<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to _____________
Commission File Number 2-89530
FLORIDA EAST COAST INDUSTRIES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 59-2349968
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
ONE MALAGA STREET, ST. AUGUSTINE, FL 32084
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (904) 829-3421
--------------
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 period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
CLASS OUTSTANDING AT SEPTEMBER 30, 1999
----- ---------------------------------
Common Stock-no par value 36,392,160 shares
Collateral Trust 5% Bonds $11,956,100
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FLORIDA EAST COAST INDUSTRIES, INC.
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
INDEX PAGE NUMBERS
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<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets -
September 30, 1999 and December 31, 1998 2
Consolidated Condensed Statement of Income -
Three months and nine months ending
September 30, 1999 and 1998 3
Consolidated Condensed Statements of Cash Flows -
Nine months ending September 30, 1999 and 1998 4
Notes to Consolidated Condensed Financial Statements 5-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Third Quarter 1999 versus Third Quarter 1998
and Nine Months 1999 versus Nine Months 1998 10-13
Changes in Financial Condition, Liquidity and Capital Resources 13-14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 15
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 5. OTHER INFORMATION 15-16
ITEM 6. EXHIBITS AND REPORTS 16
</TABLE>
1
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FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
------------ -----------
1999 1998
---- ----
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 61,939 $ 14,450
Short-term investments 46,400 36,471
Accounts receivable (net) 25,025 29,282
Materials and supplies 7,052 10,131
Other current assets 7,443 6,067
Income taxes receivable (payable) 2,961 (1,446)
--------------- --------------
Total current assets 150,820 94,955
OTHER INVESTMENTS 9,399 34,502
PROPERTIES, LESS ACCUMULATED DEPRECIATION AND AMORTIZATION 719,767 720,891
OTHER ASSETS AND DEFERRED CHARGES 22,591 17,722
--------------- --------------
TOTAL ASSETS $ 902,577 $ 868,070
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 22,164 $ 27,427
Accrued property taxes 9,850 308
Accrued casualty and other reserves 3,801 4,992
Other accrued liabilities 4,128 3,033
--------------- --------------
Total current liabilities 39,943 35,760
DEFERRED INCOME TAXES 138,425 133,463
ACCRUED CASUALTY AND OTHER LONG-TERM LIABILITIES 11,438 12,016
SHAREHOLDERS' EQUITY:
Common stock, no par value; 50,000,000 shares authorized;
37,191,244 shares issued and 36,392,160 shares outstanding
at September 30, 1999, and 37,085,444 shares issued and
36,286,360 shares outstanding at September 30, 1998. 63,556 62,000
Retained earnings 660,302 634,126
Accumulated other comprehensive income-
unrealized (loss) gain on securities (net) (135) 1,217
Restricted stock deferred compensation (1,597) (1,157)
Treasury stock at cost (799,084 shares) (9,355) (9,355)
--------------- --------------
Total shareholders' equity 712,771 686,831
--------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 902,577 $ 868,070
=============== ==============
</TABLE>
(See accompanying notes)
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FLORIDA EAST COAST INDUSTRIES, INC.*
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPT. 30 ENDED SEPT. 30
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues $61,932 $63,732 $234,487 $182,561
Operating expenses (48,526) (45,129) (184,158) (138,296)
Special charges 0 0 (7,487) 0
----------------------------- ----------------------------------
Operating profit $13,406 $18,603 $42,842 $44,265
Other income, net (including special charges) 1,169 2,060 3,924 8,063
----------------------------- ----------------------------------
Income before taxes 14,575 20,663 46,766 52,328
Provision for income taxes:
Current 4,233 8,107 12,053 19,229
Deferred 1,755 (411) 5,810 193
----------------------------- ----------------------------------
Total income taxes 5,988 7,696 17,863 19,422
----------------------------- ----------------------------------
Net income $8,587 $12,967 $28,903 $32,906
----------------------------- ----------------------------------
Per share data:
Basic net income per share $0.24 $0.36 $0.81 $0.91
============================= ==================================
Diluted net income per share $0.23 $0.36 $0.79 $0.91
============================= ==================================
Average shares outstanding, basic 36,316,360 36,286,360 35,497,276 36,286,360
Average shares outstanding, diluted 36,586,464 36,286,360 36,472,900 36,286,360
</TABLE>
*This statement excludes the intersegment revenues shown on Note 8.
(See accompanying notes)
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FLORIDA EAST COAST INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,903 $ 32,906
Adjustments to reconcile net income to cash
generated by operating activities:
Depreciation and amortization 22,637 20,414
Gain on sales and other disposition of properties (10,582) (235)
Purchase and sale of trading investments (net) (12,033) 11,000
Realized gains on investments (1,023) (2,991)
Deferred taxes 5,810 193
Stock compensation plans 1,116 0
Non-monetary fiber optic transaction 0 (2,557)
Changes in operating assets and liabilities:
Accounts receivable 4,257 1,191
Other current assets 1,703 (758)
Other assets and deferred charges 2,893 1,885
Accounts payable (5,263) (160)
Income taxes payable (4,407) 2,873
Accrued property taxes 9,542 8,664
Other current liabilities (97) (627)
Reserves and other long-term liabilities (578) (656)
---------- -------------
Net cash generated by operating activities 42,878 71,142
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of properties (67,769) (61,808)
Purchases of investments:
Available-for-sale (36,857) (32,285)
Maturities and redemption of investments:
Available-for-sale 63,121 39,542
Proceeds from disposition of properties 48,845 5,750
---------- -------------
Net cash provided by (used in) investing activities 7,340 (48,801)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (2,729) (2,720)
---------- -------------
Net cash used in financing activities $ (2,729) $ (2,720)
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 47,489 $ 19,621
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,450 30,845
---------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 61,939 $ 50,466
========== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 16,149 $ 16,049
========== =============
Cash paid for interest $ 261 $ 248
========== =============
Property contributed to partnership, net of cash receipts $ 7,762 $ 0
</TABLE>
(See accompanying notes)
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FLORIDA EAST COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. General
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements reflect all accruals and adjustments considered necessary
to present fairly the financial position as of September 30, 1999 and December
31, 1998, and the results of operations and cash flows for the nine-month
periods ended September 30, 1999 and September 30, 1998. Results for interim
periods may not be necessarily indicative of the results to be expected for the
year. These interim financial statements should be read in conjunction with the
Company's 1998 Annual Report on Form 10-K for the year ended December 31, 1998
filed with the Securities and Exchange Commission.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
NOTE 2. Special Charges
In the second quarter, the Company incurred special charges of approximately
$8.2 million related to a work force reduction, including curtailment of a
supplemental executive retirement plan first adopted in late 1998, and inventory
reductions arising out of a modification to the Company's inventory management
practices (totaling $7.5 million), and the write-off of certain obsolete
information technology assets ($.7 million). Exclusive of the special charges,
the Company reported net income of $34.1 million for the nine months ended
September 30, 1999 ($.96 per share, basic).
NOTE 3. Commitments and Contingencies
The Company is a defendant in a number of lawsuits arising in the ordinary
course of business, including bodily injury claims and contract claims. While
the Company cannot predict the outcome of such litigation and other proceedings,
management does not expect these matters to have a materially adverse effect on
the consolidated financial condition, cash flows or results of operations of the
Company. The Company carries comprehensive liability insurance for such claims,
but maintains a significant self-insured retention amount consistent with the
transportation industry's standards. The Company's past practice had been to
release its underwriters for policy periods in which the Company did not
reasonably anticipate claims in excess of the Company's self-insured retention
in favor of release premium payment. It is possible that insurance coverage has
been released for a claim which, if decided adversely to the Company, could
result in a recovery in excess of the Company's self-insured retention. The
Company would be required to pay all costs of any such recovery. The Company is
defending the claim vigorously. In the event a final adverse outcome is
determined through judicial proceeding, the Company does not believe such amount
would have a material adverse effect on the Company's financial condition.
The Company is currently a party to, or involved in proceedings with the United
States Environmental Protection Agency (USEPA) directed at the cleanup of four
sites in Florida. The Company's involvement in three of these sites is
attributed to the sale or delivery of used oil to various parties which
delivered the oil to sites that now require remediation, or which have been
remediated under the direction of USEPA. Used oil is not a regulated hazardous
waste. The Company has accrued its estimated share of the total cleanup costs
for these sites and, together with other potentially responsible parties, is
engaging in discussions with USEPA to resolve these matters. The Company has
resolved the USEPA's claim at one of the sites for a payment of
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approximately $50,000 and expects to resolve another USEPA claim for a similar
amount. The Company has been notified by USEPA that the agency intends to seek
recovery of certain costs to remediate a portion of a site, which the Company
had leased to an adjoining landowner who is alleged to have caused contamination
of both the Company's property and the adjacent site. The Company is also
engaged in assessment and remediation of three sites owned by the Company
pursuant to agreement with the Florida Department of Environmental Protection.
It is difficult to quantify future environmental costs because many issues
relate to actions by third parties or changes in environmental regulation.
However, based on information presently available, management believes that the
ultimate disposition of currently known matters will not have a material effect
on the financial position, liquidity or results of operations of the Company.
Gran Central Corporation, a wholly-owned subsidiary of the Company, entered into
an agreement with the State of Florida Department of Transportation to furnish
all land necessary for the construction of the NW 106th Street Interchange on
the Homestead Extension of the Florida Turnpike, and to subsidize any annual
operating deficit of the Department for 15 years related to the interchange
which is not covered by toll revenues. The maximum assessment amount over the 15
years would be approximately $9.3 million with no annual assessment to exceed
$1.1 million. No assessment or related accruals to this agreement have been made
to date.
In furtherance of its telecommunications business formed in May 1999, the
Company has agreed to provide $45 million of capital to the telecommunications
subsidiary for the costs of infrastructure development, including the laying of
fiber optic cable in the Company's conduit on the western portion of the
telecommunications loop, and installation of opto-electronics to activate some
of the newly installed fiber optic strands, as well as fiber strands already
installed on the eastern portion of the loop running along the Florida coast
from Jacksonville to Miami.
NOTE 4. Comprehensive Income
On January 1, 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and presentation of comprehensive income and
its components in a full set of financial statements. Comprehensive income for
the nine months ended September 30, 1999 and 1998 was $27.6 and $30.8 million,
respectively. Comprehensive income for the three months ending September 30,
1999 and 1998 was approximately $8.4 and $10.8 million, respectively. These
amounts differ from net income due to changes in the net unrealized holding
gains/losses generated from available-for-sale securities.
NOTE 5. Subsequent Event - Recapitalization of the Company
On October 27, 1999, The St. Joe Company (St. Joe) and Florida East Coast
Industries, Inc. (the Company) announced they have agreed to undertake a
recapitalization of the Company to facilitate a pro rata tax-free spin-off to
St. Joe's shareholders of St. Joe's 54% equity interest in the Company.
As part of the recapitalization, St. Joe will exchange all of its shares of the
Company's common stock for an equal number of shares of a new class of the
Company's common stock. The holders of the new class of the Company's common
stock will be entitled to elect 80% of the members of the Board of Directors of
the Company, but the new Company's common stock will otherwise have
substantially identical rights to the existing common stock. The new class of
the Company's common stock will be distributed pro rata to St.
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Joe shareholders in a tax-free distribution. St. Joe will not retain any equity
interest in the Company after the spin-off is completed.
The recapitalization, exchange and spin-off are expected to be completed during
the second quarter of 2000 and are subject to a number of conditions, including
the receipt of an Internal Revenue Service ruling concerning the tax-free status
of the proposed spin-off, and the approval of the recapitalization by a majority
of the minority shareholders of the Company. Costs (legal, advisory, etc.)
associated with the spin-off are expected to be approximately $2.2 million.
At the closing of the transaction, various service agreements between St. Joe
and Gran Central Corporation, a wholly-owned subsidiary of the Company, will
become effective. Under the terms of these agreements, which extend for up to
three years after the closing of the transaction, Gran Central will retain St.
Joe, acting through its affiliates, to continue to develop and manage certain
commercial real estate holdings of Gran Central.
NOTE 6. Earnings Per Share
The weighted-average number of shares of common stock was used in the
calculations for earnings per share. The diluted weighted-average number of
shares includes the net shares that would be issued upon the exercise of stock
options and restricted shares (using the treasury stock method).
NOTE 7. Dividends
On August 23, 1999, the Company declared a dividend of $.025 (2 1/2 cents) per
share on its outstanding common stock, payable September 24, 1999 to
shareholders of record September 10, 1999.
NOTE 8. Segment Information
During 1998, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 provides guidance for reporting information about operating and
geographic segments based on a management approach.
Under the provisions of SFAS 131, the Company has four reportable operating
segments all within the same geographic area. These are the transportation rail
segment, transportation trucking segment, realty segment and the
telecommunication segment.
The telecommunications segment is a new segment for the third quarter. The
addition of this segment reflects increased telecommunication financial
activities within the consolidated group. Prior year amounts have been
reclassified to conform with this presentation. The telecommunication segment's
operations are primarily managed by FEC Telecom, Inc., a subsidiary of the
Company. The Company controls fiber conduit comprising an approximate 780-mile
telecommunication loop that passes through most of Florida's largest
metropolitan areas extending from Jacksonville to Miami on the East Coast, as
well as to the Gulf Coast and Central Florida. The East Coast segment contains
12,600 fiber miles of "dark fiber" fiber optic cable. The Company is in the
process of installing fiber on the Gulf Coast and Central Florida segments, and
opto-electronics equipment to transform dark fiber strands on the entire loop to
lit capacity. The Company has agreed to provide $45 million of capital to the
telecommunications subsidiary for the costs of this infrastructure development.
The Company seeks to construct, develop, operate, lease and sell the Company's
"Florida Footprint" telecom assets by providing wholesale dark and lit fiber
optic and bandwidth capacity to other telecom providers. The Company's
telecommunication segment also seeks to expand its telecom network beyond the
state of Florida through both construction and "swap"
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transactions.
The Company's railway segment generates revenues from leases to other
telecommunications companies for the installation of fiber optic and other
facilities on the railroad right-of-way which are included in the
telecommunications segment.
The transportation rail segment provides rail freight transportation along the
East Coast of Florida between Jacksonville and Miami. The transportation
trucking segment provides truckload transportation for a wide range of general
commodities throughout the Midwest and Southeast United States. The realty
segment is engaged in the development, leasing, management, operation and sale
of its commercial and industrial property.
The Company evaluates the transportation segments' performance based on
operating profit or loss from operations before other income and income taxes.
The Company evaluates the telecommunication segment's performance based on a
combination of operating revenues and operating profit or loss from operations
before other income and income taxes. Operating profit is operating revenue less
directly traceable costs and expenses. The Company evaluates the realty segment
based on operating profit and EBITDA. EBITDA is defined as earnings before
interest expense, income taxes, depreciation and amortization. EBITDA excludes
other income. EBITDA, as a measure of operating cash flow, is considered a key
financial performance indicator in the realty industry.
Intersegment revenues for transactions between the transportation rail and
transportation trucking segments are based on quoted rates, which are believed
to approximate the cost that would have been incurred had similar services been
obtained from an unrelated third party.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.
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INFORMATION BY INDUSTRY SEGMENT (IN THOUSANDS):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPT. 30 ENDED SEPT. 30
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1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues
Transportation-Rail $40,207 $38,713 $120,282 $117,511
Transportation-Trucking 7,248 7,865 21,805 22,261
Realty:
Realty Rental 12,826 11,601 38,140 32,012
Realty Sales (gross) 87 5,050 50,492 5,319
Telecommunications:
FEC Telecom 0 0 0 0
Fiber Leases 1,564 503 3,768 2,447
Fiber Optic Cable Exchange 0 0 0 3,011
----------- ---------- ----------- ------------
Total Revenues (consolidated) $61,932 $63,732 $234,487 $182,561
Intersegment:
Transportation-Rail 1,174 1,195 3,401 3,452
Realty 56 105 267 126
----------- ---------- ----------- ------------
Total Operating Revenues (segment & consolidated) $63,162 $65,032 $238,155 $186,139
=========== ========== =========== ============
OPERATING EXPENSES - SEGMENT & CONSOLIDATED
Transportation-Rail $29,928 $29,638 $98,894 $93,742
Transportation-Trucking 6,097 6,604 18,302 18,843
Realty:
Realty Rental 10,594 7,925 28,145 23,546
Realty Sales (gross) 88 521 39,178 592
Telecommunications:
FEC Telecom 806 0 1,396 0
Fiber Leases 65 47 189 114
Corporate General & Administrative 948 394 5,541 1,459
----------- ---------- ----------- ------------
Total Expenses (consolidated) $48,526 $45,129 $191,645 $138,296
Intersegment:
Transportation-Rail 40 9 104 54
Transportation-Trucking 1,173 1,195 3,401 3,452
Corporate General & Administrative 17 96 163 72
----------- ---------- ----------- ------------
Total Expenses (segment & consolidated) $49,756 $46,429 $195,313 $141,874
=========== ========== =========== ============
OPERATING PROFIT (LOSS) - SEGMENT & CONSOLIDATED (INCLUSIVE
OF SPECIAL CHARGES)
Transportation-Rail $11,413 $10,261 $24,685 $27,167
Transportation-Trucking (22) 66 102 (34)
Realty 2,287 8,310 21,576 13,319
Telecommunications 693 456 2,183 5,344
Corporate General & Administrative (965) (490) (5,704) (1,531)
----------- ---------- ----------- ------------
Segment & Consolidated Operating Profit $13,406 $18,603 $42,842 $44,265
Other Income (net) 1,169 2,060 3,924 8,063
----------- ---------- ----------- ------------
INCOME BEFORE TAXES $14,575 $20,663 $46,766 $52,328
=========== ========== =========== ============
NET INCOME $8,587 $12,967 $28,903 $32,906
=========== ========== =========== ============
EBITDA-REALTY $6,125 $11,193 $30,595 $20,822
=========== ========== =========== ============
</TABLE>
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
This "Management's Discussion and Analysis" contains forward-looking statements
within the meaning of Section 21E of the Securities and Exchange Act of 1934, as
amended. These forward-looking statements represent the Company's present
expectations or beliefs concerning future events. The Company cautions that such
statements are necessarily based on certain assumptions which are subject to
risks and uncertainties, including, but not limited to, changes in general
economic conditions and changing competition which could cause actual results to
differ materially from those indicated. Important factors that could cause such
differences include, but are not limited to, contractual relationships, industry
competition, regulatory developments, natural events, such as weather
conditions, floods and earthquakes, forest fires, the effects of adverse general
economic conditions, changes in the real estate markets and interest rates, fuel
prices, changes in telecommunications technology, and the ultimate outcome of
environmental investigations or proceedings and other types of claims and
litigation.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
THIRD QUARTER
The Company reported net income for the quarter ended September 30, 1999 of $8.6
million ($.24 per share, basic) compared to approximately $13.0 million ($.36
per share, basic) for the same period in 1998. The prior year result included a
gain of $3.1 million on a land sale consummated in August 1998. Other factors
impacting the third quarter of 1999 include increased depreciation resulting
from the aggressive property development program at Gran Central Corporation,
the Company's commercial property subsidiary, and costs related to FEC Telecom,
Inc., the Company's new telecom subsidiary.
TRANSPORTATION-RAIL
THIRD QUARTER (EXCLUDING INTERSEGMENT ACTIVITY)
Revenues from the rail subsidiary increased to $40.2 million from $38.7 million,
approximately $1.5 million or 3.8%, when comparing third quarter 1999 with third
quarter 1998. A strong Florida economy continues to support increases in rail
carload traffic offset by decreases in intermodal traffic. The Company's rail
subsidiary, Florida East Coast Railway (FECR), handled 43,526 carload shipments
in the third quarter 1999, an increase of 3,712 carloads, or 9.3% over the same
period last year. FECR handled approximately 70,686 intermodal units in the
third quarter 1999 versus approximately 78,712 units in the third quarter 1998,
a decrease of 8,026 or 10.2%. Carload traffic increases were comprised of
increases in aggregate of 3.6%, auto/auto parts of 5.4%, and all other carload
traffic of 30.1%. The reduction in intermodal traffic included a 9.8% decrease
in containers and a 10.4% decrease in trailers handled, reflecting the continued
impact of service redesign first implemented in 1998 by connecting carriers,
together with offshore transshipments of loads previously handled in Florida.
Operating expenses for the rail operations remained comparable, even with
increased traffic, at $29.9 million, or 1.0% over the same period 1998,
reflecting the impact of new management and their focus on
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cost reduction initiatives started in the second quarter. Rail's operating ratio
improved to 72.4% for the quarter compared to 74.3%. This strong result was
achieved despite the service disruption and incremental expense resulting from
Hurricane Floyd.
TRANSPORTATION-TRUCKING
THIRD QUARTER (EXCLUDING INTERSEGMENT ACTIVITY)
Operating revenues generated by the Company's trucking subsidiary totaled $7.3
million for the third quarter 1999 compared with $7.9 million for the same
period 1998. This decline in operating revenues results from the loss of three
major customer accounts.
Operating expenses for the quarter were $6.1 million compared with $6.6 million
during the third quarter 1998, reflecting the reduction in truckload activity.
REALTY
THIRD QUARTER (EXCLUDING INTERSEGMENT ACTIVITY)
Realty rental and sales revenues were $12.9 million for the third quarter 1999
compared to $16.7 million for the same period last year. Realty revenues
included third quarter 1998 sales of realty properties of $5.1 million. There
were minimal real estate sales during the third quarter of 1999. Rental revenues
generated by the Company's real estate subsidiary, Gran Central Corporation
(GCC), increased by 10% to $12.8 million compared to $11.6 million for the same
period last year. This increase reflects GCC's continued growth of operating
properties, improved rents and occupancy rates.
At the end of the third quarter, GCC held 58 finished buildings with 5.8 million
square feet and an 81% occupancy rate. "Same store" occupancy (comprised of 51
buildings with 4.8 million square feet held for a year or more) increased to 88%
at September 30, 1999 compared with 85% at September 30, 1998. Seven new
operating properties with 925,000 square feet were placed into service in the
twelve months ended September 30, 1999. These buildings were 60% occupied at
September 30, 1999. At the conclusion of the third quarter 1999, GCC had eleven
buildings with a total of 1.6 million square feet in various stages of
development (670,000 square feet under construction; 885,000 square feet in
predevelopment).
Third quarter realty rental and sales operating expenses increased to $10.7
million versus $8.4 million for the third quarter 1998. Same store expenses
increased by $1.1 million over 1998, reflecting higher occupancy rates. New
store expenses were $.2 million for the second quarter. Sold store expenses were
$.3 million in the third quarter of 1998, with no corresponding expenses in
1999. Management fees and depreciation increased by $1.3 million, both of which
costs are determined by the value of and/or additions to the portfolio.
The realty segment of the Company generated overall EBITDA of approximately $6.1
million for the third quarter 1999 compared to third quarter 1998 EBITDA of
$11.2 million. The decrease in EBITDA is chiefly attributable to real estate
sales during the third quarter of 1998 that generated $4.5 million in EBITDA.
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TELECOMMUNICATIONS
THIRD QUARTER
The Company controls fiber conduit comprising an approximate 780-mile
telecommunication loop that passes through most of Florida's largest
metropolitan areas extending from Jacksonville to Miami on the East Coast, as
well as to the Gulf Coast and Central Florida. The East Coast segment contains
12,600 fiber miles of "dark fiber" fiber optic cable. The Company is in the
process of installing fiber on the Gulf Coast and Central Florida segments, and
opto-electronics equipment to transform dark fiber strands on the entire loop to
lit capacity. The Company has agreed to provide $45 million of capital to the
telecommunications subsidiary for the costs of this infrastructure development.
The Company reached a number of milestones in the implementation of its plan to
become, through its subsidiary, FEC Telecom, Inc. ("FECT"), a wholesale
"carrier's carrier," which seeks to construct, develop, operate, lease and sell
the Company's "Florida Footprint" telecom assets by providing wholesale dark and
lit fiber optic and bandwidth capacity to other telecom providers. The Company's
telecom segment also seeks to expand its telecom network beyond the state of
Florida.
FECT has entered into a swap transaction by which it will acquire fiber in New
Orleans, Houston, San Antonio, Austin and Dallas from a telecommunications
network provider, and will convey some fiber strands on its Florida facilities
to that company. The Company also announced in October that it had signed an
agreement to provide another telecom company access to other fiber on the
Company's facilities. The proceeds to FECT for its dark fiber sale from the
transaction are dependent on the ultimate length of the network acquired, and
are expected to range from approximately $5 million to $11 million. In addition,
FECT will receive compensation for metro-area fiber acquired by FECT for the
buyer and, during the life of the agreement, will also receive collocation and
maintenance fees.
Third quarter revenues from telecommunications fiber leases, comprised generally
of monthly and annual payments from third party telecommunications companies for
licenses or leases for fiber optic cables on the Railway's right-of-way,
increased approximately $1.1 million to $1.6 million compared to $.5 million in
the same period last year because of new leases for fiber optic cables and
annual increases specified in lease renewals.
Increased operating expenses reflect the acceleration of FECT's start-up.
CORPORATE EXPENSES
THIRD QUARTER (EXCLUDING INTERSEGMENT ACTIVITY)
Corporate expenses for the third quarter 1999 and 1998 were $948,000 and
$394,000, respectively. Increased expenses result from additions to the new
management team and advisory costs related to operational studies.
OTHER INCOME
THIRD QUARTER
Other income decreased approximately $.9 million in the third quarter 1999
compared to third quarter 1998. This decrease was comprised of decreases of
approximately $.7 million in gains from long-term invested funds, and $.2
million in dividend and interest income on the Company's investment portfolio.
Capital expenditures on transportation and realty construction projects are
funded, in part, from the Company's
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investment portfolio.
CONSOLIDATED RESULTS
FIRST NINE MONTHS 1999 COMPARED WITH 1998
Net income for the nine months ending September 30, 1999, inclusive of $8.2
million of special charges recorded in the second quarter of 1999, amounted to
approximately $28.9 million ($.81 per share, basic) compared to approximately
$32.9 million ($.91 per share, basic) for the nine months ended September 30,
1998. Adjusted for the non-recurring effects of the 1999 special charges, as
well as property sales in both 1999 and 1998, adjusted net income for the
nine-month period is $27.0 million comparable to $28.0 in 1998. In the
nine-months' period of 1999, operating revenues rose $51.9 million, resulting
primarily from realty sales with gross proceeds of $50.4 million, while
operating expenses, exclusive of special charges, increased $45.9 million
primarily from costs of realty sales of $39.1 million.
Other nine-month highlights include continued growth in rail revenues due to a
strong Florida economy, while new management controls operating costs. Trucking
results remain comparable with 1998 despite the loss of three major accounts.
Realty rental operating revenues and expenses reflect continued growth in
occupancy rental rates and new operating properties. Telecommunication revenues
for 1998 included $3 million related to a fiber optic cable exchange offset by
increased 1999 lease rates and several new fiber cable leases. Telecommunication
expenses reflect the acceleration of FECT's start-up. Corporate general and
administrative expenses increased due to special charges related to curtailment
costs for the supplemental executive retirement plan, additions to the new
management team, and increased depreciation from information technology
equipment in the Year 2000 Plan. Other income for 1999 compared to 1998
decreased. These decreases were comprised of decreased income from the Company's
investment portfolio, and a one-time non-recurring special charge for the
write-off of information technology equipment.
In the second quarter, the Company incurred special charges of approximately
$8.2 million related to a work force reduction, including curtailment of a
supplemental executive retirement plan first adopted in late 1998, and inventory
reductions arising out of a modification to the Company's inventory management
practices (totaling $7.5 million), and the write-off referenced above of certain
obsolete information technology assets ($.7 million). Net income for the
nine-months' period ending September 30, 1999, excluding special charges, was
$34.0 million ($.96 per share, basic) compared to $32.9 million ($.91 per share,
basic) for nine months ending September 30, 1998.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity include cash generated from
operations; earnings on invested cash; and earnings on its investment
portfolios. Cash required for capital expenditures in the transportation and
realty segments, for payment of dividends, and future requirements of the
Company's recently formed telecommunications subsidiary are or will be funded,
in part, from these resources.
Cash and short-term investments increased approximately $57.4 million to $108.3
million at September 30, 1999 from $50.9 million on December 31, 1998. This
increase was primarily attributed to the completion of sales of two industrial
parks in the Miami area in the amount of approximately $50.4 million at the end
of the first quarter. The investment portfolio decreased approximately $25.1
million to $9.4 million on September 30, 1999 from $34.5 million on December 31,
1998 as the Company liquidated cash equivalent
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investments to fund capital expenditures, including transportation projects and
new commercial and industrial building construction. The Company's current ratio
changed from 2.66 to 1.00 on December 31, 1998 to 3.78 to 1.00 on September 30,
1999.
Management believes that the cash generated from operations, the Company's
liquid resources, and borrowing capacity, if appropriate, will be sufficient to
fund the costs of operations, all anticipated capital expenditures, and other
obligations of the Company.
YEAR 2000 COMPLIANCE
GENERAL. The Company continues to take the necessary action, both with in-house
resources, as well as external consulting services, to resolve anticipated Year
2000 issues related to certain of its computer systems. Overall, the Company's
Year 2000 project efforts are proceeding on schedule. In mid-1998, the Company
decided to revamp its information systems by replacing rail processing systems
and acquiring new intermodal systems, upgrading its main servers (AS/400), and
acquiring new technology for the Company's intermodal processing needs.
STATE OF READINESS. Management believes that the four phases of Inventory,
Assessment, Conversion and Implementation will be complete as of November 15,
1999. The Company's readiness efforts continue to be focused on the continued
safe operation of its transportation system, employee safety, and the safety of
the general public and the environments in which the Company operates. The
Company has met with or surveyed third parties with whom the Company has
material relationships, including its interline rail connections, the
Association of American Railroads and key suppliers, including fuel and power
suppliers. Based on the results of these meetings and surveys, the Company is
reasonably satisfied that these third parties' Year 2000 plans are adequately
addressing Year 2000 readiness, and that the possibility of extended failures is
not significant.
The Company continues to develop contingency plans for Year 2000 issues as part
of its ongoing effort to address many types of potential operating disruptions.
For example, emergency operating plans already exist for unanticipated outages
of electricity, telecommunications and other essential services. These
contingency plans may include identifying alternate suppliers, manual generation
of data necessary for train movements and billing, staff training and developing
communication plans.
BUDGET. The Company expects to spend approximately $9.3 million for the
revamping of its information systems, which is also addressing Year 2000 issues.
This amount includes $2.6 million to upgrade or replace computer hardware; $2.5
million for external consulting services, including remediation efforts, and
$4.2 million for software replacements and upgrades. As of September 30, 1999,
the Company has committed or expended approximately $8.6 of its budget for
information systems revamping.
STATUS. During the third quarter 1999, the Company accomplished the following
key activities related to its systems changes and Y2K readiness:
- - Continuing implementation of "hot-site" backup center
- - Developed Y2K contingency plans
- - Completed stress testing of upgraded legacy systems
- - Performed asset inventory, software and bios upgrades
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It is the opinion of management that, due to its replacement of information
systems as described above, Year 2000 problems in the Company's information
systems and technology infrastructure will not have a materially adverse affect
on the results of operations, liquidity or financial position of the Company.
However, there can be no assurance that the systems or equipment of other
parties which interact with the Company's systems will be compliant on a timely
basis. The Company believes that the failure of systems or equipment of one or
more of its key third parties or customers is the most reasonably likely worst
case Year 2000 scenario, and that an extended failure could have a material
adverse effect on the results of operations, liquidity or financial position of
the Company. Where appropriate, the Company continues to develop contingency
plans in the event that the Company's key third parties do not become Year 2000
compliant on a timely basis, which effort includes the modification of existing
disaster recovery plans.
Management continues to make every effort to ensure that the Year 2000 problems
will not have any adverse affect on the Company's daily operations. The Company
maintains a current status of the overall Year 2000 activities on the corporate
web site, which can be found at www.feci.com.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk related
primarily to the Company's investment portfolio. The portfolio is materially
comprised of fixed rate municipal securities with active secondary or resale
markets to ensure portfolio liquidity. The Company does not use derivative
financial instruments to hedge its investment portfolio. The Company manages its
interest rate exposure by monitoring the effects of market changes in interest
rates.
PART II
ITEM 1
LEGAL PROCEEDINGS
There are no new legal or regulatory proceedings pending or known to be
contemplated which, in Management's opinion, are other than normal and
incidental to the kinds of businesses conducted by the Company.
ITEM 5
OTHER INFORMATION
On October 27, 1999, The St. Joe Company (St. Joe) and Florida East Coast
Industries, Inc. (the Company) announced they have agreed to undertake a
recapitalization of the Company to facilitate a pro rata tax-free spin-off to
St. Joe's shareholders of St. Joe's 54% equity interest in the Company.
As part of the recapitalization, St. Joe will exchange all of its shares of the
Company's common stock for an equal number of shares of a new class of the
Company's common stock. The holders of the new class of the Company's common
stock will be entitled to elect 80% of the members of the Board of Directors of
the
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Company, but the new Company's common stock will otherwise have substantially
identical rights to the existing common stock. The new class of the Company's
common stock will be distributed pro rata to St. Joe shareholders in a tax-free
distribution. St. Joe will not retain any equity interest in the Company after
the spin-off is completed.
The recapitalization, exchange and spin-off are expected to be completed during
the second quarter of 2000 and are subject to a number of conditions, including
the receipt of an Internal Revenue Service ruling concerning the tax-free status
of the proposed spin-off, and the approval of the recapitalization by a majority
of the minority shareholders of the Company. Costs (legal, advisory, etc.)
associated with the spin-off are expected to be approximately $2.2 million.
At the closing of the transaction, various service agreements between St. Joe
and Gran Central Corporation, a wholly-owned subsidiary of the Company, will
become effective. Under the terms of these agreements, which extend for up to
three years after the closing of the transaction, Gran Central will retain St.
Joe, acting through its affiliates, to continue to develop and manage certain
commercial real estate holdings of Gran Central.
ITEM 6
EXHIBITS AND REPORTS
(a) Exhibits
(1) Exhibit 10.1 Distribution and Recapitalization Agreement between The St. Joe
Company and Florida East Coast Industries, Inc. dated October 26, 1999.
(2) Exhibit 10.2 Shareholders Agreement between Alfred I. DuPont Testamentary
Trust, The Nemours Foundation and Florida East Coast Industries, Inc. dated
October 26, 1999.
(3) Exhibit 10.3 Master Agreement between The St. Joe Company and Gran Central
Corporation dated October 26, 1999.
(b) Report on Form 8-K
(1) Form 8-K was filed October 27, 1999, announcing spin-off to St. Joe
shareholders of St. Joe's majority interest in Florida East Coast
Industries, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLORIDA EAST COAST INDUSTRIES, INC.
(REGISTRANT)
Date: 11/15/99 /s/ Robert H. Nazarian
----------------------------------------------
Robert H. Nazarian, Executive Vice President &
Chief Financial Officer
Date: 11/15/99 /s/ Mark A. Leininger
----------------------------------------------
Mark A. Leininger, Vice President & Controller
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<PAGE> 1
EXHIBIT 10.1
DISTRIBUTION AND RECAPITALIZATION AGREEMENT
DISTRIBUTION AND RECAPITALIZATION AGREEMENT, dated as of October 26,
1999 (this "Agreement"), between The ST. JOE COMPANY, a Florida company ("St.
Joe"), and FLORIDA EAST COAST INDUSTRIES, INC., a Florida corporation ("FEC")
(each a "Party" and collectively, "Parties").
WHEREAS, St. Joe owns, indirectly through St. Joe Capital II, Inc.
Corporation, a Delaware corporation and a wholly owned subsidiary of St. Joe
(the "Delaware Sub"), as of the close of business on the date hereof, 19,609,216
shares of common stock, no par value per share, of FEC ("FEC Common Stock");
WHEREAS, prior to the Declaration Date (as defined herein), Delaware
Sub will merge with and into St. Joe with St. Joe as the surviving corporation
(the "Delaware Sub Merger");
WHEREAS, prior to the Declaration Date, St. Joe will contribute all of
its shares of FEC Common Stock to which it will have direct title to and
ownership of as a result of the Delaware Sub Merger, to a Florida corporation
which will be incorporated prior to the Declaration Date and will be a direct
wholly owned Subsidiary of St. Joe ("Merger Sub");
WHEREAS, FEC and Merger Sub, expect to enter into Articles of Merger
substantially in the form attached hereto as Exhibit A (the "Articles of
Merger"), pursuant to which, among other things, Merger Sub will merge with and
into FEC with the consequent capital stock changes resulting in (i) all of the
outstanding share capital in Merger Sub being exchanged for 19,609,216 shares of
a new Class B Common Stock, no par value per share, of FEC ("Class B Common
Stock"), which new class of stock shall be entitled to elect 80% of the members
of the board of directors of FEC and in all other respects shall be
substantially identical to the FEC Common Stock, (ii) all of the shares of FEC
Common Stock held by Merger Sub being canceled and (iii) all other stockholders
of FEC retaining all their shares of FEC Common Stock, which class of stock will
be re-designated as Class A Common Stock and shall be entitled to elect 20% of
the members of the board of directors of FEC (such merger and the transactions
(including, without limitation, the amended and restated Articles of
Incorporation and Bylaws of FEC specified therein) contemplated by the Articles
of Merger, the "Recapitalization");
WHEREAS, the Board of Directors of St. Joe has determined that it is
appropriate, desirable and in the best interests of St. Joe and its stockholders
to distribute on the Distribution Date (as defined herein) all the shares of
Class B Common Stock that St. Joe will receive in the Recapitalization, on the
terms and subject to the conditions set
<PAGE> 2
forth in this Agreement, to the holders of record of the common stock, no par
value per share, of St. Joe ("St. Joe Common Stock"), as of the Distribution
Record Date (as defined herein), on a pro rata basis (the "Distribution");
WHEREAS, the Board of Directors of FEC has determined that it is
appropriate, desirable and in the best interests of FEC and its stockholders
that the Distribution be consummated, and the Recapitalization is a necessary
and desirable means to enable the Distribution to occur;
WHEREAS, St. Joe is in the process of applying for a ruling from the
Internal Revenue Service to the effect that the Distribution will be a tax-free
distribution within the meaning of Section 355 of the Code (as defined herein);
WHEREAS, each of St. Joe and FEC has determined that it is necessary
and desirable to set forth the principal corporate transactions required to
effect the Distribution and the Recapitalization; and
WHEREAS, each of St. Joe and FEC has determined that it is necessary
and desirable to set forth certain additional agreements that will govern
certain matters following the Distribution, including relating to (i) the
restructuring of the asset, property and development management relationship
between the Parties and (ii) certain agreements between FEC and certain of its
shareholders after the Distribution.
NOW, THEREFORE, in consideration of the mutual representations and
warranties, covenants, agreements, and conditions contained in this Agreement,
the Parties hereby agree as follows,
ARTICLE I.
DEFINITIONS
SECTION I.1 General. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Action" shall mean any action, suit, arbitration,
inquiry, proceeding or investigation by or before any court, any
Governmental Authority or any arbitration tribunal.
(b) "Affiliate" shall mean, when used with respect to a
specified Person, another Person that controls, is controlled by, or is
under common control with the Person specified. As used herein,
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or other
interests, by contract or otherwise.
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(c) "Agreement Disputes" shall have the meaning set forth in
Section 5.1.
(d) "Articles of Merger" shall have the meaning set forth in
the recitals hereto.
(e) "Assets" shall mean assets, properties and rights
(including goodwill) , wherever located (including in the possession of
vendors or other third parties or elsewhere), whether real, personal or
mixed, tangible, intangible or contingent, in each case whether or not
recorded or reflected or required to be recorded or reflected on the
books and records or financial statements of any Person.
(f) "Business Entity" shall mean any corporation, partnership,
limited liability company or other entity which may legally hold title
to Assets.
(g) "Class B Common Stock" shall have the meaning set forth in
the recitals hereto.
(h) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the Treasury regulations promulgated thereunder, including
any successor legislation.
(i) "Declaration Date" shall mean the date, mutually agreed
between St. Joe and FEC, on which (i) the St. Joe Board of Directors
shall declare the Distribution, and (ii) the Articles of Merger
effecting the Recapitalization shall be filed with the Department of
State of the State of Florida.
(j) "Distribution" shall have the meaning set forth in the
recitals hereto.
(k) "Distribution Agent" shall mean the distribution agent
selected by St. Joe to effect the Distribution, which may be FEC's
stock transfer agent.
(l) "Distribution Date" shall mean the date following the
consummation of the Recapitalization determined by the Board of
Directors of St. Joe for the mailing of certificates of Class B Common
Stock to stockholders of St. Joe in the Distribution. The Distribution
Date shall be a date as soon as practicable, but in any event not more
than thirty days, after the filing of the Articles of Merger relating
to the Recapitalization.
(m) "Distribution Record Date" shall mean the date determined
by the Board of Directors of St. Joe as the record date for the
determination of the
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holders of record of St. Joe Common Stock entitled to receive shares of
Class B Common Stock in the Distribution.
(n) "Effective Time" shall mean immediately prior to the
midnight, New York time, that ends the 24-hour period comprising the
Distribution Date.
(o) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
(p) "FBCA" shall mean the Florida Business Corporation Act, as
amended.
(q) "FEC Common Stock" shall have the meaning set forth in the
recitals hereto.
(r) "FEC" shall have the meaning set forth in the heading of
this Agreement.
(s) "FEC Business" shall mean each and every business
conducted at any time prior to, on or after the Effective Time by FEC
or any current, former, or future Subsidiary of FEC or other Business
Entity controlled by FEC, whether or not such Subsidiary is a
Subsidiary of FEC or such Business Entity is controlled by FEC on the
date hereof.
(t) "FEC Business Entity" shall mean any Business Entity a
majority of the equity interests of which are owned, directly or
indirectly, by FEC.
(u) "FEC Group" shall mean FEC and each Person that is a
Subsidiary of FEC immediately prior to the Effective Time.
(v) "FEC Indemnitees" shall mean, each member of the FEC
Group, each of their respective present and former directors, officers,
employees and agents and each of the heirs, executors, successors and
assigns of any of the foregoing.
(w) "FEC Liabilities" shall mean, collectively, any and all
Liabilities whatsoever that arise from, relate to or are in the nature
of the operation of the FEC Business or the ownership of the Assets of
the FEC Business by FEC, any current, former or future Subsidiary of
FEC or any Business Entity controlled by FEC, whether such Liabilities
arise before, on or after the Effective Time and whether known or
unknown, fixed or contingent, and, without limiting the generality of
the foregoing, shall include and be deemed to include:
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<PAGE> 5
(i) any and all Liabilities to which St. Joe or its
predecessors and successors may become subject arising from or
based upon its status or alleged status as a "controlling
person" (as defined under Section 15 of the Securities Act and
Section 20 of the Exchange Act) of FEC relating to (a) the
Proxy Statement (or any amendment thereto) (except for
liabilities which FEC incurs solely as a result of written
information relating to St. Joe supplied by St. Joe expressly
for inclusion in the Proxy Statement) or (b) any other report
or document filed by FEC with the SEC at any time before, on
or after the Effective Time (except for liabilities which FEC
incurs solely as a result of written information relating to
St. Joe or the St. Joe Business supplied by St. Joe expressly
for inclusion in such report or document); and
(ii) any Liabilities arising from, relating to or in
the nature of a breach or failure to perform by FEC of any
representation, warranty, covenant or agreement of FEC herein
or in the Articles of Merger;
(x) "FEC Required Consents" shall have the meaning set forth
in Section 2.2(a)(iv) hereto.
(y) "Form 8-A" shall mean an FEC registration statement on
Form 8-A pursuant to which the Class B Common Stock shall be registered
under the Exchange Act, including all amendments thereto.
(z) "Governmental Authority" shall mean any federal, state,
local, foreign or international court, government, department,
commission, board, bureau, agency, official, body or other regulatory,
administrative or governmental authority or, with respect to any
Person, any securities exchange or association on which shares of such
Person are listed or registered or any self regulating organization of
which such Person is a member.
(aa) "HSR Act" shall have the meaning set forth in Section
2.2(a)(iii).
(bb) "Indemnifying Party" shall have the meaning set forth in
Section 3.3.
(cc) "Indemnitee" shall have the meaning set forth in Section
3.3.
(dd) "IRS" shall mean the United States Internal Revenue
Service.
(ee) "IRS Ruling" shall have the meaning set forth in Section
2.1(c) (i).
(ff) "IRS Supplemental Ruling" shall have the meaning set
forth in Section 4.4.
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<PAGE> 6
(gg) "Liabilities" shall mean any and all losses, claims,
charges, debts, demands, actions, causes of action, suits, damages,
obligations, payments, costs and expenses, sums of money, accounts,
reckonings, bonds, specialties, indemnities and similar obligations,
exonerations, covenants, contracts, controversies, agreements,
promises, doings, omissions, variances, guarantees, make-whole
agreements and similar obligations, and other liabilities, including
all contractual obligations, whether absolute or contingent, matured or
unmatured, liquidated or unliquidated, accrued or unaccrued, known or
unknown, whenever arising, and including those arising under any law,
rule, regulation, Action, threatened or contemplated Action (including
the costs and expenses of demands, assessments, judgments, settlements
and compromises relating thereto and attorneys' fees and any and all
costs and expenses, whatsoever reasonably incurred in investigating,
preparing or defending against any such Actions or threatened or
contemplated Actions) , order or consent decree of any Governmental
Authority or any award of any arbitrator or mediator of any kind, and
those arising under any contract, commitment or undertaking, including
those arising under this Agreement or the Articles of Merger, in each
case, whether or not recorded or reflected or required to be recorded
or reflected on the books and records or financial statements of any
Person.
(hh) "Master Agreement" shall mean the Master Agreement
between Gran Central Corporation ("GCC") and St. Joe, dated October 26,
1999.
(ii) "NYSE" shall mean the New York Stock Exchange, Inc.
(jj) "NYSE Listing Application" shall mean the application to
be submitted by FEC to the NYSE for the listing of the Class B Common
Stock.
(kk) "Person" shall mean any natural person, Business Entity,
corporation, business trust, joint venture, association, company,
partnership, other entity or government, or any agency or political
subdivision thereof.
(ll) "Proxy Statement" shall have the meaning set forth in
Section 4.3(d) hereof.
(mm) "Real Estate Agreements" shall mean each of the
agreements attached as exhibits to the Master Agreement.
(nn) "Recapitalization" shall have the meaning set forth in
the recitals hereto.
(oo) "Rights Plan" shall have the meaning set forth in Section
2.1(d)(xvi) hereof.
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(pp) "St. Joe Business" shall mean each and every business
conducted at any time prior to, on or after the Effective Time by St.
Joe or any current, former or future Subsidiary of St. Joe (other than
FEC and its Subsidiaries), including Merger Sub, or other Business
Entity controlled by St. Joe (other than FEC and its Subsidiaries),
whether or not such Subsidiary is a Subsidiary of St. Joe or such
Business Entity is controlled by St. Joe on the date hereof.
(qq) "St. Joe Business Entity" shall mean any Business Entity
a majority of the equity interests of which are owned, directly or
indirectly, by St. Joe.
(rr) "St. Joe Common Stock" shall mean the common stock, no
par value per share, of St. Joe.
(ss) "St. Joe Group" shall mean St. Joe and each Person (other
than any member of the FEC Group) that is a Subsidiary of St. Joe
immediately prior to the Effective Time.
(tt) "St. Joe Indemnitees" shall mean each member of the St.
Joe Group, each of their respective stockholders, present and former
directors, officers, employees and agents and each of the heirs,
executors, successors and assigns of any of the foregoing.
(uu) "St. Joe Liabilities" shall mean, collectively, any and
all Liabilities whatsoever that arise out of, result from or are
related to the operation of the St. Joe Business or the ownership of
the Assets of the St. Joe Business by St. Joe, any predecessor entity
of St. Joe (and all predecessors thereto) or any Subsidiary of or
Business Entity controlled by any such predecessor, any current,
former, or future Subsidiary of St. Joe or any Business Entity
controlled by St. Joe (other than, in each case, FEC and its
Subsidiaries) whether such Liabilities arise before, on or after the
Effective Time and whether known or unknown, fixed or contingent, and,
without limiting the generality of the foregoing, shall include and be
deemed to include:
(i) any Liabilities arising from, relating to or in the
nature of a breach or failure to perform by St. Joe or Merger
Sub of any representation, warranty, covenant or agreement of
St. Joe herein or in the Articles of Merger;
(ii) any and all Liabilities which FEC incurs solely as
a result of written information relating to St. Joe or the St.
Joe Business supplied by St. Joe for the express purpose of
inclusion in the Proxy Statement or any report or document
filed by FEC with the SEC;
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(iii) any and all Liabilities arising from or relating
to any breach by St. Joe of any fiduciary duty under
applicable law as a controlling shareholder of FEC.
(vv) "St. Joe Required Consents" shall have the meaning set
forth in Section 2.2(b)(iv) hereto.
(ww) "SEC" shall mean the United States Securities and
Exchange Commission.
(xx) "Securities Act" shall mean the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder.
(yy) "Subsidiary" shall mean any corporation, partnership or
other entity of which another entity (i) owns, directly or indirectly,
ownership interests sufficient to elect a majority of the Board of
Directors (or persons performing similar functions) (irrespective of
whether at the time any other class or classes of ownership interests
of such corporation, partnership or other entity shall or might have
such voting power upon the occurrence of any contingency) or (ii) is a
general partner or an entity performing similar functions (e.g., a
trustee).
(zz) "Tax Authority" shall have the meaning set forth in
Section 2.2(a)(ix).
(aaa) "Third-Party Claim" shall have the meaning set forth in
Section 3.3.
(bbb) "Trust" shall mean the Alfred I. duPont Testamentary
Trust.
SECTION I.2 References; Interpretation. References in this Agreement to
any gender include references to all genders, and references to the singular
include references to the plural and vice versa. The words "include", "includes"
and "including" when used in this Agreement shall be deemed to be followed by
the phrase "without limitation". Unless the context otherwise requires,
references in this Agreement to Articles, Sections, Exhibits and Schedules shall
be deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement. Unless the context otherwise requires, the words "hereof",
"hereby" and "herein" and words of similar meaning when used in this Agreement
refer to this Agreement in its entirety and not to any particular Article,
Section or provision of this Agreement.
ARTICLE II.
RECAPITALIZATION, DISTRIBUTION, AND OTHER TRANSACTIONS;
CERTAIN COVENANTS, REPRESENTATIONS AND WARRANTIES
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SECTION II.1 The Recapitalization, Distribution and Other Transactions.
(a) The Recapitalization. Subject to the conditions set forth in
Section 2.1(d) of this Agreement, FEC shall effect the Recapitalization on the
Declaration Date in accordance with the terms of the Articles of Merger,
including duly executing and filing the Articles of Merger with the Department
of State of the State of Florida and filing or recording all other documents or
material required by the FBCA in connection with the Recapitalization; provided
that FEC shall not, and shall not be obligated to, file the Articles of Merger
until (i) Merger Sub shall have duly executed the Articles of Merger and (ii)
St. Joe shall have consented to the filing of the Articles of Merger with the
Department of State of the State of Florida.
(b) The Distribution. Subject to the conditions set forth in Sections
2.1(c) of this Agreement, on the Declaration Date the Board of Directors of St.
Joe shall (i) declare the Distribution upon the terms set forth in this
Agreement, (ii) cause Merger Sub to duly execute the Articles of Merger and
(iii) consent to the filing by FEC of the Articles of Merger with the Department
of State of the State of Florida. To effect the Distribution, St. Joe shall
cause the Distribution Agent to distribute, on or as soon as practicable
following the Distribution Date, on a pro rata basis to the holders of record of
St. Joe Common Stock on the Distribution Record Date, all shares of Class B
Common Stock received by St. Joe in the Recapitalization. During the period
commencing on the date the certificates representing shares of Class B Common
Stock are delivered to the Distribution Agent and ending upon the date(s) on
which certificates evidencing such shares are mailed to holders of record of St.
Joe Common Stock on the Distribution Record Date or on which fractional shares
of Class B Common Stock are sold on behalf of such holders, St. Joe shall cause
the Distribution Agent to hold the certificates representing shares of Class B
Common Stock on behalf of such holders. St. Joe shall deliver to the Agent the
share certificates representing the shares of Class B Common Stock held by St.
Joe which are to be distributed to the holders of St. Joe Common Stock in the
Distribution. St. Joe agrees to reimburse the Distribution Agent for its
reasonable costs, expenses and fees in connection with the Distribution. FEC
agrees, if required by St. Joe, to provide all certificates evidencing shares of
Class B Common Stock that St. Joe shall require in order to effect the
Distribution.
(c) Conditions to the Distribution. The obligation of St. Joe to (1)
declare the Distribution on the Declaration Date, (2) cause Merger Sub to duly
execute the Articles of Merger and (3) consent to the filing of the Articles of
Merger with the Department of State of the State of Florida, is, in each case,
subject to the satisfaction or waiver by St. Joe as determined by St. Joe in its
sole discretion, of the conditions set forth below:
(i) (a) A private letter ruling, the request for which shall
have been prepared by counsel for St. Joe in consultation with counsel
for FEC, shall have been received from the IRS in form and substance
reasonably satisfactory to St.
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Joe providing that, among other things, the Recapitalization and the
Distribution will qualify as tax-free transactions for federal income
tax purposes under Sections 354 and 355 of the Code, respectively (the
"IRS Ruling") and the IRS Ruling shall continue in effect; and (b) St.
Joe and FEC shall have complied with all provisions, statements or
representations set forth in the IRS Ruling, the request for an IRS
Supplemental Ruling, if St. Joe has determined to seek an IRS
Supplemental Ruling in accordance with Section 4.4, and which request
shall have been prepared by counsel for St. Joe in consultation with
counsel for FEC and, if granted prior to such time, the IRS
Supplemental Ruling, in each case, that are required to be complied
with prior to the Declaration Date;
(ii) Any approvals and consents of any Governmental Authority
necessary to consummate the Distribution, Recapitalization and the
other transactions contemplated hereby and by the Articles of Merger
shall have been obtained and shall be in full force and effect, and any
waiting periods or extensions thereof required by any Governmental
Authority or with respect to any such approvals or consents shall have
expired or been terminated;
(iii) No actions or suits by any Governmental Authority or
third party against either of the Parties shall be pending with respect
to, and the Parties shall not be subject to any injunctions, judgments,
decrees or orders which enjoin or rescind, the transactions
contemplated by this Agreement or the Articles of Merger or otherwise
prevent either of the Parties from complying with the terms and
provisions of this Agreement or the Articles of Merger (and which, in
the case of any pending action or suit, raise substantial issues of law
or fact and have, in the judgment of St. Joe, a reasonable probability
of success), and no other event outside the control of St. Joe shall
have occurred or failed to occur that prevents the lawful consummation
of the Distribution, the Recapitalization and the other transactions
contemplated hereby;
(iv) The Recapitalization and the Distribution shall be in
compliance with applicable federal and state securities and other
applicable laws;
(v) All conditions to the Recapitalization set forth in
Section 2.1(d) (other than the condition contained in Section
2.1(d)(iv)) shall have been satisfied or waived and no circumstances
shall exist that may prevent the consummation of the Recapitalization
concurrently with the declaration of the Distribution pursuant to the
terms hereunder;
(vi) The Indemnity Agreement attached hereto as Exhibit B,
shall have been duly executed and delivered by each of Trust and the
Nemours Foundation, a Florida foundation (the "Foundation"), to St.
Joe;
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(vii) The Class B Common Stock shall have been approved for
listing on the NYSE, subject to official notice of issuance;
(viii) The Recapitalization and related transactions shall
have been approved by the holders of a majority of outstanding shares
of FEC Common Stock not beneficially owned by St. Joe or any Affiliate
of St. Joe;
(ix) The Master Agreement and each of the Real Estate
Agreements shall be in full force and effect as of the Distribution
Date in accordance with their terms and there shall be existing no
default by the parties thereto of any material terms thereof;
(x) Each of the Senior FEC Employee Consents shall have been
duly executed and delivered to St. Joe;
(xi) FEC shall have obtained the FEC Required Consents;
(xii) Each of the representations and warranties of FEC set
forth in this Agreement shall have been true and correct in all
material respects when made and shall be true and correct in all
material respects as of the Declaration Date; and FEC shall have
performed or complied in all material respects with all agreements and
covenants required to be performed by it under this Agreement at or
prior to the Declaration Date; and St. Joe shall have received a
certificate of the chief executive officer of FEC as to the foregoing;
(xiii) St. Joe shall have received a secretary's certificate
certifying and attaching the articles and bylaws of FEC as amended as
of the Distribution Date and all resolutions of FEC and evidence of FEC
shareholder votes with respect to the transactions contemplated hereby,
as of the Distribution Date;
(xiv) The Form 8-A shall have been filed with the Commission
and there shall be no impediment to the certification by the NYSE to
the Commission of the listing of the Class B Common Stock; and
(xv) All actions and other documents and instruments
reasonably necessary from or by Persons other than St. Joe in
connection with the transactions contemplated hereby shall have been
taken or executed, as the case may be, in form and substance reasonably
satisfactory to St. Joe.
The foregoing conditions are for the sole benefit of St. Joe and shall not give
rise to or create any duty on the part of St. Joe to waive or not waive any such
condition.
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(d) Conditions to the Recapitalization. The obligation of FEC to effect
the Recapitalization on the Declaration Date is subject to the satisfaction or
waiver by FEC, as determined by FEC in its sole discretion, of the conditions
set forth below:
(i) Any approvals and consents of any Governmental Authority
necessary to consummate the Distribution, the Recapitalization and the
other transactions contemplated hereby and by the Articles of Merger
shall have been obtained and shall be in full force and effect, and any
waiting periods or extensions thereof required by any Governmental
Authority or with respect to any such approvals or consents shall have
expired or been terminated;
(ii) No actions or suits by any Governmental Authority or
third party against either of the Parties shall be pending with respect
to, and the Parties shall not be subject to any injunctions, judgments,
decrees or orders which enjoin or rescind, the transactions
contemplated by this Agreement or the Articles of Merger or otherwise
prevent either of the Parties from complying with the terms and
provisions of this Agreement or the Articles of Merger (and which, in
the case of any pending action or suit, raise substantial questions of
law or fact and have, in the judgment of FEC, a reasonable probability
of success), and no other event outside the control of FEC shall have
occurred or failed to occur that prevents the lawful consummation of
the Distribution, the Recapitalization or the other transactions
contemplated hereby;
(iii) The Recapitalization and the Distribution shall be in
compliance with applicable federal and state securities and other
applicable laws;
(iv) All conditions to the Distribution set forth in Section
2.1(c) (other than the condition contained in Section 2.1(c)(v)) shall
have been satisfied or waived and no circumstances shall exist that may
prevent the declaration of the Distribution concurrently with the
consummation of the Recapitalization pursuant to the terms hereunder;
(v) The Recapitalization shall have been approved by a
majority of the outstanding shares of FEC Common Stock not beneficially
owned by St. Joe or any Affiliate of St. Joe;
(vi) The Recapitalization shall have been approved by the
outstanding shares of FEC Common Stock as required under applicable
Florida law;
(vii) The Shareholders Agreement, substantially in the form
attached hereto as Exhibit C, shall have been duly executed and
delivered to FEC by Trust and the Nemours Foundation and shall be in
full force and effect;
(viii) St. Joe shall have obtained the St. Joe Required
Consents;
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(ix) Each of the representations and warranties of St. Joe set
forth in this Agreement shall have been true and correct in all
material respects when made and shall be true and correct in all
material respects as of the Declaration Date; and St. Joe shall have
performed or complied in all material respects with all agreements and
covenants required to be performed by it under this Agreement at or
prior to the Declaration Date; and FEC shall have received a
certificate of the chief executive officer of St. Joe as to the
foregoing;
(x) FEC shall have received a secretary's certificate
certifying and attaching the articles and bylaws of St. Joe and all
resolutions of St. Joe with respect to the transactions contemplated
hereby, as of the Declaration Date;
(xi) The Class B Common Stock shall have been approved for
listing on the NYSE, subject to official notice of issuance;
(xii) (A) The IRS Ruling shall have been received by St. Joe,
shall not have imposed material restrictions on FEC that would not have
been reasonably anticipated by FEC at the time the request for the IRS
Ruling was made, and such IRS Ruling shall not have been revoked and
(B) the IRS shall not have conditioned the delivery of the IRS Ruling
on a material modification of any of this Agreement, the Shareholders
Agreement, the Articles of Incorporation of FEC attached to the
Articles of Merger or the Rights Plan, which adversely affects the
substantive benefits to FEC and FEC's shareholders under such
instruments taken as a whole;
(xiii) The Master Agreement and each of the Real Estate
Agreements shall be in full force and effect as of the Declaration Date
in accordance with their terms and there shall be existing no default
by the parties thereto of any material terms thereof;
(xiv) Merger Sub shall own, beneficially and of record, all
right, title and interest, free and clear of any claims, liens or
encumbrances, to all shares of FEC Common Stock owned, directly or
indirectly, by St. Joe as of the date of the Recapitalization;
(xv) prior to the execution of this Agreement, Donaldson,
Lufkin & Jenrette shall have delivered to FEC its opinion, in form and
substance satisfactory to the Board of Directors of FEC, as to the
effect from a financial point of view of the Recapitalization and
related transactions on the shareholders of FEC, other than St. Joe and
its affiliates; and
(xvi) The FEC Rights Plan, having substantially the terms set
forth on Exhibit D hereto (the "Rights Plan"), shall have been duly
approved by all necessary corporate action and shall be in effect;
provided that the Board of
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Directors of FEC has complied with the provisions contained in Section
4.3(r) hereof; and
(xvii) All actions and other documents and instruments
reasonably necessary from or by Persons other than FEC in connection
with the transactions contemplated hereby shall have been taken or
executed, as the case may be, in form and substance reasonably
satisfactory to FEC.
The foregoing conditions are for the sole benefit of FEC and shall not give rise
to or create any duty on the part of FEC to waive or not waive any such
condition.
SECTION II.2 Representations and Warranties. (a) FEC hereby represents
and warrants, as of the date hereof and as of the Distribution Date (except as
otherwise specified below), to St. Joe as follows:
(i) Organization; Good Standing; Capitalization. FEC is a
corporation duly incorporated, validly existing and in good standing
under the laws of the State of Florida and has all corporate power
required to consummate the transactions contemplated hereby and by the
Articles of Merger. Subject to the changes in capitalization of FEC
contemplated by the Articles of Merger, the authorized and outstanding
shares of capital stock of FEC is set forth on Schedule 2.2(a)(i)
hereto.
(ii) Authorization. The execution, delivery and performance by
each of FEC (or in the case of certain of the Real Estate Agreements,
an Affiliate of FEC) and GCC, as the case may be, of this Agreement,
the Articles of Merger, the Master Agreement and the Real Estate
Agreements and the consummation by FEC (including by such Affiliates)
and GCC, as applicable, of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on
the part of FEC (including by such Affiliates) and GCC, as applicable,
other than the approval of the Recapitalization and related
transactions by the stockholders of FEC and the approval of the Rights
Plan by the Board of Directors of FEC. This Agreement and the Master
Agreement constitute, and the Articles of Merger, the Real Estate
Agreements and each other agreement or instrument executed and
delivered or to be executed and delivered by FEC or an Affiliate of
FEC, as applicable, pursuant to this Agreement, the Articles of Merger
or the Master Agreement will, upon such execution and delivery,
constitute, a legal, valid and binding obligation of FEC and each
Affiliate of FEC, as applicable, enforceable against FEC and each
Affiliate of FEC, as applicable, in accordance with its terms, subject
to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an implied
covenant of good faith and fair dealing.
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(iii) Consents and Filings. Except (t) for the NYSE Listing
Application, (u) the IRS Ruling, (v) as required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (x) for the filing of a registration statement on Form 8-A
with respect to the Class B Common Stock and (y) for the filing of the
Proxy Statement and any other reports or documents required to be filed
under the Exchange Act and (z) the filing of the Articles of Merger
with the Department of State of the State of Florida in accordance with
the FBCA, no material consent of, or filing with, any Governmental
Authority which has not been obtained or made is required for or in
connection with the execution and delivery of this Agreement or the
Articles of Merger by FEC, and the consummation by FEC of the
transactions contemplated hereby or thereby.
(iv) Noncontravention. The execution, delivery and performance
of this Agreement and the Articles of Merger by FEC does not, and the
consummation by FEC of the transactions contemplated hereby and thereby
will not, (x) violate any applicable federal, state or local statute,
law, rule, order, arbitration award, judgment, decree or regulation or
permit (y) violate any provision of the Articles of Incorporation or
By-Laws of FEC, or (z), except as set forth on Schedule 2.2(a)(iv) (any
waivers or consents needed by virtue of such matters, the "FEC Required
Consents"), conflict with, result in the breach of, constitute a
default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument,
mortgage, lien, franchise, instrument, or other arrangement to which
any of FEC or its Subsidiaries is a party or by which it is bound or to
which any of its Assets is subject (or result in the imposition of any
encumbrance of any nature upon any of FEC's Assets or operations),
other than as expressly contemplated hereby (including under Section
2.2(a)(iii)).
(v) Litigation. As of the date of this Agreement, there are no
actions or suits against FEC pending with respect to, and FEC is not
subject to any injunctions, judgments, decrees or orders which enjoin
or rescind, the transactions contemplated by this Agreement or the
Articles of Merger or otherwise prevent FEC from complying with the
terms and provisions of this Agreement or the Articles of Merger.
(vi) Change of Control Adjustments. Except as set forth on
Schedule 2.2(a)(vi), neither of the Recapitalization or Distribution or
any of the other transactions contemplated hereby or by the Articles of
Merger will constitute a "change of control" or otherwise result in the
increase or acceleration of any benefits, including to employees of
FEC, under any agreement to which FEC or any of its Subsidiaries is a
party or by which it or any of its Subsidiaries is bound.
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(vii) Certain Transactions. Except for transactions or other
actions that occurred prior to March 1, 1999 or that are described in
Schedule 2.2(a)(vii) , neither FEC nor any other member of the FEC
Group has engaged in any transaction or taken any other action through
the date hereof involving or relating to issuance or disposition of the
stock of FEC or options, warrants or other rights to acquire stock of
FEC. None of the transactions and other actions described in Schedule
2.2(a)(vii) were undertaken by FEC in contemplation of the Distribution
or are related to the Distribution (the Parties agree that the concept
of the Distribution was solely conceived by St. Joe and first
communicated to FEC on or about March 1, 1999), and all transactions
and actions by FEC described in Schedule 2.2(a)(vii) were undertaken in
the ordinary course of business.
(viii) Issuance of Class B Common Stock. Upon issuance, the
Class B Common Stock will have been duly authorized and validly issued
by all necessary corporate action and will be fully paid and
non-assessable, free and clear of all pledges, liens, encumbrances and
preemptive rights of any nature.
(ix) Information in Ruling Documents. As each becomes
available, FEC will have examined the application for the IRS Ruling
and the appendices and exhibits thereto, and any supplemental filings
or other materials subsequently submitted to the Service in connection
with the Distribution (and any related transactions) or any similar
filings submitted to any Governmental Authority or any subdivision
agency, commission or authority thereof, or any quasi-governmental or
private body having jurisdiction over the assessment, determination,
collection or imposition of any tax (collectively "any Tax Authority")
in connection with the Distribution and any related transactions
(collectively the "Ruling Documents"), and the facts presented and the
representations made therein, when made, to the extent descriptive of
FEC and its affiliates and the businesses of FEC and its affiliates
(including, without limitation, the business purposes for the
Distribution and the representations in the IRS Ruling Documents to the
extent that they relate to the businesses of FEC and its affiliates,
but not including any representation made by an affiliate of FEC to the
extent descriptive of such affiliate) will be true, correct and
complete in all material respects, as of the date such documents or
material are submitted to the applicable Tax Authority.
(x) Approval. FEC's Board of Directors has resolved to
recommend that the stockholders of FEC vote in favor of the approval of
the Recapitalization and related transactions.
(xi) Proxy Statement. FEC's Proxy Statement, the form of proxy
and any other solicitation material used in connection therewith and
any oral solicitations of proxies made by FEC shall not contain any
statement which, at the time and in the light of the circumstances
under which it is made, is false or
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misleading with respect to any material fact, or which omits to state
any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any
earlier communication with respect to any solicitation of a proxy for
any of the matters to be voted upon at the FEC stockholders meeting
with respect to the transactions contemplated hereby, which has become
false or misleading, except that no representation or warranty is made
by FEC with respect to written information relating to St. Joe or St.
Joe's Business for inclusion in the Proxy Statement or any such proxy
material or oral solicitation.
(xii) Certificates. All Certificates to be furnished by FEC to
St. Joe hereunder pursuant to a covenant, condition or otherwise are
and will be true and correct as of the dates so furnished.
(b) St. Joe hereby represents and warrants to FEC, as of the date
hereof and as of the Distribution Date (except with respect to Merger Sub, the
representations and warranties with respect to which are made only as of the
Distribution Date and except as otherwise specified below), as follows:
(i) Organization; Good Standing. Each of St. Joe, Delaware Sub
is, and Merger Sub will be upon incorporation, a corporation duly
incorporated, validly existing and in good standing under the laws of
the State of Florida, or Delaware in the case of Delaware Sub, and has
or will have all corporate power required to consummate the
transactions contemplated hereby and by the Articles of Merger.
(ii) Authorization. The execution, delivery and performance by
each of St. Joe (or, in the case of certain of the Real Estate
Agreements, an Affiliate of St. Joe), Delaware Sub, and Merger Sub of
this Agreement, the Articles of Merger, the Master Agreement and the
Real Estate Agreements, as the case may be, and the consummation by
each of St. Joe (including by such Affiliates), Delaware Sub and Merger
Sub, as applicable, of the transactions contemplated hereby and thereby
have been, or in the case of Merger Sub will have been prior to the
Declaration Date, duly authorized by all necessary corporate action on
the part of each of St. Joe (including by such Affiliates), Delaware
Sub and Merger Sub, other than the formal declaration of the
Distribution. This Agreement and the Master Agreement constitutes and,
when executed and delivered, the Articles of Merger, the Real Estate
Agreements and each other agreement or instrument executed and
delivered or to be executed and delivered by each of St. Joe, an
Affiliate of St. Joe, Delaware Sub and Merger Sub pursuant to this
Agreement will, upon such execution and delivery, constitute, a legal,
valid and binding obligation of each of St. Joe, each Affiliate of St.
Joe, Delaware Sub and Merger Sub, enforceable against each of St. Joe,
each Affiliate of St. Joe, Delaware Sub and Merger Sub in accordance
with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar
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laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or
at law) and an implied covenant of good faith and fair dealing.
(iii) Consents and Filings. Except (x) for the IRS Ruling, and
(y) as required under the HSR Act and any other reports or documents
required to be filed under the Exchange Act, no material consent of, or
filing with, any Governmental Authority which has not been obtained or
made is required to be obtained or made by each of St. Joe, Delaware
Sub and Merger Sub for or in connection with the execution and delivery
of this Agreement or the Articles of Merger by each of St. Joe and
Merger Sub, and the consummation by each of St. Joe, Delaware Sub and
Merger Sub of the transactions contemplated hereby or thereby.
(iv) Noncontravention. The execution and delivery of this
Agreement by St. Joe and the performance of this Agreement by St. Joe,
Delaware Sub and Merger Sub does not, and the consummation by St. Joe,
Delaware Sub and Merger Sub of the transactions contemplated hereby and
thereby will not, (x) violate any applicable federal, state or local
statute, law, rule, order, arbitration award, judgment, decree or
regulation or permit (y) violate any provision of the Articles of
Incorporation or By-Laws of St. Joe, Delaware Sub and Merger Sub, or
(z) except as set forth on Schedule 2.2(b)(iv) (any waivers or consents
needed by virtue of such matters, the "St. Joe Required Consents"),
conflict with, result in the breach of, constitute a default under,
result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, mortgage, lien,
franchise, instrument, or other arrangement to which any of St. Joe,
Delaware Sub and Merger Sub is a party or by which it is bound or to
which any of its Assets is subject (or result in the imposition of any
encumbrance of any nature upon any of St. Joe's, Delaware Sub's and
Merger Sub's Assets or operations), other than as expressly
contemplated hereby.
(v) Litigation. As of the date of this Agreement, there are no
actions or suits against St. Joe or Delaware Sub pending with respect
to, and St. Joe or Delaware Sub is not subject to any injunctions,
judgments, decrees or orders which enjoin or rescind, the transactions
contemplated by this Agreement or the Articles of Merger or otherwise
prevent each of St. Joe, Delaware Sub and Merger Sub from complying
with the terms and provisions of this Agreement or the Articles of
Merger.
(vi) Ownership of Delaware Sub and Merger Sub. St. Joe owns,
and in the case of Merger Sub will own upon Merger Sub's incorporation,
all outstanding equity interests of Delaware Sub and Merger Sub free
and clear of any claims, liens or encumbrances and no other person
holds any equity interests
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of Delaware Sub or Merger Sub nor has any right to acquire any equity
interests in Delaware Sub or Merger Sub.
(vii) Merger Sub's Title to FEC Common Stock. As of the date
hereof, St. Joe owns beneficially and of record, directly or indirectly
(including through Delaware Sub), all right, title and interest, free
and clear of any claims, liens or encumbrances, 19,609,216 shares of
FEC Common Stock. All right and title to all shares of FEC Common Stock
owned directly or indirectly by St. Joe or Delaware Sub as of the date
hereof will have been contributed to Merger Sub prior to the
Declaration Date, and Merger Sub will then own beneficially and of
record, free and clear of any claims, liens or encumbrances, such
stock.
(viii) Purpose of Merger Sub. Merger Sub was formed by St. Joe
solely for the purposes of effecting the Recapitalization upon the
terms and conditions of this Agreement and the Articles of Merger and
will have no Assets as of the Effective Time other than the shares of
FEC Common Stock owned by St. Joe through a wholly owned Subsidiary as
of the date hereof.
(ix) Certificates. All certificates to be furnished by St.
Joe, Delaware Sub and Merger Sub to FEC hereunder pursuant to a
covenant, condition or otherwise are and will be true and correct as of
the dates so furnished.
(x) Information Furnished by St. Joe for Proxy Statement. The
information in FEC's Proxy Statement which has been furnished by St.
Joe to FEC for the purpose of inclusion therein shall not contain any
statement which, at the time and in the light of the circumstances
under which it is made, is false or misleading with respect to any
material fact, or which omits to state any material fact necessary in
order to make the statements therein not false or misleading or has
become false or misleading, provided that FEC has complied with its
obligations set forth in the third, fourth and fifth sentences of
Section 4.3(d).
ARTICLE III.
INDEMNIFICATION
SECTION III.1 Indemnification by FEC. (a) FEC shall indemnify, defend
and hold harmless the St. Joe Indemnitees from and against any and all FEC
Liabilities or third-party allegations of FEC Liabilities to which, in any case,
the St. Joe Indemnitees become subject.
(b) FEC shall indemnify, defend and hold harmless the St. Joe
Indemnitees from and against any Liability to which, in any case, the St. Joe
Indemnitees become subject arising from, relating to or in the nature of any
inaccuracy in, or failure by FEC to comply with, any representation or statement
made by FEC to St. Joe or the IRS in
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connection with the requests by St. Joe for the IRS Ruling and the IRS
Supplemental Ruling; provided, however, that, notwithstanding the foregoing, FEC
shall not indemnify St. Joe, any St. Joe Indemnitee or any shareholder of St.
Joe for any liability that results from any inaccuracy or incompleteness in any
representation or statement made by St. Joe to the IRS in connection with
requests for the IRS Ruling or the IRS Supplemental Ruling or failure by St. Joe
to comply with any representation or statement made by St. Joe to the IRS in
connection with the requests for the IRS Ruling or the IRS Supplemental Ruling.
(c) FEC shall indemnify, defend and hold harmless the St. Joe
Indemnitees from and against one hundred percent (100%) of any taxes imposed
upon the St. Joe Indemnitees arising from, relating to or in the nature of the
failure of the Distribution to qualify under Section 355 of the Code (including
without limitation, any tax attributable to the application of Section 355(d) or
Section 355(e) of the Code to the Distribution) or corresponding provisions of
the laws of other jurisdictions, using the highest statutory marginal tax
corporate tax rates for the relevant taxable period (the "Distribution
Restructuring Taxes"), in any case arising from, relating to or in the nature
of, any actions or inactions of FEC or FEC's Affiliates or FEC's shareholders
relating directly to FEC, FEC's Subsidiaries or FEC stock without regard to
whether such action or inaction would constitute a breach of any covenant under
Section 4.4 hereof, including, without limitation, the following actions:
i Any action or inaction on the part of FEC or any FEC affiliate
after the Distribution (including, without any limitation, any
amendment to FEC's Articles of Incorporation (or other
organizational documents)), whether through a stockholder vote
or otherwise, affecting the relative voting rights of the
separate classes of FEC stock (including without limitation,
through the conversion of one class of FEC stock into another
class of FEC stock.)
ii Any acquisition of stock of FEC or of stock of any FEC
affiliate by any Person or Persons (including, without
limitation, as a result of an issuance of FEC stock or a
merger of another entity with and into FEC or any FEC
affiliate) or any acquisition of Assets of FEC or any FEC
affiliate (including, without limitation, as a result of a
merger) by any Person or Persons.
(d) If any Tax Authority withdraws all or any portion of the IRS Ruling
or any IRS Supplemental Ruling issued to St. Joe in connection with the
Distribution arising from, relating to or in the nature of a breach or failure
to comply by FEC or any FEC affiliate of any representation, warranty, covenant
or agreement made in this Agreement relating directly to FEC, FEC's Subsidiaries
or FEC stock, FEC shall indemnify, defend and hold harmless the St. Joe
Indemnitees from and against one hundred percent (100%) of any Distribution
Restructuring Taxes arising from, relating to or in the nature of such breach or
failure to comply.
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SECTION III.2 Indemnification by St. Joe. (a) St. Joe shall indemnify,
defend and hold harmless the FEC Indemnitees from and against any and all St.
Joe Liabilities or third-party allegations of St. Joe Liabilities to which, in
any case, the FEC Indemnitees become subject.
(b) St. Joe shall indemnify, defend and hold harmless the FEC
Indemnitees from and against (i) any and all federal, state and local taxes,
including any interest, penalties or additions to tax, that result solely from
the Recapitalization and (ii) any liability of any member of the FEC Group,
arising from, relating to or in the nature of any inaccuracy in, or failure by
St. Joe to comply with, any representation made by St. Joe to the IRS in
connection with the requests by St. Joe for the IRS Ruling and the IRS
Supplemental Ruling; provided, however, that, notwithstanding the foregoing, St.
Joe shall not indemnify FEC or any FEC Indemnitee for any liability that results
from any inaccuracy or incompleteness in any representation made by FEC to the
IRS in connection with requests for the IRS Ruling or the IRS Supplemental
Ruling or failure by FEC to comply with any representation made by FEC to the
IRS in connection with the requests for the IRS Ruling or the IRS Supplemental
Ruling or for any liability of the FEC Indemnitees arising under Sections
3.1(b), (c) or (d).
SECTION III.3 Procedures for Indemnification in Third-Party Claims.
(a) Third-Party Claims. If a claim or demand is made against a FEC
Indemnitee or an St. Joe Indemnitee (each, an "Indemnitee") by any Person who is
not a party to this Agreement, including, without limitation, any Governmental
Authority with respect to taxes (a "Third-Party Claim"), as to which such
Indemnitee may be entitled to indemnification pursuant to this Agreement, such
Indemnitee shall notify the party which is or may be required pursuant to the
terms hereof to make such indemnification (the "Indemnifying Party") in writing,
and in reasonable detail, of the Third-Party Claim promptly (and in any event
within 30 business days) after receipt by such Indemnitee of written notice of
the Third-Party Claim; provided, however, that failure to give such notification
shall not affect the indemnification provided hereunder except to the extent the
Indemnifying Party shall have been actually prejudiced as a result of such
failure. Thereafter, the Indemnitee shall deliver to the Indemnifying Party,
promptly (and in any event within 15 business days) after the Indemnitee's
receipt thereof, copies of all notices and documents (including court papers)
received by the Indemnitee relating to the Third-Party Claim.
If a Third-Party Claim is made against an Indemnitee with respect to
which a claim for indemnification is made pursuant to Section 3.1 or Section 3.2
hereof, the Indemnifying Party shall be entitled to participate in the defense
thereof and, if it so chooses and acknowledges in writing its obligation to
indemnify the Indemnitee therefor, to assume the defense thereof with counsel
selected by the Indemnifying Party; provided that such counsel is not reasonably
objected to by the Indemnitee. Should the Indemni-
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fying Party so elect to assume the defense of a Third-Party Claim, the
Indemnifying Party shall, within 30 days (or sooner if the nature of the
Third-Party Claim so requires), notify the Indemnitee of its intent to do so,
and if counsel to the Indemnifying Party has not been properly rejected by the
Indemnitee, the Indemnifying Party shall after a reasonable transition period
not be liable to the Indemnitee for legal or other expenses subsequently
incurred by the Indemnitee in connection with the defense thereof; provided that
such Indemnitee shall have the right to employ counsel to represent such
Indemnitee if, in such Indemnitee's reasonable judgment, a conflict of interest
between such Indemnitee and such Indemnifying Party exists in respect of such
claim which would make representation of both such parties by one counsel
inappropriate, or the Third-Party Claim seeks injunctive relief for other than
money damages, and in such event the fees and expenses of such separate counsel
shall be paid by such Indemnifying Party. Subject to the preceding sentence, if
the Indemnifying Party assumes such defense, the Indemnitee shall have the right
to participate in the defense thereof and to employ counsel at its own expense,
separate from the counsel employed by the Indemnifying Party, it being
understood that the Indemnifying Party shall control such defense. The
Indemnifying Party shall be liable for the fees and expenses of counsel employed
by the Indemnitee for any period during which the Indemnifying Party has failed
to assume the defense thereof. If the Indemnifying Party so elects to assume the
defense of any Third-Party Claim, all of the Indemnitees shall reasonably
cooperate with the Indemnifying Party in the defense or prosecution thereof,
including by providing or causing to be provided, records and witnesses as soon
as reasonably practicable after receiving any request therefor from or on behalf
of the Indemnifying Party.
In no event will the Indemnitee admit any liability with respect to, or
settle, compromise or discharge, any Third-Party Claim without the Indemnifying
Party's prior written consent (which will not be unreasonably withheld);
provided, however, that the Indemnitee shall have the right to settle,
compromise or discharge such Third-Party Claim without the consent of the
Indemnifying Party if the Indemnitee releases the Indemnifying Party from its
indemnification obligation hereunder with respect to such Third-Party Claim and
such settlement, compromise or discharge would not otherwise adversely affect
the Indemnifying Party. If the Indemnifying Party acknowledges in writing
liability for a Third-Party Claim (as between the Indemnifying Party and the
Indemnitee), the Indemnitee will agree to any settlement, compromise or
discharge of a Third-Party Claim that the Indemnifying Party may recommend and
that by its terms obligates the Indemnifying Party to pay the full amount of the
liability in connection with such Third-Party Claim and releases the Indemnitee
effective immediately, completely and unconditionally (with no prospective
limitations or changes in status of the Indemnitee of any nature) with respect
to such Third-Party Claim and that would not otherwise adversely affect the
Indemnitee; provided, however, that the Indemnitee may refuse to agree to any
such settlement, compromise or discharge if the Indemnitee agrees that the
Indemnifying Party's indemnification obligation with respect to such Third-Party
Claim shall not otherwise exceed the amount that would have been required to
have been paid by or on behalf of the Indemnifying Party pursuant to such
proposed settlement,
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compromise or discharge. If an Indemnifying Party elects not to assume the
defense of a Third-Party Claim, or fails to notify an Indemnitee of its election
to do so as provided herein, such Indemnitee may compromise, settle or defend
such Third-Party Claim.
Notwithstanding the foregoing, the Indemnifying Party shall not be
entitled to assume the defense of any Third-Party Claim (and shall be liable for
the fees and expenses of counsel incurred by the Indemnitee in defending such
Third-Party Claim) if the Third-Party Claim seeks an order, injunction or other
equitable relief or relief for other than money damages against the Indemnitee
which the Indemnitee reasonably determines, after conferring with its counsel,
cannot be separated from any related claim for money damages. If such equitable
relief or other relief portion of the Third-Party Claim can be so separated from
that for money damages, the Indemnifying Party shall be entitled to assume the
defense of the portion relating to money damages.
(b) Subrogation. Subject in all respects to the terms of Section 3.3(a)
above, in the event of payment by an Indemnifying Party to any Indemnitee in
connection which any Third-Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnitee as to any events
or circumstances in respect of which such Indemnitee may have any right or claim
relating to such Third-Party Claim against any claimant or plaintiff asserting
such Third-Party Claim. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim.
(c) Remedies Not Exclusive. The remedies provided in this Article III
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party; provided that no Person may recover more than once for a
Liability it has incurred.
SECTION III.4 Indemnification Payments Timing; Quantification.
Indemnification required by this Article III shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as and
when bills are received or loss, liability, claim, damage or expense is
incurred. All indemnification payments made or to be made under this Agreement
shall be quantified on an after-tax basis, taking into account, without
limitation, any withholding taxes deducted from the indemnity payment and any
taxes incurred by the Indemnified Party on the indemnity payment.
SECTION III.5 Limitation of Indemnity. The indemnification provisions
contained in this Article III shall not be applicable with respect to any FEC
Liability or St. Joe Liability with respect to which there exists or may exist
any separate indemnity arrangement set forth in any of the Real Estate
Agreements, the Management Agreement between GCC and St. Joe, dated as of
January 1, 1998, any agreement contemplated by the Real Estate Agreements or the
Management Agreement or any agreements between
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St. Joe or any of its Subsidiaries and FEC or any of its Subsidiaries relating
to property management, real estate development or real estate brokerage.
ARTICLE IV.
COVENANTS
SECTION IV.1 Access to Information. (a) Other than in circumstances in
which indemnification is sought pursuant to Article III (in which event the
provisions of such Article will govern to the extent in direct conflict with the
provisions of this Section 4.1), from and after the Distribution Date, each of
FEC and St. Joe shall afford to the other and its authorized accountants,
counsel and other designated representatives reasonable access during normal
business hours, subject to appropriate restrictions for classified, privileged
or confidential information, to the personnel, properties, books and records of
such party and its Subsidiaries insofar as such access is reasonably required by
the other party and relates to such other party's performance of its obligations
under this Agreement or the Articles of Merger or such party's financial, tax
and other reporting obligations.
(b) A party providing information or access to information to the other
party under this Article IV shall be entitled to receive from the recipient,
upon the presentation of invoices therefor, payments for such amounts, relating
to supplies, disbursements and other out-of-pocket expenses, as may be
reasonably incurred in providing such information or access to information.
SECTION IV.2 Confidentiality. Each of FEC, its Subsidiaries and their
Affiliates and St. Joe, its Subsidiaries and their Affiliates shall keep, and
shall cause their respective employees, consultants, advisors and agents to
keep, confidential all information concerning the other Party in its possession,
its custody or under its control (except to the extent that (A) such information
is then in the public domain through no fault of such party or (B) such
information has been lawfully acquired from other sources by such party or (C)
this Agreement or the Articles of Merger or any other agreement entered into
pursuant hereto or thereto permits the use or disclosure of such information) to
the extent such information (i) relates to or was acquired during the period up
to the Effective Time or pursuant to Section 4.1, or (ii) is based upon or is
derived from information described in the preceding clause (i), and each party
shall not (without the prior written consent of the other) otherwise release or
disclose such information to any other Person, except such party's auditors and
attorneys, unless compelled to disclose such information by judicial or
administrative process or unless such disclosure is required by law and such
party has used all reasonable efforts to consult with the other affected Party
or Parties prior to such disclosure.
SECTION IV.3 Standstill; Additional Covenants.
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(a) Standstill. Each of St. Joe and FEC, including on behalf of their
respective Affiliates and agents, agrees not to solicit, initiate or encourage
the commencement of negotiations or continue any current negotiations regarding
any proposal for the acquisition by any third party of any outstanding shares of
capital stock of FEC (other than issuances of FEC Common Stock by FEC pursuant
to employee stock plans in the ordinary course of business) or the acquisition
of FEC through any other means including a merger or purchase of Assets (an
"Acquisition Proposal") until the earlier to occur of the termination of this
Agreement or the time at which the Distribution is consummated; provided,
however, that (i) either Party may respond to any unsolicited inquiries or
proposals solely to indicate that it is bound by this Section 4.3(a) and (ii)
either St. Joe or FEC may, after its receipt of a bona fide written Acquisition
Proposal, commence discussions or negotiations with the Person making such
Acquisition Proposal, if the Board of Directors of St. Joe or FEC, as
applicable, in good faith determines, based upon the advice of its outside
counsel, that the respective Board of Directors must do so in order to comply
with its fiduciary duties under applicable law and, in the case of St. Joe, such
Acquisition Proposal contemplates a transaction in which all shares of FEC
Common Stock are to receive equivalent consideration.
(b) Sale of Fractional Shares. St. Joe shall appoint the Distribution
Agent as agent for each holder of record of St. Joe Common Stock who would
receive in the Distribution any fractional share of Class B Common Stock. The
Distribution Agent shall aggregate all such fractional shares and sell them in
an orderly manner after the Distribution Date in the open market and, after
completion of such sales, distribute a pro rata portion of the net proceeds from
such sales, based upon the gross selling price of all such fractional shares net
of all selling expenses, to each stockholder of St. Joe who would otherwise have
received a fractional share. St. Joe shall reimburse the Distribution Agent for
its reasonable costs, expenses and fees (other than selling expenses) in
connection with the sale of fractional shares of Class B Common Stock and the
distribution of the proceeds thereof in accordance with this Section 4.3(b).
(c) Shareholder Meeting. FEC shall, as soon as reasonably practicable
following the date of this Agreement, duly call, give notice of, convene and
hold, a meeting of its stockholders (the "Stockholders Meeting") for the purpose
of considering the approval of the Recapitalization and related transactions.
FEC, through its Board of Directors, shall resolve to recommend, shall recommend
and shall continue to recommend to its stockholders approval of the
Recapitalization and related transactions and shall not withdraw such
recommendation; provided, however, that, FEC's Board of Directors may withdraw
or modify such recommendation if it determines in good faith, based upon the
advice of outside counsel, that it must do so to comply with its fiduciary
duties under applicable law.
(d) Proxy Statement. Subject to the provisions of this Agreement and
the Articles of Merger, FEC shall, as soon as reasonably practicable following
the date of this Agreement, prepare and file with the SEC a proxy statement for
the solicitation of
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proxies in favor of the transactions and agreements referred to in Section
4.3(c) (the "Proxy Statement"). FEC shall use all reasonable efforts to have the
Proxy Statement cleared by the SEC for mailing in definitive form as promptly as
practicable after such filing. FEC and St. Joe shall cooperate with each other
in the preparation of the Proxy Statement and any amendment or supplement
thereto. FEC shall notify St. Joe of the receipt of any comments of the SEC with
respect to the Proxy Statement and of any requests by the SEC for any amendment
or supplement thereto or for additional information, and shall provide to St.
Joe promptly copies of all correspondence between the SEC and FEC or any of its
advisors with respect to the Proxy Statement. FEC shall give St. Joe and its
counsel reasonably appropriate advance opportunity to review the Proxy Statement
and all responses to requests for additional information by and replies to
comments of the SEC, and incorporate therein any reasonable comments St. Joe may
timely deliver to FEC with respect thereto, before such Proxy Statement,
response or reply is filed with or sent to the SEC. FEC agrees to use all
reasonable efforts, after consultation with St. Joe and its advisors, to respond
promptly to all such comments of, and requests by, the SEC and to cause the
Proxy Statement to be mailed to the holders of FEC Common Stock entitled to vote
at the Stockholders Meeting as soon as reasonably practicable following the
execution hereof. St. Joe shall provide FEC such information concerning the
business and affairs of St. Joe and Merger Sub as is reasonably required for
inclusion in the Proxy Statement.
(e) St. Joe Mailings. It is understood that St. Joe may, but shall not
be required hereunder, prepare and mail, at such time as determined by St. Joe,
to the holders of St. Joe Common Stock, such information concerning FEC, its
business, operations and management, the Distribution and the tax consequences
thereof and such other matters as St. Joe shall reasonably determine is
advisable or as may be required by law. In such event, St. Joe shall give FEC
and its counsel reasonably appropriate advance opportunity to review such
documents and shall consider in good faith any comments FEC timely delivers to
St. Joe with respect to such information. FEC agrees to cooperate with St. Joe
in the preparation of, and provide any information reasonably requested by St.
Joe for inclusion in, such mailing. St. Joe and FEC will prepare, and FEC will,
to the extent required under applicable law, file with the SEC any such
documentation, including any no-action letters or other requests for
interpretive or regulatory assistance, if any, which St. Joe reasonably
determines are necessary or desirable to effectuate the Distribution and the
other transactions contemplated hereby and by the Articles of Merger and St. Joe
and FEC shall each use all reasonable efforts to cooperate with each other with
respect thereto and to obtain all necessary approvals from the SEC with respect
thereto as soon as practicable.
(f) Actions Regarding Securities Laws. St. Joe and FEC shall take all
such action as may be necessary or appropriate under the securities or blue sky
laws of the United States (and any comparable laws under any foreign
jurisdiction) in connection with the Distribution, the Recapitalization and the
other transactions contemplated hereby and by the Articles of Merger.
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(g) Listing of Class B Common Stock. FEC shall prepare and file, and
shall use all reasonable efforts to have approved, an application for the
listing on the NYSE of the Class B Common Stock to be distributed in the
Distribution, subject to official notice of issuance. St. Joe shall provide,
upon request by FEC, information reasonably necessary to FEC for its preparation
and filing of such application.
(h) Opportunity for St. Joe to Review Filings. Until the Distribution
Date, FEC agrees that prior to filing with the SEC any report or other document
that contains any disclosure relating to the Distribution, this Agreement, the
Articles of Merger or any of the transactions contemplated hereby or thereby, it
shall give St. Joe and its counsel reasonably appropriate advance opportunity to
review such report or other document and shall consider in good faith any
comments St. Joe may deliver to FEC with respect to or for inclusion in such
report or document.
(i) No Amendment to Articles or By-Laws of FEC. Prior to the
Distribution Date, FEC shall not amend, and the FEC Board of Directors shall not
approve any amendment to, FEC's Articles of Incorporation or By-Laws, other than
the Amended and Restated Articles of Incorporation and By-Laws of FEC that will
become effective upon the filing of the Articles of Merger with the Department
of State of the State of Florida in connection with the Recapitalization.
(j) St. Joe Vote in Favor of Transactions. St. Joe hereby agrees to be
present in person or by proxy at each and every stockholders meeting of FEC at
which any aspect of the transactions contemplated by this Agreement are
submitted to the stockholders of FEC for consideration at such meeting, and to
vote, or cause to be voted, all shares of FEC Common Stock owned directly or
indirectly by it and its Subsidiaries in accordance with the recommendation of
the Board of Directors of FEC referred to in Section 4.3(c) in favor of the
Recapitalization and related transactions; provided that the Recapitalization
and such related transactions are to become effective solely upon the
Declaration of the Distribution; and similarly to execute any written consent
submitted to stockholders by FEC in favor of the Recapitalization and related
transactions.
(k) Creation of Merger Sub; Contribution of Shares. St. Joe shall (i)
incorporate Merger Sub and (ii) contribute the shares of FEC Common Stock held
by Delaware Sub as of the date hereof to Merger Sub, subsequent to the Delaware
Sub Merger and prior to the Declaration Date.
(l) Opportunity to Review Releases. In addition to the limitations in
Section 4.3(h) above, each of St. Joe and FEC agrees that no public release or
announcement concerning the Distribution, the Recapitalization or the
transactions contemplated by this Agreement or the Articles of Merger shall be
issued by either party without the prior written consent of the other (which
shall not be unreasonably withheld), except as such release or announcement may
be required by law, in which case the party required to
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make the release or announcement shall use all reasonable efforts to allow each
other party reasonable time to comment on each release or announcement in
advance of such issuance.
(m) Senior FEC Employee Consents. FEC shall use all reasonable efforts
to obtain from each of Robert W. Anestis (Chairman, President and Chief
Executive Officer of FEC), Robert F. MacSwain (Executive Vice President Special
Projects of FEC), John D. McPherson (Chief Operating Officer of FEC), Heidi J.
Eddins (Senior Vice President, General Counsel and Secretary of FEC) and Robert
Nazarian (Executive Vice President and Chief Financial Officer of FEC) a letter
agreement in favor of St. Joe in the form attached as Exhibit E hereto (the
"Senior FEC Employee Consents").
(n) Efforts to Obtain Consents. Each of St. Joe and FEC shall use all
reasonable efforts to obtain all of the consents, waivers or authorizations
required in connection with the completion of the Recapitalization and the
Distribution from any third party or Governmental Authorities;
(o) Efforts to Oppose Contrary Orders, Injunctions and Decrees. Each of
St. Joe and FEC shall use all reasonable efforts to procure that no order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
Distribution, the Recapitalization and the other transactions contemplated
hereby and by the Articles of Merger shall be in effect;
(p) Filing of Press Release. St. Joe and FEC will issue jointly, prior
to 8:30 a.m. New York City time, on October 27, 1999, the press release attached
as Exhibit F to this Agreement.
(q) Preparation and Filing of Form 8-A. FEC shall prepare and file the
Form 8-A (which may include or incorporate by reference information contained in
the Proxy Statement) with the Commission as promptly as practicable following
the date hereof, and shall use all reasonable efforts to cause the Form 8-A to
become effective under the Exchange Act immediately following the consummation
of the Recapitalization or as soon thereafter as practicable. St. Joe shall
provide, upon request by FEC, information reasonably necessary to FEC for its
preparation and filing of such Form 8-A. FEC shall give St. Joe and its counsel
reasonably appropriate advance opportunity to review the Form 8-A and all
responses to requests for additional information by and replies to comments of
the SEC with respect thereto, and shall incorporate therein any reasonable
comments St. Joe may timely deliver to FEC with respect thereto, before such
Form 8-A, response or reply is filed with or sent to the SEC.
(r) Approval of Rights Plan. FEC shall use its best efforts to effect
the adoption of the Rights Plan; provided, however, that, FEC's Board of
Directors shall not be required to effect the adoption of the Rights Plan if it
determines in good faith, based
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upon the advice of outside counsel, that the adoption of such Rights Plan would
not be in compliance with its fiduciary duties under applicable law.
(s) Reasonable Efforts. Without limiting any other obligations
hereunder, each of St. Joe and FEC will cooperate with each other and use (and
shall cause their respective Affiliates directors, officers, employees and
agents to use) all their respective reasonable efforts to take or cause to be
taken all actions, including executing any further documents and making other
filings with Governmental Authorities, and to do or cause to be done all things,
necessary or advisable in order to consummate and make effective, as promptly as
practicable after the date hereof, the transactions contemplated hereby and by
the Articles of Merger, including the satisfaction, but not waiver, of all
applicable conditions.
SECTION IV.4 Taxes: Cooperation; Right to Supplemental Ruling;
Preservation of Rulings. (a) St. Joe and FEC will cooperate and take any and all
actions reasonably requested of each other in the preparation and filing of an
application for the IRS Ruling. In addition, St. Joe will have the right to
obtain, and FEC will have the right, after the original IRS Ruling has been
issued by the IRS, to require St. Joe to seek to obtain, a supplemental private
letter ruling from the IRS in connection with the Distribution and any related
transactions, or any similar ruling issued by any Tax Authority other than the
IRS in connection with the Distribution (an "IRS Supplemental Ruling") as St.
Joe or FEC determines, is necessary to effect the tax treatment of the
Distribution contemplated by this Agreement. If either party determines that an
IRS Supplemental Ruling shall be requested pursuant to this Section 4.4(a), that
other party will cooperate with the requesting party and take any and all
actions reasonably requested by the requesting party in connection with
obtaining the IRS Supplemental Ruling (including, without limitation, by making
any representation or covenant or providing any materials or information
requested by any Tax Authority). On or prior to the Distribution Date, each of
St. Joe and FEC shall take those actions and consummate those other transactions
in connection with the Distribution that are contemplated by the IRS Ruling, the
ruling request therefor or any related submissions by St. Joe to the IRS (which
shall have been reviewed by FEC), including, to the extent applicable, the IRS
Supplemental Ruling and the request therefor.
(b) FEC will not take or fail to take, or permit, to the extent it is
in FEC's power to prevent such actions, any FEC affiliate to take or fail to
take, any action, where such action or inaction would be inconsistent with any
material, information, covenant or representation in the IRS Ruling, any Ruling
Documents, any IRS Supplemental Ruling or any IRS materials, appendices and
exhibits submitted or filed therewith (the "Supplemental Ruling Documents").
(c) FEC will not take or fail to take, or permit, to the extent it is
in FEC's power to prevent such actions, any of its affiliates to take or fail to
take, any action or inaction after the Distribution that could reasonably be
expected to prevent the Distribution from qualifying as a tax-free distribution
under Section 355 of the Code. In
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addition, FEC will not take or fail to take, or permit any of its affiliates to
take or fail to take, any action or inaction after the Distribution that could
reasonably be expected to have a material adverse impact on the known tax
consequences of the Distribution to St. Joe.
(d) Other than as contemplated by this Agreement or the Articles of
Merger (including the exhibits thereto), FEC will make no amendment or changes
to its Articles of Incorporation or Bylaws that would affect the composition or
size of its Board of Directors, the manner in which its Board of Directors is
elected, and the duties and responsibilities of its Board of Directors unless
FEC obtains an IRS Supplemental Ruling in conjunction with St. Joe pursuant to
(a) above that such amendment will not affect the treatment of the Distribution
under Section 355 of the Code or FEC obtains an opinion (reasonably acceptable
to St. Joe) of nationally recognized tax counsel that such amendment will not
affect the treatment of the Distribution under Section 355 of the Code.
(e) Other than as contemplated by this Agreement or the Articles of
Merger (including the exhibits thereto), FEC will not propose a plan of
recapitalization or amendment to its Articles of Incorporation, or any other
action providing for any of the following, unless (i) the IRS Ruling provides or
(ii) FEC obtains an IRS Supplemental Ruling in conjunction with St. Joe pursuant
to (a) above that provides that such recapitalization or amendment will not
affect the treatment of the Distribution under Section 355 of the Code or FEC
obtains an opinion (reasonably acceptable to St. Joe) of nationally recognized
tax counsel that such recapitalization or amendment will not affect the
treatment of the Distribution under Section 355 of the Code:
i The conversion of shares of any class of FEC stock
into a different class of FEC stock.
ii A change in the absolute or relative voting rights of
any class of FEC stock from the rights existing at
the time of the Distribution.
iii Any other action having an effect similar to that
described in (i) or (ii).
(f) Until the first day after the two-year anniversary of the
Distribution:
i FEC will continue to conduct the active trade or
business relied upon in the IRS Ruling (the "Active
Trade or Business") in a manner that satisfies the
requirement of Section 355(b) of the Code.
ii Unless FEC obtains an IRS Supplemental Ruling in
conjunction with St. Joe pursuant to (a) above that
the following action or
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actions will not affect the treatment of the
Distribution under Section 355 of the Code or FEC
obtains an opinion (reasonably acceptable to St. Joe)
of nationally recognized tax counsel that such action
or actions will not affect the treatment of the
Distribution under Section 355 of the Code, FEC will
not do either of the following:
(A) Liquidate, dispose of, or otherwise
discontinue the conduct of any portion of
the Active Trade or Business.
(B) Dispose of any business or Assets that would
cause FEC to be operated in a manner
inconsistent in any material respect with
the business purposes for the Distribution
as set forth in the Ruling Documents.
(g) During the two-year period following the Distribution, FEC will
conduct the Active Trade or Business primarily through officers and employees of
FEC or its subsidiaries (and not primarily through independent contractors) who
are not also officers or employees of St. Joe or its Affiliates.
(h) During the two-year period following the Distribution, FEC will
not, and will not undertake to, voluntarily dissolve or liquidate, or liquidate,
dispose of, or otherwise discontinue the conduct of any portion of the Active
Trade or Business if such liquidation, disposition or discontinuation of the
Active Trade or Business would cause a dissolution or liquidation of FEC, and
except in the ordinary course of business, neither FEC nor any Subsidiaries of
FEC will sell, transfer, or otherwise dispose of, or agree to dispose of, Assets
(including, for such purpose, any capital stock of such subsidiaries) that, in
the aggregate, constitute more than (x) sixty percent (60%) of the gross Assets
of FEC or (y) sixty percent (60%) of the consolidated gross Assets of FEC and
such subsidiaries, unless prior to the consummation of such transaction FEC
obtains an IRS Supplemental Ruling in conjunction with St. Joe pursuant to (a)
above that such transaction will not affect the treatment of the Distribution
under Section 355 of the Code or FEC obtains an opinion (reasonably acceptable
to St. Joe) of nationally recognized tax counsel that such transaction will not
affect the treatment of the Distribution under Section 355 of the Code.
(i) FEC will not reacquire its shares during the two-year period
following the distribution unless FEC obtains an IRS Supplemental Ruling in
conjunction with St. Joe pursuant to (a) above that such reacquisition will not
affect the treatment of the Distribution under Section 355 of the Code or FEC
obtains an opinion (reasonably acceptable to St. Joe) of nationally recognized
tax counsel that such reacquisition will not affect the treatment of the
Distribution under Section 355 of the Code, except if the reacquisition meets
all of the following conditions:
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i The reacquisition is for a corporate business
purpose;
ii The stock acquired is widely held;
iii The acquisition is made on the open market;
iv There is no plan or intention to reacquire more than
twenty percent (20%) of FEC stock by vote or value.
(j) Until the first day after the two-year anniversary of the
Distribution FEC will not enter into any proposed stock issuance transaction
(other than in employee related issuances in the ordinary course of business)
if, as a result of such proposed stock issuance transaction, FEC would issue a
number of shares of FEC stock that, when aggregated with all other shares of FEC
stock issued pursuant to any stock issuance transaction or transactions
occurring prior to or simultaneously with such proposed stock issuance
transaction, would cause either: (a) the number of shares of Class B Common
Stock distributed to the shareholders of St. Joe in the Distribution to
constitute less than eighty percent (80%) of the total combined voting power of
all outstanding FEC voting stock with respect to the election of directors of
FEC or (b) the issuance of outstanding shares of any class or series of FEC
stock other than stock of FEC entitling the holders thereof to vote, unless FEC
obtains an IRS Supplemental Ruling that such transaction will not affect the
treatment of the Distribution under Section 355 of the Code or FEC obtains an
opinion (reasonably acceptable to St. Joe) of nationally recognized tax counsel
that such transaction will not affect the treatment of the Distribution under
Section 355 of the Code.
(k) Until the first day after the two-year anniversary of the
Distribution, FEC will not enter into any proposed stock buyback transaction if,
as a result of such proposed stock buyback transaction the then outstanding
shares of Class B Common Stock would constitute less than eighty percent (80%)
of the total combined voting power of all outstanding voting stock of FEC with
respect to the election of directors, unless FEC obtains an IRS Supplemental
Ruling that such transaction will not affect the treatment of the Distribution
under Section 355 of the Code or FEC obtains an opinion (reasonably acceptable
to St. Joe) of nationally recognized tax counsel that such transaction will not
affect the treatment of the Distribution under Section 355 of the Code. For
purposes of the preceding sentence, any option (including an option issued to
employees or in connection with the performance of services), warrant or other
security that would permit or require a Person to acquire shares of voting stock
of FEC or any other FEC capital stock (including the option, right or obligation
of FEC or a FEC affiliate to acquire shares of FEC capital stock), or any
security convertible into or exchangeable for shares of voting stock of FEC or
other FEC capital stock, shall be treated as if it had been fully exercised,
converted or exchanged at the time of issuance, whether or not such security is
by its terms exercisable at such time.
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(l) Until the first day after the two-year anniversary of the
Distribution, FEC shall not enter into (x) any proposed acquisition transaction
which, together with all proposed acquisition transactions agreed to or entered
into during the two-year period following the Distribution, is of more than 5%
of the stock of FEC (in vote or in value) or, (y) to the extent FEC has the
right to prohibit any proposed acquisition transaction, permit any proposed
acquisition transaction which, together with all proposed acquisition
transactions agreed to or entered into during the two-year period following the
Distribution, is of more than 5% of the Stock of FEC (in vote or in value), in
each case occurring pursuant to any of the following actions:
i The redemption of rights under a stockholders' rights
plan;
ii The determination that a tender offer for the stock
of FEC is a "permitted offer" or similar permitted
acquisition under any such plan or otherwise causing
any such plan to be inapplicable or neutralized with
respect to any proposed acquisition transaction;
iii The approval of any proposed transaction or
transactions involving the acquisition by FEC of
another corporation or business or the acquisition by
another Person of FEC.
unless prior to the consummation of such proposed acquisition transaction or
transactions FEC obtains an IRS Supplemental Ruling that such transaction or
transactions will not affect the treatment of the Distribution under Section 355
of the Code or FEC obtains an opinion (reasonably acceptable to St. Joe) of
nationally recognized tax counsel that such transaction or transactions will not
affect the treatment of the Distribution under Section 355 of the Code.
ARTICLE V.
DISPUTE RESOLUTION
SECTION V.1 Negotiation. In the event of a controversy, dispute or
claim arising out of, in connection with, or in relation to the interpretation,
performance, nonperformance, validity or breach of this Agreement (but not any
controversy, dispute or claim in any way relating to or arising from any of the
contracts referred to in, or attached as Schedules or Exhibits to, this
Agreement), including any claim based on contract, tort, statute or constitution
(but excluding any controversy, dispute or claim between a party hereto and a
third-party beneficiary hereof) (collectively, "Agreement Disputes"), the
general counsels of the Parties shall negotiate in good faith for a reasonable
period of time to settle such Agreement Dispute; provided such reasonable period
shall not, unless otherwise agreed by the Parties in writing, exceed 30 days
from the time the Parties begin such negotiations; provided further that in the
event of any arbitration pursuant to Section 5.2 below, the Parties shall not
assert the defenses of
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statute of limitations and laches arising for the period beginning after the
date the Parties began negotiations hereunder, and any contractual time period
or deadline under this Agreement or the Articles of Merger to which such
Agreement Dispute relates shall not be deemed to have passed until such
Agreement Dispute has been resolved.
SECTION V.2 Arbitration. If after such reasonable period such general
counsels are unable to settle such Agreement Dispute (and in any event, unless
otherwise agreed in writing by the Parties, after 30 days have elapsed from the
time the Parties began such negotiations), such Agreement Dispute shall be
determined, at the request of any party, by arbitration conducted in New York
City, before and in accordance with the then-existing International Arbitration
Rules of the American Arbitration Association (the "Rules"). In any dispute
between the parties, the number of arbitrators shall be one. Any judgment or
award rendered by the arbitrator shall be final, binding and nonappealable
(except upon grounds specified in 9 U.S.C. Sec.10(a) as in effect on the date
hereof) . If the Parties are unable to agree on the arbitrator, the arbitrator
shall be selected in accordance with the Rules; provided that the arbitrator
shall be a U.S. national. Any controversy concerning whether an Agreement
Dispute is an arbitrable Agreement Dispute, whether arbitration has been waived,
whether an assignee of this Agreement is bound to arbitrate, or as to the
interpretation of enforceability of this Article V shall be determined by the
arbitrator. In resolving any dispute, the Parties intend that the arbitrator
apply the substantive laws of the State of Florida, without regard to the choice
of law principles thereof. The Parties intend that the provisions to arbitrate
set forth herein be valid, enforceable and irrevocable. The Parties agree to
comply with any award made in any such arbitration proceeding that has become
final in accordance with the Rules and agree to enforcement of or entry of
judgment upon such award, by any court of competent jurisdiction, including (a)
the Circuit Court of the State of Florida, Duval County, or (b) the United
States District Court for the Middle District of Florida, in accordance with
Section 6.16 hereof. The arbitrator shall be entitled, if appropriate, to award
any remedy in such proceedings, including monetary damages, specific performance
and all other forms of legal and equitable relief; provided, however, the
arbitrator shall not be entitled to award punitive damages. Without limiting the
provisions of the Rules, unless otherwise agreed in writing by or among the
Parties or permitted by this Agreement, the Parties shall keep confidential all
matters relating to the arbitration or the award, provided such matters may be
disclosed (i) to the extent reasonably necessary in any proceeding brought to
enforce the award or for entry of a judgment upon the award and (ii) to the
extent otherwise required by law. Notwithstanding Article 32 of the Rules, the
party other than the prevailing party in the arbitration shall be responsible
for all of the costs of the arbitration, including legal fees and other costs
specified by such Article 32. Nothing contained herein is intended to or shall
be construed to prevent any party, in accordance with Article 22(3) of the Rules
or otherwise, from applying to any court of competent jurisdiction for interim
measures or other provisional relief in connection with the subject matter of
any Agreement Disputes.
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<PAGE> 35
SECTION V.3 Continuity of Performance. Unless otherwise agreed in
writing, the Parties will continue to honor all other commitments under this
Agreement and the Articles of Merger during the course of arbitration or other
dispute resolution pursuant to the provisions of this Article V with respect to
all matters not subject to such dispute, controversy or claim.
ARTICLE VI.
MISCELLANEOUS
SECTION VI.1 Complete Agreement; Construction. This Agreement and the
Articles of Merger, including the Exhibits and Schedules hereto and thereto,
shall constitute the entire agreement between the Parties with respect to the
subject matter hereof and thereof and shall supersede all previous negotiations,
commitments and writings with respect to such subject matter.
SECTION VI.2 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been signed
by each of the Parties and delivered to the other Parties.
SECTION VI.3 Survival of Agreements. Except as otherwise expressly
contemplated by this Agreement, all covenants, representations, warranties and
agreements of the Parties contained in this Agreement shall survive the
Distribution Date.
SECTION VI.4 Expenses. All costs and expenses incurred in connection
with the preparation, execution, delivery and implementation of this Agreement
and the Articles of Merger, and the Distribution and the other transactions
contemplated hereby and thereby shall be charged to and paid by the party
incurring such costs and expenses.
SECTION VI.5 Notices. All notices and other communications hereunder
shall be in writing, shall be effective when received, and shall in any event be
deemed to have been received (i) upon hand delivery, (ii) three (3) days after
deposit in U.S. mail, postage prepaid, for first class delivery, (iii) one (1)
business day following the business day of timely deposit with Federal Express
or similar carrier, freight prepaid, for next business day delivery, and (iv)
one (1) business day after the date of the transmission if sent by facsimile;
provided that confirmation of transmission and receipt is confirmed and copy is
promptly sent by first class mail, postage prepaid, and shall be sent to each
party at the following respective address (or at such other address for a party
as shall be specified by like notice):
To St. Joe:
The St. Joe Company
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<PAGE> 36
1650 Prudential Drive
Jacksonville, FL 32207
Telecopy: 904 858-5265
Attn: Robert Rhodes
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Telecopy: 212 558-3588
Attn: Donald Walkovik
To FEC:
Florida East Coast Industries, Inc..
One Malaga Street
St. Augustine, FL 32084
Telecopy: 904 826-2379
Attn: Heidi Eddins
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Telecopy: 212 450-4800
Attn: Winthrop Conrad, Jr.
SECTION VI.6 Waivers. The failure of any party to require strict
performance by any other party of any provision in this Agreement will not waive
or diminish that party's right to demand strict performance thereafter of that
or any other provision hereof.
SECTION VI.7 Amendments. Subject to the terms of Section 6.10 hereof,
this Agreement may not be modified or amended except by an agreement in writing
signed by each of the parties, and in the case of FEC, approved by a majority of
the directors of FEC independent of St. Joe and its Affiliates..
SECTION VI.8 Assignment. This Agreement shall not be assignable, in
whole or in part, directly or indirectly, by any party hereto without the prior
written consent of the other party hereto, and any attempt to assign any rights
or obligations arising under this Agreement without such consent shall be void.
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<PAGE> 37
SECTION VI.9 Successors and Assigns. The provisions to this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the Parties
and their respective successors and permitted assigns.
SECTION VI.10 Termination. (a) Prior to the filing of the Articles of
Merger, this Agreement may be terminated
(i by St. Joe and FEC by mutual consent;
(ii upon 15 days' written notice to the other Party, by St.
Joe or FEC if the other Party is materially in breach of, or has
materially failed to comply with, any of its representations,
warranties, covenants or agreements hereunder or in the Articles of
Merger and such breach or failure to comply would materially impair the
benefits to be derived from the Recapitalization or the Distribution,
unless, with respect to any breach or failure to comply which is
reasonably susceptible to cure, the Party whose failure or breach it is
has effected a cure prior to the end of such 15 day notice period;
(iii by FEC if, following receipt of an Acquisition Proposal,
the Board of Directors of FEC in good faith determines, based upon the
advice of its outside counsel that it must terminate this Agreement in
order to comply with its fiduciary duties under applicable law;
(iv by St. Joe if, following receipt of an Acquisition
Proposal which contemplates a transaction in which all shares of FEC
Common Stock are to receive equivalent consideration, the Board of
Directors of St. Joe in good faith determines, based upon advice of its
outside counsel, that it must terminate this Agreement in order to
comply with its fiduciary duties under applicable law;
(v by St. Joe if the Board of Directors of FEC shall or shall
resolve to (i) not recommend, or withdraw its approval or
recommendation of, the Recapitalization, the Articles of Merger, this
Agreement or any of the transactions contemplated thereby or hereby,
(ii) modify any such approval or recommendation in a manner adverse to
St. Joe or (iii) approve, recommend or enter into an agreement for any
Acquisition Proposal;
(vi by FEC if St. Joe shall or shall resolve to (i) not vote
in favor of this Agreement and related transactions as contemplated by
Section 4.3(j) hereof or (ii) approve, recommend or enter into an
agreement for any Acquisition Proposal;
(vii by St. Joe if St. Joe in good faith believes that the IRS
Ruling in form and content substantially identical to the rulings
requested in the request for the IRS Ruling submitted to the IRS will
not be forthcoming prior to the Declaration Date or, in the case of an
IRS Supplemental Ruling that is requested prior to the Declaration
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<PAGE> 38
Date and that is necessary to clarify that material adverse
consequences would not attach to St. Joe or its affiliates as a result
of the Distribution, that the IRS Supplemental Ruling in form and
content substantially identical to the rulings requested in the request
for the IRS Supplemental Ruling submitted to the IRS will not be
forthcoming prior to the Declaration Date; or
(viii by St. Joe or FEC if the Recapitalization is not
consummated by August 1, 2000.
(b No party shall have any further liability, except for liabilities
then accrued but not discharged, of any kind to any other party or any other
Person as a result of the termination of this Agreement under paragraphs (a)
(vii) and (a)(viii) above. After the filing of the Articles of Merger relating
to the Recapitalization, this Agreement may not be terminated except by an
agreement in writing signed by both Parties.
SECTION VI.11 Subsidiaries. Each of the parties shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary, including the
merger of Delaware Sub with and into St. Joe pursuant to the Delaware Sub
Merger, of such party or by any entity that is contemplated to be a Subsidiary
of such party on or after the Distribution Date, except that, for purposes of
this Section 6.11, FEC shall not be considered a Subsidiary of St. Joe.
SECTION VI.12 Third-Party Beneficiaries. Except as provided in Article
III relating to Indemnitees, this Agreement is solely for the benefit of the
parties and their respective Subsidiaries and Affiliates and should not be
deemed to confer upon third parties any remedy, claim, liability, reimbursement,
claim of action or other right in excess of those existing without reference to
this Agreement.
SECTION VI.13 Title and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
SECTION VI.14 Exhibits and Schedules. The Exhibits and Schedules shall
be construed with and as an integral part of this Agreement to the same extent
as if the same had been set forth verbatim herein.
SECTION VI.15 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF FLORIDA.
SECTION VI.16 Consent to Jurisdiction. Without limiting the provisions
of Article VI hereof, each of the Parties irrevocably submits to the exclusive
jurisdiction of (a) the Circuit Court of the State of Florida, Duval County, and
(b) the United States District Court
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for the Middle District of Florida, for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each of the Parties agrees to commence any action, suit or proceeding
relating hereto either in the United States District Court for the Middle
District of Florida or if such suit, action or other proceeding may not be
brought in such court for jurisdictional reasons, in the Circuit Court of the
State of Florida, Duval County. Each of the Parties further agrees that service
of any process, summons, notice or document by U.S. registered mail to such
party's respective address set forth above shall be effective service of process
for any action, suit or proceeding in Florida with respect to any matters to
which it has submitted to jurisdiction in this Section 6.16. Each of the Parties
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in (i) the Circuit Court of the State of Florida, Duval
County, or (ii) the United States District Court for the Middle District of
Florida, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
SECTION VI.17 Severability; Representations and Warranties Cumulative.
In the event any one or more of the provisions contained in this Agreement
should be held invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein and
therein shall not in any way be affected or impaired thereby; provided, however,
that the consummation of the Recapitalization is conditioned upon and is not
severable from the Distribution, and that the Distribution is not severable from
the Recapitalization. The Parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions,
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions. Each representation , warranty, covenant
and agreement hereunder shall apply in accordance with its terms, whether or not
it may relate to or cover information and matters which are the subject of other
representations, warranties, covenants or agreements herein.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the day and year first above written.
THE ST. JOE COMPANY
By: /s/ Peter S. Rummell
--------------------------------
Name: Peter S. Rummell
Title: Chairman
FLORIDA EAST COAST INDUSTRIES, INC.
By: /s/ Robert W. Anestis
--------------------------------
Name: Robert W. Anestis
Title: Chairman
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<PAGE> 1
EXHIBIT 10.2
SHAREHOLDERS AGREEMENT
dated as of
October 26, 1999
among
ALFRED I. DUPONT TESTAMENTARY TRUST
NEMOURS FOUNDATION
AND
FLORIDA EAST COAST INDUSTRIES INC.
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS
SECTION 1.01. Definitions...................................................2
ARTICLE 2 RESTRICTIONS ON TRANSFER AND PURCHASE
SECTION 2.01. General.......................................................4
SECTION 2.02. Restrictions on Transfers.....................................4
SECTION 2.03. Indemnification by Shareholders...............................5
SECTION 2.04. Restrictions on Purchase......................................5
ARTICLE 3 REGISTRATION RIGHTS
SECTION 3.01. Demand Registration...........................................6
SECTION 3.02. Piggyback Registration........................................8
SECTION 3.03. Holdback Agreements...........................................9
SECTION 3.04. Registration Procedures.......................................9
SECTION 3.05. Indemnification by the Company...............................13
SECTION 3.06. Indemnification by Participating Shareholder.................14
SECTION 3.07. Conduct of Indemnification Proceedings.......................15
SECTION 3.08. Contribution.................................................16
SECTION 3.09. Participation in Public Offering.............................17
SECTION 3.10. No Transfer of Registration Rights...........................17
ARTICLE 4 MISCELLANEOUS
SECTION 4.01. Approval of Rights Plan......................................18
SECTION 4.02. Entire Agreement.............................................18
SECTION 4.03. Binding Effect; Benefit......................................18
SECTION 4.04. Assignability................................................18
SECTION 4.05. Amendment; Waiver; Effectiveness.............................18
SECTION 4.06. Notices......................................................19
SECTION 4.07. Headings.....................................................20
SECTION 4.08. Counterparts.................................................20
SECTION 4.09. Applicable Law...............................................20
SECTION 4.10. Specific Enforcement.........................................20
SECTION 4.11. Severability.................................................21
<PAGE> 3
SHAREHOLDERS AGREEMENT
AGREEMENT dated as of October 26, 1999 by and among Florida East Coast
Industries, Inc. a Florida Corporation (the "COMPANY"), the Alfred I. duPont
Testamentary Trust (the "TRUST") and The Nemours Foundation, a Florida
corporation (the "Foundation").
W I T N E S S E T H :
WHEREAS, the Company and The St. Joe Company, a Florida corporation
("ST. JOE"), have entered into a Distribution and Recapitalization Agreement
dated as of the date hereof (the "DISTRIBUTION AGREEMENT"; capitalized terms
contained herein and not otherwise defined herein shall have the meanings
ascribed to them in the Distribution Agreement);
WHEREAS, subject to the terms of the Distribution Agreement, the
Company and St. Joe will effect the Recapitalization pursuant to which, inter
alia, (i) each outstanding share of the Common Stock, no par value, of the
Company ("OLD COMMON Stock"),other than shares of Common Stock of the Company
beneficially owned by St. Joe, will be re-designated as Class A Common Stock
(the "CLASS A STOCK") and (ii) each outstanding share of Old Common Stock
beneficially owned by St. Joe will be exchanged for one share of a new series of
Class B Common Stock, no par value, of the Company (the "CLASS B STOCK" and
together with the Class A Common Stock, "COMMON STOCK");
WHEREAS, subject to the terms of the Distribution Agreement, St. Joe
will effect the Distribution pursuant to which St. Joe will distribute to its
stockholders on the Distribution Date all of the shares of Class B Stock
received in connection with the Recapitalization;
WHEREAS, the Trust is the holder of 49,643,292 shares of Common Stock
of St. Joe and will therefore receive shares of Class B Common Stock in the
Distribution;
WHEREAS, the Foundation is the holder of 2,232,408 shares of Common
Stock of St. Joe and will therefore receive shares of Class B Common Stock in
the Distribution;
WHEREAS, the Foundation is the holder of 1,800,896 shares of Old Common
Stock which will be re-designated into 1,800,896 shares of Class A Common Stock
upon consummation of the Recapitalization;
WHEREAS, the parties hereto desire to enter into this Agreement in
order to preserve the tax-free nature of the Distribution and to govern certain
of their rights, duties and obligations after consummation of the Distribution.
<PAGE> 4
NOW, THEREFORE, the parties hereto agree as follows,
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have the
following meanings:
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person, provided that no securityholder of the Company shall be deemed an
Affiliate of any other securityholder solely by reason of any investment in the
Company and no individual trustee of the Trust or individual director of the
Foundation, acting in his or her individual or separate corporate capacity and
not in concert with any other trustee of the Trust, director of the Foundation
or shareholder of the Company, shall be deemed an Affiliate of the Trust or an
Affiliate of the Foundation solely by virtue of his or her position as a trustee
or director of such entity. For the purpose of this definition, the term
"CONTROL" (including with correlative meanings, the terms "CONTROLLING",
"CONTROLLED BY" and "UNDER COMMON CONTROL with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"BENEFICIALLY OWN" shall have the meaning set forth in Rule 13d-3 of
the Exchange Act.
"BOARD" means the board of directors of the Company.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City are authorized by law to close.
"COMPANY SECURITIES" means any securities issued by the Company
including, but not limited to, the Common Stock.
"EQUITY SECURITIES" means Common Stock, securities convertible into or
exchangeable for Common Stock and options, warrants or other rights to acquire
Common Stock.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FINANCIAL EXPERT" means a nationally recognized investment banking
firm that specializes in providing valuation and valuation related services
selected by the Company.
2
<PAGE> 5
"ORIGINAL SHARES" means (i) shares of Class A Common Stock currently
owned by either of the Shareholders as of the date hereof, (ii) those shares of
Class B Common Stock received by the Shareholders in connection with the
Distribution and (iii) any other securities issuable with respect to such shares
of Class A Common Stock or Class B Common Stock by way of stock dividend or
stock split or in connection with a merger, recapitalization, consolidation,
combination of shares or other form of reorganization.
"PERSON" means an individual, corporation, limited liability company,
partnership, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"PREFERRED STOCK" means any shares of preferred stock of the Company
issued after the date hereof.
"PUBLIC OFFERING" means any primary or secondary public offering of
equity securities of the Company pursuant to an effective registration statement
under the Securities Act other than pursuant to a registration statement filed
in connection with a transaction of the type described in Rule 145 of the
Securities Act or for the purpose of issuing securities pursuant to an employee
benefit plan.
"REGISTRATION EXPENSES" means (i) all registration and filing fees,
(ii) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the securities registered), (iii) printing expenses, (iv)
internal expenses of the Company (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), (v) reasonable fees and disbursements of counsel for the Company and
customary fees and expenses for independent certified public accountants
retained by the Company (including expenses relating to any comfort letters or
costs associated with the delivery by independent certified public accountants
of a comfort letter or comfort letters requested pursuant to Section 3.04(i)
hereof), (vi) the reasonable fees and expenses of any special experts retained
by the Company in connection with such registration, (vii) fees and expenses in
connection with any review of underwriting arrangements by the National
Association of Shares Dealers, Inc. (the "NASD") including fees and expenses of
any "qualified independent underwriter", and (viii) any other fees and expenses
customarily paid by issuers in connection with public offerings provided,
however, that the term "Registration Expenses" shall not include any
underwriting fees, discounts or commissions attributable to the sale of Original
Shares, or any out-of-pocket expenses of the Shareholders or any fees and
expenses of underwriter's counsel.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SHAREHOLDER" means each of the Trust and the Foundation, so long as
such Person shall beneficially own any Common Stock.
"SHARES" means shares of Class B Stock held by the Shareholders.
"SUBSIDIARY" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by such Person.
"UNDERWRITTEN PUBLIC OFFERING" means a firmly underwritten Public
Offering of securities of the Company pursuant to an effective registration
statement under the Securities Act.
ARTICLE 2
RESTRICTIONS ON TRANSFER AND PURCHASE
SECTION 2.1. General. (a) Each Shareholder agrees that it will not,
directly or indirectly, sell, assign, transfer, grant a participation in, pledge
or otherwise dispose of ("TRANSFER") any Common Stock (or solicit any offers to
buy or otherwise acquire, or take a pledge of any Common Stock) except in
compliance with the Securities Act and the terms and conditions of this
Agreement.
(b) Any attempt to transfer any Common Stock not in compliance with
this Agreement shall be null and void and the Company shall not, and shall cause
any transfer agent not to, give any effect in the Company's stock records to
such attempted transfer.
SECTION 2.2. Restrictions on Transfers.
(a) Neither Shareholder may transfer, agree to transfer or negotiate
regarding a transfer or agreement to transfer any shares of Common Stock during
the time period beginning on the date of this Agreement and ending six months
after the Distribution Date (the "SIX-MONTH ANNIVERSARY").
(b) Any time after the Six-month Anniversary until the date which is
two years after the Distribution Date (the "TWO-YEAR ANNIVERSARY"), the
Shareholders may transfer, in one transaction or in a series of transactions, up
to an aggregate for all such transfers of the number of shares of Common Stock
equal to 10% of the total number of shares of Common Stock as are outstanding
immediately upon consummation of the Distribution. At any time after the
Two-year Anniversary, each Shareholder may transfer, agree to transfer or
negotiate regarding a transfer or agreement to transfer any of its shares of
Common Stock.
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(c) Other than the transfers permitted by Section 2.02(b) of this
Agreement, neither Shareholder may transfer, agree to transfer or negotiate
regarding a transfer or agreement to transfer any shares of Common Stock during
the time period beginning six months after the date of the Distribution and
ending two years after the date of the Distribution unless such Shareholder
receives a ruling from the Internal Revenue Service or an opinion of nationally
recognized tax counsel, reasonably satisfactory to the Company, to the effect
that the transfer of such Common Stock will not be treated as part of a "plan"
or "series of related transactions" involving the Distribution within the
meaning of Section 355(e) of the Internal Revenue Code of 1986, as amended (the
"CODE"), and any regulations thereunder.
SECTION 2.3. Indemnification by Shareholders. In addition to the rights
of the Company under Section 4.10 hereof, each Shareholder shall severally and
not jointly indemnify, defend and hold harmless the FEC Indemnitees from and
against any and all Liability (including (i) any liability for which the Company
may be obligated to indemnify the St. Joe Indemnitees under the Distribution
Agreement relating to the application of Section 355 of the Code because of a
failure to comply with the restrictions or transfer in Section 2.02 hereof and
(ii) any lost financing or other corporate opportunity of the Company related to
the Company's inability to issue stock or engage in a transaction without
violating Section 355 of the Code to the extent that the Company could have
issued such stock or engaged in such transaction without so violating Section
355 had there not been a violation by the Shareholders of this Article 2) to
which the FEC Indemnitees may become subject, arising from any failure by such
Shareholder to comply with its obligations under Article 2 of this Agreement.
SECTION 2.4. Restrictions on Purchase. (a) Subject to Section 2.04(b),
until the date which is three years after the Distribution Date, neither
Shareholder nor any of their respective Affiliates (nor any Person acting on
behalf of or in concert with either Shareholder or either Shareholder's
respective Affiliates) may, directly or indirectly, (i) acquire or agree to
acquire any voting securities of the Company or (ii) form, join or in any way
participate in a "group" (within the meaning of Section 13(d)(3) of the Exchange
Act) with respect to any voting securities of the Company.
(b) If at any time after the Distribution Date the Company issues any
shares of Class B Common Stock, Section 2.04(a)(i) shall not restrict either
Shareholder or any of their respective Affiliates to the extent (and only to the
extent) that such Person acquires shares of Class B Common Stock solely to
maintain the same percentage ownership of the then outstanding shares of Class B
Common Stock as such Person owned immediately prior to the issuance by the
Company of shares of Class B Common Stock.
(c) From the date hereof until the Distribution is consummated, neither
Shareholder nor any of their respective Affiliates (nor any person acting on
behalf of or in concert with either Shareholder or either Shareholder's
respective
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Affiliates) may, directly or indirectly, acquire or agree to acquire any shares
of capital stock of St. Joe.
ARTICLE 3
REGISTRATION RIGHTS
SECTION 3.1. Demand Registration. (a) Subject to Article 2 hereof, if
the Company receives a written request by either or both Shareholders (a
"DEMANDING SHAREHOLDER") that the Company effect a registration under the
Securities Act of all or a portion of the Shareholder's Original Shares, and
specifying the intended method of disposition thereof, the Company will use its
best efforts to effect, as expeditiously as possible, the registration (a
"DEMAND REGISTRATION") under the Securities Act of such Original Shares. It is
understood that one Demand Registration may cover Original Shares of both
Demanding Shareholders.
(b) Notwithstanding Section 3.01(a) and subject to Article 2, the
Company shall not be obligated to effect more than three Demand Registrations
and the Company shall not be obligated to effect a Demand Registration unless
the aggregate proceeds expected to be received from the sale of the Original
Shares requested to be included in such Demand Registration, in the reasonable
opinion of a Financial Expert exercised in good faith, have a fair market value
of at least $50 million (provided that in connection with a Demand Registration
pursuant to which the Demanding Shareholder intends to sell all but not less
than all of its remaining Original Shares, the expected aggregate proceeds of
such registration may be less than $50 million unless, in the opinion of the
Company, such lesser amount is not reasonable in light of the expected
Registration Expenses or does not have a reasonable likelihood of being
successfully sold). In no event will the Company be required to effect more than
one Demand Registration within any six-month period.
(c) A registration requested pursuant to this Section 3.01 shall not be
deemed to have been effected (and therefore not requested for purposes of the
limitations in Section 3.01(b) on the number of the registrations that can be
made pursuant to Section 3.01(a)), (i) unless a registration statement with
respect thereto has become effective under the Securities Act and has remained
effective for a period of at least 180 days (or such shorter period in which all
Original Shares included in such registration statement have actually been sold
thereunder), provided that a registration which does not become effective after
the Company has filed a registration statement with respect thereto solely by
reason of the refusal to proceed by the Demanding Shareholder (other than a
refusal to proceed based upon the advice of counsel relating to a material
adverse change in, or other material development relating to, the business
properties, financial conditions or results of operations of the Company) shall
be deemed to have been effected by the Company at the request of the Demanding
Shareholder unless the
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Demanding Shareholder shall have elected to pay all Registration Expenses in
connection with such registration, (ii) if, after it has becomes effective, such
registration statement becomes subject to any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court for any
reason, or (iii) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied, other than solely by reason of some act or
omission by the Demanding Shareholder.
(d) The Company will pay all Registration Expenses in connection with
any Demand Registration.
(e) If a Demand Registration involves an Underwritten Public Offering
and the managing underwriter shall advise the Company and the Demanding
Shareholder that, in its view, the number of Original Shares to be included in
such registration (including Common Stock which the Company proposes to be
included exceeds the largest number of shares which can be sold without having a
materially adverse effect on such offering, including the price at which such
shares can be sold (the "MAXIMUM OFFERING SIZE"), the Company will include in
such registration, in the priority listed below, up to the Maximum Offering
Size:
(A) first, all Original Shares requested to be registered by
the Shareholders;
(B) second, any Common Stock proposed to be registered by the
Company.
(f) Upon written notice to the Requesting Shareholder, the Company may
postpone effecting a registration pursuant to this Section 3.01 on one occasion
during any period of six consecutive months for a reasonable time specified in
the notice but not exceeding 90 days (which period may not be extended or
renewed), if (1) a Financial Expert shall advise the Company and the Demanding
Shareholder in writing that effecting the registration would materially and
adversely affect an offering of securities of the Company the preparation of
which had then been commenced or (2) the Company is in possession of material
non-public information the disclosure of which during the period specified in
such notice the Company believes would not be in the best interests of the
Company.
SECTION 3.2. Piggyback Registration. (a) Subject to Article 2 hereof,
if the Company proposes to register any of its Common Stock in a Public Offering
under the Securities Act, whether or not for sale for its own account, it will
each such time, subject to the provisions of Section 3.02(b) and Section 3.02(c)
hereof, give prompt written notice at least 20 days prior to the anticipated
filing date of the registration statement relating to such registration to the
Shareholders, which notice shall set forth the Shareholders' rights under this
Section 3.02 and shall offer each Shareholder the opportunity to include in such
registration statement
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such number of Original Shares as each such Shareholder may request (a
"PIGGYBACK REGISTRATION"). Upon the written request of either Shareholder (a
"REQUESTING SHAREHOLDER") made within 10 days after the receipt of notice from
the Company (which request shall specify the number of Original Shares intended
to be disposed of by such Shareholder), the Company will use best efforts to
effect the registration under the Securities Act of all Original Shares which
the Company has been so requested to register by such Requesting Shareholder, to
the extent requisite to permit the disposition of the Original Shares so to be
registered; provided that (i) if such registration involves an Underwritten
Public Offering, the Requesting Shareholder must sell its Original Shares to the
underwriters selected as provided in Section 3.04(h) on the same terms and
conditions as apply to the Company, as applicable (taking into account any
differences with respect to Class A Stock and Class B Stock), and (ii) if, at
any time after giving written notice of its intention to register any stock
pursuant to this Section 3.02(a) and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such stock, the Company shall
give written notice to the Requesting Shareholders and, thereupon, shall be
relieved of its obligation to register any Original Shares in connection with
such registration, provided that the Company shall reimburse each Requesting
Shareholder for its reasonable out-of-pocket expenses in connection with such
registration. No registration effected under this Section 3.02 shall relieve the
Company of its obligations to effect a Demand Registration to the extent
required by Section 3.01 hereof. The Company will pay all Registration Expenses
in connection with each registration of Original Shares requested pursuant to
this Section 3.02.
(b) If a registration pursuant to this Section 3.02 involves an
Underwritten Public Offering and the managing underwriter advises the Company in
writing that, in its view, the number of shares of Common Stock which the
Company and the Requesting Shareholders intend to include in such registration
exceeds the Maximum Offering Size, the Company will include in such
registration, in the following priority, up to the Maximum Offering Size:
(i) first, so much of the Common Stock proposed to be
registered for the account of the Company as would not cause the
offering to exceed the Maximum Offering Size; and
(ii) second, all Original Shares requested to be included in
such registration by any Requesting Shareholder pursuant to Section
3.02 (allocated, if necessary for the offering not to exceed the
Maximum Offering Size, pro rata among the Requesting Shareholders on
the basis of the relative number of Original Shares so requested to be
included in such registration).
(c) If a Requesting Shareholder requests, pursuant to this Section
3.02, the registration of a class of Common Stock different from the class of
Common
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Stock proposed to be registered by the Company and the managing underwriter (if
any) advises the Company in writing that, in its view, the inclusion in the
offering of such class of Common Stock requested by the Requesting Shareholder
will materially adversely effect the success of the proposed offering, the
Company shall not be required to include in such offering any shares of the
differing class of Common Stock requested by such Requesting Shareholder.
SECTION 3.3. Holdback Agreements. With respect to each and every firmly
underwritten Public Offering, each Shareholder agrees not to effect any public
sale or distribution under the Securities Act, of any shares of Common Stock
(except for Shares, if any, sold in that Public Offering) during the 7 days
prior to the effective date of the applicable registration statement (except as
part of such registration) or during the period after such effective date equal
to the lesser of: (i) 90 days or (ii) any such other period as the Company, the
Demanding Shareholders (if any), the Requesting Shareholders (if any) and the
managing underwriters of an Underwritten Public Offering agree).
SECTION 3.4. Registration Procedures. Whenever a Shareholder requests
that any Original Shares be registered pursuant to Section 3.01 or 3.02 hereof,
the Company will, subject to the provisions of such Sections, use its best
efforts to effect the registration and the sale of such Original Shares in
accordance with the intended method of disposition thereof and in connection
with any such request.
(a) The Company will prepare and file with the SEC a registration
statement on any form selected by counsel for the Company and which form shall
be available for the sale of the Original Shares to be registered thereunder in
accordance with the intended method of distribution thereof, and use its best
efforts to cause such filed registration statement to become and remain
effective for a period of not less than 180 days (or such shorter period in
which all of the Original Shares included in such registration statement shall
have actually been sold thereunder).
(b) The Company will, prior to filing a registration statement or
prospectus or any amendment or supplement thereto, furnish to each Shareholder
holding Original Shares covered by such registration statement (each, a
"PARTICIPATING SHAREHOLDER") and each underwriter, if any, copies of such
registration statement as proposed to be filed, and thereafter the Company will
furnish to such Shareholder and underwriter, if any, such number of copies of
such registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference therein),
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such Shareholder or
underwriter may reasonably request in order to facilitate the disposition of the
Original Shares owned by such Shareholder. Each Participating Shareholder shall
have the right to request that the Company modify any information contained in
such registration statement, amendment and supplement thereto pertaining to such
Participating Shareholder and the Company shall use its best efforts to comply
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with such request, provided, however that, subject to the last sentence of this
paragraph (b), the Company shall not have any obligation to so modify any
information if so doing would cause, in the Company's sole discretion, the
prospectus to contain an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Company will not file any registration
statement or amendment thereto or any supplement to which a Participating
Shareholder or its underwriter or underwriters, if any, shall reasonable object.
(c) If any such registration statement refers to a Participating
Shareholder by name or otherwise as the holder of any securities of the Company,
then the Participating Shareholder shall have the right to require (i) the
insertion therein of language, in form and substance satisfactory to the
Participating Shareholder, to the effect that the holding by the Participating
Shareholder of such securities does not necessarily make the Participating
Shareholder a "controlling person" of the Company with the meaning of the
Securities Act (if appropriate based on the advice of the Participating
Shareholder's counsel and concurrence therewith by counsel to the Company), such
holding is not to be construed as a recommendation by the Participating
Shareholder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that the Participating Shareholder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to the Participating Shareholder by name or
otherwise is not required by the Securities Act or rules and regulations
promulgated thereunder and concurrence with such position by counsel to the
Company, the deletion of the reference to the Participating Shareholder.
(d) In connection with the preparation and filing of each registration
statement under the Securities Act pursuant to this Agreement, the Company will
give the Participating Shareholders, their underwriter or underwriters, if any,
and their respective counsel, financial advisors and accountants, the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such
reasonable access during normal business hours to its books and records and such
opportunities to discus the business of the Company with its officers, legal
counsel and the independent public accountants necessary, in the opinion of such
Participating Shareholders' and their underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
(e) After the filing of the registration statement, the Company will
promptly notify each Participating Shareholder holding Original Shares covered
by such registration statement of any stop order issued or threatened by the SEC
or any state securities commission under state blue sky laws and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered.
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(f) The Company will use its best efforts to (i) register or qualify
the Original Shares covered by such registration statement under such other
securities or blue sky laws of such jurisdictions in the United States as the
Participating Shareholder holding such Original Shares reasonably (in light of
such Participating Shareholder's intended plan of distribution) requests and
(ii) cause such Original Shares to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company and do any and all other acts and things
that may be reasonably necessary or advisable to enable such Participating
Shareholder to consummate the disposition of the Original Shares owned by such
Participating Shareholder; provided that the Company will not be required to (A)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (e), (B) subject itself
to taxation in any such jurisdiction or (C) consent to general service of
process in any such jurisdiction.
(g) The Company will immediately notify each Participating Shareholder
holding such Original Shares covered by such registration statement, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of an event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Original Shares, such prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and promptly prepare and make available to each such Participating Shareholder
and file with the SEC any such supplement or amendment.
(h) In connection with any Demand Registration, the Company shall
appoint the managing underwriter, if any, chosen by the Demanding Shareholder,
provided that such managing underwriter shall be reasonably satisfactory to the
Company. In connection with any other registration statement contemplated by
this Article 3, the Company shall be free to choose the managing underwriter, if
any, in its sole discretion. The Company will enter into customary agreements
(including an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Original Shares, including the engagement of a "qualified
independent underwriter" in connection with the qualification of the
underwriting arrangements with the NASD.
(i) Upon execution of confidentiality agreements in form and substance
reasonably satisfactory to the Company, the Company will make available for
inspection by any Participating Shareholder and any underwriter participating in
any disposition pursuant to a registration statement being filed by the Company
pursuant to this Article 3 and any attorney, accountant or other professional
retained by any such Participating Shareholder or underwriter (collectively, the
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"INSPECTORS"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "RECORDS") as shall be
reasonably requested by any such Person, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
Inspectors in connection with such registration statement.
(j) The Company will furnish to each such Participating Shareholder and
to each underwriter, if any, a signed counterpart, addressed to such underwriter
and the Participating Shareholders, of (i) an opinion or opinions of counsel to
the Company and (ii) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such matters
of the type customarily covered by opinions or comfort letters, as the case may
be, as a majority of such Participating Shareholders or the managing underwriter
therefor reasonably requests.
(k) The Company will otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
securityholders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(l) The Company may require each such Shareholder to promptly furnish
in writing to the Company information regarding the distribution of the Original
Shares as the Company may from time to time reasonably request and such other
information as may be legally required in connection with such registration.
(m) Each such Shareholder agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
3.04(g) hereof, such Shareholder will forthwith discontinue disposition of
Original Shares pursuant to the registration statement covering such Original
Shares until such Shareholder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3.04(g) hereof, and, if so directed
by the Company, such Shareholder will deliver to the Company all copies, other
than any permanent file copies then in such Shareholder's possession, of the
most recent prospectus covering such Original Shares at the time of receipt of
such notice. In the event that the Company shall give such notice, the Company
shall extend the period during which such registration statement shall be
maintained effective (including the period referred to in Section 3.04(a)
hereof) by the number of days during the period from and including the date of
the giving of notice pursuant to Section 3.04(g) hereof to the date when the
Company shall make available to such Shareholder a prospectus supplemented or
amended to conform with the requirements of Section 3.04(g) hereof.
SECTION 3.5. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Shareholder holding Original Shares covered
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by a registration statement, its officers, trustees, directors, employees,
partners and agents, and each Person, if any, who controls such Shareholder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Original Shares (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission so made in strict conformity with information furnished in writing to
the Company by such Shareholder or on such Shareholder's behalf expressly for
use therein; provided that with respect to any untrue statement or omission or
alleged untrue statement or omission made in any preliminary prospectus, or in
any prospectus, as the case may be, the indemnity agreement contained in this
paragraph shall not apply to the extent that any such loss, claim, damage,
liability or expense results from the fact that a current copy of the prospectus
(as amended or supplemented) was not sent or given to the Person asserting any
such loss, claim, damage, liability or expense at or prior to the written
confirmation of the sale of the Original Shares concerned to such Person if it
is determined that the Company has provided such prospectus to such Shareholder
in a timely manner prior to such sale and it was the responsibility of such
Shareholder under the Securities Act to provide such Person with a current copy
of the prospectus (or such amended or supplemented prospectus, as the case may
be) and such current copy of the prospectus (or such amended or supplemented
prospectus, as the case may be) would have cured the defect giving rise to such
loss, claim, damage, liability or expense, it being understood that the
limitation contained in this provision shall not apply in the case of an
Underwritten Public Offering or a Public Offering otherwise effected through a
securities agent, broker or dealer where it was the contractual or other legal
responsibility of such agent, broker or dealer to deliver to such Person a
current copy of the prospectus. The Company also agrees to indemnify any
underwriters of the Original Shares, their officers and directors and each
person who controls such underwriters on substantially the same basis as that of
the indemnification of the Shareholders provided in this Section 3.05.
SECTION 3.6. Indemnification by Participating Shareholder. Each
Shareholder holding Original Shares included in any registration statement
agrees, severally but not jointly, to indemnify and hold harmless the Company,
its officers, directors and agents and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company to such Shareholder, but only (i) with respect to information furnished
in writing by such Shareholder or on such Shareholder's behalf expressly for use
in any registration statement or prospectus relating to the Original Shares, or
any
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amendment or supplement thereto, or any preliminary prospectus or (ii) to the
extent that any loss, claim, damage, liability or expense described in Sections
3.05 results from the fact that a current copy of the prospectus (as amended or
supplemented) was not sent or given to the Person asserting any such loss,
claim, damage, liability or expense at or prior to the written confirmation of
the sale of the Original Shares concerned to such Person if it is determined
that it was the responsibility of such Shareholder to provide such Person with a
current copy of the prospectus (or such amended or supplemented prospectus, as
the case may be) and such current copy of the prospectus (or such amended or
supplemented prospectus, as the case may be) would have cured the defect giving
rise to such loss, claim, damage, liability or expense, it being understood that
the indemnification contained in this clause (ii) shall not apply in the case of
an Underwritten Public Offering or a Public Offering otherwise effected through
a securities agent, broker or dealer where it was the contractual or other legal
responsibility of such agent, broker or dealer to deliver to such Person a
current copy of the prospectus. Each such Shareholder shall be prepared, if
required by the underwriting agreement, to indemnify and hold harmless
underwriters of the Original Shares, their officers and directors and each
person who controls such underwriters on substantially the same basis as that of
the indemnification of the Company provided in this Section 3.06. As a condition
to including Original Shares in any registration statement filed in accordance
with Article 3 hereof, the Company may require that it shall have received an
undertaking reasonably satisfactory to it from any underwriter to indemnify and
hold it harmless to the extent customarily provided by underwriters with respect
to similar securities.
SECTION 3.7. Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
this Article 3, such Person (an "INDEMNIFIED PARTY") shall promptly notify the
Person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all fees and expenses as incurred, including
reasonable costs of investigation; provided that the failure of any Indemnified
Party so to notify the Indemnifying Party shall not relieve the Indemnifying
Party of its obligations hereunder except to the extent that the Indemnifying
Party is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in the
reasonable judgment of such Indemnified Party representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in
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addition to any local counsel) at any time for all such Indemnified Parties, and
that all such fees and expenses shall be reimbursed as they are incurred. In the
case of any such separate firm for the Indemnified Parties, such firm shall be
designated in writing by the Indemnified Parties. The Indemnifying Party shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent, or if there be a final judgment for
the plaintiff, the Indemnifying Party shall indemnify and hold harmless such
Indemnified Parties from and against any and all losses, claims, damages,
liabilities and expenses or liability (to the extent stated above) by reason of
such settlement or judgment. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending
or threatened proceeding in respect of which any Indemnified Party is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such proceeding.
SECTION 3.8. Contribution. If the indemnification provided for in this
Article 3 is held by a court of competent jurisdiction to be unavailable to the
Indemnified Parties in respect of any losses, claims, damages or liabilities
referred to herein, then each such Indemnifying Party, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (i)
as between the Company and the Participating Shareholders and their related
Indemnified Parties on the one hand and the underwriters and their related
Indemnified Parties on the other, in such proportion as is appropriate to
reflect the relative benefits received by the Company and such Participating
Shareholders on the one hand and the underwriters on the other, from the
offering of the Participating Shareholders' Original Shares, or if such
allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of the Company and such Participating Shareholders on the one hand and of
such underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations and (ii) as between the Company and
their related Indemnified Parties on the one hand and each Participating
Shareholder and their related Indemnified Parties on the other, in such
proportion as is appropriate to reflect the relative fault of the Company and of
each such Participating Shareholder in connection with such statements or
omissions, as well as any other relevant equitable considerations. Any
contribution by a Participating Shareholder shall be several in the proportion
that the number of Original Shares of such Participating Shareholder sold
pursuant to the registration statement giving rise to the contribution
obligation bears to the total number of shares sold by all Participating
Shareholders pursuant to such registration statement. The relative benefits
received by the Company and such Participating Shareholders on the one hand and
such underwriters on the other shall be deemed to be in the same proportion as
the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting
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expenses) received by the Company and such Participating Shareholders bear to
the total underwriting discounts and commissions received by such underwriters,
in each case as set forth in the table on the cover page of the prospectus. The
relative fault of the Company and such Participating Shareholder on the one hand
and of such underwriters on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company and such Participating Shareholders or by
such underwriters. The relative fault of the Company on the one hand and of each
such Shareholder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Shareholders agree that it would not be just and
equitable if contribution pursuant to this Section 3.08 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 3.08, no underwriter shall be
required to contribute any amount in excess of the underwriting discount
applicable to Common Stock purchased by such underwriter in such offering, less
the aggregate amount of any damages which such underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and no Participating Shareholder shall be required to
contribute any amount in excess of the amount by which the total proceeds
received in respect of the Original Shares of such Participating Shareholder
(without deduction for any underwriting discount) exceeds the amount of any
damages which such Participating Shareholder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. Each
Participating Shareholder's obligation to contribute pursuant to this Section
3.08 is several in the proportion that the proceeds of the offering received by
such Participating Shareholder bears to the total proceeds of the offering
received by all such Shareholders and not joint.
SECTION 3.9. Participation in Public Offering. No Person may
participate in any Underwritten Public Offering hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such
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<PAGE> 19
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and the provisions of
this Agreement in respect of registration rights.
SECTION 3.10. No Transfer of Registration Rights. None of the rights of
Shareholders under this Article 3 shall be assignable by any Shareholder other
than to a Person acquiring at least four million shares of Class B Stock,
provided that such assignment is in form and substance reasonably acceptable to
the Company and that under no circumstances shall the Company be required under
this Agreement to effect more than three Demand Registrations in the aggregate.
ARTICLE 4
MISCELLANEOUS
SECTION 4.1. Approval of Rights Plan. The Shareholders each acknowledge
that, as soon as practicable after the date hereof, the Company will present to
the Board for its approval the adoption of a "Rights Plan" (the "RIGHTS PLAN")
substantially in accordance with the terms attached hereto as Exhibit A. Each of
the Shareholders agrees to support, and to use its best efforts to cause each of
its respective representatives on the Board, subject to the fiduciary duties of
such representatives, to support and vote in favor of, the adoption of the
Rights Plan.
SECTION 4.2. Entire Agreement. This Agreement and the transactions
contemplated hereby constitute the entire agreement among the parties with
respect to the subject matter hereof and thereof and supersede all prior and
contemporaneous agreements and understandings, both oral and written, between
the parties with respect to the subject matter hereof and thereof.
SECTION 4.3. Binding Effect; Benefit. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
successors, legal representatives and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any Person other than
the parties hereto, and their respective heirs, successors, legal
representatives and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
SECTION 4.4. Assignability. Other than as permitted by Section 3.10
hereof, neither this Agreement nor any right, remedy, obligation or liability
arising hereunder or by reason hereof shall be assignable by any Shareholder.
SECTION 4.5. Amendment; Waiver; Effectiveness. (a) No provision of this
Agreement may be waived except by an instrument in writing executed by the party
against whom the waiver is to be effective. No provision of this Agreement may
be amended or otherwise modified except by an instrument in writing
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<PAGE> 20
executed by the Company with approval of the Board (including at least a
majority of the directors who are not Affiliates or designees of either
Shareholder) and each of the Shareholders.
(b) This Agreement (other than Section 2.04(c) and Section 4.01) shall
become effective immediately upon the consummation of the Distribution. Section
2.04(c) and Section 4.01 hereof shall become effective immediately upon
execution of this Agreement.
SECTION 4.6. Notices. All notices and other communications given or
made pursuant hereto or pursuant to any other agreement among the parties,
unless otherwise specified, shall be in writing and shall be deemed to have been
duly given and received when sent by fax (with confirmation in writing via first
class U.S. mail) or delivered personally or on the third Business Day after
being sent by registered or certified U.S. mail (postage prepaid, return receipt
requested) to the parties at the fax number or address set forth below or at
such other addresses as shall be furnished by the parties by like notice:
if to the Company to:
Florida East Coast Industries, Inc
One Malaga Street
St. Augustine, Fl. 32084
Attention: Heidi Eddins
Telecopy: (904) 826-2379
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Winthrop B. Conrad, Jr.
Fax: (212) 450-4800
if to the Trust to:
Alfred I. duPont Testamentary Trust
Suite 400 du Pont Center
1650 Prudential Drive
Jacksonville, FL 32202
Attention: Chairman
Fax: 904-858-3124
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with a copy to:
McGuire, Woods, Battle & Boothe LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219
Attention: William J. Strickland
Fax: 804-775-1061
if to the Foundation to:
The Nemours Foundation
Suite 400
duPont Center
1650 Prudential Drive
Jacksonville, Florida 32202
Attention: Chairman
Fax: 904-858-3124
with a copy to
McGuire, Woods, Battle & Boothe LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219
Attention: William J. Strickland
Fax: 804-775-1061
SECTION 4.7. Headings. The headings contained in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
SECTION 4.8. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.
SECTION 4.9. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Florida, without regard
to the conflicts of laws rules of such state.
SECTION 4.10. Specific Enforcement. Each party hereto acknowledges that
the remedies at law of the other parties for a breach or threatened breach of
this Agreement would be inadequate and, in recognition of this fact, any party
to this Agreement, without posting any bond, and in addition to all other
remedies which may be available, shall be entitled to obtain equitable relief in
the form of
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specific performance, a temporary restraining order, a temporary or permanent
injunction or any other equitable remedy which may then be available.
SECTION 4.11. Severability. If one or more provisions of this Agreement
are held to be unenforceable to any extent under applicable law, such provision
or provisions shall be interpreted as if it or they were written so as to be
enforceable to the maximum possible extent so as to effectuate the parties'
intent to the maximum possible extent, and the balance of the Agreement shall be
interpreted as if such provision or provisions were so excluded and shall be
enforceable in accordance with its terms to the maximum extent permitted by law.
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<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
FLORIDA EAST COAST INDUSTRIES, INC
By: /s/ Robert W. Anestis
--------------------------------
Name: Robert W. Anestis
Title: Chairman
ALFRED I. DUPONT
TESTAMENTARY TRUST
By: /s/ W.L. Thornton
--------------------------------
Name: W. L. Thornton
Title: Chairman
THE NEMOURS FOUNDATION
By: /s/ W.L. Thornton
--------------------------------
Name: W.L. Thornton
Title: Vice Chairman
21
<PAGE> 1
EXHIBIT 10.3
MASTER AGREEMENT
THIS MASTER AGREEMENT (the "Agreement") is made and entered into as of
this 26th day of October, 1999, by and among THE ST. JOE COMPANY, a Florida
corporation ("St. Joe"), and GRAN CENTRAL CORPORATION, a Florida corporation
("GCC").
WHEREAS pursuant to that certain Distribution and Recapitalization
Agreement of even date herewith by and between St. Joe and Florida East Coast
Industries, Inc. (FEC) (the "Distribution Agreement") and subject to all the
terms and conditions set forth in the Distribution Agreement, FEC intends to
effect a Recapitalization as described therein and St. Joe intends to effect a
Distribution as described therein ("Distribution"), and
WHEREAS GCC, a wholly owned subsidiary of FEC, and St. Joe (and certain
affiliates of each) intend to enter into certain real estate agreements ("Real
Estate Agreements" as defined in the Distribution Agreement), including this
Agreement each of which is to become effective only upon the Distribution Date,
as defined in the Distribution Agreement ("Distribution Date"), except for the
requirements set forth in Section 9.21 of this Agreement which are effective
upon execution of this Agreement.
WHEREAS GCC owns various parcels of real property located in the State
of Florida and more particularly described on Exhibit A attached hereto
(collectively the "GCC Properties"; individually, a "GCC Property").
WHEREAS St. Joe owns various partnership interests in and parcels of
real property in the State of Florida and more particularly described in Exhibit
B attached hereto (collectively, "St. Joe Properties"; individually, a "St. Joe
Property").
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WHEREAS GCC and St. Joe have entered into this Agreement for the
purpose of setting forth the terms and conditions under which, on or after the
Distribution Date; (a) GCC and St. Joe will jointly own and develop the GCC
Properties and the St. Joe Properties, (b) GCC and St. Joe may in the future
jointly own and develop certain other properties; and (c) St. Joe, or its
affiliates, will provide continuing management and development services to GCC
and to the other properties jointly owned by GCC and St. Joe pursuant to the
terms of this Agreement.
WHEREAS GCC and St. Joe intend to enter into separate, single asset
project partnership agreements for the purpose of owning and developing each
parcel of property to be jointly developed.
NOW, THEREFORE, in consideration of the foregoing premises, and the
mutual covenants contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
Development of GCC and St. Joe Properties
1.1 GCC Properties. On the Effective Date (as hereinafter defined), GCC
and St. Joe shall form and cause their respective affiliates to form, a limited
partnership ("Project Partnership") under the terms and conditions of the
limited partnership agreement attached as Exhibit D hereto ("Project Partnership
Agreement") for each of the GCC Properties. Upon formation of such Project
Partnerships, GCC shall cause each GCC Property to be contributed to a Project
Partnership. Upon contribution of each GCC Property to a Project Partnership,
GCC shall receive a credit to its capital account in each Project Partnership in
an amount equal to the fair market value of the GCC Property
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<PAGE> 3
contributed to that Project Partnership. The fair market value of such GCC
Property shall be determined by appraisal. Upon contribution of a GCC Property
to a Project Partnership, St. Joe shall contribute to such Project Partnership
cash in an amount equal to the fair market value of the GCC Property contributed
by GCC to such Project Partnership.
1.2 St. Joe Properties.
(a) On the Effective Date, GCC and St. Joe shall form and cause their
respective affiliates to form a Project Partnership pursuant to the Project
Partnership Agreement for each of the St. Joe Properties. Upon formation of such
Project Partnerships, subject to the provisions of Section 1.2(b) below, St. Joe
shall cause each St. Joe Property to be contributed to a Project Partnership.
Upon contribution of each St. Joe Property to a Project Partnership, St. Joe
shall receive a credit to its capital account in each Project Partnership in an
amount equal to the fair market value of the St. Joe Property contributed to
that Project Partnership. The fair market value of such property shall be
determined by appraisal. Upon contribution of a St. Joe Property to a Project
Partnership, GCC shall contribute to such Project Partnership, cash in an amount
equal to the fair market value of the St. Joe Property contributed by St. Joe to
such Project Partnership.
(b) It is the intention of the parties that St. Joe contributes to
Project Partnerships real property and/or partnership interests in real property
substantially equivalent in value to the fair market value of the GCC Properties
contributed by GCC to Project Partnerships. As of the date of this Agreement,
GCC has not performed sufficient due diligence to determine whether it desires
to enter into Project Partnerships with respect to the St. Joe Properties listed
on Exhibit B attached hereto - that is, 355
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<PAGE> 4
Alhambra ("Alhambra") and Legacy Point ("Legacy"). In the event that GCC
determines that it does not desire to enter into a Project Partnership with
respect to either Alhambra or Legacy, or both, it shall within thirty (30) days
of the date of this Agreement, notify St. Joe in writing of such determination.
GCC's failure to notify St. Joe of its rejection of either Alhambra or Legacy
within such thirty-day period shall be deemed to be GCC's acceptance of such St.
Joe Properties. In the event that GCC rejects either Alhambra or Legacy, St. Joe
shall be obligated to present for consideration by GCC one or more substitute
properties (each a "Substitute Property") for such rejected St. Joe Property,
with at least one (1) Substitute Property being presented for GCC's
consideration prior to the Effective Date. In the event a Substitute Property is
proposed to and accepted by GCC, a Project Partnership shall be formed and the
Substitute Property shall be contributed to a Project Partnership as set forth
in Section 1.2(a). In the event that a Substitute Property is proposed to GCC
and rejected by GCC, St. Joe may elect to submit GCC's rejection decision to
arbitration pursuant to the provisions of Section 1.2(c) below. In the event
that the arbitrator(s) determines that GCC's rejection of such Substitute
Property was reasonable, St. Joe shall continue to be obligated to promptly
using all commercially reasonable efforts present Substitute Properties for
consideration by GCC. If on the other hand, the arbitrator(s) finds that GCC's
rejection of such Substitute Property was not reasonable, (i) St. Joe shall be
deemed to have satisfied its Property contribution obligation to the extent of
the fair market value of such Substitute Property and St. Joe will continue to
use commercially reasonable efforts to present additional Substitute Properties
until it has met its requirements in this Section 1.2(b), and (ii) GCC shall
elect within fifteen (15) days after the arbitrator(s) decision to either (a)
enter into a Project Partnership with St. Joe on the Effective Date to jointly
own and
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<PAGE> 5
develop the Substitute Property or (b) pass on the opportunity to jointly own
and develop with St. Joe the Substitute Property, in which latter event St. Joe
shall be free to take whatever course of action it deems appropriate with
respect to such Substitute Property, including proceeding to develop the
Substitute Property in a manner that is competitive with any other Project
Partnership. In all events, St. Joe's obligation to present Substitute
Properties for consideration by GCC shall terminate three (3) years after the
Effective Date.
(c) In the event St. Joe challenges the reasonableness of the rejection
by GCC of a Substitute Property, such matter shall be submitted to and settled
by arbitration provided and conducted in accordance with the expedited
procedures in the Commercial Rules as of the date of submission of the American
Arbitration Association. In the event of any such arbitration, there shall be
only one arbitrator(s) who shall be selected jointly by the parties. If the
parties cannot agree to an arbitrator(s) within 15 days after either party
demands arbitration, a panel of three arbitrators shall be selected in
accordance with the Commercial Rules of the American Arbitration Association.
Meetings with the arbitrator(s) shall be held in Jacksonville, Florida. The
decision of the arbitrator(s) shall be binding upon the parties and shall not be
subject to appeal. Each party shall bear its own expenses in connection with any
arbitration proceeding hereunder. In making his, her or its decision on whether
GCC was reasonable in rejecting a Substitute Property, the arbitrator or
arbitrators shall consider as controlling factors regarding the issue of
reasonableness whether the Substitute Property has present value and development
potential and yield comparable to that of the GCC Properties.
(d) In the event GCC rejects Alhambra or Legacy, or both, and
Substitute Properties acceptable to GCC and sufficient to fulfill St. Joe's
contribution obligation
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<PAGE> 6
have not been identified by the Effective Date, GCC nonetheless shall be
required to contribute on the Effective Date the GCC Properties to Project
Partnerships pursuant to Section 1.1 and St. Joe shall be required to contribute
on the Effective Date St. Joe Properties and Substitute Properties which have
been accepted by GCC to Project Partnership pursuant to Section 1.2(b).
1.3 Additional Partner Contributions. If, at the time of contribution
of a parcel to a Project Partnership, there are ongoing improvements that have
been and are being made to such parcel, the party which did not contribute the
parcel shall, in addition to its obligation to contribute cash in an amount
equal to the value of the parcel, be obligated to contribute cash equal to fifty
percent (50%) of the investment by the other party in such improvements prior to
the contribution of such parcel to the Project Partnership. If, at the time of
contribution of a parcel to a Project Partnership, there exists recourse debt
associated with ongoing improvements that have been or are being made to such
parcel, the partner which did not contribute the parcel shall assume the
obligation for its pro-rata share of such debt and any guarantees of such debt.
1.4 Standstill. GCC and St. Joe agree to hold title to the GCC
Properties and the St. Joe Properties, respectively, subject to this Agreement.
Until such time as each GCC Property and St. Joe Property has been contributed
to a Project Partnership or released from this Agreement as a result of GCC's
rejection thereof pursuant to Section 1.2(b), the party owning such property
shall not sell, transfer, pledge, encumber or otherwise dispose of such property
(or any interest therein) without the prior written consent of the other party
to this Agreement.
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ARTICLE 2
Future Development
2.1 Intentions of the Parties. St. Joe is currently evaluating the
acquisition and development of the Coral Cables Property described in Exhibit C
attached hereto ("Coral Gables Project"). GCC is currently negotiating through
St. Joe pursuant to St. Joe's responsibilities under the Management Agreement
dated as of January 1, 1998 between St. Joe and GCC, the acquisition of
SouthPark II Property described in Exhibit C attached hereto with estimated
entitlements to build 1.8 million square feet of office space (the "SouthPark II
Project"). It is the expectation of GCC and St. Joe that the present value,
development potential and yield of the Coral Gables Project and the SouthPark II
Project are of substantially equal value. GCC and St. Joe intend to create a
relationship whereby each entity, through affiliates or subsidiaries, will be a
fifty percent partner in development projects that will be of substantially
equal value presently contemplated to be the Coral Gables Project and the
SouthPark II Project. It is presently unknown whether (a) St. Joe will acquire
the Coral Gables Property or if it does, whether GCC will, after conducting due
diligence, desire to be a 50% partner in the Coral Gables Project and (b)
whether GCC will consummate the acquisition of the SouthPark II Property. St.
Joe and GCC acknowledge that their respective decisions about acquisitions by
St. Joe of the Coral Gables property and GCC's investment therein and by GCC
about the SouthPark II Property will not happen at the same time and that the
acquisition of the SouthPark II Property will likely happen first. The parties
intend to create by the provisions herein a relationship that will facilitate
the development of the property acquired while affording the parties the
opportunity to identify, evaluate and decide upon opportunities including
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<PAGE> 8
but not limited to the Coral Gables Project which have a substantially
equivalent value to the SouthPark II Project
2.2 SouthPark II.
(a) St. Joe will continue to negotiate, on GCC's behalf, a purchase and
sale agreement for the SouthPark II Property. Subject to the execution and
consummation of an acceptable purchase and sale agreement, GCC or an affiliated
limited liability company ("GCC LLC") to be established for the purpose of
utilizing proceeds from a sale of other property pursuant to section 1031(d) of
the Internal Revenue Code ("IRC"), shall purchase the SouthPark II Property. If
GCC LLC purchases the SouthPark II Property then St. Joe will have the right to
acquire an interest in GCC LLC corresponding to a right to participate in the
development of fifty percent (50%) of the entitled floor area ratio ("FAR"),
currently estimated at 900,000 square feet. If St. Joe agrees to acquire such
interest then it shall contribute to the capital of GCC LLC an amount equal to
fifty percent (50%) of the acquisition and closing costs for the SouthPark II
Property, and GCC and St. Joe will enter into a LLC agreement with the same
terms and conditions as a Project Partnership Agreement.
2.3 St. Joe's Obligations
(a) St. Joe shall continue its review and determinations with
respect to the Coral Gables Property. If St. Joe acquires the Coral Gables
Property it will offer GCC a fifty percent (50%) partnership in the Coral Gables
Project, which GCC in the exercise of commercially reasonable judgment may
accept or reject.
During the period commencing on the Effective Date and ending
three (3) years thereafter (the "Joint Development Period"), if: (i) St. Joe
does not acquire the Coral Gables Property or (ii) if St. Joe acquires the Coral
Gables Property and GCC does
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not accept the Coral Gables Project; or (iii) St. Joe acquires the Coral Cables
Property and GCC invests in the Coral Gables Project but GCC, in its reasonable
judgment determines that the Coral Gables Property is not equivalent in total
value to the SouthPark II Property, but only partially equivalent in value, then
St. Joe shall use its commercially reasonable efforts to present to GCC other
opportunities to participate in the ownership and development of land now owned
or hereafter acquired by St. Joe the ("Equivalent Development Opportunity")
substantially equivalent in value, in the aggregate, to the then fair market
value of the SouthPark II Property (as if unimproved) and at least equivalent in
development potential and yield to the SouthPark II Project. Upon GCC accepting
Equivalent Development Opportunities as described herein then GCC and St. Joe
will contribute the remaining SouthPark II property and the Equivalent
Development Opportunities owned by St. Joe, and will execute a Project
Partnership Agreement .
In the event that by the end of the Joint Development Period,
GCC has not accepted Equivalent Development Opportunities presented by St. Joe
the land value of which is, in the aggregate, substantially equivalent to the
fair market value for the SouthPark II Property; including its development
potential and yield, then in such event, at GCC's election upon written notice
to St. Joe within sixty (60) days of the end of the Joint Development Period,
St. Joe's right to participate in the ownership and development of any SouthPark
II Property in excess of buildings totaling fifty percent (50%) of the entitled
FAR square feet shall terminate at GCC's option
(b) GCC shall be commercially reasonable in its evaluation of
any Equivalent Development Opportunity presented to it by St. Joe. In the event
GCC rejects any such Equivalent Development Opportunity, St. Joe shall have the
right to challenge
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<PAGE> 10
such rejection and have the matter submitted to arbitration in accordance with
the principles and procedures set forth in Section 1.2(b) and (c) above, except
that the comparable property shall be the SouthPark II Property. In the event
the arbitrator(s) determine that GCC's rejection of a Equivalent Development
Opportunity was commercially reasonable, St. Joe shall continue to use
commercially reasonable efforts to present Equivalent Development Opportunities
to GCC. In the event the arbitrator(s) finds that GCC's rejection was not
commercially reasonable, (i) St. Joe shall be deemed to have satisfied its
obligation to present Equivalent Development Opportunities to the extent of the
fair market value of the land comprising such Equivalent Development Opportunity
and St. Joe will continue to use commercially reasonable efforts to present
additional Substitute Properties until it has met its requirements in this
Section 2.3(b), and (ii) GCC shall elect within fifteen (15) days after the
arbitrator(s) decision to either (a) enter into a Project Partnership with St.
Joe to jointly own and develop the Equivalent Development Opportunity or (b)
pass on the opportunity to jointly own and develop with St. Joe the Equivalent
Development Opportunity, in which latter event St. Joe shall be free to take
whatever course of action it deems appropriate with respect such Equivalent
Development Opportunity, including proceeding to develop same in a manner that
is competitive with any other Project Partnership.
(c) In the event that St. Joe presents to GCC one or more
Equivalent Development Opportunities and GCC accepts any such Equivalent
Development Opportunities, then in such event St. Joe and GCC shall enter into a
Project Partnership with respect such Equivalent Development Opportunity. Upon
formation of such Project Partnership, St. Joe shall receive a credit to its
capital account in such Project Partnership an amount equal to the fair market
value of such property and GCC shall contribute to
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such Project Partnership cash in an amount equal to the fair market value of
such property. The fair market value of any property comprising a Equivalent
Development Opportunity shall be determined by appraisal, unless such property
is being purchased in order to proceed with such Development Opportunity in
which event the fair market value shall be the acquisition cost.
(d) The GCC LLC, and any Project Partnership entered into
pursuant to this Section 2.3,shall each enter into a Development Management
Agreement and Property Management Agreement with St. Joe, or its affiliates, to
provide development management services at four percent (4%) and property
management services at two and a one-half percent (2 1/2%) for a period of three
(3) years from the Effective Date and, thereafter, at the then market rates
unless different rates are mutually agreed to by GCC and St. Joe in writing.
4. Future Development of Additional GCC Property. In addition to the
GCC Property, GCC owns additional parcels of real property more particularly
described on Exhibit E attached hereto (the "Additional GCC Properties") which
GCC and St. Joe have identified as potential joint development opportunities.
(a) During the three (3) years from the Effective Date, it is the
intention of St. Joe to identify and acquire additional properties for
development which are not currently owned by St. Joe (the "Additional St. Joe
Properties") and to offer GCC a right to participate in the ownership and
development of the Additional St. Joe Properties (a "St. Joe Development
Opportunity"). In the event that GCC determines, in its sole discretion, to
participate in a St. Joe Development Opportunity, then in such event GCC shall,
in return, offer St. Joe a right to participate in the ownership and development
of certain of the Additional GCC Properties corresponding in terms of value to
the value of
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the St. Joe Opportunity. St. Joe and GCC shall at the time mutually agree as to
which of the Additional GCC Properties shall be jointly owned and developed.
With respect to any joint ownership and development of a Project under this
Section 4(a), and unless the parties otherwise agree, GCC and St. Joe, or its
affiliates, shall have equal ownership interests therein. GCC and St. Joe shall
enter into a Project Partnership Agreement, and the Project Partnership shall
enter into a Development Management Agreement and a Property Management
Agreement with St. Joe, or its affiliates, to provide development management
services and property management services at the rates provided in Section
2.3(d) above. The right to participate set forth in this paragraph shall not be
applicable to any Additional GCC Property or portion thereof which from and
after the date hereof, GCC has sold, contracted to sell a controlling interest
or contracted to develop, subject to St. Joe's rights to act as a development
manager under the Development Management Services Agreement that will commence
on the Effective Date pursuant to Section 6.1 below and to St. Joe's rights
under 2.4(b) below.
(b) In the event that, during the three-year period from the Effective
Date, GCC determines to seek third-party cash equity investment in one or more
of the Additional GCC Properties (a "GCC Development Investment Opportunity"),
GCC shall deliver a notice (the "Development Notice") to St. Joe notifying it of
the GCC Development Investment Opportunity and identifying all of the material
terms of, and facts relating to, the investment sought by GCC in the GCC
Development Investment Opportunity. For a period of thirty (30) days after
receipt of such Development Notice (the "Development Notice Period"), St. Joe
shall have the right to invest in such GCC Development Investment Opportunity
upon the terms and conditions as set forth in the Development Notice. If St. Joe
does not exercise the right granted hereunder with respect
12
<PAGE> 13
to a particular GCC Development Investment Opportunity, GCC will have the right
to solicit and obtain third party equity investment on such terms as GCC and
such third party investor may agree on, provided that GCC shall not contract
with such third party investor on terms that are materially more advantageous to
such third party investor than the terms offered to St. Joe. In addition, if GCC
has not actively engaged in the development of such GCC Development Investment
Opportunity within one year after St. Joe fails to exercise its right to
participate or has not within such year entered into an agreement with a third
party investor for such GCC Development Investment Opportunity and GCC, in its
sole discretion, intends to pursue development of such GCC Development
Investment Opportunity and decides to again seek third-party cash equity
investment, then GCC shall be obligated to present such GCC Development
Investment Opportunity to St. Joe to participate in again in accordance with the
aforesaid thirty-day notice procedure. For the purpose of this section "actively
engaged in development" shall mean the expenditure or commitment for expenditure
of more than Two Hundred Fifty Thousand Dollars ($250,000) during such one-year
period. With respect to any GCC Development Investment Opportunity in which St.
Joe elects to participate under this Section 2.1(b), GCC and St. Joe shall enter
into a Project Partnership Agreement as modified by the terms and conditions of
the GCC Development Investment Opportunity and the Project Partnership shall
enter into a Development Management Agreement and a Property Management
Agreement with St. Joe, or its affiliates, to provide development management
services and property management services at market based rates.
(c) Notwithstanding the rights granted under this Section 2.4(b), those
rights shall not apply to proposals or transactions that include other material
considerations or
13
<PAGE> 14
material benefits beyond the investment of cash in a GCC Development Investment
Opportunity.
(d) If St. Joe has declined to participate in greater than three GCC
Development Investment Opportunities that each have a total development budget
of at least Seven Million Five Hundred Thousand Dollars ($7,500,000) and GCC is
successful in attracting third party cash equity investment in such GCC
Development Investment Opportunities in accordance with the provisions set forth
herein, then GCC may terminate the right of St. Joe to invest as provided in (b)
above and GCC shall have no further obligations to St. Joe under this right to
invest. In addition, St. Joe shall have no right to invest with respect to the
Additional GCC Properties which GCC has sold or contracted to sell.
ARTICLE 3
Assignment and Institutional Debt
3.1 By St. Joe. St. Joe shall not have the right to assign or transfer
its rights or obligations under this Agreement or any interest therein without
obtaining the prior written consent of GCC, which consent may be arbitrarily
withheld for any reason or no reason at all. Notwithstanding the foregoing, St.
Joe shall be permitted to assign its rights and obligations under this
Agreement, without the consent of GCC, to affiliates and subsidiaries that are
wholly-owned and controlled by St. Joe; provided, however, the assignor shall,
as precondition of any such assignment, unconditionally guarantee the assignee's
performance of the assignor's obligations hereunder.
3.2 By GCC. GCC shall not have the right to assign or transfer its
rights or obligations under this Agreement or any interest therein, without
obtaining the prior written consent of St. Joe, which consent may be arbitrarily
withheld for any reason or no
14
<PAGE> 15
reason at all. Notwithstanding the foregoing, GCC shall be permitted to assign
its rights and obligations under this Agreement, without the consent of any
other party to this Agreement, to affiliates and/or subsidiaries thereof that
are wholly-owned and controlled by GCC; provided, however, the assignor shall,
as precondition of any such assignment, unconditionally guarantee the assignee's
performance of the assignor's obligations hereunder.
3.3 Institutional Equity and Debt. GCC and St. Joe agree that the other
party may transfer to an institutional investor up to fifty percent (50%) of its
equity position in any development occurring on any of the properties they
decide to jointly own and develop pursuant to this Agreement provided that no
change in control in the transferring party occurs. GCC and St. Joe also agree
that any proposed joint development described herein may include an amount of
debt as may be agreed to from time to time by GCC and St. Joe.
ARTICLE 4
Asset Management
4.1 On the Effective Date, GCC and St. Joe shall execute and deliver
the Amended and Restated Asset Management Agreement attached as Exhibit F
hereto.
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<PAGE> 16
ARTICLE 5
Property Management
5.1 On the Effective Date, GCC and St. Joe shall execute and deliver
the Property Management and Leasing Agreement attached as Exhibit G hereto.
ARTICLE 6
Development Management
6.1 On the Effective Date, GCC and St. Joe shall execute and deliver to
Development Management Services Agreement attached as Exhibit H hereto.
ARTICLE 7
Hialeah Rail Yard
7.1 On the Effective Date, St. Joe shall, and GCC shall cause Florida
East Coast Railway Company to, execute and deliver the Florida East Coast
Railway Agreement attached as Exhibit I hereto.
ARTICLE 8
Consideration
8.1 Consideration. In consideration of the execution and delivery of
the Amended and Restated Asset Management Agreement, the Property Management and
Leasing Agreement and the Development Management Services Agreement, St. Joe
shall pay to GCC the sum of Six Million Dollars ($6,000,000) in three (3) equal
annual installments, the first installment being due and payable on the
Effective Date and the next two installments on the first and second anniversary
of the Effective Date, respectively. In the event St. Joe fails to pay any
installment when due, and such failure continues for a period of thirty (30)
days after written notice to such effect from GCC to St. Joe, GCC shall, in
addition to its remedies at law or in equity, have the right to offset
16
<PAGE> 17
against fees next becoming due to St. Joe, or its affiliates, under the Property
Management and Leasing Agreement referred to in Section 5.1 hereof and the
Development Management Services Agreement referred to in Section 6.1 hereof.
ARTICLE 9
Miscellaneous
9.1 Entire Agreement. This Agreement, together with the Exhibits
attached hereto, all of which are incorporated herein by reference, represents
the entire understanding and agreement between the parties with respect to the
subject matter hereof, and supersedes all other negotiations, understandings and
representations (if any) made by and between such parties which are merged into
this Agreement.
9.2 Amendments. The provisions of this Agreement may not be amended,
supplemented, waived or changed orally, but only by a writing signed by the
party as to whom enforcement of any such amendment, supplement, waiver or
modification is sought and making specific reference to this Agreement.
9.3 Severability. If any provision of this Agreement or any other
agreement entered into pursuant hereto is contrary to, prohibited by or deemed
invalid under applicable law or regulation, such provision shall be inapplicable
and deemed omitted to the extent that it is contrary, prohibited or invalid, but
the remainder hereof shall not be invalidated thereby and shall be given full
force and effect so far as possible. If any provision of this Agreement may be
construed in two or more ways, one of which would render the provision invalid
or otherwise voidable or unenforceable and another of which would render the
provision valid and enforceable, such provision shall have the meaning which
renders it valid and enforceable.
17
<PAGE> 18
9.4 Binding Effect. All of the terms and provisions of this Agreement
shall be binding upon, inure to the benefit of, and be enforceable by the
parties and their respective legal representatives, successors and permitted
assigns, whether so expressed or not.
9.5 Third Parties. Unless expressly stated herein to the contrary,
nothing in this Agreement, whether express or implied, is intended to confer any
rights or remedies under or by reason of this Agreement on any persons other
than the parties hereto and their respective legal representatives, successors
and permitted assigns. Nothing in this Agreement is intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over or against any party to this Agreement.
9.6 Headings. The headings contained in this Agreement are for
convenience of reference only, are not to be considered a part of the Agreement
and shall not limit or otherwise affect in any way the meaning or interpretation
of this Agreement.
9.7 No Construction Against Drafter. The parties acknowledge that this
is a negotiated agreement, and that in no event shall the terms hereof be
construed against either party on the basis that such party, or its counsel,
drafted this Agreement.
9.8 Brokers. Each of the parties represents and warrants that such
party has dealt with no broker or finder in connection with any of the
transactions contemplated by this Agreement, and, insofar as such party knows,
no broker or other person is entitled to any commission or finder's fee in
connection with any of these transactions. The parties each agree to indemnify
and hold harmless one another against any loss, liability, damage, cost, claim
or expense incurred by reason of any brokerage commission or finder's fee
alleged to be payable because of any act, omission or statement of the
18
<PAGE> 19
indemnifying party. The provisions of this Section shall survive each conveyance
of a parcel or assignment of partnership interests, as applicable, and the
delivery of the deeds or assignments in connection therewith.
9.9 Further Assurances. The parties hereby agree from time to time to
execute and deliver such further and other transfers, assignments and documents
and do all matters and things which may be convenient or necessary to more
effectively and completely carry out the intentions of this Agreement.
9.10 Outside Businesses. Except as expressly prohibited by the terms of
this Agreement, nothing contained in this Agreement shall be construed to
restrict or prevent, in any manner, any party or any party's representatives or
principals from engaging in any other businesses or investments.
9.11 Recordation. The parties agree not to record this Agreement or any
memorandum or other evidence hereof in the public records of any jurisdiction.
Any attempt to record this Agreement or any evidence hereof shall be deemed to
be null and void and shall be deemed to be a Default under this Agreement.
9.12 Governing Law. This Agreement and all transactions contemplated by
this Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the State of Florida.
9.13 Enforcement Costs. If any civil action, arbitration or other legal
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any
provision of this Agreement, the parties shall be responsible for their own
costs and expenses including, without limitation, fees of experts and attorneys.
19
<PAGE> 20
9.14 Jurisdiction and Venue. Any civil action or legal proceeding
arising out of or relating to this Agreement shall be brought in the courts of
record of the State of Florida in St. Johns County or the United States District
Court, Middle District of Florida. Each party consents to the jurisdiction of
such court in any such civil action or legal proceeding in such court. Service
of any court paper may be effected on such party by mail, as provided in this
Agreement, or in such other manner as may be provided under applicable laws,
rules of procedure or local rules.
9.15 JURY WAIVER. IN ANY CIVIL ACTION, COUNTERCLAIM, OR PROCEEDING,
WHETHER AT LAW OR IN EQUITY, WHICH ARISES OUT OF, CONCERNS, OR RELATES TO THIS
AGREEMENT, ANY AND ALL TRANSACTIONS CONTEMPLATED HEREUNDER, THE PERFORMANCE
HEREOF, OR THE RELATIONSHIP CREATED HEREBY, WHETHER SOUNDING IN CONTRACT, TORT,
STRICT LIABILITY, OR OTHERWISE, TRIAL SHALL BE TO A COURT OF COMPETENT
JURISDICTION AND NOT TO A JURY. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY. ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OF A
COPY OF THIS AGREEMENT WITH ANY COURT, AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO OF THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. NEITHER PARTY HAS
MADE OR RELIED UPON ANY ORAL REPRESENTATIONS TO OR BY ANY OTHER PARTY REGARDING
THE ENFORCEABILITY OF THIS PROVISION. EACH PARTY HAS READ AND UNDERSTANDS THE
EFFECT OF THIS JURY WAIVER PROVISION.
9.16 ADVICE OF COUNSEL. EACH PARTY ACKNOWLEDGES THAT IT HAS BEEN
ADVISED BY ITS OWN COUNSEL WITH RESPECT TO THE
20
<PAGE> 21
TRANSACTIONS GOVERNED BY THIS AGREEMENT, AND SPECIFICALLY WITH RESPECT TO THE
TERMS OF SECTION 4.15, WHICH CONCERNS THE WAIVER OF EACH PARTY'S RIGHT TO TRIAL
BY JURY.
9.17 Notices. All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including
electronic transmission) and shall be (as elected by the person giving such
notice) hand delivered by messenger or courier service, electronically
transmitted or mailed (airmail if international) by registered or certified mail
(postage prepaid), return receipt requested, addressed to:
ST. JOE:
The St. Joe Company
c/o St. Joe Commercial, Inc.
David D. Fitch, President
Suite 400 du Pont Center
1650 Prudential Drive
Jacksonville, Florida 32207
Telephone: 904/396-6600
Telecopy: 904/396-4042
with a copy to:
Robert M. Rhodes, Esq.
Executive Vice President and General Counsel
The St. Joe Company
1650 Prudential Drive, Suite 400
Jacksonville, Florida 32207
GCC:
Robert W. Anestis, President
Gran Central Corporation
One Malaga Street, P.O. Drawer 1048
St. Augustine, Florida 32085-1048
Telephone: 904/826-2202
Telecopy: 904/826-2376
with a copy to:
Heidi J. Eddins, Esq.
Secretary and General Counsel
Gran Central Corporation
One Malaga Street, P.O. Drawer 1048
St. Augustine, Florida 32085-1048
21
<PAGE> 22
or such other addresses as any party may designate by notice complying with the
terms of this Section. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date of transmission with
confirmed answer back if by electronic transmission; and (c) on the date upon
which the return receipt is signed or delivery is refused or the notice is
designated by the postal authorities as not deliverable, as the case may be, if
mailed.
9.18 Confidentiality. No party hereto, without the written approval of
the other party, during the period of time this Agreement is in effect or
thereafter divulge to any person not a party hereto, other than its attorneys,
accountants, employees and professional advisers, any information concerning the
content of this Agreement, unless (i) such information is already known to such
party or to others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of such party, (ii) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval, or (iii) furnishing of such information is required by law;
provided, however, that in the event of disclosure pursuant to (ii) or (iii)
hereof, such disclosing party shall agree to provide prompt written notice to
the other parties hereto prior to disclosure, if practicable, and to disclose
only that portion of the confidential information which is legally required or
otherwise necessary.
9.19 Counterparts. This Agreement, and any document or instrument
entered into, given or made pursuant to this Agreement or authorized hereby, and
any amendment or supplement thereto may be executed in two or more counterparts,
and, when so executed, will have the same force and effect as though all
signatures appear on a single document. Any signature page of this Agreement or
of such amendment, supplement,
22
<PAGE> 23
document or instrument may be detached from any counterpart without impairing
the legal effect of any signatures thereof, and may be attached to another
counterpart identical in form thereto but having attached to it one or more
additional signatures pages.
9.20 Survival. The provisions of this Agreement shall survive each
conveyance of a parcel to a Project Partnership.
9.21 Effective Date. Pursuant to that certain Distribution and
Recapitalization Agreement (the "Distribution Agreement") of even date herewith
by and between St. Joe and Florida East Coast Industries, Inc. ("FEC"), of which
GCC is a wholly owned subsidiary, and subject to all the terms and conditions
set forth in the Distribution Agreement, FEC intends to effect a
recapitalization as described therein and St. Joe intends to effect a
distribution as described therein (the "Distribution"). It is the intention of
GCC and St. Joe and it is hereby agreed that, except solely for the provisions
of Section 1.2(b), (c) and (d) regarding due diligence by GCC and the
profffering of Substitute Property by St. Joe, this Agreement shall not become
legally effective unless and until the Distribution Date shall occur, as that
term is described in the Distribution Agreement (herein the "Effective Date").
If for any reason whatsoever the Distribution Agreement is terminated or the
Distribution does not occur by August 1, 2000, this Agreement including all
Exhibits hereto shall be of no further force and effect and neither GCC
(including affiliates) nor St. Joe (including affiliates) shall have any further
rights or obligations hereunder.
23
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
WITNESS: GRAN CENTRAL:
GRAN CENTRAL CORPORATION,
/s/ Heidi Eddins a Florida corporation
- -------------------------------
Name: Heidi Eddins By: /s/ Robert W. Anestis
----------------------------------
/s/ Lawrence Paine Name: Robert W. Anestis
- ------------------------------- Title: Chairman
Name: Lawrence Paine
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
24
<PAGE> 25
THE ST. JOE COMPANY, a Florida
/s/ Lawrence Paine corporation
- -------------------------------
Name: Lawrence Paine By: /s/ Peter S. Rummell
----------------------------------
/s/ Joan Tannous Name: Peter S. Rummell
- ------------------------------- Title: Chairman
Name: Joan Tannous
25
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