SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________________
Commission file number: 1-8967
ATLANTIC GULF COMMUNITIES CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 59-0720444
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(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2601 South Bayshore Drive
Miami, Florida 33133-5461
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(Address of principal executive offices) (Zip Code)
Registrant's telephone, including area code (305) 859-4000
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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 and 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
Page 1 of ___ Pages
The exhibit index for this Form 10-K is located at page 53.
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
As of March 20, 1998, the aggregate market value of the registrant's
Common Stock held by non-affiliates of the registrant was approximately $44.0
million.
APPLICABLE ONLY TO REGISTRANTS 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 Section 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
As of March 20, 1998, there were 11,529,599 shares of the registrant's
Common Stock outstanding, including 12,981 outstanding shares held in a disputed
claims reserve.
Documents incorporated by reference
Portions of the following documents are incorporated herein by
reference:
Part III - The registrant's definitive Proxy Statement for its 1998
Annual Meeting of Stockholders, or an Amended Annual Report on Form 10-K/A, to
be filed not later than 120 days after the end of the registrant's fiscal year.
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SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997, CERTAIN MATTERS DISCUSSED
HEREIN INCLUDING, WITHOUT LIMITATION, PART I, ITEM 1. THE BUSINESS AND ITEM 3.
LEGAL PROCEEDINGS, AND PART II, ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, 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.
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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" REFER SOLELY TO ATLANTIC
GULF COMMUNITIES CORPORATION AND (3) "PREDECESSOR COMPANY" OR "PREDECESSOR"
REFERS TO GENERAL DEVELOPMENT CORPORATION, ATLANTIC GULF'S IMMEDIATE
PREDECESSOR.
PART I
Item 1. Business
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CORE 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 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 (as
defined below) and Predecessor Tracts (as defined below) in secondary markets
(collectively, "Predecessor Assets") and (b) portfolio management of mortgages
and contract receivables related to Predecessor Assets. As discussed in more
detail below, the continuing disposition of Predecessor Assets is a run-off
business and 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.
BUSINESS DEVELOPMENT. The Company's business development activities
consist of (1) identifying Primary Markets, (2) evaluating specific real estate
opportunities within these markets which meet the Company's investment criteria
and (3) formulating strategies for generating superior returns from the best
projects within these Primary Markets. The business development department (a)
initiates and evaluates the financial and market feasibility studies of these
projects and conducts due diligence with respect to planning, zoning and
permitting requirements and (b) identifies financing and investment sources and
potential joint venture partners for these projects.
PLANNING. The Company's planning activities consist of (1) master land
use planning, (2) zoning, (3) mitigation, (4) project permitting and (5)
obtaining all other regulatory approvals necessary to develop a specified
property. The planning department (a) evaluates, designs (or re-designs) and
obtains approvals to develop the Company's new acquisitions as residential
subdivisions and (b) obtains the approvals and permits required to enhance the
value of the Company's land prior to sale. Once the planning department has
finished its entitlement work with respect to a particular parcel of property,
it has frequently added enough value to the property that the property is
saleable -- either for Homesites or as Tracts -- without further infrastructure
improvements.
Atlantic Gulf, through its wholly-owned subsidiary, Environmental
Quality Laboratory, Inc. ("EQL"), (1) conducts environmental assessments, (2)
performs testing and planning activities for the Company and unaffiliated
parties and (3) provides other related services. EQL's staff combines over 20
years of experience in environmental science with an in-depth knowledge of
complex state and federal regulations.
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COMMUNITY DEVELOPMENT. The Company's community development activities
consist of construction of roads, amenities, utilities and other infrastructure.
The final product, whether it be finished Homesites or Tracts, is sold to third
party homebuilders, commercial users or other investor/developers.
RESIDENTIAL CONSTRUCTION. In the 1995-1997 period, the Company's
residential construction activity consisted primarily of construction and sale
of oceanfront condominiums. The Company decided to phase out its single family
home construction line in mid-1995 and substantially completed that process by
late 1996. With respect to oceanfront condominiums, the Company finished
construction and sold out of its first project in 1997 and anticipates
commencing presales on the first building in an additional project in the
1998-1999 selling season. The Company acts as the owner-developer of the
projects, (1) obtaining any necessary permits, (2) overseeing the design process
and (3) conducting the sales and marketing operations. Once there are sufficient
presales with hard deposits to cover the construction loan, the Company hires a
general contractor for the actual construction.
In 1997, the Company acquired a parcel of land in downtown Fort
Lauderdale on which it intends to erect a 373-unit luxury apartment tower. The
apartment building is fully permitted and the Company anticipates breaking
ground in the third quarter of 1998. While the Company is the owner-developer of
its condominium projects, it intends to retain a company with substantial
experience in apartment tower construction and leasing as the project manager,
which project manager will, in turn, retain a general contractor for the actual
construction.
SIGNIFICANT BUSINESS DEVELOPMENTS IN 1997
In 1997, the Company raised $55 million of new common and preferred
equity capital in the following three transactions (the "1997 Equity
Transactions"):
o In June 1997, AP-AGC LLC, an affiliate of Apollo Real Estate
Advisors, L.P. ("Apollo") agreed to acquire 2.5 million shares
of 20% Redeemable Preferred Stock, Series A, of the Company
("Series A Preferred Stock") and warrants to purchase 5
million shares of common stock, par value $.10 per share of
the Company ("Common Stock"), for an aggregate purchase price
of $25 million. As of December 31, 1997, Apollo had purchased
2,326,475 shares of Series A Preferred Stock and warrants to
purchase 4,652,950 shares of Common Stock for a total purchase
price of $23.3 million. The Company expects to close the sale
of the final 173,525 shares of Series A Preferred Stock and
warrants to purchase 347,050 shares of Common Stock for an
additional $1.7 million on March 31, 1998.
o In June 1997, investors, including Elliott Associates, L.P.,
Morgan Stanley Asset Management and the Robertson Stephens
Contrarian Fund, acquired (1) 1 million shares of 20%
Redeemable Preferred Stock, Series B, of the Company ("Series
B Preferred Stock") for a total purchase price of $10 million
and (2) 1,776,199 shares of Common Stock and warrants to
purchase 2 million shares of Common Stock for a total purchase
price of $10 million.
o In November 1997, holders of Common Stock acquired 1 million
shares of Series B Preferred Stock and warrants to purchase 2
million shares of Common Stock for a total purchase price of
$10 million in a Rights Offering.
The dividend rate on each of the Series A Preferred Stock and Series B
Preferred Stock (collectively, the "Preferred Stock") is 20% of its liquidation
preference, respectively. The liquidation preference of the Preferred Stock is
$10 per share plus accumulated and unpaid dividends thereon. Preferred Stock
dividends may be paid or accrued at the Company's election. Each share of
Preferred Stock is convertible, at the
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holder's election, into shares of Common Stock at the rate of $5.75 per share,
subject to certain adjustments, anytime within seven years of their respective
issue dates. The warrants acquired by the holders of the Preferred Stock (the
"Warrants") are also exercisable at $5.75 per share, although the strike price
on the Warrants is subject to a one-time potential downward adjustment in 1999
based upon actual cash flow results for 1997 and 1998.
The Company used the proceeds of the 1997 Equity Transactions to fund
certain new project acquisitions and for general working capital purposes,
including the repayment of certain corporate debt. During 1997, the Company
acquired several significant new project assets, including the following:
o West Bay Club, an 868-acre golf/beach club community located
outside of Naples, Florida ("West Bay Club"), is planned for
approximately 520 single family Homesites and 578 condominium
units. Construction began in the first quarter of 1998. The
sales center is expected to open in the third quarter of 1998.
o Trails of West Frisco, a 632-acre project located in the town
of Frisco, north of Dallas, Texas ("Trails of West Frisco"),
is planned as a golf-course community with 1,643 Homesites.
Infrastructure development began in the fourth quarter of
1997. Initial lot sales are expected in mid-1998.
o Saxon Woods, a 127-acre community located in DeBary, north of
Orlando, Florida ("Saxon Woods"), is planned for 408
Homesites. Infrastructure development began in the fourth
quarter of 1997. The Company expects to deliver the first
Homesites in the second quarter of 1998.
o Riverwalk Tower, a 2.8 acre parcel in the central business
district of Fort Lauderdale, Florida ("Riverwalk Tower"), is
planned as a 373-unit luxury apartment tower and a second
mixed-use tower for office and hotel uses. The Company is
currently entertaining offers from other developers for the
1.2 acre office/hotel site, but intends to remain as the
owner/developer of the apartment tower. The Company
anticipates starting construction of the apartment tower in
the third quarter of 1998.
During 1997, the Company reduced its corporate debt by more than $61
million, as follows:
o The Company repaid $37.5 million of Unsecured 12% Notes in
January 1997.
o The Company reduced the balance under its Foothill $40 million
Term Loan and $25 million Reducing Revolver by an aggregate of
$20.7 million.
o The Company repaid the final $3.0 million of secured claims
associated with the Section 365(j) liens and deferred property
taxes.
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.
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o Complete the orderly disposition of its remaining Predecessor
Assets.
To these ends (1) since 1992, the Company has sold approximately 70,000
acres of Predecessor Tracts and over 10,000 Predecessor Homesites, and
substantially reduced the corporate debt and deferred liabilities which it
inherited from its Predecessor and (2) in 1994, the Company began acquiring
interests in 17 new projects in eight new Primary Markets.
The Company, consistent with and in furtherance of its business plan,
has successfully transitioned itself from a land company holding principally
Predecessor Assets to a leading provider to builders of developed Homesites in
planned communities in Primary Markets.
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. In effect, the Company did not have the
capital resources during this period to acquire direct ownership interests in
all of its new projects.
In 1997, the Company closed the 1997 Equity Transactions, which
provided it with $55 million of new equity capital and increased access to
mezzanine project debt financing. Using these and other funds, the Company
acquired all of its new projects in 1997 through direct ownership interests.
Generally accepted accounting principles preclude the Company from presenting
the operating and financial results of its JV Projects in its consolidated
financial statements. Nonetheless, to understand the Company and to understand
the progress it has made and continues to make in implementing its business
plan, it is important to consider the sales in the JV Projects along with the
consolidated financial results of the Company in the last three years. The
discussion that follows in this Section takes into account sales in JV Projects.
As a further step toward better explaining the Company's business, the
Company has reclassified one sales transaction in 1996 from a Tract sale to a
Homesite Sale. In that case, the Company sold approximately 320 acres in
Southwest Broward County, Florida, to a homebuilder. The property was permitted
for approximately 640 Homesites, but the Company sold the property without
constructing infrastructure improvements. In that case, and in the future,
property that is permitted for Homesites and sold to a homebuilder for use as
Homesites, will be reported as a sale of Homesites rather than as a Tract sale,
regardless of the level of infrastructure development of the property completed
prior to its sale.
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. This entailed acquiring projects
(directly and through JV Projects) and developing the builder client base. As
shown in the Homesite Sales Summary table below, the Company delivered 1,305
lots and 1,985 lots to builders in 1997 and 1996, respectively. With new
projects coming on line and Homesites currently under contract, that number is
anticipated to grow in 1998. Now, in the second stage, the Company is replacing
sold inventory with new projects, acquired principally through direct ownership.
Core Business Assets
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PRIMARY MARKET DEVELOPMENT. The Company generally defines a Primary
Market as a geographic market in which at least 5,000 new single family home
permits are issued annually. In selecting Primary Markets in which to acquire
projects, the Company looks at a number of factors, including, but not limited
to, job creation to new home ratios and the total number of developed lots in
the market versus monthly absorption (months of supply). High volume/strong
ratio markets typically attract and support a strong group of national and
regional homebuilders. Homebuilders need a consistent supply of developed
Homesites
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in new planned communities, but are often unwilling to carry large numbers of
Homesites in their own inventory. So, Homebuilders look for third parties, such
as the Company, to provide such Homesites.
The Company provides developed Homesites to builders in five primary
markets in Florida: (1) Broward County, (2) Palm Beach County, (3) Naples/Fort
Myers, (4) Tampa Bay and (5) Orlando. The Company also has active projects in
the Dallas, Texas and Raleigh/Durham, North Carolina markets, and is performing
due diligence on potential new projects in Jacksonville, Florida and Atlanta,
Georgia. The Company is interested in expanding into additional Primary Markets,
including, but not limited to, Richmond, Virginia; Charlotte, North Carolina and
Houston, Texas.
The Company's goal is to become the primary supplier of finished
Homesites to builders in its Primary Markets. Since 1994, the Company has met
that homebuilder demand and has sold Homesites in its Primary Markets to more
than three dozen homebuilders, many of whom have participated or expressed a
desire to participate in multiple projects in multiple Primary Markets.
Residential Homesites are the inventory of the Company's Core Business.
It is critically important that the Company manage its "inventory" and
"inventory costs" to the demands of its markets. The Company typically develops
new subdivision Homesites in multiple phases and does not incur hard development
costs until all or substantially all of the Homesites in a phase are under
contract to homebuilders. Developing Homesites in phases allows the Company to
more closely match the supply of finished Homesites to the homebuilders' demand,
thereby reducing the overhead and carrying costs associated with carrying a
substantial "inventory" of costly finished lots.
As of December 31, 1997, the Company had:
o 869 directly-owned Homesites under contract with 12
homebuilders, totaling approximately $24.7 million in future
gross revenue to the Company.
o An indirect interest, through various JV Projects, in 3,389
additional Homesites under contract with 10 homebuilders,
totaling approximately $85.0 million in future gross revenue
to the JV Projects, in which the Company is a joint venturer.
Another component of the Company's Core Business is the development and
sale of Tracts within Primary Markets. The Company's experience is that
residential and commercial demand within well planned communities are somewhat
symbiotic. If it can identify early growth patterns for either residential or
commercial uses, and manage the planning and development appropriately, the
Company can create and capture demand for both uses over the life of the
project.
Generally, the Tracts within a project are relatively small and
incidental to the greater residential focus. On occasion, the commercial aspects
of a project are of a relatively greater magnitude and account for a substantial
portion of the project's profitability. It has been the Company's experience
that the gross margin on the Tracts in a successful mixed-use project often
exceeds the gross margin on the Homesites. For that reason, the Company has
recently been willing to entertain more significant commercial/retail/industrial
components in potential new projects, particularly in situations where the
residential components alone yield acceptable financial returns in the pro forma
analysis.
As of December 31, 1997, the Company had an indirect interest, through
various JV Projects, in approximately 10 additional acres of Tracts under
contract, totaling approximately $3.5 million in future gross revenue, in which
the Company is a joint venturer.
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RESIDENTIAL CONSTRUCTION. Atlantic Gulf undertakes vertical residential
construction projects where the Company believes the risks can be reasonably
estimated and the prospective returns are attractive. In recent years, the
Company has limited its significant Vertical Development to oceanfront
condominiums. In 1998, the Company intends to begin construction of its first
urban luxury apartment tower. As previously discussed, the Company substantially
phased out its single family home construction line by 1996.
Residential sales, including single family and condominium units,
constituted 16%, 16% and 33% of total real estate sales in 1997, 1996 and 1995,
respectively. The Company does not anticipate any significant revenues from
Vertical Development sales in 1998, although revenue from sales of condominium
units and the apartment tower is expected to be material in future years.
Predecessor Assets.
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Since 1992, Atlantic Gulf has pursued a strategy of disposing of its
approximately 92,000 acres of Predecessor Tracts and approximately 27,000
Predecessor Homesites. During that period, the Company disposed of approximately
70,000 acres of Predecessor Tracts for approximately $170 million and over
10,000 Predecessor Homesites for approximately $62 million. The Company has used
the proceeds from these sales to reduce its corporate debt by more than $200
million since 1992 and to reduce the overhead expenses associated with
maintaining these Predecessor Assets.
The remaining Predecessor Tracts include commercial, industrial,
institutional, residential, and agricultural acreage. Predecessor Tract sales,
while highly variable from quarter to quarter, constituted approximately 46%,
32% and 37% of the Company's total real estate revenues in 1997, 1996 and 1995,
respectively. Atlantic Gulf desires to sell its remaining Predecessor Tracts in
1998. To facilitate these sales, the Company has recorded a total of $10.8
million in reserves in the fourth quarter of 1997 against a $36.7 million gross
book asset value for the Predecessor Tracts. As of December 31, 1997, the
Company had pending Predecessor Tract sales contracts totaling approximately
$3.4 million.
The Company owns approximately 16,750 Predecessor Homesites. The
Company intends to continue its practice of selling such Predecessor Homesites
on a wholesale basis as fast as the local markets can absorb them, but it
anticipates having Predecessor Homesite inventory for the foreseeable future.
Predecessor Homesite sales represented approximately 15%, 12% and 17% of the
Company's total real estate revenues in 1997, 1996 and 1995, respectively. The
Company recorded a reserve of approximately $1.9 million in the fourth quarter
of 1997 against its Predecessor Homesites. The Company does not anticipate that
Predecessor Homesite sales will have a material impact on future cash flows or
profitability.
General Risks.
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The Company believes that implementation of its business plan provides
the most appropriate utilization of its resources with respect to its Core
Business, while, at the same time, provides for the prudent management of the
orderly disposition of its remaining Predecessor Assets. The Company's ability
to implement its business plan is subject to many factors specific to its
business and its Primary Markets, as well as general risks associated with the
real estate business.
The Company's business is highly sensitive to several macro
economic/financial factors, including:
o The local economic conditions in the Primary Markets in which
it operates.
o Movements in interest rates and employment levels.
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o The availability and cost of financing for acquisition and
development, the availability and cost of materials and labor,
weather conditions, changes in government regulations and
changes in consumer preferences.
o Competitive pressures.
Currently, these macro factors are all reasonably favorable to the
Company. The national and the Company's Primary Market economies are currently
strong. Interest rates and unemployment rates are both currently at historic
lows, and credit is generally available to qualified borrowers. And, while the
real estate business is highly competitive, none of the Company's Primary
Markets currently has an oversupply of finished Homesites.
Notwithstanding the favorable current conditions for the Company's
business in general, any significant increase in interest rates or general
economic downturn or significant change in employment, decline in growth of real
wages or other demographics in the Company's Primary Markets could adversely
impact new home starts, and therefore the Company's business, in the future.
The Company's historical operating performance has been adversely
affected by a number of factors specific to the Company, some of which will
continue into 1998:
o High debt costs.
o Sales pressure attributable to near term debt maturities.
o Significant carrying costs, and reduced sales margins,
attributable to its Predecessor Assets.
o The time interval between asset acquisition, development and
sale.
The results of several of the Company's recent investments will begin
to be realized in 1998 as new projects come on line. The Company anticipates its
business plan will be fully implemented in 1998, assuming availability of
appropriate capital resources during 1998, which cannot be assured.
REAL ESTATE MARKET SUMMARY
The information set forth in this section was provided primarily by
American Metro Study Corporation, an independent real estate consulting and
research firm.
Florida is the second fastest growing state in the nation behind Texas.
It currently ranks as the fourth most populous state behind California, Texas
and New York. Since 1992, the population of the United States has grown by 4.0%.
In the past three years, the population of Florida grew by 5.0%. Florida
currently accounts for 5.4% of the nation's total population, but it accounted
for 8.0% of the nation's population growth during the four years ended December
31, 1997. Florida achieved this pace of growth by attracting new residents both
from other areas of the United States and other countries. While this growth has
historically been lead by retirees, in the 1980's Florida's rapid job growth
attracted residents in search of job opportunities.
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The Company has real estate interests in the following geographic
markets:
PRIMARY MARKET AREAS
ORLANDO, FLORIDA ("ORLANDO")
The four-county Orlando metropolitan area is located in the east
central part of Florida, and is the only major market in the state not in a
coastal location. Orlando, with more than 13 million visitors per year, is
Florida's largest tourist center and most vibrant housing market. Orlando has
approximately 1,924,000 residents and 808,800 non-agricultural jobs. During
1997, non-agricultural jobs in the Orlando area increased 3.7% or 37,700 new
jobs. Orlando is the most active single family market in the state, with more
than 10,000 single family home construction starts in 1997, representing a 15.9%
share of the entire single family state market.
During 1997, approximately 25% of all the single family home
construction starts in the Orlando market occurred in the southeast area of the
city. This area of Orlando currently has the greatest shortage of developed
Homesites. The Company owns three residential projects, Lakeside Estates in
southeast Orlando ("Lakeside Estates"), the Sanctuary in central Orlando
("Sanctuary") and Saxon Woods, and has joint venture interests in one other
residential project known as Falcon Trace in southeast Orlando ("Falcon Trace").
In 1997, Lakeside Estates was fifth in the Orlando market in terms of single
family housing permits issued. Substantially all of the Lakeside Estates and
Saxon Woods Homesites under development are under contract to homebuilders.
Sanctuary is sold out.
TAMPA BAY, FLORIDA ("TAMPA BAY")
The four-county Tampa Bay area is on the central Gulf Coast of Florida.
This market is a more traditional housing market than the rest of Florida, with
many of the home buyers moving to the area for employment opportunities. It is
the largest metropolitan statistical area in Florida with approximately
2,275,000 residents and 1,058,000 non-agricultural jobs. During 1997, Tampa
Bay's non-agricultural jobs increased by 8,275 jobs. After experiencing a
significant drop in housing market activity from 1987 through 1991, the Tampa
Bay market has recovered to 7,700 single family home construction starts in
1997, representing a 6.1% share of the entire single family state market. The
Company believes there is currently significant demand for developed lots in
Tampa Bay's northeast market area. In this growing area, where the Company's
West Meadows project ("West Meadows") is located, there is less than a 23-month
supply of developed lots indicating that developed lot absorption exceeds the
rate of developed lot creation. West Meadows will be developed in four phases.
Development of the first phase, consisting of 212 Homesites was completed in
1996 and all of these Homesites have closed or are under contract. The Company
has recently completed the second phase of 99 Homesites. Substantially all of
the Homesites under development in West Meadows are subject to sales contracts
with third party builders.
BROWARD COUNTY, FLORIDA ("BROWARD COUNTY")
During the last two years, the Broward County metropolitan area has
been one of the fastest growing housing markets in the nation. Housing demand in
this market continues to be strong with 7,300 single family home construction
starts in 1997, representing a 5.8% share of the entire single family state
market. This increase in housing demand began as a result of Hurricane Andrew,
which, in 1992, destroyed tens of thousands of homes in Miami-Dade County,
located directly south of Broward County. Considered alone, Broward County has
approximately 1,500,000 residents and approximately 647,000 non-agricultural
jobs. Broward County and Miami-Dade County (Miami-Dade County has approximately
2,067,000 residents, 985,000 non-agricultural jobs and had 5,200 single family
home construction starts in 1997) combined
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constitutes the largest housing market in Florida. Non-agricultural jobs
increased 2.8% or 42,000 jobs during 1996 for the combined Miami-Dade
County/Broward County area.
Southwest Broward County was one of the best housing markets in the
nation in 1997, with more than 4,300 single family home construction starts and
less than a one-year supply of developed lots. This market area, however, does
not have substantial developable land and abuts the Everglades, which limits the
number of new Homesites that can be developed in this area. The Company sold out
its project known as Windsor Palms ("Windsor Palms") in 1997 and has joint
venture interests in two other projects (Sunset Lakes and Country Lakes) that
account for a significant portion of the total remaining developable Homesites
in this market area.
NAPLES/FORT MYERS, FLORIDA ("NAPLES/FORT MYERS")
The Naples/Fort Myers area is on the southern Gulf Coast of Florida.
This area has a population of approximately 597,000 residents and approximately
236,000 jobs. During 1997, Naples/Fort Myers had approximately 6,000
construction starts, of which 2,800 or almost 50% were for multi-family homes,
which represents the highest ratio of multi-family homes starts to total starts
in the state of Florida. From 1995 through 1997, the Company acquired
approximately 868 acres of property in Naples in its West Bay Club project which
is anticipated to yield approximately 520 single-family Homesites and 578
high-rise condominium units. The Company also acquired a 13-acre commercial site
relative to its West Bay Club project.
PALM BEACH COUNTY, FLORIDA ("PALM BEACH COUNTY")
Palm Beach County is located on the southeast coast of Florida directly
north of Broward County and Miami-Dade County. Palm Beach County had a 1997
population of 1,002,500 people, and an employment of 421,000. 1997 housing
starts totaled 6,500. The population has a high percentage of retired residents
and a high percentage of service employment. The Company has a joint venture
interest in one project in Palm Beach County, in the Town of Jupiter. The
project, known as Jupiter Ocean Grande, is a condominium community consisting of
155 units directly across from the ocean. The project was re-planned in 1997 to
conform with modified market demand. This re-plan has met with resistance from
local governmental jurisdictions and the Company filed suit against the Town of
Jupiter to challenge the Town's denial of the re-plan. On March 23, 1998, the
Appellate Division of the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida ruled in the Company's favor. The Company intends on pursuing
final approval of the re-plan from the Town.
RALEIGH/DURHAM, NORTH CAROLINA ("RALEIGH/DURHAM")
Raleigh/Durham has a population of approximately 1,000,000 residents.
The population of North Carolina is expected to grow at an 8.1% rate over the
next five years, which is the fourth highest growth rate in the United States.
In December 1996, the Company became a limited partner in a JV Project
(structured as a limited partnership) formed to acquire and develop an $8.0
million residential real estate parcel consisting of approximately 660 acres
located adjacent to the Research Triangle Park in the town of Cary, North
Carolina, which is near Raleigh/Durham. This JV Project, known as Cary Glen
("Cary Glen"), is planned for 822 single family Homesites and up to 310
multi-family Homesites. Cary Glen represents the Company's first new residential
project outside the Florida market.
DALLAS, TEXAS ("DALLAS")
Dallas, located in north-central Texas, had a 1997 population
(including Ft. Worth) of 5,375,000. Texas is currently the fastest growing state
in the Union. The Company purchased 632 acres in late 1997 and is constructing a
community planned for over 1,600 homes and a golf course. The project, Trails of
West Frisco, is located in the town of Frisco, directly north of Dallas. The
Dallas/Ft. Worth area had 20,000
10
<PAGE>
housing starts in 1997, 20% of which were in the Frisco area. The Company has
signed contracts with several builders and broke ground for land development in
the fourth quarter of 1997.
SECONDARY MARKET AREAS
TREASURE COAST AREA (MARTIN AND ST. LUCIE COUNTIES), FLORIDA ("TREASURE COAST
AREA")
The Treasure Coast area, consisting of Martin and St. Lucie counties,
is north of Palm Beach County on Florida's east coast. This market has a
combination of job growth driven demand coming out of Palm Beach County and
retirement/second home demand. This market area has approximately 300,000
residents and 89,500 non-agricultural jobs. In 1997, there were 1,600 single
family home construction starts in the Treasure Coast area, representing a 1.2%
share of the entire single family state market. As the Palm Beach and Broward
County markets exhaust their developable land, job growth and housing demand is
expected to increase in the Treasure Coast area.
MELBOURNE, FLORIDA ("MELBOURNE")
Melbourne is on Florida's Central Atlantic Coast. This market has
approximately 465,000 residents and approximately 175,000 non-agricultural jobs.
This market had 1,917 single family home construction starts in 1997,
representing a 1.5% share of the entire single family state market.
OTHER AREAS
The Company has land holdings in several other secondary market areas,
some of which may currently have relatively high growth rates, but could be
adversely affected by changes in the economy. Furthermore, the existing supply
of Homesite inventory in these other market areas should satisfy current annual
demand for many years. These factors render these markets shallow, with limited
annual absorption expected in the near term. A brief description of these other
secondary market areas is set forth below.
SARASOTA/BRADENTON/PUNTA GORDA, FLORIDA ("SARASOTA"). Located on
Florida's west coast, north from Naples/Ft. Myers, Sarasota is a diverse local
market in which a majority of new home sales are to retirees and second home
buyers. This market has approximately 555,000 residents and approximately
216,000 non-agricultural jobs. During 1997, the area had 3,450 single family
home construction starts, representing a 2.8% share of the entire single family
state market. Included in this area are the Company's land holdings in the Port
Charlotte ("Port Charlotte"), North Port ("North Port") and Sabal Trace ("Sabal
Trace") communities.
OCALA, FLORIDA ("OCALA"). Ocala, located 60 miles north of Orlando, has
emerged as an attractive alternative location for affordable retirement
communities. Ocala has approximately 237,000 residents and 73,500
non-agricultural jobs. This market is very dependent on out-of-state retirees.
The Company's land holdings in Silver Springs Shores are included in this market
area.
11
<PAGE>
PRIMARY LINES OF BUSINESS
The Company's primary lines of business are summarized below.
HOMESITE AND PREDECESSOR HOMESITE SALES
The Company divides its Homesite sales into two categories - Homesite
sales and Predecessor Homesite sales. Homesites (including finished Predecessor
Homesites) are typically sold to independent homebuilders. Some Predecessor
Homesites continue to be sold to individuals, most notably in the Company's
Cumberland Cove community in Tennessee ("Cumberland Cove"), or are sold in bulk
to investors and other end users. Most Homesite sales are on a cash basis,
except for Cumberland Cove sales which are typically sold for a down payment of
10% to 20% with an interest bearing note and deed of trust securing the balance
of the purchase price with a term of ten years. Homesite sales consist of sales
of contiguous Homesites in subdivisions in Primary Markets. Homesite
subdivisions have entrance features and other amenities which could include
lakes, parks and/or other recreational facilities. Predecessor Homesites, which
are located in secondary markets, were inherited from the Predecessor Company
(see "History" below), and typically do not have associated amenities.
12
<PAGE>
The table below sets forth certain information regarding Homesite sales
for the three years ended December 31, 1997.
<TABLE>
<CAPTION>
Homesite Sales Summary
----------------------
(dollars in thousands)
1997 1996 1995
-------------------- -------------------- ---------------------
Project Number Sold Amount Number Sold Amount Number Sold Amount
- ------- ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Homesites
Julington Creek Plantation(1) - $ - 176 $7,574 209 $ 7,549
Lakeside Estates 267 4,648 258 4,191 160 2,605
Windsor Palms 102 4,514 306 12,467 - -
West Meadows 142 4,366 64 1,698 - -
Summerchase(2) - - 640 9,000 - -
Sabal Trace 13 477 15 599 - -
Sanctuary 19 323 151 2,561 - -
----- ------- ----- ------- ----- -------
Consolidated-Homesites 543 14,328 1,610 38,090 369 10,154
COUNTRY LAKES 740 9,500 375 7,450 - -
FALCON TRACE 22 690 - - - -
----- ------- ----- ------- ----- -------
Total-Homesites(3) 1,305 $24,518 1,985 $45,540 369 $10,154
===== ======= ===== ======= ===== =======
Consolidated-Homesites 543 $14,328 1,610 $38,090 369 $10,154
Predecessor Homesites 3,521 10,278 2,903 14,820 1,936 13,952
----- ------- ----- ------- ----- -------
Consolidated-Total 4,064 $24,606 4,513 $52,910 2,305 $24,106
===== ======= ===== ======= ===== =======
</TABLE>
- --------------
Note: Projects listed in italics are JV Projects not "controlled" by the Company
for GAAP purposes. Therefore, the results of these projects are not consolidated
in the Company's financial reports.
(1) A project in Jacksonville, Florida ("Julington Creek Plantation"), which
the Company sold in bulk in 1996.
(2) A project in southwest Broward County ("Summerchase").
(3) These numbers include results from projects not consolidated under GAAP.
HOMESITE SALES
In 1993, the Company began acquiring interests in or ownership of
property in Primary Markets in Florida. In 1996, the Company began evaluating
the potential acquisitions of properties in other Primary Markets in the
Southeast. The Company now has a JV Project, Cary Glen, outside of
Raleigh/Durham and owns the Trails of West Frisco project outside of Dallas,
Texas. The Company is currently evaluating opportunities in other Primary
Markets in the Southeast, including Atlanta, Georgia; Charlotte, North Carolina,
and Houston, Texas. The Company typically reduces the exposure associated with
carrying a substantial inventory of land by developing new subdivisions in
multiple phases and by incurring hard development costs only when all or
substantially all of the Homesites in a phase are under contract with third
party homebuilders.
13
<PAGE>
Gross margin represents the difference between the Company's real
estate revenue and related cost of sales. Targeted gross margin percentages for
the Company's Homesite sales generally range between 20% and 30%. The Company's
Homesites gross margin was lower in 1997 due to the sale at a loss of the final
102 Homesites in Windsor Palms to provide liquidity to meet its June 30, 1997
Foothill Debt payment. Due to the significant demand in most of the Homesite
Primary Markets, the Company does not anticipate a substantial marketing effort
to achieve its anticipated annual sales levels and estimates its selling costs
as a percentage of revenues to range from 5% to 10%.
The table below summarizes the Company's Homesite inventory by market
area as of December 31, 1997.
<TABLE>
<CAPTION>
Homesite Inventory
------------------
(in number of homesites)
----------------------------------------------------------------
Homesites Permitted-
Finished Under Undeveloped Total
Market Area Homesites Development Homesites Homesites
----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Orlando
Lakeside Estates 164 12 495 671
Saxon Woods - 67 341 408
FALCON TRACE 221 - 628 849
Tampa Bay
West Meadows 90 93 853 1,036
Naples/Fort Myers
West Bay Club - - 523 523
Broward County
SUNSET LAKES - 354 1,158 1,512
COUNTRY LAKES 1,116 1,116
Sarasota
Sabal Trace 79 - - 79
Dallas
Trails of West Frisco - - 1,641 1,641
Raleigh/Durham
CARY GLEN - 61 856 917
--- --- ----- -----
Total Subdivision* 554 587 7,611 8,752
=== === ===== =====
</TABLE>
- --------------
Note: Projects listed in italics are JV Projects not "controlled" by the
Company, and, therefore, according to GAAP they are not carried as real estate
assets in the Company's financial statements.
* These numbers include inventory from JV Projects not consolidated under GAAP.
As of December 31, 1997 and 1996, the Company had pending Homesite
sales contracts for its wholly owned projects totaling approximately $24.7
million (869 Homesites) and $15.2 million (616 Homesites), respectively. In
addition, as of December 31, 1997, the Company's JV Projects had 3,389
14
<PAGE>
Homesites under contract with 10 homebuilders, totaling approximately $85.0
million in future gross revenue in which the Company will share as a joint
venturer.
ORLANDO AREA
LAKESIDE ESTATES. During 1994 and 1995, the Company acquired Lakeside
Estates, which consists of 295 acres, for $10.2 million, of which $5.7 million
was financed through an acquisition and development loan. Lakeside Estates is
permitted for 1,389 residential Homesites. 708 Homesites had closed as of
December 31, 1997. Lakeside Estates was one of the top three selling projects in
Orlando in 1997 and was fifth in the Orlando market in terms of single family
housing permits issued.
Lakeside Estates produces annual sales of approximately 200 to 250
Homesites with sales prices ranging from $16,500 to $23,000. As of December 31,
1997, Lakeside Estates had 174 Homesites under contract with 3 homebuilders
totaling approximately $3.6 million in future gross revenue. Substantially all
of the Homesites under development are under contract with third party
homebuilders.
SAXON WOODS. In August 1997, the Company acquired Saxon Woods, which
consists of 127 acres of residential property, for approximately $2.9 million,
of which $1.3 million was financed by an acquisition loan secured by a mortgage
on the property. Saxon Woods is anticipated to yield 408 Homesites. Saxon Woods
is situated to serve the moderately priced home market. Initial sales are
anticipated in 1998 with annual sales of approximately 80 Homesites with sales
prices ranging from $21,500 to $32,500.
FALCON TRACE. In April 1996, the Company acquired an interest in the
Falcon Trace JV Project. Falcon Trace consists of approximately 390 acres of
residential property. The Company acquired Falcon Trace for approximately $5.3
million, of which $2.4 million was paid in cash and the balance of $2.9 million
was financed by Cypress Realty Limited Partnership ("Cypress") through an
acquisition loan secured by a mortgage on the property. The acquisition loan was
converted into a limited partnership with Cypress in December 1996. The Company
has a 65% interest in the Falcon Trace JV Project after expenses and fixed
returns to the partners.
Falcon Trace is planned for approximately 878 single family Homesites
ranging in price from $27,500 to $38,000. As of December 31, 1997, Falcon Trace
had 410 Homesites under contract with 3 homebuilders, totaling approximately $13
million in future gross revenue.
TAMPA BAY
WEST MEADOWS. In February 1995, the Company acquired West Meadows,
consisting of approximately 900 acres, for $5 million, of which $1.5 million was
paid in cash and the balance of $3.5 million was financed through a mortgage
securing the property. In April 1996, the Company acquired an additional 240
acres for approximately $2.1 million, of which $1.8 million was financed by the
seller through a note secured by a mortgage on the property.
The combined acreage in West Meadows of approximately 1,140 acres is
permitted for approximately 1,330 Homesites, of which 294 have closed as of
December 31, 1997. West Meadows is being developed in phases. As of December 31,
1997, West Meadows had 280 Homesites under contract with 6 homebuilders totaling
approximately $7.3 million in future gross revenue. West Meadows generates
approximately 150-200 Homesites sales annually, with sales prices ranging from
$23,000 to $33,000. Substantially all of the Homesites under development are
under contract with third party homebuilders.
NAPLES/FORT MYERS
WEST BAY CLUB. During 1995 through 1997, the Company acquired West Bay
Club, which consists of approximately 868 acres of residential property in
Naples/Fort Myers. The West Bay Club project is anticipated to yield
approximately 520 single-family Homesites and 578 high-rise condominium units.
West Bay Club is designed as an upscale golf course community with a large
portion of the development to be left in its natural state.
15
<PAGE>
BROWARD COUNTY
SUNSET LAKES. The Company is a partner in the Sunset Lakes JV Project.
The JV Project owns Sunset Lakes, which consists of approximately 1,945 acres.
Sunset Lakes is a master planned community which will consist of approximately
1,512 single-family Homesites and 263 multi-family Homesites. The Company
obtained development permits in 1996 and 1997, and is currently developing the
site and selling improved land. The Company will develop Sunset Lakes in phases
and will expend development costs when substantially all of the Homesites in a
phase are under contract with third party homebuilders.
As of December 31, 1997, the Sunset Lakes JV Project had 1,052
Homesites under contract with 5 homebuilders totaling approximately $48.3
million in future gross revenue. The Company's percentage interest in the
profits and losses of the Sunset Lakes JV Project is 65%. In addition, the
Company is entitled to a fee equal to 4% of the development costs, as defined in
the Sunset Lakes JV Project.
COUNTRY LAKES. In September 1995, the Company became a limited partner
of Country Lakes JV Project. The JV Project, a Virginia limited partnership,
owns approximately 1,750 acres formerly known as Viacom/Blockbuster Park. This
JV Project does not require the Company to make any substantial cash investment
but capitalizes on the Company's planning and community development expertise.
The Company accounts for the Country Lakes JV Project under the equity method.
Subject to the partner's minimum return, the Company's percentage interest in
the profits of the Country Lakes JV Project is 20 to 25%. In addition, the
Company entered into a development management agreement with the JV Project to
provide day-to-day management, development, marketing and sales coordination.
The Company is entitled to receive a management fee of 3.5% of all gross
revenues as defined in the Country Lakes JV Project agreement. This project is
planned for three product types including (1) 808 acres of residential property,
(2) a 117-acre commerce center and (3) a 175-acre mixed use site. As of December
31, 1997, Country Lakes had 1,927 Homesites under contract with 1 homebuilder
totaling approximately $23.8 million in future gross revenue.
SARASOTA
SABAL TRACE. The Company has obtained required permits for this
164-acre parcel which was selected from the Company's existing Predecessor Asset
inventory. The parcel is located adjacent to the Sabal Trace golf course in the
community of North Port. The Company developed 107 Homesites and, in 1997, sold
the remaining 94 acres in bulk.
DALLAS
TRAILS OF WEST FRISCO. The Company purchased Trails of West Frisco,
which consists of 632 acres, in late 1997 and is constructing a community
planned for over 1,600 Homesites and a golf course. The Company has contracts
with several builders and broke ground for land development in the fourth
quarter of 1997. As of December 31, 1997, Trails of West Frisco had 415
Homesites under contract with 4 homebuilders totaling approximately $13.7
million in future gross revenue.
RALEIGH/DURHAM
CARY GLEN. In December 1996, the Company became a limited partner in
the Panther Creek JV Project, a North Carolina limited partnership formed to
acquire and develop Cary Glen, an $8.0 million residential real estate tract
consisting of approximately 660 acres located near Raleigh/Durham, North
Carolina. Cary Glen is planned for 822 single family Homesites and up to 310
multi-family Homesites. The Panther Creek JV Project represents the Company's
first new residential project outside the Florida market. The Panther Creek JV
Project agreement does not require the Company to make any substantial cash
investment, but, instead, capitalizes on the Company's planning and community
development expertise. The Company's interest in the net cash flows of this JV
Project is 40%. In addition, the Company has entered into a development
management agreement with the Panther Creek JV Project to provide development
and
16
<PAGE>
marketing services to this JV Project pursuant to which the Company is entitled
to receive compensation of 2% percent of all project revenues, as defined in the
JV Project agreement.
PREDECESSOR HOMESITE SALES
The Company has a substantial inventory of developed Predecessor
Homesites which have all required road and drainage improvements. Predecessor
Homesites are considered buildable if they are in areas where well and septic
systems can be utilized or have central utility service improvements required
for a purchaser to obtain a building permit ("Buildable Predecessor Homesites").
The table below summarizes the Company's Predecessor Homesite sales by
secondary market area for the three years ended December 31, 1997.
<TABLE>
<CAPTION>
Predecessor Homesite Sales Summary
----------------------------------
(dollars in thousands)
1997 1996 1995
-------------------------- ------------------------- ------------------------
Secondary Predecessor Predecessor Predecessor
Market Area Homesites Amount Homesites Amount Homesites Amount
- ----------- --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Treasure Coast
Port St. Lucie 173 $ 1,539 297 $ 1,716 65 $ 1,099
Melbourne
Port Malabar 1,524 2,738 1,305 3,425 1,114 5,362
Other Communities 91 664 60 579 163 1,244
Sarasota
Port Charlotte 419 1,094 846 3,600 167 926
North Port 905 1,647 97 566 123 371
Other Areas
Port LaBelle 1 12 9 52 5 41
Silver Springs Shores 276 1,030 76 558 105 727
Cumberland Cove 132 1,554 213 4,324 194 4,182
----- ------- ----- ------- ----- -------
Total 3,521 $10,278 2,903 $14,820 1,936 $13,952
===== ======= ===== ======= ===== =======
</TABLE>
As of December 31, 1997 and 1996, the Company had pending Predecessor
Homesite sales contracts totaling approximately $806,000 (129 Predecessor
Homesites) and $1.2 million (475 Predecessor Homesites), respectively.
Predecessor Homesite sales decreased in 1997 due to a 43.1% decrease in
the average sales price per Predecessor Homesite, partially offset by a 21.3%
increase in the number of Predecessor Homesites sold. The decrease in the
average sales price was principally due to (1) a 38% decrease in the number of
Predecessor Homesites sold in Cumberland Cove, the Company's highest priced
Predecessor Homesite community, and (2) a 43% increase in bulk sales of
Predecessor Homesites in Florida. The volume of Predecessor Homesites sold in
Cumberland Cove decreased in 1997 because the project was winding down and, the
Company closed its on-site sales operation in September 1997. The Company will
continue to attempt to supplement Predecessor Homesite sales with bulk sales in
accordance with its plan to accelerate
17
<PAGE>
the sale of Predecessor Assets. The Company's marketing and other selling costs
for Predecessor Homesites sold to homebuilders generally range from 15% to 25%
of the related revenues.
The table below summarizes the Company's Predecessor Homesite inventory
by secondary market area as of December 31, 1997.
<TABLE>
<CAPTION>
Predecessor Homesite Inventory Summary
--------------------------------------
(in homesites)
Standard Buildable Other
Buildable Other Reserved Restricted Total
Secondary Predecessor Developed Predecessor Predecessor Predecessor
Market Area Homesites Lots (1) Homesites (2) Homesites (3) Homesites
- ----------- ----------- --------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Treasure Coast
Port St. Lucie 234 29 354 64 681
Melbourne
Port Malabar 456 18 1,780 1,522 3,776
Other Communities 98 - 70 5 173
Sarasota
Port Charlotte 401 82 2,094 347 2,924
North Port 1,955 9 1,830 131 3,925
Other Areas
Port LaBelle 68 - 23 1,891 1,982
Silver Springs Shores 2,454 91 230 287 3,062
Cumberland Cove 218 - - 9 227
----- --- ----- ----- ------
Total 5,884 229 6,381 4,256 16,750
===== === ===== ===== ======
</TABLE>
- --------------
(1) Includes commercial/industrial and other premium lots.
(2) Includes 6,000 lots held for Utility Reserves (see "RECEIVABLE
PORTFOLIO MANAGEMENT" below) and other portfolio management use.
(3) Represents Predecessor Homesites which may not be Buildable Predecessor
Homesites due to lack of utility availability or engineering or title
issues, and may only be sold under certain conditions. The Company's
inventory of Predecessor Homesites that are not buildable has declined
and is expected to decline further as currently non-buildable
Predecessor Homesites become buildable. These Predecessor Homesites
become buildable as the communities in which these lots are located
grow and extend utility services to these lots and the Company
satisfies title or engineering issues with respect to these lots. The
Company's plans are to continue to take the appropriate actions to
convert these lots to Buildable Predecessor Homesites consistent with
market demand and to monetize these assets and repay debt.
18
<PAGE>
Summarized below is information regarding the Company's significant
communities in each market area.
TREASURE COAST AREA
PORT ST. LUCIE. Port St. Lucie is located in southern St. Lucie County
between the cities of Fort Pierce and Stuart. The original Port St. Lucie
development forms most of what is now the city of Port St. Lucie, which was
incorporated in 1961. The city has approximately 48,700 acres containing an
estimated 70,000 platted lots and 24,500 homes.
MELBOURNE
PORT MALABAR. Port Malabar is located on the east coast of Florida,
primarily within the City of Palm Bay. The City of Palm Bay has a current
population of approximately 75,000 permanent residents.
OTHER COMMUNITIES. The Company owns additional inventory in the
following smaller Florida communities: (i) Port St. John, located in Brevard
County; (ii) Sebastian Highlands, located within the City of Sebastian; and
(iii) Vero Beach Highlands/Vero Shores, located approximately five miles south
of Vero Beach.
SARASOTA
PORT CHARLOTTE. Port Charlotte is located in northern Charlotte County,
halfway between Fort Myers and Sarasota. Development began in the mid 1950's and
is comprised of approximately 47,000 acres. Port Charlotte has a current
population of approximately 90,000 permanent residents.
NORTH PORT. North Port is located north of Port Charlotte in Sarasota
County. This community was incorporated in 1959 and consists of approximately 76
square miles. Geographically, North Port is the third largest city in size in
the state, but has a population of only 15,000 residents.
OTHER AREAS
PORT LABELLE. Port LaBelle, originally planned as a 31,500-acre
residential community, is located in Hendry and Glades counties in southwest
Florida. It has a current population of approximately 2,400 residents. The
Company converted approximately 22,000 acres of its inventory in this community
from residential to agricultural use.
SILVER SPRINGS SHORES. Silver Springs Shores, a 17,300-acre community,
is located in the southeastern Ocala area. This community has a current
population of approximately 11,000 residents.
CUMBERLAND COVE. Cumberland Cove, a 21,700-acre community, is located
in the plateau of the Cumberland Mountains midway between Nashville and
Knoxville, Tennessee. The wooded area features a variety of large lake and bluff
view lots suitable for building vacation and retirement homes. The community
includes 135 homes, a nine hole golf course and a small commercial area.
TRACT SALES
The Company's most significant recurring revenue source during the past
three years has been from the sale of Tracts and Predecessor Tracts to
governmental authorities, private users and third party investors. The Company
sells Tracts and Predecessor Tracts either for cash or with seller financing
typically structured with a minimum 20% cash down payment with an
interest-bearing note and mortgage securing the balance of the purchase price
which note typically matures within three to five years. During 1997 and 1996,
approximately 77% and 75%, respectively, of the Company's aggregate Tract and
Predecessor Tract sales were for cash.
19
<PAGE>
Tracts and Predecessor Tracts are currently marketed by independent
brokers. The Company discontinued its in-house sales operation in January 1998.
Due to variations in the timing and size of the Tracts and Predecessor Tracts
being sold, revenue from Tract and Predecessor Tract sales may vary
significantly from quarter to quarter. As of December 31, 1997 and 1996, the
Company had pending Tract and Predecessor Tract sales contracts totaling
approximately $3.4 million (1,806 acres) and $18.1 million (6,686 acres),
respectively.
The table below summarizes the Company's Tract and Predecessor Tract
sales by market area for the three years ended December 31, 1997.
<TABLE>
<CAPTION>
TRACT AND PREDECESSOR TRACT SALES SUMMARY
-----------------------------------------
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1997
----------------------------
Commercial/ Undeveloped
Industrial Residential Institutional Agricultural Total
-------------- -------------- -------------- ------------- --------------
Market Area Acres Amount Acres Amount Acres Amount Acres Amount Acres Amount
----------- ----- ------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tampa Bay
West Meadows
(Tract) - $ - 16 $ 590 - $ - - $ - 16 $ 590
Treasure Coast
Port St. Lucie
(Predecessor Tract) 152 2,592 1,269 3,176 279 1,515 - - 1,700 7,283
Melbourne Area
Port Malabar
(Predecessor Tract) 142 1,770 174 1,383 101 449 - - 417 3,602
Other Communities
(Predecessor Tract) - - 376 1,926 4 13 - - 380 1,939
Sarasota
Sabal Trace
(Tract) - - 94 509 - - - - 94 509
Port Charlotte
(Predecessor Tract) 78 2,856 393 2,366 15 82 - - 486 5,304
North Port
(Predecessor Tract) 651 2,818 681 2,667 188 568 - - 1,520 6,053
Other Areas
Port LaBelle
(Predecessor Tract) 502 2,317 141 402 - - 4,242 4,030 4,885 6,749
----- ------- ----- ------- --- ------- ----- ------- ----- -------
Total 1,525 $12,353 3,144 $13,019 587 $ 2,627 4,242 $ 4,030 9,498 $32,029
===== ======= ===== ======= === ======= ===== ======= ===== =======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------
Commercial/ Undeveloped
Industrial Residential Institutional Agricultural Total
-------------- --------------- --------------- -------------- ---------------
Market Area Acres Amount Acres Amount Acres Amount Acres Amount Acres Amount
----------- ----- ------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jacksonville
Julington Creek
Plantation
(Tract) 42 $ 164 2,923 $11,438 - $ - - $ - 2,965 $11,602
Tampa Bay
West Meadows
(Tract) - - 34 1,333 - - - - 34 1,333
Treasure Coast
Port St. Lucie
(Predecessor Tract) 206 1,796 2,309 8,777 254 1,344 - - 2,769 11,917
Melbourne Area
Port Malabar
(Predecessor Tract) 150 1,140 174 1,893 5 43 - - 329 3,076
Other Communities
(Predecessor Tract) 70 775 274 1,280 3 8 - - 347 2,063
Sarasota
Port Charlotte
(Predecessor Tract) 498 8,109 426 5,068 186 580 - - 1,110 13,757
North Port
(Predecessor Tract) 194 2,384 485 1,653 94 678 - - 773 4,715
Other Areas
Port LaBelle
(Predecessor Tract) 10 159 4 36 - - - - 14 195
Silver Springs
Shores
(Predecessor Tract) 345 630 1,393 2,080 335 493 - - 2,073 3,203
Cumberland Cove
(Predecessor Tract) - - 4,083 1,832 - - - - 4,083 1,832
------ ------- ------ ------- --- ------- ---- ------- ------- -------
Total 1,515 $15,157 12,105 $35,390 877 $ 3,146 - $ - 14,497 $53,693
====== ======= ====== ======= === ======= ==== ======= ======= =======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------
Commercial/ Undeveloped
Industrial Residential Institutional Agricultural Total
----------------- ---------------- ---------------- ------------------ -----------------
Market Area Acres Amount Acres Amount Acres Amount Acres Amount Acres Amount
----------- ----- ------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Treasure Coast
Port St. Lucie
(Predecessor Tract) 65 $ 817 392 $ 2,874 81 $ 691 - $ - 538 $ 4,382
Melbourne
Port Malabar
(Predecessor Tract) 47 1,931 761 950 4 26 - - 812 2,907
Other Communities
(Predecessor Tract) 16 210 161 776 3 36 - - 180 1,022
Sarasota
Port Charlotte
(Predecessor Tract) 69 1,856 1,763 5,768 634 1,515 - - 2,466 9,139
North Port
(Predecessor Tract) 198 1,589 2,566 3,906 98 389 5,980 6,324 8,842 12,208
Other Areas
Port LaBelle
(Predecessor Tract) - - - - - - 1,116 1,381 1,116 1,381
Silver Springs
Shores
(Predecessor Tract) 4 16 - - - - - - 4 16
--- ------ ----- ------- --- ------ ----- ------ ------ -------
Total 399 $6,419 5,643 $14,274 820 $2,657 7,096 $7,705 13,958 $31,055
=== ====== ===== ======= === ====== ===== ====== ====== =======
</TABLE>
22
<PAGE>
The table below summarizes the Company's Tract and Predecessor Tract
acreage by market area and current approved land use as of December 31, 1997.
<TABLE>
<CAPTION>
Tract and Predecessor Tract Inventory Summary
---------------------------------------------
(in acres)
Commercial/ Undeveloped
Market Area Industrial Residential Institutional Agricultural Total
----------- ---------- ----------- ------------- ------------ -----
<S> <C> <C> <C> <C> <C>
Tampa Bay
West Meadows
(Tract) 26 - - - 26
Broward County
SUNSET LAKES 10 - - - 10
(Tract)
COUNTRY LAKES
(Tract) 140 128 - - 268
Treasure Coast
Port St. Lucie
(Predecessor Tract) 30 248 167 - 445
Melbourne Area
Port Malabar
(Predecessor Tract) 150 1,606 730 - 2,486
Other Communities
(Predecessor Tract) 6 27 12 - 45
Sarasota
Sabal Trace
(Tract) - 15 - - 15
Port Charlotte
(Predecessor Tract) 105 418 1,084 - 1,607
North Port
(Predecessor Tract) 122 406 397 - 925
Other
Port LaBelle
(Predecessor Tract) 91 260 146 14,989 15,486
Silver Springs Shores
(Predecessor Tract) 30 6 3 - 39
Cumberland Cove
(Predecessor Tract) - 685 1,881 - 2,566
--- ----- ----- ------ ------
Total* 710 3,799 4,420 14,989 23,918
=== ===== ===== ====== ======
- ----------------
Note: Projects listed in italics are JV Projects not "controlled" by the
Company, and, therefore, according to GAAP they are not carried as real estate
assets in the Company's financial statements.
* These numbers include inventory from JV Projects not consolidated under GAAP.
</TABLE>
The acreage owned by the Company will either be sold as is, sold in
bulk after approval of new land uses or development designs or developed and
used in the Company's Homesite business.
PORT LABELLE AGRICULTURAL ACREAGE. In recent years, southwest Florida
has become the center for production of new citrus groves in Florida because of
its climatically desirable location. During the mid-to-late 1980's, Hendry,
Glades, Collier, Lee and Charlotte Counties experienced substantial growth in
citrus grove development, with aggregate planting of approximately 10,000 to
12,000 acres of groves annually.
The Company determined that the highest and best use for substantially
all of its remaining undeveloped residential Port LaBelle acreage was to convert
it to agricultural use. In 1992, the Company began efforts to replan and obtain
permits to convert approximately 22,000 acres to citrus grove and other
agricultural uses. During 1993, the Company completed the water use permitting
process and created 23 separate agricultural basins ranging from approximately
300 to 2,300 acres per basin. In late 1994, the Company received final approval
for the sale of this property. The Company sold 872 acres in 1994, 1,116 acres
in 1995 and 4,242 acres in 1997, with the remaining balance of approximately
15,000 acres anticipated to be sold in the near term. The Company's targeted
gross margin for this property is approximately break even.
23
<PAGE>
Historical averages of the per acre Tract and Predecessor Tract sales
price within a particular zoning category are not necessarily indicative of
expected sales values to be achieved in the future. The average sales prices per
acre for Tracts and Predecessor Tracts can vary significantly based on numerous
factors which include general real estate market conditions, location within the
market area, stage of development, environmental conditions and the number of
net usable acres. Tract and Predecessor Tracts sales are expected to continue to
be a significant source of revenue in the near term due to the Company's plan to
aggressively market Predecessor Tracts.
RESIDENTIAL SALES
Residential sales include the construction and sale of single family
homes and oceanfront condominium units. The Company has historically constructed
single family homes. However, in mid-1995, the Company decided to begin phasing
out its single family home business in Predecessor communities and substantially
completed the withdrawal from this business in 1996. During 1993, the Company
entered the luxury oceanfront condominium market through the acquisition of a
parcel located on Hutchinson Island, Florida and constructed Regency Island
Dunes. The Company completed construction and sold out Regency Island Dunes in
1997 and anticipates commencing presales on the first building in Jupiter Ocean
Grande in the 1998-1999 selling season. In 1998, the Company intends to begin
construction of Riverwalk Tower, its first luxury apartment tower.
All of the Company's residential sales are for cash. All purchasers
requiring financing obtain loans from independent financial institutions. Most
of the Company's residential sales are generated through local marketing
programs using an in-house sales staff and local brokers.
CONDOMINIUM SALES
During 1993, the Company was presented with an opportunity to enter the
luxury condominium market through the purchase of Regency Island Dunes ("Regency
Island Dunes"). The Company strengthened its position in this market, with the
addition of Jupiter Ocean Grande in 1995. This segment of the residential
construction market appears to have the potential to become a profitable
business line for the Company. The Company markets this product locally,
augmented by some regional and national advertising. Generally, the Company will
begin construction of a condominium phase on a fixed price contract with
independent general contractors only after approximately 50% of the units in
that phase have been pre-sold with non-refundable earnest money deposits.
REGENCY ISLAND DUNES. In 1993, the Company acquired this parcel located
on Hutchinson Island, Florida, for approximately $4.1 million in cash.
Hutchinson Island is located in St. Lucie County. Regency Island Dunes is part
of Island Dunes, a golf course and condominium community with 2,700 feet of
frontage on the Atlantic Ocean and the Intracoastal Waterway. This parcel was
permitted for construction of two 72-unit high rise condominium buildings. The
construction of the buildings was completed in 1997, and all of the units in
both buildings were sold and closed as of December 31, 1997. The revenues
associated with Regency Island Dunes condominium sales were recorded using the
percentage of completion method and are summarized as follows for the years
ended December 31 (in thousands of dollars):
1997 1996 1995
---- ---- ----
Condominium sales - Regency Island Dunes:
First building $ 1,620 $ 3,008 $17,989
Second building 9,288 14,801 -
------- ------- -------
Total condominium sales $10,908 $17,809 $17,989
======= ======= =======
24
<PAGE>
The revenues of approximately $18 million in 1995 were derived from 61
units under contract in the first building as of December 31, 1995 with
construction on the first building 97% complete. The condominium revenues of
$3.0 million in the first building in 1996 represented the incremental revenue
earned upon the completion of 59 of the 61 units in 1996 and the sale and
closing of an additional eight units in 1996. The condominium revenues of $1.6
million in the first building in 1997 represented revenue earned upon the
closing of an additional five units in 1997 for a total of 72 units sold and
closed in the first building. The revenues of approximately $14.8 million in the
second building in 1996 were derived from 56 units under contract as of December
31, 1996, with construction on the second building 79% complete. The revenues of
approximately $9.3 million in the second building in 1997 were derived from an
increase in the completion percentage from 79% to 100% in 1997, and to an
additional 16 units sold and closed in 1997 for a total of 72 units sold and
closed in the second building.
JUPITER OCEAN GRANDE. In January 1995, the Company acquired a two-acre
parcel in a six-acre project known as Jupiter Ocean Grande. In June 1995, an
unaffiliated third party acquired a 50% JV Project interest in Jupiter Ocean
Grande for $4.3 million, $1.8 million of which was paid in June 1995, $2 million
of which was paid in January 1996, when the JV Project acquired the remaining
four acres for $2.2 million in cash, and a $0.5 million credit for reimbursable
JV Project expenses. Jupiter Ocean Grande is a condominium community consisting
of 155 units directly across from the ocean. The project was re-planned in 1997
to conform with modified market demand. This re-plan has met with resistance
from local governmental jurisdictions and the Company filed suit against the
Town of Jupiter to challenge the Town's denial of the re-plan. On March 23,
1998, the Appellate Division of the Fifteenth Judicial Circuit in and for Palm
Beach County, Florida ruled in the Company's favor. The Company intends on
pursuing final approval of the re-plan from the Town.
LUXURY APARTMENT TOWER
In 1997, the Company acquired Riverwalk Tower, a 2.8 acre parcel in
Fort Lauderdale's central business district, which is currently being planned
for a 373-unit luxury apartment tower and a second mixed-use tower for office
and hotel uses. The Company is currently entertaining offers from other
developers for the 1.2 acre office/hotel site, but intends to remain as the
owner/developer of the apartment tower. The Company anticipates starting
construction of the apartment tower in the third quarter of 1998.
SINGLE FAMILY HOME SALES
In 1995, the Company decided to begin phasing out its single family
home sales operation in Predecessor communities and substantially completed the
withdrawal during 1996. The Company may seek to re-enter the single family home
business in Primary Market areas where this business would complement current or
potential land development activities. The Company may seek to acquire
demonstrated homebuilding expertise in order to re-enter the single family home
construction business.
25
<PAGE>
The table below summarizes the Company's single family home sales by
market area for the three years ended December 31, 1997.
<TABLE>
<CAPTION>
Single Family Home Sales
------------------------
(dollars in thousands)
1997 1996 1995
---- ---- ----
Market Area Units Amount Units Amount Units Amount
- ----------- ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C>
Treasure Coast
Port St. Lucie - $ - 12 $1,213 28 $3,402
Melbourne
Port Malabar - - 11 833 24 2,289
Hidden Glen at Suntree - - - - 9 833
Other Areas 1 76 13 1,107 48 3,229
-- --- --- ----- --- ------
Total 1 $76 36 $3,153 109 $9,753
== === === ====== === ======
</TABLE>
The Company's single family home inventory as of December 31, 1997
consisted of two completed units, neither of which were under contract as of
December 31, 1997. As of December 31, 1996, the Company had three completed
single family home units, none of which were under contract.
OTHER BUSINESSES
The Company has entered into several contracts to provide development
and/or administrative management services. These services are to be provided to
certain JV Projects in which the Company has a JV interest. The Company is
entitled to receive (1) a fee equal to 4% of the development costs of the Sunset
Lakes JV Project, (2) compensation equal to 2% of all project revenues from the
Panther Creek JV Project, and (3) 3.5% of all gross revenues for services to the
County Lakes JV Project.
SPECIAL OPPORTUNITIES. The Company will, under certain circumstances,
undertake special opportunities outside its normal operations. For example, in
1993, the Company entered into a Sino-Foreign equity joint venture with a
quasi-governmental entity in the City of Nanjing, China (the "Ya Dong JV
Project"), giving the Company a 50% JV interest. The Ya Dong JV Project provides
for the phased development of approximately 4,000 agricultural acres located
within the city limits of Nanjing into a new, mixed-use city center. The Chinese
partner's capital contribution is the land use rights for the property, and the
Company's committed capital contribution is $10 million. As of December 31,
1997, the Company had contributed approximately $6.0 million to the Ya Dong JV
Project. The Company does not anticipate making any material capital
contributions in 1998. The Company has made a proposal to its JV partner to
transfer 35% of its 50% interest in the Ya Dong JV Project to its partners in
return for a note receivable in the amount of $2.25 million. The Company would
retain a 15% interest in the Ya Dong JV Project. Due to the uncertainty
associated with the collection of this proposed receivable, the Company
established an inventory valuation reserve in the amount of $1.9 million.
Consequently, the Company's net investment in the Ya Dong JV Project is carried
at $0.
RECEIVABLE PORTFOLIO MANAGEMENT. The Company is actively engaged in the
management and collection of a portfolio of contracts receivable originated by
the Predecessor Company's installment sales program (the "Predecessor Homesite
Contracts Receivable"). The Company collected for its own account
26
<PAGE>
a total of approximately $4.6 million in principal and interest payments on the
Predecessor Homesite Contracts Receivable during 1997. As of December 31, 1997,
the portfolio of Predecessor Homesite Contracts Receivable had a remaining face
value of $7.3 million. In January 1997, the Company closed on a $7.5 million
financing of a portion of its Predecessor Homesites Contracts Receivable
portfolio. The Company also services a land mortgage receivable portfolio with a
face value of $30 million as of December 31, 1997, which was generated in
connection with the Company's Tract sales line of business, and approximately
$140,000 of homesite contracts receivable for others.
At December 31, Predecessor Homesite Contracts Receivable consisted of
the following (in thousands of dollars):
1997 1996
---- ----
Contracts receivable, gross $7,347 $11,779
Reserve for estimated future cancellations,
net of estimated land recoveries (244) (584)
Valuation discounts to yield 15% (767) (1,546)
------ -------
$6,336 $ 9,649
====== =======
Stated interest rates on Predecessor Homesite Contracts Receivable
outstanding at December 31, 1997 and 1996 ranged from 4% to 12.5% (averaging
approximately 7.0%). The original terms of these contracts were 10 to 12 years,
and at December 31, 1997 and 1996, approximately 19% and 18%, respectively, of
such Predecessor Homesite Contracts Receivable were delinquent. Predecessor
Homesite Contracts Receivable are classified as delinquent if their monthly
payment is more than 30 days past due. The percentage of delinquent accounts is
not indicative of the percentage of accounts that subsequently cancel. The
cancellation rates for 1997 and 1996 were, respectively, 4.3% and 6.3%. The
Company has established the reserve for estimated future cancellations and the
reserve for Predecessor Homesite Contracts Receivable termination refunds based
on its actual cash collections and actual cancellations.
Pursuant to certain reorganization-related agreements between the
Predecessor Company and the State of Florida, Department of Business Regulation,
Division of Florida Land Sales, Condominiums and Mobile Homes (the "Division of
Florida Land Sales") concerning purchasers who have received or will receive
deeds in connection with the Predecessor Company's sales program, the Company
established a series of trust accounts (collectively, the "Utility Trusts") and
a "Utility Reserve" to satisfy the Company's obligations to provide Buildable
Predecessor Homesites to such purchasers when they are ready to construct a
house. The Utility Trusts were funded with cash, shares of Common Stock and
notes based on estimates of the costs of future improvement obligations.
Beginning in 1994, the amount of cash, securities and Buildable Predecessor
Homesites set aside for such purposes was subject to review and adjustment. In
December 1996, pursuant to a review of the Utility Trusts, it was determined
that approximately $12.1 million in cash, $4.2 million of Unsecured 12% Notes
and $2.0 million of Unsecured 13% Cash Flow Notes could be recovered from these
trust accounts. As of December 31, 1997, approximately $3.4 million in CASH,
147,910 shares of stock and a lot reserve of 6,000 lots remained in the trusts.
The Company believes the remaining property currently held in trusts is more
than sufficient to meet all future improvement obligations required under the
terms of the settlements.
ENVIRONMENTAL SERVICES. EQL, a wholly owned subsidiary of the Company,
is a full service ecological consulting firm and laboratory. It performs water
and soil testing and environmental assessments for the Company and third
parties, including both governmental and private entities, acts as the primary
surface water laboratory for three regional Water Management Districts
(government), performs environmental chemistry analyses for the Florida Concrete
Products Association (industry), the Florida Sugar Cane Growers Co-op
(agriculture) and numerous marina projects (development) and performs wetlands
mitigation, monitoring and exotic control for numerous public and private
clients. EQ Lab also provides services to the Company and clients in the areas
of hazardous substance testing and site remediation,
27
<PAGE>
endangered species management plans and wetlands identification and mitigation.
EQ Lab's capabilities permit the Company to quickly and cost-effectively assess
and address environmental concerns involving its existing real property assets
and other properties it may seek to acquire.
The following table summarizes revenues recorded by EQL for the years
ended December 31 (in thousands of dollars):
1997 1996 1995
---- ---- ----
Revenues from
affiliated parties $ 94 $ 110 $ 197
Revenues from
unaffiliated parties 1,048 1,065 1,122
------ ----- ------
Total Revenues $1,142 $1,175 $1,319
====== ====== ======
UTILITY OPERATIONS. During the Reorganization Proceedings (see
"History" below) and the formulation of its new business plan, the Company
determined that utility operations were not part of its Core Business and that
its systems should be sold in due course to provide working capital to the
Company. Over the past six years, the Company's seven largest utility systems
were sold to governmental entities, one of which was the subject of condemnation
proceedings until a settlement was reached in March 1996. During 1996, the
Company disposed of its two remaining systems. In February 1996, the Company
sold its Port LaBelle utility system to Hendry County for $4.5 million,
resulting in a gain of $686,000, and, in June 1996, the Company sold its
Julington Creek Plantation utility system for $6.0 million, resulting in a gain
of $696,000. The Company has no remaining interest in any utility assets.
The table below summarizes significant utility financial and operating
information for the three years ended December 31, 1997.
Year Ended December 31,
-----------------------
(dollars in thousands)
1997 1996 1995
---- ---- ----
Operating revenues $ - $1,004 $ 2,328
Operating income (1) $ - $ 289 $ 205
Plant and equipment
(at year end)(2) $ - $ - $ 9,953
Total connections
(at year end) - $ - 3,184
---------------
(1) Operating income represents income before taxes and interest
expense, and excludes other income and expense items.
(2) Net of contributions in aid of construction and accumulated
depreciation.
28
<PAGE>
OTHER OPERATIONS. Other operations consist primarily of the leasing of
non-residential acreage for pasture and farm use and the sale of excess fill
dirt from Company-owned property.
REGULATION
The Company's real estate operations are regulated by various local,
regional, state and federal agencies. The extent and nature of these regulations
include matters such as planning, zoning, design, construction of improvements,
environmental considerations and sales activities. For certain of its projects
in Florida and Tennessee, state laws and regulations may require the filing of
registration statements and copies of promotional materials and numerous
supporting documents and the delivery of an approved disclosure report to
purchasers prior to the execution of a land sales contract. In addition to
Florida and Tennessee, certain states impose requirements relating to the
inspection of properties, approval of sales literature, disclosures to
purchasers of specified information, assurances of future improvements, approval
of terms of sale and delivery to purchasers of a report describing the property.
Federal regulations, under the Interstate Land Sales Full Disclosure Act,
provide for the filing or certification of a registration statement with the
Office of Interstate Land Sales Regulation of the Department of Housing and
Urban Development ("HUD"). The Company's Homesite sales activities are also
subject to the requirements of the Federal Consumer Credit Protection
("Truth-in-Lending") Act.
Local, regional, state and federal environmental laws, regulations and
policies directly affect the Company and its business. The Company has permits
for certain of its development projects, issued by a variety of governmental
entities including local governments, regional water management districts within
the State of Florida, the State of Florida Department of Environmental
Protection, the U.S. Army Corps of Engineers and the U.S. Environmental
Protection Agency. Ongoing permitting obligations may include a range of
environmental, maintenance and monitoring obligations, including water quality
monitoring, surface water management and wetlands mitigation. There is no
assurance that all permits necessary to develop the Company's inventory in
accordance with its plan can be obtained in the future.
A small portion of the Company's land holdings contain residues or
contaminants from current and past activities by the Company, its lessees, prior
owners and operators of the properties and/or unaffiliated parties. Some of
these areas have been the subject of cleanup action by the Company voluntarily
or following the involvement of regulatory agencies. Additional cleanup in the
future also may be required. The Company's business is subject to additional
obligations under the environmental laws, relating to both ongoing operations as
well as past activities. The Company believes, however, that its obligations
under the environmental laws will not have a material adverse affect on its
business, results of operations or financial position.
Certain of the Company's Tract and Predecessor Tract inventory is
subject to permits and regulatory approvals which enhance the marketability of
the property. In some cases, preserving the permits and approvals prior to sale
could require additional development in the future, subject to growth thresholds
such as traffic patterns. To the extent that the Company chooses not to
undertake development work required by a permit or approval for a specific Tract
or Predecessor Tract within the indicated time period, the Company's targeted
gross margins for that Tract or Predecessor Tract could be adversely affected
based upon a revised development plan or land use. The Company's current plan is
to complete all required development obligations on a timely basis with
available working capital, project financing or funds raised in connection with
the formation of governmental taxing or assessment districts.
COMPETITION
Real estate operations, particularly in Florida, are highly
competitive. Competition with respect to Tract and Predecessor Tract sales has
been heightened by the general lack of available bank financing for real estate
acquisition and development which reduces the number of buyers who have the
financial resources and development expertise to transform these tracts into
finished Homesites. For Tract and
29
<PAGE>
Predecessor Tract sales, the Company competes with other real estate sellers for
developers/builders and other real estate investors on the basis of location,
permitted uses, financing and price.
The secondary Florida markets, where the Company's Predecessor
Homesites are located, are also highly competitive. With respect to the sale of
Predecessor Homesites in Florida, there is a significant oversupply of Buildable
Predecessor Homesites developed by the Predecessor Company remaining on the
market. Because the primary buyers for the Buildable Predecessor Homesites are
small independent homebuilders, the Company competes for their business on the
basis of price and location.
In the development and sale of new Homesites, the Company has focused
on acquiring new parcels in Florida's primary markets and in selected primary
markets in the Southeast. The supply of finished lots in the targeted Primary
Markets has been significantly reduced in recent years due to a combination of
several factors, including a reduction in the capital available for the
acquisition and development of new Homesites and a reduction in the number of
real estate developers active in new Homesite acquisition and development. Also,
homebuilders are reluctant to acquire and develop finished Homesites due to a
lack of expertise and the substantial costs associated with carrying finished
inventory. Nevertheless, the Company continues to compete on the basis of price,
product and location with other developers and homebuilders in those markets.
EMPLOYEES
As of February 28, 1998, the Company had approximately 125 full-time
employees and one part-time employee. In addition, the Company employs on a
daily basis such additional personnel as may be required to perform various
other activities. The Company's relations with its employees are satisfactory
and there have been no work stoppages.
HISTORY
Atlantic Gulf and its Predecessors have been operating as community
developers in Florida since 1955. The Predecessor Company was one of the largest
community developers in Florida. In 1990, the Predecessor Company and certain of
its subsidiaries commenced proceedings under Chapter 11 of the Bankruptcy Code
(the "Reorganization Proceedings") to reorganize their businesses. Atlantic
Gulf, as the successor company, emerged from the Reorganization Proceedings
pursuant to a Plan of Reorganization (the "POR") that became effective on March
31, 1992 (the "POR Effective Date"). For further historical discussion of the
Reorganization Proceedings, see Item 1. F. in the Company's 1992 Annual Report
on Form 10-K. As of the POR Effective Date, Atlantic Gulf adopted a new charter
and began developing a business plan for implementation by its new board of
directors and management.
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.
30
<PAGE>
Item 2. Properties
----------
The Company's real estate inventory is described in Item 1. above.
The Company's corporate headquarters are located at 2601 South Bayshore
Drive, Miami, Florida, in approximately 48,000 square feet of leased office
space. The Company is subleasing approximately 17,000 square feet of this office
space to a single tenant as part of its plan to reduce overhead and consolidate
its organization. The lease expires in 1999. The Company is currently
negotiating to renew the lease and reduce the leased office space to
approximately 23,000 square feet to further reduce overhead.
Item 3. Legal Proceedings
-----------------
A. Condemnation Proceedings Involving General Development Utilities,
Inc. and Related Proceedings
- --------------------------------------------------------------------------------
ATLANTIC GULF COMMUNITIES CORPORATION, ET AL. V. LOFTUS, ET AL., Case
No. 94-1931 CA (Charlotte Cty. Cir. Ct.). In December 1994, Atlantic Gulf and
GDU (all references herein to "GDU" are to General Development Utilities, Inc.,
a wholly owned subsidiary of Atlantic Gulf Communities Corporation) filed a
declaratory judgement action in the Circuit Court for the Twentieth Judicial
Circuit in and for Charlotte County against a defendant class based upon a
demand made upon the Company by Richard D. Loftus and others for a portion of
the proceeds from the Charlotte County eminent domain case entitled CHARLOTTE
COUNTY, ET AL. V. GDU, ET AL., Case No. 90-936 (Charlotte Cty. Cir. Ct.) in
which the Charlotte County Circuit Court entered a stipulated Final Judgment
setting full and complete compensation to Atlantic Gulf and GDU for certain
water and wastewater systems taken by Charlotte County in June 1991 totaling
$110 million, $65 million of which was paid as a good faith deposit at the time
of the taking and the balance of which was paid in December of 1994. The demand
made upon the Company was based upon the theory that there exists a class of
property owners in Charlotte County, Florida who have an interest in the
proceeds from the condemnation proceeding because of "contributions in aid of
construction." The case is dormant. No rulings have been made by the Court, and
discovery has not begun in any meaningful way. The parties have, however,
reached an agreement (i) transferring the case from Charlotte County to the
Fifteenth Judicial Circuit Court, Palm Beach County, Florida, (ii) defining the
class and (iii) establishing the method for providing notice to the members of
the class. The Company believes, based on the advice of counsel, that the
defendants' claim has no merit under Florida law. The Company intends to
vigorously pursue the class action suit for declaratory judgement, seeking an
order of the Court that the class members have no interest in the proceeds from
the Charlotte County condemnation case.
B. Retention of Jurisdiction
-------------------------
On March 15, 1995, the Bankruptcy Court entered a final decree in the
GDC bankruptcy case. The Bankruptcy Court does, however, retain jurisdiction
over the Company with respect to various matters, including, among other things,
matters pertaining to (1) the allowance and disallowance of claims and
interests, (2) distributions under the POR, (3) the reduction and maintenance of
claim reserves, (4) appeals from orders entered by the Bankruptcy Court, (5) the
receipt, use or application of condemnation proceeds, (6) utility trusts created
or implemented pursuant to the POR, (7) Section 365(j) liens, (8) the Homesite
Purchaser Assurance Program, (9) Oxford Finance Company's and its affiliates'
chapter 11 bankruptcy and their business practices as they may affect the
Company, (10) the enforcement of all orders entered by the Court and (11) tax
issues arising under the POR.
C. Other Litigation
----------------
FINAL JUDGEMENT OF PERMANENT INJUNCTION. The Company continues to be
bound by a Final Judgment of Permanent Injunction (the "Final Judgment") entered
November 30, 1990, by the United States District Court for the Southern District
of Florida in the civil action UNITED STATES OF AMERICA V. GENERAL DEVELOPMENT
CORPORATION, No. 90-87-Civ-NESBITT. The Final Judgment provides that it will
remain in
31
<PAGE>
effect until November 30, 2000. Its material continuing requirements govern the
Company's conduct with regard to housing and retail Homesite sales. It also
imposes periodic reporting obligations and requires that a responsible officer
of the Company (the "Compliance Officer") oversee compliance with the Final
Judgment, and that the Compliance Officer report to a committee of outside
directors of the Company's board of directors and to a Court-appointed Special
Master. Thomas W. Jeffrey, Executive Vice President and Chief Financial Officer,
has served as the Company's Compliance Officer since September 1991. In July of
1996, upon the Company's Motion to Modify or Grant Early Relief From the
Conditions of the Final Judgment, the U.S. District Court issued an Order
vacating certain portions of the Final Judgment thereby eliminating the
obligation to provide third-party appraisals in connection with housing sales
and certain duplicative prohibitions upon representations which may be made in
connection with retail Homesite and housing sales.
REGENCY ISLAND DUNES. In connection with the construction of Regency
Island Dunes, various disputes arose between the Company's subsidiary, Regency
Island Dunes, Inc. ("Regency"), and the general contractor, Foley and Associates
Construction Company, Inc. ("Foley"), regarding completion of the first phase of
the project containing 72 units. As a result, Foley filed suit in the Circuit
Court of St. Lucie County under the caption of FOLEY AND ASSOCIATES
CONSTRUCTION, INC. V. REGENCY ISLAND DUNES, INC. AND ATLANTIC GULF COMMUNITIES
CORPORATION, Case No. 96-1569-CA-03 (St. Lucie Cty. Cir. Ct.) alleging breach of
the construction contract, claims for lost profits and delay damages as well as
various counts claiming fraudulent transfers of funds from Regency to the
Company. This case was filed by Foley in addition to Foley's demand for
arbitration before the American Arbitration Association as required pursuant to
the terms of the construction contract between Regency and Foley. Regency
asserted counterclaims for Foley's failure to properly staff the job and refusal
to perform corrective work which was performed at Regency's expense. In
addition, in the case styled REGENCY ISLAND DUNES INC. V. FOLEY AND ASSOCIATES
CONSTRUCTION COMPANY, INC., Case No. 96-1532 CA-17 (St. Lucie Cty. Cir. Ct.),
Regency filed its action to discharge the construction lien filed by Foley on
the basis that the lien claim was inflated and was recorded against units which
had previously been conveyed to third party purchasers as well as additional
lands not included within the construction contract between the parties. The
preceding two cases were consolidated and partially stayed pending resolution of
the contract disputes in arbitration. In REGENCY ISLAND DUNES, INC. V. NATIONAL
FIRE INSURANCE COMPANY OF HARTFORD AND FOLEY AND ASSOCIATES CONSTRUCTION
COMPANY, INC., refiled under Case No. 97-14075, U.S.D.C., Southern District of
Florida, Regency filed suit to recover damages against Foley's surety for
corrective work performed by Regency as well as various other claims for damages
asserted by Regency in the arbitration described above. This case was dismissed
by the court on June 5, 1997. The arbitration proceeding commenced on July 1,
1997 and was completed on July 28, 1997. On August 26, 1997, the arbitration
panel entered an award in the amount of $2,839,546 in favor of Foley, and an
award in the amount of $442,000 in favor of Regency with respect to Regency's
counterclaim. Regency filed a motion to vacate and/or modify the arbitration
award on or about November 24, 1997. On December 23, 1997, prior to the hearing
on the motion to vacate and/or modify the arbitration award, the parties entered
into a settlement agreement pursuant to which Regency paid Foley $2,000,000,
releases were exchanged, the lien was satisfied of record and the lawsuit and
arbitration were dismissed.
In addition, based upon a separate construction contract between
Regency and Foley for the construction of the second phase the Regency Island
Dunes Condominium JV Project, Foley filed a demand for arbitration in March 1997
asserting breach of contract relating to change orders, release of retainage and
Foley's requests for extensions of time. The dispute with Foley in connection
with the second phase escalated and Foley filed a claim of lien, which included
retainage, overhead and unauthorized change orders. Regency filed counterclaims
against Foley in the arbitration proceeding for breach of contract and failure
to perform corrective work. In addition, Regency filed an independent action
against Foley for recording a fraudulent lien and a declaratory action seeking
dismissal of Foley's claim in the arbitration for lost profits. On December 28,
1997, the parties entered into a settlement agreement, pursuant to which Regency
paid Foley $850,000, the lien was satisfied of record, releases were exchanged
and the lawsuits and arbitration were dismissed.
32
<PAGE>
OTHER. In addition to those legal proceedings specifically discussed in
this Item 3., the Company is, from time to time, involved in various litigation
matters primarily arising in the normal course of its business. It is the
opinion of management that the resolution of these matters will not have a
material adverse affect on the Company's business or financial position.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
The Company's Common Stock is quoted on the NASDAQ National Market
System under the symbol "AGLF". The following table sets forth the high and low
closing sales prices of the Common Stock for the periods indicated.
1997 1996
Sales Price Sales Price
----------- -----------
Quarter Ended High Low High Low
------------- ---- --- ---- ---
March 31 6 4 1/8 6 3/4 5 3/8
June 30 6 7/8 5 1/2 6 3/8 5 1/2
September 30 6 3/4 5 5/8 6 4 7/8
December 31 6 1/8 3 1/4 5 3/8 3 15/16
HOLDERS. As of March 20, 1998, there were approximately 30,000 record
holders of the Common Stock.
DIVIDENDS. No dividends have been paid on the Common Stock of Atlantic
Gulf during the last two fiscal years, and the Company is prohibited from paying
dividends on its Common Stock by the terms of its Foothill Debt agreements. The
holders of the Preferred Stock are entitled to receive, when, as and if declared
by the Board of Directors, out of funds legally available therefore, cash
dividends on each share of Preferred Stock at an annual rate equal to 20% of the
Liquidation Preference (defined as $10 per share plus accumulated and unpaid
dividends) in effect from time to time. All dividends are cumulative, whether or
not declared, on a daily basis from the date on which the Preferred Stock is
originally issued by the Company, and will be payable, subject to declaration by
the board of directors, quarterly in arrears on March 31, June 30, September 30,
and December 31 of each year commencing on September 30, 1997. As of December
31, 1997, the Series A Preferred Stock Liquidation Preference was $25.3 million,
including undeclared but accumlated and unpaid dividends of $2.0 million and the
Series B Preferred Stock Liquidation Preference was $21.3 million, including
undeclared but accumlated and unpaid dividends of $1.3 million.
Effective June 24, 1997, the Company's stockholders approved an
amendment to the Company's certificate of incorporation to repeal the right of
the holders of its Common Stock to receive, semiannually, mandatory dividends
equal to 25 percent of the Company's Available Cash, as defined (see Note 10).
33
<PAGE>
Item 6. Selected Financial Data
-----------------------
Selected consolidated financial data for each of the five years during
the period ended December 31, 1997 are summarized below (in millions of dollars
except per share amounts):
<TABLE>
<CAPTION>
Years
Ended
December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues $ 76.6 $138.8 $ 98.0 $ 70.3 $ 69.2
Income (loss) from continuing operations
before extraordinary items (58.3) (12.6) (20.6) 1.1 (18.5)
Net income (loss) (58.3) 1.2 (20.6) 1.1 (18.5)
Net income (loss) applicable to common
stock (62.1) 1.2 (20.6) 1.1 (18.5)
Net income (loss) per common share(1) (5.82) .12 (2.12) .11 (1.91)
Weighted average common
shares outstanding 10.66 9.71 9.71 9.64 9.68
- ----------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (AT PERIOD END)
Cash (including restricted amounts) $ 10.9 $ 13.1 $ 12.0 $ 25.0 $ 26.4
Predecessor Homesite Contracts
Receivable and Other Receivables 41.2 73.4 59.8 55.2 69.3
Inventory of land and residential
construction 130.5 153.4 218.3 228.5 228.3
Total assets 203.1 263.4 332.8 348.6 367.2
Notes, mortgages, capital leases and
other debt 132.4 169.2 221.0 190.3 203.3
Stockholders' equity (deficit) 5.3 56.4 54.4 74.7 73.1
</TABLE>
- ------------
(1) The net income (loss) per common share amounts have been restated as
required to comply with Statement of Financial Accounting Standards
No. 128, EARNINGS PER SHARE. For further discussion of earnings per
share and the impact of Statement No. 128, see the Notes to
Consolidated Financial Statements beginning on page F-7.
34
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
-----------------------------------------------------------------------
RESULTS OF OPERATIONS
The Company's results of operations for the years ended December 31,
1997, 1996 and 1995 are summarized by line of business, as follows:
<TABLE>
<CAPTION>
Combining Results of Operations by Line of Business
---------------------------------------------------
Year Ended December 31, 1997
(in thousands of dollars)
Homesite & Tract &
Predecessor Predecessor
Homesite Tract Residential Other Business Administrative
Sales Sales Sales Operations Development & Other Total
----------- ----------- ----------- ------------ ----------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $24,606 $32,029 $10,984 $ $ $ $67,619
Other operating
revenue 790 2,221 3,011
Interest income 4,282 1,736 6,018
---------------------------------------------------------------------------------------------------
Total revenues 25,396 32,029 10,984 6,503 - 1,736 76,648
---------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate
sales 23,372 35,787 13,033 72,192
Inventory valuation
reserves 3,639 10,818 14,457
Selling expense 4,227 3,648 627 8,502
Other operating
expense 1,505 1,505
Other real estate
costs:
Property tax, net 4,615 4,615
Other real estate
overhead 2,131 1,458 696 672 3,452 1,960 10,369
General and
administrative 11,603 11,603
Depreciation 22 61 3 119 489 694
Cost of borrowing,
net 2,435 9,787 12,222
Other expense 705 758 1,463
---------------------------------------------------------------------------------------------------
Total costs and expenses 34,096 51,772 14,359 4,731 4,210 28,454 137,622
---------------------------------------------------------------------------------------------------
Operating income (loss) (8,700) (19,743) (3,375) 1,772 (4,210) (26,718) (60,974)
---------------------------------------------------------------------------------------------------
Other income (expense):
Reorganization
reserves 1,063 2,467 3,530
Miscellaneous (96) (806) (902)
---------------------------------------------------------------------------------------------------
Total other income
(expense) - - - 967 - 1,661 2,628
---------------------------------------------------------------------------------------------------
Net income (loss) (8,700) (19,743) (3,375) 2,739 (4,210) (25,057) (58,346)
---------------------------------------------------------------------------------------------------
Less:
Accrued preferred
stock dividends 3,296 3,296
Accretion of
preferred stock to
redemption amount 427 427
---------------------------------------------------------------------------------------------------
- - - - - 3,723 3,723
---------------------------------------------------------------------------------------------------
Net income (loss)
applicable to
common stock $(8,700) $(19,743) $(3,375) $ 2,739 $(4,210) $(28,780) $(62,069)
===================================================================================================
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Combining Results of Operations by Line of Business
---------------------------------------------------
Year Ended December 31, 1996
(in thousands of dollars)
Homesite & Tract &
Predecessor Predecessor
Homesite Tract Residential Other Business Administrative
Sales Sales Sales Operations Development & Other Total
----------- ----------- ----------- ----------- ----------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $52,910 $ 53,693 $20,962 $ $ $ $127,565
Other operating revenue 324 4,595 4,919
Interest income 4,321 1,974 6,295
-----------------------------------------------------------------------------------------
Total revenues 53,234 53,693 20,962 8,916 1,974 138,779
-----------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 42,258 44,331 16,725 103,314
Inventory valuation reserves 10,400 1,883 12,283
Selling expense 6,081 5,618 1,826 13,525
Other operating expense 1,986 1,986
Other real estate costs:
Property tax, net 6,144 6,144
Other real estate overhead 1,719 3,426 838 1,051 3,912 2,294 13,240
General and administrative 11,510 11,510
Depreciation 16 92 22 262 508 900
Cost of borrowing, net 13,430 13,430
Other expense 75 437 512
-----------------------------------------------------------------------------------------
Total costs and expenses 50,149 63,867 19,411 3,299 6,232 33,886 176,844
-----------------------------------------------------------------------------------------
Operating income (loss) 3,085 (10,174) 1,551 5,617 (6,232) (31,912) (38,065)
-----------------------------------------------------------------------------------------
Other income (expense):
Reorganization reserves 15,956 2,134 18,090
Utility condemnation 4,122 4,122
Miscellaneous 1,371 1,931 3,302
-----------------------------------------------------------------------------------------
Total other income (expense) - - - 21,449 - 4,065 25,514
-----------------------------------------------------------------------------------------
Income (loss) before
extraordinary items 3,085 (10,174) 1,551 27,066 (6,232) (27,847) (12,551)
Extraordinary gains on
extinguishment of debt 13,732 13,732
-----------------------------------------------------------------------------------------
Net income (loss) $ 3,085 $(10,174) $ 1,551 $27,066 $(6,232) $(14,115) $ 1,181
=========================================================================================
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Combining Results of Operations by Line of Business
---------------------------------------------------
Year Ended December 31, 1995
(in thousands of dollars)
Homesite & Tract &
Predecessor Predecessor
Homesite Tract Residential Other Business Administrative
Sales Sales Sales Operations Development & Other Total
----------- ----------- ----------- ---------- ------------ -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $ 24,106 $ 31,055 $ 27,742 $ $ $ $ 82,903
Other operating revenue 6,748 6,748
Interest income 6,158 1,607 7,765
Other income 603 603
---------------------------------------------------------------------------------------------
Total revenues 24,709 31,055 27,742 12,906 1,607 98,019
---------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 17,151 26,108 23,150 66,409
Inventory valuation reserves 3,563 1,288 4,851
Selling expense 5,178 2,399 2,243 9,820
Other operating expense 4,037 4,037
Other real estate costs:
Property tax, net 80 5,764 5,844
Other real estate overhead 2,049 1,429 1,143 1,073 6,767 2,240 14,701
General and administrative 10,405 10,405
Depreciation 27 76 191 481 440 1,215
Cost of borrowing, net 14,274 14,274
Other expense 517 517
---------------------------------------------------------------------------------------------
Total costs and expenses 24,405 33,575 26,727 5,671 7,284 34,411 132,073
---------------------------------------------------------------------------------------------
Operating income (loss) 304 (2,520) 1,015 7,235 (7,284) (32,804) (34,054)
---------------------------------------------------------------------------------------------
Other income (expense):
Reorganization reserves 10,676 10,676
Miscellaneous 2,613 169 2,782
---------------------------------------------------------------------------------------------
Total other income (expense) - - - 2,613 - 10,845 13,458
---------------------------------------------------------------------------------------------
Net income (loss) $ 304 $ (2,520) $ 1,015 $ 9,848 $(7,284) $(21,959) $ (20,596)
=============================================================================================
</TABLE>
37
<PAGE>
1997 COMPARED WITH 1996
During 1997, the Company reported a net loss applicable to Common Stock
of $62.1 million compared to net income applicable to Common Stock of $1.2
million in 1996. The loss was primarily due to (1) a 47% reduction in real
estate revenues and increased costs of real estate sales in 1997, (2) a $22.9
million decrease in other income and (3) $0 of extraordinary gains (compared to
$13.7 million of extraordinary gains in 1996), partially offset by a (4) $9.4
million reduction in selling expenses and other real estate costs. As discussed
below, the reduction in real estate revenues in 1997 were primarily due to (a)
the Company's bulk sales in 1996 of Julington Creek Plantation and Summerchase
(there were no substantial bulk sales in 1997, other than a bulk sale of 102
lots in Windsor Palms) and (b) decreasing revenues from Predecessor Assets.
Increased costs of real estate sales were principally attributable to (i) a bulk
sale (at a loss of $632,000) of the final 102 lots in Windsor Palms to provide
liquidity prior to the June 30, 1997 Foothill Debt payment (see "LIQUIDITY AND
CAPITAL RESOURCES" below), and (ii) a $2.85 million settlement in connection
with the litigation involving Regency Island Dunes.
The Company's business plan is to become the primary provider of
developed Homesites to homebuilders in Florida's Primary Markets and in other
selected Primary Markets in the Southeast, without incurring the carrying costs
of a substantial inventory, while, at the same time, liquidating its remaining
Predecessor Assets and reducing debt, carrying costs and associated overhead.
Pursuant to this plan, the Company has (1) acquired several new projects in
various Primary Markets in the Southeast, (2) sold $41.2 million and $55.6
million of Predecessor Assets in 1997 and 1996, respectively, (3) reduced
corporate debt by $111.4 million during 1997 and 1996 and (4) reduced borrowing
and other real estate costs by a total of $7.6 million during 1997 and 1996.
HOMESITE AND PREDECESSOR HOMESITE SALES. Net operating results from
Homesite and Predecessor Homesite sales decreased $11.8 million in 1997 compared
to 1996 primarily due to (1) the loss of the revenue formerly generated by
Julington Creek Plantation, which the Company sold in bulk in 1996, (2) a $9.0
million bulk sale in 1996 of Summerchase, (3) the bulk sale at a loss of the
remaining 102 lots in Windsor Palms, in order to fund the Foothill Debt payment
due June 30, 1997, and (4) $3.6 million of inventory valuation reserve charges
in 1997 consisting of $1.9 million against Predecessor Homesites and $1.7
million against Sabal Trace, partially offset by (5) $1.9 million of reduced
selling expenses.
Revenues from Homesite and Predecessor Homesite sales decreased $28.3
million in 1997 compared to 1996 primarily due to a $23.8 million decrease in
Homesite sales revenues. The following table summarizes Homesite and Predecessor
Homesite sales activity for the years ended December 31 (in thousands of
dollars):
<TABLE>
<CAPTION>
1997 1996
----------------------------------------- ------------------------------------
Number Average Number Average
of Lots Revenue Sales Price of Lots Revenue Sales Price
------- ------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Homesite sales 543 $14,328 $26.4 1,610 $38,090 $23.7
Predecessor Homesite sales 3,521 10,278 2.9 2,903 14,820 5.1
----- ------- ----- ----- ------- -----
4,064 $24,606 $ 6.1 4,513 $52,910 $11.7
===== ======= ===== ===== ======= =====
</TABLE>
Revenues from Homesite sales decreased in 1997 compared to 1996
primarily due to (1) the bulk sales of Julington Creek Plantation and
Summerchase in 1996 and the sale of 75% of the inventory in Windsor Palms in
1996. Julington Creek Plantation generated sales revenue of approximately $7.6
million in 1996, including a bulk sale of the remaining 126 Homesites for $5.6
million in June 1996. Summerchase, which was permitted for 640 Homesites, was
sold in bulk in 1996 for $9.0 million. Sales revenues at Windsor Palms decreased
from $12.5 million in 1996 to $4.5 million in 1997. Partially offsetting these
decreases was a $2.7 million increase in sales in 1997 in West Meadows. The
average sales price of Homesite sales increased 11.4% in 1997 primarily due to
the Summerchase bulk sale in 1996, which yielded an average sales price of
approximately $14,000.
38
<PAGE>
Homesite sales increased from 11.4% in 1997 primarily due to the Summerchase
bulk sale in 1996, which yielded an average sales price of approximately
$14,000.
Revenues from Predecessor Homesite sales decreased in 1997 compared to
1996 due to a 43.1% decrease in the average sales price per Predecessor
Homesite, partially offset by a 21.3% increase in the number of Predecessor
Homesites sold. The decrease in the average sales price is principally due to
(1) a 38% decrease in the number of Predecessor Homesites sold in Cumberland
Cove, the Company's highest priced Predecessor Homesite market, and (2) a 43%
increase in bulk sales of Predecessor Homesites in Florida. In addition, the
average sales price in Cumberland Cove decreased 42% in 1997 from approximately
$20,300 in 1996 to approximately $11,800 in 1997 due to the mix of Predecessor
Homesites sold. The volume of Predecessor Homesites sold in Cumberland Cove
decreased in 1997 because this project was winding down and, accordingly, the
Company closed its on-site sales operation in September 1997. The volume of
Predecessor Homesites sales increased primarily due to the increase in the
number of bulk Predecessor Homesites sold.
Other operating revenues included management fees of $332,000 in 1997
and $261,000 in 1996 from the Country Lakes JV Project. The Country Lakes JV
Project sold 740 Homesites for $9.5 million in 1997 and 375 Homesites for
approximately $7.5 million in 1996. Other operating revenues also included
management fees of $458,000 in 1997 and $63,000 in 1996 from the Sunset Lakes JV
Project. Other expense of $705,000 in 1997 consisted of $846,000 of expenses
representing the Company's share of the net expenses of the Country Lakes JV
Project, partially offset by $141,000 of income representing the Company's share
of the net income from the Sunset Lakes JV Project.
As of December 31, 1997, the Company had under contract (1)
approximately 869 Homesites for $24.7 million with 12 homebuilders in Lakeside
Estates, West Meadows and The Trails of West Frisco and (2) 129 Predecessor
Homesites for $806,000. In addition, as of December 31, 1997, the Company's JV
Projects had 3,389 Homesites under contract with 10 homebuilders, totaling
approximately $85.0 million in future gross revenue of which the Company is a
joint venturer. As of December 31, 1996, the Company had approximately 1,091
total Homesites and Predecessor Homesites under contract for approximately $16.4
million, of which 616 Homesites for $15.2 million were in Lakeside Estates, West
Meadows and Sanctuary.
The Homesite and Predecessor Homesite sales gross margin percentages
were 5.0% in 1997 compared to 20.1% in 1996. The lower gross margin percentage
in 1997 is attributable principally to the sale of the final 102 Windsor Palms
lots for $4.5 million, generating a negative 14% gross margin. This sale was
necessitated by the Company's need for liquidity to meet its June 30, 1997
Foothill Debt payment. The gross margin in 1997 for Lakeside Estates and West
Meadows was 20.2%, which approximates the targeted gross margin of 20% to 30%
for this line of business. Homesite and Predecessor Homesite sales margins were
also adversely affected in 1997 by the increase in the bulk sale of Predecessor
Homesites, which generally yield lower margins than Homesite sales.
The Homesite and Predecessor Homesite sales inventory valuation reserve
charge of $3.6 million in 1997 represented a reduction in the carrying value of
the Company's Homesite and Predecessor Homesite inventory based upon a review of
the fair values of the Company's land inventory. The charge consisted of $1.9
million for Predecessor Homesites and $1.7 million for Sabal Trace.
Homesite and Predecessor Homesite selling expense decreased $1.9
million or 30.5% in 1997 primarily due to (1) a $1.1 million decrease in direct
selling expenses resulting from the decrease in Homesite and Predecessor
Homesite revenues and (2) a $717,000 reduction in indirect selling costs at
Cumberland Cove. Homesite and Predecessor Homesite selling expense as a
percentage of revenues increased from 11.5% in 1996 to 17.2% in 1997 primarily
due to the decreased revenues over which to spread fixed selling costs.
TRACT AND PREDECESSOR TRACT SALES. Net operating results from Tract and
Predecessor Tract sales decreased by $9.6 million in 1997 compared to 1996
primarily due to lower Tract and Predecessor Tract
39
<PAGE>
sales revenues and higher cost of sales, partially offset by lower selling
expenses and other real estate overhead.
Revenues from Tract and Predecessor Tract sales decreased $21.7 million
in 1997 compared to 1996 primarily due to several large sales in 1996, including
the sale of Julington Creek Plantation, which included $11.6 million of Tract
acreage. There were no comparably sized sales in 1997. As of December 31, 1997,
there were pending Tract and Predecessor Tract sales contracts or letters of
intent totaling approximately $3.4 million, which, subject to certain
contingencies, are anticipated to close in 1998. As of December 31, 1996, there
were comparable pending Tract and Predecessor Tract sales contracts or letters
of intent totaling approximately $18.1 million.
Tract and Predecessor Tract sales gross margins are summarized as
follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Targeted Actual Targeted Actual
Margins Margins Margins Margins
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Port LaBelle agricultural acreage 0% (9.2)% 5% -
Julington Creek Plantation - - - 6.5%
Other Tract acreage 10 - 20% 13.1% 20% 53.6%
Other Predecessor Tract acreage 5 - 10% (13.1)% 20% 19.4%
</TABLE>
The targeted gross margin is lower for Port LaBelle agricultural
acreage because management has determined that approximately 15,000 acres of 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 1997, the Company sold 4,242 acres of Port LaBelle agricultural property
for approximately $4.0 million.
The low gross margin in Julington Creek Plantation in 1996 resulted
from the bulk sale of this project in June 1996 as part of the Company's
business plan to monetize certain assets to generate cash and retire debt.
The 53.6% gross margin in 1996 in Other Tract acreage was generated
from one Tract sale in West Meadows for approximately $1.3 million.
The negative actual gross margin for other Predecessor Tract acreage in
1997 is attributable principally to the Company's business plan to accelerate
the liquidation of Predecessor Assets. The actual gross margin for other
Predecessor Tract acreage in 1996 generally reflects the targeted gross margin.
The Tract and Predecessor Tract sales inventory valuation reserve
charges of $10.8 million in 1997 and $10.4 million in 1996 represent reductions
in the carrying value of the Predecessor Tract inventory based upon reviews of
the fair values associated with its Predecessor Tracts.
Tract and Predecessor Tract sales selling expenses decreased $2.0
million in 1997 compared to 1996 primarily due to lower direct selling expenses
resulting from a decrease in revenues. Tract and Predecessor Tract sales selling
expense as a percentage of revenues increased from 10.5% in 1996 to 11.4% in
1997 primarily due to (1) lower direct selling expenses associated with several
large sales in 1996, including Julington Creek Plantation, and (2) lower
revenues in 1997 over which to spread fixed selling costs.
40
<PAGE>
Tract and Predecessor Tract sales other real estate overhead decreased
$2.0 million, a 57% decrease, in 1997 compared to 1996 primarily due to
management and advertising costs in 1996 associated with the efforts to
accelerate the disposition of Predecessor Assets.
RESIDENTIAL SALES. Net operating results from residential sales, which
includes condominiums and single family homes, decreased $4.9 million in 1997
compared to 1996 principally due to a decrease in the gross margin from Regency
Island Dunes. The Company realized lower revenues in 1997 as a result of (1) the
close out of Regency Island Dunes in 1997 and (2) a $2.85 million settlement
with the general contractor on this project, partially, offset by (3) a
reduction in selling expenses.
Residential sales are summarized as follows for the years ended
December 31 (in thousands of dollars):
1997 1996
---- ----
Condominium sales - Regency Island Dunes:
First Building $ 1,620 $ 3,008
Second Building 9,288 14,801
-------- --------
Total condominium sales 10,908 17,809
Single family home sales 76 3,153
-------- --------
$ 10,984 $ 20,962
======== ========
The revenues and profits associated with Regency Island Dunes
condominium sales were recorded using the percentage of completion method. The
project consisted of two 72-unit buildings for a total of 144 units, all of
which were sold and closed as of December 31, 1997. As of December 31, 1995, the
Company recorded 97% of the expected revenues and profits on 61 units in the
first building, based on a construction completion percentage of 97%. The
condominium revenues of $3.0 million in the first building in 1996 represented
the incremental revenue earned upon the completion of 59 of the 61 units in 1996
and the sale and closing of an additional eight units in 1996. The condominium
revenues of $1.6 million in the first building in 1997 represented revenue
earned upon the closing of an additional five units in 1997 for a total of 72
units sold and closed in the first building. The revenues of approximately $14.8
million in the second building in 1996 were derived from 56 units under contract
as of December 31, 1996, with construction on the second building 79% complete.
The revenues of approximately $9.3 million in the second building in 1997 were
derived from an increase in the completion percentage from 79% to 100% in 1997,
and to an additional 16 units sold and closed in 1997 for a total of 72 units
sold and closed in the second building.
Single family home sales revenues decreased in 1997 compared to 1996
due to a decrease in closings from 36 in 1996 to 1 in 1997. Closings decreased
because of the Company's decision in mid-1995 to begin phasing out its single
family home business in Predecessor communities, which was substantially
completed in 1996. As of December 31, 1997, the Company had 2 single family home
residential units in inventory, neither of which were under contract. As of
December 31, 1996, the Company had 3 single family home residential units in
inventory, none of which were under contract.
Residential sales gross margins are summarized as follows for the years
ended December 31:
1997 1996
---- ----
Condominiums (18.7)% 21.9%
Single family homes (15.8)% 10.6%
The gross margin for condominiums in 1997 was negative primarily due to
a $2.85 million settlement in December 1997 with the Company's general
contractor for Regency Island Dunes. See Part I. Item 3. "LEGAL PROCEEDINGS".
The settlement costs were applied solely against the revenues earned in
41
<PAGE>
1997, resulting in a large negative gross margin in 1997. The overall gross
margin for this project was approximately 12.1%.
The single family home gross margin in 1997 was generated from the sale
of 1 unit.
Residential selling expense decreased $1.2 million, or 66%, in 1997
compared to 1996 and decreased as a percentage of revenues from 8.7% in 1996 to
5.7% in 1997. The decreases were primarily due to (1) an adjustment in 1997 to
reduce incentive expenses associated with Regency Island Dunes and (2) a
decrease in fixed selling costs as a result of the phasing-out of the single
family home operations.
Other real estate overhead decreased $142,000, or 17%, in 1997 compared
to 1996 primarily due to a reduction in single family overhead costs due to the
phasing-out of this operation.
OTHER OPERATIONS. Net income from other operations decreased $24.3
million in 1997 compared to 1996 primarily due to (1) a $20.5 million decrease
in other income, including a net gain of $11.9 million from an accrual in 1996
for the recovery of funds in 1997 from certain Utility Trust accounts, and (2) a
$2.4 million increase in borrowing costs associated with the financing of
mortgage and Predecessor Homesite Contract Receivables.
Other operating revenues and expenses decreased in 1997 compared to
1996 primarily due to the absence of revenues and expenses from the Port LaBelle
utility system and the Julington Creek Plantation utility system, both of which
were sold in 1996. In addition, other operating revenues in 1996 included $1.0
million of development impact fees.
Other operations interest income decreased $39,000 in 1997 compared to
1996, despite a $912,000 increase in interest income associated with a higher
average balance of land mortgages receivable in 1997, due principally to a
$951,000 decrease in interest income resulting from a lower average balance of
Predecessor Homesite Contracts Receivable.
Other operations other real estate overhead decreased 36% in 1997
compared to 1996 primarily due to lower community operations costs associated
with Predecessor Assets.
Cost of borrowing of $2.4 million in 1997 represented interest expense
on debt associated with the financing of a portion of the Company's land
mortgages and Predecessor Homesite Contracts Receivables. The Company raised
approximately $13.3 million of cash proceeds in 1996 and an additional $19.8
million in 1997 from these financings. The proceeds from these financings were
used to reduce corporate debt and to fund ongoing operations.
Other income - reorganization reserves of $1.1 million in 1997
represents the amortization of the Company's utility connections reserve. Other
income - reorganization reserves of $16.0 million in 1996 included (1) a $4.1
million gain due to a reduction in the Company's utility connections reserve in
conjunction with the Company's annual review of certain reorganization items and
(2) a net gain of $11.9 million from the recovery of funds from certain utility
trust accounts. Other income - utility condemnation in 1996 represented a gain
of approximately $4.1 million on an $18.75 million litigation settlement with
the City of Port St. Lucie pursuant to condemnation proceedings associated with
the taking of the Company's Port St. Lucie system. Other income - miscellaneous
of $1.4 million in 1996 included (a) a gain of $686,000 on the sale of the
Company's Port LaBelle utility system, which was sold in 1996 for $4.5 million,
and (b) a gain of $696,000 on the sale of the Company's Julington Creek
Plantation utility system, which was sold in 1996 for $6.0 million. The majority
of the other income items are adjustments to reorganization reserves that are
reviewed and adjusted on an annual basis. These adjustments are generally
nonrecurring, infrequent, and unusual.
BUSINESS DEVELOPMENT. Total business development expenditures decreased
$2.0 million in 1997 compared to 1996 primarily due to (1) a $1.1 million
decrease in overhead costs in 1997 related to the Company's Ya Dong JV Project
and (2) a $1.9 million valuation reserve in 1996 for the Ya Dong JV
42
<PAGE>
Project, partially offset by (3) an increase in costs associated with the
pursuit of business opportunities in Primary Markets.
In 1997, the Company proposed to transfer 35% of its 50% interest in
the Ya Dong JV Project to its JV partner in return for a note receivable in the
amount of $2.25 million. The Company would retain a 15% interest in the Ya Dong
JV Project. Due to the uncertainty associated with the collection of this
proposed receivable, the Company established an inventory valuation reserve in
the amount of $1.9 million in 1996. Consequently, the Company's net investment
in the Ya Dong JV Project is carried at $0.
Business development overhead decreased in 1997 compared to 1996
primarily due to the $1.1 million decrease in overhead costs related to the Ya
Dong JV Project. The Company incurred overhead costs associated with the Ya Dong
JV Project of $126,000 in 1997 compared to $1.2 million in 1996. This decrease
was partially offset by an increase in costs associated with the pursuit of
business opportunities in Primary Markets.
Business development other expenses consisted of $758,000 in 1997 and
$437,000 in 1996 representing the Company's share of the net loss of the Ocean
Grove JV Project. The loss resulted from pre-sales advertising and other selling
and overhead costs.
ADMINISTRATIVE & OTHER. The net loss from administrative and other
activities increased $14.7 million in 1997 compared to 1996 principally due to
one-time extraordinary gains totaling $13.7 million in 1996 resulting from the
extinguishment of debt.
Interest income decreased in 1997 compared to 1996 primarily due to a
decrease in short-term investment interest income.
Property tax, net of capitalized property taxes decreased in 1997
compared to 1996 primarily due to a reduction of land inventory not under
development which corresponds to sales activity during the intervening period.
Other real estate overhead decreased 14.6% in 1997 compared to 1996
primarily due to a decrease in legal costs associated with supporting real
estate sales activity.
General and administrative expenses remained at generally the same
level in 1997 compared to 1996, despite $1.7 million of financial advisory and
due diligence costs incurred in 1996 associated with the Company's
recapitalization efforts, due to a severance accrual of approximately $1.5
million in 1997.
Cost of borrowing, net of capitalized interest, decreased $3.6 million
in 1997 compared to 1996 primarily due to a $53.6 million decrease in corporate
debt. During 1997 and 1996, the Company did not accrue interest on its Cash Flow
Notes because of the absence of Available Cash during the periods.
Other income - reorganization reserves consisted of gains of $2.5
million in 1997 and $2.1 million in 1996 resulting from the resolution of
certain reorganization items. The $2.5 million gain in 1997 consisted of (1) a
$706,000 gain due to the reduction of the Company's Predecessor Homesite
Contracts Receivable termination refunds reserve and (2) adjustments of various
other reorganization reserves, none of which were individually significant. The
$2.1 million gain in 1996 included (a) a gain of $703,000 due to a reduction in
the Company's Predecessor Homesite Contracts Receivable future servicing reserve
and (b) adjustments of various other reorganization reserves, none of which were
individually significant. Other expense - miscellaneous of $806,000 in 1997
consisted of net gains and losses associated with various reserve adjustments
and settlements, none of which were individually significant. Other income
miscellaneous of $1.9 million in 1996 included gains of (i) approximately $1.3
million due to a reduction in the Company's environmental reserve and (ii) $1.0
million due to a reduction in the Company's land mortgages receivable valuation
reserve.
43
<PAGE>
During 1996, the Company recorded extraordinary gains totaling $13.7
million consisting of (1) an extraordinary gain of approximately $3.8 million
due to the extinguishment of approximately $1.9 million of Unsecured 12% Notes
and $1.9 million of Unsecured Cash Flow Notes; (2) an extraordinary gain of
approximately $3.9 million on the prepayment at a discount of its Secured Cash
Flow Notes for $40.0 million in cash plus warrants to purchase up to 1,500,000
of the Company's Common Stock at $6.50 per share; and (3) an extraordinary gain
of approximately $6.0 million due to the extinguishment of approximately $4.2
million of Unsecured 12% Notes and $1.8 million of Unsecured 13% Cash Flow
Notes, net of a $210,000 unamortized discount.
During 1997, the Company recorded a $3.3 million accrual for preferred
stock dividends associated with its Preferred Stock. The dividends were
accumulated but unpaid as of December 31, 1997. The dividend rate is 20% of the
liquidation preference value of the Preferred Stock. The liquidation preference
value of the Preferred Stock is $10 per share, plus accumulated and unpaid
dividends. In addition, the Company accreted $427,000 of the value of its
Preferred Stock to the redemption amount in 1997. The total of approximately
$3.7 million of accrued Preferred Stock dividends and Preferred Stock accretion
was charged to contributed capital in the accompanying December 31, 1997
consolidated balance sheet.
1996 Compared with 1995
- -----------------------
During 1996, the Company reported net income of $1.2 million, which
represented a $21.8 million improvement from a net loss of $20.6 million in
1995. The improvement in 1996 was primarily due to an increase in other income
of $11.5 million and to extraordinary gains of $13.7 million resulting from the
extinguishment of debt.
HOMESITE AND PREDECESSOR HOMESITE SALES. Net income from Homesite and
Predecessor Homesite sales improved $2.8 million in 1996 compared to 1995
primarily due to an increase in the number of Homesites and Predecessor
Homesites sold, partially offset by lower gross margins in 1996.
Revenues from Homesite and Predecessor Homesite sales increased $28.8
million in 1996, a 120% increase from 1995. The increase resulted primarily from
a $27.9 million increase in Homesite and Predecessor Homesite sales revenues.
The following table summarizes Homesite and Predecessor Homesite activity for
the years ended December 31 (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
-------------------------------------- -----------------------------------
Number Average Number Average
of Lots Revenue Sales Price of Lots Revenue Sales Price
------- ------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Homesite sales 1,610 $38,090 $23.7 369 $10,154 $27.5
Predecessor Homesite sales 2,903 14,820 5.1 1,936 13,952 7.2
----- ------- ----- ----- ------- -----
4,513 $52,910 $11.7 2,305 $24,106 $10.5
===== ======= ===== ===== ======= =====
</TABLE>
Homesite sales increased in 1996 primarily due to (1) 306 Homesites
sold for $12.5 million in Windsor Palms, (2) 640 Homesites sold in bulk for $9.0
million in Summerchase, (3) 151 Homesites sold for $2.6 million in Sanctuary and
(4) 64 Homesites sold for $1.7 million in West Meadows. In addition, there was a
$1.6 million increase in Homesites sales in Lakeside Estates. The decrease in
the average sales price of Homesite sales is primarily due to the bulk Homesite
sale in Summerchase which yielded an average selling price of approximately
$14,000, partially offset by Homesite sales in (a) Windsor Palms, which yielded
an average sales price of approximately $40,700, and (b) Julington Creek
Plantation, which yielded an average sales price of approximately $43,000,
compared to $36,100 in 1995.
Predecessor Homesite sales increased in 1996 compared to 1995 due to a
50% increase in the number of Predecessor Homesites sold, partially offset by a
29% decrease in the average sales price. The increase in volume and the decrease
in the average sales price are principally attributable to an increase in bulk
Predecessor Homesite sales.
44
<PAGE>
Other operating revenues in 1996 included management fees of $261,000
from the Country Lakes JV Project and $63,000 from the Sunset Lakes JV Project.
During 1996, the Country Lakes JV Project sold 375 Homesites for approximately
$7.5 million.
Other income of $603,000 in 1995 represented the Company's 50% share of
net profits from the Sanctuary JV Project which the Company accounted for under
the equity method until August 1996, at which time the Company purchased its
partner's interest. During 1995, the Sanctuary JV Project sold 239 Homesites for
$3.5 million. There were no sales in the Sanctuary JV Project during the first
eight months of 1996 while this JV Project was accounted for under the equity
method; 151 of the remaining 170 Homesites in this JV Project were sold in the
fourth quarter of 1996.
As of December 31, 1996, the Company had approximately 1,091 total
Homesites and Predecessor Homesites under contract for approximately $16.4
million of which 616 Homesites for $15.2 million were in Lakeside Estates, West
Meadows and Sanctuary.
The Homesite and Predecessor Homesite sales gross margin percentage was
20.1% in 1996 compared to 28.9% in 1995. The gross margin percentage decreased
in 1996 compared to 1995 primarily due to the Company's high weighted average
cost of capital and delays in obtaining development financing. In addition,
gross margins decreased in Julington Creek Plantation from 31.7% in 1995 to
24.4% in 1996 due to the bulk sale of this project in June 1996 and gross
margins on Predecessor Homesite sales were reduced as part of the Company's plan
to accelerate the sales of Predecessor Assets.
Homesite and Predecessor Homesite selling expense increased primarily
due to an increase in revenues. Homesite and Predecessor Homesite selling
expense as a percentage of revenues decreased from 21.5% in 1995 to 11.5% in
1996, due to the increased revenues over which to spread fixed costs and a
reduction in fixed selling costs.
Homesite and Predecessor Homesite sales other real estate overhead
decreased in 1996 primarily due to a $180,000 severance charge in the third
quarter of 1995.
TRACT AND PREDECESSOR TRACT SALES. Net operating results from Tract and
Predecessor Tract sales decreased $7.7 million in 1996 compared to 1995, despite
an increase in revenues, primarily due to an increase in inventory valuation
reserve charges and an increase in advertising expenses.
Revenues from Tract and Predecessor Tract sales of $53.7 million in
1996 represented an increase of $22.6 million or 73% compared to 1995. The
increase was primarily due to several large sales during 1996 including the sale
of Julington Creek Plantation which included $11.6 million of Tract acreage. In
addition, Predecessor Tract sales increased in most of the Company's secondary
real estate markets. As of December 31, 1996, there were pending Tract and
Predecessor Tract sales contracts totaling approximately $18.1 million.
45
<PAGE>
Tract and Predecessor Tract sales gross margins are summarized as
follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
Targeted Actual Targeted Actual
Margins Margins Margins Margins
------- ------- ------- -------
<S> <C> <C> <C> <C>
Port LaBelle agricultural acreage 5% - 5% 2.8%
Julington Creek Plantation bulk sale - 6.5% - -
Other Tract acreage 20% 53.6% - -
Other Predecessor Tract acreage 20% 19.4% 20 - 25% 16.5%
</TABLE>
The targeted gross margin is lower for Port LaBelle agricultural
acreage because management determined that the Port LaBelle agricultural
property was 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 from "retail" to "wholesale," which reduced the targeted
gross margin for this property.
The low gross margin in Julington Creek Plantation resulted from the
bulk sale of this project in June 1996.
The 53.6% gross margin in 1996 in Other Tract acreage was generated
from one Tract sale in West Meadows for approximately $1.3 million.
The actual gross margin in 1996 for other Predecessor Tract acreage
reflects the targeted gross margin. The actual gross margin in 1995 for other
Tract acreage was lower than the targeted gross margin primarily due to low
gross margins on several large sales. The targeted gross margins were reduced in
1996 primarily due to the Company's plan to accelerate Predecessor Tract sales.
The Tract and Predecessor Tract inventory valuation reserve charges of
$10.4 million in 1996 and $3.6 million in 1995 represent reductions in the
carrying value of the Company's Predecessor Assets based upon reviews of the
fair values associated with its Predecessor Assets.
Tract and Predecessor Tract selling expense increased in 1996 compared
to 1995 primarily due to an increase in revenues. Tract and Predecessor Tract
selling expense as a percentage of revenues increased from 7.7% in 1995 to 10.5%
in 1996 primarily due to direct selling costs associated with the efforts to
accelerate the disposition of Predecessor Assets.
Tract and Predecessor Tract other real estate overhead increased in
1996 compared to 1995 primarily due to management and advertising costs
associated with the efforts to accelerate the disposition of Predecessor Assets.
RESIDENTIAL SALES. Net income from residential sales, which includes
condominiums and single family homes, improved $536,000 in 1996 compared to
1995. Net income from residential sales increased, despite a decrease in
revenues, principally due to (1) a higher gross margin percentage on the
condominium revenues from the Regency Island Dunes condominium project and (2) a
decrease in fixed selling and overhead costs associated with single family homes
because the Company phased out its single family homes sales operations.
46
<PAGE>
Residential sales are summarized as follows for the years ended
December 31 (in thousands of dollars):
1996 1995
---- ----
Condominium sales - Regency Island Dunes:
First building $ 3,008 $17,989
Second building 14,801 -
-------- -------
Total condominium sales 17,809 17,989
Single family home sales 3,153 9,753
-------- -------
$ 20,962 $27,742
======== =======
The revenues and profits associated with Regency Island Dunes
condominium sales were recorded using the percentage of completion method. The
Regency Island Dunes condominium project consisted of two 72-unit buildings. The
revenues of approximately $18 million in 1995 were derived from 61 units under
contract in the first building as of December 31, 1995 with construction on the
first building 97% complete. The condominium revenues of $3.0 million in the
first building in 1996 represented the incremental revenue earned upon the
completion of 59 of these 61 units in 1996 and the sale and closing of an
additional eight units in 1996. The revenues of approximately $14.8 million in
the second building in 1996 were derived from 56 units under contract in the
second building as of December 31, 1996 with construction on the second building
79% complete.
Single family home sales revenues decreased in 1996 compared to 1995
due to a decrease in closings from 109 in 1995 to 36 in 1996. Closings decreased
because the Company decided in mid-1995 to begin phasing out its single family
home business in Predecessor communities and substantially completed the
withdrawal during 1996. As of December 31, 1996, the Company had 3 single family
home residential units in inventory, none of which were under contract as of
December 31, 1996.
Residential sales gross margins are summarized as follows for the years
ended December 31:
1996 1995
----- -----
Condominiums 21.9% 17.9%
Single family homes 10.6% 14.0%
The gross margin for condominiums in 1996 was within the targeted gross
margin of approximately 20% to 25% for this line of business.
The single family home gross margins decreased in 1996 due to (1) the
mix of product sold and (2) as a result of the Company's decision to wind down
this line of business.
Residential selling expense decreased in 1996 from 1995 due to (1) a
decrease in revenues and (2) a decrease in fixed selling costs associated with
the single family homes operation resulting from the phasing out of this
operation.
Residential sales other real estate overhead decreased in 1996 compared
to 1995 primarily due to reduced single family home overhead resulting from the
phasing out of this operation.
OTHER OPERATIONS. Net income from other operations increased $17.2
million in 1996 compared to 1995 due to an $18.8 million increase in other
income, including a net gain of $11.9 million due to an accrual in December 1996
for the recovery of funds in January 1997 from certain Utility Trust accounts,
partially offset by a decrease in interest income.
Other operating revenues and expenses decreased in 1996 compared to
1995 primarily due to (1) the
47
<PAGE>
absence of revenues and expenses from Florida Home Finders, Inc., a wholly-owned
subsidiary providing property management and real estate brokerage services
("FHF"), sold in 1995 and Longwood Utilities, Inc., a wholly-owned subsidiary
("Longwood"), sold in 1995 and (2) a reduction in revenues and expenses from the
Port LaBelle utility system sold in 1996 and the Julington Creek Plantation
utility system sold in 1996.
Interest income decreased in 1996 compared to 1995 primarily due to (1)
adjustments associated with the Company's land mortgage receivable portfolio,
including an adjustment of the unamortized interest rate valuation discount in
December 1995, and (2) a lower average balance of Predecessor Homesite Contracts
Receivable during the periods under review.
Other income - reorganization reserves of $16.0 million in 1996
included a $4.1 million gain due to a reduction in the Company's utility
connections reserve in conjunction with the Company's annual review of certain
reorganization reserves and a net gain of $11.9 million due to the recovery of
funds from certain Utility Trust accounts funded by the Company during the
reorganization. Other income - utility condemnation in 1996 represented a gain
of approximately $4.1 million on an $18.75 million settlement in 1996 with the
City of Port St. Lucie regarding litigation pursuant to condemnation proceedings
associated with the taking of the Company's Port St. Lucie system. Other income
- - miscellaneous of $1.4 million in 1996 included a gain of $686,000 on the sale
of the Company's Port LaBelle utility system which was sold in 1996 for $4.5
million and a gain of $696,000 on the sale of the Company's Julington Creek
Plantation utility system sold in 1996 for $6.0 million. Other income
miscellaneous of $2.6 million in 1995 included a $2.4 million gain on the sale
of FHF and a $219,000 gain on the sale of Longwood which was sold in 1995 for
$850,000. The majority of the other income items are adjustments to
reorganization reserves that are reviewed and adjusted on an annual basis. These
adjustments are generally nonrecurring, infrequent, and unusual.
BUSINESS DEVELOPMENT. Total business development expenditures decreased
$1.1 million in 1996 compared to 1995 primarily due to a $2.8 million decrease
in overhead costs related to the Ya Dong JV Project, partially offset by a $1.9
million valuation reserve in 1996 for this JV Project.
Business development overhead decreased in 1996 compared to 1995
primarily due to the $2.8 million decrease in overhead costs related to the Ya
Dong JV Project. The Company incurred overhead costs associated with the Ya Dong
JV Project of $1.2 million in 1996 compared to $4.0 million in 1995. The
remaining business development expenditures consist primarily of costs
associated with the pursuit of business opportunities in Primary Markets.
Other expenses included $437,000 in 1996 and $517,000 in 1995
representing 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.
ADMINISTRATIVE & OTHER. The net loss from administrative & other
activities decreased $7.8 million in 1996 compared to 1995 principally due to
extraordinary gains totaling $13.7 million in 1996 resulting from the
extinguishment of debt, partially offset by a $6.8 million decrease in other
income.
Interest income increased in 1996 compared to 1995 primarily due to an
increase in the average balance of short term investments in 1996.
Other income - reorganization reserves included gains of $2.1 million
in 1996 and $10.7 million in 1995 resulting from the resolution of certain
reorganization items. The $2.1 million gain in 1996 included a gain of $703,000
due to a reduction in the Company's Predecessor Homesite Contracts Receivable
future
48
<PAGE>
servicing reserve and to adjustments of various other reorganization reserves,
none of which were individually significant. The gain of $10.7 million in 1995
included gains of (1) $2.8 million due to a reduction of the Company's
Predecessor Homesite Contracts Receivable termination refunds reserve, (2) $2.2
million resulting from a reduction of the Company's deferred property tax
liability and (3) $1.5 million due to a reduction of the Company's income tax
liability. Other income - miscellaneous of $1.9 million in 1996 included (a) a
gain of approximately $1.3 million due to a reduction of the Company's
environmental reserve and (b) a gain of approximately $1.0 million due to a
reduction in the Company's land mortgages receivable valuation reserve. Other
income - miscellaneous of $169,000 in 1995 is net of (i) a $2.0 million gain on
proceeds of $4.0 million associated with the assignment of rights of one of the
Company's mortgage receivables, partially offset by (ii) a $1.2 million
valuation reserve associated with the Company's land mortgages receivable
portfolio due to an anticipated sale of this portfolio and (iii) a $694,000 net
loss resulting from the sale of the Company's residential mortgages receivable
portfolio in October 1995.
A valuation reserve of approximately $1.3 million was provided in 1995
associated with one of the Company's land mortgage receivables.
Property tax, net of capitalized property taxes increased in 1996
compared to 1995, despite a decrease in land inventory principally due to a $1.1
million reduction in capitalized property taxes resulting from a decrease in
land under development. The decrease in land under development corresponds to
sales activity and to the completion of various projects during the intervening
period.
General and administrative expenses increased in 1996 compared to 1995,
despite a severance charge of approximately $310,000 in 1995, principally due to
financial advisory and due diligence costs associated with the Company's
recapitalization efforts.
Cost of borrowing, net of capitalized interest decreased during 1996
compared to 1995 primarily due to lower average balances of the Company's
corporate debt, most notably the Mandatory Interest Notes, a decrease in
interest rates and to borrowing costs of $1.1 million in 1995 associated with
the September 1994 amendment of the Secured Floating Rate Notes. These interest
savings were partially offset by a $1.5 million decrease in interest capitalized
to land inventory corresponding to the decrease in land under development.
During the years ended December 31, 1996 and 1995, the Company did not accrue
interest on its Cash Flow Notes because of the absence of Available Cash during
the periods.
During 1996, the Company recorded extraordinary gains totaling $13.7
million consisting of (1) an extraordinary gain of approximately $3.8 million
due to the extinguishment of approximately $1.9 million of Unsecured 12% Notes
and $1.9 million of Unsecured Cash Flow Notes; (2) an extraordinary gain of
approximately $3.9 million on the prepayment at a discount of its Secured Cash
Flow Notes for $40.0 million in cash plus warrants to purchase up to 1,500,000
of the Company's Common Stock at $6.50 per share; and (3) an extraordinary gain
of approximately $6.0 million due to the extinguishment of approximately $4.2
million of Unsecured 12% Notes and $1.8 million of Unsecured 13% Cash Flow
Notes, net of a $210,000 unamortized discount.
LIQUIDITY & CAPITAL RESOURCES
As of December 31, 1997, the Company's cash and cash equivalents
totaled approximately $9.2 million. The Company also had restricted cash and
cash equivalents of $1.7 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. Of the $2.1
million increase in cash and cash equivalents during 1997, $11.6 million was
provided by investing activities and $2.0 million was provided by financing
activities, partially offset by $11.5 million used in operating activities.
Cash used in operating activities includes approximately (1) $14.4
million for interest payments, (2) $6.7 million for property tax payments, (3)
$18.6 million for construction and development expenditures, (4) $21.4 million
related to property acquisitions and (5) $4.9 million of fees associated with
the Company's
49
<PAGE>
refinancing and recapitalization efforts. Cash used in operating activities was
offset in part by net cash generated through real estate sales and other
operations.
Cash provided by investing activities consisted primarily of $12.1
million of funds released from various Utility Trust accounts funded during the
reorganization proceedings. The terms of these Utility Trusts require the
Company to periodically assess the adequacy of the property in these Utility
Trusts. Pursuant to a review of these Utility Trusts in December 1996, it was
determined that approximately $12.1 million in cash and $6.2 million of notes
could be released from the Utility Trust accounts in 1997.
Cash provided by financing activities includes proceeds of (1)
approximately $43.3 million from the issuance of Series A and B Preferred Stock
and related warrants and (2) $10.0 million from the issuance of Common Stock. In
addition, the Company had net borrowings of (a) $5.9 million under the Reducing
Revolving Loan, (b) $5.9 million from the financing of mortgage receivables and
Predecessor Homesite Contract Receivables and (c) $3.6 million of new project
financings. These borrowings were partially offset by (i) $37.5 million of
principal payments that fully repaid the Unsecured 12% Notes, (ii) $26.7 million
of scheduled principal payments on the Term Loan and (iii) $2.5 million in net
principal payments related to the Company's deferred property tax and Section
365(j) lien obligations arising out of the reorganization proceedings.
Regarding its Loan Agreements (the "Foothill Debt") with Foothill
Capital Corporation ("Foothill"), (1) the Company has a $20 million working
capital facility maturing December 1, 1998 ("Working Capital Facility"), (2) an
$8.3 million remaining commitment on a reducing revolving loan maturing June 30,
1998 ("Reducing Revolving Loan") and (3) a $13.3 million balance on a Term Loan
maturing on June 30, 1998. Amounts under the Reducing Revolving Loan are
available only when (a) the Working Capital Facility is fully utilized and (b)
the Company is in compliance with, among other conditions, a "borrowing base"
formula based on the value of certain of the Company's assets. Amounts
outstanding under the Working Capital Facility bear variable 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. The Reducing
Revolving Loan bears variable interest at the "base rate" plus four percentage
points. The Term Loan bears interest at the rate of 15% per annum. As of
December 31, 1997, the Company had outstanding (i) the full $20 million under
the Working Capital Facility, (ii) $7.7 million under the Reducing Revolving
Loan and (iii) $13.3 million under the Term Loan.
The Company's material obligations for 1998 include (1) up to $21.7
million of principal payments on the Foothill Debt on June 30, 1998, (2) a $39.6
million payment on the Unsecured 13% Cash Flow Notes due on December 31, 1998
(which will fully retire these obligations) and (3) the entire balance of the
Working Capital Facility which is payable in full on December 1, 1998. The
Company's 1998 business plan contemplates approximately $97 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 capital resources to fund these
obligations and expenditures, the implementation of the 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 (1)
satisfy the up to $21.7 million of Foothill Debt payments due on June 30, 1998,
(2) the $39.6 million repayment of the Unsecured 13% Cash Flow Notes due on
December 31, 1998 and (3) the repayment of the Working Capital Facility on
December 1, 1998. However, management believes that the Company, through a
combination of sources, will be able to obtain the funds necessary to continue
to implement its business plan and, at the same time, satisfy its debt
obligations as they become due.
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 and $41.2 million in 1997. As of December 31, 1997, the Company had $4.2
million of Predecessor Assets under contract or letter of intent, consisting of
$2.4 million cash and $1.8
50
<PAGE>
million of mortgage notes. The transactions under contract are subject to
customary conditions, in some cases including a financing condition.
Transactions subject to a letter of intent are also 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 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.
The Company has begun exploring the possibility of refinancing certain
of its 1998 debt obligations. Management is reasonably confident 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.
In June 1997, the Company closed two (of its three) 1997 Equity
Transactions: (1) Apollo agreed to purchase (subject to certain conditions) up
to $25 million of Series A Preferred Stock and warrants to purchase 5,000,000
shares of Common Stock and (2) investors agreed to purchase in a private
placement 1,776,199 shares of Common Stock for $10 million and $10 million of
Series B Preferred Stock with warrants to purchase 2,000,000 shares of Common
Stock.
In November 1997, the Company closed its third 1997 Equity Transaction
and issued $10 million of Series B Preferred Stock along with warrants to
purchase up to 2,000,000 shares of Common Stock through a rights offering to
existing stockholders and to the holders of certain warrants issued by the
Company in September 1996. The Company used the proceeds of the rights offering
for working capital purposes, including repayment of a portion of the Foothill
Debt.
As of December 31, 1997, (1) Apollo had purchased 2,326,475 shares of
Series A Preferred Stock with warrants to purchase 4,652,950 shares of Common
Stock for a total purchase price of approximately $23.3 million, (2) investors
had purchased $10 million of Common Stock and $10 million of Series B Preferred
Stock with warrants to purchase 2,000,000 shares of Common Stock, and (3)
existing shareholders had purchased $10 million of Series B Preferred Stock with
warrants to purchase 2 million shares of Common Stock.
On March 31, 1998, the Company expects to close the sale to Apollo of
the remaining 173,525 shares of Series A Preferred Stock and warrants to
purchase an additional 347,050 shares of Common Stock, for an aggregate purchase
price of $1,735,248. This sale will complete the $25 million placement of Series
A Preferred Stock with Apollo. Following such closing, Apollo will own a total
of 2.5 million shares of Series A Preferred Stock and warrants to purchase an
additional 5 million shares of Common Stock.
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 a wholly owned special purpose
subsidiary of the Company ("SP Subsidiary") and through subsidiaries of SP
Subsidiary. 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 Subsidiary's capital stock and its assets, and (2) a
senior lien on SP Subsidiary's capital stock and its assets. See Note 11 of the
Notes to Consolidated Financial Statements.
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 on the 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
51
<PAGE>
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 such date on the Cash Flow Notes 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 and
December 31, 1997, 1996 or 1995, respectively. Accordingly, the Company made no
interest payments (and no interest accrued) during 1997, 1996 or 1995 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 in 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.
Item 8. Financial Statements And Supplementary Data
-------------------------------------------
The financial statements and supplementary data required under Item 8
are provided as exhibits under Item 14 and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
-----------------------------------------------------------------------
None.
PART III
The information required by ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT; ITEM 11. EXECUTIVE COMPENSATION; ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"; and ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, is incorporated herein by reference to any amendment
filed hereto on Form 10-K/A or, alternatively, to the Company's definitive Proxy
Statement for its 1998 Annual Meeting of Stockholders, which shall be filed with
the Securities and Exchange Commission within 120 days from the end of 1997.
52
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) 1. Financial Statements
a. Consolidated Balance Sheets as of December 31, 1997
and 1996
b. Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995
c. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995
d. Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1997, 1996 and 1995
2. Financial Statement Schedules required to be filed by Item 8
and by Item 14(d).
a. Schedule II - Valuation and Qualifying Accounts
3. Exhibits required by Item 601 of Regulation S-K. See (c)
below.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on November 26, 1997, pursuant
to Item 5, Other Events, reporting Employment Agreements between the
Company and each of J. Larry Rutherford, John Laguardia and Thomas W.
Jeffrey.
(c) Exhibits Required for Form 10-K by Item 601 of Regulation S-K, as
indicated in the Exhibit Table in Item 601.
3. Articles of Incorporation and By-laws
a. Amended and Restated Certificate of Incorporation of
the Company.(7)
b. Restated By-laws of the Company dated November 17,
1997.
4. Instruments defining the rights of security holders, including
indentures
a. Second Amended and Restated Revolving Loan Agreement
dated as of September 30, 1996, as amended as of
March 31, 1997.(6)
b. Second Amended and Restated Secured Floating Rate
Note Agreement dated as of September 30, 1996.(6)
c. Form of warrant granted on September 30, 1996.(6)
d. Indemnification Agreement between Atlantic Gulf
Communities Corporation, General Development
Utilities, Inc., NationsBank of North Carolina, N.A.,
Barclays Bank, PLC, New York Branch, and The Bank of
New York dated as of December 28, 1993.(3)
e. The Company is a party to a number of other
instruments defining the rights of holders of
long-term debt. No such instrument authorizes an
amount of securities in excess of 10 percent of the
total assets of the Company and its subsidiaries on a
consolidated basis. On request, the Company agrees to
furnish a copy of each such instrument to the
Commission.
53
10(i). Certain material contracts not in the ordinary course of
business
1. Final Judgment of Permanent Injunction and Other
Relief as to Defendant General Development
Corporation dated November 30, 1990, entered in
United States of America v. General Development
Corporation, Case No. 90-879-CIV-Nesbitt (S.D. Fla)
(with Restitution Program attached as exhibit to
Final Judgment).(1)
2. Modification of Final Judgment of Permanent
Injunction and Other Relief as to Defendant General
Development Corporation dated July 25, 1996.
3. Trust Agreement among GDC and NCNB National Bank of
Florida as Trustee, dated as of January 17, 1991 (for
GDC-owned developed lots in Florida).(1)
4. Tennessee Trust Agreement between GDC and Joe M.
Looney, Esq. as Trustee, dated as of December 29,
1989 (for GDC-owned lots in Tennessee).(1)
5. Trust Agreement No. 2 between GDC and Joe M. Looney,
Esq. as Trustee, dated as of May 31, 1991 (for
GDFS-owned lots in Tennessee).(1)
6. Class 14 Utility Trust Agreement between Atlantic
Gulf Communities Corporation and First Union National
Bank of Florida as Trustee, dated as of December 8,
1992.(2)
7. Homesite Program Utility Fund Trust Agreement between
Atlantic Gulf Communities Corporation and First Union
National Bank of Florida as Trustee, dated as of
December 8, 1992.(2)
8. Agreement of Nanjing Ya Dong International
Corporation Limited, dated September 1993, between
Nanjing Huan Dong Enterprise/Nanjing Xianlin
Agricultural and Grazing Farm and Atlantic Gulf Asia
Holdings N.V.(3)
9. Joint Venture Contract of Nanjing Ya Dong
International Corporation Limited, dated September
1993, between Nanjing Huan Dong Enterprise/Nanjing
Xianlin Agricultural and Grazing Farm and Atlantic
Gulf Asia Holdings N.V.(3)
10. Articles of Association of Nanjing Ya Dong
International Corporation Limited, dated September
1993, between Nanjing Huan Dong Enterprise/Nanjing
Xianlin Agricultural and Grazing Farm and Atlantic
Gulf Asia Holdings N.V.(3)
11. Division Class 14 Utility Fund Trust Agreement
between the State of Florida, Department of Business
Regulation, Division of Florida Land Sales,
Condominiums, and Mobile Homes, Atlantic Gulf
Communities Corporation and First Union National Bank
of Florida dated as of April 10, 1993.(3)
12. Improvements Fund Trust Agreement between the State
of Florida, Department of Business Regulation,
Division of Florida Land Sales, Condominiums, and
Mobile Homes, Atlantic Gulf Communities Corporation
and First Union National Bank of Florida dated as of
April 10, 1993.(3)
13. Registration Rights Agreement dated as of September
30, 1996 between Atlantic Gulf Communities
Corporation and the lenders set forth in Exhibit A of
the agreement.(6)
14. Utility Lot Trust Agreement, dated as of December 26,
1996, between Atlantic Gulf Communities Corporation
and the Division of Florida Land Sales, Condominiums,
and Mobile Homes, and Peninsula State Title, as
Trustee.(8)
54
<PAGE>
15. Restated, Amended and Consolidated Trust Agreement,
dated as of December 26, 1996, amended as of December
30, 1996, between the State of Florida, Department of
Business Regulation, Division of Florida Land Sales,
Condominiums, and Mobile Homes, Atlantic Gulf
Communities Corporation and First Union National Bank
of Florida, as Trustee.(8)
16. First Amendment to the Restated, Amended and
Consolidated Trust Agreement, dated as of December
26, 1996, amended as of December 30, 1996.(8)
17. Amended and Restated Investment Agreement between the
Company and Apollo dated as of February 7, 1997,
amended as of March 20, 1997, and amended and
restated as of May 15, 1997, and as approved by the
Company's Stockholders at the Annual Meeting of
Shareholders on June 23, 1997.(9)
10(iii). Certain management contracts, compensatory plans, contracts or
arrangements
1. Debtor's Motion for Authority to Establish and
Implement Key Executive Retention Plan and Separation
Pay Plan and to Revise Vacation Plan dated November
5, 1990, entered in In re General Development
Corporation, et. al., Case No. 90-12231-BKC-AJC (S.D.
Fla).(1)
2. Order Authorizing Debtors to Establish and Implement
Key Executive Retention Plan and Separation Pay Plan
and to Revise Vacation Plan dated January 15, 1991,
entered in In re General Development Corporation, et.
al., Case No. 90-12231-BKC-AJC (S.D. Fla).(1)
3. Atlantic Gulf Communities Corporation 401(k) Plan.(2)
4. Atlantic Gulf Communities Corporation Employee Stock
Option Plan as amended, as adopted by Atlantic Gulf's
Board on April 6, 1993, and as approved by Atlantic
Gulf's common stockholders at the 1993 Annual Meeting
of Shareholders.(3)
5. Non-Employee Directors' Stock Option Plan as approved
by Atlantic Gulf's common stockholders at the 1995
Annual Meeting of Shareholders.(5)
6. Employment Agreement between the Company and Brian A.
McLaughlin dated July 1, 1995.(10)
7. Atlantic Gulf Communities Corporation 1996
Non-Employee Directors' Stock Plan.(11)
8. Employment Agreement dated November 17, 1997,
effective July 1, 1997, between Atlantic Gulf
Communities Corporation and J. Larry Rutherford, with
form of Stock Incentive Plan and Agreement for J.
Larry Rutherford and Amendment to Employment
Agreement, dated November 26, 1997.(12)
9. Modification of Employment Agreement between the
Company and J. Larry Rutherford dated December 27,
1997.
10. Employment Agreement dated November 19, 1997,
effective November 17, 1997, between Atlantic Gulf
Communities Corporation and John Laguardia, with form
of Stock Option Plan and Agreement for John
Laguardia.(12)
55
<PAGE>
11. Employment Agreement dated November 17, 1997,
effective July 1, 1997, between Atlantic Gulf
Communities Corporation and Thomas W Jeffrey, with
form of Existing Plan Stock Option Agreement for
Thomas W. Jeffrey and New Stock Option Plan and
Agreement for Thomas W. Jeffrey.(12)
21. Subsidiaries of the Company
23. Accountants' Consent - Ernst & Young LLP
27. Financial Data Schedule
- -------------------------
(1) These exhibits are incorporated herein by reference to the
Predecessor Company's Annual Report on Form 10-K for the year
ended December 31, 1991, as filed with the Securities and
Exchange Commission ("SEC").
(2) These exhibits are incorporated herein by reference to
Atlantic Gulf's Annual Report on Form 10-K for the year ended
December 31, 1992, as filed with the SEC.
(3) These exhibits are incorporated herein by reference to
Atlantic Gulf's Annual Report on Form 10-K for the year ended
December 31, 1993, as filed with the SEC.
(4) These exhibits are incorporated herein by reference to
Atlantic Gulf's Annual Report on Form 10-K for the year ended
December 31, 1994, as filed with the SEC.
(5) These exhibits are incorporated herein by reference to
Atlantic Gulf's Annual Report on Form 10-K for the year ended
December 31, 1995, as filed with the SEC.
(6) These exhibits are incorporated herein by reference to
Atlantic Gulf's Annual Report on Form 10-K for the year ended
December 31, 1996, as filed with the SEC.
(7) These exhibits are incorporated herein by reference to
Atlantic Gulf's Proxy Statement dated May 21, 1997, as filed
with the SEC.
(8) These exhibits are incorporated herein by reference to
Atlantic Gulf's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997, as filed with the SEC.
(9) These exhibits are incorporated herein by reference to
Atlantic Gulf's Current Report on Form 8-K, dated June 5,
1997, as filed with the SEC.
(10) These exhibits are incorporated herein by reference to
Atlantic Gulf's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, as filed with the SEC.
(11) These exhibits are incorporated herein by reference to
Atlantic Gulf's Proxy Statement dated April 22, 1996, as filed
with the SEC.
(12) These exhibits are incorporated herein by reference to
Atlantic Gulf's Current Report on Form 8-K, dated November 26,
1997, as filed with the SEC.
(d) Financial Statement Schedules required by Regulation S-X that are
excluded from the Annual Report to Shareholders by Rule 14a-3(b)
promulgated pursuant to Section 14 of the Securities Exchange Act of
1934, including (1) separate financial statements of subsidiaries and
50 percent of less owned persons; (2) separate financial statements of
affiliates whose securities are pledged as collateral; and (3)
schedules.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ THOMAS W. JEFFREY
-------------------------------
Thomas W. Jeffrey
Executive Vice President
and Chief Financial Officer
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ J. LARRY RUTHERFORD Date: March 27, 1998
- -----------------------------
J. Larry Rutherford
Chairman of the Board,
President and Chief
Executive Officer,
Director
/s/ PAULA J. COOK Date: March 27, 1998
- -------------------------------
Paula J. Cook
Vice President and Controller
(Principal Accounting Officer)
/s/ GERALD N. AGRANOFF Date: March 27, 1998
- ----------------------------
Gerald N. Agranoff
Director
/s/ JAMES M. DEFRANCIA Date: March 27, 1998
- ---------------------------
James M. DeFrancia
Director
/s/ STUART F. KOENIG Date: March 27, 1998
- ------------------------------
Stuart F. Koenig
Director
57
<PAGE>
/s/ RICARDO KOENIGSBERGER Date: March 27, 1998
- ------------------------------
Ricardo Koenigsberger
Director
/s/ CHARLES K. MACDONALD Date: March 27, 1998
- ------------------------------
Charles K. MacDonald
Director
/s/ LEE NEIBART Date: March 27, 1998
- ------------------------------
Lee Neibart
Director
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Atlantic Gulf Communities Corporation and Subsidiaries
Consolidated Financial Statements
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
Consolidated Financial Statement Schedules for each
of the periods in the three years ended December 31, 1997:
Schedule II - Valuation and Qualifying Accounts S-1
All schedules other than those indicated in the index have been omitted
as the required information is inapplicable or not material, or the
information is presented in the Consolidated Financial Statements and
Notes thereto.
<PAGE>
Report of Ernst & Young LLP
Independent Certified Public Accountants
Board of Directors
Atlantic Gulf Communities Corporation
We have audited the accompanying consolidated balance sheets of Atlantic
Gulf Communities Corporation and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Atlantic Gulf Communities Corporation and subsidiaries at
December 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
-----------------------------------
Ernst & Young LLP
Miami, Florida
March 17, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(in thousands, except share amounts and par value)
1997 1996
---- ----
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 9,188 $ 7,050
Restricted cash and cash equivalents 1,713 6,034
Contracts receivable, net 6,336 9,649
Mortgages, notes and other receivables, net 34,910 63,800
Land and residential inventory 130,506 153,417
Property, plant and equipment, net 1,754 2,911
Other assets, net 18,664 20,532
-------- --------
Total assets $203,071 $263,393
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable and accrued liabilities $ 13,615 $ 16,914
Customers' and other deposits 1,181 5,483
Other liabilities 8,865 15,393
Notes, mortgages and capital leases 132,408 169,215
-------- --------
156,069 207,005
-------- --------
Redeemable Preferred Stock
Series A, 20%, $.01 par value; 2,500,000
shares authorized; 2,326,475 shares issued,
liquidation preference of $25,254 22,378 --
Series B, 20%, $.01 par value; 2,000,000
shares authorized; 2,000,000 shares issued,
liquidation preference of $21,307 19,306 --
-------- --------
41,684 --
-------- --------
Commitments and contingencies
Stockholders' equity
Common stock, $.10 par value, 70,000,000 and
15,665,000 shares authorized; 11,607,526 and
9,795,642 shares issued 1,161 980
Contributed capital 128,930 122,123
Accumulated deficit (119,052) (60,706)
Minimum pension liability adjustments (5,712) (6,000)
Treasury stock, 86,277 shares, at cost (9) (9)
-------- --------
Total stockholders' equity 5,318 56,388
-------- --------
Total liabilities and stockholders' equity $203,071 $263,393
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
(in thousands, except per share data)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Real estate sales:
Homesite $ 24,606 $ 52,910 $ 24,106
Tract 32,029 53,693 31,055
Residential 10,984 20,962 27,742
-------- -------- --------
Total real estate sales 67,619 127,565 82,903
Other operating revenue 3,011 4,919 6,748
Interest income 6,018 6,295 7,765
Other income - - 603
-------- -------- --------
Total revenues 76,648 138,779 98,019
-------- -------- --------
Costs and expenses:
Direct cost of real estate sales:
Homesite 23,372 42,258 17,151
Tract 35,787 44,331 26,108
Residential 13,033 16,725 23,150
-------- -------- --------
Total direct cost of real estate sales 72,192 103,314 66,409
Inventory valuation reserves 14,457 12,283 4,851
Selling expense 8,502 13,525 9,820
Other operating expense 1,505 1,986 4,037
Other real estate costs 14,984 19,384 20,545
General and administrative expense 11,603 11,510 10,405
Depreciation 694 900 1,215
Cost of borrowing, net of amounts capitalized 12,222 13,430 14,274
Other expense 1,463 512 517
-------- -------- --------
Total costs and expenses 137,622 176,844 132,073
-------- -------- --------
Operating loss (60,974) (38,065) (34,054)
-------- -------- --------
Other income (expense):
Reorganization reserves
Utility trust accounts - 11,859 863
Utility connection reserve 1,063 4,097 -
Contracts receivable termination refunds 706 (112) 2,788
Deferred property tax 35 - 2,165
Income tax - - 1,500
Administrative/Convenience class claims - 60 1,673
Other reorganization reserves 1,726 2,186 1,687
Utility condemnation - 4,122 -
Sale of Florida Home Finders - - 2,353
Gain on assignment of receivable - - 2,000
Land mortgages receivable valuation discount (92) 1,020 (1,181)
Miscellaneous (810) 2,282 (390)
-------- -------- --------
Total other income (expense) 2,628 25,514 13,458
-------- -------- --------
Loss before extraordinary items (58,346) (12,551) (20,596)
Extraordinary gains on extinguishment of debt - 13,732 --
-------- -------- --------
Net (loss) income (58,346) 1,181 (20,596)
-------- -------- --------
Less:
Accrued preferred stock dividends 3,296 - -
Accretion of preferred stock to redemption amount 427 - -
-------- -------- --------
3,723 - -
-------- -------- --------
Net (loss) income applicable to common stock $(62,069) $ 1,181 $(20,596)
======== ======== ========
Basic and diluted earnings per common share:
Net (loss) income per common share $ (5.82) $ .12 $ (2.12)
======== ======== ========
Weighted average common shares outstanding 10,661 9,709 9,708
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(in thousands of dollars)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(58,346) $ 1,181 $(20,596)
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 5,033 5,244 6,879
Other income (2,396) (19,337) (8,922)
(Gain) loss from sale of property, plant and equipment 36 94 (44)
Gains from utility condemnations or sales - (5,504) (219)
Gain from sale of stock of wholly owned subsidiaries - - (2,353)
Extraordinary gains from extinguishment of debt - (13,732) -
Reorganization items 549 (1,477) (2,589)
Inventory valuation reserves 14,457 12,283 4,851
Land acquisitions (21,423) (9,338) (7,607)
Other net changes in assets and liabilities:
Restricted cash 4,321 2,427 1,248
Receivables 19,351 (403) (5,238)
Land and residential inventory 45,091 61,694 21,463
Other assets (9,401) (12,367) (5,311)
Accounts payable and accrued liabilities (3,046) (2,753) (3,641)
Customer deposits (4,302) (414) 1,578
Other liabilities (1,346) (2,317) (4,244)
Other, net (103) (273) (125)
-------- ------- --------
Net cash (used in) provided by operating activities (11,525) 15,008 (24,870)
-------- ------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (455) (228) (1,555)
Proceeds from sale of property, plant and equipment 1 1,885 204
Proceeds from utility condemnations or sales - 28,699 850
Funds withdrawn from utility trust accounts 12,109 - -
Proceeds from sale of stock of wholly owned subsidiaries - - 2,701
-------- ------- --------
Net cash provided by investing activities 11,655 30,356 2,200
-------- ------- --------
Cash flows from financing activities:
Borrowings under credit agreements 120,097 123,848 44,538
Repayments under credit agreements (168,860) (161,477) (24,662)
Principal payments on other liabilities (2,494) (4,250) (5,987)
Proceeds from issuance of common stock 10,000 - -
Proceeds from issuance of preferred stock 43,265 - -
Proceeds from exercise of stock options - 5 44
-------- ------- --------
Net cash provided by (used in) financing activities 2,008 (41,874) 13,933
-------- ------- --------
Increase (decrease) in cash and cash equivalents 2,138 3,490 (8,737)
Cash and cash equivalents at beginning of period 7,050 3,560 12,297
-------- ------- --------
Cash and cash equivalents at end of period $ 9,188 $ 7,050 $ 3,560
======== ======= ========
Supplemental cash flow information:
Income tax payments $ 103 $ - $ -
======== ======= ========
Interest payments, net of amounts capitalized $ 6,552 $12,268 $ 7,269
======== ======= ========
Reorganization item payments $ 1,756 $ 5,099 $ 7,298
======== ======= ========
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
(in thousands)
Minimum
Common Stock Contri- Pension
------------------ buted Accumulated Liability Treasury
Shares Amount Capital Deficit Adjustments Stock
- --------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1995 9,675 $975 $119,528 $(41,291) $(4,380) $(102)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss - - - (20,596) - -
Stock returned (3) - - - - -
Shares issued as minimum pension
contribution 31 - 206 - - 42
Minimum pension liability adjustment - - - - (445) -
Exercise of stock options 8 1 43 - - -
Shares issued as Secured Floating
Rate Note fees 61 1 338 - - 60
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 9,772 977 120,115 (61,887) (4,825) -
- ---------------------------------------------------------------------------------------------------------------------
Net income - - - 1,181 - -
Stock returned (86) - - - - (9)
Shares issued under director stock
plan 18 2 98 - - -
Warrants issued to pay down Secured
Cash Flow Notes - - 1,875 - - -
Exercise of stock options 1 - 5 - - -
Minimum pension liability adjustment - - - - (1,175) -
Shares issued to director as
recapitalization committee fee 4 1 30 - - -
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 9,709 980 122,123 (60,706) (6,000) (9)
- --------------------------------------------------------------------------------------------------------------------
Net loss - - - (58,346) - -
Shares issued under director stock
plan 36 3 189 - - -
Common shares issued 1,776 178 9,822 - - -
Proceeds from issuance of warrants - - 519 - - -
Accrued preferred stock dividends - - (3,296) - - -
Preferred stock accretion - - (427) - - -
Minimum pension liability
adjustment - - - - 288 -
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 11,521 $1,161 $128,930 $(119,052) $(5,712) $(9)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
Atlantic Gulf Communities Corporation ("Atlantic Gulf" or the
"Company") is principally engaged in the business of acquisition,
development and sale of (1) residential homesites ("Homesites")
to homebuilders and commercial land ("Tracts") in primary markets
in Florida and other selected primary markets in the Southeast
United States ("Primary Markets") and (2) the construction and
sale of selected vertical residential products, including
oceanfront condominiums and an urban luxury tower. The Company is
also engaged in the orderly disposition of scattered homesites
("Predecessor Homesites") and commercial/industrial, undeveloped,
residential, institutional and agricultural tracts ("Predecessor
Tracts") in secondary markets (collectively, "Predecessor
Assets").
(b) CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all majority- owned subsidiaries controlled by the
Company. All significant intercompany accounts and transactions
have been eliminated in consolidation.
(c) USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that effect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
(d) REORGANIZATION AND FRESH START REPORTING
In April 1990 (the "Petition Date"), Atlantic Gulf's predecessor
corporation ("Predecessor Company") and certain of its
subsidiaries filed for reorganization under Chapter 11 of the
United States Bankruptcy Code. The Predecessor Company's Plan of
Reorganization ("POR") was confirmed on March 27, 1992 by the
Bankruptcy Court and became effective on March 31, 1992
("Effective Date"). Atlantic Gulf, as the successor Company,
adopted a new charter and business plan to be implemented by its
new board of directors and management.
The Company adopted "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("Fresh Start
Reporting") as of the Effective Date in accordance with American
Institute of Certified Public Accountants' Statement of Position
No. 90-7. Accordingly, the Company's consolidated financial
statements have been prepared as if the Company were a new
reporting entity as of, and for the periods subsequent to, the
Effective Date (see Note 19).
F-7
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(e) EARNINGS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE. Statement 128 replaced the
calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings
per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for
all periods have been presented to conform to the Statement 128
requirements.
Earnings per common share is based on the weighted average number
of shares of common stock outstanding during the periods. The
effect of outstanding warrants and options to purchase common
stock on the per share computations was anti-dilutive during the
periods.
(f) REAL ESTATE SALES
Revenue from the sale of residential units other than Regency
Island Dunes ("Regency Island Dunes") condominium units is
recognized when the earnings process is complete. Revenue from
the sale of Regency Island Dunes 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 is at least 20% of the selling price 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.
Cost of residential sales other than Regency condominium sales is
determined on a specific identification basis. Cost of sales
associated with Regency condominium sales is determined using the
percentage-of-completion method. Cost of land sales is determined
on a project basis using the relative sales value method.
(g) LAND AND RESIDENTIAL INVENTORY
The Company's cost of land was determined in connection with its
application of Fresh Start Reporting. Costs capitalized are
allocated on a specific project identification basis. Residential
unit costs are accounted for on a specific identification basis
and all land and residential inventory is carried at values
determined in accordance with SFAS 121. Property currently under
development and property held for future development are
evaluated at least quarterly for impairment if impairment
indicators are present. An impairment write-down to fair value is
made if the estimated undiscounted cash flows from the project
are less than the carrying amount of the asset. Properties that
are substantially complete and ready for their intended use are
carried at the lower of carrying amount or fair value less cost
to sell. The determination of whether the carrying amount of a
real estate project requires a write-down is based on an
evaluation of each individual project.
F-8
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(h) DEPRECIATION
Depreciation and amortization is provided on a straight-line
basis on the following assets:
Estimated useful
lives in years
------------------
Land improvements 5 to 33
Buildings 10 to 40
Fixtures and equipment 3 to 10
Maintenance and repairs are charged to income as incurred.
Renewals and betterments to owned properties are capitalized.
Betterments to leased properties are capitalized and amortized
over the shorter of the terms of the leases or the lives of the
betterments.
(i) INCOME TAXES
Income taxes have been provided using the liability method in
accordance with FASB Statement No. 109, Accounting for Income
Taxes.
(j) CAPITALIZED INTEREST
The Company capitalizes interest on land and residential
inventory under development on a specific project identification
basis. Capitalized interest approximated $7,804,000, $5,693,000
and $7,418,000 during the years ended December 31, 1997, 1996 and
1995, respectively.
(k) CASH AND CASH EQUIVALENTS
The Company includes in cash and cash equivalents all highly
liquid debt instruments purchased with a maturity of three months
or less. The credit risk associated with cash and cash
equivalents is considered low due to the high quality of the
financial instruments in which these assets are invested.
Restricted cash and cash equivalents include amounts pursuant to
escrows for the sale of real estate properties, development cash
collateral accounts, funds in a trust to pay certain bankruptcy
claims and various other escrow accounts.
(l) DEFERRED DEBT ISSUANCE COSTS
Costs associated with the issuance of the Company's various debt
instruments or closing of other financing transactions have been
deferred and are being amortized over the term of the related
debt. Amortization of deferred debt issuance costs, included in
cost of borrowing, net
F-9
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
in the accompanying consolidated statements of operations, was
$1,463,000, $1,187,000 and $2,458,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
(m) REPORTING ON ADVERTISING COSTS
Effective January 1, 1995, the Company adopted Statement of
Position (SOP) 93-7, "Reporting on Advertising Costs," issued by
the American Institute of Certified Public Accountants. Adoption
of SOP 93-7 had no effect on the consolidated financial
statements.
The Company expenses advertising costs as incurred. The Company
recognized advertising expenses of $1,608,000, $3,577,000 and
$2,126,000 for the years ended December 31, 1997, 1996 and 1995,
respectively and these expenses are included in selling and other
real estate costs in the accompanying consolidated statements of
operations. The Company did not incur any direct response
advertising cost, as defined by SOP 93-7, during the period.
(n) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company will continue to account for stock-based compensation
plans under the provisions of APB 25 - Accounting for Stock
Issued to Employees. The Company discloses the pro forma
information required for stock-based compensation plans in
accordance with FAS 123 (see Note 21).
(o) RECLASSIFICATION
Certain amounts in the consolidated financial statements have
been reclassified to conform with the 1997 presentation.
(2) MANAGEMENT'S PLANS
Approximately $80 million of corporate debt will mature in 1998. The
corporate debt represents the remainder of the Predecessor Company debt
that the Company inherited from the 1992 reorganization. Management's
1998 Business Plan contemplates the following:
(1) The termination of the Company's National Land Sales Department,
which was primarily responsible for the disposition of
Predecessor Assets, and the execution of an exclusive brokerage
agreement with Bayshore Land Group, Inc. to provide for the
accelerated disposition of the Company's remaining Predecessor
Assets;
(2) The growth and expansion of the Company's Core Business,
primarily the sales of new Homesites and Tracts throughout its
Primary Markets in Florida and the Southeast; and
(3) The pursuit of other growth opportunities such as the
development of oceanfront condominiums and an urban luxury
apartment tower.
Management believes that (1) the implementation of its 1998 Business
Plan will result in sufficient cash flow from the sales of the
Company's Predecessor Assets to significantly reduce the Company's
outstanding corporate debt and (2) the Company's Core Business will
generate sufficient cash flow to support the refinancing of the
Company's remaining corporate debt.
F-10
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) CONTRACTS RECEIVABLE
The Company owns and manages a portfolio of retail land sales contracts
receivable generated by the Predecessor Company ("Predecessor Homesite
Contracts Receivable"). At December 31, Predecessor Homesite Contracts
Receivable consisted of the following (in thousands of dollars):
1997 1996
---- ----
Predecessor Homesite Contracts
Receivable, gross $ 7,347 $11,779
Reserve for estimated future cancellations,
net of estimated land recoveries (244) (584)
Valuation discounts to yield 15% (767) (1,546)
------ -------
$ 6,336 $ 9,649
======= =======
Stated interest rates on Predecessor Homesite Contracts Receivable
outstanding at December 31, 1997 and 1996 ranged from 4% to 12.5%
(averaging approximately 7.0%). The original terms of these contracts
were 10 to 12 years, and at December 31, 1997 and 1996, approximately
19% and 18%, respectively, of such Predecessor Homesite Contracts
Receivable were delinquent. Contracts are classified as delinquent if
their monthly payment is more than 30 days past due. The percentage of
delinquent accounts is not indicative of the percentage of accounts
that subsequently cancel. The cancellation rates for 1997 and 1996 were
4.3% and 6.3%, respectively. The Company has established the reserve
for estimated future cancellations and the reserve for Predecessor
Homesite Contracts Receivable termination refunds based on its actual
cash collections and actual cancellations.
Total estimated future cancellations are estimated at $1,128,000 and
$1,827,000 as of December 31, 1997 and 1996, respectively, based on
prior cancellation experience. When a contract cancels, the Company
recovers/restores the lot to inventory at its estimated historical
cost. Total future recoveries are estimated at $884,000 and $1,243,000
as of December 31, 1997 and 1996, respectively. The Company's reserve
for estimated future cancellations and its reserve for Predecessor
Homesite Contracts Receivable termination refunds (see Note 9) are
based on 1997 and 1996 collection and cancellation experience, which is
not necessarily indicative of future trends. Based on actual collection
and cancellation activity, the estimated future cancellations and
recoveries were adjusted resulting in
a net gain of $47,000 in 1997, a net loss of $395,000 in 1996 and a net
gain of $44,000 in 1995, recorded in other income (expense) in the
accompanying consolidated statements of operations. The Company
believes that a downturn in the economy is the most significant factor
which could materially impact the future collectibility of the
Predecessor Homesite Contracts Receivable portfolio. As of December 31,
1997, the Company believes its Predecessor Homesite Contracts
Receivable reserves are adequate based on current and foreseeable
economic trends. There are no significant concentrations of credit risk
associated with this portfolio.
F-11
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Pursuant to the Company's business plan to monetize receivables
generated as a result of the sale of Predecessor Assets, the Company
closed on a $7.6 million financing in January 1997 of a portion of its
Predecessor Homesite Contracts Receivable portfolio with Litchfield
Financial Corporation ("Litchfield"). The proceeds were used to reduce
corporate debt and to fund ongoing operations.
The Company amortizes the valuation discounts over the expected life of
the Predecessor Homesite Contracts Receivable portfolio. This
amortization, included in results of operations in the accompanying
consolidated statements of operations, amounted to $673,000, $1,153,000
and $1,472,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The valuation discounts were reduced by $106,000 in 1997
due to higher than anticipated collection activity in 1997 resulting in
a gain of $106,000 recorded in other income (expense) in the
accompanying consolidated statements of operations. The valuation
discounts were reduced by $542,000 in 1996 due to higher than
anticipated collection and cancellation activity since the Effective
Date resulting in a gain of $542,000 recorded in other income (expense)
in the accompanying consolidated statements of operations.
As of December 31, 1997, scheduled principal collections on the
Predecessor Homesite Contracts Receivable portfolio for the next five
years ending December 31, 2002 and thereafter are as follows: 1998 -
$2,597,000, 1999 - $2,014,000, 2000 - $1,422,000, 2001 - $868,000, 2002
- $369,000 and thereafter - $77,000.
The Predecessor Homesite Contracts Receivable portfolio serves as
collateral for a portion of the Company's indebtedness (see Note 10).
F-12
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) MORTGAGES, NOTES AND OTHER RECEIVABLES
At December 31, mortgages, notes and other receivables, net consisted
of (in thousands of dollars):
1997 1996
---- ----
Land mortgages receivable,
net of valuation reserves of
$2,483 and $2,605 $28,091 $32,028
Regency percentage-of-completion receivable - 14,801
Utility trust fund withdrawal receivable - 12,109
Cumberland Cove land mortgages receivable, net 1,140 1,216
Receivable from Sunset Lakes JV Project 1,193 217
Receivable from Jupiter Ocean Grande JV Project 1,269 533
Other receivables 3,217 2,896
------- -------
$34,910 $63,800
======= =======
The portfolio of land mortgages receivable relates primarily to seller
financing associated with sales of the Company's Predecessor Tract
inventory. Substantially all land sale mortgages receivable are due
within five years and bear stated rates of approximately prime plus 2%.
The value of the Florida land securing these mortgages is estimated to
equal or exceed the net book value of the related receivables as
adjusted by valuation reserves. The valuation reserve was increased by
approximately $1.3 million in 1995 and charged to inventory valuation
reserves in the accompanying consolidated statements of operations. In
addition, a valuation discount of approximately $1.2 million associated
with the land mortgages receivable was recorded in 1995 and charged to
other income (expense) in the accompanying consolidated statements of
operations based on an anticipated sale of the land sales mortgages in
1996. During 1996, the mortgages which were anticipated to be sold were
financed instead and, due to the non-recourse provisions associated
with the financing transaction which reduced the foreclosure exposure
to the Company, the valuation discount was reduced by $1.0 million in
1996 and recorded as a gain in other income (expense) in the
accompanying consolidated statements of operations. During 1997, the
valuation reserve was increased by $425,000 and charged to other income
(expense) in the accompanying consolidated statements of operations.
Approximately 26% of the land mortgages receivable as of December 31,
1997 resulted from sales made to two trustees with multiple investors.
During 1997, pursuant to the Company's business plan to monetize
receivables generated as a result of the sale of Predecessor Assets,
the Company entered into two transactions in March 1997 and in December
1997 with the First National Bank of Boston ("BankBoston") to finance a
portion of the Company's land mortgages receivable portfolio. The March
1997 and December 1997 transactions resulted in the Company receiving
approximately $7.0 million and $5.2 million, respectively, and
transferring approximately $9.3 million and $6.9 million, respectively,
of mortgage receivables to BankBoston as collateral. Since the Company
did not surrender control of the mortgage receivables as defined by
Statement of Financial Standards No. 125, these transactions were
accounted for as
F-13
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
secured borrowings. The Company's agreement with BankBoston provides
that BankBoston receives all of the principal and interest payments
from the individual mortgage notes. The Company can repurchase the
remaining portfolio at any time prior to November 30, 2001 and December
31, 2002 for the March 1997 and December 1997 transactions,
respectively, for an amount equal to BankBoston's remaining investment
plus a stated return. In the event of a default by an individual
mortgagee, the Company is required to repurchase the individual
receivable, however, BankBoston's only remedy if the Company fails to
do so is to terminate the Company's repurchase option of the residual
balance of the portfolio. The December 1997 agreement allowed the
Company to finance an additional $5.8 million of mortgage receivables
under the same terms by February 28, 1998. As a result, an additional
$1 million net amount of mortgage receivables were added under the
agreement in January, 1998 for approximately $0.8 million of proceeds.
The proceeds from these transactions were used to reduce corporate debt
and to fund ongoing operations.
In July 1996, the Company sold to a limited partnership financed by
Harbourton Residential Capital Company, Ltd. ("Harbourton")
approximately $19.8 million of mortgage receivables. The Company
received an initial cash distribution of approximately $13.3 million at
closing, plus a residual interest in the limited partnership.
Harbourton's recourse is only to the mortgages. Harbourton has no
recourse to the Company or its partner. This transaction was recorded
as a financing because the limited partnership was not an independent
third party, the Company's partner did not make a substantive capital
investment in the partnership and the Company retained management
responsibilities for the mortgages as well as substantial risks and
rewards relative to the performance of the portfolio. Accordingly, the
underlying mortgage receivables remained on the Company's accompanying
consolidated balance sheets and a mortgage loan payable was recorded
for the amount of the proceeds. The proceeds were used to reduce
corporate debt and to fund ongoing operations (see Note 10).
The Regency Island Dunes percentage-of-completion receivable as of
December 31, 1996 represented earned revenue recorded using the
percentage-of-completion method for Regency Island Dunes condominium
units which were under contract but had not closed as of December 31,
1996. Regency Island Dunes consisted of two 72-unit buildings. As of
December 31, 1996, construction of the second building was
approximately 79% complete and 56 units were sold generating a
receivable and revenues of $14.8 million. During 1997, the receivable
balance of $14.8 million as of December 31, 1996 was collected in full
and the remaining 16 units in the second building were sold and closed
generating $9.3 million of revenues in 1997 from the second building.
The first building was completed in 1996 with 67 units closing in 1996
and the remaining 5 units closing in 1997.
The following is a summary of costs and estimated earnings associated
with Regency Island Dunes as of December 31 (in thousands of dollars):
1997 1996
---- ----
Costs incurred on uncompleted contracts
and estimated earnings $ - $14,801
Less: Deposits to date - (3,981)
------- -------
$ - $10,820
======= =======
F-14
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As part of a settlement of the Company's improvement obligations to the
Predecessor Company's retail Homesite customers, various trusts were
established. The Company funded these trusts with cash, stock and notes
based on estimates of the costs of the future improvement obligations.
The terms of these trusts and reserves require the Company to
periodically assess the adequacy of the property in the trusts and
reserves and any excess or deficiency will accrue to the benefit or
become an obligation of the Company (see Note 14). In December 1996,
upon review of these trusts, it was determined that approximately $12.1
million in cash plus $6.2 million of notes could be recovered from
various utility trusts. A receivable for the $12.1 million, which was
received in January 1997, was recorded as of December 31, 1996 in the
accompanying consolidated balance sheets and a gain of $11.9 million,
net of expenses, was recorded in other income (expense) in the
accompanying consolidated statements of operations.
The portfolio of Cumberland Cove land mortgages receivable relates to
seller financing associated with sales of the Company's Predecessor
Homesite inventory in Cumberland Cove. These receivables generally bear
interest at rates ranging from 9.4% to 10.9%, depending on the down
payment, and a term of 10 years. Valuation discounts of $83,000 and
$242,000 associated with these mortgages were recorded and are included
as a reduction to real estate revenues in the accompanying consolidated
statements of operations for the years ended December 31, 1997 and
1996, respectively. In 1996, the Company obtained a commitment from
Litchfield to buy up to $7 million of deeds of trusts associated with
the Cumberland Cove mortgages by December 31, 1997. The Company closed
on approximately $4.7 million under this commitment in 1996 and
$880,000 in 1997. Reserves of $67,000 and $341,000 were recorded
associated with these sales in the accompanying consolidated statements
of operations for the years ended December 31, 1997, and 1996,
respectively.
The receivable from the Sunset Lakes JV Project consists of a
management fee accrual of $521,000 which the Company earns based on 4%
of development costs, as defined in the JV Project agreement, of which
$458,000 was earned in 1997 and $63,000 in 1996 and is included in
operating revenues in the accompanying consolidated statements of
operations. This receivable also includes $672,000 of interest accrued
on amounts loaned to the Sunset Lakes JV Project by one of the
Company's consolidated subsidiaries.
The receivable from the Jupiter Ocean Grande JV Project consists of
$1,186,000 loaned to the Jupiter Ocean Grande JV Project by the Company
plus $83,000 of accrued interest.
In October 1995, the Company sold its residential mortgages receivable
portfolio for $2.4 million resulting in a loss of $694,000 which is
included in other income (expense) in the accompanying consolidated
statements of operations.
The land mortgages receivable valuation reserve in 1995 included an
unamortized interest rate valuation discount which was amortized based
on the terms of the related mortgages receivable and $610,000 was
included in interest income in the accompanying consolidated statements
of operations in 1995. The valuation reserve balances in 1997 and 1996
did not contain an unamortized interest rate valuation discount
component, therefore, no amortization income was recorded in 1997 and
1996.
F-15
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Scheduled collections of principal on the land mortgages receivable for
the next five years ending December 31, 2002 and thereafter are as
follows: 1998 - $6,627,000, 1999 - $3,960,000, 2000 - $8,849,000, 2001
- $5,433,000, 2002 - $5,726,000 and thereafter - $789,000.
Substantially all other receivables are non-interest bearing and are
due within one year.
Substantially all mortgages, notes and other receivables secure a
portion of the Company's debt (see Note 10).
F-16
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) LAND AND RESIDENTIAL INVENTORY
At December 31, land and residential inventory consisted of the
following (in thousands of dollars):
1997 1996
---- ----
Homesite inventory
Homesites $ 71,360 $ 40,684
Predecessor Homesites 30,835 43,871
Tract and Predecessor Tract inventory 21,913 63,637
Residential inventory
Condominiums 6,255 4,972
Single family homes 143 253
-------- --------
$130,506 $153,417
======== ========
Land inventory is net of net valuation reserves of $15.6 million and
$7.4 million as of December 31, 1997 and 1996, respectively. In
conjunction with the Company's reviews in 1997, 1996 and 1995 of the
fair values associated with its inventories and land holdings, the
Company provided additional net valuation reserves to reduce the
carrying value of its inventories and land holdings in the amounts of
$14.5 million, $10.4 million and $3.6 million for the years ended
December 31, 1997, 1996 and 1995, respectively, which were charged to
inventory valuation reserves in the accompanying consolidated
statements of operations. Approximately $12.7 million of the valuation
reserve charge in 1997 and all of the valuation reserve charges in 1996
and 1995 were associated with Predecessor Assets.
Land inventory is also net of environmental reserves of $950,000 and
$1.2 million as of December 31, 1997 and 1996, respectively, (see Note
14). Based on a review of the environmental reserve and recent changes
in Florida state laws, this reserve was reduced by $250,000 and $1.3
million in 1997 and 1996, respectively, and recorded in other income
(expense) in the accompanying consolidated statements of operations.
In June 1997, the Company acquired the 2.8 acre Riverwalk Tower parcel
in Fort Lauderdale for approximately $5.6 million, of which $2.7
million was financed by an acquisition loan and the remaining balance
was paid utilizing proceeds from the issuance of Series A Preferred
Stock. The Company is planning to develop a high-rise luxury rental
tower and adjacent office/hotel complex on this property.
In July 1997, the Company acquired approximately 632 acres of
residential property in Frisco, Texas, which is located near Dallas,
Texas, for approximately $7.5 million utilizing proceeds from the
issuance of Series A Preferred Stock. This project, known as The Trails
of West Frisco, is anticipated to yield approximately 1,643 Homesites.
In August 1997, the Company acquired approximately 127 acres of
residential property located north of Orlando, Florida for
approximately $2.9 million, of which $1.3 million was financed by an
F-17
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
acquisition loan secured by a mortgage on the property. This project,
known as Saxon Woods, is anticipated to yield approximately 408
Homesites.
During 1996, the Company purchased approximately 317 acres of property
in a project known as West Bay Club, located in southwest Florida, from
various sellers for approximately $5.6 million of which $2.1 million
was financed by the sellers through notes secured by mortgages on the
properties. The financed amounts totaling $2.1 million are non-cash
financing activities and therefore are not reflected in the
accompanying consolidated statements of cash flows. During 1997, the
Company purchased an additional 551 acres in West Bay Club from various
sellers for approximately $13.7 million of which approximately $5.0
million was paid utilizing proceeds from the issuance of Series A
Preferred Stock with the remaining balance of $8.7 million financed by
the sellers through notes secured by mortgages on the properties. The
financed amounts totaling $8.7 million are non-cash financing
activities and, therefore, are not reflected in the accompanying
consolidated statements of cash flows. As of December 31, 1997, the
Company owned approximately 868 acres in West Bay Club which is
anticipated to yield approximately 520 single family Homesites and 578
high-rise condominium units.
In December 1995, the Company purchased a project known as Summerchase
consisting of approximately 320 acres of residential property in
Broward County, Florida for $6.5 million of which $2.6 million was paid
in cash with the remaining balance of $3.9 million financed by the
seller through a note secured by a mortgage on the property. The
financed amount of $3.9 million is a non-cash financing activity and
therefore is not reflected in the accompanying consolidated statements
of cash flows. The Company permitted Summerchase for 640 Homesites and
sold it in bulk in April 1996 for $9.0 million.
In February 1995, the Company acquired a project known as West Meadows
consisting of approximately 900 acres located in the northeastern part
of the Tampa Bay area for $5.0 million, of which $1.5 million was paid
in cash and the balance of $3.5 million was financed by the seller
through a note secured by a mortgage on the property. The financed
amount of $3.5 million is a non-cash financing activity and therefore
is not reflected in the accompanying consolidated statements of cash
flows. In April 1996, the Company acquired an additional 240 acres of
this project for approximately $2.1 million, of which $1.8 million was
financed by the seller through a note secured by a mortgage on the
property. The financed amount of $1.8 million is a non-cash financing
activity and therefore is not reflected in the accompanying
consolidated statements of cash flows. The combined acreage in the West
Meadows project of approximately 1,140 acres is currently being
permitted for approximately 1,330 Homesites. In October 1997, the
Company acquired approximately 26 acres of commercial property in West
Meadows for approximately $1.9 million, of which $1.4 million was
financed by the seller through a note secured by a mortgage on the
property. The financed amount of $1.4 million is a non-cash financing
activity and, therefore, is not reflected in the accompanying
consolidated statements of cash flows.
Substantially all of the Company's inventory serves as collateral for
the Company's debt (see Note 10) and certain of its other liabilities
and commitments (see Notes 9 and 14).
F-18
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) PROPERTY, PLANT AND EQUIPMENT
At December 31, property, plant and equipment, net, at cost, consisted
of (in thousands of dollars):
1997 1996
---- ----
Land and improvements $ 80 $ 992
Buildings 1,345 1,392
Fixtures and equipment 3,402 3,992
Construction in progress 138 -
------ -------
4,965 6,376
Accumulated depreciation (3,211) (3,465)
------ -------
$1,754 $ 2,911
====== =======
During 1996, the Company sold its two remaining utility systems in
accordance with the Company's business plan to dispose of its non-core
operations and provide working capital to the Company. In February,
1996, the Company sold its Port LaBelle utility system to Hendry County
for $4.5 million resulting in a gain of $686,000 which is included in
other income (expense) in the accompanying consolidated statements of
operations. The proceeds were used to repay the Company's Secured
Floating Rate Notes. In June 1996, the Company sold its Julington Creek
utility system for $6.0 million resulting in a gain of $696,000 which
is included in other income (expense) in the accompanying consolidated
statements of operations. Of the net proceeds of approximately $5.7
million from this sale, approximately $2.0 million was used to repay
fully the Company's utilities loan and $3.0 million was used to repay
the Company's Secured Floating Rate Notes.
In 1995, the Company sold Longwood Utilities, Inc. ("Longwood"), a
wholly-owned subsidiary, which operated a wastewater treatment plant in
the City of Longwood, Florida. Longwood was sold for $850,000 resulting
in a gain of $219,000 which is included in other income (expense) in
the accompanying consolidated statements of operations.
Substantially all property, plant and equipment serve as collateral for
the Company's debt (see Note 10).
F-19
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) OTHER ASSETS
Other assets consisted of the following as of December 31 (in thousands
of dollars):
1997 1996
---- ----
Sunset Lakes JV Project $ 7,830 $ 5,854
Falcon Trace JV Project 3,733 3,638
Jupiter Ocean Grande JV Project 2,459 3,046
Other real estate related assets 2,008 4,038
Other assets 2,634 3,956
------- -------
$18,664 $20,532
======= =======
In February 1994, the Company entered into a formation agreement and
subsequently in December 1995 entered into a JV Project agreement with
an unaffiliated third party to form the Sunset Lakes JV Project to
finance, develop and sell approximately 1,945 acres located in
southwest Broward County in Florida. This project is expected to yield
approximately 1,512 single family Homesites and 263 multi-family
homesites. The Company's percentage interest in the profits and losses
of the Sunset Lakes JV Project is 65%. In addition, the Company is
entitled to a fee equal to 4% of development costs, as defined in the
JV Project agreement. Although the Company is the managing JV general
partner, and has a majority ownership interest in the JV, the Company
does not control the JV. The Company's partner in the JV Project must
consent to major transactions and actions of the partnership including
the sale of substantially all of the property and assets of the
venture, modification to the venture's business plan, phasing of sales,
development and construction activities, financing, and the acquisition
of additional property. Inasmuch as the Company does not control the
venture, the Company accounts for this JV Project under the equity
method.
In April 1996, the Company acquired approximately 390 acres in
southeast Orlando for approximately $5.3 million, of which $2.4 million
was paid in cash and the balance of $2.9 million was financed by
Cypress Realty Limited Partnership ("Cypress") through an acquisition
loan secured by a mortgage on the property. This project, known as
Falcon Trace, is currently being permitted for approximately 878 single
family Homesites. In December 1996, and as amended in March 1997, the
Company and Cypress agreed to a restructuring in which title was
transferred into Falcon Trace Partners Limited Partnership ("Falcon
Trace JV Project") of which the Company is a limited partner. The
Company contributed its net investment in the project and its partner,
Falcon Trace-Cypress Limited Partnership, contributed all of its right,
title and interest to the mortgage on the property. The Company has a
65% interest in the Falcon Trace JV Project after expenses and fixed
returns to the partners. Although the Company has a majority ownership
interest in the JV Project, the Company does not control the
partnership. Cypress is the managing venturer and must consent to major
transactions and actions of the partnership including the sale of
property and assets of the venture, modification to the venture's
business plan, development and construction activities, financing, and
the acquisition of additional property. Inasmuch as the Company does
not control the venture, the Company accounts for this JV Project under
the equity method.
F-20
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In January 1995, the Company acquired a two-acre parcel in a six-acre
project known as Jupiter Ocean Grande for approximately $2 million in
cash. In January 1996, the Company purchased the remaining four acres
for approximately $2.2 million in cash. In June 1995, an unaffiliated
third party acquired a 50% JV interest in this JV Project for $4.3
million, $1.8 million of which was paid in June 1995, $2 million of
which was paid in January 1996, and the remaining $0.5 million was a
credit for reimbursable JV Project expenses. Jupiter Ocean Grande is a
condominium community consisting of 155 units directly across from the
ocean. The project was re-planned in 1997 to conform with modified
market demand. This re-plan has met with resistance from local
governmental jurisdictions and the Company filed suit against the Town
of Jupiter to challenge the Town's denial of the re-plan. On March 23,
1998, the Appellate Division of the Fifteenth Judicial Circuit in and
for Palm Beach County, Florida ruled in the Company's favor. The
Company intends on pursuing final approval of the re-plan from the
Town.
Other real estate related assets include refundable deposits to acquire
additional property and costs incurred to obtain regulatory permits and
approvals to develop property under contract.
Other assets include other deposits and prepaid expenses.
(8) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At December 31, accounts payable and accrued liabilities consisted of
(in thousands of dollars):
1997 1996
---- ----
Accounts payable, principally trade $ 2,156 $ 5,647
Accrued interest 952 932
Taxes, other than income taxes 4,293 5,604
Employee earnings and benefits 3,270 1,485
Other accrued liabilities 2,944 3,246
------- -------
$13,615 $16,914
======= =======
Accounts payable, principally trade decreased in 1997 primarily due to
approximately $2.7 million of payables as of December 31, 1996
associated with the construction of Regency Island Dunes which was
completed in 1997. Included in employee earnings and benefits at
December 31, 1997 is approximately $1.5 million of accrued termination
benefits relating to the termination of 32 employees primarily
associated with selling and maintaining Predecessor Assets. The related
expense is reflected in general and administrative expense in the
accompanying consolidated statement of operations for the year ended
December 31, 1997.
Substantially all accounts payable and accrued liabilities are payable
within one year.
F-21
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) OTHER LIABILITIES
Other liabilities consisted of the following as of December 31 (in
thousands of dollars):
1997 1996
---- ----
Section 365(j) lien liability $ - $ 2,512
Deferred property tax liability - 550
Reserve for Predecessor Homesite Contracts
Receivable termination refunds 2,744 3,654
Accrued pension liability 2,087 3,131
Utility connection reserve 3,196 4,264
Bankruptcy and other reserves 838 1,282
------ -------
$8,865 $15,393
====== =======
The Section 365(j) liability consisted of the portion of the claims of
Predecessor Homesite purchasers whose Predecessor Homesite contracts
were rejected by the Company in the reorganization proceedings that is
secured pursuant to Section 365(j) of the Bankruptcy Code. The final
semiannual payment associated with the Section 365(j) lien liability
was paid in September 1997.
The deferred property tax liability related to claims asserted with
respect to property or ad valorem tax obligations of the Company that
are secured by liens on property of the Company that attached prior to
the Petition Date. The final semiannual payment associated with the
deferred property tax liability was paid in July 1997. During the
fourth quarter of 1995, the Company received a favorable court ruling
which declared that approximately $2.2 million of the deferred property
tax liability was an unsecured claim thereby reducing the Company's
liability. As a result, the Company recorded a $2.2 million gain in
1995 in other income (expense) in the accompanying consolidated
statements of operations.
The reserve for Predecessor Homesite Contracts Receivable termination
refunds and other costs relates to the Company's obligations to retail
land sales customers whose contracts were not terminated or rejected as
a result of the bankruptcy proceedings. Under the terms of the retail
land sales contract, if a customer defaults and the contract is
canceled, the customer is entitled to a refund of principal payments in
excess of the Company's damages, which generally has been stipulated at
20% of the sales price. This obligation extends to the Company's
Predecessor Homesite Contracts Receivable, as well as receivables
transferred to lenders under the terms of the POR with a face value of
approximately $6.2 million as of December 31, 1997. The termination
refunds reserve balance represents the Company's estimate of the refund
liability which would arise from the amount of future cancellations
based on the Company's most recent actual collection and cancellation
experience (see Note 3). Based on actual collection and cancellation
activity the termination refund reserve was adjusted resulting in a
gain of $706,000 in 1997, a loss of $112,000 in 1996 and a gain of $2.8
million in 1995 recorded in other income (expense) in the accompanying
consolidated statements of operations. This reserve also provides for
the estimated future costs to maximize receivable collections and
minimize cancellations and termination refunds during the remaining
life of this portfolio. Based on estimates of these future costs, the
future servicing reserve was increased in 1997 resulting in an expense
of
F-22
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
$375,000 in 1997 and reduced in 1996 resulting in a gain of $703,000
included in other income (expense) in the accompanying consolidated
statements of operations.
The accrued pension liability is related to a frozen plan more fully
described in Note 16. The Company's estimated funding obligation for
the next three years is as follows: 1998 - $774,000, 1999 - $774,000
and 2000 - $578,000. The Company does not anticipate any significant
additional funding requirements.
The utility connection reserve consists of the Company's obligation to
provide utility connection credits to qualified claimants. Based on
minimal fundings to date and minimal fundings anticipated in the
future, the utility connection credit reserves were reduced by $1.1
million in 1997 and $4.1 million in 1996 which were recorded as gains
in other income (expense) in the accompanying consolidated statements
of operations (see Note 13).
Bankruptcy and other reserves primarily includes the remaining claims
related to the Predecessor Company with respect to approved claimants.
The remaining outstanding claims corresponding to the issuance of stock
and notes to claimants should be satisfied in 1998. The Company's
income tax provision balance, included in other reserves, was $14,000
and $117,000 as of December 31, 1997 and 1996, respectively, and was
reduced by $1.5 million during 1995 which was included in other income
(expense) in the accompanying consolidated statements of operations. As
of December 31, 1997, approximately $207,000 is included in restricted
cash and cash equivalents to fund a portion of these remaining claims
(see Note 1).
(10) NOTES, MORTGAGES AND CAPITAL LEASES
At December 31, notes, mortgages and capital leases consisted of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Mandatory Interest Notes, weighted average interest
rate of 12.0% $ - $ 37,457
Cash Flow Notes, due December 31, 1998, net of
unamortized discount of $2,138 and $4,015 37,479 35,603
Working Capital Facility 20,000 20,000
Term Loan 13,333 40,000
Reducing Revolving Loan 7,653 1,725
Project acquisition and development loans 35,717 12,609
Mortgages receivable loans 13,540 12,147
Predecessor Homesite Contracts Receivable loan 4,497 -
Construction Loan - 9,338
Capital leases 189 336
-------- --------
$132,408 $169,215
======== ========
</TABLE>
F-23
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As discussed in Note 1, in connection with the POR, the Company issued
$100 million in Mandatory Interest Notes, consisting of Secured
Floating Rate Notes and Unsecured 12% Notes, $100 million in Cash Flow
Notes, consisting of Secured Cash Flow Notes and Unsecured 13% Cash
Flow Notes, discounted to a value of $76.5 million, refinanced the debt
incurred during the reorganization through a $50 million Term Loan and
obtained a $20 million Working Capital Facility. On or about May 29,
1992, the Company distributed a majority of the Notes in settlement of
Predecessor Company bankruptcy claims. The balance of the $50 million
Term Loan was fully repaid in December 1994 from the Port Charlotte
litigation settlement proceeds. In February 1996, the Company recorded
an extraordinary gain of approximately $3.8 million due to the
cancellation of approximately $1.9 million of Unsecured 12% Notes and
$1.9 million of Unsecured 13% Cash Flow Notes in accordance with the
POR. As of February 28, 1998, $89,100 of cash plus accrued interest and
$99,000 of the Unsecured 13% Cash Flow Notes are remaining to be
distributed in accordance with the POR.
In December 1996, the Company recorded an extraordinary gain of
approximately $6.0 million due to the extinguishment of approximately
$4.2 million of Unsecured 12% Notes and $1.8 million of Unsecured 13%
Cash Flow Notes, net of a $210,000 unamortized discount, which were
held in various utility trust accounts established during the
reorganization (see Notes 13 and 14).
On September 30, 1996, the Company closed on three credit facilities
totaling $85.0 million with Foothill (the "Foothill Debt"). Pursuant to
the Foothill Debt, Foothill provided the Company with (i) an extension
to December 1, 1998 of the $20 million Working Capital Facility; (ii) a
$40 million Term Loan maturing on June 30, 1998 and a (iii) $25 million
Reducing Revolving Loan maturing on June 30, 1998.
The following is a summary of each debt instrument:
(a) The Mandatory Interest Notes, as of December 31, 1996, consisted
of $37.5 million of Unsecured 12% Notes which matured on December
31, 1996 and were repaid in full on January 3, 1997. On September
30, 1996, Foothill purchased the $37.8 million outstanding balance
of the Secured Floating Rate Notes, advanced an additional $2.2
million and amended some of the terms in the form of a $40 million
Term Loan discussed in (d) below.
(b) The Cash Flow Notes, as of December 31, 1997, consisted of $39.5
million of Unsecured 13% Cash Flow Notes. On September 30, 1996,
the Company utilized proceeds from the Working Capital Facility,
the Reducing Revolving Loan and cash on hand for a total of $40
million plus warrants to purchase up to 1,500,000 shares of the
Company's stock at $6.50 per share, to fully repay at a discount
the Secured Cash Flow Notes. As a result of the extinguishment of
the Secured Cash Flow Notes, the Company recorded an extraordinary
gain of approximately $3.9 million representing the difference
between the book value of these notes of $49.1 million, consisting
of a par value of $54.9 million less an unamortized discount of
$5.8 million, and the consideration given of $41.9 million,
consisting of cash of $40.0 million and the estimated fair market
value of the warrants of $1.9 million, less $3.3 million of
expenses. Interest on the Cash
F-24
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Flow Notes is payable semiannually, only if and to the extent that
the Company has generated Available Cash during the preceding
period. Interest on the Cash Flow Notes is not payable if the
Company has not generated Available Cash and is not cumulative.
The Cash Flow Notes are subject to mandatory prepayment from
Available Cash. The amortization of the Cash Flow Notes discount
is included in cost of borrowing, net, in the accompanying
consolidated statements of operations and approximated $1,876,000,
$3,157,000 and $3,205,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
(c) The $20 million Working Capital Facility currently bears interest
at the variable interest rate, per annum, announced by Norwest
Bank of Minnesota, N.A., or any successor thereto, as its "base
rate" plus two percentage points. The Working Capital Facility
matures on December 1, 1998 and is extendable to December 1, 2000
at the sole discretion of the lender upon written notice to the
Company on or before July 15, 1998. The Working Capital Facility
is secured by a first lien on substantially all Company assets
with certain exceptions as to which the lenders generally will
receive junior liens, including (a) assets with mechanics' liens,
site liens and tax liens; (b) the Construction Loans and certain
other project acquisition and development loans; and (c) certain
other assets. As of December 31, 1997, there was no additional
credit available under the Working Capital Facility. Under the
terms of the Working Capital Facility, the Company is required to
pay an unused line fee equal to1/2of 1% per annum of the average
unused portion of the Working Capital Facility.
(d) The remaining $13.3 million of the original $40 million Term Loan
bears interest at 15% and matures on June 30, 1998. The Term Loan
requires a repayment in full on June 30, 1998.
(e) The Reducing Revolving Loan bears interest at prime plus four
percent and matures on June 30, 1998. As of December 31, 1997 the
Company can borrow up to $8.3 million under the Reducing Revolving
Loan. Amounts under the Reducing Revolving Loan are available only
when the Working Capital Facility is fully utilized.
(f) Project acquisition and development loans as of December 31, 1997,
include the following:
(i) In December 1997, a $22.5 million loan was issued to West
Bay Club Development Corporation, a wholly owned subsidiary
of the Company, to finance acquisition and construction
costs incurred by the Company associated its West Bay Club
project and to refinance approximately $10.6 million of
existing purchase money mortgages encumbering the project.
This loan was provided by Lehman Brothers Holdings Inc. and
is secured by, among other things, the common stock of West
Bay Club Development Corporation, with limited recourse to
the Company. The West Bay Club loan bears interest at the
LIBOR rate plus 4%, matures December 23, 2001 and will be
repaid with proceeds from closings in this project. In
addition to the interest on the principal balance,
additional interest of $11.25 million is due and payable in
full at the maturity date or such earlier date when the
debt is paid in full. If the entire debt is paid within 36
months the additional interest is reduced to approximately
$8.2 million, if the debt is paid between 36 and 42 months
the additional interest is reduce to approximately $9.8
million.
F-25
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(ii) A $33.0 million Revolving Credit Loan was issued to West
Bay Club Development Corporation by BankBoston, B.A. and
certain other lending institutions under which the lenders
have agreed to lend the Company the maximum cumulative
amount of $67.4 million to finance construction of the West
Bay Club project. The Company has $89,000 outstanding under
this loan as of December 31, 1997. The West Bay Club
Revolving Credit Loan bears interest at either LIBOR plus
4% or the higher of either BankBoston's prime rate plus
1.25% or the overnight federal funds effective rate plus
0.5% and matures December 23, 2001.
(iii) A $2.75 million acquisition loan was issued to Las Olas
Tower at Riverwalk, Inc., a wholly owned subsidiary of the
Company, to acquire the Riverwalk Tower site in June 1997.
This loan bears interest at prime plus 0.75%, is secured by
the project property, with recourse to the Company, and
matures in June 1998.
(iv) An acquisition loan and a development loan with a combined
commitment of $6.3 million were obtained to acquire and
finance the development of the Company's Lakeside Estates
project in Orlando, Florida. As of December 31, 1997, the
Company has a total of $2.1 million outstanding under these
loans. These loans bear interest rates ranging from prime
plus 1.25% to 1.5%, are secured by the project property,
with recourse to the Company, and mature in June 1998.
(v) A $5.9 million revolving credit loan with an outstanding
balance of $2.7 million as of December 31, 1997 is being
used to fund the development of the Company's West Meadows
project in Tampa, Florida. This loan bears interest at the
LIBOR rate plus 3%, is secured by the project property,
with recourse to the Company, and matures in February 2000.
In addition, the Company has two purchase money mortgages
totaling $2.8 million as of December 31, 1997 which were
used to acquire land in this project. These loans bear
interest at 9% are secured by the project property without
recourse to the Company, and mature in October 2000 and
April 2001, respectively.
(vi) A $1.3 million acquisition loan was obtained in August 1997
to acquire the Company's Saxon Woods project in Orlando,
Florida. In addition the Company obtained a $2.2 million
development loan to fund development of the Saxon Woods
project of which the Company has borrowed $113,000 as of
December 31, 1997. This loan bears interest at prime plus
0.5%, is secured by the project property, with recourse to
the Company, and matures in September 1999.
(vii) In November 1997, a $19 million development loan was
acquired by West Frisco Development Corporation, a wholly
owned subsidiary of the Company, to finance the development
of the Company's Trails of West Frisco project which is
located near Dallas, Texas. No amounts were borrowed under
this loan as of December 31, 1997. This loan bears interest
at prime plus 1.375%, is secured by the project property,
with recourse to the Company, and matures in December 1999.
(g) The Mortgages receivable loans were used to finance a portion of
the Company's mortgage receivables portfolio in 1996 and 1997 (see
Note 4). As of December 31, 1997, these loans consisted of a $4.0
million loan with Harbourton and two loans with BankBoston for
$4.3 million and $5.2 million. The Harbourton loan is secured by
the underlying mortgage receivables without recourse to the
Company, is repaid with collections from the underlying mortgage
receivables, bears interest at prime plus 3% and matures in July
1999. The $4.3 million loan with BankBoston bears interest at 12%
and matures in December 2001 while the $5.2 million loan bears
interest at prime plus 3% and matures in June 2002. The BankBoston
loans are also repaid with collections from the underlying
mortgages. In the event of a default by a individual mortgagee,
the Company is required to repurchase the individual receivable,
however, BankBoston's only remedy if the Company fails to do so is
to terminate the Company's repurchase option of the residual
balance of the portfolio.
F-26
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(h) The Predecessor Homesite Contracts Receivable loan was used to
finance the Company's Predecessor Homesite Contracts Receivable
portfolio in January 1997 (see Note 3). This loan was provided by
Litchfield and is secured by the underlying contract receivables
with recourse to the Company. The Predecessor Homesite Contracts
Receivable loan is repaid with collections from the underlying
Predecessor Homesite Contracts Receivable, bears interest at prime
plus 4% and matures in December 2000.
(i) The Construction Loan was utilized to fund construction of the
second of two 72-unit condominium buildings at Regency. The
outstanding balance of $9.3 million as of December 31, 1996 was
repaid fully during 1997 with proceeds from the closings of
condominium units in the second building. The second loan was
secured by, among other things, the property under construction.
Due in part to the necessity of establishing reserves for future
mandatory debt and other POR payments, the Company did not have any
Available Cash at December 31, 1997, 1996 and 1995 to enable it to make
any portion of the interest payment on the Cash Flow Notes for the
payment periods through December 31, 1997. Interest on the Cash Flow
Notes is noncumulative. Therefore, the Company has not recorded any
interest expense related to the Cash Flow Notes during the years ended
December 31, 1997, 1996 and 1995.
Based on the outstanding balances as of December 31, 1997, principal
payments required on the notes, mortgages and capital leases for each
of the five years following December 31, 1997 and thereafter, are as
follows: 1998 - $96,274,000, 1999 - $6,391,000, 2000 - $11,204,000,
2001 - $19,849,000, 2002 - $824,000 and thereafter - $4,000.
F-27
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) REDEEMABLE PREFERRED STOCK
At December 31, 1997, redeemable preferred stock consisted of the
following (in thousands of dollars):
1997
----
SERIES A
--------
Gross proceeds $ 23,265
Accrued dividends 1,989
--------
Liquidation Preference amount 25,254
Less issue costs (2,885)
Less warrants purchased (279)
Plus accretion of preferred stock to redemption amount 288
--------
22,378
--------
SERIES B
--------
Gross proceeds 20,000
Accrued dividends 1,307
--------
Liquidation Preference amount 21,307
Less issue costs (1,900)
Less warrants purchased (240)
Plus accretion of preferred stock to redemption amount 139
--------
19,306
--------
Total redeemable preferred stock $ 41,684
========
The Company is authorized, as approved by the shareholders in June
1997, to issue 4.5 million shares of preferred stock consisting of 2.5
million shares of 20% Series A Redeemable Preferred Stock ("Series A
Preferred Stock") and 2 million shares of 20% Series B Redeemable Stock
("Series B Preferred Stock").
During 1997, the Company completed three 1997 Equity Transactions,
totalling $55 million, consisting of (a) $25 million in Series A
Preferred Stock and warrants to purchase 5 million shares of Atlantic
Gulf common stock ("Common Stock") placed with an affiliate of Apollo
Real Estate Advisors, L.P. ("Apollo"), (b) a private placement with a
series of sophisticated investors ("Private Purchasers") of $10 million
of Common Stock and $10 million of Series B Preferred Stock and
warrants to purchase an additional 2 million shares of Common Stock,
and (c) a rights offering of an additional $10 million of Series B
Preferred Stock as more fully described below.
The Company and Apollo entered into an agreement in June 1997 whereby
Apollo agreed to acquire 2.5 million shares of 20% Series A Preferred
Stock at a per share price of $9.88, and 5 million warrants to purchase
up to 5 million shares of Common Stock (the "Investor Warrants"), at a
per
F-28
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
warrant price of $.06, for an aggregate purchase price of up to $25
million (the "Apollo Transaction"). As of December 31, 1997, Apollo had
purchased 2,326,475 shares of Series A Preferred Stock with Investor
Warrants to purchase 4,652,950 shares of Common Stock for a total
purchase price of approximately $23.3 million of the $25 million total.
On March 31, 1998, the Company expects to close the sale to Apollo of
the remaining 173,525 shares of Series A Preferred Stock and Investor
Warrants to purchase an additional 347,050 shares of Common Stock, for
an aggregate purchase price of $1,735,248. This sale will complete the
$25 million placement of Series A Preferred Stock with Apollo.
Following such closing, Apollo will own a total of 2.5 million shares
of Series A Preferred Stock and Investor Warrants to purchase an
additional 5 million shares of Common Stock.
As required by the Company's Agreements with Apollo, the proceeds from
the sale of Series A Preferred Stock have been and will be used
primarily to acquire and develop properties through a wholly owned
special purpose subsidiary of the Company ("SP Subsidiary") and through
subsidiaries of the SP Subsidiary. During 1997 these proceeds were used
to acquire various projects including (a) Riverwalk Tower in Fort
Lauderdale, Florida, (b) The Trails of West Frisco near Dallas, Texas
and (c) West Bay Club in the Fort Myers, Florida area (see Note 5). 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 (a) a junior lien on substantially all of the assets of the
Company and its subsidiaries, except for the outstanding capital stock
of the SP Subsidiary and its assets, and (b) a senior lien on the
outstanding capital stock of the SP Subsidiary and on its assets.
In June 1997, the Company and the Private Purchasers consummated a
private placement pursuant to which the Private Purchasers purchased
for an aggregate price of $20 million; (a) 1,776,199 shares of Common
Stock for $10 million, and (b) 1 million shares of 20% Series B
Preferred Stock at a per share price of $9.88, and 2 million Series B
Warrants to purchase 2 million shares of Common Stock at a per warrant
price of $.06 for an aggregate purchase price of $10 million. The $20
million of proceeds from the private placement were applied primarily
to the reduction of aggregate debt.
In November 1997, holders of Common Stock acquired 1 million shares of
Series B Preferred Stock and 2 million Series B Warrants to purchase 2
million shares of Common Stock for $10 million in a rights offering.
These proceeds were applied primarily to the reduction of corporate
debt. As of December 31, 1997, all 2 million shares of the authorized
Series B Preferred Stock had been issued.
Each share of the Series A Preferred Stock and the Series B Preferred
Stock (collectively, the "Preferred Stock") is convertible, at the
holders election, into shares of Common Stock at the rate of $5.75 per
share. The Investor Warrants and Series B Warrants are also exercisable
at $5.75 per share, although the strike price on the warrants is
subject to a one-time downward adjustment in 1999 based on actual cash
flow results for 1997 and 1998.
The holders of the Preferred Stock are entitled to receive, when, as
and if declared by the Board of Directors, out of funds legally
available therefore, cash dividends on each share of preferred stock at
an annual rate equal to 20% of the Liquidation Preference (defined as
$10 per share plus accumulated
F-29
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
and unpaid dividends) in effect from time to time. All dividends are
cumulative, whether or not declared, on a daily basis from the date on
which the preferred stock is originally issued by the Company, and will
be payable, subject to declaration by the board of directors, quarterly
in arrears on March 31, June 30, September 30, and December 31 of each
year commencing on September 30, 1997. The excess of the Liquidation
Preference value over the carrying value is being accreted by periodic
charges to contributed capital over the life of the issues.
Beginning in 2001, the holders of the Preferred Stock are entitled to
redeem the Preferred Stock ratably over three years. The aggregate
redemption amounts of the Preferred Stock based on the Liquidation
Preference at December 31, 1997 for each of the five years following
December 31, 1997 and thereafter are as follows: 2001 - $15,520,000,
2002 - $15,520,000 and thereafter - $15,521,000.
(12) STOCKHOLDERS' EQUITY
In 1997, pursuant to the Apollo transaction, the shareholders approved
an increase in the Company's $.10 par value Common Stock from
15,665,000 shares to 70,000,000 shares. Under the terms of the POR,
9,750,000 shares were issued for distribution to creditors, of which
12,981 shares are being held in a Disputed Claims Reserve Account as of
February 28, 1998. The remaining shares are subject to distribution in
accordance with the POR during 1998 as remaining disputed claims are
resolved.
Effective June 24, 1997, as approved by the Company's shareholders, the
Company's certificate of incorporation was amended to repeal the right
of the holders of its Common Stock to receive, semiannually, mandatory
dividends equal to 25 percent of the Company's Available Cash, as
defined (see Note 10). No dividends were paid or payable as of June 24,
1997, December 31, 1996 or December 31, 1995.
Also on June 24, 1997, the Company and the Private Purchasers
consummated a private placement pursuant to which the Private
Purchasers purchased 1,776,199 shares of Common Stock for $10 million
and Series B Preferred Stock for $10 million (see Note 11). The
proceeds were used to reduce corporate debt.
In connection with the Company's prepayment, at a discount, of its
Secured Cash Flow Notes on September 30, 1996, the Company issued
10-year warrants to purchase up to 1,500,000 shares of the Company's
Common Stock at an exercise price of $6.50 per share (see Note 10). The
estimated fair market value of the warrants given to the holders of the
Secured Cash Flow Notes was $1,875,000.
The Company has two fixed stock option plans. In 1993, the Company
implemented an Employee Stock Option Plan ("Employee Option Plan")
which provides for the issuance of options to purchase up to 750,000
shares Atlantic Gulf's Common Stock at a price equal to the fair value
of the Common Stock at the date of grant. Pursuant to this plan, the
Company issued 1,000 shares in June 1996 and 1,000 shares in November
1995. The Company also has a 1994 Non-Employee Directors' Stock Option
Plan (the "1994 Plan"), approved by the Company's shareholders in 1995,
which provides for the issuance of options to purchase up to 350,000
Atlantic Gulf's Common Stock at a price equal to
F-30
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
the fair value of the Common Stock at the date of grant. See Note 21
for information on the Company's stock option plans.
In 1996, the Company's shareholders approved the adoption of the 1996
Non-Employee Directors' Stock Plan (the "1996 Directors' Stock Plan").
Under such plan, which took effect July 1, 1996, the Non-Employee
Directors receive an annual retainer of $25,000 paid in Common Stock
quarterly based on the share price at the end of the previous quarter.
Pursuant to the 1996 Directors' Stock Plan, 8,328 shares were issued to
the Non-Employee Directors at a price of $6.00 per share for the third
quarter of 1996 and 10,256 shares were issued at a price of $4.875 for
the fourth quarter of 1996 for a total of 18,584 shares issued during
1996. During 1997, the Company issued 12,355 shares of Atlantic Gulf's
Common Stock to the Non-Employee Directors at a price of $4.3125 per
share for the first quarter of 1997, 11,158 shares at a price of $5.50
per share plus 288 shares at $6.625 per share for the second quarter of
1997, 5,884 shares at a price of $6.375 per share for the third quarter
of 1997 and 6,000 shares at a price of $6.25 per share for the fourth
quarter of 1997 for a total of 35,685 shares issued during 1997.
Shares of Atlantic Gulf's Common Stock are reserved at December 31,
1997 for possible future issuance as follows (in thousands of dollars):
Series A Preferred Conversion 10,000
Series A Warrants 5,000
Series B Preferred Conversion 8,000
Series B Warrants 4,000
Warrants - Secured Cash Flow Notes 1,500
Employee Option Plan 741
1994 Directors' Stock Option Plan 350
1996 Directors' Stock Plan 150
------
29,741
======
In February 1996, the Company received 75,730 shares of its Common
Stock and in August 1996, it received 505 shares as distributions from
the disputed claims reserve in accordance with the Company's plan of
reorganization. In March 1996, upon approval from the Company's board
of directors, the Company issued 4,537 shares of its Common Stock to
Gerald Agranoff, one of its non-employee directors, representing a
$30,000 partial payment to assist management in the negotiation of
proposed financing. In June 1996, the Company received 8,728 shares of
its Common Stock, $96,400 principal amount of Mandatory Interest Notes
and $103,800 principal amount of Cash Flow Notes from the disputed
claims reserve account in settlement of a claim. The Company recorded
the shares at par value because the shares were never issued to a third
party. The debt corresponding to the notes was reduced and concurrently
other bankruptcy reserves were increased for the principal amount of
the notes. In December 1996, Atlantic Gulf received 1,314 shares of its
Common Stock, $7,100 principal amount of Mandatory Interest Notes and
$8,900 principal amount of Cash Flow Notes in accordance with the terms
of the POR.
F-31
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During 1995, the Company issued 46,934 shares of its treasury stock and
13,521 shares of its Common Stock representing $400,000 of fee payments
in connection with the September 1994 amendment of the Company's
Secured Floating Rate Notes and Secured Cash Flow Notes. Also during
1995, the Company received 2,676 shares of its Common Stock as a
distribution from the disputed claims reserve in accordance with the
Company's plan of reorganization. During the third quarter of 1995, the
Company issued 31,068 shares of its treasury stock representing a
$249,000 contribution to its pension plan to satisfy a portion of the
minimum contribution requirement. The remaining $56,000 of the required
contribution was paid in cash.
(13) NONRECURRING AND OTHER ITEMS
The Company recorded various gains and provisions during the years
ended December 31, 1997, 1996 and 1995 for several items included in
other income (expense) in the accompanying consolidated statements of
operations, as more fully described below.
During the years ended December 31, 1997, 1996 and 1995, the Company
recorded net gains of $3.5 million, $18.1 million and $10.7 million,
respectively, in other income (expense) - reorganization reserves in
the accompanying consolidated statements of operations resulting from
its annual review of certain reorganization items. The $3.5 million net
gain in 1997 included gains of $1.1 million due to the reduction of the
utility credit reserves (see Note 9 and schedule below regarding
utility connection credit reserve account activity) and $706,000 due to
the reduction of the Predecessor Homesite Contracts Receivable
termination refunds reserve (see Note 9). The $18.1 million net gain in
1996 included gains of $11.9 million, net of expenses, due to the
recovery of $12.1 million of funds from certain Utility Trust accounts
funded by the Company during the reorganization (see Note 4 and
schedule below regarding utility trust account activity), $4.1 million
due to the reduction of the utility connection credit reserves (see
Note 9 and schedule below regarding utility connection credit reserve
account activity) and a $703,000 gain due to the reduction in the
Predecessor Homesite Contracts Receivable future servicing reserve (see
Note 9). The $10.7 million net gain in 1995 included gains of $2.8
million due to the reduction of the Predecessor Homesite Contracts
Receivable termination refunds reserve, $2.2 million due to the
reduction of the deferred property tax liability and $1.5 million due
to the reduction in the income tax liability (see Note 9). This process
is expected to continue during 1998 with adjustments to be recorded as
the final disposition of various claims and other liabilities is
concluded.
In the first quarter of 1996, the Company recorded a net gain of $4.1
million on proceeds of $18.75 million resulting from the settlement of
utilities condemnation litigation with the City of Port St. Lucie.
In February, 1996, the Company sold its Port LaBelle utility system to
Hendry County for $4.5 million resulting in a gain of $686,000. In June
1996, the Company sold its Julington Creek utility system for $6.0
million resulting in a gain of $696,000 (see Note 6).
During 1996, the Company recorded extraordinary gains of approximately
$13.7 million due to the extinguishment of debt. In February 1996, the
Company recorded an extraordinary gain of approximately $3.8 million
due to the cancellation of approximately $1.9 million of Unsecured 12%
F-32
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Notes and $1.9 million of Unsecured 13% Cash Flow Notes in accordance
with the POR. On September 30, 1996, the Company prepaid, at a
discount, its Secured Cash Flow Notes and recorded an extraordinary
gain of $3.9 million. In December 1996, the Company recorded an
extraordinary gain of approximately $6.0 million due to the
extinguishment of approximately $4.2 million of Unsecured 12% Notes and
$1.8 million of Unsecured 13% Cash Flow Notes, net of a $210,000
unamortized discount, which were held in various utility trust accounts
established during the reorganization (see Notes 10 and 14).
In March 1995, the Company sold its property management and real estate
brokerage company, Florida Home Finders, Inc. ("FHF"), a wholly-owned
subsidiary, for $3.5 million resulting in a gain of $3.3 million which
also included a $200,000 forbearance fee receivable recorded in the
third quarter of 1995. The proceeds included a $3.0 million promissory
note of which $2.3 million was received in June 1995. In October 1995,
in connection with an allegedly illegal transfer by the new owners of
FHF of certain escrowed funds, a receiver was appointed to manage FHF.
Due to the uncertain collectibility of the remaining note receivable
and the forbearance fee receivable, the Company wrote-off these
receivables in December 1995 thereby reducing the gain on the sale to
$2.4 million.
In the third quarter of 1995 the Company recorded a $2.0 million gain
on proceeds of $4.0 million associated with the assignment of rights of
its Jensen Beach mortgage receivable to a third party.
In the third quarter of 1995, the Company sold its Longwood utility
system for $850,000 resulting in a gain of $219,000. In October 1995,
the Company sold its residential mortgages receivable portfolio for
$2.4 million resulting in a net loss of $694,000 which was provided for
in the third quarter of 1995.
F-33
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Utility Trust Accounts
Account Activity
(in thousands of dollars)
1997 1996 1995
---- ---- ----
DESCRIPTION
- -----------
Beginning balance $ 15,198 $ 19,699 $ 17,452
Additions 1,155 1,623 2,043
Interest earned 154 675 676
Withdrawals (12,645) (a) (1,005) (c) (472)
Cancellation of notes (414) (b) (5,794) (b) -
-------- -------- --------
Ending balance $ 3,448 $ 15,198 $ 19,699
======== ======== ========
(a) Includes $12,109 withdrawal on 1/2/97.
(b) Total cancellations of $6,208, including $414 cancelled on 1/2/97,
resulted in an extraordinary gain of $5,998 in 1996, net of a $210
unamortized discount.
(c) Represents wire transfer to Hendry County.
Utility Connection Credit Reserve
Account Activity
(in thousands of dollars)
1997 1996 1995
---- ---- ----
DESCRIPTION
- -----------
Beginning balance $ 4,264 $ 7,726 $ 7,726
Additions - 643 -
Amounts charged (credited) to
results of operations (1,064) (4,097) -
Deductions (4) (8) -
------- -------- --------
Ending balance $ 3,196 $ 4,264 $ 7,726
======= ======== ========
The activity for the land mortgage receivable valuation discount is included in
Schedule II of the 10-K.
F-34
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) COMMITMENTS AND CONTINGENCIES
Atlantic Gulf is involved in various litigation matters primarily
arising in the normal course of its business or with respect to the
bankruptcy. It is the opinion of management that the resolution of
these matters will not have a material adverse affect on the Company's
financial position.
As part of a settlement of the Company's improvement obligations to the
Predecessor Company's retail homesite customers, various trusts were
established. The Company funded these trusts with cash, stock and notes
based on estimates of the costs of the future improvement obligations.
Certain other reserves were established to make a minimum of 1,700
utility satisfied Homesites available for trade to customers whose
homesites may not be utility satisfied, and therefore not buildable, at
the time they wish to construct a home. The terms of these trusts and
reserves require the Company to periodically assess the adequacy of the
property in the trusts and reserves and any excess or deficiency will
accrue to the benefit or become an obligation of the Company. In
December 1996, pursuant to a review of the trusts and reserves it was
determined that approximately $12.1 million in cash, $4.2 million of
Unsecured 12% Notes and $2.0 million of Unsecured 13% Cash Flow Notes
could be released from these trust accounts (see Notes 4, 10 and 13).
Approximately $3.4 million in cash, 147,910 shares of stock and a lot
reserve of 6,000 lots remain in the trusts. The Company believes the
remaining property currently held in trusts is sufficient to meet all
future improvement obligations required under the terms of the
settlements.
A small portion of the Company's land holdings contain residues or
contaminants from current and past activities by the Company, its
lessees, prior owners and operators of the properties and/or other
third parties. Some of these areas have been the subject of cleanup
action by the Company voluntarily or following the involvement of
regulatory agencies. Additional cleanup in the future also may be
required. The business of the Company is subject to a variety of
additional obligations under the environmental laws, relating to both
the ongoing operations and past activities. The Company does not
believe, however, that its obligations under the environmental laws
will have a material adverse effect on its business, results of
operations or financial position (see Note 5).
Rental expense related to operating leases was $1,352,000, $1,835,000
and $1,934,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Company leases its corporate office space under an operating lease
which expires in 1999. Minimum future rental commitments under
non-cancelable operating leases as of December 31,1997 are as follows:
1998 - $1,141,000, 1999 - $603,000, 2000 - $68,000, 2001 - $8,000, and
none thereafter.
As of December 31, 1997, the Company had no material development
obligations related to sold property. The Company's business plan
contemplates that 1998 expenditures for development, construction, and
other capital improvements could range up to $97 million, of which a
substantial portion would need to be funded through individual project
development loans or JV Project arrangements, many of which are already
in place.
F-35
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
See Notes 2, 3, 4, 5, 6, 7, 8, 9, 10, 12 and 16 for a description of
other commitments and contingencies.
(15) INCOME TAXES
The difference between income taxes computed at the statutory federal
rate and the provision for income taxes consists of (in thousands of
dollars):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Amount at statutory federal rate $ (19,704) $ 402 $ (6,749)
Unrecognized (recognized) benefit
of change in valuation allowance
for temporary differences other
than net operating loss carryovers 19,704 (402) 6,749
--------- -------- ---------
$ - $ - $ -
========= ======== =========
</TABLE>
The Company's deferred taxes reflect the impact of temporary
differences between the amount of assets and liabilities for financial
reporting purposes and such amounts for tax purposes. The most
significant types of temporary differences that give rise to deferred
taxes are installment accounting practices, certain financial statement
reserves and cost capitalization methods.
F-36
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1997
are presented below (in thousands of dollars):
DEFERRED TAX ASSETS:
-------------------
Excess of tax basis in land over
financial statement basis $ 22,149
Excess of financial statement basis
in debt obligations and reserves
over tax basis 5,758
Net operating loss carryover 96,992
Capital loss carryover 622
Alternative minimum tax and
general business credit carryover 3,618
---------
Total gross deferred tax assets 129,139
Less - valuation allowance (119,737)
---------
Net deferred tax assets 9,402
---------
DEFERRED TAX LIABILITIES:
------------------------
Excess of financial statement basis
in other receivables over tax basis 2,197
Excess of financial statement basis
in Predecessor Homesite Contracts
Receivable over tax basis 3,930
Other 3,275
---------
Net deferred tax amount $ -0-
=========
The net change in the valuation allowance for deferred tax assets for
the year ended December 31, 1997 was an increase of $2.3 million.
Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 1997 will be
allocated as follows (in thousands of dollars):
Income tax benefit that would be reported
in the consolidated statement of operations $ 66,637
Income tax benefit that would be reflected as
an adjustment to contributed capital 53,100
---------
Total $ 119,737
=========
At March 31, 1992, the effective date of the POR, the valuation
allowance was approximately $53.1 million, which represents the excess
of the deferred tax assets of approximately $ 99 million over the
deferred tax liabilities of approximately $45.9 million. The years
ended December 31, 1997, 1996,
F-37
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1995, 1994 and 1993 and the nine months ended December 31, 1992 have
each resulted in a net increase in the valuation allowance. The Company
has not utilized any net operating losses.
At December 31, 1997, the Company had a net operating loss carryover
for tax purposes of approximately $258 million which expires in years
1999 through 2012. Included in this amount is approximately $24.1
million of net operating loss attributable to certain legal entities
that may only be used against future taxable income of these same
entities. The Company has a capital loss carryover for tax purposes of
approximately $1.7 million, all of which expired in 1997, and may only
be offset against capital gains. Additionally, the Company has an
unused general business credit of approximately $2.7 million expiring
in the years 1997 through 2004.
During 1997, the Company underwent an ownership change as defined in
Section 382 of the Internal Revenue Code of 1986, as amended. The
impact of this change in ownership will be to significantly limit the
amount of any net operating loss, capital loss, general business
credit, and alternative minimum tax credit carryforwards that will be
available to reduce taxable income in future years.
The Company has an alternative minimum tax credit of approximately $1
million. The alternative minimum tax credit does not have an expiration
date.
(16) RETIREMENT PLANS
The Company has a Defined Benefit Retirement Plan ("Retirement Plan")
for substantially all of the Predecessor Company employees under which
future benefit accruals were frozen in 1990. The Company's policy
generally has been to fund an amount at least equal to the minimum
required contribution but no greater than the maximum tax deductible
amount.
F-38
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, the funded status of the Company's Retirement Plan was
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $(10,356) $(10,388)
Non-vested benefit obligation (39) (43)
-------- --------
Accumulated benefit obligation $(10,395) $(10,431)
======== ========
Projected benefit obligation $(10,395) $(10,431)
Plan assets at fair value 8,308 7,300
Unfunded projected benefit obligation $ (2,087) $ (3,131)
======== ========
Unrecognized net transition asset $ (355) $ (406)
Unrecognized net loss 6,132 6,475
Unrecognized prior service costs (65) (69)
Additional minimum liability (5,712) (6,000)
Accrued pension liability (2,087) (3,131)
-------- --------
Total $ (2,087) $ (3,131)
======== ========
</TABLE>
Statement of Financial Accounting Standards No. 87 - "Employers'
Accounting for Pensions" requires recognition of a minimum pension
liability for underfunded plans in the consolidated balance sheets. The
minimum liability that must be recognized is equal to the excess of the
accumulated benefit obligation over plan assets. A corresponding amount
is recognized as either an intangible asset or a reduction of equity.
Pursuant to this requirement, the Company has recorded an additional
minimum pension liability resulting in an equity reduction of
$5,712,000 and $6,000,000 as of December 31, 1997 and 1996,
respectively.
The weighted average expected long-term rate of return on plan assets
is 9% for 1997 and 1996. The projected benefit obligation was
determined using a weighted average assumed discount rate of 7.0% for
1997, 7.5% for 1996 and 7.25% for 1995.
Assets of the Retirement Plan are invested in Common Stocks, U.S.
government agency issues, U.S. treasury bonds and notes, corporate
bonds, foreign bonds and money market funds, and included approximately
87,068 shares of Atlantic Gulf Common Stock with an aggregate fair
value at December 31, 1997 of $391,800.
Atlantic Gulf also has a defined contribution savings plan which is
available to substantially all employees. The Company matches 25% of
each employee's contributions, up to a maximum of 4% of base salary
through December 31, 1995 and up to a maximum of 6% of base salary
beginning on January 1, 1996. In addition, upon approval from the board
of directors, an annual supplemental contribution may be made in an
amount up to the Company's matching contribution made during the
F-39
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
year. The Company's matching contribution was approximately $166,000 in
1997, $138,000 in 1996 and $118,000 in 1995.
(17) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS
The carrying value of these instruments approximates fair value because
of the short maturity.
PREDECESSOR HOMESITE CONTRACTS RECEIVABLE
The net book value of Predecessor Homesite Contracts Receivable
represents the net expected future cash flow of the Company discounted
to a rate approximating 15%, which management believes approximates
fair value.
MORTGAGES, NOTES AND OTHER RECEIVABLES
Substantially all receivables which have a maturity in excess of one
year have stated rates that approximate market interest rates.
Consequently, management believes that the carrying value of these
receivables approximates fair value.
OTHER INTEREST BEARING LIABILITIES
Other interest bearing liabilities are at rates which approximate
current incremental borrowing rates.
NOTES AND MORTGAGES
As discussed in Note 10, long term debt includes Mandatory Interest
Notes and Cash Flow Notes issued in connection with the reorganization
of the Company. The fair value of the Cash Flow Notes is estimated
based on quoted market prices for the unsecured Notes. As of December
31, 1996, the Company estimated the carrying value of the Mandatory
Interest Notes to approximate fair value since these notes were paid in
full on January 3, 1997. Long term debt also includes other
indebtedness including a Working Capital Facility, a Term Loan and a
Reducing Revolving Facility as well as various acquisition, development
and construction loans (see Note 10) for which the Company estimates
the carrying value to approximate fair value.
F-40
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The estimated fair values of the Company's financial instruments at
December 31 were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value (*) Value Value (*)
----- --------- ----- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 9,188 $ 9,188 $ 7,050 $ 7,050
Restricted cash and cash equivalents 1,713 1,713 6,034 6,034
Predecessor Homesite Contracts Receivable 6,336 6,336 9,649 9,649
Mortgages, notes and other receivables 34,910 34,910 63,800 63,800
Other interest bearing liabilities - - 3,062 3,062
Mandatory Interest Notes - - 37,457 37,457
Cash Flow Notes 37,479 35,655 35,603 22,252
Other Indebtedness 94,929 94,929 96,155 96,155
</TABLE>
--------------
(*) These values represent an approximation of fair value and may
never actually be realized.
(18) UNAUDITED QUARTERLY FINANCIAL DATA
Quarterly financial data for the years ended December 31, 1997 and 1996
are summarized below (in thousands of dollars except per share
amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997:
- ----
Real estate sales $ 16,284 $ 17,775 $ 10,612 $ 22,948
Other revenues 1,965 2,597 1,814 2,653
-------- -------- -------- --------
Total revenues $ 18,249 $ 20,372 $ 12,426 $ 25,601
======== ======== ========= =========
Gross margin on real estate sales (*) $ 2,825 $ (113) $ (1,957) $ (5,328)
======== ======== ========= =========
Net loss $ (7,276) $ (8,670) $(10,801) $(31,599)
======== ======== ========= =========
Net loss applicable to
Common Stock $ (7,276) $ (8,740) $(12,302) $(33,751)
======== ======== ========= =========
Net loss per common share $ (.75) $ (.89) $ (1.07) $ (2.93)
======== ======== ========= =========
</TABLE>
F-41
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In conjunction with the Company's reviews in 1997 of the net realizable
values associated with its inventories and land holdings, the Company
provided an inventory valuation reserve in the fourth quarter of 1997
of approximately $14.5 million of which approximately $12.7 was
associated with Predecessor Assets (see Note 5).
Excluding this adjustment, the net loss applicable to Common Stock for
the fourth quarter of 1997 was $19.3 million.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996:
----
Real estate sales $23,213 $46,282 $16,464 $41,606
Other revenues 2,474 2,938 2,308 3,494
------- ------- ------- -------
Total revenues $25,687 $49,220 $18,772 $45,100
======= ======= ======= =======
Gross margins on real estate sales (*) $ 5,416 $ 8,986 $ 3,775 $ 6,074
======= ======= ======= =======
Income (loss) before
extraordinary items $ (405) $ 496 $(9,208) $(3,434)
======= ======= ======= =======
Extraordinary items $ 3,770 $ - $ 7,255 $ 2,707
======= ======= ======= =======
Net income (loss) $ 3,365 $ 496 $(1,953) $ (727)
======= ======= ======= =======
Income (loss) before extraordinary
items per common share $ (.04) $ .05 $ (.95) $ (.35)
======= ======= ======= =======
Net income (loss) per common share $ .35 $ .05 $ (.20) $ (.07)
======= ======== ======= =======
</TABLE>
---------------
(*) Gross margin on real estate sales represents real estate sales
revenue less real estate cost of sales.
In conjunction with the Company's ongoing business plan to continue to
monetize its Predecessor Assets to reduce corporate debt, certain
Predecessor Tracts were targeted for bulk disposal in the fourth
quarter of 1996 and during 1997. The Company has priced its planned
bulk disposals attractively and as a result provided an inventory
valuation reserve in the fourth quarter of approximately $10.4 million
(see Note 5). The Company also reviewed its claims experience with
respect to the utility connection reserve and the number of customers
eligible to make a claim against the reserve. Based on these factors
noted above, this reserve was decreased by approximately $4.1 million
(see Note 9).
F-42
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Excluding these adjustments, the net income for the fourth quarter of
1996 was $5.6 million.
(19) FRESH START REPORTING
The Company's consolidated financial statements subsequent to March 31,
1992 have been prepared as if the Company were a new reporting entity
and reflect the recording of the Company's assets and liabilities at
their fair values as of March 31, 1992 and the discharge of
pre-petition liabilities relating to creditors' claims against the
Company. The reorganization value of the Company was determined after
consideration of several factors and by reliance on various valuation
methods, including discounted cash flows and other applicable ratios.
The factors considered by the Company and its independent advisors
included forecasted operating and cash flows results which gave effect
to the estimated impact of corporate restructuring and other operating
program changes, limitations on the use of the available net operating
loss carryovers and other tax attributes resulting from the plan of
reorganization and other events, the discounted residual value at the
end of the forecast period based on the capitalized cash flows for the
last year of that period, market share and position, competition and
general economic considerations, projected sales growth, potential
profitability and working capital requirements.
(20) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income." Statement No. 130 establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. Statement No.130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
Statement No. 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. Statement No. 130,
which is effective for the fiscal years beginning after December 15,
1997, will have no impact on the Company's consolidated results of
operations, financial position or cash flows.
In June 1997, the FASB issued Statement No. 131, "Disclosure about
Segments of an Enterprise and Related Information." Statement No. 131
establishes standards for the reporting of financial information from
the operating segments in annual and interim financial statements
issued to shareholders. Statement No. 131 also establishes standards
for related disclosures with respect to products and services,
geographic areas of operations, and major customers. Statement No. 131,
which is effective for fiscal years beginning after December 15, 1997,
will have no impact on the Company's consolidated results of
operations, financial position or cash flows. However, Statement No.
131, may affect reported segments and the Company is reviewing this
matter.
F-43
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(21) STOCK OPTIONS
At December 31, 1997, the Company has three stock based compensation
plans (See Note 11 - Stockholders' Equity). The Company applies APB
Opinion No. 25 and related interpretations in accounting for its stock
based compensation plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans. Compensation cost was
recognized for compensation paid to Non-Employee Directors in
conjunction with annual retainer fees. The compensation cost charged
against income for Non-Employee Directors' annual retainer fees paid in
Common Stock was $191,600 and $102,500 for the years ended December 31,
1997 and 1996 respectively. Annual Non-Employee Directors' retainer
fees were paid in cash in 1995 and the first six months of 1996 and
were charged to income in the respective periods.
Had compensation cost for the Company's two stock option plans been
determined consistent with FAS 123, the Company's net income and
earnings per share results would have been reduced to the proforma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C>
Net (loss) income
applicable to
common stock As reported $ (62,069,000) $1,181,000 $(20,596,000)
Pro forma (62,875,702) 649,380 (21,746,322)
Basic and diluted
earnings per
common share As reported $ (5.82) $ .12 $ (2.12)
Pro forma (5.90) 0.07 (2.24)
</TABLE>
FIXED STOCK OPTION PLANS
The Company has two fixed stock option plans.
The Employee Stock Option Plan (the "Employee Option Plan"),
implemented in 1993, provides for the issuance of up to 750,000 options
to purchase Common Stock at a price equal to the fair market value of
the Common Stock at the date of grant. The options vest to the
employees over a five-year period or if there is a change in control as
defined in the Employee Option Plan. The options vest 40% two years
after the date of grant and 20% on each of the three subsequent
anniversaries of the date of grant. The options are exercisable for a
period of ten years from the date of the grant.
F-44
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The 1994 Non-Employee Directors' Stock Option Plan (the "1994 Plan"),
approved by the Company's shareholders in 1995, provides for the
automatic grant of (i) options for 20,000 shares of Common Stock to
each non-employee director on December 5, 1994, (ii) options for 20,000
shares of Common Stock to each new non-employee director upon his/her
first election or appointment to the board of directors (the "Board"),
and (iii) options for 5,000 shares of Common Stock to each non-employee
director at the first meeting of directors following such director's
subsequent election or appointment to the Board. The option price for
any grant under the 1994 Plan is equal to the fair market value of
Common Stock at the date of grant. Each option is immediately vested,
exercisable, and remains exercisable for a period of 10 years from the
grant date. A maximum of 350,000 shares of Common Stock may be issued
pursuant to the 1994 Plan.
In order to calculate the proforma amounts shown above, the fair value
of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995, 1996, and 1997.
Dividend yield: None.
Expected volatility: Based on historical month-end
close stock prices from June, 1992
through the month prior to the
grant date as reported by NASDAQ.
Expected life of grants: Five years.
Risk free interest rate: Yield on five-year U.S. Treasury
Notes maturing five years from
date of grant.
Contractual term of grant: Ten years.
A summary of the status of the Company's two fixed stock option plans
as of December 31, 1997, 1996, and 1995, respectively and the changes
during the years ended on those dates is presented below.
F-45
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
EMPLOYEE STOCK OPTIONS
The following table summarizes information about employee stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Weighted-
Number of Average Weighted- Number of Weighted-
Range of Options Remaining Average Options Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Price at 12/31/97 Life Price at 12/31/97 Price
----- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
$4.00 - $4.99 50,000 6.9 $ 4.31 16,667 $ 4.31
$5.00 - $5.99 145,750 7.3 $ 5.730 45,000 $5.500
$6.00 - $6.99 125,000 4.5 $ 6.792 113,000 $6.825
$7.00 - $7.99 23,500 5.9 $ 7.00 18,800 $7.00
$8.00 - $8.99 136,000 7.1 $ 8.871 54,400 $8.871
$10.00 - $10.99 1,250 6.1 $10.750 750 $10.750
$11.00 - $11.99 1,250 5.5 $ 11.25 750 $11.250
$12.00 - $12.99 181,500 6.7 $ 12.00 108,900 $12.00
------- -------
664,250 358,267
======= =======
</TABLE>
F-46
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
- -----------------------------------
1995 1996 1997
---- ---- ----
Non-Employee
Director Weighted Avg. Weighted Avg. Weighted Avg.
Stock Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------- ------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
Outstanding at 0 n/a 150,000 $8.825 185,000 $8.311
the beginning of
year
Options granted 150,000 $8.825 35,000 $6.107 120,000 $6.032
Options exercised 0 n/a 0 0 0 0
Options forfeited 0 n/a 0 0 0 0
------- ------- -------
Outstanding at 150,000 $8.825 185,000 $8.311 305,000 $7.414
end of year ======= ======= =======
Options 150,000 - 185,000 - 305,000 -
exercisable at
year-end.
Weighted-avg. $4.509 - $2.881 - $ 2.750 -
fair value of
options granted
during the year
</TABLE>
Note: This schedule does not include the stock options issued in 1995 pursuant
to the 1993 Plan and subsequently surrendered in accordance with the
adoption of the 1994 Plan.
F-47
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes information about non-employee director
stock options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Weighted-
Number Of Average Weighted- Number Of Weighted-
Range Of Options Remaining Average Options Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Price at 12/31/97 Life Price at 12/31/97 Price
----- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
$4.00 - $4.99 40,000 9.5 $4.813 40,000 $4.813
$6.00 - $6.99 115,000 9.1 $6.479 115,000 $6.479
$7.00 - $7.99 10,000 7.3 $7.875 10,000 $7.875
$8.00 - $8.99 120,000 7.1 $8.875 120,000 $8.875
$9.00 - $9.99 20,000 7.2 $ 9.00 20,000 $ 9.00
------- -------
305,000 305,000
======= =======
</TABLE>
F-48
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(22) Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share for the years ended December 31 (in thousands,
except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
Numerator:
Loss before extraordinary items $ (58,346) $ (12,551) $ (20,596)
Accrued preferred stock dividends (3,296) - -
Accretion of preferred stock to
redemption amount (427) - -
--------------------------------------------------
Loss before extraordinary items
applicable to common stock (62,069) (12,551) (20,596)
Extraordinary gain on extinguishment
of debt - 13,732 -
--------------------------------------------------
Numerator for basic and diluted earnings
per share - net (loss) income applicable to
common stock $ (62,069) $ 1,181 $ (20,596)
==================================================
Denominator:
Denominator for basic and diluted earnings
per common share - weighted average shares 10,661 9,709 9,708
==================================================
Basic and diluted earnings per common share:
Loss before extraordinary items $ (5.82) $ (1.29) $ (2.12)
Extraordinary gain on extinguishment
of debt - 1.41 -
--------------------------------------------------
Net (loss) income per common share $ (5.82) $ 0.12 $ (2.12)
==================================================
</TABLE>
For additional disclosures regarding the outstanding preferred stock,
see Note 11. Options to purchase the Company's Common Stock, described
in Note 21, were not included in the computation of diluted earnings
per common share because the options' exercise price was greater than
the average market price of the Common Stock and, therefore, the effect
would be antidilutive.
F-49
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(23) Subsequent Events
On March 31, 1998, the Company expects to close a sale to Apollo of the
remaining 173,525 shares of Series A Preferred Stock and Investor
Warrants to purchase an additional 347,050 shares of Common Stock, for
an aggregate purchase price of $1,735,248. This sale will complete the
$25 million placement of Series A Preferred Stock with Apollo.
Following such closing, Apollo will own a total of 2.5 million shares
of Series A Preferred Stock and Investor Warrants to purchase an
additional 5 million shares of Common Stock.
F-50
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Years Ended December 31, 1997, 1996 and 1995
Schedule II -
Valuation and Qualifying Accounts
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Amounts
` Balance at Charged (Credited) Balance at
Beginning to Results of End of
of Period Operations Deductions(2) Period
---------- ---------- ------------- ------
<S> <C> <C> <C> <C>
DESCRIPTION
- -----------
YEAR ENDED DECEMBER 31, 1995:
Predecessor Homesite Contracts
Receivable reserves $6,945 $(1,516) $1,076 $4,353
Other receivable reserves (1) 2,365 2,173 732 3,806
------ ------- ------ ------
Total $9,310 $ 657 $1,808 $8,159
====== ======= ====== ======
YEAR ENDED DECEMBER 31, 1996:
Predecessor Homesite Contracts
Receivable reserves $4,353 $(1,300) $ 923 $2,130
Other receivable reserves (1) 3,806 (784) 290 2,732
------ ------- ------ ------
Total $8,159 $(2,084) $1,213 $4,862
====== ======= ====== ======
YEAR ENDED DECEMBER 31, 1997:
Predecessor Homesite Contracts
Receivable reserves $2,130 $ (826) $ 293 $1,011
Other receivable reserves (1) 2,732 440 589 2,583
------ ------- ------ ------
Total $4,862 $ (386) $ 882 $3,594
====== ======= ====== ======
- ---------------
</TABLE>
(1) Reserves are a deduction from mortgages, notes and other receivables.
(2) Deductions represents amounts charged to reserves resulting from the
cancellation, write-off, sale or other disposition of the related
receivables.
S-1
Atlantic Gulf Communities Corporation Exhibit to the 1997 Form 10-K Exhibit (c)
3.(b) Restated By-laws of the Company dated November 17, 1997
- -------------------------------------------------------------
ATLANTIC GULF COMMUNITIES CORPORATION
-------------------
RESTATED BYLAWS
November 17, 1997
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I OFFICES...........................................................................1
ARTICLE II STOCKHOLDERS' MEETINGS............................................................1
SECTION 2.1 Annual Meetings.............................................................1
SECTION 2.2 Special Meetings............................................................2
SECTION 2.3 Place of Meetings...........................................................3
SECTION 2.4 Notice of Stockholders' Meetings............................................3
SECTION 2.5 Quorum at Stockholders' Meetings; Vote
Required...................................................................3
SECTION 2.6 Presiding Officer of Meetings...............................................4
SECTION 2.7 Secretary of Meetings.......................................................4
SECTION 2.8 Inspectors at Stockholders' Meetings........................................4
SECTION 2.9 Action By Written Consent...................................................5
ARTICLE III DIRECTORS.........................................................................5
SECTION 3.1 Powers......................................................................5
SECTION 3.2 Qualifications and Number...................................................5
SECTION 3.3 Vacancies...................................................................6
SECTION 3.4 Notification of Nominations.................................................6
SECTION 3.5 Place and Time of Board Meetings...........................................7
SECTION 3.6 Quorum......................................................................7
SECTION 3.7 Vote........................................................................7
SECTION 3.8 Conduct of Meetings.........................................................7
SECTION 3.9 Conference Call Meeting.....................................................7
SECTION 3.10 Remuneration of Directors...................................................7
SECTION 3.11 Notice of Board Meetings....................................................8
SECTION 3.12 Action Without Meeting......................................................8
ARTICLE IV COMMITTEES........................................................................8
SECTION 4.1 Executive Committee and Other Committees....................................8
SECTION 4.2 Quorum Procedures; Minutes of Meetings......................................9
ARTICLE V OFFICERS..........................................................................9
SECTION 5.1 Officers....................................................................9
SECTION 5.2 Term of Office: Removal and Vacancy........................................9
SECTION 5.3 Powers and Duties..........................................................10
SECTION 5.4 Chief Executive Officer....................................................10
SECTION 5.5 Chairman of the Board......................................................10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 5.6 President..................................................................10
SECTION 5.7 Vice Presidents............................................................10
SECTION 5.8 Secretary..................................................................10
SECTION 5.9 Treasurer..................................................................11
ARTICLE VI CAPITAL STOCK....................................................................11
SECTION 6.1 Shares Certificates........................................................11
SECTION 6.2 Lost, Destroyed or Stolen Certificates.....................................11
SECTION 6.3 Transfer of Shares.........................................................12
SECTION 6.4 Record Dates...............................................................12
ARTICLE VIII INDEMNIFICATION..................................................................12
SECTION 7.1 Right to Indemnification...................................................12
SECTION 7.2 Insurance, Contracts and Funding...........................................13
SECTION 7.3 Indemnification; Not Exclusive Right.......................................13
SECTION 7.4 Advancement of Expenses; Procedures;
Presumptions and Effect of Certain
Proceedings; Remedies....................................................14
SECTION 7.5 Effect of Amendments.......................................................20
SECTION 7.6 Severability...............................................................20
SECTION 7.7 Indemnification of Employees and Agents....................................21
ARTICLE VIII TRANSACTIONS WITH INTERESTED PERSONS.............................................21
SECTION 8.1 Transactions With Interested Persons.......................................21
ARTICLE IX MISCELLANEOUS....................................................................22
SECTION 9.1 Signing of Instruments.....................................................22
SECTION 9.2 Corporate Seal.............................................................22
SECTION 9.3 Fiscal Year................................................................22
SECTION 9.4 Notice.....................................................................22
ARTICLE X AMENDMENTS OF BYLAWS.............................................................23
SECTION 10.1 Amendments.................................................................23
</TABLE>
<PAGE>
BYLAWS
of
ATLANTIC GULF COMMUNITIES CORPORATION
-------------------
These Bylaws of ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware
corporation (herein called the "Company"), were adopted by the Company's board
of directors (the "Board") on November 17, 1997. (Any reference herein to
"Section" shall be to a section herein unless otherwise indicated.)
ARTICLE I
OFFICES
The Company shall maintain a registered office in the State of
Delaware as required by law. The Company may also have offices at other places,
within or without the State of Delaware, as the Company's business may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 2.1 ANNUAL MEETINGS. The annual meeting of stockholders shall
be held each year on such date (other than a legal holiday), not later than six
months following the close of the Company's fiscal year, and at such time as the
Board designates.
At each annual meeting, the stockholders shall elect the members of
the Board and transact such other business as may be properly brought before the
meeting. To be properly brought before an annual meeting, business must be (i)
specified in the notice of the meeting (or any supplement thereto) given by or
at the Board's direction, (ii) brought before the meeting by or at the direction
of the Board pursuant to a vote of a majority of the entire Board or (iii)
otherwise properly brought before the meeting by a stockholder.
<PAGE>
- 2 -
For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given written notice of the proposed
business, either by personal delivery or by United States mail, postage prepaid,
to the Company's secretary ("Secretary"), such that the Secretary receives such
notice at least 90 days prior to the anniversary date of the immediately
preceding annual meeting or not later than 10 days after notice or public
disclosure of the date of the annual meeting is given or made to stockholders,
whichever date is earlier. Subject to Section 3.4, any such notice shall set
forth as to each item of business the stockholder proposes to bring before the
annual meeting (i) a brief description of such item of business and the reasons
for conducting it at the meeting and, if such item of business includes a
proposal to amend either the Company's Amended and Restated Certificate of
Incorporation as filed with the Secretary of State of the State of Delaware on
June 24, 1997 (the "Charter") or these Bylaws, the language of the proposed
amendment, (ii) the name and address of the stockholder proposing such item of
business, (iii) a representation that the stockholder is a holder of record of
stock of the Company entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to propose such item of business and (iv) any
material interest of the stockholder in such item of business. Only business
that has been properly brought before an annual meeting of stockholders in
accordance with these Bylaws shall be conducted at such meeting, and the
chairman of such meeting may refuse to permit any business to be brought before
such meeting which has not been properly brought before it in accordance with
these Bylaws.
SECTION 2.2 SPECIAL MEETINGS. (a) Special meetings of the stockholders
for any purpose or purposes, unless otherwise prescribed by the General
Corporation Law of the State of Delaware ("Delaware General Corporation Law") or
the Charter, may be called only by the Chairman of the Board or by the Board
pursuant to a resolution adopted by a vote of a majority of the entire Board.
(b) At any time a special meeting shall be called by the President or
the Secretary at the request in writing of the holders of 35 percent or more of
the Company's outstanding capital stock entitled to be voted at the meeting.
(c) Special meetings shall be held at such place within or without the
State of Delaware and on such date and at such hour as shall be designated in
the notice of such meeting and the business transacted shall be confined to the
purpose or purposes for which such meeting is called as are stated in the notice
of such meeting. Business transacted at a special meeting shall be limited to
the purpose or purposes set forth in the written notice of the meeting.
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SECTION 2.3 PLACE OF MEETINGS. Meetings of the stockholders shall be
held at such place, within or without the State of Delaware, as the Board
designates.
SECTION 2.4 NOTICE OF STOCKHOLDERS' MEETINGS. Written notice of each
meeting of stockholders stating the place, date and time of the meeting shall be
given to each stockholder of record entitled to vote at such meeting at his
record address or at such other address as he may have furnished by request to
the Secretary at least 10, but not more than 60 days before the meeting, Notice
of any meeting shall state the purpose for which the meeting is called.
If a meeting is adjourned to another time or place, and if any
announcement of the adjourned time or place is made at the meeting, it shall not
be necessary to give notice of the adjourned meeting unless the date thereof is
more than 30 days after the date for which the meeting was originally noticed or
the Directors, after adjournment, fix a new record date for the adjourned
meeting.
Notice of a meeting need not be given to any stockholder who submits a
signed waiver of notice, in person or by proxy, whether before or after the
meeting. The attendance of a stockholder at a meeting, in person or by proxy,
without protesting at the beginning of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice of such meeting.
SECTION 2.5 QUORUM AT STOCKHOLDERS' MEETINGS; VOTE REQUIRED. At any
meeting of the stockholders, the holders, present in person or represented by
proxy, of a majority of the outstanding shares entitled to vote thereat shall
constitute a quorum. If less than a quorum is present at any meeting of the
stockholders, a majority of those present in person or by proxy may adjourn the
meeting.
Except as otherwise provided in the Charter, directors shall be
elected by plurality of the votes cast at a meeting of stockholders by the
holders of shares entitled to vote in the election. Whenever any corporate
action, other than the election of Directors, is to be taken by vote of the
stockholders, it shall, except as otherwise required by the Delaware General
Corporation Law or by the Charter, be authorized by a majority of the votes cast
at a meeting of stockholders by the holders of shares entitled to vote thereon.
Each stockholder shall at a meeting of the stockholders be entitled to one vote
in person or by proxy for each share of capital stock entitled to be voted held
by such
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stockholder. No proxy shall be valid after three years from its date unless the
proxy specifically provides for a longer period. At a meeting of the
stockholders, all questions relating to the qualifications of voters, the
validity of proxies and the acceptance or rejection of votes shall be decided by
the presiding officer of the meeting, or as otherwise provided in Section 2.8.
SECTION 2.6 PRESIDING OFFICER OF MEETINGS. The Chairman of the Board,
if any, or in the absence of the Chairman of the Board, the President, shall
preside at all meetings of the stockholders. In the absence of the Chairman of
the Board and the President, the presiding officer shall be elected by vote of
the holders of a majority of the capital stock entitled to be voted whose
holders are present in person or represented by proxy at the meeting.
SECTION 2.7 SECRETARY OF MEETINGS. The Secretary shall act as
secretary of all meetings of the stockholders. In the absence of the Secretary,
the presiding officer of the meeting shall appoint any other person to act as
secretary of the meeting.
SECTION 2.8 INSPECTORS AT STOCKHOLDERS' MEETINGS. The Board, in
advance of any meeting of stockholders, may appoint one or more inspectors to
act at the meeting or any adjournment thereof. If inspectors are not so
appointed, the chairman of the meeting may, and on the request of any
stockholder entitled to vote thereat shall, appoint one or more inspectors. In
case any person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by the
chairman thereof. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability.
The inspectors shall determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum and the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting or any stockholder entitled to vote thereat, the inspectors shall
make a report in writing of any challenge, question or matter determined by them
and execute a certificate of any fact found by them. Any report or certificate
made by them shall be prima facie evidence of the facts stated and of the vote
as certified by them.
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SECTION 2.9 ACTION BY WRITTEN CONSENT. At any time any action required
or permitted to be taken at any annual or special meeting of the stockholders
may be taken without a meeting, without prior notice and without a vote, if
consents in writing, setting forth the action so taken, are signed by the
holders of capital stock having not less than the minimum number of votes that
would be necessary to authorize or take the action at a meeting at which the
holders of all shares entitled to be voted thereon were present and voted;
prompt notice of the taking of action without a meeting by less than unanimous
consent shall be given to the stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 3.1 POWERS. The Company's business shall be managed under the
direction of the Board, which shall exercise all such powers of the Company and
do all such lawful acts and things as are not by law or by the Charter or by
these Bylaws directed or required to be exercised or done by the stockholders.
SECTION 3.2 QUALIFICATIONS AND NUMBER. (a) A Director need not be a
stockholder, a citizen of the United States of America or a resident of the
State of Delaware. The number of Directors constituting the entire Board shall
be seven. Except as otherwise provided in Section 3.2(b): (i) the Directors
shall be divided into three classes; (ii) the terms of Class 1 Directors will
continue until 1999; (iii) the terms of Class 2 Directors will continue until
2000; and (iv) the terms of Class 3 Directors will continue until 1998.
Thereafter, each Director's replacement will be elected for a three-year term
expiring at the third succeeding annual meeting of stockholders. (b)
Notwithstanding the foregoing, (i) the holders of the Company's Series A
Preferred Stock shall have the right, voting separately as a class, to select up
to three Directors, as provided in the Charter (the "Series A Directors"); (ii)
the terms of the Series A Directors shall expire at the next succeeding annual
meeting of stockholders; and (iii) the remainder of the seven Directors shall be
elected by the holders of the Common Stock for three-year terms in accordance
with Section 3.2(a).
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SECTION 3.3 VACANCIES. Vacancies on the Board may be filled only by a
vote of a majority of the Directors then in office, though less than a quorum,
or by a sole remaining Director, provided, however that any vacancies created by
any Series A Director ceasing to be a Director shall be filled by a vote of a
majority of the Series A Directors still then in office or by a sole remaining
Director.
SECTION 3.4 NOTIFICATION OF NOMINATIONS. Nominations for the election
of Directors (other than the Series A Directors) may be made by the Board or by
any stockholder entitled to vote for the election of Directors. Any stockholder
entitled to vote for the election of Directors at a meeting of stockholders may
nominate a person or persons for election as Directors only if written notice of
such stockholder's intention to make such nomination or nominations is given in
accordance with Section 2.1. Each such notice shall set forth, in addition to
any other information required to be set forth by such Section 2.1, (i) the name
and address of the stockholder who intends to make the nomination and of the
person or persons to be nominated; (ii) a representation that the stockholder is
a holder of record of stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (iii) a description of all arrangements or
understandings between the stockholder and each person to be nominated and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (iv) such other
information regarding each person to be nominated as would have been required to
be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had such person been nominated, or intended
to be nominated, by the Board; and (v) the consent of each person to be
nominated to serve as a Director if elected at such meeting. The chairman of any
meeting of stockholders, and the Board, may refuse to recognize the nomination
of any person not made in compliance with the foregoing procedures.
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SECTION 3.5 PLACE AND TIME OF BOARD MEETINGS. Regular and special
meetings of the Board shall be held at such places within or without the State
of Delaware and at such times as may be fixed by the Board by resolution or upon
call of the Chairman of the Board or by any three Directors, provided that the
Board shall hold at least four meetings a year. Notice of any special meeting
shall state the purpose or purposes for which such meeting is called and the
business to be conducted at such meeting.
SECTION 3.6 QUORUM. A majority of the entire Board shall constitute a
quorum for the transaction of business. If there shall be fewer than a quorum at
any meeting of the Board, a majority of the Directors present (or if only one be
present, then that one) may adjourn the meeting from time to time and the
meeting may be held as adjourned without further notice.
SECTION 3.7 VOTE. Except as otherwise expressly provided in these
Bylaws or in the Charter, at all meetings of the Board of Directors, a quorum
being present, all matters shall be decided by the vote of a majority of the
Directors present at the time of the vote.
SECTION 3.8 CONDUCT OF MEETINGS. The Chairman of the Board, if any, or
in the absence of the Chairman of the Board, the President, shall preside over
Board meetings. In the absence of the Chairman of the Board and the President, a
presiding officer shall be chosen by a majority of the Directors present. The
Secretary shall act as secretary of the meeting. In his or her absence the
presiding officer shall appoint another person to act as secretary of the
meeting.
SECTION 3.9 CONFERENCE CALL MEETING. Members of the Board or of any
committee thereof may participate in a meeting of the Board or committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 3.10 REMUNERATION OF DIRECTORS. In addition to reimbursement
for reasonable expenses incurred in attending meetings or otherwise in
connection with attention to the Company's affairs, each Director as such, and
as a member of any committee of the Board, shall be entitled to receive such
remuneration as may be fixed from time to time by the Board.
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SECTION 3.11 NOTICE OF BOARD MEETINGS. Regular Board meetings may be
held without notice, if the time and place of such meetings are fixed by the
Board. All regular Board meetings, the time and place of which have not been
fixed by the Board, and all special Board meetings shall be held upon
forty-eight hours' or, with the consent of any Series A Director, twenty-four
hours' written notice to the Directors. The notice of regular meeting need not
specify the purpose of the meeting. Any requirement of notice shall be
effectively waived by any Director who signs a waiver of notice before or after
the meeting or attends the meeting without protesting (prior thereto or at its
commencement) the lack of notice to him.
SECTION 3.12 ACTION WITHOUT MEETING. Any action required or permitted
to be taken at any meeting of the Board, or of any committee thereof, may be.
taken without a meeting if all members of the Board, or of such committee, as
the case may be, consent thereto in writing prior to such action, and such
written consent is filed with the minutes of proceedings of the Board or of such
committee.
ARTICLE IV
COMMITTEES
SECTION 4.1 EXECUTIVE COMMITTEE AND OTHER COMMITTEES. The Board, by
resolution adopted by vote of a majority of the entire Board, may designate from
among its members an Executive Committee and other committees to serve at the
Board's pleasure. Each committee shall consist of two or more Directors, one of
whom shall be designated the chairman of such committee by the Board. Unless
further limited by resolution adopted by vote of a majority of the entire Board,
the Executive Committee shall have all the authority of the Board, including the
authority to declare dividends and to authorize the issuance of stock, provided
that it shall not have authority to take action with respect to those matters
that it is prohibited from acting upon under Section 141(c) or any other section
of the Delaware General Corporation Law.
The Board, by resolution adopted by vote of a majority of the entire
Board, may designate one or more Directors as alternate members of any such
committee, who may replace any absent member or members at any meetings of such
committee. Vacancies in any committee, whether caused by resignation or by
increase in the number of members constituting such committee, shall be filled
by the Board, by resolution adopted by vote of a majority of the entire Board.
In the absence or disqualification of any member of any such committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in place of any such absent or
disqualified member.
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SECTION 4.2 QUORUM PROCEDURES; MINUTES OF MEETINGS. A majority of the
members of each committee shall constitute a quorum for the transaction of
business, Except as otherwise expressly provided in these Bylaws, at all
meetings of committees of the Board, a quorum being present, all matters shall
be decided by the vote of a majority of the members of the committee present at
the time of the vote. Each committee shall keep regular minutes of its meetings
and report the same to the Board when required. Each committee shall determine
its rules with respect to notice provided such rules shall be consistent with
the law, the rules in these Bylaws applicable to the Board and the resolution of
the Board establishing the committee.
ARTICLE V
OFFICERS
SECTION 5.1 OFFICERS. The Board, at its first meeting held after the
annual meeting of stockholders in each year, shall elect a Chairman of the
Board, a President, one or more Vice-Presidents, a Secretary and a Treasurer and
may, in its discretion, also appoint from time to time such other officers or
agents of the Company as it may deem proper, including one or more executive
vice presidents, a chief operating officer and a chief financial officer. The
Chairman of the Board shall be elected from among the Board members. Any two or
more offices may be held by the same person.
SECTION 5.2 TERM OF OFFICE: REMOVAL AND VACANCY. Unless otherwise
provided in the resolution of election or appointment, each officer shall hold
office until the first Board meeting held after the next annual meeting of
stockholders and until his successor shall have been elected or appointed and
qualified; provided, however, that the Board may at any time remove any officer
for cause or, by a resolution adopted by vote of a majority of the entire Board,
without cause. Any vacancy occurring in any office of the Company shall be
filled by the Board.
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SECTION 5.3 POWERS AND DUTIES. Each of the Company's officers shall,
unless otherwise ordered by the Board, have such powers and duties as generally
pertain to his or her respective office as well as such powers and duties as
from time to time may be conferred upon him or her by the Board.
SECTION 5.4 CHIEF EXECUTIVE OFFICER. The President shall be the
Company's Chief Executive Officer. Subject to the Board's control, the Chief
Executive Officer shall have general executive charge, management and control of
the Company's properties, business and operations with all such powers as may be
reasonably incident to such responsibilities; may agree upon and execute all
leases, contracts, evidences of indebtedness and other obligations in the
Company's name; and shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time be assigned by the Board.
SECTION 5.5 CHAIRMAN OF THE BOARD. The Chairman shall, if present,
preside at all meetings of the stockholders and the Board. The Chairman shall do
and perform all acts and duties herein specified or that may be assigned to him
from time to time by the Board.
SECTION 5.6 PRESIDENT. In the absence of the Chairman of the Board or
in case of his inability to act, the President shall preside at meetings of the
stockholders and of the Board. The President shall have the power on the
Company's behalf to enter into, execute and deliver all contracts, instruments,
evidences of indebtedness, conveyances or documents and to affix the corporate
seal thereto. The President shall do and perform all acts and duties herein
specified or that may be assigned to him from time to time by the Board. If the
President is unavailable or unable to act, the Board shall designate an officer
to exercise the powers and duties of the President in his absence.
SECTION 5.7 VICE-PRESIDENTS. Each Vice-President shall have the power
on behalf of the Company to enter into, execute and deliver all contracts,
instruments, evidences of indebtedness, conveyances or documents and to affix
the corporate seal thereto. Each Vice-President shall also have such other
duties and powers as the Board or the Chairman of the Board or the President
shall from time to time designate,
SECTION 5.8 SECRETARY. The Secretary shall keep minutes of the
proceedings taken and the resolutions adopted at all meetings of the
stockholders and the Board, and shall give due notice of the meetings of the
stockholders and the Board. The Secretary shall have charge of the seal, the
certificate books, transfer books and stock ledgers, and all other books and
papers of the Company, and shall perform all duties incident to his office
subject to the Board's control. In case of the absence or
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disability of the Secretary, the Secretary's duties and powers may be exercised
by such person as may be appointed by the Board.
SECTION 5.9 TREASURER. The Treasurer shall receive all the moneys
belonging to the Company, and shall forthwith deposit the same to the credit of
the Company in such financial institutions as may be selected by the Board. The
Treasurer shall keep books of account and vouchers for all moneys disbursed. The
Treasurer shall also perform such other duties as may be prescribed by the Board
or the Chairman of the Board or the President and in case of the absence or
disability of the Treasurer, his duties and powers may be exercised by such
person as may be appointed by the Board.
ARTICLE VI
CAPITAL STOCK
SECTION 6.1 SHARE CERTIFICATES. Each certificate representing stock of
the Company shall be in such form as may be approved by the Board and, when
issued, shall contain upon the face or back thereof the statements prescribed by
the Delaware General Corporation Law and by any other applicable provision of
law. Each such certificate shall be signed by the Chairman of the Board or the
President or an Executive Vice-President or a Vice-President and by the
Secretary or Treasurer or an assistant secretary or assistant treasurer. The
signatures of such officers upon a certificate may be facsimile if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Company itself or its employee. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Company with the same effect as if he were such officer a the date
of issue.
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SECTION 6.2 LOST, DESTROYED OR STOLEN CERTIFICATES. No certificate
representing stock of the Company shall be issued in place of any such
certificate alleged to have been lost, destroyed or stolen, except on production
of evidence of such loss, destruction or theft and on delivery to the Company,
if the Board shall so require, of a bond of indemnity in such amount, upon such
terms and secured by such surety as the Board may in its discretion require.
SECTION 6.3 TRANSFER OF SHARES. The stock of the Company shall be
transferable or assignable on the Company's books only by the holder of record
thereof or his legal representative, in person or by attorney, and only upon
surrender and cancellation of the certificate or certificates representing such
shares for a like number of shares with an assignment or power of transfer
endorsed thereon or delivered therewith, duly executed, and with such proof of
the authenticity of the signature and of authority to transfer and of payment of
transfer taxes, as the Company or its agents may require. The person in whose
name stock of the Company shall stand on the Company's record of stockholders
shall be deemed the owner thereof for all purposes as regards the Company.
SECTION 6.4 RECORD DATES. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other action, the Board may fix, in advance, a date as the record date for any
such determination of stockholders. Except as otherwise expressly required by
law, such date shall be not fewer than 10 days nor more than 60 days before the
date of such meeting, nor more than 60 days prior to any other action.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1 RIGHT TO INDEMNIFICATION. The Company shall to the fullest
extent permitted by applicable law as then in effect indemnify any person (the
"Indemnitee") who is or was a Director or officer of the Company and who is or
was involved in any manner (including, without limitation, as a party or a
witness) or is threatened to be made so involved in any threatened, pending or
completed investigation, claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative (including without limitation, any
action, suit or proceeding by or in the right of the Company to procure a
judgment in its favor) arising from any act or failure to act after April 6,
1990 (a "Proceeding") by reason of the fact that such person is or was a
Director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including,
without limitation, any employee benefit plan), against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such Proceeding; provided,
however, that, except as provided in Section 7.4(d), the foregoing shall not
apply to a Director or officer of the Company with respect to a Proceeding that
was commenced by such Director or officer prior to a Change in Control (as
hereinafter defined). Such indemnification shall include the right to receive
payment in advance of any expenses incurred by the Indemnitee in connection with
such Proceeding, consistent with the provisions of applicable law as then in
effect.
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SECTION 7.2 INSURANCE CONTRACTS AND FUNDING. The Company may purchase
and maintain insurance to protect itself and any person entitled to
indemnification under this Article VII against any expenses, judgments, fines
and amounts paid in settlement as specified in this Article VII or incurred by
any such person in connection with any proceeding referred to in this Article
VII, to the fullest extent permitted by applicable law as then in effect. The
Company may enter into contracts with any person eligible for indemnification
under this Article VII in furtherance of the provisions of this Article VII and
may create a trust fund, grant a security interest or use other means
(including, without limitation, a letter of credit) to ensure the payment of
such amounts as may be necessary to effect indemnification as provided in this
Article VII.
SECTION 7.3 INDEMNIFICATION; NOT EXCLUSIVE RIGHT. The right of
indemnification provided in this Article VII shall not be exclusive of any other
rights to which those seeking indemnification may otherwise be entitled now or
hereafter under any statute, Bylaw, vote of stockholders or Disinterested
Directors (as hereinafter defined) or otherwise, and the provisions of this
Article VII shall inure to the benefit of the heirs and legal representatives of
any person entitled to indemnity under this Article VII and shall be applicable
to Proceedings commenced or continuing after the adoption of this Article VII,
whether arising from acts or omissions occurring before or after such adoption.
All rights to indemnification and payment of expenses under this Article VII
shall be deemed to be a contract between the Company and any person entitled to
indemnity under this Article VII.
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SECTION 7.4 ADVANCEMENT OF EXPENSES; PROCEDURES; PRESUMPTIONS AND
EFFECT OF CERTAIN PROCEEDINGS; REMEDIES. In furtherance, but not in limitation
of the foregoing provisions, the following procedures, presumptions and remedies
shall apply with respect to advancement of expenses and the right to
indemnification under this Article VII:
(a) ADVANCEMENT OF EXPENSES.
(i) All reasonable expenses, including attorneys' fees,
incurred by or on behalf of the Indemnitee in connection with any Proceeding
shall be advanced to the Indemnitee by the Company within 20 calendar days after
the receipt by the Company of a statement or statements from the Indemnitee
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the expenses incurred by the Indemnitee and shall include or
be accompanied by an undertaking by or on behalf of the Indemnitee to repay the
amounts advanced if it should ultimately be determined that the Indemnitee is
not entitled to be indemnified against such expenses pursuant to this Article
VII. The Company shall not condition any such advance upon the posting of
security by the Indemnitee or upon a demonstration by the Indemnitee of a
financial ability to make repayment if necessary. The Board may, in the manner
set forth above, and subject to the approval of such Indemnitee, authorize the
Company's counsel to represent such person, in any action, suit or proceeding,
whether or not the Company is a party to such action, suit or proceeding. The
right to advancement of expenses hereunder is not subject to the procedures set
forth in Section 7.4(b); PROVIDED, however, that upon determination pursuant to
Section 7.4(b) or by a court of competent jurisdiction that the Indemnitee is
not entitled to indemnification under this Article VII, nothing herein shall
prevent the Company from collecting repayment from the Indemnitee of monies
advanced to the Indemnitee pursuant to this Section 7.4(a)(i).
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(ii) Notwithstanding the foregoing, no advance shall be made
by the Company if a determination is reasonably and promptly made by the Board
by a majority vote of a quorum of Disinterested Directors, or (if such a quorum
is not obtainable or, even if obtainable, a quorum of Disinterested Directors so
directs) by Independent Counsel (as hereinafter defined) in a written opinion,
that, based upon the facts known to the Board or Counsel at the time such
determination is made with respect to a particular Proceeding, such person acted
in bad faith and in a manner that such person did not believe to be in or not
opposed to the best interest of the Company or that such person believed or had
reasonable cause to believe his conduct was unlawful. In no event shall any
advance be made in instances in which the Board by a majority vote of a quorum
of Disinterested Directors or Independent Counsel reasonably determines that
such person deliberately breached his or her fiduciary duty to the Company or
its stockholders with respect to such Proceeding.
(b) PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION. To obtain indemnification under this Article VII, an Indemnitee
shall submit to the Secretary a written request, including such documentation
and information as is reasonably available to the Indemnitee and reasonably
necessary to determine whether and to what extent the Indemnitee is entitled to
indemnification (the "Supporting Documentation"). The Indemnitee's entitlement
to indemnification shall be determined pursuant to this Section 7.4(b) not later
than 60 days after receipt by the Company of the written request for
indemnification together with the Supporting Documentation. The Indemnitee's
entitlement to indemnification under this Article VII shall be authorized only
upon a determination that indemnification of the Indemnitee is proper in the
circumstances because such Indemnified Party has met the applicable standard of
conduct prescribed by Section 145 of the Delaware General Corporation Law. Such
entitlement shall be determined in one of the following ways:
(i) by a majority vote of the Disinterested
Directors, if they constitute a quorum of the Board;
(ii) by a written opinion of Independent Counsel if
--
(A) a Change in Control (as hereinafter
defined) shall have occurred and the
Indemnitee so requests, or
(B) the Board by a majority vote of a quorum
of Disinterested Directors is not obtainable
or, even if obtainable, a majority of such
Disinterested Directors so directs;
(iii) by the stockholders (but only if a majority of
the Disinterested Directors, if they constitute a quorum of
the Board, presents the issue of entitlement to
indemnification to the stockholders for their determination);
or
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(iv) as provided in Section 7.4(c).
If the determination of entitlement to indemnification is to be made by
Independent Counsel, a majority of the Disinterested Directors shall select such
Independent Counsel as to which the Indemnitee does not reasonably object;
provided, however, that if a Change in Control shall have occurred, the
Indemnitee shall select such Independent Counsel as to which the Board does not
reasonably object.
(c) PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(i) Except as otherwise expressly provided in this Article
VII, the Indemnitee shall be presumed to be entitled to indemnification
under this Article VII upon submission of a request for indemnification
together with the Supporting Documentation in accordance with Section
7.4(b). Thereafter the Company shall have the burden of proof to
overcome that presumption in reaching a contrary determination. In any
event, if the person or persons empowered under Section 7.4(b) to
determine entitlement to indemnification shall not have been appointed
or shall not have made a determination within 60 calendar days after
receipt by the Company of the request therefor together with the
Supporting Documentation, the Indemnitee shall be deemed to be entitled
to indemnification and the Indemnitee shall be entitled to such
indemnification unless
(A) the Indemnitee misrepresented or failed to disclose a
material fact in making the request for indemnification or in the
supporting Documentation or
(B) such indemnification is prohibited by law.
(ii) The termination of any Proceeding described in Section
7.1, or of any claim, issue or matter therein, by judgment, order,
settlement or conviction, or upon a plea of nolo contenders or its
equivalent, shall not, of itself, adversely affect the right of the
Indemnitee to indemnification or create a presumption that the
Indemnitee did not act in good faith and in a manner that the
Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company or, with respect to any criminal Proceeding,
that the Indemnitee had reasonable cause to believe that his conduct
was unlawful.
<PAGE>
- 17 -
(d) REMEDIES-OF INDEMNITEE.
(i) If (a) a determination is made pursuant to Section 7.4(b)
that the Indemnitee is not entitled to indemnification under this
Article VII or (b) payment of indemnification is not made within five
calendar days after a determination of entitlement has been made or
deemed to have been made pursuant to Section 7.4(b) or 7.4(c):
(A) The Indemnitee shall be entitled to seek an
adjudication of his entitlement to such advancement of
expenses or indemnification either, at the Indemnitee's sole
option, in
(1) an appropriate court of the State of
Delaware or any other court of competent
jurisdiction, or
(2) an arbitration to be conducted by a
single arbitrator pursuant to the rules of
the American Arbitration Association.
(B) Any such judicial proceeding or arbitration shall
be de novo and the Indemnitee shall not be prejudiced by
reason of such adverse determination, and the fact that there
has been an actual determination that the Indemnitee is not
entitled to indemnification under this Article VII shall not
be a defense in such adjudication or create a presumption that
the Indemnitee has not met the applicable standard of conduct.
(C) In any such judicial proceeding or arbitration
the Company shall have the burden of proving that the
Indemnitee is not entitled to indemnification under this
Article VII.
(D) Notwithstanding the foregoing, the Company may
bring an action, in an appropriate court in the State of
Delaware or any other court of competent jurisdiction,
contesting the right of the Indemnitee to receive
indemnification hereunder due to the occurrence of an event
described in subclause (ii)(A) or (ii)(B) of this paragraph
(d) or Section 7.4(a)(ii) (a "Disqualifying Event"); PROVIDED,
HOWEVER, that in any such action the Company shall have the
burden of proving the occurrence of such Disqualifying Event.
The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section
7.4(d) that the procedures and presumptions of this Article
VII are not valid, binding and enforceable and shall stipulate
in any such court or before any such arbitrator that the
company is bound by all the provisions of this Article VII.
<PAGE>
- 18 -
(ii) If a determination shall have been made or deemed to have
been made, pursuant to Sections 7.4(b) or 7.4(c), that the Indemnitee
is entitled to indemnification, the Company shall be obligated to pay
the amounts constituting such indemnification within five days after
such determination has been made or deemed to have been made and shall
be conclusively bound by such determination unless
(A) the Indemnitee misrepresented or failed to
disclose a material fact in making the request for
indemnification or in the Supporting Documentation, or
(B) such indemnification is prohibited by law.
(iii) If the Indemnitee, pursuant to this Section 7.4(d),
seeks a judicial adjudication of or an award in arbitration to enforce
his rights under, or to recover damages for breach of, this Article
VII, the Indemnitee shall be entitled to recover from the Company, and
shall be indemnified by the Company against, any expenses actually and
reasonably incurred by the Indemnitee if the Indemnitee prevails in
such judicial adjudication or arbitration. If it shall be determined in
such judicial adjudication or arbitration that the Indemnitee is
entitled to receive part but not all of the indemnification or
advancement of expenses sought, the expenses incurred by the Indemnitee
in connection with such judicial adjudication or arbitration shall be
prorated accordingly.
(e) DEFINITIONS. For purposes of this Article VIII:
(i) "Change in Control" means a change in control of the
Company occurring after the date of these Bylaws of a nature that would
be required to be reported in response to Item 6(e) (or any successor
provision) of Schedule 14A of Regulation 14A promulgated under the
<PAGE>
- 19 -
Securities Exchange Act of 1934, as amended (the "Act"), whether or not
the Company is then subject to such reporting requirement; provided
that, without limitation, such a change in control shall be deemed to
have occurred if
(A) any "person" (as such term is used in Sections
13(d) and 14(d) of the Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least
two-thirds of the Board members in office immediately prior to
such acquisition;
(B) the Company is a party to any merger or
consolidation in which the Company is not the continuing or
surviving corporation or pursuant to which Common Stock would
be converted into cash, securities or other property, other
than a merger of the Company in which the holders of Common
Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving
corporation immediately after the merger;
(C) there is a sale, lease, exchange or other
transfer (in one transaction or a series of related
transactions) of all, or substantially all, the assets of the
Company, or a liquidation or dissolution of the Company; or
(D) during any period of two consecutive years,
individuals who at the beginning of such period constituted
the Board (including for this purpose any new Director whose
election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of
the Directors then still in office who were Directors at the
beginning of such period) cease for any
<PAGE>
- 20 -
reason to constitute at least a majority of the Board.
(ii) "Disinterested Director" means a Director who is not or
was not a party to the Proceeding in respect of which indemnification
is sought by the Indemnitee.
(iii)"Independent Counsel" means a law firm or a member of a
law firm that neither presently is, nor in the past five years has
been, retained to represent:
(A) the Company or the Indemnitee in any matter
material to either such party or
(B) any other party to the Proceeding giving rise to
a claim for indemnification under this Article VII.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing under the law of the State of Delaware, would have a conflict of
interest in representing either the Company or the Indemnitee in an action to
determine the Indemnitee's rights under this Article VII.
SECTION 7.5 EFFECT OF AMENDMENTS. Neither the amendment or
repeal of, nor the adoption of a provision, including relevant provisions of the
Delaware General Corporation Law or any other applicable law, inconsistent with,
any provision of this Article
VII (including, without limitation, this Section 7.5) shall adversely affect the
rights of any Director or officer under this Article VII:
(i) with respect to any Proceeding commenced or threatened
prior to such amendment, repeal or adoption of an inconsistent provision or
(ii) after the occurrence of a Change in Control, with respect
to any Proceeding arising out of any action or omission occurring prior to such
amendment, repeal or adoption of an inconsistent provision, in either case
without the written consent of such Director or officer.
SECTION 7.6 SEVERABILITY. If any provision or provisions of
this Article VII shall be held to be invalid, illegal or unenforceable for any
reason whatsoever:
(i) the validity, legality and enforceability of the remaining
provisions of this Article VII (including, without limitation, all portions of
any section of this Article VII
<PAGE>
- 21 -
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby; and
(ii) to the fullest extent possible, the provisions of this
Article VII (including, without limitation, all portions of any section of this
Article VII containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
be construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
SECTION 7.7 INDEMNIFICATION OF EMPLOYEES AND AGENTS. Notwithstanding
any other provision or provisions of this Article VII, the Company may indemnify
(including, without limitation, by direct payment) any person (other than a
Director or officer of the Company) who is or was involved in any manner
(including, without limitation, as a party or a witness) or is threatened to be
made so involved in any Proceeding by reason of the fact that such person is or
was an employee or agent of the Company, or is or was serving at the request of
the Company as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including, without
limitation, any employee benefit plan) against any or all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement incurred in
connection with such Proceeding.
ARTICLE VIII
TRANSACTIONS WITH INTERESTED PERSONS
SECTION 8.1 TRANSACTIONS WITH INTERESTED PERSONS. No contract or
transaction between the Company and any of its Directors or officers, or between
the Company and any other corporation, partnership, association or other
organization in which any of its Directors or officers is a Director or officer
or has a financial interest, shall be void or voidable solely for that reason,
or solely because the Director or officer is present at or participates in the
meeting of the Board or committee thereof at which the contract or transaction
is authorized or solely because his or her vote is counted for such purpose, if:
(i) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board or the committee, and the Board or committee in good faith authorizes the
contract or transaction by the
<PAGE>
- 22 -
affirmative vote of a majority of the Disinterested Directors, even though the
Disinterested Directors are less than a quorum;
(ii) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by the vote of the stockholders; or
(iii) the contract or transaction is fair as to the Company as
of the time it is authorized, approved or ratified by the Board, a committee
thereof or the stockholders.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 SIGNING OF INSTRUMENTS. All checks, drafts, notes,
acceptances, bills of exchange, and orders for the payment of money shall be
signed in such manner and by such person or persons as may be authorized from
time to time by the Board or by these Bylaws.
SECTION 9.2 CORPORATE SEAL. The Company's seal shall be in the form of
a circle and shall bear the name of the Company and the words "Corporate Seal,
1928, Delaware.
SECTION 9.3 FISCAL YEAR. The fiscal year of the Company shall be a
calendar year ending December 31.
SECTION 9.4 NOTICE. Whenever notice is required or permitted by these
Bylaws to be given to any person, it may be either (i) oral and communicated in
person, by telephone, or by radio, television or other form of voice
communication, effective upon receipt by the person or (ii) in writing
communicated by being delivered by hand, by mail or by facsimile or other form
of record communication, effective upon receipt by the person or, if earlier,
upon delivery at his or her address as registered in the records of the Company
for purposes of notice-giving ("notice address"); provided that (a) notice of a
meeting of the stockholders shall be in writing and (b) a written notice, if
mailed first-class mail, postpaid and correctly addressed to a person at his or
her notice address, shall be effective when it is deposited by the sender in the
United States mail.
SECTION 9.5 WAIVER. Whenever any notice is required to be given under
the provisions of law or of the Charter or of these
<PAGE>
- 23 -
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
the notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance at a meeting for which notice is required shall
be deemed waiver of such notice unless such attendance is for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
business on the ground that the meeting is not lawfully called or convened.
ARTICLE X
AMENDMENTS OF BYLAWS
SECTION 10.1 AMENDMENTS. Except for Section 2,2(b), which may be
amended only by the stockholders, these Bylaws may be amended, altered or
repealed at any meeting of the Board, by vote of a majority of the entire Board,
or at any regular Board meeting by the unanimous vote of all the Directors
present; provided, however, that notice of the proposed alteration, amendment or
repeal shall have been sent by mail to all the Directors not fewer than three
days before the meeting at which they are to be acted upon.
The undersigned, being the Secretary of Atlantic Gulf Communities
Corporation hereby certifies the foregoing to be the Bylaws of that Corporation
as amended effective the date set forth below.
Date: November 17, 1997
--------------------------------
Joel K. Goldman, Secretary
Atlantic Gulf Communities Corporation Exhibit to the 1997 Form 10-K Exhibit (c)
10(i) 2. Modification of Final Judgment of Permanent Injunction and Other Relief
as to Defendant General Development Corporation dated July 25, 1996
- -------------------------------------------------------------------
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO, 90-879-CIV-NESBITT
UNITED STATES OF AMERICA
Plaintiff,
ORDER
vs. GRANTING IN PART AND DENYING
IN PART DEFENDANT ATLANTIC
GENERAL DEVELOPMENT CORPORATION GULF'S MOTION TO MODIFY
OR GRANT EARLY RELIEF
Defendant,
- ------------------------------------/
This matter is before the Court upon a motion to modify or grant early
relief from the conditions of the Final Judgment of Permanent Injunction and
other relief as to Defendant General Development Corporation (GDC) filed by
Atlantic Gulf Community Corporation as successor to General Development
Corporation (Atlantic Gulf).1
On November 30, 1990, in conjunction with a plea agreement in a related
criminal proceeding before the Court, GDC agreed to resolve a civil complaint
arising under 18 U.S.C. ss. 371 and 1345, (injunctions against fraud) by
consenting to the entry by the Court of a Final Judgment of Permanent Injunction
and other relief as to Defendant General Development Corporation. By P. 4,
- --------------------
1P. 12 of the Final Judgment provides: This Court retains jurisdiction over
this matter and over the defendant for the purpose of enabling the parties or
the Master to apply to this Court for further orders or directions as may be
necessary or appropriate for the interpretation or enforcement of this Final
Judgment, for the modification of any of its provisions, for ensuring compliance
with the Final Judgment, and for the remedy of any violation of its provisions.
<PAGE>
Atlantic Gulf, as successor to GDC is bound by the terms and conditions of the
Final Judgment.2
The Final Judgment has many provisions to ensure that any
representations to customers and purchasers of homesites or houses from GDC
receive accurate representations and truthful information regarding value
"whether for purposes of sale, resale, financing, refinancing or otherwise." In
furtherance of that purpose a Special Master was appointed to establish and
implement a Restitution Program for payment of funds to certain purchasers of
GDC houses in satisfaction of their claims related to GDC house purchases. The
Special Master's duties also included ensuring compliance by GDC with the terms
and conditions of the Final Judgment. Paragraph 14 of the Final Judgment
requires its terms and conditions, with the exception of the Restitution
Program, to remain in effect for ten (10) years from date of entry, November 30,
1990.
The motion to modify is alternatively styled as a motion to grant early
relief from the conditions of the Final Judgment based on several reasons.
Essentially they are: (a) GDC's marketing and sales departments and executive
management have
- --------------------
2General Development Corporation, its subsidiaries and affiliates, and
their respective officers, agents, employees SUCCESSORS AND ASSIGNS, and all
other persons in active concert or participation with them, directly or
indirectly, who receive actual notice of this Final Judgment, by personal
service or otherwise, are hereby permanently restrained and enjoined from
engaging in... (certain prohibited acts recited in subparagraphs 4(a) - (h)).
2
<PAGE>
been disbanded; (b) Atlantic Gulf's new management has brought a fresh approach
and high level of integrity to its operations and sales programs; (c) the
present business plan of Atlantic Gulf has changed from the programs and
practices of GDC by focusing only wholesale lot-sales rather than retail sales
in off-site sales offices; and that (d) Atlantic Gulf's marketing and sales
practices would be governed by various state and federal commissions and
agencies. In summary, Atlantic Gulf requests relief or modification as necessary
because "the conditions of the Final Judgment" substantially impair the ability
of Atlantic Gulf to operate centralized marketing and sales programs in its new
communities" and "the freedom to operate centralized marketing and sales
programs could significantly improve Atlantic Gulf's performance in new
subdivisions and in so doing would materially improve Atlantic Gulf's ability to
compete in the real estate market." As an alternative to terminating the Final
Judgment in its entirety, the motion requests that P. 4 and P. 8 be eliminated
or modified.
The provisions of P. 4 prohibit Atlantic Gulf from making
representations as to appreciation in price or value, that homesites or houses
could be sold at a profit, or future guarantees as to rental income of homesites
or houses, and other similar representations.
The terms and conditions of P. 8(a) - (d) require Atlantic Gulf to
provide at its own cost a third party appraisal of
3
<PAGE>
condominium or home purchases, and if the purchase price exceeds the appraisal
by 7.5% or more the purchaser has a right to rescind the contract. P. 8(e) - (i)
provides for creation of a compliance department within GDC with monitoring and
enforcement responsibilities, as well as other implementation procedures not
relevant to the thrust of the motion.
At oral argument on the motion, the Court sought clarification and
specificity regarding how the provision of P. 4 concerning representations as to
value would as asserted "substantially impair the ability of Atlantic Gulf to
operate centralized marketing and sales programs." Since Atlantic Gulf counsel
represented that Atlantic Gulf is currently not engaged in the retail lot sales,
and is primarily focusing on wholesale lot sales, the Court pressed for a
factual scenario that would cast light on the perceived impediment to Atlantic
Gulf expanding its business opportunities by the requirements of the Final
Judgment and P. 4 in particular. By way of example, the movant was inquired of
whether any large community developers had approached Atlantic Gulf to market
for "the many home builders operating within the community" as alleged in the
motion. The substance of the response was that Atlantic Gulf wanted to be able
to enter the "common industry practice for developers of large residential
communities to conduct centralized sales and marketing operations, and that it
wanted to OPTION to participate in such a type of marketing business if
presented with the opportunity to
4
<PAGE>
do so. It was acknowledged by Atlantic Gulf that such an offer by a community
developer had not been received nor had one been rejected because of the terms
of the Final Judgment.
It is well-settled that courts will not prescribe in advance whether
particular conduct is improper or can, as is the concern in this case,
constitute fraud; that can only be determined in the circumstances of each case.
WEISS V. UNITED STATES, 122 F.2d 675, 681 (5th Cir. 1941), (the "law does not
define fraud; it needs no definition, it is as old as falsehood and as versable
as human ingenuity.").
The Court has reviewed the Final Judgment in light of the matters
recited in the motion and from the historical overview of the "old" GDC and its
metamorphasis into the "new" Atlantic Gulf, as presented by Chesterfield Smith,
Esquire, and the "present and future" of Atlantic Gulf as summarized by its Vice
President and in-house counsel, Thomas Jeffrey, Esquire, and by its outside
counsel as well. In particular, it was emphasized that there has been a total
change in the membership of the Board of Directors and the change and progress
that has been made by correcting or abandoning GDC's flawed sales practices.
In summary, the provisions of P. 4(a)(b)(c)(d)(e)(f)(g) and (h) reflect
established prudent guidelines that embody proper standards in consumer sales of
homes and homesites. Without a specific proposed business transaction presented
to the Court, it does not appear that Atlantic Gulf's ability to compete in the
5
<PAGE>
real estate market has been impaired. However, the Court finds that the
provisions of P. 8(a) - (d) of the Final Judgment requiring third party
appraisals, P. 8(a)(b), the customer rescission clause, P. 8(c) are unduly
burdensome and not ordinarily required of wholesale sellers of lots and tracts
of property. This is particularly true when as here, Atlantic Gulf is no longer
in the mortgage financing business. The remaining portions of P. 8 subparagraphs
(d)(1) - (6) are duplicitous of the prohibited representation provisions of P.
4(a) - (h) and as such are surplusage.
Finally, the Court finds that one of the reasons given in support of
vacating the Final Judgment, that Atlantic Gulf marketing and sales practices
would be regulated and governed by State and Federal boards and agencies is not
persuasive. Atlantic Gulf has acknowledged and requests continuation of the
Special Master specifically appointed to monitor Atlantic Gulf sales activities.
It is far more efficient and effective for Atlantic Gulf's sales practices to be
monitored in particular by a Special Master assigned for that purpose, rather
than in general through the often cumbersome and time-consuming state and
federal bureaucratic levels of oversight and supervision.
Accordingly, after due consideration it is
ORDERED and ADJUDGED the motion to modify is GRANTED in part and DENIED
in part as follows:
1. The provisions of P. 4 (a),(b),(c),(d),(e),(f),(g) and
6
<PAGE>
(h) shall remain in effect as representation as to value without the intent to
defraud, and without a misrepresentation of material facts is not a violation of
law. Additionally, P. 4(e) of the Final Judgment provides in referring to
representation as to value, "nothing herein shall preclude GDC (Atlantic Gulf)
from providing accurate information to customers in performing customary
brokerage services, value, GDC's (Atlantic Gulf's) current sales prices, or
engaging in any other activity permitted by this Final Judgment."
2. The provisions of P. 8(a),(b) and(c) regarding appraisals, buyer
rescission requirements, and the duplicitous prohibited representation portions
of P. 8(d)(1) - (6) are VACATED. The remaining portions, P. 8(e)(f)(g)(h) and
(i) shall remain in FULL FORCE AND EFFECT.
DONE and ORDERED in Chambers at Miami, Florida this 25TH day of July,
1996.
-----------------------------------
LENORE C. NESBITT
UNITED STATES DISTRICT JUDGE
cc: Special Master Thomas D. Wood, Esquire
counsel of record
7
Atlantic Gulf Communities Corporation Exhibit to the 1997 Form 10-K Exhibit (c)
10(iii) 9. Modification of Employment Agreement Between the Company and J.
Larry Rutherford Dated December 27, 1997
- ----------------------------------------
December 27, 1997
J. Larry Rutherford
President and
Chief Executive Officer
Atlantic Gulf Communities Corporation
2601 South Bayshore Drive
Miami, Florida 33133-5461
Re: Employment Agreement dated as of November 17, 1997 between
Atlantic Gulf Communities Corporation (the "Company") and J.
Larry Rutherford (the "Executive"), as modified by a letter
agreement dated November 26, 1997 between the Company and the
Executive (as modified and including the Schedule and Exhibit
thereto, the "Agreement")
--------------------------------------------------------------
Dear Mr. Rutherford:
This letter is to modify, as set forth below, the Agreement. The
Agreement, as modified hereby, remains in full force and effect. (Any
capitalized terms used but not defined herein shall have the meaning ascribed to
them in the Agreement.)
A. Section 4.5(a) of the Agreement, as modified by paragraph 3 of the
above-referenced November 26 letter agreement regarding the Agreement, is hereby
modified by the deletion of the entire text thereof and substituting therefor
the following:
(a) (i) Subject to compliance with the other provisions hereof and
applicable law, including any applicable margin requirements established by the
Federal Reserve Board ("Margin Requirements"), the Company shall, upon the
Executive's request, make loans to the Executive, from time to time, of up to an
aggregate of One Hundred Ninety-Nine Thousand ($199,000) in 1997 and of up to an
aggregate of One Hundred Ninety-Nine Thousand ($199,000) in 1998, provided all
of such borrowed funds are concurrently or immediately thereafter used by the
Executive to purchase Company common stock in the NASDAQ National Market or in
one or more private transactions with third parties (the "Recourse Loans").
(ii) In addition, but subject to prior approval by the Company's
shareholders, which approval shall be a majority of the total votes cast on the
matter in person or by proxy, the Executive shall
<PAGE>
J. Larry Rutherford, President and
Chief Executive Officer
Page 2
purchase from the Company common stock of the Company having a market value, as
of the date on which the shares are purchased, equal to Six Hundred Thousand
Dollars ($600,000). Subject to compliance with the other provisions hereof and
applicable law, including any applicable Margin Requirements, the Company shall
make a loan to the Executive for the full amount of the Six Hundred Thousand
($600,000) Dollar purchase price for the Company common stock to be purchased
from the Company (the "$600,000 Loan"). Notwithstanding anything to the contrary
contained herein, the Executive may not purchase any Company common stock from
the Company with proceeds from the $600,000 Loan unless the Stock Incentive Plan
and Agreement is approved by a majority vote of the Company's shareholders in
satisfaction of Section 162(m) of the Internal Revenue Code.
(iii) The Recourse Loans and the $600,000 Loan (collectively the
"Loans") shall be secured by one or more pledges of the Company common stock
purchased by the Executive with the proceeds from the Loans, all subject to
applicable Margin Requirements. The Recourse Loans shall be on a recourse basis
as to the Executive and the $600,000 Loan shall be a nonrecourse loan as to the
Executive. The term of each of the Loans shall be for five (5) years, payable in
annual installments of interest only, with all unpaid principal and interest
payable on maturity, and the interest rate of the Loans shall be the prime rate
as published in THE WALL STREET JOURNAL from time to time. In addition to other
customary events of default, the Loans shall become due and payable in full upon
(1) the termination by the Company of Executive's employment with the Company
hereunder for cause (as defined in Section 5.1 hereof), or (2) the termination
by Executive of his employment with the Company hereunder. The terms and
conditions of all promissory notes evidencing the Loans, and the terms and
conditions of all pledge agreements evidencing the pledge of Company common
stock as security for the Loans, shall be in a form satisfactory to the Company.
The above-mentioned promissory note and pledge agreement terms and conditions
will include, as the Company may request, cross-collateralization provisions
under which, among other things, (1) Common Stock purchased with proceeds from
one Loan will also secure the other Loans and (2) Common Stock will not be
released from a pledge agreement until and unless all Loans have been paid in
full, all subject to applicable law, including Margin Requirements.
B. The Atlantic Gulf Communities Corporation Stock Incentive Plan and
Agreement for J. Larry Rutherford attached to the Agreement as Exhibit A is
hereby modified by the deletion of the entire text of Section 14 thereof and
substituting therefor the text set forth on Appendix A hereto.
<PAGE>
J. Larry Rutherford, President and
Chief Executive Officer
Page 3
Please evidence your agreement with the above modifications to the
Agreement, including the Stock Incentive Plan and Agreement attached thereto as
Exhibit A, by signing your name in the space provided below and returning this
letter to the Company.
Very truly yours,
Thomas W. Jeffrey
Executive Vice President
Agreed and Accepted
as of the date first
written above
- ---------------------------
J. Larry Rutherford
Atlantic Gulf Communities Corporation Exhibit to the 1997 Form 10-K
Exhibit (c) 21. Subsidiaries of the Company
- -------------------------------------------
SUBSIDIARIES OF ATLANTIC GULF COMMUNITIES CORPORATION
A DELAWARE CORPORATION
AS OF MARCH 4, 1998
AGC-SP, Inc. (Delaware
AGC-SP4, Inc. (Florida)
AGC-SP5, Inc. (Florida)
AG Title Corporation (Florida)
AGC CL Limited Partner, Inc. (Florida)
AGC Homes, Inc. (Florida)
AGC Sanctuary Corporation (Florida)
AG Sanctuary of Orlando, Inc. (Florida)
Atlantic Gulf C.C. Corp. (Florida) - f/k/a C.C. Village Development Corporation
Atlantic Gulf Commercial Realty, Inc. (Florida)
Atlantic Gulf Communities Management Corporation (Florida)
Atlantic Gulf Receivables Corporation (Florida)
Atlantic Gulf Communities Service Corporation (Florida)
Atlantic Gulf Development, Inc. (Florida)
Atlantic Gulf Engineering Company (Florida)
Atlantic Gulf Realty, Inc. (Florida)
Atlantic Gulf of Tampa, Inc. (Florida)
Atlantic Gulf Utilities, Inc. (Florida)
Community Title Agency, Inc. (Florida)
Country Lakes Development Corporation (STOCK ISSUED TO COUNTRY LAKES, LP)
Cumberland Cove, Inc. (Tennessee)
Environmental Quality Laboratory, Incorporated (Florida)
EQL Environmental Services, Inc. (Florida)
Five Star Homes, Inc. (Florida)
Fox Creek Development Corporation (Florida)
FRC Investments, Inc. (Florida)
GDV Financial Corporation (Florida)
General Development Acceptance Corporation (Delaware)
General Development Air Service, Inc. (Florida)
General Development Commercial Credit Corp. (Florida)
General Development Headquarters Corp. (Florida)
General Development Resorts, Inc. (Florida)
General Development Sales Corporation (Florida)
General Development Service Corporation (Florida)
General Development Utilities, Inc, Inc. (Florida)
Hunter Trace Development Corporation (Florida)
Lakeside Development of Orlando, Inc. (Florida)
Las Olas Tower at River Walk, Inc. - fka AGC-SP2, Inc.
Longwood Utilities, Inc. (Florida)
Maplewood Development Corporation (Florida)
Miramar Rock, Inc. (STOCK ISSUED TO SUNSET LAKES ASSOCIATES)
NT Development Corporation (STOCK ISSUED TO COUNTRY LAKES, LP)
Ocean Grove, Inc. (Florida)
Panther Creek Corp. (North Carolina)
Regency Island Dunes, Inc. (Florida)
<PAGE>
Sabal Trace Development Corporation (Florida)
Saxon-DeBary, Inc. (Florida)
Summerchase Development Corporation (Florida)
Sunset Lakes Development Corporation (Florida)
Town & Country II, Inc. (Florida)
Waterford-Orlando, Inc. (Florida) fka: AGC-SP1, Inc.; fka Saxon Park Development
Corporation
West Bay Club Development Corporation (Florida) fka Estero Pointe Development
Corporation
West Bay Realty, Inc. (Florida)
West Bay Holding Corporation (Florida)
West Frisco Development Corporation (Florida) - fka AGC-SP3, Inc.
Windsor Palms Corporation (Florida)
XYZ Insurance, Inc. (Florida)
Atlantic Gulf Asia Holdings N.V. (Netherlands Antilles)
Atlantic Gulf Communities Corporation Exhibit To The 1997 Form 10-K
Exhibit (c) 23, Accountant's Consent - Ernst & Young LLP
- --------------------------------------------------------
Consent of Independent Certified Public Accountants
Ernst & Young LLP
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-78284, as amended by Amendments 1 and 2, and Form S-8 No.
33-78282 pertaining to the Company's Employee Stock Option Plan), of our report
dated March 17, 1998, with respect to the consolidated financial statements and
schedule of Atlantic Gulf Communities Corporation included in the Annual Report
(Form 10-K) for the year ended December 31, 1997.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
March 25, 1998
Miami, Florida
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR THEN ENDED AND THE NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000771934
<NAME> Atlantic Gulf Communities
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 10,901
<SECURITIES> 0
<RECEIVABLES> 41,246
<ALLOWANCES> 0
<INVENTORY> 130,506
<CURRENT-ASSETS> 0
<PP&E> 4,965
<DEPRECIATION> (3,211)
<TOTAL-ASSETS> 203,071
<CURRENT-LIABILITIES> 0
<BONDS> 132,408
41,684
0
<COMMON> 1,161
<OTHER-SE> 4,157
<TOTAL-LIABILITY-AND-EQUITY> 203,071
<SALES> 67,619
<TOTAL-REVENUES> 76,648
<CGS> 72,192
<TOTAL-COSTS> 82,199
<OTHER-EXPENSES> 43,201
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,222
<INCOME-PRETAX> (62,069)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,069)
<EPS-PRIMARY> (5.82)
<EPS-DILUTED> (5.82)
</TABLE>
