SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A-1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________________
Commission file number: 1-8967
ATLANTIC GULF COMMUNITIES CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 59-0720444
- ---------------------------------------- ------------------------------------
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2601 South Bayshore Drive
Miami, Florida 33133-5461
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone, including area code (305) 859-4000
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE (OVER THE COUNTER BULLETIN BOARD)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
The exhibit index for this Form 10-K/A-1 is located at page 67.
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K/A-1 or any amendment to this Form 10-K/A-1. [ ]
As of March 31, 1999, the aggregate market value of the registrant's
Common Stock held by non-affiliates of the registrant was approximately $21.5
million.
As of March 31, 1999, there were 12,626,515 shares of the registrant's
Common Stock outstanding, including 3,000 outstanding shares held in a disputed
claims reserve.
Documents incorporated by reference: None
<PAGE>
INTRODUCTION
Atlantic Gulf Communities Corporation is filing this Form 10-K/A-1 in
order to amend its Annual Report on Form 10-K for the fiscal year ended December
31, 1998 (which was filed with the Securities and Exchange Commission on March
31, 1999 - the "1998 Form 10-K") to (1) add the Part II Item 7A. and Part III
disclosures, which were not included in the 1998 Form 10-K, as filed, (2)
correct typographical errors in the Wholly-Owned Luxury/Resort Projects table on
page 14 of the 1998 Form 10-K, (3) correct certain option information in Notes
10 and 17 to the Notes to Consolidated Financial Statements included with the
1998 Form 10-K, (4) correct certain other nonmaterial, typographical errors in
the 1998 Form 10-K and (5) include updated information concerning certain events
which occurred after the Form 10-K, as filed, was finalized, and on or before
March 31, 1999.
<PAGE>
SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS ANNUAL REPORT ON FORM
10-K/A-1 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, CERTAIN MATTERS DISCUSSED
HEREIN INCLUDING, WITHOUT LIMITATION, PART I, ITEM 1. "THE BUSINESS," PART I,
ITEM 3. "LEGAL PROCEEDINGS" AND PART II, ITEM 7. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONTAIN FORWARD
LOOKING STATEMENTS BASED ON MANAGEMENT'S EXPECTATIONS REGARDING, AND EVALUATIONS
OF CURRENT INFORMATION ABOUT, THE COMPANY'S BUSINESS THAT INVOLVE RISKS AND
UNCERTAINTIES, AND ARE SUBJECT TO FACTORS THAT COULD CAUSE ACTUAL FUTURE RESULTS
TO DIFFER, BOTH ADVERSELY AND MATERIALLY, FROM CURRENTLY ANTICIPATED RESULTS,
INCLUDING, WITHOUT LIMITATION, THE EFFECT OF ECONOMIC AND MARKET CONDITIONS; THE
CYCLICAL NATURE OF THE REAL ESTATE MARKET IN PRIMARY MARKETS IN FLORIDA AND
OTHER AREAS 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 OF HIGH QUALITY REAL ESTATE PARCELS IN PRIMARY FLORIDA AND OTHER
MARKETS IN THE SOUTHEASTERN UNITED STATES; THE AVAILABILITY AND COST OF
MATERIALS AND LABOR; CONSUMER PREFERENCES AND TASTES; GOVERNMENTAL REGULATION;
COMPETITIVE PRESSURES; THE COMPANY'S OWN DEBT AND EQUITY STRUCTURE AND RELATED
FINANCING CONTINGENCIES AND RESTRICTIONS; MANAGEMENT LIMITATIONS; THE COMPANY'S
ABILITY TO CLOSE FINANCINGS OF NEW REAL ESTATE AT PARTICULAR TIMES RELATIVE TO
THE COMPANY'S CASH FLOW NEEDS AT SUCH TIMES; THE COMPANY'S ABILITY TO REFINANCE
EXISTING INDEBTEDNESS; LEGISLATION; RESOLUTION OF PENDING LITIGATION IN WHICH
THE COMPANY IS A DEFENDANT; THE SUCCESS OR LACK THEREOF OF THE COMPANY'S CURRENT
DEVELOPMENT PROJECTS; AND THE SUCCESS OR LACK THEREOF OF THE COMPANY'S STRATEGIC
ALTERNATIVE INITIATIVE.
<PAGE>
UNLESS THE CONTEXT CLEARLY INDICATES OTHERWISE, ALL REFERENCES HEREIN TO (1)
"ATLANTIC GULF" REFER SOLELY TO ATLANTIC GULF COMMUNITIES CORPORATION AND (2)
THE "COMPANY" INCLUDE ATLANTIC GULF AND ITS DIRECT AND INDIRECT WHOLLY OWNED
SUBSIDIARIES.
PART I
ITEM 1. BUSINESS
GENERAL
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 December 31, 1998, the Company owned outright, or had ownership
interests in, 12 Core Projects, consisting of eight Primary Projects and four
Luxury/Resort Projects. The Company also has an active business development
pipeline including, as of December 31, 1998, four additional planned Primary
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Projects under control which, once acquired, entitled and approved, will yield
significant additional inventory for development and sale. The 12 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 (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.
General Development Corporation, Atlantic Gulf's predecessor (the
"PREDECESSOR COMPANY"), was formed in 1954 as a Florida-based community
development and land sales company. From 1955 through 1990, the Predecessor
Company acquired and developed nine large-scale communities in Florida and one
in Tennessee, comprising nearly 290,000 acres. During that period, the
Predecessor Company developed 357,000 homesites, deeded 283,000 developed
homesites to customers, and constructed and sold approximately 35,000 homes. The
Predecessor Company filed for reorganization under the federal bankruptcy laws
in 1990. In March 1992, when the Company emerged from bankruptcy, (1) its assets
consisted primarily of 92,000 acres of undeveloped tract land ("PREDECESSOR
TRACTS"), 27,000 scattered homesites ("PREDECESSOR HOMESITES") and certain water
and sewer utility companies ("PREDECESSOR UTILITIES") and (2) its liabilities
included $302 million of secured and unsecured corporate debt not associated
with development operations (the "REORGANIZATION DEBT"), all maturing on or
before December 31, 1998. For additional information concerning the bankruptcy
proceedings, see Atlantic Gulf's 1992 Annual Report on Form 10-K ("1992 10-K").
The Company's strategic plan, which it formulated in 1992 and 1993 and
has been refining and implementing since then (its "STRATEGIC PLAN"), consists
of three components:
- liquidating its Predecessor Assets in an orderly fashion,
- using the proceeds therefrom to service and retire its
Reorganization Debt, and
- at the same time, building its Core Business.
It was clear from the outset that acquiring new Core Projects would be
difficult because of the severe capital limitations imposed on the Company as a
result of the short term demands of its Reorganization Debt. Nevertheless,
management believed that the Company could successfully leverage off of certain
core competencies of its Predecessor Company, principally its expertise in
planning and permitting large residential communities in an increasingly
difficult regulatory environment. Management believes that implementation of the
Company's Strategic Plan provides the most appropriate utilization of the
Company's financial resources with respect to its Core Business and, at the same
time, the most prudent management of the orderly disposition of its remaining
Predecessor Assets.
Since 1992, the Company has:
- disposed of $256 million of Predecessor Tracts and Predecessor
Homesites and all of its Predecessor Utilities and
- retired all $302 million of its Reorganization Debt.
2
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Between 1994 and 1998, the Company:
- reduced current overhead expenses and related interest expense
by more than 50%,
- acquired, directly or through joint ventures, 19 new Core
Projects, successfully entering 10 new Core Markets in five
states,
- increased the percentage of real estate related revenues
attributable to Core Business operations from ten percent
(10%) to sixty-six percent (66%) and
- expanded its core competencies beyond Primary Market Homesite
development to include Primary Market Commercial Development
and Luxury/Resort Market development and operations.
In 1998, the Company began to realize financial returns on several of
its recently acquired Core Projects. That trend should continue in 1999 as
additional new Core Projects come on line. The Company believes that it will
fully implement its Strategic Plan in 1999, assuming availability of appropriate
capital resources during 1999, which cannot be assured.
OPERATING AND FINANCIAL STRATEGIES
GENERAL. The Company intends to continue its focus on Primary Market
Operations. Primary Projects are principally wholesale operations in which the
Company supplies developed or developable, permitted Homesites to third party
homebuilders. To the extent that the homebuilding market continues to be robust
and quality homesites in master-planned, Primary Market subdivisions remain in
short supply, the Company believes that its Primary Market strategy is sound.
The Company intends to increase its focus on Luxury/Resort Operations.
In this segment, the Company develops waterfront or highly amenitized
communities for high-end retirement or pre-retirement homebuyers. The Company's
Luxury/Resort Market strategy is more retail focused -- selling Homesites and
Vertical Residential Units directly to the individual consumer and operating
resort-type Amenities. Management believes that the country's demographic trends
and recent real estate activity in the current Luxury/Resort Markets strongly
support the Company's Luxury/Resort Operations strategy.
The Company's overall operating strategy is to (1) develop its 12
existing Core Projects and (2) complete the acquisitions of, and then develop,
the other four planned Primary Projects that it currently has under control.
The Company's financial strategy is to grow its recurring EBITDA
(earnings before interest, taxes, depreciation and amortization) by the end of
fiscal year 2000 to a level sufficient to support a long-term bond issue to
retire any remaining corporate debt and to redeem any outstanding Preferred
Stock. See PART II, ITEM 5. MARKET FOR ATLANTIC GULF'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS below for a description of Atlantic Gulf's Series A
Preferred Stock and Series B Preferred Stock (the "PREFERRED STOCK"). The
three-year, no call period on the majority of the Preferred Stock expires in the
second half of fiscal year 2000. The Company's goal is to be able to redeem its
Preferred Stock, or alternatively, to force a conversion of the Preferred Stock
into Common Stock in late fiscal year 2000. See PART II, ITEM 5. MARKET FOR
ATLANTIC GULF'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS below for a
description of Atlantic Gulf's Common Stock. The Company
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believes that it's Core Development Portfolio should, subject to fluctuations in
the national and local economies and in the timing of any individual project, be
generating sufficient EBITDA by the end of fiscal 2000 to execute this financial
strategy.
DEVELOPMENT OPPORTUNITIES IN CORE DEVELOPMENT PORTFOLIO. The Company's
Core Development Portfolio, once fully entitled and approved, should yield (1)
an estimated 410 acres of new Commercial Development (approximately 180 acres of
which is already entitled and approved), (2) an estimated 17,923 Homesites and
(3) an estimated 1,332 Vertical Residential Units. The chart below summarizes
the estimated development potential of the Company's Core Development Portfolio.
POTENTIAL DEVELOPMENT SUPPLY FROM CORE DEVELOPMENT PORTFOLIO
<TABLE>
<CAPTION>
Homesites Vertical Residential Units
----------------------- ---------------------------------
Single Multi- Single Multi- Timeshare Commercial
Family (1) Family (1) Family(1) Family (1) Cabins (2) Development (3)
----------------------- --------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Primary Projects(4)....... 12,984 4,163 - - - 398
Luxury/Resort Projects(4).. 776 - 81 1,176 75 12
----------------------- --------------------------------- ---------------
Total...................... 13,760 4,163 81 1,176 75 410
======================= ================================= ===============
Entitled and Approved(5)... 6,366 1,297 81 1,126 - 180
Entitlements/
Approvals in Process....... 7,394 2,866 - 50 75 230
</TABLE>
(1) Number of units.
(2) Currently planned as 300 quarter shares.
(3) Number of acres.
(4) Some of these potential units are not yet owned by the Company or a
joint venture ("JV") in which the Company is a joint venturer but are
pending acquisitions or subject to options or other similar
arrangements. SEE PART I, ITEM 1. BUSINESS - OPERATING AND FINANCIAL
STRATEGIES -- ADDITIONS TO CORE DEVELOPMENT PORTFOLIO IN 1998.
(5) "Entitled" means having the necessary discretionary local, state, and
federal government approvals and permits to proceed with development.
ADDITIONS TO CORE DEVELOPMENT PORTFOLIO IN 1998. The Company believes
that its diverse development capabilities, including its planning and permitting
expertise, provide it with a competitive advantage in identifying and acquiring
additional development opportunities. In 1998, the Company invested
approximately $27.3 million in the acquisition of new Core Projects, and also
identified several new development opportunities which are now under the
Company's control, directly or through joint ventures. Following is a summary of
the significant Core Projects acquired or put under the Company's control in
1998:
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- ASPEN SPRINGS RANCH, acquired by the Company in September
1998, is a 5,906-acre Luxury/Resort Project located in the
Roaring Fork Valley of Colorado, five miles south of Glenwood
Springs, approximately 30 miles down valley from Aspen, 34
miles west of the Eagle/Vail Airport and 40 minutes by car to
nine major ski resorts. Aspen Springs Ranch is currently
planned for 497 Homesites, ranging in size from two acres to
more than 35 acres, and 75 2,500 square foot cabins that the
Company intends to market as quarter share units. The Company
also intends to construct and operate up to two 18-hole equity
golf courses and an equestrian facility at Aspen Springs
Ranch. This project is currently in the local entitlement
process and the Company hopes to have entitlements complete
and to begin Homesite sales in 1999.
- DAVE'S CREEK, entitled and acquired by the Company in April
1998, was a 1,372-acre Primary Market Project located north of
Atlanta in Forsythe County, Georgia. Although Dave's Creek was
the Company's first project in the Atlanta market, by virtue
of the Company's planning and permitting expertise the project
was entitled for 1,087 Homesites, 361 multi-family units, 1.37
million square feet of commercial usage, and 1.88 million
square feet of office/industrial usage -- valuable density for
that submarket. Before it committed any money for
infrastructure improvements, the Company sold the Dave's Creek
Project to another national developer already operating in the
Atlanta market and recorded a $4.1 million profit in 1998.
- ORLANDO NAVAL TRAINING CENTER is a 1,093-acre former military
base located just north of downtown in the City of Orlando,
Florida, adjacent to the City of Winter Park. Due to the
site's urban infill location, the announcement that the Navy
and the City of Orlando would make the property available to
private interests for redevelopment attracted keen interest
from Florida's finest community development companies.
Following an intense six-month competition, the Company and
its joint venture partners were selected by the local
government to redevelop the property. The joint venture's
redevelopment plan calls for over 3,040 residential units,
350,000 square feet of retail and commercial space, 1.5
million square feet of office space, and extensive public
parks. The joint venture plans to close on the acquisition of
the property in the second quarter of 1999.
- GRAND OAKS is a proposed 503-acre community located within the
City of Royal Palm Beach in Palm Beach County, Florida. The
community is planned for a total of 1,222 residential units,
consisting of 733 single-family Homesites and 489 attached
townhouse and villa Homesites. The Grand Oaks master plan also
anticipates an 18-hole semi-private golf course, six tennis
courts and a community clubhouse with a pool. The Company
controls Grand Oaks through a purchase contract on which the
Company intends to close in the second quarter of 1999.
- HARBOR BAY is a proposed water-oriented community comprised of
754 acres located on Tampa Bay, south of Tampa, Florida, in
Hillsborough County. The Company controls Harbor Bay by virtue
of a purchase contract on which the Company intends to close,
subject to obtaining certain entitlements, in late 1999.
Harbor Bay is part of a larger Development
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of Regional Impact ("DRI") that commenced in the 1960's. Prior
owners have completed certain land development work, including
the creation of a canal system with access to Tampa Bay. The
Company's proposed land plan for Harbor Bay anticipates 1,726
Homesites (including approximately 600 canal or lake front
lots with direct or indirect access to Tampa Bay) and 44 acres
of Commercial Development.
- RAYLAND consists of two noncontiguous parcels, totalling
approximately 3,300 acres, located south of Jacksonville,
Florida, in northern St. John's County, which the Company
controls by virtue of two separate purchase contracts. The
Company intends to acquire these parcels in late 1999, subject
to completing certain entitlement work, including two separate
pending DRI's. The eastern parcel, known as Eastbourne, is
approximately 2,000 gross acres proposed for 2,200 total
Homesites, 57 acres of Commercial Development and an 18-hole
golf course. The western parcel, Westbourne, is approximately
1,300 gross acres proposed for 1,700 Homesites and at least
nine additional holes of golf. Westbourne is directly adjacent
to the 4,200-acre Julington Creek Plantation project, which
the Company developed from 1992 through 1996, when the
remaining land was sold to a third party developer.
OTHER SIGNIFICANT BUSINESS DEVELOPMENTS IN 1998.
- In March 1998, Atlantic Gulf sold 173,525 shares of Series A
Preferred Stock and warrants to purchase an additional 347,050
shares of Common Stock to Apollo for an aggregate purchase
price of $1,735,248 (thereby completing the sale to Apollo,
which began in 1997, of a total of 2.5 million shares of
Series A Preferred Stock and warrants to purchase an up to 5
million shares of Common Stock).
- Atlantic Gulf reduced the outstanding principal balance under
its Working Capital Facility from $20 million at the beginning
of the year to $18.1 million as of December 31, 1998.
- On June 30, 1998, Atlantic Gulf repaid the entire outstanding
balances under its (1) Term Loan Facility ($13.333 million
outstanding at December 31, 1997) and (2) Reducing Revolving
Loan Facility ($7.653 million outstanding at December 31,
1997).
- On February 1, 1999 (dated as of December 31, 1998), Atlantic
Gulf closed on its $39.5 million NEW REVOLVING LOAN FACILITY.
- On February 1, 1999 (dated as of December 31, 1998), Atlantic
Gulf closed on its $26.5 million NEW TERM LOAN FACILITY.
- On February 1, 1999 (dated as of December 31, 1998), AGC-SP,
Inc., terminated Atlantic Gulf's obligation to repay the $11
million SP SUB LOAN.
- On December 31, 1998, Atlantic Gulf recovered from the Trustee
for its Unsecured 12% Notes due December 31, 1996 (the "12%
NOTES"), approximately $7.9 million of unclaimed funds.
- On February 2, 1999, Atlantic Gulf repaid the entire
outstanding balance ($13.7 million) under its Working Capital
Facility and the entire outstanding balance ($39.5 million)
under its Unsecured 13% Cash Flow Notes due December 31, 1998
(the "13% NOTES") with funds drawn under its New Revolving
Loan Facility and New Term Loan Facility and other available
cash.
See PART II, ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES below for
a detailed description of Atlantic Gulf's New Revolving Loan Facility and New
Term Loan Facility.
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CORE BUSINESS
GENERAL. The Company's Core Business consists of three principal
business lines:
- Development of Primary Projects;
- Development of Luxury/Resort Projects; and
- Other Operations, principally including Environmental Services
and Receivables Portfolio Management.
PRIMARY PROJECTS. During 1998, the Company was engaged in the
acquisition, development and sale of Primary Projects in Florida, North
Carolina, Georgia and Texas. The Company defines a Primary Market as a
geographic market in which more than 5,000 single family home construction
permits are issued annually. There is substantial focus in a Primary Market on
factors such as industrial or employment growth in the area, the current and
projected supply of finished homesites, the quality of schools, transportation
infrastructure, etc.
The Company's activities in connection with the development of Primary
Markets consist of four principal functions:
- BUSINESS DEVELOPMENT, consisting of (1) identifying new
Primary Markets for the Company's consideration, (2)
evaluating specific real estate opportunities within these
markets (i.e., producing and reviewing financial and market
feasibility studies of potential projects and conducting due
diligence with respect to planning, zoning and permitting
requirements) to determine which potential projects meet the
Company's investment criteria; and (3) formulating acquisition
and financing strategies for generating superior returns from
the best projects within these Primary Markets.
- PLANNING, consisting of (1) master land use planning, (2)
zoning and land use entitlements, (3) environmental
permitting, (4) mitigation design and (5) obtaining all other
regulatory approvals necessary to develop a specified
property. Once the Company's planning department has finished
its entitlement work with respect to a particular parcel of
property, it has frequently added enough value to the property
that the property can be sold at a profit without further
infrastructure improvements.
- COMMUNITY DEVELOPMENT, consisting of construction of roads,
utilities, amenities and other infrastructure. In large
master-planned subdivisions, the Company usually conducts
construction activities in phases, so that it does not have an
oversupply of developed inventory awaiting sale to third party
builders.
- MARKETING AND SALES, consisting principally of selling
Homesites in bulk to homebuilders and permitted and improved
Commercial Development projects to commercial users or other
investor/developers. While the Company frequently retains some
master marketing responsibility in Primary Projects, the
Company's Primary Project sales efforts are typically
wholesale in nature.
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WHOLLY-OWNED PRIMARY PROJECTS. The following table shows (in
units/acres and by net book value) the Company's wholly-owned Primary Projects:
<TABLE>
<CAPTION>
UNITS/ACRES NET BOOK VALUE (3)
------------------------------------ -------------------------------
AS OF DECEMBER 31, AS OF DECEMBER 31,
------------------------------------ -------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Homesites .............. 3,213(1) 3,756(1) 2,237(1) $ 27,001 $ 30,224 $ 20,407
Commercial Development.. 26(2) 26(2) 16(2) 270 623 484
-------- -------- --------
Total ............ $ 27,271 $ 30,847 $ 20,891
======== ======== ========
</TABLE>
(1) Number of remaining planned units.
(2) Number of remaining planned acres.
(3) Net book value means total remaining capitalized costs less project
debt as of the date indicated.
JOINT VENTURE PRIMARY PROJECTS. The following table shows (by
investment account balance and the Company's share of income (loss)) the Primary
Projects in which the Company holds its equity interest through joint ventures:
<TABLE>
<CAPTION>
INVESTMENT ACCOUNT BALANCE (1) COMPANY'S SHARE OF INCOME (LOSS)
--------------------------- --------------------------------
AS OF DECEMBER 31, AS OF DECEMBER 31,
--------------------------- --------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Homesites ............. $ 9,998 $12,131 $ 9,161 $ 802 $ (235) $ (75)
Commercial Development.. 367 291 307 240 -- --
------- ------- ------- ------- ------- -------
Total ............ $10,365 $12,422 $ 9,468 $ 1,042(2)$ (235) $ (75)
======= ======= ======= ======= ======= =======
</TABLE>
(1) Includes all unamortized costs capitalized to the joint venture
interests, as required by GAAP, including corporate interest.
(2) This amount is reduced by capitalized interest of $746,000.
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PRIMARY PROJECT COMPONENTS, BY PROJECT. The following tables
summarize the scope and principal components of the Company's Primary Projects,
by Project:
<TABLE>
<CAPTION>
Scope of Project(10)
------------------------------
Ownership/ Total Total
Profit Gross Total Gross
Interest Residential Lots/ Commercial
12/31/98 Acres Units Acres
-----------------------------------------
<S> <C> <C> <C> <C>
Owned Properties
- ----------------
Lakeside Estates (1) .................. 100% 748 1,379 -
Saxon Woods (2) ....................... 100% 127 408 -
West Meadows (3) ...................... 100% 1,133 1,316 76
The Trails of West Frisco (4) ......... 100% 740 1,641 -
------------------------------
Subtotal Owned Properties ............. 2,748 4,744 76
------------------------------
Joint Venture Properties
- ------------------------
Sunset Lakes (5) ...................... 65% 1,970 1,767 15
Falcon Trace (6) ...................... 65% 390 871 -
Cary Glen (7) ......................... 40% 470 1,134 -
Country Lakes (8) ..................... 20% 1,363 4,089 388
------------------------------
Subtotal Joint Venture Properties ..... 4,193 7,861 403
------------------------------
Controlled Properties (9)
- -------------------------
Grand Oaks ............................ 100% 503 1,222 -
Rayland ............................... 100% 3,243 3,900 57
Orlando Naval Training Center ......... 17% 964 3,040 129
Harbor Bay ............................ 100% 710 1,726 44
------------------------------
Subtotal Controlled Properties ........ 5,420 9,888 230
------------------------------
Total All Properties .................. 12,361 22,493 709
==============================
</TABLE>
(1) This Project is located in the Orlando, Florida Primary Market area.
The Company acquired the Project in 1994 and 1995 for approximately
$10.2 million.
(2) This Project is located in the Orlando, Florida Primary Market area.
The Company acquired the Project in August 1997 for approximately $2.9
million.
(3) This Project is located in the Tampa, Florida Primary Market area. The
Company acquired the Project in February 1995 for approximately $5
million.
(4) This Project is located in Frisco, Texas, just north of Dallas. The
Company acquired the Project in July 1997, for approximately $7.5
million.
(5) This Project is located in Miramar, Florida, in southwest Broward
County. In addition to the Company's profit participation, the Company
is also entitled to receive a development fee equal to 4% of hard
costs. The joint venture was formed in 1995.
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(6) This Project is located in the Orlando, Florida Primary Market area.
The Project was acquired in 1996 for approximately $5.3 million.
(7) This Project is located in North Carolina, near Raleigh-Durham. The
Project was acquired in 1996 for approximately $8.0 million. See PART
I, ITEM 3. LEGAL PROCEEDINGS - OTHER LITIGATION AND PENDING DISPUTES --
CARY GLEN PROJECT.
(8) This Project is located in Miramar, Florida. In addition to its
partnership interest, the Company is entitled to receive a management
fee equal to 3.5% of gross proceeds. The Project was acquired in 1995
for $39.5 million. In March 1999, the Company sold its partnership
interest in the Country Lakes JV and received a prepayment of its
management fee in exchange for which it will continue to manage the
Project.
(9) Represents properties which the Company does not currently own but
which it has entered into contractual relationships to acquire, such as
letters of intent, purchase agreements with customary conditions
precedent, option agreements, joint venture arrangements and other
similar arrangements. There can be no assurance the Company will
actually acquire these properties. For information concerning these
Projects, see PART I, ITEM 1. BUSINESS - OPERATING AND FINANCIAL
STRATEGIES -- ADDITIONS TO CORE DEVELOPMENT PORTFOLIO IN 1998.
(10) As currently planned.
10
<PAGE>
<TABLE>
<CAPTION>
==============================================================
LOTS/UNITS/ACRES AT DECEMBER 31, 1998 (1)
--------------------------------------------------------------
Single Family Multi-family Commercial
--------------------------------------------------------------
Total Total Total Total Total Total
Lots Entitled Units Entitled Acres Entitled
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Owned Properties
- ----------------
Lakeside Estates .................. 528 528 - - - -
Saxon Woods ....................... 383 383 - - - -
West Meadows ...................... 759 759 - - 26 26
The Trails of West Frisco ......... 1,543 1,543 - - - -
--------------------------------------------------------------
Subtotal Owned Properties ......... 3,213 3,213 - - 26 26
--------------------------------------------------------------
Joint Venture Properties
- ------------------------
Sunset Lakes ...................... 1,242 1,242 - - - -
Falcon Trace ...................... 640 640 - - - -
Cary Glen ......................... 867 867 257 257 - -
Country Lakes ..................... - - 1,040 1,040 142 142
--------------------------------------------------------------
Subtotal Joint Venture Properties . 2,749 2,749 1,297 1,297 142 142
--------------------------------------------------------------
Controlled Properties
- ---------------------
Grand Oaks ........................ 1,222 - - - - -
Rayland ........................... 3,550 - 350 - 57 -
Orlando Naval Training Center ..... 911 - 2,129 - 129 -
Harbor Bay ........................ 1,339 - 387 - 44 -
--------------------------------------------------------------
Subtotal Controlled Properties .... 7,022 - 2,866 - 230 -
--------------------------------------------------------------
Total All Properties .............. 12,984 5,962 4,163 1,297 398 168
==============================================================
</TABLE>
(1) Varying from project to project, unsold units are developed, under
development or to be developed in the future.
11
<PAGE>
PRIMARY PROJECT SALES ACTIVITIES, BY PROJECT. The following
tables summarize the sales activities during 1998 and 1997 at the Company's
Primary Projects, by Project:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
HOMESITES
-------------------------------------------- --------------------------------------------
1997 Activity 1998 Activity
-------------------------------------------- --------------------------------------------
Total Total Revisions Total
Lots/units Unit Lot Lots/units & Unit Lot Lots/units
1/1/97 Acq. Sales Sales 12/31/97 Acq. Transfers(1) Sales Sales 12/31/98
-------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Owned Properties
- ----------------
Lakeside Estates .................. 938 - - (267) 671 - (2) - (141) 528
Saxon Woods ....................... - 408 - - 408 - - - (25) 383
West Meadows ...................... 1,178 - - (142) 1,036 - 74 - (351) 759
The Trails of West Frisco ......... - 1,641 - - 1,641 - - - (98) 1,543
Windsor Palms ..................... 102 - - (102) - - - - - -
Sanctuary ......................... 19 - - (19) - - - - - -
-------------------------------------------- --------------------------------------------
Subtotal Owned Properties ......... 2,237 2,049 - (530) 3,756 - 72 - (615) 3,213
-------------------------------------------- --------------------------------------------
Joint Venture Properties
- ------------------------
Sunset Lakes ...................... 1,767 - - - 1,767 - (255) (270) - 1,242
Falcon Trace ...................... 871 - - (22) 849 - - - (209) 640
Cary Glen ......................... 1,134 - - - 1,134 - - - (10) 1,124
Country Lakes ..................... 1,856 - (740) - 1,116 - 1,858 (1,934) - 1,040
-------------------------------------------- --------------------------------------------
Subtotal Joint Venture Properties . 5,628 - (740) (22) 4,866 - 1,603 (2,204) (219) 4,046
-------------------------------------------- --------------------------------------------
Total All Properties .............. 7,865 2,049 (740) (552) 8,622 - 1,675 (2,204) (834) 7,259
============================================ ============================================
</TABLE>
(1) Includes revisions to estimates of potential development or building
size, or transfers of property between Homesites and other categories
of property.
12
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
COMMERCIAL DEVELOPMENT
---------------------------------------- ------------------------------------------
1997 ACTIVITY 1998 ACTIVITY
---------------------------------------- ------------------------------------------
TOTAL TOTAL REVISIONS TOTAL
ACRES ACRES & ACRES
1/1/97 ACQ. SALES 12/31/97 ACQ. TRANSFERS SALES 12/31/98
---------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OWNED PROPERTIES
West Meadows ......................... 16 26 (16) 26 - - - 26
Dave's Creek ......................... - - - - 1,372 - (1,372) -
---------------------------------------- ------------------------------------------
SUBTOTAL OWNED PROPERTIES 16 26 (16) 26 1,372 - (1,372) 26
---------------------------------------- ------------------------------------------
JOINT VENTURE PROPERTIES
Sunset Lakes ......................... 10 - - 10 - 5 (15) -
Country Lakes ........................ 268 - - 268 - (126) - 142
---------------------------------------- ------------------------------------------
SUBTOTAL JOINT VENTURE PROPERTIES 278 - - 278 - (121) (15) 142
---------------------------------------- ------------------------------------------
TOTAL ALL PROPERTIES 294 26 (16) 304 1,372 (121) (1,387) 168
======================================== ==========================================
</TABLE>
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. A Luxury/Resort Market is typically not a
Primary Market in terms of the volume of new single family home construction
permits, but relative demand is usually strong and the average retail price of
new construction is usually much higher. Also, there is much less focus in a
Luxury/Resort Market on industrial or employment growth in the area or the
quality of schools, and more focus on natural and/or man-made Amenities. Bearing
these differences in mind, the early functions of the Company's activities in
connection with the Development of Luxury/Resort Markets (i.e., business
development, planning and community development) are similar to those discussed
above in connection with the Development of Primary Markets. The operating
differences in a Luxury/Resort Market are as follows:
- RESIDENTIAL CONSTRUCTION, which currently consists principally
of construction of Vertical Residential Units. Depending on
the Luxury/Resort Project and the product, the Company
participates either directly as the owner-developer or as a
joint venture partner in the owner-developer. In either case,
the actual construction work is performed by a third party
general contractor. In 1999, the Company plans to be involved
in the presale and construction of two condominium towers and
a patio home subdivision in two Luxury/Resort Projects: West
Bay Club, on the Estero Bay between Naples and Ft. Myers,
Florida; and Jupiter Ocean Grande, facing the Atlantic Ocean
in Jupiter, Florida. By 2000, the Company hopes to be
pre-selling and building quarter share cabins in a third
Luxury/Resort Project, Aspen Springs Ranch, in Colorado.
- MARKETING AND SALES, consisting of the sale of Homesites and
Vertical Residential Units directly to the individual customer
through a central sales facility. Where the Company acts as
the selling broker for a third party builder, the Company
receives a standard sales commission. Centralized sales allow
the Company to more closely control the quality and
13
<PAGE>
consistency of the Luxury/Resort Project marketing, as well as
to capture a greater percentage of the revenue (through lot
premiums and sales commissions) in lower volume markets.
- AMENITIES, consisting of the construction and operation of
luxury amenities, such as equity golf clubs, dining facilities
and related amenities. The Company believes that the equity
club memberships in its existing Luxury/Resort Projects can be
sold at prices allowing the Company to operate the Amenities
at a significant profit until such time as the operations can
be turned over to the Amenities members.
WHOLLY-OWNED LUXURY/RESORT PROJECTS. The following table shows
(in units/acres and by net book value) the Company's wholly-owned Luxury/Resort
Projects:
<TABLE>
<CAPTION>
UNITS/ACRES NET BOOK VALUE(5)
------------------------------- ---------------------------
AS OF DECEMBER 31, AS OF DECEMBER 31,
------------------------------- ---------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential (4) .............. 1,954(1) 578(1) 403(3) $16,360 $ 8,484 $ (195)(6)
Commercial Development ....... 12(2) 12(2) 1,045 1,045 -
------- ------- -------
Total ................. $17,405 $ 9,529 $ (195)
======= ======= =======
</TABLE>
(1) Number of remaining planned units.
(2) Number of remaining planned acres.
(3) Includes 326 acres of assembled land for the West Bay Club Project and
77 units remaining at the Regency Island Dunes Project.
(4) Includes both Homesites and Vertical Residential Units.
(5) Net book value means total remaining capitalized costs less project
debt as of the date indicated.
(6) Due to the percentage of completion accounting method used to record
the sales activity for the Regency Island Dunes Project, the revenue
recognized, which decreased the inventory balance, did not match the
timing of the cash received, which reduces project debt. The resulting
negative net book value of $4.4 million is included in this amount.
14
<PAGE>
JOINT VENTURE LUXURY/RESORT PROJECTS. The following table
shows (by investment account balance and the Company's share of income (loss))
from the Company's Luxury Resort Projects in which it holds its equity interest
through joint ventures:
<TABLE>
<CAPTION>
INVESTMENT
ACCOUNT BALANCES(1) COMPANY'S SHARE OF NET LOSS
----------------------- ---------------------------
AS OF DECEMBER 31, AS OF DECEMBER 31,
----------------------- ---------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Vertical Residential Units..... $1,489 $2,118 $2,876 $ (629) $ (758) $ (437)
====== ====== ====== ====== ====== ======
</TABLE>
(1) Includes all unamortized costs capitalized to this joint venture
interest, as required by GAAP, including corporate interest.
LUXURY/RESORT PROJECT COMPONENTS, BY PROJECT. The following
tables summarize the scope and the principal components of the Company's
Luxury/Resort Projects, by Project:
----------------------------------------------
Scope of Project(5)
----------------------------------------------
Ownership/ Total Total
Profit Gross Total Gross
Interest Residential Lots/ Commercial
12/31/98 Acres Units Acres
----------------------------------------------
Owned Properties
- ----------------
West Bay Club(1) .......... 100% 867 1,082 12
Aspen Springs Ranch(2) .... 100% 5,906 497 -
Riverwalk Tower(3) ........ 100% 2 375 1
--------------------------------
Subtotal Owned Properties.. 6,775 1,954 13
--------------------------------
Joint Venture Properties
- ------------------------
Jupiter Ocean Grande(4) ... 50% 6 154 -
--------------------------------
Total All Properties ...... 6,781 2,108 13
==============================================
(1) This Project is located in the Naples/Fort Myers, Florida Primary
Market area. The Company acquired the Project in a series of
transactions from 1995 through 1997 for approximately $19.3 million.
(2) For information concerning this Project, see PART I, ITEM 1. BUSINESS -
OPERATING AND FINANCIAL STRATEGIES -- ADDITIONS TO CORE DEVELOPMENT
PORTFOLIO IN 1998.
(3) This Project is located in Fort Lauderdale, Florida. The Company
acquired the Project in June 1997, for approximately $5.6 million. In
1998, the Company sold one commercial acre for $7.0 million.
(4) This Project is located in Jupiter, Florida. The Project was acquired
in phases in 1995 and 1996 for $4.2 million.
15
<PAGE>
(5) As currently planned.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
LOTS/UNITS/ACRES AT DECEMBER 31, 1998 (1)
-------------------------------------------------------------------------------
HOMESITES VERTICAL RESIDENTIAL UNITS 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 ............. 404 404 81 81 597 597 - - 12 12
Aspen Springs Ranch ....... 372 - - - 50 - 75 - - -
Riverwalk Tower ........... - - - - 375 375 - - - -
-------------------------------------------------------------------------------
SUBTOTAL OWNED PROPERTIES . 776 404 81 81 1,022 972 75 - 12 12
-------------------------------------------------------------------------------
Joint Venture Properties
- ------------------------
Jupiter Ocean Grande ...... - - - - 154 154 - - - -
-------------------------------------------------------------------------------
TOTAL ALL PROPERTIES ...... 776 404 81 81 1,176 1,126 75 - 12 12
===============================================================================
</TABLE>
(1) Varying from project to project, unsold units are developed, under
development, or to be developed in the future.
LUXURY/RESORT PROJECT SALES ACTIVITIES, BY PROJECT. In 1996,
the Company closed 67 units in the Regency Island Dunes Project. In 1997, the
Company closed the remaining 77 units in the first and second buildings. The
only sales activity recorded in this business line in 1998 was the sale of one
acre of commercial property in the Riverwalk Tower project for $7.0 million. In
West Bay Club, the Company substantially completed infrastructure development in
1998 and began sales in the first quarter of 1999. Aspen Springs Ranch was only
acquired by the Company in September 1998 and the Company is still in the
entitlement process. With respect to Jupiter Ocean Grande, the Company completed
certain local approval amendments in 1998 and is actively preselling the first
condominium building in the 1998-1999 selling season. The Company expects to
record contracts on the first building beginning in the second quarter of 1999.
OTHER OPERATIONS
ENVIRONMENTAL SERVICES. EQ Lab, a wholly owned subsidiary of
the Company, is a full service ecological consulting firm and laboratory. It
performs water and soil testing and environmental assessments for the Company
and third parties, including both governmental and private entities, acts as the
primary surface water laboratory for two regional Water Management Districts
(government), performs environmental chemistry analyses for the Aqua Source
(private utilities), the Consolidated Citrus, Inc. (agriculture) and numerous
marina projects (development) and performs wetlands mitigation, monitoring and
exotic control for numerous public and private clients. EQ Lab also provides
services to the Company and clients in the areas of hazardous substance testing
and site remediation, endangered species management plans and wetlands
identification and mitigation. EQ Lab's capabilities permit the Company to
quickly and cost-effectively assess and address environmental concerns involving
its existing real property assets and other properties it may seek to acquire.
16
<PAGE>
The following table summarizes revenues recorded by EQL Lab (in
thousands of dollars):
December 31
-----------
1998 1997 1996
---- ---- ----
Revenues from
affiliated parties $ 999 $ 94 $ 110
Revenues from
unaffiliated parties 584 1,048 1,065
------ ------ ------
Total Revenues $1,583 $1,142 $1,175
====== ====== ======
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"). The Company collected for its own
account a total of approximately $3.0 million, $4.9 million and $8.2 million,
respectively, in principal and interest payments on its Contract Receivables in
1998, 1997 and 1996. As of December 31, 1998 and 1997, the portfolio of Contract
Receivables had a net book value of $4.1 million and $6.3 million, respectively,
and the portfolio of Mortgage Receivables had a net book value of $20.2 million
and $28.1 million, respectively.
Stated interest rates on the Contract Receivables outstanding at
December 31, 1998, 1997 and 1996 ranged from 4% to 12.5% (averaging
approximately 7.0%). The original terms of the Contract Receivables were 10 to
12 years. The Company has established the reserve for estimated future
cancellations and the reserve for Contract Receivables termination refunds based
on its actual cash collections and actual cancellations, which amounted to
$442,000 in 1998 and $1.0 million in 1997.
The mortgages in the Mortgage Receivables portfolio are typically three
to five year notes with 15-20 year amortization schedules and a balloon payment
at the end. Most mortgages in this portfolio are secured by Predecessor Tracts.
The stated interest rate on the mortgages is typically Prime plus two percent.
The Company has established a reserve for estimated future delinquencies in this
portfolio amounting to $2.5 million at December 31, 1998 and $2.6 million at
December 31, 1997.
PREDECESSOR ASSETS
Since 1992, Atlantic Gulf has pursued a strategy of disposing of its
approximately 92,000 acres of Predecessor Commercial Developments, approximately
27,000 Predecessor Homesites and eight (8) Predecessor Utilities. Through 1998,
the Company disposed of approximately 87,000 acres of Predecessor Commercial
Development for approximately $191 million and approximately 11,000 Predecessor
Homesites for approximately $65 million. The Company has used the proceeds from
these sales to reduce its corporate debt by approximately $240 million since
1992 and to reduce the overhead expenses associated with maintaining these
Predecessor Assets.
17
<PAGE>
The remaining Predecessor Commercial Developments include commercial,
industrial, institutional, residential, and agricultural acreage. Predecessor
Tract sales, while highly variable from quarter to quarter, constituted
approximately 29%, 46% and 32% of the Company's total real estate revenues in
1998, 1997 and 1996, respectively. The Company plans to sell the remaining
Predecessor Tracts as quickly as possible while avoiding negative gross margins
on the sale.
The Company also owns approximately 16,000 Predecessor Homesites. The
Company intends to continue its practice of selling such Predecessor Homesites
on a wholesale basis as fast as the local markets can absorb them, but it
anticipates having Predecessor Homesite inventory for the foreseeable future.
Predecessor Homesite sales represented approximately 4%, 15% and 12% of the
Company's total real estate revenues in 1998, 1997 and 1996, respectively. The
Company does not anticipate that Predecessor Homesite sales will have a material
impact on future cash flows or profitability.
The following tables summarize the Company's Predecessor Asset
activities in 1998 and 1997:
<TABLE>
<CAPTION>
----------------------------------------- -----------------------------
1997 Homesite Activity 1998 Homesite Activity
----------------------------------------- -----------------------------
Total Lot/ Total Lot/ Total
Lots/units Acq./ Unit Lots/units Acq./ Unit Lots/units
1/1/97 (Trans.) Sales 12/31/97 (Trans.) Sales 12/31/98
----------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Owned Properties
- ----------------
North Port(1) ........... 5,094 35 1,204 3,925 25 160 3,790
Port Charlotte(1) ....... 3,157 1 234 2,924 (54) 50 2,820
Port St. Lucie(1) ....... 878 (16) 181 681 (8) 54 619
Port Malabar(1) ......... 4,889 426 1,539 3,776 90 357 3,509
Port Labelle(1) ......... 1,941 42 1 1,982 30 212 1,800
Sabal Trace(2) .......... 92 - 13 79 - 4 75
Silver Springs Shores(3) 3,302 36 276 3,062 13 86 2,989
Cumberland Cove(4) ...... 335 22 130 227 14 3 238
Other(5) ................ 304 1 132 173 - 89 84
----------------------------------------- -----------------------------
Total Owned Properties .. 19,992 547 3,710 16,829 110 1,015 15,924
========================================= =============================
</TABLE>
(1) Scattered lots are located in the aforementioned communities, all of
which are located in Florida.
(2) This Project is located in North Port, Florida.
(3) Scattered lots located North of Ocala, Florida.
(4) Lots located in the Cumberland Mountains, midway between Knoxville and
Nashville, Tennessee.
(5) Scattered lots located in Port St. John, Florida; City of Sebastian,
Florida; and Vero Beach Highlands and Vero Shores, Florida.
18
<PAGE>
The table below summarizes the Company's Predecessor Homesite inventory
by secondary market area as of December 31, 1998.
Predecessor Homesite Inventory Summary
--------------------------------------
(in homesites)
<TABLE>
<CAPTION>
Other Total
Standard Developed Buildable Other Predecessor
Market Area Buildable Lots (1) Reserved (2) Restricted (3) Homesites
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North Port 3,603 9 47 131 3,790
Port Charlotte 760 77 1,622 361 2,820
Port St. Lucie 205 27 324 63 619
Port Malabar 193 6 1,771 1,539 3,509
Port Labelle 68 - 23 1,709 1,800
Sabal Trace - 75 - - 75
Silver Springs Shores 2,397 85 227 280 2,989
Cumberland Cove 230 - - 8 238
Other 48 - 31 5 84
--------------------------------------------------------------------
Total 7,504 279 4,045 4,096 15,924
====================================================================
</TABLE>
(1) Includes commercial/industrial and other premium lots.
(2) Includes 3,795 lots held for Utility Reserves.
(3) Represents Predecessor Homesites which may not be Buildable Predecessor
Homesites due to lack of utility availability or engineering or title
issues, and may only be sold under certain conditions. The Company's
inventory of Predecessor Homesites that are not buildable has declined
and is expected to decline further as currently non-buildable
Predecessor Homesites become buildable. These Predecessor Homesites
become buildable as the communities in which these lots are located
grow and extend utility services to these lots and the Company
satisfies title or engineering issues with respect to these lots. The
Company's plans are to continue to take the appropriate actions to
convert these lots to Buildable Predecessor Homesites consistent with
market demand and to monetize these assets and repay debt.
19
<PAGE>
The following table summarizes the Company's Predecessor Tract
activities in 1998 and 1997:
<TABLE>
<CAPTION>
---------------------------------- -------------------------
1997 1998
Predecessor Tract Sales Predecessor Tract Sales
Activity Activity
---------------------------------- -------------------------
Total Total Total
Acres Acquired/ Acres Acquired/ Acres
1/1/97 (Donation) Sales 12/31/97 (Donation) Sales 12/31/98
---------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Owned Properties
- ----------------
North Port ........... 2,532 (204) 1,388 940 (117) 202 621
Port Charlotte ....... 2,034 192 618 1,608 13 200 1,421
Port St. Lucie ....... 2,186 (41) 1,700 445 1 119 327
Port Malabar ......... 2,842 62 417 2,487 78 1,647 918
Port Labelle ......... 21,459 (1,089) 4,885 15,486 (17) 14,578 891
Sabal Trace .......... 109 -- 94 15 -- 15 --
Silver Springs Shores 171 (132) -- 39 63 66 36
Cumberland Cove ...... 2,525 42 -- 2,566 (1,881) -- 685
Other ................ 440 (14) 380 46 6 13 39
---------------------------------- -------------------------
Total Owned Properties 34,298 (1,184) 9,482 23,632 (1,854) 16,840 4,938
================================== =========================
</TABLE>
GENERAL ECONOMIC AND FINANCIAL FACTORS INFLUENCING THE COMPANY'S CORE BUSINESS
The Company's Core Business is highly sensitive to the following
general economic and financial factors:
- the real estate industry and specific industry segment
conditions and directions, i.e., supply and demand for
Homesites, Vertical Residential Units and/or Commercial
Developments in the Company's Core Markets, as well as local
economic and market conditions the Company's Core Markets,
- the cyclical nature of the real estate market in Florida and
the Company's other Core Markets,
- movements in interest rates and employment levels in Core
Markets,
- the availability and cost of financing for acquisition and
development, the availability and cost of materials and labor,
weather conditions and changes in consumer preferences;
- governmental regulation, specifically, compliance of projects
with local, regional, state and federal planning, zoning,
design, construction, development, environmental, permitting,
sales, disclosure and related rules and regulations and
- competitive pressures, specifically, other public and private
developments in the Company's Core Markets, and the pricing
and availability of such competing developments.
20
<PAGE>
Currently, all of these general economic/financial factors are
reasonably favorable to the Company. The economy, both at the national and Core
Market levels, is currently strong. Interest rates and unemployment rates are
both currently at historic lows, and credit is generally available to qualified
borrowers. Moreover, while the real estate business is highly competitive, none
of the Company's Core Markets currently has an oversupply of finished homesites
and/or vertical residential units.
Notwithstanding the favorable current conditions for the Company's Core
Business in general, any significant increase in interest rates or general
economic downturn or significant decline in employment growth, increase in
unemployment, decline in growth of real wages, increase in inflation or downturn
in other demographics in the Company's Core Markets could adversely impact new
home starts, and therefore the Company's Core Business, in the future.
SPECIFIC ECONOMIC AND FINANCIAL FACTORS INFLUENCING THE COMPANY'S CORE BUSINESS
The Company's Core Business is also subject to certain economic and
financial factors specific to the Company and its Core Business, including but
are not limited to, the following:
- the Company's high cost of institutional capital (debt and
Preferred Stock) and related institutional financing
contingencies and restrictions,
- sales pressure attributable to near term debt maturities,
- the availability of high quality projects in the Company's
Core Markets, the availability and cost of financing for such
projects, substantial project carrying costs (because of the
substantial time interval between project acquisition,
development and sale),
- the ability of the Company to continue to (1) realize fee
income from the provision of Environmental Services and (2)
monetize the full face value of its Receivables Portfolio and
- management limitations.
While managing all of the foregoing factors, the Company also is
dealing with the issue of reduced sales margins attributable to its Predecessor
Assets.
For a discussion of other factors that could cause the Company's actual
operating results to differ materially from those anticipated, see PART II, ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS below. The Company does not undertake to update the foregoing list of
specific factors in any subsequent disclosures made from time to time by or on
behalf of the Company.
EMPLOYEES
As of December 31, 1998, the Company had approximately 158 full-time
employees and three part-time employees. In addition, the Company employs on a
daily basis such additional personnel as may be required to perform various
other activities. The Company's relations with its employees are satisfactory
and there have been no work stoppages.
21
<PAGE>
YEAR 2000 COMPLIANCE
GENERAL DESCRIPTION OF THE YEAR 2000 ISSUE AND THE NATURE AND EFFECTS
OF THE YEAR 2000 ON INFORMATION TECHNOLOGY (IT) AND NON-IT SYSTEMS. The Year
2000 Issue is the result of computer programs being written using two digits
rather than four to define the applicable year. Any of the Company's computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Based on recent assessments, the Company determined that it has
completed the modification or replacement of significant portions of its
software and certain hardware so that those systems will properly utilize dates
beyond December 31, 1999.
The Company's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, remediation, testing, and implementation. To
date, the Company has fully completed its assessment of all systems that could
be significantly affected by the Year 2000. The completed assessment indicated
that most of the Company's significant information technology systems could be
affected, particularly the general ledger, billing, and inventory systems. In
addition, the Company has gathered information about the Year 2000 compliance
status of its significant suppliers and subcontractors and continues to monitor
their compliance.
STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT, INCLUDING TIMETABLE
FOR COMPLETION OF EACH REMAINING PHASE. For its information technology
exposures, to date the Company has completed the remediation phase, including
software reprogramming and replacement. Once the software was reprogrammed or
replaced for a system, the Company began testing and implementation. The Company
has completed its testing and implementation of its remediated systems.
NATURE AND LEVEL OF IMPORTANCE OF THIRD PARTIES AND THEIR EXPOSURE TO
THE YEAR 2000. The Company has queried its significant suppliers and
subcontractors that do not share information systems with the Company (external
agents). To date, the Company is not aware of any external agent with a Year
2000 issue that would materially impact the Company's results of operations,
liquidity, or capital resources. However, the Company has no means of ensuring
that external agents will be Year 2000 ready. The inability of external agents
to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company. The effect of non-compliance by external agents
is not determinable.
COSTS. The Company has utilized both internal and external resources to
reprogram, or replace, test, and implement the software and operating equipment
for Year 2000 modifications. The total cost of the Year 2000 project was
approximately $600,000 and had been funded through operating cash flows.
RISKS. Management of the Company believes it has an effective program
in place to resolve the Year 2000 issue in a timely manner. In addition,
disruptions in the economy generally resulting from Year 2000 issues could also
materially adversely affect the Company. The Company could be subject to
litigation for computer systems product failure, for example, equipment shutdown
or failure to properly date business records. The amount of potential liability
and lost revenue cannot be reasonably estimated at this time.
CONTINGENCY PLANS. The Company has contingency plans for certain
critical applications and is working on such plans for others. These contingency
plans involve, among other actions, manual workarounds, increasing inventories,
and adjusting staffing strategies.
22
<PAGE>
ITEM 2. PROPERTIES
The Company's inventory of real estate is described in PART I, ITEM 1.
BUSINESS, - CORE BUSINESS -- PRIMARY PROJECTS and -- LUXURY/RESORT PROJECTS and
- - PREDECESSOR ASSETS.
ITEM 3. LEGAL PROCEEDINGS
CONDEMNATION PROCEEDINGS INVOLVING GENERAL DEVELOPMENT UTILITIES, INC. AND
RELATED PROCEEDINGS
ATLANTIC GULF COMMUNITIES CORPORATION, ET AL. V. LOFTUS, ET AL., CASE
NO. 94-1931 CA (CHARLOTTE CTY. CIR. CT.). In December 1994, Atlantic Gulf and
GDU (all references herein to "GDU" are to General Development Utilities, Inc.,
a wholly owned subsidiary of Atlantic Gulf) filed a declaratory judgment action
in the Circuit Court for the Twentieth Judicial Circuit in and for Charlotte
County against a defendant class based upon a demand made upon the Company by
Richard D. Loftus and others for a portion of the proceeds from the Charlotte
County eminent domain case entitled CHARLOTTE COUNTY, ET AL. V. GDU, ET AL.,
Case No. 90-936 (Charlotte Cty. Cir. Ct.), in which the Charlotte County Circuit
Court entered a stipulated Final Judgment setting full and complete compensation
to Atlantic Gulf and GDU for certain water and wastewater systems taken by
Charlotte County in June 1991 totaling $110 million, $65 million of which was
paid as a good faith deposit at the time of the taking and the balance of which
was paid in December of 1994. The demand made upon the Company was based upon
the theory that there exists a class of property owners in Charlotte County,
Florida who have an interest in the proceeds from the condemnation proceeding
because of "contributions in aid of construction." The case has been transferred
from Charlotte County to the Fifteenth Judicial Circuit Court, Palm Beach
County, Florida, and notice has been provided to the members of the class. No
rulings have been made by the Court, and discovery has not begun in any
meaningful way. The Company believes, based on the advice of counsel, that the
defendants' claim has no merit under Florida law. The Company intends to
vigorously pursue the class action suit for declaratory judgement, seeking an
order of the Court that the class members have no interest in the proceeds from
the Charlotte County condemnation case.
RETENTION OF JURISDICTION BY THE BANKRUPTCY COURT
THE PLAN OF REORGANIZATION (THE "POR"). On March 15, 1995, the
Bankruptcy Court entered a final decree in the Predecessor Company's bankruptcy
case. The Bankruptcy Court does, however, retain jurisdiction over the Company
with respect to various matters, including, among other things, matters
pertaining to (1) the allowance and disallowance of claims and interests, (2)
distributions under the POR, (3) the reduction and maintenance of claim
reserves, (4) appeals from orders entered by the Bankruptcy Court, (5) the
receipt, use or application of condemnation proceeds, (6) utility trusts created
or implemented pursuant to the POR, (7) the Homesite Purchaser Assurance
Program, (8) Oxford Finance Company's and its affiliates' chapter 11 bankruptcy
and their business practices as they may affect the Company, (9) the enforcement
of all orders entered by the Court and (10) tax issues arising under the POR.
OTHER LITIGATION AND PENDING DISPUTES
FINAL JUDGMENT OF PERMANENT INJUNCTION. On December 9, 1998, the
Company was released from the Final Judgment of Permanent Injunction (the "FINAL
JUDGMENT") entered November 30, 1990, by the
23
<PAGE>
United States District Court for the Southern District of Florida in the civil
action UNITED STATES OF AMERICA V. GENERAL DEVELOPMENT CORPORATION, No.
90-87-Civ-NESBITT.
REGENCY ISLAND DUNES PROJECT. Control of the Regency Island Dunes
Condominium Association (the "Association") was turned over to the condominium
owners on or about November 20, 1997. As part of the turnover process, the
Association inspected the project and provided the Company and its developer
subsidiary, Regency Island Dunes, Inc. ("REGENCY"), together with the general
contractor who constructed the project, with a list of the Association's claims
of deficient work. The Company and Regency have inspected the project with their
consultants and are in the process of preparing a response to the Association's
claims. No lawsuit has been filed in connection with this matter, and no amount
of damages has been specified.
CARY GLEN PROJECT. On February 8, 1999, Panther Creek Corp., a
wholly-owned subsidiary of the Atlantic Gulf (the "DEVELOPER"), was terminated
by Panther Creek-Raleigh Limited Partnership (the "OWNER"), as the developer of
the Cary Glen Project, for purported delays in the development schedule and
sales program. Furthermore, on February 26, 1999, the Owner demanded that the
Developer and Atlantic Gulf pay to the Owner approximately $5.5 million for
alleged future potential project cost overruns pursuant to the Hearthstone
Master Form Acquisition and Development Agreement between the Owner and the
Developer and the Guaranty Agreement given by Atlantic Gulf. Atlantic Gulf
disputes whether (1) the termination was a proper termination for cause, (2) the
Developer is liable for cost overruns not incurred prior to the termination date
and (3) the Owner correctly calculated the projected cost overruns. No lawsuit
has been filed at this time, and the Company continues to pursue a resolution of
this matter. In the event litigation is filed by the Owner, the Company will
assert certain defenses and counterclaims against the Owner and will otherwise
vigorously defend the claims asserted against it and the Developer.
OTHER
In addition to those legal proceedings specifically discussed in this
PART I, ITEM 3. LEGAL PROCEEDINGS, the Company is, from time to time, involved
in various litigation matters primarily arising in the normal course of its
business. It is the opinion of management that the resolution of these matters
will not have a material adverse affect on the Company's business or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1998.
24
<PAGE>
PART II
ITEM 5. MARKET FOR ATLANTIC GULF'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
MARKET FOR REGISTRANT'S COMMON STOCK. The common stock, $.10 par value
per share, of Atlantic Gulf ("COMMON STOCK") was quoted on the NASDAQ National
Market ("NNM"), under the symbol "AGLF," through the close of business on
December 10, 1998, at which time it was de-listed from the NNM because of
Atlantic Gulf's failure to meet the NNM's net tangible assets continued listing
requirement. The Common Stock began trading on the Over The Counter Bulletin
Board (the "OTCBB") on December 14, 1998, under the symbol "AGLF". The following
table sets forth the high/ask and low/bid prices of the Common Stock for the
periods indicated.
1998 1997
Prices Prices
------ ------
Quarter Ended High Low High Low
- ------------- ---- --- ---- ---
March 31 4 1/4 3 1/4 6 4 1/8
June 30 3 11/16 2 6 41/64 5 1/2
September 30 2 3/8 1 6 3/4 5 5/8
December 31 1 5/16 5/8 6 1/8 3 1/4
HOLDERS OF RECORD OF THE COMMON STOCK. As of March 26, 1999, there were
approximately 30,000 record holders of the Common Stock.
DIVIDENDS. No dividends have been paid on the Common Stock during the
last two fiscal years, and Atlantic Gulf is prohibited from paying dividends on
its Common Stock by the terms of its New Revolving Loan Facility, New Term Loan
Facility and Secured Agreement. See PART II, ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND
CAPITAL RESOURCES below. The holders of Atlantic Gulf's 20% Cumulative
Redeemable Convertible Preferred Stock, Series A (the "SERIES A PREFERRED
STOCK"), and 20% Cumulative Redeemable Convertible Preferred Stock, Series B
(the "SERIES B PREFERRED STOCK") (the Series A Preferred Stock and Series B
Preferred Stock are, together, referred to as the "PREFERRED STOCK") are
entitled to receive, when, as and if declared by the Board of Directors of
Atlantic Gulf (the "BOARD"), out of funds legally available therefore, cash
dividends on each share of Preferred Stock at an annual rate equal to 20% of the
Liquidation Preference (defined as $10 per share plus accumulated and unpaid
dividends) in effect from time to time. All dividends are cumulative, whether or
not declared, on a daily basis from the date on which the Preferred Stock was
originally issued by Atlantic Gulf, and will be payable, subject to declaration
by the Board, quarterly in arrears on March 31, June 30, September 30, and
December 31 of each year commencing as of September 30, 1997. As of December 31,
1998, the Series A Preferred Stock Liquidation Preference was $32.7 million,
including undeclared but accumulated and unpaid dividends of $7.7 million and
the Series B Preferred Stock Liquidation Preference was $25.9 million, including
undeclared but accumulated and unpaid dividends of $5.9 million.
25
<PAGE>
Effective June 24, 1997, Atlantic Gulf's stockholders approved an
amendment to Atlantic Gulf's certificate of incorporation to repeal the right of
the holders of its Common Stock to receive, semiannually, mandatory dividends
equal to 25 percent of Atlantic Gulf's Available Cash, as defined. See Note 10
to the Notes to the Company's December 31, 1998, Consolidated Financial
Statements.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
Selected financial data for each of the five years during the period
ended December 31, 1998, are summarized below (in millions of dollars, except
per share amounts):
<TABLE>
<CAPTION>
Years
Ended
December 31,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
- ----------------------------
Total revenues $ 83.8 $ 76.6 $ 138.8 $ 98.0 $ 70.3
Income (loss) before extraordinary items 3.7 (58.3) (12.6) (20.6) 1.1
Net income (loss) 3.7 (58.3) 1.2 (20.6) 1.1
Net income (loss) applicable to
common stock (8.0) (62.1) 1.2 (20.6) 1.1
Net income (loss) per common share(1) (.68) (5.82) .12 (2.12) .11
Weighted average common
shares outstanding 11.64 10.66 9.71 9.71 9.64
- -----------------------------------------------------------------------------------------
Balance Sheet Data (at period end)
- ----------------------------------
Cash (including restricted amounts) $ 10.5 $ 10.9 $ 13.1 $ 12.0 $ 25.0
Land and Residential Inventory 166.9 130.5 153.4 218.3 228.5
Receivables Portfolio 33.4 41.2 73.4 59.8 55.2
Total assets 229.8 203.1 263.4 332.8 348.6
Notes, mortgages, capital leases and
other debt 151.8 132.4 169.2 221.0 190.3
Preferred stockholders' equity 54.8 41.7 - - -
Common stockholders' equity (deficit) (2.6) 5.3 56.4 54.4 74.7
</TABLE>
(1) The net income (loss) per common share amounts have been restated so as
to comply with Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE. For further discussion of earnings per share and
the impact of Statement No. 128, see the Notes to Company's December
31, 1998 Consolidated Financial Statements beginning on page F-7.
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The tables below summarize the Company's real estate operations from
Core Business and Predecessor Assets for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Combining Results of Real Estate Operations
-------------------------------------------
Year Ended December 31, 1998
(In Thousands of Dollars)
Primary Luxury
Market Resort Predecessor
Operations Operations Assets Total
--------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite ............................ 14,259 - 3,017 17,276
Commercial .......................... 27,270 7,010 21,245 55,525
Vertical Residential Units .......... - - - -
--------------------------------------------
Total real estate sales 41,529 7,010 24,262 72,801
Costs and expenses:
Cost of real estate sales
Homesite ............................ 12,108 - 2,675 14,783
Commercial .......................... 23,161 2,076 19,733 44,970
Vertical Residential Units .......... - - - -
--------------------------------------------
Total cost of real estate sales ........... 35,269 2,076 22,408 59,753
--------------------------------------------
Gross margin real estate sales ............ 6,260 4,934 1,854 13,048
============================================
Results of Joint Venture Operations (1).... 1,042 (629) - 413
============================================
</TABLE>
(1) Included in Other Operating Revenues.
27
<PAGE>
<TABLE>
<CAPTION>
Combining Results of Real Estate Operations
-------------------------------------------
Year Ended December 31, 1997
(In Thousands of Dollars)
Primary Luxury
Market Resort Predecessor
Operations Operations Assets Total
----------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite ............................ 13,851 - 10,755 24,606
Commercial .......................... 590 - 31,439 32,029
Vertical Residential Units .......... - 10,908 76 10,984
----------------------------------------------
Total real estate sales 14,441 10,908 42,270 67,619
Costs and expenses:
Cost of real estate sales
Homesite ............................ 12,941 - 10,431 23,372
Commercial .......................... 484 - 35,303 35,787
Vertical Residential Units .......... - 12,944 89 13,033
----------------------------------------------
Total cost of real estate sales ........... 13,425 12,944 45,823 72,192
----------------------------------------------
Gross margin real estate sales ............ 1,016 (2,036) (3,553) (4,573)
==============================================
Results of Joint Venture Operations(1)..... (235) (758) - (993)
==============================================
</TABLE>
(1) Included in Other Operating Revenues.
28
<PAGE>
<TABLE>
<CAPTION>
Combining Results of Real Estate Operations
-------------------------------------------
Year Ended December 31, 1996
(in thousands of dollars)
Primary Luxury
Market Resort Predecessor
Operations Operations Assets Total
----------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite ............................ 38,090 - 14,820 52,910
Commercial .......................... 12,935 - 40,758 53,693
Vertical Residential Units .......... - 17,809 3,153 20,962
----------------------------------------------
Total real estate sales ................ 51,025 17,809 58,731 127,565
Costs and expenses:
Cost of real estate sales
Homesite ............................ 30,782 - 11,476 42,258
Commercial .......................... 11,469 - 32,862 44,331
Vertical Residential Units .......... - 13,906 2,819 16,725
----------------------------------------------
Total cost of real estate sales ........... 42,251 13,906 47,157 103,314
----------------------------------------------
Gross margin real estate sales............. 8,774 3,903 11,574 24,251
==============================================
Results of Joint Venture Operations(1)..... (75) (437) - (512)
==============================================
</TABLE>
(1) Included in Other Operating Revenues.
THE YEAR ENDED DECEMBER 31, 1998 ("1998") COMPARED TO THE YEAR ENDED DECEMBER
31, 1997 ("1997")
During 1998, the Company reported a net loss applicable to Common Stock
of $8.0 million compared to a net loss of $62.1 million applicable to Common
Stock in 1997. The reduction in loss from 1997 to 1998 of $54.1 million was
primarily due to (1) a $17.6 million increase in real estate gross margins, (2)
a reduction in the change to inventory valuation reserves of $14.3 million, (3)
an increase in other income of $12.2 million associated with reorganization
reserves, (4) a $7.8 million decrease in the costs of borrowings, (5) a $5.4
million decrease in real estate costs and (6) a $2.4 million reduction in
general and administrative expenses, partially offset by (7) a $7.9 million
increase in preferred stock dividends and accretion changes.
PRIMARY MARKET OPERATIONS.
HOMESITES. Net margins from Homesite sales increased $1.2
million in 1998 compared to 1997 primarily due to increased margins on Primary
Market Residential sales. The increased margins in Primary Market Residential
sales were primarily related to (1) an increase of $307,000 in West Meadows
related to increased sales volume, (2) a combined increase of $587,000 in Saxon
Woods and West Frisco,
29
<PAGE>
which did not have sales in 1997, (3) a decrease in Lakeside of $413,000 related
to decreased sales volume as a result of tornado damage during 1998 and (4) a
reduction of $760,000 of negative margin associated with Sanctuary and Windsor
Palms which had final sales in 1997.
Revenues from Homesite sales decreased $7.3 million in 1998 compared to
1997 primarily due to a $7.7 million decreased in Other Predecessor Assets
revenue which was slightly off-set by a $409,000 increase in Primary Markets
Residential revenue. The decreased revenue associated with Other Predecessor
Assets was related to the Company's orderly disposition of the remaining
Predecessor Assets. The increase in revenue from Primary Market Residential
sales was primarily related to (1) an increase of $2.7 million in the West
Meadows Project, (2) a combined increase of $4.2 million in the Saxon Woods
Project and The Trails of West Frisco Project, which did not have sales in 1997,
(3) a decrease in the Lakeside Project of $1.7 million related to decreased
sales as a result of tornado damage during 1998 and (4) a decrease of $4.9
million associated with the Sanctuary Project and the Windsor Palms Project
which had final sales in 1997.
As of December 31, 1998, the Company had under contract approximately
650 Homesites for $19.8 million with 11 homebuilders in the Lakeside Project,
the Saxon Project, the West Meadows Project and The Trails of West Frisco
Project. As of December 31, 1997, the Company had under contract approximately
869 Homesites for $24.7 million with 11 homebuilders in the Lakeside Project,
the West Meadows Project and the Trails of West Frisco Project.
Homesite sales gross margin percentage was 15.1% in 1998 compared to
6.6% in 1997. The higher gross margin percentage in 1998 is primarily due to
lower margins in 1997 which were attributable principally to the sale of the
final 102 lots in the Windsor Palms Project for $4.5 million, generating a
negative 14% gross margin. This sale was necessitated by the Company's need for
liquidity to meet a June 30, 1997 debt payment.
COMMERCIAL DEVELOPMENT. Commercial Development revenues
increased $26.7 million in 1998 compared to 1997 primarily due to a large tract
sale in 1998. In April 1998, the Company sold and closed Dave's Creek for $24.8
million. Additional sales proceeds of $2.5 million were received in the third
quarter of 1998 after the Company received an Army Corp of Engineers permit.
There were no comparable sales in 1997.
JOINT VENTURES. Results of Joint Ventures increased $1.3
million in 1998 from 1997. This is primarily due to improved net income at the
Sunset Lakes Project. As of December 31, 1998, the Company's JV Projects had 787
Homesites under contract, totaling approximately $37.3 million in future gross
revenue, a portion of which is allocable to the Company as a joint venturer.
LUXURY/RESORT OPERATIONS.
During 1998, sales consisted of one commercial tract sale. In June
1998, the Company sold a 0.9 acre office/hotel parcel for approximately $7.0
million which was part of the 2.8 acre Riverwalk Tower site. Additionally, the
Company began development of the West Bay Club Project, Ocean Grande Project and
the Aspen Springs Ranch Project. Initial sales are expected on these three
Projects in 1999 or 2000.
As of December 31, 1998, the Company had under contract approximately
12 Homesites for $2.4 million in the West Bay Club Project with 7 homebuilders.
There were no pending sales contracts as of December 31, 1997.
30
<PAGE>
Vertical Residential Unit sales are summarized as follows for the years
ended December 31 (in thousands of dollars):
1998 1997
---- ----
Condominium sales - Regency Island Dunes Project:
First Building $ - $ 1,620
Second Building - 9,288
---- -------
Total condominium sales $ - $10,908
==== =======
The revenues and profits associated with sales at the Regency Island
Dunes Project were recorded using the percentage of completion method. The
Project consisted of two 72-unit buildings for a total of 144 units, all of
which were sold and closed as of December 31, 1997. The condominium revenues of
$1.6 million in the first building in 1997 represented revenue earned upon the
closing of an additional five units in 1997 for a total of 72 units sold and
closed in the first building. The revenues of approximately $9.3 million in the
second building in 1997 were derived from an increase in the completion
percentage from 79% to 100% in 1997, and to an additional 16 units sold and
closed in 1997 for a total of 72 units sold and closed in the second building.
The gross margin for Vertical Residential Units in 1997 was negative
primarily due to a $2.85 million settlement in December 1997 with the Company's
general contractor for the Regency Island Dunes Project. See PART I, ITEM 3.
LEGAL PROCEEDINGS in Atlantic Gulf's 1997 Annual Report on Form 10-K (the "1997
10-K"). The settlement costs were applied solely against the revenues earned in
1997, resulting in a large negative gross margin in 1997. The overall gross
margin for this Project was approximately 12.1%.
JOINT VENTURES. Results of Joint Ventures increased by
approximately $129,000 in 1998 from 1997 due to reduced losses on the Jupiter
Ocean Grande Project.
PREDECESSOR ASSETS.
PREDECESSOR HOMESITES. Revenues from Predecessor Homesite
sales decreased $7.7 million in 1998 compared to 1997 due to a 77.7% decrease in
the number of Predecessor Homesites sold, partially offset by a 25.5% increase
in the average sales price per Predecessor Homesite. The decrease in the number
of Predecessor Homesite sales and the increase in the average sales price were
due to fewer bulk sales in 1998 compared to 1997. Bulk sales are usually made at
a discount and have lower gross margin percentages.
As of December 31, 1998, the Company had under contract two commercial
lots allocated to Predecessor Homesites for $99,000. As of December 31, 1997,
the Company had under contract approximately 129 Predecessor Homesites for
$806,000.
The Predecessor Homesite sales gross margin percentage was 11.3% in
1998 compared to 3.0% in 1997. Predecessor Homesite sales gross margin was also
adversely affected in 1997 by the increase in the bulk sale of Predecessor
Homesites yielding lower margin to accelerate the disposal of the Predecessor
Homesites. The margin in 1998 is consistent with an orderly liquidation of the
predecessor assets.
PREDECESSOR TRACTS. Revenues from Predecessor Tract sales
decreased $10.2 million in 1998 compared to 1997 primarily due to fewer sales
from a declining inventory balance. As of December 31, 1998, there were pending
Predecessor Tract sales contracts or letters of intent totaling approximately
$980,000. As
31
<PAGE>
of December 31, 1997, there were comparable pending Predecessor Tract sales
contracts or letters of intent totaling approximately $3.4 million.
The 7.1% gross margin percentage for Predecessor Tract sales in 1998 is
due to fewer sales at a more profitable level. The 1997 negative gross margin of
(12.3%) is attributable principally to the Company's business plan to accelerate
the liquidation of Predecessor Assets.
PREDECESSOR VERTICAL RESIDENTIAL UNITS. There were no Vertical
Residential Unit sales in 1998 because of the Company's decision in mid-1995 to
begin phasing out its single family home business in Predecessor communities,
which was substantially completed in 1996. 1997 sales of $76 were due to the
final closing of this business activity.
OTHER RESULTS OF OPERATIONS.
INVENTORY VALUATION RESERVE CHARGES. Inventory valuation
reserve charges of $195,000 in 1998 represented a reduction in the carrying
value of the Company's inventory based upon a review of the fair values.
The charges were primarily related to Predecessor Assets.
SELLING EXPENSES. Selling expenses decreased $2.0 million in
1998 compared to 1997 primarily due to a reduction in selling expenses at
Cumberland Cove due to the closing of the on-site sales operation in September
1997. Selling expense as a percentage of real estate sales decreased to 8.9% in
1998 from 12.6% in 1997 primarily due to (1) lower direct selling expenses
associated with the large sale in 1998 of the Dave's Creek Project and (2) the
closing of the Cumberland Cove sales center noted above.
OTHER REAL ESTATE COSTS. Other real estate costs decreased by
$5.4 million, or 36%, in 1998 compared to 1997 due to (1) a decline in property
taxes associated with a reduction in land inventory not under development
corresponding to sales activity during the intervening period and (2) reduced
legal costs associated with supporting real estate activity.
COSTS OF BORROWING NET OF CAPITALIZED INTEREST. Costs of
borrowing net of capitalized interest, decreased $7.8 million compared to 1997
principally due to a decrease in corporate debt resulting from proceeds of the
Atlantic Gulf's Preferred Stock sales, which were substantially completed in
1997.
OTHER INCOME - REORGANIZATION RESERVES. Other income - other
reorganization reserves consisted of gains of $13.4 million in 1998 and $3.5
million in 1997 resulting from the resolution of certain reorganization items.
The $13.4 million gain in 1998 consisted of (a) a $1.1 million amortization of
utility connection reserves, (b) a $3.7 million utility trust withdrawal, (c) a
gain of $8.5 million associated with the receipt of proceeds from unclaimed
expired 12% Notes and (d) $104,000 of contract receivables termination refunds.
The $3.5 million gain in 1997 consisted of (1) a $1.1 million amortization of
utility connection reserves, (2) a $706,000 gain due to the reduction of the
Contract Receivables termination refunds reserve and (3) adjustments of various
other reorganization reserves, none of which were individually significant.
OTHER EXPENSE ITEMS. Other expense - miscellaneous of $78,000
in 1998 and $810,000 in 1997 consisted of net gains and losses associated with
various reserve adjustments and settlements, none of which were individually
significant.
PREFERRED STOCK ACCRUAL. During 1998, the Company recorded a
$10.3 million accrual for dividends associated with its Preferred Stock. The
dividends were accumulated but unpaid as of December 31,
32
<PAGE>
1998. The dividend rate is 20% of the liquidation preference value of the
Preferred Stock. The liquidation preference value of the Preferred Stock is $10
per share, plus accumulated and unpaid dividends. In addition, the Company
accreted $1.3 million of the value of its Preferred Stock to the redemption
amount in 1998. The total of approximately $11.6 million of accrued Preferred
Stock dividends and Preferred Stock accretion was charged to contributed capital
in the accompanying December 31, 1998 consolidated balance sheet.
1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996 ("1996")
During 1997, the Company reported a net loss applicable to Common Stock
of $62.1 million compared to net income of $1.2 million applicable to Common
Stock in 1996. The loss was primarily due to (1) a 47% reduction in real estate
revenues and increased costs of real estate sales in 1997, (2) a $22.9 million
decrease in other income and (3) $0 of extraordinary gains (compared to $13.7
million of extraordinary gains in 1996), partially offset by (4) a $9.4 million
reduction in selling expenses and other real estate costs. As discussed below,
the reduction in real estate revenues in 1997 were primarily due to (a) the
Company's bulk sales in 1996 of its Julington Creek Plantation Project and
Summerchase Project (there were no substantial bulk sales in 1997, other than a
bulk sale of 102 lots in the Windsor Palms Project) and (b) decreasing revenues
from Predecessor Assets. Increased costs of real estate sales were principally
attributable to (i) a bulk sale (at a loss of $632,000) of the final 102 lots in
the Windsor Palms Project to provide liquidity for a scheduled debt payment and
(ii) a $2.85 million settlement in connection with the litigation involving the
Regency Island Dunes Project.
PRIMARY MARKET OPERATIONS.
HOMESITES. Net gross margins from Homesite sales decreased
$6.4 million in 1997 compared to 1996 primarily due to (1) the loss of the
revenue formerly generated by the Julington Creek Plantation Project, which the
Company sold in bulk in 1996, (2) a $9.0 million bulk sale in 1996 of the
Summerchase Project and (3) the bulk sale at a loss of the remaining 102 lots in
the Windsor Palms Project, in order to fund a debt payment due June 30, 1997.
Revenues from Homesite sales decreased $24.2 million in 1997 compared
to 1996 primarily due to (1) the bulk sale of the Julington Creek Plantation
Project and the Summerchase Project in 1996 and (2) the sale of 75% of the
inventory in the Windsor Palms Project in 1996. The Julington Creek Plantation
Project generated sales revenue of approximately $7.6 million in 1996, including
a bulk sale of the remaining 126 Homesites for $5.6 million in June 1996. The
Summerchase Project, which was permitted for 640 Homesites, was sold in bulk in
1996 for $9.0 million. Sales revenues at the Windsor Palms Project decreased
from $12.5 million in 1996 to $4.5 million in 1997. Partially offsetting these
decreases was a $2.7 million increase in sales in 1997 in the West Meadows
Project.
As of December 31, 1997, the Company had under contract approximately
869 Homesites for $24.7 million with 12 homebuilders in the Lakeside Project,
the West Meadows Project and The Trails of West Frisco Project. As of December
31, 1996, the Company had under contract approximately 616 Homesites for $15.2
million with 7 homebuilders in the Lakeside Estates Project, the West Meadows
Project and the Sanctuary Project.
Homesite sales gross margin percentage was 6.6% in 1997 compared to
19.2% in 1996. The lower gross margin percentage in 1997 is attributable
principally to the sale of the final 102 lots in the Windsor Palms Project for
$4.5 million, generating a negative 14% gross margin. This sale was necessitated
by the Company's need for liquidity to meet a June 30, 1997 debt payment. The
gross margin in 1997 for the
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Lakeside Project and the West Meadows Project was 20.2%, which approximates the
targeted gross margin of 20% to 30% for this line of business.
COMMERCIAL DEVELOPMENT. Revenues from Commercial Development
sales decreased $12.3 million in 1997 compared to 1996 primarily due to several
large sales in 1996, including the sale of the Julington Creek Plantation
Project, which included $11.6 million of Commercial Development. There were no
comparable sales in 1997.
The Commercial Development gross margin percentage increased to 18% in
1997 from 11.3% in 1996 primarily due to the low margin of 6.5% on the Julington
Creek Plantation Project sale in 1996.
JOINT VENTURES. Results of Joint Ventures decreased a $160,000
in 1997 compared to 1996. This was primarily due to a $375,000 loss associated
with the Country Lakes Project, which was offset by improved net income at the
Sunset Lakes project. As of December 31, 1997, the Company's JV Projects had
3,389 Homesites under contract with 10 homebuilders, totaling approximately
$85.0 million in future gross revenue, a portion of which is allocable to the
Company as a joint venturer.
LUXURY/RESORT OPERATIONS.
Gross margins from Vertical Residential Units decreased $5.9 million in
1997 compared to 1996 principally due to a decrease in the gross margin from the
Regency Island Dunes Project. The Company realized lower revenues in 1997 as a
result of (1) the close out of the Regency Island Dunes Project in 1997 and (2)
a $2.85 million settlement with the general contractor on this project.
Vertical Residential Unit sales are summarized as follows for the years
ended December 31 (in thousands of dollars):
1997 1996
---- ----
Condominium sales - Regency Island Dunes Project:
First Building $ 1,620 $ 3,008
Second Building 9,288 14,801
------- -------
Total condominium sales $10,908 $17,809
======= =======
The revenues and profits associated with sales at the Regency Island
Dunes Project were recorded using the percentage of completion method. The
Project consisted of two 72-unit buildings for a total of 144 units, all of
which were sold and closed as of December 31, 1997. As of December 31, 1995, the
Company recorded 97% of the expected revenues and profits on 61 units in the
first building, based on a construction completion percentage of 97%. The
condominium revenues of $3.0 million in the first building in 1996 represented
the incremental revenue earned upon the completion of 59 of the 61 units in 1996
and the sale and closing of an additional eight units in 1996. The condominium
revenues of $1.6 million in the first building in 1997 represented revenue
earned upon the closing of an additional five units in 1997 for a total of 72
units sold and closed in the first building. The revenues of approximately $14.8
million in the second building in 1996 were derived from 56 units under contract
as of December 31, 1996, with construction on the second building 79% complete.
The revenues of approximately $9.3 million in the second building in 1997 were
derived from an increase in the completion percentage from 79% to 100% in 1997,
and to an additional 16 units sold and closed in 1997 for a total of 72 units
sold and closed in the second building.
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<PAGE>
The gross margin for Vertical Residential Units in 1997 was negative
primarily due to a $2.85 million settlement in December 1997 with the Company's
general contractor for the Regency Island Dunes Project. See PART I, ITEM 3.
LEGAL PROCEEDINGS in Atlantic Gulf's 1997 10-K. The settlement costs were
applied solely against the revenues earned in 1997, resulting in a large
negative gross margin in 1997. The overall gross margin for this Project was
approximately 12.1%.
PREDECESSOR ASSETS.
PREDECESSOR HOMESITES. Revenues from Predecessor Homesite
sales decreased $4.1 million in 1997 compared to 1996 due to a 43.1% decrease in
the average sales price per Predecessor Homesite, partially offset by a 21.3%
increase in the number of Predecessor Homesites sold. The decrease in the
average sales price is principally due to (1) a 38% decrease in the number of
Predecessor Homesites sold in the Cumberland Cove Project, the Company's highest
priced Predecessor Homesite Project, and (2) a 43% increase in bulk sales of
Predecessor Homesites in Florida. In addition, the average sales price in the
Cumberland Cove Project decreased 42% in 1997 from approximately $20,300 in 1996
to approximately $11,800 in 1997 due to the mix of Predecessor Homesites sold.
The volume of Predecessor Homesites sold in the Cumberland Cove Project
decreased in 1997 because this Project was winding down and, accordingly, the
Company closed its on-site sales operation in September 1997. The volume of
Predecessor Homesites sales increased primarily due to the increase in the
number of bulk Predecessor Homesites sold.
As of December 31, 1997, the Company had under contract 129 Predecessor
Homesites for $806,000. As of December 31, 1996, the Company had under contract
approximately 475 Predecessor Homesites for $1.2 million.
The Predecessor Homesite sales gross margin percentage was 3.0% in 1997
compared to 22.6% in 1996. Predecessor Homesite sales margin was also adversely
affected in 1997 by the increase in the bulk sale of Predecessor Homesites
yielding lower margins to accelerate the disposal of the Predecessor Homesites.
PREDECESSOR TRACT. Revenues from Predecessor Tract sales
decreased $9.3 million in 1997 compared to 1996 primarily due to several large
sales in 1996. There were no comparable sales in 1997. As of December 31, 1997,
there were pending Predecessor Tract sales contracts or letters of intent
totaling approximately $3.4 million. As of December 31, 1996, there were
comparable pending Predecessor Tract sales contracts or letters of intent
totaling approximately $18.1 million.
The (12.3%) actual gross margin for Predecessor Tract in 1997 is
attributable principally to the Company's business plan to accelerate the
liquidation of Predecessor Assets. The 19.4% actual gross margin for Predecessor
Tract in 1996 generally reflects the previously targeted gross margin.
PREDECESSOR VERTICAL RESIDENTIAL UNITS. Single family home
sales revenues decreased $3.1 million in 1997 compared to 1996 due to a decrease
in closings from 36 in 1996 to 1 in 1997. Closings decreased because of the
Company's decision in mid-1995 to begin phasing out its single family home
business in Predecessor communities, which was substantially completed in 1996.
OTHER RESULTS OF OPERATIONS.
OTHER OPERATING REVENUES. Other operating revenues decreased
in 1997 compared to 1996 primarily due to the absence of revenues and expenses
from the Port Labelle utility system and the Julington
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<PAGE>
Creek Plantation utility system, both of which were sold in 1996. In addition,
other operating revenues in 1996 included $1.0 million of development impact
fees.
INVENTORY VALUATION RESERVE CHARGES. Inventory valuation
reserve charges of $14.5 million in 1997 represented a reduction in the carrying
value of the Company's inventory based upon a review of the fair values. The
charges consisted of $10.9 million for Predecessor Tracts, $1.9 million for
Predecessor Homesites and $1.7 million for the Sabal Trace Project.
SELLING EXPENSES. Selling expenses decreased $5.0 million in
1997 compared to 1996 primarily due to lower direct selling expenses resulting
from a decrease in revenues. Selling expense as a percentage of real estate
sales increased from 10.6% in 1996 to 12.5% in 1997 primarily due to (1) lower
direct selling expenses associated with several large sales in 1996, including
the Julington Creek Plantation Project, and (2) lower revenues in 1997 over
which to spread fixed selling costs.
OTHER REAL ESTATE COSTS. Other real estate costs decreased by
$4.4 million in 1997 compared to 1996 due to (1) a decline in property taxes
associated with a reduction in land inventory not under development
corresponding to sales activity during the intervening period and (2) reduced
legal costs associated with supporting real estate activity.
COSTS OF BORROWING NET OF CAPITALIZED INTEREST. Costs of
borrowing net of capitalized interest decreased $1.2 million compared to 1996
principally due to a decrease in corporate debt resulting from the proceeds of
the Atlantic Gulf's Preferred Stock sales, which were substantially completed in
1997.
OTHER INCOME - REORGANIZATION RESERVES. Other income -
reorganization reserves of $1.1 million in 1997 represent the amortization of
the Company's utility connections reserve. Other income - reorganization
reserves of $16.0 million in 1996 included (1) a $4.1 million gain due to a
reduction in the Company's utility connections reserve in conjunction with the
Company's annual review of certain reorganization items and (2) a net gain of
$11.9 million from the recovery of funds from certain utility trust accounts.
OTHER INCOME - UTILITY CONDEMNATION. Other income - utility
condemnation in 1996 represented a gain of approximately $4.1 million on an
$18.75 million litigation settlement with the City of Port St. Lucie pursuant to
condemnation proceedings associated with the taking of the Company's Port St.
Lucie system.
OTHER INCOME - OTHER REORGANIZATION RESERVES. Other income -
other reorganization reserves consisted of gains of $2.5 million in 1997 and
$2.1 million in 1996 resulting from the resolution of certain reorganization
items. The $2.5 million gain in 1997 consisted of (1) a $706,000 gain due to the
reduction of the Company's Contract Receivables termination refunds reserve and
(2) adjustments of various other reorganization reserves, none of which were
individually significant. The $2.1 million gain in 1996 included (a) a gain of
$703,000 due to a reduction in the Company's Contract Receivables future
servicing reserve and (b) adjustments of various other reorganization reserves,
none of which were individually significant.
OTHER EXPENSE ITEMS. Other expense - miscellaneous of $810,000
in 1997 consisted of net gains and losses associated with various reserve
adjustments and settlements, none of which were individually significant. Other
income - miscellaneous of $2.3 million in 1996 included gains of (1)
approximately $1.3
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<PAGE>
million due to a reduction in the Company's environmental reserve and (2) $1.0
million due to a reduction in the Mortgage Receivables net of valuation reserve.
EXTRAORDINARY GAINS. During 1996, the Company recorded
extraordinary gains totaling $13.7 million consisting of (1) an extraordinary
gain of approximately $3.8 million due to the extinguishment of approximately
$1.9 million of 12% Notes and $1.9 million of Unsecured Cash Flow Notes; (2) an
extraordinary gain of approximately $3.9 million on the prepayment at a discount
of its Secured Cash Flow Notes for $40.0 million in cash plus warrants to
purchase up to 1.5 million shares of the Company's Common Stock at $6.50 per
share; and (3) an extraordinary gain of approximately $6.0 million due to the
extinguishment of approximately $4.2 million of 12% Notes and $1.8 million of
13% Notes, net of a $210,000 unamortized discount.
PREFERRED STOCK ACCRUAL. During 1997, the Company recorded a
$3.3 million accrual for dividends associated with its Preferred Stock. The
dividends were accumulated but unpaid as of December 31, 1997. The dividend rate
is 20% of the liquidation preference value of the Preferred Stock. The
liquidation preference value of the Preferred Stock is $10 per share, plus
accumulated and unpaid dividends. In addition, the Company accreted $427,000 of
the value of its Preferred Stock to the redemption amount in 1997. The total of
approximately $3.7 million of accrued Preferred Stock dividends and Preferred
Stock accretion was charged to contributed capital in the accompanying December
31, 1997 consolidated balance sheet.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. As of December 31, 1998, the Company's (1) cash and cash
equivalents totaled approximately $9.4 million and (2) restricted cash and cash
equivalents totaled $1.0 million, 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 $225,000
increase in cash and cash equivalents during 1998, (i) $898,000 was provided by
investing activities and (ii) $319,000 was provided by operating activities,
partially offset by (iii) $992,000 was used in financing activities.
Cash used in operating activities includes approximately (1) $15.4
million for interest payments, (2) $4.3 million for property tax payments, (3)
$6.7 million for construction and development expenditures, (4) $24.9 million
related to property acquisitions and (5) $940,000 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 provided by investing activities consisted primarily of $3.8
million of funds released from a utility trust account funded during the
reorganization proceedings and partially offset by $2.9 million of property
plant and equipment additions.
Cash provided by financing activities includes proceeds of (1)
approximately $1.7 million from the issuance of Series A Preferred Stock and
related warrants and (2) $7.8 million of funds released to the Company by the
trustee for the 12% Notes issued in 1992 pursuant to the POR, which 12% Notes
matured on December 31, 1996 and were paid in full on January 3, 1997. In
addition, in 1998, the Company had net borrowings of $23.4 million under various
project financings and the Reducing Revolving Facility, (b) $5.9 million from
the financing of Mortgage Receivables and Contract Receivables and (c) $3.6
million of new project financings. These borrowings were partially offset by (a)
$23.8 million of principal payments that fully repaid the Reducing Revolving
Facility and Term Loan Facility in 1998, and (b) $1.7 million of net payments on
the Working Capital Facility.
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<PAGE>
JUNE 1998 DEBT RESTRUCTURING. On or about July 1, 1998, Atlantic Gulf
repaid the entire outstanding balances under (1) its Term Loan Facility with
Foothill Capital Corporation ("FOOTHILL"), consisting of approximately $13.3
million of principal and $171,000 of interest, and (2) its Reducing Revolving
Facility with Foothill, consisting of $3.7 million of principal and $35,000 of
interest , with $6.2 million of funds drawn on its Working Capital Facility with
Foothill and $11.0 million of funds borrowed from AGC-SP, Inc, a wholly-owned
special purpose subsidiary of Atlantic Gulf ("SP SUB" and the "SP SUB LOAN").
DECEMBER 1998 DEBT REFINANCING. Dated as of December 31, 1998,
effective on February 2, 1999, (1) 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"), (2) Atlantic Gulf entered into
amendments to its Secured Agreement, dated as of February 7, 1997, as amended,
with Apollo (the "Secured Agreement"), and Investment Agreement, dated as of
February 7, 1997, as amended, with Apollo (the "Investment Agreement"), (3)
SP-Sub canceled Atlantic Gulf's obligation to repay its $11 million SP Sub Loan
and (4) Apollo, the New Revolving Loan Lenders and the New Term Loan Lenders and
the collateral agent entered into a New Intercreditor Agreement. These
transactions are collectively referred to herein as the "DECEMBER 1998 DEBT
REFINANCING."
NEW REVOLVING LOAN FACILITY. The lenders (the "NEW REVOLVING
LOAN LENDERS") under Atlantic Gulf's New Revolving Loan Facility are DK
Acquisition Partners, L.P., Comac Partners, Halcyon/Alan B. Slifka Management
Co. LLC, East West Partners, Stonehill Investment Corp. and Anglo American
Financial and its participants. M. H. Davidson, LLC. ("MHD"), is the agent and
collateral agent.
The New Revolving Loan Facility will mature on August 1, 2000 and bears
interest at the rate of (1) eleven percent (11%) per annum (fifteen percent
(15%) per annum upon the occurrence and continuation of an event of default)
upon all amounts other than letter of credit guarantees and (2) fifteen percent
(15%) per annum (nineteen percent (19%) per annum upon the occurrence and
continuation of an event of default) upon all draws under letter of credit
guarantee amounts.
The aggregate outstanding borrowings under the New Revolving Loan
Facility are subject to a borrowing base limitation based on the value of
certain of the Company's assets. The New Revolving Loan Facility contains
standard and customary representations, warranties and covenants for a facility
of its type, size and term, including, a consolidated net worth covenant.
The $39.5 million commitment under the New Revolving Loan Facility will
automatically be reduced (1) by $4 million by March 31, 1999; (2) by an
additional $1 million by May 31, 1999; (3) by seventy five percent (75%) of the
net cash proceeds realized from certain bulk sales of lots and/or land in
certain eligible subdivision projects; (4) by an additional $1.7 million on each
of February 15, 2000, March 15, 2000 and April 15, 2000; and (5) by an
additional $2.3 million on each of May 15, 2000, June 15, 2000, and July 15,
2000. The remaining outstanding balance under the New Revolving Loan Facility is
due and payable in full on August 1, 2000. The Company used a portion of the
proceeds from the Anglo American Facility to fund the March 31, 1999, commitment
reduction. See PART II, ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES
- -- ANGLO AMERICAN FACILITY below.
On the closing date, the Revolving Lenders delivered to the trustee for
Atlantic Gulf's 13% Notes $7.5 million of cash collateral to secure the payment,
when presented, of up to $7.5 million of the 13% Notes. The cash collateral,
which is treated as a letter of credit guarantee amount, is deemed to be part of
the New Revolving Loan Facility.
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<PAGE>
On the closing date, Atlantic Gulf paid (1) the collateral agent a
closing fee of $1.28 million and (2) the agent a letter of credit guarantee fee
of $150,000. Atlantic Gulf also has agreed to pay (a) the collateral agent a
servicing fee of $10,000 per month so long as any amounts remain outstanding
under the New Revolving Loan Facility and (b) the agent a second letter of
credit guarantee fee of $150,000 on the second anniversary of the effective date
of the New Revolving Loan Facility if any portion of the letter of credit
guarantee amount remains outstanding on that date.
NEW TERM LOAN FACILITY. The lenders (the "NEW TERM LOAN
LENDERS") under Atlantic Gulf's new term loan facility (the "NEW TERM LOAN
FACILITY") are Anglo American Financial and General Motors Employees Global
Group Pension Trust. Anglo American Financial is the agent, and MHD is the
collateral agent.
The New Term Loan Facility will mature on the earlier of February 1,
2002, or the date that is thirty (30) days prior to the first date on which any
of the holders of the Preferred Stock have the right to require Atlantic Gulf to
repurchase any shares of Preferred Stock and bears interest at the rate of
fifteen percent (15%) per annum (nineteen percent (19%) per annum upon the
occurrence, and continuation, of an event of default). The New Term Loan
Facility contains standard and customary representations, warranties and
covenants for a facility of its type, size and term, including a consolidated
net worth covenant.
On the closing date, Atlantic Gulf paid the agent a closing fee of $2.0
million.
AMENDMENTS TO THE SECURED AGREEMENT AND INVESTMENT AGREEMENT.
As part of the December 1998 Debt Refinancing:
1. Apollo consented to Atlantic Gulf entering into the New Senior
Loan Agreements and agreed to subordinate its collateral
interest in certain Company assets, and in exchange therefor:
a. Atlantic Gulf issued an $850,000 promissory note to
Apollo (the "$850,000 NOTE"). The $850,000 Note will
mature on February 1, 2002, and provides for current
payments of interest only at the rate of ten percent
(10%) per annum (fifteen percent (15%) per annum upon
the occurrence and continuation of an event of
default), monthly in arrears.
b. Atlantic Gulf issued a $1 million promissory note to
Apollo (the "$1 MILLION Note"). The $1 Million Note
will mature on February 1, 2002, and provides for
payments of interest only at the rate of ten percent
(10%) per annum (fifteen percent (15%) per annum upon
the occurrence and continuation of an event of
default), monthly in arrears. Atlantic Gulf has the
obligation, under certain circumstances, to prepay
seventy five percent (75%) of the original principal
amount of the $ 1 Million Note by conveying a 20% net
profits interest in a specified project to Apollo.
The $850,000 Note and $1 Million Note, both of which
are secured by certain Company assets, are together
referred to herein as the "NOTES".
c. Atlantic Gulf issued 500,000 shares of Common Stock
to Apollo (the "ADDITIONAL SHARES").
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2. Apollo and Atlantic Gulf entered into amendments to the
Secured Agreement and Investment Agreement (from and after the
effective dates of such amendments, the terms "Investment
Agreement" and "Secured Agreement" refer to those agreements,
as so amended by those amendments) to (a) conform such
agreements to the terms and conditions of the New Senior Loan
Agreements, (b) reflect the terms of the Apollo Notes, (c)
delete all SP Subsidiary provisions, (e) include the
Additional Shares as Registrable Securities and make all of
Apollo's Registrable Securities, Warrants and Notes freely
transferable (subject to the requirements of the applicable
securities laws) and (f) make certain other, technical
conforming changes.
NEW INTERCREDITOR AGREEMENT. Atlantic Gulf's obligations under
the New Senior Loan Facilities and the Secured Agreement are fully secured by
security interests in substantially all of Atlantic Gulf's assets (the
"COLLATERAL") and guaranteed by certain of Atlantic Gulf's subsidiaries. In
connection with the December 1998 Debt Refinancing, Apollo, the New Revolving
Loan Lenders, the New Term Loan Lenders and MHD, as collateral agent, entered
into a new Intercreditor Agreement (the "NEW INTERCREDITOR AGREEMENT") pursuant
to which the parties agreed (1) that the liens of the parties upon the
Collateral would have the following priorities and rank: (a) the New Revolving
Loan Facility liens and obligations would have first priority, (b) the New Term
Loan Facility liens and obligations would have second priority and (c) the
Secured Agreement liens and obligations would have third priority and (2) to
certain repayment subordinations, standstill periods, blockage periods, payment
turnover provisions and related matters.
REPAYMENT OF WORKING CAPITAL FACILITY, 13% NOTES AND
RECEIVABLE DEBT. On February 2, 1999, the Company repaid (1) the entire
outstanding balance ($13.7 million) under its Working Capital Facility, (2) the
entire outstanding balance ($39.5 million) under its 13% Notes and (3) its
outstanding Mortgage Receivables Loans and Contract Receivables Loans ($7.8
million) with $32 million drawn under its New Revolving Loan Facility (including
$7.5 million of cash collateral treated as letter of credit guarantees), $26.5
million drawn under its New Term Loan Facility and $800,000 of other available
cash.
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. See PART
II, ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES -- DECEMBER 1998 DEBT
REFINANCING --- NEW REVOLVING LOAN FACILITY above.
OTHER MATERIAL OBLIGATIONS COMING DUE IN 1999. In addition to the
mandatory reductions in the $39.5 million commitment under the New Revolving
Loan Facility in 1999, Atlantic Gulf's other material obligations coming due in
1999 include approximately $3 million in property taxes due March 31, 1999. The
Company's 1999 business plan contemplates approximately $144 million of
expenditures for development, construction and other capital improvements, a
substantial portion of which will be funded through individual project
development loans or joint venture arrangements, many of which are already in
place. If the Company is unable to obtain the capital resources to fund these
obligations and expenditures, the implementation of the Company's business plan
will be adversely affected, slowing the Company's anticipated revenue growth and
increasing the time necessary to achieve profitability. However, management
believes that the Company,
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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.
SUBSEQUENT EVENTS
STRATEGIC TRANSACTION. On March 26, 1999, the Company announced that
(1) its Board of Directors had formed a Special Committee to explore strategic
alternatives to maximize stockholder value and (2) it has retained BT Alex.
Brown, a leading investment banking firm, to assist the Special Committee in
reviewing strategic transactions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial position is exposed to fluctuation in the
variable interest rates for its debt. At December 31, 1998, the Company had a
$25.0 million outstanding interest rate protection contract with respect to the
BankBoston project acquisition and development loan for the West Bay Club
project, which provides for payments should the base rate increase by more than
2.69%. The only instruments considered market rate sensitive are its loans with
variable interest rates. There are no financial instruments subject to foreign
currency exchange risk or commodity price risk.
At December 31, 1998, the Company had mortgage and other debts totaling
approximately $107.2 million (which includes the 2.69% unprotected portion of
the $25.0 million BankBoston financing) that were subject to variable interest
rates, which were not subject to interest rate protection. These debt
instruments are summarized as follows:
WORKING CAPITAL FACILITY, interest rate variable (9.75% at
December 31, 1998), due December 1998: $18.1 million.
PROJECT ACQUISITION AND DEVELOPMENT LOANS, interest variable
(8.25% to 9.56% at December 31, 1998), due at various dates through September
2002: $82.1 million.
MORTGAGE RECEIVABLES LOAN, interest variable (10.75% to 11.75%
at December 31, 1998), due at various dates through June 2002: $7.0 million.
If interest rates increased 100 basis points, the annual effect of such
increase to the Company's financial position and cash flows would be
approximately $1.1 million, based on the outstanding balance at December 31,
1998. The fluctuation of interest rates is not determinable; accordingly, actual
results from interest rate fluctuation could differ from the estimate presented
above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Financial Statements and supplemental data required under this ITEM
8. are provided as Exhibits under ITEM 14. below and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ATLANTIC GULF
DIRECTORS
The following table sets forth certain information concerning the
directors of Atlantic Gulf:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH ATLANTIC GULF
----- --- ------------------------------
<S> <C> <C>
Gerald D. Agranoff (1)(7)(8)(9)(10)(11) 52 Director and Chairman of the Compliance
Committee
James M. DeFrancia (3)(5)(6)(9)(11) 57 Director
Stuart F. Koenig (4)(5)(6)(11) 46 Director
Ricardo Koenigsberger (4)(5)(6)(7)(8)(10) 32 Director and Chairman of the Audit
Committee
Charles K. MacDonald (1)(7)(9)(10) 40 Director
Lee Neibart (4)(6)(8) 48 Director and Chairman of the Compensation
Committee and the
Acquisitions/Dispositions Committee
J. Larry Rutherford (2)(8)(9) 53 Director, President, Chief Executive Officer and
Chairman of the Refinancing Committee
</TABLE>
- ---------------------------
(1) A Class 1 Director whose term on the Board of Directors of Atlantic
Gulf (the "Board") will expire at Atlantic Gulf's Annual Meeting of
Stockholders in 1999 (the "1999 Annual Meeting").
(2) A Class 2 Director whose term on the Board will expire at Atlantic
Gulf's Annual Meeting of Stockholders in 2000 (the "2000 Annual
Meeting").
(3) A Class 3 Director whose term on the Board will expire at Atlantic
Gulf's Annual Meeting of Stockholders in 2001 (the "2001 Annual
Meeting").
(4) Appointed by AP-AGC, LLC ("Apollo") for a one-year term, which will
expire at the 1999 Annual Meeting. Apollo is the sole holder of the 20%
Cumulative Redeemable Convertible Preferred Stock, Series A, of
Atlantic Gulf (the "Series A Preferred Stock"). Pursuant to the
Investment Agreement, Apollo has the right to appoint three (3)
directors to the Board.
(5) Member of the Audit Committee.
(6) Member of the Compensation Committee. Mr. Koenigsberger is an alternate
member of the Compensation Committee in the absence of Mr. Koenig or
Mr. Neibart.
(7) Member of the Compliance Committee.
(8) Member of the Acquisitions/Dispositions Committee.
42
<PAGE>
(9) Member of the Refinancing Committee, which was formed in February 1998.
(10) Member of the Special Committee, which was formed in March 1999.
(11) Member of the Operations Committee, which was formed in March 1999.
PRINCIPAL OCCUPATIONS AND DIRECTORSHIPS HELD BY THE DIRECTORS
Mr. Agranoff has been a director since June 1994. He is a general
partner of, and general counsel to, Edelman Securities Company, L.P. (formerly
Arbitrage Securities Company), a registered broker-dealer. He has been
affiliated with Edelman Securities Company, L.P. since January 1982. In
addition, Mr. Agranoff is currently of counsel to the law firm of Pryor,
Cashman, Sherman & Flynn, in New York. From 1975 through 1981, Mr. Agranoff was
engaged exclusively in the private practice of law in New York. In addition, he
was an adjunct instructor at New York University's Institute of Federal
Taxation. Prior to entering private practice, Mr. Agranoff served as
attorney-advisor to a judge of the United States Tax Court. Mr. Agranoff is a
director of Datapoint Corporation, Canal Capital Corporation, Bull Run
Corporation and American Energy Group, Ltd.
Mr. DeFrancia has been a principal of Lowe Enterprises, Inc., a
national real estate development company engaged in residential, commercial and
resort development activities, since 1987. Since 1995, he has served as Chairman
of Lowe Enterprises Mid-Atlantic Inc., and president of Lowe Enterprises
Community Development, which is headquartered in suburban Washington, D.C., and
manages the development of large scale community projects nationally. He has
also managed projects where Lowe has been retained by banks, insurance companies
and Federal agencies as a consultant/development manager for properties in
numerous states.
Mr. Koenig joined Apollo Real Estate Advisors in 1995 as Chief
Financial Officer. Prior to that time, Mr. Koenig was a Vice President in the
Real Estate Principal Investment Area of Goldman, Sachs & Co., where he served
as Controller and Director of Investor Relations for the three Whitehall real
estate investment funds.
Mr. Koenigsberger has been associated with Apollo Real Estate Advisors
I, L.P., since 1995 and a partner of Apollo Real Estate Advisors II, L.P. since
1996, which, together with affiliates, act as managing general partners of the
Apollo Real Estate Investment Funds, private real estate investment funds which
invest in direct and indirect real property interests, including real estate
related public and private debt and equity securities. Since 1995, Mr.
Koenigsberger has been associated with Apollo Advisors, L.P., which acts as
managing general partner of Apollo Investment Fund, L.P. and AIF II, L.P.,
private securities investment funds. Mr. Koenigsberger is a director of
Meadowbrook Golf, Inc.
Mr. MacDonald is President of Morgandane Management Corp., an
investment advisory firm. From 1987 to 1995, he was a securities analyst and
portfolio manager with Stonington Management Corp., an investment management
firm. Morgandane Management Corp. provides investment management services to
Stonington Management Corp., which is under common management with Elliott
Associates, L.P., and Westgate International, L.P. Mr. MacDonald is a director
of Bradlees, Inc.
Mr. Neibart has been a partner of Apollo Real Estate Advisors I, L.P.,
since 1993 and of Apollo Real Estate Advisors II, L.P., since 1996, which,
together with affiliates, act as managing general partners of the Apollo Real
Estate Investment Funds, private real estate investment funds which invest in
direct and indirect real property interests, including real estate related
public and private debt and equity securities. Prior to 1992, Mr. Neibart was
Executive Vice President and Chief Operating Officer of The Robert Martin
Company, a
43
<PAGE>
private real estate development and management firm based in Westchester County,
New York. Mr. Neibart is a director of Koger Equity, Inc., Metropolis Realty,
Inc., NextHealth, Inc., Meadowbrook Golf, Inc., All-Right Parking Corp. and
Roland International, Inc.
See PART III, ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ATLANTIC
GULF - EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES below for biographical
information concerning Mr. Rutherford.
COMMITTEES OF THE BOARD ("COMMITTEES") AND MEETINGS OF THE BOARD AND COMMITTEES
The Board has four (4) standing Committees, the
Acquisitions/Dispositions Committee, the Audit Committee, the Compensation
Committee (formerly known as the Human Relations Committee) and the Compliance
Committee. The Board (1) also had a Refinancing Committee from February 1998
through January 1999 and (2) formed a Special Committee and Operations Committee
in March 1999.
The Acquisitions/Dispositions Committee held no meetings in 1998. The
current members of the Acquisitions/Dispositions Committee are Messrs. Agranoff,
Koenigsberger, Neibart (the Chairman) and Rutherford. The principal functions of
the Acquisitions/Dispositions Committee are to (1) approve all operational
decisions to implement the Board-approved business plan(s), (2) approve real
estate acquisitions which commit no more than $5 million of Company equity in
any single transaction, (3) approve dispositions of Company assets with gross
sales prices no greater than $3 million per transaction and (4) delegate certain
authorities to the President and Chief Executive Officer of Atlantic Gulf
relating to acquisitions, dispositions and personnel matters, subject to the
restrictions set forth with respect to these matters in the Investment
Agreement.
The Audit Committee held one (1) meeting in 1998. The current members
of the Audit Committee are Messrs. DeFrancia, Koenig and Koenigsberger (the
Chairman). The principal functions of the Audit Committee are to (1) select and
engage on Atlantic Gulf's behalf, and fix the compensation of, a firm of
certified public accountants whose duty it shall be to audit the books and
accounts of Atlantic Gulf and its subsidiaries for the fiscal year in respect of
which they are appointed, and who shall report to the Audit Committee, and (2)
confer with the accountants and determine, and from time to time report to the
Board upon, the scope of audit procedures, accounting practices and internal
accounting and financial controls of the Company.
The Compensation Committee held one (1) meeting in 1998. The current
members of the Compensation Committee are Messrs. DeFrancia, Koenig and Neibart
(the Chairman). Mr. Koenigsberger is an alternate member of the Compensation
Committee. The principal functions of the Compensation Committee are to (1)
administer and approve all elements of compensation for Company officers and
senior staff members, (2) administer and approve participation in all awards,
grants and related actions under the provisions of each of Atlantic Gulf's
annual incentive and/or stock option programs, including under Atlantic Gulf's
Employee Stock Option Plan, as amended (the "Employee Stock Option Plan"), and
(3) report to stockholders on executive compensation items, as required by the
Securities and Exchange Commission (the "SEC").
The Compliance Committee held no meetings in 1998. The current members
of the Compliance Committee are Messrs. Agranoff (the Chairman), Koenigsberger
and MacDonald. The principal function of the Compliance Committee is to monitor
Atlantic Gulf's compliance with the terms of the November 1992 Final Judgment
against Atlantic Gulf as it relates to the Company's sales and marketing
practices. On
44
<PAGE>
December 9, 1998, the Company was released from the Final Judgment. See PART I,
ITEM 3. LEGAL PROCEEDINGS - OTHER LITIGATION AND PENDING DISPUTES -- CARY GLEN
PROJECT above.
The Refinancing Committee, which was formed in February 1998 and
completed its work and disbanded in January 1999, held one (1) meeting in 1998.
The current members of the Refinancing Committee are Messrs. Agranoff,
DeFrancia, MacDonald and Rutherford (the Chairman). The principal function of
the Refinancing Committee was to approve all decisions concerning negotiations
with Apollo for the release of its security interest in the Company's projects
in connection with the refinancing of the Company's institutional indebtedness,
which was completed in early 1999.
The Special Committee, which was formed in March 1999, held no meetings
in 1998. The current members of the Special Committee are Messrs. Agranoff,
Koenigsberger (the Chairman) and MacDonald. On March 26, 1999, the Company
issued a press release announcing (1) the formation of the Special Committee to
explore strategic alternatives to maximize stockholder value and (2) the
retention of BT Alex. Brown to assist the Special Committee in reviewing
possible strategic alternatives. The principal function of the Special Committee
is to review, evaluate and make recommendations to the full Board concerning
possible strategic alternatives.
The Operations Committee, which was formed in March 1999, held no
meetings in 1998. The current members of the Operations Committee are Messrs.
Agranoff, DeFrancia (Chairman) and Koenigsberger. The principal function of the
Special Committee is to review, evaluate and make recommendations to the full
Board concerning overhead, operating costs, staffing and related matters.
The Board currently consists of Messrs. Agranoff, DeFrancia, Koenig,
Koenigsberger, MacDonald, Neibart and Rutherford (the Chairman of the Board).
The Board held seven (7) regularly scheduled meetings (including the Board
meeting held in connection with the 1998 Annual Meeting) and one (1) special
meeting during 1998. Each director attended at least 75% of the aggregate number
of meetings of the Board (that were held during his term on the Board) and
committees on which he served during 1998 (except that Mr. Koenigsberger
attended the one (1) Compensation Committee meeting held during 1998 in Mr.
Neibart's absence).
45
<PAGE>
EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following table sets forth certain information about the current
executive officers and certain other key employees of Atlantic Gulf:
<TABLE>
<CAPTION>
Name Age Position(s) With Atlantic Gulf (1)
---- --- ------------------------------
<S> <C> <C>
J. Larry Rutherford 53 President, Chief Executive Officer, Director and Chairman of
the Board
Thomas W. Jeffrey 39 Executive Vice President and Chief Financial Officer
John Laguardia 60 Executive Vice President and Chief Operating Officer
J. Thomas Gillette, III 54 Senior Vice President - Community Development for North
Florida
Frank C. Weed 50 Senior Vice President - Resorts Division
Kimball D. Woodbury 47 Senior Vice President - Acquisitions
Lisa Anness 42 Senior Vice President - Planning
Paula J. Cook 40 Vice President and Controller
John H. Fischer 41 Vice President and Treasurer
Joel K. Goldman 33 Vice President, Secretary and General Counsel
Susan M. Kinsey 47 Vice President - Human Resources
Kevin M. O'Grady 44 Vice President - Business Development
Claudia Troisi (2) 49 Former Vice President - South Florida General Manager
Matthew Allen 34 Vice President - Finance
Cotter Christian 43 Vice President - Community Development
Jay Fertig (3) 38 Former Senior Vice President - National Land Sales
Marcia H. Langley (4) 38 Former Vice President - Special Counsel - Business
Development
</TABLE>
- ----------------------------------------------
(1) Officers of Atlantic Gulf are appointed by and serve at the discretion
of the Board and Atlantic Gulf. Certain officers of Atlantic Gulf have
employment agreements with Atlantic Gulf which entitle them, in certain
circumstances, to receive certain payments and other benefits from
Atlantic Gulf in the event their employment with Atlantic Gulf is
terminated prior to the expiration of the terms of their employment
agreements.
(2) Ms. Troisi left Atlantic Gulf in July 1998.
(3) Mr. Fertig left Atlantic Gulf in January 1998.
(4) Ms. Langley left Atlantic Gulf in April 1998.
46
<PAGE>
Mr. Rutherford was elected Chairman of the Board in June 1997 and has
been the Chief Executive Officer of Atlantic Gulf since March 1991 and the
President of Atlantic Gulf since January 1991. Mr. Rutherford has been a
director of Atlantic Gulf since January 1991, when he was also named Atlantic
Gulf's Acting Chief Executive Officer. Mr. Rutherford joined Atlantic Gulf in
September 1990 as its Executive Vice President-Operations. Before his employment
with Atlantic Gulf, from May 1989 to August 1990, Mr. Rutherford served as
President and Chief Executive Officer of Gulfstream Land & Development Corp.
("Gulfstream"), a Florida-based community development and homebuilding company.
In this capacity, Mr. Rutherford was charged with restructuring $300 million in
Gulfstream debt. Gulfstream actively developed seven large-scale mixed-use
communities totaling 27,000 acres in Fort Lauderdale, Tampa, Jacksonville,
Sarasota and Orlando, Florida; Atlanta, Georgia; and Richmond, Virginia. In
addition, Gulfstream managed a homebuilding subsidiary which sold approximately
500 units per year. Prior to being named Gulfstream's Chief Executive Officer,
Mr. Rutherford served Gulfstream as President and Chief Operating Officer from
1986 until May 1989, and as Senior Vice President from 1982 until 1986. From
1974 to 1982, Mr. Rutherford worked in various real estate-related financial and
operational capacities for Wintergreen Development, Inc. and the Cabot, Cabot &
Forbes Company. In 1992, Mr. Rutherford was named as a defendant in a
three-count information filed by the State Attorney for Broward County, Florida.
The charges in the information, which include a charge of vehicular homicide,
relate to an April 1991 traffic accident in which a passenger was killed. As of
April 1999, no trial date has been scheduled. Following review of the
circumstances surrounding this accident and the charges, the Board has expressed
its continuing confidence in Mr. Rutherford's ability to perform his duties as
President and Chief Executive Officer.
Mr. Jeffrey has been Atlantic Gulf's Executive Vice President and Chief
Financial Officer since October 1994. Mr. Jeffrey joined Atlantic Gulf in June
1991 as Senior Vice President - Law and Secretary and was named its General
Counsel in September 1991. From 1987 to 1991, Mr. Jeffrey practiced bankruptcy
and securities law with Wilmer, Cutler & Pickering, in Washington, D.C., and
developed a specialization in financial restructurings. Prior to 1987, Mr.
Jeffrey served as a judicial clerk to the Hon. Nathanial R. Jones, Judge on the
United States Court of Appeals for the Sixth Circuit, Cincinnati, Ohio, and to
the Hon. Richard A. Enslen, Judge on the United States District Court for the
Western District of Michigan, Kalamazoo, Michigan.
Mr. Laguardia joined Atlantic Gulf as Executive Vice President and
Chief Operating Officer in December 1997. From 1995 until 1997, Mr. Laguardia
had been President and CEO of American Heritage Homes, having served as Receiver
and Trustee of American Heritage's predecessor since 1992. During Mr.
Laguardia's tenure, American Heritage returned to financial health and grew to
become a major homebuilder in the Orlando and Tampa Markets. From 1990 to 1992,
Mr. Laguardia was Senior Vice President and Chief Financial Officer of Fairfield
Communities, Inc., a large scale developer of resort and primary home
communities. Prior to that, he served for one year as Senior Vice President and
Chief Financial Officer of the Michael Swerdlow Companies, Inc., a fully
integrated, Florida-based real estate development company. From 1982 to 1989,
Mr. Laguardia served in a number of capacities, including Executive Vice
President and Chief Operating Officer, with Gulfstream.
Mr. Gillette joined Atlantic Gulf in 1991, and, since February 1996,
has been Senior Vice President - Community Development for North Florida
overseeing the Company's projects in Tampa, Orlando and Jacksonville, Florida,
and Cary, North Carolina. Prior to 1996, he served as Vice President and General
Manager for the Company's Jacksonville and Tampa Projects. Prior to joining
Atlantic Gulf, Mr. Gillette held the position of Vice President and General
Manager for Westinghouse Treasure Coast Communities in Vero Beach, Florida for
approximately two years where he directed all activities associated with a
luxury residential project. During most of the 1980'S, Mr. Gillette was
President of the Northeast Florida Division for
47
<PAGE>
Gulfstream. Previously, Mr. Gillette owned and operated a home building and
brokerage Company in Richmond, Virginia for seven years.
Mr. Weed joined Atlantic Gulf in July 1997 as Senior Vice President -
Resorts Division and has management oversight responsibility for the West Bay
project in Naples, Florida, as well as the Jupiter Ocean Grande Project in
Jupiter, Florida. Prior to joining Atlantic Gulf, Mr. Weed was Chief Executive
Officer of Island Developers, Ltd., the Developer of Fisher Island, Florida. He
was also responsible for the development of several large-scale tesidential
communities such as Boca West and Cherry Valley.
Mr. Woodbury has served as Senior Vice President - Acquisitions since
April 1997 and is responsible for evaluating potential major malket Land
acquisitions. From July 1995 until March 1997, Mr. Woodbury was Senior Vice
President - Community Development and was responsible for the Company's South
Florida Subdivision homesite projects. Mr. Woodbury served as Senior Vice
President - Business Development from September 1994 Until July 1995. Prior to
that time, he served as Vice President - Planning and Business Development from
December 1991 and has been with Atlantic Gulf in various land planning
capacities since 1981. From 1976 until joining Atlantic Gulf, Mr. Woodbury
worked in a variety of government planning positions and as a private
development consultant.
Ms. Anness joined Atlantic Gulf in 1978. She has held various planning
and project management positions with the company. She became an officer of the
Company in 1990. She currently serves as Senior Vice President - Planning and
President of Environmental Quality Laboratory, Inc. a wholly-owned subsidiary of
Atlantic Gulf.
Ms. Cook was named Vice President and Controller in November 1997 after
working in Atlantic Gulf's tax department since 1994. Prior to joining Atlantic
Gulf, Ms. Cook practiced in public accounting for five years with Deloitte &
Touche and Coopers & Lybrand. Ms. Cook is a Certified Public Accountant.
Mr. Fischer has been a Vice President of Atlantic Gulf since March 1992
and was appointed Treasurer in February 1994. Mr. Fischer has worked for
Atlantic Gulf in various capacities since August 1988. Prior to joining Atlantic
Gulf, from 1981 to 1987, Mr. Fischer was employed by the Florida Power & Light
Company in its Financial Resources Department.
Mr. Goldman joined Atlantic Gulf as Vice President and Assistant
General Counsel in January 1996. In March 1997, Mr. Goldman was named Vice
President, Secretary and General Counsel of Atlantic Gulf. From 1990 until 1996,
Mr. Goldman was a real estate associate with the law firm of Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A. in Miami.
Ms. Kinsey joined Atlantic Gulf in 1989 as Director - Human Resources
and was promoted to Vice President - Human Resources in May 1992. Prior to
joining Atlantic Gulf, Ms. Kinsey was with Arvida for 14 years in various human
resources positions.
Mr. O'Grady joined Atlantic Gulf in 1995 as Vice President - Business
Development. Prior to joining Atlantic Gulf, Mr. O'Grady spent nearly 20 years
in the real estate industry and was involved both in commercial and residential
investment and development. Mr. O'Grady was with Rosenthal-Shuler Realty
Partners and Ahmanson Development as Vice President - Venture Operations and
served as President of Robert Trent Jones International Development Company in
Washington, D.C.
48
<PAGE>
Mr. Allen joined Atlantic Gulf in 1987. After spending eleven years in
various accounting and financial analysis positions, he was promoted to Vice
President - Finance in January 1998. Mr. Allen has direct management
responsibility for all of the Company's financial analysts and his department
provides support to the finance, operations and acquisitions departments.
Mr. Christian joined Atlantic Gulf in July 1997 as Vice President -
Mid-Atlantic Region and was promoted to Vice President - Community Development
in January 1999. He is responsible for the Company's Sunset Lakes project in
Miramar, Florida, the Grand Oaks project in West Palm Beach, Florida, and the
Trails of West Frisco project in Frisco, Texas. Prior to joining Atlantic Gulf,
He was President of Huntington Management Corporation and was responsible for
the Huntington project in Southwest Broward County, Florida. He also has been
affiliated with Tishman Speyer Properties, the B.F. Saul Company and Gee and
Jenson.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the directors and certain officers of Atlantic Gulf and
beneficial owners of more than ten percent (10%) of Atlantic Gulf's common
stock, par value $.10 per share (the "Common Stock") to file reports of
securities ownership and changes in such ownership with the SEC. Based solely
upon a review of the copies of such forms furnished to Atlantic Gulf and the
representations made by such persons to Atlantic Gulf, Atlantic Gulf believes
that during fiscal year 1998 its directors, officers and ten percent (10%)
beneficial owners complied with all filing requirements under Section 16(a) of
the Exchange Act, with the exception of one late Form 5 Filing with respect to
one transaction (the granting of stock options to members of senior management)
by each of the following officers: Messrs. Gillette, Weed, Woodbury, Fischer,
Goldman, O'Grady and Christian and Ms. Cook, Kinsey and Anness.
49
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation accrued/paid by
Atlantic Gulf during the periods indicated for services rendered to the Company
by (1) Atlantic Gulf's Chief Executive Officer and (2) the four highest paid
executive officers, other than the Chief Executive Officer, of Atlantic Gulf
during the year ended December 31, 1998 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------
Annual Compensation(1) Awards Payout
------------------------------------ ---------------------- ------
Other Restricted Securities
Fiscal Annual Stock Underlying All Other
Year Salary Bonus(2) Compensation(3) Award(s) Option(s) LTIP Payout Compensation(4)
---- ------ -------- --------------- -------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Larry Rutherford, 1998 $467,613 $400,000 -- (5) (6) -0- $5,400
President and Chief 1997 425,000 306,000 -- (5) (6) -0- 3,673
Executive Officer 1996 400,000 385,000 -- -0- -0- -0- 3,183
Thomas W. Jeffrey, 1998 $233,010 $95,000 -- -0- (7) -0- $5,000
Executive Vice 1997 200,000 105,000 -- -0- (7) -0- 4,563
President and Chief 1996 175,000 135,000 -- -0- 40,000 -0- 3,403
Financial Officer
John Laguardia, 1998 $311,663 $200,000 -- -0- (9) -0- $5,000
Executive Vice 1997 N/A N/A -- -0- N/A -0- 4,059
President and Chief 1996 N/A N/A -- -0- N/A -0- 3,946
Operating Officer(8)
Kimball D. Woodbury, 1998 $155,894 $ 42,000 -- -0- 50,000 -0- $3,988
Senior Vice President 1997 150,000 77,308(10) -- -0- -0- -0- 3,943
- - Acquisitions 1996 135,000 72,815(10) -- -0- 10,000 -0- -0-
Kevin M. O'Grady, Vice 1998 $129,344 $256,000 -- -0- 30,000 -0- $5,000
President 1997 100,000 210,781(11) -- -0- -0- -0- 626
1996 100,000 178,914(11) -- -0- 5,000 -0- -0-
</TABLE>
---------------------------
(1) Salary and commissions are included in the table on a when paid basis
and bonuses are included on a when accrued basis.
(2) These amounts consist of cash bonus payments, except that (a) one half
(i.e., $200,000) of Mr. Rutherford's 1998 bonus was paid in shares (a
total of 213,333 shares) of Common Stock and (b) one half (i.e.,
$100,000 ) of Mr. Laguardia's 1998 bonus was paid in shares (a total of
106,666 shares) of Common Stock.
(3) While the Named Executive Officers receive certain perquisites, except
as stated herein, such perquisites did not exceed the lesser of $50,000
or 10% of any such officer's salary and bonus for any periods
presented.
50
<PAGE>
(4) Represents amounts contributed on the officer's behalf by Atlantic Gulf
to its 401(k) Plan.
(5) Reserved.
(6) In November 1997, Atlantic Gulf granted Mr. Rutherford an option to
acquire up to 3 million shares of Common Stock (Mr. Rutherford's
"Option"). See PART III, ITEM 11. EXECUTIVE COMPENSATION - STOCK OPTION
GRANTS DURING FISCAL YEAR 1998 below for a description of the principal
terms of Mr. Rutherford's Option.
(7) In November 1997, Atlantic Gulf granted Mr. Jeffrey an option to
acquire up to 50,000 shares of Common Stock (Mr. Jeffrey's "Existing
Option"). The Existing Option has a 7-year term and an exercise price
of $4.3125 per share. Existing Options to purchase 16,667 shares of
Common Stock vested and became exercisable on each of November 17,
1997, and June 30, 1998. The last tranche of Existing Options to
acquire 16,666 shares of Common Stock will become exercisable on June
30, 1999. The Existing Option will become immediately exercisable in
full if a "change of control" of Atlantic Gulf occurs or if a committee
of outside directors appointed by the Board or the Board gives thirty
(30) days' notice canceling, effective on the date of consummation of
certain major transactions, any Existing Option that remains
unexercised on such date.
In November 1997, Atlantic Gulf also granted Mr. Jeffrey an option to
acquire up to another 200,000 shares of Common Stock (Mr. Jeffrey's
"New Option"). See PART III, ITEM 11. EXECUTIVE COMPENSATION - STOCK
OPTION GRANTS DURING FISCAL YEAR 1998 below for a description of the
principal terms of Mr. Jeffrey's New Option.
(8) Mr. Laguardia joined Atlantic Gulf in December 1997 and became a Named
Executive Officer for the first time in 1998.
(9) In November 1997, Atlantic Gulf granted Mr. Laguardia an option to
acquire up to 450,000 shares of Common Stock ("Mr. Laguardia's
"Option"). See PART III, ITEM 11. EXECUTIVE COMPENSATION - STOCK OPTION
GRANTS DURING FISCAL YEAR 1998 below for a description of the principal
terms of Mr. Laguardia's Option.
(10) The bonus amounts for Mr. Woodbury include commissions of $0, $10,308
and $15,783 in 1998, 1997 and 1996, respectively.
(11) The bonus amounts for Mr. O'Grady include commissions of $231,000,
$200,781 and $153,914 in 1998, 1997 and 1996, respectively.
STOCK OPTION GRANTS DURING FISCAL YEAR 1998
The following table sets forth summary information concerning options
to purchase Common Stock granted to Named Executive Officers in 1998.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Percent of Total Options
Granted to Employees in Exercise Expiration Grant Date
Name Options Granted Fiscal Year(1) Price Date Present Value(2)
- ---- --------------- -------------- ----- ---- ----------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
J. Larry Rutherford 3,000,000(3) 72.2% $2.125 (3) $0.97
- ----------------------------------------------------------------------------------------------------------
Thomas W. Jeffrey 200,000(4) 4.8% $2.125 (4) 0.97
- ----------------------------------------------------------------------------------------------------------
John Laguardia 450,000(5) 10.8% $2.125 (5) 0.97
- ----------------------------------------------------------------------------------------------------------
Kimball D. Woodbury 50,000(1) 1.2% $2.00 (1) 0.91
- ----------------------------------------------------------------------------------------------------------
Kevin M. O'Grady 30,000(1) 0.7% $2.00 (1) 0.91
- ----------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
(1) During 1998, Atlantic Gulf granted to executive officers and other key
employees (other than Messrs. Rutherford, Jeffrey and Laguardia)
options to acquire a total of 500,000 shares of Common Stock under the
Employee Stock Option Plan. All of these options were granted on August
12, 1998, have an exercise price of $2.00 per share and a ten (10) year
term. Of this amount, options to acquire 80,000 shares of Common Stock
were granted to Messrs. Woodbury and O'Grady, Named Executive Officers.
(2) The grant date present values are calculated based on the "risk-free"
Black-Scholes model. The assumptions used in the calculations include
an expected volatility of .435, a rate of return of 5.5%, no dividend
yield and a time to exercise of five years.
(3) On November 17, 1997, Atlantic Gulf granted Mr. Rutherford an option to
acquire 3,000,000 shares of Common Stock at an exercise price equal to
the fair market value of the Common Stock on the date the stockholders
approved the terms of Mr. Rutherford's option agreement, which the
stockholders did on July 2, 1998. The fair market value of the Common
Stock was $2.125 on July 2, 1998. The option will vest in four 750,000
share tranches. The first tranche vested on July 2, 1998. The second
tranche vested on December 31, 1998. The last two tranches will vest on
December 31, 2000 and 2001. The option will expire seven years from its
grant date, i.e., November 17, 2004, if not terminated sooner. The
option will terminate upon the earliest to occur of the following: (a)
five (5) business days after the date Mr. Rutherford's employment with
Atlantic Gulf is terminated by Atlantic Gulf for cause (as defined in
his Employment Agreement), (b) ninety (90) days after the date Mr.
Rutherford's employment with Atlantic Gulf is terminated by Atlantic
Gulf without cause (as defined in his Employment Agreement) or as a
result of his death or disability and/or (c) thirty (30) days after the
date Mr. Rutherford terminates his employment with Atlantic Gulf. In
addition, Atlantic Gulf may cancel, effective upon the consummation of
any change of control transaction (as defined in Mr. Rutherford's
option agreement) or a merger, consolidation or other transaction in
which Atlantic Gulf does not survive, any portion of Mr. Rutherford's
option that remains unexercised as of such date, provided that Atlantic
Gulf shall give Mr. Rutherford written notice of such proposed
cancellation at least thirty (30) days prior thereto.
(4) On November 17, 1997, Atlantic Gulf granted Mr. Jeffrey an option to
acquire 200,000 shares of Common Stock at an exercise price equal to
the fair market value of the Common Stock on the date Atlantic Gulf's
stockholders approved the terms of Mr. Jeffrey's option agreement,
which the stockholders did on July 2, 1998. The fair market value of
the Common Stock was $2.125 on July 2, 1998. Options for 66,667 shares
vested on each of June 30, 1998 and July 2, 1998. Options for the final
66,666 shares will vest on June 30, 1999. The option will expire seven
years from its grant date, i.e., November 17, 2004, if not terminated
sooner. The option will terminate upon the earliest to occur of the
following: (a) five (5) business days after the date Mr. Jeffrey's
employment with Atlantic Gulf is terminated by Atlantic Gulf for cause
(as defined in his Employment Agreement), (b) ninety (90) days after
the date Mr. Jeffrey's employment with Atlantic Gulf is terminated by
Atlantic Gulf without cause (as defined in his Employment Agreement) or
as a result of his death or disability and/or (c) thirty (30) days
after the date Mr. Jeffrey terminates his employment with Atlantic
Gulf. In addition, Atlantic Gulf may cancel, effective upon the
consummation of any change of control transaction (as defined in Mr.
Jeffrey's option agreement) or a merger, consolidation or other
transaction in which Atlantic Gulf does not survive, any portion of Mr.
Jeffrey's option that remains unexercised as of such date, provided
that Atlantic Gulf shall give Mr. Jeffrey written notice of such
proposed cancellation at least thirty (30) days prior thereto.
(5) On November 17, 1997, Atlantic Gulf granted Mr. Laguardia an option to
acquire 450,000 shares of Common Stock at an exercise price equal to
the fair market value of the Common Stock on the date the stockholders
approved the terms of Mr. Laguardia's option agreement, which the
stockholders did on July 2, 1998. The fair market value of the Common
Stock was $2.125 on July 2, 1998. Options for 150,000 shares vested on
each of June 30, 1998 and July 2, 1998. Options for the final 150,000
shares will vest on June 30, 1999. This option will expire seven years
from its grant date, i.e., November 17, 2004, if not terminated sooner.
The option will terminate upon the earliest to occur of the following:
(a) five (5) business days after the date Mr. Laguardia's employment
with Atlantic Gulf is terminated by Atlantic Gulf for cause (as defined
in his Employment Agreement), (b) ninety (90) days after the date Mr.
Laguardia's employment with Atlantic Gulf is terminated by Atlantic
Gulf without cause (as defined in his Employment Agreement) or as a
result of his death or disability and/or (c) thirty (30) days after the
date Mr. Laguardia terminates his employment with Atlantic Gulf. In
addition, Atlantic Gulf may cancel, effective upon the consummation of
any change of control transaction (as defined in Mr. Laguardia's option
agreement) or a merger, consolidation or other transaction in which
Atlantic Gulf does not survive, any portion of Mr. Laguardia's option
that remains unexercised as of such date, provided that Atlantic Gulf
shall give Mr. Laguardia written notice of such proposed cancellation
at least thirty (30) days prior thereto.
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<PAGE>
AGGREGATED STOCK OPTION AND STOCK APPRECIATION RIGHTS EXERCISES DURING FISCAL
YEAR 1998 AND STOCK OPTION VALUES AT DECEMBER 31, 1998
The following table sets forth information concerning options to
purchase Common Stock held by each of the Named Executive Officers during fiscal
year 1998 and the value of their unexercised options at December 31, 1998. None
of the Named Executive Officers exercised any options to purchase Common Stock
during fiscal year 1998.
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Shares Unexercised In-the-money
Acquired Options At Options At
On Value December 31, 1998 December 31, 1998(1)
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
-------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Larry Rutherford -0- $ -0- 1,732,500 1,542,500 $ -0- $ -0-
Thomas W. Jeffrey -0- -0- 252,668 117,332 -0- -0-
John Laguardia -0- -0- 300,000 150,000 -0- -0-
Kimball D. Woodbury -0- -0- 40,500 49,500 -0- -0-
Kevin M. O'Grady -0- -0- 9,500 25,500 -0- -0-
</TABLE>
- ----------------
(1) Represents the difference between the fair market value of the Common
Stock on December 31, 1998 (i.e., $0.75 per share) and the per share
exercise prices of the options.
Atlantic Gulf had no stock appreciation rights ("SARs") outstanding to
Named Executive officers at any time during fiscal year 1998.
LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS DURING FISCAL YEAR 1998
Atlantic Gulf made no LTIP Awards to any Named Executive Officers
during fiscal year 1998.
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<PAGE>
DEFINED BENEFIT RETIREMENT PLAN
Atlantic Gulf has a defined benefit plan (the "Retirement Plan") that
covers most employees who met certain age and service requirements before
December 31, 1990. The Retirement Plan was amended in 1990 to fix benefits and
service accruals as of December 31, 1990. The following table reflects estimated
annual benefits payable on retirement under the Retirement Plan in the form of a
life annuity. Because credited service ceased in 1990 and none of the Company's
executive officers had 15 years of credited service, the table does not display
more than 15 years. Benefits payable under the Retirement Plan are subject to
certain limitations imposed by the Internal Revenue Code of 1986, as amended
(the "Code"), and benefits in certain situations may be subject to offsets for
Social Security.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Years of Credited Service
-------------------------
-----------------------------------------------
Assumed Highest Average Compensation 5 10 15
- -- --
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 75,000 $4,467 $ 8,935 $13,402
- ---------------------------------------------------------------------------------------------------
100,000 6,155 12,310 18,465
- ---------------------------------------------------------------------------------------------------
</TABLE>
Because of the 1990 amendment to the retirement Plan, Mr. Woodbury is
the only Named Executive officer entitled to participate in the Retirement Plan.
His credited service is frozen at ten (10) years, and his benefits are fixed at
his average salary for the five years ended December 31, 1990 of $50,192.
COMPENSATION OF DIRECTORS
Under the 1996 Non-Employee Directors' Stock Plan (the "Non-Employee
Directors' Stock Plan"), each Non-Employee Director receives (1) an annual
retainer of $25,000, (2) $3,000 per Board meeting attended in person and (3)
$1,000 per Board meeting attended by telephone. Board meeting fees are paid in
cash quarterly. No fees are paid for attending Committee meetings or for serving
as Chairman of a Committee. Prior to April 1, 1998, the annual retainer was paid
in shares of Atlantic Gulf Common Stock, quarterly based on the share price at
the end of the previous quarter. Effective April 1, 1998, the Board amended the
Non-Employee Director Stock Plan to provide that (a) sixty percent (60%) of the
annual retainer (i.e., $15,000) will be paid in Common Stock and (b) the
remaining forty percent (40%) of the annual retainer (i.e., $10,000) will be
paid in cash. The purpose of this change is to provide the Non-Employee
Directors with cash in an amount sufficient to pay their taxes on their annual
retainers. Mr. Rutherford is an employee Director and, therefore, is not
entitled to participate in the Non-Employee Directors' Stock Plan.
Under the Non-Employee Directors' Stock Option Plan (the "Non-Employee
Directors' Stock Option Plan"), each Non-Employee Director (1) was (is) granted
an option to acquire 20,000 shares of Common Stock on the date he first became
(becomes) a director of Atlantic Gulf and (2) is granted an option to acquire an
additional 5,000 shares of Common Stock at the first meeting of directors
following each subsequent election or re-appointment of such director to the
Board. The exercise price of each of these options is 100% of the FMV of the
Common Stock on the option grant date. Each option is fully vested on the grant
date and has a term of ten years. Options for a maximum of 350,000 shares of
Common Stock may be granted under this plan. Effective April 1, 1998, the Board
amended the Non-Employee Directors' Stock Option Plan to provide that each
Apollo Director (who is subject to reappointment annually) will be granted an
option to purchase 1,667 shares of Common Stock each time he is re-appointed to
the Board. Every third year that an Apollo Director is re-appointed to the Board
his option grant will cover 1,666 shares of Common Stock, with the result that
an Apollo Director who is re-appointed to the Board for three consecutive years
will receive three option(s)
54
<PAGE>
covering the same number of shares of Common Stock (i.e., 5,000 shares) as a
Class 1, 2 and 3 Director who is re-elected to a three-year term.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Atlantic Gulf is a party to written employment agreements with Messrs.
Rutherford, Jeffrey and Laguardia, the terms of which are described below.
MR. RUTHERFORD'S EMPLOYMENT AGREEMENT. On November 17, 1997, Mr.
Rutherford and Atlantic Gulf entered into that certain Employment Agreement (as
amended on November 26, 1997, and on December 29, 1997), pursuant to which
Atlantic Gulf agreed to continue to employ Mr. Rutherford as President and Chief
Executive Officer of Atlantic Gulf for the period commencing on and as of July
1, 1997 and ending on December 31, 2000, unless terminated sooner in accordance
with its terms.
Pursuant to his Employment Agreement, Mr. Rutherford was paid an annual
base salary of $450,000 in fiscal year 1998 ("Base Salary") and is currently
being paid the same Base Salary in fiscal year 1999, although his Base Salary
amount is subject to review by the Board in 1999. As of the date hereof, the
Board has not reviewed Mr.
Rutherford's Base Salary.
Mr. Rutherford received a bonus in the amount of $206,000 on the date
he signed his Employment Agreement. Mr. Rutherford was eligible to receive up to
a $600,000 annual bonus ("Annual Bonus") for 1998, twenty-five percent (25%) of
which was payable in the discretion of the Board (the "Discretionary Component")
and seventy-five percent (75%) of which was payable based on Mr. Rutherford's
and the Company's achievement of certain performance objectives which were set
by the Compensation Committee in March 1998 and approved by the stockholders at
the 1998 Annual Meeting (the "Nondiscretionary Component") (the "1998 Annual
Meeting"). The actual amount of Mr. Rutherford's 1998 Annual Bonus (which was
paid to him in March 1999) was $400,000, consisting of a $148,000 Discretionary
Component and a $252,000 Nondiscretionary Component. Fifty percent of Mr.
Rutherford's 1998 Bonus was paid in cash and 50% was paid in the form of 213,333
shares of Common Stock valued at their closing trading price as of March 15,
1999 (which the stockholders approved at the 1998 Annual Meeting).
Mr. Rutherford is eligible to receive up to a $600,000 Annual Bonus for
1999. Like his 1998 Annual Bonus, his 1999 Annual Bonus has a twenty-five
percent (25%) Discretionary Component and a seventy-five percent (75%)
Nondiscretionary Component, based on performance objectives set by the
Compensation Committee in March 1999 and which will be submitted to the
stockholders for their approval at the 1999 Annual Meeting). Fifty percent of
his 1999 Annual Bonus, to the extent earned, may be paid in shares of Common
Stock valued at their FMV.
Pursuant to his Employment Agreement, Atlantic Gulf has agreed to loan
to Mr. Rutherford the funds necessary to pay his federal income taxes on the
portions of his 1998 and 1999 Annual Bonuses paid in shares of Common Stock.
Each loan will be evidenced by a recourse promissory note secured by a pledge of
the shares of Common Stock paid to Mr. Rutherford, will bear interest at the
prime rate as published in THE WALL STREET JOURNAL from time to time payable
monthly and will be due and payable in full one year from the date of the loan.
Pursuant to his Employment Agreement, Mr. Rutherford was entitled to
receive a $250,000 bonus (the "Warrant Reset Incentive") in the event there was
no downward adjustment in the exercise price of the warrants received by Apollo
(the "Apollo Warrants") in connection with the closing of the transactions
55
<PAGE>
described in the Investment Agreement and Secured Agreement, based on Atlantic
Gulf achieving certain cash flow targets for the period ended December 31, 1998.
Atlantic Gulf did not achieve the cash flow targets, and there was a downward
adjustment of the exercise price of the Apollo Warrants as of March 31, 1999. As
a result, Mr. Rutherford did not earn the Warrant Reset Incentive.
Pursuant to Mr. Rutherford's Employment Agreement, Atlantic Gulf loaned
Mr. Rutherford (1) $199,000 in each of 1997 and 1998 (a total of $398,000) for
the purpose of permitting Mr. Rutherford to purchase shares of Common Stock in
the open market and/or in one or more private transactions with third parties
(the "Recourse Loans") and (2) an additional $600,000 in 1998 for the purpose of
permitting Mr. Rutherford to purchase shares of Common Stock directly from
Atlantic Gulf having a market value equal to $600,000 (the "$600,000 Loan")
(collectively, the "Loans"). The two Recourse Loans are full recourse
obligations. The $600,000 Loan is a nonrecourse obligation. All three Loans are
evidenced by promissory notes and secured by pledges (evidenced by a written
pledge and security agreement) of the shares of Common Stock acquired with the
Loan proceeds. The terms of all three Loans are five year. The Loans are payable
in annual installments of interest only, with all unpaid principal and accrued
and unpaid interest payable on maturity. Interest on all three Loans is at the
prime rate as published in THE WALL STREET JOURNAL from time to time. In
addition to other customary events of default, the Loans will become due and
payable in full upon (a) the termination by Atlantic Gulf of Mr. Rutherford's
employment with Atlantic Gulf for cause (as defined in his Employment Agreement)
or (b) the termination by Mr. Rutherford of his employment with Atlantic Gulf.
The stockholders approved the terms of the Recourse Loans and the $600,000 Loan
at the 1998 Annual Meeting. During 1998, Mr. Rutherford expended substantially
all of the proceeds from the three Loans and acquired in a series of
transactions 429,052 shares of Common Stock.
Mr. Rutherford's Employment Agreement provides for other fringe
benefits, including participation in medical, dental, hospitalization,
accidental death and dismemberment, disability, travel and life insurance plans
and any and all other welfare or benefit plans offered by Atlantic Gulf to its
executives, including savings, pension, profit-sharing and deferred compensation
plans.
In November 1997, Atlantic Gulf granted Mr. Rutherford an option to
acquire up to 3 million shares of Common Stock (Mr. Rutherford's "Option"). See
PART III, ITEM 11. EXECUTIVE COMPENSATION - STOCK OPTION GRANTS DURING FISCAL
YEAR 1998 above for a description of the principal terms of Mr. Rutherford's
Option.
Atlantic Gulf has the right, in its sole and absolute discretion, to
terminate Mr. Rutherford's employment with Atlantic Gulf for cause, as defined
in Mr. Rutherford's Employment Agreement. Upon any such termination, Mr.
Rutherford will be entitled to receive (1) any accrued and unpaid Base Salary
through the termination date and (2) any accrued and earned but unpaid bonuses
for periods ending on or before the termination date. Any and all unexercised
and unvested Options will terminate five (5) business days after the termination
date.
Mr. Rutherford's Employment Agreement will terminate on his death, and
Atlantic Gulf will have the right to terminate Mr. Rutherford's employment with
Atlantic Gulf if Mr. Rutherford, as a result of physical or mental disability
(as defined in his Employment Agreement), is unable to perform his duties for a
period of one hundred eighty (180) days in any twelve (12) month period. Upon
the occurrence of such termination, Mr. Rutherford (or his estate, in the case
of his death) will be entitled to receive (1) any accrued and unpaid Base Salary
through the termination date, (2) any accrued and earned but unpaid bonuses for
periods ending on or before the termination date and (3) six (6) months
additional Base Salary according to Atlantic Gulf's
56
<PAGE>
normal payroll schedule. Any and all unexercised and unvested Options will
terminate ninety (90) days after the termination date.
Finally, Atlantic Gulf has the right at all times, in its sole and
absolute discretion, to terminate Mr. Rutherford's employment without cause.
Upon the occurrence of any such termination, Mr. Rutherford will be entitled to
receive (1) any accrued and unpaid Base Salary through the termination date, (2)
any accrued and earned but unpaid bonuses for periods ending on or before the
termination date and (3) his Base Salary (according to Atlantic Gulf's normal
payroll schedule) until the earlier of (a) two (2) years from the date of
termination or (b) December 31, 2000. Any and all unexercised and unvested
Options will terminate ninety (90) days after the termination date.
Mr. Rutherford has the right at all times, on sixty (60) days' written
notice, to terminate his employment with Atlantic Gulf. Upon any such
termination, Mr. Rutherford will be entitled to receive (1) any accrued and
unpaid Base Salary through the termination date and (2) any accrued and earned
but unpaid bonuses for periods ending on or before the termination date. Any and
all unexercised and unvested Options will terminate thirty (30) days after the
termination date.
At all times while he is employed by Atlantic Gulf and unless his
employment with Atlantic Gulf is terminated by Atlantic Gulf prior to the
expiration of his Employment Agreement without cause, for a two (2) year period
following termination of his employment with Atlantic Gulf, Mr. Rutherford is
prohibited from competing, directly or indirectly, with the Company (with
certain limited exceptions, as set forth in his Employment Agreement). He is
also prohibited at any time from disclosing, using to the detriment of the
Company for the benefit of any other persons or misusing the Company's
confidential information. Finally, during his employment and for a two (2) year
period following termination of his employment for any reason, he is prohibited
from (a) employing or attempting to employ any Company employee unless such
employee has not been employed by the Company for a period in excess of six (6)
months or (b) calling on or soliciting actual or prospective clients of the
Company on behalf of any competitor of the Company.
Mr. Rutherford's Employment Agreement provides that, for purposes of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder ("Section 162(m)," which limits the
deductibility for federal income tax purposes of certain compensation in excess
of $1 million paid to certain executive officers), for each fiscal year of
Atlantic Gulf, payment of the portion of Mr. Rutherford's Annual Bonus earned
for that fiscal year that would not otherwise be deductible by reason of Section
162(m) (the "Section 162(m) Portion") shall be subject to the following
conditions: (1) the performance objectives for such year shall be determined by
the Compensation Committee at such times as may be required for the Section
162(m) Portion to be deductible under Section 162(m), (2) the Company's
attainment of the performance objectives shall be determined by the Compensation
Committee, in its sole discretion, (3) payment of the Section 162(m) Portion
shall be subject to the prior approval of the stockholders of the material terms
of such performance objectives (including the maximum amount of compensation
that may be paid to Mr. Rutherford for any calendar year) and (4) the sum of the
Annual Bonus and the Warrant Reset Incentive payable to Mr. Rutherford in any
calendar year shall not exceed $1 million. Notwithstanding any other provision
of Mr. Rutherford's Employment Agreement, compensation otherwise payable to Mr.
Rutherford thereunder that, for any calendar year, does not meet one of the
exceptions to the deduction limitation in Section 162(m), will not, for such
year, exceed the Section 162(m) deduction limitation.
MR. JEFFREY'S EMPLOYMENT AGREEMENT. On November 17, 1997, Mr. Jeffrey
and Atlantic Gulf entered into that certain Employment Agreement, effective as
of July 1, 1997, pursuant to which Atlantic Gulf agreed to continue to employ
Mr. Jeffrey as Executive Vice President and Chief Financial Officer of Atlantic
57
<PAGE>
Gulf for the period commencing on July 1, 1997 and ending on June 30, 1999,
unless terminated sooner in accordance with the terms thereof.
Pursuant to his Employment Agreement, Mr. Jeffrey was paid an annual
base salary of $225,000 in fiscal year 1998 ("Base Compensation") and is
currently being paid the same Base Compensation in fiscal year 1999.
Mr. Jeffrey received a cash bonus of $90,000 when he signed his
Employment Agreement. Mr. Jeffrey was eligible to receive an annual bonus, to
the extent earned (a "Performance Bonus"), of up to 50% of his Base
Compensation, in fiscal year 1998, based upon the Company's and his achievement
of certain performance objectives and other criteria which were set by the
President and approved by the Board in consultation with Mr. Jeffrey in March
1998. The actual amount of Mr. Jeffrey's 1998 Performance Bonus (which was paid
to him in March 1999) was $95,000.
Mr. Jeffrey is eligible to receive a Performance Bonus, to the extent
earned, of up to 50% of his Base Compensation in 1999, subject to the Company
and his achieving certain performance objectives and other criteria which were
set by the President and approved by the Board in consultation with Mr. Jeffrey
in March 1999.
Mr. Jeffrey's Employment Agreement also provides that he will be
entitled to such other fringe benefits and perquisites as are provided to any or
all of Atlantic Gulf's senior executives, including (but not limited to), life
insurance and health insurance, four weeks of paid vacation, the right to
participate in Atlantic Gulf's 401K plan, a leased car and up to $1,000 per year
of tax planning and return preparation services.
In November 1997, Atlantic Gulf granted Mr. Jeffrey an option to
acquire up to 50,000 shares of Common Stock (Mr. Jeffrey's "Existing Plan
Option"), the terms of which are set forth in that certain Existing Plan Stock
Option Agreement, dated as of November 17, 1997 (Mr. Jeffrey's "Existing Plan
Option Agreement"). See PART III, ITEM 11. EXECUTIVE COMPENSATION - SUMMARY
COMPENSATION TABLE above for a description of the principal terms of Mr.
Jeffrey's Existing Plan Option.
In November 1997, Atlantic Gulf also granted Mr. Jeffrey an option to
acquire up to another 200,000 shares of Common Stock (Mr. Jeffrey's "New
Option"), the terms of which are set forth in that certain New Stock Option Plan
and Agreement, dated as of November 17, 1997 (Mr. Jeffrey's "New Plan Option
Agreement"). See PART III, ITEM 11. EXECUTIVE COMPENSATION - STOCK OPTION GRANTS
DURING FISCAL YEAR 1998 above for a description of the principal terms of Mr.
Jeffrey's New Option. Mr. Jeffrey's Existing Plan Option and New Option are
collectively referred to herein as his "Options."
Atlantic Gulf has the right to terminate Mr. Jeffrey's employment with
Atlantic Gulf for cause, as defined in Mr. Jeffrey's Employment Agreement. Upon
any such a termination, Mr. Jeffrey will not be entitled to receive any further
compensation, and all of his Options will terminate five (5) business days after
the termination date.
Mr. Jeffrey's Employment Agreement will terminate immediately upon his
death or total and permanent disability (i.e., if he is unable to perform his
regular duties for one hundred eighty (180) or more consecutive days). Upon such
a termination, Mr. Jeffrey or his estate will be entitled to receive (1) any
accrued but unpaid Base Compensation through the termination date, (2) any
accrued and earned but unpaid Performance Bonus and (3) a severance payment
equal to six (6) months of Base Compensation. Any and all unexercised and
unvested Options will terminate ninety (90) days after the termination date.
58
<PAGE>
Atlantic Gulf also has the right, upon sixty (60) days' notice, to
terminate Mr. Jeffrey's employment with Atlantic Gulf without cause. Upon any
such termination, Mr. Jeffrey will be entitled to receive (1) any earned but
unpaid Performance Bonus and (2) a cash severance payment in the amount of
$300,000, payable bi-weekly over the twelve (12) month period following the
termination date. Atlantic Gulf will continue Mr. Jeffrey's (a) leased car
expense reimbursement and his tax preparation reimbursement for a period of
three (3) months following the termination date or, alternatively, pay Mr.
Jeffrey the after-tax equivalent of such benefits and (b) insurance benefits for
a period of twelve (12) months following the termination date or, alternatively,
pay Mr. Jeffrey the after-tax equivalent of such benefits. Atlantic Gulf also
will pay, on Mr. Jeffrey's behalf, up to $10,000 of outplacement costs. Any and
all unexercised and unvested Options will terminate ninety (90) days after the
termination date.
Mr. Jeffrey has the right, on ninety (90) days' written notice, to
terminate his employment with Atlantic Gulf. Upon any such termination, Mr.
Jeffrey will be not be entitled to receive any further compensation, and any and
all unexercised and unvested Options will terminate thirty (30) days after the
termination date.
At all times while he is employed by Atlantic Gulf, Mr. Jeffrey is
prohibited from competing, directly or indirectly, with the Company in the real
estate development and sales business in the State of Florida. He is also
prohibited at any time from disclosing or using any of the Company's
confidential information except as required by the performance of his duties and
solely for the Company's benefit, except as may be required by any law or court
order. Finally, during his employment and for a period of one hundred eighty
(180) days following the termination of his employment with Atlantic Gulf, Mr.
Jeffrey is prohibited from soliciting, encouraging or inducing any employee of
the Company to leave his employment with the Company.
MR. LAGUARDIA'S EMPLOYMENT AGREEMENT. On November 17, 1997, Mr.
Laguardia and Atlantic Gulf entered into that certain Employment Agreement,
pursuant to which Atlantic Gulf retained Mr. Laguardia as Executive Vice
President and Chief Operating Officer of Atlantic Gulf for the period commencing
on November 17, 1997 and ending on November 17, 2001, unless terminated sooner
in accordance with the terms thereof.
Pursuant to his Employment Agreement, Mr. Laguardia was paid an annual
base salary of $300,000 in fiscal year 1998 ("Base Compensation") and is
currently being paid the same Base Compensation in fiscal year 1999.
Mr. Laguardia was eligible to receive an annual bonus, to the extent
earned (a "Performance Bonus"), of up to 100% of his Base Compensation in fiscal
year 1998, based upon the Company's and his achievement of certain performance
objectives and other criteria which were set by the President and approved by
the Board in consultation with Mr. Laguardia in March 1998. The actual amount of
Mr. Laguardia's 1998 Performance Bonus (which was paid to him in March 1999) was
$200,000. Fifty percent of Mr. Laguardia's 1998 Bonus was paid in cash and 50%
was paid in the form of 106,666 shares of Common Stock valued at their closing
trading price as of March 15, 1999 (which the stockholders approved at the 1998
Annual Meeting).
Mr. Laguardia is eligible to receive a Performance Bonus, to the extent
earned, of up to 100% of his Base Compensation in 1999, subject to Atlantic Gulf
and his achieving certain performance objectives and other criteria which were
set by the President and approved by the Board in consultation with Mr.
Laguardia in March 1999. Fifty percent of his 1999 Annual Bonus, to the extent
earned, may be paid in shares of Common Stock valued at their FMV, provided that
it agrees to loan Mr. Laguardia the funds to pay his federal income taxes on
such shares.
59
<PAGE>
Mr. Laguardia's Employment Agreement also provides that he will be
entitled to such other fringe benefits and perquisites as are provided to any or
all of Atlantic Gulf's senior executives, including (but not limited to), life
insurance and health insurance, four weeks of paid vacation, the right to
participate in Atlantic Gulf's 401K plan, a leased car and up to $1,000 per year
of tax planning and return preparation services. During 1998, Mr. Laguardia
received a relocation allowance of $45,722. Mr. Laguardia also is entitled to
certain other related reimbursements.
In November 1997, Atlantic Gulf granted Mr. Laguardia an option to
acquire up to 450,000 shares of Common Stock ("Mr. Laguardia's "Option"), the
terms of which are set forth in that certain Stock Option Plan and Agreement,
dated as of November 17, 1997 (Mr. Laguardia's "Option Agreement"). See PART
III, ITEM 11. EXECUTIVE COMPENSATION - STOCK OPTION GRANTS DURING FISCAL YEAR
1998 above for a description of the principal terms of Mr. Laguardia's Option.
Atlantic Gulf has the right to terminate Mr. Laguardia's employment
with Atlantic Gulf for cause, as defined in Mr. Laguardia's Employment
Agreement. Upon any such a termination, Mr. Laguardia will not be entitled to
receive any further compensation, and all of his Options will terminate five (5)
business days after the termination date.
Mr. Laguardia's Employment Agreement will terminate immediately upon
his death or total and permanent disability (i.e., if he is unable to perform
his regular duties for one hundred eighty (180) or more consecutive days). Upon
such a termination, Mr. Laguardia or his estate will be entitled to receive (1)
any accrued but unpaid Base Compensation through the termination date and (2)
any accrued and earned but unpaid Performance Bonus. Any and all unexercised and
unvested Options will terminate ninety (90) days after the termination date.
Atlantic Gulf also has the right, upon sixty (60) days' notice, to
terminate Mr. Laguardia's employment with Atlantic Gulf without cause. Upon any
such termination, Mr. Laguardia will be entitled to receive (1) any earned but
unpaid Performance Bonus and (2) a cash severance payment in the amount of
$300,000, payable within fifteen (15) days of the termination date. Atlantic
Gulf will continue Mr. Laguardia's (a) life and health insurance, leased car
expense reimbursement allowance and his tax preparation reimbursement allowance
for a period of twelve (12) months following the termination date or,
alternatively, pay Mr. Laguardia the after-tax equivalent of such benefits and
(b) continue his rental apartment lease reimbursement allowance through the
earlier of the expiration of his Employment Agreement or the term of such lease.
Atlantic Gulf also will pay, on Mr. Laguardia's behalf, up to $10,000 of
outplacement costs. Any and all unexercised and unvested Options will terminate
ninety (90) days after the termination date.
Mr. Laguardia has the right, on ninety (90) days' written notice, to
terminate his employment with Atlantic Gulf. Upon any such termination, Mr.
Laguardia will be not be entitled to receive any further compensation, and any
and all unexercised and unvested Options will terminate thirty (30) days after
the termination date.
At all times while he is employed by Atlantic Gulf, Mr. Laguardia is
prohibited from competing, directly or indirectly, with the Company in the real
estate development and sales business in the State of Florida. He is also
prohibited at any time from disclosing or using any of the Company's
confidential information except as required by the performance of his duties and
solely for the Company's benefit, except as may be required by any law or court
order. Finally, during his employment and for a period of one hundred eighty
(180) days following the termination of his employment with Atlantic Gulf, Mr.
Laguardia is prohibited
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from soliciting, encouraging or inducing any employee of the Company to leave
his employment with the Company.
CONSULTING, BROKERAGE AND OTHER SIMILAR ARRANGEMENTS WITH FORMER NAMED EXECUTIVE
OFFICERS
EXCLUSIVE BROKERAGE AND CONSULTING AGREEMENT WITH BAYSHORE LAND GROUP,
INC. On January 16, 1998, Atlantic Gulf entered into an Exclusive Brokerage and
Consulting Agreement, dated as of the same date (the "Bayshore Agreement"), with
Bayshore Land Group, Inc. ("Bayshore"). Mr. Fertig, who was a Named Executive
Officer of Atlantic Gulf prior to terminating his employment with Atlantic Gulf
in January 1998, is the president and a stockholder of Bayshore.
Pursuant to the Bayshore Agreement, Atlantic Gulf has retained
Bayshore, on an exclusive basis, to serve as its exclusive broker, and as a
consultant to Atlantic Gulf, in connection with the advertising, marketing,
promotion and sale of certain Company-owned Tracts (as identified therein), Lots
(as identified therein) and one Commercial Parcel (as identified therein), all
located in Florida and Tennessee (collectively, the "Property").
The term of the Bayshore Agreement is one year for the sale of Tracts
and two (2) years for the sale of Lots and the Commercial Parcel. In
consideration for Bayshore's services, Atlantic Gulf has agreed to pay Bayshore
the following commissions ("Commissions"): (1) six percent (6%) of the gross
sales price for the sale of certain Lots and Tracts that were already under
contract at the time the parties entered into the Bayshore Agreement, (2) six
percent (6%) of the gross sales price for all other Lots and Tracts (three and
one-half percent (3.5%) in the case of certain sales in the Sabal Trace
development), and (3) four percent (4%) of the gross sales price of the
Commercial Parcel (six percent (6%) of the gross sales price if a co-broker is
retained, but Bayshore will be responsible for paying the co-broker). From
January 16, 1998 through December 31, 1998, Atlantic Gulf paid a total of
$207,247 in commissions to Bayshore.
Atlantic Gulf may terminate the Bayshore Agreement (1) without cause
(as defined therein) at any time upon thirty (30) days prior written notice to
Bayshore and (2) at any time with cause (as defined therein). In the event of a
termination without cause, Atlantic Gulf has agreed to pay Bayshore (a) all
Commissions payable under the Bayshore Agreement with respect to sales under
contract on the termination date which close thereafter, (b) subject to (c)
below, in the case of all properties not under contract on the termination date,
between three percent (3%) and six percent (6%) of the listing price for the
Properties (as shown on an attachment to the Bayshore Contract) depending on
when the Bayshore Agreement is terminated (the "Termination (b) Commissions")
and (c) if a Property not under contract on the termination date is sold within
one hundred twenty (120) days after the termination date, the full Commission on
the Property (less amounts already paid under (b) above) with respect to sales
to parties to whom Bayshore showed the Property prior to the termination date
(the "Termination (c) Payments").
Effective as of December 1, 1998, the parties amended the Bayshore
Agreement to (a) delete all references to Lots, eliminate the 6% commission on
sales of Lots and terminate the Bayshore Agreement as to the Lots, (b) amend the
Tracts schedule, (c) modify certain of Bayshore's duties and responsibilities,
(d) extend the term of the Bayshore Agreement for sales of Tracts to December 1,
1999, (e) eliminate draws against commissions, (f) eliminate the Termination (b)
Payments and (f) change the time period for Termination (c) Payments from 120
days to 45 days.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal year 1998 were
Messrs. DeFrancia, Koenig and Neibart (the Chairman). None of the executive
officers of Atlantic Gulf serves or served on the compensation committee of
another entity or on any other committee of the board of directors of another
entity performing similar functions during fiscal year 1998, and no executive
officer of Atlantic Gulf serves or served as a director of another entity one of
whose executive officers serves or served on the Compensation Committee or the
Board.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of shares of Common Stock as of March 31, 1999, by (i) each
person (or group of affiliated persons) known by Atlantic Gulf to be the
beneficial owner of more than five percent (5%) of the outstanding shares of
Common Stock, (ii) each of Atlantic Gulf's directors, (iii) each Named Executive
Officer (as defined in PART III, ITEM 11. EXECUTIVE COMPENSATION SUMMARY
COMPENSATION TABLE above) and (iv) all directors and Named Executive Officers as
a group.
Number of
Name and Address of Beneficial Owner (1) Shares(2) Percent (2)
---------------------------------------- --------- -----------
AP-AGC, LLP (3)(4) 11,472,267 48.61%
Morgan Stanley Group (5) 4,098,709 29.35%
Elliott Group (6) 3,399,964 22.49%
Gerald N. Agranoff (7) 63,669 (18)
James M. Defrancia (8) 39,295 (18)
Stuart F. Koenig (3)(4)(9) 34,572 (18)
Ricardo Koenigsberger (3)(4)(10) 35,962 (18)
Charles K. MacDonald (11) 34,295 (18)
Lee Neibart (3)(4)(12) 35,962 (18)
J. Larry Rutherford (13) 2,402,879 16.72%
Thomas W. Jeffrey (14) 262,040 2.03%
John Laguardia (15) 300,000 2.32%
Kimball D. Woodbury (16) 42,500 (18)
Kevin M. O'Grady (17) 20,000 (18)
All Named Executive Officers and Directors as a Group
(10 Persons) 3,271,174 21.63%
- ---------
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(1) Unless otherwise indicated, the address of each of the persons named
above is c/o Atlantic Gulf Communities Corporation, 2601 South Bayshore
Drive, Miami Florida 33133.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon the
exercise of options or warrants. Each beneficial owner's number of
shares is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and that are
exercisable within 60 days from the date hereof have been exercised.
The total outstanding shares used to calculate each beneficial owner's
percentage includes such exercisable options and warrants of that
person Only. Unless otherwise noted, Atlantic Gulf believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(3) Messrs. Koenig, Koenigsberger and Neibart, the Apollo Directors, are
affiliated with Apollo. Accordingly, Apollo may be deemed to be the
beneficial owner of the shares owned by each of Messrs. Koenig,
Koenigsberger and Neibart and, in turn, each of them may be deemed to
be the beneficial owner of the shares owned by Apollo. As discussed
below, each of the Apollo Directors disclaims any beneficial ownership
of the shares of Common Stock, shares of Series A Preferred Stock and
Apollo Warrants owned by Apollo.
(4) According to a Schedule 13G, dated June 30, 1998 and the Company's
stock records, AP-AGC, LLC beneficially owns 11,472,267 shares of
Common Stock, consisting of (a) 500,000 shares of Common Stock, (b)
5,972,267 shares of Common Stock issuable upon the conversion of
2,500,000 shares of Series A Preferred Stock and (c) 5,000,000 shares
of Common Stock issuable upon the exercise of 5 million warrants (the
"Apollo Warrants"). The Address for Apollo is Two Manhattanville Road,
Purchase, New York 10577.
(5) According to a Schedule 13G, dated February 10, 1999 and the Company's
stock records, the following parties, which have elected to file as a
13G Group (the "Morgan Stanley Group"), beneficially own 4,098,709
shares of Common Stock, consisting of (a) 2,761,715 shares of Common
Stock, (b) 736,994 shares of Common Stock issuable upon the conversion
of 300,000 shares of Series B Preferred Stock and (c) 600,000 shares of
Common Stock issuable upon the exercise of 600,000 warrants ("Series B
Warrants").
The addresses for the Morgan Stanley Group members are (a) Morgan
Stanley Dean Witter & Co. - 1585 Broadway, 38th Floor, New York, New
York 10036 ; (b) Morgan Stanley Asset Management, Inc., and Morgan
Stanley Institutional Fund, Inc. - 1221 Avenue of the Americas, New
York, New York 10020; and (c) Van Kampen American Asset Management,
Inc., and Van Kampen American Capital Life Investment Trust Real Estate
Securities Fund - One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
(6) According to a Schedule 13D, dated July 9, 1998, and the Company's
stock records, the following parties, which have elected to file as a
13D group (the "Elliott Group"), beneficially own 3,399,964 shares of
Common Stock consisting of (a) 909,079 shares of Common Stock, (b)
1,367,982 shares of Common Stock issuable upon the conversion of
561,452 shares of Series B Preferred Stock and (c) 1,122,903 shares of
Common Stock issuable upon the exercise of 1,122,903 warrants ("Series
B Warrants").
The address of the Elliott Group is 712 Fifth Avenue, 36th Floor, New
York, New York 10019.
(7) Consisting of (a) 38,669 shares of Common Stock and (b) 25,000 shares
of Common Stock issuable upon the exercise of stock options.
(8) Consisting of (a) 14,295 shares of Common Stock and (b) 25,000 shares
of Common Stock issuable upon the exercise of stock options.
(9) Consisting of (a) 12,905 shares of Common Stock and (b) 21,667 shares
of Common Stock issuable upon the exercise of stock options. Mr. Koenig
disclaims beneficial ownership of the Atlantic Gulf Securities owned by
Apollo and Messrs. Koenigsberger and Neibart.
(10) Consisting of (a) 14,295 shares of Common Stock and (b) 21,667 shares
of Common Stock issuable upon the exercise of stock options. Mr.
Koenigsberger disclaims beneficial ownership of the Atlantic Gulf
Securities owned by Apollo and Messrs. Koenig and Neibart.
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(11) Consisting of (a) 14,295 shares of Common Stock and (b) 20,000 shares
of Common Stock issuable upon the exercise of stock options.
(12) Consisting of (a) 14,295 shares of Common Stock and (b) 21,667 shares
of Common Stock issuable upon the exercise of stock options. Mr.
Neibart disclaims beneficial ownership of the Atlantic Gulf Securities
owned by Apollo and Messrs. Koenig and Koenigsberger.
(13) Consisting of (a) 656,585 Shares of Common Stock, (b) 1,742,500 shares
of Common Stock issuable upon the exercise of vested stock options, (c)
2,018 shares of Common Stock issuable upon the conversion of 888 shares
of series B Preferred Stock into common stock and (d) 1,776 shares of
common stock issuable upon the exercise of 1,776 warrants. Does not
include 1,532,500 shares of common stock issuable upon the exercise of
options that are not exercisable within 60 days of the date hereof.
(14) Consisting of (a) 1,000 shares of Common Stock, (b) 260,668 of Common
Stock issuable upon the exercise of vested stock options, (c) 198
shares of Common Stock issuable upon the conversion of 87 shares of
series B Preferred Stock into Common Stock and (d) 174 shares of Common
Stock issuable upon the exercise of 174 warrants. Does not include
109,332 shares of Common Stock issuable upon the exercise of options
that are not exercisable within 60 days of the date hereof.
(15) Consisting of 300,000 shares of Common Stock issuable upon the exercise
of stock options. Does not include 150,000 shares of common stock
issuable upon the exercise of options that are not exercisable within
60 days of the date hereof.
(16) Consisting of 42,500 shares of Common Stock issuable upon the exercise
of vested stock options. Does not include 47,500 shares of common stock
issuable upon the exercise of options that are not exercisable within
60 days of the date hereof.
(17) Consisting of (a) 10,500 shares of Common Stock and (b) 9,500 shares of
Common Stock issuable upon the exercise of vested stock options. Does
not include 25,500 shares of Common Stock issuable upon the exercise of
options that are not exercisable within 60 days of the date hereof.
(18) Less than one percent.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MR. APTHORP'S EMPLOYMENT AGREEMENT
On July 1, 1997, Atlantic Gulf and Mr. Apthorp, a former director of
Atlantic Gulf and the former chairman of the Board, entered into that certain
Employment Agreement, pursuant to which Atlantic Gulf retained Mr. Apthorp, in
the position of "Chairman Emeritus," principally to coordinate the Company's
statewide governmental relations program. The term of Mr. Apthorp's Employment
Agreement commenced on July 1, 1997 and will terminate on June 30, 1999, unless
terminated sooner in accordance with the terms thereof. Pursuant to his
Employment Agreement, Mr. Apthorp is (1) paid an annual salary of $175,000 and
(2) eligible to receive an annual bonus as determined by the Board in its sole
discretion, based on Mr. Apthorp's performance. Mr. Apthorp is also eligible to
receive such comparable fringe benefits and perquisites as may be provided to
the Company's other senior executives. During 1998, Atlantic Gulf paid Mr.
Apthorp a $175,000 salary.
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LOWE ENTERPRISES MID-ATLANTIC, INC. CONSULTING AGREEMENT
In October 1998, Atlantic Gulf negotiated a Consulting Agreement (the
"Consulting Agreement") with Lowe Enterprises Mid-Atlantic, Inc. ("Lowe"),
pursuant to which Atlantic Gulf would retain Lowe to provide certain executive
management consulting services in connection with the development of the
Company's Aspen Springs Ranch Project (the "Project"). Mr. James DeFrancia, a
director of Atlantic Gulf, is the chairman and a stockholder of Lowe. Atlantic
Gulf has not executed the Consulting Agreement as of the date hereof; however,
the parties have operated since October 1998 under the term of the Consulting
Agreement.
Pursuant to the Consulting Agreement, Lowe has agreed to provide a
minimum of twenty percent (20%) and a maximum of forty percent (40%) of the work
time of Mr. DeFrancia to oversee the construction, marketing, financing,
development and sale of the Project. The term of the Consulting Agreement was
scheduled to begin on September 1, 1998 and is scheduled to end on the earlier
of September 30, 2003 or the date upon which the Company has sold all of the
lots, timeshare units and club memberships comprising the Project. In
consideration for Lowe's services, Atlantic Gulf has agreed to pay Lowe (1) a
base fee of $15,000 per month and a retainer fee of $5,000 per month and (2)
incentive compensation in an amount equal to one percent (1%) of the Company'
gross revenues from the Project, payable as follows: (a) $500,000 upon achieving
$50 million in gross revenues, (b) another $500,000 upon achieving $100 million
in gross revenues, (c) another $500,000 upon achieving $150 million in gross
revenues, (d) another $500,000 upon achieving $200 million in gross revenues and
(e) one percent (1%) of the gross revenues in excess of $200 million upon
completion of the disposition of the Project. The amount of each incentive
payment is conditioned upon the Project achieving a cumulative twenty percent
(20%) minimum gross margin. If such gross margin has not been achieved as of the
date of any incentive payment, then that payment will not be earned and will be
permanently forfeited.
Either party may terminate the Consulting Agreement, without cause, on
thirty (30) days prior written notice. If Atlantic Gulf terminates the
Consulting Agreement without cause, Lowe will not be entitled to receive, after
the date of termination, any further base fees or retainer fees, but will retain
its right to be paid incentive compensation. If Lowe terminates the Consulting
Agreement without cause, Lowe will not be entitled to receive, after the date of
termination, any further base fees, retainer fees or incentive compensation.
Atlantic Gulf may terminate Lowe for cause (as defined in the
Consulting Agreement), in which case Lowe will not be entitled to receive, after
the date of termination, any further base fees, retainer fees or incentive
compensation. If Lowe terminates the Consulting Agreement for cause (as defined
in the Consulting Agreement), Lowe will not be entitled to receive, after the
date of such termination, any further base fees or retainer fees, but will
retain its right to be paid incentive compensation.
In the event of Mr. DeFrancia's death or disability or if he ceases to
be employed by Lowe, Atlantic Gulf may terminate the Consulting Agreement, and
such termination shall be deemed a termination by Atlantic Gulf of the
Consulting Agreement for cause. In addition, if Atlantic Gulf is unable to
obtain certain permits for the Project within eighteen (18) months of the date
of the Consulting Agreement, Atlantic Gulf may terminate the Consulting
Agreement, and such termination shall be deemed a termination for cause. If
Atlantic Gulf obtains such permits within such eighteen (18) month period,
Atlantic Gulf may terminate the Consulting Agreement, and Lowe will not be
entitled to receive, after the date of termination, any further base fees,
retainer fees or incentive compensation; however, Lowe will be entitled to
receive a lump sum $250,000 termination payment within thirty (30) days after
the date of such termination.
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At all times during or subsequent to the term of the Consulting
Agreement, Lowe has agreed not to disclose or use for its own benefit any of the
Company's confidential information except as required by the performance of its
duties and solely for the Company's benefit except as may be required by any law
or court order. In addition, during the term of the Consulting Agreement, Lowe
has agreed not to, directly or indirectly, own, operate, control, assist or
participate in the development of any other residential community development in
Garfield or Pitkin County, Colorado, with certain limited exceptions.
Atlantic Gulf has agreed to indemnify Lowe and its employees, officers
and directors ("Consultant Person") for any losses, claims, damages or
liabilities ("Losses") arising out of or related to Consultant Person's
provision of services under the Consulting Agreement, other than Losses caused
by such Consultant Person's gross negligence or willful misconduct. Lowe has
agreed to indemnify Atlantic Gulf, its affiliates and their employees, officers
and directors ("Company Person") for any Losses arising out of or related to any
Consultant Person's gross negligence or willful misconduct and certain other
expenses, taxes and liabilities.
STOCK PURCHASES BY APOLLO PURSUANT TO THE TERMS OF THE INVESTMENT AGREEMENT
In March 1998, Apollo, pursuant to the terms of the Investment
Agreement, purchased 173,525 shares of Series A Preferred Stock and Investor
Warrants to purchase an additional 347,050 shares of Common Stock for an
aggregate purchase price of $1,735,248, bringing (1) the total number of shares
of Series A Preferred Stock owned by Apollo to 2,500,000 and (2) the total
number of shares purchasable upon exercise of Investor Warrants to 5,000,000. At
December 31, 1998, the liquidation value of Apollo's Series A Preferred Stock
was 32,706,000.
AMENDMENTS TO THE INVESTMENT AGREEMENT AND SECURED AGREEMENT AND RELATED MATTERS
Effective as of December 31, 1998, Apollo consented to the terms, and
consummation, of the New Senior Loan Agreements and, in connection therewith:
- Atlantic Gulf issued the $850,000 promissory note and the
$1,000,000 Promissory Note to Apollo.
- Atlantic Gulf issued 500,000 Additional Shares to Apollo.
- Atlantic Gulf and Apollo entered into the First Amendment to
the Amended and Restated Secured Agreement and the First
Amendment to the Amended and Restated Investment Agreement
pursuant.
- Atlantic Gulf and Apollo entered into an Omnibus Amendment of
Collateral Documents pursuant to which the parties agreed to
(a) include the indebtedness evidenced by the Notes as part of
the Secured Obligations under the Apollo Collateral Documents
(as defined therein) and (b) make other conforming changes to
the Apollo Collateral Documents.
- Apollo, the New Revolving Loan Agreement lenders, the New Term
Loan Agreement lenders and MHD, as collateral agent, entered
into the new Intercreditor Agreement.
In connection with the foregoing, the Board obtained a written opinion
from an independent third party financial advisor that, subject to the
conditions and limitations set forth in such opinion, the terms and
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consideration paid to Apollo for its consent and the other matters discussed
above was fair to the stockholders of Atlantic Gulf from a financial point of
view as of the date of such opinion.
See PART I, ITEM 1. BUSINESS - OPERATING AND FINANCIAL STRATEGIES --
OTHER SIGNIFICANT BUSINESS DEVELOPMENTS IN 1998 and PART II, ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES for more information concerning
these agreements and transactions between the Company and Apollo.
LOANS TO MR. RUTHERFORD
See PART II, ITEM 11. EXECUTIVE COMPENSATION - EMPLOYMENT AGREEMENTS --
MR. RUTHERFORD'S EMPLOYMENT AGREEMENT for a description of the terms of the
Recourse Loans and $600,000 Loan made by Atlantic Gulf to Mr. Rutherford during
fiscal year 1998.
LOAN TO MR. JEFFREY
On April 15, 1998, Atlantic Gulf Communities Corporation loaned $20,000
to Mr. Jeffrey. The loan, which is evidenced by a written promissory note, is a
full recourse note which bears interest at eight percent (8%) per annum and is
payable upon demand.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM
8-K
(a) 1. FINANCIAL STATEMENTS
A. Consolidated Balance Sheets as of December 31, 1998 and 1997
B. Consolidated Statements of Operations for fiscal years 1998,
1997 and 1996
C. Consolidated Statements of Cash Flows for fiscal years 1998,
1997 and 1996
D. Consolidated Statements of Stockholders' Equity for the fiscal
years 1998, 1997 and 1996
2. FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED BY PART II, ITEM 8
AND BY PART II, ITEM 14(D).
A. Schedule II - Valuation and Qualifying Accounts
3. EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K. See c. below.
(b) REPORTS ON FORM 8-K DURING THE LAST QUARTER OF FISCAL YEAR 1998
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1. The Company filed a report on Form 8-K on December 11, 1998, pursuant
to Item 5, Other Events announcing that NASDAQ had de-listed Atlantic
Gulf's securities from the NASDAQ National Market, effective as of the
close of business on Thursday, December 10, 1998.
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K (THE EXHIBIT NUMBERS BELOW
CORRESPOND TO THE EXHIBIT NUMBERS IN ITEM 601 OF REGULATION S-K, EXHIBIT
TABLE):
3. ARTICLES OF INCORPORATION AND BYLAWS:
3.1. Amended and Restated Certificate of Incorporation of Atlantic
Gulf.(7)
3.2. Restated Bylaws of Atlantic Gulf, dated November 17, 1997 (the
"Bylaws").(13)
3.3. Amendment to the Bylaws, dated March 24, 1999.(15)
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.1. Third Amended and Restated Revolving Loan Agreement, dated as
of December 31, 1998, by and among Atlantic Gulf, the lenders
signatory thereto and M.H. Davidson & Co., LLC ("MHD"), as
agent and collateral agent (the "Revolving Loan
Agreement").(15)
4.2. Term Loan Agreement, dated as of December 31, 1998, by and
among by and among Atlantic Gulf, the lenders signatory
thereto, Anglo American Financial, as agent, and MHD as
collateral agent (the "Term Loan Agreement").(15)
4.3. Secured Agreement, dated as of February 7, 1997, amended and
restated as of May 15, 1997, by and among Atlantic Gulf,
certain of its subsidiaries, AP-AGC, LLC ("Apollo"), and MHD,
as collateral agent (the "Amended and Restated Secured
Agreement").(14)
4.4 First Amendment to Amended and Restated Secured Agreement,
dated as of December 31, 1998, by and among Atlantic Gulf,
certain of its subsidiaries, Apollo and MHD, as collateral
agent.(15)
4.5. Investment Agreement, dated as of February 7, 1997, amended as
of March 20, 1997, amended and restated as of May 15, 1997, by
and between Atlantic Gulf and Apollo (the "Investment
Agreement").(9)
4.6. First Amendment to Amended and Restated Investment Agreement,
dated as of December 31, 1998, by and among Atlantic Gulf and
Apollo.(15)
4.7. Intercreditor Agreement, dated as of December 31, 1998, by and
among the Revolving Loan Agreement lenders, the Term Loan
Agreement lenders, the Secured Agreement obligee and MHD, as
collateral agent.(15)
4.8 Form of Warrant granted on September 30, 1996.(6)
4.9 The Company is a party to a number of other instruments
defining the rights of holders of long-term debt. No such
instrument authorizes an amount of securities in excess of ten
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percent (10) of the total assets of the Company and its
subsidiaries on a consolidated basis. On request, the Company
agrees to furnish a copy of each such instrument to the
Commission.
10. MATERIAL CONTRACTS:
10.1 Trust Agreement among GDC and NCNB National Bank of Florida as
Trustee, dated as of January 17, 1991 (for GDC-owned developed
lots in Florida).(1)
10.2 Tennessee Trust Agreement between GDC and Joe M. Looney, Esq.
as Trustee, dated as of December 29, 1989 (for GDC-owned lots
in Tennessee).(1)
10.3 Trust Agreement No. 2 between GDC and Joe M. Looney, Esq. as
Trustee, dated as of May 31, 1991 (for GDFS-owned lots in
Tennessee).(1)
10.4 Atlantic Gulf's 401(k) Plan.(2)
10.5 Atlantic Gulf's Employee Stock Option Plan as amended, as
adopted by Atlantic Gulf's Board on April 6, 1993, as approved
by Atlantic Gulf's common stockholders at the 1993 Annual
Meeting of Stockholders (the "Employee Stock Option Plan").
(3)
10.6 Agreement of Nanjing Ya Dong International Corporation
Limited, dated September 1993, between Nanjing Huan Dong
Enterprise/Nanjing Xianlin Agricultural and Grazing Farm and
Atlantic Gulf Asia Holdings N.V.(3)
10.7 Joint Venture Contract of Nanjing Ya Dong International
Corporation Limited, dated September 1993, between Nanjing
Huan Dong Enterprise/Nanjing Xianlin Agricultural and Grazing
Farm and Atlantic Gulf Asia Holdings N.V.(3)
10.8 Articles of Association of Nanjing Ya Dong International
Corporation Limited, dated September 1993, between Nanjing
Huan Dong Enterprise/Nanjing Xianlin Agricultural and Grazing
Farm and Atlantic Gulf Asia Holdings N.V.(3)
10.9 Non-Employee Directors' Stock Option Plan as approved by
Atlantic Gulf's common stockholders at the 1995 Annual Meeting
of Shareholders.(5)
10.10 Atlantic Gulf 1996 Non-Employee Directors' Stock Plan.(11)
10.11 Registration Rights Agreement dated as of September 30, 1996
between the Atlantic Gulf and the lenders set forth in Exhibit
A of the agreement.(6)
10.12 Utility Lot Trust Agreement, dated as of December 26, 1996,
between Atlantic Gulf and the Division of Florida Land Sales,
Condominiums, and Mobile Homes, and Peninsula State Title, as
Trustee.(8)
10.13 Restated, Amended and Consolidated Trust Agreement, dated as
of December 26, 1996, amended as of December 30, 1996, between
the State of Florida, Department of Business
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Regulation, Division of Florida Land Sales, Condominiums, and
Mobile Homes, Atlantic Gulf and First Union National Bank of
Florida, as Trustee.(8)
10.14 First Amendment to the Restated, Amended and Consolidated
Trust Agreement, dated as of December 26, 1996, amended as of
December 30, 1996.(8)
10.15 Employment Agreement, dated November 17, 1997, effective July
1, 1997, between Atlantic Gulf and J. Larry Rutherford, with
form of Stock Incentive Plan and Agreement for J. Larry
Rutherford, and Amendment to Employment Agreement, dated
November 26, 1997.(12)
10.16 Modification of Employment Agreement between the Company and
J. Larry Rutherford, dated December 27, 1997.(13)
10.17 Employment Agreement, dated November 19, 1997, effective
November 17, 1997, between Atlantic Gulf and John Laguardia,
with form of Stock Option Plan and Agreement for John
Laguardia.(12)
10.18 Employment Agreement, dated November 17, 1997, effective July
1, 1997, between Atlantic Gulf and Thomas W Jeffrey, with form
of Existing Plan Stock Option Agreement for Thomas W. Jeffrey,
and New Stock Option Plan and Agreement for Thomas W.
Jeffrey.(12)
10.19 Amendment to the Employee Stock Option Plan, as approved by
Atlantic Gulf's common stockholders at the 1997 Annual Meeting
of Stockholders.(15)
10.20 Amendment of the Non-Employee Directors' Stock Plan, dated as
of April 1, 1998.(15)
10.21 Amendment of the Non-Employee Directors' Stock Option Plan,
dated as of April 15, 1998.(15)
10.22 Order Granting Government's Motion for Early Termination of
Compliance Program and Special Master, dated as of December 9,
1998.(15)
10.23 Form of Consulting Agreement by and between Atlantic Gulf and
Lowe Enterprises Mid-Atlantic, Inc.
21. SUBSIDIARIES OF THE COMPANY (15)
23. ACCOUNTANTS' CONSENT - Ernst & Young LLP
27. FINANCIAL DATA SCHEDULE (15)
- --------------------------------------
(1) These exhibits are incorporated herein by reference to the Predecessor
Company's Annual Report on Form 10-K for the year ended December 31,
1991, as filed with the Securities and Exchange Commission ("SEC").
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(2) These exhibits are incorporated herein by reference to Atlantic Gulf's
Annual Report on Form 10-K for the year ended December 31, 1992, as
filed with the SEC.
(3) These exhibits are incorporated herein by reference to Atlantic Gulf's
Annual Report on Form 10-K for the year ended December 31, 1993, as
filed with the SEC.
(4) Reserved.
(5) These exhibits are incorporated herein by reference to Atlantic Gulf's
Annual Report on Form 10-K for the year ended December 31, 1995, as
filed with the SEC.
(6) These exhibits are incorporated herein by reference to Atlantic Gulf's
Annual Report on Form 10-K for the year ended December 31, 1996, as
filed with the SEC.
(7) These exhibits are incorporated herein by reference to Atlantic Gulf's
Proxy Statement dated May 21, 1997, as filed with the SEC.
(8) These exhibits are incorporated herein by reference to Atlantic Gulf's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, as
filed with the SEC.
(9) These exhibits are incorporated herein by reference to Atlantic Gulf's
Current Report on Form 8-K, dated June 5, 1997, as filed with the SEC.
(10)These exhibits are incorporated herein by reference to Atlantic Gulf's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, as
filed with the SEC.
(11)These exhibits are incorporated herein by reference to Atlantic Gulf's
Proxy Statement dated April 22, 1996, as filed with the SEC.
(12)These exhibits are incorporated herein by reference to Atlantic Gulf's
Current Report on Form 8-K, dated November 26, 1997, as filed with the
SEC.
(13)These exhibits are incorporated herein by reference to Atlantic Gulf's
Annual Report on Form 10-K for the year ended December 31, 1997, as
filed with the SEC.
(14)These exhibits are incorporated herein by reference to Atlantic Gulf's
Amended Annual Report on Form 10-K/A for the year ended December 31,
1997, as filed with the SEC.
(15)These exhibits are incorporated herein by reference to Atlantic Gulf's
Annual Report on Form 10-K for the year ended December 31, 1998, as
filed with the SEC.
(d) Financial Statement Schedules required by Regulation S-X that are excluded
from the Annual Report to Stockholders by Rule 14a-3(b) promulgated
pursuant to Section 14 of the Securities Exchange Act of 1934, including
(1) separate financial statements of subsidiaries and 50 percent of less
owned persons; (2) separate financial statements of affiliates whose
securities are pledged as collateral; and (3) schedules.
71
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ATLANTIC GULF COMMUNITIES CORPORATION
By: /s/ THOMAS W. JEFFREY
---------------------------------------
Thomas W. Jeffrey
Executive Vice President
and Chief Financial Officer
Date: April 30, 1999
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Atlantic Gulf Communities Corporation and Subsidiaries
Consolidated Financial Statements
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997
and 1996 F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997
and 1996 F-5
Consolidated Statements of Common Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
Consolidated Financial Statement Schedule for each of the periods in the three
years ended December 31, 1998:
Schedule II - Valuation and Qualifying Accounts S-1
</TABLE>
All schedules other than those indicated in the index have been omitted
as the required information is inapplicable or not material, or the
information is presented in the Consolidated Financial Statements and
Notes thereto.
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP
Independent Certified Public Accountants
Board of Directors and Stockholders
Atlantic Gulf Communities Corporation
We have audited the accompanying consolidated balance sheets of Atlantic Gulf
Communities Corporation and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, common stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Atlantic Gulf Communities Corporation and subsidiaries at December 31, 1998 and
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Miami, Florida
March 11, 1999, except for the last
paragraph of Note 20, as to
which the date is March 26, 1999.
F-2
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(in thousands, except share amounts and par value)
1998 1997
---------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 9,413 $ 9,188
Restricted cash and cash equivalents 1,041 1,713
Contract receivables, net 4,109 6,336
Mortgages, notes and other receivables, net 29,273 34,910
Land and residential inventory 166,870 130,506
Property, plant and equipment, net 3,950 1,754
Other assets, net 15,150 18,664
---------- -----------
Total assets $ 229,806 $ 203,071
========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Accounts payable and accrued liabilities $ 17,533 $ 13,615
Other liabilities 8,207 10,046
Notes and mortgages payable 151,805 132,408
---------- -----------
177,545 156,069
---------- -----------
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
$32,706, as of December 31, 1998; 2,326,475 shares issued and
outstanding, having a liquidation preference of $25,254, as of
December 31, 1997 30,403 22,378
Series B, 20%, $.01 par value; 2,000,000 shares authorized; 2,000,000
shares issued and outstanding, having a liquidation preference of
$25,898 and $21,307 as of December 31, 1998
and 1997, respectively 24,417 19,306
---------- -----------
54,820 41,684
---------- -----------
Commitments and Contingencies
Common stockholders' (deficit) equity
Common stock, $.10 par value, 70,000,000 shares authorized;
11,933,359 and 11,607,526 shares issued as of
December 31, 1998 and 1997, respectively 1,193 1,161
Contributed capital 117,994 128,930
Accumulated deficit (115,379) (119,052)
Accumulated other comprehensive loss (6,351) (5,712)
Treasury stock, 158,536 and 86,277 shares, at cost (16) (9)
---------- -----------
Total common stockholders' (deficit) equity (2,559) 5,318
---------- -----------
Total liabilities and common stockholders' (deficit) equity $ 229,806 $ 203,071
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1998, 1997 and 1996
(in thousands, except per share data)
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Real estate sales:
Homesite $ 17,276 $ 24,606 $ 52,910
Commercial 55,525 32,029 53,693
Vertical residential units - 10,984 20,962
--------- --------- ---------
Total real estate sales 72,801 67,619 127,565
Other operating revenue 6,017 3,011 4,919
Interest income 4,937 6,018 6,295
--------- --------- ---------
Total revenues 83,755 76,648 138,779
--------- --------- ---------
Costs and expenses:
Direct cost of real estate sales:
Homesite 14,783 23,372 42,258
Commercial 44,970 35,787 44,331
Vertical residential units - 13,033 16,725
--------- --------- ---------
Total direct cost of real estate sales 59,753 72,192 103,314
Inventory valuation reserves 195 14,457 12,283
Selling expense 6,510 8,502 13,525
Operating expenses 2,010 1,505 1,986
Real estate costs 9,598 14,984 19,384
General and administrative expense 9,908 12,297 12,410
Cost of borrowing, net of amounts capitalized 4,375 12,222 13,430
Other expense 853 1,463 512
--------- --------- ---------
Total costs and expenses 93,202 137,622 176,844
--------- --------- ---------
Operating loss (9,447) (60,974) (38,065)
--------- --------- ---------
Other income (expense):
Reorganization reserves
Utility trust accounts 3,666 - 11,859
Utility connection reserve 1,063 1,063 4,097
Contract receivables termination refunds 104 706 (112)
Refund of unclaimed expired notes 8,549 - -
Other reorganization reserves - 1,761 2,246
Utility condemnation - - 4,122
Land mortgages receivable valuation discount (184) (92) 1,020
Miscellaneous (78) (810) 2,282
--------- --------- ---------
Total other income (expense) 13,120 2,628 25,514
--------- --------- ---------
Income (loss) before extraordinary items 3,673 (58,346) (12,551)
Extraordinary gains on extinguishment of debt - - 13,732
--------- --------- ---------
Net income (loss) 3,673 (58,346) 1,181
--------- --------- ---------
Less:
Accrued preferred stock dividends 10,309 3,296 -
Accretion of preferred stock to redemption amount 1,332 427 -
--------- --------- ---------
11,641 3,723 -
--------- --------- ---------
Net (loss) income applicable to common stock $ (7,968) $ (62,069) $ 1,181
========= ========= =========
Basic and diluted earnings per common share:
Net (loss) income per common share $ (0.68) $ (5.82) $ .12
========= ========= =========
Weighted average common shares outstanding 11,640 10,661 9,709
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
(in thousands of dollars)
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,673 $ (58,346) $ 1,181
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,807 5,033 5,244
Other income (3,259) (2,396) (19,337)
Loss from sale of property, plant and equipment 3 36 94
Gains from utility condemnations or sales - - (5,504)
Extraordinary gains from extinguishment of debt - - (13,732)
Reorganization items 746 549 (1,477)
Inventory valuation reserves 195 14,457 12,283
Land acquisitions (24,875) (21,423) (9,338)
Other net changes in assets and liabilities:
Restricted cash 672 4,321 2,427
Receivables 7,499 19,351 (403)
Land and residential inventory 6,702 45,091 61,694
Other assets 3,514 (9,401) (12,367)
Accounts payable and accrued liabilities 3,866 (3,046) (2,753)
Other liabilities (3,224) (5,648) (2,731)
Other, net -- (103) (273)
--------- --------- ---------
Net cash provided by (used in) operating activities 319 (11,525) 15,008
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (2,876) (455) (228)
Proceeds from sale of property, plant and equipment - 1 1,885
Proceeds from utility condemnations or sales - - 28,699
Funds withdrawn from utility trust accounts 3,774 12,109 -
--------- --------- ---------
Net cash provided by investing activities 898 11,655 30,356
--------- --------- ---------
Cash flows from financing activities:
Borrowings under credit agreements 71,412 120,097 123,848
Repayments under credit agreements (74,531) (168,860) (161,477)
Principal payments on other liabilities - (2,494) (4,250)
Proceeds from issuance of common stock 632 10,000 -
Proceeds from issuance of preferred stock 1,495 43,265 -
Proceeds from exercise of stock options - - 5
--------- --------- ---------
Net cash (used in) provided by financing activities (992) 2,008 (41,874)
--------- --------- ---------
Increase in cash and cash equivalents 225 2,138 3,490
Cash and cash equivalents at beginning of period 9,188 7,050 3,560
--------- --------- ---------
Cash and cash equivalents at end of period $ 9,413 $ 9,188 $ 7,050
========= ========= =========
Supplemental cash flow information:
Income tax payments $ - $ 103 $ -
========= ========= =========
Interest payments, net of amounts capitalized $ 322 $ 6,552 $ 12,268
========= ========= =========
Reorganization item payments $ 46 $ 1,756 $ 5,099
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Common Stockholders' Equity
Years Ended December 31, 1998, 1997 and 1996
(in thousands)
Accumulated
Common Stock Other
----------------- Contributed Accumulated Comprehensive Treasury
Shares(1) Amount Capital Deficit Loss Stock Total
------ ------ ----------- ----------- ------------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 9,772 $ 977 $ 120,115 $ (61,887) $ (4,825) $ - $ 54,380
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 1,181 - - 1,181
Minimum pension liability adjustment - - - - (1,175) - (1,175)
--------
Comprehensive income 6
--------
Stock returned (86) - - - - (9) (9)
Shares issued under director stock plan 18 2 98 - - - 100
Warrants issued to pay down Secured
Cash Flow Notes - - 1,875 - - - 1,875
Exercise of stock options 1 - 5 - - - 5
Shares issued to director as
recapitalization committee fee 4 1 30 - - - 31
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 9,709 980 122,123 (60,706) (6,000) (9) 56,388
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss - - - (58,346) - - (58,346)
Minimum pension liability adjustment - - - - 288 - 288
--------
Comprehensive loss (58,058)
--------
Shares issued under director stock plan 36 3 189 - - - 192
Common shares issued 1,776 178 9,822 - - - 10,000
Proceeds from issuance of warrants - - 519 - - - 519
Accrued preferred stock dividends - - (3,296) - - - (3,296)
Preferred stock accretion - - (427) - - - (427)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 11,521 1,161 128,930 (119,052) (5,712) (9) 5,318
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 3,673 - - 3,673
Minimum pension liability adjustment - - - - (639) - (639)
--------
Comprehensive income 3,034
--------
Stock returned (72) - - - - (7) (7)
Shares issued under director stock plan 43 4 101 - - - 105
Common shares issued 283 28 583 - - - 611
Proceeds from issuance of warrants - - 21 - - - 21
Accrued preferred stock dividends - (10,309) - - - (10,309)
Preferred stock accretion - - (1,332) - - - (1,332)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 11,775 $ 1,193 $ 117,994 $ (115,379) $ (6,351) $ (16) $ (2,559)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net of treasury stock shares.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL. Atlantic Gulf Communities Corporation's
("Atlantic Gulf" or the "Company") core business consists of three
principal business lines: (1) "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 selected primary
markets in the southeastern United States ("Primary Markets"); (2)
"Luxury/Resort Operations," consisting of the acquisition, development
and sale of real estate projects ("Luxury/Resort Projects") involving
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") in
selected markets in Florida and Colorado ("Luxury/Resort Markets"); and
(3) "Other Operations," consisting principally of (a) "Environmental
Services," consisting of the provision of environmental services to
third parties on a contract basis and (b) "Receivables Portfolio
Management," consisting of portfolio management of primarily contracts
receivables and mortgages receivables. The Company's (i) Primary
Markets and Luxury/Resort Markets are referred to as its "Core Markets"
and (ii) Primary Projects and Luxury/Resort Projects are referred to as
its "Core Projects."
The Company is also engaged in the orderly disposition of
scattered predecessor homesites ("Predecessor Homesites") and tracts
("Predecessor Tracts") located in secondary markets in Florida and
Tennessee (collectively, "Predecessor Assets"). The continuing
disposition of Predecessor Assets is a run-off business and not part of
the Company's core business.
(b) CONSOLIDATION. The consolidated financial statements
include the accounts of the Company and all majority-owned subsidiaries
controlled by the Company. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(c) USE OF ESTIMATES. The preparation of the financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that effect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
(d) REORGANIZATION. In April 1990 (the "Petition Date"),
Atlantic Gulf's predecessor corporation ("Predecessor Company") and
certain of its subsidiaries filed for reorganization under Chapter 11
of the United States Bankruptcy Code. The Predecessor Company's Plan of
Reorganization ("POR") was confirmed on March 27, 1992 by the
Bankruptcy Court and became effective on March 31, 1992 ("Effective
Date"). Atlantic Gulf, as the successor Company, adopted a new charter
and business plan.
F-7
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(e) SALES REVENUES AND COSTS OF SALES. Revenue from sales of
residential units (other than sales of Regency Island Dunes ("Regency
Island Dunes") condominium units) is recognized when the earnings
process is complete. Revenue from the sale of Regency Island Dunes
condominium units was recognized using the percentage-of-completion
method. Earned revenue was based on the percentage of costs incurred to
date to total estimated costs to be incurred. This percentage was then
applied to the expected revenue associated with units that had been
sold to date. Revenue from the sale of land is recognized when (i) the
cash received is at least 20% of the selling price (10% for retail land
sales), (ii) the earnings process is complete and (iii) the collection
of any remaining receivable is reasonably assured.
Cost of sales of residential units (other than Regency
condominium sales) is determined on a specific identification basis.
Cost of sales of Regency condominium units was determined using the
percentage-of-completion method. Cost of sales of land is determined on
a Project basis, using the relative sales value method.
(f) INVENTORY. Costs capitalized are allocated on a specific
Project identification basis. Residential unit costs are accounted for
on a specific identification basis and all inventory stated at cost or
at values determined in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
Inventory under development and held for future development is
evaluated at least quarterly for impairment if impairment indicators
are present. An impairment write-down to fair value is made if the
estimated undiscounted cash flows from an item of inventory are less
than the carrying amount of such inventory. Inventory that is
substantially complete and ready for its intended use is carried at the
lower of carrying amount or fair value less cost to sell. The
determination of whether the carrying amount of inventory requires a
write-down is based on an evaluation of each individual parcel.
(g) DEPRECIATION. Depreciation and amortization is provided on
a straight-line basis on the following assets:
Estimated
useful lives in
years
---------------
Land improvements 5 to 33
Buildings 10 to 40
Fixtures and equipment 3 to 10
Maintenance and repairs are charged to income as incurred.
Renewals and betterments to owned properties are capitalized.
Betterments to leased properties are capitalized and amortized over the
shorter of the terms of the leases or the lives of the betterments.
(h) INCOME TAXES. Income taxes have been provided using the
liability method in accordance with SFAS No. 109, ACCOUNTING FOR INCOME
TAXES.
F-8
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(i) CAPITALIZED INTEREST. The Company capitalizes interest on
Core Projects under development and joint ventures accounted for on the
equity method on a specific Project identification basis. Capitalized
interest approximated $15,130,000, $7,804,000 and $5,693,000 for 1998,
1997 and 1996, respectively.
(j) CASH AND CASH EQUIVALENTS. The Company includes in cash
and cash equivalents all highly liquid debt instruments purchased with
a maturity of three months or less. The credit risk associated with
cash and cash equivalents is considered low due to the high quality of
the financial instruments in which these assets are invested.
Restricted cash and cash equivalents include amounts held in
sale escrow accounts, development cash collateral accounts, funds in a
trust to pay certain bankruptcy claims and various other escrow
accounts.
(k) DEFERRED DEBT ISSUANCE COSTS. Costs associated with the
issuance of the Company's various debt instruments or closing of other
financing transactions have been deferred and are being amortized over
the term of the related debt. Amortization of deferred debt issuance
costs, included in cost of borrowing, net in the accompanying
consolidated statements of operations, was $4,130,000, $1,463,000 and
$1,187,000 for 1998, 1997 and 1996, respectively.
(l) REPORTING ON ADVERTISING COSTS. The Company expenses
advertising costs as incurred. The Company recognized advertising
expenses of $1,498,000, $1,608,000 and $3,577,000 for 1998, 1997 and
1996, respectively, and these expenses are included in selling and
other real estate costs in the accompanying consolidated statements of
operations. The Company did not incur any direct response advertising
cost, as defined by SOP 93-7, during the period.
(m) ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company will
continue to account for stock-based compensation plans under the
provisions of APB 25 - Accounting for Stock Issued to Employees. The
Company discloses the pro forma information required for stock-based
compensation plans in accordance with SFAS No. 123, ACCOUNTING FOR
STOCK BASED COMPENSATION.
(n) EARNINGS PER COMMON SHARE. Basic and diluted earnings per
share is calculated and presented to conform with the requirements of
SFAS No. 128, EARNINGS PER SHARE.
(o) RECENT ACCOUNTING PRONOUNCEMENTS. As of January 1, 1998,
the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS
No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net loss or shareholders'
equity. SFAS No. 130 requires unrealized gains or losses on the
Company's minimum pension liability adjustments, which prior to
adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. The Company has elected to
report comprehensive income in the consolidated statements of
stockholders' equity. Prior year amounts have been reclassified to
conform to the requirements of SFAS No. 130.
F-9
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effective January 1, 1998, the Company adopted the Financial
Accounting Standards Board's SFAS No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 superseded SFAS
No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE. SFAS
No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS No. 131 did not affect results of
operations or financial position. See Note 19.
During 1998, the Company adopted SFAS No. 132, EMPLOYERS'
DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS, that
supersedes the disclosure requirements of SFAS No. 87, EMPLOYERS'
ACCOUNTING FOR PENSIONS, and SFAS No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The Company adopted SFAS
No. 132 on January 1, 1998. This statement revises employers'
disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans.
(p) RECLASSIFICATION. Certain amounts in the consolidated
financial statements have been reclassified to conform with the 1998
presentation.
(2) RECEIVABLES PORTFOLIO
The receivables portfolio consists of:
(a) CONTRACT RECEIVABLES. At December 31, Contract Receivables
consisted of the following (in thousands of dollars):
1998 1997
--------- --------
Contract Receivables, gross $ 4,551 $ 7,347
Reserve for estimated future cancellations,
net of estimated land recoveries - (244)
Valuation discounts to yield 15% (442) (767)
--------- --------
$ 4,109 $ 6,336
========= ========
Stated interest rates on the Contract Receivables outstanding
at December 31, 1996, 1997 and 1998 ranged from 4% to 12.5% (averaging
approximately 7.0%). The original terms of the Contract Receivables
were 10 to 12 years.
Total future cancellations are estimated at $550,000 and
$1,128,000 as of December 31, 1998 and 1997, respectively, based on
prior cancellation experience. When a contract cancels, the Company
recovers/restores the Predecessor Asset to inventory at its current
fair value. Total future recoveries are estimated at $550,000 and
$884,000 as of December 31, 1998 and 1997, respectively. Based on
actual collection and cancellation activity, the estimated future
cancellations and recoveries were adjusted resulting in a net gains of
$141,000 and $47,000 in 1998 and 1997, respectively, and a net loss of
$395,000 in 1996 recorded in other income (expense) in the accompanying
consolidated
F-10
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
statements of operations. There are no significant concentrations of
credit risk associated with the Contract Receivables.
The Company amortizes the valuation discounts over the
expected life of the Contract Receivables. This amortization, included
in results of operations in the accompanying consolidated statements of
operations, amounted to $325,000, $673,000 and $1,153,000 for 1998,
1997 and 1996, respectively. The valuation discounts were increased by
$44,000 in 1998 due to lower than anticipated collection activity in
1998 resulting in a loss of $44,000 recorded in other income (expense)
in the accompanying consolidated statements of operations. The
valuation discounts were reduced by $106,000 in 1997 due to higher than
anticipated collection and cancellation activity since the Effective
Date resulting in a gain of $106,000 recorded in other income (expense)
in the accompanying consolidated statements of operations.
As of December 31, 1998, scheduled principal collections on
the Contract Receivables for the next five years ending December 31,
2003 and thereafter are as follows: 1999 - $1,853,000, 2000 -
$1,335,000, 2001 - $837,000, 2002 - $369,000, 2003 - $109,000 and
thereafter - $48,000.
The Contract Receivables serve as collateral for a portion of
the Company's indebtedness (see Note 8).
(b) MORTGAGES AND OTHER RECEIVABLES. At December 31, 1998,
Mortgages and Other Receivables, net consisted of (in thousands of
dollars):
1998 1997
--------- ---------
Mortgage Receivables, net of valuation
reserves of $2,483 and $2,605 $ 20,246 $ 28,091
Sunset Lakes Receivable 1,794 1,193
Jupiter Ocean Grande Receivable 2,478 1,269
Other Receivables 4,755 4,357
--------- ---------
$ 29,273 $ 34,910
========= =========
(i) MORTGAGE RECEIVABLES. The Mortgage Receivables
are typically three to five year notes using 15-20 year amortization
schedules with a balloon payment at the end. Most Mortgage Receivables
are secured by Predecessor Tracts. The stated interest rate on Mortgage
Receivables is typically prime plus two percent. The Company has
established a reserve for estimated future delinquencies on its
Mortgage Receivables. The value of the land securing the Mortgage
Receivables is estimated to equal or exceed the net book value of the
related receivables as adjusted by valuation reserves.
The Company entered into two-secured borrowing transactions
(one in March 1997 and another in December 1997) with the First
National Bank of Boston ("BankBoston") pursuant to which the Company
(i) borrowed approximately $7.0 million and $5.2 million, respectively,
from BankBoston and (ii) transferred approximately $9.3 million and
$6.9 million, respectively, of Mortgage
F-11
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Receivables to BankBoston as collateral for the borrowings. The Company
financed an additional $1 million net amount of Mortgage Receivables
under the agreement in January 1998 for approximately $0.8 million. The
Company used the proceeds from these transactions to reduce its
corporate debt and to fund ongoing operations. These borrowings were
subsequently repaid on February 2, 1999. See Note 20.
In July 1996, the Company sold approximately $19.8 million of
Mortgage Receivables to a limited partnership financed by Harbourton
Residential Capital Company, Ltd. ("Harbourton"). The Company received
approximately $13.3 million at closing, plus a residual interest in the
limited partnership. The Company used the proceeds from this
transaction to reduce corporate debt and to fund ongoing operations
(see Note 8). These borrowings were subsequently repaid on February 2,
1999. See Note 20.
As part of a settlement with certain Predecessor Homesite
customers, the Company established various trusts. The Company funded
these trusts with cash, stock and notes based on estimates of the costs
of its future improvement obligations. The Company periodically
assesses the adequacy of the property in the trusts and reserves and
any excess or deficiency accrues to the benefit or becomes an
obligation of the Company (see Note 12). In December 1996, it was
determined that approximately $12.1 million in cash plus $6.2 million
of notes could be recovered from various utility trusts. A receivable
for the $12.1 million, which was received in January 1997, was recorded
as of December 31, 1996, in the accompanying consolidated balance
sheets and a gain of $11.9 million, net of expenses, was recorded in
other income (expense) in the accompanying consolidated statements of
operations.
(ii) SUNSET LAKES RECEIVABLE. The Sunset Lakes
Receivable consists of a management fee accrual from the Sunset Lakes
JV of $1,174,000 and $521,00 in 1998 and 1997 respectively, of which
$653,000 and $458,000 was earned in 1998 and 1997, respectively. The
Sunset Lakes Receivable also includes $620,000 and $672,000 as of
December 31, 1998 and 1997, respectively, of interest accrued on
amounts loaned by one of the Company's consolidated subsidiaries to the
Sunset Lakes JV Project.
(iii) JUPITER OCEAN GRANDE RECEIVABLE. The Jupiter
Ocean Grande Receivable consists of a $2,271,000 and a $1,186,000 loan
to the Jupiter Ocean Grande JV Project plus $206,000 and $83,000 of
accrued interest for 1998 and 1997, respectively.
(c) SCHEDULED COLLECTIONS. Scheduled collections of principal
on Mortgages and Other Receivables for the next five years ending
December 31, 2003 and thereafter are as follows: 1999 - $5,676,000,
2000 - $3,484,000, 2001 - $4,034,000, 2002 - $5,243,000, 2003 -
$2,630,000 and thereafter - $213,000. Substantially all other
receivables are non-interest bearing and have no stated maturity.
(d) COLLATERAL. Substantially all of the Mortgages and Other
Receivables serve as collateral for a portion of the Company's
indebtedness (see Note 8).
F-12
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) LAND AND RESIDENTIAL INVENTORY
(a) GENERAL. At December 31, land and residential inventory
consisted of the following (in thousands of dollars):
1998 1997
------------ ------------
Primary Market Operations $ 48,720 $ 39,975
Luxury/Resort Operations 81,806 34,867
Predecessor Assets 41,259 70,508
Other 950 1,772
------------ ------------
Gross Inventory 172,735 147,122
Valuation Reserves (5,865) (16,616)
------------ ------------
Total $ 166,870 $ 130,506
============ ============
(b) NET VALUATION RESERVES. Land and residential inventory are
net of net valuation reserves of $5.1 million and $15.6 million as of
December 31, 1998 and 1997, respectively. In conjunction with the
Company's reviews in 1998, 1997 and 1996 of the fair values associated
with its land and residential inventory, the Company provided
additional net valuation reserves to reduce the carrying value of its
land and residential inventory in the amounts of $195,000, $14.5
million and $10.4 million for 1998, 1997 and 1996, respectively, which
were charged to land and residential inventory valuation reserves in
the accompanying consolidated statements of operations.
(c) ENVIRONMENTAL RESERVES. Land and residential inventory
also is net of environmental reserves of $770,000 and $950,000 as of
December 31, 1998 and 1997, respectively. See Note 12. Based on a
review of the environmental reserve and recent changes in Florida state
laws, this reserve was reduced by $180,000, $250,000 and $1.3 million
in 1998, 1997 and 1996, respectively, and recorded in other income
(expense) in the accompanying consolidated statements of operations.
(d) CORE PROJECTS ACQUIRED IN 1998. In 1998, the Company
acquired the following Core Projects:
(i) In April 1998, the Company acquired and sold the
Dave's Creek Project, in Forsythe County, Georgia. The project was sold
for approximately $27.3 million, with a cost of approximately $23.2
million.
(ii) In September 1998, the Company acquired the
Aspen Springs Ranch Project, in Glenwood Springs, Colorado, for
approximately $17.8 million, of which $2.0 million was paid in cash and
the balance was financed by an acquisition loan.
F-13
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(e) CORE PROJECTS ACQUIRED IN 1997. In 1997, the Company
acquired the following Core Projects:
(i) In June 1997, the Company acquired the Riverwalk
Tower Project, in Fort Lauderdale, Florida, for approximately $5.6
million, of which $2.6 million was financed by an acquisition loan and
the balance was paid for in cash.
(ii) In July 1997, the Company acquired the Trails of
West Frisco Project in Frisco, Texas, for approximately $7.5 million,
which was paid for in cash.
(iii) In August 1997, the Company acquired the Saxon
Woods Project, in Orlando, Florida, for approximately $2.9 million, of
which $1.3 million was financed by an acquisition loan and the balance
was paid for in cash.
(iv) In the third quarter of 1997, the Company
acquired an additional 551 acres (bringing its total number of acres
owned to approximately 868) in its West Bay Club Project for
approximately $13.7 million, of which $8.7 was financed with seller
financing secured by mortgages on the property and the balance was paid
for in cash. The seller financed amounts are non-cash financing
activities and, therefore, are not reflected in the accompanying
consolidated statements of cash flows.
(f) COLLATERAL. Substantially all of the Company's land and
residential inventory serves as collateral for a portion of the
Company's indebtedness (see Note 8) and certain of its other
liabilities and commitments (see Notes 7 and 12).
(4) PROPERTY, PLANT AND EQUIPMENT
(a) GENERAL. At December 31, property, plant and equipment,
net, at cost, consisted of (in thousands of dollars):
1998 1997
--------- ----------
Land and improvements $ 87 $ 80
Buildings 1,227 1,345
Fixtures and equipment 4,155 3,402
Accumulated depreciation (3,680) (3,211)
Construction in progress 2,161 138
--------- ----------
$ 3,950 $ 1,754
========= ==========
(b) UTILITY SYSTEMS SOLD IN 1996. During 1996, the Company
sold its two remaining utility systems.
(i) PORT LABELLE UTILITY SYSTEM. In February 1996,
the Company sold its Port LaBelle utility system to Hendry County for
$4.5 million resulting in a gain of $686,000 which is
F-14
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
included in other income (expense) in the accompanying consolidated
statements of operations. The Company used the proceeds to repay
indebtedness.
(ii) JULINGTON CREEK UTILITY SYSTEM. In June 1996,
the Company sold its Julington Creek utility system for $6.0 million
resulting in a gain of $696,000 which is included in other income
(expense) in the accompanying consolidated statements of operations. Of
the net proceeds of approximately $5.7 million from this sale,
approximately $5.0 million was used to repay indebtedness.
(c) COLLATERAL. Substantially all property, plant and
equipment serve as collateral for a portion of the Company's
indebtedness (see Note 8).
(5) OTHER ASSETS
(a) GENERAL. At December 31, other assets consisted of the
following (in thousands of dollars):
1998 1997
---------- ----------
Sunset Lakes JV Project $ 5,205 $ 7,830
Falcon Trace JV Project 3,874 3,733
Jupiter Ocean Grande JV Project 2,094 2,459
Other real estate related assets 1,601 2,008
Other assets 2,376 2,634
---------- ----------
$ 15,150 $ 18,664
========== ==========
(b) SUNSET LAKES JV PROJECT. The Company is the managing
general partner with an unaffiliated third party in the Sunset Lakes
Joint Venture ("Sunset Lakes JV"). The Sunset Lakes JV owns the Sunset
Lakes JV Project, which is located in southwest Broward County,
Florida. The Company (i) has a 65% interest in the profits and losses
of the Sunset Lakes JV and (ii) is entitled to a fee from Sunset Lakes
JV in an amount equal to 4% of development costs. The Company does not
control the Sunset Lakes JV. The Company's partner must consent to
major transactions and actions of Sunset Lakes JV, including the sale
of substantially all of its properties and assets, modifications of its
business plan, phasing of sales, development and construction
activities, financing and the acquisition of additional property.
Accordingly, the Company accounts for the Sunset Lakes JV Project under
the equity method.
(c) FALCON TRACE JV PROJECT. In April 1996, the Company
acquired the Falcon Trace JV Project, in Orlando, Florida, for
approximately $5.3 million, of which $2.4 million was financed by
Cypress Realty Limited Partnership ("Cypress") through an acquisition
loan secured by a mortgage on the property and the balance was paid for
in cash. In December 1996 (and as amended in March 1997), the Company
and Cypress agreed to a restructuring in which the Company contributed
its net investment in the Falcon Trace Project and its partner,
Cypress, through an affiliate, contributed its mortgage on the
property, to Falcon Trace Partners Limited Partnership. The Company has
a 65% limited partnership interest in the Falcon Trace JV Project after
expenses and fixed returns to the
F-15
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
partners. The Company does not control the partnership. Cypress is the
managing venturer and must consent to major transactions and actions of
the partnership including the sale of the property and assets of the
Falcon Trace JV Project, modification of its business plan, development
and construction activities, financing, and the acquisition of
additional property. Accordingly, the Company accounts for the Falcon
Trace JV Project under the equity method.
(d) JUPITER OCEAN GRANDE JV PROJECT. In January 1995, the
Company acquired two acres in its Jupiter Ocean Grande Project for
approximately $2 million in cash. In January 1996, the Company
purchased the remaining four acres of the Jupiter Ocean Grande Project
for an additional $2.2 million in cash. In June 1995, an unaffiliated
third party acquired a 50% Joint Venture interest in the Jupiter Ocean
Grande Project for $4.3 million, $1.8 million of which was paid in June
1995, $2 million of which was paid in January 1996, and the remaining
$0.5 million was a credit for reimbursable Jupiter Ocean Grande JV
Project expenses.
(e) OTHER. Other real estate related assets include refundable
deposits to acquire additional property and costs incurred to obtain
regulatory permits and approvals to develop property under contract.
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
(a) GENERAL. At December 31, accounts payable and accrued
liabilities consisted of (in thousands of dollars):
1998 1997
---------- ---------
Accounts payable, principally trade $ 5,591 $ 2,156
Accrued interest 5,005 952
Taxes, other than income taxes 3,109 4,293
Employee earnings and benefits 1,758 3,270
Other accrued liabilities 2,070 2,944
---------- ---------
$ 17,533 $ 13,615
========== =========
(b) TERMS OF ONE YEAR OR LESS. Substantially all accounts
payable and accrued liabilities are payable within one year.
F-16
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) OTHER LIABILITIES
(a) GENERAL. At December 31, other liabilities consisted of
the following (in thousands of dollars):
1998 1997
---------- ----------
Reserve for Contract Receivables
termination refunds $ 2,333 $ 2,744
Accrued pension liability 2,208 2,087
Utility connection reserve 2,130 3,196
Bankruptcy and other reserves 797 838
Customers' and other deposits 739 1,181
---------- ----------
$ 8,207 $ 10,046
========== ==========
(b) RESERVE FOR CONTRACT RECEIVABLES. The reserve for Contract
Receivables termination refunds and other costs relates to the
Company's obligations to retail land sales customers whose contracts
were not terminated or rejected in the reorganization proceedings.
Under the terms of the retail land sales contract, if a customer
defaults and the contract is canceled, the customer is entitled to a
refund of principal payments in excess of the Company's damages, which
generally has been stipulated at 20% of the sales price. This reserve
also provides for the estimated future costs to maximize receivable
collections and minimize cancellations and termination refunds during
the remaining life of this portfolio. Based on estimates of these
future costs, the future servicing reserve was increased in 1997
resulting in an expense of $375,000 in 1997 and reduced in 1996
resulting in a gain of $703,000 included in other income (expense) in
the accompanying consolidated statements of operations. There was no
change in the estimate for 1998.
(c) ACCRUED PENSION LIABILITY. The accrued pension liability
is related to a frozen plan (see Note 14). The Company's estimated
funding obligation for the next two years is as follows: 1999 -
$774,000 and 2000 - $578,000. Thereafter, the Company does not
anticipate any significant additional funding requirements.
(d) UTILITY CONNECTION RESERVE. The utility connection reserve
consists of the Company's obligation to provide utility connection
credits to qualified claimants. Based on minimal fundings to date and
minimal fundings anticipated in the future, the utility connection
credit reserves were reduced by $1.1 million in 1998 and 1997 and $4.1
million in 1996, which were recorded as gains in other income (expense)
in the accompanying consolidated statements of operations (see Note
11).
(e) BANKRUPTCY AND OTHER RESERVES. Bankruptcy and other
reserves primarily includes the remaining claims related to the
Predecessor Company with respect to approved claimants. The remaining
outstanding claims corresponding to the issuance of stock and notes to
claimants should be satisfied in 1999. The Company's income tax
provision balance, included in other reserves, was $13,000 and $14,000
as of December 31, 1998 and 1997, respectively. As of December 31,
1998,
F-17
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
approximately $177,000 is included in restricted cash and cash
equivalents to fund a portion of these remaining claims (see Note 1).
(8) NOTES AND MORTGAGES PAYABLE
(a) GENERAL. At December 31, notes and mortgages payable
consisted of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash Flow Notes, due December 31, 1998, net of
unamortized discount of $-0- and $2,138 $ 39,496 $ 37,479
Working Capital Facility 18,291 20,000
Term Loan - 13,333
Reducing Revolving Loan - 7,653
Project acquisition and development loans 85,578 35,717
Mortgage Receivables loans 6,072 13,540
Other 2,368 4,686
----------- -----------
$ 151,805 $ 132,408
=========== ===========
</TABLE>
In connection with the POR, the Company (i) issued $100
million in Mandatory Interest Notes, consisting of Secured Floating
Rate Notes and Unsecured Notes ("12% Notes"), (ii) issued $100 million
in Cash Flow Notes, consisting of Secured Cash Flow 12% Notes and
Unsecured 13% Cash Flow Notes ("13% Notes"), discounted to a value of
$76.5 million, (iii) refinanced the debt incurred during the
reorganization through a $50 million Term Loan and (iv) obtained a $20
million Working Capital Facility. The balance of the $50 million Term
Loan was fully repaid in December 1994. In December 1998, the Company
recorded approximately $8.5 million of other income in connection with
the receipt of proceeds from the remaining unpaid 12% Notes. In
February 1996, the Company recorded an extraordinary gain of
approximately $3.8 million due to the cancellation of approximately
$1.9 million of 12% Notes and $1.9 million of 13% Notes. As of February
28, 1999, $15,000 of cash plus accrued interest and $15,000 of the 13%
Notes are remaining to be distributed in accordance with the POR.
In December 1996, the Company recorded an extraordinary gain
of approximately $6.0 million due to the extinguishment of
approximately $4.2 million of 12% Notes and $1.8 million of 13% Notes,
net of a $210,000 unamortized discount, which were held in various
utility trust accounts (see Notes 11 and 12).
(b) FOOTHILL DEBT. On September 30, 1996, the Company closed
on three credit facilities totaling $85.0 million with Foothill (the
"Foothill Debt"). Pursuant to the Foothill Debt, Foothill provided the
Company with (i) an extension to December 1, 1998 of the $20 million
Working Capital Facility; (ii) a $40 million Term Loan maturing on June
30, 1998 and (iii) a $25 million Reducing Revolving Loan maturing on
June 30, 1998. See Note 20.
F-18
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The $20 million Working Capital Facility bore interest at the
Norwest Bank of Minnesota, N.A."base rate," plus two percentage points.
The Working Capital Facility matured on December 1, 1998, was extended
through February 2, 1999 and was repaid in full on February 2, 1999.
The Working Capital Facility was secured by a first lien on
substantially all of the Company assets, with certain exceptions as to
which the lenders received junior liens. As of December 31, 1998, there
was no additional credit available under the Working Capital Facility.
The Company was required to pay an unused line fee equal to 1/2 of 1%
per annum of the average unused portion of the Working Capital
Facility.
The remaining $13.3 million of the Term Loan, which bore
interest at 15%, matured, and was repaid in full on June 30, 1998.
The remaining $7.7 million of the Reducing Revolving Loan,
which bore interest at prime plus four percent, matured, and was repaid
in full, on June 30, 1998.
(c) CASH FLOW NOTES. The Cash Flow Notes, as of December 31,
1997, consisted of $39.5 million of 13% Notes. On September 30, 1996,
the Company utilized proceeds from the Working Capital Facility, the
Reducing Revolving Loan and cash on hand for a total of $40 million
plus warrants to purchase up to 1,500,000 shares of Common Stock at
$6.50 per share, to fully repay at a discount the Secured Cash Flow
Notes. As a result of the extinguishment of the Secured Cash Flow
Notes, the Company recorded an extraordinary gain of approximately $3.9
million representing the difference between the book value of these
notes of $49.1 million, consisting of a par value of $54.9 million less
an unamortized discount of $5.8 million, and the consideration given of
$41.9 million, consisting of cash of $40.0 million and the estimated
fair market value of the warrants of $1.9 million, less $3.3 million of
expenses. Interest on the Cash Flow Notes, which was non-cumulative,
was payable semiannually, only out of Available Cash. The amortization
of the Cash Flow Notes discount is included in cost of borrowing, net,
in the accompanying consolidated statements of operations and
approximated $2,138,000, $1,876,000 and $3,157,000 for 1998, 1997 and
1996, respectively. The 13% Notes were repaid in full on February 2,
1999.
The Company did not have any Available Cash at December 31,
1998, 1997 and 1996 to make any interest payment on the Cash Flow Notes
for the payment periods through December 31, 1998. Therefore, the
Company has not recorded any interest expense related to the Cash Flow
Notes during the years ended December 31, 1998, 1997 and 1996.
(d) DECEMBER 1998 DEBT REFINANCING. On February 2, 1999
(effective December 31, 1998), (i) 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"), (ii)
Atlantic Gulf entered into amendments to its Secured Agreement and
Investment Agreement with Apollo and (iii) Apollo, the New Revolving
Loan Lenders (See Note 20) and the New Term Loan Lenders (See Note 20)
and the collateral agent entered into a New Intercreditor Agreement.
These transactions are collectively referred to herein as the "December
1998 Debt Refinancing." See Note 20.
F-19
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(e) PROJECT ACQUISITION AND DEVELOPMENT LOANS. At December 31,
1998, project acquisition and development loans include the following:
(i) WEST BAY CLUB PROJECT/LEHMAN BROTHERS LOAN. In
December 1997, Lehman Brothers Holdings loaned West Bay Club
Development Corporation, a wholly owned subsidiary of the Company,
$22.5 million to finance acquisition and construction costs at the West
Bay Club Project and to refinance approximately $10.6 million of
existing purchase money mortgages encumbering the project. The loan is
secured by, among other things, the common stock of West Bay Club
Development Corporation, with limited recourse to the Company. The loan
bears interest at LIBOR plus 4%, matures December 23, 2001 and will be
repaid with proceeds from closings in this project. Additional interest
of $11.25 million is due and payable in full at the maturity date or
such earlier date when the loan is paid in full. If the entire debt is
paid within 36 months, the additional interest will be reduced to
approximately $8.2 million. If the debt is paid between 36 and 42
months, the additional interest will be reduced to approximately $9.8
million. The balance outstanding including interest amounted to $24.9
million and $22.5 million as of December 31, 1998 and 1997,
respectively.
(ii) WEST BAY CLUB PROJECT/BANKBOSTON LOAN. In
December 1997, BankBoston, B.A. and certain other institutions made a
$33 million revolving loan to West Bay Club Development Corporation
pursuant to which the lenders have agreed to lend the Company the
maximum cumulative amount of $67.4 million to finance construction of
the West Bay Club Project. The Company has $19.8 million outstanding
under this loan as of December 31, 1998. The loan bears interest at
either LIBOR plus 4% or the higher of either BankBoston's prime rate
plus 1.25% or the overnight federal funds effective rate plus 0.5% and
matures on December 23, 2001. The balance outstanding amounted to $19.8
million and $88,000 as of December 31, 1998 and 1997, respectively.
(iii) RIVERWALK TOWER PROJECT LOAN. In June 1997, Las
Olas Tower at Riverwalk, Inc., a wholly owned subsidiary of the
Company, borrowed $2.75 million to acquire the Riverwalk Tower site.
The loan bore interest at prime plus 0.75% and was secured by the
project property, with recourse to the Company. The balance outstanding
is $2.75 million in 1998 and 1997, respectively.
(iv) LAKESIDE PROJECT LOAN. In March 1996, Lakeside
Development of Orlando , a wholly owned subsidiary of the Company,
obtained an acquisition loan and a development loan with a combined
commitment of $6.3 million to acquire and finance the development of
the Lakeside Project. As of December 31, 1998 and 1997, the Company has
a total of $2.7 and $2.1 million, respectively outstanding under these
loans. These loans bear interest rates ranging from prime plus 1.25% to
1.5%, are secured by the project property, with recourse to the
Company.
(v) SAXON WOODS PROJECT LOAN. In August 1997, the
Company obtained a $1.3 million loan to acquire the Saxon Woods
Project. In addition, the Company obtained a $2.2 million development
loan to fund development of the Saxon Woods Project. The loan bears
interest at prime plus 0.5%, is secured by the project property, with
recourse to the Company, and matures in September 1999. The balance
outstanding amounted to $2.3 million and $1.5 million as of December
31, 1998 and 1997, respectively.
F-20
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(vi) WEST FRISCO PROJECT LOAN. In November 1997, West
Frisco Development Corporation, a wholly owned subsidiary of the
Company, obtained a $19 million loan to develop the Trails of West
Frisco Project. $4,589,000 was borrowed under this loan as of December
31, 1998. The loan bears interest at prime plus 1.375%, is secured by
the project property, with recourse to the Company, and matures in
December 1999.
(vii) ASPEN SPRINGS RANCH PROJECT/LEHMAN BROTHERS
LOAN. In September 1998, Lehman Brothers Holdings loaned Aspen Springs
Ranch, Inc., a wholly owned subsidiary of the Company, an $18.0 million
loan to finance acquisition and construction costs at the Aspen Springs
Ranch Project. Principal and accrued interest amounted to $19.8 million
as of December 31, 1998. The loan is secured by, among other things,
the common stock of Aspen Springs Ranch, Inc., with limited recourse to
the Company. The loan bears interest at LIBOR plus 4%, matures
September 1, 2002 and will be repaid with proceeds from closings in
this project. Additional interest of $15.0 million is due and payable
in full at the maturity date or such earlier date when the loan is paid
in full.
(viii) ASPEN SPRINGS RANCH PROJECT/BANKBOSTON LOAN.
In September 1998, BankBoston, B.A. and certain other institutions made
a $45 million revolving loan to Aspen Springs Ranch, Inc., to finance
construction of the Aspen Springs Ranch Project. The Company has $1.2
million outstanding under this loan as of December 31, 1998. The loan
bears interest at either LIBOR plus 4% or the higher of either
BankBoston's prime rate plus 1.25% or the overnight federal funds
effective rate plus 0.5% and matures on August 1, 2001.
(ix) WEST MEADOWS PROJECT. A $5.9 million revolving
credit loan with an outstanding balance of $4.7 million and $2.7
million as of as of December 31, 1998 and 1997, respectively. This loan
bears interest at the LIBOR rate plus 3%, is secured by the project
property with recourse to the Company, and matures in February 2000. In
addition, two mortgage loans totaling $4.1 million and $2.8 million as
of December 31, 1998 and 1997, respectively.
(x) OTHER PROJECT DEBT. Other project debt amounted
to $463,000 as of December 31, 1998 $1.1 million as of December 31,
1997.
(f) MORTGAGE RECEIVABLES LOANS. The Mortgage Receivables loans
were used to finance a portion of the Company's Mortgage Receivables in
1998 and 1997 (see Note 2). As of December 31, 1998, these loans
consisted of two loans with BankBoston for $1.2 million and $4.9
million. The $1.2 million BankBoston loan bears interest at 12% and
matures in December 2001. The $4.9 million BankBoston loan bears
interest at prime plus 3% and matures in June 2002. The BankBoston
loans are repaid with collections from the underlying Mortgage
Receivables. The Mortgage Receivables Loans were repaid on February 2,
1999.
(g) CONSTRUCTION LOAN. The Company obtained the construction
loan to finance the construction of the second of two 72-unit
condominium buildings at its Regency Project. The outstanding balance
of $9.3 million as of December 31, 1996 was repaid fully during 1997
with
F-21
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
proceeds from the closings of condominium units in the second building.
The second loan was secured by, among other things, the property under
construction.
(h) PRINCIPAL PAYMENTS IN FUTURE PERIODS. Based on the
outstanding balances as of December 31, 1998, principal payments
required on the notes and mortgages for each of the five years
following December 31, 1998 and thereafter, are as follows: 1999 -
$87,741,000, 2000 - $25,305,000, 2001 - $16,532,000, 2002 - $37,000,
2003 - $-0-, and thereafter $22,190,000.
F-22
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) REDEEMABLE PREFERRED STOCK
(a) GENERAL. At December 31, 1998 and 1997, Redeemable
Preferred Stock consisted of the following (in thousands of dollars):
1998 1997
-------- --------
SERIES A
Gross proceeds $ 25,000 $ 23,265
Accrued dividends 7,706 1,989
-------- --------
Liquidation Preference amount 32,706 25,254
Less issue costs (3,104) (2,885)
Less warrants purchased (300) (279)
Plus accretion of preferred stock to redemption amount 1,101 288
-------- --------
30,403 22,378
-------- --------
SERIES B
Private Placement 6/24/97
Gross proceeds 10,000 10,000
Accrued dividends 3,453 1,068
-------- --------
Liquidation Preference amount 13,453 11,068
Less issue costs (950) (950)
Less warrants purchased (120) (120)
Plus accretion of preferred stock to redemption amount 369 110
-------- --------
12,752 10,108
-------- --------
Rights Offering 11/19/97
Gross proceeds 10,000 10,000
Accrued dividends 2,446 239
-------- --------
Liquidation Preference amount 12,446 10,239
Less issue costs (950) (950)
Less warrants purchased (120) (120)
Plus accretion of preferred stock to redemption amount 289 29
-------- --------
11,665 9,198
-------- --------
Total Series B 24,417 19,306
-------- --------
Total redeemable preferred stock $ 54,820 $ 41,684
======== ========
F-23
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In 1997, the stockholders of the Company authorized the
issuance of up to 4.5 million shares of preferred stock, consisting of
2.5 million shares of 20% Series A Redeemable Preferred Stock ("Series
A Preferred Stock") and 2 million shares of 20% Series B Redeemable
Stock ("Series B Preferred Stock").
(b) APOLLO TRANSACTIONS. In June 1997, the Company and Apollo
entered into an Investment Agreement and Secured Agreement whereby
Apollo agreed to acquire 2.5 million shares of Series A Preferred Stock
at a per share price of $9.88, and warrants to purchase up to 5 million
shares of common stock, $.10 par value per share, of Atlantic Gulf
("Common Stock") (the "Investor Warrants"), at a per warrant price of
$.06, for an aggregate purchase price of $25 million (the "Apollo
Transaction"). As of December 31, 1997, Apollo had purchased 2,326,475
shares of Series A Preferred Stock with Investor Warrants to purchase
4,652,950 shares of Common Stock for a total purchase price of
approximately $23.3 million of the $25 million total. On March 31,
1998, Apollo purchased the remaining 173,525 shares of Series A
Preferred Stock and Investor Warrants to purchase an additional 347,050
shares of Common Stock, or an aggregate purchase price of $1,735,248.
The Company's repurchase and redemption obligations in respect of the
Series A Preferred Stock are secured by (a) a junior lien on
substantially all of the assets of the Company and its subsidiaries.
See Note 20.
(c) PRIVATE PLACEMENT. In June 1997, the Company and certain
sophisticated investors (the "Private Purchasers") entered into a
Securities Purchase Agreement whereby the Private Purchasers purchased
for an aggregate price of $20 million; (i) 1,776,199 shares of Common
Stock for $10 million, and (ii) 1 million shares of Series B Preferred
Stock at a per share price of $9.88, and warrants to purchase up to 2
million shares of Common Stock ("Series B Warrants") at a per warrant
price of $.06 for an aggregate purchase price of $10 million. The $20
million of proceeds from the private placement were applied primarily
to the reduction of aggregate debt.
(d) RIGHTS OFFERING. In November 1997, holders of Common Stock
acquired 1 million shares of Series B Preferred Stock and warrants to
purchase 2 million shares of Common Stock for $10 million in a rights
offering. These proceeds were applied primarily to the reduction of
corporate debt.
(e) CONVERSION RIGHTS OF THE PREFERRED STOCK. Each share of
Series A Preferred Stock and Series B Preferred Stock (collectively,
the "Preferred Stock") is convertible, at the holders election, into
shares of Common Stock at the rate of $5.75 per share. The Investor
Warrants and Series B Warrants are also exercisable at $5.75 per share,
although their strike price on the warrants is subject to a one-time
downward adjustment in 1999 based on actual cash flow results for 1997
and 1998.
The holders of the Preferred Stock are entitled to receive,
when, as and if declared by the Board of Directors of Atlantic Gulf
(the "Board"), out of funds legally available therefore, cash dividends
on each share of preferred stock at an annual rate equal to 20% of the
Liquidation Preference (defined as $10 per share plus accumulated and
unpaid dividends) in effect from time to time. All dividends are
cumulative, whether or not declared, on a daily basis from the date on
which the Preferred Stock was issued by the Company, and will be
payable, subject to declaration by the Board,
F-24
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
quarterly in arrears on March 31, June 30, September 30, and December
31 of each year commencing as of September 30, 1997. The excess of the
Liquidation Preference value over the carrying value is being accreted
by periodic charges to contributed capital over the life of the issues.
Beginning in 2001, the holders of the Preferred Stock are
entitled to redeem the Preferred Stock ratably over three years. The
aggregate redemption amounts of the Preferred Stock based on the
Liquidation Preference at December 31, 1998 for each of the five years
following December 31, 1997 and thereafter are as follows: 2001 -
$19,536,000, 2002 - $19,536,000 and thereafter - $19,536,000.
(10) COMMON STOCKHOLDERS' EQUITY
(a) COMMON STOCK. In 1997, the stockholders approved an
increase in the authorized number of shares of Common Stock from
15,665,000 shares to 70,000,000 shares. Under the terms of the POR,
9,750,000 shares were issued for distribution to creditors, of which
3,000 shares are being held in a Disputed Claims Reserve Account as of
February 28, 1999. The remaining shares are subject to distribution in
accordance with the POR during 1999 as remaining disputed claims are
resolved.
In June 1997, stockholders approved an amendment to the
Company's certificate of incorporation repealing the right of the
holders of its Common Stock to receive, semiannually, mandatory
dividends equal to 25 percent of the Company's Available Cash, as
defined (see Note 8).
Also, in June 1997, the Company and the Private Purchasers
consummated the private Placement. See Note 9.
In connection with the Company's prepayment, at a discount, of
its Secured Cash Flow Notes in September 1996, the Company issued
10-year warrants to purchase up to 1.5 million shares of Common Stock
at an exercise price of $6.50 per share. The estimated fair market
value of the warrants given to the holders of the Secured Cash Flow
Notes was $1,875,000.
(b) STOCK OPTION PLANS. The Company has two fixed stock option
plans as well as fixed contractual stock options. In 1993, the
stockholders adopted the Company's Employee Stock Option Plan
("Employee Option Plan"), which provides for the issuance of options to
purchase up to 750,000 shares of Common Stock at a price equal to the
fair value of the Common Stock on the date of grant of each option. In
June 1998, the stockholders approved an amendment to the Employee
Option Plan increasing the number of shares of stock subject to the
plan to 1.25 million shares. Pursuant to this plan, the Company issued
options to acquire 500,000 shares in 1998 and 1,000 shares in 1996. No
options were issued in 1997. In 1994, the stockholders adopted the
Company's 1994 Non-Employee Directors' Stock Option Plan (the
"Non-Employee Directors' Option Plan"), which provides for the issuance
of options to purchase up to 350,000 Common Stock at a price equal to
the fair value of the Common Stock on the date of grant of each option.
In June 1998, the shareholders approved the Employment Agreements of
certain executives. The terms of their agreements contain provisions
F-25
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
providing for the granting of options at the fair market value of the
Common Stock on the grant approval date of each option. See Note 17 for
information on these stock option plans.
(c) STOCK PLAN. In 1996, the Company's stockholders adopted
the Company's 1996 Non- Employee Directors' Stock Plan (the
"Non-Employee Directors' Stock Plan"), which provides for the payment
quarterly of each Non-Employee Director's annual $25,000 retainer in
Common Stock based on the share price at the end of the previous
quarter. In 1998, the Board adopted an amendment to the Non-Employee
Directors' Stock Plan which provided that, from and after April 1,
1998, 40% of the annual retainer would be paid in cash and the balance
would be paid in shares of Common Stock. During 1996, the Company
issued to the Non-Employee Directors (a) 8,328 shares at a price of
$6.00 per share for the third quarter of 1996 and (b) 10,256 shares at
a price of $4.875 for the fourth quarter of 1996. During 1997, the
Company issued to the Non-Employee Directors (a) 12,355 shares at a
price of $4.3125 per share for the first quarter of 1997, (b) 11,158
shares at a price of $5.50 per share plus 288 shares at $6.625 per
share for the second quarter of 1997, (c) 5,884 shares at a price of
$6.375 per share for the third quarter of 1997 and (d) 6,000 shares at
a price of $6.25 per share for the fourth quarter of 1997. During 1998,
the Company issued to the Non-Employee Directors (a) 8,330 shares at a
price of $4.50 price per share for the first quarter of 1998, (b) 6,209
shares at a price of $3.62 per share for the second quarter of 1998 (c)
10,908 shares at a price of $2.06 per share for the third quarter of
1998 and (d) 18,006 shares at a price of $1.25 per share for the fourth
quarter of 1998.
(d) SHARES RESERVED FOR FUTURE ISSUANCE. At December 31, 1998,
the following shares of Common Stock were reserved for possible future
issuance (in thousands of dollars):
Series A Preferred Conversion $ 10,000
Investor Warrants 5,000
Series B Preferred Conversion 8,000
Series B Warrants 4,000
Warrants - Secured Cash Flow Notes 1,500
Employee Option Plan 741
Contractual Stock Options 365
Non-Employee Directors' Option Plan 350
Non-Employee Directors' Stock Plan 150
-------------
$ 30,106
=============
(e) SHARES RECOVERED FROM RESERVES. In February 1996, the
Company received 75,730 shares of its Common Stock and, in August 1996,
it received 505 shares as distributions from the disputed claims
reserve in accordance with the POR. In March 1996, the Company issued
4,537 shares of its Common Stock to Gerald Agranoff, a Non-Employee
Director, representing a $30,000 partial payment to assist management
in the negotiation of proposed financing. In June 1996, the Company
received 8,728 shares of its Common Stock, $96,400 principal amount of
Mandatory Interest Notes and $103,800 principal amount of Cash Flow
Notes from the disputed claims reserve account in settlement of a
claim. The Company recorded the shares at par value because the shares
F-26
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
were never issued to a third party. The debt corresponding to the notes
was reduced and concurrently other bankruptcy reserves were increased
for the principal amount of the notes. In December 1996, Atlantic Gulf
received 1,314 shares of its Common Stock, $7,100 principal amount of
Mandatory Interest Notes and $8,900 principal amount of Cash Flow Notes
in accordance with the terms of the POR.
(11) NONRECURRING AND OTHER ITEMS
The Company recorded the following gains and provisions during
1998, 1997 and 1996 for several items included in other income
(expense) in the accompanying consolidated statements of operations:
During 1998, 1997 and 1996, the Company recorded net gains of
$13.4 million, $3.5 million and $18.1 million, respectively, in other
income (expense) - reorganization reserves in the accompanying
consolidated statements of operations resulting from its annual review
of certain reorganization items. The $3.5 million net gain in 1997
included gains of $1.1 million due to the reduction of the utility
credit reserves (see Note 7 and schedule below regarding utility
connection credit reserve account activity) and $706,000 due to the
reduction of the Contract Receivables termination refunds reserve (see
Note 7). The $18.1 million net gain in 1996 included gains of $11.9
million, net of expenses, due to the recovery of $12.1 million of funds
from certain Utility Trust accounts funded by the Company (see Note 2
and schedule below regarding utility trust account activity), $4.1
million due to the reduction of the utility connection credit reserves
(see Note 7 and schedule below regarding utility connection credit
reserve account activity) and a $703,000 gain due to the reduction in
the Contract Receivables future servicing reserve (see Note 7). This
process is expected to continue during 1999 with adjustments to be
recorded as the final disposition of various claims and other
liabilities is concluded.
F-27
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Utility Trust Accounts
Account Activity
(in thousands of dollars)
1998 1997 1996
---------- ----------- ----------
DESCRIPTION
Beginning balance $ 3,448 $ 15,198 $ 19,699
Additions - 1,155 1,623
Interest earned 293 154 675
Withdrawals (3,741) (12,645(a) (1,005)(c)
Cancellation of notes - (414(b) (5,794)(b)
---------- ----------- ----------
Ending balance $ - $ 3,448 $ 15,198
========== =========== ==========
(a) Includes $12,109 withdrawal on January 2, 1997.
(b) Total cancellations of $6,208, including $414 canceled on January 2, 1997,
resulted in an extraordinary gain of $5,998 in 1996, net of a $210
unamortized discount.
(c) Represents wire transfer to Hendry County.
(d) Release of Utility Class 14 Trust cash on September 29,1998 for $3,741.
Utility Connection Credit Reserve
Account Activity
(in thousands of dollars)
1998 1997 1996
----------- ------------ ----------
DESCRIPTION
Beginning balance $ 3,196 $ 4,264 $ 7,726
Additions - - 643
Amounts charged (credited) to
results of operations (1,065)(1) (1,064) (4,097)
Deductions (1) (4) (8)
----------- ------------ ----------
Ending balance $ 2,130 $ 3,196 $ 4,264
=========== ============ ==========
The activity for the land mortgage receivable valuation discount is included in
Schedule II of the 10-K.
F-28
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In the first quarter of 1996, the Company recorded a net gain
of $4.1 million on proceeds of $18.75 million resulting from the
settlement of utilities condemnation litigation with the City of Port
St. Lucie.
In February, 1996, the Company sold its Port LaBelle utility
system to Hendry County for $4.5 million, resulting in a gain of
$686,000. In June 1996, the Company sold its Julington Creek utility
system for $6.0 million resulting in a gain of $696,000 (see Note 4).
In 1996, the Company recorded extraordinary gains of
approximately $13.7 million consisting of (a) an extraordinary gain in
February 1996 of approximately $3.8 million due to the cancellation of
approximately $1.9 million of 12% Notes and $1.9 million of 13% Notes
in accordance with the POR, (b) an extraordinary gain in September 1996
of $3.9 million from the prepayment, at a discount, of Secured Cash
Flow Notes and (c) an extraordinary gain in December 1996 of
approximately $6.0 million from the extinguishment of approximately
$4.2 million of 12% Notes and $1.8 million of 13% Notes, net of a
$210,000 unamortized discount (see Notes 8 and 12).
(12) COMMITMENTS AND CONTINGENCIES
(a) LITIGATION. Atlantic Gulf is involved in various
litigation matters primarily arising in the normal course of its
business or with respect to the bankruptcy. It is the opinion of
management that the resolution of these matters will not have a
material adverse affect on the Company's financial position.
(b) TRUST AND RESERVES. As part of a settlement of the
Company's improvement obligations to the Predecessor Company's retail
homesite customers, various trusts were established. The Company funded
these trusts with cash, stock and notes based on estimates of the costs
of the future improvement obligations. Certain other reserves were
established to make a minimum of 1,700 utility satisfied homesites
available for trade to customers whose homesites may not be utility
satisfied, and therefore not buildable, at the time they wish to
construct a home. The terms of these trusts and reserves require the
Company to periodically assess the adequacy of the property in the
trusts and reserves and any excess or deficiency will accrue to the
benefit or become an obligation of the Company. In December 1996,
pursuant to a review of the trusts and reserves it was determined that
approximately $12.1 million in cash, $4.2 million of 12% Notes and $2.0
million of 13% Notes could be released from these trust accounts (see
Notes 2, 8 and 11). Approximately $30,000 in cash, 3,000 shares of
stock and a lot reserve of 3,800 lots remain in the trusts. The Company
believes the remaining property currently held in trusts is sufficient
to meet all future improvement obligations required under the terms of
the settlements.
(c) ENVIRONMENTAL MATTERS. A small portion of the Company's
land holdings contain residues or contaminants from current and past
activities by the Company, its lessees, prior owners and operators of
the properties and/or other third parties. Some of these areas have
been the subject of cleanup action by the Company voluntarily or
following the involvement of regulatory agencies. Additional cleanup in
the future also may be required. The business of the Company is subject
to a
F-29
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
variety of additional obligations under the environmental laws,
relating to both the ongoing operations and past activities. The
Company does not believe, however, that its obligations under the
environmental laws will have a material adverse effect on its business,
results of operations or financial position. See Note 3.
(d) RENTAL EXPENSE. Rental expense related to operating leases
was $1,302,000, $1,352,000 and $1,835,000 for 1998, 1997 and 1996,
respectively.
The Company leases its corporate office space under an
operating lease which expires in 2004. Minimum future rental
commitments under non-cancelable operating leases as of December
31,1998 are as follows: 1999 - $944,000, 2000 - $855,000, 2001 -
$887,000, 2002 - $918,000, and $1,474,000 thereafter.
(e) DEVELOPMENT OBLIGATIONS. As of December 31, 1998, the
Company had no material development obligations related to sold
property. The Company's business plan contemplates that 1999
expenditures for development, construction, and other capital
improvements could range up to $144 million, of which a substantial
portion would need to be funded through individual project development
loans or JV Project arrangements, many of which are already in place.
(13) INCOME TAXES
The difference between income taxes computed at the statutory
federal rate and the provision for income taxes consists of (in
thousands of dollars):
1998 1997 1996
------- --------- ------
Amount at statutory federal rate $ 1,249 $ (19,704) $ 402
Unrecognized (recognized) benefit
of change in valuation allowance
for temporary differences other
than net operating loss carryovers (1,249) 19,704 (402)
------- --------- ------
- - -
======= ========= ======
The Company's deferred taxes reflect the impact of temporary
differences between the amount of assets and liabilities for financial
reporting purposes and such amounts for tax purposes. The most
significant types of temporary differences that give rise to deferred
taxes are installment accounting practices, certain financial statement
reserves and cost capitalization methods.
The tax effect of temporary differences that give rise to
significant portions of deferred tax assets and liabilities at December
31, 1998 and 1997 are presented below (in thousands of dollars):
F-30
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1998 1997
--------- ---------
Deferred tax assets:
Excess of tax basis in land over
financial statement basis $ 11,747 $ 22,149
Net operating loss carryover 120,010 96,992
Other 963 6,380
Alternative minimum tax and
general business credit carryover 3,611 3,618
--------- ---------
Total gross deferred tax assets 136,331 129,139
Less - valuation allowance (123,395) (119,737)
--------- ---------
Net deferred tax assets 12,936 9,402
========= =========
Deferred tax liabilities:
Excess of tax basis in debt
obligations and reserves over
financial statement basis 5,856 2,197
Excess of financial statement basis
in other receivables over tax basis 2,607 3,275
Excess of financial statement basis
in Predecessor Homesite Covenants
Receivable over tax basis 4,473 3,930
--------- ---------
Net deferred tax amount $ -- $ --
========= =========
The net change in the valuation allowance for deferred tax
assets for 1998 was an increase of $3.6 million.
The nine months ended December 31, 1992 and each of the years
ended December 31, 1993 through 1998, have resulted in a net increase
in the valuation allowance. The Company has not utilized any net
operating losses.
At December 31, 1998, the Company had a net operating loss
carryover for tax purposes of approximately $318 million which expires
in years 1999 through 2018. Included in this amount is approximately
$24.1 million of net operating loss attributable to certain legal
entities that may only be used against future taxable income of these
same entities. Additionally, the Company has an unused general business
credit of approximately $2.7 million expiring in the years 1999 through
2004.
During 1997, the Company underwent an ownership change as
defined in Section 382 of the Internal Revenue Code of 1986, as
amended. The impact of this change in ownership will be to
significantly limit the amount of any net operating loss, general
business credit, and alternative minimum tax credit carryforwards that
will be available to reduce taxable income in future years. Certain of
these tax attributes will expire unused pursuant to IRS ss.382.
F-31
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has an alternative minimum tax credit of
approximately $1 million. The alternative minimum tax credit does not
have an expiration date.
(14) RETIREMENT PLANS
The Company has a Defined Benefit Retirement Plan ("Retirement
Plan") for substantially all of the Predecessor Company employees under
which future benefit accruals were frozen in 1990. The Company's policy
generally has been to fund an amount at least equal to the minimum
required contribution but no greater than the maximum tax deductible
amount.
Assets of the Retirement Plan are invested in Common Stocks,
U.S. government agency issues, U.S. treasury bonds and notes, corporate
bonds, foreign bonds and money market funds, and included approximately
87,068 shares of Atlantic Gulf Common Stock with an aggregate fair
value at December 31, 1998 of $65,000.
Atlantic Gulf also has a defined contribution savings plan
which is available to substantially all employees. The Company matches
25% of each employee's contributions, up to a maximum of 6% beginning
on January 1, 1996. In addition, upon approval from the Boards, an
annual supplemental contribution may be made in an amount up to the
Company's matching contribution made during the year. The Company's
matching contribution was approximately $142,000 in 1998 and $166,000
in 1997.
F-32
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, the funded status of the Company's Retirement
Plan was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 10,394 $ 10,431
Interest cost 688 728
Actuarial gain 454 441
Benefits paid (1,208) (1,206)
------------ ------------
Benefit obligation at end of year $ 10,328 $ 10,394
============ ============
Change in plan assets:
Fair value of plan assets at beginning of year 8,308 7,301
Actual return on plan assets 184 1,145
Employer contribution 836 1,068
Benefits paid (1,208) (1,206)
------------ ------------
Fair value of plan assets at end of year 8,120 8,308
------------ ------------
Funded status (2,209) (2,087)
Unrecognized prior service cost (61) (65)
Unrecognized actuarial loss 6,716 6,133
Unrecognized net asset at transition (304) (355)
------------ ------------
Net amount recognized $ 4,142 $ 3,626
============ ============
Amount recognized in the statement of
financial position consist of:
Prepaid benefit cost $ 4,142 $ 3,626
Accrued benefit liability (6,351) (5,712)
Accumulated other comprehensive income 6,351 5,712
------------ ------------
Net amount recognized $ 4,142 $ 3,626
============ ============
Weighted-average assumptions as of December 31:
Discount rate 7.0% 7.5%
Expected return on plan assets 9.0% 9.0%
Components of net periodic benefit cost:
Interest cost 688 728
Expected return on plan assets (724) (674)
Amortization of net assets at transition (51) (51)
Recognized actuarial loss 411 313
Amortization of prior service cost (4) (4)
------------ ------------
Net periodic benefit cost $ 320 $ 312
============ ============
</TABLE>
F-33
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which it is
practicable to estimate that value.
(a) CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH
EQUIVALENTS. The carrying value of these instruments approximates fair
value because of the short maturity.
(b) CONTRACT RECEIVABLES. The net book value of Contract
Receivables represents the net expected future cash flow of the Company
discounted to a rate approximating 15%, which management believes
approximates fair value.
(c) MORTGAGES, NOTES AND OTHER RECEIVABLES. Substantially all
receivables which have a maturity in excess of one year have stated
rates that approximate market interest rates. Consequently, management
believes that the carrying value of these receivables approximates fair
value.
(d) OTHER INTEREST BEARING LIABILITIES. Other interest bearing
liabilities are at rates which approximate current incremental
borrowing rates.
(e) NOTES AND MORTGAGES. As discussed in Note 8, long term
debt includes Cash Flow Notes issued in connection with the POR. The
fair value of the Cash Flow Notes is estimated based on quoted market
prices for the Unsecured Notes. Long term debt also includes other
indebtedness including a Working Capital Facility, a Term Loan and a
Reducing Revolving Facility as well as various acquisition, development
and construction loans (see Note 8) for which the Company estimates the
carrying value to approximate fair value.
(f) REDEEMABLE PREFERRED STOCK. The fair value of the
Redeemable Preferred Stock was calculated based on quoted market
prices.
F-34
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(g) ESTIMATED FAIR VALUES OF INSTRUMENTS. The estimated fair
values of the Company's financial instruments at December 31 were as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
-------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value (*) Value Value (*)
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 9,413 $ 9,413 $ 9,188 $ 9,188
Restricted cash and cash equivalents 1,041 1,041 1,713 1,713
Contract Receivables 4,109 4,109 6,336 6,336
Mortgages, notes and other receivables 29,273 29,273 34,910 34,910
Other interest bearing liabilities - - - -
Mandatory Interest Notes - - - -
Cash Flow Notes (39,496) (39,496) (37,479) (35,655)
Redeemable Preferred Stock (54,820) (23,062) (41,684) (43,265)
Other Indebtedness (112,309) (112,309) (94,929) (94,929)
</TABLE>
(*) These values represent an approximation of fair value and may never
actually be realized.
F-35
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) UNAUDITED QUARTERLY FINANCIAL DATA
Quarterly financial data for 1998 and 1997 are summarized
below (in thousands of dollars except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1998:
-----
<S> <C> <C> <C> <C>
Real estate sales 8,972 43,903 9,968 9,958
Other revenues 2,392 3,397 3,951 1,214
------- ------- ------- -------
Total revenues 11,364 47,300 13,919 11,172
======= ======= ======= =======
Gross margin on real estate sales (*) 483 7,397 3,612 1,556
======= ======= ======= =======
Net income (loss) (3,949) 2,066 3,337 2,219
======= ======= ======= =======
Net income (loss) applicable to
Common Stock (6,596) (801) 341 (912)
======= ======= ======= =======
Net income (loss) per common
share (**) (0.57) (0.07) 0.03 (0.08)
======= ======= ======= =======
</TABLE>
(*) Gross margin on real estate sales represents real estate sales
revenue less real estate cost of sales.
(**) All outstanding stock options, warrants and preferred stock are
anti-dilutive.
In conjunction with the Company's reviews in 1998 of the net
realizable values associated with its inventories and land holdings,
the Company provided an inventory valuation reserve in the fourth
quarter of 1998 of approximately $195,000 all of which was associated
with Predecessor Assets (see Note 3).
F-36
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
1997:
-----
<S> <C> <C> <C> <C>
Real estate sales $ 16,284 $ 17,775 $ 10,612 $ 22,948
Other revenues 1,965 2,597 1,814 2,653
-------- -------- -------- --------
Total revenues $ 18,249 $ 20,372 $ 12,426 $ 25,601
======== ======== ======== ========
Gross margin on real estate sales (*) $ 2,825 $ (113) $ (1,957) $ (5,328)
======== ======== ======== ========
Net loss $ (7,276) $ (8,670) $(10,801) $(31,599)
======== ======== ======== ========
Net loss applicable to
Common Stock $ (7,276) $ (8,740) $(12,302) $(33,751)
======== ======== ======== ========
Net loss per common share $ (.75) $ (.89) $ (1.07) $ (2.93)
======== ======== ======== ========
</TABLE>
(*) Gross margin on real estate sales represents real estate sales
revenue less real estate cost of sales.
In conjunction with the Company's ongoing business plan to
continue to monetize its Predecessor Assets, certain Predecessor Tracts
were targeted for bulk disposal in the fourth quarter of 1996 and
during 1997. The Company has priced its planned bulk disposals
attractively and as a result provided an inventory valuation reserve in
the fourth quarter of approximately $10.4 million (see Note 3). The
Company also reviewed its claims experience with respect to the utility
connection reserve and the number of customers eligible to make a claim
against the reserve. Based on these factors noted above, this reserve
was decreased by approximately $4.1 million (see Note 7).
(17) STOCK OPTIONS
(a) GENERAL. At December 31, 1998, the Company has three stock
based compensation plans (see Note 9). The Company applies APB Opinion
No. 25 and related interpretations in accounting for its stock based
compensation plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans. Compensation cost was
recognized for compensation paid under the Non-Employee Directors'
Stock Plan. The compensation cost charged against income for annual
retainer fees paid in Common Stock was $105,000 and $191,600 for 1998
and 1997, respectively. Forty percent of annual retainer fees were paid
in cash after March 31, 1998.
F-37
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Had compensation cost for the Company's two stock option plans
and contractual stock options been determined consistent with SFAS No.
123, the Company's net income and earnings per share results would have
been reduced to the proforma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net (loss) income
applicable to
common stock As reported $(7,968,000) $(62,069,000) $1,181,000
Pro forma (9,470,665) (62,875,702) 649,380
Basic and diluted
earnings per
common share As reported $(0.68) $(5.82) $.12
Pro forma (0.81) (5.90) 0.07
</TABLE>
(b) FIXED STOCK OPTION PLANS. The Company has two fixed stock
option plans as well as fixed contractual stock options.
(i) EMPLOYEE OPTION PLAN. The Employee Option Plan
provides for the issuance of options to acquire up to 1,250,000 shares
of Common Stock at a price equal to the fair market value of the Common
Stock on the date of grant of each option (see Note 10). The options
vest 40% two years after the date of grant and 20% on each of the three
subsequent anniversaries of the date of grant or if there is a change
in control as defined in the Employee Option Plan. The options are
exercisable for a period of ten years from the date of the grant.
(ii) NON-EMPLOYEE DIRECTOR OPTION PLAN. The
Non-Employee Director Option Plan provides for the grant of (A) options
for 20,000 shares of Common Stock to each Non-Employee Director on
December 5, 1994, (B) options for 20,000 shares of Common Stock to each
new Non- Employee Director upon his/her first election or appointment
to the Board and (C) options for 5,000 shares of Common Stock to each
Non-Employee Director at the first meeting of directors following such
director's subsequent election or appointment to the Board. In 1998,
the Board amended the Non- Employee Director Option Plan to provide
that each Apollo director, who is appointed to the Board annually, will
receive, an option to acquire 1,667 shares at each meeting (1,666
shares at every third meeting) at which he is reappointed to the Board.
The option price for any grant under the Non-
F-38
<PAGE>
Employee Director Plan is equal to the fair market value of Common
Stock on the date of grant of each option. Each option is immediately
vested, exercisable, and remains exercisable for a period of 10 years
from the grant date. A maximum of 350,000 shares of Common Stock may be
issued pursuant to the Non-Employee Director Option Plan.
(iii) CONTRACTUAL STOCK OPTIONS. The Company has
extended employment agreements to certain executives. The terms of
their agreements contain certain provisions providing for an extension
of options at the fair market value of the Common Stock on the grant
approval date of each option. The options vest in accordance with the
individual contractual provisions and are generally exercisable for a
period of seven years from the date of each grant. All of the contracts
provide for immediate vesting if there is a change in control as
defined in the contract.
(iv) FAIR VALUE OF OPTIONS. In order to calculate the
proforma amounts shown above, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants
in 1996, 1997 and 1998.
Dividend yield: None.
Expected volatility: Based on historical month-end close
stock prices from June, 1992 through
the month prior to the grant date as
reported by NASDAQ.
Expected life of grants: Five years.
Risk free interest rate: Yield on five-year U.S. Treasury
Notes maturing five years from date
of grant.
Contractual term of grant: Ten years for fixed stock option
plans and seven years for
contractual stock options.
(v) SUMMARY. A summary of the status of the Company's
two fixed stock option plans and the contractual stock options as of
December 31, 1998, 1997, and 1996, respectively, and the changes during
the years ended on those dates are presented below.
F-39
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(A) EMPLOYEE STOCK OPTIONS. The following table summarizes
information about employee stock options outstanding at December 31,
1998:
<TABLE>
<CAPTION>
Number of Weighted- Weighted- Number of Weighted-
Range of Options Average Average Options Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Price at 12/31/98 Life Price at 12/31/98 Price
----- ----------- ---- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
$2.00 - $2.99 500,000 6.7 $ 2.00 125,000 $ 2.00
$4.00 - $4.99 50,000 5.9 $ 4.31 33,333 $ 4.31
$5.00 - $5.99 116,250 6.3 $ 5.730 72,750 $ 5.734
$6.00 - $6.99 125,000 3.5 $ 6.792 123,500 $ 6.792
$7.00 - $7.99 17,750 4.9 $ 7.00 17,750 $ 7.00
$8.00 - $8.99 118,000 6.1 $ 8.871 70,800 $ 8.875
$12.00 - $12.99 166,500 5.7 $ 12.00 133,200 $ 12.00
------------ -----------
1,093,500 576,333
============ ===========
</TABLE>
F-40
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(B) NON-EMPLOYEE DIRECTOR STOCK OPTIONS. The following tables
summarize information about Non-Employee Director stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
Non-Employee
Director Weighted Avg. Weighted Avg. Weighted Avg.
Stock Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------- ------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
the beginning of
year 150,000 $8.825 185,000 $8.311 305,000 $ 7.414
Options granted 35,000 $6.107 120,000 $6.032 10,001 $ 2.125
Options exercised 0 0 0 0 0 0
Options forfeited 0 0 0 0 0 0
------- ------- --------
Outstanding at
end of year 185,000 $8.311 305,000 $7.414 315,001 $ 5.560
======= ======= ========
Options 185,000 - 305,000 - 315,001 -
exercisable at
year-end.
Weighted-avg. $2.881 - $2.750 - $ .94 -
fair value of
options granted
during the year
</TABLE>
Note: This schedule does not include the stock options issued in 1995
pursuant to the 1993 Plan and subsequently surrendered in accordance
with the adoption of the Non-Employee Director Option Plan.
<TABLE>
<CAPTION>
Number of Weighted-Average Weighted- Number of Weighted-
Range of Options Remaining Average Options Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Price at 12/31/98 Life Price at 12/31/98 Price
----- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
$2.00 - $2.99 10,001 9.6 $2.125 10,001 $2.125
$4.00 - $4.99 40,000 8.4 $4.813 40,000 $4.813
$6.00 - $6.99 115,000 8.1 $6.479 115,000 $6.479
$7.00 - $7.99 10,000 6.3 $7.875 10,000 $7.875
$8.00 - $8.99 120,000 6.1 $8.875 120,000 $8.875
$9.00 - $9.99 20,000 6.2 $9.000 20,000 $9.000
------- -------
315,001 315,001
======= =======
</TABLE>
F-41
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(C) CONTRACTUAL STOCK OPTIONS. The following tables summarize
information about Contractual stock options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
Non-Employee
Director Weighted Avg. Weighted Avg. Weighted Avg.
Stock Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------- ------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at - - - - -
the beginning of
year
Options granted - - - - 3,650,000 $2.125
Options - - - - - -
exercised
Options forfeited - - - - - -
-------- -------- ---------
Outstanding at
end of year - - - - 3,650,000 $2.125
======== ======== =========
Options - - - - 1,933,334 -
exercisable at
year-end.
Weighted-avg. - - - - $.97 -
fair value of
options granted
during the year
Weighted-
Number of Average Weighted- Number of Weighted-
Range of Options Remaining Average Options Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Price At 12/31/98 Life Price At 12/31/98 Price
----- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
$2.00 - $2.99 3,650,000 6.0 $2.125 1,933,334 $2.125
========= =========
</TABLE>
F-42
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share for the following years (in thousands,
except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary items $ 3,673 $ (58,346) $ (12,551)
Accrued preferred stock dividends (10,309) (3,296) -
Accretion of preferred stock to
redemption amount (1,332) (427) -
-------------------------------------------------
Loss before extraordinary items
applicable to common stock (7,968) (62,069) (12,551)
Extraordinary gain on extinguishment
of debt - - 13,732
-------------------------------------------------
Numerator for basic and diluted earnings per
share - net (loss) income applicable
to common stock (7,968) $ (62,069) $ 1,181
=================================================
Denominator:
Denominator for basic and diluted earnings
per common share - weighted average
shares 11,640 10,661 9,709
=================================================
Basic and diluted earnings per common
share:
Loss before extraordinary items $ (0.68) $ (5.82) $ (1.29)
Extraordinary gain on extinguishment
of debt - - 1.41
-------------------------------------------------
Net (loss) income per common share $ (0.68) $ (5.82) $ 0.12
=================================================
</TABLE>
For additional disclosures regarding the outstanding preferred
stock, see Note 9. Options to purchase Common Stock, described in Note
17, were not included in the computation of diluted earnings per common
share because the options' exercise price was greater than the average
market price of the Common Stock and, therefore, the effect would be
anti-dilutive.
(19) SEGMENT REPORTING
(a) DESCRIPTION OF THE TYPES OF PRODUCTS AND SERVICES FROM
WHICH EACH REPORTABLE SEGMENT DERIVES ITS REVENUES. The Company has
four reportable segments: Primary Market Operations, Luxury Resort
Operations, Predecessor Assets and all other. The Company's primary
F-43
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
markets residential division consists of the acquisition, development
and sale of residential homesites to third party home builders. The
Company's primary markets commercial industrial division consists of
the acquisition, development and sale of commercial industrial land
parcels to third parties. The Company's luxury/resort operations
division consists of the development of waterfront or highly amenitized
communities for high-end retirement or pre-retirement homebuyers. The
Company's other predecessor assets consists of the sale of developed
and undeveloped real estate inherited from the Company's predecessor.
All other includes the Company's environmental services operations and
their receivables portfolio management.
(b) MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS.
The Company evaluates performance and allocates resources based on
gross margins of each business segment, except for all other which is
only evaluated on a total revenues basis. The accounting policies of
the reportable segments are the same as those described in the summary
of significant accounting policies. The Company does not report assets
on a segment basis and therefore has not included this information.
(c) FACTORS MANAGEMENT USED TO IDENTIFY THE ENTERPRISE'S
REPORTABLE SEGMENTS. The Company's reportable segments are lines of
business that offer different products to different customers. The
reportable segments are each managed separately because they require
different production processes and are distinct products. The Company's
businesses are primarily conducted in the United States. No significant
part of the business is dependent upon a single customer.
F-44
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes the Company's information for
reportable segments for the year's ended December 31, 1998, 1997 and
1996:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Segment revenues:
Primary markets operations $ 41,529 $ 14,441 $ 51,025
Luxury resort operations 7,010 10,908 17,809
Predecessor assets 24,262 42,270 58,731
All other 4,922 3,608 4,741
--------- --------- ---------
77,723 71,227 132,306
Unallocated revenues:
Other operating revenues 4,434 771 2,434
Interest revenues 1,598 4,650 4,039
--------- --------- ---------
Total revenues $ 83,755 $ 76,648 $ 138,779
========= ========= =========
Gross margins:
Segment gross margins:
Primary markets residential $ 6,260 $ 1,016 $ 8,774
Luxury resort operations 4,934 (2,036) 3,903
Predecessor assets 1,854 (3,553) 11,574
--------- --------- ---------
13,048 (4,573) 24,251
Unallocated revenues and (expenses):
Other operating revenues 6,017 3,011 4,919
Interest revenues 4,937 6,018 6,295
Inventory valuation reserves (195) (14,457) (12,283)
Selling expense (6,510) (8,502) (13,525)
Operating expenses (2,010) (1,505) (1,986)
Real estate costs (9,598) (14,984) (19,384)
General and administrative expense (9,908) (12,297) (12,410)
Cost of borrowing, net of amounts capitalized (4,375) (12,222) (13,430)
Other expense (853) (1,463) (512)
Other income (expense):
Reorganization reserves
Utility trust accounts 3,666 - 11,859
Utility connection reserve 1,063 1,063 4,097
Contracts receivable termination refunds 104 706 (112)
Cancellation of Notes 8,549 - -
Other reorganization reserves - 1,761 2,246
Utility Condemnation - - 4,122
Land mortgages receivable valuation discount (184) (92) 1,020
Miscellaneous (78) (810) 2,282
--------- --------- ---------
Income (loss) before extraordinary items $ 3,673 $ (58,346) $ (12,551)
========= ========= =========
</TABLE>
F-45
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(20) SUBSEQUENT EVENTS
(a) DECEMBER 1998 DEBT REFINANCING. On February 2, 1999
(effective December 31, 1998), (i) 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"), (ii)
Atlantic Gulf entered into amendments to its Secured Agreement and
Investment Agreement with Apollo, (iii) SP-Sub canceled Atlantic Gulf's
obligation to repay its $11 million SP Sub Loan and (iv) Apollo, the
New Revolving Loan Lenders and the New Term Loan Lenders and the
collateral agent entered into a New Intercreditor Agreement. These
transactions are collectively referred to herein as the "December 1998
Debt Refinancing."
(i) NEW REVOLVING LOAN FACILITY. The lenders (the
"New Revolving Loan Lenders") under Atlantic Gulf's New Revolving Loan
Facility are DK Acquisition Partners, L.P., Comac Partners,
Halcyon/Alan B. Slifka Management Co. LLC, East West Partners,
Stonehill Investment Corp. and Anglo American Financial and its
participants (the "Revolving Loan Lenders"). M. H. Davidson, LLC.
("MHD"), is the agent and collateral agent.
The New Revolving Loan Facility will mature on August 1, 2000
and bears interest at the rate of (1) eleven percent (11%) per annum
(fifteen percent (15%) per annum upon the occurrence, and continuation,
of an event of default) upon all amounts other than letter of credit
guarantees and (2) fifteen percent (15%) per annum (nineteen percent
(19%) per annum upon the occurrence, and continuation, of an event of
default) upon all draws under letter of credit guarantee amounts.
The aggregate outstanding borrowings under the New Revolving
Loan Facility are subject to a borrowing base limitation based on the
value of certain of the Company's assets. The New Revolving Loan
Facility contains standard and customary representations, warranties
and covenants for a facility of its type, size and term, including, a
consolidated net worth covenant.
The $39.5 million commitment under the New Revolving Loan
Facility will automatically be reduced (1) by $4 million by March 31,
1999; (2) by an additional $1 million by May 31, 1999; (3) by seventy
five percent (75%) of the net cash proceeds realized from certain bulk
sales of lots and/or land in certain eligible subdivision projects; (4)
by an additional $1,667,000 on each of February 15, 2000, March 15,
2000 and April 15, 2000; and (5) by an additional $2,333,000 on each of
May 15, 2000, June 15, 2000, and July 15, 2000. The remaining
outstanding balance under the New Revolving Loan Facility is due and
payable in full on August 1, 2000. The Company is currently working on
closing several transactions, the proceeds from which will be used to
fund the March 31, 1999 commitment reduction. The Company is also in
the process of finalizing negotiation of an amendment/waiver with its
New Revolving Loan Lenders in the event that it is unable to close one
or more of these transactions on or before March 31, 1999.
On the closing date, the Revolving Lenders delivered to the
trustee for Atlantic Gulf's $7.5 million of cash collateral to secure
the payment, when presented, of up to $7.5 million of the 13%
F-46
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Notes. The cash collateral, which is treated as a letter of credit
guarantee, is deemed to be part of the New Revolving Loan Facility.
On the closing date, Atlantic Gulf paid (1) the collateral
agent a closing fee of $1.28 million and (2) the agent a letter of
credit guarantee fee of $150,000. Atlantic Gulf also has agreed to pay
(a) the collateral agent a servicing fee of $10,000 per month so long
as any amounts remain outstanding under the New Revolving Loan Facility
and (b) the agent a second letter of credit guarantee fee of $150,000
on the second anniversary of the effective date of the New Revolving
Loan Facility if any portion of the letter of credit guarantee amount
remains outstanding on that date.
(ii) NEW TERM LOAN FACILITY. The lenders (the "New
Term Loan Lenders") under Atlantic Gulf's new term loan facility (the
"New Term Loan Facility") are Anglo American Financial and General
Motors Employees Global Group Pension Trust (the "Term Loan Lenders").
Anglo American Financial is the agent, and MHD is the collateral agent.
The New Term Loan Facility will mature on the earlier of
February 1, 2002, or the date that is thirty (30) days prior to the
first date on which any of the holders of the Preferred Stock have the
right to require Atlantic Gulf to repurchase any shares of Preferred
Stock and bears interest at the rate of fifteen percent (15%) per annum
(nineteen percent (19%) per annum upon the occurrence, and
continuation, of an event of default). The New Term Loan Facility
contains standard and customary representations, warranties and
covenants for a facility of its type, size and term, including a
consolidated net worth covenant.
On the closing date, Atlantic Gulf paid the agent a closing
fee of $2.0 million.
(iii) AMENDMENTS TO THE SECURED AGREEMENT AND
INVESTMENT AGREEMENT. As part of the December 1998 Debt Refinancing:
- Apollo consented to Atlantic Gulf entering into the
New Senior Loan Agreements and agreed to subordinate
its collateral interest in certain Company assets,
and, in exchange therefor:
-- Atlantic Gulf issued an $850,000 promissory
note to Apollo (the "$850,000 Note"). The
$850,000 Note will mature on February 1,
2002, and provides for current payments of
interest only at the rate of ten percent
(10%) per annum (fifteen percent (15%) per
annum upon the occurrence and continuation
of an event of default), monthly in arrears.
-- Atlantic Gulf issued a $1 million promissory
note to Apollo (the "$1 Million Note"). The
$1 Million Note will mature on February 1,
2002, and provides for payments of interest
only at the rate of ten percent (10%) per
annum (fifteen percent (15%) per annum upon
the occurrence and
F-47
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
continuation of an event of default),
monthly in arrears. Atlantic Gulf has the
obligation, under certain circumstances, to
prepay seventy five percent (75%) of the
original principal amount of the $ 1 Million
Note by conveying a 20% net profits interest
in a specified project to Apollo.
The $850,000 Note and $1 Million Note, both
of which are secured by certain Company
assets, are together referred to herein as
the "Notes".
-- Atlantic Gulf issued 500,000 shares of
Common Stock to Apollo (the "Additional
Shares").
- Apollo and Atlantic Gulf entered into amendments to
the Secured Agreement and Investment Agreement to (a)
conform such agreements to the terms and conditions
of the New Senior Loan Agreements, (b) reflect the
terms of the Apollo Notes, (c) delete all SP
Subsidiary provisions, (d) include the Additional
Shares as Registrable Securities and make all of
Apollo's Registrable Securities, Warrants and Notes
freely transferable (subject to the requirements of
the applicable securities laws) and (e) make certain
other, technical conforming changes.
(iv) NEW INTERCREDITOR AGREEMENT. Atlantic Gulf's
obligations under the New Senior Loan Agreements and the Secured
Agreement are fully secured by security interests in substantially all
of Atlantic Gulf's assets (the "Collateral") and guaranteed by certain
of Atlantic Gulf's subsidiaries. In connection with the December 1998
Debt Refinancing, Apollo, the New Revolving Loan Lenders, the New Term
Loan Lenders and MHD, as collateral agent, entered into a new
Intercreditor Agreement (the "New Intercreditor Agreement") pursuant to
which the parties agreed (1) that the liens of the parties upon the
Collateral would have the following priorities and rank: (a) the New
Revolving Loan Facility liens and obligations would have first
priority, (b) the New Term Loan Facility liens and obligations would
have second priority and (c) the Secured Agreement liens and
obligations would have third priority and (2) to certain repayment
subordinations, standstill periods, blockage periods, payment turnover
provisions and related matters.
(b) REPAYMENT OF WORKING CAPITAL FACILITY AND 13% NOTES. On
February 2, 1999, the Company repaid (i) the entire outstanding balance
($13.7 million) under its Working Capital Facility, (ii) the entire
outstanding balance ($39.5 million) under its 13% Notes and (iii) its
outstanding Mortgage Receivables loan and Contract Receivables loan
($7.8 million) with $32.0 million of funds drawn under its New
Revolving Loan Facility (including $7.5 million of cash collateral
treated as letter of credit guarantees), $26.5 million of funds drawn
under its New Term Loan Facility and $800,000 of other available cash.
(c) CARY GLEN PROJECT. On February 8, 1999, Panther Creek
Corp., a wholly-owned subsidiary of the Company (the "Developer"), was
terminated for cause by Panther Creek-Raleigh
F-48
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Limited Partnership (the "Owner"), as the developer of the Cary Glen
Project located in Cary, North Carolina, for purported delays in the
development schedule and sales program. Furthermore, on February 26,
1999, the Owner demanded that the Developer and the Company pay to the
Owner approximately $5.5 million for alleged future potential project
cost overruns pursuant to the Hearthstone Master Form Acquisition and
Development Agreement between the Owner and the Developer and the
Guaranty Agreement given by the Company. The Company disputes whether
(1) the termination was a proper termination for cause, (2) the
Developer is liable for cost overruns not incurred to date and (3) the
Owner correctly calculated the projected cost overruns. No lawsuit has
been filed at this time, and the Company continues to pursue a
resolution of this matter. In the event litigation is filed by the
Owner, the Company will assert certain defenses and counterclaims
against the Owner and will otherwise vigorously defend the claims
asserted against it and the Developer.
(d) STRATEGIC TRANSACTION. On March 26, 1999, the Company
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
transactions.
F-49
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Years Ended December 31, 1998, 1997 and 1996
Schedule II -
Valuation and Qualifying Accounts
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Amounts
Balance at Charged (Credited) Balance at
Beginning to Results of End of
of Period Operations Deductions(2) Period
--------- ---------- ------------- ------
Description
- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Predecessor Homesite Contract
Receivables reserves $4,353 $(1,300) $ 923 $2,130
Other receivable reserves (1) 3,806 (784) 290 2,732
------ ------- ------ ------
Total $8,159 $(2,084) $1,213 $4,862
====== ======= ====== ======
YEAR ENDED DECEMBER 31, 1997:
Predecessor Homesite Contract
Receivables reserves $2,130 $ (826) $ 293 $1,011
Other receivable reserves (1) 2,732 440 589 2,583
------ ------- ------ ------
Total $4,862 $ (386) $ 882 $3,594
====== ======= ====== ======
YEAR ENDED DECEMBER 31, 1998:
Predecessor Homesite Contract
Receivables reserves $1,011 $ (467) $ 141 $ 403
Other reasonable reserves (1) 2,583 -- 1,746 837
------ ------- ------ ------
Total $3,594 $ (467) $1,887 $1,240
====== ======= ====== ======
</TABLE>
- ---------------
(1) Reserves are a deduction from mortgages, notes and other receivables.
(2) Deductions represents amounts charged to reserves resulting from the
cancellation, write-off, sale or other disposition of the related
receivables.
S-1
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is entered into as of
____________, 1998, by and between Aspen Springs Ranch, Inc., a Colorado
corporation with its principal place of business at 2601 South Bayshore Drive,
Miami, Florida 33133 (the "Company"), and Lowe Enterprises Mid-Atlantic, Inc., a
Virginia corporation and its unincorporated division, Lowe Enterprises Community
Development, with its principal place of business at 1945 Old Gallows Road,
Suite 210, Vienna, Virginia 22182-3931 ("Consultant").
Each of the Company and Consultant are sometimes referred to herein as
a "Party," and both of them, together, are sometimes referred to herein as the
"Parties."
RECITALS
A. Consultant has expertise in the development, marketing, sale and
management of residential communities.
B. Consultant, an independent contractor, desires to provide consulting
services to the Company, and the Company desires to retain Consultant to provide
consulting services to the Company, for the period contemplated by, and on the
terms and conditions set forth in, this Agreement.
C. This Agreement is being entered into in conjunction with the
construction, marketing, financing, development and sale (collectively, the
"Development") of a residential community by the Company upon approximately
5,700 acres of real property located in Garfield County, Colorado, which
community is presently planned to include approximately 70 estate lots, 116
executive lots, 157 golf course lots, 9 meadow lots, 200 timeshare units
(consisting of 50 cabins divided into quarter shares), two (2) signature golf
courses and an equestrian center (collectively, the "Project").
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the Parties, intending to be bound hereby, agree as follows:
1. ENGAGEMENT AS INDEPENDENT CONTRACTOR. The Company hereby hires,
retains and otherwise engages Consultant as an independent contractor, and
Consultant hereby accepts such engagement, upon the terms and conditions set
forth herein. Each of the Parties acknowledges and agrees that Consultant (a) is
being hired, retained and otherwise engaged as an independent contractor for
federal tax purposes, (b) shall not be considered an employee, agent or partner
of the Company, Atlantic Gulf Communities Corporation ("AGCC") or any of their
affiliates or subsidiaries, (c) shall have no right, power or authority, and
shall not hold itself out as having any right, power or authority, to assume or
create any obligation or liability, express or implied, on behalf, or in the
name, of the Company, AGCC or any of their affiliates or subsidiaries, or to
bind the Company, AGCC or any of their affiliates or subsidiaries in any manner,
without the Company's or AGCC's (as the case may be) express prior written
consent (collectively, "Liabilities") and (d) shall have no right, power or
authority to sign the name of the Company, AGCC or any of their affiliates or
subsidiaries to any document, agreement, contract or instrument or to hold
itself out as a general or special agent, partner, member, officer, employee or
director of the Company, AGCC or any of their affiliates or subsidiaries. The
Company shall carry no workers' compensation insurance or any health or accident
insurance to cover Consultant or its employees. The Company shall not pay any
contribution to Social Security, unemployment insurance, or federal or state
withholding taxes in connection with the retention of Consultant under this
Agreement (collectively, "Taxes"), and Consultant agrees to indemnify and hold
<PAGE>
the Company harmless from any such Liabilities and/or Taxes which may be
assessed in connection with payments to Consultant under this Agreement.
2. DUTIES.
a. EXECUTIVE CONSULTING SERVICES. Consultant shall contribute
a minimum of twenty percent (20%) and a maximum of forty percent (40%) of the
work time (i.e., 1 to 2 full work days per week) of Consultant's chairman, James
M. DeFrancia ("Executive"), as required, to oversee the Development of the
Project. Executive shall be responsible for overseeing the Development of the
Project. The Project Manager (as hereinafter defined) shall report directly to
the Executive on a regular basis, as required by Executive.
b. MANAGEMENT COMMITTEE. Executive shall serve as the initial
chairman of a three-person management committee (the "Committee"), initially
consisting of Executive, J. Larry Rutherford, the President and Chief Executive
Officer of AGCC (the "Company Representative"), and the managing director of the
Project appointed by the Company ("Project Manager"). The Company shall be
entitled to replace the Committee members (other than Executive) from time to
time, at the Company's sole option. Executive's membership on the Committee
shall cease effective on the date the term of this Agreement expires or is
otherwise terminated under paragraph 5. below. The Committee shall meet at least
once each calendar quarter and at such other times as required by and/or in
connection with the Development of the Project. Each Committee member other than
the Company Representative shall be entitled to one (1) vote on each matter
presented to the Committee, and the Company Representative shall be entitled to
three (3) votes on each matter presented to the Committee. All matters brought
before the Committee shall be decided (i) by a majority of votes of the
Committee at a meeting attended (in person or by telephone) by all of the
members of the Committee or (ii) by a signed written consent of the members of
the Committee constituting a majority of votes.
c. MATTERS REQUIRING THE APPROVAL OF THE COMMITTEE. The
following "Major Decisions" shall require the approval of the Committee:
i. Any amendment to the Project pro-forma
and/or Project budget.
ii. The sale, lease or other disposition of, or
the granting of any mortgage, lien or other
encumbrance on, or entering into any other
capital transaction with respect to, the
Project or any part thereof, except for the
disposition of lots, timeshare units and
memberships in accordance with the approved
Project pro-forma and Project budget.
iii. The incurrence of any indebtedness for
borrowed money by, or any refinancing of any
indebtedness of, the Company, whether or not
secured by any property of the Company.
iv. The making or incurring of any expenditure
which, when taken together with all prior
expenditures made or incurred or reasonably
anticipated to be made or incurred, exceeds
the line item therefor in the approved
Project budget, it being agreed that for
purposes hereof, each Project budget line
item shall be the amount of such line item
as set forth in the approved Project budget
plus a proportionate share of the
contingency line item set forth in the
approved Project budget.
-2-
<PAGE>
v. Entering into or renewing any contract,
agreement, lease or other arrangement or
transaction with any person which is an
affiliate of Consultant or Project Manager.
vi. Any action or decision to omit any action
that, if taken or omitted, could result in a
violation of or default under any term or
provision of any agreement binding on the
Company and/or the Project, which violation
or default could materially and adversely
affect the Company, AGCC, any of their
subsidiaries or affiliates and/or Project or
could result in the acceleration of any
indebtedness of the Company or any
indebtedness that is secured by the Project
or any portion thereof.
vii. The initiation, defense, adjustment,
settlement or compromise of any claim,
action, suit, proceeding or judgment by or
against the Company or the Project or any
portion thereof in excess of $25,000.
Notwithstanding the foregoing, Consultant acknowledges and agrees that
certain proposed actions and/or decisions of Consultant and/or the Committee may
require the approval of the Board of Directors of the Company (the "Board")
and/or AGCC before such actions may be taken or such decisions may be
implemented. Nothing contained herein shall constitute (a) a waiver by the
Board, any member thereof or AGCC of its/his rights with respect thereto or (b)
authority on the part of the Consultant or the Committee to take any such
actions or implement any such decisions without obtaining the Board's and/or
AGCC's prior written consent (to the extent so required) with respect thereto.
d. OTHER CONSULTING SERVICES. Consultant shall contribute the
expertise of its other employees to the Project, when and as reasonably
determined by Executive to be necessary for the proper Development of the
Project.
3. COMPLIANCE WITH LAWS, CONTRACTS, LOAN AGREEMENTS, PERMITS, PRO-FORMA
AND BUDGET. Consultant acknowledges that it has received copies of the following
documents:
a. that certain Loan Agreement, dated September 3, 1998,
between the Company and Lehman Brothers Holdings,
Inc.,
b. that certain Senior Secured Facilities Credit
Agreement, dated September 3, 1998, between the
Company and Morgan Stanley Senior Funding, Inc.,
c. 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
d. the approved pro-forma and budget for the Project
(the documents described in a., b., c. and this d.
being collectively referred to herein as the "Project
Agreements").
Consultant 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
Consultant's performance of its duties hereunder.
-3-
<PAGE>
4. TERM. Subject to paragraph 5. hereof, the initial term of this
Agreement shall begin on September 1, 1998, and shall terminate on the earlier
of (a) September 30, 2003 or (b) the date upon which the Company has sold all of
the lots, timeshare units and club memberships comprising the Project. Any
rights of Consultant to Incentive Compensation as defined in paragraph 6.b,
below shall survive the expiration of the term of this Agreement, except as set
forth below.
5. TERMINATION.
a. TERMINATION WITHOUT CAUSE. This Agreement is
terminable by either Party without cause, at any time upon thirty (30) days
prior written notice to the other Party, subject to the following:
i. In the event the Company terminates this
Agreement without cause under this paragraph
5, Consultant shall not be entitled to be
paid, from and after the date of such
notice, any further Base Fees, Retainer Fees
or other compensation hereunder; provided,
however, that Consultant shall retain any
rights it may have to be paid Incentive
Compensation under paragraph 6.b. below.
ii. In the event Consultant terminates this
Agreement without cause under this paragraph
5, Consultant shall not be entitled to be
paid, from and after the date of such
notice, any further Base Fees, Retainer Fees
or other compensation hereunder, including,
without limitation, the Incentive
Compensation under paragraph 6.b. below.
b. TERMINATION FOR CAUSE BY THE COMPANY. The Company may
terminate Consultant's engagement pursuant to this Agreement for "Cause"
effective upon written notice to Consultant. Consultant shall not be entitled to
be paid, from and after the date of such notice, any further Base Fees, Retainer
Fees or other compensation hereunder, including without limitation, the
Incentive Compensation under paragraph 6.b, below.
"Cause" under this paragraph 5.b. shall mean any one of the following
acts, omissions or occurrences, as the case may be, (X) by Executive,
individually, with respect to clauses i. through vii. below, (Y) by Consultant
with respect to clauses iii., iv., v., or vi. below or (Z) any other employee of
Consultant, individually with respect to clauses ii., iii., iv., v., or vi.
below:
i. Conviction of a felony;
ii. Deliberate and premeditated acts against the
best interests of the Company, its parent
company, Aspen Springs Ranch Holding Company
("Holding), Holding's parent company, AGCC,
or any of their affiliates or subsidiaries;
iii. Material breach of the terms of this
Agreement;
iv. Consultant or Executive being enjoined from
violation of any state or federal securities
laws or state or federal laws relating to
the sale of real estate;
v. Consultant violating any law, or regulation
governing their conduct in connection with
the services to be rendered hereunder;
-4-
<PAGE>
vi. Misappropriation of the Company's funds or
those of Holding, AGCC or their affiliates
or subsidiaries; or
vii. Executive's habitual use of alcohol or drugs
to a degree that such use substantially
interferes with the performance of his
duties hereunder.
c. TERMINATION FOR CAUSE BY THE CONSULTANT. Consultant
may terminate this Agreement for "Cause" effective upon written notice to the
Company. Consultant shall not be entitled to be paid from and after the date of
such notice, any further Base Fees, Retainer Fees or other compensation
hereunder; provided, however, that Consultant shall retain any rights it may
have to be paid Incentive Compensation under paragraph 6.b. below.
"Cause" under this paragraph 5.c. shall mean any one of the following
acts, omissions or occurrences, as the case may be by the Company:
i. Material breach of the terms of this
Agreement; or
ii. Company being enjoined from violation of any
state or federal securities laws or state or
federal laws relating to the sale of real
estate.
d. DEATH, DISABILITY OR UNEMPLOYMENT. In the event of
the death or disability of Executive or if Executive ceases to be an employee of
Consultant for any reason, Company may immediately terminate Consultant's
engagement pursuant to this Agreement upon giving written notice of such
termination to Consultant. Such termination shall be deemed a termination for
"Cause" and shall result in Consultant forfeiting any rights to be paid, from
and after the date of such notice, any further Base Fees, Retainer Fees or other
compensation hereunder, including, without limitation, the Incentive
Compensation under paragraph 6.b. below.
e. PERMITTING.
i. In the event the Company is unable to obtain
approval from Garfield County and all other
applicable governmental and/or quasi-
governmental agencies of the proposed
Planned Unit Development Amendment for the
Project (the "Governmental Approvals")
within eighteen (18) months following the
date hereof, Company may terminate
Consultant's engagement pursuant to this
Agreement upon giving written notice of such
termination to Consultant. Such termination
shall be deemed a termination for "Cause"
and shall result in Consultant forfeiting
any rights to be paid, from and after the
date of such notice, any further Base Fees,
Retainer Fees or other compensation
hereunder, including, without limitation,
the Incentive Compensation under paragraph
6.b. below.
ii. In the event the Company obtains the
Governmental Approvals within the eighteen
(18) month period following the date hereof,
the Company may terminate Consultant's
engagement pursuant to this Agreement by
providing written notice to Consultant
within thirty (30) days following the date
the Governmental Approvals are obtained. In
such event, Consultant shall not be entitled
to be paid, from and after the date of such
notice, any further Base Fees, Retainer
Fees, Incentive Compensation or other
compensation hereunder; provided, however,
-5-
<PAGE>
that Company shall pay to Consultant a lump
sum payment of $250,000 within thirty (30)
days following the date of delivery of the
notice of termination.
-6-
<PAGE>
6. COMPENSATION.
a. BASE FEE AND RETAINER FEE. For services rendered by
Consultant under this Agreement, the Company shall pay Consultant:
i. a base fee of $15,000 per month during the
term of this Agreement ("Base Fee"), and
ii. a retainer fee of $5,000 per month during
the term of this Agreement ("Retainer Fee").
Consultant shall be solely responsible for paying any and all amounts
due and owing to Executive, Consultant's other employees and Consultant's agents
and advisors ("Consultant Expenses"). Consultant acknowledges and agrees that
the Company shall have no liability whatsoever to Executive, Consultant's other
employees and Consultant's agents and advisors for any amounts due and owing to
them, including any Consultant Expenses. Consultant agrees to indemnify and hold
the Company harmless from any such Consultant Expenses.
b. INCENTIVE COMPENSATION. Subject to achieving the
Minimum Gross Margin, Consultant shall, subject to the conditions set forth
herein, be entitled to receive one percent (1%) of the Company's Gross Revenues
(as hereinafter defined) from the Project (the "Incentive Fee") payable as
follows:
i. $500,000 upon achieving $50 million in Gross
Revenues;
ii. an additional $500,000 upon achieving $100
million in Gross Revenues;
iii. an additional $500,000 upon achieving $150
million in Gross Revenues;
iv. an additional $500,000 upon achieving $200
million in Gross Revenues; and
v. an additional one percent (1%) of the Gross
Revenues in excess of $200 million upon
completion of the disposition of the
Project.
The payment of each tranche of the Incentive Fee shall be conditioned
upon the Project achieving a cumulative minimum Gross Margin ("Minimum Gross
Margin") of at least twenty percent (20%) at the time each such tranche of the
Incentive Fee payment becomes due and payable. The Incentive Fee shall be deemed
earned when paid. If the Minimum Gross Margin is not achieved on the date any
tranche of the Incentive Fee is otherwise payable hereunder, the Incentive Fee
relating to such tranche shall not be earned by, or payable to, Consultant and
the Incentive Fee relating to such tranche shall be permanently forfeited and
shall not be deferred to a later payment date.
Notwithstanding the foregoing, in the event the Company sells the
entire Project in bulk, the Incentive Fee of 1% of the Gross Revenues from such
bulk sale of the Project shall be payable to Consultant within fifteen (15) days
following the closing of the sale and the Company's receipt of the proceeds
therefrom. In the event of a bulk sale of the entire Project, there shall be no
Minimum Gross Margin condition to payment of the Incentive Fee.
All Retainer Fees paid to Consultant pursuant to Paragraph 6.a. above
shall be applied against any Incentive Fee payment due to Consultant under this
Paragraph 6.b.
-7-
<PAGE>
For purposes of this Agreement:
i. the term "Gross Revenues" shall mean the
total cash revenues received by the Company
from the sale of the lots, timeshare units
and club memberships comprising the Project
to bona-fide third party purchasers, and
ii. the term "Gross Margin" shall mean the
difference between Gross Revenues and the
cost of the lots, timeshare units and club
memberships sold as calculated in accordance
with the Company's approved pro-forma for
the Project (a copy of the current approved
pro-forma for the Project is attached hereto
as Exhibit "A"), which costs shall include,
without limitation, the total costs of the
land, indirect development (i.e.
engineering, due diligence, planning and
other similar soft costs), on-site
infrastructure, off-site infrastructure,
amenities and special features, financing,
property taxes, contingency and
cost-inflator.
c. NO OTHER COMPENSATION. Consultant acknowledges and
agrees that this Agreement shall not grant or extend to Consultant, and
Consultant specifically disclaims any rights with respect to:
i. participation in the Company, Holding's,
AGCC's or any of their subsidiaries' or
affiliates' revenues or profits generally or
with respect to any project or transaction,
other than the Project, unless otherwise
agreed to in a subsequent writing signed by
Consultant and the Company, Holding or AGCC;
or
ii. additional contributions by the Company,
Holding, AGCC or any of their affiliates or
subsidiaries with respect to any deferred
compensation plan, bonus plans, or fringe
benefits.
7. EXPENSES AND MISCELLANEOUS BENEFITS. Consultant is authorized
to incur reasonable expenses for promoting the business of the Company,
including expenses for travel, meals, entertainment and similar items; provided
such expenses do not exceed the amount set forth on an annual budget approved by
the Company in writing. The Company will reimburse Consultant for all such
expenses authorized by the Company upon the presentation by Consultant, from
time to time, of an itemized account of such expenditures.
8. DISCLOSURE OF INFORMATION. Consultant shall not disclose or
appropriate to its own use or for its own benefit, or to the use or for the
benefit of any third party, at any time during or subsequent to the term of this
Agreement, any secret or confidential information of the Company, AGCC or any of
their subsidiaries or affiliates ("Confidential Information") that Consultant
becomes aware of (regardless of how Consultant becomes aware of such
Confidential Information) during such period, whether or not developed by
Consultant, except as required in connection with Consultant's performance of
this Agreement or as required by a court or governmental authority. Upon
termination of this Agreement, Consultant shall promptly deliver to the Company
all Confidential Information, in whatever form, that is in the custody or
control of Consultant. The Company shall have the right to obtain injunctive
relief for violation of the terms of this paragraph 8. and the terms of this
paragraph 8. shall survive the termination of this Agreement.
-8-
<PAGE>
9. NONCOMPETITION. During the term of this Agreement, Consultant
shall not directly or indirectly, either as an employee, employer, consultant,
agent, principal, partner, stockholder, corporate officer, director, or in any
other capacity, own, operate, control, assist, or participate in any residential
community development within the jurisdictional boundaries of Garfield County
and Pitkin County, Colorado, which the Company reasonably determines to be in
competition with the Project. The foregoing prohibitions shall not apply to
ownership by Consultant of less than 5% of the issued and outstanding stock of
any publicly traded company, provided that Consultant does not control any such
company.
10. INDEMNIFICATION.
a. INDEMNIFICATION BY COMPANY. The Company shall
indemnify and hold harmless Consultant and its
employees, officers and directors (the "Consultant
Persons") for any losses, claims, damages,
liabilities, arising out of, in connection with or
related to the provision of services pursuant to this
Agreement. The Company shall also, at Consultant's
option, (i) undertake any Consultant Person's
defense, or (ii) reimburse any Consultant Person for
any legal or other expenses incurred in connection
with any pending or threatened investigation or
litigation arising out of, in connection with or
related to the provision of services pursuant to this
Agreement. The Company shall not, however, be liable
to any Consultant Person for any indemnification or
reimbursement to the extent that such Consultant
Person caused the loss or incurred the expense as a
result, directly or indirectly, of such Consultant
Person's gross negligence or willful misconduct. The
terms of this paragraph 10.a. shall survive the
termination of this Agreement.
b. INDEMNIFICATION BY CONSULTANT. The Consultant shall
indemnify and hold harmless Company, AGCC, their
subsidiaries and affiliates and their employees,
officers and directors ("Company Person") for (i) any
losses, claims, damages and liabilities, arising out
of, in connection with or resulting from, any
Consultant Person's gross negligence or wilful
misconduct and (ii) all Taxes, Liabilities and
Consultant Expenses. The Consultant shall also, at
Company's option, (i) undertake any Company Person's
defense, or (ii) reimburse any Company Person for any
legal or other expenses incurred in connection with
any pending or threatened investigation or litigation
arising out of, in connection with or resulting from,
any Consultant Person's gross negligence or wilful
misconduct or any Taxes, Liabilities or Consultant's
Expenses. The terms of this paragraph 10.b. shall
survive the termination of this Agreement.
11. ASSIGNMENT. A Party shall not voluntarily or by operation of
law assign or otherwise transfer the any of its rights, privileges, duties or
obligations hereunder without the prior written consent of the other Party. Any
attempted assignment by a Party of any of its rights, privileges, duties or
obligations hereunder without such prior written consent shall be wholly void
and unenforceable.
12. THIRD-PARTY BENEFICIARIES. Nothing in this Agreement, whether
express or implied, (a) confers, or is intended to confer, upon any person other
than the Parties hereto and their respective successors and permitted assignees,
any rights or remedies under or by reason of this Agreement, (b) relieves or
discharges, or is intended to relieve or discharge, the liability of any Party
hereto or (c) gives any person or entity any right of subrogation against or
action over or against any Party.
-9-
<PAGE>
13. NO PARTNERSHIP OR JOINT VENTURE. Nothing contained in this
Agreement is intended to establish or create, or should be construed in any
manner or under any circumstances whatsoever as creating or establishing, a
partnership or a joint venture between Company and Consultant. It is the express
intent of the Parties that the relationship created hereunder shall be solely a
consulting arrangement.
14. NOTICES. All notices or other communications provided for by
this Agreement shall be made in writing and shall be deemed properly delivered
when delivered (a) personally, (b) by the facsimile transmission of such notice
to the Party entitled thereto, provided the sending Party receives written
electronic confirmation thereof, (c) by the mailing of such notice to the Party
entitled thereto, registered or certified mail, postage prepaid or (d) by
delivery by a reputable national courier or overnight delivery service, provided
the sending Party has a written tracking confirmation fro the notice, to a Party
at the following addresses (or to such address designated in writing by one
Party to the other):
COMPANY: Aspen Springs Ranch, Inc.
C/o Atlantic Gulf Communities Corporation
2601 South Bayshore Drive
Miami, Florida 33133
Attn: General Counsel
Fax: (305) 859-4063
CONSULTANT: Lowe Enterprises Community Development
1945 Old Gallows Road, Suite 210
Vienna, Virginia 22182-3931
Attn: James M. DeFrancia, Chairman
Fax: (703) 761-7606
15. AMENDMENTS. No supplement, modification or amendment of any
term, provision or condition of this Agreement shall be binding or enforceable
unless executed in writing by both Parties hereto.
16. SEVERABILITY. Should any part, term or provision of this
Agreement or any document required or contemplated herein to be executed be
declared to be invalid, void or unenforceable, all remaining parts, terms and
provisions hereof shall remain in full force and effect and shall in no way be
invalidated, impaired or affected thereby.
17. NO JURY TRIAL. Company and Consultant hereby voluntarily,
knowingly and intentionally WAIVE ANY AND ALL RIGHTS TO TRIAL BY JURY in any
legal action or proceeding arising under or in connection with this Agreement.
18. ATTORNEYS' FEES.
a. Each Party shall pay and shall be solely responsible
for paying its own expenses incurred in connection
with the negotiation, documentation, execution and
delivery of this Agreement, including, without
limitation, all fees and expenses of any agents,
representatives, counsel and accountants employed by
each Party in connection with the negotiation,
documentation, execution and delivery of this
Agreement.
-10-
<PAGE>
b. The Parties agree that, if any action is instituted
to enforce this Agreement, the Party not prevailing
in such action shall pay to the prevailing Party all
costs and expenses, including reasonable attorneys'
fees, incurred by such prevailing Party in connection
with such action. If both Parties prevail in part in
such action, the court or arbitrator(s), as the case
may be, shall allocate the financial responsibility
for such costs and expenses in an equitable manner,
consistent with its decision in such action.
19. APPLICABLE LAW. This Agreement shall be governed by and
construed and enforced in accordance with and subject to the laws of the State
of Colorado. The Parties hereby agree that venue shall be exclusively within
Denver County, Colorado.
20. ENTIRE AGREEMENT AND WAIVER. This Agreement contains the
entire agreement between the Parties hereto and supersedes all prior and
contemporaneous written or oral agreements, arrangements, negotiations and/or
understandings between the Parties hereto. No waiver of any term, provision or
condition of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be, or shall constitute, a waiver of any other
provision hereof, nor shall any such waiver constitute a continuing waiver, and
no waiver shall be binding unless executed in writing by the Party making the
waiver.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same Agreement. Each Party agrees
to be bound by its own facsimile signature and to accept the facsimile signature
of the other Party to this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
Witnesses: ASPEN SPRINGS RANCH, INC.
____________________ By: _______________________________
Name: ____________________________
____________________ Title: ____________________________
LOWE ENTERPRISES MID-ATLANTIC, INC.
____________________ By: _______________________________
Name: ____________________________
____________________ Title: ____________________________
11
Consent of Independent Certified Public Accountants
Ernst & Young LLP
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-78284, as amended by Amendments 1 and 2, and Form S-8 No.
33-78282 pertaining to the Company's Employee Stock Option Plan), of our report
dated March 11, 1999, with respect to the consolidated financial statements and
schedule of Atlantic Gulf Communities Corporation included in the Annual Report,
as amended (Form 10-K/A-1) for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
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Ernst & Young LLP
Miami, Florida
April 30, 1999
