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SCHEDULE 14C
(RULE 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[X] Preliminary information statement [ ] Confidential, For Use of the
Commission Only (as
permitted by Rule 14c-5(d)(2))
[ ] Definitive information statement
LEGEND PROPERTIES, INC.
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(Name of Registrant as Specified in Its Charter)
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on the table below per Exchange Act Rules 14c-5(g) and
0-11.
(1) Title of each class of securities to which transaction applies:
COMMON STOCK, $.01 PAR VALUE PER SHARE
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(2) Aggregate number of securities to which transaction applies:
1,233,228
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
$0.50
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(4) Proposed maximum aggregate value of transaction:
$616,614
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(5) Total fee paid:
$124.00
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[X] Fee previously paid with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date
of its filing.
(1) Amount previously paid:
$124.00
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(2) Form, Schedule or Registration Statement No.:
SCHEDULE 14C
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(3) Filing Party:
LEGEND PROPERTIES, INC.
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(4) Date Filed:
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FEBRUARY 18, 2000
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LEGEND PROPERTIES, INC.
3755 7TH TERRACE
SUITE 301
VERO BEACH, FLORIDA 32960
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _______, 2000
To the Stockholders of
Legend Properties, Inc.
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Legend
Properties, Inc., a Delaware corporation (the "Company"), will be held at 9:00
a.m., local time, on _______, _______ __, 2000, at the Company's offices located
at 3755 7th Terrace, Suite 301, Vero Beach, Florida, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, providing for the merger of LP
Acquisition Corp., a Delaware corporation, with and into the
Company, with the Company being the surviving corporation. In
the merger, each outstanding share of the Company's common
stock, $.01 par value, other than shares held by RGI Holdings,
Inc., the sole stockholder of LP Acquisition Corp., will be
converted into the right to receive $.50 in cash, without
interest. The merger agreement is more fully described in the
accompanying information statement and is attached as Appendix
A to the information statement.
2. To transact such other business as may properly come before
the meeting and any adjournments or postponements thereof. The
board of directors has determined that only stockholders of
record at the close of business on _______ are entitled to
notice of, and to vote at, the meeting and any adjournments or
postponements thereof. The stock transfer books of the Company
will not be closed prior to the meeting.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
YOUR SHARES OF COMMON STOCK MAY BE VOTED AT THE MEETING ONLY IF YOU ARE
PRESENT AT THE MEETING IN PERSON OR BY VALID PROXY. WE ARE NOT SOLICITING
PROXIES IN CONNECTION WITH THE MEETING AND REQUEST THAT YOU DO NOT SEND PROXIES
TO US.
By Order of the Board of Directors
/s/ Peter J. Henn
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Peter J. Henn
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Vero Beach, Florida
_______, 2000
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THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
LEGEND PROPERTIES, INC.
3755 7TH TERRACE
SUITE 301
VERO BEACH, FLORIDA 32960
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INFORMATION STATEMENT
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SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _______, 2000
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
INTRODUCTION
This information statement is being furnished to the stockholders of
Legend Properties, Inc., a Delaware corporation (the "Company" or "Legend"), in
connection with the special meeting of stockholders to be held on _______ __,
2000 at 9:00 a.m., local time, at the Company's offices located at 3755 7th
Terrace, Suite 301, Vero Beach, Florida, and at any adjournments or
postponements thereof. The date of this information statement is _______ __,
2000, and this information statement and the foregoing Notice of Special Meeting
of Stockholders are first being mailed to stockholders of Legend on or about
_______ __, 2000.
The special meeting has been called to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, which is attached
to this information statement as Appendix A. Pursuant to the merger agreement,
LP Acquisition Corp. ("Acquisition Corp."), a newly-formed Delaware corporation
organized at the direction of RGI Holdings, Inc., a Washington corporation, will
be merged with and into Legend. In the merger, each outstanding share of common
stock (the "Common Stock"), $.01 par value, of Legend (other than shares held by
RGI Holdings) will be canceled and converted automatically into the right to
receive $.50 in cash, payable to the holder thereof, without interest.
Acquisition Corp. has been organized at the direction of RGI Holdings, the sole
stockholder of Acquisition Corp., which currently holds approximately 80% of
Legend's issued and outstanding common stock. After the merger, Legend will
become a privately held company wholly-owned by RGI Holdings, and the public
stockholders will no longer own an equity interest in Legend. The current
executive officers of Legend will retain their positions with Legend. The
aggregate consideration payable in the merger, excluding fees and expenses, is
approximately $617,000.
Because certain directors of Legend are subject to conflicts of
interest in evaluating the merger, the board of directors appointed a special
committee of disinterested directors to consider and make recommendations with
respect to the merger and possible strategic alternatives to maximize
stockholder value. The special committee and the board believe that the terms of
the merger are substantively and procedurally fair to, and in the best interests
of, the Company's stockholders and unanimously recommend that the stockholders
approve the merger. See "SPECIAL FACTORS--Conflicts of Interest--The Special
Committee's and the Board's Recommendation."
Approval of the merger at the special meeting will require the
affirmative vote of the holders of a majority of the outstanding shares of
common stock entitled to vote at the special meeting. RGI Holdings, which, as of
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the record date, held of record 5,057,646, or approximately 80%, of the
outstanding shares of Legend's common stock has expressed its intention to vote
its shares for approval of the merger. Holders of 1,233,228, or approximately
20%, of the outstanding shares of common stock remain uncommitted with respect
to how they will vote on the merger. The affirmative vote of RGI Holdings will
be sufficient under Delaware law to approve the merger. Accordingly, we are not
soliciting proxies in connection with the special meeting and you are requested
not to send us a proxy. This information statement is being furnished to
stockholders solely to provide them with certain information in accordance with
the requirements of Delaware law and the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder, including Regulation 14C.
The consummation of the merger is subject to a number of conditions, and,
accordingly, there can be no assurance that the merger will be consummated.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
You are cordially invited to attend the special meeting in person to
ask questions and vote your shares. Please do not send in stock certificates
now. After the merger is completed, we will send you written instructions for
exchanging your common stock certificates for the cash to which you are
entitled.
YOU ARE URGED TO READ AND CONSIDER CAREFULLY THE INFORMATION CONTAINED
IN THIS INFORMATION STATEMENT AND TO CONSULT WITH YOUR PERSONAL FINANCIAL AND
TAX ADVISORS.
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TABLE OF CONTENTS
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Introduction......................................................................................................i
Summary...........................................................................................................1
The Special Meeting..............................................................................................10
General...................................................................................................10
Record Date and Quorum Requirement........................................................................10
Voting Procedures; Required Vote..........................................................................10
Effective Time............................................................................................11
Special Factors..................................................................................................12
Background of the Merger..................................................................................12
The Special Committee's and the Board's Recommendation....................................................14
Opinion of the Financial Advisor..........................................................................18
Purpose and Reasons of the Affiliates for the Merger......................................................25
Position of the Affiliates as to Fairness of the Merger...................................................25
Conflicts of Interest.....................................................................................25
Certain Effects of the Merger.............................................................................26
Conduct of Legend's Business After the Merger.............................................................26
Certain Forward Looking Information.......................................................................26
The Merger.......................................................................................................27
Conversion of Securities..................................................................................27
Cash-out of Legend Stock Options..........................................................................27
Transfer of Shares........................................................................................28
Conditions................................................................................................28
Representations and Warranties............................................................................29
Covenants.................................................................................................29
Nonsolicitation Covenant..................................................................................31
Indemnification and Insurance.............................................................................32
Expenses..................................................................................................32
Termination, Amendment and Waiver.........................................................................33
Termination Fee...........................................................................................33
Funding of Merger Consideration...........................................................................34
Expenses of the Transaction...............................................................................34
Regulatory Approvals......................................................................................34
Accounting Treatment......................................................................................34
Rights of Dissenting Stockholders................................................................................34
Federal Income Tax Consequences..................................................................................35
Business of the Company..........................................................................................39
Business Operations.......................................................................................39
Description of Projects...................................................................................40
Other Information.........................................................................................43
Properties................................................................................................43
Legal Proceedings.........................................................................................44
Selected Consolidated Financial Data.............................................................................46
Management's Discussion and Analysis of Results of Operations and Financial Condition............................47
Overview..................................................................................................47
Results of Operations.....................................................................................47
Factors Affecting Legend's Business Plan..................................................................54
Certain Forward Looking Information..............................................................................58
Management.......................................................................................................60
Directors and Executive Officers of Legend................................................................60
Executive and Director Compensation.......................................................................61
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Principal Stockholders and Stock Ownership.......................................................................64
Certain Information Concerning LP Acquisition Corp., RGI Holdings and other Affiliates...........................65
Certain Transactions.............................................................................................71
Consulting and Other Fees.................................................................................71
Payables..................................................................................................71
Indemnity.................................................................................................72
Market Prices of Common Stock and Dividends......................................................................73
Disclosure Regarding Forward-Looking Statements..................................................................73
Independent Public Accountants...................................................................................73
Other Business...................................................................................................73
Documents Incorporated by Reference..............................................................................73
Available Information............................................................................................73
Index to Consolidated Financial Statements......................................................................F-1
Independent Auditors' Report....................................................................................F-2
APPENDICES
APPENDIX A - Agreement and Plan of Merger
APPENDIX B - Opinion of Josephthal & Co. Inc.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS INFORMATION STATEMENT. PLEASE REFER TO THE MORE DETAILED INFORMATION
CONTAINED ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS INFORMATION STATEMENT.
YOU ARE URGED TO READ THIS INFORMATION STATEMENT AND ITS APPENDICES IN THEIR
ENTIRETY BEFORE VOTING.
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Date, Time and Place of the Special
Meeting............................... The special meeting of Legend will be held on ______, _______ __,
2000, at 9:00 a.m., local time, at our offices located at 3755 7th
Terrace, Suite 301, Vero Beach, Florida.
Purpose of the Special Meeting........... At the special meeting, our stockholders will consider and vote on a
proposal to approve the merger agreement which is attached to this
information statement as Appendix A. Under the merger agreement,
Acquisition Corp., a newly-formed Delaware corporation, will merge
with and into Legend, with Legend as the surviving corporation in the
merger, and each outstanding share of our common stock, other than
shares held by RGI Holdings, the sole stockholder of Acquisition Corp.
will be converted automatically into the right to receive $.50 in cash
without interest. See "THE MERGER" beginning on page 27.
Record Date and Quorum................... Our board of directors has fixed the close of business on _______,
2000 as the record date for determining stockholders entitled to
notice of, and to vote at, the special meeting and any adjournments or
postponements thereof. Each holder of record of common stock at the
close of business on the record date is entitled to one vote for each
share then held on each matter submitted to a vote of stockholders. At
the close of business on the record date, there were 6,290,844 shares
of common stock outstanding. The holders of a majority of the
outstanding shares of common stock entitled to vote at the special
meeting must be present in person or represented by proxy to
constitute a quorum for the transaction of business. See "THE SPECIAL
MEETING" beginning on page 10.
Required Vote........................... The affirmative vote of the holders of a majority of the outstanding
shares of common stock entitled to vote at the special meeting is
required to approve the merger agreement. Thus, a failure to vote or a
vote to abstain will have the same legal effect as a vote cast against
approval. In addition, brokers who hold shares of common stock as
nominees will not have discretionary authority to vote such shares in
the absence of instructions from the beneficial owners. A broker
non-vote will have the same effect as a vote against the merger. See
"THE SPECIAL MEETING--Voting Procedures; Required Vote" beginning on
page 10.
RGI Holdings, which as of the record date held 5,057,646, or
approximately 80%, of the outstanding shares of our common stock, has
expressed its intention to vote its shares for approval of the merger.
Holders of 1,233,228 shares of common stock, or approximately 20%, of
the outstanding shares of common stock, remain uncommitted with
respect to how they will vote on the merger. The affirmative vote of
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RGI Holdings will be sufficient under Delaware law to approve the
merger. Accordingly, we are not soliciting proxies in connection with
the special meeting. Nevertheless, you are welcome to attend the
special meeting to vote your shares and to have any questions you
might have answered.
The Company.............................. We are a diversified real estate development and operating company
engaged in three primary business activities: real estate development
and sales, club operations and patient services. We operate other
ancillary operations that provide support services to our primary
business activities but these ancillary operations are not material
enough to be considered a primary business activity.
Our strategy is to realize and enhance the market potential of our
core assets. We currently control approximately 2,700 acres of land in
a master planned community (Southbridge), a residential golf community
(Grand Harbor) and a retirement community (Oak Harbor).
Our principal executive offices are located at 3755 7th Terrace, Suite
301, Vero Beach, Florida 32960. Our telephone number is (561)
778-0180. See "BUSINESS OF THE COMPANY" beginning on page 39.
RGI Holdings............................. RGI Holdings is an indirect majority-owned subsidiary of Aker RGI ASA,
a Norwegian investment company. Aker RGI is an investment company that
engages in acquiring, restructuring, developing and selling companies.
Its key investments are currently in oil and gas technology,
shipbuilding and offshore industry yards and fisheries. It is one of
Norway's largest privately controlled industrial groups, with
approximately 90% of its capital stock controlled by Kjell Inge Rokke
and the remainder publicly held. Aker RGI's capital stock is quoted on
the Oslo Stock Exchange. RGI Europe, RGI Denmark and RGI International
are intermediate holding companies for various entities engaged in
such businesses. RGI Holdings was organized to serve as a holding
company for investments in entities engaged in the ownership and
development of real estate and related assets.
RGI Holdings is controlled by, or under common control with, the
following:
(1) Kjell Inge Rokke, a Norwegian citizen;
(2) TRG (Europe) B.V., a Netherlands corporation wholly-owned by
Mr. Rokke and the holder of approximately 90% of the capital
stock of Aker RGI;
(3) Aker RGI;
(4) RGI (Europe) B.V., a Netherlands corporation and
wholly-owned subsidiary of Aker RGI ASA;
(5) RGI (Denmark) ApS, a Danish limited liability company and
wholly-owned subsidiary of RGI Europe;
(6) Resource Group International, Inc., a Washington
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corporation, a wholly-owned subsidiary of RGI Denmark and
the holder of 80.45% of the outstanding capital stock of RGI
Holdings; and
(7) Avantor International AS, a Norwegian corporation and the
holder of 19.55% of the outstanding capital stock of RGI
Holdings.
Mr. Rokke, TRG, Aker RGI, TRG, RGI Europe, RGI Denmark, RGI
International, RGI Holdings, Avantor and Acquisition Corp. are
hereinafter collectively referred to as our "Affiliates."
The executive offices of RGI Holdings are located at 2025 First
Avenue, Suite 830, Seattle, Washington 98121 and its telephone number
is 206-464-0200.
Acquisition Corp......................... Acquisition Corp. is a newly-formed Delaware corporation organized at
the direction of RGI Holdings. RGI Holdings is the sole stockholder of
Acquisition Corp. See "CERTAIN INFORMATION CONCERNING ACQUISITION
CORP., RGI HOLDINGS AND OTHER AFFILIATES" beginning on page 65.
After the merger, Helge Lund and Jan Petter Storetvedt, the two
current directors of Legend who are employees of RGI Holdings or Aker
RGI, are expected to continue to serve as directors of the surviving
corporation in the merger. See "SPECIAL FACTORS --Conflicts of
Interest" beginning on page 25.
The executive offices of Acquisition Corp. are located at 2025 First
Avenue, Suite 830, Seattle, Washington, 98121. Acquisition Corp.'s
telephone number is 206-464-0200.
The Merger............................... The merger agreement provides that, subject to satisfaction of certain
conditions, Acquisition Corp. will be merged with and into us, and
that following the merger, the separate existence of Acquisition Corp.
will cease and we will continue as the surviving corporation
wholly-owned by RGI Holdings. Upon filing of a Certificate of Merger
with the Secretary of State of the State of Delaware, and subject to
the terms and conditions set forth in the merger agreement, each share
of our issued and outstanding common stock (other than shares held by
RGI Holdings) will, by virtue of the merger, be canceled and converted
into the right to receive $.50 in cash, without interest. As a result
of the merger, our common stock will be 100% owned by RGI Holdings.
See "THE MERGER" beginning on page 27.
Effective Time of the Merger and Payment
for Shares............................ The effective time of the merger is currently expected to occur as
soon as practicable after the special meeting, subject to approval of
the merger agreement at the special meeting and satisfaction or waiver
of the terms and conditions of the merger agreement. See "--Conditions
to the Merger, Termination and Expenses" and "THE MERGER--Conditions"
beginning on page 28. Detailed instructions with regard to the
surrender of share certificates, together with a letter of
transmittal, will be forwarded to stockholders by the disbursing
agent, Boston Equiserve, promptly following the effective time of the
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merger. Stockholders should not submit their certificates to the
disbursing agent until they have received such materials. The
disbursing agent will send payment of the cash merger consideration to
you as promptly as practicable following receipt by the disbursing
agent of their certificates and other required documents. No interest
will be paid or accrued on the cash payable upon the surrender of
certificates. See "THE MERGER--Conversion of Securities" beginning on
page 27. Stockholders should not send any stock certificates at this
time.
The Special Committee's and Board's
Recommendation........................ The RGI directors are employees of Aker RGI or RGI Holdings and are
therefore subject to conflicts of interest in evaluating the merger.
Accordingly, in October 1999, our board of directors appointed a
special committee, comprised of all three independent and
disinterested directors, to evaluate and make recommendations with
respect to the merger and other strategic options. Based on the
factors set forth in this information statement (see "SPECIAL
FACTORS--The Special Committee's and the Board's Recommendation"
beginning on page 14 and "--Conflicts of Interest" beginning on page
25), the special committee unanimously recommended to our board that
the merger agreement be approved and that it be recommended to our
stockholders. Following the recommendation of the special committee,
our board unanimously approved the merger agreement and recommended
that our stockholders approve the merger agreement. In connection with
the foregoing, the special committee and the board determined that the
merger is substantively and procedurally fair to, and in the best
interests of, the stockholders of the company other than RGI Holdings
and its affiliates. In connection with their recommendations, the
special committee and the board each adopted the analyses and findings
of the special committee's financial advisor, Josephthal & Co. Inc.
See "SPECIAL FACTORS--Opinion of the Financial Advisor" beginning on
page 18. THE SPECIAL COMMITTEE AND THE BOARD UNANIMOUSLY RECOMMEND
THAT THE STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT.
Opinion of the Financial Advisor......... Josephthal provided its opinion to the special committee that, as of
the date of such opinion, the cash merger consideration was fair from
a financial point of view to our public stockholders.
The full text of the written opinion of Josephthal, dated as of
January 5, 2000, which sets forth assumptions made, matters considered
and limitations on the review undertaken in connection with the
opinion, is attached and incorporated by reference into this
information statement. The opinion of Josephthal does not constitute a
recommendation as to how any holder of our common stock should vote
with respect to the merger. We urge you to read the opinion in its
entirety. See "SPECIAL FACTORS--Opinion of Financial Advisor"
beginning on page 18.
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We have paid Josephthal aggregate fees of $200,000 for services as
financial advisor and rendering its opinion to the special committee
and the company. See "SPECIAL FACTORS--Opinion of Financial Advisor"
beginning on page 18. We have agreed to reimburse Josephthal for its
reasonable out-of-pocket expenses, including attorneys' fees, and to
indemnify Josephthal against certain liabilities, including certain
liabilities under the federal securities laws.
Purpose and Reasons of the Affiliates
for the Merger........................ The purpose of the Affiliates for engaging in the transactions
contemplated by the merger agreement is to acquire 100% of our common
stock. As a result of the merger, RGI Holdings will become our sole
stockholder and we will become a privately-held company. The
Affiliates believe that as a private company we will have greater
flexibility to focus on realizing value without minority stockholders.
The Affiliates believe that becoming a privately-held company will
also provide greater flexibility in restructuring our business and
outstanding debt. See "SPECIAL FACTORS--Purpose and Reasons of the
Affiliates for the Merger" beginning on page 25.
Position of the Affiliates as to
Fairness of the Merger................ Each of the Affiliates has considered the analyses and findings of the
special committee and the board (described in detail in "SPECIAL
FACTORS--The Special Committee's and the Board's Recommendation"
beginning on page 14) with respect to the fairness of the merger to
our public stockholders. As of the date of this information statement,
each of the Affiliates adopts the analyses and findings of the special
committee and the board with respect to the fairness of the merger and
believes that the merger is both procedurally and substantively fair
to, and in the best interests of, our public stockholders. See
"SPECIAL FACTORS--Position of the Affiliates as to Fairness of the
Merger" beginning on page 25.
Conflicts of Interest.................... In considering the recommendation of the board with respect to the
merger, you should be aware that some of our officers and directors
and affiliates of these officers and directors have interests in
connection with the merger which may present them with actual or
potential conflicts of interest, which are described in more detail
under "SPECIAL FACTORS--Conflicts of Interest" beginning on page 25.
RGI DIRECTORS. After the consummation of the merger, Messrs. Lund and
Storetvedt are expected to continue to be employed by and/or serve as
directors of RGI Holdings, Aker RGI or its other subsidiaries.
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MEMBERS OF MANAGEMENT. We expect to continue to employ Peter J. Henn,
our president and chief executive officer, and Robert B. Cavoto, our
chief financial officer in such capacities after the merger.
Certain Effects of the Merger............ As a result of the merger, all of our outstanding common stock will be
owned by RGI Holdings. Our public stockholders will no longer have any
interest in us, and will not be our stockholders, and therefore will
not participate in our future earnings and potential growth. Instead,
our public stockholders will have the right to receive $0.50 in cash,
without interest, for each share held. See "SPECIAL FACTORS--Conflicts
of Interest" beginning on page 25 and "CERTAIN FORWARD LOOKING
INFORMATION" beginning on page 58.
In addition, our common stock will no longer be quoted on the Nasdaq
OTC Bulletin Board and price quotations with respect to sales of
shares in the public market will no longer be available. The
registration of our common stock under the Securities Exchange Act of
1934, will terminate, and this termination will eliminate our
obligation to file periodic financial and other information with the
SEC and will make most other provisions of the Exchange Act
inapplicable. See "SPECIAL FACTORS--Certain Effects of the Merger"
beginning on page 26.
Conditions to the Merger................. Each party's obligation to complete the merger is subject to
satisfaction of a number of conditions, including with respect to one
or both parties: (i) the merger agreement shall have been approved by
holders of a majority of the outstanding shares of common stock, (ii)
all required consents and approvals shall have been obtained, and
(iii) our representations and warranties shall be true and correct in
all material respects as of the effective time of the merger except as
contemplated by the merger agreement and except where the failure to
be true and correct would not, in the aggregate, (x) have a material
adverse effect on us or RGI Holdings or (y) prevent or materially
delay the consummation of the merger. Any or all of the conditions
that have not been satisfied may be waived (other than the condition
that the merger agreement shall have been approved by holders of a
majority of the outstanding shares of our common stock). See "THE
MERGER--Conditions" beginning on page 28. Even if the stockholders
approve the merger agreement, we cannot assure you that the merger
will be consummated.
Termination.............................. At any time prior to the effective time of the merger, the merger
agreement may be terminated by the mutual written consent of the
parties. In addition, either we or Acquisition Corp. may terminate the
merger agreement prior to the effective time if a court or other
governmental entity permanently enjoins, restrains or prohibits the
merger and such action is final and non-appealable. See "THE
MERGER--Termination, Amendment and Waiver" beginning on page 33.
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The merger agreement may be terminated by Acquisition Corp. prior to
the effective time if: (i) any of our representations or warranties
were not true and correct in all material respects when made, except
in any case where such failure to be true and correct would not, in
the aggregate, (x) have a material adverse effect on us, or (y)
prevent or materially delay the consummation of the merger; (ii) any
of our representations or warranties (other than representations and
warranties made as of a specified date) shall have ceased at a later
date to be true and correct in all material respects as if made at
such later date, except in any case where such failure to be true and
correct would not, (x) in the aggregate, have a material adverse
effect or (y) prevent or materially delay the consummation of the
merger; (iii) we fail to comply in any material respect with any of
our material obligations or covenants contained in the merger
agreement; or (iv)(A) our board or the special committee withdraws or
modifies its recommendation of the merger or the merger agreement, or
approves or recommends a competing "Acquisition Proposal," (B) we
enter into any agreement with respect to any Superior Proposal, or (C)
our board or the special committee resolves to take any such action in
clauses (iv)(A) or (B).
An "Acquisition Proposal" is defined under the merger agreement to
include any inquiry, proposal or offer from any person to acquire,
directly or indirectly, 20% or more of the total value of our assets
and the assets of our subsidiaries or 20% or more of any class of our
equity securities or the equity securities of any of our subsidiaries,
any tender offer or exchange offer that if consummated would result in
any person beneficially owning 20% or more of any class of our equity
securities or any of our subsidiaries, any merger, consolidation,
business combination, sale of all or substantially all the assets,
recapitalization, liquidation, dissolution or similar transaction
involving us or any of our subsidiaries (other than the transactions
between the parties to the merger agreement contemplated by the merger
agreement), or any other transaction, the consummation of which could
reasonably be expected to impede, interfere with, prevent or
materially delay the merger or which could reasonably be expected to
dilute materially the benefits to Acquisition Corp. of the
transactions contemplated by the merger agreement.
A "Superior Proposal" is defined under the merger agreement to include
any bona fide proposal made by a third party to acquire, directly or
indirectly, 20% or more of the shares of our common stock then
outstanding or all or substantially all our assets and otherwise on
terms which our board reasonably determines in its good faith judgment
(based on the advice of Josephthal) to be more favorable to you than
the merger.
We may terminate the merger agreement (i) to accept a Superior
Proposal by paying a "Termination Fee" (discussed below) to
Acquisition Corp. (but may not, however, solicit discussions, or
negotiate an Acquisition Proposal, except as required by our board's
fiduciary duties), (ii) if any representation or warranty of
</TABLE>
7
<PAGE> 14
<TABLE>
<CAPTION>
<S> <C>
Acquisition Corp. was not true and correct in all material respects
when made or has ceased to be true and correct in all material
respects as if made on such later date (unless made as of a specified
date), or (iii) if Acquisition Corp. fails to comply in any material
respect with any of its material obligations or covenants in the
merger agreement. See "THE MERGER--Nonsolicitation Covenant" beginning
on page 31 and "--Termination, Amendment and Waiver" beginning on page
33.
Expenses................................. We have agreed to reimburse Acquisition Corp. for its expenses (the
"Termination Fee") in the event the merger agreement is terminated (i)
by Acquisition Corp. due to (A) our breach of any of our
representations, warranties or covenants, each as described above, or
(B)(1) our board or the special committee withdraws or modifies in a
manner adverse to Acquisition Corp. its approval or recommendation of
the merger or the merger agreement, or if the board or special
committee approves or recommends Acquisition Proposal, (2) we enter
into any agreement with respect to any Superior Proposal or (3) our
board or the special committee resolves to take any such action in
clauses (1) or (2), or (ii) by us due to entering into a definitive
agreement in connection with a Superior Proposal. See "THE
MERGER--Termination Fee" beginning on page 33.
Each of the parties has agreed to pay its own costs and expenses in
connection with the merger, provided that, except as described above,
RGI Holdings will reimburse us for all such fees and expenses incurred
by us regardless of whether the merger is consummated. See "THE
MERGER--Termination Fee" beginning on page 33 and "--Expenses of the
Transaction" beginning on page 34.
Federal Income Tax Consequences.......... The receipt of the cash merger consideration by a holder of our common
stock through the merger will be a taxable transaction for federal
income tax purposes. We urge you to consult your tax advisors to
determine the effect of the merger under applicable federal, state,
local and foreign tax laws. See "FEDERAL INCOME TAX CONSEQUENCES"
beginning on page 35.
Rights of Dissenting Stockholders........ Under Delaware law, you have no right to an appraisal of the value of
your shares in connection with the merger.
Accounting Treatment..................... The merger will be treated as a purchase business combination for
accounting purposes.
Funding of the Merger Consideration...... It is estimated that approximately $_________ will be required to
consummate the merger and pay related fees and expenses. This sum is
expected to be provided by RGI Holdings' cash on hand. There is no
financing contingency under the merger agreement.
Market Prices of Common Stock and
Dividends............................. There is no established public trading market for our common stock. At
the record date, there were 8,656 holders of record of common stock
and approximately _____ persons or entities holding common stock in
nominee name.
We have not declared or paid any cash dividends on our common stock
</TABLE>
8
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C>
since 1989, do not anticipate declaring or paying any dividends in the
foreseeable future, and intend to retain any earnings to finance the
development and expansion of our operations. Under the merger
agreement, we have agreed not to pay any dividends on the common stock
prior to the effective date of the merger.
</TABLE>
9
<PAGE> 16
THE SPECIAL MEETING
GENERAL
This Information Statement is being delivered to Legend's stockholders
in connection with the Special Meeting of Stockholders (as it may be adjourned
or postponed, the "Special Meeting") to be held on ______, _______ __, 2000 at
9:00 a.m., local time, at the Company's offices, located at 3755 7th Terrace,
Suite 301, Vero Beach, Florida. The Company is not soliciting proxies in
connection with the Special Meeting. All expenses incurred in connection with
the mailing of this Information Statement will initially be paid by the Company.
Officers, directors and regular employees of the Company may provide services in
connection with the mailing of this Information Statement and the Special
Meeting but will receive no additional compensation for such services. This
Information Statement is being mailed to stockholders on or about _______ __,
2000.
RECORD DATE AND QUORUM REQUIREMENT
The Common Stock is the only outstanding voting security of the
Company. The Company's board of directors (the "Board") has fixed the close of
business on _______ __, 2000 as the Record Date for the determination of
stockholders entitled to notice of, and to vote at, the Special Meeting. Each
holder of record of Common Stock at the close of business on the Record Date is
entitled to one vote for each share then held on each matter submitted to a vote
of stockholders. At the close of business on the Record Date, there were
6,290,874 shares of Common Stock issued and outstanding held by 8,656 holders of
record and by approximately _______ persons or entities holding in nominee name.
Prior to the Special Meeting, the Company will select one or more
inspectors of election for the meeting. Such inspectors shall determine the
number of shares of Common Stock represented at the meeting, the existence of a
quorum and the validity and effect of proxies, and shall receive, count and
tabulate ballots and votes and determine the results thereof.
The holders of a majority of the outstanding shares entitled to vote at
the Special Meeting must be present in person or represented by proxy to
constitute a quorum for the transaction of business. Abstentions and shares
referred to as "broker or nominee non-votes" that are represented at the Special
Meeting (shares held by brokers or nominees as to which instructions have not
been received from the beneficial owners or other persons entitled to vote and
the broker or nominee does not have discretionary voting power on a particular
matter) are counted for purposes of determining the presence or absence of a
quorum for the transaction of business. If less than a majority of outstanding
shares of Common Stock are represented at the Special Meeting, holders of a
majority of the shares so represented may adjourn the Special Meeting to another
date, time or place, and notice need not be given of the new date, time or place
if the new date, time or place is announced at the Special Meeting before an
adjournment is taken.
VOTING PROCEDURES; REQUIRED VOTE
Approval of the Merger Agreement, which is attached as Appendix A
hereto, will require the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Special Meeting. A
failure to vote or a vote to abstain will have the same legal effect as a vote
cast against approval. Brokers and, in many cases, nominees will not have
discretionary power to vote on the proposal to be presented at the Special
Meeting. Accordingly, beneficial owners of shares should instruct their brokers
or nominees on how to vote. A broker or nominee non-vote will have the same
effect as a vote against the Merger.
RGI Holdings, which, as of the record date, held of record 5,057,646,
or approximately 80%, of the outstanding shares of Common Stock has expressed
its intention to vote its shares for approval of the Merger. Holders of
1,233,228, or approximately 20%, of the outstanding shares of Common Stock
remain uncommitted with respect to how they will vote on the Merger. The
affirmative vote of RGI Holdings will be sufficient under Delaware law to
approve the Merger. Accordingly, the Company is not soliciting proxies in
connection with the Special Meeting. Nevertheless, Legend's stockholders are
welcome to attend the Special Meeting to vote their shares and to have any
questions they might have answered.
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<PAGE> 17
Under Delaware law, Legend stockholders have no right to an appraisal
of the value of their shares in connection with the Merger.
THE COMPANY IS NOT SOLICITING PROXIES IN CONNECTION WITH THE SPECIAL
MEETING. STOCKHOLDERS ARE REQUESTED NOT TO SEND PROXIES TO THE COMPANY.
EFFECTIVE TIME
The Merger will be effective as soon as practicable following
stockholder approval of the Merger Agreement and upon the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware (the
"Effective Time"). The Effective Time is currently expected to occur as soon as
practicable after the Special Meeting, subject to approval of the Merger
Agreement at the Special Meeting and satisfaction or waiver of the terms and
conditions set forth in the Merger Agreement. See "THE MERGER--Conditions."
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<PAGE> 18
SPECIAL FACTORS
BACKGROUND OF THE MERGER
On October 15, 1999, Legend received a proposal from RGI Holdings
offering to acquire all of the Company's outstanding Common Stock not currently
owned by RGI Holdings in a merger transaction for $0.13 per share in cash. A
meeting of the Board was immediately convened to evaluate the proposal and
determine a framework for responding. At this meeting, Peter J. Henn, the
Company's Chief Executive Officer, and Robert B. Cavoto, the Company's Chief
Financial Officer, provided a summary overview of each of the Company's
outstanding real estate projects. Following the review of the Company's assets,
the Board began its review of RGI Holdings' offer.
Shefsky & Froelich, Ltd., Legend's primary outside counsel, provided
the Board with an overview of the Board's legal responsibilities and obligations
in responding to the proposal. In light of the fact that two of the Company's
directors, Messrs. Storetvedt and Lund, are affiliated with RGI Holdings, the
Board decided to form a Special Committee comprising Legend's three independent,
disinterested directors to evaluate the proposal. The Special Committee is
comprised of Walter E. Auch, Sr., Robert M. Ungerleider and Fred E. Welker, III.
Mr. Ungerleider was appointed chairman of the Special Committee. On questioning
from the Special Committee, Mr. Henn stated that although RGI had indicated an
interest in retaining his services if a merger is approved, he had no agreement
to stay or any equity interest in RGI Holdings and expected to fulfill the
conditions of his employment agreement. He noted that Mr. Cavoto also has an
employment agreement which terminates on December 31, 2000. Mr. Cavoto also
advised the Board that he had no agreement with RGI Holdings and expected to
fulfill the terms of his contract.
Messrs. Storetvedt and Lund subsequently excused themselves from the
meeting so the Special Committee could begin its evaluation. The Special
Committee discussed the desirability of retaining financial and legal advisors
to assist in reviewing the proposal. The Special Committee engaged Shefsky &
Froelich as its legal counsel. The Special Committee concluded that Shefsky &
Froelich could act as its counsel since that firm had never provided legal
services for RGI Holdings or any of its affiliates (other than Legend). The
Special Committee also discussed the desirability of retaining a financial
advisor. The Special Committee noted that Josephthal was intimately familiar
with the Company's assets and financial condition, having performed advisory
services for the Company and the Board dating back to the Banyan merger in
December 1996. See "BUSINESS OF THE COMPANY--Business Operations." The Special
Committee discussed the fact that Josephthal had previously been retained to
provide financial and other general advice relating to, among other things,
financing various strategic alternatives. See "SPECIAL FACTORS--Opinion of the
Financial Advisor." The Special Committee thus concluded that Josephthal was
well suited, given its knowledge of the Company's assets and financial condition
as well as its experience in seeking additional or restructured capital to the
task of advising the Special Committee.
Josephthal was subsequently retained as the Special Committee's advisor
on November 8, 1999. On November 16, 1999, Messrs. Ungerleider, Henn and Cavoto
met, along with representatives of Josephthal and Shefsky & Froelich. Messrs.
Henn and Cavoto provided a complete overview of the Company's portfolio and
reviewed cash flow budgets updated from the prior meeting for each property.
Messrs. Henn and Cavoto also provided summaries of the indebtedness owing to
Aker RGI as well as the Company's options, if any, for refinancing that
indebtedness. Mr. Henn explained that most of the lenders contacted to date had
asked for guaranties from Aker RGI as a condition to granting new loans or
refinancing existing loans. Mr. Henn added that Aker RGI was unwilling to
provide these additional guaranties and was also reluctant to lend additional
monies or subordinate its existing indebtedness. Following the presentation, Mr.
Ungerleider, speaking on behalf of the Special Committee, met separately with
representatives of Josephthal and Shefsky & Froelich to discuss questions and
concerns expressed to Mr. Ungerleider by the other Special Committee members.
Mr. Ungerleider explained that the Special Committee was cognizant of the fact
that the proposed Merger price of $0.13 per share exceeded the Company's book
value and the price at which shares had recently traded in the OTC market.
Nevertheless, Mr. Ungerleider asked Josephthal to evaluate the financial basis
for demanding a higher price from RGI Holdings.
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<PAGE> 19
On December 6, 1999, the Special Committee met with Messrs. Henn and
Cavoto as well as with representatives of Josephthal and Shefsky & Froelich. At
the meeting, Messrs. Henn and Cavoto presented the Special Committee with an up
to date budget and cash flow analysis for the Company and each of its projects.
Josephthal also provided an overview of its prior efforts to secure additional
capital for the Company or to interest a third party in a business combination
with the Company. Josephthal advised the Special Committee that no one had
expressed an interest or desire to fund additional loans without Aker RGI
guaranties and that no one was interested in pursuing a business combination
with the Company. Josephthal noted that some parties were interested in
purchasing Aker RGI's debt position but only at a substantial discount
(approximately 50%) of the monies funded.
Josephthal also presented its preliminary analyses of the proposed Cash
Merger Consideration. The Special Committee discussed the contents of the
analyses focusing specific attention on a discounted cash flow and liquidation
analysis that Josephthal had prepared based on projections provided by
management. Josephthal had prepared the analysis for purposes of estimating the
Company's value on a going concern basis and in an orderly liquidation.
Josephthal advised the Special Committee that these analyses were a better
indicator of the Company's value than the value indicated by the trading price
of the Common Stock since there were a few trades and little volume on which to
base an analysis. The Special Committee noted that the "most optimistic" value
in each analysis was only $92-95 million, approximately $10 million less than
the Company's outstanding debt. The Special Committee also reviewed a
"comparable company" and a "comparable transaction" analysis prepared by
Josephthal. In each case, the implied value of the Common Stock estimated in
these analyses was negative due to the fact that most of the Company's capital
is in the form of debt, not equity. Finally, the Special Committee reviewed an
analysis of the Common Stock's trading price and volume from each of January 8,
1997, December 31, 1999 and December 31, 1997 through December 31, 1999. The
analysis showed that the trading volume in the shares has been relatively light
with a substantial portion of the shares trading at less than $0.50 per share.
Mr. Henn also advised the Special Committee that recently, some stockholders
have offered to pay the Company in order to sell shares just to recognize a tax
loss since they had been unable to find any market for their shares. Mr. Henn
advised the Special Committee that the most recent quote he was aware of for the
Common Stock was $0.0625 per share.
The Special Committee also considered the fact that since RGI Holdings
owns approximately 80% of the Common Stock, the "minority" stockholders would
not have an effective vote on the Merger. Counsel summarized various mechanisms
that the Company might consider to make the minority stockholders' vote more
meaningful. In particular, the Special Committee considered the desirability of
asking RGI Holdings to either abstain from voting on the Merger altogether or to
vote its shares in the same proportion as the vote of the minority stockholders.
Based on discussions with representatives of RGI Holdings, the Special Committee
believed that RGI Holdings would not enter into the Merger Agreement with the
Company and incur related costs and expenses if the transaction were subject to
the approval of a majority of the Public Stockholders, representing
approximately 20% of the Company's outstanding Common Stock, rather than a
simple majority of all stockholders including RGI Holdings.
The Special Committee also discussed whether Josephthal should seek
competing proposals to RGI Holdings' proposal. The Special Committee took note
of the fact that since the proposed Merger was announced, no one had come
forward with a competing proposal. Representatives of Josephthal added that in
their view, it was unlikely that anyone would make a competing proposal based on
their experience during the previous two years in approaching various potential
acquirors of the Company. To support its view, the Josephthal representatives
explained that in seeking additional capital for the Company, or to find a
purchaser of RGI Holdings' debt position, the best offer that Josephthal had
received was one that proposed to purchase RGI Holdings' debt for approximately
50% of the total debt funded by RGI Holdings. Representatives of Shefsky &
Froelich also noted that under the proposed Merger Agreement, the Board would
still be able to consider unsolicited proposals even after signing.
Josephthal also presented the Special Committee with an additional
analysis that it had prepared in response to Mr. Ungerleider's request for an
analysis that would serve as a basis for demanding more than $.13 per share for
the Public Stockholders in the Merger. The analysis projected the Company's
equity value on the premise that RGI Holdings converted all of its debt to
equity. Josephthal estimated that if, for example, RGI Holdings converted all of
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<PAGE> 20
its debt at a conversion price of $0.50 per share, assuming enterprise values
estimated in its discounted cash flow and liquidation analysis, the Company's
per share value would range from $0.30 to $0.49 per share. Josephthal cautioned
that the analysis was purely hypothetical since RGI Holdings had not indicated
any interest in converting any of its debt to equity. The Special Committee
nevertheless instructed Josephthal to discuss a price increase with RGI
Holdings.
During the month of December 1999, counsel to the Special Committee
negotiated a Merger Agreement on the Company's behalf with Greenberg Traurig,
P.A., counsel for RGI Holdings. Josephthal also engaged in discussions with
representatives of RGI Holdings. As a result of these discussions, RGI Holdings
subsequently agreed to increase its proposed Cash Merger Consideration to $0.50
per share in cash. The Special Committee insisted on a number of changes to the
proposed form of Merger Agreement in order to limit RGI Holdings' ability to
terminate the Merger Agreement prior to closing, including the elimination of
many of the Company's representations and warranties and the inclusion of
materiality qualifications in the various conditions to RGI Holdings' obligation
to close, as well as an agreement reimburse the Company for all its expenses,
regardless of whether or not the Merger were consummated (except in the event
the Company pursued a competing transaction). The Special Committee asked
Josephthal to prepare to deliver its opinion as to the fairness of the $.50 per
share offer.
On January 6, 2000 another meeting of the Special Committee was
convened to consider the $.50 per share offer and Josephthal's fairness opinion
and related report. Representatives of Josephthal discussed in detail
Josephthal's report and the methods that Josephthal used to evaluate the
fairness of the Merger. Josephthal noted that even under the most favorable
discounted cash flow analysis, the Company's implied equity value was still
negative. The Special Committee focused particular attention on the very low
trading volume in the Common Stock noting that the Common Stock had never traded
above $0.25 per share during 1999 and that in 1998 and 1999, over 61% of the
Common Stock traded at less than $0.50 per share.
The Special Committee also reviewed the final version of the
"comparable company" and "comparable transaction" analyses as well as the debt
conversion analysis. The Special Committee and representatives of Shefsky &
Froelich also discussed the terms of the draft Merger Agreement. The Special
Committee focused particular attention on the provisions giving it the right to
respond to unsolicited proposals following signing of the Merger Agreement but
the prohibition on actually soliciting proposals. The Special Committee also
focused on the circumstances under which the Company would be responsible for
reimbursing the expenses incurred by Acquisition Corp. The Special Committee
concluded that these provisions were reasonable and that they would not
discourage a third party from making an offer for the Company and that they were
important conditions from Aker's RGI's perspective, without which Aker RGI would
not enter into the Merger Agreement. The Special Committee discussed with
representatives of Shefsky & Froelich the mechanics and timing of signing the
Merger Agreement and filing an Information Statement with the Securities and
Exchange Commission, as well as a joint press release with RGI Holdings
announcing the execution of the Merger Agreement.
The Special Committee then voted unanimously to recommend approval of
the Merger to the full Board. A meeting of the full Board then convened. Mr.
Ungerleider summarized the Special Committee's deliberations and informed the
Board that the Special Committee was recommending the Merger. Josephthal then
summarized its report and opinion for the full Board and answered questions
regarding the report and opinion. A draft of the joint press release was read to
the full Board, after which the full Board unanimously voted to approve and
recommend the Merger Agreement to the Company's stockholders.
THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION
GENERAL
THE SPECIAL COMMITTEE AND THE BOARD HAVE EACH DETERMINED THAT THE
MERGER IS SUBSTANTIVELY AND PROCEDURALLY FAIR TO, AND IN THE BEST INTERESTS OF,
THE STOCKHOLDERS OF THE COMPANY OTHER THAN RGI HOLDINGS AND ITS AFFILIATES (THE
"PUBLIC STOCKHOLDERS"). UPON THE SPECIAL COMMITTEE'S UNANIMOUS RECOMMENDATION,
THE BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AGREEMENT AND
RECOMMENDED IT TO THE STOCKHOLDERS. CERTAIN MEMBERS OF THE BOARD WILL HAVE AN
INTEREST IN THE MERGER THAT MAY PRESENT THEM WITH ACTUAL OR POTENTIAL CONFLICTS
OF INTEREST AS DISCUSSED UNDER "--CONFLICTS OF INTEREST."
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<PAGE> 21
The Special Committee met in person or by telephone conference on three
occasions between October 13, 1999 and the date of this Information Statement to
consider and make recommendations with respect to the Merger and other possible
strategic alternatives for the Company. The Special Committee was assisted in
its deliberations by Josephthal, the financial advisor to the Special Committee,
and Shefsky & Froelich, Ltd., special legal counsel to the Special Committee. At
a meeting held on January 6, 2000, the Special Committee unanimously determined
that the Merger, including the $.50 per share cash merger consideration (the
"Cash Merger Consideration") to be paid to the Public Stockholders, is
substantively and procedurally fair to, and in the best interests of, the Public
Stockholders and recommended that the full Board approve the Merger Agreement.
PRINCIPAL FACTORS
The material factors the Special Committee evaluated in determining
that the Merger is substantively and procedurally fair to, and in the best
interests of, the Public Stockholders are described below. Except as noted
below, the Special Committee considered the following factors to be positive
factors supporting its determination that the Merger is substantively and
procedurally fair to, and in the best interests of, the Public Stockholders:
(i) Josephthal's written opinion delivered to the Special
Committee on January 6, 2000, confirming that the $.50 per share to be
received by the Public Stockholders was fair to such holders from a
financial point of view. The full text of the written opinion of
Josephthal, which sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with its opinion, is
attached hereto as Appendix B and is incorporated herein by reference.
The Company's stockholders are urged to and should read such opinion in
its entirety. See "--Opinion of the Financial Advisor." The Special
Committee and the Board expressly adopted the conclusions of Josephthal
in its determination that the Merger is fair to the Public
Stockholders. In its review of the analyses performed by Josephthal,
the Special Committee did not place greater weight on any one of the
separate analyses prepared by Josephthal, but rather relied upon the
summary and conclusions of Josephthal that the analyses, taken as a
whole, supported the conclusion that the Merger is fair to the Public
Stockholders from a financial point of view. Based on Josephthal's
expertise and experience in the evaluation of businesses in connection
with transactions similar to the Merger, its familiarity with Legend's
business, financial condition, results of operations and prospects, its
previous efforts to identify potential acquirors and its analyses and
presentations related to the fairness opinion, the Special Committee
and the Board believe that Josephthal's opinion as to the fairness of
the Cash Merger Consideration to be received by the Public Stockholders
was well supported and sound. The Board and the Special Committee
believe that Josephthal's oral presentations and its written opinion
supported the Special Committee's and Board's fairness determination.
(ii) The fact that in 1997, 1998 and 1999, approximately 40%
of all trades of Legend's Common Stock were at or below $.50 per share,
that in 1999, 100% of all trades of Legend Common Stock were at or
below $.225 per share and that the trading price of Legend's Common
Stock from January 8, 1997 through December 31, 1999 consistently
trended downward, exacerbated in part by the delisting of the Common
Stock from the Nasdaq SmallCap Market System in July 1997.
(iii) The Special Committee considered the fact that the Cash
Merger Consideration is substantially in excess of the Company's fully
diluted book value per share of $(0.55) at September 30, 1999. See
"--Opinion of Financial Advisor."
(iv) The Special Committee also considered that Legend's total
debt of approximately $109 million at September 30, 1999 was greater
than each of (A) Legend's aggregate liquidation value, which Josephthal
had estimated based on an analysis of free cash flows for Legend's
three core properties projected by management for 2000 through 2012, to
range from approximately $80 million to $96 million, and (B) Legend's
going enterprise value, which Josephthal had estimated ranged from
approximately $78 million to $92 million. See "OPINION OF FINANCIAL
ADVISOR--Analyses Performed."
(v) The Special Committee also considered the fact that, based
on an analysis prepared by Josephthal, even if Holdings agreed to
convert all of the funds that it has loaned to the Company to equity at
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<PAGE> 22
a conversion price of $.50 per share, the per share value of the
Company's common stock following conversion would range from $0.30 to
$0.49 per share. See "OPINION OF FINANCIAL ADVISOR--Debt/Equity
Conversion Price Analyses."
(vi) The terms and conditions of the Merger Agreement,
including those that were designed to ensure that the Board could
fulfill its fiduciary duties to obtain the best value reasonably
available for the Public Stockholders. In particular, the Special
Committee considered that: (a) from the execution of the Merger
Agreement on January 6, 2000, the Merger Agreement permitted the Board
to consider unsolicited Superior Proposals from other parties and,
subject to certain conditions, to engage in negotiations relating
thereto; (b) LP Acquisition Corp.'s obligation to consummate the Merger
is not subject to any due diligence or financing contingency; (c) the
expense reimbursement obligations, which were intended not to have
(and, in fact, did not have) the effect of discouraging competing bids;
and (d) the provision in the Merger Agreement that, subject to the
satisfaction of certain conditions, the Board may withdraw or modify
its recommendation to the stockholders regarding the Merger and enter
into an agreement with respect to a Superior Proposal, if such a
transaction becomes available prior to the consummation of the Merger
and the Board determines that it is necessary to do so in order to
comply with its fiduciary duties. See "--The Merger."
(vii) The financial ability of LP Acquisition Corp. to
consummate the Merger. As noted above, LP Acquisition Corp.'s
obligation to consummate the Merger Agreement is not conditioned upon
LP Acquisition Corp.'s having obtained financing for the Merger, and
such obligation is secured by the Escrow Agreement.
(viii) The relatively low level of trading of the Common Stock
on the OTC Bulletin Board.
(ix) The fact that (a) Josephthal had been engaged by the
Company from October 1997 through June 1998 to assist the Company in
identifying potential business combination opportunities and responding
to unsolicited indications of interest from third parties seeking to
acquire the Company and that during such engagement, no such
opportunities or indications of interest were identified or received
and (b) since the announcement on October 15, 1999 of the Merger
proposal the Special Committee and its representatives did not receive
formal proposals for the acquisition of the Company from a single other
potential purchaser.
(x) The Company's lack of equity capital, large debt burden
and lack of alternatives given the fact that RGI Holdings, the
Company's primary financing source, has stated that it will not
guarantee future debt for the Company or subordinate the debt owed to
it by the Company to future third party debt. Legend needs additional
capital to complete the build-out of its projects and its projections
provided to Josephthal assume that all necessary capital will be
available. See "CERTAIN FORWARD LOOKING INFORMATION." Additionally,
representatives of Aker RGI advised the Special Committee in the course
of its discussions that Aker RGI did not intend to provide the
necessary funding or agree to restructure the Company's debt unless the
Merger were approved.
(xi) Actual or potential conflicts of interest to which
certain officers and directors of the Company and their affiliates are
subject in connection with the Merger. The Special Committee considered
these conflicts of interest to be negative factors in determining that
the Merger is fair to the Public Stockholders. The Special Committee
believed, however, that such conflicts were mitigated in part by
establishing a Special Committee to independently evaluate as to the
fairness of the Merger and to negotiate the terms of the Merger
Agreement with representatives of LP Acquisition Corp., as well as the
terms of alternative transactions, if any, proposed by third parties.
(xii) The adequacy of the information regarding the Company
which the Special Committee and its financial and legal advisors had
been provided.
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<PAGE> 23
(xiii) The fact that under Delaware law, Legend stockholders
have no right to an appraisal of the value of their shares in
connection with the Merger. The Special Committee considered this to be
a negative factor in its determination that the Merger is fair to the
Public Stockholders.
DISCUSSION
In view of the wide variety of factors considered in connection with
their evaluation of the Merger Agreement, neither the Special Committee nor the
Board found it practicable to, and did not, quantify or otherwise assign
relative weights to the individual factors considered in reaching their
respective determinations. Although the Special Committee, the Board and
Josephthal took note of the market price of the Common Stock, they did not rely
exclusively upon the current or historical market prices of the Common Stock in
evaluating the fairness of the merger since the Common Stock has been, and
continues to be, relatively thinly-traded. The Special Committee concluded that
the Merger would give the Public Stockholders, particularly those holding a
large number of shares of Common Stock, an opportunity to realize immediate
value for their Common Stock at a substantial premium to the highest per share
price at which the Common Stock traded in 1999 ($.225). Josephthal's discounted
cash flow analysis and liquidation analysis both indicated a negative implied
equity value. The Special Committee recognized that while consummation of the
Merger would result in the stockholders being entitled to receive $.50 in cash
per share, it also would eliminate the opportunity for the Public Stockholders
to realize the Company's value or participate in the future growth, if any, of
the business of Legend and potential market appreciation in the Common Stock.
The Special Committee concluded that, based on the Company's need for additional
capital, and its inability to secure capital without guarantees from RGI
Holdings and Josephthal's financial analyses described below, it was unlikely
that the Common Stock had any value. In light of these conclusions and the other
matters discussed below, the Special Committee determined that the $.50 Cash
Merger Consideration was fair and presented the stockholders with an attractive
opportunity and potentially greater benefit than maintaining their ownership
interest in Legend.
The Special Committee considered the fact that the obligation of the
Company to consummate the Merger is not conditioned upon the favorable vote of a
majority of the Public Stockholders. Notwithstanding the absence of such a
voting requirement, the Special Committee believes that the procedure that was
followed in determining the purchase price to be paid to the stockholders of the
Company was fair to the Public Stockholders. As described above, the Board of
Directors of the Company appointed, the three independent disinterested
directors as the only members of the Special Committee.
The terms of the Merger Agreement were determined through arm's-length
negotiations between the Special Committee and its legal and financial advisors,
on the one hand, and representatives of RGI Holdings, on the other. Moreover,
from its initial execution on January 6, 2000, the Merger Agreement has
permitted Legend to (x) solicit Superior Proposals and (y) negotiate on behalf
of the Company with third parties with respect to Superior Proposals. The Merger
Agreement permits the Board of Directors and the Special Committee to (i)
withdraw or modify their recommendation to the stockholders regarding the
Merger, (ii) enter into an agreement with respect to, or approve, a Superior
Proposal or (iii) terminate the Merger Agreement, so long as the Board
determines in each case that it is necessary to do so in order to comply with
its fiduciary duties and notifies LP Acquisition Corp. that it has received a
Superior Proposal. In addition, the Merger Agreement contains provisions
(without which the Special Committee believes LP Acquisition Corp. would not
have entered into the Merger Agreement) imposing upon the Company the
Termination Fee reimbursement obligations that, in the view of the Special
Committee, is reasonable and would not have the effect of discouraging competing
bids. (See "THE MERGER--Nonsolicitation Covenant). Thus, although the Merger is
not structured to require approval of a majority of the unaffiliated
stockholders, the Special Committee nevertheless believes, as of the date of
this Information Statement and for the reasons set forth above, that the Merger
is procedurally fair to the Public Stockholders.
The Special Committee and the Board both expressly adopted the
conclusion of Josephthal that the Cash Merger Consideration to be received by
the Public Stockholders in the Merger is fair to such stockholders from a
financial point of view.
Based on the foregoing, on January 6, 2000, the Special Committee
unanimously determined that the Merger is substantively and procedurally fair
to, and in the best interest of, the Public Stockholders and recommended to the
17
<PAGE> 24
Board approval of the Merger Agreement and that it be recommended to the
stockholders of the Company.
The Board unanimously approved the Merger on January 6, 2000 and
determined that the Merger is substantively and procedurally fair to, and in the
best interest of, the Public Stockholders and resolved to recommend it to the
Company's stockholders.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE
MERGER.
CERTAIN MEMBERS OF THE BOARD WILL HAVE AN INTEREST IN THE MERGER THAT
MAY PRESENT THEM WITH ACTUAL OR POTENTIAL CONFLICTS OF INTEREST AS DISCUSSED
UNDER "--CONFLICTS OF INTEREST."
OPINION OF THE FINANCIAL ADVISOR
JOSEPHTHAL DELIVERED ITS WRITTEN OPINION TO THE SPECIAL COMMITTEE TO
THE EFFECT THAT THE CASH MERGER CONSIDERATION TO BE RECEIVED BY THE PUBLIC
STOCKHOLDERS IN THE MERGER IS FAIR TO SUCH STOCKHOLDERS FROM A FINANCIAL POINT
OF VIEW.
Josephthal is a recognized investment banking firm regularly engaged in
the valuation of private and public businesses and their securities in
connection with mergers and acquisitions, competitive biddings and valuations
for estate, corporate and other purposes and acting as financial advisor in
connection with other forms of strategic corporate transactions. The Special
Committee selected Josephthal as its financial advisor because it is a
nationally known investment banking firm with experience in transactions similar
to the Merger and because it is familiar with Legend and its business.
OPINION
As part of its role as financial advisor to the Special Committee,
Josephthal was asked by the Special Committee to render an opinion to the
Special Committee as to whether the consideration to be received by the Public
Stockholders is fair to the Public Stockholders from a financial point of view.
Previously, Josephthal had been engaged by the Company to assist it in
identifying potential business combination opportunities, none of which were
identified. See "--Engagement of Josephthal" below. On January 6, 2000,
Josephthal rendered to the Special Committee its written opinion that the $.50
per share consideration described in the Merger Agreement was fair, from a
financial point of view, to the Public Stockholders of Legend.
The full text of Josephthal's written opinion dated January 5, 2000,
which sets forth a listing of the assumptions, matters considered and
limitations on review undertaken is attached as Appendix B to this Information
Statement and is incorporated herein by reference. The Company's stockholders
are urged to carefully read such opinion in its entirety. The summary of the
opinion and analyses of Josephthal set forth in this Information Statement is
qualified in its entirety by reference to the full text of the attached opinion.
Josephthal's opinion is directed only to the fairness, from a financial point of
view, of the $.50 Cash Merger Consideration as described herein, to the Public
Stockholders of Legend.
In addition, a copy of Josephthal's written fairness opinion to the
Special Committee, dated January 5, 2000, together with the accompanying
valuation analyses and other materials (including management's projections used
therein) has been filed as an exhibit to the Schedule 13E-3 filed with the SEC
in connection with the Merger and is available for inspection and copying at the
principal executive offices of the Company during its regular business hours by
any stockholder or any representative of a stockholder who has been so
designated in writing. A copy of such materials will be provided by the Company
to any stockholder or any representative of a stockholder who has been so
designated in writing upon written request and at the expense of the requesting
stockholder or such representative. See "Available Information."
Josephthal's opinion is addressed to the Special Committee of the Board
of Directors of Legend and does not constitute a recommendation as to how any
stockholder of Legend should vote with respect to the Merger. The opinion of
18
<PAGE> 25
Josephthal does not address (i) the relative merits of the Merger or any other
business strategies or transactions with third parties considered by the Board
of Directors or the effect of any such other transaction, (ii) the Board's
decision to proceed with the Merger to the exclusion of other transactions, or
(iii) the value of the shares of Legend Common Stock held by LP Acquisition
Corp. or fairness of any consideration being received by LP Acquisition Corp. in
the Merger.
Josephthal was not requested by the Special Committee to make, nor did
Josephthal make, any recommendation as to the amount of the consideration to be
received by the Public Stockholders.
In conducting its analysis, and arriving at its opinion, Josephthal
reviewed the following materials and considered such financial and other factors
as it deemed relevant, including, among others, the following: (i) certain
historical financial, operating and other data that were publicly available or
were furnished to Josephthal by Legend regarding the Merger including, but not
limited to: (a) projections and cash flow analyses for the Company prepared by
management; (b) projections and cash flow analyses for the Company's three core
properties (Grand Harbor, Oak Harbor and Southbridge), prepared by management;
(c) Forms 10-K for the periods ending December 31, 1995, December 31, 1996,
December 31, 1997 and December 31, 1998, Forms 10-Q for the periods ending March
31, 1996 through September 30, 1999, and Form 8-K dated October 2, 1995; (d)
internally generated operating reports and discussions from management
concerning the various business segments of Legend; (e) a debt analysis summary
prepared by management as of September 30, 1999; (f) real estate appraisals
prepared by identified third parties; (ii) various press releases and marketing
materials regarding the development and status of the Company's three core
properties (Grand Harbor, Oak Harbor and Southbridge); (iii) publicly-available
financial, operating and stock market data for companies engaged in businesses
deemed comparable to those of the stock market data for companies engaged in
businesses deemed comparable to those of the Company; and (iv) such other
factors and information as Josephthal deemed appropriate.
In conducting its analyses and arriving at its opinion, Josephthal
considered such financial and other factors as it deemed appropriate under the
circumstances including, among others, the following: (i) the historical and
current financial position and results of operations of Legend; (ii) the
business prospects of Legend; (iii) the historical and current market for the
shares of Common Stock not owned by RGI Holdings and (iv) the nature and terms
of other transactions and comparable company analyses that it believed to be
relevant. Josephthal also took into account its assessment of general economic,
market and financial conditions as well as its experience in connection with
similar transactions and securities valuation generally. Josephthal's opinion
necessarily was based upon conditions as they existed and could be evaluated on
the date of its opinion and Josephthal assumed no responsibility to update or
revise its opinion based upon circumstances or events occurring after the date
thereof. In that regard, Josephthal did not consider any similar transaction to
which Legend might become a party whether announced or not, that has not closed
prior to the date of its opinion. The opinion does not address in any way
Legend's underlying business decision to effect the Merger, nor does Josephthal
opine on the capital requirements or availability of capital for Legend.
In connection with its review and analyses and in arriving at its
opinion, Josephthal assumed and relied upon the accuracy and completeness of the
financial and other information provided to it or which is public, and did not
attempt to verify independently any such information. Josephthal relied solely
on the information and estimates provided to it by management of Legend and
neither made nor obtained any independent appraisals of any properties, other
assets or facilities of Legend. With respect to certain financial information,
including financial analyses and projections, relating to the business or
prospects of Legend, provided to Josephthal by management of Legend, Josephthal
assumed that the financial information was reasonably prepared and that the
financial projections presented Legend management's best currently available
estimates and judgments as to the future financial performance of Legend.
Further, the Company represented and warranted the accuracy and completeness of
the information provided. Josephthal was not requested to, nor did it, inspect
any of Legend's assets.
In rendering its opinion, Josephthal performed a variety of financial
analyses. Josephthal advised the Special Committee that the preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. Josephthal added that
19
<PAGE> 26
the evaluation of the fairness of the Cash Merger Consideration, from a
financial point of view, to holders of the Legend common stock was to some
extent a subjective one based on the experience and judgment of Josephthal and
not merely, or only, the result of mathematical analysis of financial data.
Accordingly, notwithstanding the separate factors summarized below, Josephthal
advised the Special Committee that Josephthal's analyses must be considered as a
whole and that selecting certain portions of its analyses and of the factors
contained therein, without considering all analyses and factors, could create an
incomplete view of the evaluation process underlying its opinion. The Josephthal
opinion is based on market, economic and other conditions as they existed and
should be evaluated as of the date of the Josephthal opinion.
A copy of Josephthal's written fairness opinion to the Special
Committee dated January 5, 2000, together with the accompanying valuation
analyses and other materials, has been filed as an exhibit to the Schedule 13E-3
filed with the SEC in connection with the Merger and is available for inspection
and copying at the principal executive offices of the Company during its regular
business hours by any stockholder or any representative of a stockholder who has
been so designated in writing. A copy of such materials will be provided by the
Company to any stockholder or any representative of a stockholder who has been
so designated in writing upon written request and at the expense of the
requesting stockholder or such representative. See "Available information."
ANALYSES PERFORMED
The following is a summary of the material valuation, financial and
comparative analyses performed by Josephthal in connection with its opinion:
COMPARABLE PUBLIC COMPANY ANALYSIS. In the course of its analysis,
Josephthal compared certain ratios and multiples of publicly-traded companies
that Josephthal believed were generally comparable to Legend (the "Comparable
Companies"). The Comparable Companies included Avatar Holdings, Inc., Castle &
Cooke, Inc., Catellus Development Corp., Echelon International Corp., Forest
City Enterprises and The St. Joe Company. The multiples and ratios were
calculated based on publicly available financial information and research
reports, and were adjusted for certain extraordinary and non-recurring items.
Financial data reviewed included revenue, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), earnings before interest and taxes
("EBIT"), net income and earnings per share ("EPS") for various time periods as
well as certain operating margins, valuation statistics, financial ratios and
projected growth rates.
Among other analyses, for each of the Comparable Companies, Josephthal
calculated the ratio of their equity value as of December 31, 1999 plus debt
less cash and cash equivalents ("Enterprise Value") to their respective
revenues, EBITDA and EBIT during the most recent 12-month period ("LTM").
References to "P/E" in the tables below refers to a price to EPS multiple.
Results of those analyses are summarized as follows:
<TABLE>
<CAPTION>
ENTERPRISE VALUE MULTIPLES OF
----------------------------------------------
P/E MULTIPLES REVENUE EBITDA EBITDA EBIT
-------------------------------- -------- ------ ------ -----
LTM(1) FY2000 FY2001 LTM LTM FY2000 LTM
------ -------- ------ -------- ------ ------ -----
X X X X X X X
<S> <C> <C> <C> <C> <C> <C> <C>
Median.................... 28.0 16.2 14.4 3.9 16.6 9.5 20.1
Average................... 25.9 14.2 17.6 4.8 20.5 9.5 22.7
Minimum................... 15.6 7.3 6.5 0.7 11.2 6.5 17.1
Maximum................... 35.1 20.2 40.4 11.4 35.6 12.5 33.6
</TABLE>
- -------------
(1) "LTM" means "latest twelve months."
In determining the implied enterprise and implied equity value for
Legend, Josephthal considered certain historical financial, operating and other
data that was publicly available or was furnished to Josephthal by the Company,
including, but not limited to: (a) Legend's Form 10-K for the period ended
December 31, 1998 and Form 10-Q for the period ended September 30, 1999; (b) a
20
<PAGE> 27
list of comparable companies approved by the Company; and (c) management reports
concerning the ongoing status of the Legend's operations. Based upon comparable
company multiples, the following valuation for Legend was determined (dollars in
thousands, except per share data):
<TABLE>
<CAPTION>
REAL ESTATE
FY2000 DEVELOPMENT IMPLIED IMPLIED EQUITY DILUTED SHARES IMPLIED PER
EBITDA TRADING MULTIPLE ENTERPRISE VALUE VALUE OUTSTANDING SHARE VALUE
------ ---------------- ---------------- ----- ----------- -----------
<S> <C> <C> <C> <C> <C>
MEDIAN
-------
$3,757 9.5x $35,692 ($57,786) 6,291 ($9.19)
AVERAGE
-------
$3,757 9.5x $35,692 ($57,786) 6,291 ($9.19)
</TABLE>
Josephthal used the comparable real estate and development industry
estimated 2000 EBITDA multiple in determining the implied enterprise and equity
value for Legend because Legend did not have significant LTM EBITDA, and the
resulting implied values would not be meaningful. Josephthal also used 2000
EBITDA due to the availability of estimates from publicly available research.
EBITDA was used because Josephthal believed it was a better indicator than the
other multiples for entities that are heavily leveraged.
Josephthal also performed a comparable company analysis for the
assisted living facilities industry because 6% of Legend's consolidated revenue
stream for estimated fiscal year 2000 is expected to come from its assisted
living and skilled care facilities. Josephthal performed a comparable company
analysis to understand how the market values this sector.
Josephthal noted that the market for Legend's Common Stock is highly
illiquid and is traded infrequently compared to the publicly-traded equity of
the Comparable Companies. Josephthal chose the Comparable Companies because they
have general business, operating and financial characteristics similar to those
of Legend. However, Josephthal noted that no company used in the foregoing
analysis is identical to Legend. Accordingly, Josephthal did not rely solely on
the mathematical results of the analysis, but also made qualitative judgments
concerning differences in financial and operating characteristics of Legend and
the Comparable Companies and other factors that could affect the values of each.
COMPARABLE TRANSACTIONS ANALYSIS. In further determining the implied
enterprise and implied equity value for Legend, Josephthal also reviewed and
analyzed the acquisition of six different companies that Josephthal viewed as
transactions comparable to the Merger (the "Comparable Transactions").
Josephthal reviewed and analyzed the following Comparable Transactions:
<TABLE>
<CAPTION>
DATE TRANSACTION TRANS. SIZE/ TRANS. SIZE/ NET TRANS. SIZE/
CLOSED TARGET ACQUIROR SIZE EBITDA EBITDA REVENUE REVENUE INCOME NET INCOME
------ ------ -------- ---- ------ ------ ------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/4/99 TriNet Corporate Starwood Financial $1,577.4 $137.5 11.5x $169.0 9.3x $65.8 24.0x
Realty Trust Inc. Trust
10/1/99 Lexford Equity Residential 187.6 73.8 2.5 156.3 1.2 5.2 36.1
Residential Trust Properties Trust
7/6/99 Weeks Corp Duke Realty 622.3 106.4 5.9 127.5 4.9 34.6 18.0
Investments Inc.
5/24/99 Tower Realty Trust Reckson Associates 390.0 21.5 18.1 38.0 10.3 10.3 37.9
Realty/ Crescent
Real Estate
11/25/98 National Income Tarragon Realty 84.2 24.7 3.4 50.2 1.7 4.9 17.0
Realty Trust Investors Inc.
2/25/98 Value Property Wellsford Real $186.6 $10.3 18.1x $29.0 6.4x NA NA
Trust Properties Inc.
</TABLE>
Josephthal used the comparable real estate and development industry LTM
EBITDA transaction multiple because it did not have access to the forward EBITDA
multiples at the time of these transactions were consummated. Based upon
comparable transaction multiples, the following valuation for Legend was
determined dollars (in thousands, except per share data):
21
<PAGE> 28
<TABLE>
<CAPTION>
REAL ESTATE
DEVELOPMENT IMPLIED IMPLIED EQUITY DILUTED SHARES IMPLIED PER
EBITDA LTM TRADING MULTIPLE ENTERPRISE VALUE VALUE OUTSTANDING SHARE VALUE
---------- ---------------- ---------------- ----- ----------- -----------
<S> <C> <C> <C> <C> <C>
MEDIAN
--------
$550 8.7x $4,764 ($98,712) 6,291 ($15.69)
AVERAGE
--------
$550 9.9x $5,454 ($98,022) 6,291 ($15.58)
</TABLE>
Josephthal noted that no transaction used in the foregoing analysis was
identical to the Merger. Accordingly, Josephthal did not rely solely on the
mathematical results of the analysis, but also made qualitative judgments
concerning differences in financial and operating characteristics of the
Comparable Transactions and other factors that could affect the value of the
companies or transactions to which Legend or the Offer and the Merger are being
compared.
DISCOUNTED CASH FLOW ANALYSIS. Josephthal also estimated the implied
value of the Company by performing a discounted cash flow and liquidation
analysis. The projections used in each analysis were prepared by management. The
discounted cash flow analysis evaluated a stream of future unlevered free cash
flows for Legend for the fiscal years ended December 31, 2000 to 2012. Unlevered
free cash flow, as calculated by Josephthal, is equal to tax-effected earnings
before interest and taxes (EBIT) plus depreciation and amortization less capital
expenditures and working capital requirements. The cash flows were discounted at
certain discount rates ranging from 16.0% to 20.0%, based on a weighted average
cost of capital ("WACC") estimated, in part, by using the Comparable Companies.
The Comparable Companies were used in the WACC calculation for the purpose of
understanding the average predicted equity beta for the Comparable Companies in
the real estate and development industry. For purposes of this analysis,
Josephthal used management's assumption that development of Southbridge would be
completed by 2012. According to management projections, after fiscal year 2012,
Legend will cease to generate any further cash flows from operations. All of
Josephthal's analyses were based on management's assumption that all capital
necessary for the build-out of Legend's projects would be available. The
summation of the present value of the projected unlevered free cash flows is
summarized in the following table (dollars in thousands, except per share data):
WACC ENTERPRISE VALUE
---- ----------------
16% $92,269
17% $88,435
18% $84,824
19% $81,419
20% $78,206
LIQUIDATION ANALYSIS. In the course of this analysis, Josephthal, based
on management projections, calculated a stream of future unlevered free cash
flows for the fiscal years ended December 31, 2000 to 2012 for Legend's three
core assets (properties), Grand Harbor, Oak Harbor and Southbridge, to determine
the present liquidation value of these three properties. See "CERTAIN FORWARD
LOOKING INFORMATION." Josephthal performed its discounted cash flow analysis
based on Legend's consolidated financial business plan. Josephthal's liquidation
analysis, in contrast, assumed that each asset was sold separately. Therefore,
Josephthal performed a discounted cash flow analysis on each individual asset
(Grand Harbor, Oak Harbor and Southbridge) and added the resulting enterprise
values for a total enterprise value.
The summation of the present value of the projected unlevered free cash
flows of Legend's three core properties is summarized in the following table
(dollars in thousands):
22
<PAGE> 29
AGGREGATE
WACC LIQUIDATION VALUE
---- -----------------
16% $95,803
17% $91,720
18% $87,880
19% $84,266
20% $80,862
DEBT/EQUITY CONVERSION PRICE ANALYSIS. In the course of this analysis,
Josephthal, based on management projections, and using a debt schedule prepared
by management as of September 30, 1999 (not changing materially by the time of
its analysis), prepared an analysis to project Legend's equity value if Aker RGI
were willing to convert all of its loans ($86.350 million) to equity at a
conversion price of $.50 (over the last two years, 60% of Legend's Common Stock
has traded at or below this price). The analysis assumed Enterprise values
derived from the discounted cash flow and liquidation analysis. This analysis is
summarized in the following table (dollars in thousands except per share data):
<TABLE>
<CAPTION>
TOTAL NUMBER PER SHARE VALUE
ENTERPRISE VALUE BEFORE AKER RGI CONVERSION NUMBER OF AKER OF SHARES AFTER AKER RGI
VALUE AKER RGI DEBT DEBT PRICE RGI SHARES OUTSTANDING DEBT CONVERSION
----- ------------- ---- ----- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$80,000 $72,873 $86,350 $0.50 172,700 178,991 $0.41
$85,000 $77,873 $86,350 $0.50 172,700 178,991 $0.44
$90,000 $82,873 $86,350 $0.50 172,700 178,991 $0.46
$95,000 $87,873 $86,350 $0.50 172,700 178,991 $0.49
</TABLE>
Josephthal further prepared a similar analysis to project Legend's
equity value if Aker RGI were willing to convert only a portion of its loans at
a conversion price of $.50 per share. For purposes of this analysis, Josephthal
assumed that the $47.6 million of debt owed to Aker RGI at the time of the
merger with RGI Holdings in December 1996 was paid off. Josephthal then assumed
that Aker RGI would be willing to convert the remaining $38.74 million of debt
owed by Legend into equity at a conversion price of $.50. This analysis is
summarized in the following table (dollars in thousands except per share data):
<TABLE>
<CAPTION>
VALUE
AKER RGI AFTER
VALUE DEBT AT AKER RGI NUMBER TOTAL VALUE
BEFORE BANYAN DEBT ATI REMAINING OF AKER NUMBER OF AFTER AKER
ENTERPRISE AKER RGI AKER RGI MERGER MERGER IS AKER RGI CONVERSION RGI SHARES RGI DEBT
VALUE DEBT DEBT 12/31/96 PAID OFF DEBT PRICE SHARES OUTSTANDING CONVERSION
---------- --------- -------- -------- --------- ---- ----- ------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$80,000 $72,873 $86,350 $47,609 $25,264 $38,741 $0.50 77,482 83,773 $0.30
$85,000 $77,873 $86,350 $47,609 $30,264 $38,741 $0.50 77,482 83,773 $0.36
$90,000 $82,873 $86,350 $47,609 $35,264 $38,741 $0.50 77,482 83,773 $0.42
$95,000 $87,873 $86,350 $47,609 $40,264 $38,741 $0.50 77,482 83,773 $0.48
</TABLE>
HISTORICAL STOCK PRICE ANALYSIS. Josephthal also reviewed the
historical closing stock prices of Legend Common Stock over the period January
8, 1997 through December 31, 1999. During this period, Legend's Common Stock has
traded between a high of $7.50 and a low of $.01 per share. Josephthal observed
that 579,200 shares traded during this time period representing 9.21% of
Legend's Common Stock outstanding. Approximately 40% of all of the Legend Common
Stock traded during this time period traded at or below $.50 per share.
Over the period December 31, 1997 through December 31, 1999, Legend's
Common Stock traded between a high of $1.59 and a low of $.01 per share.
Josephthal also observed that 372,200 shares traded during this time period
representing 5.92% of Legend's Common Stock outstanding. Approximately 61% of
all Legend Common Stock traded at or below $.50 per share during this time
period.
Over the period December 31, 1998 through December 31, 1999, Legend's
Common Stock traded between a high of $.225 and a low of $.0 per share.
23
<PAGE> 30
Josephthal also observed that 216,400 shares traded during this time period
representing 3.44% of Legend's Common Stock outstanding. All of Legend Common
Stock traded at or below $.225 per share during this time period.
Josephthal also noted that the stock price trend of Legend from January
8, 1997 through December 31, 1999 consistently trended downward to current
levels.
OTHER ANALYSES. Josephthal conducted such other analyses as it deemed
necessary, including the following:
-- reviewing historical and projected financial and operating data for
Legend;
-- analyzing the historic stock performance and trading volume for
Legend Common Stock; and
-- reviewing available information regarding institutional holdings of
Legend Common Stock.
The summary set forth does not purport to be a complete description of
the analysis or data utilized by Josephthal in the preparation of its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to summary description. Josephthal based its analyses on
assumptions that it deemed reasonable, including assumptions concerning Legend,
general overall business and economic conditions and industry related factors.
ENGAGEMENT OF JOSEPHTHAL
Josephthal was retained by the Special Committee of the Board of
Directors of Legend pursuant to an Engagement Letter executed on November 8,
1999 (the "Engagement Letter"). Pursuant to the Engagement Letter, the Company
retained Josephthal to assist the Special Committee by (i) evaluating the
Merger, (ii) providing its opinion as to the fairness of the Merger from a
financial point of view, and (iii) assisting the Company in responding to
indications of interest from third parties, if any, who propose various
alternative transactions. Pursuant to the terms of the Engagement Letter, the
Company paid Josephthal a fee of $125,000 upon execution of the Engagement
Letter, and $75,000 upon delivery of its fairness opinion. No other fees are
payable to Josephthal under the Engagement Letter. As of the date of this
Information Statement, the Company has paid Josephthal $200,000, plus expenses.
In addition, the Company agreed to reimburse Josephthal for its reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Josephthal
against certain liabilities, including certain liabilities under the federal
securities laws.
Josephthal was previously engaged by Legend in 1997 under a Financial
Advisory and Investment Banking Agreement (the "1997 Agreement"). Under the 1997
Agreement, Josephthal provided financial and other general advice relating to
Legend's capital structure, enhancing stockholder value and allocation of
corporate assets, as well as advice regarding various types of mergers, business
combinations or reorganizations, purchases or sales of the Company's stock or
assets, joint ventures or other similar transactions ("Transactions") and other
debt and equity financings ("Financings") and assist the Company in identifying,
analyzing, structuring, negotiating and financing various strategic
alternatives. Josephthal also undertook to assist the Company in responding to
unsolicited indications of interest from third parties seeking to acquire the
Company as well as proxy conflicts, consent solicitations or other similar
transactions relating to control of the Company, in which case Legend agreed
that it would engage Josephthal under a separate engagement letter to act as its
financial advisor. Legend paid Josephthal a $100,000 retainer upon signing of
the 1997 Agreement and agreed to pay Josephthal a $5,000 monthly retainer each
month from October 1997 through June 1998. Additionally, Legend agreed to pay
Josephthal (i) with respect to Transactions, a cash fee equal to the sum of
$250,000 PLUS 2% of the aggregate consideration and (ii) with respect to
Financings, a cash fee equal to the greater of (a) $100,000 and (b) the sum of
1.5% of all secured debt funds raises, PLUS 4% of all unsecured debt funds
raised PLUS 6.5% of all equity funds raised in private markets, excluding
financings provided by RGI Holdings or its affiliates. Legend also agreed to
reimburse Josephthal for its reasonable out-of-pocket expenses, including
attorney's fees and to indemnify Josephthal against certain liabilities,
including certain liabilities under the federal securities laws. Neither during
that engagement nor thereafter were there any Transactions or indications of
interest from third parties seeking to acquire the Company other than RGI
Holdings' merger proposal.
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<PAGE> 31
Except as described herein, neither Josephthal nor any of its
affiliates has performed any investment banking or other financial services for,
or had any material financial relationship with, the Company during the two
years preceding the date hereof.
PURPOSE AND REASONS OF THE AFFILIATES FOR THE MERGER
The purpose of the Affiliates for engaging in the transactions
contemplated by the Merger Agreement is to acquire 100% of the ownership of the
Company. RGI Holdings' interest in Legend's net book value and net earnings will
increase correspondingly. The Affiliates believe that as a private company
Legend will have greater flexibility to focus on realizing value without
minority shareholders, given Legend's existing debt structure.
In order to provide a prompt and orderly transfer of ownership of the
approximately 20% of Legend's outstanding shares of Common Stock held by the
Public Stockholders to RGI Holdings, in light of relevant financial, legal, tax
and other considerations the acquisition has been structured as a merger
pursuant to which, if the Merger Agreement is adopted by the requisite vote of
the stockholders, LP Acquisition Corp. will be merged with and into Legend, and
all of the outstanding shares of Common Stock (other than shares held by RGI
Holdings) will be converted into the right to receive the Cash Merger
Consideration, without interest. Moreover, the Merger will result in Legend no
longer being a public company with stockholders other than RGI Holdings.
RGI Holdings considered alternatives to the Merger with respect to the
Company, including restructuring of Legend's business and ownership through a
pre-negotiated bankruptcy, involving the sale of certain of Legend's real
property. RGI Holdings selected the Merger alternative to achieve greater
flexibility in restructuring Legend's business and its outstanding debt.
POSITION OF THE AFFILIATES AS TO FAIRNESS OF THE MERGER
Each of the Affiliates has considered the analyses and findings of the
Special Committee and the Board (described in detail in "SPECIAL FACTORS -- The
Special Committee's and the Board's Recommendation") with respect to the
fairness of the Merger to the Public Stockholders of the Company. As of the date
of this Information Statement, each of the Affiliates adopts the analyses and
findings of the Special Committee and the Board with respect to the fairness of
the Merger and believes that the Merger is both procedurally and substantively
fair to, and in the best interest of, the Company's Public Stockholders;
provided that no opinion is expressed as to the fairness to any stockholder
making an investment in LP Acquisition Corp. The RGI directors, Peter J. Henn,
Legend's President and Chief Executive Officer, and Robert B. Cavoto, Legend's
Chief Financial Officer, have employment interests in the Merger. See "SPECIAL
FACTORS--Conflicts of Interest."
CONFLICTS OF INTEREST
In considering the recommendations of the Board with respect to the
Merger, stockholders should be aware that certain officers and directors of
Legend and affiliates and associates of these officers and directors have
interests in connection with the Merger which may present them with actual or
potential conflicts of interest as summarized below. Following the consummation
of the Merger, Messrs. Henn and Cavoto are expected to continue as executive
officers of the Company, and the RGI directors are expected to continue to serve
on the Board of Directors of the Company. The following table sets forth
information as of February 18, 2000 as to the shares of Common Stock and options
to purchase shares of Common Stock (whether or not exercisable) held by members
of the Special Committee and the cash payments that they will receive upon
consummation of the Merger: The Special Committee and the Board were aware of
these interests and considered them among the other matters described under
"-The Special Committee's and the Board's Recommendation."
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<PAGE> 32
<TABLE>
<CAPTION>
TOTAL AMOUNT OF
AMOUNT OF CASH CASH TO BE RECEIVED
TO BE RECEIVED FOR UPON CONSUMMATION
SPECIAL COMMITTEE MEMBER SHARES OF COMMON STOCK SHARES OF COMMON STOCK OF THE MERGER
- ------------------------ ---------------------- ---------------------- -------------
<S> <C> <C> <C>
Walter E. Auch, Sr.(1) 0 0 0
Robert M. Ungerleider(1) 1,560 $780 $780
Fred E. Welker, III(1) 0 0 0
</TABLE>
- ------------
(1) Messrs. Auch, Ungerleider and Welker also hold options to purchase an
aggregate of 8,340 shares of Common Stock at exercise prices exceeding
$7.00. Because the exercise prices of such options exceed the Cash Merger
Consideration, they will not receive any payment for their options when
they are cancelled as a result of the Merger.
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the Public Stockholders will not have an
opportunity to continue their equity interest in Legend as an ongoing
corporation and therefore will not share in the future earnings and potential
growth of Legend. Upon consummation of the Merger, the Common Stock will no
longer be traded on the "pink sheets" of the OTC Bulletin Board and the
registration of the Common Stock under the Exchange Act will be terminated. The
termination of registration of the Common Stock under the Exchange Act will
eliminate the requirement to provide information to the SEC and will make most
of the provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b) and the requirement of furnishing a proxy or
information statement in connection with stockholders' meetings, no longer
applicable.
The receipt of cash pursuant to the Merger will be a taxable
transaction. See "FEDERAL INCOME TAX CONSEQUENCES."
CONDUCT OF LEGEND'S BUSINESS AFTER THE MERGER
The Affiliates are continuing to evaluate Legend's business, assets,
practices, operations, properties, corporate structure, capitalization,
management and personnel and discuss what changes, if any, will be desirable.
The Affiliates intend to eventually dispose of Legend's capital stock or assets
and exit the U.S. real estate market. Subject to the foregoing, the Affiliates
expect that the day-to-day business and operations of Legend will be conducted
substantially as they are currently being conducted by Legend. Additionally, the
Affiliates do not currently contemplate any material change in the composition
of Legend's current management or Board, except that after the Merger only the
RGI directors will continue as members of Legend's Board.
CERTAIN FORWARD LOOKING INFORMATION
Certain projections prepared by management of Legend are included
elsewhere in this Information Statement under the heading "CERTAIN FORWARD
LOOKING INFORMATION."
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THE MERGER
The Merger Agreement provides that LP Acquisition Corp., a newly-formed
Delaware corporation, will be merged with and into Legend, and that following
the Merger, the separate existence of LP Acquisition Corp. will cease and Legend
will continue as the surviving corporation.
The terms of and conditions to the Merger are contained in the Merger
Agreement which is included in full as Appendix A to this Information Statement
and is incorporated herein by reference. The discussion in this Information
Statement of the Merger and the summary description of the principal terms of
the Merger Agreement are subject to and qualified in their entirety by reference
to the more complete information set forth in the Merger Agreement.
CONVERSION OF SECURITIES
At the Effective Time, subject to the terms, conditions and procedures
set forth in the Merger Agreement, each share of Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares held by
LP Acquisition Corp.) will, by virtue of the Merger, be converted into the right
to receive the Cash Merger Consideration. Except for the right to receive the
Cash Merger Consideration, from and after the Effective Time, all shares (other
than shares held by RGI Holdings), by virtue of the Merger and without any
action on the part of the holders, will no longer be outstanding and will be
canceled and retired and will cease to exist. Each holder of a certificate
formerly representing any shares (other than shares held by RGI Holdings) will
after the Effective Time cease to have any rights with respect to such shares
other than the right to receive the Cash Merger Consideration for such shares
upon surrender of the certificate.
No interest will be paid or accrued on the amount payable upon the
surrender of any certificate. Payment to be made to a person other than the
registered holder of the certificate surrendered is conditioned upon the
certificate so surrendered being properly endorsed and otherwise in proper form
for transfer, as determined by Boston Equiserve (the "Disbursing Agent").
Further, the person requesting such payment will be required to pay any transfer
or other taxes required by reason of the payment to a person other than the
registered holder of the certificate surrendered or establish to the
satisfaction of the Disbursing Agent that such tax has been paid or is not
payable. Six months following the Effective Time, Legend will be entitled to
cause the Disbursing Agent to deliver to it any funds (including any interest
received with respect thereto) made available to the Disbursing Agent which have
not been disbursed to holders of certificates formerly representing shares
outstanding prior to the Effective Time, and thereafter such holders will be
entitled to look to Legend only as general creditors with respect to cash
payable upon due surrender of their certificates. Notwithstanding the foregoing,
neither the Disbursing Agent nor any party to the Merger Agreement will be
liable to any holder of certificates formerly representing shares for any cash
paid to a public official pursuant to any applicable abandoned property, escheat
or similar law. Except as described in this paragraph, Legend will pay all
charges and expenses, including those of the Disbursing Agent, in connection
with the exchange of shares for the Cash Merger Consideration.
Each share of LP Acquisition Corp.'s common stock that is issued and
outstanding immediately prior to the Merger will be converted at the Effective
Time into one share of Common Stock of Legend.
CASH-OUT OF LEGEND STOCK OPTIONS
In general, outstanding stock options to purchase shares of Legend
Common Stock shall be canceled or terminated as of the Effective Time. Holders
of such options would be entitled to receive a cash payment equal to the
difference between $.50 per share and the exercise prices of their Legend stock
options (if less than $.50 per share) times the number of shares issuable upon
exercise of such options (the "Aggregate Unrealized Gain"). However, because the
exercise prices under such options are in excess of $.50 per share, holders of
such options will not receive any payments as a result of the cancellation or
termination of their options in the Merger.
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<PAGE> 34
TRANSFER OF SHARES
No transfers of shares of Common Stock will be made on the stock
transfer books at or after the Effective Time. If, after the Effective Time,
certificates representing such shares are presented to Legend, such shares will
be canceled and exchanged for the Cash Merger Consideration.
CONDITIONS
Each party's respective obligation to effect the Merger is subject to
the satisfaction, at or prior to the Effective Time, of each of the following
conditions, any or all of which may be waived at the appropriate party's
discretion, to the extent permitted by applicable law:
(a) the Merger Agreement and the Merger shall have been approved and
adopted by the affirmative vote or consent of the holders of at least a majority
of the outstanding shares of Common Stock;
(b) all consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental authority or other regulatory body
required in connection with the execution, delivery and performance of the
Merger Agreement, the failure to obtain which would prevent the consummation of
the Merger or have a material adverse effect on the Company, shall have been
obtained without the imposition of any condition having a material adverse
effect on the Company;
(c) early termination shall have been granted or applicable waiting
periods shall have expired under the HSR Act, if applicable; and
(d) no governmental authority or other regulatory body (including any
court of competent jurisdiction) shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which is
then in effect and has the effect of making illegal, materially restricting or
in any way preventing or prohibiting the Merger or the transactions contemplated
by the Merger Agreement.
The obligations of LP Acquisition Corp. and RGI Holdings to effect the
Merger are further subject to satisfaction or waiver at or prior to the
Effective Time of the following conditions:
(a) there shall not have occurred any change, condition, event or
development that has resulted in, or could reasonably be expected to result in,
a material adverse effect on the Company;
(b) the representations and warranties of the Company in the Merger
Agreement that are qualified by materiality shall be true and correct in all
respects as of the date of the Merger Agreement and as of the Effective Time;
(c) the representations and warranties of the Company in the Merger
Agreement that are not qualified by materiality shall be true and correct in all
material respects as of the date of the Merger Agreement and as of the Effective
Time, except in any case where such failure to be true and correct would not, in
the aggregate, (x) have a material adverse effect on the Company or RGI
Holdings, or (y) prevent or materially delay the consummation of the Merger;
(d) the Company shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement;
(e) an officer of the Company shall have delivered to LP Acquisition
Corp. a certificate to the effect that each of the conditions specified in the
preceding clauses (b), (c) and (d) is satisfied in all respects;
(f) All authorizations, consents, waivers and approvals from parties to
contracts or other agreements to which any of the Company or the Subsidiaries is
a party, or by which any of them is bound, as may be required to be obtained by
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<PAGE> 35
them in connection with the performance of this Agreement, the failure to obtain
which would prevent the consummation of the Merger or have, individually or in
the aggregate, a material adverse effect on Company, shall have been obtained;
and
(g) LP Acquisition Corp. shall have received an opinion, dated the
Effective Time, of Shefsky & Froelich, Ltd., counsel to the Company, in form and
substance reasonably satisfactory to LP Acquisition Corp., with respect to the
matters set forth in Sections 3.01, 3.02 and 3.03 of the Merger Agreement
(relating to organization, capitalization and authority, respectively).
The obligations of the Company to effect the Merger are further subject
to satisfaction or waiver at or prior to the Effective Time of the following
conditions:
(a) the representations and warranties of LP Acquisition Corp. and RGI
Holdings in the Merger Agreement that are qualified by materiality shall be true
and correct in all respects as of the date of the Merger Agreement and as of the
Effective Time;
(b) the representations and warranties of LP Acquisition Corp. and RGI
Holdings in the Merger Agreement that are not qualified by materiality shall be
true and correct in all material respects as of the date of the Merger Agreement
and as of the Effective Time;
(c) LP Acquisition Corp. and RGI Holdings shall have performed in all
material respects all obligations required to be performed by them under the
Merger Agreement;
(d) LP Acquisition Corp. and RGI Holdings shall have delivered to the
Company a certificate to the effect that each of the conditions specified in the
preceding clauses (a), (b) and (c) is satisfied in all respects; and
(e) The Company shall have received an opinion, dated the Effective
Time, of Greenberg Traurig, P.A., counsel to RGI Holdings and LP Acquisition
Corp., in form and substance reasonably satisfactory to the Company, with
respect to the matters set forth in Sections 4.01, 4.02, 4.03(i) and 4.08 of the
Merger Agreement, provided that such opinion may rely, as to matters of
Washington law, upon an opinion of counsel licensed to practice in the State of
Washington and reasonably acceptable to the Company.
After approval of the Merger Agreement by the stockholders of Legend,
no condition may be waived that reduces the amount or changes the form of the
Cash Merger Consideration to be received by the stockholders or that by law
requires further stockholder approval unless a waiver of such condition is
approved by the stockholders.
REPRESENTATIONS AND WARRANTIES
Legend has made representations and warranties in the Merger Agreement
regarding, among other things, organization and good standing, capitalization,
authority to enter into the Merger Agreement, content and submission of forms
and reports required to be filed by Legend with the SEC and brokers and finders.
LP Acquisition Corp. and RGI Holdings have made representations and
warranties in the Merger Agreement regarding, among other things, their
organization and good standing, authority to enter into the transaction,
requisite governmental and other consents and approvals, absence of litigation
to which either of them is a party, accuracy of information supplied by them for
submission in forms and reports required to be filed with the SEC, brokers and
finders and absence of prior activities.
The representations and warranties of the parties in the Merger
Agreement will expire upon consummation of the Merger, and upon such expiration
none of such parties or their respective officers, directors or principals will
have any liability whatsoever with respect to any such representations or
warranties.
COVENANTS
In the Merger Agreement, Legend has agreed as to itself and its
subsidiaries that prior to the Effective Time, unless otherwise agreed to in
advance by LP Acquisition Corp. or as otherwise contemplated by the Merger
Agreement:
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<PAGE> 36
(a) The Company shall, and shall cause its subsidiaries to, carry on
their respective businesses in the usual, regular and ordinary course and the
Company shall, and shall cause its subsidiaries to, use all reasonable efforts
to preserve intact their present business organizations, keep available the
services of their present officers and employees and preserve their
relationships with customers, suppliers and others having business dealings with
the Company and its subsidiaries.
(b) The Company shall not, and shall not permit any of its subsidiaries
to, (i) declare or pay any dividends on or make other distributions in respect
of any of its capital stock, except for dividends by a direct or indirect
wholly-owned subsidiary of the Company to its parent, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or (iii) repurchase, redeem or otherwise
acquire any shares of capital stock of the Company or its subsidiaries or any
other securities thereof.
(c) The Company shall not, and shall not permit any of its subsidiaries
to, issue, deliver, sell, pledge or encumber, or authorize or propose the
issuance, delivery, sale, pledge or encumbrance of, any shares of its capital
stock of any class or any securities convertible into, or any rights, warrants,
calls, subscriptions or options to acquire, any such shares or convertible
securities, or any other ownership interest (including stock appreciation rights
or phantom stock) other than (i) the issuance of shares of Common Stock upon the
exercise of Company stock options outstanding on the date of the Merger
Agreement and in accordance with the terms of such Company stock options, or
(ii) issuances by a wholly-owned subsidiary of the Company of its capital stock
to its Purchaser.
(d) The Company shall not, and shall not permit any of its subsidiaries
to, amend or propose to amend its articles or certificate of incorporation or
bylaws (or similar organizational documents) in any way which would be adverse
to LP Acquisition Corp.'s rights under the Merger Agreement.
(e) The Company shall not, and shall not permit any of its subsidiaries
to, acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or any substantial assets of (other than
inventory and equipment in the ordinary course consistent with past practice, to
the extent not otherwise prohibited by the Merger Agreement), or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof.
(f) Other than dispositions in the ordinary course of business
consistent with past practice, the Company shall not, and shall not permit any
of its subsidiaries to, sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, license, encumber or otherwise dispose of, any of its
assets.
(g) The Company shall not, and shall not permit any of its subsidiaries
to, (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of its subsidiaries, guarantee
any debt securities of others, enter into any "keep-well" or other agreement to
maintain any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except for
working capital borrowings incurred in the ordinary course of business
consistent with past practice under the Company's credit facility existing and
in effect on the date of the Merger Agreement, or (ii) make any loans, advances
or capital contributions to, or investments in, any other person, other than,
with respect to both clause (i) and (ii) above, (A) to the Company or any direct
or indirect wholly owned subsidiary of the Company, or (B) any advances to
employees in accordance with past practice.
(h) The Company shall confer with LP Acquisition Corp. on a regular and
frequent basis as reasonably requested by LP Acquisition Corp., report on
operational matters and promptly advise Purchaser orally and, if requested by LP
Acquisition Corp., in writing of any change or event to the best knowledge of
the Company having, or which, insofar as can reasonably be foreseen, is likely
to have, a material adverse effect on the Company. The Company shall promptly
provide to LP Acquisition Corp. (or its counsel) copies of all filings made by
the Company with any governmental entity in connection with the Merger Agreement
and the transactions contemplated hereby.
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<PAGE> 37
(i) The Company shall not make any material change, other than in the
ordinary course of business, consistent with past practice, or as required by
the SEC or law, with respect to any accounting methods, principles or practices
used by the Company (except insofar as may be required by a change in generally
accepted accounting principles).
(j) Except for fees and expenses related to the transactions
contemplated herein, the Company shall not, and shall not permit any of its
subsidiaries to, pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of (i) liabilities recognized or disclosed in the most recent
financial statements contained in documents filed by the Company with the SEC,
or (ii) liabilities incurred since the date of such financial statements in the
ordinary course of business consistent with past practice. The Company shall
not, and shall not permit any of its subsidiaries to, waive the benefits of, or
agree to modify in any manner, any confidentiality, standstill or similar
agreement to which the Company or any of its subsidiaries is a party.
(k) Except as provided in the Merger Agreement, the Company and its
subsidiaries will not, without the prior written consent of LP Acquisition
Corp., which shall not be unreasonably withheld, except as may be required by
law, (i) enter into, adopt, amend or terminate any Company benefit plan or other
employee benefit plan or any agreement, arrangement, plan or policy for the
benefit of any director, executive officer or current or former key employee,
(ii) increase in any manner the compensation or fringe benefits of, or pay any
bonus to, any director, executive officer or key employee, except as required by
any Company benefit plan or agreement with such employees existing on the date
of this Agreement, (iii) enter into, adopt, amend or terminate any Company
benefit plan or other benefit plan or agreement, arrangement, plan or policy for
the benefit of any employees who are not directors, executive offices or current
or former key employees of the Company, other than increases in the compensation
of employees made in the ordinary course of business consistent with past
practice, or (iv) pay any benefit not required by any plan or arrangement as in
effect as of the date hereof (including the granting of, acceleration of
exercisability of or vesting of stock options, stock appreciation rights or
restricted stock).
(l) Except in the ordinary course of business consistent with past
practices, neither the Company nor any of its subsidiaries shall (i) modify,
amend or terminate any material contract or agreement to which the Company or
such subsidiary is a party, or (ii) waive, release or assign any material rights
or claims.
(m) The Company shall not authorize, recommend, propose or announce an
intention to adopt a plan of complete or partial liquidation of the Company or
any of its subsidiaries.
(n) Except as set forth in the Merger Agreement, the Company shall not
make any tax election or settle or compromise any material income tax liability.
(o) The Company shall not nor will it permit any of its subsidiaries to
take or agree or commit to take any action that is reasonably likely to result
in any of the Company's representations or warranties hereunder being untrue in
any material respect at, or as of any time prior to, the Effective Time.
(p) The Company shall not, and shall not permit any of its subsidiaries
to, authorize any of, or commit or agree to take any of, the foregoing actions
described in clauses (a) through (o).
In addition, except as contemplated by the Merger Agreement, the
Company shall not, and shall not permit any of its subsidiaries to, take any
action that could reasonably be expected to result in (i) any of the
representations and warranties of the Company set forth in the Merger Agreement
that are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect, or (iii) any of the conditions to the Merger set forth above
not being satisfied in all material respects.
NONSOLICITATION COVENANT
The Company has agreed that it and its officers, directors, employees,
representatives and agents shall immediately cease any discussions or
negotiations with any parties that may be ongoing with respect to an Acquisition
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<PAGE> 38
Proposal that could not reasonably be considered a Superior Proposal. The
Company has agreed that it shall not, nor shall it permit any of its
subsidiaries to, authorize or permit any of its officers, directors or employees
or any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or knowingly encourage (including by way of
furnishing non-public information or assistance), or knowingly take any other
action to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal,
or (ii) participate in any discussions or negotiations regarding any Acquisition
Proposal; PROVIDED, HOWEVER, that if, at any time the Board of Directors of the
Company determines in good faith, based upon the opinion of independent legal
counsel (who may be the Company's regularly engaged independent counsel), that
it is necessary to do so in order to comply with its fiduciary duties to the
Company's stockholders under applicable law, the Company may, in response to an
unsolicited Superior Proposal, (x) furnish information with respect to the
Company to the person making such unsolicited Superior Proposal pursuant to a
customary confidentiality agreement, and (y) participate in discussions or
negotiations regarding such Superior Proposal. Legend is obligated to inform LP
Acquisition Corp. promptly of any request for information or any Acquisition
Proposal, the material terms and conditions of such request or Acquisition
Proposal and, unless the Company is contractually prohibited from making such
disclosure, the identity of the person making such request or Acquisition
Proposal.
Except as set forth above, neither the Board of Directors of the
Company nor any committee thereof may (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to LP Acquisition Corp., the approval or
recommendation by such Board of Directors or committee of the Merger Agreement
or the Merger, (ii) approve or recommend, or propose to approve or recommend,
any Acquisition Proposal, or (iii) cause the Company to enter into any agreement
with respect to any Acquisition Proposal. Notwithstanding the foregoing, in the
event that the Board of Directors of the Company determines in good faith, based
upon the opinion of independent legal counsel (who may be the Company's
regularly engaged independent counsel), that it is necessary to do so in order
to comply with its fiduciary duties to the Company's stockholders under
applicable law, the Board of Directors of the Company may withdraw or modify its
approval or recommendation of the Merger Agreement and the Merger, approve or
recommend a Superior Proposal, cause the Company to enter into an agreement with
respect to a Superior Proposal or terminate the Merger Agreement, but in each
case only at a time that is after the fifth business day following Purchaser's
receipt of written notice (a "Notice of Superior Proposal") advising LP
Acquisition Corp. that the Board of Directors of the Company has received a
Superior Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal. In addition,
if the Company proposes to enter into an agreement with respect to any
Acquisition Proposal, it must concurrently with entering into such agreement
pay, or cause to be paid, to LP Acquisition Corp. the Termination Fee.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that all rights to indemnification for
acts or omissions occurring prior to the Effective Time existing in favor of the
current or former directors or officers of the Company and its subsidiaries as
provided in their respective certificates or articles of incorporation or bylaws
(or similar organizational documents) or existing indemnification contracts
shall survive the Merger and shall continue in full force and effect in
accordance with their terms. In addition, LP Acquisition Corp. will provide for
a period of not less than two years after the Effective Time, the Company's
current directors and officers an insurance and indemnification policy that
provides coverage for events occurring at or prior to the Effective Time that is
no less favorable than the Company's existing insurance and indemnification
policy or, if substantially equivalent insurance coverage is unavailable, the
best available coverage; provided, however, that the Company shall not be
required to pay an annual premium for such insurance and indemnification policy
in excess of 200% of the annual premium currently paid by the Company for such
insurance, but in such case shall purchase as much such coverage as possible for
such amount.
EXPENSES
Except as provided below, RGI Holdings has agreed to reimburse Legend
for its costs and expenses in connection with the Merger Agreement and the
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transactions contemplated thereby. Legend has also agreed to reimburse LP
Acquisition Corp. for all expenses incurred by LP Acquisition Corp. in
connection with the Merger Transaction upon certain events. See "THE
MERGER--Termination Fee."
TERMINATION, AMENDMENT AND WAIVER
At any time prior to the Effective Time, the Merger Agreement may be
terminated by the mutual written consent of Legend and LP Acquisition Corp. In
addition, either Legend or LP Acquisition Corp. may terminate the Merger
Agreement prior to the Effective Time if any governmental entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the acceptance for payment of,
or payment for, shares of Common Stock pursuant to the Merger and such order,
decree or ruling or other action shall have become final and nonappealable,
provided, however, that such right to terminate the Merger Agreement is not
available to any party that has failed to use its reasonable efforts to comply
promptly with legal requirements, cooperate with and furnish information to the
other party and obtain any required governmental or other consents,
authorizations, orders, approvals or exemptions.
The Merger Agreement may be terminated by LP Acquisition Corp. or RGI
Holdings prior to the Effective Time if: (i) any representation or warranty of
the Company shall not have been true and correct in all material respects when
made, except in any case where such failure to be true and correct would not, in
the aggregate, (x) have a material adverse effect on the Company, or (y) prevent
or materially delay the consummation of the Merger; (ii) the Company shall have
failed to comply in any material respect with any of its material obligations or
covenants contained in the Merger Agreement; or (iii)(A) the Board or the
Special Committee fails to approve and recommend or withdraws or modifies in a
manner adverse to LP Acquisition Corp. its approval or recommendation of the
Merger or the Merger Agreement, or approves or recommends any Acquisition
Proposal, (B) the Company enters into any agreement with respect to any Superior
Proposal following written notice to LP Acquisition Corp. and payment of the
Termination Fee discussed below, or (C) the Board or the Special Committee
resolves to take any such action in clauses (iii)(A) or (B).
Legend may terminate the Merger Agreement (i) in connection with
entering into a definitive agreement with respect to a Superior Proposal
following written notice to the Board, a determination that the Company's
failure to do so would violate the Board's fiduciary duties and the payment of
the termination Fee described below and provided that the Company complies with
its covenant against soliciting, discussing or negotiating any Acquisition
Proposal (except as required by the Board's fiduciary duties), (ii) if any
representation or warranty of LP Acquisition Corp. was not true and correct in
all material respects when made or has ceased to be true and correct in all
material respects as if made on such later date, or (iii) if LP Acquisition
Corp. fails to comply in any material respect with any of its material
obligations or covenants in the Merger Agreement.
Subject to the provisions of applicable law, the Merger Agreement may
be modified or amended, and provisions thereof waived, by written agreement of
the parties. However, after approval of the terms of the Merger Agreement by the
stockholders of Legend, no amendment or waiver of a provision may be made which
reduces the amount or changes the form of the Cash Merger Consideration to be
received by the stockholders or that by law requires further stockholder
approval unless such amendment or waiver of a provision is approved by the
stockholders.
TERMINATION FEE
Legend has agreed to pay to LP Acquisition Corp. a Termination Fee in
the amount of expenses of LP Acquisition Corp. in the event the Merger Agreement
is terminated (i) by LP Acquisition Corp. due to (A) the breach by the Company
of any of its representations, warranties or covenants, or a material adverse
change with respect to Legend, each as described above (see "THE
MERGER--Termination; Amendment and Waiver"), or (B) (1) the Board or the Special
Committee failing to approve and recommend or withdrawing or modifying in a
manner adverse to LP Acquisition Corp. its approval or recommendation of the
Merger or the Merger Agreement, or approving or recommending any Acquisition
Proposal, (2) the Company entering into any agreement with respect to any
Superior Proposal or (3) the Board or the Special Committee resolving to take
any such action in clauses (1) or (2), or (ii) by the Company due to entering
into a definitive agreement in connection with a Superior Proposal.
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FUNDING OF MERGER CONSIDERATION
It is estimated that approximately $________ will be required to
consummate the Merger and pay related fees and expenses. This sum is expected to
be provided by RGI Holdings' cash on hand. There is no financing contingency in
the Merger Agreement.
EXPENSES OF THE TRANSACTION
Assuming the Merger is consummated, the expenses of the Merger that
will be paid by Legend and reimbursed by RGI Holdings are as follows:
COST OR FEE ESTIMATED AMOUNT
----------- ----------------
Financial advisory fees............................ $[200,000]
Legal fees......................................... [ ]
Accounting fees.................................... [ ]
Printing and mailing fees.......................... 15,000
SEC filing fees.................................... 124
Miscellaneous...................................... [ ]
--------
$
========
See "SPECIAL FACTORS--Opinion of Financial Advisor" for a description
of the fees to be paid to Josephthal in connection with its engagement. For a
description of certain fees payable to the members of the Special Committee, see
"SPECIAL FACTORS--Conflicts of Interest."
For a description of RGI Holdings' obligation, even if the Merger is
not consummated, to pay or reimburse Legend for its expenses in connection with
the Merger, see "THE MERGER--Expenses" and "--Termination Fee."
REGULATORY APPROVALS
Legend is not aware of any license or regulatory permit which is
material to the business of Legend and which is likely to be adversely affected
by the Merger or of any approval or other action by any state, federal or
foreign government or governmental agency that would be required prior to
effecting the Merger.
ACCOUNTING TREATMENT
The Merger will be treated as a purchase business combination for
accounting purposes.
RIGHTS OF DISSENTING STOCKHOLDERS
Under Delaware law, Legend stockholders have no right to an appraisal
of the value of their shares in connection with the Merger.
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FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material U.S. Federal income tax
consequences of the Merger to the holders of Common Stock. This discussion is
based on the current provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
Any change, which may or may not be retroactive, could alter the tax
consequences to the holders of Common Stock as described herein. This discussion
does not purport to deal with all aspects of taxation that may be relevant to a
particular stockholder in light of his, her or its particular circumstances or
to certain types of taxpayers subject to special treatment under the U.S.
Federal income tax law, including financial institutions, broker-dealers,
persons holding Common Stock as part of a straddle, "synthetic security" or
other integrated investment (including a "conversion transaction"), persons
holding Common Stock other than as a capital asset or persons who acquired their
Common Stock through the exercise of an employee stock option or otherwise as
compensation.
U.S. HOLDERS
The following discussion applies to a holder of Common Stock that is a
U.S. Holder. For this purpose, a U.S. Holder is a beneficial owner of Common
Stock that for U.S. Federal income tax purposes is (i) a citizen or resident (as
defined in section 7701(b) of the Code) of the United States, (ii) a corporation
or partnership (or an entity treated as a corporation or partnership) created or
organized in the United States or under the law of the United States, any state
or the District of Columbia (as well as, for certain purposes (including the
withholding of tax on the sale of Common Stock), a corporation (or an entity
treated as a corporation) created or organized under the law of a country other
than the United States or of a political subdivision thereof that has made an
election under section 897(i) of the Code to be treated as a domestic
corporation), (iii) an estate the income of which is subject to U.S. Federal
income taxation regardless of source or (iv) a trust if a U.S. court is able to
exercise primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all substantial decisions of the
trust.
A U.S. Holder will recognize capital gain or loss for U.S. Federal
income tax purposes on each share of Common Stock exchanged for the Cash Merger
Consideration pursuant to the Merger. The amount of gain or loss recognized on a
share will be equal to the difference between $.50 and the holder's basis in the
share. The gain or loss will be long-term capital gain or loss in the case of
shares held for more than one year as of the date of the Merger. In the case of
individuals, trusts and estates, net capital gain for a taxable year (that is,
the excess of net long-term capital gain for a taxable year over any net
short-term capital loss for the year) is subject to a maximum U.S. Federal
income tax rate of 20 percent. Receipt of the Cash Merger Consideration in
exchange for Common Stock pursuant to the Merger also may be a taxable
transaction under applicable state, local and foreign tax laws.
Because the Company is a United States real property holding company
within the meaning of section 897 of the Code, and because the Common Stock of
the Company is not regularly traded on an established securities market within
the meaning of the Treasury regulations promulgated pursuant to section 897 of
the Code, RGI Holdings will be required to withhold and pay over to the Internal
Revenue Service (the "IRS") ten percent of the Cash Merger Consideration payable
for any share of Common Stock acquired pursuant to the Merger that RGI Holdings
cannot establish that it purchased from a U.S. Holder. Accordingly, to avoid
this withholding, a U.S. Holder will be required to provide to RGI Holdings a
written certificate stating under penalties of perjury that he, she or it is a
U.S. Holder. The U.S. Holder's signature on this certificate must be
acknowledged by a notary. The ten percent withholding will be imposed unless the
certificate of non-foreign status is properly, accurately and completely filled
out setting forth all of the information specified in Treasury regulation
section 1.1445-2(b)(2). A stockholder that is a foreign corporation but that has
made an election under section 897(i) of the Code to be treated as a domestic
corporation must attach to its certificate of non-foreign status the
acknowledgement of its section 897(i) election by the IRS, and the
acknowledgement must state that the information required by Treasury regulation
section 1.897-3 has been determined to be complete. The certificate of
non-foreign status must be signed by a responsible officer in the case of a
stockholder that is a corporation, by a general partner of a stockholder that is
a partnership or by a trustee, executor or other fiduciary in the case of a
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<PAGE> 42
stockholder that is a trust or estate. Even if a certificate in proper form is
presented, RGI Holdings will withhold ten percent of the Cash Merger
Consideration in any case in which it has actual knowledge that the certificate
is false or receives a notice from its own or the stockholder's agent that the
certificate is false.
Any U.S. Holder from whose Cash Merger Consideration RGI Holdings has
withheld tax can credit that tax on his, her or its U.S. Federal income tax
return, or, if the amount withheld exceeds the U.S. Holder's tax liability,
possibly obtain an early refund to the extent permitted by Treasury regulation
section 1.1445-1(e)(3)(ii). RGI Holdings will file with the IRS Form 8288, U.S.
Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property
Interests, and Form 8288-A, Statement of Withholding on Dispositions by Foreign
Persons of U.S. Real Property Interests. The IRS will stamp Form 8288-A showing
receipt of the withholding tax and will return Copy B thereof to the Company
stockholder to which it relates, enabling that stockholder to establish the
amount of tax withheld with respect to his, her or its Common Stock acquired by
RGI Holdings pursuant to the Merger. In the case of any Common Stock held in
joint name, RGI Holdings will credit the amount of tax withheld equally between
or among the joint holders, unless those holders, by the tenth day following the
Closing, request RGI Holdings in writing to credit the tax in a different manner
agreed to by them.
THE RESPONSIBILITY TO PREPARE AND SUBMIT A PROPERLY COMPLETED
CERTIFICATE OF NON-FOREIGN STATUS IS ON EACH STOCKHOLDER OF THE COMPANY. WITH
RESPECT TO ANY SHARES FOR WHICH NO CERTIFICATE IS RECEIVED OR THE CERTIFICATE IS
NOT PROPERLY COMPLETED, RGI HOLDINGS WILL WITHHOLD TEN PERCENT OF THE CASH
MERGER CONSIDERATION.
A U.S. Holder that is a domestic partnership is not subject to the ten
percent withholding described above but instead generally will be required to
withhold tax pursuant to section 1446 of the Code in respect of any gain
recognized on the disposition of Common Shares pursuant to the Merger if the
partnership has any partner that is a foreign person. Different rules can apply
depending on whether partnership interests in the partnership are public traded.
Similarly, a domestic trust or estate with any foreign beneficiary may be
required to withhold tax as a result of a disposition of Common Stock at a gain.
In the case of trusts, different rules can apply depending on whether the trust
is a grantor trust, a non-grantor trust or a publicly traded trust. Each
domestic partnership, trust or estate with any foreign partner or beneficiary
should consult his, her or its tax adviser with respect to his, her or its
withholding obligation in connection with the disposition of Common Stock.
A U.S. Holder may be subject to backup withholding at the rate of 31
percent with respect to Cash Merger Consideration received pursuant to the
Merger, unless the U.S. Holder (a) is a corporation or comes within certain
other exempt categories and, when required, demonstrates that fact or (b)
provides a correct taxpayer identification number ("TIN"), certifies as to no
loss of exemption from backup withholding and otherwise complies with the
applicable requirements of the backup withholdings rules. To prevent the
possibility of backup withholding on payments made to certain holders with
respect to shares of Common Stock pursuant to the Merger, each U.S. Holder must
provide the Disbursing Agent with his, her or its correct TIN by completing a
Form W-9 or Substitute Form W-9. A U.S. Holder of Common Stock that does not
provide his, her or its correct TIN, when required to do so, may be subject to
penalties imposed by the IRS, as well as to backup withholding. Any amount
withheld under these rules will be refundable or creditable against the U.S.
Holder's U.S. Federal income tax liability, provided the required information is
furnished to the IRS. RGI Holdings (or its agent) will report to a holder of
Common Stock and to the IRS the amount of any "reportable payment," as defined
in Section 3406 of the Code, and the amount of tax, if any, withheld with
respect thereto.
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NON-U.S. HOLDERS
The following discussion applies to a holder of Common Stock that is a
Non-U.S. Holder. For this purpose, a Non-U.S. Holder is a beneficial owner of
Common Stock that for U.S. Federal income tax purposes is (i) a nonresident
alien individual, (ii) a corporation or partnership (or an entity treated as a
corporation or partnership) created or organized under the law of a country
other than the United States or of a political subdivision thereof (other than,
for certain purposes (including the withholding of tax on the sale of Common
Stock) a corporation (or an entity treated as a corporation) that has made an
election under section 897(i) of the Code to be treated as a domestic
corporation) or (iii) an estate or trust that is not a U.S. Holder.
Because the Company is a United States real property holding
corporation within the meaning of section 897 of the Code, and because the
Common Stock of the Company is not regularly traded on an established securities
market within the meaning of the Treasury regulations promulgated pursuant to
section 897 of the Code, any gain recognized by a Non-U.S. Holder on the sale of
shares of Common Stock pursuant to the Merger will be treated as income that is
effectively connected with the conduct of trade or business in the United States
by the Non-U.S. Holder and will be subject to U.S. Federal income tax at the
graduated rates on net income generally applicable to U.S. Holders. In addition,
RGI Holdings will be required to withhold and pay over to the IRS ten percent of
the Cash Merger Consideration payable for any share of Common Stock acquired
pursuant to the Merger that RGI Holdings cannot establish that it purchased from
a U.S. Holder. Accordingly, RGI Holdings will withhold ten percent of the Cash
Merger Consideration from any holder of Common Stock that does not provide to
the Company a written certificate stating under penalties of perjury that he,
she or it is a U.S. Holder. The signature on this certificate must be
acknowledged by a notary. The ten percent withholding will be imposed unless the
certificate of non-foreign status is properly, accurately and completely filled
out setting forth all of the information specified in Treasury regulation
section 1.1445-2(b)(2). A stockholder that is a foreign corporation but that has
made an election under section 897(i) of the Code to be treated as a domestic
corporation must attach to its certificate of non-foreign status the
acknowledgement of its section 897(i) election by the IRS, and the
acknowledgement must state that the information required by Treasury regulation
section 1.897-3 has been determined to be complete. The certificate of
non-foreign status must be signed by a responsible officer in the case of a
stockholder that is a corporation, by a general partner of a stockholder that is
a partnership or by a trustee, executor or other fiduciary in the case of a
stockholder that is a trust or estate. Even if a certificate in proper form is
presented, RGI Holdings will withhold ten percent of the Cash Merger
Consideration in any case in which it has actual knowledge that the certificate
is false or receives a notice from its own or the stockholder's agent that the
certificate is false. A stockholder that is a Non-U.S. Holder is subject to the
withholding of ten percent of the Cash Merger Consideration and does not qualify
to sign a certificate of non-foreign status.
In general, a Non-U.S. Holder is required to file a U.S. Federal income
tax return by reason of his, her or its sale of Common Stock. The amount of the
withholding will be creditable against the Non-U.S. Holder's U.S. Federal income
tax liability, if any, for the taxable year. If a Non-U.S. Holder's U.S. Federal
income tax in respect of gain recognized on the disposition of shares of Common
Stock pursuant to the Merger exceeds the amount of the tax withheld, the
Non-U.S. Holder is required to pay the additional tax with its U.S. Federal
income tax return and may also have an obligation to make payments of estimated
tax by reason of recognizing gain on a sale of Common Stock pursuant to the
Merger. If the amount of tax withheld exceeds a Non-U.S. Holder's U.S. Federal
income tax, the excess will be refundable (or, in general, creditable against
other U.S. Federal income tax liability of the Non-U.S. Holder), provided the
Non-U.S. Holder files a U.S. Federal income tax return and provides the required
information to the IRS. RGI Holdings will file with the IRS Form 8288, U.S.
Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property
Interests, and Form 8288-A, Statement of Withholding on Dispositions by Foreign
Persons of U.S. Real Property Interests. The IRS will stamp Form 8288-A showing
receipt of the withholding tax and will return Copy B thereof to the stockholder
to which it relates, enabling that stockholder to establish the amount of tax
withheld with respect to his, her or its Common Stock acquired by RGI Holdings
pursuant to the Merger. In the case of any Common Stock held in joint name, RGI
Holdings will credit the amount of tax withheld equally between or among the
joint holders, unless those holders, by the tenth day following the Closing,
request RGI Holdings in writing to credit the tax in a different manner agreed
to by them.
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If a Non-U.S. Holder requests from the IRS a withholding certificate to
reduce or eliminate the amount otherwise required to be withheld by RGI
Holdings, and if the Non-U.S. Holder receives and provides that certificate to
RGI Holdings on or before the Closing Date, RGI Holdings will withhold the
amount, if any, specified in that withholding certificate. If a Non-U.S. Holder
does not receive that certificate on or before the Closing Date but furnishes to
RGI Holdings, on or before the Closing Date, a notice with respect to its
application for a withholding certificate, in form and substance satisfying the
applicable Treasury regulations for that notice, RGI Holdings will withhold ten
percent of the Cash Merger Consideration otherwise payable to that Non-U.S.
Holder but, once the Non-U.S. Holder furnishes to RGI Holdings a withholding
certificate, RGI Holdings will remit to the IRS the amount, if any, specified in
that withholding certificate and will pay, or cause to be paid, the remainder,
if any, to the Non-U.S. Holder. The IRS might issue a withholding certificate to
a Non-U.S. Holder who, following the procedures set forth by the Treasury
Department and the IRS, establishes that the ten percent withholding otherwise
required exceeds the Non-U.S. Holder's maximum tax liability, that the Non-U.S.
Holder is exempt from tax as a foreign government or pursuant to a tax treaty
and in other circumstances. In certain cases, a withholding certificate can be
used to apply for an early refund of tax that has been withheld. The
responsibility for obtaining, and all costs associated with, a withholding
certificate are SOLELY those of a Non-U.S. Holder. A Non-U.S. Holder should
consult his, her or its tax adviser regarding the availability and advisability
of requesting a withholding certificate from the IRS.
A Non-U.S. Holder that is a foreign partnership may be subject not only
to the ten percent withholding described above but also to a requirement to
withhold additional tax pursuant to section 1446 of the Code in respect of any
gain recognized on the disposition of Common Shares pursuant to the Merger if
the partnership has any partner that is a foreign person. Different rules can
apply depending on whether partnership interests in the partnership are public
traded. Each foreign partnership with any foreign partner or beneficiary should
consult its tax adviser with respect to its withholding obligation in connection
with the disposition of Common Stock.
The payment of the Cash Merger Consideration to or through the U.S.
office of a broker, U.S. or foreign, will be subject to information reporting
and backup withholding at a rate of 31 percent unless the owner certifies under
penalties of perjury that it is a Non-U.S. Holder or otherwise establishes an
exemption (which certification may be made on a properly completed Form W-8 or
Substitute Form W-8), provided the broker does not have actual knowledge that
the holder is not a Non-U.S. Holder or that the conditions of any other
exemption are not, in fact, satisfied. The payment of the Cash Merger
Consideration to or through the foreign office of a broker generally will not be
subject to backup withholding or information reporting. In the case of the
payment of the Cash Merger Consideration through a foreign office of a broker
that is a United States person or a "United States related person," however, the
current Treasury regulations require information reporting on the payment unless
the broker has documentary evidence in its files that the owner is not a United
States person and the broker has no actual knowledge to the contrary or the
holder otherwise establishes an exemption. For this purpose, a "United States
related person" is (i) a "controlled foreign corporation" for U.S. Federal
income tax purposes or (ii) a foreign person 50 percent or more of whose gross
income for a specified period is derived from activities that are effectively
connected with the conduct of trade or business in the United States. Any amount
withheld under the backup withholding rules from a payment to a Non-U.S. Holder
will be allowed as a refund or a credit against the Non-U.S. Holder's U.S.
Federal income tax, provided that the required information is furnished to the
IRS.
THE TAX CONSEQUENCES FOR A PARTICULAR STOCKHOLDER WILL DEPEND UPON THE
FACTS AND CIRCUMSTANCES APPLICABLE TO THAT STOCKHOLDER. ACCORDINGLY, EACH
STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISER TO DETERMINE THE
TAX CONSEQUENCES OF THE MERGER TO THE STOCKHOLDER IN LIGHT OF HIS, HER OR ITS
PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS AND ANY POSSIBLE CHANGES IN THOSE LAWS. THE
FOREGOING DISCUSSION MAY NOT APPLY TO SHARES RECEIVED PURSUANT TO THE EXERCISE
OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION.
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BUSINESS OF THE COMPANY
BUSINESS OPERATIONS
BACKGROUND
Legend, formerly known as Banyan Mortgage Investment Fund, is the
surviving corporation from the December 31, 1996 merger (the "Banyan Merger") of
Banyan Mortgage Investment Fund ("Banyan") and RGI U.S. Holdings, Inc.
("RGI/US"). Legend is organized as a corporation under the laws of the State of
Delaware, pursuant to a Restated Certificate of Incorporation filed December 31,
1996. As of the date hereof, RGI Holdings owns approximately 80% of the
outstanding Common Stock of the Company.
The Company was originally established to invest primarily in (i)
short-term loans, junior mortgage loans, wraparound mortgage loans and first
mortgage loans on income-producing properties and (ii) construction loans,
pre-development loans and land loans. In response to defaults on loans made by
the Company to its borrowers, in February 1990, the Company suspended making new
loans, except for advances of additional funds under circumstances which it
deemed necessary to preserve the value of existing collateral, including
instances where the Company foreclosed upon or taken title, directly or
indirectly to the collateral. At the time of the Banyan Merger, the Company
controlled a 2,227-acre parcel located in Charles County, Maryland ("Chapman's
Landing"), a 2,685-acre development located in Prince William County, Virginia
("Southbridge") and a 565-acre parcel located in Monterey County, California
("Laguna Seca Ranch"). The Laguna Seca Ranch and Chapman's Landing projects were
sold in December 1997 and October 1998, respectively.
RGI/US was a Washington corporation and until the Banyan Merger, was a
wholly-owned subsidiary of RGI Holdings which is an indirect majority-owned
subsidiary of Aker RGI. At the time of the Banyan Merger, RGI/US, through
various subsidiaries, owned, developed and operated the following real estate:
(i) Grand Harbor, a 772-acre residential golf community located in Vero Beach,
Florida; (ii) Oak Harbor, a 116-acre retirement community also located in Vero
Beach, Florida which includes the Royal Palm Convalescent Center, a skilled
nursing care facility licensed for 72 beds and (iii) a 164,724 square foot
shopping center located in Lynnwood, Washington (the "Lynnwood Center"). The
Lynnwood Center was sold in November 1997.
The Company's strategy is to realize and enhance the market potential
of its remaining assets. The Company's current assets are the Southbridge master
planned community, the Grand Harbor residential golf community and the Oak
Harbor retirement community. During September 1999, the Company sold the Ashburn
Corporate Center, a commercial business park development. The Company had
acquired the front parcel of the project earlier in the year.
Legend is a diversified real estate development and operating company
engaged in three primary business activities: real estate development and sales,
club operations and patient services. The Company operates other ancillary
operations that provide support services to its primary business activities but
these ancillary operations are not material enough to be considered a primary
business activity.
REAL ESTATE DEVELOPMENT AND SALES
The Real Estate Development and Sales activity is responsible for land
planning, entitlements, land development, construction and the sale of land
parcels and finished homes.
Southbridge includes a mix of commercial and residential land uses
including single-family, townhouse and apartment/condominium units and office,
retail and industrial/flex space. The Company is attempting to enhance the value
of this project through land use, entitlement and zoning modifications and
selective development. Such activities take into account local zoning, political
and market conditions. The Company anticipates developing commercial sites and
residential housing lots for sale to third parties but also pursues
opportunities to sell undeveloped parcels or enter into joint ventures, or whole
or partial bulk sales.
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Grand Harbor and Oak Harbor include primarily finished lots upon which
the Company builds a variety of housing types and styles including villas,
cottages, duplex and condominiums for sale to third parties. The Company also
pursues outright lot sales.
CLUB OPERATIONS
The club operations activity is responsible for the management and
operations of the club facilities. The Company operates the Grand Harbor Golf
and Beach Club which includes a clubhouse, two 18-hole golf courses, swimming
and tennis facilities and an ocean front beach club. The Company also operates
the Oak Harbor Club which includes a clubhouse and a nine-hole golf course.
PATIENT SERVICES
The patient services activity is responsible for the management and
operations of the assisted living and skilled care facilities. The Company
operates Somerset House, an assisted living facility, and Royal Palm
Convalescent Center, a skilled care facility, both located near the Oak Harbor
development.
DESCRIPTION OF PROJECTS
Following is a narrative describing Legend's core assets. The project
business plans explained below are subject to numerous risks and uncertainties
which are more fully described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors Affecting Legend's
Business Plan." If the Company is unable to secure the necessary financing or
capital to meet its future needs, the project business plans will likely be
materially revised, which may have a material adverse effect on the Company's
financial condition and results of operations. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources.")
GRAND HARBOR
Grand Harbor is a 772-acre gated residential golf community, located
along the Indian River in Vero Beach, Florida, with two 18-hole championship
golf courses and waterfront access with a marina containing 144 slips available
for lease. The residences at Grand Harbor are clustered in individual islands
affording a view of the surrounding golf courses and scenic waterways.
Development of Grand Harbor began in 1987 and continued until 1990 when the
Resolution Trust Corporation acquired the property and most development and
construction activities were terminated. In 1991, affiliates of RGI Holdings
acquired the project, completed the development of the marina and constructed
the clubhouse facilities and continued the residential development. At December
31, 1999 the Company owned approximately 300 acres.
Grand Harbor offers two 18-hole championship golf courses: a Harbor
Course designed by Pete Dye and a River Course designed by Joe Lee. The 28,000
square foot clubhouse, which serves both courses, also serves as a social center
for Grand Harbor residents. Grand Harbor maintains 24-hour access control,
together with a variety of amenities, including an on-site swimming facility and
eight clay tennis courts and an off-site oceanfront beach club. Grand Harbor and
Oak Harbor collectively received zoning entitlements for the development of a
maximum of 2,688 residential units. The Company's business plan, however,
contemplates the development of 1,196 residential units at Grand Harbor and 322
residential units at Oak Harbor (see below). The Company believes this plan best
maximizes the value of these parcels based on existing and anticipated market
conditions, even though these parcels are zoned for greater density. If market
conditions change, the Company can increase, to a certain extent, the proportion
of multi-family homes to be developed under existing zoning.
Grand Harbor currently offers single-family detached homes, duplexes
and low-rise condominiums with sales prices ranging from approximately $200,000
to $1,100,000 with sizes ranging from 1,600 to over 5,000 square feet.
Previously, golf course and riverfront lots were available at sales prices
ranging from $165,000 to over $500,000. Through December 31, 1999, 746
residences had been sold and an additional 33 contracted for sale for delivery
in early or mid 2000. Based on the current development plan, approximately 417
additional residences are planned for Grand Harbor. Grand Harbor has received
governmental approvals for approximately 725,000 square feet of commercial space
on 60 acres. In early 1998, a 20-acre parcel was sold for a luxury apartment
project.
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Grand Harbor currently derives revenue from the construction and sale
of single-family detached homes, duplexes, condominiums and individual lots; the
operation or club facilities, the rental of marina docks; and the operation of a
harbor facility. In conjunction with offering residential units for sale, Grand
Harbor offers four types of equity memberships in the Grand Harbor Golf and
Beach Club: (i) full memberships for $40,000; (ii) golf and tennis memberships
for $20,000; (iii) tennis memberships for $10,000; and (iv) social memberships
for $7,500. Upon the completion of sale of the equity memberships, Grand Harbor
will turn over management and control of the Grand Harbor Golf and Beach Club to
its members.
There are several residential communities located within Vero Beach
that compete with Grand Harbor in terms of location, quality, and/or price,
including but not limited to Windsor, Orchid Island Golf & Beach Club, and
Indian River Club.
OAK HARBOR
Oak Harbor is a 116-acre luxury country club retirement community,
located along the Indian River in Vero Beach, Florida. On-site amenities include
the 36,000 square foot clubhouse, a 24,900 square foot assisted living facility
with 24 private suites and a nine-hole golf course designed by Joe Lee. The
clubhouse contains a community hall, arts and crafts room, hobby shop, game
room, library and fitness center. Oak Harbor provides the opportunity to own a
home within a community that offers on-site health care and a Club that offers a
wide range of daily services designed to make life easier for residents. Oak
Harbor Club members receive daily meals, transportation, housekeeping, social
activities and access to optional health care. A discussion of Oak Harbor's
zoning entitlements is included under "Grand Harbor." At December 31, 1999 the
Company owned approximately 100 acres.
Oak Harbor offers condominiums and single-family homes ranging in price
from $250,000 to $635,000 and ranging in size from 1,178 to 2,850 square feet.
All residences have emergency call systems and trained health professionals are
available 24 hours a day to handle emergencies. Three levels of health care,
including skilled, assisted living and home health care, are options available
to Oak Harbor residents at an additional cost above the monthly Club dues
described below.
OAK HARBOR CLUB
Membership in the Oak Harbor Club requires an initial $25,000
club deposit. Upon the re-sale of an Oak Harbor residence, the
$25,000 club deposit is refundable subject to the new owner
becoming a Club member and paying the deposit. In addition,
there is an initiation fee equal to ten percent (10%) of the
purchase price of the residence. This fee may be deferred
until the residence is resold, but will then equal 10% of the
greater of the initial purchase price or the sale price of the
residence. (Currently, this initiation fee is waived for the
first 125 Club members.) The Oak Harbor Club is a non-equity
club and Oak Harbor will not turn over management and control
to its members. Monthly dues, ranging from $1,800 for a single
person to $2,320 for a couple, include among other things, one
meal per day, local transportation around Oak Harbor and Vero
Beach, weekly housekeeping and linen service, Club activities,
green fees on Oak Harbor's private nine-hole golf course, and
24-hour emergency response service.
ROYAL PALM CONVALESCENT CENTER
The off-site Royal Palm Convalescent Center is a skilled care
nursing facility licensed for 72 beds, which is currently
configured for 50 beds in private and semi-private rooms.
Royal Palm is a private facility, which does not accept
Medicaid or Medicare patients and has received a Superior
Rating the past 16 consecutive years from the Florida
Department of Health and Rehabilitative Services.
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<PAGE> 48
Daily rates range from approximately $159 for a semi-private
room to $219 for a private suite. As of December 31, 1999, 37
beds were occupied (74%).
SOMERSET HOUSE ASSISTED LIVING FACILITY
The on-site Somerset House Assisted Living Facility, with 24
private suites with patios situated in private courtyards, is
designed as a "mini-clubhouse" versus the institutional style
facilities prevalent in many communities. The facility is
designed to be expanded to up to 64 suites. The main building
includes the common living, dining and kitchen facilities as
well as the examination, consultation and home health care
offices. The 24 private suites are located in a separate wing
behind the main building. Each suite is 406 square feet and
contains living, dining and kitchen facilities. A centrally
located Nurse's Station is staffed 24 hours a day by nursing
staff to provide assistance as needed.
Daily rates range from $84 for Oak Harbor Club members to $135
for non-members. As of December 31, 1999 there were eight
suites occupied, representing 33% of available suites.
Oak Harbor's current development plan is for a total of 322 residences
consisting of villas, cottages and condominium units. As of December 31, 1999,
93 residences have been sold and an additional 14 residences were under contract
for sale for delivery in early or mid 2000. Residential sales are subject to a
non-refundable deposit of 20% of the sales price but are typically subject to
cancellation by the purchaser under specified circumstances, such as the
purchaser becoming incapable of independent living, or death. Although Oak
Harbor is a retirement community, all residents must be capable of independent
living at the time they join the Oak Harbor Club.
There are two competing lifecare communities located within a 35-mile
radius of Oak Harbor. Indian River Estates, located in Vero Beach, and Sandhill
Cove, located 32 miles south in Stuart, Florida. Both target a lower demographic
prospect than Oak Harbor, have smaller average units than those offered by Oak
Harbor, and do not offer home ownership to their residents.
SOUTHBRIDGE
Southbridge is a 2,685 acre mixed use master planned community located
along the Potomac River in Prince William County, Virginia, approximately 24
miles south of Washington, D.C. Southbridge is located within close proximity to
the major employment centers of Washington, D.C. The current development plan is
for approximately 5,400 single-family detached homes, townhomes, garden
apartments and condominiums as well as four million square feet of commercial
space including office, flex-tech and retail. The project is anticipated to be
built in phases over the next 15 - 20 years and will offer residents an
assortment of amenities including a public 18 hole championship golf course,
three clubhouse facilities with pools and tennis courts and a town center
overlooking the Potomac River. The mixture of commercial, recreational and
educational facilities will allow residents to work and educate their children
without leaving the community. At December 31, 1999 the Company owned
approximately 2,300 acres.
Southbridge is divided into seven phases only the first of which has
had sales to date. Phase I is zoned for 2,376 residential units and 280,000
square feet of commercial space. Although approved for 2,376 residential units,
the Company's current development plan anticipates development of 1,822 units,
which the Company believes maximizes the underlying value of the property based
on existing and anticipated market conditions. The Company can modify its
development plans within the limitations of the existing zoning in response to
changes in market conditions.
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<PAGE> 49
Southbridge offers builders different residential lot products as
follows:
STYLE LOT SIZE
----- --------
Garden Apartments N/A
Condominiums N/A
Townhomes N/A
Carriage 5,000 SF
Cottage 6,000 SF
Village 8,000 SF
Country 10,000 SF
Estate 20,000 SF
As of December 31, 1999, 792 residential lots have been sold to
third-party homebuilders and an additional 436 lots were under contract with
five homebuilders for deliveries over the next several years. Of the 436 lots
under contract, 70 single-family lots are developed and ready for delivery and
166 single-family lots are currently under development. Anticipated quarterly
deliveries range from 22 to 30 lots. The Company continues to negotiate with
other builders for additional residential lot sales contracts. Future
engineering and development of residential lots will be timed to satisfy
contractual requirements and anticipated market demands.
In November 1998, the Company formed Potomac Heritage Homes to
construct and sell single-family homes at various price points within
Southbridge. Potomac Heritage's function is to complement residential lot sale
efforts. In early 2000, the Company ceased the operations of Potomac Heritage
Homes and has one completed home available for sale.
The housing industry in the Greater Washington D.C. region is highly
competitive. In the Company's local Washington D.C. market, there are numerous
land developers, homebuilders and private interests with which the company
competes. The Company competes primarily on the basis of price, location,
product and the level of amenities provided within the community.
OTHER INFORMATION
Development and construction activities performed in the State of
Florida are not seasonal; however development and construction activities
performed in the State of Virginia are affected by inclement weather, with the
majority of the development and construction work occurring between the months
of March and November. As it relates to sales activities, the majority of
revenues recorded related to sales in the State of Florida occur between the
months of October and May, while revenues related to sales occurring in the
State of Virginia are recorded more evenly throughout the year.
As of December 31, 1999, the Company had 350 employees including two
executive officers.
The Company reviews and monitors compliance with federal, state and
local provisions which have been enacted or adopted regulating the discharge of
material into the environment, or otherwise relating to the protection of the
environment. For the year ended December 31, 1999, the Company did not incur a
material amount for capital expenditures for environmental matters nor does it
anticipate making any material expenditures for environmental matters for the
year ending December 31, 2000.
PROPERTIES
As of December 31, 1999, the Company owned interests in three
properties. Below is a brief description of property interests owned by the
Company:
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<PAGE> 50
<TABLE>
<CAPTION>
NAME, LOCATION AND APPROX. DATE
TYPE OF PROPERTY SIZE ACQUIRED DESCRIPTION
---------------- ---- -------- -----------
<S> <C> <C> <C>
Grand Harbor 300 acres 6/91 (1) a 100% interest in a corporation
Vero Beach, FL which owns the subject property
Residential Development and Club Facilities
Oak Harbor 100 acres 6/91 (1) a 100% interest in a corporation
Vero Beach, FL which owns the subject property
Residential Development, Club and Patient
Services Facilities
Southbridge 2,300 acres 5/91 a 100% interest in a corporation
Prince William County, VA which owns the subject property
Land Development
</TABLE>
- ----------------
(1) The acquisition date represents the date the property was acquired by
RGI/US or affiliates. RGI/US merged with and into the Company effective
December 31, 1996.
LEGAL PROCEEDINGS
ASHBURN CORPORATE CENTER
During August 1998, Legend filed a lawsuit and a memorandum of Lis
Pendens in the Circuit Court of Loudoun County against Atlantic Research
Corporation (ARC) which was amended during November 1998. Legend was seeking
specific performance under a real estate sales contract to purchase
approximately 28 acres in Loudoun County, Virginia (the Front Parcel) and any
other relief the court would grant. During the first quarter of 1999, Legend and
ARC reached an agreement concerning the real estate sales contract that resulted
in Legend's acquisition of the Front Parcel (see Note 4 of the Notes to
Consolidated Financial Statements). As a result, the litigation was withdrawn
and dismissed in the second quarter of 1999.
LAGUNA SECA RANCH
On December 14, 1998, a Legend subsidiary, BMIF Monterey County Corp.,
filed a complaint against New Cities Development Group, Bates Properties, Inc.,
New Cities Development Company, Deregt Development, Inc., Rancho Monterey,
L.L.C. (collectively New Cities), Old Republic Title Company and David Bohen
(collectively Old Republic) in the United States District Court, Northern
District of California, San Jose Division.
During 1997, Legend sold a property known as the Laguna Seca Ranch to
New Cities with Legend retaining a house with certain surrounding property known
as Lot 40 together with certain access easements to the nearest public
right-of-way. New Cities agreed, as part of the sale, to establish a separate
legal parcel for Lot 40 subsequent to the sale. As part of the sale, Legend
agreed to cooperate and share equally in certain costs with New Cities in
negotiating an agreement concerning water service to the property with
California-American Water Company (Cal-Am). Pursuant to this, Legend agreed to
post $200,000 in an interest bearing escrow account held by Old Republic to pay
any necessary amounts due from Legend in consummating an agreement with Cal-Am.
An agreement was reached with Cal-Am on March 20, 1998 to provide the water
needs, and Legend agreed with New Cities to contribute $60,000 out of the escrow
to defray certain costs. On August 28, 1998 Cal-Am withdrew from its commitment.
Subsequently, Old Republic released the $200,000 escrow with interest to New
Cities.
Legend claimed that New Cities breached certain implied covenants in
refusing to negotiate and consummate the agreement with Cal-Am, that New Cities
failed to establish Lot 40 as a separate parcel, and that Old Republic wrongly
released the funds in escrow to New Cities. Legend was seeking to recover
$140,000 plus interest on the escrow, that New Cities convey Lot 40, that New
Cities pay approximately $75,000 of costs incurred by Legend for negotiating the
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<PAGE> 51
agreement with Cal-Am and other damages. During the first quarter of 2000,
Legend and the defendants reached a settlement on all matters whereby New Cities
agreed to pay Legend $100,000, net of $5,887 for the reimbursement of utilities
and services, related to the settlement for the water services agreement and
convey Lot 40 to Legend. Legend agreed to pay New Cities $119,743 for certain
development costs associated with Lot 40 and to remove the Lis Pendens from Lot
40.
PODBOY
In April, 2000, Edward F. Podboy, Jr., the Company's former Chief
Executive Officer, filed a lawsuit in the United States District Court for the
Eastern District of Virginia against the Company. Mr. Podboy is seeking in
excess of approximately $1 million in damages against the Company for breach of
contract involving amounts that Mr. Podboy claims are due to him in connection
with serving as the Company's Chief Executive Officer. The Company believes that
Mr. Podboy's claims are without merit and intends to vigorously defend the
lawsuit.
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<PAGE> 52
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with Legend's Consolidated Financial Statements and related Notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the other financial information included herein. For financial
reporting purposes, the December 31, 1996 Banyan Merger was treated as a
recapitalization of RGI/US, with RGI/US as the acquiror of Banyan. Accordingly,
the historical consolidated financial statements of Legend and the selected
financial data presented below for 1995 and 1996 are those of RGI/US.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1995 1996(2) 1997 1998 1999
---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and Cash Equivalents.................. $ 578,906 $1,529,898 $12,732,681 $4,446,864 $2,902,359
Investment in Real Estate(1)............... $21,984,169 128,834,222 $103,857,159 $82,873,914 $75,806,841
Properties Owned at period end(1).......... 3 6 4 4 3
Total Assets............................... $40,555,418 184,110,129 $162,870,552 $147,558,291 $127,688,960
Notes Payable to Banks and Others.......... $23,288,065 $86,700,617 $60,411,332 $40,722,737 $21,587,213
Payables to Related Parties................ $25,728,682 $47,609,097 $72,893,927 $84,744,478 $88,661,961
Total Revenues............................. $2,088,247 $36,623,291 $55,627,898 $75,733,456 $74,976,482
Income Tax Benefit......................... $ -- $ -- $ -- $ -- $(9,331,542)
Net Loss................................... $(4,069,032) $(2,153,583) $(14,505,906) $(12,136,973) $(3,3313,919)
=========== =========== ============ ============ ============
Net Income (Loss) Per Share of Common
Stock-basic and diluted (3)............. $ (.93) $ (.49) $ (2.31) $ (1.93) $ (0.53)
=========== =========== ============ ============ ============
</TABLE>
- -------------------------
(1) "Investments in Real Estate" and "Properties Owned at December 31"
include investments in Grand Harbor and Oak Harbor through December 31,
1995.
(2) Effective January 1, 1996, Grand Harbor Associates, Inc. (a wholly-owned
subsidiary of Legend), a 45% owner of the Grand Harbor and Oak Harbor
projects (the "Projects"), acquired an additional 45% interest in the
Projects. Additionally, effective December 31, 1996, RGI/US merged with
Banyan. Both of these business combinations were accounted for under the
purchase method of accounting, wherein the purchase price was allocated
to the assets acquired and liabilities assumed based upon their relative
fair values. The accounts of these acquired companies have been included
in the consolidated financial statements of Legend from the acquisition
dates.
(3) For the years ended December 31, 1998 and 1999, there were 6,290,874
shares outstanding. For the years ended December 31, 1997, 1996 and 1995
the weighted average number of shares outstanding was 6,286,322 and
4,392,163 and 4,386,983, respectively, due to the recapitalization of
RGI/US on December 31, 1996 and the sale of 34,130 shares in 1996.
The deficit in earnings to fixed changes for the years ended December
31, 1998 and 1999 was $14,758,622 and $12,136,973, respectively. The calculation
of fixed charges includes interest expense owed to related parties. The book
value per share as of December 31, 1998 and December 31, 1999 was $0.73 and
$0.21 per share, respectively.
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<PAGE> 53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
Legend is the surviving corporation from the December 31, 1996 Banyan
Merger. For financial reporting purposes, the Banyan Merger was treated as a
recapitalization of RGI/US, with RGI/US as the acquirer of Banyan. As of
December 31, 1996, the historical consolidated financial statements of RGI/US
became those of Legend. As of the date hereof, RGI Holdings owns approximately
80% of the outstanding Common Stock of the Company.
Since December 1996, Legend has focused its management efforts and
financial resources on its core assets on the east coast. Non-core assets,
including a 565-acre land parcel (Laguna Seca Ranch) located in California and a
164,724 square foot retail shopping center located in the state of Washington
(Lynnwood Center), were sold during 1997 for approximately $33 million. During
October 1998, Legend sold the Chapman's Landing project to the State of Maryland
and an environmental group for a total sales price of $28.5 million. During
September 1999, the Company sold the Ashburn Corporate Center to an unaffiliated
third party for approximately $15.2 million. The Company had acquired the front
parcel of the project earlier in the year.
Legend is currently focused on continuing the development of
infrastructure, amenities, residential land parcels and residential units at
Grand Harbor, Oak Harbor and Southbridge consistent with approved zoning and
development plans. At Southbridge, Legend intends to rezone the future phases of
the project to allow continuation of its development plan. As Southbridge is
still in the initial stages of development, where major investments in
infrastructure improvements are required to realize the market potential,
significant financial resources have been committed to infrastructure and land
parcel improvements. The Company's ability to fully implement its business plan
is dependent on, among other things, securing long-term and short-term financing
related to the developments on acceptable terms. There can be no assurances that
the Company will be able to obtain the necessary financing on acceptable terms,
if at all. See "Factors Affecting Legend's Business Plan" below.
RESULTS OF OPERATIONS
Results of operations for the year ended December 31, 1999 include the
consolidated revenues and expenses of Grand Harbor, Oak Harbor, Southbridge and
Ashburn. Results of operations for the year ended December 31, 1998 include the
consolidated revenues and expenses of Grand Harbor, Oak Harbor, Southbridge,
Ashburn and Chapman's Landing. Results of operations for the year ended December
31,1997 consist of the consolidated revenues and expenses for Grand Harbor, Oak
Harbor, Southbridge, Chapman's Landing, Laguna Seca Ranch and the Lynnwood
Center. The 1999 change was the sale of Ashburn in September, 1999 while 1998
changes were the acquisition of Ashburn in March 1998 and the sale of Chapman's
Landing in October 1998. The 1997 changes were the sales of the Laguna Seca
Ranch and the Lynnwood Center in November and December 1997, respectively.
Accordingly, the 1999, 1998 and 1997 results of operations are not comparable.
1999 COMPARED TO 1998
Total revenues dropped $756,974 between 1998 and 1999 due to a decrease
in real estate sales revenues which was partially offset by increases in club
operations, patient services and other revenues. These changes are discussed in
further detail below.
Real estate sales revenues decreased $2,982,020 in 1999 as compared to
1998, as a result of a decrease in revenues from the bulk sale of properties.
During 1998, Chapman's Landing was sold for $28.5 million while in 1999 Ashburn
was sold for $15.2 million. In addition, a 20-acre land parcel was also sold
during 1998 at Grand Harbor for $1.9 million yielding a net decrease of $15.2
million in bulk sales revenue. This decline was substantially offset by
increases in unit and/or lot sales at Grand Harbor ($24,413,833), Oak Harbor
($11,142,766) and Southbridge ($5,895,581).
Grand Harbor's real estate sales totaled 60 units in 1999 versus 64
units in 1998 (which included 10 resale units). The average sales price was
approximately $436,000 in 1999 compared to $365,000 for 1998. At Oak Harbor, 28
units were sold during 1999 as opposed to 22 units during 1998, at an average
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<PAGE> 54
sales price of approximately $382,000 in 1999 compared to $390,000 in 1998.
Sales prices range from $200,000 to $1,100,000 at Grand Harbor and $250,000 to
$635,000 at Oak Harbor. Accordingly average unit sales prices may fluctuate
dramatically from period to period depending upon factors such as the unit type
and location of the product sold.
At Southbridge, lot sales increased from 63 in 1998 to 135 in 1999. The
increase from 1998 to 1999 occurred primarily because additional sections were
opened in 1999 and certain sections had a full year of deliveries in 1999 versus
a partial year in 1998. The average Southbridge lot sale price for 1999 was
$42,000, which is comparable to the 1998 average of $40,500.
The Company's backlog at December 31, 1999 was as follows:
CONTRACT
UNITS VALUE
----- -------------
Grand Harbor.......................... 33 $ 17,126,137
Oak Harbor............................ 14 6,390,600
Southbridge........................... 436 21,033,500
--- -------------
483 $ 44,550,237
=== =============
Club memberships increased between 1998 and 1999 as a result of the
continued progress in the sales and development activities at both Grand Harbor
and Oak Harbor, and was the chief component in the rise in club operations
revenue.
Patient services revenues increased slightly in 1999 as compared to
1998 due to slightly higher patient levels.
Total operating costs and expenses rose $619,942. This is mainly due to
an increase in club operating costs partially offset by a decrease in cost of
real estate sales.
Real estate sales expense decreased in 1999 from 1998 by $686,378
primarily due to the $10.5 million decrease in the costs associated with the
bulk sale of property ($13.3 million in 1999 for Ashburn versus $23.8 million in
1998 for Chapman's Landing and the 20-acre Grand Harbor land parcel). The
decrease was almost completely offset by the increase in the overall number of
units sold and changes in unit type, which were described previously. The gross
margin as a percentage of real estate sales revenues was 21% (24% excluding
Ashburn) as compared to 24% for 1998 (26% excluding Chapman's Landing and the
sale of a 20-acre land parcel at Grand Harbor). The slight decline in the
average gross margin is attributable to an increase in the number of Southbridge
units in the total, which generate a lower gross margin versus Grand Harbor and
Oak Harbor. Gross margins by project, excluding bulk land sales, are comparable
for 1999 and 1998. Even so, gross margins realized on the sale of residential
units at Grand Harbor and Oak Harbor can fluctuate significantly from period to
period depending upon the type and location of the product sold.
Club operation expenses increased in 1999 over 1998 mainly in response
to the growth in club operation revenues.
Selling, general and administrative costs declined slightly in 1999 as
compared to 1998 due to a reduction in professional fees from better management
of those relationships and reductions in real estate taxes and homeowner
association subsidies resulting from the general sales progress of the projects.
Also contributing to the decline was the elimination of operating expenses for
Chapman's Landing in 1999 since the project was sold during 1998. These cost
reductions were almost completely offset by the onetime expense of $850,000 for
severance and relocation costs in 1999.
Patient services costs and expenses increased slightly in 1999 as
compared to 1998 which is attributable to higher patient levels.
Net other expense decreased $868,428 between 1999 and 1998 primarily
due to a decline in external debt interest expense, offset by an increase in
related party debt interest expense and a drop in interest income. The interest
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<PAGE> 55
expense decline resulted from a net reduction in outstanding external debt.
Reductions in cash and cash equivalents available for short-term investment
account for most of the decline in interest income between 1999 and 1998.
Income tax benefit generated in 1999 was $9,331,542 versus $0 in 1998.
The 1999 income tax benefit resulted from the realized and anticipated to be
realized utilization of the Company's 1998 and 1999 operating losses by an
affiliated consolidated tax group, pursuant to a new Tax Sharing and Allocation
Agreement which has an effective date retroactive to January 1, 1998.
These changes yielded a decrease in the net loss of $8,823,054 (a net
loss for 1999 of $3,313,919 or $0.53 per share, as compared to $12,136,973 or
$1.93 per share for 1998).
1998 COMPARED TO 1997
Total revenues rose $20,105,558 between 1997 and 1998. This is mainly
because of increases in real estate revenues, and to a lesser extent
improvements in club operating revenues. These are discussed in further detail
below.
Real estate sales revenues grew $21,623,393 between 1997 and 1998
primarily as a result of increases in revenues from the bulk sale of properties.
During 1997, Laguna Seca was sold for approximately $12.8 million whereas
Chapman's Landing was sold in 1998 for $28.5 million. Moreover, a 20-acre land
parcel was sold during 1998 at Grand Harbor for $1.9 million yielding a net
increase of $17.6 million in bulk sales revenue. The remainder of the change
relates to a net increase in unit and lot sales at Grand Harbor ($5,609,412
increase), Oak Harbor ($3,081,529 decrease) and Southbridge ($1,380,989
increase).
Grand Harbor's real estate sales rose to 64 units in 1998 from 44 units
in 1997 resulting from improved marketing strategies and the overall health of
the US economy. The average sales price was approximately $407,000 in 1997
compared with nearly $365,000 for 1998. At Oak Harbor, 22 units were sold during
1998 as opposed to 30 units during 1997 for an approximate average sales price
of $390,000 for both 1998 and 1997. Oak Harbor completed its first 24-unit
condominium during March 1997, and at that time had a majority of those units
under contract. These units closed soon thereafter, which substantially
increased sales for 1997 over 1998. Sales prices range from $165,000 to
$1,100,000 at Grand Harbor, and $250,000 to $635,000 at Oak Harbor. Accordingly
average unit sales prices may fluctuate dramatically from period to period
depending upon factors such as the unit type and location of the product sold.
At Southbridge, lot sales increased from 12 in 1997 to 63 in 1998. This
occurred despite poor weather (in particular excessive rain) in the Washington,
DC area during the winter and spring of 1998, which stalled lot development
activity. The rise from 1997 to 1998 occurred primarily because sales for 1997
were restrained due to delays in development activity. This was caused by the
previously discussed Merger and attendant litigation. The average Southbridge
lot revenue for 1998 was $40,500, which is comparable to the 1997 average of
$42,500.
Club memberships increased between 1997 and 1998 as a result of the
continued progress in the sales and development activities at both Grand Harbor
and Oak Harbor, and was the chief component in the rise in club operations
revenue. The rental revenue for 1997 relates to the Lynnwood Center, which was
sold during 1997.
Accordingly, there is no such comparable revenue item for 1998.
Total operating costs and expenses rose $17,516,156. This is mainly due
to increased real estate sales expenses and club operating costs, net of a
decrease in selling, general and administrative expenses.
A $15.0 million rise in the costs associated with the bulk sale of
property ($23.8 million in 1998 for Chapman's Landing and the 20-acre Grand
Harbor land parcel versus $8.8 million during 1997 for Laguna Seca) was
primarily responsible for the $18,284,255 increase in real estate sales expenses
between 1997 and 1998. The balance of the increase relates mainly to the growth
in the overall number of units sold and changes in unit type, which were
described previously. The gross margin as a percentage of real estate sales
revenues was 24% for 1998 (26% excluding Chapman's Landing and the sale of a
20-acre land parcel at Grand Harbor) as compared to 28% for 1997 (27% excluding
Laguna Seca). The gross margins excluding bulk land sales are comparable for
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<PAGE> 56
1998 and 1997. Even so, gross margins realized on the sale of residential units
at Grand Harbor and Oak Harbor can fluctuate significantly from period to period
depending upon the type and location of the product sold.
Club operation expenses increased in 1998 over 1997 mainly in response
to the growth in club operation revenues. Selling, general and administrative
costs for 1997 included expenses for relocating the corporate offices and
certain costs for litigation associated with the merger and expenses for
settling lawsuits raised in connection with the merger. Accordingly, the 1997
costs include certain "onetime" costs that were not repeated in 1998. Moreover,
these costs fell between 1997 and 1998 as real estate taxes and homeowner
association subsidies declined with the general sales progress of the projects.
This was coupled with reductions in professional fees from better management of
those relationships and other similar factors. The total effect was a $2,851,007
reduction in selling, general and administrative costs between 1997 and 1998.
Net other expense decreased $32,247 between 1997 and 1998 primarily due
to a decline in interest expense, offset by a drop in interest income. The
interest expense decline resulted from a net reduction in external debt.
Reductions in cash and cash equivalents available for short-term investment
account for most of the decline in interest income between 1997 and 1998.
These changes yielded a decrease in the net loss of $2,368,933 (a net
loss for 1998 of $12,136,973 or $1.93 per share, as compared to $14,505,906 or
$2.31 per share for 1997).
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has utilized internally generated funds,
third party borrowings and loans from RGI Holdings and affiliated entities to
fund its construction and development activities, and ongoing operating
expenses. Deferral of interest due to RGI Holdings pursuant to the terms of the
loan agreements has also allowed the Company to maintain and preserve its
liquidity and capital resources.
During the year ended December 31, 1999 the Company utilized existing
cash and cash equivalents, net sales proceeds from the sale of the Ashburn
Corporate Center and third party borrowings to fund its development,
construction and operating activities. The Company borrowed $3,750,000 from RGI
Holdings on a short-term basis which was repaid, along with accrued interest. In
addition, a $1,743,682 principal payment was also repaid to RGI Holdings.
During 2000, the Company contemplates continued expenditures for the
development of residential lots and construction of residential homes at Grand
Harbor, Oak Harbor and Southbridge, so that finished units and lots will be
available during 2000 and beyond to satisfy existing real estate sales
contracts. For Grand Harbor and Oak Harbor, the Company anticipates utilizing
existing construction lines for the majority of the construction financing and
securing additional construction lines from existing external lenders for the
remainder. At Southbridge, the Company must arrange for development financing.
As of December 31, 1999, the Company's debt obligations, including
payables to related parties of $88,661,961, totaled $110,249,174 of which
$5,803,953 matures during 2000. None of these maturities relates to loans from
RGI Holdings. In addition to the debt maturities under existing financings, as
noted above, the Company requires additional financings to advance its business
plan. As of December 31, 1999, the Company had $2,902,359 of cash and cash
equivalents, which will not be sufficient to fund these obligations.
The Company expects to meet its existing debt obligations that mature
during 2000 by the renewal and extension of existing construction lines, and
internally generated funds from real estate sales and operations. Based on
alternatives available, Management believes that sufficient funds will be
available to meet its obligations during 2000. If sufficient funds are not
available from the above sources, the Company anticipates delaying certain
interest payments as allowed under the debt agreements. The Company also has
available, if needed, a $5 million credit facility from RGI Holdings, which was
unused at December 31, 1999.
For future construction and development activities, the Company
anticipates utilizing existing construction lines or securing additional
construction lines or development financing as noted above. Once construction
lines or development financing are secured, they are typically renewed on an
annual basis.
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<PAGE> 57
There can be no assurance that the Company will be able to secure the
necessary future construction and development financing to implement its plan or
that, if available, the terms and conditions will be acceptable to the Company.
If the Company is unable to secure the necessary additional financing or capital
when needed, the plans for its projects will likely be materially revised, which
would have a material adverse effect on the Company's financial condition and
results of operations. See "Factors Affecting Legend's Business Plan."
For each of Legend's projects, cash flow generated from operations can
differ substantially from reported earnings, depending on the status of the
development cycle. At Southbridge, which is in the initial stages of
development, significant cash outlays are required for, among other things, land
acquisitions, processing zoning and other regulatory approvals, construction of
amenities, major roadways, infrastructure and debt service. Since a significant
part of these initial expenditures is capitalized, income reported for financial
statement purposes during the initial years may significantly exceed operating
cash flow. At Grand Harbor and Oak Harbor, which have completed the initial
stages of development, operating cash flow can exceed earnings reported for
financial statement purposes, since the initial expenditures, which were
incurred in a prior period and capitalized, are now being included as expenses.
1999 COMPARED TO 1998
Legend's cash and cash equivalents balance at December 31, 1999 and
1998, was $2,902,359 and $4,446,864, respectively. The decrease is attributable
to cash used in financing activities of $23,320,522, which is partially offset
by cash provided by operating and investing activities of $13,233,674 and
$8,542,343, respectively.
CASH FLOWS FROM OPERATING ACTIVITIES: For the year ended December 31,
1999, operating activities provided cash of $13,233,674.
Cash provided by operations in 1999 was primarily due to the following:
-- A net $14,983,248 reduction in inventory and assets held for
sale. Assets held for sale decreased a net $7,916,175 million
resulting from the sale of Ashburn. Real estate inventory
decreased a net $7,067,073 million, due to unit and lot sales
of 60, 28 and 135 at Grand Harbor, Oak Harbor and Southbridge,
respectively, which reduced real estate inventory by
$33,052,315. This decrease was offset by additional
development and construction activities totaling $25,985,242.
-- Related party interest expense of $7,513,708 that was accrued
but not paid during 1999. This accrued interest was
capitalized into the loan balance on December 31, 1999 in
accordance with the terms of the related loan agreements.
-- Deferred tax benefit of $4,573,900 that was recorded but not
paid in 1999, related to the income tax benefit anticipated to
be realized by the utilization of the Company's 1999 operating
loss.
-- Depreciation and amortization of $2,075,836 that resulted
primarily from fixed asset depreciation for Grand Harbor and
Oak Harbor and loan cost amortization.
Partially offset by the following:
-- A net loss of $3,313,919 that was caused principally by
substantial interest expense, corporate overhead, including
severance and relocation costs of $850,000, and operating
losses at Oak Harbor and Southbridge. These were partially
offset by operating profits at Grand Harbor and Ashburn and
the income tax benefit recorded. Grand Harbor's operating
profit resulted primarily from residential unit sales which
more than offset the losses generated from club operations.
Ashburn's operating profit resulted primarily from the gain
from the sale of the Ashburn Corporate Center. Sales at Oak
Harbor and Southbridge exceeded prior years but were not
sufficient for the projects to cover their overhead, and in
the case of Oak Harbor, the losses generated by the club and
assisted living operations.
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<PAGE> 58
-- An increase in accounts and notes receivable and other assets
of $2,113,928 and a decrease in accounts payable and other
notes and liabilities of $1,337,371 during 1999. The increase
in other assets is primarily attributable to the recording of
a related party receivable representing the income tax benefit
realized from the utilization of the Company's 1998 operating
loss. Fluctuations in these accounts are generally due to the
timing of the collection of accounts and notes receivable and
the payment of certain liabilities, including trade payables,
advances from customers and prepaid expenses. These
fluctuations can vary significantly from period to period
depending on the timing of sale closing, and development and
construction activities. Due to the nature of Legend's
business, significant fluctuations in operating assets and
liabilities are not considered unusual.
CASH FLOWS FROM INVESTING ACTIVITIES: The Company generated $8,542,343
from investing activities during 1999. Certain deposits that were held as
collateral against a bank loan were released and used to pay down that debt
pursuant to a renegotiated loan agreement. Customer deposits also declined as a
result of sales activity which, when combined with the collateral release,
resulted in a decline in restricted cash and investments of $8,415,490. Proceeds
from the sale of property and equipment totaled $830,062, which results
primarily from the sale of a condominium unit held by the Company in Grand
Harbor. These changes were partially offset by the purchase of $703,209 of
property and equipment.
CASH FLOWS FROM FINANCING ACTIVITIES: For the year ended December 31,
1999, Legend utilized net cash in financing activities in the amount of
$23,320,522, primarily for the repayment of $34,009,795 and $7,741,661 of
unaffiliated and related party debt, respectively, partially offset by proceeds
from borrowings of $14,874,271 from unaffiliated parties and $3,750,000 from
related parties.
The Company borrowed $14,874,271 from unaffiliated parties, primarily
at Grand Harbor ($10,948,516) and Oak Harbor ($3,094,070) under existing
construction lines, to fund construction and development costs. Debt repayments
to unaffiliated parties totaled $34,009,795 (Grand Harbor $13,183,277, Oak
Harbor $11,334,354, Southbridge $2,980,000 and Ashburn $5,940,000). These funds
were generated from the sale of residential units and club memberships, the
release of the collateral deposit discussed above, the sale of the Ashburn
Corporate Center and existing cash sources. In addition, the Company borrowed
$3,750,000 from RGI Holdings, which was used to pay $2,248,279 of maturing
related party debt and a portion of external debt. This advance along with
accrued interest and an additional $1,743,382 principal payment on another piece
of the related party debt was repaid with the proceeds from the Ashburn sale.
1998 COMPARED TO 1997
Legend's cash and cash equivalents balance at December 31, 1998, and
December 31, 1997, was $4,446,864 and $12,732,681, respectively. The decrease is
attributable to cash used in investing and financing activities of $4,578,762
and $13,998,293, respectively, which is partially offset by cash provided by
operating activities of $10,291,238.
CASH FLOWS FROM OPERATING ACTIVITIES: For the year ended December 31,
1998, operating activities provided cash of $10,291,238.
Cash provided by operations in 1998 was primarily due to the following:
-- A net $13,067,070 reduction in inventory and assets held for
sale resulting from the sale of Chapman's Landing that was
partially offset by the acquisition of Ashburn for
approximately $7.9 million. In addition, development
activities continued at Southbridge, which also offset the
inventory decline related to the Chapman's Landing sale. Total
land acquisition, development and construction activities were
$36,561,117. This was offset by an aggregate inventory
reduction of $49,628,187, due to the Chapman's Landing sale
and unit or lot sales of 64, 22, and 63 at Grand Harbor, Oak
Harbor and Southbridge, respectively.
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<PAGE> 59
-- Related party interest expense of $5,853,716 that was accrued
but not paid during 1998. This accrued interest was
capitalized into the loan balance on December 31, 1998 in
accordance with the terms of the related loan agreements.
-- Depreciation and amortization of $2,977,467 that resulted
primarily from fixed asset depreciation for Grand Harbor and
Oak Harbor and loan cost amortization.
-- An increase in accounts payable and other notes and
liabilities of $4,662,756 offset by an increase in accounts
and notes receivable and other assets of $4,132,798 during
1998. Fluctuations in these accounts are generally due to the
timing of the payment of certain liabilities, including trade
payables, advances from customers, prepaid expenses, and the
collection of accounts and notes receivable. These
fluctuations can vary significantly from period to period
depending on the timing of sale closing, and development and
construction activities. Due to the nature of Legend's
business, significant fluctuations in operating assets and
liabilities are not considered unusual.
Partially offset by the following:
-- A net loss of $12,136,973 that was caused principally by
substantial interest expense, corporate overhead and operating
losses at Oak Harbor, Ashburn and Southbridge. These were
partially counterbalanced by operating profits at Grand Harbor
and the gain from the sale of Chapman's Landing. Sales at Oak
Harbor were less than expected in 1998 and lower than 1997.
Ashburn incurred certain costs associated with holding and
marketing the property during the period it has been held for
sale without any compensating revenues. Southbridge
experienced delays in developing lots due to an extremely wet
winter and spring in the Washington, DC area, and closed fewer
lots than expected. Grand Harbor's operating profits resulted
primarily from the sale of a 20-acre parcel of raw land and
better than expected residential unit sales.
CASH FLOWS FROM INVESTING ACTIVITIES: Legend used $4,578,762 in
investing activities during 1998. The majority of this was the result of
$3,787,322 increase in restricted cash and investments, that arose chiefly from
the growth of customer sales deposit cash at Grand Harbor as the backlog has
expanded from 12 to 39 units between December 31, 1997 and 1998. The remainder
of the increase relates to $791,440 in purchases of property and equipment
during 1998.
CASH FLOWS FROM FINANCING ACTIVITIES: For the year ended December 31,
1998, Legend utilized net cash in financing activities in the amount of
$13,998,293 primarily for the repayment of $41,258,127 of external debt,
partially offset by proceeds from borrowings of $21,569,532 from external
parties and $6,000,000 from related parties.
The Company borrowed $21,569,532 from external parties that was mainly
used at Grand Harbor ($11,698,130) and Oak Harbor ($3,931,402) to fund
construction and development costs. Additional funds were borrowed at Ashburn
Corporate Center ($5,940,000) to finance the acquisition of the first parcel as
was previously described. Debt repayments to external parties totaled
$41,258,127 (Corporate $996,220, Grand Harbor $23,642,961 and Oak Harbor
$16,618,946). These funds were generated from the sale of Chapman's Landing
(described earlier), sale of residential units and club memberships, and
existing cash sources. Moreover, the Company borrowed $6,000,000 from RGI
Holdings, which was used to pay off existing external debt and fund construction
and development activities and ongoing operations.
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FACTORS AFFECTING LEGEND'S BUSINESS PLAN
In addition to the other information contained in this discussion, the
following factors should be considered carefully:
INTEREST RATES
The Company is exposed to market risks associated with interest changes
on the debt used to fund its construction, development, and operating
activities. The Company's interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flow and to lower
overall borrowing costs. The Company uses a mixture of fixed rate debt, interest
rate swap agreements, and offsetting financial instruments such as annuity
contracts to mitigate this risk. The Company does not enter into other
derivative financial instruments for speculative purposes.
The Company's interest rate risk is monitored by management. The table
below presents the principal amounts, weighted-average interest rates and fair
values required to evaluate the expected cash flows of the Company under debt
and related agreements and its sensitivity to interest rate changes at December
31, 1999.
<TABLE>
<CAPTION>
FAIR
(000,000'S OMITTED) 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
------------------- ---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt................ 0.4 0.4 0.3 0.4 0.4 2.5 4.4 4.4
Average interest rate.......... 5.8% 5.8% 5.7% 5.7% 5.6% 5.5%
Variable rate LIBOR debt....... 0.1 0.2 0.2 34.5 0.0 0.0 35.0 35.0
Average interest rate.......... 8.9% 8.9% 8.9% 8.9% 8.9% 0.0%
Variable rate prime debt....... 3.2 3.6 0.0 57.5 0.0 0.0 64.3 64.3
Average interest rate.......... 10.3% 10.4% 0.0% 10.5% 0.0% 0.0%
Variable rate bank cost of
funds debt.................. 2.1 2.5 1.9 0.0 0.0 0.0 6.5 6.5
Average interest rate.......... 8.7% 8.7% 8.7% 0.0% 0.0% 0.0%
</TABLE>
The table incorporates those exposures that exist as of December 31,
1999, and does not consider those exposures or positions which could arise after
that date. As a result the Company's cost of funds with respect to interest rate
fluctuations will depend on the exposures that arise after December 31, 1999,
the Company's hedging strategy during that period and interest rates.
Legend's business and financial condition may be affected during
inflationary periods as a result of the higher costs and interest rates that
accompany these cycles. High inflation and interest rates push financing and
construction costs upward, which may adversely impact the Company's operations.
Moreover, housing demand typically declines during such periods because
financing is difficult, and at times impossible, for potential buyers to obtain
on acceptable terms, thereby depressing demand for the Company's products.
SUBSTANTIAL DEBT OBLIGATIONS
As of December 31, 1999 the Company's outstanding notes payable to
banks and others aggregated $21,587,213, of which $5,803,953 matures in 2000,
$6,696,620 in 2001 and $9,086,640 in 2002 and thereafter. Additionally, as of
December 31, 1999 payables to related parties totaled $88,661,961, which matures
in 2003. As of December 31, 1999 the Company had $2,902,359 of cash and cash
equivalents, which will not be sufficient to fund these obligations.
There can be no assurance that the Company will be able to obtain the
necessary construction and development financing to implement its plan or that,
if available, the terms and conditions will be acceptable to the Company. If the
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<PAGE> 61
Company is unable to secure the necessary additional financing or capital when
needed, the plans for its projects will likely be materially revised, which
would have a material adverse effect on the Company's financial condition and
results of operations.
Legend's ability to service its debts and other obligations when they
become due will also depend on various factors affecting its properties, such as
operating expenses and construction schedules, which, in turn, may be adversely
affected by general and local economic conditions. Certain expenditures, such as
loan payments and real estate taxes are typically fixed obligations and are not
necessarily decreased by adverse events affecting revenues generated by the
properties. Therefore, expenditures for developing properties may exceed the
income derived from the sale of lots or homes and Legend would have to obtain
funds from other sources to operate and maintain a property in order to protect
its investment.
NEED FOR ADDITIONAL CAPITAL
Funds from operations and proceeds from the sale of assets will not be
sufficient to allow Legend to complete its business plans for its remaining
properties. There can be no assurance that additional capital will be available
to Legend or that, if available, the terms and conditions will be acceptable to
Legend or will not be dilutive to Legend's stockholders. A failure to secure
additional capital when needed would have a material adverse effect on Legend's
results of operation and financial condition.
REAL ESTATE INVESTMENT RISKS
Real property investments are subject to certain risks that are not
always susceptible to prediction or control. The cash flow generated by, and
capital appreciation realized from, real property investments may be adversely
affected by the national and regional economic climate (which, in turn, may be
adversely impacted by plant closings, industry slow downs, income tax rates,
interest rates, demographic changes and other factors), local real estate
conditions (such as oversupply of, or reduced demand for rental space or housing
in the area), the attractiveness of the properties, zoning and other regulatory
restrictions, competition from other land developers or developments, increased
operating costs (including maintenance costs, insurance premiums and real estate
taxes), perceptions by tenants or potential buyers of the safety, convenience
and attractiveness of the property and the willingness of the owner of the
property to provide capable management and adequate maintenance. In light of the
foregoing factors, there can be no assurance that Legend's properties will be
salable at a price or prices sufficient to recover costs.
The cash flow generated by, or capital appreciation from, real property
investments may also be adversely impacted by changes in governmental
regulations, zoning or tax laws, potential environmental or other legal
liabilities and changes in interest rates. Real estate investments, particularly
development properties, are also relatively illiquid and, therefore, Legend's
ability to vary its portfolio promptly in response to changes in economic or
other conditions will in all likelihood be limited. In the event Legend is
forced to sell a property, Legend may sustain a loss due to the inherent lack of
liquidity in such an investment.
DEVELOPMENT AND CONSTRUCTION ACTIVITIES
Development and construction activities are subject to numerous risks
including delays in construction, certain of which (for example, acts of God,
labor strikes or shortages of supplies) may not be controllable, and quality of
construction, which depends upon a number of factors including the professional
capabilities of the contractor(s), site constraints, adherence to plans and
specifications, adequacy of supervision, and the financial ability of the
developer to bear any unanticipated additional costs of construction. Similarly,
development and construction activities generally require various governmental
and other approvals and permits, the issuance or granting of these is not
certain. There can be no assurance Legend will be able to secure all
entitlements and permits necessary to complete the development and construction
of each of its properties. Further, these activities require the expenditure of
funds on, and the devotion of management's time to, projects which may not be
completed or which, if completed, may not be completed on time or on budget.
Likewise, financing may not be available on favorable terms, if at all, for
development and construction projects and delays in completing development and
construction could result in increases in debt service costs.
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<PAGE> 62
Legend currently provides, and will continue to provide, certain
warranties with respect to the quality of the construction of the homes built at
Grand Harbor and Oak Harbor. In addition, Florida law requires homebuilders to
provide for certain additional warranties that cannot be disclaimed, regardless
of whether there are actual deficiencies in the quality of materials used or the
construction of the homes built at Grand Harbor and Oak Harbor. The cost of
settling, or the failure to settle, any presently unasserted claims in the
future may have a material adverse effect on Legend's future results of
operations and financial condition.
LACK OF GEOGRAPHIC DIVERSIFICATION
The Southbridge property is located in close proximity to Washington,
D.C. Similarly, Grand Harbor and Oak Harbor are both located in close proximity
to Vero Beach, Florida. Economic weakness or recession in either of these two
areas, or the occurrence of other adverse circumstances could have a material
adverse effect on Legend's results of operation and financial condition.
GOVERNMENT REGULATION
LAND USE AND ZONING. Federal, state and local regulations may be
promulgated which restrict or curtail certain uses of land or existing
structures or require renovation or alteration of these structures. Any
restrictions on the anticipated development of the Company's properties could
affect the market for and price of the lots or homes and prevent or delay sales.
Furthermore, obtaining any additional permits or other consents of local
governments for development of properties may require public hearings and
meetings with public officials and community groups. There can be no assurance
that some or all of the entitlements relating to the Company's properties will
not be revoked or modified in the future. From time to time, governmental
entities have imposed limitations on the development of certain areas. In
addition, it may be difficult or impossible to modify existing zoning to respond
to changing market conditions in order to increase the realizable value of the
property. Any revocation or modification, or refusal to modify existing
entitlements, could have a material adverse effect on the Company's results of
operations and financial condition.
ENVIRONMENTAL MATTERS. Under various federal, state and local laws,
ordinances and regulations, an owner, operator, manager or developer of real
estate may be liable for the cost of removing or remediating certain hazardous
or toxic substances (including asbestos containing materials) on, under or in
real estate owned, operated, managed or developed. These enactments often impose
liability without regard to whether the owner, operator, manager or developer
knew of, or was responsible for, the presence of the hazardous or toxic
substances. The cost of any required remediation and the accompanying liability
is generally not limited under these enactments and could exceed the value of
the property or the aggregate assets of the owner, operator, manager or
developer. The presence of hazardous or toxic substances, or the failure to
properly remediate these substances, may adversely affect an owner's ability to
sell or rent the property, or to borrow money using the property as collateral.
In addition, liability may be imposed for releasing asbestos containing
materials into the air. In connection with owning and operating its properties,
Legend may be potentially liable for these costs. Legend does not maintain
insurance for any of these potential environmental liabilities and does not
anticipate securing any such insurance in the foreseeable future.
AMERICANS WITH DISABILITIES ACT. Under the Americans with Disabilities
Act of 1990 (the "ADA"), all public accommodations must comply with certain
federal requirements related to access and use by disabled persons. These
requirements became effective in 1992. The ADA has separate compliance
requirements for "public accommodations" and "commercial facilities" but
generally requires making buildings accessible to people with disabilities.
Noncompliance with these requirements could result in the imposition of fines by
the federal government or an award of damages to private litigants. Management
believes that Legend is substantially in compliance with federal requirements
related to access and use by disabled persons.
HEALTHCARE REGULATIONS. Healthcare operations in the State of Florida
are subject to varying degrees of regulation and licensing by health or social
service agencies and other regulatory authorities. Changes in the laws or new
interpretations of existing laws can have a significant effect on methods and
costs of doing business. Currently, no federal rules explicitly define or
regulate assisted living. In addition, the Royal Palm Convalescent Center does
not accept Medicare or Medicaid reimbursement. However, federal, state or local
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<PAGE> 63
laws or regulatory procedures which might adversely affect assisted living
businesses could be expanded or imposed and changes to licensing and
certification standards could have a material adverse effect on Legend's results
of operations and financial condition.
BOOK VALUE NOT REFLECTIVE OF CURRENT REALIZABLE VALUE
Legend currently evaluates the carrying value of its real property and
other assets on an ongoing basis relying on a number of factors, including
operating results, business plans, budgets and economic projections. In
addition, Legend considers non-financial data such as continuity of personnel,
changes in the operating environment, competitive information, market trends and
client and business relationships. The future value of these assets is subject
to numerous contingencies, including the completion of construction and
development. A change in any or all of these factors could result in an
impairment in value of Legend's assets and the realizable value could differ
significantly from the current carrying value of these assets.
BANKRUPTCY RISKS
If Legend defaults on its indebtedness, it may be required to
restructure its financial affairs under the Federal Bankruptcy Code or seek some
other type of relief. A restructuring or other reorganization under the
Bankruptcy Code or otherwise may result in the stockholders losing their entire
interest in the Company.
ISSUANCE OF PREFERRED STOCK OR COMMON STOCK
Legend's board of directors has the authority to issue preferred stock
in one or more series or classes with such designations, preferences and rights
and such qualifications, limitations or restrictions as determined by the board.
The issuance of preferred stock or common stock could have a dilutive or other
material adverse effect on the holders of Legend's shares of common stock.
SHARES AVAILABLE FOR FUTURE SALE
As of the date hereof, RGI Holdings owns approximately 80% of Legend's
outstanding shares of common stock. These shares are subject to resale
restrictions but a portion may, in certain circumstances, be registered for
sale. Sales of a substantial number of these shares of common stock in the
public market or the perception that sales occur could adversely affect the
market price of the common stock and Legend's ability to raise capital in the
future.
DIVIDEND POLICY
The Company has not paid cash dividends since the first quarter of 1990
and does not contemplate paying cash dividends until it generates sustainable
cash flow in excess of its capital needs. There can be no assurance that Legend
will ever generate sufficient cash flow to pay dividends to its stockholders.
Moreover, certain of Legend's loan agreements prohibit the payment of dividends.
If Legend issues preferred stock with a dividend, the stockholders' right to
receive dividends, if any, will be subordinated to that of the holders of
preferred stock.
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CERTAIN FORWARD LOOKING INFORMATION
Certain statements in contained herein that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Without limiting the foregoing, words
such as "anticipates," "expects," "intends," "plans" and similar expressions are
intended to identify forward-looking statements. These statements are subject to
a number of risks and uncertainties including but not limited to those discussed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors Affecting Legend's Business Plan" earlier in this
Information Statement. Actual results could differ materially from those
projected in the forward-looking statements. The Company undertakes no
obligation to update these forward-looking statements to reflect future events
or circumstances.
The Company does not, as a matter of course, make public projections as
to future financial results. However, Legend management annually prepares
financial forecasts for internal use in capital budgeting and other management
decisions. The Company's projections for the fiscal years 2000 through 2012 were
prepared by management in December 1999 for internal use in capital budgeting
and other management decisions and do not give effect to the Merger or any other
possible acquisitions or other transactions that might occur after the Merger.
In December 1999, management provided these projections to the Special Committee
and Josephthal.
A summary of such projections for Legend on a consolidated basis is set
forth below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
FY2000 FY2001 FY2002 FY2003 FY2004 FY2005
------ ------ ------ ------ ------ ------
(DOLLAR IN 000S)
<S> <C> <C> <C> <C> <C> <C>
Total Revenues $ 58,194 $ 67,778 $ 73,301 $ 82,132 $ 80,120 $ 77,715
EBITDA $ 3,757 $ 9,865 $ 11,539 $ 6,942 $ 16,019 $ 15,248
Free Cash Flow $ 4,731 $ 14,389 $ 19,867 $ 29,081 $ 24,790 $ 24,836
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012
------ ------ ------ ------ ------ ------ ------
(DOLLAR IN 000S)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Revenues $ 87,817 $ 121,352 $ 11,096 $ 16,575 $ 14,862 $ 12,310 $ 8,985
EBITDA $ 12,385 $ 40,415 $ 4,328 $ (783) $ 11,382 $ 198 $ 8,052
Free Cash Flow $ 28,445 $ 47,389 $ (1,760) $ 6,683 $ 2,185 $ 4,998 $ (891)
</TABLE>
The projections should be read together with the information contained
in Legend's Consolidated Financial Statements and related notes included
elsewhere herein and with the following assumptions made in preparing such
projections:
(a) The projections do not give effect to the Merger.
(b) The projections do not give effect to any possible acquisition,
disposition or other transactions that may occur after the Merger.
(c) Operations beyond 2007 reflect only those of Southbridge.
Management projects that build-out at Grand Harbor and Oak Harbor will be
complete in 2007.
(d) Net operating losses prior to 1996 are assumed to be unusable. Tax
benefit in 2009 and 2011 reflects carryback to 2008.
(e) Capital expenditures reflect replacement reserves for golf course
equipment and renovation at Grand Harbor, and replacement reserves for potential
renovations at the Assisted Living and Skilled Care Facilities at Oak Harbor.
(f) All capital necessary for the build-out of Legend's three core
projects (Grand Harbor, Oak Harbor and Southbridge) will be available).
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(g) Josephthal's written presentation to the Special Committee and the
Board includes management's individual projections and related assumptions for
each of the Grand Harbor, Oak Harbor and Southbridge projects.
None of the foregoing projections were prepared with a view to public
disclosure or compliance with published guidelines of the SEC or the guidelines
established by the American Institute of Certified Public Accountants regarding
projections. KPMG LLP, the Company's independent auditors, have not performed
any procedures with respect to the projections and assume no responsibility for
them.
None of the foregoing projections should be regarded as an accurate
prediction of future events. Such projections are subjective in many respects
and thus susceptible to various interpretations and periodic revision based
actual experience and business developments. In addition, such projections are
based on a number of assumptions that are subject to risks and uncertainties
which could cause actual results to differ materially from those projected. Such
risks and uncertainties include the risks associated with interest rate
fluctuations, the Company's substantial debt obligations, its need for
additional capital, real estate investment risks, risks associated with
development and construction risks. The projections have not been and will not
be revised or updated from the date of their preparation to reflect subsequent
events, facts or other information of which any person or entity has become
aware.
Inclusion of the foregoing forecasts should not be regarded as a
representation by Legend, RGI Holdings, LP Acquisition Corp., any of their
respective affiliates or financial advisors or any other entity or person that
the projected results would be achieved or as to any future event, occurrence or
non-occurrence and none of the foregoing parties assumes any responsibility for
the accuracy of such information. There can be no assurance that the projections
will be realized, and actual results may be higher or lower than those shown,
possibly by material amounts.
Copies of the management projections for Legend on a consolidated basis
and individually for each of the Grand Harbor, Oak Harbor and Southbridge
projects (including project-specific assumptions) that were utilized by
Josephthal in its valuation analyses are included in its written presentation to
the Special Committee and the Board, which is filed as an exhibit to the
Schedule 13E-3 filed with the SEC in connection with the Merger and are
available for inspection and copying at the principal executive offices of the
Company during its regular business hours by any stockholder or any
representative of a stockholder who has been so designated in writing. Copies of
such projections will be provided by the Company to any stockholder or any
representative of a stockholder who has been so designated in writing upon
written request and at the expense of the requesting stockholder or such
representative. See "Available Information."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF LEGEND
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Walter E. Auch, Sr.................. 79 Director
Helge Lund.......................... 37 Director
Jan Petter Storetvedt............... 44 Director, Chairman of the Board
Robert M. Ungerleider............... 58 Director
Fred E. Welker, III................. 52 Director
Peter J. Henn....................... 39 President and Chief Executive Officer
Robert B. Cavoto.................... 39 Vice President, Chief Financial Officer and Assistant Secretary
</TABLE>
WALTER E. AUCH, SR., age 79, was the Chairman and Chief Executive
Officer of the Chicago Board of Options Exchange from 1979 to 1986. Prior to
that time, he was Executive Vice President, Director and a member of the
executive committee of Paine Webber. Mr. Auch is a Director of Pimco L.P.,
Brinson Partners Funds, Advisors Series Trust, Smith Barney Concert Series
Funds, Smith Barney Trak Fund, Nicholas Applegate Funds, Fort Dearborn Fund,
Semele Group, Inc. and BSRT Management Corp. and a Trustee of Banyan Strategic
Realty Trust, Hillsdale College and the Arizona Heart Institute. Mr. Auch has
been a director of the Company since 1988.
HELGE LUND, age 37, is presently Chief Operating Officer of Aker RGI
ASA. Prior to his appointment, Mr. Lund was Executive Vice President of Aker RGI
ASA, responsible for Investments since January 1999. Mr. Lund is a graduate of
the Norwegian School of Economics and Business Administration and has an MBA
from INSEAD in France. He serves as a director for Aker Maritime ASA,
Constructor Dexion Group PLC, Atlas Stord AS and Polynor Partners AS. Mr. Lund
has been a director of the Company since March 1999.
JAN PETTER STORETVEDT, age 44, is presently Executive Vice President of
RGI Holdings. Since March 1997, he has served as chairman of the board of
Avantor ASA. From December 1991 to March 1997, he served as President, Chief
Executive Officer and Director of Avantor ASA, a Norwegian publicly traded real
estate company. Mr.
Storetvedt has been Chairman of the Board of the Company since June 1997.
ROBERT M. UNGERLEIDER, age 58, is presently the President of Pilot
Books, a book publisher located in Greenport, New York, and practices law with
and is of counsel to the firm of Felcher, Fox & Litner P.C., in New York, New
York. He has founded, developed and sold a number of start-up ventures including
Verifone Finance, an equipment leasing business, SmartPage, a paging service
company and Financial Risk Underwriting Agency, Inc., an insurance agency
specializing in financial guarantee transactions. Prior to these endeavors, Mr.
Ungerleider practiced real estate and corporate law for ten years. Mr.
Ungerleider received his B.A. Degree from Colgate University and his Law Degree
from Columbia University Law School. Mr. Ungerleider has been a director of the
Company since 1988.
FRED E. WELKER, III, age 52, has been the President of Realty Financial
Advisors, Inc., a real estate investment banking firm, since January 1993. From
1982 to 1992, Mr. Welker was the Executive Vice President for the Southeast
Regional Office of Sonnenblick-Goldman Company, a real estate investment banking
firm. From 1981 to 1982, Mr. Welker was Vice President-Joint Ventures for
American Savings & Loan Association, and from 1976 to 1981 he was a commercial
loan officer with First Federal of Broward (merged with Glendale Federal). Mr.
Welker has been a director of the Company since January 1997.
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<PAGE> 67
PETER J. HENN, age 39, has been President and Chief Executive Officer
of the Company since March 1999. Prior to his appointment, Mr. Henn was Vice
President, General Counsel and Secretary of the Company since November 1997.
Since March 1994, Mr. Henn has represented certain of the Company's Florida
subsidiaries and provided real estate closing and escrow services to the company
as President of Harbor Title & Escrow Company. Mr. Henn received his B.A. and
M.A. in Economics from Florida Atlantic University and his J.D. from the
University of Miami School of Law.
ROBERT B. CAVOTO, age 39, has been Vice President, Chief Financial
Officer and Assistant Secretary of the Company since November 1997. During 1997,
prior to this appointment, Mr. Cavoto was a financial consultant to LPI
Development, Inc., a subsidiary of the Company. From 1991 to 1997, he was an
Asset Manager with Banyan Management Corp., and was responsible for entitlement,
development, financing and disposition activities for a portfolio of mixed-use
and residential land developments. From 1988 to 1991, Mr. Cavoto was Vice
President of finance for a real estate company. Prior to that he was a manager
in KPMG LLP's real estate practice. Mr. Cavoto received his B.S. in accounting
from Northern Illinois University and is a Certified Public Accountant.
EXECUTIVE AND DIRECTOR COMPENSATION
SUMMARY EXECUTIVE COMPENSATION TABLE
The following table sets forth compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and each of the Company's other
executive officers whose total 1999 salary and bonus from the Company was
$100,000 or more (the Chief Executive Officer and such other executive officers
are referred to herein as the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION
--------------------------- ----------- ------ ----- ------------
<S> <C> <C> <C> <C>
Peter J. Henn............................... 1999 $212,680 $88,333 n/a
Chief Executive Officer(1) 1998 n/a n/a n/a
1997 n/a n/a n/a
Edward F. Podboy, Jr........................ 1999 $247,981 $505,344 n/a
Former Chief Executive 1998 $245,000 $390,932 n/a
Officer(2) 1997 $133,802 $44,985 $31,000
Robert B. Cavoto............................ 1999 $115,000 $15,000 n/a
Vice President, Chief Financial Officer 1998 $105,000 $30,000 $11,078
and Assistant Secretary 1997 n/a n/a n/a
</TABLE>
- ---------------------
(1) Prior to his appointment in March 1999, Mr. Henn was compensated under a
Legal Services Agreement between the Company and the law firm of Peter J.
Henn, P.A. During 1999, the Company paid $56,875 for legal services under
the Legal Services Agreement.
(2) Mr. Podboy served as President and Chief Executive Officer of the Company
from August 1997 to March 1999. From April to August 1997, Mr. Podboy
served as President of LPI Development, Inc. a subsidiary of the Company.
All Other Annual Compensation for 1997 is a reimbursement for relocation
expenses. Pursuant to his Employment Agreement, the Company remains
obligated to pay Mr. Podboy his base salary, as defined in the employment
agreement, through its expiration date of July 31, 2001 and to be
determined additional incentive compensation.
EXECUTIVE AND DIRECTORS' STOCK OPTION PLAN
On June 25, 1993, the Company's stockholders approved and adopted the
1993 Executive and Directors' Stock Option Plan (the "Plan"). The Plan grants
the Board of Directors the authority to issue up to 40,000 shares (adjusted for
the stock split) of the Company's common stock for stock option awards. The Plan
consists of an Executive Option Grant Program and a Director Option Grant
Program. Under the Director Option Grant Program, each Director holding office
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<PAGE> 68
on the tenth business day after adjournment of the annual meeting automatically
receives an option to acquire 1,000 shares. Options granted vest 50% upon the
first anniversary of the date of the grant and 50% upon the second anniversary
of the date of the grant and expire ten years from the date of the grant. The
exercise price for the options granted in July 1997, January 1997 (1996 Annual
Meeting), 1995, 1994 and 1993 is $4.50, $7.75, $15.64, $17.19 and $15.64 per
share, respectively.
The Board administers the Executive Option Grant Program and has the
authority to determine, among other things, the individuals to be granted
executive options, the exercise price at which shares may be acquired, the
number of shares subject to each option and the exercise period of each option.
The Board is also authorized to construe and interpret the Executive Option
Grant Program and to prescribe additional terms and conditions of exercise in
option agreements and provide the form of option agreement to be utilized with
the Executive Option Grant Program. No Director is eligible to receive options
under the Executive Option Grant Program.
Options granted under the Plan are not transferable except by will or
by the laws of descent and distribution, and are exercisable during an
optionee's lifetime only by the optionee or the appointed guardian or legal
representative of the optionee. Upon the: (a) death or permanent and total
disability of an optionee; or (b) retirement in accord with the Company's
retirement practices, then any unexercised options to acquire shares will be
exercisable at any time within one year in the case of (a) and ninety days in
the case of (b) (but in no case beyond the expiration date specified in the
Option Agreement). If, while unexercised options remain outstanding under the
Plan, the Company ceases to be a publicly traded company, or if the Company
merges with another entity or a similar event occurs, all options outstanding
under the Plan shall immediately become exercisable at that time.
The Plan requires the optionee to pay, at the time of exercise, for all
shares acquired on exercise in cash, shares or, in the case of the Executive
Option Grant Program, other forms of consideration acceptable to the Board.
If the Company declares a stock dividend, splits its stock, combines or
exchanges its shares, or engages in any other transactions which results in a
change in capital structure such as a merger, consolidation, dissolution,
liquidation or similar transaction, the Board may adjust or substitute, as the
case may be, the number of shares available for options under the Plan, the
number of shares covered by outstanding options, the exercise price per share of
outstanding options, any target price levels for vesting of the options and any
other characteristics of the options as the Board deems necessary to equitably
reflect the effects of those changes on the option holders.
Pursuant to the Plan, the Board granted an aggregate 14,440 options
through December 31, 1996. Pursuant to the Company's Merger on December 31, 1996
which resulted in a change in control (as defined in the Merger agreement),
substantially all stock options issued to the executive officers and various
employees of Banyan Management Corp. under the Executive Option Grant Program
became fully vested and exercisable until December 31, 1997. None of these
options were exercised and have been cancelled.
The exercise prices as well as the number of shares issuable on any
options granted prior to the Merger have been adjusted to give effect to the
Company's 25 to 1 reverse stock-split as approved by its stockholders.
Options granted after December 31, 1996 (other than which have been
described above) under the Executive Option Grant Program will be exercisable
and vested in installments as follows: (i) 33.3% of the number of shares
commencing on the first anniversary of the date of grant; (ii) an additional
33.3% of the shares commencing on the second anniversary of the date of the
grant; and (iii) an additional 33.4% of shares commencing on the third
anniversary of the date of grant. Options for all shares as granted under the
Director Option Grant Program will be exercisable and vest as follows: (i) 50.0%
of the number of shares commencing on the first anniversary of the date of
grant; and (ii) an additional 50.0% of the number of shares commencing on the
second anniversary of the date of grant. The Board is granted discretion to
determine the term of each Option granted under the Executive Option Grant
Program, but in no event will the term exceed ten years and one day from the
date of grant.
There were no stock options granted to or exercised by any present or
former executive officer during the years ended December 31, 1999 and 1998.
OPTION GRANTS
No stock options were granted to any Named Executive Officers in 1999
or 1998.
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<PAGE> 69
LONG TERM INCENTIVE AND PENSION PLANS
The Company has no long term incentive or pension plans.
DIRECTOR COMPENSATION
The directors are paid an annual fee of $15,000, payable quarterly,
plus $875 for each board or audit committee meeting attended in person and $250
an hour for any of these meetings attended telephonically. In addition, each
director is reimbursed for out-of-pocket expenses incurred in attending meetings
of the Board. The three Directors not associated with Aker RGI ASA were paid an
additional fee of $10,000 for serving on the Special Committee that was
established to evaluate and consider the merger proposal from Holdings (see Note
14 of Notes to the Consolidated Financial Statements).
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Prior to his appointment as President and Chief Executive Officer in
March 1999, Mr. Henn was compensated under a Legal Services Agreement between
the Company and the law firm of Peter J. Henn, P.A. The Company paid $56,875 to
the law firm of Peter J. Henn, P.A. during 1999 for legal services provided to
the Company under the Legal Services Agreement. The Legal Services Agreement
also provides that Harbor Title & Escrow will continue to provide title
insurance, as required, at the minimum title insurance rates allowed under
Florida law.
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<PAGE> 70
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 2000 by (i) each person
known by the Company to beneficially own more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each Named Executive Officer of the Company, and (iv) all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK(1)
-----------------------------------
NAME AND ADDRESS BENEFICIAL OWNER NUMBER OF SHARES PERCENTAGE
- --------------------------------- ---------------- ----------
<S> <C> <C>
RGI Holdings, Inc. and affiliates 5,057,646 80%
2025 First Avenue, Suite 830
Seattle, Washington 98121
Peter J. Henn(2) 416 Less than 1%
Robert M. Ungerleider(3) 1,560 Less than 1%
All Directors and Officers as a group (7 persons)(3) 1,976 Less than 1%
</TABLE>
- ---------------------
(1) Except as otherwise indicated below, all shares are owned directly and
each person has sole voting and investment power with respect to all
shares. For purposes of this table, a person is deemed to have
"beneficial ownership" of any shares as of a given date which the person
has the right to acquire within 60 days after such date. For purposes of
computing the outstanding shares held by each person named above on a
given date, any shares which such person has the right to acquire within
60 days after such date are deemed to be outstanding, but are not deemed
to be outstanding for the purpose of computing the percentage ownership
of any other person. However, the table does not reflect the acceleration
of stock options vesting that will result from the Merger. See "THE
MERGER--Cash-out of Legend Stock Options."
(2) Represents shares held by PJH Holdings, Inc., an entity controlled by Mr.
Henn.
(3) Excludes options granted to acquire 8,340 shares at prices ranging from
$7.74 to $28.125 per share which have vested.
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<PAGE> 71
CERTAIN INFORMATION CONCERNING LP ACQUISITION CORP.,
RGI HOLDINGS AND OTHER AFFILIATES
The Affiliates consist of LP Acquisition Corp. and each of the
following:
(1) Kjell Inge Rokke, a Norwegian citizen;
(2) TRG (Europe) B.V., a Netherlands corporation wholly-owned by Mr. Rokke
and the holder of approximately 90% of the capital stock of Aker RGI;
(3) Aker RGI;
(4) RGI (Europe) B.V., a Netherlands corporation and wholly-owned
subsidiary of Aker RGI;
(5) RGI (Denmark) ApS, a Danish limited liability company and wholly-owned
subsidiary of RGI Europe;
(6) Resource Group International Inc., a Washington corporation, a
wholly-owned subsidiary of RGI Denmark;
(7) RGI Holdings, a Washington corporation and 80.45% owned subsidiary of
RGI International; and
(8) Avantor, a Norwegian corporation and the holder of 19.55% of the
outstanding capital stock of RGI Holdings.
TRG is a holding company through which Mr. Rokke owns his controlling
interest in Aker RGI. Aker RGI is an investment company that engages in
acquiring, restructuring, developing and selling companies. Its key investments
are currently in oil and gas technology, ship building and offshore industry
yards and fisheries. RGI Europe, RGI Denmark and RGI International are
intermediate holding companies for various entities engaged in such businesses.
RGI Holdings was organized to serve as a holding company for investments in
entities engaged in the ownership and development of real estate and related
assets.
TRG
The following sets forth with respect to each executive officer and
director of TRG his or its name, position, residence or principal business
address, present principal occupation (if other than with TRG), citizenship and
a brief description of his business experience during the last five years (if
other than as an executive officer or director of TRG):
BOARD OF DIRECTORS
Kjell Inge Rokke
Director
Flat 3, 37 Chesham Place
London SW1 X 8HB
United Kingdom
MeesPierson Trust B.V.
Director
P.O. Box 548
3000 AM Rotterdam
The Netherlands
MeesPierson Trust B.V. is a corporation organized and existing
under the laws of Netherlands, with corporate seat in
Amsterdam, the Netherlands.
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<PAGE> 72
EXECUTIVE OFFICERS:
Kjell Inge Rokke-Director
MeesPierson Trust B.V.-Director
The principal executive offices of TRG are located at Aert Van Nesstraat 45,
3012 CA Rotterdam, The Netherlands.
AKER RGI
The following sets forth the name of each executive officer and member
of the Board of Directors of Aker RGI. The principal business address of Aker
RGI and each of the executive officers and directors listed below is Fjordalleen
16, P.O. Box 1423 Vika N-0115, Oslo, Norway. Each member of the Board of
Directors of Aker RGI is a Norwegian citizen. The position(s) with such company,
present principal occupation (if other than with Aker RGI) and a brief
description of business experience during the last five years (if other than as
an executive officer or director of Aker RGI) are set forth below.
BOARD OF DIRECTORS:
Kjell Inge Rokke, Chairman
Bjorn Ivar Flatgard, Deputy Chairman
Olav Revhaug, Board member
Bjorn Gabriel Reed, Board member
Bjorn Rune Gjelsten, Board member
Leif Furre, Board member
Atle Tiegland, Board member
Bjorn Kristiansen, Board member
Svein Ola Moen, Board member
EXECUTIVE OFFICERS:
Bjorn Rune Gjelsten, President and CEO
Helge Lund, Executive Vice President, Acting COO
Bengt A. Rem, Executive Vice President, Financial Reporting
and Administration
Terje D. Skullerud, Executive Vice President, Finance
Trondo Westlie, Executive Vice President, Business Development
Kaci Kullman Five, Executive Vice President, Public Relations
RGI EUROPE
The following sets forth with respect to each executive officer and
director of RGI Europe his or its name, position(s) with such company, present
principal occupation (if other than with RGI Europe), residence or principal
business address, and citizenship or place of organization and a brief
description of business experience during the last five years (if other than as
an executive officer or director of RGI Europe):
BOARD OF DIRECTORS
Bengt A. Rem
Director
Chr. Mikkelsensvei 13b
1472 Fjellhamar, Norway
(Norwegian citizen)
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<PAGE> 73
Trond O. Westlie
Director
Ruglandsveien 30
1342 Jar, Norway
(Norwegian citizen)
MeesPierson Trust B.V.
Director
Kneuterdijk 15
P.O. Box 188
2501 AR The Hague
The Netherlands
(Netherlands corporation)
EXECUTIVE OFFICERS:
MeesPierson Trust B.V.-Managing Director
The principal executive offices of RGI Europe are located at Kneuterdijk 15,
2524 EM, The Haag, The Netherlands.
RGI DENMARK
The following sets forth with respect to each executive officer and
director of RGI Denmark his name, position with such company, present principal
occupation (if other than with RGI Denmark), residence or principal business
address, citizenship and a brief description of business experience during the
last five years (if other than as an executive officer or director of RGI
Denmark):
BOARD OF DIRECTORS:
Bengt A. Rem
Director
Beddingen 20
Chr. Mikkelsensvei 13b
1472 Fjellhamar, Norway
(Norwegian citizen)
Trond O. Westlie
Director
Ruglandsveien 30
1342 Jar, Norway
(Norwegian citizen)
Georg Lett
Director
c/o Lett & Co. Advokatfirma
Borgengade 111
P.O. Box 2231
1019 Copenhagen, Denmark
(Danish citizen)
EXECUTIVE OFFICERS:
Bengt A. Rem-Director
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<PAGE> 74
The principal executive offices of RGI Denmark are located at Runsted
Strandvej 62B, DK-2960 Rungsten Kyst, Denmark.
RGI INTERNATIONAL
The following sets forth with respect to each executive officer and
director of RGI International his or her name, position(s) with such company,
present principal occupation (if other than with RGI International), residence
or principal business address, citizenship and a brief description of business
experience during the last five years (if other than as an executive officer or
director of RGI International:
BOARD OF DIRECTORS
Bill Stokes
President and Chairman of the Board
c/o ASC Far East, Inc.
2025 First Ave., Suite 835
Seattle, WA 98121-2154
(US citizen)
Dag Fasmer Wittusen
Vice President
Risstubben 5
0374 Oslo, Norway
(Norwegian citizen)
Debra Dormaier
Treasurer
c/o Resource Group International, Inc.
2025 First Ave., Suite 830
Seattle, WA 98121-2154
(US citizen)
EXECUTIVE OFFICERS
Bill Stokes, President and Chairman of the Board
Michael J. Hyde
Secretary
c/o American Seafoods Company, Inc.
2025 First Ave., Suite 900
Seattle, WA 98121-2154
(US citizen)
Debra Dormaier-Treasurer
The principal executive offices of RGI International are located at
2025 First Avenue, Suite 830, Seattle, Washington 98121.
In July 1999, RGI International transferred 6,400 shares of the
Company's Common Stock that it directly held to RGI Holdings.
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<PAGE> 75
RGI HOLDINGS
The following sets forth with respect to each executive officer and
director of RGI Holdings his name, position(s) with such company, present
principal occupation, principal business address, citizenship and a brief
description of his business experience during the last five years (if other than
with the RGI Entities):
Bjorn R. Gjelsten
President and Director
c/o RGI Holdings, Inc.
2025 First Avenue, Suite 830
Seattle, WA 98121
(Norwegian citizen)
Jan Petter Storetvedt
Executive Vice President and Director
Fjordalleen 16
P.O. Box 1423\Vika N-0115
Oslo, Norway
(Norwegian citizen and business executive)
Debra Dormaier
Vice President, Secretary and Treasurer
c/o RGI Holdings, Inc.
2025 First Avenue, Suite 830
Seattle, WA 98121
(U.S. citizen)
The principal executive office of RGI Holdings are located at 2025
First Avenue, Suite 830, Seattle, Washington 98121.
AVANTOR
The following sets forth with respect to each executive officer and
director of Avantor his name, position(s) with such company, present principal
occupation (if other than with Avantor), citizenship (if other than Norwegian)
and a brief description of his business experience during the last five years
(if other than as an executive officer or director of Avantor):
BOARD OF DIRECTORS:
Kjell Inge Rokke
Jan Petter Storetvedt
Gote Dahlin (Swedish Citizen)
Carl Erik Krefting
Truls Olthe
EXECUTIVE OFFICERS:
Christian Joys, Chief Executive Officer
Esben Madsen, Executive Vice President
Ave Njastein, Chief Financial Officer
The principal executive offices of Avantor and the executive officers
and directors listed above are located at Gullhaugveien 13, 0404 Oslo, Norway.
In June 1996, RGI Holdings entered into an Addendum No. 1 to Agreement
between RGI Real Estate, Inc. (which has been merged into RGI International) and
Avantor, pursuant to which RGI Holdings agreed with the holder of 19.55% of its
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<PAGE> 76
capital stock, Avantor, that from June 30, 1997 through December 31, 1998,
Avantor had the option to exchange its shares in RGI Holdings for 1,360,342
shares of Legend Common Stock held by RGI Holdings. Pursuant to a Shareholders
Agreement entered into as of April 7, 1997, the option term was extended to
December 31, 1999. If this option had been exercised by Avantor, Avantor would
have beneficially owned 1,360,342 shares of Common Stock or approximately 22% of
the outstanding shares and could have voted the shares or sell such shares in
accordance with applicable securities laws. The Shareholders Agreement also
provides that (i) if Avantor exercised its option during the option period, it
would not distribute or sell the shares without the consent of Aker RGI, and if
Aker RGI sells its Common Stock, Avantor would have the right to include its
shares proportionally in such sale; and (ii) if Avantor exercised its option and
wished to nominate a representative to the Company's Board of Directors, Aker
RGI would vote in favor of Avantor's nominee. A copy of the Shareholders
Agreement has been filed as an exhibit to the Schedule 13E-3 filed with the SEC
in connection with the Merger and is available for inspection and copying at the
principal executive offices of the Company during its regular business hours by
any stockholder or any representative of a stockholder who has been so
designated in writing. A copy of such materials will be provided by the Company
to any stockholder or any representative of a stockholder who has been so
designated in writing upon written request and at the expense of the requesting
stockholder or such representative. See "Available information."
PURCHASER. LP Acquisition Corp. is a newly-formed Delaware corporation
organized at the direction of RGI Holdings. The principal executive offices of
LP Acquisition Corp. are located at 2025 First Avenue, Suite 830, Seattle,
Washington 98121. Debra Dormaier is its sole director and officer. She is
President, Vice President and Treasurer.
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CERTAIN TRANSACTIONS
The following is a summary of certain relationships and other
significant transactions with related parties during 1998 and 1999 and
outstanding intercompany balances as of December 31, 1997, 1998 and 1999:
CONSULTING AND OTHER FEES
The Company paid the law firm of Peter J. Henn, P.A. $232,022 during
the fiscal year ending December 31, 1998 for legal services provided to the
Company by Peter J. Henn, the Company's President and Chief Executive Officer.
Mr. Henn received no other compensation from the Company for serving as an
officer of the Company. Harbor Title & Escrow Company provides all title
insurance that the Company is obligated to deliver to purchasers of homes at its
Florida properties. Mr. Henn is the sole owner and President of Harbor Title &
Escrow Company and received $109,428 in title insurance premiums from the
Company during the fiscal year ending December 31, 1998. Harbor Title & Escrow
Company charges the Company the minimum title insurance rates allowed under
Florida law as determined by the Florida Department of Insurance.
The Company paid the law firm of Peter J. Henn, P.A. $56,875 during the
fiscal year ending December 31, 1999 for legal services under the Legal Services
Agreement prior to his appointment as President and Chief Executive Officer.
RECEIVABLES
As of December 31, 1999 the Company has included in other assets a
$4,757,642 receivable from Resource Group International, Inc. (RGI), the parent
company of RGI Holdings, related to a income tax benefit realized from the
utilization of the Company's 1998 operating loss. The income tax benefit is
derived from the Company's inclusion in an affiliated consolidated tax group, of
which RGI Holdings is the common parent, pursuant to a new Tax Sharing and
Allocation Agreement.
PAYABLES
Payables to related parties consist of the following at December 31,
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Mortgage note payable to RGI Holdings with interest payable
quarterly at LIBOR plus 2.5%. Principal payments equal to
20% of Southbridge and 50% of other collateral sales
revenues is payable quarterly with the balance due April 1,
2003. The debt is secured by certain real estate inventory
and property. Unpaid interest will be capitalized into
principal balance annually............................................. $30,649,872 $30,649,872 $31,238,050
Mortgage note payable to RGI Holdings with interest at prime
plus 2% and partially secured by certain real estate
inventory. Interest and principal are payable quarterly
after certain other debt payments provided that a $4.5
million cash reserve remains. Quarterly principal payments
are equal to 80% of the defined net cash flow for
Southbridge, Grand Harbor, and Oak Harbor with the balance
due April 1, 2003. Unpaid interest will be capitalized into
the principal balance annually......................................... 20,960,448 35,024,632 38,525,416
Unsecured note payable to RGI, Inc. with interest at prime
plus 2%. Principal and interest is payable on the same
terms, but after payments on the Mortgage note payable
discussed immediately above with the remainder due April 1,
2003. Unpaid interest will be capitalized into the principal
balance annually....................................................... 14,412,667 16,821,696 18,503,058
</TABLE>
71
<PAGE> 78
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Unsecured note payable to RGI Holdings, interest at prime
plus 2%. Principal and interest due June 1,
1999................................................................... -- 2,248,278 --
Accrued interest....................................................... 6,868,311 -- --
Other.................................................................. 2,629 -- 395,437
----------- ----------- -----------
$72,893,927 $84,744,478 $88,661,961
=========== =========== ===========
</TABLE>
RGI Holdings has provided to the Company a $5 million credit facility
to provide sufficient working capital to fund ongoing development, construction
and operating activities. The credit facility provides for interest at prime
plus 2%, matures on April 1, 2003 and is secured by certain real estate
inventory and property. The funding purpose and repayment terms are to be agreed
upon prior to drawing on this facility.
INDEMNITY
Aker RGI, the indirect parent of RGI Holdings, has provided an
indemnity, to a maximum of $15,000,000, to the bonding company for development
bonds at Southbridge, of which an aggregate total of approximately $13.5 million
was outstanding at December 31, 1999.
72
<PAGE> 79
MARKET PRICES OF COMMON STOCK AND DIVIDENDS
There is no established public trading market for the Company's Common
Stock. As of the Record Date, there were approximately 8,656 holders of record
of Common Stock and approximately _______ persons or entities holding Common
Stock in nominee name.
The Company has not declared nor paid any cash dividends on its Common
Stock, does not anticipate that any dividends will be declared nor paid in the
foreseeable future, and intends to retain earnings to finance the development
and expansion of the Company's operations. Under the Merger Agreement, the
Company has agreed not to pay any dividends on the Common Stock prior to the
Effective Date.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Information Statement contains certain forward-looking statements
regarding the intent, belief and current expectations of the Company's
management. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. Generally, these statements relate
to business plans or strategies, projected or anticipated benefits or other
consequences of such plans or strategies, or projections involving anticipated
revenues, expenses, earnings, levels of capital expenditures or other aspects of
operating results. The operations of the Company are subject to a number of
uncertainties, risks and other influences, many of which are outside the control
of the Company and any one of which, or a combination of which, could materially
affect the results of the Company's operations and whether the forward-looking
statements made by the Company ultimately prove to be accurate. The Company
assumes no obligation to update any forward-looking statements.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP, certified public accountants, served as the Company's
independent auditors for the fiscal year ended December 31, 1999. The
Consolidated Balance Sheets as of December 31, 1999 and December 31, 1998, and
the related Consolidated Statements of Income, Stockholders' Equity and Cash
Flows for each of the three fiscal years in the period ended December 31, 1999
included in this Information Statement have been audited by KPMG LLP,
independent auditors, as stated in their report. A representative of KPMG LLP
will be present at the Special Meeting to answer appropriate questions from
stockholders and will have the opportunity to make a statement if so desired.
OTHER BUSINESS
The Board knows of no other business to be brought before the Special
Meeting.
DOCUMENTS INCORPORATED BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Information
Statement and prior to the Special Meeting and any adjournment or postponement
thereof, shall be deemed to be incorporated by reference in this Information
Statement and to be a part hereof for purposes of the Exchange Act from the date
of the filing of such documents. Any statement contained in this Information
Statement, in a supplement to this Information Statement or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Information Statement to the
extent that a statement contained herein or in any subsequently filed supplement
to this Information Statement or in any document that also is or 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 Information Statement.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements, and
other information with the SEC. The reports, proxy statements, and other
information filed with the SEC can be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W., Judiciary
73
<PAGE> 80
Plaza, Washington, D.C. 20549 and at the following Regional Offices of the SEC:
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The SEC maintains a
World Wide Web site on the Internet at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC, including the Company. The same
information is also available on the Internet at http://www.FreeEDGAR.com.
The Affiliates, have filed a Schedule 13E-3 with the SEC with respect
to the transactions contemplated by the Merger Agreement. As permitted by the
rules and regulations of the SEC, this Information Statement omits certain
information and exhibits contained in the Schedule 13E-3. The Schedule 13E-3
(including exhibits) and any amendments thereto may be inspected and copied at,
or obtained from, the SEC's offices as set forth above. For further information,
reference is hereby made to the Schedule 13E-3 and the exhibits thereto.
Statements contained in this Information Statement concerning documents filed
with the SEC as exhibits to the Schedule 13E-3 or attached as Appendices to this
Information Statement are not necessarily complete and, in each instance,
reference is made to the copy of the document filed as an exhibit to the
Schedule 13E-3 or attached as an Appendix to this Information Statement. Each
statement in this Information Statement concerning such a document is qualified
in its entirety by reference to such document.
Certain documents discussed in this Information Statement, including,
without limitation, the Schedule 13E-3 and all exhibits thereto, are also
available for inspection and copying at the principal executive offices of the
Company at 3755 7th Terrace, Suite 301, Vero Beach, Florida 32960, telephone
(561) 778-0180, during its regular business hours, by any stockholder or his or
her representative so designated in writing. Upon the written request of a
stockholder directed to the Secretary of the Company at the above address, the
Company will mail to such stockholder a copy of any such document at the expense
of such stockholder.
If the Merger is consummated, the Company will deregister the Common
Stock and will no longer be subject to the requirements of the Exchange Act. See
"SPECIAL FACTORS--Certain Effects of the Merger."
No person has been authorized to give any information or make any
representation in connection with the solicitation of proxies made hereby other
than those contained or incorporated by reference in this Information Statement,
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company or LP Acquisition Corp. The
delivery of this Information Statement shall not, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof or that the information contained or incorporated
by reference herein is correct as of any time subsequent to its date.
Information in this Information Statement about the Company has been provided by
the Company and information about LP Acquisition Corp. has been provided by LP
Acquisition Corp.
By Order of the Board of Directors
/s/ Peter J. Henn
--------------------------------------
Peter J. Henn
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Vero Beach, Florida
_______, 2000
74
<PAGE> 81
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of KPMG LLP, Independent Auditors.............................. F-2
Consolidated Balance Sheets as of
December 31, 1999 and 1998......................................... F-3
Consolidated Statements of Operations
For the Years Ended December 31, 1999, 1998 and 1997............... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 1999, 1998 and 1997............... F-5
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997............... F-6
Notes to Consolidated Financial Statements............................ F-8
F-1
<PAGE> 82
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Legend Properties, Inc.:
We have audited the accompanying consolidated balance sheets of Legend
Properties, Inc. (a subsidiary of RGI Holdings, Inc.) and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the years
in the three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the management of Legend Properties, Inc.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Legend
Properties, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
West Palm Beach, Florida
April 12, 2000
F-2
<PAGE> 83
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF RGI HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Real estate inventory ........................................ $ 75,806,841 $ 82,873,914
Assets held for sale.......................................... -- 7,916,175
Cash and cash equivalents..................................... 2,902,359 4,446,864
Restricted cash and investments............................... 10,602,370 19,017,860
Accounts and notes receivable................................. 3,106,856 1,491,267
Property and equipment, net................................... 22,869,703 24,645,281
Intangibles, net of accumulated amortization of $1,733,331 in
1999 and $1,052,895 in 1998................................ 1,446,007 1,646,542
Other assets, net of accumulated amortization of $3,808,433
in 1999 and $3,646,481 in 1998............................. 10,954,824 5,520,388
---------------- ----------------
$ 127,688,960 $ 147,558,291
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable to banks and others............................. $ 21,587,213 $ 40,722,737
Payables to related parties................................... 88,661,961 84,744,478
Accounts payable.............................................. 3,354,368 3,033,693
Other notes and liabilities................................... 12,785,204 14,443,250
---------------- ----------------
126,388,746 142,944,158
---------------- ----------------
Stockholders' equity:
Common stock, $.01 par value. Authorized 10,000,000 shares;
6,311,678 shares issued and 6,290,874 shares outstanding
at December 31, 1999 and 1998.............................. 63,117 63,117
Additional paid-in capital.................................... 44,171,103 44,171,103
Accumulated deficit........................................... (42,812,690) (39,498,771)
Treasury stock, 20,804 shares at December 31, 1999 and 1998... (121,316) (121,316)
---------------- ----------------
Total stockholders' equity.................................... 1,300,214 4,614,133
---------------- ----------------
Commitments and contingencies................................. $ 127,688,960 $ 147,558,291
================ ================
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
F-3
<PAGE> 84
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF RGI HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Real estate sales .................................... $ 62,236,880 $ 65,218,900 $ 43,595,507
Club operations ...................................... 7,159,132 5,953,105 5,344,575
Patient service ...................................... 2,755,349 2,600,866 2,718,014
Rent ................................................. -- -- 2,186,157
Other ................................................ 2,825,121 1,960,585 1,783,645
------------ ------------ ------------
Total revenues ................................. 74,976,482 75,733,456 55,627,898
------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Real estate sales .................................... 48,941,809 49,628,187 31,343,932
Club operations ...................................... 7,962,199 7,291,432 6,364,169
Patient service direct costs ......................... 2,074,879 1,919,183 1,521,292
Rental operations .................................... -- -- 359,325
Other ................................................ 2,271,702 1,417,681 612,207
Selling, general and administrative .................. 15,323,065 15,414,245 18,265,252
Depreciation and amortization ........................ 1,809,525 2,092,509 1,780,904
------------ ------------ ------------
Total operating costs and expenses ............. 78,383,179 77,763,237 60,247,081
------------ ------------ ------------
Operating income (loss) ................................. (3,406,697) (2,029,781) (4,619,183)
------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest income ...................................... 623,951 944,800 1,386,920
Interest income, related party ....................... -- -- 73,339
Interest expense, including loan cost amortization ... (2,249,319) (5,596,055) (7,503,319)
Interest expense, related party ...................... (7,733,829) (5,853,716) (4,823,954)
Other, net ........................................... 120,433 397,779 727,575
------------ ------------ ------------
Net other expense .............................. (9,238,764) (10,107,192) (10,139,439)
------------ ------------ ------------
Loss before minority interests and income tax benefit ... (12,645,461) (12,136,973) (14,758,622)
------------ ------------ ------------
Minority interests in loss of consolidated subsidiaries . -- -- 252,716
------------ ------------ ------------
Loss before income tax benefit .......................... (12,645,461) (12,136,973) (14,505,906)
------------ ------------ ------------
Income tax benefit ...................................... 9,331,542 -- --
------------ ------------ ------------
Net loss ................................................ $ (3,313,919) $(12,136,973) $(14,505,906)
------------ ------------ ------------
Net loss per share -- basic and diluted ................. $ (.53) $ (1.93) $ (2.31)
------------ ------------ ------------
Weighted average number of common shares outstanding .... 6,290,874 6,290,874 6,286,322
------------ ------------ ------------
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
F-4
<PAGE> 85
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF RGI HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------- PAID-IN
SHARES PAR VALUE CAPITAL
------ --------- -------
<S> <C> <C> <C>
Balances at December 31, 1996............................ 6,277,548 $ 62,776 $ 43,793,708
Purchase of fractional shares......................... -- -- (22,267)
Repurchase of shares.................................. -- -- --
Sale of stock......................................... 34,130 341 399,662
Net loss.............................................. -- -- --
--------- -------------- --------------
Balances at December 31, 1997............................ 6,311,678 63,117 44,171,103
--------- -------------- --------------
Net loss ............................................. -- -- --
Balance at December 31, 1998............................. 6,311,678 63,117 44,171,103
Net loss ............................................. -- -- --
--------- -------------- --------------
Balance at December 31, 1999............................. 6,311,678 $ 63,117 $ 44,171,103
========= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED TREASURY STOCKHOLDERS'
DEFICIT STOCK EQUITY (DEFICIT)
------- ----- ----------------
<S> <C> <C> <C>
Balances at December 31, 1996............................ $ (12,855,892) $ (11,316) $ 30,989,276
Purchase of fractional shares......................... -- -- (22,267)
Repurchase of shares.................................. -- (110,000) (110,000)
Sale of stock......................................... -- -- 400,003
Net loss.............................................. (14,505,906) -- (14,505,906)
-------------- -------------- --------------
Balances at December 31, 1997............................ (27,361,798) (121,316) 16,751,106
Net loss.............................................. (12,136,973) -- (12,136,973)
-------------- -------------- --------------
Balances at December 31, 1998............................ (39,498,771) (121,316) 4,614,133
Net loss.............................................. (3,313,919) -- (3,313,919)
-------------- -------------- --------------
Balance at December 31, 1999............................. $ (42,812,690) $ (121,316) $ 1,300,214
============== ============== ==============
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-5
<PAGE> 86
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF RGI HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (3,313,919) $ (12,136,973) $ (14,505,906)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization....................... 1,809,525 2,092,509 1,780,904
Loan amortization................................... 266,311 884,958 1,424,591
Gain on sale of assets held for sale................ -- -- (195,076)
Related party interest expense not paid............. 7,513,708 5,853,716 4,721,217
Related party interest income not collected......... -- -- (72,537)
Deferred tax benefit................................ (4,573,900)
Minority interests in loss.......................... -- -- (252,716)
Change in certain assets and liabilities, net of
effect of acquisitions:
Decrease (increase) in real estate inventory.... 7,067,073 20,983,245 906,677
Decrease (increase) in assets held for sale..... 7,916,175 (7,916,175) 8,301,604
(Increase) in accounts and notes receivable and
other assets................................. (2,113,928) (4,132,798) (541,903)
Increase (decrease) in accounts payable and
other notes and liabilities.................. (1,337,371) 4,662,756 (5,504,042)
-------------- -------------- --------------
Net cash provided by (used in) operating
activities............................. 13,233,674 10,291,238 (3,937,187)
-------------- -------------- --------------
Cash flows from investing activities:
Decrease (increase) in restricted cash and
investments....................................... 8,415,490 (3,787,322) 7,260,767
-------------- -------------- --------------
Purchase of property and equipment.................. (703,209) (791,440) (6,297,341)
Loans to related parties............................ -- -- (20,000)
Collection of loans to related parties.............. -- -- 398,434
Investments and acquisitions, net of cash acquired.. -- --
Proceeds from sale of property and equipment........ 830,062
Proceeds from assets held for sale.................. -- -- 19,436,029
-------------- -------------- --------------
Net cash provided by (used in) investing
activities............................. 8,542,343 (4,578,762) 20,777,889
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from notes payable to bank and others...... 14,874,271 21,569,532 19,653,062
Repayment of notes payable to bank and others....... (34,009,795) (41,258,127) (45,942,347)
Proceeds from loans from related parties............ 3,750,000 6,000,000 20,702,720
Repayment of loans from related parties............. (7,741,661) (3,165) (139,107)
Payment of loan fees................................ (193,337) (306,533) (179,983)
Repurchase of common and fractional shares.......... -- -- (132,267)
Sale of common shares............................... -- -- 400,003
-------------- -------------- --------------
Net cash provided by (used in) financing
activities............................. (23,320,522) (13,998,293) (5,637,919)
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents....... (1,544,505) (8,285,817) 11,202,783
Cash and cash equivalents at beginning of year............. 4,446,864 12,732,681 1,529,898
-------------- -------------- --------------
Cash and cash equivalents at end of year................... $ 2,902,359 $ 4,446,864 $ 12,732,681
============== ============== ==============
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
F-6
<PAGE> 87
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF RGI HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information -
Cash paid during the year for interest, net of amount
capitalized of $950,124 in 1999, $1,137,447 in 1998 and
$903,978 in 1997........................................ $ 1,282,799 $ 4,699,226 $ 5,811,516
============== ============== ==============
Supplemental Schedule of Noncash Investing and Financing
Transactions:
Purchase of minority interest in exchange for cancellation
of a note receivable and accrued interest............... $ -- $ -- $ 1,681,584
============== ============== ==============
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-7
<PAGE> 88
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF RGI HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Legend Properties, Inc. (the Company or Legend) formerly known as
Banyan Mortgage Investment Fund (Banyan), is the surviving corporation from the
December 31, 1996 merger (the Merger) with RGI U.S. Holdings, Inc. (RGI/US) (see
Note 2). Prior to the Merger, RGI/US was a wholly-owned subsidiary of RGI
Holdings, Inc. (Holdings). As of December 31, 1999, Holdings owns approximately
80 percent of the outstanding common shares of Legend.
As of December 31, 1999, Legend owns, operates and develops real estate
through its wholly owned subsidiaries as follows:
-- Grand Harbor Associates, Inc. (GHA) was formed as a holding
company in 1991 and owns a 100 percent interest in Grand
Harbor Property Holdings, Inc. (GHPH) and a 100 percent
interest in Oak Harbor Property Holdings, Inc., Quality Life
Services, Inc. and Quality Life Services, Ltd. (collectively,
OHPH). GHA's original 45 percent interest was increased by
acquiring an additional 45 percent on January 2, 1996 and the
remaining 10 percent interest on July 2, 1997.
GHPH includes nine corporations and seven limited partnerships
and was formed in 1991 to acquire and develop a 772 acre
residential golf community in Indian River County, Florida.
Grand Harbor (the development) is planned for 1,196 mid to
high-end residential units. The development has numerous
amenities and facilities, including golf and beach clubs, two
18-hole championship golf courses, tennis courts and a marina.
OHPH includes eight corporations and a limited partnership and
was formed in 1993 to develop a 116 acre senior retirement
community in Indian River County, Florida, with an on-site
assisted living facility. In 1994, an off-site skilled nursing
facility was acquired.
-- VMIF/Anden Southbridge Venture and VMIF/Anden Wayside Venture
(for financial reporting purposes, acquired on December 31,
1996 as part of the merger with Banyan (see Note 2)), were
formed in 1991 to hold and develop Southbridge, a 2,685 acre
master planned community in Prince William County, Virginia
planned for approximately 5,400 residential units, 4,000,000
square feet of non-residential uses (including office, R&D,
commercial, industrial, and other similar uses) and an 18 hole
golf course.
During 1999, 1998 and 1997, Legend disposed of the following operating
and development properties:
-- Ashburn Corporate Center, LC (ACCLC) an 82% owned subsidiary,
was formed in March 1998 to hold and develop the Ashburn
Corporate Center, a 116-acre commercial business park
development project in Loudoun County, Virginia planned for
office and flex/tech uses. During 1999, the Company sold the
Ashburn Corporate Center for $15.2 million.
-- VMIF Charles County Venture, a wholly owned subsidiary, (for
financial reporting purposes, acquired on December 31, 1996 as
part of the merger with Banyan (see Note 2)) was formed in
1991 to hold and develop Chapman's Landing, a 2,227 acre
master planned community in Charles County, Maryland.
Chapman's Landing was sold during October 1998 for $28.5
million.
-- BMIF Monterey County Corp., a wholly owned subsidiary, (for
financial reporting purposes, acquired on December 31, 1996 as
part of the merger with Banyan (see Note 2)) was formed to
F-8
<PAGE> 89
hold and develop a 565-acre land parcel in Monterey County,
California known as the Laguna Seca Ranch (Laguna). During
1997, the Company sold Laguna for $12.8 million.
-- American Property Investments, Inc. (API) was formed for the
purpose of acquiring, renovating and operating the Lynnwood
Shopping Center in Lynnwood, Washington (acquired in November
1987). In November 1997, API sold Lynnwood Center for $20.1
million.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Legend
and its wholly and majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company computes cost of sales and relieves property under
development (a component of real estate inventory) based on the ratio of current
year and estimated future costs to current year and estimated future sales.
Actual results could differ from these estimates.
REAL ESTATE INVENTORY
Real estate inventory is recorded at cost, reduced for impairment
losses, if any. Inventoried costs consist of land (including any related legal,
engineering and other acquisition costs) common improvements, amenities,
construction in progress and completed residential units. Interest, real estate
taxes and other carrying costs are capitalized only for discrete parcels or
units undergoing active development. The costs of common improvements are
allocated to discrete parcels or units based on relative sales values or
specific identification.
The Company reviews its real estate inventory for impairment where
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. Recoverability of assets to be held and used is
measured by comparing the carrying amount of an asset to future or anticipated
net cash flows generated by the asset. If such assets are deemed to be impaired,
the impairment is recognized by measuring the difference between the carrying
amount of the assets and its fair value.
ASSETS HELD FOR SALE
Assets held for sale are reported at the lower of the carrying amount
or fair value less costs to sell.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, demand deposits with banks
and highly liquid investments with maturity dates of three months or less at the
date of acquisition.
RESTRICTED CASH AND INVESTMENTS
Restricted cash includes customer deposits and various escrow accounts
with local governments and others related to the completion of certain
development of $5,168,410 and $7,007,417, and cash held in bank as loan
collateral of $1,057,046 and $7,341,731 at December 31, 1999 and 1998,
respectively.
Restricted investments include an irrevocable trust consisting of three
annuities totaling $4,376,914 and $4,668,712 at December 31, 1999 and 1998,
respectively, which is solely to provide security for payment on a note payable.
The annuity contracts will fully satisfy the note through annual principal and
interest payments.
F-9
<PAGE> 90
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Significant additions and
improvements are capitalized while repairs and maintenance are expensed as
incurred. Interest charges related to assets developed or constructed for use in
operations are capitalized during the construction period. Depreciation and
amortization are provided using the straight-line method over the following
estimated useful lives:
Buildings and improvements............................ 31 - 39 years
Furniture and fixtures................................ 3 - 7 years
Land Improvements..................................... 15 years
Marina................................................ 15 years
INTANGIBLES
Intangibles include goodwill and a non-compete agreement. Goodwill,
which represents the excess of the purchase price over fair value of net assets
acquired, is amortized using the straight-line method for periods from thirteen
and a half to fifteen years. The recoverability of goodwill is assessed by
comparing estimated undiscounted future operating cash flows over the remaining
amortization period to the current net asset balance. If impairment is
identified, any loss is measured based on projected discounted future operating
cash flows using a discount rate reflecting Legend's average cost of funds. The
non-compete agreement is amortized using the straight-line method over a period
of fifteen years, the term of the agreement.
OTHER ASSETS
Included among other assets are deferred loan costs that are amortized
using the straight-line method over the term of the related debt.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" ("Statement 123").
This standard allows the use of either the fair value based method described in
Statement 123 or the intrinsic value based method prescribed by APB Opinion No.
25, Accounting for Stock Issued to Employees." ("APB 25") The Company has
elected to continue accounting for stock based compensation under the APB 25
method and disclose the pro forma impact of Statement 123.
DEPOSITS
Included in other liabilities are customer deposits on real estate
sales, rental and club memberships of $6,667,812 and $7,765,853 at December 31,
1999 and 1998, respectively. The real estate sales and rental deposits are held
in restricted bank accounts, which were $3,719,814 and $5,470,785 at December
31, 1999 and 1998, respectively. Among these are certain associate member
deposits that will be refunded at the end of the related term or upon
cancellation by the member.
REVENUE RECOGNITION
Revenues on retail sales of real estate are recorded upon the closing
and transfer of title to the buyer, whereas rental revenue is recognized over
the respective tenant lease terms (1 to 30 years) using the straight-line
method. Sales of equity memberships in the Grand Harbor Golf and Beach Club
(Club) are included in real estate sales. Club assets at Grand Harbor are an
amenity which is charged to the cost of real estate sales sold based on real
estate sold. Membership dues for Grand Harbor are billed on an annual basis and
recognized as revenue ratably over the year.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of temporary differences by applying enacted
statutory rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and liabilities.
F-10
<PAGE> 91
Changes in tax rates that effect deferred tax assets and liabilities are taken
into income during the period that includes the enactment date. Deferred income
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is likely that some portion or all of the deferred income tax
assets will not be realized.
For tax purposes, the Company is included in an affiliated consolidated
tax group, of which Resource Group International Inc. is the common parent,
pursuant to a new Tax Sharing and Allocation Agreement.
ADVERTISING COSTS
Costs of advertising, promotion and marketing are generally charged to
operations as incurred. These expenses were $2,664,880 in 1999, $2,431,072 in
1998 and $2,395,134 in 1997.
SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131") in 1998. This statement establishes standards for the reporting
of information about operating segments in annual and interim financial
statements and requires restatement of prior year information. Operating
segments are defined as components of an enterprise for which separate financial
information is available that is evaluated regularly by the chief operating
decision maker(s) in deciding how to allocate resources and in assessing
performance. SFAS No. 131 also requires disclosures about products and services,
geographic areas and major customers. The adoption of SFAS No. 131 did not
affect results of operations or financial position but did affect the disclosure
of segment information, as presented in Note 14.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("Statement 133"). The effective date for Statement 133 was delayed
by Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - deferral of the effective date
of FASB No. 133"("Statement 137"), to fiscal years beginning after June 15,
2000. Statement 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. It is currently
anticipated that the Company will adopt Statement 133 on January 1, 2001, and
that the statement will not have a significant financial statement impact upon
adoption.
RECLASSIFICATIONS
Certain amounts in prior years consolidated financial statements have
been reclassified to conform to the 1999 presentation.
(2) LIQUIDITY
As of December 31, 1999, the Company's debt obligations, including
payables to related parties of $88,661,961 (see Note 6), totaled $110,249,174 of
which $5,803,953 matures by December 31, 2000. None of these maturities relate
to payables to Holdings. In addition to the debt maturities under existing
financings, the Company requires additional financing to advance its business
plan. As of December 31, 1999, the Company had $2,902,359 of cash and cash
equivalents, which will not be sufficient to fund these obligations.
The Company expects to meet its existing debt obligations that mature
during 2000 by the renewal and extension of existing construction lines, and
internally generated funds from real estate sales and operations. Based on
alternatives available, management believes that sufficient funds will be
available to meet its obligations during 2000. If sufficient funds are not
available from the above sources, the Company anticipates delaying certain
interest payments to Holdings as allowed under the debt agreements. The Company
also has available, if needed, a $5 million credit facility from Holdings, which
was unused at December 31, 1999.
F-11
<PAGE> 92
(3) ACQUISITIONS
Certain business combinations consummated during 1997 and 1996 were
accounted for under the purchase method of accounting, wherein the purchase
price was allocated to the assets acquired and liabilities assumed based upon
their relative fair values. Results of operations for these acquired companies
have been included in the consolidated financial statements from the acquisition
dates.
BANYAN MORTGAGE INVESTMENT FUND
On April 12, 1996, an Agreement and Plan of Merger was executed among
RGI/US, Holdings and Banyan.
Effective December 31, 1996, RGI/US was merged with and into Banyan.
Banyan's certificate of incorporation was amended to convert each twenty-five
shares of Banyan's issued and outstanding common stock into one issued and
outstanding share (Reverse Split). Additionally, the name of Banyan was changed
to Legend Properties, Inc. After giving effect to the Reserve Split, all
outstanding shares of RGI/US were converted into 4,386,986 shares of Banyan's
common stock. For accounting purposes, the merger was treated as a
recapitalization of RGI/US, with RGI/US as the acquirer of Banyan for
$22,175,403.
GRAND HARBOR PROPERTY HOLDINGS, INC. AND OAK HARBOR PROPERTY HOLDINGS, INC.
On January 2, 1996, GHA, a 45 percent general partner in GHPH and OHPH,
purchased Southmortgage Finance Co., a holding company for certain bank debt
(the proceeds of which were loaned to GHPH), and an additional 45 percent
interest in GHPH, OHPH and Harbor Title and Escrow Co. Ltd. (collectively, the
Acquired Companies). Harbor Title and Escrow Co. Ltd. provides title and escrow
service for GHPH and OHPH. The Acquired Companies were purchased from Andlinger
Properties Capital L.P. for cash consideration of $52,237 and a promissory note
of $996,220.
In July 1997, GHA acquired the remaining 10 percent of the Acquired
Companies. The Acquired Companies were purchased from Grand Harbor Development
Company (GHDC), a corporation majority owned by Don Proctor, in exchange for the
cancellation of a note receivable of $1,462,770 plus accrued interest of
$218,814, payable to GHA from GHDC. Don Proctor is the majority shareholder of
Proctor Construction Company, which has an exclusive contract to provide
development and construction services at Grand Harbor and Oak Harbor. Mr.
Proctor was an officer of GHPH until his resignation in June 1997.
(4) REAL ESTATE INVENTORY AND ASSET HELD FOR SALE
REAL ESTATE INVENTORY
Real estate inventory consisted of the following at December 31, 1999:
<TABLE>
<CAPTION>
INITIAL COST TO LEGEND COST ADJUSTMENTS
--------------------------- --------------------------
NAME, APPROXIMATE SIZE TYPE AND BUILDING AND BUILDING AND
LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
------------------------------- ------------ ---- ------------- ------ ------------
<S> <C> <C> <C> <C> <C>
Grand Harbor, 300-acre residential Note 5 (G-J)
development in Vero Beach, FL $ 9,059,365 $ -- $ -- $ 16,642,981
Oak Harbor, 100-acre residential Note 5 (C-F)
development in Vero Beach, FL 3,494,372 -- -- 9,687,223
Southbridge, 2,300-acre mixed use Note 5(A)
land development in Prince William Note 6 (A-B)
County, VA 20,397,886 7,146,670 -- 9,497,544
------------ ------------ ---------- ------------
$ 32,951,623 $ 7,146,670 $ -- $ 35,827,748
============ ============ ========== ============
</TABLE>
F-12
<PAGE> 93
<TABLE>
<CAPTION>
VALUATION
ADJUSTMENT
AND
ACCUMULATED
DEPRECIATION
BUILDING AND AND DATE OF DATE
DESCRIPTION LAND IMPROVEMENTS AMORTIZATION TOTAL(a) CONSTRUCTION ACQUIRED
----------- ---- ------------ ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Grand Harbor, 300-acre
residential development in
Vero Beach, FL $ 9,059,365 $ 16,642,981 $ (119,200) $ 25,583,146 (b) 03/91
Oak Harbor, 100-acre
residential development in
Vero Beach, FL 3,494,372 9,687,223 -- 13,181,595 (b) 05/91
Southbridge, 2,300-acre
mixed use land development
in Prince William County, VA 20,397,886 16,644,214 -- 37,042,100 (b) 12/96
------------ ------------ ----------- ------------
$ 32,951,623 $ 42,974,418 $ (119,200) $ 75,806,841
============ ============ =========== ============
</TABLE>
F-13
<PAGE> 94
a) Reconciliation of real estate inventory for the years
ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year............................ $ 82,873,914 $ 103,857,159 $ 128,834,222
Reallocation of purchase price Banyan................... -- -- 415,869
Net dispositions through sale........................... (33,052,315) (47,425,324) (47,784,281)
Acquisitions............................................ -- -- 1,260,019
Net additions........................................... 25,985,242 26,442,079 21,250,530
Valuation adjustment.................................... -- -- (119,200)
-------------- -------------- --------------
Balance at end of year.................................. $ 75,806,841 $ 82,873,914 $ 103,857,159
============== ============== ==============
</TABLE>
b) Properties are currently at various stages of development and
entitlement. The build-out of the projects is expected to
continue for periods ranging from 5-20 years under the current
development plans.
ASSET HELD FOR SALE
At December 31, 1998, Asset Held for Sale represents the carrying value
of the Ashburn Corporate Center. On April 19, 1999, Ashburn Front Five LLC, a
wholly owned subsidiary of the Company, acquired the second parcel of the
Ashburn Corporate Center which comprises nearly 28 acres for an approximate
purchase price of $4,300,000. In Management's view, the acquisition of the
additional parcel was necessary to facilitate the disposition of the entire
Ashburn Corporate Center.
In April 1999, the Company executed a contract for the sale of the
entire project to an unrelated third party. In accordance with the contract, the
purchaser deposited a $100,000 non-refundable deposit into escrow. Subsequently,
the purchaser was unwilling to move forward with the closing so in June 1999 the
Company, in accordance with the contract, terminated the contract and received
the $100,000 deposit. The deposit was recorded as other income in the Company's
consolidated financial statements.
On September 27, 1999, the Company, through its majority owned
subsidiaries, Ashburn Corporate Center, LC and Ashburn Front Five, LLC, sold the
land and related improvements of the Ashburn Corporate Center to Catapult
Ventures LLC, an unrelated third party.
The sales price of the property was $15,150,000 (before closing costs
of approximately $790,000.) The Company used a portion of the proceeds to repay
existing mortgage notes of $5,940,000 (see Note 6 (K)) and related party debts
of $3,750,000 on the credit facility advance from Holdings and $1,743,682 on
additional Holdings debt. The sale resulted in a gain for financial reporting
purposes of approximately $2,000,000.
(5) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following
at December 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Marina..................................................................... $ 2,683,471 $ 2,683,471
Buildings and improvements................................................. 14,124,773 14,602,202
Furniture, fixtures and equipment.......................................... 7,433,063 7,225,351
Depreciable land improvements.............................................. 2,014,677 2,014,677
-------------- --------------
26,255,984 26,525,701
Less accumulated depreciation and amortization............................. 8,129,706 6,623,845
-------------- --------------
18,126,278 19,901,856
Land (including golf course land).......................................... 4,743,425 4,743,425
-------------- --------------
$ 22,869,703 $ 24,645,281
============== ==============
</TABLE>
F-14
<PAGE> 95
(6) NOTES PAYABLE TO BANKS AND OTHERS
Notes payable to banks and others consists of the following at
December 31:
<TABLE>
<CAPTION>
(REFERENCE TO NOTE 3) 1998 1997
- --------------------- ---- ----
<S> <C> <C> <C>
(A) Note payable to others, interest only payable monthly at 12
percent, principal due April 20, 1999, secured by certain real
estate inventory................................................ $ -- $ 2,950,000
(B) Note payable to bank, interest payable monthly at prime rate plus
1.0 percent (9.50 percent at December 31, 1999); principal is
due during 2000................................................. 259,521 --
(C) Note payable to others, interest at 6.34 percent, due in annual
installments of $600,000, including interest through July 1,
2009. Secured by annuity contracts.............................. 4,345,780 4,650,912
(D) Notes payable to banks, interest payable monthly at the banks'
cost of funds rate (not to exceed the LIBOR rate plus .50 percent)
plus 2.25 percent (8.7113 percent at December 31, 1999); principal
payments of $786,597, $969,000 and $692,712 due in 2000, 2001 and
2002, respectively. Secured by second
mortgages on certain real estate inventory and property......... 2,448,309 3,048,309
(E) Notes payable to banks, interest payable monthly at LIBOR plus
2.50 percent and prime rate plus 1.0 percent (8.66 percent to 9.50
percent at December 31, 1999); principal payments of $887,361,
$160,143, $177,519 and $3,326,698 due in 2000, 2001, 2002 and 2003,
respectively. Secured by first mortgages on
certain real estate inventory, certain property and equipment... 4,551,721 11,433,815
(F) Construction revolving line of credit, interest payable monthly
at the prime rate plus 1 percent (9.50 percent at December 31,
1999), due December 2000. Secured by first mortgages on certain
real estate inventory, certain property and equipment. Total
advances are not to exceed $16,000,000......................... 845,163 1,287,663
(G) Notes payable to bank, interest payable monthly at the bank's
cost of funds rate (not to exceed the LIBOR rate plus .50 percent)
plus 2.25 percent (8.7113 percent at December 31, 1999); principal
payments of $1,283,395, $1,581,000 and $1,207,288 due in 2000, 2001
and 2002, respectively. Secured by
first and second mortgages on certain real estate inventory..... 4,071,683 4,741,701
(H) Notes payable to banks, interest payable monthly at the prime
rate (8.50 percent at December 31, 1999); principal is due
November 2000. Secured by a first mortgage on certain real
estate inventory................................................ 371,698 1,732,588
(I) Construction revolving lines of credit payable to banks:
principal payments of $1,022,549 and $3,611,986 due October
2000 and December 2001, respectively. Interest payable monthly
at the prime rate (8.50 percent at December 31, 1999). Secured
by a first mortgage on certain property. Total advances are not
to exceed $16,000,000........................................... 4,634,535 4,743,556
(J) Notes payable to others, interest at 7.50 percent to 9.0 percent;
principal and interest due during 1999. secured by a first
mortgage on certain real estate inventory....................... -- 91,000
</TABLE>
F-15
<PAGE> 96
<TABLE>
<CAPTION>
(REFERENCE TO NOTE 3) 1998 1997
- --------------------- ---- ----
<S> <C> <C> <C>
(K) Note payable to others, interest due monthly at 18%, principal
due September 6, 1999. Secured by a first mortgage on assets
held for sale................................................... -- 5,940,000
(L) Other............................................................. 58,803 103,193
----------- -----------
$21,587,213 $40,722,737
=========== ===========
</TABLE>
Scheduled principal maturities of notes payable to banks and others at
December 31, 1999 are as follows:
2000 $ 5,803,953
2001 6,696,620
2002 2,447,661
2003 3,719,841
2004 414,927
Thereafter 2,504,211
-----------
$21,587,218
===========
In conjunction with the acquisition of Royal Palm Convalescent Center
by OHPH in June 1994, an irrevocable trust consisting of three annuities was
established for the sole purpose of providing security for payments due on the
note payable to others (see (C)). The annuity contracts totaled $4,225,298 and
$4,512,127 at December 31, 1999 and 1998, respectively, plus accrued interest
receivable of $151,616 and $156,585, and will fully satisfy the annual principal
and interest payments of $600,000 under the note payable through maturity on
July 1, 2009.
(7) RELATED PARTY TRANSACTIONS
The following is a summary of other significant transactions and
accounts with related parties during 1999, 1998 and 1997 and as of December 31,
1999 and 1998:
RECEIVABLES
As of December 31, 1999 the Company has included in other assets a
$4,757,642 receivable from RGI, Inc., the parent company of Holdings, related to
the utilization of the benefit of a deferred tax asset recorded by the Company.
The benefit is derived from the Company's inclusion in RGI, Inc.'s consolidated
tax return.
PAYABLES
Payables to related parties consist of the following at December 31:
<TABLE>
<CAPTION>
(REFERENCE TO NOTE 3) 1999 1998
- --------------------- ---- ----
<S> <C> <C> <C>
(A) Mortgage note payable to Holdings with interest payable quarterly
at LIBOR plus 2.5%. Principal payments equal to 20% of Southbridge
and 50% of other collateral sales revenues is payable quarterly with
the balance due April 1, 2003. The debt is secured by certain real
estate inventory and property. Unpaid interest will be capitalized
into the principal balance annually................................... $31,238,050 $30,649,872
</TABLE>
F-16
<PAGE> 97
<TABLE>
<CAPTION>
(REFERENCE TO NOTE 3) 1999 1998
- --------------------- ---- ----
<S> <C> <C> <C>
(B) Mortgage note payable to Holdings with interest at prime plus 2% and
secured by certain real estate inventory. Interest and principal are
payable quarterly after certain other debt payments provided that a
$4.5 million cash reserve remains. Quarterly principal payments are
equal to 80% of the defined net cash flow for Southbridge, Grand
Harbor, and Oak Harbor with the balance due April 1, 2003. Unpaid
interest will be capitalized into the principal balance
annually......................................................... 38,525,416 35,024,632
(C) Unsecured note payable to RGI, Inc. with interest at prime plus 2%.
Principal and interest is payable on the same terms, but after
payments on the Mortgage note payable discussed immediately above
with the remainder due April 1, 2003. Unpaid interest will
be capitalized into the principal balance annually............... 18,503,058 16,821,696
(D) Unsecured note payable to Holdings, interest at prime plus 2%.
Principal and interest due June 1, 1999.......................... -- 2,248,278
(E) Other............................................................ 395,437 --
----------- -----------
$88,661,961 $84,744,478
=========== ===========
</TABLE>
The entire $88,661,961 related party payable (principal and accrued interest) is
due on April 1, 2003.
F-17
<PAGE> 98
Holdings has provided to the Company a $5 million credit facility to
provide sufficient working capital to fund ongoing development, construction and
operating activities. The credit facility provides for interest at Prime plus
2%, matures on April 1, 2003 and is secured by certain real estate inventory and
property. Funding purpose and repayment terms are to be agreed upon prior to
drawing on this facility.
On May 18, 1999, the Company borrowed $3,750,000 under the $5 million
credit facility with Holdings. Funds from the $3,750,000 advance were used to
repay a $2,248,279 unsecured note payable to Holdings which matured on June 1,
1999 and to repay a portion of a $2,950,000 note payable to an unrelated third
party.
On September 29, 1999, the $3,750,000 advance plus accrued interest was
repaid to Holdings. In addition, the Company made an additional $1,743,682
principal payment to Holdings pursuant to the Company's agreement with Holdings.
Funds for the repayments were generated by the sale of the Ashburn Corporate
Center, as discussed in Note 3.
INDEMNITY
Aker RGI ASA, the indirect parent of Holdings, has provided an
indemnity, to a maximum of $15,000,000, to the bonding company for development
bonds at Southbridge, of which an aggregate total of approximately $13,500,000
was outstanding at December 31, 1999.
CONSTRUCTION AGREEMENT
Prior to December 31, 1999, Proctor Construction Company ("Proctor")
provided all development and construction services at Grand Harbor and Oak
Harbor since Legend acquired the projects. Donald C. Proctor is the majority
shareholder of Proctor, and an affiliate of Mr. Proctor owned 10 percent of GHPH
and OHPH (the corporations that own Grand Harbor and Oak Harbor, see Note 2).
This exclusive contract was effective through December 31, 1999, with fees equal
to the cost of the work, a 7 percent overhead charge and a 5 percent profit fee,
half of which was payable to GHPH and OHPH. There can be no assurance that
Legend purchased these services at prevailing market rates.
F-18
<PAGE> 99
(8) Income Taxes
Income tax benefit attributable to loss from continuing operations
consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1999:
US federal $(4,757,642) (4,573,900) (9,331,542)
State and local -- -- --
Year ended December 31, 1998:
US federal -- -- --
State and local -- -- --
=========== ========== ==========
</TABLE>
Income benefit attributable to loss from continuing operations was
$9,331,542 and $0 for the years ended December 31, 1999 and December
31, 1998, respectively, and differed from the amount computed by
applying the US federal income tax rate of 34 percent to pretax income
from continuing operations as a result of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Computed "expected" tax benefit
Increase (reduction) in income taxes $(4,299,457) (4,126,571)
Resulting from:
State and local income taxes, net of
federal income tax benefit (493,173) (473,341)
Change in the beginning-of-the-year
balance of the valuation allowance
for deferred tax assets allocated
to income tax benefit (12,247,900) 3,711,000
Change in valuation allowance due to
election to treat loss carryover
as expiring 12,451,570 --
Amount attributable to benefit
received due to prior year loss
utilized by parent company (4,757,642) --
Permanent items, primarily due to meals
and entertainment, etc. -- 467,212
Other 15,060 421,700
----------- ---------
Total $(9,331,542) --
=========== =========
</TABLE>
F-19
<PAGE> 100
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Real estate inventory and assets
held for sale $20,492,000 20,488,000
Deferred income 245,000 270,000
Net operating loss carryforwards 12,685,000 20,324,000
Organization and loan fees 771,000 849,000
Other -- 176,000
Total gross deferred tax assets 34,193,000 42,107,000
Less valuation allowance 28,702,100 40,950,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net deferred tax asset 5,490,900 1,157,000
Deferred tax liabilities:
Property and equipment 523,000 516,000
Inventory 354,000 --
Other 40,000 641,000
--------- ---------
Gross deferred liabilities 917,000 1,157,000
--------- ---------
Net deferred tax asset 4,573,900 --
========= =========
</TABLE>
The net deferred tax asset of $4,573,900 is recorded in other assets at
December 31, 1999.
The valuation allowance for deferred tax assets as of January 1, 1999
was $40,950,000. The net change in the total valuation allowance for
the year ended December 31, 1999 was a decrease of $12,247,900. In
assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of the deferred assets and liabilities, projected future
taxable income and the planning strategies in making this assessment.
Based upon the historical taxable income and projections for future
taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not that Legend
will realize the benefits of these deductible differences, net of
existing valuation allowances at December 31, 1999. The amount of the
deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the
carryforward periods are reduced.
A receivable from Legend's parent company, representing the tax benefit
obtained by the utilization of its 1998 operating loss, has been
established in 1999 in accordance with a new tax sharing agreement used
by the consolidated group which has an effective date retroactive to
January 1, 1998. (see Note 7)
As of December 31, 1999, Legend has a net operating loss carryforward
of approximately $33,500,000 which substantially expires in 2000, 2001,
2002 and 2003. This excludes net operating losses which were previously
elected to be treated as expiring under Internal Revenue Code
Regulation Section 1.1502-32(b)(4).
F-20
<PAGE> 101
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
Legend's financial instruments include cash, restricted cash,
receivables, accounts payable, and short-term and long-term borrowings.
In general, Legend believes that the fair value of these financial
instruments approximates their carrying amounts based upon their
short-term nature or upon current market indicators, such as prevailing
interest rates available to the Company for similar instruments.
Legend's financial instruments also include restricted investments,
consisting of an irrevocable trust fund containing three annuities,
established to provide the annual payments required on the note payable
to others (see Note 5(c)). The annual distributions from the annuities
fully satisfy the interest and principal payments of the note payable.
Moreover, these annuities cannot be surrendered and, therefore, have no
cash value. Because the restricted investments and the note payable are
inextricably linked, the fair value of each is considered to be the
carrying amounts reported in the balance sheet.
(10) CONCENTRATION OF ASSETS
The majority of Legend's assets are real estate holdings which are
subject to possible fluctuating economic conditions. Such fluctuations
can have a significant impact on the market values, which in turn could
limit the potential recovery of the properties' carrying values.
(11) STOCK OPTION PLAN
The Company has granted stock options under the Executive and
Directors' Stock Option Plan (the Plan) which was approved on June 25,
1993. The Plan grants the Board of Directors the authority to issue up
to 40,000 shares of the Company's common stock for stock option awards.
The Plan consists of an Executive Option Grant Program and a Director
Option Grant Program. Options issued under the Executive Option Grant
Program vest over a three-year period. Options issued under the
Director Option Grant Program vest over a two-year period. All options
granted lapse ten years from the date of grant.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
OPTION PRICE NUMBER OF SHARES
------------ ----------------
<S> <C> <C>
Balance at December 31, 1996 $11.69 to $28.13 25,280
Granted $4.50 to $7.75 9,300
Forfeited $4.50 to $28.13 (20,500)
Balance at December 31, 1997 $4.50 to $17.19 14,080
Granted -- --
Balance at December 31, 1998 $4.50 to $17.19 14,080
Granted -- --
Balance at December 31, 1999 $4.50 to $17.19 14,080
</TABLE>
At December 31, 1999, the number of options exercisable was 14,080. The
Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, the Company
applies Accounting Principles Board Opinion No. 25 in accounting for
the Plan and therefore no compensation cost has been recognized for the
Plan.
F-21
<PAGE> 102
An insignificant amount of compensation cost would have been recorded
had compensation cost for the Company's stock options been determined
based upon the fair value at the grant date consistent with the
methodology prescribed under SFAS No. 123.
(12) EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution plan that provides
employees of the Company an opportunity to accumulate funds for their
retirement. Employees are eligible to join the plan if they are at
least 21 years of age, have completed one year of service with the
Company, and worked a minimum of 1,000 hours. The Company matches the
contributions of participating employees on the basis of the
percentages specified in the plan. Company matching contributions to
the plan were approximately $53,000, $47,000 and $83,000 in 1999, 1998
and 1997, respectively.
(13) COMMITMENTS & CONTINGENCIES
LEASES
The Company is obligated under various leases covering office space and
equipment. Minimum payments under these leases are:
FISCAL YEAR OPERATING
----------- ---------
2000 $ 237,225
2001 189,715
2002 39,013
2003 14,031
2004 1,862
---------
Total minimum lease payments $ 475,596
=========
Rent expense was $307,221, $228,445 and $259,363 for years 1999, 1998
and 1997, respectively.
Ashburn Corporate Center
During August 1998, Legend filed a lawsuit and a memorandum of Lis
Pendens in the Circuit Court of Loudoun County against Atlantic
Research Corporation (ARC), which was amended during November 1998.
Legend was seeking specific performance under a real estate sales
contract and any other relief the court would offer. During the first
quarter of 1999, Legend and ARC reached an agreement concerning the
real estate sales contract which resulted in Legends acquisition of the
second parcel in ACC (see Note 3). As a result, the litigation was
withdrawn and dismissed in the second quarter of 1999.
Laguna Seca Ranch
On December 14, 1998, a Legend subsidiary, BMIF Monterey County Corp.,
filed a complaint against New Cities Development Group, Bates
Properties, Inc., New Cities Development Company, Deregt Development,
Inc., Rancho Monterey, L.L.C. (collectively New Cities), Old Republic
Title Company and David Bohen (collectively Old Republic) in the United
States District Court, Northern District of California, San Jose
Division.
During 1997, Legend sold the Laguna Seca Ranch to New Cities with
Legend retaining a house with certain surrounding property known as Lot
40 together with certain access easements to the nearest public right
of way. New Cities agreed, as part of the sale, to establish a separate
legal parcel for Lot 40 subsequent to the sale. As part of the sale,
Legend agreed to cooperate and share equally in certain costs with New
Cities in negotiating an agreement concerning water service to the
property with California-American Water Company (Cal-Am). Pursuant to
this, Legend agreed to post $200,000 in an interest bearing escrow held
by Old Republic to pay any necessary amounts due from Legend in
consummating an agreement with Cal-Am. An agreement was reached with
F-22
<PAGE> 103
Cal-Am on March 20, 1998 to provide the water needs, and Legend agreed
with New Cities to contribute $60,000 out of the escrow to defray
certain costs. On August 28, 1998 Cal-Am withdrew from its commitment.
Subsequently, Old Republic released the $200,000 escrow with interest
to New Cities.
Legend claimed that New Cities breached certain implied covenants in
refusing to negotiate and consummate the agreement with Cal-Am, that
New Cities failed to establish Lot 40 as a separate parcel, and that
Old Republic wrongly released the funds in escrow to New Cities. Legend
was seeking to recover $140,000 plus interest on the escrow, that New
Cities convey Lot 40, that New Cities pay approximately $75,000 of
costs incurred by Legend for negotiating the agreement with Cal-Am, and
other damages.
During the first quarter of 2000, Legend and the defendants reached a
settlement on all matters whereby New Cities agreed to pay Legend
$100,000, net of $5,887 for the reimbursement of utilities and
services, related to the settlement for water service agreement and
convey Lot 40 to Legend. Legend agreed to pay New Cities $119,743 for
certain development costs associated with Lot 40 and to remove the Lis
Pendens from Lot 40.
General Legal Matters
The Company is subject to various lawsuits arising in the ordinary
course of business. The Company is of the opinion that the outcome of
any such lawsuits will not have a material adverse effect on its
operations.
(14) PURCHASE OFFER
On October 15, 1999, the Company announced that it received a proposal
from Holdings for the merger of the Company with a wholly-owned
subsidiary of Holdings. Pursuant to the offer, Holdings would acquire
all of the outstanding shares of the Company's common stock not
currently held by Holdings, for $0.13 per share in cash. Holdings holds
approximately 80% of the Company's common stock.
The Company's Board of Directors established a special committee to
evaluate and consider the proposal. The proposed merger is subject to,
among other things, (i) the execution of a definitive merger agreement,
containing customary terms, (ii) approval of the transaction by the
Company's special committee, Board of Directors and shareholders, (iii)
compliance with all applicable regulatory and governmental requirements
and (iv) receipt of an opinion from the special committee's financial
advisor that the consideration to be received by the public
shareholders is fair from a financial point of view.
On January 6, 2000, the Company's Board of Directors and Holdings
executed a definitive merger agreement where Holdings will acquire all
of the outstanding shares, not currently held by Holdings, for $0.50
per share in cash. The transaction is anticipated to close during the
second quarter of 2000.
(15) OPERATING SEGMENTS
Legend's reportable operating segments are distinct operations that
service differing markets. The real estate segment consists of the
development, construction and sales activities for all of the Legend
properties. The club operations consist of the clubhouse and related
activities for Grand Harbor and Oak Harbor. Patient services includes
the Royal Palm Convalescent Center which offers skilled nursing care,
and the Somerset House Assisted Living Facility.
F-23
<PAGE> 104
The accounting policies for the reportable segments are the same as
those described in Note 1. Internal interest is charged at rates
similar to those charged on the payables to related parties. Summarized
information concerning the reportable segments is presented in the
following table.
<TABLE>
<CAPTION>
OTHER, CORPORATE
REAL CLUB PATIENT AND
ESTATE OPERATIONS SERVICES ELIMINATIONS(1) TOTAL
------ ---------- -------- --------------- -----
<S> <C> <C> <C> <C> <C>
($000 omitted)
1999
Revenues $62,237 7,159 2,756 2,825 74,977
Operating costs and expenses (59,157) (9,480) (3,532) (6,214) (78,383)
Other income/(expenses) (8,231) -- (277) 8,600 92
Net income (loss) before Minority interest $(5,151) (2,321) (1,053) 5,211 (3,314)
======= ====== ====== ====== =======
Total assets 86,425 13,199 14,717 13,348 127,689
Capital expenditures $ 424 90 0 189 703
======= ====== ====== ====== =======
1998
Revenues $65,219 5,953 2,601 1,960 75,733
Operating costs and expenses (61,202) (9,485) (3,455) (3,621) (77,763)
Other income/(expenses) (8,790) (1,151) (301) 135 (10,107)
------- ----- ----- ----- ------
Net income (loss) before Minority interest $(4,773) (4,683) (1,155) (1,526) (12,137)
======= ====== ====== ====== =======
Total assets 113,101 13,684 15,523 5,250 147,558
Capital expenditures $338 160 (135) 429 792
======= ====== ====== ====== =======
1997
Revenues $43,596 5,345 2,718 3,969 55,628
Operating costs and expenses (44,916) (8,499) (2,736) (4,096) (60,247)
Other income/(expenses) (10,452) (711) (127) 1,150 (10,140)
------- ----- ----- ----- ------
Net income (loss) before Minority interest $(11,772) (3,865) (145) 1,023 (14,759)
======= ====== ====== ====== =======
Total assets 120,192 14,487 15,622 12,570 162,871
Capital expenditures $1,042 958 3,840 457 6,297
======= ====== ====== ====== =======
</TABLE>
- ---------------------
(1) Other includes other segments, which were not reportable in 1999 and
1998. These other segments were not reported in earlier periods since
they were disposed of prior to 1998 and it was impractical to report
separately.
F-24
<PAGE> 105
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
RGI HOLDINGS, INC.
LP ACQUISITION CORP.
AND
LEGEND PROPERTIES, INC.
DATED AS OF JANUARY 6, 2000
<PAGE> 106
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.01. The Merger..................................................................................1
SECTION 1.02. Closing.....................................................................................1
SECTION 1.03. Effective Time..............................................................................1
SECTION 1.04. Effects of the Merger.......................................................................2
SECTION 1.05. Certificate of Incorporation and Bylaws.....................................................2
SECTION 1.06. Directors...................................................................................2
SECTION 1.07. Officers....................................................................................2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock.....................................................................2
SECTION 2.02. Exchange of Certificates....................................................................3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization................................................................................4
SECTION 3.02. Capitalization..............................................................................4
SECTION 3.03. Authority...................................................................................5
SECTION 3.04. SEC Reports and Financial Statements........................................................5
SECTION 3.05. State Takeover Statutes.....................................................................6
SECTION 3.06. Brokers; Fees and Expenses..................................................................6
SECTION 3.07. Vote Required...............................................................................6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
SECTION 4.01. Organization................................................................................6
SECTION 4.02. Authority...................................................................................7
SECTION 4.03. Consents and Approvals; No Violations.......................................................7
SECTION 4.04. Litigation..................................................................................7
SECTION 4.05. Information Supplied........................................................................7
SECTION 4.06. Interim Operations of Sub...................................................................7
SECTION 4.07. Brokers.....................................................................................8
SECTION 4.08. Board Determination.........................................................................8
SECTION 4.09. Full Disclosure.............................................................................8
ARTICLE V
COVENANTS
SECTION 5.01. Covenants of the Company....................................................................8
SECTION 5.02. No Solicitation............................................................................10
SECTION 5.03. Other Actions..............................................................................11
</TABLE>
(i)
<PAGE> 107
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholder Approval; Preparation of Proxy Statement.......................................12
SECTION 6.02. Access to Information......................................................................13
SECTION 6.03. Reasonable Efforts.........................................................................13
SECTION 6.04. Company Stock Options; Plans...............................................................13
SECTION 6.05. Confidentiality............................................................................14
SECTION 6.06. Fees and Expenses..........................................................................14
SECTION 6.07. Indemnification; Insurance.................................................................14
SECTION 6.08. Employment and Benefit Arrangements........................................................15
ARTICLE VII
CONDITIONS
SECTION 7.01. Conditions to Each Party's Obligation To Effect the Merger.................................15
SECTION 7.02. Conditions to Obligations of Parent and Sub to Effect the Merger...........................16
SECTION 7.03. Conditions to Obligations of the Company to Effect the Merger..............................16
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.01. Termination................................................................................17
SECTION 8.02. Effect of Termination......................................................................18
SECTION 8.03. Amendment..................................................................................18
SECTION 8.04. Extension; Waiver..........................................................................18
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Nonsurvival of Representations and Warranties..............................................18
SECTION 9.02. Notices....................................................................................19
SECTION 9.03. Interpretation.............................................................................19
SECTION 9.04. Counterparts...............................................................................20
SECTION 9.05. Entire Agreement; Third Party Beneficiaries................................................20
SECTION 9.06. Governing Law..............................................................................20
SECTION 9.07. Publicity..................................................................................20
SECTION 9.08. Assignment.................................................................................20
SECTION 9.09. Enforcement................................................................................20
</TABLE>
(ii)
<PAGE> 108
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of
January 6, 2000, among RGI Holdings, Inc., a Washington corporation ("PARENT"),
LP Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ("SUB"), and Legend Properties, Inc., a Delaware corporation (the
"COMPANY").
WHEREAS the respective Boards of Directors of Parent, Sub and the
Company have approved the acquisition of the Company by Parent on the terms and
subject to the conditions set forth in this Agreement; and
WHEREAS the respective Boards of Directors of Parent, Sub and the
Company have each approved the merger of Sub into the Company (the "MERGER"),
upon the terms and subject to the conditions set forth in this Agreement,
whereby each outstanding share (collectively, the "SHARES") of common stock, par
value $0.01 per share, of the Company (the "COMPANY COMMON STOCK"), other than
those Shares of Company Common Stock owned directly or indirectly by Parent or
the Company, will be converted into the right to receive $0.50 in cash; and
WHEREAS Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "CORPORATION LAW"), Sub shall be merged with and into the
Company at the Effective Time (as defined in Section 1.03). Following the
Effective Time, the separate corporate existence of Sub shall cease and the
Company shall continue as the surviving corporation (the "SURVIVING
CORPORATION") and shall succeed to and assume all the rights and obligations of
Sub in accordance with the Corporation Law. At the election of Parent, any
direct or indirect wholly owned subsidiary (as defined in Section 9.03) of
Parent may be substituted for Sub as a constituent corporation in the Merger. In
such event, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect the foregoing.
SECTION 1.02. CLOSING. The closing of the Merger will take place at
10:00 a.m. (Miami time) on a date to be specified by Parent or Sub, which shall
be no later than the fifth business day after satisfaction or waiver of the
conditions set forth in Article VII (the "CLOSING DATE"), at the offices of
Greenberg, Traurig, P.A., counsel to Parent, unless another date, time or place
is agreed to in writing by the parties hereto.
SECTION 1.03. EFFECTIVE TIME. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file a Certificate of Merger or other appropriate documents (in any such
case, the "CERTIFICATE OF MERGER") executed in accordance with the relevant
provisions of the Corporation Law and shall make all other filings or recordings
required under the Corporation Law. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Delaware Secretary of
State, or at such other time as Sub and the Company shall agree should
<PAGE> 109
be specified in the Certificate of Merger (the time the Merger becomes effective
being hereinafter referred to as the "EFFECTIVE TIME").
SECTION 1.04. EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in the applicable provisions of the Corporation Law.
SECTION 1.05. CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) The Certificate of Incorporation of Sub as in effect
immediately prior to the Effective Time shall be the Certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law; provided that Article I thereof shall
be amended to provide that the corporate name of the Surviving Corporation is
"Legend Properties, Inc."
(b) The bylaws of Sub as in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
SECTION 1.06. DIRECTORS. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
SECTION 1.07. OFFICERS. The officers of the Company immediately prior
to the Effective Time or such other persons as Parent shall designate shall be
the officers of the Surviving Corporation until the earlier of their resignation
or removal or until their respective successors are duly elected and qualified,
as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. EFFECT ON CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
Shares or any shares of capital stock of Sub:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the Surviving
Corporation.
(b) CANCELLATION OF PARENT OWNED STOCK. Each share of Company
Common Stock that is owned by Parent, Sub or any other subsidiary of Parent
shall automatically be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(c) CANCELLATION OF COMPANY OWNED STOCK. All Shares (if any)
that are held in the treasury of the Company or by any wholly owned subsidiary
of the Company shall be canceled and no consideration shall be delivered in
exchange therefor.
(d) CONVERSION OF COMPANY COMMON STOCK. Each Share (other than
Shares to be canceled in accordance with Section 2.01(b) or (c)) shall be
converted into the right to receive from the Surviving Corporation in cash,
without interest, $0.50 (the "MERGER CONSIDERATION"). As of the Effective Time,
all such Shares shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such Shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration, without interest.
2
<PAGE> 110
SECTION 2.02. EXCHANGE OF CERTIFICATES.
(a) PAYING AGENT. Prior to the Effective Time, Parent shall
designate a bank or trust company to act as paying agent in the Merger (the
"PAYING AGENT"), and, from time to time on, prior to or after the Effective
Time, Parent shall make available, or cause the Surviving Corporation to make
available, to the Paying Agent funds in amounts and at the times necessary for
the payment of the Merger Consideration upon surrender of certificates
representing Shares, or, in situations involving lost, stolen or destroyed
certificates, upon delivery of an affidavit of lost, stolen or destroyed
certificate accompanied by a bond as indemnity against a claim in such sum as
reasonably required by Parent, as part of the Merger pursuant to Section 2.01
(it being understood that any and all interest earned on funds made available to
the Paying Agent pursuant to this Agreement shall be payable to Parent).
(b) EXCHANGE PROCEDURE. As soon as reasonably practicable
after the Effective Time, the Paying Agent shall mail to each holder of record
of a certificate or certificates which immediately prior to the Effective Time
represented Shares (the "CERTIFICATES"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in a form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Paying Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor the amount of cash into which the Shares theretofore
represented by such Certificate shall have been converted pursuant to Section
2.01, and the Certificate so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of Shares that is not registered in the
transfer records of the Company, payment may be made to a person other than the
person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of such Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
as contemplated by this Section 2.02, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the amount of cash, without interest, into which the Shares
theretofore represented by such Certificate shall have been converted pursuant
to Section 2.01. No interest will be paid or will accrue on the cash payable
upon the surrender of any Certificate. In the event any Certificate shall have
been lost, stolen or destroyed, Parent may, in its discretion and as a condition
precedent to the payment of the Merger Consideration in respect of the shares
represented by such Certificate, require the owner of such lost, stolen or
destroyed Certificate to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Parent, the Surviving
Corporation or the Paying Agent.
(c) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
cash paid upon the surrender of Certificates in accordance with the terms of
this Article II shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Shares theretofore represented by such Certificates. At
the Effective Time, the stock transfer books of the Company shall be closed, and
there shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the Shares that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Paying Agent for any reason, they
shall be canceled and exchanged as provided in this Article II.
(d) NO LIABILITY. At any time following the expiration of six
months after the Effective Time, the Surviving Corporation shall be entitled to
require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto, which shall be payable to Parent at Parent's
request) which had been made available to the Paying Agent and which have not
been disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject
3
<PAGE> 111
to any applicable abandoned property, escheat or similar law) only as general
creditors thereof with respect to the Merger Consideration payable upon due
surrender of their Certificates, without any interest thereon. Notwithstanding
the foregoing, none of Parent, Sub, the Company or the Paying Agent shall be
liable to any person in respect of any cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
SECTION 3.01. ORGANIZATION. Each of the Company and its subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to carry on its business as now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power and authority could not be reasonably expected to (i) prevent or
materially delay the consummation of the Merger, or (ii) have a material adverse
effect (as defined in Section 9.03) on the Company. The Company and each of its
subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing could not reasonably be expected to
have a material adverse effect on the Company or prevent or materially delay the
consummation of the Merger. The Company has made available to Parent complete
and correct copies of its Amended and Restated Certificate of Incorporation and
Bylaws and the certificates of incorporation and bylaws (or similar
organizational documents) of the Company's subsidiaries.
SECTION 3.02. CAPITALIZATION. The authorized capital stock of the
Company consists of 10,000,000 shares of Company Common Stock and 5,000,000
shares of preferred stock, par value $0.01 per share ("COMPANY PREFERRED
STOCK"). At the close of business on December 31, 1999, (i) 6,290,844 shares of
Company Common Stock were issued and outstanding, (ii) 40,000 shares of Company
Common Stock were reserved for issuance upon exercise of outstanding Company
Stock Options (as defined in Section 6.04) and (iii) no shares of Company
Preferred Stock were issued and outstanding. Except as set forth above, as of
the date of this Agreement, no shares of capital stock or other voting
securities of the Company were issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of the Company are, and all shares which may
be issued will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of the Company may vote. Except as set
forth above, there are not any securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company or any of the Subsidiaries is a party or by which any of them is bound
obligating the Company or any of the Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of the Company or of any of the Subsidiaries or
obligating the Company or any of the Subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. There are not any outstanding contractual
obligations (i) of the Company or any of the Subsidiaries to repurchase, redeem
or otherwise acquire any shares of capital stock of the Company or (ii) of the
Company to vote or to dispose of any shares of the capital stock of any of the
Subsidiaries. There are no restrictions on the right of the Company to vote or
dispose of any shares of the capital stock of the Subsidiaries.
4
<PAGE> 112
SECTION 3.03. AUTHORITY.
(a) The Company has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby (other than, with respect to the Merger, the
approval and adoption of the terms of this Agreement by the holders of a
majority of the Shares (the "COMPANY STOCKHOLDER APPROVAL")). The execution,
delivery and performance of this Agreement and the consummation by the Company
of the Merger and of the other transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated (in
each case, other than, with respect to the Merger, the Company Stockholder
Approval). This Agreement has been duly executed and delivered by the Company
and, assuming this Agreement constitutes a valid and binding obligation of
Parent and Sub, constitutes a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors' rights generally.
(b) The Board of Directors of the Company, as well as a
special committee (the "SPECIAL COMMITTEE") comprised of three independent
members of the Company's Board of Directors, at meetings duly called and held on
January 6, 2000, duly and unanimously adopted resolutions (i) approving this
Agreement and the Merger (and such approval is sufficient to render inapplicable
the provisions of Section 203 of the Corporation Law), (ii) determining that the
terms of the Merger are substantively and procedurally fair to, and in the best
interests of, the Company's stockholders, and (iii) recommending that the
Company's stockholders approve and adopt this Agreement.
(c) The Company's Board of Directors and the Special Committee
have received the written opinion, dated as of the date hereof, of Josephthal &
Co. Inc., that the Merger Consideration to be received by the holders of Shares
is fair from a financial point of view, together with the written presentation
of Josephthal & Co. Inc. to the Board of Directors and the Special Committee,
relating thereto.
SECTION 3.04. SEC REPORTS AND FINANCIAL STATEMENTS. The Company has
filed with the SEC, and has heretofore made available to Parent true and
complete copies of, all forms, reports, schedules, statements and other
documents (other than preliminary materials) required to be filed by it under
the Exchange Act or the Securities Act of 1933 (the "SECURITIES ACT") from and
after December 31, 1997 (such forms, reports, schedules, statements and other
documents, including any financial statements or schedules included therein, are
referred to as the "COMPANY SEC DOCUMENTS"). The Company SEC Documents, at the
time filed, (a) did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be, and the applicable rules and regulations of the SEC thereunder. Except
to the extent revised or superseded by a subsequently filed Company SEC
Document, the Company SEC Documents do not contain an untrue statement of a
material fact or omit to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Company SEC
Documents as well as the Company's financial statements as of and for the three
months and nine months ended September 30, 1999 heretofore delivered to Parent,
as of the dates thereof comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Rule 10-01 of Regulation S-X promulgated
by the SEC) and fairly present (subject, in the case of the unaudited
statements, to normal, recurring audit adjustments, none of which will be
material) the consolidated
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financial position of the Company and the Subsidiaries as at the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended. None of the Subsidiaries is required to file any forms, reports,
schedules, statements or other documents with the SEC.
SECTION 3.05. STATE TAKEOVER STATUTES. The Board of Directors of the
Company has approved the Merger and this Agreement and such approval is
sufficient to render inapplicable to the Merger, this Agreement and the
transactions contemplated by this Agreement, the provisions of Section 203 of
the Corporation Law. To the best knowledge of the Company, no other state
takeover statute or similar statute or regulation applies or purports to apply
to the Merger, this Agreement or any of the transactions contemplated by this
Agreement.
SECTION 3.06. BROKERS; FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person, other than Josephthal & Co. Inc., the fees
and expenses of which will be paid by the Company, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company. The Company has furnished to Parent true
and complete copies of all written agreements or arrangements, and reduced to
writing and furnished to Parent the terms of all unwritten agreements or
arrangements, providing for any such broker's, finder's financial advisor's or
similar fee or commission between the Company and Josephthal & Co. Inc.
SECTION 3.07. VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock is the only vote of
the holders of any class of capital stock NECESSARY to approve this Agreement
and the Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
SECTION 4.01. ORGANIZATION. Each of Parent and Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power
and authority could not be reasonably expected to prevent or materially delay
the consummation of the Merger. Each of Parent and Sub is duly qualified or
licensed to do business and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing could not reasonably be expected to prevent or materially delay the
consummation of the Merger. Each of Parent and Sub has made available to the
Company complete and correct copies of its articles/certificate of incorporation
and bylaws.
SECTION 4.02. AUTHORITY. Parent and Sub have requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Parent and
Sub and no other corporate proceedings on the part of Parent and Sub are
necessary to authorize this Agreement or to consummate such transactions. No
vote of Parent stockholders is required to approve this Agreement or the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Parent and Sub, as the case may be, and, assuming this Agreement
constitutes a valid and binding obligation of the Company, constitutes a valid
and binding obligation of each of Parent and Sub enforceable against them in
accordance with its terms, except as limited by
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applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally.
SECTION 4.03. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act (including the
filing with the SEC of a Rule 13E-3 Transaction Statement on Schedule 13E-3
(together with all supplements and amendments thereto, the "SCHEDULE 13E-3"),
the HSR Act and Section 251 of the Corporation Law, neither the execution,
delivery or performance of this Agreement by Parent and Sub nor the consummation
by Parent and Sub of the transactions contemplated hereby will (i) conflict with
or result in any breach of any provision of the respective articles/certificate
of incorporation or bylaws of Parent and Sub, (ii) require any filing with, or
permit, authorization, consent or approval of, any Governmental Entity (except
where the failure to obtain such permits, authorizations, consents or approvals
or to make such filings could not be reasonably expected to prevent or
materially delay the consummation of the Merger), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, lease, contract, agreement or other
instrument or obligation to which Parent or Sub is a party or by which either of
them or any of their properties or assets may be bound or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Parent or Sub or any of their properties or assets, except in the case of
clauses (iii) and (iv) for violations, breaches or defaults which could not,
individually or in the aggregate, be reasonably expected to prevent or
materially delay the consummation of the Merger.
SECTION 4.04. LITIGATION. There is no suit, claim, action or proceeding
pending before any Governmental Entity or, to the best knowledge of Parent or
Sub, threatened against Parent or Sub that could reasonably be expected to
prevent or materially delay the consummation of the Merger.
SECTION 4.05. INFORMATION SUPPLIED. None of the information supplied or
to be supplied by Parent or Sub specifically for inclusion or incorporation by
reference in the Proxy Statement or the Schedule 13E-3 will at the time the
Proxy Statement is first mailed to the Company's stockholders or at the time of
the Stockholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Schedule 13E-3 to be filed by Parent in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the requirements of the Exchange Act and the rules
and regulations thereunder, except that no representation or warranty is made by
Parent or Sub with respect to statements made or incorporated by reference
therein based on information supplied by the Company specifically for inclusion
or incorporation by reference therein.
SECTION 4.06. INTERIM OPERATIONS OF SUB. Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
SECTION 4.07. BROKERS. No broker, investment banker, financial advisor
or other person is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of Parent or Sub.
SECTION 4.08. BOARD DETERMINATION. The Board of Directors of each of
Parent and Sub have duly and unanimously adopted resolutions approving this
Agreement and the Merger.
SECTION 4.09. FULL DISCLOSURE. No statement contained in any
certificate or schedule furnished or to be furnished by Parent or Sub to the
Company in, or pursuant to the provisions of, this
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Agreement contains or shall contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in the light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading.
ARTICLE V
COVENANTS
SECTION 5.01. COVENANTS OF THE COMPANY. The Company agrees as to itself
and the Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or to the extent that Parent shall otherwise consent in advance, which
consent shall not be unreasonably withheld and shall subsequently be confirmed
in writing):
(a) ORDINARY COURSE. The Company shall, and shall cause the
Subsidiaries to, carry on their respective businesses in the usual, regular and
ordinary course and the Company shall, and shall cause the Subsidiaries to, use
all reasonable efforts to preserve intact their present business organizations,
keep available the services of their present officers and employees and preserve
their relationships with customers, suppliers and others having business
dealings with the Company and the Subsidiaries.
(b) DIVIDENDS; CHANGES IN STOCK. The Company shall not, and
shall not permit any of the Subsidiaries to, (i) declare or pay any dividends on
or make other distributions in respect of any of its capital stock, except for
dividends by a direct or indirect wholly owned subsidiary of the Company to its
parent, (ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or (iii) repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or the
Subsidiaries or any other securities thereof.
(c) ISSUANCE OF SECURITIES. The Company shall not, and shall
not permit any of the Subsidiaries to, issue, deliver, sell, pledge or encumber,
or authorize or propose the issuance, delivery, sale, pledge or encumbrance of,
any shares of its capital stock of any class or any securities convertible into,
or any rights, warrants, calls, subscriptions or options to acquire, any such
shares or convertible securities, or any other ownership interest (including
stock appreciation rights or phantom stock) other than (i) the issuance of
shares of Company Common Stock upon the exercise of Company Stock Options
outstanding on the date of this Agreement and in accordance with the terms of
such Company Stock Options, or (ii) issuances by a Subsidiary of the Company of
its capital stock to the Company.
(d) GOVERNING DOCUMENTS. The Company shall not, and shall not
permit any of the Subsidiaries to, amend or propose to amend its certificate of
incorporation or bylaws (or similar organizational documents).
(e) NO ACQUISITIONS. The Company shall not, and shall not
permit any of the Subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing any equity interest in or any substantial
assets of (other than inventory and equipment in the ordinary course consistent
with past practice, to the extent not otherwise prohibited by this Agreement),
or by any other manner, any business or any corporation, partnership, joint
venture, association or other business organization or division thereof.
(f) NO DISPOSITIONS. Other than dispositions in the ordinary
course of business consistent with past practice, the Company shall not, and
shall not permit any of the Subsidiaries to, sell, lease, license, encumber or
otherwise dispose of, or agree to sell, lease, license, encumber or otherwise
dispose of, any of its assets.
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(g) INDEBTEDNESS. The Company shall not, and shall not permit
any of the Subsidiaries to, (i) incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or warrants
or rights to acquire any debt securities of the Company or any of the
Subsidiaries, guarantee any debt securities of others, enter into any
"keep-well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, except for working capital borrowings under the Company's
existing construction revolving line of credit, including any extensions thereof
or amendments thereto, or (ii) make any loans, advances or capital contributions
to, or investments in, any other person, other than, with respect to both clause
(i) and (ii) above, (A) to the Company or any direct or indirect wholly owned
subsidiary of the Company, or (B) any advances to employees in accordance with
past practice.
(h) ADVICE OF CHANGES; FILINGS. The Company shall confer with
Parent on a regular and frequent basis as reasonably requested by Parent, report
on operational matters and promptly advise Parent orally and, if requested by
Parent, in writing of any change or event having, or which, insofar as can
reasonably be foreseen, is likely to have, a material adverse effect on the
Company. The Company shall promptly provide to Parent (or its counsel) copies of
all filings made by the Company with any Governmental Entity in connection with
this Agreement and the transactions contemplated hereby.
(i) ACCOUNTING CHANGES. The Company shall not make any
material change, other than in the ordinary course of business, consistent with
past practice, or as required by the SEC or law, with respect to any accounting
methods, principles or practices used by the Company (except insofar as may be
required by a change in generally accepted accounting principles, of which the
Company shall promptly notify Parent).
(j) DISCHARGE OF LIABILITIES. Except for fees and expenses
related to the transactions contemplated herein, the Company shall not, and
shall not permit any of the Subsidiaries to, pay, discharge, settle or satisfy
any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge,
settlement or satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, of (i) liabilities recognized
or disclosed in the Most Recent Financial Statements, or (ii) liabilities
incurred since the date of such financial statements in the ordinary course of
business consistent with past practice. The Company shall not, and shall not
permit any of the Subsidiaries to, waive the benefits of, or agree to modify in
any manner, any confidentiality, standstill or similar agreement to which the
Company or any of the Subsidiaries is a party.
(k) COMPENSATION OF COMPANY EMPLOYEES. Except as provided in
Section 6.04, the Company and the Subsidiaries will not, without the prior
written consent of Parent, except as may be required by law, (i) enter into,
adopt, amend or terminate any Company Benefit Plan or other employee benefit
plan or any agreement, arrangement, plan or policy for the benefit of any
director, executive officer or current or former key employee, (ii) increase in
any manner the compensation or fringe benefits of, or pay any bonus to, any
director, executive officer or key employee, except as required by any Company
Benefit Plan or agreement with such employees existing on the date of this
Agreement, (iii) enter into, adopt, amend or terminate any Company Benefit Plan
or other benefit plan or agreement, arrangement, plan or policy for the benefit
of any employees who are not directors, executive offices or current or former
key employees of the Company, other than increases in the compensation of
employees made in the ordinary course of business consistent with past practice,
or (iv) pay any benefit not required by any plan or arrangement as in effect as
of the date hereof (including the granting of, acceleration of exercisability of
or vesting of stock options, stock appreciation rights or restricted stock).
(l) MATERIAL CONTRACTS. Neither the Company nor any of the
Subsidiaries shall (i) modify, amend or terminate any material contract or
agreement to which the Company or such Subsidiary is a party, or (ii) waive,
release or assign any material rights or claims.
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(m) NO DISSOLUTION, ETC. The Company shall not authorize,
recommend, propose or announce an intention to adopt a plan of complete or
partial liquidation of the Company or any of the Subsidiaries.
(n) TAX ELECTION. The Company shall not make any tax election
or settle or compromise any material income tax liability.
(o) OTHER ACTIONS. The Company shall not nor will it permit
any of the Subsidiaries to take or agree or commit to take any action that is
reasonably likely to result in any of the Company's representations or
warranties hereunder being untrue in any material respect at, or as of any time
prior to, the Effective Time.
(p) GENERAL. The Company shall not, and shall not permit any
of the Subsidiaries to, authorize any of, or commit or agree to take any of, the
foregoing actions described in this Section 5.01.
SECTION 5.02. NO SOLICITATION.
(a) The Company and its officers, directors, employees,
representatives and agents shall immediately cease any discussions or
negotiations with any parties that may be ongoing with respect to an Acquisition
Proposal (as hereinafter defined). From and after the date hereof until the
termination of this Agreement, the Company shall not, nor shall it permit any of
the Subsidiaries to, authorize or permit any of its officers, directors or
employees or any investment banker, financial advisor, attorney, accountant or
other representative retained by it or any of the Subsidiaries to, directly or
indirectly, (i) solicit, initiate or knowingly encourage (including by way of
furnishing non-public information or assistance), or knowingly take any other
action to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal,
or (ii) participate in any discussions or negotiations regarding any Acquisition
Proposal; PROVIDED, HOWEVER, that if, at any time the Board of Directors of the
Company determines in good faith, based upon the opinion of independent legal
counsel (who may be the Company's regularly engaged independent counsel), that
it is necessary to do so in order to comply with its fiduciary duties to the
Company's stockholders under applicable law, the Company may, in response to an
unsolicited Superior Proposal (as hereinafter defined), and subject to
compliance with Section 5.02(c), (x) furnish information with respect to the
Company to the person making such unsolicited Superior Proposal pursuant to a
customary confidentiality agreement, and (y) participate in discussions or
negotiations regarding such Superior Proposal. For purposes of this Agreement,
"ACQUISITION PROPOSAL" means any inquiry, proposal or offer from any person
relating to any direct or indirect acquisition or purchase of 20% or more of the
total value of the assets of the Company and the Subsidiaries or 20% or more of
any class of equity securities of the Company or any of the Subsidiaries, any
tender offer or exchange offer that if consummated would result in any person
beneficially owning 20% or more of any class of equity securities of the Company
or any of the Subsidiaries, any merger, consolidation, business combination,
sale of all or substantially all the assets, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any of the
Subsidiaries (other than the transactions between the parties hereto
contemplated by this Agreement), or any other transaction the consummation of
which could reasonably be expected to impede, interfere with, prevent or
materially delay the Merger or which could reasonably be expected to dilute
materially the benefits to Parent of the transactions contemplated hereby. For
purposes of this Agreement, a "SUPERIOR PROPOSAL" means any bona fide proposal
made by a third party to acquire, directly or indirectly, for consideration
consisting of cash and/or securities, 20% or more of the shares of Company
Common Stock then outstanding or all or substantially all the assets of the
Company and otherwise on terms which the Board of Directors of the Company
determines in its good faith judgment (based on the advice of Josephthal & Co.
Inc. to be more favorable to the Company's stockholders than the terms of the
Merger set forth in this Agreement.
(b) Except as set forth in this Section 5.02, neither the
Board of Directors of the Company nor any committee thereof shall (i) withdraw
or modify, or propose to withdraw or modify, in a
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manner adverse to Parent, the approval or recommendation of this Agreement or
the Merger by such Board of Directors or such committee, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal, or
(iii) cause the Company to enter into any agreement with respect to any
Acquisition Proposal. Notwithstanding the foregoing, in the event that the Board
of Directors of the Company determines in good faith, based upon the opinion of
independent legal counsel (who may be the Company's regularly engaged
independent counsel), that it is necessary to do so in order to comply with its
fiduciary duties to the Company's stockholders under applicable law, the Board
of Directors of the Company may (subject to the other provisions of Section
5.02) withdraw or modify its approval or recommendation of this Agreement and
the Merger, approve or recommend a Superior Proposal (as defined above), cause
the Company to enter into an agreement with respect to a Superior Proposal or
terminate this Agreement, but in each case only at a time that is after the
fifth business day following Parent's receipt of written notice (a "NOTICE OF
SUPERIOR PROPOSAL") advising Parent that the Board of Directors of the Company
has received a Superior Proposal, specifying the material terms and conditions
of such Superior Proposal and identifying the person making such Superior
Proposal. In addition, if the Company proposes to enter into an agreement with
respect to any Acquisition Proposal, it shall concurrently with entering into
such agreement pay, or cause to be paid, to Parent the Termination Fee (as such
term is defined in Section 6.06(b)).
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 5.02, the Company shall promptly advise
Parent orally and in writing of any request for information or of any
Acquisition Proposal, the material terms and conditions of such request or
Acquisition Proposal and the identity of the person making such request or
Acquisition Proposal.
(d) Nothing contained in this Section 5.02 shall prohibit the
Company from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's stockholders if, in the good faith judgment of the
Board of Directors of the Company, after consultation with independent legal
counsel (who may be the Company's regularly engaged independent counsel),
failure so to disclose would be inconsistent with its fiduciary duties to the
Company's stockholders under applicable law; PROVIDED, HOWEVER, neither the
Company nor its Board of Directors nor any committee thereof shall, except as
permitted by Section 5.02(b), withdraw or modify, or propose to withdraw or
modify, its position with respect to this Agreement or the Merger or approve or
recommend, or propose to approve or recommend, an Acquisition Proposal.
SECTION 5.03. OTHER ACTIONS. Except as contemplated by Section 5.02 or
the other provisions of this Agreement, the Company shall not, and shall not
permit any of the Subsidiaries to, take any action that could reasonably be
expected to result in (i) any of the representations and warranties of the
Company set forth in this Agreement that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties that are not so
qualified becoming untrue in any material respect, or (iii) any of the
conditions to the Merger set forth in Article VII hereof not being satisfied in
all material respects.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. STOCKHOLDER APPROVAL; PREPARATION OF PROXY STATEMENT.
(a) The Company shall, as soon as practicable, duly call, give
notice of, convene and hold a meeting of its stockholders (the "STOCKHOLDER
MEETING") for the purpose of obtaining the Company Stockholder Approval. The
Company shall, through its Board of Directors, recommend to its stockholders
that the Company Stockholder Approval be given. The Company shall, at the
direction of Parent, solicit from holders of Shares entitled to vote at the
Stockholder Meeting proxies in favor of the Company Stockholder Approval and
shall take all other action necessary or, in the judgment of Parent, helpful to
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secure the vote or consent of such holders required by the Corporation Law or
this Agreement to effect the Merger.
(b) Parent and the Company shall, as soon as practicable,
jointly prepare and the Company shall file a preliminary Proxy Statement (or, if
requested by Parent and applicable, an information statement in lieu of a proxy
statement pursuant to Rule 14C under the Exchange Act, with all references
herein to the Proxy Statement being deemed to refer to such information
statement, to the extent applicable) with the SEC and shall use its best efforts
to respond to any comments of the SEC or its staff and to cause the Proxy
Statement to be mailed to the Company's stockholders as promptly as practicable
after responding to all such comments to the satisfaction of the staff. The
Company shall notify Parent promptly of the receipt of any comments from the SEC
or its staff and of any request by the SEC or its staff for amendments or
supplements to the Proxy Statement or for additional information and shall
supply Parent with copies of all correspondence between the Company or any of
its representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to the Proxy Statement or the Merger. If at any time prior to
the Stockholders Meeting there shall occur any event that should be set forth in
an amendment or supplement to the Proxy Statement, the Company shall promptly
prepare and mail to its stockholders such an amendment or supplement. The
Company shall not mail any Proxy Statement, or any amendment or supplement
thereto, to which Parent reasonably objects. The Company and its counsel shall
permit Parent and its counsel to participate in all communications with the SEC
and its staff, including all meetings and telephone conferences, relating to the
Proxy Statement, the Merger or this Agreement.
(c) Parent agrees to cause all Shares owned by Parent or any
subsidiary of Parent to be voted in favor of the Company Stockholder Approval.
(d) The Company hereby consents to the inclusion in the Proxy
Statement of the recommendation of the Company's Board and the recommendation of
the Board's Special Committee, described in Section 3.03, subject to any
modification, amendment or withdrawal thereof.
(e) In connection with the Merger, the Company shall cause its
transfer agent to furnish Sub promptly with mailing labels containing the names
and addresses of the record holders of Shares as of a recent date and of those
persons becoming record holders subsequent to such date, together with copies of
all lists of stockholders, security position listings and computer files and all
other information in the Company's possession or control regarding the
beneficial owners of Shares, and shall furnish to Sub such information and
assistance (including updated lists of stockholders, security position listings
and computer files) as Parent may reasonably request. Subject to the
requirements of applicable law, and except for such steps as are necessary to
disseminate the documents necessary to consummate the Merger, Parent and Sub and
their agents shall hold in confidence the information contained in any such
labels, listings and files, shall use such information only in connection with
the Merger and, if this Agreement shall be terminated, shall, upon request,
deliver, and shall use their best efforts to cause their agents to deliver, to
the Company all copies of such information then in their possession or control.
SECTION 6.02. ACCESS TO INFORMATION. Upon reasonable notice and subject
to restrictions contained in confidentiality agreements to which the Company is
subject (from which it shall use reasonable efforts to be released), the Company
shall, and shall cause each of the Subsidiaries to, afford to Parent and to the
officers, employees, accountants, counsel and other representatives of Parent
access, during normal business hours to all their respective properties, books,
contracts, commitments and records and, during such period, the Company shall
(and shall cause each of the Subsidiaries to) furnish promptly to Parent (a) a
copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to SEC requirements, and (b) all
other information concerning its business, properties and personnel as Parent
may reasonably request.
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SECTION 6.03. REASONABLE EFFORTS. Each of the Company, Parent and Sub
agrees to use its reasonable efforts to take, or cause to be taken, all actions
necessary to comply promptly with all legal requirements which may be imposed on
itself with respect to the Merger (which actions shall include furnishing all
information required under the HSR Act and in connection with approvals of or
filings with any other Governmental Entity) and shall promptly cooperate with
and furnish information to each other in connection with any such requirements
imposed upon any of them or any of their subsidiaries in connection with the
Merger. Each of the Company, Parent and Sub will, and the Company shall cause
each of the Subsidiaries to, use its reasonable efforts to take all reasonable
actions necessary to obtain (and will cooperate with each other in obtaining)
any consent, authorization, order or approval of, or any exemption by, any
Governmental Entity or other public or private third party required to be
obtained or made by Parent, Sub, the Company or any of their subsidiaries in
connection with the Merger or the taking of any action contemplated by this
Agreement, except that no party need waive any substantial rights or agree to
any substantial limitation on its operations or to dispose of or hold separate
any material assets.
SECTION 6.04. COMPANY STOCK OPTIONS; PLANS.
(a) Parent and the Company shall, effective as of the
Effective Time, (i) cause each outstanding option to purchase Company Common
Stock (a "COMPANY STOCK OPTION") issued pursuant to the Company's 1993 Executive
and Directors' Stock Option Plan (the "COMPANY STOCK OPTION PLAN"), whether or
not exercisable or vested, to become fully exercisable and vested, (ii) cause
each Company Stock Option that is outstanding to be canceled, and (iii) in
consideration of such cancellation and, except to the extent that Parent or Sub
and the holder of any such Company Stock Option otherwise agree, cause the
Company (or, at Parent's option, Sub) to pay such holders of Company Stock
Options an amount in respect thereof equal to the product of (x) the excess, if
any, of the Merger Consideration over the exercise price of each such Company
Stock Option, and (y) the number of shares of Company Common Stock subject to
the Company Stock Option immediately prior to its cancellation (such payment to
be net of applicable withholding taxes).
(b) Except as may otherwise be agreed by Parent or Sub and the
Company, the Company Stock Option Plan shall terminate as of the Effective Time,
and no holder of Company Stock Options or any participant in the Company Stock
Option Plan shall have any rights thereunder to acquire any equity securities of
the Company, the Surviving Corporation or any subsidiary thereof.
(c) Except as may otherwise be agreed by Parent or Sub and the
Company, all other plans, programs or arrangements providing for the issuance or
grant of any other interest in respect of the capital stock of the Company or
any of the Subsidiaries shall terminate as of the Effective Time, and no
participant in any such plans, programs or arrangements shall have any rights
thereunder to acquire any equity securities of the Company, the Surviving
Corporation or any subsidiary thereof.
SECTION 6.05. CONFIDENTIALITY. Prior to the Closing, each of Parent and
Sub shall, and shall cause its affiliates (as defined in Section 9.03) and its
and their employees, agents, accountants, legal counsel and other
representatives and advisers to, hold in strict confidence all, and not divulge
or disclose any information of any kind concerning the Company and its business;
provided, however, that the foregoing obligation of confidence shall not apply
to (i) information that is or becomes generally available to the public other
than as a result of a disclosure by Parent, Sub, any of their respective
affiliates or any of their respective employees, agents, accountants, legal
counsel or other representatives or advisers, (ii) information that is or
becomes available to Parent, Sub, any of their respective affiliates or any of
their respective employees, agents, accountants, legal counsel or other
representatives or advisers on a nonconfidential basis, and (iii) information
that is required to be disclosed by Parent, Sub, any of their respective
affiliates or any of their respective employees, agents, accountants, legal
counsel or other representatives or advisers as a result of any applicable law,
rule or regulation of any Governmental Entity; and provided further that Parent
promptly shall notify the Company of any disclosure pursuant to clause (iii) of
this Section 6.05. Promptly after any termination of this Agreement, Parent, Sub
and their
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representatives shall return to the Company or destroy all copies of
documentation with respect to the Company that were supplied by or on behalf of
the Company pursuant to this Agreement, without retaining any copy thereof, and
destroy any notes or analyses Parent, Sub and/or their representatives may have
prepared containing information derived from such materials.
SECTION 6.06. FEES AND EXPENSES.
(a) Except as provided below in this Section 6.06, all fees
and expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated by this Agreement shall be paid by the party incurring
such fees or expenses and Parent shall reimburse the Company for all such fees
and expenses incurred by the Company.
(b) If (i) Parent or Sub terminates this Agreement under
Section 8.01(c) or Section 8.01(d), or (ii) the Company terminates this
Agreement pursuant to Section 8.01(e), then Parent shall have no obligation to
reimburse the Company for its fees and expenses and the Company shall assume and
pay to Parent, or cause to be paid, all out-of-pocket expenses actually incurred
by Parent and Sub in connection with the transactions contemplated hereby (such
sum is referred to herein as the "TERMINATION FEE").
SECTION 6.07. INDEMNIFICATION; INSURANCE.
(a) Parent and Sub agree that all rights to indemnification
for acts or omissions occurring prior to the Effective Time now existing in
favor of the current or former directors or officers (the "INDEMNIFIED PARTIES")
of the Company and the Subsidiaries as provided in their respective certificates
of incorporation or bylaws (or similar organizational documents) or existing
indemnification contracts shall survive the Merger and shall continue in full
force and effect in accordance with their terms.
(b) In addition, Parent will provide, or cause the Surviving
Corporation to provide, for a period of not less than two years after the
Effective Time, the Company's current directors and officers an insurance and
indemnification policy that provides coverage for events occurring at or prior
to the Effective Time (the "D&O INSURANCE") that is no less favorable than the
Company's existing D&O Insurance policy or, if substantially equivalent
insurance coverage is unavailable, the best available coverage; provided,
however, that Parent and the Surviving Corporation shall not be required to pay
an annual premium for the D&O Insurance in excess of 200% of the annual premium
currently paid by the Company for such insurance, but in such case shall
purchase as much such coverage as possible for such amount.
(c) This Section 6.07 shall survive the consummation of the
Merger at the Effective Time, is intended to benefit the Company, Parent, the
Surviving Corporation and the Indemnified Parties and their respective heirs,
personal representatives, successors and assigns, and shall be binding on all
successors and assigns of Parent and the Surviving Corporation.
SECTION 6.08. EMPLOYMENT AND BENEFIT ARRANGEMENTS.
(a) From and after the Effective Time, Parent shall cause the
Surviving Corporation to honor all employment, severance, termination and
retirement agreements to which the Company is a party, as such agreements are in
effect on the date hereof.
(b) For a one-year period following the Effective Time, Parent
shall cause the Surviving Corporation to provide those employees who are
employees of the Surviving Corporation at the Effective Time with benefits that
are, in the aggregate, no less favorable to such employees as are the benefits
of the Company available to such employees immediately prior to the Effective
Time.
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(c) The provisions of this Section 6.08 are not intended to
create rights of third party beneficiaries.
ARTICLE VII
CONDITIONS
SECTION 7.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) This Agreement and the Merger shall have been approved and
adopted by the affirmative vote or consent of the holders of at least a majority
of the outstanding shares of Company Common Stock;
(b) All consents, authorizations, orders and approvals of (or
filings or registrations with) any Governmental Authority or other regulatory
body required in connection with the execution, delivery and performance of this
Agreement, the failure to obtain which would prevent the consummation of the
Merger or have a material adverse effect on the Company, shall have been
obtained without the imposition of any condition having a material adverse
effect on Company;
(c) If applicable, early termination shall have been granted
or applicable waiting periods shall have expired under the HSR Act; and
(d) No Governmental Authority or other regulatory body
(including any court of competent jurisdiction) shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making illegal, materially
restricting or in any way preventing or prohibiting the Merger or the
transactions contemplated by this Agreement.
SECTION 7.02. CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE
MERGER. The obligations of Parent and Sub to effect the Merger are further
subject to satisfaction or waiver at or prior to the Effective Time of the
following conditions.
(a) There shall not have occurred any change, condition, event
or development that has resulted in, or could reasonably be expected to result
in, a material adverse effect on the Company;
(b) The representations and warranties of the Company in this
Agreement that are qualified by materiality shall be true and correct in all
respects as of the date of this Agreement and as of the Effective Time;
(c) The representations and warranties of the Company in this
Agreement that are not qualified by materiality shall be true and correct in all
material respects as of the date of this Agreement and as of the Effective Time,
except in any case where such failure to be true and correct would not, in the
aggregate, (x) have a material adverse effect on the Company or Parent, or (y)
prevent or materially delay the consummation of the Merger;
(d) The Company shall have performed in all material respects
all obligations required to be performed by it under this Agreement;
(e) An officer of the Company shall have delivered to Parent
and Sub a certificate to the effect that each of the conditions specified in
Sections 7.02(b), (c) and (d) is satisfied in all respects;
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(f) All authorizations, consents, waivers and approvals from
parties to contracts or other agreements to which any of the Company or the
Subsidiaries is a party, or by which any of them is bound, as may be required to
be obtained by them in connection with the performance of this Agreement, the
failure to obtain which would prevent the consummation of the Merger or have,
individually or in the aggregate, a material adverse effect on Company, shall
have been obtained;
(g) At the mailing date of the Proxy Statement and the date of
the Stockholders Meeting, the Proxy Statement shall not contain any untrue
statement of a material fact, or omit to state any material fact necessary in
order to make the statements therein not misleading; and
(h) Parent shall have received an opinion, dated the Effective
Time, of Shefsky & Froelich, Ltd., counsel to the Company, in form and substance
reasonably satisfactory to Parent, with respect to the matters set forth in
Sections 3.01, 3.02 and 3.03 (including as to the Company Stockholder Approval)
hereof.
SECTION 7.03. CONDITIONS TO OBLIGATIONS OF THE COMPANY TO EFFECT THE
MERGER. The obligations of the Company to effect the Merger are further subject
to satisfaction or waiver at or prior to the Effective Time of the following
conditions:
(a) The representations and warranties of Parent and Sub in
this Agreement that are qualified by materiality shall be true and correct in
all respects as of the date of this Agreement and as of the Effective Time;
(b) The representations and warranties of the Parent and Sub
in this Agreement that are not qualified by materiality shall be true and
correct in all material respects as of the date of this Agreement and as of the
Effective Time;
(c) Parent and Sub shall have performed in all material
respects all obligations required to be performed by them under this Agreement;
and
(d) Parent and Sub shall have delivered to the Company a
certificate to the effect that each of the conditions specified in Sections
7.03(a), (b) and (c) is satisfied in all respects.
(e) The Company shall have received an opinion, dated the
Effective Time, of Greenberg Traurig, P.A., counsel to Parent and Sub, in form
and substance reasonably satisfactory to the Company, with respect to the
matters set forth in Sections 4.01, 4.02, 4.03(i) and 4.08 hereof, provided that
such opinion may rely, as to matters of Washington law, upon an opinion of
counsel licensed to practice in the State of Washington and reasonably
acceptable to the Company.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.01. TERMINATION. This Agreement may be terminated at
any time prior to the Effective Time, whether before or after approval of the
terms of this Agreement by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the acceptance for
payment of, or payment for, shares of Company Common Stock pursuant to the
Merger and such order, decree or ruling or other action shall have become final
and nonappealable;
16
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PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to this
Section 8.01(b) shall not be available to any party that has failed to perform
its obligations under Section 6.03 or the proviso contained in Section 7.01(b);
(c) by Parent or Sub, if
(i) any representation or warranty of the Company
shall not have been true and correct in all material respects when made, except
in any case where such failure to be true and correct would not, in the
aggregate, (x) have a material adverse effect on the Company, or (y) prevent or
materially delay the consummation of the Merger;
(ii) any representation or warranty of the Company
(other than representations and warranties made as of a specified date) shall
have ceased at any later date to be true and correct in all material respects as
if made at such later date, except in any case where such failure to be true and
correct would not, (x) in the aggregate, have a material adverse effect or (y)
prevent or materially delay the consummation of the Merger; or
(iii) the Company shall have failed to comply in any
material respect with any of its material obligations or covenants contained
herein;
(d) by Parent or Sub, if
(i) the Board of Directors of the Company or the
Special Committee shall have failed to approve and recommend or shall have
withdrawn or modified in a manner adverse to Parent or Sub its approval or
recommendation of the Merger or this Agreement, or approved or recommended any
Acquisition Proposal;
(ii) the Company shall have entered into any
agreement with respect to any Superior Proposal in accordance with Section
5.02(b); or
(iii) the Board of Directors of the Company or the
Special Committee shall have resolved to take any of the foregoing actions;
(e) by the Company in connection with entering into a
definitive agreement in accordance with Section 5.02(b), provided it has
complied with all provisions thereof, including the notice provisions therein
and the payment of the Termination Fee, and provided that the Company shall not
have breached in any material respect the provisions of Section 5.02(a); or
(f) by the Company, if
(i) any representation or warranty of Parent or Sub
shall not have been true and correct in all material respects when made or
(unless made as of a specified date) shall have ceased at any later date to be
true and correct in all material respects as if made at such later date; or
(ii) Parent or Sub fails to comply in any material
respect with any of its material obligations or covenants contained herein.
SECTION 8.02. EFFECT OF TERMINATION. In the event of a termination of
this Agreement by either the Company or Parent as provided in Section 8.01, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Sub or the Company or their respective
officers, directors, stockholders or affiliates, except with respect to Section
3.06, Section 4.06, Section 6.05, Section 6.06, this Section 8.02 and Article
IX; PROVIDED, HOWEVER, that nothing herein shall relieve any party for liability
for any breach hereof.
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SECTION 8.03. AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after obtaining the Company Stockholder Approval, but,
after any such approval, no amendment shall be made which by law requires
further approval by such stockholders (or which reduces the amount or changes
the Merger Consideration to be delivered to such stockholders) without obtaining
such further approval. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
SECTION 8.04. EXTENSION; WAIVER. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto or (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of those rights.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time or, in the
case of the Company, shall survive the acceptance for payment of, and payment
for, Shares by Sub pursuant to this Agreement.
SECTION 9.02. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed), sent by overnight courier (providing proof of
delivery) or mailed by registered or certified mail (return receipt requested)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Sub, to: RGI Holdings, Inc.
c/o Resource Group International
2025 First Avenue
Seattle, Washington, 98102
Attention: Deborah Dormaier
Telecopy No.: (206) 448-0404
Confirm No.: (206) 464-0200
with a copy to: Greenberg Traurig, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Michael W. Hein, Esq.
Telecopy No.: (305) 579-0717
Confirm No.: (305) 579-0500
and
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(b) if to the Company, to: Legend Properties, Inc.
17300 River Ridge Boulevard
Dumfries, Virginia 22026
Attention: President
Telecopy No.: (703) 445-0811
Confirm No.: (703) 221-4251
with a copy to: Shefsky & Froelich, Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, Illinois 60611
Attention: Michael J. Choate, Esq.
Telecopy No.: (312) 527-5921
Confirm No.: (312) 527-4000
SECTION 9.03. INTERPRETATION. When a reference is made in this
Agreement to an Article or a Section, such reference shall be to an Article or a
Section of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "INCLUDE," "INCLUDES" or "INCLUDING" are used in this Agreement, they
shall be deemed to be followed by the words "WITHOUT LIMITATION." The phrase
"MADE AVAILABLE" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is to
be made available. As used in this Agreement, the term "SUBSIDIARY" of any
person means another person, an amount of the voting securities, other voting
ownership or voting partnership interests of which is sufficient to elect at
least a majority of its Board of Directors or other governing body (or, if there
are no such voting interests, 50% or more of the equity interests of which) is
owned directly or indirectly by such first person, and the term "AFFILIATE"
shall have the meaning set forth in Rule 12b-2 promulgated under the Exchange
Act. As used in this Agreement, "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE
EFFECT" means, when used in connection with the Company, any change or effect
(or any development that, insofar as can reasonably be foreseen, is likely to
result in any change or effect) that, individually or in the aggregate with any
such other changes or effects, is materially adverse to the business, prospects,
assets (including intangible assets), financial condition or results of
operations of the Company and the Subsidiaries taken as a whole. Notwithstanding
the foregoing, a "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" shall
not include changes in general economic conditions or changes affecting the
industries generally in which the Company operates.
SECTION 9.04. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when said counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
SECTION 9.05. ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This
Agreement (including the documents and the instruments referred to herein) (a)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 6.07, are not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
SECTION 9.06. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without regard to
any applicable conflicts of law.
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SECTION 9.07. PUBLICITY. Except as otherwise required by law, for so
long as this Agreement is in effect, neither the Company, Sub nor Parent shall,
nor shall the Company permit any of the Subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to
the transactions contemplated by this Agreement without the consent of the other
party, which consent shall not be unreasonably withheld or delayed.
SECTION 9.08. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned subsidiary of Parent. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
SECTION 9.09. ENFORCEMENT. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement. In addition, each of the parties
hereto (i) consents to submit such party to the personal jurisdiction of any
Federal court located in the State of Delaware in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (ii)
agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (iii)
agrees that such party will not bring any action relating to this Agreement or
any of the transactions contemplated hereby in any court other than a Federal
court sitting in the State of Delaware. The prevailing party in any judicial
action shall be entitled to receive from the other party reimbursement for the
prevailing party's reasonable attorneys' fees and disbursements, and court
costs.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
RGI Holdings, Inc.
By: /s/ Debra Dormaier
-----------------------------
Name: Debra Dormaier
Title: Vice President
LP Acquisition Corp.
By: /s/ Debra Dormaier
-----------------------------
Name: Debra Dormaier
Title: Vice President
Legend Properties, Inc.
By: /s/ Peter J. Henn
-----------------------------
Name: Peter J. Henn
Title: President and Chief Executive Officer
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<PAGE> 129
[LOGO]
APPENDIX B
January 5, 2000
The Board of Directors
Legend Properties, Inc.
3755 7th Terrace
Suite 301
Vero Beach, Florida 32960
Dear Board of Directors:
Josephthal & Co. Inc. ("Josephthal", "we", or "us") understands that
RGI Holdings, Inc. will acquire all of the outstanding shares of common stock of
Legend Properties, Inc. (the "Company" or "Legend"), not currently owned by RGI
(the "Remaining Shares"). The transaction would be structured as a cash merger
(the "Merger") in which each holder of the Remaining Shares would receive $50
per share. Legend, formerly known as Banyan Mortgage Investment Fund, is the
surviving corporation from the December 31, 1996 merger of Banyan Mortgage
Investment Fund with RGI US Holdings, Inc. For financial reporting purposes, the
merger was treated as a recapitalization of RGI US Holdings, Inc., with RGI US
Holdings, Inc. as the acquirer of Banyan Mortgage Investment Fund. Prior to the
merger, RGI US Holdings Inc. was a wholly owned subsidiary of RGI Holdings, Inc.
("RGI"). We understand that RGI owns approximately 80% of the outstanding shares
of Legend.
You have requested our opinion (the "Fairness Opinion"), as to the
fairness from a financial point of view, to Legend and its stockholders (other
than RGI), of the consideration to be paid by RGI (the "Merger Consideration"),
to the holders of the Remaining Shares. We do not perform tax, accounting or
legal services or render such advice, in our review and analyses, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to us by the Company or publicly available and
have neither attempted independently to verify nor assumed responsibility for
verifying any of this information. We have not conducted a physical inspection
of Legend's properties or facilities, nor have we made or obtained or assumed
any responsibility for making or obtaining any independent evaluations or
appraisals of any of the related properties, facilities or business segments. We
Josephthal & Co. Inc.
200 Park Avenue o New York, NY 10166
Tel: 212.907.4000, 800.285.6200 Fax: 212.907.4080
<PAGE> 130
have assumed that management's financial analyses have been prepared on a good
faith reasonable basis reflecting the best currently available estimates and
judgments of Legend's management and/or financial consultants or advisors to
Legend.
In conducting our analysis, and arriving at the opinion expressed
herein, we have reviewed the following materials and considered such financial
and other factors as we deemed relevant, including, among others, the following:
(i) certain historical financial, operating and other data that were publicly
available or were furnished to us by Legend regarding the Merger including, but
not limited to: (a) projections and cash flow analyses for the Company prepared
by management; (b) projections and cash flow analyses for the Company's three
core properties Grand Harbor, Oak Harbor and Southbridge), prepared by
management (c) Form 10-K for the periods ending 12/31/98, 12/31/97, 12/31/96 and
12/31/95, Form 10-Q for the periods ending 3/31/96 through 9/30/99, and Form 8-K
dated 10/2/95; (d) internally generated operating reports and discussions from
management concerning the various business segments of Legend; (e) a debt
analysis summary prepared by management as of 9/30/99; (f) real estate
appraisals prepared by management with the assistance of identified third
parties; (d) various press releases and marketing materials regarding the
development and status of the company's three core properties (Grand Harbor, Oak
Harbor and Southbridge); (iii) publicly available financial, operating and stock
market data for companies engaged in businesses deemed comparable to those of
the Company; and (iv) such other factors and information as we deemed
appropriate.
In conducting our analyses and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of
Legend; (ii) the business prospects of Legend; (iii) the historical and current
market for the Remaining Shares and (iv) the nature and terms of other
transactions and comparable company analyses that we believe to be relevant. We
have also taken into account our assessment of general economic, market and
financial conditions as well as our experience in connection with similar
transactions and securities valuation generally. Our opinion necessarily is
based upon conditions as they exist and can be evaluated on the date hereof and
we assume no responsibility to update or revise this presentation based upon
circumstances or events occurring after the date hereof. In that regard, we have
not considered any similar transaction to which Legend might become a party
whether announced or not, that has not closed prior to the date hereof. This
presentation is limited to the fairness, from a financial point of view, of the
Merger Consideration to the holders of the Remaining Shares. This presentation
does not address in any way Legend's underlying business decision to effect the
Merger, nor do we opine on the capital requirements or availability of capital
for Legend.
In connection with our review and analyses and in arriving at our
opinion, we have assumed and relied upon the accuracy and completeness of the
financial and other information provided to us or which is public, and have not
attempted to verify independently any such information. We have relied solely on
the information and estimates provided to us by management of Legend and have
neither made nor obtained any independent appraisals of any properties, other
assets or facilities of Legend. With respect to certain financial information,
including financial analyses and projections, relating to the business or
prospects of Legend, provided to us by management of Legend, we have assumed
that the financial information has been reasonably prepared and that the
<PAGE> 131
financial projections present Legend management's best currently available
estimates and judgments as to the future financial performance of Legend.
Further, the Company represents and warrants the accuracy and completeness of
the information it has provided. Josephthal was not requested to, nor did we,
inspect any of the assets of Legend.
As you know, Josephthal has been retained by Legend to render this
opinion and provide other financial advisory services, and will receive fees for
such services. In addition, in the ordinary course of business, Josephthal may
actively trade the shares of Legend for its own account and for the accounts of
customers, and, accordingly, may at any time hold a long or short position in
such securities. This opinion is solely for the use of the Board of Directors of
Legend and is not to be publicly disclosed, used, excerpted from, reproduced or
disseminated, quoted from or referred to at any time, in any manner or for any
purpose, without the prior written consent of Josephthal; provided, however,
that Legend may include the Fairness Opinion in whole, but not in part, as an
appendix to the Proxy Statement to be filed with the Securities and Exchange
Commission and delivered to the stockholders of Legend. This opinion does not
constitute a recommendation to any holder of Legend Remaining Shares as to how
any such stockholder should vote on any aspect of the Merger, nor does this
opinion address the relative merits of the Merger or any other transactions or
business strategies or the decision of the Board of Directors of Legend to
proceed with the Merger.
Based upon and subject to the foregoing it is our opinion that, as of
the date hereof, the consideration to be paid in the Merger is fair to Legend
and its stockholders (other than RGI) from a financial point of view.
Very truly yours,
/s/ JOSEPHTHAL & CO. INC.
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JOSEPHTHAL & CO. INC.
