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 June 30, 1998
Commission File Number: 1-8967
ATLANTIC GULF COMMUNITIES CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 59-0720444
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2601 South Bayshore Drive
Miami, Florida 33133-5461
- -------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (305) 859-4000
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.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
There are 11,535,812 shares of the Registrant's Common Stock outstanding as of
August 11, 1998.
<PAGE>
SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORM
10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998, CERTAIN MATTERS DISCUSSED
HEREIN CONTAIN FORWARD LOOKING STATEMENTS BASED ON MANAGEMENT'S EXPECTATIONS
REGARDING, AND EVALUATIONS OF CURRENT INFORMATION ABOUT, THE COMPANY'S BUSINESS
THAT INVOLVE RISKS AND UNCERTAINTIES, AND ARE SUBJECT TO FACTORS THAT COULD
CAUSE ACTUAL FUTURE RESULTS TO DIFFER, BOTH ADVERSELY AND MATERIALLY, FROM
CURRENTLY ANTICIPATED RESULTS, INCLUDING, WITHOUT LIMITATION, THE EFFECT OF
ECONOMIC AND MARKET CONDITIONS; THE CYCLICAL NATURE OF THE REAL ESTATE MARKET IN
FLORIDA AND OTHER SOUTHEAST U.S. PRIMARY MARKETS; THE INDUSTRY AND INDUSTRY
SEGMENT CONDITIONS AND DIRECTIONS; INTEREST RATES; THE AVAILABILITY AND COST OF
FINANCING REAL ESTATE ACQUISITIONS AND DEVELOPMENTS; THE SALEABILITY OF
PREDECESSOR ASSETS; CONSTRUCTION COSTS; WEATHER; THE AVAILABILITY OF HIGH
QUALITY REAL ESTATE PARCELS IN PRIMARY FLORIDA AND OTHER SOUTHEAST U.S. MARKETS;
THE AVAILABILITY AND COST OF MATERIALS AND LABOR; CONSUMER PREFERENCES AND
TASTES; GOVERNMENTAL REGULATION; COMPETITIVE PRESSURES; THE COMPANY'S OWN DEBT
AND EQUITY STRUCTURE AND RELATED FINANCING CONTINGENCIES AND RESTRICTIONS;
MANAGEMENT LIMITATIONS; THE COMPANY'S ABILITY TO CLOSE FINANCINGS OF NEW REAL
ESTATE AT PARTICULAR TIMES RELATIVE TO THE COMPANY'S CASH FLOW NEEDS AT SUCH
TIMES; THE COMPANY'S ABILITY TO REFINANCE EXISTING INDEBTEDNESS; LEGISLATION;
RESOLUTION OF PENDING LITIGATION IN WHICH THE COMPANY IS A DEFENDANT; AND THE
SUCCESS OR LACK THEREOF OF THE COMPANY'S CURRENT DEVELOPMENT PROJECTS.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
No.
---
<S> <C>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 1
Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 1998 and 1997 2
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998
and 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 7
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 32
</TABLE>
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
(in thousands, except share amounts and par value)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- --------
(Unaudited)
<S> <C> <C>
Assets
------
Cash and cash equivalents $ 2,981 $ 9,188
Restricted cash and cash equivalents 900 1,713
Contracts receivable, net 5,084 6,336
Mortgages, notes and other receivables, net 34,163 34,910
Land and residential inventory 126,743 130,506
Property, plant and equipment, net 2,751 1,754
Other assets, net 16,765 18,664
--------- --------
Total assets $ 189,387 $203,071
========= ========
Liabilities and Stockholders' (Deficit) Equity
----------------------------------------------
Accounts payable and accrued liabilities $ 12,276 $ 13,615
Customers' and other deposits 3,789 1,181
Other liabilities 7,740 8,865
Notes, mortgages and capital leases 118,906 132,408
--------- --------
Total liabilities 142,711 156,069
--------- --------
Redeemable Preferred Stock
Series A, 20%, $.01 par value, 2,500,000 shares authorized; 2,500,000
shares issued, having a liquidation preference of $29,666, as of June 30,
1998; 2,326,500 shares issued, having a liquidation preference of
$25,254, as of December 31, 1997 26,949 22,378
Series B, 20%, $.01 par value; 2,000,000 shares authorized; 2,000,000
shares issued, having a liquidation preference of $23,491 as of June 30,
1998 and a liquidation preference of $21,307 as of December 31, 1997 21,748 19,306
--------- --------
48,697 41,684
--------- --------
Stockholders' (deficit) equity
Common stock, $.10 par value, 70,000,000 shares authorized; 11,622,089
and 11,607,526 shares issued as of June 30, 1998, and December
31, 1997, respectively 1,162 1,161
Contributed capital 123,473 128,930
Accumulated deficit (120,935) (119,052)
Accumulated other comprehensive loss (5,712) (5,712)
Treasury stock, 86,277 shares, at cost (9) (9)
--------- --------
Total stockholders' (deficit) equity (2,021) 5,318
--------- --------
Total liabilities and stockholders' (deficit) equity $ 189,387 $203,071
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three and Six Months Ended June 30, 1998 and 1997
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales:
Core Homesite $ 2,612 $ 6,999 $ 5,147 $ 8,468
Core Tract 31,780 590 32,041 590
Core Residential -- 2,201 -- 9,195
Predecessor Homesite 1,035 2,533 1,931 3,614
Predecessor Tract 8,476 5,452 13,756 12,116
Other Operations -- -- -- 76
-------- -------- -------- --------
Total real estate sales 43,903 17,775 52,875 34,059
Other operating revenues 664 852 1,415 1,445
Interest income 1,152 1,745 2,519 3,117
Other income 1,581 -- 1,681 --
-------- -------- -------- --------
Total revenues 47,300 20,372 58,490 38,621
-------- -------- -------- --------
Costs and expenses:
Cost of real estate sales:
Core Homesite 2,260 6,878 4,407 8,036
Core Tract 25,203 484 25,431 484
Core Residential -- 3,082 -- 8,310
Predecessor Homesite 898 2,390 1,758 3,220
Predecessor Tract 8,145 5,054 13,399 11,209
Other Operations -- -- -- 88
-------- -------- -------- --------
Total cost of real estate sales 36,506 17,888 44,995 31,347
Selling expense 1,968 1,889 3,220 4,018
Other operating expense 464 298 766 628
Other real estate costs 2,277 2,896 4,076 5,802
General and administrative expense 2,203 2,456 4,042 4,656
Depreciation 168 169 338 353
Cost of borrowing, net of amounts capitalized 1,649 4,699 3,031 8,734
Other expense 240 287 471 462
-------- -------- -------- --------
Total costs and expenses 45,475 30,582 60,939 56,000
-------- -------- -------- --------
Operating income (loss) 1,825 (10,210) (2,449) (17,379)
-------- -------- -------- --------
Other income (expense):
Reorganization items 268 1,365 782 1,794
Miscellaneous (27) 175 (216) (361)
-------- -------- -------- --------
Total other income (expense) 241 1,540 566 1,433
-------- -------- -------- --------
Net income (loss) 2,066 (8,670) (1,883) (15,946)
======== ======== ======== ========
Less:
Accrued preferred stock dividends 2,531 62 4,860 62
Accretion of preferred stock to redemption amount 336 8 654 8
-------- -------- -------- --------
2,867 70 5,514 70
-------- -------- -------- --------
Net loss applicable to common stock $ (801) $ (8,740) $ (7,397) $(16,016)
======== ======== ======== ========
Basic and diluted earnings per common share:
Net loss per common share $ (.07) $ (.89) $ (.64) $ (1.64)
======== ======== ======== ========
Weighted average common shares outstanding 11,531 9,863 11,530 9,793
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,883) $(15,946)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,083 2,998
Other income (310) (1,337)
Reorganization items 45 179
Land acquisitions (22,125) (5,572)
Other net changes in assets and liabilities:
Restricted cash 813 2,063
Receivables 1,775 4,798
Land and residential inventory 25,888 19,197
Other assets 946 (8,668)
Accounts payable and accrued liabilities (1,302) (5,252)
Customer deposits 2,608 (1,114)
Other liabilities (636) (483)
-------- --------
Net cash provided by (used in) operating activities 7,902 (9,137)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment, net (1,335) (172)
Funds withdrawn from utility trust accounts -- 12,109
-------- --------
Net cash (used in) provided by investing activities (1,335) 11,937
-------- --------
Cash flows from financing activities:
Borrowings under credit agreements 20,636 66,699
Repayments under credit agreements (35,145) (99,745)
Principal payments on other liabilities -- (1,218)
Proceeds from issuance of common stock -- 10,000
Proceeds from issuance of preferred stock 1,735 18,875
-------- --------
Net cash used in financing activities (12,774) (5,389)
-------- --------
Decrease in cash and cash equivalents (6,207) (2,589)
Cash and cash equivalents at beginning of period 9,188 7,050
-------- --------
Cash and cash equivalents at end of period $ 2,981 $ 4,461
======== ========
Supplemental cash flow information:
Interest payments, net of amounts capitalized $ 1,340 $ 4,889
======== ========
Reorganization item payments $ 45 $ 900
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998
(unaudited)
(1) The June 30, 1998 financial statements are unaudited and subject to
year-end adjustments. In management's opinion, the interim financial
statements reflect all adjustments, principally consisting of normal
recurring accruals, necessary for a fair presentation of the financial
position and results of operations. Results for interim periods are not
necessarily indicative of results for the full year. For a complete
description of the Company's accounting policies, see "Notes to
Consolidated Financial Statements" included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, as amended by
that certain Amendment to Form 10-K on Form 10-K/A-1, as filed with the
Securities and Exchange Commission (the "SEC") ("1997 Form 10-K").
Certain prior year amounts have been reclassified to conform with the
1998 presentation.
(2) The net loss per common share is computed by deducting accrued
preferred stock dividends and the accretion of preferred stock to the
redemption amount to determine net loss applicable to common stock.
This amount is then divided by the weighted average number of shares of
common stock outstanding during the periods. The effect of any
outstanding warrants and options to purchase common stock on the per
share computation was anti-dilutive during the periods.
(3) The Company capitalizes interest primarily on land inventory being
developed for sale which is subsequently charged to income when the
related asset is sold. Capitalized interest was $2,382,000 and
$5,396,000 for the three and six-month periods ended June 30, 1998,
respectively, and $1,447,000 and $2,722,000 for the three and six-month
periods ended June 30, 1997, respectively.
(4) Revenue from the sale of residential units other than Regency Island
("Regency") condominium units is recognized when the earnings process
is complete. Revenue from the sale of Regency condominium units is
recognized using the percentage-of-completion method. Earned revenue is
based on the percentage of costs incurred to date to total estimated
costs to be incurred. This percentage is then applied to the expected
revenue associated with units that have been sold to date. Revenue from
the sale of land is recognized when the cash received, as a percentage
of the sales price, is at least 20% for land sales other than retail
land sales and 10% for retail land sales, the earnings process is
complete and the collection of any remaining receivable is reasonably
assured.
(5) Due to the establishment of reserves against future mandatory debt,
capital and operating expenditures, the Company did not have Available
Cash, as defined in the Company's agreements, at June 30, 1998, to make
any interest payments on the Cash Flow Notes for the six-month period
ending June 30, 1998. In addition, the Company did not have Available
Cash to make any interest payments for the twelve-month period ended
December 31, 1997. Interest on the Cash Flow Notes is noncumulative.
Therefore, the Company has not recorded interest expense associated
with the Cash Flow Notes during the six months ended June 30, 1998 and
1997. See PART I. FINANCIAL INFORMATION, ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES to the Form 10-Q for the
fiscal quarter ended June 30, 1998 (the "Second Quarter 1998 Form
10-Q") for more information concerning the Cash Flow Notes.
(6) Pursuant to the Company's 1996 Non-Employee Directors' Stock Plan, the
Company issued 8,330 shares of Atlantic Gulf's common stock to the
Non-Employee Directors at a price of $4.50 per
4
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998
(unaudited)
share for the first quarter of 1998 and 6,209 shares at a price of
$3.625 per share for the second quarter of 1998.
(7) The Company and AP-AGC, LLC, an affiliate of Apollo Real Estate
Advisors, L.P. ("Apollo"), are parties to that certain Investment
Agreement, as amended (the "Investment Agreement," which closed in June
1997 (the "Closing")) pursuant to which Apollo agreed, subject to
certain conditions, to acquire 2.5 million shares 20% Series A
Redeemable Preferred Stock (the "Series A Preferred Stock") from the
Company at a purchase price of $9.88 per share, and warrants to
purchase up to 5 million shares of Common Stock (the "Investor
Warrants"), at a purchase price of $.06 per share, for an aggregate
purchase price of $25 million (the "Apollo Transaction"). As of
December 31, 1997, Apollo had purchased 2,326,475 shares of Series A
Preferred Stock and Investor Warrants to acquire 4,652,950 shares of
Common Stock, for an aggregate purchase price of approximately $23.3
million. On March 31, 1998, Apollo purchased the remaining 173,525
shares of Series A Preferred Stock and Investor Warrants to acquire
347,050 shares of Common Stock, for an aggregate purchase price of
$1,735,248.
(8) Redeemable preferred stock consisted of the following at June 30, 1998
and December 31, 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- --------
<S> <C> <C>
Series A
--------
Gross proceeds $ 25,000 $ 23,265
Accrued dividends 4,666 1,989
-------- --------
Liquidation Preference amount 29,666 25,254
Less issue costs (3,100) (2,885)
Less warrants purchased (300) (279)
Plus accretion of preferred stock to redemption amount 683 288
-------- --------
26,949 22,378
-------- --------
Series B
--------
Gross proceeds 20,000 20,000
Accrued dividends 3,491 1,307
-------- --------
Liquidation Preference amount 23,491 21,307
Less issue costs (1,900) (1,900)
Less warrants purchased (240) (240)
Plus accretion of preferred stock to redemption amount 397 139
-------- --------
21,748 19,306
-------- --------
Total redeemable preferred stock $ 48,697 $ 41,684
======== ========
</TABLE>
5
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998
(unaudited)
(9) As of January 1, 1998, the Company adopted Statement 130, REPORTING
COMPREHENSIVE INCOME. Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's
net loss or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's minimum pension liability adjustments,
which prior to adoption were reported separately in shareholders'
equity to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the
requirements of Statement 130.
During the first six months of 1998 and 1997, comprehensive income
consisted only of the net losses for those periods.
6
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
--------------------------------------------------------------------
UNLESS THE CONTEXT CLEARLY INDICATES OTHERWISE, ALL REFERENCES TO (1) THE
"COMPANY" INCLUDE ATLANTIC GULF COMMUNITIES CORPORATION AND ITS DIRECT AND
INDIRECT WHOLLY-OWNED SUBSIDIARIES, (2) "ATLANTIC GULF" REFERS SOLELY TO
ATLANTIC GULF COMMUNITIES CORPORATION AND (3) "PREDECESSOR COMPANY" OR
"PREDECESSOR" REFER TO GENERAL DEVELOPMENT CORPORATION, ATLANTIC GULF'S
IMMEDIATE PREDECESSOR.
CURRENT BUSINESS
The Company is a Florida-based, planned community development and asset
management company. The Company's principal business (its "Core Business")
consists of (1) the acquisition, development and sale of residential homesites
("Homesites") to home builders and commercial, industrial and retail land
("Tracts") in primary or oceanfront markets in Florida and other selected
primary markets in the southeast (the "Southeast") United States (collectively,
"Primary Markets"), (2) the construction and sale of selected vertical
residential products, including oceanfront condominium units and an urban luxury
apartment tower ("Vertical Development") and (3) environmental services. The
Company is also engaged in (a) the orderly disposition of scattered Predecessor
Homesites (i.e., homesites inherited from the Company's Predecessor) and
Predecessor Tracts (i.e., commercial, industrial, institutional, residential,
and agricultural acreage inherited from the Company's Predecessor) in secondary
markets (collectively, the "Predecessor Assets") and (b) portfolio management of
mortgages and contract receivables related to the Predecessor Assets. The
continuing disposition of Predecessor Assets is a run-off business and is not
part of the Company's Core Business.
The Company's Core Business is comprised of four primary functions, (1)
business development, (2) planning, (3) community development and (4)
residential construction. See PART I., ITEM 1. BUSINESS in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, as amended by that
certain Amendment to Form 10-K on Form 10-K/A-1, as filed with the Securities
and Exchange Commission (the "SEC") ("1997 Form 10-K") and PART I. FINANCIAL
INFORMATION, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS in the Company's Quarterly Report on Form 10-Q, as
filed with the SEC (the "First Quarter 1998 Form 10-Q"), for a more detailed
description of the Company's current business.
BUSINESS PLAN
Atlantic Gulf's business plan is to:
o Execute and grow its Core Business, principally the sales of new
Homesites and Tracts, throughout its Primary Markets.
o Capitalize on special opportunities in Vertical Development.
o Complete the orderly disposition of its remaining Predecessor
Assets.
To these ends (1) since 1992, the Company has sold approximately 81,000
acres of Predecessor Tracts and 10,800 Predecessor Homesites, and substantially
reduced the corporate debt and deferred
7
<PAGE>
liabilities which it inherited from its Predecessor and (2) since 1994, the
Company has acquired interests in 17 new projects in ten Primary Markets in four
states.
The Company has successfully transitioned itself from a land company
holding principally Predecessor Assets in 1994 to a leading provider to builders
of developed Homesites in planned communities in Primary Markets in 1998.
From 1994 through 1996, the Company acquired interests in new Core
Business assets both directly and, in some cases, indirectly, through joint
venture, limited partnership or similar structures and arrangements
(collectively, "JV Projects"). The Company used these structures and
arrangements because its debt amortization schedules imposed severe capital
constraints on new business growth. The Company did not have the capital
resources during this period to acquire direct ownership interests in all of its
new projects.
In 1997 and the first quarter of fiscal year 1998, the Company closed
three major equity transactions, raising an aggregate of $55 million (the "1997
Equity Transactions"). See PART I., ITEM 1. BUSINESS - SIGNIFICANT BUSINESS
DEVELOPMENTS in the 1997 Form 10-K and PART II. OTHER INFORMATION, ITEM 2.
CHANGES IN SECURITIES in the First Quarter 1998 Form 10-Q for more information
concerning the 1997 Equity Transactions. The Company used the funds from the
1997 Equity Transactions and other funds to acquire direct ownership interest in
all of its new Core Business projects in 1997.
The Company's strategy to grow the Homesite segment of its business is
being accomplished in two stages. In the first stage, the Company built sales
volume, principally through JV Projects. Now, in the second stage, the Company
is replacing sold inventory with new projects, acquired principally through
direct ownership.
8
<PAGE>
As of June 30, 1998, the Company owned, directly or through JV
Projects, interests in the following Core Business Homesite projects:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Units Units
Type of Year Closed- Under
Project Ownership Location Acquired Scope of Project (3) to-Date Contract
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
West Meadows D (1) Tampa Bay, FL 1995 1,316 single-family Homesites 353 252
- ------------------------------------------------------------------------------------------------------------------------------------
Saxon Woods D Orlando, FL 1997 408 single-family Homesites 15 103
- ------------------------------------------------------------------------------------------------------------------------------------
Lakeside Estates D Orlando, FL 1994-1995 1,379 single-family Homesites 778 168
- ------------------------------------------------------------------------------------------------------------------------------------
West Bay Club D Naples, FL 1995-1997 520 single-family Homesites - -
- ------------------------------------------------------------------------------------------------------------------------------------
The Trails of West Frisco D Dallas, TX 1997 1,643 single-family Homesites - 415
- ------------------------------------------------------------------------------------------------------------------------------------
Sunset Lakes JV (2) Broward County, FL 1994 1,512 single-family Homesites
and 255 multi-family units 442 665
- ------------------------------------------------------------------------------------------------------------------------------------
Country Lakes JV Broward County, FL 1995 1,116 single-family Homesites
and 1,930 multi-family units 1,115 1,931
- ------------------------------------------------------------------------------------------------------------------------------------
Falcon Trace JV Orlando, FL 1996 871 single-family Homesites 119 310
- ------------------------------------------------------------------------------------------------------------------------------------
Cary Glen JV Raleigh/Durham, NC 1996 917 single-family Homesites
and 249 multi-family units - -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "D" means direct ownership.
(2) "JV" means joint venture.
(3) Varying from project to project, unsold units are developed, under
development or to be developed in the future.
As of June 30, 1998, the Company owned, directly or through JV
Projects, interests in the following Core Business Tracts:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Acres Acres
Type of Year Closed- Under
Project Ownership Location Acquired Scope of Project To-date Contract
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
West Meadows D (1) Tampa Bay, FL 1997 76 commercial/industrial acres 50 -
- -----------------------------------------------------------------------------------------------------------------------------------
Riverwalk Tower D Fort Lauderdale, FL 1997 0.9 commerical acres 0.9 -
- -----------------------------------------------------------------------------------------------------------------------------------
Regency Island D Hutchinson Island, FL 1994 4 commercial acres - -
- -----------------------------------------------------------------------------------------------------------------------------------
Sunset Lakes JV (2) Broward County, FL 1994 10 commercial/industrial acres - 10
- -----------------------------------------------------------------------------------------------------------------------------------
Country Lakes JV Broward County, FL 1995 140 commercial/industrial acres - -
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "D" means direct ownership.
(2) "JV" means joint venture.
9
<PAGE>
As of June 30, 1998, the Company owned, directly or through JV
Projects, interests in the following vertical residential products:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Units Units
Type of Year Closed- Under
Project Ownership Location Acquired Scope of Project To-date Contract
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Riverwalk Tower D (1) Fort Lauderdale, FL 1997 373 high-rise apartments - -
- -----------------------------------------------------------------------------------------------------------------------------------
West Bay Club D Naples, FL 1995-1997 578 high-rise residential units - -
- -----------------------------------------------------------------------------------------------------------------------------------
Jupiter Ocean Grande JV (2) Jupiter, FL 1995 138 condominium units - -
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "D" means direct ownership.
(2) "JV" means joint venture.
As of June 30, 1998, the Company owned approximately 16,000 Predecessor
Homesites and approximately 11,000 acres of Predecessor Tracts in 8 communities.
See PART I., ITEM 1. BUSINESS in the 1997 Form 10-K, PART I. -
FINANCIAL INFORMATION, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS in the First Quarter 1998 Form 10-Q and PART
I. FINANCIAL INFORMATION, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS to this Quarterly Report on Form
10-Q for more information concerning the Company's business.
10
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
The Company's results of operations for the six months ended June 30,
1998 and 1997 are summarized by line of business, as follows:
<TABLE>
<CAPTION>
COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
Six Months Ended June 30, 1998
(in thousands of dollars)
(unaudited)
Core Predecessor
---------------------------- -------------------
Homesite Tract Residential Homesite Tract Other Business Administrative
Sales Sales Sales Sales Sales Operations Development & Other Total
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $5,147 $32,041 $ $1,931 $ 13,756 $ $ $ $52,875
Other operating revenues 296 1,119 1,415
Interest income 150 1,762 607 2,519
Other income 1,681 1,681
------------------------------------------------------------------------------------------------
Total revenues 7,274 32,041 - 1,931 13,756 2,881 - 607 58,490
------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 4,407 25,431 1,758 13,399 44,995
Selling expense 675 800 436 1,309 3,220
Other operating expense 766 766
Other real estate costs:
Property tax, net 1,395 1,395
Other real estate overhead 503 241 322 11 692 912 2,681
General and administrative expense 4,042 4,042
Depreciation 9 13 37 42 237 338
Cost of borrowing, net 1,085 1,946 3,031
Other expense 225 246 471
------------------------------------------------------------------------------------------------
Total costs and expenses 5,819 26,231 246 2,448 15,067 1,904 692 8,532 60,939
------------------------------------------------------------------------------------------------
Operating income (loss) 1,455 5,810 (246) (517) (1,311) 977 (692) (7,925) (2,449)
------------------------------------------------------------------------------------------------
Other income (expense):
Reorganization items 534 248 782
Miscellaneous (216) (216)
------------------------------------------------------------------------------------------------
Total other income (expense) - - - - - 534 - 32 566
------------------------------------------------------------------------------------------------
Net income (loss) 1,455 5,810 (246) (517) (1,311) 1,511 (692) (7,893) (1,883)
------------------------------------------------------------------------------------------------
Less:
Accrued preferred stock dividends 4,860 4,860
Accretion of preferred stock to
redemption amount 654 654
------------------------------------------------------------------------------------------------
- - - - - - - 5,514 5,514
------------------------------------------------------------------------------------------------
Net income (loss) applicable to
common stock $1,455 $ 5,810 $(246) $ (517) $ (1,311) $1,511 $(692) $(13,407) $ (7,397)
================================================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
Six Months Ended June 30, 1997
(in thousands of dollars)
(unaudited)
Core Predecessor
------------------------------ -----------------
Homesite Tract Residential Homesite Tract Other Business Administrative
Sales Sales Sales Sales Sales Operations Development & Other Total
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $8,468 $590 $9,195 $ 3,614 $12,116 $ 76 $ $ $ 34,059
Other operating revenues 401 1,044 1,445
Interest income 222 2,426 469 3,117
--------------------------------------------------------------------------------------------------
Total revenues 9,091 590 9,195 3,614 12,116 3,546 - 469 38,621
--------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 8,036 484 8,310 3,220 11,209 88 31,347
Selling expense 430 16 239 1,686 1,615 32 4,018
Other operating expense 628 628
Other real estate costs:
Property tax, net 1,731 1,731
Other real estate overhead 490 138 160 699 348 1,347 889 4,071
General and administrative expense 4,656 4,656
Depreciation 4 2 3 31 62 251 353
Cost of borrowing, net 1,105 7,629 8,734
Other expense 57 405 462
---------------------------------------------------------------------------------------------------
Total costs and expenses 9,017 500 9,094 5,069 13,554 2,231 1,379 15,156 56,000
---------------------------------------------------------------------------------------------------
Operating income (loss) 74 90 101 (1,455) (1,438) 1,315 (1,379) (14,687) (17,379)
---------------------------------------------------------------------------------------------------
Other income (expense):
Reorganization items 532 1,262 1,794
Miscellaneous (96) (265) (361)
---------------------------------------------------------------------------------------------------
Total other income (expense) - - - - - 436 - 997 1,433
---------------------------------------------------------------------------------------------------
Net income (loss) 74 90 101 (1,455) (1,438) 1,751 (1,379) (13,690) (15,946)
---------------------------------------------------------------------------------------------------
Less:
Accrued preferred stock dividends 62 62
Accretion of preferred stock
to redemption amount 8 8
---------------------------------------------------------------------------------------------------
- - - - - - - 70 70
---------------------------------------------------------------------------------------------------
Net income (loss) applicable to
common stock $ 74 $ 90 $ 101 $(1,455) $(1,438) $1,751 $(1,379) $(13,760) $(16,016)
===================================================================================================
</TABLE>
During the first six months of 1998, the Company reported a net loss of
$1.9 million compared to a net loss of $16.0 million for the same period last
year. After certain non-cash charges applicable to preferred stock, the Company
reported a net loss applicable to common stock of $7.4 million compared to a net
loss applicable to common stock of $16.0 million during the first six months of
1997. The loss decreased by $8.6 million during the first six months of fiscal
1998 compared to the first six months of fiscal 1997 primarily due to (1) a 55%
increase in real estate revenues in 1998 generating a $5.2 million gross margin
increase, (2) a $2.3 million increase in other income in 1998, (3) a $3.1
million reduction in selling
12
<PAGE>
expenses, other real estate costs and general and administrative expenses in
1998 and (4) a $5.0 million decrease in borrowing costs in 1998, partially
offset by a $5.4 million increase in accrued preferred stock dividends and
accretion of preferred stock in 1998. As discussed below, the increase in real
estate revenues in 1998 was primarily due to $31.8 million of Tract sales in the
second quarter of 1998 consisting of a sale for $24.8 million of Dave's Creek, a
1,372 acre project near Atlanta, Georgia ("Dave's Creek"), and a $7.0 million
sale of 0.9 acres of the 2.8-acre Riverwalk Tower.
CORE BUSINESS
The results of operations of the Core Business are set forth below.
CORE HOMESITE SALES. Net income from Homesite sales improved
$2.0 million in the first six months of 1998 compared to the first six months of
1997 primarily due to a $2.3 million increase in other income.
Revenues from Homesite sales decreased $3.3 million in the
first six months of 1998 compared to the first six months of 1997 primarily due
to a $4.5 million sale in June 1997 of the remaining 102 lots in Windsor Palms,
partially offset by a $1.8 million increase in sales in West Meadows. The
following table summarizes Homesite sales activity for the six months ended June
30 (in thousands of dollars):
1998 1997
----------------------------- ------------------------------
Number Average Number Average
of Lots Revenue Sales Price of Lots Revenue Sales Price
------- ------- ----------- ------- ------- -----------
West Meadows 147 $3,138 $21.3 41 $1,291 $31.5
Lakeside Estates 72 1,521 21.1 103 2,091 20.3
Saxon Woods 15 377 25.1 - - -
Windsor Palms - - - 102 4,514 44.3
Sabal Trace 3 111 37.0 8 300 37.5
Sanctuary - - - 16 272 17.0
--- ------ ----- --- ------ -----
237 $5,147 $21.7 270 $8,468 $31.4
=== ====== ===== ==== ====== =====
The average sales price in West Meadows decreased in the first
six months of 1998 compared to the first six months of 1997 due to a bulk sale
of 82 lots for $840,000 in the first quarter of 1998.
Other operating revenues included $296,000 in the first six
months of 1998 and $79,000 in the first six months of 1997 representing
management fees earned in connection with the Sunset Lakes JV Project. Other
operating revenues in the first six months of 1997 also included a $322,000
management fee from the Country Lakes JV Project. The Country Lakes JV Project
sold 740 Homesites for $9.5 million during the first six months of 1997.
Other income of $1.7 million in the first six months of 1998
included $523,000 of income from the Company's 65% interest in profits from the
Sunset Lakes JV Project, net of $664,000 of amortization relative to interest
capitalized on the Company's equity investment. During the first six months of
1998, the Sunset Lakes JV Project sold 187 Homesites and a 29-acre tract
designed for 255 multi-family units for approximately $15.5 million. Other
income in the first six months of 1998 also included net gains totaling $1.1
million on assignments of real estate purchase agreements for two residential
projects located in the Orlando, Florida area.
13
<PAGE>
As of June 30, 1998, the Company had under contract
approximately (1) 938 Homesites for approximately $25.3 million with 14
homebuilders in Lakeside Estates, West Meadows, The Trails of West Frisco and
Saxon Woods and (2) 975 JV Project Homesites for approximately $45.4 million
with 8 homebuilders in Sunset Lakes and Falcon Trace. As of June 30, 1997, the
Company had under contract approximately 344 Homesites for approximately $6.3
million in Lakeside Estates, West Meadows and Sanctuary.
The Homesite sales gross margin percentage was 14.4% in the
first six months of 1998 compared to 5.1% in the first six months of 1997.
Although the gross margin percentage increased in the first six months of 1998
compared to the first six months of 1997, it is lower than the targeted gross
margin of approximately 20% for this line of business principally due to
reductions in the gross margin percentages at Lakeside Estates and West Meadows.
These reductions are due to increases in the estimated costs to complete these
projects. The Company anticipates that the impact of these reductions will
decrease on a relative basis as more Homesite projects come on line during 1998.
The lower than targeted gross margin in the first six months of 1997 was
principally attributable to the sale of the final 102 Windsor Palms lots for
$4.5 million, generating a negative 10% gross margin. This sale was necessitated
by the Company's need for liquidity to meet a June 30, 1997 debt payment.
Homesite selling expense increased $245,000 in the first six
months of 1998 (despite a decrease in revenues) compared to the first six months
of 1997 primarily due to presales advertising and marketing costs associated
with the West Bay Club project.
CORE TRACT SALES. Net income from Tract sales increased $5.7
million in the first six months of 1998 compared to the first six months of 1997
due to an increase in Tract sales revenues.
Tract sales revenues increased $31.5 million in the first six
months of 1998 compared to the first six months of 1997 due to two large Tract
sales in 1998. In April 1998, the Company sold and closed Dave's Creek for $24.8
million. Additional sales proceeds of $2.5 million are being held in escrow
pending the acquisition by the Company of an Army Corp of Engineers permit
which, if received, will increase the total revenues from this sale to $27.3
million. The 6.6% gross margin on this sale will increase to approximately 15.2%
upon the receipt of the additional $2.5 million of proceeds. In June 1998, the
Company sold for $7.0 million a 0.9 acre office/hotel parcel which is part of
the 2.8-acre Riverwalk Tower project. This sale generated a gross margin of
70.4%. The balance of the Riverwalk Tower project is being developed by the
Company as a luxury high-rise apartment tower.
As of June 30, 1998, the Company's JV Projects had pending
Tract sales contracts of approximately $3.5 million.
Tract sales selling expense increased $784,000 in the first
six months of 1998 compared to the first six months of 1997 due to increased
sales activities.
CORE RESIDENTIAL SALES. Net operating results from Core
Residential sales decreased $347,000 in the first six months of 1998 compared to
the first six months of 1997 due to the absence of revenues and profits from
Regency Island which closed sales of all units as of December 31, 1997.
During 1993, the Company entered the luxury oceanfront
condominium market through the acquisition of the Regency Island project. The
Company completed construction and sold out Regency Island in 1997. In 1995, the
Company acquired the Jupiter Ocean Grande condominium JV Project. The Company
has a 50% interest in this JV Project and anticipates commencing presales on the
first building in Jupiter Ocean Grande in the 1998-1999 selling season. The
Company also anticipates commencing presales
14
<PAGE>
of its West Bay Club high-rise residential units in the 1998-1999 selling
season. In 1998, the Company intends to begin construction of Riverwalk Tower,
its first luxury apartment tower.
The following table summarizes Residential sales activity for
the six months ended June 30 (in thousands of dollars):
1998 1997
------ ------
Condominium sales - Regency Island:
First Building $ - $1,310
Second Building - 7,885
------ ------
Total condominium sales $ - $9,195
====== ======
The revenues and profits associated with Regency Island were
recorded using the percentage of completion method. The project consisted of two
72-unit buildings, all of which were sold and closed as of December 31, 1997.
The revenues of $1.3 million from the first building in the first six months of
1997 represented revenue earned from the closing of four units. As of June 30,
1997, 71 of the 72 units in the first building were sold and closed. As of
December 31, 1996, the Company recorded 79% of the expected revenues and profits
on 56 units in the second building, based on a construction completion
percentage of 79%. The revenues of approximately $7.9 million in the second
building in the first six months of 1997 resulted from (1) an increase in the
completion percentage from 79% to 100% as of June 30, 1997, and (2) 12
additional units sold during the first six months of 1997 for a total of 68
units sold in the second building as of June 30, 1997. As of June 30, 1997, 24
of the 72 units in the second building had closed.
The gross margin for Residential - condominiums sales in the
first six months of 1997 was 9.6%. The final overall gross margin for the
Regency Island project was 12.1%.
Residential selling expense and real estate overhead decreased
from a total of $377,000 in the first six months of 1997 to $0 in the first six
months of 1998 due to the close out of Regency Island in 1997.
Residential other expenses of $246,000 in the first six months
of 1998 and $405,000 in the first six months of 1997 constitute the Company's
share of the net loss from the Jupiter Ocean Grande JV Project. The loss
resulted from pre-sales advertising and other selling and overhead costs.
PREDECESSOR BUSINESS
The results of operations of the Predecessor Business are set forth
below.
PREDECESSOR HOMESITE SALES. Net operating results from
Predecessor Homesite sales improved $938,000 in the first six months of 1998
compared to the first six months of 1997 primarily due to a $1.3 million
decrease in selling expenses.
15
<PAGE>
Revenues from Predecessor Homesite sales decreased $1.7
million in the first six months of 1998 compared to the first six months of 1997
due to (1) a 34% decrease in the number of Predecessor Homesites sold and (2) a
17% decrease in the average sales price for Predecessor Homesites sold. The
following table summarizes Predecessor Homesite sales activity for the six
months ended June 30 (in thousands of dollars):
1998 1997
-------------------------------- -----------------------------
Number Average Number Average
of Lots Revenue Sales Price of Lots Revenue Sales Price
------- ------- ------------- ------- ------- -----------
Scattered sales 194 $ 908 $4.7 366 $2,158 $ 5.9
Bulk sales 382 1,023 2.7 506 1,456 2.9
--- ------ ---- --- ------ -----
576 $1,931 $3.4 872 $3,614 $ 4.1
=== ====== ==== === ====== =====
Revenues from Predecessor Homesite scattered sales decreased
in the first six months of 1998 compared to the first six months of 1997
primarily due to a $657,000 decrease in sales in the Company's Cumberland Cove,
Tennessee, project ("Cumberland Cove"). Sales in Cumberland Cove declined
because the project began winding down during 1997, and the Company closed its
on-site sales office in September 1997. The decline in the average sales price
of Predecessor Homesite scattered sales is principally due to the reduction in
sales in Cumberland Cove, the Company's highest priced Predecessor Homesite
product. Bulk sales of Predecessor Homesites declined due to a decrease in sales
volume.
As of June 30, 1998, the Company had under contract
approximately 81 Predecessor Homesites for $507,000. As of June 30, 1997, the
Company had under contract 2,768 Predecessor Homesites for $5.9 million.
Predecessor Homesite sales often vary significantly from period to period
depending on the timing and size of bulk sales.
The Predecessor Homesite sales gross margin percentage was
9.0% in the first six months of 1998 compared to 10.9% in the first six months
of 1997.
Predecessor Homesite selling expense decreased $1.3 million or
74.1% in the first six months of 1998 compared to the first six months of 1997
due to (1) a $755,000 reduction in indirect selling costs at Cumberland Cove due
to the closing of the on-site sales operation in September 1997 and (2) the
decrease in revenues. Predecessor Homesite selling expense decreased as a
percentage of revenue from 46.7% in the first six months of 1997 to 22.6% in the
first six months of 1998 primarily due to the reduction in indirect selling
costs at Cumberland Cove.
PREDECESSOR TRACT SALES. The net loss from Predecessor Tract
sales was similar during the first six months of 1998 compared to the first six
months of 1997.
Revenues from Predecessor Tract sales increased $1.6 million
in the first six months of 1998 compared to the first six months of 1997. Tract
sales and corresponding revenues from such sales often vary significantly from
period to period depending on the timing and size of individual sales. As of
June 30, 1998, there were pending Predecessor Tract sales contracts or letters
of intent totaling approximately $8.0 million, which, subject to certain
contingencies, are anticipated to close in 1998. As of June 30, 1997, there were
pending Predecessor Tract sales contracts or letters of intent totaling
approximately $15.5 million.
16
<PAGE>
The following table summarizes Predecessor Tract sales gross
margins for the six months ended June 30:
1998 1997
--------------------- -------------------
Targeted Actual Targeted Actual
Margins Margins Margins Margins
-------- ------- ------- -------
Port LaBelle agricultural acreage 0% 2.2% 0% (5.2)%
Other Predecessor Tract acreage 0% 3.7% 5-10% 10.7%
The targeted gross margin is break even for Port LaBelle
agricultural acreage because management determined the Port LaBelle agricultural
property is not an integral part of the Company's long-term business strategy.
In order to accelerate the disposal of this property, the sales value for this
property was adjusted in 1992 from "retail" to "wholesale", which reduced the
targeted gross margin for this property. During the first six months of 1998,
the Company sold 10,250 acres of Port LaBelle agricultural property for
approximately $9.9 million. As of June 30, 1998, the Company had approximately
4,700 acres of Port LaBelle agricultural property remaining in inventory.
The targeted gross margin for other Predecessor Tract acreage
was reduced to break even in 1998 in accordance with the Company's business plan
to accelerate the liquidation of Predecessor Assets. The actual gross margins
for other Predecessor Tract acreage in 1998 and 1997 generally reflect the
targeted gross margins.
Predecessor Tract selling expense decreased $306,000 in the
first six months of 1998 compared to the first six months of 1997 and decreased
as a percentage of revenues from 13.3% in the first six months of 1997 to 9.5%
in the first six months of 1998 primarily because of a decrease in indirect
selling expenses resulting from the discontinuation of the Company's in-house
sales operation in January 1998.
Predecessor Tract sales other real estate overhead decreased
$377,000, a 54% decrease, in the first six months of 1998 compared to the first
six months of 1997 primarily due to the discontinuation of the Company's
in-house sales operation in January 1998.
OTHER OPERATIONS
Net income from other operations declined $240,000 in the first six
months of 1998 compared to the first six months of 1997 primarily due to a
$664,000 decline in interest income, partially offset by a $337,000 decrease in
other real estate overhead.
Other operations interest income declined $664,000 in the first six
months of 1998 compared to the first six months of 1997 due to lower average
balances of Predecessor Homesite Contracts Receivable and land mortgages
receivable in 1998.
Other operations other real estate overhead declined $337,000 in the
first six months of 1998 compared to the first six months of 1997 due to the
Company closing its offices in its Predecessor communities in December 1997.
Other income - reorganization items of $534,000 in the first six months
of 1998 and $532,000 in the first six months of 1997 relate to the Company's
utility connections reserve.
17
<PAGE>
BUSINESS DEVELOPMENT
Total business development expenditures decreased $687,000 in the first
six months of 1998 compared to the first six months of 1997 primarily due to a
decline in costs associated with (1) the pursuit of business opportunities in
Primary Markets and (2) the discontinuation of certain projects in 1997.
ADMINISTRATIVE & OTHER
The net loss from administrative and other activities decreased
$353,000 in the first six months of 1998 compared to the first six months of
1997 principally due to a $5.7 million decrease in borrowing costs, partially
offset by a $5.4 million increase in accrued preferred stock dividends and
accretion of preferred stock.
Interest income increased in the first six months of 1998 compared to
the first six months of 1997 primarily due to an increase in short-term
investment interest income.
Property tax, net of capitalized property taxes, decreased in the first
six months of 1998 compared to the first six months of 1997 primarily due to a
reduction of land inventory not under development (which corresponds to sales
activity during the intervening period).
General and administrative expenses declined $614,000 in the first six
months of 1998 compared to the first six months of 1997 primarily due to
declines in personnel and legal expenses.
Cost of borrowing, net of capitalized interest, decreased $5.0 million
in the first six months of 1998 compared to the first six months of 1997
primarily due to a $37.0 million decrease in the average outstanding balance of
corporate debt and a $1.4 million decrease in debt issue costs. During the six
months ended June 30, 1998 and 1997, the Company did not accrue interest on its
Cash Flow Notes (see LIQUIDITY AND CAPITAL RESOURCES below) because of the
absence of Available Cash (see LIQUIDITY AND CAPITAL RESOURCES below) during the
periods.
Other income - reorganization items consisted of gains of $248,000 in
the first six months of 1998 and $1.3 million in the first six months of 1997
resulting from the resolution of certain reorganization items.
Other expense - miscellaneous of $216,000 in the first six months of
1998 and $265,000 in the first six months of 1997 consisted of various reserve
adjustments and settlements.
During the six months ended June 30, 1998, the Company recorded a $4.9
million accrual for preferred stock dividends associated with its Series A and
Series B Preferred Stock ("the Preferred Stock"). See PART I., ITEM 1. BUSINESS
- - SIGNIFICANT BUSINESS DEVELOPMENTS in the 1997 Form 10-K and PART II. OTHER
INFORMATION, ITEM 2. CHANGES IN SECURITIES in the First Quarter 1998 Form 10-Q
for more information concerning the 1997 Equity Transactions. In addition, the
Company accreted $654,000 of the value of its Preferred Stock to the redemption
amount in the first six months of 1998. The total of approximately $5.5 million
of accrued Preferred Stock dividends and Preferred Stock accretion was charged
to contributed capital.
18
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
The comparison of the three months ended June 30, 1998 and 1997 should
be read in conjunction with the comparison of the six months ended June 30, 1998
and 1997 for a more comprehensive discussion of the results of operations. The
Company's results of operations for the three months ended June 30, 1998 and
1997 are summarized by line of business, as follows:
<TABLE>
<CAPTION>
COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
Three Months Ended June 30, 1998
(in thousands of dollars)
(unaudited)
Core Predecessor
---------------------------- ----------------
Homesite Tract Residential Homesite Tract Other Business Administrative
Sales Sales Sales Sales Sales Operations Development & Other Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $2,612 $31,780 $ $1,035 $8,476 $ $ $ $43,903
Other operating revenues 128 536 664
Interest income 75 718 359 1,152
Other income 1,581 1,581
---------------------------------------------------------------------------------------------------
Total revenues 4,396 31,780 - 1,035 8,476 1,254 - 359 47,300
---------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 2,260 25,203 898 8,145 36,506
Selling expense 388 757 257 566 1,968
Other operating expense 464 464
Other real estate costs:
Property tax, net 830 830
Other real estate overhead 272 141 116 9 472 437 1,447
General and administrative expense 2,203 2,203
Depreciation 4 7 18 21 118 168
Cost of borrowing, net 523 1,126 1,649
Other expense 109 131 240
---------------------------------------------------------------------------------------------------
Total costs and expenses 3,033 25,960 131 1,303 8,845 1,017 472 4,714 45,475
---------------------------------------------------------------------------------------------------
Operating income (loss) 1,363 5,820 (131) (268) (369) 237 (472) (4,355) 1,825
---------------------------------------------------------------------------------------------------
Other income (expense):
Reorganization items 268 268
Miscellaneous (27) (27)
---------------------------------------------------------------------------------------------------
Total other income (expense) - - - - - 268 - (27) 241
---------------------------------------------------------------------------------------------------
Net income (loss) 1,363 5,820 (131) (268) (369) 505 (472) (4,382) 2,066
---------------------------------------------------------------------------------------------------
Less:
Accrued preferred stock dividends 2,531 2,531
Accretion of preferred stock to
redemption amount 336 336
---------------------------------------------------------------------------------------------------
- - - - - - - 2,867 2,867
---------------------------------------------------------------------------------------------------
Net income (loss) applicable to
common stock $1,363 $ 5,820 $(131) $ (268) $ (369) $ 505 $(472) $(7,249) $ (801)
===================================================================================================
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
Three Months Ended June 30, 1997
(in thousands of dollars)
(unaudited)
Core Predecessor
---------------------------- ----------------
Homesite Tract Residential Homesite Tract Other Business Administrative
Sales Sales Sales Sales Sales Operations Development & Other Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $6,999 $590 $ 2,201 $2,533 $5,452 $ $ $ $17,775
Other operating revenues 391 461 852
Interest income 121 1,308 316 1,745
---------------------------------------------------------------------------------------------------
Total revenues 7,511 590 2,201 2,533 5,452 1,769 - 316 20,372
---------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 6,878 484 3,082 2,390 5,054 17,888
Selling expense 251 16 (168) 954 812 24 1,889
Other operating expense 298 298
Other real estate costs:
Property tax, net 820 820
Other real estate overhead 319 115 (32) 355 160 690 469 2,076
General and administrative expense 2,456 2,456
Depreciation 2 1 16 33 117 169
Cost of borrowing, net 642 4,057 4,699
Other expense (6) 293 287
---------------------------------------------------------------------------------------------------
Total costs and expenses 7,444 500 3,322 3,313 6,237 1,133 714 7,919 30,582
---------------------------------------------------------------------------------------------------
Operating income (loss) 67 90 (1,121) (780) (785) 636 (714) (7,603) (10,210)
---------------------------------------------------------------------------------------------------
Other income (expense):
Reorganization items 265 1,100 1,365
Miscellaneous 175 175
---------------------------------------------------------------------------------------------------
Total other income (expense) - - - - - 265 - 1,275 1,540
---------------------------------------------------------------------------------------------------
Net income (loss) 67 90 (1,121) (780) (785) 901 (714) (6,328) (8,670)
---------------------------------------------------------------------------------------------------
Less:
Accrued preferred stock dividends 62 62
Accretion of preferred stock
to redemption amount 8 8
---------------------------------------------------------------------------------------------------
- - - - - - - 70 70
---------------------------------------------------------------------------------------------------
Net income (loss) applicable to
common stock $ 67 $ 90 $(1,121) $ (780) $ (785) $ 901 $(714) $(6,398) $(8,740)
===================================================================================================
</TABLE>
During the second quarter of 1998, the Company reported net income of
$2.1 million compared to a net loss of $8.7 million for the same period last
year. After certain non-cash charges applicable to preferred stock, the Company
reported a net loss applicable to common stock of $0.8 million compared to a net
loss applicable to common stock of $8.7 million during the second quarter of
1997. The loss decreased by $7.9 million during the second quarter of 1998
compared to the second quarter of 1997 primarily due to (1) a 147% increase in
real estate revenues generating a $7.5 million gross margin increase in 1998,
(2) a $2.2 million
20
<PAGE>
increase in other income during 1998 and (3) a $2.4 million decrease in
borrowing costs in 1998, partially offset by a $2.8 million increase in accrued
preferred stock dividends and accretion of preferred stock. As discussed below,
the increase in real estate revenues in the second quarter of 1998 was primarily
due to $31.8 million of Tract sales in the second quarter of 1998, consisting of
the sale of Dave's Creek for $24.8 million sale of Dave's Creek and a $7.0
million sale of 0.9 acres of the 2.8-acre Riverwalk Tower project.
CORE BUSINESS
The results of operations of the Core Business are set forth below.
CORE HOMESITE SALES. Net income from Homesite sales improved
$2.0 million in the second quarter of 1998 compared to the second quarter of
1997 primarily due to a $2.2 million increase in other income.
Revenues from Homesite sales decreased $4.4 million in the
second quarter of 1998 compared to the second quarter of 1997 primarily due to a
$4.5 million sale in June 1997 of the remaining 102 lots in Windsor Palms. The
following table summarizes Homesite sales activity for the three months ended
June 30 (in thousands of dollars):
1998 1997
-------------------------------- -----------------------------
Number Average Number Average
of Lots Revenue Sales Price of Lots Revenue Sales Price
------- ------- ------------- ------- ------- -----------
West Meadows 43 $1,452 $33.8 32 $1,051 $32.8
Lakeside Estates 32 672 21.0 54 1,106 20.5
Saxon Woods 15 377 25.1 - - -
Windsor Palms - - - 102 4,514 44.3
Sabal Trace 3 111 37.0 3 124 41.3
Sanctuary - - - 12 204 17.0
-- ------ ----- --- ------ -----
93 $2,612 $28.1 203 $6,999 $34.5
== ====== ===== === ====== =====
Other operating revenues included $128,000 in the second
quarter of 1998 and $69,000 in the second quarter of 1997 representing
management fees earned in connection with the Sunset Lakes JV Project. Other
operating revenues in the second quarter of 1997 also included a $322,000
management fee from the Country Lakes JV Project. The Country Lakes JV Project
sold 740 Homesites for $9.5 million during the second quarter of 1997.
Other income of $1.6 million in the second quarter of 1998
included $697,000 of income from the Company's 65% profits interest in the
Sunset Lakes JV Project, net of $664,000 of amortization relative to interest
capitalized on the Company's equity investment. During the second quarter of
1998 the Sunset Lakes JV Project sold 187 Homesites and a 29-acre tract designed
for 255 multi-family units for approximately $15.5 million. Other income in the
second quarter of 1998 also included a $0.9 million net gain on an assignment of
a real estate purchase agreement for a residential project located in the
Orlando, Florida area.
The Homesite sales gross margin percentage was 13.5% in the
second quarter of 1998 compared to 1.7% in the second quarter of 1997. Although
the gross margin percentage increased in the second quarter of 1998 compared to
the second quarter of 1997, it is lower than the targeted gross margin of
approximately 20% for this line of business principally due to a reductions in
the gross margin percentages at Lakeside Estates and West Meadows. These
reductions are due to increases in the estimated costs to complete these
projects. The Company anticipates that the impact of these reductions will
decrease on a
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<PAGE>
relative basis as more Homesite projects come on line during 1998. The lower
than targeted gross margin in the second quarter of 1997 was principally
attributable to the sale of the final 102 Windsor Palms lots for $4.5 million,
generating a negative 10% gross margin. This sale was necessitated by the
Company's need for liquidity to meet a June 30, 1997 debt payment.
Homesite selling expense increased $137,000 in the second
quarter of 1998 (despite a decrease in revenues) primarily due to presales
advertising and marketing costs associated with the West Bay Club project.
CORE TRACT SALES. Net income from Tract sales increased $5.7
million in the second quarter of 1998 compared to the second quarter of 1997 due
to an increase in Tract sales revenues.
Tract sales revenues increased $31.2 million in the second
quarter of 1998 compared to the second quarter of 1997 due to two large Tract
sales in the second quarter of 1998. In April 1998, the Company sold and closed
Dave's Creek for $24.8 million. Additional sales proceeds of $2.5 million are
being held in escrow pending the acquisition by the Company of an Army Corp of
Engineers permit which, if received, will increase the total revenues from this
sale to $27.3 million. The 6.6% gross margin on this sale will increase to
approximately 15.2% upon the receipt of the additional $2.5 million of proceeds.
In June 1998, the Company sold for $7.0 million a 0.9 acre office/hotel parcel
which is part of the 2.8-acre Riverwalk Tower project. This sale generated a
gross margin of 70.4%. The balance of the Riverwalk Tower project is being
developed by the Company as a luxury high-rise apartment tower.
Tract sales selling expense increased $741,000 in the second
quarter of 1998 compared to the second quarter of 1997 due to the increase in
revenues.
CORE RESIDENTIAL SALES. Net operating results from Residential
sales improved $990,000 in the second quarter of 1998 compared to the second
quarter of 1997 due to adjustments made in the second quarter of 1997 to
increase the estimated costs associated with Regency Island.
The revenues and profits associated with Regency Island sales
were recorded using the percentage of completion method. The project consisted
of two 72-unit buildings, all of which were sold and closed as of December 31,
1997. The revenues of $2.2 million in the second quarter of 1997 were associated
with the second building and were derived from an increase in the completion
percentage during the quarter from 96% as of March 31, 1997 to 100% as of June
30, 1997, and to an additional four units sold during the second quarter of 1997
for a total of 68 units under contract in the second building as of June 30,
1997.
The gross margin for Residential - condominiums in the second
quarter of 1997 was negative due to adjustments made in the second quarter of
1997 to increase the estimated costs associated with Regency Island.
Residential selling expenses and real estate overhead costs
were $0 in the second quarter of 1998 due to the close out of Regency Island in
1997. Residential selling expenses were negative in the second quarter of 1997
primarily due to an adjustment to reduce incentive expenses.
Residential sales other expenses of $131,000 in the second
quarter of 1998 and $293,000 in the second quarter of 1997 constitute the
Company's share of the net loss of the Jupiter Ocean Grande JV Project. The loss
resulted from pre-sales advertising and other selling and overhead costs.
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<PAGE>
PREDECESSOR BUSINESS
The results of operations of the Predecessor Business are set forth
below.
PREDECESSOR HOMESITE SALES. Net operating results from
Predecessor Homesite sales improved $512,000 in the second quarter of 1998
compared to the second quarter of 1997 primarily due to a $697,000 decrease in
selling expenses.
Revenues from Predecessor Homesite sales decreased $1.5
million in the second quarter of 1998 compared to the second quarter of 1997 due
to (1) a 39% decrease in the number of Predecessor Homesites sold and (2) a 33%
decrease in the average sales price for Predecessor Homesites sold. The
following table summarizes Predecessor Homesite sales activity for the three
months ended June 30 (in thousands of dollars):
1998 1997
-------------------------------- -----------------------------
Number Average Number Average
of Lots Revenue Sales Price of Lots Revenue Sales Price
------- ------- ----------- ------- ------- -----------
Scattered sales 127 $ 561 $4.4 231 $1,382 $6.0
Bulk sales 300 474 1.6 464 1,151 2.5
--- ------ ---- --- ------ ----
427 $1,035 $2.4 695 $2,533 $3.6
=== ====== ==== === ====== ====
Revenues from Predecessor Homesite scattered sales decreased
in the second quarter of 1998 compared to the second quarter of 1997 primarily
due to a $409,000 decrease in sales in the Company's Cumberland Cove project.
Sales in Cumberland Cove decreased because the project began winding down during
1997, and the Company closed its on-site sales operation in September 1997. The
decline in the average sales price of Predecessor Homesite scattered sales is
principally due to the reduction in sales in Cumberland Cove, the Company's
highest priced Predecessor Homesite product. Bulk sales of Predecessor Homesites
declined primarily due to a decrease in sales volume.
The Predecessor Homesite sales gross margin percentage
increased from 5.6% in the second quarter of 1997 to 13.2% in the second quarter
of 1998 primarily due to a bulk sale for $259,000 which had a 26% gross margin.
Predecessor Homesite selling expense decreased $697,000 or
73.1% in the second quarter of 1998 compared to the second quarter of 1997 due
to (1) a $321,000 reduction in indirect selling costs at Cumberland Cove due to
the closing of the on-site sales operation in September 1997 and (2) the
decrease in revenues. Predecessor Homesite selling expense decreased as
percentage of revenue from 37.7% in the second quarter of 1997 to 24.8% in the
second quarter of 1998 primarily due to the reduction in indirect selling costs
at Cumberland Cove.
Predecessor Homesite other real estate overhead increased in
the second quarter of 1998 compared to the second quarter of 1997 primarily due
to adjustments made in the second quarter of 1997 to costs associated with
selling and maintaining Predecessor Assets.
PREDECESSOR TRACT SALES. The net loss from Predecessor Tract
sales decreased $416,000 in the second quarter of 1998 compared to the second
quarter of 1997 primarily due to a decrease in selling expenses and other real
estate overhead.
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Revenues from Predecessor Tract sales increased $3.0 million
in the second quarter of 1998 compared to the second quarter of 1997. Tract
sales and corresponding revenues from such sales often vary significantly from
period to period depending on the timing and size of individual sales. As of
June 30, 1998, there were pending Predecessor Tract sales contracts or letters
of intent totaling approximately $8.0 million, which, subject to certain
contingencies, are anticipated to close in 1998. As of June 30, 1997, there were
pending Predecessor Tract sales contracts or letters of intent totaling
approximately $15.5 million.
The following table summarizes Predecessor Tract sales gross
margins for the three months ended June 30:
<TABLE>
<CAPTION>
1998 1997
----------------------- ----------------------
Targeted Actual Targeted Actual
Margins Margins Margins Margins
---------- --------- ----------- -------
<S> <C> <C> <C> <C>
Port LaBelle agricultural acreage 0% 2.6% 0% -
Other Predecessor Tract acreage 0% 30.4% 5-10% 7.3%
</TABLE>
During the second quarter of 1998, the Company sold 8,364
acres of Port LaBelle agricultural property for approximately $8.1 million
generating a gross margin of 2.6% which is slightly higher than the targeted
gross margin.
The targeted gross margin for other Predecessor Tract acreage
was reduced to break even in 1998 in accordance with the Company's business plan
to accelerate the liquidation of Predecessor Assets. The 30.4% actual gross
margin for other Predecessor Tract acreage in 1998 was generated from $388,000
of sales and is not indicative of anticipated gross margins in the future. The
actual gross margin for other Predecessor Tract acreage in 1997 was within the
targeted gross margin.
Predecessor Tract selling expense decreased $246,000 in the
second quarter of 1998 compared to the second quarter of 1997 and decreased as a
percentage of revenues from 14.9% in the second quarter of 1997 to 6.7% in the
second quarter of 1998 primarily to a decrease in indirect selling expenses
resulting from the discontinuation of the Company's in-house sales operation in
January 1998.
Predecessor Tract sales other real estate overhead decreased
$239,000, a 67% decrease, in the second quarter of 1998 compared to the second
quarter of 1997 primarily due to the discontinuation of the Company's in-house
sales operation in January 1998.
OTHER OPERATIONS
Net income from other operations declined $396,000 in the second
quarter of 1998 compared to the second quarter of 1997 primarily due to a
$590,000 decline in interest income, partially offset by a $151,000 decrease in
other real estate overhead.
Other operations interest income declined $590,000 in the second
quarter of 1998 compared to the second quarter of 1997 due to lower average
balances of Predecessor Homesite Contracts Receivable and land mortgages
receivable in 1998.
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<PAGE>
Other operations other real estate overhead declined $151,000 in the
second quarter of 1998 compared to the second quarter of 1997 due to the Company
closing its offices in its Predecessor communities in December 1997.
Other income - reorganization items of $268,000 in the second quarter
of 1998 and $265,000 in the second quarter of 1997 relate to the amortization of
the Company's utility connections reserve.
BUSINESS DEVELOPMENT
Total business development expenditures decreased $242,000 in the
second quarter of 1998 compared to the second quarter of 1997 primarily due to a
decrease in costs associated with the pursuit of business opportunities in
Primary Markets.
ADMINISTRATIVE & OTHER
The net loss from administrative and other activities increased $1.5
million in the second quarter of 1998 compared to the second quarter of 1997
principally due to a $2.8 million increase in accrued preferred stock dividends
and accretion of preferred stock and a $1.1 million decrease in other income -
reorganization items, partially offset by a $2.3 million decrease in borrowing
costs.
General and administrative expenses declined $253,000 in the second
quarter of 1998 compared to the second quarter of 1997 primarily due to a
decrease in personnel related expenses.
Cost of borrowing, net of capitalized interest, decreased $2.9 million
in the second quarter of 1998 compared to the second quarter of 1997 primarily
due to a $34.0 million decrease in the average outstanding balance of corporate
debt and a $1.0 million decrease in debt issue costs. During the three months
ended June 30, 1998 and 1997, the Company did not accrue interest on its Cash
Flow Notes because of the absence of Available Cash during the periods.
Other income - reorganization items of $1.1 million in the second
quarter of 1997 consisted of gains resulting from the resolution of certain
reorganization items.
Other expense - miscellaneous of $27,000 in the second quarter of 1998
and other income - miscellaneous of $175,000 in the second quarter of 1997
consisted of various reserve adjustments and settlements.
During the three months ended June 30, 1998, the Company recorded a
$2.5 million accrual for preferred stock dividends associated with its Preferred
Stock. In addition, the Company accreted $336,000 of the value of its Preferred
Stock to the redemption amount in the second quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company's cash and cash equivalents totaled
approximately $3.0 million. The Company also had restricted cash and cash
equivalents of $0.9 million, which consisted primarily of (1) escrows for the
sale and development of real estate properties, (2) funds held in trust to pay
certain bankruptcy claims and (3) various other escrow accounts. Cash and cash
equivalents decreased by $6.2 during the first six months of 1998. The decrease
consists of (a) $7.9 million provided by operating activities, (b) $1.3 million
used in investing activities and (c) $12.8 million used in financing activities.
Cash provided by operating activities during the first six months of
1998 consisted of net cash generated through real estate sales and other
operations offset in part by various expenditures including
25
<PAGE>
approximately (1) $4.4 million for interest payments, (2) $4.3 million for
property tax payments, (3) $14.1 million for construction and development
expenditures and (4) $22.1 million for land acquisitions.
Cash used in financing activities included (1) $13.3 million of
principal payments that fully repaid the Company's term loan (the "Term Loan")
with Foothill Capital Corporation ("Foothill"), (2) $7.6 million of net
principal payments that fully repaid the Company's reducing revolving loan (the
"Reducing Revolving Loan") with Foothill and (3) net principal payments of $3.0
million associated with the financings of mortgage receivables and Predecessor
Homesite Contract Receivables. These payments were partially offset by (a)
borrowings of $2.3 under the Company's working capital facility ("Working
Capital Facility") with Foothill, (b) net borrowings of $7.1 million from new
project financings and (c) approximately $1.7 million of proceeds from the
issuance of Series A Preferred Stock and related warrants.
On June 26, 1998, the Company repaid the entire remaining principal
balance of $3,686,648 under its Reducing Revolving Facility with funds drawn on
its Working Capital Facility.
On June 30, 1998, the Company repaid the entire remaining principal
balance of $13,333,333 under its Term Loan with (i) $2,333,333 of funds drawn on
its Working Capital Facility and (ii) $11,000,000 of funds borrowed from AGC-SP,
Inc., a wholly-owned special purpose subsidiary of the Company ("AP Sub") (the
"SP Sub Loan," which is described below).
On July 1, 1998, the Company paid with funds drawn on its Working
Capital Facility (1) $35,181 of interest accrued on its Reducing Revolving Loan
through June 26, 1998 and (2) $171,111.24 of interest accrued on its Term Loan
through June 30, 1998.
The Reducing Revolving Loan terminated on June 26, 1998, and the Term
Loan terminated on June 30, 1998.
On June 30, 1998, the Company and Foothill entered into that certain
Third Amendment to Second Amended and Restated Revolving Loan Agreement Atlantic
Gulf Communities Corporation (the "Third Amendment"), pursuant to which Foothill
agreed to (1) increase the Working Capital Facility from $20 million to $25
million, (2) permit the Company to enter into the SP Sub Loan (see PART II.
OTHER INFORMATION, ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K to this Quarterly
Report on Form 10-Q for more information concerning the SP Sub Loan), and (3)
modify the Borrowing Base for the Working Capital Facility to limit it to $25
million through August 1,1998 (declining to $23 million in August, $20 million
through September, $17 million through October, $12.5 million through November
and $0 on December 1, 1998, coinciding with the scheduled maturity date of the
facility. The modification also provided for accelerated mandatory Borrowing
Base reductions aggregating $5 million upon certain events on or before
September 30, 1998). Amounts outstanding under the Working Capital Facility bear
interest at a rate equal to the variable interest rate, per annum, announced by
Northwest Bank of Minnesota, N.A., as its "base rate" plus two percentage
points. As of June 30, 1998, the Company had $22.3 million outstanding under the
Working Capital Facility.
The Company's material debt repayment obligations for the remainder of
1998 consist of (1) a $39.6 million payment on its Unsecured 13% Cash Flow Notes
due on December 31, 1998, which will fully retire these obligations (the "13%
cash Flow Notes") and (2) the balance of its Working Capital Facility which is
due in full on December 1, 1998 (collectively, the Company's "1998 Debt
Obligations"). The Company's 1998 business plan contemplates approximately $101
million of expenditures for development, construction and other capital
improvements, a substantial portion of which will be funded through individual
project development loans or joint venture arrangements, many of which are
already in place. If the Company is unable to obtain the monies to fund these
obligations and expenditures, the implementation of the
26
<PAGE>
Company's business plan will be adversely affected, slowing the Company's
anticipated revenue growth and increasing the time necessary to achieve
profitability.
The Company does not currently have sufficient liquid funds to satisfy
all of its 1998 Debt Obligations. However, management believes that, through a
combination of sources, it will be able to obtain the funds necessary to
continue to implement its business plan and, at the same time, satisfy all of
its 1998 Debt Obligations as they become due. The Company has begun exploring
the possibility of refinancing some or all of its 1998 Debt Obligations.
Management anticipates that it will be successful in this effort, although no
refinancing commitment is currently in place and there are no assurances that
any such commitment will be received.
The Company's ongoing business plan is to continue to monetize its
Predecessor Assets and to reduce corporate debt. The Company has made
substantial progress in this regard. It sold $55.6 million of Predecessor Assets
in 1996, $41.2 million in 1997 and $15.7 million in the first six months of
1998. As of June 30, 1998, the Company had $8.6 million of Predecessor Assets
under contract or letter of intent, consisting of $4.6 million cash and $4.0
million of mortgage notes. The transactions under contract are subject to
customary closing conditions including, in certain cases, financing conditions.
Transactions subject to a letter of intent are subject to further negotiation
and documentation. While the Company expects to close these transactions in
1998, there can be no assurance that any particular transaction will be
consummated.
The Company is actively monetizing mortgage and note receivables
generated from the sale of Predecessor Assets. The Company raised approximately
$19.8 million of cash, and received certain residual interests, in 1997 from the
sale or financing of mortgages and other receivables from the sale of
Predecessor Assets. These cash proceeds, along with the net cash proceeds from
Predecessor Asset sales, were used to reduce corporate debt and fund ongoing
operations.
On March 31, 1998, AP-AGC LLC ("Apollo") purchased 173,525 shares of
Series A Preferred Stock and Investor Warrants to purchase 347,050 shares of
common stock, for an aggregate purchase price of $1,735,248, pursuant to the
terms of that certain Amended and Restated Investment Agreement by and between
the Company and Apollo (the "Investment Agreement"). See Note (7) to the
Company's Consolidated Financial Statements included in its First Quarter 1998
Form 10-Q, PART I., ITEM 1. BUSINESS - SIGNIFICANT BUSINESS DEVELOPMENTS in the
1997 Form 10-K and ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
STOCK PURCHASES BY APOLLO PURSUANT TO THE TERMS OF THE INVESTMENT AGREEMENT in
the 1997 Form 10-K/A-1 for more information concerning Apollo's purchases of
Series A Preferred Stock and Investor Warrants. Apollo has now purchased all of
the Series A Preferred Stock and Investor Warrants covered by the Investment
Agreement.
As required by the Company's Agreements with Apollo, the proceeds from
the sale of the Series A Preferred Stock have been, and will be, used primarily
to acquire and develop properties through SP Sub and its subsidiaries. The
Company's repurchase and redemption obligations in respect of the Series A
Preferred Stock (but not the Series B Preferred Stock) are secured by (1) a
junior lien on substantially all of the assets of the Company and its
subsidiaries, except for SP Sub's capital stock and its assets, and (2) a senior
lien on SP Sub's capital stock and its assets. As discussed above, in June 1998,
with Apollo's consent, the Company and SP Sub entered into the SP Sub Loan,
pursuant to which the Company borrowed $11.5 million from SP Sub to pay down the
Term Loan and Reducing Revolving Loan. See the discussion of the SP Sub Loan
above.
Pursuant to certain debt agreements, the Company must apply any
Available Cash to (1) the payment of interest due on the Company's Unsecured
Cash Flow Notes due December 31, 1998 ("Cash Flow Notes"), (2) payments of
outstanding amounts under the Working Capital Facility and (3) repayments of
principal
27
<PAGE>
on its Cash Flow Notes. Available Cash is defined, with respect to any six-month
period ending June 30 or December 31, as the sum of all cash receipts (exclusive
of borrowed money and certain delineated cash items), less the sum of payments
for operating expenses, all debt payments (including repurchases of
indebtedness), capital expenditures, tax payments, payments to creditors under
the Company's POR and creation of reserves for working capital and other
expenses for the next two payment periods.
If there is no Available Cash on a payment date, the interest otherwise
payable on the Cash Flow Notes on such date is reduced to $0 and does not
accrue. Due to the establishment of reserves against future mandatory debt,
capital and operating expenditures, Available Cash was $0 as of June 30, 1998
and was $0 during the twelve month period ending December 31, 1997. Accordingly,
the Company did not accrue interest during the six months ended June 30, 1998
and 1997 on its Cash Flow Notes. Also, based upon the Company's existing debt
obligations, its anticipated net cash flows and its business plan, management
does not anticipate the Company will have any Available Cash during the
remainder of 1998.
YEAR 2000 COMPLIANCE
Until recently, many computer programs were written using two digits
rather than four digits to define the applicable year in the twentieth century.
Such software may recognize a date using "00" as the year 1900 rather than the
year 2000. Utilizing both internal and external resources, the Company is in the
process of defining, assessing and converting or replacing various programs,
hardware and instrumentation systems to make them Year 2000 compatible. The
Company's Year 2000 project is comprised of two components - business
applications and equipment. The business applications component consists of the
Company's business computer systems, as well as the computer systems of
third-party suppliers or customers, whose Year 2000 problems could potentially
impact the Company. Equipment exposures consist of computers, personal
computers, system servers, telephone equipment and other related computer
equipment whose Year 2000 problems could also impact the Company. The cost of
the Year 2000 initiatives is not expected to be material to the Company's
results of operation or financial position and is expected to be completed by
December 31, 1998.
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(1) THE 1998 ANNUAL STOCKHOLDERS MEETING (THE "MEETING")
The Meeting was held on Wednesday, June 24, 1998. The Company did not
complete all of its business at the Meeting and adjourned the meeting until
Thursday, July 2, 1998, at which time the Meeting reconvened and all remaining
matters were completed.
As of the record date for the Meeting, the Company had issued and
outstanding 11,516,622 shares of common stock which were eligible to vote.
7,772,211 shares of common stock, representing 67.5% of the outstanding shares
of common stock entitled to vote at the Meeting (the "Shares"), were present, in
person or by proxy, at the Meeting.
The Stockholders approved all of the following ballot proposals at the
Meeting:
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<PAGE>
PROPOSAL ONE - "To elect Mr. James M. DeFrancia as a Class 3 Director
of the Company to serve until the Annual Meeting of Stockholders of the Company
in the year 2001 and until his successor is duly elected and qualified."
7,634,359 votes, representing 98.2% of the total Shares represented and voting
in person or by proxy at the Meeting, were cast in favor of Mr. DeFrancia.
PROPOSAL TWO - "To amend the Company's Certificate of Incorporation (1)
to effect, as determined by the Board of Directors, in its discretion, either of
two different reverse stock splits of the Company's issued and outstanding
common stock as of the close of business on the effective date of the amendment,
pursuant to which either (a) each 100 shares then outstanding will be converted
into one share, or (b) each 200 shares then outstanding will be converted into
one share and (2) to effect a forward split of the common stock as of 6:00 a.m.
(Florida time) on the day following the effective date of the reverse stock
split, pursuant to which each share of common stock then outstanding as of such
date will be converted into the number of shares of common stock that such
shares represented immediately prior to the effective of the reverse stock
split, all as set forth in the proposed amendments to the Company's Certificate
of Incorporation attached as Appendix A to the Proxy Statement." 6,110,945
votes, representing 53.0% of the total Shares issued and outstanding on and as
of the record date, were cast in favor of this proposal.
PROPOSAL THREE - "To ratify and approve the performance objectives, as
approved by the Compensation/Stock Option Committee of the Board, for the 75%
non-discretionary component of Mr. Rutherford's 1998 Bonus." 5,960,443 votes,
representing 95.6% of the total Shares represented and voting in person or by
proxy at the Meeting, were cast in favor of this proposal.
PROPOSAL FOUR - "To ratify and approve the payment of 50% of Mr.
Rutherford's 1998 Bonus, to the extent earned (less applicable withholding
taxes), in shares of Company common stock (in connection with, and on the terms
set forth in, Mr. Rutherford's Employment Agreement)." 5,959,188 votes,
representing 95.6% of the total Shares represented and voting in person or by
proxy at the Meeting, were cast in favor of this proposal.
PROPOSAL FIVE - "To ratify and approve the payment of 50% of Mr.
Rutherford's Warrant Reset Incentive, to the extent earned (less applicable
withholding taxes), in shares of Company common stock (in connection with, and
on the terms set forth in, Mr. Rutherford's Employment Agreement)." 5,957,703
votes, representing 95.6% of the total Shares represented and voting in person
or by proxy at the Meeting, were cast in favor of this proposal.
PROPOSAL SIX - "To ratify and approve the 1997 and 1998 Recourse Loans
by the Company to Mr. Rutherford, the proceeds of which are to be used solely
for the purpose of purchasing shares of common stock of the Company in the
NASDAQ National Market or in one or more private transactions with third parties
(in connection with, and on the terms set forth in, Mr. Rutherford's Employment
Agreement)." 5,955,379 votes, representing 95.5% of the total Shares represented
and voting in person or by proxy at the Meeting, were cast in favor of this
proposal.
PROPOSAL SEVEN - "To ratify and approve the purchase by Mr. Rutherford
from the Company of shares of common stock of the Company having a market value,
as of the purchase date, equal to $600,000, and the nonrecourse $600,000 Loan to
be made by the Company to Mr. Rutherford, the proceeds of which are to be used
solely to fund the purchase price of such shares (in connection with, and on the
terms set forth in, Mr. Rutherford's Employment Agreement)." 5,960,173 votes,
representing 96.0% of the total Shares represented and voting in person or by
proxy at the Meeting, were cast in favor of this proposal.
PROPOSAL EIGHT - "To ratify and approve the payment (in the discretion
of the Board) of 50% of Mr. Laguardia's 1998 Performance Bonus, to the extent
earned (less applicable withholding taxes), in shares of Common Stock (in
connection with, and on the terms set forth in, Mr. Laguardia's Employment
29
<PAGE>
Agreement)." 6,015,276 votes, representing 96.4% of the total Shares represented
and voting in person or by proxy at the Meeting, were cast in favor of this
proposal.
PROPOSAL NINE - "To ratify and approve Mr. Jeffrey's New Option Plan
Agreement, which entitles Mr. Jeffrey to purchase up to 200,000 shares of
Company common stock on the terms set forth therein." 5,980,931 votes,
representing 96.0% of the total Shares represented and voting in person or by
proxy at the Meeting, were cast in favor of this proposal.
PROPOSAL TEN - "To ratify and approve Mr. Laguardia's Option Agreement,
which entitles Mr. Laguardia to purchase up to 450,000 shares of Company common
stock on the terms set forth therein." 5,974,796 votes, representing 95.9% of
the total Shares represented and voting in person or by proxy at the Meeting,
were cast in favor of this proposal.
PROPOSAL ELEVEN - "To ratify and approve Mr. Rutherford's Option
Agreement, which entitles Mr. Rutherford to purchase up to 3,000,000 shares of
Company common stock on the terms set forth therein." 3,839,947 votes,
representing 61.6% of the total Shares represented and voting in person or by
proxy at the Meeting, were cast in favor of this proposal.
PROPOSAL TWELVE - "To ratify and approve an amendment to the Atlantic
Gulf Communities Corporation Stock Option Plan (the "Plan") to increase the
number of shares of Company common stock with respect to which options may be
granted under the Plan by 500,000 shares (i.e., from 750,000 shares of Company
common stock to 1,250,000 shares of Company common stock)." 7,487,277 votes,
representing 96.9% of the total Shares represented and voting in person or by
proxy at the Meeting, were cast in favor of this proposal.
Item 5. Other Information
-----------------
(1) NASDAQ LISTING
On May 19, 1998, the NASDAQ Stock Market, Inc. ("NASDAQ"), informed the
Company, in writing, that it was no longer in compliance with the net tangible
assets/market capitalization/net income continued listing requirement of the
NASDAQ National Market system (the "NNM"), and, unless the Company could
demonstrate that it would promptly regain compliance with such listing
requirement, the Company's common stock would be de-listed from the NNM. A
hearing on this matter in front of NASDAQ is scheduled for August 20, 1998. All
actions to de-list the Company's common stock are stayed pending the outcome of
the hearing. While the Company cannot predict the outcome of the hearing, it
believes that it has strong arguments in support of its position that its common
stock should not be de-listed from the NNM.
(2) WARRANT RESET
As part of the 1997 Equity Transactions, the Company issued (1)
warrants to Apollo to acquire up to 5,000,000 shares of Common Stock and (2)
warrants to the purchasers of the Series B Preferred Stock to acquire up to
4,000,000 shares of Common Stock (collectively, the "Warrants"). The Warrants
have an exercise price of $5.75 per share (the "Exercise Price"). The Exercise
Price is subject to a potential downward adjustment by March 31, 1999, pursuant
to a formula in the event the Company's actual operating cash flow from certain
business lines is less than the targeted cumulative operating cash flow (i.e.,
$62.443 million) from such business lines on a cumulative basis for 1997 and
1998 (the "Warrant Reset"). No Warrant Reset will be made if, on December 31,
1998, and on an average basis during the three months ending on December 31,
1998, the average closing price for the Common Stock is greater than $9.75,
subject to certain adjustments.
Management has reviewed the Warrant Reset calculation through the date
hereof. At this time, based on the information currently available to it and the
projections for the remainder of 1998, the likely range of any Warrant Reset is
a downward adjustment of $0 to $1.00 in the exercise price per Warrant share.
This range is subject to third and fourth quarter events, many of which are
outside the control of the Company. Accordingly, there can be no assurance that
the actual Warrant Reset will not exceed $1.00 per share.
The Company will review the Warrant Reset calculation again at the end
of its third quarter and report any adjustments to such range in its Quarterly
Report on Form 10-Q for the period ended September 30, 1998.
30
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits required by Item 601 of Regulation S-K
(1) Third Amendment to Second Amended and Restated Revolving Loan
Agreement Atlantic Gulf Communities Corporation, dated as of
June 30, 1998, by and among Atlantic Gulf Communities
Corporation (as Borrower), the Financial Institutions listed
on the signature pages thereto (as Lenders) and Foothill
Capital Corporation (as Agent and Collateral Agent).
(2) Interim Intercompany Loan and Intercreditor Agreement, dated
as of June 30, 1998, by and among Atlantic Gulf Communities
Corporation (as Borrower), AGC-SP, Inc. ( as Lender), The Bank
of New York (as Collateral Agent) and Foothill Capital
Corporation (as Loan Agent and Note Agent).
(3) Letter Agreement dated July 8, 1998 modifying certain terms of
the Third Amendment to Second Amended and Restated Revolving
Loan Agreement Atlantic Gulf Communities Corporation, dated as
of June 30, 1998, by and among Atlantic Gulf Communities
Corporation (as Borrower), the Financial Institutions listed
on the signature pages thereto (as Lenders) and Foothill
Capital Corporation (as Agent and Collateral Agent).
(27) Financial Data Schedule.
(b) Reports on Form 8-K
None
31
<PAGE>
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.
ATLANTIC GULF COMMUNITIES CORPORATION
Date: August 14, 1998 /s/ Thomas W. Jeffrey
----------------------------------
Thomas W. Jeffrey
Executive Vice President
and Chief Financial Officer
Date: August 14, 1998 /s/ Paula J. Cook
----------------------------------
Paula J. Cook
Vice President and Controller
(Principal Accounting Officer)
32
Atlantic Gulf Communities Corporation Exhibit to the June 30, 1998 Form 10-Q
Exhibit (a)(1) Third Amendment to the Second Amended and Restated Revolving Loan
Agreement Atlantic Gulf Communities Corporation, dated as of June 30, 1998
- --------------------------------------------------------------------------------
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
REVOLVING LOAN AGREEMENT
ATLANTIC GULF COMMUNITIES CORPORATION
THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING
LOAN AGREEMENT (this "THIRD AMENDMENT") is dated as of June 30, 1998 and entered
into by and among ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation,
formerly known as General Development Corporation ("COMPANY"), THE FINANCIAL
INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (together with each financial
institution that may become a party to this Agreement as herein provided,
referred to herein individually as a "BANK" and collectively as "BANKS"),
FOOTHILL CAPITAL CORPORATION, a California corporation, as successor to Chemical
Bank as agent for Banks (hereinafter, in such capacity, together with any
successors thereto in such capacity, referred to as "AGENT"), and FOOTHILL
CAPITAL CORPORATION, a California corporation, as collateral agent for Banks
(hereinafter, in such capacity, together with any successors thereto in such
capacity, referred to as "COLLATERAL AGENT").
R E C I T A L S:
WHEREAS, Company, Banks, Agent and Collateral Agent entered
into that certain Second Amended and Restated Revolving Loan Agreement dated as
of September 30, 1996, as modified by that certain Amendment dated as of March
31, 1997, as further modified by that certain Second Amendment (collectively,
the "Loan Agreement").
WHEREAS, pursuant to the Loan Agreement, Company executed that
certain Second Amended and Restated Working Capital Note dated as of September
30, 1996, in the principal amount of TWENTY MILLION AND NO/100 DOLLARS
($20,000,000.00) (the "Original Note").
WHEREAS, Company has applied to Banks for a future advance
loan in the principal amount of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00)
(the "Future Advance") for the purpose of providing funds to Company to pay down
the Reducing Revolver Note and/or the Secured Floating Rate Notes.
WHEREAS, the Future Advance shall be evidenced by that certain
Future Advance Working Capital Note executed by Company of even date herewith in
the principal amount of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) (the
"Future Advance Note"), so that the aggregate amount of indebtedness available
under the Working Capital Loans is TWENTY-FIVE MILLION AND NO/100 DOLLARS
($25,000,000.00).
WHEREAS, the Mortgages shall be modified by those certain
Future Advance and
<PAGE>
Mortgage Modification Agreements of even date herewith and those certain Future
Advance and Deed of Trust Modification Agreements dated on or about the date
hereof (collectively, the "Future Advance Mortgage Modification Agreements"),
modifying said Mortgages to provide, inter alia, that the Future Advance Note is
secured by the Mortgages.
WHEREAS, the parties hereto desire to enter into this Third
Amendment for the purpose of modifying the Loan Agreement and the payment terms
of the Original Note as provided herein.
WHEREAS, all terms which are capitalized but not defined
herein shall have the meaning set forth therefor in the Loan Agreement.
NOW THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, Company, Banks, Agent and
Collateral Agent agree as follows:
1. AMENDMENT AND RESTATEMENT OF CERTAIN DEFINED TERMS.
The definitions of the following terms in the Loan Agreement
are hereby amended and restated as follows:
"ACKNOWLEDGEMENT AGREEMENT" means that certain Acknowledgement
Agreement regarding Security Documents, dated as of September 30, 1996, executed
by Company and its Subsidiaries listed on the signature pages thereof, as
modified by that certain First Amendment to Acknowledgment Agreement regarding
Security Documents of even date herewith, as it may be further amended and
restated, supplemented or otherwise modified from time to time.
"AGREEMENT" means the Second Amended and Restated Revolving
Loan Agreement dated as of September 30, 1996, as modified by (i) that certain
Amendment dated as of March 31, 1997, (ii) that certain Second Amendment, and
(iii) that certain Third Amendment to Second Amended and Restated Revolving Loan
Agreement dated as of June 30, 1998 (the "Third Amendment"), as it may be
further amended and restated, supplemented or otherwise modified from time to
time.
"AVERAGE UNUSED PORTION OF THE WORKING CAPITAL LOAN
COMMITMENTS" means, for any month for which a determination is to be made, (a)
the average amount of the Working Capital Loan Commitments during such month but
not exceeding the amount of the Borrowing Base Limit during such month, LESS (b)
the average Working Capital Facility Usage during such month.
"BOOK VALUE", with respect to a specified asset of a specified
Person, means the carrying value of the specified asset on the balance sheet of
such Person, less the aggregate amount of debt which (i) is secured by such
specified asset; and (ii) is superior to Banks' lien on such
2
<PAGE>
specified asset, prepared in accordance with GAAP and delivered to Agent from
time to time pursuant to the Loan Documents.
"BORROWING BASE" means the lesser of:
A. The result of:
(i) an amount up to 75% of the principal amount of
Eligible Homesite Contract Receivables and Eligible Commercial
Receivables;
PLUS
(ii) the lesser of:
(A) $27,500,000; and
(B) the sum of (without duplication):
(1) an amount up to 40% of the
Company's or a Subsidiary's Book Value of Real
Property consisting of subdivision homesites;
PLUS
(2) an amount up to 26% (i.e., 40%
of the relevant Venture Subsidiary's 65% Joint
Venture interest in Sunset Lakes; such interest to be
proportionately reduced if such Subsidiary's Joint
Venture interest in Sunset Lakes is reduced) of
Sunset Lakes' Book Value of JV Real Property of
Sunset Lakes; PLUS an amount up to 26% (i.e., 40% of
the relevant Venture Subsidiary's 65% Joint Venture
interest in Sunset Lakes; such interest to be
proportionately reduced if such Subsidiary's Joint
Venture interest in Sunset Lakes is reduced) of the
principal amount of Eligible JV Receivables of Sunset
Lakes;
PLUS
(3) an amount up to 8% (i.e., 40% of
the relevant Venture Subsidiary's 20% Joint Venture
interest in Country Lakes; such interest to be
proportionately reduced if such Subsidiary's Joint
Venture interest in Country Lakes is reduced) of
Country Lakes' Book Value of JV Real Property of
Country Lakes; PLUS an amount up to 8% (i.e., 40% of
the relevant Venture Subsidiary's 20% Joint Venture
interest in Country
3
<PAGE>
Lakes; such interest to be proportionately reduced if
such Subsidiary's Joint Venture interest in Country
Lakes is reduced) of the principal amount of Eligible
JV Receivables of Country Lakes;
PLUS
(4) an amount up to 40% of the
Company's Book Value of Real Property consisting of
the Regency Development;
PLUS
(5) an amount up to 40% of the
Company's Book Value of the aggregate Joint Venture
interests of all Venture Subsidiaries in the
Borrowing Base Joint Ventures (other than Sunset
Lakes and Country Lakes); PLUS an amount up to 40% of
the principal amount of Eligible JV Receivables of
such Borrowing Base Joint Ventures;
PLUS
(iii) an amount up to 40% of the Company's or any
Subsidiary's Book Value of Real Property consisting of scattered
homesites;
PLUS
(iv) an amount up to 50% of the Company's or any
Subsidiary's Book Value of Real Property consisting of raw tract land;
LESS
(v) the aggregate amount of reserves, if any,
established by Agent in Agent's reasonable credit judgment in respect
of Homesite Contract Receivables, Commercial Receivables, JV
Receivables, Real Property, and JV Real Property. Without limiting the
generality of the foregoing, Agent may create reserves against Homesite
Contract Receivables and JV Receivables for cancellations, reserves
against JV Receivables, Homesite Contract Receivables, and Commercial
Receivables for valuation discounts, and reserves against Real Property
and JV Real Property in respect of the contents or status of items
disclosed in surveys and environmental reports or in respect of the
failure of Company to deliver (or cause the relevant Venture Subsidiary
or Joint Venture to deliver) such surveys and environmental reports
required hereunder; or
B. With respect to each corresponding period, the amounts set forth on
the chart below (the "Borrowing Base Limits"):
4
<PAGE>
DATE BORROWING BASE LIMIT
June 30, 1998, through
August 1, 1998 $ 25,000,000.00
August 2, 1998, through
August 31, 1998 $ 23,000,000.00
September 1, 1998, through
September 30, 1998 $ 20,000,000.00
October 1, 1998, through
October 31, 1998 $ 17,000,000.00
November 1, 1998, through
November 30, 1998 $ 12,500,000.00
December 1, 1998 $ 0.0
Notwithstanding the above chart, upon the release of the $2,500,000.00
held in escrow in connection with the prior sale of Daves Creek, the
Borrowing Base Limit shall be the amount calculated by subtracting
$2,500,000.00 from the Borrowing Base Limit in place immediately prior
to the release of the $2,500,000.00 held in escrow in connection with
the prior sale of Daves Creek, and each Borrowing Base Limit thereafter
shall be $2,500,000.00 less than the Borrowing Base Limit shown for
each corresponding period on the above chart through and including
September 30, 1998. Likewise, upon the refinancing of the West Meadows
project debt, the Borrowing Base Limit shall be the amount calculated
by subtracting $2,500,000.00 from the Borrowing Base Limit in place
immediately prior to the refinancing of the West Meadows project debt,
and each Borrowing Base Limit thereafter shall be $2,500,000.00 less
than the Borrowing Base Limit shown for each corresponding period on
the above chart through and including September 30, 1998.
Anything to the contrary notwithstanding, the Borrowing Base shall not include,
directly or indirectly, either any asset of any Unrestricted Subsidiary, or any
of the following: (a) any Homesite Contract Receivable, Commercial Receivable,
or JV Receivable to the extent the same is sold or discounted; or (b) any Real
Property or JV Real Property to the extent the same is sold or otherwise
disposed of; or (c) any Borrowing Base Joint Venture interest to the extent the
same (or any underlying JV Real Property of the relevant Borrowing Base Joint
Venture) is sold or otherwise disposed of; in each case, whether pursuant to
Section 7.6 or otherwise.
"DEEDS OF TRUST" means the Deeds of Trust executed from time
to time between Company or a Subsidiary and Collateral Agent, as the same be
amended, supplemented or otherwise
5
<PAGE>
modified from time to time (including as modified by the Future Advance Deed of
Trust Modification Agreements made in connection with the Third Amendment),
pursuant to which Company and Subsidiaries grant a security interest in the Real
Property located in Tennessee (and in such other jurisdictions where "deeds of
trust" are used to encumber real property) and related Personal Property of
Company or Subsidiaries to Collateral Agent, for the benefit of Banks, as
required by this Agreement.
"DEPOSIT ACCOUNT SECURITY AGREEMENT" means the Deposit Account
Security Agreement dated as of September 30, 1996, executed by Company and each
of its Subsidiaries in favor of Collateral Agent, for the benefit of Banks, as
modified by that certain First Amendment to Deposit Account Security Agreement
of even date herewith, as the same may be further amended, supplemented or
otherwise modified from time to time.
"MORTGAGES" means the Mortgage and Security Agreements
executed from time to time by Company or a Subsidiary in favor of Collateral
Agent, and as the same may be amended, supplemented, consolidated or otherwise
modified from time to time (including as modified by the Future Advance Mortgage
Modification Agreements made in connection with the Third Amendment), pursuant
to which Company and Subsidiaries grant a security interest in the Real Property
located in Florida (or in such other jurisdictions where "mortgages" are used to
encumber real property) and related Personal Property of Company or Subsidiaries
to Collateral Agent, for the benefit of Banks.
"PERSONAL PROPERTY SECURITY AGREEMENT" means the Consolidated,
Amended, and Restated Personal Property Security Agreement, dated as of
September 30, 1996, executed by Company and the Subsidiaries now or hereafter
party thereto in favor of Collateral Agent, for the benefit of Banks, as
modified by that certain First Amendment to Consolidated, Amended, and Restated
Personal Property Security Agreement of even date herewith, as the same may be
further amended, supplemented or otherwise modified from time to time.
"STOCK PLEDGE AGREEMENT" means the Second Amended and Restated
Stock Pledge Agreement, dated as of September 30, 1996, among Company, each of
its Subsidiaries and Collateral Agent, as modified by that certain First
Amendment to Second Amended and Restated Stock Pledge Agreement of even date
herewith, as the same may be further amended, supplemented or otherwise modified
from time to time, pursuant to which Company and Subsidiaries pledge Subsidiary
Stock to Collateral Agent for the benefit of Banks.
"SUBSIDIARY GUARANTEE" means the Consolidated Second Amended
and Restated Subsidiary Guarantee, dated as of September 30, 1996, executed by
Company and each of its Subsidiaries in favor of Agent, for the benefit of
Banks, as modified by that certain First Amendment to Consolidated Second
Amended and Restated Subsidiary Guarantee of even date herewith, as the same may
be further amended, supplemented or otherwise modified from time to time.
6
<PAGE>
2. OTHER DEFINITIONAL PROVISIONS.
a. The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Third Amendment shall refer to this Third
Amendment as a whole and not to any particular provision of this Third
Amendment.
b. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
c. References to "Sections", "subsections", Exhibits and
Schedules are to Sections, Sections, Exhibits and Schedules, respectively, of
this Agreement unless otherwise specifically provided.
d. Unless the context of this Agreement clearly requires
otherwise, the term "including" is not limiting.
3. SCHEDULE 2.1 (WORKING CAPITAL LOAN COMMITMENT).
SCHEDULE 2.1 attached to the Loan Agreement is hereby amended
and restated as shown on SCHEDULE 2.1 attached hereto and made a part hereof.
4. SECTION 2.2 (DEFINITION OF "WORKING CAPITAL NOTE").
Section 2.2 of the Loan Agreement is hereby modified to
provide that the definition of "Working Capital Note" shall include, without
limitation, the Future Advance Note. Notwithstanding anything in Section 2.2 to
the contrary, the Future Advance Note shall be dated of even date herewith.
7
<PAGE>
5. SECTION 2.4 (REPAYMENT OF WORKING CAPITAL LOANS).
The parties hereto wish to modify the payment terms of the
Original Note such that the payment terms of the Original Note are the same as
the payment terms of the Future Advance Note, resulting in the entire Working
Capital Loans, as evidenced by the Original Note and the Future Advance Note,
having the same payment terms. Accordingly, Section 2.4 of the Loan Agreement is
hereby amended and restated as follows:
"At no time shall the outstanding balance of the Working Capital Loans
exceed the amount of the Borrowing Base. Accordingly, if at any time
and on such date that the outstanding balance of the Working Capital
Loans exceeds the Borrowing Base, then Company shall make, without
demand, a payment in such amount as required to reduce the outstanding
balance of the Working Capital Loans to the amount of the Borrowing
Base. On the Working Capital Loan Maturity Date, the remaining
aggregate principal amount of the Working Capital Loans then
outstanding shall be repaid (together with all accrued and unpaid
interest and fees then accrued thereon) without demand."
6. PROCEEDS OF FUTURE ADVANCE.
It is hereby acknowledged that Company's utilization of the
proceeds of the Future Advance to pay down the Reducing Revolver Note and/or the
Secured Floating Rate Notes is a permitted use of the Working Capital Loans.
7. FUTURE ADVANCE SECURED BY COLLATERAL.
It is hereby acknowledged and agreed that the Collateral
secures the prompt payment to Banks of the Secured Debt, including the Loans,
and further including, without limitation, the indebtedness evidenced by the
Future Advance Note.
8. FUTURE ADVANCE GUARANTIED BY GUARANTEES.
It is hereby acknowledged and agreed that the Subsidiary
Guarantees shall guarantee the payment and performance by Company of all
Obligations under the Loan Agreement, as modified by this Third Amendment,
including, without limitation, repayment of the Future Advance Note.
9. REPRESENTATIONS AND WARRANTIES.
To induce Banks to enter into this Third Amendment, and to
make the Future Advance, Company hereby represents and warrants to Agent and
each Bank that:
8
<PAGE>
A. FINANCIAL CONDITION.
(1) The audited consolidated balance sheets of Company and its
consolidated Subsidiaries as at December 31, 1997, and the related consolidated
statements of income and of cash flows for the fiscal year ended on such date,
reported on by Ernst & Young, copies of which have been or will be furnished to
each Bank, fairly and accurately present the consolidated financial condition of
Company and its consolidated Subsidiaries as at such date, and the consolidated
results of their operations and their consolidated cash flows for the fiscal
year then ended.
(2) The unaudited consolidated balance sheets of Company and
its consolidated Subsidiaries as at March 31, 1998, and the related consolidated
statements of income and of cash flows for the fiscal quarter ended on such
date, copies of which have been or will be furnished to each Bank, fairly and
accurately present the consolidated financial condition of Company and its
consolidated Subsidiaries as at such date, and the consolidated results of their
operations and their consolidated cash flows for the fiscal year then ended.
(3) All such financial statements described in clauses (1) and
(2) above, including the related schedules and notes thereto, have been prepared
in accordance with GAAP applied consistently throughout the periods involved
(except for such inconsistencies as approved by such accountants or Responsible
Officer, as the case may be, and as disclosed therein). Neither Company nor any
of its consolidated Subsidiaries had, at the date of the most recent balance
sheet referred to above, any material Guarantee Obligation, contingent liability
or liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including any interest rate or foreign currency swap or exchange
transaction, which is not reflected in the foregoing statements or in the notes
thereto or otherwise as disclosed in writing to Banks on or before the date
hereof. During the period from March 31, 1998, to and including the date hereof
there has been no sale, transfer or other disposition or agreement therefor by
Company or any of its consolidated Subsidiaries of any material part of its
business or property and no purchase or other acquisition of any business or
property (including any capital stock of any other Person) which is material in
relation to the consolidated financial condition of Company and its consolidated
Subsidiaries at March 31, 1998.
9
<PAGE>
B. NO MATERIAL ADVERSE CHANGE.
Since March 31, 1998, (a) except as disclosed in writing to
Banks on or before the date hereof, there has been no development or event nor
any prospective development or event, which has had or could reasonably be
expected to have a Material Adverse Effect, except such developments or events
or prospective developments or events as have been disclosed by Company in
filings with the Securities and Exchange Commission made prior to the date
hereof and true and correct copies of which have been delivered to Banks, and
(b) no dividends or other distributions have been declared, paid or made upon
the Capital Stock of Company nor has any of the Capital Stock of Company been
redeemed, retired, purchased or otherwise acquired for value by Company or any
of its Subsidiaries. As of the date hereof, no motion for the conversion of the
case, appointment of a trustee, or dismissal is pending or has been denied, the
reversal of which on appeal would affect the validity of this Agreement and no
appeal has been taken from the entry of the Confirmation Order in the
Reorganization Proceedings, the reversal, modification, or affirmance of which
will affect the validity or enforceability, or change the provisions, of this
Agreement.
C. CORPORATE EXISTENCE; COMPLIANCE WITH LAW.
Each of Company and its Subsidiaries (a) is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, except, in the case of any such Subsidiary, where all such
failures to be in good standing are not reasonably likely, in the aggregate, to
have a Material Adverse Effect, (b) has the corporate power and authority, and
the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged,
(c) is duly qualified as a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification, except to the extent
that all such failures to be so qualified and in good standing are not
reasonably likely, in the aggregate, to have a Material Adverse Effect, and (d)
is in compliance with all Requirements of Law except to the extent that any
failures to comply therewith is not reasonably likely, in the aggregate, to have
a Material Adverse Effect.
10
<PAGE>
D. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
(1) COMPANY. Company has the corporate power and authority,
and the legal right, to make, deliver and perform this Third Amendment, the
Notes and other Loan Documents, including, without limitation, the Future
Advance Note as consolidated with the Original Note into the Consolidation Note,
and to borrow hereunder and has taken all necessary corporate action to
authorize the borrowings on the terms and conditions of this Third Amendment,
and the Notes and to authorize the execution, delivery and performance of this
Agreement, the Notes and other Loan Documents. Except as set forth on SCHEDULE
4.4 attached hereto and made a part hereof, no consent or authorization of,
filing with or other act by or in respect of, any Governmental Authority or any
other Person is required in connection with the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Third
Amendment, the Notes or the other Loan Documents, except such consents,
authorizations, filings or other acts as have been obtained, made or performed,
as the case may be, prior to the date hereof and as remain in full force and
effect or which the failure to obtain, make or perform, as the case may be,
could not reasonably be expected to have a Material Adverse Effect. This Third
Amendment and the other Loan Documents to which Company is party have been or
will be, duly executed and delivered on behalf of Company. This Third Amendment,
and each other Loan Document executed and delivered constitutes, or when
executed and delivered will constitute, a legal, valid and binding obligation of
Company enforceable against Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditors rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(2) SUBSIDIARIES. Each of the Subsidiaries (including
Unrestricted Subsidiaries) party to the Loan Documents has the corporate power
and authority, and the legal right, to make, deliver and perform the Loan
Documents to which it is a party and has taken all necessary corporate action to
authorize the execution, delivery and performance of the Loan Documents to which
it is a party. Except as set forth on SCHEDULE 4.4 attached hereto and made a
part hereof, no consent or authorization of, filing with or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the execution, delivery, performance, validity or enforceability
of the Loan Documents to which it is a party, except such consents,
authorizations, filings or other acts as have been obtained, made or performed,
as the case may be, prior to the date hereof and as remain in full force and
effect or which the failure to obtain, make or perform, as the case may be,
could not reasonably be expected to have a Material Adverse Effect. Each Loan
Document to which any Subsidiary (including Unrestricted Subsidiaries) is a
party has been or will be duly executed and delivered on behalf of each such
Subsidiary. Each Loan Document to which any Subsidiary (including Unrestricted
Subsidiaries) is a party, executed and delivered constitutes, or when executed
and delivered will constitute, a legal, valid and binding obligation of each
such Subsidiary, enforceable against each such Subsidiary in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditors rights generally and by general equitable principles
(whether
11
<PAGE>
enforcement is sought by proceedings in equity or at law).
E. NO LEGAL BAR.
The execution, delivery and performance of this Third
Amendment, the Notes, the Guarantees and the other Loan Documents, including,
without limitation, the Future Advance Note, the borrowings hereunder and the
use of the proceeds thereof will not violate any Requirement of Law or
Contractual Obligation of Company or of any of its Subsidiaries, the violation
of which could reasonably be expected to have a Material Adverse Effect and will
not result in, or require, the creation or imposition of any Lien on any of its
or their respective properties or revenues pursuant to any such Requirement of
Law or Contractual Obligation.
F. NO MATERIAL LITIGATION.
As of the date hereof, no litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of Company, threatened by or against Company or any of its
Subsidiaries or against any of its or their respective properties or revenues
(a) with respect to this Third Amendment, the Notes or other Loan Documents or
any of the transactions contemplated hereby or thereby or (b) which is
reasonably likely to have a Material Adverse Effect, which has not been
disclosed (including, estimates of the Dollar amounts involved) in Company's
filings with the Securities and Exchange Commission made prior to the date
hereof, true and correct copies of which have been delivered to Banks.
G. NO DEFAULT.
As of the date hereof, neither Company nor any of its
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which is reasonably likely to have a Material Adverse
Effect, except as disclosed, including estimates of the Dollar amounts involved,
in Company's filings with the Securities and Exchange Commission, true and
correct copies of which have been delivered to Banks or on SCHEDULE 4.7 attached
hereto and made a part hereof. As of the date hereof, no Default or Event of
Default has occurred and is continuing.
H. OWNERSHIP OF PROPERTY; LIENS.
As of the date hereof, each of Company and its Subsidiaries,
as the case may be, has good record and marketable title in fee simple to, or a
valid leasehold interest in, all of the Collateral and all its other real
property, and good title to all its other property necessary for the operation
of its business, and none of such property of Company or such Subsidiaries is
subject to any Lien except as permitted by Section 7.3 of the Loan Agreement.
12
<PAGE>
I. INTELLECTUAL PROPERTY.
As of the date hereof, Company and each of its Subsidiaries
owns, or is licensed to use, all trademarks, tradenames, copyrights, technology,
know-how and processes necessary for the conduct of its business as currently
conducted except for those the failure to own or license which is not reasonably
likely to have a Material Adverse Effect (the "INTELLECTUAL PROPERTY"). No claim
has been asserted and is pending by any Person challenging or questioning the
use of any such Intellectual Property or the validity or effectiveness of any
such Intellectual Property, nor does Company know of any valid basis for any
such claim. The use of such Intellectual Property by Company and its
Subsidiaries does not infringe on the rights of any Person, except for such
claims and infringements that, in the aggregate, do not have a Material Adverse
Effect. To the knowledge of Company, there exists no infringement upon the
Intellectual Property rights of Company and Subsidiaries by any other Person.
J. TAXES.
As of the date hereof, each of Company and its Subsidiaries
(including Unrestricted Subsidiaries and Joint Ventures) has filed or caused to
be filed all tax returns which, to the knowledge of Company, are required to be
filed and has paid all taxes shown to be due and payable on said returns or on
any assessments made against it or any of its property and all other taxes, fees
or other charges imposed on it or any of its property by any Governmental
Authority (other than any taxes, fees or other charges the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided on the
books of Company or its Subsidiaries (including Unrestricted Subsidiaries and
Joint Ventures), as the case may be) except tax claims which are to be paid on a
deferred basis pursuant to the Reorganization Plan; no tax Lien has been filed,
and, to the knowledge of Company, no claim is being asserted, with respect to
any such tax, fee or other charge, except as disclosed on Schedule 4.10 attached
hereto and made a part hereof and as set forth on the Tax Service Agreement
provided to Banks by Lawyers Title Insurance Corporation.
K. FEDERAL REGULATIONS.
No part of the proceeds of any Loans will be used for
"purchasing" or "carrying" any "margin stock" within the respective meanings of
each of the quoted terms under Regulation G, T, U or X of the Board of Governors
of the Federal Reserve System as now and from time to time hereafter in effect
or for any purpose which violates the provisions of the Regulations of such
Board of Governors.
L. ERISA.
Company hereby affirms and ratifies the representations and
warranties contained in Section 4.12 of the Loan Agreement as being true and
correct as of the date hereof.
13
<PAGE>
M. INVESTMENT COMPANY ACT; OTHER REGULATIONS.
Company is not an "investment company," or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended. Company is not subject to regulation under any
Federal or state statute or regulation which limits its ability to incur
Indebtedness.
N. SUBSIDIARIES AND JOINT VENTURES.
As of the date hereof, (a) the Subsidiaries listed on SCHEDULE
4.14(A) attached hereto and made a part hereof constitute all of the
Subsidiaries and such schedule identifies the shareholders of such Subsidiary,
(b) the Joint Ventures listed on SCHEDULE 4.14(B) attached hereto and made a
part hereof constitute all of the Joint Ventures and such schedule identifies
all owners of the Joint Venture interests thereof and the percentage equity
ownership of such owners, and (c) neither Company nor any Subsidiary other than
a Venture Subsidiary owns any Joint Venture interest.
O. ENVIRONMENTAL MATTERS.
Each of the representations and warranties set forth in
paragraphs (a) through (g) of Section 4.15 of the Loan Agreement is true and
correct, except as disclosed on SCHEDULE 4.15 to the Loan Agreement or in the
certificate regarding environmental matters required pursuant to Section 5.1(i)
or to the extent that the facts and circumstances giving rise to any such
failure to be so true and correct is not reasonably likely to have a Material
Adverse Effect.
P. INDEBTEDNESS.
SCHEDULE 4.16 attached hereto and made a part hereof lists all
Indebtedness (including available commitments) of Company and its Subsidiaries
as existing on the date hereof.
Q. CONTINGENT OBLIGATIONS.
SCHEDULE 4.17 attached hereto and made a part hereof lists all
guarantees by Company and all guarantees by any of its Subsidiaries.
R. RESTITUTION PROGRAM AND FINAL JUDGMENT.
As of the date hereof, Company and its Subsidiaries are in
compliance with the "Restitution Program" and the "Final Judgment," as defined
in the Reorganization Plan.
14
<PAGE>
S. CERTAIN FEES.
No broker's or finder's fee or commission will be payable with
respect to this Agreement or any of the transactions contemplated hereby, and
Company hereby indemnifies Banks against, and agrees that it will hold Banks
harmless from, any claim, demand or liability for any such broker's or finder's
fees alleged to have been incurred in connection herewith or therewith and any
expenses (including reasonable fees, expenses and disbursements of counsel)
arising in connection with any such claim, demand or liability.
T. DISCLOSURE.
No representation or warranty of Company or any of its
Subsidiaries contained in any Loan Document or in any other document,
certificate or written statement furnished to Banks by or on behalf of Company
or any of its Subsidiaries for use in connection with the transactions
contemplated by this Third Amendment contains any untrue statement of a material
fact or omits to state a material fact (known to Company in the case of any
document not furnished by it) necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances in
which the same were made. Any projections and pro forma financial information
contained in such materials are based upon good faith estimates and assumptions
believed by Company to be reasonable at the time made, it being recognized by
Banks that such projections as to future events are not to be viewed as facts
and that actual results during the period or periods covered by any such
projections may differ from the projected results. There are no facts known (or
which should upon the reasonable exercise of diligence be known) to Company
(other than matters of an economic nature) that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect
and have not been disclosed herein or in such other written documents,
certificates and statements furnished to Banks for use in connection with the
transactions contemplated hereby.
U. TOTAL REAL PROPERTY MATTERS.
Company and each of its Subsidiaries (including the Joint
Ventures) is in compliance with all development orders obtained by Company and
its Subsidiaries (including the Joint Ventures) with respect to any Total Real
Property, except to the extent noncompliance could not reasonably be expected to
have a Material Adverse Effect.
V. REORGANIZATION PROCEEDINGS.
Company has delivered to Agent and Banks true, correct and
complete copies of the Reorganization Plan and Confirmation Order, together with
copies of any modifications thereto or subsequent proceedings with the
Bankruptcy Court.
15
<PAGE>
W. EXCLUDED SUBSIDIARIES; UNRESTRICTED SUBSIDIARIES.
(1) The Excluded Subsidiaries do not have, nor are they
anticipated to have, any assets or revenues. The Excluded Subsidiaries do not
currently conduct, nor are they anticipated to begin to conduct, any business.
(2) As of March 31, 1998, the Unrestricted Subsidiaries had
assets as disclosed on the consolidating balance sheet dated as of March 31,
1998, attached hereto as SCHEDULE 4.24 and made a part hereof. The Unrestricted
Subsidiaries do not currently conduct, nor are they anticipated to begin to
conduct, any business other than the businesses disclosed on SCHEDULE 4.24
attached hereto and made a part hereof.
X. BANK ACCOUNTS.
SCHEDULE 4.26 attached hereto and made a part hereof (as
amended from time to time by written notice to Agent) is a true and correct list
of all Bank Accounts of Company and its Subsidiaries.
Y. ELIGIBLE RECEIVABLES AND ELIGIBLE JV RECEIVABLES.
(1) The Eligible Receivables are bona fide existing
obligations created by the sale and delivery of Real Property in the ordinary
course of Company's or any of its Subsidiary's business, unconditionally owed to
Company or such Subsidiary without defenses, disputes, offsets, counterclaims,
or rights of cancellation. Neither Company nor any such Subsidiary has received
notice of any actual or imminent Insolvency Proceeding or material impairment of
the financial condition of any obligor regarding any Eligible Receivable.
(2) The Eligible JV Receivables are bona fide existing
obligations created by the sale and delivery of JV Real Property in the ordinary
course of the relevant Borrowing Base Joint Venture's business, unconditionally
owed to such Borrowing Base Joint Venture without defenses, disputes, offsets,
counterclaims, or rights of cancellation. Neither Company nor the relevant
Venture Subsidiary nor the relevant Borrowing Base Joint Venture has received
notice of any actual or imminent Insolvency Proceeding or material impairment of
the financial condition of any obligor regarding any Eligible JV Receivable.
Z. SPUD SUBSIDIARIES. Except as disclosed on SCHEDULE 4.29
attached hereto and made a part hereof, no Subsidiary is a SPUD Subsidiary.
AA. DRI AND ZONING MATTERS. The representations and warranties set
forth in SCHEDULE 4.30 attached hereto are by this reference incorporated herein
as though fully set forth and made in this Section AB.
16
<PAGE>
10. CONDITIONS PRECEDENT
The effectiveness of this Third Amendment and the obligations
of Banks to make the Future Advance hereunder are subject to the prior or
concurrent satisfaction of all the following conditions:
A. LOAN DOCUMENTS. Agent shall have received (i) this Third
Amendment, executed and delivered by a duly authorized officer of Company, with
a counterpart for each Bank, (ii) for the account of each Bank, the Future
Advance Note, (iii) each other Loan Document, required to be delivered
hereunder, conforming to the requirements hereof and executed and delivered by a
duly authorized officer of Company or each of its Subsidiaries (including, the
Unrestricted Subsidiaries and the Excluded Subsidiaries, in each case as to
their respective acknowledgments under the Stock Pledge Agreement), as the case
may be, which are parties to such Loan Document, with a counterpart for each
Bank.
B. CORPORATE PROCEEDINGS OF COMPANY. Agent shall have received,
with a counterpart for each Bank, a copy of the resolutions, in form and
substance satisfactory to Agent, of the Board of Directors of Company
authorizing the execution, delivery and performance of this Third Amendment, the
Future Advance Note, and the other Loan Documents to which it is a party,
certified by the Secretary or an Assistant Secretary of the Company as of the
date hereof, which certificate shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded and are in full
force and effect and shall be in form and substance satisfactory to Agent.
C. CORPORATE PROCEEDINGS OF THE SUBSIDIARIES. Agent shall have
received, with a counterpart for each Bank, a copy of the resolutions, in form
and substance satisfactory to Agent, of the Board of Directors of each
Subsidiary of Company which is a party to any Loan Document authorizing the
execution, delivery and performance of the Loan Documents to which it is a
party, certified by the secretary or an assistant secretary of each Subsidiary
as of the date hereof, which certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded and are
in full force and effect.
D. CORPORATE DOCUMENTS. Agent shall have received, with a
counterpart for each Bank, true and complete copies of (i) the certificate or
articles of incorporation of the Company and each of its Subsidiaries which is a
party to any Loan Document certified by the Secretary of State of their
respective jurisdictions of incorporation as of a recent date prior to the date
hereof, (ii) the Bylaws of the Company and each of its Subsidiaries which is a
party to any Loan Document certified as of the date hereof by its secretary or
an assistant secretary, (iii) good standing certificates, including, in states
which provide such certificates, certification of tax status, of the Company and
each of its Subsidiaries which is a party to any Loan Document certified by the
Secretary of State of their respective jurisdictions of incorporation and of
each jurisdiction in which they are qualified to do business as a foreign
corporation dated as of a recent date prior to the date hereof and (iv)
incumbency and signature certificates for Company and each Subsidiary executing
any Loan
17
<PAGE>
Documents as of the date hereof.
E. NO VIOLATION. The consummation of the transactions
contemplated hereby and by the other Loan Documents shall not contravene,
violate or conflict with, nor involve Agent or any Bank in any violation of, any
Requirement of Law.
F. CONSENTS, AUTHORIZATIONS, AND FILINGS. Agent shall have
received, with a counterpart for each Bank, a certificate of a Responsible
Officer (i) attaching copies of all consents, authorizations, and filings
referred to in Section 4.4 of the Loan Agreement and in any similar provision of
any of the other Loan Documents, and (ii) stating that such consents,
authorizations, and filings are in full force and effect and each such consent,
authorization, and filing shall be in form and substance satisfactory to Agent.
G. LEGAL OPINION. Collateral Agent and Agent shall have received,
with a counterpart for each Bank, the executed legal opinion of corporate
counsel to Company, dated as of the date hereof, in form and substance
satisfactory to Collateral Agent and Agent and addressed to Collateral Agent,
Agent and Banks. Such legal opinion shall cover such matters incident to the
transactions contemplated by this Third Amendment as Agent may reasonably
require.
H. REAL PROPERTY MATTERS. Agent shall have received the Future
Advance Mortgage Modification Agreements, in form and substance satisfactory to
Agent and its local counsel, to protect and preserve the Lien and priority of
the Mortgages and Deeds of Trust as they secure the Loans and other amounts due
hereunder, together with endorsements to the existing ALTA lender's extended
coverage policies of title insurance on the Real Property encumbered by the
Mortgages and Deeds of Trusts in liability, amount and form issued by a title
company satisfactory to Agent showing the Mortgages and Deeds of Trust, as
modified by the Future Advance Mortgage Modification Agreements, as first Liens
upon the respective Real Property, subject only to Liens permitted hereunder and
thereunder and such other exceptions or exclusions as may be approved by Agent
in its sole discretion, together with any endorsements reasonably required by
Agent, and affirmative assurance that the improvements are fully located within
the boundaries of the insured land.
I. AGREEMENTS. Agent shall have received, with an executed
counterpart for each Bank, duly executed copies of the First Amendment to
Acknowledgment Agreement regarding Security Documents, the First Amendment to
Deposit Account Security Agreement, the First Amendment to Consolidated,
Amended, and Restated Personal Property Security Agreement, the First Amendment
to Second Amended and Restated Stock Pledge Agreement, and the First Amendment
to Consolidated Second Amended and Restated Subsidiary Guarantee.
J. NO MATERIAL ADVERSE EFFECT. Agent shall have received an
officer's certificate executed by a Responsible Officer stating that no Material
Adverse Effect has occurred since March 31, 1998, except as disclosed in the
Company's Form 10-Q for the quarter ended as of March 31,
18
<PAGE>
1998, or as otherwise disclosed in writing to Banks on or before the date
hereof.
K. FEES, COSTS, AND EXPENSES. As of the date hereof, Company
shall have paid: (i) to the Agent all interest and fees accrued under the Loan
Agreement and shall have paid to Agent and Banks all fees and expenses due and
payable under the Loan Agreement as of the date hereof; (ii) to the Agent all
fees, costs, and expenses of Agent and its counsel incurred in connection with
the preparation, negotiation, and execution of this Third Amendment, and any
other documents executed in connection herewith; and (iii) to the Collateral
Agent all fees, costs, and expenses of Collateral Agent and its counsel incurred
in connection with the preparation, negotiation, and execution of this First
Amendment, and any other documents executed in connection herewith.
L. FEE FOR FUTURE ADVANCE. Company shall have paid a fee to Banks
for the Future Advance in the amount of TWO HUNDRED FIFTY THOUSAND AND NO/100
DOLLARS ($250,000.00).
M. AMENDMENT OF CERTAIN LOAN DOCUMENTS. The Security Documents
and other Loan Documents shall have been amended in form and substance
satisfactory to Agent.
N. OTHER MATTERS. Company shall have made available to Agent and
Banks such other documents and information, or taken such other actions, as
Agent and Banks may reasonably request.
11. RATIFICATION
Except as modified by this Third Amendment and by the other documents
executed in connection herewith, the terms and conditions of the Loan Agreement
and all other Loan Documents are hereby ratified and confirmed and remain in
full force and effect.
12. MISCELLANEOUS
A. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Third Amendment and the Future Advance Note.
B. COUNTERPARTS. This Third Amendment may be executed by one or
more of the parties to this Third Amendment on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
ATLANTIC GULF COMMUNITIES CORPORATION
By:
----------------------------------
Name:
Title:
FOOTHILL CAPITAL CORPORATION
as Agent and as a Bank
By:
----------------------------------
Name:
Title:
FOOTHILL CAPITAL CORPORATION
as Collateral Agent
By:
----------------------------------
Name:
Title:
20
<PAGE>
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
REVOLVING LOAN AGREEMENT DATED AS OF JUNE 30, 1998
SCHEDULE 2.1
WORKING CAPITAL LOAN COMMITMENTS
BANK: AMOUNT OF BANK'S COMMITMENT:
Foothill Capital Corporation $25,000,000.00*
* PROVIDED, HOWEVER, THAT AT NO TIME SHALL THE OUTSTANDING BALANCE OF THE
WORKING CAPITAL LOANS EXCEED THE BORROWING BASE, AS PROVIDED IN SECTION 2.4 OF
THE LOAN AGREEMENT, AS MODIFIED BY THIS THIRD AMENDMENT.
21
Atlantic Gulf Communities Corporation Exhibit to the June 30, 1998 Form 10-Q
Exhibit (a)(2) Interim Intercompany Loan and Intercreditor Agreement, dated as
of June 30, 1998
- --------------------------------------------------------------------------------
INTERIM INTERCOMPANY LOAN AND INTERCREDITOR AGREEMENT
This INTERIM INTERCOMPANY LOAN AND INTERCREDITOR AGREEMENT
("AGREEMENT") is made as of the 30th day of June, 1998, by and among: ATLANTIC
GULF COMMUNITIES CORPORATION, a Delaware corporation ("COMPANY"), with its
principal office located at, and having a mailing address of, 2601 South
Bayshore Drive, 9th Floor, Miami, Florida 33133-5461; AGC-SP, INC., a Delaware
corporation ("SP SUB"), with its principal office located at, and having a
mailing address of, 2601 South Bayshore Drive, 9th Floor, Miami, Florida 33133-
5461; AP-AGC, LLC, a Delaware limited liability company ("OBLIGEE"), having a
mailing address of 1301 Avenue of the Americas, 38th Floor, New York, New York
10019; THE BANK OF NEW YORK, a New York banking corporation, as collateral agent
("COLLATERAL AGENT") for Obligee and Foothill Capital Corporation, a California
corporation ("FOOTHILL"), having a mailing address of c/o The Bank of New York
Trust Company of Florida, N.A., Towermarc Plaza, 10161 Centurion Parkway,
Jacksonville, Florida 32256; Foothill, as collateral agent ("LOAN AGENT") for
the banks ("LOAN BANKS"), who are parties to that certain Second Amended and
Restated Loan Agreement dated as of September 30, 1996, executed by and among
the Company, Loan Agent and the Loan Banks ("LOAN AGREEMENT"), having a mailing
address of 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California
90025-3333; and Foothill, as collateral agent ("NOTE AGENT") for the banks
("NOTE BANKS"), who are parties to that certain Second Amended and Restated
Secured Floating Rate Note Agreement dated as of September 30, 1996, executed by
and among the Company, Note Agent and the Note Banks ("NOTE AGREEMENT").
RECITALS:
A. Pursuant to the terms of that certain Investment Agreement dated as
of February 7, 1997, amended as of March 20, 1997, and amended and restated as
of May 15, 1997 (together with any and all modifications, amendments,
replacements, renewals and extensions thereof, the "INVESTMENT AGREEMENT") among
Obligee, the Company and certain subsidiaries of the Company ("AG SUBS"),
Obligee purchased $25,000,000.00 in the aggregate of preferred stock issued by
the Company ("INVESTMENT").
B. The Company, SP Sub, the AG Subs, the subsidiaries of SP Sub
(collectively, "SP SUB'S SUBSIDIARIES"), Collateral Agent and Note Agent are
parties to that certain Secured Agreement dated February 7, 1997, and amended
and restated as of May 15, 1997 (as the same may be amended, supplemented and
otherwise modified from time to time, the "SECURED AGREEMENT") pursuant to which
Secured Agreement certain obligations of the Company, SP and SP Sub's
Subsidiaries including, without limitation, the obligation to repurchase the
preferred shares given to Obligee in connection with the Investment, are secured
by (1) a first priority lien upon all of the assets of SP Sub and SP Sub's
Subsidiaries as well as a pledge by the Company of all of the stock of SP Sub
and a pledge by SP Sub of all of the stock of SP Sub's Subsidiaries and (2) a
lien upon all other assets of the Company and all assets of the AG Subs
subordinate only to liens securing obligations of the
<PAGE>
Company under the Loan Agreement and the Note Agreement.
C. Pursuant to the terms of the Loan Agreement and the Note Agreement,
the Company is indebted to the Loan Banks and Note Banks, respectively, and
certain of the obligations of the Company to the Loan Banks and Note Banks
mature on June 30, 1998 ("1998 NOTES").
D. Pursuant to the terms of the Investment Agreement, the Investment is
to be used for the purpose of enabling the Company to invest through SP Sub and
SP Sub's Subsidiaries in certain approved real estate development projects.
E. SP Sub has set aside $11,500,000.00 of the Investment ("UNUSED
INVESTMENT"), for future acquisition of certain real estate projects in which
Obligee would be granted first priority liens and security interests ("PENDING
PROJECTS"), subject only to the rights of development lenders for the Pending
Projects, which Unused Investment is one of the assets in which Obligee has a
first priority security interest.
F. The Company has requested that the Obligee permit it to use the
Unused Investment in order to pay, in part, the 1998 Notes rather than to fund
the Pending Projects, and the Obligee has agreed to permit the Company to borrow
the Unused Investment from SP Sub in order to pay, in part, the 1998 Notes upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in order to induce Obligee to permit the Company to use
a portion of the Investment to pay a portion of the 1998 Notes, the Company, SP
Sub, Obligee, Collateral Agent, Note Agent and Loan Agent hereby agree as
follows:
AGREEMENT
1. INCORPORATION OF RECITALS. The aforesaid Recitals are true and
correct and are incorporated herein.
2. CONSENT AND TERMS OF AGREEMENT TO CONSENT. Obligee hereby consents
to the Company's use of the Unused Investment for the purpose of paying a
portion of the indebtedness evidenced by the 1998 Notes, on the following terms
and conditions:
a. the Company shall execute a Term Note payable to the order of SP
Sub, substantially in the form attached hereto as EXHIBIT A, which shall be duly
endorsed to the order of the Collateral Agent ("TERM NOTE");
b. the AG Subs shall execute a Subsidiary Guaranty, substantially in
the form attached hereto as EXHIBIT B ("SUBSIDIARY GUARANTY");
c. the Company shall execute a Subordinate Stock Pledge Agreement,
substantially in the form attached hereto as EXHIBIT C ("STOCK PLEDGE");
<PAGE>
d. the Company and AG Subs shall execute a Subordinate Personal
Property Security Agreement, substantially in the form attached hereto as
EXHIBIT D ("SECURITY AGREEMENT") and related UCC-1 financing statements;
e. as substitute collateral for the Unused Investment, SP Sub shall
execute an Assignment of Note and Other Loan Documents in favor of The Bank of
New York as collateral agent for Obligee, substantially in the form attached
hereto as EXHIBIT E ("ASSIGNMENT OF NOTE");
f. notwithstanding anything to the contrary contained in the
Investment Agreement, the Secured Instrument Documents or that certain
Intercreditor Agreement dated as of June 23, 1997, executed by and between
Obligee, Collateral Agent and Foothill ("INTERCREDITOR AGREEMENT"), a default
under this Agreement, the Term Note, Subsidiary Guaranty, the Stock Pledge, the
Security Agreement or the Assignment of Note (collectively, "INTERCOMPANY LOAN
DOCUMENTS") shall be a default under the Secured Instrument Documents; and
g. SP Sub agrees to be bound by the same terms and shall be a
third-party beneficiary of the same rights under the Intercreditor Agreement
with respect to Intercompany Loan Documents as Obligee is with respect to the
Security Instrument Documents.
3. Obligee and Foothill hereby direct the Collateral Agent to execute
this Agreement as collateral agent for Obligee and Foothill.
4. This Agreement shall be binding upon all parties and their
respective successors and assigns.
5. The validity and enforceability of this Agreement shall be construed
and interpreted according to the laws of the State of New York.
6. This Agreement, and any amendments, waivers, consents or
supplements, may be executed in one or more counterparts, each of which when so
executed and delivered shall be deemed an original and all of which together
shall constitute one and the same Agreement.
IN WITNESS WHEREOF, and intending to be legally bound hereby, this
Agreement has been duly signed, sealed and delivered by the undersigned as of
the day and year specified at the beginning hereof.
ATLANTIC GULF COMMUNITIES
CORPORATION, a Delaware corporation
By:
--------------------------------
John H. Fischer
Vice President
<PAGE>
AGC-SP, INC., a Delaware corporation
By:
--------------------------------
John H. Fischer
Vice President
AP-AGC, LLC., a Delaware limited liability
corporation
By: Kronus Property, Inc., its Manager
By:
--------------------------------
Ricardo Koenigsberger
Vice President
THE BANK OF NEW YORK, a New York banking
corporation, as Collateral Agent
By: The Bank of New York Trust Company of
Florida, N.A., its agent
By:
--------------------------------
Janalee R. Scott
Assistant Vice President
FOOTHILL CAPITAL CORPORATION, a
California corporation, as Foothill, Loan Agent and
Note Agent
By:
--------------------------------
Benjamin Silver
Vice President
Atlantic Gulf Communities Corporation Exhibit to the June 30, 1998 Form 10-Q
Exhibit (a) (3) Letter Agreement dated July 8, 1998 modifying certain terms of
the Third Amendment to Second Amended and Restated Revolving Loan Agreement
Atlantic Gulf Communities Corporation, dated as of June 30, 1998
- --------------------------------------------------------------------------------
July 8, 1998
Mr. Ben Silver
Assistant Vice President
Foothill Capital Corporation
11111 Santa Monica Blvd., Suite 1500
Los Angeles, CA 90025
Re: Third Amendment to Second Amended and Restated Revolving Loan Agreement
between Atlantic Gulf Communities Corporation and Foothill Capital
Corporation dated as of June 30, 1998 (the "Third Amendment")
Dear Ben:
This shall confirm that the definition of Borrowing Base, Item B in the
Third Amendment be modified in its entirety as follows:
B. With respect to each corresponding period, the amounts set forth on
the chart below (the "Borrowing Base Limits")
DATE BORROWING BASE LIMIT
June 30, 1998 through
August 1, 1998 $25,000,000.00
August 2, 1998 through
August 8, 1998 $24,150,000.00
August 9, 1998 through
August 31, 1998 $23,000,000.00
September 1, 1998 through
September 30, 1998 $20,000,000.00
October 1, 1998 through
October 31, 1998 $17,000,000.00
November 1, 1998 through
November 30, 1998 $12,500,000.00
December 1, 1998 $0.0
<PAGE>
Page Two
Mr. Ben Silver
July 30, 1998
Notwithstanding the above chart, upon the release of the $2,500,000.00
held in escrow in connection with the prior sale of Daves Creek, the
Borrowing Base Limit shall be the amount calculated by subtracting
$2,500,000.00 from the Borrowing Base Limit in place immediately prior
to the release of the $2,500,000.00 held in escrow in connection with
the prior sale of Daves Creek, and each Borrowing Base Limit thereafter
shall be $2,500,000.00 less than the Borrowing Base Limit shown for
each corresponding period on the above chart through and including
September 30, 1998. Likewise, upon the refinancing of the West Meadows
residential project debt, the Borrowing Base Limit in place immediately
prior to the refinancing of the West Meadows residential project debt,
and each Borrowing Base Limit thereafter shall be $2,500,000.00 less
than the Borrowing Base Limit shown if such closing occurs prior to
August 1, 1998 or $1,650,000 less than the Borrowing Base Limit shown
if such closing occurs after August 1, 1998 for each corresponding
period on the above chart through and including September 30, 1998.
Notwithstanding the foregoing, the reductions to the borrowing base
from both the West Meadows residential project refinancing and Daves
Creek escrow release are permanent reductions to the borrowing base and
satisfy all required reductions through September 30, 1998.
A notice of borrowing for $900,000.00 to be advanced on Monday, August
3, 1998 is accompanying this modification. Please sign a copy of this letter
agreement and fax a copy back to my attention.
Sincerely,
John H. Fischer
agreed and accepted this ___ day
of July, 1998
FOOTHILL CAPITAL CORPORATION
BY: _____________________________
ITS:_____________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 (UNAUDITED) AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS THEN ENDED (UNAUDITED)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000771934
<NAME> Atlantic Gulf Communities Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,881
<SECURITIES> 0
<RECEIVABLES> 39,247
<ALLOWANCES> 0
<INVENTORY> 126,743
<CURRENT-ASSETS> 0
<PP&E> 2,751
<DEPRECIATION> 0
<TOTAL-ASSETS> 189,387
<CURRENT-LIABILITIES> 0
<BONDS> 118,906
48,697
0
<COMMON> 1,162
<OTHER-SE> (3,183)
<TOTAL-LIABILITY-AND-EQUITY> 189,387
<SALES> 52,875
<TOTAL-REVENUES> 58,490
<CGS> 44,995
<TOTAL-COSTS> 48,981
<OTHER-EXPENSES> 8,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,031
<INCOME-PRETAX> (7,397)
<INCOME-TAX> 0
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<CHANGES> 0
<NET-INCOME> (7,397)
<EPS-PRIMARY> (.64)
<EPS-DILUTED> (.64)
</TABLE>
