<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number 1-10466
The St. Joe Company
(Exact name of registrant as specified in its charter)
Florida 59-0432511
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 400, 1650 Prudential Drive, Jacksonville, Florida 32207
(Address of principal executive offices) (Zip Code)
(904) 396-6600
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since
last report)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 1999, there were 87,073,831 shares of common stock, no par
value, issued and outstanding, with an additional 4,723,980 shares issued and
held in treasury.
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THE ST. JOE COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I Financial Information:
Consolidated Balance Sheets-
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income-
Three months and nine months ended
September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows-
Nine months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations 11
PART II Other Information
Exhibits and Reports on Form 8-K 23
</TABLE>
2
<PAGE> 3
THE ST. JOE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents $ 100,505 $ 39,108
Short-term investments 68,557 65,285
Accounts receivable 37,530 38,691
Inventory 7,953 11,006
Other assets 17,409 13,234
----------- -----------
Total current assets 231,954 167,324
Investments & other assets:
Marketable securities 152,527 201,002
Investment in unconsolidated affiliates 74,552 70,235
Prepaid pension asset 61,668 53,683
Goodwill 132,893 123,389
Other assets 7,538 9,301
Net assets of discontinued operations 4,482 72,318
----------- -----------
Total investment and other assets 433,660 529,928
Investment in real estate 678,246 548,101
Property, plant & equipment, net 374,036 358,916
----------- -----------
Total assets $ 1,717,896 $ 1,604,269
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,862 $ 26,497
Accrued liabilities 88,725 41,961
Current portion of long-term debt 30,011 24,953
----------- -----------
Total current liabilities 154,598 93,411
Reserves and other liabilities 16,311 11,946
Deferred income taxes 272,783 289,359
Long-term debt 4,809 9,947
----------- -----------
Total liabilities 448,501 404,663
Minority interest in consolidated subsidiaries 333,772 316,309
Stockholders' equity:
Common stock, no par value; 180,000,000 shares
authorized; 91,797,811 and 91,697,811 shares
issued, respectively -- --
Additional paid-in capital 15,428 13,054
Accumulated other comprehensive income 86,907 88,200
Retained earnings 945,206 839,227
Restricted stock deferred compensation (3,891) (2,604)
Treasury stock, 4,723,980 and 2,543,590 shares,
respectively, at cost (108,027) (54,580)
----------- -----------
Total stockholders' equity 935,623 883,297
----------- -----------
Total liabilities and stockholders' equity $ 1,717,896 $ 1,604,269
=========== ===========
</TABLE>
3
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THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
----------------------- -----------------------
1999 1998 1999 1998
----------------------- -----------------------
<S> <C> <C> <C> <C>
Total revenues $181,483 $108,329 $533,599 $ 253,691
----------------------- -----------------------
Expenses:
Operating expenses 140,871 76,286 426,395 174,413
Corporate expense, net 4,250 2,954 11,278 8,346
Depreciation and amortization 13,129 9,715 35,234 27,042
----------------------- -----------------------
Total expenses 158,250 88,955 472,907 209,801
----------------------- -----------------------
Operating profit 23,233 19,374 60,692 43,890
----------------------- -----------------------
Other income:
Investment income 3,059 5,066 9,462 17,109
Other, net 9,695 1,829 12,997 6,134
----------------------- -----------------------
Total other income 12,754 6,895 22,459 23,243
----------------------- -----------------------
Income from continuing operations before income taxes
and minority interest 35,987 26,269 83,151 67,133
Income tax expense 17,854 10,884 10,540 28,873
Ninority interest 3,731 5,653 12,798 14,419
----------------------- -----------------------
Income from continuing operations 14,402 9,732 59,813 23,841
Income from discontinued operations:
Earnings from discontinued operations, net of income
taxes of $331, $(310), $3,222 and $582, respectively 527 (495) 5,131 924
Gain on sale of discontinued operations, net of income
taxes of $29,031 -- -- 42,800 --
----------------------- -----------------------
Net income $ 14,929 $ 9,237 $107,744 $ 24,765
======================= =======================
EARNINGS PER SHARE
Basic:
Income from continuing operations $ 0.17 $ 0.11 $ 0.68 0.26
Earnings (loss) from discontinued operations 0.01 (0.01) 0.06 0.01
Gain on sale of discontinued operations -- -- 0.49 --
----------------------- -----------------------
Net income $ 0.18 $ 0.10 $ 1.23 $ 0.27
======================= =======================
Diluted:
Income from continuing operations $ 0.16 $ 0.11 $ 0.67 0.26
Earnings (loss) from discontinued operations 0.01 (0.01) 0.06 0.01
Gain on sale of discontinued operations -- -- 0.48 --
----------------------- -----------------------
Net income $ 0.17 $ 0.10 $ 1.21 $ 0.27
======================= =======================
</TABLE>
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THE ST. JOE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 107,744 $ 24,765
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 35,234 27,042
Minority interest 12,798 14,419
Deferred income tax (benefit) expense (15,331) 7,762
Equity in earnings of unconsolidated affiliates (9,308) (669)
Gain on sales of investment properties (31,436) (960)
Gain on sales of investments and other assets (1,271) (3,017)
Gain on sale of discontinued operations, net of taxes (42,800) --
Purchases and sales of trading investments, net (12,416) --
Changes in operating assets and liabilities:
Accounts receivable 2,279 10,474
Inventory 3,453 931
Prepaid pension and other assets (14,936) (12,289)
Accounts payable, accrued liabilities, reserves and
other liabilities 2,121 17,285
Discontinued operations operating activities 23,343 11,737
---------- ----------
Net cash provided by operating activities 59,474 97,480
Cash flows from investing activities:
Purchases of property, plant and equipment and real estate (220,729) (81,801)
Purchases of available-for-sale investments (45,926) (724,606)
Investments in unconsolidated affiliates and acquisitions (31,431) (97,959)
Proceeds from sale of discontinued operations, net 150,682 --
Maturities and redemptions of available-for-sale investments 101,740 758,616
Maturities and redemptions of held to maturity investments -- 11,000
Proceeds from sales of investment properties 85,116 6,262
Distributions from unconsolidated affiliates 23,134 --
---------- ----------
Net cash provided by (used in) investing activities 62,586 (128,488)
Cash flows from financing activities:
Proceeds from borrowings, net of repayments (4,197) 700
Dividends paid to stockholders (1,765) (5,486)
Dividends paid to minority interest (1,254) (1,253)
Purchase of treasury stock (53,447) (36,133)
---------- ----------
Net cash used in financing activities (60,663) (42,172)
Net increase (decrease) in cash and cash equivalents 61,397 (73,180)
Cash and cash equivalents at beginning of period 39,108 158,568
-------------------------------
Cash and cash equivalents at end of period $ 100,505 $ 85,388
===============================
Supplemental disclosure of cash flow information:
Interest paid $2,028 $ 301
========== ==========
Income taxes paid $ 27,822 $ 17,238
---------- ----------
</TABLE>
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THE ST. JOE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly,
certain information and footnotes required by generally accepted accounting
principles for complete financial statements are not included herein. The
interim statements should be read in conjunction with the financial statements
and notes thereto included in the Company's latest Annual Report on Form 10-K.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position as of September 30, 1999 and the results of operations and
cash flows for the three and nine-month periods ended September 30, 1999 and
1998. The results of operations for the three-month and nine-month periods
ended September 30, 1999 and 1998 are not necessarily indicative of the results
that may be expected for the full year. Certain reclassifications of 1998
amounts have been made to be consistent with current year reporting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings Per Share
Earnings per share ("EPS") are based on the weighted average number of
common shares outstanding during the period. Diluted EPS assumes options to
purchase shares of common stock have been exercised using the treasury method.
In August 1998, the Company's Board of Directors authorized $150 million for
the repurchase of the Company's outstanding common stock on the open market. As
of September 30, 1999, the Company had repurchased 4,723,980 shares. Weighted
average basic and diluted shares, taking into consideration the options used in
calculating EPS and shares repurchased, for each of the periods presented are
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Three Months Ended Nine months Ended
September 30, September 30,
- -------------------------------------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic 87,233,774 90,950,488 87,896,021 91,448,703
- -------------------------------------------------------------------------
Diluted 88,206,360 91,699,715 88,814,327 92,950,327
- -------------------------------------------------------------------------
</TABLE>
Comprehensive Income
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income", effective January 1, 1998. This Statement establishes
standards for reporting and display of comprehensive income and its components.
The Company's comprehensive income differs from net income due to changes in
the net unrealized gains on marketable securities available-for-sale. For the
nine months ended September 30, 1999 and 1998, total comprehensive income was
$106.5 million and $33.4 million, respectively.
3. DISCONTINUED OPERATIONS
On December 6, 1997, the Company signed an agreement in principle with the
United States of America and the State of Florida (the "Governments"), under
which the Governments agreed to purchase substantially all of the sugar lands
that Talisman Sugar Corporation ("Talisman"), a wholly-owned subsidiary of the
Company, owns or leases for $133.5 million in cash. Talisman retained the right
to farm the land through the 2003 crop year. In December 1998, that sale was
closed in escrow pending the resolution of a lawsuit filed in Federal District
Court in Washington, D.C. seeking to invalidate the sale. On March 25, 1999,
Talisman entered into an Exchange Agreement ("The Exchange Agreement") with The
South Florida Water Management District; United States Sugar Corporation;
Okeelanta Corporation; South Florida Industries, Inc.; Florida Crystals
Corporation; Sugar Cane Growers Cooperative of Florida (collectively the "Sugar
Companies"); The United States Department of Interior; and The Nature
Conservancy. The Agreement allows Talisman to exit the sugar business. Talisman
assigned its right to
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farm the land to the Sugar Companies. In return, the lawsuit was dismissed and
the other parties agreed to pay Talisman $19 million.
Talisman retained ownership of the sugar mill until March 1999 when it was
sold to a third party. Talisman is also responsible for the cleanup of the mill
site and is obligated to complete certain defined environmental remediation
(the "Remediation"). Approximately $5 million of the purchase price will be
held in escrow pending the completion of the Remediation. Talisman must use
these funds to pay the costs of the Remediation. Based upon the current
environmental studies, Talisman does not believe the costs of the Remediation
will exceed the amount held in escrow. Talisman will receive any remaining
funds when the Remediation is complete. In the event other environmental
matters are discovered, the Sugar Companies will be responsible for the first
$0.5 million of the cleanup. Talisman will be responsible for the next $4.5
million, thereafter the parties shall share the costs equally. In addition,
approximately $1.7 million is being held in escrow, representing the value of
land subject to the Remediation. As Talisman completes the cleanup of a
particular parcel, an amount equal to the land value on that parcel will be
released from escrow. The Company recognized $42.8 million in gain, net of
taxes, on the combined sale of the land and farming rights. Included in current
and noncurrent liabilities are $8.7 million of liabilities related to severance
costs, environmental issues and closing costs and $30.5 million for income
taxes related to the transaction.
The Company has reported its sugar operations as discontinued operations
for all periods presented. Revenues from Talisman were $5.2 million and $0.3
million for the three months ended September 30, 1999 and 1998, respectively
and $43.6 million and $27.0 million for the nine months ended September 30,
1999 and 1998. Net income (loss) for Talisman, excluding the gain on sale of
the land and farming rights, was $0.5 million and $(0.5) million for the three
months ended September 30, 1999 and 1998, respectively and $ 5.1 million and
$0.9 million for the nine months ended September 30, 1999 and 1998,
respectively.
4. LONG-TERM DEBT
Borrowings consisted of the following: (In millions)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
September 30, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to former owners of businesses acquired $10.1 $17.0
- ----------------------------------------------------------------------------------------------------------
Revolving credit agreement, secured by restricted
short-term investments 22.2 17.0
- ----------------------------------------------------------------------------------------------------------
Various secured and unsecured notes payable 2.6 2.1
- ----------------------------------------------------------------------------------------------------------
Less: discounts on non-interest bearing notes payable (0.1) (1.2)
----- -----
- ----------------------------------------------------------------------------------------------------------
Net borrowings 34.8 34.9
- ----------------------------------------------------------------------------------------------------------
Less: current portion 30.0 25.0
---- ----
- ----------------------------------------------------------------------------------------------------------
Total long-term debt $4.8 $9.9
- ----------------------------------------------------------------------------------------------------------
</TABLE>
In March 1999, the Company entered into a revolving line-of-credit for up
to $65.0 million secured by certain marketable securities. The agreement was
amended in June, 1999 to increase the line to $122.0 million. The line matures
in January of 2000 and bears interest at LIBOR plus 50 basis points. As of
September 30, 1999, there was no balance outstanding.
In February 1999, the Company entered into an unsecured line-of-credit for
up to $35.0 million, which was amended and increased to $75.0 million in May,
1999. The line-of-credit matures in February 2000 and bears interest at LIBOR
plus 75 basis points. Under the terms of the revolving note agreement, the
Company must maintain a ratio of total liabilities to stockholders' equity of
not more than 1.0 to 1.0. As of September 30, 1999, there was no balance
outstanding.
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5. SEGMENT INFORMATION
The Company conducts primarily all of its business in five reportable
operating segments, which are residential real estate services, community
residential real estate, commercial real estate, forestry and transportation.
The "other" primarily consists of investment income, net of corporate general
and administrative expenses. Also, included in "other" is an investment in an
unconsolidated affiliate that was previously classified in the leisure and
resort segment. The Company's leisure and resort operations are no longer
considered a separate business unit of the Company. Intercompany transactions
have been eliminated. The Company evaluates a segment's performance based on
EBITDA. EBITDA is defined as earnings before interest expense, income taxes,
depreciation and amortization, and is net of the effects of minority interests.
EBITDA also excludes gains from discontinued operations and gains (losses) on
sales of nonoperating assets. EBITDA is considered a key financial measurement
in the industries that the Company operates. The Company's reportable segments
are strategic business units that offer different products and services. They
are each managed separately and decisions about allocations of resources are
determined by management based on these strategic business units.
<TABLE>
<CAPTION>
Information by business segment follows: (In millions)
- ------------------------------------------------------------------------------------------------------------------------
Three months Nine months
------------ -----------
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Revenues:
- ------------------------------------------------------------------------------------------------------------------------
Residential real estate services $ 57.2 $ 31.8 $154.3 $ 31.8
- ------------------------------------------------------------------------------------------------------------------------
Community residential real estate 34.8 2.7 69.2 3.9
- ------------------------------------------------------------------------------------------------------------------------
Commercial real estate 31.9 17.5 140.3 38.2
- ------------------------------------------------------------------------------------------------------------------------
Forestry 7.8 7.0 21.8 26.6
- ------------------------------------------------------------------------------------------------------------------------
Transportation 50.4 49.4 149.7 153.2
- ------------------------------------------------------------------------------------------------------------------------
Other (0.6) (0.1) (1.7) 0.0
------ ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------------
Total revenues $181.5 $108.3 $533.6 $253.7
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
EBITDA:
- ------------------------------------------------------------------------------------------------------------------------
Residential real estate services $ 5.5 $ 2.8 $ 10.6 $ 2.8
- ------------------------------------------------------------------------------------------------------------------------
Community residential real estate 11.4 (0.5) 22.4 (2.3)
- ------------------------------------------------------------------------------------------------------------------------
Commercial real estate 7.4 6.4 25.6 12.4
- ------------------------------------------------------------------------------------------------------------------------
Forestry 3.7 4.4 10.4 13.3
- ------------------------------------------------------------------------------------------------------------------------
Transportation 9.3 8.6 18.6 25.9
- ------------------------------------------------------------------------------------------------------------------------
Other (1.9) 1.4 (3.7) 8.6
------ ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------------
EBITDA $ 35.4 $ 23.1 $ 83.9 $ 60.7
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile to income from continuing operations:
- ------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $(13.1) $ (9.7) $(35.2) $(27.0)
- ------------------------------------------------------------------------------------------------------------------------
Other income 3.7 0.4 3.9 0.8
- ------------------------------------------------------------------------------------------------------------------------
Interest expense (0.5) (0.2) (1.8) (0.3)
- ------------------------------------------------------------------------------------------------------------------------
Income tax expense (17.9) (10.9) (10.5) (28.9)
- ------------------------------------------------------------------------------------------------------------------------
Minority interest 6.8 7.0 19.5 18.5
------ ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 14.4 $ 9.7 $ 59.8 $ 23.8
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
There was no material change in any segment's total assets except as it
relates to the sale of discontinued operations, see note 3.
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6. INCOME TAXES
During the second quarter, in light of recent events, including several
acquisitions, which significantly increased the number of participants in the
Company's pension plan, along with plan modifications and the Company's growth
strategy, management reevaluated how the pension plan surplus could be
utilized. Management believes it is now probable that the Company will utilize
the pension surplus over time without incurring the 50% excise tax. Therefore,
the Company reversed the deferred tax liability related to the 50% excise tax
amounting to $26.8 million as a deferred income tax benefit in the second
quarter. Income taxes on the change in pension surplus will be recorded at the
statutory rate in future periods.
7. CONTINGENCIES
The Company and its affiliates are involved in litigation on a number of
matters and are subject to certain claims which arise in the normal course of
business, none of which, in the opinion of management, is expected to have a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
The Company has retained certain self-insurance risks with respect to
losses for third party liability, property damage and group health insurance
provided to employees.
The Company is joint and severally liable as guarantor on four credit
obligations entered into by partnerships in which the Company has equity
interests. The maximum amount of the guaranteed debt totals $104.4 million; the
amount outstanding at September 30, 1999 totaled $61.2 million.
The Company is subject to costs arising out of environmental laws and
regulations, which include obligations to remove or limit the effects on the
environment of the disposal or release of certain wastes or substances at
various sites including sites which have been previously sold. It is the
Company's policy to accrue and charge against earnings environmental cleanup
costs when it is probable that a liability has been incurred and an amount is
reasonably estimable. As assessments and cleanups proceed, these accruals are
reviewed and adjusted, if necessary, as additional information becomes
available.
The Company is currently a party to, or involved in, legal proceedings
directed at the cleanup of Superfund sites. The Company has accrued an
allocated share of the total estimated cleanup costs for these sites. Based
upon management's evaluation of the other potentially responsible parties, the
Company does not expect to incur additional amounts even though the Company has
joint and several liability. Other proceedings involving environmental matters
such as alleged discharge of oil or waste material into water or soil are
pending against the Company. It is not possible 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 consolidated financial position,
results of operations or liquidity of the Company. Environmental liabilities
are paid over an extended period and the timing of such payments cannot be
predicted with any confidence. Aggregate environmental-related accruals were
$7.0 million and $7.3 million as of September 30, 1999 and December 31, 1998,
respectively.
On May 30, 1996, the Company sold its linerboard mill and container
plants. On April 2, 1999, the purchasers of the mill filed for protection under
Chapter 11 of the Bankruptcy Code. During October 1999, the purchasers filed a
Plan of Reorganization ("The Plan"). To date the Plan has not been approved.
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<PAGE> 10
8. SUBSEQUENT EVENT
On October 27, 1999, the Company and Florida East Coast Industries, Inc.
(FECI) announced that they have agreed to undertake a recapitalization of FECI
to facilitate a pro rata tax-free spin-off to the Company's shareholders of the
Company's 54% equity interest in FECI.
As part of the recapitalization, the Company will exchange all of its
shares of FECI common stock for an equal number of shares of a new class of
FECI common stock. The holders of the new class of FECI common stock will be
entitled to elect 80% of the members of the Board of Directors of FECI, but the
new FECI common stock will otherwise have substantially identical rights to the
existing common stock. The new class of FECI common stock will be distributed
pro rata to the Company's shareholders in a tax-free distribution. The Company
will not retain any equity interest in FECI after the spin-off is completed.
At the closing of the transaction, various service agreements between the
Company and FECI's wholly owned subsidiary Gran Central Corporation (GCC) will
become effective. Under the terms of these agreements, which extend for up to
three years after the closing of the transaction, GCC will retain the Company,
through its commercial real estate affiliates, to continue to develop and
manage certain commercial real estate holdings of GCC. The terms of these
agreements have been approved by both the Company's and FECI's Boards of
Directors, and in the judgement of the boards, reflect arms-length terms and
conditions typically found in today's marketplace.
This transaction, expected to be completed during the second quarter of
2000, is 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 FECI. The Boards of Directors of the Company and FECI have
unanimously approved the transaction.
The Company owns 19,609,216 shares of FECI's common stock, which
represents an approximate 54% equity interest.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
that are not historical facts. Such forward-looking information includes,
without limitation, statements that the Company does not expect that lawsuits,
environmental costs, commitments, contingent liabilities, labor negotiations or
other matters will have a material adverse effect on its consolidated financial
condition, results of operations or liquidity and other similar expressions
concerning matters that are not historical facts, and projections as to the
Company's financial results. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
anticipated in the forward-looking statements. 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 and the ultimate outcome of environmental
investigations or proceedings and other types of claims and litigation. See the
information set forth herein in the section entitled "Year 2000 Compliance".
As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition, operating results, and stock price. An investment in the Company
involves various risks, including those mentioned above and elsewhere in this
report and those which are detailed from time-to-time in the Company's other
filings with the Securities and Exchange Commission, including the Company's
Form 10-K for the year ended December 31, 1998.
Readers should not place undue reliance on forward-looking statements,
which reflect management's view only as of the date hereof. The Company
undertakes no obligation to publicly release revisions to these forward-looking
statements that reflect events or circumstances after the date hereof or
reflect the occurrence of unanticipated events.
OVERVIEW
The St. Joe Company (herein referred to as "St. Joe" or the "Company") is a
diversified company engaged in the real estate, forestry and transportation
industries. During the fourth quarter of 1998, the Company discontinued its
sugar operations for accounting purposes. In March, 1999 this operation was
sold. (See Discontinued Operations). On October 27, 1999, the Company announced
plans to spin-off its investment in Florida East Coast Industries, Inc.("FECI")
to its shareholders in a recapitalization transaction (See Recent Events
below).
The Company is focusing more closely on the development of its large land
portfolio. Management believes that the Company's increased focus on real
estate operations will result in a larger portion of the Company's overall
revenues being attributable to real estate operations. However, many of the
Company's proposed projects will require a lengthy process to complete the
development cycle before they are sold or otherwise generate revenue.
Nevertheless, management believes the Company's existing raw land portfolio
will allow the Company to maintain relatively low development costs.
DISCONTINUED OPERATIONS
On December 6, 1997, the Company signed an agreement in principle with the
United States of America and the State of Florida (the "Governments"), under
which the Governments agreed to purchase substantially all of the sugar lands
that Talisman Sugar Corporation ("Talisman"), a wholly owned subsidiary of St.
Joe, owns or leases for $133.5 million in cash. Talisman retained the right to
farm the land through the 2003 crop year. In December 1998, that sale was
closed in escrow pending the resolution of a lawsuit filed in Federal District
Court in Washington, D.C. seeking to invalidate the sale. On March 25, 1999,
Talisman entered into an Exchange Agreement ("The Exchange Agreement") with The
South Florida
11
<PAGE> 12
Water Management District; United States Sugar Corporation; Okeelanta
Corporation; South Florida Industries, Inc.; Florida Crystals Corporation;
Sugar Cane Growers Cooperative of Florida (collectively the "Sugar Companies");
The United States Department of Interior; and The Nature Conservancy. The
Agreement allows Talisman to exit the sugar business. Talisman assigned its
right to farm the land to the Sugar Companies. In return, the lawsuit was
dismissed and the other parties agreed to pay Talisman $19.0 million.
Talisman retained ownership of the sugar mill until March, 1999 when it
was sold to a third party. Talisman is also responsible for the cleanup of the
mill site and is obligated to complete certain defined environmental
remediation (the "Remediation"). Approximately $5.0 million of the purchase
price will be held in escrow pending the completion of the Remediation.
Talisman must use these funds to pay the costs of the Remediation. Based upon
the current environmental studies, Talisman does not believe the costs of the
Remediation will exceed the amount held in escrow. Talisman will receive any
remaining funds when the Remediation is complete. In the event other
environmental matters are discovered, the Sugar Companies will be responsible
for the first $0.5 million of the cleanup. Talisman will be responsible for the
next $4.5 million, thereafter the parties shall share the costs equally.
In addition, approximately $1.7 million is being held in escrow,
representing the value of land subject to the Remediation. As Talisman
completes the cleanup of a particular parcel, an amount equal to the land value
on that parcel will be released from escrow.
The Company recognized $71.8 million in gain ($42.8 million, net of taxes)
in the first quarter of 1999, on the combined sale of the land and farming
rights.
RECENT EVENTS
During the third quarter of 1999, the Company sold 13,275 acres of
timberland for approximately $9.9 million, which resulted in a gain of $8.7
million. However, pending improved timberland market conditions and an
evaluation of potential new markets, the Company has suspended the auction
process of an additional 86,000 acres previously announced. Market conditions
have weakened largely due to mill closures, low pulp prices and competitive
sales efforts by other parties on three million acres of timberland in the
region.
On October 27, 1999, the Company and FECI announced that they have agreed
to undertake a recapitalization of FECI to facilitate a pro rata tax-free
spin-off to the Company's shareholders of the Company's 54% equity interest in
FECI.
As part of the recapitalization, the Company will exchange all of its
shares of FECI common stock for an equal number of shares of a new class of
FECI common stock. The holders of the new class of FECI common stock will be
entitled to elect 80% of the members of the Board of Directors of FECI, but the
new FECI common stock will otherwise have substantially identical rights to the
existing common stock. The new class of FECI common stock will be distributed
pro rata to the Company's shareholders in a tax-free distribution. The Company
will not retain any equity interest in FECI after the spin-off is completed.
At the closing of the transaction, various service agreements between the
Company and FECI's wholly owned subsidiary Gran Central Corporation (GCC) will
become effective. Under the terms of these agreements, which extend for up to
three years after the closing of the transaction, GCC will retain the Company,
through its commercial real estate affiliates, to continue to develop and
manage certain commercial real estate holdings of GCC. The terms of these
agreements have been approved by both the Company's and FECI's Boards of
Directors, and in the judgement of the boards, reflect arms-length terms and
conditions typically found in today's marketplace.
This transaction, expected to be completed during the second quarter of
2000 is 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 FECI. The Boards of Directors of the Company and FECI have
unanimously approved the transaction.
12
<PAGE> 13
The Company owns 19,609,216 shares of FECI's common stock, which
represents an approximate 54% equity interest.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
THREE MONTHS ENDED SEPTEMBER 30
Total revenues increased $ 73.2 million, or 68%, to $181.5 million for the
third quarter of 1999 as compared to $108.3 million in the third quarter of
1998. The residential real estate services segment's revenues increased $25.4
million to $57.2 million due to the fact that the prior year quarter only
included the results for the two-month period from the July 1998 acquisition of
Arvida Realty Services ("ARS") to September 30, 1998. The community residential
real estate segment recorded $34.8 million in revenues; an increase of $32.1
million during the third quarter of 1999 as a result of sales of lots at the
Retreat in west Florida and sales from its April, 1999 acquisition of Saussy
Burbank, a Charlotte, North Carolina based home builder. The commercial real
estate segment also reported an increase in revenue of $14.4 million to $31.9
million, primarily from the Advantis service businesses. The forestry segment
reported revenues of $7.8 million, an increase of $0.8 million during the third
quarter of 1999 as compared to the third quarter of 1998. The transportation
segment contributed $50.4 million in revenues, an increase of $1.0 million as
compared to the third quarter of 1998. Losses of $0.6 million were recorded on
an investment in an unconsolidated affiliate which are not attributable to a
particular segment.
Operating expenses totaled approximately $140.9 million, an increase of
$64.6 million, or 85%, for the third quarter of 1999 as compared to $76.3
million for the third quarter of 1998. The residential real estate services
segment's operating expenses increased $22.8 million to $52.0 million due to
the fact that the prior year quarter only included the results for the
two-month period from the July 1998 acquisition of Arvida Realty Services
("ARS") to September 30, 1998. The community residential real estate segment
recorded $23.6 million in operating expenses, an increase of $20.0 million
during the third quarter of 1999 primarily due to the acquisition of Saussy
Burbank. The commercial real estate segment also reported an increase in
operating expenses of $15.1 million to $21.1 million, as a result of expenses
associated with the Advantis service businesses. The forestry segment reported
operating expenses of $4.7 million, an increase of $1.6 million during the
third quarter of 1999 as compared to the third quarter of 1998. The
transportation segment costs were $34.4 million, which was comparable to the
$34.2 million recorded in 1998. Operating expenses in 1999 also include a 5.1
million non-cash charge to reserve 100% of the Company's investment in ENTROS,
Inc., a Seattle-based company deemed to be impaired.
Corporate expense increased 43% from $3.0 million to $4.3 million,
primarily due to a one-time increase in employee benefits expense. Corporate
expense included prepaid pension income of $2.7 million, an increase of $0.4
million for the third quarter of 1999 as compared to the third quarter of 1998.
Depreciation and amortization totaled $13.1 million, an increase of $3.4
million, or 35% , primarily due to additional depreciation and amortization
expense related to the GCC's opening of two new buildings and the acquisitions
of ARS and the Advantis businesses.
Other income increased $5.9 million, or 86% in the third quarter even
considering substantially lower interest income due to a pre-tax gain of $8.7
million from a timberland sale to the State of Florida. Similar to the quarter
ended June 30, 1999, average balances of invested cash were substantially lower
in the third quarter of 1999 compared to 1998 because of recent acquisitions
and the utilization of cash to continue the repurchase of the Company's
outstanding common stock.
Income tax expense on continuing operations totaled $17.9 million for the
third quarter of 1999 as compared to $10.9 million for the third quarter of
1998. The effective tax rate for the third quarter of 1999 was 49%, as compared
to 42% for 1998.
Earnings from discontinued operations, net of tax, related to the run-off
of the sugar business totaled $0.5 million for the third quarter of 1999 as
compared to a $(0.5) million loss in the third quarter of 1998. As of September
30, 1999, sales of the 1999 harvest have been substantially completed.
13
<PAGE> 14
Net income for the third quarter of 1999 was $14.9 million or $0.17 per
diluted share as compared to $9.2 million or $0.10 per diluted share for the
third quarter of 1998. Excluding the effects of the gain on the timberland sale
to the State of Florida and the offsetting write-off of the investment in
ENTROS, net income in the third quarter would have been $12.7 million or $0.15
per diluted share.
NINE MONTHS ENDED SEPTEMBER 30
Total revenues increased $279.9 million, or 110%, to $533.6 million for
the nine months of 1999 as compared to $253.7 million in the first nine months
of 1998. The residential real estate services segment contributed $154.3
million in revenues in 1999 and $31.8 million in 1998 for the two-month period
after the July 1998 acquisition of ARS. The community residential real estate
segment recorded $69.2 million in revenues; an increase of $65.3 million during
the first nine months of 1999 as a result of sales of lots at the Retreat in
west Florida, its acquisition of Saussy Burbank and equity in earnings in
unconsolidated affiliates. The commercial real estate segment also reported an
increase in revenue of $102.1 million to $140.3 million, primarily related to
the sale of two industrial parks located in south Florida in the first quarter
of 1999, and from the Advantis service businesses. The forestry segment
reported revenues of $21.8 million, a decrease of $4.8 million during 1999 as
compared to 1998. The transportation segment contributed $149.7 million in
revenues, a decrease of $3.5 million, as compared to $153.2 million in 1998.
Losses of $1.7 million were recorded on an investment in an unconsolidated
affiliate which are not attributable to a particular segment.
Operating expenses totaled approximately $426.4 million, an increase of
$252.0 million, or 145%, for the first nine months of 1999 as compared to
$174.4 million for the fist nine months of 1998. Residential real estate
services costs were $144.7 million in 1999 and $29.2 million in 1998 for the
two-month period after the acquisition of ARS. The community residential real
estate segment recorded $47.4 million in operating expenses, an increase of
$40.5 million during 1999. The commercial real estate segment also reported an
increase in operating expenses of $83.5 million to $99.5 million, primarily as
a result of cost of sales of the two industrial parks located in south Florida
and expenses associated with the Advantis service businesses. The forestry
segment reported operating expenses of $13.4 million, a decrease of $1.3
million during 1999 as compared to 1998. The transportation segment costs were
$116.1 million, an increase of $8.4 million primarily relating to one-time
charges totaling $8.2 million incurred during the second quarter of 1999.
Operating expenses in 1999 also include $5.3 million of charges relating to
unconsolidated affiliates including a $5.1 million non-cash charge to reserve
100% of the Company's investment in ENTROS, Inc., a Seattle-based company
deemed to be impaired.
Corporate expense increased 36% from $8.3 million to $11.3 million,
primarily associated with increased overhead relating to a one-time increase in
employee benefits, and legal and consulting fees related to potential
acquisitions and other deal pursuit costs. Corporate expense included prepaid
pension income of $8.0 million, an increase of $1.0 million for 1999 as
compared to 1998.
Depreciation and amortization totaled $35.2 million, an increase of $8.2
million, or 30%, primarily due to additional goodwill amortization related to
the acquisitions of ARS and the Advantis businesses and increased depreciation
on buildings placed into service since last year.
Other income decreased only $0.7 million in 1999 as substantially lower
interest income in 1999 was offset by the gain on the timberland sale to the
State of Florida in the third quarter. As a result of recent acquisitions and
the utilization of cash to continue the repurchase of the Company's outstanding
common stock, average balances of invested cash were substantially lower in
1999.
Income tax expense on continuing operations totaled $10.5 million for the
1999 as compared to $28.9 million for 1998. During the second quarter of this
year, the Company recorded a $26.8 million deferred income tax benefit related
to the excise tax on its pension surplus. In 1996, the Company sold the
majority of its paper operations, which resulted in a substantial reduction in
employees. Management, at the time, determined that the over-funded status of
the pension plans would probably not be realized other than by a plan
termination and reversion of assets. Since 1996, the Company has recorded
deferred income tax expense on its pension surplus at the statutory rate plus a
50% excise tax that would be imposed if the company were to liquidate its
pension plans and revert the assets back to the Company. In light of recent
14
<PAGE> 15
events, including several acquisitions, which have significantly increased the
number of participants in the pension plan, along with plan modifications and
the Company's growth strategy, management has reevaluated how the pension plan
surplus can be utilized. Management believes it is now probable that the
Company will utilize the pension surplus over time without incurring the 50%
excise tax. Therefore, the Company has reversed the deferred tax liability
related to the 50% excise tax amounting to $26.8 million as a deferred income
tax benefit in its current year operations. Income taxes on the change in
pension surplus will be recorded at the statutory rate in future periods.
Excluding the $26.8 million deferred income tax benefit relating to income tax
expense for the nine months of 1999 would have been $37.3 million for an
effective rate of 45% as compared to an effective tax rate of 38% in 1998,
excluding the excise tax effect.
Income from discontinued operations includes the $42.8 million gain, net
of tax, on the sale of Talisman's land and farming rights that occurred in the
first quarter of 1999. Net earnings from discontinued operations totaled $5.1
million for 1999 as compared to $0.9 million in 1998.
Net income for the nine months of 1999 was $107.7 million or $1.21 per
diluted share as compared to $24.8 million or $0.27 per diluted share for 1998.
Excluding the FECI special charges of $8.2 million ($2.8 million, net of tax
and minority interest), the $26.8 million deferred income tax benefit related
to the pension surplus excise tax, the $71.8 million ($42.8 million net of tax)
gain on sale of discontinued operations, the $8.7 million ($5.4 million net of
tax) gain on timber land sale, and the $5.1 million ($3.2 million net of tax)
loss on investment in ENTROS, net income for 1999 would have been $38.7
million, or $0.44 per diluted share.
RESIDENTIAL REAL ESTATE SERVICES
(In millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
- ------------------------------------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 57.2 $ 31.8 $154.3 $ 31.8
- ------------------------------------------------------------------------------------------------
Operating expenses 52.0 29.2 144.7 29.2
- ------------------------------------------------------------------------------------------------
Depreciation and amortization 1.4 1.0 4.0 1.0
- ------------------------------------------------------------------------------------------------
Other income (expense) 0.1 0.2 0.4 0.2
- ------------------------------------------------------------------------------------------------
Pretax income from continuing operations 3.9 1.7 6.0 1.7
- ------------------------------------------------------------------------------------------------
EBITDA 5.5 2.8 10.6 2.8
- ------------------------------------------------------------------------------------------------
</TABLE>
On July 31, 1998, the Company completed the acquisition of its residential
real estate services company, ARS and thus the 1998 results in the table above
for both the three months and nine months ended September 30, 1998 include only
two months activity. ARS provides a complete array of real estate brokerage
services, including residential real estate sales, relocation and referral,
asset management, mortgage and title services, annual and seasonal rentals and
international real estate marketing. The operations of ARS are seasonal with
the volume of transactions increasing in the spring and summer due to housing
relocations.
THREE MONTHS ENDED SEPTEMBER 30
Realty brokerage revenues of $57.2 million in the third quarter of 1999
were attributable to 8,808 closed units representing $1.7 billion of sales
volume. Realty brokerage revenues of $31.8 million in the third quarter of 1998
only include realty brokerage revenues from the date of the acquisition, July
31, 1998, through September 30, 1998 which were attributable to 5,217 closed
units representing $0.9 billion of sales volume. The average home sales price
for the third quarter of 1999 increased to $190,000 as compared to $169,000 for
the same period in 1998.
Operating expenses of $52.0 million were 91% of revenues in 1999 as
compared to $29.2 million , which were 92% of revenues for the period from July
31, 1998 through September 30, 1998. Operating expenses represent commissions
paid on real estate transactions, underwriting fees on title policies and
administrative expenses of the ARS operations.
15
<PAGE> 16
NINE MONTHS ENDED SEPTEMBER 30
In the first nine months of 1999, ARS had realty brokerage revenues of
$154.3 million attributable to 23,857 closed units representing $4.4 billion of
sales volume. The average home sales price for the nine months was $186,000.
Operating expenses of $144.7 million was 94% of revenues and included $2.2
million of conversion expenses related to the operation's name change from
Prudential Florida Realty to ARS.
COMMUNITY RESIDENTIAL REAL ESTATE
(In millions)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
- --------------------------------------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 34.8 $ 2.7 $ 69.2 $ 3.9
- --------------------------------------------------------------------------------------------------
Operating expenses 23.6 3.6 47.4 6.9
- --------------------------------------------------------------------------------------------------
Depreciation and amortization (0.2) -- (1.0) 0.1
- --------------------------------------------------------------------------------------------------
Other income (expense) (0.1) -- (0.2) --
- --------------------------------------------------------------------------------------------------
Pretax income from continuing operations 11.3 (0.9) 22.6 (3.1)
- --------------------------------------------------------------------------------------------------
EBITDA 11.4 (0.5) 22.4 (2.3)
- --------------------------------------------------------------------------------------------------
</TABLE>
The Company's community residential real estate operations currently
consist of community development through its 74% ownership of St. Joe/Arvida
Company, L.P. and its 26% equity interest in Arvida/JMB Partners, L.P.
("Arvida/JMB"). The investment in Arvida/JMB occurred in late December 1998.
Arvida/JMB is recorded on the equity method of accounting for investments.
St. Joe/Arvida Company, L.P. and Arvida/JMB are currently managing a
total of 23 communities in various stages of planning and development.
In April 1999, the Company acquired all outstanding stock of Saussy
Burbank, Inc. ("Saussy Burbank"), a homebuilder located in Charlotte, North
Carolina, for $14.6 million in cash. Saussy Burbank builds approximately 300
homes a year and has operations in the greater Charlotte, Raleigh and Asheville
market areas. Saussy Burbank's operations are included in community residential
real estate operations since acquisition.
THREE MONTHS ENDED SEPTEMBER 30
During this quarter 28 lots at The Retreat in Walton County, Florida
closed representing pre-tax gain of $8.4 million. Revenues from these sales
totaled $11.6 million with an average lot price of $414,000. This beach club
resort community includes 90 single-family housing units on 76 acres. As of
October 21, 1999, 85 lots have been sold or are under contract at an average
price of approximately $429,000. Other sales this quarter included housing and
lots in the Summerwood, Woodrun, and Camp Creek Point developments in west
Florida totaling in the aggregate $1.7 million and James Island, in northeast
Florida totaling $4.1 million. Related cost of sales totaled $6.2 million.
Saussy Burbank contributed revenues from homebuilding totaling $12.9 million
with related cost of sales of $12.6 million. Other revenues from management
fees and rental income totaled $.5 million.
Equity in earnings of Arvida/JMB and other unconsolidated affiliates
totaled $4.0 million this quarter. There was no equity in earnings of
unconsolidated affiliates in 1998.
Other operating expenses related to the increased level of activity for
project and general administration as well as marketing totaled $4.8 million in
the third quarter of 1999 compared to $2.9 million in 1998.
Last year's revenues for the quarter of $2.7 million were primarily from
Camp Creek, Summerwood and Woods III lot sales with cost of sales of $.7
million.
16
<PAGE> 17
NINE MONTHS ENDED SEPTEMBER 30
In addition to the Retreat sales which totaled $23.1 million, and Saussy
Burbank's revenues of $24.5 million, sales year to date included housing and
lot sales in the Summerwood, Deerwood, Woodrun and Camp Creek Point
developments in west Florida totaling $5.9 million and sales from James Island
of $4.3 million. Other revenues for the nine months of 1999 were generated by
the Company's equity in earnings of Arvida/JMB and other affiliates totaling
$10.9 million. The Company also had revenues of $0.5 million from management
fees and rental income during 1999. Revenues in 1998 were from 35 real estate
lot sales primarily in Summerwood and management fees totaling $3.9 million
with cost of sales of $0.9 million.
Total cost of sales related to west Florida activity, including the
Retreat and cost of sales related to James Island totaled $11.8 million
resulting in EBITDA of $18.0 million. Cost of sales related to Saussy Burbank
totaled $22.5 million with a EBITDA of $ 0.5 million. Other operating expenses
include noncapitalizeable administrative costs, deal pursuit costs, and
predevelopment costs related to the Company's increased activity, which totaled
$13.1 million in 1999 as compared to $6.0 million in 1998.
COMMERCIAL REAL ESTATE
(In millions)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Three Months Ended Nine months ended
September 30, September 30,
- --------------------------------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
- ------------------------------------------------ ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues $31.9 $17.5 $140.3 $38.2
- ------------------------------------------------ ---------- ----------- ---------- ---------
Operating expenses 21.1 6.0 99.5 16.0
- ------------------------------------------------ ---------- ----------- ---------- ---------
Depreciation and amortization 5.4 3.1 13.3 8.5
- ------------------------------------------------ ---------- ----------- ---------- ---------
Other income (expense) - 0.2 - 0.3
- ------------------------------------------------ ---------- ----------- ---------- ---------
Pretax income from continuing operations 5.4 8.6 27.5 14.0
- ------------------------------------------------ ---------- ----------- ---------- ---------
EBITDA 7.4 6.4 25.6 12.4
- ------------------------------------------------ ---------- ----------- ---------- ---------
</TABLE>
Operations of the commercial real estate segment include the development
of St. Joe properties, development and management of the Gran Central
Corporation ("Gran Central") real estate portfolio, the Advantis service
businesses and investments in affiliates to develop properties throughout the
southeast. The Company owns 54% of Florida East Coast Industries, Inc. ("FECI")
and Gran Central is the wholly owned real estate subsidiary of FECI.
In September 1998, the Company acquired Goodman, Segar, Hogan, Hoffler,
L.P. and in December 1998, the Company acquired the assets of Florida Real
Estate Advisors, Inc. These commercial real estate services businesses have
been combined and are doing business under the name Advantis.
THREE MONTHS ENDED SEPTEMBER 30
In the third quarter of 1999, rental revenues increased to $13.7 million,
from $11.6 million in the third quarter of 1998, an 18% improvement. The
increase in rental revenue was primarily comprised of increases on same store
properties totaling $1.4 million, of which $0.9 million was caused by increased
rental rates and $0.5 million was caused by increases in occupancy. Occupancy
on same-store properties rose from 85% on September 30, 1998 to 88% at the end
of the quarter. Rental revenues increased $1.9 million due to new buildings
placed in service since the third quarter of 1998. Rental revenues and rents
recoverable from tenants were consistent with prior year. Offsetting these
increases were net revenues lost from buildings sold in the first quarter of
1999 of $1.2 million.
Sales of real estate generated revenues of $5.1 million in 1998 from the
sale of undeveloped parcels of land compared with $0.1 million in the current
quarter.
17
<PAGE> 18
Advantis contributed $14.9 million of brokerage, property management and
construction revenues for the third quarter of 1999. Advantis brokered over 400
leasing and investment sales transactions valued at $250 million during the
quarter and managed a portfolio of properties with approximately 20 million
square feet of space.
Other revenues of $3.2 million relate to equity in several joint ventures
and additional management fees earned by the Company as compared to $0.9
million in 1998. Approximately $2.0 million relates to the Company's investment
in Deerfield Park, LLC for the quarter ended September 30, 1999.
Operating expenses in the commercial real estate segment were $21.1
million, an increase of $15.1 million from the prior year quarter. The increase
resulted primarily from a $1.2 million increase in costs related to operating
properties and the addition of Advantis expenses of $13.9 million. Advantis'
expenses include commissions paid to brokers, property management expenses and
construction costs. Other operating expenses related to asset management and
administrative expenses totaled $7.2 million primarily due to systems
conversion and increased overhead due to the growth of this segment.
Depreciation and amortization rose by $2.3 million and is attributable
primarily to goodwill amortization as a result of the acquisitions including
the Advantis businesses of $0.7 million and increased depreciation due to
buildings placed in service of $1.6 million.
EBITDA totaled $7.4 million for the third quarter of 1999 and was
comprised of $3.9 million from rental operations, $2.9 million from Advantis
and $0.6 million from equity in joint ventures. EBITDA in the third quarter of
1998 of $6.4 million was derived primarily from rental operations and real
estate sales.
NINE MONTHS ENDED SEPTEMBER 30
For the nine months ended September 30, 1999 Gran Central sold real estate
properties for gross proceeds of $50.4 million. The majority of the revenues
were from the sale of two industrial parks, Gran Park at McCahill and Gran Park
at Lewis Terminals, which resulted in a pre-tax gain of $10.4 million ($5.6
million, net of the effect of FECI's minority interest). These south Florida
parks consisted of 10 buildings with 1.2 million square feet. As of September
30, 1999, the Company had 61 operating buildings with 6.0 million total
rentable square feet in service. Approximately 2.0 million square feet of
office and industrial space is under construction as of September 30, 1999.
Additionally, approximately 1.6 million square feet is in the predevelopment
stage and the Company is expected to commence construction on these properties
during the remainder of 1999 through 2000.
The Company has investments in various real estate developments and
affiliates that are accounted for by the equity method of accounting. Earnings
from these investments contributed $5.3 million to the commercial real estate
segment's revenues during the first nine months of 1999. Land sales from the
Company's investment in the Deerfield Park, LLC venture resulted in earnings to
the Company of $4.7 million. There were earnings of approximately $0.9 million
from investments in joint ventures in 1998.
Revenues generated from rental operations increased to $39.7 million, a
24% increase from $32.1 million in 1998, primarily from increases in same store
revenues totaling $5.5 million and new store revenues of $1.6 million. Revenues
declined $2.1 million due to buildings sold this year. Other increases in
miscellaneous rental revenues and recoverables accounted for $1.8 million.
Operating revenues generated from Advantis totaled $43.0 million in 1999.
Revenues from management fees totaled $1.9 million in 1999.
Operating expenses in the commercial real estate segment increased
$83.5 million to $99.5 million from $39.1 million in costs of real estate
sales, an increase of $38.5 million from $0.6 million in 1998, $40.4 million in
Advantis expenses, $13.8 million in costs related to operating properties, an
increase of $1.6 million from $12.2 million in 1998 and $6.2 million general
and administrative expenses, an increase of $3.0 million from $3.2 million in
1998. Advantis' expenses include commissions paid to brokers, property
management expenses and construction costs.
Depreciation and amortization rose by $4.8 million and is attributable to
goodwill amortization as a result of the acquisitions including the Advantis
businesses of $2.1 million and additional depreciation on operating properties
of $2.7 million.
18
<PAGE> 19
EBITDA totaled $25.6 million for the nine months ended September 30, 1999 and
was comprised of $6.1 million from sales of real estate, $12.1 million from
rental operations, $0.2 million from earnings on investments in real estate
developments and, $7.2 million from Advantis. EBITDA in 1998 totaled $12.4
million and was comprised primarily of EBITDA from rental operations.
FORESTRY
(In millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
- ------------------------------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $7.8 $7.0 $21.8 $26.6
- ------------------------------------------------------------------------------------------
Operating expenses 4.7 3.1 13.4 14.7
- ------------------------------------------------------------------------------------------
Depreciation and amortization 0.6 0.5 1.8 1.8
- ------------------------------------------------------------------------------------------
Other income (expense) 9.4 1.0 10.9 1.8
- ------------------------------------------------------------------------------------------
Pretax income from continuing operations 11.8 4.4 17.5 12.0
- ------------------------------------------------------------------------------------------
EBITDA 3.7 4.4 10.4 13.3
- ------------------------------------------------------------------------------------------
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30
Total revenues for the forestry segment increased $0.8 million, or 12% in
the third quarter of 1999 compared to 1998 due to an increase in timber sales
which were $2.8 million higher in 1999. The increase in timber sales was offset
by bulk land and timber sales which decreased $2.0 million from 1998. Total
sales to Florida Coast Paper Company, LLC ("FCP"), the Company's major pulpwood
customer, were $4.6 million (168,209 tons) in 1999 as compared to $2.7 million
(90,237 tons) in 1998. Since August of 1998 the FCP mill has been shutdown and
has filed for Chapter 11 bankruptcy protection. Without waiving the terms and
conditions of the amended fiber supply agreement with FCP, the Company has been
redirecting pulpwood from the FCP mill in Port St. Joe, Florida, to another
mill at FCP's request. Sales to other customers increased to $3.0 million
(113,600 tons) from $2.1 million (105,624 tons) a year ago. Market conditions
improved in the third quarter of 1999, leading to more opportunities to sell
timber to outside parties. The average sales price of timber sold increased to
approximately $27 per ton in the third quarter of 1999 as compared to
approximately $25 per ton in the third quarter of 1998.
Operating expenses for the quarter increased $1.6 million, or 52% compared
to 1998 due to increased harvest volumes. Cost of sales as a percentage of
sales were lower in 1998 as compared to 1999 because the lump sum bid timber
sales in 1998 caused increased sales of wood without cut and haul expenses.
Other income for the third quarter of 1999 was $9.4 million, which
included an $8.7 million gain from a land sale to the State of Florida with the
assistance of The Nature Conservancy.
NINE MONTHS ENDED SEPTEMBER 30
Total revenues for the nine months ended September 30, 1999 decreased $4.8
million to $21.8 million, or 18%, compared to the first nine months of 1998.
Timber sales decreased $3.1 million and bulk land and timber sales decreased
$1.7 million from the prior year nine-month period. Sales to FCP were $13.9
million (479,228 tons) in 1999 as compared to $15.4 million (533,819 tons) in
1998. Sales to other customers decreased $1.6 million in 1999 to $7.5 million
(307,302 tons) as compared to $9.1 million (365,225) in 1998. In the first nine
months of 1998, the Company conducted several lump sum bid timber sales to take
advantage of favorable market conditions, which is not the case this year.
Revenues in 1999 include bulk land and timber sales of $0.5 million, as
compared to $2.2 million in bulk land and timber sales in 1998.
19
<PAGE> 20
Operating expenses for the first nine months of 1999 decreased $1.3
million, or 9%, as compared to the first nine months of 1998 due to the lower
harvest volumes year to date. Cost of sales as a percentage of sales was lower
in 1998 due to the lump sum timber sales in 1998, which do not incur cut and
haul charges.
Other income was $10.9 million for the nine months ended September 30,
1999 compared to $1.8 million for the nine months ended September 30, 1998. The
1999 amount included an $8.7 million gain from a timberland sale to the State of
Florida with the assistance of The Nature Conservancy.
TRANSPORTATION
(In millions)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Three Months Ended Nine months Ended
September 30, September 30,
- --------------------------------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $50.4 $49.4 $149.7 $153.2
- --------------------------------------------------------------------------------------------
Operating expenses 34.4 34.2 116.1 107.7
- --------------------------------------------------------------------------------------------
Depreciation and amortization 4.9 4.7 14.6 13.9
- --------------------------------------------------------------------------------------------
Other income (expense) 0.3 (0.3) 0.4 0.2
- --------------------------------------------------------------------------------------------
Pretax income from continuing operations 11.4 10.2 19.4 31.8
- --------------------------------------------------------------------------------------------
EBITDA 9.3 8.6 18.6 25.9
- --------------------------------------------------------------------------------------------
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30,
Transportation operating revenues include the railway, trucking and telecom
operations of FECI. These revenues increased $1.5 million, or 3%, to $48.6
million for the third quarter of 1999 as compared to $47.1 million in the third
quarter of 1998. Railway revenues remained strong and more than offset the
weakness in intermodal traffic with increases in all other categories of
traffic. Aggregate traffic increased 4%, automotive traffic increased by 5%, and
all other carload traffic increased 30% in the third quarter of 1999, as
compared to the same period for 1998. Intermodal traffic declined 10% which is
attributable to both the continued impact of the service redesign first
implemented in 1998 of one of FECI's connecting carriers to stop marketing
intermodal service to certain terminals and offshore transshipments of loads
previously handled in Florida. Telecom's operating revenues were $1.6 million,
up from $1.1 million in 1998 because of annual increases specified in lease
renewals.
Apalachicola Northern Railroad Company ("ANRR") operating revenues were
$1.8 million reflecting a decrease in revenues of $0.5 million, or 22%, due to
lost traffic due to the FCP mill shutdown and from lost traffic from ANRR's
largest customer, Seminole Electric Cooperative, Inc. ("Seminole"). Seminole
halted shipments of coal in January 1999, and filed a lawsuit seeking to
terminate its contract with ANRR to provide transportation of coal from Port
St. Joe, Florida to Chattahoochee, Florida. ANRR has fully performed its
obligations under the contract and is prepared to complete the contract term,
which continues until November 2004 and has filed suit to enforce the contract.
ANRR's workforce has been reduced significantly, commensurate with its loss in
traffic, but the railroad intends to operate a minimal schedule sufficient to
provide service to existing customers.
FECI's transportation segment's operating expenses increased $1.0 million,
or 3% to $33.6 million, compared to $32.6 million in 1998, partially due to
increased salaries and other overhead relating to new management and costs
associated with the new telecom division. ANRR's operating expenses decreased
$0.9 million commensurate with the reduction in their workforce and traffic.
NINE MONTHS ENDED SEPTEMBER 30
FECI's transportation operating revenues decreased $0.2 million to $145.0
million for the nine months of 1999 as compared to $145.2 million for the nine
months of 1998. The growth of all railway revenues groups offset the weakness
in intermodal traffic noted already mentioned above. Also, during 1998, FECI
recognized income of approximately $3.0 million in connection with a
non-monetary exchange transaction whereby FECI received fiber cable optic
rights.
20
<PAGE> 21
ANRR's operating revenues decreased $3.3 million, or 41% to $4.7 million
in 1999 from $8.0 million.
FECI's transportation segment's operating expenses increased $9.6 million,
or 9% to $111.7 million, compared to $102.1 million in 1998. Exclusive of the
special charges totaling $8.2 million, the increase of $1.4 million relates to
increases in transportation's general and administrative expenses due to a new
management team being put in place was offset partially by decreases in fuel and
personal injury expenses. ANRR's operating expenses decreased $1.2 million
commensurate with the reduction in their workforce and traffic.
Excluding the effects of the special charges, pre-tax income from
operations for the transportation segment would have been $27.6 million, of
which $28.0 million was contributed by FECI's transportation segment and ($0.4)
million was contributed by ANRR. Net EBITDA would have been $26.8 million for
the nine months ended September 30, 1999, all contributed by FECI's
transportation segment.
FINANCIAL POSITION
In August 1998, the Company's Board of Directors authorized $150 million
for the repurchase of the Company's outstanding common stock on the open
market. The Board believes that the current price of the Company's common
shares does not reflect the value of the Company's assets or its future
prospects. As of September 30, 1999, the Company had repurchased 4,723,980
shares of its common stock at a cumulative cost of $108.3 million, with $53.7
million expended during 1999.
For the nine months ended September 30, 1999, cash provided by operations
was $59.5 million. During 1999, the Company received $152.5 million, net of
closing costs of $1.8 million, from the proceeds of the sale of the Talisman
land and farming rights. As of September 30, 1999, $37.1 million of the
proceeds have been reinvested in real estate operations. Significant proceeds
from investing activities were also received from the sales of Gran Central's
industrial parks in the first quarter of 1999 and from sales of investment
securities and from the timberland sale to the State of Florida. These proceeds
will be reinvested into the Company's real estate operations. Capital
expenditures totaled $220.7 million for the first nine months of 1999.
The Company utilized borrowings from its secured and unsecured
lines-of-credit to continue its repurchase of the Company's outstanding common
stock and for other working capital purposes. See note 4 in the notes to
consolidated financial statements.
Management believes that its financial condition is strong and that its
cash, investments, other liquid assets, operating cash flows, and borrowing
capacity, taken together, provide adequate resources to fund ongoing operating
requirements and future capital expenditures related to the expansion of
existing businesses including the continued investment in real estate
developments.
YEAR 2000 COMPLIANCE
The Company has created a Year 2000 Project Team to address potential
problems within the Company's operations that could result from the century
change in the Year 2000. The project team is led by the Senior Vice President
of Finance and Planning and consists of representatives of the Company's
Information Systems Departments or financial departments for each subsidiary,
and has access to key associates in all areas of the Company's operations. The
project team has used and continues to use outside consultants on an as-needed
basis.
As part of the project, the Company has been examining all software
information technology ("IT") and non-IT systems which may have embedded
technology. The project team's methodology for addressing both the IT and
non-IT areas consists of five phases:
(1) an Assessment Phase to inventory computer based systems and
applications (including embedded systems) and to determine what revisions
or replacements would be necessary for Year 2000 readiness;
(2) a Remediation Phase to repair or replace components to enable them
to successfully transition to the Year 2000;
21
<PAGE> 22
(3) a Test Phase to test components after remediation to verify that
the Remediation Phase was successful;
(4) an Implementation Phase to transition the Year 2000 ready systems
back into production environment;
(5) and a Check-off Phase to formally signoff that a component,
system, process or procedure is Year 2000 ready.
Excluding the Company's FECI subsidiary, which is discussed separately
below, management believes that the five phases are currently approximately
100%, 100%, 100%, 96% and 96% complete, and that all critical systems will be
Year 2000 ready by the end of 1999.
The Company expects to spend less than $1.0 million to address and modify
Year 2000 problems, excluding FECI. Approximately $0.3 million has been spent
by the Company through September 30, 1999.
As a part of the Year 2000 review, the Company is examining its
relationships with certain key outside vendors and others with whom it has
significant business relationships to determine to the extent practical the
degree of such parties' Year 2000 compliance. The Company has received or is
seeking assurance from several third party vendors that they are or will be
Year 2000 ready. Management believes that the failure of any other third party
vendors to be Year 2000 ready will not have a material adverse effect on the
Company.
Should the Company or a third party with whom the Company deals have a
systems failure due to the century change, the Company believes that the most
significant impact would likely be the inability to timely process its payments
for services and receipts of revenues. The Company does not expect any such
impact to be material to its operations.
The Company is in the process of developing contingency plans for Year
2000 matters. These plans include identification of and communications with,
mission critical vendors, suppliers, service providers and customers. These
plans also include preparations for the Year 2000 event as well as for the
potential problems that could occur with major suppliers or customers of the
Company that could impact Company operations. These plans are substantially
complete as of September 1999.
The Company has been advised by FECI that its Year 2000 Project efforts
have proceeded on schedule and that all systems are Year 2000 capable as of
early November 1999.
FECI expects to spend approximately $9.3 million for its Year 2000 effort
of which approximately 90% has been committed or expended through early
November, 1999. FECI has informed St. Joe that the Year 2000 problem is not
expected to materially adversely affect its financial position, results of
operations or liquidity. However, there can be no assurance that the systems or
equipment of other parties which interact with FECI's systems will be compliant
on a timely basis. FECI 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 FECI. Where appropriate, FECI continues to develop contingency plans
in the event that FECI's key third parties do not become Year 2000 compliant
on a timely basis, which effort includes the modification of existing
disaster recovery plans. FECI's management continues to make every effort to
ensure that the Year 2000 problems will not have any adverse affect on FECI's
daily operations.
22
<PAGE> 23
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C> <C>
10.01 Distribution and Recapitalization Agreement
10.02 Indemnification Agreement
10.03 Master Agreement
27.01 Financial Data Schedule (for SEC use only)
99.01 Supplemental Calculation of Selected Consolidated Financial Data
(b) Reports on Form 8-K
None.
</TABLE>
23
<PAGE> 24
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.
The St. Joe Company
Date: November 11, 1999 /S/ Peter S. Rummell
------------------------------
Peter S. Rummell
Chairman of the Board and
Chief Executive Officer
Date: November 11, 1999 /S/ Kevin M. Twomey
------------------------------
Kevin M. Twomey
President and Chief Financial Officer
Date: November 11, 1999 /S/ Michael N. Regan
------------------------------
Michael N. Regan
Senior Vice President, Finance and Planning
Date: November 11, 1999 /S/ Janna L. Connolly
-----------------------------
Janna L. Connolly
Controller
24
<PAGE> 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");
<PAGE> 2
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 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.
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<PAGE> 3
(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.
(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
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<PAGE> 4
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 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.
-4-
<PAGE> 5
(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:
(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).
-5-
<PAGE> 6
(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.
(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.
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<PAGE> 7
(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.
(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
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<PAGE> 8
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;
(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
Section 3.3.
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<PAGE> 9
(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
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
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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. 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
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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;
(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
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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.
(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
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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;
(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;
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<PAGE> 14
(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 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.
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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.
(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
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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.
(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
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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 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
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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
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and Merger Sub 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.
(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
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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 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).
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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 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
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(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.
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
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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 Indemnifying 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
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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, 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.
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(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 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
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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.
(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
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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 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
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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.
(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
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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 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
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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 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
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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 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.
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(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 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
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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
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by its terms exercisable at such time.
(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
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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 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
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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.
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
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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
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
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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.
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;
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(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 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
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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 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
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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> 44
SCHEDULES AND EXHIBITS
SCHEDULE 2.2(A)(I):
None.
SCHEDULE 2.2(A)(IV):
In 1998 FEC adopted a stock incentive plan (the "Plan") which
authorizes the grant of non-qualified stock options and restricted stock to
certain management employees and outside Directors. The Plan is administered by
the Board's Compensation Committee. The number of shares authorized for the Plan
is 1.6 million. Grants of restricted stock total 75,800 shares and options to
acquire 1,134,172 shares have been issued and 30,000 shares have been issued
upon exercise of such options. Options vest ratably from 1 to 5 years. Annual
issuances are determined by the Compensation Committee subject to the
requirements of employment agreements with FEC senior executives. Pursuant to
the Plan, options granted under the Plan are subject to accelerated vesting upon
a change in control. Options for 44,000 shares will be subject to accelerated
vesting, the balance of outstanding options are either subject to the Senior FEC
Employee Consents or have already vested. Prior to the Distribution Date, FEC
will not have granted additional restricted stock or options or issued
additional shares in connection with the options described above, other than in
the ordinary course of business.
SCHEDULE 2.2(A)(VI):
None.
SCHEDULE 2.2(A)(VII):
FEC is contemplating the acquisition of a transportation services
company. If such acquisition in consummated, the consideration paid to the
seller may include stock of FEC issued for such transaction or options to
acquire stock of FEC in an aggregate amount not to exceed 2% of the stock of FEC
(in vote or in value). In addition, the information set forth in Schedule
2.2(a)(iv) above is incorporated herein by reference.
SCHEDULE 2.2(B)(IV):
None.
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EXHIBIT A - ARTICLES OF MERGER
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EXHIBIT B - INDEMNITY AGREEMENT
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EXHIBIT C - SHAREHOLDERS AGREEMENT
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EXHIBIT D - FEC RIGHTS PLAN TERM SHEETS
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EXHIBIT E - SENIOR FEC EMPLOYEE CONSENT
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EXHIBIT F - PRESS RELEASE
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INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT, dated October 26, 1999 (this
"Indemnification Agreement"), among The ST. JOE COMPANY, a Florida company
("St. Joe"), THE NEMOURS FOUNDATION, a Florida foundation ("Nemours") and the
ALFRED I. DUPONT TESTAMENTARY TRUST ("Trust", and together with Nemours the,
"Majority Shareholders") (each a "Party" and collectively, "Parties").
WHEREAS, Trust owns as of the close of business on the date hereof,
49,643,292 shares of common stock, no par value per share, of St. Joe ("St. Joe
Common Stock") and Nemours owns as of the close of business on the date hereof,
2,232,408 shares of common stock, no par value per share, of St. Joe
("St. Joe Common Stock");
WHEREAS, St. Joe and FLORIDA EAST COAST INDUSTRIES, INC. ("FEC") are
entering simultaneously herewith into a Distribution and Recapitalization
Agreement, dated as of October 26, 1999 (the "Distribution and Recapitalization
Agreement"), pursuant to which, among other things, (i) St. Joe Capital II,
Inc., a Delaware corporation and a direct wholly owned subsidiary of St. Joe,
which holds as the date hereof 19,609,216 shares of common stock, no par value
per share, of FEC ("FEC Common Stock"), will be merged with and into St. Joe
with St. Joe as the surviving corporation, (ii) St. Joe will incorporate a
Florida corporation as a direct wholly owned subsidiary of St. Joe ("Merger
Sub") and will contribute the 19,609,216 shares of FEC Common Stock then held by
St. Joe to Merger Sub, (iii) Merger Sub will be merged with and into FEC with
the effect that St. Joe will be issued, in exchange for the cancellation of the
shares of FEC Common Stock that Merger Sub will hold as of the date of its
merger with and into FEC, an equal number of 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 (the "Recapitalization") and (iv) St. Joe will effect the
Distribution (as defined below);
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 pursuant to the Distribution and Recapitalization Agreement,
following consummation of the Recapitalization, 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 forth in the Distribution and Recapitalization
Agreement, to the holders of record of St. Joe Common Stock, including the
Majority Shareholders, as of a date determined by the Board of Directors of St.
Joe, on a pro rata basis (the "Distribution");
<PAGE> 2
WHEREAS, St. Joe is in the process of applying for a ruling from the
United States Internal Revenue Service (the "IRS") to the effect that the
Distribution will be a tax-free distribution within the meaning of Section 355
of the United States Internal Revenue Code (the "Code");
WHEREAS, one of the conditions to St. Joe's obligation to effect the
consummation of the Distribution under the Distribution and Recapitalization
Agreement is that each of the Majority Shareholders enter into this
Indemnification Agreement on or prior to the date the Distribution is declared;
and
WHEREAS, each of the Majority Shareholders has determined that it is
appropriate, desirable and in the best interests of the beneficiaries of each of
the Majority Shareholders that the Distribution be effected in accordance with
the terms of the Distribution and Recapitalization Agreement and that this
Indemnification Agreement be entered into in connection therewith and each of
the Majority Shareholders has effected all necessary action and obtained any
consents required by it to authorize, enter into and perform this
Indemnification Agreement in accordance with its terms.
NOW, THEREFORE, in connection with the Distribution and in
consideration of the mutual covenants and agreements contained in this
Indemnification Agreement, the Parties hereby agree as follows:
ARTICLE I
RESTRICTIONS ON TRANSFER
SECTION 1. Restrictions on Transfers.
a. Neither of the Majority Shareholders may transfer, agree to transfer
or negotiate regarding a transfer or agreement to transfer any shares of St. Joe
Common Stock during the time period beginning on the Effective Date and ending
on the date which is six months after the Distribution Date (the "Six-month
Anniversary"); provided, however, that the Majority Shareholders may, after the
Distribution Date and prior to the Six-month Anniversary, transfer to St. Joe,
in all one transaction or in a series of transactions, up to an aggregate for
all such transfers of an amount of shares of St. Joe Common Stock equal to 15%
of the number of shares of outstanding stock of St. Joe immediately after the
Distribution, taking into account all transfers of both Majority Shareholders
during such period on a cumulative basis.
b. Any time after the Six-month Anniversary until the date which is two
years after the Distribution Date (the "Two-year Anniversary"), the Majority
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Shareholders may (i) transfer to St. Joe, in all one transaction or in a series
of transactions, up to an aggregate for all such transfers and any transfers of
St. Joe Common Stock to St. Joe after the Distribution Date and prior to the
Six-month Anniversary of an amount of shares of St. Joe Common Stock equal to
15% of the number of shares of outstanding stock of St. Joe immediately after
the Distribution, taking into account all transfers of both Majority
Shareholders during period on and after the Effective Date until the Two-year
Anniversary on a cumulative basis, and (ii) transfer to any other Person or
Persons, in all one transaction or in a series of transactions, up to an
aggregate for all such transfers of an amount of shares of St. Joe Common Stock
equal to 20% of the number of shares of outstanding stock of St. Joe immediately
after the Distribution, taking into account all transfers of both Majority
Shareholders during such period on a cumulative basis. At any time after the
Two-year Anniversary, either of the Majority Shareholders may transfer, agree to
transfer or negotiate regarding a transfer or agreement to transfer any of their
shares of St. Joe Common Stock.
c. Other than the transfers permitted by Section 1(b) of this Article
I, neither of the Majority Shareholders may transfer, agree to transfer or
negotiate regarding a transfer or agreement to transfer any shares of St. Joe
Common Stock during the time period beginning after the Six-month Anniversary
and ending on the Two-year Anniversary unless the Majority Shareholder seeking
any such transfer or agreement receives a ruling from the Internal Revenue
Service or an opinion of nationally recognized tax counsel, reasonably
satisfactory to St. Joe, to the effect that the transfer of such St. Joe 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 Code.
SECTION 2. Indemnification.
a. Each of the Majority Shareholders shall indemnify, defend
and hold harmless St. Joe, its Affiliates (other than the Majority
Shareholders), each of their respective stockholders (other than the Majority
Shareholders), present and former directors, officers, employees and agents and
each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "St. Joe Indemnitees") from and against any Liability to
which, in any case, the St. Joe Indemnitees become subject arising from any
inaccuracy in or failure to comply with any written representation or statement
made by it to St. Joe or the IRS in connection with the requests by St. Joe for
the IRS Ruling (as defined below) and the IRS Supplemental Ruling (as defined
below); provided, however, that, notwithstanding the foregoing, the Majority
Shareholders shall not be required to indemnify, defend or hold harmless any St.
Joe Indemnitee for any liability to the extent resulting from any inaccuracy or
incompleteness in any representation or statement made by St. Joe or any St. Joe
Indemnitee to the IRS in connection with
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requests for the IRS Ruling or the IRS Supplemental Ruling or failure by St. Joe
or any St. Joe Indemnitee to comply with any written representation or statement
made by St. Joe or any St. Joe Indemnitee to the IRS in connection with the
requests for the IRS Ruling or the IRS Supplemental Ruling.
b. Each of the Majority Shareholders shall indemnify, defend
and hold harmless the St. Joe Indemnitees from and against all Liabilities
(including, without limitation, (i) any Distribution Restructuring Taxes and
(ii) any lost financing or other corporate opportunities of St. Joe related to
St. Joe's inability to issue stock or engage in a transaction without giving
rise to Distribution Restructuring Taxes to the extent St. Joe could have issued
such stock or engaged in such transaction without giving rise to such
Distribution Restructuring Taxes had there not been a violation of Article I,
Section 1 of this Indemnification Agreement) to which the St. Joe Indemnitees
may become subject, arising from any failure by it to comply with its
obligations under Article 1, Section 1(a) and (b) of this Indemnification
Agreement.
c. Contractual Indemnification. Other than with respect to
Liabilities with respect to which indemnity payments are made pursuant to (a)
and (b) above, each of the Majority Shareholders shall indemnify, defend and
hold harmless the St. Joe Indemnitees from and against all Liabilities to which
the St. Joe Indemnitees may become subject, arising from, relating to, or in the
nature of any failure by it to comply with its representations, warranties,
covenants or agreements in this Agreement.
d. Remedies Not Exclusive. Any and all of the remedies
provided in this Article I shall be cumulative with respect to each other and,
in addition, shall not preclude assertion by any St. Joe Indemnitee of any other
rights or the seeking of any and all other remedies against either of the
Majority Shareholders.
SECTION 3. Indemnification Payments Timing; Quantification.
Indemnification required by this Indemnification Agreement 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
Indemnification Agreement shall be quantified on an after-tax basis, grossed-up
for any withholding taxes deducted from the indemnity payment and for any taxes
incurred by the St. Joe Indemnitees on the indemnity payment and reduced by any
deduction or other actual reduction in tax realized by the St. Joe Indemnitee as
a result of such loss, liability, claim, damage or expense, including, without
limitation, any credit allowable under U.S. or foreign tax law, any dividends
received deduction or any adjustment to the basis of the FEC Common Stock or
Class B Common Stock.
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SECTION 4. Taxes: Cooperation. Each of the Majority Shareholders will
cooperate and take any and all actions reasonably requested by St. Joe in the
preparation and filing of an application for the IRS Ruling and any supplemental
private letter ruling sought by St. Joe 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") (including, without limitation, by making any
representation or covenant or providing any materials or information reasonably
requested by any Tax Authority). Notwithstanding the foregoing, neither of the
Majority Shareholders shall be required to make any representation or covenant
if such representation or covenant would impose a material burden on such
Majority Shareholder that would not have been reasonably anticipated by such
Majority Shareholder on the date hereof.
ARTICLE II
MISCELLANEOUS
SECTION 1. References; Interpretation; Certain Definitions. References
in this Indemnification 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
Indemnification Agreement shall be deemed to be followed by the phrase "without
limitation". The words "either of" when used in this Indemnification Agreement
shall be deemed to be followed by the phrase "or both." Unless the context
otherwise requires, references in this Indemnification Agreement to Articles and
Sections shall be deemed references to Articles and Sections of this
Indemnification Agreement. Unless the context otherwise requires, the words
"hereof", "hereby" and "herein" and words of similar meaning when used in this
Indemnification Agreement refer to this Indemnification Agreement in its
entirety and not to any particular Article, Section or provision of this
Indemnification Agreement.
For purposes of this Indemnification Agreement:
"Action" shall mean any action, suit, arbitration, inquiry, proceeding
or investigation by or before any court , any Governmental Authority or any
arbitration tribunal.
"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,
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whether through the ownership of voting securities or other interests, by
contract or otherwise.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the Treasury regulations promulgated thereunder, including any successor
legislation.
"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.
"Distribution Restructuring Taxes" shall mean 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, in the case of St. Joe, the highest
statutory marginal tax corporate tax rates for the relevant taxable period.
"Effective Date" shall have the meaning set forth in Article II,
Section 4 hereof.
"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.
"Liabilities" shall mean any and all losses, claims, charges, debts,
demands, actions, causes of action, suits, damages, obligations, payments, costs
and expenses, and other liabilities, including, with respect to the withdrawal
by any Tax Authority of all or any portion of the IRS Ruling or any IRS
Supplemental Ruling issued to St. Joe in connection with the Distribution,
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 Indemnification Agreement, in each case, whether or
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not recorded or reflected or required to be recorded or reflected on the books
and records or financial statements of any Person.
"Person" shall mean any natural person, corporation, business trust,
joint venture, association, company, partnership, other entity or government, or
any agency or political subdivision thereof.
"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).
"Tax Authority" shall mean 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, imposition of any tax.
SECTION 2. Complete Agreement; Construction. This Indemnification
Agreement, 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. Except for the rights and obligations of the Majority Shareholders and
St. Joe set forth in Article I hereof, this Indemnification Agreement shall not
affect the rights and obligations of the Trust and St. Joe under that certain
Registration Rights Agreement between the Trust and St. Joe dated December 16,
1997, as amended.
SECTION 3. Counterparts. This Indemnification 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 4. Effective Date of the Indemnification Agreement. The
provisions of Article I of this Indemnification Agreement shall become effective
as of the date (the "Effective Date") the Distribution and Recapitalization
Agreement is executed, and thereafter, all covenants, representations,
warranties and agreements of the Parties contained in this Indemnification
Agreement, including, without limitation, those contained in Article I hereof,
shall survive the Distribution Date.
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SECTION 5. Expenses. Except with respect to the obligation of the
Majority Shareholders to indemnify the St. Joe Indemnitees as set forth in
Article I hereof, all costs and expenses incurred in connection with the
preparation, execution, delivery and implementation of this Indemnification
Agreement shall be charged to and paid by the Party incurring such costs and
expenses.
SECTION 6. 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
1650 Prudential Drive
Jacksonville, FL 32207
Telecopy: 904 858-5265
Attn: General Counsel
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Telecopy: 212 558-3588
Attn: Donald Walkovik
To Trust:
Alfred I duPont Testamentary Trust.
Suite 400
1650 Prudential Drive
St. Augustine, FL 32022
Telecopy: 904-858-3124
Attn: Chairman
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with a copy to:
McGuire Woods Battle & Boothe LLP
One James Center
Richmond, VA 23270
Telecopy: 804-775-1061
Attn: William J. Strickland, Esquire
To Nemours:
The Nemours Foundation.
Suite 400
1650 Prudential Drive
St. Augustine, FL 32022
Telecopy: 904-858-3124
Attn: Chairman
with a copy to:
McGuire Woods Battle & Boothe LLP
One James Center
Richmond, VA 23270
Telecopy: 804-775-1061
Attn: William J. Strickland, Esquire
SECTION 7. Waivers. The failure of any Party to require strict
performance by any other Party of any provision in this Indemnification
Agreement will not waive or diminish that Party's right to demand strict
performance thereafter of that or any other provision hereof; no waiver of any
provision of this Agreement will be effective unless it is in writing and
executed by the waiving party.
SECTION 8. Amendments. This Indemnification Agreement may not be
modified or amended except by an agreement in writing signed by each of the
Parties.
SECTION 9. Assignment. This Indemnification Agreement shall not be
assignable, in whole or in part, directly or indirectly, by any Party without
the prior written consent of the other Party, and any attempt to assign any
rights or obligations arising under this Indemnification Agreement without such
consent shall be void.
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SECTION 10. Successors and Assigns. The provisions to this
Indemnification Agreement shall be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and permitted
assigns.
SECTION 11. Third-Party Beneficiaries. Except as provided in Article
III relating to St. Joe Indemnitees, this Indemnification 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 Indemnification Agreement.
SECTION 12. 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 Indemnification
Agreement.
SECTION 13. GOVERNING LAW. THIS INDEMNIFICATION 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 14. Consent to Jurisdiction. 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 for the Middle
District of Florida, for the purposes of any suit, action or other proceeding
arising out of this Indemnification Agreement. 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
14. 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
Indemnification Agreement 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 16. Severability. In the event any one or more of the
provisions contained in this Indemnification Agreement should be held invalid,
illegal or
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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. Each representation, warranty, covenant and
agreement (including with respect to indemnification) hereunder shall apply in
accordance with its terms, whether or not it may relate to or cover matters
which are the subject of other representations, warranties, covenants or
agreements (including with respect to indemnification) in this Indemnification
Agreement.
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IN WITNESS WHEREOF, the Parties have caused this Indemnification
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
NEMOURS FOUNDATION
By: /s/ W. L. Thornton
----------------------------------------
Name: W. L. Thornton
Title: Vice Chairman
ALFRED I. DUPONT TESTAMENTARY TRUST
By: /s/ W. L. Thornton
----------------------------------------
Name: W. L. Thornton
Title: Chairman
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MASTER AGREEMENT
THIS MASTER AGREEMENT (the "Agreement") is made and entered into as of
this ___ 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
Distribute 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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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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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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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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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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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
8
<PAGE> 9
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
9
<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
10
<PAGE> 11
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
11
<PAGE> 12
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.
15
<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
21
<PAGE> 22
St. Augustine, Florida 32085-1048
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
proffering 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:
/s/ Heidi J. Eddins GRAN CENTRAL CORPORATION,
- -------------------------------- a Florida corporation
Name: Heidi J. Eddins
--------------------------
By: /s/ Robert W. Anestis
-----------------------------------
/s/ Lawrence Paine Name: Robert W. Anestis
- -------------------------------- ----------------------------
Name: Lawrence Paine Title: Chairman
-------------------------- ---------------------------
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
24
<PAGE> 25
THE ST. JOE COMPANY, a Florida
corporation
/s/ Lawrence Paine
- --------------------------------
Name: Lawrence Paine
--------------------------
By: /s/ Peter S. Rummell
--------------------------------
/s/ Joan Tannous Name: Peter S. Rummell
- -------------------------------- -------------------------
Name: Joan Tannous Title: Chairman
-------------------------- -------------------------
25
<PAGE> 26
EXHIBIT "A"
GCC PROPERTY
Deerwood North (2 parcels as shown on Exhibit A-1)
SouthPark (2 parcels as shown on Exhibit A-2)
Union Planters Call Center
Beacon Station - Section 6 (2 parcels as shown on Exhibit A-3)
26
<PAGE> 27
EXHIBIT "B"
ST. JOE PROPERTY
Legacy Point (all phases)
355 Alhambra
27
<PAGE> 28
EXHIBIT "C"
CORAL GABLES PARCEL AND SOUTHPARK II PARCEL
28
<PAGE> 29
EXHIBIT "D"
FORM PROJECT PARTNERSHIP AGREEMENT
29
<PAGE> 30
EXHIBIT "E"
ADDITIONAL GCC PROPERTIES
duPont Center (as shown on Exhibit E-1)
Deerwood North (as shown on Exhibit E-2)
GranPark at Jacksonville (as shown on Exhibit E-3)
Beacon Station - Section 6 (as shown on Exhibit E-4)
Miami CBD (as shown on Exhibit E-5)
30
<PAGE> 31
EXHIBIT "F"
AMENDED AND RESTATED ASSET MANAGEMENT AGREEMENT
31
<PAGE> 32
EXHIBIT "G"
PROPERTY MANAGEMENT AND LEASING AGREEMENT
32
<PAGE> 33
EXHIBIT "H"
DEVELOPMENT MANAGEMENT SERVICES AGREEMENT
33
<PAGE> 34
EXHIBIT "I"
FLORIDA EAST COAST RAILWAY AGREEMENT
34
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE ST. JOE COMPANY FOR THE 9 MONTHS ENDED SEPTEMBER 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 100,505
<SECURITIES> 68,557
<RECEIVABLES> 37,530
<ALLOWANCES> 0
<INVENTORY> 7,953
<CURRENT-ASSETS> 231,954
<PP&E> 1,379,554
<DEPRECIATION> (327,272)
<TOTAL-ASSETS> 1,717,896
<CURRENT-LIABILITIES> 154,598
<BONDS> 0
0
0
<COMMON> 15,428
<OTHER-SE> 920,195
<TOTAL-LIABILITY-AND-EQUITY> 1,717,896
<SALES> 533,599
<TOTAL-REVENUES> 533,599
<CGS> 426,395
<TOTAL-COSTS> 472,907
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 83,151
<INCOME-TAX> 10,540
<INCOME-CONTINUING> 59,813
<DISCONTINUED> 47,931
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,744
<EPS-BASIC> 1.23
<EPS-DILUTED> 1.21
</TABLE>
<PAGE> 1
THE ST. JOE COMPANY
SUPPLEMENTAL CALCULATION OF SELECTED CONSOLIDATED FINANCIAL DATA
EXHIBIT 99.01
(DOLLARS IN THOUSANDS)
THE FOLLOWING TABLE CALCULATES EBITDA (GROSS AND NET):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income from continuing operations before income taxes and
minority interest $35,987 $26,269 $83,151 $67,133
- -------------------------------------------------------------------------------------------------------------------------
Additions:
- -------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 13,129 9,715 35,234 27,042
- -------------------------------------------------------------------------------------------------------------------------
Interest expense 464 158 1,765 301
- -------------------------------------------------------------------------------------------------------------------------
Loss on investment in Entros 5,183 -- 5,183 --
- -------------------------------------------------------------------------------------------------------------------------
Deductions:
- -------------------------------------------------------------------------------------------------------------------------
Gain on sales of nonoperating assets (8,853) (429) (9,112) (961)
------ ------ ------ ------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
EBITDA, Gross 45,910 35,713 116,221 93,515
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Less minority interest percentages:
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes (6,464) (9,190) (20,912) (23,345)
- -------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization (4,073) (3,303) (11,000) (9,494)
- -------------------------------------------------------------------------------------------------------------------------
Interest expense (55) (48) (120) (114)
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Gain(loss) on sales of nonoperating assets 51 (111) (317) 108
------ ------ ------ ------
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EBITDA, Net from continuing operations $35,369 $23,061 $83,872 $60,670
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
