<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998 -- Commission File Number 0-7616
AVATAR HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 23-1739078
- -------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Alhambra Circle, Coral Gables, Florida 33134
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (305) 442-7000
--------------------------
Securities registered pursuant to section 12(g) of the Act:
Convertible Subordinated Notes Due 2005,
Convertible into Common Stock, $1.00 Par Value
Common Stock, $1.00 Par Value
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was $186,940,704 as of February 26, 1999.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, $1.00 par value, issued and outstanding.
As of February 26, 1999, there were 9,170,102 shares of common stock,
$1.00 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its 1999 Annual Meeting of
Stockholders are incorporated by reference into Part III.
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AVATAR HOLDINGS INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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Forward Looking Statements.......................................................................................... 3
PART I
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Item 1. Business............................................................................................ 3
Item 2. Properties.......................................................................................... 10
Item 3. Legal Proceedings................................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders................................................. 10
Executive Officers of Registrant.................................................................... 11
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters................................ 13
Item 6. Selected Financial Data............................................................................. 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................................... 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......................................... 32
Item 8. Financial Statements and Supplementary Data......................................................... 33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures....................................................................................... 64
PART III
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Item 10. Directors and Executive Officers of the Registrant.................................................. 64
Item 11. Executive Compensation ............................................................................ 64
Item 12. Security Ownership of Certain Beneficial Owners and Management...................................... 64
Item 13. Certain Relationships and Related Transactions...................................................... 65
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 65
Exhibit Index........................................................................................................ 71
</TABLE>
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FORWARD-LOOKING STATEMENTS
Certain statements discussed in Item 1 (Business), Item 3 (Legal
Proceedings), Item 7 (Management's Discussion and Analysis of Financial
Condition and Results of Operations), and elsewhere in this Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of results to differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others: the successful implementation of the Company's
new business strategy; shifts in demographic trends affecting active adult
communities and other real estate development; the level of immigration and
in-migration to the Company's regional market areas; national and local economic
conditions and events, including employment levels, interest rates, consumer
confidence, the availability of mortgage financing and demand for new and
existing housing; the Company's access to future financing; competition; changes
in, or the failure or inability to comply with, government regulations; the
ability of the Company and third parties to address Year 2000 issues adequately
and other factors as are described at the end of Item 7 (Management's Discussion
and Analysis of Financial Condition and Results of Operations) of this Form
10-K.
PART I
Item 1. Business
GENERAL
Avatar Holdings Inc. and its subsidiaries (collectively, "Avatar" or
the "Company") are engaged in two principal business activities: real estate and
water and wastewater utilities operations. The Company owns and develops land,
primarily in various locations in Florida and Arizona. The Company's current and
planned real estate operations include the following segments: the development,
sale and management of active adult communities; the development and sale of
residential communities (including construction of upscale custom and
semi-custom homes, mid-priced single- and multi-family homes) and the sale of
homesites; the development, leasing and management of improved commercial and
industrial properties; operations of amenities and resorts; cable television
operations and property management services. The Company's utilities operations
include the purification and distribution of water and the treatment and
disposal of wastewater through plants in Florida and Arizona, as well as
contract management services for affiliated and unaffiliated water and
wastewater utilities. Two of the Company's subsidiaries are currently engaged in
negotiations relating to the sale of the assets used in their Florida
utilitities operations. Such negotiations are more fully described under the
caption "Recent Developments."
Avatar Holdings Inc. was incorporated in the state of Delaware in 1970.
Its principal executive offices are located at 201 Alhambra Circle, Coral
Gables, Florida 33134 (telephone (305)442-7000).
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Item 1. Business - continued
RECENT DEVELOPMENTS
Florida Cities Water Company and Poinciana Utilities, Inc., two
operating subsidiaries of Avatar that own and operate Avatar's water and
wastewater utilities located in the counties of Brevard, Collier, Hillsborough,
Lee, Osceola, Polk and Sarasota, Florida have been involved in negotiations for
the sale of the assets used in their Florida utilities operations. The utilities
operations in Rio Rico, Arizona are not included in the proposed transactions.
For purposes of the transaction, the counties have organized a
Governmental Utility Authority to acquire the Florida utilities assets. The
Governmental Utility Authority will also obtain the necessary financing for the
acquisition through municipal bond issuance and enter into such agreements with
Avatar's subsidiaries as may be required to effect the transfer of the utilities
assets and provide for continuing management of the Florida utilities systems
after the assets have been transferred to the Governmental Utility Authority.
Assuming that all of the Florida utilities assets are sold, it is
anticipated that the purchase price will approximate $212 million. Upon
consummation of the transaction, Avatar would repay approximately $63.6 million
of indebtedness and other liabilities and would redeem approximately $3.6
million of outstanding preferred stock, in addition to paying or satisfying
fees, expenses, and applicable taxes. Avatar intends to use the remaining
proceeds to expand existing real estate operations, for real estate acquisitions
and other corporate purposes.
Upon consummation of the sale, Avatar's utilities subsidiaries would
cease to own the Florida utilities assets, but would continue to provide
contract management services and operate the water and wastewater systems on
behalf of the Governmental Utility Authority, on either a transitional or
long-term basis, pursuant to one or more agreements currently under negotiation.
The transactions are subject, among other things, to the satisfactory
completion of arrangements with the participating counties, the execution of
definitive agreements and the satisfaction of closing conditions, which include
the receipt of the requisite authorizations and financing by the counties and
the Governmental Utility Authority.
Net assets and liabilities of the Florida utilities operations have
been segregated from the continuing operations in the Consolidated Balance
Sheets and operating results are segregated and reported as discontinued
operations in the Consolidated Statements of Operations and Cash Flows. See
Notes S and T to the Consolidated Financial Statements included in Item 8 Part
II of this Report.
REAL ESTATE
BUSINESS STRATEGY
During 1997, the Company began implementing its current real estate
business strategy, which is designed to capitalize on its competitive advantages
and emphasize higher profit margin businesses. The Company is concentrating on
the development and management of active adult communities, upscale custom and
semi-custom homes and communities, and commercial and industrial properties. The
Company also seeks to identify additional sites which are suitable for
development consistent with the
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Item 1. Business - continued
Company's business strategy and anticipates that it will acquire or develop them
directly or through joint venture or management arrangements.
During 1998, the Company commenced land development of its first
planned active adult community in Avatar's Poinciana community. Pre-sales are
expected to commence in the third quarter of 1999 and grand opening of the
community is scheduled for early 2000.
Prior to the third quarter of 1997, the Company's business plan
emphasized the construction and sale of mid-priced single-family homes. Although
the Company's real estate business strategy is intended to shift Avatar's future
capital expenditures and sources of revenue to potentially higher profit-margin
businesses, Avatar will continue the construction and sale of mid-priced homes,
both on scattered lots and on contiguous parcels as part of planned communities.
Prior to the third quarter of 1997, the Company's policy was to sell
commercial and industrial land at market prices whenever possible. Under the
current real estate business strategy, the Company will focus on developing,
leasing and operating commercial and industrial properties rather than selling
them. However, the Company intends to continue its policy of selling non-core
assets as opportunities arise under prevailing market conditions. Future demand
for commercial and industrial land and facilities at the Company's properties is
expected to increase as the result of the development by both the Company and
other developers of homes and planned communities.
The Company's resorts and amenities operations are intended to enhance
the value of the Company's land in the communities in which they are located.
Such operations include the Cape Coral Golf and Country Club, the Poinciana Golf
and Racquet Club and the Rio Rico Resort and Country Club.
The Company also generates revenues through the rental and lease of the
Company's community shopping centers and commercial operations in Cape Coral,
Poinciana and Rio Rico, the Tarpon Point Marina in Cape Coral, cable television
operation at Poinciana and property management services.
During 1997, the Company developed a formal plan for the disposition of
its timeshare business. See Notes S and T to the Consolidated Financial
Statements included in Item 8 of Part II of this Report. During the first
quarter of 1999, the Company entered into a non-binding letter of intent for the
sale of the timeshare operation; however, there is no assurance that the
transaction will be consummated.
REAL ESTATE ASSETS
Avatar's assets include real estate inventory in the states of Florida,
Arizona, California and Tennessee. In its Florida communities of Harbor Islands
and Poinciana, its Arizona community of Rio Rico and its Florida properties in
Cape Coral and Ocala Springs the extent of Avatar's land holdings consist of
over 23,100 developed, partially developed or developable acres, of which 17,300
acres have been platted and/or zoned and approximately 5,800 acres have not been
platted. The types of activities conducted by the Company vary from community to
community. The Company is currently developing certain parcels and is
considering development or alternative strategies for other parcels. Avatar owns
other sites including Banyan Bay in Martin County, Florida; the Natoma tract in
Los Angeles County, California, and homesites and other acreage at Golden Gate
and Leisure Lakes, Florida.
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Item 1. Business - continued
The Harbor Islands project encompasses 192 acres, including 30 acres
conveyed to the City of Hollywood for future parks, adjoining the Intracoastal
Waterway in Hollywood, Florida. When completed, Harbor Islands will consist of
distinctive, separate villages on three connected islands. The Company has
approval to build up to 2,400 residential units, including single-family homes,
townhomes, villas, mid-rise and high-rise condominium units in this
water-oriented community. Additionally, this community will include a 196-boat
slip marina. In 1998, Avatar closed 29 single-family homes and received deposits
on sales for another 86 single-family homes and townhomes. These sales have a
combined sales value of approximately $44,135,000.
Poinciana, located in central Florida approximately 21 miles south of
Orlando and 10 miles from Walt Disney World, encompasses 47,000 acres of land.
Of approximately 18,200 acres owned by Avatar approximately 10,000 acres are not
currently developable and are reserved for open space and other purposes. This
planned community development includes subdivisions for single- and multi-family
housing, commercial/industrial areas and active adult communities. Since 1971,
21,850 homesites have been sold and approximately 5,256 housing units, primarily
single family houses and townhouses, have been constructed by Avatar and other
non-affiliated builders. As of December 31, 1998, approximately 8,000 developed
and developable single family acres remained in inventory at Poinciana,
approximately 1,900 acres of which are zoned and/or planned for industrial and
commercial property. Avatar's housing programs in Poinciana include its
residential communities of Crescent Lakes, Cypress Woods and the Estates of
Deerwood, as well as scattered lot housing programs. At December 31, 1998,
Avatar had contracts at Poinciana to construct 162 single-family units with a
related sales value of approximately $18,253,000. Included within the 8,000
acres are approximately 4,300 acres of large, contiguous, entirely debt-free
parcels planned for active adult community development of up to 15,000 units.
The Company has commenced land development in Poinciana of its first planned
active adult community. Recreational facilities owned by Avatar at the Poinciana
development include an 18-hole Devlin Von-Hagge championship golf course, tennis
courts, a golf and racquet club with a swimming pool and a community center. The
Company also owns and operates a cable television subsidiary and water and
wastewater facilities at Poinciana.
Cape Coral, located on Florida's west coast seven miles west of Fort
Myers, is a 60,700-acre community, of which approximately 3,900 acres are owned
by Avatar. Avatar is considering appropriate strategies for its remaining
inventory, which at December 31, 1998, included approximately 5,258 developed
and undeveloped single-family homesites, approximately 700 acres suitable for an
active adult community development and approximately 400 acres suitable for the
development of up to 6.2 million square feet of commercial and industrial space.
Avatar's housing programs in Cape Coral include its residential communities of
Emerald
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Item 1. Business - continued
Cove, Cape Harbour, Rose Garden and scattered lot programs. At December 31,
1998, Avatar had contracts at Cape Coral to construct 93 single-family units
with a related sales value of approximately $16,582,000. Avatar owns and
operates the Camelot Isles Shopping Center, a 70,000 square foot retail center.
At December 31, 1998, the shopping center was 99% occupied. Avatar's Tarpon
Point Marina, which is 82% occupied as of December 31, 1998, accommodates 175
vessels and features dockmaster facilities, a ship's store and fueling
facilities. The Camelot Marina, is designed to accommodate 76 vessels and 3,500
feet of boardwalk. Other amenities available to the residents of Cape Coral
include Avatar's Cape Coral Golf and Tennis Resort featuring an 18-hole
championship golf course, a 9-hole executive golf course, eight tennis courts
and a 100-room motel.
Rio Rico, located 57 miles south of Tucson, is a 55,000-acre community
development in southern Arizona. Of approximately 16,100 acres owned by Avatar
approximately 7,400 acres are considered developable and 8,700 acres include
areas reserved for open space, areas which are not developable and areas for
which development is not economically feasible. Avatar owns and operates a
180-room hotel complex, which is rated a Four-Diamond resort, an 18-hole Robert
Trent Jones designed championship golf course and a 36,800 square foot shopping
center, which was completely occupied as of December 31, 1998. At December 31,
1998, Avatar had contracts at Rio Rico to construct 56 single-family units with
a related sales value of approximately $5,741,000.
Banyan Bay, located in Martin County, Florida, consists of 250 acres
suitable for the development of a water-oriented planned community.
Ocala Springs, located five miles northeast of Ocala in Marion County,
Florida, is comprised of approximately 4,600 acres of land, of which
approximately 4,200 acres would accommodate an active adult community of at
least 14,700 units. The remaining 400 acres would be available for the
development of a golf course, recreational facilities and up to 2.9 million
square feet of commercial and industrial facilities.
The Natoma tract located in Woodland Hills in northwest Los Angeles
County, California, encompasses approximately 350 acres of land. Conceptual
planning for this tract has been completed for 49 luxury homesites. An
environmental impact report has been filed and has been accepted by the City of
Los Angeles and documents are pending for Tentative Tract Map approval with the
City. Currently, this property is being held for sale.
Golden Gate City, located east of Naples in southwest Florida, had
remaining inventory at December 31, 1998 of 42 homesites, 48 acres of land zoned
for multi-family use and 9 acres zoned for commercial use.
Remaining inventory at Golden Gate Estates and Golden Gate Acres as of
December 31, 1998 includes 144 homesites of varying size, the majority of which
are approximately 1 and 1-1/4-acre homesites, and approximately 500 acres of
land held for future use.
Avatar's land holdings in Leisure Lakes, located near the city of Lake
Placid in South Central Florida, consists of approximately 800 homesites in
inventory at December 31, 1998.
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Item 1. Business - continued
UTILITIES
Avatar's water and wastewater treatment facilities include 17 water
treatment facilities and 12 wastewater treatment facilities serving 6
communities in Florida (including Poinciana, Barefoot Bay, and Golden Gate) and
Rio Rico in Arizona. These facilities provide for the treatment, distribution
and sale of water for public and private use, and the treatment and disposal of
wastewater. At December 31, 1998, Avatar's utilities operations had
approximately 44,400 water customers and 33,800 wastewater customers.
An Avatar subsidiary provides consulting, data processing, customer
billing and other related services to all Avatar utilities operating
subsidiaries. In addition, it provides these services and others, including
plant operations and maintenance, meter reading, customer service, and payment
remittance services, to 97 non-affiliated utilities, both public and private.
Notable contracts include a five year contract for water/wastewater system
operation and maintenance for Celebration, the project under construction by
Disney Development Company, and contract meter reading for Fort Pierce Utilities
Authority, the City of Sunrise, Florida and Broward County Utilities.
Two of the Company's subsidiaries are currently engaged in negotiations
relating to the sale of the assets used in their Florida utilities operations.
Such negotiations are more fully described under the caption "Recent
Developments."
BUSINESS SEGMENT INFORMATION
The Company's business segment information regarding revenues, results
of operations and assets is incorporated herein by reference to Note P to the
Consolidated Financial Statements included in Item 8 of Part II of this Report.
EMPLOYEES
As of December 31, 1998, Avatar employed approximately 943 individuals
on a full-time or part-time basis. In addition, Avatar utilizes on a daily basis
such additional personnel as may be required in connection with various land
development activities. Avatar's relations with its employees are satisfactory
and there have been no work stoppages.
REGULATION
Avatar's real estate operations, including matters such as planning,
zoning, design, construction of improvements, environmental considerations and
sales activities are regulated by various local, regional, state and federal
agencies, including the Federal Trade Commission (FTC). For its community
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Item 1. Business - continued
developments in Florida, Tennessee and Arizona, state laws and regulations may
require the filing of registration statements, copies of promotional materials
and numerous supporting documents, and the delivery of an approved disclosure
report to purchasers, prior to the execution of a sales contract. In addition to
Florida, Tennessee and Arizona, certain states impose requirements relating to
the inspection of properties, approval of sales literature, disclosures to
purchasers of specified information, assurances of future improvements, approval
of terms of sale and delivery to purchasers of a report describing the property.
Federal regulations adopted pursuant to the Interstate Land Sales Full
Disclosure Act provide for the filing or certification of a registration
statement with the Office of Interstate Land Sales Regulation of the Department
of Housing and Urban Development. Avatar's homesite installment sales and
timeshare sales activities are required to comply with the Federal Consumer
Credit Protection ("Truth-in-Lending") Act.
Avatar's utilities operations and rate structures are regulated by
various federal, state and county agencies and must comply with federal and
state treatment standards. All sources of water and wastewater effluent are
required to be tested on a regular basis and purified in order to comply with
governmental standards.
The Company believes it is in compliance with applicable laws and
regulations in all material respects.
COMPETITION
Avatar's residential homebuilding, planned community development and
other real estate operations, particularly in the state of Florida, are highly
competitive. In its sales of housing units, Avatar competes, as to price and
product, with several national homebuilding companies that are entering or
expanding their presence in planned community development for the discretionary
income of individuals who desire eventually to relocate or establish a second
home in Florida or Arizona. In recent years, there have been extensive housing
projects in the geographical areas in which Avatar operates.
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Item 2. Properties
Avatar's real estate operations are described in Item 1 above. Land
developed and in the process of being developed, or held for investment and/or
future development, has an aggregate cost of approximately $131,441,000 at
December 31, 1998.
Avatar's utilities operations include water and wastewater plants and
equipment located in Florida and Arizona. Such properties have a net book value
of $188,406,000 at December 31, 1998.
Avatar's corporate headquarters are located at 201 Alhambra Circle,
Coral Gables, Florida, in 26,300 square feet of leased office space. For
additional information concerning properties leased by Avatar, see Item 8,
"Notes to Consolidated Financial Statements."
Item 3. Legal Proceedings
The information, which is set forth in Note O (Contingencies) of the
Notes to Consolidated Financial Statements included in Item 8 of Part II of this
Report, is incorporated herein by reference.
Avatar is involved in various pending litigation matters primarily
arising in the normal course of its business. Although the outcome of these
matters cannot be determined, management believes that the resolution of these
matters will not have a material effect on Avatar's business or financial
statements.
Item 4. Submission of Matters to a Vote of Security Holders
None
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Executive Officers of the Registrant
Pursuant to General Instruction G (3) to Form 10-K, the following list
is included as an unnumbered item in Part I of this report in lieu of being
included in the Proxy Statement for the Annual Meeting of Stockholders to be
held on May 27, 1999.
The following is a list of names and ages of all of the executive
officers of Avatar, indicating principal positions and offices with Avatar or a
subsidiary held by each such person and each such person's principal
occupation(s) or employment during the past five years unless otherwise
indicated. Officers of Avatar have been elected to serve until the next annual
election of officers (which is expected to occur on May 27, 1999), when they are
re-appointed or their successors are elected or until their earlier resignation
or removal.
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<CAPTION>
NAME AGE OFFICE AND BUSINESS EXPERIENCE
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Leon Levy 73 Chairman of the Board since January 1981;
General Partner, Odyssey Partners, L.P., a
private investment partnership; Chairman of
the Board of Oppenheimer Funds; Chairman of
the Board of Oppenheimer Management Corp.
from 1974 to 1985.
Gerald D. Kelfer 53 President since February 1997, Chief
Executive Officer since July 1997, Vice
Chairman of the Board since December 1996,
and a member of the Board of Directors since
October 1996. Formerly a principal of Odyssey
Partners, L.P. from July 1994 to February
1997; Executive Vice President, Senior
General Counsel and Director of Olympia &
York Companies (U.S.) from 1985 to 1994.
Edwin Jacobson 69 Chairman of the Executive Committee since
June 1992; Chief Executive Officer from
February 1994 to July 1997 and President from
February 1994 to February 1997; President and
Chief Executive Officer of CMC Heartland
Partners, a partnership engaged in the real
estate industry, since September 1990;
President and Chief Executive Officer of
Heartland Technology, Inc. (formerly known as
Milwaukee Land Company), a manufacturer of
electronic products, since June 1985; and
President and Chief Executive Officer of
Chicago Milwaukee Corporation from June 1985
to September 1996.
Jonathan Fels 46 President, Avatar Properties Inc. since
December 1997; founding partner and President
of various Brookman-Fels companies since July
1980.
</TABLE>
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Executive Officers of the Registrant - continued
<TABLE>
<CAPTION>
<S> <C> <C>
Michael Levy 40 Executive Vice President and Chief Operating
Officer, Avatar Properties Inc. since
December 1997; partner and Vice President of
various Brookman-Fels companies since April
1983.
Michael S. Rubin 55 President, Avatar Retirement Communities,
Inc. since October 1997; formerly President
and Chief Operating Officer, Hilcoast
Development Corp., from August 1992 to
October 1997.
Dennis J. Getman 54 Executive Vice President since March 1984.
Senior Vice President from September 1981 to
March 1984 and General Counsel since
September 1981.
Charles L. McNairy 52 Executive Vice President since September 1993
and Treasurer since September 1992. Chief
Financial Officer from September 1992 to
December 1998. Senior Vice President from
September 1992 to September 1993. Vice
President - Finance from January 1985 to
September 1992, except from April 1987 to
September 1988.
Lawrence R. Sherry 55 Executive Vice President and Chief Financial
Officer since January 1999; formerly Partner,
Ernst & Young LLP from June 1995 to December
1998. Partner, Kenneth Leventhal and Company
from 1977 to June 1995.
Juanita I. Kerrigan 52 Vice President and Secretary since September
1980.
G. Patrick Settles 50 Vice President since November 1986 and
Assistant General Counsel since September
1983.
</TABLE>
The above executive officers have held their present positions with
Avatar for more than five years, except as otherwise noted.
No director or executive officer of Avatar has any family relationship
with any other director or executive officer of Avatar.
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PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Common Stock of Avatar Holdings Inc. is traded through The Nasdaq
Stock Market under the symbol AVTR. There were 7,818 record holders of Common
Stock at February 26, 1999.
High and low quotations, as reported, for the last two years were:
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Quotations
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QUARTER ENDED 1998 1997
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High Low High Low
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<S> <C> <C> <C> <C>
March 31 31 5/8 23 5/8 38 32
June 30 28 3/4 24 3/4 34 3/8 30 3/8
September 30 28 1/8 16 1/2 36 3/4 29 1/2
December 31 19 1/8 13 1/2 35 26 7/8
</TABLE>
Avatar has not declared any cash dividends on Common Stock since its
issuance and has no present intention to pay cash dividends. Avatar is subject
to certain restrictions on the payment of dividends as set forth in Item 8,
"Notes to Consolidated Financial Statements."
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Item 6. Selected Financial Data
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
Dollars in thousands (except per-share data)
<TABLE>
<CAPTION>
Year ended December 31
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1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Revenues $113,482 $96,016 $109,705 $65,144 $53,247
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Loss from continuing operations
before discontinued operations
and extraordinary items $(17,720) $(31,299) $(757) $(9,604) $(14,923)
============= ============ ============ ============ =============
Discontinued operations:
Income (loss) from discontinued operations $3,643 $4,310 $1,797 $(735) $302
Estimated loss on disposal, less
income tax expense of $0 (6,400)* -- -- -- --
Extraordinary item:
Loss on early extinguishment of debt,
less income tax expense of $0 investments (2,308) -- -- -- --
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Net (loss) income $(22,785) $(26,989) $1,040 $(10,339) $(14,621)
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BASIC AND DILUTED PER SHARE DATA:
Loss from continuing operations
before discontinued operations and
extraordinary items $(1.93) $(3.43) $(0.08) $(1.06) $(1.64)
Discontinued operations
Income (loss) from discontinued operations 0.40 0.47 0.19 (0.08) 0.03
Estimated loss on disposal, less
income tax expense of $0 (0.70) -- -- -- --
Extraordinary item:
Loss on early extinguishment of debt,
less income tax expense of $0 investments (0.25) -- -- -- --
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Net (loss) income $(2.48) $(2.96) $0.11 $(1.14) $(1.61)
============= ============ ============ ============ =============
BALANCE SHEET DATA December 31
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1998 1997 1996 1995 1994
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Total assets $472,991 $439,368 $443,185 $470,632 $446,577
============= ============ ============ ============ =============
Notes, mortgage notes and
other debt $157,553 $107,235 $96,640 $122.501 $101,633
============= ============ ============ ============ =============
Stockholders' equity $112,257 $135,042 $159,452 $158,412 $168,751
============= ============ ============ ============ =============
</TABLE>
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* Relates to an estimated loss on the disposal of the timeshare (vacation
ownership) business. See Note S to the Consolidated Financial Statements
included in Item 8 of Part II of this Report.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands)
The following discussion should be read in conjunction with the
Consolidated Financial Statements, including the notes thereto, included
elsewhere in this Form 10-K.
OVERVIEW
The Company is engaged in a number of real estate related businesses
and in the ownership and operation of water and wastewater utilities. Two of the
Company's subsidiaries are currently involved in continuing negotiations
relating to the sale of the assets used in their Florida utilities operations.
Net assets and liabilities of the Florida utilities operations have been
segregated from the continuing operations in the Consolidated Balance Sheets and
operating results are segregated and reported as discontinued operations in the
Consolidated Statements of Operations and Cash Flows. See Notes S and T to the
Consolidated Financial Statements of Avatar and its subsidiaries for the year
ended December 31, 1998.
Until 1994, through its national and international retail installment
land sales program, the Company was primarily engaged in the business of selling
lots. In 1993 the Company expanded into the residential homebuilding business,
and, until the third quarter of 1997, the Company's real estate business plan
emphasized the sale of individual homesites and the construction and sale of
mid-priced single family homes. This strategy increased annual closings of home
sales from 150 in 1995 to 483 in 1998 and increased home sales revenues from
$13,260 in 1995 to $71,494 in 1998. In 1996 the Company decided to terminate its
national and international retail installment land sales program. The Company is
still in the process of winding down this program and collecting related
receivables which, as of December 31, 1998, were approximately $24,992, some of
which are used to collateralize debt of approximately $9,060.
While the Company intends to remain in the mid-priced homebuilding
business, the Company's management team has implemented a real estate business
strategy to capitalize on its distinct competitive advantages and emphasize
higher profit margin businesses. Under its current strategy, the Company intends
to concentrate on development and management of active adult and other planned
communities, construction of custom and semi-custom homes and development and
acquisition of commercial and industrial properties. As a consequence of
implementing this strategy, the Company believes that its real estate operations
and the financial results thereof will change significantly over the next
several years. Accordingly, the results of operations reflected in the
historical financial statements may not be indicative of the future results of
operations of the Company.
ACTIVE ADULT COMMUNITIES. During 1998, the Company commenced land
development of its first planned active adult community in Avatar's Poinciana
community. Pre-sales are expected to commence in the third quarter of 1999 and
grand opening of the community is scheduled for early 2000.
RESIDENTIAL DEVELOPMENT. In 1993, the Company commenced residential
development activities at its properties in Poinciana and Cape Coral, Florida,
commenced planning for development of Harbor Islands in Hollywood, Florida, and
began preliminary plans for homebuilding programs in Rio Rico, Arizona.
15
<PAGE> 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
The following table sets forth revenues and sales data derived
from homebuilding operations for the years ended December 31, 1998, 1997 and
1996:
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Revenues $71,494 $57,912 $49,672
Other data:
Number of units sold 504 509 444
Number of units closed 483 436 293
Number of units in backlog 397 376 303
</TABLE>
COMMERCIAL AND INDUSTRIAL LAND SALES. Prior to the third quarter of
1997, the Company's policy was to sell commercial and industrial land at market
prices whenever possible. Under the current real estate business strategy, the
Company will focus on developing, leasing and operating commercial and
industrial properties rather than selling them. However, the Company intends to
continue its policy of selling non-core assets as opportunities arise under
prevailing market conditions. Revenues from commercial and industrial land sales
were $3,120, $5,441 and $1,702 in 1998, 1997 and 1996, respectively. Future
demand for commercial and industrial land and facilities at the Company's
properties is expected to increase as a result of the development by both the
Company and other developers of homes and planned communities.
RESORT OPERATIONS. Resort operations are intended to enhance the value
of the Company's land in the communities in which they are located. Such
operations, which include the Cape Coral Golf and Country Club, the Poinciana
Golf and Racquet Club and the Rio Rico Resort and Country Club, have generated
revenues on an annual basis of $13,591, $13,787 and $16,087 in 1998, 1997 and
1996, respectively.
OTHER REAL ESTATE REVENUES. The Company's rental, leasing and other real
estate revenues, which are primarily generated through the lease of the
Company's community shopping centers and commercial operations in Cape Coral,
Poinciana and Rio Rico, the Tarpon Point Marina in Cape Coral, cable television
operation at Poinciana and property management services, were $5,171, $5,163 and
$5,362 in 1998, 1997 and 1996, respectively.
WATER AND WASTEWATER UTILITIES. The Company's utilities subsidiaries
provide water and wastewater treatment to customers in Florida and Arizona. From
1996 to 1998, annual revenues have increased by approximately $3,140 or 9.6%.
The Company also provides data processing, customer billing and related services
to affiliated and non-affiliated companies and public entities.
16
<PAGE> 17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
The following table sets forth revenues and income derived from water
and wastewater utilities for the years ended December 31, 1998, 1997, and 1996
(including the discontinued Florida utilities operations. See Notes S and T to
the Consolidated Financial Statements of Avatar and its subsidiaries for the
year ended December 31, 1998:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Revenues $35,889 $34,293 $32,749
Approximate number of water customers 44,400 43,000 41,000
Approximate number of wastewater customers 33,800 33,000 32,000
Income before income taxes $5,130 $4,389 $3,042
Income before income taxes and non-recurring expense $5,130 $4,389 $3,892
</TABLE>
VACATION OWNERSHIP. While revenues from vacation ownership operations
increased from $11,339 in 1996 to $21,244 in 1998, these operations are not
considered by management to be a complementary component of the Company's
business strategy. During the third quarter of 1997, a formal plan of
disposition was developed to sell the vacation ownership business; in such sale
it is anticipated that the purchaser will assume $21,945 of associated debt as
of December 31, 1998. The Company is accounting for the vacation ownership as a
discontinued operation. Reference is made to Note S in Item 8 under the caption
"Notes to Consolidated Financial Statements."
RETAIL INSTALLMENT LAND SALES. Prior to 1997, the Company sold homesites
under retail land sales programs, which were terminated in the second quarter of
1996. Receivables, some of which collateralize debt of approximately $9,060, due
from such sales aggregated approximately $24,992 as of December 31, 1998 and are
payable over the next nine years. Revenues from these programs decreased from
$11,424 in 1995 to $3,998 in 1996.
17
<PAGE> 18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors that have affected Avatar during the periods included in the
accompanying consolidated statements of operations.
A summary of the period to period changes in the items included in the
consolidated statements of income is shown below.
<TABLE>
<CAPTION>
Comparison of
Twelve months ended December 31
-----------------------------------
1998 and 1997 1997 and 1996
------------- -------------
Increase (Decrease)
-----------------------------------
Change Change
-----------------------------------
<S> <C> <C>
REVENUES
Real estate sales $ 16,812 ($ 8,655)
Deferred gross profit on homesite sales 265 1,359
Interest income 263 (2,646)
Trading account profit, net (71) (2,139)
Other 197 (1,608)
-------- --------
Total revenues 17,466 (13,689)
EXPENSES
Real estate expenses 13,269 3,084
Real estate inventory write-down (14,667) 13,203
General and administrative expenses 1,593 (28)
Interest expense 3,526 468
Other 166 126
-------- --------
Total expenses 3,887 16,853
-------- --------
Income before taxes from continuing operations 13,579 (30,542)
Discontinued operations:
Income (loss) from operations (667) 2,513
Estimated loss on disposal (6,400)* --
Extraordinary item:
Loss on early extinguishment of debt (2,308) --
-------- --------
Net (loss) income $ 4,204 ($28,029)
======== ========
</TABLE>
- --------------
* Relates to an estimated loss on the disposal of the time-share (vacation
ownership) business. See Note S to the Consolidated Financial Statements
included in Item 8 of Part II of this report.
The Company uses the installment method of profit recognition for
homesite sales. Under the installment method the gross profit on recorded
homesite sales is deferred and recognized in income of future periods, as
principal payments on contracts are received. Fluctuations in deferred gross
profit result from deferred gross profit on current homesite sales less
recognized deferred gross profit on prior years' homesite sales.
18
<PAGE> 19
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
RESULTS OF OPERATIONS -- continued
Data from homebuilding operations for the years ended December 31,
1998, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------
1998 1997 1996
-----------------------------------------------------
<S> <C> <C> <C>
UNITS CLOSED
Number of units 483 436 293
Aggregate dollar volume $71,494 $57,912 $49,672
Average price per unit $148 $133 $170
UNITS SOLD, NET
Number of units 504 509 444
Aggregate dollar volume $99,162 $73,571 $59,078
Average price per unit $197 $145 $133
December 31
----------------------------------------------------
1998 1997 1996
-----------------------------------------------------
BACKLOG
Number of units 397 376 303
Aggregate dollar volume $84,711 $57,043 $41,384
Average price per unit $213 $152 $137
</TABLE>
Data from the national and international retail land sales programs,
terminated in the second quarter of 1996, is set forth below:
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------------
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
RETAIL LAND SALES OPERATIONS DATA
Sales volume $ -- $ -- $3,998
Cost of sales -- -- 705
Selling expense -- -- 3,773
Deferred gross profit 4,263 3,998 2,639
Interest income 3,148 5,200 7,846
Loss on contract cancellations (712) (1,046) (1,035)
Contract servicing expense (567) (568) (785)
Interest expense (1,191) (2,756) (2,865)
Years ended December 31
---------------------------------------------
1998 1997 1996
------------ ----------- ------------
Principal amount of contracts and mortgage
notes receivable $24,992 $40,478 $61,534
Debt collateralized by contracts and mortgages
Receivable 9,060 23,566 36,030
</TABLE>
19
<PAGE> 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
RESULTS OF OPERATIONS - continued
Operations for the years ended December 31, 1998, 1997 and 1996
resulted in (loss) income of ($22,785), ($26,989) and $1,040, respectively. The
increase in income for 1998 compared to 1997 is primarily attributable to an
increase in real estate contribution margin and an impairment loss during 1997
to the carrying amount of Harbor Islands partially mitigated by an increase in
interest expense and general and administrative expenditures as well as an
estimated loss on disposal of the discontinued vacation ownership operations.
The decrease in income for 1997 compared to 1996 is primarily attributable to a
decrease in real estate contribution margin, an impairment loss during 1997 to
the carrying amount of Harbor Islands, an increase in interest expense, and a
decrease in net trading account profits partially mitigated by an increase in
the recognition of deferred gross profit on homesite sales and improved
utilities contribution margins.
The Company continued to develop a diversified mix of products and
services by introducing additional housing products, planning and development of
active adult communities, developing amenities and support facilities, expanding
property contract management services and converting land holdings into income
producing operations.
Gross real estate revenues increased $16,812 or 19.8% during 1998 when
compared to 1997 and decreased $8,655 or 9.3% during 1997 when compared to 1996.
The increase in real estate revenues for 1998 when compared to 1997 is generally
a result of increased closings at the Company's residential communities in
Poinciana, Cape Coral and Rio Rico and an increase in bulk and other land sales.
Residential homebuilding revenues (including Harbor Islands) increased $13,582
or 23.5% in 1998 when compared to 1997. The increase in bulk and other land
sales is generally due to the bulk land sale at Golden Gate. Housing units
closed, excluding Harbor Islands, totaled 454 units with sales volume of $56,870
compared to 400 units with sales volume of $43,364 in 1997. Harbor Islands
closed 29 units with sales volume of $14,624 during 1998 compared to 36 units
with sales volume of $14,548 in 1997. The decrease in real estate revenues for
1997 when compared to 1996 is generally a result of reduced closings at the
Company's Harbor Islands community, the termination of the retail land sales
program, reduced resort revenues, the 1996 sales of the Barefoot Bay recreation
facilities and bulk land sale at Leisure Lakes. The decrease in real estate
revenues was partially mitigated by increased homebuilding revenues at the
Company's residential communities in Poinciana, Cape Coral and Rio Rico as well
as the increase in commercial and industrial revenues. Residential homebuilding
revenues increased $8,240 or 16.6% in 1997 when compared to 1996. The
improvement in homebuilding revenues is primarily due to an increase in closings
in 1997 when compared to 1996. Housing units closed, excluding Harbor Islands,
totaled 400 units with sales volume of $43,364 compared to 223 units with sales
volume of $22,206 in 1996. The increase in homebuilding revenues was partially
offset by the decrease in closings at Harbor Islands. Harbor Islands closed 36
units with sales volume of $14,548 during 1997 compared to 70 units with sales
volume of $27,466 in 1996.
20
<PAGE> 21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) - continued
RESULTS OF OPERATIONS - continued
Real estate expenses increased $13,269 or 14.2% during 1998 when
compared to 1997 and increased $3,084 or 3.4% during 1997 when compared to 1996.
The increase in real estate expenses for 1998 and 1997 is a result of increased
residential homebuilding expenses associated with an increase in residential
homebuilding revenues. Also contributing to the increase in real estate expenses
in 1998 is non-capitalizable expenditures associated with the development of the
Company's new active adult community in Poinciana. Operating profits for
residential homebuilding (including Harbor Islands) increased for 1998 when
compared to 1997 primarily due to decreased general homebuilding and marketing
expenditures. The real estate inventory write-down for 1997 and 1996 resulted
from impairment losses of $14,667 and $1,464, respectively, to the carrying
value of the Harbor Islands community and on a certain tract of land located at
the Company's Banyan Bay property, respectively. The Harbor Islands impairment
loss was due to the revision of the development plans in connection with the
Company's current business strategy. Operating profits for residential
homebuilding (excluding the Harbor Islands and Banyan Bay write-downs) decreased
for 1997 when compared to 1996 due to the decreased closings of higher-margin
product at Harbor Islands.
The average selling price (excluding Harbor Islands) of housing units
closed for 1998 was $125, an increase of 13.6% when compared to 1997. This
increase is primarily attributable to the increase in sales price at the
Company's Poinciana and Cape Coral communities. The average selling price at
Harbor Islands of housing units closed for 1998 was $513, an increase of 27.6%
when compared to 1997. This increase is primarily due to the increased closings
during 1998 of the higher-priced Harbor Islands' Parcel 10 product. The average
selling price (excluding Harbor Islands) of housing units closed for 1997 was
$110, an increase of 8.9% when compared to 1996. This increase is primarily
attributable to the increase in sales price at the Company's Poinciana, Cape
Coral and Rio Rico communities. The average selling price at Harbor Islands of
housing units closed for 1997 was $402, an increase of 3.1% when compared to
1996. This increase is primarily due to the initial closings during 1997 of the
Harbor Islands' Parcel 10 project. The average selling price (including Harbor
Islands) of housing units in backlog of $213 at December 31, 1998 increased by
40.1% over 1997 due to the increased number of sales in backlog at Harbor
Islands. The average selling price of housing units in backlog of $152 at
December 31, 1997 increased by 10.9% over 1996 due to the increased number of
sales in backlog at Harbor Islands.
Interest income increased $263 or 5.1% during 1998 when compared to
1997 and decreased $2,646 or 33.7% during 1997 when compared to 1996. The
increase in 1998 is primarily attributable to the interest income earned from
the proceeds invested from Notes (described below) issued February 2, 1998. The
increase in 1998 when compared to 1997 was partially offset by the decrease in
interest income attributable to lower average aggregate balances of the
Company's contract and mortgage notes receivable portfolio, caused by
collections and cancellations. This was also the cause for the decrease in 1997
when compared to 1996. The average balance of Avatar's receivable portfolio was
$32,735, $51,006 and $72,367 for 1998, 1997 and 1996, respectively.
Trading account profit, net decreased $2,139 for 1997 when compared to
1996. Trading account profit, net represents interest income and realized and
unrealized gains and losses related to the trading investment portfolio, net of
commissions payable to investment advisors. The trading investment portfolio
account was liquidated as of December 31, 1997.
21
<PAGE> 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands) -- continued
RESULTS OF OPERATIONS -- continued
Other revenues for 1996 include a sale of water rights at Rio Rico for
$1,585.
General and administrative expenses increased $1,593 or 18.2% in 1998
compared to 1997 and decreased $28 or 0.3% in 1997 compared to 1996. The
increase in 1998 when compared to 1997 is primarily attributed to increased
executive compensation and professional fees.
Interest expense increased $3,526 or 38.2% in 1998 when compared to
1997 and $468 or 5.3% in 1997 when compared to 1996. The increase in 1998 when
compared to 1997 is primarily attributable to the interest expense incurred from
the Notes (described below) issued February 2, 1998. Also contributing to the
increase in interest expense is the reduction of $2,202 in capitalized interest
in 1998 compared to 1997. The increase in 1997 when compared to 1996 is
primarily due to an increase in the outstanding balance of notes, mortgage notes
and other debt during 1997 compared to 1996 as well as a reduction of $411 in
capitalized interest in 1997 compared to 1996.
Income (loss) from discontinued operations (vacation ownership and
Florida utilities operations) decreased $667 in 1998 when compared to 1997 and
increased $2,513 in 1997 when compared to 1996. Income (loss) after income taxes
from the vacation ownership operations decreased $1,343 in 1998 when compared to
1997 and increased $1,109 in 1997 when compared to 1996. The decrease in
operating results in 1998 when compared to 1997 is due to changes in product mix
as compared to 1997. The increase in operating results in 1997 was primarily
attributable to initial start up costs incurred in 1996 on new projects. Also
occurring during 1998, the Company revised the estimate of the net realizable
value of the vacation ownership operations based on current business conditions.
As a result, an estimated loss on the disposal of the operations amounting to
$6,400 was recorded during 1998. Income (loss) after taxes from the Florida
utilities operations increased $676 in 1998 when compared to 1997 and $1,404 in
1997 when compared to 1996. The increase in Florida utilities operations for
1998 and 1997 is a result of customer growth and increased contract management
operations. The 1998 increase was partially offset by increases in maintenance
and other operational expenses when compared to 1997.
For the year ended December 31, 1998, the Company recorded a $2,308
extraordinary loss due to the early extinguishment of the $33,000 aggregate
amount of 8% and 9% Senior Debentures due 2000. The extraordinary loss resulted
from the unamortized portion of the discounts associated with the $33,000
aggregate amount of 8% and 9% Senior Debentures due 2000 written off upon
extinguishment.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, management began implementing its current real estate
business strategy to capitalize on the Company's distinct competitive advantages
and emphasize higher profit margin businesses. The Company intends to
concentrate on development and management of active adult and other planned
communities, construction of custom and semi-custom homes, and development and
acquisition of commercial and industrial properties. The Company does not
anticipate that its real estate business strategy will achieve or sustain
profitability or positive cash flow until the year 2000 or later. The Company's
primary business activities are capital intensive in nature. Significant capital
resources are required to finance homebuilding construction in process,
infrastructure for roads, water and wastewater utilities, selling expenses and
working capital needs, including funding of debt service
22
<PAGE> 23
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands) -- continued
LIQUIDITY AND CAPITAL RESOURCES - continued
requirements, operating deficits and the carrying cost of land. The Company
expects to fund its operations and capital requirements through a combination of
cash, operating cash flows, proceeds from the sale of certain non-core assets
and external borrowings. There is no assurance that the sale of certain non-core
assets will be achieved.
On February 2, 1998 the Company issued $115,000 principal amount of 7%
Convertible Subordinated Notes due 2005 (the "Notes"). The Notes are convertible
into common stock of Avatar at the option of the holder at any time at or before
maturity, unless previously redeemed, at a conversion price of $31.80 per share.
The Notes are subordinated to all present and future senior indebtedness of
Avatar and are effectively subordinated to all indebtedness and other
liabilities of subsidiaries of Avatar. The net proceeds of $111,550 after
deducting expenses were used to repay, on March 13, 1998, the $33,000 aggregate
principal amount outstanding of 8% Senior Debentures due 2000 and 9% Senior
Debentures due 2000. The proceeds from the issuance of the Notes have improved
the Company's liquidity and the remaining proceeds have been used and are
available to implement the development of the Company's new active adult
communities, to expand its homebuilding operations, to reduce higher interest
rate borrowings, to provide additional working capital and for other corporate
purposes.
Historically, the Company has funded operating deficits and liquidity
requirements through the sale of non-strategic assets, homebuilding project
borrowings, and general corporate borrowings. The Company does not anticipate
that its current real estate business strategy will achieve or sustain
profitability or positive cash flow until the year 2000 or later. Accordingly,
the Company will use the net proceeds of the Notes, the proceeds of the sale of
non-strategic assets, and real estate project borrowings to fund the Company's
operating deficits, the carrying cost of land and development and construction
of real estate projects.
In 1998, net cash used in operating activities amounted to $15,175 as a
result of an increase in inventories, which included expenditures for land
development and housing operations of $17,423, partially offset by principal
payments collected on contracts receivable of $13,109. Net cash used in
investing activities of $1,021 in 1998 resulted primarily from investments in
property, plant and equipment. Net cash provided by financing activities of
$44,857 resulted primarily from the net proceeds of $111,550 from the Notes
after repayment of $33,000 of the 8% and 9% Senior Debentures due 2000 and
$42,354 in land, construction and development loans.
In 1997, net cash provided by operating activities amounted to $11,650
as a result of withdrawals from the investment portfolio of $4,606 and principal
payments collected on contracts receivable of $14,435 partially offset by an
increase in inventories, which included expenditures for land development and
housing operations of $16,379. Net cash used in investing activities of $954 in
1997 resulted primarily from investments in property, plant and equipment. Net
cash provided by financing activities of $10,595 resulted primarily from
principal payments on revolving lines of credit and long-term borrowings of
$51,584, less net proceeds from revolving lines of credit and long-term
borrowings of $62,179.
23
<PAGE> 24
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands) -- continued
LIQUIDITY AND CAPITAL RESOURCES - continued
In 1996, net cash provided by operating activities amounted to $33,800
as a result of withdrawals from the investment portfolio of $45,554 and
principal payments collected on contracts receivable of $14,391 partially offset
by an increase in inventories, which included expenditures from land development
and housing operations of $27,274. Net cash used in investing activities of
$3,866 in 1996 resulted primarily from investments in property, plant and
equipment. Net cash used in financing activities of $25,861 resulted primarily
from principal payments on revolving lines of credit and long-term borrowings of
$95,838, less net proceeds from revolving lines of credit and long-term
borrowings of $69,977.
At December 31, 1998, the Company's secured real estate lines of
credit, exclusive of timeshare credit facilities, amounted to $9,060, all of
which were fully utilized. These real estate lines are secured by contracts and
mortgage receivables aggregating $24,992 and are due to mature in the fourth
quarter of 1999. Corporate secured lines of credit were $20,000 at December 31,
1998 and the unused and available portion was $5,000, which matures in the
fourth quarter of 1999.
At December 31, 1998, utilities unsecured lines of credit were $15,000
and the unused and available portion was $12,281. The utilities lines mature in
the second quarter of 2000. These lines are included as "Liabilities of
Discontinued Operations" on the accompanying consolidated balance sheets.
From 1995 to 1997, trading account profit declined due to the Company's
use of principal of its trading account to fund operations and maintain and
enhance its land holdings. As of December 31, 1997, the Company liquidated its
trading account and used such funds, net of related debt, as working capital.
Management does not anticipate a significant change in interest rates
for 1999, and accordingly, does not expect the Company's primary business
activities to be adversely affected by interest rates. A high interest rate
environment would be likely to adversely affect Avatar's real estate results of
operations and liquidity because of its negative impact on the housing industry
and because certain of the Company's debt obligations are tied to prevailing
interest rates. Increases in interest rates affecting the Company's utilities
operations generally are passed on to the consumer through the regulatory
process.
24
<PAGE> 25
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands) - continued
EFFECTS OF INFLATION AND ECONOMIC CONDITIONS
Inflation has had a minimal impact on Avatar's operations over the past
several years, and management believes its effect has been neither significant
nor greater than its effect on the industry as a whole. It is anticipated that
the impact of inflation on Avatar's operations for 1999 will not be significant.
IMPACT OF TAX INSTALLMENT METHOD
In years 1988 through 1997, the Company elected the installment method
for recording a substantial amount of its homesite and vacation ownership sales
in its federal income tax return, which deferred taxable income into future
fiscal periods. As a result of this election, the Company may be required to pay
compound interest on certain federal income taxes in future fiscal periods
attributable to the taxable income deferred under the installment method. The
Company believes that the potential interest amount, if any, will not be
material to its financial position and results of operations of the affected
future periods.
YEAR 2000
The Year 2000 issue relates to computer systems programmed to use two
digits rather than four to define the applicable year. Computer systems and
other programmable devices utilizing time/date-sensitive software and hardware
may recognize a date using "00" as the year 1900 rather than the Year 2000 which
could result in the computer or device shutting down, performing incorrect
computations or performing inconsistently.
Various systems could be affected, ranging from complex information
technology (IT) computer systems and applications which may be impacted by the
Year 2000 issue and the actions related to non-IT systems and equipment which
include embedded technology which may be impacted by the Year 2000 problem and
the actions related thereto. In addition, the failure to be Year 2000 compliant
by third party vendors and suppliers with whom a company has material
relationships could adversely affect such company.
The Company's systems that integrate all major aspects of the Company's
business, including inventory control, planning, labor utilization and financial
reporting, were designed in the early 1990's and are substantially Year 2000
compliant. Since 1997, the Company has been continually assessing the ability of
the information system to handle the "Year 2000 Issue", and currently does not
expect this issue to be material to the Company's business based upon its
assessment of its own system.
State of Readiness
The Company has conducted a comprehensive review of its computer
systems to identify those systems that could be affected by the Year 2000 issue
and has developed an implementation plan to resolve the issue. The
implementation plan includes the following phases: formation of a team of
internal resources to inventory affected technology and assess the impact of the
Year 2000 issue; develop solution
25
<PAGE> 26
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands) -- continued
YEAR 2000 - continued
plans; modify or replace existing processes, hardware and software; test and
certify modified, existing and new processes; and develop contingency plans. All
components of software and hardware of the Company are currently in various
phases of review, modification or implementation.
As of December 31, 1998 all critical hardware and software systems
utilized by the Company have been tested and/or verified as either Year 2000
compliant or appropriate remediation was taken or will be taken to effect
compliance. Certain non-critical software systems were determined not to be Year
2000 compliant and have been or will be modified or converted to compliant
systems. Systems utilized by the Company's utilities subsidiaries were not
compliant, and during the 1997 fiscal year financial systems were converted to
compliant systems previously in use by the Company. Conversion of additional
non-critical systems is in process. Meter reading devices used by the Company's
utilities subsidiaries include certain embedded systems that may fail; however,
such failure would be immaterial as billing for utilities services can be
estimated based on historical usage pending necessary remediation or
replacement. Testing systems utilized to verify compliance include the posting
to the systems of the date of January 1, 2000 as though the date were effective.
The Company has tested all critical IT and non-IT systems as of December 31,
1998. Any necessary additional modifications or replacements are expected to be
completed during the second quarter of 1999 and offsite testing of critical
systems is expected to be conducted in the second quarter of 1999 in conjunction
with the Company's standard testing of its business recovery program.
The Company also developed a third-party vendor and business partner
awareness program, which communicates matters of concern to the Company
pertaining to the Year 2000 issue. A comprehensive Year 2000 questionnaire has
been circulated to material third-party vendors and business partners to enable
the Company to ascertain their status of Year 2000 readiness and/or compliance.
The Company's questionnaire was prepared and circulated as of September 17, 1998
to more than 300 parties. There can be no assurance that systems of third
parties on which the Company relies will be converted in a timely manner, or
that a failure to properly convert by another company would not have a material
adverse effect on the Company. However, the Company continues to review the
materiality of third-party vendors and business partners who report failure to
be compliant or who do not respond to the Company's questionnaire with a view
toward locating appropriate alternate parties where applicable and possible.
This review is expected to be completed during the second quarter of 1999.
Cost of addressing Year 2000
The Company is well underway with its implementation plan to address
Year 2000 issues and anticipates completion during the second quarter of 1999.
During the past few years nominal expenditures were effected to upgrade and/or
replace certain software, which expenditures were not directly related to Year
2000 issues but to general improvements to the systems. Total expenditures
related to the Year 2000 project are estimated not to exceed $200 with $50
related to equipment and $150 to software. All costs associated with the
Company's Year 2000 effort have come from, or are expected to come from, cash
flow from operations or borrowings.
26
<PAGE> 27
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands) -- continued
YEAR 2000 - continued
Because it was not necessary to replace the Company's midrange computer
and/or its major operating systems, nominal expenditures to date are estimated
to approximate $125. It is not possible to determine absolute expenditures
because appropriate modifications to software applications systems were made
from time to time as potential issues were discovered. Costs associated
therewith were not specifically designated and for the most part represented
installation of equipment and conversion and/or modification of systems
performed by employees of the Company.
The estimated cost of the Company's Year 2000 project and the dates on
which the Company believes it will complete such efforts are based on
management's best estimates, which were derived using numerous assumptions
regarding future events, including the number of man-hours to program and/or
install equipment and software, as well as response to the Company's
questionnaire regarding vendor readiness. The Company does not separately track
internal costs related to the Year 2000 issue. Such costs are principally the
related payroll costs for the Company's Business Information Systems personnel.
The Company's estimated total expenditures related to the Year 2000 of $200
represents less than 5% of the Company's aggregate IT budgets for 1997, 1998 and
1999. There can be no assurance that these estimates will prove to be accurate.
Specific factors that could cause material differences with actual results
include, but are not limited to, the results of testing and the timeliness and
effectiveness of remediation efforts of third parties.
The Company believes its systems have been adequately and appropriately
reviewed and tested, and minor modifications and/or conversions have been or
will be effected as necessary.
Risk Presented by Year 2000 Issues
A failure by the Company to resolve a material Year 2000 issue
could result in the interruption in, or failure of, certain normal business
activities or operations and could materially and adversely affect the Company's
financial condition, results of operations and cash flows. The Company is
currently assessing those scenarios in which unexpected failures could have a
material adverse effect on the Company and will attempt to develop contingency
plans designed to deal with such scenarios. In general, the Company could
continue basic real estate operations in the event of failure of its computer
systems. The Company's utilities operations are highly regulated and the
operating systems were designed with manual overrides to operate the physical
plants in the event of failure of automated systems.
Based on current plans and assumptions, the Company does not expect
that the Year 2000 issue will have a material adverse impact on the Company as a
whole. Due to the general uncertainty inherent in the Year 2000 issue, however,
there can be no assurance that all Year 2000 issues will be foreseen and
corrected on a timely basis, or that no material disruption to the Company's
business operations will occur. Further, the Company's expectations are based on
the assumption that there will be no general failure of external local, national
or international systems (including power, communications, postal,
transportation, or financial systems) necessary for the ordinary conduct of
business.
27
<PAGE> 28
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands) -- continued
YEAR 2000 - continued
Contingency Plan
The Company is in the process of developing a contingency plan designed
to address reasonably likely Year 2000 scenarios, and this plan is currently
expected to be completed during the second quarter of 1999. In the normal course
of business, the Company maintains contingency plans designed to address various
other potential interruptions. These preexisting contingency plans are being
incorporated into the Year 2000 contingency plan and are expected to assist in
mitigating any adverse effect due to interruption of support provided by third
parties resulting from their failure to be Year 2000 compliant. There can be no
assurance, however, that successful contingency plans to address the Year 2000
issue can, in fact, be developed or implemented or that certain development and
implementation would be economically feasible.
FORWARD-LOOKING STATEMENTS
Certain statements discussed under the caption "Business," "Legal
Proceedings," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of results to differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others:
History of Losses; Negative Cash Flow
The Company has had negative cash flows and negative ratios of earnings
to fixed charges and has incurred significant operating and net losses. Net
losses for 1998, 1997, 1995, and 1994 were approximately $22,785, $26,989,
$10,339 and $14,621, respectively. The Company historically has sold
non-strategic assets to fund its operating deficits and has utilized short-term
borrowings to provide working capital.
Real estate development requires investment of substantial capital, a
significant portion of which is expended before any revenues may be realized.
The Company does not anticipate that it will achieve or sustain operating
profitability or positive cash flows from operating activities until the year
2000. If the Company cannot achieve operating profitability or positive cash
flow from operating activities, it may not be able to service or meet its other
debt service or working capital requirements.
28
<PAGE> 29
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands) -- continued
FORWARD-LOOKING STATEMENTS - continued
Real Estate Business Strategy
The Company's real estate business strategy is largely unproven, with
little operating history to serve as the basis for a prediction of its probable
success or failure. Implementation of the business strategy has required, and
will continue to require, among other things, the addition of new management
personnel and employees, as well as the development of additional expertise by
existing management personnel and employees and the expenditure of significant
amounts of capital. The loss of the services of certain members of the Company's
senior management team could have a material adverse effect on the Company and,
in particular, on the success of the Company's real estate business strategy. In
addition, the Company's ability to manage growth and to redeploy its resources
effectively will require it to continue to implement and improve its
operational, financial and sales systems. There can be no assurance that the
Company will be able to compete successfully with its current or potential
competitors or that the implementation of the current business strategy will be
successful.
Real Estate, Economic, and Other Conditions Generally
The real estate industry is highly cyclical and is affected by changes
in national, global and local economic conditions and events, such as employment
levels, availability of financing, interest rates, consumer confidence and the
demand for housing and other types of construction. Real estate developers are
subject to various risks, many of which are outside the control of the
developer, including real estate market conditions (both where its communities
and homebuilding operations are located and in areas where its potential
customers reside), and changing demographic conditions, adverse weather
conditions and natural disasters, such as hurricanes, tornadoes, wildfires,
delays in construction schedules, cost overruns, changes in government
regulations or requirements, increases in real estate taxes and other local
government fees and availability and cost of land, materials and labor. The
occurrence of any of the foregoing could have a material adverse effect on the
financial conditions of the Company.
Interest Rates; Mortgage Financing
Certain purchasers of the Company's homes finance their purchases
through third-party lenders providing mortgage financing. In general, housing
demand is dependent on home equity, consumer savings and third-party financing
and will be adversely affected by increases in interest rates, unavailability of
mortgage financing, increasing housing costs and unemployment levels. The amount
or value of discretionary income and savings, including retirement assets,
available to home purchasers can be affected by a decline in the capital
markets. If mortgage interest rates increase or the capital markets decline or
undergo a major correction, the ability of prospective buyers to finance home
purchases will be adversely affected, which may have an adverse effect on the
financial condition of the Company.
29
<PAGE> 30
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands) -- continued
FORWARD-LOOKING STATEMENTS - continued
Geographic Concentration
The Company's development activities are primarily focused on locations
in Florida and therefore depend to a significant degree on the levels of
immigration to Florida from outside the United States and in-migration to
Florida from within the United States in addition to other local market
conditions. The Company's geographic concentration and limited number of
projects may create increased vulnerability to regional economic downturns or
other adverse project-specific matters. A decline in the economy in Florida
could have an adverse effect on the financial condition of the Company.
Development of Communities
The Company's communities will be developed over time. Therefore, the
medium- and long-term future of the Company will be dependent on the Company's
ability to develop and market future communities successfully. Committing the
financial and managerial resources to develop a community involves significant
risks. Before a community generates any revenues, material expenditures are
required, among other things, to obtain development approvals to construct
project infrastructure, recreation centers, model homes and sales facilities
and, where opportunities are suitable and appropriate, to acquire land. It
generally takes several years for a community development to achieve cumulative
positive cash flow. No assurance can be given that the Company will successfully
develop and market communities in the future. The inability of the Company to
develop and market its communities successfully and to generate positive cash
flows from such operations in a timely manner would have an adverse effect on
the ability of the Company to service its debt and to meet its working capital
requirements.
Access to Financing
The Company's business is capital intensive and requires expenditures
for land and infrastructure development, housing construction and working
capital. Accordingly, the Company anticipates incurring additional indebtedness
to fund its real estate development activities. As of December 31, 1998, the
Company's total consolidated indebtedness was $218,717, of which $61,164
represents indebtedness associated with the Company's discontinued vacation
ownership and Florida utilities operations. There can be no assurance that the
amounts available from internally generated funds, cash on hand, the Company's
existing credit facilities, sale of non-strategic assets and the net proceeds
from the Notes will be sufficient to fund the Company's anticipated operations.
The Company may be required to seek additional capital in the form of equity or
debt financing from a variety of potential sources, including additional bank
financing and sales of debt or equity securities. No assurance can be given that
such financing will be available or, if available, will be on terms favorable to
the Company. If the Company is not successful in obtaining sufficient capital to
fund the implementation of its business strategy and other expenditures,
development projects may be delayed or abandoned. Any such delay or abandonment
could result in a reduction in sales and would adversely affect the Company's
future results of operations.
30
<PAGE> 31
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands) -- continued
FORWARD-LOOKING STATEMENTS - continued
Debt Covenants
Under its credit facilities the Company is subject to certain covenants
that restrict its operational and financial flexibility, including covenants
requiring the maintenance of certain financial ratios and restrictions on
distributions, indebtedness, liens, acquisitions and other significant actions.
Failure to comply with certain covenants would, among other things, permit the
Company's lenders to accelerate the maturity of the obligations thereunder and
could result in cross-defaults permitting the acceleration of debt under other
Company credit facilities.
Joint Venture Risks
In connection with its new business strategy, the Company has entered
into, and in the future will continue to seek, joint venture arrangements with
entities whose complementary resources or other business strengths will
contribute to the competitive position of the Company. A joint venture may
involve special risks associated with the possibility that a venture partner (i)
at any time may have economic or business interests or goals that are
inconsistent with those of the Company, (ii) may take actions contrary to the
instructions or requests of the Company or contrary to the Company's policies or
objectives with respect to its real estate investments or (iii) could experience
financial difficulties. Actions by a venture partner of the Company may have the
result of subjecting property owned by the joint venture to liabilities in
excess of those contemplated by the terms of the joint venture agreement or have
other adverse consequences. As a participant in certain joint ventures, the
Company may be jointly and severally liable for the debts and liabilities of the
joint venture. No assurance can be given that any joint venture arrangements
entered into by the Company will achieve the results anticipated or otherwise
prove successful.
Period-to-Period Fluctuations
The Company's real estate projects are long-term in nature. Sales
activity at the Company's newly planned active adult communities and other real
estate developments varies from period to period, and the ultimate success of
any community cannot be determined from results in any particular period or
periods. A community may generate significantly higher sales levels at inception
(whether because of local pent-up demand or other reasons) than it does during
later periods over the life of the community. Revenues and earnings of the
Company will also be affected by period-to-period fluctuations in the mix of
product, subdivisions and home closings among the Company's communities and
conventional homebuilding operations. Thus, the timing and amount of revenues
arising from capital expenditures are subject to considerable uncertainty. The
inability of the Company to manage effectively its cash flows from operations
would have an adverse effect on its ability to service its debt and to meet its
working capital requirements.
31
<PAGE> 32
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in thousands) -- continued
FORWARD-LOOKING STATEMENTS - continued
Competition
The Company's homebuilding, planned community development and other
real estate operations are subject to substantial existing and potential
competition (including increased competition from a number of national
homebuilders that are entering or expanding their presence in planned community
development). Some of the Company's current and potential competitors have
longer operating histories and greater financial, sales, marketing, technical
and other competitive resources. Existing and future competition may have an
adverse effect on the financial condition of the Company.
Governmental Regulation and Environmental Considerations
The Company's business is subject to extensive federal, state and local
regulatory requirements, the broad discretion that governmental agencies have in
administering those requirements and "no growth" or "slow growth" policies, all
of which can prevent, delay, make uneconomic or significantly increase the costs
of the Company's developments. Various governmental approvals and permits are
required throughout the development process (to the extent they have not already
been obtained), and no assurance can be given as to the receipt (or timing of
receipt) of these approvals or permits. The incurrence of substantial compliance
costs and the imposition of delays and other regulatory burdens on the Company
could have a material adverse effect on the operations of the Company.
Furthermore, various federal, state and local laws subject property
owners or operators to liability for the costs of removal or remediation of
certain hazardous substances released on a property. Such laws often impose
liability without regard to whether the owner knew of, or was responsible for,
the release of the hazardous substances. The presence of such hazardous
substance at one or more of the Company's properties, and the requirement to
remove or remediate such substances, may result in significant cost to the
Company.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to market risk associated with changes in
interest rates. Management does not anticipate a significant change in interest
rates for 1999, and accordingly, does not expect the Company's primary business
activities to be adversely affected by interest rates. A high interest rate
environment would be likely to adversely affect Avatar's real estate results of
operations and liquidity because of its negative impact on the housing industry
and because certain of the Company's debt obligations are tied to prevailing
interest rates. However, the Company runs the risk of interest rate declines
with respect to its fixed long term Convertible Subordinated Notes. See Notes G
and Q (debt payout and fair values) to the Consolidated Financial Statements
included in Item 8 of Part II of this Report. Increases in interest rates
affecting the Company's utilities operations generally are passed on to the
consumer through the regulatory process. (See Item 7 Management's Discussion and
Analysis of Financial Condition and Results of Operations for further discussion
of risks).
32
<PAGE> 33
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Certified Public Accountants.......................................... 34
Consolidated Balance Sheets -- December 31, 1998 and 1997................................... 35
Consolidated Statements of Operations -- For the years ended
December 31, 1998, 1997 and 1996....................................................... 36
Consolidated Statements of Stockholders' Equity -- For the years ended
December 31, 1998, 1997 and 1996....................................................... 37
Consolidated Statements of Cash Flows -- For the years ended
December 31, 1998, 1997 and 1996....................................................... 38
Notes to Consolidated Financial Statements.................................................. 40
</TABLE>
33
<PAGE> 34
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Board of Directors
Avatar Holdings Inc.
We have audited the accompanying consolidated balance sheets of Avatar Holdings
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the index at Item 14. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and related schedule
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Avatar
Holdings Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
ERNST & YOUNG LLP
Miami, Florida
March 15, 1998
34
<PAGE> 35
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31 December 31
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 32,521 $ 3,860
Restricted cash 5,232 4,629
Contracts and mortgage notes receivables, net 13,737 24,319
Other receivables, net 4,257 2,613
Land and other inventories 170,555 160,898
Property, plant and equipment, net 26,366 26,144
Other assets 11,724 8,983
Assets of discontinued operations 208,599 207,922
--------- ---------
Total Assets $ 472,991 $ 439,368
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes, mortgage notes and other debt:
Corporate $ 130,000 $ 44,506
Notes, collateralized by contracts and mortgage
notes receivable 9,060 23,566
Real estate 18,493 39,163
Estimated development liability for sold land 8,671 8,697
Accounts payable 3,385 4,344
Accrued and other liabilities 35,182 29,288
Deferred customer betterment fees 18,837 18,667
Liabilities of discontinued operations 137,106 136,095
--------- ---------
Total Liabilities 360,734 304,326
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share
Authorized: 15,500,000 shares
Issued: 9,170,102 shares 9,170 9,170
Additional paid-in capital 151,422 151,422
Deficit (48,335) (25,550)
--------- ---------
Total Stockholders' Equity 112,257 135,042
--------- ---------
Total Liabilities and Stockholders' Equity $ 472,991 $ 439,368
========= =========
</TABLE>
See notes to consolidated financial statements.
35
<PAGE> 36
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands except per-share amounts)
<TABLE>
<CAPTION>
For the year ended December 31
---------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Real estate sales $ 101,667 $ 84,855 $ 93,510
Deferred gross profit on homesite sales 4,263 3,998 2,639
Interest income 5,463 5,200 7,846
Trading account profit, net -- 71 2,210
Other 2,089 1,892 3,500
--------- --------- ---------
Total revenues 113,482 96,016 109,705
EXPENSES
Real estate expenses 106,828 93,559 90,475
Real estate inventory write-down -- 14,667 1,464
General and administrative expenses 10,349 8,756 8,784
Interest expense 12,759 9,233 8,765
Other 1,266 1,100 974
--------- --------- ---------
Total expenses 131,202 127,315 110,462
--------- --------- ---------
Loss from continuing operations (17,720) (31,299) (757)
Discontinued operations:
Income from discontinued operations, less
income tax expense of $0 3,643 4,310 1,797
Estimated loss on disposal, less
income tax expense of $0 (6,400) -- --
--------- --------- ---------
(Loss) income before extraordinary item (20,477) (26,989) 1,040
Extraordinary item:
Loss on early extinguishment of debt
less income tax expense of $0 (2,308) -- --
--------- --------- ---------
Net (loss) income $( 22,785) $( 26,989) $ 1,040
========= ========= =========
Basic and Diluted EPS:
Loss from continuing operations $ (1.93) $ (3.43) $ (0.08)
Income from discontinued operations $ 0.40 $ 0.47 $ 0.19
Estimated loss on disposal $ (0.70) -- --
Loss from extraordinary item $ (0.25) -- --
Net (loss) income $ (2.48) $ (2.96) $ 0.11
</TABLE>
See notes to consolidated financial statements.
36
<PAGE> 37
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional (Deficit)
Common Paid-in Retained Treasury
Stock Capital Earnings Stock
-------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $ 12,715 $ 207,271 $ 399 $ 61,973
Net income -- -- 1,040 --
-------- --------- --------- --------
Balance at December 31, 1996 12,715 207,271 1,439 61,973
Issuance of common stock 75 2,503 -- --
Retirement of treasury stock (3,620) (58,352) -- (61,973)
Net loss -- -- (26,989) --
-------- --------- --------- --------
Balance at December 31, 1997 9,170 151,422 (25,550) --
Net loss -- -- (22,785) --
-------- --------- --------- --------
Balance at December 31, 1998 $ 9,170 $ 151,422 ($ 48,335) $ --
======== ========= ========= ========
</TABLE>
There are 5,000,000 authorized shares of preferred stock, none of which are
issued.
See notes to consolidated financial statements.
37
<PAGE> 38
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
For the year ended December 31
-------------------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income ($ 22,785) ($26,989) $ 1,040
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating activities:
Depreciation and amortization 3,672 2,346 2,285
Loss on early extinguishment of debt 2,308 -- --
Estimated loss on disposal of discontinued operations 6,400 -- --
Deferred gross profit (4,263) (3,998) (2,639)
Cost of homesite sales not requiring cash 6,069 3,004 3,956
Inventory writedown -- 14,667 1,464
Trading account profit, net -- (71) (2,210)
Changes in operating assets and liabilities:
Restricted cash (603) (3,090) 464
Investments - trading -- 4,606 45,554
Principal payments on contracts receivable 13,109 14,435 14,391
Receivables 1,736 3,444 1,616
Other receivables (1,644) 485 (263)
Inventories (17,423) (16,379) (27,274)
Other assets (790) (7,730) 905
Accounts payable and accrued and other liabilities 5,105 6,646 (3,184)
Assets/liabilities of discontinued operations (6,066) (3,026) (2,305)
--------- -------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (15,175) (11,650) 33,800
INVESTING ACTIVITIES
Investment in property, plant and equipment (1,021) (954) (3,866)
--------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (1,021) (954) (3,866)
FINANCING ACTIVITIES
Proceeds from issuance of 7% Convertible Subordinated Notes 115,000 -- --
Payment of financing costs (3,450) -- --
Proceeds from revolving lines of credit and long-term borrowings,
net of fees 8,661 62,179 69,977
Principal payments on revolving lines of credit and
long-term borrowings (75,354) (51,584) (95,838)
--------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 44,857 10,595 (25,861)
--------- -------- --------
INCREASE (DECREASE) IN CASH 28,661 (2,009) 4,073
Cash and cash equivalents at beginning of year 3,860 5,869 1,796
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 32,521 $ 3,860 $ 5,869
========= ======== ========
</TABLE>
38
<PAGE> 39
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - continued
(Dollars in thousands)
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Contributions in aid of construction $1,791 $5,250 $5,584
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest - Continuing operations (net of amount capitalized of $695,
$2,897 and $3,308 in 1998, 1997 and 1996, respectively) $8,663 $6,508 $5,752
============= ============= =============
Interest - Discontinued operations (net of amount capitalized of $305,
$302 and $695 in 1998, 1997 and 1996, respectively) $4,757 $4,289 $4,057
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
39
<PAGE> 40
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Dollars in thousands except per-share data)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include Avatar Holdings Inc. and
its subsidiaries ("Avatar"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
GENERAL:
Avatar is principally engaged in the business of developing and selling
single and multifamily residential housing, active adult communities, improved
and unimproved real estate, and providing water and wastewater utilities
services. Two of the Company's subsidiaries are currently engaged in
negotiations relating to the sale of the assets used in their Florida utilities
operations. See Note S for disclosures relating to the Florida utilities.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Due to the short
maturity period of the cash equivalents, the carrying amount of these
instruments approximates their fair values. Restricted cash includes deposits of
$5,232 and $4,629 as of December 31, 1998 and 1997, respectively. These balances
are comprised primarily of housing deposits that will become available to the
Company when the housing contracts close.
Restricted cash from discontinued operations includes deposits of $198
and $322 for vacation ownership and $35 and $61 for Florida utilities operations
as of December 31, 1998 and 1997, respectively. Vacation ownership deposits are
deposits received from purchasers that are held in escrow until a certificate of
occupancy is obtained or the legal rescission period has expired. Florida
utilities deposits received are from water utilities customers.
LAND INVENTORIES:
Land inventories are stated at the lower of cost or estimated net
realizable value. Cost includes expenditures for acquisition, construction,
development and carrying charges. Interest costs incurred during the period of
land development, when applicable, are capitalized as part of the cost of such
projects. Land acquisition costs are allocated to individual land parcels based
upon the relationship that the estimated sales prices of specific parcels bear
to the total sales price of the entire community. Construction and development
costs are added to the value of the specific parcels for which the costs are
incurred.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are
40
<PAGE> 41
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 in the first quarter of 1996, and there was no
material impact on the Company's operations or financial position. Reference is
made to Note D for information regarding impairment of real estate inventory.
REVENUES:
Sales of housing units are recognized in full upon the transfer of
title to a purchaser. Revenues from commercial land and bulk land sales are
recognized in full at closing, provided the purchaser's initial investment is
adequate, all financing is considered collectible and Avatar is not obligated to
perform significant future activities.
The Company uses the installment method of profit recognition for sales
of homesites, the accrual method of profit recognition for sales of completed
vacation ownership intervals, and the percentage of completion method for sales
of those vacation ownership intervals that are under construction. Under the
installment method, the gross profit on recorded sales is deferred and
recognized in income of future periods as principal payments on related
contracts are received, and deferred profit is included in the balance sheet, as
a reduction of contracts receivable, until recognized. Under the percentage of
completion method, the gross profit on recorded sales is recognized based upon
the percentage of construction completed.
Utilities revenues are recorded as the service is provided.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost and depreciation is
computed principally by the straight-line method over the estimated useful lives
of the assets. Depreciation, maintenance and operating expenses of equipment
utilized in the development of land are capitalized as land inventory cost.
INCOME TAXES:
Income taxes have been provided using the liability method in
accordance with FASB Statement No. 109, "Accounting for Income Taxes." Under
Statement No. 109, the liability method is used in accounting for income taxes
where deferred income tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws that are expected to be in
effect when the differences reverse.
The cumulative effect of adopting Statement No. 109 for Avatar's
utilities subsidiaries was not credited or charged to net income, but was
recorded as a regulatory liability or regulatory asset in accordance with
accounting procedures applicable to regulated enterprises. The regulatory
liabilities and regulatory assets will generally be amortized to income or
expense over the useful lives of the utilities systems and reflect probable
future revenue reductions or increases from ratepayers.
41
<PAGE> 42
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- continued
DEFERRED CUSTOMER BETTERMENT FEES:
Amounts collected from customers for utilities improvements are
classified as "Deferred Customer Betterment Fees." These fees will be
reclassified to "Contributions in Aid of Construction" when service to the
customer begins.
CONTRIBUTIONS IN AID OF CONSTRUCTION:
Advances from real estate developers and other direct contributions to
utilities subsidiaries for plant construction are recorded as "Contributions in
Aid of Construction." To the extent required by regulatory agencies, the account
balance is amortized over the depreciable life of the utilities plant as an
offset to depreciation expense. This has been classified with discontinued
operations. See Note S.
STOCK OPTIONS:
Under Statement No. 123, "Accounting for Stock-Based Compensation",
companies are allowed to measure compensation cost in connection with employee
stock compensation plans using a fair value based method or to use an intrinsic
value based method in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). The Company has elected
to follow APB 25 and related interpretations in accounting for its employee
stock options and has added the expanded disclosure in Note M to comply with
Statement No. 123.
POSTRETIREMENT BENEFITS:
The Company accrues postretirement benefits (such as health care
benefits) during the years an employee provides services. These benefits for
retirees are currently provided only to employees of the Company's utilities
subsidiaries.
ADVERTISING COSTS:
Advertising costs are expensed as incurred. For the years ended
December 31, 1998, 1997 and 1996, advertising costs totaled $2,414, $3,749 and
$3,758, respectively.
EARNINGS PER SHARE:
Earnings per share is computed based on the weighted average number of
shares outstanding of 9,170,102 for 1998, 9,113,595 for 1997 and 9,095,102 for
1996. The computation of earnings per share for 1998 did not assume the
conversion of the Notes and employee stock options, as the effect of both would
be antidilutive. The computation of earnings per share for 1997 did not assume
the conversion of the employee stock options, as the effect would be
antidilutive. There is no difference between basic and diluted earnings per
share for 1998, 1997 and 1996.
42
<PAGE> 43
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
USE OF ESTIMATES:
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results, however, could differ from those estimates.
ACQUISITIONS:
In accordance with the Company's plan to develop active adult
communities, the Company acquired, on October 3, 1997, key executives, systems
and software from Hilcoast Development Corp. (Hilcoast), the developers of
Century Village, in exchange for 75,000 shares of Avatar common stock. This
acquisition was accounted for as a purchase. The excess of the purchase price
over the estimated fair value of the acquired assets is being amortized using
the straight-line method over 10 years. Amortization of the excess purchase
price was $281 for the year ended December 31, 1998.
In order to expand its upscale homebuilding business, the Company, on
December 4, 1997, entered into an asset purchase agreement to acquire certain
assets of Brookman-Fels, Jeff Ian, Inc. (Brookman-Fels), and employed, as
officers, the three partners, for an aggregate of $3,899 payable (including $885
of imputed interest) in installments commencing February 1, 1998 and ending
November 1, 2002. This acquisition was accounted for as a purchase. The excess
purchase price over the estimated fair value of the acquired assets is being
amortized using the straight-line method over 5 years. Amortization of the
excess purchase price was $630 for the year ended December 31, 1998.
Brookman-Fels is a well-known regional developer of custom and semi-custom homes
and single-family residential communities in South Florida.
During 1997, a subsidiary of the Company entered into a joint venture
and construction management agreement with a subsidiary of Brookman-Fels for the
development of certain parcels at Harbor Islands. On June 1, 1998, Avatar paid
$1,995 to acquire certain assets from its joint venture partner at Harbor
Islands, and the joint venture and construction management agreements were
modified whereby Avatar's subsidiary will receive a 6% construction management
fee to manage construction at Harbor Islands. The purchase price approximated
the estimated fair value of the acquired assets, therefore, no goodwill was
recorded in connection with this transaction. The purchase price is being
expensed through cost of real estate sales, using the straight-line method over
4 years. The company expensed through cost of real estate sales $291 for the
year ended December 31, 1998.
On June 1, 1998, a newly formed Avatar subsidiary and Brookman-Fels at
Presidential Estates formed a joint venture and an Avatar subsidiary entered
into a construction management agreement for Presidential Estates. Avatar's
subsidiary will receive a 6% construction management fee to manage construction
at Presidential Estates. Avatar paid $588 for a 49% interest in the joint
venture and a 50% interest in the profits in the form of a promissory note,
bearing interest at an annual rate of 8%, payable, together with accrued
interest, upon the closing of agreed upon units.
RECLASSIFICATIONS:
Certain 1997 and 1996 financial statement items have been reclassified
to conform to the 1998 presentations.
43
<PAGE> 44
NOTE B - REAL ESTATE SALES
The components of real estate sales are as follows:
<TABLE>
<CAPTION>
For the year ended December 31
-------------------------------------------------
1998 1997 1996
---------------- ------------ --------------
<S> <C> <C> <C>
Revenues from homebuilding activities $71,494 $57,912 $49,672
Resort revenues 13,591 13,787 16,087
Gross homesite sales* 8,291 2,552 12,387
Proceeds from sale of recreation facility -- -- 8,300
Rental, leasing, cable and other
real estate operations 5,171 5,163 5,362
Commercial/industrial land sales 3,120 5,441 1,702
---------------- ------------ --------------
Total real estate sales $101,667 $84,855 $93,510
================ ============ ==============
</TABLE>
- ---------------------
* Includes $6,555 of bulk land sales in 1998 and $3,714 of land sales
generated by the Homebuilding Division and $4,276 of bulk land sales for
1996.
NOTE C - CONTRACTS AND MORTGAGE NOTES RECEIVABLES
Contracts and mortgage notes receivables are summarized as follows:
<TABLE>
<CAPTION>
December 31
----------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Contracts and mortgage notes receivable $24,992 $40,478
----------------- ----------------
Less:
Deferred gross profit 10,532 15,659
Other 723 500
----------------- ----------------
11,255 16,159
----------------- ----------------
$13,737 $24,319
================= ================
</TABLE>
Contracts and mortgage notes receivable were generated through the sale
of homesites at various sales offices located throughout the northeast, midwest
and west coast of the United States. A significant portion of the contracts and
mortgage notes receivable at December 31, 1998 resulted from sales made to
customers in the northeast.
Contracts receivable are collectible primarily over a ten year period
and bear interest at rates primarily ranging from 7 1/2% to 12% per annum
(weighted average rate 9.9%). The Company generally requires that customers
pledge the homesites as collateral for contracts and mortgages receivable and
such collateral can be repossessed by the Company in the event of default. A
contract receivable is considered delinquent if the scheduled installment
payment remains unpaid 30 days after its due date. Delinquent principal amounts
of contracts and mortgage notes receivable at December 31, 1998 and 1997 were
$3,542 or 14.17% and $5,286 or 13.1%, respectively. Estimated maturities for the
five years subsequent to 1998 are 1999 - $7,693; 2000 - $4,938; 2001 - $3,656;
2002 - $2,876; and 2003 - $2,280.
44
<PAGE> 45
NOTE D - LAND AND OTHER INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31
--------------------------------------------
1998 1997
------------------- --------------------
<S> <C> <C>
Land developed and in process of development $100,414 $98,407
Land held for future development or sale 31,027 31,552
Dwelling units completed or under construction 38,590 30,334
Other 524 605
------------------- --------------------
$170,555 $160,898
=================== ====================
</TABLE>
During 1997, there were indicators of impairment present in accordance
with Statement 121 and the Company recorded an impairment loss of $14,667 to the
carrying value of its Harbor Islands community. This impairment loss was due to
a revision to the existing development plan in connection with the Company's new
business strategy during 1997. The portion of the Harbor Islands community that
the Company does not plan to develop was valued based on an independent
appraisal less the estimated cost of sale. Certain land held for future
development by the Company was valued at the estimated discounted cash flows in
accordance with Statement 121 as the undiscounted cash flows were less than the
carrying amount of the assets.
In 1996, the Company recorded an impairment loss of $1,464 on a certain
tract of land located at the Company's Banyan Bay site. Fair value was
determined based on a purchase offer received for the land.
NOTE E - ESTIMATED DEVELOPMENT LIABILITY FOR SOLD LAND
The estimated cost to complete consists of required land and utilities
improvements in all areas designated for homesite sales and are summarized as
follows:
<TABLE>
<CAPTION>
December 31
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Gross unexpended costs (net of recoveries
of $11,112 in 1998 and $11,359 in 1997) $11,613 $12,030
Less costs relating to unsold homesites 2,942 3,333
-------------- --------------
Estimated development liability for sold land $8,671 $8,697
============== ==============
</TABLE>
These estimates are based on engineering studies of quantities of work
to be performed based on current estimated costs. These estimates are
reevaluated annually and adjusted accordingly.
A major portion of the estimated development liability for sold land
relates to utilities extensions for homesites at Avatar's Arizona community (Rio
Rico) which were sold prior to 1980.
45
<PAGE> 46
NOTE E - ESTIMATED DEVELOPMENT LIABILITY FOR SOLD LAND - continued
At Rio Rico, Avatar entered into various service and construction
agreements with Citizens Utilities Company (Citizens), a non-related company,
generally providing for Avatar to construct certain utilities facilities and
deed them to Citizens. Avatar's expenditures, related to the construction of
some of these facilities, are expected to be reimbursed from Citizens' present
and future customers. Some of these reimbursable amounts are determined by
specific formulas. The recovery of these expenditures is dependent upon the
community attaining an occupancy and/or usage level sufficient to allow
reimbursement prior to the expiration of the agreements. During 1993, Avatar
purchased Citizens' water and wastewater treatment division, thereby voiding the
portion of the existing agreement relating to water and wastewater extensions,
leaving only the electrical portion.
Avatar may be obligated to expend approximately $13,245 (current costs)
to complete water and wastewater utilities facilities at its Poinciana
subdivision. These possible future obligations are based on internal engineering
studies and are not included in the estimated development liability discussed
above. As such, past and future expenditures are expected to be recovered from
customers' fees and future revenues.
Expenditures, net of recoveries, for homesite improvement costs
totaling $11,613 are estimated as follows: 1999-$1,000 and thereafter-$10,613.
Because the timing of the expenditures after 1999 is dependent upon certain
future occurrences beyond Avatar's control, projection by year after 1999 is not
presently practicable.
NOTE F - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and accumulated depreciation consist of
the following:
<TABLE>
<CAPTION>
December 31
----------------------------------
1998 1997
----------------- --------------
<S> <C> <C>
Land and improvements $12,215 12,160
Buildings and improvements 19,407 17,821
Machinery, equipment and fixtures 12,799 13,695
Other 311 386
----------------- --------------
44,732 44,062
Less accumulated depreciation 18,366 17,918
----------------- --------------
$26,366 $26,144
================= ==============
</TABLE>
Depreciation charged to operations during 1998, 1997 and 1996 was
$2,470, $2,346 and $2,285, respectively.
Property, plant and equipment of discontinued operations include
$164,621 and $162,459 for the Florida utilities operations as of December 31,
1998 and 1997, respectively. Accumulated depreciation is $77,793 and $70,608 as
of December 31, 1998 and 1997, respectively. Amortization of contributions and
advances in aid of construction of $4,658, $4,559 and $4,289 was incurred during
1998, 1997 and 1996, respectively.
46
<PAGE> 47
NOTE G - NOTES, MORTGAGE NOTES AND OTHER DEBT
Notes, mortgage notes and other debt are summarized as follows:
<TABLE>
<CAPTION>
December 31
------------------------------
1998 1997
--------------- ------------
<S> <C> <C>
Corporate:
7% Convertible Subordinated Notes $115,000 $ --
Bank credit lines 15,000 14,000
8% senior debentures, due 2000, net of unamortized
discount of $697 in 1997 -- 6,930
9% senior debentures, due 2000, net of unamortized
discount of $1,769 in 1997 -- 23,576
--------------- ------------
$130,000 $44,506
=============== ============
Notes, collateralized by contracts and mortgage notes receivable:
Bank credit lines $9,060 $23,566
=============== ============
Real estate:
Mortgage note obligations, interest rates ranging from
8.25% to 9.25%, due from 1999 - 2004 $6,154 $5,865
8% Note payable, due 1999-2000 588 --
Note payable, non-interest bearing, due 1999-2002 2,380 3,899
Development and construction loans, due 1999-2002,
interest rates ranging from prime +1/2% to prime + 1 1/2% 9,371 29,399
--------------- ------------
$18,493 $39,163
=============== ============
</TABLE>
On February 2, 1998, the Company issued $115,000 principal amount of 7%
Convertible Subordinated Notes due 2005 (the "Notes"). The Notes are convertible
into common stock of Avatar at the option of the holder at any time at or before
maturity, unless previously redeemed, at a conversion price of $31.80 per share.
The Notes are subordinated to all present and future senior indebtedness of
Avatar and are effectively subordinated to all indebtedness and other
liabilities of subsidiaries of Avatar. The net proceeds of $111,550 after
deducting expenses were used to repay the $33,000 aggregate principal amount
outstanding of 8% Senior Debentures due 2000 and 9% Senior Debentures due 2000.
The proceeds from the issuance of the Notes have impacted the Company's
liquidity and the remaining proceeds will be used to implement the development
of the Company's new active adult communities, to expand its homebuilding
operations, to reduce higher interest rate borrowings, to provide additional
working capital and for other corporate purposes. The early extinguishment of
the 8% and 9% Senior Debentures resulted in an extraordinary loss of $2,308
pertaining to the unamortized portion of discounts associated with these
debentures.
47
<PAGE> 48
NOTE G - NOTES, MORTGAGE NOTES AND OTHER DEBT - continued
At December 31, 1998, Avatar had secured bank credit lines of $29,060
and unsecured bank credit lines from the Florida utilities operations of
$15,000. The unused portions of secured and unsecured credit lines were $5,000
and $12,281, respectively, at December 31, 1998. The weighted average interest
rate on short term borrowings at December 31, 1998 was 8.25%. Interest rates for
borrowings range from 6.97% to 9.19% on the unsecured bank credit lines and
prime + 1/4% on the secured bank credit lines at December 31, 1998.
Additionally, certain credit lines provide for fixed rate borrowings pursuant to
Eurodollar interest rates. Under the terms of these agreements, Avatar is
restricted from paying dividends and is required to maintain a minimum net
worth, as defined. Contracts and mortgage notes receivable of $10,011 at
December 31, 1998 collateralize the secured lines.
Notes, mortgage notes and other debt of discontinued operations are summarized
as follows:
<TABLE>
<CAPTION>
December 31
------------------------------
1998 1997
--------------- ------------
<S> <C> <C>
VACATION OWNERSHIP
Notes, collateralized by contracts and mortgage notes receivable:
Bank credit lines $18,298 $12,952
Construction and development loans,
interest rates at prime + 21/4% 3,647 4,568
--------------- ------------
$21,945 $17,520
=============== ============
FLORIDA UTILITIES:
Bank credit lines $2,719 $1,432
Utilities first mortgage bonds due serially from
1999-2007, interest rates ranging from 7.79% to 9.19% 12,276 13,942
Utilities senior notes, 7.27%, due 2000-2010 18,000 18,000
Utilities promissory notes, interest rates ranging from 6.3% to 6,224 5,842
8.65%, due 1999-2004
=============== ============
$39,219 $39,216
=============== ============
</TABLE>
During 1996, an Avatar subsidiary and Stanco Partners Ltd. entered into
a joint venture agreement (the Joint Venture) and acquired Casa Del Mar (CDM),
an Ormond Beach, Florida beachfront hotel. In connection with the acquisition of
Casa Del Mar, the Joint Venture entered into a loan agreement with $5,060 and
$5,439 outstanding at December 31, 1998 and 1997, respectively. The debt is
guaranteed by a subsidiary of Avatar as well as the Joint Venture Partners. This
Joint Venture is included in the timeshare operations, which has been classified
as a discontinued operation as discussed in Note S.
48
<PAGE> 49
NOTE G - NOTES, MORTGAGE NOTES AND OTHER DEBT - continued
Maturities of notes, mortgage notes and other debt at December 31, 1998, are as
follows:
<TABLE>
<CAPTION>
Notes, collateralized
by contracts and
mortgage notes Discontinued
Corporate receivable Real Estate Total Operations
-------------- ---------------------------- --------------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
1999 $15,000 $9,060 $4,821 $28,881 $ 2,485
2000 -- -- 6,937 6,937 7,626
2001 -- -- 1,359 1,359 4,121
2002 -- -- 4,879 4,879 5,346
2003 -- -- 373 373 3,065
Thereafter 115,000 -- 124 115,124 38,521
============== ============================ ===================== =================== ================
$130,000 $9,060 $18,493 $157,553 $61,164
============== ============================ ===================== =================== ================
</TABLE>
During the first quarter of 1998, the Company repaid $5,226 from a real
estate line secured by contracts and mortgage notes receivable.
Interest capitalized during 1998, 1997 and 1996 amounted to $1,000,
$3,199 and $4,003, respectively.
Property, plant and equipment and inventory pledged as collateral for
notes, mortgage notes and other indebtedness had a net book value of
approximately $165,000 at December 31, 1998.
Included in notes, mortgage notes and other debt is a related party
note, payable to Brookman-Fels in installments commencing February 1, 1998 and
ending November 1, 2002. During the year ended December 31, 1998, the Company
made payments (including interest) of $800 with an outstanding balance at
December 31, 1998 of $2,380.
NOTE H - MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
As of December 31, 1998 and 1997, preferred stock outstanding of the
Florida utilities (classified as Discontinued Operations - see Note S) owned by
minority interests is as follows:
<TABLE>
<CAPTION>
December 31
------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
9% cumulative preferred stock $5,400 $7,200
Other 72 68
-------------- ---------------
$5,472 $7,268
============== ===============
</TABLE>
The Florida utilities subsidiary's 9% cumulative preferred stock
provides for redemption of a minimum of $1,800 of the preferred stock each year
beginning in 1997. During each of the first quarters of 1998 and 1997, Avatar
redeemed $1,800 of the preferred stock. Redemption of all outstanding shares
shall occur no later than March 1, 2001. Charges to operations recorded as
"Other Expenses" (see Note S - Discontinued Operations) relating to preferred
stock dividends of subsidiaries amounted to $520 in 1998, $681 in 1997 and $814
in 1996.
49
<PAGE> 50
NOTE I - RETIREMENT PLANS
Avatar has two defined contribution savings plans that cover
substantially all employees. Under one of the savings plans, Avatar contributes
to the plan based upon specified percentages of employees' voluntary
contributions. The other savings plan does not provide for contributions by
Avatar.
Avatar's non-contributory defined benefit pension plan covers
substantially all employees of its subsidiary, Avatar Utilities Inc. The
benefits are based on years of service and the employees' compensation during
the five highest years of earnings. Avatar's funding policy is to contribute
amounts to the plan sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act of 1974.
The following table sets forth the defined benefit plan's funded status
as of December 31, 1998, 1997 and 1996 and the retirement expense recognized in
the consolidated statements of operations for the years then ended.
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $4,073, $3,832 and $3,288, respectively $4,296 $3,942 $3,367
============= ============= =============
Projected benefit obligation for services rendered to date ($4,972) ($4,574) ($3,885)
Plan assets at fair value 5,235 4,604 4,060
------------- ------------- -------------
Projected benefit obligation less than plan assets 263 30 175
Unrecognized net gain (407) (271) (515)
Prior service cost not yet recognized in net periodic pension cost 268 315 362
Unrecognized net assets at January 1, 1986, net of amortization (29) (43) (58)
------------- ------------- -------------
Accrued pension cost included in accrued and other liabilities $95 $31 ($36)
============= ============= =============
Net retirement cost included the following components:
Defined benefit plan:
Service cost - benefits earned during the period $200 $204 $204
Interest cost on projected benefit obligation 333 307 284
Actual return on plan assets (539) (423) (406)
Net amortization and deferral 200 122 139
------------- ------------- -------------
Net pension cost 194 210 221
Defined contribution plan 121 125 122
------------- ------------- -------------
Total retirement expense $315 $335 $343
============= ============= =============
Change in benefit obligations:
Projected benefit obligation at beginning of year $4,574 $3,885 $3,409
Service cost 200 204 204
Interest cost 333 307 284
Loss on benefit obligation 30 334 191
Benefits paid (165) (156) (203)
------------- ------------- -------------
Projected benefit obligation at end of year $4,972 $4,574 $3,885
============= ============= =============
Change in plan assets:
Plan assets at beginning of year $4,604 $4,060 $3,793
Employer contributions 257 277 265
Return on plan assets 539 423 406
Benefits paid (165) (156) (404)
------------- ------------- -------------
Plan assets at end of year $5,235 $4,604 $4,060
============= ============= =============
</TABLE>
50
<PAGE> 51
NOTE I - RETIREMENT PLANS - continued
The actuarial assumptions used in determining the present value of the
projected benefit obligation were: weighted average discount rate of 7.5% in
1998, 1997 and 1996, rate of increase in future compensation levels of 5% in
1998, 1997 and 1996, and expected long-term rate of return on plan assets of 8%
in 1998, 1997 and 1996.
Plan assets are invested in the general asset fund of a major insurance
company, which is composed primarily of fixed income securities, and a separate
account, which is composed of equity securities, public bonds or cash
equivalents.
NOTE J - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
A utilities subsidiary of Avatar sponsors a defined non-contributory
benefit postretirement plan that provides medical and life insurance benefits to
both salaried and nonsalaried employees after retirement. Participants
contribute a portion of such benefits. The utilities' funding policy for its
postretirement plan is to fund on a pay-as-you-go basis.
The following table sets forth the plan's status as of December 31, 1998, 1997
and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation ($3,243) ($2,908) ($2,838)
Plan assets at fair value -- -- --
------------ ------------- -------------
Accumulated postretirement benefit obligation in excess of
plan assets (3,243) (2,908) (2,838)
Unrecognized net gain from past experience different from that
assumed and from changes in assumptions (2,163) (2,320) (2,281)
Unrecognized transition obligation 2,334 2,489 2,645
------------ ------------- -------------
Accrued postretirement benefit cost
included in accrued and other liabilities ($3,072) ($2,739) ($2,474)
============ ============= =============
Net periodic postretirement benefit cost included the following components:
Service cost $186 $170 $244
Interest cost on accumulated postretirement
benefit obligation 228 205 277
Amortization of transition obligation over 20 years 155 155 155
Other (200) (217) (88)
------------ ------------- -------------
Net periodic postretirement benefit cost $369 $313 $588
============ ============= =============
</TABLE>
For measurement purposes, the annual rate of increase in the per capita
cost of covered health care benefits assumed for 1998, 1997 and 1996 was 6%, 10%
and 10%, respectively; the rate of increase was assumed to decrease to 6% by the
year 2000 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate,
increasing (decreasing) the assumed health care cost trend rates by one
percentage point each year would increase (decrease) the accumulated
postretirement benefit obligation as of December 31, 1998 by $553 and ($472) and
the aggregate of the service and interest cost components of net periodic
postretirement benefit for the year then ended by $83 and ($69).
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% for 1998, 1997 and 1996.
51
<PAGE> 52
NOTE K - LEASE COMMITMENTS
Avatar leases the majority of its administration and sales offices
under operating leases that expire at varying times through 2001. Rental
expenses for the years 1998, 1997 and 1996 were $1,747, $2,089, and $1,769,
respectively. Minimum rental commitments under non-cancelable operating leases
as of December 31, 1998 were as follows: 1999 - $1,411; 2000 - $1,100;
2001-$679; 2002 - $583; 2003 -$599.
NOTE L - ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities are summarized as follows:
December 31
-------------------------------
1998 1997
-------------- --------------
Property taxes $4,662 $3,495
Customer deposits and advances 14,734 9,278
Interest 2,258 1,048
Other 13,528 15,467
-------------- --------------
$35,182 $29,288
============== ==============
As of December 31, 1998, certain incentive compensation agreements with
employees provided for a cash payment (to the extent vested), within ten days
following the respective fifth anniversary date (payment terms are subject to
renewal agreements) of the respective agreement (or the termination date, if
earlier), in an amount equal to the excess of a formula amount based upon the
closing prices of Avatar common stock during a specified period prior to the
respective fifth anniversary date (or termination date, if earlier) over the
closing price of Avatar common stock on the date of the respective agreement
(strike price). Each eligible employee will vest in the rights to this incentive
compensation with respect to one-fifth thereof in each of the first through
fifth anniversaries, subject to certain terms and conditions of the contracts
should their employment status change prior to the fifth anniversary. For the
years ended December 31, 1998, 1997 and 1996, the Company recorded incentive
compensation of ($351), ($471) and ($213), respectively, associated with these
agreements. As of December 31, 1998, the closing price of Avatar common stock
was lower than the defined strike price. The liability for incentive
compensation included in other liabilities at December 31, 1998 and 1997 is $0
and $351, respectively.
NOTE M - STOCK OPTIONS
The Company's 1997 Incentive and Capital Accumulation Plan (the
"Incentive Plan") was adopted by the Incentive Plan Committee, ratified by the
Board of Directors on February 13, 1997 and approved by the stockholders at the
Annual Meeting on May 29, 1997. The Incentive Plan makes available 425,000
shares of Avatar common stock subject to certain adjustments. On February 13,
1997 Avatar entered into a Nonqualified Stock Option Agreement (the Options)
with the Company's President and granted him an option to purchase 225,000
shares of Avatar common stock at $34 per share (such price being in the judgment
of the Incentive Plan Committee not less than 100% of the then Fair Market Value
as defined in the Incentive Plan). The Options will become exercisable with
respect to 45,000 shares on February 13, 1998 and on each February 13 thereafter
through 2002, and any unexercised portion of the Options will expire on February
13, 2007.
On February 19, 1999, the Company entered into Nonqualified Stock
Option Agreements with certain members of management and granted them an option
to purchase 160,000 shares of Avatar common stock at $25 per share (such price
being in the judgment of the Committee not less than 100% of the Fair Market
Value as defined in the Incentive Plan). The Options will become exercisable at
a rate of 33 1/3% on February 19, 2000 and on each February 19 thereafter
through 2002, and any unexercised portion of the Options will expire on February
19, 2009.
52
<PAGE> 53
NOTE M - STOCK OPTIONS - continued
A summary of the status of the Company's Incentive Plan as of December
31, 1998 and 1997 and changes during the years ending is presented below:
<TABLE>
<CAPTION>
Options Wighted-Average
(000's) Exercise Price
-------------------------- --------------------------
1998 1997 1998 1997
-------------------------- --------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 225 -- $34 $--
Granted -- 225 -- 34
Exercised -- -- -- --
Forfeited -- -- -- --
-------------------------- --------------------------
Outstanding at end of year 225 225 $34 $34
========================== ==========================
Exercisable at end of year 45 --
Weighted-average per share
fair value of options
granted during the year $-- $16.59
==========================
</TABLE>
The Company applies APB 25 and related interpretations in accounting
for the Incentive Plan. No compensation expense was recognized in 1997 because
all stock options granted have an exercise price greater than the average market
value of the Company's stock on the date of grant. If the Company had elected to
account for the Incentive Plan under Statement No. 123, compensation cost for
the Incentive Plan would have been determined based on the fair value at the
grant dates. The weighted average fair value of options granted during 1997 was
$16.59. The fair value of each option granted in 1997 was estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 6.38%; expected volatility of 17.6%;
dividend yields of 0.0% and expected life of 10 years.
The following table summarizes the Company's pro forma income from
continuing operations, net (loss) income and earnings per share in accordance
with Statement No. 123 for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
As Reported Pro forma
--------------------------- ----------------------------
1998 1997 1998 1997
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
Loss from continuing operations ($17,720) ($31,299) ($18,467) ($31,959)
Net loss ($22,785) ($26,989) ($23,532) ($27,649)
Basic and Diluted Per Share Data:
Loss from continuing operations ($1.93) ($3.43) ($2.01) ($3.51)
Net loss ($2.48) ($2.96) ($2.57) ($3.03)
</TABLE>
53
<PAGE> 54
NOTE N - INCOME TAXES
Under the installment method of tax reporting for homesite and vacation
ownership sales, Avatar anticipates that its 1998 consolidated federal income
tax return will reflect a net operating loss carryforward of approximately
$72,000, which expires in years 2003 through 2018. In addition, investment tax
credits and alternative minimum tax credit carryforwards of approximately $4,000
are available, a portion of which expires in years 1999 to 2001. The Internal
Revenue Service has not examined these carryforwards.
The Company has recorded a valuation allowance of $59,000 with respect
to the deferred income tax assets that remain after offset by the deferred
income tax liabilities. Included in the valuation allowance for deferred income
tax assets is approximately $9,000 which, if utilized, will be credited to
additional paid-in capital.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred income tax assets and liabilities as of
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Deferred income tax assets
Net operating loss carryover $27,000 $20,000
Tax over book basis of land inventory 31,000 31,000
Unrecoverable land development costs 3,000 3,000
Tax over book basis of depreciable assets 5,000 5,000
Alternative minimum tax and investment tax credit carryforward 4,000 4,000
Attributable to Discontinued Operations 4,000 2,000
Other 1,000 1,000
------------- -------------
Total deferred income tax assets 75,000 66,000
Valuation allowance for deferred income tax assets (59,000) (51,000)
------------- -------------
Deferred income tax assets after valuation allowance 16,000 15,000
Deferred income tax liabilities
Book over tax income recognized on homesite sales (2,000) (2,000)
Attributable to Discontinued Operations. (14,000) (12,000)
Other -- (1,000)
------------- -------------
Total deferred income tax liabilities (16,000) (15,000)
------------- -------------
Net deferred income taxes $0 $0
============= =============
</TABLE>
54
<PAGE> 55
NOTE N - INCOME TAXES -- continued
A reconciliation of income tax expense (credit) to the expected income
tax expense (credit) at the federal statutory rate of 34% for the year ended
December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- --------------
<S> <C> <C> <C>
Income tax expense (credit) computed
at statutory rate ($6,025) ($10,642) ($257)
Income tax effect of non-deductible dividends
on preferred stock of subsidiary 177 232 277
State income tax expense (credit), net of federal effect (676) (1,207) 27
Other 524 (383) (47)
Discontinued Operations and Extraordinary Items (2,000) 2,000 1,000
Change in valuation allowance on deferred tax assets 8,000 10,000 (1,000)
------------- ----------- ------------
Provision for income taxes $ -- $ -- $ --
============= =========== ============
</TABLE>
In years 1988 through 1997, the Company elected the installment method
for recording a substantial amount of its homesite and vacation ownership sales
in its federal income tax return, which deferred taxable income into future
fiscal periods. As a result of such election, the Company may be required to pay
compound interest on certain federal income taxes in future fiscal periods
attributable to the taxable income deferred under the installment method. The
Company believes that the potential interest amount, if any, will not be
material to its financial position and results of operations of the affected
future periods.
NOTE O - CONTINGENCIES
Avatar is involved in various pending litigation matters primarily
arising in the normal course of its business. Although the outcome of these and
the following matter cannot be determined, management believes that the
resolution of these matters will not have a material effect on Avatar's business
or financial statements.
In May 1995, a wastewater rate increase was filed for the North Fort
Myers Division of Florida Cities Water Company (FCWC), a utilities subsidiary of
the Company. In November 1995, the Florida Public Service Commission (FPSC)
issued an order authorizing a rate increase of approximately 18% (an annualized
revenue increase of approximately $378). Following a challenge to the order by
the Office of Public Counsel (the customer advocate) and certain customers, FCWC
requested implementation of the rates granted in the order. After a hearing, the
FPSC issued a new order in September 1996 authorizing final rates which were
approximately 5% lower than rates in effect prior to the rate increase filing.
FCWC filed an appeal with the District Court of Appeal of Florida, First
District (DCA) and in January 1998, DCA reversed and remanded the September 1996
order. By order dated April 14, 1998, the FPSC ordered the record reopened and
scheduled a hearing in December 1998 to take testimony on one issue remanded by
the DCA. FCWC's challenge of this FPSC action was denied by the DCA on June 17,
1998. The rates implemented in January 1996 are reflected in the financial
statements and will remain in effect, subject to refund plus interest, pending
the ultimate outcome of this matter. FCWC believes that there is a reasonable
basis it will prevail.
55
<PAGE> 56
NOTE P - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
The Company is engaged in two principal business activities: real
estate and water and wastewater utilities operations. The Company owns and
develops land, primarily in various locations in Florida and Arizona. The
Company's current and planned real estate operations include the following
segments: the development, sale and management of active adult communities; the
development and sale of residential communities (including construction of
upscale custom and semi-custom homes, mid-priced single- and multi-family homes)
and the sale of homesites; the development, leasing and management of improved
commercial and industrial properties; operations of amenities and resorts; cable
television operations; and property management services. The Company's utilities
operations include the purification and distribution of water and the treatment
and disposal of wastewater through plants in Florida and Arizona, as well as
contract management services for affiliated and unaffiliated water and
wastewater utilities. Two subsidiaries of the Company are currently involved in
continuing negotiations for the sale of the assets used in their Florida
utilities operations. Accordingly, the Company has classified the Florida
utilities as a discontinued operation - See Note S.
The following table summarizes the Company's information for reportable
segments for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
For the year ended December 31
----------------------------------------------------
1998 1997 1996
---------------- -------------- --------------
<S> <C> <C> <C>
REVENUES:
Segment revenues
Residential development $73,230 $58,924 $53,290
Active adult -- -- --
Resorts 13,591 13,787 16,087
Commercial and industrial 3,120 5,441 1,702
Rental, leasing, cable and
other real estate operations 5,171 5,163 5,362
All other 7,850 2,765 18,164
---------------- -------------- --------------
102,962 86,080 94,605
Unallocated revenues
Deferred gross profit 4,263 3,998 2,639
Interest income 5,463 5,200 7,846
Trading account profit, net -- 71 2,210
Other 794 667 2,405
================ ============== ==============
Total revenues $113,482 $96,016 $109,705
================ ============== ==============
</TABLE>
56
<PAGE> 57
NOTE P - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS - continued
<TABLE>
<CAPTION>
For the year ended December 31
----------------------------------------------------
1998 1997 1996
---------------- -------------- --------------
<S> <C> <C> <C>
OPERATING INCOME (LOSS):
Segment operating income (loss)
Residential development $ 413 ($4,314) $3,656
Active adult (1,074) (150) --
Resorts (1,454) (1,853) (1,368)
Commercial and industrial 1,863 4,810 937
Rental, leasing, cable and
other real estate operations 1,229 1,073 1,180
All other 4,022 406 9,989
---------------- -------------- --------------
4,999 (28) 14,394
Unallocated income (expenses)
Deferred gross profit 4,263 3,998 2,639
Interest income 5,463 5,200 7,846
Trading account profit, net -- 71 2,210
Real estate inventory write-down -- (14,667) (1,464)
General and administrative expenses (10,349) (8,756) (8,784)
Interest expense (11,115) (7,013) (7,597)
Other (10,981) (10,104) (10,001)
---------------- -------------- --------------
Loss from continuing operations ($17,720) ($31,299) ($757)
================ ============== ==============
December 31
----------------------------------
1998 1997
---------------- --------------
ASSETS:
Segment assets
Residential development $87,795 $73,232
Active adult 19,710 --
Resorts 12,812 10,931
Commercial and industrial 14,081 14,867
Rental, leasing, cable and
Other real estate operations 10,685 9,898
Discontinued assets 208,599 207,922
Unallocated assets 119,309 122,518
================ ==============
Total assets $472,991 $439,368
================ ==============
</TABLE>
- ------------------
(a) Avatar's businesses are primarily conducted in the United States.
(b) Identifiable assets by segment are those assets that are used in the
operations of each segment.
(c) No significant part of the business is dependent upon a single customer
or group of customers.
(d) Bulk land sales, Arizona utilities and the cost to carry land do not
qualify individually as separate reportable segments and are included
in all other.
(e) Included in segment profit/(loss) for 1998 is interest expense of
$932, $159 and $553 from residential development, resorts and
rental/leasing, respectively. Included in segment profit/(loss) for
1997 is interest expense of $1,573, $152 and $495 from residential
development, resorts and rental/leasing, respectively. Included in
segment profit/(loss) for 1996 is interest expense of $606, $118 and
$444 from residential development, resorts and rental/leasing,
respectively.
57
<PAGE> 58
NOTE P - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS - continued
(f) Included in operating profit/(loss) for 1998 is depreciation expense
of $256, $1,264, $634 and $316 from residential development, resorts,
rental/leasing and unallocated corporate, respectively. Included in
operating profit/(loss) for 1997 is depreciation expense of $434,
$1,248, $423 and $241 from residential development, resorts,
rental/leasing and unallocated corporate, respectively. Included in
operating profit/(loss) for 1996 is depreciation expense of $378,
$1,135, $410 and $362 from residential development, resorts,
rental/leasing and unallocated corporate, respectively.
NOTE Q- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial
instruments, all of which are held for purposes other than trading at December
31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 32,521 $ 32,521 $ 3,860 $ 3,860
Restricted cash 5,232 5,232 4,629 4,629
Contracts and mortgage notes receivables, net 13,737 13,412 24,319 23,789
Other receivables, net 4,257 4,257 2,613 2,613
Notes, mortgage notes and other debt:
Corporate:
Bank credit lines:
Short term bank credit lines 15,000 15,000 -- --
Long term bank credit lines -- -- 14,000 13,837
Senior debentures -- -- 30,506 30,506
Convertible Subordinated Notes 115,000 94,875 -- --
-------- -------- ------- -------
Total corporate $130,000 $109,875 $44,506 $44,343
======== ======== ======= =======
Notes, collateralized by contracts and mortgage
notes receivable $ 9,060 $ 9,060 $23,566 $23,447
======== ======== ======= =======
Real estate:
Note payable $ 2,968 $ 2,587 $ 3,899 $ 3,118
Short term development and construction loans 2,804 2,804 12,344 12,344
Long term development and construction loans 12,721 $ 12,434 22,920 23,346
-------- -------- ------- -------
Total real estate $ 18,493 $ 17,825 $39,163 $38,808
======== ======== ======= =======
Discontinued Operations:
Cash and cash equivalents and restricted cash $ 773 $ 773 $ 657 $ 657
Contracts and mortgage notes receivables, net 22,861 22,903 15,197 14,787
Other receivables, net 4,278 4,278 4,264 4,264
Notes, collateralized by contracts and mortgage
notes receivable 18,298 18,346 12,952 13,683
Real estate 3,647 3,534 4,568 4,771
Utility short term bank credit lines 2,719 2,719 1,432 1,432
Utility mortgage obligations, first mortgage
bonds and promissory notes 36,500 34,262 37,784 35,561
</TABLE>
58
<PAGE> 59
NOTE Q- FAIR VALUE OF FINANCIAL INSTRUMENTS - continued
The Company in estimating the fair value of financial instruments, used the
following methods and assumptions:
Cash and cash equivalents and restricted cash: The carrying amount reported
in the balance sheet for cash approximates its fair value.
Contracts and mortgage notes receivables: The fair value amounts of the
Company's contracts, mortgage notes and other receivables are estimated
based on a discounted cash flow analysis.
Other receivables: The carrying amount reported in the balance sheet for
other receivables approximates its fair value.
Notes, mortgage notes and other debt: The carrying amounts of the Company's
borrowings under its short term bank credit lines and short term
development and construction loans approximate their fair value. The fair
values of the Company's mortgage obligations, mortgage bonds and promissory
notes are estimated using discounted cash flow analysis based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
Senior Debentures: At December 31, 1997, the carrying amount in the balance
sheet for the Company's senior debentures approximates its fair value.
Convertible Subordinated Notes: At December 31, 1998, the fair values of
the Company's senior notes are estimated based on quoted market prices.
59
<PAGE> 60
NOTE R - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 Quarter
------------------------------------------------------------------
First Second Third Fourth
------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net revenues $24,485 $27,781 $21,668 $39,548
Expenses 28,297 31,635 28,311 42,959
------------- -------------- --------------- ---------------
Loss from continuing operations (3,812) (3,854) (6,643) (3,411)
Income (loss) from discontinued operations 1,045 (392) 1,086 (4,496)
(Loss) on early extinguishment of debt (2,308) -- -- --
------------- -------------- --------------- ---------------
Net loss ($5,075) ($4,246) ($5,557) ($7,907)
============= ============== =============== ===============
Basic and Diluted EPS:
Net loss ($0.55) ($0.46) ($0.61) ($0.86)
============= ============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
1997 Quarter
------------------------------------------------------------------
First Second Third Fourth
------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net revenues $23,248 $25,675 $20,252 $26,841
Expenses 26,646 27,443 26,094 47,132
------------- -------------- --------------- ---------------
Loss from continuing operations (3,398) (1,768) (5,842) (20,291)
Income (loss) from discontinued operations 1,411 2,187 829 (117)
------------- -------------- --------------- ---------------
Net (loss) income ($1,987) $419 ($5,013) ($20,408)
============= ============== =============== ===============
Basic and Diluted EPS:
Net (loss) income ($0.22) $0.05 ($0.55) ($2.24)
============= ============== =============== ===============
</TABLE>
- --------------
1) The Company recorded $2,000 and $4,400 estimated losses on the disposal of
the discontinued vacation ownership operations during the second and fourth
quarters of 1998, respectively.
2) In December 1997, the Company recorded an impairment loss of $14,667 to the
carrying value of the Harbor Islands community.
3) During the fourth quarter of 1997, the Company recorded $2,000 of
construction costs for houses which closed prior to the fourth quarter of
1997.
60
<PAGE> 61
NOTE S - DISCONTINUED OPERATIONS
During 1997, the Company developed a formal plan for the disposition of
its timeshare business. During the first quarter of 1999, the Company entered
into a non-binding letter of intent for the sale of the timeshare operation;
however, there is no assurance that the transaction will be consummated. During
1998, the Company revised its estimate of the net realizable value of the
discontinued timeshare operations based on then current business conditions and
potential market price for the timeshare operations. As a result, an estimated
loss on the disposal of the operations amounting to $6,400 was recorded during
1998. Net assets and liabilities of the timeshare business have been segregated
from the continuing operations in the accompanying balance sheets, and operating
results are segregated and reported as discontinued operations in the
accompanying consolidated statements of operations and cash flows.
Two subsidiaries of the Company are currently involved in continuing
negotiations for the sale of the assets used in their Florida utilities
operations. Net assets and liabilities of the Florida utilities operations have
been segregated from the continuing operations in the accompanying balance
sheets, and operating results are segregated and reported as discontinued
operations in the accompanying consolidated statements of operations and cash
flows. See Note T - Subsequent Event.
61
<PAGE> 62
NOTE S - DISCONTINUED OPERATIONS - continued
Consolidated operating results relating to the discontinued operations
for the years ended December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998
-----------------------------------------------
Vacation Florida
Ownership Utilities Total
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Real estate sales $ 16,829 $ -- $ 16,829
Utilities revenues -- 34,594 34,594
Interest income 2,665 -- 2,665
Other 1,750 -- 1,750
---------- ---------- ----------
Total revenues 21,244 34,594 55,838
EXPENSES
Real estate expenses 20,432 -- 20,432
Utilities expenses -- 25,870 25,870
Interest expense 2,270 3,103 5,373
Other -- 520 520
---------- ---------- ----------
Total expenses 22,702 29,493 52,195
---------- ---------- ----------
Net (loss) income from discontinued operations ($ 1,458) $ 5,101 $ 3,643
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------------
Vacation Florida
Ownership Utilities Total
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Real estate sales $ 12,094 $ -- $ 12,094
Utilities revenues -- 33,068 33,068
Interest income 1,799 -- 1,799
Other 707 -- 707
---------- ---------- ----------
Total revenues 14,600 33,068 47,668
EXPENSES
Real estate expenses 13,464 -- 13,464
Utilities expenses -- 24,527 24,527
Interest expense 1,251 3,435 4,686
Other -- 681 681
---------- ---------- ----------
Total expenses 14,715 28,643 43,358
========== ========== ==========
Net (loss) income from discontinued operations ($ 115) $ 4,425 $ 4,310
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------
Vacation Florida
Ownership Utilities Total
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Real estate sales $ 10,011 $ -- $ 10,011
Utilities revenues -- 31,654 31,654
Interest income 972 -- 972
Other 356 -- 356
---------- ---------- ----------
Total revenues 11,339 31,654 42,993
EXPENSES
Real estate expenses 11,679 -- 11,679
Utilities expenses -- 24,531 24,531
Interest expense 884 3,288 4,172
Other -- 814 814
---------- ---------- ----------
Total expenses 12,563 28,633 41,196
========== ========== ==========
Net (loss) income from discontinued operations ($ 1,224) $ 3,021 $ 1,797
========== ========== ==========
</TABLE>
62
<PAGE> 63
NOTE S - DISCONTINUED OPERATIONS - continued
The net assets and liabilities of the discontinued operations included
in the accompanying balance sheets as of December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
As of December 31, 1998
---------------------------------------------
Vacation Florida
Ownership Utilities Total
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 32 $ 471 $ 503
Restricted cash 198 35 233
Contracts and mortgage notes receivables, net 22,861 -- 22,861
Other receivables, net 319 3,959 4,278
Land and other inventories 7,357 256 7,613
Property, plant and equipment, net 196 164,751 164,947
Other assets 1,916 9,812 11,728
Regulatory assets -- 2,836 2,836
Reserve for estimated loss on disposal (6,400) -- (6,400)
-------- -------- ---------
Total assets $ 26,479 $182,120 $ 208,599
======== ======== =========
LIABILITIES AND CONTRIBUTIONS IN AID OF CONSTRUCTION
Notes, mortgage notes and other debt:
Notes, collateralized by contracts and mortgage
notes receivable $ 18,298 $ -- $ 18,298
Real estate 3,647 -- 3,647
Utilities -- 39,219 39,219
Accounts payable 38 1,171 1,209
Accrued and other liabilities 266 8,374 8,640
Minority interest -- 5,472 5,472
-------- -------- ---------
Total liabilities 22,249 54,236 76,485
Contributions in aid of construction -- 60,621 60,621
-------- -------- ---------
Total liabilities and contributions in aid of construction $ 22,249 $114,857 $ 137,106
======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1997
------------------------------------
Vacation Florida
Ownership Utilities Total
------- -------- --------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 49 $ 225 $ 274
Restricted cash 322 61 383
Contracts and mortgage notes receivables, net 15,197 -- 15,197
Other receivables, net 691 3,573 4,264
Land and other inventories 8,903 263 9,166
Property, plant and equipment, net 238 162,459 162,697
Other assets 2,159 10,465 12,624
Regulatory assets -- 3,317 3,317
------- -------- --------
Total assets $27,559 $180,363 $207,922
======= ======== ========
LIABILITIES AND CONTRIBUTIONS IN AID OF CONSTRUCTION
Notes, mortgage notes and other debt:
Notes, collateralized by contracts and mortgage
notes receivable $12,952 $ -- $ 12,952
Real estate 4,568 -- 4,568
Utilities -- 39,216 39,216
Accounts payable 694 1,737 2,431
Accrued and other liabilities 448 7,630 8,078
Minority interest -- 7,268 7,268
------- -------- --------
Total liabilities 18,662 55,851 74,513
Contributions in aid of construction -- 61,582 61,582
------- -------- --------
Total liabilities and contributions in aid of construction $18,662 $117,433 $136,095
======= ======== ========
</TABLE>
63
<PAGE> 64
NOTE T - SUBSEQUENT EVENT
Two subsidiaries of the Company are currently involved in continuing
negotiations for the sale of the water and wastewater utility assets of Florida
Cities Water Company and Poinciana Utilities Inc., which are located in the
counties of Collier, Lee, Sarasota, Hillsborough, Osceola, Polk and Brevard,
Florida, to a Governmental Utility Authority created by an interlocal agreement
pursuant to Section 163.01(7), Florida Statutes. The anticipated purchase price
will approximate $212,000.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
A. Identification of Directors
The information called for in this item is incorporated by
reference to Avatar's 1999 definitive proxy statement (under
"Election of Directors") to be filed with the Securities and
Exchange Commission on or before April 30, 1999.
B. Identification of Executive Officers
For information with respect to the executive officers of
Avatar, see "Executive Officers of the Registrant" at the end
of Part I of this report.
C. Compliance with Section 16(a) of the Exchange Act
The information required by this item is incorporated by
reference from Avatar's 1999 definitive proxy statement (under
the caption "Section 16(a) Beneficial Ownership Reporting
Compliance"), to be filed with the Securities and Exchange
Commission on or before April 30, 1999.
Item 11. Executive Compensation
The information called for by this item is incorporated by reference to
Avatar's 1999 definitive proxy statement (under the caption "Executive
Compensation and Other Information") to be filed with the Securities and
Exchange Commission on or before April 30, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by this item is incorporated by reference to
Avatar's 1999 definitive proxy statement (under the captions "Principal
Stockholders" and "Security Ownership of Management") to be filed with the
Securities and Exchange Commission on or before April 30, 1999.
64
<PAGE> 65
Item 13. Certain Relationships and Related Transactions
The information called for by this item is incorporated by reference to
Avatar's 1999 definitive proxy statement (under the captions "Certain
Relationships and Related Transactions") to be filed with the Securities and
Exchange Commission on or before April 30, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
FINANCIAL STATEMENTS AND SCHEDULES:
See Item 8 "Financial Statements and Supplementary Data" on Page 33
of this report.
SCHEDULES:
II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted, since the
information required is not applicable or is included in the
financial statements or notes thereto.
EXHIBITS:
3(a)* Certificate of Incorporation, as amended and restated May
28, 1998 (previously filed as Exhibit 3(a) to the Form 10-Q
for the quarter ended June 30, 1998).
3(b)* By-laws, as amended and restated May 28, 1998 (previously
filed as Exhibit 3(b) to the Form 10-Q for the quarter ended
June 30, 1998).
4(a)* Instruments defining the rights of security holders,
including indenture for 8% senior debentures (previously
filed as Exhibit i to the Form 8-K dated as of September 12,
1980).
4(b)* Supplemental Indenture for 8% senior debentures dated as
of December 19, 1992 (previously filed as Exhibit 4(b) to
Form 10-K for the year ended December 31, 1992).
4(c)* Indenture for 9% senior debentures dated as of December
19, 1992 (previously filed as Exhibit 4(c) to Form 10-K for
the year ended December 31, 1992).
4(d) * Indenture, dated as of February 2, 1998, between Avatar
Holdings Inc. and The Chase Manhattan Bank, as Trustee, in
respect of 7% Convertible Subordinated Notes due 2005
(previously filed as Exhibit 4(d) to Form 10-K for the year
ended December 31, 1997).
65
<PAGE> 66
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K - continued
10(a)*(1) Employment Agreement, dated as of June 15, 1992, by and
between Avatar Holdings Inc. and Edwin Jacobson (previously
filed as Exhibit 10(c) to Form 10-K for the year ended
December 31, 1992).
10(b)*(1) Amendment to Employment Agreement, dated as of March 1,
1994, by and between Avatar Holdings Inc. and Edwin Jacobson
(previously filed as Exhibit 10(d) on Form 10-K for the year
ended December 31, 1993).
10(c)*(1) Incentive Compensation Agreement, dated as of January 18,
1993 by and between Avatar Holdings Inc. and Dennis Getman
(previously filed as Exhibit 10(i) to Form 10-K for the year
ended December 31, 1993).
10(d)*(1) Incentive Compensation Agreement, dated as of September 9,
1993 by and between Avatar Holdings Inc. and Charles McNairy
(previously filed as Exhibit 10(j) to Form 10-K for the year
ended December 31, 1993).
10(e)* Revolving Credit Agreement between Avatar Properties Inc.
and BHF Bank dated November 30, 1993 (previously filed as
Exhibit 10(k) to the Form 10-K for the year ended December
31, 1993).
10(f)*(1) Employment Agreement, dated as of July 27, 1995, by and
between Avatar Holdings Inc. and Edwin Jacobson (previously
filed as Exhibit 10(m) to Form 10-Q for the quarter ended
September 30, 1995).
10(g)*(1) Amendment to Employment Agreement, dated as of February 13,
1997, to Employment Agreement, dated as of June 15, 1992 (as
amended as of March 1, 1994) and Employment Agreement, dated
as of July 27, 1995, by and between Avatar Holdings Inc. and
Edwin Jacobson (previously filed as Exhibit 10(f) to the
Form 10-K for the year ended December 31, 1996).
10(h)*(1) Employment Agreement, dated as of February 13, 1997, by and
between Avatar Holdings Inc. and Gerald D. Kelfer
(previously filed as Exhibit 10(g) to the Form 10-K for the
year ended December 31, 1996).
10(i)*(1) Nonqualified Stock Option Agreement, dated as of February
13, 1997, by and between Avatar Holdings Inc. and Gerald D.
Kelfer (previously filed as Exhibit 10(h) to the Form 10-K
for the year ended December 31, 1996).
10(j)*(1) Amendment to Employment Agreement, dated as of June 13,
1997, to Employment Agreement, dated as of July 27, 1995, by
and between Avatar Holdings Inc. and Edwin Jacobson
(previously filed as Exhibit 10(i) to the Form 10-Q for the
quarter ended June 30, 1997).
10(k)*(1) Avatar Holdings Inc. 1997 Incentive and Capital Accumulation
Plan (previously filed as Exhibit 10(k) to Form 10-K for the
year ended December 31, 1997).
66
<PAGE> 67
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K - continued
10(l) Registration Rights Agreement dated as of February 2, 1998,
between Avatar Holdings Inc. and Leon Levy (previously
filed as Exhibit 10(l) to Form 10-K for the year ended
December 31, 1997).
10(m)(1) Success Fee Agreement, dated December 7, 1998, by and
between Avatar Holdings Inc. and Gerald D. Kelfer (filed
herewith).
10(n)(1) Employment Agreement, dated as of December 4, 1997, by and
between Avatar Properties Inc. and Jonathan Fels (filed
herewith).
10(o)(1) First Amendment to Employment Agreement, dated as of
February 15, 1999, by and between Avatar Properties Inc. and
Jonathan Fels (filed herewith).
10(p)(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Jonathan
Fels (filed herewith).
10(q)(1) Employment Agreement, dated as of December 4, 1997, by and
between Avatar Properties Inc. and Michael Levy (filed
herewith).
10(r)(1) First Amendment to Employment Agreement, dated as of
February 15, 1999, by and between Avatar Properties Inc. and
Michael Levy (filed herewith).
10(s)(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Michael
Levy (filed herewith).
10(t)(1) Employment Agreement, dated as of October 6, 1997, by and
between Avatar Retirement Communities, Inc. and Michael S.
Rubin (filed herewith).
10(u)(1) First Amendment to Employment Agreement, dated as of
February 15, 1999, by and between Avatar Retirement
Communities, Inc. and Michael S. Rubin (filed herewith).
10(v)(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Michael S.
Rubin (filed herewith).
10(w)(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Dennis J.
Getman (filed herewith).
10(x)(1) Amendment to Employment Agreement, dated as of March 25,
1999, to Employment Agreement, dated as of July 27, 1995, by
and between Avatar Holdings Inc. and Edwin Jacobson (filed
herewith).
11 Computations of earnings per share (filed herewith).
27 Financial Data Schedule (filed herewith).
- ---------------
* These exhibits are incorporated by reference and are on file with the
Securities and Exchange Commission.
(1) Employment and Compensation agreements.
67
<PAGE> 68
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
AVATAR HOLDINGS INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deduction Period
----------------- -------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Deducted from asset accounts:
Deferred gross profit on
homesite sales $15,659 ($4,263)(1) $864 (2) $10,532
Allowance for doubtful accounts -- 133 -- (2) 133
Market valuation account 43 -- 30 (3) 13
Valuation allowance for deferred
tax assets 51,000 8,000 -- 59,000
----------------- -------------------- --------------- -----------------
Total $66,702 $3,870 $894 $69,678
================= ==================== =============== =================
Year ended December 31, 1997:
Deducted from asset accounts:
Deferred gross profit on
homesite sales $21,878 ($3,998)(1) $2,221 (2) $15,659
Allowance for doubtful accounts 179 160 339 (2) --
Market valuation account 133 -- 90 (3) 43
Valuation allowance for deferred
tax assets 41,000 10,000 -- 51,000
----------------- -------------------- --------------- -----------------
Total $63,190 $6,162 $2,650 $66,702
================= ==================== =============== =================
Year ended December 31, 1996
Deducted from asset accounts:
Deferred gross profit on
homesite sales $27,589 ($2,639) (1) $3,072 (2) $21,878
Allowance for doubtful accounts 146 134 101 (2) 179
Market valuation account 696 -- 563 (3) 133
Valuation allowance for deferred
tax assets 42,000 (1,000) -- 41,000
----------------- -------------------- --------------- -----------------
Total $70,431 ($3,505) $3,736 $63,190
================= ==================== =============== =================
</TABLE>
- -----------------
(1) (Credit) charge to operations as an (increase) decrease to revenues.
(2) Uncollectible accounts written off.
(3) Credited principally to interest income or allowance for doubtful
accounts upon write-off of uncollectible accounts.
68
<PAGE> 69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AVATAR HOLDINGS INC.
DATED: MARCH 25, 1999 By: /s/ Charles L. McNairy
----------------------------------
Charles L. McNairy, Executive
Vice President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
DATED: MARCH 25, 1999 By: /s/ Gerald D. Kelfer
----------------------------------------------------
Gerald D. Kelfer, Director, President,
Vice Chairman of the Board of
Directors, Chief Executive Officer and
Executive Committee Member
DATED: MARCH 25, 1999 By: /s/ Lawrence R. Sherry
----------------------------------------------------
Lawrence R. Sherry, Executive Vice
President and Chief Financial Officer
DATED: MARCH 25, 1999 By: /s/ Michael P. Rama
----------------------------------------------------
Michael P. Rama, Chief Accounting
Officer
DATED: MARCH 25, 1999 By: /s/ Milton Dresner
----------------------------------------------------
Milton Dresner, Director and
Audit Committee Member
DATED: MARCH 25, 1999 By: /s/ Edwin Jacobson
----------------------------------------------------
Edwin Jacobson, Director and
Chairman of the Executive Committee
DATED: MARCH 25, 1999 By: /s/ Leon T. Kendall
----------------------------------------------------
Leon T. Kendall, Director and
Chairman of the Audit Committee
DATED: MARCH 25, 1999 By: /s/ Leon Levy
----------------------------------------------------
Leon Levy, Chairman of the Board of
Director and Executive Committee
Member
</TABLE>
69
<PAGE> 70
<TABLE>
<CAPTION>
<S> <C>
DATED: MARCH 25, 1999 By: /s/ Martin Meyerson
----------------------------------------------------
Martin Meyerson, Director and
Audit Committee Member
DATED: MARCH 25, 1999 By: /s/ Gernot H. Reiners
----------------------------------------------------
Gernot H. Reiners, Director
DATED: MARCH 25, 1999 By: /s/ Kenneth T. Rosen
----------------------------------------------------
Kenneth T. Rosen, Director
DATED: MARCH 25, 1999 By: /s/ Fred Stanton Smith
----------------------------------------------------
Fred Stanton Smith, Director, Executive
Committee Member and Audit Committee Member
DATED: MARCH 25, 1999 By: /s/ Henry King Stanford
----------------------------------------------------
Henry King Stanford, Director
</TABLE>
70
<PAGE> 71
EXHIBIT INDEX
* These exhibits are incorporated by reference and are on file with the
Securities and Exchange Commission.
(1) Employment and Compensation agreements.
3(a)* Certificate of Incorporation, as amended and restated May
28, 1998 (previously filed as Exhibit 3(a) to the Form 10-Q
for the quarter ended June 30, 1998).
3(b)* By-laws, as amended and restated May 28, 1998 (previously
filed as Exhibit 3(b) to the Form 10-Q for the quarter ended
June 30, 1998).
4(a)* Instruments defining the rights of security holders,
including indenture for 8% senior debentures (previously
filed as Exhibit i to the Form 8-K dated as of September 12,
1980).
4(b)* Supplemental Indenture for 8% senior debentures dated as
of December 19, 1992 (previously filed as Exhibit 4(b) to
Form 10-K for the year ended December 31, 1992).
4(c)* Indenture for 9% senior debentures dated as of December
19, 1992 (previously filed as Exhibit 4(c) to Form 10-K for
the year ended December 31, 1992).
4(d)* Indenture, dated as of February 2, 1998, between Avatar
Holdings Inc. and The Chase Manhattan Bank, as Trustee, in
respect of 7% Convertible Subordinated Notes due 2005
(previously filed as Exhibit 4(d) to Form 10-K for the year
ended December 31, 1997).
10(a)*(1) Employment Agreement, dated as of June 15, 1992, by and
between Avatar Holdings Inc. and Edwin Jacobson (previously
filed as Exhibit 10(c) to Form 10-K for the year ended
December 31, 1992).
10(b)*(1) Amendment to Employment Agreement, dated as of March 1,
1994, by and between Avatar Holdings Inc. and Edwin Jacobson
(previously filed as Exhibit 10(d) on Form 10-K for the year
ended December 31, 1993).
10(c)*(1) Incentive Compensation Agreement, dated as of January 18,
1993 by and between Avatar Holdings Inc. and Dennis Getman
(previously filed as Exhibit 10(i) to Form 10-K for the year
ended December 31, 1993).
10(d)*(1) Incentive Compensation Agreement, dated as of September 9,
1993 by and between Avatar Holdings Inc. and Charles McNairy
(previously filed as Exhibit 10(j) to Form 10-K for the year
ended December 31, 1993).
10(e)* Revolving Credit Agreement between Avatar Properties Inc.
and BHF Bank dated November 30, 1993 (previously filed as
Exhibit 10(k) to the Form 10-K for the year ended December
31, 1993).
71
<PAGE> 72
Exhibits Index - continued.
10(f)*(1) Employment Agreement, dated as of July 27, 1995, by and
between Avatar Holdings Inc. and Edwin Jacobson (previously
filed as Exhibit 10(m) to Form 10-Q for the quarter ended
September 30, 1995).
10(g)*(1) Amendment to Employment Agreement, dated as of February 13,
1997, to Employment Agreement, dated as of June 15, 1992 (as
amended as of March 1, 1994) and Employment Agreement, dated
as of July 27, 1995, by and between Avatar Holdings Inc. and
Edwin Jacobson (previously filed as Exhibit 10(f) to the
Form 10-K for the year ended December 31, 1996).
10(h)*(1) Employment Agreement, dated as of February 13, 1997, by and
between Avatar Holdings Inc. and Gerald D. Kelfer
(previously filed as Exhibit 10(g) to the Form 10-K for the
year ended December 31, 1996).
10(i)*(1) Nonqualified Stock Option Agreement, dated as of February
13, 1997, by and between Avatar Holdings Inc. and Gerald D.
Kelfer (previously filed as Exhibit 10(h) to the Form 10-K
for the year ended December 31, 1996).
10(j)*(1) Amendment to Employment Agreement, dated as of June 13,
1997, to Employment Agreement, dated as of July 27, 1995, by
and between Avatar Holdings Inc. and Edwin Jacobson
(previously filed as Exhibit 10(i) to the Form 10-Q for the
quarter ended June 30, 1997).
10(k)*(1) Avatar Holdings Inc. 1997 Incentive and Capital Accumulation
Plan (previously filed as Exhibit 10(k) to Form 10-K for the
year ended December 31, 1997).
10(l) Registration Rights Agreement dated as of February 2, 1998,
between Avatar Holdings Inc. and Leon Levy (previously filed
as Exhibit 10(l) to Form 10-K for the year ended December
31, 1997).
10(m)(1) Success Fee Agreement, dated December 7, 1998, by and
between Avatar Holdings Inc. and Gerald D. Kelfer (filed
herewith).
10(n)(1) Employment Agreement, dated as of December 4, 1997, by and
between Avatar Properties Inc. and Jonathan Fels (filed
herewith).
10(o)(1) First Amendment to Employment Agreement, dated as of
February 15, 1999, by and between Avatar Properties Inc. and
Jonathan Fels (filed herewith).
10(p)(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Jonathan
Fels (filed herewith).
10(q)(1) Employment Agreement, dated as of December 4, 1997, by and
between Avatar Properties Inc. and Michael Levy (filed
herewith).
10(r)(1) First Amendment to Employment Agreement, dated as of
February 15, 1999, by and between Avatar Properties Inc. and
Michael Levy (filed herewith).
72
<PAGE> 73
Exhibits Index - continued.
10(s)(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Michael
Levy (filed herewith).
10(t)(1) Employment Agreement, dated as of October 6, 1997, by and
between Avatar Retirement Communities, Inc. and Michael S.
Rubin (filed herewith).
10(u)(1) First Amendment to Employment Agreement, dated as of
February 15, 1999, by and between Avatar Retirement
Communities, Inc. and Michael S. Rubin (filed herewith).
10(v)(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Michael S.
Rubin (filed herewith).
10(w)(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Dennis J.
Getman (filed herewith).
10(x)(1) Amendment to Employment Agreement, dated as of March 25,
1999, to Employment Agreement, dated as of July 27, 1995,
by and between Avatar Holdings Inc. and Edwin Jacobson
(filed herewith).
11 Computations of earnings per share (filed herewith).
27 Financial Data Schedule (filed herewith).
73
<PAGE> 1
Exhibit 10(m)
AVATAR HOLDINGS INC.
255 Alhambra Circle
Coral Gables, Florida 33134
December 7, 1998
Mr. Gerald D. Kelfer
c/o Avatar Holdings Inc.
255 Alhambra Circle
Coral Gables, Florida 33134
Re: SUCCESS FEE
Dear Mr. Kelfer:
We are writing to confirm our agreement with you as to a
success fee to be paid to you in the event of the separate sale ("Sale") of at
least a principal part of our Utilities businesses ("Utilities Businesses"), in
a single transaction or series of transactions, but not as part of a sale of the
Company (by merger, consolidation, sale of all or substantially all of its
assets, sale of control or other means).
You agree to advise, assist and represent the Company in
connection with the Sale of the Utilities Businesses, including but not limited
to (i) identifying, introducing and consulting as to strategy for initiating
discussions with, potential purchasers, (ii) assisting in structuring the
transaction, (iii) participating actively in any negotiation of the terms and
conditions of the transaction, (iv) assisting in the preparation of definitive
documentation, and (v) assisting the Company to close the transaction, in each
case to the extent requested and in the manner directed by the Company.
For your services, the Company agrees to pay you a Success Fee
(as defined below) in cash within 30 days after the closing of the Sale of its
Utilities Businesses if all of the following conditions are satisfied:
1. The Sale transactions close no later than December 31,
1999.
2. You shall have performed the services required of you to
the reasonable satisfaction of the Company as determined by the Executive
Committee of the Board of Directors of the Company (without your participation).
<PAGE> 2
Mr. Gerald D. Kelker
Page 2
The Success Fee shall equal: (i) $1,000,000, if the
Transaction Price is $175,000,000 or more; (ii) $800,000, if the Transaction
Price is $150,000,000 or more but less than $175,000,000; or (iii) $0 (zero), if
the Transaction Price is less than $150,000,000. For purposes of this agreement,
Transaction Price shall mean the price paid by the buyer for such business
(I.E., the gross price without regard to any debt or liability assumed by the
buyer). The Transaction Price will be determined by the Executive Committee of
the Board of Directors of the Company (without your participation).
It is understood that if you receive a Success Fee in the
amount of $800,000 on account of the Sale of some of the Utilities Businesses,
and subsequently, additional segments of the Utilities Businesses are sold such
that the Transaction Price for those Sales when aggregated with such prior sale
is $175,000,000 or more, then you shall be entitled to receive an additional
$200,000 (I.E., the full $1,000,000 Success Fee), provided that each of the two
conditions stated above are satisfied at that time.
The Company reserves total and unrestricted control of any
such transaction including, without limitation, the right not to enter into or
consummate any such transaction (irrespective of the reason therefor), to
determine the Transaction Price and other terms and the value of any non-cash
consideration. Your entitlement to the Success Fee is dependent on the actual
closing of the transactions without regard to the reason for a failure or
inability to close.
No provision of this agreement may be amended or waived unless
such amendment or waiver is agreed to in writing signed by you and by the
Company. This agreement constitutes the complete understanding between the
parties with respect to this matter, and no agreements or representations, oral
or otherwise, express or implied, with respect to this matter hereof have been
made by either party which are not set forth expressly in this agreement.
The validity, interpretation, construction and performance of
this agreement shall be governed by the laws of the State of Florida.
<PAGE> 3
Mr. Gerald D. Kelker
Page 3
For the purposes of this agreement, notices and all other
communications provided for shall be in writing and shall be deemed to have been
duly given when delivered or mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as follows: (i) if to
you: c/o Avatar Holdings Inc., 255 Alhambra Circle, Coral Gables, Florida 33134;
(ii) if to the Company: Avatar Holdings Inc., 255 Alhambra Circle, Coral Gables,
Florida 33134, Attention: Chairman of the Board; or (iii) to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notices of change of address shall be effective only upon
receipt.
The Company may terminate this agreement in the event you
cease to be employed by the Company as its President and Chief Executive
Officer. If the Company so terminates this agreement, the Company shall not be
obligated to pay you a Success Fee.
This agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
If the foregoing is satisfactory, would you please so indicate
by signing and returning to the Company the enclosed copy of this letter
whereupon this will constitute our agreement on the subject.
AVATAR HOLDINGS INC.
By: /s/ LEON LEVY
-------------------------------
Leon Levy
Chairman of the Board
ACCEPTED AND AGREED TO:
/s/ GERALD D. KELFER
- ----------------------------------------
Gerald D. Kelfer
<PAGE> 1
Exhibit 10(n)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of December 4, 1997, between
Avatar Properties Inc., a Florida corporation (the "Company"), and Jonathan Fels
(the "Employee").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Employee as its
President and the Employee desires to accept such employment, all on the terms
and conditions specified herein; and
WHEREAS, the Employee and the Company desire to set forth in
writing all of their respective duties, rights and obligations with respect to
the Employee's employment by the Company; and
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and obligations hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT AND TERM. The Company hereby employs the
Employee, and the Employee hereby accepts employment by the Company, in the
capacity and upon the terms and conditions hereinafter set forth. The term of
employment under this Agreement shall be for the period commencing as of
December 5, 1997 (the "Commencement Date") and ending on the fifth anniversary
thereof, unless earlier terminated as herein provided (the "Term of
Employment"). The last day of the Employee's Term of Employment shall be
referred to in this Agreement as the "Date of Termination."
2. DUTIES. During the Term of Employment, the Employee shall
serve as the Company's President, and shall perform such duties, functions and
responsibilities as are customarily associated with and incident to the position
of President and as the Company may, from time to time, require of him, subject
to the direction of the Company's Board of Directors. The Employee shall serve
the Company faithfully, conscientiously and to the best of the Employee's
ability and shall promote the interests and reputation of the Company. Unless
prevented by sickness or disability, the Employee shall devote all of his time,
attention, knowledge, energy and skills, during normal working hours, and at
such other times as the Employee's duties may reasonably require, to the duties
of the Employee's employment; PROVIDED,
<PAGE> 2
HOWEVER, that nothing contained herein shall prevent the Employee from engaging
in Permitted Activities (as defined below). The principal place of employment of
the Employee shall be the current principal executive offices of the Company
and/or such other location within 50 miles of Company's current principal place
of business as shall be necessary for the Employee to discharge his duties
hereunder and the Permitted Activities. For purposes of this Agreement,
"Permitted Activities" shall mean an ownership interest in, or the provision of
services in connection with the design, development, construction, sales and
marketing, operation and management, solely to or in connection with, the
existing Brookman-Fels projects conducted by the companies set forth on SCHEDULE
I hereto and the Harbor Islands Joint Venture between Avatar Harbor Islands,
Inc. and Brookman-Fels at Harbor Island, Inc. The Employee acknowledges that in
the course of his employment he may be required, from time to time, to travel on
behalf of the Company; PROVIDED, HOWEVER, that the Employee shall not be
required to spend more than 25% of his business time on overnight travel.
3. COMPENSATION AND BENEFITS. As full and complete
compensation for the Employee's execution and delivery of this Agreement and
performance of any services hereunder, the Company shall pay, grant or provide
the Employee, and the Employee agrees to accept, the following compensation and
benefits:
(a) BASE SALARY. The Company shall pay the Employee a
base salary at an annual rate of $300,000 payable at such times and in
accordance with the standard payroll practices of Avatar Holdings Inc., a
Delaware corporation ("Avatar"). Upon completion by the Employee of one year of
employment with the Company, the Employee's base salary shall be reviewed, and
in the sole discretion of the Board of Directors of the Company, the Company may
increase (but not decrease) the Employee's base salary.
(b) EMPLOYEE BENEFITS. The Company shall afford the
Employee the opportunity to participate during the Term of Employment in any
medical, dental, disability insurance, retirement, savings and any other
employee benefits plans or programs (including perquisites) which Avatar
maintains for its senior executives. Nothing in this Agreement shall require the
Company, Avatar or their affiliates to establish, maintain or continue any
benefit programs already in existence or hereafter adopted for senior executives
of Avatar, and nothing in the Agreement shall restrict the right of Avatar or
any of its affiliates to amend, modify or terminate any such benefit program.
2
<PAGE> 3
(c) EXPENSES. The Employee shall be entitled to
reimbursement or payment of reasonable business expenses (in accordance with
Avatar's policies for its senior executives, as the same may be amended from
time to time in Avatar's sole discretion), following the Employee's submission
of appropriate receipts and/or vouchers to the Company.
(d) "CARRIED INTEREST" IN CERTAIN INVESTMENTS.
(i) In addition to any other compensation hereunder and
subject to Section 3(d)(ii) below, the Employee shall have a 9% "carried
interest" (to be defined by the parties at the time) in any new investment that
(A) the Employee is responsible (together with Michael Levy and Bernard
Offenberg) for identifying as a prospect and/or opportunity for Avatar or the
Company to acquire or develop and (B) that Avatar or the Company, in its sole
discretion, elects to acquire or develop.
(ii) Notwithstanding anything to the contrary in Section
3(d)(i) hereof, if the Employee's employment with the Company shall be
terminated pursuant to Section 5(a)(ii), Section 5(a)(iii), Section 5(a)(iv) or
Section 5(a)vii) hereof, the Employee's "carried interest" shall thereupon be
reduced by one-fifth in respect of each year of the Term of Employment (or
portion thereof) during which the Employee shall not have remained in the
Company's employ (E.G., if the Employee's employment shall be validly terminated
by the Company for Cause after the first anniversary of the Commencement Date
but prior to the second anniversary thereof, then the Employee's "carried
interest" shall be reduced by four-fifths, with the forfeited amount inuring to
the benefit of the Company. The Employee shall promptly repay to the Company the
portion of any distributions or other payments received in respect of his
"carried interest" which exceeds the percentage representing his carried
interest as so reduced (E.G., if the Employee had received a $100 distribution
in respect of his "carried interest" during the first year of his employment and
such employment shall be terminated after the first anniversary of the
Commencement Date but prior to the second anniversary thereof, the Employee
shall, promptly after the Termination Date, repay $80 to the Company). If the
Employee shall fail to make any such prompt repayment when due, then the Company
shall have the right to offset the aggregate amount due from the Employee
against any other payments due from the Company to the Employee hereunder or
otherwise.
(iii) Employee agrees to make a timely election pursuant to
Section 83(b) of the Internal Revenue Code of 1986, as amended, upon Employee's
acquisition of his interest in the Joint Venture.
3
<PAGE> 4
(e) VACATIONS, HOLIDAYS OR TEMPORARY LEAVE: The
Employee shall be entitled to take three (3) weeks of vacation per year, without
loss or diminution of compensation. Such vacation shall be taken at such time or
times, and as a whole or in increments, as the Employee shall elect, consistent
with the reasonable needs of the Company's business. The Employee shall further
be entitled to the number of paid holidays, and leaves for illness or temporary
disability in accordance with the policies of Avatar for its senior executives
(as such policies may be amended from time to time or terminated in Avatar's
sole discretion).
4. NON-COMPETITION AND PROTECTION OF CONFIDENTIAL INFORMATION:
(a) RESTRICTIVE COVENANTS:
(i) During the Term of Employment the Employee shall
not directly or indirectly engage, participate, own or make any financial
investments in, or become employed by or render (whether or not for
compensation) any consulting, advisory or other services to or for the benefit
of, any person, firm or corporation, or otherwise engage in any business
activity which directly or indirectly competes with any of the business
operations or activities of the Company or Avatar consisting of the design,
development, construction, sales and marketing, operation and management of real
estate; PROVIDED, HOWEVER, that nothing herein shall restrict the Employee from
engaging in Permitted Activities; PROVIDED, FURTHER, HOWEVER, that it shall not
be a violation of this Agreement for the Employee to have beneficial ownership
of less than 1% of the outstanding amount of any class of securities of any
enterprise (but without otherwise participating in the activities of such
enterprise) if such securities are listed on a national securities exchange or
quoted on an inter-dealer quotation system.
(ii) During the Term of Employment the Employee shall
not, directly or indirectly, (A) solicit, in competition with the Company or
Avatar, any person who is a customer of any business conducted by the Company or
Avatar or (B) in any manner whatsoever induce, or assist others to induce, any
supplier of the Company to terminate its association with such entity or do
anything, directly or indirectly, to interfere with the business relationship
between the Company, Avatar and any of their respective current or prospective
suppliers.
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<PAGE> 5
(iii) During the Term of Employment the Employee
shall not, directly or indirectly, solicit or induce any employee of the Company
or Avatar to terminate his or her employment for any purpose, including without
limitation, in order to enter into employment with any entity which competes
with any business conducted by the Company or Avatar.
(iv) The Employee recognizes and acknowledges that
certain confidential business and technical information used by the Employee in
connection with the Permitted Activities that includes, without limitation,
certain confidential and proprietary information relating to the designing,
development, construction and marketing of real estate, is a valuable, special
and unique asset of the Company, such information, subject to Section 4(a)(vi)
below, collectively being referred to as the "Confidential Information." During
the Term of Employment the Employee shall not (A) use Confidential Information,
or any part thereof other than in connection with his duties hereunder or
Permitted Activities, nor (B) disclose such information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever.
(v) During the Term of Employment and for all time
following the Date of Termination, the Employee shall not, directly or
indirectly, furnish or make accessible to any person, firm, or corporation or
other business entity, whether or not he, she, or it competes with the business
of the Company, any trade secret or know-how acquired by the Employee during his
employment by the Company which relates to the business practices, methods,
processes or other confidential or secret aspects of the business of the Company
or Avatar without the prior written consent from the Company (such information,
subject to Section 4(a)(vi) below, being referred to as the "Company
Confidential Information").
(vi) Confidential Information and Company
Confidential Information shall not include any information or documents that (A)
are or become publicly available without breach by the Employee of Sections
4(a)(iv) and (v) hereof, respectively, (B) the Employee receives from any third
party who, to the best of the Employee's knowledge upon reasonable inquiry, is
not in breach of an obligation of confidence with the Company, Avatar or their
respective affiliates, or (C) is required to be disclosed by law, statute,
governmental or judicial proceeding; PROVIDED, HOWEVER, that in the event that
the Employee is requested by any governmental or judicial authority to disclose
any Confidential Information, the Employee shall give the Company and Avatar
prompt notice of such request, such that
5
<PAGE> 6
the Company and Avatar may seek a protective order or other appropriate relief,
and in any such proceeding the Employee shall disclose only so much of the
Confidential Information as is required to be disclosed.
(vii) Notwithstanding the foregoing, the Employee acknowledges
that during the Term of Employment and for all time following the Date of
Termination, the Employee shall not, and shall not cause or permit any of its
affiliates to, use the name "Brookman-Fels" (or any derivative thereof) except
as expressly permitted by those certain License Agreements, each dated as of
December 4, 1997, by and between Brookman-Fels Jeff Ian, Inc., as licensor and
the companies listed on SCHEDULE I hereto, each as a licensee, or except as
otherwise permitted in writing by Avatar.
(b) GEOGRAPHIC SCOPE. The provisions of this Section 4 (other
than Sections 4(a)(iii), (iv), (v) and (vi), which shall be in full force and
effect without regard to the geographic limitations set forth in this Section
4(b)) shall be in full force and effect (i) in the state of Florida, (ii) within
a 150-mile radius of Tucson, Arizona and (iii) within a 150-mile radius of a
site for which the Company or Avatar has commenced development or has a binding
commitment therefor.
(c) REMEDIES. The Employee acknowledges that his services are
of a special, unique and extraordinary character and, his position with the
Company and Avatar places him in a position of confidence and trust with the
clients and employees of the Company and Avatar, and that in connection with his
services to the Company, the Employee will have access to confidential
information vital to the Company's and Avatar's businesses. The Employee further
acknowledges that in view of the nature of the business in which the Company and
Avatar are engaged, the foregoing restrictive covenants in this Section 4 hereof
are reasonable and necessary in order to protect the legitimate interests of the
Company and Avatar and that violation thereof would result in irreparable injury
to the Company and Avatar. Accordingly, the Employee consents and agrees that if
the Employee violates or threatens to violate any of the provisions of this
Section 4 hereof the Company and Avatar would sustain irreparable harm and,
therefore, the Company and Avatar shall be entitled to obtain from any court of
competent jurisdiction, without posting any bond or other security, preliminary
and permanent injunctive relief as well as damages and an equitable accounting
of all earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies in
law or equity to which the Company or Avatar may be entitled.
6
<PAGE> 7
5. TERMINATION OF EMPLOYMENT:
(a) The Employee's employment with the Company shall
terminate upon the occurrence of any of the following events:
(i) the termination of the Employee's
employment upon and at any time following the Date of Termination and absent the
parties having entered into a written agreement for the renewal of this
Agreement;
(ii) the death of the Employee during the
Term of Employment;
(iii) the Disability (as defined below) of
Employee during the Term of Employment;
(iv) at any time upon written notice to the
Employee from the Company of termination of his employment for Cause (as defined
below);
(v) at any time upon written notice to the
Employee from the Company of termination of his employment Without Cause (as
defined below);
(vi) the resignation by the Employee for
Good Reason (as defined below) during the Term of Employment; or
(vii) the resignation by the Employee
Without Good Reason (as defined below) during the Term of Employment.
(b) For purposes of this Agreement, the "Disability" of the
Employee shall mean his inability, because of mental or physical illness or
incapacity, whether total or partial, to perform his full time duties under this
Agreement with reasonable accommodation for a period aggregating 90 days out of
any 12-month period under circumstances where in the opinion of a qualified
physician reasonably acceptable to the Company it is reasonably certain that the
Employee will not be able to resume his duties on a regular full time basis
within 30 days of the date the Employee receives notice of termination for
Disability.
(c) For purposes of this Agreement, the term "Cause" shall
mean the Employee's (i) conviction or entry of a plea of guilty or nolo
contendere, with respect to any felony; (ii) commission of any act of wilful
misconduct, gross negligence, fraud or dishonesty; or (iii) violation of
7
<PAGE> 8
any material term of this Agreement or any material written policy of the
Company, PROVIDED that the Company first deliver written notice thereof to the
Employee and the Employee shall not have cured such violation within thirty (30)
days after receipt of such written notice.
(d) For purposes of this Agreement, "Without Cause" shall mean
any reason other than the reasons described in Sections 5(a)(i), 5(a)(ii),
5(a)(iii) and 5(a)(iv) hereof. The parties expressly agree that a termination of
employment Without Cause pursuant to Section 5(a)(v) hereof may be for any
reason whatsoever, or for no reason, in the sole discretion of the Company.
(e) For purposes of this Agreement, "Good Reason" shall mean
(i) a willful and material breach of the provisions of this Agreement by the
Company or (ii) the termination by the Company of the employment of either
Michael Levy or Bernard Offenberg Without Cause pursuant to their respective
employment agreements; PROVIDED that the Employee first deliver written notice
thereof to the Chairman of the Board of the Company and the Company shall not
have cured such breach within thirty (30) days after receipt of such written
notice.
(f) For purposes of this Agreement, "Without Good Reason"
shall mean any reason other than that defined in this Agreement as constituting
Good Reason.
6. PAYMENTS UPON TERMINATION OF EMPLOYMENT:
(a) DEATH OR DISABILITY: If the Employee's employment
hereunder is terminated due to the Employee's death or Disability pursuant to
Sections 5(a)(ii) or (iii) hereof, the Company shall pay or provide to the
Employee, his designated beneficiary or to his estate (i) all base salary
pursuant to Section 3(a) hereof and any vacation pay pursuant to Section 3(e)
hereof, in each case which has been earned but unpaid as of the Date of
Termination; and (ii) any benefits to which the Employee may be entitled under
any employee benefits plan or program pursuant to Section 3(b) hereof in which
he is a participant in accordance with the terms of such plan or program up to
and including the Date of Termination. Should the Company wish to purchase
insurance to cover the costs associated with the Employee's termination of
employment pursuant to Sections 5(a)(ii) or (iii), the Employee agrees to
execute any and all necessary documents necessary to effectuate said insurance.
Upon termination of the Employee's employment due to the Employee's Disability,
the Employee shall continue to have the obligations provided for in Section 4
hereof.
8
<PAGE> 9
(b) TERMINATION FOR CAUSE, RESIGNATION WITHOUT GOOD REASON, OR
EXPIRATION OF TERM OF Employment: If the Employee's employment hereunder is
terminated due to the termination of the Employee's employment by the Company
for Cause pursuant to Section 5(a)(iv) or due to the Employee's resignation
Without Good Reason pursuant to Section 5(a)(vii), the Company shall pay or
provide to the Employee (i) all base salary pursuant to Section 3(a) hereof and
any vacation pay pursuant to Section 3(e) hereof, in each case which has been
earned but unpaid as of the Date of Termination and (ii) any benefits to which
the Employee may be entitled under any employee benefits plan or program
pursuant to Section 3(b) hereof in which he is a participant in accordance with
the terms of such plan or program up to and including the Date of Termination.
(c) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON: If
the Employee's employment hereunder is terminated by the Company Without Cause
pursuant to Section 5(a)(v), or due to the Employee's resignation for Good
Reason pursuant to Section 5(a)(vi), the Company shall continue to pay to the
Employee, in lieu of any other payments or benefits and on the regular payroll
dates of the Company for a period of six (6) months following Date of
Termination his current base salary, at the rate provided in Section 3(a)
hereof; PROVIDED, HOWEVER, if the Employee's employment hereunder is terminated
by the Company Without Cause pursuant to Section 5(a)(v) or due to Employee's
resignation for Good Reason pursuant to Section 5(a)(vi) prior to the second
anniversary of the Commencement Date, the Company shall continue to pay to the
Employee, through the second anniversary of the Commencement Date and for a
period of six (6) months following such second anniversary, his current base
salary, at the rate provided in Section 3(a) hereof, in lieu of any other
payments or benefits, and on the regular payment dates of the Company. The
Company's obligation to make the payment pursuant to this Section 6(c) shall be
conditioned upon the Company's prior receipt of an executed general release of
claims which the Employee may have against the Company, its affiliates and their
respective shareholders, directors, officers, employees and agents, to the
maximum extent permitted by law.
(d) NO OTHER PAYMENTS. Except as provided in this Section 6,
the Employee shall not be entitled to receive any other payments or benefits
from the Company due to the termination of his employment, including but not
limited to, any employee benefits under any of the Company's or Avatar's
employee benefits plans or programs (other than at the Employee's expense under
the Consolidated Omnibus Budget Reconciliation Act of 1985 or pursuant to the
terms of any pension plan which the Company or Avatar may have in
9
<PAGE> 10
effect from time to time) or any right to be paid severance pay. If the Employee
is entitled to any notice or payment in lieu of any notice of termination
required by Federal, State or local law, including but not limited to the Worker
Adjustment and Retraining Notification Act, the Company's obligation to make
payments pursuant to Section 6(c) shall be reduced by the amount of any such
payment in lieu of notice.
7. NO CONFLICTING AGREEMENTS; INDEMNIFICATION:
(a) The Employee hereby represents and warrants that he is not
a party to any agreement, or non-competition or other covenant or restriction
contained in any agreement, commitment, arrangement or understanding (whether
oral or written), which would in any way conflict with or limit his ability to
commence work on the first day of the Term of Employment or would otherwise
limit his ability to perform all responsibilities in accordance with the terms
and subject to the conditions of this Agreement.
(b) The Employee agrees that the compensation provided for in
Section 3 represents the sole compensation to be paid to Employee in respect of
the services performed or to be performed for the Company and/or its affiliates
by such Employee. The Employee further agrees that should there be a
determination that for federal, state, local and/or other tax purposes,
Employee's compensation for services performed for the Company and its
affiliates is greater than the amounts payable hereunder, Employee will
indemnify and hold harmless the Company and its affiliates against any and all
liabilities, losses, and expenses including, but not limited to, any additional
taxes, penalties and interest, and attorneys' and accountants' fees arising out
of, resulting from or relating to such determination.
8. DEDUCTIONS AND WITHHOLDING. The Employee agrees that the
Company shall withhold from any and all compensation required to be paid to the
Employee pursuant to this Agreement all federal, state, local and/or other taxes
which the Company determines are required to be withheld in accordance with
applicable statutes and/or regulations from time to time in effect and all
amounts required to be deducted in respect of the Employee's coverage under
applicable employee benefit plans.
9. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement of the parties with respect to the Employee's employment and
supersedes any other prior oral or written agreements between the Employee and
the Company and its affiliates. This Agreement may not be changed or
10
<PAGE> 11
terminated orally but only by an agreement in writing signed by the parties
hereto.
10. WAIVER. The waiver by the Company of a breach of any
provision of this Agreement by the Employee shall not operate or be construed as
a waiver of any subsequent breach by the Employee. The waiver by the Employee of
a breach of any provision of this Agreement by the Company shall not operate or
be construed as a waiver of any subsequent breach by the Company.
11. GOVERNING LAW. This Agreement shall be subject to, and
governed by, the laws of the State of Florida applicable to contracts made and
to be performed in the State of Florida, regardless of where the Employee is in
fact required to work.
12. JURISDICTION. Any legal suit, action or proceeding against
any party hereto arising out of or relating to this Agreement shall be
instituted in a federal or state court in the State of Florida, and each party
hereto waives any objection which it may now or hereafter have to the laying of
venue of any such suit, action or proceeding and each party hereto irrevocably
submits to the jurisdiction of any such court in any suit, action or proceeding.
13. ASSIGNABILITY. The obligations of the Employee may not be
delegated and, except as expressly provided in Section 6(a) relating to the
designation of beneficiaries, the Employee may not, without the Company's
written consent thereto, assign, transfer, convey, pledge, encumber, hypothecate
or otherwise dispose of this Agreement or any interest therein. Any such
attempted delegation or disposition shall be null and void and without effect.
The Company and the Employee agree that this Agreement and all of the Company's
rights and obligations hereunder may be assigned or transferred by the Company
to and may be assumed by and become binding upon and may inure to the benefit of
any affiliate of or successor to the Company. The term "successor" shall mean,
with respect to the Company or any of its subsidiaries, and any other
corporation or other business entity which, by merger, consolidation, purchase
of the assets, or otherwise, acquires all or a material part of the assets of
the Company. Any assignment by the Company of its rights and obligations
hereunder to any affiliate of or successor shall not be considered a termination
of employment for purposes of this Agreement.
14. SEVERABILITY. If any provision of this Agreement as
applied to either party or to any circumstances shall be adjudged by a court of
competent jurisdiction to be
11
<PAGE> 12
void or unenforceable, the same shall in no way affect any other provision of
this Agreement or the validity or enforceability of this Agreement. If any court
construes any of the provisions of Section 4 hereof, or any part thereof, to be
unreasonable because of the duration of such provision or the geographic or
other scope thereof, such court may reduce the duration or restrict the
geographic or other scope of such provision and enforce such provision as so
reduced or restricted.
15. NOTICES. All notices to the Employee hereunder shall be in
writing and shall be delivered personally or sent by registered or certified
mail, return receipt requested, to:
Jonathan Fels
3800 South Ocean Drive
Suite G-9
Hollywood, Florida 33019
with a copy to:
Kluger, Peretz, Kaplan & Berlin, P.A.
201 South Biscayne Blvd.
Suite 1700
Miami, FL 33131
Attention: Eliot Abbott, Esq.
Facsimile: (305) 379-3428
All notices to the Company hereunder shall be in writing and shall be delivered
personally or sent by registered or certified mail, return receipt requested,
to:
Brookman-Fels Communities, Inc.
255 Alhambra Circle
Coral Gables, Florida 33134
Attention: President
Facsimile: (305) 441-7876
with a copy to:
Brookman-Fels Communities, Inc.
255 Alhambra Circle
Coral Gables, Florida 33134
Attention: General Counsel
Facsimile: (305) 448-9927
and with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
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<PAGE> 13
Attention: Simeon Gold, Esq.
Facsimile: (212) 310-8007
Either party may change the address to which notices shall be sent by sending
written notice of such change of address to the other party.
16. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.
18. ATTORNEYS' FEES. In the event that either party hereto
commences litigation against the other to enforce such party's rights hereunder,
the prevailing party shall be entitled to recover all costs, expenses and fees,
including reasonable attorneys' fees (including in-house counsel), paralegals'
fees, and legal assistants' fees through all appeals.
19. NEUTRAL CONSTRUCTION. Each party to this Agreement was
represented by counsel, or had the opportunity to consult with counsel. No party
may rely on any drafts of this Agreement in any interpretation of the Agreement.
Each party to this Agreement has reviewed this Agreement and has participated in
its drafting and, accordingly, no party shall attempt to invoke the normal rule
of construction to the effect that ambiguities are to be resolved against the
drafting party in any interpretation of this Agreement.
(signature page follows)
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
AVATAR PROPERTIES INC.
By: /s/ Gerald D. Kelfer
------------------------------------
Name: Gerald D. Kelfer
Title: Chairman of the Board
/s/ JONATHAN FELS
------------------------------------
Jonathan Fels
14
<PAGE> 15
SCHEDULE I
EXISTING BROOKMAN-FELS PROJECTS AND LICENSEES
(_) Brookman-Fels at Harbor Islands, Inc.
1. Brookman-Fels Organization, Inc.
2. Brookman-Fels and Associates, Inc.
3. Brookman-Fels at Treasure Trove, Inc.
4. Brookman-Fels at Country Club Estates, Inc.
5. Brookman and Fels at the Sanctuary, Inc.
6. Brookman-Fels of South Florida, Inc.
7. Brookman-Fels Custom Builders, Inc.
8. Brookman-Fels Home and Design, Inc.
9. Brookman-Fels Management Corporation
10. Brookman-Fels at Presidential Estates, Inc.
11. Brookman-Fels Construction Corp.
12. Brookman-Fels Builders, Inc.
13. Sunset Point at Silver Lakes, Ltd. (d/b/a
Brookman-Fels - Zuckerman Group)
14. Parkland Communities, Inc. (d/b/a
Brookman-Fels - Zuckerman Group)
15
<PAGE> 1
Exhibit 10(o)
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made as of
February 15, 1999, between Avatar Properties Inc., a Florida corporation (the
"Company"), and Jonathan Fels (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is currently employed as President of
the Company pursuant to an Employment Agreement, dated as of December 4, 1997
(the "Agreement"); and
WHEREAS, the Company and the Employee wish to provide for
certain modifications to the Agreement, all upon the terms hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Section 2 of the Agreement is hereby amended to delete the
first sentence thereof and substitute the following sentence: "During the Term
of Employment, the Employee shall serve as the Company's President, and shall
perform such duties, functions and responsibilities as are customarily
associated with and incident to the position of President and as the Company
may, from time to time, require of him, including, but not limited to, the
performance of such functions and duties for the Company's subsidiaries and
affiliates as the Company may require, subject to the direction of the Company's
Board of Directors."
2. Section 3(a) of the Agreement is hereby amended to delete
the second sentence thereof and substitute therefor the following sentence: "On
an annual basis or at such other times as the Company may determine, the
Employee's base salary shall be reviewed, and in the sole discretion of the
Board of Directors of the Company, the Company may increase (but not decrease)
the Employee's base salary."
3. Section 3(d) of the Agreement and all references thereto
are hereby deleted in their entirety. The Employee hereby relinquishes any and
all rights to receive a "carried interest" pursuant to Section 3(d) of the
Agreement with respect to any investment hereafter made by the Company or Avatar
Holdings Inc. ("Avatar") and
<PAGE> 2
acknowledges that none of the Company, Avatar and their affiliates shall have
any further obligation with respect thereto.
4. Section 5(b) of the Agreement is hereby amended to read in
its entirety as follows: "For purposes of this Agreement, the "Disability" of
the Employee shall mean the Employee's inability, because of mental or physical
illness or incapacity, whether total or partial, to perform one or more material
functions of the Employee's employment under this Agreement with or without
reasonable accommodation and which entitles the Employee to receive benefits
under a disability plan or program that is provided to the Employee pursuant to
Section 3(b)."
5. This amendment shall be effective February 19, 1999. Except
as modified by this amendment, the Agreement remains in full force and effect in
accordance with its terms.
6. This amendment may be signed in one or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute one and the same instrument.
7. This amendment shall be governed by and construed and
enforced in accordance with the laws of the State of Florida.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
AVATAR PROPERTIES INC.
By: /s/ Gerald D. Kelfer
-----------------------------------
Name: Gerald D. Kelfer
Title: Chairman of the Board
/s/ Jonathan Fels
-----------------------------------
Employee
Name: Jonathan Fels
3
<PAGE> 1
EXHIBIT 10(p)
NONQUALIFIED STOCK OPTION AGREEMENT
GRANTED TO: Jonathan Fels
DATE OF GRANT: February 19, 1999
GRANTED PURSUANT TO: Avatar Holdings Inc. 1997 Incentive and Capital
Accumulation Plan
NUMBER OF UNDERLYING 50,000 shares
SHARES OF COMMON
STOCK:
EXERCISE PRICE: $25 per share
1. This Nonqualified Stock Option Agreement (the "Agreement") is made
and entered into as of February 19, 1999, between Avatar Holdings Inc., a
Delaware corporation (the "Company"), and Jonathan Fels ("Employee"). It is the
intent of the Company and Employee that the Option (as defined in Paragraph 2
below) will not qualify as an "incentive stock option" under Section 422 of the
Internal Revenue Code of 1986, as amended from time to time (the "Code").
2. Employee is granted an option by the Incentive Plan Committee of the
Company's Board of Directors (the "Committee") to purchase 50,000 shares of
Common Stock (the "Option") pursuant to the Company's 1997 Incentive and Capital
Accumulation Plan (the "Plan"). Capitalized terms not defined herein shall have
the meanings ascribed thereto in the Plan.
3. The Option's exercise price is $25 per share, such exercise price
being in the judgment of the Committee not less than one hundred percent (100%)
of the Fair Market Value of the Common Stock on the date of grant.
4. Subject to Paragraphs 5 and 6 below, the Option shall be
exercisable, on a cumulative basis, according to the vesting schedule set forth
below:
16,667 shares shall become exercisable and remain exercisable on
February 19, 2000.
16,667 shares shall become exercisable and remain exercisable on
February 19, 2001.
16,666 shares shall become exercisable and remain exercisable on
February 19, 2002.
<PAGE> 2
5. Subject to Paragraph 6 below, the unexercised portion of the Option,
unless sooner terminated, shall expire on February 19, 2009 (the "Expiration
Date") and, notwithstanding anything contained herein to the contrary, no
portion of the Option may be exercised after such date.
6. If prior to the Expiration Date, Employee's employment with the
Company or any subsidiary corporation terminates, the Option will terminate on
the applicable date as described below, PROVIDED, HOWEVER, that none of the
events described below shall extend the period of exercisability beyond the
Expiration Date:
(a) If the employment of Employee is terminated by reason of
Employee's death either while in the employ of the Company or any subsidiary
corporation, or during the one (1) year period specified in clause (b) below,
the Option shall immediately become fully exercisable and remain exercisable
until the later of the first anniversary of Employee's death or the fifth
anniversary of the Commencement Date (as defined below), and shall be
exercisable by the executor or administrator of the estate of the deceased
Employee or the person or persons to whom the deceased Employee's rights under
the Option shall pass by will or the laws of descent or distribution;
(b) If the employment of Employee is terminated by the Company
due to Employee's "disability" (as defined below), the Option shall immediately
become fully exercisable and remain exercisable until the later of the first
anniversary of the date of termination of employment or the fifth anniversary of
the Commencement Date;
(c) If the employment of Employee is terminated by the Company
"without cause" (as defined below), or is terminated by Employee for "good
reason" (as defined below), the Option to the extent not theretofore exercised
shall remain exercisable in accordance with the terms of this Agreement,
including without limitation, the provisions of Sections 4 and 5 hereof.
(d) If the employment of Employee is terminated (i) by the
Company for "cause" (as defined below) or (ii) by Employee "without good reason"
(as defined below), the Option shall, to the extent not theretofore exercised,
immediately become null and void.
For purposes of this Agreement, the terms "Commencement Date",
"disability", "cause", "without cause", "good reason" and "without good reason"
shall have the meanings ascribed to such terms in Employee's employment
agreement with the Company, dated as of December 4, 1997, as amended from time
to time.
7. Employee may exercise the Option regardless of whether any other
option that Employee has been granted by the Company remains unexercised. In no
event may Employee
2
<PAGE> 3
exercise the Option for a fraction of a share or for less than 100 shares unless
the number purchased is the remaining balance for which the Option is then
exercisable.
8. The Option's exercise price shall be paid by Employee on the date
the option is exercised, in full in cash.
9. The Company may withhold from sums due or to become due to Employee
from the Company an amount necessary to satisfy its obligation to withhold taxes
incurred by reason of the issuance or disposition of shares pursuant to the
Option, or may require Employee to reimburse the Company in such amount.
10. Employee shall not have any of the rights of a shareholder with
respect to the shares of Common Stock underlying the Option while the Option is
unexercised.
11. Any exercise of this Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal place of business of the
Company, specifying the Option being exercised and the number of shares to be
purchased, accompanied by payment therefor.
12. This Option shall not be transferable otherwise than by will or the
laws of descent and distribution, and shall be exercisable, during Employee's
lifetime, only by Employee. Notwithstanding the foregoing, this Option may be
transferred by Employee solely to Employee's spouse, siblings, parents, children
and grandchildren or trusts for the benefit of such persons or partnerships,
corporations, limited liability companies or other entities owned solely by such
persons, including trusts for such persons, subject to any restriction included
in this Agreement.
13. If the Company, in its sole discretion, shall determine that it is
necessary, to comply with applicable securities laws, the certificate or
certificates representing the shares purchased pursuant to the exercise of the
Option shall bear an appropriate legend in form and substance, as determined by
the Company, giving notice of applicable restrictions on transfer under or in
respect of such laws.
14. The Company agrees that at the time of exercise of the Option it
will use reasonable efforts in good faith to have an effective Registration
Statement on Form S-8 under the Securities Act of 1933, as amended (the "Act"),
which includes a prospectus that is current with respect to the shares subject
to the Option. Employee covenants and agrees with the Company that if, at the
time of exercise of the Option, there does not exist a Registration Statement on
an appropriate form under the Act, which Registration Statement shall have
become effective and shall include a prospectus that is current with respect to
the shares subject to the Option, (i) that he or she is purchasing the shares
for his or her own account and not with a view to the resale or distribution
thereof, (ii) that any subsequent offer for sale or
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sale of any such shares shall be made either pursuant to (x) a Registration
Statement on an appropriate form under the Act, which Registration Statement
shall have become effective and shall be current with respect to the shares
being offered and sold, or (y) a specific exemption from the registration
requirements of the Act, but in claiming such exemption, Employee shall, prior
to any offer for sale or sale of such shares, obtain a favorable written opinion
from counsel for or approved by the Company as to the applicability of such
exemption and (iii) that Employee agrees that the certificates evidencing such
shares shall bear a legend to the effect of the foregoing.
15. This Agreement is subject to all terms, conditions, limitations and
restrictions contained in the Plan, which shall be controlling in the event of
any conflicting or inconsistent provisions.
16. This Agreement is not a contract of employment and the terms of
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company to
continue Employee's employment, and it shall not impose any obligation on
Employee's part to remain in the employ of the Company.
17. Employee acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to Employee any material information regarding the business of the
Company or affecting the value of the Common Stock before or at the time of a
termination of the employment of Employee by the Company, including, without
limitation, any information concerning plans for the Company to make a public
offering of its securities or to be acquired by or merged with or into another
firm or entity.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
AVATAR HOLDINGS INC.
By: /s/ Gerald D. Kelfer
---------------------------------
Name: Gerald Kelfer
Title: Chief Executive Officer
ACCEPTED:
/s/ Jonathan Fels
- ------------------------------
Jonathan Fels
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<PAGE> 1
Exhibit 10(q)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of December 4, 1997, between
Avatar Properties Inc., a Florida corporation (the "Company"), and Michael Levy
(the "Employee").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Employee as its
Chief Operating Officer and Executive Vice President and the Employee desires to
accept such employment, all on the terms and conditions specified herein; and
WHEREAS, the Employee and the Company desire to set forth in
writing all of their respective duties, rights and obligations with respect to
the Employee's employment by the Company; and
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and obligations hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT AND TERM. The Company hereby employs the
Employee, and the Employee hereby accepts employment by the Company, in the
capacity and upon the terms and conditions hereinafter set forth. The term of
employment under this Agreement shall be for the period commencing as of
December 5, 1997 (the "Commencement Date") and ending on the fifth anniversary
thereof, unless earlier terminated as herein provided (the "Term of
Employment"). The last day of the Employee's Term of Employment shall be
referred to in this Agreement as the "Date of Termination."
2. DUTIES. During the Term of Employment, the Employee shall
serve as the Company's Chief Operating Officer and Executive Vice President, and
shall perform such duties, functions and responsibilities as are customarily
associated with and incident to the position of Chief Operating Officer and
Executive Vice President and as the Company may, from time to time, require of
him, subject to the direction of the Company's President. The Employee shall
serve the Company faithfully, conscientiously and to the best of the Employee's
ability and shall promote the interests and reputation of the Company. Unless
prevented by sickness or disability, the Employee shall devote all of his time,
attention, knowledge, energy and skills, during
<PAGE> 2
normal working hours, and at such other times as the Employee's duties may
reasonably require, to the duties of the Employee's employment; PROVIDED,
HOWEVER, that nothing contained herein shall prevent the Employee from engaging
in Permitted Activities (as defined below). The principal place of employment of
the Employee shall be the current principal executive offices of the Company
and/or such other location within 50 miles of Company's current principal place
of business as shall be necessary for the Employee to discharge his duties
hereunder and the Permitted Activities. For purposes of this Agreement,
"Permitted Activities" shall mean an ownership interest in, or the provision of
services in connection with the design, development, construction, sales and
marketing, operation and management, solely to or in connection with, the
existing Brookman-Fels projects conducted by the companies set forth on SCHEDULE
I hereto and the Harbor Islands Joint Venture between Avatar Harbor Islands,
Inc. and Brookman-Fels at Harbor Island, Inc. The Employee acknowledges that in
the course of his employment he may be required, from time to time, to travel on
behalf of the Company; PROVIDED, HOWEVER, that the Employee shall not be
required to spend more than 25% of his business time on overnight travel.
3. COMPENSATION AND BENEFITS. As full and complete
compensation for the Employee's execution and delivery of this Agreement and
performance of any services hereunder, the Company shall pay, grant or provide
the Employee, and the Employee agrees to accept, the following compensation and
benefits:
(a) BASE SALARY. The Company shall pay the Employee a
base salary at an annual rate of $300,000 payable at such times and in
accordance with the standard payroll practices of Avatar Holdings Inc., a
Delaware corporation ("Avatar"). Upon completion by the Employee of one year of
employment with the Company, the Employee's base salary shall be reviewed, and
in the sole discretion of the Board of Directors of the Company, the Company may
increase (but not decrease) the Employee's base salary.
(b) EMPLOYEE BENEFITS. The Company shall afford the
Employee the opportunity to participate during the Term of Employment in any
medical, dental, disability insurance, retirement, savings and any other
employee benefits plans or programs (including perquisites) which Avatar
maintains for its senior executives. Nothing in this Agreement shall require the
Company, Avatar or their affiliates to establish, maintain or continue any
benefit programs already in existence or hereafter adopted for senior executives
of Avatar, and nothing in the Agreement
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shall restrict the right of Avatar or any of its affiliates to amend, modify or
terminate any such benefit program.
(c) EXPENSES. The Employee shall be entitled to
reimbursement or payment of reasonable business expenses (in accordance with
Avatar's policies for its senior executives, as the same may be amended from
time to time in Avatar's sole discretion), following the Employee's submission
of appropriate receipts and/or vouchers to the Company.
(d) "CARRIED INTEREST" IN CERTAIN INVESTMENTS.
(i) In addition to any other compensation hereunder and
subject to Section 3(d)(ii) below, the Employee shall have a 9% "carried
interest" (to be defined by the parties at the time) in any new investment that
(A) the Employee is responsible (together with Jonathan Fels and Bernard
Offenberg) for identifying as a prospect and/or opportunity for Avatar or the
Company to acquire or develop and (B) that Avatar or the Company, in its sole
discretion, elects to acquire or develop.
(ii) Notwithstanding anything to the contrary in Section
3(d)(i) hereof, if the Employee's employment with the Company shall be
terminated pursuant to Section 5(a)(ii), Section 5(a)(iii), Section 5(a)(iv) or
Section 5(a)vii) hereof, the Employee's "carried interest" shall thereupon be
reduced by one-fifth in respect of each year of the Term of Employment (or
portion thereof) during which the Employee shall not have remained in the
Company's employ (E.G., if the Employee's employment shall be validly terminated
by the Company for Cause after the first anniversary of the Commencement Date
but prior to the second anniversary thereof, then the Employee's "carried
interest" shall be reduced by four-fifths, with the forfeited amount inuring to
the benefit of the Company. The Employee shall promptly repay to the Company the
portion of any distributions or other payments received in respect of his
"carried interest" which exceeds the percentage representing his carried
interest as so reduced (E.G., if the Employee had received a $100 distribution
in respect of his "carried interest" during the first year of his employment and
such employment shall be terminated after the first anniversary of the
Commencement Date but prior to the second anniversary thereof, the Employee
shall, promptly after the Termination Date, repay $80 to the Company). If the
Employee shall fail to make any such prompt repayment when due, then the Company
shall have the right to offset the aggregate amount due from the Employee
against any other payments due from the Company to the Employee hereunder or
otherwise.
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(iii) Employee agrees to make a timely election pursuant to
Section 83(b) of the Internal Revenue Code of 1986, as amended, upon Employee's
acquisition of his interest in the Joint Venture.
(e) VACATIONS, HOLIDAYS OR TEMPORARY LEAVE: The
Employee shall be entitled to take three (3) weeks of vacation per year, without
loss or diminution of compensation. Such vacation shall be taken at such time or
times, and as a whole or in increments, as the Employee shall elect, consistent
with the reasonable needs of the Company's business. The Employee shall further
be entitled to the number of paid holidays, and leaves for illness or temporary
disability in accordance with the policies of Avatar for its senior executives
(as such policies may be amended from time to time or terminated in Avatar's
sole discretion).
4. NON-COMPETITION AND PROTECTION OF CONFIDENTIAL INFORMATION:
(a) RESTRICTIVE COVENANTS:
(i) During the Term of Employment the Employee shall
not directly or indirectly engage, participate, own or make any financial
investments in, or become employed by or render (whether or not for
compensation) any consulting, advisory or other services to or for the benefit
of, any person, firm or corporation, or otherwise engage in any business
activity which directly or indirectly competes with any of the business
operations or activities of the Company or Avatar consisting of the design,
development, construction, sales and marketing, operation and management of real
estate; PROVIDED, HOWEVER, that nothing herein shall restrict the Employee from
engaging in Permitted Activities; PROVIDED, FURTHER, HOWEVER, that it shall not
be a violation of this Agreement for the Employee to have beneficial ownership
of less than 1% of the outstanding amount of any class of securities of any
enterprise (but without otherwise participating in the activities of such
enterprise) if such securities are listed on a national securities exchange or
quoted on an inter-dealer quotation system.
(ii) During the Term of Employment the Employee shall
not, directly or indirectly, (A) solicit, in competition with the Company or
Avatar, any person who is a customer of any business conducted by the Company or
Avatar or (B) in any manner whatsoever induce, or assist others to induce, any
supplier of the Company to terminate its
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<PAGE> 5
association with such entity or do anything, directly or indirectly, to
interfere with the business relationship between the Company, Avatar and any of
their respective current or prospective suppliers.
(iii) During the Term of Employment the Employee
shall not, directly or indirectly, solicit or induce any employee of the Company
or Avatar to terminate his or her employment for any purpose, including without
limitation, in order to enter into employment with any entity which competes
with any business conducted by the Company or Avatar.
(iv) The Employee recognizes and acknowledges that
certain confidential business and technical information used by the Employee in
connection with the Permitted Activities that includes, without limitation,
certain confidential and proprietary information relating to the designing,
development, construction and marketing of real estate, is a valuable, special
and unique asset of the Company, such information, subject to Section 4(a)(vi)
below, collectively being referred to as the "Confidential Information." During
the Term of Employment the Employee shall not (A) use Confidential Information,
or any part thereof other than in connection with his duties hereunder or
Permitted Activities, nor (B) disclose such information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever.
(v) During the Term of Employment and for all time
following the Date of Termination, the Employee shall not, directly or
indirectly, furnish or make accessible to any person, firm, or corporation or
other business entity, whether or not he, she, or it competes with the business
of the Company, any trade secret or know-how acquired by the Employee during his
employment by the Company which relates to the business practices, methods,
processes or other confidential or secret aspects of the business of the Company
or Avatar without the prior written consent from the Company (such information,
subject to Section 4(a)(vi) below, being referred to as the "Company
Confidential Information").
(vi) Confidential Information and Company
Confidential Information shall not include any information or documents that (A)
are or become publicly available without breach by the Employee of Sections
4(a)(iv) and (v) hereof, respectively, (B) the Employee receives from any third
party who, to the best of the Employee's knowledge upon reasonable inquiry, is
not in breach of an obligation of confidence with the Company, Avatar or their
respective
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<PAGE> 6
affiliates, or (C) is required to be disclosed by law, statute, governmental or
judicial proceeding; PROVIDED, HOWEVER, that in the event that the Employee is
requested by any governmental or judicial authority to disclose any Confidential
Information, the Employee shall give the Company and Avatar prompt notice of
such request, such that the Company and Avatar may seek a protective order or
other appropriate relief, and in any such proceeding the Employee shall disclose
only so much of the Confidential Information as is required to be disclosed.
(vii) Notwithstanding the foregoing, the Employee acknowledges
that during the Term of Employment and for all time following the Date of
Termination, the Employee shall not, and shall not cause or permit any of its
affiliates to, use the name "Brookman-Fels" (or any derivative thereof) except
as expressly permitted by those certain License Agreements, each dated as of
December 4, 1997, by and between Brookman-Fels Jeff Ian, Inc., as licensor and
the companies listed on SCHEDULE I hereto, each as a licensee, or except as
otherwise permitted in writing by Avatar.
(b) GEOGRAPHIC SCOPE. The provisions of this Section 4 (other
than Sections 4(a)(iii), (iv), (v) and (vi), which shall be in full force and
effect without regard to the geographic limitations set forth in this Section
4(b)) shall be in full force and effect (i) in the state of Florida, (ii) within
a 150-mile radius of Tucson, Arizona and (iii) within a 150-mile radius of a
site for which the Company or Avatar has commenced development or has a binding
commitment therefor.
(c) REMEDIES. The Employee acknowledges that his services are
of a special, unique and extraordinary character and, his position with the
Company and Avatar places him in a position of confidence and trust with the
clients and employees of the Company and Avatar, and that in connection with his
services to the Company, the Employee will have access to confidential
information vital to the Company's and Avatar's businesses. The Employee further
acknowledges that in view of the nature of the business in which the Company and
Avatar are engaged, the foregoing restrictive covenants in this Section 4 hereof
are reasonable and necessary in order to protect the legitimate interests of the
Company and Avatar and that violation thereof would result in irreparable injury
to the Company and Avatar. Accordingly, the Employee consents and agrees that if
the Employee violates or threatens to violate any of the provisions of this
Section 4 hereof the Company and Avatar would sustain irreparable harm and,
therefore, the Company and Avatar shall be entitled to obtain from any
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<PAGE> 7
court of competent jurisdiction, without posting any bond or other security,
preliminary and permanent injunctive relief as well as damages and an equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies in law or equity to which the Company or Avatar may be entitled.
5. TERMINATION OF EMPLOYMENT:
(a) The Employee's employment with the Company shall
terminate upon the occurrence of any of the following events:
(i) the termination of the Employee's
employment upon and at any time following the Date of Termination and absent the
parties having entered into a written agreement for the renewal of this
Agreement;
(ii) the death of the Employee during the
Term of Employment;
(iii) the Disability (as defined below) of
Employee during the Term of Employment;
(iv) at any time upon written notice to the
Employee from the Company of termination of his employment for Cause (as defined
below);
(v) at any time upon written notice to the
Employee from the Company of termination of his employment Without Cause (as
defined below);
(vi) the resignation by the Employee for
Good Reason (as defined below) during the Term of Employment; or
(vii) the resignation by the Employee
Without Good Reason (as defined below) during the Term of Employment.
(b) For purposes of this Agreement, the "Disability" of the
Employee shall mean his inability, because of mental or physical illness or
incapacity, whether total or partial, to perform his full time duties under this
Agreement with reasonable accommodation for a period aggregating 90 days out of
any 12-month period under circumstances where in the opinion of a qualified
physician reasonably acceptable to the Company it is reasonably certain that the
Employee will not be able to resume his duties on a regular full time basis
within 30 days of the
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<PAGE> 8
date the Employee receives notice of termination for Disability.
(c) For purposes of this Agreement, the term "Cause" shall
mean the Employee's (i) conviction or entry of a plea of guilty or nolo
contendere, with respect to any felony; (ii) commission of any act of wilful
misconduct, gross negligence, fraud or dishonesty; or (iii) violation of any
material term of this Agreement or any material written policy of the Company,
PROVIDED that the Company first deliver written notice thereof to the Employee
and the Employee shall not have cured such violation within thirty (30) days
after receipt of such written notice.
(d) For purposes of this Agreement, "Without Cause" shall mean
any reason other than the reasons described in Sections 5(a)(i), 5(a)(ii),
5(a)(iii) and 5(a)(iv) hereof. The parties expressly agree that a termination of
employment Without Cause pursuant to Section 5(a)(v) hereof may be for any
reason whatsoever, or for no reason, in the sole discretion of the Company.
(e) For purposes of this Agreement, "Good Reason" shall mean
(i) a willful and material breach of the provisions of this Agreement by the
Company or (ii) the termination by the Company of the employment of either
Jonathan Fels or Bernard Offenberg Without Cause pursuant to their respective
employment agreements; PROVIDED that the Employee first deliver written notice
thereof to the Chairman of the Board of the Company and the Company shall not
have cured such breach within thirty (30) days after receipt of such written
notice.
(f) For purposes of this Agreement, "Without Good Reason"
shall mean any reason other than that defined in this Agreement as constituting
Good Reason.
6. PAYMENTS UPON TERMINATION OF EMPLOYMENT:
(a) DEATH OR DISABILITY: If the Employee's employment
hereunder is terminated due to the Employee's death or Disability pursuant to
Sections 5(a)(ii) or (iii) hereof, the Company shall pay or provide to the
Employee, his designated beneficiary or to his estate (i) all base salary
pursuant to Section 3(a) hereof and any vacation pay pursuant to Section 3(e)
hereof, in each case which has been earned but unpaid as of the Date of
Termination; and (ii) any benefits to which the Employee may be entitled under
any employee benefits plan or program pursuant to Section 3(b) hereof in which
he is a participant in accordance with the terms of such plan or program up to
and including the Date
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<PAGE> 9
of Termination. Should the Company wish to purchase insurance to cover the costs
associated with the Employee's termination of employment pursuant to Sections
5(a)(ii) or (iii), the Employee agrees to execute any and all necessary
documents necessary to effectuate said insurance. Upon termination of the
Employee's employment due to the Employee's Disability, the Employee shall
continue to have the obligations provided for in Section 4 hereof.
(b) TERMINATION FOR CAUSE, RESIGNATION WITHOUT GOOD REASON, OR
EXPIRATION OF TERM OF EMPLOYMENT: If the Employee's employment hereunder is
terminated due to the termination of the Employee's employment by the Company
for Cause pursuant to Section 5(a)(iv) or due to the Employee's resignation
Without Good Reason pursuant to Section 5(a)(vii), the Company shall pay or
provide to the Employee (i) all base salary pursuant to Section 3(a) hereof and
any vacation pay pursuant to Section 3(e) hereof, in each case which has been
earned but unpaid as of the Date of Termination and (ii) any benefits to which
the Employee may be entitled under any employee benefits plan or program
pursuant to Section 3(b) hereof in which he is a participant in accordance with
the terms of such plan or program up to and including the Date of Termination.
(c) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON: If
the Employee's employment hereunder is terminated by the Company Without Cause
pursuant to Section 5(a)(v), or due to the Employee's resignation for Good
Reason pursuant to Section 5(a)(vi), the Company shall continue to pay to the
Employee, in lieu of any other payments or benefits and on the regular payroll
dates of the Company for a period of six (6) months following Date of
Termination his current base salary, at the rate provided in Section 3(a)
hereof; PROVIDED, HOWEVER, if the Employee's employment hereunder is terminated
by the Company Without Cause pursuant to Section 5(a)(v) or due to Employee's
resignation for Good Reason pursuant to Section 5(a)(vi) prior to the second
anniversary of the Commencement Date, the Company shall continue to pay to the
Employee, through the second anniversary of the Commencement Date and for a
period of six (6) months following such second anniversary, his current base
salary, at the rate provided in Section 3(a) hereof, in lieu of any other
payments or benefits, and on the regular payment dates of the Company. The
Company's obligation to make the payment pursuant to this Section 6(c) shall be
conditioned upon the Company's prior receipt of an executed general release of
claims which the Employee may have against the Company, its affiliates and their
respective shareholders, directors, officers, employees and agents, to the
maximum extent permitted by law.
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<PAGE> 10
(d) NO OTHER PAYMENTS. Except as provided in this Section 6,
the Employee shall not be entitled to receive any other payments or benefits
from the Company due to the termination of his employment, including but not
limited to, any employee benefits under any of the Company's or Avatar's
employee benefits plans or programs (other than at the Employee's expense under
the Consolidated Omnibus Budget Reconciliation Act of 1985 or pursuant to the
terms of any pension plan which the Company or Avatar may have in effect from
time to time) or any right to be paid severance pay. If the Employee is entitled
to any notice or payment in lieu of any notice of termination required by
Federal, State or local law, including but not limited to the Worker Adjustment
and Retraining Notification Act, the Company's obligation to make payments
pursuant to Section 6(c) shall be reduced by the amount of any such payment in
lieu of notice.
7. NO CONFLICTING AGREEMENTS; INDEMNIFICATION:
(a) The Employee hereby represents and warrants that he is not
a party to any agreement, or non-competition or other covenant or restriction
contained in any agreement, commitment, arrangement or understanding (whether
oral or written), which would in any way conflict with or limit his ability to
commence work on the first day of the Term of Employment or would otherwise
limit his ability to perform all responsibilities in accordance with the terms
and subject to the conditions of this Agreement.
(b) The Employee agrees that the compensation provided for in
Section 3 represents the sole compensation to be paid to Employee in respect of
the services performed or to be performed for the Company and/or its affiliates
by such Employee. The Employee further agrees that should there be a
determination that for federal, state, local and/or other tax purposes,
Employee's compensation for services performed for the Company and its
affiliates is greater than the amounts payable hereunder, Employee will
indemnify and hold harmless the Company and its affiliates against any and all
liabilities, losses, and expenses including, but not limited to, any additional
taxes, penalties and interest, and attorneys' and accountants' fees arising out
of, resulting from or relating to such determination.
8. DEDUCTIONS AND WITHHOLDING. The Employee agrees that the
Company shall withhold from any and all compensation required to be paid to the
Employee pursuant to this Agreement all federal, state, local and/or other taxes
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<PAGE> 11
which the Company determines are required to be withheld in accordance with
applicable statutes and/or regulations from time to time in effect and all
amounts required to be deducted in respect of the Employee's coverage under
applicable employee benefit plans.
9. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement of the parties with respect to the Employee's employment and
supersedes any other prior oral or written agreements between the Employee and
the Company and its affiliates. This Agreement may not be changed or terminated
orally but only by an agreement in writing signed by the parties hereto.
10. WAIVER. The waiver by the Company of a breach of any
provision of this Agreement by the Employee shall not operate or be construed as
a waiver of any subsequent breach by the Employee. The waiver by the Employee of
a breach of any provision of this Agreement by the Company shall not operate or
be construed as a waiver of any subsequent breach by the Company.
11. GOVERNING LAW. This Agreement shall be subject to, and
governed by, the laws of the State of Florida applicable to contracts made and
to be performed in the State of Florida, regardless of where the Employee is in
fact required to work.
12. JURISDICTION. Any legal suit, action or proceeding against
any party hereto arising out of or relating to this Agreement shall be
instituted in a federal or state court in the State of Florida, and each party
hereto waives any objection which it may now or hereafter have to the laying of
venue of any such suit, action or proceeding and each party hereto irrevocably
submits to the jurisdiction of any such court in any suit, action or proceeding.
13. ASSIGNABILITY. The obligations of the Employee may not be
delegated and, except as expressly provided in Section 6(a) relating to the
designation of beneficiaries, the Employee may not, without the Company's
written consent thereto, assign, transfer, convey, pledge, encumber, hypothecate
or otherwise dispose of this Agreement or any interest therein. Any such
attempted delegation or disposition shall be null and void and without effect.
The Company and the Employee agree that this Agreement and all of the Company's
rights and obligations hereunder may be assigned or transferred by the Company
to and may be assumed by and become binding upon and may inure to the benefit of
any affiliate of or successor to the Company. The term
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<PAGE> 12
"successor" shall mean, with respect to the Company or any of its subsidiaries,
and any other corporation or other business entity which, by merger,
consolidation, purchase of the assets, or otherwise, acquires all or a material
part of the assets of the Company. Any assignment by the Company of its rights
and obligations hereunder to any affiliate of or successor shall not be
considered a termination of employment for purposes of this Agreement.
14. SEVERABILITY. If any provision of this Agreement as
applied to either party or to any circumstances shall be adjudged by a court of
competent jurisdiction to be void or unenforceable, the same shall in no way
affect any other provision of this Agreement or the validity or enforceability
of this Agreement. If any court construes any of the provisions of Section 4
hereof, or any part thereof, to be unreasonable because of the duration of such
provision or the geographic or other scope thereof, such court may reduce the
duration or restrict the geographic or other scope of such provision and enforce
such provision as so reduced or restricted.
15. NOTICES. All notices to the Employee hereunder shall be in
writing and shall be delivered personally or sent by registered or certified
mail, return receipt requested, to:
Michael Levy
3800 South Ocean Drive
Suite G-9
Hollywood, Florida 33019
with a copy to:
Kluger, Peretz, Kaplan & Berlin, P.A.
201 South Biscayne Blvd.
Suite 1700
Miami, FL 33131
Attention: Eliot Abbott, Esq.
Facsimile: (305) 379-3428
All notices to the Company hereunder shall be in writing and shall be delivered
personally or sent by registered or certified mail, return receipt requested,
to:
Brookman-Fels Communities, Inc.
255 Alhambra Circle
Coral Gables, Florida 33134
Attention: President
Facsimile: (305) 441-7876
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with a copy to:
Brookman-Fels Communities, Inc.
255 Alhambra Circle
Coral Gables, Florida 33134
Attention: General Counsel
Facsimile: (305) 448-9927
and with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Simeon Gold, Esq.
Facsimile: (212) 310-8007
Either party may change the address to which notices shall be sent by sending
written notice of such change of address to the other party.
16. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.
18. ATTORNEYS' FEES. In the event that either party hereto
commences litigation against the other to enforce such party's rights hereunder,
the prevailing party shall be entitled to recover all costs, expenses and fees,
including reasonable attorneys' fees (including in-house counsel), paralegals'
fees, and legal assistants' fees through all appeals.
19. NEUTRAL CONSTRUCTION. Each party to this Agreement was
represented by counsel, or had the opportunity to consult with counsel. No party
may rely on any drafts of this Agreement in any interpretation of the Agreement.
Each party to this Agreement has reviewed this Agreement and has participated in
its drafting and, accordingly, no party shall attempt to invoke the normal rule
of construction to the effect that ambiguities are to be resolved against the
drafting party in any interpretation of this Agreement.
(signature page follows)
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
AVATAR PROPERTIES INC.
By: /s/ Gerald D. Kelfer
---------------------------------
Name: Gerald D. Kelfer
Title: Chairman of the Board
/s/ Michael Levy
---------------------------------
Michael Levy
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SCHEDULE I
EXISTING BROOKMAN-FELS PROJECTS AND LICENSEES
(_) Brookman-Fels at Harbor Islands, Inc.
1. Brookman-Fels Organization, Inc.
2. Brookman-Fels and Associates, Inc.
3. Brookman-Fels at Treasure Trove, Inc.
4. Brookman-Fels at Country Club Estates, Inc.
5. Brookman and Fels at the Sanctuary, Inc.
6. Brookman-Fels of South Florida, Inc.
7. Brookman-Fels Custom Builders, Inc.
8. Brookman-Fels Home and Design, Inc.
9. Brookman-Fels Management Corporation
10. Brookman-Fels at Presidential Estates, Inc.
11. Brookman-Fels Construction Corp.
12. Brookman-Fels Builders, Inc.
13. Sunset Point at Silver Lakes, Ltd. (d/b/a
Brookman-Fels - Zuckerman Group)
14. Parkland Communities, Inc. (d/b/a
Brookman-Fels - Zuckerman Group)
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<PAGE> 1
Exhibit 10(r)
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made as of
February 15, 1999, between Avatar Properties Inc., a Florida corporation (the
"Company"), and Michael Levy (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is currently employed as Chief Operating
Officer and Executive Vice President of the Company pursuant to an Employment
Agreement, dated as of December 4, 1997 (the "Agreement"); and
WHEREAS, the Company and the Employee wish to provide for
certain modifications to the Agreement, all upon the terms hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Section 2 of the Agreement is hereby amended to delete the
first sentence thereof and substitute the following sentence: "During the Term
of Employment, the Employee shall serve as the Company's President, and shall
perform such duties, functions and responsibilities as are customarily
associated with and incident to the position of President and as the Company
may, from time to time, require of him, including, but not limited to, the
performance of such functions and duties for the Company's subsidiaries and
affiliates as the Company may require, subject to the direction of the Company's
Board of Directors."
2. Section 3(a) of the Agreement is hereby amended to delete
the second sentence thereof and substitute therefor the following sentence: "On
an annual basis or at such other times as the Company may determine, the
Employee's base salary shall be reviewed, and in the sole discretion of the
Board of Directors of the Company, the Company may increase (but not decrease)
the Employee's base salary."
3. Section 3(d) of the Agreement and all references thereto
are hereby deleted in their entirety. The Employee hereby relinquishes any and
all rights to receive a "carried interest" pursuant to Section 3(d) of the
Agreement with respect to any investment hereafter made by the Company or Avatar
Holdings Inc. ("Avatar") and
<PAGE> 2
acknowledges that none of the Company, Avatar and their affiliates shall have
any further obligation with respect thereto.
4. Section 5(b) of the Agreement is hereby amended to read in
its entirety as follows: "For purposes of this Agreement, the "Disability" of
the Employee shall mean the Employee's inability, because of mental or physical
illness or incapacity, whether total or partial, to perform one or more material
functions of the Employee's employment under this Agreement with or without
reasonable accommodation and which entitles the Employee to receive benefits
under a disability plan or program that is provided to the Employee pursuant to
Section 3(b)."
5. This amendment shall be effective February 15, 1999. Except
as modified by this amendment, the Agreement remains in full force and effect in
accordance with its terms.
6. This amendment may be signed in one or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute one and the same instrument.
7. This amendment shall be governed by and construed and
enforced in accordance with the laws of the State of Florida.
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<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
AVATAR PROPERTIES INC.
By: /s/ Gerald D. Kelfer
-------------------------------
Name: Gerald D. Kelfer
Title: Chairman of the Board
/s/ Michael Levy
-------------------------------
Employee
Name: Michael Levy
3
<PAGE> 1
Exhibit 10(s)
NONQUALIFIED STOCK OPTION AGREEMENT
GRANTED TO: Michael Levy
DATE OF GRANT: February 19, 1999
GRANTED PURSUANT TO: Avatar Holdings Inc. 1997 Incentive and Capital
Accumulation Plan
NUMBER OF UNDERLYING 50,000 shares
SHARES OF COMMON
STOCK:
EXERCISE PRICE: $25 per share
1. This Nonqualified Stock Option Agreement (the "Agreement") is made
and entered into as of February 19, 1999, between Avatar Holdings Inc., a
Delaware corporation (the "Company"), and Michael Levy ("Employee"). It is the
intent of the Company and Employee that the Option (as defined in Paragraph 2
below) will not qualify as an "incentive stock option" under Section 422 of the
Internal Revenue Code of 1986, as amended from time to time (the "Code").
2. Employee is granted an option by the Incentive Plan Committee of the
Company's Board of Directors (the "Committee") to purchase 50,000 shares of
Common Stock (the "Option") pursuant to the Company's 1997 Incentive and Capital
Accumulation Plan (the "Plan"). Capitalized terms not defined herein shall have
the meanings ascribed thereto in the Plan.
3. The Option's exercise price is $25 per share, such exercise price
being in the judgment of the Committee not less than one hundred percent (100%)
of the Fair Market Value of the Common Stock on the date of grant.
4. Subject to Paragraphs 5 and 6 below, the Option shall be
exercisable, on a cumulative basis, according to the vesting schedule set forth
below:
16,667 shares shall become exercisable and remain exercisable on
February 19, 2000.
16,667 shares shall become exercisable and remain exercisable on
February 19, 2001.
16,666 shares shall become exercisable and remain exercisable on
February 19, 2002.
<PAGE> 2
5. Subject to Paragraph 6 below, the unexercised portion of the Option,
unless sooner terminated, shall expire on February 19, 2009 (the "Expiration
Date") and, notwithstanding anything contained herein to the contrary, no
portion of the Option may be exercised after such date.
6. If prior to the Expiration Date, Employee's employment with the
Company or any subsidiary corporation terminates, the Option will terminate on
the applicable date as described below, PROVIDED, HOWEVER, that none of the
events described below shall extend the period of exercisability beyond the
Expiration Date:
(a) If the employment of Employee is terminated by reason of
Employee's death either while in the employ of the Company or any subsidiary
corporation, or during the one (1) year period specified in clause (b) below,
the Option shall immediately become fully exercisable and remain exercisable
until the later of the first anniversary of Employee's death or the fifth
anniversary of the Commencement Date (as defined below), and shall be
exercisable by the executor or administrator of the estate of the deceased
Employee or the person or persons to whom the deceased Employee's rights under
the Option shall pass by will or the laws of descent or distribution;
(b) If the employment of Employee is terminated by the Company
due to Employee's "disability" (as defined below), the Option shall immediately
become fully exercisable and remain exercisable until the later of the first
anniversary of the date of termination of employment or the fifth anniversary of
the Commencement Date;
(c) If the employment of Employee is terminated by the Company
"without cause" (as defined below), or is terminated by Employee for "good
reason" (as defined below), the Option to the extent not theretofore exercised
shall remain exercisable in accordance with the terms of this Agreement,
including without limitation, the provisions of Sections 4 and 5 hereof.
(d) If the employment of Employee is terminated (i) by the
Company for "cause" (as defined below) or (ii) by Employee "without good reason"
(as defined below), the Option shall, to the extent not theretofore exercised,
immediately become null and void.
For purposes of this Agreement, the terms "Commencement Date",
"disability", "cause", "without cause", "good reason" and "without good reason"
shall have the meanings ascribed to such terms in Employee's employment
agreement with the Company, dated as of December 4, 1997, as amended from time
to time.
7. Employee may exercise the Option regardless of whether any other
option that Employee has been granted by the Company remains unexercised. In no
event may Employee
2
<PAGE> 3
exercise the Option for a fraction of a share or for less than 100 shares unless
the number purchased is the remaining balance for which the Option is then
exercisable.
8. The Option's exercise price shall be paid by Employee on the date
the option is exercised, in full in cash.
9. The Company may withhold from sums due or to become due to Employee
from the Company an amount necessary to satisfy its obligation to withhold taxes
incurred by reason of the issuance or disposition of shares pursuant to the
Option, or may require Employee to reimburse the Company in such amount.
10. Employee shall not have any of the rights of a shareholder with
respect to the shares of Common Stock underlying the Option while the Option is
unexercised.
11. Any exercise of this Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal place of business of the
Company, specifying the Option being exercised and the number of shares to be
purchased, accompanied by payment therefor.
12. This Option shall not be transferable otherwise than by will or the
laws of descent and distribution, and shall be exercisable, during Employee's
lifetime, only by Employee. Notwithstanding the foregoing, this Option may be
transferred by Employee solely to Employee's spouse, siblings, parents, children
and grandchildren or trusts for the benefit of such persons or partnerships,
corporations, limited liability companies or other entities owned solely by such
persons, including trusts for such persons, subject to any restriction included
in this Agreement.
13. If the Company, in its sole discretion, shall determine that it is
necessary, to comply with applicable securities laws, the certificate or
certificates representing the shares purchased pursuant to the exercise of the
Option shall bear an appropriate legend in form and substance, as determined by
the Company, giving notice of applicable restrictions on transfer under or in
respect of such laws.
14. The Company agrees that at the time of exercise of the Option it
will use reasonable efforts in good faith to have an effective Registration
Statement on Form S-8 under the Securities Act of 1933, as amended (the "Act"),
which includes a prospectus that is current with respect to the shares subject
to the Option. Employee covenants and agrees with the Company that if, at the
time of exercise of the Option, there does not exist a Registration Statement on
an appropriate form under the Act, which Registration Statement shall have
become effective and shall include a prospectus that is current with respect to
the shares subject to the Option, (i) that he or she is purchasing the shares
for his or her own account and not with a view to the resale or distribution
thereof, (ii) that any subsequent offer for sale or
3
<PAGE> 4
sale of any such shares shall be made either pursuant to (x) a Registration
Statement on an appropriate form under the Act, which Registration Statement
shall have become effective and shall be current with respect to the shares
being offered and sold, or (y) a specific exemption from the registration
requirements of the Act, but in claiming such exemption, Employee shall, prior
to any offer for sale or sale of such shares, obtain a favorable written opinion
from counsel for or approved by the Company as to the applicability of such
exemption and (iii) that Employee agrees that the certificates evidencing such
shares shall bear a legend to the effect of the foregoing.
15. This Agreement is subject to all terms, conditions, limitations and
restrictions contained in the Plan, which shall be controlling in the event of
any conflicting or inconsistent provisions.
16. This Agreement is not a contract of employment and the terms of
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company to
continue Employee's employment, and it shall not impose any obligation on
Employee's part to remain in the employ of the Company.
17. Employee acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to Employee any material information regarding the business of the
Company or affecting the value of the Common Stock before or at the time of a
termination of the employment of Employee by the Company, including, without
limitation, any information concerning plans for the Company to make a public
offering of its securities or to be acquired by or merged with or into another
firm or entity.
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
AVATAR HOLDINGS INC.
By: /s/ Gerald Kelfer
------------------------------
Name: Gerald Kelfer
Title: Chief Executive Officer
ACCEPTED:
/s/ Michael Levy
- -----------------------------------
Michael Levy
5
<PAGE> 1
Exhibit 10(t)
EMPLOYMENT AGREEMENT
Employment Agreement, dated as of October 6, 1997, between
Avatar Retirement Communities, Inc., a Delaware corporation (the "Company"), and
Michael S. Rubin (the "Employee").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Employee as its
President and the Employee desires to accept such employment, all on the terms
and conditions specified herein; and
WHEREAS, the Employee and the Company desire to set forth in
writing all of their respective duties, rights and obligations with respect to
the Employee's employment by the Company; and
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and obligations hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT AND TERM. The Company hereby employs the
Employee, and the Employee hereby accepts employment by the Company, in the
capacity and upon the terms and conditions hereinafter set forth. The term of
employment under this Agreement shall be for the period commencing on the date
hereof (the "Commencement Date") and ending on the second anniversary thereof,
unless earlier terminated as herein provided (the "Term of Employment"). The
last day of the Employee's Term of Employment shall be referred to in this
Agreement as the "Date of Termination."
2. DUTIES. During the Term of Employment, the Employee shall
serve as the Company's President, and shall perform such duties, functions and
responsibilities as are customarily associated with and incident to the position
of President and as the Company may, from time to time, require of him, subject
to the direction of the Company's Board of Directors. The Employee shall serve
the Company faithfully, conscientiously and to the best of the Employee's
ability and shall promote the interests and reputation of the Company. Unless
prevented by sickness or disability, the Employee shall devote all of his time,
attention, knowledge, energy and skills, during normal working hours, and at
such other times as the Employee's duties may reasonably require,
<PAGE> 2
to the duties of the Employee's employment, subject to the terms and conditions
of that certain Management Services Agreement (the "Management Services
Agreement"), of even date herewith, between the Company and Hilcoast Development
Corp. ("Hilcoast"). The principal place of employment of the Employee shall be
the principal executive offices of the Company and/or such other location in the
state of Florida as shall be necessary for the Employee to discharge the
obligations of the Company under the Management Services Agreement. The Employee
acknowledges that in the course of his employment he may be required, from time
to time, to travel on behalf of the Company.
3. COMPENSATION AND BENEFITS. As full and complete
compensation for the Employee's execution and delivery of this Agreement and
performance of any services hereunder, the Company shall pay, grant or provide
the Employee, and the Employee agrees to accept, the following compensation and
benefits:
(a) BASE SALARY: The Company shall pay the Employee a base
salary at an annual rate of $200,000 payable at such times and in accordance
with the Company's standard payroll practices. Upon completion by the Employee
of one year of employment with the Company, the Employee's base salary shall be
reviewed, and in the sole discretion of the Board of Directors of the Company,
the Company may increase (but not decrease) the Employee's base salary.
(b) EMPLOYEE BENEFITS. The Company shall afford the Employee
the opportunity to participate during the Term of Employment in any medical,
dental, disability insurance, retirement, savings and any other employee
benefits plans or programs which its parent, Avatar Holdings Inc. ("Avatar"),
maintains for its senior executives. Nothing in this Agreement shall require the
Company, Avatar or their affiliates to establish, maintain or continue any
benefit programs already in existence or hereafter adopted for senior executives
of Avatar, and nothing in the Agreement shall restrict the right of Avatar or
any of its affiliates to amend, modify or terminate any such benefit program.
(c) EXPENSES: The Employee shall be entitled to reimbursement
or payment of reasonable business expenses (in accordance with Avatar's policies
for its senior executives, as the same may be amended from time to time in
Avatar's sole discretion), following the Employee's submission of appropriate
receipts and/or vouchers to the Company.
(d) INCENTIVE COMPENSATION. In addition to any
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<PAGE> 3
other compensation hereunder, the Employee shall receive incentive compensation
as set forth in Annex A attached hereto, which Annex shall constitute a part of
this Agreement.
(e) VACATIONS, HOLIDAYS OR TEMPORARY LEAVE: The Employee shall
be entitled to take three (3) weeks of vacation per year, without loss or
diminution of compensation. Such vacation shall be taken at such time or times,
and as a whole or in increments, as the Employee shall elect, consistent with
the reasonable needs of the Company's business. The Employee shall further be
entitled to the number of paid holidays, and leaves for illness or temporary
disability in accordance with the policies of Avatar for its senior executives
(as such policies may be amended from time to time or terminated in Avatar's
sole discretion).
4. NON-COMPETITION AND PROTECTION OF CONFIDENTIAL INFORMATION:
(a) RESTRICTIVE COVENANTS:
(1) During the Term of Employment and for two years
following the Date of Termination, the Employee shall not directly or indirectly
engage, participate, own or make any financial investments in, or become
employed by or render (whether or not for compensation) any consulting, advisory
or other services to or for the benefit of, any person, firm or corporation
that, directly or indirectly, engages in, the development of adult retirement
communities, or otherwise engage, directly or indirectly, in the development of
adult retirement communities and/or active adult communities; PROVIDED, HOWEVER,
that it shall not be a violation of this Agreement for the Employee to have
beneficial ownership of less than 1% of the outstanding amount of any class of
securities of any enterprise (but without otherwise participating in the
activities of such enterprise) if such securities are listed on a national
securities exchange or quoted on an inter-dealer quotation system.
(2) During the Term of Employment and for three years
following the Date of Termination, the Employee shall not, directly or
indirectly, solicit, in competition with the Company or Avatar, any person who
is a customer of any business conducted by the Company or Avatar.
(3) During the Term of Employment and for three years
following the Date of Termination, the Employee
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<PAGE> 4
shall not, directly or indirectly, solicit or induce any employee of the Company
or Avatar to terminate his or her employment for any purpose, including without
limitation, in order to enter into employment with any entity which competes
with any business conducted by the Company or Avatar.
(4) During the Term of Employment and for all time
following the Date of Termination, the Employee shall not, directly or
indirectly, furnish or make accessible to any person, firm, or corporation or
other business entity, whether or not he, she, or it competes with the business
of the Company, any trade secret or know-how acquired by the Employee during his
employment by the Company which relates to the business practices, methods,
processes or other confidential or secret aspects of the business of the Company
or Avatar without the prior written consent from the Company, unless such
information is or hereafter may become in the public domain other than by being
divulged or made accessible by the Employee in breach of this provision, or
which is demonstrated by the Employee to the Company's and Avatar's reasonable
satisfaction to be known by him prior to the disclosure to him by the Company or
Avatar, or which is or may hereafter be disclosed by the Company or Avatar to
third parties without similar restrictions on disclosure or use, or which is
required to be disclosed pursuant to governmental or judicial process or
procedure.
(b) GEOGRAPHIC SCOPE: The provisions of this Section 4 (other
than Section 4(a)(3), which shall be in full force and effect without regard to
the geographic limitations set forth in this Section 4(b)) shall be in full
force and effect (i) within a 50-mile radius of a site for which the Company or
Avatar has commenced development or has a binding commitment therefor and (ii)
within a 50-mile radius of Ponciana, Cape Coral and Ocala, Florida and Rio Rico,
Arizona, whether or not the Company or Avatar has commenced development in such
locations or has a binding commitment therefor.
(c) REMEDIES: The Employee acknowledges that his services are
of a special, unique and extraordinary character and, his position with the
Company and Avatar places him in a position of confidence and trust with the
clients and employees of the Company and Avatar, and that in connection with his
services to the Company, the Employee will have access to confidential
information vital to the Company's and Avatar's businesses. The Employee further
acknowledges that in view of the nature of the business in
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<PAGE> 5
which the Company and Avatar are engaged, the foregoing restrictive covenants in
this Section 4 hereof are reasonable and necessary in order to protect the
legitimate interests of the Company and Avatar and that violation thereof would
result in irreparable injury to the Company and Avatar. Accordingly, the
Employee consents and agrees that if the Employee violates or threatens to
violate any of the provisions of this Section 4 hereof the Company and Avatar
would sustain irreparable harm and, therefore, the Company and Avatar shall be
entitled to obtain from any court of competent jurisdiction, without posting any
bond or other security, preliminary and permanent injunctive relief as well as
damages and an equitable accounting of all earnings, profits and other benefits
arising from such violation, which rights shall be cumulative and in addition to
any other rights or remedies in law or equity to which the Company or Avatar may
be entitled.
(d) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON;
FAILURE TO CONTINUE EMPLOYMENT. The Employee's covenants under Section 4(a)(1)
and 4(a)(2) shall be of no force or effect in the event that (i) the Company
terminates the Employee's employment Without Cause pursuant to Section 5(a)(5)
hereof, (ii) the Employee resigns for Good Reason pursuant to Section 5(a)(6)
hereof, or (iii) the Company shall not have offered to continue the Employee's
employment with the Company for an additional period of at least two years on
terms that are at least as favorable as the terms of this Agreement prior to the
second anniversary of the Commencement Date. All other covenants hereunder shall
remain in full force and effect if any of the events described in the foregoing
clauses (i), (ii) or (iii) of this Section 4(d) shall occur.
5. TERMINATION OF EMPLOYMENT:
(a) The Employee's employment with the Company shall
terminate upon the occurrence of any of the following events:
(1) the termination of the Employee's
employment upon and at any time following the Date of Termination and absent the
parties having entered into a written agreement for the renewal of this
Agreement;
(2) the death of the Employee during the
Term of Employment;
(3) the Disability (as defined below) of
Employee during the Term of Employment;
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<PAGE> 6
(4) at any time upon written notice to the
Employee from the Company of termination of his employment for Cause (as defined
below);
(5) at any time upon written notice to the
Employee from the Company of termination of his employment Without Cause (as
defined below);
(6) the resignation by the Employee for Good
Reason (as defined below) during the Term of Employment; or
(7) the resignation by the Employee Without
Good Reason (as defined below) during the Term of Employment.
(b) For purposes of this Agreement, the "Disability" of the
Employee shall mean his inability, because of mental or physical illness or
incapacity, whether total or partial, to perform his full time duties under this
Agreement with or without reasonable accommodation for a period aggregating 60
days out of any 12-month period under circumstances where in the opinion of a
qualified physician reasonably acceptable to the Company it is reasonably
certain that the Employee will not be able to resume his duties on a regular
full time basis within 30 days of the date the Employee receives notice of
termination for Disability.
(c) For purposes of this Agreement, the term "Cause" shall
mean the Employee's (a) conviction or entry of a plea of guilty or nolo
contendere, with respect to any felony; (b) commission of any act of dishonesty
in the performance of the Employee's duties or obligations to the Company, any
material act of wilful misconduct, or any act of gross negligence or fraud; or
(c) violation of any material term of this Agreement or any material written
policy of the Company, PROVIDED that the Company first deliver written notice
thereof to the Employee and the Employee shall not have cured such violation
within 30 days after receipt of such written notice.
(d) For purposes of this Agreement, "Without Cause" shall mean
any reason other than the reasons described in Sections 5(a)(1), 5(a)(2),
5(a)(3) and 5(a)(4) hereof. The parties expressly agree that a termination of
employment Without Cause pursuant to Section 5(a)(5) hereof may be for any
reason whatsoever, or for no reason, in the sole discretion of the Company.
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<PAGE> 7
(e) For purposes of this Agreement, "Good Reason" shall mean:
(i) at any time the Employee is required, without his written consent, to
relocate his office more than fifty miles from the principal location of the
Company on the date hereof; (ii) the Company materially decreases the Employee's
compensation below the levels provided for by the terms of Section 3(a) (taking
into account increases made from time to time in accordance with Section 3(a));
and (iii) a material breach of the provisions of this Agreement by the Company
(except those set forth in Section 3(a)) and Employee provides at least 30 days'
prior written notice to at least three members of the Company's Board of
Directors of the existence of such breach and his intention to terminate this
Agreement (it being understood that no such termination shall be effective if
such breach is cured during such period).
(f) For purposes of this Agreement, "Without Good Reason"
shall mean any reason other than that defined in this Agreement as constituting
Good Reason.
6. PAYMENTS UPON TERMINATION OF EMPLOYMENT:
(a) DEATH OR DISABILITY: If the Employee's employment
hereunder is terminated due to the Employee's death or Disability pursuant to
Sections 5(a)(2) or (3) hereof, the Company shall pay or provide to the
Employee, his designated beneficiary or to his estate (i) all base salary
pursuant to Section 3(a) hereof and any vacation pay pursuant to Section 3(e)
hereof, in each case which has been earned but unpaid as of the Date of
Termination; and (ii) any benefits to which the Employee may be entitled under
any employee benefits plan or program pursuant to Section 3(b) hereof in which
he is a participant in accordance with the terms of such plan or program up to
and including the Date of Termination. Should the Company wish to purchase
insurance to cover the costs associated with the Employee's termination of
employment pursuant to Sections 5(a)(2) or (3), the Employee agrees to execute
any and all necessary documents necessary to effectuate said insurance. Upon
termination of the Employee's employment due to the Employee's Disability, the
Employee shall continue to have the obligations provided for in Section 4
hereof.
(b) TERMINATION FOR CAUSE, RESIGNATION WITHOUT GOOD REASON, OR
EXPIRATION OF TERM OF EMPLOYMENT: If the Employee's employment hereunder is
terminated due to the termination of the Employee's employment by the Company
for Cause pursuant to Section 5(a)(4), due to the Employee's
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<PAGE> 8
resignation Without Good Reason pursuant to Section 5(a)(7), or due to a
termination of employment upon or at any time following the Date of Termination
and absent the parties having entered into a written agreement for the renewal
of this Agreement pursuant to Section 5(a)(1), the Company shall pay or provide
to the Employee (i) all base salary pursuant to Section 3(a) hereof and any
vacation pay pursuant to Section 3(e) hereof, in each case which has been earned
but unpaid as of the Date of Termination; and (ii) any benefits to which the
Employee may be entitled under any employee benefits plan or program pursuant to
Section 3(b) hereof in which he is a participant in accordance with the terms of
such plan or program up to and including the Date of Termination.
(c) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON:
(i) If the Employee's employment hereunder is terminated by the Company Without
Cause pursuant to Section 5(a)(5), or due to the Employee's resignation for Good
Reason pursuant to Section 5(a)(6), the Company shall, subject to Section
6(c)(ii), (i) if Employee's employment is so terminated prior to the second
anniversary of the Commencement Date, pay or provide to Employee any benefits to
which the Employee may be entitled under any employee benefit plan or program
pursuant to Section 3(b) hereof in which he is a participant in accordance with
the terms of such plan or program up to and including the date immediately prior
to the second anniversary of the Commencement Date, and (ii) continue to pay to
the Employee, in lieu of any other payments or benefits (other than as provided
in clause (i) above and payments due with respect to any vested portions of the
Employee's Incentive Compensation referred to in Section 3(d) which shall not be
affected by the limitations of this Section 6(c)(i)) and on the regular payroll
dates of the Company, his base salary through the second anniversary of the
Commencement Date, at the rate provided in Section 3(a) hereof.
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<PAGE> 9
(ii) In addition, the Employee agrees to keep the Chairman of
the Board of the Company (or the Chairman's designee) apprised of the Employee's
employment status during the entire period of time that the Employee shall be
entitled to receive benefits pursuant to Section 6(c)(i) above, and, if
requested, to provide appropriate supporting documentation with respect to the
salary, bonuses or other compensation earned by and benefits made available to
the Employee in respect of any employment secured by the Employee. In the event
the Employee secures employment, the Company shall be entitled to deduct from
the amounts payable to the Employee pursuant to Section 6(c)(i), any salary,
bonuses or other compensation paid to the Employee in connection with such
employment, and the Employee shall promptly repay to the Company any amounts
paid to him by the Company pursuant to Section 6(c)(i) which the Company was
entitled to deduct from such amounts pursuant to this Section 6(c)(ii).
(d) NO OTHER PAYMENTS: Except as provided in this Section 6,
and except for payments due with respect to vested portions of the Employee's
Incentive Compensation referred to in Section 3(d), which payments shall be due
and payable as set forth in Annex A hereto, the Employee shall not be entitled
to receive any other payments or benefits from the Company due to the
termination of his employment, including but not limited to, any employee
benefits under any of the Company's or Avatar's employee benefits plans or
programs (other than at the Employee's expense under the Consolidated Omnibus
Budget Reconciliation Act of 1985 or pursuant to the terms of any pension plan
which the Company or Avatar may have in effect from time to time) or any right
to be paid severance pay. If the Employee is entitled to any notice or payment
in lieu of any notice of termination required by Federal, State or local law,
including but not limited to the Worker Adjustment and Retraining Notification
Act, the Company's obligation to make payments pursuant to Section 6(c)(i) shall
be reduced by the amount of any such payment in lieu of notice.
7. NO CONFLICTING AGREEMENTS. The Employee hereby represents
and warrants that he is not a party to any agreement, or non-competition or
other covenant or restriction contained in any agreement, commitment,
arrangement or understanding (whether oral or written), which would in any way
conflict with or limit his ability to commence work on the first day of the Term
of Employment or would otherwise limit his ability to perform all
responsibilities in accordance with the terms and subject to the conditions of
this Agreement.
9
<PAGE> 10
8. DEDUCTIONS AND WITHHOLDING. The Employee agrees that the
Company shall withhold from any and all compensation required to be paid to the
Employee pursuant to this Agreement all federal, state, local and/or other taxes
which the Company determines are required to be withheld in accordance with
applicable statutes and/or regulations from time to time in effect and all
amounts required to be deducted in respect of the Employee's coverage under
applicable employee benefit plans.
9. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement of the parties with respect to the Employee's employment and
supersedes any other prior oral or written agreements between the Employee and
the Company and its affiliates. This Agreement may not be changed or terminated
orally but only by an agreement in writing signed by the parties hereto.
10. WAIVER. The waiver by the Company of a breach of any
provision of this Agreement by the Employee shall not operate or be construed as
a waiver of any subsequent breach by the Employee. The waiver by the Employee of
a breach of any provision of this Agreement by the Company shall not operate or
be construed as a waiver of any subsequent breach by the Company.
11. GOVERNING LAW. This Agreement shall be subject to, and
governed by, the laws of the State of Florida applicable to contracts made and
to be performed in the State of Florida, regardless of where the Employee is in
fact required to work.
12. EFFECTIVENESS. This Agreement shall terminate and have no
further force or effect if the transaction contemplated by that certain Asset
Purchase and Option Agreement, dated as of the date hereof, between Avatar, the
Company, Hilcoast and NewCen Communities, Inc. (the "Asset Purchase Agreement"),
shall fail to be consummated.
13. NOTIFICATION OF CONTINUATION OF EMPLOYMENT. The Company
agrees to notify the Employee on or prior to the 18-month anniversary of the
Commencement Date, whether or not it desires to continue the Employee's
employment with the Company, and if so, whether such continuation will be
pursuant to a renewal of the term of this Agreement or to a new employment
agreement. The failure of the Company to provide timely notice shall not be
deemed to constitute an extension of employment or a termination of employment
hereunder.
10
<PAGE> 11
14. ASSIGNABILITY. The obligations of the Employee may not be
delegated and, except as expressly provided in Section 6(a) relating to the
designation of beneficiaries, the Employee may not, without the Company's
written consent thereto, assign, transfer, convey, pledge, encumber, hypothecate
or otherwise dispose of this Agreement or any interest therein. Any such
attempted delegation or disposition shall be null and void and without effect.
The Company and the Employee agree that this Agreement and all of the Company's
rights and obligations hereunder may be assigned or transferred by the Company
to and shall be assumed by and binding upon and shall inure to the benefit of
any affiliate of or successor to the Company. The term "successor" shall mean,
with respect to the Company or any of its subsidiaries, and any other
corporation or other business entity which, by merger, consolidation, purchase
of the assets, or otherwise, acquires all or a material part of the assets of
the Company. Any assignment by the Company of its rights and obligations
hereunder to any affiliate or successor shall not be considered a termination of
employment for purposes of this Agreement.
15. SEVERABILITY. If any provision of this Agreement as
applied to either party or to any circumstances shall be adjudged by a court of
competent jurisdiction to be void or unenforceable, the same shall in no way
affect any other provision of this Agreement or the validity or enforceability
of this Agreement. If any court construes any of the provisions of Section 4
hereof, or any part thereof, to be unreasonable because of the duration of such
provision or the geographic or other scope thereof, such court may reduce the
duration or restrict the geographic or other scope of such provision and enforce
such provision as so reduced or restricted.
16. NOTICES. All notices to the Employee hereunder shall be in
writing and shall be delivered personally or sent by registered or certified
mail, return receipt requested, to:
Michael S. Rubin
10245 S.W. 130th Street
Miami, FL 33176
11
<PAGE> 12
All notices to the Company hereunder shall be in writing and shall be delivered
personally or sent by registered or certified mail, return receipt requested,
to:
Avatar Holdings Inc.
255 Alhambra Circle
Coral Gables, Florida 33134
Attention: President
Facsimile: (305) 441-7876
with a copy to:
Avatar Holdings Inc.
255 Alhambra Circle
Coral Gables, Florida 33134
Attention: General Counsel
Facsimile: (305) 448-9927
Either party may change the address to which notices shall be sent by sending
written notice of such change of address to the other party.
17. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.
12
<PAGE> 13
19. NEUTRAL CONSTRUCTION. All of the parties to this Agreement
were represented by counsel, or had the opportunity to consult with counsel. No
party may rely on any drafts of this Agreement in any interpretation of the
Agreement. Each party to this Agreement has reviewed this Agreement and has
participated in its drafting and, accordingly, no party shall attempt to invoke
the normal rule of construction to the effect that ambiguities are to be
resolved against the drafting party in any interpretation of this Agreement.
(signature page follows)
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
AVATAR RETIREMENT COMMUNITIES, INC.
By: /s/ Gerald D. Kelfer
--------------------------------------
Name: Gerald D. Kelfer
Title: President
/s/ Michael S. Rubin
--------------------------------------
Employee
Name: Michael S. Rubin
14
<PAGE> 15
ANNEX A TO EMPLOYMENT AGREEMENT
Terms of Incentive Compensation for Michael S. Rubin (the "Employee")
(1) Upon commencement of his Employment, the Employee is to be
granted a Stock Appreciation Right with respect to the number of shares of
Company Common Stock which at any time shall constitute five-eighths of one
percent of the outstanding capital stock of the Company (such number of shares,
the "Employee Allocation"). The Employee Allocation may be increased (but not
decreased) by the Board of Directors of the Company in its sole discretion,
PROVIDED, HOWEVER, that the sum of the employee allocations allocated to all
employees of the Company outstanding at any one time may not exceed the SAR
Pool. The Stock Appreciation Right shall vest over a five year period, at a rate
of 20% per year, with the vesting of each such 20% portion requiring the
completion by the Employee of a full year of employment with the Company.
(2) Except as provided in paragraph 3 below, all amounts
payable on account of vested portions of the Stock Appreciation Right shall be
due and payable in cash on the later of (i) seven years from the date on which
the Employee commences employment with the Company, or (ii) two years after the
Employee ceases to be employed by the Company.
(3) Notwithstanding the provisions of paragraphs 1 and 2
above, upon a sale, disposition, conveyance or other transfer of Company Common
Stock by Avatar to an unaffiliated third party that results in Avatar and/or its
affiliates beneficially owning, directly or indirectly, less than a majority of
the Company (a "Sale"), a percentage of the vested Employee Allocation equal to
the percentage of Company Common Stock held by Avatar and/or its affiliates
immediately prior to such Sale represented by the shares subject to such Sale
shall be due and payable at the closing of such Sale in the same form of
consideration received by Avatar from such Sale or, at Avatar's election, in
cash. By way of example only, assuming that at the date of determination (i) the
Employee's Employee Allocation represented 5/8 of one percent of the outstanding
capital stock of the Company and (ii) 100% of the Employee's Stock Appreciation
Right had vested, if the Company sold 51% of the Company Common Stock, the
Employee would be entitled to receive Stock Appreciation Rights with respect to
51% of 5/8 of one percent the outstanding capital stock of the Company
15
<PAGE> 16
at the closing of such sale pursuant to this paragraph (3), and thereafter the
Employee would continue to have the rights set forth in paragraphs (1) and (2)
of this Annex A; provided that thereafter only the percentage of the Company's
Common Stock not sold in the Sale shall be counted in determining such
Employee's Employee Allocation.
(4) On or prior to October 5, 1999, the Company will allocate
any remaining unallocated portions of the SAR Pool to employees selected by the
Board of Directors of the Company, PROVIDED, HOWEVER, that the Company shall
have no obligation to reallocate unvested portions of the SAR Pool forfeited by
its employees upon termination of their employment with the Company.
(5) For purposes of this Annex A, the following terms shall
have the following meanings:
"Company Common Stock" shall mean the common stock of the
Company, par value $1.00 per share.
"Date of Determination" shall mean the later of (i) the date
three months prior to the date
referred to in paragraph (2) above
(i.e., June 1, if the date referred
to in paragraph (2) were September
1), or (ii) the date on which a Sale
occurs.
"Fair Market Value" with respect to the Company, shall
mean:
(i) if the Company Common
Stock is readily tradeable on a
national securities exchange or
quoted on Nasdaq on the Date of
Determination, the product of (a)
the number of shares of Company
Common Stock issued and outstanding
on such date, times (b) the closing
price of a share of Company Common
Stock on such exchange on that day
(or if shares were not traded on
that day, then on the next preceding
date on which a trade occurred), or
the mean between the closing
representative bid and asked prices
for the Company Common Stock on that
date as reported by Nasdaq, as
applicable; and
16
<PAGE> 17
(ii) if the Company Common
Stock is not readily tradeable or
quoted on Nasdaq on the Date of
Determination, then Fair Market
Value shall mean the amount
determined in good faith by the
Board of Directors of Avatar (or a
committee thereof) as the fair
market value of all of the issued
and outstanding shares of Company
Common Stock, without taking into
account any minority discount.
"SAR Pool" shall mean the number of
shares of common stock of the
Company which at any time shall
constitute five percent (5%) of the
outstanding capital stock of the
Company.
"Stock Appreciation Right" shall mean the right to receive a
payment in cash, in an amount equal
to (i) the Employee Allocation,
multiplied by (ii) the excess of the
Fair Market Value on the Date of
Determination of the Company, over
the sum of (a) the Acquisition Cost
(as defined below), (b) the value of
land contributed by Avatar to the
Company prior to the Date of
Determination, as determined by a
qualified land appraiser based on
the aggregate number of acres
contributed at their state of
improvement on the date such land
was so contributed to the Company,
(c) the cost or value (whichever is
higher) of any other assets or
businesses acquired by the Company
or contributed by Avatar to the
Company prior to the Date of
Determination, and (d) all
additional capital investments (to
the extent not repaid) made or
deemed made by Avatar to the Company
prior to the Date of Determination,
less (e) the amount of all dividends
and distributions
17
<PAGE> 18
made by Company to Avatar, as
reasonably determined by the Board
of Directors of the Company.
"Acquisition Cost" shall mean an
amount equal to a portion of the
Purchase Consideration and the IP
Consideration, if any, valued as of
the Closing Date (as such terms are
defined in the Asset Purchase
Agreement), which amount shall be
determined by the Board of Directors
of Avatar (or a committee thereof),
in its sole discretion.
(6) If there shall be any change in the Company Common Stock,
through merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, reverse stock split, split up, spinoff, combination of shares,
exchange of shares, dividend in kind or other like change in capital structure
or distribution (other than normal cash dividends) to shareholders of the
Company, an adjustment shall be made by the Board of Directors of the Company to
each outstanding Stock Appreciation Right and/or to the Employee Allocation such
that each Stock Appreciation Right shall thereafter be exercisable for such
consideration as would have been received in respect of the Company Common Stock
subject to such Stock Appreciation Right had such Stock Appreciation Right been
exercised in full immediately prior to such change or distribution, and such an
adjustment shall be made successively each time any such change shall occur.
18
<PAGE> 1
Exhibit 10(u)
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made as of
February 15, 1999, between Avatar Retirement Communities, Inc., a Delaware
corporation (the "Company"), and Michael S. Rubin (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is currently employed as President of
the Company pursuant to an Employment Agreement, dated as of October 6, 1997
(the "Agreement"), the term of which expires on October 6, 1999; and
WHEREAS, the Company acknowledges and recognizes the value of
the Employee's experience and abilities to the Company, and desires to continue
to retain and make secure for itself such experience and abilities through
October 6, 2002 and to reflect the increase in the Employee's annual base salary
to $275,000, effective retroactively as of October 6, 1997; and
WHEREAS, the Company and the Employee wish to provide for
certain further modifications to the Agreement, all upon the terms hereinafter
set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Sections 1 and 4(d) of the Agreement are hereby amended to
delete the phrase "second anniversary of the Commencement Date" and substitute
therefor the phrase "fifth anniversary of the Commencement Date".
2. Section 2 of the Agreement is hereby amended to delete the
first sentence thereof and substitute the following sentence: "During the Term
of Employment, the Employee shall serve as the Company's President, and shall
perform such duties, functions and responsibilities as are customarily
associated with and incident to the position of President and as the Company
may, from time to time, require of him, including, but not limited to, the
performance of such functions and duties for the Company's subsidiaries and
affiliates as the Company may require, subject to the direction of the Company's
Board of Directors."
<PAGE> 2
3. Section 3(a) of the Agreement is hereby amended to (i)
delete the sum of "$200,000" and substitute therefor the sum of "$275,000", and
(ii) delete the second sentence thereof and substitute therefor the following
sentence: "On an annual basis or at such other times as the Company may
determine, the Employee's base salary shall be reviewed, and in the sole
discretion of the Board of Directors of the Company, the Company may increase
(but not decrease) the Employee's base salary."
4. Section 3(d) of the Agreement and all references thereto
(including, without limitation, those contained in Sections 6(c) and (d) of the
Agreement) are hereby deleted in their entirety. The Employee hereby
relinquishes any and all rights to incentive compensation pursuant to Section
3(d) of the Agreement and the Stock Appreciation Rights granted thereunder and
acknowledges that none of the Company, Avatar Holdings Inc. and their affiliates
shall have any further obligation with respect thereto.
5. Sections 4(a)(2) and 4(a)(3) of the Agreement are hereby
amended to delete the phrase "three years following the Date of Termination" and
substitute therefor the phrase "two years following the Date of Termination".
6. Section 5(b) of the Agreement is hereby amended to read in
its entirety as follows: "For purposes of this Agreement, the "Disability" of
the Employee shall mean the Employee's inability, because of mental or physical
illness or incapacity, whether total or partial, to perform one or more material
functions of the Employee's employment under this Agreement with or without
reasonable accommodation and which entitles the Employee to receive benefits
under a disability plan or program that is provided to the Employee pursuant to
Section 3(b)."
7. Section 6(c)(i) of the Agreement is hereby amended to read
in its entirety as follows: "If the Employee's employment hereunder is
terminated by the Company Without Cause pursuant to Section 5(a)(5), or due to
the Employee's resignation for Good Reason pursuant to Section 5(a)(6), the
Company shall continue to pay to the Employee, in lieu of any other payments or
benefits and on the regular payroll dates of the Company for a period of six (6)
months following Date of Termination his current base salary, at the rate
provided in Section 3(a) hereof; PROVIDED, HOWEVER, if the Employee's employment
hereunder is terminated by the Company Without Cause pursuant to Section 5(a)(5)
or due to Employee's resignation for Good Reason pursuant to Section 5(a)(6)
prior to the second anniversary of the Commencement Date, the Company shall
continue to pay to the Employee, through the second anniversary of the
Commencement Date and for a period of six (6) months following such second
anniversary, his current base salary, at the rate provided in Section 3(a)
hereof, in lieu of any other payments or benefits, and on the regular
2
<PAGE> 3
payment dates of the Company. The Company's obligation to make the payment
pursuant to this Section 6(c)(i) shall be subject to the provisions of Section
6(c)(ii) and conditioned upon the Company's prior receipt of an executed general
release of claims which the Employee may have against the Company, its
affiliates and their respective shareholders, directors, officers, employees and
agents, to the maximum extent permitted by law."
8. Section 13 of the Agreement is hereby amended to delete the
phrase "18-month anniversary of the Commencement Date" and substitute therefor
the phrase "54-month anniversary of the Commencement Date".
9. This amendment shall be effective February 15, 1999. Except
as modified by this amendment, the Agreement remains in full force and effect in
accordance with its terms.
10. This amendment may be signed in one or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute one and the same instrument.
11. This amendment shall be governed by and construed and
enforced in accordance with the laws of the State of Florida.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
AVATAR RETIREMENT COMMUNITIES, INC.
By: /s/ Gerald D. Kelfer
-----------------------------------
Name: Gerald D. Kelfer
Title: Chairman of the Board
/s/ Michaael S. Rubin
-----------------------------------
Employee
Name: Michael S. Rubin
4
<PAGE> 1
Exhibit 10(v)
NONQUALIFIED STOCK OPTION AGREEMENT
GRANTED TO: Michael S. Rubin
DATE OF GRANT: February 19, 1999
GRANTED PURSUANT TO: Avatar Holdings Inc. 1997 Incentive and Capital
Accumulation Plan
NUMBER OF UNDERLYING 50,000 shares
SHARES OF COMMON
STOCK:
EXERCISE PRICE: $25 per share
1. This Nonqualified Stock Option Agreement (the "Agreement") is made
and entered into as of February 19, 1999, between Avatar Holdings Inc., a
Delaware corporation (the "Company"), and Michael S. Rubin ("Employee"). It is
the intent of the Company and Employee that the Option (as defined in Paragraph
2 below) will not qualify as an "incentive stock option" under Section 422 of
the Internal Revenue Code of 1986, as amended from time to time (the "Code").
2. Employee is granted an option by the Incentive Plan Committee of the
Company's Board of Directors (the "Committee") to purchase 50,000 shares of
Common Stock (the "Option") pursuant to the Company's 1997 Incentive and Capital
Accumulation Plan (the "Plan"). Capitalized terms not defined herein shall have
the meanings ascribed thereto in the Plan.
3. The Option's exercise price is $25 per share, such exercise price
being in the judgment of the Committee not less than one hundred percent (100%)
of the Fair Market Value of the Common Stock on the date of grant.
4. Subject to Paragraphs 5 and 6 below, the Option shall be
exercisable, on a cumulative basis, according to the vesting schedule set forth
below:
16,667 shares shall become exercisable and remain exercisable on
February 19, 2000.
16,667 shares shall become exercisable and remain exercisable on
February 19, 2001.
16,666 shares shall become exercisable and remain exercisable on
February 19, 2002.
<PAGE> 2
5. Subject to Paragraph 6 below, the unexercised portion of the Option,
unless sooner terminated, shall expire on February 19, 2009 (the "Expiration
Date") and, notwithstanding anything contained herein to the contrary, no
portion of the Option may be exercised after such date.
6. If prior to the Expiration Date, Employee's employment with the
Company or any subsidiary corporation terminates, the Option will terminate on
the applicable date as described below, PROVIDED, HOWEVER, that none of the
events described below shall extend the period of exercisability beyond the
Expiration Date:
(a) If the employment of Employee is terminated by reason of
Employee's death either while in the employ of the Company or any subsidiary
corporation, or during the one (1) year period specified in clause (b) below,
the Option shall immediately become fully exercisable and remain exercisable
until the later of the first anniversary of Employee's death or the fifth
anniversary of the Commencement Date (as defined below), and shall be
exercisable by the executor or administrator of the estate of the deceased
Employee or the person or persons to whom the deceased Employee's rights under
the Option shall pass by will or the laws of descent or distribution;
(b) If the employment of Employee is terminated by the Company
due to Employee's "disability" (as defined below), the Option shall immediately
become fully exercisable and remain exercisable until the later of the first
anniversary of the date of termination of employment or the fifth anniversary of
the Commencement Date;
(c) If the employment of Employee is terminated by the Company
"without cause" (as defined below), or is terminated by Employee for "good
reason" (as defined below), the Option to the extent not theretofore exercised
shall remain exercisable in accordance with the terms of this Agreement,
including without limitation, the provisions of Sections 4 and 5 hereof.
(d) If the employment of Employee is terminated (i) by the
Company for "cause" (as defined below) or (ii) by Employee "without good reason"
(as defined below), the Option shall, to the extent not theretofore exercised,
immediately become null and void.
For purposes of this Agreement, the terms "Commencement Date",
"disability", "cause", "without cause", "good reason" and "without good reason"
shall have the meanings ascribed to such terms in Employee's employment
agreement with the Company, dated as of October 6, 1997, as amended from time to
time.
7. Employee may exercise the Option regardless of whether any other
option that Employee has been granted by the Company remains unexercised. In no
event may Employee
2
<PAGE> 3
exercise the Option for a fraction of a share or for less than 100 shares unless
the number purchased is the remaining balance for which the Option is then
exercisable.
8. The Option's exercise price shall be paid by Employee on the date
the option is exercised, in full in cash.
9. The Company may withhold from sums due or to become due to Employee
from the Company an amount necessary to satisfy its obligation to withhold taxes
incurred by reason of the issuance or disposition of shares pursuant to the
Option, or may require Employee to reimburse the Company in such amount.
10. Employee shall not have any of the rights of a shareholder with
respect to the shares of Common Stock underlying the Option while the Option is
unexercised.
11. Any exercise of this Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal place of business of the
Company, specifying the Option being exercised and the number of shares to be
purchased, accompanied by payment therefor.
12. This Option shall not be transferable otherwise than by will or the
laws of descent and distribution, and shall be exercisable, during Employee's
lifetime, only by Employee. Notwithstanding the foregoing, this Option may be
transferred by Employee solely to Employee's spouse, siblings, parents, children
and grandchildren or trusts for the benefit of such persons or partnerships,
corporations, limited liability companies or other entities owned solely by such
persons, including trusts for such persons, subject to any restriction included
in this Agreement.
13. If the Company, in its sole discretion, shall determine that it is
necessary, to comply with applicable securities laws, the certificate or
certificates representing the shares purchased pursuant to the exercise of the
Option shall bear an appropriate legend in form and substance, as determined by
the Company, giving notice of applicable restrictions on transfer under or in
respect of such laws.
14. The Company agrees that at the time of exercise of the Option it
will use reasonable efforts in good faith to have an effective Registration
Statement on Form S-8 under the Securities Act of 1933, as amended (the "Act"),
which includes a prospectus that is current with respect to the shares subject
to the Option. Employee covenants and agrees with the Company that if, at the
time of exercise of the Option, there does not exist a Registration Statement on
an appropriate form under the Act, which Registration Statement shall have
become effective and shall include a prospectus that is current with respect to
the shares subject to the Option, (i) that he or she is purchasing the shares
for his or her own account and not with a view to the resale or distribution
thereof, (ii) that any subsequent offer for sale or
3
<PAGE> 4
sale of any such shares shall be made either pursuant to (x) a Registration
Statement on an appropriate form under the Act, which Registration Statement
shall have become effective and shall be current with respect to the shares
being offered and sold, or (y) a specific exemption from the registration
requirements of the Act, but in claiming such exemption, Employee shall, prior
to any offer for sale or sale of such shares, obtain a favorable written opinion
from counsel for or approved by the Company as to the applicability of such
exemption and (iii) that Employee agrees that the certificates evidencing such
shares shall bear a legend to the effect of the foregoing.
15. This Agreement is subject to all terms, conditions, limitations and
restrictions contained in the Plan, which shall be controlling in the event of
any conflicting or inconsistent provisions.
16. This Agreement is not a contract of employment and the terms of
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company to
continue Employee's employment, and it shall not impose any obligation on
Employee's part to remain in the employ of the Company.
17. Employee acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to Employee any material information regarding the business of the
Company or affecting the value of the Common Stock before or at the time of a
termination of the employment of Employee by the Company, including, without
limitation, any information concerning plans for the Company to make a public
offering of its securities or to be acquired by or merged with or into another
firm or entity.
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
AVATAR HOLDINGS INC.
By: /s/ Gerald D. Kelfer
-----------------------------------
Name: Gerald Kelfer
Title: Chief Executive Officer
ACCEPTED:
/s/ Michael S. Rubin
- -------------------------------
Michael S. Rubin
5
<PAGE> 1
Exhibit 10(w)
NONQUALIFIED STOCK OPTION AGREEMENT
GRANTED TO: Dennis J. Getman
DATE OF GRANT: February 19, 1999
GRANTED PURSUANT TO: Avatar Holdings Inc. 1997 Incentive and Capital
Accumulation Plan
NUMBER OF UNDERLYING 10,000 shares
SHARES OF COMMON
STOCK:
EXERCISE PRICE: $25 per share
1. This Nonqualified Stock Option Agreement (the "Agreement") is made
and entered into as of February 19, 1999, between Avatar Holdings Inc., a
Delaware corporation (the "Company"), and Dennis J. Getman ("Employee"). It is
the intent of the Company and Employee that the Option (as defined in Paragraph
2 below) will not qualify as an "incentive stock option" under Section 422 of
the Internal Revenue Code of 1986, as amended from time to time (the "Code").
2. Employee is granted an option by the Incentive Plan Committee of the
Company's Board of Directors (the "Committee") to purchase 10,000 shares of
Common Stock (the "Option") pursuant to the Company's 1997 Incentive and Capital
Accumulation Plan (the "Plan"). Capitalized terms not defined herein shall have
the meanings ascribed thereto in the Plan.
3. The Option's exercise price is $25 per share, such exercise price
being in the judgment of the Committee not less than one hundred percent (100%)
of the Fair Market Value of the Common Stock on the date of grant.
4. Subject to Paragraphs 5 and 6 below, the Option shall be
exercisable, on a cumulative basis, according to the vesting schedule set forth
below:
3,334 shares shall become exercisable and remain exercisable on
February 19, 2000.
3,333 shares shall become exercisable and remain exercisable on
February 19, 2001.
3,333 shares shall become exercisable and remain exercisable on
February 19, 2002.
<PAGE> 2
5. Subject to Paragraph 6 below, the unexercised portion of the Option,
unless sooner terminated, shall expire on February 19, 2009 (the "Expiration
Date") and, notwithstanding anything contained herein to the contrary, no
portion of the Option may be exercised after such date.
6. If prior to the Expiration Date, Employee's employment with the
Company or any subsidiary corporation terminates, the Option will terminate on
the applicable date as described below, PROVIDED, HOWEVER, that none of the
events described below shall extend the period of exercisability beyond the
Expiration Date:
(a) If the employment of Employee is terminated by reason of
Employee's death either while in the employ of the Company or any subsidiary
corporation, or during the one (1) year period specified in clause (b) below,
the Option shall immediately become fully exercisable and remain exercisable
until the later of the first anniversary of Employee's death or the fifth
anniversary of the Commencement Date (as defined below), and shall be
exercisable by the executor or administrator of the estate of the deceased
Employee or the person or persons to whom the deceased Employee's rights under
the Option shall pass by will or the laws of descent or distribution;
(b) If the employment of Employee is terminated by the Company
due to Employee's "disability" (as defined below), the Option shall immediately
become fully exercisable and remain exercisable until the later of the first
anniversary of the date of termination of employment or the fifth anniversary of
the Commencement Date;
(c) If the employment of Employee is terminated by the Company
"without cause" (as defined below), or is terminated by Employee for "good
reason" (as defined below), the Option to the extent not theretofore exercised
shall remain exercisable in accordance with the terms of this Agreement,
including without limitation, the provisions of Sections 4 and 5 hereof.
(d) If the employment of Employee is terminated (i) by the
Company for "cause" (as defined below) or (ii) by Employee "without good reason"
(as defined below), the Option shall, to the extent not theretofore exercised,
immediately become null and void.
For purposes of this Agreement, the terms "Commencement Date",
"disability", "cause", "without cause", "good reason" and "without good reason"
shall have the meanings ascribed to such terms in Employee's employment
agreement with the Company, dated as of October 6, 1997, as amended from time to
time.
7. Employee may exercise the Option regardless of whether any other
option that Employee has been granted by the Company remains unexercised. In no
event may Employee
2
<PAGE> 3
exercise the Option for a fraction of a share or for less than 100 shares unless
the number purchased is the remaining balance for which the Option is then
exercisable.
8. The Option's exercise price shall be paid by Employee on the date
the option is exercised, in full in cash.
9. The Company may withhold from sums due or to become due to Employee
from the Company an amount necessary to satisfy its obligation to withhold taxes
incurred by reason of the issuance or disposition of shares pursuant to the
Option, or may require Employee to reimburse the Company in such amount.
10. Employee shall not have any of the rights of a shareholder with
respect to the shares of Common Stock underlying the Option while the Option is
unexercised.
11. Any exercise of this Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal place of business of the
Company, specifying the Option being exercised and the number of shares to be
purchased, accompanied by payment therefor.
12. This Option shall not be transferable otherwise than by will or the
laws of descent and distribution, and shall be exercisable, during Employee's
lifetime, only by Employee. Notwithstanding the foregoing, this Option may be
transferred by Employee solely to Employee's spouse, siblings, parents, children
and grandchildren or trusts for the benefit of such persons or partnerships,
corporations, limited liability companies or other entities owned solely by such
persons, including trusts for such persons, subject to any restriction included
in this Agreement.
13. If the Company, in its sole discretion, shall determine that it is
necessary, to comply with applicable securities laws, the certificate or
certificates representing the shares purchased pursuant to the exercise of the
Option shall bear an appropriate legend in form and substance, as determined by
the Company, giving notice of applicable restrictions on transfer under or in
respect of such laws.
14. The Company agrees that at the time of exercise of the Option it
will use reasonable efforts in good faith to have an effective Registration
Statement on Form S-8 under the Securities Act of 1933, as amended (the "Act"),
which includes a prospectus that is current with respect to the shares subject
to the Option. Employee covenants and agrees with the Company that if, at the
time of exercise of the Option, there does not exist a Registration Statement on
an appropriate form under the Act, which Registration Statement shall have
become effective and shall include a prospectus that is current with respect to
the shares subject to the Option, (i) that he or she is purchasing the shares
for his or her own account and not with a view to the resale or distribution
thereof, (ii) that any subsequent offer for sale or
3
<PAGE> 4
sale of any such shares shall be made either pursuant to (x) a Registration
Statement on an appropriate form under the Act, which Registration Statement
shall have become effective and shall be current with respect to the shares
being offered and sold, or (y) a specific exemption from the registration
requirements of the Act, but in claiming such exemption, Employee shall, prior
to any offer for sale or sale of such shares, obtain a favorable written opinion
from counsel for or approved by the Company as to the applicability of such
exemption and (iii) that Employee agrees that the certificates evidencing such
shares shall bear a legend to the effect of the foregoing.
15. This Agreement is subject to all terms, conditions, limitations and
restrictions contained in the Plan, which shall be controlling in the event of
any conflicting or inconsistent provisions.
16. This Agreement is not a contract of employment and the terms of
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company to
continue Employee's employment, and it shall not impose any obligation on
Employee's part to remain in the employ of the Company.
17. Employee acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to Employee any material information regarding the business of the
Company or affecting the value of the Common Stock before or at the time of a
termination of the employment of Employee by the Company, including, without
limitation, any information concerning plans for the Company to make a public
offering of its securities or to be acquired by or merged with or into another
firm or entity.
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
AVATAR HOLDINGS INC.
By: /s/ Gerald D. Kelfer
------------------------------
Name: Gerald Kelfer
Title: Chief Executive Officer
ACCEPTED:
/s/ Dennis J. Getman
- -----------------------------
Dennis J. Getman
5
<PAGE> 1
Exhibit 10(x)
AVATAR HOLDINGS INC.
201 Alhambra Circle
Coral Gables, Florida 33134
March 25, 1999
Mr. Edwin Jacobson
2575 South Bayshore Drive
Penthouse A
Coconut Grove, Florida 33133
Re: AMENDMENT TO EMPLOYMENT AGREEMENT
Dear Mr. Jacobson:
Reference is hereby made to that certain employment
agreement between Avatar Holdings Inc. (the "Company") and you dated July 27,
1995, as amended (as amended, the "Employment Agreement").
The Company acknowledges your decision not to stand for
election to the Company's Board of Directors at the next annual meeting of
stockholders, and as a consequence thereof, you will then cease to be a member
of the Executive Committee of the Board. You agree that the Company shall have
no further obligation to nominate you to the Board of Directors. We agree that
although you will no longer be a director or executive officer of the Company,
you will remain an employee of the Company, with no change in compensation or
benefits, and with such duties as reasonably may be requested of you by the
Company.
Except as expressly amended by this letter agreement, your
Employment Agreement remains in full force and effect in accordance with its
terms. This letter agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
If the foregoing is satisfactory, would you please so indicate
by signing and returning to the Company the enclosed copy of this letter
whereupon this will constitute our agreement on the subject.
AVATAR HOLDINGS INC.
By: /s/ Gerald D. Kelfer
---------------------------------
Name: Gerald D. Kelfer
Title: President
ACCEPTED AND AGREED TO:
/s/ Edwin Jacobson
- --------------------------------
Edwin Jacobson
<PAGE> 1
Exhibit 11 Computation of earnings per share
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------------------
1998 1997 1996
---------------- --------------- ----------------
<S> <C> <C> <C>
BASIC
Loss from continuing operations (17,720) (31,299) (757)
Income (loss) from discontinued operations 3,643 4,310 1,797
Estimated loss on disposal (6,400) 0 0
Loss from extraordinary item (2,308) 0 0
---------------- --------------- ----------------
Net (loss) income (22,785) (26,989) 1,040
================ =============== ================
Shares:
Weighted average number of
common shares outstanding 9,170,102 9,113,595 9,095,102
================ =============== ================
Basic earnings per common share:
Loss from continuing operations ($1.93) ($3.43) ($0.08)
Income (loss) from discontinued operations $0.40 $0.47 $0.19
Estimated loss on disposal ($0.70) $0.00 $0.00
Loss from extraordinary item ($0.25) $0.00 $0.00
---------------- --------------- ----------------
Net (loss) income ($2.48) ($2.96) $0.11
================ =============== ================
DILUTED
Loss from continuing operations (17,720) (31,299) (757)
Income (loss) from discontinued operations 3,643 4,310 1,797
Estimated loss on disposal (6,400) 0 0
Loss from extraordinary item (2,308) 0 0
---------------- --------------- ----------------
Net (loss) income (22,785) (26,989) 1,040
================ =============== ================
Shares:
Weighted average number of
common shares outstanding 9,170,102 9,113,595 9,095,102
================ =============== ================
Diluted earnings per common share:
Loss from continuing operations ($1.93) ($3.43) ($0.08)
Income (loss) from discontinued operations $0.40 $0.47 $0.19
Estimated loss on disposal ($0.70) $0.00 $0.00
Loss from extraordinary item ($0.25) $0.00 $0.00
---------------- --------------- ----------------
Net (loss) income ($2.48) ($2.96) $0.11
================ =============== ================
</TABLE>
<PAGE> 1
Exhibit 21 - Subsidiaries of Registrant
Unless otherwise indicated, Avatar owns, directly or through a
subsidiary, all of the outstanding capital stock of each of the below listed
active subsidiaries.
<TABLE>
<CAPTION>
Name State of Incorporation
- ---- ----------------------
<S> <C>
American Cablevision Services, Inc. Florida
Avatar Properties Inc. Florida
Avatar Camelot Isles, Inc. Florida
Avatar Communities, Inc. Florida
Avatar Communities of Arizona, Inc. Arizona
Avatar Communities of California, Inc. California
Avatar Communities of Connecticut, Inc. Connecticut
Avatar Communities of District of Columbia, Inc. District of Colombia
Avatar Communities of Georgia, Inc. Georgia
Avatar Communities of Illinois, Inc. Illinois
Avatar Communities of Indiana, Inc. Indiana
Avatar Communities of Massachusetts, Inc. Massachusetts
Avatar Communities of Michigan, Inc. Michigan
Avatar Communities of Nevada, Inc. Nevada
Avatar Communities of New Jersey, Inc. New Jersey
Avatar Communities of New York, Inc. New York
Avatar Communities of Ohio, Inc. Ohio
Avatar Communities of Pennsylvania, Inc. Pennsylvania
Avatar Communities of Wisconsin, Inc. Wisconsin
Avatar Finance, Inc. Delaware
Avatar Mortgage Funding, Inc. Delaware
Avatar International Sales of U.S.A., Inc. Delaware
Avatar Leisure Lakes, Inc. Florida
Avatar New Homes of Florida, Inc. Florida
Avatar Presidential Estates, Inc. Florida
Avatar Realty Inc. Delaware
Avatar Condominium Management Inc. Florida
Avatar Asset Management, Inc. Florida
Avatar Development Corporation Florida
Avatar Harbor Islands, Inc. Florida
Harbor Islands Clubs, Inc. Florida
Harbor Islands Community Management, Inc. Florida
Harbor Islands Community Services, Inc. Florida
Harbor Islands Realty, Inc. Florida
Avatar Georgetown Inc. Delaware
Avatar Realty of Arizona, Inc. Arizona
Brookman-Fels Construction Management, Inc. Florida
Dorten, Inc. Florida
GACL, Inc. of California California
Mulholland Hills Associates California(1)
Optimum Environments Inc. California
Avatar Resort Group, Inc. Florida
Avatar Resort Management, Inc. Florida
Avatar Vacation Realty, Inc. Florida
Avatar Vacation Realty of Tennessee, Inc. Tennessee
</TABLE>
<PAGE> 2
Exhibit 21 - Subsidiaries of Registrant (continued)
<TABLE>
<CAPTION>
<S> <C>
Avatar Vacation Resorts, Inc. Florida
Avatar Beach Resort, Inc. Florida
Poinciana Vacation Resort, Inc. Florida
Sunrise Ridge Resort, Inc. Tennessee
Avatar Vacation Resorts Club, Inc. Florida
Banyan Bay Development Corporation Florida
Barefoot Bay Corporation Florida
Barefoot Bay Development Corporation Florida
Cape Coral Development Corporation Florida
Cape Coral Realty, Inc. Florida
Country Club Inn, Inc. Florida
Fort Myers Construction Co., Inc. Florida
Golden Gate Realty, Inc. Florida
Kissimmee Construction Corporation Florida
Lee Investment Company, Inc. Florida
Poinciana Golf and Racquet Club, Inc. Florida
Poinciana New Township, Inc. Florida
Avatar Poinciana, Inc. Florida
Prominent Title Insurance Agency, Inc. Florida
Rio Rico Properties Inc. Florida
Avatar Homes of Arizona, Inc. Arizona
Rio Rico Golf and Country Club Arizona
Rio Rico Properties at Kino Springs, Inc. Arizona
Rio Rico Resort Hotel, Inc. Arizona
Rio Rico Realty, Inc. Arizona
Tarpon Point, Inc. Florida
USA Family Homes, Inc. Florida
Avatar Retirement Communities. Inc. Delaware
Avatar Utilities Inc. Delaware(2)
Avatar Utility Services, Inc. Florida
Utility Services Group Inc. Florida
Poinciana Utilities Inc. Florida
Barefoot Bay Propane Gas Company Florida
Consolidated Water Company Delaware(3)
FCWC Holdings, Inc. Delaware(4)
Florida Cities Water Company Florida
Brookman-Fels Communities, Inc. Delaware
Parkway Mortgage Company, Inc. Florida
Rio Rico Utilities Inc. Arizona
</TABLE>
Notes to Exhibit 21 - Subsidiaries of Registrant:
(1) Partnership owned 99% by GACL, Inc. of California and 1% by Lee
Investment Company, Inc.
(2) Avatar Utilities Inc. owns over 99% of the outstanding shares of common
stock of Consolidated Water Company. All of the outstanding shares of
preferred stock of Consolidated Water Company are owned by other
interests.
(3) Consolidated Water Company owns all outstanding common stock of FCWC
Holdings, Inc.
(4) FCWC Holdings, Inc. owns all of the common and preferred stock of
Florida Cities Water Company. FCWC Holdings, Inc. has one class of
preferred stock owned by outside interests.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 37,753
<SECURITIES> 0
<RECEIVABLES> 24,992
<ALLOWANCES> (11,255)
<INVENTORY> 170,555
<CURRENT-ASSETS> 0<F1>
<PP&E> 26,366
<DEPRECIATION> 0
<TOTAL-ASSETS> 472,991
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 157,553
0
0
<COMMON> 9,170
<OTHER-SE> 112,257
<TOTAL-LIABILITY-AND-EQUITY> 472,991
<SALES> 101,667
<TOTAL-REVENUES> 113,482
<CGS> 106,828
<TOTAL-COSTS> 106,828
<OTHER-EXPENSES> 11,615
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,759
<INCOME-PRETAX> (17,720)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,720)
<DISCONTINUED> (2,757)
<EXTRAORDINARY> (2,308)
<CHANGES> 0
<NET-INCOME> (22,785)
<EPS-PRIMARY> (2.48)
<EPS-DILUTED> (2.48)
<FN>
<F1>TOTAL CURRENT ASSETS AND TOTAL CURRENT LIABILITIES ARE NOT APPLICABLE BECAUSE
REGISTRANT DOES NOT PRESENT A CLASSIFIED BALANCE SHEET
</FN>
</TABLE>
