AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1997
REGISTRATION NO. 333-31939
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3/A
AMENDMENT NO. 4 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ATLANTIC GULF COMMUNITIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
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2601 South Bayshore Drive
Miami, Florida 33133-5461
(305) 859-4000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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59-0720444
(I.R.S. Employer Identification No.)
Thomas W. Jeffrey
Executive Vice President
2601 South Bayshore Drive
Miami, Florida 33133-5461
(305) 859-4000
(Name, address, including zip code and telephone number
including area code, of agent for service)
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
Carter Strong, Esq.
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
(202) 857-6252
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
<PAGE>
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended ("Securities Act"), other than securities
offered only in connection with dividend or interest reinvestment plans, check
the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
The registrant hereby amends the registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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PROSPECTUS DATED OCTOBER __, 1997
ATLANTIC GULF COMMUNITIES CORPORATION
1,000,000 UNITS
$10 PER UNIT
Each unit ("Unit") consists of one share of 20% Series B Redeemable
Preferred Stock, par value $.01 per share ("Series B Redeemable Preferred
Stock"), and warrants ("Series B Warrants") to purchase two shares of common
stock, par value $.10 per share ("Common Stock"), at an exercise price of $5.75
per share, subject to adjustments. The exercise price for the Series B Warrants
may adjust based on the cash flow experienced by Atlantic Gulf Communities
Corporation (the "Company"). The Series B Warrants will be issued pro rata in
three classes as follows: 666,667 Class A Warrants, 666,667 Class B Warrants and
666,666 Class C Warrants. The Class A, Class B and Class C Warrants are
identical except that they have different minimum exercise prices ($2.00, $3.00
and $4.00 per share, respectively).
The Company is distributing on a pro rata basis to the holders of its
Common Stock (the "Stockholders") and to holders of warrants to purchase its
Common Stock (the "1996 Holders") issued on September 30, 1996 ("1996
Warrants"), of record as of October 8, 1997 (the "Record Date"), transferable
rights (the "Rights") to subscribe for and purchase an aggregate of 1,000,000
Units for a price of $10.00 per Unit (the "Subscription Price"). Each holder of
Common Stock or 1996 Warrants as of the Record Date is entitled to receive
.08898 of a Right for each share of Common Stock or 1996 Warrant to purchase a
share of Common Stock, held as of such date. The distribution of the Rights and
sale of Units are referred to herein as the "Rights Offering." One Right and
$10.00 in cash entitle the holder to purchase one Unit. Each Right also carries
the right to subscribe at the Subscription Price for Units that are not
otherwise purchased pursuant to the exercise of Rights. No fractional Rights or
cash in lieu thereof will be distributed by the Company. The number of Rights
distributed to each record holder will be rounded down to the nearest whole
number that is a multiple of three. The Rights will be evidenced by transferable
certificates (each, a "Subscription Certificate").
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SEE "RISK FACTORS" COMMENCING ON PAGE 27 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE UNITS. AN INDEX OF
DEFINED TERMS IS CONTAINED ON PAGE 7.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE>
The Company intends to use the proceeds of the Rights Offering for
working capital purposes, including the payment of certain indebtedness to
Foothill Capital Corporation ("Foothill Debt").
The Rights will expire at 5:00 p.m., New York City time, on November
___, 1997 (the "Expiration Date"), and thereafter will be void and of no effect.
All subscriptions are irrevocable. No minimum sale of Units by the Company is
required. If at the Expiration Date fewer than all of the Units offered hereby
shall have been subscribed for, subscriptions which have been accepted by the
Company shall remain effective, and the Rights Offering shall terminate with
respect to the unsubscribed Units.
The Rights are transferable, and it is expected that they will trade on
the National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System until the close of business on the last National Market
System trading day prior to the Expiration Date. The Company will not apply for
listing of the Units on the National Market System, but the Series B Redeemable
Preferred Stock and the Series B Warrants will be immediately detachable from
each other and separately tradeable. The Company has applied for listing of the
Rights and the three classes (A, B and C) of Series B Warrants on the National
Market System under the trading symbols "AGLFR," "AGLFW," "AGLFZ" and "AGLFL,"
respectively. The Company has applied for listing of the Series B Redeemable
Preferred Stock to be issued in the Rights Offering on the NASDAQ SmallCap
market under the trading symbol "AGLFP." The Company expects to seek listing of
the Series B Redeemable Preferred Stock and expects it to be accepted for
quotation on the National Market System, if there are an adequate number of
publicly held shares of Series B Redeemable Preferred Stock to meet the
requirements of NASDAQ. The Company also expects the Rights and the three
classes of Series B Warrants will be accepted for quotation on the National
Market System if there are adequate numbers thereof to meet the requirements of
NASDAQ. No assurance can be given that there will be an adequate number of
publicly held shares of Series B Redeemable Preferred Stock, Rights or Series B
Warrants, or that a market will develop for the Series B Redeemable Preferred
Stock, the Rights or the Series B Warrants.
Each share of Series B Redeemable Preferred Stock shall be immediately
convertible at the holder's option into 1.739 shares of Common Stock (subject to
adjustment), which is included for quotation on the National Market System under
the symbol "AGLF." On October 7, 1997, the last reported sale price of the
Common Stock on the National Market System was $5.875 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."
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SUBSCRIPTION PRICE UNDERWRITING PROCEEDS TO
DISCOUNTS AND COMPANY (1)
COMMISSIONS
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Per Unit $10.00 -- $10,000,000
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(1) Before deducting expenses payable by the Company with respect to the
Rights Offering, estimated at approximately $800,000.
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<PAGE>
The date of this Prospectus is October , 1997.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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<PAGE>
TABLE OF CONTENTS
PAGE
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Available Information ........................................................9
Documents Incorporated by Reference ..........................................9
Prospectus Summary...........................................................10
Summary Historical and Pro Forma Financial Data..............................23
Risk Factors.................................................................27
The Rights Offering .........................................................32
Description of the Units ....................................................39
The Apollo Transaction.......................................................49
The Private Placement........................................................55
Use of Proceeds..............................................................58
Capitalization...............................................................58
Dilution.....................................................................61
Unaudited Pro Forma Financial Information....................................61
Selected Historical Financial Data...........................................67
Price Range of Common Stock and Dividends ...................................70
Description of Capital Stock.................................................70
Federal Income Tax Considerations............................................72
Legal Matters ...............................................................78
Experts .....................................................................78
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<PAGE>
INDEX OF DEFINED TERMS
Page
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1996 Warrants ............................................................. 3
1996 Holders .............................................................. 3
Adjustment Date ........................................................... 47
Agreements ................................................................ 12
Annual Meeting ............................................................ 31
Apollo .................................................................... 12
Apollo Closing ............................................................ 12
Apollo Fund II ............................................................ 12
Apollo Transaction ........................................................ 12
Approved Business Plan .................................................... 52
Atlantic Gulf ............................................................. 10
Bankruptcy Events ......................................................... 43
Basic Subscription Privilege .............................................. 17
Board ..................................................................... 13
Business Combination ...................................................... 53
Cash Flow Adjustment ...................................................... 47
Change of Control ......................................................... 53
Charter Amendments ........................................................ 12
Closing Date .............................................................. 55
Code ...................................................................... 30
Commission ................................................................ 9
Common Stock .............................................................. 3
Company ................................................................... 3
Company's 1996 10-K ....................................................... 9
Conversion Shares ......................................................... 53
Default Change of Control ................................................. 53
Default Dividend Rate ..................................................... 40
Default Payment ........................................................... 56
Default Period ............................................................ 56
Demand Registrable Securities ............................................. 56
Demand Registration ....................................................... 53
Dividend Payment Date ..................................................... 40
Dividend Rate ............................................................. 40
DTC ....................................................................... 38
DTC Exercised Rights ...................................................... 38
Eligible Guarantor Institution ............................................ 35
Eligible Transferee ....................................................... 54
Excess Units .............................................................. 33
Exchange Act .............................................................. 9
Exercise Price ............................................................ 22
Expiration Date ........................................................... 4
Fee ....................................................................... 52
Fee Triggering Event ...................................................... 52
Foothill Debt ............................................................. 4
Guaranteed Delivery Procedures ............................................ 34
Holders ................................................................... 55
Incumbent Board ........................................................... 53
Investment Agreement ...................................................... 12
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<PAGE>
Investor .................................................................. 12
Investor Warrants ......................................................... 12
IRS ....................................................................... 72
Junior Stock .............................................................. 41
Liquidation Preference .................................................... 40
Major Transaction ......................................................... 52
NASDAQ .................................................................... 4
NOL ....................................................................... 30
Notice of Guaranteed Delivery ............................................. 35
Old Stock ................................................................. 73
Original Issue Date ....................................................... 40
Oversubscription Privilege ................................................ 18
Parity Stock .............................................................. 40
Piggyback Registration .................................................... 53
POR ....................................................................... 10
POR Effective Date ........................................................ 10
Predecessor Company ....................................................... 10
Preferred Stock ........................................................... 14
Private Placement ......................................................... 15
Private Purchasers ........................................................ 15
Pro Forma Financial Statements ............................................ 61
Put Shares ................................................................ 43
Record Date ............................................................... 3
Registration Deadline ..................................................... 55
Reorganization Proceedings ................................................ 10
Repurchase Notice ......................................................... 43
Repurchase Price .......................................................... 43
Rights .................................................................... 3
Rights Offering ........................................................... 3
Secured Agreement ......................................................... 12
Securities Act ............................................................ 2
Senior Stock .............................................................. 41
Series A Preferred Stock .................................................. 12
Series B Redeemable Preferred Stock ....................................... 3
Series B Statement of Designations ........................................ 40
Series B Warrants ......................................................... 3
Shelf Registration Statement .............................................. 55
Significant Subsidiary .................................................... 41
SP Subsidiary ............................................................. 13
Stockholders .............................................................. 3
Subscription Agent ........................................................ 18
Subscription Certificate .................................................. 3
Subscription Price ........................................................ 3
TIN ....................................................................... 78
Unit ...................................................................... 3
Unit Closing .............................................................. 17
Warrant Agent ............................................................. 46
Warrant Agreement ......................................................... 46
Warrant Shares ............................................................ 46
West Bay Project .......................................................... 50
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission,
including the Registration Statement on Form S-3 of which this Prospectus is a
part, may be inspected and copied at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Seven World
Trade Center, New York, New York 10048 and 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Common Stock is traded in the over-the-counter
market and is traded on the NASDAQ National Market System. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants, such as the
Company, that file electronically with the Commission. Copies of the Company's
reports, proxy statements and other information filed with the Commission can
also be inspected at the offices of the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto, certain parts of which are omitted as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information regarding
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the exhibits thereto.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by this
reference:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1996, filed April 14, 1997, and Amendments No. 1
2, 3 and 4 thereto filed on Form 10-K/A on April 30, 1997,
September 16, 1997, September 22, 1997, and October 8, 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 Amendment No. 1 thereto filed on Form
10-Q/A on October 7, 1997.
(4) The Company's Proxy Statement dated May 21, 1997.
(5) The Company's Current Report on Form 8-K filed June 5, 1997.
(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 and 3 thereto filed on Form 10-Q/A on September 16, 1997,
September 22, 1997, and October 7, 1997, respectively.
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<PAGE>
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to
termination of the Rights Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date any such
document is filed. All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of the initial
Registration Statement and prior to the effectiveness of the Registration
Statement shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date any such document is filed. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon written or oral request, a copy of any and
all of the documents incorporated by reference herein, other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into such documents. Any such request may be directed to Atlantic Gulf
Communities Corporation, Attention: Thomas W. Jeffrey, Chief Financial Officer,
at the Company's principal executive offices, which are located at 2601 South
Bayshore Drive, Miami, Florida 33133-5461, telephone number (305) 859-4000.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "ATLANTIC GULF" MEANS ATLANTIC
GULF COMMUNITIES CORPORATION AND THE TERM THE "COMPANY" MEANS ATLANTIC GULF AND
ITS SUBSIDIARIES TAKEN AS A WHOLE AND INCLUDES THE COMPANY'S PREDECESSORS.
THE COMPANY
The Company is a Florida-based real estate development and asset
management company. The Company's primary lines of business are acquisition,
development and sale of new subdivision and scattered developed homesites, sale
of land tracts and residential construction and sales. Additional lines of
business which contribute to the Company's overall operations include portfolio
management of mortgages and contracts receivable and environmental services.
The Company acquires and develops real estate to: (a) enhance the value
of certain properties, (b) maintain a continuing inventory of marketable tracts
and (c) supply finished homesites to builders in Florida's fastest growing
markets. The Company's acquisition and development activities are comprised of
four primary functions: business development, planning, community development
and residential construction.
Atlantic Gulf and its predecessors have been operating as community
developers in Florida since 1955. Atlantic Gulf's immediate predecessor, General
Development Corporation (the "Predecessor Company"), was among the largest
community developers in Florida. In 1990, the Predecessor Company and certain of
its subsidiaries commenced proceedings under Chapter 11 of the Bankruptcy Code
(the "Reorganization Proceedings") to reorganize their business. Atlantic Gulf
emerged from the Reorganization Proceedings pursuant to a plan of reorganization
(the "POR" that became effective on March 31, 1992 (the "POR Effective Date")).
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<PAGE>
The Company was incorporated in Delaware in 1928. Its executive offices
are located at 2601 South Bayshore Drive, Miami, Florida 33133- 5461, and its
telephone number is (305) 859-4000.
BUSINESS PLAN
As described in the Company's 1996 10-K, the Company's business plan is
(a) to retire the Company's remaining corporate debt (debt not specifically
associated with a performing asset), including the Foothill Debt, through the
sale of Predecessor Company assets, (b) to become the leading supplier of
finished homesites to national and regional homebuilders in Florida's fastest
growing markets and in selected primary markets throughout the Southeast, and
(c) to continue residential construction and sales.
The Company has been successful in monetizing (by sale or financing
transactions) Predecessor Company assets to reduce corporate debt, and
anticipates that the remaining Predecessor Company assets will be monetized
during the balance of 1997 and 1998. In 1996, the Company's $167 million in
gross revenue included over $55 million of Predecessor Company tract and
scattered homesite sales and the Company reduced its corporate debt by
approximately $65 million. The Company's receipt of proceeds from the Apollo
Transaction, Private Placement (as defined) and the anticipated consummation of
the Rights Offering is expected to enable the Company to satisfy its near term
corporate debt amortization without being required to accelerate Predecessor
Company asset sales in a manner that would not maximize proceeds from such
sales.
Since 1993, the Company has acquired or started development on 11 new
primary market finished homesite subdivision projects and two new oceanfront
condominium projects. Management believes that the success of the new primary
market subdivision projects has confirmed the Company's business strategy of
becoming a leading supplier of finished homesites to large independent
homebuilders. Of the 28 homebuilders who are currently building or under
contract in the Company's primary market subdivisions, five are building in
multiple projects. Prior to the consummation of the Apollo Transaction and
Private Placement, capital restrictions relating to the Company's highly
leveraged balance sheet and near term debt amortization have required the
Company to acquire and develop most of its largest and most profitable primary
market subdivisions with joint venture equity partners. The Company's cost in
obtaining such joint venture equity, both in terms of lost operating profits and
preferred cash distributions, significantly reduced the Company's anticipated
operating gross margins were it not to require such joint venture equity.
Furthermore, the cost of obtaining joint venture equity on a project-by-project
basis and complying with joint venture reporting and other requirements
unnecessarily contributed to the Company's overhead expenses.
There is no assurance that the Company will implement fully its
business plan nor that it will realize the anticipated benefits from the Apollo
Transaction, Private Placement and Rights Offering discussed
below.
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<PAGE>
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, 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).
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<PAGE>
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 conditions set forth in the Investment Agreement, (a) Apollo will
be entitled at any time to acquire all of the Series A Preferred Stock and
Investor Warrants not acquired by it prior thereto and (b) from and after June
30, 1998, the Company will be entitled at any time to require Apollo to purchase
all of such Series A Preferred Stock and Investor Warrants, provided that no
Event of Default (as defined in the Secured Agreement) shall have occurred and,
except for an Event of Default which is or results from a Bankruptcy Event (as
defined), shall then exist. See "The Apollo Transaction." 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.
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.
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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 terms of the Series A Preferred Stock and the Series B Redeemable
Preferred Stock (collectively, the "Preferred Stock") are substantially the same
except as described below. The Preferred Stock will rank senior to the Common
Stock with respect to dividends and distributions. Holders of Preferred Stock
will be entitled to receive, when, as and if declared by the Board, cash
dividends on a quarterly basis at an annual rate equal to 20% of the liquidation
preference, which is $10 per share for each of the Series A Preferred Stock and
the Series B Redeemable Preferred Stock, plus any accrued and unpaid dividends.
Assuming that the Series A Preferred Stock is outstanding for three years, the
annual yield on such shares for the three-year period would be 20.6%, based on a
per share purchase price of $9.88 and a dividend rate of 20% of the liquidation
preference per annum. Upon certain events of default, dividends will accumulate
at an annual rate of 23% of the liquidation preference. The Preferred Stock will
be redeemable by the Company in whole or in part after three years from the
issuance date at a redemption price in cash equal to the liquidation preference.
Holders of the Preferred Stock will have certain "put rights" which will entitle
them to require the Company to repurchase the Preferred Stock in certain amounts
and at certain times: up to an aggregate of one-third of the shares of each of
the Series A Preferred Stock and the Series B Redeemable Preferred Stock after
the end of the fourth year following the issuance date and before the end of the
fifth year, up to an aggregate of two-thirds of the shares of each of the Series
A Preferred Stock and the Series B Redeemable Preferred Stock after the end of
the fifth year following the issuance date and before the end of the sixth year,
and up to the entire amount after the sixth year following the issuance date, at
a repurchase price in cash equal to the liquidation preference. Certain events
of default, including a Default Change of Control (as defined below) of the
Company, would accelerate the put rights. The Preferred Stock will be
convertible into such number of shares of Common Stock as is obtained by
dividing the liquidation preference by the conversion price of $5.75 per share,
subject to certain adjustments. The Series A Preferred Stock put rights will be
secured by certain liens on substantially all of the assets of the Company and
its subsidiaries, while the Series B Redeemable Preferred Stock put rights will
not be secured. Holders of Series A Preferred Stock will be entitled to elect
three of the Company's seven directors and will otherwise have no voting rights
except as may be required by applicable law. Holders of Series B Redeemable
Preferred Stock will have no voting rights except as may be required by
applicable law. As long as Apollo holds at least 500,000 shares of Series A
Preferred Stock, it will have certain consent rights in respect of the Company
engaging in "Major Transactions" (as defined). Holders of Series B Redeemable
Preferred Stock will have no such consent rights. Apollo may not, except under
specified circumstances, transfer or assign the Series A Preferred Stock or the
Common Stock issuable upon conversion thereof until February 7, 1999. The Series
B Redeemable Preferred Stock issued in the Rights Offering and the Common Stock
issuable upon conversion thereof will be immediately transferable subject to
certain restrictions applicable to affiliates of the Company. For a description
of the rights and preferences of the Series A Preferred Stock and Series B
Redeemable Preferred Stock, see "The Apollo Transaction -- The Series A
Preferred Stock" and "Description of the Units -- Series B Redeemable Preferred
Stock."
Assuming that the Series B Redeemable Preferred Stock is outstanding
for three years, the annual yield on such shares for the three-year period would
be 20.6%, based on a per share purchase price of $9.88 and a dividend rate of
20% of the liquidation preference per annum.
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The terms of the Series B Warrants are substantially the same as those
of the Investor Warrants, except that, although any adjustments that result from
certain appraisal procedures shall apply to both Investor Warrants and Series B
Warrants, only the holder(s) of Investor Warrants have the power to invoke such
appraisal procedures. See "Description of the Unites -- the Series B Warrants --
Value Determination and Appraisal.". Each Warrant entitles the holder to
purchase one share of Common Stock, commencing immediately, until the close of
business on June 23, 2004 at an exercise price of $5.75 per share, subject to
certain antidilution and other adjustments, and will be issued in the Rights
Offering pro rata in three classes: up to 666,667 Class A Warrants, 666,667
Class B Warrants and 666,666 Class C Warrants. See "Description of the Units --
The Series B Warrants."
THE PRIVATE PLACEMENT
Concurrently with the Apollo Closing, the Company sold to certain
purchasers (the "Private Purchasers"), 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 Company has granted
certain registration rights to the Private Purchasers with respect to the Series
B Redeemable Preferred Stock and the Warrant Shares (as defined), including,
subject to certain limitations, (a) the Company's obligation to use its best
efforts to effect registration of the Series B Redeemable 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 request, the Company
will include the number of Demand Registrable Securities (as defined) that the
holders thereof wish to sell or distribute publicly under the registration
statement proposed to be filed by the Company. See "The Private Placement."
CERTAIN POTENTIAL EFFECTS OF THE APOLLO TRANSACTION, PRIVATE PLACEMENT AND
RIGHTS OFFERING ON THE BUSINESS PLAN
The Company's receipt of up to $55 million from its sale of Preferred
Stock, Warrants and Common Stock pursuant to the Apollo Transaction, Private
Placement and Rights Offering is expected to enhance the Company's ability to
implement its business plan. The Company is also exploring various possibilities
to augment its business plan by adding new real estate-related business lines
which could be expected to produce recurring operating income. Central to its
analysis of new business lines is the Company's ability to lever successfully
off its significant real estate asset position and expertise. In this regard, on
June 30, 1997, the Company, with proceeds from the sale of Series A Preferred
Stock to Apollo, acquired through SP Subsidiary a 2.9-acre parcel in the
downtown business district of Fort Lauderdale, Florida for $5.5 million on which
the subsidiary anticipates constructing a high-rise luxury apartment tower.
Also, with proceeds from the sale of Series A Preferred Stock to Apollo, SP
Subsidiary, or subsidiaries thereof, acquired on July 31, 1997, an approximate
600-acre parcel in Frisco, Texas, north of Dallas, on which it is planned to
develop approximately 1,700 units. See "The Apollo Transaction - Introduction."
The Company's scheduled payment obligations under the Foothill Debt
were substantially based on anticipated Predecessor Company asset sales during
the debt amortization period. While the Company has experienced delays in
certain significant Predecessor Company asset sales, the Company has been able
to satisfy certain substantial Foothill Debt payment obligations with the
proceeds from the Apollo Transaction and the Private Placement. On June 25,
1997, the Company paid its scheduled $21.67 million Foothill Debt amortization
obligation and prepaid an additional $7.7 million of Foothill revolving debt.
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Approximately $23.7 million of these June 25, 1997 debt payments were made with
proceeds from the Private Placement and, to a lesser extent, from the Apollo
Closing. Furthermore, the Company's receipt of up to $10 million of proceeds
from the Rights Offering will be used for working capital purposes, including
the payment of Foothill Debt. While there can be no assurance, the Company
believes that its use of new equity capital, including the proceeds from the
Rights Offering, for working capital purposes, will enable the Company to use
proceeds from future Predecessor Company asset sales for real estate acquisition
and development activities.
Management also believes that as a result of the Company's access to
new equity capital, including proceeds from the Apollo Transaction and Rights
Offering, the Company will be able to acquire new real estate development
projects more promptly and without the need for joint venture equity partners.
For example, since the Apollo Closing, the Company has used proceeds from the
sale of Series A Preferred Stock to Apollo to acquire for development, without
joint venture equity partners, the above-discussed 2.9-acre parcel in Fort
Lauderdale, Florida and an approximate 600-acre parcel in Frisco, Texas. Also,
the above-discussed use by the Company of approximately $23.7 million of
proceeds from the Private Placement and Apollo Transaction to pay Foothill Debt
enabled the Company to use approximately $2.4 million of other funds to acquire
on August 19, 1997 a 126.9-acre parcel near Orlando, Florida, which is planned
to develop 408 single family units. While the Company may continue to obtain
joint venture equity on a project-by-project basis if business circumstances
warrant such participation, even in those circumstances management believes that
the Company's ability to co-invest significant equity together with the joint
venture partner's equity may enhance the Company's bargaining capacity,
operating flexibility and profit participation in respect of such joint venture
participations. In respect of three significant real estate development joint
ventures the Company has entered into prior to the Apollo Closing, the Company
did not have available funds to make significant capital contributions to the
ventures and, as a result, was only able to retain minority residual interests
in the projects.
OTHER POTENTIAL BENEFITS OF THE APOLLO TRANSACTION TO THE COMPANY
For the reasons discussed below, the Company believes that it will
realize intangible benefits from the Apollo Transaction, in addition to the use
of up to $25 million in proceeds from the sale of Series A Preferred Stock and
Investor Warrants.
SPONSORSHIP. Apollo is a nationally successful and respected corporate
and real estate investor. The Company believes that Apollo's investment in and
association with the Company will provide it with sponsorship and credibility in
the securities and financial markets as well as in dealings with sellers in the
real estate development market. For example, the Company's ability to consummate
the Private Placement for an aggregate purchase price of $20 million was subject
to consummating the Apollo Closing. Also, since the Company's initial public
announcement of the Apollo Transaction, several real estate investment
opportunities have been presented to the Company as a result of its association
with Apollo (but no such investment has yet been made by the Company).
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<PAGE>
ABILITY OF APOLLO TO GENERATE REAL ESTATE OPPORTUNITIES FOR THE
COMPANY. Due to its visibility in the industry and the funds at its disposal,
Apollo is presented with a significant number of real estate development
opportunities that may not otherwise come to the Company's attention, or for
which the Company by itself may not be considered a qualified participant. Since
the Company's initial public announcement of the Apollo Transaction, Apollo has
presented to the Company several significant real estate development acquisition
opportunities that came to Apollo's attention (but the Company has not
consummated any of such acquisitions).
APOLLO IS A POTENTIAL SOURCE OF ADDITIONAL CAPITAL. As evidence of
Apollo's desire to invest additional capital with the Company, Apollo negotiated
for the right of first offer on up to $60 million of future joint venture
opportunities in respect of Company real estate development projects. Under the
Investment Agreement between Apollo and the Company, the Company has the
discretion to seek joint venture equity on any proposed transaction and the
Company has the right to accept third party joint venture equity on terms more
favorable than those offered by Apollo on any particular transaction.
THE RIGHTS OFFERING
Securities Offered 1,000,000 Units. Each Unit
consists of one share of Series B
Redeemable Preferred Stock and Series B
Warrants to purchase two shares of Common
Stock, issuable upon the exercise of
Rights.
Rights Each holder of Common Stock and each
holder of 1996 Warrants to purchase Common
Stock will receive at no cost to such
holder .08898 of a Right for each share of
Common Stock or 1996 Warrant to purchase a
share of Common Stock held of record by
such holder on October 8, 1997 (the
"Record Date"). No fractional Rights or
cash in lieu thereof will be distributed
by the Company. Fractional Rights will be
rounded down to the nearest whole number
that is a multiple of three. An aggregate
of approximately 1,000,000 Rights will be
distributed pursuant to the Rights
Offering. One Right plus $10.00 in cash
will entitle the holder to one Unit. An
aggregate of 1,000,000 shares of Series B
Redeemable Preferred Stock and Series B
Warrants to purchase 2,000,000 shares of
Common Stock (consisting of 666,667 Class
A Warrants, 666,667 Class B Warrants and
666,666 Class C Warrants) will be sold
upon exercise of the Rights at the
completion of the Rights Offering (the
"Unit Closing"), assuming all 1,000,000
Rights are exercised. See "The Rights
Offering -- The Rights."
Basic Subscription Privilege One Right will entitle the holder thereof
to receive, upon payment of the
Subscription Price, one Unit (the "Basic
Subscription Privilege"). Rights must be
exercised in integral multiples of three.
See "The Rights Offering -- Subscription
Privileges -- Basic Subscription
Privilege."
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<PAGE>
Oversubscription Privilege Each holder of Rights who exercises in
full such holder's Basic Subscription
Privilege may also subscribe at the
Subscription Price for additional Units
available as a result of unexercised
Rights, if any (the "Oversubscription
Privilege"). If an insufficient number of
Units is available to satisfy fully all
exercises of the Oversubscription
Privilege, the available Units will be
prorated among holders who exercise their
Oversubscription Privilege in proportion
to the number of Units each beneficial
holder subscribed for pursuant to the
Basic Subscription Privilege up to the
amount so subscribed for. See "The Rights
Offering-- Subscription Privileges--
Oversubscription Privilege."
Record Date October 8, 1997.
Subscription Price $10.00 in cash per Unit.
Expiration Date 5:00 p.m., New York City time, on November
__, 1997. Rights not exercised prior to
the Expiration Date will be void and will
no longer be exercisable by any Rights
holder and will be worthless.
Procedure for Exercising Rights The Basic Subscription Privilege and the
Oversubscription Privilege may be
exercised by properly completing and
signing the Subscription Certificate
evidencing the Rights (each, a
"Subscription Certificate"), and
forwarding such Subscription Certificate
(or following the guaranteed delivery
procedures), together with payment of the
Subscription Price for each Unit
subscribed for pursuant to the Basic
Subscription Privilege and the
Oversubscription Privilege, to American
Stock Transfer & Trust Company, as
subscription agent (the "Subscription
Agent"), on or prior to the Expiration
Date. If forwarding Subscription
Certificates by mail, it is recommended
that insured, registered mail be used. No
interest will be paid on funds delivered
in payment of the Subscription Price. See
"The Rights Offering-- Exercise of
Rights."
NO REVOCATION ONCE A HOLDER OF RIGHTS HAS EXERCISED THE
BASIC SUBSCRIPTION PRIVILEGE OR THE
OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE
MAY NOT BE REVOKED. SEE "THE RIGHTS
OFFERING -- NO REVOCATION."
Exercise Through Others Persons holding securities beneficially
and receiving Rights issuable with respect
thereto, through a broker, dealer,
commercial bank, trust company or other
nominee, as well as persons holding Common
Stock or 1996 Warrants directly who would
prefer to have such institutions effect
transactions relating to the Rights on
their behalf, should contact the
appropriate institution or nominee and
request it to effect such transaction for
them. See "The Rights Offering -- Exercise
of Rights."
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<PAGE>
Procedure for Exercising Rights Subscription Certificates will not be
mailed to holders whose addresses are
outside the United States, but will be
held by the Subscription Agent for their
accounts. To exercise the Rights
represented thereby, such holders must
notify the Subscription Agent and take all
other steps which are necessary to
exercise the Rights on or prior to 5:00
p.m., New York City time on the Expiration
Date. If no contrary instructions have
been received by such time, the Rights of
such holders will expire. See "Description
of the Rights Offering-- Foreign and
Certain Other Holders."
Transfer The Rights are transferable, and it is
expected that they will trade on the
NASDAQ National Market System until the
close of business on the last National
Market System trading day prior to the
Expiration Date. There can be no
assurance, however, that a market for the
Rights will develop or, if a market
develops, that the market will remain
available throughout the period during
which the Rights may be exercised, or as
to the price at which the Rights will
trade. See "The Rights Offering-- Method
of Transferring Rights."
Escrow of Funds Funds received upon exercise of the Basic
Subscription Privilege and the
Oversubscription Privilege will be held in
a segregated account pending conclusion of
the offering.
Preferred Stock The terms of the Series A Preferred Stock
purchased by Apollo pursuant to the
Investment Agreement and of the Series B
Redeemable Preferred Stock offered
pursuant to the Rights Offering and issued
in the Private Placement are substantially
the same except as discussed herein.
CONVERSION. Each share of Preferred Stock
will be convertible into such number of
shares of Common Stock as is obtained by
dividing the liquidation preference
(initially $10 per share for each of the
Series A Preferred Stock and the Series B
Redeemable Preferred Stock) by the
conversion price (initially $5.75 per
share). Accordingly, each share of Series
A Preferred Stock and Series B Redeemable
Preferred Stock will be convertible
initially into 1.739 shares of Common
Stock, in each case subject to adjustment
and at the holder's option at any time
prior to redemption.
DIVIDENDS. Dividends on the Preferred
Stock will be cumulative from the date of
issuance and will be payable, when, as and
if declared by the Board, quarterly at the
rate of 20% per annum of the liquidation
preference ($10 per share, plus any
accrued and unpaid dividends) (the "
Liquidation Preference"), beginning on
December 31, 1997. Under the Foothill Debt
agreements, the Company has agreed not to
declare or pay any dividend (other than
dividends payable solely in its common
stock or preferred stock) on any capital
stock of the Company. There can be no
assurance whether or when the Company will
be able to declare or pay dividends on the
Preferred Stock in the foreseeable future.
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<PAGE>
REDEMPTION. The Preferred Stock is
redeemable by the Company, in whole or in
part, after three years from the issuance
date at a redemption price in cash equal
to the Liquidation Preference. The Company
has agreed in the Investment Agreement
that without Apollo's consent, the Company
will not redeem Series A Preferred Stock
except that Apollo's consent is not
required so long as the ratio of the
aggregate amount being paid on the Series
A Preferred Stock to the aggregate amount
being paid on the Series B 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 issued
in the Rights Offering. The Company may
redeem Series B Redeemable Preferred Stock
(subject to certain consent rights of
Apollo) without proration in accordance to
the number of shares held by each holder.
In connection with any exercise of its
redemption rights, the Company will pay
any accrued but unpaid dividends on the
Preferred Stock.
PUT RIGHTS. Holders of Preferred Stock
will have certain put rights, which
entitle them to require the Company to
repurchase the Preferred Stock as follows:
(a) up to an aggregate of one-third of the
shares of each of the Series A Preferred
Stock and the Series B Redeemable
Preferred Stock after the end of the
fourth year following the issuance date
and before the end of the fifth year; (b)
up to an aggregate of two-thirds of the
shares of each of the Series A Preferred
Stock and the Series B Redeemable
Preferred Stock after the end of the fifth
year following the issuance date and
before the end of the sixth year; and (c)
up to the entire amount after the sixth
year following the issuance date, at a
repurchase price in cash equal to the
Liquidation Preference. The put rights of
the Series A Preferred Stock (but not the
Series B Redeemable Preferred Stock) are
secured by (a) a junior lien on
substantially all of the assets of the
Company and its subsidiaries, except for
the outstanding capital stock of the SP
Subsidiary and its assets and (b) a senior
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<PAGE>
lien on the outstanding capital stock of
the SP Subsidiary and on its assets. The
put rights of the Series B Redeemable
Preferred Stock will not be secured. Under
the Foothill Debt agreements, the Company
has agreed not to purchase, redeem, retire
or otherwise acquire any capital stock of
the Company (other than solely for common
stock or preferred stock of the Company).
In connection with any exercise of put
rights, the Company will pay any accrued
but unpaid dividends on the Preferred
Stock.
LIQUIDATION. The Liquidation Preference
for the Series A Preferred Stock and the
Series B Redeemable Preferred Stock is $10
per share, plus any accrued and unpaid
dividends.
NO VOTING RIGHTS. Holders of the Series A
Preferred Stock will be entitled to elect
three directors to the Board out of a
seven-member Board, but will have no other
rights to vote on matters submitted to a
vote of Stockholders, except as may be
required by applicable law. Holders of
Series B Redeemable Preferred Stock will
have no right to vote on matters submitted
to a vote of Stockholders, including the
election of directors, except as may be
required by applicable law.
NO CONSENT RIGHTS. As long as Apollo holds
at least 500,000 shares of Series A
Preferred Stock, Apollo will have certain
consent rights in respect of the Company
engaging in Major Transactions (as defined
below), including (subject to certain
exceptions): recapitalizations,
redemptions or reclassifications of the
Company's capital stock; distributions or
dividends on the Company's capital stock;
liquidation, winding-up or dissolutions of
the Company or any subsidiary; amendments
of the Company's certificate of
incorporation or bylaws; mergers or
consolidations; sales of a significant
amount of assets not contemplated by an
Approved Business Plan (as defined below);
special dividends or distributions;
entering into or amending material
contracts; significant new financings or
refinancings; issuances of securities;
unplanned major investments or capital
expenditures; transactions which would
result in a change of control of the
Company; or the commencement, undertaking
or acquisition of real estate development
projects by the SP Subsidiary and related
financing or joint venture arrangements.
See "The Apollo Transaction -- Consent
Rights." Holders of the Series B
Redeemable Preferred Stock will have no
such consent rights.
TRANSFERABILITY. Pursuant to the
Investment Agreement, the Series A
Preferred Stock will not be transferable
before February 7, 1999 unless certain
defaults or change of control events have
occurred. See "The Apollo Transaction --
Transferability Restrictions." There are
no such restrictions on the
transferability of the Series B Redeemable
Preferred Stock issued in the Rights
Offering, which will be immediately
transferable (subject to restrictions
imposed by the securities laws in the case
of affiliates of the Company). See
"Description of the Units --
Transferability."
Series B Warrants Series B Warrants to purchase 2,000,000
shares of Common Stock (consisting of
666,667 Class A Warrants, 666,667 Class B
Warrants and 666,666 Class C Warrants),
the terms of which are substantially the
same as the terms of the Investor Warrants
issued to Apollo and identical to the
Series B Warrants issued in the Private
Placement. The Class A, Class B and Class
C Warrants are identical except that they
have different minimum exercise prices
($2.00, $3.00 and $4.00 per share,
respectively).
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<PAGE>
Exercise Terms Each Series B Warrant entitles the holder
thereof to purchase one share of Common
Stock for $5.75 (the "Exercise Price"),
subject to certain antidilution and other
adjustments, exercisable immediately (the
minimum exercise price of the Class A,
Class B and Class C Warrants under their
respective adjustment provisions are
$2.00, $3.00 and $4.00 per share,
respectively).
Expiration Date June 23, 2004.
Ownership Percentages Upon consummation of the Rights Offering
(assuming all Rights are fully exercised),
(a) the Series A Preferred Stock (assuming
all 2,500,000 shares are issued to Apollo)
and the Investor Warrants will constitute
30.47% of the outstanding Common Stock and
(b) the Series B Redeemable Preferred
Stock and Series B Warrants will
constitute 24.38% of the outstanding
Common Stock (in each case on a fully
diluted basis assuming the conversion of
the Preferred Stock and the exercise of
all outstanding warrants and stock
options). See "The Apollo Transaction--
Ownership by Apollo."
Federal Income Tax Considerations For United States federal income tax
purposes, Rights holders generally will
not recognize taxable income in connection
with the issuance to them or exercise by
them of Rights. Rights holders may incur
gain or loss upon the sale of the Rights
or the Series B Redeemable Preferred Stock
and Series B Warrants acquired upon
exercise of the Rights. See "Federal
Income Tax Considerations."
Use of Proceeds The Company intends to use the proceeds of
the Rights Offering for working capital
purposes, including the payment of a
portion of the Foothill Debt.
Trading Symbols The Common Stock is traded on the NASDAQ
National Market System under the symbol
"AGLF." The Company has filed an
application to have the Rights and each
class (A, B and C) of the Series B
Warrants approved for quotation on the
NASDAQ National Market System under the
symbols "AGLFR," and "AGLFW," "AGLFZ" and
"AGLFL," respectively. The Company has
filed an application to have the Series B
Redeemable Preferred Stock to be issued in
the Rights Offering approved for quotation
on the NASDAQ Small Cap Market under the
Symbol "AGLFP," and an application to have
the Series B Redeemable Preferred Stock
issued in the Private Placement approved
for quotation on the NASDAQ SmallCap
Market under the Symbol "AGLFO." No
assurance can be given that either such
application will be approved.
Right to Terminate Rights Offering The Company expressly reserves the right,
in its sole and absolute discretion, at
any time prior to the delivery of the
Units offered hereby, to terminate the
Rights Offering if the Rights Offering is
prohibited by law or regulation or the
Board concludes, in its judgment, that it
is not in the Company's best interests to
complete the Rights Offering under the
circumstances. If the Rights Offering is
terminated, all funds received pursuant to
the Rights Offering will be promptly
refunded, without interest.
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SUMMARY HISTORICAL DATA AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical consolidated
financial data with respect to the Company for the periods ended and as of the
dates indicated. The summary historical consolidated statement of operations
data for the years ended December 31, 1994, 1995 and 1996 and the historical
consolidated balance sheet as of December 31, 1994, 1995 and 1996 are derived
from the audited Consolidated Financial Statements incorporated by reference
into this Prospectus. The summary historical consolidated statement of
operations data for the years ended December 31, 1992 and 1993 and the
historical consolidated balance sheet as of December 31, 1992 and 1993 are
derived from the audited Consolidated Financial Statements not incorporated by
reference into this Prospectus. The summary historical consolidated statement of
operations data for the six months ended June 30, 1996 and June 30, 1997 and the
summary historical consolidated balance sheet data as of June 30, 1997 are
derived from the Company's unaudited consolidated financial statements
incorporated by reference into this Prospectus. This information should be read
in conjunction with such financial statements.
See "Selected Historical Financial Data."
The following table also sets forth certain unaudited summary pro forma
financial data of the Company for the periods ended and as of the dates
indicated. The unaudited summary pro forma statement of operations data for the
year ended December 31, 1996 and the six months ended June 30, 1997 have been
prepared as if the Apollo Transaction, the Private Placement and the Rights
Offering had occurred on January 1, 1996. The unaudited summary pro forma
balance sheet data have been prepared as if the Apollo Transaction, the Private
Placement and the Rights Offering had occurred on June 30, 1997. See "Use of
Proceeds." The unaudited summary pro forma financial data does not purport to
represent what the Company's results of operations or financial condition would
actually have been had the Apollo Transaction, the Private Placement and the
Rights Offering been consummated as of such dates or to project the Company's
results of operations or financial condition for any future period or as of any
future date. The unaudited summary pro forma financial data should be read in
conjunction with the Unaudited Pro Forma Financial Information and the notes
thereto. See "Unaudited Pro Forma Financial Information" and the separate
historical Consolidated Financial Statements and notes thereto incorporated by
reference into this Prospectus.
-23-
<PAGE>
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS SIX MONTHS
ENDED ENDED ENDED
MARCH 31, DECEMBER 31, YEARS ENDED DECEMBER 31, JUNE 30,
---- ---- ------------------------------------ -------------
1992 1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: ||
Revenues: ||
Real Estate Sales: ||
Homesite $ 0.2 || $ 5.1 $ 11.8 $ 15.0 $ 24.1 $ 43.9 $ 24.2 $ 12.1
Tract 4.6 || 16.1 24.7 25.8 31.1 62.7 36.0 12.7
Residential 0.5 || 4.5 8.3 11.5 27.7 21.0 9.3 9.3
-------- || -------- -------- -------- -------- -------- -------- -------
Total real estate sales 5.3 || 25.7 44.8 52.3 82.9 127.6 69.5 34.1
Utility revenue 3.7 || 9.9 4.5 2.9 -- -- -- --
Other operating revenue 3.3 || 7.4 8.9 6.9 6.7 4.9 2.3 1.4
Interest Income 2.2 || 8.6 11.0 8.3 7.8 6.3 3.1 2.9
Other Income: ||
Reorganization reserves -- || -- -- .7 10.7 18.6 1.3 1.8
Other income -- || 14.3 1.4 34.9 5.3 7.9 7.3 0.5
-------- || -------- -------- -------- -------- -------- -------- -------
Total revenues 14.5 || 65.9 70.6 106.0 113.4 165.3 83.5 40.7
======== || ======== ======== ======== ======== ======== ======== =======
Cost and expenses: ||
Direct cost of real estate sales: ||
Homesite 0.2 || 3.5 8.5 10.5 17.2 35.2 18.4 11.2
Tract 2.4 || 6.7 15.5 17.9 26.1 51.4 29.6 11.7
Residential 0.4 || 4.0 7.2 10.1 23.1 16.7 7.1 8.4
-------- || -------- -------- -------- -------- -------- -------- -------
Total direct cost of real estate sales 3.0 || 14.2 31.2 38.5 66.4 103.3 55.1 31.3
||
Inventory valuation reserves -- || -- -- -- 4.9 12.3 -- --
Selling expense 1.2 || 4.0 7.5 7.5 9.8 13.5 5.8 4.0
Utility operating expense 2.4 || 8.1 5.0 2.0 -- -- -- --
Other operating expense 2.6 || 7.8 5.9 5.1 4.0 2.0 1.3 0.6
Other real estate costs 3.3 || 5.5 15.5 22.6 20.5 19.4 8.7 5.8
General and administrative expense 2.9 || 8.5 9.8 10.6 10.4 11.5 5.4 4.7
Depreciation 1.2 || 3.2 2.1 1.1 1.2 .9 0.5 0.4
Cost of borrowing, net of amounts capitalized 1.3 || 10.8 10.9 14.8 14.3 13.4 6.4 8.5
Other (income) expense, net 5.7 || 27.7 1.2 2.7 2.5 1.5 0.2 1.3
-------- || -------- -------- -------- -------- -------- -------- -------
Total costs and expenses 23.6 || 89.8 89.1 104.9 134.0 177.8 83.4 56.6
-------- || -------- -------- -------- -------- -------- -------- -------
||
Income (loss) before reorganization items (9.1)|| (23.9) (18.5) 1.1 (20.6) (12.5) 0.1 (15.9)
||
Income from reorganization items 12.9 || -- -- -- -- -- -- --
-------- || -------- -------- -------- -------- -------- -------- -------
Income (loss) before extraordinary items 3.8 || (23.9) (18.5) 1.1 (20.6) (12.5) 0.1 (15.9)
||
Extraordinary items 950.6 || -- -- -- -- -- -- --
||
Extraordinary gains on extinguishment of debt -- || -- -- -- -- 13.7 3.8 --
-------- || -------- -------- -------- -------- -------- -------- -------
Net income (loss) $ 954.4 || $ (23.9) $ (18.5) $ 1.1 $ (20.6) $ 1.2 $ 3.9 $ (15.9)
======== || ======== ======== ======== ======== ======== ======== =======
Income (loss) before extraordinary items ||
per common share $ .46 || $ -- $ -- $ .11 $ (2.12) $ (1.29) $ (.01) $ (1.63)
======== || ======== ======== ======== ======== ======== ======== =======
Net income (loss) per common share $ 114.11 || $ (2.45) $ (1.91) $ .11 $ (2.12) $ .12 $ .40 $ (1.63)
======== || ======== ======== ======== ======== ======== ======== =======
Weighted average common shares outstanding 8.4 || 9.8 9.7 9.6 9.7 9.7 9.7 9.8
======== || ======== ======== ======== ======== ======== ======== =======
Pro forma net income (loss) || $ 6.5 $ (13.9)
||
Preferred Dividends Earned || $ (9.0) (4.5)
|| -------- -------
Pro forma net income (loss) available to ||
Common Stock || (2.5) (18.4)
|| ======== =======
Pro forma net income (loss) per common share || $ (0.22) $ (1.59)
|| ======== =======
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS SIX MONTHS
ENDED ENDED ENDED
MARCH 31, DECEMBER 31, YEARS ENDED DECEMBER 31, JUNE 30,
---- ---- ------------------------------------ -------------
1992 1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA: (a) ||
||
NET INCOME 954.4 || (23.9) (18.5) 1.1 (20.6) 1.2 3.9 (15.9)
||
Cash flows from operating activities 41.9 || 14.8 (17.9) (33.2) (24.9) 15.0 22.1 (2.2)
||
Cash flows from investing activities 0.1 || 43.6 17.2 43.9 2.2 30.4 26.3 11.9
||
Cash flows from financing activities 37.3 || (12.6) (34.7) (12.1) 13.9 (41.9) (43.0) (12.3)
||
Net cash interest expense (b) 1.3 || 13.6 18.3 14.6 14.7 13.5 6.6 7.6
||
Capital expenditures (0.4) || (1.1) (1.1) (3.6) (1.6) (0.2) (0.2) (0.2)
||
Ratios: ||
||
Earnings to fixed charges ||
and preferred stock dividends (c) 204.1x || (0.0)x 0.4x 1.0x 0.1x 1.1x 1.4x (0.5)x
||
Pro Forma: ||
||
NET INCOME || (15.9)
||
Net interest expense (d) ||
||
Net cash interest expense || 7.6
||
Pro Forma Ratios: ||
||
Earnings to fixed charges and ||
preferred stock dividends (c) || 0.0
||
BALANCE SHEET DATA (END OF PERIOD): ||
||
Cash and investments 3.5 || 49.2 13.8 12.3 3.6 7.1 8.9 4.5
||
Total assets 476.5 || 439.2 367.2 348.6 332.8 263.4 279.9 226.0
||
Long term debt, including current maturities 235.9 || 228.2 203.3 190.3 221.0 169.2 180.3 130.2
||
Stockholders' equity 119.9 || 94.5 73.2 74.7 54.4 56.4 58.3 50.8
||
Pro Forma: ||
||
Cash and investments || 4.5
||
Long term debt, including current maturities || 120.2
||
Cumulative redeemable convertible preferred stock || 40.1
||
Stockholders' equity || 51.1
||
</TABLE>
-25-
<PAGE>
- ---------------
(a) FRESH START REPORTING - The Company's consolidated financial statements
subsequent to March 31, 1992 have been prepared as if the Company were
a new reporting entity and reflect the recording of the Company's
assets and liabilities at their fair values as of March 31, 1992 and
the discharge of pre-petition liabilities relating to creditors' claims
against the Company. The reorganization value of the Company was
determined after consideration of several factors and by reliance on
various valuation methods, including discounted cash flows and other
applicable ratios. The factors considered by the Company and its
independent advisors included forecasted operating and cash flows
results which gave effect to the estimated impact of corporate
restructuring and other operating program changes, limitations on the
use of the available net operating loss carryovers and other tax
attributes resulting from the plan of reorganization and other events,
the discounted residual value at the end of the forecast period based
on the capitalized cash flows for the last year of that period, market
share and position, competition and general economic considerations,
projected sales growth, potential profitability and working capital
requirements. The Company's change in basis creates a lack of
comparability for reporting periods prior to March 31, 1992 and a lack
of comparability to other entities.
(b) NET CASH INTEREST EXPENSE - represents net interest expense plus
interest capitalized less amortized finance costs and accreted interest
costs.
(c) EARNINGS TO FIXED CHARGES - 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.
(d) NET INTEREST EXPENSE - is also described as cost of borrowing, net of
amounts capitalized and represents actual interest charges incurred
during the period plus amortization of certain non-cash debt issuance
costs and accretion of interest on certain discounted notes less
interest capitalized to real estate projects.
-26-
<PAGE>
RISK FACTORS
Prior to making an investment decision, holders of Rights should
consider carefully the following factors relating to the Company's business and
the Rights Offering, together with the information and financial data set forth
elsewhere in this Prospectus or incorporated by reference herein.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking" statements that are subject
to risks and uncertainties. Such forward-looking statements include (a)
expectations and estimates as to the Company's future financial performance,
including growth and opportunities for growth in revenues, net income and cash
flow; (b) the advantages and benefits and disadvantages of the Apollo
Transaction, the Private Placement and the Rights Offering; (c) the
opportunities for cash flow growth through the use of the net proceeds from the
Apollo Transaction, the Private Placement and the Rights Offering; and (d) those
other statements preceded by, followed by or that include the words "believes,"
"expects," "intends," "anticipates," "potential" or similar expressions. For
these statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. The following important factors, in addition to those discussed
elsewhere in this Prospectus, could affect the Company's future results and
could cause those results to differ materially from those expressed in the
forward-looking statements: (a) the inability to generate growth in revenues and
net income; (b) the inability to generate sufficient cash flows from operations
to fund capital expenditures and debt service; (c) unanticipated capital
expenditures, including costs associated with real estate development projects;
(d) the inability to realize significant benefits as a result of the Apollo
Transaction, the Private Placement and the Rights Offering or to realize
increases in revenues, net income or cash flow as a result of such transactions;
(e) unanticipated costs, difficulties or delays in completing or realizing the
intended benefits of development projects; (f) adverse changes in current
financial market and general economic conditions, including interest rate
increases; and (g) actions by competitors.
HIGH LEVEL OF DEBT; LIMITED CAPITAL RESOURCES
The Company has a high level of debt. Approximately $21.67 million of
Foothill Debt 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
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.
-27-
<PAGE>
MARKET RISK IN EXERCISING RIGHTS
There can be no assurance that the market value of the Series B
Redeemable Preferred Stock, the Series B Warrants or the Common Stock into which
the Series B Redeemable Preferred Stock may be converted or for which the Series
B Warrants may be exercised will not be below the allocated portion of the
Subscription Price or the implied conversion price of the Common Stock, as the
case may be, between the time a holder exercises a Right and the time the holder
takes delivery of the Series B Redeemable Preferred Stock or thereafter. The
exercise of a Right is irrevocable.
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. Accordingly, Stockholders who do not exercise their
Rights in full may realize a dilution in their voting rights and percentage
interest in future net earnings, if any, of the Company. Moreover, the
conversion of the Series A Preferred Stock and the exercise of the Investor
Warrants and the 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
The Series B Redeemable Preferred Stock and the Series B Warrants are
immediately detachable from each other, will be represented by separate
certificates and are separately tradeable. The Company will not apply for
inclusion of the Units on NASDAQ and, although it is possible that some
broker-dealers may seek to have the Units listed on the NASD Electronic Bulletin
Board or, in the National Quotation Bureau's pink sheets at some time in the
future, such Units are not likely to be tradeable. 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 NASDAQ of the Series B
Redeemable Preferred Stock and 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
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.
-28-
<PAGE>
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 by a junior lien on
substantially all of the assets of the Company and its subsidiaries, except for
the outstanding capital stock and assets of the SP Subsidiary, and by a senior
lien on the outstanding capital stock of the SP Subsidiary and on its assets.
The put rights of the holders of the Series B 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
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.
-29-
<PAGE>
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
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.
-30-
<PAGE>
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
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.
-31-
<PAGE>
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing transferable Rights to the record holders
of its outstanding Common Stock and 1996 Warrants as of the Record Date, at no
cost to such record holders. The Company will distribute .08898 of a Right for
each share of Common Stock or 1996 Warrant to purchase a share of Common Stock
held on the Record Date (representing 1,000 divided by 11,514,269 outstanding
shares of Common Stock on the Record Date (a) less the 1,776,999 shares of
Common Stock sold in the Private Placement, (b) plus the 1,500,000 shares of
Common Stock for which the 1996 Holders would be entitled to subscribe for if
they had fully exercised their 1996 Warrants on the Record Date). One Right plus
$10.00 in cash will entitle the holder to purchase one Unit, consisting of one
share of Series B Redeemable Preferred Stock and two Series B Warrants. The
Rights will be evidenced by transferable Subscription Certificates. (Each 1996
Warrant entitles the holder thereof to purchase one share of Common Stock for
$6.50, subject to certain antidilution adjustments. The 1996 Warrants also
provide, among other things, that if the Company grants to its Stockholders
rights to subscribe for additional Company securities that the holders of 1996
Warrants would have been entitled to subscribe for if, immediately prior to such
grant, they had exercised their 1996 Warrants, the Company shall also grant to
such holders the same subscription rights that the holders would be entitled to
if they had fully exercised their 1996 Warrants).
No fractional Rights or cash in lieu thereof will be issued or paid.
Instead, the number of Rights distributed to each holder of Common Stock or 1996
Warrants will be rounded down to the nearest whole number that is a multiple of
three. No Subscription Certificate may be divided in such a way as to permit the
holder of such Certificate to receive a greater number of Rights than the number
to which such Subscription Certificate entitles its holder, except that a
depository, bank, trust company or securities broker or dealer holding Common
Stock or 1996 Warrants on the Record Date for more than one beneficial owner
may, upon proper showing to the Subscription Agent, exchange its Subscription
Certificate to obtain a Subscription Certificate for the number of Rights to
which all such beneficial owners in the aggregate would have been entitled had
each been a record holder on the Record Date. The Company reserves the right to
refuse to issue any such Subscription Certificate if such issuance would be
inconsistent with the principle that each beneficial owner's holdings will be
rounded to the nearest whole number of Rights that is a multiple of three.
Because the number of Rights distributed to each record holder will be
rounded to the nearest whole number that is a multiple of three, beneficial
owners who are also the record holders will receive more Rights under certain
circumstances than beneficial owners who are not the record holders of their
securities and who do not obtain (or cause the record holder of their shares to
obtain) a separate Subscription Certificate with respect to the securities
beneficially owned by them, including those held in an investment advisory or
similar account. To the extent that record holders or beneficial owners who
obtain a separate Subscription Certificate receive more Rights, they will be
able to subscribe for more Units.
SUBSCRIPTION PRIVILEGES
BASIC SUBSCRIPTION PRIVILEGE. One Right will entitle the holder thereof
to receive, after payment of the Subscription Price, one Unit, consisting of one
share of Series B Redeemable Preferred Stock and two Series B Warrants. Rights
must be exercised in integral multiples of three.
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OVERSUBSCRIPTION PRIVILEGE. Subject to the allocation described below,
each Right also carries the right to subscribe at the Subscription Price for
additional Units not subscribed for through the exercise of the Basic
Subscription Privilege by other Rights holders (the "Excess Units"). Only Rights
holders who exercise the Basic Subscription Privilege in full will be entitled
to exercise the Oversubscription Privilege.
If the Excess Units are not sufficient to satisfy all subscriptions
pursuant to the Oversubscription Privilege, the Excess Units will be allocated
pro rata (subject to the elimination of fractional Units) among those Rights
holders exercising the Oversubscription Privilege, in proportion, not to the
number of shares requested pursuant to the Oversubscription Privilege, but to
the number of Units each beneficial holder subscribed for pursuant to the Basic
Subscription Privilege; provided, however, that if such pro rata allocation
results in any Rights holder being allocated a greater number of Excess Units
than such holder subscribed for pursuant to the exercise of such holder's
Oversubscription Privilege, then such holder will be allocated only such number
of Excess Units as such holder subscribed for and the remaining Excess Units
will be allocated among all other holders exercising the Oversubscription
Privilege.
Banks, brokers and other nominee holders of Rights who exercise the
Basic Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company in connection with the exercise of the Oversubscription
Privilege, as to the aggregate number of Rights that have been exercised and the
number of Units that are being subscribed for pursuant to the Oversubscription
Privilege by each beneficial owner of Rights on whose behalf such nominee holder
is acting.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., New York City time, on November
__, 1997. After the Expiration Date, unexercised Rights will be null and void.
The Company will not be obligated to honor any purported exercise of Rights
received by the Subscription Agent after the Expiration Date, regardless of when
the documents relating to such exercise were sent, except pursuant to the
Guaranteed Delivery Procedures described below.
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DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price was determined by the Company and its Board in
connection with the Company agreeing with Apollo that the Series B Redeemable
Preferred Stock would be substantially the economic equivalent of the Series A
Preferred Stock. The prices of the Series A Preferred Stock and the Investor
Warrants were determined by arms-length negotiations between Apollo and the
Company. Neither the price of the Series A Preferred Stock nor the Subscription
Price should be considered as an indication of the actual value of the Company,
the Common Stock, the Series B Redeemable Preferred Stock or the Series B
Warrants. There can be no assurance that the market price of the Common Stock
will not decline during the subscription period or that, following the issuance
of the Rights and of the Units upon exercise of Rights, a subscribing Rights
holder will be able to sell Series B Redeemable Preferred Stock and Series B
Warrants purchased in the Rights Offering at an aggregate price equal to or
greater than the Subscription Price. The allocation of the aggregate purchase
price between the Series A Preferred Stock and the Series A Warrants was
determined by Apollo (subject to the agreement of the Company) and was based on
Apollo's estimate, using the Black-Scholes Option Valuation Model, of the
reasonable range of values for the Series A Warrants.
EXERCISE OF RIGHTS
Rights may be exercised by delivery to the Subscription Agent, on or
prior to the Expiration Date, of the properly completed and duly executed
Subscription Certificate evidencing such Rights (together with any required
signature guarantees), accompanied by payment in full of the Subscription Price
for each Unit subscribed for pursuant to the Basic Subscription Privilege and
the Oversubscription Privilege (the total number of which Units must be an
integral multiple of three). Such payment in full must be made by (a) check or
bank draft drawn upon a United States bank or postal, telegraphic or express
money order payable to "American Stock Transfer & Trust Company, as Subscription
Agent"; or (b) wire transfer of funds to the account maintained by the
Subscription Agent for such purpose at Chase Manhattan Bank, New York, Account
No. 610093045, ABA No. 021000021, for the account of American Stock Transfer &
Trust Company as agent for Atlantic Gulf Communities Corporation. Payment of the
Subscription Price will be deemed to have been received by the Subscription
Agent only upon (a) clearance of any uncertified check, (b) receipt by the
Subscription Agent of any certified check or bank draft drawn upon a U.S. bank
or of any postal, telegraphic or express money order, or (c) receipt of good
funds in the Subscription Agent's account designated above. PLEASE NOTE THAT
FUNDS PAID BY UNCERTIFIED PERSONAL CHECK MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR. ACCORDINGLY, HOLDERS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF
UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF
THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH
DATE, AND ARE URGED TO CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S
CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
Subscription Certificates and payment of the Subscription Price should
be delivered to one of the addresses set forth below under "--Subscription
Agent."
If a Rights holder wishes to exercise Rights, but time will not permit
such holder to cause the Subscription Certificate(s) evidencing such Rights to
reach the Subscription Agent on or prior to the Expiration Date, such Rights may
nevertheless be exercised if all of the following conditions (the "Guaranteed
Delivery Procedures") are met:
(a) such holder has caused payment in full of the Subscription Price
for each Unit being subscribed for pursuant to the Basic Subscription Privilege
and the Oversubscription Privilege to be received (in the manner set forth
above) by the Subscription Agent on or prior to the Expiration Date;
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(b) the Subscription Agent receives, on or prior to the Expiration
Date, a notice of guaranteed delivery (a "Notice of Guaranteed Delivery"),
substantially in the form provided with the Instructions distributed with the
Subscription Certificates, from a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States, stating the name of the exercising Rights
holder, the number of Rights represented by the Subscription Certificate(s) held
by such exercising holder, the number of Units being subscribed for pursuant to
the Basic Subscription Privilege and the number of Units, if any, being
subscribed for pursuant to the Oversubscription Privilege, and guaranteeing the
delivery to the Subscription Agent of any Subscription Certificate(s) evidencing
such Rights within three National Market System trading days following the date
of the Notice of Guaranteed Delivery; and
(c) the properly completed and duly executed Subscription
Certificate(s), including any required signature guarantees, evidencing the
Rights being exercised is received by the Subscription Agent within three
National Market System trading days following the date of the Notice of
Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may be
delivered to the Subscription Agent in the same manner as Subscription
Certificates at the addresses set forth below, or may be transmitted to the
Subscription Agent by facsimile transmission (facsimile no. (718) 234-5001).
Additional copies of the form of Notice of Guaranteed Delivery are available
upon request from the Information Agent.
Unless a Subscription Certificate (a) provides that the Units to be
issued pursuant to the exercise of Rights represented thereby are to be
delivered to the record holder of such Rights or (b) is submitted for the
account of a member firm of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the United States,
signatures on such Subscription Certificate must be guaranteed by an eligible
guarantor institution ("Eligible Guarantor Institution") as defined in Rule
17Ad-15 of the Exchange Act, subject to the standards and procedures adopted by
the Subscription Agent.
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Funds received in payment of the Subscription Price for Units will be
held in a segregated account pending issuance of such Units. If a Rights holder
exercising the Oversubscription Privilege is allocated less than all of the
Excess Units that such holder wished to subscribe for pursuant to the
Oversubscription Privilege, the excess funds paid by such holder in respect of
the Subscription Price for shares not issued will be returned by mail without
interest or deduction as soon as practicable after the Expiration Date.
Certificates representing Units purchased will be delivered to the purchaser as
soon as practicable after the Expiration Date and after all allocations have
been effected. It is expected that such certificates will be available for
delivery three business days following the Expiration Date.
A holder who holds Common Stock or 1996 Warrants for the account of
others, such as a broker, a trustee or a depository for securities, should
notify the respective beneficial owners thereof as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights beneficially owned by them. Beneficial owners of Common Stock, 1996
Warrants or Rights held through such a holder of record should contact the
holder and request the holder to effect transactions in accordance with the
beneficial owner's instructions.
If either the number of Rights being exercised is not specified on a
Subscription Certificate, or the payment delivered is not sufficient to pay the
full aggregate Subscription Price for all Units stated to be subscribed for, the
Rights holder will be deemed to have exercised the maximum number of Rights that
could be exercised for the amount of the payment delivered by such Rights
holder. If the payment delivered by the Rights holder exceeds the aggregate
Subscription Price for the number of Rights evidenced by the Subscription
Certificate(s) delivered by such Rights holder, the payment will be applied,
until depleted, to subscribe for Units in the following order: (a) to subscribe
for the number of Units, if any, indicated on the Subscription Certificate(s)
pursuant to the Basic Subscription Privilege; (b) to subscribe for Units until
the Basic Subscription Privilege has been fully exercised with respect to all of
the Rights represented by the Subscription Certificate; and (c) to subscribe for
additional Units pursuant to the Oversubscription Privilege (subject to any
applicable proration). Any excess payment remaining after the foregoing
allocation will be returned to the Rights holder as soon as practicable by mail,
without interest or deduction.
The Instructions accompanying the Subscription Certificates should
be read carefully and followed in detail. DO NOT SEND SUBSCRIPTION
CERTIFICATES TO THE COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION DATE.
BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR, RIGHTS HOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY
MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
Certain directors and officers of the Company will assist the Company
in the Rights Offering by, among other things, participating in informational
meetings regarding the Rights Offering, generally being available to answer
questions of potential subscribers and soliciting orders in the Rights Offering.
None of such directors or officers will receive additional compensation for such
services. None of such directors and officers are registered as securities
brokers or dealers under the federal or applicable state securities laws, nor
are any of such persons affiliated with any broker or dealer. Because none of
such persons are in the business of either effecting securities transactions for
others or buying and selling securities for their own account, they are not
required to register as brokers or dealers under the federal securities laws. In
addition, the proposed activities of such directors and officers are exempted
from registration pursuant to a specific safe harbor provision under Rule 3a4-1
under the Exchange Act. Substantially similar exemptions from registration are
available under applicable state securities laws.
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All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Company, whose
determinations will be final and binding. The Company, in its sole discretion,
may waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any Right by reason of any defect or irregularity in such exercise.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Company
determines in its sole discretion. Neither the Company nor the Subscription
Agent will be under any duty to give notification of any defect or irregularity
in connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus, the
Instructions or the Notice of Guaranteed Delivery should be directed to the
Information Agent, American Stock Transfer & Trust Company, at its address set
forth on the back cover page of this Prospectus.
NO REVOCATION
AFTER A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE
OR THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED BY SUCH
RIGHTS HOLDER.
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment channels,
including banks and brokers. It is anticipated that the Rights will be quoted
for trading on the NASDAQ National Market System until the close of business on
the last National Market System trading day preceding the Expiration Date.
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the Instructions. A portion of the Rights evidenced by a single
Subscription Certificate (which portion must be an integral multiple of three)
may be transferred by delivering to the Subscription Agent a Subscription
Certificate properly endorsed for transfer, with instructions to register such
portion of the Rights evidenced thereby in the name of the transferee (and to
issue a new Subscription Certificate to the transferee evidencing such
transferred Rights). In such event, a new Subscription Certificate evidencing
the balance of the Rights will be issued to the Rights holder or, if the holder
so instructs, to an additional transferee.
Rights holders wishing to sell all or a portion of their Rights should
allow a sufficient amount of time prior to the Expiration Date for (a) the
transfer instructions to be received and processed by the Subscription Agent,
(b) a new Subscription Certificate to be issued and transmitted to the
transferee or transferees with respect to transferred Rights, and to the
transferor with respect to retained Rights, if any, and (c) the Rights evidenced
by such new Subscription Certificates to be exercised or sold by the recipients
thereof. Neither the Company nor the Subscription Agent shall have any liability
to a transferee or transferor if Subscription Certificates are not received in
time for exercise or sale prior to the Expiration Date.
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Except for fees charged by the Subscription Agent (which will be paid
by the Company as described herein), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will be
paid by the Company or the Subscription Agent.
PROCEDURES FOR BOOK ENTRY TRANSFER FACILITY PARTICIPANTS
The Company anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Basic Subscription Privilege may be
effected through, the facilities of Depository Trust Company ("DTC"). Rights
exercised through DTC are referred to herein as "DTC Exercised Rights." The
holder of a DTC Exercised Right may exercise the Oversubscription Privilege in
respect of such DTC Exercised Right by properly executing and delivering to the
Subscription Agent on or prior to the Expiration Date, a DTC Participant
Oversubscription Exercise Form, together with payment of the appropriate
Subscription Price for the number of Units for which the Oversubscription
Privilege is to be exercised. Copies of the DTC Participant Oversubscription
Exercise Form may be obtained from the Information Agent.
FOREIGN AND CERTAIN OTHER HOLDERS
Subscription Certificates will not be mailed to Stockholders and 1996
Holders whose addresses are outside the United States, but will be held by the
Subscription Agent for each such holder's account. To exercise their Rights,
such persons must notify the Subscription Agent at or prior to 5:00 p.m., New
York time, on the Expiration Date. Such holders Rights expire at the Expiration
Date.
SUBSCRIPTION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Subscription Agent for the Rights Offering. The Subscription Agent's address,
which is the address to which the Subscription Certificates and payment of the
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Subscription Price should be delivered, as well as the address to which Notice
of Guaranteed Delivery must be delivered, is:
40 Wall Street, 46th Floor
New York, New York 10005
Attn: Corporate Stock Transfer Department
The Subscription Agent's telephone number is (718) 921-8200 and its
facsimile number is (718) 234-5001.
The Company will pay the fees and expenses of the Subscription Agent,
and has also agreed to indemnify the Subscription Agent from any liability which
it may incur in connection with the Rights Offering.
INFORMATION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Information Agent for the Rights Offering. Any questions or requests for
additional copies of this Prospectus, the Instructions or the Notice of
Guaranteed Delivery may be directed to the Information Agent at the following
address and telephone number:
Attn: Reorg Department
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Telephone: (800) 937-5449
Facsimile: (718) 234-5001
The Company will pay the fees and expenses of the Information Agent and
has also agreed to indemnify the Information Agent from certain liabilities that
it may incur in connection with the Rights Offering.
The Company has not employed any brokers, dealers or underwriters in
connection with the solicitation of exercises of Rights in the Rights Offering,
and, except as described above, no other commissions, fees or discounts will be
paid in connection with the Rights Offering. Certain employees of the Company
may solicit responses from Rights holders, but such employees will not receive
any commissions or compensation for such services other than their normal
employment compensation.
BOARD DETERMINATION
The Board has determined that the transactions contemplated by the
Investment Agreement, including the Rights Offering, are in the best interests
of the Company.
DESCRIPTION OF THE UNITS
The Units offered in the Rights Offering each consist of one share of
Series B Redeemable Preferred Stock and two Series B Warrants.
The Series B Warrants are immediately detachable, transferable and
separately tradeable from the Series B Redeemable Preferred Stock with which
they are issued. The Units will be evidenced by separate certificates for the
Series B Redeemable Preferred Stock and the Series B Warrants which comprise the
Units.
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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."
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).
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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
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.
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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
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.
VOTING RIGHTS. The holders of Series B Redeemable Preferred Stock will
not vote on the election of Company directors or on any other
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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
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
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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
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.
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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
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.
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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."
THE SERIES B WARRANTS
The Series B Warrants will be issued pursuant to the Warrant Agreement
(the "Warrant Agreement") between the Company and American Stock Transfer &
Trust Co., as warrant agent (the "Warrant Agent"). The following discussion of
certain terms and provisions of the Series B Warrants is qualified in its
entirety by reference to the detailed provisions of the Series B Warrant
Agreement and the Series B Warrant certificate, the forms of which are attached
hereto as Appendix B.
Assuming all Rights are exercised, the Company will issue pro rata to
purchasers of Units an aggregate of 2,000,000 Series B Warrants in three
classes: 666,667 Class A Warrants, 666,667 Class B Warrants and 666,666 Class C
Warrants. There are outstanding as of the date hereof 2,000,000 Series B
Warrants, consisting of 666,667 Class A Warrants, 666,667 Class B Warrants and
666,666 Class C Warrants, issued in the Private Placement. There are also
outstanding as of the date hereof 3,992,950 Investor Warrants, consisting of
1,330,983 Class A Warrants, 1,330,984 Class B Warrants and 1,330,983 Class C
Warrants, issued to Apollo under the Investment Agreement. The terms of the
Series B Warrants and the Investor Warrants are substantially the same except
for differences discussed herein.
GENERAL. Each Series B Warrant entitles the holder, subject to the
terms and conditions of the Series B Warrant, to purchase one share of Common
Stock at an exercise price of $5.75, subject to certain antidilution adjustments
and to the cash flow adjustment described below (the "Exercise Price").
NUMBER AND CLASSES OF WARRANTS. The Series B Warrants will be issued in
three classes as noted above. The classed are identical except that they have
different minimum exercise prices described below.
EXERCISE PRICE AND TERM. The Series B Warrants will have an Exercise
Price of $5.75 per share, subject to certain antidilution and other adjustments
described below. Unexercised Series B Warrants will expire on June 23, 2004.
RESERVATION OF WARRANT SHARES. In the Warrant Certificate, the Company
represents that it has sufficient Common Stock reserved for issuance upon
exercise of all outstanding Series B Warrants and the Company agrees that,
during the term of the Series B Warrant, there will be reserved for issuance
upon exercise of the Series B Warrants, free from preemptive rights, such number
of shares of authorized but unissued or treasury Common Stock, as will be
required for issuance upon exercise of the Series B Warrants. See " -- Charter
Amendments." The Company also agrees (a) that it will not, by amendment of its
restated certificate of incorporation or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed under the Series B
Warrant by the Company and (b) to take promptly all action as may from time to
time be required to permit the holder to exercise the Series B Warrants and the
Company duly and effectively to issue Common Stock issuable upon the exercise of
the Series B Warrants (the "Warrant Shares").
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"CASH FLOW ADJUSTMENT" OF EXERCISE PRICE. The Exercise Price is subject
to downward adjustment as described below by March 31, 1999 (the "Cash Flow
Adjustment"). The Exercise Price will be adjusted downward by $0.015 for every
$100,000 by which Actual Cumulative Operating Cash Flow is less than Targeted
Cumulative Operating Cash Flow, on a cumulative basis for 1997 and 1998. Actual
Operating Cash Flow in 1998 in excess of Target Operating Cash Flow for 1998
will be applied at a 15% discount for such excess in the cumulative calculation.
Notwithstanding the Cash Flow Adjustment provisions, the Exercise Price as
adjusted will in no event be less than $2.00 per share for the Class A Warrants,
$3.00 per share for the Class B Warrants and $4.00 per share for the Class C
Warrants. Also, no Cash Flow Adjustment will be made if, on December 31, 1998,
and on an average basis during the three months ending on December 31, 1998, the
average Closing Price for the Common Stock is greater than $9.75, which is equal
to the original Exercise Price plus $4.00 per share (adjusted in accordance with
certain antidilution provisions).
Target Cumulative Operating Cash Flow equals $62,443,000. Actual
Cumulative Operating Cash Flow equals the sum of the Actual Operating Cash Flow
for the year ending December 31, 1997 and the Actual Operating Cash Flow for the
year ending December 31, 1998, minus 0.15 times the Excess 1998 Operating Cash
Flow. Actual Operating Cash Flow for any year means the net cash proceeds
derived by the Company from the operation in the ordinary course of its business
and from the bulk asset sales contemplated by the Business Plan, calculated the
same as, and using the same accounting principles and practices and
classification systems and techniques as were used in, the calculation of the
Target Cumulative Operating Cash Flow. Excess 1998 Operating Cash Flow means the
Actual Operating Cash Flow for the year ending December 31, 1998 minus
$3,028,000.
The Company will cause the financial statements for the Company and its
consolidated subsidiaries for the fiscal year ending on December 31, 1998, to be
audited by Ernst & Young, LLP, or another national independent accounting firm,
and a manually signed copy of such financial statements to be delivered to the
holders of the Series B Redeemable Preferred Stock and Series B Warrants as soon
as practicable following December 31, 1998, but in no event later than March 31,
1999 (the date such financial statements are so delivered, the "Adjustment
Date"). Any reduction of the Exercise Price will be effective as of the
Adjustment Date.
ANTIDILUTION ADJUSTMENTS. The Exercise Price and the number of shares
of Common Stock purchasable upon the exercise of the Series B Warrants will be
subject to adjustment from time to time upon the following events: (a) if the
Company (i) declares a dividend or makes a distribution on the outstanding
Common Stock in capital stock of the Company, (ii) subdivides or reclassifies
the outstanding Common Stock into a greater number of shares (or into other
securities or property), or (iii) combines or reclassifies the outstanding
Common Stock into a smaller number of shares (or into other securities or
property); (b) if the Company fixes a record date for the issuance of rights or
warrants to all holders of Common Stock entitling them to subscribe for or
purchase Common Stock (or securities convertible into or exchangeable for Common
Stock) (other than Series B Redeemable Preferred Stock) at a price per share
less than the Current Market Price of a share of Common Stock on such record
date; (c) if the Company fixes a record date for the making of a distribution to
all holders of Common Stock (i) of shares of any class other than Common Stock,
(ii) of evidences of indebtedness of the Company or any subsidiary, (iii) of
assets or other property or (iv) of rights or warrants (excluding rights or
warrants resulting in an adjustment pursuant to paragraph (b) above, and the
right to acquire Series B Redeemable Preferred Stock in the Rights Offering);
(d) if the Company issues its Common Stock (other than certain Common Stock
issued (i) to the Company's employees or former employees or their estates under
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certain employee benefit plans, (ii) pursuant to the 1996 Warrants, (iii)
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; and (e) if the Company issues any
securities convertible into or exchangeable for Common Stock (excluding
securities issued in transactions resulting in an adjustment pursuant to clauses
(b) and (c) above, Series A Preferred Stock, Series B Redeemable Preferred Stock
and upon conversion of any of such securities) for a consideration per share of
Common Stock deliverable upon conversion or exchange of such securities less
than the Current Market Price per share in effect immediately prior to the
issuance of such securities. Current Market Price per share at any date means
the average of the daily closing price for the Common Stock for the 10
consecutive trading days commencing 14 trading days before such date.
In the event of any consolidation with or merger of the Company into
another corporation, or in the event of any sale, lease or conveyance of assets
to another corporation of the property of the Company as an entirety or
substantially as an entirety, then such successor, leasing or purchasing
corporation, as the case may be, will be bound by the Warrant Certificate and
will execute and deliver a new Warrant Certificate providing that the holder of
each Series B Warrant then outstanding will have the right to exercise such
Warrant solely for the kind and amount of shares of stock, other securities,
property or cash or any combination thereof e receivable upon such
consolidation, merger, sale, lease or conveyance by a holder of the number of
shares of Common Stock for which such Warrants might have been exercised
immediately prior to such consolidation, merger, sale, lease or conveyance.
In the event of any reclassification or change of the Common Stock
issuable upon exercise of the Series B Warrants, or in the event of any
consolidation or merger of another corporation into the Company in which the
Company is the continuing corporation and in which there is a reclassification
or change of the Common Stock, the Company will execute and deliver to the
holder of the Series B Warrant a new Warrant Certificate providing that the
holder of each Series B Warrant then outstanding will have the right to exercise
such Warrant solely for the kind and amount of shares of stock, other
securities, property or cash or any combination thereof receivable upon such
reclassification, change, consolidation or merger, by a holder of the number of
shares of Common Stock for which such Warrant might have been exercised
immediately prior to such reclassification, change, consolidation or merger.
If the Company repurchases any Common Stock for a per share
consideration which exceeds the Current Market Price of a share of Common Stock
on the trading day immediately prior to such repurchase, then the Company will
issue to the holder additional Series B Warrants having the Exercise Price in
effect on the trading day immediately prior to such repurchase.
The formulas for calculating the foregoing adjustments are set forth in
the form of Warrant Agreement, Appendix B hereto.
In addition to the adjustment required in accordance with the
foregoing, the Company may make such reductions in the Exercise Price as it
considers to be advisable so that any event treated for federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients.
If any event occurs as to which the foregoing provisions are not
strictly applicable, or if strictly applicable, would not, in the Board's good
faith judgment, fairly protect the purchase rights of the Series B Warrants in
accordance with the essential intent and principles of such provisions, then the
Board will make adjustments in the application of such provisions, in accordance
with such essential intents and principles, as shall be reasonably necessary, in
the Board's good faith opinion, to protect such purchase rights as aforesaid,
but in no event will any adjustment have the effect of increasing the Exercise
Price or decreasing the number of shares of Common Stock subject to purchase
upon exercise of the Series B Warrants, or otherwise adversely affect the
holders of the Series B Warrants.
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FEES AND EXPENSES. All fees and expenses incurred by the holder in
connection with the holder's ownership of Series B Warrants and securities or
other property received upon exercise thereof which relate to (a) any required
regulatory filings, (b) registration fees, (c) stock exchange or NASDAQ listing
fees, and (d) reasonable fees and expenses of counsel in connection with the
foregoing, will be paid by the Company.
VALUE DETERMINATION AND APPRAISAL. Each determination of fair market
value or other evaluation or calculation required under the Series B Warrants
(including calculation of the Cash Flow Adjustment Amount) is also required
under the Investor Warrants. The Company will promptly give notice of each such
determination, evaluation or calculation to all holders of Investor Warrants and
Series B Warrants, setting forth the calculation of such fair market value or
valuation (or Cash Flow Adjustment Amount) and the method and basis of
determination thereof, as the case may be. If any holders of Investor Warrants
to purchase at least 100,000 shares of Common Stock (including, for purposes of
determining such level of ownership, all Investor Warrants owned by affiliates
of such holders) disagree with such determination, they may elect to dispute
such determination, and such dispute shall be resolved in accordance with
certain appraisal procedures set forth in the warrant certificate for the
Investor Warrants. Holders of Series B Warrants will be bound by such
determinations.
TRANSFERABILITY
The Series B Redeemable Preferred Stock and the Series B Warrants
offered hereby to the Rights holders, and the Common Stock issuable upon
conversion or exercise thereof, have been registered under the Securities Act
and the Exchange Act. Accordingly, Series B Redeemable Preferred Stock and
Series B Warrants purchased upon the exercise of Rights and Common Stock
issuable upon conversion or exercise thereof will be freely transferable by the
holders thereof, except to the extent such stock or warrants are held by persons
who are deemed "affiliates" of the Company under Rule 144 under the Securities
Act. In general, under Rule 144, as currently in effect, persons who are deemed
affiliates of the Company would be entitled to sell within any three month
period a number of shares that does not exceed the greater of 1% of the
outstanding Common Stock or the average weekly trading volume in the
over-the-counter market during the four calendar weeks preceding such sale.
There can be no assurance that the Series B Redeemable Preferred Stock or the
Series B Warrants will qualify or be accepted for quotation on NASDAQ or that a
market will develop therefor. See "Risk Factors -- Absence of Trading Market for
the Series B Redeemable Preferred Stock and Series B Warrants." The Company has
agreed to file a shelf registration statement with the Commission with respect
to the Series B Redeemable Preferred Stock purchased in the Private Placement.
Such Series B Redeemable Preferred Stock will therefore, upon the effectiveness
of the shelf registration, also be freely transferable. See "The Private
Placement."
THE APOLLO TRANSACTION
INTRODUCTION
Pursuant to the Investment Agreement, Apollo agreed to purchase from
the Company up to 2,500,000 shares of Series A Preferred Stock, at a per share
price of $9.88, and Investor Warrants to purchase up to 5,000,000 shares of
Common Stock, at a per Warrant price of $.06, for an aggregate purchase price of
up to $25,000,000. On June 24, 1997, following Stockholders Approval at the
Annual Meeting, Apollo purchased at the Apollo Closing 553,475 shares of Series
A Preferred Stock at a per share price of $9.88 and 1,106,950 Investor Warrants
at a per Warrant price of $.06, for an aggregate purchase price of $5,534,752.
From time to time after the Apollo Closing and until Apollo has acquired all of
the 2,500,000 shares of Series A Preferred Stock and the 5,000,000 Investor
Warrants, Apollo will purchase, subject to the terms and conditions of the
Investment Agreement, additional Series A Preferred and the Proportionate Number
of Investor Warrants to enable the Company to invest in real estate development
projects approved by the Board and Apollo. If the Company has not presented
Apollo with real estate development projects
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pursuant to which Apollo has invested the aggregate purchase price of
$25,000,000, on the terms and conditions set forth in the Investment Agreement,
(a) Apollo will be entitled at any time to acquire all of the Series A Preferred
Stock and Investor Warrants not acquired by it prior thereto and (b) from and
after June 30, 1998, the Company will be entitled at any time to require Apollo
to purchase all of such Series A Preferred Stock and Investor Warrants, provided
that no Event of Default (as defined in the Secured Agreement) shall have
occurred and, except for an Event of Default which is or results from a
Bankruptcy Event (as defined), shall then exist.
Immediately after the Apollo Closing, the Company (a) contributed the
proceeds from the sale of Series A Preferred Stock and Investor Warrants, less
certain related expenses, to SP Subsidiary, a special purpose wholly owned
subsidiary of the Company formed to invest the net proceeds from the Apollo
Transaction in future real estate development projects of the Company, as
required by the Investment Agreement, and (b) transferred all of the outstanding
capital stock of the Company's subsidiary West Bay Club Development Corporation
("West Bay") to SP Subsidiary in exchange for $5 million (from the Apollo
Closing) plus, if ownership of West Bay's real estate development project (the
"West Bay Project") is converted to a joint venture, all additional amounts
received by West Bay and SP Subsidiary from the joint venture partner in respect
of the West Bay Project, which are specifically designated as reimbursements for
costs incurred by West Bay or the Company with respect to the West Bay Project
through the date of the joint venture's formation. The West Bay Project is
planned to consist of finished homesites for 313 single family homes and 744
multi-family homes on approximately 879 acres, of which 326 acres have been
purchased for approximately $6 million (of which $2.4 million was financed by
the sellers through notes secured by mortgages on the properties) and the
remaining 553 acres are under purchase contracts expected to close during the
balance of 1997 and 1998.
On June 30, 1997, the Company sold to Apollo under the Investment
Agreement an additional 334,000 shares of Series A Preferred Stock and Investor
Warrants (consisting of 222,666 Class A Warrants, 222,667 Class B Warrants and
222,667 Class C Warrants, which, if unexercised, expire on June 30, 2004) to
purchase an additional 668,000 shares of Common Stock at a per share purchase
price of $5.75 (subject to adjustment), for an aggregate purchase price of
$3,340,000. The proceeds from the sale were used by SP Subsidiary, through a
wholly owned subsidiary thereof to acquire a 2.9 acre parcel in Fort Lauderdale,
Florida on which it intends to develop a high-rise luxury apartment tower. On
July 31, 1997, the Company sold to Apollo under the Investment Agreement 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. The proceeds from the July 31, 1997 sale of Series
A Preferred Stock were used by SP Subsidiary to acquire an approximate 600-acre
parcel in Frisco, Texas, north of Dallas on which it is planned to develop
approximately 1,700 residential units as a golf course community. On August 7,
1997, the Company sold to Apollo under the Investment Agreement 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. The proceeds from the August 7, 1997 sale of Series A Preferred
Stock were used by SP Subsidiary and its subsidiary West Bay to acquire for
$10.7 million ($2.7 in cash and an $8 million note) an approximate 500-acre
parcel to be developed as part of the West Bay Project. On October 6, 1997, the
Company sold 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. The proceeds of the October 6, 1997
sale are to be used as working capital for the various SP Subsidiary projects.
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 CHARTER AMENDMENTS
As a result of the filing of the Charter Amendments with the Secretary
of State of Delaware on June 24, 1997, the Company's charter was amended and
restated, among other things, (a) to increase the Company's authorized shares of
common stock, par value $.10 per share, from 15,665,000 to 70,000,000 and (b) to
authorize the issuance of 4,500,000 shares of Preferred Stock, par value $.01
per share, 2,500,000 of which were designated Series A Preferred Stock and
2,000,000 of which were designated Series B Redeemable Preferred Stock.
The Charter Amendments deleted a provision from the charter prohibiting
the issuance of nonvoting equity securities to accommodate the limited voting
rights of the holders of the Series A Preferred Stock.
See " -- Series A Preferred Stock."
The Charter Amendments also modified the dividend rights of holders of
Common Stock by deleting the requirement that the Company pay mandatory
dividends under certain circumstances. See "Description of Capital Stock --
Common Stock."
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<PAGE>
BOARD REPRESENTATION
The holders of the Series A Preferred Stock are entitled to elect three
directors to the Board for one-year terms. Upon consummation of the Apollo
Closing, (a) eight of the then-10 Board members, including the one Apollo
designee, W. Edward Scheetz, resigned as Board members; (b) the number of Board
members was reduced from 10 to seven; (c) Apollo's three designees -- W. Edward
Scheetz, Lee Neibart and Ricardo Koenigsberger -- were appointed to the Board
for a term to expire at the annual Stockholders' meeting in 1998; (d) James M.
DeFrancia and Charles K. MacDonald were appointed to the Board for terms
expiring at the annual Stockholders' meetings in 1998 and 1999, respectively;
and (e) Gerald N. Agranoff and J. Larry Rutherford (the Company's president and
chief executive officer) resigned as Board members and were appointed to the
Board for terms expiring at the annual Stockholders' meetings in 1999 and 2000,
respectively. Also, Mr. Rutherford was elected as Chairman of the Board. See "
- -- The Series A Preferred Stock."
THE SERIES A PREFERRED STOCK
The preferences, powers and rights of the Series A Preferred Stock are
described in the Proxy Statement incorporated by reference herein. Such
preferences, powers and rights are substantially the same as those of the Series
B Redeemable Preferred Stock (see "Description of the Units -- Series B
Redeemable Preferred Stock"), except as follows. The holders of the Series A
Preferred Stock voting together as a single class will be entitled to elect, out
of a seven-member Board, three Board members (who will serve for a term of one
year); provided that if the Investor does not hold at least 500,000 shares of
Series A Preferred Stock, the number of directors that the holders of the Series
A Preferred Stock will be entitled to elect will be equal to three multiplied by
a fraction, the numerator of which is the number of shares of Series A Preferred
Stock outstanding and the denominator of which is 2,500,000, rounded up to the
nearest whole number. In addition, directors nominated by the holders of the
Series A Preferred Stock will be represented on any committee of the Board and,
if the Board decides to have an Executive Committee, will constitute one-half of
the Executive Committee of the Board. The holders of Series B Redeemable
Preferred Stock will not be entitled to vote with respect to the election of
directors. The Company has agreed in the Investment Agreement that without
Apollo's consent, the Company will not pay dividends or redeem stock except that
Apollo's consent is not required so long as the ratio of the aggregate amount
being paid on the Series A Preferred Stock to the aggregate amount being paid on
the Series B 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 issued in the Rights Offering. The Company may redeem Series B
Redeemable Preferred Stock (subject to Apollo's above discussed consent rights)
without proration in accordance to the number of shares held by each holder. The
Series A Preferred Stock put rights are secured by (a) a junior lien on
substantially all of the assets of the Company and its subsidiaries, except for
the capital stock of SP Subsidiary and its assets, and (b) a senior lien on the
outstanding capital stock of SP Subsidiary and on its assets. Apollo also was
granted the consent rights described below. The put rights of the Series B
Redeemable Preferred Stock will not be secured. An Event of Default with respect
to the Series A Preferred Stock, which triggers the Default Dividend Rate,
includes, unlike with respect to the Series B Redeemable Preferred Stock, a
material breach by the Company of (a) the provision in the Investment Agreement
prohibiting (except as permitted by the Investment Agreement) the Company from
engaging in, or entering into any agreement with respect to, any Major
Transaction, without the prior consent of the Investor or (b) (insofar as such
breach is willful and materially imperils the value of the collateral securing
the rights of the holder of the Series A Preferred Stock) the provisions in the
Secured Agreement relating to the collateral or any Security Document (as
defined in the Secured Agreement) which, in any event, is not curable or if
curable is not cured within 15 days. If the Company shall be obligated to make
Default Payments to the Holders of Series B Redeemable Preferred Stock, then
Apollo shall be entitled to receive a payment on the same terms and for the same
period with respect to its Series A Preferred Stock.
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<PAGE>
Under the Due Diligence Fee Agreement amended and restated as of May
15, 1997, the Company has agreed if a Fee Triggering Event occurs, to pay Apollo
on the last day of each month $25,000 per month ending on or prior to June 30,
1998, $40,000 per month ending after each date and on or prior to June 30, 2000,
and $75,000 per month ending thereafter (the "Fee") as compensation for in-house
and out-of-pocket expenses incurred by Apollo in the due diligence and
investment analysis required from time to time in connection with Apollo's
preliminary analysis of co-investment opportunities under the Investment
Agreement. See " -- Co-Investment Opportunity." "Fee Triggering Event" means the
occurrence while any Series A Preferred Stock is outstanding under the
Investment Agreement of any event that would cause dividends on the Series A
Preferred Stock to accrue at the Default Dividend Rate.
CONSENT RIGHTS
So long as more than 500,000 shares of the Series A Preferred Stock are
held by Apollo, and except as permitted by the Investment Agreement, the Company
may not engage in, or enter into any agreement with respect to, any Major
Transaction, without the Apollo's prior consent. "Major Transaction" means any
material transaction which is not described in an Approved Business Plan (as
defined below), including any (a) recapitalization, redemption or
reclassification of, or distribution or dividend on, the Company's capital stock
provided, however, that subject to the terms and conditions of the Investment
Agreement and Secured Agreement, neither (i) any action or determination by the
Company in respect of any Series A Preferred Stock that is not otherwise
prohibited by the Investment Agreement and is in accordance with the Series A
Statement of Designations, including dividends and redemptions, nor (ii) any
dividends on or redemptions of Series B Redeemable Preferred Stock in accordance
with the Series B Statement of Designations, or any action in respect of the
Series B Redeemable Preferred Stock required to be taken by the Company under
the Series B Statement of Designations or under the securities purchase
agreement pursuant to which the Private Placement was consummated shall be
deemed to be a Major Transaction, so long as, in the case of dividends and
optional redemptions, the ratio of the aggregate amount being paid on the Series
A Preferred Stock to the aggregate amount being paid on the Series B 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 issued in the
Rights Offering, (b) amendment of the Company's charter or bylaws, (c)
liquidation, winding-up or dissolution of the Company or any Significant
Subsidiary of the Company, (d) consolidation of the Company with, or merger of
the Company with or into, any other person, except a merger of a Subsidiary
wholly owned by the Company into the Company, with the Company surviving such
merger, (e) sale, transfer, lease or encumbrance by the Company or any of its
subsidiaries of a significant amount of assets of the Company, other than in
respect of sales of certain assets held by the Company's predecessor, General
Development Corporation; (f) special dividends or distributions with respect to,
or repurchase or redemption of, the Company's equity securities or any rights,
warrants or options in respect of such equity securities, (g) capital
expenditure or investment by the Company or any of its subsidiaries in excess of
$500,000, (h) entering into or materially amending any material contract, (i)
significant new financing or refinancing, (j) issuance of securities (other than
employee and director stock options to acquire up to 2,000,000 shares of Common
Stock and the issuance of Common Stock thereunder), (k) transactions which would
result in a Change of Control (as defined below), (l) material transaction the
nature of which prevents specificity in the Business Plan or (m) commencement,
undertaking or acquisition of a real estate development project by SP Subsidiary
(whether independently, by joint venture or otherwise) and related financings or
joint venture arrangements. "Approved Business Plan" means a Business Plan of
the Company that has been approved by the Investor.
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<PAGE>
"Change of Control" means: (a) an acquisition by any person or group
(as defined for purposes of Section 13(d) under the Exchange Act) (excluding the
Company or an employee benefit plan of the Company or a corporation controlled
by the Stockholders) of beneficial ownership (as defined for purposes of Section
13(d) under the Exchange Act) of Common Stock such that such person or group
thereafter beneficially owns 25% or more of the outstanding Common Stock or
other voting securities of the Company; (b) a change in a majority of the
Incumbent Board (excluding any individuals approved by a vote of at least five
members of the Incumbent Board other than in connection with an actual or
threatened proxy contest); (c) failure of the requisite number of Investor
designees to be members of the Board (other than as result of the Investor's
failure to nominate a successor to an Investor designee who has resigned or been
removed as a director); or (d) consummation of a Business Combination (other
than a Business Combination in which all or substantially all of the
Stockholders receive or own upon consummation thereof 50% or more of the
Company's outstanding stock resulting from the Business Combination, at least a
majority of the board of directors of the resulting corporation are members of
the Incumbent Board, and after which no Person owns 25% or more of the
outstanding stock of the resulting corporation who did not own such stock
immediately before the Business Combination), excluding, in each case (a)
through (d), the transactions contemplated by the Investment Agreement
(including for this purpose the Rights Offering and the Private Placement).
"Default Change of Control" means a Change in Control of the type referred to in
clauses (b) or (c) above or of the type referred to in clauses (a) and (d)
provided that the percentage thresholds referred to in clauses (a) and (d) will
be 40% instead of 25%. "Incumbent Board" means, prior to the Apollo Closing, the
Board as constituted on the day after execution and delivery of the Investment
Agreement and, following the Apollo Closing, the Board as constituted
immediately following the Apollo Closing. "Business Combination" means a
complete liquidation or dissolution of the Company or a merger, consolidation or
sale of all or substantially all of the Company's assets.
INVESTOR WARRANTS
As of the date hereof the Company has issued and sold to Apollo
Investor Warrants to purchase up to 4,192,950 shares of Common Stock. Each
Investor Warrant entitles the holder, subject to the terms and conditions of the
Warrant, to purchase one share of Common Stock at the Exercise Price.
Unexercised Warrants will expire on June 23, 2004.
REGISTRATION RIGHTS
The Company has granted certain registration rights to Apollo with
respect to the Series A Preferred Stock and the Investor Warrants. Pursuant to
the Investment Agreement, upon the Investor's demand, the Company will to use
its best efforts to effect the registration (a "Demand Registration") under the
Securities Act of such number of Registrable Securities then beneficially owned
by the Investor. The Company will be obligated to effect no more than (a) two
Demand Registrations so long as the Company is not eligible to file Form S-3
under the Securities Act and (b) five Demand Registrations if the Company is
eligible to file Form S-3. If a Demand Registration is initiated by the
Investor, no other securities may be offered in such offering by the Company
without the Investor's consent. Apollo will have the right to select the
underwriters for a Demand Registration. "Registrable Securities" means any of
the (a) up to 2,500,000 shares of Series A Preferred Stock issued to the
Investor at the Apollo Closing or thereafter pursuant to the Investment
Agreement, (b) the Common Stock issuable or issued upon conversion of the Series
A Preferred Stock (the "Conversion Shares"), (c) the 5,000,000 shares of Common
Stock issuable upon the exercise of the Investor Warrants, (d) any other Common
Stock acquired by Apollo, and (e) any securities issued or issuable with respect
to the Series A Preferred Stock, Conversion Shares, Warrant Shares by way of
stock dividend or stock split, or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
In addition, if the Company proposes to register any of its securities
under the Securities Act for sale for cash, the Investor, upon request, will
have the right to include the number of Registrable Securities that Apollo
wishes to sell or distribute publicly under the registration statement proposed
to be filed by the Company, and the Company will use its best efforts to
register under the Securities Act the sale of such Registrable Securities (a
"Piggyback Registration"). Under certain circumstances, the number of
Registrable Securities that Apollo will be entitled to include in a Piggyback
Registration will be limited.
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<PAGE>
Apollo (or any Eligible Transferee) may transfer all or any portion of
its Demand Registration, Piggyback Registration and related rights to any
transferee of an amount of Registrable Securities equal to or exceeding five
percent of the outstanding class of such Registrable Securities at the time of
transfer (each transferee that receives such minimum number of such Registrable
Securities, an "Eligible Transferee").
The Investment Agreement contains customary provisions regarding the
payment of expenses by the Company and regarding mutual indemnification and
contribution agreements between the Company and the holders of the Registrable
Securities.
TRANSFERABILITY RESTRICTIONS
Apollo has agreed under the Investment Agreement that it will not
assign or otherwise transfer any of the Series A Preferred Stock, the Investor
Warrants, the Warrant Shares and the Conversion Shares before May 15, 1999,
unless certain defaults or a Default Change of Control has occurred. Apollo,
however, may pledge any of such securities as security for indebtedness owed to
a person which is not an affiliate of Apollo.
CO-INVESTMENT OPPORTUNITY
The Investment Agreement provides that except with respect to certain
preexisting projects, as long as the Investor owns at least 500,000 shares of
Series A Preferred Stock, the Investor will have a right of first offer to
participate in new joint venture community development projects proposed to be
entered into by the Company, until the Investor has invested at least an
aggregate of $60,000,000 in such projects. The foregoing, however, will not
apply to any project in which the Company's participation and commitment will be
in the form of its expertise and business efforts or the contribution of real
property (or equity interests in real property), as opposed to capital
contributions. If, after the Company and the Investor have discussed the
proposed transaction for a specified period, the Investor determines not to
invest in such project, or not to invest the full amount that the Company
requires for such project, or has not committed to the Company to make such
investment, on substantially the terms and conditions offered to the Investor,
then the Company may enter into any agreement with or consummate a transaction
with other potential investors with regard to the proposed investment, provided
that the Company may not offer terms to another potential investor materially
more favorable in the aggregate than the terms offered to the Investor unless
the Company first offers such terms to the Investor.
OWNERSHIP BY APOLLO
The following table sets forth the percentage of Common Stock
beneficially owned by Apollo assuming (a) certain percentages of the Series A
Preferred Stock are purchased by Apollo and converted into Common Stock; (b)
certain percentages of the Investor Warrants have been exercised pro rata with
the conversion of the Series A Preferred Stock; (c) certain percentages of the
Series B Redeemable Preferred Stock are subscribed for in the Rights Offering
and converted into Common Stock, and the same percentages of Series B Warrants
issued in the Rights Offering are exercised; (d) none of the 1,500,000 1996
Warrants are converted into Common Stock; (e) none of the outstanding director
and employee options are exercised; (f) all 1,000,000 shares of Series B
Redeemable Preferred Stock issued in the Private Placement are converted into
Common Stock; (g) all 2,000,000 Series B Warrants issued in the Private
Placement are exercised; and (h) other than the foregoing and the existing
11,514,269 shares of Common Stock outstanding, no other Common Stock is
outstanding.
<TABLE>
<CAPTION>
=========================================================================================================================
PERCENTAGE OF SERIES B REDEEMABLE PREFERRED STOCK PURCHASED IN
RIGHTS OFFERING CONVERTED; SAME PERCENTAGE OF SERIES B WARRANTS
ISSUED IN RIGHTS OFFERING EXERCISED
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0% 25% 50% 75% 100%
PERCENTAGE OF SERIES A ------------------------------------------------------------------------------------------
PREFERRED STOCK PURCHASED 20% 11% 10% 10% 9% 9%
BY APOLLO ------------------------------------------------------------------------------------------
AND CONVERTED; 40% 20% 19% 18% 17% 16%
SAME PERCENTAGE OF ------------------------------------------------------------------------------------------
INVESTOR WARRANTS 60% 27% 26% 25% 24% 23%
EXERCISED ------------------------------------------------------------------------------------------
80% 33% 32% 30% 29% 28%
------------------------------------------------------------------------------------------
100% 38% 37% 35% 34% 33%
=========================================================================================================================
</TABLE>
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<PAGE>
THE PRIVATE PLACEMENT
Concurrently with the Apollo Closing, on June 24, 1997, the Company
sold to the Private Purchasers in the Private Placement for an aggregate
purchase price of $20 million (a) 1,776,199 shares of Common Stock for $10
million ($5.63 per share) 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 ($9.88 per share of Common Stock and
$.06 per Series B Warrant).
As part of the Private Placement, the Private Purchasers agreed that
they will not be entitled to participate in the Rights Offering in respect of
the 1,776, 199 shares of Common Stock they purchased in the Private Placement
(but they will be entitled to participate in the Rights Offering in respect of
Common Stock owned other than through the purchase in the Private Placement).
REGISTRATION RIGHTS
The Company has granted the following registration rights to the
Private Purchasers with respect to the Series B Redeemable Preferred Stock, the
Series B Warrants and the Common Stock purchased in the Private Placement.
SHELF REGISTRATION. The Company has agreed to prepare and file a shelf
registration statement with the Commission and shall use its reasonable best
efforts to cause such registration statement to become effective by 5:30 p.m. on
October 24, 1997 (the "Registration Deadline"), pursuant to Rule 415 of
Regulation C promulgated under the Securities Act (or any successor rule) (the
"Shelf Registration Statement"), providing for the sale by the Private
Purchasers ("Holders") of all of their Shelf Registrable Securities in
accordance with the terms hereof. "Shelf Registrable Securities" shall mean (a)
any Series B Redeemable Preferred Stock acquired by the Holders on the June 24,
1997 closing date of the Private Placement (the "Closing Date"), (b) any Common
Stock issuable or issued upon conversion of Series B Redeemable Preferred Stock
("Conversion Shares"), (c) any Common Stock acquired by the Holders pursuant to
the Private Placement on the Closing Date and (d) any securities issued or
issuable with respect to any Series B Redeemable Preferred Stock, Conversion
Shares or Common Stock by way of stock dividend or stock split, or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
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<PAGE>
If the Shelf Registration Statement has not been declared effective by
the Commission by the Registration Deadline (subject to certain tolling
provisions), thereafter and until the Shelf Registration Statement shall be
declared effective (the "Default Period"), the Holders of Series B Redeemable
Preferred Stock shall be entitled to receive from the Company an additional
payment with respect to the Series B Redeemable Preferred Stock as calculated
below (the "Default Payment"), such Default Payment to be accrued and paid on
the same terms as a dividend as set forth in Section 3 of the Series B Statement
of Designations. The amount of the Default Payment to each such Holder shall
equal the difference between the amount due to such Holder with respect to such
Default Period under the terms of the Series B Statement of Designations and the
amount which would have been due to such Holder had the annual rate in the
Series B Statement of Designations been increased during such Default Period by
1.5% per month. If the Company shall be obligated to make such payments to the
Holders, then Apollo shall be entitled to receive a payment on the same terms
and for the same period with respect to its Series A Preferred Stock.
The running of the period between the Closing Date and the Registration
Deadline shall be tolled to the extent that the Company is exercising its
reasonable best efforts to cause the Shelf Registration Statement to become
effective but the effectiveness is delayed by certain actions of the Commission
not reasonably foreseen at the time of the filing of the Shelf Registration
Statement.
DEMAND REGISTRATION. At any time and from time to time after the
Closing Date, the Company agreed, upon the written demand of Holders of Series B
Warrants and/or shares of Common Stock issuable upon the exercise of Series B
Warrants ("Warrant Shares") aggregating at least 1,000,000 shares, to use its
best efforts to effect the registration (a "Demand Registration") under the
Securities Act of such number of Demand Registrable Securities as shall be
indicated in a written demand sent to the Company by the Holders; PROVIDED,
HOWEVER, that: (a) any Holder may exercise only one Demand Registration and the
Company shall be obligated to effect no more than two Demand Registrations in
the aggregate. Upon receipt of the written demand of the Holders, the Company
shall use its best efforts to expeditiously effect the registration under the
Securities Act of the Demand Registrable Securities covered by such request to
have such registration become and remain effective for a period not to exceed
two months. The Holders of a majority of the Demand Registrable Securities
subject to such Demand Registration shall have the right to select the
underwriters for a Demand Registration; provided that such underwriters shall be
reasonably acceptable to the Company and Apollo. "Demand Registrable Securities"
shall mean any of the Warrants Shares and any securities issued or issuable with
respect to any Warrant Shares by way of stock dividend or stock split, or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise. Notwithstanding the foregoing, any Demand
Registrable Securities will cease to be a Demand Registrable Security when (a) a
registration statement covering such Demand Registrable Security has been
declared effective by the Commission and the Demand Registrable Security has
been disposed of pursuant to such effective registration statement, (b) the
Demand Registrable Security is sold under circumstances in which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act are met, or (c) the Registrable Security has been otherwise
transferred, the Company has delivered a new certificate or other evidence of
ownership for it not bearing a legend restricting further transfer, and it may
be resold without subsequent registration under the Securities Act.
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<PAGE>
PIGGYBACK REGISTRATION. If the Company proposes to register any of its
securities under the Securities Act for sale for cash, holders of Demand
Registrable Securities, upon request, will have the right to include the number
of Demand Registrable Securities that such holders wish to sell or distribute
publicly under the registration statement proposed to be filed by the Company,
and the Company will use its best efforts to register under the Securities Act
the sale of such Registrable Securities (a "Piggyback Registration"). Under
certain circumstances, the number of Demand Registrable Securities that such
holders will be entitled to include in a Piggyback Registration will be limited.
A purchaser (or any Eligible Transferee) may transfer all or any
portion of its registration rights to any permitted transferee of Registrable
Securities (each such transferee, an "Eligible Transferee"), and any Eligible
Transferee shall be treated as a "Holder" for all purposes.
So long as the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company agreed to take all actions
reasonably necessary to enable the holders to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 and Rule 144A under the Securities Act,
including filing on a timely basis all reports required to be filed by the
Exchange Act.
The Company may defer, for certain time periods, filing any
registration statement, supplement or post-effective amendment thereto or
prospectus supplement, if the Company is then involved in discussions
concerning, or otherwise engaged in, an acquisition, disposition, financing or
other material transaction and the Company determines in good faith that such
filing would materially adversely affect or interfere with such transactions.
The registration rights contain customary provisions regarding the
payment of expenses by the Company and regarding mutual indemnification and
contribution agreements between the Company and the holders of the Registrable
Securities.
The registration rights will terminate on the earlier of (a) such time
as all Registrable Securities have ceased to be restricted securities, as that
term is defined in Rule 144 under the Act and (b) the first anniversary of the
Closing Date (or, only with respect to the Demand Registrable Securities, the
eighth anniversary of the Closing Date).
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<PAGE>
USE OF PROCEEDS
The Company intends to use the proceeds of the Unit Closing, net of
expenses of approximately $800,000 incurred in connection with the Rights
Offering (assuming all Rights are exercised, of which there can be no
assurance), for working capital purposes, including the payment of a portion of
the Foothill Debt.
CAPITALIZATION
The following table sets forth the Company's unaudited historical
consolidated cash and investments, current maturities of long term debt and
capitalization as of June 30, 1997, as adjusted to give effect to (a) the Apollo
Transaction, the Private Placement and the Rights Offering and the application
of the proceeds thereof (assuming proceeds of $55.0 million and assuming that
all Rights are exercised in full) as described under "Use of Proceeds," and (b)
the Charter Amendments increasing the authorized capital stock, as if the Apollo
Transaction, the Private Placement and the Rights Offering had been consummated
and such amendments had been effected on June 30, 1997. This table should be
read in conjunction with the Company's consolidated financial statements and the
related notes thereto incorporated by reference into this Prospectus.
-58-
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------------------
HISTORICAL AS ADJUSTED
---------------- ----------------
(DOLLARS IN MILLIONS,
EXCEPT SHARE DATA)
<S> <C> <C>
Cash and Investments $ 4.5 $ 4.5
------- -------
Long Term Debt:
Cash Flow Notes (e) 36.6 36.6
Working Capital Loan - Foothill (d) 20.0 17.6
Term Loan - Foothill 26.7 26.7
Reducing Revolver - Foothill 7.6 --
Harbourton Residential Mortgage Loan 8.4 8.4
Litchfield Financial Loan 5.9 5.9
Project Financings 23.3 23.3
Purchase Money Mortgages 1.4 1.4
General Electric Capital Notes 0.2 0.2
Capital Leases 0.1 0.1
------- -------
Total Long Term Debt 130.2 120.2
======= =======
Cumulative Redeemable Convertible Preferred Stock:
Series A Preferred Stock, $.01 per share par value,
liquidation preference $10 per share; historical,
2,500,000 shares authorized, 887,500 issued, and
outstanding, liquidation preference $8,875,000; as
adjusted 2,500,000 shares authorized, issued, and
outstanding; liquidation preference $25,000,000. (a) 7.8 22.0
Series B Preferred Stock, $.01 per share par value,
liquidation preference $10 per share; historical,
1,000,000 shares authorized, issued, and outstanding,
liquidation preference $10,000,000; as adjusted 2,000,000
shares authorized, issued, and outstanding; liquidation
preference $20,000,000. (b) 9.1 18.1
Total Preferred Stock 16.9 40.1
======= =======
Stockholders' Equity:
Common Stock, $.10 per share par value; historical,
70,000,000 shares authorized, 11,595,354 issued; as
adjusted 70,000,000 shares authorized, 11,595,354 issued.
(c) 1.2 1.2
Contributed Capital (c) 132.3 132.6
Accumulated Deficit (76.7) (76.7)
Minimum Pension Liability Adjustment (6.0) (6.0)
Treasury Stock 86,277 shares, at cost -- --
------- -------
Total stockholders' equity 50.8 51.1
======= =======
</TABLE>
-59-
<PAGE>
- -----------------
(a) Represents 2,500,000 shares of Series A Preferred Stock purchased by
Apollo at a price of $9.88 per share with a liquidation preference of
$1,000 per share plus 5,000,000 Investor Warrants purchased by Apollo
at a price of $.06 per Warrant, for an aggregate purchase price of
$25,000,000, less $2.5 million in expenses related to the equity
issuance.
(b) (i) Represents 1,000,000 shares of Series B Redeemable Preferred Stock
at a purchase price of $9.88 per share plus 2,000,000 Series B Warrants
at a price of $.06 per Warrant in conjunction with the Rights Offering
with a liquidation preference of $10 per share, for an aggregate
purchase price of $10,000,000, less $0.8 million in expenses related to
the equity issuance.
(ii) Represents additional 1,000,000 shares of Series B Redeemable
Preferred Stock purchased for $9.88 per share plus 2,000,000 Series B
Warrants at a price of $.06 per Warrant in conjunction with the Private
Placement, for an aggregate purchase price of $10.0 million, less $0.8
million in expenses related to the equity issuance.
(c) Includes approximately 1,776,199 shares of Common Stock, par value $.10
per share, for $5.63 per share or $10,000,000 in conjunction with the
Private Placement.
(d) Represents partial payment of the Company's working capital loan, $2.4
million, and full payment of the Company's reducing revolver loan, $7.6
million. The source of funds utilized to effect these repayments was
the proceeds from the Rights Offering, $10.0 million.
(e) Represents unsecured 13% cash flow notes discounted as of June 30,
1997.
-60-
<PAGE>
DILUTION
The net tangible book value of the Common Stock as of June 30, 1997,
was $50.8 million or $4.38 per share. Net tangible book value per share
represents total tangible assets less total liabilities, divided by the number
of shares of Common Stock outstanding, on a fully diluted basis excluding stock
options. After giving effect to the consummation of the Apollo Transaction, the
Private Placement and the Rights Offering (assuming all Rights are exercised)
and the application of the net proceeds therefrom, the Company's net tangible
book value as of June 30, 1997, would have been approximately $51.1 million, or
$4.41 per share. This represents an immediate increase in net tangible book
value of $.03 per share with respect to shares outstanding prior to the Rights
Offering and an immediate dilution of $1.28 per share with respect to shares
purchased upon the exercise of Rights, as illustrated in the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Subscription Price $ 5.69
Net tangible book value per share at June 30, 1997 $ 4.38
Increase per share attributable to the Apollo Transaction,
the Private Placement and Rights Offering .03
------
Pro forma net tangible book value per share after the
consummation of the Apollo Transaction, the Private
Placement and the Rights Offering and application
of net proceeds therefrom 4.41
----
Dilution per share purchased upon the exercise of Rights $ 1.28
======
</TABLE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed consolidated pro forma financial
information (the "Pro Forma Financial Statements") is based on the historical
consolidated financial statements incorporated by reference into this
Prospectus, adjusted to give effect to the consummation of the Apollo
Transaction, the Private Placement and the Rights Offering. The Pro Forma
Statements of Operations gives effect to the consummation of the Apollo
Transaction, the Private Placement and the Rights Offering as if such had
occurred on January 1, 1996 for the year ended December 31, 1996 and for the six
months ended June 30, 1997 and the Pro Forma Balance Sheet gives effect to the
consummation of the Apollo Transaction, the Private Placement and the Rights
Offering as if such had occurred on June 30, 1997.
The Pro Forma Financial Statements should be read in conjunction with
the historical consolidated financial statements and the related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's quarterly report on Form 10-Q for the six
months ended June 30, 1997 which is incorporated by reference into this
Prospectus. The Pro Forma Financial Statements do not purport to represent what
the Company's results of operations or financial condition would actually have
been had the Apollo Transaction, the Private Placement and the Rights Offering
been consummated on the above indicated dates, or to project the Company's
results of operations or financial condition for any future period or as of any
future date.
-61-
<PAGE>
PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-------------------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
----------------- ------------------ ----------------
(DOLLARS IN MILLIONS)
ASSETS
------
<S> <C> <C> <C>
Cash and cash equivalents $ 4.5 -- 4.5
Restricted cash and cash equivalents 4.0 16.1(a) 20.1
Contracts receivable, net 8.0 -- 8.0
Mortgages, notes and other receivables, net 41.1 -- 41.1
Land and residential inventory 140.1 -- 140.1
Property, plant and equipment, net 2.7 -- 2.7
Other assets, net 25.6 (2.5)(b) 23.1
------ ----- -----
Total assets 226.0 13.6 239.6
====== ===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued liabilities $ 11.4 -- 11.4
Customers' and other deposits 4.4 -- 4.4
Other liabilities 12.4 -- 12.4
Notes, mortgages and capital leases 130.2 (10.0)(c) 120.2
------ ----- -----
158.4 (10.0) 148.4
====== ===== =====
Cumulative Redeemable Convertible Preferred Stock
Series A Preferred Stock (f) 7.8 14.2 (d) 22.0
Series B Preferred Stock (g) 9.0 9.1 (d) 18.1
------ ----- -----
16.8 23.3 40.1
====== ===== =====
Stockholders' equity
Common stock, $.10 par value; 70,000,000a
shares authorized; as historical, 11,595,354a
shares issued; as adjusted, 11,595,354a
shares issued. 1.2 -- 1.2
Contributed capital 132.3 0.3(e) 132.6
Accumulated deficit (76.7) -- (76.7)
Minimum pension liability adjustment (6.0) -- (6.0)
Treasury stock, 86,277 shares, at cost -- -- --
------ ----- -----
Total stockholders' equity 50.8 0.3 51.1
====== ===== =====
Total liabilities and stockholders' equity $226.0 13.6 239.6
====== ===== =====
(See Notes to Pro Forma Financial Statements)
-62-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------
RECAPITALIZATION PRO FORMA
HISTORICAL ADJUSTMENTS
----------------- -------------------- -------------
(IN MILLIONS, EXCEPT PER DATA SHARE)
<S> <C> <C> <C>
Revenues:
Real Estate Sales:
Homesite $ 43.9 $ $ 43.9
Tract 62.7 62.7
Residential 21.0 21.0
------- -------
Total real estate sales 127.6 127.6
Other operating revenue 4.9 4.9
Interest Income 6.3 6.3
Other Income:
Reorganization reserves 18.6 18.6
Other income 7.9 7.9
--------- ---------
Total revenues 165.3 165.3
========= =========
Cost and expenses:
Direct cost of real estate sales:
Homesite 35.2 35.2
Tract 51.4 51.4
Residential 16.7 16.7
------- -------
Total direct cost of real estate sales 103.3 103.3
Inventory valuation reserves 12.3 12.3
Selling expense 13.5 13.5
Other operating expense 2.0 2.0
Other real estate costs 19.4 19.4
General and administrative expense 11.5 11.5
Depreciation .9 .9
Cost of borrowing, net of amounts capitalized 13.4 13.4
Other (income) expense, net 1.5 1.5
--------- ---------
Total costs and expenses 177.8 177.8
========= =========
Income (loss) before extraordinary items (12.5) (12.5)
Extraordinary gains on extinguishment of debt 13.7 13.7
--------- ---------
Net income (loss) $ 1.2 1.2
Preferred stock dividend 0.0 (9.0) (l) (9.0)
--------- -------- ---------
Net income (loss) applicable to common stock $ 1.2 (9.0) (7.8)
========= ======== =========
Income (loss) before extraordinary items
per common share $ (1.29) (1.29)
========= =========
Net income (loss) per common share $ .12 (.68)
========= =========
Weighted average common shares outstanding 9.7 1.8 (j) 11.5
========= ======== =========
(See Notes to Pro Forma Financial Statements)
-63-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS JUNE 30, 1997
---------------------------------------------------------
RECAPITALIZATION PRO FORMA
HISTORICAL ADJUSTMENTS
----------------- -------------------- ------------
(IN MILLIONS, EXCEPT PER DATA SHARE)
<S> <C> <C> <C>
Revenues:
Real Estate Sales:
Homesite $ 12.1 $ $ 12.1
Tract 12.7 12.7
Residential 9.3 9.3
------- -------
Total real estate sales 34.1 34.1
Other operating revenue 1.4 1.4
Interest Income 2.9 2.9
Other Income:
Reorganization reserves 1.8 1.8
Other income 0.5 0.5
--------- ---------
Total revenues 40.7 40.7
========= =========
Cost and expenses:
Direct cost of real estate sales:
Homesite 11.3 11.3
Tract 11.7 11.7
Residential 8.4 8.4
------- -------
Total direct cost of real estate sales 31.4 31.4
Inventory valuation reserves - -
Selling expense 4.0 4.0
Other operating expense 0.6 0.6
Other real estate costs 5.8 5.8
General and administrative expense 4.7 4.7
Depreciation 0.4 0.4
Cost of borrowing, net of amounts capitalized 8.5 8.5
Other (income) expense, net 1.2 1.2
--------- ---------
Total costs and expenses 56.6 56.6
========= =========
Income (loss) before extraordinary items (15.9) (15.9)
Extraordinary gains on extinguishment of debt - -
--------- ---------
Net income (loss) $ (15.9) (15.9)
Preferred stock dividend 0 (5.4) (j) (5.4)
--------- -------- ---------
Net income (loss) applicable to common stock $ (15.9) (5.4) (21.3)
========= ======== =========
Income (loss) before extraordinary items
per common share $ (1.63) (1.63)
========= =========
Net income (loss) per common share $ (1.63) (1.63)
========= =========
Weighted average common shares outstanding 9.8 11.6
========= =========
(See Notes to Pro Forma Financial Statements)
-64-
</TABLE>
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(a) Represents the remaining proceeds received from Apollo in the amount of
$16.1 million with respect to the purchase of 1,612,500 shares of the
Series A Preferred Stock and the corresponding 3,225,000 Investor
Warrants to purchase 3,225,000 shares of Common Stock.
(b) Represents prepaid expenses associated with the Apollo Transaction and
the Rights Offering. Total expenses are estimated at $2.5 million which
are allocated as follows: (i) the Apollo Transaction - $1.7 million,
(ii) the Rights Offering - $0.8 million.
(c) Represents proceeds received from the Rights Offering - $10.0 million
used to pay Foothill Debt.
(d) The Preferred Stock balances are net of fees and expenses, see Note
(b), and purchase price associated with the Investor Warrants - $0.2
million and Series B Warrants - $0.2 million.
(e) Represents purchase price of Warrants, see Note (d).
(f) Series A Preferred Stock, $.01 per share par value, liquidation
preference $10 per share; historical, 2.5 million shares authorized,
887,500 issued, and outstanding, liquidation preference $8,875,000; as
adjusted 2.5 million shares authorized, issued, and outstanding;
liquidation preference $25.0 million.
(g) Series B Redeemable Preferred Stock, $.01 per share par value,
liquidation preference $10 per share; historical, 1.0 shares
authorized, issued, and outstanding, liquidation preference $10.0
million; as adjusted 2.0 million shares authorized, issued, and
outstanding; liquidation preference $20.0 million.
(h) Corresponds to 1,776,199 shares of Common Stock issued in the Private
Placement.
-65-
<PAGE>
(i) Represents the preferred dividend for the year ended December 31, 1996.
The dividend was computed as if the transactions occurred on January 1,
1996. The liquidation preference of $45.0 million as of January 1, 1996
at the dividend rate of 20.0% yields a dividend of $9.0 million. The
Company's current debt obligations prohibit the payment of any dividend
of any capital stock of the Company, including Preferred Stock and
Common Stock (other that dividends 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.
(j) Represents the preferred dividend for the six months ended June 30,
1997. The dividend was computed as if the transactions occurred on
January 1, 1996. The liquidation preference of $54.0 million as of
January 1, 1997 at the dividend rate of 20.0% yields a dividend of
$5.4 million. 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 payable solely
in common stock or preferred stock of the Company). Also, no cash
dividends can be paid on Common Stock unless all divident 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.
-66-
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected financial information of the
Company as of the dates and for the periods indicated. The selected historical
consolidated statement of operations data for the three months ended March 31,
1996 and 1997 and for the years ended December 31, 1992, 1993, 1994, 1995 and
1996 and the historical consolidated balance sheet data as of June 30, 1997 and
as of December 31, 1992, 1993, 1994 1995 and 1996 are derived from the
consolidated financial statements incorporated by reference into this
Prospectus.
-67-
<PAGE>
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS SIX MONTHS
ENDED ENDED ENDED
MARCH 31, DECEMBER 31, YEARS ENDED DECEMBER 31, JUNE 30,
---- ---- ------------------------------------ -------------
1992 1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: ||
Revenues: ||
Real Estate Sales: ||
Homesite $ 0.2 ||$ 5.1 $ 11.8 $ 15.0 $ 24.1 $ 43.9 $ 24.2 $ 12.1
Tract 4.6 || 16.1 24.7 25.8 31.1 62.7 36.0 12.7
Residential 0.5 || 4.5 8.3 11.5 27.7 21.0 9.3 9.3
-------- ||-------- -------- -------- -------- -------- -------- --------
Total real estate sales 5.3 || 25.7 44.8 52.3 82.9 127.6 69.5 34.1
Utility revenue 3.7 || 9.9 4.5 2.9 -- -- -- --
Other operating revenue 3.3 || 7.4 8.9 6.9 6.7 4.9 2.3 1.4
Interest Income 2.2 || 8.6 11.0 8.3 7.8 6.3 3.1 2.9
Other Income: ||
Reorganization reserves -- || -- -- .7 10.7 18.6 1.3 1.8
Other income -- || 14.3 1.4 34.9 5.3 7.9 7.3 0.5
-------- ||-------- -------- -------- -------- -------- -------- --------
Total revenues 14.5 || 65.9 70.6 106.0 113.4 165.3 83.5 40.7
======== ||======== ======== ======== ======== ======== ======== ========
Cost and expenses: ||
Direct cost of real estate sales: ||
Homesite 0.2 || 3.5 8.5 10.5 17.2 35.2 18.4 11.2
Tract 2.4 || 6.7 15.5 17.9 26.1 51.4 29.6 11.7
Residential 0.4 || 4.0 7.2 10.1 23.1 16.7 7.1 8.4
-------- ||-------- -------- -------- -------- -------- -------- --------
Total direct cost of real estate sales 3.0 || 14.2 31.2 38.5 66.4 103.3 55.1 31.3
||
Inventory valuation reserves -- || -- -- -- 4.9 12.3 -- --
Selling expense 1.2 || 4.0 7.5 7.5 9.8 13.5 5.8 4.0
Utility operating expense 2.4 || 8.1 5.0 2.0 -- -- -- --
Other operating expense 2.6 || 7.8 5.9 5.1 4.0 2.0 1.3 0.6
Other real estate costs 3.3 || 5.5 15.5 22.6 20.5 19.4 8.7 5.8
General and administrative expense 2.9 || 8.5 9.8 10.6 10.4 11.5 5.4 4.7
Depreciation 1.2 || 3.2 2.1 1.1 1.2 .9 0.5 0.4
Cost of borrowing, net of amounts capitalized 1.3 || 10.8 10.9 14.8 14.3 13.4 6.4 8.5
Other (income) expense, net 5.7 || 27.7 1.2 2.7 2.5 1.5 0.2 1.3
-------- ||-------- -------- -------- -------- -------- -------- --------
Total costs and expenses 23.6 || 89.8 89.1 104.9 134.0 177.8 83.4 56.6
-------- ||-------- -------- -------- -------- -------- -------- --------
||
Income (loss) before reorganization items (9.1)|| (23.9) (18.5) 1.1 (20.6) (12.5) 0.1 (15.9)
||
Income from reorganization items 12.9 || -- -- -- -- -- -- --
-------- ||-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary items 3.8 || (23.9) (18.5) 1.1 (20.6) (12.5) 0.1 (15.9)
||
Extraordinary items 950.6 || -- -- -- -- -- -- --
||
Extraordinary gains on extinguishment of debt -- || -- -- -- -- 13.7 3.8 --
-------- ||-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 954.4 ||$ (23.9) $ (18.5) $ 1.1 $ (20.6) $ 1.2 $ 3.9 $ (15.9)
======== ||======== ======== ======== ======== ======== ======== ========
Income (loss) before extraordinary items ||
per common share $ .46 ||$ -- $ -- $ .11 $ (2.12) $ (1.29) $ (.01) $ (1.63)
======== ||======== ======== ======== ======== ======== ======== ========
Net income (loss) per common share $ 114.11 ||$ (2.45) $ (1.91) $ .11 $ (2.12) $ .12 $ .40 $ (1.63)
======== ||======== ======== ======== ======== ======== ======== ========
Weighted average common shares outstanding 8.4 || 9.8 9.7 9.6 9.7 9.7 9.7 9.8
======== ||======== ======== ======== ======== ======== ======== ========
||
-68-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS SIX MONTHS
ENDED ENDED ENDED
MARCH 31, DECEMBER 31, YEARS ENDED DECEMBER 31, JUNE 30,
---- ---- ------------------------------------ -------------
1992 1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA: ||
||
NET INCOME 954.4 || (23.9) (18.5) 1.1 (20.6) 1.2 3.9 (15.9)
||
Cash flows from operating activities 41.9 || 14.8 (17.9) (33.2) (24.9) 15.0 22.1 (2.2)
||
Cash flows from investing activities 0.1 || 43.6 17.2 43.9 2.2 30.4 26.3 11.9
||
Cash flows from financing activities 37.3 || (12.6) (34.7) (12.1) 13.9 (41.9) (43.0) (12.3)
||
Net cash interest expense 1.3 || 13.6 18.3 14.6 14.7 13.5 6.6 7.6
||
Capital expenditures (0.4) || (1.1) (1.1) (3.6) (1.6) (0.2) (0.2) (0.2)
||
Ratios: ||
Earnings to fixed charges ||
and preferred stock dividends 204.1x || (0.0)x 0.4x 1.0x 0.1x 1.1x 1.4x (0.5)x
||
Total debt to Net Income 0.2x || (9.5)x 11.0x 173.0x (10.7)x 141.0x 46.2x (8.1)x
||
BALANCE SHEET DATA (END OF PERIOD): ||
||
Cash and investments 3.5 || 49.2 13.8 12.3 3.6 7.1 8.3 4.5
||
Total assets 476.5 || 439.2 367.2 348.6 332.8 263.4 279.9 226.0
||
Long term debt, including current maturities 235.9 || 228.2 203.3 190.3 221.0 169.2 180.3 130.2
||
Stockholders' equity 119.9 || 94.5 73.2 74.7 54.4 56.4 58.3 50.8
||
</TABLE>
NOTES TO SELECTED HISTORICAL FINANCIAL DATA
FRESH START REPORTING
(a) The Company's consolidated financial statements subsequent to March 31,
1992 have been prepared as if the Company were a new reporting entity
and reflect the recording of the Company's assets and liabilities at
their fair values as of March 31, 1992 and the discharge of
pre-petition liabilities relating to creditors' claims against the
Company. The reorganization value of the Company was determined after
consideration of several factors and by reliance on various valuation
methods, including discounted cash flows and other applicable ratios.
The factors considered by the Company and its independent advisors
included forecasted operating and cash flows results which gave effect
to the estimated impact of corporate restructuring and other operating
program changes, limitations on the use of the available net operating
loss carryovers and other tax attributes resulting from the plan of
-69-
<PAGE>
reorganization and other events, the discounted residual value at the
end of the forecast period based on the capitalized cash flows for the
last year of that period, market share and position, competition and
general economic considerations, projected sales growth, potential
profitability and working capital requirements.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is quoted on the NASDAQ National Market System under
the Symbol "AGLF." The following table sets forth the high and low closing sales
prices of the Common Stock for the periods indicated.
<TABLE>
<CAPTION>
1997 1996 1995
SALES PRICE SALES PRICE SALES PRICE
----------------- -------------------- -----------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------- ---- ----- ---- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
March 31 6 4 1/8 6 3/4 5 3/8 10 1/4 8 3/8
June 30 6 41/64 5 1/2 6 3/8 5 1/2 9 5 3/4
September 30 6 3/4 5 5/8 6 4 7/8 8 1/2 6 3/8
December 31 5 7/8 5 7/8 5 3/8 3 15/16 7 5/8 6 1/4
</TABLE>
- -------------
* Through October 7, 1997
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 7, 1997 was $5.875.
No dividends have been paid on the Common Stock during the last two
fiscal years. Under the Foothill Debt agreements the Company has agreed not to
declare or pay any dividend (other than dividends payable solely in its common
stock or preferred stock) on, or make any payment on account of, or set apart
assets for a sinking or other analogous fund for, the purchase, redemption,
defeasance, retirement or other acquisition of, any capital stock of the
Company. Furthermore, no cash dividends can be paid on Common Stock if any cash
dividend arrearages exist on the Preferred Stock or the Company is in default on
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
-70-
<PAGE>
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. Prior to the amendment of
the Company's Restated Certificate of Incorporation on June 24, 1997, such
certificate provided for mandatory dividends on the Common Stock equal to 25
percent of Available Cash (as defined in the POR) after all indebtedness issued
under the POR was paid in full, although dividends did not accrue if the Company
was unable to pay them due either to a lack of Available Cash, surplus capital
or net profits, or applicable provisions of Delaware law. This mandatory
dividend feature was eliminated as of June 24, 1997.
American Stock Transfer & Company serves as the registrar and transfer
agent for the Common Stock.
SERIES A PREFERRED STOCK
A summary of certain of the preferences, powers, and rights of the
Series A Preferred Stock and the differences between the Series A Preferred
Stock and the Series B Redeemable Preferred Stock are set forth herein under the
caption "The Apollo Transaction -- The Series A Preferred Stock."
SERIES B REDEEMABLE PREFERRED STOCK
A summary of the preferences, powers, and rights of the Series B
Redeemable Preferred Stock is set forth herein under the caption "Description of
the Units -- Series B Redeemable Preferred Stock."
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FEDERAL INCOME TAX CONSIDERATIONS
Based on the information set forth in this Prospectus and assuming the
issuance of the Rights in the manner and on the terms and conditions described
herein, Arent Fox Kintner Plotkin & Kahn, counsel to the Company, is of the
opinion that this section of the Prospectus captioned "Federal Income Tax
Considerations" (the "Tax Summary") accurately summarizes the material federal
income tax consequences to a Stockholder or 1996 Holder of receiving, holding,
exercising or selling (i) the Rights and (ii) Units acquired through the
exercise of the Rights. Although such opinion represents the counsel's best
judgement as to matters set forth in the tax section, such opinion does not bind
the Internal Revenue Service ("IRS") or any court.
The Tax Summary is a general discussion of certain of the anticipated
federal income tax consequences of the issuance, exercise or lapse of the Rights
and purchase and disposition of the Series B Redeemable Preferred Stock. Neither
the Tax Summary nor the opinion of Company's counsel considers federal income
tax consequences of the Rights Offering to any particular Stockholder or 1996
Holder, or federal income tax consequences of the Rights Offering that may be
relevant to particular classes of Stockholders or 1996 Holders, such as banks,
insurance companies and foreign individuals and entities. This Tax Summary is
not intended as tax advice and is based on the Company's understanding of
federal income tax laws as currently interpreted. No representation is made
regarding the continuation of such laws or of such interpretations, and no
discussion is contained herein regarding the possible effects of any applicable
state, local or foreign tax laws, or taxes other than federal income taxes.
EACH RIGHTS HOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH RIGHTS HOLDER (INCLUDING THE
APPLICABILITY AND EFFECT OF THE CONSTRUCTIVE OWNERSHIP RULES AND STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS) OF THE ISSUANCE, EXERCISE OR LAPSE OF RIGHTS AND THE
PURCHASE AND DISPOSITION OF SERIES B REDEEMABLE PREFERRED STOCK PURSUANT TO THE
RIGHTS OFFERING.
RIGHTS ISSUANCE
STOCKHOLDERS
Section 305(a) of the Code generally provides that gross income does
not include the amount of any distribution by a corporation to its stockholders
of stock or rights to acquire stock of that corporation. Sections 305(b) and (c)
of the Code and Treasury regulations thereunder set forth several exceptions to
the general rule of Section 305(a). If one of the exceptions were to apply to
the Rights issuance, the value of the Rights would be treated as (a) a dividend
(ordinary income) to the extent of the Company's accumulated or current earnings
and profits, if any, and (b) any value of the Rights in excess of the earnings
and profits would be treated first as a tax free return of capital to the extent
of a holder's tax basis and then a gain from a sale or exchange of the stock.
Generally, the exceptions apply to distributions which are designed to have the
effect of distributing cash or property other than common stock to some
stockholders while increasing other stockholders' ownership of a company's
common equity. Because the distributions of Rights is being made to all
Stockholders and 1996 Holders and no holder of the Common Stock or 1996 Warrants
will receive a distribution of money or property in lieu of receiving Rights or
in exchange for not exercising the Rights, Company's counsel believes it
unlikely that the distribution of Rights could have such an effect. Accordingly,
this discussion assumes that the general rule of Section 305(a) applies to the
distribution of Rights to the Stockholders and 1996 Holders. It is noted that
the applicable Treasury regulations provide that a distribution of preferred
stock convertible into common stock (or of rights to acquire such preferred
stock) is likely to result in a distribution described in the exceptions to
Section 305, if (i) the conversion rights must be exercised within a short
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period of time and (ii) the terms (such as dividend rate, marketability,
redemption rights and conversion price) of the preferred stock are such that it
may be anticipated that some stockholders will exercise their conversion rights
and others will not. The regulations further provide that where the conversion
right may be exercised over a period of many years and the dividend rate is
consistent with market conditions at the time of distribution of the stock,
there is no basis for predicting at what time and the extent to which the stock
is to be converted and it is unlikely that a disproportionate distribution will
result. Inasmuch as (i) none of the Series B Redeemable Preferred Stock can be
redeemed or put for at least three years, (ii) the conversion right may be
exercised throughout the period the Series B Redeemable Preferred Stock is
outstanding and (iii) the Preferred Stock carries a significant dividend,
Company counsel does not believe that this regulatory provision should cause the
distribution of the Rights to be deemed an exception to the general rule of
Section 305 (a).
1996 HOLDERS
Section 305(a) is not applicable to the 1996 Holders since they are not
receiving the Rights as a distribution on stock owned by them. However, under
general principles of federal income tax law including the case law which led to
the enactment of Section 305(a), the 1996 Holders should not recognize income on
the receipt of the Rights because (i) the Rights are being issued pursuant to
certain anti-dilution provisions of the 1996 Warrants and (ii) the purpose and
effect of their receipt of the Rights is to avoid changing their proportionate
interest in the Company.
RIGHTS' TAX BASIS
STOCKHOLDERS
Under Section 307 of the Code, the tax basis of the Rights in the hands
of a stockholder to whom the Rights were issued will be zero and the tax basis
of the Common Stock held by the stockholder with respect to which the Rights
were issued (the "Old Stock") will be unchanged unless the Rights are exercised
or sold. If the Rights are exercised or sold their tax basis in the hands of a
Stockholder will be determined by allocating the tax basis of the Old Stock and
the Rights in proportion to their relative fair market values on the date of
distribution. However, if the fair market value of the Rights on the date of
distribution is less than 15% of the fair market value of the Old Stock, the
fair market value of the Rights will be deemed (and the tax basis of the Rights
will be) zero and the tax basis of the Old Stock will be unchanged unless a
Stockholder makes an irrevocable election to compute the basis of all Rights
received in the manner described in the preceding sentence. This election is
made by attaching a statement to such Stockholder's federal income tax return
filed for the taxable year in which the Rights are received by a Stockholder.
The Company has not obtained an independent appraisal of the valuation of the
Old Stock or the Rights and, therefore, each Stockholder individually must
determine how the rules of Section 307 of the Code will apply in that
Stockholder's particular situation. For federal income tax purposes, the fair
market value of property is the price at which the property would change hands
between a willing buyer and a willing seller, where neither party was under a
compulsion to buy or sell and both had reasonable knowledge of all the relevant
facts. Where, as is expected to be the case with the Rights, the property is
publically traded (e.g., on a stock exchange or the NASDAQ National Market
System, or in an over-the-counter market), the fair market value will generally
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be the mean between the highest and lowest quoted selling prices for the
valuation date. If there are no sales on the valuation date, the fair market
value is determined by taking a weighted (based on days from the valuation date)
average of sales occuring within a reasonable period of the valuation date.
1996 RIGHTS HOLDERS
1996 Rights Holders should allocate the basis of their 1996 Warrants
between the 1996 Warrants and the Rights in proportion to their fair market
values.
EXERCISE OF RIGHTS
The Series B Redeemable Preferred Stock and the Series B Warrants
received upon the exercise of Rights will constitute an "investment unit". The
tax basis of the investment unit will be equal to the sum of (i) the basis, if
any, of the Rights exercised and (ii) the amount paid upon exercise of the
Rights. The basis of the investment unit must be allocated between the Series B
Redeemable Preferred Stock and the Series B Warrants in proportion to their fair
market values. The agreements between the Company and the Private Purchasers
allocate their $10 per share purchase price $ 9.88 to the Series B Redeemable
Preferred Stock and $ 0.06 to each of the Series B Warrants. Although this
allocation was arrived as part of the overall negotiations between the Company
and the Private Purchasers it is not binding on the Internal Revenue Service.
The holding period of the Series B Redeemable Preferred Stock and the Series B
Warrants acquired upon exercise of Rights will commence upon the exercise of the
Rights by the holder thereof.
EXPIRATION OF THE RIGHTS
STOCKHOLDERS
Stockholders who allow the Rights received by them on the date of
distribution to expire unexercised will not recognize any gain or loss, and no
adjustment will be made to the basis of their Common Stock.
1996 HOLDERS
1996 Holders who allow the Rights received by them on the date of
distribution to expire unexercised should recognize a capital loss equal to the
basis of the Rights.
SERIES B REDEEMABLE PREFERRED STOCK
BASIS AND HOLDING PERIOD
The basis of each share of Series B Redeemable Preferred Stock acquired
upon exercise of Rights will equal its PRO RATA (based on the relative values of
the Series B Redeemable Preferred Stock and the Series B Warrants acquired)
portion of the sum of the Subscription Price and the basis, if any, in the
Rights exercised. The holding period for such Series B Redeemable Preferred
Stock will begin on the date the Rights are exercised.
DIVIDEND PAYMENTS
A holder of Series B Redeemable Preferred Stock who receives a
distribution thereon will be treated as having received, on the dividend payment
date, a dividend taxable as ordinary income to the extent of the Company's
current and accumulated earnings and profits in the year in which such
distribution is made. Corporate holders will generally be eligible for the
dividends received deduction as set forth in Section 243 of the Code. The amount
of any distribution described above will be the amount of cash plus the fair
market value of any property received. To the extent that the amount of any
distribution exceeds the Company's allocable current and accumulated earnings
and profits, such excess will first be applied against and reduce the
recipient's adjusted tax basis in the shares with respect to which such
distribution is made and second, to the extent that such excess is greater than
the recipient's adjusted tax basis, will be treated as capital gain (assuming
the shares with respect to which such distribution is made are held as a capital
asset).
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Corporate holders of Series B Redeemable Preferred Stock otherwise
entitled to the dividends received deduction should consider the minimum holding
period requirements of Section 246(c) of the Code, the "debt-financed portfolio
stock" rules of Section 246A of the Code, and the "extraordinary dividend"
provisions of Section 1059 of the Code, the effects of which are to reduce or
eliminate the benefit of the dividends received deduction with respect to Series
B Redeemable Preferred Stock subject to such rules. Corporate holders of Series
B Redeemable Preferred Stock should also consider whether any dividends received
deduction allowed for dividends received on Series B Redeemable Preferred Stock
may either cause or increase the holder's liability for the alternative minimum
tax.
SALE OR EXCHANGE
Upon the sale or taxable exchange of Series B Redeemable Preferred
Stock, the holder will recognize gain or loss equal to the difference between
the amount realized and the holder's adjusted tax basis in the Series B
Redeemable Preferred Stock. Assuming the shares are held as a capital asset, the
resulting gain or loss will be a capital gain or loss and will be a long-term
capital gain or loss if the Series B Redeemable Preferred Stock was held for
more than one year.
REDEMPTION OF SERIES B REDEEMABLE PREFERRED STOCK
A redemption of Series B Redeemable Preferred Stock for cash will be a
taxable event. Generally, any redemption of the Series B Redeemable Preferred
Stock would result in taxable gain or loss equal to the difference between the
amount of cash received (except to the extent of accumulated dividends on the
Series B Redeemable Preferred Stock) and the Stockholder's tax basis in the
Series B Redeemable Preferred Stock redeemed if the redemption (a) results in a
"complete redemption" of the holder's stock interest in the Company under
Section 302(b)(3) of the Code, (b) is "substantially disproportionate" with
respect to the Stockholder under Section 302(b)(2) of the Code, (c) is "not
essentially equivalent to a dividend" with respect to the Stockholder under
Section 302(b)(1) of the Code, or (d) is from a non-corporate Stockholder in
partial liquidation of the Company under Section 302(b)(4) of the Code. A
redemption is substantially disproportionate only if it reduces the redeemed
Stockholder's voting percentage and common stock ownership by at least 20%.
Whether a redemption is not essentially equivalent to a dividend is more
subjective, but it does require some reduction in the Stockholder's percentage
interest of the Company. In determining whether any of these tests have been
met, shares considered to be owned by the Stockholder by reason of the
constructive ownership rules set forth in Section 318(a) of the Code (pursuant
to which a Stockholder will be deemed to own shares owned by certain related
individuals and entities and shares that may be acquired upon the exercise of an
option, unless such constructive ownership can be (and is) waived under Section
302(c) of the Code), as well as the shares actually owned, would generally be
taken into account. Such gain or loss would be a capital gain or loss (assuming
the shares with respect to which such distribution is made are held as a capital
asset).
If the redemption does not satisfy any of the tests under Section
302(b) of the Code, then the gross proceeds will be treated under Section 301 of
the Code as a distribution taxable as a dividend to the extent of the Company's
current and accumulated earnings and profits (see "Federal Income Tax
Considerations--Series B Redeemable Preferred Stock--Dividend Payments," above),
and any excess will be treated first as a non-taxable return of capital and then
as a gain upon a sale or exchange of the Series B Redeemable Preferred Stock,
which gain will be long-term capital gain (assuming the shares are held as a
capital asset) if the Series B Redeemable Preferred Stock has been held for more
than one year. A holder who is taxed upon proceeds of redemption as a dividend
would transfer the tax basis in the Series B Redeemable Preferred Stock (reduced
for any amounts treated as non-taxed portion of extraordinary dividends or as a
return of capital) to the holder's remaining stock interest in the Company. If
the Stockholder does not retain any stock ownership in the Company, the
Stockholder may lose such basis entirely.
REDEMPTION PREMIUM
Under Section 305 of the Code and applicable Treasury regulations, if
the redemption price of the Series B Redeemable Preferred Stock exceeds its
issue price, such excess may constitute a redemption premium which is deemed to
be a taxable distribution to the holder on an economic accrual basis over the
period during which the Series B Redeemable Preferred Stock cannot be redeemed.
Such distribution would be treated as a dividend to the extent of the Company's
current and accumulated earnings and profits, with any remaining distribution
treated first as a non-taxable return of capital and then as gain arising from a
sale or exchange. A determination by the Company as to whether there is a
redemption premium deemed to be a taxable distribution will be binding on a
holder, unless the holder explicitly discloses to the IRS that its determination
and treatment of redemption premium differs from that of the Company.
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This rule requiring current inclusion of any redemption premium does
not apply if the redemption premium is less than one quarter of one percent
multiplied by the redemption price multiplied by the number of years until the
likely redemption date. The issue price of the Series B Redeemable Preferred
Stock would be the basis allocated to it upon exercise of the Rights. Its
redemption price is $10 per share. Inasmuch as the holders have an option to
require the redemption of the Series B Redeemable Preferred Stock after the
fourth anniversary of its issuance, subject to certain limitations that would,
if all holders exercised their rights, result in 1/3 of the shares being
redeemed immediately following each of the 4th, 5th and 6th anniversary of
issuance, the number of years until the redemption date should be deemed to be 5
(the average weighted maturity of the shares assuming the holders exercise their
options). Accordingly, as long as the basis allocated to the preferred stock is
at least $9.875 a share ($10 less (0.25% X $10 X 5 years)), redemption premium
would, subject to the possibility (discussed in the following paragraph) that
accrued but unpaid dividends would be treated as redemption premium, be de
minimis and its current inclusion in income would not be required.
The legislative history to 1990 amendments to Section 305 of the Code
states that the IRS may provide that disguised redemption premium exists where
cumulative preferred stock is issued without a discount but at the time of
issuance there is no intention for the dividends to be paid currently. The
preamble to the 1995 Treasury regulations implementing the 1990 amendments
states that, because of the complexity of the issue, the regulations do not
provide rules for such unpaid cumulative dividends, but that the IRS and
Treasury will continue to consider the issue. If dividends are not paid
currently on the Series B Redeemable Preferred Stock, it is possible that the
IRS would attempt to treat the unpaid dividends as redemption premium; however,
in the absence of additional pronouncements from the IRS or Treasury, such a
position seems unlikely.
CONVERSION TO COMMON STOCK
No gain or loss will be recognized for federal income tax purposes upon
the conversion of the Series B Redeemable Preferred Stock into Common Stock,
except with respect to any cash received in exchange for a fractional interest.
The tax basis for the Common Stock received upon conversion will be equal to the
tax basis of the Series B Redeemable Preferred Stock reduced by the portion of
such basis allocable to any fractional interest exchanged for cash. Provided
that the Series B Redeemable Preferred Stock was held as capital assets, the
holding period of the shares of Common Stock will include the holding period of
the Series B Redeemable Preferred Stock converted. Income realized upon the
receipt of cash paid in lieu of fractional shares of Common Stock will be taxed
immediately to the holder of such fractional shares.
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ADJUSTMENT TO CONVERSION RATIO
Section 305 of the Code renders taxable certain actual or constructive
distributions of stock with respect to stock and convertible securities.
Regulations promulgated under Section 305 provide that an adjustment in the
conversion ratio of convertible preferred stock made pursuant to a bona fide,
reasonable formula which has the effect of preventing dilution of the interest
of the holders of such stock will not be considered to result in a taxable
dividend under Section 301 of the Code. Any adjustment in the conversion ratio
of the Series B Redeemable Preferred Stock to reflect taxable distributions on
the Common Stock would be treated as a constructive distribution of stock to the
holders of Series B Redeemable Preferred Stock and would be taxable as a
dividend to the extent of current or accumulated earnings and profits of the
Company. The amount of the dividend to a holder of Series B Redeemable Preferred
Stock resulting from such an adjustment would be measured by the fair market
value of the additional Common Stock (or fraction thereof) that would be
obtainable as a result of adjustment of the conversion price. There can be no
assurance and none is hereby given that an adjustment to the conversion ratio of
the Series B Redeemable Preferred Stock will not result in a taxable dividend
under Section 301.
SERIES B WARRANTS
BASIS AND HOLDING PERIOD
The basis of each Series B Warrant acquired upon exercise of Rights
will equal its PRO RATA (based on the relative values of the Series B Redeemable
Preferred Stock and the Series B Warrants acquired) portion of the sum of the
Subscription Price and the basis, if any, in the Rights exercised.
EXERCISE OF SERIES B WARRANTS
No gain or loss will be recognized by a holder of Series B Warrants
upon the exercise of the Series B Warrants. The holding period of Common Stock
acquired by a holder upon exercise of Series B Warrants will commence upon the
exercise of the Series B Warrants thereof. The tax basis of shares acquired upon
the exercise of the Series B Warrants will be equal to the sum of the basis of
the Series B Warrants exercised and the exercise price paid for such shares of
Common Stock.
SALE OR EXCHANGE
Upon the sale or taxable exchange of Series B Warrants, the holder will
recognize gain or loss equal to the difference between the amount realized from
such sale or exchange and the holder's adjusted tax basis in the Series B
Warrants. Assuming that shares of Common Stock which would have been acquired by
the holder if he or she had exercised the option would be a capital asset in the
hands of the holder, the resulting gain or loss will be a capital gain or loss
and will be a long-term capital gain or loss, if the Series B Warrants were held
for more than one year.
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EXPIRATION OF SERIES B WARRANTS
A holder who allows Series B Warrants to expire without being exercised
will be treated as having disposed of the Series B Warrants in a taxable
exchange on the date of expiration. Accordingly, such a holder will recognize
loss equal to the holder's basis in the Series B Warrants. If the shares of
Common Stock which would have been acquired by the holder upon exercise of the
Series B Warrants would have been a capital asset in the hands of the holder,
the loss recognized upon expiration of the Series B Warrants will be a capital
loss. Such loss will be a long-term capital loss if the holder's holding period
for the Series B Warrants was more than one year.
GENERAL BACKUP WITHHOLDING AND REPORTING REQUIREMENTS
Under Section 3406 of the Code and applicable Treasury regulations, a
holder of Series B Redeemable Preferred Stock or Common Stock may be subject to
backup withholding tax at the rate of 20% with respect to dividends paid on, or
the proceeds of a sale or redemption of, such stock, as the case may be. The
payor will be required to deduct and withhold the tax if (a) the payee fails to
furnish a taxpayer identification number ("TIN") to the payor or fails to
certify under the penalty of perjury that such TIN is correct, (b) the Internal
Revenue Service ("IRS") notifies the payor that the TIN furnished by the payee
is incorrect, (c) there has been a notified payee under reporting with respect
to interest, dividends or original issue discount described in Section 3406(c)
of the Code, or (d) there has been a failure of the payee to certify under the
penalty of perjury that the payee is not subject to withholding under Section
3406(a)(1)(C) of the Code. As a result, if any one of the events discussed above
occurs with respect to a holder, the payor will be required to withhold a tax
equal to 20% from any payment of dividends or proceeds made with respect to the
holder's Series B Redeemable Preferred Stock or Common Stock unless an exemption
applies under applicable law and is established in a manner acceptable to the
payor. Reports will be made annually or otherwise as may be required to the IRS
and to the holders of record that are not excepted from such reporting
requirements with respect to distributions on the Series B Redeemable Preferred
Stock. Such reporting will be made on IRS Form 1099 or on such other form as may
be prescribed under the rules issued by the IRS.
LEGAL MATTERS
The validity of the Rights, Series B Redeemable Preferred Stock, Series
B Warrants and underlying Common Stock offered hereby and the federal income tax
matters covered herein will be passed upon for the Company by Arent Fox Kintner
Plotkin & Kahn, Washington, D.C.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in the Company's Annual Report (Form 10-K, as amended) for the year
ended December 31, 1996 have been audited by Ernst & Young LLP, independent
auditors, as set forth in its report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
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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") 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).
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(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 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
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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
certificate or certificates representing the Series B Preferred Stock to be
redeemed, specifying the place or places where, and the manner in which,
certificates for Series B Preferred Stock are to be surrendered for redemption;
(7) the date on which the Series B Preferred Stock called for
redemption shall cease to be convertible; and
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(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 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
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conversion shall, unless the shares issuable on conversion are to be issued in
the same name as the registration of such Series B Preferred Stock Certificate,
be duly endorsed by, or be accompanied by instruments of transfer in form
satisfactory to the Corporation duly executed by, the Holder or such Holder's
duly authorized attorney.
As promptly as practicable, but in no event later than five (5)
Business Days, after the surrender of such Series B Preferred Stock Certificate
and the receipt of such notice and funds, if any, as aforesaid, the Corporation
shall issue and shall simultaneously deliver at such office or agency to such
Holder, or on his written order, a certificate or certificates for the number of
shares of Common Stock, issuable upon the conversion of such Series B Preferred
Stock represented by the Series B Preferred Stock Certificate so surrendered or
portion thereof in accordance with the provisions of this Section 6. In case
less than all of the Series B Preferred Stock represented by a Series B
Preferred Stock Certificate surrendered for conversion is to be converted, the
Corporation shall simultaneously deliver to or upon the written order of the
Holder of such Series B Preferred Stock Certificate a new Series B Preferred
Stock Certificate representing the Series B Preferred Stock not converted. If a
Holder fails to notify the Corporation of the number of shares of Series B
Preferred Stock which such Holder wishes to convert, such Holder shall be deemed
to have elected to convert all shares represented by the certificate or
certificates surrendered for conversion.
Each conversion shall be deemed to have been effected on the date on
which such Series B Preferred Stock Certificate shall have been surrendered and
such notice shall have been received by the Corporation, as aforesaid (the
"Conversion Date"), and the Person in whose name any certificate or certificates
for Common Stock shall be issuable upon such conversion shall be deemed to have
become on said date the holder of record of the shares represented thereby;
provided, however, that any such surrender on any date when the stock books of
the Corporation shall be closed shall constitute the Person in whose name the
certificates are to be issued as the record holder thereof for all purposes on
the next succeeding day on which such stock books are open, but such conversion
shall be at the Conversion Price as in effect on the date upon which such Series
B Preferred Stock Certificate shall have been surrendered.
All Series B Preferred Stock that shall have been surrendered for
conversion as herein provided shall no longer be deemed to be outstanding and
all rights with respect to such shares, including the rights, if any, to receive
notices and to vote, shall forthwith cease, except only the right of the Holders
thereof, subject to the provisions of this Section 6, to receive Common Stock in
exchange therefor; provided, however, that if the Corporation defaults in its
obligation to deliver certificates representing Common Stock issuable upon such
conversion, dividends shall continue to accumulate at the Default Dividend Rate
until such delivery is made.
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.
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(c) The Conversion Price at which Series B Preferred Stock is
convertible into Common Stock shall be subject to adjustment from time to time
as provided in this Section 6(c) (unless otherwise indicated, all calculations
under this Section 6(c) shall be made to the nearest $0.01):
(i) In case the Corporation shall (A) declare a dividend
or make a distribution on the outstanding Common Stock in Capital Stock of the
Corporation, (B) subdivide or reclassify the outstanding Common Stock into a
greater number of shares (or into other securities or property), or (C) combine
or reclassify the outstanding Common Stock into a smaller number of shares (or
into other securities or property), the Conversion Price in effect at the close
of business on the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution, or to be affected by such
subdivision, combination or other reclassification, shall be adjusted by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the total number of outstanding shares of Common Stock immediately prior to such
event, and the denominator of which shall be the total number of outstanding
shares of Common Stock immediately after such event. An adjustment made pursuant
to this subparagraph (i) shall become effective immediately after the record
date for such event, or, if there is no record date, upon the effective date for
such event. Any Common Stock issuable in payment of a dividend shall be deemed
to have been issued immediately prior to the time of the record date for such
dividend for purposes of calculating the number of outstanding shares of Common
Stock under subparagraphs (ii) and (iii) below. Adjustments pursuant to this
subparagraph shall be made successively whenever any event specified above shall
occur.
(ii) In case the Corporation shall fix a record date for
issuance of rights or warrants to all holders of Common Stock entitling them to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) (other than Series B Preferred Stock, Series B
Warrants or Investor Warrants) at a price per share (or having a conversion
price or exchange price per share, subject to normal antidilution adjustments)
less than the Current Market Price (as defined in subparagraph (vii) below) of
Common Stock on such record date, the Conversion Price in effect at the close of
business on such record date shall be reduced by multiplying such Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights, options or
warrants plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so offered would purchase at
the Current Market Price as of such record date, and the denominator of which
shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights, options or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase in connection with
such rights, options or warrants. Such adjustment shall be made whenever such
rights, options or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such rights, options or warrants. In case any rights or warrants referred to in
this subparagraph (ii) in respect of which an adjustment shall have been made
shall expire unexercised within forty-five (45) days after the same shall have
been distributed or issued by the Corporation, the Conversion Price shall be
readjusted at the time of such expiration to the Conversion Price that would
have been in effect if no adjustment had been made on account of the
distribution or issuance of such expired rights or warrants.
(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
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effectiveness of the Conversion Price reduction contemplated by this
subparagraph (iii) by a fraction, the numerator of which shall be the then
Current Market Price per share of Common Stock, less the then fair market value
(as determined by the Board of Directors, whose reasonable determination shall
be described in a resolution certified by the Secretary or an Assistant
Secretary of the Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification (a "Board
Resolution") of the portion of the securities, evidences of indebtedness,
assets, property or rights or warrants so distributed, the case may be, which is
applicable to one share of Common Stock, and the denominator of which shall be
the Current Market Price per share of Common Stock as of the record date for
such distribution. Such adjustment shall be made successively whenever such a
record date is fixed.
(iv) In case the Corporation shall issue Common Stock for a
consideration per share less than the Current Market Price per share on the date
the Corporation fixes the offering price of such additional shares, the
Conversion Price shall be adjusted immediately thereafter so that it shall equal
the price determined by multiplying the Conversion Price in effect immediately
prior thereto by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding immediately after the issuance of such
additional shares, and the denominator shall be the total number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares plus the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subparagraph (vi) below) for
the issuance of such additional shares would purchase at the Current Market
Price per share. Such adjustment shall be made successively whenever such an
issuance is made; provided, however, that the provisions of this subparagraph
shall not apply (A) to Common Stock issued to the Corporation's employees or
former employees or their estates under bona fide employee benefit plans adopted
by the Board of Directors and approved by the holders of Common Stock if
required by law, if such Common Stock would otherwise be covered by this
subparagraph, but only to the extent that the aggregate number of shares
excluded hereby shall not exceed, on a cumulative basis since the date hereof,
1,642,000 (including 842,000 shares as of the date hereof to be issued pursuant
to employee stock options outstanding as of the date hereof to purchase Common
Stock), (B) to the Common Stock to be issued pursuant to the Bank Warrants, (C)
to the Common Stock to be issued pursuant to the Investor Warrants or the Series
B Warrants and (D) to Common Stock to be issued upon conversion of the Series A
Preferred Stock or the Series B Preferred Stock, adjusted as appropriate in each
case, in connection with any stock split, merger, recapitalization or similar
transaction.
(v) In case the Corporation shall issue any securities
convertible into or exchangeable for Common Stock (excluding (A) securities
issued in transactions resulting in adjustment pursuant to subparagraphs (ii)
and (iii) above, (B) Series A Preferred Stock, (C) Series B Preferred Stock, (D)
Investor Warrants or Series B Warrants, and (E) upon conversion of any of such
securities) for a consideration per share of Common Stock deliverable upon
conversion or exchange of 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
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consideration received (determined as provided in subparagraph (vi) below) for
such securities would purchase at the Current Market Price per share. Such
adjustment shall be made successively whenever such an issuance is made.
Upon the termination of the right to convert or exchange such
securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the adjustments made upon the
issuance of such convertible or exchangeable securities been made upon the basis
of the delivery of only the number of shares of Common Stock actually delivered
upon conversion or exchange of such securities and upon the basis of the
consideration actually received by the Corporation (determined as provided in
subparagraph (vi) below) for such securities.
(vi) For purposes of any computation respecting
consideration received pursuant to subparagraphs (iv) and (v) above, the
following shall apply:
(A) in the case of the issuance of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in no
case shall any deductions be made for any commissions, discounts, placement fees
or other expenses incurred by the Corporation for any underwriting or placement
of the issue or otherwise in connection therewith;
(B) in the case of the issuance of Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined by
the Board of Directors, whose reasonable determination shall be described in a
Board Resolution; and
(C) in the case of the issuance of securities
convertible into or exchangeable for Common Stock, the aggregate consideration
received therefor shall be deemed to be the consideration received by the
Corporation for the issuance of such securities plus the additional minimum
consideration, if any, to be received by the Corporation upon the conversion or
exchange thereof (the consideration in each case to be determined in the same
manner as provided in clauses (A) and (B) of this subparagraph (vi)).
(vii) For the purpose of any computation under this
Certificate of Designation, (A) the "Current Market Price" per share at any date
shall be deemed to be the average of the daily Closing Price for the Common
Stock for the ten (10) consecutive Trading Days commencing fourteen (14) Trading
Days before such date, and (B) the "Closing Price" of the Common Stock means the
last reported sale price regular way reported on the NASDAQ Stock Market or its
successor, or, if not listed or admitted to trading on the NASDAQ Stock Market
or its successor, the last reported sale price regular way reported on any other
stock exchange or market on which the Common Stock is then listed or eligible to
be quoted for trading, or as reported by the National Quotation Bureau
Incorporated.
(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.
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(ix) The Corporation may make such reductions in the
Conversion Price, in addition to those required pursuant to other subparagraphs
of this Section, as it considers to be advisable so that any event treated for
federal income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
(x) In case of any consolidation with or merger of the
Corporation into another corporation, or in case of any sale, lease or
conveyance of assets to another corporation of the property of the Corporation
as an entirety or substantially as an entirety, lawful and adequate provisions
shall be made whereby each Holder of Series B Preferred Stock shall have the
right to receive, from such successor, leasing or purchasing corporation, as the
case may be, upon the basis and upon the terms and conditions specified herein,
in lieu of the Common Stock immediately theretofore receivable upon the
conversion of such Series B Preferred Stock, the kind and amount of shares of
stock, other securities, property or cash or any combination thereof receivable
upon such consolidation, merger, sale, lease or conveyance by a holder of the
number of shares of Common Stock into which such Series B Preferred Stock might
have been converted immediately prior to such consolidation, merger, sale, lease
or conveyance. In the case of any such consolidation, merger or sale of
substantially all the assets, appropriate provision shall be made with respect
to the rights and interests of the Holders to the end that the provisions hereof
(including provisions for adjustment of the Conversion Price) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise of any conversion
rights hereunder.
(xi) In case of any reclassification or change of the
Common Stock issuable upon conversion of Series B Preferred Stock (other than a
change in par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in the Common Stock into
two or more classes or series of shares), or in case of any consolidation or
merger of another corporation into the Corporation in which the Corporation is
the continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
Common Stock (other than a change in par value, or from par value to no par
value, or as a result of a subdivision or combination, but including any change
in the Common Stock into two or more classes or series of shares), lawful and
adequate provisions shall be made whereby each Holder of Series B Preferred
Stock shall have the right to receive, upon the basis and upon the terms and
conditions specified herein, in lieu of the Common Stock immediately theretofore
receivable upon the conversion of such Series B Preferred Stock, the kind and
amount of shares of stock, other securities, property or cash or any combination
thereof receivable upon such reclassification, change, consolidation or merger,
by a holder of the number of shares of Common Stock into which such Series B
Preferred Stock might have been converted immediately prior to such
reclassification, change, consolidation or merger.
(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
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Conversion Price reduction contemplated by this subparagraph (xiii) by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such acquisition multiplied by the Current
Market Price per share of the Common Stock on the immediately preceding Trading
Day, and the denominator shall be the sum of (A) the fair market value (as
determined in good faith by the Board of Directors) of the aggregate
consideration payable to stockholders as a result of such acquisition, and (B)
the product of the number of shares of Common Stock outstanding immediately
following such acquisition and the Current Market Price per share of the Common
Stock on such immediately preceding Trading Day, such reduction to become
effective immediately prior to the opening of business on the day following such
acquisition.
(xiv) If any event occurs as to which the foregoing
provisions of this Section 6(c) are not strictly applicable or, if strictly
applicable, would not, in the good faith judgment of the Board of Directors,
fairly protect the conversion rights of the Series B Preferred Stock in
accordance with the essential intent and principles of such provisions, then the
Board of Directors shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, as shall be
reasonably necessary, in the good faith opinion of the Board of Directors, to
protect such conversion rights as aforesaid, but in no event shall any such
adjustment have the effect of increasing the Conversion Price, or otherwise
adversely affect the Holders.
(xv) For purposes of Section 6(c), Common Stock owned or
held at any relevant time by, or for the account of, the Corporation in its
treasury or otherwise, shall not be deemed to be outstanding for purposes of the
calculation and adjustments described therein. Shares held in the Disputed
Claims Reserve, Division Class 14 Utility Fund Trust Agreement dated April 6,
1993 and the Improvements Fund Trust Agreement dated April 6, 1993 shall not be
deemed to be held by, or for the account of, the Corporation.
(d) Conversion Price Adjustment Deferred. Notwithstanding the foregoing
provisions of this Section 6, (i) no adjustment in the number of shares of
Common Stock into which any Series B Preferred Stock is convertible shall be
required unless such adjustment would require an increase or decrease in such
number of shares of at least 1% and (ii) no adjustment in the Conversion Price
shall be required unless such adjustment would require an increase or decrease
in the Conversion Price of at least $.01 per share; provided, however, that any
adjustments which by reason of this paragraph (d) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 6 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be.
(e) Adjustment Report. Whenever any adjustment is required in the
shares into which any Series B Preferred Stock is convertible, the Corporation
shall forthwith (i) file with each office or agency then maintained by the
Corporation for the transfer of the Series B Preferred Stock a statement
describing in reasonable detail the adjustment and the method of calculation
used and (ii) cause a notice of such adjustment, setting forth the adjusted
Conversion Price and the calculation thereof to be mailed to the Holders at
their respective addresses as shown on the stock books of the Corporation. The
certificate of any independent firm of public accountants of recognized standing
selected by the Board of Directors certifying to the Board of Directors the
correctness of any computation under this Section 6 shall be evidence of the
correctness of such computation.
(f) Notice of Certain Events. In the event that:
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(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 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
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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 which has
occurred and the date of such occurrence, the place or places of payment, the
then effective Conversion Price pursuant to Section 6, the then effective
Repurchase Price and the date the right of such Holder to require such
repurchase shall terminate. In addition, the Corporation shall, immediately upon
becoming aware of any facts or events that could reasonably be expected to
result in the occurrence of an Event of Default, give a written notice thereof
by telecopy, if possible, and by first class mail, postage prepaid, to the
Holders, addressed to such Holders at their last addresses as shown upon the
stock books of the Corporation.
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(d) The date fixed for each such repurchase (the "Repurchase Date")
shall be the 30th day following the date of the Repurchase Notice relating
thereto. The place of payment shall be at an office or agency in the City of New
York, New York fixed therefor by the Corporation or, if not fixed, at the
principal executive office of the Corporation.
On or before the Repurchase Date, each Holder who elects to have Series
B Preferred Stock held by it purchased shall surrender the certificate
representing such shares to the Corporation at the place designated in such -
notice together with an election to have such purchase made and shall thereupon
be entitled to receive payment therefor provided in this Section 8. If less than
all the shares represented by any such surrendered certificate are repurchased,
a new certificate shall be issued representing the unpurchased shares. Payment
of the Repurchase Price for the Put Shares shall be made on the later of the
Repurchase Date or the fifth Business Day after the surrender of such
certificate. Dividends with respect to the Series B Preferred Stock so purchased
shall cease to accrue after the Repurchase Date, such shares shall no longer be
deemed outstanding and the Holders thereof shall cease to be stockholders of the
Corporation and all rights whatsoever with respect to the shares so purchased
shall terminate; provided, however, that if the Corporation defaults in its
obligation to pay the Repurchase Price for such Put Shares, interest shall
accrue on the amount of such obligation at the Default Dividend Rate until such
payment is made (with all interest due).
(e) Notwithstanding any other provision hereof, if any of the following
events shall occur and be continuing: (i) the Company or any of its Significant
Subsidiaries shall commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or the Company or any of its Significant Subsidiaries shall make a
general assignment for the benefit of its creditors; (ii) there shall be
commenced against the Company or any of its Significant Subsidiaries any case,
proceeding or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a period of
60 days; (iii) there shall be commenced against the Company or any of its
Significant Subsidiaries any case, proceeding or other action seeking issuance
of a warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof; (iv) the Company or
any of its Significant Subsidiaries shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clauses (i), (ii), or (iii) above; (v) the Company or any of its
Significant Subsidiaries shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due; (vi) the
Company or any of its Significant Subsidiaries shall cause to be reinstated the
Reorganization Proceedings (as defined in the Note Agreement (as defined in the
Investment Agreement)); or (vii) the Confirmation Order (as defined in the Note
Agreement) shall be reversed, withdrawn, modified (in any manner adverse to the
Company or any of its Significant Subsidiaries), or any rehearing shall be
ordered with respect thereto by the Bankruptcy Court or by any court having
jurisdiction over the Company; then, and in any such event, all Series B
Preferred Stock held by such Holder shall be Put Shares and the aggregate
Repurchase Price in respect of each such share shall immediately and
automatically become due and payable in full without any requirement or
pre-condition of delivery of a Repurchase Notice, any such requirement or
pre-condition being expressly waived hereby.
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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 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.
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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.
"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).
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"Holder" means a record holder of one or more outstanding shares of
Series B Preferred Stock.
"Initial Dividend Period" means the dividend period commencing on the
Original Issue Date and ending on the second Dividend Payment Date to occur
thereafter.
"Instrument" means any contract, agreement, indenture, mortgage,
security, document or writing under which any obligation is evidenced, assumed
or undertaken, or any security interest is granted or perfected.
"Investor" has the meaning set forth in the Investment Agreement.
"Investor Warrants" means the 5,000,000 warrants to acquire Common
Stock to be issued to the Investor pursuant to the Investment Agreement.
"Investment Agreement" means the Amended and Restated Investment
Agreement dated as of February 7, 1997 by and between AP-AGC, LLC and the
Corporation, amended as of March 20, 1997 and amended and restated as of May 15,
1997.
"Junior Stock" has the meaning set forth in Section 2.
"Liquidation Preference" means, at any time, $10 per share of Series B
Preferred Stock, plus accumulated and unpaid Dividends thereon through the date
of such determination, whether or not declared and whether or not funds are
legally available therefor.
"Optional Redemption Price" has the meaning set forth in Section 5(a).
"Original Issue Date" means the date upon which the Series B Preferred
Stock is originally issued by the Corporation.
"Parity Stock" means the Series A Preferred Stock (except insofar as
the Series A Preferred Stock has certain security rights and interests which are
not applicable to the Series B Preferred Stock) and any class or series of stock
the terms of which provide that it is entitled to participate pari passu with
the Series B Preferred Stock with respect to any dividend or distribution or
upon liquidation, dissolution or winding-up of the Corporation.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, business trust, joint-stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof.
"Put Shares" has the meaning set forth in Section 8(a).
"Quarterly Dividend Period" shall mean the quarterly period commencing
on each March 31, June 30, September 30 and December 31 and ending on each
Dividend Payment Date, respectively.
"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).
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"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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APPENDIX B
WARRANT AGREEMENT
Class A, B and C Warrants to Purchase
_________ Shares of Common Stock
of
Atlantic Gulf Communities Corporation
THIS WARRANT AGREEMENT dated as of __________, 1997 between Atlantic
Gulf Communities Corporation, a Delaware corporation (the "Company"), and
_______________________, a _______ corporation, as Warrant Agent (the "Warrant
Agent").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue rights (the "Warrants") to
purchase shares of its Common Stock ("Shares");
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, transfer, exchange, replacement and exercise of the Warrants, and
other matters, as provided herein:
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
Section 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with the
instructions set forth in this Agreement, and the Warrant Agent hereby accepts
such appointment.
Section 2. DUTIES OF WARRANT AGENT. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions:
(a) The Warrant Agent shall not be responsible, or required to enforce
this contract, for any failure of the Company to comply with any of the
covenants contained in this Agreement, the Certificate of Incorporation of the
Company, as it may be amended from time to time (the "Certificate of
Incorporation") or the Warrant Certificates (as defined).
(b) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys, agents or employees.
(c) The Warrant Agent may consult at any time with counsel satisfactory
to it (who may be counsel for the Company), and the Warrant Agent shall incur no
liability or responsibility to the Company or to any of the holders of the
Warrants (the "Holders") in respect of any action taken, suffered or omitted by
it hereunder in good faith and in accordance with the opinion or the advice of
such counsel; provided, however, that the Warrant Agent shall have exercised
reasonable care in the selection and continued employment of such counsel.
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(d) The Warrant Agent shall incur no liability or responsibility to the
Company or to any Holder for any action taken in reliance on any notice,
resolution, waiver, consent, order, certificate or other paper, document or
instrument, believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by it under this Agreement, to reimburse
it upon demand for all expenses, taxes and governmental charges and other
charges of any kind and nature reasonably incurred by it in the execution of its
duties under this Agreement. The Company shall also indemnify the Warrant Agent
and save it harmless against any and all losses, liabilities and expenses,
including judgments, costs and counsel fees, for anything done or omitted by it
arising out of, or in connection with, this Agreement, except as such is a
result of the Warrant Agent's negligence, bad faith or intentional misconduct.
(f) Subject to (a) and (h) of this Section 2, the Warrant Agent shall
be under no obligation to institute any action, suit or legal proceeding or to
take any other action likely to involve expense unless the Company or one or
more Holders shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such action as it may
consider proper, whether with or without any such security or indemnity. Subject
to (a) and (h) of this Section 2, all rights of action under this Agreement or
under any of the Warrants may be enforced by the Warrant Agent without the
possession of any of the certificates evidencing the Warrants (the "Warrant
Certificates") or the production thereof at any trial or other proceeding
relative thereto, and any such Action, suit or proceeding instituted by the
Warrant Agent shall be brought in its name as Warrant Agent, and any recovery of
judgment shall be for the ratable benefit of the Holders, as their respective
rights or interest may appear.
(g) The Warrant Agent, and any shareholder, director, officer or
employee thereof, may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though the Warrant Agent were
not a party to this Agreement. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent for the
Company and not in a ministerial capacity, and its duties shall be determined
solely by the provisions hereof. The Warrant Agent shall not be liable for
anything which it may do or refrain from doing in connection with this
Agreement, except for such as is the result of its own negligence, bad faith or
willful misconduct.
(i) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as reasonably may be required
by the Warrant Agent for the carrying out or performing of the provisions of
this Agreement.
(j) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from an
authorized officer of the Company designated in writing from time to time by the
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Company ("Officer"), and to apply to such Officer for advice or instructions in
connection with its duties, and shall not be liable for any action taken or
suffered to be taken by it in good faith in accordance with instructions of such
Officer or in good faith reliance upon any statement signed by such Officer with
respect to any fact or matter (unless other evidence in respect thereof is
herein specifically prescribed) which may be deemed to be conclusively proved
and established by such signed statement.
(k) The Warrant Agent shall not be under any responsibility in respect
of the execution and delivery of this Agreement (except the due execution and
delivery hereof by the Warrant Agent) or in respect of the validity or execution
of any Warrant Certificate (except its countersignature thereof); nor shall it
be responsible for any breach by the Company of any covenant or condition
contained in this Agreement or in any Warrant Certificate; nor shall it be
responsible for the adjustment of the Purchase Price (as hereinafter defined) or
the making of any change in the number of shares required under the provisions
of Section 10 or responsible for the manner, method or amount of any such change
or the ascertaining of the existence of facts that would require any such
adjustment or change (except with respect to the exercise of Warrant
Certificates after actual notice of any adjustment of Purchase Price); nor shall
it by any act hereunder be deemed to make any representation or warranty as to
the authorization or reservation of any Shares to be issued pursuant to this
Agreement or any Warrant Certificate or as to whether any Shares will when
issued be validly issued.
Section 3. Merger, Consolidation or Change of Name of Warrant Agent.
--------------------------------------------------------
(a) Any corporation into which the Warrant Agent may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto. If at the
time any such successor to the Warrant Agent shall succeed under this Agreement
any of the Warrant Certificates shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of such
predecessor Warrant Agent and deliver such Warrants so countersigned; and if at
that time any of the Warrant Certificates shall not have been countersigned, any
successor to the Warrant Agent may countersign such Warrant Certificates either
in the name of the predecessor Warrant Agent or in its own name; and in all such
cases such Warrant Certificates shall have the full force provided in the
Warrant Certificates and in this Agreement.
(b) If at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent whose name has changed may adopt the
countersignature under its prior name and deliver the Warrants as countersigned;
if at that time any of the Warrant Certificates shall not have been
countersigned, the Warrant Agent may countersign such Warrant Certificates in
either names; in all such cases such Warrant Certificates shall have the full
force provided in the Warrant Certificates and in this Agreement.
Section 4. CHANGE OF WARRANT AGENT. The Warrant Agent may resign from
acting as agent for the Company under this Agreement by giving written notice to
the Company and to the Holders of record as of the date of notice to the
Company. Such notice shall specify the date upon which such resignation shall be
effective (which shall be not earlier than 30 days after the date of the written
notice to the Company). The Warrant Agent may be removed by like notice to it
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from the Company. If the Warrant Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Warrant Agent. If the Company shall fail to make such appointment within a
period of 30 days after it has been so notified in writing by the Warrant Agent,
then any Holder may apply to any court of competent jurisdiction for the
appointment of a successor to the Warrant Agent, either by the Company or by
such court. In the interim, the duties of the Warrant Agent shall be carried out
by the Company. After appointment, the successor warrant agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Warrant Agent, without further act or deed, and the former
Warrant Agent shall deliver and transfer to the successor warrant agent any
property at the time held by it hereunder and execute and deliver any further
assurance, conveyance, act or deed reasonably necessary for such purpose.
Failure to give any notice provided for in this Section 4, however, or any
defect herein, shall not affect the legality or validity of the resignation or
removal of the Warrant Agent or the appointment of a successor warrant agent, as
the case may be.
Section 5. Form and Execution of Warrant Certificates.
------------------------------------------
(a) The Warrant Certificates (and the forms of election to purchase
Shares and of assignment to be printed on the reverse thereof) shall be
substantially of the tenor and purport recited in EXHIBIT A hereto and may have
such letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed or engraved thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any law or with any rule
or regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Warrant Certificates may be listed, or to conform with
usage.
(b) Warrant Certificates shall be signed on behalf of the Company by
its Officer. Such signature upon the Warrant Certificates may be in the form of
a facsimile signature of a then present Officer notwithstanding the fact that at
the time the Warrant Certificates shall be countersigned and delivered or
disposed of it shall have ceased to be a Officer.
(c) In case any Officer who shall have signed any of the Warrant
Certificates shall cease to be a Officer before the Warrant Certificates so
signed shall have been countersigned by the Warrant Agent, or disposed of by the
Company, such Warrant Certificates nevertheless may be countersigned and
delivered or disposed of as though such person had not ceased to be an Officer;
and any Warrant Certificate may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Warrant Certificate, is an
Officer, although at the date of the execution of this Warrant Agreement any
such person was not an Officer.
(d) The Warrant Certificates shall be dated the date of
countersignature by the Warrant Agent.
Section 6. Registration and Countersignature.
---------------------------------
(a) Warrant Certificates shall be registered in the names of the record
holders to whom they are to be distributed, as provided by the Company; and the
Warrant Agent shall maintain a list showing the name, address and number of
Warrants held by each of the Holders of record.
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(b) Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned.
(c) The Company and the Warrant Agent may deem and treat the Holder of
record as the absolute owner of the Warrant Certificate (notwithstanding any
notation of ownership or other writing thereon made by anyone) for the purpose
of any exercise thereof and any distribution to the holder thereof and for all
other purposes, and neither the Company nor the Warrant Agent shall be affected
by any notice to the contrary.
Section 7. Registration of Transfers and Exchanges
(a) The Warrant Agent shall from time to time register the transfer of
any outstanding Warrant Certificates upon the records to be maintained by it for
that purpose, upon surrender of the Warrant Certificate accompanied (if so
required by the Warrant Agent) by a written instrument or instruments of
transfer in form satisfactory to the Warrant Agent, duly executed by the
registered Holder(s) thereof or by the duly appointed legal representative
thereof or by a duly authorized attorney. Upon any such registration or
transfer, a new Warrant Certificate shall be issued to the transferee, and the
surrendered Warrant Certificate shall be canceled by the Warrant Agent. Canceled
Warrant Certificates shall thereafter be returned to the Company or disposed of
by the Warrant Agent in a manner satisfactory to the Company, and in accordance
with the policies and procedures of the Warrant Agent.
(b) Any Warrant Certificate may be subdivided or combined with other
Warrant Certificates evidencing the same rights as the rights evidenced hereby
and thereby upon presentation and surrender thereof at the Warrant Office (as
defined) together with a written notice signed by the Holder specifying the
denominations in which new Warrant Certificates are to be issued. Upon
presentation and surrender of any Warrant Certificates, together with such
written notice, for subdivision or combination, the Warrant Agent will issue a
new Warrant Certificate or Certificates, in the denominations requested,
entitling the holders thereof to purchase the same aggregate number of Shares as
the Warrant Certificate or Certificates so surrendered. Such new Warrant
Certificates will be registered in the name of the Holder submitting such
request and delivered to such Holder. Any Warrant Certificate surrendered for
subdivision or combination shall be canceled promptly upon the issuance of such
new Warrant Certificate(s). The term "Warrant Certificate" as used herein
includes any Warrant Certificates into which a Warrant Certificate may be
subdivided, combined or exchanged.
(c) Warrant Certificates presented for registration of transfer and
exchange having endorsed thereon the legend set forth in the form of Warrant
Certificate attached as Exhibit A hereto shall only be registered for transfer
or exchange upon compliance with the requirements of the [Purchase Agreement?].
(d) The Warrant Agent is hereby authorized to countersign, in
accordance with the provisions of Section 6 and this Section 7, and deliver the
new Warrant Certificates required pursuant to the provisions of this Section 7
and for the purpose of any distribution of Warrant Certificates contemplated by
Section 10.
Section 8. MUTILATED OR MISSING WARRANT CERTIFICATES. In case any of
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
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Company may in its discretion issue, and the Warrant Agent shall countersign and
deliver, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and substitution for the Warrant Certificate
lost, stolen or destroyed, a new Warrant Certificate of like tenor and
representing an equivalent number of Warrants, but only upon receipt of evidence
satisfactory to the Company and the Warrant Agent of such loss, theft or
destruction of such Warrant Certificate.
Section 9. Duration and Exercise of Warrants.
---------------------------------
(a) Subject to the provisions hereof, the Warrants may be exercised at
the discretion of the Holder in whole or in part at any time or from time to
time on or after [issuance date] (the "Initial Exercise Date") to and including
June [ ], 2004 (the "Expiration Date") or, if either day is not a Trading Day,
then on the next succeeding Trading Day, by presentation and surrender of
Warrant Certificates to the Warrant Agent at the Warrant Office, with the Notice
of Election to Exercise (the "Exercise Notice") attached thereto duly executed
and accompanied by payment of the Exercise Price for the number of shares
specified in such Exercise Notice.
(b) The Exercise Prices for each Warrant to purchase a Share shall
initially be equal to $_____, $_____, and $____, respectively, for Class A,
Class B, and Class C Warrants. The Exercise Prices set forth in the preceding
sentence are subject to adjustment as set forth in Sections 10 and 11.
(c) Upon receipt by the Warrant Agent of the Warrant Certificate at the
Warrant Office, together with a properly completed Exercise Notice and payment
of the Exercise Price as provided above, the Holder shall be deemed to be the
holder of record of the Shares issuable upon such exercise, notwithstanding that
the stock transfer books of the Company shall then be closed or that
certificates representing such shares shall not then be actually delivered to
the Holder. The Warrant Agent shall deliver such certificates to the Holder as
promptly as possible thereafter, but in any event within five business days of
receipt of the Exercise Notice. The Company shall pay all expenses, and any and
all United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 9, except that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of the Shares in a name other than that of the Holder of the
Warrant exercised who shall have surrendered the same in exercise of the
subscription right evidenced thereby. If Shares are issued prior to the time
that an appropriate registration statement with respect to the Shares has become
effective under the Securities Act of 1933, as amended (the "Securities Act"),
the Shares so issued shall have stamped or imprinted thereon a legend in the
form of Exhibit A. Any holder of Shares so legended shall be entitled to have
such legend removed, upon surrender of Shares to the Company or the transfer
agent for the Common Stock, upon effectiveness of such a registration statement
or upon receipt by the Company of an opinion of counsel to the Holder to the
effect that such legend is no longer required. To the extent that the Warrants
are issued in a public offering, the Company shall use its reasonable best
efforts to permit such Shares to be issued in compliance with the registration
provisions of the Securities Act, but the obligation of the Company to issues
Shares shall be suspended to the extent that at any time such issuance would not
comply with the Securities Act.
(d) Upon any partial exercise of the number of Warrants to which a
Warrant Certificate entitles the Holder, there shall be issued to the Holder
thereof a new Warrant Certificate in respect of the Shares as to which this
Warrant Certificate shall not have been exercised, subject to the provisions of
Section 12. Such new Warrant Certificate shall be identical to this Warrant
Certificate, except as to the number of Shares covered thereby.
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Section 10. Adjustment of Exercise Price and Number of Shares
Purchasable per Number of Warrants.
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The Exercise Price and the number of Shares purchasable upon the
exercise hereof shall be subject to adjustment from time to time as provided in
this Section 10. Unless otherwise indicated, all calculations under this Section
10 shall be made to the nearest $0.01 or 1/100th of a Share, as the case may be.
(a) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding Common Stock in capital stock of the Company,
(ii) subdivide or reclassify the outstanding Common Stock into a greater number
of shares (or into other securities or property), or (iii) combine or reclassify
the outstanding Common Stock into a smaller number of shares (or into other
securities or property), the number of Shares issuable upon the exercise of each
Warrant shall be adjusted so that the Holder of each Warrant shall be entitled
to purchase the kind and number of Shares or other securities or property of the
Company determined by multiplying the number of Shares issuable upon exercise of
each Warrant immediately prior to such event by a fraction, the numerator of
which shall be the total number of outstanding Shares immediately after such
event, and the denominator of which shall be the total number of outstanding
Shares immediately prior to such event. An adjustment made pursuant to this
paragraph (a) shall become effective immediately after the effective date of
such event, retroactive to the record date, if any, 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 under paragraphs (b) and (c)
below. Adjustments pursuant to this paragraph shall be made successively
whenever any event specified above shall occur. Whenever the number of Shares
issuable upon exercise of a Warrant is adjusted pursuant to this paragraph, the
Exercise Price payable upon exercise of each Warrant shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such adjustment by
a fraction, the numerator of which shall be the number of Shares issuable upon
the exercise of each Warrant immediately prior to such adjustment, and the
denominator of which shall be the number of Shares issuable immediately
thereafter.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of Common Stock entitling them to subscribe
for or purchase Common Stock (or securities convertible into or exchangeable for
Common Stock) (other than securities outstanding as of the date hereof, or
issued pursuant to the Rights Offering, that are convertible into or
exchangeable for Common Stock at a price per Share (or having a conversion price
or exchange price per share, subject to normal antidilution adjustments
("Excluded Securities")) less than the Current Market Price (as defined in
paragraph (g) below) per Share on such record date, the number of Shares
thereafter issuable upon exercise of each Warrant shall be determined by
multiplying the number of Shares theretofore issuable upon exercise of each
Warrant by a fraction, the numerator of which shall be the number of Shares
outstanding on the date of issuance of such rights, options or warrants plus the
number of additional Shares offered for subscription or purchase in connection
with such rights, options or warrants, and the denominator of which shall be the
number of Shares outstanding on the date of issuance of such rights, options or
warrants plus the number of Shares which the aggregate offering price of the
total number of Shares so offered would purchase at the Current Market Price as
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of such record date. 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. Whenever the number of Shares issuable upon exercise of a
Warrant is adjusted pursuant to this paragraph, the Exercise Price payable upon
exercise of each Warrant shall be adjusted by multiplying the Exercise Price in
effect immediately prior to such adjustment by a fraction, the numerator of
which shall be the number of Shares issuable upon the exercise of each Warrant
immediately prior to such adjustment, and the denominator of which shall be the
number of Shares issuable immediately thereafter.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (i) of shares of any class other
than Common Stock, (ii) of evidences of indebtedness of the Company or any
subsidiary thereof, (iii) of assets or other property or (iv) of rights or
warrants (excluding rights or warrants resulting in an adjustment pursuant to
paragraph (b) above, and Excluded Securities), then in each such case the number
of Shares thereafter issuable upon exercise of each Warrant shall be determined
by multiplying the number of Shares theretofore issuable upon the exercise of
each Warrant by a fraction, the numerator of which shall be the Current Market
Price per Share as of the record date for such distribution, and the denominator
of which shall be the then Current Market Price per Share, less the then fair
market value (as determined by the Board of Directors, whose reasonable
determination shall be described in a Board Resolution) of the portion of the
securities, evidences of indebtedness, assets, property or rights or warrants so
distributed, as the case may be, which is applicable to one Share. Such
adjustment shall be made successively whenever such a record date is fixed.
Whenever the number of Shares issuable upon exercise of a Warrant is adjusted
pursuant to this paragraph, the Exercise Price payable upon exercise of each
Warrant shall be adjusted by multiplying such Exercise Price immediately prior
to such adjustment by a fraction, the numerator of which shall be the number of
Shares issuable upon the exercise of each Warrant immediately prior to such
adjustment, and the denominator of which shall be the number of Shares
purchasable immediately thereafter.
(d) In case the Company shall issue its Common 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, the Exercise
Price shall be adjusted immediately thereafter so that it shall equal the price
determined by multiplying the Exercise Price in effect immediately prior thereto
by a fraction, of which the numerator shall be the total number of Shares
outstanding immediately prior to the issuance of such additional shares plus the
number of Shares which the aggregate consideration received (determined as
provided in paragraph (f) below) for the issuance of such additional shares
would purchase at the Current Market Price per Share, and the denominator shall
be the number of Shares outstanding immediately after the issuance of such
additional Shares. Such adjustment shall be made successively whenever such an
issuance is made; provided, however, that the provisions of this paragraph shall
not apply (i) to Common Stock issued to the Company'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 paragraph, but
only to the extent that the aggregate number of Shares excluded hereby shall not
exceed, on a cumulative basis since the Initial Exercise Date, [NUMBER TO BE
AGREED BEFORE CLOSING] (including 842,000 shares as of the Initial Exercise Date
to be issued pursuant to employee and director stock option plans outstanding as
of the Initial Exercise Date to purchase Common Stock), (ii) to Common Stock to
be issued pursuant to the Bank Warrants, (iii) to Common Stock to be issued
pursuant to the Investor Warrants, the Series B Warrants or the Rights Offering
and (iv) to Common Stock to be issued upon conversion of Series A Preferred
Stock or Series B Preferred Stock, adjusted, as appropriate, in each case, in
connection with any stock split, merger, recapitalization or similar
transaction.
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(e) In case the Company shall issue any securities convertible into or
exchangeable for Common Stock (excluding (i) securities issued in transactions
resulting in an adjustment pursuant to paragraphs (b) and (c) above, (ii) Series
A Preferred Stock, (iii) Series B Preferred Stock, (iv) Series B Warrants, (v)
Investor Warrants, (vi) securities issued pursuant to the Rights Offering and
(vii) upon conversion of any of such securities) for a consideration per Share
deliverable upon conversion or exchange of such securities (determined as
provided in paragraph (f) below and subject to normal anti-dilution adjustments)
less than the Current Market Price per Share in effect immediately prior to the
issuance of such securities, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, of which the
numerator shall be the number of Shares outstanding immediately prior to the
issuance of such securities plus the number of Shares which the aggregate
consideration received (determined as provided in paragraph (f) below) for such
securities would purchase at the Current Market Price per Share, and the
denominator shall be the number of Shares outstanding immediately prior to such
issuance plus the maximum number of Shares deliverable upon conversion of or in
exchange for such securities at the initial conversion or exchange price or
rate. 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 Exercise Price shall forthwith be readjusted to such Exercise
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 actually delivered upon conversion or
exchange of such securities and upon the basis of the consideration actually
received by the Company (determined as provided in paragraph (f) below) for such
securities.
(f) For purposes of any computation respecting consideration received
pursuant to paragraphs (d) and (e) above, the following shall apply:
(i) 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 customary commissions, discounts, placement fees
or other expenses reasonably incurred by the Company for any underwriting or
placement of the issue or otherwise in connection therewith;
(ii) in the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as reasonably
determined by the Board of Directors, whose determination shall be described in
a Board Resolution; and
(iii) 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 Company for the
issuance of such securities plus the additional minimum consideration, if any,
to be received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided in
clauses (i) and (ii) of this paragraph (f)).
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(g) For the purpose of any computation under this Warrant, the "Current
Market Price" per share at any date shall be deemed to be the average of the
daily Sale Price for the Common Stock for the 10 consecutive Trading Days
commencing 14 Trading Days before such date.
(h) In any case in which this Section shall require that an adjustment
shall become effective immediately after a record date for an event, the Company
may defer until the occurrence of such event (i) issuing to the Holder of any
Warrant exercised after such record date and before the occurrence of such event
the additional Common Stock issuable upon such exercise by reason of the
adjustment required by such event over and above the Common Stock issuable upon
such exercise before giving effect to such adjustment and (ii) paying to such
Holder an amount in cash in lieu of a fractional Share pursuant to Section 12;
provided, however, that the Company 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.
(i) No adjustment in the Exercise Price shall be required with respect
to Common Stock issued upon exercise of the Warrants unless such adjustment
would require a decrease of at least $.01; provided, however, that any such
adjustment which is not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
(j) The Company may make such reductions in the Exercise Price, in
addition to those required pursuant to other paragraphs 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.
(k) In case of any consolidation with or merger of the Company into
another corporation, or in case 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, such successor, leasing or purchasing corporation,
as the case may be, shall be bound by this Warrant Certificate and shall execute
and deliver to the Holder hereof simultaneously therewith a new Warrant
Certificate, reasonably satisfactory in form and substance to such Holder,
providing that the Holder of each Warrant then outstanding shall have the right
thereafter to exercise such Warrant solely for the kind and amount of shares of
stock, other securities, property or cash or any combination thereof receivable
upon such consolidation, merger, sale, lease or conveyance by a holder of the
number of Shares for which such Warrant might have been exercised immediately
prior to such consolidation, merger, sale, lease or conveyance.
(l) In case of any reclassification or change of the Common Stock
issuable upon exercise of the Warrants (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 Company in which the Company 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), the Company shall execute and deliver to the
Holder hereof simultaneously therewith a new Warrant Certificate, providing that
the Holder of each Warrant then outstanding shall have the right thereafter to
exercise such Warrant solely for the kind and amount of shares of stock, other
securities, property or cash or any combination thereof receivable upon such
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reclassification, change, consolidation or merger by a holder of the number of
Shares for which such Warrant might have been exercised immediately prior to
such reclassification, change, consolidation or merger.
(m) The foregoing paragraphs (k) and (l), 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 exercise of a Warrant.
(n) Whenever there shall be any change in the Exercise Price under any
paragraph of this Section, and no specific means of adjusting the number of
Shares issuable upon exercise of each Warrant is provided in such paragraph,
then there shall be an adjustment (to the nearest hundredth of a Share) in the
number of Shares purchasable upon exercise of Warrants, which adjustment shall
become effective at the time such change in the Exercise Price becomes effective
and shall be made by multiplying the number of Shares purchasable upon exercise
of each Warrant Certificate immediately before such change in the Exercise Price
by a fraction, the numerator of which is the Exercise Price immediately before
such change, and the denominator of which is the Exercise Price immediately
after such change. If, following the declaration of a record date for the
distribution of any rights, warrants or other securities or property to be
distributed to holders of Common Stock, such rights, warrants or other
securities or property are not so issued, the Exercise Price then in effect
shall be readjusted, effective as of the date when the Board of Directors
determines not to issue such rights or warrants, to the Exercise Price which
would then be in effect if a record date for such issuance had not been fixed.
(o) If the Company repurchases any Common Stock for a per Share
consideration which exceeds the Current Market Price of a Share on the date
immediately prior to such repurchase, then the Company shall issue additional
Warrants pro rata to each holder having the Exercise Price in effect on the
Trading Day immediately prior to such repurchase. The total additional Warrants
issued pursuant to the preceding sentence shall entitle the Holders to purchase
the number of Shares equal to the result obtained by dividing (i) the product of
(v) the number of Shares repurchased at a price in excess of the Current Market
Price and (w) the amount by which the per-Share repurchase price exceeds such
Current Market Price and (x) the percentage, expressed as a decimal, of the
total number of Warrants issued that then remain outstanding, by (ii) the amount
by which (x) such Current Market Price exceeds (z) the Exercise Price in effect
as of the date immediately preceding such repurchase.
(p) If any event occurs as to which the foregoing provisions of this
Section are not strictly applicable or, if strictly applicable, would not, in
the good faith judgment of the Board of Directors, fairly protect the purchase
rights of the Warrants in accordance with the essential intent and principles of
such provisions, then such 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 such
Board, to protect such purchase rights as aforesaid, but in no event shall any
such adjustment have the effect of increasing the Exercise Price or decreasing
the number of Shares subject to purchase upon exercise of a Warrant, or
otherwise adversely affect the Holders. Under no circumstances (other than
(A)(x) a reverse stock split, (y) a recapitalization in which all holders of
Common Stock (and securities exercisable for or convertible into Common Stock,
with respect to such exercise or conversion provisions) are treated equally and
(z) a merger, in each case in which each outstanding Share is converted into
less than one Share (including, in the case of a merger, of the entity surviving
such merger), or (B) as provided in Section 10(e) or Section 11) shall any
adjustment pursuant to this Section have the effect of raising the Exercise
Price or lowering the number of Shares issuable upon exercise of a Warrant.
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(q) If, after one or more adjustments to the Exercise Price pursuant to
this Section 10, the Exercise Price cannot be reduced further without falling
below the lowest positive exercise price legally permissible for warrants to
acquire Common Stock, the Company shall make further adjustment to compensate
the Holders, consistent with the foregoing principles, as the Board of
Directors, acting in good faith, deems necessary, including an increase in the
number of Shares issuable upon exercise of outstanding Warrants and/or cash
payment to the Holder.
(r) For purposes of any adjustment to be made pursuant to this Section
10, Common Stock owned or held at any relevant time by, or for the account of,
the Company in its treasury or otherwise, shall not be deemed to be outstanding
for purposes of the calculation and adjustments described therein, but shares
held in the Restated, Amended and Consolidated Trust dated December 26, 1996
among the State of Florida, Department of Business Regulation, Division of
Florida Land Sales, Condominiums and Mobile Houses, the Company and First Union
National Bank of Florida shall not be deemed to be held by, or for the account
of, the Company.
Section 11 Additional Adjustments of Exercise Price.
----------------------------------------
(a) The Company will cause the financial statements for the Company and
its consolidated Subsidiaries for the fiscal year ending on December 31, 1998 to
be audited by Ernst & Young, LLP, or another national independent accounting
firm, and a manually signed copy of such financial statements to be delivered by
the Company to the Holders as soon as practicable following December 31, 1998,
but in no event later than March 31, 1999 (the date such financial statements
are so delivered, the "Adjustment Date").
(b) The Exercise Price shall be reduced, effective as of the Adjustment
Date, by subtracting the Adjustment Amount from the Exercise Price; provided,
however, that (i) the Exercise Price shall only be adjusted pursuant to this
Section 11 if the Adjustment Amount is a positive number; (ii) in no event shall
the adjustment required by this Section 11 result in an Exercise Price lower
than $2.00 FOR CLASS A, $3.00 FOR CLASS B, and $4.00 FOR CLASS C (as adjusted
pursuant to Section 10, the "Base Exercise Price"), and if the adjustment
required pursuant to this Section 11 would result in an Exercise Price lower
than the Base Exercise Price, then the Exercise Price shall be reduced to the
Base Exercise Price; and (iii) if the closing price for the Common Stock
(adjusted pursuant to Section 10) is greater than $9.75 both (A) on the last
trading day of 1998 and (B) on an average basis over the three months ending on
December 31, 1998, then no adjustment shall be made pursuant to this Section 11.
The "Adjustment Amount" equals the product of (i) $.015 and (ii) the
quotient obtained by dividing (A) the difference between (x) the Actual
Cumulative Operating Cash Flow and (y) the Target Cumulative Operating Cash Flow
by (B) $100,000, where: "Target Cumulative Operating Cash Flow" equals
$62,443,000;
"Actual Cumulative Operating Cash Flow" equals the sum of the Actual
Operating Cash Flow for the year ending December 31, 1997 and the Actual
Operating Cash Flow for the year ending December 31, 1998, minus 0.15 times the
Excess 1998 Operating Cash Flow;
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"Actual Operating Cash Flow" for any year means the net cash proceeds
derived by the Company from the operation in the ordinary course of its business
and from the bulk asset sales contemplated by the Business Plan, calculated in
all respects the same as, and using the same accounting principles and practices
and classification systems and techniques as were used in, the calculation of
the Target Cumulative Operating Cash Flow, as described in summary format in
Exhibit B to this Agreement. By way of clarification, all revenue and cost items
shall be associated for purposes of calculating the Actual Operating Cash Flow
with the same activities/categories (such as "Net Subdivision Homesites") as
they were in calculating the Target Cumulative Operating Cash Flow.
"Excess 1998 Operating Cash Flow" means the Actual Operating Cash Flow
for the year ending December 31, 1998 minus $3,028,000.
(c) No adjustment shall be made to the number of Warrant Shares
issuable upon exercise of a Warrant as a result of an adjustment to the Exercise
Price pursuant to this Section 11; provided, however, that this paragraph shall
not prevent adjustments otherwise required pursuant to another Section of this
Agreement from being made.
(d) If the Company is involved in a merger, consolidation or similar
transaction, or to the extent that all or substantially all of the assets of the
Company are sold, in either case prior to the Adjustment Date, then an
adjustment to the Exercise Price shall be made pursuant to this Section 11 on a
pro rata basis by dividing both the Target Cumulative Operating Cash Flow and
the Actual Cumulative Operating Cash Flow derived by the Company's business
through the close of business on the date immediately prior to the effective
date of such transaction by a fraction, the numerator of which shall be the
number of days elapsed from the Initial Exercise Date through the business day
immediately prior to the effective date of such transaction and the denominator
of which shall be the number of days from the Initial Exercise Date through
February 28, 1999.
Section 12. Fractional Warrants and Fractional Shares.
-----------------------------------------
(a) The Company shall not be required to issue fractions of Warrants or
to issue Warrant Certificates which evidence fractional Warrants.
(b) The Company shall not be required to issue fractions of Shares on
the exercise of Warrants. If any fraction of a Share would, but for the
provisions of this Section, be issuable on the exercise of any Warrant (or
specified portion thereof), the Company shall purchase such fraction for an
amount in cash equal to the same fraction of the Current Market Price (as
defined in Section 10(g)) per Share.
(c) The Holder, by acceptance of a Warrant Certificate, expressly
waives his right to receive any fractional Warrant or any fractional Share upon
exercise of a Warrant.
Section 13. DISPOSITION OF PROCEEDS FROM EXERCISE OF WARRANTS. The
Warrant Agent shall account promptly to the Company with respect to Warrants
exercised and concurrently pay to the Company all moneys received by the Warrant
Agent on the purchase of Shares through the exercise of Warrants.
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Section 14. RESERVATION OF SHARES. The Company represents that, as of
the date hereof, it has sufficient Common Stock reserved for issuance upon
exercise of all outstanding Warrants, and agrees that, at all times during the
period within which the rights represented by Warrant Certificates may be
exercised, there shall be reserved for issuance and/or delivery upon exercise of
the Warrants evidenced by Warrant Certificates, free from preemptive rights,
such number of Shares of authorized but unissued or treasury shares of Common
Stock, or other stock or securities deliverable pursuant to Section 10, as shall
be required for issuance or delivery upon exercise of the outstanding Warrants.
The Company further agrees (i) that it will not, by amendment of its certificate
of incorporation or through reorganization, consolidation, merger, dissolution
or sale of assets, or by any other voluntary act, avoid or seek to avoid the
observance or performance of any of the covenants, stipulations or conditions to
be observed or performed hereunder by the Company and (ii) to promptly take all
action as may from time to time be required to permit the Holder to exercise the
outstanding Warrants and the Company duly and effectively to issue the Shares as
provided herein upon the exercise thereof. Without limiting the generality of
the foregoing, the Company agrees that it will not take any action which would
result in Shares when issued not being validly and legally issued and fully paid
and nonassessable and that it will take all such action as may be necessary to
assure that the Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Nasdaq Stock Market
or any other stock exchange or market upon which the Common Stock may be listed;
provided, however, that the Company shall not be required to effect a
registration under federal or state securities laws with respect to Shares
issuable upon the exercise of the Warrants issued in a transaction not involving
a public offering except as provided in the Purchase Agreement. The Company
further agrees that it will not increase the par value of the Common Stock while
the Warrants evidenced hereby are outstanding, although such par value may be
reduced at any time.
Section 15. Notices To Holders.
------------------
(a) Prior to the earlier to occur of (i) the declaration of a record
date for, or (ii) the announcement and/or consummation of, any event or action
that would result in an adjustment pursuant to Section 10 or Section 11, the
Company shall notify each Holder of such intended record date, announcement,
event or action. Such notice must be reasonably calculated to be delivered not
less than 20 nor more than 90 days prior to the applicable event.
(b) Whenever the Exercise Price is adjusted as provided in Section 10
or Section 11:
(i) the Company shall compute the adjusted Exercise Price in
accordance with Section 10 or Section 11 and shall prepare a certificate signed
by the chief financial officer of the Company setting forth the adjusted
Exercise Price and showing in reasonable detail the facts upon which such
adjustment is based, including, if appropriate, a statement of the consideration
received or to be received by the Company for, and setting forth the amount of,
any additional Common Stock issued since the last such adjustment and the number
of shares of Common Stock for which the Warrants are exercisable at the then
Exercise Price, and such certificate shall forthwith be filed at the Warrant
Office;
(ii) a notice stating that the Exercise Price and number of
Shares for which each Warrant may be exercised have been adjusted and setting
forth the adjusted Exercise Price and number of Shares for which each Warrant
may be exercised shall be communicated by telegram, telex, telecopier or any
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other means of electronic communication capable of producing a written record,
or shall be delivered by hand or mailed as soon as practicable by the Company to
each Holder at its last address as it shall appear upon the Warrant Register
provided for in Section 6; and
(iii) the Company shall provide to any Holder such additional
information, including worksheets used in the calculation of any adjustment made
pursuant to Section 10 or Section 11, as the Holder may reasonably request for
the purpose of confirming the accuracy of such adjustment.
(c) Nothing contained herein shall be construed as conferring upon a
Holder the right to vote or to receive dividends or to receive notice as
shareholders in respect of the meetings of shareholders for the election of
directors of the Company or any other matter, or any rights whatsoever as
shareholders of the Company. If, however, at any time prior to the expiration of
the Warrants and prior to their exercise, any of the following shall occur:
(i) The Company shall authorize the issuance to all holders of
Common Stock of rights, options or warrants to subscribe for or purchase Common
Stock, or of any other subscription rights or warrants (other than the Excluded
Securities); or
(ii) The Company shall authorize the distribution to all
holders of Common Stock of evidences of its indebtedness or assets (other than
cash dividends or cash distributions payable out of consolidated earnings or
earned surplus or dividends payable in Common Stock); or
(iii) The Company shall propose any consolidation or merger to
which the Company is a party and for which approval of any stock of the Company
is required, or the conveyance or transfer of all or substantially all the
properties and assets of the Company, whether in one transaction or in a series
of transactions (whether by sale, lease or other disposition), or any
reclassification or change of outstanding Common Stock issuable upon exercise of
the Warrants (other than a change in par value or from par value to no par
value); or
(iv) The Company shall propose the voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then the Company shall cause to be given to each Holder at its address appearing
on the Warrant Register, at least 15 days prior to the applicable record date
hereinafter specified, by first class mail, postage prepaid, and, if possible,
by telecopy transmission, a written notice stating (i) the date as of which the
holders of record of Common Stock entitled to receive any such rights, options,
warrants or distribution are to be determined, or (ii) the date on which any
such consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that the holders of record of Common Stock shall be
entitled to exchange their Shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up. The failure to give the notice
required by this Section or any defect therein, shall not affect the legality or
validity of any distribution, right, option, warrant, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the vote upon
any action.
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Section 16. Restrictions on Transfer of the Warrants and Shares.
---------------------------------------------------
Until such time as an appropriate registration statement covering the
Warrants or the Shares has become effective under the Securities Act, the
Holders will not dispose of either the Warrants or the Shares, as the case may
be, unless (i) the transferee has agreed to be bound by the restrictions
contained herein on such Warrants or Shares, as the case may be, and (ii) except
in the case of a transfer by the Holder to an Affiliate, the Company shall have
received an opinion of counsel (which shall be reasonably satisfactory to the
Company) to the effect that the sale or other proposed disposition of the
Warrants or Shares may be accomplished without such registration under the
Securities Act, which opinion may be conditioned upon (x) acceptance by the
transferee of a Warrant Certificate or Certificates of Shares bearing a legend
similar to that set forth in Exhibit A and (y) a certificate of the transferee
stating that the Warrant(s) or Share(s) being acquired by such transferee are
being acquired by such transferee for its own account and not with a view to, or
for resale in connection with, the distribution thereof in violation of the
Securities Act.
Section 17. Definitions.
-----------
For all purposes of this Agreement, in addition to the other terms
defined elsewhere herein, unless the context otherwise requires:
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
"Appraisal Procedure" means an Appraisal Procedure, as defined in the
certificates for the Investor Warrants, that is initiated under the provisions
of such certificates.
"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 Company.
"Board of Directors" means either the Board of Directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of 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 and delivered to each of the Holders of the Warrants.
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"Business Plan" means the 1997-1998 Business Plan of the Company
previously delivered to the Investor and certified to the Investor by the
Company.
"Common Stock" means any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
and which is not subject to redemption by the Company. However, subject to
Section 10, Shares issuable on exercise of the Warrants evidenced hereby, shall
include only shares of the class designated as Common Stock of the Company as of
the date of this Warrant or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company and which are
not subject to redemption by the Company; provided that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications. As used in this Warrant Agreement, "Shares" shall include
fractions thereof to the extent that fractional Shares of the Company are
outstanding.
"Investment Agreement" means the Amended and Restated Investment
Agreement dated as of February 7, 1997 by and between the Investor and the
Company, amended as of March 20, 1997 and amended and restated as of May 15,
1997.
"Investor" means AP-AGC, LLC.
"Investor Warrants" means the 5,000,000 warrants to acquire Common
Stock to be issued to the Investor pursuant to the Investment Agreement.
"Person" shall mean any individual, firm, partnership, association,
group (as such term is used in Rule 13d-5 under the Securities Exchange Act of
1934, as amended, as in effect on the date of this Agreement), corporation or
other entity.
"Purchase Agreement" means the Securities Purchase Agreement dated as
of June ___, 1997 among Atlantic Gulf Communities Corporation, AP-AGC, LLC. and
the purchasers named therein.
"Rights Offering" means the rights offering contemplated by the
Company's Proxy Statement dated May 21, 1997.
"Sale Price" of the Common Stock means the last reported sale price
regular way reported on the Nasdaq Stock Market or its successor, or, if not
listed or admitted to trading on the Nasdaq Stock Market or its successor, the
last reported sale price regular way reported on any other stock exchange or
market on which the Common Stock is then listed or eligible to be quoted for
trading, or as reported by the National Quotation Bureau Incorporated.
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"Series B Preferred Stock" means the 20% Cumulative Redeemable
Convertible Preferred Stock, Series B, par value $.01 per share, of the Company,
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.
"Subsidiary" means any subsidiary of the Company, a majority of whose
capital stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly owned by the Company, by one or
more subsidiaries of the Company or by the Company and one or more subsidiaries
of the Company.
"Trading Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are not traded on the exchange or
market where the Shares are listed or sold.
Section 18. Contest and Appraisal Rights.
----------------------------
Upon each determination of fair market value or other evaluation or
calculation required hereunder (including calculation of the Adjustment Amount),
the Company shall promptly give notice thereof to all Holders, setting forth in
reasonable detail the calculation of such fair market value or valuation (or
Adjustment Amount) and the method and basis of determination thereof, as the
case may be. In the event of an Appraisal Proceeding, the result of such
proceeding shall prevail to the extent inconsistent with any such determination.
Section 19. Additional Warrants to be Issued at Current Exercise Price.
-----------------------------------------------------------
Notwithstanding any other provision of this Agreement, to the extent a
Holder is entitled to receive additional Warrants in accordance with the terms
hereof, the Warrants so issued shall have terms identical to the outstanding
Warrants, except that (i) the initial Exercise Price for such additional
Warrants shall be deemed to be the Exercise Price in effect on the date such
additional Warrants are issued and (ii) the amount and kind of securities and/or
other property issuable upon exercise of such Warrants shall be deemed to be the
amount and kind of securities and/or other property issuable upon exercise of
the Warrants outstanding immediately prior to issuance of such additional
Warrants.
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Section 20. Notice to Company and Warrant Agent.
-----------------------------------
Any notice or demand authorized by this Agreement to be given or made
by the Warrant Agent or any Holders to or on the Company shall be sufficiently
given or made if personally delivered or sent by mail or by telegram or telex
confirmed by letter addressed (until another address is filed in writing by the
Company with the Warrant Agent), as follows:
[ ]
In case the Company shall fail to maintain such office or agency or
shall fail to give such notice of the location or of any change in the location
thereof, presentations may be made and notices and demands may be served at the
Warrant Office.
Any notice pursuant to this Agreement to be given by the Company or by
a Holder to the Warrant Agent shall be sufficiently given if personally
delivered or sent by mail or telegram or telex confirmed by letter, addressed
(until another address is filed in writing by the Warrant Agent with the
Company) to the Warrant Agent as follows:
[ ]
For personal, telegram or telex delivery:
[ ]
Section 21. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement without the
consent or concurrence of any Holder in order to cure any ambiguity, manifest
error or other mistake in this Agreement, or to make provision in regard to any
matters or questions arising hereunder which the Company and the Warrant Agent
may deem necessary or desirable and which shall not adversely affect, alter or
change the interests of the Holders.
Section 22. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 23. TERMINATION. This Agreement shall terminate at the close of
business within a reasonable time after the Expiration Date. Notwithstanding the
foregoing, this Agreement will terminate on any earlier date if all Warrants
have been exercised.
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Section 24. GOVERNING LAW. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be construed in accordance of the
laws of such state without reference to its law of conflicts.
Section 25. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or entity other than the Company, the Warrant
Agent and the Holders any legal or equitable right, remedy or claim under this
Agreement, and this Agreement shall be for the sole and exclusive benefit of the
Company, the Warrant Agent and the Holders.
Section 26. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 27. INVALIDITY OF PROVISIONS. If any provision of this
Agreement or of the Warrant Certificates is or becomes invalid, illegal or
unenforceable in any respect, such provision shall be amended to the extent
necessary to cause it to express the intent of the-parties and be valid, legal
and enforceable. The amendment of such provision shall not affect the validity,
legality or enforceability of any other provision hereof.
[signature block]
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EXHIBIT A
FORM OF WARRANT CERTIFICATE
CLASS [A/B/C] SERIES B
[THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD, UNLESS THEY HAVE BEEN
REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.]
NO.
Certificate for Class [A/B/C] Series B Warrants
EXERCISABLE COMMENCING ON THE DATE OF ISSUANCE
HEREOF AND ENDING
5:00 P.M., NEW YORK CITY TIME, ON _______________
ATLANTIC GULF COMMUNITIES CORPORATION
WARRANT CERTIFICATES
THIS CERTIFIES that or registered __________________________ assigns
is the registered holder (the "Registered Holder") of the number of Class
[A/B/C] Series B Warrants set forth above, each of which represents the right to
purchase one share of Common Stock, par value $.10 per share, of Atlantic Gulf
Communities Corporation, a Delaware Corporation (the "Company") at the initial
exercise price (the "Exercise Price") of $______, at any time during the Warrant
Exercise Period hereinafter referred to, by surrendering this Warrant
Certificate, with the form of election to purchase set forth hereon duly
executed with signatures guaranteed by a member firm of a national securities
exchange, a commercial bank or a trust company located in the United States of
America, or a member of the National Association of Securities Dealers, Inc., at
the office maintained for that purpose by ________________ or its successor as
warrant agent, in the City of New York (any such warrant agent being herein
called the "Warrant Agent"), and by paying in full the Exercise Price, plus
transfer taxes, if any, in United States currency by certified check, bank
cashier's check or money order payable to the order of the Warrant Agent.
The Warrant Exercise Period shall commence on the date of issuance
hereof and shall expire at 5:00 P.M., New York City time, on
___________________.
No Warrant may be exercised after the expiration date of the Warrant
Exercise Period (the "Expiration Date").
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Prior to the Expiration Date, subject to any applicable laws, rules or
regulations restricting transferability, the Registered Holder shall be entitled
to transfer this Warrant Certificate, in whole or in part, upon surrender of
this Warrant Certificate at the office of the Warrant Agent maintained for that
purpose in the City of New York with the form of assignment set forth hereon
duly executed with signatures guaranteed by a member firm of a national
securities exchange, a commercial bank or a trust company located in the United
States of America, or a member of the National Association of Securities
Dealers, Inc. Upon any such transfer, a new Warrant Certificate or Warrant
Certificates representing the same aggregate number of Warrants will be issued
in accordance with instructions in the form of assignment.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled
to exchange this Warrant Certificate, with or without other Warrant
Certificates, for another Warrant Certificate or Warrant Certificates for the
same aggregate number of Warrants, upon surrender of this Warrant Certificate at
the office maintained for that purpose by the Warrant Agent in the City of New
York.
Upon certain events provided for in the Warrant Agreement, the Exercise
Price and the number of Shares of Common Stock issuable upon the exercise of
each Warrant are required to be adjusted.
No fractional Shares of Common Stock will be issued upon the exercise
of Warrants. As to any final fraction of a Common Share which the Registered
Holder of one or more Warrant Certificates, the rights under which are exercised
in the same transaction, would otherwise be entitled to purchase upon such
exercise, the Company shall pay the cash value thereof determined as provided in
the Warrant Agreement.
This Warrant Certificate is issued under and in accordance with the
Warrant Agreement and is subject to the terms and provisions contained in the
Warrant Agreement, to all of which terms and provisions the Registered Holder
consents by acceptance hereof.
This Warrant Certificate shall not entitle the Registered Holder to any
of the rights of a shareholder of the Company, including, without limitation,
the right to vote, to receive distributions, or to attend or receive any notice
of meetings of limited partners or any other proceedings of the Company.
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
The validity, interpretation and performance of this Warrant
Certificate shall be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed.
ATLANTIC GULF COMMUNITIES CORPORATION
By:_____________________________
its _____________________________
Countersigned ______________________
as Warrant Agent
By:_____________________________
Authorized Signatory
ELECTION TO PURCHASE
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The undersigned hereby irrevocably elects to exercise _______________
of the Warrants represented by this Warrant Certificate and to purchase the
shares of Common Stock issuable upon the exercise said Warrants, and requests
that certificates for such Shares of Common Stock be issued and delivered as
follows:
ISSUE TO:
(Name)
(Address, Including Zip Code
(Social Security or Tax Identification Number)
DELIVER TO:
(Name)
at
(Address, Including Zip Code)
If the number of Warrants hereby exercised is less than all the
Warrants represented by this Warrant Certificate, the undersigned requests that
a new Warrant Certificate representing the number of full Warrants not exercised
be issued and delivered as set forth above or otherwise as the undersigned shall
direct in writing.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$ by certified check, bank cashier's check or money order payable in United
States currency to the order of the Warrant Agent.
Dated: 19
------------------------
Signature
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
PLEASE INSERT SOCIAL SECURITY OR
Signature guaranteed: TAX IDENTIFICATION NUMBER OF HOLDER
- -------------------------- ------------------------------------
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<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto the
Assignee named below all of the rights of the undersigned represented by the
within Warrant Certificate, with respect to the number of Warrants set forth
below:
SOCIAL
NAME OF SECURITY NO.
ASSIGNEE OR TAX I.D. ADDRESS NO. OF WARRANT:
- -------- ----------- ------- ---------------
and does hereby irrevocably constitute and appoint ______________________
Attorney, to make such transfer an the books of Atlantic Gulf Communities
Corporation maintained for that purpose, with full power of substitution in the
premises.
----------------------------
Dated: 19- Signature
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant Certificate.)
Signature Guaranteed:
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees
and expenses payable by the Registrant.
Securities and Exchange Commission
registration fee.................................................... $ 3,000
*Blue sky fees and expenses (including legal fees) ................. $ 20,000
*Accounting fees and expenses ...................................... $ 5,500
*Legal fees and expenses ........................................... $320,000
*Printing and engraving ............................................ $ 69,000
Financial Advisory Fees (paid upon
consummation of the Apollo Closing) ................................ $312,500
*Transfer agent and registrar fees ................................. $ 20,000
*Miscellaneous ..................................................... $ 50,000
--------
Total .............................................................. $800,000
========
- ----------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended,
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation or is or was serving at its request in such capacity in another
corporation or business association, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to provide in its certificate of incorporation that a
director of the corporation shall not be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (a) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of the
law, (c) under Section 174 of the Delaware General Corporation Law, or (d) any
transaction from which the director derived an improper personal benefit.
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Article Twelfth of the Registrant's charter provides for the
elimination of personal liability of a director for breach of fiduciary duty as
permitted by Section 102(b)(7) of the Delaware General Corporation Law, and
Article Ninth provides that the Registrant may indemnify its directors and
officers to the full extent permitted by the Delaware General Corporation Law.
The Registrant has in effect a directors and officers liability
insurance policy under which the directors and officers of the Registrant are
insured against loss arising from claims made against them due to wrongful acts
while acting in their individual and collective capacities as directors and
officers, subject to certain exclusions.
The Registrant has entered into indemnification and release agreements
with its directors who have resigned effective as of the Apollo Closing that
contractually provide for indemnification and expense advancement, including
related provisions meant to facilitate the indemnitees' receipt of such
benefits, and certain releases. Under such agreements, the Registrant for
itself, its Subsidiaries and any other entities that the Registrant controls,
will release each of the resigning directors from any and all claims that any of
the releasors may have against the resigning directors. The Investment Agreement
also provides for continuing indemnification following the Apollo Closing for
the Registrant's directors to the fullest extent provided by law, as well as
continuing coverage under the Company's directors' and officers' liability
insurance policies.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
EXHIBITS:
*4 (a) Amended and Restated Certificate of Incorporation of the
Registrant.
(b) Restated Bylaws of the Registrant (incorporated herein by
reference to Exhibit 3(b) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 (File No.
1-8967)).
*(c) Form of Statements of Preferences and Rights establishing
Series A Preferred Stock and Series B Redeemable Preferred
Stock (included in Exhibit 4(a)).
(d) Form of Subscription Agreement between the Company and
American Stock Transfer & Trust Company, Subscription Agent.
(e) Form of Letter to Stockholders.
(f) Form of Subscription Certificate.
(g) Form of Instructions as to Use of Subscription Certificates.
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*(h) Form of Letter to Brokers.
(i) Form of Letter to Clients.
(j) Form of Letter to Foreign Stockholders.
(k) Form of Notice of Guaranteed Delivery.
*(l) Form of Guidelines to Form W-9.
(m) Form of DTC Participant Oversubscription Exercise Form.
*5 Opinion of Arent Fox Kintner Plotkin & Kahn concerning
legality of securities being registered.
8 Opinion of Arent Fox Kintner Plotkin & Kahn concerning tax
matters.
10 (a) Investment Agreement (Exhibit EX-1 to the Company's Current
Report on Form 8-K filed February 18, 1997), as amended and
restated as of May 15, 1997 (Exhibit EX-1 to the Company's
Current Report on Form 8-K filed June 5, 1997).
(b) Secured Agreement (Exhibit EX-6 to the Company's Current
Report on Form 8-K filed February 18, 1997), as amended and
restated as of May 15, 1997.
12 Computation of Ratio of Earnings to Fixed Charges.
23 Consents of experts and counsel:
(a) Arent Fox Kintner Plotkin & Kahn (included in Exhibits 5 and
8)
**(b) Ernst & Young
- --------------
* Previously filed.
** To be filed by amendment.
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ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form or prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section will not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to the directors, officers and controlling persons
of the Registrant pursuant to the provisions referred to in Item 15 or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
123
<PAGE>
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
124
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Miami, State of Florida, on this 8th day of October, 1997.
ATLANTIC GULF COMMUNITIES CORPORATION
By: /s/ Thomas W. Jeffrey
-------------------------------------------------
Thomas W. Jeffrey, Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on October 8, 1997 by or on behalf of the
following persons in the capacities indicated:
SIGNATURES TITLE
---------- -----
*--------------------------- Chairman of the Board,
J. Larry Rutherford President and Chief
Executive Officer,
Director
/s/ Thomas W. Jeffrey
- --------------------------- Executive Vice President and Chief
Thomas W. Jeffrey Financial Officer
*--------------------------- Vice President and Controller (Principal
Callis N. Carleton Accounting Officer)
- --------------------------- Director
Lee Neibart
125
<PAGE>
SIGNATURES TITLE
---------- -----
*--------------------------- Director
Gerald N. Agranoff
*--------------------------- Director
James M. DeFrancia
*--------------------------- Director
Charles K. MacDonald
- ----------
* pursuant to power of attorney
126
<PAGE>
EXHIBIT INDEX
*4 (a) Amended and Restated Certificate of Incorporation of the
Registrant.
(b) Restated Bylaws of the Registrant (incorporated herein by
reference to Exhibit 3(b) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992 (File No.
1-8967)).
*(c) Form of Statements of Preferences and Rights establishing
Series A Preferred Stock and Series B Redeemable Preferred
Stock (included in Exhibit 4(a)).
(d) Form of Subscription Agreement between the Company and
American Stock Transfer & Trust Company, Subscription
Agent.
(e) Form of Letter to Stockholders.
(f) Form of Subscription Certificate.
(g) Form of Instructions as to Use of Subscription
Certificates.
*(h) Form of Letter to Brokers.
(i) Form of Letter to Clients.
(j) Form of Letter to Foreign Stockholders.
(k) Form of Notice of Guaranteed Delivery.
*(l) Form of Guidelines to Form W-9.
(m) Form of DTC Participant Oversubscription Exercise Form.
*5 Opinion of Arent Fox Kintner Plotkin & Kahn concerning
legality of securities being registered.
8 Opinion of Arent Fox Kintner Plotkin & Kahn concerning tax
matters.
10 (a) Investment Agreement (Exhibit EX-1 to the Company's Current
Report on Form 8-K filed February 18, 1997), as amended and
restated as of May 15, 1997 (Exhibit EX-1 to the Company's
Current Report on Form 8-K filed June 5, 1997).
(b) Secured Agreement (Exhibit EX-6 to the Company's Current
Report on Form 8-K filed February 18, 1997), as amended and
restated as of May 15, 1997.
12 Computation of Ratio of Earnings to Fixed Charges.
23 Consents of experts and counsel:
(a) Arent Fox Kintner Plotkin & Kahn (included in Exhibits 5
and 8)
**(b) Ernst & Young
- -------------
* Previously filed
** To be filed by amendment.
127
SUBSCRIPTION AND INFORMATION AGENCY AGREEMENT
SUBSCRIPTION AND INFORMATION AGENCY AGREEMENT dated as of __________,
1997 by and between ATLANTIC GULF COMMUNITIES CORPORATION (the "Company") and
AMERICAN STOCK TRANSFER & TRUST COMPANY as subscription agent and information
agent (the "Agent").
WHEREAS, the Company has caused a Registration Statement on Form S-3
(Registration No. 333-31939) under the Securities Act of 1933, as amended (the
"Act"), to be filed with the Securities and Exchange Commission (the
"Commission") relating to the distribution by the Company of transferable
subscription rights (the "Rights") to subscribe for units (the "Units"), each
Unit consisting of a share of Series B 20% Cumulative Redeemable Convertible
Preferred Stock ("Series B Preferred Stock") and warrants (the "Warrants") to
purchase two shares of the Company's common stock ("Common Stock"), which
registration statement was declared effective by the Commission on ______, 1997
(the "Effective Date") (such Registration Statement, in the form in which it
first becomes effective under the Act, and as it may thereafter be amended from
time to time, is referred to herein as the "Registration Statement"; the
distribution of the Rights and the issuance and sale, respectively, of the
Warrants and of Series B Preferred Stock, upon the exercise of Rights, as
contemplated by the Registration Statement, is referred to herein as the "Rights
Offering");
WHEREAS, the Rights will be distributed to holders of record of Common
Stock as of the close of business on October 8, 1997 (the "Record Date") at a
rate of .08898 of a Right for each share of Common Stock held on the Record Date
and the Rights will be evidenced by the Subscription Certificates (as defined)
in a form satisfactory to the Agent and the Company;
WHEREAS, the Company has reserved for issuance, and has authorized the
issuance of, an aggregate number of authorized and unissued shares of Common
Stock and of Series B Preferred Stock (the "Underlying Shares") equal to, in the
case of Common Stock, twice the aggregate number of Rights to be distributed
pursuant to the Rights Offering, and, in the case of Series B Preferred Stock,
the aggregate number of Rights to be distributed pursuant to the Rights
Offering;
WHEREAS, Rights holders will be entitled to subscribe to purchase Units
at a price of $10.00 per Unit (the "Subscription Price"); and
WHEREAS, the Company desires the Agent to act on its behalf in
connection with the Rights Offering as set forth herein, and the Agent is
willing so to act.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto hereby agree as follows:
SECTION 1. APPOINTMENT OF AGENT AND SERVICES OF INFORMATION AGENT.
(a) The Company hereby appoints the Agent to act as
subscription agent and information agent for the Company in accordance with the
instructions set forth in this Agreement, and the Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Agents as it may
deem necessary or desirable.
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(b) The services to be provided by the Agent in its capacity
as information agent shall be as follows: (i) counseling the Company concerning
the operational elements of organization and timing of the offering; (ii)
assisting in the coordination of printing activities; (iii) determining the
material requirements; (iv) facilitating the distribution of materials to the
registered and beneficial owners of the Common Stock; (v) building a file of
eligible participants, including registered holders and beneficial holders
identified through the Agent's research; (vi) establishing a toll-free telephone
number for incoming calls; (vii) managing the calling campaign (including
calls); (viii) status reporting to management; and (ix) payment of all broker
forwarding invoices, subject to collection from the Company of monies for this
purpose.
SECTION 2. ISSUE OF SECURITIES.
(a) The Company has distributed or will distribute the Rights
to holders of record of Common Stock as of the close of business on the Record
Date. The Company will promptly notify the Agent upon the effectiveness of the
Registration Statement. As transfer agent for the Common Stock, the Agent shall
provide such assistance as the Company may require to effect the distribution of
the Rights to holders of record of Common Stock as of the close of business on
the Record Date, it being understood that Subscription Certificates (as defined
in Section 3(a) hereof) shall be mailed to record holders (except those located
outside of the United States) of the Common Stock together with a copy of the
Prospectus no later than two business days following the Effective Date or the
Record Date, whichever is later.
(b) The Company has authorized the issuance of and will hold
in reserve the Underlying Shares, and upon the valid exercise of Rights, the
Company will issue Series B Preferred Stock and Warrants to validly exercising
Rights holders as set forth in the Registration Statement.
SECTION 3. SUBSCRIPTION PRIVILEGE; FORM OF SUBSCRIPTION CERTIFICATES.
(a) The Rights shall be evidenced by subscription certificates
(the "Subscription Certificates"). The Subscription Certificates (and the form
of election to exercise Rights to be printed on the reverse thereof) shall be
substantially in the form attached as Exhibit A hereto. Any Subscription
Certificate may be transferred, split up, combined, or exchanged for another
Subscription Certificate provided that any resulting Subscription Certificate(s)
shall represent a whole number of Rights that is a multiple of three Rights. Any
Rights holder desiring to transfer, split up, combine, or exchange any
Subscription Certificate(s) shall make a request therefor by properly completing
the assignment section of the Subscription Certificate(s) and surrendering such
Certificate(s) at least one business days prior to the Expiration Date at the
principal office of the Agent. Thereupon the Agent shall date and deliver
Subscription Certificate(s) to the person(s) entitled to Subscription
Certificate(s) as so requested.
(b) Each Subscription Certificate shall, subject to the
provisions thereof, entitle the holder in whose name it is recorded to the
following:
(1) each Right will entitle the holder thereof
to purchase, at the Subscription Price, one Unit (the "Basic Subscription
Privilege"); and
(2) each holder of Rights who elects to exercise
the Basic Subscription Privilege in full will be entitled to subscribe (the
"Oversubsrciption Privilege") at the Subscription Price
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<PAGE>
for additional Units not subscribed for through the exercise of the Basic
Subscription Privilege by other Rights holders (the "Excess Units"). If the
Excess Units are not sufficient to satisfy all subscriptions pursuant to the
Oversubscription Privilege, the Excess Units shall be allocated pro rata
(subject to the elimination of fractional shares) among those Rights holders
exercising the Oversubscription Privilege, in proportion to the number of shares
each beneficial holder subscribed for pursuant to the Basic Subscription
Privilege; provided, however, that if such pro rata allocation results in any
Rights holder being allocated a greater number of Excess Units than such holder
subscribed for pursuant to the exercise of such holder's Oversubscription
Privilege, then such holder shall be allocated only such number of Excess Units
as such holder subscribed for and the remaining Excess Units shall be allocated
among all other holders exercising the Oversubscription Privilege.
SECTION 4. SIGNATURE AND REGISTRATION.
(a) The Subscription Certificates shall be executed on behalf
of the Company by two of its executive officers. Any Subscription Certificate
may be signed on behalf of the Company by any person who, at the actual date of
the execution of such Subscription Certificate, shall be a proper officer of the
Company to sign such Subscription Certificate, even if at the date of the
execution of this Agreement or the date of the actual issuance of such
certificate any such person is not such an officer.
(b) The Agent will keep or cause to be kept, at its principal
offices in New York, books for registration and transfer of the Rights issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights and the number of Rights evidenced by each outstanding
Subscription Certificate.
SECTION 5. MUTILATED, DESTROYED, LOST OR STOLEN SUBSCRIPTION
CERTIFICATES. Upon receipt by the Company and the Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a
Subscription Certificate, and, in case of loss, theft or destruction, of
indemnity and/or security satisfactory to them which may be in the form of an
open penalty bond, and reimbursement to the Company and the Agent of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Subscription Certificate if mutilated, the Company will make and deliver a
new Subscription Certificate of like tenor to the Agent for delivery to the
registered owner in lieu of the Subscription Certificate so lost, stolen,
destroyed or mutilated. If required by the Company or the Agent, an indemnity
bond must be sufficient in the judgment of both to protect the Company, the
Agent or any agent thereof from any loss which any of them may suffer if a
Subscription Certificate is replaced.
SECTION 6. SUBSEQUENT ISSUE OF SUBSCRIPTION CERTIFICATES. Subsequent to
their original issuance, no Subscription Certificates shall be issued except
such Subscription Certificates issued in replacement of mutilated, destroyed,
lost or stolen Subscription Certificates pursuant to Section 5 hereof.
SECTION 7. EXERCISE OF RIGHTS; EXERCISE PRICE; EXPIRATION DATE.
(a) The holder of any Subscription Certificate may exercise
some or all of the Rights evidenced thereby (but not in amounts of less than
three Rights or an integral multiple thereof) by delivering to the Agent, on or
prior to 5:00 p.m., New York time, on ______, 1997 (the "Expiration Date"), a
properly completed and executed Subscription Certificate, including, if
required, a signature guarantee from an Eligible Institution (as defined in
Section 7(d) hereof) and mailing or delivering the Subscription Certificate to
the Agent at its corporate office specified in the Prospectus, together with
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<PAGE>
payment of the Subscription Price for each Unit subscribed for pursuant to the
Basic Subscription Privilege and the Oversubscription Privilege.
(b) In the case of holders of Rights that are held of record
through The Depository Trust Company ("DTC"), (1) exercises of the Basic
Subscription Privilege may be effected by instructing DTC to transfer Rights
(such rights being "DTC Exercised Rights") from the DTC account of such holder
to the DTC account of the Agent, together with payment of the Subscription Price
for each Unit subscribed for pursuant to the Basic Subscription Privilege and
(2) exercises of the Oversubscription Privilege may be effected by properly
executing and delivering to the Agent on or prior to the Expiration Date, a DTC
Participant Oversubscription Exercise Form, the form of which is attached hereto
as Exhibit B, together with payment of the appropriate Subscription Price for
the number of Units for which the Oversubscription Privilege is to be exercised.
(c) If a Rights holder wishes to exercise Rights, but time
will not permit such holder to cause the Subscription Certificate(s) evidencing
such Rights to reach the Agent on or prior to the Expiration Date, such Rights
may nevertheless be exercised if all of the following conditions (the
"Guaranteed Delivery Procedures") are satisfied:
(1) such holder has caused payment in full of
the Subscription Price for each Unit being subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege to be received (in the
manner set forth in Section 7(g) hereof) by the Agent on or prior to the
Expiration Date;
(2) the Agent receives, on or prior to the
Expiration Date, a notice of guaranteed delivery (a "Notice of Guaranteed
Delivery"), substantially in the form provided with the Instructions distributed
with the Subscription Certificates, from a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States, stating the name of the exercising Rights
holder, the number of Rights represented by the Subscription Certificate(s) held
by such exercising holder, the number of Units being subscribed for pursuant to
the Basic Subscription Privilege and the number of Units, if any, being
subscribed for pursuant to the Oversubscription Privilege, and guaranteeing the
delivery to the Agent of any Subscription Certificate(s) evidencing such Rights
within three National Market System trading days following the date of the
Notice of Guaranteed Delivery; and
(3) the properly completed and duly executed
Subscription Certificate(s), including any required signature guarantees,
evidencing the Rights being exercised is received by the Agent within three
National Market System trading days following the date of the Notice of
Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may be
delivered to the Agent in the same manner as Subscription Certificates at the
addresses set forth in the Prospectus, or may be transmitted to the Agent by
facsimile transmission (facsimile no. _____________).
(d) Unless a Subscription Certificate (1) provides that the
Units to be issued pursuant to the exercise of Rights represented thereby are to
be delivered to the record holder of such Rights or (2) is submitted for the
account of a member firm of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the United States,
signatures on such Subscription
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<PAGE>
Certificate must be guaranteed by an eligible guarantor institution ("Eligible
Institution") as defined in Rule 17Ad-15 of the Exchange Act, subject to the
standards and procedures adopted by the Agent.
(e) Banks, brokers and other nominee holders of Rights who
exercise the Basic Subscription Privilege and the Oversubscription Privilege on
behalf of beneficial owners of Rights shall be required to certify to the Agent
and the Company in connection with the exercise of the Oversubscription
Privilege, as to the aggregate number of Rights that have been exercised and the
number of Units that are being subscribed for pursuant to the Oversubscription
Privilege by each beneficial owner of Rights on whose behalf such nominee is
acting.
(f) The Rights shall expire at 5:00 p.m., New York time, on
the Expiration Date.
(g) The "Subscription Price" shall be $10.00 per Unit
subscribed for pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege payable (in United States dollars) (i) by check or
bank draft drawn upon a U.S. bank or postal, telegraphic or express money order
payable to the Agent or (ii) by wire transfer of funds to the account maintained
by the Agent for such purpose at _________________________. The Subscription
Price shall be deemed to have been received by the Agent only upon (i) clearance
of any uncertified check, (ii) receipt by the Agent of any certified check or
bank check drawn upon a U.S. bank or of any postal, telegraphic or express money
order, or (iii) receipt of good funds in the Agent's account designated above,
in payment of the Subscription Price.
(h) A Rights holder may exercise Rights only in integral
multiples of three Rights. If either the number of Rights being exercised is not
specified on a Subscription Certificate, or the payment delivered is not
sufficient to pay the full aggregate Subscription Price for all Units stated to
be subscribed for, the Rights holder will be deemed to have exercised the
maximum number of Rights that is an integral multiple of three and that could be
exercised for the amount of the payment delivered by such Rights holder. If the
payment delivered by the Rights holder exceeds the aggregate Subscription Price
for the number of Rights evidenced by the Subscription Certificate(s) delivered
by such Rights holder, the payment will be applied, until depleted, to subscribe
for Units in the following order: (1) to subscribe for the number of Units, if
any, indicated on the Subscription Certificate(s) pursuant to the Basic
Subscription Privilege; (2) to subscribe for Units until the Basic Subscription
Privilege has been fully exercised with respect to all of the Rights represented
by the Subscription Certificate; and (3) to subscribe for additional Units
pursuant to the Oversubscription Privilege (subject to any applicable
proration), all in integral multiples of three Rights. Any excess payment
remaining after the foregoing allocation will be returned to the Rights holder
by mail as soon as practicable after the Expiration Date and after all
prorations have been effected, without interest or deduction.
(i) Funds received in payment of the Subscription Price for
Excess Units subscribed for pursuant to the Oversubscription Privilege will be
held in a segregated account pending issuance of such Excess Units. If a Rights
holder exercising the Oversubscription Privilege is allocated less than all of
the Excess Units that such holder wished to subscribe for pursuant to the
Oversubscription Privilege, the excess funds paid by such holder in respect of
the Subscription Price for Units not issued will be returned by mail as soon as
practicable after the Expiration Date and after all prorations have been
effected, without interest or deduction.
(j) Once a holder of Rights has exercised a Right, such
exercise may not be revoked.
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<PAGE>
SECTION 8. PAYMENT FOR AND DELIVERY OF THE UNITS.
(a) On a daily basis, the Agent shall pay to the Company
and/or its designees as specified in writing, by wire transfer, certified or
bank check or other method acceptable to the Company and/or its designees, the
amount of all funds received (and not previously paid to the Company) by the
Agent in payment of the Subscription Price for Units subscribed for pursuant to
the Basic Subscription Privilege. As soon as practicable after any receipt of
such funds by the Company, the Company shall deliver, or arrange to have
delivered, the number of Units as are properly subscribed for pursuant to the
Basic Subscription Privilege.
(b) The closing of the sale of the Units upon exercise of the
Rights pursuant to the Oversubscription Privilege (the "Closing") will take
place at 10:00 a.m., New York time, on the third business day after the
Expiration Date (such date and time being referred to herein as the "Closing
Date"). At the Closing, the Agent shall pay to the Company and/or its designees
as specified in writing, by wire transfer, certified or bank check or other
method acceptable to the Company and/or its designees, the amount of all funds
received by the Agent in payment of the Subscription Price for Units subscribed
for pursuant to the Oversubscription Privilege less the aggregate proceeds to be
returned to the Rights holders pursuant to Sections 7(h) and (i). The Company
shall deliver, or arrange to have delivered, at the Closing the number of Units
as are properly subscribed for pursuant to the Oversubscription Privilege and as
soon as practicable after the Closing, the Agent shall deliver to each
exercising Rights holder certificate(s) representing the shares of Series B
Preferred Stock and the Warrants, purchased pursuant to the Oversubscription
Privilege.
SECTION 9. FRACTIONAL RIGHTS AND SHARES. The Company shall not issue
fractions of shares nor shall the Agent distribute Subscription Certificates
which evidence Rights other than in an integral multiple of three Rights. The
number of Rights issued to each holder will be rounded down to the nearest whole
number that is a multiple of three.
SECTION 10. TRANSFERABILITY OF RIGHTS. The Rights are transferrable in
multiples of three Rights under the procedures set forth in Section 3(a) above.
It is anticipated that the Rights will be quoted for trading on the NASDAQ
National Market System until the close of business on the last National Market
System trading day preceding the Expiration Date. Rights may be purchased or
sold through usual investment channels, including banks and brokers.
SECTION 11. FOREIGN AND CERTAIN OTHER STOCKHOLDERS. Rights may not be
exercised by any person, and neither the Prospectus nor any Subscription
Certificate shall constitute an offer to sell or a solicitation of an offer to
purchase any Units, in any jurisdiction in which such transactions would be
unlawful. The Agent shall reject any subscription pursuant to the exercise of
Rights by Rights holders outside the United States, if in the opinion of the
Company, the Company may not lawfully issue shares to such Rights holders. The
Agent shall not deliver Subscription Certificates, Prospectuses or any ancillary
documents to holders of Common Stock whose addresses are outside the United
States. The Agent shall hold such Subscription Certificates for the account of
such holders and upon notice from such holders shall exercise the Rights on
their behalf. To so exercise such Rights, such stockholders must notify the
Agent and deliver the Subscription Price to the Agent not later than the
Expiration Date. If no instructions and payment have been received by the Agent
prior to the Expiration Date, the Rights shall expire unexercised and be null
and void.
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SECTION 12. REPORTS. The Agent shall notify both the Company and its
designated representatives by telephone as requested during the period
commencing with the mailing of Subscription Certificates and ending on the
Expiration Date (and in the case of guaranteed deliveries pursuant to Section
7(c), the period ending three NASDAQ trading days after the Expiration Date),
which notice shall thereafter be confirmed in writing, of (i) the number of
Rights exercised on the day of such request, (ii) the number of Units subscribed
for pursuant to the Subscription Privilege and the number of such Rights for
which payment has been received, (iii) the number of Rights subject to
guaranteed delivery pursuant to Section 7(c) on such day, (iv) the number of
Rights for which defective exercises have been received on such day and (v)
cumulative totals derived from the information set forth in clauses (i) through
(iv) above. At or before 5:00 p.m., New York time, on the first NASDAQ trading
day following the Expiration Date, the Agent shall certify in writing to the
Company the cumulative totals through the Expiration Date derived from the
information set forth in clauses (i) through (iv) above. The Agent shall also
maintain and update a listing of holders who have fully or partially exercised
their Rights, and holders who have not exercised their Rights. The Agent shall
provide the Company or its designated representatives with the information
compiled pursuant to this Section 12 as any of them shall request.
SECTION 13. FUTURE INSTRUCTIONS AND INTERPRETATION.
(a) All questions as to the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by the Company, whose
determinations shall be final and binding. The Company in its sole discretion
may waive any defect or irregularity, permit a defect or irregularity to be
corrected within such time as it may determine or reject the purported exercise
of any Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as the
Company determines in its sole discretion. Neither the Company nor the Agent
shall be under any duty to give notification of any defect or irregularity in
connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification.
(b) The Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from an
authorized officer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer.
SECTION 14. PAYMENT OF TAXES. The Company covenants and agrees that it
will pay when due and payable all documentary, stamp and other taxes, if any,
which may be payable in respect of the issuance or delivery of any Subscription
Certificate or of the Units; PROVIDED, HOWEVER, that the Company shall not be
liable for any tax liability arising out of any transaction which results in, or
is deemed to be, an exchange of Rights or securities or a constructive dividend
with respect to the Rights or securities and provided further that the Company
shall not be required to pay any tax or other governmental charge which may be
payable in respect of any delivery of any Subscription Certificate or the
issuance or delivery of Units in a name other than that of the registered holder
of such Subscription Certificate evidencing the Rights exercised, and the Agent
shall not issue any such certificate until such tax or governmental charge, if
required, shall have been paid.
SECTION 15. CANCELLATION AND DESTRUCTION OF SUBSCRIPTION CERTIFICATES.
All Subscription Certificates surrendered for the purpose of exercise or
substitution shall be canceled by the Agent, and no
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Subscription Certificates shall be issued in lieu thereof except as expressly
permitted by provisions of this Agreement. The Agent shall deliver all canceled
Subscription Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Subscription Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.
SECTION 16. RIGHT OF ACTION. All rights of action in respect of this
Agreement are vested in the Company and the respective registered holders of the
Subscription Certificates; and any registered holder of any Subscription
Certificate, without the consent of the Agent or of the holder of any other
Subscription Certificate, may, on his own behalf and for his own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company to enforce, or otherwise act in respect of, his right to exercise
the Rights evidenced by such Subscription Certificate in the manner provided in
such Subscription Certificate and in this Agreement.
SECTION 17. CONCERNING THE AGENT.
(a) The Company agrees to pay to the Agent compensation in the
amount of $_____________ for all services rendered by it hereunder and, from
time to time, on demand of the Agent, its reasonable out-of-pocket expenses and
disbursements for mailing, postage and delivery. The Company also agrees to
indemnify the Agent for, and to hold it harmless against, any loss, liability,
or expense incurred without negligence or bad faith on the part of the Agent for
anything done or omitted by the Agent in connection with the acceptance and
administration of this Agreement, including the costs and expenses of defending
against any claim of liability in the premises, provided that the Agent shall
have provided the Company with notice of any such claim promptly after such
claim became known to the Agent, and provided further that the Company shall
have the right to assume the defense of any such claim upon receipt of written
notice thereof from the Agent. If the Company assumes the defense of any such
claim, the Agent shall be entitled to participate in (but not control) the
defense of any such claim at its own expense. The Company shall not indemnify
the Agent with respect to any claim or action settled without its consent, which
consent shall not be unreasonably withheld.
(b) The Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Subscription
Certificate, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice direction, consent, certificate,
statement or other paper or document reasonably believed by it to be genuine and
to be signed, executed and, where necessary, verified or acknowledged by the
proper person or persons.
SECTION 18. MERGER OR CONSOLIDATION OF AGENT. Any corporation into
which the Agent or any successor Agent may be merged or with which it may be
consolidated or any corporation resulting from any merger or consolidation to
which the Agent or any successor Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Agent or any successor Agent,
shall be the successor to the Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto.
SECTION 19. DUTIES OF AGENT. The Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Subscription Certificates by
their acceptance thereof shall be bound:
- 8 -
<PAGE>
(a) The Agent may consult with legal counsel (who may be, but
is not required to be, legal counsel for the Company), and the opinion of such
counsel shall be full and complete authorization and protection to the Agent as
to any actions taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this
Agreement the Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman of the Board, the President
or a Vice President (including any Senior or Executive Vice President) and by
the Treasurer or any Assistant Treasurer or the Secretary or any Assistant
Secretary of the Company and delivered to the Agent; and such certificate shall
be full authorization to the Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Agent shall be liable hereunder only for its own
negligence or willful misconduct.
(d) The Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Subscription Certificates or be required to verify the same, but all such
statements and recitals are and shall be deemed to have been made by the Company
only.
(e) The Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Agent) or in respect of the validity or
execution of any Subscription Certificate; nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this Agreement
or in any Subscription Certificate; nor shall it by any act hereunder be deemed
to make any representation or warranty as to the authorization or reservation of
any shares of Series B Preferred Stock or Warrants to be issued pursuant to this
Agreement or any Subscription Certificate or as to whether any shares of Series
B Preferred Stock or Warrants will, when issued, be validly authorized and
issued, fully paid and non-assessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Agent for the carrying out or performing by the
Agent of the provisions of this Agreement.
(g) Nothing herein shall preclude the Agent from acting in any
other capacity for the Company.
SECTION 20. NOTICES TO THE COMPANY, HOLDERS, AND AGENT. All notices and
other communications provided for or permitted hereunder shall be made by hand
delivery, prepaid first-class mail, or telecopier:
(a) if to the Company, to:
Atlantic Gulf Communities Corporation
2601 South Bayshore Drive
- 9 -
<PAGE>
Miami, Florida 33133-5461
Att: Thomas W. Jeffrey
Telecopier: (305) 859-4623
with copies to:
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
Att: Carter Strong, Esq.
Telecopier: (202) 857-6395
(b) if to the Agent, to:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Att: Executive Vice-President
Telecopier: (718) 234-5001
(c) if to a registered holder, at the address shown on the registry
books of the Company.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; two business
days after being deposited in the mail, postage prepaid, if mailed as aforesaid;
when answered back if telexed; and when receipt is acknowledged, if telecopied.
SECTION 21. SUPPLEMENTS AND AMENDMENTS. The Company and the Agent may
from time to time supplement or amend this Agreement without the approval of any
holders of Subscription Certificates in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the Agent
may deem necessary or desirable and which shall not materially adversely affect
the interests of the holders of the Subscription Certificates.
SECTION 22. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Agent shall bind and inure
to the benefit of their respective successors and assigns hereunder.
SECTION 23. TERMINATION. This Agreement shall terminate at 5:00 p.m.,
New York time, on the seventh day following the Expiration Date. Upon
termination of this Agreement, and provided that Units are issued and delivered
by the Company for all Rights accepted for execution prior to such termination,
the Company shall be discharged from all obligations under this Agreement except
for its obligations to the Agent under Sections 14 and 17 hereof and except with
respect to the obligation of the Company to provide instruction and direction to
the Agent as may be provided in this Agreement.
- 10 -
<PAGE>
SECTION 24. GOVERNING LAW. This Agreement and each Subscription
Certificate shall be deemed to be a contract made under the laws of the State of
New York and for all purposes shall be construed in accordance with the internal
laws of said State.
SECTION 25. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Agent and the holders of the Subscription Certificates any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Agent and the holders of the
Subscription Certificates.
SECTION 26. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
SECTION 27. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF the undersigned have caused this Subscription and
Information Agency Agreement to be executed by their duly authorized
representative as of the date first above written.
ATLANTIC GULF COMMUNITIES CORPORATION
By:
----------------------------------
Name:
Title:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:
----------------------------------
Name:
Title:
- 11 -
[ATLANTIC GULF LOGO]
2601 S. Bayshore Drive
Miami, Florida 33133
_________________, 1997
Dear Stockholder:
You will find enclosed the Prospectus and other materials relating to
the Rights Offering by Atlantic Gulf Communities Corporation (the "Company").
Please carefully review the Prospectus which describes how you may
participate in the rights offering. As indicated in the Prospectus, there is a
limited period of time, up to and including the Expiration Date (________,
1997), during which you will be able to purchase the securities offered.
SUMMARY OF THE TERMS OF THE OFFERING
o You will receive .08898 of a transferrable right (the "Rights") for
each share of Company common stock ("Common Stock") you owned on the
Record Date (October 8, 1997).
o You may purchase units ("Units") in integral multiples of three Units,
each Unit consisting of one share of Series B 20% Cumulative Redeemable
Convertible Preferred Stock and warrants to purchase two shares of
Common Stock, for each Right you receive, at a Subscription Price of
$10.00 per Unit.
o Stockholders on the Record Date who have fully exercised the Rights
issued to them may subscribe for additional Units through the
Oversubscription Privilege. If such oversubscriptions exceed the number
of Units available, Units will be allocated to those stockholders who
oversubscribe, based upon the number of Units such holders subscribed
for pursuant to the basic subscription privilege, as more fully
described in the Prospectus.
o The Rights Offering expires on__________, 1997.
o The Rights are transferrable in integral multiples of three Rights. It
is anticipated that the Rights will be quoted for trading on the NASDAQ
National Market System until the close of business on the last National
Market System trading day preceding the Expiration Date, as more fully
described in the Prospectus. Rights may be purchased or sold through
usual investment channels, including banks and brokers.
If your Common Stock held in your name, a Subscription Certificate is
enclosed. If your shares are held in the name of your bank or broker, you must
contact your bank or broker if you wish to participate in this offering.
<PAGE>
Please decide if you would like to subscribe for Units. Those
stockholders who do not take any action will experience a dilution in the value
of their Common Stock and a reduction in their proportionate interest in the
Company.
On behalf of the Board of Directors, we thank you for your support and
confidence and look forward to continuing to serve you.
Sincerely,
Chairman of the Board
If you have any questions concerning the Rights Offering, please feel
free to telephone the Information Agent for the Rights Offering,
American Stock Transfer & Trust Company, at (800) [___________].
ATLANTIC GULF COMMUNITIES CORPORATION
CONTROL NUMBER
SUBSCRIPTION CERTIFICATE FOR UNITS CONSISTING OF
SHARES OF SERIES B 20% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND WARRANTS TO PURCHASE SHARES OF COMMON STOCK
SUBSCRIPTION PRICE: U.S. $10.00 PER UNIT
CUSIP ___________
SUBSCRIPTION CERTIFICATE REPRESENTING TRANSFERABLE RIGHTS
TO PURCHASE __________ UNITS
EACH UNIT CONSISTING OF
A SHARE OF SERIES B 20% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED
STOCK, PAR VALUE $.01 PER SHARE,
AND WARRANTS TO PURCHASE TWO SHARES OF COMMON STOCK,
OF ATLANTIC GULF COMMUNITIES CORPORATION.
VOID IF NOT EXERCISED BEFORE 5:00 P.M. NEW YORK TIME ON________, 1997
THE TERMS AND CONDITIONS OF THE RIGHTS
OFFERING ARE SET FORTH IN THE COMPANY'S
PROSPECTUS DATED _________, 1997
(THE "PROSPECTUS") AND
ARE INCORPORATED HEREIN BY REFERENCE.
COPIES OF THE PROSPECTUS
ARE AVAILABLE UPON REQUEST FROM AMERICAN
STOCK TRANSFER & TRUST COMPANY AS
SUBSCRIPTION AGENT.
REGISTERED OWNER:
The registered owner whose name is inscribed hereon is entitled to subscribe
for____________ units ("Units"), each Unit consisting of a share of Series B 20%
Cumulative Redeemable Convertible Preferred Stock ("Series B Preferred Stock")
and warrants to purchase two shares of Common Stock, of Atlantic Gulf
Communities Corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Prospectus and instructions relating hereto on the
reverse side. The transferable rights represented by this Subscription
Certificate may be exercised by duly completing Form 1. Transfer instructions
may be specified by Completing Form 2. Special delivery instructions may be
specified by completing Form 3.
<PAGE>
THE RIGHTS EVIDENCED BY THIS SUBSCRIPTION CERTIFICATE MAY NOT BE EXERCISED
UNLESS THE REVERSE SIDE HEREOF IS COMPLETED AND SIGNED WITH A SIGNATURE
GUARANTEE, IF APPLICABLE. ANY SIGNATURE GUARANTEE MUST BE IN ACCORDANCE WITH THE
MEDALLION SIGNATURE GUARANTEE PROGRAM.
Date:
---------------------------- ----------------------
Secretary President
[SEAL
OF ATLANTIC GULF
COMMUNITIES CORPORATION]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY
Rights Agent
By
----------------------------
Authorized Signature
ATLANTIC GULF COMMUNITIES CORPORATION
THIS RIGHTS CERTIFICATE IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED IN
INTEGRAL MULTIPLES OF THREE AT THE OFFICE OF THE SUBSCRIPTION AGENT. RIGHTS
HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR TRANSFER LESS THAN
ALL OF THE RIGHTS EVIDENCED HEREBY, THEY MAY NOT RECEIVE A NEW RIGHTS
CERTIFICATE IN SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS EVIDENCED
THEREBY.
FORM 1 - EXERCISE AND SUBSCRIPTION: The undersigned irrevocably exercises Rights
to subscribe for Units, each Unit consisting of a share of Series B 20%
Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share
("Series B Preferred Stock"), and warrants to purchase two shares of Common
Stock, as indicated below, on the terms and subject to the conditions specified
in the prospectus of ATLANTIC GULF COMMUNITIES CORPORATION dated_________, 1997
(the "Prospectus"), receipt of which is hereby acknowledged.
<PAGE>
(a) Number of Units subscribed for pursuant to the Basic Subscription Privilege
(which must be an integral multiple of three; one Right needed to subscribe for
each Unit):_______________
(b) Number of Units subscribed for pursuant to the Oversubscription Privilege
(which must be an integral multiple of three Units): _________________(1)
(c) Total Subscription Price (total number of Units subscribed for pursuant to
the Basic Subscription Privilege and Oversubscription Privilege times the
Subscription Price of $10.00): $______________
(1) The Oversubscription Privilege can be exercised by a Rights holder
only if the Rights issued to such holder are exercised to the fullest
extent possible.
<PAGE>
METHOD OF PAYMENT (CHECK ONE)
| | UNCERTIFIED CHECK. PLEASE NOTE THAT FUNDS PAID BY UNCERTIFIED PERSONAL CHECK
MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, REGISTERED OWNERS
WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF AN UNCERTIFIED PERSONAL CHECK
ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO
ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE, AND ARE URGED TO
CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE
TRANSFER OF FUNDS.
| | CERTIFIED CHECK OR BANK CHECK DRAWN ON A U.S. BANK OR MONEY ORDER
PAYABLE TO AMERICAN STOCK TRANSFER & TRUST COMPANY.
| | WIRE TRANSFER DIRECTED TO THE ACCOUNT MAINTAINED BY AMERICAN STOCK
TRANSFER & TRUST COMPANY AT CHASE MANHATTAN BANK, 55 WATER STREET,
NEW YORK, NEW YORK 10041. ACCOUNT NO. ________; ABA NO. 021 000 021.
If the amount enclosed or transmitted is not sufficient to pay the Subscription
Price for all Units that are stated to be subscribed for, or if the number of
Units being subscribed for is not specified, the number of Units subscribed for
will be assumed to be the maximum number that is an integral multiple of three
and that could be subscribed for upon payment of such amount. If the amount
enclosed or transmitted exceeds the Subscription Price for all Units that the
undersigned has the right to purchase pursuant to the Subscription Privilege
(the "Subscription Excess"), the Subscription Agent shall return the
Subscription Excess to the subscriber without interest or deduction.
<PAGE>
| | FORM 2-CHECK HERE TO TRANSFER YOUR RIGHTS CERTIFICATE OR SOME OR ALL OF YOUR
RIGHTS EVIDENCED HEREBY OR TO EXERCISE OR SELL RIGHTS THROUGH YOUR BANK OR
BROKER: For value received, __________ Rights (which must be an integral
multiple of three Rights) represented by this Rights Certificate are hereby
assigned to (please print name, address and Social Security Number or Taxpayer
ID No. of transferees in full):
Name:______________________________________________________________
Address:___________________________________________________________
___________________________________________________________________
___________________________________________________________________
Social Security Number
or Taxpayer ID No.:________________________________________________
<PAGE>
| | FORM 3 - DELIVERY INSTRUCTIONS: Name and/or address for mailing of
any stock or Subscription Excess, if other than shown on the reverse
hereof:
Name: __________________________________________
Address: _______________________________________
________________________________________________
(Including Zip Code)
________________________________________________
IMPORTANT -- RIGHTS HOLDERS SIGN HERE AND, IF RIGHTS ARE EXERCISED,
COMPLETE SUBSTITUTE FORM W-9
___________________________________________
___________________________________________
(Signature(s) of Holder(s))
Dated:_________________________________1997
(Must be signed by the Rights holders(s) exactly as name(s) appear(s) on this
Subscription Certificate. If signature is by trustee(s), executor(s),
administrator(s), guardian(s), attorney(s)-in-fact, agent(s), officer(s) of a
corporation or another acting in a fiduciary or representative capacity, please
provide the following information. See Instructions).
Name(s) ____________________________________
____________________________________________
(Please Print)
Capacity ___________________________________
Address ____________________________________
____________________________________________
(Including Zip Code)
Area Code and
Telephone Number ___________________________
(Home)
___________________________
(Business)
Tax Identification or
Social Security No. ________________________
(Complete Substitute Form W-9)
INSTRUCTIONS AS TO USE OF ATLANTIC GULF COMMUNITIES CORPORATION
SUBSCRIPTION CERTIFICATES
CONSULT THE INFORMATION AGENT, YOUR BANK
OR BROKER AS TO ANY QUESTIONS
The following instructions relate to a rights offering (the "Rights
Offering") by Atlantic Gulf Communities Corporation, a Delaware corporation (the
"Company"), to the holders of its Common Stock, par value $.10 per share
("Common Stock"), as described in the Company's Prospectus dated _______, 1997,
(the "Prospectus"). Holders of record of Common Stock at the close of business
on October 8, 1997 (the "Record Date") are receiving .08898 of a transferable
subscription right (the "Rights") for each share of Common Stock held by them as
of the close of business on the Record Date. An aggregate of 1,000,000 Rights
exercisable to purchase units (the "Units"), each Unit consisting a share of the
Company's Series B 20% Cumulative Redeemable Convertible Preferred Stock, par
value $.01 per share ("Series B Preferred Stock"), and warrants (the "Warrants")
to purchase two shares of Common Stock, are being distributed in connection with
the Rights Offering. Each Right is exercisable, upon payment of $10.00 in cash
(the "Subscription Price"), to purchase one Unit (the "Basic Subscription
Privilege"). In addition, subject to the allocation described below, each Right
also carries the right to subscribe at the Subscription Price for additional
Units available as a result of unexercised Rights, if any (the "Oversubscription
Privilege"), up to the maximum amount offered by the Prospectus. Units will be
available for purchase pursuant to the Oversubscription Privilege only to the
extent that all the Units are not subscribed for through the exercise of the
Basic Subscription Privilege by the Expiration Date (as defined below). If the
Units so available (the "Excess Units") are not sufficient to satisfy all
subscriptions pursuant to the Oversubscription Privilege, the available Excess
Units will be allocated pro rata (subject to the elimination of fractional
Units) among the holders of Rights who exercise the Oversubscription Privilege,
in proportion, not to the number of Units requested pursuant to the
Oversubscription Privilege, but to the number of Units each beneficial holder
has purchased pursuant to the Basic Subscription Privilege; provided, however,
that if such pro rata allocation results in any holder being allocated a greater
number of Excess Units than such holder subscribed for pursuant to the exercise
of such holder's Oversubscription Privilege, then such holder will be allocated
only such number of Excess Units as such holder subscribed for and the remaining
Excess Units will be allocated among all other holders exercising the
Oversubscription Privilege. See "The Rights Offering -- Subscription Privileges"
in the Prospectus.
No fractional Rights or cash in lieu thereof will be issued or paid.
The number of Rights distributed to each record holder has been rounded down to
a whole number that is a multiple of three.
The Rights are transferable. It is anticipated that the Rights will be
quoted for trading on the NASDAQ National Market System until the close of
business on the last National Market System trading day preceding the Expiration
Date (as defined), as more fully described in the
<PAGE>
Prospectus. Rights may be purchased or sold through usual investment channels,
including banks and brokers in multiples of three Rights.
The Rights will expire at 5:00 p.m., New York City time, on _______,
1997 (the "Expiration Date"). Rights are transferable up to the last trading day
prior to the Expiration Date, as more fully described in the Prospectus.
The number of Rights which you are entitled to purchase is printed on
the face of your Subscription Certificate. You should indicate your wishes with
regard to the exercise of your Rights by completing the appropriate form or
forms on the back of your Subscription Certificate and returning the
Subscription Certificate to the Subscription Agent in the envelope provided.
YOUR SUBSCRIPTION CERTIFICATES MUST BE RECEIVED BY THE SUBSCRIPTION
AGENT, OR GUARANTEED DELIVERY REQUIREMENTS WITH RESPECT TO YOUR SUBSCRIPTION
CERTIFICATES MUST BE COMPLIED WITH, AND PAYMENT OF THE SUBSCRIPTION PRICE,
INCLUDING FINAL CLEARANCE OF ANY CHECKS, MUST BE RECEIVED BY THE SUBSCRIPTION
AGENT, ON OR BEFORE THE EXPIRATION DATE. ONCE A HOLDER OF RIGHTS HAS EXERCISED
THE BASIC SUBSCRIPTION PRIVILEGE AND/OR THE OVERSUBSCRIPTION PRIVILEGE, SUCH
EXERCISE MAY NOT BE REVOKED.
1. SUBSCRIPTION PRIVILEGES.
To exercise Rights, complete Section 1 of the Subscription Certificate
and send your properly completed and executed Subscription Certificate, together
with payment in full of the Subscription Price for each Unit subscribed for
pursuant to the Basic Subscription Privilege and the Oversubscription Privilege,
each of which must be an integral multiple of three Units, to the Subscription
Agent. All payments must be made in United States dollars by (a) check or bank
draft drawn upon a United States bank or postal, telegraphic or express money
order payable to "The American Stock Transfer & Trust Company, as Subscription
Agent"; or (b) wire transfer of funds to the account maintained by the
Subscription Agent for such purpose at ______________, Account No. _________,
ABA No. ________. Payments will be deemed to have been received by the
Subscription Agent only upon the (a) clearance of any uncertified check, (b)
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a United States bank or postal, telegraphic or express money order, or (c)
the receipt of good funds in the Subscription Agent's account designated above.
IF PAYING BY UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID THEREBY
MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, HOLDERS OF RIGHTS
WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK
ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO
ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE, AND ARE URGED TO
CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE
TRANSFER OF FUNDS. You may also transfer your Subscription Certificate to your
bank or broker in accordance with the procedures specified in Instruction 3(a)
below, make arrangements for the delivery of funds
<PAGE>
on your behalf and request such bank or broker to exercise the Rights
represented by such Subscription Certificate on your behalf. Alternatively, you
may cause a written guarantee substantially in the form available from the
Subscription Agent (the "Notice of Guaranteed Delivery") from a member firm of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States, or a member in good standing of a
recognized signature guarantee medallion program (each of the foregoing being an
"Eligible Institution"), to be received by the Subscription Agent on or prior to
the Expiration Date guaranteeing delivery of your properly completed and
executed Subscription Certificate within three National Market System trading
days following the date of the Notice of Guaranteed Delivery. If this procedure
is followed, your Subscription Certificates must be received by the Subscription
Agent within three National Market System trading days of the Notice of
Guaranteed Delivery. Additional copies of the Notice of Guaranteed Delivery may
be obtained upon request from the Subscription Agent at the address, or by
calling the telephone number, indicated below.
Banks, brokers and other nominee holders of Rights who exercise the
Basic Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company (by delivery to the Subscription Agent of a Nominee Holder
Certification substantially in the form available from the Subscription Agent),
as to the aggregate number of Rights that have been exercised, and the number of
Units that are being subscribed for pursuant to the Oversubscription Privilege,
by each beneficial owner of Rights (including such nominee itself) on whose
behalf such nominee holder is acting. If a Nominee Holder Certification is not
delivered in respect of a Subscription Certificate, the Subscription Agent shall
for all purposes (including for purposes of any allocation in connection with
the Oversubscription Privilege) be entitled to assume that such certificate is
exercised on behalf of a single beneficial owner. If more Excess Units are
subscribed for pursuant to the Oversubscription Privilege than are available for
sale, Excess Units will be allocated, as described above, among beneficial
owners exercising the Oversubscription Privilege in proportion to such owners'
exercise of Rights pursuant to the Basic Subscription Privilege.
The address and telecopier numbers of the Subscription Agent and the
Information Agent are as follows:
If by Mail: If by Hand:
The American Stock Transfer The American Stock Transfer
& Trust Company & Trust Company
40 Wall Street, 46th Floor 40 Wall Street, 46th Floor
New York, New York 10005 New York, New York 10005
Attention: Corporate Stock Transfer Dept. Attention: Corporate Stock
Telephone: (718) 921-8200 Transfer Dept.
Facsimile: (718) 234-5001
<PAGE>
If by Overnight Courier:
The American Stock Transfer
& Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Attention: Corporate Stock Transfer Dept.
The telephone number of the Information Agent, is as follows:
(800) [___________ (toll free)]
If you exercise less than all of the Rights evidenced by your
Subscription Certificate by so indicating in Section 1 of your Subscription
Certificate, the Subscription Agent will issue to you a new Subscription
Certificate evidencing the unexercised Rights. However, if you choose to have a
new Subscription Certificate sent to you, you may not receive any such new
Subscription Certificate in sufficient time to permit exercise of the Rights
evidenced thereby. If you have not indicated the number of Rights being
exercised, or if the dollar amount you have forwarded is not sufficient (subject
to the second sentence of Section 1 above) to purchase (or exceeds the amount
necessary to purchase) the number of Units subscribed for, you will be deemed to
have exercised the Basic Subscription Privilege with respect to the maximum
number of Rights that is an integral multiple of three and that may be exercised
for the Subscription Price payment delivered by you, and, to the extent that the
Subscription Price payment delivered by you exceeds the product of the
Subscription Price multiplied by the number of Rights evidenced by the
Subscription Certificates delivered by you (such excess being the "Subscription
Excess"), you will be deemed to have exercised your Oversubscription Privilege
to purchase, to the extent available, that number of Units equal to the quotient
obtained by dividing the Subscription Excess by the Subscription Price, rounded
down to the nearest multiple of three.
2. DELIVERY OF STOCK CERTIFICATES, ETC.
The following deliveries and payments will be made to the address shown
on the face of your Subscription Certificate unless you provide instructions to
the contrary in Section 1 of your Subscription Certificate.
(a) BASIC SUBSCRIPTION PRIVILEGE. As soon as practicable after
the Expiration Date, the Subscription Agent will mail to each exercising Rights
holder certificates representing Series B Preferred Stock and Warrants purchased
pursuant to the Basic Subscription Privilege.
(b) OVERSUBSCRIPTION PRIVILEGE. As soon as practicable after
the Expiration Date and after all prorations and adjustments contemplated by the
terms of the Rights Offering have been effected, the Subscription Agent will
mail to each Rights holder who validly exercises the Oversubscription Privilege
the number of Units allocated to such Rights holder pursuant to the
Oversubscription Privilege. See "The Rights Offering -- Subscription Privileges
- -- Oversubscription Privilege" in the Prospectus.
<PAGE>
(c) EXCESS PAYMENTS. As soon as practicable after the
Expiration Date and after all prorations and adjustments contemplated by the
terms of the Rights Offering have been effected, the Subscription Agent will
mail to each Rights holder who exercises the Oversubscription Privilege any
excess funds received in payment of the Subscription Price for Excess Units that
are subscribed for by such Rights holder but not allocated to such Rights holder
pursuant to the Oversubscription Privilege.
3. EXECUTION.
(a) EXECUTION BY REGISTERED HOLDER. The signature on the
Subscription Certificate must correspond with the name of the registered holder
exactly as it appears on the face of the Subscription Certificate without any
alteration or change whatsoever. Persons who sign the Subscription Certificate
in a representative or other fiduciary capacity must indicate their capacity
when signing and, unless waived by the Subscription Agent in its sole and
absolute discretion, must present to the Subscription Agent satisfactory
evidence of their authority so to act.
(b) EXECUTION BY PERSON OTHER THAN REGISTERED HOLDER. If the
Subscription Certificate is executed by a person other than the holder named on
the face of the Subscription Certificate, proper evidence of authority of the
person executing the Subscription Certificate must accompany the same unless the
Subscription Agent, in its discretion, dispenses with proof of authority.
(c) SIGNATURE GUARANTEES. Your signature must be guaranteed by
an Eligible Institution if you wish to specify special payment or delivery
instructions pursuant to Section 2 of your Subscription Certificate.
4. METHOD OF DELIVERY.
The method of delivery of Subscription Certificates and payment of the
Subscription Price to the Subscription Agent will be at the election and risk of
the Rights holder. If sent by mail, it is recommended that they be sent by
registered mail, properly insured, with return receipt requested, and that a
sufficient number of days be allowed to ensure delivery to the Subscription
Agent and the clearance of any checks sent in payment of the Subscription Price
prior to the Expiration Date.
5. SPECIAL PROVISIONS RELATING TO THE DELIVERY OF RIGHTS
THROUGH DEPOSITORY FACILITY PARTICIPANTS.
In the case of holders of Rights that are held of record through The
Depository Trust Company, Midwest Securities Trust Company, Philadelphia
Depository Trust Company or any other depository (each a "Depository"),
exercises of the Basic Subscription Privilege and the Oversubscription Privilege
may be effected by instructing the Depository to transfer Rights (such Rights,
"Depository Rights") from the Depository account of such holder to the
Depository
<PAGE>
account of the Subscription Agent, together with payment of the Subscription
Price for each Unit subscribed for pursuant to the Basic Subscription Privilege
and the Oversubscription Privilege.
6. SUBSTITUTE FORM W-9.
Each Rights holder who elects to exercise Rights must provide the
Subscription Agent with a correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9, substantially in the form provided with these instructions.
A copy of Substitute Form W-9 may be obtained upon request from the Subscription
Agent at the address indicated above. Failure to provide the information on the
form may subject such holder to a $50.00 penalty and to 31% back-up federal
income tax withholding with respect to dividends that may be paid by the Company
on Units purchased upon the exercise of Rights and payments that may be remitted
to Rights holders by the Subscription Agent in respect of Rights sold on such
holders' behalf by the Subscription Agent.
RIGHTS OFFERING FOR SHARES OF
SERIES B 20% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND WARRANTS TO PURCHASE COMMON STOCK
OF ATLANTIC GULF COMMUNITIES CORPORATION
_____________, 1997
To Our Clients:
We are enclosing for your consideration a Prospectus dated August ___,
1997 describing the issuance to stockholders of record on October 8, 1997 of
transferable rights ("Rights") to purchase at the subscription price units
consisting of a share of Series B 20% Cumulative Redeemable Convertible
Preferred Stock ("Series B Preferred Stock") and warrants to purchase two shares
of Common Stock of Atlantic Gulf Communities Corporation (the "Company").
Your attention is directed to the following:
o Stockholders will receive .08898 of a Right for each share of the
Company's common stock ("Common Stock") held on the Record Date,
October 8, 1997. No fractional Rights or cash in lieu thereof will be
paid, and the number of Rights distributed to each holder of Common
Stock will be rounded down to the nearest whole number that is a
multiple of three.
o It is anticipated that the Rights will be quoted for trading on the
NASDAQ National Market System until the close of business on the last
National Market System trading day preceding the Expiration Date, as
more fully described in the Prospectus. Rights may be purchased or sold
through usual investment channels, including banks and brokers.
o Basic Subscription Privilege: One Right will entitle the holder to
purchase one Unit consisting of one share of Series B Preferred Stock
of the Company and Warrants to purchase two shares of Common Stock, at
the subscription price of $10.00 per Unit. The Basic Subscription
Privilege may be exercised only in an integral multiple of three
Rights.
o Oversubscription Privilege: Any Record Date holder of Common Stock who
fully exercises all rights issued to him is entitled to subscribe at
the subscription price for Units that were not otherwise subscribed for
during the basic subscription. However, if such oversubscriptions
exceed the number of Units available, the Units available will be
allocated among those who oversubscribed based on the number of Units
subscribed for by such holder pursuant to the basic subscription
privilege, as more fully described in the Prospectus.
o
The expiration date of the Rights Offering is 5:00 p.m. New York City
time, on ________, 1997.
<PAGE>
Because we are the holder of record of Common Stock held in your
Account, we have received your Rights. We will exercise or sell your Rights only
in accordance with your instructions. If you do not give us your instructions,
your Rights will become valueless after the Expiration Date.
Please forward your instructions to us immediately by completing the
form on the reverse side. Your Rights will expire at 5:00 p.m. New York City
time on ________, 1997.
SPECIAL NOTICE TO HOLDERS OF
ATLANTIC GULF COMMUNITIES CORPORATION
COMMON STOCK
WHOSE ADDRESSES ARE OUTSIDE
THE UNITED STATES
Dear Stockholder:
Enclosed you will find materials relating to the distribution (the "Rights
Offering") by Atlantic Gulf Communities Corporation (the "Company") to holders
of the Company's Common Stock, par value $.10 per share (the "Common Stock"), of
record as of the close of business on October 8, 1997 (the "Record Date") of
transferrable rights ("Rights") to subscribe for and purchase units (the
"Units"), each Unit consisting of a share of the Company's Series B 20%
Cumulative Redeemable Convertible Preferred Stock ("Series B Preferred Stock")
and warrants to purchase two shares of Common Stock, on the basis of .08898 of a
Right for each share of Common Stock held of record on the Record Date. Units
may be purchased in integral multiples of three Units. If you wish to exercise
any or all of these Rights, you must so instruct the Subscription Agent in the
manner described in the accompanying Prospectus and Instructions as to Use of
Atlantic Gulf Communities Corporation Subscription Certificates by 5:00 p.m.,
New York City time, on ____________, 1997 (the "Expiration Date"). Rights not
exercised by such time will expire and become worthless.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE RIGHTS OFFERING
SHOULD BE DIRECTED TO AMERICAN STOCK TRANSFER & TRUST COMPANY, THE INFORMATION
AGENT, AT (800) [_______].
NOTICE OF GUARANTEED DELIVERY FOR
SHARES OF SERIES B 20% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND WARRANTS TO PURCHASE SHARES OF COMMON STOCK
OFFERED PURSUANT TO TRANSFERABLE RIGHTS DISTRIBUTED TO
STOCKHOLDERS OF ATLANTIC GULF COMMUNITIES CORPORATION
As set forth in the Prospectus under "The Rights Offering -- Exercise
of Rights," this form or one substantially equivalent hereto may be used as a
means of effecting subscription and payment for units (the "Units"), each Unit
consisting of a share of the Company's Series B 20% Cumulative Redeemable
Convertible Preferred Stock and Warrants to purchase two shares of the Company's
Common Stock. Such form may be delivered by hand or sent by telex, facsimile
transmission, overnight courier or mail to the Subscription Agent.
The Subscription Agent is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
Attention: Corporate Stock Transfer Department
BY MAIL BY FACSIMILE BY HAND
40 Wall Street, 46th Floor (718) 234-5001 40 Wall Street, 46th Floor
New York, NY 10005 New York, NY 10005
Confirm by telephone to: (718) 921-8200
BY OVERNIGHT COURIER:
Corporate Stock Transfer Department
40 Wall Street, 46th Floor
New York, NY 10005
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A TELECOPY FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE,
DOES NOT CONSTITUTE A VALID DELIVERY.
The member firm or bank or trust company which completes this form must
communicate the guarantee and the number of Units subscribed for (under both the
Basic Subscription Privilege and the Oversubscription Privilege) to the
Subscription Agent and must deliver this Notice of Guaranteed Delivery of
Payment, guaranteeing delivery of (a) payment in full for all subscribed Units
and (b) a properly completed and signed copy of the Subscription
<PAGE>
Certificate to the Subscription Agent prior to 5:00 p.m., New York City time, on
the Expiration Date. Failure to do so will result in a forfeiture of the Rights.
GUARANTEE
The undersigned, a member firm of a national exchange or NASDAQ or a
bank or trust company having an office or correspondent in the United States,
guarantees delivery to the Subscription Agent by the close for business on
[_____________, 1997], of (a) a properly completed and executed Subscription
Form, and (b) payment of the full Subscription Price for Units subscribed for
pursuant to the Basic Subscription Privilege and any additional Units subscribed
for pursuant to the Oversubscription Privilege. A subscription for such Units is
indicated herein or in the Subscription Form.
Number of Rights to be delivered: _____________________
Method of delivery (circle one) A. Through DTC*
B. Direct to Subscription Agent
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------ -------------------------------------
Number of Units of Basic Subscription Privilege Number of Units of Oversubscription Privilege
- ------------------------------------------ --------------------------------------
Name of Firm Authorized Signature
- ------------------------------------------ --------------------------------------
Address Title
- ------------------------------------------ Name
Zip Code ---------------------------------
(Please Type or Print)
- ------------------------------------------ ---------------------------------------
Contact Name Phone Number
</TABLE>
- -------------------
* IF THE RIGHTS ARE DELIVERED THROUGH DTC, A REPRESENTATIVE OF AMERICAN STOCK
TRANSFER & TRUST COMPANY WILL CONTACT YOU.
ATLANTIC GULF COMMUNITIES CORPORATION
RIGHTS OFFERING
DTC PARTICIPANT OVERSUBSCRIPTION FORM
THIS FORM IS TO BE USED ONLY BY DEPOSITORY TRUST COMPANY PARTICIPANTS TO
EXERCISE THE OVERSUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO
WHICH THE BASIC SUBSCRIPTION PRIVILEGE WAS EXERCISED AND DELIVERED THROUGH THE
FACILITIES OF THE DEPOSITORY TRUST COMPANY. ALL OTHER EXERCISES OF
OVERSUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION
FORMS.
-----------------
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE PROSPECTUS
OF ATLANTIC GULF COMMUNITIES CORPORATION (THE "COMPANY") DATED AUGUST ___, 1997
(THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE COMPANY, THE INFORMATION AGENT
AND THE SUBSCRIPTION AGENT.
------------------
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00
P.M., NEW YORK CITY TIME, ON________, 1997 (THE "EXPIRATION DATE").
1. The undersigned hereby certifies to the Company and the Subscription
Agent that it is a participant in The Depository Trust Company ("DTC") and that
it has either (a) exercised in full the Basic Subscription Privilege in respect
of Rights and delivered such exercised Rights to the Subscription Agent by means
of transfer to the DTC account of the Subscription Agent or (b) delivered to the
Subscription Agent a Notice of Guaranteed Delivery in respect of the exercise in
full of the Basic Subscription Privilege and will deliver the Rights called for
in such Notice of Guaranteed Delivery to the Subscription Agent by means of
transfer to such DTC account of the Subscription Agent. The undersigned hereby
certifies to the Company and the Subscription Agent that it owned ________
shares of Common Stock on October 8, 1997 (the "Record Date").
2. The undersigned hereby exercises the Oversubscription Privilege to
purchase, to the extent available, in respect of ___________ Rights (which must
be an integral multiple of three Rights) and certifies to the Company and the
Subscription Agent that such Oversubscription Privilege is being exercised for
the account or accounts of persons (which may include the undersigned) on whose
behalf all basic subscription privilege rights have been exercised.
3. The undersigned understands that payment of the Subscription Price
of $10.00 in respect of each Right exercised pursuant to the Oversubscription
Privilege must be received by the Subscription Agent at or before 5:00 p.m. New
York City time on the Expiration Date and represents that such payment, in the
aggregate amount of $___________ either (check appropriate box):
<PAGE>
[ ] has been or is being delivered to the Subscription Agent
pursuant to the Notice of Guaranteed Delivery referred to
above
or
[ ] is being delivered to the Subscription Agent herewith
or
[ ] has been delivered separately to the Subscription Agent;
and, in the case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check appropriate
box and complete information relating thereto):
[ ] uncertified check
[ ] certified check
[ ] bank draft
- ----------------------------------
Basic Subscription Confirmation Number
- ----------------------------------
DTC Participant
- ----------------------------------
Name of DTC Participant
By: ______________________________
Name:
Title:
Contact Name:
- ------------------------------------
Phone Number:
- ------------------------------------
Dated:
____________________________, 1997
(ARENT FOX LETTERHEAD)
October 1, 1997
Atlantic Gulf Communities Corporation
2601 South Bayshore Drive
Miami, Florida 33133-5461
Attn: Thomas W. Jeffrey, Executive Vice President
Gentlemen:
As counsel to Atlantic Gulf Communities Corporation (the "Company") we
have reviewed the Federal income Tax Considerations section (the "Tax Summary")
of the Registration Statement on Form S-3, as amended (Registration No.
333-31939).
Based on the information set forth in the Prospectus and assuming the
issuance of the Rights (as defined in the Registration Statement) in the manner
and on the terms and conditions described in the Registration Statement, it is
our opinion that the Tax Summary accurately summarizes the tax consequences to a
Stockholder or 1996 Holder (both as defined in the Registration Statement)
receiving, holding, exercising or selling (i) the Rights and (ii) Units acquired
through exercise of the Rights.
Our opinion is based upon existing law, regulations, and judicial and
administrative interpretations thereof. Our opinion is not binding on the
Internal Revenue Service or any court and there can be no assurance that the
Internal Revenue Service will agree with our opinion.
We consent to the filing of a copy of this letter as an exhibit to the
Registration Statement and to the reference to us in the Tax Summary. In giving
this consent, we do not thereby admit that we come within the category of
persons
<PAGE>
Atlantic Gulf Communications Corporation
October 1, 1997
Page 2
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
ARENT FOX KINTNER PLOTKIN & KAHN
By: /s/ JOHN C. MCCOY
---------------------------------
John C. McCoy
Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
<TABLE>
<CAPTION>
3 Months 9 Months Year Year Year Year 6 Months 6 Months
Ended Ended Ended Ended Ended Ended Ended Ended
DESCRIPTION 03/31/92 12/31/92 1993 1994 1995 1996 06/30/96 06/30/97
----------- -------- -------- ---- ---- ---- ---- -------- --------
HISTORICAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income (1) 954.4 (23.9) (18.5) 1.1 (20.6) 1.2 3.9 (16.0)
Fixed Charges
Net Interest Expense 1.3 13.6 18.3 14.6 14.7 13.5 6.5 7.7
Preferred Dividends 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Property Taxes 2.8 8.3 9.1 9.8 7.4 6.6 3.2 1.9
Rental Expenses 0.6 1.6 1.6 1.8 1.9 1.8 0.8 0.8
Fixed Charges and
Preferred stock dividends (2) 4.7 23.5 29.0 26.2 24.0 21.9 10.5 10.4
Earnings to fixed charges and
preferred
stock dividends [(1) + (2)] / (2) 204.1 0.0 0.4 1.0 0.1 1.1 1.4 (0.5)
PROFORMA
Net Income (1) 1.2 (16.0)
Fixed Charges
Net Interest Expense 13.4 8.5
Preferred Dividends 9.0 5.4
Property Taxes 6.8 1.9
Rental Expenses 1.8 0.4
Fixed Charges and
Preferred stock dividends (2) 31.0 15.4
Earnings to fixed charges and
preferred
stock dividends (1) / (2) 1.0 0.0
</TABLE>
