UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission file number: 1-8967
ATLANTIC GULF COMMUNITIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 59-0720444
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2601 SOUTH BAYSHORE DRIVE 33133-5461
MIAMI, FLORIDA (Zip Code)
(Address of principal executive offices)
(305) 859-4000
(Registrant's telephone number, including area code)
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest date practicable:
There were 12,675,733 shares of the Registrant's common stock, $.10 par value
per share, outstanding as of August 5, 1999.
<PAGE>
SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORM
10-Q FOR THE FISCAL QUARTER ENDED JUNE 30, 1999, CERTAIN MATTERS DISCUSSED
HEREIN, INCLUDING PART II., ITEM 2., "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 PRIMARY MARKETS IN FLORIDA, OTHER
PRIMARY MARKETS IN THE SOUTHEASTERN UNITED STATES AND LUXURY/RESORT 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 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; THE
COMPANY'S RECENT OPERATING LOSSES; 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; THE RESULTS OF THE COMPANY'S CURRENT DEVELOPMENT PROJECTS; THE
RESULTS OF THE COMPANY'S STRATEGIC ALTERNATIVE INITIATIVE; AND THE COMPANY'S
ABILITY TO REALIZE THE FINANCIAL AND OTHER BENEFITS ANTICIPATED FROM ITS
CORPORATE RESTRUCTURING PROGRAM.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998............2
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1999 and 1998..............................................3
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1999 and 1998....................................................................4
Notes to Consolidated Financial Statements.......................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................25
Item 2. Changes in Securities..........................................................25
Item 3. Defaults Upon Senior Securities................................................25
Item 4. Submission of Matters to a Vote of Security Holders............................25
Item 5. Other Information..............................................................26
Item 6. Exhibits and Reports on Form 8-K...............................................26
SIGNATURES........................................................................................27
</TABLE>
<PAGE>
UNLESS THE CONTEXT CLEARLY INDICATES OTHERWISE, ALL REFERENCES HEREIN TO (1)
"ATLANTIC GULF" REFER SOLELY TO ATLANTIC GULF COMMUNITIES CORPORATION, (2) THE
"COMPANY" INCLUDE ATLANTIC GULF AND ITS DIRECT AND INDIRECT WHOLLY OWNED
SUBSIDIARIES AND (3) THE "PREDECESSOR COMPANY" REFER SOLELY TO GENERAL
DEVELOPMENT CORPORATION (ATLANTIC GULF'S CORPORATE PREDECESSOR) AND ITS DIRECT
AND INDIRECT SUBSIDIARIES.
PART I. FINANCIAL INFORMATION
[THE REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY.]
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
(in thousands, except share amounts and par value)
June 30, December 31,
1999 1998
----------- ------------
Assets (unaudited)
------
<S> <C> <C>
Cash and cash equivalents $ 2,609 $ 9,413
Restricted cash and cash equivalents 696 1,041
Contract receivables, net 3,240 4,109
Mortgages, notes and other receivables, net 22,430 29,273
Land and residential inventory 166,927 166,870
Property, plant and equipment, net 10,466 3,950
Other assets, net 19,473 15,150
----------- -----------
Total assets $ 225,841 $ 229,806
=========== ===========
Liabilities and Stockholders' (Deficit) Equity
----------------------------------------------
Accounts payable and accrued liabilities $ 16,271 $ 17,533
Other liabilities 14,968 8,207
Notes and mortgages payable 157,838 151,805
----------- -----------
Total liabilities 189,077 177,545
----------- -----------
Redeemable Preferred Stock
Series A, 20%, $.01 par value, 2,500,000 shares authorized;
2,500,000 shares issued and outstanding, having a liquidation
preference of $36,059 and $32,706, as of June 30, 1999
and December 31, 1998, respectively 34,181 30,403
Series B, 20%, $.01 par value; 2,000,000 shares authorized;
2,000,000 shares issued and outstanding, having a liquidation
preference of $28,553 and $25,899 as of June 30, 1999
and December 31, 1998, respectively 27,336 24,417
----------- -----------
61,517 54,820
----------- -----------
Commitments and Contingencies
Common stockholders' deficit
Common stock, $.10 par value, 70,000,000 shares authorized;
12,796,595 and 11,933,359 shares issued and outstanding as
of June 30, 1999 and December 31, 1998, respectively 1,280 1,193
Contributed capital 109,699 117,994
Accumulated deficit (129,365) (115,379)
Accumulated other comprehensive loss (6,351) (6,351)
Treasury stock, 158,536 shares, at cost (16) (16)
----------- -----------
Total common stockholders' deficit (24,753) (2,559)
----------- -----------
Total liabilities and stockholders' (deficit) equity $ 225,841 $ 229,806
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three and Six Months Ended June 30, 1999 and 1998
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales:
Homesite $ 9,993 $ 3,647 $ 17,635 $ 7,078
Commercial 911 40,256 6,229 45,797
Vertical Residential Units - - - -
----------- ----------- ----------- -----------
Total real estate sales 10,904 43,903 23,864 52,875
Other operating revenue 1,081 2,071 3,340 3,096
Interest income 164 1,152 1,045 2,519
----------- ----------- ----------- -----------
Total revenues 12,149 47,126 28,249 58,490
----------- ----------- ----------- -----------
Costs and expenses:
Cost of real estate sales:
Homesite 8,360 3,157 15,247 6,164
Commercial 621 33,349 4,524 38,831
Vertical Residential Units - - - -
----------- ----------- ----------- -----------
Total cost of real estate sales 8,981 36,506 19,771 44,995
Inventory Valuation Reserve 3,424 - 3,424 -
Selling expense 1,702 1,968 3,535 3,220
Operating expense 1,463 464 1,840 766
Real estate costs 2,430 2,277 4,167 4,076
General and administrative expense 3,372 2,371 7,025 4,380
Cost of borrowing, net of amounts capitalized 964 1,649 2,751 3,031
Other expense 217 66 407 471
----------- ----------- ----------- -----------
Total costs and expenses 22,553 45,301 42,920 60,939
----------- ----------- ----------- -----------
Operating (loss) income (10,404) 1,825 (14,671) (2,449)
----------- ----------- ----------- -----------
Other income (expense):
Reorganization items 146 268 685 782
Miscellaneous - (27) - (216)
----------- ----------- ----------- -----------
Total other income (expense) 146 241 685 566
----------- ----------- ----------- -----------
Net (loss) income (10,258) 2,066 (13,986) (1,883)
----------- ----------- ----------- -----------
Less:
Accrued preferred stock dividends 3,076 2,531 6,007 4,860
Accretion of preferred stock to redemption amount 347 336 691 654
Modification of preferred stock security interest - - 2,380 -
----------- ----------- ----------- -----------
3,423 2,687 9,078 5,514
----------- ----------- ----------- -----------
Net loss applicable to common stock $ (13,681) $ (801) $ (23,064) $ (7,397)
=========== =========== =========== ===========
Basic and diluted net loss per common share $ (1.08) $ (0.07) $ (1.86) $ (0.64)
=========== =========== =========== ===========
Weighted average common shares outstanding 12,638 11,531 12,402 11,530
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998
(in thousands of dollars)
(unaudited)
Six Months Ended
June 30,
------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (13,986) $ (1,883)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 2,083 2,083
Other (income) expense (6) (310)
Reorganization items - 45
Land Acquisitions - (22,125)
Other net changes in assets and liabilities:
Restricted cash 345 813
Receivables 7,603 1,775
Land and residential inventory (6,119) 25,888
Other assets (4,323) 946
Accounts payable and accrued liabilities (917) (1,302)
Other liabilities (702) 1,972
----------- ------------
Net cash (used in) provided by operating activities (16,022) 7,902
----------- ------------
Cash flow from investing activities:
Additions to property, plant and equipment, net (784) (1,335)
----------- ------------
Net cash used in investing activities (784) (1,335)
----------- ------------
Cash flows from financing activities:
Borrowings under credit agreements 93,784 20,636
Repayments under credit agreements (83,782) (35,145)
Proceeds from issuance of preferred stock - 1,735
----------- ------------
Net cash provided by (used in) financing activities 10,002 (12,774)
----------- ------------
Decrease in cash and cash equivalents (6,804) (6,207)
Cash and cash equivalents at beginning of period 9,413 9,188
----------- ------------
Cash and cash equivalents at end of period $ 2,609 $ 2,981
=========== ============
Supplemental cash flow information:
Interest payments, net of amounts capitalized $ 3,086 $ 1,340
=========== ============
Reorganization item payments $ - $ 45
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999
(unaudited)
(1) The June 30, 1999 financial statements are unaudited and subject to
year-end adjustments. In management's opinion, the interim financial
statements reflect all adjustments, principally consisting of normal
recurring accruals, necessary for a fair presentation of the financial
position and results of operations. Results for interim periods are not
necessarily indicative of results for the full year. For a complete
description of the Company's accounting policies, see "Notes to
Consolidated Financial Statements" included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, as amended by
that certain Amendment to Form 10-K on Form 10-K/A-1, as filed with the
Securities and Exchange Commission (the "SEC") on April 30, 1999 ("1998
Form 10-K"). Certain prior year amounts have been reclassified to
conform with the 1999 presentation.
(2) Net income (loss) per share of common stock, $.10 par value per share,
of the Company ("Common Stock"), is computed by (a) deducting accrued
preferred stock dividends, accretion of preferred stock to redemption
amount and other preferred stock charges from net income (loss) to
determine net income (loss) applicable to common stock and (b) then
dividing net income (loss) applicable to common stock by the weighted
average number of shares of Common Stock outstanding during the
periods. The effect of any outstanding warrants and options to purchase
common stock on the per share computation was anti-dilutive during the
periods.
(3) The Company capitalizes interest primarily on land inventory being
developed for sale which is subsequently charged to income when the
related asset is sold. Capitalized interest was $6,043,000 and
$10,197,000 for the three and six months ended June 30, 1999,
respectively, and $2,382,000 and $5,396,000 for the three and six month
periods ended June 30, 1998, respectively.
(4) Earned revenue from the sale of Vertical Residential Units 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 all the criteria for sales pursuant to
SFAS 66, ACCOUNTING FOR SALES OF REAL ESTATE, have been met.
(5) Pursuant to the Company's 1996 Non-Employee Directors' Stock Plan, the
Company issued to its Non-Employee Directors 30,000 shares of Common
Stock at a price of $0.75 per share for the first quarter of 1999 and
13,212 shares of Common Stock at a price of $1.70 per share for the
second quarter of 1999.
(6) The Company and AP-AGC, LLC, an affiliate of Apollo Real Estate
Advisors, L.P. ("Apollo"), are parties to that certain Investment
Agreement, as amended (the "Investment Agreement"), pursuant to which
Apollo agreed to purchase, subject to certain conditions, (a) 2.5
million shares of 20% Cumulative Redeemable Convertible Preferred
Stock, Series A (the "Series A Preferred Stock"), and (b) warrants to
purchase up to 5 million shares of Common Stock (the "Investor
Warrants"), for an aggregate purchase price of $25 million (the "Apollo
Transaction"). As of June 30, 1998, Apollo had purchased (A) 2.5
million shares of Series A Preferred Stock for $24.7 million ($9.88 per
share) and (B) Investor Warrants to acquire up to 5 million shares of
Common Stock for $0.3 million ($.06 per Investor Warrant share).
5
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999
(unaudited)
(7) Redeemable preferred stock (which includes the Series A Preferred Stock
and the 20% Cumulative Redeemable Convertible Preferred Stock, Series B
(the "Series B Preferred Stock")) consisted of the following at June
30, 1999, December 31, 1998 and June 30, 1998 (in thousands of
dollars):
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1999 1998 1998
----------- ----------- -----------
Series A Preferred Stock:
- -------------------------
<S> <C> <C> <C>
Gross proceeds $ 25,000 $ 25,000 $ 25,000
Accrued dividends 11,059 7,706 4,666
----------- ----------- -----------
Liquidation Preference amount 36,059 32,706 29,666
Less issue costs (3,104) (3,104) (3,100)
Less warrants purchased (300) (300) (300)
Plus accretion of preferred stock to redemption amount 1,526 1,101 683
----------- ----------- -----------
34,181 30,403 26,949
----------- ----------- -----------
Series B Preferred Stock:
- -------------------------
Private Placement June 24, 1997:
Gross proceeds 10,000 10,000 10,000
Accrued dividends 4,832 3,453 2,202
----------- ----------- -----------
Liquidation Preference amount 14,832 13,453 12,202
Less issue costs (950) (950) (950)
Less warrants purchased (120) (120) (120)
Plus accretion of preferred stock to redemption amount 500 369 239
----------- ----------- -----------
14,262 12,752 11,371
----------- ----------- -----------
Rights Offering November 19, 1997:
Gross proceeds 10,000 10,000 10,000
Accrued dividends 3,721 2,446 1,289
----------- ----------- -----------
Liquidation Preference amount 13,721 12,446 11,289
Less issue costs (950) (950) (950)
Less warrants purchased (120) (120) (120)
Plus accretion of preferred stock to redemption amount 423 289 158
----------- ----------- -----------
13,074 11,665 10,377
----------- ----------- -----------
Total Series B 27,336 24,417 21,748
----------- ----------- -----------
Total redeemable preferred stock $ 61,517 $ 54,820 $ 48,697
=========== =========== ===========
</TABLE>
(8) During the first six months of 1999 and 1998, comprehensive loss
consisted only of the net losses for those periods.
6
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999
(unaudited)
(9) Segment Reporting
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999:
-------------------------------
Primary Luxury/
Market Resort Predecessor
Operations Operations Assets Other Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues $ 14,986 $ 4,862 $ 4,016 $ 4,385 $ 28,249
=========== ============ ============ ============ ===========
Gross Profit $ 2,339 $ 998 $ 756 $ - $ 4,093
=========== ============ ============ ============
Unallocated revenues (expenses), net (18,079)
-----------
Net Loss $ (13,986)
===========
Six Months Ended June 30, 1998:
-------------------------------
Primary Luxury/
Market Resort Predecessor
Operations Operations Assets Other Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues $ 36,816 $ - $ 16,059 $ 5,615 $ 58,490
=========== ============ ============ =========== ===========
Gross Profit $ 7,298 $ - $ 582 $ - $ 7,880
=========== ============ ============ ===========
Unallocated revenues (expenses), net (9,763)
-----------
Net Loss $ (1,883)
===========
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
[THE DISCUSSION OF THE COMPANY'S BUSINESS IN THE SECTIONS BELOW
ENTITLED "CURRENT BUSINESS," "CORE BUSINESS" AND "PREDECESSOR ASSETS" SHOULD BE
READ IN CONJUNCTION WITH THE DISCUSSION OF THE COMPANY'S CORPORATE RESTRUCTURING
AND STRATEGIC ALTERNATIVES INITIATIVE IN THE SECTION BELOW ENTITLED "RECENT
DEVELOPMENTS."]
CURRENT BUSINESS
The Company is a Florida-based, planned community development and asset
management company. The Company's CORE BUSINESS consists of:
- PRIMARY MARKET OPERATIONS, consisting of the acquisition,
development and sale of real estate projects ("PRIMARY
PROJECTS") containing residential homesite components such as
single-family lots, multi-family lots/units and residential
tract sales ("HOMESITES") and/or non-residential components
such as commercial, industrial, office and institutional
("COMMERCIAL DEVELOPMENT") in primary markets in Florida and
other selected primary markets in the southeastern United
States ("PRIMARY MARKETS").
- LUXURY/RESORT OPERATIONS, consisting of the acquisition,
development and sale of real estate projects ("LUXURY/RESORT
PROJECTS") in which the Company engages in one or more of the
following activities: Homesite development, construction of
VERTICAL RESIDENTIAL UNITS (i.e., single family housing,
condominiums and timeshare units), and construction and
operation of equity golf clubs and other amenities
("AMENITIES"). The Company's existing Luxury/Resort Projects
are located in selected markets in Florida and Colorado
("LUXURY/RESORT MARKETS").
The Company's (1) Primary Markets and Luxury/Resort Markets
are referred to as its "CORE MARKETS" and (2) Primary Projects
and Luxury/Resort Projects are referred to as its "CORE
PROJECTS."
- OTHER OPERATIONS, consisting principally of:
-- ENVIRONMENTAL SERVICES, consisting of the provision
of environmental services to third parties on a
contract basis; and
-- RECEIVABLES PORTFOLIO MANAGEMENT, consisting of
portfolio management of MORTGAGE RECEIVABLES (as
defined below) and CONTRACT RECEIVABLES (as defined
below) resulting principally from the sale or other
disposition of PREDECESSOR ASSETS (as defined below).
As of June 30, 1999, the Company (1) owned all of the equity, or had
equity ownership interests in joint ventures which owned all of the equity, in
11 Core Projects, consisting of seven Primary Projects and four Luxury/Resort
Projects and (2) had four additional planned Primary Projects under control. The
11 existing Core Projects and four planned Primary Projects are referred to as
the Company's "CORE DEVELOPMENT PORTFOLIO."
The Company also is engaged in the orderly disposition of scattered
PREDECESSOR HOMESITES (as defined below) and PREDECESSOR TRACTS (as defined
below) located in secondary markets in Florida and Tennessee
8
<PAGE>
(collectively, "PREDECESSOR ASSETS"). As discussed below, the continuing
disposition of Predecessor Assets is a run-off business and not part of the
Company's Core Business.
CORE BUSINESS
GENERAL. The Company's Core Business consists of three principal
business lines, (1) development of Primary Projects, (2) development of
Luxury/Resort Projects and (3) Other Operations, principally including
Environmental Services and Receivables Portfolio Management.
PRIMARY PROJECTS. As of June 30, 1999, the Company was engaged in the
acquisition, development and sale of Primary Projects in Florida, North
Carolina, Georgia and Texas. See PART I, ITEM 1. BUSINESS - CORE BUSINESS --
PRIMARY PROJECTS of the 1998 Amended Form 10-K for more information concerning
these Projects, including the scope and location of each Project.
9
<PAGE>
REMAINING UNSOLD LOTS/UNITS/ACRES IN THE PRIMARY PROJECTS, BY
PROJECT. The following table summarizes the number of remaining unsold
lots/units/acres at the Company's Primary Projects, by Project, as of June 30,
1999:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
REMAINING UNSOLD LOTS/UNITS/ACRES AS OF JUNE 30, 1999(1)
----------------------------------------------------------------------------------------
SINGLE FAMILY MULTI-FAMILY COMMERCIAL
----------------------------------------------------------------------------------------
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
LOTS ENTITLED(2) UNITS ENTITLED(2) ACRES ENTITLED(2)
----------------------------------------------------------------------------------------
OWNED PROPERTIES
- ----------------
<S> <C> <C> <C> <C> <C> <C>
Lakeside Estates ..................... 474 474 - - - -
Saxon Woods .......................... 363 363 - - - -
West Meadows ......................... 710 710 - - - -
The Trails of West Frisco ............ 1,387 1,387 - - - -
----------------------------------------------------------------------------------------
SUBTOTAL OWNED PROPERTIES............. 2,934 2,934 - - - -
----------------------------------------------------------------------------------------
JOINT VENTURE PROPERTIES
- ------------------------
Sunset Lakes ......................... 1,159 1,159 - - - -
Falcon Trace ......................... 556 556 - - - -
Cary Glen ............................ 852 852 257 257 - -
----------------------------------------------------------------------------------------
SUBTOTAL JOINT VENTURE PROPERTIES..... 2,567 2,567 257 257 - -
----------------------------------------------------------------------------------------
CONTROLLED PROPERTIES (3)
- -------------------------
Anneewakee Falls (4).................. 1,226 - - - - -
Rayland............................... 3,766 - 534 - 75 -
Orlando Naval Training Center......... 911 - 2,129 - 131 -
Harbor Bay............................ 1,371 - 410 - 44 -
----------------------------------------------------------------------------------------
SUBTOTAL CONTROLLED PROPERTIES........ 7,274 - 3,073 - 250 -
----------------------------------------------------------------------------------------
TOTAL ALL PROPERTIES.................. 12,775 5,501 3,330 257 250 -
========================================================================================
</TABLE>
(1) Varying from Project to Project, unsold units are developed, under
development or to be developed in the future. The change in remaining
unsold lots/units/acres from December 31, 1998 is a result of sales
activity and any modifications made to the scope of the Project during
the intervening period.
(2) "Entitled" means having the necessary discretionary local, state, and
federal government approvals and permits to proceed with development of
the Project.
(3) The Company does not currently own these Projects, but has entered into
contractual relationships (i.e., purchase agreements with customary
conditions precedent, option agreements, joint venture arrangements,
other similar arrangements, etc.) to acquire them. There can be no
assurance the Company will actually acquire these properties.
(4) This Project is located in Georgia, southwest of Atlanta in Douglas
County. The Company controls this Project through a purchase contract
executed on February 19, 1999.
10
<PAGE>
LUXURY/RESORT PROJECTS. The Company also is engaged in the acquisition,
development and sale of master planned Luxury/Resort Projects in Luxury/Resort
Markets in Florida and Colorado. See PART I, ITEM 1. BUSINESS - CORE BUSINESS --
LUXURY/RESORT PROJECTS of the 1998 Amended Form 10-K for more information
concerning these Projects, including the scope and location of each Project.
REMAINING UNSOLD LOTS/UNITS/ACRES IN THE LUXURY/RESORT
PROJECTS, BY PROJECT. The following table summarizes the number of remaining
unsold lots/units/acres at the Company's Luxury/Resort Projects, by Project, as
of June 30, 1999:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
REMAINING UNSOLD LOTS/UNITS/ACRES AT JUNE 30, 1999(1)
-----------------------------------------------------------------------------------------------
VERTICAL RESIDENTIAL UNITS
HOMESITES ---------------------------------------------------- COMMERCIAL
SINGLE FAMILY SINGLE FAMILY MULTI-FAMILY TIMESHARE CABINS DEVELOPMENT
-----------------------------------------------------------------------------------------------
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
LOTS ENTITLED UNITS ENTITLED UNITS ENTITLED UNITS ENTITLED ACRES ENTITLED
-----------------------------------------------------------------------------------------------
OWNED PROPERTIES
- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
West Bay Club.................. 316 316 81 81 597 597 - - 13 13
Chenoa (2)..................... 372 - - - 50 - 75 - - -
Riverwalk Tower................ - - - - 375 375 - - - -
-----------------------------------------------------------------------------------------------
SUBTOTAL OWNED PROPERTIES...... 688 316 81 81 1,022 972 75 - 13 13
-----------------------------------------------------------------------------------------------
JOINT VENTURE PROPERTIES
- ------------------------
Jupiter Ocean Grande........... - - - - 154 154 - - - -
-----------------------------------------------------------------------------------------------
TOTAL ALL PROPERTIES........... 688 316 81 81 1,176 1,126 75 - 13 13
===============================================================================================
</TABLE>
(1) Varying from Project to Project, unsold units are developed, under
development or to be developed in the future. The change in remaining
unsold lots/units/acres from December 31, 1998 is a result of sales
activity and any modifications made to the scope of the Project during
the intervening period.
(2) Formerly known as Aspen Springs Ranch.
OTHER OPERATIONS.
ENVIRONMENTAL SERVICES. EQ Lab, a wholly owned subsidiary of
the Company, is a full service ecological consulting firm and laboratory. EQ Lab
recorded (1) approximately $429,000 and $419,000 of total revenues in the second
quarter of 1999 and 1998, respectively, and (2) approximately $790,000 and
$868,000 of total revenues in the first six months of 1999 and 1998,
respectively. EQ Lab recorded (1) approximately $227,000 and $240,000 of
revenues from unaffiliated third parties in the second quarter of 1999 and 1998,
respectively, and (2) approximately $459,000 and $619,000 of revenues from
unaffiliated third parties in the first six months of 1999 and 1998,
respectively.
RECEIVABLES PORTFOLIO MANAGEMENT. The Company is actively
engaged in the management and collection of a portfolio of (1) contract
receivables originated by the Predecessor Company's homesite installment sales
program (the "CONTRACT RECEIVABLES") and (2) mortgage receivables generated
primarily from the Company's sales of Predecessor Tracts (the "MORTGAGE
RECEIVABLES," which, together with the Contract Receivables, are collectively
referred to as the "RECEIVABLES PORTFOLIO"). As of June 30, 1999, the portfolio
of Contract Receivables had a net book value of $3.2 million, and the portfolio
of Mortgage Receivables had a net book value of $22.4
11
<PAGE>
million. As of December 31, 1998, the portfolio of Contract Receivables had a
net book value of $4.1 million, and the portfolio of Mortgage Receivables had a
net book value of $29.3 million.
PREDECESSOR ASSETS
The following table summarizes the Company's Predecessor Homesite
Inventory by secondary market area as of June 30, 1999:
<TABLE>
<CAPTION>
PREDECESSOR HOMESITE INVENTORY
Other Total
Standard Developed Buildable Other Predecessor
Market Area Buildable Lots Reserved Restricted Homesites
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North Port 3,557 9 66 129 3,761
Port Charlotte 715 71 1,623 362 2,771
Port St. Lucie 207 27 307 61 602
Port Malabar 110 4 1,765 1,543 3,422
Port Labelle 67 - 23 1,733 1,823
Sabal Trace - - - - -
Silver Springs Shores 2,369 79 229 279 2,956
Cumberland Cove 180 - - 8 188
Other 44 - 30 6 80
-----------------------------------------------------------
Total 7,249 190 4,043 4,121 15,603
===========================================================
</TABLE>
The following table summarizes the Company's Predecessor Commercial
Development Inventory by secondary market area as of June 30, 1999:
PREDECESSOR COMMERCIAL DEVELOPMENT INVENTORY
Total
Market Area Acres
---------------------------------------------------------
North Port 549
Port Charlotte 1,405
Port St. Lucie 318
Port Malabar 889
Port Labelle 804
Silver Springs Shores 36
Cumberland Cove 685
Other 39
----------
Total 4,725
==========
12
<PAGE>
The decrease in inventory from December 31, 1998 is primarily a result
of sales activity during the intervening period in accordance with the Company's
plan of disposal of Predecessor Assets. See PART I, ITEM 1. BUSINESS -
PREDECESSOR ASSETS of the 1998 Amended Form 10-K for information concerning the
Predecessor Homesite and Predecessor Commercial Development Inventory.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
The Company's results of operations for its Core Business and
Predecessor Assets for the six months ended June 30, 1999 and 1998,
respectively, are summarized below:
<TABLE>
<CAPTION>
Combining Results of Real Estate Operations
-------------------------------------------
Six Months Ended June 30, 1999
(in thousands)
Primary Luxury/
Market Resort Predecessor
Operations Operations Assets Total
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite.............................. $ 10,486 $ 4,862 $ 2,287 $ 17,635
Commercial............................ 4,500 - 1,729 6,229
Vertical Residential Units............ - - - -
---------------------------------------------------
Total real estate sales.................. 14,986 4,862 4,016 23,864
Costs and expenses:
Cost of real estate sales
Homesite.............................. 9,406 3,864 1,977 15,247
Commercial............................ 3,241 - 1,283 4,524
Vertical Residential Units............ - - - -
---------------------------------------------------
Total cost of real estate sales............. 12,647 3,864 3,260 19,771
---------------------------------------------------
Gross margin real estate sales ............. $ 2,339 $ 998 $ 756 $ 4,093
===================================================
Results of Joint Venture Operations(1)...... $ (34) $ (373) $ - $ (407)
===================================================
</TABLE>
(1) Included in "other operating revenue" in the Consolidated Statements of
Operations.
13
<PAGE>
Combining Results of Real Estate Operations
-------------------------------------------
Six Months Ended June 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Primary Luxury/
Market Resort Predecessor
Operations Operations Assets Total
-----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite.............................. $ 5,036 $ - $ 2,042 $ 7,078
Commercial............................ 31,780 - 14,017 45,797
Vertical Residential Units............ - - - -
-----------------------------------------------------
Total real estate sales.................. 36,816 - 16,059 52,875
Costs and expenses:
Cost of real estate sales
Homesite.............................. 4,314 - 1,850 6,164
Commercial............................ 25,204 - 13,627 38,831
Vertical Residential Units............ - - - -
-----------------------------------------------------
Total cost of real estate sales............. 29,518 - 15,477 44,995
-----------------------------------------------------
Gross margin real estate sales ............. $ 7,298 $ - $ 582 $ 7,880
=====================================================
Results of Joint Venture Operations(1)...... $ 1,187 $ (246) $ - $ 941
=====================================================
</TABLE>
(1) Included in "other operating revenue" in the Consolidated Statements of
Operations.
OVERVIEW. The Company reported a net loss applicable to Common Stock of
$23.1 million in the first six months of 1999 compared to a net loss of $7.4
million applicable to Common Stock in the first six months of 1998. The increase
in the net loss of $15.7 million was due primarily to (1) a $3.8 million
decrease in gross margin on real estate sales, (2) a $2.6 million increase in
general and administrative expenses, (3) a $3.6 million increase in preferred
stock charges, (4) inventory valuation reserves of $3.4 million, (5) a $1.5
million decrease in interest income, partially offset by (6) a $280,000 decrease
in cost of borrowing net.
PRIMARY MARKET OPERATIONS.
HOMESITES. Revenues from Homesite sales increased $5.5 million
in the first six months of 1999 compared to the first six months of 1998 due
primarily to sales at The Trails of West Frisco Project. There were no sales at
The Trails of West Frisco Project in the first six months of 1998. The Homesite
sales gross margin percentage was 10.3% in the first six months of 1999 compared
to 14.3% in the first six months of 1998. The lower Homesite sales gross margin
percentage in the first six months of 1999 compared to the first six months of
1998 was due primarily to a decline in the gross margin associated with the
Lakeside
14
<PAGE>
Estates Project due to an increase in the estimated cost to complete that
Project in1998 resulting in break-even margins for the remainder of the Lakeside
Estates Project.
As of June 30, 1999, the Company had under contract approximately 770
Homesites for $24.4 million with 11 homebuilders in the LakesideEstates Project,
the Saxon Woods Project, the West Meadows Project and The Trails of West Frisco
Project. As of December 31, 1998, the Company had under contract approximately
650 Homesites for $19.8 million with 11 homebuilders in the Lakeside Estates
Project, the Saxon Woods Project, the West Meadows Project and The Trails of
West Frisco Project. And, as of June 30, 1998, the Company had under contract
approximately 938 Homesites for $24.2 million with 13 homebuilders in the
Lakeside Estates Project, the Saxon Woods Project, the West Meadows Project and
The Trails of West Frisco Project.
COMMERCIAL DEVELOPMENT. Revenues from Commercial Development
were $4.5 million in the first six months of 1999, compared to $31.8 million in
the first quarter of 1998. In January 1999, the Company closed on the sale of
the West Meadows Project for $4.5 million. In April 1998, the Company sold and
closed Dave's Creek for $24.8 million. In June 1998, the Company sold a portion
of the Riverwalk Towers Project for $7.0 million.
JOINT VENTURES. Results of Joint Ventures decreased by $1.2
million in the first six months of 1999 compared to the first six months of
1998. This was primarily associated with the Sunset Lakes Project. During 1998,
the Sunset Lakes Project commenced operations resulting in initial sales to all
the builders. The comparable period in 1999 represents results of operations
from more normalized sales volumes. As of June 30, 1999, December 31, 1998 and
June 30, 1998, the Company's Sunset Lakes and Falcon Trace JV Projects had 595,
787 and 975 Homesites under contract, respectively, totaling approximately $28.1
million, $37.3 million and $45.4 million, respectively, in future gross revenue,
a portion of which is allocable to the Company as a joint venturer.
LUXURY/RESORT OPERATIONS.
HOMESITES. Homesite sales began at the West Bay Club Project
during the first six months of 1999. Because the West Bay Club Project was still
under development as of June 30, 1998, there were no sales at the West Bay Club
Project in the first six months of 1998.
As of June 30, 1999 and December 31, 1998, the Company had under
contract approximately 182 and 12 Homesites for $9.8 million and $2.4 million,
respectively, with 7 homebuilders in the West Bay Club Project. There were no
pending sales contracts at the West Bay Club Project as of June 30, 1998.
JOINT VENTURES. Results of Joint Ventures in the first six
months of 1999 decreased $127,000 compared to the first six months of 1998 due
to increased marketing related expenses associated with the Jupiter Ocean Grande
Project start-up.
PREDECESSOR ASSETS.
PREDECESSOR HOMESITES. Revenues from Predecessor Homesite
sales increased $245,000 in the first six months of 1999 compared to the first
six months of 1998 due primarily to the sale of 75 Predecessor Homesites in the
Sable Trace Project. There were only nominal sales for the Sable Trace Project
in the first six months of 1998 due to project start-up. Other Predecessor
Homesites sales declined in the first
15
<PAGE>
six months of 1999 compared to the number of Predecessor Homesites sold in the
first six months of 1998 consistent with continued portfolio run-off. The
Predecessor Homesite sales gross margin percentage was 13.6% in the first six
months of 1999 compared to 9.4% in the first six months of 1998. This percentage
is consistent with the Company's plan of disposal of its Predecessor Assets.
As of June 30, 1999, the Company had under contract approximately 137
Predecessor Homesites for $614,000. As of December 31, 1998, the Company had
under contract 2 commercial lots allocated to Predecessor Homesites for $99,000.
And, as of June 30, 1998, the Company had under contract approximately 81
Predecessor Homesites for $507,000.
PREDECESSOR TRACTS. Revenues from Predecessor Tract sales
decreased $12.3 million in the first six months of 1999 compared to the first
six months of 1998 due primarily to fewer sales from a declining inventory
balance. As of June 30, 1999, there were pending Predecessor Tract sales
contracts or letters of intent totaling approximately $1.8 million. As of
December 31, 1998, there were pending Predecessor Tract sales contracts or
letters of intent totaling approximately $980,000. And, as of June 30, 1998,
there were pending Predecessor Tract sales contracts or letters of intent
totaling approximately $15.5 million.
The 25.8% Predecessor Tract sales gross margin percentage in the first
six months of 1999 is due to significantly fewer sales on more profitable terms.
The 2.8% Predecessor Tract sales gross margin percentage in the first six months
of 1998 is generally more consistent with the Company's plan of disposal for
Predecessor Assets.
OTHER RESULTS OF OPERATIONS.
INVENTORY VALUATION RESERVES. Inventory valuation reserve
charges of $3.4 million were recognized in the second quarter of 1999 and
represent a reduction in the carrying value of the Company's inventory based
upon a review of the fair values. The charges solely related to the Grand Oaks
Project which was a Controlled Property secured by a purchase agreement. The
Company was unable to close under the purchase agreement because the mezzanine
lender failed to fund the loan in accordance with the terms of its committment
letter. The Company is currently discussing with outside counsel its potential
remedies, if any, against the mezzanine lender. As such, all unrecoverable
capitalized costs were expensed upon the expiration of the purchase agreement.
OTHER OPERATING REVENUE. Other operating revenue increased by
$244,000 in the first six months of 1999 compared to the first six months of
1998. The increase was due to the collection of the remaining management fee
owing to the Company in connection with the sale of the Country Lakes Joint
Venture.
INTEREST INCOME. Interest income decreased by $1.5 million in
the first six months of 1999 compared to the first six months of 1998. The
decrease was due to discounts offered to borrowers to induce prepayment of their
mortgages for liquidity purposes, as well as normal Contract Receivables and
Mortgage Receivables portfolio run-off.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense increased $3.7 million in the first six months of 1999 compared to the
first six months of 1998 due primarily to (1) expenses of the Special Committee
of the Board of Directors associated with the Company's strategic alternatives
16
<PAGE>
initiative, including the retention of BT Alex. Brown, (2) certain corporate
restructuring expenses, including severance costs, lease restructuring expenses
and other similar costs and expenses, (3) employee bonuses, including the stock
component of bonuses issued to certain executives effective March 15, 1999 and
(4) an impairment on the non-recourse loan receivable due from the Company's
Chairman and Chief Executive Officer secured solely by Common Stock.
PREFERRED STOCK CHARGES. During the first six months of 1999,
the Company recorded a $6.0 million accrual for dividends associated with its
Preferred Stock. The dividends were accumulated, but unpaid, as of June 30,
1999. 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. The liquidation preference of
the Preferred Stock was $64.6 million, $58.6 million and $53.2 million as of
June 30, 1999, December 31, 1998, and June 30, 1998, respectively. The Company
accreted $691,000 of the value of its Preferred Stock to the redemption amount
in the first six months of 1999.
In connection with the closing of the New Senior Loan Facilities in
February 1999, the Company issued notes totaling $1.85 million and 500,000
shares of common stock at a price of $1.06 per share to AP-AGC, LLC ("Apollo")
in exchange for Apollo's (a) consent to the Company entering into the New Senior
Loan Facilities and agreement to subordinate its collateral interest in certain
of the Company's assets, (b) agreement to certain amendments to the Secured
Agreement and Investment Agreement and (c) agreement to enter into the new
Intercreditor Agreement with the lenders party to the New Senior Loan
Facilities. The total value of the consideration paid to Apollo was $2.4
million. The total of approximately $9.1 million of preferred stock charges was
charged to contributed capital in the accompanying June 30, 1999 consolidated
balance sheet.
17
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
The Company's results of operations for its Core Business and
Predecessor Assets for the three months ended June 30, 1999 and 1998 are
summarized below:
<TABLE>
<CAPTION>
Combining Results of Real Estate Operations
-------------------------------------------
Three Months Ended June 30, 1999
(in thousands)
Primary Luxury/
Market Resort Predecessor
Operations Operations Assets Total
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite.............................. $ 5,662 $ 3,113 $ 1,218 $ 9,993
Commercial............................ - - 911 911
Vertical Residential Units............ - - - -
-----------------------------------------------------------
Total real estate sales.................. 5,662 3,113 2,129 10,904
Costs and expenses:
Cost of real estate sales
Homesite.............................. 4,962 2,423 975 8,360
Commercial............................ 2 - 619 621
Vertical Residential Units............ - - - -
-----------------------------------------------------------
Total cost of real estate sales............. 4,964 2,423 1,594 8,981
-----------------------------------------------------------
Gross margin real estate sales ............. $ 698 $ 690 $ 535 $ 1,923
===========================================================
Results of Joint Venture Operations(1)...... $ 41 $ (258) $ - $ (217)
===========================================================
</TABLE>
(1) Included in "other operating revenue" in the Consolidated Statements of
Operations.
18
<PAGE>
<TABLE>
<CAPTION>
Combining Results of Real Estate Operations
-------------------------------------------
Three Months Ended June 30, 1998
(in thousands)
Primary Luxury/
Market Resort Predecessor
Operations Operations Assets Total
---------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite.............................. $ 2,501 $ - $ 1,147 $ 3,648
Commercial............................ 31,780 - 8,475 40,255
Vertical Residential Units............ - - - -
---------------------------------------------------------
Total real estate sales.................. 34,281 - 9,622 43,903
Costs and expenses:
Cost of real estate sales
Homesite.............................. 2,168 - 991 3,159
Commercial............................ 25,204 - 8,145 33,349
Vertical Residential Units............ - - - -
---------------------------------------------------------
Total cost of real estate sales............. 27,372 - 9,136 36,508
---------------------------------------------------------
Gross margin real estate sales ............. $ 6,909 $ - $ 486 $ 7,395
=========================================================
Results of Joint Venture Operations(1)...... $ 1,361 $ (131) $ - $ 1,230
=========================================================
</TABLE>
(1) Included in "other operating revenue" in the Consolidated Statements of
Operations.
OVERVIEW. The Company reported a net loss applicable to Common Stock of
$13.7 million in the second quarter of 1999 compared to a net loss of $801,000
applicable to Common Stock in the second quarter of 1998. The increase in the
net loss of $12.9 million was due primarily to (1) a $5.5 million decrease in
gross margin on real estate sales, (2) a $1.0 million increase in general and
administrative expenses, (3) inventory valuation reserves of $3.4 million, (4) a
$556,000 increase in preferred stock charges, and (5) a $1.0 million decrease in
interest income.
PRIMARY MARKET OPERATIONS.
HOMESITES. Revenues from Homesite sales increased $3.2 million
in the second quarter of 1999 compared to the second quarter of 1998 due
primarily to sales at The Trails of West Frisco Project. There were no sales at
The Trails of West Frisco Project in the second quarter of 1998. The Homesite
sales gross margin percentage was 12.4% in the second quarter of 1999 compared
to 13.3% in the second quarter of 1998. The lower Homesite sales gross margin
percentage in the second quarter of 1999 was due primarily to a decline in the
gross margin associated with the Lakeside Estates Project due to an increase in
the estimated cost to complete that Project.
19
<PAGE>
COMMERCIAL DEVELOPMENT. In April 1998, the Company sold and
closed Dave's Creek for $24.8 million. In June 1998, the Company sold a portion
of the Riverwalk Towers Project for $7.0 million. There were no comparable sales
in the second quarter of 1999.
JOINT VENTURES. Results of Joint Ventures decreased by $1.3
million in the second quarter of 1999 compared to the second quarter of 1998.
This decrease was primarily associated with the Sunset Lakes Project. During
1998, the Sunset Lakes Project commenced operations resulting in initial sales
to all the builders. The comparable period in 1999 represents results of
operations for more normalized sales volumes.
LUXURY/RESORT OPERATIONS.
HOMESITES. Homesite sales began at the West Bay Club Project
in 1999. Because the West Bay Club Project was still under initial development
at the time, there were no sales at the West Bay Club Project in the second
quarter of 1998.
JOINT VENTURES. Results of Joint Ventures in the second
quarter of 1999 decreased $127,000 compared to the second quarter of 1998 due to
marketing related expenses associated with the Jupiter Ocean Grande Project
start-up.
PREDECESSOR ASSETS.
PREDECESSOR HOMESITES. Predecessor Homesites sales in the
second quarter of 1999 were comparable to sales in the second quarter of 1998.
The Predecessor Homesite sales gross margin percentage was 20.0% in the second
quarter of 1999 compared to13.6% in the second quarter of 1998. This percentage
is higher than that expected to be realized on an ongoing basis according to the
Company's plan of disposal of its Predecessor Assets.
PREDECESSOR TRACTS. Revenues from Predecessor Tract sales
decreased $7.6 million in the second quarter of 1999 compared to the second
quarter of 1998 due primarily to fewer sales from a declining inventory balance.
The 32.0% Predecessor Tract sales gross margin percentage in the second
quarter of 1999 is due to significantly fewer sales on more profitable terms.
The 3.8% Predecessor Tract sales gross margin percentage in the second quarter
of 1998 is generally more consistent with the Company's plan of disposal of
Predecessor Assets.
OTHER RESULTS OF OPERATIONS.
INVENTORY VALUATION RESERVES. Inventory valuation reserve
charges attributable to the Grand Oaks Project of $3.4 million were recognized
in the second quarter of 1999 and represent a reduction in the carrying value of
the Company's inventory based upon a review of the fair values.
OTHER OPERATING REVENUE. Other operating revenue decreased by
$1.0 million in the second quarter of 1999 compared to the second quarter of
1998. This decrease was due to a realized gain
20
<PAGE>
on the assignment of a real estate purchase agreement in the second quarter of
1998 for a residential project located in the Orlando, Florida area. There was
no comparable sale in 1999.
INTEREST INCOME. Interest income decreased by $1.0 million in
the second quarter of 1999 compared to the second quarter of 1998. This decrease
was due to discounts offered to borrowers to induce prepayment of the mortgage
for liquidity purposes, as well as normal Contract Receivables and Mortgage
Receivables portfolio run-off.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense increased $1.0 million in the second quarter of 1999 compared to the
second quarter of 1998 due primarily to further corporate restructuring
expenses, including severance costs, lease restructuring expenses and other
similar costs and expenses and an impairment on the non-recourse loan receivable
due from Mr. Rutherford which is secured solely by Common Stock.
COSTS OF BORROWING NET OF CAPITALIZED INTEREST. Costs of
borrowing net of capitalized interest decreased by $685,000 in the second
quarter of 1999 compared to the second quarter of 1998. The decrease is
primarily due to a higher capitalization of interest to projects under
development. See LIQUIDITY AND CAPITAL RESOURCES below.
PREFERRED STOCK CHARGES. During the second quarter of 1999,
the Company recorded a $3.1 million accrual for dividends associated with its
Preferred Stock. The dividends were accumulated but unpaid as of June 30, 1999.
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. The liquidation preference of the
Preferred Stock was $64.6 million, $58.6 million and $53.2 million,
respectively, as of June 30, 1999, December 31, 1998 and June 30, 1998. The
Company accreted $347,000 of the value of its Preferred Stock to the redemption
amount in the second quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. As of June 30, 1999, the Company's (1) cash and cash
equivalents totaled approximately $2.6 million and (2) restricted cash and cash
equivalents totaled $696,000, consisting primarily of (a) escrows for the sale
or development of real estate properties, (b) funds held in trust to pay certain
bankruptcy claims and (c) various other escrow accounts. Of the $6.8 million
decrease in cash and cash equivalents during the first six months of 1999, (i)
$16.0 million was used in operating activities and (ii) $784,000 was used in
investing activities, partially offset by (iii) $10.0 million provided by
financing activities.
Cash used in operating activities included approximately (1) $3.1
million for interest payments, (2) $2.9 million for property tax payments, (3)
$13.3 million for construction and development expenditures and (4) $4.9 million
of fees associated with the Company's refinancing efforts. Cash used in
operating activities was offset in part by net cash generated from real estate
sales and other operations.
Cash used in investing activities consisted of $784,000 of property,
plant and equipment additions.
Cash provided by financing activities consisted primarily of borrowings
of $93.8 million under various project financings and the New Senior Loan
Facilities, which were funded on February 2, 1999.
21
<PAGE>
NEW SENIOR LOAN FACILITIES. Dated as of December 31, 1998, effective on
February 2, 1999, Atlantic Gulf closed on its $39.5 million New Revolving Loan
Facility and its $26.5 million New Term Loan Facility (collectively, the "NEW
SENIOR LOAN FACILITIES"). The New Revolving Loan Facility commitment decreased
by $4.0 million on March 31, 1999 and an additional $1.0 million on May 31,
1999.
Amounts outstanding (1) under the New Revolving Loan Facility bear
interest at a fixed rate equal to 11% per annum and (2) under the New Term Loan
Facility bear interest at a fixed rate equal to 15% per annum. As of June 30,
1999, the Company had outstanding (a) $27.0 million under its New Revolving Loan
Facility and (b) $26.5 million under its New Term Loan Facility.
See COVENANT DEFAULTS below for discussion of the covenant defaults in
existence as of June 30, 1999, under the New Senior Loan Facilities and the
Company's ongoing discussions with the New Revolving Loan Facility lenders (the
"Revolving Loan Lenders") and New Term Loan lenders (the "Term Loan Lenders")
(collectively, the "Lenders") to obtain waivers of such defaults or,
alternatively, to amend the covenants in question to remedy such defaults.
ANGLO AMERICAN FACILITY. On March 31, 1999, West Frisco Development
Corporation ("WFDC"), an indirect wholly-owned subsidiary of Atlantic Gulf,
borrowed $7.0 million from Anglo American Financial (the "ANGLO AMERICAN
FACILITY"). The Anglo American Facility (1) is a full recourse obligation of
WFDC, secured by a deed of trust on the West Frisco Project, (2) matures on
December 31, 1999, (3) bears interest at the rate of 1.75% per month and (4)
requires payments of interest only (monthly in arrears) until maturity. Atlantic
Gulf has guaranteed the Anglo American Facility. Atlantic Gulf used $4.0 million
of the proceeds of the Anglo American Facility to fund the March 31, 1999
commitment reduction under the New Revolving Loan Facility.
OTHER MATERIAL OBLIGATIONS COMING DUE IN 1999. Atlantic Gulf's other
material obligations for the remainder of 1999 consist primarily of
approximately $40 million of planned 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. 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.
RECENT DEVELOPMENTS
STRATEGIC ALTERNATIVES INITIATIVE. On March 26, 1999, the Company
publicly announced that (1) its Board of Directors had formed a Special
Committee to explore strategic alternatives to maximize stockholder value and
(2) it had retained BT Alex. Brown, a leading investment banking firm, to assist
the Special Committee in reviewing strategic alternatives.
The Company has explored, and is continuing to explore, with interested
third parties various strategic alternative transactions, including, but not
limited to, (1) a sale of all or substantially all of the Company's stock and/or
assets, (2) a merger, consolidation or other business combination, (3) a joint
venture or strategic alliance, (4) a corporate recapitalization and/or (5) a
management agreement/arrangement. Certain third parties are currently doing due
diligence on the Company.
While the Company is actively and diligently pursuing all strategic
alternative transaction opportunities, there can be no assurance that such a
transaction will be consummated.
22
<PAGE>
CORPORATE RESTRUCTURING PROGRAM. On July 2, 1999, the Company publicly
announced its corporate restructuring program.
As of June 30, 1999, the Company eliminated 24 jobs, or approximately
18% of its workforce, as part of a restructuring program aimed at returning the
Company to profitability and realigning its overhead costs with its operating
revenues. Since January 1, 1999, the number of full-time Company employees has
decreased from 166 to 146, or approximately 12% of its workforce.
On or before June 30, 1999, the Company eliminated certain senior
management positions and consolidated the responsibilities of the eliminated
positions with ongoing positions. Specifically, the Company (1) eliminated the
Executive Vice President and Chief Financial Officer position, the Executive
Vice President and Chief Operating Officer position and the Vice President
- -Business Development position and (2) reassigned the duties formerly performed
by these officers to the Sr. Vice President - Finance, the Vice President and
Treasurer and the Sr. Vice President and General Counsel. The Company is
continuing to review its overall staffing needs (both at the management level
and below) with a view to further reducing its headcount, eliminating
redundancies, consolidating positions, further streamlining management and
realizing further cost savings, when and where possible.
The Company is reducing, where possible, other direct and indirect
overhead costs. For example, the Company has consolidated all of its headquarter
operations on one floor at its corporate headquarters in Miami, Florida. The
Company is seeking a subtenant for its other floor.
To date, the corporate restructuring program has cost approximately
$1.1 million in severance and other one-time corporate restructuring related
costs. The Company recorded approximately $340,000 of these costs in the first
quarter of 1999 and the remainder in the second quarter of 1999. The Company
expects to incur additional corporate restructuring costs in the third and,
possibly, fourth quarters of 1999, which the Company will record in the third
and fourth quarters, when and as the amount of such additional corporate
restructuring costs becomes known. The corporate restructuring (through June 30,
1999) is expected to generate annual costs savings of approximately $2.9
million, exclusive of severance and other one-time restructuring related costs.
While the Company anticipates that its corporate restructuring program
will significantly reduce its operating costs, there can be no assurance that
such program, by itself, will return the Company to profitability.
BUSINESS STRATEGY. At the same time that it continues to explore
strategic alternatives and implement its corporate restructuring program, the
Company is pursuing a two-pronged business strategy of (1) carrying on its Core
Business (i.e., planning, development, marketing and sales of Homesites and
Vertical Residential Units in its existing Core Development Portfolio) and (2)
actively seeking opportunities to sell, in bulk, selected Core Projects other
than its West Bay Club and Chenoa Projects, both of which are still in the early
development stage. Predecessor Assets will continue to be sold in the ordinary
course of business. The Company believes that sales of some of its more mature
Core Projects will produce the highest net returns for the Company and will
significantly reduce corporate overhead. The Company intends to use the cash
proceeds from any such sales (after payment of transaction costs and Project
indebtedness) to fund operations and pay down its non-Project corporate level
indebtedness.
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Senior management and the Board of Directors (the "Board") will
evaluate any offers the Company receives for its Core Projects based on a
variety of factors, including, but not limited to, the following: (1) the
aggregate price and other terms offered by the purchaser, (2) the timing of the
closing of the sale, (3) contingencies to closing, (4) the impact of the sale on
the remaining operations of the Company, (5) the impact of the sale on the value
of the Company's remaining assets to a prospective purchaser of the entire
Company and (6) such other factors as senior management and the Board deem
relevant at the time of receipt of an offer, including the specific course of
action, they believe, will maximize stockholder value.
While the Company intends to diligently pursue all Project sale
opportunities, there can be no assurance that any such sales will be consummated
or, if consummated, that the Company will realize the anticipated (1) amount of
sales proceeds therefrom and/or (2) overhead cost savings therefrom.
COVENANT DEFAULTS. As of June 30, 1999, the Company was not in
compliance with (a) the Minimum Consolidated Net Worth covenant and the
Deviation from Business Plan covenant in the New Revolving Loan Agreement and
(2) the Minimum Consolidated Net Worth covenant and the Maximum Permissible
Amount definition in the New Term Loan Agreement. The Company is currently in
negotiations with the Lenders to obtain waivers of such defaults or,
alternatively, to amend the covenants in question to eliminate such defaults.
While the Company believes that it will obtain such waivers/amendments, there
can be no assurance that the Company and the Lenders will be able to reach
agreement on the terms of such waivers/amendments. If the Company and the
Lenders are unable to reach agreement on the terms of such amendments/waivers,
the Company will be in default under its New Senior Loan Facilities, and the
Lenders will be entitled to exercise the remedies afforded them thereunder. If
the Company and the Lenders reach agreement on the terms of such
waivers/amendments, the Company will timely file a Current Report on Form 8-K
describing the terms thereof and attaching, as exhibits thereto, copies of the
final waivers/amendments.
CHANGES ON THE BOARD OF DIRECTORS. Effective as of Friday, July 16,
1999, the Board accepted Mr. Charles MacDonald's resignation as a Director of
Atlantic Gulf and appointed Mr. Dan Gropper to fill the vacancy on the Board.
Mr. Gropper is a Portfolio Manager with Stonington Management Corp. ("SMC"). SMC
is controlled by Mr. Paul Singer. Mr. Singer is also a partner of Elliott
Associates, L.P. ("Elliott"), and controls the investment manager of Westgate
International, L.P. ("Westgate"). Elliott and Westgate are acting as a group in
connection with their investment in the Company.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no new developments since March 31, 1999, with respect to
the legal proceedings referenced in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, as amended by that certain Amendment to Form
10-K on Form 10-K/A-1, as filed with the Securities and Exchange Commission on
April 30, 1999 (the "1998 Amended Form 10-K").
In addition to the legal proceedings specifically referenced in the
1998 Amended Form 10-K, the Company is, from time to time, involved in other
litigation matters primarily arising in the normal course of its business. It is
the opinion of management that the resolution of these other litigation matters
will not have a material adverse affect on the Company's business or financial
position.
ITEM 2. CHANGES IN SECURITIES
ISSUANCE OF 500,000 SHARES OF COMMON STOCK TO APOLLO. In connection
with the closing of the New Senior Loan Facilities in February 1999, the Company
issued 500,000 shares of Common Stock to Apollo. See PART II, ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES of the 1998 Amended Form 10-K for
more information concerning the issuance of these shares.
FUNDING OF A PORTION OF CERTAIN OF THE 1998 SENIOR EXECUTIVE BONUSES
WITH SHARES OF COMMON STOCK. Effective as of March 15,1999, the Company issued
(a) 213,333 shares of Common Stock to Mr. Rutherford, the President and Chief
Executive Officer of Atlantic Gulf, in payment of 50% (valued at $200,000) of
Mr. Rutherford's 1998 Annual Bonus (in the aggregate amount of $400,000) and (b)
106,666 shares of Common Stock to Mr. Laguardia, an Executive Vice President and
Chief Operating Officer of Atlantic Gulf, in payment of 50% (valued at $100,000)
of Mr. Laguardia's 1998 Annual Bonus (in the aggregate amount of $200,000). See
PART III, ITEM 11. EXECUTIVE COMPENSATION - EMPLOYMENT CONTRACTS AND TERMINATION
OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS of the 1998 Amended Form 10-K
for more information concerning the issuance of these shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES -- NEW
SENIOR LOAN FACILITIES and - RECENT DEVELOPMENTS above for a discussion of
pending defaults under the Company's New Senior Loan Facilities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5. OTHER INFORMATION
WARRANT RESET. As part of the Preferred Stock sales transactions
consummated in 1997 and early 1998, the Company issued (a) warrants to Apollo,
the holder of all of the shares of Series A Preferred Stock, to acquire up to
5,000,000 shares of Common Stock and (b) warrants to the purchasers of the
Series B Preferred Stock to acquire up to 4,000,000 shares of Common Stock
(collectively, the "Warrants"). The Warrants had an exercise price of $5.75 per
share (the "Exercise Price"). The Exercise Price was subject to a downward
adjustment, calculated as of March 31, 1999, based on a formula related to the
shortfall between actual operating cash flow during the prescribed testing
period from certain business lines and targeted operating cash flow (i.e., $62.4
million) from such business lines during the prescribed testing period (the
"Warrant Reset"). On June 17, 1999, the Company issued a press release
announcing that the Exercise Price of the Warrants had been reduced, effective
as of March 31, 1999, to $4.78 per share of Common Stock pursuant to the Warrant
Reset provisions in the applicable Warrant agreements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K (consecutive numbering,
see the 1998 Amended Form 10-K)
(10.24) Employment Agreement, dated May 15, 1999, between Atlantic
Gulf and William G. Peacher.
(27) Financial Data Schedule.
(b) Current Reports on Form 8-K
1. Current Report on Form 8-K, filed with the Securities and
Exchange Commission on June 17, 1999, announcing the reduction
in the Exercise Price of the Warrants from $5.75 per warrant
share to $4.78 per warrant share, effective as of March 31,
1999, pursuant to the Warrant Reset Exercise Price provisions
contained in the applicable Warrant agreements.
2. Current Report on Form 8-K, filed with the Securities and
Exchange Commission on July 2, 1999, announcing the Company's
corporate restructuring program.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC GULF COMMUNITIES CORPORATION
/s/ JOHN H. FISCHER
-------------------------------------
John H. Fischer
Vice President and Treasurer
Dated: August 16, 1999
/s/ MATT ALLEN
-------------------------------------
Matt Allen
Vice President - Finance
Dated: August 16, 1999
27
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this ____ day
of April, 1999, by and between ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware
corporation (the "Employer") and WILLIAM G. PEACHER (the "Employee").
WITNESSETH:
WHEREAS, Employer owns one hundred (100%) percent of the beneficial
interest in Aspen Springs Ranch, Inc., a Colorado corporation (the "Development
Company");
WHEREAS, Employer believes that the future services of Employee will be
a valuable asset to Employer and the Development Company, and Employer desires
to secure the benefits of the services of Employee; and
WHEREAS, Employee is willing to be employed on a full-time basis on the
terms, conditions and covenants as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, and other good and valuable
consideration, receipt and sufficiency of which is hereby acknowledged, the
Employer and Employee agree as follows
ARTICLE I
TERMS OF EMPLOYMENT
Section 1.1 TERM. The Employer hereby employs Employee commencing
on or about the 15th day of May, 1999 (the "Commencement Date"), and continuing
thereafter for a term of five (5) years or until terminated as set forth herein,
upon the terms and conditions contained herein.
ARTICLE II
DUTIES OF EMPLOYEE AND EMPLOYER
Section 2.1 DUTIES OF EMPLOYEE. Employee shall be employed as Vice
President of Employer and President and Chief Operating Officer of the
Development Company and shall perform such duties as may be reasonably assigned
by Employer's President or the Board of Directors of Employer ("Board"), or
both. The Employee shall devote his entire exclusive productive time, ability
and attention to the business of the Employer and the Development Company during
the term of this Agreement. The Employee shall not directly or indirectly render
any services of a business, commercial or professional nature, to any other
person or organization, whether for compensation or otherwise, without the prior
written consent of the Employer.
Section 2.2 DUTIES OF EMPLOYER. Employer shall provide Employee
with necessary and reasonable office space and all staffing requirements (as
mutually determined by the parties hereto
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to be necessary) in connection with the performance of his duties hereunder, and
shall pay all compensation due hereunder promptly in accordance with the terms
hereof. Employee shall be entitled to up to four (4) weeks paid vacation per
year, provided that the taking of such vacation does not unreasonably conflict
with the activities of Employer. If this Agreement is terminated for any reason,
accumulated vacation time shall be paid to Employee in accordance with
Employer's company policy, provided, however, such accumulated vacation time
shall not exceed two (2) weeks.
ARTICLE III
COMPENSATION & BENEFITS
Section 3.1 COMPENSATION. As compensation for services to be
rendered pursuant to this Agreement, the Employee shall be compensated as
follows:
3.1.1 SALARY. Commencing on the Commencement Date, the
Employee shall be paid a base compensation of Two Hundred Fifty Thousand Dollars
($250,000) per year. Such compensation shall be payable in accordance with
Employer's customary payment schedule.
3.1.2 ANNUAL BONUS. On or before January 31, 2000, Employee
shall receive a guaranteed bonus of One Hundred Seventy-Five Thousand Dollars
($175,000) for the year 1999. Commencing on January 1, 2000, Employee's annual
bonus will be based on annual business performance when compared to mutually
agreed upon goals and objectives for the Development Company. Based upon the
actual performance of the Development Company when compared to the goals and
objectives, the Employee may earn up to seventy (70%) percent of the Employee's
annual salary as described in Paragraph 3.1.1 above as reasonably determined by
the Board. The annual bonus for the year 2000 and subsequent years will be paid
in accordance with Employer's customary payment schedule.
3.1.3 PARTICIPATION AGREEMENT. Contemporaneous with the
execution of this Agreement, Employer and Employee will enter into a
Participation Agreement which shall be in the same form as EXHIBIT "A" attached
hereto. The Participation Agreement will provide, among other things, that the
Employee shall be entitled to five (5%) percent of "Net Profits" as defined
therein and payable from "Positive Net Cash Flow" of the Development Company.
3.1.4 EXPENSES. Employee shall be entitled to reimbursement
or payment on his behalf of the following expenses:
3.1.4.1 All actual out-of-pocket relocation
expenses, including house hunting trips and
temporary housing expenses, and all actual
out-of-pocket costs of moving from
Employee's current home in Greensboro,
Georgia as reasonably incurred by Employee;
3.1.4.2 Upon selection of a rental home to be
located in the Aspen, Colorado area (which
rental home must be reasonably acceptable to
Employer), and until such time as Employee
has closed on the sale of
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his existing home in Greensboro, Georgia,
Employer shall pay all housing expenses,
including, but not limited to, rent,
utilities and insurance. Within ninety (90)
days of the Commencement Date, Employee
agrees to list his existing home with a
broker at a price reasonably acceptable to
Employee and will use good faith and
diligent efforts to market and sell the
same. Upon the closing of the existing home,
Employer will pay the difference between all
housing expenses as described above and Four
Thousand Dollars ($4,000). The lease for
such rental property shall be in the name of
the Employer and the occupancy by the
Employee shall be deemed a condition of
employment. The obligation to lease such
home shall terminate upon the second
anniversary of the Commencement Date or
sooner if Employee purchases a home or
constructs a home during such two (2) year
period. Should this Agreement be terminated
for any reason, Employee agrees to vacate
such home within thirty (30) days of such
termination;
3.1.4.3 The use of a 4-wheel drive vehicle
provided by Employer, which may be used by
Employee for his personal use as well. Upon
termination of this Agreement for any
reason, Employee will immediately return the
vehicle to Employer;
3.1.4.4 The payment of all dues associated
with the membership in the Club as described
below;
3.1.4.5 All employee benefit plans currently
provided to Employer's senior management
employees;
3.1.4.6 Reimbursement for all reasonable
travel, lodging, food and related expenses
incurred in connection with Employee's
employment, including expenses in connection
with attendance of mutually agreeable
seminars reimbursable in accordance with
Employer's standard policy;
3.1.4.7 Reimbursement to Employee of
customary and reasonable closing costs,
commissions and other customary closing
expenses incurred by Employee upon sale of
Employee's house in Greensboro, Georgia; and
3.1.4.8 Reimbursement to Employee of
customary and reasonable closing costs,
financing fees and other customary closing
expenses incurred by Employee upon the
acquisition of the lot and club membership
described in Paragraph 3.1.5 below.
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Employer's obligation to reimburse Employee for expenses set
forth in this Section 3.1.4 shall terminate upon the termination of this
Agreement, except for the reimbursement of such expenses incurred prior to such
termination.
3.1.5 PURCHASE OF LOT AND MEMBERSHIP. Employee will select a
lot from an undeveloped portion of the Development Company's property, which is
available inventory and mutually acceptable to the parties hereto. Such lot will
be reserved for acquisition by Employee together with a membership in the Aspen
Springs Club. The purchase price for such lot and membership shall be at the
original offering price and Employee agrees to execute a standard agreement and
membership documents. Employee shall earn a credit in the amount of One Hundred
Thousand Dollars ($100,000) per year for each year of employment under this
Agreement toward the purchase price of such lot and membership (the "Credits").
At the time that Employee acquires such lot and membership, Employee will pay
the difference between the retail value of such lot and membership and Five
Hundred Thousand Dollars ($500,000). Employee will also execute a non-recourse
and contingent promissory note to the Employer for the amount remaining after
subtracting any earned Credits from Five Hundred Thousand Dollars ($500,000)
(the "Note"). The Note shall provide for interest in the amount of imputed
interest required by the Internal Revenue Service and shall also provide for a
reduction of the indebtedness evidenced thereby by the earned Credits as
provided herein. The Note shall also provide for a maturity date of the fifth
anniversary of the Commencement Date. The repayment of the indebtedness
evidenced by the Note will be secured by a deed of trust. The deed of trust will
provide that the Employer will subordinate the lien thereof to a construction
loan for a home to be built on the lot on terms reasonably acceptable to
Employer. If this Agreement is terminated by Employer without cause, Employee
shall, within ninety (90) days of such termination, repay the outstanding
balance due on the Note. If this Agreement is terminated for any other reason,
Employee shall have thirty (30) days after such termination to repay the
outstanding balance due on the Note. If the closing of the Lot has not occurred
prior to such termination, Employer shall have no duty to provide such
financing.
3.1.6 CLUB MEMBERSHIP EXPENSE. For so long as Employee is
employed by Employer, the membership in the Club shall be dues free.
ARTICLE IV
TERMINATION FEE
Section 4.1 TERMINATION BY EMPLOYER. If the Employer terminates
employment of the Employee, without cause, prior to the expiration of the five
(5) year term of this Agreement, Employer shall be entitled to: (i) a lump sum
payment of Five Hundred Thousand Dollars ($500,000); (ii) the recognition of the
Credits earned for the purchase of the lot and membership as described in
Section 3.1.5 above, but in no event less than One Hundred Thousand Dollars
($100,000); and (iii) the first year's bonus if not previously paid.
Section 4.2 TERMINATION BY EMPLOYEE. If the Employee terminates his
employment prior to the expiration of the five (5) year term of this Agreement,
the Employee shall only be entitled to the compensation earned through the date
of such termination and the recognition of the Credits
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earned for the purchase of the lot and membership, provided that the Employee
has, in fact, closed on the purchase of the lot and membership. If the Employer
terminates this Agreement and has not closed on the purchase of the lot and
membership, Employee shall not be entitled to any Credits. In any event, should
Employee terminate this Agreement, Employee shall not be entitled to any amount
that would otherwise be due under the Participation Agreement.
Section 4.3 PARTICIPATION. If the Employer terminates this
Agreement without cause, Employee shall be entitled to all amounts that would
otherwise accrue to the benefit of the Employee under the Participation
Agreement for the period of time from the Commencement Date until six (6) months
from the date of such termination. If Employer terminates this Agreement with
cause, Employee shall be entitled to all amounts that would otherwise accrue to
the benefit of the Employee under the Participation Agreement for the period of
time from the Commencement Date of the Employment Agreement until the date of
such termination. Employee recognizes, however, that payments due as a result of
the Participation Agreement are paid from Positive Net Cash Flow as defined in
the Participation Agreement.
ARTICLE V
COVENANTS
Section 5.1 COVENANTS. Employee hereby covenants and presents:
5.1.1 During the term of this Agreement, the Employee shall
not directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, director, or in any other
individual or representative capacity, engage or participate in any business
that is in competition in any manner whatsoever with any business of the
Employer or any of Employer's subsidiaries or affiliated companies.
5.1.2 Upon the termination of his employment, whether by
expiration of this Agreement or otherwise, the Employee shall not, directly or
indirectly, within the State of Colorado, enter into or engage in direct
competition with any business activity of the Employer or Development Company
either as an individual on his own, or as a partner or joint venture, or as an
employee or agent for any person or as an officer, director or shareholder, or
otherwise, for a period of two (2) years following the date of termination of
his employment hereunder.
5.1.3 During the term of his employment under this Agreement,
the Employee will have access to and become familiar with various trade secrets
and confidential information consisting of business contracts, customer lists,
records, and specifications, all of which are owned by the Employer and which
are regularly used in the operations of the Employer's business. The Employee
shall not disclose any of the aforesaid trade secrets and confidential
information, directly or indirectly, nor use them in any way, either during the
term of this Agreement, or at any time thereafter, except as required in the
course of his employment hereunder. They shall remain the exclusive property of
the Employer and may not be disclosed under any circumstances to any person or
party without the prior written consent of the Employer.
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<PAGE>
5.1.4 Employee acknowledges that it has received copies of
the following documents:
5.1.4.1 that certain Loan Agreement, dated
September 3, 1998, between the Company and
Lehman Brothers Holdings, Inc.;
5.1.4.2 that certain Senior Secured
Facilities Credit Agreement, dated September
3, 1998, between the Company and Morgan
Stanley Senior Funding, Inc.;
5.1.4.3 that certain Exchange Agreement,
dated September 3, 1998, by and between the
Company and Spring Valley Holding USA, Ltd.,
together with the Addendum thereto; and
5.1.4.4 the approved pro-forma and budget for
the project (the documents described in
5.1.4.1, 5.1.4.2, 5.1.4.3 and this 5.1.4.4
being collectively referred to herein as the
"Project Agreements").
Employee agrees to comply with all of the terms and conditions
of the Project Agreements, as well as all applicable laws, rules, regulations
and permits with respect to the project, the development of the project and
Employee's performance of its duties hereunder.
5.1.5 The Employee shall not, either during the term of this
Agreement, or the first 180 days following the termination of this Agreement,
solicit, encourage or induce any employee of the Employer to leave his or her
employment with the Company.
Section 5.2 REMEDY FOR COVENANT VIOLATION. Each covenant set forth
in subsections 5.1.1, 5.1.2, 5.1.3, 5.1.4 and 5.1.5 above is separate and
distinct from every other covenant set forth herein. In the event of the
invalidity of any covenant, the remaining covenants shall be deemed independent
and divisible. Employee recognizes that a breach of any of the covenants
contained in subsections 5.1.1, 5.1.2, 5.1.3, 5.1.4 and 5.1.5 would irreparably
injure the Employer. Accordingly, the Employer may, in addition to pursuing its
other remedies, obtain an injunction from any court having jurisdiction of the
matter restraining any further violation, and no bond or other security shall be
required in connection with such injunction.
ARTICLE VI
TERMINATION
Section 6.1 TERMINATION FOR CAUSE. Notwithstanding anything
contained in this Agreement to the contrary, Employer may at any time terminate
this Agreement without further obligation to Employee upon the happening of any
of the following events:
6.1.1 If Employee is convicted of a felony or other criminal
offense involving moral turpitude; or
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<PAGE>
6.1.2 Employee is or shall be unable to discharge properly
his obligations hereunder through illness or through accident or any other cause
whatsoever for up to periods aggregating ninety (90) days in any continuous
period of three hundred sixty-five (365) days; or
6.1.3 If Employee shall die or be adjudicated of unsound
mind; or
6.1.4 If Employee commits a material breach of this Agreement
including but not limited to a breach of any covenant contained in
Section 4.01 hereof; or
6.1.5 If Employee violates any federal or state securities
laws; or
6.1.6 If Employee misappropriates Employer's funds; or
6.1.7 The habitual use of alcohol or drugs by Employee to a
degree that such use substantially interferes with Employee's
performance of his duties or obligations under this Agreement; or
6.1.8 Employee's deliberate and premeditated acts against the
Company's best interests; or
6.1.9 Employee's violation of any law or regulation governing
Employee's conduct under this Agreement.
Section 6.2 TERMINATION WITHOUT CAUSE. Employer may terminate
Employee at any time, without cause, in which case the Employee shall be
entitled to the Termination Fee described in Section 4.1 above and the interests
in the Participation Agreement described in Section 4.3 above.
Section 6.3 DUTIES UPON TERMINATION. Upon the termination of this
Agreement, Employee shall immediately deliver to Employer all the books,
records, documents, customer or supplier lists and all other assets or property
of Employer in his possession, custody or under his control, without making
copies of any such documents whether for his own use or for any other purpose.
Section 6.4 TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement upon ninety (90) days' written notice to Employer. Should Employer
fail to make any payment due Employee when it is due and within ten (10)
business days after written demand by Employee, Employee may terminate this
Agreement in writing without advance notice, and shall not be bound by the
Covenants set forth herein.
ARTICLE VII
REPRESENTATIONS
Section 7.1 REPRESENTATIONS OF EMPLOYEE. That he has been advised
that he has the legal ability to enter into this Agreement, and that compliance
with the terms hereof will not cause Employee to be in violation of any other
contract, covenant, or rule of law. Employee also represents
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<PAGE>
that he has been advised that the Employer has hired an investment banker to
pursue strategic alternative transactions.
Section 7.2 REPRESENTATIONS OF EMPLOYER. Employer represents and
warrants that Employer has the legal ability to enter into this Agreement, and
compliance with the terms hereof will not cause Employer to be in violation of
any other contract, covenant, or rule of law, and further represents and
warrants that its current intention is to continue development of its
properties.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 This Agreement supersedes any and all agreements,
either oral or in writing between the parties hereto with respect to the
employment of the Employee by the Employer, and it contains all of the covenants
and agreements between the parties with respect to such employment in any matter
whatsoever.
Section 8.2 The invalidity or unenforceability of any terms or
provisions, or any clause or portion thereof, of this Agreement shall in no way
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
Section 8.3 This Agreement may not be changed or modified except by
an instrument in writing and signed by the parties hereto.
Section 8.4 Except as otherwise herein expressly provided, this
Agreement shall inure to the benefit of and be binding upon the parties hereto,
their heirs, legal representatives, successors and assigns, provided that the
obligations of Employee hereunder may not be delegated.
Section 8.5 This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado.
Section 8.6 This Agreement may be executed by each party upon a
separate copy, and in such case, one counterpart of this Agreement shall consist
of enough of such copies to reflect the signatures of all of the parties to this
Agreement. This Agreement shall become effective when one or more counterparts
has been signed by each of the other parties to this Agreement.
Section 8.7 All notices hereunder shall be in writing and shall be
deemed to have been given at the time by hand delivery, or when mailed in any
general or branch United States Post Office enclosed in a registered or
certified postpaid envelope addressed to the address of the respective parties
stated below, or to such changed address as such party may have affixed by
notice as aforesaid:
EMPLOYEE: William G. Peacher
1010 Liberty Bluff Court
Greensboro, Georgia 30642
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EMPLOYER: Atlantic Gulf Communities Corporation
2601 S. Bayshore Drive
Miami, Florida 33133
Attn: President
Provided, however, any notice of change of address shall be effective
only upon receipt.
8.8 Each party hereby waives their respective rights to a jury trial.
8.9 In the event of any litigation under or respecting this Agreement,
the prevailing party shall be entitled to attorney's fees and court costs
through all pretrial, trial, appellate, administrative, and post-judgment
proceedings.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on the day and year first above written.
EMPLOYER:
ATLANTIC GULF COMMUNITIES
CORPORATION, a Delaware corporation
By:
Its:
EMPLOYEE:
William G. Peacher
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EXHIBIT "A"
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT (the "Agreement"), made and entered into
this ____ day of __________, 1999, by and between ATLANTIC GULF COMMUNITIES
CORPORATION, a Delaware corporation (the "Owner"), and WILLIAM G. PEACHER (the
"Participant"), is as follows:
W I T N E S S E T H:
WHEREAS, Owner is the owner of one hundred (100%) percent of the
beneficial interest of Aspen Springs Ranch, Inc., a Colorado corporation (the
"Development Company"); and
WHEREAS, the Development Company owns certain land in Garfield County,
Colorado, described on EXHIBIT "A" (the "Real Property") upon which the
Development Company presently intends to develop a planned unit development
consisting of approximately four hundred one (401) residential lots,
seventy-five (75) cooperative units, two (2) eighteen hole golf courses and
other related amenities (the "Project");
WHEREAS, in developing the Project, the Development Company will
acquire numerous items of personal property and equipment (the "Personal
Property") as well as various permits, approvals, trademarks and water rights
(collectively, the "Entitlements") (the Real Property, Personal Property and
Entitlements are collectively, the "Property");
WHEREAS, in consideration of Participant entering into an Employment
Agreement of even date herewith (the "Employment Agreement") and for other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Owner has agreed to convey to Participant, pursuant to the terms
recited herein, a right to receive a portion of the net profits from the
development of the Project and the marketing, sales and operation of the
Property arising after the Commencement Date, free and clear of any obligation
by Participant arising after the Commencement Date, except as set forth herein
and in the Employment Agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants,
promises and agreements herein contained, the parties hereto do hereby agree as
follows:
ARTICLE 1.
DEFINITIONS
1.1. All capitalized terms referenced or used in this Agreement and
not specifically defined herein shall have the meaning set forth in alphabetical
listing on EXHIBIT "B", which is attached hereto and incorporated by reference.
1
<PAGE>
ARTICLE 2.
TERM, OPTION TO TERMINATE
2.1. The term of this Agreement shall commence on the Commencement
Date and end upon (i) the termination and winding up of the sale of all of the
Property, including the distribution to Participant of all amounts due to
Participant hereunder, (ii) the execution of a mutual written agreement between
the parties terminating this Agreement, or (iii) in certain circumstances as
provided in the Employment Agreement, the termination of the Employment
Agreement and the distribution to Participant of all sums due to Participant
hereunder (the "Term").
ARTICLE 3.
PARTICIPATION INTEREST
3.1. PARTICIPATION INTEREST. Owner hereby grants and assigns to
Participant a five (5%) percent interest of the Net Profits, if any, generated
from the development of the Project and the marketing, sales and operation of
the Property, as defined herein (the "Participation Interest"). The
Participation Interest shall be paid from Positive Net Cash Flow. To the extent
that a Participation Interest is earned but there is no Positive Net Cash Flow
available to pay the same, the Participation Interest shall accrue until such
time that Positive Net Cash Flow is available. When available, twenty-five (25%)
percent of such Positive Net Cash Flow shall be paid to Participant until such
time that the accrued Participation Interest is paid. Thereafter, Participant
shall receive the Participation Interest through the payment of five (5%)
percent of the Positive Net Cash Flow. In such case, Owner shall receive
ninety-five (95%) percent of such Positive Net Cash Flow and all sums in excess
of the amount necessary to pay the Participation Interest.
3.2. FINANCIAL STATEMENTS. Owner shall provide Participant with a
copy of all its Financial Statements concerning the Property within forty-five
(45) days after the close of each Calendar Quarter. Participant hereby
represents and warrants to Owner that Participant shall treat all Financial
Statements as confidential and shall not disclose any information contained
therein to any person, other than its employees, agents, attorneys, consultants
or affiliated entities.
3.3. AUDIT. Participant shall have the right, at Participant's
expense, to conduct an annual audit of the financial books, records and data of
Owner related to the Project and the Property and the amount of the
Participation Interest. Such audit shall be conducted, at Participant's sole
cost and expense, by Participant or by an accounting firm of Participant's
choice at Owners' offices during normal business hours and, to the extent
practicable, shall be conducted in such a manner as will minimize the
interference which such audit may cause with the business operations of Owner.
3.4. EMPLOYMENT AGREEMENT. As provided in the Employment Agreement,
should the Employment Agreement be terminated by Participant, all rights to
receive the Participation Interest (accrued and in the future) shall also be
immediately terminated. Should the Employment Agreement be terminated by the
Owner without cause, Participant shall be entitled to all Participation Interest
for a period of time from the Commencement Date of the Employment Agreement
until six (6) months from the date of such termination. Should the Employment
Agreement be terminated by Owner with cause, Participant shall be entitled to
all Participation Interest for a period of time from
2
<PAGE>
the Commencement Date of the Employment Agreement through the date of such
termination.
ARTICLE 4.
PARTICIPANT'S OBLIGATIONS OR LIABILITIES
4.1. LIABILITIES AND OBLIGATIONS. Other than those set forth in the
Employment Agreement, Owner acknowledges that Participant does not have any
liability or obligation arising after the Commencement Date in connection with
the development of the Project and the marketing, sales and operation of the
Property. Subject to the provisions of Section 3.4 herein, the Participation
Interest granted to Participant is a "carried interest" in the Positive Net Cash
Flow as described herein and the payment of said interest to Participant does
not require any additional payment of funds or performance of any obligation by
Participant after the Commencement Date. The parties further acknowledge that
the granting of the Participation Interest and the payment of funds to
Participant does not impose or create any additional liability or obligation of
Participant to Owner other than as set forth in the agreements executed between
the parties.
4.2. CAPITAL CONTRIBUTIONS AND LOANS. Participant has no
responsibility to loan, guarantee or contribute any amount of money to Owner
after the Commencement Date in connection with its ownership of the
Participation Interest.
ARTICLE 5.
OWNER'S COVENANTS AND REPRESENTATIONS
5.1. Owner makes the following representations to Participant,
which representations shall, unless otherwise stated herein, survive the
execution and delivery of this Agreement:
5.1.1. CORPORATE STATUS. Owner is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Delaware, and the person or persons executing this Agreement
have the full power and authority to enter into this Agreement, execute
all documents required hereunder and to bind the Owner to the terms and
conditions recited herein.
5.1.2. AUTHORIZATION. The making, execution, delivery and
performance of this Agreement by Owner has been duly authorized and
approved by all requisite action of the Board of Directors of Owner,
and this Agreement has been duly executed and delivered by the
undersigned officer and constitutes a valid and binding obligation of
Owner, enforceable in accordance with its terms.
5.1.3. VIOLATION OF REPRESENTATIONS. From and after the date
hereof and until the termination of this Agreement, Owner shall not
take any action or omit to take any action which would have the effect
of violating any of the representations of Owner contained in this
Agreement.
5.1.4. VIOLATION OF AGREEMENT. Neither the execution and
delivery of this Agreement by Owner nor Owner's performance of its
obligations hereunder will result in a violation or
3
<PAGE>
breach of any term or provision or constitute a default or accelerate
the performance required under any other agreement or document to which
Owner is a party or is otherwise bound, and will not constitute a
violation of any law, ruling, regulation or order to which Owner is
subject.
ARTICLE 6.
OWNER'S DEFAULT
6.1. Owner shall be deemed to be in default under this Agreement (a
"Default"), if Owner fails in the performance of or compliance with any of the
covenants, agreements, terms or conditions contained in this Agreement and such
failure shall continue for a period of thirty (30) days after written notice
thereof from Participant to Owner specifying in detail the nature of such
failure, or, in the case such failure cannot with due diligence be cured within
such period of thirty (30) days, if Owner fails to proceed promptly and with all
due diligence to cure the same and thereafter to prosecute the curing of such
failure with all due diligence [it being intended that in connection with a
failure not susceptible of being cured with due diligence within thirty (30)
days that the time within which to cure the same shall be extended for such
period as may be necessary to complete the same with all due diligence, but in
no event shall the time be extended for more than ninety (90) days].
ARTICLE 7.
REMEDIES
7.1. PARTICIPANT'S REMEDIES. Upon the occurrence of a Default by
Owner which is not cured within the time permitted, Participant shall be
entitled to:
7.1.1. Specific performance of Owner's obligations hereunder
and injunctive relief, as applicable, under the laws of Colorado;
7.1.2. Demand payment of all amounts due Participant under
the terms of this Agreement and demand the payment of all costs, actual
damages (not consequential or punitive), expenses and reasonable
attorneys' fees of Participant due to Owner's Default; and
7.1.3. Remedy any Default of Owner, and in connection with
such remedy, Participant may pay all expenses and employ counsel, and
all sums so expended or obligations incurred by Participant in
connection therewith shall be paid by Owner to Participant, upon demand
by Participant, and on failure of such reimbursement, Participant may,
at Participant's option, deduct all costs and expenses incurred in
connection with remedying a Default of Owner from the next sums
subsequently becoming due to Owner from Participant under the terms of
this Agreement.
No remedy granted to Participant is intended to be exclusive of any
other remedy herein or by law provided, but each shall be cumulative and shall
be in addition to every other remedy given hereunder to now or hereafter
existing at law, in equity or by statute. No delay or omission of Participant to
exercise any right or power accruing upon any Event of Default shall impair
Participant's exercise of any right or power or shall be construed to be a
waiver of any Event of
4
<PAGE>
Default or acquiescence therein.
ARTICLE 8.
OFFSET AT TERMINATION
8.1. Upon termination, all sums owed by either party to the other
shall be paid within thirty (30) days or later if such termination is a result
of the termination of the Employment Agreement. Any sums due to the Participant
hereunder may be offset against amounts that the Participant may owe Owner as a
result of the Employment Agreement, provided, however, Owner may not offset sums
due to Participant hereunder against the outstanding principal balance of the
Note (as defined in the Employment Agreement) prior to its maturity.
ARTICLE 9.
RELATIONSHIP, AUTHORITY AND FURTHER ACTIONS
9.1. NO PARTNERSHIP OR JOINT VENTURE. Nothing contained herein
shall be deemed or construed by the parties hereto or by any third party as
creating the relationship of (i) a partnership, or (ii) a joint venture between
the parties hereto; it being understood and agreed that neither any provisions
contained herein nor any acts of the parties hereto shall be deemed to create
any relationship between the parties hereto other than the relationship of Owner
and Participant, as set forth herein.
9.2. FURTHER ACTIONS. Owner and Participant agree to execute all
contracts, agreements and documents and to take all actions necessary to comply
with the provisions of this Agreement and the intent hereof; provided, however,
in no event shall Participant be entitled to place or cause to be placed any
liens on the Property without Owner's prior consent.
9.3. NOT RESPONSIBLE FOR OTHER'S COMMITMENTS. Neither party shall
be responsible or liable for any indebtedness or obligation of the other party
incurred either before or after the execution of this Agreement, except as to
those joint responsibilities, liabilities, indebtedness or obligations incurred
pursuant to the terms of this Agreement, and each party agrees to indemnify and
hold the other party harmless from such obligations and indebtedness.
ARTICLE 10.
MISCELLANEOUS
10.1. NOTICES. Any notices or other communications required or
permitted hereunder shall be sufficiently given if in writing and addressed as
shown below, or to such other address as the party concerned may substitute by
written notice to the other, and (i) delivered personally, or (ii) sent by
certified or registered mail, return receipt requested, postage prepaid,
addressed as shown below, or to such other address as the party concerned may
substitute by written notice to the other. All notices personally delivered or
sent by overnight courier shall be deemed received on the date of delivery. All
notices forwarded by certified or registered mail shall be deemed received on a
date five (5) days (excluding Saturdays, Sundays and holidays upon which the
United States Postal Service does not deliver mail) immediately following date
of deposit in the mail. Provided,
5
<PAGE>
however, the return receipt indicating the date upon which all notices were
received shall be PRIMA FACIE evidence that such notices were received on the
date on the return receipt.
If to Owner: Atlantic Gulf Communities Corporation
2601 S. Bayshore Drive
Miami, Florida 33133
Attn: President
With copies to:
---------------
Atlantic Gulf Communities Corporation
2601 S. Bayshore Drive
Miami, Florida 33133
Attn: General Counsel
If to Participant: William G. Peacher
1010 Liberty Bluff Court
Greensboro, Georgia 30642
With copies to:
---------------
Edward M. Hughes, Esquire
Hughes Law Firm, P.C.
P. O. Box 23526
Hilton Head Island, SC 29925-3526
The addresses and addressees may be changed by giving notice of such
change in the manner provided herein for giving notice. Unless and until such
written notice is received, the last address and addressee given shall be deemed
to continue in effect for all purposes. No notice to either Owner or Participant
shall be deemed given or received unless the entity noted "With a copy to" is
simultaneously delivered notice in the same manner as any notice given to either
Owner or Participant.
10.2. ASSIGNMENT. This Agreement and any documents executed in
connection therewith shall not be assigned by Participant or Owner without the
prior written consent of the other party, and any assignment without such prior
written consent shall be null and void. Merger of consolidation of Owner shall
not be deemed an assignment, provided that the merged or consolidated entity
assumes the obligations hereunder.
10.3. SURVIVAL. All covenants, agreements, representations and
warranties made herein shall survive the execution and delivery of (i) this
Agreement, and (ii) all other documents and instruments to be executed and
delivered in accordance herewith, and shall continue in full force and effect.
10.4. OUTSIDE BUSINESSES. Nothing contained in this Agreement shall
be construed to restrict or prevent, in any manner, any party or any party's
affiliates, parent corporations or representatives or principals from engaging
in any other businesses or investments.
6
<PAGE>
10.5. CONSTRUCTION AND INTERPRETATION OF AGREEMENT. This Agreement
shall be governed by and construed under the laws of the State of Colorado. Any
action brought to enforce or interpret this Agreement shall be brought in the
court of appropriate jurisdiction in the county in which the Property is
located. Should any provision of this Agreement require judicial interpretation,
it is agreed that the court interpreting or considering same shall not apply the
presumption that the terms hereof shall be more strictly construed against a
party by reason of the rule or conclusion that a document should be construed
more strictly against the party who itself or through its agent prepared the
same; it being agreed that all parties hereto have participated in the
preparation of this Agreement and that legal counsel was consulted by each
responsible party before the execution of this Agreement.
10.6. SPECIFIC PERFORMANCE. Participant and Owner agree that in
addition to all other remedies, each of their obligations contained herein shall
be subject to the remedy of specific performance by appropriate action commenced
by the aggrieved party in a court of proper jurisdiction.
10.7. AMENDMENT AND WAIVER. This Agreement may not be amended or
modified in any way except by an instrument in writing executed by all parties
hereto; provided, however, either Participant or Owner may, in writing, (i)
extend the time for performance of any of the obligations of the other, (ii)
waive any inaccuracies and representations by the other contained in this
Agreement, (iii) waive compliance by the other with any of the covenants
contained in this Agreement, and (iv) waive the satisfaction of any condition
that is precedent to the performance by the party so waiving of any of its
obligations under this Agreement.
10.8. SEVERABILITY. Except as expressly provided to the contrary
herein, each section, part, term or provision of this Agreement shall be
considered severable, and if for any reason any section, part, term or provision
herein is determined to be invalid and contrary to or in conflict with any
existing or future law or regulation by a court or agency having valid
jurisdiction, such determination shall not impair the operation of or have any
other affect on other sections, parts, terms or provisions of this Agreement as
may remain otherwise intelligible, and the latter shall continue to be given
full force and effect and bind the parties hereto, and said invalid sections,
parts, terms or provisions shall not be deemed to be a part of this Agreement.
10.9. BINDING CONTRACT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
legal representatives and assigns, where permitted.
10.10. INTEGRATED AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto and there are no agreements,
understandings, warranties or representations between the parties other than
those set forth herein.
10.11. GOVERNING DOCUMENT. This Agreement shall govern in the event
of any inconsistency between this Agreement and any of the Exhibits attached
hereto.
10.12. JURY TRIAL. The Participant and Owner hereby waive their
respective rights to a jury trial.
7
<PAGE>
10.13. ATTORNEY'S FEES. In the event it becomes necessary for either
party to litigate or to initiate any claim or proceeding in order to enforce its
rights under the terms of this Agreement, then the prevailing party shall be
entitled to reimbursement of its costs and reasonable attorney's fees incurred
in any such claim, proceeding or litigation, including those caused by appellate
proceedings.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
OWNER:
ATLANTIC GULF COMMUNITIES
CORPORATION, a Delaware corporation
By:
Its:
PARTICIPANT:
WILLIAM G. PEACHER
8
<PAGE>
EXHIBIT "A"
REAL PROPERTY
Legal descriptions of certain land owned by the Development Company in
Garfield County, Colorado.
<PAGE>
EXHIBIT "B"
DEFINITIONS
All capitalized terms referenced or used in the Participation Agreement
to which this Exhibit is attached and not specifically defined therein shall
have the meaning set forth below in this EXHIBIT "B", which is attached to and
made a part of the Participation Agreement for all purposes. The section,
paragraph and exhibit references herein refer to the Sections, Paragraphs and
Exhibits in and to the Participation Agreement.
1.1. CAPITAL RESERVE. The term "Capital Reserve" shall mean those
amounts established by Owner to be allocated to an account for capital
replacements, renewals, nonroutine repairs, maintenance and improvements within
and to the Property.
1.2. COMMENCEMENT DATE. The term "Commencement Date" is defined as
the date upon which Owner and Participant execute this Agreement.
1.3. DEFAULT OR EVENT OF DEFAULT. The terms "Default" or "Event of
Default" shall have the meaning set forth in Article 6.
1.4. EXPENSES. The term "Expenses" shall mean all expenses incurred
by or paid on behalf of Development Company, computed on a cash basis, incurred
during or after the first calendar month beginning on or after the Commencement
Date in connection with all business related to or from the development,
construction, marketing, management, operation and sale of the Project and the
Property, and shall include, but shall not be limited to, the following items:
1.4.1. General and administrative salaries, wages,
commissions, employee benefits and payroll expenses, including payroll
taxes, approved profit sharing plans and insurance for employees
employed in the development, construction, marketing management,
operation or sale of the Property;
1.4.2. All architectural, design, consulting, engineering and
legal fees;
1.4.3. All costs of permitting, platting, and other licensing
as may be required to accomplish the proposed development of the
Property;
1.4.4. All predevelopment and development costs, construction
costs, including, but not limited to, any invoices submitted by
contractors, subcontractors, laborers and suppliers, including costs of
payment and performance bonds;
1.4.5. Marketing, advertising and promotional expenses;
1.4.6. Replacement of inventories of maintenance parts and
supplies;
1
<PAGE>
1.4.7. Reasonable reserves for warranty work;
1.4.8. Replacement of equipment;
1.4.9. General and administrative office supplies, postage,
printing, routine office, departmental and administrative expenses and
costs and accounting services incurred in the on-site development,
construction, management, operation and sale of the Property;
1.4.10. Reasonable travel expenses of on-site employees and
off-site consultants incurred in connection with Property business;
1.4.11. A credit to a reserve for appropriate insurance
coverage and taxes each calendar month in an amount or at a rate that
is sufficient to pay such insurance premiums and taxes when they become
due and payable;
1.4.12. Insurance premiums and taxes, to the extent not paid
from the reserve established therefor;
1.4.13. The amount credited to the Capital Reserve, as defined
herein;
1.4.14. All release of lien and financing costs for any loans
associated with the Property and all principal and interest payments
and fees due under any loan concerning the Property or construction of
the Improvements;
1.4.15. Any amounts retained for purposes of maintaining the
Working Capital at the level provided for herein;
1.4.16. Auditing costs, accounting costs, computer fees and
legal fees incurred in respect to the marketing, management,
development, operation and sale of the Property;
1.4.17. All capital costs incurred in the operation,
development and sale of the Property, including the construction and
equipping of any Improvements; provided, however, said costs shall
first be charged against the balance in the Capital Reserve;
1.4.18. Costs incurred for development, connection or use of
utilities, including, but not limited to, all electric, gas, waste
disposal and water costs, and any other utility charges payable by
Participant hereunder;
1.4.19. Ordinary maintenance and repairs to the Property.
1.4.20. Accounts receivable previously included within Gross
Receipts, to the extent they remain unpaid ninety (90) days after the
first billing;
2
<PAGE>
1.4.21. Any charges pursuant to any other lease, contract or
agreement related to the development, construction, management,
marketing, operation or sale of the Property, or purchase agreement for
replacement of furniture, fixtures and equipment;
1.4.22. Any Negative Cash Flow deficit carried forward from
previous Calendar Year;
1.4.23. Costs incurred in the cleanup and/or restoration of
the Property in compliance with any environmental, hazardous substance
or solid waste laws or regulations;
1.4.24. Costs incurred in the collection of any condemnation
proceeds relating to the Property;
1.4.25. Costs incurred in the restoration of the Property in
connection with an insurable loss;
1.4.26. Repayment of Owner's equity investment in the project
(and any other investment from future participants invested in the
Project and not distributed to Owner), together with a fifteen percent
(15%) per annum return on any such investment; and
1.4.27. Other expenses reasonably incurred in the development,
construction, management, marketing, operation and sale of the
Property.
Any of the above provisions resulting in a double deduction as an
Expense shall be allowed as a deduction only once. Expenses shall not include
depreciation, but shall include the Project's allocable share of federal income
taxes and all state income taxes.
1.5. FINANCIAL STATEMENTS. The term "Financial Statements" shall
mean a balance sheet as of the close of a calendar year, statements of income
and expense and Positive Net Cash Flow for that portion of the year then ended,
applied on basis consistent with that of the preceding period, or containing
disclosure of the effect on the financial position or results of operations of
any change during the period, and certified as accurate by an executive officer
of Owner.
1.6. GROSS RECEIPTS. The term "Gross Receipts" shall mean receipts
recognized during or after the first calendar month beginning on or after the
Commencement Date from all business conducted by Development Company upon,
related to or from the development, construction, marketing, management,
operation and sale or other disposition of the Property or the Real Property
during the Term hereof, and shall include, but shall not be limited to, proceeds
from the sale of lots, or any other portion of the Real Property, or any
proceeds from usage rights or leases of the Real Property, or for services
performed on, at, or from the Property, and proceeds paid as a result of an
insurable loss in connection with the Real Property or the Property. Gross
Receipts shall be reduced by any refunds, rebates, discounts and credits of a
similar nature given, paid or returned by Owner and/or Development Company in
the course of obtaining such Gross Receipts.
3
<PAGE>
Notwithstanding anything to the contrary, Gross Receipts shall not
include applicable gross receipts taxes, transfer fees, or similar governmental
charges collected directly from any purchasers as a part of the sales price of
any Property sold.
Any of the above provisions resulting in a double exclusion from Gross
Receipts shall be allowed as an exclusion only once.
1.7. NEGATIVE NET CASH FLOW. The term "Negative Net Cash Flow"
shall be defined as the amount, if any, by which Expenses exceed Gross Receipts
for the particular period in question.
1.8. NET PROFITS. The term "Net Profits" shall mean net pre-tax
income from the Project, subject to the conditions set forth below, as
determined at the end of each calendar year in accordance with generally
accepted accounting principles. The conditions are as follows: (i) Owner shall
be entitled to a fifteen percent (15%) per annum return on any funds for the
Project funded by Owner and/or Development Company (and any other equity
investment in the Project from future participants which remains invested in the
Project shall be entitled to a fifteen percent (15%) per annum return), (ii) all
non-capitalized expenditures shall be treated as an expense for purposes of
determining "Net Profits" at the time of such calculation, and (iii) Owner may
establish reasonable reserves for the operation and development of the Project.
Attached to this Exhibit "B" as Schedule 1 is proforma profit and loss statement
which is an example of how Net Profits are to be computed.
1.9. POSITIVE NET CASH FLOW. The term "Positive Net Cash Flow"
shall mean that amount, if any, by which the sum of Gross Receipts exceed
Expenses for the particular period in question.
1.10. WORKING CAPITAL. The term "Working Capital" shall mean the
initial sum of working capital and such additional amount as reasonably required
for the operation of the Property, which sum shall be periodically designated by
Owner to meet the requirements of the operation of the Property.
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 (UNAUDITED) AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS THEN ENDED (UNAUDITED)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000771934
<NAME> Atlantic Gulf Communities Corporation
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,305
<SECURITIES> 0
<RECEIVABLES> 25,670
<ALLOWANCES> 0
<INVENTORY> 166,927
<CURRENT-ASSETS> 0
<PP&E> 10,466
<DEPRECIATION> 0
<TOTAL-ASSETS> 225,841
<CURRENT-LIABILITIES> 0
<BONDS> 157,838
61,517
0
<COMMON> 1,280
<OTHER-SE> (26,033)
<TOTAL-LIABILITY-AND-EQUITY> 225,841
<SALES> 23,864
<TOTAL-REVENUES> 28,249
<CGS> 19,771
<TOTAL-COSTS> 22,539
<OTHER-EXPENSES> (685)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,751
<INCOME-PRETAX> (23,064)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,064)
<EPS-BASIC> (1.86)
<EPS-DILUTED> (1.86)
</TABLE>
