UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 2)
Check the appropriate box:
|X| Preliminary Information Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2)
|_| Definitive Information Statement
STRATEGIC CAPITAL RESOURCES, INC.
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(Name of Registrant as Specified In Its Chapter)
Payment of Filing Fee (Check the appropriate box)
|_| No fee required
|X| Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
Common Stock, $.001 Par Value
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(2) Aggregate number of securities to which transaction applies:
24,386
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
$25.00, based upon valuation by independent,
non-affiliated investment banking firm
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(4) Proposed maximum aggregate value of transaction:
$609,650.00
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(5) Total fee paid:
$49.32
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|_| 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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This information Statement is being provided for information purposes only.
WE ARE NOT ASKING FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
This Information Statement has been filed with the U.S. Securities and
Exchange Commission (the "SEC") and mailed on or about __________, 2003 to the
holders of record on _____________, 2003 (the "Record Date") of shares of common
stock, $.001 par value per share (the "Common Stock"), of Strategic Capital
Resources, Inc., a Florida corporation (referred to herein as the "Company"
and/or "Strategic"). This Information Statement is being furnished pursuant to
Section 14(c) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), in connection with the following action (the "Action").
On October 23, 2003, the Board of Directors of the Company (with David
Miller as the only director abstaining and no directors dissenting) held a
meeting whereby they approved the merger of "New Company Corp.", a Florida
corporation ("New Company") (formed by David Miller, Strategic's Chairman of the
Board, Chief Executive Officer, President, Chief Financial Officer and Chief
Accounting Officer, for purposes of engaging in a merger with Strategic), with
Strategic whereby Strategic would be the surviving entity (the "Merger"). On
_______, 2003, the majority shareholders of Strategic executed and delivered to
us a Written Consent to Corporate Action (the "Written Consent") whereby they
approved the Merger, pursuant to an Agreement and Plan of Merger, dated as of
_____________, 2003, by and between Strategic and New Company (the "Merger
Agreement").
Pursuant to such Merger Agreement, just prior to the Merger, David Miller;
Rita Miller (David Miller's wife); Scott Miller (David Miller's son); Helen
Miller Irrevocable Trust, Libo Fineberg, Trustee (a trust of which David Miller
is the sole beneficiary) and two entities of which David Miller is the sole
shareholder (hereinafter collectively referred to as the "Buyer Group") will
contribute their shares of Company Common Stock to New Company in exchange for a
number of whole shares of common stock of New Company equal to the number of
shares of Company Common Stock contributed by the Buyer Group to New Company.
Each shareholder (other than the shareholders comprising the Buyer Group who are
seeking to acquire Strategic and which will contribute their shares of Strategic
to New Company immediately prior to the Merger) would receive $25.00 cash,
without interest, per share (or pro-rata portion thereof as to fractional
shares) of Strategic Common Stock owned at the time of the Merger.
Such approval by the Board of Directors and by the holders of a majority of
the issued and outstanding shares of the Company's Common Stock is adequate
under Florida law to implement such Merger.
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TABLE OF CONTENTS
GLOSSARY 5
VOTING SECURITIES 7
SUMMARY TERM SHEET 7
Overview 7
The Parties 8
The Merger 8
Effects of the Merger 8
Purpose and Reasons for the Merger 8
Opinion of Investment Banking Firm 9
Approval of the Special Committee and Board of Directors 10
Interests of Certain Persons in the Merger 10
No Solicitation of Competing Transactions 10
Conditions to the Merger 10
Termination of the Merger Agreement 11
Federal Income Tax Consequences 11
Financing 11
Expenses 11
QUESTIONS AND ANSWERS 12
SPECIAL FACTORS 15
Background of the Merger 15
Purpose and Reasons for the Merger 18
Recommendation of the Special Committee 18
Recommendation of the Board of Directors 20
Opinion of Pali Capital, Inc. 21
The Buyer Group's Purpose and Reasons for the Merger 23
Position of the Buyer Group as to the Fairness of the Merger 23
Risks That the Merger Will Not be Completed 24
Conduct of the Business of Strategic If the Merger is Completed 24
Conduct of the Business of Strategic If the Merger is Not Completed 24
Interests of Certain Persons in the Merger 24
Advantages and Disadvantages of the Merger 25
Strategic and the Buyer Group 25
Shareholders Who are Not Members of the Buyer Group 27
Certain Effects of the Merger 28
Financing the Merger 28
Appraisal Rights 29
Fees and Expenses of the Merger 29
Anticipated Accounting Treatment of the Merger 29
U.S. Federal Income Tax Consequences of the Merger 29
Strategic and New Company 29
Shareholders Who Are Not Members of the Buyer Group 30
Members of the Buyer Group 30
Regulatory Matters 31
Litigation 31
Provisions for Unaffiliated Security Holders 31
Recent Transactions; Negotiations and Contacts 31
Pro Forma Financial Information 32
Other Financial Data 32
Market Prices and Dividend Information 32
Strategic Common Stock Purchase Information 33
Purchases by Strategic 33
Purchases by New Company 33
Transactions by Certain Members of the Buyer Group 33
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THE PARTIES 34
Strategic Capital Resources, Inc. 34
BENEFICIAL OWNERSHIP OF STRATEGIC'S SECURITIES 34
Directors and Executive Officers of Strategic 35
New Company 35
THE MERGER AGREEMENT 36
Structure and Completion of the Merger 36
Effect of the Merger on Capital Stock 36
Stock Options 36
Payment Procedures for Shareholders Who Receive Cash in the Merger 36
Stock Certificate Exchange Procedures for Members of the Buyer Group 37
Representations and Warranties 37
Ordinary Course of Business Covenant 38
Actions to be Taken to Complete the Merger 39
No Solicitation of Competing Transactions 39
Expenses 39
Director and Officer Liability 40
Conditions 40
Termination 41
CONTRIBUTION AGREEMENT 41
WHERE YOU CAN FIND MORE INFORMATION 42
DOCUMENTS INCORPORATED BY REFERENCE 43
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GLOSSARY
"American Depositary Receipts" or "ADRs" are receipts for shares of
foreign-based companies that entitle the shareholder to all dividends and
capital gains. ADRs allow American's to buy shares of foreign-based
corporation's securities on American stock exchanges instead of having to go to
overseas exchanges.
"Ask" or "Ask Price" means the lowest price at which someone is willing to
sell a security.
"Bid" means the highest price at which someone is willing to buy a
security.
"Broker/dealer" generally means any person who engages either for all or
part of their time, directly or indirectly, in the business of offering, buying,
selling or otherwise dealing in trading of securities issued by another person.
"Escheat" means a reversion of property to a state in the absence of legal
heirs or claimants.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fractional Share" means less than one (1) share.
"High" means the highest price at which a security has traded for the past
year.
"Low" means the lowest price at which a security has traded for the past
year.
"Market Maker" means a firm that publishes bid and/or ask price(s) for a
given security by using their own capital, research, retail and/or systems
resources. Market Makers compete with each other for orders to buy or sell at
publicly quoted prices (called making a market).
"N/A" means Not Available.
"NASD" means the National Association of Securities Dealers, Inc. which is
comprised of broker/dealers.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System, designed to facilitate over-the-counter stock trading.
"Odd Lot" means a number of shares less than 100.
"OTC" otherwise known as the "Grey Market" is the trading of a security
that is not listed on any stock exchange or quoted on the Pink Sheets or the
Over-the-Counter Bulletin Board ("OTCBB"). OTC trades are reported to the NASD
so investors can track price and volume, however, bids and offers are not
collected in a central location so best execution of orders is difficult.
"OTCBB" also known as Over-the Counter Bulletin Board or OTC Bulletin Board
is an electronic quotation medium for unlisted, non-NASDAQ, over-the-counter
securities. The OTCBB allows market makers to display firm prices for domestic
securities, foreign securities and ADRs that can be updated on a real-time
basis.
"Penny Stock" - is defined in Rule 3a51-1under the Exchange Act to mean,
generally, equity securities that have a market price of less than $5.00 per
share. Such designation imposes additional sales practice requirements pursuant
to Rule 15g-9 under the Exchange Act on broker/dealers which sell such
securities to persons other than established customers and institutional
investors. For transactions covered by these regulations, a broker/dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale.
"Pink Sheet" means the centralized quotation system that collects and
publishes market maker quotes for OTC securities in real time. Pink Sheets is a
nexus of OTC dealer markets that enhances price transparency in the OTC markets
so investors can more efficiently buy and sell OTC securities.
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"Public Company" generally means a company whose securities are listed for
trading on the Pink Sheets, OTC, OTCBB, NASDAQ or an established stock exchange
such as the New York Stock Exchange, Inc. or the American Stock Exchange, Inc.
and which, generally, files annual, quarterly, current and other reports with
the SEC.
"Restricted Securities" refers to securities which are issued by a company
in a private transaction, not registered under the Securities Act of 1933, as
amended, pursuant to an exemption from such registration requirements.
"Rule 144" refers to a rule designated as such promulgated by the SEC which
provides for a non-exclusive means by which a holder of "restricted securities"
may publicly sell such securities.
"SEC" means the U.S. Securities and Exchange Commission, which is the
primary federal regulatory agency responsible for administering federal
securities laws, promoting full disclosure and protecting investors against
fraudulent and manipulative practices in the securities markets.
Certain additional terms set forth in this Information Statement which not
defined above are defined where used herein.
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VOTING SECURITIES
As of the Record Date, there were issued and outstanding 77,190 shares
of Common Stock of the Company. Each share of Common Stock entitles its
holder to one vote.
The record and beneficial owners as of the Record Date of 52,804 shares of
Common Stock of the Company, constituting approximately 68.4% of the aggregate
number of issued and outstanding shares of Common Stock, have provided the
Company with the Written Consent approving and authorizing such Action. The
Company anticipates that such Action will become effective following a waiting
period of 20 calendar days from the date this Information Statement is mailed to
shareholders and the filing of Articles of Merger and Merger Agreement with the
Florida Secretary of State.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE U.S.
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE MERITS OR FAIRNESS OF THIS TRANSACTION NOR UPON THE ADEQUACY OR
ACCURACY OF THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SUMMARY TERM SHEET
This summary term sheet highlights selected information from this
Information Statement but does not contain all of the information that may be
important to you. We encourage you to read this Information Statement and the
attached appendices in full. The actual terms and conditions of the Merger are
contained in the Merger Agreement, which we have attached to this Information
Statement as Appendix A. The information contained in this summary term sheet is
qualified in its entirety by reference to the more detailed information
contained in this Information Statement.
Overview
We are furnishing this Information Statement to our shareholders for
informational purposes. The Merger Agreement provides that New Company, a
Florida corporation formed by David Miller to effectuate the Merger, will be
merged with and into Strategic and our shareholders, other than New Company (and
the Buyer Group), will receive $25.00 cash, without interest, for each share (or
pro-rata portion thereof as to fractional shares) of our Common Stock they own
at the effective time of the Merger. For purposes hereof, the term "share(s)" as
it relates to the Company's Common Stock means one or more shares of the
Company's Common Stock, including (a) fractional share(s) when discussing the
surrender of such securities pursuant to the Merger as well as discussion of
such securities generally.
As of the Record Date, the Buyer Group owned approximately 68.4% of
Strategic's outstanding Common Stock. Shares expected to be contributed to New
Company by all members of the Buyer Group constitute approximately 68.4% of
Strategic's outstanding shares as of the Record Date.
A special committee of Strategic's Board of Directors, comprised of the
following three non-employee directors: Samuel Weiss, Ralph Wilson and John H.
Roach, Jr. (the "Special Committee"), was formed by the Board of Directors to
investigate, consider and evaluate the going private proposal submitted by Mr.
Miller to the Board. While two of such Special Committee members hold an
aggregate of 1,557 shares of Company Common Stock, which shares will be
surrendered in connection with the Merger, in view of such de minimis number of
shares it was and is not believed that such share ownership constitutes a
meaningful conflict of interest. Such two Special Committee members will receive
in the aggregate $38,925 for their shares, representing approximately 6.4% of
the total aggregate cash consideration to be paid of $609,650 to Company
shareholders other than the Buyer Group. The Special Committee, after
consideration in which it was advised by its own legal advisor, unanimously
recommended to Strategic's Board of Directors that the Merger Agreement be
approved.
The Board of Directors, upon the recommendation of the Special Committee
and taking into consideration the fairness opinion rendered to the Company by an
independent non-affiliated investment banking firm, upon which opinion the
Special Committee is expressly authorized to rely, approved the Merger Agreement
and determined that their terms are fair to, and in the best interests of,
Strategic and its unaffiliated shareholders.
During the time the Merger Agreement was negotiated and at the time the
Merger Agreement was executed, David Miller was the Chairman of the Board, Chief
Executive Officer, President, Chief Financial Officer and Chief Accounting
Officer. At that time, it was also expected that David Miller would be a
shareholder, officer and director of New Company. Mr. Miller, therefore had a
direct conflict of interest with respect to the proposed transaction. In light
of this conflict of interest, David Miller abstained from voting at
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the Board of Directors meeting. None of the other board members, comprised of
Messrs. Weiss, Wilson and Roach, dissented or abstained from the vote regarding
this transaction.
The Parties (See also "THE PARTIES.")
- Strategic Capital Resources, Inc. whose principal operations consist
of the purchase and leaseback of fully furnished model homes complete
with options and upgrades, acquisition, development and sale of
residential real estate, and the purchase of multi-family residential
real estate (sold March 2003).
- David Miller, Chairman of the Board, Chief Executive Officer,
President, Chief Financial Officer and Chief Accounting Officer and a
shareholder, Rita Miller (David Miller's wife) Scott Miller (David
Miller's son), Helen Miller Irrevocable Trust, Libo Fineberg, Trustee
(a trust in which David Miller is the direct beneficiary), Lite `N
Low, Inc. and Priority Capital Corp., privately held companies of
which David Miller is the sole shareholder, have made an offer to
acquire Strategic through New Company. Throughout this Information
Statement, we will refer to such persons and entities that will
contribute their Strategic Common Stock to New Company immediately
prior to the Merger, as the "Buyer Group."
- New Company is a Florida corporation and was formed solely for the
purpose of effecting a merger with Strategic. Members of the Buyer
Group have agreed to contribute their shares of Strategic Common
Stock to New Company, immediately before the Merger, in exchange for
shares of New Company common stock, if the other closing conditions
in the Merger Agreement are satisfied.
The Merger (See also "THE MERGER AGREEMENT.")
- New Company will merge with and into Strategic, with Strategic
surviving the merger. The Merger will occur according to the terms
and conditions of the Merger Agreement, which is attached hereto as
Appendix A.
- The members of the Buyer Group will not receive any cash for their
shares of Strategic Common Stock that they contribute to New Company
because immediately before the Merger they will contribute those
shares to New Company in exchange for shares of New Company common
stock. At the closing of the Merger, New Company will cease to exist
as a separate entity, the shares of Strategic Common Stock owned by
New Company will be cancelled and cease to exist and the shares of
New Company common stock owned by the Buyer Group will be converted
into shares of Strategic Common Stock.
- Immediately following the Merger, the Buyer Group, which owned 100%
of the issued and outstanding shares of the common stock of New
Company, will own 100% of the issued and outstanding shares of the
Common Stock of Strategic. See "SPECIAL FACTORS - Certain Effects of
the Merger."
- The executive officers of Strategic immediately prior to the Merger
will be the executive officers after the Merger.
- The directors of Strategic immediately prior to the Merger will be
the directors of Strategic after the Merger.
Effects of the Merger (See "SPECIAL FACTORS - Certain Effects of the Merger.")
Purpose and Reasons for the Merger (See "SPECIAL FACTORS - Purpose and Reasons
for the Merger.")
The Board of Directors of Strategic has determined, for the reasons
discussed below and otherwise, that the Merger Agreement is in the best
interests of Strategic and its unaffiliated shareholders.
Strategic believes the Merger would:
- Afford unaffiliated shareholders who have been unable to sell
Strategic Common Stock because of the general lack of liquidity for
our Common Stock in the public market an opportunity to sell their
Strategic Common Stock, without incurring a brokerage commission, at
a price that represents the fair value as determined by Pali Capital,
Inc. ("Pali") an independent, non-affiliated investment banking firm
whose written fairness opinion to the Company was relied upon by the
Special Committee to determine the fair value of the shares; we were
advised by a broker/dealer that on October 8, 2003 that there was no
bid for our Common Stock, an offer of $9.00, and one market maker.
Subsequent thereto, we were advised by the broker/dealer that the
offer price was at one time $9.50 per share, and thereafter, for a
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short period of time, there was a $9.50 bid and no offer, and
currently, bid N/A and offer N/A. The last trade was reported by the
National Quotation Bureau to have occurred on June 12, 2003 at a
price of $10.00 per share;
- Eliminate the potential for unwarranted negative perceptions about
Strategic that may be based upon the performance of Strategic's stock
price;
- Increase management's flexibility to consider and initiate actions
that may produce long-term benefits and growth without the pressure
and expectation to produce quarterly earnings per share growth;
- Relieve Strategic of certain expenses inherent with being a public
company: during our last two fiscal years, we paid in excess of
$375,000 for accounting, legal, transfer agent, and related fees and
costs.
- Eliminate various obligations applicable to a public company,
such as those associated with complying with the reporting
requirements under the Exchange Act;
- Reduce the expense of administering to the accounts of small
stockholders, which comprise a majority of the Company's shareholders
(the Company currently has 697 shareholders of which 681 shareholders
hold less than 100 shares);
Opinion of Investment Banking Firm (See "SPECIAL FACTORS - Opinion of Pali
Capital, Inc.")
- The Special Committee relied upon Pali's written fairness opinion
to determine the fair value of the shares in connection with the
Merger.
- On October 21, 2003, Pali delivered to the Special Committee a
written fairness opinion dated July 30, 2003, previously provided by
Pali to the Company's Board of Directors, upon which fairness opinion
Pali advised that the Special Committee is authorized to rely,
wherein it determined from a financial point of view to the Company
that the fair value of the stock to be received by Strategic's
shareholders, other than New Company, in connection with the Merger
is $25.00 per share (pro-rata portion thereof for fractional shares),
without interest and that such price per share is fair to Strategic's
shareholders.
- A copy of Pali's written opinion, which describes the assumptions
made, matters considered and limitations on the review undertaken in
connection with the opinion, is included as Appendix B to this
Information Statement, which you should read carefully and in its
entirety. We will make a copy of such written opinion available free
of charge upon written request addressed to the Company at its
address and/or email address set forth below:
Investor Relations Department
Strategic Capital Resources, Inc.
7900 Glades Road, Suite 610
Boca Raton, FL 33434
Telephone: 561-558-0165
Telecopier: 561-558-1092
Email: jjfn@earthlink.net
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Approval of the Special Committee and Board of Directors (See "SPECIAL FACTORS -
Recommendation of the Special Committee and - Recommendation of the Board of
Directors.")
- The Special Committee unanimously recommended to the Board of
Directors that the Board approve the Merger Agreement.
- Based on the recommendation of the Special Committee and taking into
account various factors including the opinion of Pali, the Board of
Directors determined that the terms of the Merger Agreement are fair
to, and in the best interests of, Strategic and its unaffiliated
shareholders, and recommended that the shareholders approve the
Merger Agreement.
Interests of Certain Persons in the Merger (See "SPECIAL FACTORS Interests of
Certain Persons in the Merger.")
- Members of the Buyer Group have interests in the Merger that may be
different from and in addition to your interests.
- Shares expected to be contributed to New Company by all members
of the Buyer Group constitute approximately 68.4% of Strategic's
outstanding shares of Common Stock.
No Solicitation of Competing Transactions (See "THE MERGER AGREEMENT - No
Solicitation of Competing Transactions.")
- The Merger Agreement prohibits Strategic from soliciting, initiating
or encouraging any competing transaction to the Merger contemplated
by the Merger Agreement.
- However, the Company's Board of Directors may, in response to any
unsolicited inquiry or proposal for a competing transaction, furnish
information or engage in discussions.
- Following receipt of a bona fide proposal relating to a competing
transaction, the Company's Board of Directors may withdraw or modify
its recommendation or disclose to Strategic's shareholders its
position or recommendation on the competing transaction.
- There is no breakup fee payable to New Company in the event that
Strategic enters into a competing transaction. However, New Company
may terminate the Merger Agreement if Strategic engages in
discussions or negotiations with a third party or group with respect
to a competing transaction and does not terminate such discussions
within ten business days. Upon such termination, Strategic must pay
all fees and expenses of New Company and the Buyer Group relating to
the Merger Agreement.
Conditions to the Merger
The obligations of each party to complete the Merger depend on the
following condition:
- the absence of any legal prohibitions to the consummation of the
Merger.
The obligation of Strategic to complete the Merger depends on the following
conditions:
- the satisfactory performance by New Company of its agreements and
covenants under the Merger Agreement; and
- the absence of any withdrawal or modification of Strategic's Board
of Directors approval or recommendation of the Merger.
The obligation of New Company to complete the Merger depends on the
following condition:
- the satisfactory performance of Strategic of its agreements and
covenants under the Merger Agreement.
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Termination of the Merger Agreement (See "THE MERGER AGREEMENT - Termination.")
The Merger Agreement may be terminated for several reasons, including if:
- Strategic and New Company mutually agree in writing to terminate the
Merger Agreement;
- the Merger is not completed on or prior to December 31, 2003 and the
closing date has not otherwise been extended by the parties;
- Strategic engages in discussions or negotiations with a third party
or group with respect to a competing transaction and does not
terminate such discussions within ten business days thereafter;
- at any time after the date of the Merger Agreement, there shall have
occurred a material adverse effect on or change in the business,
results of operations or financial condition of Strategic and its
subsidiaries on a consolidated basis or the ability of Strategic to
consummate the Merger primarily due to significant acts by any civil
or military authority, terrorist acts, national emergencies,
disturbances, insurrections, riots or wars or the commencement or
overt threat of litigation material to Strategic and its
subsidiaries, taken as a whole;
- there has been a breach by either party of any material
representation, warranty, covenant or agreement set forth in the
Merger Agreement; or
- the Board of Directors or Special Committee find, after consultation
with outside legal counsel, that completing the Merger would be
inconsistent with the Board of Directors' fiduciary duties under
applicable law or otherwise withdraws or materially modifies its
approval of the Merger.
Federal Income Tax Consequences (See "SPECIAL FACTORS - U.S. Federal Income Tax
Consequences of the Merger.")
- The receipt of the cash merger consideration will be a taxable
transaction to you for U.S. federal income tax purposes and may be a
taxable transaction for foreign, state and local income tax purposes
as well. For U.S. federal income tax purposes, you will recognize
gain or loss measured by the difference between the amount of cash
received in exchange for your shares of Common Stock and the amount
of your tax basis in such shares.
- You should consult your own tax advisor regarding the U.S. federal
income tax consequences of the Merger, as well as any tax
consequences under state, local or foreign laws.
Financing (See "SPECIAL FACTORS - Financing the Merger.")
The Merger will be financed by existing cash, cash equivalents and working
capital (which includes recent loans in the aggregate amount of $1,100,000 made
by David Miller, Lite `N Low, Inc. and Priority Capital Corp., privately held
companies of which David Miller is the sole shareholder, Rita Miller and Scott
Miller for the acquisition of new model homes, in addition to loans by Rita
Miller and Scott Miller aggregating $150,000 as of June 30, 2003, all of which
loans bear interest at 9% per annum and are payable on demand) of Strategic, net
of amounts necessary for ongoing needs of Strategic, estimated at $609,650 as of
the effective time of the Merger.
Expenses (See "SPECIAL FACTORS - Fees and Expenses of the Merger" and "THE
MERGER AGREEMENT - Expenses.")
Generally, Strategic will pay all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated by the Merger
whether or not the Merger is consummated. New Company and the Buyer Group will
pay Strategic's costs and expenses, however, if the Merger Agreement is
terminated because:
- New Company breaches, and does not timely cure, any material
representation, warranty, covenant or agreement such that any of the
conditions set forth in the Merger Agreement would not be satisfied;
and
Strategic will pay New Company's and the Buyer Group's costs and expenses
if the Merger Agreement is terminated because:
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- the Company's Board of Directors or Special Committee determines in
good faith, after consultation with legal counsel, that failure to
terminate the Merger Agreement would be inconsistent with the
Company's Board of Directors fiduciary duties under applicable law;
- Strategic breaches, and does not timely cure, any material
representation, warranty, covenant or agreement such that any of the
conditions set forth in the Merger Agreement would not be satisfied;
- the Board of Directors of Strategic or the Special Committee shall
have withdrawn or materially modified, in a manner adverse to New
Company, its approval or recommendation of the Merger, or resolved to
do so; or
- Strategic engages in discussions or negotiations with a third party
or group with respect to a competing transaction and does not
terminate such discussions within ten business days thereafter.
QUESTIONS AND ANSWERS
The following questions and answers are intended to briefly address some
commonly asked questions regarding the Merger. These questions and answers may
not address all questions that may be important to you as a shareholder. Please
refer to the more detailed information contained elsewhere in this Information
Statement, the appendices to this Information Statement and the documents
referred to or incorporated by reference in this Information Statement.
WHO ARE THE PARTIES TO THE MERGER?
The parties to the Merger are New Company, an entity formed by David Miller
to effectuate the Merger, and Strategic.
WHO IS PALI?
Pali Capital Inc. ("Pali") is an internationally recognized investment
banking firm engaged in, among other things, the valuation of businesses and
their securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, and negotiated underwritings. Pali is a SEC-registered
broker/dealer located in New York, New York and was established in 1995. The
firm is regulated by the National Association of Securities Dealers, Inc. and is
a member of the Securities Investor Protection Corporation, with access to all
domestic and foreign stock exchanges. In addition to its specialty hedge fund
client base, Pali provides broker services and acts as a market maker on behalf
of its clients. Pali executes transactions in the following markets: U.S.
equities, European equities, ADRs, stock exchange listed and OTC stock and index
options, initial public offerings and secondary offerings, U.S. Government and
corporate bonds and international corporate and sovereign fixed income
securities.
WHAT WILL I BE PAID FOR MY STRATEGIC COMMON STOCK?
You will receive $25.00 for each share (pro-rata portion thereof for
fractional shares) of our Common Stock owned by you at the effective time of the
Merger. The purchase price per share (pro-rata portion thereof for fractional
shares) represents the fair value as determined by Pali, an independent
non-affiliated investment banking firm whose written fairness opinion was relied
upon with Pali's permission by the Special Committee for such purpose. The full
price due to you will be paid to you in cash. We will not pay any interest on
the purchase price.
WILL I HAVE TO PAY BROKERAGE COMMISSIONS IF I SURRENDER MY SHARES?
No. There will be no commissions as a result of your participation in this
offer.
WHEN WILL I RECEIVE MY MONEY?
Promptly after receipt of your letter of transmittal and stock
certificate(s), or in the event your stock certificate is lost or stolen,
receipt of an affidavit (and if required, an indemnity bond), your check will be
mailed to the address set forth in your letter of transmittal. Please allow
sufficient time for the U.S. Postal Service to deliver your check.
WHEN WILL I RECEIVE THE TRANSMITTAL LETTER?
As soon as practicable, but no more than five business days after the
completion of the Merger, Strategic will instruct the payment agent to mail to
the record address for each holder of a share certificate (other than holders
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who are members of the Buyer Group and will contribute shares to New Company), a
letter of transmittal and instructions on how to surrender the certificates in
exchange for the Merger consideration.
DO I HAVE TO SURRENDER MY SHARES?
Yes, the Merger Agreement provides for the purchase of all shares of the
Company's Common Stock other than that stock owned by New Company.
CAN I SURRENDER LESS THAN ALL OF MY SHARES?
No, you must surrender all of your shares.
WHAT HAPPENS IF I DO NOT SURRENDER MY STOCK CERTIFICATES/SHARES?
Each share or fractional share of Common Stock owned by you immediately
prior to the Merger will cease to exist at the time of the Merger, and you will
no longer have any rights with respect to such shares or fractional shares,
except the right to receive cash consideration.
You will not receive the cash consideration until such time as you have
returned your stock certificate or submitted an affidavit (and if required, an
indemnity bond) stating such stock certificate has been lost and/or stolen.
Unclaimed cash consideration will, pursuant to applicable law, escheat to the
state where you reside. For example, if you reside in Florida or New York,
unclaimed cash consideration will escheat to the State after five (5) years. YOU
WILL LOSE YOUR ENTIRE INVESTMENT IF YOU DO NOT SURRENDER YOUR STOCK
CERTIFICATES/SHARES OR AFFIDAVIT WITHIN THE TIME PERIOD APPLICABLE TO YOU, WHICH
DEPENDS UPON THE ESCHEAT LAWS OF THE STATE IN WHICH YOU RESIDE.
CAN I TAKE A TAX LOSS IF I DO NOT SURRENDER MY STOCK CERTIFICATES/SHARES?
You may have a tax loss whether you surrender or do not surrender your
stock certificates/shares and you should consult with your own tax advisor
concerning this matter.
SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
No, Strategic will send you, after the Merger is completed, written
instructions for surrendering your stock certificates. You must return your
stock certificates as described in those instructions to receive the cash
payment in connection with the Merger.
WHAT IF I LOST MY STOCK CERTIFICATE?
If your stock certificate has been lost, stolen or destroyed, you will be
required to sign an affidavit to that effect and may be required by the
surviving corporation, Strategic, to post a bond in a reasonable amount as an
indemnity against any claim that could be made against Strategic in respect of
such lost, stolen or destroyed stock certificates. After delivering an
affidavit, and if required a bond, Strategic will deliver the applicable amount
of cash in respect of such shares. Such form of affidavit will accompany the
letter of transmittal.
HOW WILL THE $25.00 PURCHASE PRICE PER SHARE (OR PRO-RATA PORTION THEREOF AS TO
FRACTIONAL SHARES) BE FUNDED?
We will provide our payment agent, Continental Stock Transfer & Trust
Company, with funds periodically as needed to satisfy our payment obligations.
REPRESENTATIONS OF SURENDERING STOCKHOLDERS.
A surrender of shares (or pro-rata portion thereof as to fractional shares)
by you will be treated as a representation by you that (i) you are the
beneficial owner of the shares; (ii) you are surrendering all of your shares;
and (iii) you hold a net long position in our Common Stock equal to the number
of surrendered shares. You are also deemed to represent that you own the
surrendered shares free and clear of any liens or other encumbrances and have
the authority to sell the surrendered shares to us. It is a violation of federal
securities laws for anyone to surrender shares unless, at the time of surrender,
the surrendering person (1) has a net long position equal to or greater than the
number of shares surrendered and (2) will deliver, or cause to be delivered, the
shares in accordance with the terms of the offer. You must also agree to
complete any additional documents that we request in order to complete the
surrender of your shares to us.
13
WHY IS STRATEGIC ENTERING INTO THE MERGER?
We are entering into the Merger to reduce the number of holders of record
of our Common Stock and thereafter to terminate the registration of our Common
Stock under the Exchange Act. By so doing, we will no longer be required to file
periodic reports and proxy materials with the SEC. Preparation of these SEC
reports and proxy materials involves substantial costs. In addition, as a
reporting company we are subject to a substantial number of requirements
regarding our corporate governance, many of which have been imposed within the
past twelve months as a result of the Sarbanes-Oxley legislation enacted by
Congress in the wake of the Enron scandal. These remedial measures, while well
intended, have imposed significant additional costs on companies which file
reports under the Exchange Act, and these costs, and the associated incremental
demands on management's time, are particularly burdensome for small companies,
such as Strategic.
By ceasing to be a reporting company under the Exchange Act, we expect to
achieve substantial cost savings. In addition, we believe the offer will provide
an economical means for small holders of our Common Stock to sell their shares
(or pro-rata portion thereof as to fractional shares) at fair value, as
determined by Pali, without incurring any brokerage commissions.
MAY I EXERCISE APPRAISAL RIGHTS IN THE MERGER?
Yes, under Florida law, holders of shares who oppose the merger are
eligible for appraisal rights in accordance with applicable Florida law. See
"SPECIAL FACTORS - Appraisal Rights" and Appendix C attached hereto.
WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
We hope to complete the Merger on or before December 31, 2003.
WILL THE COMPANY STILL BE SUBJECT TO THE REPORTING REQUIREMENTS OF THE EXCHANGE
ACT?
No. As of September 29, 2003, we had 697 shareholders of record; 681 of
such shareholders are odd lot or fractional shareholders. By reducing our number
of shareholders of record below 300, we will no longer be required to file
periodic and other reports and proxy materials with the SEC. Preparation of
these SEC reports and proxy materials involves substantial costs and a
substantial number of requirements regarding our corporate governance, many of
which have been imposed within the past twelve months as a result of the
Sarbanes-Oxley legislation enacted by Congress in the wake of the Enron scandal.
These remedial measures, while well intended, have imposed significant
additional costs on listed companies, and these costs, and the associated
incremental demands on management's time are particularly burdensome for
companies such as Strategic. If we cease to be a reporting company, we expect to
achieve substantial costs savings. Thereafter, our Common Stock may be quoted on
the OTC but we cannot predict whether or not this will occur or that an active
market will ever exist for our Common Stock.
WHOM CAN I CONTACT IF I HAVE ADDITIONAL QUESTIONS ABOUT THE MERGER?
If you have additional questions about the Merger, you may contact:
Investor Relations Department
Strategic Capital Resources, Inc.
7900 Glades Road, Suite 610
Boca Raton, FL 33434
Telephone: 561-558-0165
Telecopier: 561-558-1092
Email: jjfn@earthlink.net
WHAT IS THE "OTC?"
"OTC," otherwise known as the "Grey Market" is the trading of a security
that is not listed on any stock exchange or quoted on the Pink Sheets or the
Over-the-Counter Bulletin Board ("OTCBB"). OTC trades are reported to the NASD
so investors can track price and volume, however, bids and offers are not
collected in a central location so best execution of orders is difficult. While
information about the Company may only be obtained by accessing the Pink Sheets,
the Company's securities are not quoted or listed for trading on the Pink Sheets
or the OTCBB, and the Pink Sheets serve only as a medium pursuant to which
information may be obtained.
14
See also "Market Prices and Dividend Information" herein.
WHAT DOES "ASK PRICE" MEAN?
The ask price is the lowest price at which someone is willing to sell a
security.
WHAT DOES "BID PRICE" MEAN?
The bid price is the highest price at which someone is willing to buy a
security.
WHAT DOES "HIGH PRICE" MEAN?
The high price is the highest price at which a security has traded for the
past year.
WHAT DOES "LOW PRICE" MEAN?
The low price is the lowest price at which a security has traded for the
past year.
WHAT DOES "N/A" MEAN?
N/A means not available.
IF THE MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS AND A LETTER OF
TRANSMITTAL REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES. YOU SHOULD NOT
SEND YOUR STOCK CERTIFICATES UNTIL YOU RECEIVE THESE INSTRUCTIONS.
SPECIAL FACTORS
Background of the Merger
Due to the substantial legal and audit expenses, increased time demands on
management as a result of the Company's reporting obligations under the Exchange
Act, and, more recently, increased corporate governance standards imposed within
the past twelve months as a result of the Sarbanes-Oxley legislation, the
Company has, for several years, been contemplating terminating its status as a
reporting company under the Exchange Act.
Accordingly, Mr. David Miller undertook a comprehensive review in
consultation with the other members of the Company's Board of Directors of our
cost structure, including the relative costs and benefits of our status as a
reporting company and concluded that the Company was deriving virtually no
benefit from our status as a public company. Such review, which is ongoing,
entailed review and discussion by Mr. Miller with one or more of the other Board
members of the matters described below on the dates set forth below: February
24, 2003 - Messrs. Roach and Weiss; March 10, 2003 - Messrs. Wilson, Roach and
Weiss; March 25, 2003 - Messrs. Wilson, Roach and Weiss; April 14, 2003 - Mr.
Weiss; April 18, 2003 - Mr. Wilson; May 5 - May 9, 2003 - Messrs. Wilson, Roach
and Weiss; June 12, 2003 - Mr. Roach; June 13, 2003 - Messrs. Roach and Wilson;
June 16, 2003 - Mr. Roach; June 17, 2003 - Mr. Roach; June 18, 2003 - Mr. Weiss;
June 23, 2003 - Messrs. Roach and Weiss; June 26, 2003 - Mr. Wilson; June 30,
2003 - Messrs. Wilson, Roach and Weiss; July 1, 2003 - Mr. Weiss; July 2, 2003 -
Mr. Weiss; additional telephonic discussions between various members of the
Board of Directors between July 24, 2003 and September 17, 2003; September 30,
2003 - Mr. Wilson; October 3, 2003 - Mr. Wilson; October 31, 2003 - Messrs.
Wilson, Roach and Weiss; November 4, 2003 - Mr. Wilson; November 10, 2003 - Mr.
Wilson; and November 12, 2003 - Mr. Weiss:
- no analyst or any brokerage firm interest;
- our small public float and no institutional following;
- our virtually non-existent trading volume, lack of liquidity and no
bid price;
- the inability to find a financially sound third party interested in
doing a transaction with Strategic; prior informal discussions with
third parties (including, but not limited to, discussions with First
Liberty Investment who served as an advisor to Finantra Capital, Inc.
and the Company in connection with a possible business transaction,
and AON, Inc. who served as an advisor to Actrade Financial
15
Technologies, Inc. and the Company in connection with a possible
business transaction) in the past did not proceed in any meaningful
fashion since all of the potential acquirors sought to effect a
transaction on terms unfavorable to the Company (utilizing inflated
stock as compensation to Company shareholders in lieu of cash).
Additionally, the Company's decline in revenue producing assets (the
Company's revenues for March 31, 2002 were $105,455,432 and declined
each quarter to $50,854,708 as of September 30, 2003) since March
2002 would most likely hinder the Company's ability to attract such
third parties;
- low return on shareholders' equity;
- the Board's conclusion that there is little likelihood that the
liquidity of our Common Stock will improve in the future or achieve
significant market value;
- the small market capitalization of Strategic (approximately $240,000,
based upon share ownership by shareholders other than the Buyer
Group, and based upon a last sale price in June 2003 of $10.00 per
share);
- the performance of our stock price (virtually no trading activity in
our Common Stock during the prior twelve months with sporadic bid/ask
information available during such time period);
- our Common Stock is not eligible for listing on NASDAQ or any stock
exchange as we do not meet their respective initial listing
requirements;
- prohibition of purchases of our Common Stock by stock brokerage firms
which informally view our shares of Common Stock as "penny stock"
(notwithstanding that we meet the net tangible asset test exemption
from such definition) and impose sales restrictions for prospective
purchases of such shares by other than established customers and
institutional investors;
- due to our limited size (there are a number of companies which
compete with the Company having substantially greater capital
resources, assets, loan and credit lines, personnel, and other
resources than the Company) and variable operating results (our
revenue and other income, costs and operating expenses and earnings
per share have historically been, and are, on a quarterly and annual
basis subject to material variation; by way of example, our total
revenues and other income, total costs and operating expenses and
earnings per share for the three months ended September 30, 2003 were
$1,844,530, $1,494,076 and $3.35 per share compared to $2,493,834,
$2,142,424 and $2.51 per share, respectively for the three months
ended September 30, 2002; our total revenues and other income, total
costs and operating expenses and earnings per share for the fiscal
year ending June 30, 2003 were $9,463,270, $8,351,420 and $11.35 per
share compared to $11,340,252, $9,373,465 and $10.79 per share,
respectively for the fiscal year ending June 30, 2002 and $9,542,077,
$9,451,838 and $(.85) for the fiscal year ending June 30, 2001), we
do not have ready access to the capital markets); and
- costs associated with being a reporting company have been and
continue to be rising; during our last two fiscal years, we paid in
excess of $375,000 for accounting, legal, transfer agent, and related
fees and costs.
Commencing in 2000, we implemented a Common Stock repurchase program. As of
June 30, 2003, 10,368 (post-reverse split) shares had been purchased under this
program at a cost of $457,999 or $44.17 per share adjusted for our 200 to 1
reverse stock split effected in June 2002. We did not purchase any shares during
our fiscal years ended June 30, 2003 and 2002.
Commencing in March 2003 and continuing through August 2003, the members of
the Company's Board of Directors held informal telephonic discussions among
themselves from time to time during such time period in which they considered
the Company undertaking to purchase odd lot and/or fractional shares at a fair
value price per share (or pro-rata portion thereof as to fractional shares) to
be determined by an investment banking firm retained for the purposes of such
valuation. However, in view of the concern that certain holders of fractional
shares and odd-lot shares would not make the effort to return their certificates
and that many other Company shareholders would probably not respond due to the
Company's transfer agent not having current addresses for certain of such
persons and others being deceased, the Board of Directors informally determined
that this course of action was not viable and that the Company shareholder base
would in all likelihood remain above 300, requiring the Company to continue to
report to the SEC under the Exchange Act.
The informal telephonic discussions referenced above occurred on the dates
set forth below between each of Mr. Miller and the Board member(s) identified
below: March 10, 2003 - Messrs. Roach and Wilson; March 25, 2003 - Messrs.
Wilson, Roach and Weiss; April 14, 2003 - Mr. Weiss; April 18, 2003 - Mr.
Wilson; May 5 - May 9, 2003 - Messrs. Wilson, Roach and Weiss; June 12,
16
2003 - Mr. Roach; June 13, 2003 - Messrs. Roach and Wilson; June 16, 2003 - Mr.
Roach; June 17, 2003 - Mr. Roach; June 18, 2003 - Mr. Weiss; June 23, 2003 -
Messrs. Roach and Weiss; June 26, 2003 - Mr. Wilson; June 30, 2003 - Messrs.
Wilson, Roach and Weiss; July 1, 2003 - Mr. Weiss; July 2, 2003 - Mr. Weiss; and
additional telephonic discussions between various members of the Board of
Directors between July 24, 2003 and early August 2003.
In June 2003, the Company's Board of Directors also informally determined
to consider the fair value per share in the event the Company were to make an
offer to purchase its shares of common stock from existing shareholders. Such
determination was made as a result of the discussions described above that
occurred during June 2003 between the Company's various Board members. Pali, an
independent, non-affiliated, investment banking firm, was then retained by the
Company in July 2003 to determine the fair value of the Company's stock.
In July 2003, pursuant to the discussions referenced above at the end of
June 2003 and early July 2003, Mr. Miller informally proposed to the Company's
Board of Directors prior to the retention and issuance of the Pali opinion on
July 30, 2003 that the Company seek to repurchase Company Common Stock at a
premium to its then current bid/ask/last sales price per share from Company
shareholders, other than the Buyer Group, thus eliminating the Company's
reporting obligations and providing the Company's unaffiliated shareholders an
opportunity to liquidate their Common Stock at a price that represents a premium
over the then last offer price of $9.50 per share (thereafter, for a short
period of time, there was a $9.50 bid and no offer, and currently, no bid and no
offer. The last trade was reported by the National Quotation Bureau to have
occurred on June 12, 2003 at a price of $10.00 per share).
The specific terms of the current going private transaction, including how
the amount to be offered was agreed upon, were negotiated as follows: The Buyer
Group initially believed that a small premium over the then bid price of the
Company's Common Stock was reasonable and, accordingly, expressed a willingness
to pay the last sale price in June 2003 of $10.00 per share. The Company's
outside directors expressed their view that since the Company's Common Stock
traded at less than book value, it would be appropriate that a higher price than
the last sale price be established. Since the Company's stock historically had
not traded at greater than 20% of its book value for the last few years, the
Buyer Group and the Company's outside directors found it difficult to arrive at
a dollar figure which would be both fair to the unaffiliated shareholders and
the Buyer Group. Pali was then retained to determine the fair value to both the
Company and unaffiliated shareholders. Mr. Miller, as representative of the
Buyer Group, concluded that subject to the Buyer Group's determination as to the
reasonableness of the valuation to be established by Pali, and the conclusions
and findings of a to-be-formed Special Committee, that the Buyer Group would
agree to such valuation. The outside Directors were of the view that, subject to
the conclusions of the Pali opinion and the conclusions and findings of a
to-be-formed Special Committee, that such valuation may also be appropriate.
In August 2003, the Board of Directors then sought to evaluate such
proposed transaction as a means of going private and a Special Committee,
comprised of three non-employee directors (comprised of Messrs. Weiss, Wilson
and Roach) was formed on August 15, 2003 by the Board of Directors to
investigate, consider and evaluate the going private proposal.
Due to there being no material change concerning the Company's current and
planned business and operations, competitive stance within the marketplace,
continued lack of stock market activity, and Pali's familiarity with the Company
due to their recent evaluation during July 2003, the Special Committee
determined it appropriate in connection with the proposed Merger to utilize
Pali's July 30, 2003 fairness opinion upon which the Special Committee was
expressly authorized, in writing, to rely by Pali on October 21, 2003, to
determine the fair value of the Company's Common Stock. The Special Committee
was of the view that Pali's prior recent engagement by the Company and the
Special Committee's reliance upon Pali's prior fairness opinion did not pose a
conflict of interest in view of the factors set forth above and that, therefore,
additional fees should not be unjustifiably expended for a fairness opinion from
another investment banking firm. The Special Committee also retained in early
September 2003 its own legal counsel, Andrew I. Telsey, P.C. (which counsel has
performed certain legal services on behalf of the Company in the past as outside
counsel but not in connection with the Merger) in connection with such Merger.
See "QUESTIONS AND ANSWERS - Who is Pali?" and "SPECIAL FACTORS - Opinion of
Pali Capital, Inc."
The Special Committee, after consideration and a review of other going
private transactions (Deltek Systems, Inc., Rampart Capital Corporation, Siena
Holdings, Inc. and Citizens Bancshares Inc., as well as numerous others filed
with the SEC), and in reliance upon the Pali fairness opinion and advice of its
own legal advisor, unanimously recommended to Strategic's Board of Directors on
October 22, 2003 that this offer was the best means to achieve the objectives
described in "Purpose and Reason for the Merger."
Pursuant to a written consent of the Board of Directors on October 23, 2003
(with David Miller as the only director abstaining and no board members
dissenting), the Merger was approved and the Board of Directors (with David
Miller abstaining) concurred with Pali's recommendation regarding the purchase
price.
17
Purpose and Reasons for the Merger
Until November 20, 2002, our Common Stock was traded on the OTCBB under the
symbol "SCPI." Our Form 10-K, as amended, for the fiscal year ending June 30,
2002 was not timely filed with the SEC and, therefore, our Common Stock was
delisted from trading on the OTCBB. As of the date of this Information
Statement, our Common Stock is listed for trading on the OTC under the symbol
"SCPI." There is no current bid or offer price and the last trade was reported
by the National Quotation Bureau to have occurred in June 2003 at a price of
$10.00 per share.
Of the approximately 77,190 shares of Strategic Common Stock outstanding,
shareholders who are not members of the Buyer Group hold only approximately
24,386 shares, or 31.6%. Because members of the Buyer Group have tended not to
sell their shares, and because of the relatively low number of outstanding
shares, the trading volume of shares of Common Stock has been virtually
non-existent. During the 12 months prior to our delisting, the average daily
trading volume had been approximately zero (0) shares per day. As the trading
market for our Common Stock is very illiquid, it is difficult for our
stockholders to dispose of their shares should they choose.
In recent years, Strategic believes the public marketplace has had less
interest in public companies with a small market capitalization and a limited
amount of securities available for trading in the public marketplace. The Board
of Directors believes it is highly speculative whether Strategic Common Stock
will ever achieve significant market value because of Strategic's size, the lack
of liquidity and no assurance of significant profitable growth in the near
future. The realization that Strategic Common Stock might never achieve
significant market value as a public company is one of the reasons that
ultimately caused the Board of Directors and Special Committee to conclude that
Strategic no longer is benefitting from being a public company, and that it
would be in the best interests of Strategic and its shareholders for Strategic
to be privately held.
The Buyer Group's proposal presented Strategic with the opportunity to
return to the status of a private company while affording the shareholders who
are not members of the Buyer Group the opportunity to liquidate their Common
Stock at a price at the time of Pali's fairness opinion that represents a
premium of 263% over the then last offer price, approximately a 250% premium
over the last and most recent sale price and a 278% premium over the last offer
price, without incurring any brokerage commissions. In addition, being a private
company would eliminate any negative perception about our Company based on the
performance of our stock price, relieve Strategic of certain expenses incident
with being a public company (during our last two fiscal years, we paid in excess
of $375,000 for accounting, legal, transfer agent, and related fees and costs),
eliminate various obligations applicable to a public company (reporting and
compliance obligations under the Exchange Act and in connection with the
Sarbanes-Oxley legislation), increase management's flexibility to consider and
initiate actions geared to long-term growth as opposed to short-term earnings
per share.
Strategic believes that it is in the best interest of Strategic and its
shareholders to provide liquidity to the maximum number of shareholders. The
Board of Directors has determined that the Merger is the most expeditious and
economical way of liquidating the interests of the shareholders who are not
members of the Buyer Group at a fair price, which is higher than that which
could be achieved in the open market. In light of these objectives, the Board of
Directors concluded that the Merger will accomplish its goals. Accordingly, the
Company determined to engage in this going private transaction at this time due
to the considerations discussed above in this section.
Recommendation of the Special Committee
The Special Committee unanimously determined that the Merger is fair to and
in the best interests of Strategic and its unaffiliated shareholders. The
Special Committee unanimously recommended that Strategics Board of Directors
approve the Merger Agreement. In reaching its determinations, the Special
Committee relied on its knowledge of our business and information provided by
our officers, as well as the advice of its financial advisor and legal counsel.
In reaching its decision, the Special Committee considered a number of factors,
including the following positive factors, and the factors considered by
management discussed above, each of which in the view of the Special Committee
supported such determination:
- the written fairness opinion of Pali delivered to the Special
Committee on October 21, 2003 upon which fairness opinion the Special
Committee is expressly authorized to rely; such fairness opinion was
originally addressed to the Company's Board of Directors and
evaluated the fairness of the consideration to be received from a
financial point of view to the Company; such fairness opinion
considered the equity value of the Company in a sale or liquidation
scenario and concluded that with an equity base of $9.2 million and
contingent liabilities of $10.5 million (contract buy-out of David
Miller: $6,000,000; loss on sales of assets: $3,000,000; and deferred
reserves: $1.5 million, the Company's equity base is a negative $1.3
million, further validating a $25.00 per share value). The Special
Committee has adopted Pali's analysis and conclusions in this regard
as its own;
18
- the historical trading activity of our Common Stock, including the
fact that the average daily trading volume of our Common Stock for
the twelve months prior to their recommendation to the Board of
Directors in October 2003 was zero (0) shares per day;
- the small public float and limited prospects for creating
institutional interest in our stock or coverage by analysts;
- the fact that the proposed merger consideration of $25.00 per share
constitutes a premium of 263% over the last offer price as reported
by Pali in its fairness opinion, approximately a 250% premium over
the last and most recent sale price and a 278% premium over the last
offer price;
- the Special Committee's judgment that it was unlikely for Strategic
shareholders to realize in excess of $25.00 per share due to the
current and prospective environment in which Strategic operates, and
more particularly, the difficulty that Strategic would have in the
future competing against larger, more aggressive competitors with
greater capital resources; in January 2003, the Financial Accounting
Standards Board ("FASB") adopted FASB Interpretation No. 46 ("FIN
46") entitled "Consolidation of Variable Interest Entities. In
certain instances, FIN 46 may require consolidation of finished lot
option contracts for which their total potential losses are limited
to their deposit. In these situations, it requires builders to put on
their balance sheets assets that they do not own and liabilities for
which they are not responsible. Due to the complexity of FIN 46 and
its various interpretations, the same asset and liability may be
recorded on the financial statements of two or more independent
non-affiliated companies. The uncertainty of a clear standard
applicable to our industry has had a negative impact on our business
and operations. Other factors affecting the current and prospective
environment in which Strategic operates include increasing insurance
premiums, reduced insurance coverage, higher self-insured retentions
and deductibles, requiring additional collateral on surety bonds,
reducing limits, restricting coverages, and imposing exclusions.
- the fact that the consideration to be received in the Merger is
payable in cash, thereby eliminating any uncertainties in valuing the
consideration to be received by Strategic's shareholders;
- the fact that the Merger Agreement does not unduly deter a third
party from making an acquisition proposal, inhibit the Special
Committee from withdrawing or modifying its approval or
recommendation of the Merger or the Merger Agreement or inhibit the
Board of Directors from approving, recommending or accepting an
acquisition proposal that the Special Committee determines to be of a
superior proposal to the shareholders of Strategic than the Merger.
Specifically, the Merger Agreement includes provisions which permit
the Special Committee to withdraw its recommendation of the Merger if
there is a more favorable acquisition proposal and permit the Board
of Directors to terminate the Merger Agreement in order to accept a
more favorable acquisition proposal with a third party. See "THE
MERGER AGREEMENT - No Solicitation of Competing Transactions;"
- the fact that the Merger Agreement is not subject to a financing
condition on the part of the Buyer Group;
- the fact that the Merger consideration of $25.00 per share is less
than the book value of the Company of $120.18 per share as of June
30, 2003; the Special Committee understood that book value could only
be realized by selling the assets for prices at or above the recorded
book value. The Special Committee did not determine whether the
Company's assets would sell for less than, more than or equal to
their book value, but nevertheless believed the Merger consideration
to be fair to the unaffiliated shareholders, although less than the
book value per share, based on the fact that attempting to sell the
Company's assets for book value would involve considerable market
risk and uncertainty and could result in prices below book value,
that if the assets were sold, the proceeds to the Company would be
reduced by transaction costs and taxes payable by the Company to the
extent that assets were sold at prices in excess of their adjusted
tax basis, that any sale of assets would have to be conducted over a
relatively long period to occur in an orderly fashion, which would
defer the receipt and disbursing of proceeds, and that intangible
assets such as goodwill was included in book value but would not be
realized in any sale of assets not involving the sale of the Company
as a going-concern. Based on these considerations, the Special
Committee believed that the prospects of achieving book value would
not be a superior alternative to the receipt by the unaffiliated
shareholders of the Merger consideration; and
- the inability to find a financially sound third party interested in
doing a transaction with Strategic; prior informal discussions with
third parties in the past did not proceed in any meaningful fashion
since all of the potential acquirors sought to effect a transaction
on terms unfavorable to the Company (utilizing inflated stock as
compensation to Company shareholders in lieu of cash). Additionally,
the Company's decline in revenue producing assets (the Company's
revenues for March 31, 2002 were $105,455,432 and declined each
quarter to $50,854,708 as of September 30, 2003) since March 2002
would most likely hinder the Company's ability to attract such third
parties.
19
The Special Committee also considered the following adverse factors
associated with the Merger:
- our minority shareholders will not have the right to participate in
our future growth, if any.
The Special Committee believes the Merger is procedurally fair to Strategic
unaffiliated shareholders in light of the following factors, and notwithstanding
the fact that no separate approval of the shareholders who are not members of
the Buyer Group is required in order to approve the Merger Agreement:
- the formation of a special committee of three non-employee directors
and its empowerment by the Board to retain financial advisors and
legal counsel of the committee's choice;
- the retention by the Special Committee of a legal advisor to assist
it in evaluating the Merger proposal and its reliance upon Pali's
fairness opinion in view of their being no material change concerning
the Company's current and planned business and operations,
competitive stance within the marketplace, continued lack of stock
market activity, and Pali's familiarity with the Company due to their
recent evaluation;
- the fact that the members of the Special Committee will not
personally benefit from the consummation of the Merger contemplated
by the Merger Agreement, other than in their capacity as holders of
shares of our Common Stock.
The Special Committee also considered the advantages and disadvantages of
other potential alternatives to the acquisition of the interests of the
unaffiliated shareholders, which included the sale of Strategic to a third
party, and continuing as a public company. Prior informal discussions with third
parties in the past did not proceed in any meaningful fashion since all of the
potential acquirors sought to effect a transaction on terms unfavorable to the
Company (utilizing inflated stock as compensation to Company shareholders in
lieu of cash). Additionally, the decline in Company revenues (the Company's
revenues for March 31, 2002 were $105,455,432 and declined each quarter to
$50,854,708 as of September 30, 2003) since March 2002 is a factor the Special
Committee believes would make the Company undesirable to third parties. It was
not considered feasible to grow the Company through acquisitions as we require
our cash to acquire revenue producing assets and our stock was not believed to
have an attractive value for target companies which, if issued for purposes of
acquisition, would cause dilution to all shareholders. In view of the factors
raised by Pali in its fairness opinion (no market maker, no institutional
security owners, unpredictable revenues and no consistency in net income,
significant contingent liabilities and key man dependence upon Mr. David
Miller), upon which factors Pali concluded it is not appropriate for the Company
to be a public company, continuing as a public company was not viewed as a
viable alternative, which factors have been expressly adopted by the Special
Committee. The Special Committee noted that a previously attempted corporate
repurchase program in 2000 evidenced limited participation and that an
odd-lot/fractional share purchase program would also probably be unsuccessful in
view of the concern that certain holders of fractional shares and odd-lot shares
would not make the effort to return their certificates and that many other
Company shareholders would probably not respond due to the Company's transfer
agent not having current addresses for certain of such persons and others being
deceased. Accordingly, such latter course of action was not considered viable as
the Company's shareholder based would in all likelihood remain above 300
requiring the Company to continue to report to the SEC under the Exchange Act.
The members of the Special Committee evaluated the factors in light of
their knowledge of our business, their knowledge of the industry and their good
faith business judgment. Although the Special Committee believes that these were
all of the material factors considered, in view of the large number of factors
considered by the Special Committee in connection with the evaluation of the
Merger and the complexity of these matters, the Special Committee did not
consider it practicable to, nor did it attempt to, quantify, rank or otherwise
assign relative weights to the specific factors it considered in reaching its
decision, nor did it evaluate whether these factors were of equal importance. In
addition, each member of the Special Committee may have given different weight
to the various factors. The Special Committee conducted a discussion of, among
other things, the factors described above, including asking questions of the
Special Committee's legal advisor, and reached the conclusion that the Merger
Agreement was advisable and in the best interests of Strategic and its
unaffiliated shareholders.
Recommendation of the Board of Directors
The Board of Directors determined, with David Miller abstaining, based on
the unanimous recommendation of the Special Committee, that the Merger is fair
to and in the best interests of Strategic and its unaffiliated shareholders and
approved the Merger Agreement. In accordance with applicable state law, the
Merger transaction has been approved by the holders of a majority of the
Company's issued and outstanding voting securities, including shares held by
Company affiliates. The transaction has not been structured so as to require the
approval of at least a majority of unaffiliated security holders. None of the
other board members, comprised of Messrs. Weiss, Wilson and Roach, dissented or
abstained from the vote regarding this transaction.
20
All members of the Board of Directors who own shares intend to vote their
shares for approval of the Merger Agreement.
The Board of Directors considered the following factors, including that the
Officers and Directors of the Company will continue in their respective
positions with the Company following the Merger in deciding to recommend that
shareholders vote "FOR" the approval of the Merger Agreement:
- the fact that the Company's Officers and Directors pre and post
Merger, while the same persons, will not be receiving any additional
compensation or other remuneration or benefit as a result of the
Merger (other than two of the Special Committee Members receiving
consideration for their shares at the same price per share as the
Company's unaffiliated shareholders);
- the recommendation of the Special Committee, the analysis and
conclusions of which the Board of Directors adopted as its own;
- the written opinion of Pali delivered to the Special Committee on
October 21, 2003 which was previously delivered by Pali to the Board
of Directors on July 30, 2003; such fairness opinion was originally
addressed to the Company's Board of Directors and evaluated the
fairness of the consideration to be received from a financial point
of view to the Company, the analysis and conclusions therein of which
the Board of Directors adopted as its own;
- the factors discussed above as having been relied upon by the Special
Committee;
- the procedural factors described below.
The Board of Directors believes that the Merger is procedurally fair
because, among other things:
- the Special Committee consisted entirely of non-employee directors
appointed by the Board of Directors to represent the interests of
Strategic's unaffiliated shareholders;
- the Special Committee retained and was advised by its own legal
counsel;
- the Special Committee considered and evaluated the Merger and Merger
consideration;
- even though the Special Committee consisted of Directors of Strategic
and was therefore not completely unaffiliated with Strategic,
committees of independent directors (who in this instance may be
deemed independent except for the de minimus stockholdings of two of
the three members - each approximately 1%) are a commonly used
mechanism that is recognized under applicable law to ensure fairness
in transactions of this type;
- the ability of the Special Committee and the Board of Directors to
consider any alternative proposal and terminate the Merger Agreement
if they determine that the failure to do so would be inconsistent
with their fiduciary duties under applicable law; and
- the availability of appraisal rights under applicable Florida law for
the Company's stockholders who oppose the Merger.
In view of the foregoing, and because we feel that the appraisal rights
granted to the Company's stockholders under applicable Florida law provide our
unaffiliated stockholders sufficient protection, the Board of Directors believes
that sufficient procedural safeguards exist to ensure fairness of the Merger and
to permit the Board of Directors to effectively represent the interests of
Strategic's unaffiliated shareholders. Accordingly, the separate approval of the
shareholders who are not members of the Buyer Group is not required in order to
approve the Merger Agreement.
In view of the variety of factors considered by the Board of Directors and
the complexity of these matters, the Board of Directors did not find it
practicable to, and it did not, quantify or otherwise attempt to assign relative
weights to the factors considered in making its determination, nor did it
evaluate whether these factors were of equal importance. In considering the
factors described above, individual members of the Board of Directors may have
given different weight to the various factors.
Opinion of Pali Capital, Inc.
Pali provided the Company's Board of Directors with a fairness opinion
dated July 30, 2003, addressing the fairness, from a financial point of view to
the Company of the price per share to be received by shareholders in a proposed
21
purchase by the Company of its outstanding shares. Such opinion letter concerned
itself with a contemplated purchase of the Company's shares of Common Stock,
which was being considered in a general fashion by the Company at such time,
rather than the mechanics of how a transaction, if effected, would be
undertaken. Pali advised the Special Committee by its October 21, 2003
correspondence addressed to the Special Committee that it could rely upon such
fairness opinion.
Pali provides in its opinion letter that its analysis and summary set forth
therein must be considered as a whole and that it made no attempt to assign
specific weights to particular analyses or factors considered but rather, made
qualitative judgments as to the significance and relevance of all the analyses
and factors considered and determined to give its fairness opinion. Pali further
provides in its opinion letter that its analysis and factors must be considered
as a whole, and that selecting portions of the analysis and factors considered
by Pali without considering all of the analysis and factors could create a
misleading or incomplete view of the processes underlying the analysis conducted
by Pali and its opinion.
To determine the fair value of the Company's Common Stock, Pali: (i) held
discussions with certain senior officers, directors and other representatives
and advisors of the Company concerning the businesses, operations and prospects
of the Company; (ii) examined certain financial forecasts and other information
and data for the business and operations of the Company which were provided to
or otherwise discussed with Pali by Company management; (iii) considered, to the
extent publicly available, the financial terms of certain other similar
transactions recently effected that they considered relevant in evaluating the
consideration to be received by shareholders; and (iv) conducted such other
analyses and examinations and considered such other information and financial,
economic and market criteria as they deemed appropriate in arriving at their
opinion.
In its opinion to the Company, Pali identified the following issues in
deriving an appropriate price per share for a repurchase:
1. There are no appropriate comparable companies;
2. Strategic is currently listed on the OTC;
3. There is no market maker for Strategic's Common Stock;
4. There are no institutional owners of Strategic Common Stock;
5. Strategic has unpredictable revenues and no consistency in net
income;
6. Strategic has significant contingent liabilities;
7. Key Man dependence;
8. Strategic is inappropriate as a public entity.
Pali determined that using a traditional Discounted Cash Flow methodology
was inappropriate to derive a fair price per share for the Company's proposed
repurchase, basing such conclusion primarily upon the Company's unpredictable
revenues, the Company's dependence upon its Key Man, President/Chief Executive
Officer for nearly all of its revenues, its losses within the past three years
and the possibility of losses in the near future. Due to the Company's
unpredictable earning stream, Pali was of the belief that assigning a growth
rate to the Company is inappropriate and concluded that with a 0% growth rate
and potential losses, a Discounted Cash Flow methodology would not provide a
sound basis for an appropriate price per share. Similarly, Pali was of the view
that it is inappropriate to use projected earnings and revenues to determine a
share price.
Pali also determined that the use of comparable company pricing multiples
was inappropriate because the Company operates as a niche player, providing
specialized services to its clients offered by no other company in its industry.
Pali's opinion relied on the performance of the Company's stock in active
trading prior to its listing in the OTC market as its basis for the Company's
stock repurchase price. Pali noted that the Company's 100-day moving average
provided a range of approximately $20 per share to $30 per share over the past
three years and determined that such range is an appropriate range for the
Company's stock purchase and that $25 per share is a fair price. Pali also noted
that the last offer price for Strategic prior to the date of its July 30, 2003
opinion was $9.50 per share, that there was no bid price, and at $25 per share,
the repurchase price represents a 263% premium over the then last offer price.
22
Pali also considered the equity value of the Company in a sale or
liquidation scenario and determined that an adjusted equity value of the Company
in a sale liquidation scenario further validated the share repurchase price of
approximately $25.
Pali consented to the inclusion of its fairness opinion in this Information
Statement and expressly advised the Special Committee that it could rely upon
such fairness opinion.
Pali received an aggregate fee of $30,000 ($15,000 upon execution of its
retainer agreement with the Company and $15,000 upon the Company's receipt of
the fairness opinion). Pali did not provide any other services to the Company
during the previous two years. Commencing on August 1, 2003, Pali provides the
Company with financial advisory services relating to financing and business
opportunities and is paid consulting fees of $3,000 per month in connection
therewith. Such services may be terminated by the Company upon thirty days
notice.
While Pali's fairness opinion addresses the fairness of the consideration
to be received from a financial point of view to the Company rather than the
consideration to be received by unaffiliated security holders, the filing
persons in the Company's Schedule 13E-3, as amended, noted that Pali did advise
the Special Committee in its October 21, 2003 correspondence to the Special
Committee that it could rely upon same. In addition, the filing persons also
noted that Pali was previously provided with a draft of the Information
Statement prior to the delivery of its October 21, 2003 correspondence to the
Special Committee and, thus, was aware that the Special Committee was
constituted to act on behalf of the Company's unaffiliated shareholders.
Accordingly, such filing persons deemed it appropriate to rely upon the
evaluation of the Merger by the Special Committee, including its reliance upon
the Pali opinion letter as being fair and in the best interests of the Company's
unaffiliated shareholders
Pali's engagement was not on a contingency basis and the Company did not
impose any limitations on the scope of Pali's investigation in connection with
its opinion letter or have any input as to the methodology to be utilized. The
valuation reached by Pali, an independent investment banking firm with no
affiliation to, or prior association with, the Company prior to being retained
for such opinion letter, was completely within Pali's discretion. Pali discussed
in its opinion letter several valuation methodologies, as described above
(traditional discounted cash flow, comparable company pricing multiples, equity
value of the Company in a sale or liquidation scenario, and prior stock
trading).
Pali concluded that using a traditional discounted cash flow methodology is
inappropriate to derive a fair price per share based primarily upon the
Company's unpredictable revenues and its dependence upon its key man for nearly
all of its revenues. Pali noted that the Company had losses within the last
three years and may have losses again in the near future, and that due to its
unpredictable earning stream, Pali believes assigning a growth rate to the
Company is inappropriate. Pali further concluded that with a 0% growth rate and
potential losses, a discounted cash flow methodology will not provide a sound
basis for an appropriate price per share.
Pali concluded that the use of comparable company pricing multiples is
impossible as a basis for determining fair value per share because the Company
operates as a niche player, providing specialized services to its clients
offered by no other company in its industry; accordingly, Pali stated that the
metrics of other companies for comparison does not make sense.
Pali also considered the equity value of the Company in a sale or
liquidation scenario. Pali noted that the Company has approximately $9.2 million
in equity, but that after accounting for contingent liabilities, that equity
base is effectively eliminated. The contingent liabilities are:
1. Contract buy out of David Miller: $6 million
2. Loss on sale of assets: $3 million
3. Deferred reserves: $1.5 million
With an equity base of $9.2 million and contingent liabilities of $10.5
million, the equity base of the Company is a negative $1.3 million. Therefore,
Pali concluded that an adjusted equity value of the Company in a sale or
liquidation scenario further validates the anticipated share repurchase price of
approximately $25.00.
Pali's analysis concerning the Company's prior stock trading is discussed
above in this section.
The Buyer Group's Purpose and Reasons for the Merger
The purpose of the Merger is to enable the Buyer Group, through New
Company, to acquire the entire equity interest in Strategic other than those
shares it already owns. The transaction has been structured as a cash merger in
order to provide Strategic's shareholders (other than the Buyer Group) cash for
all of their shares. See "SPECIAL FACTORS - Background of the Merger; and
"Purpose and Reasons for the Merger."
The Merger allows the Buyer Group to own 100% of Strategic as a private
company while providing Strategic's other shareholders the opportunity to
liquidate their investments in Strategic Common Stock for cash at a price
representing a premium of 263% over the last offer price as reported by Pali in
its fairness opinion (approximately a 250% premium over the last and most recent
sale price and a 278% premium over the last offer price).
The Buyer Group's desire to proceed with the Merger is motivated primarily
by the continuing low valuation placed on Strategic Common Stock by the public
equity markets and the extremely limited ability of shareholders to sell shares
of Strategic Common Stock. The Buyer Group believes that Strategic is no longer
benefitting from being a public company, and that as a private company,
Strategic will be better positioned to focus on long-term growth as opposed to
short-term earnings per share results and avoid the negative market perceptions
that could result from the performance of its stock price. Accordingly, the
Buyer Group determined to engage in this going private transaction at the
present time for the reasons discussed above.
Position of the Buyer Group as to Fairness of the Merger
The rules of the SEC require that the Buyer Group express their belief as
to the fairness of the Merger to Strategic's unaffiliated shareholders. As
described in more detail under "SPECIAL FACTORS - Background of the Merger," the
terms of the Merger Agreement were not negotiated at arm's length between the
Board of Directors and New Company. The Buyer Group did not independently
consider the fairness of the Merger consideration to Strategic's shareholders,
nor did the Buyer Group seek or receive a fairness opinion or other advice as to
the fairness of the Merger consideration.
Based exclusively on the evaluation of the Merger by the Special Committee,
including a review of the description in this Information Statement of the
information and factors considered by the Special Committee in concluding that
the terms of the Merger Agreement are advisable and are fair to and in the best
interests of Strategic and its unaffiliated shareholders, the Buyer Group
believes that the terms of the Merger Agreement are advisable and are fair to
and in the best interests of Strategic and its unaffiliated shareholders. All of
the analysis performed and conclusions reached by the Special Committee with
respect to the fairness of the transaction, have been expressly adopted by the
Buyer Group as its own, See "SPECIAL FACTORS - Recommendation of the Board of
Directors."
The Buyer Group recognizes that there may be some disadvantage to
Strategic's unaffiliated shareholders as a result of the Merger. These
disadvantages include the fact that such shareholders will cease to have an
interest in Strategic's future growth, if any, going forward. The Buyer Group
also recognizes, however, that such shareholders will benefit from the Merger,
if it is approved, since the Merger consideration to be paid to Strategic's
shareholders represents a substantial premium over the current market price of
Strategic's shares, provides them with liquidity for their investment, allows
such shareholders to avoid paying brokerage fees upon the sale of their
Strategic shares and prevents such shareholders from being subjected to possible
future losses or declines in the market value of the shares.
23
Risks That the Merger Will Not be Completed
Completion of the Merger is subject to various risks, including, but not
limited to, the following:
- that Strategic or New Company will not have performed in all material
respects their respective obligations contained in the Merger
Agreement before the effective time of the Merger;
- that the representations and warranties made by Strategic or New
Company in the Merger Agreement will not be made true and correct at
the closing date of the Merger; and
- that there may be litigation that could prevent the Merger, cause the
Merger to be rescinded following completion of the Merger or that
could have an adverse effect on Strategic.
As a result of the various risks to the completion of the Merger, there can
be no assurance that the Merger will be completed even though the requisite
shareholder approval has been obtained. It is expected that, if Strategic
shareholders do not approve the Merger Agreement or if the Merger is not
completed for any other reason, the current management of Strategic, under the
direction of the Board of Directors, will continue to manage Strategic as an
ongoing business. If the Merger is not completed, depending on the
circumstances, Strategic or the Buyer Group, as the case may be, may be required
to reimburse certain fees and expenses of the other party. See "SPECIAL FACTORS
- - Fees and Expenses of the Merger" and "THE MERGER AGREEMENT - Expenses."
Conduct of the Business of Strategic If the Merger is Completed
It is expected that following the Merger, the business and operations of
Strategic will be continued substantially as they are currently being conducted.
At this time, Strategic has no plans for:
- any extraordinary transaction, such as a merger, reorganization or
any purchase, sale or transfer of a material amount of assets;
- any material change in the present dividend policy or the issuance of
any dividend payments in the foreseeable future; or
- any indebtedness or change in the capitalization or structure of the
Company, other than as described in this Information Statement.
As described elsewhere in this Information Statement, the officers and
directors of Strategic prior to the Merger will remain as officers and directors
of Strategic after the Merger. Since Strategic will become a private company
after the Merger, it will no longer be required to file periodic reports under
the federal securities laws. See "SPECIAL FACTORS - Certain Effects of the
Merger."
Conduct of the Business of Strategic If the Merger is Not Completed
If the Merger is not consummated, the Board of Directors expects that
Strategic's current management will continue to operate Strategic's business
substantially as currently operated. No other alternative methods of operation
are being considered other than the exploration of other asset classes and
business opportunities.
Interests of Certain Persons in the Merger
In considering the recommendation of the Special Committee and the Board of
Directors, you should be aware that certain of Strategic's officers and
directors have interests in the Merger, or have certain relationships as
described below, that present actual or potential conflicts of interest in
connection with the Merger. The Board of Directors were aware of these actual or
potential conflicts of interest and considered them along with other matters
described under "SPECIAL FACTORS -- Purpose and Reasons for the Merger" and
"Recommendation of the Board of Directors."
The principal member of the Buyer Group is David Miller. The other members
of the Buyer Group are Scott Miller (David Miller's son), Rita Miller (David
Miller's wife), Helen Miller Irrevocable Trust, Libo Fineberg, Trustee (a trust
24
in which David Miller is the sole beneficiary) Lite `N Low, Inc. and Priority
Capital Corp, privately held companies which David Miller is the sole
shareholder.
David Miller is Chairman of the Board, Chief Executive Officer, President,
Chief Financial Officer and Chief Accounting Officer of Strategic, and after the
Merger, David Miller will continue to serve in such positions.
The Merger Agreement provides that Strategic will continue after the Merger
closes all rights of indemnification existing on the date of the Merger
Agreement in favor of the present and former officers and directors. See "THE
MERGER AGREEMENT -- Director and Officer Liability." The current members of the
Strategic Board of Directors will be entitled to such indemnification and
liability insurance coverage after the Merger closes.
The executive officers and directors of Strategic prior to the Merger will
be the executive officers and directors of Strategic after the Merger.
Advantages and Disadvantages of the Merger
The Merger will present certain potential advantages and disadvantages to
Strategic, the Buyer Group, the unaffiliated shareholders and the shareholders
who are not members of the Buyer Group.
Strategic and the Buyer Group
If the Merger is consummated, the possible several different advantages to
Strategic and the Buyer Group include the following:
- Eliminate Public Disclosure and Reporting Obligations. As a publicly
held corporation, Strategic's operations and financial position are
open to public scrutiny. Information concerning Strategic, its
officers, directors and certain shareholders (information not
ordinarily disclosed by privately held companies) will no longer be
readily available to competitors once the Merger has been
consummated.
- Eliminate Undue Management Demands. Once the Merger has been approved
and consummated, management will be able to focus on Strategic's
business rather than being burdened by preparing and filing annual,
quarterly, current and other reports with the SEC.
- Management Focus. Relieved of the pressures to produce quarterly
earnings per share results for the public market place, management
can better focus on long-term growth strategies that may otherwise
negatively impact or delay earnings.
- Eliminate Certain Costs. The costs of administration, legal,
accounting and other fees associated with operating as a public
company subject to the reporting requirements of the Exchange Act
will be eliminated once the Merger has been approved and consummated
(during our last two fiscal years, we paid in excess of $375,000 for
accounting, legal, transfer agent, and related fees and costs); we
believe the approximate annual cost that will be eliminated by this
going private transaction include the following:
------------------------------------------------------------
Printing $ 10,000
------------------------------------------------------------
Transfer Agent Fees $ 25,000
------------------------------------------------------------
Edgarization Expenses $ 15,000
------------------------------------------------------------
Legal Fees $ 75,000
------------------------------------------------------------
Accounting Fees, including review of SEC related $ 50,000
matters
------------------------------------------------------------
SEC Rules and Accounting Consulting $ 50,000
------------------------------------------------------------
Company Staff Time $150,600
------------------------------------------------------------
Total : $375,600
- Participation in Future Appreciation. Members of the Buyer Group will
have increased participation in any future appreciation of
Strategic's business after the Merger.
If the Merger is consummated, the potential disadvantages to Strategic and
the Buyer Group include the following:
25
- Continued Limited Access to Capital Markets. Strategic may have
continued limited or reduced access to capital to finance future
growth plans, meet working capital needs, acquire other businesses or
retire existing debt once the Merger has been consummated.
- Loss of Liquidity. Once the Merger has been consummated, there will
be no public market for any of the shares of capital stock of
Strategic. Thus, the members of the Buyer Group may be unable to
dispose of their shares at a readily ascertainable price because of
the absence of a public market for Strategic's shares.
- Risk of Future Downturn/Losses. Members of the Buyer Group will
assume the risk of future downturns in Strategic's business after the
Merger as well as all of the losses.
The change in the portion of the Company's net book value and net
income each member of the Buyer Group controls as a result of this going private
transaction is set forth below in both percentages and dollar amounts:
-----------------------------------------------------------------------------------------------------
Name of Member of Buyer Group Percentage and Dollar portion of net Book Value
-----------------------------------------------------------------------------------------------------
David Miller (includes Lite N' Low, Inc.,
Priority Capital Corp., two entities of which
Mr. Miller is the sole Shareholder ) 43.20% 3,997,000
-----------------------------------------------------------------------------------------------------
Scott Miller 8.60% 796,000
-----------------------------------------------------------------------------------------------------
Rita Miller 8.60% 796,000
-----------------------------------------------------------------------------------------------------
Helen Miller Irrevocable Trust,
Libo Fineberg, Trustee (a Trust in which
David Miller is the sole beneficiary 8.10% 749,000
-----------------------------------------------------------------------------------------------------
% Total of Net Book Value - 9/30/03 68.50% 6,338,000
=====================================================================================================
Total Book Value - Before Buyout 100% 9,252,000
-----------------------------------------------------------------------------------------------------
Minus Buyout Cost 610,000
-----------------------------------------------------------------------------------------------------
Total Net Book Value - After Buyout 100% 8,642,000
=====================================================================================================
David Miller (includes Lite N' Low, Inc.,
Priority Capital Corp., two entities of which
Mr. Miller is the sole Shareholder ) 63.2% 5,462,000
-----------------------------------------------------------------------------------------------------
Scott Miller 12.5% 1,080,000
-----------------------------------------------------------------------------------------------------
Rita Miller 12.5% 1,080,000
-----------------------------------------------------------------------------------------------------
Helen Miller Irrevocable Trust,
Libo Fineberg, Trustee (a Trust in which
David Miller is the sole beneficiary 11.8% 1,020,000
-----------------------------------------------------------------------------------------------------
% Total of Net Book Value - After Buyout 100% 8,642,000
=====================================================================================================
26
-----------------------------------------------------------------------------------------------------
Name of Member Group Percentage and Dollar portion of net Income
-----------------------------------------------------------------------------------------------------
David Miller (includes Lite N' Low, Inc.,
Priority Capital Corp., two entities of which
Mr. Miller is the sole Shareholder ) 43.2% 112,000
-----------------------------------------------------------------------------------------------------
Scott Miller 8.6% 22,000
-----------------------------------------------------------------------------------------------------
Rita Miller 8.6% 22,000
-----------------------------------------------------------------------------------------------------
Helen Miller Irrevocable Trust,
Libo Fineberg, Trustee (a Trust in which
David Miller is the sole beneficiary 8.1% 21,000
-----------------------------------------------------------------------------------------------------
% Total of Net Income- 9/30/03 68.5% 177,000
=====================================================================================================
Total Net Income - Before Buyout 100% 258,000
-----------------------------------------------------------------------------------------------------
Total Net Income - After Buyout 100% 258,000
=====================================================================================================
David Miller (includes Lite N' Low, Inc.,
Priority Capital Corp., two entities of which
Mr. Miller is the sole Shareholder ) 63.2% 163,000
-----------------------------------------------------------------------------------------------------
Scott Miller 12.5% 32,000
-----------------------------------------------------------------------------------------------------
Rita Miller 12.5% 32,000
-----------------------------------------------------------------------------------------------------
Helen Miller Irrevocable Trust,
Libo Fineberg, Trustee (a Trust in which
David Miller is the sole beneficiary 11.8% 31,000
-----------------------------------------------------------------------------------------------------
% Total of Net Income - After Buyout 100% 258,000
=====================================================================================================
Shareholders Who Are Not Members of the Buyer Group
If the Merger is consummated, the potential advantages to shareholders who
are not members of the Buyer Group include the following:
- Purchase Price Above Market Price. The shareholders who are not
members of the Buyer Group will receive $25.00 cash per share
(pro-rata portion thereof for fractional shares) in the Merger, which
represents a premium of 263% over the last offer price as reported by
Pali in its fairness opinion, approximately a 250% premium over the
last and most recent sale price and a 278% premium over the last
offer price.
- Liquidity. The market for Strategic Common Stock is very illiquid. As
of October 8, 2003, there was no bid for our shares of Common Stock,
an offer of $9.00 per share and one market maker. Subsequent thereto,
the offer price was at one time $9.50 per share, and thereafter, for
a short period of time, there was a $9.50 bid and no offer, and
currently, no bid and no offer. The last trade was reported by the
National Quotation Bureau to have occurred on June 12, 2003 at a
price of $10.00 per share As a result, it is extremely difficult for
shareholders to dispose of any significant number of shares of Common
Stock without significant impact on the market price. The virtually
non-existent trading volume, lack of bid price, lack of multiple
market makers, lack of analyst coverage, small public float of the
Common Stock, minority public ownership interest and small market
capitalization of Strategic have all continued to adversely affect
the trading market for Strategic Common Stock. The Merger will enable
the shareholders who are not members of the Buyer Group to dispose of
their Common Stock at a fair price, notwithstanding the illiquid
market for the Common Stock, rather than continue to own these shares
subject to the risks presented by the illiquid trading market.
- Avoid Brokerage Commission. Holders of small amounts of our Common
Stock often find it uneconomical to dispose of their shares due to
the minimum brokerage commission typically charged which in some
cases may exceed the value of the shares owned. The shareholders who
are not members of the Buyer Group will receive a $25.00 cash per
share (pro-rata portion thereof for fractional shares), without
interest, for each share of Strategic Common Stock they own with no
commission of fees subtracted.
- Fractional and Odd-Lot Shareholders. A majority of our stockholders
are fractional and/or odd lot holders. Due to the illiquidity of our
Common Stock and the brokerage commission incurred in effecting a
sale of stock, many fractional and/or odd lot holders have determined
it is not economically feasible to try to dispose of their stock, and
have also been unable to realize a tax loss for such stock ownership.
27
- Penny Stock Sales Rules. While our shares of Common Stock do not
technically constitute "penny stock," stock brokerage firms have
informally viewed our shares of Common Stock as "penny stock" and
have imposed sales restrictions relating thereto. Consequently, the
treatment of our shares of Common Stock as "penny stock" has
adversely affected and may continue to adversely affect the ability
of our shareholders to sell such securities in the market place
(pursuant to Rule 144 in the case of restricted securities, or
otherwise).
- No Investment Risk. The Merger will remove future investment risks
associated with holding Strategic Common Stock. Such risks include
the factors discussed herein at the end of the "QUESTIONS AND
ANSWERS" section above and under the heading "ITEM 1: BUSINESS -
Competition, Market and Other Risk Factors" in Strategic's Annual
Report on Form 10-K for the Year Ending June 30, 2003.
If the Merger is consummated, the potential disadvantages to the
shareholders who are not members of the Buyer Group include the following:
- No Benefit from Strategic's Future Growth. The shareholders who are
not members of the Buyer Group will not have the opportunity to
benefit from the future growth, cash flows and earnings, if any, of
Strategic's business.
- Taxable Event. The receipt of cash following the Merger by
shareholders who are not members of the Buyer Group will constitute a
taxable transaction for federal income tax purposes.
- No Benefits from Future Transactions. The shareholders who are not
members of the Buyer Group will not have the opportunity to benefit
from any potential future sale, merger or other significant
transaction.
Certain Effects of the Merger
If the Merger is consummated:
- Strategic will no longer be a public company and the registration of
Strategic Common Stock under the Exchange Act, will terminate;
- Our Common Stock will be ineligible for trading on the OTCBB or any
other exchange. Our Common Stock may continue to be quoted in the
OTC, but we cannot predict whether, if ever, an active trading market
will exist for our Common Stock;
- The members of the Buyer Group will be the sole beneficiaries of any
future earnings and growth of Strategic following the Merger.
Shareholders who are not members of the Buyer Group will not benefit
from any future increase in the value of Strategic, but, on the other
hand, will not bear the risk of any future decrease or losses in the
value of Strategic following the Merger; and
- Under Florida law, any shareholder opposed to the Merger will have
statutory appraisal rights.
Financing the Merger
New Company anticipates that the total amount of funds required in
connection with the Merger and related transactions is approximately $609,650 to
pay the Merger consideration to Strategic's shareholders who are not members of
the Buyer Group. In addition, New Company estimates that there will be
approximately $125,000 in filing, legal, accounting and other fees and expenses
that will be payable in connection with the completion of the Merger, as
described in more detail below in "Fees and Expenses of the Merger."
New Company anticipates that it will fund the transaction with:
- Strategic's cash, cash equivalents and working capital (which
includes recent loans in the aggregate amount of $1,100,000 made by
David Miller, Lite `N Low, Inc. and Priority Capital Corp., privately
held companies of which David Miller is the sole shareholder, Rita
Miller and Scott Miller for the acquisition of new model homes, in
28
addition to loans by Rita Miller and Scott Miller aggregating
$150,000 as of June 30, 2003, all of which loans bear interest at 9%
per annum and are payable on demand) on the effective date of the
Merger, net of amounts necessary for ongoing needs of Strategic.
Appraisal Rights
Shareholders complying with Sections 607.1301, 607.1302, 607.1303,
607.1320, 607.1321, 607.1323, 607.1324, 607.1326 of the Florida Business
Corporation Act, copies of which are attached hereto as Appendix C, may be
entitled to appraisal rights.
Florida Statute ss.607.1302 provides that a shareholder is entitled to
appraisal rights and to obtain payment of the fair value of that shareholder's
shares in the event of, among other things, consummation of a merger to which
the shareholder is entitled to vote.
Pursuant to Florida Statute ss.607.1321 if a shareholder wishes to
assert appraisal rights in connection with the Merger, such shareholder must
deliver to the Company, within 20 days after receiving notice from the Company
that they may be entitled to such rights, written notice of such shareholder's
intent to demand payment if the Merger is effected.
If the Merger becomes effective, the Company must deliver a written
appraisal notice and form, together with Company financial statements, to all
shareholders who satisfied the requirements of ss.607.1321, as set forth above,
specifying the date the corporate action became effective. Such form must state,
among other things, (i) where the form must be sent, (ii) where certificates
must be deposited and the date by which those certificates must be deposited,
(iii) a date by which the Company must receive such completed form, (iv) an
estimate of the fair value of the shares and an offer to pay each shareholder
who is entitled to appraisal rights such fair value.
A shareholder who wishes to exercise appraisal rights must return the
form by the date specified in such notice. Alternatively, a shareholder who is
dissatisfied with the Company's offer of estimated fair value as set forth in
such notice must notify the Company of their estimate of the fair value of
shares by such date and demand payment of that estimate plus interest. Failure
to return the form (and, if applicable, share certificates) or notify the
Company of its estimate of fair value by the due date will cause the shareholder
to waive the right to demand payment. A shareholder may withdraw its exercise of
appraisal rights by so notifying the Company, in writing, by the date designated
in the appraisal notice. A shareholder who fails to so withdraw may not
thereafter withdraw without the Company's written consent. If the shareholder
accepts the Company's offer for payment of the estimated fair value for the
shares, payment shall be made within 90 days after the Company's receipt of such
form.
Fees and Expenses of the Merger
Generally, Strategic will pay all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated by the Merger
whether or not the Merger is consummated, except in certain circumstances
specified in the Merger Agreement. See "THE MERGER AGREEMENT -- Expenses."
New
Company/Buyer
Group Strategic
------------- ------------
Filing Fees $ -0- $ 49.32
Investment advisors' fees, outside consultants, etc. and expenses $ -0- $ 65,000.00
Legal Fees including Special Counsel and expenses $ -0- $ 25,000.00
Accounting Fees and expenses $ -0- $ 15,000.00
Printing and mailing costs $ -0- $ 7,500.00
Miscellaneous $ -0- $ 7,450.68
Transfer Agent/Depository Fees $ -0- $ 5,000.00
------------
Total $ 125,000.00
Anticipated Accounting Treatment of the Merger
Strategic anticipates that the Merger will be accounted for by Strategic
using the purchase method of accounting in accordance with accounting principles
generally accepted in the United States of America.
U.S. Federal Income Tax Consequences of the Merger
Strategic and New Company
The Merger will not have any material U.S. federal income tax consequences
for either Strategic or New Company.
29
Shareholders Who Are Not Members of the Buyer Group
The following is a summary of material U.S. federal income tax
considerations relevant to beneficial owners whose shares of Strategic Common
Stock are converted to cash in the Merger and who are not members of the Buyer
Group or related (within the meaning of Section 318 of the Internal Revenue Code
of 1986, as amended (the "Code")) to members of the Buyer Group. This summary is
based upon laws, regulations, rulings and decisions currently in effect, all of
which are subject to change, possibly with retroactive effect. The summary does
not address beneficial owners of shares of Common Stock in whose hands the
shares are not capital assets within the meaning of Section 1221 of the Code nor
does it address beneficial owners of Common Stock who received the shares as
part of a hedging, "straddle," conversion or other integrated transaction, upon
conversion of securities or exercise of warrants or other rights to acquire
shares, or pursuant to the exercise of employee stock options or otherwise as
compensation, and may not apply to certain types of beneficial owners of Common
Stock (such as insurance companies, tax-exempt organizations, financial
institutions and broker-dealers) who may be subject to special rules. This
summary is not intended as tax advice to any person and does not address the
U.S. federal income tax consequences to a beneficial owner of Common Stock who,
for U.S. federal income tax purposes, is a nonresident alien individual, a
foreign corporation, a foreign partnership or a foreign estate or trust, nor
does it consider the effect of any foreign, state or local tax laws or estate
and gift tax laws.
The U.S. federal income tax consequences described below are included for
general information purposes only. Because individual circumstances may differ,
each beneficial owner of shares of Strategic Common Stock should consult his or
her own tax advisor to determine the applicability of the rules discussed below
to him or her and the particular tax effects to him or her of the Merger,
including the application and effect of state, local and other tax laws.
The receipt of cash for shares of Strategic Common Stock in the Merger will
be a taxable transaction for U.S. federal income tax purposes. In general, for
U.S. federal income tax purposes, a beneficial owner of shares of common stock
will recognize gain or loss in an amount equal to the difference between the
beneficial owner's adjusted tax basis in the shares of common stock converted to
cash in the Merger and the amount of cash received. A beneficial owner's
adjusted basis in the shares of common stock generally will equal the beneficial
owner's purchase price for those shares of common stock. Gain or loss must be
determined separately for each block of common stock (i.e., common stock
acquired at the same cost in a single transaction) converted to cash in the
Merger. Such gain or loss will be capital gain or loss provided that the
beneficial owner held Strategic Common Stock as a capital asset.
Net capital gain recognized by non-corporate taxpayers from the sale of
property held more than one year will generally be taxed at a rate not to exceed
15% for U.S. federal income tax purposes. Net capital gain from property held
for one year or less will be subject to tax at ordinary income tax rates. In
addition, capital gains recognized by a corporate taxpayer will be subject to
tax at the ordinary income tax rates applicable to corporations. In general,
capital losses are deductible only against capital gains and are not available
to offset ordinary income. However, individual taxpayers are allowed to offset a
limited amount of capital losses against ordinary income.
Payments in connection with the Merger may be subject to "backup
withholding" at a rate of 30%, unless a beneficial owner of Common Stock, either
(1) comes within certain exempt categories (generally including corporations,
financial institutions and certain foreign individuals), or (2) provides a
certified taxpayer identification number on Form W-9 and otherwise complies with
the backup withholding rules. Backup withholding is not an additional tax but
merely an advance payment; any amounts so withheld may be credited against the
U.S. federal income tax liability of the beneficial owner subject to the
withholding and may be refunded to the extent it results in an overpayment of
tax. Each beneficial owner of Common Stock should consult with his or her own
tax advisor as to his or her qualification for exemption from backup withholding
and the procedure for obtaining this exemption.
Members of the Buyer Group
A member of the Buyer Group who receives shares of Strategic Common Stock
as a result of the Merger should treat those shares as if they were the same
shares of Strategic Common Stock that such persons had transferred to New
Company shortly prior to the Merger, and had the same basis and holding period
as the shares of Strategic Common Stock such member of the Buyer Group
transferred to New Company. No gain or loss will be recognized with respect to
the receipt of such shares. Members of Buyer Group who had differing basis and
holding periods for their different shares of Strategic Common Stock transferred
to New Company should consult with their tax advisors regarding maintaining
appropriate records to retain the separate tax basis and holding periods of
their various shares of Strategic Common Stock.
Shareholders who are related to the members of the Buyer Group (within the
meaning of Section 318 of the Code), should consult with their tax advisors to
determine whether the cash they are receiving for their shares of Strategic
Common Stock in the Merger will be taxable as ordinary income.
30
Regulatory Matters
Strategic does not believe that any material federal or state regulatory
approvals, filings or notices are required in connection with the Merger other
than approvals, filings or notices required under federal securities laws and
the filing of Articles of Merger together with the Merger Agreement meeting the
requirements of the Florida Business Corporation Act with the Florida Secretary
of State. Should any such approval or other action be required, it is
Strategic's and the Buyer Group's present intention to seek such approval or
action. Neither Strategic nor the Buyer Group currently intend, however, to
delay the Merger pending the outcome of any such action or the receipt of any
such approval (subject to either party's right to terminate the Merger Agreement
if any of the conditions in the Merger Agreement shall not have occurred). See
"THE MERGER AGREEMENT -- Conditions." There can be no assurance that any such
approval or other action, if needed, would be obtained without substantial
effort or that adverse consequences might not result to Strategic's business in
the event that such approval was not obtained or such other action was not
taken. See "THE MERGER AGREEMENT -- Conditions."
In addition, the Merger will not require a filing or approval under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Litigation
To the best of our knowledge, no lawsuits have been filed relating to the
Merger.
Provisions for Unaffiliated Security Holders
Neither Strategic nor New Company has made any provision to grant
unaffiliated shareholders of Strategic access to the corporate files of
Strategic or New Company or to assist such shareholders to obtain counsel or
appraisal services.
Recent Transactions; Negotiations and Contacts
During the past two years, we have not been engaged in any negotiations,
transactions or material contacts with any of our affiliates concerning any
merger, consolidation, acquisition, tender offer for or other acquisition of any
of our securities (other than the proposed going private transaction described
herein), election of our directors or sale or other transfer of a material
amount our of assets.
We have various notes currently payable to members of our management and
their affiliates, including our Chairman, David Miller, two companies of which
Mr. Miller is the sole shareholder, Ralph Wilson, one of our directors, Scott
Miller, an officer and Rita Miller, one of our shareholders. These loans arose
from advances made to us. As of June 30, 2003, such loan balances totaled
$300,000 ($75,000 due to Rita Miller, $75,000 due to Scott Miller and $150,000
due to Ralph Wilson; Mr. Wilson's loan, while not segregated, was and continues
to be utilized to acquire revenue producing assets). The notes are payable on
demand, bearing interest at 9%, which is payable monthly. Interest on
stockholder notes payable totaled $95,794 for the year ended June 30, 2003,
$115,361 for the year ended June 30, 2002, and $109,653 for the year ended June
30, 2001. Subsequent to June 30, 2003, additional shareholder loans were made to
the Company by David Miller, Scott Miller, Lite `N Low and Priority Capital
Corp., privately held companies of which David Miller is the sole shareholder in
the aggregate amount of $1,100,000, bearing interest at 9%, for an aggregate
amount of $1,400,000 through October 14, 2003. Such loans are due on demand. Our
management believes that the loans from stockholders were made on equal or
better terms than were available elsewhere. During the years ended June 30, 2002
and 2001, we issued a total of 5,366 and 7,460 detachable warrants post-reverse
split, respectively, to these six above-name stockholders. These warrants have
subsequently been terminated. No warrants were issued during the fiscal year
ended June 30, 2003 or through the date hereof. We are not required to issue any
warrants or any other securities to any of such lenders in connection with the
recent loans.
In June 2002, we also issued a note for $500,000 to our Chairman, David
Miller, in partial payment for our redemption of our convertible preferred
stock. The note bore interest of 6%, payable monthly. Principal payments of
$250,000 were due July 1, 2003 and July 1, 2004. This note was prepaid in June
2003, without penalty.
The Company has established Equity Incentive Plans (the "Plans") to attract
and retain key employees to provide an incentive for them to achieve long-range
performance goals and to enable them to participate in the long-term growth of
the Company. Under the terms of the Plans, the Company may award Incentive Stock
Options which are intended to qualify under Section 422A of the Internal Revenue
Code. All such options may be exercised during a four-year period commencing one
year from the date of the option grant and terminating five years from date of
issuance. The Board of Directors cancelled all outstanding options in May 2003
and the Company will not issue any additional options pursuant to such Plan.
31
Pro Forma Financial Information
We have not provided pro forma financial information giving effect to the
Merger in this Information Statement. We do not believe that this information is
material to you in evaluating the Merger since:
- the Merger consideration you will receive is all cash;
- you will not retain a continuing equity interest in Strategic's
business after the Merger.
Other Financial Data
Strategic's ratio of earnings to fixed charges for our quarter ended
September 30, 2003 and for our fiscal years ended June 30, 2003, 2002, 2001,
2000 and 1999 is as follows: at September 30, 2003 and June 30, 2003,
Strategic's net book value per share was $119.86 and $120.18, respectively.
Fiscal Year Ended June 30,
Description Quarter Ended
September 30, 2003 2003 2002 2001 2000 1999
------------------ ---- ---- ---- ---- ----
Earnings $ 1,122,050 $6,276,956 $8,676,776 $6,987,208 $4,767,087 $3,568,604
Fixed Charges $ 771,596 $5,165,106 $6,709,989 $6,896,969 $4,831,440 $3,750,604
Ratio of Earnings to Fixed Charges 1.22 1.29 1.01 0.99 0.95 1.45
============= ========== ========== ========== ========== ==========
Earnings to Fixed Charges
Excess/(Deficiency)
$350,454 $1,111,850 $1,966,787 $ 90,239 $ (64,353) $ (182,000)
============= ========== ========== ========== ========== ==========
The Company fully utilized its operating loss carryforwards during the
Company's fiscal year ended June 30, 2002, and does not have any operating loss
carryforwards available for future use.
Market Prices and Dividend Information
Until November 19, 2002, our Common Stock was traded on the OTCBB under the
symbol "SCPI." Our Form 10-K, as amended, for the fiscal year ending June 30,
2002 was not timely filed with the SEC and, therefore, our Common Stock was
delisted from trading on the OTCBB. As of the date of this Information
Statement, our Common Stock is listed for trading on the OTC under the symbol
"SCPI." See also "QUESTIONS AND ANSWERS - What is the OTC?"
There has been virtually no trading activity in our Common Stock during the
prior twelve months with sporadic bid/offer (ask) information available during
such time period (for example, on October 8, 2003 there was no bid for our
Common Stock, an offer of $9.00, and one market maker. Subsequent thereto, the
offer price was at one time $9.50 per share, and thereafter, for a short period
of time, there was a $9.50 bid and no offer, and currently, no bid and no
offer). These quotes were obtained through Prudential Securities. Bid/offer
information is not available through the various online services and when an
online inquiry is made, the response indicates such information is "not
available." The Company has attempted to obtain quotations from Prudential
Securities on several occasions and has been advised that such information was
generally not available or untimely.
The following table sets forth for the period indicated, the high closing
bid price and low closing asked price for our Common Stock as reported by the
National Quotation Bureau during the past two fiscal years, and for the first
quarter of fiscal 2004. All current and historical figures to our Common Stock
have been adjusted to reflect our reverse stock split (200 to 1) effected in
June 2002.
High Low Volume
---- --- ------
Fiscal 2004:
First Quarter $ N/A $ N/A $ N/A
Fiscal 2003:
First Quarter $ N/A $ N/A $ 200
Second Quarter $ N/A $ N/A $ 400
Third Quarter $ N/A $ N/A $ N/A
Fourth Quarter $ N/A $ N/A $ N/A
Fiscal 2002:
First Quarter $ N/A $ N/A $2,200
Second Quarter $ N/A $ N/A $2,756
Third Quarter $ 34 $ 24 $ 894
Fourth Quarter $ 51 $ 3 $4,469
32
We have not paid any cash dividends on our Common Stock and do not
anticipate paying in the foreseeable future. We intend to continue our present
policy of retaining earnings for investment in our operations.
Strategic Common Stock Purchase Information
Purchases by Strategic
Strategic has not purchased its Common Stock through stock repurchase
agreements during the last two years.
Purchases by New Company
New Company has not purchased any shares of Strategic Common Stock during
the last two years.
Transactions by Certain Members of the Buyer Group
Certain members of the Buyer Group exercised warrants in June 2002 to
purchase 1,430,000 shares, which transactions were rescinded in December 2002.
During May 2003, based on a valuation prepared by an independent valuation
company, the Company reached an agreement with its stockholder lenders to
eliminate the obligation to issue warrants for an additional 1,173,100 shares on
each loan renewal and cancel all warrants previously issued and outstanding.
The Board of Directors cancelled all outstanding options in May 2003 and
the Company will not issue any additional options pursuant to such Plan.
33
THE PARTIES
Strategic Capital Resources, Inc.
Strategic Capital Resources, Inc. was incorporated in Delaware in 1995. We
reincorporated as a Florida corporation on August 14, 2003. We are actively
exploring other asset classes and business opportunities. Future opportunities
may be in real estate assets or extend to other real estate activities or
unrelated asset classes.
We are engaged in such arrangements in three lines of business:
1. Sale/leaseback of fully furnished model homes complete with options and
upgrades;
2. Residential real estate acquisition and development; and
3. Multi-family residential property (sold March, 2003).
BENEFICIAL OWNERSHIP OF STRATEGIC'S SECURITIES
The following table sets forth information regarding the beneficial
ownership of our Common Stock as of November 28, 2003 by (i) each of the
Company's officers and directors, (ii) each person who is known by the Company
to beneficially own more than 5% of the outstanding shares of Common Stock, and
(iii) all of the Company's officers and directors as a group. Except as
otherwise noted, each person indicated has sole voting and investment power with
respect to the securities listed.
Amount and
Nature of Percent
Beneficial of
Name and Address of Beneficial Owner Ownership Class
---------- -------
Directors and Officers:
David Miller 33,354(1) 43.2%
7691 Porto Vecchio Place
Delray Beach, FL 33446
Scott Miller 6,600 8.6%
7691 Porto Vecchio Place
Delray Beach, FL 33446
Samuel G. Weiss 770 1.0%
265 Sunrise Hwy, Suite 30
Rockville Center, New York 11570
Ralph Wilson 787 1.0%
7 Ensign Lane Massapequa,
New York 11758
Libo Fineberg, Trustee (2) 6,250 8.1%
Helen Miller Irrevocable Trust
3500 Gateway Drive
Pompano Beach, Florida 33069
Rita Miller (3) 6,600 8.6%
7691 Port Vecchio Place
Delray Beach, FL 33446
All Officers and Directors as a Group (4) (4 persons) 41,511 53.8%(4)
- -----------------
(1) Includes 5,250 shares owned by Lite `N Low, Inc. and 7,750 shares owned by
Priority Capital Corp., privately-held companies of which David Miller, our
Chief Executive Officer, President, Chief Financial Officer and Chief Accounting
Officer and one of our Directors, is the sole shareholder.
(2) David Miller, our Chief Executive Officer, President and one of our
Directors, is the sole beneficiary. Mr. Miller has no voting power and he
disclaims any beneficial ownership.
(3) Rita Miller is the wife of David Miller. She has sole voting power and
ownership and David Miller disclaims any beneficial ownership.
(4) Does not include John H. Roach, Jr., a Company director, who does not own
any Company securities.
34
Directors and Executive Officers of Strategic
The names of the current directors and executive officers and certain
information about them as of November 28, 2003, are set forth below.
Name Age Position
- ---- --- --------
David Miller 58 Chairman of the Board, Chief Executive Officer, President, Chief
Financial Officer and Chief Accounting Officer
Samuel G. Weiss 54 Secretary, Director
Scott Miller 28 Vice President, Assistant Secretary
Ralph Wilson 73 Director
John H. Roach, Jr. 61 Director
David Miller is the father of Scott Miller. There are no other family
relationships amongst our management.
Set forth below is certain information with respect to our directors and
executive officers as of the date of this Information Statement. Each of our
directors and executive officers is a citizen of the United States. None of our
directors and executive officers have been convicted in a criminal proceeding
during the past five years (excluding traffic violations or similar
misdemeanors), nor has any been a party to any judicial or administrative
proceeding during the past five years that resulted in a judgment, decree or
final order enjoining such person from future violations of, or prohibiting
activities subject to, federal or state securities laws, or a finding of any
violation of federal or state securities laws. Except as otherwise noted, the
business address of each person is in care of Strategic Capital Resources, Inc.,
7900 Glades Road, Suite 610, Boca Raton, FL 33434.
David Miller was appointed Chairman of the Board on July 29, 1997. On
December 1, 2000, Mr. Miller was elected President and Chief Executive Officer.
In August 2003, he assumed the position of our Chief Financial Officer and Chief
Accounting Officer as well. Prior to December 2000, Mr. Miller had been engaged
as a consultant to us since our organization. Since 1994, Mr. Miller has served
as Chairman of the Board of Lite `N Low, Inc., a holding company no longer
actively engaged in business. Mr. Miller is currently Chairman of Priority
Capital Corp., a privately held company which is inactive. Mr. Miller devotes
substantially all of his time to our business.
Samuel G. Weiss, Secretary and Director, has been an executive officer of
our Company since our organization. Effective May 1997, Mr. Weiss was interim
President and served in that capacity until January 1, 1999. Since 1974, Mr.
Weiss has been engaged in the practice of law in the State of New York. Mr.
Weiss devotes only such time as is necessary to our business.
Scott Miller, Vice President and Assistant Secretary, was appointed to his
positions with us in September 2000. Prior to joining our Company, Mr. Miller
earned a Master's Degree in mediation and arbitration from Nova Southeastern
University. He received a Bachelor of Arts degree in English from Hofstra
University in 1997. He devotes substantially all of his time to our business.
Ralph Wilson, Director, has held his position since our organization. In
addition, since 1971, Mr. Wilson has been a principal officer of Comet
Electronics Corp., a privately owned manufacturer of subassemblies in
Farmingdale, New York. Mr. Wilson devotes only such time as is necessary to our
business.
John H. Roach, Jr. was elected a Director in December 1998. In August 2003,
Mr. Roach assumed the position of Managing Director of Jamison Prince Asset
Management of New York, New York. From January 2002 to August 2003, he was self
employed as a financial consultant to various private companies and individuals.
From May 2000 through December 2001, he was a Senior Client Advisor for J.P.
Morgan Private Bank. Prior thereto, from 1998 to 2000, he was Senior Managing
Director for Reliance National. Mr. Roach devotes only such time as is necessary
to our business.
New Company
New Company has been incorporated under the laws of the State of Florida
for the purpose of completing the Merger. New Company's principal executive
offices will be located at the Company's present executive offices. The Buyer
Group will own 100% of the issued and outstanding stock of New Company. Mr.
David Miller is the sole officer and director of New Company. Because he is also
a member of Strategic's board, his biographical information appears above. He is
a United States citizen and, for the last five years, has not been convicted in
a criminal proceeding or been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order enjoining him from
future violations of, or prohibiting the activities subject to, federal or state
securities laws, or a finding of any violation of federal or state securities
laws. The members of the Buyer Group, including Mr. Miller, have agreed to
contribute their shares of Strategic Common Stock to New Company in exchange for
shares of New Company common stock immediately prior to the Merger.
35
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Information
Statement. This summary is qualified in its entirety by reference to the full
text of the Merger Agreement and you are urged to carefully read the full text
of the Merger Agreement. The Merger Agreement is incorporated into this
Information Statement by this reference.
Structure and Completion of the Merger
New Company will merge with and into Strategic, with Strategic surviving
the Merger. Holders of Strategic Common Stock, except for New Company, will
receive $25.00 per share for each share of Common Stock that they own at the
time of the Merger. The shareholders of New Company will not receive any cash
compensation for their outstanding shares of Strategic Common Stock because
immediately before the Merger, they will contribute those shares to New Company
in exchange for shares of New Company common stock. At the closing of the
Merger, New Company will cease to exist as a separate entity, the shares of
Strategic Common Stock owned by New Company shall be cancelled and cease to
exist and the shares of New Company common stock owned by the Buyer Group will
be converted into shares of Strategic Common Stock. Strategic Common Stock will
be deregistered under the Exchange Act, and Strategic will continue in business
as a privately held Florida corporation owned by the Buyer Group.
The articles of incorporation and bylaws of Strategic immediately prior to
the Merger will be the articles and bylaws of Strategic after the Merger.
Similarly, the officers and directors of Strategic prior to the Merger will be
the same after the Merger.
Effect of the Merger on Capital Stock
Each issued and outstanding share of Strategic Common Stock, other than
shares owned by New Company, will be converted into the right to receive $25.00
per share in cash, without interest, upon the surrender of the share
certificates. If Strategic changes the number of shares of its Common Stock
issued and outstanding as a result of a stock split, reverse stock split, stock
dividend, recapitalization or other method, then the cash consideration to be
received will be appropriately adjusted. Each share of Common Stock outstanding
immediately prior to the Merger will cease to exist at the time of the Merger,
and the holders of such stock will no longer have any rights with respect to
such shares, except the right to receive cash consideration. At the effective
time of the Merger, each whole share of New Company outstanding immediately
prior to the Merger will be converted into one share of Strategic Common Stock.
Such shares will continue to exist upon consummation of the Merger and will be
issued and outstanding shares of Strategic Common Stock. Strategic Common Stock
owned by New Company will be cancelled and cease to exist.
Stock Option Plan
In June 2001, a majority of the Company's shareholders approved our 2001
Stock Option Plan" (the "Plan"). This Plan provides for the grant of incentive
and non-qualified stock options that may be issued to key employees,
non-employee directors, independent contractors and others and we have reserved
12,500 shares of our Common Stock for issuance under the Plan. There are no
options outstanding under this Plan and the Company will not issue any
additional options, pursuant to such Plan.
Payment Procedures for Shareholders Who Receive Cash in the Merger
Strategic has selected its transfer agent, Continental Stock Transfer &
Trust Company, as payment agent in connection with the Merger. Strategic will
arrange for the payment agent to receive sufficient funds to provide all
necessary payments to holders of shares, other than holders who are members of
the Buyer Group and will contribute shares to New Company, that are issued and
outstanding immediately before the completion of the Merger. Following the
Merger, Strategic will pay all charges and expenses, including those of the
payment agent, in connection with the exchange of cash for shares.
As soon as practicable, but no more than five business days after the
completion of the Merger, Strategic will instruct the payment agent to mail to
each holder of a share certificate, other than holders who are members of the
Buyer Group and will contribute shares to New Company, a letter of transmittal,
form of affidavit and instructions on how to surrender the certificates in
exchange for the Merger consideration.
After you surrender to the payment agent your stock certificate(s) with the
letter of transmittal, you will be paid in cash the amount to which you are
entitled under the Merger Agreement, without interest, after any required
withholding and similar deductions. After the completion of the Merger, there
will not be any transfers of the shares that were outstanding immediately prior
to the completion of the Merger on Strategic's stock transfer books.
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Neither New Company nor Strategic will be liable to any former shareholders
for any amount properly delivered pursuant to applicable abandoned property,
escheat or similar laws of the state where such shareholder resides. See
"QUESTIONS AND ANSWERS - What Happens If I Do Not Surrender My Stock
Certificates/Shares?" Any person claiming their stock certificate has been lost,
stolen or destroyed will be required to sign an affidavit to that effect and may
be required by the surviving corporation to post a bond in a reasonable amount
as an indemnity against any claim that could be made against the surviving
corporation in respect of such lost, stolen or destroyed stock certificates.
After delivering an affidavit, and if required a bond, the surviving corporation
will deliver the applicable amount of cash in respect of such shares. In the
event of a transfer of ownership of the Strategic Common Stock which is not
registered in the transfer records of Strategic, the cash consideration shall be
paid to such a transferee if the certificate representing such Strategic Common
Stock is presented to Strategic accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
Stock Certificate Exchange Procedures for Members of the Buyer Group
Members of the Buyer Group will receive certificates from New Company
representing shares of New Company common stock when they contribute their
shares of Strategic Common Stock to New Company immediately prior to the Merger.
At the closing of the Merger, New Company will cease to exist as a separate
entity, the shares of Strategic Common Stock owned by New Company will be
cancelled and the shares of New Company common stock owned by the Buyer Group
will be converted into shares of Strategic Common Stock. New Strategic Common
Stock certificates will be issued by Strategic to members of the Buyer Group as
soon as practicable after the closing of the Merger.
Representations and Warranties
The Merger Agreement contains representations and warranties by each of
Strategic and New Company. The representations of Strategic relate to, among
other things.
- the existence and good standing of Strategic and each of its
corporate subsidiaries in their states of organization; Strategic's
qualification to do business as a foreign corporation in good
standing in other jurisdictions; and the completeness and correctness
of Strategic's articles of incorporation and bylaws;
- Strategic's corporate power and authority to execute and deliver the
Merger Agreement and all other agreements and documents contemplated
by the Merger Agreement; the authorization and approval of the Merger
Agreement by the Board of Directors; the valid and legally binding
nature of the Merger Agreement, enforceable against Strategic in
accordance with its terms (subject to applicable law);
- the composition of the authorized capital stock of Strategic and the
number of issued and outstanding shares of Strategic's stock, the
nature of the issued shares as duly authorized, validly issued, fully
paid, no assessable and free of preemptive rights;
- the lack of any conflict with or breach of any provisions of
Strategic's articles of incorporation or bylaws; any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit,
lease, contract, agreement, joint venture or other instrument; or any
law, rule, regulation, judgment, order or decree binding upon or
applicable to Strategic or any of its subsidiaries;
- the lack of requirement for any consent, approval or authorization
of, or filing or registration with, any governmental or regulatory
authority, other than filing Articles of Merger and the Merger
Agreement with the Florida Secretary of State and requisite filings
required by the Exchange Act;
- the lack of any payment of finder's fees, brokerage or agent's
commissions or other like payments in connection with the
negotiations leading to the merger;
- the requirement for an affirmative vote of the holders of a majority
of the outstanding shares of Strategic Common Stock to approve the
Merger Agreement; and
- the receipt, of an opinion of Pali stating that the price paid to
Strategic's shareholders (other than New Company) for Strategic
Common Stock is fair, from a financial point of view, to Strategic's
shareholders.
37
The representations of New Company relate to, among other things:
- the existence and good standing of New Company in its state of
organization; that copies of its articles of incorporation and bylaws
made available to Strategic are true, complete and correct;
- the lack of any equity interest by New Company in any entity other
than Strategic;
- New Company's corporate power and authority to execute and deliver
the Merger Agreement and all other agreements and documents
contemplated by the Merger Agreement; the authorization and approval
of the Merger Agreement by all requisite corporate action on the part
of New Company; the valid and legally binding nature of the Merger
Agreement, enforceable against New Company in accordance with its
terms (subject to applicable law);
- the lack of any conflict with or breach of any provisions of New
Company's articles of incorporation or bylaws; any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit,
lease, contract, agreement, joint venture or other instrument; or any
law, rule, regulation, judgment, order or decree binding upon or
applicable to New Company;
- the lack of requirement for any consent, approval or authorization
of, or filing or registration with, any governmental or regulatory
authority, other than filing the Articles of Merger with the Florida
Secretary of State and requisite filings required by the Exchange
Act;
- the lack of any payment of finder's fees, brokerage or agent's
commissions or other like payments in connection with the
negotiations leading to merger;
- the fact that New Company was formed solely for the purpose of
engaging in the Merger transaction and has not engaged in any
activities other than in connection with the Merger;
- New Company and the Buyer Group have no current intention to sell,
transfer or otherwise dispose of Strategic Common Stock or its
business following consummation of the Merger, but there can be no
assurance such transfer as to its business would not occur in the
future;
- that the Merger Agreement does not violate certain provisions of
Florida Business Corporation Act; and
- that the surviving corporation immediately post-Merger will be able
to pay its debts as they mature, will have capital sufficient to
carry on its business and will have assets with a present fair
salable value greater than the aggregate amount of indebtedness.
Ordinary Course of Business Covenant
Strategic has agreed in the Merger Agreement that before the completion of
the Merger, it will operate its business in the ordinary and usual course. In
particular, Strategic has agreed as to itself and its subsidiaries that it will
use its commercially reasonable efforts to preserve its business organization
intact and maintain its existing business relationships, and that it will not:
- amend its articles of incorporation or bylaws;
- issue any shares of its capital stock, effect any stock split or
otherwise change its capitalization as it existed on the date hereof;
- grant, confer or award any option, warrant, conversion right or other
right not existing on the date of the Merger Agreement to acquire any
shares of its capital stock;
- increase any compensation or benefits, except in the ordinary course
of business consistent with past practice, or enter into or amend any
employment agreement with any of its present or future officers or
directors, except with new employees consistent with past practice;
- adopt any new employee benefit plan (including any stock option,
stock benefit or stock purchase plan) or amend (except as required by
law) any existing employee benefit plan in any material respect,
except for changes that are less favorable to participants in such
plans;
38
- declare, set aside or pay any dividend or make any other distribution
or payment with respect to any shares of its capital stock or redeem,
purchase or otherwise acquire any shares of its capital stock or
capital stock of any of its subsidiaries;
- sell, lease or otherwise dispose of any of its assets (including
capital stock of any subsidiaries) that are material to Strategic,
except in the ordinary course of business; or
- take any action that is likely to delay materially or adversely
affect the ability of any of the parties (i) to obtain any consent,
authorization, order or approval of any governmental commission,
board or other regulatory body or (ii) to consummate the Merger.
Actions to be Taken to Complete the Merger
In the Merger Agreement, Strategic and New Company each agree to take all
necessary action to complete the Merger. In particular, Strategic and New
Company each agree that the information they have supplied for inclusion or
incorporation by reference in this Information Statement and the Schedule 13E-3
to be filed with the SEC in connection with the Merger will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated in these documents or necessary to make the statements in these
documents, in light of the circumstances under which they were made, not
misleading. Strategic and New Company have also agreed to ensure that this
Information Statement and the Schedule 13E-3 comply as to form in all material
respects with the applicable provisions of all applicable securities laws and
regulations. Strategic agreed to promptly prepare and file this Information
Statement, and the Schedule 13E-3.
No Solicitation of Competing Transactions
The Merger Agreement prohibits Strategic (through its Board of Directors,
Special Committee or otherwise) from soliciting, initiating or encouraging any
inquiries or the making of any proposal that would constitute a competing
transaction to the merger contemplated by the Merger Agreement.
However, the Board of Directors (acting through the Special Committee) may:
- furnish information (pursuant to a confidentiality agreement, a copy
of which will be provided to New Company) about Strategic and its
businesses, properties or assets to any third party or "group" as
defined in Section 13(d) of the Exchange Act, other than New Company,
in response to any unsolicited inquiry, proposal or offer;
- engage in discussions or negotiations with a third party or group
that has made an unsolicited inquiry, proposal or offer;
- following receipt of a bona fide proposal relating to a competing
transaction, disclose to Strategic's shareholders a statement that
Strategic recommends acceptance or rejection of the proposal relating
to the competing transaction, expresses no opinion and is remaining
neutral toward the third party or group's proposal or is unable to
take a position with respect to the third party or group's proposal
(as contemplated by Rules 14d-9 and 14e-2(a) under the Exchange Act);
- following receipt of a bona fide proposal relating to a competing
transaction, fail to make its recommendation or withdraw or modify
its recommendation with respect to the Merger or the Merger
Agreement; and/or
- terminate the Merger Agreement.
Before submitting a position statement to the shareholders, or terminating
the Merger Agreement, as discussed above, the Board of Directors must conclude
in good faith after consultation with counsel that any such action is consistent
with the Board of Directors' fiduciary duties to Strategic's shareholders under
applicable law.
Expenses
Generally, Strategic will pay all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated by the Merger
whether or not the Merger is consummated. New Company and the Buyer Group will
pay Strategic's costs and expenses, however, if the Merger Agreement is
terminated because:
- there has been a breach by New Company of any material
representation, warranty, covenant or agreement or if any
representation or warranty of New Company shall have become
materially untrue, in either case such that the conditions set forth
39
in the Merger Agreement would not be satisfied and such breach is not
curable, or, if curable, is not cured within 30 days after written
notice of such breach is given to New Company by Strategic.
In addition Strategic will pay New Company's and the Buyer Group's costs
and expenses if the Merger Agreement is terminated because:
- the Board of Directors or Special Committee determines in good faith,
after consultation with legal counsel, that failure to do so would be
inconsistent with the Board of Directors' fiduciary duties under
applicable law;
- there has been a breach by Strategic of any material representation,
warranty covenant or agreement or if any representation or warranty
of Strategic shall have become materially untrue, in either case such
that the conditions set forth in the Merger Agreement would not be
satisfied and such breach is not curable, or, if curable, is not
cured within 30 days after written notice of such breach is given by
New Company to Strategic;
- the Board of Directors of Strategic or the Special Committee shall
have withdrawn or materially modified, in a manner adverse to New
Company, its approval or recommendation of the Merger, or resolved to
do so; or
- Strategic engages in discussions or negotiations with a third party
or group with respect to a competing transaction and does not
terminate such discussions within 10 business days thereafter.
Director and Officer Liability
Strategic and New Company agree that after the effective time of the
Merger, Strategic, its successors and assigns (through a merger, consolidation,
sale or transfer of substantially all of Strategic's assets, or any similar
transaction) will maintain all rights to indemnification existing on the date of
the Merger Agreement in favor of the present and former directors, officers,
employees and agents of Strategic, to the fullest extent of the law and
Strategic's articles of incorporation and bylaws, and Strategic agrees not to
amend the articles of incorporation and bylaws to reduce or limit the rights to
indemnification. All rights to indemnification in respect to any claim or claims
asserted shall continue until the disposition of any and all such claims.
Conditions
The respective obligation of each party to effect the Merger shall be
subject to the fulfillment at or prior to the closing date of the following
conditions:
- none of the parties shall be subject to any decree, order or
injunction of a court of competent jurisdiction, U.S. or foreign,
that prohibits the consummation of the Merger; and
- no statute, rule or regulation shall have been enacted by any
governmental authority that prohibits or makes unlawful the
consummation of the Merger.
The obligation of Strategic to effect the Merger shall be subject to the
fulfillment at or prior to the closing date of the following conditions:
- New Company shall have performed in all material respects its
covenants and agreements required to be performed on or prior to the
closing date, and the representations and warranties of New Company
shall be true and correct in all material respects, and Strategic
shall have received a certificate of New Company certifying to such
effect; and
- The Board of Directors or the Special Committee shall not have
withdrawn or materially modified its approval or recommendation of
the Merger or resolved to do so.
The obligations of New Company to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the closing date of the following
conditions:
- Strategic shall have performed in all material respects its covenants
and agreements required to be performed on or prior to the closing
date, and the representations and warranties of Strategic shall be
true and correct in all material respects, and New Company shall have
received a certificate of Strategic certifying to such effect.
40
Termination
The Merger Agreement may be terminated and the Merger abandoned at any time
before the completion of the Merger by mutual written consent of Strategic and
New Company.
The Merger Agreement may be terminated by Strategic or New Company if:
- a governmental authority enacts a statute, rule or regulation that
prohibits or makes unlawful the Merger;
- the Merger is not completed prior to December 31, 2003 and the
closing date has not otherwise been extended by the parties; or
- a court of competent jurisdiction or a governmental, regulatory or
administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger, and such order,
decree, ruling or other action shall have become final and
non-appealable; provided, however, that the party seeking to
terminate the Merger Agreement shall have used commercially
reasonable efforts to remove such injunction, order or decree.
The Merger Agreement may be terminated by action of the Board of Directors
of Strategic if:
- there has been a breach by New Company of any material
representation, warranty, covenant or agreement or if any
representation or warranty of New Company shall have become
materially untrue, in either case such that any of the conditions set
forth in the Merger Agreement would not be satisfied and such breach
is not curable, or, if curable, is not cured within 30 days after
written notice of such breach is given to New Company by Strategic;
or
- the Board of Directors determines in good faith, after consultation
with legal counsel, that failure to do so would be inconsistent with
the Board of Directors' fiduciary duties under applicable law.
The Merger Agreement may be terminated by action of the board of directors
of New Company if:
- there has been a breach by Strategic of any material representation,
warranty covenant or agreement or if any representation or warranty
of Strategic shall have become materially untrue, in either case such
that any of the conditions set forth in the Merger Agreement would
not be satisfied and such breach is not curable, or, if curable, is
not cured within 30 days after written notice of such breach is given
by New Company to Strategic;
- the Board of Directors of Strategic or the Special Committee shall
have withdrawn or materially modified, in a manner adverse to New
Company, its approval or recommendation of the Merger, or resolved to
do so;
- Strategic engages in discussions or negotiations with a third party
or group with respect to a competing transaction and does not
terminate such discussions within 10 business days thereafter; and
- at any time after the date of the Merger Agreement, there shall have
occurred a material adverse effect on or change in the business,
results of operations or financial condition of Strategic and its
subsidiaries on a consolidated basis or the ability of Strategic to
consummate the Merger primarily due to significant acts by any civil
or military authority, terrorist acts, national emergencies,
disturbances, insurrections, riots or wars or to the commencement or
to an overt threat of litigation material to Strategic and its
subsidiaries, taken as a whole.
CONTRIBUTION AGREEMENT
Immediately prior to the effective time of the Merger, each member of the
Buyer Group has agreed to contribute his, her or its Strategic Common Stock to
New Company in exchange for whole shares of New Company common stock equal to
the number of shares of Strategic Common Stock contributed to New Company. Each
member of the Buyer Group executed a contribution agreement.
Each Buyer Group member acted individually and not jointly with other Buyer
Group members when executing the contribution agreement except for Lite `N Low
and Priority Capital Corp. which are controlled by Mr. David Miller. No Buyer
Group member agreed to vote, or is obligated by the contribution agreement to
vote, his, her or its Strategic Common Stock in favor of the Merger Agreement.
By signing the contribution agreement, no Buyer Group member has conferred upon
any other person or shared the power to dispose or vote or direct the
disposition or voting of his, her or its Strategic Common Stock.
41
In the contribution agreement, the Buyer Group members represent to New
Company that they:
- are the record and beneficial owners of the Strategic Common Stock to
be contributed to New Company;
- own their Strategic Common Stock free and clear of any liens,
encumbrances or other claims;
- have the power and right to sell, assign, transfer and deliver their
Strategic Common Stock and, upon delivery to New Company of their
stock certificates, New Company will acquire their Strategic Common
Stock free and clear of any liens or encumbrances; and
- duly executed and delivered the contribution agreement and that the
contribution agreement is valid and binding upon and enforceable
against them in accordance with its terms.
In the contribution agreement, New Company represents to the Buyer Group
that it:
- is a corporation in good standing under the laws of Florida;
- has authorized the issuance of New Company common stock upon the
terms described in the contribution agreement; and
- has duly authorized, executed and delivered the contribution
agreement and that the contribution agreement is valid and binding
upon and enforceable against New Company in accordance with its
terms.
Pursuant to the terms of the Merger Agreement, and as more fully discussed
above under "THE MERGER AGREEMENT -- Effect of the Merger on Capital Stock",
shares of New Company common stock held by the Buyer Group will be converted
into Strategic Common Stock at the effective time of the Merger.
WHERE YOU CAN FIND MORE INFORMATION
Strategic files reports, proxy statements and other information with the
SEC under the Exchange Act. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. You may read and copy, at the
prescribed rates, this information at the SEC's Public Reference Room, 450 Fifth
Street, N.W., Washington, D.C. 20549.
These documents are also included in our SEC filings, which you can access
electronically at the SEC's website at http://www.sec.gov.
Strategic, New Company, David Miller, Rita Miller, Scott Miller and Helen
Miller Irrevocable Trust, Libo Fineberg, Trustee have filed with the SEC
Schedule 13e-3 Transaction Statement on Schedule 13E-3 in respect of the Merger.
As permitted by the SEC, this Information Statement omits certain information
contained in the Schedule 13E-3. The Schedule 13E-3, including any amendments
and exhibits filed or incorporated by reference as a part thereof, is available
for inspection or copying as set forth above or is available electronically at
the SEC website.
42
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows Strategic to "incorporate by reference" information into
this document. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this document, except
for any information that is superseded by information that is included directly
in this document or in any other subsequently filed document that also is
incorporated by reference herein.
This document incorporates by reference the documents listed below that
Strategic has filed previously with the SEC. They contain important information
about Strategic and its financial condition.
- Strategic's Annual Report on Form 10-K for the year ended June 30,
2003.
- Strategic's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003.
- Information Statement filed with the SEC on September 15, 2003.
We will provide, without charge, to each person to whom this Information
Statement is delivered, upon written or oral request of such person and by first
class mail or other equally prompt means within three business days of receipt
of such request, a copy of any and all information that has been incorporated by
reference, without exhibits unless such exhibits are also incorporated by
reference in this Information Statement. You may obtain a copy of these
documents and any amendments thereto by writing to our Investor Relations
Department at the following address: Strategic Capital Resources, Inc., 7900
Glades Road, Suite 610, Boca Raton, Florida 33434.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
__________, 2003, is by and between Strategic Capital Resources, Inc., a Florida
corporation (the "Company"), and Mergerco, Inc., a Florida corporation ("New
Company").
RECITALS
WHEREAS, New Company was formed on __________, 2003 for the sole purpose of
entering into the transactions contemplated by this Agreement; and
WHEREAS, the Board of Directors of the Company has determined that the
merger of New Company with and into the Company upon the terms and conditions
stated herein (the "Merger") is desirable and in the best interests of the
Company; and
WHEREAS, as of the date hereof there are no shares of common stock of New
Company issued and outstanding; and
WHEREAS, the shareholders of the Company named on Exhibit A have agreed to
contribute their shares of common stock, par value $.001 per share, of the
Company ("Company Common Stock") to New Company in exchange for a number of
whole shares of common stock of New Company equal to the number of shares of
Company Common Stock contributed to New Company, such contribution to take place
after the last of the conditions set forth in Article VIII have been fulfilled
or waived but prior to the Effective Time (as defined in Section 1.3) (the
shareholders of the Company named on Exhibit A are hereinafter collectively
referred to as the "Buyer Group"); and
WHEREAS, pursuant to the Merger each share of Company Common Stock, other
than shares owned by New Company, will be converted into the right to receive
$25.00 in cash per share; and
WHEREAS, pursuant to a meeting of the Board of Directors of the Company
(with David Miller abstaining), and a written consent of a majority of the
Common Stock shareholders, the Board of Directors and majority shareholders have
duly adopted, have authorized and approved; (a) the execution and delivery of
this Agreement, including the related Articles of Merger ("Articles of Merger");
and (b) the transactions contemplated hereby, including the Merger; and
WHEREAS, the Board of Directors and the shareholders of New Company have
determined that the Merger, in the manner contemplated herein, is desirable and
in the best interests of New Company and its shareholders, and, by resolutions
duly adopted, have authorized and approved: (a) the execution and delivery of
this Agreement and the Articles of Merger; and (b) the transactions contemplated
hereby, including the Merger; and
WHEREAS, the Company and New Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereby agree as follows (with defined terms, the definitions of which
are not otherwise given in the text of this Agreement, being defined in Section
10.9).
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Subject to the terms and conditions of this
Agreement, and in accordance with the Florida Business Corporation Act (the
"FBCA"), at the Effective Time (as defined in Section 1.3), New Company shall be
merged with and into the Company, and the separate corporate existence of New
Company shall thereupon cease, and the Company shall continue as the surviving
corporation (the Company is also sometimes hereinafter referred to as the
"Surviving Corporation") and shall continue to be governed by the laws of the
State of Florida. The Merger shall have the effects specified in the FBCA.
SECTION 1.2 The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place: (a) at
the offices of Tescher Lippman & Valinsky, 100 Northeast Third Avenue, Fort
Lauderdale, Florida 33301 at 9:00 a.m local time, on the first business day
after the day on which the last to be fulfilled or waived of the conditions set
1
forth in Article VIII shall be fulfilled or waived in accordance herewith; or
(b) at such other time, date or place as the Company and New Company may agree.
The date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
SECTION 1.3 Effective Time. If all the conditions to the Merger set forth
in Article VIII shall have been fulfilled or waived in accordance herewith and
this Agreement shall not have been terminated as provided in Article IX, the
Company and New Company shall cause Articles of Merger attached hereto as
Exhibit A meeting the requirements of Section 607.1105 of the FBCA, together
with this Agreement, to be properly executed and filed in accordance with the
FBCA on the Closing Date. The Merger shall become effective upon the issuance of
a certificate of merger by the Florida Secretary of State (the "FSS") in
accordance with the FBCA or at such later date and time as the parties hereto
shall have agreed upon and designated in the Articles of Merger as the effective
time of the Merger (the "Effective Time").
ARTICLE II
ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION
SECTION 2.1 Articles of Incorporation. The articles of incorporation of the
Company in effect immediately prior to the Effective Time shall be the articles
of incorporation of the Surviving Corporation.
SECTION 2.2 Bylaws. The bylaws of the Company in effect immediately prior
to the Effective Time shall be the bylaws of the Surviving Corporation.
ARTICLE III
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
SECTION 3.1 Directors of Surviving Corporation. The directors of the
Company immediately prior to the Effective Time shall be the directors of the
Surviving Corporation as of the Effective Time.
SECTION 3.2 Officers of Surviving Corporation. The officers of the Company
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation as of the Effective Time.
ARTICLE IV
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
SECTION 4.1 Effect of Merger on Capital Stock.
(a) At the Effective Time, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of
Company Common Stock owned by New Company) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive $25.00 in cash, per share, or pro-rata portion thereof in the
instance of fractional shares (the "Cash Consideration"), payable to the holder
thereof, without interest thereon, subject to the exchange process contemplated
in Section 4.2(a) and to adjustment as provided in Section 4.3, and each holder
of a certificate (a "Certificate") that immediately prior to the Effective Time
of the Merger represented any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares, except the
right to receive, without interest thereon, upon the surrender of such
Certificate, the Cash Consideration in accordance with Section 4.2(a).
(b) At the Effective Time, and without any action on the part of the
holders of Company Common Stock, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time and owned by New Company
shall cease to be outstanding and shall be canceled and retired and shall cease
to exist.
(c) At the Effective Time, the issued and outstanding shares of common
stock of New Company shall be converted into and become a number of fully paid
and non-assessable shares of common stock, par value $.001 per share, of the
Company equal to the number of whole shares of New Company Common Stock to be so
converted. Such shares of common stock of the Company shall constitute all of
the issued and outstanding shares of capital stock of the Surviving Corporation
at the Effective Time. The Company Common Stock owned by New Company immediately
prior to the Effective Time shall be cancelled and cease to exist in accordance
with Section 4.1(b).
2
SECTION 4.2 Exchange of Certificates Representing Company Common Stock.
(a) As soon as reasonably practicable after the Effective Time, but in no
event later than five business days following the Closing, the Surviving
Corporation shall mail to each holder of record (other than New Company) of one
or more Certificates that, immediately prior to the Effective Time, represented
outstanding shares of Company Common Stock: (i) a letter of transmittal (the
"Letter of Transmittal") which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Surviving Corporation and shall be in such form and have
such other provisions as the Surviving Corporation may reasonably specify; and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Cash Consideration. Upon surrender of a Certificate for
cancellation to the Surviving Corporation, together with such Letter of
Transmittal, duly executed and completed in accordance with the instructions
thereto, the holder of such Certificate shall be entitled to receive in exchange
for each share of Company Common Stock represented by such Certificate cash in
an amount equal to the Cash Consideration, after giving effect to any required
withholding and similar deductions, and the Certificate so surrendered shall
forthwith be marked as canceled. No interest will be paid or accrued on the Cash
Consideration payable to holders of Certificates. In the event of a transfer of
ownership of Company Common Stock which is not registered in the transfer
records of the Company, the Cash Consideration shall be paid to such a
transferee if the Certificate representing such Company Common Stock is
presented to the Surviving Corporation accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(b) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Company Common Stock which
were outstanding immediately prior to the Effective Time.
(c) Neither the Surviving Corporation nor any party hereto shall be liable
to any former holder of shares of Company Common Stock for any amount of cash or
interest properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(d) The Surviving Corporation shall be entitled to deduct and withhold from
the Cash Consideration otherwise payable pursuant to this Agreement to any
holder of shares of Company Common Stock such amounts as the Surviving
Corporation reasonably determines are required to be deducted and withheld with
respect to the making of such payment under any provision of federal, state,
local or foreign tax law. To the extent that amounts are so withheld by the
Surviving Corporation, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of Company
Common Stock in respect of which such deduction and withholding was made by the
Surviving Corporation.
(e) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such person of a bond in such reasonable amount as
the Surviving Corporation may direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Surviving Corporation will
deliver in exchange for such lost, stolen or destroyed Certificate cash in an
amount equal to the Cash Consideration deliverable in respect thereof pursuant
to this Agreement.
SECTION 4.3 Adjustment of Cash Consideration. In the event that, subsequent
to the date of this Agreement but prior to the Effective Time, the Company
changes the number of shares of the Company Common Stock issued and outstanding
as a result of a stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction without receipt of consideration
in respect of Company Common Stock, the Cash Consideration shall be
appropriately adjusted.
SECTION 4.4 Surrender. At the Closing, New Company shall surrender its
stock transfer books, minute book and corporate seal to the Surviving
Corporation. At the Effective Time, the stock transfer books of New Company
shall be closed, and there shall be no registration of transfers of shares of
capital stock of New Company thereafter.
SECTION 4.5 Additional Actions. If, at any time after the Closing, the
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable to: (a) vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation its
rights, title or interest in, to or under any of the rights, properties or
assets of New Company acquired or to be acquired by the Surviving Corporation as
a result of, or in connection with, the Merger; or (b) otherwise to carry out
the purposes of this Agreement and the transactions contemplated hereby, New
Company shall be deemed to have granted to the Surviving Corporation an
irrevocable power of attorney to execute and deliver all such proper deeds,
assignments, novations and assurances in law and to do all acts necessary or
proper to vest, perfect or confirm title to and possession of such rights,
properties or assets in the Surviving Corporation and otherwise to carry out the
purpose of this Agreement and the transactions contemplated hereby; and the
proper officers and directors of the Surviving Corporation are fully authorized
in the name of New Company or otherwise to take any and all such actions.
3
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to New Company that:
SECTION 5.1 Existence; Good Standing; Corporate Authority. The Company and
each of its corporate Subsidiaries is a corporation duly incorporated, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation. Each of the Company and its Subsidiaries has all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now conducted. Each of the Company and its Subsidiaries
is duly qualified to do business as a foreign corporation or other organization
in good standing in each state or jurisdiction in which their ownership or
leasing of property or conduct of business legally requires such qualification,
except where failure to be so qualified or in good standing, individually or in
the aggregate, would not have a Company Material Adverse Effect. The copies of
the Company's articles of incorporation and bylaws previously made available to
New Company are true, complete and correct and contain all amendments as of the
date hereof.
SECTION 5.2 Authorization, Validity and Effect of Agreements. The Company
has the requisite corporate power and authority to execute and deliver this
Agreement and all other agreements and documents contemplated hereby. This
Agreement and the consummation by the Company of the transactions contemplated
hereby have been duly authorized, approved and recommended by a vote of the
Board of Directors of the Company and by a majority of the Common Stock
shareholders, and by all other requisite corporate action other than the filing
of the Articles of Merger and this Agreement, with the FSS in accordance with
the FBCA. This Agreement has been duly executed and delivered by the Company and
constitutes the valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principals of equity.
SECTION 5.3 Capitalization. The authorized capital stock of the Company
consists of Twenty-Five Million (25,000,000) shares of Company Common Stock, par
value $0.001 per share, and Five Million (5,000,000) shares of preferred stock,
par value $.01 per share. As of October __, 2003, (i) 77,190 shares of Company
Common Stock were issued and outstanding, and (ii) no shares of preferred stock
were issued and outstanding. All such issued and outstanding shares of Company
Common Stock are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. There are no outstanding shares of capital stock (and
no options, warrants, calls, subscriptions, convertible securities, or other
rights, agreements or commitments) that obligate the Company or any of its
Subsidiaries to issue, transfer or sell any shares of capital stock or other
voting securities of the Company or any of its Subsidiaries. The Company has no
outstanding bonds, debentures, notes or other obligations, the holders of which
have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the shareholders of the Company on any
matter.
SECTION 5.4 No Conflict.
(a) Neither the execution and delivery by the Company of this Agreement nor
the consummation by the Company of the transactions contemplated hereby in
accordance with the terms hereof will: (i) conflict with or result in a breach
of any provisions of the articles of incorporation or bylaws of the Company;
(ii) violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or give rise to a right of purchase under, or
accelerate the performance required by, or result in the creation of any lien
upon any of the properties of the Company or its Subsidiaries under, or result
in being declared void, voidable, or without further binding effect, or
otherwise result in a detriment to the Company or any of its Subsidiaries under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, lease, contract,
agreement, joint venture or other instrument or obligation to which the Company
or any of its Subsidiaries is a party, or by which the Company or any of its
Subsidiaries or any of their properties is bound or affected; or (iii)
contravene or conflict with or constitute a violation of any provision of any
law, rule, regulation, judgment, order or decree binding upon or applicable to
the Company or any of its Subsidiaries, except, in the case of matters described
in clause (ii) or (iii), as would not have, individually or in the aggregate, a
Company Material Adverse Effect.
(b) Neither the execution and delivery by the Company of this Agreement nor
the consummation by the Company of the transactions contemplated hereby in
accordance with the terms hereof will require any consent, approval or
authorization of, or filing or registration with, any governmental or regulatory
authority, other than (i) the filing of the Articles of Merger and this
Agreement with the FSS and (ii) filings required under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), with respect to the meeting of
Company Directors and written consent of majority shareholders of the Company to
approve this Agreement and the transactions contemplated hereby, and the
Schedule 13E-3 (as defined in Section 7.4(d)) (collectively, the "Filings"),
except for any consent, approval or authorization the failure of which to obtain
and for any filing or registration the failure of which to make would not have a
Company Material Adverse Effect.
4
SECTION 5.5 No Brokers. The Company has not entered into any contract,
arrangement or understanding with any person or firm that may result in the
obligation of New Company or the Company to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby, except that Pali Capital, Inc. has previously been retained as an
investment advisor to the Company to render a fairness opinion, upon which such
fairness opinion the Special Committee of the Board of Directors of the Company
is expressly authorized to rely and such arrangements have been disclosed in
writing to New Company prior to the date thereof.
SECTION 5.6 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock is the only vote of
the holders of any class or series of Company capital stock necessary to approve
this Agreement and Articles of Merger and the other transactions contemplated
hereby.
SECTION 5.7 Opinion of the Financial Advisor. The Special Committee of the
Board of Directors of the Company has received the opinion of Pali Capital, Inc.
to the effect that, as of the date hereof, the Cash Consideration is fair, from
a financial point of view, to the holders of the Company's Common Stock.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NEW COMPANY
SECTION 6.1 Existence; Good Standing; Corporate Authority. New Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Florida. New Company has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as now conducted. New Company is duly qualified to do business as a foreign
corporation or other organization in good standing in each state or jurisdiction
in which its ownership or leasing of property or conduct of business legally
requires such qualification. The copies of New Company's articles of
incorporation and bylaws previously made available to the Company are true,
complete and correct and contain all amendments as of the date hereof. As of the
date of this Agreement, New Company does not own, directly or indirectly, any
capital stock or other ownership interest in any entity other than the Company.
SECTION 6.2 Authorization, Validity and Effect of Agreements. New Company
has the requisite corporate power and authority to execute and deliver this
Agreement and all other agreements and documents contemplated hereby to which is
a party. This Agreement and the consummation by New Company of the transaction
contemplated hereby have been duly authorized by all requisite corporate action
on the part of New Company. This Agreement has been duly executed and delivered
by New Company and constitutes the valid and legally binding obligation of New
Company, enforceable against New Company in accordance with its terms, subject
to applicable bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights and general principles of equity.
SECTION 6.3 No Conflict.
(a) Neither the execution and delivery by New Company of this Agreement nor
the consummation by New Company of the transactions contemplated hereby in
accordance with the terms hereof will: (i) conflict with or result in a breach
of any provisions of the articles of incorporation or bylaws of New Company;
(ii) violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or give rise to a right of purchase under, or
accelerate the performance required by, or result in the creation of any lien
upon any of the properties of New Company under, or result in being declared
void, voidable, or without further binding effect, or otherwise result in a
detriment to New Company under, any of the terms, conditions or provisions of,
any note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
lease, contract, agreement, joint venture or other instrument or obligation to
which New Company is a party, or by which New Company or any of its properties
is bound or affected; or (iii) contravene or conflict with or constitute a
violation of any provision of any law, rule, regulation, judgment, order or
decree binding upon or applicable to New Company.
(b) Neither the execution and delivery by New Company of this Agreement nor
the consummation by New Company of the transactions contemplated hereby in
accordance with the terms hereof will require any consent, approval or
authorization of, or filing or registration with, any governmental or regulatory
authority, other than the Filings.
SECTION 6.4 No Brokers. New Company has not entered into any contract,
arrangement or understanding with any person or firm that may result in the
obligation of New Company or the Company to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
5
SECTION 6.5 New Company. New Company was formed on _______, 2003 solely for
the purpose of engaging in the transactions contemplated by this Agreement and,
since the date of its formation, has not engaged in any activities other than in
connection with, or as contemplated by, this Agreement.
SECTION 6.6 No Current Intent to Sell Business. New Company and the Buyer
Group have no current intention to sell, transfer or otherwise dispose of the
shares of capital stock or the business of the Company or any material part
thereof following the consummation of the Merger, but there can be no assurance
that the Surviving Corporation will not determine to cause such a transfer in
the future.
SECTION 6.7 Board and Shareholder Recommendation. The Board of Directors of
New Company has (i) determined that this Agreement and the transactions
contemplated hereby, including the Merger, are fair to and in the best interests
of the shareholders of New Company, and (ii) recommended that the incorporator
of New Company approve the Merger and the transactions contemplated thereby. The
incorporator of New Company has authorized the execution and delivery of this
Agreement and has approved the Merger and the transactions contemplated by this
Agreement
SECTION 6.8 Control Share Acquisition Statute; Affiliated Transactions
Statute. Section 607.0901 and Section 607.0902 of the FBCA are not applicable to
the Merger, this Agreement, including the related Plan of Merger, and the
transaction contemplated hereby because the Company, pursuant to its Articles of
Incorporation, elected to not be governed by such sections.
SECTION 6.9 Status of Representations of the Company. In entering this
Agreement, New Company:
(a) acknowledges that, other than as in this Agreement, as of the date of
execution of this Agreement, none of the Company, or any of its directors or
officers, makes any representation or warranty, either express or implied, as to
the accurateness or completeness of any of the information provided or made
available to New Company or its agents or representatives prior to the execution
of this Agreement;
(b) agrees to the fullest extent permitted by law, that none of the
Company, nor any of its respective directors, officers, employees, shareholders,
affiliates, agents or representatives, shall have any liability or
responsibility whatsoever to New Company based upon any information provided or
made available, or statements made, to New Company or its agents or
representatives prior to the execution of this Agreement;
(c) acknowledges that none of the officers of the Company nor any member of
the Buyer Group has any actual knowledge of any representation or warranty of
the Company being untrue or inaccurate in any material respect. If an officer of
New Company or any member of the Buyer Group had actual knowledge prior to the
execution of this Agreement of any breach by the Company of any representation,
warranty, covenant, agreement or condition of this Agreement, such breach shall
not be deemed to be a breach of this Agreement for any purpose hereunder, and
neither New Company nor any member of the Buyer Group shall have any claim or
recourse against the Company or its personnel, affiliates, controlling persons,
agents, advisors or representatives with respect to such breach; and
(d) acknowledges and agrees that it is not aware of any threatened
litigation of the type referred to in Section 9.4(d) (ii).
SECTION 6.10 Solvency. Immediately following the Effective Time and the
completion of the transactions contemplated by this Agreement, the Surviving
Corporation will be able to pay its debts as they mature, will have capital
sufficient to carry on its business, and will have assets with a present fair
salable value greater than the aggregate amount of the Surviving Corporation's
indebtedness. New Company does not intend that the Surviving Corporation will
incur debts beyond its ability to pay as such debts mature. New Company does not
contemplate that the Surviving Corporation will file a petition in bankruptcy or
for reorganization under the United States Federal Bankruptcy Code or any
similar law, nor is New Company aware of any threatened bankruptcy or insolvency
proceedings against the Company, New Company or the Surviving Corporation.
6
ARTICLE VII
COVENANTS
SECTION 7.1 Conduct of Business. Prior to the Effective Time, except as
expressly contemplated by any other provision of this Agreement or as required
by applicable law, unless New Company has consented in writing thereto, the
Company:
(a) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(b) shall use its commercially reasonable efforts, and shall cause each of
its Subsidiaries to use its commercially reasonable efforts, to preserve intact
their business organizations and goodwill, keep available the services of their
respective officers and employees and maintain satisfactory relationships with
those persons having business relationships with them;
(c) shall not amend its articles of incorporation or bylaws;
(d) shall not, (i) issue any shares of its capital stock, effect any stock
split or otherwise change its capitalization as it existed on the date hereof or
grant, confer or award any option, warrant, conversion right or other right not
existing on the date hereof to acquire any shares of its capital stock, (ii)
increase any compensation or benefits, except in the ordinary course of business
consistent with past practice, or enter into or amend any employment agreement
with any of its present or future officers or directors, except with new
employees consistent with past practice, or (iii) adopt any new employee benefit
plan (including any stock option, stock benefit or stock purchase plan) or amend
(except as required by law) any existing employee benefit plan in any material
respect, except for changes which are less favorable to participants in such
plans;
(e) shall not (i) declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of its capital stock, or (ii)
redeem, purchase or otherwise acquire any shares of its capital stock or capital
stock of any of its Subsidiaries, or make any commitment for any such action;
(f) shall not, and shall not permit any of its Subsidiaries to, sell, lease
or otherwise dispose of any of its assets including capital stock of
Subsidiaries that are material to the Company, individually or in the aggregate,
except in the ordinary course of business;
(g) shall not take any action that is likely to delay materially or
adversely affect the ability of any of the parties hereto (i) to obtain any
consent, authorization, order or approval of any governmental commission, board
or other regulatory body or (ii) to consummate the Merger; and
(h) shall not, nor shall it permit any of its Subsidiaries to, agree in
writing or otherwise to take any of the foregoing actions.
SECTION 7.2 Conduct of Business of New Company. New Company has been formed
specifically to complete the transactions contemplated by this Agreement. During
the period from the date of this Agreement to the Effective Time (except as
otherwise specifically contemplated by the terms of this Agreement), New Company
will not carry on any business other than business required to consummate the
Merger and other transactions contemplated by this Agreement. New Company will
not take, and will cause its affiliates not to take, any action that would, or
that could reasonably be expected to, result in any of the representations and
warranties of New Company set forth in this Agreement becoming untrue.
SECTION 7.3 Change; Recommendation.
(a) The Company, through its Special Committee or Board of Directors, may
at any time prior to the Effective Time withdraw, modify, or change any
recommendation and declaration regarding this Agreement or the related Plan of
Merger if, in the good faith opinion of the Special Committee or Board of
Directors after consultation with its respective counsel, the failure to so
withdraw, modify, or change its recommendation and declaration would be
inconsistent with their respective fiduciary obligations. Upon such withdrawal,
modification or change in the Special Committee's or Board of Director's
recommendation, the Company may abandon the holding of a special meeting of
shareholders to consider and vote upon the approval of this Agreement, including
the related Plan of Merger, and may terminate this Agreement in accordance with
Section 9.3(b).
SECTION 7.4 Information Statement and Schedule 13E-3.
(a) Each of the Company and New Company shall cooperate and promptly
prepare an Information Statement with respect to the Merger and the transactions
contemplated hereby (the "Information Statement") and a joint Rule 13e-3
Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") with respect to
7
the Merger. The Company shall file as soon as practicable with the Securities
and Exchange Commission (the "SEC") under the Exchange Act the Information
Statement and, concurrently with the filing of the Information Statement, the
Company and New Company shall file with the SEC the Schedule 13E-3. The
respective parties will cause the Information Statement and the Schedule 13E-3
to comply as to form in all material respects with the applicable provisions of
the Exchange Act and the rules and regulations promulgated thereunder, including
Regulation 14C and Rule 13e-3. Each party will advise the other, promptly after
it receives notice thereof, of any request by the SEC for amendment of the
Information Statement or the Schedule 13E-3 or comments thereon and responses
thereto or requests by the SEC for additional information.
(b) The Company will use commercially reasonable efforts to cause the
Information Statement to be mailed to its shareholders as promptly as
practicable after the date that the SEC completes its review of the Information
Statement and the Schedule 13E-3 or, if the SEC chooses not to review the
Information Statement and the Schedule 13E-3, within 10 days after the date that
the SEC notifies the Company that it will not review the Information Statement.
(c) Each of the Company and New Company agrees that the information
provided by it for inclusion in the Information Statement and the Schedule 13E-3
and each amendment or supplement thereto, at the time of filing thereof with the
SEC (and, with respect to the Information Statement, at the time of its
dissemination to the Company's shareholders) and at the time of the meeting of
shareholders of the Company, (i) will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) will comply as to form in all
material respects with the provisions of the Exchange Act.
(d) Each of the parties agrees to use its commercially reasonable efforts
to cooperate and to provide each other with such information as any of such
parties may reasonably request in connection with the preparation of the
Information Statement and the Schedule 13E-3. Each party agrees promptly to
supplement, update and correct any information provided by it for use in the
Information Statement and the Schedule 13E-3 if and to the extent that it is or
shall have become incomplete, false or misleading.
SECTION 7.5 No Solicitation of Competing Transactions.
(a) The Company (acting through the Board of Directors, the Special
Committee or otherwise) shall not, directly or indirectly, through any
representative or otherwise, initiate, solicit or encourage (including by way of
furnishing information), or take any other action to facilitate, any inquiries
or the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Competing Transaction (as defined below), or enter into or maintain
or continue discussions or negotiate with any person or entity in furtherance of
such inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize or permit any of its representatives to take
any such action; provided, however, that the foregoing shall not prohibit the
Special Committee or the Board of Directors (acting through the Special
Committee except as provided below) (either directly or indirectly through
advisors, agents or other intermediaries) from (i) furnishing information in
writing or orally (through the Company's employees and advisors) pursuant to a
customary confidentiality letter (a copy of which shall be provided for
informational purposes only to New Company) concerning the Company and its
businesses, properties or assets to any person, corporation, entity or "group,"
as defined in Section 13(d) of the Exchange Act, other than New Company (a
"Third Party"), in response to any unsolicited inquiry, proposal or offer, (ii)
engaging in discussions or negotiations with such a Third Party that has made
such inquiry, proposal or offer, (iii) following receipt of a bona fide proposal
relating to a Competing Transaction, taking and disclosing to the Company's
shareholders a position contemplated by Rules 14d-9 and 14e-2(a) under the
Exchange Act or otherwise making disclosure to its shareholders with respect to
such proposal, (iv) following receipt of a bona fide proposal relating to a
Competing Transaction, failing to make or withdrawing or modifying its
recommendation referred to in Section 7.3 hereof, and/or (v) terminating this
Agreement, but in each case referred to in the foregoing clauses (iii) through
(v) only to the extent that the Board of Directors (not acting through the
Special Committee) shall have concluded in good faith after consultation with
counsel that such action is consistent with the Board of Directors' fiduciary
duties to the shareholders of the Company under the FBCA.
(b) At all times prior to the Effective Time, the parties shall immediately
notify one another upon receipt of a proposal for a Competing Transaction.
(c) For purposes of this Agreement, "Competing Transaction" shall mean any
of the following involving the Company (other than the Merger and the other
transactions contemplated by this Agreement): (i) any merger, consolidation,
share exchange, business combination, issuance or purchase of securities or
other similar transaction, (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of the assets of the Company in a single
transaction or series of related transactions; (iii) any tender offer or
exchange offer for the Company's securities or the filing of a registration
statement under the Securities Act of 1933, as amended, in connection with any
such exchange offer; (iv) any solicitation in opposition to approval by the
Company's shareholders of this Agreement; or (v) any announcement of an
agreement, proposal, plan or intention to do any of the foregoing, either during
the effectiveness of this Agreement or at any time thereafter.
8
SECTION 7.6 Expenses. All costs and expenses incurred by both parties and
the Buyer Group in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses, whether or not the Merger is consummated; provided, however, that New
Company and the Buyer Group shall pay all such costs and expenses incurred by
the Company if this Agreement is terminated (i) because all the members of the
Buyer Group did not vote in favor of the transactions contemplated by this
Agreement (ii) or pursuant to Section 9.3(a); provided, further, that the
Company shall pay all such costs and expenses incurred by New Company and the
Buyer Group if this Agreement is terminated pursuant to Section 9.3(b) or
Section 9.4(a), (b) or (c).
SECTION 7.7 Consents. Each of New Company and the Company shall cooperate,
and use commercially reasonable efforts, to make all filings and obtain all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and other third parties necessary to
consummate the transactions contemplated by this Agreement.
SECTION 7.8 Publicity. The parties will consult with each other and will
mutually agree upon any press releases or public announcements pertaining to
this Agreement or the transactions contemplated hereby and shall not issue any
such press releases or make any such public announcements prior to such
consultation and agreement, except as may be required by applicable law, in
which case the party proposing to issue such press release or make such public
announcement shall consult in good faith with the other party before issuing any
such press releases or making any such public announcements.
SECTION 7.9 Director and Officer Liability.
(a) New Company and the Surviving Corporation agree that the Surviving
Corporation will maintain all rights to indemnification (including with respect
to the advancement of expenses incurred in the defense of any action or suit)
existing on the date of this Agreement in favor of the present and former
directors, officers, employees and agents of the Company as provided in the
Company's articles of incorporation and bylaws, in each case as in effect on the
date of this Agreement, and that during such period, neither the articles of
incorporation nor the bylaws of the Surviving Corporation shall be amended to
reduce or limit the rights of indemnity afforded to the present and former
directors, officers, employees and agents of the Company, or the ability of the
Surviving Corporation to indemnify them, nor to hinder, delay or make more
difficult the exercise of such rights or indemnity or the ability to indemnify.
(b) New Company and Surviving Corporation agree to cause the Surviving
Corporation to indemnify, to the fullest extent permitted under its articles of
incorporation, its bylaws and the FBCA, the present and former directors,
officers, employees and agents of the Company against all losses, damages,
liabilities or claims made against them arising from their service in such
capacities prior to and including the Effective Time, to at least the same
extent as such persons are currently permitted to be indemnified pursuant to the
Company's articles of incorporation and bylaws, as in effect on the date hereof.
(c) Should any claim or claims be made against any present or former
director, officer, employee or agent of the Company, arising from such person's
service as such at any time prior to the Effective Time, the provisions of this
Section 7.9 respecting the articles of incorporation and bylaws and the
obligation of indemnity by the Surviving Corporation shall continue in effect
until the final disposition of all such claims.
(d) In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any person, then and in each case, to the extent necessary to
effectuate the purposes of this Section 7.9, proper provision shall be made so
that the successors and assigns of the Surviving Corporation assume the
obligations set forth in this Section.
(e) The provisions of this Section 7.9 are intended to be for the benefit
of, and shall be enforceable by, each indemnified party referred to in this
Section 7.9 and his or her heirs and representatives and shall be binding on the
Surviving Corporation and its respective successors and assigns.
SECTION 7.10 Exemption from Liability Under Section 16(b). New Company and
the Company shall take all such steps as may be required or reasonably requested
to cause the transactions contemplated by this Agreement and any other
dispositions of Company equity securities (including derivative securities) in
connection with this Agreement by each individual who is a director, officer or
ten percent (10%) shareholder of the Company to be exempt under Rule 16b-3
promulgated under the Exchange Act and the rules and regulations promulgated
thereunder, or as may otherwise be reasonably requested by the Company.
9
ARTICLE VIII
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Closing Date of the following
conditions:
(a) Neither of the parties shall be subject to any decree, order or
injunction of a court of U.S. or foreign, which prohibit the consummation of the
Merger; provided, however, that prior to invoking this condition each party
agrees to use its commercially reasonable efforts to have any such decree, order
or injunction lifted or vacated; and
(b) No statute, rule or regulation shall have been enacted by any
governmental authority which prohibits or makes unlawful the consummation of the
Merger.
SECTION 8.2 Conditions to Obligation of the Company to Effect the Merger.
The obligation of the Company to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Closing Date of the following
conditions:
(a) New Company shall have performed in all material respects its covenants
and agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of New Company
contained in this Agreement and in any document delivered in connection herewith
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date (except for representations and warranties
made as of a specified date, which need be true and correct in all material
respects only as of the specified date), and the Company shall have received a
certificate of New Company, executed on its behalf by its President or a Vice
President of New Company, dated the Closing Date, certifying to such effect; and
(b) The Board of Directors of the Company shall not have withdrawn or
materially modified its approval or recommendation of the Merger, or resolved to
do so, or taken any action having the foregoing effect.
SECTION 8.3 Conditions to Obligation of New Company to Effect the Merger.
The obligations of New Company to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following condition:
(a) The Company shall have performed in all material respects its covenants
and agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of the Company
contained in this Agreement and in any document delivered in connection herewith
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date (except for representations and warranties
made as of a specified date, which need be true and correct in all material
respects only as of the specified date), and New Company shall have received a
certificate of the Company, executed on its behalf by its President or a Vice
President of the Company, dated the Closing Date, certifying to such effect.
ARTICLE IX
TERMINATION
SECTION 9.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Effective Time by the mutual written consent of New
Company and the Company.
SECTION 9.2 Termination by the Company or New Company if:
(a) a governmental authority shall have enacted a statute, rule or
regulation that prohibits or makes unlawful the consummation of the Merger;
(b) the Merger shall not have been consummated on or prior to December 31,
2003 and the closing date has not otherwise been extended by the parties
provided, however, that the right to terminate this Agreement under this Section
9.2(b) shall not be available to the party whose failure to fulfill any
obligation under this Agreement shall have been the cause of, or resulted in,
the failure of the Effective Time to occur on or before such date; or
(c) a court of competent jurisdiction or a U.S. or foreign governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger, and such order, decree, ruling or other action
shall have become final and non-appealable; provided, however, that the party
seeking to terminate this Agreement pursuant to this clause (c) shall have used
commercially reasonable efforts to remove such injunction, order or decree.
10
SECTION 9.3 Termination by the Company. This Agreement may be terminated
prior to the Effective Time, by action of the Board of Directors of the Company,
if:
(a) (i) there has been a breach by New Company of any material
representation, warranty, covenant or agreement set forth in this Agreement or
if any representation or warranty of New Company shall have become materially
untrue, in either case such that the conditions set forth in Section 8.2(a)
would not be satisfied and (ii) such breach is not curable, or, if curable, is
not cured within 30 days after written notice of such breach is given to New
Company by the Company; provided, however, that the right to terminate this
Agreement pursuant to this Section 9.3(a) shall not be available to the Company
if it, at such time, is in material breach of any representation, warranty,
covenant or agreement set forth in this Agreement such that the condition set
forth in Section 8.3(a) shall not be satisfied; or
(b) the Special Committee or the Board of Directors of the Company
determines in good faith, after consultation with legal counsel, that failure to
do so would be inconsistent with the Board of Directors' fiduciary duties under
applicable law.
SECTION 9.4 Termination by New Company. This Agreement may be terminated at
any time prior to the Effective Time, by action of the Board of Directors of New
Company, if:
(a) (i) there has been a breach by the Company of any material
representation, warranty, covenant or agreement set forth in this Agreement or
if any representation or warranty of the Company shall have become materially
untrue, in either case such that the conditions set forth in Section 8.3(a)
would not be satisfied and (ii) such breach is not curable, or, if curable, is
not cured within 30 days after written notice of such breach is given by New
Company to the Company; provided, however, that the right to terminate this
Agreement pursuant to this Section 9.4(a) shall not be available to New Company
if it, at such time, is in material breach of any representation, warranty,
covenant or agreement set forth in this Agreement such that the conditions set
forth in Section 8.2(a) shall not be satisfied;
(b) the Board of Directors or the Special Committee of the Company shall
have withdrawn or materially modified, in a manner adverse to New Company, its
approval or recommendation of the Merger, or resolved to do so, or taken any
action having the foregoing effect; or
(c) the Company takes any of the actions referred to in Section 7.5(a)(ii)
and within 10 business days thereafter the Company does not terminate such
discussions or negotiations with the Third Party.
(d) at any time after the date of this Agreement, there shall have occurred
a material adverse effect or change on the business, results of operations or
financial condition of the Company and its Subsidiaries on a consolidated basis
or the ability of the Company to consummate the transactions contemplated by
this Agreement or fulfill the conditions to Closing primarily due to (i)
significant acts by any civil or military authority, terrorist acts, national
emergencies, disturbances, insurrections, riots or wars or (ii) the commencement
or overt threat of litigation material to the Company and its Subsidiaries,
taken as a whole.
SECTION 9.5 Effect of Termination. In the event of termination of this
Agreement and the abandonment of the Merger pursuant to this Article IX, all
obligations of the parties hereto shall terminate, except the obligations of the
parties pursuant to this Section 9.5, Section 7.6 and Sections 10.3, 10.4, 10.6,
10.9, 10.11 and 10.12; provided that nothing herein shall relieve any party from
any liability for any willful and material breach by such party of any of its
covenants or agreements set forth in this Agreement and all rights and remedies
of such nonbreaching party under this Agreement in the case of such a willful
and material breach, at law or in equity, shall be preserved.
SECTION 9.6 Extension; Waiver. At any time prior to the Effective Time,
each party may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party and, in the case of the Company, only if
authorized by the Board of Directors.
11
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the Merger;
provided however, that the agreements contained in Articles II, III, and IV, in
Sections 7.6, 7.9 and 7.10 and this Article X shall survive the Merger.
SECTION 10.2 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission or by courier
service (with proof of service), or hand delivery, addressed as follows:
If to the Company:
Strategic Capital Resources, Inc.
7900 Glades Road
Boca Raton, Florida 33434
Attention: Mr. David Miller, Chief Executive Officer
if to New Company
New Company Corp.
c/o Strategic Capital Resources, Inc.
7900 Glades Road
Boca Raton, Florida 33434
Attention: Mr. David Miller, Chief Executive Officer
or to such other address as any party shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
SECTION 10.3 Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
either of the parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other party. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Article IV and Sections 7.6, 7.9 and 7.10, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement. The provisions of Article IV and Sections 7.6, 7.9 and 7.10 may
be enforced by the respective beneficiaries thereof.
SECTION 10.4 Entire Agreement. This Agreement and any documents delivered
by the parties in connection herewith constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
SECTION 10.5 Amendments. No amendment to this Agreement shall be made which
by law requires the further approval of shareholders without obtaining such
further approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
SECTION 10.6 Applicable Law: Jurisdiction and Venue; Service of Process;
Waiver of Trial by Jury; Attorney's Fees. This Agreement and the legal relations
between the parties hereto shall be deemed made in, governed by, and construed
solely in accordance with, the substantive laws of the State of Florida, without
giving effect to the principles of choice or conflict of laws thereof.
Jurisdiction and venue for any action or proceeding brought by or between the
parties relating to this Agreement, shall be solely in the federal and/or state
courts located in Palm Beach County, Florida. The parties hereby consent solely
to the jurisdiction and venue of such courts, and agree that they shall not
contest or challenge the jurisdiction or venue of such courts. Each of the
parties agree that service of any process, summons, notice or document, by
United States registered or certified mail, to their address as set forth herein
or as may otherwise be changed pursuant to the notice provisions hereof, shall
be effective service of process for any action, suit or proceeding brought
against it in any such court. In recognition of the fact that the issues which
would arise under this Agreement are of such a complex nature that they could
not be properly tried before a jury, each of the parties waives trial by jury.
The prevailing party shall be entitled to recover from the other party its
reasonable attorneys' fees and costs.
12
SECTION 10.7 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
SECTION 10.8 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretative effect whatsoever.
SECTION 10.9 Interpretations and Definitions. In this Agreement:
(a) Unless the context otherwise requires, words describing the singular
number shall include the plural and vice versa, and words denoting any gender
shall include all genders and words denoting natural persons shall include
corporations and other organizations, whether incorporated or unincorporated,
and vice versa.
(b) "Company Material Adverse Effect" shall mean a material adverse effect
or change on (i) the business, results of operations, financial condition or
prospects of the Company and its Subsidiaries on a consolidated basis, or (ii)
the ability of the Company to consummate the transactions contemplated by this
Agreement or fulfill the conditions to Closing
(c) "Subsidiary," when used with respect to any party, shall mean any
corporation or other organization, whether incorporated or unincorporated, of
which such party directly or indirectly owns or controls at least a majority of
the securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization, or any
organization of which such party is a general partner.
SECTION 10.10 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of either party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
either party hereto of a breach of any provision hereunder shall not operate or
be construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
SECTION 10.11 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broadly as is enforceable.
SECTION 10.12 Captions; Rule of Construction That Ambiguities are to be
Construed Against the Drafter Not Applicable. This Agreement is to be construed
fairly and simply and not strictly for or against either of the parties hereto.
The section headings contained herein are for convenience of reference only, and
shall not affect the meaning or interpretation of any provision hereof. The
parties to this Agreement acknowledge that they have each carefully read and
reviewed this Agreement with their respective counsel, and therefore, agree that
the rule of construction that ambiguities shall be construed against the drafter
shall not be applicable.
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
STRATEGIC CAPITAL RESOURCES, INC.
a Florida corporation
By:
------------------------------------
David Miller, Chief Executive Officer
MERGERCO, INC.
a Florida corporation
By:
------------------------------------
David Miller, Chief Executive Officer
13
Exhibit "A"
David Miller
Rita Miller
Scott Miller
Helen Miller Irrevocable Trust, Libo Fineberg, Trustee
Lite `N Low, Inc.
Priority Capital Corp.
APPENDIX B
October 21, 2003
Special Committee
Strategic Capital Resources, Inc.
7900 Glades Rd.
Suite 610
Boca Raton, FL. 33434
Members of the Committee,
Pursuant to your request, enclosed for your review is a copy of the Fairness
Opinion, produced by Pali Capital, inc., for Strategic Capital Resources, Inc.,
upon which you may rely. This document was prepared with information up to and
including July 30, 2003 and was then sent to the Board of Directors of Strategic
Capital Resources, Inc., on July 30, 2003.
Please do not hesitate to contact me with any questions or comments that you
might have.
Sincerely,
/s/ Daniel T. Guilfoile
Daniel T. Guilfoile
Managing Director
Pali Capital, Inc.
14
To: SCRI Board of Directors
From: Pali Capital, Inc.
Re: Fairness Opinion for Strategic Capital Resources, Inc.
Date: July 30, 2003
Members of the Board:
You have requested our opinion as Investment Bankers as to the fairness, from a
financial point of view, to Strategic Capital Resources, Inc. ("SCRI" or the
"Company") of the price per share to be received by shareholders in the proposed
purchase (the "Proposed Purchase") by the Company of the outstanding shares of
SCRI.
More specifically, the Company will purchase all outstanding SCRI shares at
approximately $25 per share, representing a multiple of 2.63x the most recent
offer price for SCRI of $9.50 on July 17, 2003.
In arriving at our opinion, we held discussions with certain senior officers,
directors and other representatives and advisors of the Company concerning the
businesses, operations and prospects of the Company. We examined certain
financial forecasts and other information and data for the business and
operations of the Company, which were provided to or otherwise discussed with us
by the management of the Company. We considered, to the extent publicly
available, the financial terms of certain other similar transactions recently
effected that we considered relevant in evaluating the consideration to be
received by the shareholders. We also conducted such other analyses and
examinations and considered such other information and financial, economic and
market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us, and have further relied upon the assurances of the
management of the Company that they are not aware of any facts that would make
any of such information inaccurate or misleading. With respect to financial
forecasts and other information and data provided to or otherwise reviewed by or
discussed with us, we have been advised by the management of the Company that
such forecasts and other information and data were reasonably prepared
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company
and the strategic implications and operational benefits anticipated to result
from the purchase. We have assumed that such financial forecasts will be
realized in the amounts and in the time periods currently estimated by
management. We express no view with respect to such forecasts and other
information and data or the assumptions on which they were based. We have not
made or been provided with an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of the Company nor have we made any
physical inspection of the properties or assets of the Company.
As you are aware, we did not participate in the discussions and negotiations
among representatives of the Company and the shareholders with respect to the
final terms of the purchase. We were not requested to consider, and our opinion
does not address, the relative merits of the purchase as compared to any
alternative business strategies that might exist for the Company or the effect
of any other transaction in which the Company might engage. Our opinion
necessarily is based upon information available to us and financial, stock
market and other conditions and circumstances existing and disclosed to us as of
the date hereof.
Pali Capital, Inc. is acting as financial advisor to the Company in connection
with the purchase and will receive a fee for our services. Additionally, we have
been retained by the Company to perform certain investment banking and financial
advisory services, for which we will receive compensation. In addition, in the
ordinary course of our business, we and our affiliates may actively trade or
hold the securities of the Company for our own account or for the account of our
customers and, accordingly, may at any time hold a long or short position in
such securities. Pali Capital, Inc. and its affiliates (including Euram
Investment Group and its affiliates) may maintain relationships with the Company
and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of the Company in its evaluation of the
purchase and our opinion is not intended to be and does not constitute a
recommendation of the purchase or a recommendation to any stockholder as to how
such stockholder should vote on any matters relating to the purchase.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the consideration to be received by
shareholders in the purchase is fair, from a financial point of view, to the
Company.
Very truly yours,
PALI CAPITAL, INC.
PALI CAPITAL, INC.'S ADVISORY SERVICES AND OPINION WERE PROVIDED FOR THE
INFORMATION OF STRATEGIC CAPITAL RESOURCES INC.'S BOARD OF DIRECTORS IN ITS
EVALUATION OF THE PROPOSED PURCHASE AND DID NOT CONSTITUTE A RECOMMENDATION OF
THE TRANSACTION TO STRATEGIC CAPITAL RESOURCES, INC. OR A RECOMMENDATION TO ANY
STOCKHOLDER AS TO HOW THAT STOCKHOLDER SHOULD VOTE ON ANY MATTERS RELATING TO
THE PROPOSED PURCHASE.
The following is a summary of analyses performed by Pali Capital, Inc. in the
course of evaluating the fairness of the price to be paid in the proposed
purchase. To the extent earnings forecasts were used in its analysis, Pali
Capital, Inc. relied on estimates prepared by SCRI's management. The following
quantitative information, to the extent it is based on market data, is, except
as otherwise indicated, based on market data as it existed at or prior to July
27, 2003, and is not necessarily indicative of current or future market
conditions.
Traditional Methodology Issues
SCRI presents several issues in deriving an appropriate price per share for a
repurchase:
1. There are no appropriate comparable companies;
2. SCRI is currently trading in the Pink Sheets;
3. There is no market maker for SCRI;
4. There are no institutional owners of SCRI, only odd-lots;
5. SCRI has unpredictable revenues and no consistency in net income;
6. SCRI has significant contingent liabilities;
7. Key Man dependence; and
8. SCRI is inappropriate as a public entity.
Pali Capital, Inc. believes that using a traditional Discounted Cash Flow
methodology is inappropriate to derive a fair price per share for SCRI's
repurchase. Our conclusionis based, primarily, upon SCRI's unpredictable
revenues and the Company's dependence upon its key man for nearly all of its
revenues. SCRI has had losses within the past three years and may have losses
again in the near future. Due to SCRI's unpredictable earnings stream, Pali
Capital, Inc. believes assigning a growth rate to SCRI is inappropriate.
With a 0% growth rate and potentiallosses, a Discounted Cash Flow methodology
will not provide a sound basis for an appropriate price per share. Pali believes
that it is inappropriate to use projected earnings and revenues to determine a
share price for SCRI.
The use of comparable company pricing multiples is impossible as a basis for
SCRI's share repurchase price because SCRI operates as a niche player, providing
specialized services to its clients offered by no other company in its industry.
As such, using the metrics of other companies for comparison does not make
sense.
Basis for Opinion
Pali Capital, Inc. believes a price of $25 per share is fair. SCRI is currently
listed for trading in the Pink Sheets, but there is no market maker for the
stock. The last offer price for SCRI was $9.50 and there was no bid price. At
$25 per share, the repurchase price represents a 263% premium. Owners of the
outstanding shares of SCRI are currently unable to sell their shares. Providing
shareholders with the ability to sell their shares at such a significant premium
to current conditions is beneficial to those shareholders.
Furthermore, SCRI has been trading in Pink Sheets for approximately 1 year. Pali
Capital, Inc. believes the performance of SCRI stock in active trading prior to
listing in the Pink Sheets is an appropriate basis for SCRI's stock purchase. As
demonstrated by the chart below, SCRI closed as high as $50 per share and as low
as $10 per share over the past three years. SCRI's 100-day moving average
provides a range of approximately $20 per share to $30 per share over the past
two years. Pali Capital, Inc. believes a range of $20 per share to $30 per share
is an appropriate range for SCRI's stock purchase. Based upon this range, Pali
Capital, Inc. believes a share purchase price of $25 is fair.
Strategic Capital Resources Inc. 3-Year Chart with 100-Day Moving Average
[GRAPHIC OMITTED]]
Pali Capital, Inc. has also considered the equity value of SCRI in a sale or
liquidation scenario. SCRI has approximately $9.2 million in equity. However,
after accounting for contingent liabilities, that equity base is effectively
eliminated. The contingent liabilities are:
1. Contract buyout of David Miller: $6 million
2. Loss on sales of assets: $3 million
3. Deferred Reserves: $1.5 million
With an equity base of $9.2 million and contingent liabilities of $10.5 million,
the equity base of SCRI is a negative $1.3 million. Therefore, an adjusted
equity value of SCRI in a sale liquidation scenario further validates the
anticipated share repurchase price of approximately $25.
David Miller is the driver of all SCRI revenues. Withonly seven employees, there
are no other employees capable of continuing SCRI operations. With such a heavy
dependence upon one employee, there is no real value in SCRI without him.
Pali Capital, Inc. believes SCRI should not be a public company. The
unpredictable revenues, coupled with significant reliance upon one employee,
prevent the creation of a stable market in SCRI stock.
Based on this analysis and using projected financial information provided by
management of SCRI, Pali Capital, Inc. derived a range of value for the Proposed
Purchase price per share of $20 to $30.
Disclaimer
The preceding discussion is a summary of the material financial analyses
performed by Pali Capital, Inc. in the course of evaluating the fairness of the
price to be paid in the proposed purchase, but it does not purport to be a
complete description of all the analyses performed by Pali Capital, Inc. The
preparation of financial analyses and fairness opinions is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. Pali Capital, Inc. made no attempt to assign
specific weights to particular analyses or factors considered, but rather made
qualitative judgments as to the significance and relevance of all the analyses
and factors considered and determined to give its fairness opinion as described
above. Accordingly, Pali Capital, Inc. believes that its analyses, and the
summary set forth above, must be considered as a whole, and that selecting
portions of the analyses and of the factors considered by Pali Capital, Inc.,
without considering all of the analyses and factors, could create a misleading
or incomplete view of the processes underlying the analyses conducted by Pali
Capital, Inc. and its opinion. In its analyses, Pali Capital, Inc. made numerous
assumptions with respect to the Company's business, industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of SCRI. Any estimates contained in Pali
Capital Inc.'s analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by these analyses. Estimates of values of
companies do not purport to be appraisals or necessarily to reflect the prices
at which companies may actually be sold. Because these estimates are inherently
subject to uncertainty, none of SCRI, the SCRI board of directors, Pali Capital,
Inc. or any other person assumes responsibility if future results or actual
values differ materially from the estimates. Pali Capital Inc.'s analyses were
prepared solely as part of Pali Capital Inc.'s analysis of the fairness of the
price to be paid in the proposed purchase. The opinion of Pali Capital Inc. was
only one of the factors taken into consideration by SCRI's board of directors in
making its determination to approve the share purchase.
Pali Capital, Inc. is an internationally recognized investment banking firm
engaged in, among other things, the valuation of businesses and their securities
in connection with mergers and acquisitions, restructurings, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. SCRI selected Pali Capital, Inc. to act as its
financial advisor on the basis of Pali Capital, Inc.'s international reputation
and Pali Capital, Inc.'s familiarity with SCRI. In the ordinary course of its
business, Pali Capital, Inc. and its affiliates may actively trade or hold the
securities of SCRI for its own account and for the account of customers and,
accordingly, may at any time hold a long or short position in those securities.
Pali Capital, Inc. and its affiliates, including Euram Investment Group and its
affiliates, may maintain relationships with SCRI and their respective
affiliates.
Pursuant to Pali Capital, Inc.'s engagement letter, SCRI agreed to pay Pali
Capital, Inc. a fee of approximately $30,000 for its services rendered in
connection with the proposed purchase, of which $15,000 has already been paid
and the balance of which is payable on completion of the Transaction. SCRI has
also agreed to reimburse Pali Capital, Inc. for its reasonable travel and other
out-of-pocket expenses incurred in connection with its engagement, including the
reasonable fees and disbursements of its counsel, and to indemnify Pali Capital,
Inc. against specific liabilities and expenses relating to or arising out of its
engagement, including liabilities under the federal securities laws.
ALL INFORMATION CONTAINED IN THIS MEMORANDUM IS
CONFIDENTIAL
APPENDIX C
607.1301 Appraisal rights; definitions.--The following definitions apply to ss.
607.1302-607.1333:
(1) "Affiliate" means a person that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with
another person or is a senior executive thereof. For purposes of s.
607.1302(2)(d), a person is deemed to be an affiliate of its senior executives.
(2) "Beneficial shareholder" means a person who is the beneficial owner of
shares held in a voting trust or by a nominee on the beneficial owner's behalf.
(3) "Corporation" means the issuer of the shares held by a shareholder demanding
appraisal and, for matters covered in ss. 607.1322-607.1333, includes the
surviving entity in a merger.
(4) "Fair value" means the value of the corporation's shares determined:
(a) Immediately before the effectuation of the corporate action to which the
shareholder objects.
(b) Using customary and current valuation concepts and techniques generally
employed for similar businesses in the context of the transaction requiring
appraisal, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable to the corporation and
its remaining shareholders.
(5) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the rate of interest on judgments in this state on
the effective date of the corporate action.
(6) "Preferred shares" means a class or series of shares the holders of which
have preference over any other class or series with respect to distributions.
(7) "Record shareholder" means the person in whose name shares are registered in
the records of the corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with the corporation.
(8) "Senior executive" means the chief executive officer, chief operating
officer, chief financial officer, or anyone in charge of a principal business
unit or function.
(9) "Shareholder" means both a record shareholder and a beneficial shareholder.
History.--s. 118, ch. 89-154; s. 21, ch. 2003-283.
607.1302 Right of shareholders to appraisal.
1. (1) A shareholder is entitled to appraisal rights, and to obtain payment of
the fair value of that shareholder's shares, in the event of any of the
following corporate actions:
(a) Consummation of a merger to which the corporation is a party if shareholder
approval is required for the merger by s. 607.1103 and the shareholder is
entitled to vote on the merger or if the corporation is a subsidiary and the
merger is governed by s. 607.1104;
(b) Consummation of a share exchange to which the corporation is a party as the
corporation whose shares will be acquired if the shareholder is entitled to vote
on the exchange, except that appraisal rights shall not be available to any
shareholder of the corporation with respect to any class or series of shares of
the corporation that is not exchanged;
(c) Consummation of a disposition of assets pursuant to s. 607.1202 if the
shareholder is entitled to vote on the disposition, 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 substantially all of the net proceeds of the
sale will be distributed to the shareholders within 1 year after the date of
sale;
(d) Any other amendment to the articles of incorporation, merger, share
exchange, or disposition of assets to the extent provided by the articles of
incorporation, bylaws, or a resolution of the board of directors, except that no
bylaw or board resolution providing for appraisal rights may be amended or
otherwise altered except by shareholder approval; or
(e) With regard to shares issued prior to October 1, 2003, 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.
(2) Notwithstanding subsection (1), the availability of appraisal rights under
paragraphs (1)(a), (b), (c), and (d) shall be limited in accordance with the
following provisions:
(a) Appraisal rights shall not be available for the holders of shares of any
class or series of shares which is:
1. Listed on the New York Stock Exchange or the American Stock Exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.; or
2. Not so listed or designated, but has at least 2,000 shareholders and the
outstanding shares of such class or series have a market value of at least $10
million, exclusive of the value of such shares held by its subsidiaries, senior
executives, directors, and beneficial shareholders owning more than 10 percent
of such shares.
(b) The applicability of paragraph (a) shall be determined as of:
1. The record date fixed to determine the shareholders entitled to receive
notice of, and to vote at, the meeting of shareholders to act upon the corporate
action requiring appraisal rights; or
2. If there will be no meeting of shareholders, the close of business on the day
on which the board of directors adopts the resolution recommending such
corporate action.
(c) Paragraph (a) shall not be applicable and appraisal rights shall be
available pursuant to subsection (1) for the holders of any class or series of
shares who are required by the terms of the corporate action requiring appraisal
rights to accept for such shares anything other than cash or shares of any class
or any series of shares of any corporation, or any other proprietary interest of
any other entity, that satisfies the standards set forth in paragraph (a) at the
time the corporate action becomes effective.
(d) Paragraph (a) shall not be applicable and appraisal rights shall be
available pursuant to subsection (1) for the holders of any class or series of
shares if:
1. Any of the shares or assets of the corporation are being acquired or
converted, whether by merger, share exchange, or otherwise, pursuant to the
corporate action by a person, or by an affiliate of a person, who:
a. Is, or at any time in the 1-year period immediately preceding approval by the
board of directors of the corporate action requiring appraisal rights was, the
beneficial owner of 20 percent or more of the voting power of the corporation,
excluding any shares acquired pursuant to an offer for all shares having voting
power if such offer was made within 1 year prior to the corporate action
requiring appraisal rights for consideration of the same kind and of a value
equal to or less than that paid in connection with the corporate action; or
b. Directly or indirectly has, or at any time in the 1-year period immediately
preceding approval by the board of directors of the corporation of the corporate
action requiring appraisal rights had, the power, contractually or otherwise, to
cause the appointment or election of 25 percent or more of the directors to the
board of directors of the corporation; or
2. Any of the shares or assets of the corporation are being acquired or
converted, whether by merger, share exchange, or otherwise, pursuant to such
corporate action by a person, or by an affiliate of a person, who is, or at any
time in the 1-year period immediately preceding approval by the board of
directors of the corporate action requiring appraisal rights was, a senior
executive or director of the corporation or a senior executive of any affiliate
thereof, and that senior executive or director will receive, as a result of the
corporate action, a financial benefit not generally available to other
shareholders as such, other than:
a. Employment, consulting, retirement, or similar benefits established
separately and not as part of or in contemplation of the corporate action;
b. Employment, consulting, retirement, or similar benefits established in
contemplation of, or as part of, the corporate action that are not more
favorable than those existing before the corporate action or, if more favorable,
that have been approved on behalf of the corporation in the same manner as is
provided in s. 607.0832; or
c. In the case of a director of the corporation who will, in the corporate
action, become a director of the acquiring entity in the corporate action or one
of its affiliates, rights and benefits as a director that are provided on the
same basis as those afforded by the acquiring entity generally to other
directors of such entity or such affiliate.
(e) For the purposes of paragraph (d) only, the term "beneficial owner" means
any person who, directly or indirectly, through any contract, arrangement, or
understanding, other than a revocable proxy, has or shares the power to vote, or
to direct the voting of, shares, provided that a member of a national securities
exchange shall not be deemed to be a beneficial owner of securities held
directly or indirectly by it on behalf of another person solely because such
member is the recordholder of such securities if the member is precluded by the
rules of such exchange from voting without instruction on contested matters or
matters that may affect substantially the rights or privileges of the holders of
the securities to be voted. When two or more persons agree to act together for
the purpose of voting their shares of the corporation, each member of the group
formed thereby shall be deemed to have acquired beneficial ownership, as of the
date of such agreement, of all voting shares of the corporation beneficially
owned by any member of the group.
(3) Notwithstanding any other provision of this section, the articles of
incorporation as originally filed or any amendment thereto may limit or
eliminate appraisal rights for any class or series of preferred shares, but any
such limitation or elimination contained in an amendment to the articles of
incorporation that limits or eliminates appraisal rights for any of such shares
that are outstanding immediately prior to the effective date of such amendment
or that the corporation is or may be required to issue or sell thereafter
pursuant to any conversion, exchange, or other right existing immediately before
the effective date of such amendment shall not apply to any corporate action
that becomes effective within 1 year of that date if such action would otherwise
afford appraisal rights.
(4) A shareholder entitled to appraisal rights under this chapter may not
challenge a completed corporate action for which appraisal rights are available
unless such corporate action:
(a) Was not effectuated in accordance with the applicable provisions of this
section or the corporation's articles of incorporation, bylaws, or board of
directors' resolution authorizing the corporate action; or
(b) Was procured as a result of fraud or material misrepresentation.
History.--s. 119, ch. 89-154; s. 5, ch. 94-327; s. 31, ch. 97-102; s. 22, ch.
2003-283.
607.1320 Notice of appraisal rights.--
(1) If proposed corporate action described in s. 607.1302(1) is to be submitted
to a vote at a shareholders' meeting, the meeting notice must state that the
corporation has concluded that shareholders are, are not, or may be entitled to
assert appraisal rights under this chapter. If the corporation concludes that
appraisal rights are or may be available, a copy of ss. 607.1301-607.1333 must
accompany the meeting notice sent to those record shareholders entitled to
exercise appraisal rights.
(2) In a merger pursuant to s. 607.1104, the parent corporation must notify in
writing all record shareholders of the subsidiary who are entitled to assert
appraisal rights that the corporate action became effective. Such notice must be
sent within 10 days after the corporate action became effective and include the
materials described in s. 607.1322.
(3) If the proposed corporate action described in s. 607.1302(1) is to be
approved other than by a shareholders' meeting, the notice referred to in
subsection (1) must be sent to all shareholders at the time that consents are
first solicited pursuant to s. 607.0704, whether or not consents are solicited
from all shareholders, and include the materials described in s. 607.1322.
History.--s. 120, ch. 89-154; s. 35, ch. 93-281; s. 32, ch. 97-102; s. 24, ch.
2003-283.
607.1303 Assertion of rights by nominees and beneficial owners.--
(1) A record shareholder may assert appraisal rights as to fewer than all the
shares registered in the record shareholder's name but owned by a beneficial
shareholder only if the record shareholder objects with respect to all shares of
the class or series owned by the beneficial shareholder and notifies the
corporation in writing of the name and address of each beneficial shareholder on
whose behalf appraisal rights are being asserted. The rights of a record
shareholder who asserts appraisal rights for only part of the shares held of
record in the record shareholder's name under this subsection shall be
determined as if the shares as to which the record shareholder objects and the
record shareholder's other shares were registered in the names of different
record shareholders.
(2) A beneficial shareholder may assert appraisal rights as to shares of any
class or series held on behalf of the shareholder only if such shareholder:
(a) Submits to the corporation the record shareholder's written consent to the
assertion of such rights no later than the date referred to in s.
607.1322(2)(b)2.
(b) Does so with respect to all shares of the class or series that are
beneficially owned by the beneficial shareholder.
History.--s. 23, ch. 2003-283.
607.1321 Notice of intent to demand payment.--
(1) If proposed corporate action requiring appraisal rights under s. 607.1302 is
submitted to a vote at a shareholders' meeting, or is submitted to a shareholder
pursuant to a consent vote under s. 607.0704, a shareholder who wishes to assert
appraisal rights with respect to any class or series of shares:
(a) Must deliver to the corporation before the vote is taken, or within 20 days
after receiving the notice pursuant to s. 607.1320(3) if action is to be taken
without a shareholder meeting, written notice of the shareholder's intent to
demand payment if the proposed action is effectuated.
(b) Must not vote, or cause or permit to be voted, any shares of such class or
series in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1) is not
entitled to payment under this chapter.
History.--s. 25, ch. 2003-283.
607.1322 Appraisal notice and form.--
1. (1) If proposed corporate action requiring appraisal rights under s.
607.1302(1) becomes effective, the corporation must deliver a written appraisal
notice and form required by paragraph (2)(a) to all shareholders who satisfied
the requirements of s. 607.1321. In the case of a merger under s. 607.1104, the
parent must deliver a written appraisal notice and form to all record
shareholders who may be entitled to assert appraisal rights.
(2) The appraisal notice must be sent no earlier than the date the corporate
action became effective and no later than 10 days after such date and must:
(a) Supply a form that specifies the date that the corporate action became
effective and that provides for the shareholder to state:
1. The shareholder's name and address.
2. The number, classes, and series of shares as to which the shareholder asserts
appraisal rights.
3. That the shareholder did not vote for the transaction.
4. Whether the shareholder accepts the corporation's offer as stated in
subparagraph (b)4.
5. If the offer is not accepted, the shareholder's estimated fair value of the
shares and a demand for payment of the shareholder's estimated value plus
interest.
(b) State:
1. Where the form must be sent and where certificates for certificated shares
must be deposited and the date by which those certificates must be deposited,
which date may not be earlier than the date for receiving the required form
under subparagraph 2.
2. A date by which the corporation must receive the form, which date may not be
fewer than 40 nor more than 60 days after the date the subsection (1) appraisal
notice and form are sent, and state that the shareholder shall have waived the
right to demand appraisal with respect to the shares unless the form is received
by the corporation by such specified date.
3. The corporation's estimate of the fair value of the shares.
4. An offer to each shareholder who is entitled to appraisal rights to pay the
corporation's estimate of fair value set forth in subparagraph 3.
5. That, if requested in writing, the corporation will provide to the
shareholder so requesting, within 10 days after the date specified in
subparagraph 2., the number of shareholders who return the forms by the
specified date and the total number of shares owned by them.
6. The date by which the notice to withdraw under s. 607.1323 must be received,
which date must be within 20 days after the date specified in subparagraph 2.
(c) Be accompanied by:
1. Financial statements of the corporation that issued the shares to be
appraised, consisting of a balance sheet as of the end of the fiscal year ending
not more than 15 months prior to the date of the corporation's appraisal notice,
an income statement for that year, a cash flow statement for that year, and the
latest available interim financial statements, if any.
2. A copy of ss. 607.1301-607.1333.--
History.--s. 26, ch. 2003-283.
607.1323 Perfection of rights; right to withdraw.--
(1) A shareholder who wishes to exercise appraisal rights must execute and
return the form received pursuant to s. 607.1322(1) and, in the case of
certificated shares, deposit the shareholder's certificates in accordance with
the terms of the notice by the date referred to in the notice pursuant to s.
607.1322(2)(b)2. Once a shareholder deposits that shareholder's certificates or,
in the case of uncertificated shares, returns the executed forms, that
shareholder loses all rights as a shareholder, unless the shareholder withdraws
pursuant to subsection (2).
(2) A shareholder who has complied with subsection (1) may nevertheless decline
to exercise appraisal rights and withdraw from the appraisal process by so
notifying the corporation in writing by the date set forth in the appraisal
notice pursuant to s. 607.1322(2)(b)6. A shareholder who fails to so withdraw
from the appraisal process may not thereafter withdraw without the corporation's
written consent.
(3) A shareholder who does not execute and return the form and, in the case of
certificated shares, deposit that shareholder's share certificates if required,
each by the date set forth in the notice described in subsection (2), shall not
be entitled to payment under this chapter.
History.--s. 27, ch. 2003-283.
607.1324 Shareholder's acceptance of corporation's offer.--
(1) If the shareholder states on the form provided in s. 607.1322(1) that the
shareholder accepts the offer of the corporation to pay the corporation's
estimated fair value for the shares, the corporation shall make such payment to
the shareholder within 90 days after the corporation's receipt of the form from
the shareholder.
(2) Upon payment of the agreed value, the shareholder shall cease to have any
interest in the shares.
History.--s. 28, ch. 2003-283.
607.1326 Procedure if shareholder is dissatisfied with offer.--
1. (1) A shareholder who is dissatisfied with the corporation's offer as set
forth pursuant to s. 607.1322(2)(b)4. must notify the corporation on the form
provided pursuant to s. 607.1322(1) of that shareholder's estimate of the fair
value of the shares and demand payment of that estimate plus interest.
(2) A shareholder who fails to notify the corporation in writing of that
shareholder's demand to be paid the shareholder's stated estimate of the fair
value plus interest under subsection (1) within the timeframe set forth in s.
607.1322(2)(b)2. waives the right to demand payment under this section and shall
be entitled only to the payment offered by the corporation pursuant to s.
607.1322(2)(b)4.
History.--s. 29, ch. 2003-283.
607.1331 Court costs and counsel fees.--
1. (1) The court in an appraisal proceeding commenced under 1s. 607.1330 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess costs against all or
some of the shareholders demanding appraisal, in amounts the court finds
equitable, to the extent the court finds such shareholders acted arbitrarily,
vexatiously, or not in good faith with respect to the rights provided by this
chapter.
(2) The court in an appraisal proceeding may also assess the fees and expenses
of counsel and experts for the respective parties, in amounts the court finds
equitable:
(a) Against the corporation and in favor of any or all shareholders demanding
appraisal if the court finds the corporation did not substantially comply with
ss. 607.1320 and 607.1322; or
(b) Against either the corporation or a shareholder demanding appraisal, in
favor of any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this chapter.
(3) If the court in an appraisal proceeding finds that the services of counsel
for any shareholder were of substantial benefit to other shareholders similarly
situated, and that the fees for those services should not be assessed against
the corporation, the court may award to such counsel reasonable fees to be paid
out of the amounts awarded the shareholders who were benefited.
(4) To the extent the corporation fails to make a required payment pursuant to
s. 607.1324, the shareholder may sue directly for the amount owed and, to the
extent successful, shall be entitled to recover from the corporation all costs
and expenses of the suit, including counsel fees.
History.--s. 30, ch. 2003-283.
(1)Note.--Section 607.1330 does not exist. It was included in H.B. 1623 but was
deleted from the bill before it was passed. House Bill 1623 became ch. 2003-283.
607.1332 Disposition of acquired shares.--
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
chapter, 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 or
share exchange, they may be held and disposed of as the plan of merger or share
exchange otherwise provides. The shares of the surviving corporation into which
the shares of such shareholders demanding appraisal rights would have been
converted had they assented to the merger shall have the status of authorized
but unissued shares of the surviving corporation.
History.--s. 31, ch. 2003-283.
607.1333 Limitation on corporate payment.--
(1) No payment shall be made to a shareholder seeking appraisal rights if, at
the time of payment, the corporation is unable to meet the distribution
standards of s. 607.06401. In such event, the shareholder shall, at the
shareholder's option:
(a) Withdraw his or her notice of intent to assert appraisal rights, which shall
in such event be deemed withdrawn with the consent of the corporation; or
(b) Retain his or her status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation, but
have rights superior to the shareholders not asserting appraisal rights, and if
it is not liquidated, retain his or her right to be paid for the shares, which
right the corporation shall be obliged to satisfy when the restrictions of this
section do not apply.
(2) The shareholder shall exercise the option under paragraph (1)(a) or
paragraph (b) by written notice filed with the corporation within 30 days after
the corporation has given written notice that the payment for shares cannot be
made because of the restrictions of this section. If the shareholder fails to
exercise the option, the shareholder shall be deemed to have withdrawn his or
her notice of intent to assert appraisal rights.
History.--s. 32, ch. 2003-283.