-----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, P9Mfn5FXNTeciZ/b8SLY4XvOb6kQf2h/qQBe2hWgd4CJqpm/n+gZkuiAkE/DnbpN 37T5lXFK84RmeGTE8ah6kw== 0000950144-97-001501.txt : 19970222 0000950144-97-001501.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950144-97-001501 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970107 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970218 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC GULF COMMUNITIES CORP CENTRAL INDEX KEY: 0000771934 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 590720444 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08967 FILM NUMBER: 97536699 BUSINESS ADDRESS: STREET 1: 2601 S BAYSHORE DR CITY: MIAMI STATE: FL ZIP: 33133-5461 BUSINESS PHONE: 3058594000 MAIL ADDRESS: STREET 1: 2601 S BAYSHORE DR CITY: MIAMI STATE: FL ZIP: 33133 8-K 1 ATLANTIC GULF COMMUNITIES 8-K 01/07/97 1 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: February 7, 1997 -------------------- Atlantic Gulf Communities Corporation -------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Delaware 1-8967 59-0720444 -------- ------ ---------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Indentification No.) 2601 South Bayshore Drive, Miami, Florida 33133-5461 - ----------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: 305-859-4000 ------------ 2 ITEM 5. OTHER EVENTS. Atlantic Gulf Communities Corporation, (the "Company") has entered into an Investment Agreement dated as of February 7, 1997 (the "Investment Agreement"), and the Company and certain of its subsidiaries (the "Mortgagor Subsidiaries") have entered into a Secured Note Agreement dated as of February 7, 1997 (the "Secured Note Agreement") (collectively, the Investment Agreement and the Secured Note Agreement are referred to herein as the "Agreements"), with AP-AGC, LLC ("Apollo"). Apollo, a Delaware limited liability company, is an affiliate of Apollo Real Estate Investment Fund, L.P., a private real estate investment fund, the general partner of which is Apollo Real Estate Advisors, L.P., a New York-based investment fund. Prior to entering into the Agreements, the Company's board of directors (the "Board") received an opinion of its financial advisor, Tallwood Associates, Inc., that the transactions contemplated by the Agreements are fair, from a financial point of view, to the Company's stockholders (the "Stockholders"). BECAUSE THE DISCUSSION BELOW IS ONLY A SUMMARY OF SELECTED MATERIAL AND OTHER TERMS AND CONDITIONS OF THE AGREEMENTS, WHICH ARE INCLUDED HEREWITH AS EXHIBITS (AS LISTED UNDER ITEM 7 BELOW), SUCH DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY THIS REFERENCE TO THE EXHIBITS HERETO AND BY SUCH REFERENCE, SUCH EXHIBITS ARE INCORPORATED HEREIN. (CAPITALIZED TERMS WHICH ARE USED BUT NOT DEFINED HEREIN SHALL HAVE THE MEANING ASCRIBED TO THEM IN THE AGREEMENTS.) FURTHERMORE, THERE IS NO ASSURANCE THAT THE TRANSACTIONS SUMMARIZED BELOW WILL BE CONSUMMATED OR CONSUMMATED AS DESCRIBED BELOW. The Agreements provide, among other things, that on and subject to certain terms and conditions Apollo will make a loan to the Company in a principal amount up to $10,000,000 (the "Loan"). The Company is not obligated to borrow any portion of the $10,000,000. If the Company wishes to borrow, the Company will give Apollo a request for such loan, including the amount of funds it wishes to borrow and a description of the Company's proposed use of such funds. Apollo will notify the Company within 10 business days of such request whether or not Apollo, in its discretion, approves such use of funds. If Apollo approves the Company's proposed use of such funds, the funding will occur on the 20th business day following the notice from Apollo, subject to all the conditions to the Funding having been complied with or waived. At the consummation of the loan (the "Funding"), Apollo will deliver to the Company the amount of the loan to be made (the "Loan Amount") and the Company and the Mortgagor Subsidiaries will execute and deliver to Apollo a secured convertible promissory note (the "Note") in the principal amount equal to the Loan Amount. The interest rate under the Note will be 20% per annum, payable monthly. The interest rate will increase to 23% per annum if either (a) the Stockholders do not approve the proposed amendment to the Company's certificate of incorporation required to effect the transactions to be consummated at the Series A Preferred Stock closing described below (the "Closing") or (b) the Company is in default. 3 If no default has occurred and the conditions to the Closing have been met, the Note will be converted into Series A Preferred Stock to be issued, as described below, upon consummation of the Closing. If no default has occurred and the conditions to the Closing have not been met, the Note will mature on December 31, 1998, subject to Apollo's right to require a mandatory redemption of up to 50% of the outstanding principal on December 31, 1997. The Note will be secured by a junior lien on substantially all of the Company's assets. The Loan is not subject to or conditioned on the Stockholders' approval. Subject to the prior satisfaction of certain conditions, including the approval of the Stockholders, at the Closing, Apollo will purchase from the Company, and the Company will issue and sell to Apollo, 25,000 shares of Series A Preferred Stock and certain warrants to purchase 5,000,000 shares of the Company's common stock (the "Common Stock"), for a purchase price of $25,000,000 payable as described below. If the Funding has not occurred, Apollo will deliver to the Company $25,000,000. If the Funding has occurred, Apollo will present the Note for conversion into Series A Preferred Stock and will deliver to the Company an amount equal to $25,000,000 reduced by the outstanding principal amount of the Note. Accrued unpaid interest will be paid by the Company at the Closing. The Series A Preferred Stock will rank senior to the Common Stock with respect to dividends and distributions. Holders of the Series A Preferred Stock will be entitled to cash dividends on a quarterly basis at an annual rate equal to 20% of the Liquidation Preference, which is $1,000 per share plus any accrued and unpaid dividends. If an event of default occurs, dividends will accumulate at an annual rate of 25%. The Series A Preferred Stock will be redeemable by the Company in whole or in part after three years from the issuance date at a redemption price in cash equal to the Liquidation Preference. Holders of the Series A Preferred Stock will have certain "put rights," which will entitle them to require the Company to repurchase the Series A Preferred Stock in certain amounts and at certain times: up to one-third of the shares after the end of the fourth year following the issuance date and before the end of the fifth year, up to two-thirds in the aggregate after the end of the fifth year and before the end of the sixth year following the issuance date, and up to the entire amount after the sixth year following the issuance date at a repurchase price in cash equal to the Liquidation Preference. Certain events of default, including a change of control (as defined) of the Company, would accelerate the put rights. The put rights will be secured by a junior lien on substantially all of the Company's assets. Holders of Series A Preferred Stock will have certain voting rights and consent rights. Holders of the Series A Preferred Stock will be entitled to elect three directors to the Board out of a seven-member Board, but will have no other rights to vote on matters submitted to a vote of the Company's common stockholders except as may be required by applicable law. The Series A Preferred Stock will be convertible into Common Stock at a Conversion Price of $5.75 per share, subject to certain anti-dilution and other adjustments. Holders of the Series A Preferred Stock will have certain demand and piggy-back registration rights with respect to the Series A Preferred Stock and the Common Stock issuable upon conversion of the Series A Preferred Stock. - 2 - 4 The Investment Agreement provides that at the Closing, the Company will issue to Apollo warrants to purchase up to an aggregate of 5,000,000 shares of Common Stock as follows (the "Warrants"): 1,666,667 Class A Warrants, 1,666,667 Class B Warrants and 1,666,666 Class C Warrants. The Warrants will have an exercise price of $5.75, subject to certain anti-dilution and other adjustments. The Warrants will expire on the seventh anniversary of their issuance date. Apollo and its transferees will have certain demand and piggy-back registration rights with respect to the Common Stock issuable upon the exercise of the Warrants. After Closing, the Company, in a rights offering, intends to make available for sale to its existing Stockholders, on a pro rata basis, Series B Preferred Stock in the aggregate amount of $10,000,000. The Series B Preferred Stock would be substantially the same as the Series A Preferred Stock, as to economic terms and would be pari passu with the Series A Preferred Stock as to dividends and other rights of payment. However, the put rights of the holders of the Series B Preferred Stock would not be secured by any lien on the Company's assets, and the holders of the Series B Preferred Stock (a) would not be issued warrants to purchase Common Stock, (b) would not be entitled to vote Series B Preferred Stock as a separate class in respect to the election of directors of the Company, and (c) would not have any "consent" rights in respect of Major Transactions (as defined below). The Investment Agreement provides that, until the Closing the Board will consist of ten directors, one of whom will be designated by Apollo (the "Original Apollo Designee"). The Original Apollo Designee will be in the class of directors whose term of office expires at the annual meeting in 1999. In accordance with the foregoing, the Board on February 10, 1997, adopted a resolution pursuant to the Company's By-Laws which increased the size of the Board to ten members. Apollo designated W. Edward Scheetz as the Original Apollo Designee, and the Board then appointed him as a Class 1 director, whose term will continue until the annual meeting of Stockholders to be held in 1999 and until his successor is elected and qualified. If, however, no Funding has occurred and the Investment Agreement is terminated in accordance with its terms, Apollo will cause the Original Apollo Designee to promptly resign from the Board. Apollo will be entitled to have at least one designee on the Board so long as any amounts are owed under the Note. At the annual Stockholders meeting expected to be held in May 1997, the Stockholders will vote upon the election to the Board of the three Board members whose terms expire in 1997. However, in accordance with the Investment Agreement, as of and after the Closing, the Board will be reduced to seven directors. Three of the seven directors will be designated by Apollo, one will be the Company's president and chief executive officer and three will be independent directors selected by the incumbent Board with Apollo's approval. The Apollo three designees will be the Original Apollo Designee and two additional designees. Without Apollo's consent, the Company will not have the right to engage in or enter into any agreement with respect to certain significant actions and transactions ("Major Transaction"), including, but not limited to, amendment of the Company's certificate of incorporation or by- - 3 - 5 laws, recapitalization or reclassification of the Common Stock, a merger or consolidation, a sale of a significant amount of assets, a special dividend or distribution, a significant new financing or refinancing, an issuance of securities, a transaction which would result in a change of control, and certain other transactions. Under the Investment Agreement, Apollo, subject to certain conditions and limitations, will have the opportunity to participate in new joint venture community development projects that the Company proposes to enter into, until Apollo has invested $60,000,000 or more in such projects. Except with respect to certain preexisting projects, Apollo will have a right of first offer to participate in such projects while it owns at least 5,000 shares of Series A Preferred Stock. The Investment Agreement contains certain exclusivity provisions that preclude the Company from soliciting or initiating an alternative transaction prior to the Closing. In addition, the Company has agreed that the Board will not withdraw or modify its approval or recommendation of the Investment Agreement or the transactions contemplated thereby, or approve or recommend or enter into any agreement with respect to an alternative proposal. If, however, the Board receives an unsolicited alternative proposal that, in the exercise of its fiduciary obligations, it determines to be a superior proposal, the Board may withdraw or modify its approval or recommendation of the Investment Agreement and the transactions contemplated thereby, approve or recommend such superior proposal and terminate the Investment Agreement. In January 1997, the Company paid to Apollo a $1,000,000 commitment fee, which will be refunded to the Company at the Closing. If, however, the Investment Agreement is terminated or the Closing does not occur by May 22, 1997, the commitment fee will be forfeited and the Company will pay certain out-of-pocket expenses of Apollo and its affiliates (the "transaction expenses"). If the Closing does not occur by May 22, 1997 as a result of a breach of the Investment Agreement or the Secured Note Agreement by the Company, the Company is required to pay to Apollo a $1,000,000 break-up fee plus Apollo's transaction expenses, in addition to forfeiting the commitment fee. If the conditions for the payment of the break-up fee are fulfilled and either the Company willfully breaches the Investment Agreement or the Company enters into or consummates an Alternative Transaction (as defined) by certain dates, the Company is required to pay to Apollo a $1,000,000 alternative transaction fee, in addition to the payment of the break-up fee and Apollo's transaction expenses and forfeiting the commitment fee. If the Board withdraws its approval of the Investment Agreement, approves or recommends a superior proposal, enters into an agreement with respect to a superior proposal or terminates the Investment Agreement, the Company is required to pay to Apollo a $2,000,000 termination fee and Apollo's transaction expenses in addition to forfeiting the commitment fee. In that case, the Company will not be required to pay the break-up fee and the alternative transaction fee. The maximum amount of fees that Apollo will be entitled to receive as a result of the termination of the Investment Agreement will be $3,000,000 plus Apollo's transaction expenses. The Company has agreed to reimburse Apollo for all of its transaction expenses. - 4 - 6 The Closing is subject to a number of conditions including, but not limited to, Stockholder approval of the proposed Amended and Restated Certificate of Incorporation which will (a) authorize the issuance of the Series A Preferred Stock, (b) authorize the issuance of the Series B Preferred Stock, and (c) increase the amount of authorized Common Stock sufficient to permit the conversion of Series A Preferred Stock and Series B Preferred Stock and the exercise of the Warrants. In addition, the proposed amendment will modify the dividend rights of the holders of Common Stock in certain respects. Additional conditions precedent to the Closing include (a) the consent of the Company's senior secured lender, Foothill Capital Corporation, to the Agreements and the transactions contemplated thereby, all on terms and conditions reasonably satisfactory to the Company and Apollo, and (b) the absence of any material adverse effect occurring in respect of the Company's business, operations, property, condition (financial or otherwise), or prospects. The Agreements can be terminated at any time prior to the Closing (a) by mutual consent of the Company and Apollo; (b) by the Company or Apollo if the Closing shall not have occurred on or before May 22, 1997; provided, however, that such right to terminate shall not be available to any party whose breach of the Investment Agreement has been the cause of the failure of the Closing to occur on or before such date; (c) by Apollo if the Company's proxy statement regarding the Agreements and the transactions contemplated thereby has not been mailed to the Stockholders by May 1, 1997; (d) by the Company or Apollo if any judgment, injunction, order, or decree enjoining Apollo or the Company from consummating this Agreement is entered and such judgment, injunction, order, or decree shall become final and nonappealable; provided, however, that the party seeking to terminate the Investment Agreement shall have used all reasonable efforts to remove such judgment, injunction, order, or decree; (e) by Apollo or the Company if the other party is in material breach of the Investment Agreement; (f) by the Company in connection with an Alternative Transaction (as defined), provided that prior to or concurrently with such termination Apollo shall have received the termination fee; or (g) by either the Company or Apollo at any time from March 30, 1997 until April 5, 1997 if and until any necessary consent from Foothill Capital Corporation has not been obtained on terms reasonable satisfactory to Apollo and the Company. If the Investment Agreement is terminated by the Company as contemplated by clause (g) in the preceding paragraph, and either (a) the Company willfully breached or breaches the Investment Agreement or the Secured Note Agreement or (b) the Company enters into an agreement for, or consummates, an Alternative Transaction prior to the 180th day after the date of termination of the Investment Agreement, the Company shall pay an additional $2,000,000 Alternative Transaction fee to Apollo, in addition to the forfeiture of the commitment fee, plus Apollo's transaction expenses. - 5 - 7 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS (c) EXHIBITS. DESCRIPTION EX-1 Execution Copy - Investment Agreement between Atlantic Gulf Communities Corporation and AP-AGC, LLC, dated as of February 7, 1997. EX-2 Exhibit A to Investment Agreement - Form of Amended and Restated Certificate of Incorporation of Atlantic Gulf Communities Corporation. EX-3 Annex A to Amended and Restated Certificate of Incorporation of Atlantic Gulf Communities Corporation, Statement of Preferences and Rights of 20% Cumulative Redeemable Convertible Preferred Stock, Series A. EX-4 Annex B to Amended and Restated Certificate of Incorporation of Atlantic Gulf Communities Corporation, Statement of Preferences and Rights of 20% Cumulative Redeemable Convertible Preferred Stock, Series B. EX-5 Exhibit C - Warrant for the Purchase of Common Stock of Atlantic Gulf Communities Corporation. EX-6 Execution Copy - Atlantic Gulf Communities Corporation and the Subsidiaries Set Forth on the Signature Pages Hereof, Secured Note Agreement, dated as of February 7, 1997. EX-7 Form of Secured Convertible Promissory Note. Exhibit 1 omits the Disclosure Schedules which are referred to therein and the Schedules referred to in Exhibit C to the Investment Agreement, being the Secured Notes Agreement. The Company agrees to furnish a copy of such Disclosure Schedules and Schedules supplementally upon request from the Commission's staff. -6- 8 SIGNATURES 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 hereto duly authorized. ATLANTIC GULF COMMUNITIES CORPORATION a Delaware corporation Date: February 13, 1997 By: /s/ John H. Fischer ----------------------------------- John H. Fischer, Vice President and Treasurer - 7 - EX-1 2 INVESTMENT AGREEMENT 1 Exhibit 1 INVESTMENT AGREEMENT Between ATLANTIC GULF COMMUNITIES CORPORATION and AP-AGC, LLC Dated as of February 7, 1997 2 TABLE OF CONTENTS
Page ---- 1. DEFINITIONS: CERTAIN REFERENCES . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2 Other Defined Terms . . . . . . . . . . . . . . . . . . . 6 SECTION 1.3 Terms Defined in Note Agreement . . . . . . . . . . . . . 7 SECTION 1.4 Terms Generally . . . . . . . . . . . . . . . . . . . . . 8 2. FUNDING AND CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.1 The Funding . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.2 Transactions at the Closing . . . . . . . . . . . . . . . 9 SECTION 2.3 Funding Time and Place . . . . . . . . . . . . . . . . . . 10 SECTION 2.4 Closing Time and Place . . . . . . . . . . . . . . . . . . 10 3. CONDITIONS TO THE FUNDING AND THE CLOSING . . . . . . . . . . . . . . . . 10 SECTION 3.1 Conditions Precedent to the Obligations of the Investor at the Funding . . . . . . . . . . . . . . . . . . . . . 10 SECTION 3.2 Conditions Precedent to the Obligations of the Investor at the Closing . . . . . . . . . . . . . . . . . . . . . 11 SECTION 3.3 Conditions Precedent to Obligations of the Company at the Closing . . . . . . . . . . . . . . . . . . . . . 13 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . 15 SECTION 4.1 Due Authorization; No Conflicts; Validity . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 4.2 Capitalization of the Company . . . . . . . . . . . . . . 16 SECTION 4.3 SEC Documents . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 4.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 4.5 Approvals . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 4.6 Licenses, Etc. . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 4.7 Contracts . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 4.8 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 4.9 Employee Benefits . . . . . . . . . . . . . . . . . . . . 19 SECTION 4.10 Securities Law Matters . . . . . . . . . . . . . . . . . . 20 SECTION 4.11 State Takeover Statutes . . . . . . . . . . . . . . . . . 20 SECTION 4.12 1996 Financial Statements . . . . . . . . . . . . . . . . 20
-i- 3 5. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR . . . . . . . . . . . . . . 21 SECTION 5.1 Due Authorization; No Conflicts; Validity . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 5.2 Approvals . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 5.3 Acquisition for Own Account . . . . . . . . . . . . . . . 22 SECTION 5.4 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 5.5 Financing . . . . . . . . . . . . . . . . . . . . . . . . 23 6. COVENANTS OF THE PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 6.1 Transfer Restrictions; Legends . . . . . . . . . . . . . . 23 SECTION 6.2 Stockholders Meeting . . . . . . . . . . . . . . . . . . . 24 SECTION 6.3 Pre-Closing Activities . . . . . . . . . . . . . . . . . . 25 SECTION 6.4 No Inconsistent Agreements . . . . . . . . . . . . . . . . 27 SECTION 6.5 Hart-Scott-Rodino . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.6 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.7 Affirmative Covenants . . . . . . . . . . . . . . . . . . 30 SECTION 6.8 Publicity . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 6.9 Reservation of Shares . . . . . . . . . . . . . . . . . . 34 SECTION 6.10 The Board . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 6.11 Indemnification of Board . . . . . . . . . . . . . . . . . 34 SECTION 6.12 Co-Investment Opportunity . . . . . . . . . . . . . . . . 35 SECTION 6.13 Approved Business Plan . . . . . . . . . . . . . . . . . . 36 7. SURVIVAL AND INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 7.1 Survival Periods . . . . . . . . . . . . . . . . . . . . . 36 SECTION 7.2 Indemnification by the Company . . . . . . . . . . . . . . 36 SECTION 7.3 Indemnification by the Investor . . . . . . . . . . . . . 37 SECTION 7.4 Notification . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 7.5 Registration Statements . . . . . . . . . . . . . . . . . 39 8. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 8.1 Demand Registrations . . . . . . . . . . . . . . . . . . . 39 SECTION 8.2 Piggyback Registrations . . . . . . . . . . . . . . . . . 40 SECTION 8.3 Indemnification by the Company . . . . . . . . . . . . . . 40 SECTION 8.4 Indemnification by the Investor . . . . . . . . . . . . . 41 SECTION 8.5 Notification . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 8.6 Other Indemnification . . . . . . . . . . . . . . . . . . 42 SECTION 8.7 Contribution . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 8.8 Registration Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 8.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 8.10 Transfer of Registration Rights . . . . . . . . . . . . . 46 SECTION 8.11 Other Registration Rights . . . . . . . . . . . . . . . . 46 SECTION 8.12 Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 8.13 Limitation on Requirement to File or Amend Registration Statement . . . . . . . . . . . . . 47
-ii- 4 9. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 9.2 Effect of Termination . . . . . . . . . . . . . . . . . . 48 SECTION 9.3 Fees Due Upon Termination . . . . . . . . . . . . . . . . 49 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 10.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 10.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 51 SECTION 10.3 Amendment; Waiver . . . . . . . . . . . . . . . . . . . . 51 SECTION 10.4 Severability . . . . . . . . . . . . . . . . . . . . . . . 51 SECTION 10.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 10.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . 52 SECTION 10.7 Maximum Interest Rate . . . . . . . . . . . . . . . . . . 52 SECTION 10.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 10.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 10.10 Third-Party Beneficiaries . . . . . . . . . . . . . . . . 53 SECTION 10.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 10.12 Submission to Jurisdiction; Waiver of Jury Trial . . . . . . . . . . . . . . . . . . 53 SCHEDULE I Disclosure Schedule EXHIBIT A Form of Amended and Restated Certificate of Incorporation EXHIBIT B Form of Class A, Class B and Class C Warrants EXHIBIT C Form of Secured Note Agreement
-iii- 5 INVESTMENT AGREEMENT dated as of February 7, 1997, by and between Atlantic Gulf Communities Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Company"), and AP-AGC, LLC, a limited liability company organized and existing under the laws of the State of Delaware (the "Investor"). WHEREAS, the Company and the Investor desire to enter into this Agreement pursuant to which, among other things, (a) at the Funding (all capitalized terms used in these Recitals, as defined below), the Investor will lend to the Company, and the Company will borrow from the Investor, the Loan Amount, and (b) at the Closing, the Company will issue to the Investor, and the Investor will acquire from the Company, the Preferred Shares and the Warrants, all on the terms and subject to the conditions set forth in this Agreement; and WHEREAS, concurrently with the execution of this Agreement, the Company and the Investor are entering into the Note Agreement; WHEREAS, the Board of Directors of the Company has received the opinion of Tallwood Associates, Inc., its financial advisor that the transactions contemplated by this Agreement and the other Transaction Documents are fair, from a financial point of view, to the stockholders of the Company; WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company to enter into this Agreement and the other Transaction Documents, and the managing member of the Investor has approved this Agreement and the other Transaction Documents; and NOW, THEREFORE, for and in consideration of the mutual representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I DEFINITIONS: CERTAIN REFERENCES SECTION 1.1 Definitions. The terms defined in this Article I, whenever used in this Agreement, shall have the following meanings for all purposes of this Agreement: "Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. 6 "Agreement" means this Investment Agreement, including all Exhibits and Schedules. "Amended and Restated Certificate of Incorporation" means the Amended and Restated Certificate of Incorporation of the Company in the form of Exhibit A, to be filed with the Delaware Secretary of State, including therein the Series A Preferred Stock Certificate of Designation and the Series B Preferred Stock Certificate of Designation. "Approval" means each authorization, approval, consent, license, filing and registration by, with or from any Government Authority, self-regulatory organization or stock exchange, necessary to authorize or permit the execution, delivery or performance of this Agreement or any other Transaction Document or for the validity or enforceability hereof or thereof. "Approved Business Plan" means a Business Plan of the Company that has been approved by the Investor. "Bank Warrants" means the 1,500,000 warrants for the purchase of Common Stock issued on September 30, 1996 pursuant to the Prepayment Agreement dated as of September 30, 1996 among the financial institutions listed on the signature pages thereof, The Chase Manhattan Bank and the Company. "Business Combination" means a complete liquidation or dissolution of the Company or a merger or consolidation of the Company, or a sale of all or substantially all of the Company's assets. "Certificate of Incorporation" means the Certificate of Incorporation of the Company as filed with the Delaware Secretary of State, as amended through the date hereof. "Change of Control" means: (i) an acquisition by any Person or group (as defined for purposes of Section 13(d) under the Exchange Act) (excluding the Company or an employee benefit plan of the Company or a corporation controlled by the Company's stockholders) of 25% or more of the Common Stock or other voting securities of the Company; (ii) a change in a majority of the Incumbent Board (excluding any individuals approved by a vote of at least a majority of the Incumbent Board other than in connection with an actual or threatened proxy contest); (iii) failure of the requisite number of Investor Designees to be members of the Board (other than as a result of the Investor's failure to nominate a successor to an Investor Designee who has resigned or been removed as a director); or -2- 7 (iv) consummation of a Business Combination (other than a Business Combination in which all or substantially all of the stockholders of the Company receive or own upon consummation thereof 50% or more of the stock of the Company resulting from the Business Combination, at least a majority of the board of directors of the resulting corporation are members of the Incumbent Board, and after which no Person owns 25% or more of the stock of the resulting corporation who did not own such stock immediately before the Business Combination), excluding, in each case, the transactions contemplated by this Agreement. "Class A Warrants" means the 1,666,667 Warrants for the Purchase of Common Stock of the Company to be issued by the Company pursuant to this Agreement, in the form of Exhibit B. "Class B Warrants" means the 1,666,667 Warrants for the Purchase of Common Stock of the Company to be issued by the Company pursuant to this Agreement, in the form of Exhibit B. "Class C Warrants" means the 1,666,666 Warrants for the Purchase of Common Stock of the Company to be issued by the Company pursuant to this Agreement, in the form of Exhibit B. "Conversion Shares" means the shares of Common Stock issuable or issued upon conversion of the Preferred Shares. "Default Change in Control" means a Change in Control (a) of the type referred to in clauses (ii) or (iii) of the definition thereof or (b) of the type referred to in clauses (i) and (ii) of the definition thereof, provided that the percentage thresholds referred to in such clauses (i) and (iv) shall be 40% instead of 25%. "Disclosure Schedule" means the Disclosure Schedule of the Company attached hereto as Schedule I, as it may be amended or supplemented from time to time by the Company with the written consent of the Investor. "Effective Date" means the date on which the Amended and Restated Certificate of Incorporation is filed with the Delaware Secretary of State and becomes effective. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules thereunder. -3- 8 "Incumbent Board" means, prior to the Closing, the Board as constituted on the day after execution and delivery of this Agreement and, following the Closing, the Board as constituted immediately following the Closing. "Instrument" means any contract, agreement, indenture, mortgage, security, document or writing under which any obligation is evidenced, assumed or undertaken, or any Lien is granted or perfected. "Letter Agreement" means that certain letter agreement, dated November 19, 1996, between the Company and the Investor as amended by that certain letter agreement dated January 14, 1997, between the Company and the Investor. "Loan Documents" means the Note Agreement and each instrument or document required to be executed and delivered by the Company or any Subsidiary pursuant thereto. "Major Transaction" means any material transaction which is not described in an Approved Business Plan, including any (i) recapitalization, redemption or reclassification of, or distribution or dividend on, the Company's capital stock (except in the case of the Series A Preferred Stock and Series B Preferred Stock in accordance with their respective terms), (ii) amendment of its certificate of incorporation or by-laws, (iii) liquidation, winding-up or dissolution of the Company or any Significant Subsidiary (as defined in SEC Regulation S-X) of the Company, (iv) consolidation of the Company with, or merger of the Company with or into, any other Person, except a merger of a wholly owned Subsidiary of the Company into the Company, with the Company surviving such merger, (v) sale, transfer, lease or encumbrance of a significant amount of assets of the Company other than in respect of sales of Predecessor Assets (as referred to in the Company's annual report on Form 10-K for the year ended December 31, 1995 and as set forth in Section 1.1 of the Disclosure Schedule), (vi) special dividend or distribution with respect to, or repurchase, redemption or other acquisition of, equity securities of the Company or any rights, warrants or options in respect of such equity securities, (vii) capital expenditure or investment by the Company in excess of $500,000, (viii) entering into or materially amending (including by waiver) any material contract, (ix) significant new financing or refinancing, (x) issuance of securities (other than employee and director stock options to acquire up to 2,000,000 shares of Common Stock and the issuance of the Common Stock thereunder), (xi) transactions which would result in a Change of Control, or (xii) material transaction the nature of which prevents specificity in the Approved Business Plan. -4- 9 "Material Adverse Effect" means a material adverse effect on (i) the business, operations, property, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole, (ii) the ability of the Company to perform its obligations under this Agreement or any of the other Transaction Documents, or (iii) the validity or enforceability of this Agreement or any of the other Transaction Documents or the material rights or remedies of the Investor thereunder (in any capacity). "Maximum Loan Amount" means $10,000,000. "Note Agreement" means the Secured Note Agreement dated the date hereof by and between the Company and the Investor in the form of Exhibit C. "Payment Default" means a Default referred to in any of subsection (a), (e), (g) or (h) of Section 8.1 of the Note Agreement, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition thereto, has been satisfied. "Preferred Shares" means the 25,000 shares of Series A Preferred Stock to be issued to the Investor pursuant to this Agreement at the Closing. "Promissory Note" means a Secured Convertible Promissory Note of the Company issuable under the Note Agreement in the form attached as an exhibit to the Note Agreement, in an aggregate principal amount not to exceed the Maximum Loan Amount. "SEC" means the United States Securities and Exchange Commission. "SEC Documents" means all documents filed by the Company with the SEC since January 1, 1995. "Series A Preferred Stock" means a new series of preferred stock of the Company to be designated 20% Cumulative Redeemable Convertible Preferred Stock, Series A, liquidation preference $1,000 per share, the terms of which shall be as set forth in the Series A Preferred Stock Certificate of Designations. "Series A Preferred Stock Certificate of Designation" means the Statement of Designations setting forth the terms of the Series A Preferred Stock included within the Amended and Restated Certificate of Incorporation. -5- 10 "Series B Preferred Stock" means a new series of preferred stock of the Company to be designated 20% Cumulative Redeemable Convertible Preferred Stock, Series B, liquidation preference $10 per share, the terms of which, if issued, shall be as set forth in the Series B Preferred Stock Certificate of Designations. "Series B Preferred Stock Certificate of Designation" means a Statement of Designations setting forth the terms of the Series B Preferred Stock included within the Amended and Restated Certificate of Incorporation. "Specified Investor Amount" means 5,000 shares of Series A Preferred Stock. "Transaction Documents" means this Agreement, the Warrants, the Amended and Restated Certificate of Incorporation, the Loan Documents and each exhibit, schedule, certificate and document to be executed or delivered pursuant hereto or thereto. "Transaction Expenses" means the out-of-pocket expenses of the Investor and its Affiliates, including the reasonable fees and expenses of lawyers, accountants, appraisers, consultants and other advisors relating to the discussion, evaluation, negotiation and documentation of the Transaction Documents and the Funding and Closing. "Warrants" means the 5,000,000 in aggregate Class A Warrants, Class B Warrants and Class C Warrants to be issued by the Company to the Investor at the Closing. "Warrant Shares" means the 5,000,000 shares of Common Stock issuable upon exercise of the Warrants. SECTION 1.2 Other Defined Terms. Each of the following terms is defined in the Section of this Agreement set forth opposite such term below:
Defined Term Section - ------------ ------- Additional Investor Designee . . . . . . . . . . . . . . . . 3.2(h) Alternative Proposal . . . . . . . . . . . . . . . . . . . . 6.6(b) Alternative Transaction . . . . . . . . . . . . . . . . . . . 6.6(a) Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 4.9 Board . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals Change of Position . . . . . . . . . . . . . . . . . . . . . 6.6(c) Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . 2.2(c)
-6- 11 Common Stock . . . . . . . . . . . . . . . . . . . . . . . 4.2 Company . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Demand Registration . . . . . . . . . . . . . . . . . . . . 8.1 Eligible Transferee . . . . . . . . . . . . . . . . . . . . 8.10 Funding . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Funding Date . . . . . . . . . . . . . . . . . . . . . . . 2.3 indemnified party . . . . . . . . . . . . . . . . . . . . . 7.2 Investor . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Investor Designees . . . . . . . . . . . . . . . . . . . . 3.2(h) Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 7.2 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 Loan Amount . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Multiemployer Plan . . . . . . . . . . . . . . . . . . . . 4.9 Multiple Employer Plan . . . . . . . . . . . . . . . . . . 4.9 NASD . . . . . . . . . . . . . . . . . . . . . . . . . 8.8(p) Notice of Superior Proposal . . . . . . . . . . . . . . . . 6.6(c) Options . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Original Investor Designee . . . . . . . . . . . . . . . . 3.1(d) Piggyback Registration . . . . . . . . . . . . . . . . . . 8.2(a) Proxy Statement . . . . . . . . . . . . . . . . . . . . . . 6.2(b) Purchase Price . . . . . . . . . . . . . . . . . . . . . . 2.2(a) Registrable Securities . . . . . . . . . . . . . . . . . . 8.1 Registration Statement . . . . . . . . . . . . . . . . . . 8.8(a) Representatives . . . . . . . . . . . . . . . . . . . . . . 6.7(b) Stockholders Approval . . . . . . . . . . . . . . . . . . . 4.1 Stockholders Meeting . . . . . . . . . . . . . . . . . . . 6.2(a) Superior Proposal . . . . . . . . . . . . . . . . . . . . . 6.6(c) Termination Fee . . . . . . . . . . . . . . . . . . . . . . 6.6(c)
SECTION 1.3 Terms Defined in Note Agreement. As used in this Agreement, each of the following terms (and any defined terms included within the definitions of the following terms) shall have the meaning ascribed to it in the Note Agreement. Affiliate Foothill Loan Documents Business Day GAAP Business Plan Government Authority Code Hazardous Materials Contractual Obligation Indebtedness Deeds of Trust Issuance Date Default Joint Venture Dollars or $ Lien Due Diligence Fee Mortgages Agreement Obligations Environmental Laws Person ERISA Plan Event of Default Reorganization Plan Excluded Subsidiaries Requirement of Law
-7- 12 Responsible Officer Subsidiary Revolving Loans Security Documents
SECTION 1.4 Terms Generally. The definitions in Sections 1.1, 1.2 and 1.3 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP. The terms and conditions of this Agreement shall be deemed to apply to any Subsidiary of the Company as though such entity were the Company, except where such application would be manifestly inappropriate. ARTICLE II FUNDING AND CLOSING SECTION 2.1 The Funding. If the Company wishes to borrow under the Note Agreement up to the Maximum Loan Amount, the Company will give the Investor a written request for such loan, including in such request the amount of funds it wishes to borrow and a reasonably detailed description of the Company's proposed use of such funds. The Investor shall notify the Company in writing within 10 business days of such request whether or not the Investor, in its absolute discretion, approves such use of funds. If the Investor does not approve such use of funds, then the Investor shall have no obligation to make such loan and the rights and obligations of the parties under this Agreement shall be unaffected by such request of the Company. If the Investor does approve such use of funds, then the consummation of such loan (the "Funding") shall take place on the twentieth business day following such notice from the Investor, subject to all of the conditions to the Funding having been complied with or waived by the Investor. On the terms and subject to the conditions contained herein and in the Note Agreement, at the Funding, the Company shall issue and deliver to the Investor a Promissory Note with a face amount equal to the amount of the loan being made (the "Loan Amount"), duly executed by the Company, dated the date of the Funding and registered in the name of the Investor, against delivery by the Investor of the Loan Amount in immediately available funds by -8- 13 wire transfer to a bank account designated by the Company to the Investor in writing not less than two Business Days prior to the Funding Date. SECTION 2.2 Transactions at the Closing. On the terms and subject to the conditions contained herein, at the Closing: (a) Acquisition of Preferred Shares. The Investor will purchase from the Company, and the Company will issue and sell to the Investor, the Preferred Shares and the Warrants, for a purchase price of $25,000,000 (the "Purchase Price"), payable as described in the immediately following sentence. The Company shall issue and deliver to the Investor one or more stock certificates representing the Preferred Shares, each duly executed by the Company and registered in the name of the Investor, and if the Funding shall have occurred, shall pay to the Investor in cash the amount of accrued and unpaid interest due on the Promissory Note, against delivery to the Company of the Purchase Price payable (i) if the Funding shall not have occurred, in immediately available funds by wire transfer (to a bank account designated by the Company to the Investor in writing not less than two Business Days prior to the Closing Date) or (ii) if the Funding shall have occurred, in the form of (x) presentation of the Promissory Note for renewal and conversion, together with (y) immediately available funds (by wire transfer as aforesaid) of an amount equal to $25,000,000 reduced by the outstanding principal amount of the Promissory Note. If the Funding has occurred, the Investor shall present the original Promissory Note to the Company at the Closing for renewal and conversion, and a legend shall be placed thereon stating that the Promissory Note has been converted into Preferred Shares and stating the number of Preferred Shares into which it has been converted, which legend shall be acknowledged on the Promissory Note by the Company and the Investor. From and after the Closing, the Promissory Note shall not evidence an indebtedness for borrowed money of the Company, but shall evidence the repurchase obligations and other monetary obligations of the Company and the co-makers of the Promissory Note to the holders of the Preferred Shares as set forth in Section 8 of the Series A Preferred Stock Certificate of Designations. From and after the Closing Date, the Promissory Note (legended as set forth above, if applicable) shall be held by the Investor together with the stock certificate(s) evidencing the Preferred Shares, and rights in the Promissory Note shall be transferable pro-rata only to holders of the Preferred Shares. -9- 14 (b) Issuance of Warrants. The Company will issue and deliver to the Investor certificates representing the Warrants, each duly executed by the Company, dated the Closing Date, and registered in the name of the Investor. (c) Refund of Commitment Fee. The Investor will deliver to the Company $1,000,000, representing the return of the commitment fee (the "Commitment Fee") paid by the Company to the Investor pursuant to the Letter Agreement, payable in immediately available funds by wire transfer (to a bank account designated by the Company to the Investor in writing not less than two Business Days prior to the Closing Date). (d) Allocation of Purchase Price. The Purchase Price shall be allocated $24,900,000 to the Preferred Shares and $100,000 to the Warrants. SECTION 2.3 Funding Time and Place. If applicable, the closing of the loan of the Loan Amount and delivery of the Promissory Note shall take place at 10 a.m., New York City time, on the date determined pursuant to Section 2.1, at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York, or at such other time and place as the parties may mutually determine in writing. The actual date on which the Funding shall occur is referred to herein as the "Funding Date." SECTION 2.4 Closing Time and Place. The closing of the acquisition of the Preferred Shares and the issuance of the Warrants shall take place at 10 a.m., New York City time, on the Effective Date, which shall be no later than the second Business Day following the satisfaction or waiver of the conditions to the Closing described in Sections 3.2 and 3.3, at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York, or on such other day or at such other time and place as the parties may mutually determine in writing (the "Closing"). The actual date on which the Closing shall occur is referred to herein as the "Closing Date." ARTICLE III CONDITIONS TO THE FUNDING AND THE CLOSING SECTION 3.1 Conditions Precedent to the Obligations of the Investor at the Funding. The obligations of the Investor to be discharged under this Agreement at the Funding are subject to (a) the Closing not having occurred, (b) this Agreement remaining in full force and effect and (c) satisfaction at or prior to the Funding (unless expressly waived in writing by -10- 15 the Investor at or prior to the Funding) of the conditions to the Funding set forth in the Note Agreement. SECTION 3.2 Conditions Precedent to the Obligations of the Investor at the Closing. The obligations of the Investor to be discharged under this Agreement at the Closing are subject to satisfaction of the following conditions at or prior to the Closing (unless expressly waived in writing by the Investor at or prior to the Closing): (a) Compliance by the Company. Each of the terms, covenants and conditions of this Agreement and the other Transaction Documents to be complied with and performed by the Company at or prior to the Closing shall have been complied with and performed by the Company, and the representations and warranties made by the Company in this Agreement shall be true and correct in all material respects at and as of the Closing with the same force and effect as though such representations and warranties had been made at and as of the Closing, except for representations and warranties that are expressly made as of a specific time, which shall be true and correct as of such time. (b) No Legal Action. No action, suit, investigation or other proceeding relating to the transactions contemplated hereby shall have been instituted or threatened before any court or by any Government Authority or body that restrains or prohibits or seeks to restrain or prohibit the transactions contemplated hereby or to obtain material damages or other material relief in connection therewith. (c) Regulatory Matters. There shall have been received, and shall be in full force and effect, all requisite Approvals with respect to the transactions to be consummated at the Closing. The transactions to be consummated at the Closing on the terms and conditions herein provided shall not violate any applicable law or governmental regulation, and shall not subject the Investor to any tax, penalty or liability, or require the Investor to register or qualify, under or pursuant to any applicable law or governmental regulation. There shall not have occurred, and there shall not be pending or threatened, any change in law, regulation or regulatory practice that has or would reasonably be expected to have a Material Adverse Effect. (d) Legal Opinion. The Company shall have furnished to the Investor on the Closing Date the opinions of Arent Fox Kintner Plotkin & Kahn, counsel to the Company, and Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., special Florida counsel to the Company, dated the Closing Date, in the form and substance reasonably acceptable to the Investor. -11- 16 (e) Transaction Documents. Each of the Transaction Documents required to be delivered at or before the Closing shall have been executed and delivered and shall be in full force and effect. (f) Closing Documents. The Company shall have delivered to the Investor the following: (i) a certificate of the chief executive officer and the chief financial officer of the Company, dated the Closing Date, to the effect that the conditions specified in Sections 3.2(a) and 3.2(j) have been satisfied; (ii) incumbency certificates, dated the Closing Date, for the officers of the Company executing any of the Transaction Documents and any certificates or documents delivered in connection with any Transaction Documents at the Closing; (iii) a certificate of the Secretary of State of the State of Delaware, dated a recent date, certifying that the Company is in good standing in such State, and that all reports, if any, have been filed as required and that all fees in connection therewith and all franchise taxes have been paid; and (iv) such other certificates or documents as the Investor or its counsel may reasonably request relating to the transactions contemplated hereby. (g) Stockholders Approval; Charter Amendment. The Stockholders Approval shall have been obtained at the Stockholders Meeting and the Amended and Restated Certificate of Incorporation shall have been filed with the Delaware Secretary of State and shall be effective. (h) Board Constitution. The Company shall have taken all actions necessary to provide that the Board shall consist of seven members, and the Company shall have caused the Original Investor Designee, the two additional individual designated by the Investor (the "Additional Investor Designees" and, together with the Original Investor Designee, including their successors nominated by the Investor, the "Investor Designees"), one director who is then an incumbent member of management of the Company and the independent directors appointed pursuant to Section 6.10, to be appointed to the Board, effective as of the Closing. -12- 17 (i) Expenses. The Company shall have paid or reimbursed all theretofore unreimbursed Transaction Expenses incurred by the Investor (or made provision satisfactory to the Investor for payment or reimbursement of such expenses in the case of expenses incurred but not yet billed to Investor). (j) No Default; No Change of Control; No Material Adverse Effect. No Default shall have occurred (and, if the Funding shall have occurred, the Company shall have paid all interest accrued and unpaid on the Promissory Note and all other amounts, other than principal, due and owing under the Note Agreement), no Change of Control shall have occurred, and there shall have been no event or events causing a Material Adverse Effect, nor any developments that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (k) Amendments to Security Documents. Any amendments to the Security Documents that may be required to increase the dollar amount of indebtedness secured thereby to not less than the maximum possible aggregate Repurchase Price (as defined in the Series A Preferred Stock Certificate of Designations), increase the amount of title insurance in respect of the Mortgages and Deeds of Trust and "bring down" the endorsements thereon to the Closing Date shall have been effected and shall be in form and substance satisfactory to the Investor. (l) Note Agreement Obligations. The Company shall have performed all of the obligations to be performed by it on or before the Issuance Date under Sections 3.1, 3.2 and 5.1 of the Note Agreement, other than pursuant to clauses (s), (y) and (z) of Section 5.1 thereof. SECTION 3.3 Conditions Precedent to Obligations of the Company at the Closing. The obligations of the Company to be discharged under this Agreement at the Closing are subject to satisfaction of the following conditions at or prior to the Closing (unless expressly waived in writing by the Company at or prior to the Closing): (a) Compliance by the Investor. Each of the terms, covenants and conditions of this Agreement to be complied with and performed by the Investor at or prior to the Closing shall have been complied with and performed by the Investor, and the representations and warranties made by the Investor in this Agreement shall be true and correct in all material respects at and as of the Closing with the same force and effect as though such representations and warranties had been made at and as of the Closing, except for representations and warranties that are -13- 18 expressly made as of a specific time, which shall be true and correct as of such time. (b) No Legal Action. No action, suit, investigation or other proceeding relating to the transactions contemplated hereby shall have been instituted or threatened before any court or by any Government Authority or body that restrains or prohibits or seeks to restrain or prohibit the transactions contemplated hereby or to obtain material damages or other material relief in connection therewith. (c) Regulatory Matters. There shall have been received, and shall be in full force and effect, all requisite Approvals with respect to the transactions to be consummated at the Closing. The transactions to be consummated at the Closing on the terms and conditions herein provided shall not violate any applicable law or governmental regulation. (d) Investment Agreement. This Agreement shall be in full force and effect. (e) Closing Documents. The Investor shall have delivered to the Company: (i) a certificate of the managing member of the Investor, dated the Closing Date and signed by an officer or other authorized representative of the managing member, certifying attached copies of the Limited Liability Company Agreement of the Investor, and the resolutions adopted by the managing member of the Investor authorizing the execution and delivery by the Investor of this Agreement and the other Transaction Documents and the consummation by the Investor of the transactions contemplated hereby and thereby; and (ii) a certificate of the managing member of the Investor signed by an officer or other authorized representative of the managing member to the effect that the conditions specified in Section 3.3(a) have been satisfied. (f) Stockholders Approval; Charter Amendment. The Stockholders Approval shall have been obtained at the Stockholders Meeting and the Amended and Restated Certificate of Incorporation shall have been filed with the Delaware Secretary of State and shall be effective. -14- 19 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Investor that each of the representations and warranties of the Company set forth in the Note Agreement, which (together with the definitions of any defined terms used therein) are incorporated by reference into this Agreement as though expressly set forth herein (provided, however, that each reference in such representations and warranties (x) to the "Effective Date" shall be deemed to refer herein to the date that any such representation or warranty is made hereunder, (y) to "Lender" shall be deemed to refer herein to the Investor and (z) to "this Agreement" shall be deemed to refer herein to this Agreement), is true and correct, and further that: SECTION 4.1 Due Authorization; No Conflicts; Validity. The Company has full power and authority to enter into and, subject to obtaining the Stockholders Approval, perform its obligations under this Agreement and each other Transaction Document executed or to be executed by it. The approval of the Amended and Restated Certificate of Incorporation by a majority of the votes entitled to be cast by all holders of Common Stock (the "Stockholders Approval") is the only vote of the holders of any class or series of the capital stock of the Company or any of its Subsidiaries required to approve this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby. The execution and delivery by the Company of this Agreement, each other Transaction Document and each other certificate or document executed or to be executed by it in connection with the transactions contemplated hereby and thereby, and the performance by the Company of its obligations hereunder and thereunder (including the issuance of the Promissory Note, the Preferred Shares, the Warrants, the Warrant Shares and the Conversion Shares) have been duly authorized by all necessary corporate proceedings on the part of the Company (and no other corporate proceedings or actions on the part of the Company or its Board or stockholders, are necessary therefor, other than the Stockholders Approval), do not and will not conflict with, result in any violation of, or constitute any default under, any Requirement of Law or Contractual Obligation applicable to the Company or any Subsidiary, and will not result in or require the creation or imposition of any Lien on any of the properties of the Company or any Subsidiary of the Company pursuant to any Instrument, other than pursuant to any Transaction Document, except as set forth in Section 4.1 of the Disclosure Schedule. This Agreement has been duly executed and -15- 20 delivered by the Company and constitutes, and each other Transaction Document executed by the Company will, on the due execution and delivery thereof, constitute, the valid and binding obligations of the Company enforceable in accordance with their respective terms. SECTION 4.2 Capitalization of the Company. (a) On the date of this Agreement, the authorized capital stock of the Company consists of 15,665,000 shares of common stock, par value $0.10 per share ("Common Stock"), of which (i) 9,721,720 shares are issued and outstanding, (ii) 86,227 shares are held in the Treasury of the Company, (iii) 1,241,000 shares are reserved for issuance upon the exercise of outstanding options to acquire Common Stock ("Options") (and no more than 822,000 Options have been authorized, issued or granted), (iv) 1,500,000 shares are reserved for issuance pursuant to the Bank Warrants (and 1,500,000 Bank Warrants are outstanding), and (v) 13,543 shares are reserved for distribution in connection with disputed claims pursuant to the Reorganization Plan. All of the outstanding shares of Common Stock are, and all of the shares of Common Stock reserved for issuance will be, when issued, duly authorized, validly issued, fully paid and nonassessable. (b) After giving effect to the Amended and Restated Certificate of Incorporation, the authorized capital stock of the Company will at the Closing (assuming no stock option or warrant exercises) consist of: (i) 50,000,000 shares of Common Stock, of which (A) 9,721,720 shares will be outstanding (excluding shares granted automatically to directors in lieu of fees), (B) 15,200,000 shares will be reserved for issuance upon conversion of the Preferred Shares, (C) 1,500,000 shares will be reserved for issuance pursuant to the Bank Warrants, (D) 5,000,000 shares will be reserved for issuance upon exercise of the Warrants, (E) 86,227 shares will be held in the Treasury of the Company, (F) 822,000 (excluding stock options granted automatically to directors) shares will be reserved for issuance upon the exercise of outstanding Options, and (G) 13,543 shares will be reserved for distribution in connection with disputed claims pursuant to the Reorganization Plan; and (ii) 1,025,000 shares of preferred stock, par value $.01 per share, of which (A) 25,000 will be designated Series A Preferred Stock, all of which shares will be issued to the Investor at the Closing and (B) 1,000,000 will be designated Series B Preferred Stock, none of which shares will be issued or outstanding. No other capital stock of the Company is, or at the Closing will be, authorized and no other capital stock is, or at the Closing will be, issued. At the Closing, all of the Preferred Shares will be duly authorized, and, when issued in accordance with this Agreement, will be validly issued, fully paid and nonassessable -16- 21 and entitled to the benefits of, and have the terms and conditions set forth in, the Amended and Restated Certificate of Incorporation. (c) The Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares are duly authorized by the Board and, when issued in accordance with the Certificate of Amendment, will be validly issued, and, in the case of the Preferred Shares, Conversion Shares and Warrant Shares, fully paid and nonassessable. (d) Except as set forth above or in Item 4.2 of the Disclosure Schedule and except as contemplated by this Agreement, there are not authorized, issued, outstanding or reserved for issuance any (i) securities or obligations of the Company convertible into or exchangeable for any capital stock of the Company, (ii) warrants, rights or options to subscribe for or purchase from the Company, or stock appreciation rights in respect of, any capital stock or any such convertible or exchangeable securities or obligations or (iii) obligations of the Company to issue such shares, any such convertible or exchangeable securities or obligations, or any such warrants, rights or options. No Person has preemptive or similar rights with respect to the securities of the Company. There are no obligations of the Company or any of its Subsidiaries to vote or to repurchase, redeem or otherwise acquire, or to register under the Act, any shares of capital stock of the Company or any of its Subsidiaries. SECTION 4.3 SEC Documents. (a) The Company has filed all documents required to be filed with the SEC under the Act and the Exchange Act since January 1, 1995 and has delivered to the Investor true and complete copies of all of the SEC Documents. As of its filing date, each SEC Document (including all exhibits and schedules thereto and documents incorporated by reference therein) (i) complied in all material respects with the applicable requirements of the Securities Act and the Exchange Act and (ii) did not and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (b) The Company has (i) delivered to the Investor true and complete copies of all correspondence between the SEC and the Company or its legal counsel, accountants or other advisors since January 1, 1995 and (ii) disclosed to the Investor in writing the content of all material discussions between the SEC and the Company or its legal counsel, accountants or other advisors concerning the adequacy or form of any SEC Document -17- 22 filed with the SEC since January 1, 1995. The Company is not aware of any issues raised by the SEC with respect to any of the SEC Documents, other than those disclosed to the Investor pursuant to this Section 4.3(b). SECTION 4.4 Subsidiaries. Except as set forth in Item 4.4 of the Disclosure Schedule, (a) the list of Subsidiaries of the Company filed by the Company with its most recent Form 10-K is a true and accurate list of all of the Subsidiaries of the Company and (b) all of the outstanding capital stock of each Subsidiary and all of the outstanding ownership interests of each Joint Venture have been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Company, directly or through other Subsidiaries, free and clear of any Lien, restrictions upon voting or transfer, claim or encumbrance of any kind, there are no rights granted to or in favor of any third party, other than the Company or any Subsidiary of the Company, to acquire any such capital stock, any additional capital stock or any other securities of any such Subsidiary, and there exists no restriction on the payment of cash dividends by any Subsidiary. SECTION 4.5 Approvals. Except as set forth in Item 4.5 of the Disclosure Schedule, no Approval is required to be obtained by the Company or any Subsidiary of the Company for the consummation of the transactions contemplated by this Agreement or by any of the Transaction Documents, except for the expiration of the waiting period under the HSR Act, the Stockholders Approval and except such as may be required under the Act and state securities laws in connection with the performance by the Company of its obligations under Article VIII. SECTION 4.6 Licences, Etc. The Company and its Subsidiaries hold, own and possess all such governmental, regulatory and other filings, licenses, approvals, registrations, consents, franchises and concessions (collectively, "Licenses") as are necessary for the ownership of the property and conduct of the businesses of the Company and its Subsidiaries, as now conducted and are in compliance in all material respects with their respective obligations under such Licenses. SECTION 4.7 Contracts. All of the material contracts of the Company or any of its Subsidiaries that are required to be described in the SEC Documents or to be filed as exhibits thereto are described in the SEC Documents or filed as exhibits thereto and are in full force and effect. True and complete copies of all such material contracts have been delivered by the Company to the Investor. Neither the Company nor any of its Subsidiaries nor, to the best knowledge of the Company, any other party is in breach of or in default under any -18- 23 such contract. Except as disclosed in Item 4.7 of the Disclosure Schedule, as of the date hereof, the Company is not a party to, nor are any assets, properties or operations of the Company bound by, any (i) employment or severance agreement or any consulting agreement obligating the Company to make payments in excess of $100,000 which cannot be terminated by the Company upon 30 days notice without further obligation thereunder, (ii) lease of real property, or lease of personal property with an annual base rental obligation of more than $100,000 or a total remaining rental obligation of more than $1,000,000, (iii) agreement which is over one year in length of obligation and not terminable without penalty or damages within one year, and involves an unsatisfied obligation of the Company of more than $5,000,000, (iv) agreement containing covenants limiting the ability of the Company or any of its Affiliates to compete in any line of business with any Person or in any area or territory, (v) commitment for or relating to any lending or borrowing or the guaranty thereof, (vi) agreement relating to any acquisition or disposition of securities or assets containing any indemnification obligations of the Company or any of its Subsidiaries, (vii) agreement with any Affiliate of the Company out of the ordinary course of the Company's business (other than employment, compensation or benefit arrangements), or (viii) other material contract, agreement or arrangement, entered into other than in the ordinary course of business. SECTION 4.8 Finder's Fees. Except for Bankers Trust Securities Corporation and Tallwood Associates, Inc., whose fees and expenses will be paid by the Company, no broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. SECTION 4.9 Employee Benefits. Except for the plans set forth in Item 4.9(a) of the Disclosure Schedule (the "Benefit Plans"), there are no employee benefit plans or arrangements of any type (including, without limitation, plans described in Section 3(3) of ERISA), under which the Company or any of its Subsidiaries has or in the future could have directly, or indirectly through a Commonly Controlled Entity (within the meaning of Sections 414(b), (c), (m) and (o) of the Code), any liability with respect to any current or former employee of the Company, any of its Subsidiaries, or any Commonly Controlled Entity. Except for the Benefit Plan set forth in Item 4.9(b) of the Disclosure Statement, no Benefit Plan is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code or any corresponding provision of applicable law. No Benefit Plan is a "multiemployer plan" within the -19- 24 meaning of Section 4001(a)(3) of ERISA (a "Multiemployer Plan") or a plan that has two or more contributing sponsors at least two of whom are not under common control, within the meaning of Section 4063 of ERISA (a "Multiple Employer Plan"), nor has the Company or any ERISA Affiliate of the Company, at any time since September 2, 1974, contributed to or been obligated to contribute to any Multiemployer Plan or Multiple Employer Plan. With respect to each Benefit Plan the Company has delivered to the Investor complete and accurate copies of (i) all plan texts and agreements, (ii) all material employee communications (including summary plan descriptions), (iii) the most recent annual report, (iv) the most recent annual and periodic accounting of plan assets, (v) the most recent determination letter received from the Internal Revenue Service and (vi) the most recent actuarial valuation. Except as may be set forth in Item 4.9(c) of the Disclosure Schedule, with respect to each Benefit Plan: (A) no event has occurred and there exists no circumstance under which the Company or any of its Subsidiaries could directly, or indirectly through a Commonly Controlled Entity, incur any material liability under ERISA, the Code or otherwise (other than routine claims for benefits and other liabilities arising in the ordinary course pursuant to the normal operation of such Benefit Plan); (B) all contributions and premiums due and owing have been made or paid on a timely basis; and (C) all contributions made under any Benefit Plan have met the requirements for deductibility under the Code, and all contributions that have not been made have been properly recorded on the books of the Company or a Commonly Controlled Entity thereof in accordance with GAAP. The Company has no liability for life, health, medical or other welfare benefits to former employees or beneficiaries or dependents thereof, except for health continuation coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA and at no expense to the Company. SECTION 4.10 Securities Law Matters. Neither the Company nor any Person acting on its behalf has, in connection with the sale of the Preferred Shares and the issuance of the Warrants, engaged in (i) any form of general solicitation or general advertising (as those terms are used within the meaning of Rule 502(c) under the Act), (ii) any action involving a public offering within the meaning of Section 4(2) of the Act, or (iii) any action that would require the registration under the Act of the offering and sale of the Preferred Shares or the issuance of the Warrants pursuant to this Agreement, or that would violate applicable state securities or "blue sky" laws. In reliance on the representation of the Investor set forth in Section 5.3, the offer, issuance, sale and delivery of the Preferred Shares, the Conversion Shares, the Warrants, and the Warrant Shares, in each case as provided in this Agreement, are -20- 25 or will be exempt from registration under the Act and any applicable state securities or "blue sky" laws. The Company has not made and will not make, directly or indirectly, any offer or sale of Preferred Shares or Warrants or of securities of the same or a similar class as the Preferred Shares or Warrants if as a result the offer and sale of the Preferred Shares and issuance of the Warrants contemplated hereby could fail to be entitled to exemption from the registration requirements of the Act. As used herein, the terms "offer" and "sale" have the meanings specified in Section 2(3) of the Act. SECTION 4.11 State Takeover Statutes. The Board has duly and validly approved this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, and such approval is sufficient to render the provisions of Section 203 of the Delaware General Corporation Law inapplicable to this Agreement and the other Transaction Documents and the transactions contemplated hereby or thereby, and to any future "business combination" (as defined in Section 203) between the Investor and the Company or their respective Affiliates. To the Company's knowledge, no other state takeover statute or similar statute or regulation (including Florida Statutes Sections 607.901 through 607.903) applies or purports to apply to this Agreement. SECTION 4.12 1996 Financial Statements. The consolidated balance sheets of the Company and its consolidated Subsidiaries as at December 31, 1996 and the related consolidated statements of income and of cash flows for the fiscal year ending on such date, reported on by Ernst & Young, a copy of which will be furnished to the Investor as soon as such documents are available, will fairly and accurately present the consolidated financial condition of Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. Such financial statements, including the related schedules and notes thereto, will have been prepared in accordance with GAAP applied consistently throughout the periods involved and consistently with the financial statements of the Company and its consolidated Subsidiaries as at and for the year ended December 31, 1995 (except for such inconsistencies as approved by such accountants and as disclosed therein). Neither the Company nor any of its consolidated Subsidiaries will have, at the date of the balance sheet referred to above, any material guarantee obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including any interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto. -21- 26 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE INVESTOR The Investor hereby represents and warrants to the Company that: SECTION 5.1 Due Authorization; No Conflicts; Validity. The Investor has full power and authority to enter into and perform its obligations under this Agreement and each other Transaction Document executed or to be executed by it. The execution and delivery by the Investor of this Agreement, each other Transaction Document and each other certificate or document executed or to be executed by it in connection with the transactions contemplated hereby and thereby, and the performance by the Investor of its obligations hereunder and thereunder have been duly authorized by all necessary proceedings on the part of the Investor, and do not and will not conflict with, result in any violation of, or constitute any default under, any Requirement of Law or Contractual Obligation applicable to the Investor. This Agreement constitutes, and each other Transaction Document executed by the Investor will, on the due execution and delivery thereof, constitute, the valid and binding obligations of the Investor enforceable in accordance with their respective terms. SECTION 5.2 Approvals. No Approval is required to be obtained by the Investor for the consummation of the transactions contemplated by this Agreement or by any of the Transaction Documents, except for the expiration of the waiting period under the HSR Act and except such as may be required under the Act and state securities or "blue sky" laws under Article VIII. SECTION 5.3 Acquisition for Own Account. The Preferred Shares and the Warrants are being acquired by the Investor for its own account and with no intention of distributing or reselling the Preferred Shares, the Warrants, the Warrant Shares or the Conversion Shares, or any part thereof in any transaction that would be in violation of the Act or the securities or "blue sky" laws of any state, without prejudice, however, to the rights of the Investor at all times to sell or otherwise dispose of all or any part of the Preferred Shares, the Warrants, the Warrant Shares or the Conversion Shares under an effective registration statement under the Act or under an exemption from such registration available under the Act, or to pledge all or any part of the Preferred Shares, the Warrants, the Warrant Shares or the Conversion Shares to secure any obligation of the Investor. The Investor is capable of evaluating the merits and risks of an investment in the Preferred Shares, -22- 27 the Warrants and the Warrant Shares, and can bear the economic risk of such investment. SECTION 5.4 Finder's Fees. No broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Investor. SECTION 5.5 Financing. The Investor has, or will have at the time of the Funding and the Closing, the funds necessary to fulfill its obligations under this Agreement. ARTICLE VI COVENANTS OF THE PARTIES SECTION 6.1 Transfer Restrictions; Legends. (a) Subject to the requirements of the Act and the Exchange Act, the Preferred Shares, the Warrants, the Warrant Shares, the Conversion Shares and the Promissory Note shall be freely transferable; provided, however, that, unless either a Payment Default, an Event of Default or a Default Change of Control shall have occurred or the Stockholders Approval shall not have been received at the Stockholders Meeting, the Investor shall not assign or otherwise transfer any of such securities or the Promissory Note or any beneficial interest in any of such securities or the Promissory Note until the second anniversary of the date of this Agreement; provided that the Investor may pledge any of such securities or the Promissory Note as security for bona fide indebtedness owed to a Person which is not an Affiliate of the Investor. (b) So long as the Preferred Shares, the Conversion Shares, the Warrant Shares and the Warrants are restricted securities under the Act and unless they shall have been previously issued pursuant to an effective registration statement under the Act, the certificates representing such restricted Preferred Shares, Warrant Shares, Conversion Shares and Warrants shall bear the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND ANY SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER. PRIOR TO ____, 1999, SUCH SECURITIES MAY ALSO BE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS SET FORTH IN -23- 28 AN INVESTMENT AGREEMENT RATED AS OF FEBRUARY 5, 1997 BETWEEN THE ISSUER AND AP-AGC, LLC, A COPY OF THE APPLICABLE PROVISIONS OF WHICH IS AVAILABLE UPON REQUEST TO THE ISSUER. (c) After termination of the requirement that a legend be placed upon a certificate representing Preferred Shares, Warrant Shares, Warrants or Conversion Shares, the Company shall, upon receipt by the Company of evidence reasonably satisfactory to it that such requirement has terminated and upon the written request of any holder of Preferred Shares, Warrant Shares, Warrants or Conversion Shares, issue certificates for such Preferred Shares, Warrant Shares, Warrants or Conversion Shares, as the case may be, that do not bear such legend. SECTION 6.2 Stockholders Meeting. (a) The Company shall take all action necessary, in accordance with applicable law and its Certificate of Incorporation and By-laws, to convene to a special or annual meeting of its stockholders (the "Stockholders Meeting") as promptly as reasonably practicable after the date of this Agreement for the purpose of, among other things, considering and taking action upon a resolution to adopt the Amended and Restated Certificate of Incorporation. The Board will recommend that holders of Common Stock vote in favor of the adoption of the Amended and Restated Certificate of Incorporation at the Stockholders Meeting. (b) The Company will, as soon as practicable following the date of this Agreement, prepare and file a proxy statement (the "Proxy Statement") with the SEC relating to the Stockholders Meeting (including any information required to satisfy the requirements of Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder). The Company will use its reasonable good faith efforts to respond to any comments of the SEC or its staff and to cause the Proxy Statement to be mailed to the Company's stockholders as promptly as practicable after responding to all such comments to the satisfaction of the SEC or its staff. The Company will provide the Investor with a copy of the preliminary Proxy Statement and all modifications thereto prior to filing or delivery to the SEC and will consult with the Investor in connection therewith. The Company will notify the Investor promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and will supply the Investor with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement or the Stockholders Meeting. The Investor will cooperate and furnish promptly all information required for inclusion in the Proxy -24- 29 Statement. If at any time prior to the Stockholders Meeting there shall occur any event that should be set forth in an amendment or supplement to the Proxy Statement, the Company will promptly prepare and mail to its stockholders such an amendment or supplement. The information provided by either party for use in the Proxy Statement shall be true and correct in all material respects without omission of any material fact which is required to make such information not false or misleading. No representation, covenant or agreement is made by either party with respect to information supplied by the other party for inclusion in the Proxy Statement. SECTION 6.3 Pre-Closing Activities. From and after the date of this Agreement until the Closing, each of the Company and the Investor shall act with good faith towards the other, and shall use all reasonable efforts to consummate the transactions contemplated by this Agreement, and neither the Company nor the Investor will take any action that would prohibit or impair its ability to consummate the transactions contemplated by this Agreement. From the date hereof until the Closing, the Company shall conduct the business of it and its Subsidiaries in the ordinary course consistent with past practice and shall use all reasonable efforts to preserve intact its business organizations and relationships with third parties, and, except as otherwise provided herein, to keep available the services of the present directors, officers and key employees. Without limiting the generality of the foregoing, from the date hereof until the Closing, except as contemplated by this Agreement, without the Investor's prior written consent the Company shall not, and shall ensure that each of its Subsidiaries does not: (a) adopt or propose (or agree to commit to) any change in its certificate of incorporation or By-Laws, except as contemplated hereby or as required to effect the transactions hereunder; (b) take any action that would make any representation or warranty of the Company hereunder required to be true at and as of the Closing as a condition to the Investor's obligations to consummate the transactions contemplated hereby inaccurate at the Closing; (c) issue, sell, pledge or encumber any capital stock or other securities, except (i) pursuant to Options or Bank Warrants outstanding on the date hereof, (ii) pursuant to options granted automatically under the Company's 1994 Non-Employee Directors Stock Option Plan or 1996 Non-Employee Directors Stock Plan, and Common Stock issued to directors in lieu of cash fees, or (iii) for the issuance -25- 30 of up to $10,000,000 aggregate liquidation preference of Series B Preferred Stock to stockholders of the Company who subscribe for such shares pursuant to a rights offering by the Company, the terms of which shall be reasonably acceptable to the Investor; provided that the net proceeds of the issuance and sale of such Series B Preferred Stock shall be used for working capital purposes (which does not include repurchasing securities of the Company) or for investment projects of the Company in accordance with the provisions of this Agreement; (d) make any material change in its accounting methods, principles or practices except as may be required by law or applicable accounting standards; (e) except as described in the Approved Business Plan for 1997, (i) grant to any employee any material increase in salary or other remuneration or any increase in severance or termination pay not consistent with past practice; (ii) grant or approve any general increase in salaries of all or any class of, or a substantial portion of, its employees not consistent with past practice; (iii) pay or award any material bonus, incentive, compensation, service award or other like benefit for or to the credit of any employee except in accordance with written policy or consistent with past practice; (iv) enter into any material employment contract or severance arrangement with any employee or adopt or amend in any material respect any of its employee benefit plans; or (v) change in any material respect the compensation (whether in respect of terms or method) of its agents; (f) (i) except as permitted by the Note Agreement, enter into or assume any loan or other Instrument pursuant to which the Company or such Subsidiary incurs Indebtedness for borrowed money (other than any such Instrument among the Company and its wholly owned Subsidiaries or among the Company's wholly owned Subsidiaries) or (ii) request or agree to any material amendment or supplement to or waiver, termination or modification of any material existing Instrument (other than Instruments relating to Indebtedness); (g) declare, pay, set aside or make any dividend or distribution (payable in cash, stock, property or obligations) on, or combine, subdivide or reclassify, any shares of any class of its capital stock or of its Subsidiaries (now or hereafter outstanding), or apply any of its funds, property or assets to the purchase, redemption, sinking fund or other retirement of any shares of any class of its -26- 31 capital stock or of its Subsidiaries (now or hereafter outstanding); provided, however, that this provision shall not apply in respect of the liquidation or dissolution of one or more Excluded Subsidiaries; or (h) agree, commit or resolve to do any of the foregoing. SECTION 6.4 No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries shall enter into any Instrument, or enter into any amendment or other modification to any currently existing Instrument, that by its terms restricts or prohibits the ability of the Company to issue Conversion Shares upon the conversion of the Preferred Shares or Warrant Shares upon the exercise of the Warrants, or pursuant to which the Company's ability to make any distributions with respect to, or to redeem or repurchase any of, the Preferred Shares or Warrant Shares will be subject to any restriction that is more restrictive than the provisions of the Amended and Restated Certificate of Incorporation, or restricting the Company's ability to perform any of its obligations under this Agreement or any of the Transaction Documents, including its obligations relating to registration rights. SECTION 6.5 Hart-Scott-Rodino. To the extent applicable, each of the Company and the Investor shall make all filings and furnish all information required with respect to the transactions contemplated by this Agreement by the HSR Act and shall use reasonable efforts to obtain the early termination of the waiting period thereunder. SECTION 6.6 Exclusivity. (a) The Company hereby agrees that it will not, nor will it permit any of its Subsidiaries to, nor will it authorize or permit any officer, director or employee of, or any investment banker, attorney or other advisor or representative of it or any of its Subsidiaries to, solicit or initiate, or encourage the submission of, any proposal or transaction for a financing of the Company (other than draws under the Foothill Facility or project financing in the ordinary course of business consistent with past practice) or for the acquisition by a Person other than the Investor or an Affiliate of the Investor of stock or a substantial part of the assets of the Company through a merger or other business combination, stock or assets acquisition or otherwise (in any such case, an "Alternative Transaction") (or to furnish to any Person any nonpublic information concerning the business, properties or assets of the Company (other than in connection with the sale by the Company of properties designated for sale in an Approved Business Plan, as required by the Foothill Loan Documents or in connection with project financing (debt or equity) -27- 32 in the ordinary course of business consistent with past practice), or to otherwise facilitate any inquiries or the making of any proposal) prior to the Closing. In addition, the Company hereby agrees that it will, and will cause its Subsidiaries, officers, directors, employees, investment bankers, attorneys and other advisors or representatives to, terminate any other discussions or negotiations with any third party regarding any Alternative Transaction, and that the Company will not, nor will it permit any of its Subsidiaries to, nor will it authorize or permit any officer, director or employee of, or any investment banker, attorney or other advisor or representative of the Company, or any of its Subsidiaries to have any additional discussions or negotiations with any third party regarding such an Alternative Transaction prior to the Closing. (b) Notwithstanding the provisions of Section 6.6(a), prior to the Closing, to the extent required by the fiduciary obligations of the Board, as determined in good faith by the Board after receipt of the written advice of its outside counsel and financial advisor, the Company may (i) in response to an unsolicited request therefor, furnish information with respect to the Company to the requestor pursuant to a customary confidentiality agreement and discuss such information and the terms of this Section 6.6 (but not the terms of any possible Alternative Proposal) with such Person and (ii) upon receipt by the Company of an unsolicited Alternative Proposal, following delivery to the Investor of the notice required pursuant to the last two sentences of this Section 6.6(b), participate in negotiations regarding such Alternative Proposal. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in the preceding sentence by any director or executive officer of the Company or any of its Subsidiaries or any investment banker, financial advisor, attorney or other advisor to or representative of the Company or any of its Subsidiaries, whether or not such person is purporting to act on behalf of the Company or any of its Subsidiaries or otherwise, shall be deemed to be a breach of Section 6.6 by the Company. For purposes of this Agreement, "Alternative Proposal" means any proposal (whether or not in writing and whether or not delivered to the Company's stockholders generally) for a Business Combination involving the Company or any proposal or offer to conduct in any manner, directly or indirectly, an Alternative Transaction. The Company shall promptly advise the Investor orally and in writing of any request for information or of any Alternative Proposal, or any inquiry with respect to or which could lead to any Alternative Proposal, the material terms and conditions of such request, Alternative Proposal or inquiry, -28- 33 and the identity of the Person making any such Alternative Proposal or inquiry. The Company shall keep the Investor reasonably informed of the status of any such request, Alternative Proposal or inquiry. (c) Prior to the Closing, neither the Board nor any committee thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to the Investor, the approval or recommendation by the Board of this Agreement or the transactions contemplated hereby, (ii) approve or recommend, or propose to approve or recommend, any Alternative Proposal or (iii) enter into any agreement with respect to any Alternative Proposal. Notwithstanding the foregoing, if the Board receives an unsolicited Alternative Proposal that, in the exercise of its fiduciary obligations (as determined in good faith by the Board after receipt of the written advice of its outside counsel and financial advisor), it determines to be a Superior Proposal, the Board may (subject to the provisions of this Section 6.6) withdraw or modify its approval or recommendation of this Agreement and the transactions contemplated hereby, approve or recommend any such Superior Proposal, enter into an agreement with respect to such Superior Proposal and terminate this Agreement (any such action, a "Change of Position"), in each case at any time after the second Business Day following the Investor's receipt of written notice (a "Notice of Superior Proposal") advising the Investor that the Board has received a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the person making such Superior Proposal. In addition, if the Company proposes to approve or engage in any Change of Position with respect to any Alternative Proposal, it shall prior to or concurrently with approving or adopting such Change of Position pay to the Investor $2,000,000 in immediately available funds (the "Termination Fee"). In addition, the Commitment Fee shall be forfeited by the Company and the Company shall pay to the Investor within two Business Days of request therefor, subject to provision of documentation, an amount in cash equal to the Investor's Transaction Expenses. For purposes of this Agreement, a "Superior Proposal" means any bona fide Alternative Proposal which the Board determines in its good faith reasonable judgment (after receipt of the written advice of its financial advisor and outside counsel) to be more favorable from a financial point of view to the Company's stockholders than the transactions contemplated by this Agreement. Nothing contained herein shall prohibit the Company from taking and disclosing to its stockholders a position contemplated by Rule 14e-2(a) under the Exchange Act prior to the third business day following the Investor's receipt of a Notice of Superior Proposal provided that the Company does not at that time withdraw -29- 34 or modify its position with respect to the Merger or approve or recommend an Alternative Proposal. SECTION 6.7 Affirmative Covenants. The Company hereby agrees that from the date hereof and so long as the Promissory Note remains outstanding and unpaid or the Investor holds at least the Specified Investor Amount of Series A Preferred Stock: (a) Financial Statements. The Company shall furnish to the Investor: (i) as soon as available, but in any event not later than 90 days after the end of each fiscal year of the Company, a copy of the consolidated balance sheet of the Company and its consolidated Subsidiaries as at the and of such year and the related consolidated statements of income and retained earnings and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on by Ernst & Young or other independent certified public accountants of nationally recognized standing acceptable to the Investor; (ii) as soon as available, but in any event not later than 90 days after the end of each fiscal year of the Company, a copy of the consolidating balance sheet of the Company and its consolidated Subsidiaries as at the end of such year and the related consolidating statements of income and retained earnings and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects; (iii) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Company, the unaudited consolidated and consolidating balance sheet of the Company and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated and consolidating statements of income and retained earnings and of cash flows of the Company and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects when considered in relation to the consolidated and consolidating financial statements of the Company and its consolidated Subsidiaries (subject to normal year-end audit adjustments); all such financial statements specified in (i), (ii) and (iii) -30- 35 above to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein); (iv) as soon as available, but in any event not later than 45 days after the end of each quarterly period of the Company, a report showing all sales by the Company of real property, including a description of the property sold and the price received, certified by a Responsible Officer as being fairly stated in all material respects; (v) a copy of each report, certificate or other document or information delivered to the lenders or agent under the Foothill Loan Documents, concurrently with the delivery thereof to such lenders or agent, including all annexes or attachments thereto; and (vi) such other information as the Investor may reasonably request from time to time. (b) Access. The Company shall (and shall cause each of its Subsidiaries to), upon reasonable notice, afford the officers, employees, counsel, accountants, financing sources and other authorized representatives of the Investor or any of its Affiliates ("Representatives") reasonable access during normal business hours to its properties, books, contracts, commitments and records (including environmental records) and personnel and advisors (who will be instructed by the Company to cooperate) and the Company shall (and shall cause each of its Subsidiaries to) furnish promptly to the Investor all information concerning its business, properties and personnel as the Investor or its Representatives may reasonably request; provided that any review will be conducted in a way that will not interfere unreasonably with the conduct of the Company's business, and provided, further, that no review pursuant to this Section 6.7(b) shall affect or be deemed to modify any representation or warranty made by the Company. The Investor will keep all information and documents obtained pursuant to this Section 6.7(b) on a confidential basis in accordance with Paragraph F of the Letter Agreement. (c) Notices. The Company shall promptly give notice to the Investor of: (i) the occurrence of any Default or Event of Default; -31- 36 (ii) any (A) default or event of default under any Contractual Obligation of the Company or, to the knowledge of the Company, any of its Subsidiaries or (B) litigation, investigation or administrative or other proceeding which may exist at any time between the Company or, to the knowledge of the Company, any of its Subsidiaries and any Government Authority, which in the case of either clause (A) or clause (B), if not cured or if adversely determined, as the case may be, would have a Material Adverse Effect; (iii) any litigation or administrative or other proceeding affecting the Company or, to the knowledge of the Company, any of its Subsidiaries, in which the amount involved or sought is in excess of $500,000 or in which injunctive or similar relief is sought; (iv) any default under, or revocation of, or notice threatening to revoke, any operating permit or license material to the Company's business; (v) its having become aware that any representation or warranty contained herein is or has become untrue in any material respect; and (vi) any development or event which would reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Company proposes to take with respect thereto. (d) Environmental Laws. The Company shall: (i) comply with, and use its reasonable efforts to insure compliance by all tenants and subtenants, if any, with, all Environmental Laws and obtain and comply with and maintain, and insure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, registrations or permits required by Environmental Laws, except in each case to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; and (ii) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply with all lawful orders and directives of all Government Authorities respecting Environmental Laws, except to the extent that the same are being contested in good faith by appropriate -32- 37 proceedings and the pendency of such proceedings or delay in such actions would not reasonably be expected to have a Material Adverse Effect. (e) Business Plan. The Company shall furnish to the Investor on or before the tenth day following approval by the Board, but in no event later than December 31 of each fiscal year and within 10 days (after approval by the Board, if applicable) of any amendment, modification or update thereto, a Business Plan of the Company for the next succeeding fiscal year in a form and in substance satisfactory to the Investor setting forth in reasonable detail a projected statement for such fiscal year's income and cash flow with a projected balance sheet as of the close of the succeeding fiscal year end, accompanied by a statement of a Responsible Officer that the Business Plan projected statements of income, cash flow and balance sheet for the succeeding fiscal year have been adopted by the Board. The Company shall at all times conduct its business substantially in accordance with the Business Plan and shall not materially modify such Business Plan without the prior written approval of the Investor. (f) Major Transactions. Except as permitted by this Agreement, the Company shall not engage in, or enter into any agreement with respect to, or (except subject to the prior written approval of the Investor) resolve to engage in or to enter into any agreement with respect to, any Major Transaction, without the prior written consent of the Investor (it being agreed that (i) the approval (x) of a majority of the Investor Designees at a meeting of the Board, (y) of one or more Investor Designees at a meeting of the Executive Committee of the Board or (z) of all members of the Board, including the Investor Designees, by a written directors consent shall be deemed to be written consent of the Investor and (ii) any action by the Company in respect of the Series A Preferred Stock and the Series B Preferred Stock, including dividend payments thereon and redemption thereof, in accordance with their terms shall not be deemed to be Major Transactions). SECTION 6.8 Publicity. The parties will cooperate with each other in the development and distribution of all news releases and other public information disclosures with respect to this Agreement or any of the transactions contemplated hereby and shall not issue any public announcement or statement with respect hereto or thereto without prior notification to the other party, and, until 30 days after the Closing Date, except as required by law, the reasonable approval of the other party. -33- 38 SECTION 6.9 Reservation of Shares. From and after the Closing, the Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized and unissued stock, (a) solely for the purpose of effecting the conversion of the Preferred Shares, such number of shares of Common Stock as shall be sufficient to effect the conversion of all of the Preferred Shares and (b) solely for the purpose of issuing shares of Common Stock upon the exercise of Warrants, such number of shares of Common Stock which may then be deliverable upon exercise of all of the Warrants. SECTION 6.10 The Board. The Company shall take all actions necessary so that: (a) as of the date of this Agreement and until the Closing, the full Board shall consist of ten directors, one of whom shall be the Original Investor Designee (who shall be in the class of directors whose term of office expires at the annual meeting in 1999; provided, however, that, if no Funding has occurred and this Agreement is terminated in accordance with its terms, the Investor shall cause the Original Investor Designee to promptly resign from the Board), and (b) as of and after the Closing, the Board shall consist of seven directors, who shall be the Original Investor Designee, the Additional Investor Designees (one of each of whom shall be in each of the other classes of directors), one member of the incumbent management of the Company and three independent directors (satisfying the standard of independence established in the rules of the New York Stock Exchange, Inc.) who shall be selected by the Incumbent Board with the approval of the Investor (which shall not be unreasonably withheld). Subject to applicable law, the Company shall take all action necessary to effect any such election or appointment, including timely mailing to its stockholders the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder (and the Investor shall provide to the Company on a timely basis all information required to be included in the Proxy Statement with respect to the Original Investor Designee and the Additional Investor Designees). From and after the Effective Date, the voting rights of holders of the Preferred Shares voting shall be as set forth in the Amended and Restated Certificate of Incorporation. So long as any amounts are owed under the Promissory Note, at least one member of the Board shall be designated by the Investor. SECTION 6.11 Indemnification of Board. From and after the Closing, the Amended and Restated Certificate of Incorporation and By-laws of the Company, however amended, will at all times contain provisions exculpating and indemnifying its directors to the fullest extent permitted under applicable law. The By-laws of the Company shall always contain provisions consistent with the provisions of this Section 6.11. The -34- 39 Company shall maintain valid policies of directors and officers indemnity insurance with financially sound and reputable insurers in such amounts, with such deductibles and against such risks and losses as are reasonable for the business and assets of the Company. SECTION 6.12 Co-Investment Opportunity. Except with respect to projects, including joint ventures, of the Company or any Subsidiary existing on the date of this Agreement as set forth in Section 6.12 of the Disclosure Schedule, as long as the Investor owns at least the Specified Investor Amount of Preferred Stock, the Investor will have a right of first offer to participate in new joint venture community development projects proposed to be entered into by the Company, until the Investor has invested at least $60,000,000 in cash in such projects; provided, however, that the provisions of this Section 6.12 shall not apply to any project in which the Company's participation and commitment shall be in the form of (a) its expertise and business efforts or (b) the contribution or real property (or equity interests in real property), as opposed to capital contributions. Subject to the foregoing, if the Company proposes to enter into any new community development project (including any new joint venture, partnership or similar arrangement with any third party), the Company will inform the Investor thereof and will offer the Investor the opportunity to invest in such proposed project for one week before offering such opportunity to any third party. To the extent reasonably available to the Company, the Company shall give the Investor such information regarding the proposal as the Investor may reasonably request to enable it to make an investment decision. If the Investor fails to advise the Company within 10 Business Days after receipt of any such offer in writing of its intention to proceed with due diligence and negotiation with respect to such proposed investment, the Investor shall be deemed to have rejected such offer. If the Investor discloses to the Company its intention, within such 10 Business Day period, to proceed with due diligence and negotiation with respect to such proposed investment, then the Investor and the Company agree to negotiate with each other in good faith with respect to such proposed investment for up to 20 Business Days following the Investor's receipt of such information. If, after the Company and the Investor have discussed the proposed transaction for such 20-Business Day period, the Investor determines either not to invest in such project, or not to invest the full amount that the Company requires for such project, or has not committed to the Company to make such investment, on substantially the terms and conditions offered to the Investor, then the Company may enter into an agreement with or consummate a transaction with other potential investors with regard to the proposed investment (or the amount required in excess of the -35- 40 amount to be committed by the Investor), provided that the Company may not offer terms to another potential investor materially more favorable in the aggregate than the terms offered to the Investor unless the Company first offers such terms to the Investor. Nothing herein shall be deemed to imply any commitment on the part of the Investor to invest in the Company or any project proposed by the Company, except as expressly provided in this Agreement. So long as any principal amount is outstanding under the Promissory Note, in connection with the Investor's rights described above, the Company will offer the Investor the opportunity to conduct due diligence investigations with respect to such projects and will comply with the terms of the Due Diligence Fee Agreement. SECTION 6.13 Approved Business Plan. Within 30 days after the date hereof, the Company shall deliver to the Investor a draft of the Business Plan for 1997-1998, and the Company and the Investor shall exercise reasonable efforts to reach agreement on the Approved Business Plan. ARTICLE VII SURVIVAL AND INDEMNIFICATION SECTION 7.1 Survival Periods. All representations and warranties contained in this Agreement shall survive for thirty months from the Closing Date, and shall thereupon terminate and cease to be of further force and effect, except that any representation or warranty as to which notice of a breach giving rise to a right of indemnification has been given prior to the end of such thirty month period shall survive until any such right of indemnification has been finally resolved. The covenants and agreements contained in this Agreement, other than those which by their terms only apply until the Closing Date, shall survive the Closing in accordance with their terms. The representations and warranties and the survival periods set forth above shall apply regardless of any investigation made by or on behalf of any Person. SECTION 7.2 Indemnification by the Company. Subject to the provisions of Section 7.1, the Company agrees to indemnify and hold harmless the Investor and its Affiliates and their respective officers, directors, agents, employees, subsidiaries, partners and controlling persons (each, an "indemnified party") to the fullest extent permitted by law from and against any and all losses, claims, damages, expenses (including reasonable fees, disbursements and other charges of counsel) or other liabilities ("Liabilities") resulting from any breach of any covenant, agreement, representation or warranty -36- 41 of the Company in this Agreement or in any other Transaction Document; provided, however, that the Company shall not be liable under this Section 7.2: (i) for any amount paid in settlement of claims without its consent (which consent shall not be unreasonably withheld) or (ii) to the extent that it is finally judicially determined that such Liabilities resulted primarily from a breach by the Investor of any representation, warranty, covenant or agreement of the Investor contained in this Agreement or the willful misconduct of the Investor; provided, further, that, if and to the extent that such indemnification is unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of such indemnified liability that shall be permissible under applicable laws. In connection with the obligation of the Company to indemnify for Liabilities as set forth above, the Company further agrees to reimburse each indemnified party for all such expenses (including reasonable fees, disbursements and other charges of counsel) as they are incurred by such indemnified party. SECTION 7.3 Indemnification by the Investor. Subject to the provisions of Section 7.1, the Investor agrees to indemnify and hold harmless the Company and their respective Affiliates, officers, directors, agents, employees, subsidiaries, partners and controlling persons (each, an "indemnified party") to the fullest extent permitted by law from and against any and all Liabilities resulting from any breach of any covenant, agreement, representation or warranty of the Investor in this Agreement or in any other Transaction Document; provided, however, that the Investor shall not be liable under this Section 7.3: (i) for any amount paid in settlement of claims without the Investor's consent (which consent shall not be unreasonably withheld) or (ii) to the extent that it is finally judicially determined that such Liabilities resulted primarily from a breach by the Company of any representation, warranty, covenant or agreement of the Company contained in this Agreement or the willful misconduct of the Company; provided, further, that, if and to the extent that such indemnification is unenforceable for any reason, the Investor shall make the maximum contribution to the payment and satisfaction of such indemnified liability that shall be permissible under applicable laws. In connection with the obligation of the Investor to indemnify for Liabilities as set forth above, the Investor further agrees to reimburse each indemnified party for all such expenses (including reasonable fees, disbursements and other charges of counsel) as they are incurred by such indemnified party. SECTION 7.4 Notification. Each indemnified party under this Article VII or Article VIII will, promptly after the -37- 42 receipt of notice of the commencement of any action or other proceeding against such indemnified party in respect of which indemnity may be sought from any indemnifying party under this Article VII or Article VIII, notify such indemnifying party in writing of the commencement thereof. The omission of any indemnified party so to notify any indemnifying party of any such action shall not relieve such indemnifying party from any liability that it may have to such indemnified party (a) other than pursuant to this Article VII or Article VIII or (b) under this Article VII or Article VIII unless, and only to the extent that, such omission results in forfeiture of substantive rights or defenses. In case any such action or other proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, such indemnifying party shall be entitled to participate therein and, to the extent that either may wish, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that any indemnified party may, at its own expense, retain separate counsel to participate in such defense. Notwithstanding the foregoing, in any action or proceeding in which any indemnifying party and an indemnified party are, or are reasonably likely to become, a party, such indemnified party shall have the right to employ separate counsel at the expense of such indemnifying party and to control its own defense of such action or proceeding if, in the reasonable opinion of counsel to such indemnified party, (i) there are or may be legal defenses available to such indemnified party or to other indemnified parties that are different from or additional to those available to such indemnifying party or (ii) any conflict or potential conflict exists between such indemnifying party and such indemnified party that would make such separate representation advisable in the view of the indemnified party; provided, however, that (A) any such separate counsel employed by the indemnified party at the expense of such indemnifying party shall be reasonably satisfactory to such indemnifying party, (B) the indemnified party will not, without the prior written consent of such indemnifying party settle, compromise or consent to the entry of any judgment in such action or proceeding unless such settlement, compromise or consent includes an unconditional release of such indemnifying party from all liability arising or that may arise out of such action or proceeding relating to any matter subject to indemnification hereunder and (C) in no event shall such indemnifying party be required to pay fees and expenses under this Article VII or Article VIII for more than one firm of attorneys representing the indemnified parties in any jurisdiction in any one legal action or group of related legal actions. The rights accorded to indemnified parties hereunder shall be in addition to any rights that any indemnified party may have at common law, by separate agreement or otherwise. -38- 43 SECTION 7.5 Registration Statements. Notwithstanding anything to the contrary in this Article VII, the indemnification and contribution provisions of Article VIII shall govern any claim made with respect to registration statements filed pursuant thereto or sales made thereunder. ARTICLE VIII REGISTRATION RIGHTS SECTION 8.1 Demand Registrations. At any time and from time to time after the Closing, the Company shall, upon the written demand of the Investor, use its best efforts to effect the registration (a "Demand Registration") under the Act (by means of a "shelf" registration statement pursuant to Rule 415 under the Act, if so requested and if the Company is eligible therefor at such time) of such number of Registrable Securities (as defined below) then beneficially owned by the Investor as shall be indicated in a written demand sent to the Company by the Investor; provided, however, that: (a) the Company shall be obligated under this Agreement to effect no more than (i) two Demand Registrations so long as the Company is not eligible to file Form S-3 under the Act, and (ii) five Demand Registrations if the Company is eligible to file Form S-3; and (b) a Demand Registration shall not count as such until it has become effective, except that if, after it has become effective, the offering of Registrable Securities pursuant to such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or any other Government Authority, such registration shall be deemed not to have been effected unless such stop order, injunction or other order or requirement shall subsequently have been vacated or otherwise removed. If a Demand Registration is initiated by the Investor, no other securities may be offered in such offering by the Company without the Investor's consent. Upon receipt of the written demand of the Investor, the Company shall expeditiously effect the registration under the Act of the Registrable Securities covered by such request and use its best efforts to have such registration become and remain effective as provided in Section 8.8. The Investor shall have the right to select the underwriters for a Demand Registration. As used in this Agreement, "Registrable Securities" shall mean (a) any Preferred Shares, (b) any Conversion Shares, (c) any Warrant Shares, (d) any other shares of Common Stock acquired by the Investor and (e) any securities issued or issuable with respect to any Preferred Shares, Conversion Shares, Warrant Shares by way of stock dividend or stock split, or in -39- 44 connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. SECTION 8.2 Piggyback Registrations. (a) If the Company proposes to register any of its securities under the Act for sale for cash (otherwise than in connection with the registration of securities issuable pursuant to an employee stock option, stock purchase or similar plan or pursuant to a merger, exchange offer or a transaction of the type specified in Rule 145(a) under the Act), the Company shall give the Investor notice of such proposed registration at least 20 days prior to the filing of a registration statement. At the written request of the Investor delivered to the Company within 10 Business Days after the receipt of the notice from the Company, stating the number of Registrable Securities that the Investor wishes to sell or distribute publicly under the registration statement proposed to be filed by the Company, the Company shall use its best efforts to register under the Act the sale of such Registrable Securities, and to cause such registration (a "Piggyback Registration") to become and remain continuously effective as provided in Section 8.8; (b) If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters thereof advise the Company in writing that in their opinion the number of securities requested to be included in the registration exceeds the number which can be sold in the offering without adversely affecting the offering, the Company shall include in the registration (i) first, that portion of the Registrable Securities that the Investor proposes to sell representing 10% of such offering, (ii) second, the securities the Company proposes to sell, and (iii) third, the remaining Registrable Securities the Investor proposes to sell. SECTION 8.3 Indemnification by the Company. In the event of any registration of any Registrable Securities under the Act, the Company shall, and hereby does, indemnify and hold harmless the Investor, each of its directors and officers, each other Person who participates as an underwriter in the offering or sale of such Registrable Securities and each other Person, if any, who controls the Investor or any such underwriter within the meaning of Section 15 and Section 20 of the Act against any losses, claims, damages or liabilities, joint or several, to which the Investor or any such director or officer or underwriter or controlling Person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which -40- 45 the Registrable Securities were registered under the Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made not misleading, and the Company shall reimburse the Investor and each such director, officer, underwriter and controlling Person for any legal or any other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information about the Investor furnished to the Company through an instrument duly executed by or on behalf of the Investor specifically stating that it is for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Investor or any such director, officer or controlling Person and shall survive the transfer of the Registrable Securities by the Investor. SECTION 8.4 Indemnification by the Investor. The Company may require, as a condition to including any Registrable Securities in any registration statement filed pursuant to Section 8.1 or 8.2, that the Company shall have received an undertaking satisfactory to it from the Investor to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 8.3) the Company, each director of the Company, each officer of the Company signing such registration statement, each other Person who participates as an underwriter in the offering or sale of such Registrable Securities and each other Person, if any, who controls the Company within the meaning of Section 15 and Section 20 of the Act with respect to any untrue statement or alleged untrue statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein or any amendment or supplement thereto, if such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information about the Investor furnished to the Company through an instrument duly executed by the Investor specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Such -41- 46 indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive the transfer by the seller of the securities of the Company being registered. SECTION 8.5 Notification. The procedures set forth in Section 7.4 shall apply to any claim for indemnification pursuant to Section 8.3 or 8.4. SECTION 8.6 Other Indemnification. Indemnification similar to that specified in this Article VIII (with appropriate modifications) shall be given by the Company and the Investor with respect to any required registration or other qualification of Registrable Securities under any federal or state law or regulation of any Government Authority other than the Act. SECTION 8.7 Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in this Article VIII is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms in respect of any Liabilities suffered by an indemnified party referred to therein, each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Liabilities, in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and of the liable selling stockholders on the other in connection with the statements or omissions which resulted in such Liabilities, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the liable selling stockholders (including, in each case, that of their respective officers, directors, employees, agents and controlling Persons) on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by or on behalf of the selling stockholders, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. SECTION 18.8 Registration Covenants of the Company. If any Registrable Securities of the Investor are to be registered pursuant to Section 8.1 or 8.2, the Company covenants and agrees that it shall use its best efforts to effect the registration and cooperate in the sale of the Registrable Securities to be registered and shall as expeditiously as possible: -42- 47 (a) (i) prepare and file with the SEC a registration statement with respect to the Registrable Securities (as well as any necessary amendments or supplements thereto) (a "Registration Statement") and (ii) use its best efforts to cause the Registration Statement to become effective; (b) prior to the filing described above in Section 8.8(a), furnish to the Investor copies of the Registration Statement and any amendments or supplements thereto and any prospectus forming a part thereof, which documents shall be subject to the review and approval of counsel for the Investor; (c) notify the Investor, promptly after the Company shall receive notice thereof, of the time when the Registration Statement becomes effective or when any amendment or supplement or any prospectus forming a part of the Registration Statement has been filed; (d) notify the Investor promptly of any request by the SEC for the amending or supplementing of the Registration Statement or prospectus or for additional information and promptly deliver to the Investor copies of any comments received from the SEC; (e) (i) advise the Investor after the Company shall receive notice or otherwise obtain knowledge of the issuance of any order by the SEC suspending the effectiveness of the Registration Statement or any amendment thereto or of the initiation or threatening of any proceeding for that purpose and (ii) promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal promptly if a stop order should be issued; (f) (i) prepare and file with the SEC such amendments and supplements to the Registration Statement and each prospectus forming a part thereof as may be necessary to keep the Registration Statement continuously effective for the period of time necessary to permit the Investor to dispose of all its Registrable Securities and (ii) comply with the provisions of the Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during such period in accordance with the intended methods of disposition by the Investor set forth in the Registration Statement; (g) furnish to the Investor such number of copies of the Registration Statement, each amendment and supplement thereto, the prospectus included in the Registration Statement (including each preliminary prospectus) and such -43- 48 other documents as the Investor may request in order to facilitate the disposition of the Registrable Securities owned by the Investor; (h) use its best efforts to register or qualify such Registrable Securities under such other securities or "blue sky" laws of such jurisdictions as determined by the underwriters after consultation with the Company and the Investor and do any and all other acts and things which may be reasonably necessary or advisable to enable the Investor to consummate the disposition in such jurisdictions of the Registrable Securities (provided that the Company shall not be required to (i) qualify generally to do business in any jurisdiction in which it would not otherwise be required to qualify but for this Section 8.8(h), (ii) subject itself to taxation in any such jurisdiction, or (iii) consent to general service of process in any such jurisdiction); (i) notify the Investor, at any time when a prospectus relating thereto is required to be delivered under the Act, of the happening of any event as a result of which the Registration Statement would contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, at the request of the Investor, prepare a supplement or amendment to the Registration Statement so that the Registration Statement shall not, to the Company's knowledge, contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (j) if the Common Stock is not then listed on a securities exchange, use its best efforts, consistent with the then-current corporate structure of the Company, to facilitate the listing of the Common Stock on a stock exchange or on the NASDAQ Stock Market; (k) provide a transfer agent and registrar, which may be a single entity, for all the Registrable Securities not later than the effective date of the Registration Statement; (l) enter into such customary agreements (including an underwriting agreement in customary form, including customary indemnification provisions and customary lock-up arrangements of the issuer and its directors and executive officers) and take all such other action, if any, as the Investor or the underwriters shall reasonably request -44- 49 in order to expedite or facilitate the disposition of the Registrable Securities pursuant to this Article VIII; (m) (i) make available for inspection by the Investor, any underwriter participating in any disposition pursuant to the Registration Statement and any attorney, accountant or other agent retained by the Investor or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company as any of them may request in connection with their "due diligence" investigations of the Company and (ii) cause the Company's officers, directors and employees to supply all relevant information reasonably requested by the Investor or any such underwriter, attorney, accountant or agent in connection with the Registration Statement; (n) use its best efforts to cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental authorities as may be necessary to enable the Investor to consummate the disposition of such Registrable Securities; (o) cause the Company's independent public accountants to provide to the underwriters, if any, and the selling holders, if permissible, a comfort letter in customary form and covering such matters of the type customarily covered by comfort letters; (p) cooperate and assist in any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"); and (q) use all reasonable efforts to facilitate the distribution and sale of any Registrable Securities to be offered pursuant to this Agreement, including without limitation by making road show presentations, holding meetings with potential investors and taking such other actions as shall be appropriate or as shall be requested by the lead managing underwriter of an underwritten offering. SECTION 8.9 Expenses. In connection with any Demand Registration pursuant to Section 8.1 or any Piggyback Registration pursuant to Section 8.2, the Company shall pay all registration, filing and NASD fees, all fees and expenses of complying with securities or "blue sky" laws (including fees and disbursements of underwriters' counsel); provided, however, that the Investor shall pay its pro rata share of any commissions, fees and disbursements of underwriters customarily paid by -45- 50 sellers of securities (based upon offering proceeds to be received by it). In any Demand Registration or Piggyback Registration, the Company shall be responsible for the fees and disbursements of counsel for the Company and of its independent public accountants, printing costs and premiums and other costs of policies of insurance against Liabilities arising out of the public offering of the Registrable Securities. The Investor shall be responsible for the fees and disbursements of counsel for the Investor. SECTION 8.10 Transfer of Registration Rights. The Investor (or any Eligible Transferee) may transfer all or any portion of its rights under this Article VIII to any transferee of an amount of Registrable Securities equal to or exceeding 10% of the outstanding class of such Registrable Securities at the time of transfer (each transferee that receives such minimum number of such Registrable Securities, an "Eligible Transferee"), and any Eligible Transferee shall be treated as the "Investor" for all purposes under this Article VIII; provided, however, that the Company shall be obligated under this Agreement to effect no more than that number of Demand Registrations set forth in the proviso in Section 8.1 on behalf of all Eligible Transferees in the aggregate. Any transfer of registration rights pursuant to this Section 8.10 shall be effective upon receipt by the Company of (i) written notice from the Investor or the transferring Eligible Transferee, as the case may, stating the name and address of the new Eligible Transferee and identifying the amount of Registrable Securities with respect to which the rights under this Agreement are being transferred and (ii) a writing from such new Eligible Transferee agreeing to be bound by the terms of this Article VIII. The Eligible Transferees may exercise their rights hereunder in such priority as they shall agree upon among themselves. SECTION 8.11 Other Registration Rights. Notwithstanding any other provision of this Agreement, if the Company at any time grants registration rights to any other Person on terms relating to the priority of registration rights or periods when the Company shall be entitled to defer filing any Registration Statement which the Investor considers preferential to the comparable terms in this Article VIII, then the Investor shall be entitled to registration rights with such preferential terms. The Company shall not grant any right of registration under the Act relating to any of its securities to any Person other than the Investor unless the Investor shall be entitled to have included in any Piggyback Registration effected a number of Registrable Securities requested by the Investor to be so included representing at least 10% of such offering prior to the inclusion of any securities requested to be registered by the Persons entitled to any such other registration rights. -46- 51 SECTION 8.12 Rule 144. So long as the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall take all actions reasonably necessary to enable the Investor to sell the Registrable Securities without registration under the Act within the limitation of the exemptions provided by Rule 144 under the Act, as such Rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC, including filing on a timely basis all reports required to be filed by the Exchange Act. Upon the request of the Investor, the Company shall deliver to the Investor a written statement as to whether it has complied with such requirements. SECTION 8.13. Limitation on Requirement to File or Amend Registration Statement. Anything in this Agreement to the contrary notwithstanding, the Company shall not be required to file, and may defer filing, any Registration Statement, amendment, supplement or post-effective amendment thereto or prospectus supplement, if the Company is then involved in discussions concerning, or otherwise engaged in, an acquisition, disposition, financing or other material transaction and the Company determines in good faith that the making of such a filing, supplement or amendment at such time would materially adversely affect or interfere with such transaction; provided, however, that the Company may not so defer making such filing for more than 90 days on any one occasion or within 30 days after the termination of any such deferral period; and provided, further that the Company shall, as soon as practicable thereafter, make such filing, supplement or amendment. The Company shall promptly give the Investor written notice of any such deferral, containing a general statement of the reasons for such deferral and an approximation of the anticipated delay, provided, however, that nothing herein shall require the Company to disclose any terms of any such transaction or the identity of any party thereto. ARTICLE IX TERMINATION SECTION 9.1 Termination. This Agreement (other than, if and so long as the Promissory Note remains outstanding, Sections 6.1, 6.7(f), 6.10, 6.11, 10.7, 10.12 and 10.13 and Article VII) may be terminated at any time prior to the Closing: (a) by mutual written consent of the Company and the Investor; -47- 52 (b) by the Company or the Investor, if the Closing shall not have occurred on or before May 22, 1997; provided, however, that the right to terminate this Agreement under this clause (b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; (c) by the Investor, if the Proxy Statement has not been mailed to stockholders of the Company by May 1, 1997; (d) by the Company or the Investor, if any judgment, injunction, order or decree enjoining the Investor or the Company from consummating this Agreement is entered and such judgment, injunction, order or decree shall become final and nonappealable; provided, however, that the party seeking to terminate this Agreement shall have used all reasonable efforts to remove such judgment, injunction, order or decree; (e) by the Investor, if there has been a material breach of any representation, warranty or material covenant or agreement of the Company which is incurable, or, if curable, which is not cured within 30 days of receipt of written notification from the Company identifying such breach and demanding that it be cured; (f) by the Company, if there has been a material breach of any representation, warranty, or material covenant or agreement of the Investor contained in this Agreement, which breach is incurable or, if curable, which is not cured within 30 days of receipt of written notification from the Investor identifying such breach and demanding that it be cured; (g) by the Company, in accordance with the provisions of Section 6.6(c), provided that prior to or concurrently with such termination, the Investor shall have received the Termination Fee; or (h) by either the Company or the Investor at any time from March 30, 1997 until April 5, 1997 if and until any necessary consent from Foothill Capital Corporation has not been obtained on terms reasonably satisfactory to the Investor and the Company. SECTION 9.2 Effect of Termination. If this Agreement is terminated pursuant to Section 9.1, then this Agreement (except for Section 9.3, which shall remain in full force and effect, and the provisions specified in Section 9.1, which shall remain in full force and effect if and so long as the Promissory Note is outstanding) shall become void and of no -48- 53 effect with no liability on the part of any party hereto thereunder, except to the extent such termination results from the breach by a party hereto of any of its representations, warranties, covenants or agreements set forth in this Agreement. SECTION 9.3 Fees Due Upon Termination. (a) If this Agreement is terminated or the Closing does not occur by 5:00 p.m., New York City time, on May 22, 1997 for any reason whatsoever other than as a result of a breach of this Agreement by the Investor entitling the Company not to consummate the Closing, the Commitment Fee shall be forfeited and the Company shall pay to the Investor within two Business Days of request therefor, together with documentation therefor, the Investor's Transaction Expenses. (b) If the Closing has not been consummated by May 22, 1997 as a result of either a breach by the Company of this Agreement, or a breach by the Company of the Note Agreement which is not cured by May 22, 1997, or a failure by 5:00 p.m., New York City time, on May 22, 1997 to obtain the Stockholders Approval, then, in addition to the forfeiture of the Commitment Fee, the Company shall pay to Apollo in cash, on May 23, 1997, an additional $1,000,000 break-up fee, plus the Investor's Transaction Expenses. (c) If the conditions for the payment of the break-up fee referred to in Section 9.3(b) are fulfilled, and either (i) the Company wilfully breached or breaches this Agreement or the Note Agreement or (ii) the Company (x) enters into an agreement for an Alternative Transaction prior to the earlier of May 22, 1998 or the date that is nine months after the date of termination of this Agreement or (y) consummates an Alternative Transaction prior to the earlier of May 22, 1998 or the first anniversary of the date of termination of this Agreement, the Company shall pay an additional $1,000,000 Alternative Transaction fee to the Investor, in addition to the $1,000,000 break-up fee provided for in Section 9.3(b) above and the forfeiture of the Commitment Fee, plus the Investor's Transaction Expenses. (d) If the Agreement is terminated by the Company pursuant to Section 9.1(h), and either (i) the Company wilfully breached or breaches this Agreement or the Note Agreement or (ii) the Company enters into an agreement for, or consummates, an Alternative Transaction prior to the 180th day after the date of termination of this Agreement, the Company shall pay an additional $2,000,000 Alternative Transaction fee to the Investor, in addition to the forfeiture of the Commitment Fee, plus the Investor's Transaction Expenses. -49- 54 (e) Notwithstanding the foregoing provisions of this Section 9.3, the Company shall not be required to pay fees pursuant to this Section 9.3 if the Company shall have terminated the Agreement pursuant to Section 6.6(b) and paid the Investor the Termination Fee and Transaction Expenses therein specified (and the Commitment Fee shall have been forfeited by the Company). Notwithstanding any other provision of this Agreement, in no event shall the Investor be entitled to receive fees in excess of $3,000,000 (plus Transaction Expenses) from the Company as a result of the termination of this Agreement. All fees and Transaction Expenses shall be payable in cash. ARTICLE X MISCELLANEOUS SECTION 1.58 Notices. All notices or other communications given or made hereunder shall be validly given or made if in writing and delivered by facsimile transmission or in person at, mailed by registered or certified mail, return receipt requested, postage prepaid, or sent by a reputable overnight courier to, the following addresses (and shall be deemed effective at the time of receipt thereof). If to the Company: Atlantic Gulf Communities Corporation 2601 South Bayshore Drive Miami, Florida 33133-5461 Telecopy: (305) 859-4623 Attention: Thomas W. Jeffrey, Chief Financial Officer with copies to: Arent Fox Kintner Plotkin & Kahn 1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5339 Telecopy: (202) 857-6395 Attention: Carter Strong, Esq. If to the Investor: AP-ACG, LLC -50- 55 c/o Apollo Real Estate Advisors II, L.P. Two Manhattanville Road Purchase, NY 10577 Telecopy: (914) 694-8032 Attention: Ron Solotruck with a copy to: Apollo Real Estate Advisors II, L.P. 1301 Avenue of the Americas New York, New York 10019 Telecopy: (212) 459-3301 Attention: Rick Koenigsberger and a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Telecopy: (212) 403-2000 Attention: Philip Mindlin, Esq. Trevor S. Norwitz, Esq. or to such other address as the party to whom notice is to be given may have previously furnished notice in writing to the other in the manner set forth above. SECTION 10.2 Expenses. The Company will pay all Transaction Expenses. SECTION 10.3 Amendment; Waiver. The provisions of this Agreement may be modified or amended, and waivers and consents to the performance and observance of the terms hereof may be given, only by written instrument executed and delivered by the Company and the Investor. The failure at any time to require performance of any provision hereof shall in no way affect the full right to require such performance at any time thereafter. The waiver by any party to this Agreement of a breach of any provision hereof shall not be taken or held to be a waiver of any succeeding breach of such provision of any other provision or as a waiver of the provision itself. SECTION 10.4 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which -51- 56 comes as close as possible to that of the provision held to be invalid, illegal or unenforceable. SECTION 10.5 Headings. The Index and Article and Section headings herein are for convenience only and shall not affect the construction hereof. SECTION 10.6 Entire Agreement. This Agreement and the other Transaction Documents and paragraph E of the Letter Agreement (the remainder of the Letter Agreement being superceded hereby) embody the entire agreement between the parties relating to the subject matter hereof and any and all prior oral or written agreements, representations or warranties, contracts, understandings, correspondence, conversations, and memoranda, whether written or oral, between the Company and the Investor, or between or among any of their agents, representatives, parents, Subsidiaries, Affiliates, predecessors in interest or successors in interest, with respect to the subject matter hereof. SECTION 10.7 Maximum Interest Rate. Nothing contained in this Agreement, the Promissory Note or any other Transaction Document shall require the Company to pay interest at a rate exceeding the maximum rate permitted by applicable law. If the amount of interest payable on any interest payment date, computed pursuant to applicable law and the Transaction Documents would exceed the maximum amount permitted by applicable law to be charged, the amount of interest payable for its account on such interest payment date shall be automatically reduced to such maximum permissible amount. If the amount of interest payable for the account of the Investor in respect of any interest computation period is reduced pursuant to the preceding sentence of this Section and the amount of interest payable for its account in respect of any subsequent interest computation period, computed pursuant to applicable law and the Transaction Documents, would be less than the maximum amount permitted by applicable law to be charged, then the subsequent interest computation period shall be automatically increased to such maximum permissible amount; provided that at no time shall the aggregate amount by which interest paid had been increased pursuant to this sentence exceed the aggregate amount by which interest has theretofore been reduced pursuant to the preceding sentence of this Section. SECTION 10.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and both of which together shall be deemed to be one and the same instrument. -52- 57 SECTION 10.9 Assignment. All covenants and agreements contained in this Agreement by or on behalf of the parties hereto shall bind, and inure to the benefit of, the respective successors and assigns of the parties hereto; provided, however, that, subject to Section 8.10, the rights and obligations of either party hereto may not be assigned without the prior written consent of the other parties; provided, further, however, that prior to the Closing, the Investor may assign all of its rights and obligations hereunder to an Affiliate of the Investor, which shall then be treated as the Investor for all purposes under this Agreement. SECTION 10.10 Third-Party Beneficiaries. Except for Article VII and Sections 8.3, 8.4, 8.6 and 8.7, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied shall give or be construed to give to any Person, other than the parties hereto and such assigns, any legal or equitable rights hereunder. SECTION 10.11 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE. SECTION 10.12 Submission to Jurisdiction; Waiver of Jury Trial. Each of the Company and the Investor hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State Court sitting in the City of New York for purposes of all legal proceedings which may arise hereunder or under any other Transaction Documents. The parties irrevocably waive, to the fullest extent permitted by law, any objection which they may have or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The parties hereby consent to process being served in any such proceeding by the mailing of a copy thereof by registered or certified mail, postage prepaid, to its address specified in Section 10.1 or in any other manner permitted by law. The Company and the Investor hereby knowingly, voluntarily, and intentionally waive any rights they may have to a trial by jury in respect of any litigation based hereon, or arising out of, under, or in connection with, this agreement or any other Transaction Document, or any course of conduct, course of dealing, statements (whether oral or written), of the Investor or the Company. This provision is a material inducement for the Investor's entering into this Agreement. The Company hereby irrevocably designates Arent Fox Kintner Plotkin & Kahn, 1675 Broadway, New York, NY 10019, as -53- 58 the designee, appointee and agent of the Company to receive, for and on behalf of the Company, service of process in such jurisdiction in any legal action or proceeding with respect to this Agreement or any other Transaction Document. It is expected that a copy of such process served on such agent will be promptly forwarded by mail to the Company at its address set forth in Section 10.1, but the failure of the Company to receive such copy shall not affect in any way the service of such process. The Company further irrevocably consents to the service of process of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered by certified mail, postage prepaid, to the Company at such addresses. Nothing herein shall affect the right of the Investor to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company in any other jurisdiction. -54- 59 IN WITNESS WHEREOF, the parties hereto have executed this Agreement. ATLANTIC GULF COMMUNITIES CORPORATION By: /s/ Thomas W. Jeffrey --------------------------------- Name: Thomas W. Jeffrey Title: Executive Vice President and Chief Financial Officer AP-AGC, LLC By: KRONUS PROPERTY, INC. Manager By: /s/ Ricardo Koenigsberger ---------------------------------- Name: Ricardo Koenigsberger Title: Vice President EX-2 3 EX A TO INVESTMENT AGREEMENT 1 Exhibit 2 EXHIBIT A TO INVESTMENT AGREEMENT FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ATLANTIC GULF COMMUNITIES CORPORATION Atlantic Gulf Communities Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The name of the corporation is Atlantic Gulf Communities Corporation. Atlantic Gulf Communities Corporation was originally incorporated under the name "Chemical Research Corporation". The original Certificate of Incorporation of Chemical Research Corporation was filed with the Secretary of State of the State of Delaware on January 13, 1928. Atlantic Gulf Communities Corporation was subsequently named General Development Corporation. General Development Corporation filed a voluntary petition for relief from creditors under Chapter 11 of the Bankruptcy Code on April 6, 1990, in the United States Bankruptcy Court for the Southern District of Florida (the "Bankruptcy Court"). On ________, 1991, the Certificate of Incorporation of the corporation was amended pursuant to Section 7.2(b) of the Second Amended Joint Plan of Reorganization of General Development Corporation dated October 9, 1991, and confirmed by Order of the Bankruptcy Court on [Confirmation Date] (the "Reorganization Plan"). 2. This Amended and Restated Certificate of Incorporation was adopted by the stockholders of the corporation on _________, 1997 and restates and further amends the provisions of the Certificate of Incorporation of this corporation as heretofore amended or supplemented. 3. The text of the Certificate of Incorporation as heretofore amended or supplemented is hereby restated and further amended to read in its entirety as follows: FIRST: The name of the corporation (hereinafter called the "Corporation") is ATLANTIC GULF COMMUNITIES CORPORATION. SECOND: The registered office of the Corporation is to be located at 1209 Orange Street, in the City of Wilmington, in the County of New Castle, in the State of Delaware. The name of its registered agent at that address is The Corporation Trust Company. 2 THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: (a) The total number of shares of stock that the Corporation shall have authority to issue is fifty-one million and twenty-five thousand (51,000,025), of which fifty million (50,000,000) shall be common stock of one class, par value of ten cents ($0.10) per share ("Common Stock"), amounting in the aggregate to par value five million dollars ($5,000,000), and one million and twenty-five thousand (1,025,000) shall be preferred stock, par value $.01 per share ("Preferred Stock"), amounting in the aggregate to par value of ten thousand two hundred and fifty dollars ($10,250). (b) Shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation is hereby authorized to fix the voting rights, if any, designations, powers, preferences and the relative, participation, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, of any unissued series of Preferred Stock; and to fix the number of shares constituting such series, and to increase or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding). Except as otherwise provided by law, the voting rights of the Corporation's capital stock shall be as set forth in this Amended and Restated Certificate of Incorporation or in the resolution or resolutions adopted by the Board of Directors designating the rights, powers and preferences of any series of Preferred Stock. Each share of Common Stock shall have one vote, and the Common Stock shall vote together as a single class. (c) The Board of Directors of the Corporation is authorized to effect the elimination of shares of its Common Stock purchased or otherwise reacquired by the Corporation from the authorized capital stock of the number of shares of the Corporation in the manner provided for in the General Corporation Law of the State of Delaware. (d) No holder of Common Stock shall have any preemptive right to subscribe to stock, obligations, warrants, rights to subscribe to stock or other securities of the Corporation of any class, whether now or hereafter authorized. (e) The powers, preferences and rights of the 20% Cumulative Redeemable Convertible Preferred Stock, Series A of the Corporation shall be set forth in Annex A to this Amended -2- 3 and Restated Certificate of Incorporation (which is incorporated herein as though set forth in full in this place). (f) The powers, preferences and rights of 20% Cumulative Redeemable Convertible Preferred Stock, Series B of the Corporation shall be set forth in Annex B to this Amended and Restated Certificate of Incorporation (which is incorporated herein as though set forth in full in this place). FIFTH: The Corporation shall be managed by the Board of Directors, which shall exercise all powers conferred under the laws of the State of Delaware. The number of directors shall be determined as provided in the By-laws of the Corporation. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is authorized to later amend or repeal the By-laws of the Corporation. SIXTH: No action shall be taken by the stockholders of the Corporation except at an annual meeting or at a special meeting of stockholders of the Corporation; provided, however, that at any time after the first meeting of the stockholders held in accordance with the By-laws of the Corporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if consents in writing, setting forth the action so taken, are signed by the holders of shares of capital stock having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which the holders of all shares entitled to be voted thereon were present and voted; prompt notice of the taking of action without a meeting by less than unanimous consent shall be given to the stockholders who have not consented in writing. SEVENTH: At any time after the first annual meeting of stockholders held in accordance with the By-laws of the Corporation, the holders of 35 percent of the issued and outstanding shares of capital stock may request that a special meeting be called in accordance with the procedures set forth in the By-laws. EIGHTH: No director may be removed from office except for cause and only by the affirmative vote of the holders of a majority of the outstanding stock entitled to vote. NINTH: The Corporation may indemnify its directors, officers, employees and agents to the fullest extent permitted by the General Corporation Law of Delaware, as the same exists or may hereafter be amended. -3- 4 TENTH: The provisions set forth in this Article Tenth and in Articles Fifth, Sixth, Eighth, Ninth, Eleventh, and Twelfth of this Amended and Restated Certificate of Incorporation may not be amended, altered, repealed or rescinded in any respect, and no other provision or provisions may be adopted which impair(s) in any respect the operation or effect of any such provision, except by the affirmative vote of the holders of not less than three-fifths of the outstanding stock. ELEVENTH: The Board of Directors shall have the power to adopt, amend, alter, or repeal the By-Laws of the Corporation as provided in such By-Laws. The stockholders shall also have the power to adopt, amend, alter or repeal the By-Laws of the Corporation; provided, however, that, notwithstanding the foregoing and anything contained in this Amended and Restated Certificate of Incorporation to the contrary, unless amended, altered or repealed by the Board of Directors as provided in the By-Laws, Sections 2.1, 2.2(a) and 2.2(c) of Article II, Sections 3.1, 3.2, 3.3, 3.4, 3.8 and 3.9 of Article III, Section 4.1 of Article IV, Article VII, Article VIII, and Section 10.1 of Article X of the By-Laws may not be amended, altered, repealed or rescinded in any respect, and no other provision or provisions may be adopted which impair(s) in any respect the operation or effect of such provision, except by the same vote that would be required to amend pursuant to Article Tenth of this Amended and Restated Certificate of Incorporation. TWELFTH: The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by the General Corporation Law of Delaware, as the same exists or may hereafter be amended. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. 4. This Amended and Restated Certificate of Incorporation was approved by the shareholders of the Corporation at a meeting held on __________, 1997 and was duly adopted in accordance with the provisions of Sections 103 and 303 of Title 8 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been signed and attested by the undersigned, thereunto duly authorized, this ____ day of , 1997. Atlantic Gulf Communities Corporation -4- 5 By: ------------------------ Its: ----------------------- Attest: - -------------------------- Name Title -5- EX-3 4 ANNEX A TO AMENDED CERT. OF INCORPORATION 1 Exhibit 3 ANNEX A TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ATLANTIC GULF COMMUNITIES CORPORATION STATEMENT OF PREFERENCES AND RIGHTS OF 20% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK, SERIES A ----------------------- The 20% Cumulative Redeemable Convertible Preferred Stock, Series A, of Atlantic Gulf Communities Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation") shall have the following powers, preferences, and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, in addition to those set forth in the attached Amended and Restated Certificate of Incorporation of the Corporation (all capitalized terms used without definition are defined in Section 15 of this Statement): 1. Designation. The series of preferred stock established hereby shall be designated the "20% Cumulative Redeemable Convertible Preferred Stock, Series A" (and shall be referred to herein as the "Series A Preferred Stock") and the authorized number of shares of Series A Preferred Stock shall be 25,000. 2. Rank. The Series A Preferred Stock shall, with respect to dividend distributions and distributions upon the voluntary or involuntary liquidation, winding up and dissolution of the Corporation, rank (i) senior to all classes of Common Stock and each other class of Capital Stock of the Corporation or series of preferred stock of the Corporation hereafter created which is not Senior Stock or Parity Stock ("Junior Stock"), (ii) pari passu with any Parity Stock and (iii) junior to any Senior Stock. There is no Senior Stock or Parity Stock outstanding on the date hereof. Senior Stock or Parity Stock may be authorized or issued only in accordance with the provisions of Section 7(b). 3. Dividends. (a) Subject to the provisions of Section 3(c), beginning on the Original Issue Date, the Holders shall be entitled to receive, when, as and if declared by the Board of Directors, but only out of funds legally available 2 therefor, distributions in the form of cash dividends on each share of Series A Preferred Stock at an annual rate equal to 20% of the Liquidation Preference in effect from time to time and no more. All Dividends shall be cumulative, whether or not declared, on a daily basis from the Original Issue Date and shall be payable quarterly in arrears on each Dividend Payment Date commencing on June 30, 1997. Each dividend shall be payable with respect to Series A Preferred Stock held by Holders as they appear on the stock books of the Corporation on each Dividend Record Date. Dividends shall cease to accumulate in respect of Series A Preferred Stock on the Redemption Date, the Conversion Date or the Repurchase Date for such shares, as the case may be, unless, in the case of a Redemption Date or Repurchase Date, the Corporation defaults in the payment of the amounts necessary for such redemption or in its obligation to deliver certificates representing Common Stock issuable upon such conversion, as the case may be, in which case, dividends shall continue to accumulate at an annual rate of 25% of the Liquidation Preference in effect from time to time (the "Default Dividend Rate") until such payment or delivery is made. If the Corporation defaults in the payment of amounts due upon a Repurchase Date, interest shall accrue on the amount of such obligation at the Default Dividend Rate until such payment is made (with all interest due). (b) Dividends on account of arrears for any past Dividend Period and dividends in connection with any optional redemption pursuant to Section 5(a) may be declared and paid at any time, without reference to any regular Dividend Payment Date, to Holders on such date, not more than forty-five (45) days prior to the payment thereof, as may be fixed by the Board of Directors. (c) Notwithstanding anything to the contrary in the preceding provisions of this Section 3, following an Event of Default, the Holders shall be entitled to receive dividends on each share of Series A Preferred Stock at an annual rate equal to the Default Dividend Rate, payable in cash. (d) So long as any Series A Preferred Stock is outstanding, the Corporation shall not declare, pay or set apart for payment any dividend on any Junior Stock or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any Junior Stock, or any warrants, rights, calls or options exercisable for any Junior Stock (except such securities which are debt securities or Senior Stock or Parity Stock) or make any distribution in respect thereof, either directly or indirectly, and whether in cash, obligations or shares of the Corporation or other property (other than, prior -2- 3 to the occurrence of an Event of Default, dividends, payments, purchases, acquisitions, redemptions, retirements or distributions in Junior Stock) and shall not permit any Subsidiary of the Corporation directly or indirectly to do any of the same in respect of such Junior Stock (other than, prior to the occurrence of an Event of Default, dividends, payments, purchases, acquisitions, redemptions, re tirements or distributions in Junior Stock) unless and until all dividend arrearages on the Series A Preferred Stock have been paid in full in cash, and the Corporation is not in default of any of its obligations under Section 5 or Section 8. (e) Unless and until all dividend arrearages on the Series A Preferred Stock have been paid in full, all dividends declared by the Corporation upon Series A Preferred Stock or Parity Stock shall be declared pro rata with respect to all Series A Preferred Stock and Parity Stock then outstanding so that the amounts of any dividends declared per share on the Series A Preferred Stock and such Parity Stock bear the same ratio to each other at the time of declaration as all accrued and unpaid dividends on the Series A Preferred Stock and the Parity Stock bear to each other. (f) Dividends payable on the Series A Preferred Stock shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in the period for which payable. 4. Liquidation Preference. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the Holders shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders an amount in cash equal to the then Liquidation Preference for each share out standing, before any payment shall be made or any assets distributed to the holders of any Junior Stock. If the assets of the Corporation are not sufficient to pay in full the liquidation payments payable to the Holders and the holders of any outstanding Parity Stock, then, subject to the rights of the Holders pursuant to Section 8, the holders of all such shares shall share ratably in such distribution of assets in accordance with the amounts which would be payable on such distribution if the amount to which the Holders and the holders of any outstanding Parity Stock are entitled were paid in full. (b) For the purposes of this Section 4, neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or -3- 4 more corporations shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation. 5. Redemption. (a) Optional Redemption. The Corporation may, at the option of the Board of Directors, redeem at any time on or after the third anniversary of the Original Issue Date, from any source of funds legally available therefor, in whole or in part, in the manner provided in Section 5(c), any or all of the Series A Preferred Stock, at a redemp tion price in cash equal to the then Liquidation Preference (the "Optional Redemption Price"); provided that no optional redemption shall be made unless full dividends have been or contemporaneously are declared and paid or declared and a sum set apart sufficient for such payment, on the Series A Preferred Stock for all Dividend Periods terminating on or prior to the Redemption Date; and provided, further, that no partial redemption shall be made (i) for an amount of shares of Series A Preferred Stock less than such number as have an aggregate Liquidation Preference equal to the lesser of $1,000,000 or the aggregate Liquidation Preference of all outstanding Series A Preferred Stock, or (ii) if after con summation of any such partial redemption there would remain outstanding less than the Specified Investor Amount of shares of Series A Preferred Stock. (b) Proration. In the event of a redemption pursuant to Section 5(a) of only a portion of the then outstanding Series A Preferred Stock, unless a majority of the outstanding shares of Series A Preferred Stock shall agree in writing to waive the requirement of proration, the Corporation shall effect such redemption pro rata according to the number of shares held by each Holder, except that the Corporation may redeem such shares held by Holders of 100 or fewer shares (or shares held by Holders who would hold 100 or fewer shares as a result of such redemption), as may be determined by the Corporation. (c) Procedure for Redemption. (i) At least thirty (30) days and not more than sixty (60) days prior to the date fixed for any redemption of the Series A Preferred Stock, written notice (the "Redemption Notice") shall be given by first class mail, postage prepaid, to each Holder on the record date fixed for such redemption of the Series A Preferred Stock at such Holder's address as the same appears on the stock books of the Corporation. The Redemption Notice shall state: (1) that such notice constitutes a Redemption Notice pursuant to Section 5(a); (2) the Optional Redemption Price; -4- 5 (3) whether all or less than all the outstanding Series A Preferred Stock redeemable thereunder is to be redeemed and the total number of shares of such Series A Preferred Stock being redeemed; (4) the number of shares of Series A Preferred Stock held, as of the appropriate record date, by the specific Holder that the Corporation intends to redeem; (5) the Redemption Date; (6) that the Holder is to surrender to the Corporation his certificate or certificates representing the Series A Preferred Stock to be redeemed, specifying the place or places where, and the manner in which, certificates for Series A Preferred Stock are to be surrendered for redemption; (7) the date on which the Series A Preferred Stock called for redemption shall cease to be convertible; and (8) that dividends on the Series A Preferred Stock to be redeemed shall cease to accumulate on the Redemption Date, unless the Corporation defaults in the payment of the amounts necessary for such redemption, in which case, dividends shall continue to accumulate until such payment is made. (ii) Each Holder shall surrender the certificate or certificates representing such Series A Preferred Stock to the Corporation, duly endorsed, in the manner and at the place designated in the Redemption Notice, and on the Redemption Date the full Optional Redemption Price for such shares so surrendered shall be payable in cash to the Person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled and retired. If less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (iii) If on or before the Redemption Date all funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds, in trust for the pro rata benefit of the Holders of the shares so called for redemption, so as to be and continue to be available therefor and not subject to claims of creditors of the Corporation, then, notwithstanding that any certificate for shares so called for redemption shall not have been surrendered for cancellation, all shares so called for redemption shall no longer be deemed outstanding on and after such Redemption Date, and all -5- 6 rights with respect to such shares shall forthwith on such Redemption Date cease and terminate, except only the right of the Holders thereof to receive the amount payable on redemption thereof, without interest. Any interest accrued on such funds shall be paid to the Corporation from time to time. Any funds so set aside or deposited by the Corporation which shall not be required for such redemption because of the exercise of any right of conversion subsequent to the date of such deposit shall be released or repaid to the Corporation forthwith. Any funds so set aside or deposited, as the case may be, and unclaimed as of the first anniversary of such Redemption Date shall be released or repaid to the Corporation, after which the Holders of the shares so called for redemption shall look only to the Corporation for payment thereof. 6. Conversion. (a) Conversion Right. The Holder of each share of Series A Preferred Stock shall have the right at any time, or from time to time (prior in each case to the thirtieth day following the date of the Redemption Notice if such share shall be called for redemption pursuant to Section 5), at the option of such Holder, to convert such share into Common Stock, on and subject to the terms and conditions hereinafter set forth. Subject to the provisions for adjustment hereinafter set forth, each share of Series A Preferred Stock shall be convertible into such number (calculated as to each conversion to the nearest 1/100th of a share) of fully paid and nonassessable shares of Common Stock, as is ob tained by dividing the Liquidation Preference by the Conversion Price, in each case as in effect at the date any Series A Preferred Stock is surrendered for conversion. (b) Conversion Procedures. To exercise the conversion privilege, the Holder of any Series A Preferred Stock to be converted in whole or in part shall surrender the certificate representing such Series A Preferred Stock (the "Series A Preferred Stock Certificate") at the office or agency then maintained by the Corporation for the transfer of the Series A Preferred Stock, and shall give written notice of conversion in the form provided on the Series A Preferred Stock Certificate (or such other notice which is acceptable to the Corporation) to the Corporation at such office or agency that the Holder elects to convert such Series A Preferred Stock represented by the Series A Preferred Stock Certificate so surrendered or the portion thereof speci fied in said notice into Common Stock. Such notice shall also state the name or names (with addresses) in which the certificate or certificates for Common Stock which shall be issuable upon such conversion shall be issued, and shall be accompanied by transfer taxes, if required. Each Series A Preferred Stock Certificate surrendered for conversion -6- 7 shall, unless the shares issuable on conversion are to be issued in the same name as the registration of such Series A Preferred Stock Certificate, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Corporation duly executed by, the Holder or such Holder's duly authorized attorney. As promptly as practicable, but in no event later than five (5) Business Days, after the surrender of such Series A Preferred Stock Certificate and the receipt of such notice and funds, if any, as aforesaid, the Corporation shall issue and shall simultaneously deliver at such office or agency to such Holder, or on his written order, a certificate or certificates for the number of shares of Common Stock, issuable upon the conversion of such Series A Preferred Stock repre sented by the Series A Preferred Stock Certificate so surrendered or por tion thereof in accordance with the provisions of this Section 6. In case less than all of the Series A Preferred Stock represented by a Series A Preferred Stock Certificate surrendered for conversion is to be con verted, the Corporation shall simultaneously deliver to or upon the written order of the Holder of such Series A Preferred Stock Certificate a new Series A Preferred Stock Certificate representing the Series A Preferred Stock not converted. If a Holder fails to notify the Corpora tion of the number of shares of Series A Preferred Stock which such Holder wishes to convert, such Holder shall be deemed to have elected to convert all shares represented by the certificate or certificates sur rendered for conversion. Each conversion shall be deemed to have been effected on the date on which such Series A Preferred Stock Certificate shall have been surrendered and such notice shall have been received by the Corporation, as aforesaid (the "Conversion Date"), and the Person in whose name any certificate or certificates for Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock books of the Corporation shall be closed shall constitute the Person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock books are open, but such conversion shall be at the Conversion Price as in effect on the date upon which such Series A Preferred Stock Certificate shall have been surrendered. All Series A Preferred Stock that shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to -7- 8 vote, shall forthwith cease, except only the right of the Holders thereof, subject to the provisions of this Section 6, to receive Common Stock in exchange therefor; provided, however, that if the Corporation defaults in its obligation to deliver certificates representing Common Stock issuable upon such con version, dividends shall continue to accumulate at the Default Dividend Rate until such delivery is made. If any Series A Preferred Stock shall be called for redemption, the right to convert such Series A Preferred Stock shall terminate at the close of business on the thirtieth day following the date of the Redemption Notice. (c) The Conversion Price at which Series A Preferred Stock is convertible into Common Stock shall be subject to adjustment from time to time as provided in this Section 6(c) (unless otherwise indicated, all calculations under this Section 6(c) shall be made to the nearest $0.01): (i) In case the Corporation shall (A) declare a dividend or make a distribution on the outstanding Common Stock in Capital Stock of the Corporation, (B) subdivide or reclassify the outstanding Common Stock into a greater number of shares (or into other securities or property), or (C) combine or reclassify the outstanding Common Stock into a smaller number of shares (or into other securities or property), the Conversion Price in effect at the close of business on the date fixed for the determination of stockholders entitled to receive such dividend or other distribution, or to be affected by such subdivision, combination or other reclassification, shall be adjusted by multiplying such Conversion Price by a fraction, the numerator of which shall be the total number of outstanding shares of Common Stock immediately prior to such event, and the denominator of which shall be the total number of outstanding shares of Common Stock immediately after such event. An adjustment made pursuant to this subparagraph (i) shall become effective immediately after the record date for such event, or, if there is no record date, upon the effective date for such event. Any Common Stock issuable in payment of a divi dend shall be deemed to have been issued immediately prior to the time of the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under subparagraphs (ii) and (iii) below. Adjustments pursuant to this subparagraph shall be made successively whenever any event specified above shall occur. (ii) In case the Corporation shall fix a record date for the issuance of rights or warrants to all holders of -8- 9 Common Stock entitling them to subscribe for or purchase Common Stock (or securities convertible into or exchangeable for Common Stock) (other than Series B Preferred Stock or Investor Warrants) at a price per share (or having a conversion price or exchange price per share, subject to normal antidilution adjustments) less than the Current Market Price (as defined in subparagraph (vii) below) of Common Stock on such record date, the Conversion Price in effect at the close of business on such record date shall be reduced by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at the Current Market Price as of such record date, and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of additional shares of Common Stock offered for subscription or purchase in connection with such rights, options or warrants. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants. In case any rights or warrants referred to in this subparagraph (ii) in respect of which an adjustment shall have been made shall expire unexercised within forty-five (45) days after the same shall have been distributed or issued by the Corporation, the Conversion Price shall be readjusted at the time of such expiration to the Conversion Price that would have been in effect if no ad justment had been made on account of the distribution or issuance of such expired rights or warrants. (iii) In case the Corporation shall fix a record date for the making of a distribution to all holders of Common Stock (A) of shares of any class other than Common Stock, (B) of evidences of indebtedness of the Corporation or any Subsidiary, (C) of assets or other property or (D) of rights or warrants (excluding those rights or warrants resulting in an adjustment pursuant to subparagraph (ii) above, and the right to acquire Series B Preferred Stock in the rights offering thereof), then in each such case the Conversion Price shall be reduced so that such price shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph (iii) by a fraction, the numerator of -9- 10 which shall be the then Current Market Price per share of Common Stock, less the then fair market value (as deter mined by the Board of Directors, whose reasonable determination shall be described in a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification (a "Board Resolution") of the portion of the securities, evidences of indebtedness, assets, property or rights or warrants so distributed, the case may be, which is applicable to one share of Common Stock, and the denominator of which shall be the Current Market Price per share of Common Stock as of the record date for such distribution. Such adjustment shall be made succes sively whenever such a record date is fixed. (iv) In case the Corporation shall issue Common Stock for a consideration per share less than the Current Market Price per share on the date the Corporation fixes the offering price of such additional shares, the Conversion Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Conversion Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately after the issuance of such additional shares, and the denominator shall be the total number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares plus the number of shares of Common Stock which the aggregate consideration received (determined as provided in subparagraph (vi) below) for the issuance of such additional shares would purchase at the Current Market Price per share. Such adjustment shall be made successively whenever such an issuance is made; provided, however, that the provisions of this subparagraph shall not apply (A) to Common Stock issued to the Corporation's employees or former employees or their estates under bona fide employee benefit plans adopted by the Board of Direc tors and approved by the holders of Common Stock if required by law, if such Common Stock would otherwise be covered by this subparagraph, but only to the extent that the aggregate number of shares excluded hereby shall not exceed, on a cumulative basis since the date hereof, [NUMBER TO BE AGREED BEFORE CLOSING] (including 822,000 shares as of the date hereof to be issued pursuant to em ployee stock options outstanding as of the date hereof to pur chase Common Stock), (B) to the Common Stock to be issued pursuant to the Bank Warrants, (y) to the Common Stock to be issued pursuant to the Investor Warrants and (C) to Common Stock to be issued upon conversion of the Series B -10- 11 Preferred Stock, adjusted as ap propriate in each case, in connection with any stock split, merger, recapitalization or similar transaction. (v) In case the Corporation shall issue any securities convertible into or exchangeable for Common Stock (excluding (A) securities issued in transactions resulting in adjustment pursuant to subparagraphs (ii) and (iii) above, (B) Series B Preferred Stock, (C) Investor Warrants, and (D) upon conversion of any of such securities) for a consideration per share of Common Stock deliverable upon conversion or exchange of such securities (determined as provided in subparagraph (vi) below and subject to normal antidilution adjustments) less than the Current Market Price per share in effect immediately prior to the issuance of such securities, the Conversion Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Conversion Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to such issu ance plus the maximum number of shares of Common Stock deliverable upon conversion of or in exchange for such securities at the initial conversion or exchange price or rate, and the denominator shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such securities plus the number of shares of Common Stock which the aggregate consideration received (determined as provided in subparagraph (vi) below) for such securities would purchase at the Current Market Price per share. Such ad justment shall be made successively whenever such an issuance is made. Upon the termination of the right to convert or exchange such securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have been obtained had the adjustments made upon the issuance of such convertible or exchangeable securities been made upon the basis of the delivery of only the number of shares of Common Stock actually delivered upon conversion or exchange of such securities and upon the basis of the consideration actually received by the Corporation (determined as provided in subparagraph (vi) below) for such securities. (vi) For purposes of any computation respecting consideration received pursuant to subparagraphs (iv) and (v) above, the following shall apply: -11- 12 (A) in the case of the issuance of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deductions be made for any commissions, discounts, placement fees or other expenses incurred by the Corporation for any underwriting or placement of the issue or otherwise in connection therewith; (B) in the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the Board of Directors, whose reasonable determination shall be described in a Board Resolution; and (C) in the case of the issuance of securities convertible into or exchangeable for Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Corporation for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Corporation upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (A) and (B) of this subparagraph (vi)). (vii) For the purpose of any computation under this Certificate of Designation, (A) the "Current Market Price" per share at any date shall be deemed to be the average of the daily Closing Price for the Common Stock for the ten (10) consecutive Trading Days commencing fourteen (14) Trading Days before such date, and (B) the "Closing Price" of the Common Stock means the last reported sale price regular way reported on the NASDAQ Stock Market or its successor, or, if not listed or admitted to trading on the NASDAQ Stock Market or its successor, the last reported sale price regular way reported on any other stock exchange or market on which the Common Stock is then listed or eligible to be quoted for trading, or as reported by the National Quotation Bureau Incorporated. (viii) In any case in which this Section shall require that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event (A) issuing to the Holder of any Series A Preferred Stock converted after such record date and before the occurrence of such event the Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above -12- 13 the Common Stock issuable upon such conversion before giving effect to such adjustment and (B) paying to such Holder an amount in cash in lieu of a fractional share of Common Stock pursuant to Section 6(h); provided, however, that the Corporation shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder's rights to receive such additional Common Stock, and such cash, upon the occurrence of the event requiring such adjustment. (ix) The Corporation may make such reductions in the Con version Price, in addition to those required pursuant to other subparagraphs of this Section, as it considers to be advisable so that any event treated for federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients. (x) In case of any consolidation with or merger of the Corporation into another corporation, or in case of any sale, lease or conveyance of assets to another corporation of the property of the Corporation as an entirety or substantially as an entirety, lawful and adequate provisions shall be made whereby each Holder of Series A Preferred Stock shall have the right to receive, from such successor, leasing or purchasing corporation, as the case may be, upon the basis and upon the terms and conditions specified herein, in lieu of the Common Stock immediately theretofore re ceivable upon the conversion of such Series A Preferred Stock, the kind and amount of shares of stock, other securities, property or cash or any combination thereof receivable upon such consolida tion, merger, sale, lease or conveyance by a holder of the number of shares of Common Stock into which such Series A Preferred Stock might have been converted immediately prior to such con solidation, merger, sale, lease or conveyance. In the case of any such consolidation, merger or sale of substantially all the as sets, appropriate provision shall be made with respect to the rights and interests of the Holders to the end that the provisions hereof (including provisions for adjustment of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter de liverable upon the exercise of any conversion rights hereunder. (xi) In case of any reclassification or change of the Common Stock issuable upon conversion of Series A Preferred Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in the Common Stock into two or more classes or series of shares), or in -13- 14 case of any consolidation or merger of another corporation into the Corporation in which the Corporation is the continuing corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combina tion, but including any change in the Common Stock into two or more classes or series of shares), lawful and adequate provisions shall be made whereby each Holder of Series A Preferred Stock shall have the right to receive, upon the basis and upon the terms and conditions specified herein, in lieu of the Common Stock im mediately theretofore receivable upon the conversion of such Series A Preferred Stock, the kind and amount of shares of stock, other securities, property or cash or any combination thereof receivable upon such reclassification, change, consolidation or merger, by a holder of the number of shares of Common Stock into which such Series A Preferred Stock might have been converted immediately prior to such reclassification, change, consolidation or merger. (xii) The foregoing subparagraphs (x) and (xi), however, shall not in any way affect the rights a Holder may otherwise have, pursuant to this Section, to receive securities, evidences of indebtedness, assets, property rights or warrants upon conversion of any Series A Preferred Stock. (xiii) If the Corporation repurchases (by way of tender offer, exchange offer or otherwise) any Common Stock for a per share consideration which exceeds the Current Market Price of a share of Common Stock on the date immediately prior to such repurchase, the Conversion Price shall be reduced so that such price shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph (xiii) by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such acquisition multiplied by the Current Market Price per share of the Common Stock on the immediately preceding Trading Day, and the denominator shall be the sum of (A) the fair market value (as determined in good faith by the Board of Directors) of the aggregate consideration payable to stockholders as a result of such acquisition, and (B) the product of the number of shares of Common Stock outstanding immediately following such acquisition and the Current Market Price per share of the Common Stock on such -14- 15 immediately preceding Trading Day, such reduction to become effective immediately prior to the opening of business on the day following such acquisition. (xiv) If any event occurs as to which the foregoing provisions of this Section 6(c) are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors, fairly protect the conversion rights of the Series A Preferred Stock in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of the Board of Directors, to protect such conversion rights as aforesaid, but in no event shall any such adjustment have the effect of increasing the Conversion Price, or otherwise adversely affect the Holders. (xv) For purposes of Section 6(c), Common Stock owned or held at any relevant time by, or for the account of, the Corporation in its treasury or otherwise, shall not be deemed to be outstanding for purposes of the calculation and adjustments described therein. Shares held in the Disputed Claims Reserve, Division Class 14 Utility Fund Trust Agreement dated April 6, 1993 and the Improvements Fund Trust Agreement dated April 6, 1993 shall not be deemed to be held by, or for the account of, the Corporation. (d) Conversion Price Adjustment Deferred. Notwithstanding the foregoing provisions of this Section 6, (i) no adjustment in the number of shares of Common Stock into which any Series A Preferred Stock is convertible shall be required unless such adjustment would require an increase or decrease in such number of shares of at least 1% and (ii) no adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease in the Conversion Price of at least $.01 per share; provided, however, that any adjustments which by reason of this paragraph (d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 6 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. (e) Adjustment Report. Whenever any adjustment is required in the shares into which any Series A Preferred Stock is convertible, the Corporation shall forthwith (i) file with each office or agency then maintained by the Corporation for -15- 16 the transfer of the Series A Preferred Stock a statement describing in reasonable detail the adjustment and the method of calculation used and (ii) cause a notice of such adjustment, setting forth the adjusted Conversion Price and the calculation thereof to be mailed to the Holders at their respective addresses as shown on the stock books of the Corporation. The certificate of any independent firm of public accountants of recognized standing selected by the Board of Di rectors certifying to the Board of Directors the correctness of any computation under this Section 6 shall be evidence of the correctness of such computation. (f) Notice of Certain Events. In the event that: (i) the Corporation shall take action to make any distribution to the holders of its Common Stock; (ii) the Corporation shall take action to offer for subscription pro rata to the holders of its Common Stock any securities of any kind; (iii) the Corporation shall take action to accomplish any capital reorganization, or reclassification of the Capital Stock of the Corporation, or a consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or the sale or transfer of all or sub stantially all of the assets of the Corporation; or (iv) the Corporation shall take action looking to a voluntary or involuntary dissolution, liquidation or winding-up of the Corporation; then the Corporation shall (A) in case of any such distribution or subscription rights, at least twenty (20) days prior to the date or expected date on which the stock books of the Corporation shall close or a record shall be taken for the determination of Holders entitled to such distribution or subscription rights, and (B) in the case of any such reorganization, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up, at least twenty (20) days prior to the date or expected date when the same shall take place, cause written notice thereof to be mailed to each Holder at his address as shown on the stock books of the Corporation. Such notice in accordance with the foregoing clause (A) shall also specify, in the case of any such distribution or subscription rights, the date or expected date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (B) shall also specify the date or expected date on which the holders of Common Stock -16- 17 shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up, as the case may be. (g) Common Stock. For the purposes of this Section 6, the term "Common Stock" shall mean (i) the Common Stock or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value or from no par value to par value, or from par value to no par value. If at any time as a result of an adjustment made pursuant to the provisions of Section 6(c), the Holder of any Series A Preferred Stock thereafter surrendered for conversion shall become entitled to receive any the Corporation such other shares so receivable upon conversion of any Series A Preferred Stock shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Section 6(c), and the other provisions of this Section 6 with respect to the Common Stock shall apply on like terms to any such other shares. (h) Fractional Shares. The Corporation shall not be required to issue fractional shares of Common Stock upon the conversion of any Series A Preferred Stock. If more than one share of Series A Preferred Stock shall be surrendered for conversion at one time by the same Holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares so surrendered. If any fractional interest in a share of Common Stock would be deliverable upon the conversion of any Series A Preferred Stock, the Corporation may pay, in lieu thereof, in cash the Closing Price thereof as of the Business Day immediately preceding the date of such conversion. (i) Reservation of Shares. The Corporation shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued stock, for the purpose of effecting the conversion or redemption of the Series A Preferred Stock, such number of its duly authorized shares of Common Stock (or treasury shares as provided below) as shall from time to time be sufficient for the conversion of all outstanding Series A Preferred Stock into Common Stock at any time. The Corporation shall, from time to time and in accordance with the General Corporation Law of the State of Delaware, cause the authorized number of shares of Common Stock to be increased if the aggregate of the number of authorized shares of Common Stock remaining unissued and the issued shares -17- 18 of such Common Stock reserved for issuance in any other connection shall not be sufficient for the conversion of all outstanding Series A Preferred Stock into Common Stock at any time. 7. Voting Rights. The Series A Preferred Stock shall have the following voting rights: (a) The Holders of Series A Preferred Stock voting together as a single class shall be entitled to elect three directors to the Board of Directors (who shall serve for terms of one year) and shall otherwise not vote on any matters submitted to the holders of the Common Stock for a vote, except as may be required by law; provided, however, that if the Investor does not hold at least the Specified Investor Amount of Series A Preferred Stock, the number of directors that the Holders of the Series A Preferred Stock shall be entitled to elect shall be equal to three multiplied by a fraction, the numerator of which is the number of shares of Series A Preferred Stock outstanding and the denominator of which is 25,000, rounded up to the nearest whole director. (b) So long as any Series A Preferred Stock is outstanding, without the affirmative vote or consent of Holders of at least a majority of the outstanding Series A Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting, the Corporation shall not (i) issue, or reclassify any authorized stock of the Corpo ration into, or issue any obligation or security convertible into or evidencing a right to purchase, any Senior Stock or Parity Stock or any preferred stock having voting rights senior or equal to those of the Se ries A Preferred Stock (other than Series B Preferred Stock), (ii) reclassify the Series A Preferred Stock, or (iii) amend its Certificate of Incorporation or this Certificate of Designation or the Certificate of Designation for the Series B Preferred Stock so as to affect adversely the specified rights, preferences, privileges or voting rights of Hold ers or to increase or decrease the authorized number of shares of Series A Preferred Stock or Series B Preferred Stock. (c) In any case in which the Holders shall be entitled to vote as a separate class pursuant to this Section 7 or pursuant to Delaware law, each Holder shall be entitled to one vote for each share of Series A Preferred Stock then held. 8. Repurchase Obligation. (a) Subject to the provisions of Section 8(b), the Series A Preferred Stock shall not be redeemable at the option of the Holder thereof prior to the -18- 19 fourth anniversary of the Original Issue Date. Beginning on the fourth anniversary of the Original Issue Date, each Holder shall have the right, at such Holder's option, exercisable by notice (a "Repurchase Notice"), to require the Corporation to purchase Series A Preferred Stock then held by such Holder, at a repurchase price in cash equal to the Liquidation Preference in effect at such time (the "Repurchase Price"); provided, however, that the number of shares required to be repurchased from any Holder by the Corporation pursuant to this Section 8(a) ("Put Shares") prior to the fifth anni versary of the Original Issue Date shall not exceed one-third of the total number of shares of Series A Preferred Stock issued by the Corporation, and, prior to the sixth anniversary of the Original Issue Date, the number of Put Shares shall not exceed two-thirds of the total number of shares of Series A Preferred Stock issued by the Corporation. (b) Notwithstanding the provisions of Section 8(a), if an Event of Default shall occur at any time or from time to time on or after the Original Issue Date, each Holder shall have the right, at such Holder's option exercisable by Repurchase Notice at any time within sixty (60) days after the happening of each such Event of Default or, if later, receipt of notice from the Corporation of such Event of Default, to re quire the Corporation to purchase all or any part of the Series A Preferred Stock then held by such Holder as such Holder may elect, at the Repurchase Price. (c) The Corporation shall, within thirty (30) days of the occur rence of an Event of Default, give written notice thereof by telecopy, if possible, and by first class mail, postage prepaid, to each Holder, addressed to such Holder at his last address and telecopy number as shown upon the stock books of the Corporation. Each such notice shall specify the Event of Default which has occurred and the date of such occurrence, the place or places of payment, the then effective Conversion Price pursuant to Section 6, the then effective Repurchase Price and the date the right of such Holder to require such repurchase shall terminate. In addition, the Corporation shall, immediately upon becoming aware of any facts or events that could reasonably be expected to result in the oc currence of an Event of Default, give a written notice thereof by tele copy, if possible, and by first class mail, postage prepaid, to the Holders, addressed to such Holders at their last addresses as shown upon the stock books of the Corporation. (d) The date fixed for each such repurchase (the "Repurchase Date") shall be the 30th day following the date of the Repurchase Notice relating thereto. The place of payment shall be at an office or agency in the City of New York, New -19- 20 York fixed therefor by the Corporation or, if not fixed, at the principal executive office of the Corporation. On or before the Repurchase Date, each Holder who elects to have Series A Preferred Stock held by it purchased shall surrender the certificate representing such shares to the Corporation at the place designated in such notice together with an election to have such purchase made and shall thereupon be entitled to receive payment therefor provided in this Section 8. If less than all the shares represented by any such surrendered certificate are repurchased, a new certificate shall be issued representing the unpurchased shares. Payment of the Repurchase Price for the Put Shares shall be made on the later of the Repurchase Date or the fifth Business Day after the surrender of such certificate. Divi dends with respect to the Series A Preferred Stock so purchased shall cease to accrue after the Repurchase Date, such shares shall no longer be deemed outstanding and the Holders thereof shall cease to be stockholders of the Corporation and all rights whatsoever with respect to the shares so purchased shall terminate; provided, however, that if the Corporation defaults in its obligation to pay the Repurchase Price for such Put Shares, interest shall accrue on the amount of such obligation at the Default Dividend Rate until such payment is made (with all interest due). (e) Notwithstanding any other provision hereof, if any of the following events shall occur and be continuing: (i) the Company or any of its Significant Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Significant Subsidiaries shall make a general assignment for the benefit of its creditors; (ii) there shall be commenced against the Company or any of its Significant Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; (iii) there shall be commenced against the Company or any of its Significant Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, dis traint or similar process against all or any substantial part of its assets which results in the -20- 21 entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; (iv) the Company or any of its Significant Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clauses (i), (ii), or (iii) above; (v) the Company or any of its Significant Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; (vi) the Company or any of its Significant Subsidiaries shall cause to be reinstated the Reorganization Proceedings (as defined in the Note Agreement (as defined in the Investment Agreement)); or (vii) the Confirmation Order (as defined in the Note Agreement) shall be reversed, withdrawn, modified (in any manner adverse to Company or any of its Significant Subsidiaries), or any rehearing shall be ordered with respect thereto by the Bankruptcy Court or by any court having jurisdiction over the Company; then, and in any such event, all Series A Preferred Stock held by such Holder shall be Put Shares and the aggregate Repur chase Price in respect of each such share shall immediately and automatically become due and payable in full without any requirement or pre-condition of delivery of a Repurchase Notice, any such requirement or pre-condition being expressly waived hereby. 9. Reissuance of Series A Preferred Stock. Series A Preferred Stock that has been issued and reacquired in any manner, including shares surrendered to the Corporation upon conversion, and shares purchased or redeemed, shall (upon compliance with any applicable provisions of the laws of Delaware) have the status of authorized and unissued preferred stock undesignated as to series and may not be re-designated and reissued as part of any series of preferred stock. 10. Business Day. If any payment or redemption shall be required by the terms hereof to be made on a day that is not a Business Day, such payment or redemption shall be made on the immediately succeeding Business Day. 11. Headings of Sections. The headings of the various Sections hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 12. Severability of Provisions. If any right, preference or limitation of the Series A Preferred Stock set forth in this Certificate of Designation (as it may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule or law or public policy, all other -21- 22 rights, preferences and limitations set forth in this Certificate of Designation (as so amended) which can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall, nevertheless, remain in full force and effect, and no right, preference or limitation herein set forth shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein. 13. Notice. All notices and other communications provided for or permitted to be given to the Corporation hereunder shall be made by hand delivery, next day air courier or certified first-class mail to the Corporation at its principal executive offices at Atlantic Gulf Communities Corporation, 2601 South Bayshore Drive, Miami, Florida 33133-5461, Telecopy number (305) 859-4623, Attention: Chief Financial Officer. 14. Amendments. This Certificate of Designation may be amended without notice to or the consent of any Holder to cure any ambiguity, defect or inconsistency or to make any other amendment provided that any such amendment does not adversely affect the rights of any Holder. Any provisions of this Certificate of Designation may also be amended by the Corporation with the vote or written consent of Holders represent ing a majority of the outstanding Series A Preferred Stock. The Corporation will, so long as any Series A Preferred Stock is outstanding, maintain an office or agency where such shares may be presented for registration or transfer and where such shares may be presented for conversion and redemption. 15. Definitions. As used in this Certificate of Designation, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "Bank Warrants" means the 1,500,000 warrants for the purchase of Common Stock issued on September 30, 1996 pursuant to the Prepayment Agreement dated as of September 30, 1996 among the financial institutions listed on the signature pages thereof, The Chase Manhattan Bank and the Corporation. "Board of Directors" means the Board of Directors of the Corporation. "Board Resolution" has the meaning set forth in Section 6(c)(iii). -22- 23 "Business Day" means a day that is not a Saturday, a Sunday or a day on which banking institutions in the State of New York are not required to be open. Unless specifically stated as a Business Day, all days referred to herein shall mean calendar days. "Capital Stock" means, with respect to any Person, any and all shares, partnership interests, participations, rights in, or other equivalents (however designated and whether voting or nonvoting) of, such Person's capital stock. "Closing Price" has the meaning set forth in Section 6(c)(vii). "Common Stock" means shares of Common Stock, par value $.10 per share, of the Corporation. "Conversion Date" has the meaning set forth in Section 6(b). "Conversion Price" means, initially, $5.75 and, thereafter, such price as adjusted pursuant to Section 6. "Corporation" means Atlantic Gulf Communities Corporation, a Delaware corporation. "Current Market Price" has the meaning set forth in Section 6(c)(vii). "Default Dividend Rate" has the meaning set forth in Section 3(a). "Dividend Payment Date" means March 31, June 30, September 30 and December 31 of each year. "Dividend Period" means the Initial Dividend Period and, thereafter, each Quarterly Dividend Period. "Dividend Record Date" means a day fifteen (15) days preceding the Dividend Payment Date. "Event of Default" means (i) any event of default (whatever the reason for such event of default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any governmental authority) under any Instrument creating, evidencing or securing any indebtedness for borrowed money of the Company or any Significant Subsidiary in an amount in excess of $2,500,000 that -23- 24 would enable the creditors or secured parties under such Instrument to declare the principal amount of such indebtedness due and payable prior to its sched uled maturity, and has not been waived by the relevant creditors or secured parties, (ii) the occurrence of a Default Change of Control (as defined in the Investment Agreement), (iii) a material breach (following written notice by the Investor that the Investor would consider such a breach as material) by the Company of Section 6.7(f) of the Investment Agreement or (insofar as such breach is willful and materially imperils the value of the collateral securing the rights of the Holder or the rights of the Holder with respect thereto) of Section 3 of the Note Agreement or any Security Document (as defined in the Note Agreement) which, in any event, is not curable or if curable is not cured within 15 days, or (iv) one of the events specified in clauses (i) through (vii) of Section 8(e). "Holder" means a record holder of one or more outstanding shares of Series A Preferred Stock. "Initial Dividend Period" means the dividend period commencing on the Original Issue Date and ending on the second Dividend Payment Date to occur thereafter. "Instrument" means any contract, agreement, indenture, mortgage, security, document or writing under which any obligation is evidenced, assumed or undertaken, or any security interest is granted or perfected. "Investor Warrants" means the 5,000,000 warrants to acquire Common Stock to be issued to the Investor pursuant to the Investment Agreement. "Investment Agreement" means the Investment Agreement dated as of February 7, 1997 by and between AP-AGC, LLC and the Corporation. "Junior Stock" has the meaning set forth in Sec tion 2. "Liquidation Preference" means, at any time, $1,000 per share of Series A Preferred Stock, plus accumulated and unpaid Dividends thereon through the date of such determination, whether or not declared and whether or not funds are legally available therefor. "Optional Redemption Price" has the meaning set forth in Section 5(a). -24- 25 "Original Issue Date" means the date upon which the Series A Preferred Stock is originally issued by the Corporation. "Parity Stock" means the Series B Preferred Stock and any class or series of stock the terms of which provide that it is entitled to participate pari passu with the Series A Preferred Stock with respect to any dividend or distribution or upon liquidation, dissolution or winding-up of the Corporation. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, business trust, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof. "Put Shares" has the meaning set forth in Section 8(a). "Quarterly Dividend Period" shall mean the quarterly period commencing on each March 31, June 30, September 30 and December 31 and ending on each Dividend Payment Date, respectively. "Redemption Date", with respect to any Series A Preferred Stock, means the date on which such Series A Preferred Stock is redeemed by the Corporation. "Redemption Notice" has the meaning set forth in Section 5(c). "Repurchase Date" has the meaning set forth in Section 8(d). "Repurchase Notice" has the meaning set forth in Section 8(a). "Repurchase Price" has the meaning set forth in Section 8(a). "Senior Stock" means any class or series of stock the terms of which provide that it is entitled to a preference to the Series A Preferred Stock with respect to any dividend or distribution or upon voluntary or involuntary liquidation, dissolution or winding-up of the Corporation. "Series A Preferred Stock" means the 20% Cumulative Redeemable Convertible Preferred Stock, Series A, par value $.10 per share, of the Corporation. -25- 26 "Series A Preferred Stock Certificate" has the meaning set forth in Section 6(b). "Series B Preferred Stock" means the 20% Cumulative Redeemable Convertible Preferred Stock, Series B, par value $.01 per share, of the Corporation, which may be issued in accordance with the Investment Agreement. "Significant Subsidiary" has the meaning set forth in Regulation S-X under the Securities Exchange Act of 1934, as amended. "Specified Investor Amount" means 5,000 shares of Series A Preferred Stock. "Subsidiary" means, (i) with respect to any Person, a cor poration a majority of whose Capital Stock with voting power under ordinary circumstances to elect directors is at the time, directly or indirectly, owned by such Person, by a Subsidiary of such Person or by such Person and a Subsidiary of such Person, or (ii) any other Person (other than a corporation) of which at least a majority of the voting interest is at the time, directly or indirectly, owned by such Person, by a Subsidiary of such Person or by such Person and a Subsidiary of such Person. "Trading Day" shall mean a day on which securities are traded or quoted on the national securities exchange or quotation system or in the over-the-counter market used to determine the Closing Price. -26- EX-4 5 ANNEX B TO AMENDED CERT. OF INCORPORATION 1 Exhibit 4 ANNEX B TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ATLANTIC GULF COMMUNITIES CORPORATION STATEMENT OF PREFERENCES AND RIGHTS OF 20% CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK, SERIES B _______________________ The 20% Cumulative Redeemable Convertible Preferred Stock, Series B, of Atlantic Gulf Communities Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation") shall have the following powers, preferences, and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, in addition to those set forth in the attached Amended and Restated Certificate of Incorporation of the Corporation (all capitalized terms used without definition are defined in Section 15 of this Statement): 1. Designation. The series of preferred stock established hereby shall be designated the "20% Cumulative Redeemable Convertible Preferred Stock, Series B" (and shall be referred to herein as the "Series B Preferred Stock") and the authorized number of shares of Series B Preferred Stock shall be 1,000,000. 2. Rank. The Series B Preferred Stock shall, with respect to dividend distributions and distributions upon the voluntary or involuntary liquidation, winding up and dissolution of the Corporation, rank (i) senior to all classes of Common Stock and each other class of Capital Stock of the Corporation or series of preferred stock of the Corporation hereafter created which is not Senior Stock or Parity Stock ("Junior Stock"), (ii) pari passu with any Parity Stock and (iii) junior to any Senior Stock. There is no Senior Stock outstanding on the date hereof, and there is no Parity Stock outstanding on the date hereof other than the 20% Cumulative Redeemable Convertible Preferred Stock, Series A (the "Series A Preferred Stock"). Senior Stock or Parity Stock may be authorized or issued only in accordance with the provisions of Section 7(b). 3. Dividends. (a) Subject to the provisions of Section 3(c), beginning on the Original Issue Date, the Holders 2 shall be entitled to receive, when, as and if declared by the Board of Directors, but only out of funds legally available therefor, distributions in the form of cash dividends on each share of Series B Preferred Stock at an annual rate equal to 20% of the Liquidation Preference in effect from time to time and no more. All Dividends shall be cumulative, whether or not declared, on a daily basis from the Original Issue Date and shall be payable quarterly in arrears on each Dividend Payment Date commencing on ________, 1997. Each dividend shall be payable with respect to Series B Preferred Stock held by Holders as they appear on the stock books of the Corporation on each Dividend Record Date. Dividends shall cease to accumulate in respect of Series B Preferred Stock on the Redemption Date, the Conversion Date or the Repurchase Date for such shares, as the case may be, unless, in the case of a Redemption Date or Repurchase Date, the Corporation defaults in the payment of the amounts necessary for such redemption or in its obligation to deliver certificates representing Common Stock issuable upon such conversion, as the case may be, in which case, dividends shall continue to accumulate at an annual rate of 25% of the Liquidation Preference in effect from time to time (the "Default Dividend Rate") until such payment or delivery is made. If the Corporation defaults in the payment of amounts due upon a Repurchase Date, interest shall accrue on the amount of such obligation at the Default Dividend Rate until such payment is made (with all interest due). (b) Dividends on account of arrears for any past Dividend Period and dividends in connection with any optional redemption pursuant to Section 5(a) may be declared and paid at any time, without reference to any regular Dividend Payment Date, to Holders on such date, not more than forty-five (45) days prior to the payment thereof, as may be fixed by the Board of Directors. (c) Notwithstanding anything to the contrary in the preceding provisions of this Section 3, following an Event of Default, the Holders shall be entitled to receive dividends on each share of Series B Preferred Stock at an annual rate equal to the Default Dividend Rate, payable in cash. (d) So long as any Series B Preferred Stock is outstanding, the Corporation shall not declare, pay or set apart for payment any dividend on any Junior Stock or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any Junior Stock, or any warrants, rights, calls or options exercisable for any Junior Stock (except such securities which are debt securities or Senior Stock or Parity -2- 3 Stock) or make any distribution in respect thereof, either directly or indirectly, and whether in cash, obligations or shares of the Corporation or other property (other than, prior to the occurrence of an Event of Default, dividends, payments, purchases, acquisitions, redemptions, retirements or distributions in Junior Stock) and shall not permit any Subsidiary of the Corporation directly or indirectly to do any of the same in respect of such Junior Stock (other than, prior to the occurrence of an Event of Default, dividends, payments, purchases, acquisitions, redemptions, retirements or distributions in Junior Stock) unless and until all dividend arrearages on the Series B Preferred Stock have been paid in full in cash, and the Corporation is not in default of any of its obligations under Section 5 or Section 8. (e) Unless and until all dividend arrearages on the Series B Preferred Stock have been paid in full, all dividends declared by the Corporation upon Series B Preferred Stock or Parity Stock shall be declared pro rata with respect to all Series B Preferred Stock and Parity Stock then outstanding so that the amounts of any dividends declared per share on the Series B Preferred Stock and such Parity Stock bear the same ratio to each other at the time of declaration as all accrued and unpaid dividends on the Series B Preferred Stock and the Parity Stock bear to each other. (f) Dividends payable on the Series B Preferred Stock shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in the period for which payable. 4. Liquidation Preference. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the Holders shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders an amount in cash equal to the then Liquidation Preference for each share outstanding, before any payment shall be made or any assets distributed to the holders of any Junior Stock. If the assets of the Corporation are not sufficient to pay in full the liquidation payments payable to the Holders and the holders of any outstanding Parity Stock, then, subject to the rights of the Holders pursuant to Section 8, the holders of all such shares shall share ratably in such distribution of assets in accordance with the amounts which would be payable on such distribution if the amount to which the Holders and the holders of any outstanding Parity Stock are entitled were paid in full. (b) For the purposes of this Section 4, neither the sale, conveyance, exchange or transfer (for cash, shares of -3- 4 stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more corporations shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation. 5. Redemption. (a) Optional Redemption. The Corporation may, at the option of the Board of Directors, redeem at any time on or after the third anniversary of the Original Issue Date, from any source of funds legally available therefor, in whole or in part, in the manner provided in Section 5(c), any or all of the Series B Preferred Stock, at a redemption price in cash equal to the then Liquidation Preference (the "Optional Redemption Price"); provided that no optional redemption shall be made unless full dividends have been or contemporaneously are declared and paid or declared and a sum set apart sufficient for such payment, on the Series B Preferred Stock for all Dividend Periods terminating on or prior to the Redemption Date; and provided, further, that no partial redemption shall be made for an amount of shares of Series B Preferred Stock less than such number as have an aggregate Liquidation Preference equal to the lesser of $1,000,000 or the aggregate Liquidation Preference of all outstanding Series B Preferred Stock. [(b) Proration. In the event of a redemption pursuant to Section 5(a) of only a portion of the then outstanding Series B Preferred Stock, unless a majority of the outstanding shares of Series B Preferred Stock shall agree in writing to waive the requirement of proration, the Corporation shall effect such redemption pro rata according to the number of shares held by each Holder, except that the Corporation may redeem such shares held by Holders of 100 or fewer shares (or shares held by Holders who would hold 100 or fewer shares as a result of such redemption), as may be determined by the Corporation.] (c) Procedure for Redemption. (i) At least thirty (30) days and not more than sixty (60) days prior to the date fixed for any redemption of the Series B Preferred Stock, written notice (the "Redemption Notice") shall be given by first class mail, postage prepaid, to each Holder on the record date fixed for such redemption of the Series B Preferred Stock at such Holder's address as the same appears on the stock books of the Corporation. The Redemption Notice shall state: (1) that such notice constitutes a Redemption Notice pursuant to Section 5(a); (2) the Optional Redemption Price; -4- 5 (3) whether all or less than all the outstanding Series B Preferred Stock redeemable thereunder is to be redeemed and the total number of shares of such Series B Preferred Stock being redeemed; (4) the number of shares of Series B Preferred Stock held, as of the appropriate record date, by the specific Holder that the Corporation intends to redeem; (5) the Redemption Date; (6) that the Holder is to surrender to the Corporation his certificate or certificates representing the Series B Preferred Stock to be redeemed, specifying the place or places where, and the manner in which, certificates for Series B Preferred Stock are to be surrendered for redemption; (7) the date on which the Series B Preferred Stock called for redemption shall cease to be convertible; and (8) that dividends on the Series B Preferred Stock to be redeemed shall cease to accumulate on the Redemption Date, unless the Corporation defaults in the payment of the amounts necessary for such redemption, in which case, dividends shall continue to accumulate until such payment is made. (ii) Each Holder shall surrender the certificate or certificates representing such Series B Preferred Stock to the Corporation, duly endorsed, in the manner and at the place designated in the Redemption Notice, and on the Redemption Date the full Optional Redemption Price for such shares so surrendered shall be payable in cash to the Person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled and retired. If less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (iii) If on or before the Redemption Date all funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds, in trust for the pro rata benefit of the Holders of the shares so called for redemption, so as to be and continue to be available therefor and not subject to claims of creditors of the Corporation, then, notwithstanding that any certificate for shares so called for redemption shall not have been surrendered for cancellation, all shares so called for redemption shall no longer be deemed outstanding on and after such Redemption Date, and all -5- 6 rights with respect to such shares shall forthwith on such Redemption Date cease and terminate, except only the right of the Holders thereof to receive the amount payable on redemption thereof, without interest. Any interest accrued on such funds shall be paid to the Corporation from time to time. Any funds so set aside or deposited by the Corporation which shall not be required for such redemption because of the exercise of any right of conversion subsequent to the date of such deposit shall be released or repaid to the Corporation forthwith. Any funds so set aside or deposited, as the case may be, and unclaimed as of the first anniversary of such Redemption Date shall be released or repaid to the Corporation, after which the Holders of the shares so called for redemption shall look only to the Corporation for payment thereof. 6. Conversion. (a) Conversion Right. The Holder of each share of Series B Preferred Stock shall have the right at any time, or from time to time (prior in each case to the thirtieth day following the date of the Redemption Notice if such share shall be called for redemption pursuant to Section 5), at the option of such Holder, to convert such share into Common Stock, on and subject to the terms and conditions hereinafter set forth. Subject to the provisions for adjustment hereinafter set forth, each share of Series B Preferred Stock shall be convertible into such number (calculated as to each conversion to the nearest 1/100th of a share) of fully paid and nonassessable shares of Common Stock, as is obtained by dividing the Liquidation Preference by the Conversion Price, in each case as in effect at the date any Series B Preferred Stock is surrendered for conversion. (b) Conversion Procedures. To exercise the conversion privilege, the Holder of any Series B Preferred Stock to be converted in whole or in part shall surrender the certificate representing such Series B Preferred Stock (the "Series B Preferred Stock Certificate") at the office or agency then maintained by the Corporation for the transfer of the Series B Preferred Stock, and shall give written notice of conversion in the form provided on the Series B Preferred Stock Certificate (or such other notice which is acceptable to the Corporation) to the Corporation at such office or agency that the Holder elects to convert such Series B Preferred Stock represented by the Series B Preferred Stock Certificate so surrendered or the portion thereof specified in said notice into Common Stock. Such notice shall also state the name or names (with addresses) in which the certificate or certificates for Common Stock which shall be issuable upon such conversion shall be issued, and shall be accompanied by transfer taxes, if required. Each Series B Preferred Stock Certificate surrendered for conversion -6- 7 shall, unless the shares issuable on conversion are to be issued in the same name as the registration of such Series B Preferred Stock Certificate, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Corporation duly executed by, the Holder or such Holder's duly authorized attorney. As promptly as practicable, but in no event later than five (5) Business Days, after the surrender of such Series B Preferred Stock Certificate and the receipt of such notice and funds, if any, as aforesaid, the Corporation shall issue and shall simultaneously deliver at such office or agency to such Holder, or on his written order, a certificate or certificates for the number of shares of Common Stock, issuable upon the conversion of such Series B Preferred Stock represented by the Series B Preferred Stock Certificate so surrendered or portion thereof in accordance with the provisions of this Section 6. In case less than all of the Series B Preferred Stock represented by a Series B Preferred Stock Certificate surrendered for conversion is to be converted, the Corporation shall simultaneously deliver to or upon the written order of the Holder of such Series B Preferred Stock Certificate a new Series B Preferred Stock Certificate representing the Series B Preferred Stock not converted. If a Holder fails to notify the Corporation of the number of shares of Series B Preferred Stock which such Holder wishes to convert, such Holder shall be deemed to have elected to convert all shares represented by the certificate or certificates surrendered for conversion. Each conversion shall be deemed to have been effected on the date on which such Series B Preferred Stock Certificate shall have been surrendered and such notice shall have been received by the Corporation, as aforesaid (the "Conversion Date"), and the Person in whose name any certificate or certificates for Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock books of the Corporation shall be closed shall constitute the Person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock books are open, but such conversion shall be at the Conversion Price as in effect on the date upon which such Series B Preferred Stock Certificate shall have been surrendered. All Series B Preferred Stock that shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to -7- 8 vote, shall forthwith cease, except only the right of the Holders thereof, subject to the provisions of this Section 6, to receive Common Stock in exchange therefor; provided, however, that if the Corporation defaults in its obligation to deliver certificates representing Common Stock issuable upon such conversion, dividends shall continue to accumulate at the Default Dividend Rate until such delivery is made. If any Series B Preferred Stock shall be called for redemption, the right to convert such Series B Preferred Stock shall terminate at the close of business on the thirtieth day following the date of the Redemption Notice. (c) The Conversion Price at which Series B Preferred Stock is convertible into Common Stock shall be subject to adjustment from time to time as provided in this Section 6(c) (unless otherwise indicated, all calculations under this Section 6(c) shall be made to the nearest $0.01): (i) In case the Corporation shall (A) declare a dividend or make a distribution on the outstanding Common Stock in Capital Stock of the Corporation, (B) subdivide or reclassify the outstanding Common Stock into a greater number of shares (or into other securities or property), or (C) combine or reclassify the outstanding Common Stock into a smaller number of shares (or into other securities or property), the Conversion Price in effect at the close of business on the date fixed for the determination of stockholders entitled to receive such dividend or other distribution, or to be affected by such subdivision, combination or other reclassification, shall be adjusted by multiplying such Conversion Price by a fraction, the numerator of which shall be the total number of outstanding shares of Common Stock immediately prior to such event, and the denominator of which shall be the total number of outstanding shares of Common Stock immediately after such event. An adjustment made pursuant to this subparagraph (i) shall become effective immediately after the record date for such event, or, if there is no record date, upon the effective date for such event. Any Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the time of the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under subparagraphs (ii) and (iii) below. Adjustments pursuant to this subparagraph shall be made successively whenever any event specified above shall occur. (ii) In case the Corporation shall fix a record date for the issuance of rights or warrants to all holders of -8- 9 Common Stock entitling them to subscribe for or purchase Common Stock (or securities convertible into or exchangeable for Common Stock) (other than Series B Preferred Stock or Investor Warrants) at a price per share (or having a conversion price or exchange price per share, subject to normal antidilution adjustments) less than the Current Market Price (as defined in subparagraph (vii) below) of Common Stock on such record date, the Conversion Price in effect at the close of business on such record date shall be reduced by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at the Current Market Price as of such record date, and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of additional shares of Common Stock offered for subscription or purchase in connection with such rights, options or warrants. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants. In case any rights or warrants referred to in this subparagraph (ii) in respect of which an adjustment shall have been made shall expire unexercised within forty- five (45) days after the same shall have been distributed or issued by the Corporation, the Conversion Price shall be readjusted at the time of such expiration to the Conversion Price that would have been in effect if no adjustment had been made on account of the distribution or issuance of such expired rights or warrants. (iii) In case the Corporation shall fix a record date for the making of a distribution to all holders of Common Stock (A) of shares of any class other than Common Stock, (B) of evidences of indebtedness of the Corporation or any Subsidiary, (C) of assets or other property or (D) of rights or warrants (excluding those rights or warrants resulting in an adjustment pursuant to subparagraph (ii) above, and the right to acquire Series B Preferred Stock in the rights offering thereof), then in each such case the Conversion Price shall be reduced so that such price shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph (iii) by a fraction, the numerator of -9- 10 which shall be the then Current Market Price per share of Common Stock, less the then fair market value (as determined by the Board of Directors, whose reasonable determination shall be described in a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification (a "Board Resolution") of the portion of the securities, evidences of indebtedness, assets, property or rights or warrants so distributed, the case may be, which is applicable to one share of Common Stock, and the denominator of which shall be the Current Market Price per share of Common Stock as of the record date for such distribution. Such adjustment shall be made successively whenever such a record date is fixed. (iv) In case the Corporation shall issue Common Stock for a consideration per share less than the Current Market Price per share on the date the Corporation fixes the offering price of such additional shares, the Conversion Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Conversion Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately after the issuance of such additional shares, and the denominator shall be the total number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares plus the number of shares of Common Stock which the aggregate consideration received (determined as provided in subparagraph (vi) below) for the issuance of such additional shares would purchase at the Current Market Price per share. Such adjustment shall be made successively whenever such an issuance is made; provided, however, that the provisions of this subparagraph shall not apply (A) to Common Stock issued to the Corporation's employees or former employees or their estates under bona fide employee benefit plans adopted by the Board of Directors and approved by the holders of Common Stock if required by law, if such Common Stock would otherwise be covered by this subparagraph, but only to the extent that the aggregate number of shares excluded hereby shall not exceed, on a cumulative basis since the date hereof, [NUMBER TO BE AGREED BEFORE CLOSING] (including 822,000 shares as of the date hereof to be issued pursuant to employee stock options outstanding as of the date hereof to purchase Common Stock), (B) to the Common Stock to be issued pursuant to the Bank Warrants, (y) to the Common Stock to be issued pursuant to the Investor Warrants and (C) to Common Stock to be issued upon conversion of the Series B -10- 11 Preferred Stock, adjusted as appropriate in each case, in connection with any stock split, merger, recapitalization or similar transaction. (v) In case the Corporation shall issue any securities convertible into or exchangeable for Common Stock (excluding (A) securities issued in transactions resulting in adjustment pursuant to subparagraphs (ii) and (iii) above, (B) Series B Preferred Stock, (C) Investor Warrants, and (D) upon conversion of any of such securities) for a consideration per share of Common Stock deliverable upon conversion or exchange of such securities (determined as provided in subparagraph (vi) below and subject to normal antidilution adjustments) less than the Current Market Price per share in effect immediately prior to the issuance of such securities, the Conversion Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Conversion Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the maximum number of shares of Common Stock deliverable upon conversion of or in exchange for such securities at the initial conversion or exchange price or rate, and the denominator shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such securities plus the number of shares of Common Stock which the aggregate consideration received (determined as provided in subparagraph (vi) below) for such securities would purchase at the Current Market Price per share. Such adjustment shall be made successively whenever such an issuance is made. Upon the termination of the right to convert or exchange such securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have been obtained had the adjustments made upon the issuance of such convertible or exchangeable securities been made upon the basis of the delivery of only the number of shares of Common Stock actually delivered upon conversion or exchange of such securities and upon the basis of the consideration actually received by the Corporation (determined as provided in subparagraph (vi) below) for such securities. (vi) For purposes of any computation respecting consideration received pursuant to subparagraphs (iv) and (v) above, the following shall apply: -11- 12 (A) in the case of the issuance of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deductions be made for any commissions, discounts, placement fees or other expenses incurred by the Corporation for any underwriting or placement of the issue or otherwise in connection therewith; (B) in the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the Board of Directors, whose reasonable determination shall be described in a Board Resolution; and (C) in the case of the issuance of securities convertible into or exchangeable for Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Corporation for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Corporation upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (A) and (B) of this subparagraph (vi)). (vii) For the purpose of any computation under this Certificate of Designation, (A) the "Current Market Price" per share at any date shall be deemed to be the average of the daily Closing Price for the Common Stock for the ten (10) consecutive Trading Days commencing fourteen (14) Trading Days before such date, and (B) the "Closing Price" of the Common Stock means the last reported sale price regular way reported on the NASDAQ Stock Market or its successor, or, if not listed or admitted to trading on the NASDAQ Stock Market or its successor, the last reported sale price regular way reported on any other stock exchange or market on which the Common Stock is then listed or eligible to be quoted for trading, or as reported by the National Quotation Bureau Incorporated. (viii) In any case in which this Section shall require that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event (A) issuing to the Holder of any Series B Preferred Stock converted after such record date and before the occurrence of such event the Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above -12- 13 the Common Stock issuable upon such conversion before giving effect to such adjustment and (B) paying to such Holder an amount in cash in lieu of a fractional share of Common Stock pursuant to Section 6(h); provided, however , that the Corporation shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder's rights to receive such additional Common Stock, and such cash, upon the occurrence of the event requiring such adjustment. (ix) The Corporation may make such reductions in the Conversion Price, in addition to those required pursuant to other subparagraphs of this Section, as it considers to be advisable so that any event treated for federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients. (x) In case of any consolidation with or merger of the Corporation into another corporation, or in case of any sale, lease or conveyance of assets to another corporation of the property of the Corporation as an entirety or substantially as an entirety, lawful and adequate provisions shall be made whereby each Holder of Series B Preferred Stock shall have the right to receive, from such successor, leasing or purchasing corporation, as the case may be, upon the basis and upon the terms and conditions specified herein, in lieu of the Common Stock immediately theretofore receivable upon the conversion of such Series B Preferred Stock, the kind and amount of shares of stock, other securities, property or cash or any combination thereof receivable upon such consolidation, merger, sale, lease or conveyance by a holder of the number of shares of Common Stock into which such Series B Preferred Stock might have been converted immediately prior to such consolidation, merger, sale, lease or conveyance. In the case of any such consolidation, merger or sale of substantially all the assets, appropriate provision shall be made with respect to the rights and interests of the Holders to the end that the provisions hereof (including provisions for adjustment of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of any conversion rights hereunder. (xi) In case of any reclassification or change of the Common Stock issuable upon conversion of Series B Preferred Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in the Common Stock into two or more classes or series of shares), or in -13- 14 case of any consolidation or merger of another corporation into the Corporation in which the Corporation is the continuing corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in the Common Stock into two or more classes or series of shares), lawful and adequate provisions shall be made whereby each Holder of Series B Preferred Stock shall have the right to receive, upon the basis and upon the terms and conditions specified herein, in lieu of the Common Stock immediately theretofore receivable upon the conversion of such Series B Preferred Stock, the kind and amount of shares of stock, other securities, property or cash or any combination thereof receivable upon such reclassification, change, consolidation or merger, by a holder of the number of shares of Common Stock into which such Series B Preferred Stock might have been converted immediately prior to such reclassification, change, consolidation or merger. (xii) The foregoing subparagraphs (x) and (xi), however, shall not in any way affect the rights a Holder may otherwise have, pursuant to this Section, to receive securities, evidences of indebtedness, assets, property rights or warrants upon conversion of any Series B Preferred Stock. (xiii) If the Corporation repurchases (by way of tender offer, exchange offer or otherwise) any Common Stock for a per share consideration which exceeds the Current Market Price of a share of Common Stock on the date immediately prior to such repurchase, the Conversion Price shall be reduced so that such price shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph (xiii) by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such acquisition multiplied by the Current Market Price per share of the Common Stock on the immediately preceding Trading Day, and the denominator shall be the sum of (A) the fair market value (as determined in good faith by the Board of Directors) of the aggregate consideration payable to stockholders as a result of such acquisition, and (B) the product of the number of shares of Common Stock outstanding immediately following such acquisition and the Current Market Price per share of the Common Stock on such -14- 15 immediately preceding Trading Day, such reduction to become effective immediately prior to the opening of business on the day following such acquisition. (xiv) If any event occurs as to which the foregoing provisions of this Section 6(c) are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors, fairly protect the conversion rights of the Series B Preferred Stock in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of the Board of Directors, to protect such conversion rights as aforesaid, but in no event shall any such adjustment have the effect of increasing the Conversion Price, or otherwise adversely affect the Holders. (xv) For purposes of Section 6(c), Common Stock owned or held at any relevant time by, or for the account of, the Corporation in its treasury or otherwise, shall not be deemed to be outstanding for purposes of the calculation and adjustments described therein. Shares held in the Disputed Claims Reserve, Division Class 14 Utility Fund Trust Agreement dated April 6, 1993 and the Improvements Fund Trust Agreement dated April 6, 1993 shall not be deemed to be held by, or for the account of, the Corporation. (d) Conversion Price Adjustment Deferred. Notwithstanding the foregoing provisions of this Section 6, (i) no adjustment in the number of shares of Common Stock into which any Series B Preferred Stock is convertible shall be required unless such adjustment would require an increase or decrease in such number of shares of at least 1% and (ii) no adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease in the Conversion Price of at least $.01 per share; provided, however, that any adjustments which by reason of this paragraph (d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 6 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. (e) Adjustment Report. Whenever any adjustment is required in the shares into which any Series B Preferred Stock is convertible, the Corporation shall forthwith (i) file with each office or agency then maintained by the Corporation for -15- 16 the transfer of the Series B Preferred Stock a statement describing in reasonable detail the adjustment and the method of calculation used and (ii) cause a notice of such adjustment, setting forth the adjusted Conversion Price and the calculation thereof to be mailed to the Holders at their respective addresses as shown on the stock books of the Corporation. The certificate of any independent firm of public accountants of recognized standing selected by the Board of Directors certifying to the Board of Directors the correctness of any computation under this Section 6 shall be evidence of the correctness of such computation. (f) Notice of Certain Events. In the event that: (i) the Corporation shall take action to make any distribution to the holders of its Common Stock; (ii) the Corporation shall take action to offer for subscription pro rata to the holders of its Common Stock any securities of any kind; (iii) the Corporation shall take action to accomplish any capital reorganization, or reclassification of the Capital Stock of the Corporation, or a consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or the sale or transfer of all or substantially all of the assets of the Corporation; or (iv) the Corporation shall take action looking to a voluntary or involuntary dissolution, liquidation or winding-up of the Corporation; then the Corporation shall (A) in case of any such distribution or subscription rights, at least twenty (20) days prior to the date or expected date on which the stock books of the Corporation shall close or a record shall be taken for the determination of Holders entitled to such distribution or subscription rights, and (B) in the case of any such reorganization, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up, at least twenty (20) days prior to the date or expected date when the same shall take place, cause written notice thereof to be mailed to each Holder at his address as shown on the stock books of the Corporation. Such notice in accordance with the foregoing clause (A) shall also specify, in the case of any such distribution or subscription rights, the date or expected date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (B) shall also specify the date or expected date on which the holders of Common Stock -16- 17 shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up, as the case may be. (g) Common Stock. For the purposes of this Section 6, the term "Common Stock" shall mean (i) the Common Stock or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value or from no par value to par value, or from par value to no par value. If at any time as a result of an adjustment made pursuant to the provisions of Section 6(c), the Holder of any Series B Preferred Stock thereafter surrendered for conversion shall become entitled to receive any the Corporation such other shares so receivable upon conversion of any Series B Preferred Stock shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Section 6(c), and the other provisions of this Section 6 with respect to the Common Stock shall apply on like terms to any such other shares. (h) Fractional Shares. The Corporation shall not be required to issue fractional shares of Common Stock upon the conversion of any Series B Preferred Stock. If more than one share of Series B Preferred Stock shall be surrendered for conversion at one time by the same Holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares so surrendered. If any fractional interest in a share of Common Stock would be deliverable upon the conversion of any Series B Preferred Stock, the Corporation may pay, in lieu thereof, in cash the Closing Price thereof as of the Business Day immediately preceding the date of such conversion. (i) Reservation of Shares. The Corporation shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued stock, for the purpose of effecting the conversion or redemption of the Series B Preferred Stock, such number of its duly authorized shares of Common Stock (or treasury shares as provided below) as shall from time to time be sufficient for the conversion of all outstanding Series B Preferred Stock into Common Stock at any time. The Corporation shall, from time to time and in accordance with the General Corporation Law of the State of Delaware, cause the authorized number of shares of Common Stock to be increased if the aggregate of the number of authorized shares of Common Stock remaining unissued and the issued shares -17- 18 of such Common Stock reserved for issuance in any other connection shall not be sufficient for the conversion of all outstanding Series B Preferred Stock into Common Stock at any time. 7. Voting Rights. The Holders of Series B Preferred Stock shall not vote on any matters submitted to the holders of the Common Stock for a vote, except as may be required by law. In any case in which the Holders shall be entitled to vote as a separate class pursuant to Delaware law, each Holder shall be entitled to one vote for each share of Series B Preferred Stock then held. 8. Repurchase Obligation. (a) Subject to the provisions of Section 8(b), the Series B Preferred Stock shall not be redeemable at the option of the Holder thereof prior to the fourth anniversary of the Original Issue Date. Beginning on the fourth anniversary of the Original Issue Date, each Holder shall have the right, at such Holder's option, exercisable by notice (a "Repurchase Notice"), to require the Corporation to purchase Series B Preferred Stock then held by such Holder, at a repurchase price in cash equal to the Liquidation Preference in effect at such time (the "Repurchase Price"); provided, however, that the number of shares required to be repurchased by the Corporation pursuant to this Section 8(a) ("Put Shares") prior to the fifth anniversary of the Original Issue Date shall not exceed one-third of the total number of shares of Series B Preferred Stock issued by the Corporation, and, prior to the sixth anniversary of the Original Issue Date, the number of Put Shares shall not exceed two-thirds of the total number of shares of Series B Preferred Stock issued by the Corporation. (b) Notwithstanding the provisions of Section 8(a), if an Event of Default shall occur at any time or from time to time on or after the Original Issue Date, each Holder shall have the right, at such Holder's option exercisable by Repurchase Notice at any time within sixty (60) days after the happening of each such Event of Default or, if later, receipt of notice from the Corporation of such Event of Default, to require the Corporation to purchase all or any part of the Series B Preferred Stock then held by such Holder as such Holder may elect, at the Repurchase Price. (c) The Corporation shall, within thirty (30) days of the occurrence of an Event of Default, give written notice thereof by telecopy, if possible, and by first class mail, postage prepaid, to each Holder, addressed to such Holder at his last address and telecopy number as shown upon the stock books of the Corporation. Each such notice shall specify the -18- 19 Event of Default which has occurred and the date of such occurrence, the place or places of payment, the then effective Conversion Price pursuant to Section 6, the then effective Repurchase Price and the date the right of such Holder to require such repurchase shall terminate. In addition, the Corporation shall, immediately upon becoming aware of any facts or events that could reasonably be expected to result in the occurrence of an Event of Default, give a written notice thereof by telecopy, if possible, and by first class mail, postage prepaid, to the Holders, addressed to such Holders at their last addresses as shown upon the stock books of the Corporation. (d) The date fixed for each such repurchase (the "Repurchase Date") shall be the 30th day following the date of the Repurchase Notice relating thereto. The place of payment shall be at an office or agency in the City of New York, New York fixed therefor by the Corporation or, if not fixed, at the principal executive office of the Corporation. On or before the Repurchase Date, each Holder who elects to have Series B Preferred Stock held by it purchased shall surrender the certificate representing such shares to the Corporation at the place designated in such notice together with an election to have such purchase made and shall thereupon be entitled to receive payment therefor provided in this Section 8. If less than all the shares represented by any such surrendered certificate are repurchased, a new certificate shall be issued representing the unpurchased shares. Payment of the Repurchase Price for the Put Shares shall be made on the later of the Repurchase Date or the fifth Business Day after the surrender of such certificate. Dividends with respect to the Series B Preferred Stock so purchased shall cease to accrue after the Repurchase Date, such shares shall no longer be deemed outstanding and the Holders thereof shall cease to be stockholders of the Corporation and all rights whatsoever with respect to the shares so purchased shall terminate; provided, however, that if the Corporation defaults in its obligation to pay the Repurchase Price for such Put Shares, interest shall accrue on the amount of such obligation at the Default Dividend Rate until such payment is made (with all interest due). (e) Notwithstanding any other provision hereof, if any of the following events shall occur and be continuing: (i) the Company or any of its Significant Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, -19- 20 winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Significant Subsidiaries shall make a general assignment for the benefit of its creditors; (ii) there shall be commenced against the Company or any of its Significant Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; (iii) there shall be commenced against the Company or any of its Significant Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; (iv) the Company or any of its Significant Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clauses (i), (ii), or (iii) above; (v) the Company or any of its Significant Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; (vi) the Company or any of its Significant Subsidiaries shall cause to be reinstated the Reorganization Proceedings (as defined in the Note Agreement (as defined in the Investment Agreement)); or (vii) the Confirmation Order (as defined in the Note Agreement) shall be reversed, withdrawn, modified (in any manner adverse to Company or any of its Significant Subsidiaries), or any rehearing shall be ordered with respect thereto by the Bankruptcy Court or by any court having jurisdiction over the Company; then, and in any such event, all Series B Preferred Stock held by such Holder shall be Put Shares and the aggregate Repurchase Price in respect of each such share shall immediately and automatically become due and payable in full without any requirement or pre-condition of delivery of a Repurchase Notice, any such requirement or pre-condition being expressly waived hereby. 9. Reissuance of Series B Preferred Stock. Series B Preferred Stock that has been issued and reacquired in any manner, including shares surrendered to the Corporation upon conversion, and shares purchased or redeemed, shall (upon compliance with any applicable provisions of the laws of Delaware) have the status of authorized and unissued preferred stock undesignated as to series and may not be re-designated and reissued as part of any series of preferred stock. -20- 21 10. Business Day. If any payment or redemption shall be required by the terms hereof to be made on a day that is not a Business Day, such payment or redemption shall be made on the immediately succeeding Business Day. 11. Headings of Sections. The headings of the various Sections hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 12. Severability of Provisions. If any right, preference or limitation of the Series B Preferred Stock set forth in this Certificate of Designation (as it may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule or law or public policy, all other rights, preferences and limitations set forth in this Certificate of Designation (as so amended) which can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall, nevertheless, remain in full force and effect, and no right, preference or limitation herein set forth shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein. 13. Notice. All notices and other communications provided for or permitted to be given to the Corporation hereunder shall be made by hand delivery, next day air courier or certified first-class mail to the Corporation at its principal executive offices at Atlantic Gulf Communities Corporation, 2601 South Bayshore Drive, Miami, Florida 33133-5461, Telecopy number (305) 859-4623, Attention: Chief Financial Officer. 14. Amendments. This Certificate of Designation may be amended without notice to or the consent of any Holder to cure any ambiguity, defect or inconsistency or to make any other amendment provided that any such amendment does not adversely affect the rights of any Holder. Any provisions of this Certificate of Designation may also be amended by the Corporation with the vote or written consent of Holders representing a majority of the outstanding Series B Preferred Stock. The Corporation will, so long as any Series B Preferred Stock is outstanding, maintain an office or agency where such shares may be presented for registration or transfer and where such shares may be presented for conversion and redemption. 15. Definitions. As used in this Certificate of Designation, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings -21- 22 when used in the plural and vice versa), unless the context otherwise requires: "Bank Warrants" means the 1,500,000 warrants for the purchase of Common Stock issued on September 30, 1996 pursuant to the Prepayment Agreement dated as of September 30, 1996 among the financial institutions listed on the signature pages thereof, The Chase Manhattan Bank and the Corporation. "Board of Directors" means the Board of Directors of the Corporation. "Board Resolution" has the meaning set forth in Section 6(c)(iii). "Business Day" means a day that is not a Saturday, a Sunday or a day on which banking institutions in the State of New York are not required to be open. Unless specifically stated as a Business Day, all days referred to herein shall mean calendar days. "Capital Stock" means, with respect to any Person, any and all shares, partnership interests, participations, rights in, or other equivalents (however designated and whether voting or nonvoting) of, such Person's capital stock. "Closing Price" has the meaning set forth in Section 6(c)(vii). "Common Stock" means shares of Common Stock, par value $.10 per share, of the Corporation. "Conversion Date" has the meaning set forth in Section 6(b). "Conversion Price" means, initially, $5.75 and, thereafter, such price as adjusted pursuant to Section 6. "Corporation" means Atlantic Gulf Communities Corporation, a Delaware corporation. "Current Market Price" has the meaning set forth in Section 6(c)(vii). "Default Dividend Rate" has the meaning set forth in Section 3(a). "Dividend Payment Date" means March 31, June 30, September 30 and December 31 of each year. -22- 23 "Dividend Period" means the Initial Dividend Period and, thereafter, each Quarterly Dividend Period. "Dividend Record Date" means a day fifteen (15) days preceding the Dividend Payment Date. "Event of Default" means (i) any event of default (whatever the reason for such event of default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any governmental authority) under any Instrument creating, evidencing or securing any indebtedness for borrowed money of the Company or any Significant Subsidiary in an amount in excess of $2,500,000 that would enable the creditors or secured parties under such Instrument to declare the principal amount of such indebtedness due and payable prior to its scheduled maturity, and has not been waived by the relevant creditors or secured parties, (ii) the occurrence of a Default Change of Control (as defined in the Investment Agreement), or (iii) one of the events specified in clauses (i) through (vii) of Section 8(e). "Holder" means a record holder of one or more outstanding shares of Series B Preferred Stock. "Initial Dividend Period" means the dividend period commencing on the Original Issue Date and ending on the second Dividend Payment Date to occur thereafter. "Instrument" means any contract, agreement, indenture, mortgage, security, document or writing under which any obligation is evidenced, assumed or undertaken, or any security interest is granted or perfected. "Investor Warrants" means the 5,000,000 warrants to acquire Common Stock to be issued to the Investor pursuant to the Investment Agreement. "Investment Agreement" means the Investment Agreement dated as of February 7, 1997 by and between AP- AGC, LLC and the Corporation. "Junior Stock" has the meaning set forth in Section 2. "Liquidation Preference" means, at any time, $10 per share of Series B Preferred Stock, plus accumulated and unpaid Dividends thereon through the date of such determination, whether or not declared and whether or not funds are legally available therefor. -23- 24 "Optional Redemption Price" has the meaning set forth in Section 5(a). "Original Issue Date" means the date upon which the Series B Preferred Stock is originally issued by the Corporation. "Parity Stock" means the Series A Preferred Stock and any class or series of stock the terms of which provide that it is entitled to participate pari passu with the Series B Preferred Stock with respect to any dividend or distribution or upon liquidation, dissolution or winding-up of the Corporation. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, business trust, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof. "Put Shares" has the meaning set forth in Section 8(a). "Quarterly Dividend Period" shall mean the quarterly period commencing on each March 31, June 30, September 30 and December 31 and ending on each Dividend Payment Date, respectively. "Redemption Date", with respect to any Series B Preferred Stock, means the date on which such Series B Preferred Stock is redeemed by the Corporation. "Redemption Notice" has the meaning set forth in Section 5(c). "Repurchase Date" has the meaning set forth in Section 8(d). "Repurchase Notice" has the meaning set forth in Section 8(a). "Repurchase Price" has the meaning set forth in Section 8(a). "Senior Stock" means any class or series of stock the terms of which provide that it is entitled to a preference to the Series B Preferred Stock with respect to any dividend or distribution or upon voluntary or involuntary liquidation, dissolution or winding-up of the Corporation. -24- 25 "Series A Preferred Stock" means the 20% Cumulative Redeemable Convertible Preferred Stock, Series A, par value $.10 per share, of the Corporation. "Series B Preferred Stock Certificate" has the meaning set forth in Section 6(b). "Series B Preferred Stock" means the 20% Cumulative Redeemable Convertible Preferred Stock, Series B, par value $.01 per share, of the Corporation, which may be issued in accordance with the Investment Agreement. "Significant Subsidiary" has the meaning set forth in Regulation S-X under the Securities Exchange Act of 1934, as amended. "Subsidiary" means, (i) with respect to any Person, a corporation a majority of whose Capital Stock with voting power under ordinary circumstances to elect directors is at the time, directly or indirectly, owned by such Person, by a Subsidiary of such Person or by such Person and a Subsidiary of such Person, or (ii) any other Person (other than a corporation) of which at least a majority of the voting interest is at the time, directly or indirectly, owned by such Person, by a Subsidiary of such Person or by such Person and a Subsidiary of such Person. "Trading Day" shall mean a day on which securities are traded or quoted on the national securities exchange or quotation system or in the over-the-counter market used to determine the Closing Price. -25- EX-5 6 EX C- WARANT FOR COMMON STOCK 1 Exhibit 5 EXHIBIT C ________ Warrants Certificate No. W-[A][B][C]-1 WARRANT FOR THE PURCHASE OF COMMON STOCK OF ATLANTIC GULF COMMUNITIES CORPORATION (VOID AFTER ________, 2004) THE WARRANTS (AND THE COMMON STOCK ISSUABLE UPON EXERCISE THEREOF) REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF SUCH REGISTRATION OR THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT UPON COMPLIANCE WITH THE REQUIREMENTS FOR TRANSFER SET FORTH HEREIN AND IN AN INVESTMENT AGREEMENT DATED AS OF FEBRUARY 7, 1997 BETWEEN THE ISSUER AND AP-AGC, LLC. THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF IS ENTITLED TO THE BENEFITS OF CERTAIN REGISTRATION RIGHTS UNDER SUCH INVESTMENT AGREEMENT. THIS IS TO CERTIFY THAT, for value received, AP-AGC, LLC ("AP-AGC"), or registered assigns (collectively, the "Holder"), is the registered owner of the number of Warrants set forth above, each of which entitles the Holder, subject to the terms and conditions set forth hereinafter, to purchase one share of Common Stock, par value $.10 per share (the "Common Stock"), of Atlantic Gulf Communities Corporation, a corporation organized under the laws of the State of Delaware (the "Company") having a place of business at 2601 South Bayshore Drive, Miami, Florida 33133-5461, at a purchase price per share referred to herein as the "Exercise Price." The number of shares of Common Stock which may be received upon the exercise of this certificate (this "Warrant Certificate") and the Exercise Price for each such share of Common Stock are subject to adjustment from time to time as hereinafter set forth. Each share of Common Stock issuable upon the exercise of each of the Warrants (collectively, the "Warrant Shares") when issued and paid for pursuant to the provisions of this Warrant shall be duly authorized, validly issued, fully paid and nonassessable, shall be free from all taxes, liens and charges with respect to the issuance thereof and shall be free of any preemptive or similar rights. The Company shall cause the Warrant Shares to be listed or eligible to be quoted for trading on the NASDAQ 2 Stock Market or on any other stock exchange or market on which Common Stock is then listed or eligible to be quoted for trading. Each Warrant evidenced hereby is originally acquired pursuant to an Investment Agreement dated as of February 7, 1997, between the Company and AP-AGC (the "Investment Agreement"), pursuant to which AP-AGC and the Company are also entering into a Secured Note Agreement dated as of February 7, 1997 (the "Note Agreement"), for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged. Each Warrant is subject to the following terms and provisions: Section 1. Exercise of Warrant. (a) Subject to the provisions hereof, the Warrants evidenced hereby may be exercised at the discretion of the Holder in whole or in part at any time or from time to time on or after February 7, 1997 (the "Initial Exercise Date") to and including February 7, 2004 (the "Expiration Date") or, if either day is not a Trading Day, then on the next succeeding Trading Day, by presentation and surrender hereof to the Company at the office or agency of the Company maintained for that purpose pursuant to Section 11 (the "Warrant Office"), with the Notice of Election to Exercise (the "Exercise Notice") attached hereto duly executed and accompanied by payment to the Company of the Exercise Price for the number of Warrant Shares specified in such Exercise Notice. (b) The Exercise Price for the Common Stock which each Warrant entitles the Holder to purchase shall initially be equal to $5.75. The Exercise Price set forth in the preceding sentence is subject to adjustment as set forth in Sections 5 and 6. (c) Upon receipt by the Company of this Warrant Certificate at the Warrant Office, together with a properly completed Exercise Notice and payment of the Exercise Price as provided above, the Holder shall be deemed to be the holder of record of the Warrant Shares issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares shall not then be actually delivered to the Holder. The Company shall deliver such certificates to the Holder as promptly as possible thereafter, but in any event within five business days of receipt of the Exercise Notice. The Company shall pay all expenses, and any and all United States federal, state and -2- 3 local taxes and other charges that may be payable in connection with the preparation, issue and delivery of stock certificates under this Section 1 except that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of the Warrant Shares in a name other than that of the Holder of the Warrant evidenced hereby who shall have surrendered the same in exercise of the subscription right evidenced hereby. If Warrant Shares are issued prior to the time that an appropriate registration statement with respect to the Warrant Shares has become effective under the Securities Act of 1933, as amended (the "Securities Act"), the Warrant Shares so issued shall have stamped or imprinted thereon a legend in the form of Exhibit A. Any holder of Warrant Shares so legended shall be entitled to have such legend removed, upon surrender of Warrant Shares to the Company or the transfer agent for the Common Stock, upon effectiveness of such a registration statement or upon receipt by the Company of an opinion of counsel to the Holder to the effect that such legend is no longer required. (d) Upon any partial exercise of the number of Warrants to which this Warrant Certificate entitles the Holder, there shall be issued to the Holder hereof a new Warrant Certificate in respect of the shares as to which this Warrant Certificate shall not have been exercised, subject to the provisions of Section 3. Such new Warrant Certificate shall be identical to this Warrant Certificate, except as to the number of shares of Common Stock covered thereby. Section 2. Exchange, Transfer, Assignment or Loss of Warrant Certificate; Temporary Warrant Certificates. (a) In case this Warrant Certificate shall be mutilated, lost, stolen, or destroyed, the Company may, in its discretion, issue and deliver in exchange and substitution for and upon cancellation of the mutilated Warrant Certificate, or in lieu of and substitution for the Warrant Certificate lost, stolen, or destroyed, a new Warrant Certificate of like tenor and representing an equivalent right or interest, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and indemnification reasonably satisfactory to it. (b) The Warrant Certificates shall be numbered and shall be registered in a Warrant Register maintained by the Company as they are issued. The registered owner on the Warrant Register may be treated by the Company and all other persons dealing with the Warrants evidenced hereby as the absolute -3- 4 owner hereof for any purpose and as the person entitled to exercise the right represented hereby, or to the transfer hereof on the books of the Company, any notice to the contrary notwithstanding and, until such transfer on such books, the Company may treat the registered owner on the Warrant Register as the owner for all purposes. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any registration of transfer of Warrant Certificates. (c) This Warrant Certificate may be subdivided or combined with other Warrant Certificates evidencing the same rights as the rights evidenced hereby and thereby upon presentation and surrender hereof at the Warrant Office together with a written notice signed by the Holder hereof specifying the denominations in which new Warrant Certificates are to be issued. Upon presentation and surrender of any Warrant Certificates, together with such written notice, for subdivision or combination, the Company will issue a new Warrant Certificate or Certificates, in the denominations requested, entitling the holders thereof to purchase the same aggregate number of shares of Common Stock as the Warrant Certificate or Certificates so surrendered. Such new Warrant Certificates will be registered in the name of the Holder submitting such request and delivered to such Holder. Any Warrant Certificate surrendered for subdivision or combination shall be cancelled promptly upon the issuance of such new Warrant Certificate(s). The term "Warrant Certificate" as used herein includes any Warrant Certificates into which this Warrant Certificate may be subdivided, combined or exchanged. Section 3. Fractional Interests. (a) The Company shall not be required to issue fractions of Warrants or to issue Warrant Certificates which evidence fractional Warrants. (b) The Company shall not be required to issue fractions of shares of Common Stock in the exercise of Warrants. If any fraction of a Warrant Share would, but for the provisions of this Section, be issuable on the exercise of any Warrant (or specified portion thereof), the Company shall purchase such fraction for an amount in cash equal to the same fraction of the Current Market Price (as defined in Section 5(g)) per share of Common Stock. (c) The Holder, by acceptance of this Warrant Certificate, expressly waives his right to receive any fractional Warrant or any fractional share upon exercise of a Warrant. -4- 5 Section 4. Reservation of Warrant Shares, etc. The Company represents that, as of the date hereof, it has sufficient Common Stock reserved for issuance upon exercise of all outstanding Warrants, and agrees that, at all times during the period within which the rights represented by this Warrant Certificate may be exercised, there shall be reserved for issuance and/or delivery upon exercise of the Warrants evidenced by this Warrant Certificate, free from preemptive rights, such number of shares of authorized but unissued or treasury shares of Common Stock, or other stock or securities deliverable pursuant to Section 5, as shall be required for issuance or delivery upon exercise of the Warrants evidenced hereby. The Company further agrees (i) that it will not, by amendment of its certificate of incorporation or through reorganization, consolidation, merger, dissolution or sale of assets, or by any other voluntary act, avoid or seek to avoid the observance or performance of any of the covenants, stipulations or conditions to be observed or performed hereunder by the Company and (ii) to promptly take all action as may from time to time be required to permit the Holder to exercise the Warrants evidenced hereby and the Company duly and effectively to issue the Warrant Shares as provided herein upon the exercise hereof. Without limiting the generality of the foregoing, the Company agrees that it will not take any action which would result in Warrant Shares when issued not being validly and legally issued and fully paid and nonassessable and that it will take all such action as may be necessary to assure that the Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the NASDAQ Stock Market or any other stock exchange or market upon which the Common Stock may be listed; provided, however, that the Company shall not be required to effect a registration under federal or state securities laws with respect to such exercise except as provided in the Investment Agreement. The Company further agrees that it will not increase the par value of the Common Stock while the Warrants evidenced hereby are outstanding, although such par value may be reduced at any time. Section 5. Anti-Dilution. The Exercise Price and the number of shares of Common Stock purchasable upon the exercise hereof shall be subject to adjustment from time to time as provided in this Section. Unless otherwise indicated, all calculations under this Section 5 shall be made to the nearest $0.01 or 1/100th of a share, as the case may be. (a) In case the Company shall (i) declare a dividend or make a distribution on the outstanding Common Stock in -5- 6 capital stock of the Company, (ii) subdivide or reclassify the outstanding Common Stock into a greater number of shares (or into other securities or property), or (iii) combine or reclassify the outstanding Common Stock into a smaller number of shares (or into other securities or property), the number of Warrant Shares issuable upon the exercise of each Warrant shall be adjusted so that the Holder of each Warrant shall be entitled to purchase the kind and number of shares of Common Stock or other securities or property of the Company determined by multiplying the number of Warrant Shares issuable upon exercise of each Warrant immediately prior to such event by a fraction, the numerator of which shall be the total number of outstanding shares of Common Stock immediately after such event, and the denominator of which shall be the total number of outstanding shares of Common Stock immediately prior to such event. An adjustment made pursuant to this paragraph (a) shall become effective immediately after the effective date of such event, retroactive to the record date, if any, for such event. Any Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the time of the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under paragraphs (b) and (c) below. Adjustments pursuant to this paragraph shall be made successively whenever any event specified above shall occur. Whenever the number of Warrant Shares issuable upon exercise of a Warrant is adjusted pursuant to this paragraph, the Exercise Price payable upon exercise of each Warrant shall be adjusted by multiplying the Exercise Price in effect immediately prior to such adjustment by a fraction, the numerator of which shall be the number of Warrant Shares issuable upon the exercise of each Warrant immediately prior to such adjustment, and the denominator of which shall be the number of Warrant Shares issuable immediately thereafter. (b) In case the Company shall fix a record date for the issuance of rights or warrants to all holders of Common Stock entitling them to subscribe for or purchase Common Stock (or securities convertible into or exchangeable of Common Stock) (other than Series B Preferred Stock) at a price per share (or having a conversion price or exchange price per share, subject to normal antidilution adjustments) less than the Current Market Price (as defined in paragraph (g) below) of the Common Stock on such record date, the number of Warrant Shares thereafter issuable upon exercise of each Warrant shall be determined by -6- 7 multiplying the number of Warrant Shares theretofore issuable upon exercise of each Warrant by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of additional shares of Common Stock offered for subscription or purchase in connection with such rights, options or warrants, and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at the Current Market Price as of such record date. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants. Whenever the number of Warrant Shares issuable upon exercise of a Warrant is adjusted pursuant to this paragraph, the Exercise Price payable upon exercise of each Warrant shall be adjusted by multiplying the Exercise Price in effect immediately prior to such adjustment by a fraction, the numerator of which shall be the number of Warrant Shares issuable upon the exercise of each Warrant immediately prior to such adjustment, and the denominator of which shall be the number of Warrant Shares issuable immediately thereafter. (c) In case the Company shall fix a record date for the making of a distribution to all holders of Common Stock (i) of shares of any class other than Common Stock, (ii) of evidences of indebtedness of the Company or any Subsidiary, (iii) of assets or other property or (iv) of rights or warrants (excluding rights or warrants resulting in an adjustment pursuant to paragraph (b) above, and the right to acquire Series B Preferred Stock in the rights offering thereof), then in each such case the number of Warrant Shares thereafter issuable upon exercise of each Warrant shall be determined by multiplying the number of Warrants Shares theretofore issuable upon the exercise of each Warrant by a fraction, the numerator of which shall be the Current Market Price per share of Common Stock as of the record date for such distribution, and the denominator of which shall be the then Current Market Price per share of Common Stock, less the then fair market value (as determined by the Board of Directors, whose reasonable determination shall be described in a Board Resolution) of the portion of the securities, evidences of indebtedness, assets, property or rights or warrants so distributed, the case may be, which is applicable to one share of Common -7- 8 Stock. Such adjustment shall be made successively whenever such a record date is fixed. Whenever the number of Warrant Shares issuable upon exercise of a Warrant is adjusted pursuant to this paragraph, the Exercise Price payable upon exercise of each Warrant shall be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction, the numerator of which shall be the number of Warrant Shares issuable upon the exercise of each Warrant immediately prior to such adjustment, and the denominator of which shall be the number of Warrant Shares purchasable immediately thereafter. (d) In case the Company shall issue its Common Stock for a consideration per share less than the Current Market Price per share on the date the Company fixes the offering price of such additional shares, the Exercise Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the total number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares plus the number of shares of Common Stock which the aggregate consideration received (determined as provided in paragraph (f) below) for the issuance of such additional shares would purchase at the Current Market Price per share, and the denominator shall be the number of shares of Common Stock outstanding immediately after the issuance of such additional shares. Such adjustment shall be made successively whenever such an issuance is made; provided, however, that the provisions of this paragraph shall not apply (i) to Common Stock issued to the Company's employees or former employees or their estates under bona fide employee benefit plans adopted by the Board of Directors and approved by the holders of Common Stock if required by law, if such Common Stock would otherwise be covered by this paragraph, but only to the extent that the aggregate number of shares excluded hereby shall not exceed, on a cumulative basis since the Initial Exercise Date, [NUMBER TO BE AGREED BEFORE CLOSING] (including 822,000 shares as of the Initial Exercise Date to be issued pursuant to employee and director stock options outstanding as of the Initial Exercise Date to purchase Common Stock), (ii) to Common Stock to be issued pursuant to the Bank Warrants, (y) to Common Stock to be issued pursuant to the Investor Warrants and (iii) to Common Stock to be issued upon conversion of Series A Preferred Stock or Series B Preferred Stock, adjusted, as appropriate, in each case, connection with any stock split, merger, recapitalization or similar transaction. -8- 9 (e) In case the Company shall issue any securities convertible into or exchangeable for Common Stock (excluding (A) securities issued in transactions resulting in an adjustment pursuant to paragraphs (b) and (c) above, (B) Series A Preferred Stock, (C) Series B Preferred Stock and (D) upon conversion of any of such securities) for a consideration per share of Common Stock deliverable upon conversion or exchange of such securities (determined as provided in paragraph (f) below and subject to normal anti-dilution adjustments) less than the Current Market Price per share in effect immediately prior to the issuance of such securities, the Exercise Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such securities plus the number of shares of Common Stock which the aggregate consideration received (determined as provided in paragraph (f) below) for such securities would purchase at the Current Market Price per share, and the denominator shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the maximum number of shares of Common Stock deliverable upon conversion of or in exchange for such securities at the initial conversion or exchange price or rate. Such adjustment shall be made successively whenever such an issuance is made. Upon the termination of the right to convert or exchange such securities, the Exercise Price shall forthwith be readjusted to such Exercise Price as would have been obtained had the adjustments made upon the issuance of such convertible or exchangeable securities been made upon the basis of the delivery of only the number of shares of Common Stock actually delivered upon conversion or exchange of such securities and upon the basis of the consideration actually received by the Company (determined as provided in paragraph (f) below) for such securities. (f) For purposes of any computation respecting consideration received pursuant to paragraphs (d) and (e) above, the following shall apply: (i) in the case of the issuance of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deductions be made for any customary commissions, discounts, placement fees or other expenses reasonably incurred by the Company for any underwriting or -9- 10 placement of the issue or otherwise in connection therewith; (ii) in the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as reasonably determined by the Board of Directors, whose determination shall be described in a Board Resolution; and (iii) in the case of the issuance of securities convertible into or exchangeable for Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (i) and (ii) of this paragraph (f)). (g) For the purpose of any computation under this Warrant, the "Current Market Price" per share at any date shall be deemed to be the average of the daily Sale Price for the Common Stock for the 10 consecutive Trading Days commencing 14 Trading Days before such date. (h) In any case in which this Section shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the Holder of any Warrant exercised after such record date and before the occurrence of such event the additional Common Stock issuable upon such exercise by reason of the adjustment required by such event over and above the Common Stock issuable upon such exercise before giving effect to such adjustment and (ii) paying to such Holder an amount in cash in lieu of a fractional share of Common Stock pursuant to Section 3; provided, however , that the Company shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder's rights to receive such additional Common Stock, and such cash, upon the occurrence of the event requiring such adjustment. (i) No adjustment in the Exercise Price shall be required with respect to Common Stock issued upon exercise of the Warrants unless such adjustment would require a decrease of at least $.01; provided, however, that any such adjustment which is not required to be made shall be -10- 11 carried forward and taken into account in any subsequent adjustment. (j) The Company may make such reductions in the Exercise Price, in addition to those required pursuant to other paragraphs of this Section, as it considers to be advisable so that any event treated for federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients. (k) In case of any consolidation with or merger of the Company into another corporation, or in case of any sale, lease or conveyance of assets to another corporation of the property of the Company as an entirety or substantially as an entirety, such successor, leasing or purchasing corporation, as the case may be, shall be bound by this Warrant Certificate and shall execute and deliver to the Holder hereof simultaneously therewith a new Warrant Certificate, reasonably satisfactory in form and substance to such Holder, providing that the Holder of each Warrant then outstanding shall have the right thereafter to exercise such Warrant solely for the kind and amount of shares of stock, other securities, property or cash or any combination thereof receivable upon such consolidation, merger, sale, lease or conveyance by a holder of the number of shares of Common Stock for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale, lease or conveyance. (l) In case of any reclassification or change of the Common Stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in the Common Stock into two or more classes or series of shares), or in case of any consolidation or merger of another corporation into the Company in which the Company is the continuing corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in the Common Stock into two or more classes or series of shares), the Company shall execute and deliver to the Holder hereof simultaneously therewith a new Warrant Certificate, satisfactory in form and substance to such Holder, providing that the Holder of each Warrant then outstanding shall have the right thereafter to exercise such Warrant solely for the kind and amount of shares of -11- 12 stock, other securities, property or cash or any combination thereof receivable upon such reclassification, change, consolidation or merger by a holder of the number of shares of Common Stock for which such Warrant might have been exercised immediately prior to such reclassification, change, consolidation or merger. (m) The foregoing paragraphs (k) and (1), however, shall not in any way affect the rights a Holder may otherwise have, pursuant to this Section, to receive securities, evidences of indebtedness, assets, property rights or warrants upon exercise of a Warrant. (n) Whenever there shall be any change in the Exercise Price under any paragraph of this Section, and no specific means of adjusting the number of Warrant Shares issuable upon exercise of each Warrant is provided in such paragraph, then there shall be an adjustment (to the nearest hundredth of a share) in the number of shares of Common Stock purchasable upon exercise of this Warrant Certificate, which adjustment shall become effective at the time such change in the Exercise Price becomes effective and shall be made by multiplying the number of shares of Common Stock purchasable upon exercise of this Warrant Certificate immediately before such change in the Exercise Price by a fraction, the numerator of which is the Exercise Price immediately before such change, and the denominator of which is the Exercise Price immediately after such change. If, following the declaration of a record date for the distribution of any rights, warrants or other securities or property to be distributed to holders of Common Stock, such rights, warrants or other securities or property are not so issued, the Exercise Price then in effect shall be readjusted, effective as of the date when the Board of Directors determines not to issue such rights or warrants, to the Exercise Price which would then be in effect if a record date for such issuance had not been fixed. (o) If the Company repurchases any Common Stock for a per share consideration which exceeds the Current Market Price of a share of Common Stock on the date immediately prior to such repurchase, then the Company shall issue additional Warrants to the holder having the Exercise Price in effect on the Trading Day immediately prior to such repurchase. The additional Warrants issued pursuant to the preceding sentence shall entitle the Holder to purchase the number of shares of Common Stock equal to the result obtained by dividing (A) the product of (w) the number of shares of Common Stock repurchased at a price in -12- 13 excess of the Current Market Price and (x) the amount by which the per-share repurchase price exceeds such Current Market Price, by (B) the amount by which (y) such Current Market Price exceeds (z) the Exercise Price in effect as of the date immediately preceding such repurchase. (p) If any event occurs as to which the foregoing provisions of this Section are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors, fairly protect the purchase rights of the Warrants in accordance with the essential intent and principles of such provisions, then such Board of Directors shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of such Board, to protect such purchase rights as aforesaid, but in no event shall any such adjustment have the effect of increasing the Exercise Price or decreasing the number of shares of Common Stock subject to purchase upon exercise of this Warrant, or otherwise adversely affect the Holders. Under no circumstances (other than (A)(x) a reverse stock split, (y) a recapitalization in which all holders of Common Stock (and securities exercisable for or convertible into Common Stock, with respect to such exercise or conversion provisions) are treated equally and (z) a merger, in each case in which each outstanding share of Common Stock is converted into less than one share of Common Stock (including, in the case of a merger, of the entity surviving such merger), or (B) as provided in Section 6) shall any adjustment pursuant to this Section have the effect of raising the Exercise Price or lowering the number of Warrant Shares issuable upon exercise of a Warrant. (q) If, after one or more adjustments to the Exercise Price pursuant to this Section 5, the Exercise Price cannot be reduced further without falling below the lowest positive exercise price legally permissible for warrants to acquire Common Stock, the Company shall make further adjustment to compensate the holder, consistent with the foregoing principles, as the Board of Directors, acting in good faith, deems necessary, including an increase in the number of Warrant Shares issuable upon exercise of outstanding Warrants and/or a cash payment to the Holder. (r) For purposes of any adjustment to be made pursuant to this Section 5, Common Stock owned or held at any relevant time by, or for the account of, the Company in its treasury or otherwise, shall not be deemed to be outstanding for purposes of the calculation and adjustments -13- 14 described therein, but shares held in the Disputed Claims Reserve, Division Class 14 Utility Fund Trust Agreement dated April 6, 1993 and the Improvements Fund Trust Agreement dated April 6, 1993 shall not be deemed to be held by, or for the account of, the Company. Section 6. Additional Adjustment of Exercise Price. (a) The Company will cause the financial statements for the Company and its consolidated Subsidiaries for the fiscal year ending on December 31, 1998 to be audited by Ernst & Young, LLP, or another national independent accounting firm, and a manually signed copy of such financial statements to be delivered by the Company to the Holders as soon as practicable following December 31, 1998, but in no event later than March 31, 1999 (the date such financial statements are so delivered, the "Adjustment Date"). (b) The Exercise Price shall be reduced, effective as of the Adjustment Date, by subtracting the Adjustment Amount from the Exercise Price; provided, however, that (i) the Exercise Price shall only be adjusted pursuant to this Section 6 if the Adjustment Amount is a positive number; (ii) in no event shall the adjustment required by this Section 6 result in an Exercise Price lower than [$2.00 FOR CLASS A] [$3.00 FOR CLASS B] [$4.00 FOR CLASS C] (as adjusted pursuant to Section 5, the "Base Exercise Price"), and if the adjustment required pursuant to this Section 6 would result in an Exercise Price lower than the Base Exercise Price, then the Exercise Price shall be reduced to the Base Exercise Price; and (iii) if the closing price for the Common Stock (adjusted pursuant to Section 5) is greater than $9.75 both (A) on the last trading day of 1998 and (B) on an average basis over the three months ending on December 31, 1998, then no adjustment shall be made pursuant to this Section 6. The "Adjustment Amount" equals the product of (i) $.0175 and (ii) the quotient obtained by dividing (A) the difference between (x) the Actual Cumulative Operating Cash Flow and (y) the Target Cumulative Operating Cash Flow by (B) $100,000, where: "Target Cumulative Operating Cash Flow" equals $62,443,000; "Actual Cumulative Operating Cash Flow" equals the sum of the Actual Operating Cash Flow for the year ending December 31, 1997 and the Actual Operating Cash Flow for the year -14- 15 ending December 31, 1998, minus 0.15 times the Excess 1998 Operating Cash Flow; "Actual Operating Cash Flow" for any year means the net cash proceeds derived by the Company from the operation in the ordinary course of its business and from the bulk asset sales contemplated by the Business Plan, calculated in all respects the same as, and using the same accounting principles and practices and classification systems and techniques as were used in, the calculation of the Target Cumulative Operating Cash Flow, as described in summary format in Exhibit B to this Warrant. By way of clarification, all revenue and cost items shall be associated for purposes of calculating the Actual Operating Cash Flow with the same activities/categories (such as "Net Subdivision Homesites") as they were in calculating the Target Cumulative Operating Cash Flow. "Excess 1998 Operating Cash Flow" means the Actual Operating Cash Flow for the year ending December 31, 1998 minus $3,028,000. (c) No adjustment shall be made to the number of Warrant Shares issuable upon exercise of a Warrant as a result of an adjustment to the Exercise Price pursuant to this Section 6; provided, however, that this paragraph shall not prevent adjustments otherwise required pursuant to another Section of this Warrant from being made. (d) If Company is involved in a merger, consolidation or similar transaction, or to the extent that all or substantially all of the assets of the Company are sold, in either case prior to the Adjustment Date, then an adjustment to the Exercise Price shall be made pursuant to this Section 6 on a pro rata basis by dividing both the Target Cumulative Operating Cash Flow and the Actual Cumulative Operating Cash Flow derived by the Company's business through the close of business on the date immediately prior to the effective date of such transaction by a fraction, the numerator of which shall be the number of days elapsed from the Initial Exercise Date through the business day immediately prior to the effective date of such transaction and the denominator of which shall be the number of days from the Initial Exercise Date through February 28, 1999. Section 7. Notice of Adjustments. (a) Prior to the earlier to occur of (i) the declaration of a record date for, or (ii) the announcement and/or consummation of, any event or action that would result in an adjustment pursuant to Section 5 or Section 6, the Company -15- 16 shall notify the Holder of such intended record date, announcement, event or action. Such notice must be reasonably calculated to be delivered not less than 20 nor more than 90 days prior to the applicable event. (b) Whenever the Exercise Price is adjusted as provided in Section 5 or Section 6: (i) the Company shall compute the adjusted Exercise Price in accordance with Section 5 or Section 6 and shall prepare a certificate signed by the chief financial officer of the Company setting forth the adjusted Exercise Price and showing in reasonable detail the facts upon which such adjustment is based, including, if appropriate, a statement of the consideration received or to be received by the Company for, and setting forth the amount of, any additional Common Stock issued since the last such adjustment and the number of shares of Common Stock for which the Warrants evidenced hereby are exercisable at the then Exercise Price, and such certificate shall forthwith be filed at the Warrant Office; (ii) a notice stating that the Exercise Price and number of shares for which each Warrant may be exercised have been adjusted and setting forth the adjusted Exercise Price and number of shares for which each Warrant may be exercised shall be communicated by telegram, telex, telecopier or any other means of electronic communication capable of producing a written record, or shall be delivered by hand or mailed as soon as practicable by the Company to the Holder at its last address as it shall appear upon the Warrant Register provided for in Section 2; and (iii) the Company shall provide to the Holder such additional information, including worksheets used in the calculation of any adjustment made pursuant to Section 5 or Section 6, as the Holder may reasonably request for the purpose of confirming the accuracy of such adjustment. Section 8. No Rights as Shareholders; Notice to Holder. Nothing contained herein shall be construed as conferring upon the Holder the right to vote or to receive dividends or to receive notice as shareholders in respect of the meetings of shareholders for the election of directors of the -16- 17 Company or any other matter, or any rights whatsoever as shareholders of the Company. If, however, at any time prior to the expiration of the Warrants and prior to their exercise, any of the following shall occur: (a) The Company shall authorize the issuance to all holders of Common Stock of rights, options or warrants to subscribe for or purchase Common Stock, or of any other subscription rights or warrants (other than the rights offering of Series B Preferred Stock contemplated by the Investment Agreement); or (b) The Company shall authorize the distribution to all holders of Common Stock of evidences of its indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends payable in Common Stock); or (c) The Company shall propose any consolidation or merger to which the Company is a party and for which approval of any stock of the Company is required, or the conveyance or transfer of all or substantially all the properties and assets of the Company, whether in one transaction or in a series of transactions (whether by sale, lease or other disposition), or any reclassification or change of outstanding Common Stock issuable upon exercise of the Warrants (other than a change in par value or from par value to no par value); or (d) The Company shall propose the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be given to the Holder at its address appearing on the Warrant Register, at least 15 days prior to the applicable record date hereinafter specified, by first class mail, postage prepaid, and, if possible, by telecopy transmission, a written notice stating (i) the date as of which the holders of record of Common Stock entitled to receive any such rights, options, warrants or distribution are to be determined, or (ii) the date on which any such consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up is expected to become effective or consummated, and the date as of which it is expected that the holders of record of Common Stock shall be entitled to exchange their shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up. The failure to give the notice required by this Section or any defect therein shall not affect the legality or validity of any distribution, right, -17- 18 option, warrant, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any action. Section 9. Restrictions on Transfer of the Warrants and Warrant Shares. Until such time as an appropriate registration statement covering the Warrants or the Warrant Shares has become effective under the Securities Act, the Holder will not dispose of either the Warrants evidenced hereby or the Warrant Shares, as the case may be, unless (i) the transferee has agreed to be bound by the restrictions contained herein on such Warrants or Warrant Shares, as the case may be, and (ii) except in the case of a transfer by the Holder to an Affiliate, the Company shall have received an opinion of counsel (which shall be reasonably satisfactory to the Company) to the effect that the sale or other proposed disposition of the Warrants or Warrant Shares may be accomplished without such registration under the Securities Act, which opinion may be conditioned upon (x) acceptance by the transferee of a Warrant Certificate or Certificates or Warrant Shares bearing a legend similar to that set forth in Exhibit A and (y) a certificate of the transferee stating that the Warrant(s) or Warrant Share(s) being acquired by such transferee are being acquired by such transferee for its own account and not with a view to, or for resale in connection with, the distribution thereof in violation of the Securities Act. Section 10. Execution of Warrant Certificates. Each Warrant Certificate shall be executed on behalf of the Company by the manual or facsimile signature of the present or any future Chairman of the Board of Directors, President or Vice President of the Company. Section 11. Maintenance of Office or Agency. The Company will maintain a Warrant Office in [New York, New York], where this Warrant Certificate may be presented or surrendered for subdivision, combination, registration of transfer, or exchange and where notices and demands to or upon the Company in respect of the Warrants evidenced hereby may be served. The Company hereby initially designates [TO BE DESIGNATED] as the agency of the Company for such purpose. Section 12. Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstances, is held -18- 19 invalid, illegal or unenforceable in any respect for any reason, the validity, legality, and enforceability of any such provision in every other respect and the other remaining provisions hereof shall not be in any way impaired or affected, it being intended that all of the Holder's rights and privileges shall be enforceable to the fullest extent permitted by law. Section 13. Governing Law. The Warrants shall be governed by and construed in accordance with the laws of the State of Delaware. Section 14. Definitions. For all purposes of this Warrant Certificate, in addition to the other terms defined elsewhere herein, unless the context otherwise requires: "Affiliate" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. "Appraisal Procedure" means a procedure whereby two independent appraisers or other experts qualified to conduct the evaluation or calculation required ("Appraisers"), one chosen by the Company and one by the Holder entitled to use the Appraisal Procedure (or, to the extent more than one Holder is so entitled, by a majority in interest of the Holders so entitled), shall mutually agree upon the determinations then the subject of appraisal, evaluation or calculation. Each party shall deliver a notice to the other appointing its Appraiser within 15 days after the Appraisal Procedure is invoked. If within 30 days after appointment of the two Appraisers they are unable to agree upon the amount in question, a third independent Appraiser shall be chosen within 10 days thereafter by the mutual consent of such first two Appraisers or, if such first two Appraisers fail to agree upon the appointment of a third Appraiser, such appointment shall be made by the American Arbitration Association, or any organization successor thereto, from a panel of arbitrators having experience in the appraisal, evaluation or calculation of the subject matter to be determined. The decision of the third Appraiser so appointed and chosen shall be given within 30 days after the selection of such third -19- 20 Appraiser. If three Appraisers shall be appointed and the determination of one Appraiser is disparate from the middle determination by more than twice the amount by which the other determination is disparate from the middle determination, then the determination of such Appraiser shall be excluded, the remaining two determinations shall be averaged and such average shall be binding and conclusive on the Company and the Holders; otherwise the average of all three determinations shall be binding and conclusive on the Company and the Holders. The costs of conducting any Appraisal Procedure shall be borne by the Holders requesting such Appraisal Procedure, except (a) the fees and expenses of the Appraiser appointed by the Company and any costs incurred by the Company shall be borne by the Company and (b) if such Appraisal Procedure shall result in a determination that is disparate by 5% or more from the Company's initial determination, all costs of conducting such Appraisal Procedure shall be borne by the Company. "Bank Warrants" means the 1,500,000 warrants for the purchase of Common Stock issued on September 30, 1996 pursuant to the Prepayment Agreement dated as of September 30, 1996 among the financial institutions listed on the signature pages thereof, The Chase Manhattan Bank and the Company. "Board of Directors" means either the Board of Directors of the Company or any duly authorized committee of that board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification and delivered to each of the Holders of the Warrants. "Business Plan" means the 1997-1998 Business Plan of the Company previously delivered to the Investor and certified to the Investor by the Company on the date of issuance of this Warrant. "Common Stock" means any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, and which is not subject to redemption by the Company. However, subject to Section 5, shares issuable on exercise of the Warrants evidenced hereby, as contemplated -20- 21 by the first paragraph of this Warrant Certificate, shall include only shares of the class designated as Common Stock of the Company as of the date of this Warrant or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. As used in this Warrant Certificate, "shares" shall include fractions thereof to the extent that fractional shares of the Company are outstanding. "Investment Agreement" means the Investment Agreement dated as of February 7, 1997 by and between AP-AGC and the Company. "Investor Warrants" means the 5,000,000 warrants to acquire Common Stock to be issued to AP-AGC pursuant to the Investment Agreement. "Person" shall mean any individual, firm, partnership, association, group (as such term is used in Rule 13d-5 under the Securities Exchange Act of 1934, as amended, as in effect on the date of this Warrant), corporation or other entity. "Sale Price" of the Common Stock means the last reported sale price regular way reported on the NASDAQ Stock Market or its successor, or, if not listed or admitted to trading on the NASDAQ Stock Market or its successor, the last reported sale price regular way reported on any other stock exchange or market on which the Common Stock is then listed or eligible to be quoted for trading, or as reported by the National Quotation Bureau Incorporated. "Series B Preferred Stock" means the 20% Cumulative Redeemable Convertible Preferred Stock, Series B, par value $.01 per share, of the Company, which may be issued in accordance with the Investment Agreement. "Subsidiary" means any subsidiary of the Company, a majority of whose capital stock with voting power, under ordinary circumstances, to elect directors is at the time, -21- 22 directly or indirectly owned by the Company, by one or more subsidiaries of the Company or by the Company and one or more subsidiaries of the Company. "Trading Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not traded on the exchange or market where the Warrants are listed or sold. Section 15. Fees and Expenses. All fees and expenses incurred by the Holder in connection with the Holder's ownership of Warrants and securities or other property received upon exercise thereof which relate to (i) any required regulatory filings, (ii) registration fees, (iii) stock exchange or NASDAQ listing fees, and (iv) reasonable fees and expenses of counsel to the Company in connection with the foregoing, shall be paid by the Company. Section 16. Contest and Appraisal Rights. Upon each determination of fair market value or other evaluation or calculation required hereunder (including calculation of the Adjustment Amount), the Company shall promptly give notice thereof to all Holders, setting forth in reasonable detail the calculation of such fair market value or valuation (or Adjustment Amount) and the method and basis of determination thereof, as the case may be. If any Holders of Warrants to purchase at least 100,000 shares of Common Stock (including, for purposes of determining such level of ownership, all Warrants owned by affiliates of such Holders) shall disagree with such determination and shall, by notice to the Company given within 15 days after the Company's notice of such determination, elect to dispute such determination, such dispute shall be resolved in accordance with the Appraisal Procedure. -22- 23 Section 17. Additional Warrants to be Issued at Current Exercise Price. Notwithstanding any other provision of this Warrant, to the extent the Holder is entitled to receive additional Warrants in accordance with the terms hereof, the Warrants so issued shall have terms identical to this Warrant, except that (i) the initial Exercise Price for such additional Warrants shall be deemed to be the Exercise Price in effect on the date such additional Warrants are issued and (ii) the amount and kind of securities and/or other property issuable upon exercise of such Warrants shall be deemed to be the amount and kind of securities and/or other property issuable upon exercise of the Warrants outstanding immediately prior to issuance of such additional Warrants. Dated: , 1997 ATLANTIC GULF COMMUNITIES ----------- CORPORATION By: -------------------------------- Name: Title: ATTEST: - ------------------------------- Secretary -23- 24 NOTICE OF ELECTION TO EXERCISE The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing ______ shares of Common Stock and hereby makes payment of the Exercise Price in cash in the amount of $_________. NAME OF HOLDER: ----------------------------- (Please Print) By --------------------------- Date: , 199 . ----------------- - Instructions for Registration of Stock Name ------------------------------------------------ (please type or print in block letters) Address --------------------------------------------- -24- 25 EXHIBIT A THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF SUCH REGISTRATION OR THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT UPON COMPLIANCE WITH THE REQUIREMENTS FOR TRANSFER SET FORTH HEREIN. 26 EXHIBIT A EXHIBIT B TO WARRANT CERTIFICATE ATLANTIC GULF COMMUNITIES CORPORATION CALCULATION PRINCIPLES AND POLICIES FOR WARRANT ADJUSTMENT FORMULA AND OPERATING CASH FLOW TARGETS (1) Target Cumulative Operating Cash Flow was calculated as follows (capitalized terms having the meanings set forth in the attached Warrant):
Target for Year ended 12/31, 1997 1998 - ---------------------------- ---- ---- Net GDC Bulk Asset Sales (2) $ 54,743,000.00 $ 0.00 Utility Trust 10,000,000.00 0.00 Net Subdivision Homesites (3) 9,000,000.00 11,128,000.00 Overhead (4) (14,328,000.00) (8,100,000.00) ----------------- ----------------- Total Operating Target 59,415,000.00 3,028,000.00 Cumulative Total Target $ 59,415,000.00 $ 62,443,000.00
Target Cumulative Operating Cash Flow = $62,443,000.00 (1) Operating Cash Flow excludes capital transactions such as financings, refinancings, any equity issuances, sale in bulk of assets or subdivisions and any other transactions not in the ordinary course of business, except for GDC Bulk Asset Sales and Utility Trust proceeds as set forth above. (2) Includes the net cash proceeds from the sale or non-recourse financing of any mortgages (Seller Paper) generated from GDC bulk asset sales, but excludes any sales of assets or financings classified as "Scattered Homesites" (bulk or otherwise) in the Business Plan. For the purpose of this calculation, mortgages will be treated as follows: Cash Flow payments will be discounted at 15% per year, as long as the aggregate principal outstanding of mortgages at any time is less than $10,000,000.00, otherwise the incremental amount of mortgages will be treated in the same manner but using a 20% discount rate. (3) "Net Subdivision Homesites" as described in the Business Plan, subject to any further Business Plan changes approved by the Board of Directors and AP-AGC. (4) "Overhead" as described in the Business Plan. EX-6 7 SECURED NOTE AGREEMENT 1 Exhibit 6 ------------------------------------- ATLANTIC GULF COMMUNITIES CORPORATION -AND- THE SUBSIDIARIES SET FORTH ON THE SIGNATURE PAGES HEREOF ------------------------------------ SECURED NOTE AGREEMENT DATED AS OF FEBRUARY 7, 1997 2 TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS 1.1 Defined Terms.................................................. 1.2 Other Definitional Provisions.................................. SECTION 2. ISSUANCE AND TERMS OF SECURED NOTES................................................................ 2.1 Notes........................................................... 2.2 Payment of Notes................................................ 2.3 Satisfaction Upon Issuance of................................... Preferred Stock............................................... 2.4 Interest Rates and Interest..................................... Payment Dates................................................. 2.5 Computation of Interest and Fees................................ 2.6 Pro Rata Treatment and Payments................................. 2.7 Taxes........................................................... 2.8 Use of Proceeds................................................. 2.9 Fees............................................................ 2.10 Maximum Interest Rate........................................... SECTION 3. COLLATERAL........................................................... 3.1 Liens in Subsidiary Stock,...................................... Contract Receivables, Real Property........................... and Personal Property......................................... 3.2 Security Documents ............................................. 3.3 Section 365(j) Property......................................... 3.4 [intentionally omitted]......................................... 3.5 Subordinations and Releases of.................................. Mortgage and Related Personal................................. Property Liens................................................... 3.6 Subsidiary Guaranties........................................... SECTION 4. REPRESENTATIONS AND WARRANTIES....................................... 4.1 Financial Condition............................................. 4.2 No Material Adverse Change...................................... 4.3 Corporate Existence; Compliance................................. with Law......................................................
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Page ---- 4.4 Corporate Power; Authorization;................................. Enforceable Obligations ...................................... 4.5 No Legal Bar.................................................... 4.6 No Material Litigation.......................................... 4.7 No Default...................................................... 4.8 Ownership of Property; Liens.................................... 4.9 Intellectual Property........................................... 4.10 Taxes........................................................... 4.11 Federal Regulations ............................................ 4.12 ERISA .......................................................... 4.13 Investment Company Act; Other................................... Regulations................................................... 4.14 Subsidiaries and Joint Ventures................................. 4.15 Environmental Matters........................................... 4.16 Indebtedness.................................................... 4.17 Contingent Obligations.......................................... 4.18 Restitution Program and Final................................... Judgment...................................................... 4.19 Certain Fees.................................................... 4.20 Disclosure...................................................... 4.21 Insurance......................... ............................. 4.22 Total Real Property Matters..................................... 4.23 Reorganization Proceedings...................................... 4.24 Excluded Subsidiaries; Unrestricted............................. Subsidiaries.................................................. 4.25 [intentionally omitted]......................................... 4.26 Bank Accounts................................................... 4.27 Utility Fund Trusts............................................. 4.28 [intentionally omitted]......................................... 4.29 SPUD Subsidiaries............................................... 4.30 DRI and Zoning.................................................. SECTION 5. CONDITIONS PRECEDENT................................................. 5.1 Conditions to Issuance........................................... 5.2 [intentionally omitted].......................................... SECTION 6. AFFIRMATIVE COVENANTS................................................ 6.1 Financial Statements............................................ 6.2 Certificates; Other Information................................. 6.3 Payment of Obligations.......................................... 6.4 Conduct of Business and Maintenance............................. of Existence.................................................... 6.5 Maintenance of Property; Insurance ............................. 6.6 Inspection of Collateral; Books and............................. Records; Appraisals...........................................
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Page ---- 6.7 Notice.......................................................... 6.8 Environmental Laws.............................................. 6.9 Business Plan................................................... 6.10 Compliance with Other Transaction ............................. Documents..................................................... 6.11 Dividends from Subsidiaries..................................... 6.12 Supplemental Reports Regarding.................................. Real Property................................................... 6.13 Compliance with Laws............................................ 6.14 Other Notices................................................... Agreement..................................................... 6.16 Foothill Reports................................................ SECTION 7. NEGATIVE COVENANTS 7.1 Maintenance of Consolidated..................................... Net Worth; Interest Charges................................... Coverage Ratio................................................ 7.2 Limitation of Indebtedness...................................... 7.3 Limitation on Liens............................................. 7.4 Limitation on Guarantee Obligations............................. 7.5 Limitations on Fundamental Changes ............................. 7.6 Limitation on Sale of Assets.................................... 7.7 Limitation on Dividends......................................... 7.8 Limitation on Capital Expenditures ............................. 7.9 Limitation on Investments, Loans,............................... and Advances.................................................... 7.10 Limitation on Optional Payments and............................. Modifications of Debt Instruments............................. 7.11 Transactions with Affiliates.................................... 7.12 Sale and Leaseback ............................................. 7.13 Fiscal Year..................................................... 7.14 Limitation on Negative Pledge................................... Clauses...................................................... 7.15 Deviation from Business Plan.................................... 7.16 Unsold Housing Inventory........................................ 7.17 Limitation of Bank Accounts..................................... 7.18 Venture Subsidiaries and Joint.................................. Ventures........................................................ 7.19 Excluded Subsidiaries;.......................................... Unrestricted Subsidiaries ............................. SECTION 8. EVENTS OF DEFAULT; REMEDIES.......................................... 8.1 Events of Default; Remedies......................................
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Page ---- SECTION 9 THE COLLATERAL AGENT................................................ 9.1 [intentionally omitted]......................................... 9.2 Appointment of Collateral Agent................................. 9.3 [intentionally omitted]......................................... 9.4 Delegation of Duties............................................ 9.5 Exculpatory Provisions.......................................... 9.6 Reliance by the Lender.......................................... 9.7 Notice of Default............................................... 9.8 Non-Reliance on Collateral Agent................................ 9.9 Indemnification................................................. 9.10 [intentionally omitted]......................................... 9.11 [intentionally omitted]......................................... 9.12 Successor Collateral Agent...................................... SECTION 10 MISCELLANEOUS 10.1 Amendments and Waivers......................................... 10.2 Notices........................................................ 10.3 No Waiver; Cumulative Remedies................................. 10.4 Survival of Certain Provisions................................. 10.5 Payment of Expenses and Taxes ................................. 10.6 Successors and Assigns;........................................ Participations; Purchasing Lender............................ 10.7 Adjustments; Setoff............................................ 10.8 Appointment of Secured Creditor................................ as the Company's Lawful Attorney............................. 10.9 Counterparts................................................... 10.10 Severability................................................... 10.11 Integration.................................................... 10.12 GOVERNING LAW.................................................. 10.13 SUBMISSION TO JURISDICTION;.................................... WAIVERS...................................................... 10.14 Acknowledgments................................................ 10.15 WAIVERS OF JURY TRIAL.......................................... 10.16 Confidentiality................................................ 10.17 Controlling Agreement.......................................... 10.18 Counsel to Collateral Agent....................................
-iv- 6 SCHEDULES Schedule E-1 Excluded Subsidiaries Schedule N-1 Net Cash Flow Schedule N-2 Net Operating Cash Flow Schedule P-1 Principal Raw Land Schedule U-1 Unrestricted Subsidiaries Schedule 4.1 Additional Liabilities of the Company; Pur- chases and Dispositions by the Company Schedule 4.2 Material Adverse Effect Schedule 4.4 Consents and Authorizations Schedule 4.5 Certain Contractual Obligations Schedule 4.6 Litigation Schedule 4.7 Defaults Schedule 4.10 Tax Schedule 4.12 ERISA Schedule 4.14(A) Subsidiaries Schedule 4.14(B) Joint Ventures Schedule 4.15 Hazardous Materials Schedule 4.16 Indebtedness Schedule 4.17 Guaranties Schedule 4.21 Insurance Schedule 4.24 Unrestricted Subsidiaries' Assets and Busi- nesses Schedule 4.26 Bank Accounts Schedule 4.29 SPUD Subsidiaries Schedule 4.30 Representations and Warranties regarding DRI and Zoning Matters Schedule 5.1(k) Real Property Matters Schedule 7.3 Liens Schedule 7.17 Restricted Bank Accounts -v- 7 EXHIBITS Exhibit A-1 Form of Deed of Trust Exhibit B-1 Form of Mortgage and Security Agreement Exhibit C-1 Form of Secured Promissory Note Exhibit D-1 Form of Deposit Account Security Agreement Exhibit E-1 Form of Due Diligence Fee Agreement Exhibit F-1 Form of Monthly Management Business Plan Update Exhibit G-1 Form of Land Sales Report Exhibit H-1 Form of Junior Assignment of Notes and Deeds of Trust Exhibit H-2 Form of Junior Assignment of Notes and Mortgages Exhibit I-1 Form of Intercreditor Agreement Exhibit J-1 Form of Joint Venture Pledge Agreement Exhibit P-1 Form of Personal Property Security Agreement Exhibit R-1 Copy of Reorganization Plan Exhibit S-1 Form of Stock Pledge Agreement Exhibit S-2 Form of Subsidiary Guaranty -vi- 8 THIS SECURED NOTE AGREEMENT, dated as of February __, 1997, among ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation (the "Company"), the Subsidiaries of the Company named on the signature pages hereof (the "Mortgagor Subsidiaries," and together with the Company, the "Co-Makers"), AP-AGC, LLC, a Delaware limited liability company (the "Lender") and the entity named as collateral agent on the signature pages hereof as collateral agent for the Lender (hereinafter, in such capacity, together with any successors thereto in such capacity, referred to as "Collateral Agent"). RECITALS WHEREAS, in accordance with an Investment Agreement between the Company and the Lender dated as of the date hereof, the Co-Makers desire to be able to borrow up to $10,000,000 from the Lender on the terms hereinafter set forth and the Lender is willing, on the terms and subject to the conditions set forth in this Agreement, to commit to lend up to $10,000,000 to the Co-Makers. AGREEMENT NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Administrative Claims": as defined in Article I of the Reorganization Plan. "Affiliate": with respect to any Person, (a) any other Person which is a Subsidiary of such Person, (b) any other Person (and each Subsidiary thereof) of which such Person is a Subsidiary, and (c) any other Person which is under common control with such Person. "AG Asia": Atlantic Gulf Asia Holdings N.V., a Netherlands Antilles corporation. "Agreement": this Secured Note Agreement, as amended, supplemented or otherwise modified from time to time. 9 "Annual Net Income": income as shown on the consolidated statements of income provided by the Company under Section 6.1, but in no event less than 0. "Bank Accounts": any and all deposit accounts, money market accounts and any other deposits and investments of the Company or any Subsidiary held in any bank or other financial institution, any brokerage firm or any other Person and all money, instruments, securities, documents and other investments held pursuant thereto, whether now existing or owned or hereafter created or acquired (exclusive of all but the residual, remainder or beneficial interest of the Company and its Subsidiaries in the Reserve Accounts, the Claims Disbursement Account and all other escrow, restricted, custodial and fiduciary accounts the pledge of which by the Company or any Subsidiary is prohibited by agreements existing on the date hereof or by law as set forth in Schedule 7.17, which may be amended from time to time by written notice to the Lender to include other restricted accounts). "Bankruptcy Code": Title 11 of the United States Code entitled "Bankruptcy" from time to time in effect, or any successor statute. "Bankruptcy Court": the United States Bankruptcy Court for the Southern District of Florida or if such court ceases to exercise jurisdiction over the Reorganization Proceedings, the court that exercises jurisdiction over the Reorganization Proceedings in lieu of the United States Bankruptcy Court for the Southern District of Florida. "Beige Book": the book prepared by the Company dated December 1994, setting forth the estimated fair market value of the Real Property of the Company and its Subsidiaries. "Book Value": with respect to a specified asset of a specified Person, the carrying value of the specified asset on the balance sheet of such Person prepared in accordance with GAAP and delivered to the Lender from time to time pursuant to the Transaction Documents. "Borrowing Base": as defined in the Revolving Loan Agreement. "Business Day": any day excluding Saturday, Sunday and any day which either is a legal holiday under the laws of the States of California or New York or is a day on -2- 10 which banking institutions located in the States of California or New York are authorized or required by law or other governmental action to close. "Business Plan": as of the Issuance Date and until a new Business Plan is delivered to the Lender in accordance with Section 6.9, the business plan of the Company and its Subsidiaries dated October 23, 1996, and thereafter the business plan of the Company and its Subsidiaries delivered to and approved by the Lender in December of each year in accordance with Section 6.9. "Capital Stock": with respect to any Person, any and all shares, interests, or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "Cash Collateral Accounts": any and all accounts that Collateral Agent, for the benefit of the Lender, may from time to time require to be established and maintained with financial institutions reasonably satisfactory to Collateral Agent and pledged to Collateral Agent pursuant to cash collateral account agreements in form and substance reasonably satisfactory to Collateral Agent. "Cash Equivalents": (a) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof having maturities of not more than 90 days from the date of acquisition, (b) time deposits and certificates of deposit having maturities of not more than 90 days from the date of acquisition issued by any domestic commercial bank, or non-domestic commercial bank provided that such non-domestic commercial bank shall have offices in the United States, having capital and surplus in excess of $500,000,000, (c) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clauses (a) and (b) entered into with any bank meeting the qualifications specified in clause (b) above, and (d) commercial paper rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or P-1 or the equivalent thereof by Moody's Investors Service, Inc. or which is issued by any domestic commercial bank having capital and surplus in excess of $500,000,000 (or any holding company thereof) and, in any such case, maturing within 90 days after the date of acquisition. -3- 11 "Certificate of Designation": means the "Series A Preferred Stock Certificate of Designation," as defined in the Investment Agreement. "Claims Disbursement Account": the segregated account established for purposes of holding funds borrowed to pay Administrative Claims, Priority Claims and Convenience Class Claims pursuant to Sections 3.2.4 and 8.1.1 of the Reorganization Plan. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Collateral": as defined in Section 3.1. "Collateral Agent": the entity named as collateral agent on the signature page hereof, and any successor thereto, solely in its capacity as collateral agent for the Lender, and, after the issuance of the Preferred Stock, as collateral agent for the holders of Preferred Stock, under the Security Documents, pursuant to the terms of this Agreement and the Security Documents. "Commercial Real Estate": all Real Property of the Company and its Subsidiaries (including condominium and cooperative units), other than Real Property reserved for sale as single residential homes or lots. "Commercial Receivables": all promissory notes and mortgages and deeds of trust payable to, or held by, the Company or any Subsidiary, and all other documents, instruments and agreements executed in connection therewith, whether currently existing or hereafter created or acquired, arising from the sale of single family homesites or arising from the sale of other Real Property and all cash and non-cash proceeds thereof. "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414 of the Code. "Company Operating Account" means that certain deposit account number 6189189013641 maintained by the Company with Sun Trust Bank, Miami, N.A. or such other deposit account maintained by the Company at a financial institution reasonably satisfactory to Collateral Agent. -4- 12 "Company Operating Account Control Agreement" means a written agreement among the Company, the Collateral Agent, the "Collateral Agent" under the Foothill Loan Documents), and Operating Account Bank, with respect to the Company Operating Account, in form and substance reasonably satisfactory to the Lender, pursuant to which Operating Account Bank acknowledges the security interests granted by the Company to the Collateral Agent for the benefit of Secured Creditor in the Company Operating Account, waives rights of setoff with respect to the Company Operating Account, and agrees to act upon the instructions of the Collateral Agent with respect to the disposition of funds in the Company Operating Account should Operating Account Bank receive such instructions from the Collateral Agent. "Condemnation Awards": any and all proceeds (including proceeds in the form of promissory notes or other agreements for the payment of proceeds) from (i) the taking by eminent domain, condemnation or otherwise, or acquisition pursuant to contract, of any property of the Company or any Subsidiary by the United States of America, the State of Florida or any political subdivision thereof, or any agency, department, bureau, board, commission or instrumentality of any of them, including any award and/or other compensation awarded to or for the benefit of, or received by or on behalf of, the Company or GDU, whether as a result of litigation, arbitration, settlement or otherwise, or (ii) any sale by the Company or any Subsidiary of a water and utility system to a Person, whether now owned or hereafter created or acquired. "Confirmation Order": the order entered on March 27, 1992, by the Bankruptcy Court, confirming the Reorganization Plan. "Consolidated Net Worth": at any particular date, all amounts which, in accordance with GAAP, would be included as Shareholders' Equity on a consolidated balance sheet of the Company and its consolidated Subsidiaries at such date. "Contractual Obligation": with respect to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which that Person is a party or by which it or any of its property is bound. "Convenience Class Claims": as described in Subsection 2.13 of the Reorganization Plan. -5- 13 "Deed of Trust": the Junior Deed of Trust and Security Agreement to be executed on or before the Issuance Date and from time to time thereafter between the Company or a Subsidiary and Collateral Agent, in the form of Exhibit A-1, as the same be amended, supplemented or otherwise modified from time to time, pursuant to which the Company and Subsidiaries grant a security interest in the Real Property located in Tennessee (and such other jurisdictions where "deeds of trust" are used to encumber real property) and related Personal Property of the Company or Subsidiaries to Collateral Agent, for the benefit of Secured Creditor as required by this Agreement. "Default": any of the events specified in Section 8.1, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Default Rate": has the meaning assigned that term in Section 2.4(b). "Deposit Account Security Agreement": the Deposit Account Security Agreement, in the form of Exhibit D-1, to be executed by the Company and each of its Subsidiaries in favor of Collateral Agent on or before the Issuance Date, for the benefit of Secured Creditor, as the same may be amended, supplemented or otherwise modified from time to time. "Dollars" and "$": dollars in lawful currency of the United States of America. "Due Diligence Fee Agreement": the Due Diligence Fee Agreement, in the form of Exhibit E-1, to be executed by the Company and the Lender, providing among other things for payment of a fixed due diligence and investment analysis fee on each Interest Payment Date as compensation for the due diligence and investment analysis services described therein. "Environmental Laws": any and all applicable Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or requirements of any Governmental Authority regulating, relating to or imposing liability or standards of conduct concerning environmental protection matters, including, without limitation, Hazardous Materials, as now or may at any time hereafter be in effect. -6- 14 "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Event of Default": any of the events specified in Section 8.1, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Excluded Property": (a) the Capital Stock of General Development Acceptance Corporation and GDV Financial Corporation, (b) 34% of the Capital Stock of AG Asia, (c) all money or property now or hereafter deposited into a Reserve Account pursuant to the Reorganization Plan (exclusive of the residual, remainder or beneficial interests of the Company and its Subsidiaries therein), (d) any portions of payments made on Homesite Contracts Receivable which are, as a matter of law or pursuant to such Homesite Contracts Receivable, required to be placed in a restricted account for the payment of utility charges or paid toward real estate taxes on the lots subject to the respective Homesite Contracts Receivable giving rise to such payments, and (e) the Trust Property. "Excluded Subsidiaries": the direct or indirect subsidiaries of the Company listed on Schedule E-1. "Financing Lease": any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a consolidated balance sheet of the Company and Subsidiaries. "Foothill Debt": Indebtedness outstanding under the Foothill Loan Documents. "Foothill Loan Documents": means, collectively, (i) the Revolving Loan Agreement, (ii) the "Loan Documents," as defined in the Revolving Loan Agreement, (iii) the Secured Floating Rate Note Agreement, and (iv) the "Secured Floating Rate Note Documents," as defined in the Secured Floating Rate Note Agreement, each of the foregoing as in effect on the date hereof. "GAAP": generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, that are -7- 15 applicable to the circumstances as of the date of determination; provided that calculations in connection with the definitions, covenants and other provisions of this Agreement shall utilize accounting principles and policies in conformity with those used to prepare the financial statements referred to in Section 4.1. "GDC": General Development Corporation, a Delaware corporation, under which name the Company was formerly known. "GDU": the Company's Subsidiary, General Development Utilities, Inc., a Florida corporation. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to,government. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of (a) the guaranteeing person or (b) another Person (including any bank under any letter of credit) as to which the guaranteeing person has issued a reimbursement, counter indemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor or other wise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that, as used herein, the term "Guarantee Obligation" shall neither include endorsements of instruments for deposit or collection in the ordinary course of business, nor constitute Indebtedness. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in -8- 16 respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as reasonably determined by the Company in good faith. "Hazardous Materials": any hazardous materials, hazardous wastes, hazardous constituents, hazardous or toxic substances, petroleum products (including crude oil or any fraction thereof), defined or regulated as such in or under any Environmental Law. "Homesite Contracts Receivable": all contracts for deed, promissory notes, mortgages, deeds of trust and other agreements, currently existing or hereafter created or acquired, pursuant to which the Company or any Subsidiary has the right to receive payment in any form whatsoever for the sale of single-family homesites (excluding Commercial Receivables), including any and all accounts, contract rights, chattel paper, general intangibles and unpaid seller's rights, relating to the foregoing or arising therefrom, reserves and credit balances arising thereunder and cash and non-cash proceeds of any and all of the foregoing. "Homesite Program": as defined in Article I of the Reorganization Plan. "Housing Inventory": as at any date, the amount that would be set forth under "housing units completed or under construction" or other similar entry in the notes to a consolidated balance sheet of the Company and its Subsidiaries prepared at such date in accordance with GAAP. "Indebtedness": of any Person at any date, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than incurred in the ordinary course of business and payable in accordance with customary practices) or which is evidenced by a note, bond, debenture or similar instrument, (b) all obligations (contingent or otherwise) of such Person arising out of letters of credit issued for the account or upon the application of such Person, (c) all obligations of such Person under Financing Leases, (d) all obligations of such Person in respect of acceptances -9- 17 issued or created for the account of such Person, (e) all liabilities secured by any Lien on any property owned by such Person even though such Person may have not assumed or otherwise become liable for the payment thereof, and (f) the Unsecured Cash Flow Notes. As used herein, the term "Indebtedness" shall not include Guarantee Obligations. "Insolvency": with respect to any Multi-employer Plan, the condition that such plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Intellectual Property": as defined in Section 4.9. "Intercreditor Agreement": that certain Intercreditor Agreement of even date herewith by and between the Lender, Collateral Agent, the lenders party to the Foothill Loan Documents, and the agent and collateral agent for such lenders, in the form of Exhibit I-1, as such agreement may be supplemented, amended or otherwise modified from time to time. "Interest Charges": means, with respect to any period, the sum (without duplication) of the following (eliminating all intercompany items required to be eliminated in the course of preparing consolidated financial statements for the Company and its Subsidiaries in accordance with GAAP) (a) all interest in respect of the Indebtedness of the Company and its Subsidiaries (including imputed interest on Financing Leases) deducted in de termining consolidated net income for such period and (b) all debt discount and expense amortized or required to be amortized in the determination of consolidated net income for such period. "Interest Charges Coverage Ratio": at any time, the ratio of (a) Net Operating Cash Flow for the period of four fiscal quarters ending on, or most recently ended prior to, such time, taken as a whole, to (b) Interest Charges for such period. "Interest Payment Date": the last day of each calendar month to occur while any obligation evidenced by the Note is outstanding. "Investment Agreement": that certain Investment Agreement of even date herewith by and between the Company -10- 18 and the Lender, providing among other things for the execution and delivery of this Agreement and the issuance of the Preferred Stock. "Investments": any and all promissory notes, Capital Stock (other than Subsidiary Stock), bonds, debentures and securities, held by the Company or any Subsidiary, whether now owned or hereafter acquired. "Issuance Date": the date on or before May 22, 1997 upon which all of the conditions set forth in Section 5 have been met or waived by the Lender in its sole discretion and the Note is issued. "Joint Ventures": collectively, (a) the joint ventures identified on Schedule 4.14(B), and (b) any other partnership, joint venture, limited liability company, or other entity in which a Subsidiary acquires, after the date hereof and as permitted under Section 7.9(g) and 7.18, equity interests therein representing 50% or less of such entity's contributed capital; and "Joint Venture" means any one of them. "Joint Venture Pledge Agreement": the Junior Joint Venture Pledge Agreement in the form of Exhibit J-1, to be executed by each of the Venture Subsidiaries and Collateral Agent on or before the Issuance Date, as the same may be amended, supplemented or otherwise modified from time to time, pursuant to which the Venture Subsidiaries pledge all of their right, title, and interest in and to the Joint Ventures to Collateral Agent for the benefit of Secured Creditor. "Junior Assignments": the Junior Assignment of Notes and Deeds of Trust and the Junior Assignment of Notes and Mortgages, in the form of Exhibits H-1 and H-2 respectively, to be executed on or before the Issuance Date, as the same may be amended, supplemented or otherwise modified from time to time, "JV Real Property": any and all real property and fixtures and interests in real property and fixtures now owned or hereafter acquired by any Joint Venture. "JV Receivables": all contracts for deed, promissory notes, mortgages, deeds of trust and other agreements, currently existing or hereafter created or acquired, pursuant to which any Joint Venture has the right to receive payment in any form whatsoever for the sale of JV Real -11- 19 Property, and cash and non-cash proceeds of any and all of the foregoing. "Lender": the Lender, as defined in the Preamble to this Agreement, together with its permitted successors and assigns. "Lien": any mortgage, security interest, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any Financing Lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "Material Adverse Effect": a material adverse effect on (a) the business, operations, property, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company to perform its obligations under this Agreement, the Notes, the Security Documents, or the other Transaction Documents or (c) the validity or enforceability of this Agreement, the Notes, the Security Documents or other Transaction Documents or the other Transaction Documents or the rights or remedies of Collateral Agent or the Secured Creditor hereunder or thereunder. "Maturity Date": December 31, 1998. "Mortgages": the Junior Mortgage and Security Agreements to be executed on or before the Issuance Date and from time to time thereafter by the Company or a Subsidiary in favor of Collateral Agent, substantially in the form of Exhibit B-1, as the same may be amended, supplemented or otherwise modified from time to time, pursuant to which the Company and Subsidiaries grant a security interest in the Real Property located in Florida (and in such other jurisdictions where "mortgages" are used to encumber real property) and related Personal Property of the Company or Subsidiaries to Collateral Agent, for the benefit of Secured Creditor, as required by this Agreement. "Mortgagor Subsidiaries": the Subsidiaries party to this Agreement that shall grant to Collateral Agent -12- 20 Mortgages on Real Property owned by them in Florida on or before the Issuance Date as required herein. "Multi-employer Plan": a Plan which is a multi-employer plan as defined in Section 4001(a)(3) of ERISA. "Negative Shareholder Vote": the "Stockholders Approval" (as defined in the Investment Agreement) not having been obtained by May 22, 1997. "Net Cash Proceeds": with respect to any sale of assets, all cash payments (including any cash received by way of deferred payment pursuant to, or monetization of, a note receivable or otherwise, but only as and when so received) received from such sale net of bona fide direct costs of sale. "Net Cash Flow": with respect to any fiscal period of a Person, on a consolidated basis, the actual consolidated pre-tax net cash flow as determined on the basis set forth in Schedule N-1. "Net Operating Cash Flow": with respect to any Person for any applicable fiscal period, the actual consolidated pre-tax net operating cash flow as determined on the basis set forth in Schedule N-2. "Note": the Secured Convertible Promissory Note to be issued by the Company and the Mortgagor Subsidiaries under this Agreement in the form of Exhibit C-1, and any further or additional notes issued by the Company and/or the Mortgagor Subsidiaries to the Lender under this Agreement, as any of them may from time to time be amended, supplemented, modified, renewed, extended, restated, or replaced. "Obligations": all obligations of every nature of the Company from time to time owed to the Secured Creditor or Collateral Agent or either of them under the Transaction Documents, whether for principal, interest (including interest accruing after the commencement of a bankruptcy case, whether or not enforceable in such case), fees, costs, expenses, indemnification or otherwise, of whatsoever nature and whether now or hereafter made, incurred or created, whether absolute or contingent, liquidated or unliquidated, regardless of class, whether due or not due, and however arising. -13- 21 "Official Unsecured Creditors Committee": the official committee of creditors appointed by the United States Trustee in the Reorganization Proceedings. "Operating Account Bank": Sun Trust Bank, Miami, N.A. or such other domestic commercial bank having capital and surplus in excess of $500,000,000 reasonably satisfactory to holders of the Foothill Debt. "PBGC": the Pension Benefit Guarantee Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor thereto. "Permitted Sale Asset" has the meaning assigned that term in Section 7.6. "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Personal Property": the following personal property of the Company or any Subsidiary (exclusive of Homesite Contracts Receivable and Commercial Receivables of the Company or any Subsidiary): (a) the Bank Accounts; (b) the Investments; (c) any and all accounts, contract rights, chattel paper, instruments and documents, including any right to payment for goods sold or leased or services rendered, whether now owned or hereafter acquired; (d) any and all machinery, apparatus, equipment, fittings, furniture, fixtures, motor vehicles and other tangible personal property of every kind and description, whether now owned or hereafter acquired, and wherever lo cated, and all parts, accessories and special tools and replacements therefor; (e) any and all general intangibles, whether now owned or hereafter created or acquired, including all cho ses in action, causes of action, rights in and to any and all Condemnation Awards, corporate or other business records, deposit accounts, inventions, designs, patents, patent applications, trademarks, trade names, trade se crets, goodwill, copyrights, registrations, licenses, franchises, customer lists, tax refund claims, computer -14- 22 programs, any other Intellectual Property, all claims under guarantees, security interests or other security to secure payment of any accounts by an account debtor, all rights to indemnification and all other intangible property of every kind and nature, including (i) the interests, if any, of the Company or any Subsidiary in payments, proceeds, residuals and remainders from, or as a beneficiary of, the Reserve Accounts, Claims Disbursement Account, or other such accounts, (ii) any and all beneficial interests in the trusts pursuant to which title to the Trust Property is held and (iii) any and all other proceeds or choses in action with respect to, or rights to receive proceeds from, any condemnation of any Real Property or Personal Property of the Company or any Subsidiary, whether now in existence or hereafter created or acquired; (f) any and all goods which are, or may at any time be, goods held for sale or lease or furnished under con tracts of service or raw materials, work-in-process or materials used or consumed in business, wheresoever located and whether now owned or hereafter created or acquired, including all such property the sale or other disposition of which has given rise to accounts and which has been returned to or repossessed or stopped in transit; (g) all monies, cash, residues and property of any kind, now or at any time hereafter in the possession or under the control of Secured Creditor or Collateral Agent or any agent or bailee of Secured Creditor or Collateral Agent, any holder of Foothill Debt or any agent therefor, or any other person; (h) all accessions to, all substitutions for, and all replacements, products and proceeds of, the foregoing, including proceeds of insurance policies insuring the aforesaid property and documents covering the aforesaid property, all property received wholly or partly in trade or exchange for such property, and all rents, revenues, issues, profits and proceeds arising from the sale, lease, license, encumbrance, correction or any other temporary or permanent disposition of such items or any interest therein whether or not they constitute "proceeds" as defined in the Uniform Commercial Code; and -15- 23 (i) all books, records, documents and ledger receipts pertaining to any of the foregoing, including customer lists, credit files, computer records, computer programs, storage media and computer software used or acquired in connection with generating, processing and storing such books and records or otherwise used or acquired in connection with documenting information pertaining to the aforesaid property. "Personal Property Security Agreement": the Junior Personal Property Security Agreement in the form of Exhibit P-1, to be executed on or before the Issuance Date by the Company and the Subsidiaries now or hereafter party thereto in favor of Collateral Agent, for the benefit of Secured Creditor, as the same may be amended, supplemented or oth erwise modified from time to time. "Plan": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Preferred Stock": the Cumulative Redeemable Convertible Preferred Stock, Series A, liquidation preference $1,000 per share, of the Company to be issued pursuant to the Investment Agreement. "Principal Raw Land": the parcels of Real Property of the Company and its Subsidiaries identified on Schedule P-1. "Priority Claims": as defined in Article I of the Reorganization Plan. "Real Property": any and all real property and fix tures and interests in real property and fixtures, now owned or hereafter acquired by the Company or any Subsidiary. "Reorganization": with respect to any Multi-employer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reorganization Plan": the Restated Second Amended Joint Plan of Reorganization of General Development Corporation jointly proposed in the Reorganization Proceedings by the Company and the Official Unsecured Creditors' Committee, filed on October 9, 1991, with the Clerk of the -16- 24 Bankruptcy Court, as modified by Modification filed March 9, 1992, a copy of which is attached hereto as Exhibit R-1. "Reorganization Proceedings": the cases commenced on April 6 and April 12, 1990 under Chapter 11 of Title 11 of the United States Code in the Bankruptcy Court by GDC (Case No. 90-12231-BKC-AJC), General Development Financial Services, Inc. (Case No. 90-12232-BKC-AJC), General Development Resorts, Inc. (Case No. 90-12233 BKC-AJC), Town & Country II, Inc. (formerly Florida Residential Communities, Inc.) (Case No. 90-12234-BKC-AJC), Five Star Homes Group, Inc. (Case No. 90-12235-BKC-AJC), Five Star Homes, Inc. (Case No. 90-12338-BKC-AJC), GDV Financial Corporation (Case No. 90-12236-BKC-AJC) and Environmental Quality Laboratory, Incorporated (Case No. 90-12237-BKC-AJC). "Reportable Event": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty-day notice period is waived under Subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section 2615. "Requirement of Law": as to any Person, the charter, the certificate of incorporation and bylaws or other orga nizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Reserve Accounts": the Disbursement Account (as defined in Section 8.4 of the Reorganization Plan); the Disputed Claims Reserve Account (as defined in Section 8.7 of the Reorganization Plan); any reserve of securities, utility-satisfied lots, cash or other assets that is es tablished pursuant to the Reorganization Plan, the Homesite Program, or any agreement resolving a claim of the State of Florida in the Reorganization Proceedings, to satisfy requests for utility service; and any reserve of securities or cash established to fund road or other improvements pursuant to any agreement resolving a claim of the State of Florida in the Reorganization Proceedings, including, without limitation: the Division Class 14 Utility Fund Trust Agreement and the Improvement Fund Trust Agreement, executed by and among the State of Florida, Department of Business Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes, the Company and the Trustee, the Class 14 Utility Fund Trust Agreement and the Homesite Program Utility Fund Trust -17- 25 Agreement executed by and between the Company and the Trustee, the Class 14 Utility Lot Trust Agreement executed by and between the Company and the Trustee, as described in Section 7.6 of the Reorganization Plan, if any. "Responsible Officer": the chief executive officer and the president of the Company, or with respect to corporate proceedings, the secretary or any assistant secretary of the Company, or, with respect to financial matters, the chief financial officer or treasurer of the Company. "Reverse Stock Split": the proposal to amend the Company's restated certificate of incorporation to effect, if subsequently determined by the Company's board of directors, a reverse stock split of the Company's outstanding common stock as of 5:00 p.m. (Florida time) on the effective date of the amendment (the "Reverse Split Effec tive Date"), pursuant to which each 100 shares or 200 shares (as determined by the Company's board of directors in its discretion) then outstanding will be converted into one share (the "Reverse Stock Split"), and to effect a forward split of the Company's common stock as of 6:00 a.m. (Florida time) on the day following the Reverse Split Effective Date, pursuant to which each share of common stock then outstanding as of such date will be converted into the number of shares of the Company's common stock that each share represented immediately prior to the Reverse Split Effective Date, all as set forth in the Company's proxy statement dated April 22, 1996, provided that the Lender consents thereto in writing in its sole and absolute discretion prior to the commencement thereof. "Revolving Loan Agreement": the Second Amended and Restated Revolving Loan Agreement dated as of September 30, 1996 by and among the Company, the Revolving Loan Bank, and Foothill Capital Corporation, a California corporation, as collateral agent for the Revolving Loan Bank, pursuant to which the Revolving Loan Bank has agreed to make certain loans to the Company, together with all amendments, modifications, extensions, substitutions and renewals thereof. "Revolving Loan Bank": Foothill Capital Corporation, a California corporation, and its successors and assigns. "Revolving Loans": the Revolving Loans outstanding from time to time under the Revolving Loan Agreement. -18- 26 "Sale and Leaseback": any arrangement with any Person providing for the leasing by the Company or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Company or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company or Subsidiary. "Section 365(j) Property": the property now or here after made subject to substitute Liens in favor of Homesite Purchasers (as defined in the Reorganization Plan) pursuant to Section 5.2.2 of the Reorganization Plan. "Secured Creditor": collectively, the holder or holders from time to time of the Secured Obligations. "Secured Floating Rate Note Agreement": the Second Amended and Restated Secured Floating Rate Note Agreement dated as of September 30, 1996 among the parties to the Revolving Loan Agreement, together with all amendments, modifications, extensions, substitutions and renewals thereof. "Secured Floating Rate Notes": the notes issued pursuant to the Secured Floating Rate Note Agreement. "Secured Note Documents": this Agreement, the Note, the Subsidiary Guaranty and the Security Documents. "Secured Obligations": collectively, all Obligations now or hereafter owed under this Agreement, the Due Diligence Fee Agreement or any Secured Note Document together with, after the issuance of the Preferred Stock, all Obligations owed to the holders of such Preferred Stock pursuant to Section 8 of the Certificate of Designation or, after the occurrence of an Event of Default, as defined in the Certificate of Designation, pursuant to Section 7.2 of the Investment Agreement. "Security Agreements": the Personal Property Security Agreement, the Deposit Account Security Agreement, and any other security agreements, between the Company and/or a Subsidiary and Secured Creditor or Collateral Agent, as the same may be amended supplemented or otherwise modified from time to time, pursuant to which the Company and Subsidiaries assign and grant a security interest in Homesite Contracts Receivables and Commercial Receivables and Personal Property of the Company or Subsidiaries to Secured Creditor or Collateral Agent, for the -19- 27 benefit of Secured Creditor, as required by this Agreement. "Security Documents": the Stock Pledge Agreement, the Joint Venture Pledge Agreement, the Security Agreements, the Mortgages, the Deed of Trust, the Junior Assignments, the Company Operating Account Control Agreement, any cash collateral account agreements, and any and all other agreements, instruments, documents, financing statements, assignments, notices, mortgages and other written matter necessary or reasonably required by Secured Creditor or Collateral Agent at any time to create, perfect, maintain or continue Secured Creditor's and Collateral Agent's Lien in the Collateral, together with all amendments, modifications, extensions, substitutions and renewals thereof. "Shareholders' Equity": as to any corporation, an amount equal to the excess of the assets of such corporation over its liabilities (including minority interests), determined in accordance with GAAP, and as shown on the most recently prepared applicable balance sheet of such corporation. "Single Employer Plan": any Plan which is covered by Title IV of ERISA, but which is not a Multi-employer Plan. "SPUD Subsidiary": as defined in Section 7.2(h). "Stock Pledge Agreement": the Junior Stock Pledge Agreement, in the form of Exhibit S-1, to be executed on or before the Issuance Date among the Company, each of its Subsidiaries and Collateral Agent, as the same may be amended, supplemented or otherwise modified from time to time, pursuant to which the Company and Subsidiaries pledge Subsidiary Stock to Collateral Agent for the benefit of Secured Creditor. "Subsidiary": as to any Person, a corporation, partnership, trust (exclusive of any trust created in connec tion with a Reserve Account) or other entity of which shares of stock, partnership interests, beneficial interests or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership, trust (exclusive of any trust created in connection with a Re serve Account) or other entity are at the time owned, or the management of which is otherwise controlled, directly -20- 28 or indirectly, through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. Unless otherwise indicated, all references to a Subsidiary or Subsidiaries of the Company shall not mean, include, or refer to the Unrestricted Subsidiaries or the Joint Ventures. "Subsidiary Guaranty": the Subsidiary Guaranty, in the form of Exhibit S-2, to be executed on or before the Issuance Date by the Company and each of its Subsidiaries in favor of Collateral Agent, for the benefit of Secured Creditor, as the same may be amended, supplemented or otherwise modified from time to time. "Subsidiary Property Under Development": collectively, the Real Property of any Subsidiary which is acquired for the purpose of being developed, or which is in the process of being improved or developed, either by the construction of roads, curb cuts, sewer and water facilities or other improvements, or by the construction of residential units and appurtenances thereto. "Subsidiary Stock": the Capital Stock of any and all Subsidiaries (including the Unrestricted Subsidiaries). "Tax Servicing Contracts": collectively, the tax servicing contracts required to be delivered under the Foothill Loan Documents, and all amendments, modifications, extensions, substitutions and renewals thereof. "Total Real Property": collectively, the Real Property and the JV Real Property. "Total Unsecured Claims": as defined in Article I of the Reorganization Plan. "Transaction Documents": the Secured Note Documents, the Intercreditor Agreement, the Investment Agreement, the Due Diligence Fee Agreement, the Preferred Stock, the Warrants, the Certificate of Designation relating to the Preferred Stock, and each exhibit, schedule, certificate and document to be executed or delivered pursuant hereto or thereto, each as from time to time amended, supplemented or otherwise modified. "Trust Property": the real property held in trust pursuant to (a) Trust Agreement No. 06-01-009-6082101, dated as of January 17, 1991, by and between NCNB National -21- 29 Bank of Florida, as Trustee for the benefit of the Company, the Beneficiary, (b) Trust Agreement No. 06-01-009-6081954, dated as of January 17, 1991, by and between NCNB National Bank of Florida, as Trustee for the benefit of the Company, the Beneficiary, (c) Trust Agreement No. 06-01-009-6082655, dated as of January 17, 1991, by and between NCNB National Bank of Florida, as Trustee for the benefit of the Company and General Development Financial Services, Inc., the Beneficiaries, and (d) Trust Agreement No. 2, dated as of May 31, 1991, by and between Jake Gamble, Esquire, as successor Trustee for the benefit of the Company and Cumberland Cove, Inc., the Beneficiaries. "Unrestricted Subsidiaries": collectively, (a) the direct or indirect subsidiaries of the Company listed on Schedule U-1, and (b) any other direct or indirect subsidiary of the Company that is formed or acquired after the date hereof, that does not have or make any investment in any Joint Venture (nor was formed or acquired for the purpose of having or making any such investment), and that the Lender agrees in writing shall constitute an Unrestricted Subsidiary under and for all purposes of this Agreement and the other Loan Documents, upon which Schedule U-1 automatically shall be deemed to be amended to reflect the inclusion on such schedule of such new Unrestricted Subsidiary; and "Unrestricted Subsidiary" means any one of them. "Unsecured Cash Flow Notes": the "New Unsecured Cash Flow Notes," as defined in Article I of the Reorganization Plan. "Unsold Housing Inventory": as at any date, all Housing Inventory applicable to Unsold Residential Dwelling Units. "Unsold Residential Dwelling Units": single-family dwelling units (whether detached or included within a townhouse, villa or cluster containing more than one such unit) or condominium units (excluding timeshare units) completed or under construction by the Company or any Sub sidiary that are not subject to a contract for sale to any third-party purchaser. "Warrants": as defined in the Investment Agreement. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have such defined meanings when -22- 30 used in the Notes or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Notes, and any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Company and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (e) References to "Sections", "subsections", Exhibits and Schedules are to Sections, Sections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. (f) Unless the context of this Agreement clearly requires otherwise, the term "including" is not limiting. (g) Except as may be expressly specified otherwise herein, each reference to an agreement or instrument amended, supplemented or otherwise modified from time to time means such agreement or instrument as amended, supplemented or modified in accordance with the terms hereof and thereof and the Intercreditor Agreement, if applicable. SECTION 2. ISSUANCE AND TERMS OF SECURED NOTE 2.1 Note. The Lender hereby agrees that on the Issuance Date, subject to the terms and conditions set forth herein, (a) the Lender shall make a loan to the Company and the Mortgagor Subsidiaries in a principal amount to be specified by the Company, up to $10,000,000, and (b) the Company and the Mortgagor Subsidiaries shall execute and deliver to the Lender the Note. There shall be only one borrowing hereunder. If the initial loan to be made hereunder is less than $10,000,000 the Lender's commitment shall terminate with respect to any remaining portion of such $10,000,000. -23- 31 2.2 Payment of Note. The then outstanding principal amount of the Note shall be due and payable, and shall be paid in full by the Company and the Mortgagor Subsidiaries, on the Maturity Date. In addition: (a) a principal installment in an amount designated in writing by the Lender in its sole discretion to the Company on or before December 2, 1997, not to exceed the lesser of (x) the outstanding amount due under the Note and (y) $5,000,000, shall be due with respect to the Note on December 31, 1997, provided that if the Lender shall fail to designate any amount by such date, the amount of such installment shall be the lesser of (x) the outstanding amount due under the Note and (y) $5,000,000, and (b) in the event of any acceleration of the maturity of any of the principal of the Note pursuant to the provisions of Section 8 hereof or pursuant to the terms of the Note, such accelerated principal shall be immediately due and payable. The principal of the Note may be prepaid in whole or in part, from time to time, without premium or penalty. On any date that any principal is due and payable hereunder, anything herein to the contrary notwithstanding, all accrued and unpaid interest with respect to such principal likewise shall be due and payable on such date. 2.3 Conversion of Note into Preferred Stock. The outstanding principal amount of the Note shall be convertible into Preferred Stock on the terms and subject to the conditions set forth in the Investment Agreement. All interest and other amounts (other than principal) theretofore accrued and owing hereunder or under the Due Diligence Fee Agreement shall be paid in full prior to or concurrent with such conversion. If the Note is converted into Preferred Stock and the Lender purchases an additional $15,000,000 of Preferred Stock as set forth in the Investment Agreement, the Company will be obligated to repurchase all such Preferred Stock on the happening of certain conditions set forth in the Certificate of Designation. From and after such conversion of the Note into Preferred Stock, the Note shall no longer evidence an indebtedness for borrowed money, and notwithstanding anything herein to the contrary the term Secured Obligations as used in this Agreement and each other Transaction Document shall not mean or include any indebtedness for principal or interest, but the Note shall remain in full force and effect to evidence the obligation of the Company to repurchase all such Preferred Stock under Section 8 of the Certificate of Designation and pay all other Secured Obligations then outstanding and the joint and several obligation of each and every Mortgagor Subsidiary to pay the Secured Obligations then outstanding shall continue to be secured by the Secured Note Documents. -24- 32 2.4 Interest Rates and Interest Payment Dates. (a) From and after the Issuance Date, subject to Sections 2.4(b) and 2.10, as well before as after judgment, the Note at all times shall bear interest at a rate per annum equal to twenty percent (20%). (b) Section 2.4(a) notwithstanding, but subject to Section 2.10, from and after the occurrence and during the continuance of an Event of Default and in any event at all times after a Negative Shareholder Vote, the Note and all amounts due hereunder and not paid at all such times shall bear interest at a per annum rate, as well before as after judgment, equal to twenty-three percent (23%) (the "Default Rate"). (c) Interest shall be payable in arrears on each Interest Payment Date, provided that from and after the occur rence and during the continuance of an Event of Default interest accruing pursuant to paragraph (b) of this Section 2.4 also shall be payable on demand. 2.5 Computation of Interest and Fees. (a) Interest on the Notes and fees shall be calculated on the basis of a 360-day year for the actual days elapsed. (b) Each determination of an interest rate by the Lender pursuant to any provision of this Agreement shall be conclusive and binding in the absence of manifest error. 2.6 Pro Rata Treatment and Payments. If the Note is replaced with multiple Notes pursuant to Section 10.6, each payment (including each prepayment) by the Company on account of principal of and interest on such Notes shall be made pro rata according to the respective outstanding principal amounts of the Notes. All payments (including prepayments) to be made by the Company hereunder and under the Notes, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to noon, New York City time, on the due date thereof, in Dollars and in immediately available funds to the following account: FBO: Apollo Real Estate Investment Fund II, L.P.-Operating Money Market Account, Chase Manhattan Bank, 380 Madison Avenue, ABA #: 021-000-021, Account #: 230-211755. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at then-applicable rate during such extension. -25- 33 2.7 Taxes. Any Lender that is not organized under the laws of the United States of America or a state thereof agrees that it will deliver to the Company and the Lender (a) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, and (b) an Internal Revenue Service Form W-8 or W-9 or successor applicable form. Each such Lender also agrees to deliver to the Company two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company, and such extensions or renewals thereof as may reasonably be requested by the Company, unless in any such case any change in treaty, law or regulation has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such the Lender so advises the Company and any other Lenders. Such Lender shall certify (a) in the case of a Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, and (b) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. 2.8 Use of Proceeds. The proceeds of the issuance of the Note hereunder shall be used only for the lawful and permitted corporate purposes relating to the Company's domestic business specified pursuant to Section 5.1(z). 2.9 Fees. The Company shall pay (a) to the Collateral Agent such fees as may be required under any agreement between the Company and the Collateral Agent with respect to compensation of the Collateral Agent in respect of its services, and (b) to each other person or entity to whom the Company has agreed to pay a fee in connection with this Agreement or the other Transaction Documents and the transactions contemplated hereby or thereby, such fees as may be required under such agreement; provided in each case that such agreement has been approved by the Lender. 2.10 Maximum Interest Rate. Nothing contained in this Agreement, the Note or any other Transaction Document shall require the Company or the Mortgagor Subsidiaries to pay interest at a rate exceeding the maximum rate permitted by applicable law. If the amount of interest paid or payable on any Interest Payment Date, computed pursuant to applicable law and the Transaction Documents, would exceed the maximum amount -26- 34 permitted by applicable law to be charged, the amount of interest paid or payable on such Interest Payment Date shall be automatically reduced to such maximum permissible amount and the excess applied to principal or, if no principal shall be outstanding and such amount has been paid, returned to the payor. If the amount of interest payable to the Lender in respect of any interest computation period is reduced pursuant to the preceding sentence of this Section and the amount of interest payable for its account in respect of any subsequent interest computation period, computed pursuant to applicable law and the Transaction Documents, would be less than the maximum amount permitted by applicable law to be charged, then the amount of interest payable to the Lender in respect of such subsequent interest computation period shall be automatically increased to such maximum permissible amount; provided that at no time shall the aggregate amount by which interest paid had been increased pursuant to this sentence exceed the aggregate amount by which interest has theretofore been reduced pursuant to the preceding sentence of this Section. SECTION 3. COLLATERAL 3.1 Liens in Subsidiary Stock, Contract Receivables, Real Property and Personal Property. To secure the prompt payment of the Secured Obligations, together with all costs, expenses, fees and other obligations payable by the Company or the Mortgagor Subsidiaries hereunder or under the Investment Agreement with respect to the Secured Obligations, on or before the Issuance Date the Company shall grant, and shall cause each Subsidiary to grant, to Collateral Agent a continuing Lien, junior to the Lien created by, and securing the obligations of the Company and Subsidiaries under, the Foothill Loan Documents, in and to all of the following property and interests in property of the Company and the Subsidiaries, except the Excluded Property, whether now owned or existing or hereafter acquired or arising, or in which the Company and the Subsidiaries now or hereafter have any rights, and wheresoever located, and all proceeds thereof ("Collateral"): (a) the Subsidiary Stock; (b) the Homesite Contracts Receivable; (c) the Commercial Receivables; (d) the Real Property; and (e) the Personal Property. -27- 35 At such times as any Excluded Property is freed of contractual or legal restrictions against becoming subject to a Lien to secure the Secured Obligations or upon the distribution of any Trust Property to the Company or a Subsidiary (including an Unrestricted Subsidiary or Joint Venture), such property shall, automatically, become subject to the Liens created by the Security Documents, and the Company shall notify the Secured Creditor in writing of such event and take such further actions as may be required by the Secured Creditor and/or Collateral Agent to evidence and perfect such Liens; provided that, in no event, shall a Lien be granted on any assets required to be placed in a Reserve Account pursuant to the Reorganization Plan or the Homesite Program. 3.2 Security Documents. To evidence and perfect the Liens of the Secured Creditor and Collateral Agent in the Collateral in accordance with applicable law, on or before the Issuance Date the Company shall execute and deliver and will cause the Subsidiaries to execute and deliver, to Collateral Agent the Security Documents, which Security Documents will be delivered to the Lender and filed and recorded, and the Company will deliver, and shall cause the Subsidiaries to deliver (or, if such Collateral shall be in the possession of the collateral agent for the holders of the Foothill Debt, shall cause such agent to acknowledge that it is holding such Collateral for the benefit of the Lender as well as the holders of the Foothill Debt) to Collateral Agent any Collateral if the perfection of a Lien against such Collateral requires possession thereof for purposes of perfecting such Liens, all at the cost and expense of the Company. Specifically, but without limiting the generality of the foregoing, on or before the Issuance Date the Company will do, and will cause the Subsidiaries to do, the following, subject in each case to the senior and prior Liens created by, and securing the obligations of the Company and Subsidiaries under, the Foothill Loan Documents: (a) Stock Pledge. To evidence and perfect the Liens of Collateral Agent in the Subsidiary Stock, the Company and the Subsidiaries owning other Subsidiaries or Unrestricted Sub sidiaries shall execute and deliver the Stock Pledge Agreement and will execute and deliver related undated stock powers executed in blank by the Company and shall deliver all original certificates representing the Subsidiary Stock to Collateral Agent and will cause all issuers of Subsidiary Stock to execute and deliver pledge acknowledgments pursuant to the Stock Pledge Agreement. (b) Homesite Contracts Receivables and Commercial Receivables. To evidence and perfect the Liens of Collateral -28- 36 Agent in the Homesite Contracts Receivable and Commercial Receivables, the Company and the Subsidiaries will execute and deliver to Collateral Agent the Security Agreements, together with related financing statements, which will be filed and recorded in accordance with applicable law, and the Company and Subsidiaries shall duly endorse any and all promissory notes included in the Homesite Contracts Receivable and Commercial Receivables to the order of Collateral Agent and shall deliver such promissory notes and the related mortgages or deeds of trust to Collateral Agent or its designee, and shall execute and deliver assignments of promissory notes and mortgages or deeds of trust, filed and recorded in accordance with applicable law, and, as to Commercial Receivables acquired following March 31, 1992, accompanied by ALTA title insurance policies naming Collateral Agent as the insured mortgagee thereunder. (c) Real Property. To evidence and perfect the Liens of Collateral Agent in the Real Property, the Company shall execute and deliver to Collateral Agent the Mortgages, and the Mortgagor Subsidiaries shall execute and deliver to Collateral Agent the Mortgages and Deed of Trust, as applicable, and related financing statements encumbering such Real Property, which will be filed and recorded in accordance with applicable law, accompanied by ALTA title insurance policies insuring Secured Creditor's Lien represented thereby, and, if requested by Secured Creditor, surveys of such Real Property. (d) Joint Venture Pledge. To evidence and perfect the Liens of Collateral Agent in the interests of the Venture Subsidiaries in the Joint Ventures, the Company will cause the Venture Subsidiaries to execute and deliver the Joint Venture Pledge Agreement and all requisite consents in respect of such Liens. (e) Personal Property. To evidence and perfect the Liens of Collateral Agent in the Personal Property, the Company and Subsidiaries shall execute and deliver to Collateral Agent the Security Agreements, together with related financing statements, which have been or will be filed and recorded in accordance with applicable law, and, to the extent that the Personal Property comprises Investments or Bank Accounts, the Com pany and Subsidiaries shall take the following actions: (i) with respect to any Investment or Bank Account which is or becomes evidenced by an agreement, instrument, certificate or document, including promissory notes, stock certificates, bonds, debentures, securities and certificates of deposit, the Company shall from time -29- 37 to time deliver, or shall from time to time cause such Subsidiary to deliver, the original thereof to the Collateral Agent, together with appropriate assignments and endorsements or other specific evidence of assignment thereof to the Collateral Agent, in form and substance acceptable to the Collateral Agent; (ii) with respect to any Investment or Bank Account which is not certificated or otherwise evidenced as described in clause (i) above, including uncertificated securities and depository and other accounts maintained with financial institutions and any other Persons, the Company shall notify the Secured Creditor thereof and take, or cause such Subsidiary to take, any and all steps which are required by the Secured Creditor for purposes of perfecting the Collateral Agent's Lien therein; (iii) the Company shall keep the Secured Creditor informed of any and all Bank Accounts maintained by the Company or any such Subsidiary with any financial institution or other Person and, if requested by the Secured Creditor, the Company or any such Subsidiary shall execute a cash collateral account agreement in form and substance satisfactory to the Secured Creditor, pursuant to which the Lien of Collateral Agent in such Bank Accounts is perfected and preserved; and (iv) if deemed by the Secured Creditor, in its sole discretion, to be necessary for purposes of perfecting the Lien of the Collateral Agent in any Bank Account, the Company shall transfer to and maintain in a cash collateral account, and shall cause the Subsidiaries to transfer to and maintain in a cash collateral account, the funds in each such Bank Account and, if deemed necessary by the Secured Creditor, shall execute and cause any such Subsidiary to execute a cash collateral account agreement in form and substance reasonably satisfactory to Collateral Agent, pursuant to which the Lien of Collateral Agent in such Bank Account shall be perfected and pre served; provided, however, the Company shall not be required to deposit the residual, remainder or beneficial interest of the Company and any such Subsidiary in the Reserve Accounts, the Claims Disbursement Accounts and other escrow, restricted, custodial and fiduciary accounts until such time as all amounts required to be disbursed to the intended beneficiaries thereof have been disbursed and the residual or remainder is available to the Company and its Subsidiaries for deposit in an unrestricted account. -30- 38 (f) Additional Acts. The Company shall, and shall cause the Subsidiaries to, take all actions and execute all documents deemed necessary by the Secured Creditor or Collateral Agent to ensure that, upon the issuance of the Note, the Secured Creditor or Collateral Agent, for the benefit of the Secured Creditor, shall have a security interest in the Collateral granted by the Security Documents junior only to the Liens thereon established under the Foothill Loan Documents. If the perfection or recordation of Collateral Agent's Lien or the Lien of the Secured Creditor pursuant hereto upon any Collateral acquired hereafter by the Company or any Subsidiary requires any additional act of possession or filing or recordation of any Security Document, the Company shall notify the Secured Creditor of the acquisition of such Collateral and, at the Secured Creditor's request, the Company shall execute and deliver and shall cause the Subsidiaries to execute and deliver such Security Documents for filing or recordation and deliver such items of Collateral as Collateral Agent or the Secured Creditor may reasonably request for purposes thereof and the Company shall pay the cost of preparing any such Security Documents and the filing and recordation thereof. Without limiting the generality of the foregoing, the Company agrees to, and to cause each Subsidiary (other than with respect to property required to be released pursuant to Section 3.6) to notify the Secured Creditor upon the acquisition of any Real Property acquired after the date hereof, except as provided by Section 3.6, and upon request of the Secured Creditor, to provide to the Secured Creditor an appraisal and an environmental report (each in form and substance satisfactory to the Secured Creditor) covering such property, and to cause such Real Property to be subjected to a Mortgage or Deed of Trust in favor of Collateral Agent for the benefit of Secured Creditor. With respect to any such Mortgages or Deed of Trust, the Company or such Subsidiary shall deliver to the Secured Creditor the following, all in form and substance satisfactory to the Secured Creditor: (i) executed Mortgages or Deed of Trust and financing statements encumbering such property and (ii) ALTA lenders' extended coverage policies of title insurance on such property, in liability, amount and form and issued by a title company satisfactory to the Secured Creditor showing the Mortgage or Deed of Trust as a perfected lien upon the property, subject only to Liens permitted pursuant to Section 7.3 and such other exceptions as may be approved by the Secured Creditor in writing, together with endorsements reasonably required by the Secured Creditor and affirmative assurances that the improvements are wholly located within the boundaries of the insured land. -31- 39 3.3 Section 365(j) Property. Pursuant to the Reorganization Plan and the Confirmation Order, the Company has designated the property which comprises the Section 365(j) Property, which property, at the time of execution of the mortgage encumbering the Section 365(j) Property in favor of the trustee for the holders of Section 365(j) Liens, had a value, as appraised pursuant to the Company's land plan book dated May, 1991, no greater than 120% of the value of the Section 365(j) Liens established pursuant to the Reorganization Plan. The Liens granted to Collateral Agent pursuant hereto in the Section 365(j) Property are subordinate to the Liens of the Section 365(j) Liens and Collateral Agent shall not be permitted to exercise its rights or remedies of foreclosure against such property or exercise any other rights with respect to such property until such time as the Section 365(j) Liens have been satisfied or have been transferred to other property acceptable to the Bankruptcy Court. 3.4 [intentionally omitted] 3.5 Subordinations and Releases of Mortgage and Related Personal Property Liens. (a) [intentionally omitted] (b) At such times as Liens are granted by the Company or any Subsidiary, as permitted pursuant to Section 7.3(n), so long as no Default or Event of Default has occurred and is continuing or would result therefrom, and provided the Secured Creditor has received a certificate of a Responsible Officer certifying and demonstrating that all of the conditions set forth in Section 7.3(n) have been satisfied, the Secured Creditor shall instruct Collateral Agent to and Collateral Agent shall execute documentation subordinating the Lien of the Mortgages to such Liens, in form and substance satisfactory to the Secured Creditor and Collateral Agent, unless such Real Property qualifies for the release provisions in Section 3.5(c), in which event the provisions of Section 3.5(c) shall apply. (c) At such time as Liens are granted by any Subsidiary, as permitted by Section 7.3(n), so long as no Default or Event of Default has occurred and is continuing or would result therefrom, and provided the Secured Creditor has received a certificate of a Responsible Officer certifying and demonstrating that all of the conditions set forth in Section 7.3(n) have been satisfied, the Secured Creditor shall instruct Collateral Agent to and Collateral Agent shall release the Lien of the Mortgages on any Subsidiary Property Under Development if (i)(x) such Real Property is financed under the acquisition and -33- 40 project financing provisions of Sections 7.2(f) or 7.2(j), and (y) the terms of such financing prohibit subordinate Liens upon such Real Property, or (ii) such Real Property is contributed by the Company to a Subsidiary pursuant to Section 7.8(g). The Company shall use reasonable efforts to cause any lender/seller providing the acquisition and/or project financing on Subsidiary Property Under Development to permit the subordination of Collateral Agent's Liens on such Subsidiary Property Under Development, and thereby to eliminate the need for Collateral Agent to release its Liens on such Subsidiary Property Under Development. In connection with the release of any Liens on Subsidiary Property Under Development pursuant to this Section 3.5(c), upon the request of the Company, Secured Creditor shall instruct Collateral Agent to, and Collateral Agent shall, release any Liens upon any Personal Property related to, and integral to the use of, the Real Property being released; provided that the Company provides a detailed list of such Personal Property to be released in form and substance satisfactory to Secured Creditor. If such lender/seller will permit such subordination, then, notwithstanding the foregoing provisions of this Section 3.5(c), Collateral Agents's Liens on such Subsidiary Property Under Development will not be released and will become subordinate Liens pursuant to documentation in form and substance satisfactory to Secured Creditor. (d) [intentionally omitted] 3.6 Subsidiary Guaranties. The payment and performance by the Company of its obligations under this Agreement and the other Transaction Documents, and any and all other liabilities of the Company to the Secured Creditor or Collateral Agent, whether now existing or hereafter created or acquired, are and shall continue to be guaranteed by any and all Subsidiaries, which are and shall continue to be evidenced by guarantees in the form of the Subsidiary Guaranties. The Company shall cause any entity becoming a Subsidiary after the date hereof to execute and deliver counterparts of the Transaction Documents to which Subsidiaries of the Company are parties (other than the Note, the Note Agreement and the initial Mortgages recorded in Florida), including the Subsidiary Guaranties and the Security Documents, and to take all such steps as shall be necessary to create in favor of the Collateral Agent duly perfected and recorded Liens securing the Secured Obligations. In the case of any subsequent Florida Mortgages executed by such subsequent Subsidiaries to secure their obligations under the Subsidiary Guaranties, the amount of recovery under such subsequent Mortgages shall be limited to an amount not greater than the value of the respective additional mortgaged property. -33- 41 SECTION 4. REPRESENTATIONS AND WARRANTIES The Company hereby represents and warrants to Secured Creditor that: 4.1 Financial Condition. (a) The consolidated balance sheets of the Company and its consolidated Subsidiaries as at December 31, 1995 and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, reported on by Ernst & Young, a copy of which has been furnished to the Lender, fairly and accurately present the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. (b) The unaudited consolidated balance sheets of the Company and its consolidated Subsidiaries as at September 30, 1996, and the related consolidated statements of income and cash flows for the three months and fiscal year then ended, a copy of which has been delivered to the Lender, fairly and accurately presents the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the three months, and fiscal year, then ended (subject to normal year-end adjustments) and a Responsible Officer has so certified to the Lender. (c) All such financial statements described in clauses (a) and (b) above, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except for such inconsistencies as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). Neither the Company nor any of its consolidated Subsidiaries had, at the date of the most recent balance sheet referred to above, any material Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including any interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto or in Schedule 4.1. Since September 30, 1996 there has been no sale, transfer or other disposition or agreement therefor by the Company or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property (including any capital stock of any other Person) which is material in relation to the consolidated financial condition of the Company and its consolidated Subsidiaries at September 30, 1996, except as -34- 42 described in Schedule 4.1 or consented to in writing by the Lender in its sole discretion. (d) The three-year Management Business Plan update for the period 1996-1998 delivered to the Lender prior to the date hereof (i) was prepared in good faith upon assumptions believed by the Company to be reasonable, it being understood that the projections therein contained as to future events are subject to certain uncertainties and contingencies which are beyond the control of the Company and may be significant, and thus no assurance can be given that such projections will be realized, and (ii) presents fairly, in all material respects, the actual results of operations of the Company and Subsidiaries for the period from January 1, 1996 through the date thereof, in accordance with GAAP, subject to recurring year-end audit adjustments and the absence of footnotes. 4.2 No Material Adverse Change. Since September 30, 1996, (a) there has been no development or event nor any prospective development or event, which has had or could reasonably be expected to have a Material Adverse Effect, except such developments or events or prospective developments or events as have been disclosed by the Company in filings with the Securities and Exchange Commission made prior to the date hereof and true and correct copies of which have been delivered to the Lender or as set forth on Schedule 4.2, and (b) no dividends or other distributions have been declared, paid or made upon the Capital Stock of the Company nor has any of the Capital Stock of the Company been redeemed, retired, purchased or otherwise acquired for value by the Company or any of its Subsidiaries. As of the date hereof and the Issuance Date, no motion for the conversion of the case, appointment of a trustee, or dismissal is pending or has been denied, the reversal of which on appeal would affect the validity of this Agreement and no appeal has been taken from the entry of the Confirmation Order in the Reorganization Proceedings, the reversal, modification, or affirmance of which will affect the validity or enforceability, or change the provisions, of this Agreement or any other Transaction Document. 4.3 Corporate Existence; Compliance with Law. Each of the Company and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, except, in the case of any such Subsidiary, where all such failures to be in good standing are not reasonably likely, in the aggregate, to have a Material Adverse Effect, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign -35- 43 corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, except to the extent that all such failures to be so qualified and in good standing are not reasonably likely, in the aggregate, to have a Material Adverse Effect, and (d) is in compliance with all Requirements of Law except to the extent that any failures to comply therewith is not reasonably likely, in the aggregate, to have a Material Adverse Effect. 4.4 Corporate Power; Authorization; Enforceable Obligations. (a) The Company. The Company has the corporate power and authority, and the legal right, to make, deliver and perform this Agreement, the Note and other Transaction Documents, and to borrow hereunder and perform the terms thereof and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement and the Notes and to authorize the execution, delivery and performance of this Agreement, the Notes and the other Transaction Documents including the issuance of the Preferred Stock and the Initial Warrants, except for shareholder action necessary to authorize (i) the Preferred Stock, (ii) the Common Stock of the Company issuable upon conversion of the Preferred Stock and exercise of the Warrants and (iii) issuance of the Warrants. Except as set forth on Schedule 4.4, no consent or authorization of, filing with or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement, the Note or the other Transaction Documents, except such consents, authorizations, filings or other acts as have been obtained, made or performed, as the case may be, and as remain in full force and effect. This Agreement and the other Transaction Documents to which the Company is party have been or will be, duly executed and delivered on behalf of the Company. This Agreement, and each other Transaction Document executed and delivered constitutes, or when executed and delivered will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). (b) Subsidiaries. Each of the Subsidiaries (including Unrestricted Subsidiaries) party to the Transaction Documents has the corporate power and authority, and the legal -36- 44 right, to make, deliver and perform the Transaction Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Transaction Documents to which it is a party. Except as set forth on Schedule 4.4, no consent or authorization of, filing with or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the execution, delivery, performance, validity or enforceability of the Transaction Documents to which it is a party, except such consents, authorizations, filings or other acts as have been obtained, made or performed, as the case may be, and as remain in full force and effect. Each Transaction Document to which any Subsidiary (including Unrestricted Subsidiaries) is a party has been or will be duly executed and delivered on behalf of each such Subsidiary. Each Transaction Document to which any Subsidiary (including Unrestricted Subsidiaries) is a party, executed and delivered constitutes, or when executed and delivered will constitute, a legal, valid and binding obligation of each such Subsidiary, enforceable against each such Subsidiary in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 4.5 No Legal Bar. The execution, delivery and performance of this Agreement, the Note, the Subsidiary Guaranty and the other Transaction Documents, and the use of the proceeds of the Notes will not violate (i) any Requirement of Law or (ii) except as disclosed on Schedule 4.5 hereto, any material Contractual Obligation of the Company or of any of its Subsidiaries or Unrestricted Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. 4.6 No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Company, threatened by or against the Company or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to this Agreement, the Note or other Transaction Documents or any of the transactions contemplated hereby or thereby or (b) which is reasonably likely to have a Material Adverse Effect, which has not been disclosed (including, estimates of the Dollar amounts involved) in the Company's filings with the Securities and Exchange Commission made prior to the date hereof, true and correct copies of which have been delivered to the Lender or on Schedule 4.6 hereto. -37- 45 4.7 No Default. Neither the Company nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which is reasonably likely to have a Material Adverse Effect, except as disclosed, including estimates of the Dollar amounts involved, in the Company's filings with the Securities and Exchange Commission made prior to the date hereof, true and correct copies of which have been delivered to the Lender or on Schedule 4.7. No Default or Event of Default has occurred and is continuing. No default has occurred and is continuing under any of the Foothill Loan Documents or the indenture governing the Unsecured Cash Flow Notes. 4.8 Ownership of Property; Liens. Each of the Company and its Subsidiaries, as the case may be, has good record and marketable title in fee simple to, or a valid leasehold interest in, all of the Collateral and all its other real property, and good title to all its other property necessary for the operation of its business, and none of such property of the Company or such Subsidiaries is subject to any Lien except as permitted by Section 7.3. To the best knowledge of the Company, after diligent inquiry, the Collateral includes all property of the Company and its Subsidiaries that is not Excluded Property. 4.9 Intellectual Property. The Company and each of its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted except for those the failure to own or license which is not reasonably likely to have a Material Adverse Effect (the "Intellectual Property"). No claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Company know of any valid basis for any such claim. The use of such Intellectual Property by the Company and its Subsidiaries does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, do not have a Material Adverse Effect. To the knowledge of the Company, there exists no infringement upon the Intellectual Property rights of the Company and Subsidiaries by any other Person. 4.10 Taxes. Each of the Company and its Subsidiaries (including Unrestricted Subsidiaries and Joint Ventures) has filed or caused to be filed all tax returns which, to the knowledge of the Company, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any taxes, -38- 46 fees or other charges the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Company or its Subsidiaries (including Unrestricted Subsidiaries and Joint Ventures), as the case may be) except tax claims which are to be paid on a deferred basis pursuant to the Reorganization Plan; no tax Lien has been filed, and, to the knowledge of the Company, no claim is being asserted, with respect to any such tax, fee or other charge, except as disclosed on Schedule 4.10. 4.11 Federal Regulations. No part of the proceeds of the Note will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation G, T, U or X of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect or for any purpose which violates the provisions of the Regulations of such Board of Governors. 4.12 ERISA. Except as disclosed on Schedule 4.12 or by letter to the Lender referring to this Section 4.12 delivered on or prior to the date hereof in accordance with Section 6.7(d), no Reportable Event has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan. The Company and each Commonly Controlled Entity are in substantial compliance with the applicable provisions of ERISA with respect to each Plan. The present value of all accrued benefits under each Single Employer Plan (based on the reasonable assumptions used by the independent actuary for such Plan for purposes of establishing the minimum funding requirements under Section 412 of the Code) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits, individually or in the aggregate for all Single Employer Plans (excluding for purposes of such computation any Single Employer Plans with respect to which the value of the assets exceed the present value of the accrued benefits), by more than $4,600,000. Neither the Company nor any Commonly Controlled Entity is liable under Title IV of ERISA by reason of the termination of a Single Employer Plan or the withdrawal from a Single Employer Plan in which it was a "substantial employer" within the meaning of Section 4001(a)(2) of ERISA. Each Plan intended to be qualified under Section 401(a) of the Code, including each Single Employer Plan, is qualified in operation under Section 401(a) of the Code and is qualified in form under Section 401(a) of the Code, except with respect to any required amendments with respect to which the remedial amendment period under Section 401(b) of the Code has not expired. Neither the Company nor any Commonly Controlled Entity has had a complete -39- 47 or partial withdrawal from any Multiemployer Plan and neither the Company nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Company or any such Commonly Controlled Entity were to withdraw from all Multiemployer Plans in complete withdrawals within the meaning of Section 4203 of ERISA as of the valuation dates for such plans most closely preceding the date on which this representation is made or deemed made. No Multiemployer Plan is in Reorganization or Insolvent. Neither the Company nor any Commonly Controlled Entity is liable for fines, penalties, taxes or related charges under Chapter 43 of the Code or under Sections 409, 502(c), 502(i), 502(1) or 4071 of ERISA in an amount exceeding $50,000 in the aggregate at any time. There are no material claims (other than routine claims for benefits) against any Plan (other than a Multiemployer Plan) or against the Company or any Commonly Controlled Entity in connection with any such Plan. Neither the Company nor any Commonly Controlled Entity is liable for post retirement benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) except as required by Section 4980B of the Code and Section 601 of ERISA. 4.13 Investment Company Act; Other Regulations. The Company is not an "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. The Company is not subject to regulation under any Federal or state statute or regulation which limits its ability to incur Indebtedness. 4.14 Subsidiaries and Joint Ventures. The Subsidiaries listed on Schedule 4.14(A) constitute all of the Subsidiaries and such schedule identifies the shareholders of such Subsidiary, the Joint Ventures listed on Schedule 4.14(B) constitute all of the Joint Ventures and such schedule identifies all owners of the Joint Venture interests thereof and the percentage equity ownership of such owners, and neither the Company nor any Subsidiary other than a Venture Subsidiary owns any Joint Venture interest. 4.15 Environmental Matters. Each of the representations and warranties set forth in paragraphs (a) through (g) of this Section is true and correct, except as disclosed on Schedule 4.15 or described in the certificate regarding environmental matters required pursuant to Section 5.1(i) or except to the extent that the facts and circumstances giving rise to any such failure to be so true and correct is not reasonably likely to have a Material Adverse Effect: (a) The Total Real Property does not contain, and has not previously contained, therein, thereon, or thereunder, -40- 48 including the soil and groundwater thereunder, any Hazardous Materials in violation of any Environmental Law. (b) The Company, its Subsidiaries, the Joint Ventures, the Total Real Property, and all operations and facilities at the Total Real Property, are in compliance with all Environmental Laws, and there are no Hazardous Materials or violations of any Environmental Law which could interfere with the continued operation of any of the Total Real Property or impair the fair saleable value of any thereof. (c) Neither the Company nor any of its Subsidiaries nor any of the Joint Ventures has received any complaint or any notice of violation, alleged violation or investigation or of potential liability or designating any of such Persons as a potentially responsible party under any Environmental Law regarding environmental protection matters or environmental permit compliance with regard to the Total Real Property, nor is the Company aware that any Governmental Authority is contemplating delivering to the Company or any of its Subsidiaries or any of the Joint Ventures any such notice. Neither the Company nor any of its Subsidiaries nor any of the Joint Ventures has reported any releases of Hazardous Materials to any Governmental Authority. (d) Hazardous Materials have not been generated, treated, stored or disposed of, at, on or under any of the Total Real Property in violation of any Environmental Law, nor have any Hazardous Materials been transferred from the Total Real Property to any other location in violation of any Environmental Law nor have there been any treatment, storage or disposal operations on any of the Total Real Property requiring any approval or permit from any Governmental Authority. Neither the Company nor any of its Subsidiaries nor any of the Joint Ventures has ever owned or operated or currently owns or operates any waste disposal or storage facilities, underground storage tanks or surface impoundments except as disclosed on Schedule 4.15. (e) There are no governmental or administrative actions or judicial proceedings pending or, to the knowledge of the Company, contemplated under any Environmental Laws to which the Company or any of its Subsidiaries or any of the Joint Ventures is or, to the knowledge of the Company, will be named as a party with respect to the Total Real Property, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Company or any of its Subsidiaries or any of the Joint Ventures or to any of the Total Real Property. -41- 49 (f) There is no environmental condition associated with any of the Total Real Property which would impede the development thereof, including the presence of endangered or threatened species, or ecologically sensitive habitat or water rights or quality issues. (g) Copies of all permits, authorizations and environmental reports for or with respect to the Total Real Property have been made available to the Lender. 4.16 Indebtedness. Schedule 4.16 lists all Indebtedness (including available commitments) of the Company and its Subsidiaries as existing on the date hereof. 4.17 Contingent Obligations. Schedule 4.17 lists all Guarantee Obligations of the Company and all Guarantee Obligations of any of its Subsidiaries. 4.18 Restitution Program and Final Judgment. The Company and its Subsidiaries are in compliance with the "Restitution Program" and the "Final Judgment," as defined in the Reorganization Plan. 4.19 Certain Fees. No broker's or finder's fee or commission will be payable with respect to this Agreement or any other Transaction Document or any of the transactions contemplated hereby or thereby except for the fee payable by the Company to Banker's Trust pursuant to an engagement letter dated August 3, 1995, as amended by a letter agreement dated February 29, 1996, which the Company agrees to pay, and the Company hereby indemnifies Secured Creditor against, and agrees that it will hold Secured Creditor harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability. 4.20 Disclosure. No representation or warranty of the Company or any of its Subsidiaries contained in any Transaction Document or in any other document, certificate or written statement furnished to Secured Creditor by or on behalf of the Company or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement or any other Transaction Document contains any untrue statement of a material fact or omits to state a material fact (known to the Company in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were -42- 50 made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by the Company to be reasonable at the time made, it being recognized by the Lender that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There are no facts known (or which should upon the reasonable exercise of diligence be known) to the Company (other than matters of an economic nature affecting business enterprises generally) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and have not been disclosed herein or in such other written documents, certificates and statements furnished to Secured Creditor for use in connection with the transactions contemplated hereby. 4.21 Insurance. The Company and each of its Subsidiaries maintain, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and business of its Subsidiaries, against loss and damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar business of such types and in such amounts as are customarily carried under similar circumstances by such other corporations. Attached as Schedule 4.21 is a complete and accurate description of all policies of insurance that will be in effect as of the Issuance Date for the Company and each of its Subsidiaries. 4.22 Total Real Property Matters. The Company and each of its Subsidiaries (including the Joint Ventures) is in compliance with all development orders obtained by the Company and its Subsidiaries (including the Joint Ventures) with respect to any Total Real Property, except to the extent noncompliance could not reasonably be expected to have a Material Adverse Effect. 4.23 Reorganization Proceedings. The Company has delivered to the Lender true, correct and complete copies of the Reorganization Plan and Confirmation Order, together with copies of any modifications thereto or subsequent proceedings with the Bankruptcy Court. The Company and its Subsidiaries are in all material respects in compliance with the Reorganization Plan and Confirmation Order. 4.24 Excluded Subsidiaries; Unrestricted Subsidiaries. (a) The Excluded Subsidiaries do not have, nor are they anticipated to have, any assets or revenues. The Excluded Subsidiaries do not currently conduct, nor are they anticipated to begin to conduct, any business. -43- 51 (b) The Unrestricted Subsidiaries do not have, nor are they anticipated to have, any assets or revenues other than the assets disclosed on Schedule 4.24 as being owned by them and the revenues arising therefrom. The Unrestricted Subsidiaries do not currently conduct, nor are they anticipated to begin to conduct, any business other than the businesses disclosed on Schedule 4.24 as being conducted by them. 4.25 [intentionally omitted] 4.26 Bank Accounts. Schedule 4.26 (as amended from time to time by written notice to the Lender) is a true and correct list of all Bank Accounts of the Company and its Subsidiaries. 4.27 Utility Fund Trusts. All of the Company's obligations under each of the Class 14 Utility Fund Trust Agreement and the Homesite Program Utility Fund Trust Agreement, each dated December 8, 1992, and entered into by and between the Company and First Union National Bank of Florida as Trustee have been fully funded in the amount of $10,000,000. 4.28 [intentionally omitted] 4.29 SPUD Subsidiaries. Except as disclosed on Schedule 4.29, no Subsidiary is a SPUD Subsidiary. 4.30 DRI and Zoning. The representations and warranties set forth in Schedule 4.30 are by this reference incorporated herein as though fully set forth and made in this Section 4.30. SECTION 5. CONDITIONS PRECEDENT 5.1 Conditions to Issuance. The obligation of the Lender to accept the Note and make the loan contemplated hereby is subject to the satisfaction, or waiver by the Lender, on or before May 22, 1997, of the following conditions precedent: (a) Secured Note Documents. The Lender shall have received (i) this Agreement, executed and delivered by a duly authorized officer of the Company and the Mortgagor Subsidiaries, (ii) a Note conforming to the requirements hereof and executed and delivered by a duly authorized officer of the Company and the Mortgagor Subsidiaries, (iii) each other Secured Note Document conforming to the requirements hereof and executed and delivered by a duly authorized officer of the Company or each of its Subsidiaries (including each of the Unrestricted Subsidiaries as to its Acknowledgment under the Stock Pledge Agreement), as the case may be, which are parties to such Secured Exchangeable Note Document, (iv) each other Transaction Document, executed and delivered by a duly authorized -44- 52 officer of each party thereto, (v) copies, certified as true and correct copies by a Responsible Officer, of the Security Documents and (vi) in form and substance satisfactory to the Lender and Collateral Agent, a duly executed agreement with local counsel or representatives with respect to certain collateral-related services to be provided thereby to the Lender and Collateral Agent, respectively. (b) Corporate Proceedings of the Company. The Lender shall have received a copy of the resolutions, in form and substance satisfactory to the Lender and dated on or prior to the date hereof, of the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement, the Note, and the other Transaction Documents to which it is a party, certified by the secretary or an assistant secretary of the Company as of the Issuance Date, which certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded and are in full force and effect and shall be in form and substance satisfactory to the Lender. (c) Corporate Proceedings of the Subsidiaries. The Lender shall have received a copy of the resolutions, in form and substance satisfactory to the Lender and dated on or prior to the date hereof, of the Board of Directors of each Subsidiary which is a party to any Transaction Document authorizing the execution, delivery and performance of the Transaction Documents to which it is a party, certified by its secretary or an assistant secretary as of the Issuance Date, which certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded and are in full force and effect and shall be in form and substance satisfactory to the Lender. (d) Corporate Documents. The Lender shall have received true and complete copies of (i) the certificate or articles of incorporation of the Company and each of its Subsidiaries which is a party to any Transaction Document certified by the Secretary of State of their respective jurisdictions of incorporation as of a recent date prior to the Issuance Date, (ii) the Bylaws of the Company and each of its Subsidiaries which is a party to any Transaction Document certified as of the Issuance Date by its secretary or an assistant secretary, (iii) good standing certificates, including, in states which provide such certificates, certification of tax status, of the Company and each of its Subsidiaries which is a party to any Transaction Document certified by the Secretary of State of their respective jurisdictions of incorporation and of each jurisdiction in which they are qualified to do business as a -45- 53 foreign corporation dated as of a recent date prior to the Issuance Date and (iv) incumbency and signature certificates for the Company and each Subsidiary executing any Transaction Document as of the Issuance Date. (e) Other Documents. The Lender shall have received copies, certified as true and correct by a Responsible Officer, of (i) the indenture relating to the Unsecured Cash Flow Notes and the Foothill Loan Documents, each as amended through the Issuance Date, and (ii) the Business Plan and the Beige Book. (f) No Violation. The consummation of the transactions contemplated hereby and by the other Transaction Documents shall not contravene, violate or conflict with, nor involve Secured Creditor in any violation of, any Requirement of Law. (g) Consents, Authorizations, and Filings. The Lender shall have received a certificate of a Responsible Officer (i) attaching copies of all consents, authorizations, and filings referred to in Section 4.4 and in any similar provision of any of the other Transaction Documents, and (ii) stating that such consents, authorizations, and filings are in full force and effect and each such consent, authorization, and filing shall be in form and substance satisfactory to the Lender. (h) Legal Opinions. The Collateral Agent and the Lender shall have received executed legal opinions dated as of the Issuance Date in form and substance satisfactory to the Lender: (i) Arent Fox Kintner Plotkin & Kahn, counsel to the Company and its Subsidiaries; (ii) corporate counsel to the Company and its Subsidiaries; (iii) Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., special Florida counsel to the Company and its Subsidiaries; (iv) Chambliss & Bahner, special Tennessee counsel to the Company and its Subsidiaries; and (v) Carlton Fields Ward Emmanuel Smith & Cutler, P.A., special Florida counsel to the Lender and Collateral Agent. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement and the -46- 54 other Transaction Documents as the Lender may reasonably require. (i) Certification as to Environmental Matters. The Lender shall have received a certificate of a Responsible Officer (i) stating that the Company is not aware of any environmental matters in connection with any of the Total Real Property which could reasonably be expected to result in a liability to the Company or any Subsidiary or any Joint Venture in excess of $200,000 except as listed on a schedule attached to such certificate and (ii) certifying that the Company has made, and agreeing that the Company will continue to make, available to the Lender copies all notices, citations, requests for information and reports from the Environmental Protection Agency, Florida Department of Environmental Regulation or other Federal, state or local environmental regulatory agency having jurisdiction over any of the Total Real Property, and any report or audit prepared by a private company with respect thereto. (j) Continued Perfection of Security Interests. The Company and its Subsidiaries party to any of the Security Documents shall have taken or cause to be taken all such actions deemed necessary or desirable by Collateral Agent to ensure that Collateral Agent or Secured Creditor has and continues to have a valid and perfected security interest in the Collateral granted by the Security Documents subject to the Liens permitted pursuant to this Agreement and the Security Documents (and the Lender and Collateral Agent shall have received satisfactory evidence thereof). Such action shall include: (i) the delivery by the Company pursuant to the Stock Pledge Agreement of certificates (which certificates shall be registered in the name of Collateral Agent or properly endorsed in blank for transfer or accompanied by irrevocable undated stock powers duly endorsed in blank, all in form and substance satisfactory to Collateral Agent and the Lender) representing all Subsidiary Stock; (ii) the delivery to Collateral Agent of Uniform Commercial Code financing statements, executed by each of the Company and each of its Subsidiaries as to the Collateral granted by each such party for all jurisdictions as may be necessary or desirable to perfect or continue the perfection of Collateral Agent's security interest in such Collateral; and (iii) evidence reasonably satisfactory to Collateral Agent and the Lender that all other filings, recordings and other actions Collateral Agent and the Lender deems necessary or advisable to establish, preserve and perfect the Liens and the priority thereof granted to Collateral Agent and the Lender hereunder shall have been made. -47- 55 (k) Real Property Matters. The Lender shall have received: (i) such Mortgages and Deeds of Trust as may be requested by the Lender, in each case in form and substance satisfactory to the Lender and its local counsel, to protect and preserve the Lien and priority of the Mortgages and Deeds of Trust as they secure the Secured Obligations and other amounts due hereunder and under the other Transaction Documents, together with new ALTA lender's extended coverage policies of title insurance or amendments of the existing ALTA lender's extended coverage policies of title insurance on the Real Property encumbered by the Mortgages and Deeds of Trust in liability, amount and form issued by a title company satisfactory to the Lender showing the Mortgages and Deeds of Trust as first Liens upon the respective Real Property, subject only to Liens permitted hereunder and thereunder and such other exceptions or exclusions as may be approved by the Lender in its sole discretion, together with any endorsements reasonably required by the Lender, and affirmative assurance that the improvements are fully located within the boundaries of the insured land; and (ii) in respect of the Total Real Property listed on Schedule 5.1(k) and subject to Section 5.3(a), copies of such appraisals, surveys, environmental audit reports, satisfactory evidence of entitlements (including so-called "zoning letters"), and other documents as the Lender may request, each as specified or contemplated on Schedule 5.1(k). The legal descriptions of real property Collateral shall be satisfactory to Lender and its local counsel. (l) [intentionally omitted] (m) [intentionally omitted] (n) [intentionally omitted] (o) Evidence of Insurance. The Company shall have delivered to the Lender certificates of insurance naming Collateral Agent on behalf of Secured Creditor as loss payee under the casualty and surety policies required pursuant to Section 6.5. (p) No Material Adverse Effect. On the Issuance Date, the Lender shall have received an officer's certificate executed by a Responsible Officer stating that no Material Adverse Effect has occurred since September 30, 1996. (q) Intercreditor Agreement. The Intercreditor Agreement shall have been executed and delivered by each of the parties thereto, and the Lender shall have received a fully executed copy thereof in form and substance satisfactory to the Lender. -48- 56 (r) Fees, Costs, and Expenses. The Company shall have paid, when and as invoiced: (i) to the Lender all fees, costs, and expenses of the Lender and its counsel incurred in connection with the preparation, negotiation, and execution of this Agreement, the other Transaction Documents, and any other documents executed in connection herewith or therewith; and (ii) to the Collateral Agent all fees, costs, and expenses of Collateral Agent and its counsel incurred in connection with the preparation, negotiation, and execution of this Agreement, any other Transaction Documents to which it is a party and any other documents executed in connection herewith or therewith. (s) Borrowing Request. The Company shall have delivered a Borrowing Request, signed by a Responsible Officer, specifying the amount of the borrowing requested and the date such borrowing is to be made and certifying, as of the date of such certificate and the date of such borrowing, to the fact that no Default or Event of Default has occurred and that each representation and warranty of the Company or any Subsidiary contained in this Agreement and each other Transaction Document was true and correct in all material respects when made and on as of the date of such certificate and the date of such borrowing. (t) [intentionally omitted] (u) Consents under Certain Loan Documents. Any consents necessary under the terms of the Security Documents and other Foothill Loan Documents in connection with the transactions contemplated by the Transaction Documents shall have been obtained and shall be in form and substance satisfactory to the Lender. (v) Other Matters. The Company shall have made available to the Lender such other documents and information, or taken such other actions, as the Lender may reasonably request. (w) Addressee. Each certificate delivered to the Lender under this Section 5 shall be addressed to Secured Creditor. (x) Tax Servicing Contracts. Provision reasonably satisfactory to the Lender and Collateral Agent shall have been made for delivery to each of them of all reports and information delivered to the holders of the Foothill Debt pursuant to any Tax Servicing Contracts existing in favor of such holders in respect of Real Property located in Florida and Tennessee. -49- 57 (y) Due Diligence Fee Agreement. The Company and the Lender shall have executed and delivered the Due Diligence Fee Agreement. (z) Use of Proceeds. The Lender shall have received an officer's certificate executed by a Responsible Officer specifically describing the use to be made of the proceeds of the issuance of the Note and the Lender shall approve such use, in its sole and absolute discretion. (aa) Collateral Agent. A Person reasonably satisfactory to the Lender shall have agreed to serve as Collateral Agent under the Transaction Documents and shall have executed and delivered each Transaction Document to which the Collateral Agent is a party. 5.2 [intentionally omitted] SECTION 6. AFFIRMATIVE COVENANTS The Company hereby agrees that, from and after the date hereof and until the "Closing Date" (as defined in the Investment Agreement) and thereafter at any time while there shall be due and owing and unpaid any Repurchase Obligation under Section [8] of the Certificate of Designation, the Company shall, and shall cause each of its Subsidiaries to: 6.1 Financial Statements. Furnish to the Lender: (a) as soon as available, but in any event not later than 90 days after the end of each fiscal year of the Company, a copy of the consolidated balance sheet of the Company and its consolidated Subsidiaries (including Unrestricted Subsidiaries) as at the and of such year and the related consolidated statements of income and retained earnings and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Ernst & Young or other independent certified public accountants of nationally recognized standing acceptable to the Lender; (b) as soon as available, but in any event not later than 90 days after the end of each fiscal year of the Company, a copy of the consolidating balance sheet of the Company and its consolidated Subsidiaries (including Unrestricted Subsidiaries) as at the end of such year and the related consolidating statements of income and retained earnings and of cash flows for such year, setting forth in each case in comparative -50- 58 form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects; (c) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Company, the unaudited consolidated and consolidating balance sheet of the Company and its consolidated Subsidiaries (including Unrestricted Subsidiaries) as at the end of such quarter and the related unaudited consolidated and consolidating statements of income and retained earnings and of cash flows of the Company and its consolidated Subsidiaries (including Unrestricted Subsidiaries) for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects when considered in relation to the consolidated and consolidating financial statements of the Company and its consolidated Subsidiaries (subject to normal year-end audit adjustments); (d) as soon as available, but in any event not later than 30 days after the end of each calendar month, the unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries (including Unrestricted Subsidiaries) as at the end of such month and the related unaudited consolidated statements of income and retained earnings and of cash flows of the Company and its consolidated Subsidiaries (including Unrestricted Subsidiaries) for such month, setting forth in each case in comparative form the figures for such month as set forth on the Business Plan and, beginning in fiscal year 1996, with a comparison to the same calendar month of the preceding fiscal year, certified by a Responsible Officer as being fairly stated in all material respects when considered in relation to the consolidated financial statements of the Company and its consolidated Subsidiaries (including Unrestricted Subsidiaries) (subject to normal year-end audit adjustments); and (e) as soon as available, but in any event not later than 45 days after the end of each fiscal quarter, projections by the Company of the operating cash flow budget of the Company and its Subsidiaries for (i) the following two fiscal quarters, prepared on a monthly basis and (ii) the two fiscal quarters thereafter, prepared on a quarterly basis, certified by a Responsible Officer as being prepared in good faith on the basis of the assumptions stated therein, which assumptions were reasonable in light of conditions existing at the time of delivery thereof and represented, at the time of delivery, the Company's best estimate of its future financial performance; -51- 59 all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). Furnish, or cause each Subsidiary with an investment in a Borrowing Base Joint Venture to furnish, to the Lender: (f) as soon as available, but in any event not later than 90 days after the end of each fiscal year of the relevant Borrowing Base Joint Venture, a copy of the balance sheet of such Joint Venture as at the end of such year and the related consolidated statements of income and retained earnings and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year; if such financial statements are required under the relevant Borrowing Base Joint Venture's governing or charter documents or other material agreement (including financing agreements) to be audited, then such financial statements shall be reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by independent certified public accountants acceptable to the Lender; (g) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of the relevant Borrowing Base Joint Venture, the unaudited balance sheet of such Borrowing Base Joint Venture as at the end of such quarter and the related unaudited statements of income and retained earnings and of cash flows of such Borrowing Base Joint Venture for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by the chief accounting officer or treasurer of the relevant Venture Subsidiary as being fairly stated in all material respects when considered in relation to the financial statements of such Borrowing Base Joint Venture (subject to normal year-end audit adjustments); and (h) as soon as available, but in any event not later than 30 days after the end of each calendar month, the unaudited balance sheet of the relevant Borrowing Base Joint Venture as at the end of such month and the related unaudited consolidated statements of income and retained earnings and of cash flows of such Borrowing Base Joint Venture for such month, certified by the chief accounting officer or treasurer of the relevant Venture Subsidiary as being fairly stated in all material respects when considered in relation to the financial -52- 60 statements of such Borrowing Base Joint Venture (subject to normal year-end audit adjustments); all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 6.2 Certificates; Other Information. Furnish to the Lender: (i) concurrently with the delivery of the financial statements referred to in Section 6.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor such accounting firm has obtained no knowledge that a Default or Event of Default has occurred and is continuing, except as specified in such certificate; (ii) concurrently with the delivery of the financial statements referred to in Sections 6.1(a), (b) and (c), a certificate of a Responsible Officer stating that, to the best of such Responsible Officer's knowledge, the Company and each Subsidiary during such period has observed or performed the covenants of Section 7 and all other of its covenants and other agreements, and satisfied every condition, contained in this Agreement and in the Note and in the other Transaction Documents to which it is a party to be observed, performed or satisfied by it, and that such Officer has obtained no knowledge that a Default or Event of Default has occurred and is continuing except as specified in such certificate, and, if a Default or Event of Default exists, stating the details thereof and what actions the Company proposes to take with respect thereto; (iii) within five Business Days after the same are sent, copies of all financial statements and reports which the Company sends to its stockholders and all financial statements and reports which the Company or any of its Subsidiaries sends to the holders or trustee of any Unsecured Cash Flow Notes, and within five Business Days after the same are filed, copies of all financial statements and reports which the Company may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; -53- 61 (iv) within 10 Business Days after the same are delivered, copies of all financial statements and all material reports, management letters or other financial information prepared for its Board of Directors; (v) on a monthly basis and, in any event, by no later than the 30th day of each month: (w) a detailed calculation of the Borrowing Base; (x) a summary listing, by Borrowing Base category, of the Total Real Property included directly or indirectly in the Borrowing Base and, by Joint Venture, of the investments of the Venture Subsidiaries in Joint Ventures, with, in each case, a summary reconciliation to such listing provided in respect of the prior month; (y) a detailed aging, by total, of the Homesite Commercial Receivables and of the Commercial Receivables and of the JV Receivables; and (z) a summary aging, by vendor, of the Company's accounts payable and any book overdraft; in each case, in form satisfactory to the Lender; (vi) not later than the tenth Business Day of every month, the monthly Management Business Plan update for the previous month, in form substantially equivalent to that attached hereto as Schedule F-1; (vii) not later than the tenth Business Day of every month, the "Land Sales Report" for the previous month, in form substantially equivalent to that attached hereto as Schedule G-1; and (viii) promptly, such additional financial and other information as the Lender may from time to time reasonably request. 6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings, and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be or where the terms of this Agreement or the Reorganization Plan would prohibit such payment, discharge, or satisfaction. 6.4 Conduct of Business and Maintenance of Existence. Subject to Sections 7.5, 7.6, 7.7 and 7.9: continue (a) to engage in business of the same general type as now conducted by it and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain -54- 62 all rights, privileges and franchises necessary or desirable in the normal conduct of its business; and (b) to comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith is not reasonably likely to, in the aggregate, have a Material Adverse Effect. 6.5 Maintenance of Property; Insurance. Keep all property useful and necessary in its business in good working order and condition; maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to the Lender, upon written request, full information as to the insurance carried. Each such policy of insurance shall name Collateral Agent as a loss payee thereunder and shall provide for at least thirty days prior written notice to Secured Creditor of any material modification or cancellation of such policies. On the Issuance Date and on each anniversary thereafter, the Company and its Subsidiaries shall submit to Secured Creditor certificates of insurance evidencing compliance with this Section 6.5. 6.6 Inspection of Collateral; Books and Records; Appraisals. Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of the Lender with respect to the Company and its Subsidiaries, to inspect the Collateral and related properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Company and its Subsidiaries with officers and employees of the Company and such Subsidiaries and with its independent certified public accountants. From time to time, if the Lender determines that obtaining appraisals is necessary or appropriate, the Lender will obtain appraisal reports from appraisers satisfactory to the Lender, stating then current fair market values of all or any portion of the Total Real Property. Anything herein to the contrary notwithstanding, the Company shall not be obligated to reimburse the Lender with respect to appraisals of the same particular item of Total Real Property that occur more frequently than once in any year, unless an Event of Default has occurred and is continuing or there has occurred a material adverse change in the value of the Collateral, in which case the Company shall be obligated to reimburse the Lender with respect to as many appraisals as the Lender deems necessary to conduct. -55- 63 6.7 Notices. Promptly give notice to the Lender of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Company or, to the knowledge of the Company, any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Company or, to the knowledge of the Company, any of its Subsidiaries and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, would have a Material Adverse Effect; (c) any litigation or proceeding affecting the Company or, to the knowledge of the Company, any of its Subsidiaries in which the amount involved is $250,000 or more and, not covered by insurance or in which injunctive or similar relief is sought; (d) as soon as possible and in any event within 30 days after the Company knows or has reason to know thereof, the occurrence or expected occurrence of any event or condition described in Section 4.12 which could reasonably be expected to result in liability of the Company or any Commonly Controlled Entity in excess of $100,000 and which is not reflected in the financial statements most recently delivered to the Lender pursuant to Section 6.1; and (e) any development or event which could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Company proposes to take with respect thereto. 6.8 Environmental Laws. (a) Comply with, and use its best efforts to insure compliance by all tenants and subtenants, if any, with, all Environmental Laws and obtain and comply with and maintain, and insure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, registrations or permits required by Environmental Laws, except in each case to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other -56- 64 actions required under Environmental Laws and promptly comply with all lawful orders and directives of all Governmental Authorities respecting Environmental Laws, except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not reasonably be expected to have a Material Adverse Effect; and (c) Defend, indemnify and hold harmless Secured Creditor, and its employees, agents, officers and directors, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to, the violation of or noncompliance with any Environmental Laws applicable to the real property owned or operated by the Company or any of its Subsidiaries, or any orders, requirements or demands of Governmental Authorities related thereto, including attorney's and consultant's fees, investigation and laboratory fees, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in this Section shall survive the payment of the Note and all other amounts payable hereunder. 6.9 Business Plan. Furnish to the Lender on or before the tenth day following approval by the Company's Board of Directors, but in no event later than December 31 of each fiscal year and within 10 days (after approval by the Company's Board of Directors, if applicable) of any amendment, modification or update thereto, a Business Plan of the Company and its Subsidiaries for the next succeeding fiscal year in a form and in substance satisfactory to the Lender setting forth in reasonable detail a projected statement for such fiscal year's income and cash flow with a projected balance sheet as of the close of the succeeding fiscal year end, accompanied by a statement of a Responsible Officer that the Business Plan projected statements of income, cash flow and balance sheet for the succeeding fiscal year have been adopted by the Board of Directors of the Company. The Company and its Subsidiary shall at all times conduct their business substantially in accordance with the Business Plan and shall not materially modify or deviate from such Business Plan without the prior written approval of the Lender. 6.10 Compliance with Other Transaction Documents. Comply with, and cause the Subsidiaries to comply with, all of the Transaction Documents. 6.11 Dividends from Subsidiaries. Cause the Subsidiaries to pay dividends to the Company from the Net Cash Proceeds of -57- 65 any sales of assets (including Real Property Sales) to the extent not prohibited by law, including the proceeds of any utility condemnations; provided that proceeds from the sale of residential units, lots or tracts by Subsidiaries (a) from developed phases of a multi-phase project comprising Subsidiary Property Under Development may be used to pay all costs associated with development of the same phase or additional phases of the same project, including reasonable reserves for such anticipated costs during the period commencing on the date of sale to the date 180 days after the date of sale (excluding any costs which are an allocated share of corporate general and administrative expenses of the Company or any Subsidiary), and (b) from single phase projects comprising Subsidiary Property Under Development to the extent units, lots or tracts may be sold in accordance with applicable laws and regulations prior to completion of the projects may be used to pay all costs associated with development of such project (excluding any costs which are an allocated share of corporate general and administrative expenses of the Company or any other Subsidiary), in either case until the conclusion of the project, at and following which time all such proceeds shall be distributed to the Company. For purposes hereof, "conclusion of the project" shall mean the completion of structure or infrastructure development of the project (or, with multi-phase projects: (a) (i) the final phase of the project, or (ii) the sale of substantially all units thereon; and (b) the payment of the Indebtedness in respect of Subsidiary Property Under Development that prohibits such distributions) in accordance with the requirements of applicable laws and regulations. 6.12 Supplemental Reports Regarding Real Property. (a) Furnish to the Lender such supplemental title reports on the Real Property subject to the Deed of Trust and Mortgages as the Lender may reasonably request from time to time; provided the Company shall not be required to provide such supplemental reports more than once per quarter. (b) No later than 60 days after the Issuance Date, the Company shall deliver to the Lender such third party appraisals, environmental reports, surveys, and ALTA title policies, as would have complied with the provisions of Section 5.1(l) if delivered on the Issuance Date with respect to all Real Property to the extent such reports were not required by the Lender to be delivered on or prior to the Issuance Date. 6.13 Compliance with Laws. The Company shall, and shall cause each of its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any -58- 66 Governmental Authority, noncompliance with which would or could be reasonably expected to cause a Material Adverse Effect. 6.14 Other Notices. Promptly give notice to the Lender of: (a) the creation of any new Deposit Account; and (b) the organization or formation of any new Venture Subsidiary, any other Subsidiary, any Unrestricted Subsidiary, or any Joint Venture; or the disposition or dissolution of any Excluded Subsidiary; in each case, together with such information related thereto as the Lender may request. 6.15 The Company Operating Account Control Agreement. Maintain in full force and effect the Company Operating Account Control Agreement. At all times from and after the date hereof, the Company shall continue to maintain the Company's cash management system substantially as such system exists on the date hereof, and shall continue to concentrate the funds of the Company into the Company Operating Account except to the extent that such funds reasonably are required to be held in other accounts for permitted uses by the Company, and except to the extent that such funds are invested in investments permitted by Section 7.9. 6.16 Foothill Reports. Deliver to the Lender a copy of each report, certificate or other document or information delivered to the lenders or agent pursuant to the Foothill Loan Documents, concurrently with the delivery thereof to such lenders or agent, including all annexes or attachments thereto. SECTION 7. NEGATIVE COVENANTS The Company hereby agrees that, from and after the date hereof and until the "Closing Date" (as defined in the Investment Agreement) and thereafter at any time while there shall be due and owing and unpaid any Repurchase Obligation under Section 8 of the Certificate of Designation, the Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: 7.1 Maintenance of Consolidated Net Worth; Interest Charge Coverage Ratio. Permit (i) Consolidated Net Worth at any time to be less than the amounts set forth below (hereinafter referred to as the "Minimum Consolidated Net Worth") the sum of: (a) $23,500,000; and (b) 50% of the Annual Net Income for the prior fiscal year; provided, however, that the amount -59- 67 determined under this clause (b) shall never be less than zero, or (ii) permit the Interest Charges Coverage Ratio at any time to be less than 1.5. To demonstrate compliance with the Minimum Consolidated Net Worth and the Interest Charges Coverage Ratio covenants set forth in this Section, the Company shall furnish to the Lender (i) within 45 days of the close of each calendar quarter a certificate of a Responsible Officer setting forth Minimum Consolidated Net Worth and the Interest Charges Coverage Ratio for such date calculated in accordance with this Section 7.1, and the calculation upon which it is based; and (ii) within 90 days of the close of each fiscal year, a certificate of a Responsible Officer setting forth Minimum Consolidated Net Worth and the Interest Charges Coverage Ratio as of such date calculated in accordance with this Section 7.1 and the calculation upon which it is based, reflecting in such annual certificate any addition to the Minimum Consolidated Net Worth that the Company is required to maintain resulting from the Annual Net Income for the fiscal year then ended, but only as calculated under clause (b) of this Section 7.1. 7.2 Limitation of Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness of the Company under or in respect of the Transaction Documents; (b) Indebtedness under or in respect of (i) the Revolving Loan Agreement (including Indebtedness in respect of Letters of Credit issued under the Revolving Loan Agreement), and any replacement of the Revolving Loans, not to exceed $45,000,000 in the aggregate principal amount outstanding at any time (unless increased to an amount up to $50,000,000 pursuant to an increase in the Working Capital Loan Commitments (as defined in the Revolving Loan Agreement) from $20,000,000 to an amount up to $25,000,000 in accordance with the terms of the "Intercreditor Agreement" included in the Foothill Loan Documents) or (ii) the Secured Floating Rate Note Agreement, and any replacement Indebtedness, not to exceed the amount then outstanding under such Note Agreement, provided that any such replacement loans shall be on terms and conditions collectively no less favorable to the Company than those set forth in the Revolving Loan Agreement or the Secured Floating Rate Note Agreement, as applicable; (c) [intentionally omitted]; (d) Indebtedness of the Company in respect of the Unsecured Cash Flow Notes; -60- 68 (e) Indebtedness of the Company and its Subsidiaries at any time outstanding, whether recourse or nonrecourse and whether incurred in connection with Subsidiary Property Under Development or otherwise, not exceeding $55,000,000 (less the face amount of all outstanding Guarantee Obligations permitted under Section 7.4(c) in respect of Indebtedness of any Unrestricted Subsidiary or Joint Venture) in the aggregate; provided, however, that the proceeds of such Indebtedness used to acquire, finance, or refinance Real Property shall not exceed 80% of the lesser of the purchase price or fair market value of such Real Property at the time of application of such proceeds; (f) Indebtedness of the Company to any Subsidiary or of any Subsidiary to the Company; provided that (i) such intercompany Indebtedness shall not be evidenced by promissory notes or any other instruments, and (ii) all Indebtedness of Subsidiaries to the Company shall not exceed an aggregate principal amount of $20,000,000 at any time; (g) Indebtedness of the Company and its Subsidiaries outstanding on the date hereof and listed on Schedule 4.16; (h) The limitations otherwise imposed by Section 7.2(e) notwithstanding, Indebtedness of any Subsidiary to Persons extending acquisition or project development financing in connection with Subsidiary Property Under Development of the Subsidiary (any Subsidiary incurring such Indebtedness shall be referred to in this Section 7.2(h) as a "SPUD Subsidiary"); provided that (i) neither the Company nor any Subsidiary other than that SPUD Subsidiary is liable for such Indebtedness in respect of that Subsidiary Property Under Development, directly or pursuant to a Guarantee Obligation or otherwise, (ii) such outstanding Indebtedness permitted pursuant to this Section 7.2(h) shall not exceed in the aggregate $75,000,000 minus other outstanding Indebtedness of the Company and Subsidiaries permitted pursuant to Section 7.2(e), and (iii) the proceeds of any such Indebtedness used to acquire, finance or refinance Real Property shall not exceed 80% of the purchase price or fair market value of such property, whichever is less, at the time of the application of such proceeds; (i) [intentionally omitted] (j) [intentionally omitted]; and (k) Indebtedness of Subsidiaries for the development of infrastructure, common areas, or recreational facilities owing to quasi-governmental entities such as community development and special districts to the extent financed -61- 69 through the issuance of industrial revenue bonds or other similar public financing; provided that (except for Liens permitted pursuant to Section 7.3(q)) there is no direct or indirect recourse to the Company with respect to such Indebtedness (other than inchoate Liens arising by operation of law in respect of such Indebtedness) and such Indebtedness shall not exceed $15,000,000 in the aggregate at any one time outstanding; provided further that the Company shall give the Lender prior written notice of the incurrence of any such Indebtedness under this Section 7.2(k). Anything to the contrary notwithstanding, in no event shall the Company or any Subsidiary co-make, endorse, guarantee (except to the extent permitted under Section 7.4(c)), or otherwise become liable or have any recourse with respect to any Indebtedness of any of the Unrestricted Subsidiaries. 7.3 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens securing Indebtedness permitted by Section 7.2(a); (b) Liens securing Indebtedness permitted by Section 7.2(b); (c) [intentionally omitted] (d) Liens against the Section 365(j) Property securing the Section 365(j) Claims pursuant to the Reorganization Plan; (e) Liens for taxes (i) which are not yet delinquent, or (ii) which are not in an aggregate amount, as to the Company and all Subsidiaries, of greater than $1,000,000, or (iii) which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiaries, as the case may be, in conformity with GAAP; (f) carriers', warehousemen's, mechanics', construction, materialmen's, repairmen's or other like Liens arising in the ordinary course of business which do not remain unsatisfied or undischarged for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; -62- 70 (g) pledges or deposits in connection with workers compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (h) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (i) easements, rights-of-way, restrictions, development orders, plats, and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Company or such Subsidiary; (j) Liens granted by the Company or any Subsidiary, as lessee, in the ordinary course of business on leased equipment, leasehold improvements and furnishings; (k) Liens created, incurred or assumed in connection with the acquisition of, or the refinancing or any subsequent refinancing of Indebtedness incurred in connection with property, plant and equipment acquired after the date hereof and attaching only to the property, plant and equipment being acquired or refinanced, if the Indebtedness secured thereby does not exceed (i) in any acquisition, 80% of the purchase price or fair market value of any Real Property, whichever is less, at the time of such acquisition and (ii) in any refinancing, the outstanding Indebtedness being refinanced; (l) other Liens in existence on the date hereof listed on Schedule 7.3, provided that no such Lien is spread to cover any additional property after the date hereof and that the amount of any Indebtedness or other obligations secured thereby is not increased; (m) Liens granted pursuant to Section 7.7 of the Reorganization Plan; (n) Liens granted by the Company or Subsidiaries upon Real Property and related Personal Property which is Subsidiary Property Under Development and which is either financed by Indebtedness incurred by Subsidiaries pursuant to Section 7.2(e) or 7.2(h), or contributed by the Company to a Subsidiary pursuant to Section 7.9(g); -63- 71 (o) [intentionally omitted] (p) [intentionally omitted]; and (q) inchoate Liens solely arising by operation of law in respect of Indebtedness incurred pursuant to Section 7.2(k). 7.4 Limitation on Guarantee Obligations. Create, incur, assume or suffer to exist any Guarantee Obligation, except: (a) the Guarantee Obligations listed on Schedule 4.17; (b) Guarantee Obligations made in the ordinary course of its business by the Company of obligations (other than Indebtedness) of any of its Subsidiaries, which obligations are otherwise permitted under this Agreement; (c) Guarantee Obligations by the Company of Indebtedness of any Subsidiary, Unrestricted Subsidiary, or Joint Venture; provided, however, that any outstanding Guarantee Obligations permitted under this Section 7.4(c) in respect of Indebtedness of any Unrestricted Subsidiary or Joint Venture shall reduce on a dollar-for-dollar basis the $55,000,000 limitation otherwise available for Indebtedness permitted under Section 7.2(e) and that the sum of all Indebtedness permitted under Section 7.2(e) and all Guarantee Obligations permitted pursuant to this Section 7.4(c) shall not exceed $55,000,000 in the aggregate; provided further, that the Company may not incur any Guarantee Obligation with respect to Indebtedness of any Subsidiary permitted pursuant to Section 7.2(h). 7.5 Limitations on Fundamental Changes. Except to the extent such merger, consolidation, or amalgamation is of a Subsidiary with and into the Company, or between or among wholly owned Subsidiaries, enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets; provided that the Company or any Subsidiary may convey, sell, assign, transfer or have condemned or otherwise disposed of assets to the extent permitted by Section 7.6 so long as the proceeds of any such sale are applied in accordance with this Agreement. 7.6 Limitation on Sale of Assets. So long as no Default or Event of Default has occurred and is continuing or would result therefrom (unless the Permitted Sale Asset is the subject of a binding written contract of sale with an unaffiliated third party entered into prior to the first date on which the applicable Default or Event of Default occurred)), convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets (including receivables and -64- 72 leasehold interests), whether now owned or hereafter acquired, except the following ("Permitted Sale Assets"): (a) raw land; (b) homes or homesites in the ordinary course of its business; (c) obsolete or worn out property disposed of in the ordinary course of business; (d) Commercial Real Estate; (e) (i) the sale or discount without recourse of Commercial Receivables or Homesite Contract Receivables in the ordinary course of business; and (ii) during the period commencing on October 1, 1996 and ending on December 31, 1997, the sale or discount with recourse of Commercial Receivables relating solely to homesites located in Tennessee in an aggregate amount not to exceed $8,000,000; (f) dispositions on or after October 1, 1996 not otherwise permitted hereunder the proceeds of which, in the aggregate, do not exceed $2,000,000 in any 12-month period; (g) sales or other transfers of any partnership interests or joint venture interests in entities that are not wholly owned, collectively, by the Company and its Subsidiaries; and (h) transactions permitted under Section 7.5. Upon any permitted sale as aforesaid, Collateral Agent shall execute releases of Collateral Agent's Lien upon the Collateral included in any such sale; provided that there exists no Default or Event of Default hereunder and no Default or Event of Default would result therefrom; and provided further, that Collateral Agent's Lien shall continue against the proceeds of such sale, as evidenced by any and all documents and filings as may be required by the Lender. 7.7 Limitation on Dividends. Declare or pay any dividend (other than dividends payable solely in common stock or preferred stock of the Company) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of the Company, whether now or hereafter outstanding, or make any other distributions in respect thereof, either directly or indirectly, whether in cash or property (other than distributions or dividends in the -65- 73 form of common stock or preferred stock of the Company) or in obligations of the Company or any Subsidiary, except for dividends declared and paid by any Subsidiary to the Company or any Subsidiary. 7.8 Limitation on Capital Expenditures. Make, or enter into any agreement the performance of the terms of which would require the Company or any Subsidiary to make (by way of the acquisition of securities of a Person or otherwise), any expenditures in respect of the purchase or other acquisition of fixed or capital assets (excluding any such asset acquired in connection with nominal replacement and maintenance programs properly charged to current operations), exceeding in the aggregate $25,000,000 for the Company and its Subsidiaries during any 12-month period from and after October 1, 1996. 7.9 Limitation on Investments, Loans, and Advances. Except to the extent of assets in the Reserve Accounts, make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other Investment in, any Person, except: (a) extensions of trade credit in the ordinary course of business; (b) investments in Cash Equivalents; (c) loans and advances to employees of the Company or its Subsidiaries for travel, entertainment and relocation expenses and for advances on salary prior to, and otherwise payable during, an employee's vacation, in the ordinary course of business in an aggregate amount for the Company and its Subsidiaries not to exceed $500,000 in any one time outstanding; (d) investments by the Company in any Subsidiary or by any Subsidiary in the Company or any other Subsidiary in connection with cash management procedures in the ordinary course of business; (e) (i) loans by the Company to its Subsidiaries or by any Subsidiary of the Company to the Company to the extent such Indebtedness is permitted pursuant to Section 7.2(f); and (ii) capital contributions to Subsidiaries other than Venture Subsidiaries so long as the Company or its Subsidiary making the capital contribution receives stock equal to the value of the capital contributed as determined in accordance with GAAP; provided, that Collateral Agent's Lien shall continue against such stock received by the Company or its Subsidiary as -66- 74 aforesaid, which Lien shall be evidenced by any and all documents and filings as may be required by Collateral Agent and the Lender; (f) extensions of credit for sale of assets; (g) capital contributions to Venture Subsidiaries for the purpose of making investments in Joint Ventures and to Unrestricted Subsidiaries so long as the Company or its Subsidiary making the capital contribution receives stock, partnership interests, joint venture interests, or beneficial interests, respectively, equal to the value of the capital contributed as determined in accordance with GAAP (and upon any permitted capital contribution as aforesaid, Collateral Agent shall execute releases of Collateral Agent's Lien upon any Collateral contributed); provided, (i) that no Default or Event of Default exists hereunder or would result therefrom, (ii) that Collateral Agent's Lien shall continue against such stock or other interests received by the Company or its Subsidiary as aforesaid, which Lien shall be evidenced by any and all documents and filings as may be required by Collateral Agent and the Lender, (iii) such capital contributions shall be limited to assets (including cash) having fair market values for any single enterprise or project no greater than $15,000,000 and fair market values in the aggregate amount not greater than $35,000,000 plus an amount equal to 75% of all dividends (without duplication) paid to the Company by all Subsidiaries having investments in Joint Ventures after October 1, 1996. 7.10 Limitation on Optional Payments and Modifications of Debt Instruments. (a) Make any optional payment or optional prepayment on, or optional redemption of, or purchase or otherwise acquire any interest in, any Indebtedness (including payments on Indebtedness under the Unsecured Cash Flow Notes) other than the Note, except payments on the Foothill Debt. (b) Amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms of any Unsecured Cash Flow Notes or any Indebtedness outstanding under the Foothill Loan Documents or any other agreement executed in connection with either thereof or otherwise in connection with any Indebtedness (other than: (1) terms other than payment terms of Indebtedness permitted to be incurred pursuant to subsections 7.2(e), (f), (g) (but exclusive of Indebtedness permitted pursuant thereto consisting of intercompany Indebtedness among the Company and its Subsidiaries, the Unsecured Cash Flow Notes, and Financing Leases), (h), and (k); and (2) other than any such amendment, -67- 75 modification, or change to any such other Indebtedness which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or the amount of interest payable or extend the date for payment of interest thereon; but in the case of either (1) or (2), solely to the extent the amendment, modification, or change to any such Indebtedness is not prohibited by any other provision in this Agreement or the other Transaction Documents; and (c) Amend any subordination provisions of any instrument governing any Indebtedness (except for amendments pursuant to this Agreement and the Security Documents or the Revolving Loan Agreement and the security documents in respect thereof). 7.11 Transactions with Affiliates. Enter into any transaction, including any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate (other than any Subsidiary), unless such transaction is otherwise permitted under this Agreement, is in the ordinary course of the Company's or such Affiliate's business and is upon fair and reasonable terms no less favorable to the Company or such Affiliate, as the case may be, than it would obtain in a comparable arms length transaction with a Person not an Affiliate. 7.12 Sale and Leaseback. Enter into any Sale and Leaseback to the extent the aggregate Book Value of all assets sold and leased under all such transactions exceeds $2,000,000 during the period from October 1, 1996 through the termination of this Agreement. 7.13 Fiscal Year. Permit the fiscal year of the Company to end on a day other than December 31. 7.14 Limitation on Negative Pledge Clauses. Enter into any agreement, other than the Foothill Loan Documents, any industrial revenue bonds, community development district financing, purchase money mortgages, Financing Leases, or agreements executed in connection with Indebtedness incurred in connection with Subsidiary Property Under Development permitted by this Agreement (in which cases, any prohibition or limitation shall only be effective against the assets financed thereby), with any Person other than the Lender pursuant hereto which prohibits or limits the ability of the Company or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired. -68- 76 7.15 Deviation from Business Plan. Allow either: (a) the actual Net Operating Cash Flow during any fiscal year, to deviate from the Net Operating Cash Flow projected under the Business Plan by a negative margin equal to or greater than 30 percent, as of the end of each fiscal quarter on a cumulative basis; or (b) the total actual Net Cash Flow for any fiscal year, including major asset dispositions, to deviate from the annual Net Cash Flow projected under the Business Plan for such year by a negative margin equal to or greater than 40 percent. 7.16 Unsold Housing Inventory. Permit Unsold Housing Inventory to exceed, in the aggregate, $10,000,000 at any one time. 7.17 Limitation of Bank Accounts. So long as the Note is outstanding, allow cash and Cash Equivalents maintained in Bank Accounts of the Company and Subsidiaries other than in the Cash Collateral Account and the restricted accounts set forth in Schedule 7.17 (including any beneficial interest therein), less the amount of checks outstanding to pay current expenses in the ordinary course of business or to prepay expenses to be incurred in the immediately subsequent three-month period consistent with past practices, to exceed $5,000,000 in the aggregate at any time. The Company and its Subsidiaries (a) shall deposit in a Cash Collateral Account amounts required to cash collateralize Letters of Credit under the Revolving Loan Agreement pursuant to Section 8 of the Revolving Loan Agreement, and (b) shall deposit in the Company Operating Account, after application to the Loans (as defined in the Revolving Loan Agreement) pursuant to Section 2.11(a)(iii) of the Revolving Loan Agreement, all remaining cash of the Company and its Subsidiaries in excess of amounts permitted to be maintained in accounts other than a Cash Collateral Account under this Section 7.17. 7.18 Venture Subsidiaries and Joint Ventures. (a) Cause, suffer, or permit any Venture Subsidiary to have any asset or revenues other than the Joint Venture interests owned by such Venture Subsidiary as disclosed on Schedule 4.14(B) and the revenues arising from such interests. (b) Cause, suffer, or permit any Venture Subsidiary to create, incur, assume, or suffer to exist any Lien (other than Liens in favor of Collateral Agent for the benefit of Secured Creditor and the holders of the Foothill Debt) upon any of such Venture Subsidiary's property, assets, or revenues, whether now owned or hereafter acquired (including the Joint -69- 77 Venture interests owned by such Venture Subsidiary as disclosed on Schedule 4.14(B) and the revenues arising from such interests). 7.19 Excluded Subsidiaries; Unrestricted Subsidiaries. Except as disclosed on Schedule 7.19, permit any Excluded Subsidiary to own any assets, have any revenues or liabilities, or conduct any business or except as specifically agreed in writing by the Lender permit any Unrestricted Subsidiary to own any assets, have any revenues or liabilities or conduct any business. SECTION 8. EVENTS OF DEFAULT; REMEDIES 8.1 Events of Default; Remedies. If any of the following events shall occur and be continuing: (a) (i) The Company and the Mortgagor Subsidiaries shall fail to pay any principal when due of the Note in accordance with the terms thereof or hereof; or (ii) the Company and the Mortgagor Subsidiaries shall fail to pay any interest due on the Note or any other amount payable hereunder or under any other Transaction Document, thereby giving rise to a Default, and fail to cure such Default within five (5) days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; provided, however, if any event described in this Section 8.1(a)(ii) shall occur and be continuing, it shall not constitute an Event of Default until and unless the Lender provides the Company with a written declaration that such event constitutes an Event of Default; or (b) Any representation or warranty made or deemed made by the Company or any of its Subsidiaries herein or in any other Transaction Document or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Company shall default in the observance or performance of any agreement contained in Section 7; or (d) The Company or any Subsidiary shall default in the observance or performance of any other agreement contained in this Agreement (other than as provided in paragraphs (a) through (c) of this Section) or in any other Transaction Document, and such default shall continue unremedied for a period of thirty (30) days; or -70- 78 (e) The Company shall fail to pay any obligations under the Foothill Loan Documents or any principal of or interest on any Unsecured Cash Flow Notes (whether at scheduled maturity or by required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such obligation under the Foothill Loan Documents or any Unsecured Cash Flow Notes; or (f) Any Foothill Debt or any Unsecured Cash Flow Notes shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or (g) Any Subsidiary of the Company shall fail to pay any principal of, or interest on, any Indebtedness or any Guarantee Obligation (other than any Guarantee Obligation created pursuant to any Transaction Document) in excess of $1,000,000, when due and payable (whether at scheduled maturity or by required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument under which such Indebtedness or Guarantee Obligation was created and, if such agreement or instrument permits the acceleration of the maturity of such Indebtedness or Guarantee Obligation as a result of such failure, such Indebtedness or Guarantee Obligation shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or any such Indebtedness or Guarantee Obligation shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity; or (h) The Company shall (i) default in any payment of principal of or interest on any Indebtedness (other than the Notes the Foothill Debt, or any Unsecured Cash Flow Notes) or in the payment of any Guarantee Obligation in excess of $1,000,000, beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Guarantee Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if -71- 79 required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable; or (i) (i) The Company or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Subsidiaries shall make a general assignment for the benefit of its creditors, or (ii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days, or (iii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof, or (iv) the Company or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clauses (i), (ii), or (iii) above, or (v) the Company or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, provided that the Company or any of its Subsidiaries may admit in writing that it is "insolvent" as such term is defined in, and for purposes of, Section 108(a)(1)(8) of the Code, or (vi) the Company or any of its Subsidiaries shall cause to be reinstated the Reorganization Proceedings; or (j) The Confirmation Order shall be reversed, withdrawn, modified (in any manner adverse to the Company or any of its Subsidiaries), or any rehearing shall be ordered with respect thereto by the Bankruptcy Court or by any court having jurisdiction over the Company; or (k) (i) There occurs one or more events or conditions described in Section 4.12 which individually or in the aggregate result in liability of the Company or any Commonly Controlled Entity in excess of $4,600,000; or the present value -72- 80 of all accrued benefits under each Single Employer Plan (based on the reasonable assumptions used by the independent actuary for such Plan for purposes of establishing the minimum funding requirements under Section 412 of the Code), as of the last annual valuation date, exceed the value of the assets of such plan allocable to such accrued benefits, individually or in the aggregate for all Single Employer Plans with respect to which the value of the assets exceed the present value of the accrued benefits, by more than $4,600,000; or (l) One or more judgments or decrees shall be entered against the Company or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $500,000 or more in the case of the Company or any of its Subsidiaries and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (m) (i) The Subsidiary Guaranty or any Security Document shall cease, for any reason, to be in full force and effect or the Company or any of its Subsidiaries, as the case may be, party thereto shall so assert in writing, or (ii) any Security Document shall cease to be effective to grant a perfected Lien on the collateral described therein with the priority purported to be created thereby (other than as a result of any action or inaction on the part of the Lender or their agents or bailees or other than with respect to Collateral having an aggregate value of $100,000 or less); or (n) Other than Secured Creditor or any Affiliate of Secured Creditor and any Person acting in concert with Secured Creditor or any Affiliate of Secured Creditor, any Person that is not a transferee of Secured Creditor or of any Affiliate of Secured Creditor or two or more such Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) of 30% or more of the outstanding Capital Stock of the Company, or fewer than [ONE] member of the Board of Directors of the Company shall be a designee of the Lender, other than as a result of the Lender's failure to nominate a successor to a designee who has resigned or been removed for cause; or (o) Any event or change shall occur that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect; or (p) The Total Unsecured Claims shall exceed $1.5 Billion; -73- 81 then, and in any such event: (A) if such event is an Event of Default specified in clause (i), (ii), (iv), (v) or (vi) of Section 8.1(i) above, automatically the principal amount of the Note (with accrued interest thereon) and all other amounts owing under this Agreement and the Note shall immediately become due and payable in full, which amount shall accrue interest at the Default Rate as well before as after judgment, and the Lender and Collateral Agent shall have all rights and remedies given to the Lender and Collateral Agent pursuant to the Security Documents and all rights of a secured party, mortgagee and pledgee under applicable law, all of which rights and remedies shall be cumulative and non-exclusive, to the extent permitted by law; and (B) if such event is any other Event of Default, the Lender may, by notice of default to the Company, declare the principal amount of the Note (with accrued interest thereon) and all other amounts owing under this Agreement and the Note to be due and payable in full, which amount shall accrue interest at the Default Rate as well before as after judgment, and the Lender and Collateral Agent shall have all rights and remedies given to the Lender and Collateral Agent pursuant to the Security Documents and all rights of a secured party, mortgagee and pledgee under applicable law, all of which rights and remedies shall be cumulative and non-exclusive, to the extent permitted by law. SECTION 9. THE COLLATERAL AGENT 9.1 [intentionally omitted] 9.2 Appointment of Collateral Agent. The Lender hereby irrevocably designates and appoints as Collateral Agent under this Agreement and the Security Documents to which the Collateral Agent is a party, and the Collateral Agent hereby accepts such appointment, subject to the terms and provisions of this Agreement and the Security Documents to which it is a party. The Lender hereby further authorizes Collateral Agent to enter into the Security Documents to be executed and delivered by Collateral Agent on the Issuance Date and agrees to be bound by the terms thereof. The Lender irrevocably authorizes the Collateral Agent, as Collateral Agent for the Lender, to take such action on its behalf under the provisions of this Agreement and the Security Documents to which Collateral Agent is a party, and to exercise such powers and perform such duties as are expressly delegated to Collateral Agent by the terms of this Agreement and the Security Documents to which it is a party, together with such other powers as are reasonably incidental thereto; provided that Collateral Agent shall not enter into any consent to any amendment, modification, termination or waiver of any provision contained in any Security Document to which it is party without the prior -74- 82 written consent of the Lender. The Lender hereby authorizes Collateral Agent to release Collateral only as expressly permitted or required under this Agreement or the Security Documents and agrees that a certificate executed by Collateral Agent evidencing such release of Collateral shall be conclusive evidence of such release to any third party. Collateral Agent shall not subordinate or release any Liens under any of the Security Documents except as provided in this Agreement or upon the written direction of the Lender. All notices and directions to Collateral Agent shall be given by the Lender on behalf of and at the direction of the Lender. 9.3 [intentionally omitted] 9.4 Delegation of Duties. Collateral Agent may execute any of its duties under this Agreement and the other Secured Note Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Collateral Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Notwithstanding any provision to the contrary elsewhere in this Agreement, Collateral Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with the Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Secured Exchangeable Note Document or otherwise exist against Collateral Agent; and Collateral Agent is acting hereunder and under the other Secured Note Documents solely as the collateral agent of the Lender pursuant hereto and thereto, and Collateral Agent is not acting as trustee for the Lender. 9.5 Exculpatory Provisions. Neither the Lender, Collateral Agent nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Transaction Document (except for its or such Persons own gross negligence or willful misconduct) or (b) responsible in any manner for any recitals, statements, representations or warranties made by the Company or any officer thereof contained in this Agreement or any other Transaction Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Lender under or in connection with, this Agreement or any other Secured Floating Rate Note Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the Note or any other Transaction Document or for any failure of the Company to perform its obligations hereunder or thereunder. -75- 83 Neither the Lender nor Collateral Agent shall be under any obligation to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions to, this Agreement or any other Transaction Document or as to the use of proceeds of the Note or the Investment Agreement or of the existence or possible existence of a Default or Event of Default, or to inspect the properties, books or records of the Company. 9.6 Reliance by the Lender. (a) Each of the Lender and Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Lender or Collateral Agent, as the case may be. (b) Collateral Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Transaction Document unless (i) it shall first receive such advice or concurrence as it deems appropriate from the Lender, or (ii) it shall first be indemnified to its satisfaction by the Lender against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action, except in the case of Collateral Agent's gross negligence or willful misconduct. Collateral Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement, the Note and the other Transaction Documents in accordance with a request of the Lender and such request and any action taken or failure to act pursuant thereto shall be binding upon the Lender and all future holders of the Note. 9.7 Notice of Default. Neither the Lender nor Collateral Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Lender or Collateral Agent, as the case may be, has received notice from the Lender (in the case of Collateral Agent) or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." If the Lender receives such a notice, the Lender shall promptly give notice thereof to Collateral Agent. If Collateral Agent receives such a notice, Collateral Agent shall promptly give notice thereof to the Lender. Collateral Agent shall take such action with respect to such Default or Event of -76- 84 Default as shall be directed by the Lender (subject to the provisions of Section 9.4(b)); provided that unless and until Collateral Agent shall have received such directions, Collateral Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lender. 9.8 Non-Reliance on Collateral Agent. The Lender expressly acknowledges that neither Collateral Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by Collateral Agent hereinafter taken, including any review of the affairs of the Company or any of its Subsidiaries, shall be deemed to constitute any representation or warranty by Collateral Agent to the Lender. The Lender represents to Collateral Agent that it has, independently and without reliance upon Collateral Agent, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries and made its own decision to enter into this Agreement. The Lender also represents that it will, independently and without reliance upon Collateral Agent, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Transaction Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries. Except for notices, reports and other documents expressly required to be furnished to the Lender hereunder, Collateral Agent shall not have any duty or responsibility to provide the Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Company or any of its Subsidiaries which may come into the possession of Collateral Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 9.9 Indemnification. The Lender agrees to indemnify Collateral Agent in its capacity as such (to the extent not reimbursed by the Company and without limiting the obligation of the Company to do so) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including at any time following the payment of the Note) be imposed on, incurred by or asserted against Collateral Agent in any way relating to or -77- 85 arising out of this Agreement, any of the other Transaction Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by Collateral Agent under or in connection with any of the foregoing; provided that the Lender shall not be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from Collateral Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Note and all other amounts payable hereunder. 9.10 [intentionally omitted] 9.11 [intentionally omitted] 9.12 Successor Collateral Agent. Collateral Agent may resign as Collateral Agent, upon 30 days' notice to the Lender. If Collateral Agent shall resign as Collateral Agent under this Agreement and the other Transaction Documents, then the Lender shall appoint a successor collateral agent for the Lender, which successor collateral agent, except if an Event of Default shall have occurred and be continuing, shall be approved by the Company (which approval shall not be unreasonably withheld), whereupon, effective upon acceptance of its appointment as successor collateral agent, such successor collateral agent shall succeed to the rights, powers and duties of Collateral Agent and the term "Collateral Agent" shall mean such successor collateral agent, and the former Collateral Agent's rights, powers and duties as Collateral Agent shall be terminated, without any other or further act or deed on the part of such former Collateral Agent or any of the parties to this Agreement or any holder of the Note. If the Lender fails to appoint a successor collateral agent for the Lender as provided above within 30 days after the resignation of Collateral Agent, then Collateral Agent may appoint a successor collateral agent for the Lender, which successor collateral agent, except if an Event of Default shall have occurred and be continuing, shall be approved by the Company (which approval shall not be unreasonably withheld), whereupon, effective upon acceptance of its appointment as successor collateral agent, such successor collateral agent shall succeed to the rights, powers and duties of Collateral Agent and the term "Collateral Agent" shall mean such successor collateral agent and the former Collateral Agent's rights, powers and duties as Collateral Agent, as the case may be, shall be terminated, without any other or further act or deed on the part of such former Collateral Agent or any of the parties to this Agreement or any holder of the Note. After any retiring -78- 86 Collateral Agent's resignation as Collateral Agent, the provisions of this Section 9 shall inure and survive to its benefit as to any actions taken or omitted to be taken (or any matter related thereto) by it while it was Collateral Agent under this Agreement and the other Transaction Documents. Notwithstanding anything herein to the contrary, the resignation of Collateral Agent shall not be effective unless and until a successor collateral agent has been appointed and has accepted such appointment. SECTION 10. MISCELLANEOUS 10.1 Amendments and Waivers. Neither this Agreement, the Note, any other Transaction Document, nor any terms hereof or thereof may be amended, supplemented or modified except with the prior written consent of the Lender. No such amendment, supplement or modification shall amend, modify or waive any provision of Section 9 without the written consent of then Collateral Agent affected thereby. Any such waiver of a Default or Event of Default in accordance with the terms hereof and any such amendment, supplement or modification shall be binding upon the Company, the Lender, Collateral Agent and all future holders of the Note. In the case of any waiver, the Company, the Lender, and Collateral Agent shall be restored to their former position and rights hereunder and under the outstanding Note and any other Transaction Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 10.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or five Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when the recipient has confirmed receipt, addressed as follows in the case of the Company, the Lender, and Collateral Agent: The Company: Atlantic Gulf Communities Corporation 2601 South Bayshore Drive Miami, Florida 33133-5461 Attention: John H. Fischer, Vice President and Treasurer Telecopy: (305) 859-4623 -79- 87 Copy to: Arent Fox Kintner Plotkin & Kahn 1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5339 Attention: Carter Strong, Esquire Telecopy: (202) 857-6395 The Lender: AP-AGC, LLC Two Manhattanville Road Purchase, New York 10577 Attention: W. Edward Scheetz Telecopy: (212) 261-4060 Copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Philip Mindlin, Esquire Trevor Norwitz, Esquire Telecopy: (212) 403-2000 The Collateral Agent: As specified by Collateral Agent Copy to: As specified by Collateral Agent and, in the case of the other parties hereto, as set forth under that party's name on the signature pages hereof, or, in each case, to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes; provided, however, that any notice, request or demand to or upon Collateral Agent or the Lender shall not be effective until received. 10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of Collateral Agent or the Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 10.4 Survival of Certain Provisions. All representations and warranties made hereunder or under any other Transaction Document and in any document, certificate or statement delivered pursuant hereto or thereto or in connection herewith or therewith, all indemnities made hereunder or under any thereof -80- 88 in favor of the Lender, Secured Creditor or Collateral Agent, all agreements or undertakings herein or in any thereof in favor of the Lender, Secured Creditor or Collateral Agent and all agreements or undertakings in Section 3 hereof or otherwise contained herein or in any thereof relating to the Collateral shall survive the execution and delivery of this Agreement and the Note and the payment in full of the Note and all Obligations hereunder. Without limiting the generality of the foregoing, the following agreements and undertakings shall continue in full force and effect so long as the Note, any Preferred Stock or any unpaid Repurchase Price or Optional Redemption Price (each as defined in the Certificate of Designation) remains outstanding, whether or not any principal shall be outstanding hereunder: (i) each term and provision of the Note, the Subsidiary Guaranties, and the Security Documents, (ii) Section 3, (iii) Sections 6 and 7, but only during the period specified in the introductory paragraph to each such Section, except that the last paragraph of Section 7.6 shall remain in effect whether or not the balance of Section 7 shall at the time be in effect and (iv) Sections 9, 10 and 11 and (in each case) the relevant definitions. 10.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or reimburse Secured Creditor and Collateral Agent for all its out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement, the Note, the Intercreditor Agreement, and the other Transaction Documents and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including the reasonable fees and disbursements of counsel to Secured Creditor and counsel to Collateral Agent, and the reasonable allocated costs of in-house counsel to Secured Creditor and in-house counsel to Collateral Agent, (b) to pay or reimburse Secured Creditor and Collateral Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Note, the Intercreditor Agreement, the other Transaction Documents and any such other documents, including fees and disbursements of counsel to Secured Creditor and counsel to Collateral Agent, and the reasonable allocated costs of in-house counsel to Secured Creditor and in-house counsel to Collateral Agent, (c) to pay, indemnify, and hold Secured Creditor and Collateral Agent harmless from, any and all recording and filing fees, any and all Florida documentary stamp taxes and Florida intangible personal property taxes and any and all other stamp, excise and other taxes (other than any taxes which are determined based solely upon the income or revenues of Secured Creditor or Collateral Agent), if any, which may be payable or determined to be payable in connection with -81- 89 the execution and delivery of, or consummation of any of the transactions contemplated by this Agreement, the Note, the other Transaction Documents, and any such other documents, and any and all liabilities with respect to, or resulting from any delay in paying any of such fees and taxes, (d) to pay the costs of furnishing all opinions of counsel for the Company, or obtaining technical assistance advisories, required hereunder, (e) to pay the costs of obtaining any required consents, amendments, waivers or other modifications to the Foothill Loan Documents and the agreements governing the Unsecured Cash Flow Notes, and any other agreements, (f) to pay the costs and expenses incurred to continue the perfection of any Liens in favor of Secured Creditor and Collateral Agent pursuant to any of the Security Documents, including the costs of title searches, title insurance premiums, UCC searches and UCC filing charges, (g) to pay, indemnify, and hold each Secured Creditor and Collateral Agent harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the Note, the Intercreditor Agreement, the other Transaction Documents, and any such other documents (all the foregoing, collectively, the "indemnified liabilities"), provided, that the Company shall have no obligation hereunder to Collateral Agent or Secured Creditor, with respect to indemnified liabilities arising from (i) the gross negligence or willful misconduct of Collateral Agent or Secured Creditor, or (ii) legal proceedings commenced against Secured Creditor by any Transferee (as defined in Section 10.6), and (h) to pay or reimburse Secured Creditor and Collateral Agent for all out-of-pocket costs and expenses incurred in connection with any change of counsel to Collateral Agent pursuant to Section 10.18, including the reasonable fees and disbursements of counsel to Secured Creditor, the replaced counsel to Collateral Agent, and the new counsel to Collateral Agent, and the reasonable allocated costs of in-house counsel to Secured Creditor and in-house counsel to Collateral Agent. The agreements in this Section shall survive repayment of the Note and all other amounts payable hereunder. 10.6 Successors and Assigns; Participations; Purchasing Lender. (a) This Agreement shall be binding upon and inure to the benefit of the Company, the Lender, Collateral Agent, all future holders of the Note and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement and the other Transaction Documents without the prior written consent of the Lender. -82- 90 (b) Subject to Sections 10.6(h) and (k), the Lender may at any time sell to one or more banks or other entities ("Participants") participating interests in the Note or any other interest of the Lender hereunder and under the other Transaction Documents. In the event of any such sale by the Lender of participating interests to a Participant, the Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, the Lender shall remain solely responsible for the performance thereof, the Lender shall remain the holder of its Note for all purposes under this Agreement and the other Transaction Documents, and the Company and Collateral Agent shall continue to deal solely, and directly, with the Lender in connection with the Lender's rights and obligations under this Agreement and the other Transaction Documents. The Company agrees that if amounts outstanding under this Agreement and the Note are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and the Note to the same extent as if the amount of its participating interest were owing directly to it as the Lender under this Agreement or the Note, provided that such Participant shall only be entitled to such right of setoff if it shall have agreed in the agreement pursuant to which it shall have acquired its participating interest to share with the Lender the proceeds thereof as provided in Section 10.7. The Company also agrees that each Participant shall be entitled to the benefits of Sections 2.7, 2.9 and 10.5 with respect to its participation in the Note outstanding from time to time; provided, that no Participant shall be entitled to receive any greater amount pursuant to such Sections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor the Lender to such Participant had no such transfer occurred. Notwithstanding anything herein to the contrary, participants shall not be entitled to require the Lender to take or omit to take any action hereunder except with respect to amendments or waivers resulting in (i) the extension of the regularly-scheduled maturity dates of any portion of the principal of, or interest on, a Note in which such Participant is participating (it being understood that any waiver of an installment on, or the application of, any prepayment or the method of application of any prepayment to the amortization of the Notes shall not constitute an extension of the regularly scheduled maturity dates), (ii) a reduction of the principal amount of, or the rate of interest (except in connection with a waiver of the applicability of any post-default increase in interest rates or margins) or fees payable on the Note in which such participant is participating, or (iii) the release of all or substantially all of -83- 91 the Collateral or the Subsidiary Guaranty (except as otherwise expressly provided in the Transaction Documents). (c) Subject to Sections 10.6(h) and (k), the Lender may at any time sell to any bank or other entity ("Purchasing Lender") all or any part of its rights and obligations under this Agreement and the Note and other Transaction Documents, whereupon (i) the Purchasing Lender shall be a party hereto and have the rights and obligations of a Lender hereunder and under the other Transaction Documents, and (ii) the transferor Lender shall, to the extent of such transfer, be released from its obligations under this Agreement and under the other Transaction Documents (and, in the case of a transfer covering all or the remaining portion of a transferor Lender's rights and obligations under this Agreement and under the other Secured Note Documents, such transferor Lender shall cease to be a party hereto and thereto). Such transfer shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender under this Agreement and the Note and other Secured Note Documents. On or prior to the transfer effective date, the Company, at its own expense, shall execute and deliver to the Lender new Note(s) to the order of such Purchasing Bank in an amount equal to the Note or Note portion acquired by it and, if the transferor Lender has retained a portion of the Note hereunder, new Note(s) to the order of the transferor Lender in an amount equal to the portion retained by it. Such new Note(s) shall be dated the same date as, and shall otherwise be in the form of, the Note(s) replaced thereby. The Note(s) replaced by the new Note(s), marked "renewed and replaced," shall be attached to the new Note(s); and a copy thereof shall be sent to the Company. (d) [intentionally omitted] (e) [intentionally omitted] (f) Subject to Section 10.16, the Company authorizes the Lender to disclose to any Participant or Purchasing Lender (each, a "Transferee") and any prospective Transferee any and all information in the Lender's possession concerning the Company and its Affiliates; provided, however, that such Transferee agrees in writing to be bound by the terms of Section 10.16. (g) If, pursuant to this Section 10.6, any interest in this Agreement or any Note is transferred to any Purchasing Lender which is organized under the laws of any jurisdiction other than the United States or any state thereof, the Company will not be required to pay any increased withholding taxes of -84- 92 the United States or any political subdivision thereof unless, prior to the date of transfer, the transferor Lender shall cause such Purchasing Lender to comply with the requirements of Section 2.7. (h) [intentionally omitted] (i) Nothing herein shall prohibit any Lender which is a bank from pledging or assigning any Note to any Federal Reserve Bank in accordance with applicable law. (j) Notwithstanding the foregoing provisions of this Section 10.6, no holder of a Note shall transfer such Note in a manner which would violate any Requirement of Law. (k) Notwithstanding the foregoing provisions of this Section 10.6, the initial Lender hereunder agrees not to sell or assign the Note prior to the earliest of (a) the second anniversary of the Issuance Date, (b) the occurrence of an Event of Default and (c) a Negative Shareholder Vote. 10.7 Adjustments; Setoff. (a) If at any time when there is more than one Lender any Lender (a "Benefitted Lender") shall at any time receive any payment of all or part of its Note(s), or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by setoff, pursuant to events or proceedings of the nature referred to in Section 8.1(i), or otherwise), in a greater proportion than any such payment to or collateral received by, any other Lender, if any, in respect of such other Lender's Note(s), or interest thereon, or fees due to it hereunder, such Benefitted Lender shall purchase for cash from the other Lender such portion of each such other Lender's Note(s), or make such payment on account of such fees, or shall provide such other Lender with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees, that each Lender purchasing a portion of another Lender's Note(s) owing to it may exercise all rights of payment (including, without limitation, rights of setoff) with respect to such portion as fully as if such Lender were the direct holder of such portion. -85- 93 (b) In addition to any rights and remedies of the Lender provided by law, each Lender shall have the right, without prior notice to the Company, any such notice being expressly waived by the Company to the extent permitted by applicable law, upon any Secured Obligations becoming due (whether at the stated maturity, by acceleration or otherwise) to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender to or for the credit or the account of the Company. Each Lender agrees promptly to notify the Company and each other Lender after any such setoff and application made by such the Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. 10.8 Appointment of Secured Creditor as the Company's Lawful Attorney. The Company irrevocably designates, makes, constitutes and appoints Secured Creditor (and all Persons designated by Secured Creditor) as the Company's true and lawful attorney (and agent-in-fact) coupled with an interest, with the power to sign the name of the Company on any instruments, documents and agreements, including, without limitation, security agreements, pledge agreements, mortgages, and financing statements, as deemed by Secured Creditor as necessary or reasonably required by Secured Creditor to grant, perfect, maintain and continue the Liens in the Collateral or to monitor or administer the Note, together with any and all amendments, modifications, extensions, substitutions and renewals thereof and deliver any of such instruments, documents and agreements to such persons as Secured Creditor, in its sole discretion, may elect, and in such event copies thereof shall be delivered to the Company. 10.9 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Lender. 10.10 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. -86- 94 10.11 Integration. This Agreement, together with the other Transaction Documents represents the entire agreement of the Company, Collateral Agent and the Lender and supersedes all prior agreements with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by Collateral Agent or the Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Transaction Documents. 10.12 GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE RIGHTS AND OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 10.13 SUBMISSION TO JURISDICTION; WAIVERS. THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY: (a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATES OF CALIFORNIA AND NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE CENTRAL DISTRICT OF CALIFORNIA AND THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF; (b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET FORTH IN SECTION 10.2 OR AT SUCH OTHER ADDRESS OF WHICH THE Lender SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; (d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS MANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; (e) WAIVES (i) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF THE NOTES AND ALL OTHER SECURED NOTE DOCUMENTS AND HEREBY RATIFIES -87- 95 AND CONFIRMS WHATEVER SECURED CREDITOR OR COLLATERAL AGENT MAY DO IN THIS REGARD, (ii) ALL RIGHTS TO NOTICE OF A HEARING PRIOR TO SECURED CREDITOR'S OR COLLATERAL AGENT'S ATTACHMENT OR LEVY UPON THE COLLATERAL, AND ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING SECURED CREDITOR OR COLLATERAL AGENT TO EXERCISE ANY OF SECURED CREDITOR'S OR COLLATERAL AGENT'S REMEDIES, AND (iii) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND (f) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN THIS SECTION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES. 10.14 Acknowledgments. The Company hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement, the Note and the other Transaction Documents; (b) neither Collateral Agent nor the Lender has any fiduciary relationship to the Company, and the relationship between the Lender, on one hand, and the Company, on the other hand, is solely that of debtor and creditor; and (c) no joint venture exists between the Company and the Lender. 10.15 WAIVERS OF JURY TRIAL. THE COMPANY AND THE SECURED CREDITOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTE OR ANY OTHER TRANSACTION DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 10.16 Confidentiality. Secured Creditor agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all non-public information provided to it by the Company or any of its Subsidiaries, or by Collateral Agent on the Company's behalf, in connection with this Agreement or any other Transaction Document and agrees and undertakes that neither it nor any of its Affiliates shall use any such information for any purpose or in any manner other than pursuant to the terms contemplated by this Agreement and the other Transaction Documents. Secured Creditor may disclose such information (a) at the request of any regulatory authority or in connection with an examination of Secured Creditor by any such authority; (b) pursuant to subpoena or other court process; (c) when required to do so in accordance with the provisions of any applicable law; (d) at the express direction of -88- 96 any other agency of any State of the United States of America or of any other jurisdiction, in which Secured Creditor conducts its business; (e) to Secured Creditor's independent auditors and other professional advisors; (f) following an Event of Default, in connection with the sale or other realization on the Collateral under the Security Documents; (g) in connection with any litigation or dispute between (i) Secured Creditor and (ii) the Company and/or any Subsidiary; and (h) in connection with any litigation or dispute involving Secured Creditor if the disclosure is determined by Secured Creditor to be necessary for the defense or protection of Secured Creditor's rights and/or interests. Secured Creditor further agrees, upon receipt by Secured Creditor of a request to disclose any information to a Governmental Authority or courts (other than governmental bank examiners and independent auditors of Secured Creditor, to notify the Company of such request and to permit, to the extent practicable, the Company to seek a protective order with respect thereto; provided, however, that no Secured Creditor shall be requested to notify the Company of any such request if (i) it is not permitted to do so by applicable law and regulations, (ii) it is requested not to notify the Company by any Person acting or purporting to act on behalf of a Governmental Authority, or (iii) it otherwise reasonably believes that it is not permitted to so notify the Company. 10.17 Controlling Agreement. In the event of any conflict between the terms and conditions of this Agreement and the terms and conditions of any other Secured Exchangeable Note Document, the terms and conditions of this Agreement shall control. 10.18 Counsel to Collateral Agent. If the Company reasonably and in good faith requests in writing to Collateral Agent and the Lender that Collateral Agent replace, at the Company's sole expense, then existing counsel to Collateral Agent, the Lender and Collateral Agent shall consider such request and, so long as no Default or Event of Default has occurred and is continuing, the Lender and Collateral Agent shall not unreasonably withhold its consent to such request. SECTION 11. THE CO-MAKERS 11.1 Certain Defined Terms. As used in this Section, the following terms shall have the following meanings unless the context otherwise requires: "payment in full," "paid in full" or any similar term means payment in full in cash of the Secured Obligations including all principal, interest, costs, fees and expenses -89- 97 (including, without limitation, reasonable legal fees and expenses) of Lender and Collateral Agent as required under the Transaction Documents. 11.2 All Co-Makers Liable. Subject to the provisions of subsection 11.3, all Co-Makers are jointly and severally irrevocably and unconditionally liable, as primary obligors and not merely as sureties, for the due and punctual payment in full of the Secured Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)). 11.3 Limitation on Obligations of Mortgagor Subsidiaries; Contribution among Mortgagor Subsidiaries. (a) Anything contained in this Agreement to the contrary notwithstanding, the obligations of each Mortgagor Subsidiary hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of such Mortgagor Subsidiary, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Mortgagor Subsidiary (i) in respect of intercompany indebtedness to Company or other affiliates of Company to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Mortgagor Subsidiary hereunder and (ii) under any guaranty of subordinated indebtedness which guaranty contains a limitation as to maximum amount similar to that set forth in this subsection 11.3(a), pursuant to which the liability of such Mortgagor Subsidiary hereunder is included in the liabilities taken into account in determining such maximum amount) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation, reimbursement, indemnification or contribution of such Mortgagor Subsidiary pursuant to applicable law or pursuant to any agreement. (b) The Mortgagor Subsidiaries under this Agreement are also parties to a Subsidiary Guaranty among Subsidiaries of the Company and pursuant thereto have allocated as among themselves liability for the Secured Obligations and provided contribution from one another in amounts designed to assure -90- 98 that each bears only its "fair share" (as defined in the Subsidiary Guaranty) of the obligations in respect of the Secured Obligations. The allocation among Subsidiaries of their obligations as set forth in the Subsidiary Guaranty shall not be construed in any way to limit the liability of any Co-Maker hereunder or under the Subsidiary Guaranty. The obligations of the Mortgagor Subsidiaries under the Subsidiary Guaranty are not secured by the initial Mortgages recorded in Florida, which Mortgages secure the direct obligations of the Co-Makers rather than guaranties of the obligations of others. 11.4 Liability of Co-Makers Absolute. Each Co-Maker agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a co-maker other than indefeasible payment in full of the Secured Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Co-Maker agrees as follows: (a) The obligation of each Co-Maker is independent, primary and original, and not dependent upon failure of Lender to collect from any other Co-Maker. (b) Lender may enforce this Agreement against the Mortgagor Subsidiaries notwithstanding the existence of any dispute between Lender and Company or any Mortgagor Subsidiary with respect to the existence of an Event of Default. (c) The obligations of each Mortgagor Subsidiary hereunder are independent of the obligations of Company under the Transaction Documents and the obligations of any other Co-Maker or any guarantor, and a separate action or actions may be brought and prosecuted against such Mortgagor Subsidiary whether or not any action is brought against Company or any of such other Co-Makers or guarantor and whether or not Company is joined in any such action or actions. (d) Payment by any Co-Maker of a portion, but not all, of the Secured Obligations shall in no way limit, affect, modify or abridge any other Co-Maker's liability for any portion of the Secured Obligations which has not been paid. Without limiting the generality of the foregoing, if Lender is awarded a judgment in any suit brought to enforce any Co-Maker's covenant to pay a portion of the Secured Obligations, such judgment shall not be deemed to release such Co-Maker from its covenant to pay the portion of the Secured Obligations that is not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Co-Maker, limit, affect, -91- 99 modify or abridge any other Co-Maker's liability hereunder in respect of the Secured Obligations. (e) Lender, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability of this Agreement or giving rise to any reduction, limitation, impairment, discharge or termination of any Co-Maker's liability hereunder, from time to time may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Secured Obligations, (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Secured Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept guaranties of the Secured Obligations and take and hold security for the payment of this Agreement or the Secured Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Secured Obligations, any guaranties of the Secured Obligations, or any other obligation of any Person (including any other Co-Maker) with respect to the Secured Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of Lender in respect of this Agreement or the Secured Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that Lender may have against any such security, as Lender in its discretion may determine consistent with this Agreement and any applicable security agreement or mortgage, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Co-Maker against any other Co-Maker or any security for the Secured Obligations; and (vi) exercise any other rights available to it under the Transaction Documents. (f) This Agreement and the obligations of the Co-Makers hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than indefeasible payment in full of the Secured Obligations), including the occurrence of any of the following, whether or not any Co-Maker shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce, or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or -92- 100 remedy (whether arising under the Transaction Documents, at law, in equity or otherwise) with respect to the Secured Obligations or any agreement relating thereto, or with respect to any guaranty of or security for the payment of the Secured Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) of this Agreement, any of the other Transaction Documents or any agreement or instrument executed pursuant thereto, or of any guaranty or security for the Secured Obligations, in each case whether or not in accordance with the terms of the Agreement or such Transaction Document or any agreement relating to such guaranty or security; (iii) the Secured Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received pursuant to the other Transaction Documents or from the proceeds of any security for the Secured Obligations, except to the extent such security also serves as collateral for indebtedness other than the Secured Obligations) to the payment of indebtedness other than the Secured Obligations, even though Lender might have elected to apply such payment to any part or all of the Secured Obligations; (v) Lender's consent to the change, reorganization or termination of the corporate structure or existence of Company or any of its Subsidiaries and to any corresponding restructuring of the Secured Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Secured Obligations; (vii) any defenses, setoffs or counterclaims which any Co-Maker may allege or assert against Lender in respect of the Secured Obligations, including failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; and (viii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Co-Maker as an obligor in respect of the Secured Obligations. 11.5 Waivers by Co-Maker. Each Co-Maker hereby waives, for the benefit of Lender: (a) any right to require Lender, as a condition of payment or performance by such Co-Maker, to (i) proceed against Company, any Mortgagor Subsidiary or any guarantor of the Secured Obligations or any other Person, (ii) proceed against or exhaust any security held from Company, any other Mortgagor Subsidiary or any guarantor of the Secured Obligations or any other Person, (iii) proceed against or have resort to any balance of any deposit account or credit on the books of Lender -93- 101 in favor of Company or any other Person, or (iv) pursue any other remedy in the power of Lender whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of any Co-Maker including any defense based on or arising out of the lack of validity or the unenforceability of the Secured Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of any Co-Maker from any cause other than indefeasible payment in full of the Secured Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a co-maker must be neither larger in amount nor in other respects more burdensome than that of any other obligor; (d) any defense based upon Lender's errors or omissions in the administration of the Secured Obligations, except behavior which amounts to bad faith; (e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Agreement or which result or might result in any legal or equitable discharge of such Co-Maker's obligations hereunder, (ii) the benefit of any statute of limitations affecting such Co-Maker's liability hereunder or the enforcement hereof, (iii) any rights to setoffs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that Lender protect, secure, perfect or insure any security interest or lien or any property subject thereto; (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance of this Agreement, notices of default under this Agreement or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Secured Obligations or any agreement related thereto, notices of any extension of credit to any other Co-Maker and notices of any of the matters referred to in subsection 11.4 and any right to consent to any thereof; and (g) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate co-makers, guarantors or sureties, or which may conflict with the terms of this Agreement. 11.6 Payment by Mortgagor Subsidiaries; Application of Payments. Subject to the provisions of subsection 11.3(a), Mortgagor Subsidiaries hereby jointly and severally agree, in -94- 102 furtherance of the foregoing and not in limitation of any other right which Lender or any other Person may have at law or in equity against any Mortgagor Subsidiary by virtue hereof, that upon the failure of Company to pay any of the Secured Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)), Mortgagor Subsidiaries will upon demand pay, or cause to be paid, in cash, to Lender, an amount equal to all Secured Obligations then due as aforesaid, including accrued and unpaid interest on such Secured Obligations (including interest which, but for the filing of a petition in bankruptcy with respect to Company, would have accrued on such Secured Obligations, whether or not a claim is allowed against Company for such interest in any such bankruptcy proceeding) and all other Secured Obligations then owed to Lender as aforesaid. All such payments shall be applied promptly from time to time by Lender in accordance with this Agreement. 11.7 Co-Makers' Rights of Subrogation, Contribution, Etc. Each Co-Maker hereby waives any claim, right or remedy, direct or indirect, that such Co-Maker now has or may hereafter have against any other Co-Maker or any of its assets in connection with this Agreement or the performance by such Co-Maker of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including without limitation (a) any right of subrogation, reimbursement or indemnification that such Co-Maker now has or may hereafter have against Company, (b) any right to enforce, or to participate in, any claim, right or remedy that Lender now has or may hereafter have against any other Co-Maker, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by Lender. In addition, until the Secured Obligations shall have been indefeasibly paid in full, each Co-Maker shall withhold exercise of any right of contribution such Co-Maker may have against any guarantor of the Secured Obligations (including any such right of contribution under any guaranty). Each Co-Maker further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such Co-Maker may have against any other Co-Maker or against any collateral or security, and any rights of contribution such Co-Maker may have against any such guarantor, shall be junior and subordinate to any rights Lender may have against Company and -95- 103 the other Co-Makers, to all right, title and interest Lender may have in any such collateral or security, and to any right Lender may have against such guarantor. If any amount shall be paid to any Co-Maker on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Secured Obligations shall not have been paid in full, such amount shall be held in trust for Lender and shall forthwith be paid over to Lender to be credited and applied against the Secured Obligations, whether matured or unmatured, in accordance with the terms hereof. 11.8 Subordination of Other Obligations. Any indebtedness of any Co-Maker now or hereafter held by any other Co-Maker is hereby subordinated in right of payment to the obligations of such indebted Co-Maker in respect of the Secured Obligations, and any such indebtedness of a Co-Maker to another Co-Maker collected or received by such other Co-Maker after an Event of Default has occurred and is continuing shall be held in trust for Lender and shall forthwith be paid over to Lender to be credited and applied against the Secured Obligations but without affecting, impairing or limiting in any manner the liability of any Co-Maker under any other provision of this Agreement. 11.9 Expenses. Co-Makers jointly and severally agree to pay, or cause to be paid, on demand, and to save Lender harmless against liability for, any and all costs and expenses (including reasonable fees and disbursements of counsel and allocated costs of internal counsel) incurred or expended by Lender in connection with the enforcement of, or preservation of any rights under, this Agreement. 11.10 Continuing Agreement. This Agreement shall remain in effect as against each Co-Maker until all of the Secured Obligations shall have been indefeasibly paid in full. Each Co-Maker hereby irrevocably waives any right to revoke this Agreement as to future transactions giving rise to any Secured Obligations. 11.11 Authority of the Co-Makers. It is not necessary for Lender to inquire into the capacity or powers of any Co-Maker or the officers, directors or any agents acting or purporting to act on behalf of any of them. 11.12 Financial Condition of the Company. Any Secured Obligations may be incurred by Company or continued from time to time without notice to or authorization from any Mortgagor Subsidiary regardless of the financial or other condition of Company at the time of any such grant or continuation. The Lender shall have no obligation to disclose or discuss with any -96- 104 Mortgagor Subsidiary its assessment, or any Mortgagor Subsidiary's assessment, of the financial condition of Company. Each Mortgagor Subsidiary has adequate means to obtain information from Company on a continuing basis concerning the financial condition of Company and its ability to perform its obligations under the Transaction Documents, and each Mortgagor Subsidiary assumes the responsibility for being and keeping informed of the financial condition of Company and of all circumstances bearing upon the risk of nonpayment of the Secured Obligations. Each Mortgagor Subsidiary hereby waives and relinquishes any duty on the part of Lender to disclose any matter, fact or thing relating to the business, operations or conditions of Company now known or hereafter known by lender. 11.13 Rights Cumulative. The rights, powers and remedies given to Lender by this Agreement are cumulative and shall be in addition to and independent of all rights, powers and remedies given to Lender by virtue of any statute or rule of law or in any of the other Transaction Documents or any agreement between any Mortgagor Subsidiary and Lender or between Company and Lender. Any forbearance or failure to exercise, and any delay by Lender in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy. 11.14 Bankruptcy; Post-Petition Interest; Reinstatement of Agreement. (a) So long as any Secured Obligations remain outstanding, no Co-Maker shall, without the prior written consent of Lender in accordance with the Agreement, commence or join with any other Person in commencing any bankruptcy, reorganization or insolvency proceedings of or against any other Co-Maker. The obligations of the Co-Makers under this Agreement shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of any other or by any defense which any other Co-Maker may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding. (b) Each Co-Maker acknowledges and agrees that any interest on any portion of the Secured Obligations which accrues after the commencement of any proceeding referred to in clause (a) above (or, if interest on any portion of the Secured Obligations ceases to accrue by operation of law by reason of the commencement of said proceeding, such interest as would -97- 105 have accrued on such portion of the Secured Obligations if said proceedings had not been commenced) shall be included in the Secured Obligations because it is the intention of Co-Makers and Lender that the Secured Obligations of each Co- Maker pursuant to this Agreement should be determined without regard to any rule of law or order which may relieve any other Co-Maker of any portion of such Secured Obligations. The Co-Makers will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay Lender, or allow the claim of Lender in respect of, any such interest accruing after the date on which such proceeding is commenced. (c) If all or any portion of the Secured Obligations is paid by any Co-Maker, the obligations of the other Co-Makers hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from Lender as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Secured Obligations for all purposes under this Agreement. 11.15 Setoff. In addition to any other rights Lender may have under law or in equity, if any amount shall at any time be due and owing by any Co-Maker to Lender under this Agreement, Lender is authorized at any time or from time to time, without notice (any such notice being hereby expressly waived), to set off and to appropriate and to apply any and all deposits (general or special, including but not limited to indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness of Lender owing to such Co-Maker and any other property of such Co-Maker held by Lender to or for the credit or the account of such Co-Maker against and on account of the Secured Obligations and liabilities of such Co-Maker to Lender under this Agreement; provided, however, that the foregoing shall not apply to Excluded Property and the restricted Bank Accounts identified in Schedule 7.17 of this Agreement. SECTION 12. MISCELLANEOUS 12.1 Acknowledgment Regarding Certain Environmental Obligations. Each Mortgagor Subsidiary hereby acknowledges and agrees that the Secured Obligations includes Company's obligation under this Agreement to comply with the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and all other Environmental Laws and to indemnify and hold harmless Lender from and against any and all liability arising out of, or in connection with the presence of -98- 106 Hazardous Materials at any property of Company or any Mortgagor Subsidiary given as security for the Secured Obligations, and each Mortgagor Subsidiary hereby expressly undertakes as Co-Maker the payment, performance and discharge of such obligations and liabilities of Company. REMAINDER OF PAGE LEFT INTENTIONALLY BLANK -99- 107 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. ATLANTIC GULF COMMUNITIES CORPO- RATION, a Delaware corporation By: /s/ Thomas W. Jeffrey -------------------------------- Name: Thomas W. Jeffrey Title: Executive Vice President and Chief Financial Officer CUMBERLAND COVE, INC. By: /s/ Thomas W. Jeffrey -------------------------------- Name: Thomas W. Jeffrey Title: Vice President ENVIRONMENTAL QUALITY LABORATORY INC. By: /s/ Thomas W. Jeffrey -------------------------------- Name: Thomas W. Jeffrey Title: Vice President GENERAL DEVELOPMENT UTILITIES, INC. By: /s/ Thomas W. Jeffrey -------------------------------- Name: Thomas W. Jeffrey Title: Vice President -100- 108 FIVE STAR HOMES, INC. By: /s/ Thomas W. Jeffrey -------------------------------- Name: Thomas W. Jeffrey Title: President ATLANTIC GULF OF TAMPA, INC. By: /s/ Thomas W. Jeffrey -------------------------------- Name: Thomas W. Jeffrey Title: Vice President ESTERO POINTE DEVELOPMENT CORPORATION By: /s/ Thomas W. Jeffrey -------------------------------- Name: Thomas W. Jeffrey Title: Vice President AP-AGC, LLC, as Lender By: /s/ Ricardo Koenigsberger -------------------------------- Name: Ricardo Koenigsberger Title: Vice President of Kronus Property, Inc., its Manager _____________, as Collateral Agent By: -------------------------------- Name: Title: -101- EX-7 8 SECURED CONVERTIBLE PROMISSING NOTE 1 Exhibit 7 [FORM OF] SECURED CONVERTIBLE PROMISSORY NOTE [ ] __, 1997 New York, New York FOR VALUE RECEIVED, the undersigned, ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation (the "Company"), and the other undersigned corporations (the "Subsidiaries"; the Company and the Subsidiaries are referred to herein collectively as the "Obligors"), do hereby jointly and severally promise to pay to the order of AP-AGC, LLC, a Delaware limited liability company ("Holder"), in lawful money of the United States of America, in immediately available funds, to such account as Holder may designate from time to time, the principal sum of [WORDS] Dollars ($[NUMERALS]), together with interest thereon, as described below. This Secured Convertible Promissory Note (this "Note") is issued pursuant to that certain Secured Note Agreement (the "Note Agreement") dated as of February 7, 1997 among the Obligors, Holder, and [NAME OF COLLATERAL AGENT] ("Collateral Agent"), as collateral agent for Holder (as amended, supplemented or otherwise modified from time to time, the "Note Agreement"), the terms of which are incorporated herein by reference. Capitalized terms used in this Note, unless otherwise defined herein, shall have the meaning given such terms in the Note Agreement. Interest shall accrue from the date hereof on the outstanding principal balance of the indebtedness evidenced hereby at a rate per annum (based on a year of 360 days and actual days elapsed), as well before as after judgment, of (i) 20% so long as no Event of Default has occurred and is continuing and no Negative Shareholder Vote has occurred and (ii) 23% from and after the occurrence and during the continuance of an Event of Default and in any event at all times after a Negative Shareholder Vote has occurred, in each case as set forth in Section 2.4 of the Note Agreement. Principal and interest hereunder shall be due and payable as follows: (a) Interest shall be payable in arrears in accordance with Section 2.4 of the Note Agreement. EXHIBIT C-1 2 (b) The aggregate principal amount of this Note then outstanding shall be paid (together with all accrued and unpaid interest and fees then accrued thereon and all other amounts due under the Note Agreement) on December 31, 1998. The Obligors shall make mandatory prepayments of this Note if and as required by Section 2.2 of the Note Agreement. The outstanding principal amount of this Note may be prepaid in whole or in part at any time and from time to time without penalty or premium. The proceeds of any prepayment shall be applied first to accrued and unpaid interest, fees and other amounts due on or in connection herewith and second to repayment of the principal hereunder, as provided in the Note Agreement. The outstanding principal amount of this Note shall be convertible into Preferred Stock on the terms and subject to the conditions set forth in the Investment Agreement. All interest and other amounts (other than principal) theretofore accrued and owing hereunder or under the Due Diligence Fee Agreement shall be paid in full prior to or concurrent with such conversion. If this Note is converted into Preferred Stock and the Lender purchases an additional $15,000,000 of Preferred Stock as set forth in the Investment Agreement, the Company will be obligated to repurchase all such Preferred Stock on the happening of certain conditions set forth in the Certificate of Designation. From and after such conversion of the Note into Preferred Stock, this Note shall no longer evidence an indebtedness for borrowed money, and notwithstanding anything herein to the contrary the term Secured Obligations as used in this Note and each other Transaction Document shall not mean or include any indebtedness for principal or interest, but this Note shall remain in full force and effect to evidence the obligation of the Company to repurchase all such Preferred Stock under Section 8 of the Certificate of Designation and pay all other Secured Obligations then outstanding and the joint and several obligation of each and every Mortgagor Subsidiary shall continue to be secured by the Secured Note Documents. If the Obligors shall fail to pay any principal hereunder when due; or if the Obligors shall fail to pay any interest hereunder or other amounts payable hereunder within five (5) days after the due date therefor, or if any other Event of Default shall have occurred, the entire outstanding principal amount hereof, together with accrued interest and charges thereon may become due and payable in full in accordance with the terms and provisions of the Note Agreement. EXHIBIT C-2 3 If any payment of principal or interest of this Note shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day. In no contingency or event whatsoever shall the interest rate charged pursuant to the terms of this Note exceed the highest rate permissible under applicable law. If the amount of interest paid or payable under the Transaction Documents would exceed the maximum amount permitted by applicable law to be charged, the amount of interest paid or payable shall be automatically reduced to such maximum permissible amount and the excess applied to principal or if no principal shall be outstanding and such amount has been paid, refunded to the payor. If the amount of interest payable for the account of Holder in respect of any interest computation period is reduced pursuant to the preceding sentence and the amount of interest payable for its account in respect of any subsequent interest computation period, computed pursuant to applicable law and the Transaction Documents, would be less than the maximum amount permitted by applicable law to be charged, then the amount of interest payable in respect of the subsequent inter est computation period shall be automatically increased to such maximum permissible amount; provided that at no time shall the aggregate amount by which interest paid had been increased pursuant to this sentence exceed the aggregate amount by which interest has theretofore been reduced pursuant to the preceding sentence. All payments and prepayments on account of principal and interest due in connection with this Note made by the Obligors to Holder pursuant to the Note Agreement shall be recorded by the Holder on Schedule 1 annexed hereto, and constituting a part hereof, which recordations shall constitute prima facie evidence of the accuracy of the information so recorded; provided, however, that the failure of the Holder to make any such recordation shall not limit or otherwise affect the obligations of the Obligors hereunder or under the Note Agreement. The Obligors hereby waive presentment, demand, protest and notice of any kind in connection with this Note. The Obligors and any endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive presentment, demand, protest and notice of any kind in connection with this Note and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. This Note is entitled to the benefits of the Transaction Documents. This Note is secured by certain assets pursuant to the Security Documents. EXHIBIT C-3 4 The terms of this Note are subject to amendment, waiver or modification only in the manner provided in the Note Agreement. This Note shall bind the Obligors and their respective successors and assigns, and the benefits hereof shall inure to the benefit of the Holder and its successors and assigns. All references herein to the "Obligors" and the "Holder" shall be deemed to apply to the Obligors and the Holder, respectively, and their respective successors and assigns. Subject to the provisions of Section 11.3(a) of the Note Agreement, all Obligors are jointly and severally irrevocably and unconditionally liable, as primary obligors and not merely as sureties, for the due and punctual payment in full of all Secured Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)). The obligation of each Obligor is independent, primary and original, and not dependent upon failure of Holder to collect from any other Obligor. Holder may enforce this Note against the Subsidiaries party hereto notwithstanding the existence of any dispute between Holder and the Company with respect to the existence of an Event of Default. The obligations of each such Subsidiary hereunder are independent of the obligations of the Company under the Transaction Documents and the obligations of any other Obligor or any guarantor, and a separate action or actions may be brought and prosecuted against such Subsidiary whether or not any action is brought against the Company or any of such other Obligor or any guarantor and whether or not the Company is joined in any such action or actions. This Note, for all purposes, shall be governed by, and construed in accordance with, the laws of the State of New York (including without limitation Section 5-1401 of the General Obligations Law of the State of New York). In the event any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity and the remainder of such provision or the remaining provisions of this Note shall not in any way be affected or impaired thereby. WAIVER OF JURY TRIAL. NO PARTY TO THIS NOTE OR ANY ASSIGNEE, SUCCESSOR, HEIR OR PERSONAL REPRESENTATIVE OF A PARTY SHALL SEEK A JURY TRIAL IN ANY LAW SUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION PROCEDURE BASED UPON, OR ARISING EXHIBIT C-4 5 OUT OF, THIS NOTE, ANY RELATED AGREEMENT OR INSTRUMENT, ANY SECURITY FOR THE INDEBTEDNESS EVIDENCED HEREBY, OR THE DEALINGS OR THE RELATION SHIP BETWEEN OR AMONG THE PARTIES, OR ANY OF THEM. NO PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH, OR REPRESENTED TO, ANY OTHER PARTY THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. WITNESS the due execution hereof as of the date first above written. ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation By: ----------------------------- John H. Fischer, its Vice President CUMBERLAND COVE, INC. By: ------------------------------- Name: Title: ENVIRONMENTAL QUALITY LABORATORY INC. By: ------------------------------- Name: Title: EXHIBIT C-5 6 SCHEDULE 1 TO NOTE NOTE RECORD DATE AMOUNT DATE OF AMOUNT OF PAYMENT OF PAYMENT PREPAYMENT PREPAYMENT - ------- ---------- ---------- ---------- EXHIBIT C-7 -----END PRIVACY-ENHANCED MESSAGE-----