -- Consent Rights." Optional redemptions of Series B Preferred Stock by the
Company can be effected (subject to Apollo's above-discussed consent rights)
without proration in accordance to the number of shares of Series B Preferred
Stock held by each holder.
VOTING RIGHTS. The holders of Series B Preferred Stock will not vote on
the election of Company directors or on any other matters submitted for a vote
of the holders of the Common Stock, except as may be required by applicable law.
In any case in which the holders of Series B Preferred Stock will be entitled to
vote as a separate class, each holder will be entitled to one vote for each
share of Series B Preferred Stock then held.
REPURCHASE OBLIGATIONS. Beginning on the fourth anniversary of the
Original Issue Date, each holder of Series B Preferred Stock will have the
right, at such holder's option, exercisable by notice (a "Repurchase Notice") to
require the Company to purchase Series B Preferred Stock then held by such
holder, at a repurchase price in cash equal to the Liquidation Preference in
effect at such time (the "Repurchase
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Price"). Prior to the fifth anniversary of the Original Issue Date, however, the
number of shares required to be repurchased by the Company from any holder
pursuant to the foregoing provision (the "Put Shares"), will not exceed
one-third of the total number of shares of Series B Preferred Stock issued by
the Company and, prior to the sixth anniversary of the Original Issue Date, the
number of Put Shares will not exceed two-thirds of the total number of shares of
Series B Preferred Stock issued by the Company. The Repurchase Date will be the
30th day following the date of the Repurchase Notice relating thereto. If the
Company defaults in its obligation to pay the Repurchase Price, interest will
accrue on the amount of such obligation at the Default Dividend Rate until such
payment is made (with all interest due).
Notwithstanding the foregoing, if an Event of Default (as defined in
the Series B Statement of Designations) occurs at any time on or after the
Original Issue Date, each holder of Series B Preferred Stock will have the
right, at such holder's option exercisable by notice at any time within 60 days
after the happening of each such Event of Default or, if later, receipt of
notice from the Company of such Event of Default, to require the Company to
purchase all or any part of the Series B Preferred Stock then held by such
holder as such holder may elect, at the Repurchase Price.
Notwithstanding any of the foregoing, if any of the following events
shall occur and be continuing, then automatically each holder of Series B
Preferred Stock will be deemed to have delivered on the date immediately
preceding such event, a Repurchase Notice with respect to all Series B Preferred
Stock held by such holder, all such shares will be Put Shares and the aggregate
Repurchase Price in respect of each such share will immediately become due and
payable in full. Such events ("Bankruptcy Events") are: (a) the Company or any
of its Significant Subsidiaries shall commence any case, proceeding or other
action under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or the Company or any of its Subsidiaries shall
make a general assignment for the benefit of its creditors; (b) there shall be
commenced against the Company or any Significant Subsidiary any case, proceeding
or other action of a nature referred to in clause (a) above which results in the
entry of an order for relief or any such adjudication or appointment remains
undismissed, undischarged or unbonded for a period of 60 days; (c) there shall
be commenced against the Company or any Significant Subsidiary any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within 60 days from the entry thereof; (d) the Company or any Significant
Subsidiary shall take any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the acts set forth in clauses (a),
(b) or (c) above; (e) the Company or any Significant Subsidiary shall generally
not, or shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; (f) the Company or any Significant Subsidiary shall
cause to be reinstated the Reorganization Proceedings; or (g) the Confirmation
Order shall be reversed, withdrawn, modified (in any manner adverse to Company
or any Significant Subsidiary), or any rehearing shall be ordered with respect
thereto by the Bankruptcy Court or by any court having jurisdiction over the
Company.
The right to require the Company to purchase the Series B Preferred
Stock as described above will not be secured by any lien on the assets of the
Company or any Subsidiary. The put rights of the Series A Preferred Stock are
secured. See "The Apollo Transaction -- The Series A Preferred Stock." Also,
under the Foothill Debt Agreements, the Company has agreed not to purchase,
redeem, retire or otherwise acquire any capital stock of the Company (other than
solely for common stock or preferred stock of the Company).
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CONVERSION. The holder of each share of Series B Preferred Stock will
have the right at any time prior to the 30th day after receipt of a notice of
redemption by the Company, at such holder's option, to convert such share into
Common Stock. Subject to provisions for adjustment, each share of Series B
Preferred Stock will be convertible into such number of shares of Common Stock,
as is obtained by dividing the Liquidation Preference by the Conversion Price,
in each case as in effect at the date any Series B Preferred Stock is
surrendered for conversion. If any Series B Preferred Stock is called for
redemption, the right to convert such Series B Preferred Stock will terminate on
the 30th day following the date of the Redemption Notice. Conversion Price
means, initially, $5.75 and, thereafter, such price as adjusted.
The Conversion Price will be subject to adjustment from time to time
upon the following events: (a) if the Company declares a dividend or makes a
distribution on the outstanding Common Stock in capital stock of the Company,
subdivides or reclassifies the outstanding Common Stock into a greater number of
shares (or into other securities or property), or combines or reclassifies the
outstanding Common Stock into a smaller number of shares (or into other
securities or property); (b) if the Company fixes a record date for the issuance
of rights or warrants to all holders of Common Stock entitling them to subscribe
for or purchase Common Stock (or securities convertible into or exchangeable for
Common Stock) (other than Series B Preferred Stock, Series B Warrants or
Investor Warrants) at a price per share less than the Current Market Price of
Common Stock on such record date; (c) if the Company fixes a record date for the
making of a distribution to all holders of Common Stock of shares of any class
other than Common Stock, of evidences of indebtedness of the Company or any
Subsidiary, of assets or other property or of rights or warrants (excluding
those rights or warrants resulting in an adjustment pursuant to clause (b) above
and the right to acquire Series B Preferred Stock in the Rights Offering
thereof); (d) if the Company issues Common Stock (other than certain Common
Stock issued (i) to the Company's employees or former employees or their estates
under certain employee benefit plans, (ii) pursuant to the Bank Warrants (as
defined below), (iii) to the Investor pursuant to the Investor Warrants and (iv)
upon conversion of the Series A Preferred Stock or Series B Preferred Stock for
a consideration per share less than the Current Market Price per share on the
date the Company fixes the offering price of such additional shares; (e) if the
Company issues any securities convertible into or exchangeable for Common Stock
(excluding securities issued in transactions resulting in adjustments pursuant
to clauses (b) and (c) above, Series B Preferred Stock, Investor Warrants or
Series B Warrants and upon conversion of any such securities) for a
consideration per share of Common Stock deliverable upon conversion or exchange
of such securities less than the Current Market Price per share in effect
immediately prior to the issuance of such securities. Current Market Price per
share at any date means the average of the daily closing price for the Common
Stock for the 10 consecutive trading days commencing 14 trading days before such
date. Bank Warrants means the 1,500,000 warrants for the purchase of Common
Stock issued by the Company on September 30, 1996 pursuant to the Prepayment
Agreement dated as of September 30, 1996 among certain financial institutions
and the Company. Each Bank Warrant entitles the holder thereof to purchase one
share of Common Stock for $6.50, subject to certain antidilution adjustments.
In the event of any consolidation with or merger of the Company into
another corporation, or in the event of any sale, lease or conveyance of assets
to another corporation of the property of the Company as an entirety or
substantially as an entirety, then adequate provisions will be made whereby each
holder of Series B Preferred Stock will have the right to receive, from such
successor, leasing or purchasing corporation, as the case may be, in lieu of the
Common Stock immediately prior thereto receivable upon the conversion of such
Series B Preferred Stock, the kind and amount of shares of stock, other
securities, property or cash or any combination thereof receivable upon such
consolidation, merger, sale, lease or conveyance by a holder of the number of
shares of common stock into which such shares of Series B Preferred Stock might
have been converted immediately prior to such consolidation, merger, sale, lease
or conveyance.
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In the event of any reclassification or change of the Common Stock
issuable upon conversion of Series B Preferred Stock, or in the event of any
consolidation or merger of another corporation into the Company in which the
Company is the continuing corporation and in which there is a reclassification
or change of the Common Stock, adequate provisions will be made whereby each
holder of Series B Preferred Stock will have the right to receive, in lieu of
the Common Stock immediately prior thereto receivable upon the conversion of
Series B Preferred Stock, the kind and amount of stock, other securities,
property or cash or any combination thereof receivable upon such
reclassification, change, consolidation or merger, by a holder of the number of
shares of Common Stock into which such Series B Preferred Stock might have been
converted immediately prior to such reclassification, change, consolidation or
merger.
The Conversion Price will be adjusted if the Company repurchases (by
way of tender offer, exchange offer or otherwise) any Common Stock for a per
share consideration which exceeds the Current Market Price of a share of Common
Stock on the date immediately prior to such repurchase.
The formulas for calculating the foregoing adjustments are set forth in
the Series B Statement of Designations, which is Appendix A hereto.
In addition to the adjustments required in accordance with the
foregoing, the Company may make such reductions in the Conversion Price as it
considers to be advisable so that any event treated for federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients.
If any event occurs as to which the foregoing provisions are not
strictly applicable or, if strictly applicable, would not, in the Board's good
faith judgment, fairly protect the conversion rights of the Series B Preferred
Stock in accordance with the essential intent and principles of such provisions,
then the Board will make adjustments in the application of such provisions, in
accordance with such essential intents and principles, as shall be reasonably
necessary, in the Board's good faith opinion, to protect such conversion rights
as aforesaid, but in no event will any adjustment have the effect of increasing
the Conversion Price, or otherwise adversely affect the holders of the Series B
Preferred Stock.
The Company will at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued stock, for the purpose of
effecting the conversion or redemption of Series B Preferred Stock, such number
of its authorized shares of Common Stock as will from time to time be sufficient
for the conversion of all outstanding Series B Preferred Stock into Common
Stock. The Company will, from time to time and in accordance with Delaware law,
cause the authorized number of shares of Common Stock to be increased if the
aggregate of the number of authorized shares of Common Stock remaining unissued
and the issued shares of such Common Stock reserved for issuance in any other
connection will not be sufficient for the conversion of all outstanding Series B
Preferred Stock into Common Stock at any time.
CONSENT AND OTHER RIGHTS. For a description of the consent rights of
holders of Series A Preferred Stock with respect to Major Transactions (as
defined below) and certain other rights of such holders, none of which apply to
holders of Series B Preferred Stock, see "The Apollo Transaction -- The Series A
Preferred Stock" and " -- Consent Rights."
THE SERIES B WARRANTS
The Series B Warrants will be issued pursuant to the Warrant Agreement
(the "Warrant Agreement") between the Company and American Stock Transfer &
Trust Co., as warrant agent (the "Warrant Agent"). The following discussion of
certain terms and provisions of the Series B Warrants is qualified in its
entirety
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by reference to the detailed provisions of the Series B Warrant Agreement and
the Series B Warrant certificate, the forms of which are attached hereto as
Appendix B.
Assuming all Rights are exercised, the Company will issue pro rata to
purchasers of Units an aggregate of 2,000,000 Series B Warrants in three
classes: 666,667 Class A Warrants, 666,667 Class B Warrants and 666,666 Class C
Warrants. There are currently outstanding 2,000,000 Series B Warrants,
consisting of 666,667 Class A Warrants, 666,667 Class B Warrants and 666,666
Class C Warrants, issued in the Private Placement. There are also currently
outstanding 1,774,950 Investor Warrants, consisting of 591,649 Class A Warrants,
591,650 Class B Warrants and 591,651 Class C Warrants, issued to Apollo at the
Apollo Closing. The terms of the Series B Warrants and the Investor Warrants are
substantially the same except for differences necessitated by the wider
distribution of the Series B Warrants.
GENERAL. Each Series B Warrant entitles the holder, subject to the
terms and conditions of the Series B Warrant, to purchase one share of Common
Stock at an exercise price of $5.75, subject to certain anitdilution adjustments
and to the cash flow adjustment described below (the "Exercise Price").
NUMBER AND CLASSES OF WARRANTS. The Series B Warrants will be issued in
three classes as noted above. The classed are identical except that they have
different minimum exercise prices described below.
EXERCISE PRICE AND TERM. The Series B Warrants will have an Exercise
Price of $5.75 per share, subject to certain antidilution and other adjustments
described below. Unexercised Series B Warrants will expire on June 23, 2004.
RESERVATION OF WARRANT SHARES. In the Warrant Certificate, the Company
represents that it has sufficient Common Stock reserved for issuance upon
exercise of all outstanding Series B Warrants and the Company agrees that,
during the term of the Series B Warrant, there will be reserved for issuance
upon exercise of the Series B Warrants, free from preemptive rights, such number
of shares of authorized but unissued or treasury Common Stock, as will be
required for issuance upon exercise of the Series B Warrants. See " -- Charter
Amendments." The Company also agrees (a) that it will not, by amendment of its
restated certificate of incorporation or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed under the Series B
Warrant by the Company and (b) to take promptly all action as may from time to
time be required to permit the holder to exercise the Series B Warrants and the
Company duly and effectively to issue Common Stock issuable upon the exercise of
the Series B Warrants (the "Warrant Shares").
"CASH FLOW ADJUSTMENT" OF EXERCISE PRICE. The Exercise Price is subject
to downward adjustment as described below by March 31, 1999 (the "Cash Flow
Adjustment"). The Exercise Price will be adjusted downward by $0.015 for every
$100,000 by which Actual Cumulative Operating Cash Flow is less than Targeted
Cumulative Operating Cash Flow, on a cumulative basis for 1997 and 1998. Actual
Operating Cash Flow in 1998 in excess of Target Operating Cash Flow for 1998
will be applied at a 15% discount for such excess in the cumulative calculation.
Notwithstanding the Cash Flow Adjustment provisions, the Exercise Price as
adjusted will in no event be less than $2.00 per share for the Class A Warrants,
$3.00 per share for the Class B Warrants and $4.00 per share for the Class C
Warrants. Also, no Cash Flow Adjustment will be made if, on December 31, 1998,
and on an average basis during the three months ending on December 31, 1998, the
average Closing Price for the Common Stock is greater than $9.75, which is equal
to the original Exercise Price plus $4.00 per share (adjusted in accordance with
certain antidilution provisions).
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Target Cumulative Operating Cash Flow equals $62,443,000. Actual
Cumulative Operating Cash Flow equals the sum of the Actual Operating Cash Flow
for the year ending December 31, 1997 and the Actual Operating Cash Flow for the
year ending December 31, 1998, minus 0.15 times the Excess 1998 Operating Cash
Flow. Actual Operating Cash Flow for any year means the net cash proceeds
derived by the Company from the operation in the ordinary course of its business
and from the bulk asset sales contemplated by the Business Plan, calculated the
same as, and using the same accounting principles and practices and
classification systems and techniques as were used in, the calculation of the
Target Cumulative Operating Cash Flow. Excess 1998 Operating Cash Flow means the
Actual Operating Cash Flow for the year ending December 31, 1998 minus
$3,028,000.
The Company will cause the financial statements for the Company and its
consolidated subsidiaries for the fiscal year ending on December 31, 1998, to be
audited by Ernst & Young, LLP, or another national independent accounting firm,
and a manually signed copy of such financial statements to be delivered to the
holders of the Series B Preferred Stock and Series B Warrants as soon as
practicable following December 31, 1998, but in no event later than March 31,
1999 (the date such financial statements are so delivered, the "Adjustment
Date"). Any reduction of the Exercise Price will be effective as of the
Adjustment Date.
ANTIDILUTION ADJUSTMENTS. The Exercise Price and the number of shares
of Common Stock purchasable upon the exercise of the Series B Warrants will be
subject to adjustment from time to time upon the following events: (a) if the
Company (i) declares a dividend or makes a distribution on the outstanding
Common Stock in capital stock of the Company, (ii) subdivides or reclassifies
the outstanding Common Stock into a greater number of shares (or into other
securities or property), or (iii) combines or reclassifies the outstanding
Common Stock into a smaller number of shares (or into other securities or
property); (b) if the Company fixes a record date for the issuance of rights or
warrants to all holders of Common Stock entitling them to subscribe for or
purchase Common Stock (or securities convertible into or exchangeable for Common
Stock) (other than Series B Preferred Stock) at a price per share less than the
Current Market Price of a share of Common Stock on such record date; (c) if the
Company fixes a record date for the making of a distribution to all holders of
Common Stock (i) of shares of any class other than Common Stock, (ii) of
evidences of indebtedness of the Company or any subsidiary, (iii) of assets or
other property or (iv) of rights or warrants (excluding rights or warrants
resulting in an adjustment pursuant to paragraph (b) above, and the right to
acquire Series B Preferred Stock in the Rights Offering); (d) if the Company
issues its Common Stock (other than certain Common Stock issued (i) to the
Company's employees or former employees or their estates under certain employee
benefit plans, (ii) pursuant to the Bank Warrants, (iii) pursuant to the
Investor Warrants, and (iv) upon conversion of the Series A Preferred Stock or
Series B Preferred Stock) for a consideration per share less than the Current
Market Price per share on the date the Company fixes the offering price of such
additional shares; and (e) if the Company issues any securities convertible into
or exchangeable for Common Stock (excluding securities issued in transactions
resulting in an adjustment pursuant to clauses (b) and (c) above, Series A
Preferred Stock, Series B Preferred Stock and upon conversion of any of such
securities) for a consideration per share of Common Stock deliverable upon
conversion or exchange of such securities less than the Current Market Price per
share in effect immediately prior to the issuance of such securities. Current
Market Price per share at any date means the average of the daily closing price
for the Common Stock for the 10 consecutive trading days commencing 14 trading
days before such date.
In the event of any consolidation with or merger of the Company into
another corporation, or in the event of any sale, lease or conveyance of assets
to another corporation of the property of the Company as an entirety or
substantially as an entirety, then such successor, leasing or purchasing
corporation, as the case may be, will be bound by the Warrant Certificate and
will execute and deliver a new Warrant Certificate providing that the holder of
each Series B Warrant then outstanding will have the right to exercise such
Warrant solely
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for the kind and amount of shares of stock, other securities, property or cash
or any combination thereof e receivable upon such consolidation, merger, sale,
lease or conveyance by a holder of the number of shares of Common Stock for
which such Warrants might have been exercised immediately prior to such
consolidation, merger, sale, lease or conveyance.
In the event of any reclassification or change of the Common Stock
issuable upon exercise of the Series B Warrants, or in the event of any
consolidation or merger of another corporation into the Company in which the
Company is the continuing corporation and in which there is a reclassification
or change of the Common Stock, the Company will execute and deliver to the
holder of the Series B Warrant a new Warrant Certificate providing that the
holder of each Series B Warrant then outstanding will have the right to exercise
such Warrant solely for the kind and amount of shares of stock, other
securities, property or cash or any combination thereof receivable upon such
reclassification, change, consolidation or merger, by a holder of the number of
shares of Common Stock for which such Warrant might have been exercised
immediately prior to such reclassification, change, consolidation or merger.
If the Company repurchases any Common Stock for a per share
consideration which exceeds the Current Market Price of a share of Common Stock
on the trading day immediately prior to such repurchase, then the Company will
issue to the holder additional Series B Warrants having the Exercise Price in
effect on the trading day immediately prior to such repurchase.
The formulas for calculating the foregoing adjustments are set forth in
the form of Warrant Agreement, Appendix B hereto.
In addition to the adjustment required in accordance with the
foregoing, the Company may make such reductions in the Exercise Price as it
considers to be advisable so that any event treated for federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients.
If any event occurs as to which the foregoing provisions are not
strictly applicable, or if strictly applicable, would not, in the Board's good
faith judgment, fairly protect the purchase rights of the Series B Warrants in
accordance with the essential intent and principles of such provisions, then the
Board will make adjustments in the application of such provisions, in accordance
with such essential intents and principles, as shall be reasonably necessary, in
the Board's good faith opinion, to protect such purchase rights as aforesaid,
but in no event will any adjustment have the effect of increasing the Exercise
Price or decreasing the number of shares of Common Stock subject to purchase
upon exercise of the Series B Warrants, or otherwise adversely affect the
holders of the Series B Warrants.
FEES AND EXPENSES. All fees and expenses incurred by the holder in
connection with the holder's ownership of Series B Warrants and securities or
other property received upon exercise thereof which relate to (a) any required
regulatory filings, (b) registration fees, (c) stock exchange or NASDAQ listing
fees, and (d) reasonable fees and expenses of counsel in connection with the
foregoing, will be paid by the Company.
VALUE DETERMINATION AND APPRAISAL. Each determination of fair market
value or other evaluation or calculation required under the Series B Warrants
(including calculation of the Cash Flow Adjustment Amount) is also required
under the Investor Warrants. The Company will promptly give notice of each such
determination, evaluation or calculation to all holders of Investor Warrants and
Series B Warrants, setting forth the calculation of such fair market value or
valuation (or Cash Flow Adjustment Amount) and the method and basis of
determination thereof, as the case may be. If any holders of Investor Warrants
to purchase at least 100,000 shares of Common Stock (including, for purposes of
determining such level of ownership, all Investor
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Warrants owned by affiliates of such holders) disagree with such determination,
they may elect to dispute such determination, and such dispute shall be resolved
in accordance with certain appraisal procedures set forth in the warrant
certificate for the Investor Warrants. Holders of Series B Warrants will be
bound by such determinations.
TRANSFERABILITY
The Series B Preferred Stock and the Series B Warrants offered hereby
to the Rights holders, and the Common Stock issuable upon conversion or exercise
thereof, have been registered under the Securities Act and the Exchange Act.
Accordingly, Series B Preferred Stock and Series B Warrants purchased upon the
exercise of Rights and Common Stock issuable upon conversion or exercise thereof
will be freely transferable by the holders thereof, except to the extent such
stock or warrants are held by persons who are deemed "affiliates" of the Company
under Rule 144 under the Securities Act. In general, under Rule 144, as
currently in effect, persons who are deemed affiliates of the Company would be
entitled to sell within any three month period a number of shares that does not
exceed the greater of 1% of the outstanding Common Stock or the average weekly
trading volume in the over-the-counter market during the four calendar weeks
preceding such sale. There can be no assurance that the Series B Preferred Stock
or the Series B Warrants will qualify or be accepted for quotation on the NASDAQ
National Market System or that a market will develop therefor. See "Risk Factors
- -- Absence of Trading Market for the Series B Preferred Stock and Series B
Warrants." The Company has agreed to file a shelf registration statement with
respect to the Series B Preferred Stock purchased in the Private Placement. Such
Series B Preferred Stock will therefore also be freely transferable. See "The
Private Placement."
THE PRIVATE PLACEMENT
Concurrently with the Apollo Closing, on June 24, 1997, the Company
sold to the Private Purchasers, in the Private Placement, for an aggregate
purchase price of $20 million, (a) 1,776,199 shares of Common Stock for $10
million, and (b) 1,000,000 shares of Series B Preferred Stock and Series B
Warrants (consisting of 666,667 Class A Warrants, 666,667 Class B Warrants and
666,666 Class C Warrants) to purchase 2,000,000 shares of Common Stock, for $10
million.
REGISTRATION RIGHTS
The Company has granted the following registration rights to the
Private Purchasers with respect to the Series B Preferred Stock, the Series B
Warrants and the Common Stock purchased in the Private Placement.
SHELF REGISTRATION. The Company has agreed to prepare and file a shelf
registration statement with the Commission and shall use its reasonable best
efforts to cause such registration statement to become effective by 5:30 p.m. on
October 24, 1997 (the "Registration Deadline"), pursuant to Rule 415 of
Regulation C promulgated under the Securities Act (or any successor rule) (the
"Shelf Registration Statement"), providing for the sale by the Private
Purchasers ("Holders") of all of their Shelf Registrable Securities in
accordance with the terms hereof. "Shelf Registrable Securities" shall mean (a)
any Series B Preferred Stock acquired by the Holders on the June 24, 1997
closing date of the Private Placement (the "Closing Date"), (b) any Common Stock
issuable or issued upon conversion of Series B Preferred Stock ("Conversion
Shares"), (c) any Common Stock acquired by the Holders pursuant to the Private
Placement on the Closing Date and (d) any securities issued or issuable with
respect to any Series B Preferred Stock, Conversion Shares or Common
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Stock by way of stock dividend or stock split, or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
If the Shelf Registration Statement has not been declared effective by
the Commission by the Registration Deadline, thereafter and until the Shelf
Registration Statement shall be declared effective (the "Default Period"), the
Holders of Series B Preferred Stock shall be entitled to receive from the
Company an additional payment with respect to the Series B Preferred Stock as
calculated below (the "Default Payment"), such Default Payment to be accrued and
paid on the same terms as a dividend as set forth in Section 3 of the Series B
Statement of Designations. The amount of the Default Payment to each such Holder
shall equal the difference between the amount due to such Holder with respect to
such Default Period under the terms of the Series B Statement of Designations
and the amount which would have been due to such Holder had the annual rate in
the Series B Statement of Designations been increased during such Default Period
by 18% per annum. If the Company shall be obligated to make such payments to the
Holders, then Apollo shall be entitled to receive a payment on the same terms
and for the same period with respect to its Series A Preferred Stock.
The running of the period between the Closing Date and the Registration
Deadline shall be tolled to the extent that the Company is exercising its
reasonable best efforts to cause the Shelf Registration Statement to become
effective but the effectiveness is delayed by certain actions of the Commission
not reasonably foreseen at the time of the filing of the Shelf Registration
Statement.
DEMAND REGISTRATION. At any time and from time to time after the
Closing Date, the Company agreed, upon the written demand of Holders of Series B
Warrants and/or shares of Common Stock issuable upon the exercise of Series B
Warrants ("Warrant Shares") aggregating at least 1,000,000 shares, to use its
best efforts to effect the registration (a "Demand Registration") under the
Securities Act of such number of Demand Registrable Securities as shall be
indicated in a written demand sent to the Company by the Holders; PROVIDED,
HOWEVER, that: (a) any Holder may exercise only one Demand Registration and the
Company shall be obligated to effect no more than two Demand Registrations in
the aggregate. Upon receipt of the written demand of the Holders, the Company
shall use its best efforts to expeditiously effect the registration under the
Securities Act of the Demand Registrable Securities covered by such request to
have such registration become and remain effective for a period not to exceed
two months. The Holders of a majority of the Demand Registrable Securities
subject to such Demand Registration shall have the right to select the
underwriters for a Demand Registration; provided that such underwriters shall be
reasonably acceptable to the Company and Apollo. "Demand Registrable Securities"
shall mean any of the Warrants Shares and any securities issued or issuable with
respect to any Warrant Shares by way of stock dividend or stock split, or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise. Notwithstanding the foregoing, any Demand
Registrable Securities will cease to be a Demand Registrable Security when (a) a
registration statement covering such Demand Registrable Security has been
declared effective by the SEC and the Demand Registrable Security has been
disposed of pursuant to such effective registration statement, (b) the Demand
Registrable Security is sold under circumstances in which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act are met, or (c) the Registrable Security has been otherwise
transferred, the Company has delivered a new certificate or other evidence of
ownership for it not bearing a legend restricting further transfer, and it may
be resold without subsequent registration under the Securities Act.
PIGGYBACK REGISTRATION. If the Company proposes to register any of its
securities under the Securities Act for sale for cash, holders of Demand
Registrable Securities, upon request, will have the right to include the number
of Demand Registrable Securities that such holders wish to sell or distribute
publicly under the registration statement proposed to be filed by the Company,
and the Company will use its best efforts to
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register under the Securities Act the sale of such Registrable Securities (a
"Piggyback Registration"). Under certain circumstances, the number of Demand
Registrable Securities that such holders will be entitled to include in a
Piggyback Registration will be limited.
A purchaser (or any Eligible Transferee) may transfer all or any
portion of its registration rights to any permitted transferee of Registrable
Securities (each such transferee, an "Eligible Transferee"), and any Eligible
Transferee shall be treated as a "Holder" for all purposes.
So long as the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company agreed to take all actions
reasonably necessary to enable the holders to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 and Rule 144A under the Securities Act,
including filing on a timely basis all reports required to be filed by the
Exchange Act.
The Company may defer, for certain time periods, filing any
registration statement, supplement or post-effective amendment thereto or
prospectus supplement, if the Company is then involved in discussions
concerning, or otherwise engaged in, an acquisition, disposition, financing or
other material transaction and the Company determines in good faith that such
filing would materially adversely affect or interfere with such transactions.
The registration rights contain customary provisions regarding the
payment of expenses by the Company and regarding mutual indemnification and
contribution agreements between the Company and the holders of the Registrable
Securities.
The registration rights will terminate on the earlier of (a) such time
as all Registrable Securities have ceased to be restricted securities, as that
term is defined in Rule 144 under the Act and (b) the first anniversary of the
Closing Date (or, only with respect to the Demand Registrable Securities, the
eighth anniversary of the Closing Date.
THE APOLLO TRANSACTION
Pursuant to the Investment Agreement, Apollo agreed to purchase from
the Company up to 2,500,000 shares of Series A Preferred Stock, at a per share
price of $9.98, and Investor Warrants to purchase up to 5,000,000 shares of
Common Stock, at a per Warrant price of $.06, for an aggregate purchase price of
up to $25,000,000. On June 24, 1997, following Stockholders Approval at the
Annual Meeting, Apollo purchased at the Apollo Closing 553,475 shares of Series
A Preferred Stock and 1,106,950 Investor Warrants for an aggregate purchase
price of $5,000,000. From time to time after the Apollo Closing and until Apollo
has acquired all of the 2,500,000 shares of Series A Preferred Stock and the
5,534,752 Investor Warrants, Apollo will purchase, subject to the terms and
conditions of the Investment Agreement, additional Series A Preferred and the
Proportionate Number of Investor Warrants to enable the Company to invest in
real estate development projects approved by the Board and Apollo. If the
Company has not presented Apollo with real estate development projects pursuant
to which Apollo has invested the aggregate purchase price of $25,000,000, on the
terms and conditions set forth in the Investment Agreement, (a) Apollo will be
entitled at any time to acquire all of the Series A Preferred Stock and Investor
Warrants not acquired by it prior thereto and (b) from and after June 30, 1998,
the Company will be entitled at any time to require Apollo to purchase all of
such Series A Preferred Stock and Investor Warrants, provided that no Event of
Default (as defined in the Secured
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Agreement) shall have occurred and, except for an Event of Default which is or
results from a Bankruptcy Event (as defined), shall then exist.
THE CHARTER AMENDMENTS
As a result of the filing of the Charter Amendments with the Secretary
of State of Delaware on June 24, 1997, the Company's charter was amended and
restated to increase the Company's authorized shares of common stock, par value
$.10 per share from 15,665,000 to 70,000,000 and to authorize the issuance of
4,500,000 shares of Preferred Stock, par value $.01 per share, 2,500,000 of
which were designated Series A Preferred Stock and 2,000,000 of which were
designated Series B Preferred Stock.
The Charter Amendments deleted a provision from the charter prohibiting
the issuance of nonvoting equity securities in order to accommodate the limited
voting rights of the holders of the Series A Preferred Stock. See " -- Series A
Preferred Stock."
The Charter Amendments also modified the dividend rights of holders of
Common Stock by deleting the requirement that the Company pay mandatory
dividends under certain circumstances. See "Description of Capital Stock --
Common Stock."
BOARD REPRESENTATION
The holders of the Series A Preferred Stock are entitled to elect three
directors to the Board for one-year terms. Upon consummation of the Apollo
Closing, (a) eight of the then-10 Board members, including the one Apollo
designee, Edward Scheetz, resigned as Board members; (b) the number of Board
members was reduced from 10 to seven; (c) Apollo's three designees -- W. Edward
Scheetz, Lee Neibart and Ricardo Koenigsberger -- were appointed to the Board
for a term to expire at the annual stockholders meeting in 1998; (d) James M.
DeFrancia and Charles K. MacDonald were appointed to the Board for terms
expiring at the annual stockholders meetings in 1998 and 1999, respectively; and
(e) Gerald N. Agranoff and J. Larry Rutherford (the Company's president and
chief executive officer) resigned as Board members and were appointed to the
Board for terms expiring at the annual stockholders meetings in 1999 and 2000,
respectively. Also, Mr. Rutherford was elected as Chairman of the Board. See "
- -- The Series A Preferred Stock."
THE SERIES A PREFERRED STOCK
As part of the Apollo Closing, Apollo was issued 553,475 shares of
Series A Preferred Stock. The preferences, powers and rights of the Series A
Preferred Stock are described in the Proxy Statement incorporated by reference
herein. Such preferences, powers and rights are substantially the same as those
of the Series B Preferred Stock (see "Description of the Units -- Series B
Preferred Stock"), except as follows. The holders of the Series A Preferred
Stock voting together as a single class will be entitled to elect, out of a
seven-member Board, three Board members (who will serve for a term of one year);
provided that if the Investor does not hold at least 500,000 shares of Series A
Preferred Stock, the number of directors that the holders of the Series A
Preferred Stock will be entitled to elect will be equal to three multiplied by a
fraction, the numerator of which is the number of shares of Series A Preferred
Stock outstanding and the denominator of which is 2,500,000, rounded up to the
nearest whole number. In addition, directors nominated by the holders of the
Series A Preferred Stock will be represented on any committee of the Board and,
if the Board decides to have an Executive Committee, will constitute one-half of
the Executive Committee of the Board. The holders of Series B Preferred Stock
will not be entitled to vote with respect to the election of directors. The
Company
- 48 -
<PAGE>
has agreed in the Investment Agreement that without Apollo's consent, the
Company will not pay dividends or redeem stock except that Apollo's consent is
not required so long as the ratio of the aggregate amount being paid on the
Series A Preferred Stock to the aggregate amount being paid on the Series B
Preferred Stock is both (a) greater than or equal to the ratio of the aggregate
outstanding liquidation preference of the Series A Preferred Stock to the
aggregate outstanding liquidation preference of the Series B Preferred Stock
issued in the Rights Offering and the Private Placement and (b) less than or
equal to the ratio of the aggregate outstanding liquidation preference of the
Series A Preferred Stock to the aggregate outstanding liquidation preference of
the Series B Preferred Stock issued in the Rights Offering. The Company may
redeem Series B Preferred Stock (subject to Apollo's above discussed consent
rights) without proration in accordance to the number of shares held by each
holder. The Series A Preferred Stock put rights are secured by (a) a junior lien
on substantially all of the assets of the Company and its subsidiaries, except
for the capital stock of the SP Subsidiary and its assets, and (b) a senior lien
on the outstanding capital stock of the SP Subsidiary and on its assets. Apollo
also was granted the consent rights described below. The put rights of the
Series B Preferred Stock will not be secured. An Event of Default with respect
to the Series A Preferred Stock, which triggers the Default Dividend Rate,
includes, unlike with respect to the Series B Preferred Stock, a material breach
by the Company of (a) the provision in the Investment Agreement prohibiting
(except as permitted by the Investment Agreement) the Company from engaging in,
or entering into any agreement with respect to, any Major Transaction, without
the prior consent of the Investor or (b) (insofar as such breach is willful and
materially imperils the value of the collateral securing the rights of the
holder of the Series A Preferred Stock) the provisions in the Secured Agreement
relating to the collateral or any Security Document (as defined in the Secured
Agreement) which, in any event, is not curable or if curable is not cured within
15 days. If the Company shall be obligated to make Default Payments to the
Holders of Series B Preferred Stock, then Apollo shall be entitled to receive a
payment on the same terms and for the same period with respect to its Series A
Preferred Stock.
Under the Due Diligence Fee Agreement amended and restated as of May
15, 1997, the Company has agreed if a Fee Triggering Event occurs, to pay Apollo
on the last day of each month $25,000 per month ending on or prior to June 30,
1998, $40,000 per month ending after each date and on or prior to June 30, 2000,
and $75,000 per month ending thereafter (the "Fee") as compensation for in-house
and out-of-pocket expenses incurred by Apollo in the due diligence and
investment analysis required from time to time in connection with Apollo's
preliminary analysis of co-investment opportunities under the Investment
Agreement. See " -- Co-Investment Opportunity." "Fee Triggering Event" means the
occurrence while any Series A Preferred Stock is outstanding under the
Investment Agreement of any event that would cause dividends on the Series A
Preferred Stock to accrue at the Default Dividend Rate.
CONSENT RIGHTS
So long as more than 500,000 shares of the Series A Preferred Stock are
held by Apollo, and except as permitted by the Investment Agreement, the Company
may not engage in, or enter into any agreement with respect to, any Major
Transaction, without the Apollo's prior consent. "Major Transaction" means any
material transaction which is not described in an Approved Business Plan (as
defined below), including any (a) recapitalization, redemption or
reclassification of, or distribution or dividend on, the Company's capital stock
provided, however, that subject to the terms and conditions of the Investment
Agreement and Secured Agreement, neither (i) any action or determination by the
Company in respect of any Series A Preferred Stock that is not otherwise
prohibited by the Investment Agreement and is in accordance with the Series A
Statement of Designations, including dividends and redemptions, nor (ii) any
dividends on or redemptions of Series B Preferred Stock in accordance with the
Series B Statement of Designations, or any action in respect of the Series B
Preferred Stock required to be taken by the Company under the Series B Statement
of Designations
- 49 -
<PAGE>
or under the securities purchase agreement pursuant to which the Private
Placement was consummated shall be deemed to be a Major Transaction, so long as,
in the case of dividends and optional redemptions, the ratio of the aggregate
amount being paid on the Series A Preferred Stock to the aggregate amount being
paid on the Series B Preferred Stock is both (A) greater than or equal to the
ratio of the aggregate outstanding liquidation preference of the Series A
Preferred Stock to the aggregate outstanding liquidation preference of the
Series B Preferred Stock issued in the Rights Offering and the Private Placement
and (B) less than or equal to the ratio of the aggregate outstanding liquidation
preference of the Series A Preferred Stock to the aggregate outstanding
liquidation preference of the Series B Preferred Stock issued in the Rights
Offering, (b) amendment of the Company's charter or bylaws, (c) liquidation,
winding-up or dissolution of the Company or any Significant Subsidiary of the
Company, (d) consolidation of the Company with, or merger of the Company with or
into, any other person, except a merger of a Subsidiary wholly owned by the
Company into the Company, with the Company surviving such merger, (e) sale,
transfer, lease or encumbrance by the Company or any of its subsidiaries of a
significant amount of assets of the Company, other than in respect of sales of
certain assets held by the Company's predecessor, General Development
Corporation; (f) special dividends or distributions with respect to, or
repurchase or redemption of, the Company's equity securities or any rights,
warrants or options in respect of such equity securities, (g) capital
expenditure or investment by the Company or any of its subsidiaries in excess of
$500,000, (h) entering into or materially amending any material contract, (i)
significant new financing or refinancing, (j) issuance of securities (other than
employee and director stock options to acquire up to 2,000,000 shares of Common
Stock and the issuance of Common Stock thereunder), (k) transactions which would
result in a Change of Control (as defined below), (l) material transaction the
nature of which prevents specificity in the Business Plan or (m) commencement,
undertaking or acquisition of a real estate development project by SP Subsidiary
(whether independently, by joint venture or otherwise) and related financings or
joint venture arrangements. "Approved Business Plan" means a Business Plan of
the Company that has been approved by the Investor.
"Change of Control" means: (a) an acquisition by any person or group
(as defined for purposes of Section 13(d) under the Exchange Act) (excluding the
Company or an employee benefit plan of the Company or a corporation controlled
by the Stockholders) of beneficial ownership (as defined for purposes of Section
13(d) under the Exchange Act) of Common Stock such that such person or group
thereafter beneficially owns 25% or more of the outstanding Common Stock or
other voting securities of the Company; (b) a change in a majority of the
Incumbent Board (excluding any individuals approved by a vote of at least five
members of the Incumbent Board other than in connection with an actual or
threatened proxy contest); (c) failure of the requisite number of Investor
designees to be members of the Board (other than as result of the Investor's
failure to nominate a successor to an Investor designee who has resigned or been
removed as a director); or (d) consummation of a Business Combination (other
than a Business Combination in which all or substantially all of the
Stockholders receive or own upon consummation thereof 50% or more of the
Company's outstanding stock resulting from the Business Combination, at least a
majority of the board of directors of the resulting corporation are members of
the Incumbent Board, and after which no Person owns 25% or more of the
outstanding stock of the resulting corporation who did not own such stock
immediately before the Business Combination), excluding, in each case (a)
through (d), the transactions contemplated by the Investment Agreement
(including for this purpose the Rights Offering and the Private Placement).
"Default Change of Control" means a Change in Control of the type referred to in
clauses (b) or (c) above or of the type referred to in clauses (a) and (d)
provided that the percentage thresholds referred to in clauses (a) and (d) will
be 40% instead of 25%. "Incumbent Board" means, prior to the Apollo Closing, the
Board as constituted on the day after execution and delivery of the Investment
Agreement and, following the Apollo Closing, the Board as constituted
immediately following the Apollo Closing. "Business Combination" means a
complete liquidation or dissolution of the Company or a merger, consolidation or
sale of all or substantially all of the Company's assets.
- 50 -
<PAGE>
INVESTOR WARRANTS
As part of the Apollo Closing, the Company issued to Apollo Investor
Warrants to purchase up to 1,106,950 shares of Common Stock in three classes:
368,983 Class A Warrants, 368,983 Class B Warrants, and 368,984 Class C
Warrants. Each Investor Warrant entitles the holder, subject to the terms and
conditions of the Warrant, to purchase one share of Common Stock at the Exercise
Price. Unexercised Warrants will expire on June 23, 2004.
REGISTRATION RIGHTS
The Company has granted certain registration rights to Apollo with
respect to the Series A Preferred Stock and the Investor Warrants. Pursuant to
the Investment Agreement, upon the Investor's demand, the Company will to use
its best efforts to effect the registration (a "Demand Registration") under the
Securities Act of such number of Registrable Securities then beneficially owned
by the Investor. The Company will be obligated to effect no more than (a) two
Demand Registrations so long as the Company is not eligible to file Form S-3
under the Securities Act and (b) five Demand Registrations if the Company is
eligible to file Form S-3. If a Demand Registration is initiated by the
Investor, no other securities may be offered in such offering by the Company
without the Investor's consent. Apollo will have the right to select the
underwriters for a Demand Registration. "Registrable Securities" means any of
the (a) up to 2,500,000 shares of Series A Preferred Stock issued to the
Investor at the Apollo Closing or thereafter pursuant to the Investment
Agreement, (b) the Common Stock issuable or issued upon conversion of the Series
A Preferred Stock (the "Conversion Shares"), (c) the 5,000,000 shares of Common
Stock issuable upon the exercise of the Investor Warrants, (d) any other Common
Stock acquired by Apollo, and (e) any securities issued or issuable with respect
to the Series A Preferred Stock, Conversion Shares, Warrant Shares by way of
stock dividend or stock split, or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
In addition, if the Company proposes to register any of its securities
under the Securities Act for sale for cash, the Investor, upon request, will
have the right to include the number of Registrable Securities that Apollo
wishes to sell or distribute publicly under the registration statement proposed
to be filed by the Company, and the Company will use its best efforts to
register under the Securities Act the sale of such Registrable Securities (a
"Piggyback Registration"). Under certain circumstances, the number of
Registrable Securities that Apollo will be entitled to include in a Piggyback
Registration will be limited.
Apollo (or any Eligible Transferee) may transfer all or any portion of
its Demand Registration, Piggyback Registration and related rights to any
transferee of an amount of Registrable Securities equal to or exceeding five
percent of the outstanding class of such Registrable Securities at the time of
transfer (each transferee that receives such minimum number of such Registrable
Securities, an "Eligible Transferee").
The Investment Agreement contains customary provisions regarding the
payment of expenses by the Company and regarding mutual indemnification and
contribution agreements between the Company and the holders of the Registrable
Securities.
TRANSFERABILITY RESTRICTIONS
Apollo has agreed under the Investment Agreement that it will not
assign or otherwise transfer any of the Series A Preferred Stock, the Investor
Warrants, the Warrant Shares and the Conversion Shares before May
- 51 -
<PAGE>
15, 1999, unless certain defaults or a Default Change of Control has occurred.
Apollo, however, may pledge any of such securities as security for indebtedness
owed to a person which is not an affiliate of Apollo.
CO-INVESTMENT OPPORTUNITY
The Investment Agreement provides that except with respect to certain
preexisting projects, as long as the Investor owns at least 500,000 shares of
Series A Preferred Stock, the Investor will have a right of first offer to
participate in new joint venture community development projects proposed to be
entered into by the Company, until the Investor has invested at least an
aggregate of $60,000,000 in such projects. The foregoing, however, will not
apply to any project in which the Company's participation and commitment will be
in the form of its expertise and business efforts or the contribution of real
property (or equity interests in real property), as opposed to capital
contributions. If, after the Company and the Investor have discussed the
proposed transaction for a specified period, the Investor determines not to
invest in such project, or not to invest the full amount that the Company
requires for such project, or has not committed to the Company to make such
investment, on substantially the terms and conditions offered to the Investor,
then the Company may enter into any agreement with or consummate a transaction
with other potential investors with regard to the proposed investment, provided
that the Company may not offer terms to another potential investor materially
more favorable in the aggregate than the terms offered to the Investor unless
the Company first offers such terms to the Investor.
RECENT DEVELOPMENTS
Immediately after the above-mentioned sale of Series A Preferred Stock
and Investor Warrants to Apollo, the Company (a) contributed the proceeds from
such sale, less certain related expenses, to a special purpose wholly owned
subsidiary of the Company formed to invest the net proceeds from the Apollo
Transaction in the Company's future real estate development projects (the "SP
Subsidiary"), as required by the Investment Agreement, and (b) transferred all
of the outstanding capital stock of the Company's subsidiary West Bay Club
Development Corporation ("West Bay") to the SP Subsidiary in exchange for $5
million (from the Apollo Closing) plus, if ownership of West Bay's real estate
development project (the "Project") is converted to a joint venture, all
additional amounts received by West Bay and the SP Subsidiary from the joint
venture partner in respect of the Project, which are specifically designated as
reimbursements for costs incurred by West Bay or the Company with respect to the
Project through the date of the joint venture's formation. The Project is
planned to consist of finished homesites for 313 single family homes and 744
multi-family homes on approximately 879 acres, of which 326 acres have been
purchased for approximately $6 million (of which $2.4 million was financed by
the sellers through notes secured by mortgages on the properties) and the
remaining 553 acres are under purchase contracts expected to close during the
balance of 1997 and 1998.
On June 30, 1997, the Company issued and sold to Apollo under the
Investment Agreement an additional 334,000 shares of Series A Preferred Stock
and Investor Warrants (consisting of 222,666 Class A Warrants, 222,667 Class B
Warrants and 222,667 Class C Warrants, which, if unexercised, expire on June 30,
2004) to purchase an additional 668,000 shares of Common Stock at a per share
purchase price of $5.75 (subject to adjustment), for an aggregate purchase price
of $3,340,000. Immediately after such issuance and sale, the Company contributed
the proceeds therefrom to the SP Subsidiary, which in turn will use the proceeds
through a wholly owned subsidiary thereof to acquire a 2.9 acre parcel in Fort
Lauderdale, Florida and develop thereon a high-rise luxury apartment tower.
- 52 -
<PAGE>
OWNERSHIP BY APOLLO
The following table sets forth the percentage of Common Stock
beneficially owned by Apollo assuming (a) certain percentages of the Series A
Preferred Stock are purchased by Apollo and converted into Common Stock; (b)
certain percentages of the Investor Warrants have been exercised pro rata with
the conversion of the Series A Preferred Stock; (c) certain percentages of the
Series B Preferred Stock are subscribed for in the Rights Offering and converted
into Common Stock, and the same percentages of Series B Warrants issued in the
Rights Offering are exercised; (d) none of the 1,500,000 Bank Warrants are
converted into Common Stock; (e) none of the outstanding director and employee
options are exercised; (f) all 1,000,000 shares of Series B Preferred Stock
issued in the Private Placement are converted into Common Stock; (g) all
2,000,000 Series B Warrants issued in the Private Placement are exercised; and
(h) other than the forgoing and the existing 11,509,077 shares of Common Stock
outstanding, no other Common Stock is outstanding.
<TABLE>
<CAPTION>
==========================================================================================================================
PERCENTAGE OF SERIES B PREFERRED STOCK PURCHASED BY STOCKHOLDERS IN
RIGHTS OFFERING CONVERTED; SAME PERCENTAGE OF SERIES B WARRANTS
ISSUED IN RIGHTS OFFERING EXERCISED
- --------------------------------------------------------------------------------------------------------------------------
0% 25% 50% 75% 100%
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF SERIES A 20% 11% 10% 10% 9% 9%
PREFERRED STOCK PURCHASED 40% 20% 19% 18% 17% 16%
BY APOLLO AND CONVERTED; 60% 27% 26% 25% 24% 23%
SAME PERCENTAGE OF 80% 33% 32% 30% 29% 28%
INVESTOR WARRANTS EXERCISED 100% 38% 37% 35% 34% 33%
==========================================================================================================================
</TABLE>
USE OF PROCEEDS
The Company intends to use the proceeds of the Unit Closing, net of
expenses of approximately $635,000 incurred in connection with the Rights
Offering (assuming all Rights are exercised, of which there can be no
assurance), for working capital purposes, including the payment of a portion of
the Foothill Debt.
CAPITALIZATION
The following table sets forth the Company's unaudited historical
consolidated cash and investments, current maturities of long term debt and
capitalization as of March 31, 1997, as adjusted to give effect to (a) the
Apollo Transaction, the Private Placement and the Rights Offering and the
application of the proceeds thereof (assuming proceeds of $55.0 million and
assuming that all Rights are exercised in full) as described under "Use of
Proceeds," and (b) the Charter Amendments increasing the authorized capital
stock, as if the Apollo Transaction, the Private Placement and the Rights
Offering had been consummated and
- 53 -
<PAGE>
such amendments had been effected on March 31, 1997. This table should be read
in conjunction with the Company's consolidated financial statements and the
related notes thereto incorporated by reference into this Prospectus.
- 54 -
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
---------------------------------------
HISTORICAL AS ADJUSTED
---------------- ----------------
(DOLLARS IN MILLIONS,
EXCEPT SHARE DATA)
<S> <C> <C>
Cash and Investments $ 2.5 $ 2.5
------- -------
Long Term Debt:
Cash Flow Notes (e) 36.1 36.1
Working Capital Loan - Foothill (d) 20.0 9.8
Term Loan - Foothill (d) 40.0 40.0
Reducing Revolver - Foothill 19.8 -
Harbourton Residential Mortgage Loan 11.5 11.5
Litchfield Financial Loan 6.9 6.9
Project Financings 26.2 26.2
Purchase Money Mortgages 1.4 1.4
General Electric Capital Notes .3 .3
Capital Leases - -
------- -------
Total Long Term Debt 162.2 132.2
======= =======
Cumulative Redeemable Convertible Preferred Stock:
Series A Preferred Stock, $.01 per share par value,
liquidation preference $10 per share; historical, 0 shares
authorized, issued, and outstanding; as adjusted 2,500,000
shares authorized, issued, and outstanding; liquidation
preference $25,000,000. (a) - 22.2
Series B Preferred Stock, $.01 per share par value,
liquidation preference $10 per share; historical, 0 shares
authorized, issued, and outstanding; as adjusted 2,000,000
shares authorized, issued, and outstanding; liquidation
preference $20,000,000. (b) - 18.3
------- -------
Total Preferred Stock - 40.5
======= =======
Stockholders' Equity:
Common Stock, $.10 per share par value; historical,
15,665,000 shares authorized, 9,807,997 issued; as
adjusted 70,000,000 shares authorized, 11,584,196
issued. (c) 1.0 1.2
Contributed Capital (c) 122.2 132.5
Accumulated Deficit (68.0) (68.0)
Minimum Pension Liability Adjustment (6.0) (6.0)
Treasury Stock 86,277 shares, at cost - -
------- -------
Total stockholders' equity 49.2 59.7
======= =======
</TABLE>
- 55 -
<PAGE>
- ----------
(a) Represents 2,500,000 shares of Series A Preferred Stock purchased by
Apollo at a price of $9.88 per share with a liquidation preference of
$1,000 per share plus 5,000,000 Investor Warrants purchased by Apollo
at a warrant price of $.06 per warrant for an aggregate purchase price
of $25,000,000, less $2.5 million in expenses related to the equity
issuance.
(b) (i) Represents 1,000,000 shares of Series B Preferred Stock at a
purchase price of $9.88 per share plus 2,000,000 Series B Warrants at a
warrant price of $.06 per warrant in conjunction with the Rights
Offering with a liquidation preference of $10 per share, for an
aggregate purchase price of $10,000,000, less $0.7 million in expenses
related to the equity issuance.
(ii) Represents additional 1,000,000 shares of Series B Preferred Stock
purchased for $9.88 per share plus 2,000,000 Series B Warrants at a
warrant price of $.06 per warrant in conjunction with the Private
Placement on June 24, 1997 for an aggregate purchase price of $10.0
million, less $0.8 million in expenses related to the equity issuance.
(c) Represents approximately 1,776,199 shares of Common Stock for $5.63 per
share or $10,000,000 in conjunction with a private placement. The par
value is $.10 per share.
(d) Represents partial repayment of the Company's working capital loan,
$10.2 million, and full repayment of the Company's reducing revolver
loan, $19.8 million. The sources of funds utilized to effect these
repayments were the Rights Offering, $10.0 million and the Private
Placement, $20.0 million.
(e) Represents unsecured 13% cash flow notes discounted as of March 31,
1997.
- 56 -
<PAGE>
DILUTION
The net tangible book value of the Common Stock as of March 31, 1997,
was $49.2 million or $5.02 per share. Net tangible book value per share
represents total tangible assets less total liabilities, divided by the number
of shares of Common Stock outstanding, on a fully diluted basis excluding stock
options. After giving effect to the consummation of the Apollo Transaction, the
Private Placement and the Rights Offering (assuming all Rights are exercised)
and the application of the net proceeds therefrom, the Company's net tangible
book value as of March 31, 1997, would have been approximately $59.7 million, or
$5.15 per share. This represents an immediate increase in net tangible book
value of $.13 per share with respect to shares outstanding prior to the Rights
Offering and an immediate dilution of $.54 per share with respect to shares
purchased upon the exercise of Rights, as illustrated in the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Subscription Price $ 5.69
Net tangible book value per share at March 31, 1997 $ 5.02
Increase per share attributable to Rights Offerings (a) .13
-----
Pro forma net tangible book value per share after the
consummation of the Apollo Transaction, the Private
Placement and the Rights Offering and application
of net proceeds therefrom 5.15
----
Dilution per share purchased upon the exercise of Rights .54
=====
</TABLE>
- ----------
(a) Represents Series A Preferred Stock purchase by Apollo, the Rights
Offering, and the Private Placement.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed consolidated pro forma financial
information (the "Pro Forma Financial Statements") is based on the historical
consolidated financial statements incorporated by reference into this
Prospectus, adjusted to give effect to the consummation of the Apollo
Transaction, the Private Placement and the Rights Offering. The Pro Forma
Statements of Operations gives effect to the consummation of the Apollo
Transaction, the Private Placement and the Rights Offering as if such had
occurred on January 1, 1996 for the year ended December 31, 1996 and on January
1, 1997 for the quarter ended as of March 31, 1997 and the Pro Forma Balance
Sheet gives effect to the consummation of the Apollo Transaction, the Private
Placement and the Rights Offering as if such had occurred on March 31, 1997.
The Pro Forma Financial Statements should be read in conjunction with
the historical consolidated financial statements and the related notes thereto
and "Management's Discussion and Analysis of Financial Condition
- 57 -
<PAGE>
and Results of Operations" included in the Company's Quarterly Report on Form
10-Q for the three months ended March 31, 1997 which is incorporated by
reference into this Prospectus. The Pro Forma Financial Statements do not
purport to represent what the Company's results of operations or financial
condition would actually have been had the Apollo Transaction, the Private
Placement and the Rights Offering been consummated on the above indicated dates,
or to project the Company's results of operations or financial condition for any
future period or as of any future date.
- 58 -
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1997
--------------------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN MILLIONS)
ASSETS
------
<S> <C> <C> <C>
Cash and cash equivalents $ 2.5 - 2.5
Restricted cash and cash equivalents 6.0 25.0 (a) 31.0
Contracts receivable, net 8.8 - 8.8
Mortgages, notes and other receivables, net 48.2 - 48.2
Land and residential inventory 146.5 - 146.5
Property, plant and equipment, net 2.8 - 2.8
Other assets, net 25.1 (1.8) (b) 23.3
-------- -------- --------
Total assets 239.9 23.2 263.1
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable and accrued liabilities $ 9.3 2.2 (b) 11.5
Customers' and other deposits 5.9 - 5.9
Other liabilities 13.3 - 13.3
Notes, mortgages and capital leases 162.2 (30.0) (c) 132.2
-------- -------- --------
190.7 (27.8) 162.9
======== ======== ========
Cumulative Redeemable Convertible Preferred Stock
Series A Preferred Stock (f) - 22.2 (d) 22.2
Series B Preferred Stock (g) - 18.3 (d) 18.3
-------- --------
40.5 40.5
======== ========
Stockholders' equity
Common stock, $.10 par value; 15,665,000
shares authorized; 9,807,997 as historical,
70,000,000 shares authorized; 11,584,196
shares issued as adjusted. 1.0 .2 1.2
Contributed capital 122.2 10.3 (e) 132.5
Accumulated deficit (68.0) - (68.0)
Minimum pension liability adjustment (6.0) - (6.0)
Treasury stock, 86,277 shares, at cost - - -
-------- -------- --------
Total stockholders' equity 49.2 10.5 59.7
-------- -------- --------
Total liabilities and stockholders' equity $ 239.9 23.2 263.1
======== ======== ========
(See Notes to Pro Forma Financial Statements)
- 59 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------------
RECAPITALIZATION PRO FORMA
HISTORICAL ADJUSTMENTS
----------------- -------------------- -------------
(IN MILLIONS, EXCEPT PER DATA SHARE)
Revenues:
<S> <C> <C> <C>
Real Estate Sales:
Homesite $ 43.9 $ $ 43.9
Tract 62.7 62.7
Residential 21.0 21.0
------- -------
Total real estate sales 127.6 127.6
Other operating revenue 4.9 4.9
Interest Income 6.3 .7 (h) 7.0
Other Income:
Reorganization reserves 18.6 - 18.6
Other income 7.9 - 7.9
--------- -------- ---------
Total revenues 165.3 .7 166.0
========= ======== =========
Cost and expenses:
Direct cost of real estate sales:
Homesite 35.2 35.2
Tract 51.4 51.4
Residential 16.7 16.7
------- -------
Total direct cost of real estate sales 103.3 103.3
Inventory valuation reserves 12.3 12.3
Selling expense 13.5 13.5
Other operating expense 2.0 2.0
Other real estate costs 19.4 19.4
General and administrative expense 11.5 11.5
Depreciation .9 .9
Cost of borrowing, net of amounts
capitalized 13.4 (4.6) (i) 8.8
Other (income) expense, net 1.5 - 1.5
--------- -------- ---------
Total costs and expenses 177.8 (4.6) 173.2
========= ======== =========
Income (loss) before extraordinary items (12.5) 5.3 (7.2)
Extraordinary gains on extinguishment of debt 13.7 - 13.7
--------- -------- ---------
Net income (loss) $ 1.2 5.3 6.5
Preferred stock dividend 0.0 (9.0) (9.0)
--------- -------- ---------
Net income (loss) applicable to
common stock $ 1.2 (3.7) (2.5)
========= ======== =========
Income (loss) before extraordinary items
per common share $ (1.29) (.62)
========= =========
Net income (loss) per common share $ .12 (.22)
========= =========
Weighted average common shares
outstanding 9.7 11.5
========= =========
(See Notes to Pro Forma Financial Statements)
- 60 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------------------
RECAPITALIZATION PRO FORMA
HISTORICAL ADJUSTMENTS
---------- ----------- -----------
(IN MILLIONS, EXCEPT PER DATA SHARE)
Revenues:
<S> <C> <C> <C>
Real Estate Sales:
Homesite $ 2.5 $ $ 2.5
Tract 6.7 6.7
Residential 7.1 7.1
-------- ------
Total real estate sales 16.3 16.3
Other operating revenue .6 .6
Interest Income 1.4 1.4
Other Income:
Reorganization reserves .4 .4
Other income - -
-------- ------
Total revenues 18.7 18.7
======== ======
Cost and expenses:
Direct cost of real estate sales:
Homesite 2.0 2.0
Tract 6.2 6.2
Residential 5.3 5.3
-------- ------
Total direct cost of real estate sales 13.5 13.5
Inventory valuation reserves - -
Selling expense 2.1 2.1
Other operating expense .3 .3
Other real estate costs 2.9 2.9
General and administrative expense 2.2 2.2
Depreciation .2 .2
Cost of borrowing, net of amounts
capitalized 4.0 (1.6) (k) 2.4
Other (income) expense, net .8 - .8
-------- -------- ------
Total costs and expenses 26.0 (1.6) 24.4
======== ======== ======
Income (loss) before extraordinary items (7.3) 1.6 (5.7)
Extraordinary gains on extinguishment of debt - - -
-------- -------- ------
Net income (loss) $ (7.3) 1.6 (5.7)
Preferred stock dividend 0.0 (2.2) (2.2)
-------- -------- ------
Net income (loss) applicable to
common stock $ (7.3) (0.6) (7.9)
======== ======== ======
Income (loss) before extraordinary items
per common share $ (.75) (.50)
======== ======
Net income (loss) per common share $ (.75) (.69)
======== ======
Weighted average common shares
outstanding 9.7 1.8 (j) 11.5
======== ======== ======
(See Notes to Pro Forma Financial Statements)
- 61 -
</TABLE>
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(a) Represents the proceeds received from Apollo with respect to the
purchase of 2.5 million shares of the Series A Preferred Stock and the
corresponding 5,000,000 Warrants to purchase 5,000,000 shares of Common
Stock.
(b) Represents prepaid expenses associated with the Apollo Transaction, the
Private Placement and the Rights Offering. Total expenses are estimated
at $4.0 million which are allocated as follows: (i) the Apollo
Transaction - $2.5 million, (ii) the Rights Offering - $0.7 million,
and (iii) the Private Placement - $0.8 million.
(c) Represents proceeds received from the Rights Offering - $10.0 million
and the Private Placement - $20.0 million used to repay debt.
(d) The Preferred Stock balances are net of fees and expenses, see Note
(b), and purchase price associated with the Investor Warrants - $0.3
million and Series B Warrants - $0.2 million.
(e) Represents purchase price of warrants, see Note (d), plus Common Stock
purchase price less par value of stock issued.
(f) Series A Preferred Stock, $.01 per share par value, liquidation
preference $10 per share; historical, 0 shares authorized, issued, and
outstanding; as adjusted 2,500,000 shares authorized, issued, and
outstanding; liquidation preference $25,000,000.
(g) Series B Preferred Stock, $.01 per share par value, liquidation
preference $10 per share; historical, 0 shares authorized, issued, and
outstanding; as adjusted 2,000,000 shares authorized, issued, and
outstanding; liquidation preference $20,000,000.
(h) Represents interest income on restricted cash deposits corresponding to
the proceeds from the sale of the Series A Preferred Stock.
(i) Represents reduced interest expense for the period January 1996 to
September 1996 corresponding to the earlier repayment of the Company's
working capital loan - $0.7 million and the Company's mandatory
interest notes - $1.4 million. Reduced interest expenses were also
anticipated by avoiding fees associated with the mandatory interest
notes - $0.4 million, and reduced interest expense for the period
October 1996 to December 1996 with respect to the Company's reducing
revolver loan - $0.1 million and the working capital loan - $0.5
million. Additional interest capitalized to projects - $1.5 million
also reduced net interest expense.
(j) Corresponds to 1,776,199 shares of Common Stock issued in the Private
Placement.
(k) Represents interest savings for the period January 1997 to March 1997
corresponding to reduced debt balances, specifically the Company's
working capital loan - $0.3 million and the Company's reducing revolver
loan - $0.6 million. The net cost of borrowing is also reduced by
additional interest capitalized to projects, estimated at $0.7 million
for the above noted period.
- 62 -
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected financial information of
Atlantic Gulf as of the dates and for the periods indicated. The selected
historical consolidated statement of operations data for the three months ended
March 31, 1996 and 1997 and for the years ended December 31, 1992, 1993, 1994,
1995 and 1996 and the historical consolidated balance sheet data as of March 31,
1997 and as of December 31, 1992, 1993, 1994 1995 and 1996 are derived from the
consolidated financial statements incorporated by reference into this
Prospectus.
- 63 -
<PAGE>
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, DECEMBER 31, YEARS ENDED DECEMBER 31, MARCH 31,
---- ---- ------------------------------------ -------------
1992 1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Sales:
Homesite $ .2 $ 5.1 $ 11.8 $ 15.0 $ 24.1 $ 43.9 $ 14.6 $ 2.5
Tract 4.6 16.1 24.7 25.8 31.1 62.7 5.7 6.7
Residential .5 4.5 8.3 11.5 27.7 21.0 2.9 7.1
-------- -------- -------- -------- -------- -------- -------- --------
Total real estate sales 5.3 25.7 44.8 52.3 82.9 127.6 23.2 16.3
Utility revenue 3.7 9.9 4.5 2.9 -- -- -- --
Other operating revenue 3.3 7.4 8.9 6.9 6.7 4.9 1.1 .6
Interest Income 2.2 8.6 11.0 8.3 7.8 6.3 1.3 1.4
Other Income:
Reorganization reserves -- -- -- .7 10.7 18.6 1.3 .4
Other income -- 14.3 1.4 34.9 5.3 7.9 4.9 --
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues 14.5 65.9 70.6 106.0 113.4 165.3 31.8 18.7
-------- -------- -------- -------- -------- -------- -------- --------
Cost and expenses:
Direct cost of real estate sales:
Homesite .2 3.5 8.5 10.5 17.2 35.2 10.9 2.0
Tract 2.4 6.7 15.5 17.9 26.1 51.4 4.7 6.2
Residential .4 4.0 7.2 10.1 23.1 16.7 2.2 5.3
-------- -------- -------- -------- -------- -------- -------- --------
Total direct cost of real estate sales 3.0 14.2 31.2 38.5 66.4 103.3 17.8 13.5
Inventory valuation reserves -- -- -- -- 4.9 12.3 -- --
Selling expense 1.2 4.0 7.5 7.5 9.8 13.5 2.6 2.1
Utility operating expense 2.4 8.1 5.0 2.0 -- -- -- --
Other operating expense 2.6 7.8 5.9 5.1 4.0 2.0 .7 .3
Other real estate costs 3.3 5.5 15.5 22.6 20.5 19.4 4.3 2.9
General and administrative expense 2.9 8.5 9.8 10.6 10.4 11.5 3.1 2.2
Depreciation 1.2 3.2 2.1 1.1 1.2 .9 .2 .2
Cost of borrowing, net of amounts capitalized 1.3 10.8 10.9 14.8 14.3 13.4 3.3 4.0
Other (income) expense, net 5.7 27.7 1.2 2.7 2.5 1.5 .2 .8
-------- -------- -------- -------- -------- -------- -------- --------
Total costs and expenses 23.6 89.8 89.1 104.9 134.0 177.8 32.2 26.0
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before reorganization items (9.1) (23.9) (18.5) 1.1 (20.6) (12.6) (.4) (7.3)
Income from reorganization items 12.9 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary items 3.8 (23.9) (18.5) 1.1 (20.6) (12.6) (.4) (7.3)
Extraordinary items 950.6 -- -- -- -- -- -- --
Extraordinary gains on extinguishment of debt -- -- -- -- -- 13.7 3.8 --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 954.4 $ (23.9) $ (18.5) $ 1.1 $ (20.6) $ 1.2 $ 3.4 $ (7.3)
======== ======== ======== ======== ======== ======== ======== ========
Income (loss) before extraordinary items
per common share $ .46 $ -- $ -- $ .11 $ (2.12) $ (1.29) $ (.04) $ (.75)
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) per common share $ 114.11 $ (2.45) $ (1.91) $ .11 $ (2.12) $ .12 $ .35 $ (.75)
======== ======== ======== ======== ======== ======== ======== ========
Weighted average common shares outstanding 8.4 9.8 9.7 9.6 9.7 9.7 9.7 9.7
======== ======== ======== ======== ======== ======== ======== ========
- 64 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS THREE MONTHS
ENDED ENDED ENDED
MARCH 31, DECEMBER 31, YEARS ENDED DECEMBER 31, MARCH 31,
---- ---- ------------------------------------ -------------
1992 1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
OTHER FINANCIAL DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA 956.9 (1.1) 4.7 27.4 9.3 27.4 10.3 (0.3)
Cash flows from operating activities 41.9 14.8 (17.9) (33.2) (24.9) 15.0 7.8 7.5
Cash flows from investing activities 0.1 43.6 17.2 43.9 2.2 30.4 1.2 12.0
Cash flows from financing activities 37.3 (12.6) (34.7) (12.1) 13.9 (41.9) (10.2) (9.2)
Net cash interest expense 1.3 13.6 18.3 14.6 14.7 13.5 3.7 3.8
Capital expenditures (0.4) (1.1) (1.1) (3.6) (1.6) (0.2) (0.1) (0.1)
Ratios:
EBITDA to net interest expense 736.1x (0.1)x 0.4x 1.9x 0.7x 2.0x 3.1x (0.1)x
EBITDA to net cash interest expense 736.1x (0.1)x 0.3x 1.9x 0.6x 2.0x 2.8x (0.1)x
Earnings to fixed charges 204.1x (0.0)x 0.4x 1.0x 0.1x 1.1x 1.6x (0.4)x
Total debt to EBITDA 0.2x (207.5)x 43.3x 6.9x 23.8x 6.2x 20.4x (540.7)x
BALANCE SHEET DATA (END OF PERIOD):
Cash and investments 3.5 49.2 13.8 12.3 3.6 7.1 2.3 2.5
Total assets 476.5 439.2 367.2 348.6 332.8 263.4 315.8 239.9
Long term debt, including current maturities 235.9 228.2 203.3 190.3 221.0 169.2 210.1 162.2
Stockholders' equity 119.9 94.5 73.2 74.7 54.4 56.4 57.8 49.2
- 65 -
</TABLE>
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is quoted on the NASDAQ National Market System under
the Symbol "AGLF." The following table sets forth the high and low closing sales
prices of the Common Stock for the periods indicated.
<TABLE>
<CAPTION>
1997 1996 1995
SALES PRICE SALES PRICE SALES PRICE
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
March 31 6 4 1/8 6 3/4 5 3/8 10 1/4 8 3/8
June 30 6 41/64 5 1/2 6 3/8 5 1/2 9 5 3/4
September 30 6 4 7/8 8 1/2 6 3/8
December 31 5 3/8 3 15/16 7 5/8 6 1/4
</TABLE>
The high and low sales prices for the quarter ended June 30, 1997 were
6 41/64 and 5 1/2, respectively.
As of June 30, 1997 there were approximately 30,000 holders of record
of Common Stock, which excludes holders whose stock is held in nominee or street
name by brokers. The last reported sale price of the Common Stock on the NASDAQ
National Market System on July 21, 1997 was $6.375.
No dividends have been paid on the Common Stock during the last two
fiscal years. Under the Foothill Debt agreements the Company has agreed not to
declare or pay any dividend (other than dividends payable solely in its common
stock or preferred stock) on, or make any payment on account of, or set apart
assets for a sinking or other analogous fund for, the purchase, redemption,
defeasance, retirement or other acquisition of, any capital stock of the
Company. Furthermore, no cash dividends can be paid on Common Stock while any
dividend arrearages exist on the Preferred Stock.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
As of July 21, 1997, the Company's authorized capital stock consists of
70,000,000 shares of Common Stock and 4,500,000 shares of Preferred Stock, par
value $.01 per share. Of such authorized Common Stock, (a) 11,509,077 shares are
outstanding (including 13,290 Reserved Shares and 1,776,199 shares issued in the
Private Placement) (excluding shares granted automatically to directors in lieu
of fees); (b) 10,000,000 shares are reserved for issuance upon conversion of the
Series A Preferred Stock; (c) 8,000,000 shares are reserved for issuance upon
conversion of the Series B Preferred Stock; (d) 1,500,000 shares are reserved
for issuance pursuant to the Bank Warrants; (e) 5,000,000 shares are reserved
for issuance upon the exercise of the Investor Warrants; (f) 86,277 shares are
held in the Company's treasury; (g) 1,241,000 shares are reserved for issuance
upon the exercise of employee and director stock options; and (h) the remaining
shares are authorized but unissued. Of the authorized Preferred Stock, (a)
2,500,000 are designated Series A Preferred Stock, with a liquidation preference
of $10 per share, 553,475 of which were issued to Apollo as part of the
- 66 -
<PAGE>
Apollo Closing, 334,000 were issued at a subsequent issuance and the remainder
are reserved for issuance, and (b) 2,000,000 shares are designated Series B
Preferred Stock, with a liquidation preference of $10 per share, 1,000,000 of
which were issued to the Private Purchasers in the Private Placement and
1,000,000 of which are to be issued at the Unit Closing (assuming all Rights are
exercised).
COMMON STOCK
Holders of Common Stock have no preemptive rights to purchase or
subscribe for securities of the Company, and the Common Stock is not convertible
into any other securities or subject to redemption by the Company.
Subject to the rights of the holders of the Series A Preferred Stock
and the Series B Preferred Stock, which have a preference and priority over the
Common Stock, the holders of the Common Stock are entitled to dividends in such
amounts as may be declared by the Board from time to time out of funds legally
available for such payments and, in the event of liquidation, to share ratably
in any assets of the Company remaining after payment in full of all creditors
and provision for any liquidation preferences on any outstanding Preferred Stock
ranking senior to the Common Stock. Prior to the amendment of the Company's
Restated Certificate of Incorporation on June 24, 1997, such certificate
provided for mandatory dividends on the Common Stock equal to 25 percent of
Available Cash (as defined in the POR) after all indebtedness issued under the
POR was paid in full, although dividends did not accrue if the Company was
unable to pay them due either to a lack of Available Cash, surplus capital or
net profits, or applicable provisions of Delaware law. This mandatory dividend
feature was eliminated as of June 24, 1997.
American Stock Transfer & Company serves as the registrar and transfer
agent for the Common Stock.
SERIES A PREFERRED STOCK
A summary of certain of the preferences, powers, and rights of the
Series A Preferred Stock and the differences between the Series A Preferred
Stock and the Series B Preferred Stock are set forth herein under the caption
"The Apollo Transaction -- The Series A Preferred Stock."
SERIES B PREFERRED STOCK
A summary of the preferences, powers, and rights of the Series B
Preferred Stock is set forth herein under the caption "Description of the Units
- -- Series B Preferred Stock."
- 67 -
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary is a general discussion of certain of the
anticipated federal income tax consequences of the issuance, exercise or lapse
of the Rights and purchase and disposition of the Series B Preferred Stock. The
following does not consider federal income tax consequences of the Rights
Offering to any particular Stockholder, or federal income tax consequences of
the Rights Offering that may be relevant to particular classes of Stockholders,
such as banks, insurance companies and foreign individuals and entities. This
summary is not intended as tax advice and is based on the Company's
understanding of federal income tax laws as currently interpreted. No
representation is made regarding the continuation of such laws or of such
interpretations, and no discussion is contained herein regarding the possible
effects of any applicable state, local or foreign tax laws, or taxes other than
federal income taxes.
EACH RIGHTS HOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH RIGHTS HOLDER (INCLUDING THE
APPLICABILITY AND EFFECT OF THE CONSTRUCTIVE OWNERSHIP RULES AND STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS) OF THE ISSUANCE, EXERCISE OR LAPSE OF RIGHTS AND THE
PURCHASE AND DISPOSITION OF SERIES B PREFERRED STOCK PURSUANT TO THE RIGHTS
OFFERING.
RIGHTS ISSUANCE
Section 305(a) of the Code generally provides that gross income does
not include the amount of any distribution by a corporation to its stockholders
of stock or rights to acquire stock of that corporation. Sections 305(b) and (c)
of the Code and Treasury regulations thereunder set forth several exceptions to
the general rule of Section 305(a). If one of the exceptions were to apply to
the Rights issuance, the value of the Rights would be treated as (a) a dividend
(ordinary income) to the extent of the Company's accumulated or current earnings
and profits, if any, and (b) any value of the Rights in excess of the earnings
and profits would be treated first as a tax free return of capital to the extent
of a Stockholder's tax basis and then a gain from a sale or exchange of the
stock. Generally, the exceptions apply to distributions which are designed to
have the effect of distributing cash or property other than common stock to some
stockholders while increasing other stockholders' ownership of a company's
common equity. A distribution of preferred stock convertible into common stock
(or of rights to acquire such preferred stock) is described in an exception to
the general rule of Section 305(a), if the conversion rights must be exercised
within a short period and the terms of the preferred stock are such that it may
be anticipated that some stockholders will exercise their conversion rights and
others will not. This discussion assumes that the general rule of Section 305(a)
applies to the distribution of Rights to the Stockholders.
RIGHTS' TAX BASIS
Under Section 307 of the Code, the tax basis of the Rights in the hands
of a Stockholder to whom the Rights were issued will be zero and the tax basis
of the Common Stock held by the stockholder with respect to which the Rights
were issued (the "Old Stock") will be unchanged unless the Rights are exercised
or sold. If the Rights are exercised or sold their tax basis in the hands of a
Stockholder will be determined by allocating the tax basis of the Old Stock and
the Rights in proportion to their relative fair market values on the date of
distribution. However, if the fair market value of the Rights on the date of
distribution is less than 15% of the fair market value of the Old Stock, the
fair market value of the Rights will be deemed (and the tax basis of the Rights
will be) zero and the tax basis of the Old Stock will be unchanged unless a
Stockholder makes an irrevocable election to compute the basis of all Rights
received in the manner described in the preceding
- 68 -
<PAGE>
sentence. This election is made by attaching a statement to such Stockholder's
federal income tax return filed for the taxable year in which the Rights are
received by a Stockholder. The Company has not obtained an independent appraisal
of the valuation of the Old Stock or the Rights and, therefore, each Stockholder
individually must determine how the rules of Section 307 of the Code will apply
in that Stockholder's particular situation.
EXERCISE OF RIGHTS
The Series B Preferred Stock and the Series B Warrants received by a
Stockholder upon the exercise of Rights will constitute an "investment unit".
The tax basis of the investment unit will be equal to the sum of (i) the basis,
if any, of the Rights exercised and (ii) the amount paid upon exercise of the
Rights. The basis of the investment unit must be allocated between the Series B
Preferred Stock and the Series B Warrants in proportion to their fair market
values. The agreements between the Company and the Private Purchasers allocate
their $10 per share purchase price $ 9.88 to the Series B Preferred Stock and $
0.06 to the Series B Warrants. Although this allocation was arrived as part of
the overall negotiations between the Company and the Private Purchasers it is
not binding on the Internal Revenue Service. The holding period of the Series B
Preferred Stock and the Series B Warrants acquired upon exercise of Rights will
commence upon the exercise of the Rights by the holder thereof.
EXPIRATION OF THE RIGHTS
Rightsholders who allow the Rights received by them on the date of
distribution to expire unexercised will not recognize any gain or loss, and no
adjustment will be made to the basis of their Common Stock.
SERIES B PREFERRED STOCK
BASIS AND HOLDING PERIOD
The basis of each share of Series B Preferred Stock acquired upon
exercise of Rights will equal its PRO RATA (based on the relative values of the
Series B Preferred Stock and the Series B Warrants acquired) portion of the sum
of the Subscription Price and the basis, if any, in the Rights exercised. The
holding period for such Series B Preferred Stock will begin on the date the
Rights are exercised.
DIVIDEND PAYMENTS
A holder of Series B Preferred Stock who receives a distribution
thereon will be treated as having received, on the dividend payment date, a
dividend taxable as ordinary income to the extent of the Company's current and
accumulated earnings and profits in the year in which such distribution is made.
Corporate holders will generally be eligible for the dividends received
deduction as set forth in Section 243 of the Code. The amount of any
distribution described above will be the amount of cash plus the fair market
value of any property received. To the extent that the amount of any
distribution exceeds the Company's allocable current and accumulated earnings
and profits, such excess will first be applied against and reduce the
recipient's adjusted tax basis in the shares with respect to which such
distribution is made and second, to the extent that such excess is greater than
the recipient's adjusted tax basis, will be treated as capital gain (assuming
the shares with respect to which such distribution is made are held as a capital
asset).
Corporate holders of Series B Preferred Stock otherwise entitled to the
dividends received deduction should consider the minimum holding period
requirements of Section 246(c) of the Code, the "debt-financed
- 69 -
<PAGE>
portfolio stock" rules of Section 246A of the Code, and the "extraordinary
dividend" provisions of Section 1059 of the Code, the effects of which are to
reduce or eliminate the benefit of the dividends received deduction with respect
to Series B Preferred Stock subject to such rules. Corporate holders of Series B
Preferred Stock should also consider whether any dividends received deduction
allowed for dividends received on Series B Preferred Stock may either cause or
increase the holder's liability for the alternative minimum tax.
SALE OR EXCHANGE
Upon the sale or taxable exchange of Series B Preferred Stock, the
holder will recognize gain or loss equal to the difference between the amount
realized and the holder's adjusted tax basis in the Series B Preferred Stock.
Assuming the shares are held as a capital asset, the resulting gain or loss will
be a capital gain or loss and will be a long-term capital gain or loss if the
Series B Preferred Stock was held for more than one year.
REDEMPTION OF SERIES B PREFERRED STOCK
A redemption of Series B Preferred Stock for cash will be a taxable
event. Generally, any redemption of the Series B Preferred Stock would result in
taxable gain or loss equal to the difference between the amount of cash received
(except to the extent of accumulated dividends on the Series B Preferred Stock)
and the Stockholder's tax basis in the Series B Preferred Stock redeemed if the
redemption (a) results in a "complete redemption" of the holder's stock interest
in the Company under Section 302(b)(3) of the Code, (b) is "substantially
disproportionate" with respect to the Stockholder under Section 302(b)(2) of the
Code, (c) is "not essentially equivalent to a dividend" with respect to the
Stockholder under Section 302(b)(1) of the Code, or (d) is from a non-corporate
Stockholder in partial liquidation of the Company under Section 302(b)(4) of the
Code. A redemption is substantially disproportionate only if it reduces the
redeemed Stockholder's voting percentage and common stock ownership by at least
20%. Whether a redemption is not essentially equivalent to a dividend is more
subjective, but it does require some reduction in the Stockholder's percentage
interest of the Company. In determining whether any of these tests have been
met, shares considered to be owned by the Stockholder by reason of the
constructive ownership rules set forth in Section 318(a) of the Code (pursuant
to which a Stockholder will be deemed to own shares owned by certain related
individuals and entities and shares that may be acquired upon the exercise of an
option, unless such constructive ownership can be (and is) waived under Section
302(c) of the Code), as well as the shares actually owned, would generally be
taken into account. Such gain or loss would be a capital gain or loss (assuming
the shares with respect to which such distribution is made are held as a capital
asset).
If the redemption does not satisfy any of the tests under Section
302(b) of the Code, then the gross proceeds will be treated under Section 301 of
the Code as a distribution taxable as a dividend to the extent of the Company's
current and accumulated earnings and profits (see "Certain Federal Income Tax
Considerations--Series B Preferred Stock--Dividend Payments," above), and any
excess will be treated first as a non-taxable return of capital and then as a
gain upon a sale or exchange of the Series B Preferred Stock, which gain will be
long-term capital gain (assuming the shares are held as a capital asset) if the
Series B Preferred Stock has been held for more than one year. A holder who is
taxed upon proceeds of redemption as a dividend would transfer the tax basis in
the Series B Preferred Stock (reduced for any amounts treated as non-taxed
portion of extraordinary dividends or as a return of capital) to the holder's
remaining stock interest in the Company. If the Stockholder does not retain any
stock ownership in the Company, the Stockholder may lose such basis entirely.
- 70 -
<PAGE>
REDEMPTION PREMIUM
Under Section 305 of the Code and applicable Treasury regulations, if
the redemption price of redeemable preferred stock exceeds its issue price, such
excess may constitute a redemption premium which is deemed to be a taxable
distribution to the holder on an economic accrual basis over the period during
which the Series B Preferred Stock cannot be redeemed. Such distribution would
be treated as a dividend to the extent of the Company's current and accumulated
earnings and profits, with any remaining distribution treated first as a
non-taxable return of capital and then as gain arising from a sale or exchange.
A determination by the Company as to whether there is a redemption premium
deemed to be a taxable distribution will be binding on a holder, unless the
holder explicitly discloses to the IRS that its determination and treatment of
redemption premium differs from that of the Company.
This rule requiring current inclusion of any redemption premium does
not apply if the redemption premium is less than one quarter of one percent
multiplied by the redemption price multiplied by the number of years until the
likely redemption date. The issue price of the Series B Preferred Stock would be
the basis allocated to it upon exercise of the Rights. Its redemption price is
$10 per share. Inasmuch as the holders have an option to require the redemption
of the Series B Preferred Stock after the fourth anniversary of its issuance,
subject to certain limitations that would, if all holders exercised their
rights, result in 1/3 of the shares being redeemed immediately following each of
the 4th, 5th and 6th anniversary of issuance, the number of years until the
redemption date should be deemed to be 5 (the average weighted maturity of the
shares assuming the holders exercise their options). Accordingly, as long as the
basis allocated to the preferred stock is at least $9.875 a share ($10 less
(0.25% X $10 X 5 years)), redemption premium would, subject to the possibility
(discussed in the following paragraph) that accrued but unpaid dividends would
be treated as redemption premium, be de minimis and its current inclusion in
income would not be required.
The legislative history to 1990 amendments to Section 305 of the Code
states that the IRS may provide that disguised redemption premium exists where
cumulative preferred stock is issued without a discount but at the time of
issuance there is no intention for the dividends to be paid currently. The
preamble to the 1995 Treasury regulations implementing the 1990 amendments
states that, because of the complexity of the issue, the regulations do not
provide rules for such unpaid cumulative dividends, but that the IRS and
Treasury will continue to consider the issue. If dividends are not paid
currently on the Series B Preferred Stock, it is possible that the IRS would
attempt to treat the unpaid dividends as redemption premium; however, in the
absence of additional pronouncements from the IRS or Treasury, such a position
seems unlikely.
CONVERSION TO COMMON STOCK
No gain or loss will be recognized for federal income tax purposes upon
the conversion of the Series B Preferred Stock into Common Stock, except with
respect to any cash received in exchange for a fractional interest. The tax
basis for the Common Stock received upon conversion will be equal to the tax
basis of the Series B Preferred Stock reduced by the portion of such basis
allocable to any fractional interest exchanged for cash. Provided that the
Series B Preferred Stock was held as capital assets, the holding period of the
shares of Common Stock will include the holding period of the Series B Preferred
Stock converted. Income realized upon the receipt of cash paid in lieu of
fractional shares of Common Stock will be taxed immediately to the holder of
such fractional shares.
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<PAGE>
ADJUSTMENT TO CONVERSION RATIO
Section 305 of the Code renders taxable certain actual or constructive
distributions of stock with respect to stock and convertible securities.
Regulations promulgated under Section 305 provide that an adjustment in the
conversion ratio of convertible preferred stock made pursuant to a bona fide,
reasonable formula which has the effect of preventing dilution of the interest
of the holders of such stock will not be considered to result in a taxable
dividend under Section 301 of the Code. Any adjustment in the conversion ratio
of the Series B Preferred Stock to reflect taxable distributions on the Common
Stock would be treated as a constructive distribution of stock to the holders of
Series B Preferred Stock and would be taxable as a dividend to the extent of
current or accumulated earnings and profits of the Company. The amount of the
dividend to a holder of Series B Preferred Stock resulting from such an
adjustment would be measured by the fair market value of the additional Common
Stock (or fraction thereof) that would be obtainable as a result of adjustment
of the conversion price. Because the adjustments to the conversion price could
occur more than three years after the date of a taxable stock dividend, there
can be no assurance and none is hereby given that an adjustment to the
conversion ratio of the Series B Preferred Stock will not result in a taxable
dividend under Section 301.
SERIES B WARRANTS
BASIS AND HOLDING PERIOD
The basis of each Series B Warrant acquired upon exercise of Rights
will equal its PRO RATA (based on the relative values of the Series B Preferred
Stock and the Series B Warrants acquired) portion of the sum of the Subscription
Price and the basis, if any, in the Rights exercised.
EXERCISE OF SERIES B WARRANTS
No gain or loss will be recognized by a holder of Series B Warrants
upon the exercise of the Series B Warrants. The holding period of Common Stock
acquired by a holder upon exercise of Series B Warrants will commence upon the
exercise of the Series B Warrants thereof. The tax basis of shares acquired upon
the exercise of the Series B Warrants will be equal to the sum of the basis of
the Series B Warrants exercised and the exercise price paid for such shares of
Common Stock.
SALE OR EXCHANGE
Upon the sale or taxable exchange of Series B Warrants, the holder will
recognize gain or loss equal to the difference between the amount realized from
such sale or exchange and the holder's adjusted tax basis in the Series B
Warrants. Assuming that shares of Common Stock which would have been acquired by
the holder if he or she had exercised the option would be a capital asset in the
hands of the holder, the resulting gain or loss will be a capital gain or loss
and will be a long-term capital gain or loss, if the Series B Warrants were held
for more than one year.
EXPIRATION OF SERIES B WARRANTS
A holder who allows Series B Warrants to expire without being exercised
will be treated as having disposed of the Series B Warrants in a taxable
exchange on the date of expiration. Accordingly, such a holder will recognize
loss equal to the holder's basis in the Series B Warrants. If the shares of
Common Stock which would have been acquired by the holder upon exercise of the
Series B Warrants would have been a capital asset
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<PAGE>
in the hands of the holder, the loss recognized upon expiration of the Series B
Warrants will be a capital loss. Such loss will be a long-term capital loss if
the holder's holding period for the Series B Warrants was more than one year.
GENERAL BACKUP WITHHOLDING AND REPORTING REQUIREMENTS
Under Section 3406 of the Code and applicable Treasury regulations, a
holder of Series B Preferred Stock or Common Stock may be subject to backup
withholding tax at the rate of 20% with respect to dividends paid on or the
proceeds of a sale or redemption of such stock, as the case may be. The payor
will be required to deduct and withhold the tax if (a) the payee fails to
furnish a taxpayer identification number ("TIN") to the payor or fails to
certify under the penalty of perjury that such TIN is correct, (b) the Internal
Revenue Service ("IRS") notifies the payor that the TIN furnished by the payee
is incorrect, (c) there has been a notified payee under reporting with respect
to interest, dividends or original issue discount described in Section 3406(c)
of the Code, or (d) there has been a failure of the payee to certify under the
penalty of perjury that the payee is not subject to withholding under Section
3406(a)(1)(C) of the Code. As a result, if any one of the events discussed above
occurs with respect to a holder, the payor will be required to withhold a tax
equal to 20% from any payment of dividends or proceeds made with respect to the
holder's Series B Preferred Stock or Common Stock unless an exemption applies
under applicable law and is established in a manner acceptable to the payor.
Reports will be made annually or otherwise as may be required to the IRS and to
the holders of record that are not excepted from such reporting requirements
with respect to distributions on the Series B Preferred Stock. Such reporting
will be made on IRS Form 1099 or on such other form as may be prescribed under
the rules issued by the IRS.
LEGAL MATTERS
The validity of the Rights, Series B Preferred Stock, Series B Warrants
and underlying Common Stock offered hereby will be passed upon for the Company
by Arent Fox Kintner Plotkin & Kahn, Washington, D.C.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in the Company's Annual Report (Form 10-K) for the year ended December
31, 1996 have been audited by Ernst & Young LLP, independent auditors, as set
forth in its report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees
and expenses payable by the Registrant.
Securities and Exchange Commission registration fee............. $ 3,000
*Blue sky fees and expenses (including legal fees).............. $ 15,000
*Accounting fees and expenses................................... $ 3,000
*Legal fees and expenses........................................ $ 200,000
*Printing and engraving......................................... $ 60,000
Financial Advisory Fees (paid upon consummation of the $ 312,500
Apollo Closing)
*Transfer agent and registrar fees.............................. $ 15,000
*Miscellaneous.................................................. $ 26,500
----------
Total........................................................... $ 635,000
==========
- ----------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended,
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation or is or was serving at its request in such capacity in another
corporation or business association, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to provide in its certificate of incorporation that a
director of the corporation shall not be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (a) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of the
law, (c)
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<PAGE>
under Section 174 of the Delaware General Corporation Law, or (d) any
transaction from which the director derived an improper personal benefit.
Article Twelfth of the Registrant's charter provides for the
elimination of personal liability of a director for breach of fiduciary duty as
permitted by Section 102(b)(7) of the Delaware General Corporation Law, and
Article Ninth provides that the Registrant may indemnify its directors and
officers to the full extent permitted by the Delaware General Corporation Law.
The Registrant has in effect a directors and officers liability
insurance policy under which the directors and officers of the Registrant are
insured against loss arising from claims made against them due to wrongful acts
while acting in their individual and collective capacities as directors and
officers, subject to certain exclusions.
The Registrant has entered into indemnification and release agreements
with its directors who have resigned effective as of the Apollo Closing that
contractually provide for indemnification and expense advancement, including
related provisions meant to facilitate the indemnitees' receipt of such
benefits, and certain releases. Under such agreements, the Registrant for
itself, its Subsidiaries and any other entities that the Registrant controls,
will release each of the resigning directors from any and all claims that any of
the releasors may have against the resigning directors. The Investment Agreement
also provides for continuing indemnification following the Apollo Closing for
the Registrant's directors to the fullest extent provided by law, as well as
continuing coverage under the Company's directors' and officers' liability
insurance policies.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
EXHIBITS:
4 (a) Amended and Restated Certificate of Incorporation of the
Registrant.
(b) Restated Bylaws of the Registrant (incorporated herein by
reference to Exhibit 3(b) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992 (File No.
1-8967)).
(c) Form of Statements of Preferences and Rights establishing
Series A Preferred Stock and Series B Preferred Stock
(included in Exhibit 4(a)).
*(d) Form of Series A Preferred Stock Certificate.
*(e) Form of Series B Preferred Stock Certificate.
*(f) Form of Common Stock Certificate.
*(g) Form of Subscription Agreement between the Company and
American Stock Transfer & Trust Company, Subscription Agent.
*(h) Form of Letter to Stockholders.
*(i) Form of Subscription Certificate.
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<PAGE>
*(j) Form of Instructions as to Use of Subscription Certificates.
*(k) Form of Letter to Brokers.
*(l) Form of Letter to Clients.
*(m) Form of Letter to Foreign Stockholders.
*(n) Form of Notice of Guaranteed Delivery.
*(o) Form of Guidelines to Form W-9.
*(p) Form of DTC Participant Oversubscription Exercise Form.
*(q) Form of Nominee Holder Certification.
*5 Opinion of Arent Fox Kintner Plotkin & Kahn concerning
legality of securities being registered.
10 (a) Investment Agreement (Exhibit EX-1 to the Company's Current
Report on Form 8-K filed February 18, 1997), as amended and
restated as of May 15, 1997 (Exhibit EX-1 to the Company's
Current Report on Form 8-K filed June 5, 1997).
(b) Secured Agreement (Exhibit EX-6 to the Company's Current
Report on Form 8-K filed February 18, 1997), as amended and
restated as of May 15, 1997.
*12 Computation of Ratio of Earnings to Fixed Charges.
23 Consents of experts and counsel:
*(a) Arent Fox Kintner Plotkin & Kahn (included in Exhibit 5)
(b) Ernst & Young
24 Power of Attorney: included in Part II.
27 Financial Data Schedule
- ----------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
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<PAGE>
aggregate, represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form or
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section will
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to the directors, officers and controlling persons
of the Registrant pursuant to the provisions referred to in Item 15 or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by
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<PAGE>
reference in the registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Miami, State of Florida, on this 14th day of July,
1997.
ATLANTIC GULF COMMUNITIES CORPORATION
By: /s/ Thomas W. Jeffrey
---------------------
Thomas W. Jeffrey, Executive Vice President
and Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Thomas W. Jeffrey his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for him or her and in his or her
name, place and stead, in any and all capacities, to sign any or all Amendments
(including post-effective Amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing appropriate or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ J. Larry Rutherford Chairman of the Board, July 14, 1997
- ----------------------- President and Chief
J. Larry Rutherford Executive Officer,
Director
/s/ Thomas W. Jeffrey Executive Vice July 14, 1997
- --------------------- President and Chief
Thomas W. Jeffrey Financial Officer
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<PAGE>
/s/ Callis N. Carleton Vice President and July 14, 1997
- ---------------------- Controller (Principal
Callis N. Carleton Accounting Officer)
Director ________, 1997
- ----------------------
Lee Niebart
/s/ Ricardo Koenigsberger Director July 22, 1997
- ----------------------
Ricardo Koenigsberger
/s/ Gerald N. Agranoff Director July 14, 1997
- ----------------------
Gerald N. Agranoff
/s/ James M. DeFrancia Director July 11, 1997
- ----------------------
James M. DeFrancia
/s/ Charles K. MacDonald Director July 10, 1997
- ----------------------
Charles K. MacDonald
/s/ W. Edward Scheetz Director July 14, 1997
- ----------------------
W. Edward Scheetz
- 80 -
<PAGE>
EXHIBIT INDEX
4 (a) Amended and Restated Certificate of Incorporation of the
Registrant.
(b) Restated Bylaws of the Registrant (incorporated herein by
reference to Exhibit 3(b) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 (File No.
1-8967)).
(c) Form of Statements of Preferences and Rights establishing Series
A Preferred Stock and Series B Preferred Stock (included in
Exhibit 4(a)).
*(d) Form of Series A Preferred Stock Certificate.
*(e) Form of Series B Preferred Stock Certificate.
*(f) Form of Common Stock Certificate.
*(g) Form of Subscription Agreement between the Company and American
Stock Transfer & Trust Company, Subscription Agent.
*(h) Form of Letter to Stockholders.
*(i) Form of Subscription Certificate.
*(j) Form of Instructions as to Use of Subscription Certificates.
*(k) Form of Letter to Brokers.
*(l) Form of Letter to Clients.
*(m) Form of Letter to Foreign Stockholders.
*(n) Form of Notice of Guaranteed Delivery.
*(o) Form of Guidelines to Form W-9.
*(p) Form of DTC Participant Oversubscription Exercise Form.
*(q) Form of Nominee Holder Certification.
*5 Opinion of Arent Fox Kintner Plotkin & Kahn concerning legality
of securities being registered.
10 (a) Investment Agreement (Exhibit EX-1 to the Company's Current
Report on Form 8-K filed February 18, 1997), as amended and
restated as of May 15, 1997 (Exhibit EX-1 to the Company's
Current Report on Form 8-K filed June 5, 1997).
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<PAGE>
(b) Secured Agreement (Exhibit EX-6 to the Company's Current Report
on Form 8-K filed February 18, 1997), as amended and restated as
of May 15, 1997.
*12 Computation of Ratio of Earnings to Fixed Charges.
23 Consents of experts and counsel:
*(a) Arent Fox Kintner Plotkin & Kahn (included in Exhibit 5)
(b) Ernst & Young
24 Power of Attorney: included in Part II.
27 Financial Data Schedule
- ----------
* To be filed by amendment.
- 82 -
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ATLANTIC GULF COMMUNITIES CORPORATION
Atlantic Gulf Communities Corporation, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
a. The name of the corporation is Atlantic Gulf Communities
Corporation. Atlantic Gulf Communities Corporation was originally
incorporated under the name "Chemical Research Corporation". The
original Certificate of Incorporation of Chemical Research Corporation
was filed with the Secretary of State of the State of Delaware on
January 13, 1928. Atlantic Gulf Communities Corporation was
subsequently named General Development Corporation. General Development
Corporation filed a voluntary petition for relief from creditors under
Chapter 11 of the Bankruptcy Code on April 6, 1990, in the United
States Bankruptcy Court for the Southern District of Florida (the
"Bankruptcy Court"). On April 6, 1992, the Certificate of Incorporation
of the corporation was amended pursuant to Section 7.2(b) of the Second
Amended Joint Plan of Reorganization of General Development Corporation
dated October 9, 1991, and confirmed by Order of the Bankruptcy Court
on March 27, 1992 (the "Reorganization Plan").
b. This Amended and Restated Certificate of Incorporation was
adopted by the stockholders of the corporation on June 23, 1997 and
restates and further amends the provisions of the Certificate of
Incorporation of this corporation as heretofore amended or
supplemented.
c. The text of the Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read
in its entirety as follows:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is ATLANTIC GULF COMMUNITIES CORPORATION.
SECOND: The registered office of the Corporation is to be
located at 1209 Orange Street, in the City of Wilmington, in the County of New
Castle, in the State of Delaware. The name of its registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: (a) The total number of shares of stock that the
Corporation shall have authority to issue is seventy-four
million and five hundred thousand (74,500,000), of which
seventy million (70,000,000) shall be common stock of one
class, par value of ten cents ($0.10) per share ("Common
Stock"), amounting in the aggregate to par value seven million
dollars ($7,000,000), and four million and five hundred
thousand (4,500,000) shall be preferred stock, par value $.01
per share ("Preferred Stock"), amounting in the aggregate to
par value of forty-five thousand dollars ($45,000).
(b) Shares of Preferred Stock may be issued from time to time in
one or more series. The Board of Directors of the Corporation
is hereby authorized to fix the voting rights, if any,
designations, powers, preferences and the relative,
participation, optional or other rights, if any, and the
qualifications, limitations or restrictions thereof, of any
unissued series of Preferred Stock; and to fix the number of
shares constituting such series, and to increase or decrease
the number of shares of any such series (but not below the
number of shares thereof then outstanding). Except as
otherwise provided by law, the voting rights of the
<PAGE>
Corporation's capital stock shall be as set forth in this
Amended and Restated Certificate of Incorporation or in the
resolution or resolutions adopted by the Board of Directors
designating the rights, powers and preferences of any series
of Preferred Stock. Each share of Common Stock shall have one
vote, and the Common Stock shall vote together as a single
class.
(c) The Board of Directors of the Corporation is authorized to
effect the elimination of shares of its Common Stock purchased
or otherwise reacquired by the Corporation from the authorized
capital stock of the number of shares of the Corporation in
the manner provided for in the General Corporation Law of the
State of Delaware.
(d) No holder of Common Stock shall have any preemptive right to
subscribe to stock, obligations, warrants, rights to subscribe
to stock or other securities of the Corporation of any class,
whether now or hereafter authorized.
(e) The powers, preferences and rights of the 20% Cumulative
Redeemable Convertible Preferred Stock, Series A of the
Corporation shall be set forth in Annex A to this Amended and
Restated Certificate of Incorporation (which is incorporated
herein as though set forth in full in this place).
(f) The powers, preferences and rights of 20% Cumulative
Redeemable Convertible Preferred Stock, Series B of the
Corporation shall be set forth in Annex B to this Amended and
Restated Certificate of Incorporation (which is incorporated
herein as though set forth in full in this place).
FIFTH: The Corporation shall be managed by the Board of
Directors, which shall exercise all powers conferred under the laws of the State
of Delaware. The number of directors shall be determined as provided in the
By-laws of the Corporation. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is authorized to later amend or
repeal the By-laws of the Corporation.
SIXTH: No action shall be taken by the stockholders of the
Corporation except at an annual meeting or at a special meeting of stockholders
of the Corporation; PROVIDED, HOWEVER, that at any time after the first meeting
of the stockholders held in accordance with the By-laws of the Corporation, any
action required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if consents in writing, setting forth the action so taken, are signed by
the holders of shares of capital stock having not less than the minimum number
of votes that would be necessary to authorize or take the action at a meeting at
which the holders of all shares entitled to be voted thereon were present and
voted; prompt notice of the taking of action without a meeting by less than
unanimous consent shall be given to the stockholders who have not consented in
writing.
SEVENTH: At any time after the first annual meeting of
stockholders held in accordance with the By-laws of the Corporation, the holders
of 35 percent of the issued and outstanding shares of capital stock may request
that a special meeting be called in accordance with the procedures set forth in
the By-laws.
EIGHTH: No director may be removed from office except for
cause and only by the affirmative vote of the holders of a majority of the
outstanding stock entitled to vote.
NINTH: The Corporation may indemnify its directors, officers,
employees and agents to the fullest extent permitted by the General Corporation
Law of Delaware, as the same exists or may hereafter be amended.
TENTH: The provisions set forth in this Article Tenth and in
Articles Fifth, Sixth, Eighth, Ninth, Eleventh, and Twelfth of this Amended and
Restated Certificate of Incorporation may not be amended, altered, repealed or
rescinded in any respect, and no other provision or provisions may be adopted
which impair(s) in any respect the operation or effect of any such provision,
except by the affirmative vote of the holders of not less than three-fifths of
the outstanding stock.
ELEVENTH: The Board of Directors shall have the power to
adopt, amend, alter, or repeal the By-Laws of the Corporation as provided in
such By-Laws. The stockholders shall also have the power to adopt, amend, alter
or repeal the By-Laws of the Corporation; PROVIDED, HOWEVER, that,
notwithstanding the foregoing and anything contained in
<PAGE>
this Amended and Restated Certificate of Incorporation to the contrary, unless
amended, altered or repealed by the Board of Directors as provided in the
By-Laws, Sections 2.1, 2.2(a) and 2.2(c) of Article II, Sections 3.1, 3.2, 3.3,
3.4, 3.8 and 3.9 of Article III, Section 4.1 of Article IV, Article VII, Article
VIII, and Section 10.1 of Article X of the By-Laws may not be amended, altered,
repealed or rescinded in any respect, and no other provision or provisions may
be adopted which impair(s) in any respect the operation or effect of such
provision, except by the same vote that would be required to amend pursuant to
Article Tenth of this Amended and Restated Certificate of Incorporation.
TWELFTH: The personal liability of the directors of the
Corporation is hereby eliminated to the fullest extent permitted by the General
Corporation Law of Delaware, as the same exists or may hereafter be amended. No
amendment to or repeal of this Article shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
4. This Amended and Restated Certificate of Incorporation was approved by
the shareholders of the Corporation at a meeting held on June 23, 1997
and was duly adopted in accordance with the provisions of Sections 103
and 303 of Title 8 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed and attested by the undersigned, thereunto duly
authorized, this 23d day of June, 1997.
Atlantic Gulf Communities Corporation
By: /s/ Thomas W. Jeffrey
------------------------
Its: Executive Vices President --
Chief Financial Officer
Attest:
/s/ Joel Goldman
- ------------------
Name: Joel Goldman
Title: Secretary
<PAGE>
ANNEX A TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ATLANTIC GULF COMMUNITIES CORPORATION
STATEMENT OF
PREFERENCES AND RIGHTS OF
20% CUMULATIVE REDEEMABLE CONVERTIBLE
PREFERRED STOCK, SERIES A
-----------------------
The 20% Cumulative Redeemable Convertible Preferred Stock, Series A, of Atlantic
Gulf Communities Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation") shall have
the following powers, preferences, and relative, participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof, in addition to those set forth in the attached Amended and Restated
Certificate of Incorporation of the Corporation (all capitalized terms used
without definition are defined in Section 15 of this Statement of Preferences
and Rights (this "Certificate of Designation")):
1. DESIGNATION. The series of preferred stock established
hereby shall be designated the "20% Cumulative Redeemable Convertible Preferred
Stock, Series A" (and shall be referred to herein as the "Series A Preferred
Stock") and the authorized number of shares of Series A Preferred Stock shall be
2,500,000.
2. RANK. The Series A Preferred Stock shall, with respect to
dividend distributions and distributions upon the voluntary or involuntary
liquidation, winding up and dissolution of the Corporation, rank (i) senior to
all classes of Common Stock and each other class of Capital Stock of the
Corporation or series of preferred stock of the Corporation hereafter created
which is not Senior Stock or Parity Stock ("Junior Stock"), (ii) PARI PASSU with
any Parity Stock (subject to any differing security interests between different
classes of Parity Stock) and (iii) junior to any Senior Stock. There is no
Senior Stock or Parity Stock (other than up to 1,000,000 shares of Series B
Preferred Stock issued on the date hereof in accordance with the Investment
Agreement) outstanding on the date hereof. Senior Stock or Parity Stock may be
authorized or issued only in accordance with the provisions of Section 7(b).
3. DIVIDENDS. (a) Subject to the provisions of Section 3(c),
beginning on the Original Issue Date, the Holders shall be entitled to receive,
when, as and if declared by the Board of Directors, but only out of funds
legally available therefor, distributions in the form of cash dividends on each
share of Series A Preferred Stock at an annual rate equal to 20% of the
Liquidation Preference in effect from time to time and no more. All Dividends
shall be cumulative, whether or not declared, on a daily basis from the date of
original issuance and shall be payable quarterly in arrears on each Dividend
Payment Date commencing on September 30, 1997. Each dividend shall be payable
with respect to Series A Preferred Stock held by Holders as they appear on the
stock books of the Corporation on each Dividend Record Date. Dividends shall
cease to accumulate in respect of Series A Preferred Stock on the Redemption
Date, the Conversion Date or the Repurchase Date for such shares, as the case
may be, unless, in the case of a Redemption Date or Repurchase Date, the
Corporation defaults in the payment of the amounts necessary for such redemption
or in its obligation
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to deliver certificates representing Common Stock issuable upon such conversion,
as the case may be, in which case, dividends shall continue to accumulate at an
annual rate of 23% of the Liquidation Preference in effect from time to time
(the "Default Dividend Rate") until such payment or delivery is made. If the
Corporation defaults in the payment of amounts due upon a Repurchase Date,
interest shall accrue on the amount of such obligation at the Default Dividend
Rate until such payment is made (with all interest due).
(b) Dividends on account of arrears for any past Dividend
Period and dividends in connection with any optional redemption pursuant to
Section 5(a) may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to Holders on such date, not more than forty-five
(45) days prior to the payment thereof, as may be fixed by the Board of
Directors.
(c) Notwithstanding anything to the contrary in the preceding
provisions of this Section 3, following an Event of Default, the Holders shall
be entitled to receive dividends on each share of Series A Preferred Stock at an
annual rate equal to the Default Dividend Rate, payable in cash.
(d) So long as any Series A Preferred Stock is outstanding,
the Corporation shall not declare, pay or set apart for payment any dividend on
any Junior Stock or make any payment on account of, or set apart for payment
money for a sinking or other similar fund for, the purchase, redemption or other
retirement of, any Junior Stock, or any warrants, rights, calls or options
exercisable for any Junior Stock (except such securities which are debt
securities or Senior Stock or Parity Stock) or make any distribution in respect
thereof, either directly or indirectly, and whether in cash, obligations or
shares of the Corporation or other property (other than, prior to the occurrence
of an Event of Default, dividends, payments, purchases, acquisitions,
redemptions, retirements or distributions in Junior Stock) and shall not permit
any Subsidiary of the Corporation directly or indirectly to do any of the same
in respect of such Junior Stock (other than, prior to the occurrence of an Event
of Default, dividends, payments, purchases, acquisitions, redemptions,
retirements or distributions in Junior Stock) unless and until all dividend
arrearages on the Series A Preferred Stock have been paid in full in cash, and
the Corporation is not in default of any of its obligations under Section 5 or
Section 8.
(e) Unless and until all dividend arrearages on the Series A
Preferred Stock have been paid in full, all dividends declared by the
Corporation upon Series A Preferred Stock or Parity Stock shall be declared PRO
RATA with respect to all Series A Preferred Stock and Parity Stock then
outstanding so that the amounts of any dividends declared per share on the
Series A Preferred Stock and such Parity Stock bear the same ratio to each other
at the time of declaration as all accrued and unpaid dividends on the Series A
Preferred Stock and the Parity Stock bear to each other.
(f) Dividends payable on the Series A Preferred Stock shall be
computed on the basis of a 360-day year of twelve 30-day months and the actual
number of days elapsed in the period for which payable.
4. LIQUIDATION PREFERENCE. (a) In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the Holders shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders an amount in cash
equal to the then Liquidation Preference for each share outstanding, before any
payment shall be made or any assets distributed to the holders of any Junior
Stock. If the assets of the Corporation are not sufficient to pay in full the
liquidation payments payable to the Holders and the holders of any outstanding
Parity Stock, then, subject to the rights of the Holders pursuant to Section 8
and subject to any differing security interests between different classes of
Parity Stock, the holders of all such shares shall share ratably in such
distribution of assets in accordance with the amounts which would be payable on
such distribution if the amount to which the Holders and
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the holders of any outstanding Parity Stock are entitled were paid in full. By
acceptance hereof each Holder agrees that it shall respect the security rights
and priorities of any holder of shares of Parity Stock or Senior Stock and shall
not challenge the right of any holder of Parity Stock or Senior Stock to be paid
in respect of any obligations of the Company under any Instruments between such
holder and the Company or any of its Subsidiaries, including the right to be
paid by any Subsidiary of the Company under any guarantee by such Subsidiary of
the obligations of the Company.
(b) For the purposes of this Section 4, neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation nor the consolidation or merger of the Corporation with or into one
or more corporations shall be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation.
5. REDEMPTION. (a) OPTIONAL REDEMPTION. The Corporation may,
at the option of the Board of Directors, redeem at any time on or after the
third anniversary of the Original Issue Date, from any source of funds legally
available therefor, in whole or in part, in the manner provided in Section 5(c),
any or all of the Series A Preferred Stock, at a redemption price in cash equal
to the then Liquidation Preference (the "Optional Redemption Price"); PROVIDED
that no optional redemption shall be made unless full dividends have been or
contemporaneously are declared and paid or declared and a sum set apart
sufficient for such payment, on the Series A Preferred Stock for all Dividend
Periods terminating on or prior to the Redemption Date; and PROVIDED, FURTHER,
that no partial redemption shall be made (i) for an amount of shares of Series A
Preferred Stock less than such number as have an aggregate Liquidation
Preference equal to the lesser of $1,000,000 or the aggregate Liquidation
Preference of all outstanding Series A Preferred Stock, or (ii) if after
consummation of any such partial redemption there would remain outstanding less
than the Specified Investor Amount of shares of Series A Preferred Stock.
(b) PRORATION. In the event of a redemption pursuant to Section
5(a) of only a portion of the then outstanding Series A Preferred Stock, unless
a majority of the outstanding shares of Series A Preferred Stock shall agree in
writing to waive the requirement of proration, the Corporation shall effect such
redemption PRO RATA according to the number of shares held by each Holder,
except that the Corporation may redeem such shares held by Holders of 100 or
fewer shares (or shares held by Holders who would hold 100 or fewer shares as a
result of such redemption), as may be determined by the Corporation.
(c) PROCEDURE FOR REDEMPTION. (i) At least thirty (30) days
and not more than sixty (60) days prior to the date fixed for any redemption of
the Series A Preferred Stock, written notice (the "Redemption Notice") shall be
given by first class mail, postage prepaid, to each Holder on the record date
fixed for such redemption of the Series A Preferred Stock at such Holder's
address as the same appears on the stock books of the Corporation. The
Redemption Notice shall state:
(1) that such notice constitutes a Redemption Notice pursuant
to Section 5(a);
(2) the Optional Redemption Price;
(3) whether all or less than all the outstanding Series A
Preferred Stock redeemable thereunder is to be redeemed and the total
number of shares of such Series A Preferred Stock being redeemed;
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<PAGE>
(4) the number of shares of Series A Preferred Stock held, as
of the appropriate record date, by the specific Holder that the
Corporation intends to redeem;
(5) the Redemption Date;
(6) that the Holder is to surrender to the Corporation his
certificate or certificates representing the Series A Preferred Stock
to be redeemed, specifying the place or places where, and the manner in
which, certificates for Series A Preferred Stock are to be surrendered
for redemption;
(7) the date on which the Series A Preferred Stock called for
redemption shall cease to be convertible; and
(8) that dividends on the Series A Preferred Stock to be
redeemed shall cease to accumulate on the Redemption Date, unless the
Corporation defaults in the payment of the amounts necessary for such
redemption, in which case, dividends shall continue to accumulate until
such payment is made.
(ii) Each Holder shall surrender the certificate or
certificates representing such Series A Preferred Stock to the Corporation, duly
endorsed, in the manner and at the place designated in the Redemption Notice,
and on the Redemption Date the full Optional Redemption Price for such shares so
surrendered shall be payable in cash to the Person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be cancelled and retired. If less than all of the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(iii) If on or before the Redemption Date all funds necessary
for such redemption shall have been set aside by the Corporation, separate and
apart from its other funds, in trust for the PRO RATA benefit of the Holders of
the shares so called for redemption, so as to be and continue to be available
therefor and not subject to claims of creditors of the Corporation, then,
notwithstanding that any certificate for shares so called for redemption shall
not have been surrendered for cancellation, all shares so called for redemption
shall no longer be deemed outstanding on and after such Redemption Date, and all
rights with respect to such shares shall forthwith on such Redemption Date cease
and terminate, except only the right of the Holders thereof to receive the
amount payable on redemption thereof, without interest. Any interest accrued on
such funds shall be paid to the Corporation from time to time.
Any funds so set aside or deposited by the Corporation which
shall not be required for such redemption because of the exercise of any right
of conversion subsequent to the date of such deposit shall be released or repaid
to the Corporation forthwith. Any funds so set aside or deposited, as the case
may be, and unclaimed as of the first anniversary of such Redemption Date shall
be released or repaid to the Corporation, after which the Holders of the shares
so called for redemption shall look only to the Corporation for payment thereof.
6. CONVERSION. (a) CONVERSION RIGHT. The Holder of each share
of Series A Preferred Stock shall have the right at any time, or from time to
time (prior in each case to the thirtieth day following the date of the
Redemption Notice if such share shall be called for redemption pursuant to
Section 5), at the option of such Holder, to convert such share into Common
Stock, on and subject to the terms and conditions hereinafter set forth. Subject
to the provisions for adjustment hereinafter set forth, each share of Series A
Preferred Stock shall be convertible into such number (calculated as to each
conversion to the nearest 1/100th
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<PAGE>
of a share) of fully paid and nonassessable shares of Common Stock, as is
obtained by dividing the Liquidation Preference by the Conversion Price, in each
case as in effect at the date any Series A Preferred Stock is surrendered for
conversion.
(b) CONVERSION PROCEDURES. To exercise the conversion
privilege, the Holder of any Series A Preferred Stock to be converted in whole
or in part shall surrender the certificate representing such Series A Preferred
Stock (the "Series A Preferred Stock Certificate") at the office or agency then
maintained by the Corporation for the transfer of the Series A Preferred Stock,
and shall give written notice of conversion in the form provided on the Series A
Preferred Stock Certificate (or such other notice which is acceptable to the
Corporation) to the Corporation at such office or agency that the Holder elects
to convert such Series A Preferred Stock represented by the Series A Preferred
Stock Certificate so surrendered or the portion thereof specified in said notice
into Common Stock. Such notice shall also state the name or names (with
addresses) in which the certificate or certificates for Common Stock which shall
be issuable upon such conversion shall be issued, and shall be accompanied by
transfer taxes, if required. Each Series A Preferred Stock Certificate
surrendered for conversion shall, unless the shares issuable on conversion are
to be issued in the same name as the registration of such Series A Preferred
Stock Certificate, be duly endorsed by, or be accompanied by instruments of
transfer in form satisfactory to the Corporation duly executed by, the Holder or
such Holder's duly authorized attorney.
As promptly as practicable, but in no event later than five
(5) Business Days, after the surrender of such Series A Preferred Stock
Certificate and the receipt of such notice and funds, if any, as aforesaid, the
Corporation shall issue and shall simultaneously deliver at such office or
agency to such Holder, or on his written order, a certificate or certificates
for the number of shares of Common Stock, issuable upon the conversion of such
Series A Preferred Stock represented by the Series A Preferred Stock Certificate
so surrendered or portion thereof in accordance with the provisions of this
Section 6. In case less than all of the Series A Preferred Stock represented by
a Series A Preferred Stock Certificate surrendered for conversion is to be
converted, the Corporation shall simultaneously deliver to or upon the written
order of the Holder of such Series A Preferred Stock Certificate a new Series A
Preferred Stock Certificate representing the Series A Preferred Stock not
converted. If a Holder fails to notify the Corporation of the number of shares
of Series A Preferred Stock which such Holder wishes to convert, such Holder
shall be deemed to have elected to convert all shares represented by the
certificate or certificates surrendered for conversion.
Each conversion shall be deemed to have been effected on the
date on which such Series A Preferred Stock Certificate shall have been
surrendered and such notice shall have been received by the Corporation, as
aforesaid (the "Conversion Date"), and the Person in whose name any certificate
or certificates for Common Stock shall be issuable upon such conversion shall be
deemed to have become on said date the holder of record of the shares
represented thereby; PROVIDED, HOWEVER, that any such surrender on any date when
the stock books of the Corporation shall be closed shall constitute the Person
in whose name the certificates are to be issued as the record holder thereof for
all purposes on the next succeeding day on which such stock books are open, but
such conversion shall be at the Conversion Price as in effect on the date upon
which such Series A Preferred Stock Certificate shall have been surrendered.
All Series A Preferred Stock that shall have been surrendered
for conversion as herein provided shall no longer be deemed to be outstanding
and all rights with respect to such shares, including the rights, if any, to
receive notices and to vote, shall forthwith cease, except only the right of the
Holders thereof, subject to the provisions of this Section 6, to receive Common
Stock in exchange therefor; PROVIDED, HOWEVER, that if the Corporation defaults
in its obligation to deliver certificates representing Common Stock issuable
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<PAGE>
upon such conversion, dividends shall continue to accumulate at the Default
Dividend Rate until such delivery is made.
If any Series A Preferred Stock shall be called for
redemption, the right to convert such Series A Preferred Stock shall terminate
at the close of business on the thirtieth day following the date of the
Redemption Notice.
(c) The Conversion Price at which Series A Preferred Stock is
convertible into Common Stock shall be subject to adjustment from time to time
as provided in this Section 6(c) (unless otherwise indicated, all calculations
under this Section 6(c) shall be made to the nearest $0.01):
(i) In case the Corporation shall (A) declare a dividend or
make a distribution on the outstanding Common Stock in Capital Stock of
the Corporation, (B) subdivide or reclassify the outstanding Common
Stock into a greater number of shares (or into other securities or
property), or (C) combine or reclassify the outstanding Common Stock
into a smaller number of shares (or into other securities or property),
the Conversion Price in effect at the close of business on the date
fixed for the determination of stockholders entitled to receive such
dividend or other distribution, or to be affected by such subdivision,
combination or other reclassification, shall be adjusted by multiplying
such Conversion Price by a fraction, the numerator of which shall be
the total number of outstanding shares of Common Stock immediately
prior to such event, and the denominator of which shall be the total
number of outstanding shares of Common Stock immediately after such
event. An adjustment made pursuant to this subparagraph (i) shall
become effective immediately after the record date for such event, or,
if there is no record date, upon the effective date for such event. Any
Common Stock issuable in payment of a dividend shall be deemed to have
been issued immediately prior to the time of the record date for such
dividend for purposes of calculating the number of outstanding shares
of Common Stock under subparagraphs (ii) and (iii) below. Adjustments
pursuant to this subparagraph shall be made successively whenever any
event specified above shall occur.
(ii) In case the Corporation shall fix a record date for the
issuance of rights or warrants to all holders of Common Stock entitling
them to subscribe for or purchase Common Stock (or securities
convertible into or exchangeable for Common Stock) (other than Series B
Preferred Stock, Series B Warrants or Investor Warrants) at a price per
share (or having a conversion price or exchange price per share,
subject to normal antidilution adjustments) less than the Current
Market Price (as defined in subparagraph (vii) below) of Common Stock
on such record date, the Conversion Price in effect at the close of
business on such record date shall be reduced by multiplying such
Conversion Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on the date of issuance of
such rights, options or warrants plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares
of Common Stock so offered would purchase at the Current Market Price
as of such record date, and the denominator of which shall be the
number of shares of Common Stock outstanding on the date of issuance of
such rights, options or warrants plus the number of additional shares
of Common Stock offered for subscription or purchase in connection with
such rights, options or warrants. Such adjustment shall be made
whenever such rights, options or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants. In
case any rights or warrants referred to in this subparagraph (ii) in
respect of which an adjustment shall have been made shall expire
unexercised within forty-five (45) days after the same shall have been
distributed or issued by the Corporation, the Conversion Price shall be
readjusted at
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<PAGE>
the time of such expiration to the Conversion Price that would have
been in effect if no adjustment had been made on account of the
distribution or issuance of such expired rights or warrants.
(iii) In case the Corporation shall fix a record date for the
making of a distribution to all holders of Common Stock (A) of shares
of any class other than Common Stock, (B) of evidences of indebtedness
of the Corporation or any Subsidiary, (C) of assets or other property
or (D) of rights or warrants (excluding those rights or warrants
resulting in an adjustment pursuant to subparagraph (ii) above, and the
right to acquire Series B Preferred Stock in the rights offering
thereof), then in each such case the Conversion Price shall be reduced
so that such price shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the effectiveness of
the Conversion Price reduction contemplated by this subparagraph (iii)
by a fraction, the numerator of which shall be the then Current Market
Price per share of Common Stock, less the then fair market value (as
determined by the Board of Directors, whose reasonable determination
shall be described in a resolution certified by the Secretary or an
Assistant Secretary of the Company to have been duly adopted by the
Board of Directors and to be in full force and effect on the date of
such certification (a "Board Resolution") of the portion of the
securities, evidences of indebtedness, assets, property or rights or
warrants so distributed, the case may be, which is applicable to one
share of Common Stock, and the denominator of which shall be the
Current Market Price per share of Common Stock as of the record date
for such distribution. Such adjustment shall be made successively
whenever such a record date is fixed.
(iv) In case the Corporation shall issue Common Stock for a
consideration per share less than the Current Market Price per share on
the date the Corporation fixes the offering price of such additional
shares, the Conversion Price shall be adjusted immediately thereafter
so that it shall equal the price determined by multiplying the
Conversion Price in effect immediately prior thereto by a fraction, of
which the numerator shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares,
and the denominator shall be the total number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares
plus the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subparagraph (vi)
below) for the issuance of such additional shares would purchase at the
Current Market Price per share. Such adjustment shall be made
successively whenever such an issuance is made; PROVIDED, HOWEVER, that
the provisions of this subparagraph shall not apply (A) to Common Stock
issued to the Corporation's employees or former employees or their
estates under BONA FIDE employee benefit plans adopted by the Board of
Directors and approved by the holders of Common Stock if required by
law, if such Common Stock would otherwise be covered by this
subparagraph, but only to the extent that the aggregate number of
shares excluded hereby shall not exceed, on a cumulative basis since
the date hereof, 1,642,000 (including 842,000 shares as of the date
hereof to be issued pursuant to employee stock options outstanding as
of the date hereof to purchase Common Stock), (B) to the Common Stock
to be issued pursuant to the Bank Warrants, (C) to the Common Stock to
be issued pursuant to the Investor Warrants or the Series B Warrants
and (D) to Common Stock to be issued upon conversion of the Series A
Preferred Stock or the Series B Preferred Stock, adjusted as
appropriate in each case, in connection with any stock split, merger,
recapitalization or similar transaction.
(v) In case the Corporation shall issue any securities
convertible into or exchangeable for Common Stock (excluding (A)
securities issued in transactions resulting in adjustment pursuant to
subparagraphs (ii) and (iii) above, (B) Series A Preferred Stock, (C)
Series B Preferred Stock, (D) Investor Warrants or Series B Warrants,
and (E) upon conversion of any of such securities) for a
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consideration per share of Common Stock deliverable upon conversion or
exchange of such securities (determined as provided in subparagraph
(vi) below and subject to normal antidilution adjustments) less than
the Current Market Price per share in effect immediately prior to the
issuance of such securities, the Conversion Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Conversion Price in effect immediately prior thereto by
a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding immediately prior to such issuance plus the
maximum number of shares of Common Stock deliverable upon conversion of
or in exchange for such securities at the initial conversion or
exchange price or rate, and the denominator shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of
such securities plus the number of shares of Common Stock which the
aggregate consideration received (determined as provided in
subparagraph (vi) below) for such securities would purchase at the
Current Market Price per share. Such adjustment shall be made
successively whenever such an issuance is made.
Upon the termination of the right to convert or exchange such
securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the adjustments made
upon the issuance of such convertible or exchangeable securities been
made upon the basis of the delivery of only the number of shares of
Common Stock actually delivered upon conversion or exchange of such
securities and upon the basis of the consideration actually received by
the Corporation (determined as provided in subparagraph (vi) below) for
such securities.
(vi) For purposes of any computation respecting consideration
received pursuant to subparagraphs (iv) and (v) above, the following
shall apply:
(A) in the case of the issuance of Common Stock
for cash, the consideration shall be the amount of such cash,
PROVIDED that in no case shall any deductions be made for any
commissions, discounts, placement fees or other expenses
incurred by the Corporation for any underwriting or placement
of the issue or otherwise in connection therewith;
(B) in the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined by the Board of Directors,
whose reasonable determination shall be described in a Board
Resolution; and
(C) in the case of the issuance of securities
convertible into or exchangeable for Common Stock, the
aggregate consideration received therefor shall be deemed to
be the consideration received by the Corporation for the
issuance of such securities plus the additional minimum
consideration, if any, to be received by the Corporation upon
the conversion or exchange thereof (the consideration in each
case to be determined in the same manner as provided in
clauses (A) and (B) of this subparagraph (vi)).
(vii) For the purpose of any computation under this Certificate
of Designation, (A) the "Current Market Price" per share at any date
shall be deemed to be the average of the daily Closing Price for the
Common Stock for the ten (10) consecutive Trading Days commencing
fourteen (14) Trading Days before such date, and (B) the "Closing
Price" of the Common Stock means the last reported sale price regular
way reported on the NASDAQ Stock Market or its successor, or, if not
listed or admitted to trading on the NASDAQ Stock Market or its
successor, the last reported sale price regular way reported on any
other stock exchange or market on which the Common Stock is then
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listed or eligible to be quoted for trading, or as reported by the
National Quotation Bureau Incorporated.
(viii) In any case in which this Section shall require that an
adjustment shall become effective immediately after a record date for
an event, the Corporation may defer until the occurrence of such event
(A) issuing to the Holder of any Series A Preferred Stock converted
after such record date and before the occurrence of such event the
Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment and (B) paying
to such Holder an amount in cash in lieu of a fractional share of
Common Stock pursuant to Section 6(h); PROVIDED, HOWEVER, that the
Corporation shall deliver to such Holder a due bill or other
appropriate instrument evidencing such Holder's rights to receive such
additional Common Stock, and such cash, upon the occurrence of the
event requiring such adjustment.
(ix) The Corporation may make such reductions in the
Conversion Price, in addition to those required pursuant to other
subparagraphs of this Section, as it considers to be advisable so that
any event treated for federal income tax purposes as a dividend of
stock or stock rights shall not be taxable to the recipients.
(x) In case of any consolidation with or merger of the
Corporation into another corporation, or in case of any sale, lease or
conveyance of assets to another corporation of the property of the
Corporation as an entirety or substantially as an entirety, lawful and
adequate provisions shall be made whereby each Holder of Series A
Preferred Stock shall have the right to receive, from such successor,
leasing or purchasing corporation, as the case may be, upon the basis
and upon the terms and conditions specified herein, in lieu of the
Common Stock immediately theretofore receivable upon the conversion of
such Series A Preferred Stock, the kind and amount of shares of stock,
other securities, property or cash or any combination thereof
receivable upon such consolidation, merger, sale, lease or conveyance
by a holder of the number of shares of Common Stock into which such
Series A Preferred Stock might have been converted immediately prior to
such consolidation, merger, sale, lease or conveyance. In the case of
any such consolidation, merger or sale of substantially all the assets,
appropriate provision shall be made with respect to the rights and
interests of the Holders to the end that the provisions hereof
(including provisions for adjustment of the Conversion Price) shall
thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the
exercise of any conversion rights hereunder.
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(xi) In case of any reclassification or change of the Common
Stock issuable upon conversion of Series A Preferred Stock (other than
a change in par value, or from par value to no par value, or as a
result of a subdivision or combination, but including any change in the
Common Stock into two or more classes or series of shares), or in case
of any consolidation or merger of another corporation into the
Corporation in which the Corporation is the continuing corporation and
in which there is a reclassification or change (including a change to
the right to receive cash or other property) of the Common Stock (other
than a change in par value, or from par value to no par value, or as a
result of a subdivision or combination, but including any change in the
Common Stock into two or more classes or series of shares), lawful and
adequate provisions shall be made whereby each Holder of Series A
Preferred Stock shall have the right to receive, upon the basis and
upon the terms and conditions specified herein, in lieu of the Common
Stock immediately theretofore receivable upon the conversion of such
Series A Preferred Stock, the kind and amount of shares of stock, other
securities, property or cash or any combination thereof receivable upon
such reclassification, change, consolidation or merger, by a holder of
the number of shares of Common Stock into which such Series A Preferred
Stock might have been converted immediately prior to such
reclassification, change, consolidation or merger.
(xii) The foregoing subparagraphs (x) and (xi), however, shall
not in any way affect the rights a Holder may otherwise have, pursuant
to this Section, to receive securities, evidences of indebtedness,
assets, property rights or warrants upon conversion of any Series A
Preferred Stock.
(xiii) If the Corporation repurchases (by way of tender offer,
exchange offer or otherwise) any Common Stock for a per share
consideration which exceeds the Current Market Price of a share of
Common Stock on the date immediately prior to such repurchase, the
Conversion Price shall be reduced so that such price shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this subparagraph (xiii) by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such acquisition multiplied by the
Current Market Price per share of the Common Stock on the immediately
preceding Trading Day, and the denominator shall be the sum of (A) the
fair market value (as determined in good faith by the Board of
Directors) of the aggregate consideration payable to stockholders as a
result of such acquisition, and (B) the product of the number of shares
of Common Stock outstanding immediately following such acquisition and
the Current Market Price per share of the Common Stock on such
immediately preceding Trading Day, such reduction to become effective
immediately prior to the opening of business on the day following such
acquisition.
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(xiv) If any event occurs as to which the foregoing provisions
of this Section 6(c) are not strictly applicable or, if strictly
applicable, would not, in the good faith judgment of the Board of
Directors, fairly protect the conversion rights of the Series A
Preferred Stock in accordance with the essential intent and principles
of such provisions, then the Board of Directors shall make such
adjustments in the application of such provisions, in accordance with
such essential intent and principles, as shall be reasonably necessary,
in the good faith opinion of the Board of Directors, to protect such
conversion rights as aforesaid, but in no event shall any such
adjustment have the effect of increasing the Conversion Price, or
otherwise adversely affect the Holders.
(xv) For purposes of Section 6(c), Common Stock owned or held
at any relevant time by, or for the account of, the Corporation in its
treasury or otherwise, shall not be deemed to be outstanding for
purposes of the calculation and adjustments described therein. Shares
held in the Disputed Claims Reserve, Division Class 14 Utility Fund
Trust Agreement dated April 6, 1993 and the Improvements Fund Trust
Agreement dated April 6, 1993 shall not be deemed to be held by, or for
the account of, the Corporation.
(d) CONVERSION PRICE ADJUSTMENT DEFERRED. Notwithstanding the
foregoing provisions of this Section 6, (i) no adjustment in the number of
shares of Common Stock into which any Series A Preferred Stock is convertible
shall be required unless such adjustment would require an increase or decrease
in such number of shares of at least 1% and (ii) no adjustment in the Conversion
Price shall be required unless such adjustment would require an increase or
decrease in the Conversion Price of at least $.01 per share; PROVIDED, HOWEVER,
that any adjustments which by reason of this paragraph (d) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 6 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(e) ADJUSTMENT REPORT. Whenever any adjustment is required in
the shares into which any Series A Preferred Stock is convertible, the
Corporation shall forthwith (i) file with each office or agency then maintained
by the Corporation for the transfer of the Series A Preferred Stock a statement
describing in reasonable detail the adjustment and the method of calculation
used and (ii) cause a notice of such adjustment, setting forth the adjusted
Conversion Price and the calculation thereof to be mailed to the Holders at
their respective addresses as shown on the stock books of the Corporation. The
certificate of any independent firm of public accountants of recognized standing
selected by the Board of Directors certifying to the Board of Directors the
correctness of any computation under this Section 6 shall be evidence of the
correctness of such computation.
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(f) NOTICE OF CERTAIN EVENTS. In the event that:
(i) the Corporation shall take action to make any distribution
to the holders of its Common Stock;
(ii) the Corporation shall take action to offer for
subscription PRO RATA to the holders of its Common Stock any securities
of any kind;
(iii) the Corporation shall take action to accomplish any
capital reorganization, or reclassification of the Capital Stock of the
Corporation, or a consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation is
required, or the sale or transfer of all or substantially all of the
assets of the Corporation; or
(iv) the Corporation shall take action looking to a voluntary
or involuntary dissolution, liquidation or winding-up of the
Corporation;
then the Corporation shall (A) in case of any such distribution or subscription
rights, at least twenty (20) days prior to the date or expected date on which
the stock books of the Corporation shall close or a record shall be taken for
the determination of Holders entitled to such distribution or subscription
rights, and (B) in the case of any such reorganization, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up,
at least twenty (20) days prior to the date or expected date when the same shall
take place, cause written notice thereof to be mailed to each Holder at his
address as shown on the stock books of the Corporation. Such notice in
accordance with the foregoing clause (A) shall also specify, in the case of any
such distribution or subscription rights, the date or expected date on which the
holders of Common Stock shall be entitled thereto, and such notice in accordance
with the foregoing clause (B) shall also specify the date or expected date on
which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up, as the case may be.
(g) COMMON STOCK. For the purposes of this Section 6, the term
"Common Stock" shall mean (i) the Common Stock or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value or from no par value to par value, or
from par value to no par value. If at any time as a result of an adjustment made
pursuant to the provisions of Section 6(c), the Holder of any Series A Preferred
Stock thereafter surrendered for conversion shall become entitled to receive any
shares of the Corporation, such other shares so receivable upon conversion of
any Series A Preferred Stock shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Section 6(c),
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and the other provisions of this Section 6 with respect to the Common Stock
shall apply on like terms to any such other shares.
(h) FRACTIONAL SHARES. The Corporation shall not be required
to issue fractional shares of Common Stock upon the conversion of any Series A
Preferred Stock. If more than one share of Series A Preferred Stock shall be
surrendered for conversion at one time by the same Holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares so surrendered. If any fractional
interest in a share of Common Stock would be deliverable upon the conversion of
any Series A Preferred Stock, the Corporation may pay, in lieu thereof, in cash
the Closing Price thereof as of the Business Day immediately preceding the date
of such conversion.
(i) RESERVATION OF SHARES. The Corporation shall at all times
reserve and keep available, free from preemptive rights, out of its authorized
but unissued stock, for the purpose of effecting the conversion or redemption of
the Series A Preferred Stock, such number of its duly authorized shares of
Common Stock (or treasury shares as provided below) as shall from time to time
be sufficient for the conversion of all outstanding Series A Preferred Stock
into Common Stock at any time. The Corporation shall, from time to time and in
accordance with the General Corporation Law of the State of Delaware, cause the
authorized number of shares of Common Stock to be increased if the aggregate of
the number of authorized shares of Common Stock remaining unissued and the
issued shares of such Common Stock reserved for issuance in any other connection
shall not be sufficient for the conversion of all outstanding Series A Preferred
Stock into Common Stock at any time.
7. VOTING RIGHTS. The Series A Preferred Stock shall have the
following voting rights:
(a) The Holders of Series A Preferred Stock voting together as
a single class shall be entitled to elect three directors to the Board of
Directors (who shall serve for terms of one year) and shall otherwise not vote
on any matters submitted to the holders of the Common Stock for a vote, except
as may be required by law; PROVIDED, HOWEVER, that if the Investor does not hold
at least the Specified Investor Amount of Series A Preferred Stock, the number
of directors that the Holders of the Series A Preferred Stock shall be entitled
to elect shall be equal to three multiplied by a fraction, the numerator of
which is the number of shares of Series A Preferred Stock outstanding and the
denominator of which is 2,500,000, rounded up to the nearest whole director.
(b) So long as any Series A Preferred Stock is outstanding,
without the affirmative vote or consent of Holders of at least a majority of the
outstanding Series A Preferred Stock, voting or consenting, as the case may be,
as one class, given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting, the Corporation shall not (i) issue, or
reclassify any authorized stock of the Corporation into, or issue any obligation
or security convertible into or evidencing a right to purchase, any Senior Stock
or Parity Stock or any preferred stock having voting rights senior or equal to
those of the Series A Preferred Stock (other than Series B Preferred Stock),
(ii) reclassify the Series A Preferred Stock, or (iii) amend its Certificate of
Incorporation or this Certificate of Designation or the Certificate of
Designation for the Series B Preferred Stock so as to affect adversely the
specified rights, preferences, privileges or voting rights of Holders or to
increase or decrease the authorized number of shares of Series A Preferred Stock
or Series B Preferred Stock.
(c) In any case in which the Holders shall be entitled to vote
as a separate class pursuant to this Section 7 or pursuant to Delaware law, each
Holder shall be entitled to one vote for each share of Series A Preferred Stock
then held.
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8. REPURCHASE OBLIGATION. (a) Subject to the provisions of
Section 8(b), the Series A Preferred Stock shall not be redeemable at the option
of the Holder thereof prior to the fourth anniversary of the Original Issue
Date. Beginning on the fourth anniversary of the Original Issue Date, each
Holder shall have the right, at such Holder's option, exercisable by notice (a
"Repurchase Notice"), to require the Corporation to purchase Series A Preferred
Stock then held by such Holder, at a repurchase price in cash equal to the
Liquidation Preference in effect at such time (the "Repurchase Price");
PROVIDED, HOWEVER, that the number of shares required to be repurchased from any
Holder by the Corporation pursuant to this Section 8(a) ("Put Shares") prior to
the fifth anniversary of the Original Issue Date shall not exceed one-third of
the total number of shares of Series A Preferred Stock issued by the
Corporation, and, prior to the sixth anniversary of the Original Issue Date, the
number of Put Shares shall not exceed two-thirds of the total number of shares
of Series A Preferred Stock issued by the Corporation.
(b) Notwithstanding the provisions of Section 8(a), if an
Event of Default shall occur at any time or from time to time on or after the
Original Issue Date, each Holder shall have the right, at such Holder's option
exercisable by Repurchase Notice at any time within sixty (60) days after the
happening of each such Event of Default or, if later, receipt of notice from the
Corporation of such Event of Default, to require the Corporation to purchase
all or any part of the Series A Preferred Stock then held by such Holder as such
Holder may elect, at the Repurchase Price.
(c) The Corporation shall, within thirty (30) days of the
occurrence of an Event of Default, give written notice thereof by telecopy, if
possible, and by first class mail, postage prepaid, to each Holder, addressed to
such Holder at his last address and telecopy number as shown upon the stock
books of the Corporation. Each such notice shall specify the Event of Default
which has occurred and the date of such occurrence, the place or places of
payment, the then effective Conversion Price pursuant to Section 6, the then
effective Repurchase Price and the date the right of such Holder to require such
repurchase shall terminate. In addition, the Corporation shall, immediately upon
becoming aware of any facts or events that could reasonably be expected to
result in the occurrence of an Event of Default, give a written notice thereof
by telecopy, if possible, and by first class mail, postage prepaid, to the
Holders, addressed to such Holders at their last addresses as shown upon the
stock books of the Corporation.
(d) The date fixed for each such repurchase (the "Repurchase
Date") shall be the 30th day following the date of the Repurchase Notice
relating thereto. The place of payment shall be at an office or agency in the
City of New York, New York fixed therefor by the Corporation or, if not fixed,
at the principal executive office of the Corporation.
On or before the Repurchase Date, each Holder who elects to
have Series A Preferred Stock held by it purchased shall surrender the
certificate representing such shares to the Corporation at the place designated
in such notice together with an election to have such purchase made and shall
thereupon be entitled to receive payment therefor provided in this Section 8. If
less than all the shares represented by any such surrendered certificate are
repurchased, a new certificate shall be issued representing the unpurchased
shares. Payment of the Repurchase Price for the Put Shares shall be made on the
later of the Repurchase Date or the fifth Business Day after the surrender of
such certificate. Dividends with respect to the Series A Preferred Stock so
purchased shall cease to accrue after the Repurchase Date, such shares shall no
longer be deemed outstanding and the Holders thereof shall cease to be
stockholders of the Corporation and all rights whatsoever with respect to the
shares so purchased shall terminate; PROVIDED, HOWEVER, that if the Corporation
defaults in its obligation to pay the Repurchase Price for such Put Shares,
interest shall accrue on the amount of such obligation at the Default Dividend
Rate until such payment is made (with all interest due).
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(e) Notwithstanding any other provision hereof, if any of the
following events shall occur and be continuing: (i) the Company or any of its
Significant Subsidiaries shall commence any case, proceeding or other action (A)
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or the Company or any of its Significant Subsidiaries shall make a
general assignment for the benefit of its creditors; (ii) there shall be
commenced against the Company or any of its Significant Subsidiaries any case,
proceeding or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a period of
60 days; (iii) there shall be commenced against the Company or any of its
Significant Subsidiaries any case, proceeding or other action seeking issuance
of a warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof; (iv) the Company or
any of its Significant Subsidiaries shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clauses (i), (ii), or (iii) above; (v) the Company or any of its
Significant Subsidiaries shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due; (vi) the
Company or any of its Significant Subsidiaries shall cause to be reinstated the
Reorganization Proceedings (as defined in the Note Agreement (as defined in the
Investment Agreement)); or (vii) the Confirmation Order (as defined in the Note
Agreement) shall be reversed, withdrawn, modified (in any manner adverse to the
Company or any of its Significant Subsidiaries), or any rehearing shall be
ordered with respect thereto by the Bankruptcy Court or by any court having
jurisdiction over the Company; then, and in any such event, all Series A
Preferred Stock held by such Holder shall be Put Shares and the aggregate
Repurchase Price in respect of each such share shall immediately and
automatically become due and payable in full without any requirement or
pre-condition of delivery of a Repurchase Notice, any such requirement or
pre-condition being expressly waived hereby.
9. REISSUANCE OF SERIES A PREFERRED STOCK. Series A Preferred
Stock that has been issued and reacquired in any manner, including shares
surrendered to the Corporation upon conversion, and shares purchased or
redeemed, shall (upon compliance with any applicable provisions of the laws of
Delaware) have the status of authorized and unissued preferred stock
undesignated as to series and may not be re-designated and reissued as part of
any series of preferred stock.
10. BUSINESS DAY. If any payment or redemption shall be
required by the terms hereof to be made on a day that is not a Business Day,
such payment or redemption shall be made on the immediately succeeding Business
Day.
11. HEADINGS OF SECTIONS. The headings of the various Sections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
12. SEVERABILITY OF PROVISIONS. If any right, preference or
limitation of the Series A Preferred Stock set forth in this Certificate of
Designation (as it may be amended from time to time) is invalid, unlawful or
incapable of being enforced by reason of any rule or law or public policy, all
other rights, preferences and limitations set forth in this Certificate of
Designation (as so amended) which can be given effect without the invalid,
unlawful or unenforceable right, preference or limitation shall, nevertheless,
remain
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in full force and effect, and no right, preference or limitation herein set
forth shall be deemed dependent upon any other such right, preference or
limitation unless so expressed herein.
13. NOTICE. All notices and other communications provided for
or permitted to be given to the Corporation hereunder shall be made by hand
delivery, next day air courier or certified first-class mail to the Corporation
at its principal executive offices at Atlantic Gulf Communities Corporation,
2601 South Bayshore Drive, Miami, Florida 33133-5461, Telecopy number (305)
859-4623, Attention: Chief Financial Officer.
14. AMENDMENTS. This Certificate of Designation may be amended
without notice to or the consent of any Holder to cure any ambiguity, defect or
inconsistency or to make any other amendment PROVIDED that any such amendment
does not adversely affect the rights of any Holder. Any provisions of this
Certificate of Designation may also be amended by the Corporation with the vote
or written consent of Holders representing a majority of the outstanding Series
A Preferred Stock.
The Corporation will, so long as any Series A Preferred Stock
is outstanding, maintain an office or agency where such shares may be presented
for registration or transfer and where such shares may be presented for
conversion and redemption.
15. DEFINITIONS. As used in this Certificate of Designation,
the following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"BANK WARRANTS" means the 1,500,000 warrants for the purchase
of Common Stock issued on September 30, 1996 pursuant to the Prepayment
Agreement dated as of September 30, 1996 among the financial institutions listed
on the signature pages thereof, The Chase Manhattan Bank and the Corporation.
"BOARD OF DIRECTORS" means the Board of Directors of the
Corporation.
"BOARD RESOLUTION" has the meaning set forth in Section
6(c)(iii).
"BUSINESS DAY" means a day that is not a Saturday, a Sunday or
a day on which banking institutions in the State of New York are not required to
be open. Unless specifically stated as a Business Day, all days referred to
herein shall mean calendar days.
"CAPITAL STOCK" means, with respect to any Person, any and all
shares, partnership interests, participations, rights in, or other equivalents
(however designated and whether voting or nonvoting) of, such Person's capital
stock.
"CLOSING PRICE" has the meaning set forth in Section
6(c)(vii).
"COMMON STOCK" means shares of Common Stock, par value $.10
per share, of the Corporation.
"CONVERSION DATE" has the meaning set forth in Section 6(b).
"CONVERSION PRICE" means, initially, $5.75 and, thereafter,
such price as adjusted pursuant to Section 6.
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"CORPORATION" means Atlantic Gulf Communities Corporation, a
Delaware corporation.
"CURRENT MARKET PRICE" has the meaning set forth in Section
6(c)(vii).
"DEFAULT DIVIDEND RATE" has the meaning set forth in Section
3(a).
"DIVIDEND PAYMENT DATE" means March 31, June 30, September 30
and December 31 of each year.
"DIVIDEND PERIOD" means the Initial Dividend Period and,
thereafter, each Quarterly Dividend Period.
"DIVIDEND RECORD DATE" means a day fifteen (15) days preceding
the Dividend Payment Date.
"EVENT OF DEFAULT" means (i) any event of default (whatever
the reason for such event of default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
governmental authority) under any Instrument creating, evidencing or securing
any indebtedness for borrowed money of the Company or any Significant Subsidiary
in an amount in excess of $2,500,000 that would enable the creditors or secured
parties under such Instrument to declare the principal amount of such
indebtedness due and payable prior to its scheduled maturity, and has not been
waived by the relevant creditors or secured parties, (ii) the occurrence of a
Default Change of Control (as defined in the Investment Agreement), (iii) a
material breach (following written notice by the Investor that the Investor
would consider such a breach as material) by the Company of Section 6.7(f) of
the Investment Agreement or (insofar as such breach is willful and materially
imperils the value of the collateral securing the rights of the Holder or the
rights of the Holder with respect thereto) of Section 3 of the Note Agreement or
any Security Document (as defined in the Note Agreement) which, in any event, is
not curable or if curable is not cured within 15 days, or (iv) one of the events
specified in clauses (i) through (vii) of Section 8(e).
"HOLDER" means a record holder of one or more outstanding
shares of Series A Preferred Stock.
"INITIAL DIVIDEND PERIOD" means the dividend period commencing
on the Original Issue Date and ending on the second Dividend Payment Date to
occur thereafter.
"INSTRUMENT" means any contract, agreement, indenture,
mortgage, security, document or writing under which any obligation is evidenced,
assumed or undertaken, or any security interest is granted or perfected.
"INVESTOR" has the meaning set forth in the Investment
Agreement.
"INVESTOR WARRANTS" means the 5,000,000 warrants to acquire
Common Stock to be issued to the Investor pursuant to the Investment Agreement.
"INVESTMENT AGREEMENT" means the Amended and Restated
Investment Agreement dated as of February 7, 1997 by and between AP-AGC, LLC and
the Corporation, amended as of March 20, 1997 and amended and restated as of May
15, 1997.
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"JUNIOR STOCK" has the meaning set forth in Section 2.
"LIQUIDATION PREFERENCE" means, at any time, $10 per share of
Series A Preferred Stock, PLUS accumulated and unpaid Dividends thereon through
the date of such determination, whether or not declared and whether or not funds
are legally available therefor.
"OPTIONAL REDEMPTION PRICE" has the meaning set forth in
Section 5(a).
"ORIGINAL ISSUE DATE" means the date upon which the Series A
Preferred Stock is originally issued by the Corporation, which shall be the
Closing Date (as defined in the Investment Agreement).
"PARITY STOCK" means the Series B Preferred Stock (except
insofar as the Series A Preferred Stock has certain security rights and
interests which are not applicable to the Series B Preferred Stock) and any
class or series of stock the terms of which provide that it is entitled to
participate PARI PASSU with the Series A Preferred Stock with respect to any
dividend or distribution or upon liquidation, dissolution or winding-up of the
Corporation.
"PERSON" means any individual, corporation, limited liability
company, partnership, joint venture, association, business trust, joint-stock
company, trust, unincorporated organization or government or agency or political
subdivision thereof.
"PUT SHARES" has the meaning set forth in Section 8(a).
"QUARTERLY DIVIDEND PERIOD" shall mean the quarterly period
commencing on each March 31, June 30, September 30 and December 31 and ending on
each Dividend Payment Date, respectively.
"REDEMPTION DATE", with respect to any Series A Preferred
Stock, means the date on which such Series A Preferred Stock is redeemed by the
Corporation.
"REDEMPTION NOTICE" has the meaning set forth in Section 5(c).
"REPURCHASE DATE" has the meaning set forth in Section 8(d).
"REPURCHASE NOTICE" has the meaning set forth in Section 8(a).
"REPURCHASE PRICE" has the meaning set forth in Section 8(a).
"SENIOR STOCK" means any class or series of stock the terms of
which provide that it is entitled to a preference to the Series A Preferred
Stock with respect to any dividend or distribution or upon voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation.
"SERIES A PREFERRED STOCK" means the 20% Cumulative Redeemable
Convertible Preferred Stock, Series A, par value $.01 per share, of the
Corporation.
"SERIES A PREFERRED STOCK CERTIFICATE" has the meaning set
forth in Section 6(b).
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"SERIES B PREFERRED STOCK" means the 20% Cumulative Redeemable
Convertible Preferred Stock, Series B, par value $.01 per share, of the
Corporation, which may be issued in accordance with the Investment Agreement.
"SERIES B WARRANTS" means up to 4,000,000 warrants to acquire
Common Stock which may be issued to acquirers of Series B Preferred Stock.
"SIGNIFICANT SUBSIDIARY" has the meaning set forth in
Regulation S-X under the Securities Exchange Act of 1934, as amended; PROVIDED
that SP Subsidiary (as defined in the Investment Agreement) shall be a
Significant Subsidiary.
"SPECIFIED INVESTOR AMOUNT" means 500,000 shares of Series A
Preferred Stock.
"SUBSIDIARY" means, (i) with respect to any Person, a
corporation a majority of whose Capital Stock with voting power under ordinary
circumstances to elect directors is at the time, directly or indirectly, owned
by such Person, by a Subsidiary of such Person or by such Person and a
Subsidiary of such Person, or (ii) any other Person (other than a corporation)
of which at least a majority of the voting interest is at the time, directly or
indirectly, owned by such Person, by a Subsidiary of such Person or by such
Person and a Subsidiary of such Person.
"TRADING DAY" shall mean a day on which securities are traded
or quoted on the national securities exchange or quotation system or in the
over-the-counter market used to determine the Closing Price.
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ANNEX B TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ATLANTIC GULF COMMUNITIES CORPORATION
STATEMENT OF
PREFERENCES AND RIGHTS OF
20% CUMULATIVE REDEEMABLE CONVERTIBLE
PREFERRED STOCK, SERIES B
-----------------------
The 20% Cumulative Redeemable Convertible Preferred Stock, Series B, of Atlantic
Gulf Communities Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation") shall have
the following powers, preferences, and relative, participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof, in addition to those set forth in the attached Amended and Restated
Certificate of Incorporation of the Corporation (all capitalized terms used
without definition are defined in Section 15 of this Statement of Preferences
and Rights (this "Certificate of Designation")):
16. DESIGNATION. The series of preferred stock established
hereby shall be designated the "20% Cumulative Redeemable Convertible Preferred
Stock, Series B" (and shall be referred to herein as the "Series B Preferred
Stock") and the authorized number of shares of Series B Preferred Stock shall be
2,000,000.
17. RANK. The Series B Preferred Stock shall, with respect to
dividend distributions and distributions upon the voluntary or involuntary
liquidation, winding up and dissolution of the Corporation, rank (i) senior to
all classes of Common Stock and each other class of Capital Stock of the
Corporation or series of preferred stock of the Corporation hereafter created
which is not Senior Stock or Parity Stock ("Junior Stock"), (ii) PARI PASSU with
any Parity Stock (subject to any differing security interests between different
classes of Parity Stock) and (iii) junior to any Senior Stock. There is no
Senior Stock outstanding on the date hereof, and there is no Parity Stock
outstanding on the date hereof other than the 20% Cumulative Redeemable
Convertible Preferred Stock, Series A (the "Series A Preferred Stock"), the
holders of which have certain security interests and rights to which the Holders
of Series B Preferred Stock are not entitled. Senior Stock or Parity Stock may
be authorized or issued only in accordance with the provisions of Section 7(b).
18. DIVIDENDS. (a) Subject to the provisions of Section 3(c),
beginning on the Original Issue Date, the Holders shall be entitled to receive,
when, as and if declared by the Board of Directors, but only out of funds
legally available therefor, distributions in the form of cash dividends on each
share of Series B Preferred Stock at an annual rate equal to 20% of the
Liquidation Preference in effect from time to time and no more. All Dividends
shall be cumulative, whether or not declared, on a daily basis from the date of
original issuance and shall be payable quarterly in arrears on each Dividend
Payment Date commencing on
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September 30, 1997. Each dividend shall be payable with respect to Series B
Preferred Stock held by Holders as they appear on the stock books of the
Corporation on each Dividend Record Date. Dividends shall cease to accumulate in
respect of Series B Preferred Stock on the Redemption Date, the Conversion Date
or the Repurchase Date for such shares, as the case may be, unless, in the case
of a Redemption Date or Repurchase Date, the Corporation defaults in the payment
of the amounts necessary for such redemption or in its obligation to deliver
certificates representing Common Stock issuable upon such conversion, as the
case may be, in which case, dividends shall continue to accumulate at an annual
rate of 23% of the Liquidation Preference in effect from time to time (the
"Default Dividend Rate") until such payment or delivery is made. If the
Corporation defaults in the payment of amounts due upon a Repurchase Date,
interest shall accrue on the amount of such obligation at the Default Dividend
Rate until such payment is made (with all interest due).
(b) Dividends on account of arrears for any past Dividend
Period and dividends in connection with any optional redemption pursuant to
Section 5(a) may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to Holders on such date, not more than forty-five
(45) days prior to the payment thereof, as may be fixed by the Board of
Directors.
(c) Notwithstanding anything to the contrary in the preceding
provisions of this Section 3, following an Event of Default, the Holders shall
be entitled to receive dividends on each share of Series B Preferred Stock at an
annual rate equal to the Default Dividend Rate, payable in cash.
(d) So long as any Series B Preferred Stock is outstanding,
the Corporation shall not declare, pay or set apart for payment any dividend on
any Junior Stock or make any payment on account of, or set apart for payment
money for a sinking or other similar fund for, the purchase, redemption or other
retirement of, any Junior Stock, or any warrants, rights, calls or options
exercisable for any Junior Stock (except such securities which are debt
securities or Senior Stock or Parity Stock) or make any distribution in respect
thereof, either directly or indirectly, and whether in cash, obligations or
shares of the Corporation or other property (other than, prior to the occurrence
of an Event of Default, dividends, payments, purchases, acquisitions,
redemptions, retirements or distributions in Junior Stock) and shall not permit
any Subsidiary of the Corporation directly or indirectly to do any of the same
in respect of such Junior Stock (other than, prior to the occurrence of an Event
of Default, dividends, payments, purchases, acquisitions, redemptions,
retirements or distributions in Junior Stock) unless and until all dividend
arrearages on the Series B Preferred Stock have been paid in full in cash, and
the Corporation is not in default of any of its obligations under Section 5 or
Section 8.
(e) Unless and until all dividend arrearages on the Series B
Preferred Stock have been paid in full, all dividends declared by the
Corporation upon Series B Preferred Stock or Parity Stock shall be declared PRO
RATA with respect to all Series B Preferred Stock and Parity Stock then
outstanding so that the amounts of any dividends declared per share on the
Series B Preferred Stock and such Parity Stock bear the same ratio to each other
at the time of declaration as all accrued and unpaid dividends on the Series B
Preferred Stock and the Parity Stock bear to each other.
(f) Dividends payable on the Series B Preferred Stock shall be
computed on the basis of a 360-day year of twelve 30-day months and the actual
number of days elapsed in the period for which payable.
19. LIQUIDATION PREFERENCE. (a) In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the Holders shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders an amount in cash
equal to the then Liquidation Preference for each share outstanding, before any
payment shall be made or any assets distributed
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to the holders of any Junior Stock. If the assets of the Corporation are not
sufficient to pay in full the liquidation payments payable to the Holders and
the holders of any outstanding Parity Stock, then, subject to the rights of the
Holders pursuant to Section 8 and subject to any differing security interests
between different classes of Parity Stock, the holders of all such shares shall
share ratably in such distribution of assets in accordance with the amounts
which would be payable on such distribution if the amount to which the Holders
and the holders of any outstanding Parity Stock are entitled were paid in full.
By acceptance hereof each Holder agrees that it shall respect the security
rights and priorities of any holder of shares of Parity Stock or Senior Stock
and shall not challenge the right of any holder of Parity Stock or Senior Stock
to be paid in respect of any obligations of the Company under any Instruments
between such holder and the Company or any of its Subsidiaries, including the
right to be paid by any Subsidiary of the Company under any guarantee by such
Subsidiary of the obligations of the Company.
(b) For the purposes of this Section 4, neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation nor the consolidation or merger of the Corporation with or into one
or more corporations shall be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation.
20. REDEMPTION. (a) OPTIONAL REDEMPTION. The Corporation may,
at the option of the Board of Directors, redeem at any time on or after the
third anniversary of the Original Issue Date, from any source of funds legally
available therefor, in whole or in part, in the manner provided in Section 5(c),
any or all of the Series B Preferred Stock, at a redemption price in cash equal
to the then Liquidation Preference (the "Optional Redemption Price"); PROVIDED
that no optional redemption shall be made unless full dividends have been or
contemporaneously are declared and paid or declared and a sum set apart
sufficient for such payment, on the Series B Preferred Stock for all Dividend
Periods terminating on or prior to the Redemption Date; and PROVIDED, FURTHER,
that no partial redemption shall be made for an amount of shares of Series B
Preferred Stock less than such number as have an aggregate Liquidation
Preference equal to the lesser of $1,000,000 or the aggregate Liquidation
Preference of all outstanding Series B Preferred Stock.
(b) PROCEDURE FOR REDEMPTION. (i) At least thirty (30) days
and not more than sixty (60) days prior to the date fixed for any redemption of
the Series B Preferred Stock, written notice (the "Redemption Notice") shall be
given by first class mail, postage prepaid, to each Holder on the record date
fixed for such redemption of the Series B Preferred Stock at such Holder's
address as the same appears on the stock books of the Corporation. The
Redemption Notice shall state:
(1) that such notice constitutes a Redemption Notice pursuant
to Section 5(a);
(2) the Optional Redemption Price;
(3) whether all or less than all the outstanding Series B
Preferred Stock redeemable thereunder is to be redeemed and the total
number of shares of such Series B Preferred Stock being redeemed;
(4) the number of shares of Series B Preferred Stock held, as
of the appropriate record date, by the specific Holder that the
Corporation intends to redeem;
(5) the Redemption Date;
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(6) that the Holder is to surrender to the Corporation his
certificate or certificates representing the Series B Preferred Stock
to be redeemed, specifying the place or places where, and the manner in
which, certificates for Series B Preferred Stock are to be surrendered
for redemption;
(7) the date on which the Series B Preferred Stock called for
redemption shall cease to be convertible; and
(8) that dividends on the Series B Preferred Stock to be
redeemed shall cease to accumulate on the Redemption Date, unless the
Corporation defaults in the payment of the amounts necessary for such
redemption, in which case, dividends shall continue to accumulate until
such payment is made.
(ii) Each Holder shall surrender the certificate or
certificates representing such Series B Preferred Stock to the Corporation, duly
endorsed, in the manner and at the place designated in the Redemption Notice,
and on the Redemption Date the full Optional Redemption Price for such shares so
surrendered shall be payable in cash to the Person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be cancelled and retired. If less than all of the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(iii) If on or before the Redemption Date all funds necessary
for such redemption shall have been set aside by the Corporation, separate and
apart from its other funds, in trust for the PRO RATA benefit of the Holders of
the shares so called for redemption, so as to be and continue to be available
therefor and not subject to claims of creditors of the Corporation, then,
notwithstanding that any certificate for shares so called for redemption shall
not have been surrendered for cancellation, all shares so called for redemption
shall no longer be deemed outstanding on and after such Redemption Date, and all
rights with respect to such shares shall forthwith on such Redemption Date cease
and terminate, except only the right of the Holders thereof to receive the
amount payable on redemption thereof, without interest. Any interest accrued on
such funds shall be paid to the Corporation from time to time.
Any funds so set aside or deposited by the Corporation which
shall not be required for such redemption because of the exercise of any right
of conversion subsequent to the date of such deposit shall be released or repaid
to the Corporation forthwith. Any funds so set aside or deposited, as the case
may be, and unclaimed as of the first anniversary of such Redemption Date shall
be released or repaid to the Corporation, after which the Holders of the shares
so called for redemption shall look only to the Corporation for payment thereof.
21. CONVERSION. (a) CONVERSION RIGHT. The Holder of each share
of Series B Preferred Stock shall have the right at any time, or from time to
time (prior in each case to the thirtieth day following the date of the
Redemption Notice if such share shall be called for redemption pursuant to
Section 5), at the option of such Holder, to convert such share into Common
Stock, on and subject to the terms and conditions hereinafter set forth. Subject
to the provisions for adjustment hereinafter set forth, each share of Series B
Preferred Stock shall be convertible into such number (calculated as to each
conversion to the nearest 1/100th of a share) of fully paid and nonassessable
shares of Common Stock, as is obtained by dividing the Liquidation Preference by
the Conversion Price, in each case as in effect at the date any Series B
Preferred Stock is surrendered for conversion.
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(b) CONVERSION PROCEDURES. To exercise the conversion
privilege, the Holder of any Series B Preferred Stock to be converted in whole
or in part shall surrender the certificate representing such Series B Preferred
Stock (the "Series B Preferred Stock Certificate") at the office or agency then
maintained by the Corporation for the transfer of the Series B Preferred Stock,
and shall give written notice of conversion in the form provided on the Series B
Preferred Stock Certificate (or such other notice which is acceptable to the
Corporation) to the Corporation at such office or agency that the Holder elects
to convert such Series B Preferred Stock represented by the Series B Preferred
Stock Certificate so surrendered or the portion thereof specified in said notice
into Common Stock. Such notice shall also state the name or names (with
addresses) in which the certificate or certificates for Common Stock which shall
be issuable upon such conversion shall be issued, and shall be accompanied by
transfer taxes, if required. Each Series B Preferred Stock Certificate
surrendered for conversion shall, unless the shares issuable on conversion are
to be issued in the same name as the registration of such Series B Preferred
Stock Certificate, be duly endorsed by, or be accompanied by instruments of
transfer in form satisfactory to the Corporation duly executed by, the Holder or
such Holder's duly authorized attorney.
As promptly as practicable, but in no event later than five
(5) Business Days, after the surrender of such Series B Preferred Stock
Certificate and the receipt of such notice and funds, if any, as aforesaid, the
Corporation shall issue and shall simultaneously deliver at such office or
agency to such Holder, or on his written order, a certificate or certificates
for the number of shares of Common Stock, issuable upon the conversion of such
Series B Preferred Stock represented by the Series B Preferred Stock Certificate
so surrendered or portion thereof in accordance with the provisions of this
Section 6. In case less than all of the Series B Preferred Stock represented by
a Series B Preferred Stock Certificate surrendered for conversion is to be
converted, the Corporation shall simultaneously deliver to or upon the written
order of the Holder of such Series B Preferred Stock Certificate a new Series B
Preferred Stock Certificate representing the Series B Preferred Stock not
converted. If a Holder fails to notify the Corporation of the number of shares
of Series B Preferred Stock which such Holder wishes to convert, such Holder
shall be deemed to have elected to convert all shares represented by the
certificate or certificates surrendered for conversion.
Each conversion shall be deemed to have been effected on the
date on which such Series B Preferred Stock Certificate shall have been
surrendered and such notice shall have been received by the Corporation, as
aforesaid (the "Conversion Date"), and the Person in whose name any certificate
or certificates for Common Stock shall be issuable upon such conversion shall
be deemed to have become on said date the holder of record of the shares
represented thereby; PROVIDED, HOWEVER, that any such surrender on any date when
the stock books of the Corporation shall be closed shall constitute the Person
in whose name the certificates are to be issued as the record holder thereof for
all purposes on the next succeeding day on which such stock books are open, but
such conversion shall be at the Conversion Price as in effect on the date upon
which such Series B Preferred Stock Certificate shall have been surrendered.
All Series B Preferred Stock that shall have been surrendered
for conversion as herein provided shall no longer be deemed to be outstanding
and all rights with respect to such shares, including the rights, if any, to
receive notices and to vote, shall forthwith cease, except only the right of the
Holders thereof, subject to the provisions of this Section 6, to receive Common
Stock in exchange therefor; PROVIDED, HOWEVER, that if the Corporation defaults
in its obligation to deliver certificates representing Common Stock issuable
upon such conversion, dividends shall continue to accumulate at the Default
Dividend Rate until such delivery is made.
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If any Series B Preferred Stock shall be called for
redemption, the right to convert such Series B Preferred Stock shall terminate
at the close of business on the thirtieth day following the date of the
Redemption Notice.
(c) The Conversion Price at which Series B Preferred Stock is
convertible into Common Stock shall be subject to adjustment from time to time
as provided in this Section 6(c) (unless otherwise indicated, all calculations
under this Section 6(c) shall be made to the nearest $0.01):
(i) In case the Corporation shall (A) declare a dividend or
make a distribution on the outstanding Common Stock in Capital Stock of
the Corporation, (B) subdivide or reclassify the outstanding Common
Stock into a greater number of shares (or into other securities or
property), or (C) combine or reclassify the outstanding Common Stock
into a smaller number of shares (or into other securities or property),
the Conversion Price in effect at the close of business on the date
fixed for the determination of stockholders entitled to receive such
dividend or other distribution, or to be affected by such subdivision,
combination or other reclassification, shall be adjusted by multiplying
such Conversion Price by a fraction, the numerator of which shall be
the total number of outstanding shares of Common Stock immediately
prior to such event, and the denominator of which shall be the total
number of outstanding shares of Common Stock immediately after such
event. An adjustment made pursuant to this subparagraph (i) shall
become effective immediately after the record date for such event, or,
if there is no record date, upon the effective date for such event. Any
Common Stock issuable in payment of a dividend shall be deemed to have
been issued immediately prior to the time of the record date for such
dividend for purposes of calculating the number of outstanding shares
of Common Stock under subparagraphs (ii) and (iii) below. Adjustments
pursuant to this subparagraph shall be made successively whenever any
event specified above shall occur.
(ii) In case the Corporation shall fix a record date for the
issuance of rights or warrants to all holders of Common Stock entitling
them to subscribe for or purchase Common Stock (or securities
convertible into or exchangeable for Common Stock) (other than Series B
Preferred Stock, Series B Warrants or Investor Warrants) at a price per
share (or having a conversion price or exchange price per share,
subject to normal antidilution adjustments) less than the Current
Market Price (as defined in subparagraph (vii) below) of Common Stock
on such record date, the Conversion Price in effect at the close of
business on such record date shall be reduced by multiplying such
Conversion Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on the date of issuance of
such rights, options or warrants plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares
of Common Stock so offered would purchase at the Current Market Price
as of such record date, and the denominator of which shall be the
number of shares of Common Stock outstanding on the date of issuance of
such rights, options or warrants plus the number of additional shares
of Common Stock offered for subscription or purchase in connection with
such rights, options or warrants. Such adjustment shall be made
whenever such rights, options or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants. In
case any rights or warrants referred to in this subparagraph (ii) in
respect of which an adjustment shall have been made shall expire
unexercised within forty-five (45) days after the same shall have been
distributed or issued by the Corporation, the Conversion Price shall be
readjusted at the time of such expiration to the Conversion Price that
would have been in effect if no adjustment had been made on account of
the distribution or issuance of such expired rights or warrants.
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(iii) In case the Corporation shall fix a record date for the
making of a distribution to all holders of Common Stock (A) of shares
of any class other than Common Stock, (B) of evidences of indebtedness
of the Corporation or any Subsidiary, (C) of assets or other property
or (D) of rights or warrants (excluding those rights or warrants
resulting in an adjustment pursuant to subparagraph (ii) above, and the
right to acquire Series B Preferred Stock in the rights offering
thereof), then in each such case the Conversion Price shall be reduced
so that such price shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the effectiveness of
the Conversion Price reduction contemplated by this subparagraph (iii)
by a fraction, the numerator of which shall be the then Current Market
Price per share of Common Stock, less the then fair market value (as
determined by the Board of Directors, whose reasonable determination
shall be described in a resolution certified by the Secretary or an
Assistant Secretary of the Company to have been duly adopted by the
Board of Directors and to be in full force and effect on the date of
such certification (a "Board Resolution") of the portion of the
securities, evidences of indebtedness, assets, property or rights or
warrants so distributed, the case may be, which is applicable to one
share of Common Stock, and the denominator of which shall be the
Current Market Price per share of Common Stock as of the record date
for such distribution. Such adjustment shall be made successively
whenever such a record date is fixed.
(iv) In case the Corporation shall issue Common Stock for a
consideration per share less than the Current Market Price per share on
the date the Corporation fixes the offering price of such additional
shares, the Conversion Price shall be adjusted immediately thereafter
so that it shall equal the price determined by multiplying the
Conversion Price in effect immediately prior thereto by a fraction, of
which the numerator shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares,
and the denominator shall be the total number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares
plus the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subparagraph (vi)
below) for the issuance of such additional shares would purchase at the
Current Market Price per share. Such adjustment shall be made
successively whenever such an issuance is made; PROVIDED, HOWEVER, that
the provisions of this subparagraph shall not apply (A) to Common Stock
issued to the Corporation's employees or former employees or their
estates under BONA FIDE employee benefit plans adopted by the Board of
Directors and approved by the holders of Common Stock if required by
law, if such Common Stock would otherwise be covered by this
subparagraph, but only to the extent that the aggregate number of
shares excluded hereby shall not exceed, on a cumulative basis since
the date hereof, 1,642,000 (including 842,000 shares as of the date
hereof to be issued pursuant to employee stock options outstanding as
of the date hereof to purchase Common Stock), (B) to the Common Stock
to be issued pursuant to the Bank Warrants, (C) to the Common Stock to
be issued pursuant to the Investor Warrants or the Series B Warrants
and (D) to Common Stock to be issued upon conversion of the Series A
Preferred Stock or the Series B Preferred Stock, adjusted as
appropriate in each case, in connection with any stock split, merger,
recapitalization or similar transaction.
(v) In case the Corporation shall issue any securities
convertible into or exchangeable for Common Stock (excluding (A)
securities issued in transactions resulting in adjustment pursuant to
subparagraphs (ii) and (iii) above, (B) Series A Preferred Stock, (C)
Series B Preferred Stock, (D) Investor Warrants or Series B Warrants,
and (E) upon conversion of any of such securities) for a consideration
per share of Common Stock deliverable upon conversion or exchange of
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such securities (determined as provided in subparagraph (vi) below and
subject to normal antidilution adjustments) less than the Current
Market Price per share in effect immediately prior to the issuance of
such securities, the Conversion Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying
the Conversion Price in effect immediately prior thereto by a fraction,
of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the maximum number
of shares of Common Stock deliverable upon conversion of or in exchange
for such securities at the initial conversion or exchange price or
rate, and the denominator shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such securities plus
the number of shares of Common Stock which the aggregate consideration
received (determined as provided in subparagraph (vi) below) for such
securities would purchase at the Current Market Price per share. Such
adjustment shall be made successively whenever such an issuance is
made.
Upon the termination of the right to convert or exchange such
securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the adjustments made
upon the issuance of such convertible or exchangeable securities been
made upon the basis of the delivery of only the number of shares of
Common Stock actually delivered upon conversion or exchange of such
securities and upon the basis of the consideration actually received by
the Corporation (determined as provided in subparagraph (vi) below) for
such securities.
(vi) For purposes of any computation respecting consideration
received pursuant to subparagraphs (iv) and (v) above, the following
shall apply:
(A) in the case of the issuance of Common Stock
for cash, the consideration shall be the amount of such cash,
PROVIDED that in no case shall any deductions be made for any
commissions, discounts, placement fees or other expenses
incurred by the Corporation for any underwriting or placement
of the issue or otherwise in connection therewith;
(B) in the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined by the Board of Directors,
whose reasonable determination shall be described in a Board
Resolution; and
(C) in the case of the issuance of securities
convertible into or exchangeable for Common Stock, the
aggregate consideration received therefor shall be deemed to
be the consideration received by the Corporation for the
issuance of such securities plus the additional minimum
consideration, if any, to be received by the Corporation upon
the conversion or exchange thereof (the consideration in each
case to be determined in the same manner as provided in
clauses (A) and (B) of this subparagraph (vi)).
(vii) For the purpose of any computation under this Certificate
of Designation, (A) the "Current Market Price" per share at any date
shall be deemed to be the average of the daily Closing Price for the
Common Stock for the ten (10) consecutive Trading Days commencing
fourteen (14) Trading Days before such date, and (B) the "Closing
Price" of the Common Stock means the last reported sale price regular
way reported on the NASDAQ Stock Market or its successor, or, if not
listed or admitted to trading on the NASDAQ Stock Market or its
successor, the last reported sale price regular way reported on any
other stock exchange or market on which the Common Stock is then listed
or eligible to be quoted for trading, or as reported by the National
Quotation Bureau Incorporated.
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(viii) In any case in which this Section shall require that an
adjustment shall become effective immediately after a record date for
an event, the Corporation may defer until the occurrence of such event
(A) issuing to the Holder of any Series B Preferred Stock converted
after such record date and before the occurrence of such event the
Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment and (B) paying
to such Holder an amount in cash in lieu of a fractional share of
Common Stock pursuant to Section 6(h); PROVIDED, HOWEVER, that the
Corporation shall deliver to such Holder a due bill or other
appropriate instrument evidencing such Holder's rights to receive such
additional Common Stock, and such cash, upon the occurrence of the
event requiring such adjustment.
(ix) The Corporation may make such reductions in the
Conversion Price, in addition to those required pursuant to other
subparagraphs of this Section, as it considers to be advisable so that
any event treated for federal income tax purposes as a dividend of
stock or stock rights shall not be taxable to the recipients.
(x) In case of any consolidation with or merger of the
Corporation into another corporation, or in case of any sale, lease or
conveyance of assets to another corporation of the property of the
Corporation as an entirety or substantially as an entirety, lawful and
adequate provisions shall be made whereby each Holder of Series B
Preferred Stock shall have the right to receive, from such successor,
leasing or purchasing corporation, as the case may be, upon the basis
and upon the terms and conditions specified herein, in lieu of the
Common Stock immediately theretofore receivable upon the conversion of
such Series B Preferred Stock, the kind and amount of shares of stock,
other securities, property or cash or any combination thereof
receivable upon such consolidation, merger, sale, lease or conveyance
by a holder of the number of shares of Common Stock into which such
Series B Preferred Stock might have been converted immediately prior to
such consolidation, merger, sale, lease or conveyance. In the case of
any such consolidation, merger or sale of substantially all the assets,
appropriate provision shall be made with respect to the rights and
interests of the Holders to the end that the provisions hereof
(including provisions for adjustment of the Conversion Price) shall
thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the
exercise of any conversion rights hereunder.
(xi) In case of any reclassification or change of the Common
Stock issuable upon conversion of Series B Preferred Stock (other than
a change in par value, or from par value to no par value, or as a
result of a subdivision or combination, but including any change in the
Common Stock into two or more classes or series of shares), or in case
of any consolidation or merger of another corporation into the
Corporation in which the Corporation is the continuing corporation and
in which there is a reclassification or change (including a change to
the right to receive cash or other property) of the Common Stock (other
than a change in par value, or from par value to no par value, or as a
result of a subdivision or combination, but including any change in the
Common Stock into two or more classes or series of shares), lawful and
adequate provisions shall be made whereby each Holder of Series B
Preferred Stock shall have the right to receive, upon the basis and
upon the terms and conditions specified herein, in lieu of the Common
Stock immediately theretofore receivable upon the conversion of such
Series B Preferred Stock, the kind and amount of shares of stock, other
securities, property or cash or any combination thereof receivable upon
such reclassification, change, consolidation or merger, by a holder of
the number of shares of Common Stock into which such Series B Preferred
Stock might have been converted immediately prior to such
reclassification, change, consolidation or merger.
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(xii) The foregoing subparagraphs (x) and (xi), however, shall
not in any way affect the rights a Holder may otherwise have, pursuant
to this Section, to receive securities, evidences of indebtedness,
assets, property rights or warrants upon conversion of any Series B
Preferred Stock.
(xiii) If the Corporation repurchases (by way of tender
offer, exchange offer or otherwise) any Common Stock for a per share
consideration which exceeds the Current Market Price of a share of
Common Stock on the date immediately prior to such repurchase, the
Conversion Price shall be reduced so that such price shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this subparagraph (xiii) by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such acquisition multiplied by the
Current Market Price per share of the Common Stock on the immediately
preceding Trading Day, and the denominator shall be the sum of (A) the
fair market value (as determined in good faith by the Board of
Directors) of the aggregate consideration payable to stockholders as a
result of such acquisition, and (B) the product of the number of shares
of Common Stock outstanding immediately following such acquisition and
the Current Market Price per share of the Common Stock on such
immediately preceding Trading Day, such reduction to become effective
immediately prior to the opening of business on the day following such
acquisition.
(xiv) If any event occurs as to which the foregoing provisions
of this Section 6(c) are not strictly applicable or, if strictly
applicable, would not, in the good faith judgment of the Board of
Directors, fairly protect the conversion rights of the Series B
Preferred Stock in accordance with the essential intent and principles
of such provisions, then the Board of Directors shall make such
adjustments in the application of such provisions, in accordance with
such essential intent and principles, as shall be reasonably necessary,
in the good faith opinion of the Board of Directors, to protect such
conversion rights as aforesaid, but in no event shall any such
adjustment have the effect of increasing the Conversion Price, or
otherwise adversely affect the Holders.
(xv) For purposes of Section 6(c), Common Stock owned or held
at any relevant time by, or for the account of, the Corporation in its
treasury or otherwise, shall not be deemed to be outstanding for
purposes of the calculation and adjustments described therein. Shares
held in the Disputed Claims Reserve, Division Class 14 Utility Fund
Trust Agreement dated April 6, 1993 and the Improvements Fund Trust
Agreement dated April 6, 1993 shall not be deemed to be held by, or for
the account of, the Corporation.
(d) CONVERSION PRICE ADJUSTMENT DEFERRED. Notwithstanding the
foregoing provisions of this Section 6, (i) no adjustment in the number of
shares of Common Stock into which any Series B Preferred Stock is convertible
shall be required unless such adjustment would require an increase or decrease
in such number of shares of at least 1% and (ii) no adjustment in the Conversion
Price shall be required unless such adjustment would require an increase or
decrease in the Conversion Price of at least $.01 per share; PROVIDED, HOWEVER,
that any adjustments which by reason of this paragraph (d) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 6 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(e) ADJUSTMENT REPORT. Whenever any adjustment is required in
the shares into which any Series B Preferred Stock is convertible, the
Corporation shall forthwith (i) file with each office or agency then maintained
by the Corporation for the transfer of the Series B Preferred Stock a statement
describing in
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reasonable detail the adjustment and the method of calculation used and (ii)
cause a notice of such adjustment, setting forth the adjusted Conversion Price
and the calculation thereof to be mailed to the Holders at their respective
addresses as shown on the stock books of the Corporation. The certificate of any
independent firm of public accountants of recognized standing selected by the
Board of Directors certifying to the Board of Directors the correctness of any
computation under this Section 6 shall be evidence of the correctness of such
computation.
(f) NOTICE OF CERTAIN EVENTS. In the event that:
(i) the Corporation shall take action to make any distribution
to the holders of its Common Stock;
(ii) the Corporation shall take action to offer for
subscription PRO RATA to the holders of its Common Stock any securities
of any kind;
(iii) the Corporation shall take action to accomplish any
capital reorganization, or reclassification of the Capital Stock of the
Corporation, or a consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation is
required, or the sale or transfer of all or substantially all of the
assets of the Corporation; or
(iv) the Corporation shall take action looking to a voluntary
or involuntary dissolution, liquidation or winding-up of the
Corporation;
then the Corporation shall (A) in case of any such distribution or subscription
rights, at least twenty (20) days prior to the date or expected date on which
the stock books of the Corporation shall close or a record shall be taken for
the determination of Holders entitled to such distribution or subscription
rights, and (B) in the case of any such reorganization, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up,
at least twenty (20) days prior to the date or expected date when the same shall
take place, cause written notice thereof to be mailed to each Holder at his
address as shown on the stock books of the Corporation. Such notice in
accordance with the foregoing clause (A) shall also specify, in the case of any
such distribution or subscription rights, the date or expected date on which the
holders of Common Stock shall be entitled thereto, and such notice in accordance
with the foregoing clause (B) shall also specify the date or expected date on
which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up, as the case may be.
(g) COMMON STOCK. For the purposes of this Section 6, the term
"Common Stock" shall mean (i) the Common Stock or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value or from no par value to par value, or
from par value to no par value. If at any time as a result of an adjustment made
pursuant to the provisions of Section 6(c), the Holder of any Series B Preferred
Stock thereafter surrendered for conversion shall become entitled to receive any
shares of the Corporation, such other shares so receivable upon conversion of
any Series B Preferred Stock shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Section 6(c), and the other provisions
of this Section 6 with respect to the Common Stock shall apply on like terms to
any such other shares.
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(h) FRACTIONAL SHARES. The Corporation shall not be required
to issue fractional shares of Common Stock upon the conversion of any Series B
Preferred Stock. If more than one share of Series B Preferred Stock shall be
surrendered for conversion at one time by the same Holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares so surrendered. If any fractional
interest in a share of Common Stock would be deliverable upon the conversion of
any Series B Preferred Stock, the Corporation may pay, in lieu thereof, in cash
the Closing Price thereof as of the Business Day immediately preceding the date
of such conversion.
(i) RESERVATION OF SHARES. The Corporation shall at all times
reserve and keep available, free from preemptive rights, out of its authorized
but unissued stock, for the purpose of effecting the conversion or redemption of
the Series B Preferred Stock, such number of its duly authorized shares of
Common Stock (or treasury shares as provided below) as shall from time to time
be sufficient for the conversion of all outstanding Series B Preferred Stock
into Common Stock at any time. The Corporation shall, from time to time and in
accordance with the General Corporation Law of the State of Delaware, cause the
authorized number of shares of Common Stock to be increased if the aggregate of
the number of authorized shares of Common Stock remaining unissued and the
issued shares of such Common Stock reserved for issuance in any other connection
shall not be sufficient for the conversion of all outstanding Series B Preferred
Stock into Common Stock at any time.
22. VOTING RIGHTS. The Holders of Series B Preferred Stock
shall not vote on any matters submitted to the holders of the Common Stock for a
vote, except as may be required by law. In any case in which the Holders shall
be entitled to vote as a separate class pursuant to Delaware law, each Holder
shall be entitled to one vote for each share of Series B Preferred Stock then
held.
23. REPURCHASE OBLIGATION. (a) Subject to the provisions of
Section 8(b), the Series B Preferred Stock shall not be redeemable at the option
of the Holder thereof prior to the fourth anniversary of the Original Issue
Date. Beginning on the fourth anniversary of the Original Issue Date, each
Holder shall have the right, at such Holder's option, exercisable by notice (a
"Repurchase Notice"), to require the Corporation to purchase Series B Preferred
Stock then held by such Holder, at a repurchase price in cash equal to the
Liquidation Preference in effect at such time (the "Repurchase Price");
PROVIDED, HOWEVER, that the number of shares required to be repurchased by the
Corporation pursuant to this Section 8(a) ("Put Shares") prior to the fifth
anniversary of the Original Issue Date shall not exceed one-third of the total
number of shares of Series B Preferred Stock issued by the Corporation, and,
prior to the sixth anniversary of the Original Issue Date, the number of Put
Shares shall not exceed two-thirds of the total number of shares of Series B
Preferred Stock issued by the Corporation.
(b) Notwithstanding the provisions of Section 8(a), if an
Event of Default shall occur at any time or from time to time on or after the
Original Issue Date, each Holder shall have the right, at such Holder's option
exercisable by Repurchase Notice at any time within sixty (60) days after the
happening of each such Event of Default or, if later, receipt of notice from the
Corporation of such Event of Default, to require the Corporation to purchase all
or any part of the Series B Preferred Stock then held by such Holder as such
Holder may elect, at the Repurchase Price.
(c) The Corporation shall, within thirty (30) days of the
occurrence of an Event of Default, give written notice thereof by telecopy, if
possible, and by first class mail, postage prepaid, to each Holder, addressed to
such Holder at his last address and telecopy number as shown upon the stock
books of the Corporation. Each such notice shall specify the Event of Default
which has occurred and the date of such occurrence, the place or places of
payment, the then effective Conversion Price pursuant to Section 6, the then
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effective Repurchase Price and the date the right of such Holder to require such
repurchase shall terminate. In addition, the Corporation shall, immediately upon
becoming aware of any facts or events that could reasonably be expected to
result in the occurrence of an Event of Default, give a written notice thereof
by telecopy, if possible, and by first class mail, postage prepaid, to the
Holders, addressed to such Holders at their last addresses as shown upon the
stock books of the Corporation.
(d) The date fixed for each such repurchase (the "Repurchase
Date") shall be the 30th day following the date of the Repurchase Notice
relating thereto. The place of payment shall be at an office or agency in the
City of New York, New York fixed therefor by the Corporation or, if not fixed,
at the principal executive office of the Corporation.
On or before the Repurchase Date, each Holder who elects to
have Series B Preferred Stock held by it purchased shall surrender the
certificate representing such shares to the Corporation at the place designated
in such notice together with an election to have such purchase made and shall
thereupon be entitled to receive payment therefor provided in this Section 8. If
less than all the shares represented by any such surrendered certificate are
repurchased, a new certificate shall be issued representing the unpurchased
shares. Payment of the Repurchase Price for the Put Shares shall be made on the
later of the Repurchase Date or the fifth Business Day after the surrender of
such certificate. Dividends with respect to the Series B Preferred Stock so
purchased shall cease to accrue after the Repurchase Date, such shares shall no
longer be deemed outstanding and the Holders thereof shall cease to be
stockholders of the Corporation and all rights whatsoever with respect to the
shares so purchased shall terminate; PROVIDED, HOWEVER, that if the Corporation
defaults in its obligation to pay the Repurchase Price for such Put Shares,
interest shall accrue on the amount of such obligation at the Default Dividend
Rate until such payment is made (with all interest due).
(e) Notwithstanding any other provision hereof, if any of the
following events shall occur and be continuing: (i) the Company or any of its
Significant Subsidiaries shall commence any case, proceeding or other action (A)
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or the Company or any of its Significant Subsidiaries shall make a
general assignment for the benefit of its creditors; (ii) there shall be
commenced against the Company or any of its Significant Subsidiaries any case,
proceeding or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a period of
60 days; (iii) there shall be commenced against the Company or any of its
Significant Subsidiaries any case, proceeding or other action seeking issuance
of a warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof; (iv) the Company or
any of its Significant Subsidiaries shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clauses (i), (ii), or (iii) above; (v) the Company or any of its
Significant Subsidiaries shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due; (vi) the
Company or any of its Significant Subsidiaries shall cause to be reinstated the
Reorganization Proceedings (as defined in the Note Agreement (as defined in the
Investment Agreement)); or (vii) the Confirmation Order (as defined in the Note
Agreement) shall be reversed, withdrawn, modified (in any manner adverse to the
Company or any of its Significant Subsidiaries), or any rehearing shall be
ordered with respect thereto by the Bankruptcy Court or by any court having
jurisdiction
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over the Company; then, and in any such event, all Series B Preferred Stock held
by such Holder shall be Put Shares and the aggregate Repurchase Price in respect
of each such share shall immediately and automatically become due and payable in
full without any requirement or pre-condition of delivery of a Repurchase
Notice, any such requirement or pre-condition being expressly waived hereby.
24. REISSUANCE OF SERIES B PREFERRED STOCK. Series B Preferred
Stock that has been issued and reacquired in any manner, including shares
surrendered to the Corporation upon conversion, and shares purchased or
redeemed, shall (upon compliance with any applicable provisions of the laws of
Delaware) have the status of authorized and unissued preferred stock
undesignated as to series and may not be re-designated and reissued as part of
any series of preferred stock.
25. BUSINESS DAY. If any payment or redemption shall be
required by the terms hereof to be made on a day that is not a Business Day,
such payment or redemption shall be made on the immediately succeeding Business
Day.
26. HEADINGS OF SECTIONS. The headings of the various Sections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
27. SEVERABILITY OF PROVISIONS. If any right, preference or
limitation of the Series B Preferred Stock set forth in this Certificate of
Designation (as it may be amended from time to time) is invalid, unlawful or
incapable of being enforced by reason of any rule or law or public policy, all
other rights, preferences and limitations set forth in this Certificate of
Designation (as so amended) which can be given effect without the invalid,
unlawful or unenforceable right, preference or limitation shall, nevertheless,
remain in full force and effect, and no right, preference or limitation herein
set forth shall be deemed dependent upon any other such right, preference or
limitation unless so expressed herein.
28. NOTICE. All notices and other communications provided for
or permitted to be given to the Corporation hereunder shall be made by hand
delivery, next day air courier or certified first-class mail to the Corporation
at its principal executive offices at Atlantic Gulf Communities Corporation,
2601 South Bayshore Drive, Miami, Florida 33133-5461, Telecopy number (305)
859-4623, Attention: Chief Financial Officer.
29. AMENDMENTS. This Certificate of Designation may be amended
without notice to or the consent of any Holder to cure any ambiguity, defect or
inconsistency or to make any other amendment PROVIDED that any such amendment
does not adversely affect the rights of any Holder. Any provisions of this
Certificate of Designation may also be amended by the Corporation with the vote
or written consent of Holders representing a majority of the outstanding Series
B Preferred Stock.
The Corporation will, so long as any Series B Preferred Stock
is outstanding, maintain an office or agency where such shares may be presented
for registration or transfer and where such shares may be presented for
conversion and redemption.
30. DEFINITIONS. As used in this Certificate of Designation,
the following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
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"BANK WARRANTS" means the 1,500,000 warrants for the purchase
of Common Stock issued on September 30, 1996 pursuant to the Prepayment
Agreement dated as of September 30, 1996 among the financial institutions listed
on the signature pages thereof, The Chase Manhattan Bank and the Corporation.
"BOARD OF DIRECTORS" means the Board of Directors of the
Corporation.
"BOARD RESOLUTION" has the meaning set forth in Section
6(c)(iii).
"BUSINESS DAY" means a day that is not a Saturday, a Sunday or
a day on which banking institutions in the State of New York are not required to
be open. Unless specifically stated as a Business Day, all days referred to
herein shall mean calendar days.
"CAPITAL STOCK" means, with respect to any Person, any and all
shares, partnership interests, participations, rights in, or other equivalents
(however designated and whether voting or nonvoting) of, such Person's capital
stock.
"CLOSING PRICE" has the meaning set forth in Section
6(c)(vii).
"COMMON STOCK" means shares of Common Stock, par value $.10
per share, of the Corporation.
"CONVERSION DATE" has the meaning set forth in Section 6(b).
"CONVERSION PRICE" means, initially, $5.75 and, thereafter,
such price as adjusted pursuant to Section 6.
"CORPORATION" means Atlantic Gulf Communities Corporation, a
Delaware corporation.
"CURRENT MARKET PRICE" has the meaning set forth in Section
6(c)(vii).
"DEFAULT DIVIDEND RATE" has the meaning set forth in Section
3(a).
"DIVIDEND PAYMENT DATE" means March 31, June 30, September 30
and December 31 of each year.
"DIVIDEND PERIOD" means the Initial Dividend Period and,
thereafter, each Quarterly Dividend Period.
"DIVIDEND RECORD DATE" means a day fifteen (15) days preceding
the Dividend Payment Date.
"EVENT OF DEFAULT" means (i) any event of default (whatever
the reason for such event of default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
governmental authority) under any Instrument creating, evidencing or securing
any indebtedness for borrowed money of the Company or any Significant Subsidiary
in an amount in excess of $2,500,000 that would enable the creditors or secured
parties under such Instrument to declare the principal amount of such
indebtedness due and payable prior to its scheduled maturity, and has not been
waived by the relevant creditors or secured parties, (ii) the occurrence of a
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Default Change of Control (as defined in the Investment Agreement), or (iii) one
of the events specified in clauses (i) through (vii) of Section 8(e).
"HOLDER" means a record holder of one or more outstanding
shares of Series B Preferred Stock.
"INITIAL DIVIDEND PERIOD" means the dividend period commencing
on the Original Issue Date and ending on the second Dividend Payment Date to
occur thereafter.
"INSTRUMENT" means any contract, agreement, indenture,
mortgage, security, document or writing under which any obligation is evidenced,
assumed or undertaken, or any security interest is granted or perfected.
"INVESTOR" has the meaning set forth in the Investment
Agreement.
"INVESTOR WARRANTS" means the 5,000,000 warrants to acquire
Common Stock to be issued to the Investor pursuant to the Investment Agreement.
"INVESTMENT AGREEMENT" means the Amended and Restated
Investment Agreement dated as of February 7, 1997 by and between AP-AGC, LLC and
the Corporation, amended as of March 20, 1997 and amended and restated as of May
15, 1997.
"JUNIOR STOCK" has the meaning set forth in Section 2.
"LIQUIDATION PREFERENCE" means, at any time, $10 per share of
Series B Preferred Stock, PLUS accumulated and unpaid Dividends thereon through
the date of such determination, whether or not declared and whether or not funds
are legally available therefor.
"OPTIONAL REDEMPTION PRICE" has the meaning set forth in
Section 5(a).
"ORIGINAL ISSUE DATE" means the date upon which the Series B
Preferred Stock is originally issued by the Corporation.
"PARITY STOCK" means the Series A Preferred Stock (except
insofar as the Series A Preferred Stock has certain security rights and
interests which are not applicable to the Series B Preferred Stock) and any
class or series of stock the terms of which provide that it is entitled to
participate PARI PASSU with the Series B Preferred Stock with respect to any
dividend or distribution or upon liquidation, dissolution or winding-up of the
Corporation.
"PERSON" means any individual, corporation, limited liability
company, partnership, joint venture, association, business trust, joint-stock
company, trust, unincorporated organization or government or agency or political
subdivision thereof.
"PUT SHARES" has the meaning set forth in Section 8(a).
"QUARTERLY DIVIDEND PERIOD" shall mean the quarterly period
commencing on each March 31, June 30, September 30 and December 31 and ending on
each Dividend Payment Date, respectively.
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"REDEMPTION DATE", with respect to any Series B Preferred
Stock, means the date on which such Series B Preferred Stock is redeemed by the
Corporation.
"REDEMPTION NOTICE" has the meaning set forth in Section 5(c).
"REPURCHASE DATE" has the meaning set forth in Section 8(d).
"REPURCHASE NOTICE" has the meaning set forth in Section 8(a).
"REPURCHASE PRICE" has the meaning set forth in Section 8(a).
"SENIOR STOCK" means any class or series of stock the terms of
which provide that it is entitled to a preference to the Series B Preferred
Stock with respect to any dividend or distribution or upon voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation.
"SERIES A PREFERRED STOCK" means the 20% Cumulative Redeemable
Convertible Preferred Stock, Series A, par value $.01 per share, of the
Corporation.
"SERIES B PREFERRED STOCK CERTIFICATE" has the meaning set
forth in Section 6(b).
"SERIES B PREFERRED STOCK" means the 20% Cumulative Redeemable
Convertible Preferred Stock, Series B, par value $.01 per share, of the
Corporation, which may be issued in accordance with the Investment Agreement.
"SERIES B WARRANTS" means up to 4,000,000 warrants to acquire
Common Stock which may be issued to acquirers of Series B Preferred Stock.
"SIGNIFICANT SUBSIDIARY" has the meaning set forth in
Regulation S-X under the Securities Exchange Act of 1934, as amended.
"SUBSIDIARY" means, (i) with respect to any Person, a
corporation a majority of whose Capital Stock with voting power under ordinary
circumstances to elect directors is at the time, directly or indirectly, owned
by such Person, by a Subsidiary of such Person or by such Person and a
Subsidiary of such Person, or (ii) any other Person (other than a corporation)
of which at least a majority of the voting interest is at the time, directly or
indirectly, owned by such Person, by a Subsidiary of such Person or by such
Person and a Subsidiary of such Person.
"TRADING DAY" shall mean a day on which securities are traded
or quoted on the national securities exchange or quotation system or in the
over-the-counter market used to determine the Closing Price.
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