-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G/byPG+LBctkb8TYZ+7Mjp47v0rZ3U5zsTVgpkc6pgkhRdlCPCn7RntTng3vbA1q AmBR1oxrl5WiDj21ZCL0dA== 0000930661-00-001431.txt : 20000526 0000930661-00-001431.hdr.sgml : 20000526 ACCESSION NUMBER: 0000930661-00-001431 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000523 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000525 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHMARK CORP CENTRAL INDEX KEY: 0000701996 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 581456944 STATE OF INCORPORATION: GA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-18704 FILM NUMBER: 643944 BUSINESS ADDRESS: STREET 1: 2711 LBJ FRWY STE 950 CITY: DALLAS STATE: TX ZIP: 75234 BUSINESS PHONE: 2142418787 MAIL ADDRESS: STREET 1: 2711 LBJ FREEWAY SUITE 950 CITY: DALLAS STATE: TX ZIP: 75234 8-K 1 FORM 8-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 _______________ Date of Report (Date of earliest event reported): May 23, 2000 Southmark Corporation (Exact name of registrant as specified in its charter) Georgia 0-518704 58-1456944 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 2711 LBJ Freeway, Suite 950 Dallas, Texas 75234 (Address, including zip code, of principal executive offices) Registrant's telephone number, including area code: (972) 241-8787 =============================================================================== Item 1. Changes of Control of Registrant Stock Purchase Agreement Purchase and Sale of Shares. On May 23, 2000, Charles B. Brewer ("Brewer") and A&B Capital Corporation ("A&B") entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") pursuant to which A&B agreed, subject to the terms and conditions of the Stock Purchase Agreement, to purchase from Brewer at the closing of the transaction (the "Closing") 178,270.25 shares of Redeemable Series A Preferred Stock, par value $0.01 per share (the "Preferred Stock"), of Southmark Corporation ("Southmark"), and 2,358 shares of Common Stock, par value $0.01 per share (the "Common Stock"), of Southmark. The purchase price paid by A&B to Brewer for his shares of Preferred Stock and Common Stock is calculated on the basis of $1.50 cash for each Preferred Share. A&B will separately acquire 787,271 shares of Preferred Stock and 7,343,156 shares of Common Stock owned by Grace Brothers Ltd. ("Grace") at a purchase price calculated on the basis of $2.00 cash per share of Preferred Stock. Subject to the occurrence of the Closing, A&B will own approximately 34 percent of the outstanding shares of Preferred Stock and approximately 20 percent of the outstanding shares of Common Stock. Distribution to Preferred Stockholders (other than A&B Capital). Following the Closing, A&B has agreed to cause Southmark to have an amount of funds or other value sufficient to enable Southmark to make a distribution of $1.50 cash for each outstanding share of Preferred Stock (other than those owned by A&B). A&B has agreed to cause Southmark to be able to make this distribution by no later than July 31, 2000 (the "Distribution Date"). A&B may loan funds to Southmark to make the distribution. If A&B loans funds to enable Southmark to effect the cash distribution, the loan will be repaid from the potential recoveries from items of pending litigation in which Southmark is claimant. Changes in Management. Brewer is currently the President, Chief Executive Officer and Chairman of the Board of Southmark. Brewer presently intends to remain in these capacities at least until the distribution to the holders of the Preferred Stock has been effected in accordance with the terms of the Stock Purchase Agreement. Brewer will also appoint Ronald F. Akin and Ronald F. Bruce, designees of A&B, to serve as members of the Board of Directors of Southmark. In the event A&B does not cause Southmark to effect the cash distribution on or before the Distribution Date, Brewer may rescind the sale of the Shares to A&B by returning the consideration paid for the Shares and, in such event, A&B agrees to cause its designees to promptly resign from the Board and to appoint Brewer as President, Chief Executive Officer and Chairman of the Board of Southmark. Springing Proxy in favor of Brewer with respect to shares acquired by A&B. In the event A&B does not cause Southmark to have sufficient funds to enable Southmark to effect the cash distribution on or before the Distribution Date (or such later date as to which Brewer agrees in writing) and Brewer exercises his right of rescission, Brewer will be granted a "Springing Proxy" by A&B with respect to the shares of Common Stock and Preferred Stock acquired by A&B from Brewer and Grace. If the Springing Proxy becomes effective, Brewer may vote all of the shares of Preferred Stock and Common Stock acquired by A&B from Grace on all matters presented to stockholders, except for matters that would (i) cause the loss to Southmark of any loss carry-forward, (ii) materially adversely affect the ownership interests of A&B in Southmark, (iii) cause 2 the approval of a merger, sale of all or substantially all of Southmark's assets, or liquidation involving Southmark, or (iv) cause an automatic conversion of the Preferred Stock into Common Stock. If, however, A&B does not cause Southmark to have sufficient funds to enable Southmark to effect the distribution to the Preferred Stockholders for more than a year after Brewer elects to rescind the sale of the shares to A&B, Brewer will have full authority to vote the shares on any matter presented to stockholders. Conditions to Closing. The Closing is conditioned, among other things, upon the approval of the transactions described herein by the Board of Directors of Southmark, the consummation of the sale by Grace to A&B of Preferred Stock and Common Stock, the receipt by Brewer of the cash consideration for his shares of Preferred Stock and Common Stock, the delivery of the Springing Proxy to Brewer, and certain other conditions. Termination of Stock Purchase Agreement. The Stock Purchase Agreement may be terminated prior to the Closing (i) by mutual consent of A&B and Brewer, (ii) by A&B upon notice in writing to Brewer if the conditions precedent to the obligations of A&B to consummate the transactions have not been fulfilled or waived, (iii) by Brewer upon notice in writing to A&B if the condition precedent to the obligations of Brewer to consummate the transactions have not been fulfilled or waived, or (iv) by either A&B or Brewer if the Closing has not taken place by the close of business on May 31, 2000. * * * * * The preceding summary of the Stock Purchase Agreement is qualified in its entirety by reference to such agreement, a copy of which is attached hereto as Exhibit 10.1, and is incorporated in this summary by reference. A form of the Company's letter to stockholders describing the terms of the transaction with A&B is attached hereto as Exhibit 99.1. The Company's press release announcing the transaction is attached hereto as Exhibit 99.2. 3 Item 7. Financial Statements and Exhibits. (c) Exhibits Item Exhibit ---- ------- 10.1* Stock Purchase Agreement dated as of May 23, 2000 between Brewer and A&B (including form of Springing Proxy attached as Exhibit 2). 99.1* Form of Letter to Stockholders. 99.2* Press Release dated May 24, 2000. _________ *filed herewith 4 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOUTHMARK CORPORATION Date: May 24, 2000 By: /s/ Charles B. Brewer -------------------------------------- Charles B. Brewer President, Chief Executive Officer and Chairman of the Board 5 INDEX TO EXHIBITS Item Number Exhibit ------ ------- 10.1 Stock Purchase Agreement dated as of May 23, 2000 between Brewer and A&B (including form of Springing Proxy attached as Exhibit 2). 99.1 Form of Letter to Stockholders. 99.2 Press Release dated May 24, 2000. EX-10.1 2 STOCK PURCHASE AGREEMENT Exhibit 10.1 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into on and effective as of May 23, 2000, by and among A&B CAPITAL CORPORATION, a Nevada corporation ("Purchaser") and CHARLES B. BREWER, an individual ("Brewer"). W I T N E S S E T H : WHEREAS, pursuant to Findings of Fact and Conclusions of Law and Order Confirming Southmark Corporation's Fourth Amended and Restated Plan of Reorganization, as modified, entered July 23, 1990 (the "Order") in the case styled In Re: Southmark Corporation, Debtor, Case No. 389-36324-SAF-11, in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Proceeding"), Southmark Corporation ("Southmark") canceled "all existing Equity Securities" and issued certain additional securities, including shares of its Redeemable Series A Preferred Stock, par value $0.01 per share (the "Preferred Stock") and new Common Stock, par value $0.01 per share (the "Common Stock"); WHEREAS, the Preferred Stock is subject to the obligations under and is the benefit of the rights granted pursuant to that certain Certificate of Designation, Preferences and Rights of Redeemable Series A Cumulative Liquidation Preference Preferred Stock dated August 10, 1990, as filed with and accepted by the Secretary of State of Georgia (the "Certificate"); WHEREAS, Brewer acquired and presently holds 178,270.25 shares of Preferred Stock (which constitutes approximately 6.3% of the 2,831,997 shares of Preferred Stock of Southmark presently outstanding) and 2,358 shares of Common Stock (which constitutes less than 0.01% of the 36,761,096 shares of Southmark Common Stock outstanding) and Brewer has no options, warrants, calls or rights to acquire any shares of Preferred Stock or Common Stock of Southmark; WHEREAS, Purchaser desires to acquire from Brewer, and Brewer desires to sell all of the shares of Preferred Stock and Common Stock of Southmark presently held by Brewer, all under and subject to the terms and conditions hereinafter set forth. ACCORDINGLY, in consideration of the foregoing premises, the mutual promises, covenants, representations and warranties contained herein, and on the terms and subject to the conditions set forth herein, and for other good and valuable consideration, the receipt, -1- sufficiency and adequacy of which is hereby acknowledged by all of the parties hereto, Purchaser and Brewer hereby agree as follows: 1. Adoption of Recitals. The parties hereto do hereby adopt and confirm -------------------- the foregoing recitals in the same manner as if fully re-copied herein. 2. Purchase and Sale of Stock. Subject to the terms and conditions of -------------------------- this Agreement, including the approval by the Board of Directors of Southmark pursuant to Article Tenth of the Articles of Incorporation, Brewer hereby agrees to sell, convey, transfer and assign to Purchaser, and the Purchaser hereby agrees to purchase and acquire at the "Closing" (as that term is defined below) for the "Consideration" set forth or determined as provided in paragraph 3 of this Agreement, all of the shares of Preferred Stock and Common Stock of Southmark owned by Brewer, same to be at least 178,270.25 shares of Preferred Stock, and at least 2,358 shares of Common Stock of Southmark, all free and clear of any liens or encumbrances of any kind or character. At Closing, Brewer will deliver or cause to be delivered to Purchaser, free and clear of all liens and encumbrances(other than any restrictions imposed by applicable federal and state securities laws) of any kind or character, certificates representing the number of shares of Preferred Stock and Common Stock to be sold as set forth below, together with appropriate Stock Powers separate from certificates executed in blank sufficient for transfer into the name of Purchaser or, in the alternative, appropriate irrevocable instructions to make book-entry transfers under the Depository Trust Company ("DTC") system to transfer all of such shares to Purchaser, same to constitute at Closing, in the aggregate, all of the shares of Preferred Stock and Common Stock of Southmark held at the Closing by Brewer. At the time of such transfer at the Closing, Brewer shall have obtained any and all necessary and appropriate releases of any liens or encumbrances (other than any restrictions imposed by applicable federal and state securities laws) prior to (or simultaneously with) the Closing relating to the shares of Preferred Stock and Common Stock to be sold to Purchaser hereunder which shall be in a form and substance satisfactory to Purchaser and its counsel. 3. Consideration. The Purchase Price to be paid by Purchaser to Brewer ------------- for all of the shares of Preferred Stock and Common Stock shall be calculated on a basis equal to $1.50 per share of Preferred Stock, in cash, up to a maximum of $267,405.37, it being intended that the total Purchase Price for all shares of Preferred Stock and Common Stock transferred shall be for such total, but if less than 178,270.25 shares of Preferred Stock are sold, such amount may be proportionately reduced on the basis of $1.50 per share. Purchaser intends that Brewer may allocate at he deems appropriate between the Common Stock and Preferred Stock, recognizing that Purchaser is not paying a premium to Brewer for the number of shares of Preferred Stock of Southmark held by Brewer. 4. Closing of this Agreement. The closing of the transaction contemplated ------------------------- by this Agreement (herein called the "Closing") shall take place at a location mutually acceptable to Purchaser and Brewer -2- at 2:00 p.m., local Dallas, Texas time on a mutually acceptable date prior to the earlier of May 31, 2000, or five "Business Days" (as that term is defined below) following the date that the Board of Directors of Southmark has approved in writing such transaction pursuant to Article Tenth of the Articles of Incorporation, as amended, of Southmark, or at such other place, time and date as shall be fixed by mutual agreement among the parties hereto. The date on which the Closing shall take place shall be hereinafter referred to as the "Closing Date." The term "Business Day" shall mean a day on which business is regularly transacted by national banks in Dallas, Dallas County, Texas, and shall not be a Saturday, Sunday or national holiday. 5. Representations, Warranties and Covenants of Brewer. Brewer hereby --------------------------------------------------- represents and warrants to Purchaser and covenants and agrees with the Purchaser, that the following representations and warranties are true, complete and correct on the date of this Agreement (except for those representations and warranties which expressly speak to the Closing Date) and shall be true, complete and correct on the Closing Date (except for those representations and warranties which expressly speak to the date of this Agreement only) and shall survive the Closing to the extent provided in paragraph 7 hereof. (a) Capacity and Binding Obligations. Brewer has all -------------------------------- requisite capacity, power and authority to execute, deliver and perform his obligations under this Agreement and each of the other documents contemplated hereby to be executed by Brewer. This Agreement has been duly executed and delivered on behalf of Brewer and constitutes a legal, valid and binding obligation, enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by Brewer in the consummation of the transactions contemplated hereby, do not require the consent, waiver, approval, license or authorization of any "Person" (as defined below) or any regulatory authority and will not, with or without the giving of notice, or lapse of time, conflict with, violate, result in a breach or acceleration of any obligation under or constitute a default under any provision of any mortgage, lien, lease, agreement, contract, instrument, order, judgment, decree, law, ordinance or regulation or any restriction by which Brewer for the shares of Preferred Stock or Common Stock of Southmark is bound or affected, except, in each instance for any required approval of the Board of Directors of Southmark pursuant to Article Tenth of its Articles of Incorporation as amended. The term "Person" shall mean an individual, corporation, general partnership, limited partnership, limited liability company, trust or incorporated organization or a government or any agency or political subdivision thereof. -3- (b) Ownership of and Title to Stock. Brewer has and at ------------------------------- Closing, will have indefeasible title and full beneficial and record ownership of at least 178,270.25 shares of Preferred Stock of Southmark and 2,358 shares of Common Stock of Southmark, in each instance, free and clear of any liens, claims, charges, options or encumbrances, with full power and authority to transfer (subject only to applicable federal and state securities laws and approval by the Board of Directors of Southmark) all of such shares of Preferred Stock and Common Stock which will be sold and delivered to Purchaser pursuant to this Agreement, and Purchaser will receive good and marketable title thereto, free and clear of any liens, charges, options or other encumbrances created by or attributable to Brewer, except to the extent that applicable federal and state securities laws and any required approval by the Board of Directors of Southmark constitute an encumbrance. (c) Compliance with Applicable Law. Including his reliance ------------------------------ upon the Purchaser's representations in paragraph 6 below, Brewer will use his best lawful efforts to comply with all applicable legal requirements in connection with this Agreement and the Closing hereunder, including all provisions of the Securities and Exchange Act of 1934, the Securities Act of 1933, as same has been amended, and all rules and regulations promulgated thereunder and any and all other federal and state laws and regulations that may be applicable to the transactions referred to herein. (d) No Brokers or Finders. Brewer represents and warrants --------------------- that he has not incurred nor is he liable for any finders, brokers, or similar fees or commissions to any third Person whatsoever as the result of the execution and delivery of this Agreement or the consummation of the transaction contemplated hereby. Brewer shall indemnify and hold Purchaser harmless from and against any and all claims for fees based on any alleged retention of any such Person by or on behalf of or with respect to Brewer. (e) Covenants of Access. Brewer will permit representatives ------------------- of the Purchaser to have the opportunity to review information relating to and involving the litigation, other assets and opportunities and obligations of Southmark and will coordinate with representatives of the Purchaser the timing of various matters, record retention and replacement and all of the matters involving Southmark from and after the date of this Agreement. Brewer shall not cause Southmark to terminate any employee or discard any records without the prior consent of the authorized representative of the Purchaser unless this Agreement has been terminated pursuant to paragraph 9 below. -4- (f) Covenant to Remain in Position and Appoint Other ------------------------------------------------ Designees. Brewer intends to remain in his present capacities as --------- the Chairman of the Board, President and Chief Executive Officer of Southmark until at least the later of May 22, 2000, or five days after the distribution to be made to the "Other Preferred Shareholders" (as defined below) described in paragraph 6(d) below is effective in accordance with this Agreement and applicable law, provided, however, that Brewer may resign or -------- ------- otherwise depart the employ at such time as he deems appropriate at any time but not before appointing at least two designees of the Purchaser as members of the Board of Directors of Southmark following the approval of the transaction represented by this Agreement by Board of Directors (or Transfer Review Committee or Transfer Review Officer) of Southmark. Brewer further covenants that in his capacity as the sole member of the Board of Directors he will approve the transaction reflected by this Agreement and the "GBL Transaction" (as that phrase is defined in paragraph 8(b)(iv) below). Brewer will make the appointment to the Board of Directors of at least the two individuals designated by the Purchaser at the Closing. 6. Representations, Warranties and Covenants of Purchaser. Purchaser ------------------------------------------------------ hereby represents and warrants to Brewer covenants and agrees with Brewer that the following representations and warranties are true, correct and complete on the date of this Agreement (except for those representations and warranties which expressly speak to the Closing Date) and shall be true, correct and complete on the Closing Date (except for those representations and warranties which expressly speak to the date of this Agreement only) and shall survive the Closing to the extent provided in paragraph 7 hereof. (a) Organization. Purchaser is a corporation duly ------------ organized, validly existing and in good standing under the laws of its state of incorporation with the corporate power and authority to acquire and own the shares of Preferred Stock and Common Stock of Southmark. This Agreement is a valid and binding obligation of Purchaser enforceable in accordance with its terms and Purchaser has the full power and authority (corporate and other) to perform its obligations under this Agreement. (b) Compliance with Applicable Law. Purchaser will use its ------------------------------ best lawful efforts to comply with all applicable legal requirements in connection with this Agreement and the ownership of shares of Preferred Stock and Common Stock, including all provisions of the Securities and Exchange Act of 1934, the Securities Act of 1933, as same have been amended, and all rules and regulations promulgated thereunder and any and all federal and state laws and regulations that may be applicable to the transactions referred to herein. -5- (c) Exempt Transaction. The shares of Preferred Stock and ------------------ Common Stock of Southmark are being acquired hereunder by Purchaser in a transaction exempt from registration under applicable federal and state securities laws and in accordance therewith, Purchaser advises that its acquisition of the shares of Common Stock and Preferred Stock is for investment purposes only and not with a view toward the distribution thereof to any other Person except in compliance with the provisions of applicable federal and state securities laws. Purchaser acknowledges that the shares of Preferred and Common Stock of Southmark Purchaser acquires under this Agreement may be "restricted securities" (as that term is defined in Rule 144 under the Securities Act of 1933) and may not be sold or transferred except in compliance with applicable federal and state securities laws. (d) Covenant of Distribution. The Purchaser hereby commits ------------------------ to cause Southmark following the Closing under this Agreement, but in no event later than July 31, 2000, to have an amount of funds or other value calculated on the basis of $1.50 per share of Preferred Stock (other than shares purchased from Brewer and Grace Brothers, Ltd.) sufficient to enable Southmark to make a cash distribution to all "Other Preferred Shareholders" (defined to be all holders of Southmark Preferred Stock except Brewer, Grace Brothers, Ltd. and/or the Purchaser) in an amount equal to $1.50 per share of Preferred Stock held by the Other Preferred Shareholders. Any funds required for such advance may be in the form of a loan or other advance from or on behalf of the Purchaser to Southmark secured by a pledge of the first recovery, if any, from the items of litigation currently in process for Southmark, such that if collected dollars result from such litigation, such funds would first be utilized to repay any loan or advance with any excess remaining as an asset of Southmark. 7. Survival of Representations, Warranties and Covenants. All ----------------------------------------------------- representations, warranties and covenants and agreements of Brewer and Purchaser hereunder shall, except as otherwise expressly stated in such item, survive the date of this Agreement and the Closing Date until the applicable expiration of the statute of limitations and all other documents delivered hereunder or to be delivered by one party to the other party are true or will be true when delivered and will survive the date of this Agreement and the Closing Date until the applicable expiration of the statute of limitations except as otherwise expressly stated in each such item or waived in writing. Each of Brewer and Purchaser agree to indemnify, save and hold the -6- other harmless from and against any loss, claim, expense, damage or liability arising from or related to a breach of any one or more of the representations, warranties, covenants and agreements set forth in this Agreement. 8. Conditions of Closing. --------------------- (a) Conditions Precedent to the Obligations of All Parties. ------------------------------------------------------ The respective obligations of each and all parties to consummate the transactions contemplated by this Agreement at the Closing are subject to the fulfillment prior to or at the Closing of each of the following conditions, except as such parties may legally waive such conditions in writing, and at Closing the duly authorized representatives of each of Brewer and Purchaser shall each execute and deliver to the other a certificate or certificates certifying as to such satisfaction or specific waiver of same: (i) On the Closing Date, there shall not be pending or threatened any claim, action, suit or proceeding against any of the parties hereto which, if adversely determined, might prevent or materially hinder the consummation of the transactions contemplated by this Agreement or any of them or result in the payment of substantial damages as a result of any of the transactions contemplated by this Agreement, or cause any party to violate any order or judgment or otherwise materially impair the benefits of any party or parties contemplated hereby, and no investigation by any governmental agency shall be pending or threatened which might eventually result in any such suit, action or proceeding. (ii) The Board of Directors of Southmark shall have approved unconditionally in writing the transactions contemplated by this Agreement pursuant to Article Tenth of the Articles of Incorporation, as amended, of Southmark. (iii) The Board of Directors of Southmark shall have approved unconditionally in writing the "GBL Transaction" (as that phrase is defined below) pursuant to Article Tenth of the Articles of Incorporation, as amended, of Southmark. (b) Conditions Precedent to the Obligations of the ---------------------------------------------- Purchaser. All obligations of the Purchaser to consummate the --------- transactions contemplated by this Agreement are subject to the fulfillment, prior to or at the Closing of each of the following conditions, except as the Purchaser may legally waive such conditions in writing: -7- (i) Other than any representation or warranty made as of the specified date (each of which needs to be true and correct only as of such specified date) and except as otherwise contemplated or permitted by this Agreement, all representations and warranties of Brewer contained in this Agreement shall be true and correct in all respects on and as of the Closing Date as if made on and as of the Closing Date and Brewer shall deliver to Purchaser a certificate or certificates dated at the Closing Date and executed on behalf of Brewer to such effect. (ii) The Purchaser shall have received appropriate documents evidencing the transfer of all shares of Preferred Stock and Common Stock of Southmark owned by Brewer which shall consist of at least 178,270.25 shares of Preferred Stock and 2,358 shares of Common Stock of Southmark in accordance with the requirements of this Agreement. (iii) There shall not have occurred a material adverse change since the date of this Agreement in the condition, financial or otherwise, of Southmark at Closing; provided that the ultimate conclusion or outcome of any litigation pending on the date of this Agreement to which Southmark is a party shall not be deemed --- a material adverse change. (iv) Any other consents, waivers, acknowledgments, etc., of all third Persons, including those set forth on Exhibit "1" attached hereto and incorporated herein, shall have been received on or prior to the Closing Date and copies thereof delivered to the Purchaser. (v) Grace Brothers, Ltd., an Illinois Partnership ("GBL") shall have closed (or will simultaneously with the Closing hereunder, close) the transaction between Purchaser and GBL resulting in Purchaser acquiring from GBL at least 787,271 shares of Preferred Stock and 7,343,156 shares of Common Stock of Southmark (the "GBL Transaction"). (c) Conditions Precedent to Obligations of Brewer. All --------------------------------------------- obligations of Brewer to consummate the transactions contemplated by this Agreement are subject to the -8- fulfillment prior to or at the Closing of each of the following conditions, except as Brewer may legally waive such conditions in writing: (i) Other than a representation or warranty made as of a specified date (each of which need to be true and correct only as of such specified date) and except as otherwise contemplated or permitted by this Agreement, all representations and warranties of the Purchaser contained in this Agreement shall be true and correct in all respects on and as of the Closing Date as if made on and as of the Closing Date, and Purchaser shall deliver to Brewer a certificate or certificates dated as of the Closing Date and executed by an authorized representative of the Purchaser to such effect. (ii) Purchaser shall have delivered to Brewer the cash consideration required pursuant to paragraph 3 above in a form satisfactory to the Purchaser and Brewer against delivery of certificates for the shares of Preferred Stock and Common Stock or DTC transfer on a "payment versus delivery" basis and all other documents or instruments required to be so delivered to Brewer pursuant to the terms of this Agreement shall have been delivered. (iii) Purchaser shall have executed and delivered to Brewer the "Springing Proxy" substantially in the form attached hereto as Exhibit "2." 9. Termination. Notwithstanding any other provision of this Agreement, ----------- this Agreement may be terminated by written notice of termination at any time before, but not later than, the Closing hereunder as follows: (a) By mutual consent of the Purchaser and Brewer acting through their authorized representatives; or (b) By the Purchaser upon notice in writing to Brewer if all other conditions precedent set forth in paragraphs 8(a) and/or 8(b) have not been fulfilled or waived; or (c) By Brewer upon notice in writing to the Purchaser if all other conditions precedent set forth in paragraphs 8(a) and/or 8(c) have not been fulfilled or waived; or -9- (d) By either Purchaser or Brewer if the Closing has not taken place by the close of business on May 31, 2000. In the event this Agreement is terminated, this Agreement shall forthwith become void and of no further force or effect and there shall be no obligation on the part of Brewer or the Purchaser except as specifically set forth in this Agreement. The power of termination provided for in this paragraph when exercised as herein provided, should only be effective upon delivery to the other party of a notice in writing of such exercise signed on behalf of the terminating party by its duly authorized representative. In the event this Agreement is terminated in accordance with this paragraph by any of the parties hereto, any such termination shall be without obligation or liability to any of the other parties hereto except as expressly set forth in this Agreement. 10. Brewer Opportunity to Rescind. Assuming the purchase and sale of stock ----------------------------- described in paragraph 2 of this Agreement has been completed at the Closing and not otherwise terminated pursuant to paragraph 9, in the event that the Purchaser for any reason does not satisfy the covenants set forth in paragraph 6(d) above, prior to the close of business on July 31, 2000, unless Brewer shall have agreed to an extension of such time, Brewer shall have the option at his sole discretion to rescind the transaction ab initio upon written notice to the Purchaser at any time prior to 4:00 p.m., local Dallas, Texas time on August 10, 2000. Such notice of rescission shall be accompanied by a tender to the Purchaser of all consideration paid by Purchaser to Brewer pursuant to paragraph 3 of this Agreement, and upon receipt thereof, the Purchaser shall deliver to Brewer all shares of Preferred Stock and Common Stock Purchaser acquired from Brewer pursuant to paragraphs 2 and 3 of this Agreement. In the event Brewer exercises such right of rescission on the basis of the failure of the occurrence of the event required in paragraph 6(d) above, Brewer shall also again become the sole Director of Southmark in the event he has resigned, and the Purchaser will use its best lawful efforts to cause Brewer to be reelected as the Chairman of the Board, President and Chief Executive Officer of Southmark and any deputies or designees of the Purchaser serving as directors of Southmark shall be deemed to have resigned from the Board, and Purchaser shall use its best lawful efforts to cause such persons to submit any necessary written resignations confirming same to Southmark. In the event such rescission occurs, the parties to this Agreement, following completion of such rescission shall have no further liability to each other with respect to the subject of this Agreement. In the event Brewer does not elect rescission within the requisite time period (as same may be extended), such opportunity to rescind shall be null and void and of no further force or effect. 11. Miscellaneous. ------------- (a) Costs and Expenses. Except as otherwise expressly ------------------ provided for this Agreement, each party hereto shall bear its own costs and expenses and fees incurred or -10- assumed by such party in the preparation or execution of this Agreement and in compliance with the covenants and conditions herein, whether or not the transactions contemplated hereby shall be consummated. (b) Further Cooperation. To the extent that either of the ------------------- Purchaser's or Brewer's further approval or other action is deemed necessary or desirable by any of other parties in order to effectuate the terms, conditions and purposes of this Agreement and the conveyance of the shares of Common Stock and Preferred Stock to the Purchaser, each of the parties hereto hereby agree to execute all reasonable documents and take all actions reasonably requested by the other party. (c) Notices. Any notice or other communication required or ------- permitted to be given by this Agreement or any other document or instrument referred to herein which has been executed in connection herewith must be given in writing (which may be by telecopy, followed by mail or personal delivery) and must be personally delivered or mailed by pre-paid certified or registered mail, to the party to whom such notice or communication is directed, at the address of such party set forth opposite his or its name on the signature page to this Agreement. Subject to the other provisions of this Agreement, any party may change its address (or redesignate the person to whom such notice shall be delivered) for purposes of this Agreement by giving notice of such change to the other party pursuant to this provision. In all instances, any notice or other communication required or permitted to be given by this Agreement shall only be effective upon actual receipt thereof by the person intended to receive same. (d) Amendments. Neither this Agreement nor any term hereof ---------- may be changed, waived, discharged or terminated orally, but only by written agreement among the parties hereto. (e) Headings. The headings of sections or paragraphs of -------- this Agreement are inserted for convenience of reference only, and shall not be deemed to constitute a part of this Agreement. (f) Binding Effect. All terms and provisions of this -------------- Agreement shall be binding upon and enure to the benefit of and be enforceable by the heirs, legal representatives, successors and assigns of the parties hereto, wherever applicable to such party. (g) Entire Agreement. This Agreement and the Commitment ---------------- Agreement constitute the entire agreement among the parties hereto, supercedes any and all prior -11- understandings and arrangements, and may not be modified or amended except on or after the date hereof by a writing executed by the party against whom such modification or amendment is sought to be enforced. The failure of any of the parties of this Agreement to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be deemed to be a waiver or deprive such person or entity of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. No waiver of this Agreement, the obligations or conditions herein, shall be valid unless the writing is signed by the party against whom said waiver is sought to be enforced. (h) Governing Law and Enforcement. This Agreement shall be ----------------------------- construed and enforced in accordance with the laws of the State of Texas, the state in which it was negotiated, executed and delivered; provided that matters relating to the obligations and/or duties of the Board of Directors of Southmark may be governed by Georgia law. Should any clause, sentence or paragraph of this Agreement be judicially or administratively declared to be invalid, unenforceable or void under the laws of the State of Texas or the United States of America or any agency or subdivision thereof, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void shall be deemed to have been deleted herefrom and the remainder shall have been included herein. In the event any party hereto shall fail to perform any of its obligations under this Agreement, such party hereby agrees to pay all reasonable expenses, including reasonable attorneys' fees, which may be incurred by any party hereto which is successful in enforcing this Agreement, whether or not any suit or legal proceeding shall be brought. (i) No Third-Party Beneficiaries. This Agreement does not ---------------------------- create and shall not be construed as creating any rights enforceable by any person other than the undersigned parties and their respective lawful successors and assigns and other persons named herein and does not comply or release and shall not be construed as implying or releasing, that any rights are enforceable against any person or entity other than the undersigned parties and their respective successors and assigns and the persons named herein. (j) Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed to be an original for all purposes and all of which constitute one and the same instrument and it shall not be necessary -12- for the proof of this Agreement that any party produces or accounts for more than one such counterpart. (k) Facsimile. This Agreement or any notices hereunder may --------- be transmitted by facsimile and it is the intent of the parties for the facsimile of any autograph reproduced by a receiving facsimile machine to be an original signature, and for the facsimile and any complete photocopy of this Agreement or notice to be deemed an original counterpart. EXECUTED of the date first above written. Address for Notices: A&B CAPITAL CORPORATION, a Nevada corporation 10670 N. Central Expressway Suite 600 Dallas, Texas 75231 Attn: President By: /s/ RONALD AKIN 214-692-4865 ---------------------------- 214-750-0779 (facsimile) Name: Ronald Akin -------------------------- Title: President ------------------------- 9027 Woodhurst Dallas, Texas 75234 (972)406-6775 (telephone) (972) 406-6724 (facsimile) /s/ CHARLES B. BREWER (214) 341-2542 (facsimile) -------------------------------- Charles B. Brewer, individually -13- EXHIBIT "1" CONSENTS OF THIRD PERSONS TO BE OBTAINED EXHIBIT "2" SPRINGING PROXY This is a Springing Proxy made by A&B Capital Corporation, a Nevada corporation (the "Holder"), which is effective only as provided herein and at the times specified herein. 1. Definitions. As used in this Springing Proxy, the following terms have ----------- the following meanings: (a) "Proxy" shall mean the proxy granted by the Holder under paragraph 2 hereof. (b) "Stock Purchase Agreement" shall mean the Stock Purchase Agreement dated as of May ___, 2000 between Holder and Charles B. Brewer ("Brewer") pursuant to which Holder has purchased certain shares of Redeemable Series A Preferred Stock (the "Preferred Stock") and shares of Common Stock issued by Southmark Corporation ("Southmark") from Brewer. (c) "Shares" shall be and mean all of the shares of Preferred Stock and Common Stock acquired by Holder from Brewer or acquired by Holder from Grace Brothers, Ltd., same constituting in the aggregate as of the date of this Springing Proxy 965,541.25 shares of Preferred Stock and 7,346,114 shares of Common Stock of Southmark or any securities issued in replacement thereof or therefor pursuant to any merger or consolidation of Southmark into another entity. (d) "Event" shall be and mean (i) the failure by Holder to satisfy (to the satisfaction of Brewer) the covenant set forth in paragraph 6(d) of the Stock Purchase Agreement on or before July 31, 2000, or such later date as may be agreed to in writing by Brewer, and (ii) the covenant set forth in paragraph 6(d) remains unsatisfied for a period of 30 calendar days after the date Brewer notifies Holder in writing of Brewer's decision to exercise his right of recission under paragraph 10 of the Stock Purchase Agreement and (iii) at the end of such 30 calendar day period, Brewer does in fact exercise such right of recission. 2. Irrevocable Proxy. Immediately upon the occurrence of the Event, but ----------------- not otherwise, Holder hereby irrevocably appoints Brewer as its attorney and proxy on its behalf and in its name to vote the Shares at any meeting of stockholders of Southmark and where any consent or action by stockholders is to be taken by written consent or other action rather than at a meeting of stockholders, to execute on Holder's behalf any such written consent or action by stockholders with respect to any and all matters involving the election of directors or voting upon any action required to be approved by stockholders of Southmark, except that such ------ ---- proxy may not vote the Shares in favor of any action which, (m) if taken by such stockholders would cause the loss to Southmark of any loss carry-forward or (n) materially adversely affects the percentage interest of Holder represented by such Shares or (o) would or could cause approval of a merger involving Southmark or disposition of substantially all of Southmark's assets or a liquidation of Southmark or (p) would or could cause an automatic conversion of the Preferred Stock with or into Common Stock (each an "Excluded Item"); provided, however, -------- ------- that if the Event continues for a period of one calendar year after the date Brewer exercises his right of recission under paragraph 10 of the Stock Purchase Agreement, the Excluded Items shall no longer be excluded from the Proxy, and after such time, Brewer shall have the full power and authority to vote all of the Shares at any meeting of stockholders of Southmark or if any consent or action by stockholders is to be taken by written consent or action other than at a meeting of stockholders, to execute on Holder's behalf any written consent or action by stockholders without restriction. 3. Term. The Proxy, once effective, shall nevertheless terminate ---- immediately upon the first to occur of (x) the satisfaction of the covenant in paragraph 6(d) to the satisfaction of Brewer or (y) the date which is one calendar day following the date a distribution is actually made by Southmark to the "Other Preferred Shareholders" (as that term is defined in the Stock Purchase Agreement) of assets of a value of $1.50 per share of Preferred Stock (such time is to be the "Expiration Time"). On the occurrence of the Expiration Time, this Proxy shall be deemed to be null, void and of no further force or effect. 4. Miscellaneous. This Proxy, once effective, is irrevocable until the ------------- Expiration Time, is coupled with an interest in the Shares and has been granted in connection with the Stock Purchase Agreement. This Proxy shall be binding upon the heirs, successors and assigns of Holder (including any transferee of the Shares). This Proxy shall not otherwise affect or restrict the sale, transfer or other disposition by Holder of any or all of the Shares. If for any reason of incapacity or death, Brewer ceases to be able to act as the attorney and proxy, ________________________ shall replace Brewer as the attorney and proxy of Holder, but neither Brewer nor his substitute may substitute any other person to act under this Proxy. This Proxy and any other matter relating to this Proxy may be filed with Southmark with respect to the Shares. IN WITNESS WHEREOF, the undersigned has executed this Springing Proxy on May ______, 2000, effective only as provided herein. A&B CAPITAL CORPORATION By:___________________________ Name:_________________________ Title:________________________ STATE OF TEXAS (S) (S) COUNTY OF DALLAS (S) SUBSCRIBED AND SWORN TO BEFORE ME by ____________________, ________________ of A&B Capital Corporation, on this ____ day of May, 2000, as the act and deed of such entity. ______________________________ Notary Public, State of Texas My Commission Expires:________ EX-99.1 3 LETTER TO STOCKHOLDERS EXHIBIT 99.1 CONFIDENTIAL [Southmark Corporation Letterhead] May ___, 2000 Dear Stockholder: Enclosed is a copy of a Current Report on Form 8-K recently filed with the Securities and Exchange Commission that discloses a recent transaction affecting your ownership of Common Stock and Redeemable Series A Preferred Stock of Southmark Corporation. As described in more detail in the enclosed Report, the Board of Directors of Southmark has approved a transaction where I, individually, will sell 178,270.25 shares of Redeemable Series A Preferred Stock and 2,358 shares of Common Stock of Southmark (constituting all of the shares of Southmark's capital stock that I own) to A&B Capital Corporation for a purchase price calculated on the basis of $1.50 per share of Redeemable Series A Preferred Stock. The Board has also approved the sale by Grace Bros. Ltd. of 787,271 shares of Redeemable Series A Preferred Stock and 7,343,156 shares of Common Stock to A&B Capital Corporation. Since Grace's shares will allow A&B Capital to obtain a controlling interest in Southmark, A&B Capital has agreed to pay Grace an additional 50 cents per share of Redeemable Series A Preferred Stock. Upon the closing of these transactions, A&B Capital will own approximately 34 percent of the outstanding shares of Redeemable Series A Preferred Stock and approximately 20 percent of the outstanding shares of Common Stock. In addition, I intend to resign from my positions as President, Chief Executive Officer and Chairman of the Board, and appoint two individuals designated by A&B Capital as members of the Board of Directors of Southmark. It was a condition to the Board's approval of these transactions that all other holders of Redeemable Series A Preferred Stock receive at least the same consideration per share as I receive from A&B Capital. Therefore, A&B Capital agreed to cause Southmark to have an amount of funds or other value sufficient to enable Southmark to make a distribution of $1.50 in cash for each outstanding share of Redeemable Series A Preferred Stock by no later than July 31, 2000. Although not obligated to do so, I presently intend to remain in my current capacities with Southmark until this distribution is made. A&B will contribute or loan funds to Southmark to enable Southmark to make the distribution. If A&B loans funds to enable Southmark to effect the cash distribution, the loan will be repaid from the potential recoveries from items of pending litigation described below. After the distribution, Southmark stockholders will continue to own their shares of Redeemable Series A Preferred Stock and/or Common Stock. As Chairman of the Board of Southmark, my goal has been to maximize the ultimate distribution in liquidation to the holders of the Southmark's Series A Redeemable Preferred Stock. For this reason, I have postponed the planned liquidation and dissolution of Southmark in order to continue to pursue various litigation claims in which Southmark has a high probability of recovering significant damages. Southmark has recovered a total of $5,953,834 since January 1997 in connection with a successful outcome in Securities and Exchange Commission v. Drexel Burnham Lambert Incorporated, et al. Further, Southmark recovered $580,918 in the settlement of Harmon Envicon Associates v. Southmark Corporation. As of the date hereof, Southmark is currently pursuing two claims in which the potential recovery is approximately $3 million in the aggregate. In Southmark Corporation v. Shulte, Roth & Zabel, L.L.P., Southmark has a judgment in the amount of $1 million in its favor, plus pre-judgment interest. The defendants in this action have obtained an irrevocable standby letter of credit in favor of Southmark in the amount of $1,419,652.22 on December 9, 1999 to cover the required bond pending defendants' appeal of the judgment. The judgment has, in fact, been appealed to the Fifth Circuit and it is expected that oral arguments on the appeal will be heard in the next six months. In Southmark Corporation v. Jerri Coppa-Knudson, Liquidation Agent, the bankruptcy court following a trial in November 1998 determined that Southmark has a claim for damages against Double Diamond Ranch Limited Partnership in the approximate amount of $1,251,868. The bankruptcy court also ruled, however, that Southmark is entitled to no distributions of assets on account of that claim in that the Partnership has no right of contribution against its affiliated debtors. Southmark appealed this ruling and the amount of Southmark's damages to the District Court. On March 21, 2000, the District Court affirmed the bankruptcy court's calculation of Southmark's damages at $1,251,868, but vacated the portion of the bankruptcy court ruling denying the Partnership's right of contribution. We expect that this issue should be resolved in the next few months. In approving the transaction with A&B Capital, the Board carefully considered the timing and amount of potential recoveries in the two outstanding claims of Southmark, as compared with the opportunity for the holders of Redeemable Series A Preferred stock to receive $1.50 cash per share by July 31, 2000. The Board determined that the transaction with A&B Capital presented the best course of action for the Southmark stockholders, especially in light of the fact that you are not being asked to sell or otherwise part with your shares of Redeemable Series A Preferred Stock or your Common Stock and, therefore, you may participate as a continuing stockholder in any potential opportunities created by Southmark's new management. Although A&B has not provided us with specific details on its plans for Southmark, we understand that A&B intends to explore the possibility of adding to Southmark one or more business operations not yet identified. Stockholders of Southmark Corporation May __, 2000 Page 3 If you have any questions about how this transaction affects your ownership of capital stock in Southmark, please do not hesitate to call me. Sincerely, Charles B. Brewer Chief Executive Officer, President and Chairman of the Board EX-99.2 4 PRESS RELEASE EXHIBIT 99.2 NEWS RELEASE Southmark Announces Purchase by A&B Capital Corporation of Shares Owned by Brewer and Grace Bros. DALLAS, May 24-Southmark Corporation (Pink Sheets: SMRK/SMRKP) announced today that Charles B. Brewer has agreed to sell 178,270.25 shares of Southmark's Redeemable Series A Preferred Stock and 2,358 shares of Southmark's Common Stock (constituting all the shares of Southmark's capital stock owned by Brewer) to A&B Capital Corporation for a purchase price calculated on the basis of $1.50 cash for each share of Southmark's Preferred Stock. The terms and conditions of A&B Capital Corporation's acquisition of Brewer's shares are set forth in a Stock Purchase Agreement dated May 23, 2000, a copy of which will be filed with the Securities and Exchange Commission. A&B Capital Corporation will separately acquire 787,271 shares of Southmark's Preferred Stock and 7,343,156 shares of Southmark's Common Stock from Grace Bros. Ltd. at a purchase price calculated on the basis of $2.00 per share. At the closing of these transactions, A&B Capital Corporation will own approximately 34% of the outstanding shares of Southmark's Preferred Stock and 20% of the outstanding shares of Southmark's Common Stock. As a part of the transaction with Brewer, A&B Capital Corporation has agreed to cause Southmark to have an amount of funds or other value sufficient to enable Southmark to distribute $1.50 cash for each outstanding share of Southmark's Preferred Stock (the same consideration received by Brewer for the sale of his shares to A&B Capital Corporation) on or before July 31, 2000. Brewer intends to remain as the President, Chief Executive Officer and Chairman of the Board of Southmark until such time as this distribution is made. Brewer also will appoint Ronald F. Akin and Ronald F. Bruce to the Southmark Board upon closing of the sale. Once the distribution is effected, Brewer intends to resign from his capacities. Akin and Bruce are designees of A&B Capital Corporation. Charlie Brewer said "the payment of the dividend to Southmark's preferred stockholders based upon the existing assets is assured through this transaction. As a result, my long tenure at Southmark will be concluded and I will resign accordingly." Prior to this transaction, Southmark Corporation, headquartered in Dallas, has been engaged in the liquidation of its assets in accordance with its court- approved Plan of Reorganization. A&B Capital Corporation has indicated its intention to explore the possibility of adding to Southmark one or more business operations, although A&B has no specific plans or proposals for doing so at this time. CONTACT: Charles B. Brewer, President, 972-406-6775. -----END PRIVACY-ENHANCED MESSAGE-----