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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
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 Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
WEITZER HOMEBUILDERS INCORPORATED
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(Name of Registrant as Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
5) Total fee paid:
- --------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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Akerman Senterfitt
Attorneys at Law
Suntrust International Center
One Southeast Third Avenue, 28th Floor
Miami, Florida 33131-1714
Phone (305) 374-5600
Fax (305) 374-5095
http://www.akerman.com
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Weitzer Homebuilders Incorporated - Preliminary Proxy Statement on
Schedule 14A (Amendment No. 1)
Dear Ladies and Gentlemen:
On behalf of Weitzer Homebuilders Incorporated (the "Company"), we are
filing, pursuant to the Securities Exchange Act of 1934 ("Exchange Act"), as
amended, and the applicable rules and regulations thereunder, the Company's
preliminary proxy statement on Schedule 14A (Amendment No. 1).
Please call the undersigned at (305) 982-5662 if you have any questions
regarding this filing. Thank you for your assistance with this matter.
Very truly yours,
AKERMAN SENTERFITT
Alan H. Aronson
cc: Sergio Pino
Emiliano de la Fuente
Mark Webb (courtesy copy)
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PRELIMINARY PROXY MATERIALS
---------------------------
WEITZER HOMEBUILDERS INCORPORATED
(d/b/a Century Builders Group)
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held on April 20, 2000
TO ALL SHAREHOLDERS OF WEITZER HOMEBUILDERS INCORPORATED:
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders of Weitzer
Homebuilders Incorporated (d/b/a Century Builders Group), a Florida corporation,
(the "Company") will be held at the offices of Akerman, Senterfitt & Eidson,
P.A. located at One S.E. Third Avenue, 28th Floor, Miami, Florida 33131, on
April 20, 2000 at 11:00 a.m., local time, for the following purposes:
1. To approve an amendment to the Company's Articles of Incorporation to
change the Company's name to "Century Builders Group, Inc."
2. To approve an amendment to the Company's Articles of Incorporation, to
provide for only one class of Common Stock, $.001 par value per share,
and in so doing to effectuate the automatic conversion of outstanding
shares of Class A Common Stock and outstanding shares of Class B
Common Stock into a like number of shares of the Company's newly
designated Common Stock;
3. To approve an amendment to the Company's Articles of Incorporation to
increase the number of authorized shares of Common Stock of the
Company to 95,000,000 shares, $.001 par value per share.
4. To elect six Directors for a term of one year and until their
successors are duly elected and qualified;
5. To ratify the appointment of Deloitte & Touche LLP, as the Company's
independent public accountants for the fiscal year ending December 31,
2000; and
6. To transact such other business as may properly come before the
Special Meeting or any adjournment or adjournments thereof.
Only shareholders of record at the close of business on March 20, 2000, are
entitled to notice of and to vote at the Special Meeting or any adjournments
thereof.
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UNDER THE FLORIDA BUSINESS CORPORATION ACT, EACH SHAREHOLDER WHO OBJECTS TO
THE ADOPTION OF THE AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
RELATING TO THE ELIMINATION OF THE TWO CLASSES OF COMMON STOCK SHALL BE ENTITLED
TO ASSERT STATUTORY DISSENTERS' RIGHTS; PROVIDED HOWEVER THAT, IN ORDER TO
ASSERT SUCH RIGHTS, A SHAREHOLDER IS REQUIRED TO ADHERE STRICTLY TO CERTAIN
STATUTORY REQUIREMENTS. SHAREHOLDERS INTENDING TO EXERCISE THEIR DISSENTERS'
RIGHTS MUST FILE WITH THE COMPANY BEFORE THE SPECIAL MEETING, OR AT THE SPECIAL
MEETING BUT BEFORE THE VOTE ON SUCH AMENDMENT, A WRITTEN OBJECTION TO SUCH
AMENDMENT, INCLUDING A STATEMENT THAT THEY INTEND TO DEMAND PAYMENT FOR THEIR
SHARES IF SUCH AMENDMENT IS APPROVED. MOREOVER, SHAREHOLDERS SHOULD BE AWARE
THAT A PROXY OR VOTE AGAINST SUCH AMENDMENT SHALL NOT CONSTITUTE SUCH A DEMAND.
A STATEMENT WITH RESPECT TO THE RIGHTS OF DISSENTING SHAREHOLDERS IS SET FORTH
IN THE ACCOMPANYING PROXY STATEMENT.
By Order of the Board of Directors,
KEYLA ALBA-REILLY,
Secretary
Miami, Florida
March 23, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE PROMPTLY
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF
DIRECTORS OF THE COMPANY, AND RETURN IT TO THE COMPANY. THE PROXY MAY BE
REVOKED AT ANY TIME BEFORE IT IS VOTED, AND SHAREHOLDERS EXECUTING PROXIES MAY
ATTEND THE MEETING AND VOTE IN PERSON, SHOULD THEY SO DESIRE.
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED
(d/b/a Century Builders Group)
7270 N.W. 12th Street
Suite 410
Miami, Florida 33126
------------------------
PROXY STATEMENT
------------------------
The accompanying proxy is solicited by the Board of Directors of Weitzer
Homebuilders Incorporated (d/b/a Century Builders Group) a Florida corporation
(the "Company"), for the Special Meeting of Shareholders (the "Special
Meeting"), of the Company to be held at the offices of Akerman, Senterfitt &
Eidson, P.A., located at One S.E. Third Avenue, 28th Floor, Miami, Florida
33131, on April 20, 2000 at 11:00 a.m., local time.
All proxies duly executed and received will be voted on all matters
presented at the Special Meeting in accordance with the instructions given by
such proxies. In the absence of specific instructions, proxies so received will
be voted in favor of the amendments to the Company's Articles of Incorporation
to change the Company's name, to eliminate the two classes of Common Stock
currently outstanding and to provide for only one class of Common Stock, $.001
par value per share, to be so designated as Common Stock, and to increase the
authorized shares of Common Stock of the Company to 95,000,000 shares, $.001 par
value per share; and in favor of all named nominees to the Company's Board of
Directors for the term of one year and until their successors are duly elected
and qualified; and for the ratification of Deloitte & Touche LLP, as the
Company's independent public accountants for the fiscal year ending December 31,
2000. The Board of Directors of the Company does not anticipate that any of the
nominees for election to the Board of Directors will be unavailable for election
and does not know of any other matters that may be brought before the Special
Meeting. In the event that any other matter should come before the Special
Meeting or that any nominee is not available for election, the persons named in
the enclosed proxy will have discretionary authority to vote all proxies not
marked to the contrary with respect to such matter in accordance with their best
judgment. The proxy may be revoked at any time before being voted by delivering
a written notice to the Secretary of the Company, by executing a later dated
proxy or by attending the Special Meeting and voting in person. The Company
will pay the entire expense of soliciting the proxies, which solicitation will
be by use of the mails. This Proxy Statement is being mailed to shareholders on
or about March 23, 2000.
Only holders of shares of Class A Common Stock and Class B Common Stock of
record at the close of business on March 20, 2000 will be entitled to notice of
and to vote at the Special Meeting and at all adjournments thereof. As of the
close of business on March 20, 2000, the
<PAGE>
Company had outstanding 36,072,112 shares of Class A Common Stock and 1,500,000
shares of Class B Common Stock, and no shares of Preferred Stock were
outstanding.
At the Special Meeting, the holders of Class A Common Stock and Class B
Common Stock will be entitled, as a single class, to vote on the amendment to
the Company's Articles of Incorporation relating to the Company's name change,
to elect the nominees to the Company's Board of Directors, and to ratify the
appointment of the independent public accountants. The vote in favor by a
majority of the shares of Class A and Class B Common Stock, voting as a single
class, represented at the Special Meeting is required for the amendment to the
Company's Articles of Incorporation relating to the Company's name change, for
the election of the Directors and for the ratification of the appointment of
Deloitte & Touche LLP, as the Company's independent public accountants. With
respect to the amendments to the Company's Articles of Incorporation relating to
the elimination of the two classes of Common Stock, and the increase in
authorized shares of the Company's Common Stock, as described above, the vote in
favor by a majority of the outstanding shares of each class of Common Stock,
voting as a separate class, is required.
Shares represented by proxies which are marked "abstained" or which are
marked to deny discretionary authority will only be counted for determining the
presence of a quorum. Votes withheld in connection with the election of one or
more of the nominees for Director will not be counted as votes cast for such
individuals. In addition, where brokers are prohibited from exercising
discretionary authority for beneficial owners who have not provided voting
instructions (commonly referred to as "broker non-votes"), those shares will not
be included in the vote totals.
A list of the shareholders entitled to vote at the Special Meeting will be
available at the Company's office, 7270 N.W. 12th Street, Suite 410, Miami,
Florida 33126, for a period of ten (10) days prior to the Special Meeting for
examination by any shareholder.
UNDER THE FLORIDA BUSINESS CORPORATION ACT, EACH SHAREHOLDER WHO OBJECTS TO
THE ADOPTION OF THE AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
RELATING TO THE ELIMINATION OF THE TWO CLASSES OF COMMON STOCK SHALL BE ENTITLED
TO ASSERT STATUTORY DISSENTERS' RIGHTS; PROVIDED HOWEVER, THAT IN ORDER TO
ASSERT SUCH RIGHTS, A SHAREHOLDER IS REQUIRED TO ADHERE STRICTLY TO CERTAIN
STATUTORY REQUIREMENTS. SHAREHOLDERS INTENDING TO EXERCISE THEIR DISSENTERS'
RIGHTS MUST FILE WITH THE COMPANY BEFORE THE SPECIAL MEETING, OR AT THE
SPECIAL MEETING BUT BEFORE THE VOTE ON SUCH AMENDMENT, A WRITTEN OBJECTION TO
SUCH AMENDMENT, INCLUDING A STATEMENT THAT THEY INTEND TO DEMAND PAYMENT FOR
THEIR SHARES IF SUCH AMENDMENT IS APPROVED. MOREOVER, SHAREHOLDERS SHOULD BE
AWARE THAT A PROXY OR VOTE AGAINST SUCH AMENDMENT SHALL NOT CONSTITUTE SUCH A
DEMAND. A STATEMENT WITH RESPECT TO THE RIGHTS OF DISSENTING SHAREHOLDERS IS
SET FORTH HEREINAFTER.
2
<PAGE>
Officers, Directors and affiliates of the Company beneficially own
approximately 90% of the outstanding shares of Class A Common Stock and all of
the outstanding shares of Class B Common Stock. Accordingly, with respect to
those proposals, described above, which require the vote of a majority of the
outstanding shares of Class A and Class B Common Stock, voting as separate
classes, or which require the vote of a majority of the outstanding shares of
Common Stock, voting as a single class, represented at the Special Meeting,
approval of all of such proposals is virtually assured.
3
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PROPOSAL 1
AMENDMENT OF ARTICLES OF INCORPORATION TO CHANGE THE NAME OF
WEITZER HOMEBUILDERS INCORPORATED
The Board of Directors is seeking the approval of an amendment to the
Company's Articles of Incorporation (the "Name Change Amendment"), to change the
name of the Company, to "Century Builders Group, Inc." (the "Name Change"). The
Company has previously filed a fictitious name certificate with the State of
Florida and has and continues to operate using the name Century Builders Group.
In the event such amendment to the Company's Article of Incorporation is not so
approved, the Company intends to continue using its fictitious name.
The Board of Directors of the Company believes that as consequence of the
consummation of the Stock Purchase Agreement, dated as of August 2, 1999, (the
"Purchase Agreement"), by and among the Company, its then affiliate, Chai
Capital, Ltd ("Chai"), and Century Partners Group, Ltd., ("Century"), and the
resulting change in control of the Company pursuant to which Century became the
majority beneficial equity owner of the Company, the Name Change would be
appropriate. In addition, the Board of Directors of the Company believes that
the Name Change will assist the Company in developing new marketing and sales
strategies and would afford the Company improved recognition in those markets
where the Century name is believed known. Moreover, said Purchase Agreement
requires that the Company use its best efforts to effectuate such Name Change.
Attached to this Proxy Statement as Exhibit A is the proposed amendment to
the Company's Articles of Incorporation with respect to the Name Change.
Shareholders are urged to review Exhibit A with respect to the same.
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's Class A Common Stock and Class B Common Stock voting as a
single class and represented at the Special Meeting, is required to amend the
Company's Articles of Incorporation to approve the Name Change.
The Board of Directors recommends a vote "FOR" Proposal No. 1.
4
<PAGE>
PROPOSAL NO. 2
AMENDMENT
OF ARTICLES OF INCORPORATION TO PROVIDE FOR
ONE CLASS OF COMMON STOCK
The Board of Directors has determined that it is in the best interests of
the Company to amend the Company's Articles of Incorporation to provide for a
single class of Common Stock, par value $.001 per share, to be so designated as
"Common Stock." The authorized Preferred Stock of the Company, of which no
shares are currently outstanding, will not be affected by such change. To
effectuate the foregoing, the Board of Directors has proposed that each
outstanding share of Class A Common Stock and each outstanding share of Class B
Common Stock of the Company would, upon adoption of such amendment to the
Articles of Incorporation and the filing of the same with the State of Florida,
be automatically converted into one share of the Company's Common Stock, $.001
par value per share. Accordingly, for every share of either Class A or Class B
Common Stock held of record by a holder, upon adoption and filing of such
amendment, such share would be deemed automatically canceled and would instead
represent one share of the Company's Common Stock, $.001 par value. If the
amendment is so approved, the Company will notify each holder of shares as to
how to exchange such share certificate representing shares of either Class A or
Class B Common Stock into shares of Common Stock on a one-for one basis.
The Articles of Incorporation of the Company presently provide that until
the Company has attained operating income (as defined in the Articles of
Incorporation) of $7,500,000, holders of Class A Common Stock and Class B Common
Stock are entitled to receive, if, when and as declared by the Board of
Directors of the Company, cumulative cash dividends at the rate of $0.325 per
share of Class A Common Stock per annum and $.001 per share of Class B Common
Stock per annum, respectively, each payable on the fifteenth day of August,
November, February and May of each year, commencing August 15, 1995. No
dividends may be paid on the Class B Common Stock unless, simultaneously, all
accumulated and unpaid dividends on the Class A Common Stock have been declared
and paid in full.
Until May 15, 1996, the Company had been paying the cumulative dividends in
cash. Commencing as of August 15, 1996, the Board of Directors of the Company
determined that it would be in the Company's best interests to maximize the
Company's cash flow from operations and cease paying any cash dividends. As of
December 31, 1999, the Company had approximately $6,800,000 of unpaid cumulative
dividends on its Class A Common Stock, none of which were accrued on the
Company's books and records. Since August, 1996, no record date was ever
declared by the Company's Board of Directors for the payment of such cash
dividends. In addition, as a consequence of the sole holder of the Company's
Class B Common Stock and its assignee waiving such dividends, as of December 31,
1999, there were no unpaid cumulative dividends on the Company's Class B Common
Stock.
5
<PAGE>
In connection with the amendment to the Company's Articles of Incorporation
to provide for a single class of Common Stock, such amendment would have the
effect of eliminating the requirement that the Company pay a cumulative dividend
on such shares of Common Stock. Any and all future dividends on the Common Stock
of the Company may thereafter only be declared at the discretion of the
Company's Board of Directors. The Company's Board of Directors has no current
intention of declaring any cash dividends with respect to the Company's Common
Stock and intends to use all retained earnings, if any, for working capital
purposes. No assurance can be given when, if ever, the Company will declare a
cash dividend on its capital stock.
In addition, in connection with the conversion of the outstanding shares of
Class A and Class B Common Stock into a like number of shares of Common Stock,
all unpaid dividends, irrespective of whether such dividends were accrued on the
Company's books and records, would be deemed automatically waived, and no
shareholder, irrespective of whether such shareholder is a holder of Class A or
Class B shares of Common Stock, would be entitled to share in any of such
dividends (accrued or otherwise). Accordingly, the approval of the amendment to
the Company's Articles of Incorporation would result in the cancellation of any
right by a shareholder of Class A or Class B Common Stock of the Company to any
such dividends.
Currently, the Company's authorized capital stock consists of 40,000,000
shares of Class A Common Stock, $,01 par value per share, 1,500,000 shares of
Class B Common Stock, $.01 par value per share, and 5,000,000 shares of
Preferred Stock, $.01 par value per share. Upon approval of Proposal No. 2, and
without taking into account the proposed increase in the authorized Common
Stock, as described in Proposal No. 3 below, the Company's authorized capital
stock would consist of 40,000,000 shares of Common Stock, $.001 par value per
share, and 5,000,000 shares of Preferred Stock, $.01 par value per share.
The Articles of Incorporation of the Company currently provide that the
Class B Common Stock may be converted into a like number of shares of Class A
Common Stock, at the option of the holder, only if, among other things, the
Company achieves an aggregate operating income (as defined in the Articles of
Incorporation) of $7,500,000. The adoption of Proposal No. 2 would effectively
eliminate the aforesaid financial criteria and automatically convert each
outstanding share of Class B Common Stock, together with the outstanding shares
of Class A Common Stock into a like number of shares of Common Stock. The Board
of Directors of the Company believes that the approval of the amendment to the
Company's Articles of Incorporation to eliminate the two classes of Common Stock
and in so doing so to eliminate the cumulative dividend would enable the Company
to more easily attract new investors in the future, and if desired, would enable
the Company to more easily procure additional financing on terms deemed
favorable by the Company. The elimination of the complex corporate structure and
the elimination of the cumulative dividend, whether accrued or not, in the Board
of Directors of the Company's belief, would provide the Company with the
flexibility necessary to attract financing opportunities, when and if the need
and/or opportunity arises.
Since the Board of Directors of the Company has never established a record
date for the payment of any cumulative dividends, in the event the proposed
amendment is not approved, and
6
<PAGE>
the Company determines to so pay the cumulative dividend on its Class A and
Class B Common Stock, the Company would have to establish a current record date
for the payment of such dividends. Accordingly, Officers, Directors and
affiliates of the Company would be entitled to share in excess of 88% of such
dividend payment. The Board of Directors believes that it is in the best
interests of the Company that such cash remain in the Company to fund, in part,
the Company's working capital requirements.
The affirmative vote of (i) the holders of a majority of the outstanding
shares of the Company's Class A Common Stock voting as a separate class and (ii)
the holders of a majority of the Company's Class B Common Stock voting as a
separate class, is required to amend the Company's Articles of Incorporation, to
eliminate the two classes of Common Stock as described above. Officers,
Directors and affiliates of the Company have expressed their intent to vote all
shares of Class A Common Stock owned of record by them in favor of Proposal No.
2. In addition, Century, as the sole shareholder of Class B Common Stock, has
expressed its intent to vote all of said shares of Class B Common Stock owned of
record by it in favor of said Proposal No. 2. Accordingly, approval of Proposal
No. 2 is therefore virtually assured.
The Board of Directors recommends a vote "FOR" Proposal No. 2.
RIGHTS OF DISSENTING SHAREHOLDERS WITH RESPECT TO PROPOSAL NO. 2
Holders of Class A and/or Class B Common Stock are entitled to dissenters'
rights under Sections 607.1301, 607.1302 and 607.1320 of the Florida Business
Corporation Act (the "FBCA"), in connection with the conversion of outstanding
shares of Class A and Class B Common Stock into shares of Common Stock, the
elimination of the accrued dividend, the elimination of all dividends in arrears
and the elimination of cumulative dividend rights. All references in Sections
607.1301, 607.1302 and 607.1320 and in this summary to a "shareholder" are to
the recordholders of the Company's Class A or Class B Common Stock as to which
dissenters' rights are asserted. A person having a beneficial interest in the
Company's Class A or Class B Common Stock that is held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
recordholder to follow the steps summarized below properly and in a timely
manner to perfect whatever dissenters' rights the beneficial owner may have.
Holders of the Company's Class A or Class B Common Stock who follow the
procedure set forth in Section 607.1320 of the FBCA ("Section 607.1320") will be
entitled to receive payment of the "fair value" of such Common Stock. Section
607.1301 of FBCA ("Section 607.1301") defines "fair value" to be the value of
the Company's Class A or Class B Common Stock as of the close of business on the
date prior to the date of shareholder approval of Proposal No. 2, excluding any
appreciation or depreciation in anticipation of approval of such amendment,
unless exclusion would be inequitable.
This Proxy Statement shall constitute notice to the shareholders of the
Company of the ability of the Company's shareholders to dissent from approval
of the aforesaid amendment
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(Proposal No. 2) to the Articles of Incorporation eliminating the two classes of
Common Stock; and the proposed amendment to the Articles of Incorporation and
the applicable statutory provisions of the FBCA are attached to this Proxy
Statement as Exhibits A and B, respectively. The following discussion is not a
complete statement of the law pertaining to dissenters' rights under the FBCA
and is qualified in its entirety by the full text of Sections 607.1301, 607.1302
and 607.1320 of the FBCA attached to this Proxy Statement. Any shareholder who
wishes to exercise such dissenters' rights or who wishes to preserve his right
to do so, should review the following discussion and Exhibit B carefully because
failure to timely and properly comply with the procedures specified will result
in the loss of dissenters' rights under the FBCA.
Each shareholder who wishes to assert dissenters' rights must (i) deliver
to the Company, before the taking of the vote on Proposal No. 2, a written
notice of intent to demand payment for the Company's Class A or Class B Common
Stock if the proposed amendment is approved, and (ii) not vote his Class A or
Class B Common Stock in favor of the proposed amendment. Because an executed
proxy which does not contain voting instructions will, unless revoked, be voted
for adoption of the amendment, a shareholder who votes by proxy and who wishes
to exercise his dissenters' rights must (i) vote against adoption of the
amendment, or (ii) abstain from voting on adoption of the amendment. A vote
against adoption of the amendment, in person or by proxy, will not in and of
itself constitute a written notice of intent to demand payments for the
Company's Class A or Class B Common Stock satisfying the requirements of Section
607.1320.
Only a holder of record of the Company's Class A and Class B Common Stock
is entitled to assert dissenters' rights for the Class A or Class B Common Stock
registered in that holders' name. A notice of intent to demand payment for Class
A or Class B Common Stock must be executed by or on behalf of the holder of
record, fully and correctly, as his name appears on his stock certificates. If
the Class A or Class B Common Stock is owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the notice should be
made in that capacity, and if the Class A or Class B Common Stock is owned of
record by more than one person, as in a joint tenancy or tenancy in common, the
notice should be executed by or on behalf of all joint owners. An authorized
agent, including one or two or more joint owners, may execute a notice 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 notice, the agent
is acting as agent for such owner or owners. A record holder, such as a broker,
who holds Class A or Class B Common Stock as nominee for several beneficial
owners may exercise dissenters' rights with respect to the Class A or Class B
Common Stock held for one or more beneficial owners while not exercising such
rights with respect to the Class A or Class B Common Stock held for other
beneficial owners. In such case, the notice should set forth the number of Class
A or Class B Common Stock as to which dissenters' rights are sought. Where no
number of shares of Class A or Class B Common Stock is expressly mentioned, the
demand will be presumed to cover all Class A or Class B Common Stock held in the
name of the record owner. Shareholders who hold their Class A or Class B Common
Stock in brokerage accounts or other nominee forms and who wish to exercise
dissenters' rights are urged to consult with their brokers to determine the
appropriate procedures for the giving of a notice of intent to demand payment
for such nominee's Class A or Class B Common Stock.
8
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Within ten days after the date of shareholder approval of the amendment,
the Company must give written notice of adoption of the amendment to each
shareholder who filed a notice of intent to demand payment for his Class A or
Class B Common Stock. Within twenty days after the giving of such notice to him
by the Company, any shareholder who elects to dissent must file with the Company
a notice of such election, stating his name and address, the number of shares of
Class A or Class B Common Stock as to which he dissents, and a demand for
payment of the fair value of his Class A or Class B Common Stock. Any
shareholder filing an election to dissent shall deposit his stock certificates
with the Company simultaneously with the filing of the election to dissent.
Within ten days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within ten days after the
amendment is approved, whichever is later (but in no case later than ninety days
from the date of shareholder approval of such amendment), the Company shall make
a written offer to each dissenting shareholder who has made a demand as provided
in Section 607.1320 to pay an amount the Company estimates to be the fair value
for such Class A or Class B Common Stock. The fair value determined will reflect
the value of the Common Stock prior to the adoption of the amendment which is
the subject of Proposal No. 2.
Any shareholder who has duly filed a notice of election to dissent in
compliance with Section 607.1320 will thereafter be entitled only to payment of
the fair value of his Class A or Class B Common Stock and will not be entitled
to vote or to exercise any other rights of a shareholder. A notice of election
may be withdrawn in writing by the shareholder at any time before an offer is
made by the Company to pay for his Class A or Class B Common Stock. After such
offer, no such notice of election may be withdrawn unless the Company consents
thereto.
If within thirty days after the making of such offer by the Company, any
shareholder accepts the same, payment for his Class A or Class B Common Stock
will be made within ninety days after the making of such offer or the
effectuation of such amendment to the Articles of Incorporation, whichever is
later. Upon payment of the agreed value, the dissenting shareholder will cease
to have any interest in such Class A or Class B Common Stock.
If the Company fails to make an offer for the fair value of the Class A or
Class B Common Stock within the period specified above, or if the Company makes
the offer and any dissenting shareholder or shareholders fail to accept the same
within the period of thirty days thereafter, then the Company, within thirty
days after receipt of written demand from any dissenting shareholder given
within sixty days after the date of which the amendment to the Articles of
Incorporation was adopted, shall, or at its election at any time within such
period of sixty days may, file an action in any court of competent jurisdiction
in Miami-Dade County, Florida requesting the fair value of such Class A or Class
B Common Stock to be determined. The court shall also determine whether each
dissenting shareholder, as to whom the Company requests the court to make such
determination, is entitled to receive payment for his Class A or Class B Common
Stock. If the Company fails to institute such a proceeding, any dissenting
shareholder may do so in the name of the Company. All dissenting shareholders
(whether or not residents of the State of Florida), other than shareholders who
have agreed with the Company as to the value of their Class A or Class B Common
Stock, shall be made parties to the proceeding. The Company must pay to each
dissenting shareholder the
9
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amount found to be due him within ten days after final determination of the
proceedings. Upon payment of the judgment, the dissenting shareholders will
cease to have any interest in such Class A or Class B Common Stock.
Shareholders considering seeking dissenters' rights should be aware that
any judicial determination of the "fair value" of the Class A or Class B Common
Stock can be based on numerous considerations, including, but not limited to,
the market value of the Class A or Class B Common Stock prior to the adoption of
Proposal No. 2 and the net asset value and earnings value of the Company. The
costs and expenses of any judicial proceeding will be determined by the court
and will be assessed against the Company, but all or any part of such costs and
expenses may be apportioned and assessed as the court deems equitable against
any or all of the dissenting shareholders who are parties to the proceeding, to
whom the Company has made an offer to pay for the Class A or Class B Common
Stock, if the court finds that the action of such shareholders in failing to
accept such offer was arbitrary, vexatious, or not in good faith.
Failure to follow the steps required by Section 607.1320 for perfecting
dissenters' rights may result in the loss of such rights, in which event a
shareholder will not be entitled to seek any cash consideration in exchange for
his shares.
A copy of the proposed amendment to the Company's Articles of
Incorporation is attached hereto as Exhibit A and is incorporated herein by
reference. All shareholders are urged to review the attached Exhibit A. In
addition, all shareholders are urged to review the attached Exhibit B, setting
forth the applicable statute with respect to a shareholder's dissenters' rights.
10
<PAGE>
PROPOSAL NO. 3
APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE
THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
Assuming the adoption of Proposal No. 2, as described above, the Company is
presently authorized to issue 40,000,000 shares of Common Stock, $.001 par value
per share, and 5,000,000 shares of Preferred Stock, $.01 par value per share. As
of December 31, 1999, of the 40,000,000 shares of Common Stock authorized,
37,572,112 shares were issued and outstanding. In addition, approximately
772,150 shares of Common Stock were reserved for issuance upon the exercise of
outstanding derivative securities, including options and warrants. Accordingly,
approximately 1,655,178 shares of Common Stock are currently available for
issuance by the Company. There are no shares of Preferred Stock currently issued
and outstanding.
The Board of Directors of the Company has adopted resolutions to amend,
subject to stockholder approval, the Company's Articles of Incorporation to
authorize an additional 55,000,000 shares of Common Stock, $.001 par value per
share. A copy of the proposed amendments, in substantially the form to be filed
with the Secretary of State of the State of Florida is attached hereto as part
of Exhibit A, and incorporated herein by reference. All stockholders are urged
to carefully review the attached Exhibit.
The 55,000,000 additional shares of Common Stock to be authorized would be
available to the Company for stock dividends and/or stock splits should the
Board of Directors decide that it would be desirable, in light of market
conditions then prevailing, to broaden the ownership of, and to enhance the
market for, the shares of Common Stock of the Company. Additional shares of the
Common Stock would also provide needed flexibility for future financial and
capital requirements so that proper advantage could be taken of propitious
market conditions and possible business acquisitions. The additional shares
would be available for issuance for these and other purposes, subject to the
laws of the State of Florida and the rules of any stock exchange or inter-dealer
quotation system on which the Company's securities may then be listed, at the
discretion of the Board of Directors of the Company without, in most cases, the
delays and expenses attendant to obtaining further shareholder approval. To the
extent required by Florida law, shareholder approval will be solicited in the
event shares of stock are to be issued in connection with a merger. The Company
has no current plans to issue any of the additional shares of Common Stock to be
authorized under the proposed amendment to the Company's Articles of
Incorporation.
Although the Board of Directors of the Company does not deem the proposed
amendment to the Company's Articles of Incorporation to be an anti-takeover
proposal, the ability to issue additional shares of Common Stock could also be
used to discourage hostile takeover attempts of the Company. The additional
shares could be privately placed, thereby diluting the stock ownership of
persons seeking to obtain control of the Company. Moreover, the Company's
Officers, Directors
11
<PAGE>
and affiliates currently beneficially own approximately in excess of 90% of the
Company's Common Stock. Accordingly, even if the proposed increase in the number
of authorized shares of Common Stock is deemed to be an anti-takeover proposal,
the Company's Officers, Directors and affiliates may have the ability to direct
the disposition of any matter to be acted upon irrespective of the number of
authorized shares of Common Stock available for future issuance.
The affirmative vote of (i) the holders of a majority of the outstanding
shares of the Company's Class A Common Stock voting as a separate class and (ii)
the holders of a majority of the Company's Class B Common Stock voting as a
separate class, is required to amend the Company's Articles of Incorporation to
increase the number of authorized shares of Common Stock. Officers, Directors
and affiliates of the Company have expressed their intent to vote all shares of
Class A Common Stock owned of record by them in favor of Proposal No. 3. In
addition, Century, as the sole shareholder of Class B Common Stock, has
expressed its intent to vote all of said shares of Class B Common Stock owned of
record by it in favor of said Proposal No. 3. Accordingly, approval of Proposal
No. 3 is therefore virtually assured.
The Company has determined that it will not implement Proposal No. 3 in the
event Proposal No. 2 is not approved by the Company's shareholders.
The Board of Directors recommends a vote "FOR" Proposal No. 3.
12
<PAGE>
PROPOSAL NO. 4
ELECTION OF DIRECTORS
Nominees for Director
Six Directors are to be elected at the Special Meeting of Shareholders. The
six nominees named below, if elected, at the meeting will serve for a term of
one year and until their successors are duly elected and qualified. In the event
that any nominee is unable or unwilling to serve, discretionary authority is
reserved to the persons named in the accompanying form of proxy to vote for
substitute nominees. It is not anticipated that such an event will occur. Each
Director must be elected by a majority of the outstanding shares of Class A
Common Stock and Class B Common Stock, voting as a single class, represented at
the Special Meeting by a plurality of the votes cast.
Three nominees for Director are currently serving as members of the
Company's Board of Directors. Such nominees were elected by the then Directors
of the Company following the consummation of the Purchase Agreement, described
under Proposal No. 1 above, to fill certain vacancies on the Board. Three
current members of the Board of Directors Harry Weitzer, Michael Ambrosio and
Larry Hellring are not standing for re-election.
Sergio Pino, age 43, has served as Chairman of the Board, President and
Chief Executive Officer of the Company since August 1999. Mr. Pino, since its
formation in January 1977, has also served as President and Chief Executive
Officer of Century Partners Group, Ltd., a company engaged in the business of
real estate development in South Florida of which Mr. Pino is the principal
shareholder. Mr. Pino also founded Century Plumbing Wholesale, Inc. since
November 1997 Mr. Pino has served as President of the Latin Builders Association
from 1989 until 1992, as a Director of Union Planters Bank from 1999 until the
present and is a member of the Greater Miami Chamber of Commerce and
C.A.M.A.C.O.L., the Latin Chamber of Commerce.
Armando J. Guerra, age 48, has served as a member of the Company's Board of
Directors from August 1999 until the present. Mr. Guerra has and continues to
serve as President of Sedano's Pharmacy and Discount Stores, Inc., which he
founded in May 1977 and currently operates as a 13 unit chain of pharmacies in
South Florida. Mr. Guerra is also Vice President of Sedano's Supermarkets, Inc.,
a 27 unit chain of retail food markets, and has served in such capacity since
1977. Mr. Guerra is an honorary director of the Latin Builders Association and a
director of the regional Board of Union Planters Bank. Mr. Guerra also serves as
a director of the American Red Cross blood services.
Jose Cancela, age 42, has served as a member of the Company's Board of
Directors from August 1999 until the present. Mr. Cancela has served as
President of Radio Unica Corp. since July 1998 and oversees the day-to-day
operations of Radio Unica Network, a Spanish-language radio network. Mr. Cancela
also served as Executive Vice President of Telemundo, a Spanish-language
television network from 1992 to 1998. Mr. Cancela has more than 20 years of
media industry
13
<PAGE>
experience, including 13 years with Univision, also a television network. Mr.
Cancela is the current Chairman of the Greater Miami Chamber of Commerce and is
Chairman of the Advisory Board of First Union Bank of Miami-Dade and Monroe
Counties. Mr. Cancela also served as Chairman of the Public Health Trust of
Jackson Memorial Hospital from 1990 to 1992.
Gabriel M. Bustamante, age 44, a certified public accountant, is the
managing partner of the accounting firm of Bustamante, Nunez & Company, and has
served in such capacity since 1985. Mr. Bustamante is a Magna Cum Laude graduate
of Florida International University, where he received a bachelor's degree in
Business Administration with a major in Management and Accounting. He was
previously associated with Price Waterhouse as a manager, and practiced public
accounting for five years in both audit and taxation. Mr. Bustamante is a member
of the American Institute of Certified Public Accountants (AICPA) and the
Florida Institute of Certified Public Accountants (FICPA). He has served as a
member of the Board of Directors of the South Dade Chapter of the FICPA. He has
chaired the Coral Gables Chamber of Commerce. He is a former director of
Hamilton Bank, N.A. and has served on the City of Coral Gables Budget and Audit
Advisory Board. In February 1999, Florida Governor Jeb Bush appointed Mr.
Bustamante to serve on the City of Miami Financial Oversight Board.
Carlos Garcia, age 48, is a businessman active in the real estate and
firearms industries. Mr. Garcia is a fifty percent shareholder and secretary of
2-C Development, Inc., a construction firm founded in 1988. Such company
specializes in the development and management of several apartment building
projects. Mr. Garcia also is president of CMG Properties, Inc., a shopping
center development company, and he has served in such capacity since 1998. Mr.
Garcia's experience in the firearms industry began in 1973 when he founded
Garcia's National Gun, Inc., a retail gun store.
Humberto Lorenzo, age 62, has been active in the South Florida building
industry since 1970. Mr. Lorenzo formed his own company H&J Paving Corp. in
1974. In 1988 he founded H&J Asphalt Inc., a company which provides asphalt for
projects throughout Miami-Dade County. Mr. Lorenzo serves on the board of the
Hispanic American Builders Association and the Cuban American National
Foundation.
The vote of a majority of the shares of Class A and Class B Common Stock
represented at the Special Meeting, voting as a single class, is required for
the election of such nominees.
The Board of Directors recommends that shareholders vote "FOR" each nominee
for Director.
14
<PAGE>
PROPOSAL 5
RATIFY THE APPOINTMENT OF THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has retained Deloitte & Touche LLP, effective November 30 1999,
as its independent public accountants for the fiscal year ending September 30,
1999. The Company has also retained Deloitte & Touche LLP, as its independent
public accountants for the Company's fiscal year ending December 31, 2000,
subject to shareholder ratification. The Company is in the process of changing
its fiscal year to end as of December 31. To the extent the Company is unable to
so change its fiscal year without undue effort and expense, the Company will
retain its fiscal year ending September 30, and Deloitte & Touche LLP will be so
deemed retained to audit the Company's financial statement as of such fiscal
year ending September 30, 2000. Deloitte & Touche LLP has no financial interest,
either direct or indirect, in the Company. Formerly, the Company engaged McKean,
Paul, Chrycy, Fletcher & Co. as its independent public accountants to audit the
financial statements of the Company and its subsidiaries for the fiscal year
ended September 30, 1998, replacing Coopers & Lybrand LLP, effective as of
October 5, 1998. A representative of Deloitte & Touche LLP is expected to attend
the Special Meeting and to have an opportunity to make a statement and/or
respond to appropriate questions from shareholders. If the shareholders do not
ratify the appointment of Deloitte & Touche LLP as the Company's independent
public accountants for the Company's fiscal year ending December 31, 2000, the
Board of Directors will consider the selection of another accounting firm.
The vote of a majority of the shares of Class A and Class B Common Stock
represented at the Special Meeting, voting as a single class, is required for
the ratification of Deloitte & Touche LLP, as the Company's independent public
accountants.
The Board of Directors recommends a vote "FOR" the ratification of the
appointment of Deloitte & Touche LLP, as the Company's independent public
accountants.
SUPPLEMENTARY FINANCIAL INFORMATION
The following table sets forth supplementary financial information of the
Company by fiscal quarter for the two most recent fiscal years of the Company
and for the three months ended December 31, 1999. As a result of the change in
control of the Company, a new basis of accounting (purchase accounting basis)
was established for the Company, effective September 30, 1999. Accordingly, to
the extent of the change in ownership, the assets and liabilities of the Company
were adjusted to fair value, capital was adjusted to reflect Century's purchase
price for its ownership interest and the difference between Century's basis in
its interest in the Company and its proportionate share of the fair value of the
net assets was recorded as goodwill. Financial
15
<PAGE>
information for periods prior to the change in control are reflected at their
historical amounts as previously reported by the Company.
THE SUPPLEMENTARY FINANCIAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO
INCLUDED ELSEWHERE HEREIN.
Supplementary Financial Information for the Company
<TABLE>
<CAPTION>
Fiscal Quarter Fiscal Quarter Fiscal Quarter
Ended Ended Ended
----------------------------------------------------
12/97 03/98 06/98
----------------------------------------------------
<S> <C> <C> <C>
Income Statement Data:
Revenues $12,811,527 $11,352,757 $12,569,774
Net income (loss) $ 87,052 $ 68,723 $ (474,125)
Basic earnings (loss) per share $ 0.02 $ 0.02 $ (0.12)
Diluted earnings (loss) per share $ 0.02 $ 0.02 $ (0.12)
Average number of shares outstanding $ 3,860,254 $ 3,860,254 $ 3,860,254
Balance Sheet Data:
Land and construction-in-progress $35,887,794 $36,888,606 $41,657,341
Total assets $39,994,481 $40,150,508 $44,001,644
Total liabilities $35,781,699 $35,869,003 $40,194,265
Shareholders equity $ 4,212,782 $ 4,281,505 $ 3,807,379
</TABLE>
<TABLE>
<CAPTION>
Fiscal Quarter Fiscal Quarter Fiscal Quarter
Ended Ended Ended
----------------------------------------------------
09/98 12/98 03/99
----------------------------------------------------
<S> <C> <C> <C>
Income Statement Data:
Revenues $14,226,210 $14,667,431 $12,211,498
Net income (loss) $ (466,507) $ 158,493 $ (394,948)
Basic earnings (loss) per share $ (0.11) $ 0.03 $ (0.07)
Diluted earnings (loss) per share $ (0.11) $ 0.02 $ (0.03)
Average number of shares outstanding $ 4,158,688 $ 5,645,968 $ 5,645,968
Balance Sheet Data:
Land and construction-in-progress $40,023,538 $37,799,801 $34,995,560
Total assets $43,100,283 $40,144,337 $38,246,233
Total liabilities $38,759,411 $35,644,972 $34,141,816
Shareholders equity $ 4,340,872 $ 4,499,365 $ 4,104,417
</TABLE>
<TABLE>
<CAPTION>
Fiscal Quarter Fiscal Quarter Fiscal Quarter
Ended Ended Ended
----------------------------------------------------
06/99 09/99 12/99
----------------------------------------------------
<S> <C> <C> <C>
Income Statement Data:
Revenues $13,832,841 $13,491,259 $22,869,339
Net income (loss) $(1,516,796) $ (505,674) $ 564,569
Basic earnings (loss) per share $ (0.27) $ (0.06) $ 0.02
Diluted earnings (loss) per share $ (0.27) $ (0.06) $ 0.02
Average number of shares outstanding $ 5,645,968 $ 7,921,675 $33,421,239
Balance Sheet Data:
Land and construction-in-progress $32,410,174 $64,632,674 $60,067,767
Total assets $35,346,609 $77,708,982 $75,902,708
Total liabilities $32,758,988 $47,591,302 $45,194,471
Shareholders equity $ 2,587,621 $30,117,680 $30,708,237
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion should be read in conjunction with the Notes to the
Consolidated Financial Statements of the Company contained herein. Management
of the Company believes that quarterly comparisons may not give a true
indication of overall trends and changes in the Company's operations. The
Company's sales and net income are subject to significant variability based on,
among other things, the phase of development of its projects, the cyclical
nature of the homebuilding industry, changes in governmental regulations,
changes in prevailing interest rates, changes in product mix, changes in the
costs of materials and labor and other economic factors.
Except for the historical information contained herein, the matters
discussed herein are forward looking statements which involve risks and
uncertainties, including, but not limited to, economic, competitive,
governmental, and technological factors affecting the Company's operations,
markets, products, services, and prices and other factors discussed in the
Company's other filings with the Securities and Exchange Commission.
Change in Fiscal Year End
The Company has filed with the Internal Revenue Service an application to
change its fiscal year to end as of December 31, commencing with the fiscal year
ending December 31, 2000.
Results of Operations for the three months ended December 31, 1999
General
- -------
The following table sets forth for the periods presented certain items of
the Company's consolidated financial statements expressed as a percentage of
their respective total revenues:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
December 31, 1999 December 31, 1998
-----------------------------------------
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of homes sold 86.7 86.9
Selling, general and administrative expenses 9.7 10.9
Depreciation, amortization and interest expense 1.1 1.1
Net income 2.5 1.1
</TABLE>
Backlog and Lots for Sale or Under Option or Contract
- -----------------------------------------------------
The following table sets forth the Company's backlog, the lots for sale and
the lots for construction for the periods presented. The backlog consists of
homes under sales contracts and includes homes under construction, as well as
homes, which have been sold but not started. At December 31, 1999, approximately
65% of the homes in backlog were under construction. The lots
17
<PAGE>
for sale refer to the number of lots the Company has acquired on which it plans
to construct homes and exclude homes under sales contracts included in backlog.
There can be no assurance that settlements of homes subject to sales contracts
will occur or that all of the available lots for sale will be built on.
Backlog of Homes and Lots for Sale
- ----------------------------------
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
<S> <C> <C>
Number of homes in backlog 400 214
Aggregate sales value of homes in backlog $54,785,000 $28,921,000
Lots for sale 761 644
Lots under development 935 0
Lots under option or contract 1,091 0
</TABLE>
Comparison of the Three Months Ended December 31, 1999 and 1998
- ---------------------------------------------------------------
Revenues from home sales increased 52% from $14.5 million for the three
months ended December 31, 1998 to $22.1 million for the three months ended
December 31, 1999. The average selling price of delivered units rose during the
period ended December 31, 1999 6.7% from $118,900 to $126,900, compared to the
same period last year. This increase is attributable to the change in the
Company's overall product mix between lower priced townhomes and higher priced
single family homes. The total number of homes delivered during the comparable
period increased from 122 to 174.
Cost of homes sold increased from $12.7 million for the three months ended
December 31, 1998, to $19.8 million for the three months ended December 31,
1999. The change is primarily attributable to the increase in the number of
homes sold. Cost of homes sold as a percentage of home sales increased from
87.9% for the three months ended December 31, 1998 to 89.8% for the three months
ended December 31, 1999. This 1.9% increase of cost of homes sold as a
percentage of sales revenue is primarily attributable to an overall increase in
the cost of materials and building components as well as to the changes in the
product mix mentioned above.
Selling, general and administrative ("SG&A") expenses increased from $1.6
million for the three months ended December 31, 1998, to $2.2 million for the
three months ended December 31, 1999. The increase is primarily attributable to
expenditures incurred in the implementation of management's expansion plans of
the Company's operations. SG&A expenses as a percentage of total revenues
decreased from 10.9% during the three months ended December 31, 1998 to 9.7% for
the three months ended December 31, 1998, as a result of the Company's ability
to leverage overhead.
18
<PAGE>
Results of Operations for the Fiscal Year Ended September 30, 1999
General
- -------
Backlog and Available Lots for Sale or Under Option or Contract. The
following table sets forth the Company's backlog, the lots for sale and the lots
for construction for the periods presented. The backlog consists of homes under
sales contract and includes homes under construction, as well as homes that have
been sold but not started. At September 30, 1999, approximately 70% of the
homes in backlog were under construction. The lots for sale refer to the number
of lots the Company has acquired on which it plans to construct homes and
exclude homes under sales contracts included in backlog. The lots under
development reflect lots in projects that are currently being developed or that
are planned for future development. The lots under option or contract reflect
the lots as to which the Company has an option or contract to acquire, but whose
acquisition has not closed. There can be no assurances that settlements of homes
subject to sales contract will occur or that all of the available lots for sale
will be built on, or that the available lots under option or contract will be
acquired or built on. The Company estimates that the cancellation rate on homes
for which a sales contract was signed for the fiscal year ended September 30,
1999 was approximately 15%.
Backlog of Homes, Available Lots for Sale and Available Lots Under Option or
- ----------------------------------------------------------------------------
Contract
- --------
<TABLE>
<CAPTION>
September 30,
1999 1998
--------------------------
<S> <C> <C>
Number of homes in backlog 451 237
Aggregate sales value of homes in backlog $59,317,000 $30,652,000
Lots for sale 935 743
Lots under development 766 0
Lots under option or contract 694 0
</TABLE>
Comparison of the Years Ended September 30, 1999 and 1998
- ---------------------------------------------------------
Revenues from home sales increased 6% from approximately $50.6 million for
the year ended September 30, 1998 to approximately $53.7 million for the year
ended September 30, 1999. This change is attributable to an increase in the
average selling price of homes delivered, from approximately $115,000 for the
year ended September 30, 1998 to approximately $125,000 for the year ended
September 30, 1999. The total number of homes delivered decreased from 440 to
429.
Cost of homes sold increased from approximately $44.5 million for the year
ended September 30, 1998 to approximately $49.2 million for the year ended
September 30, 1999. This change is primarily attributable to an increase in the
average cost of homes sold. Cost of homes sold, as a percentage of homes sales,
increased from 87.8% for the year ended September 30, 1998 to 91.6% for the year
ended September 30, 1999. The 3.8% increase of cost of homes sold, as a
percentage of sales is primarily attributable to the inclusion of approximately
$883,000 of impairment charges in the cost of homes sold for the year ended
September 30, 1999. The
19
<PAGE>
impairment charges incurred related to the Company's assessment of the
recoverability of certain long lived assets.
Selling, general and administrative ("SG&A") expenses decreased from
approximately $6.5 million for the year ended September 30, 1998 to
approximately $5.9 million for the year ended September 30, 1999. SG&A
expenses, as a percentage of total revenues, decreased from 12.7% for the year
ended September 30, 1998 to 10.8% for the year ended September 30, 1999. The
decrease is primarily a result of Management's cost control initiatives.
Depreciation and amortization expenses increased from approximately
$776,000 for the year ended September 30, 1998 to approximately $1.4 million for
the year ended September 30, 1999. The increase is primarily attributable to the
acceleration in the amortization of certain capitalized loan fees, which
amounted to approximately $400,000, as discussed in Note 6 to the consolidated
financial statements in Item 8 of this Form 10-K.
Comparison of the Years Ended September 30, 1998 and 1997
- ---------------------------------------------------------
Revenues from home sales decreased 9% from approximately $55.4 million for
the year ended September 30, 1997 to approximately $50.6 million for the year
ended September 30, 1998. At December 31, 1998, the Company had an aggregate of
$45.5 million of available credit under the Company's acquisition, development
and construction loans, which the Company will use to finance the construction
and development of homes at Malibu Bay, Harmony Lakes, Tesoro at Forest Lakes,
Lago del Sol, Fiesta, Los Castillos at Windsor Palms, Las Costas, Dimensions,
Century Park at Flagler and Southwind Cove projects.
Liquidity and Financial Resources
General
- -------
At December 31, 1999, the Company had borrowings from banks and third
parties aggregating approximately $37.3 million compared to $42.1 million at
September 30, 1998. The Company believes that it will be able to fund its
ongoing operations in the short-term from cash on hand, cash flow from home
sales and existing construction and development financing.
This change is attributable to a decrease in the number of homes delivered,
from 484 to 440. The average selling price of homes delivered in fiscal 1998 of
approximately $115,000 was equivalent to the average selling price in fiscal
1997.
Cost of homes sold decreased from approximately $51.7 million for the year
ended September 30, 1997 to approximately $44.5 million for the year ended
September 30, 1998, primarily as a result of the decrease in the number of homes
delivered. Cost of homes sold, as a percentage of homes sales, decreased from
93.4% for the year ended September 30, 1997 to 87.8% for the year ended
September 30, 1998. The 5.6% decrease of cost of homes sold, as a percentage of
sales is primarily attributable to the inclusion of $2,652,000 of impairment
charges in the cost of homes sold for the year ended September 30, 1997. The
impairment charges incurred related to the Company's assessment of the
recoverability of certain project costs.
Selling, general and administrative ("SG&A") expenses increased from
approximately $6.2 million for the year ended September 30, 1997 to
approximately $6.5 million for the year ended
20
<PAGE>
September 30, 1998. SG&A expenses, as a percentage of total revenues, increased
from 11.1% for the year ended September 30, 1997 to 12.7% for the year ended
September 30, 1998. The increase is primarily a result of additional loan fees
incurred pursuant to a loan agreement. Such additional loan fees have been
eliminated for future periods due to the refinancing of the related loans.
Depreciation and amortization expenses increased from approximately
$592,000 for the year ended September 30, 1997 to approximately $776,000 for the
year ended September 30, 1998. The increase is attributable to the depreciation
on model furnishings purchased during the year ended September 30, 1998.
As is typical in the homebuilding industry, the Company will require both
short-term and long-term financing. Such needs will depend upon the Company's
construction volume, asset turnover and land acquisitions to conduct its
principal operations. The Company's most significant sources of funds are
proceeds realized from home closings; proceeds from acquisition, development and
construction financing provided by financial institutions or other lenders; and
seller financing for land purchases. The Company will continue seeking to
procure additional outside financing in both the short-and long-term, as more
fully described below, for its future projects and on-going capital
requirements. There can be no assurance that the Company can obtain such
additional financing.
On June 30, 1999, the Company obtained an increase of $1.8 million on its
land and construction loans with Ohio Savings Bank. The terms of the increase
did not affect changes to the existing loan terms. On August 2, 1999, Chai
Capital Ltd. ("Chai") converted an aggregate of $4,000,000 in convertible
subordinated debentures, principal amount then outstanding, into 7,142,857
shares of the Company's Class A Common Stock. On August 2, 1999, Century
purchased an aggregate of 8,855,000 shares of the Company's Class A and Class B
Common Stock directly from Chai for $10,000,000.
In addition, on August 2, 1999, Century acquired options with an exercise
price of $1.13 per share to purchase an aggregate 22,123,893 shares of the
Company's Class A Common Stock (the "Options") directly from the Company in
consideration for $1,130,998.
The transactions with Chai and Century required the consents of certain
lenders. In connection with the granting of such consents, payments on certain
acquisition, development and construction loans payable were accelerated and are
payable by January 2000.
At September 30, 1999, the Company had borrowings from banks and third
parties aggregating approximately $42.1 million. Scheduled and estimated
maturities of the Company's borrowings for the years ended September 30, 2000,
2001 and 2002 are expected to be approximately $22.4 million, $11.2 million and
$8.5 million, respectively. The Company anticipates that within the next twelve
months it will fund, in part, its debt payments and required expenditures
relating to its existing communities, including certain development costs,
primarily with cash flow
21
<PAGE>
from home sales and construction/development financing. To the extent cash flow
from operations is not sufficient to satisfy such obligations or maintain its
current level of operations based on its current volume of home sales at such
time, the Company will attempt to procure additional equity or debt financing;
although, no assurance can be given that such financing can be obtained on terms
deemed favorable to the Company. To the extent the Company is unable to procure
such financing on terms deemed favorable to the Company, the Company may be
forced to curtail its then current level of operations.
The Company is continually exploring opportunities to purchase parcels of
land for its homebuilding operations and is, at any given time, in various
stages of proposing, making offers for, and negotiating the acquisition of
various parcels, whether outright or through options. The closing of the
contemplated purchases are, in most cases, subject to a number of conditions,
including the Company's completion of a satisfactory due diligence investigation
and obtaining certain required regulatory approvals for development, and
procurement of necessary financing on terms deemed favorable by the Company.
The Company's loan agreements require the Company to maintain certain
financial ratios. In order to satisfy certain of these covenants for fiscal
1998, the Company obtained a modification of the loan agreement covenants and a
waiver of compliance from the relevant lending institution. At September 30,
1999, the Company was in compliance with its loan covenants, as modified.
Cash Flows
- ----------
During the three months ended December 31, 1999, the Company had
approximately $7.1 million of net cash provided by operating activities,
primarily resulting from a decrease in construction in progress resulting from
the sale of homes. The Company had net cash used in investing activities during
the three months ended December 31, 1999, mainly related to deposits on future
projects, which during this period have required investments of approximately
$300,000. The Company had cash used in financing activities during the three
months ended December 31, 1999 of $5.2 million. Based on the timing of
construction loan draws and repayment of outstanding construction loans on sold
homes during this period, the Company reduced its net construction financing by
approximately $5 million.
During the three months ended December 31, 1998, the Company had
approximately $2.4 million of net cash provided by operating activities, as well
as the reduction of approximately $800,000 of accounts payable and accrued
liabilities. During this same period, the Company had net cash used in financing
activities of approximately $2.3 million arising principally from payments on
acquisition, development and construction loans.
During the year ended September 30, 1999, the Company had approximately
$4.4 million of net cash provided from operating activities, primarily resulting
from a decrease in construction in progress resulting from the sale of homes.
The Company had cash used in
22
<PAGE>
investing activities during the fiscal year ended September 30, 1999, mainly
related to deposits on future projects, which to date have required investments
of approximately $200,000. The Company had cash used in financing activities
during the fiscal year ended September 30, 1999 of $2.2 million. Based on the
timing of construction loan draws and the repayment of outstanding construction
loans on sold homes during the fiscal year, the Company reduced its net
construction financing by approximately $5.7 million. The Company consummated a
transaction with Century, in which options to issue 22,123,893 shares of the
Company's Class A Common Stock were issued in exchange for $1.1 million. The
options were exercised in exchange for cash, cash equivalents, Century's
interest in five limited partnerships and certain other assets.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Effective as of November 30, 1999, the Company engaged Deloitte & Touche
LLP ("Deloitte"), as the Company's independent accountants to audit the
financial statements of the Company and its subsidiaries for the fiscal year
ended September 30, 1999, replacing McKean, Paul, Chrycy, Fletcher & Co.
("McKean") who were dismissed as of November 30, 1999. The selection of Deloitte
was approved by the Audit Committee of the Board of Directors.
McKean served as the Company's independent auditors for the fiscal year
ended September 30, 1998. Their report on the financial statements for the
fiscal year ended September 30, 1998 did not contain an adverse opinion nor a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles.
In connection with the audit of the Company's financial statements for the
fiscal year ended September 30, 1998, and in the subsequent interim period
preceding McKean's dismissal, there were no disagreements on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which if not resolved to their satisfaction would have caused
them to make references to the matter in their report.
23
<PAGE>
SECURITY OWNERSHIP OF
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth as of January 27, 2000, the number and
percentage of outstanding shares of Class A and Class B Common Stock owned
beneficially by (i) each shareholder known by the Company to own more than 5% of
the outstanding shares of Class A Common Stock and/or Class B Common Stock; (ii)
each Director of the Company; and (iii) all Directors and Executive Officers as
a group.
<TABLE>
<CAPTION>
Class A Class B
- --------------------------------------------------------------------------------------------
Amount and Amount and
Nature of Nature of
Name and Address of Beneficial Percent of Beneficial
Beneficial Owner(1)(5) Ownership Class Ownership Percent of Class
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sergio Pino (2) (3) (3)
- --------------------------------------------------------------------------------------------
Jose Cancela (2) (3) (3)
- --------------------------------------------------------------------------------------------
Armando Guerra (2) (3) (3)
- --------------------------------------------------------------------------------------------
Harry Weitzer(5) 1,186,785 3.3% -- --
- --------------------------------------------------------------------------------------------
Michael Ambrosio(5) 5,000(4) * -- --
- --------------------------------------------------------------------------------------------
Lawrence Hellring(5) 15,000 * -- --
- --------------------------------------------------------------------------------------------
Century Partners Group, Ltd. 29,478,893 88.2% 1,500,000 100%
- --------------------------------------------------------------------------------------------
All Directors and Executive
Officers as a group (consisting
of 6 persons) 1,206,785(2)(4)(6) 3.3%(2)(6) (3) (3)
- --------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%.
(1) Address for all persons listed is c/o Weitzer Homebuilders Incorporated,
7270 N.W. 12th Street, Suite 410, Miami, Florida 33126.
(2) The reporting person claims indirect beneficial ownership by his status as
a Director and shareholder in a corporation, which is the general partner
of Century, which owns 29,478,893 shares of Class A Common Stock of the
Company.
(3) The reporting person claims indirect beneficial ownership by his status as
a Director and shareholder in a corporation, which is the general partner
of Century, which owns 1,500,000 shares of Class B Common Stock of the
Company.
(4) Excludes 29,505 shares of Class A Common Stock acquired by a trust of
which Mr. Ambrosio's wife is a beneficiary.
(5) Represents current members of the Company's Board of Directors who are not
standing for re-election.
(6) The number of shares excludes the shares referred to in footnotes (2) & (4)
above, and the percentage listed does not include such shares.
24
<PAGE>
COMPLIANCE WITH SECTION 16 UNDER THE 1934 ACT
Federal securities laws require the Company's Directors, Executive
Officers, and persons who beneficially own more than ten percent of the
Company's Class A and Class B Common Stock to file reports of initial ownership
and reports of subsequent changes in ownership with the Securities and Exchange
Commission and to provide copies of these reports to the Company. Specific due
dates have been established and the Company is required to disclose in this
Proxy Statement any failure of the foregoing persons to file timely those
reports during its fiscal year ended September 30, 1999. To the best of the
Company's knowledge, based solely upon a review of copies of reports furnished
to it and written representations that no other reports were required, all of
the Company's Directors, Executive Officers required to report, and ten percent
or greater beneficial owners of Class A and Class B Common Stock made all such
filings timely.
MEETINGS AND COMMITTEES OF THE BOARD
General
The Board of Directors of the Company held six meetings during its fiscal
year ended September 30, 1999 and each Director attended such meeting of the
Board. The Board has an Audit Committee and Compensation Committee.
The Audit Committee currently consists of Messrs. Pino, Cancela and Guerra.
Prior to August 1999, the Audit Committee consisted of Michael Ambrosio, Joseph
Rose and Larry Hellring. The Audit Committee oversees the procedures, scope and
results of the audit and reviews the services provided by the Company's
independent public accountants. The Audit Committee held no meetings during the
fiscal year ended September 30, 1999.
The Compensation Committee consists of Messrs. Cancela and Guerra, none of
whom are presently or formerly employees of the Company. Prior to August 1999,
the Compensation Committee consisted of Messrs. Rose and Hellring. The
Compensation Committee determines the compensation of the Company's Executive
Officers. The Compensation Committee held no meetings during the fiscal year
ended September 30, 1999.
25
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning all
cash and non-cash compensation paid or accrued for services rendered to the
Company during the fiscal years ended September 30, 1997, 1998, 1999 to the
Company's Chief Executive Officer and each of the Company's four other most
highly compensated Executive Officers, who was serving as Executive Officers of
the Company as of September 30, 1999, and two additional individuals for whom
disclosure would have been provided but for the fact that such individuals were
not serving as Executive Officers of the Company at the end of the last
completed fiscal year. All Executive Officers of the Company (through February
28, 1999) were employees of an employee leasing company named Paychex Business
Solutions, Inc. (f/k/a National Business Solutions, Inc.).
Summary Compensation Table (1)
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
-------------------------------------------- ------------------------- ---------
Name and Principal Position Fiscal Salary Bonus Other Restricted Securities LTIP All
Year ($) ($) Annual Stock Underlying Payouts Other
Compensation ($) Awards Options/ ($) Compensation
(#) SARs ($) ($)
- --------------------------------------------------- ------- -------- ------------------ ------------ ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sergio Pino 1999 0 0 0 0 0 0 0
Chairman of the Board 1998 0 0 0 0 0 0 0
President and Chief 1997 0 0 0 0 0 0 0
Executive Officer
Emiliano de la Fuente 1999 10,000 0 0 0 0 0 0
Chief Financial Officer 1998 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
Luis Rabell 1999 31,000 0 0 0 0 0 0
Vice President of Operations 1998 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
Harry Weitzer (2) 1999 289,000 0 58,000 0 150,000 0 0
1998 323,000 0 0 0 0 0 0
1997 319,000 0 0 0 250,000 0 0
James Rosewater (3) 1999 110,000 0 0 0 0 0 0
1998 120,000 0 0 0 0 0 0
1997 110,000 0 0 0 50,000 0 0
</TABLE>
(1) The amounts reflected in the above table do not include any amounts for
perquisites and other personal benefits extended to the named executive
officers. The aggregate amount of such compensation for the named executive
officer did not exceed 10% of the total annual salary and bonus of such
executive officer and, accordingly, has been omitted from the
table.
26
<PAGE>
(2) Mr. Harry Weitzer served as Chairman of the Board, President and Chief
Executive Officer of the Company since its formation in 1994 until August
2, 1999. Mr. Harry Weitzer resigned his position effective August 2, 1999,
and entered into a consulting agreement for real estate consulting services
through December 31, 1999.
(3) Mr. James Rosewater resigned as Vice-President of Sales and Marketing
effective August 2, 1999 and subsequently left the employ of the Company in
September 24, 1999.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
<TABLE>
<CAPTION>
Name(2) Shares Acquired Value Received Number of Securities Underlying Value of Unexercised In-the-Money
on Exercise Unexercised Options/SARs at September Options/SARs at September 30,
30, 1999(#) 1999($)(1)
- --------------------------------- ------------------ ---------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Exercisable Unexercisable Exercisable Unexercisable
---------------------- ---------------- ----------------- ---------------
Harry Weitzer - - 400,000 0 - -
Jim Rosewater - - 50,000 0 - -
</TABLE>
(1) The closing price for the Class A Common Stock as reported by the OTC
Bulletin Board on September 30, 1999 was $1.6875.
Compensation of Directors
Directors who are not employees and who do not otherwise receive
compensation from the Company are entitled to $2,000 per Board meeting attended
in addition to the reimbursement of reasonable expenses incurred in attending
meetings. Directors who are officers or employees of the Company receive no
additional compensation for service as Directors, other than reimbursement of
reasonable expenses incurred in attending meetings. During the fiscal year ended
September 30, 1999, the Company made no other payments to Directors with respect
to participation on Board committees. See "Certain Relationships and Related
Transactions" for compensation paid by the Company to certain Directors for
consulting services and relationships of several Directors with Chai Capital,
Ltd., a former affiliate of the Company.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
Effective as of January 1, 1999, the Company entered into a five-year
employment agreement (the "Employment Agreement"), with Mr. Harry Weitzer, its
former Chairman, President and Chief Executive Officer, whereby he agreed to
devote substantially all of his business time to the affairs of the Company. The
Employment Agreement provided for an initial salary of $350,000, with annual
cost of living adjustments. In addition, the Employment Agreement provided for
bonuses, reimbursement of business expenses, provision of an automobile, health
insurance and related benefits. Effective August 2, 1999, Mr. Weitzer's
Employment Agreement was terminated and he entered into a five month Consulting
Agreement with the Company whereby he agreed to devote
27
<PAGE>
substantially all of his business time to the affairs of the Company. In
consideration for acting as a consultant to the Company, Mr. Weitzer was paid
$29,167 per month.
Compensation Committee Report on Executive Compensation
A change in control of the Company was effectuated on August 2, 1999
pursuant to which Century became the majority beneficial equity owner of the
Company. Accordingly, executive compensation subsequent to such date and for the
remainder of fiscal year ending September 30, 1999, was determined by the newly
constituted Board of Directors, consisting of three nominees of Century and
three remaining members of the Board who were Board members prior to the change
in control. The Compensation Committee of the Board of Directors has indicated
that as of and subsequent to August 2, 1999, the Company's executive
compensation would continue to consist of three primary components, base salary,
bonus and the grant of stock options.
The components of the Company's Executive Compensation (salary, bonus and
stock options) are designed to facilitate fulfillment of the compensation
objectives of the Company's Board of Directors and Compensation Committee, which
objectives include (i) attracting and retaining competent management, (ii)
rewarding management for short and long term accomplishments, (iii) aligning the
interests of management with those of the Company's shareholders, and (iv)
relating management compensation to the achievement of Company goals and the
Company's performance.
Prior to August 2, 1999, the Board's determination of fiscal 1999 salary
and bonus for the Company's executive officers (other than Harry Weitzer) was
made after reviewing and considering a number of factors, including job
responsibility, level of performance, achievement of Company goals, Company
performance, compensation levels at competitive companies and the Company's
historical compensation levels. Although Company performance was one of the
factors considered, the Board's compensation decisions were based upon an
overall review of the relevant factors and compensation was not tied to Company
performance by any specific relationship or formula.
To the knowledge of the current members of the Compensation Committee, the
determination of fiscal 1999 salary, bonus and stock options for Harry Weitzer,
the Chairman of the Board, President and Chief Executive Officer of the Company,
was based upon an employment agreement and a stock option agreement between the
Company and Mr. Weitzer. In negotiating the employment agreement, the Company
analyzed the compensation of chief executive officers of public companies within
the home building industry and public companies similar in size to the Company.
There was no specific relationship or formula by which Mr. Weitzer's
compensation was tied to Company performance.
Jose Cancela
Armando Guerra
28
<PAGE>
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was an officer or employee of the
Company or of any of its subsidiaries during the prior year or was formerly an
officer of the Company or of any of its subsidiaries. None of the Executive
Officers of the Company have served on the Board of Directors or Compensation
Committee during the last fiscal year of any other entity, any of whose officers
served either on the Board of Directors of the Company or on the Compensation
Committee of the Company.
Comparison of Total Shareholder Returns
The graph below compares the cumulative total returns, including the
reinvestment of dividends, of the Class A Common Stock with the companies in the
Nasdaq Stock Market (U.S.) Index and with seven peer group companies which
include: Borror Corp., Engle Homes, Inc., Oriole Homes Corp., Rottlund Homes
Inc., Sundance Homes, Inc., Washington Homes, Inc. and Zaring Homes, Inc. (the
"Peer Group"). The Peer Group consists of homebuilders who either (i)
concentrate their operations primarily within one geographical area of the
country and have a market capitalization of less than $50 million, or (ii)
concentrate their operations primarily in Florida and have a market
capitalization of less than $100 million. The comparison covers a period from
April 26, 1995 to September 30, 1999, and is based on an assumed $100 investment
on April 26, 1995 (the date of the initial public offering of the Class A Common
Stock) in the Nasdaq Stock Market (U.S.) Index, the Peer Group and in the Class
A Common Stock.
[GRAPH]
29
<PAGE>
<TABLE>
<CAPTION>
VALUE ON
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4/26/95 9/30/96 9/30/97 9/30/98 9/30/99
Weitzer Homebuilders, Inc. 100 31 15 6 26
Peer Group 100 117 132 122 92
NASDAQ Stock Market - US 100 164 225 229 372
- -------------------------------------------------------------------------
</TABLE>
The preceding sections entitled "Compensation Committee Report on Executive
Compensation" and "Comparison of Total Shareholder Returns" do not constitute
soliciting material for purposes of Rule 14a-9 of the Securities and Exchange
Commission (the "Commission"), will not be deemed to have been filed with the
Commission for purposes of Section 18 of the Securities Exchange Act of 1934,
and are not to be incorporated by reference into any other filing made by the
Company with the Commission.
CERTAIN TRANSACTIONS
On August 2, 1999, Century Partners Group, Ltd. ("Century"), a Florida
limited partnership, purchased an aggregate 8,855,000 shares of Class A and
Class B common stock of the Company, from Chai Capital, Ltd. ("Chai"), the
Company's principal shareholder prior to this transaction, which resulted in a
change in control of the Company. In addition, Century acquired options to
purchase, directly from the Company, 22,123,893 shares of the Company's Class A
Common Stock at an exercise price of $1.13 per share (the "Options"), in
consideration of the payment of $1,130,998. The options provided the exercise
price may be tendered in cash or by conveyance to the Company of assets having a
fair market value equal to the exercise price.
On September 2, 1999 and September 30, 1999, Century exercised their
options and received 22,123,893 aggregate shares of Class A Common Stock of the
Company. As consideration for issued shares, Century conveyed to the Company
cash, cash equivalents, Century's interest in five limited partnerships and
certain other assets. Three of the limited partnerships conveyed were wholly
owned subsidiaries of Century and the other two limited partnerships were 50%
owned by Century.
As a result of the above transactions, as of September 30, 1999, Century
had obtained a 89.7% interest in the Company. In addition, at the closing of the
Chai transaction, two of the Company's then five directors resigned, the
Company's Board of Directors was expanded to six persons and the Company
appointed Sergio Pino, Armando Guerra and Jose Cancela to the Company's Board of
Directors.
On March 9, 2000, the Company issued 2,637,644 shares of Class A Common
Stock to Century. As consideration for the issued shares, Century conveyed to
the Company an aggregate $4,120,000 in cash & cash equivalents.
30
<PAGE>
Effective as of January 1, 1999, the Company entered into a five-year
employment agreement (the "Employment Agreement") with Mr. Harry Weitzer, its
former Chairman, President and Chief Executive Officer, whereby he agreed to
devote substantially all of his business time to the affairs of the Company. The
Employment Agreement provided for an initial salary of $350,000, with annual
cost of living adjustments. In addition, the Employment Agreement provided for
bonuses, reimbursement of business expenses, provision of an automobile, health
insurance and related benefits. As of August 2, 1999, Mr. Weitzer's Employment
Agreement was terminated and he entered into a five month Consulting Agreement
with the Company whereby he agreed to devote substantially all of his business
time to the affairs of the Company. In consideration for acting as a consultant
to the Company, Mr. Weitzer was paid $29,167 per month.
Michael Ambrosio, a Director of the Company, entered into an agreement with
the Company in September 1998 to furnish consulting services. The agreement
provides that Mr. Ambrosio will be paid a monthly fee of $3,000, on a month-to-
month basis. The agreement was canceled on August 2, 1999. For the fiscal year
ended September 30, 1999, Mr. Ambrosio was paid $30,000. A trust for the benefit
of Mr. Ambrosio's wife is a limited partner of Chai. Mr. Ambrosio is an officer
and director of Chai Capital Corp., the general partner of Chai .
Effective August 2, 1999, Mr. Rosewater resigned as Vice-President of Sales
and Marketing of the Company and left the employ of the Company on September 24,
1999. Upon his resignation as an employee, as a result of the change in control,
Mr. Rosewater was paid the sum of $75,000, which amount was funded by Chai in
accordance with its previously executed agreements between Chai and Century.
31
<PAGE>
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of the Company Shareholders that are intended to be presented at
the Company's next Special Meeting must be received by the Company no later than
December 21, 2000 in order for them to be included in the proxy statement and
form of proxy relating to that meeting.
By Order of the Board of Directors,
KEYLA ALBA-REILLY,
Secretary
Miami, Florida
March 23, 2000
32
<PAGE>
QUARTERLY FINANCIAL STATEMENTS
F-1
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 4,073,968 $ 2,395,002
Land and land development costs 37,776,292 39,327,397
Construction-in-progress 22,291,475 25,305,277
Model furnishings 250,191 290,023
Deferred loan costs 377,109 281,935
Goodwill 5,726,192 5,799,942
Investments in unconsolidated partnerships 1,455,891 1,463,391
Other assets 3,951,590 2,846,015
-------------- -----------
$75,902,708 $77,708,982
============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Customer deposits $ 2,175,187 $ 2,253,529
Accounts payable and accrued liabilities 5,760,329 3,250,605
Acquisition, development, and construction loans payable 36,404,428 41,377,879
Notes and loans payable 854,527 709,289
-------------- -----------
45,194,471 47,591,302
-------------- -----------
Shareholders' equity:
Preferred Stock, $.01 par, 5,000,000 shares authorized, - -
none issued
Class A Common Stock, $.01 par, 40,000,000 shares 334,345 334,128
authorized, 33,434,468 and 33,412,718 shares issued
and outstanding as of December 31, 1999 and
September 30, 1999, respectively
Class B Common Stock, $.01 par, 1,500,000 shares 15,000 15,000
authorized, issued and outstanding
Additional paid-in capital 29,794,323 29,768,552
Retained earnings 564,569 -
-------------- -----------
30,708,237 30,117,680
-------------- -----------
$75,902,708 $77,708,982
============== ===========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
F-2
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
--------------------------------
1999 1998
(Purchase (Predecessor
Accounting Basis)
Basis)
-------------- ------------
<S> <C> <C>
Revenues:
Sales of homes $22,073,039 $14,505,880
Interest income 30,323 11,637
Other income 765,977 149,914
-------------- ------------
22,869,339 14,667,431
-------------- ------------
Operating costs and expenses:
Cost of homes sold 19,826,265 12,749,705
Selling expenses 1,336,037 1,066,412
General and administrative 886,665 525,841
Depreciation and amortization 254,080 163,604
Interest expense 1,723 3,376
-------------- ------------
22,304,770 12,724,475
-------------- ------------
Income before income taxes 564,569 158,493
Provision for income taxes - -
-------------- ------------
Net income $ 564,569 $ 158,493
============== ============
Basic earnings per common share $0.02 $0.03
============== ============
Diluted earnings per common share $0.02 $0.02
============== ============
Weighted average number of common shares
outstanding 33,421,239 5,645,968
============== ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
F-3
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
-----------------------------
1999 1998
(Purchase (Predecessor
Accounting Basis)
Basis)
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 564,569 $ 158,493
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation, amortization and other non-cash charges 284,468 226,895
Changes in assets and liabilities:
Land, land development costs, and construction-in- 4,564,907 2,223,737
progress
Other assets (705,575) 620,207
Customer deposits (78,342) 15,353
Accounts payable and accrued liabilities 2,509,724 (834,468)
--------------- --------------
6,575,182 2,251,724
--------------- --------------
Net cash provided by operating activities 7,139,751 2,410,217
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits on future projects (300,000) -
--------------- --------------
Net cash used in investing activities (300,000) -
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from acquisition, development and construction 11,236,445 8,566,808
loan borrowings
Payments on acquisition, development and construction (16,209,896) (10,814,739)
loans
Deferred loan cost payments (197,404) (14,936)
Payments on notes payable (15,918) (47,393)
Proceeds from issuance of stock options 25,988
--------------- --------------
Net cash used in financing activities (5,160,785) (2,310,260)
--------------- --------------
NET INCREASE IN CASH 1,678,966 99,957
CASH BEGINNING OF PERIOD 2,395,002 482,879
--------------- --------------
CASH END OF PERIOD $ 4,073,968 $ 582,836
--------------- --------------
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amount capitalized $ 1,723 $ 3,376
=============== ==============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
F-4
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND BUSINESS
Weitzer Homebuilders Incorporated was incorporated under the laws of the State
of Florida in June 1994, and engages, through its wholly owned subsidiaries, in
the design, construction and sale of moderately priced single-family residences
and townhouses in Miami-Dade and Broward counties in South Florida.
Recent Developments
On August 2, 1999, Century Partners Group, Ltd. ("Century"), a Florida limited
partnership, purchased an aggregate 8,855,000 shares of Class A and Class B
common stock of the Company, from Chai Capital, Ltd. ("Chai"), the Company's
principal shareholder prior to this transaction, which resulted in a change in
control of the Company. In addition, Century acquired options to purchase,
directly from the Company, 22,123,893 shares of the Company's Class A Common
Stock at an exercise price of $1.13 per share (the "Options"), in consideration
of the payment of $1,130,998. The options provided the exercise price may be
tendered in cash or by conveyance to the Company, assets having a fair market
value equal to the exercise price.
On September 2, 1999 and September 30, 1999, Century exercised their option and
received 22,123,893 aggregate shares of Class A Common Stock of the Company, at
$1.13 per share. As consideration for issued shares, Century conveyed to the
Company cash, cash equivalents, Century's interest in five limited partnerships
and certain other assets. Three of the limited partnerships conveyed were wholly
owned subsidiaries of Century and the other two limited partnerships were 50%
owned by Century.
As a result of the above transactions, as of September 30, 1999, Century had
obtained a 89.7% interest in the Company. Under generally accepted accounting
principles, Century's basis in the Company is pushed down to the separate
financial statements of the Company. As a result, to the extent of this 89.7%
change in ownership, assets and liabilities of the Company were adjusted to the
fair value, capital was adjusted to reflect Century's purchase price for its
ownership interest, including a reclassification of the predecessor's
accumulated deficit against additional paid in capital and the difference
between Century's basis in its interest in the Company and its proportionate
share of the fair value of the net assets was recorded as goodwill.
Comparative financial statements and notes to the consolidated financial
statements for periods prior to the change in control are reflected at their
historical amounts as previously reported by the Company ("predecessor basis").
The accompanying unaudited consolidated condensed financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions for Form
10-Q and Rule 10-01 of Regulation S-X. These
F-5
<PAGE>
financial statements do not include all information and notes required by
generally accepted accounting principles for complete financial statements, and
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's annual report on Form 10-K for the year ended
September 30, 1999. The September 30, 1999 fiscal year end condensed balance
sheet data was derived from audited financial statements but does not include
all disclosures required by generally accepted accounting principles. The
financial information furnished reflects all adjustments, consisting only of
normal recurring accruals, which are, in the opinion of management, necessary
for a fair presentation of the financial position, results of operations and
cash flows for the periods presented. The results of operations are not
necessarily indicative of results of operations, which may be achieved in the
future.
NOTE 2 - CAPITAL STOCK
The Class A Common Stock and the Class B Common Stock vote together as a single
class and are entitled to one vote per share, unless otherwise required by
applicable law and regulation.
In accordance to the Company's Articles of Incorporation, prior to the Company
having earned an aggregate of $7.5 million of adjusted operating income (as
defined), the holders of Common Stock are entitled to receive dividends, to the
extent funds are legally available, at the rate of $0.325 per share per annum
for Class A Common Stock and $0.001 per share per annum for Class B Common
Stock, payable on a quarterly basis. Since August 1996, the Board of Directors
of the Company has elected to forego the regularly scheduled cash dividend
payments on its outstanding shares of Class A Common Stock and Class B Common
Stock. Cash dividends on the Class A and Class B Common Stock are cumulative,
and accordingly, the amount of such dividends would inure for the benefit of the
Company's shareholders. The Company accrues such dividends on its financial
statements only if and when the Company's Board of Directors declares such
dividends. As of December 31, 1999, cumulative unpaid dividends in arrears
amounted to approximately $6,800,000.
Each share of Class B Common Stock can be converted into one share of Class A
Common Stock if the Earnings Achievements Date (as defined) has occurred and all
accumulated and unpaid dividends on the Class A Common Stock have been declared
and paid in full.
F-6
<PAGE>
YEAR END FINANCIAL STATEMENTS
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Weitzer Homebuilders Incorporated:
We have audited the accompanying consolidated balance sheet (purchase accounting
basis) of Weitzer Homebuilders Incorporated and Subsidiaries (the "Company") as
of September 30, 1999, and the related consolidated statements of operations,
shareholders' equity and cash flows (predecessor basis) for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Weitzer Homebuilders
Incorporated and Subsidiaries as of September 30, 1999, and the results of their
operations and their consolidated cash flows for the year then ended in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II - Valuation and
Qualifying Accounts is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
DELOITTE & TOUCHE LLP
Miami, Florida
January 26, 2000
F-8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Weitzer Homebuilders Incorporated:
We have audited the accompanying consolidated balance sheet of Weitzer
Homebuilders Incorporated and Subsidiaries as of September 30, 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Weitzer
Homebuilders Incorporated and Subsidiaries as of September 30, 1998, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II - Valuation and
Qualifying Accounts is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
McKEAN, PAUL, CHRYCY, FLETCHER & CO.
Miami, Florida
November 25,1998
F-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Weitzer Homebuilders Incorporated and Subsidiaries
We have audited the accompanying consolidated balance sheet of Weitzer
Homebuilders Incorporated and Subsidiaries as of September 30, 1997 and 1996,
and the related consolidated statements of operations, shareholder's equity, and
cash flows for each of the three years in the period ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Weitzer
Homebuilders Incorporated and Subsidiaries as of September 30, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended September 30, 1997, in conformity with
generally accepted accounting principles.
The financial statements referred to above have been prepared assuming that the
Company will continue as a going concern. The Company has bonds payable in the
amount of $3.75 million, which have a scheduled maturity in June 1998.
Management's plans to restructure or refinance the bonds payable are also
discussed in the notes to the 1997 financial statements (not presented
separately herein). If the Company is unable to achieve any of the alternatives
discussed in the notes to the 1997 financial statements (not presented
separately herein), there is substantial doubt about the Company's ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments relating to the recoverability of asset carrying
amounts or the amount of liabilities that might result should the Company be
unable to continue as a going concern.
PricewaterhouseCoopers LLP
Miami, Florida
December 12, 1997
F-10
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 (purchase accounting basis) AND
SEPTEMBER 30, 1998 (predecessor basis)
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
ASSETS
Cash $ 2,395,002 $ 482,879
Land and land development costs 39,327,397 22,773,115
Construction-in-progress 25,305,277 17,250,423
Model furnishings 290,023 695,031
Deferred loan costs 281,935 690,352
Goodwill 5,799,942 -
Investments in unconsolidated partnerships 1,463,391 -
Other assets 2,846,015 1,208,483
-------------- -----------
$77,708,982 $43,100,283
============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Customer deposits $ 2,253,529 $ 1,334,428
Accounts payable and accrued liabilities 3,250,605 5,189,413
Acquisition, development, and construction loans payable 41,377,879 27,814,542
14% convertible subordinated debentures - 4,000,000
Notes and loans payable 709,289 421,028
-------------- -----------
47,591,302 38,759,411
-------------- -----------
Commitments and contingencies (Note 12)
Shareholders' equity:
Preferred Stock, $.01 par, 5,000,000 shares authorized, none issued - -
Class A Common Stock, $.01 par, 40,000,000 shares authorized, 334,128 41,460
33,412,718 and 4,145,968 shares issued and outstanding in 1999
and 1998
Class B Common Stock, $.01 par, 1,500,000 shares authorized, issued 15,000 15,000
and outstanding
Additional paid-in capital 29,768,552 11,313,093
Accumulated deficit - (7,028,681)
-------------- -----------
30,117,680 4,340,872
-------------- -----------
$77,708,982 $43,100,283
============== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-11
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(predecessor basis)
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Sales of homes $53,701,005 $50,599,859 $55,419,763
Interest income 39,657 125,122 159,142
Other income 462,367 235,285 285,313
--------------- ------------ -----------
54,203,029 50,960,266 55,864,218
--------------- ------------ -----------
Operating costs and expenses:
Costs of homes sold 49,179,140 44,451,097 51,743,605
Selling expenses 3,924,266 4,352,620 4,349,641
General and administrative expenses 1,949,314 2,107,037 1,825,403
Depreciation and amortization 1,385,737 776,432 591,866
Goodwill write-off - - 331,570
Discontinued land acquisition expense - - 92,215
Interest expense 23,497 57,938 98,197
--------------- ------------ -----------
56,461,954 51,745,124 59,032,497
--------------- ------------ -----------
Net loss $(2,258,925) $ (784,858) $(3,168,279)
=============== ============ ===========
Basic and fully diluted loss per common share $(0.29) $(0.19) $(0.82)
=============== ============ ===========
Weighted average number of common shares
outstanding 7,921,675 4,158,688 3,860,254
=============== ============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-12
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
--------------------- ---------------------- Additional
Number Number Paid-in Accumulated
Of shares Amount of shares Amount Capital Deficit Total
---------- -------- ---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1996 (predecessor basis) 2,360,254 23,603 1,500,000 15,000 10,330,950 (3,075,544) 7,294,009
Net loss - - - - - (3,168,279) (3,168,279)
---------- -------- ---------- -------- ----------- ------------ -----------
Balance at September 30,
1997 (predecessor basis) 2,360,254 23,603 1,500,000 15,000 10,330,950 (6,243,823) 4,125,730
Proceeds from issuance of
common stock at $.56 per
share 1,785,714 17,857 - - 982,143 - 1,000,000
Net loss - - - - - (784,858) (784,858)
---------- -------- ---------- -------- ----------- ------------ -----------
Balance at September 30,
1998 (predecessor basis) 4,145,968 $ 41,460 1,500,000 $15,000 $11,313,093 $(7,028,681) $ 4,340,872
---------- -------- ---------- -------- ----------- ------------ -----------
Conversion of $4,000,000
subordinated debentures 7,142,857 71,429 - - 3,928,571 - 4,000,000
Proceeds from the issuance
of options to purchase
22,123,893 shares of
common stock at $1.13 per
share - - - - 1,130,998 - 1,130,998
Issuance of 22,123,893
shares of common stock at
$1.13 per share in
exchange for cash, cash
equivalents, partnership
interests and certain
other assets 22,123,893 221,239 - - 16,631,454 - 16,852,693
Purchase accounting basis
adjustment resulting from
the change in control
transaction - - - - (3,235,564) 9,287,606 6,052,042
Net loss - - - - - (2,258,925) (2,258,925)
---------- -------- ---------- -------- ----------- ------------ -----------
Balance at September 30,
1999 (purchase accounting
basis) 33,412,718 $334,128 1,500,000 $15,000 $29,768,552 $ - $30,117,680
========== ======== ========== ======== =========== ============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-13
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,258,925) $ (784,858) $ (3,168,279)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation, amortization and other non cash charges 1,385,737 776,432 821,341
Non-cash charge for impairment of long lived assets 883,150 - 2,652,000
Changes in assets and liabilities:
Restricted escrow funds - 82,105 206,767
Land, land development costs, and construction-in-progress 6,861,719 (841,605) (10,328,505)
Other assets (528,738) (44,829) 57,175
Customer deposits 338,666 160,686 (492,379)
Accounts payable and accrued liabilities (2,319,411) 2,182,773 431,325
------------- ------------- ------------
6,621,123 2,315,562 (6,652,276)
------------- ------------- ------------
Net cash provided by (used in) operating activities 4,362,198 1,530,704 (9,820,555)
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (21,077) (1,404) (148,780)
Proceeds from sale (purchase of) model furnishings (60,754) (586,236) 359,128
Deposits on future projects (165,504) - 1,945,277
------------- ------------- ------------
Net cash provided by (used in) investing activities (247,335) (587,640) 2,155,625
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition, development, and construction loan borrowings 33,242,158 54,595,585 47,399,418
Payments on acquisition, development, and construction
loans (38,982,580) (55,951,556) (41,393,413)
Proceeds from (repayments of) 10% bonds payable - (3,750,000) 309,693
Payments on 5% debentures - - (1,185,000)
Deferred loan cost payments (185,932) (722,873) -
Proceeds from issuance of stock options 1,130,998 - -
Proceeds from issuance of common stock 2,404,355 1,000,000 -
Proceeds from issuance of 14% debentures - 4,000,000 -
Notes payable borrowings 400,000 425,000 99,002
Payments on notes payable (211,739) (292,864) (227,295)
------------- ------------- ------------
Net cash provided by (used in) financing activities (2,202,740) (696,708) 5,002,405
------------- ------------- ------------
NET INCREASE (DECREASE) IN CASH 1,912,123 246,356 (2,662,525)
CASH BEGINNING OF PERIOD 482,879 236,523 2,899,048
------------- ------------- ------------
CASH END OF PERIOD $ 2,395,002 $ 482,879 $ 236,523
============= ============= ============
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 23,497 $ 57,938 $ 98,197
============= ============= ============
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
On August 2, 1999, an aggregate principal amount of $4,000,000 subordinated
debentures were converted into 7,142,857 shares of Class A Common Stock.
On September 2, 1999 and September 30, 1999, an aggregate 22,123,893 shares of
Class A Common Stock were issued in exchange for net assets of $16,846,619,
inclusive of cash and cash equivalents of $2,404,355.
Effective September 30, 1999, as a result of the pushdown of Century's basis,
the Company recorded goodwill of $5,799,942 and increased additional paid-in
capital by $6,052,042. Also, the predecessor's accumulated deficit of
$9,287,606 was reclassified against additional paid-in capital.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-14
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Weitzer Homebuilders Incorporated was incorporated under the laws of the
State of Florida in June 1994, and engages, through its wholly owned
subsidiaries, in the design, construction and sale of moderately priced
single-family residences and townhouses in Miami-Dade and Broward counties
in South Florida.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The accompanying consolidated financial statements include the accounts of
Weitzer Homebuilders Incorporated and all wholly owned subsidiaries,
collectively known as "the Company". The Company's investment in
partnerships in which less than a controlling interest is held are
accounted for by the equity method. All significant intercompany
transactions and balances have been eliminated.
During August and September 1999, Century Partners Group, Ltd. ("Century")
acquired a 89.7% controlling interest in the Company. As a result of the
change in ownership, a new basis of accounting ("Purchase Accounting
Basis") was established for the Company effective September 30, 1999. (See
Note 3 to the consolidated financial statements).
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
Revenue Recognition
Sales of homes and all related costs are recognized as revenue and costs of
homes sold, respectively, when sales are closed and title passes to the new
homeowner.
Long Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of",
long lived assets such as land, construction in-progress and goodwill are
reviewed for events or changes in circumstances,
F-15
<PAGE>
which would indicate that carrying amounts of the asset might not be
recoverable. In the event that facts and circumstances indicate that the
carrying value of the assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation were required, the
estimated future undiscounted cash flow associated with the assets would be
compared to the carrying amount to determine if a write-down to fair value
is required.
Land and Construction-in-Progress
Land and construction-in-progress are stated at the lower of cost or fair
value and consists of land and land development costs, direct construction
costs, and other costs. Land and land development costs are allocated to
housing units based on their relative sales value. Direct construction
costs are assigned to housing units based on specific identification. All
other costs are allocated to housing units based on a pro rata basis. The
Company capitalizes interest, real estate taxes and similar development
costs incurred during the development and construction period. Interest
capitalized during fiscal year 1999, 1998 and 1997 amounted to $3,028,541,
$3,472,035 and $2,522,984, respectively.
During the fiscal years ending September 30, 1999 and 1997, the Company
recorded an adjustment of approximately $883,000 and $2,652,000,
respectively, to reduce the carrying value of land, land development and
construction-in-progress to its fair value. These amounts have been
included in costs of homes sold in the accompanying consolidated financial
statement of operations. Certain of the key assumptions used in the
evaluation include sales price history, absorption history and cost of
construction, which includes estimates and an interest factor.
Model Furnishings
Model furnishings are stated at cost. Depreciation is being provided on the
straight-line method over the estimated useful lives of the furnishings.
Investments in Unconsolidated Partnerships
The Company's investments in partnerships in which less than a controlling
interest is held are accounted for by the equity method.
Deferred Loan Costs
Costs incurred in connection with borrowings and the issuance of bonds and
debentures of the Company are deferred and amortized over the term of the
related debt.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is being amortized by the Company over a 20-year
period on a straight-line basis (see
F-16
<PAGE>
Note 3). During the period ended September 30, 1997, the Company determined
that its then recorded goodwill could not be realized and, accordingly,
recorded a charge for the remaining balance of $331,570.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments
including cash, accrued payroll, accrued liabilities, and borrowings
approximate fair value because of their short term maturities. Variable
rate borrowings are fixed to market indices and thereby approximate fair
value.
Warranties
The Company subcontracts virtually all segments of construction to others
and its contracts require the subcontractors to repair or replace any
deficient items related to their trade. Historically, the Company has not
sustained any material claims related to warranty matters.
Income Taxes
Deferred tax assets and liabilities are recorded based on the differences
between financial statement and income tax bases of the Company's assets
and liabilities using enacted tax rates in effect for the year in which
these differences are expected to reverse. The Company establishes
valuation allowances against its deferred tax asset accounts, when
necessary, to more accurately reflect tax benefits that are expected to be
realized by the Company in the future.
Loss Per Share
Basic loss per common share is computed by dividing net loss attributable
to common stockholders by the weighted average number of shares of common
stock outstanding during the year. Diluted loss per share, which assumes
that the stock options and warrants (see Note 9) are exercised, is not
presented because the effect would be anti-dilutive. The weighted average
shares outstanding used in the computation of net loss attributable to
common shares are as follows:
F-17
<PAGE>
<TABLE>
<CAPTION>
Weighted Average Shares
Outstanding
For the Years Ended
-------------------------------
1999 1998 1997
---------------------------------
<S> <C> <C> <C>
Class A Common Stock 6,421,675 2,658,688 2,360,254
Class B Common Stock 1,500,000 1,500,000 1,500,000
--------- --------- ---------
7,921,675 4,158,688 3,860,254
========= ========= =========
</TABLE>
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, ("SFAS No.130") Reporting Comprehensive Income, which
establishes standards for reporting and display of comprehensive income and
its components (revenue, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 130 did
not impact the Company's results of operations, cash flows or financial
position.
In June 1997, the FASB issued Statement No. 131, ("SFAS No. 131")
Disclosures about Segments of an Enterprise and Related Information, which
establishes standards for reporting information about a company's operating
segments and related disclosures about its products, services, geographic
areas and major customers in annual and interim financial statement, SFAS
No. 131 is effective for fiscal years beginning after December 15, 1997.
The Company has adopted this statement in fiscal year 1999. The adoption of
this statement did not impact the Company's results of operations, cash
flows or financial position.
In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. The statement requires the recognition
of all derivatives in the balance sheet as either assets or liabilities
measured at fair value. In June 1999, the FASB issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement 133, which delayed the adoption of
SFAS No. 133 for one year. As a result of SFAS No. 137, the Company will
not be required to adopt SFAS until fiscal 2001. The Company has not yet
determined the impact SFAS No. 133 will have on its financial position or
results of operation when such statement is adopted.
3. CHANGE IN CONTROL
On August 2, 1999, Century purchased an aggregate 8,855,000 shares of Class
A and Class B common stock of the Company directly from Chai Capital, Ltd.
("Chai"), the Company's principal shareholder prior to this transaction,
for $10,000,000. In addition, Century acquired options to purchase an
aggregate 22,123,893 shares of the Company's Class A Common Stock at an
exercise price of $1.13 per share (the "Options"), directly from the
Company, in consideration of $1,130,998. On September 2, 1999 and September
30, 1999, Century exercised their option and received 22,123,893 aggregate
shares of Class A
F-18
<PAGE>
Common Stock of the Company $1.13 per share. As consideration for issued
shares, Century conveyed to the Company cash, cash equivalents, Century's
interest in five limited real estate partnerships and certain other
assets.
As a result of this change in control transaction, as of September 30,
1999, Century had obtained a 89.7% interest in the Company. Under generally
accepted accounting principles, Century's basis in the Company is pushed
down to the separate financial statements of the Company ("purchase
accounting basis"). As a result, to the extent of this 89.7% change in
ownership, assets and liabilities of the Company were adjusted to fair
value, capital was adjusted to reflect Century's purchase price of its
ownership interest, including a reclassification of the predecessors
accumulated deficit against additional paid-in capital and any difference
between Century's basis in its interest in the Company and its
proportionate share of the fair value of the net assets was recorded as
goodwill. As of September 30, 1999, the company's basis in Century was as
follows:
<TABLE>
<S> <C>
Total purchase price, including $600,000 of acquisition costs and
liabilities incurred $ 10,600,000
Less: Fair value of assets acquired 4,800,058
------------
Goodwill (excess of cost basis over fair value of assets acquired) $ 5,799,942
============
</TABLE>
The assets an liabilities conveyed in connection with the exercise of the
options were recorded at historical carrying value because Century and the
Company were under common control at the exercise date. With respect to the
assets and liabilities received upon the exercise of the options, on an
unaudited proforma basis, revenues would have increased by $10,077,756, the
net loss would have decreased by $517,707 and the proforma loss per share
would have decreased to $0.22 per share, had the exercise of the options
occurred on October 1, 1998. The operations of the conveyed partnerships
for the year ended September 30, 1998 were not significant.
Comparative financial statements and notes to the consolidated financial
statements for periods prior to the change in control are reflected at
their historical amounts as previously reported by the Company (predecessor
basis).
4. CONSTRUCTION IN PROGRESS
Construction in progress consists of the following at September 30, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Direct construction costs $ 20,027,237 $ 11,839,713
Construction period interest, property
taxes, overhead and other 5,278,040 5,410,710
------------ ------------
$ 25,305,277 $ 17,250,423
============ ============
</TABLE>
F-19
<PAGE>
5. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
As a result of the change in control discussed in Note 3, effective
September 30, 1999, the Company owns a 50% interest in two limited
partnerships, Century/Dadeland Gardens, Ltd. and Dadeland Towers, Ltd. that
is operating 150 rental apartment units and developing 580 condominium
units.
Condensed combined financial information of these partnerships as of
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Century/Dadeland Gardens, Ltd. and Dadeland Towers, Ltd.
Condensed Combined Balance Sheet
As of September 30, 1999
(unaudited)
Assets
<S> <C>
Cash $ 500
Building and improvements, net 6,676,931
Other Assets 442,462
-----------
Total assets $ 7,119,893
===========
Liabilities and capital
Accounts payable and accrued expenses $ 203,400
Mortgage notes payable 4,983,320
-----------
Total liabilities 5,186,720
-----------
Capital of:
The Company 1,463,391
Others 469,782
-----------
Total capital 1,933,173
-----------
Total liabilities and capital $ 7,119,893
===========
</TABLE>
The operations of the partnerships for the period from their acquisition
through September 30, 1999 were not significant.
6. NOTES AND LOANS PAYABLE
Notes and loans payable consist of the following at September 30, 1999 and
1998:
F-20
<PAGE>
<TABLE>
<S> <C> <C>
Land acquisition, development and construction loans 1999 1998
with specified principal payments due as ---------- ----------
underlying lots, which collateralize the loan, are
sold; interest payable monthly at rates ranging
from prime to prime plus 1.5%. At September
30, 1999, the prime rate was 8.25%. $ 41,377,879 $ 27,814,542
Notes, loans and capital lease obligations, paid monthly,
collateralized by certain assets with interest
rates ranging from 8.25% to prime plus 1%. 709,289 421,028
------------ ------------
$ 42,087,168 $ 28,235,570
============ ============
</TABLE>
<TABLE>
<S> <C> <C>
The following are the scheduled and estimated maturities of notes and loan
payable at September 30, 1999: 2000 $22,376,356
2001 11,210,812
2002 8,500,000
-----------
$42,087,168
===========
</TABLE>
One of the loan agreements requires the Company to maintain a minimum
tangible net worth, and a certain ratio of liabilities to shareholders'
equity. In order to satisfy certain of these covenants for fiscal year
1998, the Company obtained waivers of compliance from the relevant lending
institution through September 30, 1999. At September 30, 1999, the Company
believes it is in compliance with its loan covenants. In addition, the loan
agreements restrict the Company from declaring or paying any dividends or
make any other distributions on any shares of capital stock of the
Company.
The change in control transaction described in Note 3 to the consolidated
financial statements, required consents of certain lenders. In connection
with the granting of such consents, payments on certain acquisition,
development and construction loan payable were accelerated and are payable
by January 31/st/, 2000. Due to the acceleration of the loan payments, the
Company also accelerated the amortization of the associated deferred loan
fees. This resulted in additional amortization expense of approximately
$400,000, which is included in "Depreciation and amortization" in the
accompanying condensed consolidated financial statements. The Company also
incurred expenses of approximately $350,000 in connection with the
transaction, which are included in "General and administrative" in the
accompanying condensed consolidated financial statements.
7. 14% CONVERTIBLE SUBORDINATED DEBENTURES
On July 28, 1998, the Company issued $4,000,000 of 14% Convertible
Subordinated Debentures ("the Debentures") and 1,785,714 shares of the
Company's authorized and unissued $.01 par value per share Class A Common
Stock at $.56 per share ($1,000,000 in aggregate) to a Florida limited
partnership, of which the then President of the Company was among the
limited partners, for an aggregate $5,000,000. In addition, such President
contributed 1,500,000 shares of Class B Common Stock of the Company to the
partnership. The Debentures were due in July 2001 and were convertible at
the option of the holder into
F-21
<PAGE>
shares of the Company's Class A Common Stock at a conversion price of $ .56
per share, and are subordinate to any senior debt of the Company. The
proceeds of the financing were used by the Company primarily to repay the
outstanding principal amount plus accrued interest on the Company's
outstanding 10% bonds in June 1998. In addition, pursuant to the terms of
the Debentures, the Company could not incur any new debt in excess of
$200,000 per annum and could not issue any securities in the future (other
than securities issuable upon exercise and/or conversion of currently
outstanding derivative securities) without the prior consent of the
Partnership.
On August 2, 1999 the holder of the Debentures exercised the conversion
feature of said Debentures and received 7,142,857 shares of the Company's
Class A Common Stock at $.56 per share.
8. INCOME TAXES
The components of net deferred taxes at September 30, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
Deferred tax assets 1999 1998
------------ ------------
<S> <C> <C>
Net operating loss carryfowards $ 2,639,200 $ 2,148,000
Accrued expenses - 56,000
Deferred writedown of assets 539,400 459,000
Deferred contributions 11,400 8,500
Fixed assets 84,100 -
------------ ------------
3,274,100 2,671,500
Less valuation allowance (3,274,100) (2,671,500)
------------ ------------
Net deferred tax assets $ - $ -
============ ============
</TABLE>
Reconciliation of the differences between income taxes (benefit) computed at
federal statutory tax rates and the Company's recorded provision (benefit) for
income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- --------
<S> <C> <C> <C>
Expected tax benefit at Federal statutory rate (34.00)% (34.00)% (34.00)%
State income tax (benefit), net (3.63)% (3.63)% (3.63)%
Valuation allowance (37.63)% (37.63)% (37.63)%
----------- --------- --------
Income tax expense (benefit) 0.0 % 0.0 % 0.0 %
=========== ========= ========
</TABLE>
As of September 30, 1999, the Company estimates it has net operating losses
of approximately $7,015,000. Due to the conversion of certain debt
instruments and Common Stock issued during 1999, which resulted in a change
of ownership, the net operating losses could be limited in the future. Such
carryforwards will expire beginning in the year 2008 through the year 2019.
During the year ended September 30, 1999, the Company recorded an
additional valuation allowance of $602,600 on its deferred tax assets to
reduce the total
F-22
<PAGE>
to an amount that Management believes will ultimately be realized. SFAS No.
109 requires a valuation allowance be recorded against tax assets, which
are not likely to be realized. Based upon past performance and the
uncertain nature of their ultimate realization, the Company established a
valuation allowance against these carryforward items and will be
recognizing the benefits only as reassessment demonstrates they are
realizable.
9. STOCK-BASED COMPENSATION
In connection with its initial public offering, the Company sold to certain
lead underwriters, for nominal consideration, warrants to purchase from the
Company's 160,000 shares of Class A Common Stock. The warrants are
outstanding and exercisable at a price of $7.80 per share of Class A Common
Stock through April 26, 2000. The warrants also provide for adjustment in
the number of shares of Class A Common Stock issuable upon the exercise
thereof as a result of certain subdivisions and combinations of the Class A
Common Stock. The warrants grant to the holders thereof certain rights of
registration of the securities issuable upon the exercise of the
warrants.
In March 1995, the Company granted, to the Company's then President,
options to purchase 150,000 shares of Class A Common Stock exercisable at
$7.80 per share for a period of four years commencing April 26, 1996. In
February 1997, the Company granted to directors and certain employees
options to purchase 620,000 shares of Class A Common Stock exercisable at
$1.75 per share for a period of 10 years. The options vest ratably over a
5-year period or immediately upon a change in control of the Company,
except for options to purchase 65,000 shares, which vested immediately. In
May 1999, the Company granted to certain employees options to purchase
24,500 shares of Class A Common Stock exercisable at $1.84 per share for a
period of 10 years. The options vested immediately.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS' No. 123"). SFAS No. 123 requires expanded disclosure
of stock based compensation arrangements with employees, and encourages,
but does not require compensation costs to be measured based on the fair
value of the equity instrument awarded. Companies are permitted to continue
to apply Accounting Principles Board Opinion No. 25 ("APB 25"), which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB 25 to its stock
based compensation awards. Accordingly, no compensation costs related to
employee options have been recognized in the consolidated financial
statements of the Company. Had compensation cost been determined based on
the fair market value at the grant dates for awards consistent with the
methods prescribed by SFAS No. 123, the Company's net loss and net loss per
share per in fiscal 1999, 1998 and 1997 would have been increased to the
pro forma amounts indicated below:
F-23
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
------------ ---------- ------------
Net loss:
<S> <C> <C> <C>
As reported $(2,258,925) $(784,858) $(3,168,279)
============ ========== ===========
Pro forma $(2,301,800) $(916,378) $(3,281,532)
============ ========== ===========
Loss per share:
As reported $ (0.29) $ (0.19) $ (0.82)
============ ========== ===========
Pro forma $ (0.29) $ (0.22) $ (0.85)
============ ========== ===========
</TABLE>
The fair value of the fiscal year 1997, 1998 and 1999 option grants was
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions: risk free interest rates of 6.75%, dividend
yield of 0%, expected lives of 0 years and volatility of 78%. The weighted
average fair value of options granted was $1.37 for the year ended
September 30, 1997 and $1.13 for the years ended September 30, 1998 and
1999.
A summary of the status of the Company's stock-based option awards during
September 30, 1999, 1998 and 1997, and changes during the years then
ending, is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Options Price Options Price Options Price
--------- ------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the beginning 850,000 $ 3.95 905,000 $ 3.82 310,000 $ 7.80
of the year
Granted 24,500 1.84 -- -- 620,000 1.75
Exercised -- -- -- -- -- --
Forfeited (140,000) (1.75) (55,000) (1.75) (25,000) (1.75)
--------- ------- -------- ------- -------- ------
Outstanding at year end 734,500 $ 4.31 850,000 $ 3.95 905,000 $ 3.82
========= ======= ======== ======= ======== ======
Exercisable at end of year 734,500 475,000 375,000
======== ======= =======
</TABLE>
10. CAPITAL STOCK
The Class A Common Stock and the Class B Common Stock vote together as a
single class and are entitled to one vote per share, unless otherwise
required by applicable law and regulation.
In accordance to the Company's Articles of Incorporation, prior to the
Company having earned an aggregate of $7.5 million of adjusted operating
income (as defined), the holders of Common Stock are entitled to receive
dividends, to the extent funds are legally available, at the rate of $0.325
per share per annum for Class A Common Stock and $0.001 per share per annum
for Class B Common Stock, payable on a quarterly basis. Since August 1996,
the Board of Directors of the Company has elected to forego the regularly
scheduled cash dividend payments on its outstanding shares of Class A
Common Stock and Class B Common Stock. Cash dividends on the Class A and
Class B Common Stock are cumulative,
F-24
<PAGE>
and accordingly, the amount of such dividends would inure for the benefit
of the Company's shareholders. The Company accrues such dividends on its
financial statements only if and when the Company's Board of Directors
declares such dividends. As of September 30, 1999, cumulative unpaid
dividends in arrears amounted to approximately $4,000,000.
Each share of Class B Common Stock can be converted into one share of Class
A Common Stock if the Earnings Achievements Date (as defined) has occurred
and all accumulated and unpaid dividends on the Class A Common Stock have
been declared and paid in full.
11. RELATED PARTY TRANSACTIONS
Effective as of January 1, 1999, the Company entered into a five-year
employment agreement (the "Employment Agreement"), with Mr. Harry Weitzer,
its former Chairman, President and Chief Executive Officer, whereby he
agreed to devote substantially all of his business time to the affairs of
the Company. The Employment Agreement provided for an initial salary of
$350,000, with annual cost of living adjustments as well as provisions for
bonuses, reimbursements of business expenses, provision for automobile,
health insurance and related benefits. Effective August 2, 1999, Mr.
Weitzer's Employment Agreement was terminated and he entered into a five
month Consulting Agreement with the Company whereby he agreed to devote
substantially all of his business time to the affairs of the Company. In
consideration for acting as a consultant to the Company, Mr. Weitzer is
paid $29,167 per month.
Michael Ambrosio, a Director of the Company, entered into an agreement with
the Company in September 1998 to furnish consulting services. The agreement
provides that Mr. Ambrosio will be paid a monthly fee of $3,000, on a
month-to-month basis. The agreement for consulting services was canceled on
August 2, 1999. For the fiscal year ended September 30, 1999, Mr. Ambrosio
was paid $30,000.
Effective August 2, 1999, the Company and Century, the Company's principal
shareholder, share office space and certain other resources. The Company
has entered into an agreement with Century, in which the expenses incurred
for the shared space and resources are to be allocated between the two
entities according to their proportionate share of the office square
footage utilized. The Company currently occupies 90% of the space. The
future expense allocation based on lease agreements for the shared space
and resources is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
% 2000 2001 2002 2003
--------------------------------------
The Company 90% 69,260 72,853 75,767 74,195
Century 10% 7,696 8,095 8,419 8,244
--------------------------------------
Combined total 100% 76,956 80,948 84,186 82,439
======================================
</TABLE>
The expense allocated to the Company for shared office space during the
year ended September 30, 1999 was $8,355.
F-25
<PAGE>
On September 22, 1999, the Company borrowed $400,000 from Century, the
Company's principal shareholder. The loan bears no defined terms, but it is
considered an advance against future 7% debentures. The loan amount is
included in "Notes and loan payables" of the Company's consolidated balance
sheet, and the related interest expense for the year ended September 30,
1999 was $615.
12. COMMITMENTS AND CONTINGENCIES
Performance Bonds
In accordance with certain governmental requirements, the Company has
caused performance bonds and letters of credit aggregating $645,000 at
September 30, 1999, to be issued to governmental agencies for certain of
the projects to secure the completion of required improvements.
Litigation
The Company is involved from time to time in litigation arising in the
ordinary course of its business none of which is expected to have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
WEITZER HOMEBUILDER INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Charged Charged
Balance at to to Balance at
Beginning Cost and Other End of
of Year Expenses Accounts Deduction Year
------------ ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1999
Allowances deducted from assets for
Deferred taxes $ 2,671,500 $ 602,600 $ -- $ -- $ 3,274,100
============ ========== ========== =========== =============
YEAR ENDED SEPTEMBER 30, 1998
Allowances deducted from assets for
Deferred taxes $ 2,376,500 $ 295,000 $ -- $ -- $ 2,671,500
============ ========== ========== =========== =============
YEAR ENDED SEPTEMBER 30, 1997
Allowances deducted from assets for
Deferred taxes $ 1,130,400 $ 1246,100 $ -- $ -- $ 2,376,50
============ ========== ========== =========== ============
</TABLE>
F-26
<PAGE>
EXHIBIT A
---------
PROPOSED AMENDMENT TO
THE ARTICLES OF INCORPORATION
OF
WEITZER HOMEBUILDERS INCORPORATED
(d/b/a Century Builders Group)
Article I of the Amended and Restated Articles of Incorporation of Weitzer
Homebuilders Incorporated (the "Corporation"), is hereby amended to read as
follows:
ARTICLE I - NAME
----------------
The name of the Corporation is Century Builders Group, Inc.
Article III of the Amended and Restated Articles of Incorporation of
Weitzer Homebuilders Incorporated is hereby amended to read as follows:
ARTICLE III - CAPITAL STOCK
---------------------------
Section 1. Authorized Capital Stock. The aggregate number of shares
------------------------
of all classes of capital stock which the Corporation shall have the
authority to issue is 100,000,000, of which 95,000,000 shares shall be
common stock, par value $.001 per share (the "Common Stock"), and 5,000,000
shares shall be Serial Preferred Stock, par value $.01 per share (the
"Preferred Stock").
Section 2. Serial Preferred Stock. The Board of Directors is
----------------------
authorized at any time, and from time to time, to provide for the issuance
of shares of Preferred Stock in one or more series, and to determine the
designations, preferences, limitations and relative or other rights of the
Preferred Stock or any series thereof. For each series, the Board of
Directors shall determine by resolution or resolutions adopted prior to the
issuance of any shares thereof, the designations, preferences, limitations
and relative or other rights thereof, including but not limited, to the
following relative rights and preferences, as to which there may be
variations among the different series:
(a) The rate and manner of payment of dividends, if any;
(b) Whether shares may be redeemed and, if so, the redemption
price and the terms and conditions of redemption;
A-1
<PAGE>
(c) The amount payable upon shares in the event of liquidation,
dissolution or other winding-up of the Corporation;
(d) Sinking funds provisions, if any, for the redemption or
purchase of shares;
(e) The terms and conditions, if any, on which shares may be
converted or exchanged;
(f) Voting rights, if any; and
(g) Any other rights and preferences of such shares, to the full
extent now or hereafter permitted by the laws of the State of Florida.
The Board of Directors shall have the authority to determine the
number of shares that will comprise each series.
Prior to the issuance of any shares of a series, but after adoption by
the Board of Directors of the resolution establishing such series, the
appropriate Officers of the Corporation shall file such documents with the
State of Florida as may be required by law.
A-2
<PAGE>
EXHIBIT B
SECTIONS 607.1301, 607.1302, 607.1320
OF THE
FLORIDA BUSINESS CORPORATION ACT
607.1301 Dissenters' rights; definitions.
The following definitions apply to ss. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to ss. 607.1104, the day prior to the date on which a copy of
the plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302 Right of shareholders to dissent.
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his or her shares in the event of, any of
the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its
parent under ss. 607.1104, and the shareholders would have been entitled to vote
on action taken, except for the applicability of ss. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation, other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or exchange
pursuant to ss. 607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which all
or
B-1
<PAGE>
substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
(c) As provided in ss. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation
is a party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder
is entitled to vote on the amendment and if such amendment would adversely
affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to any
of his or her shares;
2. Altering or abolishing the voting rights pertaining to any
of his or her shares, except as such rights may be affected by the voting rights
of new shares then being authorized of any existing or new class or series of
shares;
3. Effecting an exchange, cancellation, or reclassification of
any of his or her shares, when such exchange, cancellation, or reclassification
would alter or abolish the shareholder's voting rights or alter his or her
percentage of equity in the corporation, or effecting a reduction or
cancellation of accrued dividends or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of the
shareholder's redeemable shares, altering or abolishing any provision relating
to any sinking fund for the redemption or purchase of any of his or her shares,
or making any of his or her shares subject to redemption when they are not
otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of any
of the shareholder's preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of the
shareholder's preferred shares; or
7. Reducing any stated preferential amount payable on any of
the shareholder's preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his or her shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his or her shares which are
adversely affected by the amendment.
B-2
<PAGE>
(3) A shareholder may dissent as to less than all the shares registered in
his or her name. In that event, the shareholder's rights shall be determined as
if the shares as to which he or she has dissented and his or her other shares
were registered in the names of different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a proposed
sale or exchange of property, to the holders of shares of any class or series
which, on the record date fixed to determine the shareholders entitled to vote
at the meeting of shareholders at which such action is to be acted upon or to
consent to any such action without a meeting, were either registered 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 not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his or her
shares under this section may not challenge the corporate action creating his or
her entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 Procedure for exercise of dissenters' rights.
(1)
(a) If a proposed corporate action creating dissenters' rights under
ss. 607.1302 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights and be accompanied by a copy of ss. 607.1301, 607.1302, and
607.1320. A shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for his or her shares if
the proposed action is effectuated, and
2. Not vote his or her shares in favor of the proposed action.
A proxy or vote against the proposed action does not constitute such a notice of
intent to demand payment.
(b) If proposed corporate action creating dissenters' rights under ss.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each shareholder
simultaneously with any request for the shareholder's written consent or, if
such a request is not made, within 10 days after the date the corporation
received written consents without a meeting from the requisite number of
shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his or her shares pursuant to
paragraph (1)(a) or, in the case of action authorized by written consent, to
each shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
B-3
<PAGE>
(3) Within 20 days after the giving of notice to him or her, any
shareholder who elects to dissent shall file with the corporation a notice of
such election, stating the shareholder's name and address, the number, classes,
and series of shares as to which he or she dissents, and a demand for payment of
the fair value of his or her shares. Any shareholder failing to file such
election to dissent within the period set forth shall be bound by the terms of
the proposed corporate action. Any shareholder filing an election to dissent
shall deposit his or her certificates for certificated shares with the
corporation simultaneously with the filing of the election to dissent. The
corporation may restrict the transfer of uncertificated shares from the date the
shareholder's election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
or her shares. After such offer, no such notice of election may be withdrawn
unless the corporation consents thereto. However, the right of such shareholder
to be paid the fair value of his or her shares shall cease, and the shareholder
shall be reinstated to have all his or her rights as a shareholder as of the
filing of his or her notice of election, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim,
if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a
court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
B-4
<PAGE>
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more than
12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was not in
existence throughout such 12-month period, for the portion thereof during which
it was in existence.
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his or her shares shall be made within 90 days
after the making of such offer or the consummation of the proposed action,
whichever is later. Upon payment of the agreed value, the dissenting shareholder
shall cease to have any interest in such shares.
(7) If the corporation fails to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his or her shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholder may do
so in the name of the corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have agreed with the
corporation as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The corporation shall serve a copy
of the initial pleading in such proceeding upon each dissenting shareholder who
is a resident of this state in the manner provided by law for the service of a
summons and complaint and upon each nonresident dissenting shareholder either by
registered or certified mail and publication or in such other manner as is
permitted by law. The jurisdiction of the court is plenary and exclusive. All
shareholders who are proper parties to the proceeding are entitled to judgment
against the corporation for the amount of the fair value of their shares. The
court may, if it so elects, appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. The appraisers
shall have such power and authority as is specified in the order of their
appointment or an amendment thereof. The corporation shall pay each dissenting
shareholder the amount found to be due him or her within 10 days after final
determination of the proceedings. Upon payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate
of interest, to be determined by the court.
B-5
<PAGE>
(9) The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the shares,
if the court finds that the action of such shareholders in failing to accept
such offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of a
merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
B-6
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED
(d/b/a Century Builders Group)
7270 N.W. 12th Street, Suite 410
Miami, Florida 33126
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Sergio Pino and Armando J. Guerra, and each
of them, with full power of substitution, proxies of the undersigned, to vote
all the shares of Class A Common Stock, $.001 par value per share, of Weitzer
Homebuilders Incorporated (d/b/a Century Builders Group), a Florida corporation,
(the "Company"), which the undersigned would be entitled to vote at the Special
Meeting of Shareholders to be held at the offices of Akerman, Senterfitt &
Eidson, P.A. located at One S.E. Third Avenue, 28th Floor, Miami, Florida 33131
at 11:00 a.m., local time, on April 20, 2000, or any adjournment thereof, upon
the matters referred to on the reverse side and, in their discretion, upon any
other business as may come before the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS.
1. Proposal 1 - Approval of the Name Change Amendment to the Articles of
Incorporation
[_] FOR [_] AGAINST [_] ABSTAIN
2. Proposal 2 - Approval of the Amendment to the Articles of Incorporation to
provide for one Class of Common Stock, $.001 par value per share
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal 3 - Approval of the Amendment to the Articles of Incorporation to
increase the number of authorized shares of Common Stock of the Company to
95,000,000
[_] FOR [_] AGAINST [_] ABSTAIN
4. Proposal 4 - Election of Directors.
Election of the following persons as Directors of the Company:
Sergio Pino Armando J. Guerra Jose Cancela
[_] [_] [_]
Gabriel M. Bustamante Carlos Garcia Humberto Lorenzo
[_] [_] [_]
[_] FOR all nominees except [_] WITHHOLD authority to vote
as indicated for all nominees
(INSTRUCTION: To withhold authority to vote for an individual nominee,
strike a line through that nominee's name in the list above.)
(Continued and to be signed on other side)
<PAGE>
5. Proposal 5 - Ratification of Appointment of Deloitte & Touche LLP as
Independent Accountants
[_] FOR [_] AGAINST [_] ABSTAIN
6. To transact such other business as may properly come before the
meeting
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted FOR the proposals as set forth herein.
The undersigned acknowledges receipt of Notice of Special Meeting of
Shareholders dated March 23, 2000, and the accompanying Proxy Statement.
Dated: ______________, 2000.
____________________________
Signature
____________________________
Names (s) (typed or printed)
____________________________
____________________________
____________________________
Address(es)
Please sign exactly as name appears herein. When share are held by joint
tenants, both should sign. When singing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by the President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
