Exhibit 99
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF NEW YORK
- ---------------------------------x
In Re :
CASE NO. 96-61376
:
THE BENNETT FUNDING GROUP, INC.
:
Chapter 11
: Substantively
Consolidated
Debtor
- ---------------------------------x
MOTION BY TRUSTEE UNDER 11 U.S.C. Section 363(b)
TO SELL COMMON STOCK IN EQUIVEST FINANCE, INC. TO
UNDERWRITERS IN REGISTERED PUBLIC OFFERING AND TO
EXCHANGE PREFERRED STOCK IN EQUIVEST FOR COMMON STOCK
Richard C. Breeden, duly appointed trustee (the "Trustee")
of The Bennett Funding Group, Inc. ("BFG"), Bennett Receivables Corporation
("BRC"), Bennett Receivables Corporation II ("BRC II"), Bennett Management &
Development Corporation ("BMDC"), The Processing Center, Inc. ("TPC"), Resort
Service Company, Inc. ("RSC"), American Marine International, Ltd. ("AMI")
and Aloha Capital Corporation ("Aloha"; collectively, the "Debtors"), by his
undersigned attorneys, hereby moves for authorization under 11 U.S.C.
Section 363(b): (A) to sell all the Consolidated Estate's shares of common
stock of Equivest Finance, Inc. ("Equivest") to a syndicate of underwriters
of which Credit Suisse First Boston Corporation ("CSFB") will be the lead or
a co-lead manager in connection with a public offering registered with the
U.S. Securities and Exchange Commission ("SEC") and (B) to exchange all the
Consolidated Estate's Series 2 Preferred Stock of Equivest for 1,860,465
shares of Equivest common stock. The hearing date for this Motion is
July 31, 1998.
A. General Background
1. On March 29, 1996, BFG, BRC, BRC II and BMDC filed
petitions for reorganization under Section 301 of the Bankruptcy Code. The
Trustee was appointed trustee for each of them on April 18, 1996, and the
appointment was approved by the Court on such date.
2. On April 19, 1996, AMI and RSC filed petitions for
relief under Section 301 of the Bankruptcy Code. On April 25, 1996, an
involuntary case against Aloha was commenced under Section 303 of the
Bankruptcy Code. On April 26, 1996, TPC filed a petition for relief under
Section 301 of the Bankruptcy Code. On May 10, 1996, the Court entered an
order for relief against Aloha. The Trustee was appointed trustee for AMI,
RSC, TPC and Aloha on May 14, 1996, and the appointment was approved by the
Court on May 15.
3. By Order dated July 25, 1997, the Court
substantively consolidated the Debtors' estates (hereinafter, the
"Consolidated Estate").
B. Background Relating to Sale
of the Equivest Common Stock
4. The Consolidated Estate owns, free and clear of
liens, slightly in excess of 20 million shares of Equivest common stock,
which constitute approximately 90% of Equivest's common stock.<F1> As
described in various filings and testimony in this bankruptcy case, this
stock of Equivest is one of the most valuable assets of the Consolidated
Estate.
5. The sale of the Equivest common stock involves one,
and possibly two, related transactions. These are (a) the proposed exchange
of the existing Series 2 Preferred Stock for 1,860,465 shares of Equivest
common stock and (b) the potential acquisition by Equivest of Eastern Resorts
Corporation ("Eastern Resorts"), a timeshare development company. These
transactions are described below in Sections G and H, respectively.
C. Relief Requested
6. By this Motion, the Trustee seeks Court approval to
sell all the Consolidated Estate's shares of Equivest common stock to an
underwriting syndicate of which CSFB will be the lead or a co-lead manager of
the underwriting syndicate in connection with a public offering registered
with the SEC as described herein. This will be a "firm", or "fixed price",
underwriting in which the underwriters will buy the shares of Equivest common
stock and then take the risk of reselling them to the public.
7. The Trustee also seeks Court approval to exchange
the 10,000 shares of Series 2 Preferred Stock for 1,860,465 shares of
Equivest common stock, which common stock would be sold to the underwriting
syndicate in the public offering.
D. Public Offering
8. The Equivest common stock is listed on the NASDAQ
(small capitalization) market. During the period since the bankruptcy
filings of the Debtors, Equivest common stock has traded at a price ranging
from a low of approximately $ .31 to a high of $6.50, and its closing price
at July 7, 1998 was $5.75 per share. For the reasons discussed herein, the
Trustee believes it is in the best interest of the Consolidated Estate to
sell all its shares of Equivest common stock to underwriters in a registered
public offering.
9. CSFB will be the lead, or a co-lead, manager of the
underwriting syndicate for the registered public offering.<F2> Attached
hereto as Exhibit A is an Affidavit of Scott C. Butera, a Director of CSFB,
describing the public offering process, the rationale for selling the
Equivest stock at this time, and why a public offering is most likely to lead
to obtaining the highest price for the Equivest stock. The July 31 hearing
on this Motion is scheduled as an evidentiary hearing, and Mr. Butera and the
Trustee are expected to testify, and be available for cross-examination, at
the July 31 hearing.
10. As stated in the Butera Affidavit, CSFB believes
this is an opportune time for selling the Equivest stock, Butera Affidavit at
Paragraphs 7-10, and a registered public offering is the most likely way to
maximize value, Butera Affidavit at Paragraphs 11-13.
11. The market for equity securities and the price/
earnings multiples for stock of companies in the timeshare business have
been at or near all time highs during 1998. Equivest common stock has also
traded in 1998 at price earnings multiples of more than 30 times earnings,
well in excess of market and industry averages.<F3> CSFB believes that it
is a good business judgment to sell the Consolidated Estate's shares of
Equivest common stock at this time. In less favorable conditions for the
equity markets, or timeshare stocks in particular, it is possible that the
Equivest common stock could be only sold at a significantly lower price level,
if at all, compared to what is possible under current conditions. CSFB
believes that the equity market will continue to be strong in the second half
of 1998 but the ability to predict equity markets decreases the further one
goes out into the future. Butera Affidavit at Paragraphs 7-10.
12. The Consolidated Estate owns an extremely large block
of Equivest common stock, representing approximately 10 times the number of
publicly traded shares of common stock that are owned by third parties.
Thus, the Consolidated Estate cannot sell its shares on the public market, as
there is not sufficient liquidity to absorb a sale of approximately 20
million shares of common stock. Any attempt to do so would result in a
collapse of the share price, and thus is not a viable option. For the same
reason, if the Consolidated Estate simply distributes its shares of common
stock directly to creditors, a collapse of the share price would also result
because most of the stock recipients could be expected to sell their shares
into the public markets without the benefits of the management and support of
an underwriting syndicate. Another alternative method would be a private
sale of the common stock to a single purchaser in a negotiated transaction,
or through a private placement. As detailed more extensively in the Butera
Affidavit, both of these forms of transaction involve a narrower marketing
effort than a public offering. In such cases, only selected potential
interested parties are approached, and a single party must be found that
wishes to purchase the entire position. By contrast, an underwritten public
offering, if it can be conducted, is a process that involves inherently
superior attributes. The public offering is marketed to thousands of
potential investors, none of whom need to purchase a significant percentage
stake. This enables the widest possible auction of the shares, and the most
efficient price discovery mechanism. The result is the highest possible
price for the Consolidated Estate as seller. Any time a public offering can
be conducted with a top ranked firm as underwriter (the analysis might be
different if the underwriting was being conducted by a small or regional
firm), the result is by definition the widest possible auction process. The
breadth of the marketing process and the resulting wide distribution of
shares leads to a price that is maximized by avoiding discounts for
illiquidity that would be present in other types of transactions.
13. CSFB believes that a sale to underwriters in a
registered public offering will allow the broadest access to the U.S.
investor market. This is most likely to result in the most favorable
competitive pricing than other alternatives because of an auction market
encompassing the broadest investor base, the liquidity provided to investors
and the research analysis regarding the stock provided to investors. Other
alternatives are not as likely to yield as high a price, have more risk of a
market downturn, have the potentiality of being disruptive to on-going
business operations, and are less predictable. Butera Affidavit at
Paragraphs 11-13.
E. Legal Authorities
14. Section 363(b)(1) provides that:
The trustee, after notice and a hearing, may . . .
sell . . . , other than in the ordinary course of
business, property of the estate.
15. The law in the Second Circuit is clear that property
of the estate may be sold outside of the ordinary course of business and
prior to the confirmation of a plan of reorganization if there is a "good
business reason." Committee of Equity Security Holders v. Lionel Corp. (In
re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir. 1983)(hereinafter, "Lionel").
See also, Licensing by Paolo, Inc. v. Sinatra (In re Gucci), 126 F.3d 380,
387 ("A sale of a substantial part of a Chapter 11 estate other than in the
ordinary course of business may be conducted if a good business reason exists
to support it.").
16. Moreover, the Second Circuit has specifically held
that a good business reason is present where "further delay risks that the
assets will be sold later and for less." Official Committee of Unsecured
Creditors v. LTV Corp. (In re Chateaugay Corp.), 973 F.2d 141, 144 (2d Cir.
1992). In LTV the parent debtor sought to sell substantially all the assets
of LTV Aerospace and Defense Company ("Aerospace"); Aerospace was an
administratively (but not substantively) consolidated debtor, all of whose
stock was owned by LTV. Id. at 143. Even though the bankruptcy court had
held that a reorganization plan for Aerospace was not presently feasible, the
court concluded that the sale was appropriate because of the risk of loss of
value. Id. at 143-44. The Second Circuit held:
What is presently feasible and necessary is a sale of
Aerospace's assets. The courts below found that further
delay risks that the assets will be sold later and for less.
* * * A sale now protects all creditors.
Id. at 144.
17. In In re Oneida Lake Development, Inc., 114 B.R. 352
(Bankr. N.D.N.Y. 1990), this Court approved the sale of substantially all of
the debtors' assets outside of a confirmed plan of reorganization. The Court
found that "to further delay the sale of this property . . . would serve no
beneficial purpose." Id. at 356.
18. As discussed in the attached Affidavit of
Mr. Butera, achieving the maximum potential value of the Equivest stock is
dependent on the public securities markets. In 1998, the U.S. equity market
has been at an all time price level high. Additionally, price earnings
multiples, which are a significant factor in determining the eventual public
offering price, were also at or near an all time high. Both the Trustee and
the Creditors' Committee have analyzed the situation and have concluded that
the creditors of the Consolidated Estate should attempt to sell all the
Consolidated Estate's shares and not run the risk of a decline in either the
market generally, or the multiples now obtainable for timeshare companies.
19. Accordingly, the sale of the Equivest stock will,
for good business reasons, eliminate the risk of a drop in the stock market
generally or in the multiples for timeshare companies. It will turn an
illiquid asset of the Consolidated Estate into money at an attractive market
price.
20. Although the mode of sale is not a common one in a
bankruptcy environment, it is nevertheless a straightforward sale of assets
which, under Lionel, may be authorized after consideration of "all salient
factors." Lionel, 722 F.2d at 1071. Any plan of reorganization that the
Trustee would propose would involve the liquidation of this asset -- the
Consolidated Estate's ownership of the Equivest common stock -- and thus
nothing is being proposed that would affect adversely any proposed plan of
reorganization. The net proceeds of the sale will be placed in a Trustee's
account and be subject to the provisions of the Bankruptcy Code and any plan
of reorganization confirmed by the Court after disclosure to creditors and
voting by creditors. Thus, there is no reason to delay the monetization of
this asset for all of the issues involved in a plan of reorganization to be
finally resolved.
21. The evidence presented by the attached Affidavits of
Mr. Butera and the Trustee demonstrate that there are good business reasons
for the Equivest stock to be sold now in a public offering. The law in the
Second Circuit, as expressed in Lionel and its progeny, clearly supports this
sale.
F. Underwriting Agreement; Marketing Process
and Pricing
22. Pursuant to an underwriting agreement to be entered
into by Equivest, the Consolidated Estate and the lead/co-lead managing
underwriters on behalf of the underwriting syndicate, will enter into a
"firm", or "fixed price", underwriting of the newly-issued shares to be sold
by Equivest and the outstanding shares to be sold by the Consolidated Estate.
Under a firm underwriting, the underwriters agree to buy the shares at an
agreed price and take the risk of reselling them to the public.<F4>
Butera Affidavit at Paragraph 19.
23. The pricing mechanism in an underwriting agreement
for a "firm" underwriting has two components. One is the "price to the
public." The other is the "underwriting discount." The parties negotiate a
price to the public and the underwriting discount, and the securities are
sold to the underwriters at a price equal to (a) the price to the public
minus (b) the underwriting discount. Butera Affidavit at Paragraph 18. As
stated above, once the securities are sold to the underwriters, the
underwriters take the risk of resale to the public. Butera Affidavit at
Paragraph 19.
24. Prior to the final setting of the public offering
price, the underwriters will, utilizing a preliminary prospectus filed with
the SEC, market the securities to both individual and institutional
investors. This marketing process will involve brokers contacting their
customers in an attempt to solicit interest in the proposed offering. There
will also be "road show" presentations at which Equivest management will make
a presentation concerning the company to security analysts and prospective
investors. During this process the underwriters will attempt to obtain
indications of interest from potential investors within the range of likely
price levels. Since the offering is to be effected by a "firm", or "fixed
price", underwriting in which the underwriters (not the Consolidated Estate
or Equivest) take the risk of the public actually purchasing the shares, the
underwriters will actually sign a definitive underwriting agreement
committing them to purchase the shares from the Consolidated Estate and
Equivest at a specific price only after the marketing process is complete and
they have received a sufficient amount of non-binding indications of interest
from prospective purchasers at specific pricing levels. Once the definitive
underwriting agreement is signed and the registration statement has become
effective with the SEC, the offering will be made immediately so that the
underwriters can promptly effect sales to prospective investors to avoid
further market risk.<F5> Butera Affidavit at Paragraphs 14-19.
25. The process of an underwritten public offering is
expected to take many weeks. A registration statement is prepared by the
company and the underwriters and their respective counsel for filing with the
SEC. The Consolidated Estate expects this filing with the SEC to occur in
mid-August. After the filing is made, the SEC reviews the registration
statement and gives comments. Those comments are addressed in an amended
registration filed with the SEC, at which time a preliminary prospectus is
printed and distributed by the underwriters to prospective investors.
26. As described above, the marketing process involves a
"road show" which is a series of intense and concentrated meetings between
management of the company and institutional investors. Having one of the
major or "bulge market" firms lead managing an offering gives any transaction
a greater chance of successful completion at an attractive price as those
firms, including CSFB, have the largest sales force and customer base to whom
the securities can be distributed. Thus, not only is a public offering
theoretically the widest possible auction market, having an investment
banking firm of CSFB's caliber being a managing or co-managing underwriter is
a substantial factor in making that a reality.<F6>
27. As stated above, CSFB has been engaged by Equivest
to advise it on the public offering and the Eastern Resorts acquisition and
affiliates of CSFB are lenders to Equivest/RFI. CSFB is not being engaged by
the Consolidated Estate and will not receive any compensation from the
Consolidated Estate. However, if the underwriting agreement is signed, CSFB
and the other underwriters will be able to purchase the shares of common
stock from the Consolidated Estate at the price to the public minus the
underwriting discount and resell such shares at the price to the public,
thereby earning the underwriting discount. As discussed above, the
underwriting process is a long one, particularly for a company that has not
recently sold securities on the public markets. It is customary to select
the lead and/or co-lead managing underwriters early in the process because of
the amount of due diligence and market effort that is required.<F7>
28. The Trustee, Equivest and the Creditors' Committee
have agreed that, in negotiations with the representatives of the underwriters,
they will form a Pricing Committee with respect to the sale of shares that
includes both primary shares sold by Equivest and secondary shares sold by the
Consolidated Estate, consisting of the following: the Trustee; Messrs. John
Petty and George Carmany, two independent directors of Equivest (as
representatives of Equivest), which will also be selling some newly-issued
shares to raise capital; and Messrs. Roger Odell, a member of the Creditors'
Committee, and Steve Cooper, a member of the Creditors' Committee's financial
advisors, as representatives of the Creditors' Committee. The Trustee,
Equivest and the Creditors' Committee have further agreed that the Pricing
Committee will act only by unanimous consent on the price to be obtained for
the securities at the end of the marketing process. Thus, the Consolidated
Estate's common stock will be sold in the public offering only if both the
Trustee and the Creditors' Committee, as well as the Equivest representatives,
agree.
29. As stated above, the price at which the Consolidated
Estate and Equivest will sell the shares to the underwriter will be the
public offering price minus the underwriting discount. As described in the
Butera Affidavit at Paragraph 18, the underwriting discount will be in the
range of 6 1/2-7% of the price to the public, which is within the range of
customary underwriting discounts for public offerings of this nature. In
addition, the proceeds actually received will be reduced by miscellaneous
expenses of the offering, primarily printing, legal and accounting expenses.
Equivest and the Consolidated Estate will incur some of these miscellaneous
expenses even if a transaction is not completed.
30. As a "controlling person" of Equivest under the
federal securities laws and as a selling stockholder, the Consolidated Estate
will have the potential for liability for any violations of the federal
securities laws in connection with the offering of Equivest's common stock to
the public. These liabilities generally relate to disclosure obligations
under the federal securities laws. As is customary, to mitigate this risk
Equivest has engaged separate counsel familiar with public offerings to
represent it in the offering.
G. Exchange of Series 2 Preferred
Stock into Common Stock
31. The Consolidated Estate owns, free and clear of
liens, 10,000 shares of Series 2 Preferred Stock, which is also the subject
of this Motion. A copy of the Designation of Rights and Preferences of the
Series 2 Preferred Stock ("Designation") is attached to the Trustee's
Affidavit. The Series 2 Preferred Stock is redeemable beginning in 2002 for
$10 million ($1,000 per share). See Designation at Paragraph E. It also has
a liquidation value of $1,000 per share. See Designation at Paragraph C.
Thus, the Series 2 Preferred Stock has an aggregate liquidation value of
$10,000,000. Additionally, the Series 2 Preferred Stock has voting rights
that entitles it to that number of votes which is equal to 20% of the total
number of votes of all of Equivest's voting stock. See Designation at
Paragraph D.
32. Accrued dividends on the Series 2 Preferred Stock
through June 30, 1998 are being paid by delivery of shares of common stock as
permitted by Paragraph B of the Designation.
33. For the reasons discussed below, the Board of
Directors of Equivest made a proposal to exchange the 10,000 shares of Series
2 Preferred Stock owned by the Consolidated Estate for 1,860,465 shares of
Equivest common stock. Using the liquidation value of the Series 2 Preferred
Stock of $10,000,000 implies a price to the Consolidated Estate for each
common stock share received of $5 3/8, which was slightly below the trading
price of the stock ($5 3/4) on July 7, 1998 when this transaction was
proposed to the Trustee. Using the $5 3/4 common stock trading price implies
a value to the Consolidated Estate of approximately $10,698,000. The Trustee
believes, and understands that the Creditors Committee believes, that this
proposal should be accepted.
34. As stated in the Trustee's Affidavit attached hereto
as Exhibit B, the Trustee believes that acceptance of the proposal provides
fair value to the Consolidated Estate for its Series 2 Preferred Stock. The
exchange will enhance the ability to sell the Consolidated Estate's presently
owned shares of Equivest common stock, because it removes a block vote of 20%
being held by the holder of the Series 2 Preferred Stock, which effectively
dilutes the voting power of the common stock holders. Elimination of the
preferred stock dividend requirement will also have the effect of increasing
the earnings per share of Equivest's common stock.
35. The exchange would also replace a security that is
illiquid (the Series 2 Preferred Stock) with publicly traded securities
(common stock) that can be sold to the underwriting syndicate in the public
offering.
H. Eastern Resorts
36. Equivest is negotiating to acquire Eastern Resorts,
which is New England's largest timeshare development and management company.
Eastern Resorts had total assets of approximately $29 million at May 31, 1998
and revenues of approximately $9.5 million and net income of approximately
$1.2 million for the five months ended May 31, 1998. The consideration for
the acquisition would be approximately 3,250,000 shares of newly-issued
Equivest common stock and $15 million in cash. Equivest and RFI would borrow
the $15 million portion of the cash consideration. The Consolidated Estate
would not have any liability for this indebtedness.
37. CSFB has been engaged by Equivest to assist in
analyzing the proposed acquisition of Eastern Resorts and to render an
opinion to Equivest as to the fairness to Equivest, from a financial point of
view, of the consideration to be paid by Equivest for the acquisition of
Eastern Resorts.
38. Equivest and its wholly-owned subsidiary Resort
Funding, Inc. ("RFI") anticipate borrowing from an affiliate of CSFB the $15
million portion of the cash consideration to be paid for the acquisition.
The interest rate would be 30-day LIBOR plus 3.00%. The loan would be
collateralized by RFI's interest in the following timeshare resort
properties: Debbie Reynolds, Killarney County Club, Ocean Gate, Pollard
Brook, and Surf Side Resort; there would be a cash sweep of all available
cash; and the loan would be cross-collateralized and cross-defaulted to all
other existing facilities from CSFB and its affiliates. CSFB would receive a
structuring advisory fee of 180,000 warrants to purchase Equivest common
stock, at $8.00 per share, for five years, pursuant to a commitment letter to
be entered into on or before the signing of the acquisition agreement. This
acquisition loan would mature on the earlier of (a) the closing of the public
offering of Equivest's common stock or (b) December 15, 1998. As stated in
the Trustee's Affidavit attached hereto as Exhibit B, in connection with the
"secondary" public offering of the estate's shares of Equivest common stock,
Equivest intends to make a "primary" public offering of its own shares and
use the proceeds thereof in part to pay off the acquisition loan from
CSFB.<F8>
39. In October 1997, the Trustee became a member of the
Board of Directors of Equivest as representative of the Consolidated Estate.
The acquisition agreement would provide that, after the acquisition, the
present owner and Chief Executive Officer of Eastern Resorts, Mr. R. Perry
Harris, will be elected to be an additional member of the Board of Directors
of Equivest. Immediately following the acquisition, Mr. Harris and his wife
would own approximately 12% of Equivest's common stock, and he would continue
to serve as Chief Executive Officer of Eastern Resorts as a subsidiary or
division of Equivest pursuant to a five year employment agreement.
40. As stated in the Trustee's Affidavit, the Trustee
believes that the acquisition of Eastern Resorts will over time increase the
dollar value of the Consolidated Estate's interest in Equivest. The resulting
company will have significantly greater assets than Equivest alone, and will
also be more diversified than Equivest prior to the acquisition. In addition
to its purely financial impact, the Eastern Resorts acquisition will benefit
Equivest, and indirectly the Consolidated Estate, in several other ways.
Eastern Resorts has several hundred employees, including a seasoned,
experienced and highly respected senior management team that has been
together for more than ten years. This will add significant additional depth
to the management resources of Equivest. A further advantage is that
timeshare development typically enjoys a considerably higher profit margin
than financing such activities. Moreover, by controlling a development
company, Equivest will not be solely dependent on the financing activities of
RFI, which is subject to considerable risks including but not limited to the
small size of RFI.
41. The Trustee has consulted extensively with the Plan
Subcommittee of the Creditors' Committee, the Committee's financial advisor,
Zolfo Cooper, LLC, and the full Creditors' Committee concerning all aspects
of this transaction. Zolfo Cooper has monitored the due diligence performed
by the staff of Equivest, CSFB and counsel for Equivest. The Trustee has
been advised that the Creditors' Committee supports the transaction in
concept subject to the finalization of the negotiations. Since Equivest is
not a debtor and since the transaction would not require shareholder
approval, Court approval would not be sought for the transaction.
I. Equivest Management
42. Equivest's Board of Directors consists of: the
Trustee, as a representative of the Consolidated Estate; Mr. John R. Petty, a
former Chairman of Marine Midland Bank and a former Assistant Secretary of
the Treasury for International Affairs; Mr. George W. Carmany, III, a former
senior officer of American Express Bank and Chairman of the Olympia and York
Noteholders' Steering Committee; and Mr. Thomas Hamel, the President and
Chief Operating Officer of Equivest and RFI. Mr. Hamel was induced to stay
with Equivest, as opposed to leaving after the Debtors' bankruptcy, by the
Trustee's efforts to stabilize, revitalize and expand RFI. Messrs. Petty and
Carmany were recruited to the Board by the Trustee.
43. CSFB has advised that one of the important
attributes of being able to sell the common stock of Equivest at a high
multiple of earnings is the quality of its Board of Directors. Butera
Affidavit at Paragraph 21.
44. The Creditors' Committee, after consultation with
CSFB, has stated that, based on its consultation with CSFB and CSFB's
analysis of the importance of the quality and continuity of Equivest
management to a successful public offering, the Creditors' Committee believes
that a continuing role of Mr. Breeden is an important factor in maximizing
the proceeds of the sale of the Consolidated Estate's shares of Equivest
common stock in the public offering. Accordingly, the Creditors' Committee
has requested that Mr. Breeden and the independent directors of Equivest
enter into negotiations for the retention of Mr. Breeden as the Chairman and
Chief Executive Officer of Equivest. Pursuant to the Creditors' Committee
request, Mr. Breeden will enter into negotiations with the independent
directors of Equivest for a more permanent role. There can be no assurance
at this time that Mr. Breeden and the Board of Equivest will reach agreement
concerning a continuing role for Mr. Breeden in Equivest after the public
offering. If an agreement on the terms and conditions of Mr. Breeden's
continuing role with Equivest is reached, it will be submitted to the Court.
J. Conclusion
45. The Trustee has long recognized the potential value
of the Consolidated Estate's stock in Equivest, even though it was near
bankruptcy at the time he was appointed in 1996. In order to fulfill his
duties to maximize value for the Debtors' creditors, the Trustee has spent
substantial time, and has undertaken a series of steps and transactions, in
order to develop that potential value. As stated in the Affidavit attached
hereto as Exhibit B, the Trustee believes that there are good business
reasons and it is in the best interests of the Consolidated Estate to now
sell its shares of Equivest common stock in a registered public offering as
described above in order to realize upon the value that has been developed.
This is not only the best alternative for selling the Consolidated Estate's
position, but it may also be the only practical alternative for selling such
a large block of stock.
46. Current market prices and availability of interested
buyers cannot be guaranteed. Therefore, the Equivest common stock should be
sold through this process while it is available to realize the largest
possible price for the Consolidated Estate. This offering will be very large
in size. The ability to execute such a large offering at an attractive price
is dependent on strong profitability and rates of growth at Equivest, robust
general market conditions, strong liquidity among institutional purchasers
such as mutual funds, investment interest in the timeshare sector, strong
prospective research coverage of the stock, a first tier underwriter with
substantial distribution capacity, and other factors. The difficulty of this
process should not be underestimated, and it is strongly in the Consolidated
Estate's interests to move forward immediately while all the necessary
factors are present.
47. In connection with the proposed public offering, it
is necessary to remove the disproportionate voting rights held by the Series
2 Preferred Stock, as that dilutes the voting rights of the common stock and
would impede the public offering of the common stock. Also, the exchange of
the Series 2 Preferred Stock into common stock would permit the Consolidated
Estate to own a security that could in turn be sold in the public offering.
WHEREFORE, the Trustee respectfully requests that the Court
(1) enter an order in the form attached hereto permitting him (a) to enter
into an underwriting agreement to sell all the Consolidated Estate's shares
of Equivest common stock to an underwriting syndicate of which CSFB will be
the lead or a co-lead underwriter at a price to the public and with an
underwriting discount to be agreed upon by the Pricing Committee as described
above and (b) to exchange the Consolidated Estate's Series 2 Preferred Stock
for 1,860,465 shares of Equivest common stock and (2) grant such other and
further relief as is just and equitable.
Dated: New York, New York
July 9, 1998
SIMPSON THACHER & BARTLETT
By: /s/ M.O. Sigal, Jr.
/s/ Kathrine A. McLendon
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M.O. Sigal, Jr. (508281)
Kathrine A. McLendon (506466)
425 Lexington Avenue
New York, New York 10017
Tel: (212) 455-2000
Fax: (212) 455-2502
Attorneys for Richard C. Breeden,
as Trustee
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[FN]
<F1> The Motion is to sell all of the common stock owned by the
Consolidated Estate at the time of the public offering. The precise
number of shares will vary because the Consolidated Estate expects to
receive additional shares (aggregating less than 500,000 shares)
before the public offering from a variety of transactions, including
dividends on the Series 2 Preferred Stock and the Hotel Syracuse
settlement. In addition, the Consolidated Estate would receive
1,860,465 additional shares of common stock if the exchange of the
Series 2 Preferred Stock is approved. Thus, at the time of the
proposed public offering, the consolidated Estate would most likely
own in excess of 22 million shares of Equivest common stock.
<F2> CSFB has been engaged by Equivest to advise it on the proposed public
offering. An affiliate of CSFB has extended to Resorts Funding, Inc.
a $75 million credit facility to finance the purchase of consumer
receivables and a $30 million credit facility to finance loans to
developers for the acquisition and development of timeshare projects.
CSFB has been engaged by Equivest to advise it on the proposed
acquisition of Eastern Resorts, and an affiliate of CSFB has agreed
to provide a $15 million credit facility to Equivest for it to obtain
the cash portion of the consideration to be paid for the acquisition
of Eastern Resorts. As a part of the public offering, Equivest
itself will sell newly issued shares of common stock to the public
for its own account and use the proceeds from the sale of those
shares to repay the Eastern Resorts acquisition loan and other
corporate purposes.
<F3> Because of the size of the Consolidated Estate's block of shares of
Equivest common stock, there is only a small amount of common stock
that trades on the public market. The multiples could be different
if the market for Equivest's common stock were not so "thin."
<F4> By contrast, in a "best efforts" underwriting, the underwriters agree
only to use their best efforts to sell the securities and the seller
is not guaranteed to receive a fixed price.
<F5> A copy of the form of underwriting agreement, without the to be
negotiated price to the public and underwriting commission, will be
filed with the Court before the hearing and will be provided upon
written request to counsel for the Trustee.
<F6> CSFB will form an underwriting syndicate and selling group involving
numerous other firms. Some other firms may be designated ultimately
as "co-managers" of the group along with CSFB.
<F7> While a competitive bidding mechanism is occasionally used for debt
securities of companies such as utilities who issue securities
frequently, that mechanism is not available for common stock of a
company like Equivest.
<F8> Equivest and RFI also anticipate borrowing an additional $11.5
million from the affiliate of CSFB for other corporate purposes,
which loan will also have an interest rate, maturity and other terms
substantially identical to the acquisition loan. This additional
loan effectively replaces a portion of CSFB's existing loans to
Equivest-RFI.