STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CONSOLIDATED CAPITAL CORPORATION, )

)

Petitioner, )

)

vs. ) CASE NO. 79-2031

)

DEPARTMENT OF BANKING AND ) FINANCE, DIVISION OF SECURITIES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to agreement of the parties, an administrative hearing was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, on October 8, 1979, in Room 106 of the Collins Building, Tallahassee, Florida, at 10:00 A.M.

APPEARANCES

For Petitioner: Thomas Tew

Tew, Critchlow, Sonberg, Traun and Friedbauer

7900 North East 2nd Avenue, Sixth Floor Miami, Florida 33138

For Respondent: Philip J. Snyderburn

Director, Division of Securities Office of the Comptroller

1402, Capitol

Tallahassee, Florida 32301 FINDINGS OF FACT

Based upon the pleadings, the stipulation and oral argument, the following relevant facts arc found:

1. The petitioner is a Florida corporation founded in 1972 which has operated a life insurance business since 1973 through a wholly owned life insurance subsidiary. Petitioner originally issued some 230,000 shares of common stock to 25 private individuals at a cost of from 81.00 per share to

   $3.00 per share. The initial public offering occurred in 1973 when petitioner sold 611,114 shares of common stork at 85.00 per share. At that time, the book value per share was approximately $1.03.

   
   

2. Between 1974 and 1978, the stockholders' equity in the petitioner steadily diminished from $2,984,225.00 to $1,199,525. The market price of its common stock, which is traded in the over-the-counter market, has decreased between 1973 and 1978 from a high bid price of 6 dawn to 3/8.

3. As of April 16, 1979, the petitioner had approximately 1,679 shareholders of record. Its president, vice-president and other officers and directors own about 28 percent of the outstanding shares.

   
   

4. In April of 1979, petitioner's president, Mr. Weiss, purchased 125,000 shares of unregistered common stock at prices ranging from a low of $.50 per share for 20,000 shares, $.76 to $.89 per share for 85,000 shares, and $1.25 per share for 20,000 shares, amounting to an average price of $.80 per share. At that time, Mr. Weiss already had a controlling vote in the company and there was no established market for the common shares.

   
   

5. On or about June 26, 1979, petitioner submitted to the respondent its application for registration of securities by qualification, seeking to register 600,000 shares of convertible preferred stock at $5.00 per share for a total offering of $3,000,000.00. The holders of the preferred stock will have a preference to the extent of the offering price per share ($5.00) over the holders of the outstanding common stock as to the assets of the petitioner in the event of a liquidation. Two years after the commencement of the proposed public offering, each share of the preferred stock will automatically convert to four shares of common stock. Thus, the common stock valuation at the time of conversion will be $1.25 per share.

   
   

6. As of June 30, 1979, the book value per common share according to generally accepted accounting principles was $1.02. The stipulated adjusted book value per common share as of June 1, 1979, was $1.61.

   
   

7. It is generally the policy of the respondent to approve initial public offerings of the stock of new companies which are in the developmental stage at an amount equaling approximately five times the book value.

   
   

8. There is no established market for the securities of petitioner and the proposed offering is not supported by a firm commitment of an underwriter.

   
   

9. On October 3, 1979, the respondent issued its notice of intent to deny the registration and order of denial of petitioner's application for registration. The respondent cited Florida Administrative Code, Rule 3E- 20.15(3), and concluded that the respondent's offering

   
   

   "would be 'fair, just and equitable' if the preferred stock was sold at a price per share of $3.20 (translated to common stock valuation

   .80 share). The Department also concludes that the offering price would not be 'fair, just and equitable' if offered to the investing public at a price of $5.00 per share (translated to common stock valuation $1.25 share)."

   
   

10. In reaching its determination that the price of $3.20 per share (or

    $.80 per share for common stock upon conversion), the respondent considered the petitioner's six year history, the fact that there had been no substantial change in management and the fact that common stock sold at an average price of

    $.80 per share in April of 1979.

    
    

11. The parties have stipulated that time is of the essence in this proceeding and have agreed to accept the findings of the undersigned Hearing Officer as to a "fair, just and equitable" offering price of petitioner's

    convertible preferred stock, absent any clearly erroneous conclusions of law or findings of fact.

    
    

    CONCLUSIONS OF LAW

    
    

12. The respondent is required to record the registration of securities if it determines, among other things, that the terms of the sale would be 'fair, just and equitable.' Section 517.081, Florida Statutes, (1978 Supp.). The phrase "fair, just and equitable", has been administratively interpreted in

    F.A.C. Ch. 3E-20.15. The pertinent portion of that rule provides as follows:

    
    

    "(3) In offerings where there is no established market price for either the securities of the issuer or similar securities of other issuers or the issuer is in the development phase and does not have an established record of earnings and the proposed offering price set by the issuer is not supported by a firm commitment of an underwriter, consideration will be given by the Department to all well-recognized standards of valuation applicable to the nature of the business of the issuer, such as net asset value, price earnings ratios, managements ability, and any other tangible factors which may be deemed appropriate. The Department will make a determination as to whether the price is fair, just and equitable to new investors after due consideration of all such factors.

    
    

13. After considering all the evidence adduced in this proceeding, it is concluded that the offering price proposed by the petitioner ($5.00 per share for convertible preferred stock) is fair, just and equitable.

    
    

14. As of June 30, 1979, the adjusted book value of petitioner's common stock was $1.61 per share. At the time of conversion, the offered securities will convert to four shares of common stock at a value of $1.25 per share. This conversion will not occur until two years after the public offering. It would thus be improper to look solely to a transaction occurring in April of 1979 as a basis for determining the fair, just and equitable price of common stock in 1981. Also, it would be unfair to equate the purchase of large blacks of unregistered common stock by the petitioner's president with the registered convertible preferred securities proposed to be offered to the public. With the proposed offering, the investor presumably has the option of purchasing either the proposed preferred stack or, if this is not acceptable to him, he can purchase the petitioner's outstanding common stock. Also, it appears that the respondent's suggested offering at an amount of $3.20 per preferred share (or

    $.80 per share upon conversion) would tend to dilute or reduce the equity of the petitioner's current common stockholders. In light of the fact that the petitioner has not been financially successful during its existence and is operating under substantially the same management, the respondent's policy of allowing new and developing business ventures to offer their stock at five times its book value need net be adhered to in this instance. However, the respondent's suggestion of offering the securities at some twenty percent less than the current book value and some fifty percent less than the adjusted book value does not appear to be fair, just and equitable.

15. The petitioner has proposed an offering of convertible preferred shares at an amount which, when converted, will equal less than the present adjusted book value of its common stock. The offering of $5.00 per share for convertible, preferred shares appears to be fair, just and equitable to new investors.

RECOMMENDATION

Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the petitioner's application to register 600,000 shares of convertible, preferred stock at $5.00 per share be GRANTED.

Respectfully submitted and entered this 10th day of October, 1979, in Tallahassee, Florida.

DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301

(904) 488-9675

COPIES FURNISHED:

Thomas Tew

Tew, Critchlow, Sonberg, Traun and Friedbauer

7900 North East 2nd Avenue, Sixth Floor Miami, Florida 33138

Philip J. Snyderburn

Director, Division of Securities Office of the Comptroller

1402, Capitol The Capitol Tallahassee, Florida 32301

Gerald A. Lewis Comptroller, State of

Florida

Tallahassee, Florida 32301

Docket for Case No: 79-002031

Orders for Case No: 79-002031