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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E - 3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
HILCOAST DEVELOPMENT CORP.
(Name of Issuer)
HILCOAST DEVELOPMENT CORP.
FLA ACQUISITION CORP.
(Name of Person(s) Filing Statement)
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class of Securities)
431313105
(CUSIP Number of Class of Securities)
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Copy to: Copy to:
JACK JAIVEN H. IRWIN LEVY BRUCE E. MACDONOUGH, ESQ. KLAUS EPPLER, ESQ.
Hilcoast Development Corp. FLA Acquisition Corp. Greenberg, Traurig, Hoffman, Proskauer Rose Goetz
19146 Lyons Road 100 Century Boulevard Lipoff, Rosen & Quentel, P.A. & Mendelsohn LLP
Boca Raton, Florida 33434 West Palm Beach, Florida 33487 1221 Brickell Avenue 1585 Broadway
Telephone: (561) 487-8845 Telephone: (561) 640-3100 Miami, Florida 33131 New York, New York 10036
Telephone: (305) 579-0500 Telephone: (212) 969-3000
Facsimile: (305) 579-0717 Facsimile: (212) 969-2900
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(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
This Statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C or Rule
13e-3(c) under the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities
Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the solicitation materials or information statement
referred to in checking box (a) are preliminary copies: [X]
Calculation of Filing Fee
Transaction Valuation(1) Amount of Filing Fee
$6,722,906 $1,345.00
(1) Solely for purposes of calculating the filing fee, the transaction
value is based upon (i) the conversion of each of the 942,651
outstanding shares of Common Stock not owned by FLA Acquisition Corp.
into the right to receive $6.00 from FLA Acquisition Corp. and (ii) the
payment by FLA Acquisition Corp. to the holders of outstanding options
to purchase 315,000 shares of Common Stock of an amount equal to the
difference between $6.00 and the exercise price for each such option,
in settlement of such options. The amount of the filing fee,
calculated in accordance with Rule 0-11 of the Securities Exchange Act
of 1934, as amended (the "Act"), equals 1/50th of one percentum of the
aggregate proposed cash payment to the holders of the Common Stock and
options.
[X] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $1,345.00
Form or registration no.: Preliminary Proxy Statement - Schedule 14A
Filing Party: Hilcoast Development Corp.
Date Filed: The indicated filing is being made of even date herewith with this
transmission.
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This Rule 13E-3 Statement (the "Statement") relates to an Agreement and
Plan of Merger dated as of November 21, 1996 (the "Merger Agreement") among
Hilcoast Development Corp., a Delaware corporation (the "Company"), and FLA
Acquisition Corp., a Delaware corporation ("Mergerco"), pursuant to which, among
other things, (a) Mergerco will be merged with and into the Company with the
Company being the surviving corporation (the "Surviving Corporation"), (b) each
outstanding share (each such share being referred to herein as a "Share" and
collectively, the "Shares") of common stock, par value $.01 per share (the
"Common Stock"), of the Company (except those Shares held by the Company as
treasury stock, owned by Mergerco or held by persons who perfect their
dissenters' rights under Delaware law) will be converted into the right to
receive $6.00 in cash, without interest, (c) each outstanding Share held by
Mergerco will be canceled without consideration, and (d) each outstanding share
of Mergerco common stock will be converted into one share of common stock of the
Surviving Corporation. H. Irwin Levy is the Company's Chairman of the Board,
Chief Executive Officer and largest stockholder. Maurice A. Halperin and Barry
S. Halperin (together, "Messrs. Halperin") are the next largest stockholders of
the Company. Mr. Levy and Messrs. Halperin have formed Mergerco and, upon its
initial capitalization, will be all of the stockholders of and will control
Mergerco. This Statement is being filed by the Company and Mergerco.
A copy of the Company's Preliminary Proxy Statement filed with the
Securities and Exchange Commission contemporaneously herewith in connection with
the Company's special meeting of stockholders called for the purpose of
considering and voting upon the proposal to approve and adopt the Merger
Agreement (the "Preliminary Proxy Statement") is attached hereto as Exhibit
(d)(1). The cross reference sheet below is being supplied pursuant to
Instruction F to Schedule 13E-3 and shows the location in the Preliminary Proxy
Statement of the information required to be included in response to the items of
this Statement. The information in the Preliminary Proxy Statement, including
all exhibits thereto, is hereby expressly incorporated herein by reference
CROSS REFERENCE SHEET
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SCHEDULE 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
------------------- ----------------------------------------
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Item 1(a) . . . . . . . . . . . . *
Item 1(b) . . . . . . . . . . . . Outside Front Cover Page, "SUMMARY - Market Price of the
Company's Common Stock" and "MARKET FOR THE COMPANY'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS"
Item 1(c) . . . . . . . . . . . . "MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS"
Item 1(d) . . . . . . . . . . . . "MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS" and "SELECTED FINANCIAL DATA"
Item 1(e) . . . . . . . . . . . . **
Item 1(f) . . . . . . . . . . . . "INFORMATION CONCERNING MR. LEVY" and "INFORMATION CONCERNING
MESSRS. HALPERIN"
Item 2(a)-(g) . . . . . . . . . . "INFORMATION CONCERNING MERGERCO,"
"INFORMATION CONCERNING MR. LEVY" and
"INFORMATION CONCERNING MESSRS. HALPERIN"
Item 3(a)(1) . . . . . . . . . . "INFORMATION CONCERNING MR. LEVY" and "INFORMATION CONCERNING MESSRS.
HALPERIN"
Item 3(a)(2) . . . . . . . . . . Outside and Inside Front Cover Pages, "SUMMARY -- Merger Agreement,"
"SPECIAL FACTORS -- Background of the Merger," "THE MERGER AGREEMENT"
and EXHIBIT A -- "AGREEMENT AND PLAN OF MERGER"
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SCHEDULE 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
------------------- ----------------------------------------
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Item 3(b) . . . . . . . . . . . . Outside and Inside Front Cover Pages, "GENERAL INFORMATION -- Voting at
the Meeting; Required Vote," "SUMMARY - Vote Required," "SUMMARY --
Merger Agreement," "SUMMARY -- Interests of Certain Persons in the
Merger," "SPECIAL FACTORS -- Background of the Merger," "SPECIAL
FACTORS -- Interests of Certain Persons in the Merger," "SPECIAL
FACTORS - Mergerco's Reasons for the Merger," "INFORMATION CONCERNING
MERGERCO," "INFORMATION CONCERNING MR. LEVY," and "INFORMATION
CONCERNING MESSRS. HALPERIN."
Item 4(a) . . . . . . . . . . . . Outside and Inside Front Cover Pages, "SUMMARY -- Merger Agreement,"
"THE MERGER AGREEMENT" and EXHIBIT A - "AGREEMENT AND PLAN OF MERGER"
Item 4(b) . . . . . . . . . . . . Outside and Inside Front Cover Pages, "SUMMARY -- Certain Effects of
the Merger," "SUMMARY -- Interests of Certain Persons in the Merger,"
"SPECIAL FACTORS -- Background of the Merger," "SPECIAL FACTORS --
Certain Effects of the Merger," "SPECIAL FACTORS -- Interests of
Certain Persons in the Merger," "THE MERGER AGREEMENT," "INFORMATION
CONCERNING MERGERCO" and EXHIBIT A -- "AGREEMENT AND PLAN OF MERGER"
Item 5(a)-(g) . . . . . . . . . . Outside and Inside Front Cover Pages, "SUMMARY -- Certain Effects of
the Merger," "SUMMARY -- Financing of the Merger," "SPECIAL FACTORS --
Background of the Merger," "SPECIAL FACTORS -- Plans for the Company
After the Merger," "SPECIAL FACTORS -- Certain Effects of the Merger,"
"SPECIAL FACTORS - Mergerco's Reasons for the Merger," "THE MERGER
AGREEMENT - Directors and Officers of the Company Following the
Merger; Certificate of Incorporation," "FINANCING OF THE MERGER" and
EXHIBIT A -- "AGREEMENT AND PLAN OF MERGER"
Item 6(a)-(c) . . . . . . . . . . "SUMMARY -- Financing of the Merger," "SPECIAL FACTORS -- Plans for
the Company After the Merger," "THE MERGER AGREEMENT -- Fees and Expenses,"
"FINANCING OF THE MERGER" and "FEES AND EXPENSES."
Item 6(d) . . . . . . . . . . . . **
Item 7(a) and (c) . . . . . . . . "SUMMARY -- Certain Effects of the Merger," "SPECIAL FACTORS --
Background of the Merger," "SPECIAL FACTORS -- "Mergerco's Reasons for
the Merger" and "SPECIAL FACTORS -- Certain Effects of the Merger"
Item 7(b) . . . . . . . . . . . . "SPECIAL FACTORS -- Background of the Merger," "SPECIAL FACTORS --
Recommendation of the Special Committee and Board of Directors;
Fairness of the Merger" and "SPECIAL FACTORS - Opinion of Financial
Advisor"
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SCHEDULE 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
------------------- ----------------------------------------
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Item 7(d) . . . . . . . . . . . . Outside and Inside Front Cover Pages, "SUMMARY -- Certain Effects of
the Merger," "SUMMARY -- Interests of Certain Persons in the Merger,"
"SUMMARY -- Federal Income Tax Consequences," "SPECIAL FACTORS --
Background of the Merger," "SPECIAL FACTORS -- Mergerco's Reasons for
the Merger," "SPECIAL FACTORS -- Plans for the Company After the
Merger," "SPECIAL FACTORS -- Certain Effects of the Merger," "SPECIAL
FACTORS - Interests of Certain Persons in the Merger," "FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER TO THE COMPANY'S STOCKHOLDERS," "THE
MERGER AGREEMENT," "FINANCING OF THE MERGER," "INFORMATION AS TO
STOCK OWNERSHIP," and EXHIBIT A -- "AGREEMENT AND PLAN OF MERGER"
Item 8(a)-(b) . . . . . . . . . . "SUMMARY -- Recommendation of the Special Committee and Board of
Directors," "SPECIAL FACTORS -- Position of Mr. Levy and Messrs. Halperin
Regarding Fairness of the Merger," "SPECIAL FACTORS -- Background of the
Merger," "SPECIAL FACTORS -- Recommendation of the Special Committee and
Board of Directors; Fairness of the Merger"
Item 8(c) . . . . . . . . . . . . Outside and Inside Front Cover Pages, "SUMMARY -- Vote Required,"
"GENERAL INFORMATION -- Voting at the Meeting; Required Vote,"
"SPECIAL FACTORS -- Background of the Merger," "THE MERGER AGREEMENT --
Conditions, Representations and Covenants," and EXHIBIT A --
"AGREEMENT AND PLAN OF MERGER"
Item 8(d) . . . . . . . . . . . . "SUMMARY -- Recommendation of the Special Committee and Board of
Directors," "SUMMARY -- Opinion of Financial Advisor," "SPECIAL FACTORS --
Background of the Merger," "SPECIAL FACTORS -- Recommendation of the
Special Committee and Board of Directors; Fairness of the Merger,"
"SPECIAL FACTORS - Opinion of Financial Advisor" and EXHIBIT B --
"OPINION OF PATRICOF AND CO. CAPITAL CORP."
Item 8(e) . . . . . . . . . . . . "SUMMARY -- Recommendation of the Special Committee and Board of
Directors" "SPECIAL FACTORS -- Background of the Merger," and "SPECIAL
FACTORS -- Recommendation of the Special Committee and Board of
Directors; Fairness of the Merger"
Item 8(f) . . . . . . . . . . . . **
Item 9(a)-(c) . . . . . . . . . . "SUMMARY -- Opinion of Financial Advisor," "SPECIAL FACTORS --
Background of the Merger," "SPECIAL FACTORS -- Opinion of Financial
Advisor," "CERTAIN PROJECTIONS" and EXHIBIT B -- "OPINION OF PATRICOF&
CO. CAPITAL CORP."
Item 10(a) . . . . . . . . . . . Outside and Inside Front Cover Pages, "SUMMARY - Vote Required,"
"SUMMARY -- Interests of Certain Persons in the Merger," "SUMMARY -
Conditions to the Merger; Termination," "GENERAL INFORMATION - Voting
at the Meeting; Required Vote," "SPECIAL FACTORS -- Background of the
Merger," "SPECIAL FACTORS -- Mergerco's Reasons for the Merger,"
"SPECIAL FACTORS -- Interests of Certain Persons in the Merger,"
"INFORMATION CONCERNING MERGERCO" and "INFORMATION AS TO STOCK
OWNERSHIP"
Item 10(b) . . . . . . . . . . . **
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SCHEDULE 13E-3 ITEM LOCATION IN PRELIMINARY PROXY STATEMENT
------------------- ----------------------------------------
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Item 11 . . . . . . . . . . . . . Outside and Inside Front Cover Pages, "SUMMARY -- Vote Required,"
"SUMMARY -- Merger Agreement," "SUMMARY -- Interests of Certain
Persons in the Merger," "SUMMARY -- Financing of the Merger," "GENERAL
INFORMATION - Voting at the Meeting; Required Vote," "SPECIAL
FACTORS -- Background of the Merger," "SPECIAL FACTORS -- Mergerco's
Reasons for the Merger," "SPECIAL FACTORS -- Plans for the Company
After the Merger," "SPECIAL FACTORS -- Interests of Certain Persons in
the Merger," "FINANCING OF THE MERGER," "INFORMATION CONCERNING MERGERCO"
and "INFORMATION AS TO STOCK OWNERSHIP"
Item 12(a) . . . . . . . . . . . Outside and Inside Front Cover Pages, "SUMMARY -- Vote Required,"
"SUMMARY -- Merger Agreement," "SUMMARY -- Interests of Certain
Persons in the Merger," "GENERAL INFORMATION - Voting at the Meeting;
Required Vote," "SPECIAL FACTORS -- Background of the Merger,"
"SPECIAL FACTORS -- Mergerco's Reasons for the Merger," "SPECIAL
FACTORS -- Interests of Certain Persons in the Merger," "THE MERGER
AGREEMENT," "INFORMATION CONCERNING MERGERCO," "FINANCING OF THE MERGER,"
"INFORMATION AS TO STOCK OWNERSHIP" and EXHIBIT A -- "AGREEMENT AND
PLAN OF MERGER"
Item 12(b) . . . . . . . . . . . Outside and Inside Front Cover Pages, "SUMMARY -- Recommendation of the
Special Committee and Board of Directors," "SPECIAL FACTORS --
Recommendation of the Special Committee and Board of Directors;
Fairness of the Merger" and "SPECIAL FACTORS -- Position of Mr. Levy
and Messrs. Halperin Regarding Fairness of the Merger."
Item 13(a) . . . . . . . . . . . Outside and Inside Front Cover Pages, "SUMMARY -- Dissenters' Rights,"
"RIGHTS OF DISSENTING STOCKHOLDERS" and EXHIBIT C -- "SECTION 262 OF
THE DELAWARE GENERAL CORPORATION LAW"
Item 13(b)-(c) . . . . . . . . . **
Item 14(a) . . . . . . . . . . . "SELECTED FINANCIAL DATA," "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and "INDEPENDENT PUBLIC ACCOUNTANTS"
Item 14(b) . . . . . . . . . . . **
Item 15(a) . . . . . . . . . . . "SUMMARY -- Financing of the Merger," "SPECIAL FACTORS - Plans for the
Company After the Merger" and "FINANCING OF THE MERGER"
Item 15(b) . . . . . . . . . . . "GENERAL INFORMATION -- Proxies"
Item 16 . . . . . . . . . . . . . Preliminary Proxy Statement
Item 17 . . . . . . . . . . . . . *
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*Information is contained in this Statement
**Not applicable
4
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The issuer of the class of equity securities which is the subject
of the Rule 13e-3 transaction is the Company. The address of the Company's
principal executive offices is 19146 Lyons Road, Boca Raton, Florida 33434.
(b) The information set forth on the Outside Front Cover Page and in
"SUMMARY - Market Price of the Company's Common Stock" and "MARKET FOR THE
COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS" of the Preliminary Proxy
Statement is incorporated herein by reference.
(c) The information set forth in "MARKET FOR THE COMPANY'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS" of the Preliminary Proxy Statement is
incorporated herein by reference.
(d) The information set forth in "MARKET FOR THE COMPANY'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS" and "SELECTED FINANCIAL DATA" of the
Preliminary Proxy Statement is incorporated herein by reference.
(e) Not applicable.
(f) The information set forth in "INFORMATION CONCERNING MR. LEVY" and
"INFORMATION CONCERNING MESSRS. HALPERIN" of the Preliminary Proxy Statement is
incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(g) This statement is being filed by the Company, the issuer of the
class of equity securities which is the subject of the Rule 13e-3 transaction,
and by Mergerco. The information set forth in "INFORMATION CONCERNING
MERGERCO," "INFORMATION CONCERNING MR. LEVY" and "INFORMATION CONCERNING
MESSRS. HALPERIN" of the Preliminary Proxy Statement is incorporated herein by
reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) The information set forth in "INFORMATION CONCERNING MERGERCO,"
"INFORMATION CONCERNING MR. LEVY" and "INFORMATION CONCERNING MESSRS. HALPERIN"
of the Preliminary Proxy Statement is incorporated herein by reference.
(a)(2) The information, set forth on the Outside and Inside Front Cover
Pages and in "SUMMARY -- Merger Agreement," "SPECIAL FACTORS -- Background of
the Merger," "THE MERGER AGREEMENT" and EXHIBIT A -- "AGREEMENT AND PLAN OF
MERGER" of the Preliminary Proxy Statement is incorporated herein by reference.
(b) The information set forth on the Outside and Inside Front Cover
Pages and in "GENERAL INFORMATION -- Voting at the Meeting; Required Vote,"
"SUMMARY - Vote Required," "SUMMARY -- Merger Agreement," "SUMMARY -- Interests
of Certain Persons in the Merger," "SPECIAL FACTORS -- Background of the
Merger," "SPECIAL FACTORS -- Interests of Certain Persons in the Merger,"
"SPECIAL FACTORS - Mergerco's Reasons for the Merger," "INFORMATION CONCERNING
MERGERCO,"
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"INFORMATION CONCERNING MR. LEVY," and "INFORMATION CONCERNING MESSRS.
HALPERIN," of the Preliminary Proxy Statement is incorporated herein by
reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth on the Outside and Inside Front Cover
Pages and in "SUMMARY -- Merger Agreement," "THE MERGER AGREEMENT" and EXHIBIT A
- - "AGREEMENT AND PLAN OF MERGER" of the Preliminary Proxy Statement is
incorporated herein by reference.
(b) The information set forth on the Outside and Inside Front Cover
Pages and in "SUMMARY -- Certain Effects of the Merger," "SUMMARY -- Interests
of Certain Persons in the Merger," "SPECIAL FACTORS -- Background of the
Merger," "SPECIAL FACTORS -- Certain Effects of the Merger," "SPECIAL FACTORS --
Interests of Certain Persons in the Merger," "THE MERGER AGREEMENT,"
"INFORMATION CONCERNING MERGERCO" and EXHIBIT A -- "AGREEMENT AND PLAN OF
MERGER" of the Preliminary Proxy Statement is incorporated herein by reference
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) The information act forth on the Outside and Inside Front Cover
Pages and in "SUMMARY -- Certain Effects of the Merger," "SUMMARY -- Financing
of the Merger," "SPECIAL FACTORS -- Background of the Merger," "SPECIAL
FACTORS -- Plans for the Company After the Merger," "SPECIAL FACTORS --
Certain Effects of the Merger," "SPECIAL FACTORS - Mergerco's Reasons for the
Merger," "THE MERGER AGREEMENT - Directors and Officers of the Company
Following the Merger; Certificate of Incorporation," "FINANCING OF THE MERGER"
and EXHIBIT A -- "AGREEMENT AND PLAN OF MERGER" of the Preliminary Proxy
Statement is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(c) The information set forth in "SUMMARY -- Financing of the
Merger," "SPECIAL FACTORS -- Plans for the Company After the Merger," "THE
MERGER AGREEMENT -- Fees and Expenses," "FINANCING OF THE MERGER" and "FEES
AND EXPENSES" of the Preliminary Proxy Statement is incorporated herein by
reference.
(d) Not applicable
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) and (c) The information set forth in "SUMMARY -- Certain Effects of
the Merger," "SPECIAL FACTORS -- Background of the Merger," "SPECIAL FACTORS --
"Mergerco's Reasons for the Merger" and "SPECIAL FACTORS -- Certain Effects of
the Merger" of the Preliminary Proxy Statement is incorporated herein by
reference.
(b) The information set forth in "SPECIAL FACTORS -- Background of the
Merger," "SPECIAL FACTORS -- Recommendation of the Special Committee and Board
of Directors; Fairness of the Merger" and "SPECIAL FACTORS - Opinion of
Financial Advisor" of the Preliminary Proxy Statement is incorporated herein by
reference.
(d) The information set forth on the Outside and Inside Front Cover Pages
and in "SUMMARY -- Certain
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Effects of the Merger," "SUMMARY -- Interests of Certain Persons in the Merger,"
"SUMMARY -- Federal Income Tax Consequences," "SPECIAL FACTORS -- Background of
the Merger," "SPECIAL FACTORS -- Mergerco's Reasons for the Merger," "SPECIAL
FACTORS -- Plans for the Company After the Merger," "SPECIAL FACTORS -- Certain
Effects of the Merger," "SPECIAL FACTORS - Interests of Certain Persons in the
Merger," "FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THE COMPANY'S
STOCKHOLDERS," "THE MERGER AGREEMENT," "FINANCING OF THE MERGER," "INFORMATION
AS TO STOCK OWNERSHIP," and EXHIBIT A -- "AGREEMENT AND PLAN OF MERGER" of the
Preliminary Proxy Statement is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) -- (b) The information set forth in "SUMMARY -- Recommendation of the
Special Committee and Board of Directors," "SPECIAL FACTORS -- Position of
Mr. Levy and Messrs. Halperin Regarding Fairness of the Merger," "SPECIAL
FACTORS -- Background of the Merger," and "SPECIAL FACTORS -- Recommendation
of the Special Committee and Board of Directors; Fairness of the Merger" of the
Preliminary Proxy Statement is incorporated herein by reference.
(c) The information set forth on the Outside and Inside Front Cover Page
and in "SUMMARY -- Vote Required," "GENERAL INFORMATION -- Voting at the
Meeting; Required Vote," "SPECIAL FACTORS -- Background of the Merger," "THE
MERGER AGREEMENT -- Conditions, Representations and Covenants," and
EXHIBIT A -- "AGREEMENT AND PLAN OF MERGER" of the Preliminary Proxy Statement
is incorporated herein by reference.
(d) The information set forth in "SUMMARY -- Recommendation of the
Special Committee and Board of Directors," "SUMMARY -- Opinion of Financial
Advisor," "SPECIAL FACTORS -- Background of the Merger," "SPECIAL FACTORS --
Recommendation of the Special Committee and Board of Directors; Fairness of the
Merger," "SPECIAL FACTORS - Opinion of Financial Advisor" and EXHIBIT B --
"OPINION OF PATRICOF AND CO. CAPITAL CORP." of the Preliminary Proxy Statement
is incorporated herein by reference.
(e) The information set forth in "SUMMARY -- Recommendation of the
Special Committee and Board of Directors" "SPECIAL FACTORS -- Background of the
Merger," and "SPECIAL FACTORS -- Recommendation of the Special Committee and
Board of Directors; Fairness of the Merger" of the Preliminary Proxy Statement
is incorporated herein by reference.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) -- (c) The information set forth in "SUMMARY -- Opinion of Financial
Advisor," "SPECIAL FACTORS -- Background of the Merger," "SPECIAL FACTORS --
Opinion of Financial Advisor," "CERTAIN PROJECTIONS" and EXHIBIT B -- "OPINION
OF PATRICOF& CO. CAPITAL CORP." of the Preliminary Proxy Statement is
incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth on the Outside and Inside Front Cover Pages
and in "SUMMARY - Vote Required," "SUMMARY -- Interests of Certain Persons in
the Merger," "SUMMARY - Conditions to the Merger; Termination," "GENERAL
INFORMATION - Voting at the Meeting; Required Vote," "SPECIAL FACTORS --
Background of the Merger," "SPECIAL FACTORS -- Mergerco's Reasons for the
Merger," "SPECIAL FACTORS -- Interests of Certain Persons in the Merger,"
"INFORMATION CONCERNING MERGERCO" and "INFORMATION AS TO STOCK OWNERSHIP" of
the Preliminary Proxy Statement is incorporated herein by reference.
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(b) Not applicable.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The information set forth on the Outside and Inside Front Cover Pages and
in "SUMMARY -- Vote Required," "SUMMARY -- Merger Agreement," "SUMMARY --
Interests of Certain Persons in the Merger," "SUMMARY -- Financing of the
Merger," "GENERAL INFORMATION - Voting at the Meeting; Required Vote," "SPECIAL
FACTORS -- Background of the Merger," "SPECIAL FACTORS -- Mergerco's Reasons for
the Merger," "SPECIAL FACTORS -- Plans for the Company After the Merger,"
"SPECIAL FACTORS -- Interests of Certain Persons in the Merger," "FINANCING OF
THE MERGER," "INFORMATION CONCERNING MERGERCO" and "INFORMATION AS TO STOCK
OWNERSHIP" of the Preliminary Proxy Statement is incorporated herein by
reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION.
(a) The information set forth on the Outside and Inside Front Cover Pages
and in "SUMMARY -- Vote Required," "SUMMARY -- Merger Agreement," "SUMMARY --
Interests of Certain Persons in the Merger," "SPECIAL FACTORS -- Background of
the Merger," "GENERAL INFORMATION - Voting at the Meeting; Required Vote,"
"SPECIAL FACTORS -- Mergerco's Reasons for the Merger," "SPECIAL FACTORS --
Interests of Certain Persons in the Merger," "THE MERGER AGREEMENT,"
"INFORMATION CONCERNING MERGERCO," "FINANCING OF THE MERGER," "INFORMATION AS TO
STOCK OWNERSHIP" and EXHIBIT A -- "AGREEMENT AND PLAN OF MERGER" of the
Preliminary Proxy Statement is incorporated herein by reference
(b) The information set forth on the Outside and Inside Front Cover Pages
and in "SUMMARY -- Recommendation of the Special Committee and Board of
Directors," "SPECIAL FACTORS -- Position of Mr. Levy and Messrs. Halperin
Regarding Fairness of the Merger," and "SPECIAL FACTORS -- Recommendation of
the Special Committee and Board of Directors; Fairness of the Merger" of the
Preliminary Proxy Statement is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth on the Outside and Inside Front Cover
Pages, and in "SUMMARY -- Dissenters' Rights," "RIGHTS OF DISSENTING
STOCKHOLDERS" and EXHIBIT C -- "SECTION 262 OF THE DELAWARE GENERAL
CORPORATION LAW" of the Preliminary Proxy Statement is incorporated herein by
reference.
(b) -- (c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in "SELECTED FINANCIAL DATA,"
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "INDEPENDENT PUBLIC
ACCOUNTANTS" of the Preliminary Proxy Statement is incorporated herein by
reference.
(b) Not Applicable.
8
<PAGE> 10
ITEM 15.PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in "SUMMARY -- Financing of the Merger,"
"SPECIAL FACTORS - Plans for the Company After the Merger" and "FINANCING OF THE
MERGER" of the Preliminary Proxy Statement is incorporated herein by reference.
(b) The information set forth in "GENERAL INFORMATION - Proxies" of the
Preliminary Proxy Statement is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
The information set forth in the Preliminary Proxy Statement is
incorporated herein by reference in its entirety.
ITEM 17. MATERIALS TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
(a) Commitment Letter dated September 3, 1996 to H. Irwin Levy from
Island National Bank and Trust Company.
(b)(1) Opinion of Patricof & Co. Capital Corp. (attached as Exhibit B to
the Preliminary Proxy Statement).
(b)(2) Report of Patricof & Co. Capital Corp.
(c) Agreement and Plan of Merger dated as of November 25, 1996 among
the Company and FLA Acquisition Corp. (attached as Exhibit A to
the Preliminary Proxy Statement).
(d)(1) Preliminary Proxy Statement filed November 25, 1996.
(d)(2) Notice of Special Meeting of Stockholders (included in the
Preliminary Proxy Statement).
(d)(3) Proxy Card.
(d)(4) Press Release issued by the Company on August 12, 1996.
(e) Text of Section 262 of the Delaware General Corporation Law
(attached as Exhibit C to the Preliminary Proxy Statement).
(f) Not Applicable.
</TABLE>
9
<PAGE> 11
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
HILCOAST DEVELOPMENT CORP.
Date: November 21, 1996 By: /s/ Jack Jaiven
-----------------------------------
Jack Jaiven, Executive Vice President
and Chief Financial Officer
10
<PAGE> 12
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
FLA ACQUISITION CORP.
Date: November 21, 1996 By: /s/ H. Irwin Levy
-------------------------------------
H. Irwin Levy, President
11
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
-------
<S> <C>
(a) Commitment Letter dated September 3, 1996 to H. Irwin Levy
from Island National Bank and Trust Company.*
(b)(1) Opinion of Patricof & Co. Capital Corp. (attached as Exhibit B
to the Preliminary Proxy Statement).*
(b)(2) Report of Patricof & Co. Capital Corp. dated October 28, 1996.*
(c) Agreement and Plan of Merger dated as of November 21, 1996
among the Company and FLA Acquisition Corp. (attached as
Exhibit A to the Preliminary Proxy Statement).*
(d)(1) Preliminary Proxy Statement filed November 21, 1996.*
(d)(2) Notice of Special Meeting of Stockholders (included in the
Preliminary Proxy Statement).*
(d)(3) Proxy Card.*
(d)(4) Press Release issued by the Company on August 12, 1996.
(e) Text of Section 262 of the Delaware General Corporation Law
(attached as Exhibit C to the Preliminary Proxy Statement).*
</TABLE>
- ----------------------
* Filed herewith.
12
<PAGE> 14
EXHIBIT (a)
ISLAND NATIONAL
BANK AND TRUST COMPANY
September 3, 1996
Mr. H. Irwin Levy
900 North Lake Way
Palm Beach, FL 33480
Dear Mr. Levy:
I am pleased to inform you that Island National Bank and Trust Company approved
your loan request, subject to the terms and conditions outlined below:
<TABLE>
<S> <C>
Borrower: H. Irwin Levy.
Loan Amount: $3,500,000.00 (Three Million Five
Hundred Thousand and No/100 Dollars).
Term: 2 years.
Pricing: Wall Street Journal Prime, adjusted
daily, with a $17,500 fee.
OR
8.50%, with a $8,750 fee. [approved
/s/ HIL]
Amortization: Interest only, payable monthly. All
unpaid principal and interest will be
due and payable two years from closing.
Collateral: 700,000 shares of CV Reit common stock
held by Island Investment Services, with
a minimum value of $7,000,000.00. Island
National Bank will require additional
collateral if the aggregate value of the
collateral drops below $5,000,000.
</TABLE>
Mr. Levy, we are very pleased to offer you this facility and hope that it will
become an integral component of a substantial personal banking services
relationship. If these terms are acceptable, please indicate your approval and
pricing option. Once we receive your approval, we will make the necessary
arrangements for an out of state closing at your earliest convenience.
Once again, thank you for this opportunity. If you have any questions
regarding this commitment, please do not hesitate to call.
Sincerely,
/s/ William P. Lloyd Jr.
William P. Lloyd Jr.
Vice President
cc: James B. Meany, Senior Loan Officer
E. Anthony Newton, President
Agreed to this 3rd day of Sept, 1996
/s/ H. Irwin Levy
H. Irwin Levy
<PAGE> 15
EXHIBIT (b)(1)
PATRICOF & CO
November 12, 1996
Independent Directors Committee
Hilcoast Development Corp.
c/o Bernard Green, Chairman
19146 Lyons Road
Boca Raton, FL 33434
Patricof & Co.
Capital Corp.
445 Park Avenue
New York, NY 10022
Tel 212-935-5151
Fax 212-832-6946
Gentlemen:
In September 1996, Patricof & Co. Capital Corp. ("Patricof") was engaged by
your committee to determine the fairness from a financial point of view of a
transaction (the "Proposed Transaction") to the "Public Shareholders" (all of
the shareholders other than Mr. H. Irwin Levy or persons or affiliates of such
persons joining with Mr. Levy) of Hilcoast Development Corp. ("Hilcoast" or
"the Company"). The Proposed Transaction contemplates a merger of Hilcoast and
a newly formed corporation in which each of Hilcoast's outstanding shares of
common stock would be converted into $6.00 in cash. As part of its engagement,
Patricof undertook to provide such additional assistance to your committee as
the committee might reasonably request including advice respecting alternatives
available to the Company other than the Proposed Transaction.
I. Procedures Followed
In connection with our analysis and as a basis for forming our opinion, we have
reviewed and analyzed such information as we considered relevant. No
limitations were placed upon the scope of our inquiry which included but was
not limited to the following:
<PAGE> 16
EXHIBIT B
PATRICOF & CO
November 12, 1996
Independent Directors Committee
Hilcoast Development Corp.
c/o Bernard Green, Chairman
19146 Lyons Road
Boca Raton, FL 33434
Patricof & Co.
Capital Corp.
445 Park Avenue
New York, NY 10022
Tel 212-935-5151
Fax 212-832-6946
Gentlemen:
In September 1996, Patricof & Co. Capital Corp. ("Patricof") was engaged by
your committee to determine the fairness from a financial point of view of a
transaction (the "Proposed Transaction") to the "Public Shareholders" (all of
the shareholders other than Mr. H. Irwin Levy or persons or affiliates of such
persons joining with Mr. Levy) of Hilcoast Development Corp. ("Hilcoast" or
"the Company"). The Proposed Transaction contemplates a merger of Hilcoast and
a newly formed corporation in which each of Hilcoast's outstanding shares of
common stock would be converted into $6.00 in cash. As part of its engagement,
Patricof undertook to provide such additional assistance to your committee as
the committee might reasonably request including advice respecting alternatives
available to the Company other than the Proposed Transaction.
I. Procedures Followed
In connection with our analysis and as a basis for forming our opinion, we have
reviewed and analyzed such information as we considered relevant. No
limitations were placed upon the scope of our inquiry which included but was
not limited to the following:
<PAGE> 17
PATRICOF & CO
Independent Directors Committee
Hilcoast Development Corporation
c/o Bernard Green, Chairman
November 12, 1996
Page 2
A. Documents Consulted and Data Reviewed
1. Filings made or to be made with the Securities and Exchange
Commission, including Hilcoast's Annual Report on Form 10-K for the
fiscal years 1993-1996, the Company's fiscal year 1995 Annual Meeting
Proxy Statement, its 1992 Spin-off Prospectus, and a draft Merger
Agreement, and draft Proxy Statement both prepared for the purpose of
completing the Proposed Transaction.
2. Securities and Exchange Commission filings of companies used for
comparative purposes.
3. A variety of agreements to which Hilcoast and its affiliates are
parties, including the Company's 1992 and 1995 stock option plans, its
Restated Loan Agreement dated July 31, 1992, its $3.0 million Promissory
Note dated September 30, 1993; its $2.5 million Future Advance Promissory
Note dated September 15, 1994 and extension letters thereto; its $4.0
million Promissory Note dated August 11, 1995 and extension letters
thereto; its $2.1 million Promissory Note dated August 18, 1992 and
related documents; its $750,000 Note to H. Irwin Levy dated September 15,
1994 and extension letters thereto; and officers severance agreements
dated September 18, 1992.
4. Other Company related documents including historic, current and
projected financial statements, the Century Village Offering Circular for
Plymouth Condominium III, Hilcoast's board of directors minutes,
September 26, 1994 to August 9, 1996, and a Lawyers Representation Letter
from Cobb, Cole & Bell.
5. Data on stock market, industry and region specific economic factors
relevant to Patricof's engagement hereunder.
B. Facilities Visited
We visited Hilcoast's headquarters in Pembroke Pines, Florida and
inspected a variety of condominium units and facilities there, and visited its
Glen Abbey project in Volusia County, Florida.
C. Persons Contacted
1. Hilcoast Personnel: We interviewed the Company's Chairman/chief
executive officer, its President/chief operating officer; its Executive
Vice President/Treasurer/chief
<PAGE> 18
PATRICOF & CO
Independent Directors Committee
Hilcoast Development Corporation
c/o Bernard Green, Chairman
November 12, 1996
Page 3
financial officer, its Vice President/marketing, Vice
President/construction, and the Manager of the Glen Abbey project.
2. Non-Hilcoast Personnel: We spent time with the Company's independent
director, and members of the law firm involved in preparing the
documentation for the Proposed Transaction.
3. Other Persons: We had telephone conversations with executives of
certain of the companies that were included in our market check.
II. Factors Considered and Alternative Approaches
A. In arriving at our conclusion we considered, among other elements,
the Company's history, its current and prospective business operations,
litigation affecting the Company, its historic, current and projected financial
condition, public trading in its common stock and stock market, industry and
region specific factors. We made numerous financial and operating comparisons
between Hilcoast, and a group of public companies that could be used for
comparative purposes, determined the investor appraisal ratios accorded the
common stocks of those comparative companies, considered publicly available
comparative transactions and performed discounted cash flow analyses based upon
alternative sets of assumptions.
B. In arriving at our conclusion, we utilized a variety of analytical
approaches, including comparative company analysis, comparative transaction
analysis and discounted cash flow analysis.
III. Market Check
We solicited a variety of residential home builders with operations in
Florida for the purpose of eliciting proposals alternative to the Proposed
Transaction.
IV. Assumptions and Limitations
A. We have relied on, and assumed without independent verification, the
accuracy and completeness of the financial and other information contained in
publicly available sources or provided to us orally or in writing by the
Company, its officers, directors, employees, agents, counsel, and others.
<PAGE> 19
PATRICOF & CO
Independent Directors Committee
Hilcoast Development Corporation
c/o Bernard Green, Chairman
November 12, 1996
Page 4
B. We have assumed that the information supplied to us by the persons
described in paragraph A hereof represented good faith efforts to describe the
operations and financial condition of Hilcoast and its affiliates.
C. We have not undertaken any independent appraisal of the assets or
liabilities of the Company or its affiliates, nor, other than stated herein,
reviewed such companies' books, or made inquiries of its suppliers,
competitors, creditors, or of the residents at Century Village-Pembroke Pines.
D. We express no opinion as to any tax consequences of the Proposed
Transaction.
E. We have assumed that the final documents in the Proposed Transaction
will contain data substantially similar to that previously supplied to us.
F. This letter is furnished to you solely in connection with the
engagement described in the engagement letter, and its use is limited to the
purposes set forth in paragraph 4 of that letter.
V. Conclusion
Based upon the foregoing, and subject to the assumptions and limitations set
forth in Section IV hereof, and effective only as of the date of this letter,
we are of the opinion that the terms to be offered in the Proposed Transaction
are fair to the Company's Public Shareholders from a financial point of view.
Very truly yours,
PATRICOF & CO. CAPITAL CORP.
<PAGE> 20
EXHIBIT(b)(2)
CONFIDENTIAL PRESENTATION
TO
THE BOARD OF DIRECTORS
OF
HILCOAST DEVELOPMENT CORP.
Patricof & Co. Capital Corp.
November 12, 1996
<PAGE> 21
Patricof & Co. Capital Corp.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
1. Transaction Overview ......................................... 1
2. General Observations Concerning Hilcoast Development Corp..... 5
3. Economic, Industry and Regional Outlook ...................... 8
4. Principal Litigation ......................................... 10
5. Valuation and Other Analysis ................................ 11
6. Comparative Company Valuation ................................ 12
7. Discounted Cash Flow Valuation ............................... 17
8. Break Up and Liquidation Valuation ........................... 26
9. Comparative Transactions Analysis ............................ 27
10. Valuation Conclusion ......................................... 34
11. Market Check ................................................. 35
<CAPTION>
APPENDICES
<S> <C>
A. Comparative Company Valuation Analysis
B. Discounted Cash Flow Analysis - Case A
C. Discounted Cash Flow Analysis - Case B
D. Comparative Going Private Transactions Data
E. Pre Announcement Trading
F. Market Check Letter
G. Fairness Opinion Letter
</TABLE>
Hilcoast Development Corp. i Confidential
<PAGE> 22
Patricof & Co. Capital Corp.
PREFACE
This report has been prepared by Patricof & Co. Capital Corp.
("Patricof") in connection with Patricof's opinion to be rendered to
the Independent Directors Committee of the Board of Directors of
Hilcoast Development Corp. ("Hilcoast" or the "Company") as to the
fairness from a financial point of view of the Proposed Transaction,
described herein, to the Company's Public Shareholders, also described
herein. The material in this report and all analyses contained herein
are confidential and are solely for the use of the Independent
Directors Committee and its advisors and Hilcoast's board of
directors. Any publication or use of this material or the analyses
contained herein without the express written consent of Patricof is
strictly prohibited.
In the course of our activities as financial advisor, Patricof
received and reviewed business and financial information on Hilcoast
developed by Hilcoast and held discussions with the management of
Hilcoast and with others regarding this information. In connection
with the analyses contained herein, we have not independently verified
the accuracy of any such information and have relied on all such
information as being complete and accurate in all material respects.
In addition, we have not obtained any independent appraisal of
Hilcoast's properties or assets.
Patricof has employed several analytical methodologies herein and no
one method of analysis should be regarded as critical to the overall
conclusion we have reached. Each analytical technique has inherent
strengths and limitations, and the nature of the available information
may further affect the value of particular techniques. Our conclusion
is based on all the analyses and factors presented herein taken as a whole
and also on application of our experience. Such conclusion often involves
significant elements of judgment and qualitative as well as quantitative
analysis. Hence, we express no opinion as to the probative force standing
alone, of any one or more parts of the material that follows. Our only
opinion is the formal written opinion that we have expressed or will
express as to the fairness from a financial point of view of the
consideration being paid in the transaction. The opinion, the analyses
contained herein and all conclusions drawn from such analyses are
necessarily based upon market, economic and other conditions that exist and
can be evaluated as of the date of this presentation, and on information
available to us as of the date hereof.
Hilcoast Development Corp. ii Confidential
<PAGE> 23
Patricof & Co. Capital Corp.
TRANSACTION OVERVIEW
The Board of Directors of the Hilcoast Development Corp. ("Hilcoast"
or the "Company") has received an unsolicited proposal from H. Irwin
Levy, Chairman of the Board of Directors and Chief Executive Officer
of the Company, contemplating a merger of Hilcoast and a newly formed
acquisition company to be organized by Mr. Levy and proposed to be
funded by or through him and his affiliates and another shareholder
group, pursuant to which each of Hilcoast's outstanding shares of
common stock would be converted into $6.00 cash (the "Proposed
Transaction"). An independent directors committee of the board of
directors of the Company (the "Committee"), formed as a result of the
Proposed Transaction, seeks an opinion (the "Opinion") that the terms
of the Proposed Transaction are fair to the Company's Public
Shareholders, as defined below, from a financial point of view.
Patricof has agreed to undertake a determination of the Proposed
Transaction's fairness from a financial point of view to the Public
Shareholders and to provide such additional assistance to the
Committee as it may reasonably request (including advice with respect
to alternatives available to the Company other than the Proposed
Transaction). For the purposes of this engagement, Public
Shareholders shall mean all shareholders other than Mr. Levy,
affiliates of Mr. Levy, or persons or affiliates of such persons
joining with Mr. Levy for purposes of completing the Proposed
Transaction.
Hilcoast Development Corp. 1 Confidential
<PAGE> 24
Patricof & Co. Capital Corp.
PATRICOF DUE DILIGENCE
PERSONS INTERVIEWED
<TABLE>
<CAPTION>
Hilcoast Development Corp.
- --------------------------
<S> <C>
H. Irwin Levy Chairman of the Board and CEO
Michael S. Rubin President, COO, Director
Jack Jaiven EVP, CFO, Treasurer and Director
Michael A. Rich VP/Marketing
James A. Geddes VP/Construction
Bernard R. Green Director
Tim O'Neil Manager of Glen Abbey project
</TABLE>
Hilcoast Development Corp. 2 Confidential
<PAGE> 25
Patricof & Co. Capital Corp.
PATRICOF DUE DILIGENCE
DOCUMENTS REVIEWED
- Public Filings and Draft Filings of Hilcoast
- 1993, 1994, 1995, and 1996 Form 10-K, 1995 Annual Report
- 1995 Proxy Statement
- 1992 Spin-off Prospectus
- 1996 Draft Merger/Proxy Statement associated with the Proposed
Transaction
- Public filings of companies used for comparative purposes
- Relevant agreements
- 1992 and 1995 Stock Option Plans and Employee Incentive Stock
Option Agreements with Jack Jaiven, Michael S. Rubin, James A.
Geddes, Michael A. Rich, Robert D. Seldomridge, Antoinette
Gleeson, Harold Cohen, and Bernard R. Green
- Loan Agreements
- Restated Loan Agreement dated July 31, 1992
- $3.0 million Promissory Note dated September 30, 1993
- $2.5 million Future Advance Promissory Note dated September
15, 1994 and extension letters thereafter
Hilcoast Development Corp. 3 Confidential
<PAGE> 26
Patricof & Co. Capital Corp.
PATRICOF DUE DILIGENCE
DOCUMENTS REVIEWED
- Loan Agreements (continued)
- $4.0 million Promissory Note dated August 11, 1995 and
extension letters thereafter
- $2.1 million Promissory Note dated August 18, 1992 and
related documents
- $750,000 H. Irwin Levy Promissory Note dated September 15,
1994, and extension letters thereafter
- Severance Agreements with Michael S. Rubin, Jack Jaiven, Michael
A. Rich, James A. Geddes, and Harold Cohen, all dated September
18, 1992.
- Draft of the Merger Agreement related to the Proposed Transaction
- Other Documents
- Internal company financial statements (historic, current, and
prospective)
- Century Village Offering Circular for Plymouth Condominium III
- Board of Directors Meetings Minutes from September 26, 1994
to August 9, 1996
- Lawyer's Representation Letter from Cobb, Cole & Bell
- Data on stock market and industry specific economic factors
Hilcoast Development Corp. 4 Confidential
<PAGE> 27
Patricof & Co. Capital Corp.
GENERAL OBSERVATIONS CONCERNING HILCOAST DEVELOPMENT CORP.
OPERATIONS
- Since its formation in 1992, the management of Hilcoast has focused its
operations on completing the Century Village in Pembroke Pines, and is
active in all phases of its development - from serving as the general
contractor in the construction to operating the recreation leases.
Although it has: (i) small, ancillary businesses at the Century
Village in Pembroke Pines (e.g. condominium resale brokerage, title
insurance, etc.); (ii) an ownership interest in homesite sales in the
Glen Abbey development and, (iii) from time to time, considered
beginning other projects, its core focus remains Century Village.
- When completed, it will be the fourth Century Village that Irwin Levy
has developed in southeastern Florida. All of the senior management
have worked with Mr. Levy in past projects, and some members have
worked with him on all of the Century Villages.
- The experience of Mr. Levy and the Hilcoast staff is evident in its
efficient operations. Our Comparative Company Analysis, which compares
Hilcoast to other residential builders in Florida, demonstrates the
financial effect of this efficiency as Hilcoast has consistently
achieved attractive EBITDA and operating margins, though lower pre-tax
income and net income margins, over the last several years and during
the most recent twelve month period.
- Despite this success, the management has decided to forego starting any
new projects, and after the completion of the current project will
possess only one principal source of value - the Pembroke Pines
recreation leases and the cash flow obtained therefrom. The Company
will also have whatever value can be realized from Glen Abbey and the
Company's ancillary businesses.
- Glen Abbey, a golf course residential community in Volusia County, is
projected to generate limited cash flows in the future through the sale
of homesites to local builders and retail customers. Full development
of the project is currently hampered by a severe flooding problem on a
portion of the undeveloped land (Tract 5) owned by Hilcoast.
Hilcoast Development Corp. 5 Confidential
<PAGE> 28
Patricof & Co. Capital Corp.
GENERAL OBSERVATIONS CONCERNING HILCOAST DEVELOPMENT CORP.
OPERATIONS
- This decision to cease development operations is due to three principal
factors which the Company sees as an impediment to proceeding:
- The continued rise of used condominiums, which are more plentiful
and much cheaper than newly built ones, as a fierce source of
competition has led management to believe that building another
project like Century Village might not be profitable;
- The belief that management's specialized talents in certain areas of
development may not necessarily yield the same results if a project
of a different type were started;
- Mr. Levy's personal wish to become somewhat less active in real
estate development.
- The Company's strategy, therefore, is to complete the Pembroke Pines
project as efficiently and profitably as possible and retain only the
recreation leases, Glen Abbey, and the ancillary businesses as future
sources of cash flow.
Hilcoast Development Corp. 6 Confidential
<PAGE> 29
Patricof & Co. Capital Corp.
GENERAL OBSERVATIONS CONCERNING HILCOAST DEVELOPMENT CORP.
AREAS OF CONCERN
- Hilcoast has experienced a marked slowdown in units delivered and
revenues and lower operating margins in fiscal 1996 as compared to
fiscal 1995.
- This trend has continued over the first two months of fiscal 1997.
- Part of the explanation for a drop in growth over the past year is a
product mix which has consisted of an historically high level of
non-lakefront buildings with lower sales prices. This trend should
reverse over the completion of the build out as more lakefront units
will be sold.
- The drop in the number of units delivered (409 in fiscal 1996 versus
479 in fiscal 1995) is much more of a concern because if the slowdown
continues, or worsens as it has in the first two months of fiscal 1997,
completion of the build out can become longer and more costly than
anticipated.
- The completion of Century Village without another start up to follow
can have both positive and negative effects on profitability. As a
positive, because there is no other project in sight, a prospective
buyer determined to be in a Century Village cannot be diverted by the
appeal of a new one. The absence of another Century Village, however,
will limit public exposure and hence is likely to slow sales. Also,
there is the risk of losing key personnel who may begin to flee in
search of longer term jobs.
Hilcoast Development Corp. 7 Confidential
<PAGE> 30
Patricof & Co. Capital Corp.
ECONOMIC AND INDUSTRY OUTLOOK
- The level of the major equity indices is currently near all time
highs. On November 8, 1996 the Dow Jones Industrial Average stood
at 6,219.82, up 27.7% from its 12 month low, the S&P 500 was at
730.82, up 24.0% from its 12 month low, and the NASDAQ Composite was
at 1,257.51, up 27.2% from its 12 month low. These data imply that
downside risk elements in the stock market outweigh upside
potential.
- The S&P Homebuilding Index has underperformed the market
this year to date, falling 11.9% as the S&P 500 rose 18.7%
due to less accommodating interest rate trends during the
period than in the past.
- The current interest rate environment, characterized by
much market uncertainty, indicates that this unfavorable
trend will continue.
- This trend, combined with an aging economic cycle believed to have
addressed much of the pent-up demand for housing, suggests that most
homebuilders are likely to experience a flattening in sales and
margins in 1997 after current backlogs are diminished.
- The possibility of rising or falling interest rates creates a
double-edged sword for Hilcoast. For example, if interest rates
were to rise, not only may housing purchases decline due to higher
interest rates, but also bond prices (and comparative fixed income
investments such as recreation leases) tend to lose value. If
interest rates were to fall, housing purchases may begin to
increase and bond prices (fixed-income investments) tend to gain
value.
Sources: S&P Industry Reports, ValueLine, Bloomberg and the Wall
Street Journal.
Hilcoast Development Corp. 8 Confidential
<PAGE> 31
Patricof & Co. Capital Corp.
REGIONAL OUTLOOK
- The demographic trend in Broward County is favorable as population,
which grew by an estimated 25,000 persons between 1995 and 1996
(1.8%), is expected to continue to grow, albeit at a gradually
slower pace. The main thrust behind the population expansion has
been the continuing employment expansion in Broward County and its
convenient central location.
- The home building industry in Broward County broke out of a two
quarter slump by experiencing a strong second quarter in 1996, but
the market continues to be dominated by single family home
construction. The number of condo developers is thin as Hilcoast
and Lennar possess an overwhelming percentage of the market share.
- The used condominium market is a major competitive force in the
Broward County market due to its more affordable pricing and large
numbers of available units. In 1995, 12,189 used condominium units
were sold at an average price of $63,095, as compared to only 953
new units at an average price of $85,069. This same contrast can be
found in 1993, 1994, and thus far in 1996. In fact, the demand for
used condominiums has increased in nearly every year since 1982.
- The current situation suggests that favorable Broward County
demographics bode well for Hilcoast's build out, offset by a
continued dominance of single family home sales and fierce
competition from the used condominium market.
Source: The Areea Report, Broward County New Home Market
Profile
Hilcoast Development Corp. 9 Confidential
<PAGE> 32
Patricof & Co. Capital Corp.
PRINCIPAL LITIGATION
- Hilcoast has sued Southern States Utilities Inc. ("SSU"), a large
utility, alleging causes of action in inverse condemnation and
trespass regarding the flooded land in Tract 5 of the Glen Abbey
project, which Hilcoast asserts was caused by wrongful action on the
part of SSU.
- The Company filed a Complaint in September 1993. On March 18, 1994,
the Seventh Judicial Circuit Court granted the Company's Motion
for Summary Judgment that held SSU liable on both causes of action.
On April 5, 1995, the Court vacated its order and in February of
1996 and ruled that Hilcoast is not entitled to recovery under the
theory of inverse condemnation. Hilcoast has since appealed the
decision.
- The Company's management has estimated that the possible recovery
from a favorable ruling could amount to $500,000 for the inverse
condemnation ($300,000 in damages and $200,000 in reimbursed legal
fees) and $250,000 to $300,000 on the trespass cause of action.
The likelihood of success on each cause of action was estimated to
be 20% and 60%, respectively.
- The financial consequences of a possible favorable judgment were
taken into account by us in one of our discounted cash flow
valuation models at the above expected values and probabilities,
less any taxes and prospective additional legal fees. See Appendix
C for the calculation of this value.
Hilcoast Development Corp. 10 Confidential
<PAGE> 33
Patricof & Co. Capital Corp.
VALUATION AND OTHER ANALYSIS
Patricof considered and employed three valuation approaches:
- Comparative company approach
- Discounted cash flow approach
- Comparative transactions approach
Patricof also performed a market check in order to determine the
existence of potentially higher offers than the one proposed.
Hilcoast Development Corp. 11 Confidential
<PAGE> 34
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY VALUATION
COMPARATIVE COMPANY SELECTION CRITERIA
- Listed in Standard & Poor's Corporation Records under one of the
following SIC codes:
- 1521 - "General Contractors: Single Family Houses"
- 1522 - "General Contractors: Residential Buildings,
other than Single Family"
- 1531 - "Operative Builders"
- 6552 - "Land Subdividers and Developers, except
Cemeteries" (Hilcoast's SIC code)
- U.S. public company
- Must have sufficient investor recognition as to be listed in the
Standard and Poor's Stock Guide or Standard and Poor's NASDAQ
ProFiles
- Primarily a home builder of single family units including
condominiums with limited operations outside the real estate
business, but not primarily a tract developer
- Primary operations are in Florida
- Not the subject of an ancillary transaction (e.g. a takeover
proposal or going private offer)
- Generally profitable
Hilcoast Development Corp. 12 Confidential
<PAGE> 35
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY DESCRIPTIONS
<TABLE>
<CAPTION>
LTM
COMPANY REVENUES BUSINESS DESCRIPTION
- ------- -------- --------------------
($MM)
<S> <C> <C>
Engle Homes, Inc. $ 291.1 Engle Homes, Inc. designs, constructs,
markets and sells single-family homes,
townhomes, patio homes and condominiums
in Florida, Colorado, Texas, North
Carolina, Virginia, and Maryland. The
majority of the Company's construction
takes place in Florida, with a particular
emphasis on the southern part. Engle's
homes are designed to appeal to a wide
variety of home buyers, including entry
level and move-up buyers, retirees and
second home seasonal buyers.
Accordingly, Engle offers a variety of
home styles and price ranges at various
locations. Engle is currently developing
a large parcel of land in Broward County,
across the road from the Century Village
property. Engle's financial services
facilities provide mortgage banking and
title insurance services.
Lennar Corporation $1,078.9 Lennar Corporation is a full service real
estate company operating in Florida,
Arizona and Texas, and in each year since
1986 has delivered more homes in Florida
than any other homebuilder. Lennar
builds moderately priced single family
homes and condominiums and builds, owns
and manages rental apartments, office
buildings, retail centers and other
recreational facilities. Lennar
primarily targets first time homebuyers,
move-up homebuyers, and retirees. In
1995, Lennar started the development of
an adult-community in the Orlando,
Florida area. Lennar has numerous
divisions involved in commercial real
estate investment, mortgage loan
origination and servicing, title
services, and investing in both the rated
and unrated portions of mortgage-backed
securities.
</TABLE>
Hilcoast Development Corp. 13 Confidential
<PAGE> 36
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY DESCRIPTIONS (CONTINUED)
<TABLE>
<CAPTION>
LTM
COMPANY REVENUES BUSINESS DESCRIPTION
- ------- -------- --------------------
($MM)
<S> <C> <C>
Oriole Homes Corp. $ 95.3 Oriole Homes Corp. builds and sells
single-family homes, patio homes,
townhouses, villas, duplexes, and
low- and mid-rise condominiums in planned
communities in southeast Florida. During
each of the last five years, Oriole has
been the largest builder of condominiums
for active adults in Palm Beach County,
and derived 76% of its 1995 fiscal year
revenues from sales in communities
designed exclusively for active adults.
Oriole's developments are located in
Broward, Palm Beach and Martin counties
and has begun development in Naples and
Ocala.
U.S. Home Corporation $1,182.4 U.S. Home Corporation builds single-
family homes in 32 market areas in 12
states, but delivers a plurality of its
homes in Florida. U.S. Home offers a
wide variety of moderately priced homes
designed to appeal to the affordable,
move-up and retirement and active
adult/second home buyers. During fiscal
1995, U.S. Home derived 22% of its
homebuilding revenue from the delivery of
retirement and active adult/second homes.
U.S. Home had, at year end 1995, 14
retirement and active adult/second home
communities across the country, including
Florida, and was expecting to begin
taking orders from three more. U.S. Home
also originates, processes and sells
mortgages to third-party investors.
</TABLE>
Hilcoast Development Corp. 14 Confidential
<PAGE> 37
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY VALUATION
HILCOAST'S PERFORMANCE RELATIVE TO THE COMPARATIVE GROUP
(see Appendix A)
- Relative Performance:
- Size: Much smaller than the median of the group based on
assets, revenues, EBITDA, and total enterprise value;
- Growth: Higher revenue, EBITDA, EBIT, and pre-tax income
growth in the three year period ending in 1995, but
substantially lower growth in the latest twelve months;
- Margins: Stronger EBITDA and operating margins, but lower
pre-tax income and net income margins;
- Returns:Lower return on assets and return on equity;
- Leverage:Higher debt to equity ratios than the group.
- Impact on Valuation
- Based on Hilcoast's historical performance relative to the
comparative group, Patricof applied a 5% discount to the median
comparative company valuation multiples.
Hilcoast Development Corp. 15 Confidential
<PAGE> 38
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY VALUATION CONCLUSION
($ in thousands, except per share data)
<TABLE>
<CAPTION>
TOTAL ENTERPRISE VALUE AS A MULTIPLE OF:
--------------------------------------------------------------
3 YEAR 3 YEAR 3 YEAR
LTM AVERAGE LTM AVERAGE LTM AVERAGE
REVENUES REVENUES EBITDA EBITDA EBIT EBIT
--------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Median Multiple 1.0x 1.1x 8.4x 9.3x 9.3x 10.7x
Discount 5% 5% 5% 5% 5% 5%
Valuation Multiple 0.9x 1.0x 8.0x 8.9x 8.8x 10.1x
Hilcoast Statistic $ 44,272 $ 44,622 $ 6,002 $ 6,387 $ 4,705 $ 5,190
Hilcoast Implied Total Enterprise Value 40,873 46,004 47,882 56,699 41,392 52,626
Less: Net Debt (42,554) (42,554) (42,554) (42,554) (42,554) (42,554)
-------- --------- -------- -------- -------- --------
Hilcoast Implied Equity Value $ (1,681) $ 3,450 $ 5,328 $ 14,145 $ (1,162) $ 10,072
======== ========= ======== ======== ======== ========
Hilcoast Implied Equity Value per Share NM $ 1.46 $ 2.26 $ 5.99 NM $ 4.26
======== ========= ======== ======== ======== ========
Diluted For Exercise of Options(1) NM $ 1.38 $ 2.14 $ 5.67 NM $ 4.04
======== ========= ======== ======== ======== ========
</TABLE>
- Because Hilcoast has only two more years of normal construction
operations, a comparative company analysis is less probative of value
than alternative approaches. It should be noted, however, that if the
multiples were applied, none would yield a result higher than $6.00 per
share
- ----------------------------
(1) Assumes that all 269,000 of the exercisable options at
July 31, 1996 are exercised.
Hilcoast Development Corp. 16 Confidential
<PAGE> 39
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
(see Appendices B and C)
- We performed a discounted cash flow valuation of Hilcoast
based on a discounted cash flow analysis that:
- Discounts cumulative stream of unlevered free cash flow and
interest rate tax shields to the present;
- Assumes a perpetuity based terminal value calculation for
Hilcoast's continuing business.
- The analysis is comprised of three parts:
- A build out projection, which includes cash flow from remaining
deliveries of condominium units at Century Village, (estimated to be
completed by October 31, 1998) and cash flow from the operation of
other aspects of Century Village such as the Golf Course, Pines
Master Management, NewCen Realty, Hilcoast Title, and the recreation
leases from July 31, 1996 to July 31, 1998.
- A recreation lease projection, which includes the cash flow from the
recreation leases after July 31, 1998.
- A projection which attributes value to the other components of
Hilcoast, such as Glen Abbey, the sale of certain properties, and
the ongoing operations (other than the recreation leases) after the
build out (the "Other Assets").
- We developed two cases, Case A and Case B. A discounted cash flow
model of each can be found in Appendices B and C, respectively. A
summary comparison of the different assumptions of each follows.
Hilcoast Development Corp. 17 Confidential
<PAGE> 40
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
CASE A AND CASE B ASSUMPTION SUMMARY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ITEM: CASE A CASE B
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Build Out Projections Projected cash flow derived from a Projected cash flow derived from a
combination a management's Scenario 1 combination of management's Scenario 1
and Scenario 2 projections. and Scenario 2 projections.
- ----------------------------------------------------------------------------------------------------------------------------------
Recreation Lease Projections Management-prepared projections of the Management-prepared projections of the
future cash flow from the recreation leases future cash flow from the recreation leases
- ----------------------------------------------------------------------------------------------------------------------------------
SSU Litigation No value attributed to either the positive Assigns an expected value by utilizing
cash flows from a favorable result or the possible recovery amounts, less legal
legal expenses that will be incurred expenses, taxes, and the probabilities of
each.
- ----------------------------------------------------------------------------------------------------------------------------------
Glen Abbey No value attributed (net of the Glen Abbey Discounts management's estimated cash
note) flows for completion of the project to
arrive at a positive value.
- ----------------------------------------------------------------------------------------------------------------------------------
Boca Raton Administration Building No value attributed. Assumes that half can be sold and a
portion of the rest rented. Value
quantified.
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial Buildings at Century No value attributed. Assumes that the buildings are
Village reconstructed and leased as a convalescent
home. Value quantified.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Hilcoast Development Corp. 18 Confidential
<PAGE> 41
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
CASE A AND CASE B ASSUMPTION SUMMARY (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ITEM: CASE A CASE B
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tracts A and T No value attributed. Assumes a sale of the parcels in one year.
Value quantified.
- ----------------------------------------------------------------------------------------------------------------------------------
Ancillary Businesses after the Completion No value attributed Assigns perpetuity values to the projected
of the Build Out cash flows from NewCen Realty and Pines
Master Management. Recognizes one year
of cash flow from the Golf Course. Value
quantified.
- ----------------------------------------------------------------------------------------------------------------------------------
Unlevered Discount Rate 12.8% (assumes a 1.0% company specific 13.3% (assumes a 1.5% company specific risk
risk premium) premium to give effect to the
additional risk of not achieving the
additional cash flow)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Hilcoast Development Corp. 19 Confidential
<PAGE> 42
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
BUILD OUT ASSUMPTIONS
- The Build Out Assumptions for Case A and Case B are identical, except
for the discount rate.
- Management presented us with three possible build out scenarios which
reflect timing differences in the project's completion. Scenario 1,
the most optimistic, assumed a completion date (i.e., all units being
delivered) of July 31, 1998, the date on which the project was
historically projected to be completed. Scenarios 2 and 3 assumed a
completion date six months and one year, respectively, after that of
Scenario 1. The only major differences among the scenarios were the
timing of the cash flows and the additional expenses associated with a
longer build out period.
- After discussing the plausibility of each with management and noting
the slow down in sales over the first two months of fiscal 1997, we
concluded that a scenario between Scenarios 1 and 2 was the most likely
(the "Build Out Scenario").
- The Build Out Scenario assumes completion of the project by October 31,
1998. A listing of the aggregate undiscounted cash flows before taxes,
debt service and changes in working capital of each is below:
<TABLE>
<CAPTION>
($ in thousands) BUILD OUT
SCENARIO 1 SCENARIO 2 SCENARIO
---------- ---------- ---------
<S> <C> <C> <C>
Net Sales $ 70,907 $ 70,907 $ 70,907
Building Costs (25,215) (25,515) (25,450)
Other Construction Costs (5,830) (5,830) (5,830)
Selling & Marketing (6,800) (8,400) (7,700)
General & Administrative (680) (880) (760)
Golf Course(1) 220 220 220
NewCen Realty(1) 440 440 440
Pines Master Management(1) 100 100 100
Boca Administration Building (80) (80) (80)
Recreation Leases 7,840 7,840 7,840
Hilcoast Title 210 170 198
Severance Payments (750) (750) (750)
Corporate Overhead (1,340) (1,590) (1,470)
--------- --------- --------
Total $ 39,022 $ 36,632 $ 37,655
========= ========= ========
</TABLE>
- ----------------------------
(1) In addition, Scenario 2 included cash flow for these operations in the
six months after July 31, 1998. Our assumptions include these cash flows
in the "Other Assets" component of the Case B DCF analysis.
Hilcoast Development Corp. 20 Confidential
<PAGE> 43
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
BUILD OUT ASSUMPTIONS
- The following is a list of principal assumptions for each of the
scenarios:
- Sales prices are based on actual prices for units under
contract or, if unsold, the offering price net of projected
discounts. The last 100 units delivered are assumed to have an
additional $5,000 per unit discount.
- Building costs are based on a management estimate which utilizes
historical costs with two exceptions: (i) additional costs are
assumed for complying with new hurricane protection laws; (ii) a
3% normal increase is assumed for building costs after the first
year. Any residual value of construction equipment is assumed to
be netted against the cost of the destruction of the precast
plant. Onsite improvement costs are based on the historical
average of $7,000 per unit.
- Selling and marketing, general and administrative, corporate
overhead, operation of the Boca Raton building, cash flows from
the Golf Course, Hilcoast Title, New Cen Realty and Pines Master
Management are based on management's estimates which are predicated
upon historical results.
- The warranty reserve and contingencies are based on
management's estimates of costs after the completion of the build
out for maintenance call backs, unforeseen costs, payments to
condo associations, etc.
- Recreation facility completion costs and community-wide
improvement costs are based on management estimates for the
completion of existing projects.
- Working capital outflows are calculated as the net cash effect of
the elimination of $2.5 million in accounts payable netted against
$1.0 million in tangible other assets on the July 31, 1996 balance
sheet and the elimination of $2.0 million in customer deposits,
offset by $773,000 of restricted cash.
- Taxes are calculated on management's estimate of cash income
taxes in Scenario 1 which assumes the utilization of tax loss
carryforwards and the Alternative Minimum Tax rate of 20%. Taxes
include the effect of the interest rate tax shield and thus it is
not discounted separately.
Hilcoast Development Corp. 21 Confidential
<PAGE> 44
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
RECREATION LEASE ASSUMPTIONS
- The Recreation Lease Assumptions for Case A and Case B are identical,
except for the discount rate.
- The cash flow from the recreation leases is based upon management
projections that have taken into account the provisions set forth in
the existing individual recreation leases.
- The tax rate is assumed to be 37.6% as Hilcoast is assumed to cease
paying the alternative minimum tax. An interest rate tax shield is
calculated under the assumption that only the $25.0 million term loan
is outstanding after the build out period and that loan is amortized
over 25 years.
- The terminal value is calculated by the perpetuity method in 2024 using
year 2025 cash flow, the first year in which the Company ceases to
realize interest expense tax benefits (because the term loan has been
repaid) and its tax depreciation achieves a constant level. The rate
used to calculate the perpetuity is the same as that used to discount
the cash flow.
Hilcoast Development Corp. 22 Confidential
<PAGE> 45
DISCOUNTED CASH FLOW VALUATION
ASSUMPTIONS RESPECTING OTHER ASSETS
- There are several other assets in Hilcoast that possess potential value
and are not accounted for in management's build out and recreation
lease projections. Because of the high level of uncertainty of these
assets ever translating into positive net cash flow, management's
projections attributed neither positive nor negative values to them.
Realizing, however, that some incremental value might be obtained from
these, we developed two DCF cases (Case A and Case B), as described
earlier in this section.
- The following is a list of assumptions which attributes value
to the Other Assets. These assumptions are based on our discussions
with management in which we required management to assume a positive
value to the Other Assets. As noted earlier, Case A attributes no value
to these. The assumptions in Case B are as follows:
- The unlevered cash flows from Glen Abbey are discounted at the
unlevered discount rate and netted against the Glen Abbey Note,
currently outstanding. The cash flows projected are based on a
mixture of two sets of management projections for this
development.
- One-half of the Boca Raton Administration Building is assumed to
be sold in the third quarter of fiscal 1997 to a Jewish Orthodox
synagogue, with whom management has had ongoing discussions, for
$250,000 (less capital gains tax). Beginning in fiscal 1998,
5,000 of the remaining 11,000 square feet are assumed to be rented
to a medical group at a net price of $12 per square foot, and the
Company is assumed to bear the costs related to the other $6,000
square feet on a proportional basis to the costs it bears today
(the rent and the costs are valued as perpetuities).
- Tracts A and T of land are assumed to be sold in the first quarter
of fiscal 1998 for $100,000 and $150,000, respectively, less
capital gains tax at a current tax rate.
Hilcoast Development Corp. 23 Confidential
<PAGE> 46
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
ASSUMPTIONS RESPECTING OTHER ASSETS (CONTINUED)
- The 37,000 square feet of Commercial Buildings at Century Village
are assumed to be reconstructed at a cost of $70 per square foot
after the completion of the build out and rented as a convalescent
home for a net price of $13 per square feet, with the rental
period beginning one year after completion of the build out. The
construction costs are assumed to be financed at a rate of 11%.
The rental stream and financing costs are valued as a perpetuity.
- NewCen Realty is assumed to continue operations in the resale
market after the completion of the build out. Because the
completion of the build out eliminates advertising, less public
exposure to the Century Villages is likely to dampen the resale
market. Because of this, NewCen Realty is assumed to generate
only 50% of its projected 1997 and 1998 cash flows of $220,000
(this amount, less taxes, is valued as a perpetuity). Any cash
flows derived from Hilcoast Title, which are projected to be slim,
are assumed to be included in this amount.
- Pines Master Management is assumed to have an annual cash flow of
$50,000, less taxes, the same amount as during the completion of
the build out. This stream is valued as a perpetuity.
- The Golf Course will have one year of operations after the build
out under Hilcoast management before the cash flows therefrom
revert to the condominium unit holders in the form of a reduction
of their monthly recreational lease payments. The cash flows
during this one year period are assumed to be the same as in
fiscal 1997 and 1998.
Hilcoast Development Corp. 24 Confidential
<PAGE> 47
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
CONCLUSION
- The unlevered discount rate is calculated by the Capital Asset Pricing
Model formula and utilizes Hilcoast's historical beta. We assign two
risk premiums: a small company risk premium of 3.6%, derived from
Ibbotson & Associates data and a company specific risk premium of 1.0%
in Case A and 1.5% in Case B. We determined that this premium was
necessary because of the singularity of the Company's cash flows (i.e.,
the recreation leases), and the high degree of uncertainty surrounding
the cash flow from the Other Assets. See Appendices B and C for the
calculation of these rates.
- The unlevered discount rate was used to discount both the unlevered
cash flows (i.e., the cash flows before debt service) and the value of
the interest rate tax shield. This is the equivalent of discounting
only the unlevered cash flows by an appropriately weighted average cost
of capital.
- This yielded the following per share results:
<TABLE>
<CAPTION>
Diluted For Exercise of Options(1)
<S> <C> <C>
Case A: $5.75 $5.44
Case B: $6.04 $5.72
</TABLE>
- The following are the equity values per share at a range of unlevered
discount rates:
<TABLE>
<CAPTION>
------------------------------------------------------
Discount Rate
<S> <C> <C> <C> <C>
12.5% 13.0% 13.5% 14.0%
------------------------------
Case A $6.06 $5.48 $4.93 $4.42
Case B 6.98 6.35 5.77 5.22
Case A - Diluted 5.74 5.19 4.67 4.19
Case B - Diluted 6.61 6.02 5.46 4.94
------------------------------------------------------
</TABLE>
- ---------------------------------
(1) Assumes that all 269,000 of the exercisable options at July 31, 1996 are
exercised.
Hilcoast Development Corp. 25 Confidential
<PAGE> 48
Patricof & Co. Capital Corp.
BREAK UP AND LIQUIDATION VALUATION
- Patricof has not utilized break up or liquidation value analyses for
the following reasons:
- As to the break up analysis, after the build out is complete, there
will be no material asset other than the recreation lease (whose
value is included in the discounted cash flow analysis) that can be
broken out of corporate solution. Moreover, in Case B, discrete
values that could be achieved through the sale of each property were
assigned and the values added to the overall cash flow that was
discounted back.
- As to the liquidation value analysis, there is no evidence that
individual assets (e.g. property, plant, and equipment) as
distinguished from the recreation leases, Glen Abbey, or the real
estate (all of whose values are encompassed in the Case B discounted
cash flow analysis) have any material value.
Hilcoast Development Corp. 26 Confidential
<PAGE> 49
Patricof & Co. Capital Corp.
COMPARATIVE TRANSACTIONS ANALYSIS
Unaffected stock price (1) of Hilcoast: $4.625
Proposed Transaction Offer Price: $6.000
Premium Offered: 29.7%
- ---------------------------
(1) The unaffected stock price is the closing price of Hilcoast on July 10,
1996, approximately one month prior to the announcement of the
transaction.
Hilcoast Development Corp. 27 Confidential
<PAGE> 50
Patricof & Co. Capital Corp.
COMPARATIVE REAL ESTATE TRANSACTIONS ANALYSIS
- Patricof reviewed the premiums paid over the unaffected stock price and
ratio of Enterprise Value to the Latest Twelve Months (at the time of
announcement) EBITDA of owners, operators or builders of commercial or
residential facilities.
- Transactions were identified through a screening of Securities Data
Corporation, a well-known mergers and acquisitions database, based on
the following criteria:
- Primary SIC code of: 1521 (General Contractors: Single Family
Houses), 1522 (General Contractors: Residential Buildings, other
than Single Family), 1531 (Operative Builders), 1541 (General
Contractors: Industrial Buildings and Warehouses), 1542 (General
Contractors: Nonresidential Buildings, other than Industrial
Buildings and Warehouses), 6512 (Operators of Nonresidential
Buildings), 6513 (Operators of Apartment Buildings), 6514 (Operators
of Dwellings other than Apartment Buildings), 6515 (Operators of
Residential Mobile Homesites), 6517 (Lessors of Railroad Property),
6519 (Lessors of Real Property, not elsewhere classified), 6531
(Real Estate Agents and Managers), 6541 (Title Abstract Offices),
6552 (Land Subdividers and Developers, except Cemeteries), or 6553
(Cemetery Subdividers and Developers).
- Public U.S. target companies
- Announced during 1995 and 1996
- Transaction was completed
- Excludes transactions associated with bankruptcy
- Must have been a purchase of 10% or more of the Target company's
equity
Hilcoast Development Corp. 28 Confidential
<PAGE> 51
Patricof & Co. Capital Corp.
COMPARATIVE REAL ESTATE TRANSACTIONS ANALYSIS
<TABLE>
<CAPTION>
ENTERPRISE
DATE DATE VALUE/LTM CONTROL
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME EBITDA PREMIUM
- --------- --------- ----------------------------- --------------------- ---------- -------
<S> <C> <C> <C> <C> <C>
2/2/95 11/13/95 Public Storage Properties VII Storage Equities Inc. 10.1x 22.3%
196/12/95 8/8/95 Beazer Homes USA Beazer Homes USA (1) 9.4x 1.2%
9/25/95 12/04/95 Forum Retirement Partners LP Forum Group Inc. 9.0x 41.5%
11/16/95 4/16/96 Prime Management Group Inc. FirstService Corp. 18.1x 24.2%
-------------------------------------------------------------------------
MEDIAN 9.7X 23.2%
-------------------------------------------------------------------------
</TABLE>
- The Enterprise Value to LTM EBITDA ratio and the control premium in the
Proposed Transaction are, respectively, around the median and higher
than the median.
- The Enterprise Value to LTM EBITDA ratio of the Proposed
Transaction is 9.5x, calculated by multiplying the offer price
by the shares outstanding ($6.00 x 2,362,320), adding debt ($43.3
million) and subtracting cash ($0.8 million) to arrive at an
Enterprise Value of $56.7 million, and dividing that number by the
LTM EBITDA of $6.0 million.
- The control premium offered to Hilcoast's unaffected stock price
is 29.7%. (see page 27 for calculation)
SOURCE: Securities Data Corporation
- ----------------------------
(1) Purchased from U.S. Industries.
Hillcoast Development Corp. 29 Confidential
<PAGE> 52
Patricof & Co. Capital Corp.
COMPARATIVE GOING PRIVATE TRANSACTIONS ANALYSIS
(see Appendix D)
APPROACH
- Patricof reviewed the premiums paid over the unaffected stock price in
numerous going private transactions and specifically focused on going
private transactions in which management was a participant in the
acquiring group
- Transactions were identified through a screening of a well-known
mergers and acquisitions database (Securities Data Corporation), based
on the following criteria:
- Announced during in 1995 and 1996
- Public U.S. target companies
- Classified as a "Going Private" transaction by Securities Data
Corporation
- Transaction was completed
- Cash only consideration for the public shareholders
- Excludes targets with stock prices below $1
- Excludes targets whose unaffected stock price could not be found in
a major source of pricing data (Securities Data Corporation,
Bloomberg, and Dow Jones Retrieval)
- In addition, we screened all going private transactions announced from
1990 to 1996, using the above criteria, in which the acquiror included
management participation as identified by Securities Data Corporation
Hillcoast Development Corp. 30 Confidential
<PAGE> 53
Patricof & Co. Capital Corp.
COMPARATIVE GOING PRIVATE TRANSACTIONS ANALYSIS
MANAGEMENT PARTICIPATION - 1990-1996
- The following is a frequency distribution of the completed going
private transactions announced in 1990-1996 in which management
participated:
[GRAPH]
For the frequency distribution bar graph on p. 31 (page titled Comparative
Going Private Transactions Analysis, Management Participation - 1990-1996)
0%-9% 0
10% to 19% 2
20% to 29% 5
30% to 39% 3
40% to 49% 1
50% to 59% 1
60% to 69% 2
70% to 79% 2
80% to 89% 1
90% to 99% 0
100% to 110% 2
Hillcoast Development Corp. 31 Confidential
<PAGE> 54
Patricof & Co. Capital Corp.
COMPARATIVE GOING PRIVATE TRANSACTIONS ANALYSIS
ALL TRANSACTIONS - 1995-1996
- The following is a frequency distribution of completed going private
transactions announced in 1995-1996:
[GRAPH]
For the frequency distribution bar graph on p. 32 (page titled Comparative
Going Private Transactions Analysis, All Transactions - 1995-1996)
0% - 9% 4
10% to 19% 8
20% to 29% 6
30% to 39% 8
40% to 49% 5
50% to 59% 4
60% to 69% 7
70% to 79% 4
80% to 89% 2
90% to 99% 1
100% to 110% 1
Hillcoast Development Corp. 32 Confidential
<PAGE> 55
Patricof & Co. Capital Corp.
COMPARATIVE GOING PRIVATE TRANSACTIONS ANALYSIS
CONCLUSION
- The following is a frequency distribution which includes both sets of
data:
[GRAPH]
For the frequency distribution bar graph on p. 33 (page titled Comparative
Going Private Transactions Analysis, Conclusion)
0% - 9% 4
10% to 19% 10
20% to 29% 11
30% to 39% 10
40% to 49% 6
50% to 59% 5
60% to 69% 9
70% to 79% 6
80% to 89% 3
90% to 99% 1
100% to 110% 3
- The frequency distribution above and those on the prior two pages
indicate the most frequent range of control premiums in going private
transactions is 20% to 40%. The premium offered by the Proposed
Transaction is 29.7%, the mid-point of this range, but lower than the
two medians of 38.5% and 36.6%.
- Premiums in going private transactions are paid to compensate
shareholders for their loss of upside potential in the future. With
only a recreational lease as a material asset after the build out,
opportunities for dramatic earnings increases are limited. This fact
and the absence of material, foreseeable cash flows from Glen Abbey
appropriately limit the amount of the going private premium to the
Company's Public Shareholders.
Hillcoast Development Corp. 33 Confidential
<PAGE> 56
Patricof & Co. Capital Corp.
VALUATION CONCLUSION
- Our analysis indicated that given Hilcoast's recreational lease
operations, its principal business after the completion of the build
out in approximately two years, the comparative company approach is
less probative of value than alternative approaches because there are
no "pure play" recreational lease comparatives. This fact
notwithstanding, if a value were applied based on the assumption that
Hilcoast should be valued under the comparative company approach, such
value would not exceed $6.00 per share.
- The discounted cash flow analysis suggests an equity value per share
range of $5.75 (in Case A) to $6.04 (in Case B) on a non-diluted basis,
and, assuming the exercise of options, $5.44 (in Case A) to $5.72 (in
Case B).
- For the reasons set herein, we do not believe that break up or
liquidation analyses are probative of value.
- We performed two kinds of comparative transactions analyses, one of
comparative real estate transactions, the other of comparative going
private transactions.
- Our study of comparative real estate transactions sets forth a
latest 12 months median EBITDA multiple of 9.7x, which is around the
9.5x multiple offered in the Proposed Transaction. The 23.2% median
control premium in such transactions is lower than the 29.7%
premium offered in the Proposed Transaction.
- Our study of comparative going private transactions indicates
that the most frequent range of premiums applied to the unaffected
traded value of the stock is between 20% and 40%. The current offer
to the Public Shareholders of Hilcoast represents a 29.7% premium to
the unaffected trading price of the stock, near the mid-point of this
range but somewhat below the medians in the transactions studied by
us, which were 38.5% and 36.1%, respectively. The limited future
upside potential in Hilcoast, however, suggests the reasonableness of
the premium herein.
- Based on all of our analyses, we are of the opinion that the terms to
be offered in the Proposed Transaction are fair to the Company's Public
Shareholders from a financial point of view.
Hillcoast Development Corp. 34 Confidential
<PAGE> 57
Patricof & Co. Capital Corp.
MARKET CHECK
- As part of our efforts in rendering a fairness opinion, we performed a
market check using companies that might be persuaded to make a superior
offer to that of Irwin Levy and his affiliates.
- We selected companies based on the following criteria:
- Must have an SIC code of 1521 (General Contractors: Single Family
Houses), 1522 (General Contractors: Residential Buildings, other
than Single Family), 1531 (Operative Builders) or 6552 (Land
Subdividers and Developers, except Cemeteries), and must be
primarily home builders.
- Must be moderate priced home builders with some material amount of
condominiums.
- Must have existing Florida operations.
- Must have the financial capacity to complete a transaction involving
consideration in excess of $14 million plus the assumption of
approximately $45 million of debt.
- The seven companies which met this criteria were: Engle Homes,
Hovnanian Enterprises, Lennar Corporation, Pulte Corporation, Ryland
Group, Starrett Corporation, and U.S. Home. This group included
several companies that did not have significant enough Florida
operations to be considered in the comparative company analysis (which
required that the company's primary operations be located in Florida).
- Identical letters (See Appendix G for an example of such a letter)
accompanied by the Company's fiscal 1995 10-K, annual report and annual
meeting proxy statement, its 10-Q for the period ending April 30, 1996,
and a copy of a press release announcing the Proposed Transaction were
sent to the CEO's or COO's of all the above companies on September 16,
1996. The mailing was succeeded by follow-up phone calls from
Patricof.
Hillcoast Development Corp. 35 Confidential
<PAGE> 58
Patricof & Co. Capital Corp.
MARKET CHECK
- The results were as follows:
- Leonard Miller, the CEO of Lennar declined interest because the
build out was nearly complete and he had no interest in owning
simply a recreation lease.
- Alec Engelstein, CEO of Engle Homes, declined because of his belief
that the business of selling moderately priced condominiums had
become increasingly difficult, and was also not interested in owning
simply a recreation lease.
- Veronica Gambels of Ryland informed us that after a review by
several people, Ryland was not interested.
- None of the other four companies responded to the letter or the
follow-up calls, indicating their lack of interest as well.
Hillcoast Development Corp. 36 Confidential
<PAGE> 59
Patricof & Co. Capital Corp. APPENDIX A-1
CALCULATION OF COMPARATIVE COMPANY EQUITY MARKET VALUE AND TOTAL ENTERPRISE
VALUE
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Average Stock Common Equity Total
Price, 30 Days Shares Market Total Preferred Enterprise
Ended 11/8/96 Outstanding Value Debt Stock Cash Value (TEV)
-------------- ----------- -------- -------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Engle Homes $ 7.46 6,929 $ 51,693 $160,242 $ 0 $11,949 $ 199,986
Lennar Corporation(1) 22.42 35,920 805,395 868,103 0 15,351 1,658,147
Oriole Homes 7.34 1,883 34,362 87,300 0 1,868 119,794
Class B 7.49 2,742
U.S. Home 22.04 11,448 252,339 408,836 3,072 17,806 646,441
(19)Hilcoast Development(2) 4.67 2,362 11,037 43,311 0 757 53,591
</TABLE>
- ---------------------------------
(1) Lennar has two classes of common stock, only one of which trades publicly.
The stock price of each class is assumed to be equal.
(2) Hilcoast's stock price is based on the average stock price for the thirty
days ended August 8, 1996, which is the last day on which Hilcoast traded
before the announcement of the intended going private transaction on
August 12, 1996.
<PAGE> 60
Patricof & Co. Capital Corp. APPENDIX A-2
SUMMARY OF COMPARATIVE COMPANY FINANCIAL STATISTICS (LTM)(1)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Net Income
Profit Available to
Assets Revenues EBITDA(2) EBIT(2) Before Tax Common
--------- --------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Engle Homes $ 271,590 $ 291,068 $ 25,123 $ 21,969 $ 12,015 $ 7,449
Lennar Corporation 1,725,183 1,078,878 187,683 176,067 130,180 79,409
Oriole Homes 181,993 95,337 7,987 6,187 (774) (689)
U.S. Home 958,683 1,182,427 102,221 97,642 67,430 42,641
Median 615,137 684,973
Hilcoast Development 52,317 44,272 6,002 4,705 (313) (209)
</TABLE>
- ----------------------------------
(1) Latest twelve months (LTM) ended: 7/31/96 for Engle Homes, 8/31/96 for
Lennar Corporation, 6/30/96 for Oriole Homes, 9/30/96 for U.S. Home, and
9/30/96 for Hilcoast.
(2) EBITDA and EBIT exclude not only the interest expense line item, but
also interest included in cost of sales, which is often not explicit in the
companies' financial statements and therefore must be calculated or
estimated.
NOTE: All data excludes non-recurring items and, in the case of net income
available to common, their estimated net tax effect.
Hillcoast Development Corp. 2 Confidential
<PAGE> 61
Patricof & Co. Capital Corp. APPENDIX A-3
SUMMARY OF COMPARATIVE COMPANY FINANCIAL STATISTICS (THREE YEAR AVERAGE
1993-1995)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Net Income
Profit Available to
Assets Revenues EBITDA(1) EBIT(1) Before Tax Common
---------- -------- ------------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Engle Homes $ 195,164 $199,348 $ 19,396 $ 16,859 $ 10,611 $ 6,595
Lennar Corporation 1,310,358 784,353 144,527 134,978 103,085 63,701
Oriole Homes 181,960 102,630 14,300 12,632 3,557 2,125
U.S. Home 758,044 971,778 85,302 79,229 48,079 30,953
Median 476,604 491,850
Hilcoast Development 63,094 44,622 6,387 5,190 846 66
</TABLE>
- ---------------------------------
(1) EBITDA and EBIT exclude not only the interest expense line item, but
also interest included in cost of sales, which is often not explicit in the
companies' financial statements and therefore must be calculated or
estimated.
NOTE: All data excludes non-recurring items and, in the case of net income
available to common, their estimated net tax effect.
Hillcoast Development Corp. 3 Confidential
<PAGE> 62
Patricof & Co. Capital Corp. APPENDIX A-4
COMPARATIVE COMPANY VALUATION MULTIPLES (LTM)
<TABLE>
<CAPTION>
TEV/
TEV/ TEV/ TEV/ MV Common/ Book
Revenues EBITDA EBIT Net Income Assets
-------- ------ ----- ---------- ------
<S> <C> <C> <C> <C> <C>
Engle Homes 0.7x 8.0x 9.1x 6.9x 0.7x
Lennar Corporation 1.5x 8.8x 9.4x 10.1x 1.0x
Oriole Homes 1.3x 15.0x 19.4x -49.9x 0.7x
U.S. Home 0.5x 6.3x 6.6x 5.9x 0.7x
Median 1.0x 8.4x 9.3x 6.4x 0.7x
Hilcoast Development 1.2x 8.9x 11.4x -52.8x 1.0x
</TABLE>
Hillcoast Development Corp. 4 Confidential
<PAGE> 63
Patricof & Co. Capital Corp. APPENDIX A-5
COMPARATIVE COMPANY VALUATION MULTIPLES (THREE YEAR AVERAGE 1993-1995)
<TABLE>
<CAPTION>
TEV/
TEV/ TEV/ TEV/ MV Common/ Book
Revenues EBITDA EBIT Net Income Assets
-------- ------ ----- ---------- ------
<S> <C> <C> <C> <C> <C>
Engle Homes 1.0x 10.3x 11.9x 7.8x 1.0x
Lennar Corporation 2.1x 11.5x 12.3x 12.6x 1.3x
Oriole Homes 1.2x 8.4x 9.5x 16.2x 0.7x
U.S. Home 0.7x 7.6x 8.2x 8.2x 0.9x
Median 1.1x 9.3x 10.7x 10.4x 0.9x
Hilcoast Development 1.2x 8.4x 10.3x 166.8x 0.8x
</TABLE>
Hillcoast Development Corp. 5 Confidential
<PAGE> 64
Patricof & Co. Capital Corp. APPENDIX A-6
COMPARATIVE COMPANY TRENDS IN REVENUE AND INCOME
(In Relatives, 1993=100)
<TABLE>
<CAPTION>
REVENUE 1993 1994 1995 LTM
---- ---- ---- ---
<S> <C> <C> <C> <C>
Engle Homes 100 161 175 212
Lennar Corporation 100 123 131 162
Oriole Homes 100 113 77 90
U.S. Home 100 123 136 146
Median 100 123 134 154
Hilcoast Development 100 134 145 125
<CAPTION>
EBITDA 1993 1994 1995 LTM
---- ---- ---- ---
<S> <C> <C> <C> <C>
Engle Homes 100 140 125 158
Lennar Corporation 100 121 134 154
Oriole Homes 100 103 40 45
U.S. Home 100 112 119 132
Median 100 116 122 143
Hilcoast Development 100 127 160 121
<CAPTION>
EBIT 1993 1994 1995 LTM
---- ---- ---- ---
<S> <C> <C> <C> <C>
Engle Homes 100 140 115 154
Lennar Corporation 100 124 137 157
Oriole Homes 100 102 33 38
U.S. Home 100 120 128 143
Median 100 122 121 148
Hilcoast Development 100 133 174 123
</TABLE>
Hillcoast Development Corp. 6 Confidential
<PAGE> 65
Patricof & Co. Capital Corp. APPENDIX A-7
COMPARATIVE COMPANY TRENDS IN REVENUE AND INCOME
(In Relatives, 1993=100)
<TABLE>
<CAPTION>
PROFIT BEFORE TAX 1993 1994 1995 LTM
---- ---- ----- ----
<S> <C> <C> <C> <C>
Engle Homes 100 120 94 119
Lennar Corporation 100 136 141 159
Oriole Homes 100 109 (29) (13)
U.S. Home 100 161 181 207
Median 100 128 117 139
Hilcoast Development 100 149 491 (91)
<CAPTION>
NET INCOME 1993 1994 1995 LTM
---- ---- ----- ----
<S> <C> <C> <C> <C>
Engle Homes 100 120 94 118
Lennar Corporation 100 130 134 151
Oriole Homes 100 111 (35) (19)
U.S. Home 100 142 160 185
Median 100 125 114 135
Hilcoast Development 100 72 (240) 71
</TABLE>
Hillcoast Development Corp. 7 Confidential
<PAGE> 66
Patricof & Co. Capital Corp. APPENDIX A-8
COMPARATIVE COMPANY PROFIT MARGINS
(% of Revenues)
<TABLE>
<CAPTION>
3 YEAR
EBITDA 1993 1994 1995 AVERAGE LTM
----- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C>
Engle Homes 11.6% 10.1% 8.3% 10.0% 8.6%
Lennar Corporation 18.4% 18.1% 18.8% 18.4% 17.4%
Oriole Homes 16.7% 15.2% 8.5% 13.5% 8.4%
U.S. Home 9.5% 8.7% 8.3% 8.8% 8.6%
Median 14.1% 12.6% 8.4% 11.7% 8.6%
Hilcoast Development 14.0% 13.3% 15.4% 14.3% 13.6%
<CAPTION>
3 YEAR
EBIT 1993 1994 1995 AVERAGE LTM
----- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C>
Engle Homes 10.4% 9.0% 6.9% 8.7% 7.5%
Lennar Corporation 16.9% 17.1% 17.6% 17.2% 16.3%
Oriole Homes 15.2% 13.7% 6.5% 11.8% 6.5%
U.S. Home 8.4% 8.2% 7.9% 8.2% 8.3%
Median 12.8% 11.4% 7.4% 10.3% 7.9%
Hilcoast Development 10.8% 10.8% 13.0% 11.5% 10.6%
</TABLE>
Hillcoast Development Corp. 8 Confidential
<PAGE> 67
Patricof & Co. Capital Corp. APPENDIX A-9
COMPARATIVE COMPANY PROFIT MARGINS
(% of Revenues)
<TABLE>
<CAPTION>
3 YEAR
PROFIT BEFORE TAX 1993 1994 1995 AVERAGE LTM
--------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Engle Homes 7.4% 5.5% 4.0% 5.6% 4.1%
Lennar Corporation 12.3% 13.7% 13.3% 13.1% 12.1%
Oriole Homes 5.6% 5.4% -2.1% 3.0% -0.8%
U.S. Home 4.0% 5.3% 5.3% 4.9% 5.7%
Median 6.5% 5.5% 4.7% 5.2% 4.9%
Hilcoast Development 1.0% 1.1% 3.3% 1.8% -0.7%
<CAPTION>
3 YEAR
NET INCOME 1993 1994 1995 AVERAGE LTM
--------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Engle Homes 4.6% 3.4% 2.5% 3.5% 2.6%
Lennar Corporation 7.9% 8.3% 8.1% 8.1% 7.4%
Oriole Homes 3.4% 3.3% -1.5% 1.7% -0.7%
U.S. Home 2.8% 3.3% 3.3% 3.2% 3.6%
Median 4.0% 3.4% 2.9% 3.3% 3.1%
Hilcoast Development -0.8% -0.4% 1.4% 0.0% -0.5%
</TABLE>
Hillcoast Development Corp. 9 Confidential
<PAGE> 68
Patricof & Co. Capital Corp. APPENDIX A-10
COMPARATIVE COMPANY RETURN ON ASSETS AND EQUITY
<TABLE>
<CAPTION>
RETURN ON ASSETS (1) 3 YEAR
1993 1994 1995 AVERAGE LTM
---------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Engle Homes 7.9% 7.3% 4.3% 6.1% 4.7%
Lennar Corporation 7.5% 9.0% 8.4% 8.4% 8.3%
Oriole Homes 3.5% 3.5% -0.9% 2.0% -0.4%
U.S. Home 5.3% 7.3% 7.4% 6.8% 7.6%
Median 6.4% 7.3% 5.9% 6.5% 6.1%
Hilcoast Development 0.5% 0.8% 2.7% 1.3% -0.6%
<CAPTION>
RETURN ON EQUITY (2) 3 YEAR
1993 1994 1995 AVERAGE LTM
---------- ---------- --------- ------- ---------
Engle Homes 11.4% 12.2% 8.4% 10.5% 9.9%
Lennar Corporation 13.3% 13.6% 12.3% 13.2% 12.7%
Oriole Homes 4.7% 5.1% -1.7% 2.8% -0.9%
U.S. Home 17.6% 13.5% 12.3% 14.4% 13.0%
Median 12.4% 12.8% 10.4% 11.9% 11.3%
Hilcoast Development -12.7% -10.1% 33.0% 3.0% -9.9%
</TABLE>
- ----------------------------------
(1) Profit before tax/average total assets.
(2) Net income available to common shareholders/ average common book
equity.
Hillcoast Development Corp. 10 Confidential
<PAGE> 69
Patricof & Co. Capital Corp. APPENDIX A-11
COMPARATIVE COMPANY DEBT TO EQUITY RATIOS
<TABLE>
<CAPTION>
DEBT/COMMON EQUITY 3 YEAR
1993 1994 1995 AVERAGE LTM
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Engle Homes 114.6% 154.4% 207.8% 158.9% 203.9%
Lennar Corporation 113.7% 106.0% 104.6% 108.1% 130.4%
Oriole Homes 107.3% 105.6% 133.1% 115.3% 129.1%
U.S. Home 160.3% 116.0% 112.1% 129.4% 114.2%
Median 114.1% 111.0% 122.6% 122.4% 129.8%
Hilcoast Development 2,422.8% 2,499.3% 2,138.6% 2,353.6% 2,214.3%
</TABLE>
Hillcoast Development Corp. 11 Confidential
<PAGE> 70
Patricof & Co. Capital Corp. APPENDIX B-1
HILCOAST DEVELOPMENT CORP. - CASE A
DISCOUNTED CASH FLOW ANALYSIS
TABLE OF CONTENTS
<TABLE>
<S> <C>
Calculation of the Unlevered Cost of Capital 2
Discounted Cash Flow Valuation Summary 3
Build Out Projections - Delivery 4
Build Out Projections - Cash Flow 5
Build Out Debt Schedule - Credit Lines 6
Build Out Debt Schedule - Other Debt 7
Recreation Lease DCF Analysis 8
</TABLE>
Hilcoast Development Corp. Confidential
<PAGE> 71
Patricof & Co. Capital Corp. APPENDIX B-2
HILCOAST DEVELOPMENT CORP. - CASE A
CALCULATION OF THE UNLEVERED COST OF CAPITAL
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Levered MV MV Tax E/ Unlevered
Beta (1) Equity (2) Debt (3) Rate (4) (E+(1-t)D) Beta
-------- ---------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Hilcoast Development 0.60 $11,037 $45,348 37.6% 0.28 0.17
</TABLE>
CALCULATION OF THE UNLEVERED COST OF CAPITAL USING THE CAPITAL ASSET PRICING
MODEL (CAPM)
<TABLE>
<S> <C>
Unlevered beta of Hilcoast (B) 0.17
Market risk premium (Rm-Rf) (5) 7.40%
Risk free rate (Rf) (6) 6.92%
Small company premium (7) 3.60%
Company specific risk 1.00%
Unlevered cost of capital (Ru) (8) 12.8%
Hilcoast Value per Share $5.75
Hilcoast Value per Share (Diluted) (9) $5.44
</TABLE>
<TABLE>
<CAPTION>
DISCOUNT RATE SENSITIVITY DISCOUNT RATE SENSITIVITY
12.5% 13.0% 13.5% 14.0% 12.5% 13.0% 13.5% 14.0%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Case A $6.06 $5.48 $4.93 $4.42 $3.94 Case A - Diluted $5.74 $5.19 $4.67 $4.19
Case B 6.09 5.50 4.95 4.44 3.96 Case B - Diluted 5.76 5.21 4.69 4.21
Average 6.08 5.49 4.94 4.43 3.95 Average 5.75 5.20 4.68 4.20
</TABLE>
NOTE: The unlevered cost of capital is used to discount the unlevered free cash
flows of the Company instead of the weighted average cost of capital ("WACC")
due to Hilcoast's continually changing capital structure. Discounting the free
cash flow before interest by Ru and adding the discounted value of the interest
rate tax shields will theorectically yield the same results as discounting the
free cash flow before interest by a WACC which fluctuates in each discounting
period according to a firm's changing capital structure.
- ----------------------
(1) Based on a $4.6719 stock price, the 30-day average closing price as of
August 12, 1996, the last day the stock traded before the announced
transaction.
(2) Source: Bloomberg.
(3) Assumes book value of debt approximates market value.
(4) Tax rate is assumed to be 37.6%, the long- term tax rate of Hilcoast after
the build out.
(5) Large company total stock returns minus long-term government bond income
returns (20 year U.S. Treasury coupon note yield) for 1926-1995, based
on arithmetic mean returns derived by Ibbotson & Associates. (Source:
Stocks, Bonds, Bills, and Inflation, 1995 Yearbook, by Ibbotson and
Associates, Inc.)
(6) Represents the average closing interest rate on a twenty year U.S.
Treasury Note for the 40 trading days ended November 8, 1996, as reported
by the Wall Street Journal.
(7) Equals small company stock total returns minus large company stock total
returns for 1926-1995, based on arithmetic mean returns as calculated
by Ibbotson and Associates (Source: same as above). Ibbotson defines the
small stock index as those company's with an equity capitalization below
$171 million.
(8) Calculated using the CAPM, where Ru = Rf + (B* (Rm - Rf)) plus the small
company premium plus the company specific risk.
(9) Assumes that all 269,000 of the exercisable options at July 31, 1996 are
exercised at $4.625 per share.
Hilcoast Development Corp. Confidential
<PAGE> 72
Patricof & Co. Capital Corp. APPENDIX B-3
HILCOAST DEVELOPMENT CORP. - CASE A
DISCOUNTED CASH FLOW VALUATION SUMMARY
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1997 FISCAL YEAR ENDED JULY 31, 1998
-------------------------------------- ------------------------------------
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flow before taxes and interest $ 2,386 $2,260 $3,414 $3,883 $5,020 $2,774 $9,791 $5,893
Net taxes (1) (87) (87) (87) (87) (87) (87) (87) (87)
Working capital 0 0 0 0 0 (478) (478) (478)
Escrow 0 0 0 0 0 0 0 (560)
------- ------ ------ ------ ------ ------ ------ ------
Free cash flow from Build Out 2,299 2,173 3,327 3,796 4,933 2,209 9,226 4,768
Value of rec leases at 7/31/98 34,496
Additional Cash Flows for Case B:
Boca Administration Building $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Commercial Buildings at CV 0 0 0 0 0 0 0 0
Sales of Tract A and Tract T 0 0 0 0 0 0 0 0
Golf Course after Build Out (2) 0 0 0 0 0 0 0 0
Value of NewCen Realty, Pines Master Mgt. 0 0 0 0 0 0 0 0
Litigation 0 0 0 0 0 0 0 0
Net value of Glen Abbey 0 0 0 0 0 0 0 0
------- ------ ------ ------ ------ ------ ------ ------
Total 0 0 0 0 0 0 0 0
Total cash flow 2,299 2,173 3,327 3,796 4,933 2,209 9,226 39,264
Discounted @ Ru (3) 2,299 2,109 3,133 3,469 4,375 1,901 7,705 31,819
Total Present Value of Enterprise $57,586
Net Debt (excl. Glen Abbey) (4) (44,007)
-------
Implied Equity Value $13,579
Implied Equity Value per Share $ 5.75
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1999
---------------------------------------
1Q 2Q 3Q 4Q
------ ------ ------ ------
<S> <C> <C> <C> <C>
Cash flow before taxes and interest $2,254
Net taxes (1) (87)
Working capital (479)
Escrow (700)
------
Free cash flow from Build Out 988
Value of rec leases at 7/31/98
Additional Cash Flows for Case B:
Boca Administration Building $ 0 $ 0 $ 0 $ 0
Commercial Buildings at CV 0 0 0 0
Sales of Tract A and Tract T 0 0 0 0
Golf Course after Build Out (2) 0 0 0 0
Value of NewCen Realty, Pines Master Mgt. 0 0 0 0
Litigation 0 0 0 0
Net value of Glen Abbey 0 0 0 0
------ ------ ------ ------
Total 0 0 0 0
Total cash flow 988 0 0 0
Discounted @ Ru (3) 777 0 0 0
Total Present Value of Enterprise
Net Debt (excl. Glen Abbey) (4)
Implied Equity Value
Implied Equity Value per Share
</TABLE>
- --------------------
(1) Taxes paid are lowered to include the effects of the interest rate tax
shield, as opposed to calculating its value separately.
(2) The Golf Course becomes part of the recreation leases one year after the
Build Out. 1999 projections are based on 1998 projections and are net of
taxes at a rate of 37.6%.
(3) Discount back to October 31, 1996.
(4) Excludes the Glen Abbey debt and restricted cash. The Glen Abbey debt is
netted against the value of the project.
Hilcoast Development Corp. Confidential
<PAGE> 73
Patricof & Co. Capital Corp. APPENDIX B-4
HILCOAST DEVELOPMENT CORP. - CASE A
BUILD OUT PROJECTIONS - DELIVERIES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF UNITS SOLD
----------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JULY 31, 1997 FISCAL YEAR ENDED JULY 31, 1998
AVE. SALES ----------------------------------------------- ---------------------------------------------
PRICE 1Q 2Q 3Q 4Q TOTAL 1Q 2Q 3Q 4Q TOTAL
-------- ------ ------ ------ ------ ------- ------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPLETED
Suffolk H $102 3 0 0 0 3 0 0 0 0 0
Suffolk K 75 5 3 1 0 9 0 0 0 0 0
Suffolk L 94 2 1 1 0 4 0 0 0 0 0
Suffolk M 87 10 2 2 0 14 0 0 0 0 0
Suffolk N 82 3 3 3 3 12 0 0 0 0 0
Falmouth D 88 1 0 0 0 1 0 0 0 0 0
Falmouth E 102 1 1 1 0 3 0 0 0 0 0
Falmouth F 77 4 1 1 0 6 1 0 0 0 1
UNDER CONSTRUCTION
Suffolk O 87 40 6 2 0 48 0 0 0 0 0
Falmouth C 73 35 15 5 1 56 0 0 0 0 0
Falmouth B 73 0 43 4 4 51 2 2 1 0 5
Falmouth A 78 0 33 6 4 43 2 2 0 0 4
Plymouth R 94 0 0 40 10 50 3 3 0 0 6
Plymouth S 76 0 0 36 10 46 3 3 2 2 10
Plymouth Q 76 0 0 0 45 45 4 3 3 3 13
Plymouth P 94 0 0 0 34 34 10 5 4 3 22
Plymouth O 76 0 0 0 0 0 42 4 4 4 54
Plymouth N 90 0 0 0 0 0 35 9 4 4 52
Plymouth M 90 0 0 0 0 0 0 30 10 5 45
Plymouth K 90 0 0 0 0 0 0 0 45 7 52
Plymouth J 90 0 0 0 0 0 0 0 35 7 42
Plymouth H 76 0 0 0 0 0 0 0 24 15 39
Plymouth L 76 0 0 0 0 0 0 0 0 40 40
Gross sales $8,518 $8,248 $8,563 $9,239 $34,568 $8,475 $5,324 $11,417 $7,216 $32,432
Incentive discounts (147) (95) (50) (25) (317) 0 0 0 (200) (200)
------ ------ ------ ------ ------- ------ ------ ------- ------ -------
Net sales $8,371 $8,153 $8,513 $9,214 $34,251 $8,475 $5,324 $11,417 $7,016 $32,232
====== ====== ====== ====== ======= ====== ====== ======= ====== =======
<CAPTION>
NUMBER OF
UNITS SOLD
---------- PROJECT
1Q TOTAL
------ -------
<S> <C> <C>
COMPLETED
Suffolk H 0 3
Suffolk K 0 9
Suffolk L 0 4
Suffolk M 0 14
Suffolk N 0 12
Falmouth D 0 1
Falmouth E 0 3
Falmouth F 0 7
UNDER CONSTRUCTION
Suffolk O 0 48
Falmouth C 0 56
Falmouth B 0 56
Falmouth A 1 48
Plymouth R 0 56
Plymouth S 0 56
Plymouth Q 2 60
Plymouth P 0 56
Plymouth O 2 56
Plymouth N 4 56
Plymouth M 3 48
Plymouth K 4 56
Plymouth J 6 48
Plymouth H 21 60
Plymouth L 16 56
Gross sales $4,724 $71,724
Incentive discounts (300) (817)
------ -------
Net sales $4,424 $70,907
====== =======
</TABLE>
Hilcoast Development Corp. Confidential
<PAGE> 74
Patricof & Co. Capital Corp. APPENDIX B-5
HILCOAST DEVELOPMENT CORP. - CASE A
BUILD OUT PROJECTIONS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1997
-----------------------------------------------
1Q 2Q 3Q 4Q TOTAL
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Closings- number of deliveries 104 108 102 111 425
Net sales revenues $8,371 $8,153 $8,513 $9,214 $34,251
Building costs 4,600 4,600 4,400 4,400 18,000
Onsite improvements 750 750 500 500 2,500
Community wide improvements 30 30 25 275 360
Real estate taxes 0 90 0 0 90
Contingencies 10 10 10 10 40
Warranty reserve 0 0 0 0 0
Rec facilities
Health club 130 0 0 0 130
Satellite pools 50 100 20 0 170
------ ------ ------ ------ --------
Total construction expenses 5,570 5,580 4,955 5,185 21,290
Selling and marketing 1,000 1,100 1,000 900 4,000
General and administrative 100 100 100 100 400
------ ------ ------ ------ --------
Total non-construction expenses 1,100 1,200 1,100 1,000 4,400
Net cash flow from Build Out 1,701 1,373 2,458 3,029 8,561
NewCen Golf Course (70) 50 160 (30) 110
NewCen Realty 60 100 20 40 220
Pines Master Management 10 20 10 10 50
Boca Administration Building (20) (20) (20) (20) (80)
Recreation Leases 850 900 950 1,000 3,700
Hilcoast Title 25 27 26 24 102
Severance payments 0 0 0 0 0
Corporate overhead (net advisory fee) (170) (190) (190) (170) (720)
------ ------ ------ ------ --------
Cash Flow before Interest, Taxes, and 2,386 2,260 3,414 3,883 11,943
Changes in Working Capital
Interest expense (2) (1,198) (1,168) (1,133) (1,048)
Taxes (3) (87) (87) (87) (87)
------ ------ ------ ------
Cash flow before WC changes 1,101 1,005 2,194 2,748
Working capital (4) 0 0 0 0
Escrow (5) 0 0 0 0
------ ------ ------ ------
Available cash flow for debt repayment $1,101 $1,005 $2,194 $2,748
====== ====== ====== ======
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1998 1999 (1)
--------------------------------------------- --------
1Q 2Q 3Q 4Q TOTAL 1Q
------ ------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Closings- number of deliveries 102 61 132 90 385 59
Net sales revenues $8,475 $ 5,324 $ 11,417 $ 7,016 $32,232 $4,424
Building costs 2,600 2,000 1,550 1,000 7,150 300
Onsite improvements 500 400 300 270 1,470 100
Community wide improvements 10 0 0 0 10 0
Real estate taxes 0 40 0 0 40 0
Contingencies 60 90 100 100 350 100
Warranty reserve 0 0 0 50 50 250
Rec facilities
Health club 0 0 0 0 0 0
Satellite pools 50 100 20 0 170 0
------ ------- -------- ------- ------- ------
Total construction expenses 3,220 2,630 1,970 1,420 9,240 750
Selling and marketing 1,000 900 700 600 3,200 500
General and administrative 100 80 70 60 310 50
------ ------- -------- ------- ------- ------
Total non-construction expenses 1,100 980 770 660 3,510 550
Net cash flow from Build Out 4,155 1,714 8,677 4,936 19,482 3,124
NewCen Golf Course (70) 50 160 (30) 110 0
NewCen Realty 60 100 20 40 220 0
Pines Master Management 10 20 10 10 50 0
Boca Administration Building 0 0 0 0 0 0
Recreation Leases 1,020 1,030 1,040 1,050 4,140 0
Hilcoast Title 15 20 34 27 96 10
Severance payments 0 0 0 0 0 (750)
Corporate overhead (net advisory fee) (170) (160) (150) (140) (620) (130)
------ ------- -------- ------- ------- ------
Cash Flow before Interest, Taxes, and 5,020 2,774 9,791 5,893 23,478 2,254
Changes in Working Capital
Interest expense (2) (960) (899) (818) (721) 0
Taxes (3) (87) (87) (87) (87) (87)
------ ------- -------- ------- ------
Cash flow before WC changes 3,973 1,788 8,886 5,085 2,167
Working capital (4) 0 (478) (478) (478) (479)
Escrow (5) 0 0 0 (560) (700)
------ ------- -------- ------- ------
Available cash flow for debt repayment $3,973 $ 1,310 $ 8,408 $ 4,047 $ 988
====== ======= ======== ======= ======
</TABLE>
(1) The first quarter of 1999 excludes cash flow from the Golf Course, NewCen
Realty, Pines Master Management and the recreation leases, as they are
accounted for elsewhere in Case B.
(2) Interest expense excludes interest (as the revenues exclude Glen Abbey
revenues) on the Glen Abbey Note because Glen Abbey is valued elsewhere.
(3) Taxes are calculated based upon Hilcoast management estimate that income
taxes payable in 1997 and 1998 would be $391,000 in each year under
their most optimistic scenario. This same aggregate amount of tax is then
spread evenly among the nine quarters of the build out.
(4) The net cash effect of the elimination of $2.5 million of non-construction
accounts payable netted against $1 million of other assets.
(5) The net cash effect of the elimination of $2.0 million of customer
deposits, offset by $773,000 of restricted cash.
Hilcoast Development Corp. Confidential
<PAGE> 75
Patricof & Co. Capital Corp. APPENDIX B-6
HILCOAST DEVELOPMENT CORP. - CASE A
BUILD OUT DEBT SCHEDULE - CREDIT LINES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PRIME 8.25% FISCAL YEAR ENDED JULY 31, 1997
-----------------------------------------------
1Q 2Q 3Q 4Q TOTAL
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
CONSTRUCTION LOAN I - $7.5 MILLION
Beginning balance $7,500 $7,500 $7,500 $7,500
Principal reductions 0 0 0 (568) (568)
------ ------ ------ ------
Ending balance 7,500 7,500 7,500 6,932
Interest expense (1) 11.00% 206 206 206 198 817
Maximum available (at beg.) $7,500 $7,500 $7,500 $7,500
Fee on unused portion 1.80% 0 0 0 1 1
CONSTRUCTION LOAN II - $7.5-$10.5 MILLION
Beginning balance $3,000 $3,000 $3,000 $2,179
Principal reductions 0 0 (821) (2,179) (3,000)
------ ------ ------ ------
Ending balance 3,000 3,000 2,179 0
Interest expense (1) 11.25% 84 84 73 31 272
Maximum available (at beg.) $3,000 $3,000 $3,000 $3,000
Fee on unused portion 0.90% 0 0 1 4 5
CONSTRUCTION LOAN III - $10.5-$13.0 MILLION
Beginning balance $2,500 $2,030 $1,373 $ 0
Principal reductions (470) (657) (1,373) 0 (2,500)
------ ------ ------ ------
Ending balance 2,030 1,373 0 0
Interest expense (1) 12.50% 71 53 21 0 145
Maximum available (at beg.) $2,500 $2,500 $2,500 $ 500
Fee on unused portion 0.90% 1 2 4 1 8
CONSTRUCTION LOAN IV - >$13.0 MILLION
Beginning balance $415 $ 0 $ 0 $ 0
Principal reductions (415) 0 0 0 (415)
------ ------ ------ ------
Ending balance 0 0 0 0
Interest expense (1) 12.00% 6 0 0 0 6
Maximum available (at beg.) $2,000 $2,000 $ 0 $ 0
Fee on unused portion 0.90% 4 5 0 0 9
<CAPTION>
PRIME FISCAL YEAR ENDED JULY 31, 1997
---------------------------------------------
1Q 2Q 3Q 4Q TOTAL
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
CONSTRUCTION LOAN I - $7.5 MILLION
Beginning balance $6,932 $2,959 $1,649 $ 0 $6,932
Principal reductions (3,973) (1,310) (1,649) 0 (6,932)
------ ------ ------ ------
Ending balance 2,959 1,649 0 0
Interest expense (1) 136 63 23 0 222
Maximum available (at beg.) $7,500 $7,500 $7,500 $7,500
Fee on unused portion 11 23 30 34 99
CONSTRUCTION LOAN II - $7.5-$10.5 MILLION
Beginning balance $ 0 $ 0 $ 0 $ 0
Principal reductions 0 0 0 0 0
------ ------ ------ ------
Ending balance 0 0 0 0
Interest expense (1) 0 0 0 0 0
Maximum available (at beg.) $ 0 $ 0 $ 0 $ 0
Fee on unused portion 0 0 0 0 0
CONSTRUCTION LOAN III - $10.5-$13.0 MILLION
Beginning balance $ 0 $ 0 $ 0 $ 0
Principal reductions 0 0 0 0 0
------ ------ ------ ------
Ending balance 0 0 0 0
Interest expense (1) 0 0 0 0 0
Maximum available (at beg.) $ 0 $ 0 $ 0 $ 0
Fee on unused portion 0 0 0 0 0
CONSTRUCTION LOAN IV - >$13.0 MILLION
Beginning balance $ 0 $ 0 $ 0 $ 0
Principal reductions 0 0 0 0 0
------ ------ ------ ------
Ending balance 0 0 0 0
Interest expense (1) 0 0 0 0 0
Maximum available (at beg.) $ 0 $ 0 $ 0 $ 0
Fee on unused portion 0 0 0 0 0
</TABLE>
- --------------------
(1) Calculated using the average of the debt outstanding at the beginning and
the end of each quarter.
Hilcoast Development Corp. Confidential
<PAGE> 76
Patricof & Co. Capital Corp. APPENDIX B-7
HILCOAST DEVELOPMENT CORP. - CASE A
BUILD OUT DEBT SCHEDULE - OTHER DEBT
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1997
-----------------------------------------------
1Q 2Q 3Q 4Q TOTAL
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
TERM LOAN
Beginning balance $25,000 $25,000 $25,000 $25,000
Principal reductions 0 0 0 0 0
------- ------- ------- -------
Ending balance 25,000 25,000 25,000 25,000
Interest expense (1) 11.00% 688 688 688 688 2,750
TRACT F LOAN
Beginning balance $ 564 $ 348 $ 0 $ 0
Release price (216) (348) 0 0 (564)
------- ------- ------- -------
Ending balance 348 0 0 0
Interest expense (1) 12.00% 14 5 0 0 19
PREFERRED STOCK REDEMPTION NOTE
Beginning balance $ 5,000 $ 5,000 $ 5,000 $ 5,000
Principal reductions 0 0 0 0 0
------- ------- ------- -------
Ending balance 5,000 5,000 5,000 5,000
Interest expense (1) 10.00% 125 125 125 125 500
DEBT SERVICE CALCULATION
Interest $ 1,194 $ 1,162 $ 1,113 $ 1,042 $ 4,510
Fee on unused portion 5 6 5 7 23
Letter of credit fee 0 0 15 0 15
------- ------- ------- ------- -------
Total Interest Expense 1,198 1,168 1,133 1,048 4,548
Principal reductions 1,101 1,005 2,194 2,748 7,047
------- ------- ------- ------- -------
Total Debt Service $ 2,299 $ 2,173 $ 3,327 $ 3,796 $11,595
======= ======= ======= ======= =======
Available Cash Flow $ 1,101 $ 1,005 $ 2,194 $ 2,748
Release 216 348 0 0
------- ------- ------- -------
Available for Construction Loan Repayment $ 885 $ 657 $ 2,194 $ 2,748
======= ======= ======= =======
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1997
---------------------------------------------
1Q 2Q 3Q 4Q TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
TERM LOAN
Beginning balance $25,000 $25,000 $25,000 $25,000
Principal reductions 0 0 0 0 0
------- ------- ------- -------
Ending balance 25,000 25,000 25,000 25,000
Interest expense (1) 688 688 688 688 2,750
TRACT F LOAN
Beginning balance $ 0 $ 0 $ 0 $ 0
Release price 0 0 0 0 0
------- ------- ------- -------
Ending balance 0 0 0 0
Interest expense (1) 0 0 0 0 0
PREFERRED STOCK REDEMPTION NOTE
Beginning balance $ 5,000 $ 5,000 $ 5,000 $ 0
Principal reductions 0 0 (5,000) 0 (5,000)
------- ------- ------- -------
Ending balance 5,000 5,000 0 0
Interest expense (1) 125 125 63 0 313
DEBT SERVICE CALCULATION
Interest $ 948 $ 876 $ 773 $ 688 $3,285
Fee on unused portion 11 23 30 34 99
Letter of credit fee 0 0 15 0 15
------- ------- ------- ------- ------
Total Interest Expense 960 899 818 721 3,398
Principal reductions 3,973 1,310 6,649 0 3,512
------- ------- ------- ------- ------
Total Debt Service $ 4,933 $ 2,209 $ 7,466 $ 721 $6,910
======= ======= ======= ======= ======
Available Cash Flow $ 3,973 $ 1,310 $ 8,408 $ 4,047
Release 0 0 0 0
------- ------- ------- -------
Available for Construction Loan
Repayment $ 3,973 $ 1,310 $ 8,408 $ 4,047
======= ======= ======= =======
</TABLE>
- --------------------
(1) Calculated using the average of the debt outstanding at the beginning and
the end of each quarter.
Hilcoast Development Corp. Confidential
<PAGE> 77
Patricof & Co. Capital Corp. APPENDIX B-8
HILCOAST DEVELOPMENT CORP. - CASE A
RECREATION LEASE DCF ANALYSIS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
OPERATING DISCOUNTED
YEAR ENDED CASH TAX OPERATING TAX FREE CASH FREE CASH
JULY 31, FLOW DEPR. INCOME TAXES (1) INCOME DEPR. FLOW FLOW
---------- --------- ------ --------- --------- ------ ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $4,174 ($969) $3,205 ($1,205) $2,000 $969 $ 2,969 $ 2,796
2000 4,285 (849) 3,436 (1,292) 2,144 849 2,993 2,499
2001 4,418 (738) 3,680 (1,384) 2,296 738 3,034 2,247
2002 4,559 (733) 3,826 (1,439) 2,387 733 3,120 2,049
2003 4,669 (695) 3,974 (1,494) 2,480 695 3,175 1,849
2004 4,774 (693) 4,081 (1,534) 2,547 693 3,240 1,673
2005 4,872 (693) 4,179 (1,571) 2,608 693 3,301 1,512
2006 4,961 (693) 4,268 (1,605) 2,663 693 3,356 1,363
2007 5,047 (693) 4,354 (1,637) 2,717 693 3,410 1,228
2008 5,128 (601) 4,527 (1,702) 2,825 601 3,426 1,094
2009 5,208 (494) 4,714 (1,772) 2,942 494 3,436 973
2010 5,287 (468) 4,819 (1,812) 3,007 468 3,475 873
2011 5,366 (439) 4,927 (1,853) 3,074 439 3,513 783
2012 5,441 (419) 5,022 (1,888) 3,134 419 3,553 702
2013 5,517 (414) 5,103 (1,919) 3,184 414 3,598 630
2014 5,591 (404) 5,187 (1,950) 3,237 404 3,641 565
2015 5,639 (400) 5,239 (1,970) 3,269 400 3,669 505
2016 5,685 (400) 5,285 (1,987) 3,298 400 3,698 452
2017 5,720 (399) 5,321 (2,001) 3,320 399 3,719 403
2018 5,745 (399) 5,346 (2,010) 3,336 399 3,735 359
2019 5,763 (399) 5,364 (2,017) 3,347 399 3,746 319
2020 5,775 (399) 5,376 (2,021) 3,355 399 3,754 284
2021 5,783 (399) 5,384 (2,024) 3,360 399 3,759 252
2022 5,784 (399) 5,385 (2,025) 3,360 399 3,759 223
2023 5,779 (399) 5,380 (2,023) 3,357 399 3,756 198
2024 5,769 (299) 5,470 (2,057) 3,413 299 3,712 173
-------
Total $26,004
=======
TERMINAL VALUE
2025 5,750 (27) 5,723 (2,152) 3,571 27 $ 3,598
Terminal Value in 2024, calculated as a perpetuity using 2025 free cash flow at Ru: $28,186
Discounted to 1998 at Ru: 1,317
Ru = 12.8%
Present Value of Free Cash Flow at 7/31/98 $26,004
Present Value of Interest Tax Shield at 7/31/98 7,175
Terminal Value of Free Cash Flow at 7/31/98 1,317
-------
Total Value of Recreational Leases at 7/31/98 $34,496
=======
<CAPTION>
DISCOUNTED
YEAR ENDED INTEREST TAX (1) TAX
JULY 31, EXPENSE SHIELD SHIELD
---------- -------- ------- ----------
<S> <C> <C> <C>
1999 $2,740 $1,030 $ 970
2000 2,717 1,022 853
2001 2,691 1,012 749
2002 2,662 1,001 657
2003 2,630 989 576
2004 2,594 975 504
2005 2,554 960 440
2006 2,509 943 383
2007 2,459 925 333
2008 2,403 904 289
2009 2,341 880 249
2010 2,272 854 215
2011 2,195 825 184
2012 2,109 793 157
2013 2,013 757 133
2014 1,905 716 111
2015 1,785 671 92
2016 1,652 621 76
2017 1,503 565 61
2018 1,336 502 48
2019 1,151 433 37
2020 944 355 27
2021 713 268 18
2022 455 171 10
2023 167 63 3
2024 0 0 0
------
Total $7,175
======
</TABLE>
- -------------------
(1) Assumes a tax rate of 37.6%.
Hilcoast Development Corp. Confidential
<PAGE> 78
Patricof & Co. Capital Corp. APPENDIX C-1
HILCOAST DEVELOPMENT CORP. - CASE B
DISCOUNTED CASH FLOW ANALYSIS
TABLE OF CONTENTS
Calculation of the Unlevered Cost of Capital 2
Discounted Cash Flow Valuation Summary 3
Build Out Projections - Delivery 4
Build Out Projections - Cash Flow 5
Build Out Debt Schedule - Credit Lines 6
Build Out Debt Schedule - Other Debt 7
Recreation Lease DCF Analysis 8
Case B Additional Cash Flow Assumptions 9
Case B Additional Cash Flow Assumptions 10
Hilcoast Development Corp. Confidential
<PAGE> 79
Patricof & Co. Capital Corp. APPENDIX C-2
HILCOAST DEVELOPMENT CORP. - CASE B
CALCULATION OF THE UNLEVERED COST OF CAPITAL
($ IN THOUSANDS)
<TABLE>
<CAPTION>
LEVERED MV MV TAX E/ UNLEVERED
BETA (1) EQUITY (2) DEBT (3) RATE (4) (E+(1-t)D) BETA
-------- ---------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Hilcoast Development 0.60 $11,037 $45,348 37.6% 0.28 0.17
</TABLE>
Calculation of the Unlevered Cost of Capital Using the Capital Asset Pricing
Model (CAPM)
<TABLE>
<S> <C>
Unlevered beta of Hilcoast (B) 0.17
Market risk premium (Rm-Rf) (5) 7.40%
Risk free rate (Rf) (6) 6.92%
Small company premium (7) 3.60%
Company specific risk 1.50%
Unlevered cost of capital (Ru) (8) 13.3%
Hilcoast Value per Share $6.04
Hilcoast Value per Share (Diluted) (9) $5.72
</TABLE>
<TABLE>
<CAPTION>
DISCOUNT RATE SENSITIVITY DISCOUNT RATE SENSITIVITY
- ------------------------------------------------------------- -------------------------------------------------------------
12.5% 13.0% 13.5% 14.0% 14.5% 12.5% 13.0% 13.5% 14.0%
----------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Case A $6.06 $5.48 $4.93 $4.42 $3.94 Case A - Diluted $5.74 $5.19 $4.67 $4.19
Case B 6.98 6.35 5.77 5.22 4.70 Case B - Diluted 6.61 6.02 5.46 4.94
Average 6.52 5.92 5.35 4.82 4.32 Average 6.18 5.60 5.07 4.56
</TABLE>
NOTE: The unlevered cost of capital is used to discount the unlevered free cash
flows of the Company instead of the weighted average cost of capital ("WACC")
due to Hilcoast's continually changing capital structure. Discounting the free
cash flow before interest by Ru and adding the discounted value of the interest
rate tax shields will theoretically yield the same results as discounting the
free cash flow before interest by a WACC which fluctuates in each discounting
period according to a firm's changing capital structure.
- --------------------
(1) Based on a $4.6719 stock price, the 30-day average closing price as of
August 12, 1996, the last day the stock traded before the announced transaction.
(2) Source: Bloomberg.
(3) Assumes book value of debt approximates market value.
(4) Tax rate is assumed to be 37.6%, the long- term tax rate of Hilcoast after
the build out.
(5) Large company total stock returns minus long-term government bond income
returns (20 year U.S. Treasury coupon note yield) for 1926-1995, based on
arithmetic mean returns derived by Ibbotson & Associates. (Source: Stocks,
Bonds, Bills, and Inflation, 1995 Yearbook, by Ibbotson and Associates, Inc.)
(6) Represents the average closing interest rate on a twenty year U.S.
Treasury Note for the 40 trading days ended November 8, 1996, as reported by
the Wall Street Journal.
(7) Equals small company stock total returns minus large company stock total
returns for 1926-1995, based on arithmetic mean returns as calculated by
Ibbotson and Associates (Source: same as above). Ibbotson defines the small
stock index as those company's with an equity capitalization below $171 million.
(8) Calculated using the CAPM, where Ru = Rf + (B (Rm - Rf)) plus the small
company premium plus the company specific risk.
(9) Assumes that all 269,000 of the exercisable options at July 31, 1996 are
exercised at $4.625 per share.
Hilcoast Development Corp. Confidential
<PAGE> 80
Patricof & Co. Capital Corp. APPENDIX C-3
HILCOAST DEVELOPMENT CORP. - CASE B
DISCOUNTED CASH FLOW VALUATION SUMMARY
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1997 FISCAL YEAR ENDED JULY 31, 1998
------------------------------------- ------------------------------------
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flow before taxes and interest $2,386 $2,260 $3,414 $3,883 $5,020 $2,774 $9,791 $5,893
Net taxes (1) (87) (87) (87) (87) (87) (87) (87) (87)
Working capital 0 0 0 0 0 (478) (478) (478)
Escrow 0 0 0 0 0 0 0 (560)
------ ------ ------ ------ ------ ------ ------ ------
Free cash flow from Build Out 2,299 2,173 3,327 3,796 4,933 2,209 9,226 4,768
Value of rec leases at 7/31/98 33,277
Additional Cash Flows for Case B:
Boca Administration Building $ 0 $ 0 $ 172 $ 8 $ 8 $ 8 $ 8 $ 187
Commercial Buildings at CV 0 0 0 0 0 0 0 0
Sales of Tract A and Tract T 0 0 0 0 172 0 0 0
Golf Course after Build Out (2) 0 0 0 0 0 0 0 0
Value of NewCen Realty, Pines Master Mgt. 0 0 0 0 0 0 0 753
Litigation 0 0 0 0 0 132 0 0
Net value of Glen Abbey 123 0 0 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------ ------
Total 123 0 172 8 179 140 8 940
Total cash flow 2,422 2,173 3,499 3,804 5,112 2,349 9,234 38,985
Discounted @ Ru (3) 2,422 2,106 3,287 3,465 4,514 2,010 7,660 31,349
Total Present Value of Enterprise $58,267
Net Debt (excl. Glen Abbey) (4) (44,007)
------
Implied Equity Value $14,260
Implied Equity Value per Share $ 6.04
<CAPTION>
l FiSCAL YEAR ENDED JULY 31, 1999
-------------------------------------
1Q 2Q 3Q 4Q
------ -------- ------- -------
<S> <C> <C> <C> <C>
Cash flow before taxes and interest $ 2,254
Net taxes (1) (87)
Working capital (479)
Escrow (700)
-------
Free cash flow from Build Out 988
Value of rec leases at 7/31/98
Additional Cash Flows for Case B:
Boca Administration Building $ 0 $ 0 $ 0 $ 0
Commercial Buildings at CV 814 0 0 0
Sales of Tract A and Tract T 0 0 0 0
Golf Course after Build Out (2) (44) 31 100 (19)
Value of NewCen Realty, Pines Master Mgt. 0 0 0 0
Litigation 0 0 0 0
Net value of Glen Abbey 0 0 0 0
------ -------- ------- -------
Total 771 31 100 (19)
Total cash flow 1,759 31 100 (19)
Discounted @ Ru (3) 1,371 24 73 (13)
Total Present Value of Enterprise
Net Debt (excl. Glen Abbey) (4)
Implied Equity Value
Implied Equity Value per Share
</TABLE>
- --------------------
(1) Taxes paid are lowered to include the effects of the interest rate tax
shield, as opposed to calculating its value separately.
(2) The Golf Course becomes part of the recreation leases one year after the
Build Out. 1999 projections are based on 1998 projections and are net of
taxes at a rate of 37.6%.
(3) Discount back to October 31, 1996.
(4) Excludes the Glen Abbey debt and restricted cash. The Glen Abbey debt is
netted against the value of the project.
Hilcoast Development Corp. Confidential
<PAGE> 81
Patricof & Co. Capital Corp. APPENDIX C-4
HILCOAST DEVELOPMENT CORP. - CASE B
BUILD OUT PROJECTIONS - DELIVERIES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF UNITS SOLD
----------------------------------------------------------------------------------------
FISCAL YEAR ENDED JULY 31, 1997 FISCAL YEAR ENDED JULY 31, 1998
AVE. SALES -------------------------------------- -------------------------------------------
PRICE 1Q 2Q 3Q 4Q TOTAL 1Q 2Q 3Q 4Q TOTAL
---------- ---- ----- ----- ----- ----- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPLETED
Suffolk H $102 3 0 0 0 3 0 0 0 0 0
Suffolk K 75 5 3 1 0 9 0 0 0 0 0
Suffolk L 94 2 1 1 0 4 0 0 0 0 0
Suffolk M 87 10 2 2 0 14 0 0 0 0 0
Suffolk N 82 3 3 3 3 12 0 0 0 0 0
Falmouth D 88 1 0 0 0 1 0 0 0 0 0
Falmouth E 102 1 1 1 0 3 0 0 0 0 0
Falmouth F 77 4 1 1 0 6 1 0 0 0 1
UNDER CONSTRUCTION
Suffolk O 87 40 6 2 0 48 0 0 0 0 0
Falmouth C 73 35 15 5 1 56 0 0 0 0 0
Falmouth B 73 0 43 4 4 51 2 2 1 0 5
Falmouth A 78 0 33 6 4 43 2 2 0 0 4
Plymouth R 94 0 0 40 10 50 3 3 0 0 6
Plymouth S 76 0 0 36 10 46 3 3 2 2 10
Plymouth Q 76 0 0 0 45 45 4 3 3 3 13
Plymouth P 94 0 0 0 34 34 10 5 4 3 22
Plymouth O 76 0 0 0 0 0 42 4 4 4 54
Plymouth N 90 0 0 0 0 0 35 9 4 4 52
Plymouth M 90 0 0 0 0 0 0 30 10 5 45
Plymouth K 90 0 0 0 0 0 0 0 45 7 52
Plymouth J 90 0 0 0 0 0 0 0 35 7 42
Plymouth H 76 0 0 0 0 0 0 0 24 15 39
Plymouth L 76 0 0 0 0 0 0 0 0 40 40
Gross sales $8,518 $8,248 $8,563 $9,239 $34,568 $8,475 $5,324 $11,417 $7,216 $32,432
Incentive discounts (147) (95) (50) (25) (317) 0 0 0 (200) (200)
------ ------ ------ ------ ------- ------ ------ ------- ------ -------
Net sales $8,371 $8,153 $8,513 $9,214 $34,251 $8,475 $5,324 $11,417 $7,016 $32,232
====== ====== ====== ====== ======= ====== ====== ======= ====== =======
<CAPTION>
NUMBER OF
UNITS SOLD
-----------
FISCAL YEAR
ENDED JULY 31, 1998
------------------- PROJECT
1Q TOTAL
------- -------
<S> <C> <C>
COMPLETED
Suffolk H 0 3
Suffolk K 0 9
Suffolk L 0 4
Suffolk M 0 14
Suffolk N 0 12
Falmouth D 0 1
Falmouth E 0 3
Falmouth F 0 7
UNDER CONSTRUCTION
Suffolk O 0 48
Falmouth C 0 56
Falmouth B 0 56
Falmouth A 1 48
Plymouth R 0 56
Plymouth S 0 56
Plymouth Q 2 60
Plymouth P 0 56
Plymouth O 2 56
Plymouth N 4 56
Plymouth M 3 48
Plymouth K 4 56
Plymouth J 6 48
Plymouth H 21 60
Plymouth L 16 56
Gross sales $4,724 $ 71,724
Incentive discounts (300) (817)
------ --------
Net sales $4,424 $ 70,907
====== ========
</TABLE>
Hilcoast Development Corp. Confidential
<PAGE> 82
Patricof & Co. Capital Corp. APPENDIX C-5
HILCOAST DEVELOPMENT CORP. - CASE B2
BUILD OUT PROJECTIONS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1997
------------------------------------------
1Q 2Q 3Q 4Q TOTAL
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Closings- number of deliveries 104 108 102 111 425
Net sales revenues $8,371 $8,153 $8,513 $9,214 $34,251
Building costs 4,600 4,600 4,400 4,400 18,000
Onsite improvements 750 750 500 500 2,500
Community wide improvements 30 30 25 275 360
Real estate taxes 0 90 0 0 90
Contingencies 10 10 10 10 40
Warranty reserve 0 0 0 0 0
Rec facilities
Health club 130 0 0 0 130
Satellite pools 50 100 20 0 170
------ ------ ------ ------ -------
Total construction expenses 5,570 5,580 4,955 5,185 21,290
Selling and marketing 1,000 1,100 1,000 900 4,000
General and administrative 100 100 100 100 400
------ ------ ------ ------ -------
Total non-construction expenses 1,100 1,200 1,100 1,000 4,400
Net cash flow from Build Out 1,701 1,373 2,458 3,029 8,561
NewCen Golf Course (70) 50 160 (30) 110
NewCen Realty 60 100 20 40 220
Pines Master Management 10 20 10 10 50
Boca Administration Building (20) (20) (20) (20) (80)
Recreation Leases 850 900 950 1,000 3,700
Hilcoast Title 25 27 26 24 102
Severance payments 0 0 0 0 0
Corporate overhead (net advisory fee) (170) (190) (190) (170) (720)
------ ------ ------ ------ -------
Cash Flow before Interest, Taxes, and 2,386 2,260 3,414 3,883 11,943
Changes in Working Capital
Interest expense (2) (1,198) (1,168) (1,133) (1,048)
Taxes (3) (87) (87) (87) (87)
------ ------ ------ ------
Cash flow before WC changes 1,101 1,005 2,194 2,748
Working capital (4) 0 0 0 0
Escrow (5) 0 0 0 0
------ ------ ------ ------
Available cash flow for debt repayment $1,101 $1,005 $2,194 $2,748
====== ====== ====== ======
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1998 1999 (1)
--------------------------------------------- --------
1Q 2Q 3Q 4Q TOTAL 1Q
------ ------ ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Closings- number of deliveries 102 61 132 90 385 59
Net sales revenues $8,475 $5,324 $11,417 $7,016 $32,232 $4,424
Building costs 2,600 2,000 1,550 1,000 7,150 300
Onsite improvements 500 400 300 270 1,470 100
Community wide improvements 10 0 0 0 10 0
Real estate taxes 0 40 0 0 40 0
Contingencies 60 90 100 100 350 100
Warranty reserve 0 0 0 50 50 250
Rec facilities
Health club 0 0 0 0 0 0
Satellite pools 50 100 20 0 170 0
------ ------ ------- ------ ------- -------
Total construction expenses 3,220 2,630 1,970 1,420 9,240 750
Selling and marketing 1,000 900 700 600 3,200 500
General and administrative 100 80 70 60 310 50
------ ------ ------- ------ ------- -------
Total non-construction expenses 1,100 980 770 660 3,510 550
Net cash flow from Build Out 4,155 1,714 8,677 4,936 19,482 3,124
NewCen Golf Course (70) 50 160 (30) 110 0
NewCen Realty 60 100 20 40 220 0
Pines Master Management 10 20 10 10 50 0
Boca Administration Building 0 0 0 0 0 0
Recreation Leases 1,020 1,030 1,040 1,050 4,140 0
Hilcoast Title 15 20 34 27 96 10
Severance payments 0 0 0 0 0 (750)
Corporate overhead (net advisory fee) (170) (160) (150) (140) (620) (130)
------ ------ ------- ------ ------- -------
Cash Flow before Interest, Taxes, and 5,020 2,774 9,791 5,893 23,478 2,254
Changes in Working Capital
Interest expense (2) (960) (899) (818) (721) 0
Taxes (3) (87) (87) (87) (87) (87)
------ ------ ------- ------ -------
Cash flow before WC changes 3,973 1,788 8,886 5,085 2,167
Working capital (4) 0 (478) (478) (478) (479)
Escrow (5) 0 0 0 (560) (700)
------ ------ ------- ------ -------
Available cash flow for debt repayment $3,973 $1,310 $ 8,408 $4,047 $ 988
====== ====== ======= ====== =======
</TABLE>
- --------------------
(1) The first quarter of 1999 excludes cash flow from the Golf Course, NewCen
Realty, Pines Master Management and the recreation leases, as they are
accounted for elsewhere in Case B.
(2) Interest expense excludes interest (as the revenues exclude Glen Abbey
revenues) on the Glen Abbey Note because Glen Abbey is valued elsewhere.
(3) Taxes are calculated based upon Hilcoast management estimate that income
taxes payable in 1997 and 1998 would be $391,000 in each year under their most
optimistic scenario. This same aggregate amount of tax is then spread evenly
among the nine quarters of the build out.
(4) The net cash effect of the elimination of $2.5 million of non-construction
accounts payable netted against $1 million of other assets.
(5) The net cash effect of the elimination of $2.0 million of customer
deposits, offset by $773,000 of restricted cash.
Hilcoast Development Corp. Confidential
<PAGE> 83
Patricof & Co. Capital Corp. APPENDIX C-6
HILCOAST DEVELOPMENT CORP. - CASE B
BUILD OUT DEBT SCHEDULE - CREDIT LINES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Prime 8.25% FISCAL YEAR ENDED JULY 31, 1997
-----------------------------------------
1Q 2Q 3Q 4Q TOTAL
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
CONSTRUCTION LOAN I - $7.5 MILLION
Beginning balance $7,500 $7,500 $7,500 $7,500
Principal reductions 0 0 0 (568) (568)
------ ------ ------ ------
Ending balance 7,500 7,500 7,500 6,932
Interest expense (1) 11.00% 206 206 206 198 817
Maximum available (at beg.) $7,500 $7,500 $7,500 $7,500
Fee on unused portion 1.80% 0 0 0 1 1
CONSTRUCTION LOAN II - $7.5-$10.5 MILLION
Beginning balance $3,000 $3,000 $3,000 $2,179
Principal reductions 0 0 (821) (2,179) (3,000)
------ ------ ------ ------
Ending balance 3,000 3,000 2,179 0
Interest expense (1) 11.25% 84 84 73 31 272
Maximum available (at beg.) $3,000 $3,000 $3,000 $3,000
Fee on unused portion 0.90% 0 0 1 4 5
CONSTRUCTION LOAN III - $10.5-$13.0 MILLION
Beginning balance $2,500 $2,030 $1,373 $ 0
Principal reductions (470) (657) (1,373) 0 (2,500)
------ ------ ------ ------
Ending balance 2,030 1,373 0 0
Interest expense (1) 12.50% 71 53 21 0 145
Maximum available (at beg.) $2,500 $2,500 $2,500 $ 500
Fee on unused portion 0.90% 1 2 4 1 8
CONSTRUCTION LOAN IV - >$13.0 MILLION
Beginning balance $ 415 $ 0 $ 0 $ 0
Principal reductions (415) 0 0 0 (415)
------ ------ ------ ------
Ending balance 0 0 0 0
Interest expense (1) 12.00% 6 0 0 0 6
Maximum available (at beg.) $2,000 $2,000 $ 0 $ 0
Fee on unused portion 0.90% 4 5 0 0 9
<CAPTION>
Prime Fiscal Year Ended July 31, 1997
---------------------------------------------
1Q 2Q 3Q 4Q Total
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
CONSTRUCTION LOAN I - $7.5 MILLION
Beginning balance $6,932 $2,959 $1,649 $ 0 $6,932
Principal reductions (3,973) (1,310) (1,649) 0 (6,932)
------ ------ ------ ------
Ending balance 2,959 1,649 0 0
Interest expense (1) 136 63 23 0 222
Maximum available (at beg.) $7,500 $7,500 $7,500 $7,500
Fee on unused portion 11 23 30 34 99
CONSTRUCTION LOAN II - $7.5-$10.5 MILLION
Beginning balance $ 0 $ 0 $ 0 $ 0
Principal reductions 0 0 0 0 0
------ ------ ------ ------
Ending balance 0 0 0 0
Interest expense (1) 0 0 0 0 0
Maximum available (at beg.) $ 0 $ 0 $ 0 $ 0
Fee on unused portion 0 0 0 0 0
CONSTRUCTION LOAN III - $10.5-$13.0 MILLION
Beginning balance $ 0 $ 0 $ 0 $ 0
Principal reductions 0 0 0 0 0
------ ------ ------ ------
Ending balance 0 0 0 0
Interest expense (1) 0 0 0 0 0
Maximum available (at beg.) $ 0 $ 0 $ 0 $ 0
Fee on unused portion 0 0 0 0 0
CONSTRUCTION LOAN IV - >$13.0 MILLION
Beginning balance $ 0 $ 0 $ 0 $ 0
Principal reductions 0 0 0 0 0
------ ------ ------ ------
Ending balance 0 0 0 0
Interest expense (1) 0 0 0 0 0
Maximum available (at beg.) $ 0 $ 0 $ 0 $ 0
Fee on unused portion 0 0 0 0 0
</TABLE>
- --------------------
(1) Calculated using the average of the debt outstanding at the beginning and
the end of each quarter.
Hilcoast Development Corp. Confidential
<PAGE> 84
Patricof & Co. Capital Corp. APPENDIX C-7
HILCOAST DEVELOPMENT CORP. - CASE B
BUILD OUT DEBT SCHEDULE - OTHER DEBT
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1997
-----------------------------------------------
1Q 2Q 3Q 4Q TOTAL
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
TERM LOAN
Beginning balance $25,000 $25,000 $25,000 $25,000
Principal reductions 0 0 0 0 0
------- ------- ------- -------
Ending Balance 25,000 25,000 25,000 25,000
Interest expense (1) 11.00% 688 688 688 688 2,750
TRACT F LOAN
Beginning balance $ 564 $ 348 $ 0 $ 0
Release price (216) (348) 0 0 (564)
------- ------- ------- -------
Ending balance 348 0 0 0
Interest expense (1) 12.00% 14 5 0 0 19
PREFERRED STOCK REDEMPTION NOTE
Beginning balance $ 5,000 $ 5,000 $ 5,000 $ 5,000
Principal reductions 0 0 0 0 0
------- ------- ------- -------
Ending balance 5,000 5,000 5,000 5,000
Interest expense (1) 10.00% 125 125 125 125 500
DEBT SERVICE CALCULATION
Interest $ 1,194 $ 1,162 $ 1,113 $ 1,042 $ 4,510
Fee on unused portion 5 6 5 7 23
Letter of credit fee 0 0 15 0 15
------- ------- ------- ------- -------
Total Interest Expense 1,198 1,168 1,133 1,048 4,548
Principal reductions 1,101 1,005 2,194 2,748 7,047
------- ------- ------- ------- -------
Total Debt Service $ 2,299 $ 2,173 $ 3,327 $ 3,796 $11,595
======= ======= ======= ======= =======
Available Cash Flow $ 1,101 $ 1,005 $ 2,194 $ 2,748
Release 216 348 0 0
------- ------- ------- -------
Available for Construction Loan Repayment $ 885 $ 657 $ 2,194 $ 2,748
======= ======= ======= =======
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1997
---------------------------------------------
1Q 2Q 3Q 4Q TOTAL
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
TERM LOAN
Beginning balance $25,000 $25,000 $25,000 $25,000
Principal reductions 0 0 0 0 0
------- ------- ------- -------
Ending balance 25,000 25,000 25,000 25,000
Interest expense (1) 688 688 688 688 2,750
TRACT F LOAN
Beginning balance $ 0 $ 0 $ 0 $ 0
Release price 0 0 0 0 0
------- ------- ------- -------
Ending balance 0 0 0 0
Interest expense (1) 0 0 0 0 0
PREFERRED STOCK REDEMPTION NOTE
Beginning balance $ 5,000 $ 5,000 $ 5,000 $ 0
Principal reductions 0 0 (5,000) 0 (5,000)
------- ------- ------- -------
Ending balance 5,000 5,000 0 0
Interest expense (1) 125 125 63 0 313
DEBT SERVICE CALCULATION
Interest $ 948 $ 876 $ 773 $ 688 $ 3,285
Fee on unused portion 11 23 30 34 99
Letter of credit fee 0 0 15 0 15
------- ------- ------- ------- -------
Total Interest Expense 960 899 818 721 3,398
Principal reductions 3,973 1,310 6,649 0 3,512
------- ------- ------- ------- -------
Total Debt Service $ 4,933 $ 2,209 $ 7,466 $ 721 $ 6,910
======= ======= ======= ======= =======
Available Cash Flow $ 3,973 $ 1,310 $ 8,408 $ 4,047
Release 0 0 0 0
------- ------- ------- -------
Available for Construction Loan Repayment $ 3,973 $ 1,310 $ 8,408 $ 4,047
======= ======= ======= =======
</TABLE>
- --------------------
(1) Calculated using the average of the debt outstanding at the beginning and
the end of each quarter.
Hilcoast Development Corp. Confidential
<PAGE> 85
Patricof & Co. Capital Corp. APPENDIX C-8
HILCOAST DEVELOPMENT CORP. - CASE B
RECREATION LEASE DCF ANALYSIS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
OPERATING DISCOUNTED DISCOUNTED
YEAR ENDED CASH TAX OPERATING TAX FREE CASH FREE CASH INTEREST TAX (1) TAX
JULY 31, FLOW DEPR. INCOME TAXES (1) INCOME DEPR. FLOW FLOW EXPENSE SHIELD SHIELD
- --------------- --------- ------- --------- --------- ------ ----- -------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $4,174 ($969) $3,205 ($1,205) $2,000 $969 $2,969 $2,790 $2,740 $1,030 $968
2000 4,285 (849) 3,436 (1,292) 2,144 849 2,993 2,483 2,717 1,022 847
2001 4,418 (738) 3,680 (1,384) 2,296 738 3,034 2,222 2,691 1,012 741
2002 4,559 (733) 3,826 (1,439) 2,387 733 3,120 2,018 2,662 1,001 647
2003 4,669 (695) 3,974 (1,494) 2,480 695 3,175 1,812 2,630 989 565
2004 4,774 (693) 4,081 (1,534) 2,547 693 3,240 1,633 2,594 975 492
2005 4,872 (693) 4,179 (1,571) 2,608 693 3,301 1,469 2,554 960 427
2006 4,961 (693) 4,268 (1,605) 2,663 693 3,356 1,319 2,509 943 371
2007 5,047 (693) 4,354 (1,637) 2,717 693 3,410 1,183 2,459 925 321
2008 5,128 (601) 4,527 (1,702) 2,825 601 3,426 1,049 2,403 904 277
2009 5,208 (494) 4,714 (1,772) 2,942 494 3,436 929 2,341 880 238
2010 5,287 (468) 4,819 (1,812) 3,007 468 3,475 830 2,272 854 204
2011 5,366 (439) 4,927 (1,853) 3,074 439 3,513 740 2,195 825 174
2012 5,441 (419) 5,022 (1,888) 3,134 419 3,553 661 2,109 793 148
2013 5,517 (414) 5,103 (1,919) 3,184 414 3,598 591 2,013 757 124
2014 5,591 (404) 5,187 (1,950) 3,237 404 3,641 528 1,905 716 104
2015 5,639 (400) 5,239 (1,970) 3,269 400 3,669 470 1,785 671 86
2016 5,685 (400) 5,285 (1,987) 3,298 400 3,698 418 1,652 621 70
2017 5,720 (399) 5,321 (2,001) 3,320 399 3,719 371 1,503 565 56
2018 5,745 (399) 5,346 (2,010) 3,336 399 3,735 329 1,336 502 44
2019 5,763 (399) 5,364 (2,017) 3,347 399 3,746 291 1,151 433 34
2020 5,775 (399) 5,376 (2,021) 3,355 399 3,754 258 944 355 24
2021 5,783 (399) 5,384 (2,024) 3,360 399 3,759 228 713 268 16
2022 5,784 (399) 5,385 (2,025) 3,360 399 3,759 201 455 171 9
2023 5,779 (399) 5,380 (2,023) 3,357 399 3,756 178 167 63 3
2024 5,769 (299) 5,470 (2,057) 3,413 299 3,712 155 0 0 0
------- ------
Total $25,155 Total $6,990
======= ======
TERMINAL VALUE
2025 5,750 (27) 5,723 (2,152) 3,571 27 $ 3,598
Terminal Value in 2024, calculated as a perpetuity using 2025 free cash
flow at RU: $27,123
Discounted to 1998 at RU: 1,132
Ru = 13.3%
Present Value of Free Cash Flow at 7/31/98 $25,155
Present Value of Interest Tax Shield at 7/31/98 6,990
Terminal Value of Free Cash Flow at 7/31/98 1,132
-------
Total Value of Recreational Leases at 7/31/98 $33,277
=======
</TABLE>
- --------------------
(1) Assumes a tax rate of 37.6%.
Hilcoast Development Corp. Confidential
<PAGE> 86
Patricof & Co. Capital Corp. APPENDIX C-9
HILCOAST DEVELOPMENT CORP. - CASE B
CASE B ADDITIONAL CASH FLOW ASSUMPTIONS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
BOCA ADMINISTRATION BUILDING 3Q97 4Q97 1Q98 2Q98 3Q98 4Q98
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Sale of 11,000 feet to the Orthodox synagogue in 3Q97 $250
Tax basis 0
Taxable profit 250
Capital gains taxes paid at 31.3% (78)
Cash flow realized 172
Due to the sale, 50% of the 4Q97 expenses projected are not realized $10
Taxes payable at the AMT rate of 20% (2)
Net expense saved 8
5,000 of the remaining 11,000 is leased to a medical group at a net price of $12/foot:
Annual rent collected $60
Annual operating expense of the unleased 6,000 feet (1) (22)
Net annual rent collected 38
1998 cash flow:
Quarterly net annual rent $10 $10 $10 $10 $10
Taxes payable at the AMT rate of 20% (2) (2) (2) (2) (2)
---- ---- ----- ----
Net cash flow 8 8 8 8 8
Annual cash flow post-1998:
Net annual rent $38
Taxes payable at 37.6% (14)
Net annual cash flow, after 1998 24
Valued as a perpetuity at the end of 1998 @ Ru 180 $180
---- ---- ---- ---- ----- ----
Total cash flow from the Boca Administration Building $172 $8 $8 $8 $8 $187
==== ==== ==== ==== ===== ====
</TABLE>
<TABLE>
<S> <C> <C>
COMMERCIAL BUILDINGS AT CENTURY VILLAGE
37,000 square foot buildings are assumed to be reconstructed at a cost of $70/square foot: $2,590
Rented as a convalescent home one year after the completion of the build out:
Annual rental income at $13/square foot $ 481
Less: Financing costs of the reconstruction at 11% (2) (285)
-----
Annual net rent 196
Taxes payable at 37.6% (74)
-----
Annual cash flow 122
Valued as a perpetuity 1Q00 @ Ru $ 922
Discounted to 1Q99 @ Ru 814
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SALE OF TRACTS A AND T
Sale of Tract A 1Q98 $100
Tax basis 0
----
Taxable profit 100
Capital gains taxes paid at 3 (31)
----
Cash flow realized $ 69
====
Sale of Tract T 1Q98 $150
Tax basis 0
----
Taxable profit 150
Capital gains taxes paid at 3 (47)
----
Cash flow realized $103
====
</TABLE>
- --------------------
(1) Equals 6,000/22,000 x $80,000.
(2) The financing costs are treated as operating expenses as opposed to
interest expense, and hence discounted appropriately.
Hilcoast Development Corp. Confidential
<PAGE> 87
Patricof & Co. Capital Corp. APPENDIX C-10
HILCOAST DEVELOPMENT CORP. - CASE B
CASE B ADDITIONAL CASH FLOW ASSUMPTIONS
($ IN THOUSANDS)
<TABLE>
<S> <C>
VALUE OF OTHER HILCOAST BUSINESSES AFTER COMPLETION OF BUILD OUT
NewCen Realty annual cash flow (1) $110
Hilcoast Title annual cash flow 0
Pines Master Management annual cash flow 50
----
Total pre-tax annual cash flow 160
Taxes payable at 37.6% (60)
----
Annual cash flow beginning in 1999 100
Valued as a perpetuity 4Q98 @ Ru $753
</TABLE>
<TABLE>
<CAPTION>
VALUE OF PENDING LITIGATION
Decided 2Q98 MAXIMUM PROBABLE
PROBABILITY CASH FLOW CASH FLOW
----------- --------- ---------
<S> <C> <C> <C>
Inverse condemnation 20% $ 500 $ 100
Trespassing 60% 275 165
Legal Expenses 100% (100) (100)
-----
Total 165
Taxes payable at 20% (33)
-----
Net cash flow in 2Q98 $ 132
</TABLE>
<TABLE>
<CAPTION>
GLEN ABBEY
1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of deliveries 17 17 17 17 17 17 17 13
Average sales price $ 40 $ 40 $ 40 $ 40 $ 40 $ 40 $ 40 $ 40
Sales revenues $ 680 $680 $680 $680 $680 $680 $680 $520
Closing costs @ 6% (41) (41) (41) (41) (41) (41) (41) (31)
------ ---- ---- ---- ---- ---- ---- ----
Net revenues 639 639 639 639 639 639 639 489
Development costs (227) (536) 0 (370) 0 (423) 0 0
Real estate taxes (17) (15) (13) (11) (9) (7) (5) (3)
Outparcels (8) (8) (8) (7) 0 0 0 0
G&A (110) (114) (117) (120) (124) (128) (131) (50)
Legal (5) (4) (3) (2) (1) 0 1 2
------ ---- ---- ---- ---- ---- ---- ----
Cash flow before interest (2) 272 (38) 498 129 505 81 504 438
Discounted @ Ru $ 264 $(32) $376 $ 86 $298 $ 42 $231 $177
Sum of Discounted Cash Flows $1,443
Glen Abbey Note (1,320)
------
Net Value of Glen Abbey $ 123
======
</TABLE>
- --------------------
(1) Assumed to be 50% of the 1998 projected cash flow.
(2) No effect is given to both the taxes on Glen Abbey taxable income or the
interest tax shields from the Glen Abbey Note.
Hilcoast Development Corp. Confidential
<PAGE> 88
Patricof & Co. Capital Corp. APPENDIX D-1
COMPARATIVE GOING PRIVATE TRANSACTIONS DATA
GOING PRIVATE TRANSACTIONS WITH MANAGEMENT PARTICIPATION - 1990-1996
<TABLE>
<CAPTION>
DATE DATE HELD BY ACQUISITION
ANNOUNCED EFFECTIVE TARGET ACQUIROR GROUP PRICE
- --------- --------- ------------------------------ ---------------------------------------- ------- -----------
<S> <C> <C> <C> <C> <C>
1/16/90 3/23/90 Aristech Chemical Corp. Mgt., Mitsubishi Corp., Blackstone 2.8% $27.00
Capital
2/16/90 8/31/90 AIFS Mgt. (Marina Holdings Corp.) 50.0% $ 6.50
3/15/90 10/5/90 VHC Ltd. Mgt. Investor Group 70.0% $ 5.75
4/24/90 8/17/90 Weiman Co Inc. Mgt. Investor Group 57.0% $ 4.75
8/16/90 3/26/91 Academy Insurance Group Inc. Mgt. Investor Group 50.0% $ 1.33
10/2/90 11/14/90 Phoenix American Mgt. Investor Group 72.4% $ 5.00
4/23/91 9/29/91 Courier Dispatch Group Inc. Mgt. Investor Group 25.3% $ 4.10
6/11/91 1/10/92 M Kamenstein Inc. Mgt. and Coda, Hennessy & Simmons 65.9% $10.55
12/10/91 5/4/92 P Leiner Nutritional Products Mgt. and AEA Investors 4.9% $15.00
7/27/92 3/12/93 Diversco Inc. Mgt. Investor Group 24.0% $ 5.55
11/6/92 7/23/93 La Petite Academy Inc. Mgt., Vestar Cap. Part., BT Invt. Part. NA $10.00
12/17/92 9/27/93 Ambulatory Medical Care Inc. Mgt. Investor Group 60.0% $ 5.50
1/4/93 5/13/93 United Medical Corp. Mgt. Investor Group 52.0% $ 9.50
10/18/93 3/2/94 Corporate Software Inc. Mgt., Information Partners, Bain Capital 3.8% $15.00
4/28/94 12/12/94 Ketema Inc. Mgt. and American Securities 21.2% $15.00
9/13/94 1/30/95 LDB Corp. Mgt. Investor Group 69.0% $ 7.50
11/1/94 10/16/95 Mickelberry Communications Mgt. and Union Capital 48.0% $ 4.25
12/14/94 3/1/95 Galveston-Houston Co. Mgt. Investor Group 3.1% $ 2.25
1/5/96 9/9/96 Financial Inst. Ins. Grp. Ltd. Mgt. and Castle Harlan Partners II LP 20.0% $16.00
</TABLE>
<TABLE>
<CAPTION>
DATE DATE UNAFFECTED CONTROL
ANNOUNCED EFFECTIVE TARGET ACQUIROR PRICE PREMIUM
- --------- --------- ------------------------------ ---------------------------------------- ---------- -------
<S> <C> <C> <C> <C> <C>
1/16/90 3/23/90 Aristech Chemical Corp. Mgt., Mitsubishi Corp., Blackstone $21.15 27.7%
Capital
2/16/90 8/31/90 AIFS Mgt. (Marina Holdings Corp.) $ 3.25 100.0%
3/15/90 10/5/90 VHC Ltd. Mgt. Investor Group $ 4.50 27.8%
4/24/90 8/17/90 Weiman Co Inc. Mgt. Investor Group $ 2.75 72.7%
8/16/90 3/26/91 Academy Insurance Group Inc. Mgt. Investor Group $ 1.16 14.6%
10/2/90 11/14/90 Phoenix American Mgt. Investor Group $ 3.13 60.0%
4/23/91 9/29/91 Courier Dispatch Group Inc. Mgt. Investor Group $ 2.25 82.2%
6/11/91 1/10/92 M Kamenstein Inc. Mgt. and Coda, Hennessy & Simmons $ 6.75 56.3%
12/10/91 5/4/92 P Leiner Nutritional Products Mgt. and AEA Investors $13.00 15.4%
7/27/92 3/12/93 Diversco Inc. Mgt. Investor Group $ 2.75 101.8%
11/6/92 7/23/93 La Petite Academy Inc. Mgt., Vestar Cap. Part., BT Invt. Part. $ 8.13 23.1%
12/17/92 9/27/93 Ambulatory Medical Care Inc. Mgt. Investor Group $ 4.25 29.4%
1/4/93 5/13/93 United Medical Corp. Mgt. Investor Group $ 6.38 49.0%
10/18/93 3/2/94 Corporate Software Inc. Mgt., Information Partners, Bain Capital $11.00 36.4%
4/28/94 12/12/94 Ketema Inc. Mgt. and American Securities $12.38 21.2%
9/13/94 1/30/95 LDB Corp. Mgt. Investor Group $ 4.50 66.7%
11/1/94 10/16/95 Mickelberry Communications Mgt. and Union Capital $ 2.50 70.0%
12/14/94 3/1/95 Galveston-Houston Co. Mgt. Investor Group $ 1.63 38.5%
1/5/96 9/9/96 Financial Inst. Ins. Grp. Ltd. Mgt. and Castle Harlan Partners II LP $11.81 35.4%
-----------------------------------------------------------------------------------------------
MEDIAN 38.5%
-----------------------------------------------------------------------------------------------
</TABLE>
Hillcoast Development Corp. 1 Confidential
<PAGE> 89
Patricof & Co. Capital Corp. APPENDIX D-2
COMPARATIVE GOING PRIVATE TRANSACTIONS DATA
GOING PRIVATE TRANSACTIONS 1995-1996
<TABLE>
<CAPTION>
DATE DATE ACQUISITION UNAFFECTED CONTROL
ANNOUNCED EFFECTIVE TARGET ACQUIROR PRICE PRICE PREMIUM
- --------- --------- ------------------------------ ----------------------------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1/13/95 8/18/95 Gateway Bancorp NY Staten Island Savings Bank $12.61 $10.25 23.0%
3/2/95 8/30/95 DATEQ Information Network Trans Union (Marmon Holdings) $ 5.41 $ 3.25 66.5%
3/14/95 4/25/95 Leaseway Transportation Corp. Penske Truck Leasing Co. LP $20.00 $12.38 61.6%
3/15/95 11/13/95 Ropak Corp LinPac Mouldings Ltd $11.00 $10.50 4.8%
4/6/95 8/31/95 Intermetrics Inc. Apollo Holding Inc. $ 6.80 $ 4.13 64.8%
4/10/95 1/4/96 Kemper Corp. Zurich Versicherungs, Chase $49.80 $40.48 23.0%
Man., Keystone, Ins. Part.
5/5/95 1/5/96 HW Kaufman Financial Group AJK Enterprises $ 8.20 $ 4.44 84.8%
5/16/95 1/5/96 Bay Ridge Bancorp Inc. Independence Community Bank $22.06 $18.38 20.1%
5/19/95 12/6/95 Bic Corp BIC SA $40.50 $29.88 35.6%
5/30/95 9/1/95 Marsam Pharmaceuticals Inc. Schein Pharmaceutical Inc. $21.00 $13.88 51.4%
6/5/95 9/1/95 Designatronics Inc. Dyson Dyson & Dunn Inc. $ 6.00 $ 4.50 33.3%
6/6/95 10/18/95 TIE/Communications SP Investments Inc. $ 8.60 $ 4.63 85.9%
6/19/95 12/20/95 BioSafety Systems HVB Ltd. $ 3.16 $ 1.94 63.1%
6/20/95 3/8/96 Marietta Corp. Florescue Family Corp. $10.25 $ 7.13 43.9%
7/6/95 8/4/95 Arcus Inc. United Acquisition $ 6.33 $ 5.50 15.1%
7/10/95 1/3/96 Advantage Companies Inc. THORN Americas Inc. $18.50 $15.50 19.4%
7/10/95 9/5/95 Joslyn Corp. Danaher Corp. $34.00 $25.25 34.7%
8/4/95 10/19/95 American City Business Journal Advance Publications Inc. $28.00 $20.50 36.6%
8/4/95 2/29/96 Mid-South Insurance Co. Trigon Blue Cross Blue Shield $15.67 $10.00 56.7%
8/10/95 11/15/95 Nu-West Industries Inc. Agrium Inc. $10.50 $10.00 5.0%
8/17/95 7/17/95 FSB Financial Corp. Standard Federal Bancorp $23.50 $17.75 32.4%
8/18/95 4/1/96 Liberty National Bank CA SDN Bancorp $14.80 $ 7.75 91.0%
8/28/95 2/1/96 SFFed Corp First Nationwide Bank, TX $32.00 $22.25 43.8%
8/30/95 1/3/96 Kentucky Medical Insurance Co. Michigan Physicians Mutual $12.37 $ 7.00 76.7%
</TABLE>
Hillcoast Development Corp. 2 Confidential
<PAGE> 90
Patricof & Co. Capital Corp. APPENDIX D-3
COMPARATIVE GOING PRIVATE DATA
GOING PRIVATE TRANSACTIONS 1995-1996 (CONTINUED)
<TABLE>
<CAPTION>
DATE DATE ACQUISITION UNAFFECTED CONTROL
ANNOUNCED EFFECTIVE TARGET ACQUIROR PRICE PRICE PREMIUM
- --------- --------- ------------------------------ ------------------------------------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
9/7/95 3/6/96 Admar Group Inc. Principal Health Care Inc. $ 2.25 $ 1.28 75.6%
9/8/95 12/26/95 Sunbelt Cos. Inc. Pelican Cos. Inc. $ 7.95 $ 6.50 22.3%
9/19/95 10/30/95 Huffman Koos Breuners Home Furnishing $ 9.38 $ 7.00 33.9%
9/25/95 9/25/95 National Gypsum Co. CD Spangler $54.00 $33.75 60.0%
9/25/95 11/6/95 Syntro Corp. Mallinckrodt Veterinary Inc. $ 3.55 $ 2.38 49.5%
9/26/95 12/21/95 SCOR US Corp. SCOR $15.25 $11.38 34.1%
10/26/95 1/17/96 Maxtor Corp. Hyundai Electronics Industries $ 6.70 $ 4.56 46.8%
11/3/95 6/26/96 Conestoga Bancorp Dime Savings Bank, Williamsburgh $21.31 $17.88 19.2%
11/7/95 9/18/96 WFS Bancorp Emprise Bank, NA Wichita Kansas $23.25 $21.25 9.4%
11/8/95 2/23/96 Dolco Packaging MST Partners $21.00 $12.75 64.7%
11/13/95 12/19/95 Simmons Outdoor Corp. Blount Inc. $10.40 $ 5.88 77.0%
11/22/95 2/7/96 PSICOR Baxter Healthcare Corp. $17.50 $11.75 48.9%
12/6/95 2/13/96 GBC Technologies Globelle Corp. $ 9.50 $ 7.63 24.6%
12/19/95 6/3/96 Home Federal Financial Corp. First Nationwide Bank, CA $18.50 $16.00 15.6%
1/5/96 9/9/96 Financial Inst. Ins. Grp. Ltd. Mgt. and Castle Harlan Partners II LP $16.00 $11.81 35.4%
1/16/96 4/11/96 Orthopedic Technology DePuy Inc. $10.43 $ 6.88 51.7%
2/15/96 5/14/96 Andros Inc. Genstar Capital Partners II LP $18.00 $15.25 18.0%
3/29/96 4/26/96 Great American Mgt. and Ivt. Equity Holdings Inc. $50.00 $45.00 11.1%
5/6/96 7/12/96 Horsehead Resources Horsehead Industries $ 5.75 $ 5.50 4.5%
Development
5/23/96 10/1/96 NHS Financial Luther Burbank Savings $11.50 $ 9.50 21.1%
6/6/96 9/25/96 Bailey Corp. Venture Holdings Trust $ 8.75 $ 7.88 11.1%
6/10/96 7/23/96 Community Health Systems Forstmann Little & Co. $52.00 $43.75 18.9%
6/21/96 8/23/96 Computer Petroleum Corp. United Communications Group $ 3.90 $ 1.88 107.8%
5/10/96 9/30/96 Salem Corp. Three City Research $25.00 $15.50 61.3%
7/2/96 8/12/96 Ambar Inc. Beacon Group Energy Investments $18.00 $11.50 56.5%
7/12/96 10/9/96 ADCO Technologies Astor Chemicals $10.25 $ 6.00 70.8%
-------------------------------------------------------------------------------------------------------
MEDIAN 36.1%
-------------------------------------------------------------------------------------------------------
</TABLE>
Hillcoast Development Corp. 3 Confidential
<PAGE> 91
Patricof & Co. Capital Corp. APPENDIX E-1
PRE ANNOUNCEMENT TRADING
- The following is a schedule of the price and trading volume of Hilcoast
for the month prior to the announcement of the Proposed Transaction on
August 12, 1996. The absence of trades on many days and the slim
volume on the days where shares traded demonstrates how thin a market
there was.
<TABLE>
<CAPTION>
=======================================================
VOLUME VOLUME
DATE PRICE TRADED DATE PRICE TRADED
---- ----- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C>
8/9/96 7/26/96
8/8/96 7/25/96
8/7/96 $4.625 1,000 7/24/96
8/6/96 7/23/96
8/5/96 $4.625 200 7/22/96
8/2/96 7/19/96 $4.625 100
8/1/96 7/18/96 $4.625 200
7/31/96 $5.000 500 7/17/96 $4.625 100
7/30/96 $4.625 200 7/16/96
7/29/96 7/15/96
7/12/96
-------------------------------------------------------
</TABLE>
Hillcoast Development Corp. 1 Confidential
<PAGE> 92
APPENDIX F
PATRICOF & CO
September 24, 1996
PERSONAL & CONFIDENTIAL
Mr. Isaac Heimbinder
President, Co-Chief Executive Officer
Chief Operating Officer
U.S. Home Corporation
1800 West Loop South
Houston, Texas 77252
Patricof & Co.
Capital Corp.
445 Park Avenue
New York, NY 10022
Tel 212-935-5151
Fax 212-832-6946
Dear Mr. Heimbinder:
We are the investment bankers for the Independent Directors Committee of
Hilcoast Development Corp. and have been engaged to offer financial advice in
connection with the proposed transaction described in Hilcoast's press release
of August 12, 1996, a copy of which is enclosed.
In pursuit of our client's desire to maximize value for the Company's
public shareholders, we are soliciting your company's interest in formulating a
proposal, alternative to the one set forth in the press release. To assist you
in that effort, also enclosed are Hilcoast's fiscal 1995 Annual Report and 10K,
its most recent 10Q and the proxy statement for its last annual meeting.
I will shortly give you a follow up call to explore your response to the
contents of this letter.
Very truly yours,
Arthur H. Rosenbloom
Special Partner
encl.(s)
<PAGE> 93
EXHIBIT (c)
AGREEMENT AND PLAN OF MERGER
BETWEEN
FLA ACQUISITION CORP.
AND
HILCOAST DEVELOPMENT CORP.
Dated November 21, 1996
<PAGE> 94
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Certificate of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Conversion of Common Stock of Mergerco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Stockholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Dissenting Shares; Payment For Shares; Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Payment for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Closing of the Company's Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Authority for this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.5 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.10 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.11 Delaware Takeover Statute Inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.12 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.13 Required Vote of the Company's Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.14 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4. Representations and Warranties of Mergerco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 Authority for this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.5 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.6 Interim Operations of Mergerco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.7 Litigation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Conduct of Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Recommendation by the Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.4 Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
i
<PAGE> 95
<TABLE>
<S> <C> <C>
5.6 Directors' and Officers' Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.7 State Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.8 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.9 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.10 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6. Conditions to Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 Conditions to Both Parties' Obligation to Consummate the Merger . . . . . . . . . . . . . . . . . . . . 18
6.2 Conditions to Mergerco's Obligation to Consummate the Merger . . . . . . . . . . . . . . . . . . . . . 19
6.3 Condition to the Company's Obligation to Consummate the Merger . . . . . . . . . . . . . . . . . . . . 19
7. Termination; Amendment; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 Enforcement of the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.7 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.9 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Schedule 1.5 -- Directors and Officers of the
Surviving Corporation
Schedule 3.2(a) -- Capitalization
Schedule 3.2(b) -- Subsidiary Securities
Schedule 3.4 -- Absence of Certain Change
Schedule 3.6 -- Consents
Schedule 3.7 -- Employee Benefit Matters
Schedule 3.8 -- Litigation
Schedule 3.9 -- Tax Matters
Schedule 4.2 -- Stockholders of Mergerco
</TABLE>
ii
<PAGE> 96
AGREEMENT AND PLAN OF MERGER
Dated November 21, 1996
The parties to this agreement and plan of merger are FLA
Acquisition Corp., a Delaware corporation ("Mergerco"), and Hilcoast
Development Corp., a Delaware corporation (the "Company").
The board of directors of each of Mergerco and the Company has
determined it is in the best interests of its stockholders for Mergerco to
acquire the Company upon the terms and subject to the conditions set forth in
this agreement.
Accordingly, the parties agree as follows:
1. The Merger
1.1 The Merger. Upon the terms of this agreement and subject to the
provisions of the Delaware General Corporation Law (the "DGCL"), Mergerco shall
be merged with and into the Company (the "Merger") as soon as practicable
following the satisfaction or waiver, if permissible, of the conditions set
forth in section 6. The Company shall be the surviving corporation in the
Merger (the "Surviving Corporation") under the name "Hilcoast Development
Corp." and shall continue its existence under the law of Delaware. At the
Effective Time (as defined in section 1.2), the separate corporate existence of
Mergerco shall cease.
1.2 Consummation of the Merger. Subject to the provisions of this
agreement, the parties shall cause the Merger to be consummated by filing with
the secretary of state of the state of Delaware a duly executed and verified
certificate of merger, and shall take all other action required by law to
effect the Merger. Prior to the filing referred to in this section, a closing
(the "Closing") shall be held at the offices of Proskauer Rose Goetz &
Mendelsohn LLP, 1585 Broadway, New York, New York (or such other place as the
parties may agree) for the purpose of completing the foregoing. The time the
Merger becomes effective in accordance with applicable law is referred to as
the "Effective Time".
1.3 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL and this agreement.
1.4 Certificate of Incorporation and Bylaws. The certificate of
incorporation and bylaws of Mergerco, as in effect on the date of this
agreement, shall be the certificate of incorporation and bylaws, respectively,
of the Surviving Corporation; provided, however, that section 1 of the
certificate of incorporation of the Surviving Corporation shall be amended to
read in its entirety as follows: "Section 1. The name of the Corporation is
Hilcoast Development Corp."
<PAGE> 97
1.5 Directors and Officers. The persons listed on schedule 1.5 shall
be the directors and officers, respectively, of the Surviving Corporation, each
of whom shall serve until his or her respective successor is duly elected and
qualified.
1.6 Conversion of Shares. Each share of common stock, par value $.01
per share, of the Company (each, a "Share"), issued and outstanding immediately
prior to the Effective Time (other than Shares owned by Mergerco or any
subsidiary of Mergerco or held in the treasury of the Company, all of which
shall be cancelled, and other than Dissenting Shares (as defined in section
2.1)) shall, by virtue of the Merger and without any action on the part of the
holder, be converted into the right to receive in cash $6.00 (subject to any
applicable withholding tax, as specified in section 1.9), without interest (the
"Merger Consideration"), upon the surrender of the certificate representing the
Share in accordance with section 2.2.
1.7 Conversion of Common Stock of Mergerco. Each share of common
stock, par value $.01, of Mergerco issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder, be converted into and become one share of common stock of
the Surviving Corporation.
1.8 Stockholders' Meeting. As soon as practicable after the date of
this agreement, the Company, acting through its board of directors, shall, in
accordance with applicable law, duly call, give notice of, convene and hold a
special meeting (the "Special Meeting") of its stockholders at the earliest
practicable date for the purpose of considering and taking action upon the
agreement of merger (within the meaning of section 251 of the DGCL) set forth
in this agreement. Subject to applicable law, the Company shall include in its
proxy statement (together with any schedules required to be filed with the SEC
(as defined in section 3.5) therewith and as amended or supplemented, the
"Proxy Statement") the recommendation of its board of directors that
stockholders of the Company vote in favor of the approval and adoption of the
agreement of merger set forth in this agreement.
1.9 Withholding Taxes. Mergerco shall be entitled to deduct and
withhold from the consideration otherwise payable to a holder of Shares or
Options (as defined in section 2.4) pursuant to the Merger such amounts as are
required under section 3406 of the Internal Revenue Code of 1986 (the "Code").
To the extent amounts are so withheld by Mergerco, the withheld amounts shall
be treated for all purposes of this agreement as having been paid to the holder
of the Shares in respect of which the deduction and withholding was made by
Mergerco.
2. Dissenting Shares; Payment For Shares; Options
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2.1 Dissenting Shares. Notwithstanding anything in this agreement to
the contrary, Shares issued and outstanding immediately prior to the Effective
Time and held by any stockholder who did not vote in favor of the Merger and
complies with section 262 of the DGCL (the "Dissenting Shares") shall not be
converted into or be exchangeable for the right to receive the Merger
Consideration, but, instead, shall be converted into the right to receive such
consideration as may be determined to be due such holder pursuant to the DGCL.
If any such holder shall have failed to perfect or shall have effectively
withdrawn or lost his rights to appraisal under the DGCL, that holder's Shares
shall thereupon be converted into and become exchangeable for the right to
receive, as of the Effective Time, the Merger Consideration without any
interest. The Company shall give Mergerco (a) prompt notice of any written
demands for appraisal of any Shares, attempted withdrawals of such demands and
any other instruments served pursuant to the DGCL and received by the Company
relating to stockholders' rights of appraisal and (b) the opportunity to direct
all negotiations and proceedings with respect to demands for appraisal under
the DGCL. The Company shall not, except with the prior written consent of
Mergerco, voluntarily make any payment with respect to any demands for
appraisal of capital stock of the Company, offer to settle or settle any
demands or approve any withdrawal of any such demands.
2.2 Payment for Shares
(a) Immediately prior to the Effective Time, Mergerco
shall deposit or cause to be deposited with a bank or trust company to be
selected by Mergerco as paying agent (the "Paying Agent") sufficient funds to
make the payments pursuant to section 1.6 on a timely basis to holders of
Shares issued and outstanding immediately prior to the Effective Time (such
funds, the "Payment Fund"). The Paying Agent shall, pursuant to irrevocable
instructions, make the payments provided for in the preceding sentence out of
the Payment Fund. The Payment Fund shall not be used for any purpose, except
as provided in this agreement.
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause the Paying Agent to mail to each record holder of
Shares, as of the Effective Time, a form of letter of transmittal, the form and
content of which shall be reasonably acceptable to the Company (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates representing the Shares (the "Certificates") shall pass, only upon
proper delivery of the Certificates to the Paying Agent), and instructions for
use in effecting the surrender of the Certificates for payment of the Merger
Consideration. Upon surrender to the Paying Agent of a Certificate, together
with the letter of transmittal duly executed, the holder of the Certificate
shall be paid cash in an amount (subject to any applicable withholding tax, as
specified in section 1.9) equal to the product of the number of Shares
represented by the
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Certificate and the Merger Consideration, and the Certificate shall be
cancelled. No interest shall be paid or accrued on the cash payable upon the
surrender of a Certificate. If payment is to be made to a person other than
the person in whose name a Certificate surrendered is registered, it shall be a
condition of payment that the Certificate so surrendered be properly endorsed
or otherwise in proper form for transfer and that the person requesting such
payment 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 Surviving Corporation that the tax has
been paid or is not applicable. From and after the Effective Time and until
surrendered in accordance with this section 2.2, each Certificate (other than
Certificates representing Shares owned by Mergerco or any of its subsidiaries,
and Dissenting Shares) shall represent for all purposes solely the right to
receive in cash an amount equal to the product of the Merger Consideration and
the number of Shares evidenced by the Certificate, without interest.
(c) Any portion of the Payment Fund (including the
proceeds of any investments of the Payment Fund) that remains unclaimed by the
former stockholders of the Company for four months after the Effective Time
shall be repaid to the Surviving Corporation. Any former stockholder of the
Company who has not theretofore complied with section 2.1 shall thereafter look
only to the Surviving Corporation (subject to abandoned property, escheat or
other similar laws) for payment of his claim for the Merger Consideration per
Share, without interest. Neither Mergerco nor the Surviving Corporation shall
be liable to any holder of Shares for any monies delivered from the Payment
Fund or otherwise to a public official pursuant to any applicable abandoned
property, escheat or similar law.
2.3 Closing of the Company's Transfer Books. At the Effective Time,
the stock transfer books of the Company shall be closed and no transfer of
Shares shall thereafter be made. If, after the Effective Time, Certificates
are presented to the Surviving Corporation, they shall be cancelled and
exchanged for cash as provided in this section 2, subject to applicable law in
the case of Dissenting Shares.
2.4 Options.
(a) Promptly after the Effective Time, Mergerco shall pay
each holder of a then outstanding Option (as defined below), in settlement of
the Options, for each Share subject to an Option, an amount (subject to any
applicable withholding tax) in cash equal to the excess, if any, of the Merger
Consideration over the per Share exercise price of that Option (that amount,
the "Option Consideration"). Upon receipt of the Option Consideration, the
Option shall be cancelled. The surrender of an Option to the Company in
exchange for the Option Consideration shall be deemed a release of all rights
the holder had or may
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<PAGE> 100
have had in respect of that Option. For purposes of this agreement, "Option"
means any option, whether or not then exercisable, to purchase Shares under the
Company's 1992 Stock Option Plan or 1995 Stock Option Plan (collectively, the
"Stock Option Plans").
(b) Prior to the Effective Time, the Company shall use
all reasonable efforts to obtain all necessary consents or releases from
holders of Options under the Stock Option Plans and take all other action
necessary to give effect to the transactions contemplated by this section 2.4.
Except as otherwise agreed by the parties, (a) both Stock Option Plans shall
terminate as of the Effective Time and all rights under any provision of any
other plan, program or arrangement providing for the issuance or grant of any
other interest in respect of the capital stock of the Company or any subsidiary
of the Company shall be cancelled as of the Effective Time, and (b) the Company
shall take all reasonable action to ensure that, after the Effective Time, no
person shall have any right under any Stock Option Plan (or any option granted
under any Stock Option Plan) or other plan, program or arrangement with respect
to equity securities of the Company, the Surviving Corporation or any direct or
indirect subsidiary of either.
3. Representations and Warranties of the Company. The Company represents
and warrants to Mergerco as follows:
3.1 Organization and Qualification. Each of the Company and its
subsidiaries is a duly organized and validly existing corporation in good
standing under the law of its jurisdiction of incorporation, with the corporate
power and authority to own its properties and conduct its business as now being
conducted, and is duly qualified and in good standing as a foreign corporation
authorized to do business in each jurisdiction in which the character of the
properties owned or held under lease by it or the nature of the business
transacted by it makes such qualification necessary, except where the failure
to be so qualified and in good standing would not have a Material Adverse
Effect (as defined below). The Company has made available to Mergerco accurate
and complete copies of the certificates of incorporation and bylaws as
currently in effect of the Company and each of its subsidiaries.
For purposes of this agreement, "Material Adverse Effect" means any
adverse change in the business or financial condition of the Company or its
subsidiaries that is material to the Company and its subsidiaries taken as a
whole.
3.2 Capitalization
(a) The authorized capital stock of the Company consists of
6,000,000 Shares and 10,000 shares of preferred
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stock, $.01 par value (the "Preferred Stock"). As of the close of business on
November 21, 1996, 2,362,320 Shares were issued and outstanding; no shares of
Preferred Stock were issued or outstanding; no Shares were held in the
Company's treasury; and there were outstanding Options to purchase an aggregate
of 315,000 Shares under the Company's Stock Option Plans (copies of which have
previously been furnished to Mergerco). Since September 1, 1996, the Company
(i) has not issued any Shares, other than upon the exercise of Options then
outstanding, (ii) has not granted any options or rights to purchase Shares
(under the Company's Stock Option Plans or otherwise) and (iii) has not split,
combined or reclassified any of its shares of capital stock. All the
outstanding Shares have been duly authorized and validly issued and are fully
paid and nonassessable and are free of preemptive rights. Except as set forth
in this section 3.2 or on schedule 3.2(a) to this agreement, there are no
outstanding (i) shares of capital stock or other voting securities of the
Company, (ii) securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company or (iii) options,
warrants, rights or other agreements or commitments to acquire from the
Company, or obligations of the Company to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company, or obligations of the Company to grant,
extend or enter into any subscription, warrant, right, convertible or
exchangeable security or other similar agreement or commitment (the items in
clauses (i), (ii) and (iii), collectively, the "Company Securities"). Except
as set forth on schedule 3.2(a), there are no outstanding obligations of the
Company or any subsidiary to repurchase, redeem or otherwise acquire any
Company Securities and there are no other outstanding stock related awards.
Except as set forth on schedule 3.2(a), there are no voting trusts or other
agreements or understandings to which the Company or any of its subsidiaries is
a party with respect to the voting of capital stock of the Company or any of
its subsidiaries.
(b) Except as set forth on schedule 3.2(b), the Company
is, directly or indirectly, the record and beneficial owner of all the
outstanding shares of capital stock of each of its subsidiaries, free and clear
of any lien, mortgage, pledge, charge, security interest or encumbrance, and
there are no irrevocable proxies with respect to any such shares. Except as
set forth on schedule 3.2(b), there are no outstanding (i) securities of the
Company or any subsidiary convertible into or exchangeable for shares of
capital stock or other voting securities or ownership interests in any
subsidiary, or (ii) options or other rights to acquire from the Company or any
of its subsidiaries, or other obligations of the Company or any of its
subsidiaries to issue, any capital stock, voting securities or other ownership
interests in, or any securities convertible into or exchangeable for any
capital stock, voting securities or ownership interests in, any of its
subsidiaries, or other
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obligations of the Company or any of its subsidiaries to grant, extend or enter
into any subscription, warrant, right, convertible or exchangeable security or
other similar agreement or commitment (the items in clauses (i) and (ii),
collectively, the "Subsidiary Securities"). Except as set forth on schedule
3.2(b), there are no outstanding obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any outstanding
Subsidiary Securities.
3.3 Authority for this Agreement. The Company has the requisite
corporate power and authority to execute and deliver this agreement and to
consummate the transactions contemplated by this agreement. The execution and
delivery of this agreement by the Company and the consummation by the Company
of the transactions contemplated by this agreement have been duly and validly
authorized by the board of directors of the Company and no other corporate
proceeding on the part of the Company is necessary to authorize this agreement
or to consummate the transactions so contemplated (other than the approval and
adoption of the agreement of merger (within the meaning of section 251 of the
DGCL) in this agreement by the holders of a majority of the Shares prior to the
consummation of the Merger). This agreement has been duly and validly executed
and delivered by the Company and, assuming this agreement constitutes the valid
and binding obligation of Mergerco, constitutes a valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and subject to general
principles of equity (whether considered in a proceeding in equity or at law).
3.4 Absence of Certain Changes. Except as disclosed in the SEC
Reports (as defined in section 3.5) or on schedule 3.4, since June 30, 1996:
(a) the Company and its subsidiaries have not suffered any Material Adverse
Effect, (b) the Company and its subsidiaries have conducted their respective
businesses in all material respects only in the ordinary course consistent with
past practice, except in connection with the negotiation and execution and
delivery of this agreement and the exploration of other alternative
transactions, and (c) there has not been (i) any declaration, setting aside or
payment of any dividend or other distribution in respect of the Shares or any
repurchase, redemption or other acquisition by the Company or any of its
subsidiaries of any outstanding shares of capital stock or other securities in,
or other ownership interests in, the Company or any of its subsidiaries; (ii)
any entry into any written employment agreement with, or any increase in the
rate or terms (including, without limitation, any acceleration of the right to
receive payment) of compensation payable or to become payable by the Company or
any of its subsidiaries to, their respective directors or officers; (iii) any
increase in the rate or terms (including, without limitation, any acceleration
of the right to
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<PAGE> 103
receive payment) of any bonus, insurance, pension or other employee benefit
plan, payment or arrangement made to, for or with any such directors, officers
or key employees, except increases occurring in the ordinary course of business
or as required by law or as necessary to maintain tax-qualified status; or (iv)
any action by the Company that, if taken after the date of this agreement,
would constitute a breach of section 5.1.
3.5 Reports
(a) The Company has filed with the Securities and
Exchange Commission (the "SEC") all forms, reports and documents required to be
filed by it pursuant to applicable law since January 1, 1994 (the "SEC
Reports"), all of which have complied as of their respective filing dates in
all material respects with all applicable requirements of the Exchange Act and
the rules under the Securities Exchange Act of 1934 (the "Exchange Act"). None
of the SEC Reports, including, without limitation, any financial statements or
schedules included or incorporated by reference in the SEC Reports, at the time
filed, contained an untrue statement of a material fact or omitted 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.
(b) The audited and unaudited consolidated financial
statements of the Company included (or incorporated by reference) in the SEC
Reports have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis (except to the extent set
forth in those financial statements, including the notes, if any) and present
fairly in all material respects the consolidated financial position of the
Company as of their respective dates, and the consolidated results of
operations and changes in financial condition and cash flows for the periods
presented, subject, in the case of the unaudited interim financial statements,
to normal, recurring, year-end adjustments and the absence of such footnotes as
may be omitted in unaudited interim financial statements prepared in accordance
with United States generally accepted accounting principles.
3.6 Consents and Approvals; No Violation. Neither the execution and
delivery of this agreement by the Company nor the consummation of the
transactions contemplated by this agreement will, except as disclosed on
schedule 3.6, (a) conflict with or result in a breach of any provision of the
certificate of incorporation or bylaws (or other similar governing documents)
of the Company or any of its subsidiaries; (b) require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, except (i) pursuant to the Exchange Act, (ii) the
filing of a certificate of merger pursuant to the DGCL, or (iii) any
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<PAGE> 104
applicable filings under state securities, or "Blue Sky", laws or state
anti-takeover laws; (c) result in a material default (or give rise to any right
of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any material note, license, agreement or other
instrument or obligation to which the Company is a party or by which the
Company or any of its assets or subsidiaries may be bound; or (d) violate in
any material respect any material order, writ, injunction, decree, statute,
rule or regulation applicable to the Company or any of its subsidiaries or by
which any material portion of their respective assets are bound.
3.7 Employee Benefit Matters
(a) Schedule 3.7 sets forth a true and complete list of
all employee benefit plans, arrangements and agreements maintained, or that
have been maintained, by the Company, any of its subsidiaries, or by any trade
or business, whether or not incorporated that, together with the Company, would
be deemed a "single employer" within the meaning of section 414(b), (c), (m) or
(o) of the Code or section 4001 of the Employee Retirement Income Security Act
of 1974 ("ERISA") (a "ERISA Affiliate") (collectively, the "Plans").
(b) Each Plan is and has been operated and administered
in all material respects in accordance with the terms of the Plan and in
accordance with the requirements prescribed by all applicable statutes, orders
and governmental rules and regulations, including ERISA and the Code. Each
Plan intended to be "qualified" within the meaning of section 401(a) of the
Code is so qualified.
(c) Neither the Company nor any ERISA Affiliate nor any
of their respective predecessors has contributed to or contributes to, or
otherwise participated in or participates in, a plan subject to section 412 of
the Code or Title IV of ERISA. No Plan is a multiemployer plan (within the
meaning of sections 3(37) or 4001(a)(3) of ERISA or section 413 of the Code
("Multiemployer Plan") and no Plan is a multiple employer plan as defined in
section 413 of the Code ("Multiple Employer Plan"); and all material
contributions or other amounts payable by the Company or any of its
subsidiaries as of June 30, 1996 with respect to each Plan in respect of
current or prior plan years have been either paid or accrued on the balance
sheet of the Company. Neither the Company nor any ERISA Affiliate is or was
obligated to contribute to any Multiemployer Plan or Multiple Employer Plan.
To the knowledge of the Company, there are no material pending, threatened or
anticipated claims (other than routine claims for benefits) by, on behalf of or
against any Plan or any related trust.
3.8 Litigation, etc. Except as set forth on schedule 3.8 or as
disclosed in the SEC Reports, there is no claim, action,
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<PAGE> 105
proceeding or governmental investigation pending or, to the knowledge of the
Company, threatened against the Company, any of its subsidiaries or in respect
of any Plan before any court or governmental or regulatory authority that,
individually or in the aggregate, (a) could reasonably be expected to have a
Material Adverse Effect or (b) has had or could reasonably be expected to have
a material adverse effect on the ability of the Company to consummate the
transactions contemplated by this agreement or in any manner challenges or
seeks to prevent, enjoin or delay the Merger.
3.9 Tax Matters
(a) Except as set forth on schedule 3.9 or in the SEC
Reports:
(i) All returns and reports relating to income, franchise
and all material other taxes required to be filed with respect to each
of the Company and its subsidiaries or any of their income, properties
or operations have been duly filed in a timely manner (taking into
account all extensions of due dates), and, to the knowledge of the
Company, all information in such returns and reports is true, correct
and complete in all material respects. All taxes attributable to each
of the Company and its subsidiaries that were shown to be due and
payable on such returns and reports have been paid.
(ii) Adequate provisions in accordance with United States
generally accepted accounting principles consistently applied have
been made in the consolidated financial statements included in the SEC
Reports for the payment of all material taxes for which any of the
Company or its subsidiaries may be liable for the periods covered by
those financial statements that were not yet due and payable as of the
dates of those financial statements, regardless of whether the
liability for those taxes is disputed.
(iii) The Company has not received any notice of deficiency
or assessment from any federal, state or local taxing authority with
respect to liabilities for taxes of the Company or any of its
subsidiaries that have not been fully paid or finally settled. There
is presently no tax audit, administrative proceeding being conducted
with respect to the Company or any of its subsidiaries.
(iv) There is no contract, agreement or intercompany
account system under which the Company or any of its subsidiaries has,
or may at any time in the future have, an obligation to contribute to
the payment of any portion of a tax (or pay any amount calculated with
reference to any portion of a tax) of any group of corporations of
which the Company or its subsidiaries is or was a part.
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(b) There are no agreements in effect to extend the
period of limitations for the assessment or collection of any income, franchise
or material other tax for which the Company or any of its subsidiaries may be
liable.
3.10 Compliance with Law. Except as set forth in the SEC Reports, to
the knowledge of the Company, the business of the Company and its subsidiaries
is being conducted in compliance with all applicable laws, orders, rules or
regulations of any governmental authority, except to the extent non-compliance
could not reasonably be expected to have a Material Adverse Effect.
3.11 Delaware Takeover Statute Inapplicable. The board of directors
of the Company has approved the transactions contemplated by this agreement
upon the terms specified in this agreement, which will result in Mergerco
becoming an "interested stockholder", within the meaning of section 203(a)(1)
of the DGCL.
3.12 Fairness Opinion. Patricof & Co. Capital Corp. ("Patricof"),
the independent financial advisor to the independent committee of the Company's
board of directors, has delivered to the Company its opinion that the
consideration to be paid to the Company's stockholders in the Merger is fair,
from a financial point of view, to those stockholders, and, as of the date of
this agreement, that opinion has not been withdrawn or modified. The Company
has delivered to Mergerco a true and complete copy of such opinion.
3.13 Required Vote of the Company's Stockholders. The only vote of
the stockholders of the Company required to approve and adopt the plan of
merger in this agreement and approve the Merger is the affirmative vote of
holders of not less than the majority of the outstanding Shares.
3.14 Brokers. No broker, finder or other investment banker is
entitled to receive any brokerage, finder's or other fee or commission in
connection with this agreement or the transactions contemplated by this
agreement based upon agreements made by or on behalf of the Company.
4. Representations and Warranties of Mergerco. Mergerco represents and
warrants to the Company as follows:
4.1 Organization. Mergerco is a duly organized and validly existing
corporation in good standing under the law of the state of Delaware, with all
requisite corporate power and authority to own its properties and conduct its
business.
4.2 Stockholders. Schedule 4.2 lists all the stockholders of
Mergerco. Each such stockholder is the record and beneficial
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owner of the number of shares of common stock, par value $.01 per share, of
Mergerco set forth opposite his name on schedule 4.2.
4.3 Authority for this Agreement. Mergerco has full corporate power
and authority to execute and deliver this agreement and to consummate the
transactions contemplated by this agreement. The execution and delivery of
this agreement by Mergerco and the consummation by Mergerco of the transactions
contemplated by this agreement have been duly and validly authorized by the
board of directors and stockholders of Mergerco and no other corporate
proceeding on the part of Mergerco is necessary to authorize this agreement or
to consummate the transactions contemplated by this agreement. This agreement
has been duly and validly executed and delivered by Mergerco and, assuming this
agreement constitutes a valid and binding obligation of the Company, this
agreement constitutes the valid and binding agreement of Mergerco, enforceable
against Mergerco in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency and similar laws affecting
creditors rights generally and subject to general principles of equity (whether
considered in a proceeding in equity or at law).
4.4 Consents and Approvals; No Violation. Neither the execution and
delivery of this agreement by Mergerco nor the consummation of the transactions
contemplated by this agreement will (a) conflict with or result in a breach of
any provision of the certificate of incorporation or bylaws of Mergerco; (b)
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (i) pursuant
to the Exchange Act, (ii) the filing of a certificate of merger pursuant to the
DGCL, (iii) any applicable filings under state securities, or "Blue Sky", laws
or state anti-takeover laws; (c) result in a default (or give rise to any right
of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, license, agreement or other instrument or
obligation to which Mergerco is a party or by which any of its assets may be
bound, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained or
that would not materially and adversely affect the ability of Mergerco to
consummate the transactions contemplated by this agreement; or (d) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Mergerco or any of its assets, except for violations that would not materially
adversely affect the ability of Mergerco to consummate the transactions
contemplated by this agreement.
4.5 Financing. Mergerco has or, prior to the Effective Time, shall
have, sufficient funds to enable it to satisfy its obligations to purchase the
Shares under the Merger.
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4.6 Interim Operations of Mergerco. Mergerco was formed solely for
the purpose of engaging in the transactions contemplated by this agreement, and
has not engaged in any business activities or conducted any operations other
than in connection with the transactions contemplated by this agreement.
4.7 Litigation, etc. There is no claim, action, proceeding or
governmental investigation pending or, to Mergerco's knowledge, threatened
against Mergerco that, individually or in the aggregate, has had or could
reasonably be expected to have a material adverse effect on the ability of
Mergerco to consummate the transactions contemplated by this agreement or in
any manner challenges or seeks to prevent, enjoin or delay the Merger.
4.8 Brokers. No broker, finder or other investment banker is
entitled to any brokerage, finder's or other similar fee or commission in
connection with this agreement or the transactions contemplated by this
agreement based upon agreements made by or on behalf of Mergerco or its
affiliates.
5. Covenants
5.1 Conduct of Business of the Company. Except as contemplated by
this agreement, from the date of this agreement to the Effective Time, the
Company shall, and shall cause its subsidiaries to, conduct its and their
operations in all material respects in the ordinary course and consistent with
past practice and use all reasonable efforts to preserve intact their business
organizations and to maintain existing relationships with those having
significant business relationships with them. Without limiting the foregoing
and except as contemplated by this agreement, during the period specified in
the preceding sentence, the Company shall not, and shall not permit any of its
subsidiaries to, without the prior written consent of Mergerco (which consent
shall not be unreasonably withheld), (a) except for issuances of capital stock
of the Company's subsidiaries to the Company or to a wholly-owned subsidiary of
the Company, issue, sell or pledge, or authorize or propose the issuance, sale
or pledge of (i) additional shares of capital stock of any class (including the
Shares) or any other ownership interest in any of its subsidiaries, or
securities convertible into or exchangeable for any such shares or ownership
interest or any rights, warrants or options to acquire or with respect to any
such shares of capital stock, ownership interest or other convertible or
exchangeable securities, or grant or accelerate any right to convert or
exchange any securities for any such shares (including the Shares) or ownership
interest, other than Shares issuable upon exercise of the Options, or (ii) any
other securities in respect of, in lieu of or in substitution for Shares
outstanding on the date of this agreement; (b) otherwise acquire or redeem,
directly or indirectly, any of its outstanding securities (including the
Shares); (c) split, combine or reclassify its
13
<PAGE> 109
capital stock or declare, set aside, make or pay any dividend or distribution
(whether in cash, stock or property) on any shares of capital stock of the
Company or any of its subsidiaries (other than cash dividends paid to the
Company by its wholly-owned subsidiaries); (d) make any acquisition, by means
of a merger or otherwise, of assets or securities, or any sale, lease,
encumbrance or other disposition of assets or securities, in each case other
than in the ordinary course of business and in circumstances not requiring
approval of its board of directors; (e) incur or assume any debt for borrowed
money, except in the ordinary course of business consistent with past practice,
including borrowings under the Company's existing lines of credit with CV Reit,
Inc. and H. Irwin Levy; (f) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person (except wholly-owned subsidiaries of the
Company), except in the ordinary course of business; (g) make any loans,
advances or capital contributions to, or investments in, any other person
(except wholly-owned subsidiaries of the Company), in each case other than in
the ordinary course of business; (h) change any of the accounting principles or
practices used by it or any of its subsidiaries, except as required by the SEC
or by United States generally accepted accounting principles; (i) make any tax
election not required by law or settle or compromise any federal, state or
local income tax liability, in each case that is material to the Company and
its subsidiaries taken as a whole; (j) adopt any amendments to its certificate
of incorporation or bylaws; (k) grant any stock related or performance awards;
(l) forgive any loans to employees, officers or directors of more than $10,000
with respect to any particular individual; (m) enter into any new employment,
severance, consulting or salary continuation agreements with any officer,
director or employee other than as contemplated by this agreement; (n) adopt,
amend or terminate any material employee benefit plan, except in the ordinary
course of business or as required by law or as necessary to maintain tax
qualified status; or (o) agree in writing or otherwise to take any of the
foregoing actions or any action that would make any representation or warranty
in this agreement untrue or incorrect in any material respect as of the date
when made or as of a future date or otherwise would result in any of the
conditions to the Merger not being satisfied.
5.2 Recommendation by the Board of Directors. Except as set forth in
this section 5.2, the board of directors of the Company shall not (i) withdraw
or modify, or propose to withdraw or modify, in a manner adverse to Mergerco,
the approval or recommendation by the board of directors of this agreement or
the Merger, (ii) approve or recommend, or propose to approve or recommend, any
Acquisition Proposal (as defined below) or (iii) cause the Company to enter
into any agreement with respect to any Acquisition Proposal. The Company shall
use reasonable efforts to keep Mergerco informed of the status of any
Acquisition Proposal (unless the board of directors of the Company determines
14
<PAGE> 110
in good faith after consultation with and based upon the advice of independent
legal counsel that keeping Mergerco so informed would breach the fiduciary
duties of the board in connection with a Superior Proposal (as defined below)).
Notwithstanding the foregoing, in the event that prior to the Effective Time
the board of directors of the Company determines in good faith, after
consultation with and based upon the advice of independent legal 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 this agreement
and the Merger, approve or recommend an Acquisition Proposal that is more
favorable to the stockholders of the Company than the Offer and the Merger (a
"Superior Proposal") or cause the Company to enter into an agreement with
respect to a Superior Proposal. The Company shall provide reasonable notice to
Mergerco to the effect that it is taking such action. If the Company proposes
to enter into an agreement with respect to any Superior Proposal, it shall
concurrently with proposing such an agreement pay, or cause to be paid, to
Mergerco the fee provided for in section 5.10.
For purposes of this agreement, "Acquisition Proposal" means
an inquiry, offer or proposal regarding any of the following (other than the
transactions contemplated by this agreement with Mergerco) involving the
Company: (w) any merger, consolidation, share exchange, recapitalization,
business combination or other similar transaction; (x) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of all or
substantially all the assets of the Company and its subsidiaries, taken as a
whole, in a single transaction or series of related transactions; (y) any
tender offer or exchange offer for 20 percent or more of the outstanding shares
of capital stock of the Company or the filing of a registration statement under
the Securities Act of 1933 in connection therewith; or (z) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
5.3 Access to Information
(a) Subject to any limitations imposed by applicable law,
between the date of this agreement and the Effective Time, the Company shall
(i) give Mergerco and its authorized representatives all reasonable access
(during regular business hours upon reasonable notice) to all employees,
plants, offices, warehouses and other facilities and to all books and records
(including, without limitation, tax returns) of the Company and its
subsidiaries and cause the Company's and its subsidiaries' independent
accountants to provide access to their work papers and such other information
as Mergerco may reasonably request, (ii) permit Mergerco to make such
inspections as it may reasonably require and (iii) cause its officers and those
of its subsidiaries to furnish Mergerco with such financial and
15
<PAGE> 111
operating data and other information with respect to the business, properties
and personnel of the Company and its subsidiaries as Mergerco may from time to
time reasonably request.
(b) Prior to the Effective Time, Mergerco shall keep
confidential, and shall use its best efforts to cause its affiliates,
associates and representatives to keep confidential, all proprietary and
confidential information obtained by Mergerco pursuant to this section 5.3 that
does not become publicly available through other means (the "Confidential
Information"). Mergerco shall use the Confidential Information only in
connection with the transactions contemplated by this agreement.
5.4 Reasonable Efforts. Each party shall agree to use all reasonable
efforts to cause the fulfillment, in the most expeditious manner practicable,
of all the conditions to the other party's obligation to consummate the Merger.
5.5 Indemnification
(a) Mergerco agrees that all rights to indemnification or
exculpation now existing in favor of the directors, officers, employees and
agents of the Company and its subsidiaries as provided in their respective
charters or bylaws or otherwise in effect as of the date of this agreement with
respect to matters occurring prior to the Effective Time shall survive the
Merger and shall continue in full force and effect. To the maximum extent
permitted by the DGCL, such indemnification shall be mandatory rather than
permissive, and, pursuant to Section 145(e) of the DGCL, the Surviving
Corporation shall advance expenses in connection with such indemnification.
(b) In addition to the rights provided for in section
5.5(a), and not in limitation of those rights, Mergerco shall cause the
Surviving Corporation to indemnify, defend and hold harmless each present and
former director and officer, employee and agent of the Company and its
subsidiaries ("Indemnified Parties") to the fullest extent permitted by law for
all claims, losses, damages, liabilities, costs, judgments and amounts paid in
settlement, including advancement of expenses (including attorneys' fees) as
incurred in respect of any threatened, pending or contemplated claim, action,
suit or proceeding, whether criminal, civil, administrative or investigative,
including, without limitation, any action by or on behalf of any or all
securityholders of the Company or by or in the right of the Company or the
Surviving Corporation, or investigation relating to any action or omission by
such party in its capacity as such (including service to any other entity,
plan, trust or the like at the Company's request) occurring on or prior to the
Effective Time (including, without limitation, any that arise out of or relate
to the transactions contemplated by this agreement).
16
<PAGE> 112
(c) The provisions of this section 5.5 are intended to be
for the benefit of, and shall be enforceable by, each Indemnified Party, his or
her heirs and his or her personal representatives.
5.6 Directors' and Officers' Insurance. The Surviving Corporation
shall maintain in effect for not fewer than six years from the Effective Time
the policies of directors' and officers' liability insurance most recently
maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies with reputable and financially sound carriers of
at least the same coverage and containing terms and conditions no less
advantageous, as long as such substitution does not result in gaps or lapses in
coverage) with respect to claims arising from or related to matters occurring
prior to the Effective Time; provided, however, that in no event shall the
Surviving Corporation be required to expend more than an amount per year equal
to 200% of the current annual premiums paid by the Company (the "Premium
Amount") to maintain or procure insurance coverage pursuant to this section
5.6; and further provided that, if the Surviving Corporation is unable to
obtain the insurance called for by this section 5.6, the Surviving Corporation
shall obtain as much comparable insurance as is available for the Premium
Amount per year.
5.7 State Takeover Statutes. The Company shall, upon the request and
at the expense of Mergerco, take all reasonable steps to assist in any
challenge by Mergerco to the validity, or applicability to the Merger, of any
state takeover law.
5.8 Proxy Statement. The Company shall prepare and file with the
SEC, and in consultation with Mergerco, as soon as practicable after the date
of this agreement, a preliminary proxy or information statement (the
"Preliminary Proxy Statement") and a transaction statement on schedule 13E-3
(as amended or supplemented, the "Schedule 13E-3") relating to the Merger in
accordance with the Exchange Act and the rules and regulations under the
Exchange Act, with respect to the transactions contemplated by this agreement.
The Company and Mergerco shall cooperate with each other in the preparation of
the Preliminary Proxy Statement. Each of the Company and Mergerco agrees that
none of the information supplied or to be supplied by it or any of its
affiliates specifically for inclusion in the Proxy Statement and/or the
Schedule 13E-3 shall, on the date the Proxy Statement is mailed and at the time
of the Special Meeting or the Schedule 13E-3 is filed with the SEC, contain any
untrue statement of 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
Company shall use all reasonable efforts to respond promptly to any comments
made by the SEC with respect to the Preliminary Proxy Statement, and to
17
<PAGE> 113
cause the Proxy Statement to be mailed to the Company's stockholders at the
earliest practicable date.
5.9 Notification of Certain Matters. The Company shall give prompt
notice to Mergerco, and Mergerco shall give prompt notice to the Company, of
(a) the occurrence or non-occurrence of any event the occurrence, or non-
occurrence of which is likely to cause any representation or warranty of that
party in this agreement to be untrue or inaccurate in any material respect at
or prior to the Effective Time and (b) any failure of that party to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by it under this agreement; provided, however, that the delivery of
any notice pursuant to this section 5.9 shall not limit or otherwise affect the
remedies available under this agreement to any of the parties receiving such
notice.
5.10 Fees and Expenses
(a) Whether or not the Merger is consummated and except
as otherwise provided in this section 5.10, all costs and expenses incurred in
connection with this agreement and the transactions contemplated by this
agreement shall be paid by the party incurring the expense.
(b) The Company agrees to pay Mergerco a fee in
immediately available funds equal to $200,000 upon the termination of this
agreement by Mergerco pursuant to section 7.1(d) or by the Company pursuant to
section 7.1(e).
6. Conditions to Consummation of the Merger.
6.1 Conditions to Both Parties' Obligation to Consummate the Merger.
The obligation of each party to effect the Merger is subject to the
satisfaction or waiver, where permissible, prior to the proposed Effective
Time, of the following conditions:
(a) the agreement of merger in this agreement shall have
been approved and adopted by the affirmative vote of the stockholders of the
Company required by and in accordance with applicable law;
(b) no statute, rule, regulation, executive order, decree
or injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority against Mergerco or the Company and be in
effect that prohibits or restricts the consummation of the Merger or makes such
consummation illegal (each party agreeing to use all reasonable efforts to have
such prohibition lifted); and
(c) The opinion referred to in section 3.12 shall have
been confirmed in writing as of the Effective Time.
18
<PAGE> 114
6.2 Conditions to Mergerco's Obligation to Consummate the Merger.
The obligation of Mergerco to effect the Merger is subject to the satisfaction
or waiver, where permissible, prior to the proposed Effective Time, of the
following conditions:
(a) since the date of this agreement, there shall not
have occurred any adverse change in the business or financial condition of the
Company or its subsidiaries that has resulted in a Material Adverse Effect;
(b) the representations and warranties of the Company
shall be true and correct in all material respects as of the Closing as if made
again on and as of the Closing, and all the covenants in this agreement to be
complied with or performed by the Company at or before the Closing shall have
been complied with and performed, and Mergerco shall have received a
certificate of the Company dated as of the date of the Closing and signed by an
officer of the Company, certifying as to the fulfillment of the condition set
forth in this section 6.2(b); and
(c) the holders of no more than 5% of the Shares shall
have exercised rights to appraisal under the DGCL.
6.3 Condition to the Company's Obligation to Consummate the Merger.
The obligation of the Company to effect the Merger is subject to the
satisfaction or waiver, where permissible, prior to the proposed Effective
Time, of the following condition: The representations and warranties of
Mergerco shall be true and correct in all material respects as of the Closing
as if made again on and as of the Closing, and all the covenants in this
agreement to be complied with or performed by Mergerco shall have been complied
with and performed, and the Company shall have received a certificate of
Mergerco, dated as of the date of the Closing and signed by an officer of
Mergerco, certifying as to the fulfillment of the condition set forth in this
section 6.3.
7. Termination; Amendment; Waiver
7.1 Termination. This agreement may be terminated and the Merger
abandoned at any time, notwithstanding approval of the Merger by the
stockholders of the Company, but prior to the Effective Time:
(a) by written consent of the boards of directors of each
of the Company and Mergerco and the Special Committee of the Company's board of
directors;
(b) by Mergerco or the Company, if, without any material
breach by such terminating party of its obligations under this agreement, at
any time after March 31, 1997;
19
<PAGE> 115
(c) by Mergerco or the Company, if any court of competent
jurisdiction shall have issued an order (other than a temporary restraining
order), decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the purchase of Shares pursuant to the Offer or the
Merger; provided, however, that the party seeking to terminate this agreement
shall have used its reasonable best efforts to remove or lift such order,
decree or ruling;
(d) by Mergerco, if the board of directors of the Company
shall withdraw, modify or change its recommendation or approval in respect of
this agreement or the Merger in a manner adverse to Mergerco or the board of
directors of the Company shall have approved or recommended any proposal other
than by Mergerco in respect of an Acquisition Proposal;
(e) assuming the Company shall not have contravened
section 5.2, by the Company, to allow the Company to enter into an agreement in
respect of an Acquisition Proposal;
(f) by the Company, if any event or circumstance occurs
that renders the conditions set forth in section 6.3 not able to be satisfied,
or by Mergerco, if any event or circumstance occurs that renders the conditions
set forth in section 6.2 not able to be satisfied; and
(g) by the Company or Mergerco; if the opinion from
Patricof to the effect that the Merger Consideration is fair to the Company's
stockholders from a financial point of view is withdrawn or modified.
7.2 Effect of Termination. If this agreement is terminated and the
Merger abandoned pursuant to section 7.1, this agreement, except for sections
5.3(b) and 5.9 and (to the extent applicable to the foregoing sections),
section 8, shall forthwith become void and have no effect, without any
liability on the part of any party or its directors, officers or stockholders.
Nothing in this section 7.2 shall relieve any party of liability for breach of
this agreement.
7.3 Amendment. To the extent permitted by applicable law, this
agreement may be amended by action by or on behalf of the boards of directors
of the Company and Mergerco, at any time before or after adoption of this
agreement by the stockholders of the Company, but, after any such stockholder
approval, no amendment shall be made that decreases the Merger Consideration or
adversely affects the rights of the Company's stockholders under this
agreement, except with the approval of the stockholders of the Company. This
agreement may not be amended, except by an instrument in writing signed on
behalf of all the parties.
20
<PAGE> 116
7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties, by action by or on behalf of the boards of directors of the Company
and Mergerco, may (a) extend the time for the performance of any of the
obligations or other acts of the other parties in this agreement, (b) waive any
inaccuracies in the representations and warranties by any other party or in any
document, certificate or writing delivered pursuant to this agreement by any
other party or (c) waive compliance with any of the agreements or conditions in
this agreement. Any agreement by any party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of that party.
8. Miscellaneous
8.1 Representations and Warranties. The representations and
warranties in sections 3 and 4 shall not survive beyond the Effective Time.
8.2 Enforcement of the Agreement. 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 to prevent breaches of this agreement and to enforce specifically
the terms and provisions of this agreement in any federal or state court
located in the state of Delaware (as to which the parties agree to submit to
jurisdiction for the purposes of such action), this being in addition to any
other remedy to which they are entitled at law or in equity.
8.3 Validity. The invalidity or unenforceability of any provision of
this agreement shall not affect the validity or enforceability of any other
provision of this agreement, which shall remain in full force and effect.
8.4 Notices. All notices, requests, claims, demands and other
communications under this agreement shall be in writing and shall be deemed to
have been duly given when delivered in person, by facsimile transmission with
confirmation of receipt, or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties as follows:
if to Mergerco:
100 Century Boulevard
West Palm Beach, Florida 33487
Telecopier: (561) 640-3160
Attention: H. Irwin Levy
with a copy to:
21
<PAGE> 117
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Telecopier: (212) 969-2900
Attention: Klaus Eppler, Esq.
if to the Company:
c/o Bernard Green
583 North Lake Way
Palm Beach, Florida 33488
Telecopier: (407) 848-6793
with a copy to:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A.
1221 Brickell Avenue
Miami, Florida 33131
Telecopier: (305) 579-0717
Attention: Bruce E. Macdonough, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt of notice of the change).
8.5 Governing Law. This agreement shall be governed by and construed
in accordance with the law of the state of Delaware, regardless of the law that
might otherwise govern under principles of conflicts of laws applicable
thereto.
8.6 Headings. The headings in this agreement are for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this agreement.
8.7 Parties in Interest. This agreement shall be binding upon and
inure solely to the benefit of each party to this agreement, and nothing in
this agreement, express or implied, is intended to confer upon any other person
any rights or remedies of any nature under or by reason of this agreement,
except for sections 5.5 and 5.6 (which are intended to be for the benefit of
the persons referred to in those sections, and may be enforced by such persons)
and the first sentence of section 2.4 (which is intended to be for the benefit
of holders of Options and may be enforced by such persons).
8.8 Counterparts. This agreement may be executed in counterparts,
each of which shall be deemed to be an original, but both of which shall
constitute one and the same agreement.
22
<PAGE> 118
8.9 Press Releases. Mergerco and the Company shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the transactions contemplated by this agreement, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law.
8.10 Entire Agreement. This agreement constitutes the entire
agreement among the parties with respect to its subject matter and supersedes
all other prior agreements and understandings, both written and oral, among the
parties with respect to that subject matter.
FLA ACQUISITION CORP.
By: /s/ H. Irwin Levy
-------------------------------
H. IRWIN LEVY
PRESIDENT
HILCOAST DEVELOPMENT CORP.
By: /s/ Jack Jaiven
-------------------------------
JACK JAIVEN
Executive Vice President,
Chief Financial Officer
and Treasurer
23
<PAGE> 119
Schedule 1.5
Directors and Officers
of the Surviving Corporation
Directors
H. Irwin Levy
Mark Levy
Lynn Peseckis
Maurice Halperin
Barry Halperin
Officers
H. Irwin Levy -- President
Mark Levy -- Secretary
Barry Halperin -- Senior Vice President
<PAGE> 120
Schedule 3.2(a)
None.
<PAGE> 121
Schedule 3.2(b)
None.
<PAGE> 122
Schedule 3.4
None.
<PAGE> 123
Schedule 3.6
None.
<PAGE> 124
Schedule 3.7
1992 Stock Option Plan
1995 Stock Option Plan
Employment Agreements between the Company and each of Michael S. Rubin, Jack
Jaiven, Michael A. Rich, James A. Geddes, Harold Cohen and Antoinette Gleeson
HDC Group Health Plan
HDC Flexible Benefit Plan
<PAGE> 125
Schedule 3.8
None.
<PAGE> 126
Schedule 3.9
None.
<PAGE> 127
Schedule 4.2
Stockholders of Mergerco
Name(s) Number of Shares
H. Irwin Levy 4,172
Maurice and Barry Halperin 2,924
<PAGE> 128
EXHIBIT (d)(1)
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
<TABLE>
<S> <C>
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, For Use of the Com-
[ ] Definitive proxy statement mission Only (as permitted by Rule
[ ] Definitive additional materials 14a-6(e)(2))
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
HILCOAST DEVELOPMENT CORP
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
<TABLE>
<S> <C>
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[x] Fee computed on the table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value per Share
- ---------------------------------------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
942,651
- ---------------------------------------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:
$6.00
- ---------------------------------------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$6,722,906
- ---------------------------------------------------------------------------------------------------------------
(5) Total fee paid:
$1,345.00
- ---------------------------------------------------------------------------------------------------------------
[ ] 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:
- ---------------------------------------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- ---------------------------------------------------------------------------------------------------------------
(3) Filing party:
- ---------------------------------------------------------------------------------------------------------------
(4) Date Filed:
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 129
HILCOAST DEVELOPMENT CORP.
19146 Lyons Road
Boca Raton, Florida 33434
-------------------------
NOTICE OF SPECIAL MEETING OF STOCK HOLDERS
To Be Held on January 16, 1997
-------------------------
To the Stockholders
of Hilcoast Development Corp.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Hilcoast Development Corp., a Delaware corporation (the "Company"), will be
held at 11:00 a.m., local time, on Thursday, January 16, 1997, at the Omni
Hotel, 1601 Belvedere Road, West Palm Beach, Florida 33406, for the following
purposes:
1. To consider and vote upon the approval and adoption of an
Agreement and Plan of Merger (the "Merger Agreement"),
providing for the merger (the "Merger") with and into the
Company of FLA Acquisition Corp. ("Mergerco"), a Delaware
corporation formed by the Company's Chairman of the Board and
certain other stockholders for the purpose of consummating the
Merger, 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 Mergerco, any
of its subsidiaries or any dissenting stockholders who perfect
their statutory appraisal rights under Delaware law), will be
converted into the right to receive $6.00 in cash, without
interest. The Merger Agreement is more fully described in the
accompanying Proxy Statement and is attached as Exhibit A to
the Proxy Statement.
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on Tuesday,
December 10, 1996 as the record date for the determination of stockholders
entitled to vote at the meeting and, accordingly, only stockholders of record
at the close of business on such date are entitled to notice of and to vote at
the meeting and any adjournment thereof. The stock transfer books of the
Company will not be closed prior to the meeting.
Stockholders of the Company who do not vote in favor of approval and
adoption of the Merger Agreement and who otherwise comply with the provisions
of Section 262 of the Delaware General Corporation Law will have the right if
the Merger is consummated to dissent and to seek appraisal of the fair market
value of their shares. See "Rights of Dissenting Stockholders" in the
accompanying Proxy Statement, and Exhibit C thereto, for a description of the
procedures required to be followed in order to exercise properly dissenters'
rights.
In order to assure that your vote will be counted, please complete,
date, sign and return the enclosed proxy promptly in the enclosed prepaid
envelope whether or not you plan to attend the meeting. Your proxy may be
revoked at any time before it is voted, by filing with the Secretary of the
Company a written revocation, by submitting a proxy bearing a later date, or by
attending and voting in person at the meeting.
THE BOARD OF DIRECTORS OF THE COMPANY (OTHER THAN THE CHAIRMAN, WHO
ABSTAINED FROM SUCH VOTE) HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS
THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
By Order of the Board of Directors
Orilla F. Floyd
Secretary
Boca Raton, Florida
December __, 1996
YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY,
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING.
PLEASE DO NOT SEND IN ANY CERTIFICATES
FOR YOUR SHARES AT THIS TIME.
<PAGE> 130
HILCOAST DEVELOPMENT CORP.
19146 Lyons Road
Boca Raton, Florida 33434
-------------------------
PROXY STATEMENT
-------------------------
SPECIAL MEETING OF STOCKHOLDERS
To Be Held on January 16, 1997
This Proxy Statement (this "Proxy Statement") is furnished in
connection with the solicitation by the Board of Directors of Hilcoast
Development Corp., a Delaware corporation (the "Company"), of proxies from the
holders of shares (the "Shares") of the Company's Common Stock, par value $.01
per share (the "Common Stock"), for use at a Special Meeting of Stockholders of
the Company to be held at 11:00 a.m. local time, on Thursday, January 16, 1997,
at the Omni Hotel, 1601 Belvedere Road, West Palm Beach, Florida 33406, or at
any adjournment(s) or postponement(s) thereof (the "Meeting"), pursuant to the
enclosed Notice of Special Meeting of Stockholders. Only holders of record of
Shares at the close of business on Tuesday, December 10, 1996 (the "Record
Date") are entitled to notice of and to vote at the Meeting. The approximate
date that this Proxy Statement and the enclosed proxy are first being sent to
stockholders is December __, 1996. Stockholders should review the information
provided herein in conjunction with the Company's Annual Report on Form 10-K
for the fiscal year ended July 31, 1996, as amended, and the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1996,
copies of which are attached as Exhibits D and E, respectively, to this Proxy
Statement, and other information incorporated herein by reference. See
"Documents Incorporated by Reference." The Company's principal executive
offices are located at 19146 Lyons Road, Boca Raton, Florida 33434, and its
telephone number is (561) 487-9630.
At the Meeting, the stockholders of the Company will be asked to
consider and vote upon the approval and adoption of the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of November 21, 1996 between the
Company and FLA Acquisition Corp. ("Mergerco"), a Delaware corporation, a copy
of which is attached to this Proxy Statement as Exhibit A. The Merger
Agreement provides for the merger (the "Merger") of Mergerco, with and into the
Company, with the Company being the surviving corporation (the "Surviving
Corporation"). Pursuant to the Merger Agreement, each outstanding Share (other
than Shares held by Mergerco or any subsidiary of Mergerco, all of which will
be cancelled, and other than shares held by dissenting stockholders who perfect
their statutory appraisal rights under Delaware law), will be converted into
the right to receive $6.00 in cash, without interest (the "Merger
Consideration"). Mergerco has been formed by the Company's Chairman of the
Board, Chief Executive Officer and largest stockholder, H. Irwin Levy, and the
Company's next largest stockholders, Maurice A. Halperin and Barry S. Halperin
(together, "Messrs. Halperin"). The effect of the Merger will be to convert
the Company from a publicly held to a privately held corporation wholly owned
by Mr. Levy and Messrs. Halperin, while providing to the public stockholders a
cash price for their Shares representing a premium over market prices
prevailing prior to the announcement of the Merger. See "Special Factors -
Background of the Merger" and "Market for the Company's Common Stock and
Related Stockholder Matters."
--------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE 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.
<PAGE> 131
Consummation of the Merger is subject to certain conditions, including
approval by the holders of a majority of the outstanding Shares and the
exercise of rights to appraisal under the Delaware General Corporation Law by
holders of no more than 5% of the outstanding Shares. As of the Record Date,
Mr. Levy and Messrs. Halperin collectively held 60.1% of the outstanding
Common Stock. This voting interest will enable them to cast a sufficient
number of votes to approve and adopt the Merger Agreement without the
affirmative vote of any other stockholder. It is contemplated that Mergerco
will finance its obligations pursuant to the Merger with loans from Mr. Levy and
Messrs. Halperin, who will use their personal funds and obtain additional funds
through borrowings from an institutional lender to make such loans. See
"Financing of the Merger." For a discussion of the interests of certain
officers, directors and employees of the Company and its subsidiaries in this
transaction, see "Special Factors - Interests of Certain Persons in the
Merger."
A Special Committee (the "Special Committee") was appointed by the
Board of Directors, consisting of one director who is neither an employee of,
nor holds a substantial stock interest in, the Company, to review the terms of
the Merger Agreement and to report to the Board regarding the fairness of the
Merger to the Company's stockholders. Subsequent to its receipt of the
fairness opinion described below, the Special Committee concluded that the
Merger is fair to and in the best interest of the Company's public stockholders
and recommended that the Board approve the Merger Agreement. At a meeting held
on November 12, 1996, the Board (other than Mr. Levy, who abstained from such
vote) unanimously approved the Merger Agreement, concluded that the Merger is
fair to and in the best interest of the Company's public stockholders and
recommended that the Company's stockholders approve and adopt the Merger
Agreement. The Special Committee and the Board, in reaching their respective
decisions, considered a number of factors, including the opinion of Patricof &
Co. Capital Corp. ("Patricof"), an investment banking firm engaged by the
Special Committee as its exclusive financial advisor, that the Merger
Consideration is fair to the Company's public stockholders from a financial
point of view. See "Special Factors - Recommendation of the Special Committee
and Board of Directors; Fairness of the Merger" and "- Opinion of Financial
Advisor."
Mr. Levy, the Chairman of the Board and Chief Executive Officer of the
Company, is the organizer of Mergerco and immediately prior to the
effectiveness of the Merger will acquire approximately 58.8% of the equity of
Mergerco. Mr. Levy beneficially owns 834,637 Shares of the Company's Common
Stock (approximately 35.3% of the outstanding Shares). Immediately prior to
the effectiveness of the Merger, Messrs. Halperin will collectively acquire
approximately 41.2% of the equity of Mergerco. Maurice A. Halperin and Barry S.
Halperin share voting and dispositive power with respect to the Shares owned by
each other. Together, Messrs. Halperin beneficially own 585,032 Shares of the
Company's Common Stock (approximately 24.8% of the outstanding Shares).
Following the effectiveness of the Merger, Mr. Levy will own 58.8% of the
common stock of the Surviving Corporation, and Messrs. Halperin will
collectively own 41.2%. Such ownership will arise from the conversion, upon
the consummation of the Merger, of all of the outstanding common stock of
Mergerco into all of the outstanding common stock of the Surviving Corporation.
See "Information Concerning Mergerco," "Information Concerning Mr. Levy" and
"Information Concerning Messrs. Halperin."
The Merger Agreement provides that, other than Mr. Levy, none of the
current members of the Company's Board of Directors will be the initial
directors of the Surviving Corporation. The Merger Agreement also provides
that, with the exception of Mr. Levy who will serve as president, none of the
current officers of the Company will be the initial officers of the Surviving
Corporation.
If the Merger is not consummated for any reason, the Company expects
that the business of the Company will be conducted generally in the same manner
as it has been conducted heretofore (see "Special Factors-Reasons for the
Merger"), and the Board of Directors elected at the Company's December 18, 1995
Annual Meeting of Stockholders will remain in office.
All information contained in this Proxy Statement concerning Mergerco,
Mr. Levy and Messrs. Halperin, the financing to be obtained for the Merger and
plans for the Surviving Corporation has been supplied by Mergerco. Except as
otherwise indicated, all other information contained in this Proxy Statement
has been supplied by the Company.
Stockholders are urged to read and consider carefully the information
contained in this Proxy Statement and to consult with their personal financial
and tax advisors.
-------------------------
The date of this Proxy Statement is December __, 1996.
(ii)
<PAGE> 132
TABLE OF CONTENTS
<TABLE>
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Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Voting at the Meeting; Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Special Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Recommendation of the Special Committee and Board of Directors; Fairness of the Merger . . . . . . . . . . . . 12
Position of Mr. Levy and Messrs. Halperin Regarding Fairness of the Merger . . . . . . . . . . . . . . . . . . 14
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Mergerco's Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Plans for the Company after the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Certain Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Payment for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Conditions, Representations and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Directors and Officers of the Company Following the Merger; Certificate of Incorporation . . . . . . . . . . . 27
Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Termination; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Certain Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Federal Income Tax Consequences of the Merger to the Company's Stockholders . . . . . . . . . . . . . . . . . . . . . 32
Rights of Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Financing of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Information Concerning Mergerco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Information Concerning Mr. Levy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Information Concerning Messrs. Halperin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Market for the Company's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . 39
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Information as to Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Other Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Information Concerning Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Documents Incorporated by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
EXHIBIT A - Agreement And Plan Of Merger
EXHIBIT B - Opinion Of Patricof & Co. Capital Corp.
EXHIBIT C - Section 262 Of The Delaware General Corporation Law
EXHIBIT D - Annual Report on Form 10-K for the Fiscal Year ended July 31, 1996, as amended
EXHIBIT E - Quarterly Report on Form 10-Q for the Fiscal Quarter ended October 31, 1996
</TABLE>
(iii)
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SUMMARY
The following summary is intended to highlight certain information
contained in this Proxy Statement. This summary does not purport to be
complete and is qualified in its entirety by the more detailed information
contained elsewhere in this Proxy Statement, the Exhibits hereto and the other
documents referred to herein. Unless defined herein, capitalized terms used in
this summary have the meanings ascribed to them elsewhere in this Proxy
Statement. Stockholders are urged to read this Proxy Statement, the Exhibits
hereto and the documents referred to herein in their entirety.
<TABLE>
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Entity Soliciting Proxies . . . . . . . . . The Company
Merger Agreement . . . . . . . . . . . . . The Company and Mergerco have entered into a Merger Agreement, dated as
of November 21, 1996, providing for the Merger of Mergerco with and
into the Company, with the Company being the Surviving Corporation.
Under the terms of the Merger Agreement, each Share of the Company's
Common Stock outstanding immediately prior to the effective time of
the Merger (other than Shares held by Mergerco or any subsidiary of
Mergerco, all of which will be cancelled, and other than Shares held
by dissenting stockholders who perfect their statutory appraisal
rights under Delaware law) will be converted into the right to receive
$6.00 in cash, without interest. Immediately prior to the effective
time of the Merger, Mr. Levy and Messrs. Halperin will contribute all
of their respective Shares of the Company's Common Stock to Mergerco
in exchange for shares of the common stock of Mergerco. Upon
consummation of the Merger, the shares of the Company's Common Stock
held by Mergerco will be cancelled and the common stock of Mergerco
owned by Mr. Levy and Messrs. Halperin will be converted into all of
the outstanding common stock of the Surviving Corporation. Thus, as a
result of the Merger, the Surviving Corporation will become wholly-
owned by Mr. Levy and Messrs. Halperin. See "Special Factors-
Interests of Certain Persons in the Merger," and "Information as to
Stock Ownership."
Date, Time and Place of Special
Meeting of Stockholders . . . . . . . . . The Meeting will be held on Thursday, January 16, 1997, at the Omni
Hotel, 1601 Belvedere Road, West Palm Beach, Florida 33406, at 11:00
a.m. local time.
Record Date . . . . . . . . . . . . . . . . Only stockholders of record at the close of business on Tuesday,
December 10, 1996 are entitled to notice of and to vote at the
Meeting. On that date there were 2,362,320 shares of the Company's
Common Stock outstanding.
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Purposes of the Meeting . . . . . . . . . . (1) To consider and vote upon the approval and adoption of the Merger
Agreement (attached as Exhibit A); and (2) to transact such other
business as may properly come before the Meeting or any adjournment
thereof.
Vote Required . . . . . . . . . . . . . . . Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of the Company's
Common Stock. Each Share is entitled to one vote. As of the Record
Date, Mr. Levy and Messrs. Halperin collectively held 60.1% of the
outstanding Common Stock. This voting interest will enable them to
cast a sufficient number of votes to approve and adopt the Merger
Agreement without the affirmative vote of any other stockholder. All
shares represented at the Meeting by properly executed proxies, unless
previously revoked, will be voted at the Meeting in accordance with the
instructions on the proxies. UNLESS CONTRARY INSTRUCTIONS ARE INDICATED,
PROXIES WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
See "General Information - Voting at the Meeting; Required Vote" and
"- Proxies."
Recommendation of the Special
Committee and Board of Directors . . . . The Special Committee has concluded that the Merger is fair to and in
the best interest of the Company's public stockholders and recommended
that the Board approve the Merger Agreement. At a meeting held on
November 12, 1996, the Board (other than Mr. Levy, who abstained)
unanimously approved the Merger Agreement, concluded that the Merger
is fair to and in the best interest of the Company's public
stockholders and recommended that the Company's stockholders approve
and adopt the Merger Agreement. The Special Committee and the Board,
in reaching their respective decisions, considered a number of
factors. See "Special Factors-Recommendation of the Special Committee
and Board of Directors; Fairness of the Merger." The sole member of
the Special Committee is and has at all times been Bernard R. Green,
who neither is an employee of the Company nor has a significant stock
interest in the Company.
THE BOARD, INCLUDING THE SPECIAL COMMITTEE (AND OTHER THAN MR. LEVY, WHO
ABSTAINED), HAS UNANIMOUSLY RECOMMENDED THAT STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
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Opinion of Financial Advisor . . . . . . . The Special Committee retained Patricof to provide financial advice and
other assistance to the Special Committee, including performing a
market check of companies that may have had an interest in acquiring
all or any part of the Company. Patricof has delivered its written
opinion to the Special Committee and the Board to the effect that the
Merger Consideration is fair to the Company's public stockholders from
a financial point of view. A copy of Patricof's opinion is attached
hereto as Exhibit B. Stockholders are urged to read this opinion in
its entirety for assumptions made, matters considered, procedures
followed and scope of review by Patricof in rendering its opinion. See
"Special Factors-Opinion of Financial Advisor."
Background of the Merger . . . . . . . . . For a description of the events leading up to the approval of the Merger
Agreement by the Board, see "Special Factors - Background of the
Merger."
Interests of Certain Persons
in the Merger . . . . . . . . . . . . . . Mr. Levy, Chairman of the Board of Directors and Chief Executive Officer
of the Company, owns 834,637 shares of the Company's Common Stock, and
Maurice A. Halperin and Barry S. Halperin together own 585,032 shares
of the Company's Common Stock. Immediately prior to the effective time
of the Merger, Mr. Levy and Messrs. Halperin will each transfer all of
their respective Shares to Mergerco. As a result of the Merger, Mr. Levy
will own 2,924 shares, or 58.8%, of the common stock of the Surviving
Corporation, and Messrs. Halperin will own collectively 4,172 shares, or
41.2%, of the common stock of the Surviving Corporation. See "Special
Factors - Interest of Certain Persons in the Merger."
The Merger Agreement provides that, (i) other than Mr. Levy, none of the
current directors of the Company will be the initial directors of the
Surviving Corporation, and, (ii) with the exception of Mr. Levy, who
will serve as president, none of the current officers of the Company
will be the initial officers of the Surviving Corporation. See "The
Merger Agreement - Directors and Officers of the Company Following the
Merger; Certificate of Incorporation."
Mergerco has agreed in the Merger Agreement to cause the Surviving
Corporation to provide and maintain directors' and officers' liability
insurance and to indemnify the current directors and officers of the
Company subsequent
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to the Merger. See "The Merger Agreement - Indemnification and
Insurance."
Certain officers, directors and employees of the Company will benefit
from the Merger because of their interests in the Company's stock
option plans as described under "Company Stock Option Plan Interests"
below, and because they currently own Shares of the Company's Common
Stock. See "Special Factors-Certain Effects of the Merger," "-Plans
for the Company after the Merger" and "-Interests of Certain Persons
in the Merger."
Company Stock Option Plan Interests . . . . The Merger Agreement provides that the Company's 1992 Stock Option Plan
and the Company's 1995 Stock Option Plan (together, the "Plans") will
be terminated and that Mergerco will pay to each holder of an option
thereunder cash, less applicable withholding taxes, in an amount equal
to the excess, if any, of $6.00 over the per share exercise price for
each Share of Common Stock subject to the option. See "Special
Factors-Interests of Certain Persons in the Merger" and "The Merger
Agreement - Stock Options."
Effective Time of the Merger . . . . . . . The Merger is expected to become effective as of the date and time (the
"Effective Time") of the filing of an appropriate Certificate of
Merger with the Secretary of State of the State of Delaware, which is
anticipated to occur as soon as practicable after the approval and
adoption of the Merger Agreement by the Company's stockholders and the
satisfaction or waiver of the other conditions to the Merger stated in
the Merger Agreement.
Payment to Stockholders . . . . . . . . . . Immediately prior to or at the Effective Time, Mergerco will deliver to
ChaseMellon Shareholder Services, in its capacity as a paying agent
(the "Paying Agent"), in trust, all of the cash to be paid to the
Company's stockholders. Notice of completion of the Merger, together
with instructions regarding procedures for payment, will be mailed to
stockholders as soon as practicable after the Effective Time. See
"The Merger Agreement-Payment for Shares" and "The Merger Agreement-
The Exchange Fund."
STOCKHOLDERS SHOULD NOT SURRENDER CERTIFICATES FOR SHARES OF THE
COMPANY'S COMMON STOCK UNTIL THEY RECEIVE A TRANSMITTAL LETTER
CONTAINING SUCH INSTRUCTIONS.
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Dissenters' Rights . . . . . . . . . . . . Under Delaware law, stockholders who do not vote in favor of the Merger
and file demands for appraisal prior to the stockholder vote on the
Merger Agreement, upon the consummation of the Merger, have the right
to obtain a cash payment for the "fair value" of their Shares
(excluding any element of value arising from the accomplishment or
expectation of the Merger). In order to exercise such rights, a
stockholder must comply with all of the procedural requirements of
Section 262 ("Section 262") of the General Corporation Law of the
State of Delaware, a description of which is provided in "Rights of
Dissenting Stockholders" herein and the full text of which is attached
to this Proxy Statement as Exhibit C. Such "fair value" would be
determined in judicial proceedings, the result of which cannot be
predicted. Failure to take any of the steps required under Section 262
may result in a loss of such dissenters' rights.
Federal Income Tax Consequences . . . . . . If the Merger is consummated, the Company's stockholders (including
dissenting stockholders) will recognize taxable gain or loss for
federal income tax purposes equal to the difference between the
stockholders' adjusted tax bases in their Shares and the amount of
cash received therefor. Stockholders should consult their tax advisors
with respect to the tax consequences of the transaction. See "Federal
Income Tax Consequences of the Merger to the Company's Stockholders."
Conditions to the Merger;
Termination . . . . . . . . . . . . . . . The consummation of the Merger is conditioned upon the fulfillment of
certain conditions contained in the Merger Agreement, including the
approval and adoption of the Merger Agreement by the holders of a
majority of the outstanding Shares and the exercise of rights to
appraisal under the Delaware General Corporation Law by holders of not
more than 5% of the outstanding Shares of Common Stock. See "The
Merger Agreement-Conditions, Representations and Covenants" and
Exhibit A.
As of the Record Date, Mr. Levy and Messrs. Halperin collectively held
approximately 60.1% of the outstanding Common Stock. This voting interest
will enable them to cast a sufficient number of votes to approve and adopt
the Merger Agreement without the affirmative vote of any other stockholder.
See "General Information - Voting at the Meeting; Required Vote."
The Merger Agreement may be terminated upon mutual consent of the Boards
of the Company and Mergerco, by either the Company or Mergerco if the
Merger has not
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been consummated on or before March 31, 1997, and under certain other
circumstances. See "The Merger Agreement - Termination; Amendments"
and Exhibit A.
Financing of the Merger . . . . . . . . . . Immediately prior to the Effective Time, Mergerco will deliver to the
Paying Agent cash sufficient to pay the Merger price for each
outstanding Share of the Company's Common Stock (other than Shares
held by Mergerco). The total amount of cash required to consummate
the Merger will be $7,132,501, consisting of approximately $5,655,906
which will be paid to the stockholders of the Company (other than Mr.
Levy and Messrs. Halperin), approximately $1,067,000 which will be
paid to holders of outstanding options to purchase Common Stock of the
Company in cancellation of such stock options, and approximately
$409,595, which will be used to pay estimated transaction fees and
expenses. It is contemplated that Mergerco will finance its
obligations pursuant to the Merger with loans from Mr. Levy and
Messrs. Halperin, who will use their personal funds and obtain
additional funds through borrowings from an institutional lender to
make such loans. See "Financing of the Merger."
Accounting Treatment . . . . . . . . . . . The Merger comprises entities under common control; accordingly, the
accounting treatment will be similar to a pooling of interests.
Fees and Expenses . . . . . . . . . . . . . The total amount of fees and expenses estimated to be incurred in
connection with the Merger is $409,595. Such amount includes,
among other things, the fees due Patricof, the Special Committee and
counsel to Mergerco, accounting fees, and commitment and related fees
and expenses related to the financing of the Merger. See "Special
Factors - Opinion of Financial Advisor," "The Merger Agreement - Fees
and Expenses" and "Fees and Expenses."
Business of the Company . . . . . . . . . . The Company is primarily engaged in the design, development,
construction, marketing and sale of condominium apartments at the
Century Village adult condominium project in Pembroke Pines, Florida
("Century Village"), and the operation of the recreation facilities
located there. In addition, the Company is engaged in the development
of single-family homesites in a golf course community in Volusia
County, Florida, known as Glen Abbey ("Glen Abbey"), and the sale of
those homesites to local builders and retail customers. The Company
also derives revenues from a variety of real
</TABLE>
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<TABLE>
<S> <C>
estate related activities, including certain maintenance and community
services at Century Village, real estate brokerage, title insurance
agency services, and investment advisory and consulting services.
The Company is involved in all phases of planning and building Century
Village, including site planning and preparation, application for and
receipt of regulatory approval, design, construction, marketing and
sales, in addition to constructing recreation facilities and other
amenities. The Company is also involved in all phases of the
development of Glen Abbey, including site planning and preparation,
application for and receipt of regulatory approvals, and sales and
marketing to builders and other potential purchasers.
Certain Effects of the Merger . . . . . . . If the Merger is consummated, the Company's public stockholders will no
longer have any interest in, and will not be stockholders of, the
Company and, therefore, will not participate in its future potential
earnings and growth and will not be subject to the risks associated
with an investment in the Company. Instead, each such stockholder
will have the right to receive upon consummation of the Merger $6.00
in cash for each Share he or she held (other than shares held by
Mergerco, any of its subsidiaries or stockholders who perfect their
statutory appraisal rights under Delaware law) whether or not the
Company's future earnings meet the projections on which the
determination of the fairness of the price was based. Conversely, if
the Merger is consummated, Mr. Levy and Messrs. Halperin will realize
all of the Company's profits and losses, as well as any future
deterioration or improvement in the Company's earnings. See "Special
Factors - Certain Effects of the Merger."
Market Price of the Company's
Common Stock . . . . . . . . . . . . . . Mr. Levy delivered a letter to the Company's Board at a meeting held on
Friday, August 9, 1996 in which he proposed the Merger. On the
following Monday, August 12, the Company issued a press release
revealing Mr. Levy's letter, and the same day, Mr. Levy filed a
Schedule 13D under the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), with the Securities and Exchange Commission (the
"Commission"), to which his letter was attached as an exhibit. The
last sale prices per Share (or, in the absence of trading, the high
and low bid and ask prices) of the Company's Common Stock reported by
the National Association of Securities Dealers Automated Quotation
</TABLE>
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System ("Nasdaq") on August 5, 6, 7,
8 and 9, 1996, were, respectively:
$4-5/8; $4-5/8 and $5; $4-5/8; $4-5/8
and $4-7/8; and $4-5/8 and $4-7/8.
As reported by Nasdaq, on November 12,
1996, the date the Board approved
the Merger Agreement, the high and low
bid and ask prices of the Company's
Common Stock as reported by Nasdaq
were $5-5/16 and $5-13/16 per Share.
As reported by Nasdaq, on November
20, 1996, the last full trading day
prior to the date of execution of the
Merger Agreement, the high and low bid
and ask prices were $5-5/16 and
$5-13/16 per Share, and on December
___, 1996, the last full trading day
prior to the date of this Proxy
Statement, the last sale price was
$____ per Share. Stockholders are
urged to obtain current quotations for
the Shares. See "Market for the
Company's Common Stock and Related
Stockholder Matters" for the market
price range of the Common Stock for
each quarter during the years ended
July 31, 1996 and 1995 and the quarter
ended October 31, 1996, as well as
additional related information.
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GENERAL INFORMATION
VOTING AT THE MEETING; REQUIRED VOTE
The Board of Directors has fixed the close of business on December 10,
1996 as the Record Date for the Meeting, and only holders of the Company's
Common Stock of record at the close of business on that date are entitled to
notice of and to vote at the Meeting. As of that date, there were 2,362,320
Shares of the Company's Common Stock outstanding and entitled to vote, held by
approximately 350 holders of record. Each share is entitled to one vote.
The presence, in person or by properly executed proxy, of the holders
of a majority of the outstanding Shares of the Company's Common Stock entitled
to vote is necessary to constitute a quorum at the Meeting. The affirmative
vote of the holders of a majority of the outstanding Shares is required for
approval and adoption of the Merger Agreement. As of the Record Date, Mr. Levy
and Messrs. Halperin collectively held approximately 60.1% of the outstanding
Common Stock. This voting interest will enable them to cast a sufficient
number of votes to approve and adopt the Merger Agreement without the
affirmative vote of any other stockholder.
PROXIES
The enclosed proxy is solicited on behalf of the Company's Board of
Directors. The giving of a proxy does not preclude the right to vote in person
should any stockholder giving the proxy so desire. Stockholders have an
unconditional right to revoke their proxy at any time prior to the exercise
thereof, either in person at the Meeting or by filing with the Company's
Secretary at the Company's principal executive offices a written revocation or
duly executed proxy bearing a later date; however, no such revocation will be
effective until written notice of the revocation is received by the Company at
or prior to the Meeting. The proxy committee will vote all proxies in its
possession which have not been revoked. Attendance at the Meeting will not, by
itself, constitute revocation of a proxy. Any written notice revoking a proxy
should be sent to Hilcoast Development Corp., 19146 Lyons Road, Boca Raton,
Florida 33434, Attention: Secretary.
All shares represented at the Meeting by properly executed proxies
received prior to or at the Meeting, unless previously revoked, will be voted
at the Meeting in accordance with the instructions on the proxies. Unless
contrary instructions are indicated, proxies will be voted FOR the approval and
adoption of the Merger Agreement. The Company does not know of any matters,
other than as described in the Notice of Special Meeting of Stockholders, which
are to come before the Meeting. If any other matters are properly presented at
the Meeting for action, the persons named in the enclosed form of proxy and
acting thereunder will have discretion to vote on such matters in accordance
with their best judgment.
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Special Meeting of Stockholders and the enclosed proxy is to be borne
by the Company. The Company will request banks, brokers and other custodians,
nominees and fiduciaries to forward copies of the proxy material to their
principals and to request authority for the execution of proxies. The Company
may reimburse such persons for their expenses in so doing.
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No person is authorized to give any information or make any
representation not contained in this Proxy Statement, and if given or made,
such information or representation should not be relied upon as having been
authorized.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Prior to the Company's Board meeting at which Mr. Levy delivered his
letter containing the Merger proposal, Mr. Levy informed Messrs. Halperin of
his intention to make the Merger proposal and asked them if they would be
interested in participating in the formation and ownership of Mergerco for the
purpose of effecting the Merger. Messrs. Halperin informed Mr. Levy that they
were interested in such a participation, whereupon Mr. Levy delivered his
letter to the Board in a form that reflected his understanding with Messrs.
Halperin.
On August 9, 1996, at a regular meeting of the Company's Board of
Directors, the Board received a letter from Mr. Levy, the Company's Chairman of
the Board, Chief Executive Officer and holder of approximately 35.3% of the
Company's outstanding Shares, containing an unsolicited proposal on behalf of
an acquisition corporation to be formed by Mr. Levy and Messrs. Halperin,
holders of approximately 24.8% of the Company's outstanding Shares,
contemplating the Merger, including the proposed Merger Consideration of $6.00
per Share. On August 12, 1996, the Company issued a press release to that
effect.
At the meeting held on August 9, 1996, the Board appointed Bernard R.
Green to be the sole member of the Special Committee. Mr. Green is not an
employee of the Company or an affiliate of Mergerco and holds less than 1% of
the outstanding Common Stock of the Company. Mr. Green has been at all times
the sole member of the Special Committee. For his services on the Special
Committee, the Company has agreed to pay Mr. Green a fee of $100,000 upon the
consummation of the Merger.
On August 19, 1996, the Special Committee retained independent legal
counsel and discussed with such counsel the Merger proposal and the role of the
Special Committee. Such legal counsel has, from time to time, provided legal
services to the Company, which, in the most recent several years, have
consisted primarily of reviewing periodic reports, proxy statements and other
documents filed with the Commission. The Special Committee also held a number
of telephonic conferences with its legal counsel concerning the terms of the
Merger Agreement and the preparation of this Proxy Statement.
During August 1996, the Special Committee considered several nationally
recognized investment banking firms and interviewed two such firms for possible
retention to act as financial advisor to the Special Committee and to furnish
an opinion as to the fairness, from a financial point of view, of the
consideration to be received by the Company's public stockholders in the
Merger. On September 3, 1996, the Special Committee retained Patricof to act
as its financial advisor (i) to furnish an opinion as to the fairness, from a
financial point of view, of the consideration to be received by the Company's
public stockholders in the proposed Merger, and (ii) to provide such additional
assistance to the Special Committee as it may reasonably request (including
advice with respect to alternatives available to the Company other than the
Merger). On that day, the Special Committee also discussed with Patricof the
work to be performed by Patricof with respect to its analyses of the Merger
proposal. The engagement of
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Patricof was based on Patricof's position as a nationally recognized investment
banking firm and its experience in transactions of this type.
From the time of its engagement until the delivery of its written
opinion to the Special Committee and the Board, Patricof conducted a review of
the business, operations and prospects of the Company and in connection
therewith had a number of meetings, including telephonic meetings, with members
of the Company's management and inspected certain of the Company's facilities.
As part of its review of the proposed transaction, the Special
Committee considered whether to solicit proposals from third parties which
might be interested in acquiring the entire Company, including the interests of
Mr. Levy and Messrs. Halperin. The Special Committee inquired whether Mr. Levy
and Messrs. Halperin would be willing to sell their respective equity interests
in the Company. Mr. Levy and Messrs. Halperin confirmed that they had no
present intention of selling the Shares they beneficially own to any potential
acquiror. Notwithstanding Mr. Levy's and Messrs. Halperin's present intent not
to sell their Shares, Patricof performed a market check by transmitting letters
to seven potential acquirors selected by Patricof soliciting indications of
interest in acquiring all or any part of the Company. Three of such potential
acquirors indicated that they were not interested, and Patricof has received no
response from the others. In addition to the foregoing, neither the Company,
the Board nor the Special Committee has received any offers from other parties
to acquire the Company. The Special Committee, however, has been authorized to
consider proposals from third parties, if any such proposals are made.
At a telephonic meeting held on October 30, 1996, in which the Special
Committee, counsel to the Special Committee and representatives of Patricof
participated, Patricof presented a preliminary analysis of the proposed Merger
to the Special Committee and stated that it was prepared to render its opinion
with respect to the fairness, from a financial point of view, of the Merger
Consideration to be received by the Company's public stockholders in the
proposed Merger. At that meeting, the Special Committee obtained
clarifications from Patricof with respect to certain portions of its report.
Through October and November 1996, counsel to the Special Committee and
counsel to Mergerco negotiated various terms of the Merger Agreement by
telephonic conference.
Counsel to the Special Committee and counsel to Mergerco also held
discussions regarding the language of this Proxy Statement.
After reviewing Patricof's preliminary analysis and drafts of the
Merger Agreement, and discussing the terms of the Merger with its financial
advisor and legal counsel, following receipt of Patricof's oral fairness
opinion, the Special Committee concluded that the proposed Merger was fair to
and in the best interest of the public stockholders of the Company and
recommended that the Board of Directors of the Company approve and adopt the
Merger Agreement and that the Board of Directors recommend to the stockholders
that they approve and adopt the Merger Agreement.
On November 12, 1996, at a meeting of the Board of Directors, Patricof
presented its analysis of the proposed Merger to the Board of Directors and
rendered its oral opinion that the $6.00 cash per Share constituting the Merger
Consideration was fair to the Company's public stockholders from a financial
point of view. After discussion regarding the Patricof report, the Special
Committee made its recommendation
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regarding the Merger Agreement to the Board of Directors. After reviewing with
representatives of Patricof the basis for its opinion, and reviewing and
approving the terms and conditions of the proposed Merger Agreement, the Board
(other than Mr. Levy, who abstained because of his interest in the Merger)
unanimously approved the Merger Agreement, concluded that the Merger is fair to
and in the best interest of the Company's public stockholders and recommended
that the stockholders approve and adopt the Merger Agreement.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS; FAIRNESS OF THE
MERGER
THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS (OTHER THAN MR. LEVY WHO
ABSTAINED) HAVE UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AND RECOMMENDED
THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT.
The Special Committee and the Board (other than Mr. Levy who abstained)
have unanimously approved the Merger Agreement, concluded that the Merger is
fair to and in the best interest of the public stockholders of the Company, and
have recommended that the stockholders approve and adopt the Merger Agreement.
The Special Committee, in making its recommendation to the Board, and
the Board, in reaching its decision, considered a number of factors, including
without limitation, the following:
(i) The opinion of Patricof regarding the fairness, from
a financial point of view, of the Merger Consideration to the public
stockholders of the Company and the written report and oral
presentations regarding such report by Patricof to the Special
Committee and the Board, including Patricof's comparative company and
discounted cash flow analyses, its comparative transaction analysis,
its consideration of breakup value and liquidation value and its market
check. See "Opinion of Financial Advisor." The Special Committee
expressly accepted the conclusion and analysis of Patricof. In its
review of the analyses performed by Patricof, the Special Committee and
the Board did not study each of the separate analyses individually but
rather relied upon the summary and conclusions of Patricof that the
analyses, taken as a whole, supported the conclusion that the Merger is
fair to the Company's public stockholders from a financial point of
view. Based on Patricof's expertise and experience in the evaluation
of businesses in connection with transactions similar to the Merger and
Patricof's explanations of its methodology and analyses, the Special
Committee and the Board believed that Patricof's opinion as to the
fairness of the Merger Consideration to be received by the public
stockholders was well supported and sound. The Board and the Special
Committee believed that the Patricof written report, oral presentations
and opinion supported the Special Committee's and Board's fairness
determination.
(ii) The premium by which the Merger Consideration of
$6.00 per Share exceeds the high and low closing bid and ask prices
($4-5/8 and $4-7/8) of the Shares on the day prior to the Company's
announcement of its receipt of the Merger proposal from Mr. Levy, the
premium by which the Merger Consideration exceeds the highest price
($5.00) at which the Shares traded in the 52-week period preceding such
announcement date, and the fact that the Merger Consideration is
substantially in excess of the Company's book value per Share of $0.78
at July 31, 1996, or approximately 7.7 times such book value per Share.
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(iii) The low level of trading of the Shares on the Nasdaq
Small-Cap Market and the small number of stockholders of record
(approximately 350 as of October 31, 1996). As a result, a stockholder
who currently wants to sell his or her Shares may find it very
difficult to do so. The Merger would provide each stockholder other
than Mergerco with cash for his or her shares.
(iv) The Board's and Special Committee's assessment that
Mr. Levy and Messrs. Halperin will be able to consummate the Merger in
a timely fashion given the extent of their personal funds, the nature
and sources of their financing commitments received with respect to the
Merger and the conditions to the obligations of such institutions to
fund such commitments.
(v) The adequacy of the information regarding the Company
which the Special Committee and its financial and legal advisors had
been provided. The members of the Board and the Special Committee have
knowledge of and a familiarity with the business, financial condition,
existing assets, results of operations and prospects of the Company, as
well as the industry, the risks associated with achieving its projected
operating results, and the impact on the Company of general economic
and market conditions. Based on such knowledge and general knowledge
about stock market values, the members of the Board and the Special
Committee believed that the projections considered by Patricof (see
"Certain Projections") were reasonable and supported the Board's and
the Special Committee's fairness determination.
(vi) The establishment of the Special Committee to make an
independent determination as to the fairness of the Merger and to
negotiate the terms of the Merger Agreement with representatives of
Mergerco, given the potential conflict of interest of Mr. Levy and
certain other directors, supported the Board's and the Special
Committee's determination of fairness.
(vii) The beneficial interest of the Company's principal
stockholders, Mr. Levy and Messrs. Halperin, and their present intent
not to sell their beneficial interests in the Company. Subsequent to
the announcement of the transaction, no other offers to acquire the
Company have been made, and no indications of interest in acquiring all
or any part of the Company have been received by Patricof in response
to its letters to seven potential acquirors soliciting such indications
of interest. Given these factors, the Special Committee and the Board
believed it was highly unlikely that a third party would offer to
purchase only the Shares held by the public stockholders and that it
was reasonable to conclude that a higher offer would not be received
from a third party.
(viii) The opportunity stockholders have to seek appraisal
of their Shares in accordance with Delaware law. While the Special
Committee and Board believe the Merger is fair to the Company's public
stockholders, the availability of dissenters' rights for stockholders
who may disagree with this belief supported the decision of the Special
Committee and the Board to recommend approval and adoption of the
Merger Agreement.
In view of the wide variety of factors considered in connection with
their evaluations 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. As a general matter, the Company determined that
each of the factors discussed in (i) through (viii) above were supportive of
their conclusion that the Merger is fair to and in the best
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interest of the Company's public stockholders. In considering each such factor,
the Special Committee and the Board specifically took note of the following
points:
With respect to the opinion of Patricof, the Special Committee and the
Board considered the fact that Patricof reviewed the cash flow projections
prepared by management with respect to the Company's build-out of Century
Village and the cash flow and income projections prepared by management with
respect to the recreational leases entered into by the owners of condominium
apartments of Century Village with one of the Company's subsidiaries for the
use of certain recreational facilities. See "Certain Projections."
Furthermore, with respect to factor (v) above, the Special Committee noted that
the Company's relatively small market capitalization and the competition that
the Company's new condominiums face from cheaper and more plentiful used
condominiums not only present risks to the Company from an operational
standpoint with respect to the Century Village project, but also have the
effect of limiting the Company's opportunities for growth after the build-out
of Century Village is complete.
With respect to factors (vi) and (vii) above, the Special Committee
considered the fact that the terms of the Merger Agreement were determined
through arms'-length negotiations between the Special Committee and its legal
and financial advisors, on the one hand, and representatives of Mergerco, on
the other. Moreover, as a result of the Special Committee's insistence, the
Merger Agreement provides that the Board has the right to negotiate on behalf
of the Company with third parties with respect to alternatives to the Merger
proposal. The fact that the Special Committee is free to negotiate with third
parties, coupled with the absence of any indications of interest from potential
acquirors contacted by Patricof in its market check or any other alternative
proposals, was an important factor in its conclusion that it was reasonable to
conclude that a higher offer would not be received from a third party.
In conclusion, the Special Committee's arms'-length negotiations with
Mergerco through counsel regarding the terms of the Merger Agreement, together
with the absence of any third-party offers, the Company's financial condition,
results of operations and prospects, and the Special Committee's and the
Board's reliance on the analyses and opinion of Patricof were the principal
factors upon which the Special Committee and the Board based their conclusion
that the Merger and the Merger Consideration are fair to and in the best
interests of the public stockholders of the Company. The Special Committee and
the Board also believed that the possibility of realizing greater value for
stockholders through an alternative transaction with a third party was, and
continues to be, protected by the Special Committee's ongoing contractual power
to negotiate with any third parties interested in pursuing an alternative
transaction.
POSITION OF MR. LEVY AND MESSRS. HALPERIN REGARDING FAIRNESS OF THE MERGER
Each of Mr. Levy and Messrs. Halperin has concluded that the Merger is
fair to the Company's stockholders. In arriving at this conclusion, and in view
of the fact that the Merger involves a transaction between the Company and
certain of its affiliates and therefore may not be considered at arm's length,
each of Mr. Levy and Messrs. Halperin considered the following factors: (i)
that the premium by which the Merger Consideration of $6.00 per Share exceeded
the high and low closing bid and ask prices ($4-5/8 and $4-7/8) of the Shares
on the trading day prior to the Company's announcement of its receipt of the
Merger
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proposal from Mr. Levy, the premium by which the Merger Consideration exceeds
the highest price ($5.00) at which the Shares traded in the 52-week period
preceding such announcement day, and the fact that the Merger Consideration is
substantially in excess of the Company's book value per Share of $0.78 at July
31, 1996, or approximately 7.7 times such book value per Share; (ii) the Merger
Consideration to be paid to stockholders (other than Mergerco and stockholders
who perfect their statutory appraisal rights under Delaware law) and other
steps taken to insure fairness, such as the appointment of the Special
Committee and the terms and conditions of the Merger Agreement which resulted
from active negotiations between Mergerco and the Special Committee and their
respective counsel; (iii) that the Special Committee and the Board approved the
Merger Agreement after the Special Committee had consulted extensively with
independent legal and financial advisors; (iv) that neither Mr. Levy nor
Messrs. Halperin, the Company's principal stockholders, has any present
intention of selling their respective Shares, thereby decreasing the likelihood
of a sale of the Company to a third party; (v) that subsequent to the
announcement of the transaction, no other offers to acquire the Company have
been made and that no indications of interest in acquiring all or any part of
the Company have been received by Patricof in response to its letters to seven
potential acquirors soliciting such indications of interest, (vi) that the
Special Committee at the time it approved the Merger Agreement had received and
reviewed the opinion of Patricof to the effect that as of the date of such
opinion the Merger Consideration to be received by the Company's public
stockholders is fair from a financial point of view; and (vii) that
stockholders have the opportunity to demand appraisal of their Shares in
accordance with Delaware law.
In connection with Mr. Levy and Messrs. Halperin's establishment of the
price they were willing to offer to acquire the Company, Mr. Levy informally
considered the market price of the Company's Shares, the Company's business
prospects, revenues and expenses, and the period of time over which such
revenues are projected to be realized. See "Certain Projections." Based on
such values, Mr. Levy determined the amount of the Merger Consideration to be
fair to the Company's public stockholders.
In view of the wide variety of factors considered in connection with
their respective evaluations of the Merger, none of Mr. Levy or Messrs.
Halperin found it practicable to, and did not, quantify or otherwise assign
relative weights to the individual factors considered in reaching their
respective determinations. Mr. Levy and Messrs. Halperin recognized that their
interests in the Merger are not the same as the interests of the other holders
of Common Stock in the Merger. See "Interest of Certain Persons in the
Merger."
OPINION OF FINANCIAL ADVISOR
Patricof has acted as the sole financial advisor to the Special
Committee in connection with the Merger and has assisted the Special Committee
in its examination of the fairness, from a financial point of view, to the
public stockholders of the Company of the consideration to be received by them
in the Merger. As used herein and in the opinion of Patricof, the term "public
stockholders" means all stockholders other than Mr. Levy and Messrs. Halperin,
or persons or affiliates of such persons joining with Mr. Levy or Messrs.
Halperin for purposes of completing the Merger.
On October 30, 1996, Patricof indicated to the Special Committee that
it was prepared to render its opinion as to the fairness of the Merger
Consideration to the Company's public stockholders from a financial point of
view, subject to Patricof's review of revised drafts of the Merger Agreement
and this
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Proxy Statement. On November 12, 1996, Patricof delivered its oral opinion to
the Special Committee and the Board of Directors to the effect that, as of the
date of such opinion, the $6.00 per Share cash consideration to be received in
the Merger is fair to the public stockholders of the Company from a financial
point of view. The full text of such opinion, which sets forth the assumptions
made, procedures followed, matters considered and scope of review by Patricof
in rendering its opinion, is attached as Exhibit B to this Proxy Statement and
is incorporated herein by reference. Stockholders are urged to read the
Patricof opinion in its entirety. In addition, a copy of the written report
presented by Patricof to the Special Committee was filed as an exhibit to the
Rule 13e-3 Transaction Statement on Schedule 13E-3 ("Schedule 13E-3") under the
Exchange Act filed by the Company and Mergerco, with the Commission with
respect to the transactions described in this Proxy Statement. Copies of the
Schedule 13E-3 are available for inspection and copying at the principal
executive offices of the Company during regular business hours by any
interested stockholder of the Company, or a representative who has been so
designated in writing, and may be inspected and copied, or obtained by mail,
in the manner specified in "Available Information." The summary set forth
below does not purport to be a complete description of such materials or
presentations by Patricof.
In arriving at its opinion, Patricof (i) interviewed members of the
Company's management and others; (ii) inspected certain of the Company's
facilities; (iii) reviewed a variety of documents, including without
limitation, the Merger Agreement, this Proxy Statement, recent years' public
filings by the Company with the Commission, certain Company specific documents,
including stock option agreements, severance agreements, internal financial
statements and projections (see "Certain Projections"), a Century Village
Offering Circular, minutes of meetings of the Company's Board of Directors, and
data relating to certain litigation to which the Company is a party; (iv)
reviewed data on certain market and industry specific economic factors; (v)
reviewed publicly available financial information of the Company for recent
years and interim periods to date; (vi) compared certain financial and
securities trading data of the Company with certain other publicly traded
companies deemed comparable; (vii) reviewed historical market prices and
trading volumes of the Company's Shares; (viii) performed discounted cash flow
analyses; (ix) reviewed prices and premiums offered in other similar
transactions; (x) considered the Company's existing and prospective operations;
and (xi) conducted such other financial studies, analyses and investigations as
Patricof deemed appropriate for purposes of its opinion. In addition, Patricof
relied, without independent verification, on the accuracy and completeness of
all financial and other information that was publicly available or furnished to
it by the Company or Mergerco. Patricof further assumed that financial
projections examined by Patricof were reasonably prepared on bases reflecting
the best currently available estimates and good faith judgments of the
Company's management as to the future performance of the Company. Patricof
also performed a market check by transmitting letters to seven potential
acquirors selected by Patricof soliciting indications of interest in acquiring
all or any part of the Company. Patricof received no such indications of
interest. In rendering its opinion, Patricof did not make or obtain appraisals
of the Company's assets or liabilities (contingent or otherwise). In addition,
in accordance with the Special Committee's instructions regarding Patricof's
review of the Merger, Patricof did not advise the Special Committee with
respect to alternatives to the Merger, other than the market check described
herein. No other limitations were imposed by the Special Committee or the Board
upon Patricof with respect to the investigations made or procedures followed by
Patricof in rendering its opinion.
Patricof employed several analytical methodologies and no one method of
analysis should be regarded as critical to the overall conclusion it has
reached. Each analytical technique has inherent
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strengths and limitations, and the nature of the available information may
further affect the value of particular techniques. Its conclusion is based on
all the analyses and factors it considered taken as a whole and also on
application of its experience. Such conclusions often involve significant
elements of judgment and qualitative as well as quantitative analysis. Hence,
it expresses no opinion as to the probative force standing alone, of any one or
more parts of the material that follows. Its only opinion is the formal
written opinion that it has expressed as to the fairness from a financial point
of view of the consideration being paid in the transaction. Its opinion,
analyses and all conclusions drawn from such analyses are necessarily based
upon market, economic and other conditions that exist and can be evaluated as
of the date thereof, and on information available to it as of the date thereof.
In delivering its opinion and making its presentations to the Special
Committee and the Board of Directors on October 30, and November 12, 1996,
Patricof considered and presented the financial and comparative analyses of
various indicators of value of the Company set forth below. The financial and
comparative analyses set forth below, including the ranges of share values
implied by such analyses, were based in part upon projections prepared by the
Company. See "Certain Projections."
Patricof's financial analyses employed the following three
types of approaches: (i) a comparative company analysis, (ii) a discounted
cash flow analysis, and (iii) a comparative transaction analysis. In arriving
at its conclusion, Patricof considered, and to some degree utilized, all of the
analyses described below. However, given the relatively short period of time
before the anticipated completion of the Company's Century Village build-out
(approximately two years), and the absence of any direct recreation lease
comparative companies, Patricof viewed the comparative company analysis as less
probative of value than the discounted cash flow analysis or the comparative
transaction analysis. Patricof considered but rejected use of break-up or
liquidation value analyses. Finally, Patricof performed a limited market check
as described below.
COMPARATIVE COMPANY ANALYSIS. In the comparative company
analysis, Patricof compared the Company's financial performance against that of
an array of publicly traded companies usable for comparative purposes, each of
whose primary operations involved home building of single family units
including condominiums and whose primary operations were in Florida. The
companies chosen for comparative purposes were Engle Homes, Inc., Lennar
Corporation, Oriole Homes Corp., and US Home Corporation. In comparing the
Company's financial performance over the most recent three years and the most
recent twelve month ("LTM") period against that of the comparatives, Patricof
observed that: (i) the Company was much smaller than the median of the
comparatives in, among other elements, revenues and earnings before interest,
taxes, depreciation and amortization ("EBITDA") and earnings before interest
and taxes ("EBIT"); (ii) the Company had experienced high levels of growth in
revenue, EBITDA, EBIT and pre-tax income versus the median over the most recent
three years but had recorded substantially lower growth in the LTM period;
(iii) the Company had stronger EBITDA and EBIT margins versus the median but
lower pre-tax and net income margins; and (iv) the Company had lower returns on
assets and equity and was more leveraged than the median of the comparatives.
From the observations of the Company's financial performance
described above, Patricof concluded that the Company should be priced at a
discount of 5% to the median multiple of the comparatives. Patricof then
applied multiples reflecting this discount to the Company's LTM revenues,
(0.9x), 3 year average revenues, (1.0x), LTM EBITDA, (8.0x), three year average
EBITDA (8.9x), LTM
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EBIT (8.8x) and three year average EBIT (10.1x), to arrive at a range of per
share values from $1.46 to $5.99 before assuming the exercise of outstanding
options to purchase the Company's Common Stock (see "The Merger Agreement -
Stock Options") and from $1.38 to $5.67 after assuming such exercise.
DISCOUNTED CASH FLOW ANALYSIS. Patricof employed two separate
discounted cash flow analyses, in each instance discounting the Company's
projected cumulative cash flows to a present value and adding a sum, based on
the perpetuity method representing the terminal or residual value of the cash
flows, to give recognition to the Company's continuing business (principally
the Century Village recreation lease described under "Certain Projections") in
the years following the discounting period. Using this analysis as a basis,
Patricof performed two separate discounted cash flow analyses. Both analyses
assumed the same Century Village build-out and recreation lease cash flow
projections. However, the less optimistic analysis (the "A" case) projected no
incremental value (net of debt or other expenses) (i) from the sale of Glen
Abbey, (ii) from the sale of the Company's Boca Raton Century Village
administration building; (iii) from the sale of certain commercial buildings at
Century Village; (iv) from the sale of two small tracts of land at Century
Village; (v) from the cash flows of certain small ancillary businesses at
Century Village; and (vi) from possible proceeds of certain litigation in which
the Company is a plaintiff. The more optimistic case (the "B" case) assumed
positive values for all of the items enumerated above. Patricof discounted the
"A" case at a rate of 12.8% and the "B" case at a rate of 13.3% (to give
recognition in the "B" case to the risk of not generating the increased cash
flows described therein). The result of these analyses were per Share values
of $5.75 and $6.04 for the "A" case and "B" case, respectively, before
considering the value resulting from exercise of the stock options mentioned
above, and $5.44 and $5.72 per Share, respectively, assuming such exercise.
The Company's projections included under "Certain Projections" did not give
effect to the incremental values associated with the "B" case because of
management's inability to estimate related cash flows with any degree of
certainty as to either amount or timing.
COMPARATIVE TRANSACTION ANALYSIS. Patricof performed two varieties of
comparative transaction analyses. In one, Patricof analyzed the LTM EBITDA
multiple and control premium (the premium in excess of the target's stock price
30 days before the announcement of the transaction) paid in certain
transactions in 1995 and 1996 involving real estate oriented companies. The
median LTM EBITDA multiple and median control premium paid in such transactions
were 9.7x and 23.2%, respectively, compared with 9.5x and 29.7% in the Merger.
In its second form of comparative transactions analysis, Patricof
reviewed premiums over unaffected stock prices paid in two types of "going
private" transactions which took place during the years 1990 through 1996. One
of these, was an "all transactions" array during the years 1995 - 1996 (through
the date of Patricof's report). A second array, from 1990 - 1996 (through the
date of Patricof's report), involved management's participation in the
transaction. Patricof observed that in the case of both the "all transactions"
group and the "management participation" group, the most frequent range of
control premiums in going private transactions was 20% to 40%, although the
medians were 36.1% and 38.5% for the "all transaction" and the "management
participation" group, respectively.
BREAK-UP AND LIQUIDATION ANALYSES. Patricof considered, but rejected
use of break-up or liquidation value analyses. The break-up approach was
rejected because, after the Company's Century Village build-out is complete,
there will be no material asset that can be broken up other than the Company's
recreation leases (see "Certain Projections"), whose value is included in the
discounted cash
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flow analysis. The liquidation value analysis was rejected because there is no
evidence that individual Company assets such as property, plant and equipment
have any material value.
MARKET CHECK. As part of its analysis, Patricof performed a market
check by contacting a group of companies that, in Patricof's view, had the
industry orientation and financial capacity to make an offer superior to the
one put forth by Mr. Levy and Messrs. Halperin. Patricof contacted a total of
seven companies: Engle Homes, Inc., Hovnanian Enterprises, Inc., Lennar
Corporation, Pulte Corp., Ryland Group, Inc., Starrett Corp. and US Home
Corporation. Patricof sent identical letters to the chief executive officer or
chief operating officer of each such company inviting a superior offer
accompanied by the Company's Annual Report on Form 10-K for the fiscal year
ended July 31, 1995, the Company's 1995 Annual Report to Stockholders, the
Company's Proxy Statement with respect to its Annual Meeting of Stockholders
held on December 18, 1995, the Company's Quarterly Report on Form 10-Q for the
fiscal period ending April 30, 1996 and a Company press release announcing the
Merger. The mailing was succeeded by two follow-up telephone calls from
Patricof to the addressees of the letters. Specific declinations of interest
were received from three of the companies solicited, and four failed to respond
either to the letters or the phone calls. Thus, no offers from the companies
solicited were received by Patricof
OTHER. Patricof, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for estate, corporate and other purposes. The Special
Committee selected Patricof to act as its financial advisor in connection with
the Merger on the basis of Patricof's national reputation as an investment
banking firm and its experience in transactions of this type.
In connection with its financial advisory services and the delivery of
its opinion, Patricof received a fee of $100,000, which fee was not contingent
upon a favorable opinion. Of such fee, $25,000 was payable on the delivery of
its preliminary opinion, and $25,000 was payable on the delivery of its written
opinion. In addition, the Company has agreed to reimburse Patricof for its
reasonable out-of-pocket expenses incurred during its engagement and to
indemnify Patricof and certain related persons and hold them harmless against
certain liabilities, including certain liabilities under the federal securities
laws, relating to, or arising out of, its rendering of services under its
engagement.
In July 1994, Patricof was retained by Mr. Levy in connection with
finding a strategic investor in CV Reit (as hereinafter defined) or other
alternatives involving a third-party purchase of equity in CV Reit. Mr. Levy
was formerly the chairman of the board of CV Reit and is currently a principal
stockholder. See "Information Concerning Mr. Levy." CV Reit has agreed to pay
Patricof a fee of $150,000 in connection with such engagement. No such
transaction has been consummated yet, and Patricof has been reimbursed for its
costs and expenses incurred but has been paid no portion of such fee. Other
than as described in this paragraph, no material relationship between Patricof
and the Company, or, to the Company's knowledge, its affiliates, has existed in
the past five years, and no such relationship is mutually understood to be
contemplated.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board with respect to the
Merger, stockholders should be aware that certain members of the Board and of
the Company's management have interests that may present them with actual or
potential conflicts of interest.
Mr. Levy, the Chairman of the Board and Chief Executive Officer of the
Company, is the organizer of Mergerco and immediately prior to the Effective
Time will acquire approximately 58.8% of the equity of Mergerco. Mr. Levy
beneficially owns 834,637 Shares of the Company's Common Stock (approximately
35.3% of the outstanding Shares). Immediately prior to the Effective Time,
Messrs. Halperin will collectively acquire approximately 41.2% of the equity
of Mergerco. Together, Messrs. Halperin own 585,032 Shares of the Company's
Common Stock (approximately 24.8% of the outstanding Shares). Following the
Effective Time of the Merger, Mr. Levy will own 58.8% of the outstanding common
stock of the Surviving Corporation, and Messrs. Halperin will collectively own
41.2%. Such ownership will arise from the conversion, upon the consummation
of the Merger, of all of the shares of common stock of Mergerco into all of
the common stock of the Surviving Corporation. Mr. Levy and Messrs. Halperin
intend to enter into a stockholders agreement in connection with their
ownership of the capital stock of the Surviving Corporation. Immediately
prior to the Merger, Mr. Levy and Messrs. Halperin will transfer all of their
respective Shares to Mergerco.
With the exception of Mr. Levy who will serve as president, none of the
current officers of the Company will be the initial officers of the Surviving
Corporation, and, other than Mr. Levy, none of the current directors of the
Company will be the initial directors of the Surviving Corporation. See "The
Merger Agreement - Directors and Officers of the Company Following the Merger;
Certificate of Incorporation."
All executive officers and directors of the Company as a group
currently own 1,087,548 Shares (including Shares issuable upon exercise of
currently exercisable stock options), which amount constitutes 41.8% of the
outstanding Shares. Upon consummation of the Merger, the following directors
and officers will be entitled to the payments indicated in respect of the
Shares they own and options currently exercisable by them to purchase Shares:
<TABLE>
<CAPTION>
TOTAL MERGER
CONSIDERATION TO BE
NUMBER OF SHARES NUMBER OF SHARES SUBJECT RECEIVED WITH RESPECT TO
NAME OWNED OF RECORD(1) TO OPTIONS(2) SHARES AND OPTIONS
- ---------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Michael S. Rubin 0 85,000 $295,000
Jack Jaiven 407 85,000 $297,442
Michael Rich 11,147 45,000 $211,782
James A. Geddes 0 40,000 $122,400
Bernard Green 1,256 10,000 $ 52,536
Harold Cohen 102 10,000 $ 45,612
Antoinette Gleeson 0 5,000 $ 22,500
</TABLE>
- --------------------------
(1) Does not include Shares which such person has the right to acquire pursuant
to options.
(2) The Merger Agreement provides for payments with respect to all Shares
subject to options, whether or not currently exercisable. See "The Merger
Agreement - Stock Options."
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The foregoing options constitute all outstanding options to purchase
the Company's Shares, whether or not currently exercisable, other than options
to purchase 35,000 Shares held by a former employee. Mergerco has agreed in
the Merger Agreement to cause the Surviving Corporation to provide and maintain
directors' and officers' liability insurance and to indemnify the current
directors and officers of the Company subsequent to the Merger. See "The
Merger Agreement-Indemnification and Insurance."
MERGERCO'S REASONS FOR THE MERGER
Mr. Levy and Messrs. Halperin believe that this is an appropriate time
for the Company to consider the Merger because its primary business is expected
to be concluded in less than two years. Therefore, the Company is at a
crossroads and has to determine its future course, which could include
considering whether it is economically feasible to commence a new Century
Village community, whether to start or acquire a different project or business,
whether to pursue some other course or liquidate.
In addition to the foregoing, neither the Company nor Mr. Levy and
Messrs. Halperin believes that the Company's publicly held status provides any
particular advantage that is not outweighed by the additional costs and
administrative burdens associated with public ownership. If the Company were
privately owned, the Company could reduce its legal and accounting expenses, a
substantial portion of which are incurred in connection with the federal
securities reporting requirements to which publicly held companies are subject,
and could eliminate costs associated with stockholder public relations,
solicitations of proxies and publication of annual reports to stockholders, as
well as transfer agent and other costs. The Company estimates that
out-of-pocket costs associated with public ownership were approximately
$100,000 for the fiscal year ended July 31, 1996, in addition to a substantial
expenditure of management time.
Mr. Levy and Messrs. Halperin also believe the modest trading volume of
the Company's Common Stock in recent years reflects a lack of investor interest
in the stock. These factors inhibit the Company's access to the secondary
markets to raise capital and also limit the potential for stock appreciation.
Under these circumstances, Mr. Levy and Messrs. Halperin believe the Company's
stockholders should have the opportunity to convert their equity investment
into cash at a fair price.
PLANS FOR THE COMPANY AFTER THE MERGER
Mr. Levy and Messrs. Halperin expect that the business and operations
of the Surviving Corporation will be continued by them substantially as they
are currently being conducted by the Company and its subsidiaries. Mr. Levy
and Messrs. Halperin do not currently intend to dispose of any assets of the
Surviving Corporation, other than in the ordinary course of business. It is
anticipated, however, that Mr. Levy and Messrs. Halperin will from time to time
evaluate and review their businesses, operations and properties and make such
changes as are deemed appropriate.
Except as described in this Proxy Statement, none of Mr. Levy, Messrs.
Halperin or the Company has any present plans or proposals involving the
Company or its subsidiaries which relate to or would result in an extraordinary
corporate transaction such as a merger, reorganization, or liquidation, or a
sale or transfer of a material amount of assets, or any material change in the
present dividend policy, indebtedness or capitalization, or any other material
change in the Company's corporate structure or business. However,
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Mr. Levy and Messrs. Halperin will review proposals or may propose the
acquisition or disposition of assets or other changes in the Surviving
Corporation's business, corporate structure, capitalization, management or
dividend policy which they consider to be in the best interest of the Surviving
Corporation and its stockholders.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the Company's public stockholders will no
longer have any interest in, and will not be stockholders of, the Company and,
therefore, will not participate in its future potential earnings and growth and
will not be subject to the risks associated with an investment in the Company.
Instead, each such stockholder will have the right to receive upon consummation
of the Merger $6.00 in cash for each Share held (other than shares held by
Mergerco, any of its subsidiaries or stockholders who perfect their statutory
appraisal rights under Delaware law) whether or not the Company's future
earnings meet the projections on which the determination of the fairness of the
price was based.
Conversely, if the Merger is consummated, Mr. Levy and Messrs. Halperin
will realize all of the Company's profits and losses, as well as any future
deterioration or improvement in the Company's earnings. Moreover, the
transaction will eliminate potential conflicts of interest between Mr. Levy and
the public stockholders of the Company. The Company's business may present
opportunities or growth in earnings in the future, and, if any such
opportunities or growth are realized, the value of such an equity investment
could be greater than the original cost thereof. However, even if such
opportunities or growth are not realized, Mr. Levy and Messrs. Halperin may
earn an improved return on their investment.
As a result of the Merger, the registration of the Shares under the
Exchange Act will be terminated. In addition, because the Shares would no
longer be publicly held, the Company would be relieved of the obligation to
comply with the proxy rules of Regulation 14A under Section 14 of the Exchange
Act, and its officers, directors, and stockholders owning more than 10% of the
outstanding shares would be relieved of the reporting requirements and "short
swing" trading restrictions under Section 16 of the Exchange Act. Further, the
Company will no longer be subject to the periodic reporting requirements of the
Exchange Act and will cease filing information with the Commission. The
Company will also be de-listed from Nasdaq.
If the Merger Agreement is not adopted by the required vote of the
Company's stockholders, or the Merger is not consummated for any other reason,
the Board of Directors expects that the Company's current management will
continue to operate the Company's business substantially as presently operated.
No other alternatives are presently being considered.
The payments to the Company's stockholders pursuant to the Merger may
be subject to review under state or federal fraudulent transfer or fraudulent
conveyance laws. Under such laws, if a court in a lawsuit by an unpaid
creditor or representative of creditors of the Company, such as a trustee in a
bankruptcy or the Surviving Corporation as debtor-in-possession, were to find
that, at the Effective Time or at the time the Surviving Corporation
distributed the Merger Consideration to the holders of Common Shares, the
Company or the Surviving Corporation: (a) made such payment with fraudulent
intent, or (b) received less than a reasonably equivalent value or
consideration in exchange for the Merger Consideration and (i) was insolvent,
(ii) was rendered insolvent by reason of such transactions or distributions,
(iii) was engaged in a business, transaction or distribution for which the
assets remaining with
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the Surviving Corporation constituted unreasonably small capital, or (iv)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured, such court could (w) find that the Merger, the
Merger Consideration and the financing thereof constituted fraudulent transfers
or conveyances; (x) void the Merger and require that the Surviving Corporation
return the assets of the Company to a fund for the benefit of the Company's
creditors (including, under certain circumstances, bank lenders and other
holders of debt of the Surviving Corporation); (y) void the distribution of the
Merger Consideration to holders of Shares and require that such holders return
the same (or equivalent amounts) to the Surviving Corporation or a fund for the
benefit of its creditors (including, under certain circumstances, bank lenders
and other holders of debt of the Surviving Corporation.); and (z) void or
modify the rights and obligations relating to the financing of the Merger.
The measure of insolvency for purposes of the foregoing will vary
depending upon the law of the jurisdiction which is being applied. Generally,
however, the Surviving Corporation would be considered insolvent if the sum of
the Surviving Corporation's debts is greater than all of the Surviving
Corporation's property at a fair valuation, or if the present fair salable
value of the Surviving Corporation's assets is less than the amount that will
be required to pay its probable liability on its existing debts as they become
absolute and matured. No assurance can be given as to what method a court would
use in order to determine whether the Surviving Corporation was "insolvent" at
the Effective Time or that, regardless of the method of valuation, a court
would not determine that the Surviving Corporation was insolvent at the
Effective Time. The avoidance of the distribution of Merger Consideration to
the holders of the Shares as described above could result in such holders being
required to return all or a portion of the Merger Consideration, thereby losing
some or the entire value of their equity investment in the Company.
Management of the Company believe that the payments to be made in
connection with the Merger will be made for proper purposes and in good faith
and that, based on its present projections and other financial information, the
Company is not insolvent and, after giving effect to the Merger and the
transactions contemplated thereby, the Surviving Corporation will not (i) be
insolvent or rendered insolvent thereby, (ii) be engaged or be about to be
engaged in a business or transaction for which its remaining unencumbered
assets constitute unreasonably small capital or (iii) incur debts beyond its
ability to pay as they mature. See "Certain Projections." In reaching such a
conclusion, management have relied upon various cash flow estimates which
necessarily involve a number of assumptions, including assumptions as to the
nature and amount of contingent liabilities and sales and earnings growth and
choices of methodology. However, no assurance can be given that the assumption
and methodologies chosen by management would be adopted by a court, or that a
court would concur as to the solvency of the Company or the Surviving
Corporation.
See "Federal Income Tax Consequences of the Merger to the Company's
Stockholders" for an explanation of the tax consequences of the Merger to
certain stockholders.
The Company believes that the Merger will constitute a redemption,
giving rise to no gain, loss or other income to the Company, for Federal income
tax purposes. The Company will be entitled to deduct amounts it pays in
cancellation of outstanding options to purchase the Company's Common Stock.
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger
Agreement, a conformed copy of which is attached hereto as Exhibit A and
incorporated by reference herein. Such summary is qualified in its entirety by
reference to the text of the Merger Agreement.
THE MERGER
The Merger Agreement provides that, subject to approval of the Merger
Agreement by the holders of a majority of the outstanding Shares, the exercise
of rights to appraisal under the Delaware General Corporation Law by holders of
no more than 5% of the outstanding Common Stock and satisfaction or waiver of
certain other conditions, a duly executed copy of the related Certificate of
Merger will be filed with the Secretary of State of the State of Delaware.
Upon such filing, Mergerco will be merged with and into the Company, the
separate corporate existence of Mergerco will cease, and the Company will
continue, under its name, as the Surviving Corporation. As of the Record Date,
Mr. Levy and Messrs. Halperin collectively held 60.1% of the outstanding
Common Stock. This voting interest will enable them to cast a sufficient
number of votes to approve and adopt the Merger Agreement without the
affirmative vote of any other stockholder.
Upon the Effective Time, each Share (other than Shares held by Mergerco
or any subsidiary of Mergerco or held in the treasury of the Company and other
than Shares held by stockholders who perfect their statutory appraisal rights
under Delaware law) will, by virtue of the Merger and without any action on the
part of the holder thereof, be converted solely into the right to receive $6.00
in cash, without interest, will no longer be outstanding and will be cancelled.
Each share of common stock of Mergerco issued and outstanding immediately prior
to the Effective Time shall be converted into and exchanged for one share of
common stock of the Surviving Corporation.
Holders of Shares who do not vote to approve and adopt the Merger
Agreement and who otherwise strictly comply with the provisions of Delaware law
regarding statutory appraisal rights have the right to seek a determination of
the fair value of their shares and payment in cash therefor in lieu of the
Merger Consideration. See "Rights of Dissenting Stockholders."
EFFECTIVE TIME
The Merger will become effective at the date and time of the filing of
a Certificate of Merger with the Secretary of State of the State of Delaware,
which is anticipated to be as soon as practicable after the Meeting. Such
filing will be made, however, only upon satisfaction or waiver of the
conditions contained in the Merger Agreement and provided that no party has
exercised any right of termination under the Merger Agreement.
PAYMENT FOR SHARES
Prior to the Effective Time, Mergerco will designate the Paying Agent.
Promptly after the Effective Time, the Paying Agent will mail or make available
to each stockholder a notice and letter of transmittal containing instructions
for surrendering certificates representing Shares of Common Stock
("Certificates") in exchange for payment thereof. No stockholder should
surrender any Certificates until the stockholder receives the letter of
transmittal and other materials for such surrender. Upon receipt of
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any such Certificates together with a duly executed letter of transmittal and
other requested documents, the Paying Agent will mail a check, in an amount
equal to $6.00 per each Share represented by such Certificates, to the
registered owner or, subject to certain conditions more fully described below,
his or her transferee.
Each Certificate which, prior to the Effective Time, represented
outstanding Shares (other than Shares held by Mergerco or any subsidiary of
Mergerco and stockholders who perfect their statutory appraisal rights under
Delaware law), will, after such time, evidence only the right to receive the
Merger Consideration into which the Shares represented thereby shall have been
converted. No interest will be paid or accrued on the amounts payable upon the
surrender of any such Certificate.
If payment of the Merger Consideration is to be made to a person other
than the person in whose name the Certificate surrendered is registered, it
will be a condition of payment that the Certificate so surrendered will be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such payment will 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 will establish to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable.
THE EXCHANGE FUND
Immediately prior to or at the Effective Time, Mergerco will deposit or
cause to be deposited with the Paying Agent, in trust for the benefit of the
Company's stockholders (other than Mergerco or any subsidiary of Mergerco and
stockholders who perfect their statutory appraisal rights under Delaware law),
the aggregate Merger Consideration to which such holders of Shares will be
entitled at the Effective Time.
Promptly following the date that is four months after the Effective
Time, the Paying Agent will return to the Surviving Corporation all unpaid
Merger Consideration, and the Paying Agent's duties will terminate.
Thereafter, each holder of a Certificate may surrender such Certificate to the
Surviving Corporation and (subject to applicable abandoned property, escheat
and similar laws) receive in exchange therefor the Merger Consideration.
CONDITIONS, REPRESENTATIONS AND COVENANTS
The respective obligations of Mergerco, on the one hand, and the
Company, on the other, to consummate the Merger are subject to the following
conditions, among others: (i) the approval and adoption of the Merger Agreement
by the affirmative vote of the holders of outstanding Shares required by and in
accordance with applicable law; and (ii) no statute, rule, regulation,
executive order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any court or governmental authority against Mergerco
or the Company and be in effect that prohibits or restricts the consummation of
the Merger or makes such consummation illegal. The obligations of Mergerco to
effect the Merger are subject to the following additional conditions: (i)
there shall have occurred no material adverse change in the business or
financial condition of the Company or its subsidiaries since the date of the
Merger Agreement; (ii) all the covenants in the Merger Agreement to be complied
with or performed by the Company at or before the closing of the Merger shall
have been complied with and performed and the representations and warranties
made by the Company in the Merger Agreement shall be true and correct in
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all material respects as of the closing of the Merger as if made on and as of
the closing; and (iii) the holders of Shares representing more than 5% of the
total number of Shares outstanding as of the Record Date shall not have
exercised rights to appraisal pursuant to Section 262. The obligations of the
Company to effect the Merger are also subject to the additional condition that
all the covenants in the Merger Agreement to be complied with or performed by
Mergerco shall have been complied with and performed and the representations
and warranties of Mergerco shall be true and correct in all material respects
as of the closing as if made on and as of the closing.
The Merger Agreement contains various customary representations and
warranties of Mergerco and the Company. The representations of Mergerco relate
to due organization, stockholders, corporate authorization, consents and
approvals, absence of breach, financing, interim operations, litigation, and
absence of brokers. The representations of the Company relate to due
organization, capitalization, corporate authorization, absence of certain
changes, filing of Exchange Act reports with the Commission, consents and
approvals, absence of breach, employee benefit matters, litigation, tax
matters, compliance with law, Delaware law relating to takeovers, stockholder
approval, the opinion of Patricof and the absence of brokers.
The Company has agreed to conduct its business in the ordinary and
usual course prior to the Effective Time. In this regard, the Company has
agreed that it will not, without the prior written consent of Mergerco, engage
in certain types of transactions, including, among other things, the issuance
of Shares. In addition, Mergerco and the Company have made further agreements
regarding the Board's recommendation; access to the Company's records;
reasonable efforts to fulfill the conditions to the other party's obligation to
consummate the Merger; indemnification of the Company's officers and directors;
directors' and officers' liability insurance; state takeover statutes;
preparation and filing of this Proxy Statement and the Schedule 13E-3 with the
Commission; notices in connection with the Merger; fees and expenses; and
public announcements. In addition, the Company may not (i) withdraw or modify,
or propose to withdraw or modify, in a manner adverse to Mergerco the approval
or recommendation by the Board of the Merger Agreement or the Merger, (ii)
approve or recommend or propose to approve or recommend any Acquisition
Proposal (as defined below), or (iii) cause the Company to enter into any
agreement with respect to an Acquisition Proposal, unless such action relates
to an Acquisition Proposal that is more favorable to the stockholders of the
Company than the Merger and the Board determines, in good faith, after
consultation with, and based upon the advice of, independent legal counsel,
that such action is necessary for the Board to comply with its fiduciary duties
to the Company's stockholders under applicable law. The term "Acquisition
Proposal" means any inquiry, offer or proposal regarding (i) any merger,
consolidation, share exchange, recapitalization, business combination or other
similar transaction, (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of all or substantially all of the assets of the Company
and its subsidiaries, taken as a whole, in a single transaction or series of
related transactions, (iii) any tender offer or exchange offer for 20 percent
or more of the outstanding Shares of the Company or the filing of a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), in connection therewith, or (iv) any public announcement or
a proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
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STOCK OPTIONS
Promptly after the Effective Time, Mergerco shall pay each holder of
then outstanding options to purchase Shares, whether or not then exercisable
(the "Options"), which have been granted under the Company's Plans, a cash
payment in settlement of the Options (subject to any withholding taxes) in an
amount equal to the excess, if any, of the Merger Consideration over the per
Share exercise price of such Option, multiplied by the number of shares subject
to such Option (the "Option Consideration"). Upon receipt of the Option
Consideration, the relevant Option shall be cancelled. No payment will be made
by the Company in respect of any Option having an exercise price equal to or
greater than the Merger Consideration. At the Effective Time, any such Option
that the holder thereof has not consented to cancellation will be converted
into, and shall only represent the right to receive, the Option Consideration.
Prior to the Effective Time, the Company shall use all reasonable
efforts to obtain all necessary consents or releases from holders of Options
under the Plans and take all other action necessary to give effect to the
transactions described above. Except as otherwise agreed by the parties, both
Plans shall terminate as of the Effective Time, and the Company shall take all
reasonable action to ensure that, after the Effective Time, no person shall
have any right under any Plan (or any Option granted under any Plan) or other
plan, program or arrangement with respect to equity securities of the Company,
the Surviving Corporation or any direct or indirect subsidiary or either.
Without the prior written consent of Mergerco, the Company will not make any
additional grants of stock options, stock bonuses or stock awards under any of
such plans prior to the Effective Time.
DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER; CERTIFICATE OF
INCORPORATION
The Merger Agreement provides that Mr. Levy, his son, Mark Levy, his
daughter, Lynn Peseckis, Maurice A. Halperin and Barry S. Halperin will serve
as the five initial directors of the Surviving Corporation. In addition, the
Merger Agreement provides that the initial officers of the Surviving
Corporation will consist of Mr. Levy - President, Mark Levy - Secretary and
Barry S. Halperin - Senior Vice President. Such initial directors and officers
will serve until their respective successors are duly elected and qualified.
See "Special Factors - Interests of Certain Persons in the Merger." Mr. Levy
and Messrs. Halperin intend that the personnel currently managing the day-to-day
operations of the Company will continue in their respective positions with the
Surviving Corporation.
The Certificate of Incorporation of Mergerco will be the Certificate of
Incorporation of the Surviving Corporation, until thereafter amended, except
that Section 1 of Mergerco's Certificate of Incorporation will be amended to
provide that the name of the Surviving Corporation will be "Hilcoast
Development Corp."
FEES AND EXPENSES
Whether or not the Merger is consummated and except as otherwise
provided in the following sentence, all costs and expenses incurred in
connection with the Merger Agreement will be paid by the party incurring the
expense. The Company will pay Mergerco a fee in immediately available funds
equal to $200,000 upon the termination of the Merger Agreement (i) by Mergerco
if the Company's Board of Directors withdraws, modifies or changes its
recommendation or approval in respect of the Merger
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Agreement or the Merger in a manner adverse to Mergerco or the Board approves
or recommends any proposal other than by Mergerco in respect of an Acquisition
Proposal or (ii) by the Company in order to enter into an agreement in respect
of an Acquisition Proposal. See "-Conditions, Representations and Covenants."
TERMINATION; AMENDMENTS
The Merger Agreement may be terminated at any time prior to the
Effective Time by the mutual written consent of the Special Committee and the
respective Boards of Directors of Mergerco and the Company, or by either of the
Company or Mergerco if (i) the Merger has not been consummated by March 31,
1997, (ii) any court of competent jurisdiction shall have issued an order
(other than a temporary restraining order), decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the purchase of Shares
pursuant to the Merger, provided that the party seeking to terminate the Merger
Agreement shall have used its reasonable best efforts to remove or lift such
order, decree or ruling or (iii) if the opinion of Patricof as to the fairness
of the Merger to the Company's stockholders from a financial point of view is
withdrawn or modified. The Merger Agreement may also be terminated at any time
prior to the Effective Time by the Company if (i) to allow the Company to enter
into an agreement in respect of an Acquisition Proposal, assuming the Company's
Board of Directors has not breached its covenant against withdrawing or
modifying, or proposing to withdraw or modify in a manner adverse to Mergerco,
its approval or recommendation of the Merger Agreement or the Merger, approving
or recommending, or proposing to approve or recommend, any Acquisition Proposal
or causing the Company to enter into any agreement with respect to any
Acquisition Proposal (as described above under "-Conditions, Representations
and Covenants", or (ii) any event or circumstance occurs that renders the
conditions to the Company's performance not able to be satisfied. Mergerco may
terminate the Merger Agreement at any time prior to the Effective Time if (i)
the Company's Board of Directors withdraws, modifies or changes in a manner
adverse to Mergerco its approval or recommendation of the Merger Agreement or
the Merger or approves or recommends any proposal other than by Mergerco in
respect of an Acquisition Proposal or (ii) any event or circumstance occurs
that renders the conditions to Mergerco's performance not able to be satisfied.
The Merger Agreement may be amended by the mutual written agreement by
the parties thereto, evidenced by action taken by the Boards of Directors of
each of Mergerco and the Company, whether before or after stockholder approval;
provided, however, that after any such stockholder approval, no amendment may
be made without the further approval of the stockholders which would reduce the
amount of the Merger Consideration or effect any other change to the Merger
Agreement which would adversely affect the rights of the stockholders of the
Company thereunder.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that all rights to indemnification or
exculpation existing in favor of the directors, officers, employees and agents
of the Company and its subsidiaries as provided in their respective charters or
bylaws or otherwise in effect as of the date of the Merger Agreement with
respect to matters occurring prior to the Effective Time shall survive the
Merger and shall continue in full force and effect. To the maximum extent
permitted by Delaware law, such indemnification will be mandatory rather than
permissive, and the Surviving Corporation will advance expenses in connection
with such
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<PAGE> 161
indemnification. In addition to the foregoing rights, and not in limitation of
those rights, the Merger Agreement also provides that Mergerco will cause the
Surviving Corporation to indemnify, defend and hold harmless each present and
former director and officer, employee and agent of the Company and its
subsidiaries to the fullest extent permitted by law for all claims, losses,
damages, liabilities, costs, judgments and amounts paid in settlement,
including advancement of expenses (including attorneys' fees) as incurred in
respect of any threatened, pending or contemplated claim, action, suit or
proceeding, whether criminal, civil, administrative or investigative,
including, without limitation, any action by or on behalf of any or all
security holders of the Company or by or in the right of the Company or the
Surviving Corporation, or investigation relating to any action or omission by
such party in its capacity as such (including service to any other entity,
plan, trust or the like at the Company's request) occurring on or prior to the
Effective Time (including, without limitation, any that arise out of or relate
to the transactions contemplated by the Merger Agreement).
The Merger Agreement provides that the Surviving Corporation will
maintain in effect, for not fewer than six years from the Effective Time, the
policies of directors' and officers' liability insurance most recently
maintained by the Company with respect to claims arising from or related to
matters occurring prior to the Effective Time.
CERTAIN PROJECTIONS
The Company has prepared and provided to the Special Committee and
Patricof certain projected cash flows, principally from the Century Village
build-out and the recreation leases (as described below) and other ancillary
operations, a summary of which is set forth below. Scenario 1 assumes
completion of construction, sale and delivery of the remaining Century Village
condominium apartments by July 31, 1998. Scenario 2 extends the time for
completion for an additional six months until January 31, 1999.
The Company is in the final stages of completing its Century Village
project. After the build-out is complete, the Company's primary asset will be
the recreational leases related to that project. The Company owns all of the
recreation facilities located at Century Village. Each purchaser of a
condominium apartment at Century Village has the option to enter into a 50 year
lease for such facilities, which provides for monthly payments, currently
ranging from $63 to $82, and for specified increases after three years based on
increases in operating costs and fixed contractual increases after five years.
As of October 31, 1996, virtually all of the purchasers of the 7,018
condominium apartments delivered had exercised that option. As indicated in
"Special Factors-Opinion of Financial Advisor-Discounted Cash Flow Analysis,"
the Company's projections did not reflect the potential cash flows from certain
items included in Patricof's "B" case analysis because of uncertainties related
to amount and time.
The Company does not, as a matter of course, make public forecasts or
projections as to future revenues, income or cash flow. These projections were
not prepared with a view to public disclosure or compliance with published
guidelines of the Commission or the guidelines by the American Institute of
Certified Public Accountants regarding projections or generally accepted
accounting principles and are included in this Proxy Statement only because
such projections were included in the information submitted to and reviewed by
the Special Committee of the Board and by Patricof. The Company's independent
public accountants have not examined, reviewed or compiled such projections
and, accordingly, do not express any opinion or other form of assurance
thereon. None of Mergerco, the Company, nor any party to
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<PAGE> 162
whom these projections were provided assumes any responsibility for the
accuracy of such information. In addition, because the estimates and
assumptions underlying these projections are inherently subject to significant
economic and competitive uncertainties and contingencies that are beyond the
control of such persons, there can be no assurance that such projections will
be realized, and actual results may be higher or lower than those shown.
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<PAGE> 163
<TABLE>
<CAPTION>
Fiscal Year Ended July 31,
-------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Scenario 1
----------
Projected cash flow from
operations before debt service
and income taxes $13,396 $22,213 $4,174 $4,285 $4,418 $4,559 $4,669 $4,774 $4,872 $4,961
======= ======= ====== ====== ====== ====== ====== ====== ====== ======
Projected cash flow after debt
service and income taxes 0 8,108 1,059 1,075 1,106 1,181 1,224 1,275 1,321 1,360
======= ======= ====== ====== ====== ====== ====== ====== ====== ======
Scenario 2
----------
Projected cash flow from
operations before debt service 10,466 18,899 8,198 4,285 4,418 4,559 4,669 4,774 4,872 4,961
and income taxes ======= ======= ====== ====== ====== ====== ====== ====== ====== ======
Projected cash flow after debt
service and income taxes 0 2,279 5,083 1,075 1,106 1,181 1,224 1,275 1,321 1,360
======= ======= ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
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<PAGE> 164
FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER TO THE COMPANY'S STOCKHOLDERS
Set forth below is a description of certain federal income tax
consequences to stockholders who receive cash for their Shares in the Merger or
upon the exercise of appraisal rights. The discussion is based upon the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the "Code"). The Company will not seek any rulings from the
Internal Revenue Service (the "Service") with respect to the transactions
contemplated hereby. The following discussion is limited to the material
federal income tax aspects of the Merger for a holder of Shares who is a
citizen or resident of the United States and who holds the Shares as capital
assets. This summary does not discuss tax consequences that may be applicable
to stockholders who acquired their Shares of the Company's Common Stock through
the exercise of employee stock options or otherwise as compensation. This
discussion also does not purport to deal with all aspects of taxation that may
be relevant to a particular investor in light of his or her personal
circumstances, to certain types of investors (including insurance companies,
tax-exempt organizations, financial institutions, broker- dealers and foreign
corporations) subject to special treatment under the federal income tax laws or
to any stockholder who is treated as constructively owning any stock of the
Company outstanding after the Merger.
In general, the receipt of cash by a stockholder pursuant to the
Merger or the exercise of appraisal rights will be a taxable event for the
stockholder for federal income tax purposes and may also be a taxable event
under applicable state, local and foreign tax laws. A stockholder will
recognize gain or loss for federal income tax purposes on each Share
surrendered equal to the difference between (i) the amount of cash that he or
she receives for that Share and (ii) his or her tax basis in that Share. That
gain or loss will be capital gain or loss, and will be long-term capital gain
or loss if the stockholder has held that Share for more than one year as of the
Effective Time. The preceding sentence may not apply to a stockholder that
owns, actually and constructively, more than five percent of the Company's
stock. Those stockholders are urged to consult their own tax advisers.
A stockholder may be subject to backup withholding of federal income
tax at a rate of 31 percent on payments made to the stockholder with respect to
Shares converted pursuant to the Merger, unless the stockholder is exempt from
backup withholding or provides the Paying Agent with his or her correct
taxpayer identification number by completing the Substitute Form W-9 to be
included with the letter of transmittal, certifies as to no loss of exemption
from backup withholding and otherwise complies with the applicable requirements
of the backup withholding rules. A stockholder who does not provide the Paying
Agent with his or her correct taxpayer identification number may be subject to
penalties imposed by the Service. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. The Company will
report to each stockholder and the Service the amount of any "reportable
payments" made to the stockholder and the amount of tax withheld, if any.
Consummation of the Merger is not conditioned upon the receipt by any
person of an opinion of counsel with respect to the tax consequences of the
Merger. The preceding summary was prepared by the Company after consultation
with tax counsel, but no opinion of tax counsel or other tax expert has been
obtained.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH IN THIS PROXY STATEMENT
ARE BASED ON CURRENT LAW AND ARE FOR GENERAL INFORMATION ONLY. THE TAX
CONSEQUENCES FOR A PARTICULAR STOCKHOLDER WILL DEPEND UPON THE FACTS AND
CIRCUMSTANCES APPLICABLE TO SUCH STOCKHOLDER. ACCORDINGLY, EACH STOCKHOLDER IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISER TO DETERMINE THE TAX CONSEQUENCES
TO THE STOCKHOLDER OF THE MERGER IN LIGHT OF HIS OR HER 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 BE APPLICABLE WITH RESPECT TO SHARES RECEIVED PURSUANT TO
THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION.
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<PAGE> 165
RIGHTS OF DISSENTING STOCKHOLDERS
The following summary does not purport to be a complete statement of
the provisions of Delaware law relating to the appraisal rights of stockholders
and is qualified in its entirety by reference to the provisions of Section 262
of the Delaware General Corporation Law set forth in full as Exhibit C to this
Proxy Statement.
Holders of record of Shares who comply with the applicable procedures
summarized herein will be entitled to appraisal rights under Section 262 of the
Delaware General Corporation Law. A person having a beneficial interest in
Shares held of record in the name of another person, such as a broker or
nominee, must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect appraisal rights.
ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY TO A "STOCKHOLDER"
ARE TO THE RECORD HOLDER OF SHARES AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED.
VOTING AGAINST, ABSTAINING FROM VOTING OR FAILING TO VOTE ON APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT WILL NOT CONSTITUTE A DEMAND FOR APPRAISAL
WITHIN THE MEANING OF SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW.
Stockholders who follow the procedures set forth in Section 262 may
receive, in lieu of the $6.00 cash per Share to be paid in the Merger, a cash
payment equal to the "fair value" of their Shares, exclusive of any element of
value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, as determined by such court. Such fair
value is to be determined by judicial appraisal and could be more than, the
same as, or less than, the Merger Consideration. The statutory right of
appraisal granted by Section 262 is subject to strict compliance with the
procedures set forth below. Failure to follow any of these procedures may
result in a termination or waiver of appraisal rights under Section 262.
It is a condition to the obligations of Mergerco to consummate the
Merger that holders of more than 5% of the outstanding Shares shall not have
exercised rights to appraisal. See "The Merger Agreement-Conditions,
Representations and Covenants."
To be entitled to receive payment of the fair value of the Shares, a
stockholder (i) must file a written demand for appraisal of his or her Shares
with the Company prior to the voting by stockholders on the Merger Agreement at
the Meeting (such demand must reasonably inform the Company of the identity of
the stockholder and that the stockholder intends thereby to demand an appraisal
of his or her Shares); (ii) must not vote his or her Shares in favor of
approval and adoption of the Merger Agreement; and (iii) must have his or her
Shares valued in an appraisal proceeding, as described below. A proxy or vote
against approval and adoption of the Merger Agreement will not satisfy the
requirement that a stockholder file a written demand for appraisal as set forth
above. The requirement of a written demand is separate from, and should not be
confused with, the requirement that a stockholder not vote in favor of approval
and adoption of the Merger Agreement. A failure to vote on the Merger Agreement
will not be construed as a vote in favor of approval and adoption of the Merger
Agreement and will not constitute a waiver of a stockholder's rights of
appraisal. A stockholder who returns a signed proxy indicating that he or she
abstains from voting will similarly not waive his or her rights of appraisal.
However, because a proxy signed and left blank will, unless properly revoked,
be voted in favor of approval and adoption of the Merger Agreement, a
stockholder who returns a signed proxy left blank will waive his or her rights
of appraisal. Therefore, a stockholder electing to exercise appraisal rights
who votes by proxy must not leave his or her proxy blank, but must either vote
against approval and adoption of the Merger Agreement or abstain from voting.
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<PAGE> 166
A holder of Shares wishing to exercise such holder's appraisal rights
must be the record holder of such Shares on the date the written demand for
appraisal is made and must continue to hold such Shares of record until the
Effective Time of the Merger. Accordingly, a holder of Shares who is the
record holder of Shares on the date the written demand for appraisal is made,
but who thereafter transfers such Shares prior to the Effective Time of the
Merger, will lose any right to appraisal in respect of such Shares.
Only a holder of record of Shares is entitled to assert appraisal
rights for the Shares registered in that holder's name. A demand for appraisal
should be executed by or on behalf of the holder of record, fully and
correctly, as such holder's name appears on such holder's stock certificates.
If the Shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the Shares are owned of record by more than one person as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including an agent for two or
more joint owners, may execute a demand for appraisal on behalf of a holder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is agent
for such owner or owners. A record holder such as a broker who holds Shares as
nominee for several beneficial owners may exercise appraisal rights with
respect to the Shares held for one or more beneficial owners while not
exercising such rights with respect to the Shares held for other beneficial
owners; in such case, the written demand should set forth the number of Shares
as to which appraisal is sought , and where no number of Shares is expressly
mentioned the demand will be presumed to cover all Shares held in the name of
the record owner. Stockholders who hold their Shares in brokerage accounts or
other nominee forms and who wish to exercise appraisal rights are urged to
consult with their brokers to determine the appropriate procedures for the
making of a demand for appraisal by such a nominee.
If the Merger Agreement is approved and adopted by the stockholders,
the Company or the Surviving Corporation, as the case may be, will send a
notice, either before the Effective Time or within ten days thereafter, stating
that appraisal rights are available to each stockholder who has filed an
adequate written demand for appraisal with the Company and who has not voted in
favor of approval and adoption of the Merger Agreement. Within 120 days after
the Effective Time, the Company or any stockholder seeking appraisal rights may
file a petition in the Court of Chancery demanding a determination of the value
of the Shares of all stockholders seeking appraisal rights. The Company is
under no obligation, and has no present intention, to file such a petition, and
all stockholders seeking to exercise appraisal rights should initiate all
necessary action with respect to the perfection of their appraisal rights
within the time periods and in the manner prescribed in Section 262. Within 120
days after the Effective Time, any stockholder who has complied with the
provisions of Section 262, upon written request, shall be entitled to receive
from the Company a statement setting forth the aggregate number of Shares not
voted in favor of approval and adoption of the Merger Agreement and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such Shares. Such written statement must be mailed to any
such stockholder within ten days after his or her written request for such a
statement is received by the Company or within ten days after expiration of the
period for delivery of demands for appraisal under Section 262(d), whichever is
later.
If a petition for appraisal is timely filed, the Court of Chancery will
conduct a hearing on such petition to determine whether the stockholders
seeking appraisal rights have complied with Section 262 and have thereby become
entitled to appraisal rights. The Court of Chancery will then determine the
fair value of the Shares exclusive of any element of value arising from the
expectation or accomplishment of the Merger, but including a fair rate of
interest, if any, to be paid on the amount determined to be the fair value. In
determining fair value, the Court of Chancery is to take into account all
relevant factors. Stockholders considering appraisal should bear in mind that
the fair market value of their Shares determined under Section 262 could be
more than, the same as, or less than, the consideration they will
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<PAGE> 167
receive pursuant to the Merger Agreement if they do not seek appraisal of their
Shares, and that the written opinion of Patricof set forth as Annex B hereto is
not necessarily an opinion regarding fair value under Section 262. The
Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community
and otherwise admissible in court" should be considered in the appraisal
proceedings.
The Chancery Court will determine the amount of interest, if any, to be
paid upon the amounts to be received by persons whose Shares have been
appraised. The costs of the appraisal proceeding may be assessed against one or
more parties to the proceeding as the Court of Chancery may consider equitable.
Upon application by a stockholder, the Court of Chancery may order all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceedings (including, without limitation, reasonable attorneys'
fees and the fees and expenses of experts) to be charged pro rata against the
value of all of the Shares entitled to an appraisal.
A stockholder will fail to perfect his or her right of appraisal if he
or she (i) does not deliver a written demand for appraisal to the Company prior
to the vote for approval and adoption of the Merger Agreement, (ii) votes his
or her Shares in favor of approval and adoption of the Merger Agreement, (iii)
does not file a petition for appraisal within 120 days after the Effective
Time, or (iv) delivers to the Company both a written withdrawal of his or her
demand for appraisal and an acceptance of the terms of the Merger Agreement,
except that any such attempt to withdraw such demand not made within 60 days
after the Effective Time requires the written approval of the Company. If any
stockholder who properly demands appraisal of such stockholder's Shares under
Section 262 fails to perfect, or effectively withdraws or loses, such
stockholder's right to appraisal as provided in (iii) or (iv) above, the Shares
of such stockholder will be converted into the right to receive the Merger
Consideration receivable with respect to such Shares in accordance with the
Merger Agreement.
If an appraisal proceeding is properly instituted, such proceeding may
not be dismissed as to any stockholder who has perfected his or her right of
appraisal without the approval of the Court of Chancery, and any such approval
may be conditioned on such terms as the Court of Chancery deems just.
After the Effective Time, no stockholder who has demanded appraisal
rights will be entitled to vote his or her Shares for any purpose or to receive
dividends on, or other distributions in respect of, such Shares (except
dividends or distributions payable to stockholders as of a record date prior to
the Effective Time).
Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a dissenter's exclusive
remedy. Several decisions by the Delaware courts have held that a controlling
stockholder of a company involved in a merger has a fiduciary duty to the other
stockholders which requires that the merger be "entirely fair" to such other
stockholders. In determining whether a merger is fair to minority stockholders,
the Delaware courts have considered, among other things, the type and amount of
consideration to be received by stockholders and whether there was fair dealing
among the parties. The Delaware Supreme Court stated in Weinberger v. UOP,
Inc., 457 A.2d 701, 714 (1983), that although the remedy ordinarily available
in a merger that is found not to be "fair" to minority stockholders is the
right to appraisal described above, such appraisal remedy may not be adequate
"in certain cases, particularly where fraud, misrepresentation, self-dealing,
deliberate waste of corporate assets, or gross and palpable overreaching are
involved," and that in such cases the Chancery Court would be free to fashion
any form of appropriate relief.
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FAILURE BY A STOCKHOLDER TO FOLLOW THE STEPS REQUIRED BY DELAWARE LAW
FOR PERFECTING RIGHTS OF APPRAISAL MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN
VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF THE DELAWARE GENERAL CORPORATION
LAW, STOCKHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND EXERCISING THEIR RIGHTS UNDER SECTION 262 SHOULD
CONSULT THEIR LEGAL ADVISORS.
All written communications from stockholders with respect to the
exercise of appraisal rights should be mailed to Hilcoast Development Corp.,
19146 Lyons Road, Boca Raton, Florida 33434, Attention: Secretary.
FINANCING OF THE MERGER
Mergerco has represented and warranted to the Company in the Merger
Agreement that it has or prior to the Effective Time will have sufficient funds
to enable it to satisfy its obligations to purchase the Shares under the
Merger.
Mergerco has entered into subscription agreements with each of Mr. Levy
and Messrs. Halperin. The subscription agreement with Mr. Levy provides that
immediately prior to the Effective Time, Mr. Levy will receive 4,172 shares of
the common stock of Mergerco and, in consideration therefor, will (i) transfer
to Mergerco all of the 834,637 Shares of the Company's Common Stock owned by
Mr. Levy and (ii) loan to Mergerco up to $4,000,000, which amount shall accrue
interest at the rate of 7.5% per annum and be due and payable 18 months from
the Effective Time. The subscription agreement with Messrs. Halperin provides
that immediately prior to the Effective Time, Messrs. Halperin will receive
2,924 shares of the common stock of Mergerco and, in consideration therefor,
will (i) transfer to Mergerco all of the 585,032 Shares of the Company's Common
Stock owned by Messrs. Halperin and (ii) loan to Mergerco up to $2,800,000,
which amount shall accrue interest at the rate of 7.5% per annum and be due and
payable 18 months from the Effective Time.
In connection with his loan to Mergerco, Mr. Levy has obtained a
commitment from Island National Bank and Trust Company to loan him up to
$3,500,000, which amount, together with accrued and unpaid interest, will be
due two years from the date of such loan; interest will accrue on unpaid
principal at a rate of 8.5% and be payable monthly. Mr. Levy's obligations
under the loan will be secured by certain of the shares of CV Reit common
stock owned by Mr. Levy and held by an affiliate of the bank. In connection
with such loan, Mr. Levy will be required to pay Island National Bank and
Trust Company a fee of $8,750.
INFORMATION CONCERNING MERGERCO
Mergerco is a newly formed Delaware corporation organized for the sole
purpose of effecting the Merger. It was incorporated on November 15, 1996.
Mr. Levy will contribute 834,637 Shares and Messrs. Halperin will contribute
585,032 Shares, respectively, to Mergerco prior to the Merger. Mergerco will
not receive any payment for such Shares pursuant to the Merger, in each case
constituting all of the Shares owned by Mr. Levy or Messrs. Halperin, as the
case may be. Mergerco does not have, and will not have, any significant assets
or liabilities nor has it engaged, and it will not engage, in any activities
other than those incident to the Merger. Mergerco is wholly-owned by Mr. Levy
and Messrs. Halperin and has its principal office at: c/o The Prentice-Hall
Corporation System, Inc., 1013 Centre Road, Wilmington, Delaware 19805.
Mergerco's telephone number is (561) 640-3100. Mr. Levy and Messrs. Halperin,
Mergerco's sole stockholders, have approved and adopted the Merger Agreement.
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<PAGE> 169
INFORMATION CONCERNING MR. LEVY
Mr. Levy is, and since the formation of the Company in July 1992 has
been, Chairman of the Board of Directors and Chief Executive Officer of the
Company. In addition, he is a principal stockholder and, until his resignation
on July 31, 1992, was Chairman of the Board of CV Reit, Inc., a real estate
investment trust ("CV Reit"). For further discussion concerning Mr. Levy, CV
Reit and the Company, see "Item 1. Business - Certain Transactions and
Relationships" in the Company's Annual Report on Form 10-K for its fiscal year
ended July 31, 1996, as amended, attached hereto as Exhibit B. As of October
31, 1996, Mr. Levy beneficially owned 834,637 Shares (35.3% of outstanding
Shares). Mr. Levy is a United States citizen.
Mr. Levy purchased 600,000 Shares upon the initial capitalization of
the Company in July 1992. Mr. Levy acquired an additional 187,787 Shares from
CV Reit in a spin off transaction in October 1992 as a stock dividend for no
additional consideration. 24,323 of such Shares were owned by a corporation
controlled by Mr. Levy. On January 19, 1994, Mr. Levy purchased 13,059 Shares
at a price of $5.50 per Share, paid in cash in a private transaction, and on
March 1, 1995, Mr. Levy purchased 1,000 Shares at a price of $4.25 per Share
paid in cash in an open-market transaction. On August 6, 1996, Mr. Levy
purchased from members of Mr. Levy's family and corporations controlled by them
an aggregate of 32,791 Shares at a price of $5.75 per Share, paid in cash in
private transactions. On August 6, 1996, Mr. Levy also purchased from a
corporation controlled by him, in a private transaction, 24,323 Shares at a
price of $5.00 per Share, paid in cash and forgiveness of indebtedness. All of
the 57,114 Shares purchased by Mr. Levy on August 6, 1996 were purchased by him
using his personal funds.
In September 1994, the Company and Mr. Levy entered into an unsecured
revolving credit agreement allowing the Company to borrow up to $750,000 from
Mr. Levy through May 1, 1997, as extended. For a one week period in July 1995,
the outstanding balance under this agreement was increased to $1,030,000, which
amount was reduced to $390,000 by July 31, 1995 and repaid in September 1995.
Since that repayment, the Company has not made any further borrowings under
this agreement.
INFORMATION CONCERNING MESSRS. HALPERIN
Maurice A. Halperin, a United States citizen, is retired and is the
former chairman of the board and chief executive officer of Empire of Carolina,
Inc. ("Empire"), a Delaware corporation engaged in the manufacture, marketing
and distribution of various consumer and food products. Barry S. Halperin, a
United States citizen, is a former director and president of Empire and is
currently the president of a private Massachusetts corporation which he
controls, Halco Industries, Inc. ("Halco"). Barry S. Halperin is the son of
Maurice A. Halperin, and other than as described herein, Messrs. Halperin have
no express agreement, arrangement or understanding regarding the Common Stock
or the Company. The business address of each of Messrs. Halperin is 2500 North
Military Trail, Boca Raton, Florida 33431.
Maurice A. Halperin and Barry S. Halperin initially acquired 40,525 and
22,625 Shares of the Company's Common Stock, respectively, in a spin-off
distribution paid to the stockholders of CV Reit on or about October 26, 1992.
Subsequent to such spin-off and prior to December 2, 1992, Maurice A. Halperin
acquired an additional 119,102 Shares with personal funds in open-market
purchases at an aggregate purchase price of $298,590.01, excluding commissions.
On December 1, 1992, Messrs. Halperin, as a group, beneficially owned 182,252
Shares, or approximately 7.7 % of the outstanding Common Stock on such date.
Messrs. Halperin indicated in the Schedule 13D that they filed with respect of
such initial acquisition of Shares on December 1, 1992 that they shared voting
and dispositive power with respect to the Shares owned by each other and that
they intended to act together
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<PAGE> 170
to further their mutual interests in the Company. Messrs. Halperin have
indicated in all subsequent amendments to such Schedules 13D that they have
filed that they so share voting and dispositive power and have indicated to the
Company for purposes of the preparation of this Proxy Statement that they so
share voting and dispositive power with respect to the Shares of the Company's
Common Stock owned by them.
From December 10, 1992 through July 25, 1994, Maurice A. Halperin
acquired an additional 162,804 Shares with personal funds in open-market
purchases at an aggregate purchase price of $783,320.15. From December 9, 1992
through July 25, 1994, Barry S. Halperin acquired an additional 161,818 Shares
with personal funds in open market purchases at an aggregate purchase price of
$772,367.04 and an additional 30,758 Shares with personal funds in a private
transaction at an aggregate purchase price of $161,479.50, or $5.25 per Share.
During the fiscal quarter of the Company ended October 31, 1994,
Maurice A. Halperin acquired 10,150 Shares in three open-market purchases at
prices of $4.6875, $4.875 and $5.00 per Share, or an average of $4.83 per
Share. During the same fiscal quarter, Barry S. Halperin acquired 4,750 Shares
in two open-market purchases at $5.00 and $4.6875 per Share, or an average of
$4.79 per Share. During the fiscal quarter of the Company ended April 30,
1995, Maurice A. Halperin acquired 2,000 Shares in on open-market purchase at
$4.75 per Share. During the fiscal quarter of the Company ended July 31, 1995,
Maurice A. Halperin acquired 28,000 Shares in eight open-market purchases at
prices ranging from $4.625 to $5.125 per Share, or an average of $4.88 per
Share. During the same fiscal quarter, Barry S. Halperin acquired 2,500 Shares
in one open-market purchase at $4.625 per Share. As of August 21, 1996,
Messrs. Halperin beneficially owned 585,032 Shares (24.8% of outstanding
Shares).
In October 1991, the Commission filed a complaint in the United States
District Court for the District of Columbia alleging certain violations of the
federal securities laws by Messrs. Halperin and Halco in connection with
transactions in the common stock of HMG Courtland Properties, Inc. ("HMG"), a
real estate investment trust. Without admitting or denying the complaint's
allegations, and simultaneously with the filing of the complaint, Messrs.
Halperin and Halco consented to the entry of permanent injunctions against
future violations of Section 13(d) of the Exchange Act and Rules 12b-20 and
13d-2 promulgated thereunder. Barry S. Halperin consented to the entry of a
permanent injunction against future violations of Section 16(a) of the Exchange
Act and Rule 16a-3 promulgated thereunder. Maurice A. Halperin, Barry S.
Halperin and Halco consented to entries of orders requiring them to pay civil
monetary fines of $50,000, $50,000 and $100,000, respectively. Maurice A.
Halperin also consented to an entry of a permanent injunction against future
violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder. Other than as disclosed above, during the last five years, neither
Maurice A. Halperin nor Barry S. Halperin has been convicted in a criminal
proceeding (excluding traffic violations or misdemeanors) or has been a party
to a civil proceeding of a judicial or administrative body of competent
jurisdiction as a result of which either of them was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq Small-Cap Market
under the symbol HCDV. The following tables set forth the market price range
of the Common Stock for each quarter during the years ended July 31, 1996 and
1995 and the quarter ended October 31, 1996, based on the high
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<PAGE> 171
and low closing sale prices as reported on the Nasdaq Small-Cap Market. Such
high and low sale prices reflect interdealer prices without retail markup,
markdown or commission and may not necessarily represent actual transactions.
No cash dividends have ever been declared by the Company on the Common Stock.
<TABLE>
<CAPTION>
MARKET PRICE RANGE
--------------------------
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1995
-----------
First Quarter 4-7/8 4-1/2
Second Quarter 4-7/8 4-1/2
Third Quarter 4-7/8 4-1/2
Fourth Quarter 4-7/8 4-3/8
Fiscal 1996
-----------
First Quarter 4-7/8 4-1/8
Second Quarter 4-3/4 4-1/4
Third Quarter 4-3/4 4-1/4
Fourth Quarter 5 4-1/4
Fiscal 1997
-----------
First Quarter [5-3/8] [4-5/8]
(through November __)
</TABLE>
As of the Record Date, the Company had 2,362,320 shares of Common Stock
outstanding and approximately 350 holders of record of such stock.
The Company has never paid any dividends on the Common Stock. The
Company does not anticipate paying cash dividends on the Common Stock in the
foreseeable future based on its expected operating cash flow requirements (see
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources in the Company's Annual Report on
Form 10-K for the fiscal year ended July 31, 1996, as amended, attached hereto
as Exhibit D and incorporated herein by reference). The Delaware General
Corporation Law prohibits the Company from paying dividends or otherwise
distributing funds to its stockholders, except out of legally available funds.
The declaration and payment of dividends on the Company's Common Stock and the
amount thereof will be dependent upon the Company's results of operations,
financial condition, cash requirements, future prospects and other factors
deemed relevant by the Board of Directors. No assurance can be given that the
Company will pay any dividends on the Common Stock. The Merger Agreement
provides that, prior to the Effective Time, the Board may not declare dividends
on the Shares without the prior consent of Mergerco.
Mr. Levy delivered a letter to the Company's Board at a meeting held on
Friday, August 9, 1996 in which he proposed the Merger. On the following
Monday, August 12, the Company issued a press release revealing Mr. Levy's
letter, and on the same day, Mr. Levy filed a Schedule 13D under the Exchange
Act with the Commission, to which his letter was attached as an exhibit. The
last sale prices (or, in the absence of trading, the high and low bid and ask
prices) of the Company's Common Stock as reported by Nasdaq on August 5, 6, 7,
8 and 9, 1996, were, respectively: $4- 5/8; $4-5/8 and 5; $4-5/8; $4-5/8 and
4-7/8; and $4-5/8 and 4-7/8. As reported by Nasdaq, on November 12, 1996, the
date the Board approved the Merger Agreement, the high and low bid and ask
prices of the Company's Common Stock as reported by Nasdaq were $5-5/16 and
$5-
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<PAGE> 172
13/16 per Share. As reported by Nasdaq, on November 20, 1996, the last full
trading day prior to the date of execution of the Merger Agreement, the high
and low bid and ask prices were $5-5/16 and $5-13/16 per Share, and on December
__, 1996, the last full trading day prior to the date of this Proxy Statement,
the last sale price was $____ per Share. Stockholders are urged to obtain
current quotations for the Shares.
The following table sets forth the sale price and trading volume of the
Company's Common Stock, as reported by Nasdaq, for the month prior to the
announcement of the proposed Merger on August 12. No sales were effected on
the dates for which no sale price is provided.
<TABLE>
<CAPTION>
VOLUME VOLUME
DATE PRICE TRADED DATE PRICE TRADED
---- ----- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C>
08/09/96 07/26/96
08/08/96 07/25/96
08/07/96 $4.625 1,000 07/24/96
08/06/96 07/23/96
08/05/96 $4.625 262 07/22/96
08/02/96 07/19/96 $4.625 115
08/01/96 07/18/96 $4.625 210
07/31/96 $5.000 500 07/17/96 $4.625 183
07/30/96 $4.625 259 07/16/96
07/29/96 07/15/96
07/12/96
</TABLE>
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<PAGE> 173
SELECTED FINANCIAL DATA
The Company's operations commenced in connection with the purchase of
certain assets on July 31, 1992. Allocations have been made to reflect the
fair value of the assets acquired resulting in asset bases which differ from
those of the previous owner. In addition, certain of the Company's operating
policies and accounting procedures may be different from those of the previous
owner. Accordingly, comparative financial data for the year ended July 31,
1992 is not presented since it would be neither comparable nor informative.
The following should be read in conjunction with the Company's Consolidated
Financial Statements, accompanying notes and other financial information
included in the Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1996, as amended, and the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended October 31, 1996, attached hereto as Exhibits D and E,
respectively, and incorporated herein by reference:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------------
1996 1995 1994 1993
--------- --------- --------- ---------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Sales of condominium apartments $30,917 $37,340 $35,992 $24,809
========= ========= ========= =========
Total revenues $43,030 $51,313 $47,236 $35,317
========= ========= ========= =========
Income (loss) before income tax
expense (benefit) ($675) $983 $512 $343
Income tax expense (benefit) (237) 378 223 134
--------- --------- --------- ---------
Net income (loss) (438) 605 289 209
Preferred stock dividends -- 333 500 502
--------- --------- --------- ---------
Net income (loss) applicable to
Common Stock ($438) $272 ($211) ($293)
========= ========= ========= =========
Net income (loss) per Share ($.19) $.11 ($.09) ($.12)
========= ========= ========= =========
Net income (loss) per Share on a
fully diluted basis ($.19) $.11 ($.09) ($.12)
========= ========= ========= =========
Average Shares considered
outstanding 2,362,320 2,506,562 2,352,320 2,363,286
========= ========= ========= =========
BALANCE SHEET DATA:
Inventories and properties held
for development and sale $30,234 $35,383 $40,227 $40,088
========= ========= ========= =========
Total assets $53,595 $58,137 $64,743 $66,402
========= ========= ========= =========
Borrowings $45,348 $48,611 $49,637 $53,229
========= ========= ========= =========
Stockholders' equity $ 1,835 $ 2,273(a) $ 6,986 $ 7,197
========= ========= ========= =========
Book Value per Share $ .78 $ .96 $ .84 $ .93
========= ========= ========= =========
</TABLE>
_____________________
(a) On March 31, 1995, the Company redeemed its $5 million of 10%
Cumulative Preferred Stock in exchange for a $5 million note payable.
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<PAGE> 174
INFORMATION AS TO STOCK OWNERSHIP
The following table sets forth, as of the Record Date,
information with respect to the beneficial ownership of the Company's Common
Stock by (i) each person known by the Company to beneficially own more than 5%
of the outstanding shares of Common Stock, (ii) each director of the Company,
(iii) each of the five most highly compensated executive officers of the
Company, and (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OUTSTANDING
BENEFICIAL OWNER(1) OWNERSHIP(2) SHARES
----------------------------------------------- -------------------- ------------
<S> <C> <C>
H. IRWIN LEVY 834,637 35.3%
100 Century Blvd.
West Palm Beach, FL 33417
MAURICE A. HALPERIN 585,032(3) 24.8%
BARRY S. HALPERIN
2500 North Military Trail
Boca Raton, FL 33431
ALAN J. EVANS 155,424(4) 6.6%
P.O. Box 727
Palm Beach, FL 33480
ROBERT J. CARTAGENA 133,866(5) 5.7%
P.O. Box 727
Palm Beach, FL 33480
ALAN J. EVANS AND ROBERT J. CARTAGENA, 128,000(6) 5.4%
AS TRUSTEES
P.O. Box 727
Palm Beach, FL 33480
MICHAEL S. RUBIN 85,000(2) 3.5%
JACK JAIVEN 85,407(2) 3.5%
MICHAEL A. RICH 36,147(2) 1.5%
JAMES A. GEDDES 20,000(2) (7)
BERNARD R. GREEN 11,256(2) (7)
583 North Lake Way
Palm Beach, FL 33480
</TABLE>
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<PAGE> 175
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OUTSTANDING
BENEFICIAL OWNER(1) OWNERSHIP(2) SHARES
- ----------------------------------------------- -------------------- -----------
<S> <C> <C>
JOSEPH D. WEINGARD -- --
185 N.W. Spanish River Blvd.
Boca Raton, FL 33431
All executive officers and directors as a 1,087,548(2) 41.8%
group (9 persons)
</TABLE>
__________________________
(1) Unless otherwise indicated, the address of each beneficial owner listed
is 19146 Lyons Road, Boca Raton, FL 33434.
(2) Unless otherwise indicated, each stockholder listed has the sole power
to vote and direct disposition of the shares of Common Stock shown as
beneficially owned by such stockholder. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of
the following Shares which such person or group has the right to
acquire pursuant to options exercisable within 60 days: Mr. Rubin -
85,000 shares; Mr. Jaiven - 85,000 shares; Mr. Rich - 25,000 shares;
Mr. Geddes - 20,000 shares; Mr. Green - 10,000 shares; and all
executive officers and directors as a group -240,000 shares.
(3) Maurice A. Halperin owns 362,581 of such shares and Barry S. Halperin,
his son, owns 222,451 of such shares. Messrs. Halperin share voting
and dispositive power with respect to the shares of Common Stock owned
by each other. The information with respect to this group is based
solely on Schedule 13D, as amended, as of August 13, 1996, and on
Statements of Changes in Beneficial Ownership on Form 4 filed for May
and June, 1995.
(4) Includes 128,000 shares held by The Claudia Morse Evans Family Trust
for which Mr. Evans is a Trustee and 27,424 shares held by Alan J.
Evans, individually.
(5) Includes 128,000 shares held by The Claudia Morse Evans Family Trust
for which Mr. Cartagena is a Trustee and 5,866 shares held by Robert J.
Cartagena, individually.
(6) Consists of shares held by The Claudia Morse Evans Family Trust for
which Alan J. Evans and Robert J. Cartagena, as Trustees, share voting
and dispositive power. The information with respect to such trust is
based upon Schedule 13D, dated March 7, 1994.
(7) Less than 1%.
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<PAGE> 176
FEES AND EXPENSES
Estimated fees and expenses to be incurred by the Company or Mergerco
in connection with the Merger and the financing assuming the completion thereof
and omitting interest with respect to the financing, are as follows (in
thousands):
<TABLE>
<S> <C>
Financing Fees(1) . . . . . . . . . $ 8,750
Financial Advisors Fees . . . . . . 100,000
Commission Filing Fees . . . . . . 1,345
Legal Fees(2) . . . . . . . . . . . 175,000
Accounting Fees . . . . . . . . . . 2,000
Printing and Mailing Expenses . . . 15,000
Paying Agent Fees . . . . . . . . . 7,500
Special Committee Fee . . . . . . . 100,000
----------
Total(3) . . . . . . . . . . . . . $ 409,595
- --------------
</TABLE>
(1) See "Financing of the Merger."
(2) Includes legal fees, charges and disbursements of the legal advisors
for Mergerco and the Special Committee.
(3) Fees and expenses in the approximate amount of $_________ and
$__________ have been incurred by the Company and Mergerco,
respectively, through the date of this Proxy Statement.
Whether or not the Merger is consummated, and except as otherwise
provided in the following sentence, all costs and expenses incurred in
connection with the Merger Agreement and the Merger will be paid by the party
incurring the expense. The Company will pay Mergerco a fee in immediately
available funds equal to $200,000 upon the termination of the Merger Agreement
(i) by Mergerco if the Company's Board of Directors withdraws, modifies or
changes its recommendation or approval in respect of the Merger Agreement or
the Merger in a manner adverse to Mergerco or the Board approves or recommends
any proposal other than by Mergerco in respect of an Acquisition Proposal or
(ii) by the Company in order to enter into an agreement in respect of an
Acquisition Proposal. See "The Merger Agreement - Fees and Expenses" and
"-Termination; Amendments."
INDEPENDENT PUBLIC ACCOUNTANTS
BDO, Seidman, certified public accountants, served as the Company's
independent auditors for the fiscal year ended July 31, 1996 and, if the Merger
is not consummated, is expected to so serve for the fiscal year ending July 31,
1997. A representative of BDO, Seidman is expected to be present at the
Meeting. The representative will be afforded an opportunity to make any
statement which he or she may deem appropriate and is expected to be available
to respond to appropriate questions from stockholders, to the extent questions
are permitted.
OTHER BUSINESS
The Board knows of no business to be brought before the Meeting other
than the matters set forth in the attached Notice of Special Meeting of
Stockholders and this Proxy Statement. If, however, any other business should
properly come before the Meeting, the persons named in the accompanying proxy
will vote proxies as in their discretion they may deem appropriate, unless they
are directed by a proxy to do otherwise.
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<PAGE> 177
INFORMATION CONCERNING STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated by the Commission, a stockholder
intending to present a proposal to be included in the Company's proxy statement
for the Company's 1996 Annual Meeting of Stockholders (in the event the Merger
is not consummated prior to such date) must deliver a proposal in writing to
the Company's principal executive offices no later than July 23, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in this Proxy
Statement and are deemed to be a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended July 31, 1996, as amended;
(2) The Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended October 31, 1996; and
(3) All documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act since
July 31, 1996.
Any statement contained in a document incorporated by reference shall
be deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Proxy Statement modifies or replaces such
statement. Copies of the Company's Annual Report on Form 10-K for the fiscal
year ended July 31, 1996, as amended, and the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended October 31, 1996 are attached to this
Proxy Statement as Exhibits D and E, respectively.
The Company undertakes to provide by first class mail, without charge,
to any person to whom a copy of this Proxy Statement has been delivered, within
one business day of the written or oral request of such person, a copy of any
or all of the documents referred to above which have been incorporated in this
Proxy Statement by reference, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference therein).The Company's
Annual Report on Form 10-K for the fiscal year ended July 31, 1996, as amended,
attached hereto is accompanied by a list briefly describing all the exhibits
not contained therein. The Company will furnish any exhibit upon the payment
of a specified reasonable fee, which fee will be limited to the Company's
reasonable expenses in furnishing such exhibit. Requests for such copies
should be directed to Secretary, Hilcoast Development Corp., 19146 Lyons Road,
Boca Raton, Florida 33434, telephone number (561) 487-9630.
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<PAGE> 178
AVAILABLE INFORMATION
The Company, Mergerco, Mr. Levy and Messrs. Halperin, have filed a
Schedule 13E-3 under the Exchange Act with the Commission with respect to the
transactions described in this Proxy Statement. A copy of the written report
presented by Patricof to the Special Committee, including Patricof's opinion as
to the fairness of the consideration to be received in the Merger, was filed as
an exhibit to such Schedule 13E-3. Copies of the Schedule 13E-3 are available
for inspection and copying at the principal executive offices of the Company
during regular business hours by any interested stockholder of the Company, or
a representative who has been so designated in writing, and may be inspected
and copied, or obtained by mail by written request directed to Secretary,
Hilcoast Development Corp., 19146 Lyons Road, Boca Raton, Florida 33434,
telephone number (561) 487-9630.
The Company is currently subject to the informational requirements of
the Exchange Act and in accordance therewith files periodic reports, proxy
statements and other information with the Commission relating to its business,
financial and other matters. Such reports, proxy statements and other
information, as well as the Schedule 13E-3, may be inspected and copied (at
prescribed rates) at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048, and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. In addition, the Commission maintains a Web site with the
address, http://www.sec.gov, that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
By Order Of The Board of Directors
Orilla F. Floyd
Secretary
West Palm Beach
December , 1996
--
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<PAGE> 179
HILCOAST DEVELOPMENT CORP.
19146 Lyons Road
Boca Raton, Florida 33434
-------------------------
NOTICE OF SPECIAL MEETING OF STOCK HOLDERS
To Be Held on January 16, 1997
-------------------------
To the Stockholders
of Hilcoast Development Corp.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Hilcoast Development Corp., a Delaware corporation (the "Company"), will be
held at 11:00 a.m., local time, on Thursday, January 16, 1997, at the Omni
Hotel, 1601 Belvedere Road, West Palm Beach, Florida 33406, for the following
purposes:
1. To consider and vote upon the approval and adoption of an
Agreement and Plan of Merger (the "Merger Agreement"),
providing for the merger (the "Merger") with and into the
Company of FLA Acquisition Corp. ("Mergerco"), a Delaware
corporation formed by the Company's Chairman of the Board and
certain other stockholders for the purpose of consummating the
Merger, 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 Mergerco, any
of its subsidiaries or any dissenting stockholders who perfect
their statutory appraisal rights under Delaware law), will be
converted into the right to receive $6.00 in cash, without
interest. The Merger Agreement is more fully described in the
accompanying Proxy Statement and is attached as Exhibit A to
the Proxy Statement.
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on Tuesday,
December 10, 1996 as the record date for the determination of stockholders
entitled to vote at the meeting and, accordingly, only stockholders of record
at the close of business on such date are entitled to notice of and to vote at
the meeting and any adjournment thereof. The stock transfer books of the
Company will not be closed prior to the meeting.
Stockholders of the Company who do not vote in favor of approval and
adoption of the Merger Agreement and who otherwise comply with the provisions
of Section 262 of the Delaware General Corporation Law will have the right if
the Merger is consummated to dissent and to seek appraisal of the fair market
value of their shares. See "Rights of Dissenting Stockholders" in the
accompanying Proxy Statement, and Exhibit C thereto, for a description of the
procedures required to be followed in order to exercise properly dissenters'
rights.
In order to assure that your vote will be counted, please complete,
date, sign and return the enclosed proxy promptly in the enclosed prepaid
envelope whether or not you plan to attend the meeting. Your proxy may be
revoked at any time before it is voted, by filing with the Secretary of the
Company a written revocation, by submitting a proxy bearing a later date, or by
attending and voting in person at the meeting.
THE BOARD OF DIRECTORS OF THE COMPANY (OTHER THAN THE CHAIRMAN, WHO
ABSTAINED FROM SUCH VOTE) HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS
THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
By Order of the Board of Directors
Orilla F. Floyd
Secretary
Boca Raton, Florida
December __, 1996
YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY,
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING.
PLEASE DO NOT SEND IN ANY CERTIFICATES
FOR YOUR SHARES AT THIS TIME.
<PAGE> 180
EXHIBIT (d)(3)
HILCOAST DEVELOPMENT CORP.
19146 LYONS ROAD
BOCA RATON, FLORIDA 33434
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
The undersigned holder of Common Stock of Hilcoast Development Corp., a
Delaware corporation (the "Company"), hereby appoints Orilla F. Floyd and Jack
Jaiven, and each of them, as proxies for the undersigned, each with full power
of substitution, for and in the name of the undersigned to act for the
undersigned and to vote, as designated below, all of the shares of Common Stock
of the Company that the undersigned is entitled to vote at the Special Meeting
of Stockholders of the Company, to be held on Thursday, January 16, 1997, at
11:00 a.m., local time, at the Omni Hotel, 1601 Belvedere Road, West Palm Beach,
Florida 33406, and at any adjournment(s) or postponement(s) thereof.
The Board of Directors unanimously recommends a vote FOR the Proposal to
approve and adopt the Merger Agreement (as described in the Company's Proxy
Statement dated December __, 1996).
(1) Proposal to approve and adopt the Merger Agreement (as described in the
Company's Proxy Statement dated December __, 1996).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) Upon such other matters as may properly come before the Special Meeting
and any adjournments thereof. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before
the Special Meeting, and any adjournment(s) or postponement(s) thereof.
(SEE REVERSE SIDE)
- --------------------------------------------------------------------------------
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT (AS
DESCRIBED IN THE COMPANY'S PROXY STATEMENT DATED DECEMBER __, 1996). The
undersigned hereby acknowledges receipt of (i) the Notice of Special Meeting,
(ii) the Proxy Statement, and (iii) the Company's Annual Report on Form 10-K for
the fiscal year ended July 31, 1996, as amended.
Dated , 1996
------------------------------------
-------------------------------------------------
(Signature)
-------------------------------------------------
(Signature if held jointly)
IMPORTANT: Please sign exactly as your name
appears hereon and mail it promptly even though
you now plan to attend the meeting. When shares
are held by joint tenants, both should sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title as
such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
PLEASE MARK, SIGN AND DATE THIS
PROXY CARD AND PROMPTLY RETURN IT IN THE ENVELOPE PROVIDED.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE> 181
EXHIBIT (d)(4)
FOR IMMEDIATE RELEASE
HILCOAST DEVELOPMENT ANNOUNCES RECEIPT OF GOING PRIVATE PROPOSAL
BOCA RATON, FL, August 12, 1996 - - Hilcoast Development Corp.
(NASDAQ: HCDV) announced today that its Board of Directors had received an
unsolicited proposal from H. Irwin Levy, Hilcoast's Chairman of the Board and
Chief Executive Officer, contemplating a merger of Hilcoast and a newly formed
acquisition company to be organized by Mr. Levy, pursuant to which each of
Hilcoast's outstanding shares of common stock would be converted into $6.00
cash.
Hilcoast's Board of Directors has appointed a special independent
committee to consider the proposal and has authorized the committee to engage
financial and legal advisers.
The proposed merger is subject to approval of Hilcoast's board of
directors and shareholders and a number of other material conditions, including
negotiation of a definitive agreement and compliance with all applicable
regulatory and governmental requirements. Accordingly, there can be no
assurance that the proposed merger will be consummated.
* * * * *
Hilcoast Development is engaged in the design, development,
construction, marketing and sale of condominium apartments at the planned 7,780
unit Century Village at Pembroke Pines, the operation of the recreational
facilities of that project, and certain other real estate related activities.
Company Contact: Michael Rubin
President and Chief Operating Officer
(954) 435-6012
<PAGE> 182
EXHIBIT (e)
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.- (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to Section 228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Section 251, 252, 254, 257, 258, 263
or 264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and to vote
at the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. Or (ii) held of
record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its approval
the vote of the holders of the surviving corporation as provided in subsections
(f) or (g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation pursuant
to Section Section 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving
or resulting from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be either
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. Or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or
fractional depository receipts described in the foregoing subparagraphs a. and
b. of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section 253 of this title
is not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary Delaware
corporation.
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(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those set
forth in subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be submitted for
approval at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal rights
are available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder electing
to demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant
to Section 228 or 253 of this title, the surviving or resulting corporation,
either before the effective date of the merger or consolidation or within 10
days thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that appraisal
rights are available for any or all of the shares of the constituent
corporation, and shall include in such notice a copy of this section. The
notice shall be sent by certified or registered mail, return receipt requested,
addressed to the stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of the notice, demand in writing from the surviving
or resulting corporation the appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the
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surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court,
shall give notice of the time and place fixed for the hearing of such petition
by registered or certified mail to the surviving or resulting corporation and
to the stockholders shown on the list at the addresses therein stated. Such
notice shall also be given by 1 or more publications at least 1 week before the
day of the hearing, in a newspaper of general circulation published in the City
of Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the far rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this State
or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
his demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any
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stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
4
