All but the last three of the following Formation Transactions will be
consummated prior to or on the closing of the Offering (and, in the case of the
completion of the termination of Alpine/Hanover LLC, ABH-I LLC and any other
entities beside HCMC and HCS in which HCP owns interests and that were not
terminated before the closing of the Offering, as soon as practicable after the
close of the Offering):
- HCHI has been formed as a Maryland corporation.
- HCP will begin to liquidate (or dispose of its interests in) its
inactive corporate subsidiaries and affiliates.
- HCP will amend its charter to authorize the HCP Preferred and the HCP
Common (and a class of nonvoting common stock shares of which may be
issued to HCHI in exchange for any shares of HCP Common it acquires).
- The Principals will exchange, in tax-free recapitalizations, their
shares of stock in HCP for all of the HCP Preferred and all of the HCP
- To the extent consistent with its contractual and fiduciary
obligations, HCP will begin to wind down (or dispose of its interests
in) the limited liability companies of which it is a member. Some or
all of those interests may be transferred to the Principals without
consideration. If HCP is not able to divest itself of all of its
interests in two of those limited liability companies (Alpine/Hanover
LLC and ABH-I LLC) and as asset manager to BT Realty Resources, Inc.
prior to the consummation of the Offering, HCP will distribute to the
Principals prior to the consummation of the Offering its rights to any
receivables arising between June 30, 1997 and the closing of the
Offering from these investment entities. The receivables are expected
to approximate $1,000,000. See "Structure and Formation
Transactions -- Benefits to the Principals."
- HCHI will sell 5,000,000 Units in the Offering.
- The Principals will contribute the HCP Preferred to HCHI in exchange
for 716,667 shares of Common Stock.
- HCP will complete the wind down of (or the disposition of its
interests in) Alpine/Hanover LLC, ABH-I LLC and any other entities
(other than HCMC and HCS) in which it owns interests and that were not
terminated before the closing of the Offering.
- HCHI will lend up to $1,750,000 to the Principals to enable the
Principals to pay tax on the gains they must recognize upon
contributing the HCP Preferred to HCHI for shares of Common Stock. The
loans will be secured by 116,667 shares of the Principals' Common
Stock but will otherwise be nonrecourse to the Principals (so that,
upon a default by a Principal, HCHI could not reach other assets of
the Principal for repayment). The loans will bear interest at the
lowest "applicable federal rate." See "Certain Transactions -- Loans
to the Principals."
- If the Earn-Out vests, as additional consideration to the Principals
for their contribution of the HCP Preferred to HCHI, HCHI will (i)
issue to the Principals up to 216,667 additional shares of Common
Stock, increasing the Principals' percentage ownership of the
outstanding shares of Common Stock to up to 15.73%, and (ii) forgive
the $1,750,000 in loans made to the Principals to enable them to pay
taxes to the extent that the Earn-Out vests. See "-- HCHI."
Consequences of the Formation Transactions
The consummation of the Formation Transactions and the closing of the
Offering will have the following consequences:
- The Company will be comprised of HCHI, HCP, HCMC and HCS.
- The purchasers of Units in the Offering will own 87.46% of the
outstanding Common Stock in HCHI (and all of the Warrants, except for
the Representatives' Warrants). The percentage of the