PROSPECTUS DATED OCTOBER 23, 1997
ATLANTIC GULF COMMUNITIES CORPORATION
5,515,329 Shares of Common Stock
1,000,000, Shares of Series B Redeemable Preferred Stock
This Prospectus relates to the offering and resale by the persons listed under
the heading "Selling Stockholders" (the "Selling Stockholders") of up to
5,515,329 shares of Common Stock and 1,000,000 shares of Series B Redeemable
Preferred Stock (collectively, the "Securities"), of Atlantic Gulf Communities
Corporation, a Delaware corporation (the "Company"). The Securities to which
this Prospectus relates have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), on behalf of the Selling Stockholders to
permit their public sale or other distribution. See "Selling Stockholders" and
"Plan of Distribution." None of the net proceeds from the sale of the Securities
will be received by the Company.
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES.
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.
THE SECURITIES MAY BE SOLD FROM TIME TO TIME BY THE SELLING HOLDERS THROUGH
DEALERS, BROKERS OR OTHER AGENTS AT MARKET PRICES PREVAILING AT THE TIME OF
SALE. THE COMPANY WILL BEAR SUBSTANTIALLY ALL OF THE EXPENSES INCIDENT TO THE
REGISTRATION OF THE SECURITIES, WHICH ARE ESTIMATED TO BE APPROXIMATELY $52,000.
THE SELLING HOLDERS AND ANY DEALERS, BROKERS OR AGENTS THAT PARTICIPATE WITH THE
SELLING STOCKHOLDERS IN THE DISTRIBUTION OF THE SECURITIES MAY BE DEEMED TO BE
"UNDERWRITERS" WITHIN THE MEANING OF THE SECURITIES ACT AND ANY COMMISSIONS
RECEIVED BY THEM AND ANY PROFIT ON THE RESALE OF SECURITIES PURCHASED BY THEM
MAY BE DEEMED TO BE UNDERWRITING COMMISSIONS OR DISCOUNTS UNDER THE SECURITIES
ACT. SEE "PLAN OF DISTRIBUTION."
Each share of Series B Redeemable Preferred Stock is 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 October 21, 1997, the last reported sale price of the Common Stock on
the National Market System was $5.75 per share. See "Price Range of Common Stock
and Dividends."
There can be no assurance that the Company will be able to pay accumulated
dividends on the Series B Redeemable Preferred Stock. As long as Apollo (as
defined) holds at least 500,000 shares of the Series A Preferred Stock, Apollo
will be entitled to elect three of the Company's seven directors and the Company
will not have the right, without Apollo's consent, to engage in certain
significant actions and transactions. As a result, Apollo will have significant
influence over the Company. See "The Apollo Transaction -- Board Representation"
and " -- Consent Right," in the Rights Offering Registration Statement.
The date of this Prospectus is October 23, 1997.
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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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TABLE OF CONTENTS
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Available Information ..................................................... 5
Documents Incorporated by Reference ....................................... 5
Risk Factors .............................................................. 6
The Company ............................................................... 13
The Apollo Transaction .................................................... 13
The Private Placement ..................................................... 15
The Rights Offering ....................................................... 15
Further Information ....................................................... 15
Ratio Earnings to Fixed Charges and Preferred Stock Dividends ............. 16
Use of Proceeds ........................................................... 16
Selling Stockholders ...................................................... 16
Plan of Distribution and Determination of Offering Price .................. 18
Price of Common Stock and Dividends ....................................... 18
Description of Capital Stock .............................................. 19
Legal Matters ............................................................. 25
Experts ................................................................... 26
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INDEX OF DEFINED TERMS
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Agreements ................................................................ 13
Annual Meeting ............................................................ 11
Apollo .................................................................... 13
Apollo Closing ............................................................ 14
Apollo Fund II ............................................................ 13
Apollo Transaction ........................................................ 13
Bankruptcy Events ......................................................... 23
Board ..................................................................... 14
Charter Amendments ........................................................ 14
Code ...................................................................... 10
Commission ................................................................ 5
Company ................................................................... 1
Company's 1996 10-K ....................................................... 5
Default Dividend Rate ..................................................... 20
Dividend Payment Date ..................................................... 20
Dividend Rate ............................................................. 20
Exchange Act .............................................................. 5
Investment Agreement ...................................................... 13
Investor .................................................................. 13
Investor Warrants ......................................................... 13
Junior Stock .............................................................. 21
Liquidation Preference .................................................... 20
NOL ....................................................................... 11
POR ....................................................................... 13
POR Effective Date ........................................................ 13
Parity Stock .............................................................. 20
Predecessor Company ....................................................... 13
Private Placement ......................................................... 15
Put Shares ................................................................ 22
Reorganization Proceedings ................................................ 13
Repurchase Notice ......................................................... 22
Repurchase Price .......................................................... 22
Rights Offering ........................................................... 15
Rights Offering Registration Statement .................................... 6
SP Subsidiary ............................................................. 14
Secured Agreement ......................................................... 13
Securities ................................................................ 1
Securities Act ............................................................ 1
Selling Stockholders ...................................................... 1
Senior Stock .............................................................. 21
Series A Preferred Stock .................................................. 13
Series B Statement of Designations ........................................ 20
Significant Subsidiary .................................................... 21
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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, 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 are
incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the year ended December 31,
1996, filed April 14, 1997, and Amendments No. 1, 2, 3, 4 and 5 thereto filed on
Form 10-K/A on April 30, 1997, September 16, 1997, September 22, 1997, October
8, 1997, and October 16, 1997, respectively (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, and Amendments No. 1 and 2 thereto filed on Form 10-Q/A on October 7, 1997
and October 16, 1997, respectively.
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(4) The Company's Proxy Statement dated May 21, 1997.
(5) The Company's Current Report on Form 8-K filed June 5, 1997.
(6) The Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, filed August 14, 1997 and Amendments No. 1, 2, 3 and 4 thereto filed on
Form 10-Q/A on September 16, 1997, September 22, 1997, October 7, 1997 and
October 16, 1997, respectively.
(7) The Company's Registration Statement on Form S-3 (File No. 333-31939), as
amended, together with the final prospectus filed in connection therewith
pursuant to Rule 424 (collectively, the "Rights Offering Registration
Statement"), including the financial statements under the heading "Unaudited Pro
Forma Financial Information" therein.
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 offering hereunder 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. 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.
RISK FACTORS
Prior to making an investment decision, purchasers should consider carefully the
following factors relating to the Company's business and the offering made
hereby, 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
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and disadvantages and costs of the Apollo Transaction (as defined), the Private
Placement (as defined) and the Rights Offering (as defined); (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.
HIGH LEVEL OF DEBT; LIMITED CAPITAL RESOURCES
The Company has a high level of debt. Approximately $21.67 million of Foothill
Debt (as such term and other capitalized terms not otherwise defined herein are
defined in the Rights Offering Registration Statement) matures on December 31,
1997 and the balance of approximately $41.7 million of Foothill Debt and an
additional $39.6 million in certain unsecured cash flow notes issued by the
Company 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. Accordingly, sufficient liquidity and capital resources to
satisfy such indebtedness and to implement fully the Company's business must be
provided by revenues from operations and by external financing sources such as
the Apollo Transaction, the Private Placement and the Rights Offering, the
accelerated disposition of non-core tract and scattered homesite assets, and the
sale (or financing) of Predecessor Company assets.
LOSSES
During the years ended December 31, 1995 and 1996, the Company had,
respectively, a net loss of $20.6 million and 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 $15.9 million for the six months ended
June 30, 1997.
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 Preferred Stock and Common Stock
in the foreseeable future. Furthermore, the Company's current debt obligations
prohibit the payment of any dividend on any capital stock of the Company,
including Preferred Stock and Common Stock (other than dividends
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payable solely in common stock or preferred stock of the Company). Also, no cash
dividends can be paid on Common Stock unless all dividend arrearages on the
Preferred Stock have been paid in full in cash and the Company is not in default
of any of its repurchase obligations regarding the Preferred Stock. There can
also be no assurance that the Company will be able to pay accumulated dividends
on the Series B Redeemable Preferred Stock.
POSSIBLE DILUTION OF OWNERSHIP INTEREST
Each share of the Series B Redeemable Preferred Stock may be converted into
1.739 shares of Common Stock (subject to adjustment) and will, if converted, be
entitled to vote on all matters presented to Stockholders. 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. Moreover, the conversion of the Series A Preferred
Stock and the exercise of the Investor Warrants and the 1996 Warrants 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.
POSSIBLE ADVERSE EFFECT ON MARKET PRICE OF 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, Investor Warrants and 1996 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.
ABSENCE OF TRADING MARKET FOR THE SERIES B REDEEMABLE PREFERRED STOCK AND THE
SERIES B WARRANTS
Prior to this Offering, there has been no market for the Series B Redeemable
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 is seeking inclusion in the
NASDAQ SmallCap Market of the Series B Redeemable Preferred Stock offered hereby
under the symbol "AGLFO" (as well as the Series B Redeemable Preferred Stock
offered in the Rights Offering, under the symbol "AGLFP") and is seeking
inclusion in the NASDAQ National Market of the Series B Warrants, the Series B
Redeemable Preferred Stock and the Series B Warrants may not be quoted for
trading on NASDAQ 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 Redeemable Preferred Stock and no representation is made that the
Series B Redeemable Preferred Stock and Series B Warrants offered hereby have a
market value equivalent to, or could be resold at, the Subscription
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Price. Investors desiring to dispose of Series B Redeemable Preferred Stock may
find it necessary to convert their shares into Common Stock to dispose of them.
ABSENCE OF COLLATERAL FOR SERIES B REDEEMABLE PREFERRED STOCK PUT RIGHTS
Holders of each of the Series A Preferred Stock and the Series B Redeemable
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 Redeemable 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 (a) 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 (b) 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 Redeemable Preferred Stock are not secured.
Therefore, the holders of the Series B Redeemable 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 has agreed not to purchase, redeem, retire or otherwise acquire any
capital stock of the Company, including Preferred Stock and Common Stock (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 Redeemable Preferred Stock, could also
have certain anti-takeover effects. Such effects could discourage and 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.
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
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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.
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.
CYCLICAL 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.
SIGNIFICANT REGULATORY AND ENVIRONMENTAL COMPLIANCE REQUIREMENTS
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.
POSSIBLE ADVERSE EFFECTS OF REVISED DEVELOPMENT OR LAND USE PLANS
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.
POSSIBLE UNAVAILABILITY 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
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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 approximately $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 MAY ELIMINATE HOLDINGS OF FEWER THAN 100 OR 200
SHARES
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
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 then owned fewer
than 100 or 200 shares of Common Stock, as applicable, would cease to be
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Stockholders unless in the interim they acquire sufficient additional Common
Stock on the open market or through the purchase and conversion of Series B
Redeemable Preferred Stock. Consummation of the above-mentioned reverse stock
split would require, among other things, the consent of Foothill and Apollo.
Also, while any Preferred Stock is outstanding, the Company may not redeem or
otherwise purchase any Common Stock unless all dividend arrearages on the
Preferred Stock have been paid in full in cash and the Company is not in default
of any of its repurchase obligations regarding the Preferred Stock.
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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.
The Company and its predecessors have been operating as community developers in
Florida since 1955. The Company'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. The Company emerged
from the Reorganization Proceedings pursuant to a plan of reorganization (the
"POR" that became effective on March 31, 1992 (the "POR Effective Date")).
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.
THE APOLLO TRANSACTION
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, subject to certain terms and conditions including Stockholders'
approval of the Investment Agreement, 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 23, 1997, the Stockholders' approved the Investment
Agreement and the transactions contemplated thereby, and on June 24, 1997,
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the initial closing occurred pursuant to the Agreements ("the Apollo Closing").
Pursuant to 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 Redeemable 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 Company directors was reduced from 10 to
seven and three Apollo designees were appointed to the Company's
board of directors ("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.
From time to time after the Apollo Closing and until Apollo has acquired all
2,500,000 shares of Series A Preferred Stock and 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 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." As required by the Agreements, all net proceeds from the
issuance and sale to Apollo of the Series A Preferred Stock and Investor
Warrants and all funds generated thereby and assets acquired therewith are being
held by a newly formed special purpose corporation, which is a direct wholly
owned subsidiary of the Company ("SP Subsidiary"). The only business
transactions in which SP Subsidiary will engage are the development and sale of
Board-approved real estate development projects and certain activities
incidental thereto. SP Subsidiary will be under certain restrictions, including
with respect to the incurrence of debt and liens and the payment of dividends
and payments for certain other purposes.
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The Company has granted to Apollo certain registration rights with respect to
the Series A Preferred Stock and the Warrant Shares (as defined), including,
subject to certain limitations, (a) upon Apollo's demand, the Company's
obligation to use its best efforts to effect registration of the Series A
Preferred Stock and/or the Warrant Shares and (b) if the Company proposes to
register any of its securities under the Securities Act for sale for cash, upon
Apollo's request, the Company's obligation to include the number of Demand
Registrable Securities (as defined) that Apollo wishes to sell or distribute
publicly under the registration statement proposed to be filed by the Company.
Since the Apollo Closing, the Company issued to Apollo under the Investment
Agreement (a) on June 30, 1997, 334,000 additional shares of Series A Preferred
Stock and Investor Warrants 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; (b) on July 31, 1997, an additional
850,000 shares of Series A Preferred Stock and Investor Warrants to purchase an
additional 1,700,000 shares of Common Stock, for an aggregate purchase price of
$8,500,000; (c) on August 7, 1997, an additional 259,000 shares of Series A
Preferred Stock and Investor Warrants to purchase an additional 518,000 shares
of Common Stock, for an aggregate purchase price of $2,590,000 and (d) on
October 6, 1997, an additional 100,000 shares of Series A Preferred Stock and
Investor Warrants to purchase an additional 200,000 shares of Common Stock, for
an aggregate purchase price of $1,000,000.
As of the date hereof, 403,525 shares of Series A Preferred Stock and 807,050
Investor Warrants remain subject to purchase by Apollo under the Investor
Agreement.
THE PRIVATE PLACEMENT
Concurrently with the Apollo Closing, the Company sold to the persons listed
under the "Selling Stockholders," in a private placement (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
Redeemable 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."The holders of record of the
Series B Redeemable 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 Redeemable Preferred Stock at an annual rate equal to
20% of the Liquidation Preference (as defined) in effect from time to time. See
"Series B Redeemable Preferred Stock -- Dividends."
THE RIGHTS OFFERING
Pursuant to the Rights Offering Registration Statement, the Company expects to
make available for sale to the Stockholders of record on October 8, 1997, in a
rights offering, units composed of 1,000,000 shares of Series B Redeemable
Preferred Stock and Series B Warrants to purchase 2,000,000 shares of Common
Stock, for an aggregate purchase price of $10 million (the "Rights Offering").
FURTHER INFORMATION
The Company's Proxy Statement dated May 21, 1997 and the Rights Offering
Registration Statement include further information with respect to the Apollo
Transaction, the Private Placement, the Rights Offering and related matters. See
"Documents Incorporated by Reference."
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RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The Company's ratios of earnings to fixed charges and preferred stock dividends
for the nine months ended December 31, 1992, for the years ended December 31,
1993, 1994, 1995, 1996, and for the six months ended June 30, 1997 were (0.0),
0.4, 1.0, 0.1, 1.1 and (0.5), respectively, based upon the Company's audited
Consolidated Financial Statements and upon the Company's unaudited consolidated
financial statements, incorporated by reference into this Prospectus. 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. Earnings were inadequate to cover fixed charges
during the nine months ended December 31, 1992, the years ended December 31,
1993 and 1995, and the six months ended June 30, 1997, with coverage
deficiencies of $23.9 million, $18.5 million, $20.6 million, and $16.0 million,
respectively.
USE OF PROCEEDS
The Securities will be sold by the Selling Stockholders, who will receive all of
the net proceeds from the sale of the Securities. None of such proceeds will be
received by the Company.
SELLING STOCKHOLDERS
The table below sets forth with respect to each Selling Stockholder, such
Selling Stockholder's name, the amount of each class of Securities owned by such
Selling Stockholder before the offering hereunder, which is also the amount to
be offered by such Selling Stockholder hereunder. Except as disclosed below in
Note 2 none of the Selling Stockholders held any position, office, or other
material relationship within the last three years with the Company or any of its
predecessors or affiliates.
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SERIES B
REDEEMABLE
SELLING STOCKHOLDER COMMON STOCK(1) PREFERRED STOCK
- ------------------- --------------- ---------------
Morgan Stanley Institutional Fund
U.S. Real Estate Portfolio 512,407 107,021
Morgan Stanley SICAV U.S. Real Estate
Securities Fund, Inc. 147,961 54,017
Morgan Stanley Fund, Inc. U.S. Real
Estate Fund 47,369 8,207
Morgan Stanley Universal Funds, Inc.
- U.S. Real Estate Portfolio 15,565 2,003
Principal Asset Allocation Fund, Inc. 7,593 2,772
Eugenia II Investment Holdings Limited 30,562 11,158
Van Kampen American Capital Life
Investment Trust Morgan Stanley
Real Estate Portfolio 616,302 79,420
Van Kampen American Capital Real
Estate Securities Fund 276,840 35,402
Westgate International, L.P. 537,390 125,000
Elliott Associates, L.P. 2,220,273 375,000
The Robertson Stephens Contrarian
Fund 827,300 150,000
Robin C. Rodriguez(2) 13,788 2,500
Charles F. Robinson(2) 13,787 2,500
LKCM Equity Fund 55,154 10,000
E. A. Advisers, Inc. 27,576 5,000
LKCM Investment Partnership 137,884 25,000
Raymond Cahman 27,576 5,000
- ----------
(1)/ Includes Common Stock issuable upon exercise of Series B Warrants or upon
conversion of Preferred Stock.
(2)/ Pursuant to a placement agreement dated June 11, 1997, the Company paid a
placement fee of $217,841 to Anglo-American Investor Services Corp. ("Anglo") in
connection with placing, for an aggregate purchase price of $14 million,
Securities in the Private Placement on June 24, 1997. Mr. Rodriquez is a
principal of Anglo and Mr. Robinson is Executive Vice President of Anglo. See
"The Private Placement."
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PLAN OF DISTRIBUTION AND DETERMINATION OF OFFERING PRICE
The Securities offered hereby are being sold by the Selling Stockholders acting
as principals for their own accounts. The Company will receive none of the
proceeds from such offering. The distribution of the Securities by the Selling
Stockholders is not subject to any underwriting agreement. While the Selling
Stockholders may use any means to sell their Securities that is permitted under
the Securities Act, the Company expects that the Selling Holders will sell their
Securities through customary brokerage channels, either through broker-dealers
acting as agents or brokers for the Selling Holders, or through broker-dealers
acting as principals, who may then resell the Securities in the over-the-counter
market, or at private sales or otherwise, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Selling Holders may effect such transactions by selling
Securities through broker-dealers, and such broker-dealers will receive
compensation in the form of underwriting discounts, concessions, or commissions
from the Selling Holders and/or the purchasers of the Securities for whom they
may act as agent (which compensation may be in excess of customary commissions).
The Selling Stockholders and any broker-dealers that participate with the
Selling Holders in the distribution of the Securities may be deemed to be
"underwriters" as that term is defined in the Securities Act and any commissions
received by such broker-dealers and any profit on resale of Securities sold by
them might be deemed to be underwriting discounts or commissions under the
Securities Act. All expenses of registration incurred in connection with this
offering are being borne by the Company, other than brokerage commissions and
other similar expenses incurred by the Selling Holders will be borne by the
Selling Stockholders.
At the time a particular offer of Securities is made, to the extent required, a
supplement to this Prospectus will be distributed which will identify and set
forth the aggregate amount of Securities being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents,
the purchase price paid by any underwriters for Securities purchased from the
Selling Stockholders, any discounts, commissions and other items constituting
compensation from the Selling Stockholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, including the proposed
selling price to the public.
Elliott Associates, L.P. and Westgate International, L.P. (which mat be deemed a
group) may offer their Securities through the selling efforts of Manchester
Securities Corp., a registered broker-dealer that is wholly owned by Elliott
Associates, L.P., however, there is currently no agreement, arrangement, or
understanding relating to any such services.
PRICE OF COMMON STOCK AND DIVIDENDS
The Common Stock is quoted on the NASDAQ National Market System under the Symbol
"AGLF." 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 October 21, 1997 was $5.75.
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
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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 unless all
dividend arrearages on the Preferred Stock have been paid in full and the
Company is not in default of any of its repurchase obligations regarding the
Preferred Stock.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
As of the date hereof, 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) 11,514,269 shares are
outstanding (including 13,290 shares held in a disputed claims reserve account
maintained by the Company for the benefit of unsecured creditors under the POR
whose claims have not yet been allowed) (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 Redeemable Preferred
Stock; (d) 1,500,000 shares are reserved for issuance pursuant to the 1996
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, 1,996,475 of
which were issued to Apollo pursuant to the Investment Agreement and the
remainder (503,525 shares) are reserved for issuance, and (b) 2,000,000 shares
are designated Series B Redeemable 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 Redeemable 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.
American Stock Transfer & Company serves as the registrar and transfer agent for
the Common Stock.
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.
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SERIES B REDEEMABLE PREFERRED STOCK
The preferences, powers, and rights of the Series B Redeemable 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 Redeemable Preferred
Stock. There are currently outstanding 1,000,000 shares of Series B Redeemable
Preferred Stock issued in the Private Placement.
NUMBER OF SHARES. The number of authorized shares of Series B Redeemable
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
Redeemable Preferred Stock will rank senior to the Common Stock and will rank
equally to 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 in parity
with the Series B Redeemable 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 Redeemable Preferred Stock).
See "The Apollo Transaction -- Series A Preferred Stock" in the Rights Offering
Registration Statement.
DIVIDENDS. The holders of record of the Series B Redeemable 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 Redeemable
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 Redeemable 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 Redeemable 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 December 31, 1997.
Dividends will cease to accumulate in respect of Series B Redeemable 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 Redeemable 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
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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 Redeemable 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 Redeemable 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
Redeemable 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 Redeemable Preferred Stock with respect to any dividend or
distribution or upon voluntary or involuntary liquidation, dissolution or
winding-up of the Company.
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, including Preferred Stock
and Common Stock.
LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, the holders of the Series
B Redeemable 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 Redeemable Preferred Stock and the
holders of any Parity Stock outstanding, then, subject to the rights of the
holders of Series B Redeemable Preferred Stock to require the Company to
purchase their shares as described under "Repurchase Obligations" below, and
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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 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 Redeemable 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
Redeemable 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 Redeemable
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 Redeemable Preferred Stock. The Company has agreed in the Investment Agreement
that, without Apollo's consent, the Company will not redeem Series B Redeemable
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 Redeemable 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 Redeemable 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 Redeemable Preferred Stock in the Rights Offering. See "The Apollo
Transaction -- Consent Rights." Optional redemptions of Series B Redeemable
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 Redeemable Preferred Stock held by each holder.
NO VOTING RIGHTS. The holders of Series B Redeemable Preferred Stock will not
voteon 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 Redeemable 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 Redeemable Preferred Stock then held.
REPURCHASE OBLIGATIONS. Beginning on the fourth anniversary of the Original
Issue Date, each holder of Series B Redeemable 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 Redeemable 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"). 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 Redeemable 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 Redeemable Preferred
Stock issued by the Company. The Repurchase Date will be the 30th day
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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 Redeemable 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 Redeemable 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 Redeemable
Preferred Stock will be deemed to have delivered on the date immediately
preceding such event, a Repurchase Notice with respect to all Series B
Redeemable 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 Redeemable 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, including
Preferred Stock and Common Stock (other than solely for common stock or
preferred stock of the Company).
CONVERSION. The holder of each share of Series B Redeemable 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
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share into Common Stock. Subject to provisions for adjustment, each share of
Series B Redeemable 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
Redeemable Preferred Stock is surrendered for conversion. If any Series B
Redeemable Preferred Stock is called for redemption, the right to convert such
Series B Redeemable 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 Redeemable 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 Redeemable Preferred Stock in the Rights
Offering; (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 1996 Warrants, (iii)
to the Investor pursuant to the Investor Warrants and (iv) upon conversion of
the Series A Preferred Stock or Series B Redeemable 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 Redeemable 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.
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 Redeemable 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 Redeemable 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 Redeemable Preferred Stock might have been converted immediately prior to such
consolidation, merger, sale, lease or conveyance.
In the event of any reclassification or change of the Common Stock issuable upon
conversion of Series B Redeemable 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
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whereby each holder of Series B Redeemable Preferred Stock will have the right
to receive, in lieu of the Common Stock immediately prior thereto receivable
upon the conversion of Series B Redeemable 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
Redeemable 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 Redeemable
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 Redeemable 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 Redeemable 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 Redeemable 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 Redeemable 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 (but not Series B Redeemable Preferred
Stock), see "The Apollo Transaction -- The Series A Preferred Stock" and "
- --Consent Rights" in the Rights Offering Registration Statement.
LEGAL MATTERS
The validity of the Series B Redeemable Preferred Stock, Series B Warrants and
Common Stock offered hereby will be passed upon for the Company by Arent Fox
Kintner Plotkin & Kahn, Washington, D.C.
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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
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
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APPENDIX A
STATEMENT OF PREFERENCES AND RIGHTS, SERIES B REDEEMABLE PREFERRED STOCK
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")):
1. 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.
2. 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).
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 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 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")
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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.
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
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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.
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 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;
(6) that the Holder is to surrender to the Corporation his cer-
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tificate 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.
6. 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
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Liquidation Preference by the Conversion Price, in each case as in effect at the
date any Series B Preferred Stock is surrendered for conversion.
(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
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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.
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
sub-paragraph shall be made successively whenever any event specified above
shall occur.
(ii) In case the Corporation shall fix a record date for
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
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<PAGE>
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.
(iii) In case the Corporation shall fix a record date for 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 subpara-
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<PAGE>
graph, 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 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
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<PAGE>
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.
(viii) In any case in which this Section shall require that
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
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<PAGE>
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.
(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
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<PAGE>
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 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
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<PAGE>
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.
(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
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<PAGE>
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.
7. 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.
8. 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
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<PAGE>
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 pre-paid, 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,
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<PAGE>
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 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 precondition of delivery of a Repurchase Notice, any
such requirement or pre-condition being expressly waived hereby.
9. 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.
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 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.
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
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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.
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.
"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.
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"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), 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
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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 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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