UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number: 1-8967
ATLANTIC GULF COMMUNITIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 59-0720444
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2601 SOUTH BAYSHORE DRIVE 33133-5461
MIAMI, FLORIDA (Zip Code)
(Address of principal executive offices)
(305) 859-4000
(Registrant's telephone number, including area code)
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest date practicable:
There were 12,393,399 shares of the Registrant's common stock, $.10 par value
per share (the "Common Stock"), outstanding as of November 5, 1999.
<PAGE>
SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORM
10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1999, CERTAIN MATTERS DISCUSSED
HEREIN, INCLUDING PART II., ITEM 2., "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONTAIN FORWARD LOOKING
STATEMENTS BASED ON MANAGEMENT'S EXPECTATIONS REGARDING, AND EVALUATIONS OF
CURRENT INFORMATION ABOUT, THE COMPANY'S BUSINESS THAT INVOLVE RISKS AND
UNCERTAINTIES, AND ARE SUBJECT TO FACTORS THAT COULD CAUSE ACTUAL FUTURE RESULTS
TO DIFFER, BOTH ADVERSELY AND MATERIALLY, FROM CURRENTLY ANTICIPATED RESULTS,
INCLUDING, WITHOUT LIMITATION, THE EFFECT OF ECONOMIC AND MARKET CONDITIONS; THE
CYCLICAL NATURE OF THE REAL ESTATE MARKET IN PRIMARY MARKETS IN FLORIDA, OTHER
PRIMARY MARKETS IN THE SOUTHEASTERN UNITED STATES AND LUXURY/RESORT MARKETS; THE
INDUSTRY AND INDUSTRY SEGMENT CONDITIONS AND DIRECTIONS; INTEREST RATES; THE
AVAILABILITY AND COST OF FINANCING REAL ESTATE ACQUISITIONS AND DEVELOPMENTS;
CONSTRUCTION COSTS; WEATHER; THE AVAILABILITY AND COST OF MATERIALS AND LABOR;
CONSUMER PREFERENCES AND TASTES; GOVERNMENTAL REGULATION; COMPETITIVE PRESSURES;
THE COMPANY'S OWN DEBT AND EQUITY STRUCTURE AND RELATED FINANCING CONTINGENCIES
AND RESTRICTIONS; THE COMPANY'S RECENT OPERATING LOSSES; THE COMPANY'S ABILITY
TO CLOSE FINANCINGS OF NEW REAL ESTATE AT PARTICULAR TIMES RELATIVE TO THE
COMPANY'S CASH FLOW NEEDS AT SUCH TIMES; THE COMPANY'S ABILITY TO SERVICE AND/OR
REFINANCE EXISTING INDEBTEDNESS; LEGISLATION; THE COMPANY'S ABILITY TO SELL
PREDECESSOR ASSETS, CORE PROJECTS AND/OR LUXURY/RESORT PROJECTS IN ORDER TO USE
THE PROCEEDS THEREFROM TO REDUCE PROJECT AND INSTITUTIONAL INDEBTEDNESS;
RESOLUTION OF PENDING LITIGATION IN WHICH THE COMPANY IS A DEFENDANT; THE
RESULTS OF THE COMPANY'S CURRENT DEVELOPMENT PROJECTS; REDUCED MANAGEMENT
PERSONNEL AND RESOURCES; THE RESULTS OF THE COMPANY'S STRATEGIC ALTERNATIVE
INITIATIVE; AND THE COMPANY'S ABILITY TO REALIZE THE FINANCIAL AND OTHER
BENEFITS ANTICIPATED FROM ITS CORPORATE RESTRUCTURING PROGRAM.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998........2
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1999 and 1998..........................................3
Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
1999 and 1998.....................................................................4
Notes to Consolidated Financial Statements........................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.....................................................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................29
Item 2. Changes in Securities............................................................30
Item 3. Defaults Upon Senior Securities..................................................30
Item 4. Submission of Matters to a Vote of Security Holders..............................31
Item 5. Other Information................................................................31
Item 6. Exhibits and Reports on Form 8-K.................................................31
SIGNATURES......................................................................................32
</TABLE>
<PAGE>
UNLESS THE CONTEXT CLEARLY INDICATES OTHERWISE, ALL REFERENCES HEREIN TO (1)
"ATLANTIC GULF" REFER SOLELY TO ATLANTIC GULF COMMUNITIES CORPORATION, (2) THE
"COMPANY" INCLUDE ATLANTIC GULF AND ITS DIRECT AND INDIRECT WHOLLY OWNED
SUBSIDIARIES AND (3) THE "PREDECESSOR COMPANY" REFER SOLELY TO GENERAL
DEVELOPMENT CORPORATION (ATLANTIC GULF'S CORPORATE PREDECESSOR) AND ITS DIRECT
AND INDIRECT SUBSIDIARIES.
PART I. FINANCIAL INFORMATION
[THE REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY.]
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
(in thousands, except share amounts and par value)
September 30, December 31,
1999 1998
---- ----
Assets (unaudited)
------
<S> <C> <C>
Cash and cash equivalents $ 2,990 $ 9,413
Restricted cash and cash equivalents 1,264 1,041
Contract receivables, net 2,894 4,109
Mortgages, notes and other receivables, net 19,247 29,273
Land and residential inventory, net 160,510 166,870
Property, plant and equipment, net 11,834 3,950
Other assets, net 13,954 15,150
------------ ------------
Total assets $ 212,693 $ 229,806
============ ============
Liabilities and Stockholders' Deficit
-------------------------------------
Accounts payable and accrued liabilities $ 19,590 $ 17,533
Other liabilities 14,553 8,207
Notes and mortgages payable 160,857 151,805
------------ ------------
Total liabilities 195,000 177,545
------------ ------------
Redeemable Preferred Stock
Series A, 20%, $.01 par value, 2,500,000 shares authorized;
2,500,000 shares issued and outstanding, having a
liquidation preference of $37,860 and $32,706, as of
September 30, 1999 and December 31, 1998, respectively 36,199 30,403
Series B, 20%, $.01 par value; 2,000,000 shares authorized;
2,000,000 shares issued and outstanding, having a
liquidation preference of $29,981 and $25,899 as of
September 30, 1999 and December 31, 1998, respectively 28,898 24,417
------------ ------------
65,097 54,820
------------ ------------
Commitments and Contingencies
Common stockholders' deficit
Common stock, $.10 par value, 70,000,000 shares authorized;
12,832,590 and 11,933,359 shares issued and outstanding as
of September 30, 1999 and December 31, 1998, respectively 1,283 1,193
Contributed capital 106,132 117,994
Accumulated deficit (148,329) (115,379)
Accumulated other comprehensive loss (6,351) (6,351)
Treasury stock, 439,191 and 158,536 shares, at cost (139) (16)
------------ ------------
Total common stockholders' deficit (47,404) (2,559)
------------ ------------
Total liabilities and stockholders' deficit $ 212,693 $ 229,806
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1999 and 1998
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
Revenues: 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Real estate sales:
Homesite $ 6,068 $ 3,505 $ 23,703 $ 10,583
Commercial 9,087 6,463 15,316 52,260
-------- -------- -------- --------
Total real estate sales 15,155 9,968 39,019 62,843
Other operating revenue 789 2,750 4,129 5,846
Interest income 591 1,201 1,636 3,720
-------- -------- -------- --------
Total revenues 16,535 13,919 44,784 72,409
-------- -------- -------- --------
Costs and expenses:
Cost of real estate sales:
Homesite 5,524 2,946 20,771 9,112
Commercial 8,103 3,410 12,627 42,239
-------- -------- -------- --------
Total cost of real estate sales 13,627 6,356 33,398 51,351
Inventory valuation reserve 7,890 -- 11,314 --
Selling expense 1,033 1,491 4,568 4,711
Operating expense 985 399 2,825 1,165
Real estate costs 1,693 2,871 5,860 6,947
General and administrative expense 2,740 2,557 9,765 6,937
Cost of borrowing, net of amounts capitalized 1,298 1,215 4,049 4,246
Other expense 5,999 96 6,406 567
-------- -------- -------- --------
Total costs and expenses 35,265 14,985 78,185 75,924
-------- -------- -------- --------
Operating loss (18,730) (1,066) (33,401) (3,515)
-------- -------- -------- --------
Other (expense) income :
Reorganization items (234) 4,401 451 5,183
Miscellaneous - 2 - (214)
-------- -------- -------- --------
Total other (expense) income (234) 4,403 451 4,969
-------- -------- -------- --------
Net (loss) income (18,964) 3,337 (32,950) 1,454
-------- -------- -------- --------
Less:
Accrued preferred stock dividends 3,230 2,658 9,237 7,518
Accretion of preferred stock to redemption amount 350 338 1,041 992
Modification of preferred stock security interest - - 2,380 -
-------- -------- -------- --------
3,580 2,996 12,658 8,510
-------- -------- -------- --------
Net (loss) income applicable to common stock $(22,544) $ 341 $(45,608) $ (7,056)
======== ======== ======== ========
Basic and diluted net (loss) income per common share $ (1.78) $ 0.03 $ (3.65) $ (0.61)
======== ======== ======== ========
Weighted average common shares outstanding 12,674 11,729 12,494 11,597
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998
(in thousands of dollars)
(unaudited)
Nine Months Ended
September 30,
----------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (32,950) $ 1,454
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization 5,069 3,478
Other expense (income) 84 (577)
Vaulation reserves 11,314 -
Reorganization items - 45
Land acquisitions - (22,125)
Other net changes in assets and liabilities:
Restricted cash (223) 589
Receivables 10,920 3,996
Land and residential inventory (11,016) 5
Other assets 1,196 (2,052)
Accounts payable and accrued liabilities 2,543 1,402
Other liabilities (1,243) (1,027)
--------- ---------
Net cash used in operating activities (14,306) (14,812)
--------- ---------
Cash flow from investing activities:
Additions to property, plant and equipment, net (2,263) (4,771)
--------- ---------
Net cash used in investing activities (2,263) (4,771)
--------- ---------
Cash flows from financing activities:
Borrowings under credit agreements 108,079 64,854
Repayments under credit agreements (97,933) (50,572)
Proceeds from issuance of preferred stock - 1,735
--------- ---------
Net cash provided by financing activities 10,146 16,017
--------- ---------
Decrease in cash and cash equivalents (6,423) (3,566)
Cash and cash equivalents at beginning of period 9,413 9,188
--------- ---------
Cash and cash equivalents at end of period $ 2,990 $ 5,622
========= =========
Supplemental cash flow information:
Interest payments, net of amounts capitalized $ 4,049 $ 3,951
========= =========
Reorganization item payments $ - $ 45
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
(unaudited)
(1) The September 30, 1999 financial statements are unaudited. In
management's opinion, the interim financial statements reflect all
adjustments, principally consisting of normal recurring accruals,
necessary for a fair presentation of the financial position and results
of operations. Results for interim periods are not necessarily
indicative of results for the full year. For a complete description of
the Company's accounting policies, see "Notes to Consolidated Financial
Statements" included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, as amended by that certain Amendment
to Form 10-K on Form 10-K/A-1, as filed with the Securities and
Exchange Commission (the "SEC") on April 30, 1999 ("1998 Form 10-K").
Certain prior year amounts have been reclassified to conform with the
1999 presentation.
(2) Net income (loss) per share of common stock, $.10 par value per share,
of the Company ("Common Stock"), is computed by (a) deducting accrued
preferred stock dividends, accretion of preferred stock to redemption
amount and other preferred stock charges from net income (loss) to
determine net income (loss) applicable to Common Stock and (b) then
dividing net income (loss) applicable to Common Stock by the weighted
average number of shares of Common Stock outstanding during the
periods. The effect of any outstanding warrants and options to purchase
Common Stock on the per share computation was anti-dilutive during the
periods.
(3) The Company capitalizes interest primarily on land inventory being
developed for sale which is subsequently charged to income when the
related asset is sold. Capitalized interest was $6,113,000 and
$16,310,000 for the three and nine months ended September 30, 1999,
respectively, and $3,199,000 and $8,595,000 for the three and nine
month periods ended September 30, 1998, respectively.
(4) Revenue from the sale of land is recognized when all the criteria for
sales pursuant to SFAS 66, ACCOUNTING FOR SALES OF REAL ESTATE, have
been met.
(5) Pursuant to the Company's 1996 Non-Employee Directors' Stock Plan, the
Company issued to its Non-Employee Directors 30,000 shares of Common
Stock at a price of $0.75 per share for the first quarter of 1999,
13,212 shares of Common Stock at a price of $1.70 per share for the
second quarter of 1999, and 36,000 shares of Common Stock at a price of
$0.63 per share for the third quarter of 1999. On August 4, 1999, the
Company amended the 1996 Non-Employee Directors' Stock Plan to
eliminate the issuance of Common Stock to its Non-Employee Directors
effective as of October 1, 1999 and to provide for the payment of (1)
an annual retainer fee of $25,000 payable quarterly in advance in
$6,250.00 installments, in cash, to each Non-Employee Director other
than Mr. Rutherford, Mr. Gropper and the "Apollo Directors", and (2) an
annual retainer fee of $10,000 payable quarterly in advance in
$2,500.00 installments, in cash, to Mr. Gropper (for so long as he is a
Non-Employee Director) and the Apollo Directors. For purposes of the
Stock Plan, "Apollo Directors" are the Non-Employee Directors appointed
by AP-AGC, LLC pursuant to that certain Amended and Restated Investment
Agreement dated as of February 7, 1997, as amended.
5
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
(unaudited)
(6) The Company and AP-AGC, LLC, an affiliate of Apollo Real Estate
Advisors, L.P. ("Apollo"), are parties to that certain Investment
Agreement, as amended (the "Investment Agreement"), pursuant to which
Apollo purchased during 1998 (a) 2.5 million shares of 20% Cumulative
Redeemable Convertible Preferred Stock, Series A (the "Series A
Preferred Stock") for an aggregate purchase price of $24.7 million
($9.88 per share) and (b) warrants to purchase up to 5 million shares
of Common Stock (the "Investor Warrants"), for an aggregate purchase
price of $0.3 million ($.06 per Investor Warrant share) (the "Apollo
Transaction").
6
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
(unaudited)
(7) Redeemable preferred stock (which includes the Series A Preferred Stock
and the 20% Cumulative Redeemable Convertible Preferred Stock, Series B
(the "Series B Preferred Stock")) consisted of the following at
September 30, 1999, December 31, 1998 and September 30, 1998 (in
thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Series A Preferred Stock:
- -------------------------
Gross proceeds $ 25,000 $ 25,000 $ 25,000
Accrued dividends 12,860 7,706 6,149
-------- -------- --------
Liquidation Preference amount 37,860 32,706 31,149
Less issue costs (3,104) (3,104) (3,100)
Less warrants purchased (300) (300) (300)
Plus accretion of preferred stock to redemption amount 1,743 1,101 891
-------- -------- --------
Total Series A Preferred Stock 36,199 30,403 28,640
-------- -------- --------
Series B Preferred Stock:
- -------------------------
Private Placement June 24, 1997:
Gross proceeds 10,000 10,000 10,000
Accrued dividends 5,574 3,453 2,812
-------- -------- --------
Liquidation Preference amount 15,574 13,453 12,812
Less issue costs (950) (950) (950)
Less warrants purchased (120) (120) (120)
Plus accretion of preferred stock to redemption amount 567 369 303
-------- -------- --------
15,071 12,752 12,045
-------- -------- --------
Rights Offering November 19, 1997:
Gross proceeds 10,000 10,000 10,000
Accrued dividends 4,407 2,446 1,853
-------- -------- --------
Liquidation Preference amount 14,407 12,446 11,853
Less issue costs (950) (950) (950)
Less warrants purchased (120) (120) (120)
Plus accretion of preferred stock to redemption amount 490 289 224
-------- -------- --------
13,827 11,665 11,007
-------- -------- --------
Total Series B Preferred Stock 28,898 24,417 23,052
-------- -------- --------
Total Redeemable Preferred Stock $ 65,097 $ 54,820 $ 51,692
======== ======== ========
</TABLE>
(8) During the first nine months of 1999 and 1998, comprehensive loss
consisted only of the net losses for those periods.
7
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
(unaudited)
(9) Segment Reporting
Nine Months Ended September 30, 1999:
-------------------------------------
<TABLE>
<CAPTION>
Primary Luxury/
Market Resort Predecessor
Operations Operations Assets Other Total
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues $ 28,251 $ 4,862 $ 5,906 $ 5,765 $ 44,784
========= ======== ======== ======== =========
Gross Profit $ 3,639 $ 1,088 $ 894 $ - $ 5,621
========= ======== ======== ========
Inventory valuation reserve (11,314) - - - (11,314)
Unallocated revenues (expenses), net (27,257)
---------
Net Loss $ (32,950)
=========
Nine Months Ended September 30, 1998:
-------------------------------------
Primary Luxury/
Market Resort Predecessor
Operations Operations Assets Other Total
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues $ 43,157 $ - $ 19,686 $ 9,566 $ 72,409
========= ======== ======== ======== =========
Gross Profit $ 10,412 $ - $ 1,080 $ - $ 11,492
========= ======== ======== ========
Unallocated revenues (expenses), net (10,038)
---------
Net Income $ 1,454
=========
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE DISCUSSION OF THE COMPANY'S BUSINESS IN THE SECTIONS BELOW ENTITLED
"CURRENT BUSINESS," "CORE BUSINESS" AND "PREDECESSOR ASSETS" SHOULD BE READ IN
CONJUNCTION WITH THE DISCUSSION OF THE COMPANY'S CORPORATE RESTRUCTURING AND
STRATEGIC ALTERNATIVES INITIATIVE IN THE SECTION BELOW ENTITLED "RECENT
DEVELOPMENTS."
CURRENT BUSINESS
The Company is a Florida-based, planned community development and asset
management company. The Company's CORE BUSINESS consists of:
- PRIMARY MARKET OPERATIONS, consisting of the acquisition,
development and sale of real estate projects ("PRIMARY
PROJECTS") containing residential homesite components such as
single-family lots, multi-family lots/units and residential
tract sales ("HOMESITES") and/or non-residential components
such as commercial, industrial, office and institutional
("COMMERCIAL DEVELOPMENT") in primary markets in Florida and
other selected primary markets in the southeastern United
States ("PRIMARY MARKETS").
- LUXURY/RESORT OPERATIONS, consisting of the acquisition,
development and sale of real estate projects ("LUXURY/RESORT
PROJECTS") in which the Company engages in one or more of the
following activities: Homesite development, construction of
VERTICAL RESIDENTIAL UNITS (i.e., single family housing,
condominiums and timeshare units), and construction and
operation of equity golf clubs and other amenities
("AMENITIES"). The Company's existing Luxury/Resort Projects
are located in selected markets in Florida and Colorado
("LUXURY/RESORT MARKETS").
The Company's (1) Primary Markets and Luxury/Resort Markets
are referred to as its "CORE MARKETS" and (2) Primary Projects
and Luxury/Resort Projects are referred to as its "CORE
PROJECTS."
- OTHER OPERATIONS, consisting principally of:
-- ENVIRONMENTAL SERVICES, consisting of the provision
of environmental services to third parties on a
contract basis; and
-- RECEIVABLES PORTFOLIO MANAGEMENT, consisting of
portfolio management of MORTGAGE RECEIVABLES (as
defined below) and CONTRACT RECEIVABLES (as defined
below) resulting principally from the sale or other
disposition of PREDECESSOR ASSETS (as defined below).
As of September 30, 1999, the Company (1) owned all of the equity, or
had equity ownership interests in joint ventures which owned all of the equity,
in 11 Core Projects, consisting of eight Primary Projects and three
Luxury/Resort Projects and (2) had three additional planned Primary Projects
under control, excluding the Rayland project, which the Company no longer
intends to acquire. The 11 existing Core Projects and three planned Primary
Projects are referred to as the Company's "CORE DEVELOPMENT PORTFOLIO."
9
<PAGE>
The Board of Directors made the decision in the third quarter of fiscal
1999 (1) to further reduce its overhead costs, (2) to further reduce its
staffing and to eliminate additional senior management positions, (3) to replace
its President and Chief Executive Officer, (4) to terminate its headquarters
lease in Miami, Florida, and to relocate its offices to Boca Raton, Florida, by
December 1, 1999, (5) to begin selling Core Projects in the fourth quarter of
fiscal 1999, (6) to use the net proceeds from such sales (after payment of
transaction costs) to repay Project indebtedness and, to the extent of remaining
net proceeds, to repay the Revolving Loan Facility and the Term Loan Facility,
in that order, (7) to focus its attention on the development, build-out and sale
of units at its two Luxury/Resort Projects, West Bay Club and Chenoa, and
continue to facilitate 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") and its Receivable Portfolio (as defined below) and (8) to write down
the carrying values of its Lakeside Estates Project, its Saxon Woods Project,
its Trails of West Frisco Project and its West Meadows Project by $3.4 million,
$1.3 million, $1.1 million and $2.1 million, respectively. As discussed below,
the continuing disposition of Predecessor Assets is a run-off business and not
part of the Company's Core Business. See "Recent Developments" below.
CORE BUSINESS
GENERAL. The Company's Core Business consists of three principal
business lines, (1) development and sale of Primary Projects, (2) development
and sale of Luxury/Resort Projects and (3) Other Operations, principally
including Environmental Services and Receivables Portfolio Management. See PART
I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - RECENT DEVELOPMENTS.
PRIMARY PROJECTS. As of September 30, 1999, the Company was engaged in
the acquisition, development and sale of Primary Projects in Florida, North
Carolina, Georgia and Texas. See PART I, ITEM 1. BUSINESS - CORE BUSINESS --
PRIMARY PROJECTS of the 1998 Amended Form 10-K for more information concerning
these Projects, including the scope and location of each Project.
10
<PAGE>
REMAINING UNSOLD LOTS/UNITS/ACRES IN THE PRIMARY PROJECTS, BY
PROJECT. The following table summarizes the number of remaining unsold
lots/units/acres at the Company's Primary Projects, by Project, as of September
30, 1999:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
REMAINING UNSOLD LOTS/UNITS/ACRES AS OF SEPTEMBER 30, 1999(1)
-----------------------------------------------------------------
SINGLE FAMILY MULTI-FAMILY COMMERCIAL
-----------------------------------------------------------------
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
LOTS ENTITLED(2) UNITS ENTITLED(2) ACRES ENTITLED(2)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OWNED PROPERTIES
- ----------------
Lakeside Estates...................... 462 462 - - - -
Saxon Woods .......................... 355 355 - - - -
West Meadows ......................... 660 660 - - - -
The Trails of West Frisco ............ 1,298 1,298 - - - -
-----------------------------------------------------------------
SUBTOTAL OWNED PROPERTIES............. 2,775 2,775 - - - -
-----------------------------------------------------------------
JOINT VENTURE PROPERTIES
- ------------------------
Sunset Lakes(3) ...................... 1,146 1,146 - - - -
Falcon Trace ......................... 520 520 - - - -
Cary Glen(4) ......................... 852 852 257 257 - -
Orlando Naval Training Center(5)...... 911 - 2,129 - 131 -
-----------------------------------------------------------------
SUBTOTAL JOINT VENTURE PROPERTIES..... 3,429 2,518 2,386 257 131 -
-----------------------------------------------------------------
CONTROLLED PROPERTIES (6)
- -------------------------
Anneewakee Falls(7)................... 1,226 - - - - -
Baxter Martinez(8).................... 1,182 - 217 - 27 -
Harbor Bay(9)......................... 1,371 - 410 - 44 -
-----------------------------------------------------------------
SUBTOTAL CONTROLLED PROPERTIES(10).... 3,779 - 627 - 71 -
-----------------------------------------------------------------
TOTAL ALL PROPERTIES.................. 9,983 5,293 3,013 257 202 -
=================================================================
</TABLE>
(1) Varying from Project to Project, unsold units are developed, under
development or to be developed in the future. The change in remaining
unsold lots/units/acres from December 31, 1998 is a result of sales
activity and any modifications made to the scope of the Project during
the intervening period.
(2) "Entitled" means having the necessary discretionary local, state, and
federal government approvals and permits to proceed with development of
the Project.
(3) The Company's interest in this project is currently under contract. The
closing of the sale, which is subject to the satisfaction of certain
conditions, is scheduled for November 15, 1999.
(4) The Company has a limited partnership interest in this project. SEE
PART II, ITEM 1. LEGAL PROCEEDINGS - CARY GLEN PROJECT.
(5) The Company is currently negotiating the sale of its joint venture
interest to its joint venture partners pursuant to a purchase option
granted to the joint venture partners in the joint venture agreement.
(6) The Company does not currently own these Projects, but has entered into
contractual relationships (i.e., purchase agreements with customary
conditions precedent, option agreements, joint venture arrangements,
other similar arrangements, etc.) to acquire them. There can be no
assurance the Company will actually acquire these properties.
(7) This Project is located in Georgia, southwest of Atlanta in Douglas
County. The Company controls this Project through a purchase contract
executed on February 19, 1999.
(8) This Project is located in Tampa, Florida. The Company controls the
Project through various purchase contracts.
(9) The Company's interest in this project is currently under contract. The
closing of the sale, which is subject to the satisfaction of certain
conditions, is scheduled for December 10, 1999.
(10) The Company previously had listed a contract to acquire the Rayland
Project under Controlled Properties. The Company has decided not to
pursue this acquisition and has requested a refund of its contract
deposit.
11
<PAGE>
LUXURY/RESORT PROJECTS. The Company also is engaged in the acquisition,
development and sale of master planned Luxury/Resort Projects in Luxury/Resort
Markets in Florida and Colorado. See PART I, ITEM 1. BUSINESS - CORE BUSINESS --
LUXURY/RESORT PROJECTS of the 1998 Amended Form 10-K for more information
concerning these Projects, including the scope and location of each Project.
REMAINING UNSOLD LOTS/UNITS/ACRES IN THE LUXURY/RESORT
PROJECTS, BY PROJECT. The following table summarizes the number of remaining
unsold lots/units/acres at the Company's Luxury/Resort Projects, by Project, as
of September 30, 1999:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
REMAINING UNSOLD LOTS/UNITS/ACRES AT SEPTEMBER 30, 1999(1)
---------------------------------------------------------------------------------------------
VERTICAL RESIDENTIAL UNITS
HOMESITES ----------------------------------------------------- COMMERCIAL
SINGLE FAMILY SINGLE FAMILY MULTI-FAMILY TIMESHARE CABINS DEVELOPMENT
---------------------------------------------------------------------------------------------
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
LOTS ENTITLED UNITS ENTITLED UNITS ENTITLED UNITS ENTITLED ACRES ENTITLED
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OWNED PROPERTIES
- ----------------
West Bay Club....................... 259 259 81 81 769 769 - - 13 13
Chenoa (2).......................... 352 - - - 50 - 75 - - -
---------------------------------------------------------------------------------------------
SUBTOTAL OWNED PROPERTIES........... 611 259 81 81 819 769 75 - 13 13
---------------------------------------------------------------------------------------------
JOINT VENTURE PROPERTIES
- ------------------------
Jupiter Ocean Grande(3)............. - - - - 154 154 - - - -
---------------------------------------------------------------------------------------------
TOTAL ALL PROPERTIES................ 611 259 81 81 973 923 75 - 13 13
=============================================================================================
</TABLE>
(1) Varying from Project to Project, unsold units are developed, under
development or to be developed in the future. The change in remaining
unsold lots/units/acres from December 31, 1998 is a result of sales
activity and any modifications made to the scope of the Project during
the intervening period.
(2) Formerly known as Aspen Springs Ranch.
(3) The Company is negotiating to sell its interest in this Project.
OTHER OPERATIONS.
-----------------
ENVIRONMENTAL SERVICES. EQ Lab, a wholly owned subsidiary of
the Company, is a full service ecological consulting firm and laboratory. EQ Lab
recorded (1) approximately $557,000 and $359,000 of total revenues in the third
quarter of 1999 and 1998, respectively, and (2) approximately $1,347,000 and
$1,227,000 of total revenues in the first nine months of 1999 and 1998,
respectively. EQ Lab recorded (1) approximately $243,000 and $258,000 of
revenues from unaffiliated third parties in the third quarter of 1999 and 1998,
respectively, and (2) approximately $702,000 and $877,000 of revenues from
unaffiliated third parties in the first nine months of 1999 and 1998,
respectively.
The Company is currently negotiating to sell the stock of EQ Lab.
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
12
<PAGE>
sales of Predecessor Tracts (the "MORTGAGE RECEIVABLES," which, together with
the Contract Receivables, are collectively referred to as the "RECEIVABLES
PORTFOLIO"). As of September 30, 1999, the portfolio of Contract Receivables had
a net book value of $2.9 million, and the portfolio of Mortgage Receivables had
a net book value of $19.2 million. As of December 31, 1998, the portfolio of
Contract Receivables had a net book value of $4.1 million, and the portfolio of
Mortgage Receivables had a net book value of $29.3 million.
PREDECESSOR ASSETS
The following table summarizes the Company's Predecessor Homesite
Inventory by secondary market area as of September 30, 1999:
PREDECESSOR HOMESITE INVENTORY
------------------------------
Other Total
Standard Developed Buildable Other Predecessor
Market Area Buildable Lots Reserved Restricted Homesites
- -------------------------------------------------------------------------------
North Port 3,505 9 64 129 3,707
Port Charlotte 583 71 1,622 361 2,637
Port St. Lucie 193 27 306 60 586
Port Malabar 86 2 1,759 1,542 3,389
Port Labelle 742 - 31 1,051 1,824
Sabal Trace - - - - -
Silver Springs Shores 2,351 79 229 279 2,938
Cumberland Cove 180 - - 8 188
Other 38 - 31 6 75
-----------------------------------------------------
Total 7,678 188 4,042 3,436 15,344
=====================================================
13
<PAGE>
The following table summarizes the Company's Predecessor Commercial
Development Inventory by secondary market area as of September 30, 1999:
PREDECESSOR COMMERCIAL DEVELOPMENT INVENTORY
--------------------------------------------
Total
Market Area Acres
--------------------------------------------------------------
North Port 491
Port Charlotte 1,403
Port St. Lucie 335
Port Malabar 869
Port Labelle 224
Silver Springs Shores 36
Cumberland Cove 685
Other 39
-------------
Total 4,082
=============
The decrease in inventory from December 31, 1998 is primarily a result
of sales activity during the intervening period in accordance with the Company's
plan of disposal of Predecessor Assets. See PART I, ITEM 1. BUSINESS -
PREDECESSOR ASSETS of the 1998 Amended Form 10-K for information concerning the
Predecessor Homesite and Predecessor Commercial Development Inventory.
14
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
---------------------------------------------------------------
The Company's results of operations for its Core Business and
Predecessor Assets for the nine months ended September 30, 1999 and 1998,
respectively, are summarized below:
<TABLE>
<CAPTION>
Combining Results of Real Estate Operations
-------------------------------------------
Nine Months Ended September 30, 1999
(in thousands)
Primary Luxury/
Market Resort Predecessor
Operations Operations Assets Total
--------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite.............................. $ 15,751 $ 4,862 $ 3,090 $ 23,703
Commercial............................ 12,500 - 2,816 15,316
--------------------------------------------------
Total real estate sales.................. 28,251 4,862 5,906 39,019
--------------------------------------------------
Costs and expenses:
Cost of real estate sales
Homesite.............................. 14,287 3,774 2,710 20,771
Commercial............................ 10,325 - 2,302 12,627
--------------------------------------------------
Total cost of real estate sales............. 24,612 3,774 5,012 33,398
--------------------------------------------------
Gross margin real estate sales ............. $ 3,639 $ 1,088 $ 894 $ 5,621
==================================================
Results of Joint Venture Operations(1)...... $ (1,546) $ (4,869) $ - $ (6,415)
==================================================
</TABLE>
(1) Included in "other expense" in the Consolidated Statements of
Operations.
15
<PAGE>
<TABLE>
<CAPTION>
Combining Results of Real Estate Operations
-------------------------------------------
Nine Months Ended September 30, 1998
(in thousands)
Primary Luxury/
Market Resort Predecessor
Operations Operations Assets Total
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite.............................. $ 7,857 $ - $ 2,726 $ 10,583
Commercial............................ 35,300 - 16,960 52,260
---------------------------------------------------
Total real estate sales.................. 43,157 - 19,686 62,843
Costs and expenses:
Cost of real estate sales
Homesite.............................. 6,701 - 2,411 9,112
Commercial............................ 26,044 - 16,195 42,239
---------------------------------------------------
Total cost of real estate sales............. 32,745 - 18,606 51,351
---------------------------------------------------
Gross margin real estate sales ............. $ 10,412 $ - $ 1,080 $ 11,492
===================================================
Results of Joint Venture Operations(1)...... $ 1,778 $ (342) $ - $ 1,436
===================================================
</TABLE>
(1) Included in "other expense" in the Consolidated Statements of
Operations.
OVERVIEW. The Company reported a net loss applicable to Common Stock of
$45.6 million in the first nine months of 1999 compared to a net loss of $7.1
million applicable to Common Stock in the first nine months of 1998. The
increase in the net loss of $38.5 million was due primarily to (1) a $5.9
million decrease in gross margin on real estate sales, (2) a $1.7 million
decrease in other operating revenue, (3) a $2.1 million decrease in interest
income, (4) inventory valuation reserves of $11.3 million, (5) a $1.7 million
increase in operating expense, (6) a $2.8 million increase in general and
administrative expenses, (7) a $5.8 million increase in other expense, (8) a
decrease of $4.5 million in other income, and (9) a $4.1 million increase in
preferred stock charges, partially offset by (10) a $1.1 million decrease in
real estate costs.
PRIMARY MARKET OPERATIONS.
HOMESITES. Revenues from Homesite sales increased $7.9 million
in the first nine months of 1999 compared to the first nine months of 1998 due
primarily to sales at The Trails of West Frisco Project. There were no sales at
The Trails of West Frisco Project in the first nine months of 1998. The Homesite
sales gross margin percentage was 9.3% in the first nine months of 1999 compared
to 14.7% in the first nine months of 1998. The lower Homesite sales gross margin
percentage in the first nine months of 1999
16
<PAGE>
compared to the first nine months of 1998 was due primarily to a decline in the
gross margin associated with the Lakeside Estates Project due to an increase in
the estimated cost to complete that Project in 1998, resulting in less than
break-even margins for the remainder of the Lakeside Estates Project.
As of September 30, 1999, the Company had under contract approximately
792 Homesites for $23.6 million with 14 homebuilders in the Lakeside Estates
Project, the Saxon Woods Project, the West Meadows Project and The Trails of
West Frisco Project. As of December 31, 1998, the Company had under contract
approximately 650 Homesites for $19.8 million with 11 homebuilders in the
Lakeside Estates Project, the Saxon Woods Project, the West Meadows Project and
The Trails of West Frisco Project. And, as of September 30, 1998, the Company
had under contract approximately 817 Homesites for $28.3 million with 13
homebuilders in the Lakeside Estates Project, the Saxon Woods Project, the West
Meadows Project and The Trails of West Frisco Project.
The Company is a party to a contract to sell its interest in the Harbor
Bay Project. The closing of the sale, which is subject to the satisfaction of
certain conditions, is scheduled for December 10, 1999.
Inventory valuation reserve charges of $7.9 million were recognized in
the third quarter of 1999 and represent a reduction in the carrying value of the
Company's inventory based upon a review of the fair values of various homesite
projects.
COMMERCIAL DEVELOPMENT. Revenues from Commercial Development
were $12.5 million in the first nine months of 1999, compared to $35.3 million
in the first nine months of 1998. In September 1999, the Company closed on the
sale of the remaining property in the Riverwalk Towers Project for $8.0 million.
In January 1999, the Company closed on the sale of the West Meadows Project for
$4.5 million. In April 1998, the Company sold and closed Dave's Creek for $24.8
million. In June 1998, the Company sold a portion of the Riverwalk Towers
Project for $7.0 million.
JOINT VENTURES. Results of Joint Ventures decreased by $3.3
million in the first nine months of 1999 compared to the first nine months of
1998. This was primarily associated with an investment valuation reserve charge
of $1.7 million. During 1998, the Sunset Lakes Project commenced operations
resulting in initial sales to all the builders. The comparable period in 1999
represents results of operations from more normalized sales volumes. As of
September 30, 1999, December 31, 1998 and September 30, 1998, the Company's
Sunset Lakes and Falcon Trace JV Projects had 504, 787 and 885 Homesites under
contract, respectively, totaling approximately $24.7 million, $37.3 million and
$41.0 million, respectively, in future gross revenue, a portion of which is
allocable to the Company as a joint venturer.
The Company's interest in the Sunset Lakes Project is currently under
contract. The closing of the sale at a profit, which is subject to the
satisfaction of certain conditions, is scheduled for November 15,1999.
Investment valuation reserve charges of $1.7 million were recognized in
the third quarter of 1999 and represent a reduction in the carrying value of the
Company's joint venture investments based upon a review of the fair values of
various joint venture projects.
17
<PAGE>
LUXURY/RESORT OPERATIONS.
-------------------------
HOMESITES. Homesite sales began at the West Bay Club Project
during the first nine months of 1999. Because the West Bay Club Project was
still under development as of September 30, 1998, there were no sales at the
West Bay Club Project in the first nine months of 1998.
As of September 30, 1999 and December 31, 1998, the Company had under
contract approximately 180 and 12 Homesites for $9.8 million and $2.4 million,
respectively, with 7 homebuilders in the West Bay Club Project. There were no
pending sales contracts at the West Bay Club Project as of September 30, 1998.
JOINT VENTURES. Results of Joint Ventures in the first nine
months of 1999 decreased $4.5 million compared to the first nine months of 1998
due to increased marketing related expenses associated with the Jupiter Ocean
Grande Project start-up and an investment valuation reserve charge of $4.4
million recognized in the third quarter of 1999 representing a reduction in the
carrying value of the Company's joint venture investments in Jupiter Ocean
Grande based upon a review of the fair values of the joint venture project.
PREDECESSOR ASSETS.
-------------------
PREDECESSOR HOMESITES. Revenues from Predecessor Homesite
sales increased $364,000 in the first nine months of 1999 compared to the first
nine months of 1998 due primarily to the sale of 75 Predecessor Homesites in the
Sable Trace Project. There were only nominal sales in the Sable Trace Project in
the first nine months of 1998 due to Project start-up. Other Predecessor
Homesites sales declined in the first nine months of 1999 compared to the number
of Predecessor Homesites sold in the first nine months of 1998 consistent with
continued portfolio run-off. The Predecessor Homesite sales gross margin
percentage was 12.3% in the first nine months of 1999 compared to 11.6% in the
first nine months of 1998. This percentage is consistent with the Company's plan
of disposal of its Predecessor Assets.
As of September 30, 1999, the Company had under contract approximately
16 Predecessor Homesites for $198,000. As of December 31, 1998, the Company had
under contract 2 commercial lots allocated to Predecessor Homesites for $99,000.
And, as of September 30, 1998, the Company had under contract approximately 54
Predecessor Homesites for $226,000.
PREDECESSOR TRACTS. Revenues from Predecessor Tract sales
decreased $14.1 million in the first nine months of 1999 compared to the first
nine months of 1998 due primarily to fewer sales from a declining inventory
balance. As of September 30, 1999, there were pending Predecessor Tract sales
contracts or letters of intent totaling approximately $1.8 million. As of
December 31, 1998, there were pending Predecessor Tract sales contracts or
letters of intent totaling approximately $980,000. And, as of September 30,
1998, there were pending Predecessor Tract sales contracts or letters of intent
totaling approximately $4.3 million.
The 18.3% Predecessor Tract sales gross margin percentage in the first
nine months of 1999 is due to significantly fewer sales on more profitable
terms. The 4.5% Predecessor Tract sales gross margin percentage in the first
nine months of 1998 is generally more consistent with the Company's plan of
disposal for Predecessor Assets.
18
<PAGE>
OTHER RESULTS OF OPERATIONS.
----------------------------
INVENTORY VALUATION RESERVES. Inventory valuation reserve
charges of $3.4 million were recognized in the second quarter of 1999 and $7.9
million in the third quarter of 1999 and represent a reduction in the carrying
value of the Company's inventory based upon a review of the fair values.
OTHER OPERATING REVENUE. Other operating revenue decreased by
$1.7 million in the first nine months of 1999 compared to the first nine months
of 1998. The decrease was due to a $1.0 million settlement received in 1998.
INTEREST INCOME. Interest income decreased by $2.1 million in
the first nine months of 1999 compared to the first nine months of 1998. The
decrease was due to discounts offered to borrowers to induce prepayment of their
mortgages for liquidity purposes, as well as normal Contract Receivables and
Mortgage Receivables portfolio run-off.
OPERATING EXPENSE. Operating expense increased by $1.7 million
in the first nine months of 1999 compared to the first nine months of 1998. The
increase was primarily due to losses incurred with start-up operations in
connection with the Amenities at the West Bay Club Project in 1998.
REAL ESTATE COSTS. Real estate costs decreased by $1.1 million
in the first nine months of 1999 compared to the first nine months of 1998. The
decrease was due to marketing and advertising expenses associated with the
opening of the West Bay Club Project.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased $2.8 million in the first nine months of 1999 compared to the first
nine months of 1998 due primarily to (1) expenses of the Special Committee of
the Board of Directors associated with the Company's strategic alternatives
initiative, including the retention of BT Alex. Brown, (2) certain corporate
restructuring expenses, including severance costs, lease restructuring expenses
and other similar costs and expenses, (3) employee bonuses, including the stock
component of bonuses issued to certain executives effective March 15, 1999 and
(4) forgiveness of debt costs and other costs associated with the employment
termination agreement for the Company's prior President and Chief Executive
Officer, pursuant to which the Company cancelled a nonrecourse loan previously
made to the President and Chief Executive Officer and the stock purchased with
the proceeds of the loan was returned to the Company.
OTHER EXPENSE. Other expense increased by $5.9 million in the
first nine months of 1999 compared to the first nine months of 1998 primarily
due to a valuation allowance recorded on the Company's investment in Joint
Ventures based upon a review of fair values.
OTHER INCOME. Other income decreased by $4.5 million in the
first nine months of 1999 compared to the first nine months of 1998. The
decrease was primarily due to a $3.8 million utility trust payout in September
1998.
PREFERRED STOCK CHARGES. During the first nine months of 1999,
the Company recorded a $9.2 million accrual for dividends associated with its
Preferred Stock. The dividends were accumulated, but unpaid, as of September 30,
1999. The dividend rate is 20% of the liquidation preference value of the
Preferred Stock. The liquidation preference value of the Preferred Stock is $10
per share, plus accumulated and unpaid dividends. The liquidation preference of
the Preferred Stock was $67.8 million, $58.6 million and $55.8 million as of
September 30, 1999, December 31, 1998, and September 30, 1998, respectively. The
Company accreted $1.0 million of the value of its Preferred Stock to the
redemption amount in the first nine months of 1999.
19
<PAGE>
<TABLE>
<CAPTION>
In connection with the closing of the new Senior Loan Facilities in
February 1999, the Company issued notes totaling $1.85 million and 500,000
shares of Common Stock at a price of $1.06 per share to AP-AGC, LLC ("APOLLO")
in exchange for Apollo's (a) consent to the Company entering into the new Senior
Loan Facilities and agreement to subordinate its collateral interest in certain
of the Company's assets, (b) agreement to certain amendments to the Secured
Agreement and Investment Agreement and (c) agreement to enter into the new
Intercreditor Agreement with the lenders party to the new Senior Loan
Facilities. The total value of the consideration paid to Apollo was $2.4
million. The total of approximately $12.7 million of preferred stock charges was
charged to contributed capital in the accompanying September 30, 1999
consolidated balance sheet.
20
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
----------------------------------------------------------------
The Company's results of operations for its Core Business and
Predecessor Assets for the three months ended September 30, 1999 and 1998 are
summarized below:
Combining Results of Real Estate Operations
-------------------------------------------
Three Months Ended September 30, 1999
(in thousands)
Primary Luxury/
Market Resort Predecessor
Operations Operations Assets Total
----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite.............................. $ 5,265 $ - $ 803 $ 6,068
Commercial............................ 8,000 - 1,087 9,087
----------------------------------------------------------
Total real estate sales.................. 13,265 - 1,890 15,155
----------------------------------------------------------
Costs and expenses:
Cost of real estate sales
Homesite.............................. 4,881 (90) 733 5,524
Commercial............................ 7,084 - 1,019 8,103
----------------------------------------------------------
Total cost of real estate sales............. 11,965 (90) 1,752 13,627
----------------------------------------------------------
Gross margin real estate sales ............. $ 1,300 $ 90 $ 138 $ 1,528
==========================================================
Results of Joint Venture Operations(1)...... $ (1,512) $ (4,496) $ - $ (6,008)
==========================================================
</TABLE>
(1) Included in "other expense" in the Consolidated Statements of
Operations.
21
<PAGE>
Combining Results of Real Estate Operations
-------------------------------------------
Three Months Ended September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Primary Luxury/
Market Resort Predecessor
Operations Operations Assets Total
-----------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite.............................. $ 2,821 $ - $ 684 $ 3,505
Commercial............................ 3,520 2,943 6,463
-----------------------------------------------
Total real estate sales.................. 6,341 - 3,627 9,968
-----------------------------------------------
Costs and expenses:
Cost of real estate sales
Homesite.............................. 2,385 - 561 2,946
Commercial............................ 842 - 2,568 3,410
-----------------------------------------------
Total cost of real estate sales............. 3,227 - 3,129 6,356
-----------------------------------------------
Gross margin real estate sales ............. $ 3,114 $ - $ 498 $ 3,612
===============================================
Results of Joint Venture Operations(1)...... $ 591 $ (96) $ - $ 495
===============================================
</TABLE>
(1) Included in "other expense" in the Consolidated Statements of
Operations.
OVERVIEW. The Company reported a net loss applicable to Common Stock of
$22.5 million in the third quarter of 1999 compared to a net income of $341,000
applicable to Common Stock in the third quarter of 1998. The increase in the net
loss of $22.9 million was due primarily to (1) inventory valuation reserve
charges of $7.9 million, (2) an increase in other expense of $5.9 million, (3) a
$2.1 million decrease in gross margin on real estate sales, (4) a $2.0 million
decrease in other operating revenue, (5) a $4.2 million decrease in other
income, (6) a $584,000 increase in preferred stock charges and, (7) a $610,000
decrease in interest income, offset by (8) a $1.2 million decrease in real
estate costs.
PRIMARY MARKET OPERATIONS.
--------------------------
HOMESITES. Revenues from Homesite sales increased $2.4 million
in the third quarter of 1999 compared to the third quarter of 1998 due primarily
to sales at The Trails of West Frisco Project. There were no sales at The Trails
of West Frisco Project in the third quarter of 1998. The Homesite sales gross
margin percentage was 7.3% in the third quarter of 1999 compared to 15.4% in the
third quarter of 1998. The lower Homesite sales gross margin percentage in the
third quarter of 1999 was due primarily to a decline in the gross margin
associated with the Lakeside Estates Project due to an increase in the estimated
cost to complete that Project.
22
<PAGE>
COMMERCIAL DEVELOPMENT. In the third quarter of 1999, the
Company closed on the sale of the remaining property in the Riverwalk Towers
Project for $8.0 million. In the third quarter of 1998, the Company received
additional sales proceeds on the Dave's Creek property upon receipt of an Army
Corp of Engineers permit.
JOINT VENTURES. Results of Joint Ventures decreased by $2.1
million in the third quarter of 1999 compared to the third quarter of 1998. This
decrease was primarily associated with an investment valuation reserve charge of
$1.7 million relating to various joint venture projects. During 1998, the Sunset
Lakes Project commenced operations resulting in initial sales to all the
builders. The comparable period in 1999 represents results of operations for
more normalized sales volumes.
LUXURY/RESORT OPERATIONS.
-------------------------
HOMESITES. Homesite sales began at the West Bay Club Project
in 1999. There were no sales at the West Bay Club Project in the third quarter
of 1999 or 1998.
JOINT VENTURES. Results of Joint Ventures in the third quarter
of 1999 decreased by $4.4 million as compared to the third quarter of 1998. This
decrease was the result of an investment valuation reserve charge of $4.4
million related to the Jupiter Ocean Grande Joint Venture Project.
PREDECESSOR ASSETS.
-------------------
PREDECESSOR HOMESITES. Predecessor Homesites sales in the
third quarter of 1999 were comparable to sales in the third quarter of 1998. The
Predecessor Homesite sales gross margin percentage was 8.7% in the third quarter
of 1999 compared to 18.0% in the third quarter of 1998.
PREDECESSOR TRACTS. Revenues from Predecessor Tract sales
decreased $1.9 million in the third quarter of 1999 compared to the third
quarter of 1998 due primarily to fewer sales from a declining inventory balance.
The 6.3% Predecessor Tract sales gross margin percentage in the third
quarter of 1999 compared to the 12.7% Predecessor Tract sales gross margin
percentage in the third quarter of 1998 is generally more consistent with the
Company's plan of disposal of Predecessor Assets.
OTHER RESULTS OF OPERATIONS.
----------------------------
INVENTORY VALUATION RESERVES. Inventory valuation reserve
charges of $7.9 million were recognized in the third quarter of 1999 and
represent a reduction in the carrying value of the Company's inventory based
upon a review of their fair values.
OTHER OPERATING REVENUE. Other operating revenue decreased by
$2.0 million in the third quarter of 1999 compared to the third quarter of 1998.
This decrease was due to a realized gain on the assignment of a real estate
purchase agreement in the third quarter of 1998 for a residential project
located in the Orlando, Florida area. There was no comparable sales in 1999.
INTEREST INCOME. Interest income decreased by $610,000 in the
third quarter of 1999 compared to the third quarter of 1998. This decrease was
due to discounts offered to borrowers to induce prepayment of the mortgage for
liquidity purposes, as well as normal Contract Receivables and Mortgage
Receivables portfolio run-off.
23
<PAGE>
SELLING EXPENSE. Selling expense decreased by $457,000 in the
third quarter of 1999 compared to the third quarter of 1998. The decrease was
primarily due to reduced sales in the corresponding period.
OPERATING EXPENSE. Operating expense increased by $586,000 in
the third quarter of 1999 compared to the third quarter of 1998. The increase
was primarily due to losses incurred with start-up operations in connection with
the Amenities at the West Bay Club Project.
REAL ESTATE COSTS. Real estate costs decreased by $1.2 million
in the third quarter of 1999 compared to the third quarter of 1998. The decrease
was due to marketing and advertising expenses associated with the opening of the
West Bay Club Project in 1998.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense increased $183,000 in the third quarter of 1999 compared to the third
quarter of 1998 due primarily to further corporate restructuring expenses,
including severance costs, lease restructuring expenses and other similar costs
and expenses partially offset by savings from the restructuring program.
OTHER EXPENSE. Other expense increased by $5.9 million in the
first nine months of 1999 compared to the first nine months of 1998 primarily
due to a valuation allowance recorded on the Company's investment in Joint
Ventures based upon a review of fair values.
OTHER INCOME. Other income decreased by $4.6 million in the
first nine months of 1999 compared to the first nine months of 1998. The
decrease was primarily due to a $3.8 million utility trust payout in September
1998.
PREFERRED STOCK CHARGES. During the third quarter of 1999, the
Company recorded a $3.2 million accrual for dividends associated with its
Preferred Stock. The dividends were accumulated but unpaid as of September 30,
1999. The dividend rate is 20% of the liquidation preference value of the
Preferred Stock. The liquidation preference value of the Preferred Stock is $10
per share, plus accumulated and unpaid dividends. The liquidation preference of
the Preferred Stock was $67.8 million, $58.6 million and $55.8 million,
respectively, as of September 30, 1999, December 31, 1998 and September 30,
1998. The Company accreted $350,000 of the value of its Preferred Stock to the
redemption amount in the third quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. As of September 30, 1999, the Company's (1) cash and cash
equivalents totaled approximately $2.9 million and (2) restricted cash and cash
equivalents totaled $1.2 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 $6.5
million decrease in cash and cash equivalents during the first nine months of
1999, (i) $14.3 million was used in operating activities and (ii) $2.3 million
was used in investing activities, partially offset by (iii) $10.1 million
provided by financing activities.
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<PAGE>
Cash used in operating activities included approximately (1) $7.6
million for interest payments, (2) $3.1 million for property tax payments, (3)
$11.0 million for construction and development expenditures and (4) $5.2 million
of fees associated with the Company's refinancing efforts. Cash used in
operating activities was offset in part by net cash generated from real estate
sales and other operations.
Cash used in investing activities consisted of $2.3 million of
property, plant and equipment additions.
Cash provided by financing activities consisted primarily of net
borrowings of $10.1 million under various project financings and the new Senior
Loan Facilities, which were funded on February 2, 1999.
SENIOR LOAN FACILITIES. Dated as of December 31, 1998, and effective on
February 2, 1999, Atlantic Gulf closed on its new $39.5 million Revolving Loan
Facility and its new $26.5 million Term Loan Facility (collectively, the "SENIOR
LOAN FACILITIES"). The Revolving Loan Facility commitment decreased by $4.0
million on March 31, 1999 and an additional $1.0 million on May 31, 1999.
Amounts outstanding (1) under the Revolving Loan Facility bear interest
at a fixed rate equal to 11% per annum and (2) under the Term Loan Facility bear
interest at a fixed rate equal to 15% per annum. As of September 30, 1999, the
Company had outstanding (a) $27.0 million under its Revolving Loan Facility and
(b) $26.5 million under its Term Loan Facility.
See "RECENT DEVELOPMENT - SENIOR LOAN AMENDMENTS" below for discussion
of the covenant defaults under the Senior Loan Facilities that existed as of
September 30, 1999, and which will be waived and/or cured by the parties pending
payment of the waiver fees, as the case may be, in the Revolving Loan Amendment
and the Term Loan Amendment.
WEST FRISCO PROJECT FINANCING. 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. In addition, there is
a senior revolving development loan with approximately $3.4 million outstanding
as of September 30, 1999 which matures December 1, 1999. The Company is in
discussions with both lenders regarding extensions of the maturity date of both
loans.
CHENOA PROJECT FINANCING. Chenoa, formerly known as Aspen Springs
Ranch, is the Company's 5,906-acre Luxury Resort Project located in the Roaring
Fork Valley of Colorado. The Company was unable to obtain approval of its
pending amendment to the existing PUD for the project (the "PUD Approval")
within the time limits set forth in its development loan agreement. The senior
lender notified the Company that it was in default under the terms of its
agreement and ceased funding. Neither the senior lender nor the mezzanine lender
have pursued any remedies to date. The Company continues to pursue the PUD
Approval, and the Company is funding Project costs out of cash flow and other
Company funds.
25
<PAGE>
OTHER MATERIAL OBLIGATIONS COMING DUE IN 1999. Atlantic Gulf's other
material obligations for the remainder of 1999 consist primarily of
approximately $11 million of planned expenditures for development, construction
and other capital improvements, a substantial portion of which will be funded
through individual project development loans. The balance of such expenditures
for operating projects are funded from the parent Company. If development
financing ceases or if the Company is unable to obtain capital resources to fund
ongoing obligations and expenditures, the implementation of the business plan
will be adversely affected. However, management believes that the Company,
through a combination of sources, will be able to obtain the funds necessary to
continue to implement its business plan and, at the same time, satisfy its debt
obligations as they become due.
RECENT DEVELOPMENTS
STRATEGIC ALTERNATIVES INITIATIVE. On March 26, 1999, the Company
publicly announced that (1) its Board of Directors had formed a Special
Committee to explore strategic alternatives to maximize stockholder value and
(2) it had retained BT Alex. Brown, a leading investment banking firm, to assist
the Special Committee in reviewing strategic alternatives.
The Company has explored, and is continuing to explore, with interested
third parties various strategic alternative transactions, including, but not
limited to, (1) a sale of all or substantially all of the Company's stock and/or
assets, and/or (2) a management agreement/arrangement. The Company is no longer
exploring a merger, consolidation or other business combination, a joint venture
or strategic alliance, and/or a corporate recapitalization, as previously
reported. At this time the Company is focusing its efforts primarily on selling
Predecessor Assets and Core Projects (other than Chenoa and West Bay Club) with
the intent of using the net proceeds from such sales (after payment of
transaction costs) to repay Project indebtedness and, to the extent of remaining
net proceeds, to repay the Revolving Loan Facility and the Term Loan Facility,
in that order.
While the Company is actively and diligently pursuing all strategic
alternative transaction opportunities, there can be no assurance that such a
transaction will be consummated.
CORPORATE RESTRUCTURING PROGRAM. On July 2, 1999, the Company publicly
announced its corporate restructuring program.
As of September 30, 1999, the Company had eliminated 29 positions (not
including Mr. Rutherford's position), or approximately 17% of its December 31,
1998 workforce, as part of a restructuring program aimed at returning the
Company to profitability and realigning its overhead costs with its operating
revenues. Since September 30, 1999, the Company has eliminated another 4
positions and expects to eliminate an additional 45 positions by year end.
During 1999, the Company expects the net number of full-time employees
to be reduced from 166 to 98 or approximately 41% of its December 31, 1998
workforce.
26
<PAGE>
Since July 1, 1999, the Company has eliminated certain additional
senior management positions and consolidated the responsibilities of the
eliminated positions with ongoing positions. The Company intends to eliminate
certain additional senior management positions on or before December 31, 1999.
Specifically, the Company (1) eliminated the Vice President-Controller position
as of September 30, 1999 and the Senior Vice President-Business Development
position as of October 1, 1999, (2) intends to eliminate the Senior Vice
President-Finance position, the Senior Vice President-General Counsel position,
the Senior Vice President-Development position, and the Vice President-Treasurer
position on or before December 1, 1999, (3) intends to eliminate the Vice
President-Human Resources position on or before December 31, 1999, and (4) has
or will reassign the duties formerly performed by these officers to other
employees of the Company. The Company is continuing to review its overall
staffing needs (both at the management level and below) with a view to further
reducing its headcount, eliminating redundancies, consolidating positions,
further streamlining management and realizing further cost savings, when and
where possible.
On August 30, 1999, the Company entered into an employment termination
agreement with Mr. J. Larry Rutherford (Mr. Rutherford's "EMPLOYMENT TERMINATION
AGREEMENT") pursuant to which Mr. Rutherford's employment as President and Chief
Executive Officer of the Company and its subsidiaries and affiliates terminated,
without cause, effective as of August 17, 1999. And, on August 18, 1999, the
Company entered into an employment agreement with Mr. Richard Ackerman, pursuant
to which Mr. Ackerman was appointed to the position of Chief Executive Officer
of the Company, effective as of August 17, 1999 (Mr. Ackerman's "EMPLOYMENT
AGREEMENT"). Since then, Mr. Ackerman has been appointed as an officer and a
director of all of the Company's subsidiaries.
The Company is reducing, where possible, other direct and indirect
overhead costs. For example, during the third quarter of 1999 the Company
consolidated all of its headquarter operations on one floor at its corporate
headquarters in Miami, Florida. Since September 30, 1999, the Company has
entered into a lease termination agreement with the landlord for the corporate
headquarters space. The Company expects to vacate its Miami headquarters space,
and relocate its headquarters to Boca Raton, Florida by December 1, 1999.
Through September 30, 1999, the corporate restructuring program cost
approximately $2.8 million in severance and other one-time corporate
restructuring related costs. The Company recorded approximately $340,000 of
these costs in the first quarter of 1999 and the remainder in the third quarter
of 1999. The Company expects to incur additional corporate restructuring costs
in the fourth quarter of 1999 and subsequent periods, which the Company will
record in the quarter incurred, when and as the amount of such additional
corporate restructuring costs becomes known.
While the Company anticipates that its corporate restructuring program
will significantly reduce its operating costs, there can be no assurance that
such program, by itself, will return the Company to profitability.
27
<PAGE>
BUSINESS STRATEGY. At the same time that it continues to explore
strategic alternatives and implement its corporate restructuring program, the
Company is pursuing a two-pronged business strategy of (1) carrying on its Core
Business (i.e., planning, development, marketing and sales of Homesites and
Vertical Residential Units in its existing Core Development Portfolio) and (2)
actively seeking opportunities to sell, in bulk, its Core Projects other than
its West Bay Club and Chenoa Projects, both of which are still in the early
development stage. Predecessor Assets will continue to be sold in the ordinary
course of business. The Company believes that sales of its Core Projects will
significantly reduce corporate overhead. The Company intends to use the cash
proceeds from any such sales (after payment of transaction costs and Project
indebtedness) to fund operations and pay down its non-Project corporate level
indebtedness.
Senior management and the Board of Directors (the "BOARD") will
continue (1) to use commercially reasonable efforts to close the sale
transactions currently under contract and (2) to evaluate any other offers the
Company receives for its Core Projects and Predecessor Assets based on a variety
of factors, including, but not limited to, the following: the aggregate price
and other terms offered by the purchaser, the timing of the closing of the sale,
contingencies to closing, the impact of the sale on the remaining operations of
the Company, the impact of the sale on the value of the Company's remaining
assets to a prospective purchaser of the entire Company and such other factors
as senior management and the Board deem relevant at the time of receipt of an
offer, including the specific course of action, they believe, will maximize
stockholder value.
As of November 10, 1999, the Company had under contract the Sunset
Lakes Project and the Harbor Bay Project and has received offers to purchase the
Lakeside Estates Project, West Meadows Project, The Trails of West Frisco
Project, the Falcon Trace Project, the Jupiter Ocean Grande Project, and the
Baxter Martinez Project.
While the Company intends to diligently pursue all Project sale
opportunities, there can be no assurance that any such sales (including Projects
currently under contract) will be consummated or, if consummated, that the
Company will realize the anticipated (1) amount of sales proceeds therefrom
and/or (2) overhead cost savings therefrom.
SENIOR LOAN AMENDMENTS. As of September 30, 1999, the Company was not
in compliance with (1) the Minimum Consolidated Net Worth covenant and the
Deviation from Business Plan covenant in the Revolving Loan Agreement and (2)
the Minimum Consolidated Net Worth covenant and the Maximum Permissible Amount
definition in the Term Loan Agreement. Effective as of June 30, 1999, (a) the
Company, the Revolving Loan Facility Agent and the Collateral Agent entered into
that certain First Amendment to Third Amended and Restated Revolving Loan
Agreement (the "REVOLVING LOAN AMENDMENT") and (b) the Company, the Term Loan
Facility Agent and the Collateral Agent entered into that certain Waiver and
First Amendment to Term Loan Agreement (the "TERM LOAN AMENDMENT")(collectively,
the "SENIOR LOAN AMENDMENTS"). In the Senior Loan Amendments, the parties (i)
amended the Minimum Consolidated Net Worth and Deviation from Business Plan
covenants in both the Revolving Loan Facility and the Term Loan Facility, (ii)
modified the Borrowing Base definition in the Revolving Loan Facility and (iii)
modified the Gross Allowed Amount and Maximum Permissible Loan definitions in
the Term Loan Facility. As a result, upon payment by the Company of all
amendment and waiver fees the Company will be in compliance with the terms of
its Senior Loan Facilities, and the previous defaults existing thereunder since
June 30, 1999, will be cured and/or waived by the parties.
28
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as provided below, there were no new developments since March
31, 1999, with respect to the legal proceedings referenced in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, as amended by
that certain Amendment to Form 10-K on Form 10-K/A-1, as filed with the
Securities and Exchange Commission (the "SEC") on April 30, 1999 (the "1998
Amended Form 10-K").
REGENCY ISLAND DUNES PROJECT. The Company and Regency Island Dunes,
Inc. ("Regency") continue to work with the Regency Island Dunes Condominium
Association ("Association") to resolve this matter. To date, no lawsuit has been
filed, and the Company and Regency are optimistic that this dispute can be
resolved without litigation.
CARY GLEN PROJECT. On or about August 25, 1999, Panther Creek-Raleigh
Limited Partnership (the "Owner") filed suit against Atlantic Gulf and Panther
Creek Corp., a wholly-owned subsidiary of Atlantic Gulf (the "Developer"),
claiming that Developer and Atlantic Gulf are liable for future potential
project cost overruns in the amount of $5,400,000 and consequential damages to
the project resulting from Developer's alleged delays and misrepresentations in
the approximate amount of $15 million. Atlantic Gulf and Developer have filed
their answer, affirmative defenses and counterclaims against Owner, and Atlantic
Gulf will continue to vigorously defend the claims asserted against it and
Developer.
SESSIONS DEVELOPMENT CORPORATION V. ATLANTIC GULF COMMUNITIES
CORPORATION; LAS OLAS TOWER AT RIVER WALK, INC., APOLLO REAL ESTATE ADVISORS,
L.P., SPRING VALLEY HOLDING COMPANY. On November 1, 1997, Sessions Development
Corporation ("Sessions") and Las Olas Tower at Riverwalk, Inc. ("LOTR"), a
second tier subsidiary of Atlantic Gulf, entered into a Consulting Agreement
(the "Consulting Agreement"), whereby Sessions agreed (i) to be responsible for
the day-to-day oversight of the construction of buildings, all sales, marketing
and leasing efforts in connection with the potential development of an apartment
building on a portion of the property owned by LOTR, and all other on-site
management functions, and (ii) to provide consultation as needed in connection
with the evaluation and furtherance of the Company's other business
opportunities. Pursuant to the Consulting Agreement, Sessions' compensation
included (i) a retainer fee of $13,500 per month, and (ii) a profit
participation in an amount equal to 12.5% of LOTR's net pre-tax profits
generated from the development of the apartment project, subject to certain
conditions as set forth in the Consulting Agreement. In September, 1999, LOTR
sold the apartment site, without developing the same.
Furthermore, at the request of the Company, Sessions previously
performed certain consulting services with respect to the Company's acquisition
of the Chenoa Project located in Glenwood Springs, Colorado. The Company does
not have a separate consulting agreement with Sessions concerning the Chenoa
Project.
On September 29, 1999, Sessions filed a complaint against Atlantic
Gulf, LOTR, Apollo Real Estate Advisors, L.P. ("Apollo") and Spring Valley
Holding Company, a wholly-owned subsidiary of Atlantic Gulf ("Spring Valley"),
in the Circuit Court of the 11th Judicial Circuit, Miami-Dade County, Florida,
claiming (i) breach of the Consulting Agreement by LOTR for failure to pay an
amount equal to 9 months of the retainer fee and $3 million of profit
participation, (ii) tortious interference with the Consulting Agreement by
Apollo, (iii) tortious interference with an advantageous business relationship
by Apollo, (iv) unjust enrichment by Atlantic Gulf and Spring Valley with
respect to the Chenoa Project based upon Sessions' allegation that Sessions is
entitled to profit participations, commissions and other compensation in
connection therewith, and
29
<PAGE>
(v) fraudulent conveyances by Spring Valley to Atlantic Gulf of income and
profits generated from the Chenoa Project.
The Company believes that the foregoing claims are without merit and
intends to vigorously defend the same.
THE COY A. CLARK COMPANY V. ATLANTIC GULF COMMUNITIES CORPORATION. On
August 13, 1997, Atlantic Gulf and The Coy A. Clark Company ("Clark") entered
into a Development Management Agreement (the "Development Management Agreement")
to provide certain development consulting services in connection with a project
known as Waterford Trails. Atlantic Gulf never acquired the Waterford Trails
Project. Clark has provided Atlantic Gulf with invoices totalling approximately
$150,000 claimed to be due under the Development Management Agreement, and
Atlantic Gulf does not believe that Clark is entitled to such payments. On or
about August 31, 1999, Clark filed a complaint against Atlantic Gulf in the
Circuit Court of the Ninth Judicial Circuit, Orange County, Florida, claiming
that Atlantic Gulf breached the Development Management Agreement by failing to
pay Clark the amounts due thereunder. Atlantic Gulf has retained outside counsel
and intends to vigorously defend the claim.
In addition to the legal proceedings specifically referenced in the
1998 Amended Form 10-K (as updated above) and the other legal proceedings
described herein, the Company is, from time to time, involved in other
litigation matters primarily arising in the normal course of its business. It is
the opinion of management that the resolution of these other litigation matters
will not have a material adverse effect on the Company's business or financial
position.
ITEM 2. CHANGES IN SECURITIES
In accordance with the terms of Mr. Rutherford's Employment Termination
Agreement, the Company canceled Mr. Rutherford's $600,000 nonrecourse promissory
note and, in exchange therefore, Mr. Rutherford returned to the Company the
282,352 shares of Common Stock that he purchased with the proceeds of such note.
In addition, the Company agreed to cancel Mr. Rutherford's two $199,000 recourse
promissory notes on December 31, 2000, if Mr. Rutherford is not in breach of his
Employment Termination Agreement as of that date and, at the time of such
cancellation, Mr. Rutherford has agreed to return to Atlantic Gulf the shares of
Common Stock that he purchased with the proceeds of such notes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES -- SENIOR
LOAN FACILITIES and - RECENT DEVELOPMENTS -- SENIOR LOAN AMENDMENTS above for a
discussion of the Revolving Loan Amendment and the Term Loan Amendment, pursuant
to which the parties have cured and/or waived, effective as of June 30, 1999,
subject to payment by the Company of all amendment and waiver fees the defaults
that were existing under the Senior Loan Facilities on September 30, 1999.
30
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K (consecutive numbering,
see the 1998 Amended Form 10-K)
(3.3) Amendment to the Bylaws, dated as of September 30,
1999.
(10.25) First Amendment to the Third Amended and Restated
Revolving Loan Agreement effective as of June
30,1999.
(10.26) Waiver and First Amendment to Term Loan Agreement
effective as of October 28, 1999.
(10.27) Employment Termination Agreement, effective as of
August 17, 1999, by and between Mr. Rutherford and
the Company (incorporated herein by reference to
Atlantic Gulf's Current Report on Form 8-K as filed
with the SEC on September 1, 1999)
(10.28) Employment Agreement, effective as of August 17,
1999, by and between Mr. Ackerman and the Company
(incorporated herein by reference to Atlantic Gulf's
Current Report on Form 8-K, as filed with the SEC on
September 1, 1999)
(10.29) Agreement, effective as of July 1, 1999, by and
between Joel K. Goldman and the Company.
(10.30) Agreement, effective as of July 1, 1999, by and
between Matthew Allen and the Company.
(27) Financial Data Schedule.
(b) Current Reports on Form 8-K
1. Current Report on Form 8-K, filed with the SEC on September 1,
1999, describing the principal terms of Mr. Rutherford's
Employment Termination Agreement and Mr. Ackerman's Employment
Agreement, both of which became effective as of August 17,
1999.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC GULF COMMUNITIES CORPORATION
/s/ Matt Allen
------------------------------------------
Matt Allen
Senior Vice President - Finance
Dated: November 15, 1999
/s/ John Fischer
------------------------------------------
John Fischer
Vice President and Treasurer
Dated: November 15, 1999
32
FINAL (ADOPTED AND APPROVED AT THE BOARD
MEETING HELD ON SEPTEMBER 30, 1999)
RESOLUTIONS
WHEREAS, in connection with the execution and delivery of his
Termination Agreement, dated as of August 17, 1999 (Mr. Rutherford's
"TERMINATION AGREEMENT") and pursuant to paragraph 2.f thereof, Mr. Rutherford
delivered to the Board of Directors (the "BOARD") of Atlantic Gulf Communities
Corporation (the "COMPANY") his undated letter of resignation from the Board
(his "RESIGNATION LETTER"); and
WHEREAS, a copy of Mr. Rutherford's Resignation Letter is attached as
EXHIBIT A hereto; and
WHEREAS, pursuant to paragraph 2.f of Mr. Rutherford's Termination
Agreement, the parties thereto agreed that Mr. Rutherford's Resignation Letter
would become effective on the earlier to occur of (1) the date Mr. Rutherford
instructs the Board to accept and date such letter or (2) the date the Board
determines, in its sole and absolute discretion, to accept and date such letter
(such date being referred to herein as the "EFFECTIVE Date" of Mr. Rutherford's
Resignation Letter); and
WHEREAS, Section 3.3 of the Restated Bylaws of the Company, as amended
(the "BYLAWS," a copy of which is attached as EXHIBIT B hereto), sets forth
procedures for filling a vacancy on the Board; and
WHEREAS, the Directors have agreed upon certain procedures
("PROCEDURES") to be followed by the Board in connection with (1) the Board
accepting and dating Mr. Rutherford's Resignation Letter and/or (2) appointing a
person to fill the vacancy on the Board created by Mr. Rutherford's resignation
therefrom, which Procedures are different from the procedures for filling a
vacancy set forth in Section 3.3 of the Bylaws; and
WHEREAS, the Directors have determined that it is in the best interests
of the Company to amend the Bylaws to incorporate the Procedures and any and all
other conforming amendments thereto necessary or desirable to fully implement
the Procedures; and
WHEREAS, Section 10.1 of the Bylaws (a copy of which is attached as
EXHIBIT C hereto) sets forth the procedures for amending the Bylaws.
NOW, THEREFORE, be it:
<PAGE>
A. RESOLVED, that Section 3.3 of the Bylaws be, and it hereby is,
amended in its entirety to read as follows:
"Section 3.3 VACANCIES. Vacancies on the Board may
be filled only by a vote of a majority of the
Directors then in office, though less than a quorum,
or by the sole remaining Director; provided,
however, that (i) any vacancies created by any
Series A Director ceasing to be a Director shall be
filled by a vote of a majority of the Series A
Directors still then in office or by a sole
remaining Director, and (ii) notwithstanding
anything in these Bylaws to the contrary, any
vacancy on the Board created either by Mr.
Rutherford dating his Resignation Letter which he
delivered, undated, to the Board on or about August
17, 1999 (Mr. Rutherford's "Resignation Letter"), or
by the Board accepting and dating Mr. Rutherford's
Resignation Letter, may be filled only by a
unanimous vote of all of the Directors then in
office."
and be it
B. FURTHER RESOLVED, that Section 10.1 of the Bylaws be, and it
hereby is, amended in its entirety to read as follows:
"Section 10.1 AMENDMENTS. Except for Section 2.2(b),
which may be amended only by the stockholders, these
Bylaws may be amended, altered or repealed at any
meeting of the Board, by vote of a majority of the
entire Board, or at any regular Board meeting by the
unanimous vote of all of the Directors present;
provided, that, (i) notwithstanding anything in
these Bylaws to the contrary, the second sentence of
Section 3.2 of these Bylaws (setting the number of
Directors constituting the entire Board at seven)
and Section 3.3(ii) of these Bylaws (regarding the
filling of any vacancy on the Board created by Mr.
Rutherford's resignation therefrom) may be amended,
altered or repealed only by a unanimous vote of all
of the Directors then in office and (ii) notice of
any proposed alteration, amendment or repeal of all
or any portion of these Bylaws shall have been sent
by mail to all the Directors not fewer than three
days before the meeting at which they are to be
acted upon."
and be it
C. FURTHER RESOLVED, that nothing contained in any of the
foregoing Resolutions is intended to, nor shall it, affect, in any way, the
rights of the stockholders of the Company under the Delaware General Corporation
Law, the Charter and/or the Bylaws, to elect any person to the Board, to fill a
vacancy on the Board or to adopt, amend, alter or repeal the Bylaws.
FIRST AMENDMENT TO THIRD AMENDED AND
RESTATED REVOLVING LOAN AGREEMENT
THIS FIRST AMENDMENT TO THIRD AMENDED AND RESTATED REVOLVING LOAN
AGREEMENT (this "FIRST AMENDMENT") is made as of June 30, 1999 (the "EFFECTIVE
DATE"), by and among ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware
corporation, formerly known as General Development Corporation (the "COMPANY"),
DAVIDSON KEMPNER SERVICE COMPANY, LLC, a New York limited liability company,
successor to M. H. Davidson & Co., LLC, as agent for the Banks (as defined in
the Loan Agreement) under the Loan Agreement (hereinafter defined) (hereinafter,
in such capacity, together with any successors thereto in such capacity,
referred to as "AGENT"), and DAVIDSON KEMPNER SERVICE COMPANY, LLC, a New York
limited liability company, successor to M.H. Davidson & Co., LLC, as collateral
agent for the Banks under the Loan Agreement (hereinafter, in such capacity,
together with any successors thereto in such capacity, referred to as
"COLLATERAL AGENT").
Each of Company, Agent and Collateral Agent is sometimes referred to
herein as "PARTY" and all of them, together, are collectively referred to herein
as the "PARTIES."
W I T N E S E T H:
WHEREAS, the Parties entered into that certain Third Amended and
Restated Revolving Loan Agreement (the "LOAN AGREEMENT"), dated as of December
31, 1998; and
WHEREAS, the Company has requested certain modifications to, and Agent
has agreed to modify, the terms of Sections 7.1 and 7.15 of the Loan Agreement;
and
WHEREAS, the Parties now desire to amend the Loan Agreement, on and
subject to the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the respective covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and legal sufficiency of which are hereby acknowledged, the Parties
hereto hereby agree as follows:
1. Capitalized terms used and not defined in this First Amendment
shall have the meanings given them in the Loan Agreement.
2. The first paragraph of Section 7.1 of the Loan Agreement is
deleted in its entirety and the following new language is inserted in its place:
"Permit Consolidated Net Worth to be less than (a) $25
million so long as the aggregate outstanding principal
balance of all Loans equals or exceeds $25,000,000 and
(b) $20 million so long as the aggregate outstanding
<PAGE>
principal balance of all Loans is less than $25,000,000;
LESS, in each case, (1) the GAAP Book Value of Homesite
Contract Receivables, Commercial Receivables and the
real property consisting of identified scattered
homesites and Eligible Tract Land, plus (2) the amount
of the GAAP book loss, if any, realized by Company in
connection with the sale of any Collateral permitted
under this Agreement, other than sales of Homesite
Contract Receivables, Commercial Receivables and the
real property consisting of identified scattered
homesites and Eligible Tract Land."
3. The second paragraph of Section 7.1 is deleted in its entirety and
the following new language is inserted in its place:
"To demonstrate compliance with the Consolidated Net
Worth covenant set forth in this Section, Company shall
furnish to Banks (i) within 45 days of the close of each
calendar quarter a certificate of a Responsible Officer
setting forth Consolidated Net Worth for such date
calculated in accordance with this Section 7.1, and the
calculation upon which it is based; and (ii) within 90
days of the close of each fiscal year, a certificate of
a Responsible Officer setting forth Consolidated Net
Worth as of such date calculated in accordance with this
Section 7.1 and the calculation upon which it is based,
reflecting in each such certificate delivered under
clause (i) and (ii) any adjustments the Company is
required to make in calculating Consolidated Net Worth
pursuant to clauses (1) and/or (2) of the first
paragraph of this Section 7.1 during the period to which
such certificate relates."
4. The text of Section 7.15 is deleted in its entirety and the
following new language is inserted in its place:
"[RESERVED]"
5. The definition of the "Borrowing Base" in Section 1.1 of the Loan
Agreement shall be deleted in its entirety and the following new language is
inserted in its place:
"Borrowing Base' means the sum of
A. an amount equal to $10,328,000 with respect to
Eligible Homesite Contract Receivables and Eligible
Commercial Receivables ("Receivables") less the sum
of (i) 75% of the aggregate net cash proceeds from
the sales or other dispositions of Receivables
closing after June 30, 1999, (ii) 75% of the
principal payments received with respect to
Receivables after June 30, 1999 and (iii) 75% of the
principal amount (as of June 30, 1999) of any
Receivables that are foreclosed on, terminated by
reason of a deed in lieu or canceled after June 30,
1999;
2
<PAGE>
plus
B. an amount equal to $2,260,000 with respect to
Commercial Receivables or Homesite Contract
Receivables which are not Eligible Commercial
Receivables or Eligible Homesite Contract
Receivables, as the case may be ("Ineligible
Receivables"), less the sum of (i) 50% of the
aggregate net cash proceeds from the sales or other
dispositions of Ineligible Receivables closing after
June 30, 1999, (ii) 50% of the principal payments
received with respect to Ineligible Receivables after
June 30, 1999 and (iii) 50% of the principal amount
(as of June 30, 1999) of any Ineligible Receivables
that are foreclosed on, terminated by reason of a
deed in lieu or canceled after June 30, 1999;
plus
C. an amount equal to the sum of (i) $8,865,000 with
respect to Real Property consisting of identified
scattered homesites owned by the Company as of June
30, 1999, plus (ii) 50% of the "value" of any
identified scattered homesites reacquired after June
30, 1999 as the result of foreclosure, deed in lieu
or cancellation of Ineligible Receivables (which
value for purposes hereof shall be equal to the
principal amount of such Ineligible Receivables) plus
(iii) $1,194 with respect to each identified
scattered homesite release from the Class 14 Utility
Reserve after June 30, 1999, less, in all three
cases, 50% of the aggregate net cash proceeds from
the sales or other dispositions of such identified
scattered homesites closing after June 30, 1999;
plus
D. an amount equal to the sum of (i) $3,232,000 with
respect to Real Property consisting of identified
Eligible Tract Land owned by the Company as of June
30, 1999, plus (ii) 50% of the "value" of any
identified Eligible Tract Land reacquired after June
30, 1999, as the result of foreclosure, deed in lieu
or cancellation of Ineligible Receivables (which
value for purposes hereof shall be equal to the
principal amount of such Ineligible Receivables),
less 50% of the aggregate net cash proceeds from the
sales or other dispositions of such Eligible Tract
Land closing after June 30, 1999;
plus
E. an amount equal to 20% of the sum of (i) Net Equity
of the West Meadow project, the Lakeside Estates
project, the Saxon Woods project, the Trails of West
Frisco project and the Riverwalk Tower project and
(ii) Fair Market of the Falcon Trace project and the
Sunset Lakes project."
6. The Company hereby agrees to pay:
3
<PAGE>
a. the following amounts by wire transfer to (or such
other method as instructed in writing by) the Agent for the ratable benefit of
the Agent and the Banks:
i. $98,750 (the "INITIAL FEE") in good funds
upon the execution and delivery by the Parties of this First Amendment;
ii. an amount in good funds on February 28,
2000, equal to 1% of the aggregate outstanding principal balance of the Loans on
February 28, 2000, exclusive of the outstanding amount of Letter of Credit Usage
on such date;
iii. an amount in good funds on March 31, 2000,
equal to 1% of the aggregate outstanding principal balance of the Loans on March
31, 2000, exclusive of the outstanding amount of Letter of Credit Usage on such
date;
iv. an amount in good funds on May 31, 2000,
equal to 1.25% of the aggregate outstanding principal balance of the Loans on
May 31, 2000, exclusive of the outstanding amount of Letter of Credit Usage on
such date; and
v. an amount in good funds on June 30, 2000,
equal to 0.75% of the aggregate outstanding principal balance of the Loans on
June 30, 2000, exclusive of the outstanding amount of Letter of Credit Usage on
such date.
7. This First Amendment shall become effective as of June 30, 1999,
upon the satisfaction of all of the following conditions:
a. the Company has executed and delivered this Agreement
to the Agent and Collateral Agent;
b. the Agent and Collateral Agent have executed and
delivered this Agreement to the Company; and
c. the Company has paid (i) the Initial Fee to the Agent
for the benefit of the Agent and the Banks, and (ii) all legal fees and expenses
incurred by the Agent and the Banks in connection with this First Amendment.
8. The Company hereby represents and warrants that there exist no
causes of action, offsets, claims, counterclaims or defenses with respect to (i)
its obligations under the Loan Agreement or any of the other Loan Documents and
(ii) the obligations of any of the entities set forth on EXHIBIT A, under any of
the Loan Documents.
9. The Company hereby ratifies and confirms that the outstanding
principal balance of the Loans as of the Effective Date is $27,000,000.
4
<PAGE>
10. The Company hereby represents and warrants to and covenants with
Agent that Company has full power, authority and legal right to execute this
First Amendment and to keep and observe all of the terms of this First Amendment
on Company's part to be observed and performed, and that each and every
representation and warranty contained in Article 4 of the Loan Agreement is true
and correct as of the date hereof.
11. The Loan Agreement, as modified hereby, and the Loan Documents are
hereby ratified and confirmed in all respects, and the Loan Agreement, as so
modified, and the Loan Documents shall continue in full force and effect in
accordance with their respective terms. From and after the Effective Date, all
references in any of the Loan Documents to the Loan Agreement shall be to the
Loan Agreement as amended by this First Amendment.
12. This First Amendment shall be binding upon and inure to the
benefit of the Parties and their respective successors and assigns.
13. Time is strictly of the essence of this First Amendment and full
and complete performance of each and every provision hereof.
14. This First Amendment constitutes the entire agreement of the
Parties with respect to the subject matter hereof and cannot be modified or
amended except in writing signed by the Parties hereto.
15. This First Amendment shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed wholly within such State.
16. This First Amendment may be executed in multiple counterparts,
which shall be deemed an original and all of which together will constitute one
and the same instrument.
17. This First Amendment may be executed by facsimile signature page.
Each party agrees to be bound by its own facsimile signature page hereto and to
accept the facsimile signature page hereto of any other Party, in each case as
if each such facsimile signature page were a manually executed signature page;
provided each Party shall promptly thereafter deliver its original manually
executed signature page.
[The remainder of this page left blank intentionally.]
5
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this First Amendment to be
duly executed and delivered as of the Effective Date.
DAVIDSON KEMPNER SERVICE
COMPANY, LLC, as Agent and Collateral Agent
By: M.H. Davidson & Co.,
Managing Member
By: ____________________________
Name: Thomas L. Kempner, Jr.
Title: General Partner
ATLANTIC GULF COMMUNITIES CORPORATION,
on behalf of itself and, with
respect to Sections 8 AND 10 only, the Entities listed
on Exhibit A hereto
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
<PAGE>
EXHIBIT A
1. AG Sanctuary of Orlando, Inc. (Florida)
2. AG Title Corporation (Florida)
3. AG-NTC, Inc. (Florida)
4. AGC CL Limited Partner, Inc. (Florida)
5. AGC Homes, Inc. (Florida)
6. AGC Sanctuary Corporation (Florida)
7. AGC-SP, Inc. (Delaware)
8. AGC-SP4, Inc. (Florida)
9. AGC-SP5, Inc. (Florida)
10. Atlantic Gulf C.C. Corp. (Florida) - f/k/a C.C. Village Development
Corporation
11. Atlantic Gulf Commercial Realty, Inc. (Florida)
12. Atlantic Gulf Communities Management Corporation (Florida)
13. Atlantic Gulf Communities Service Corporation (Florida)
14. Atlantic Gulf Development, Inc. (Florida)
15. Atlantic Gulf Engineering Company (Florida)
16. Atlantic Gulf of Tampa, Inc. (Florida)
17. Atlantic Gulf Realty, Inc. (Florida)
18. Atlantic Gulf Receivables Corporation (Florida)
19. Atlantic Gulfshore Natures Cove, Inc. (Florida)
20. Atlantic Gulf Utilities, Inc. (Florida)
21. Atlantic Gulf Water's Edge, Inc. (Florida)
22. Community Title Agency, Inc. (Florida)
23. [Intentionally Omitted]
24. Cumberland Cove, Inc. (Tennessee)
25. Environmental Quality Laboratory, Incorporated (Florida)
26. EQL Environmental Services, Inc. (Florida)
27. Five Star Homes, Inc. (Florida)
28. Fox Creek Development Corporation (Florida)
29. FRC Investments, Inc. (Florida)
30. GDV Financial Corporation (Florida)
31. General Development Acceptance Corporation (Delaware)
32. General Development Air Service, Inc. (Florida)
33. General Development Commercial Credit Corp. (Florida)
34. General Development Headquarters Corp. (Florida)
35. General Development Resorts, Inc. (Florida)
36. General Development Sales Corporation (Florida)
37. General Development Service Corporation (Florida)
38. General Development Utilities, Inc. (Florida)
39. Grand Oaks Development Corporation (Florida)
40. Grand Oaks Holding Company (Florida)
41. Hunter Trace Development Corporation (Florida)
42. Lakeside Development of Orlando, Inc. (Florida)
43. Las Olas Tower at River Walk, Inc. (Florida) - f/k/a AGC-SP2, Inc.
44. Longwood Utilities, Inc. (Florida)
45. Maplewood Development Corporation (Florida)
A-1
<PAGE>
46. [Intentionally Omitted]
47. [Intentionally Omitted]
48. Ocean Grove, Inc. (Florida)
49. Panther Creek Corp. (North Carolina)
50. Regency Island Dunes, Inc. (Florida)
51. Sabal Trace Development Corporation (Florida)
52. Saxon-DeBary, Inc. (Florida)
53. Spring Valley Acquisition Corp. (Colorado) - f/k/a Aspen Springs Valley
Acquisition Corp.
54. Spring Valley Holding Company (Florida) - f/k/a Aspen Springs Ranch
Holding Company
55. Spring Valley Development, Inc. (Colorado) - f/k/a Aspen Springs Ranch,
Inc.
56. Summerchase Development Corporation (Florida)
57. Sunset Lakes Development Corporation (Florida)
58. Town & Country II, Inc. (Florida)
59. Waterford-Orlando, Inc. (Florida) f/k/a AGC-SP1, Inc.
60. West Bay Club Development Corporation (Florida) f/k/a Estero Pointe
Development Corp.
61. West Bay Holding Corporation (Florida)
62. West Bay Realty, Inc. (Florida)
63. West Frisco Development Corporation (Florida) - f/k/a AGC-SP3, Inc.
64. Windsor Palms Corporation (Florida)
65. XYZ Insurance, Inc. (Florida)
66. Atlantic Gulf Asia Holdings N.V. (Netherlands Antilles)
A-2
WAIVER AND FIRST AMENDMENT TO TERM LOAN AGREEMENT
THIS WAIVER AND FIRST AMENDMENT TO TERM LOAN AGREEMENT (this "WAIVER
AND FIRST AMENDMENT") is made as of this 28th day of October, 1999, by and among
ATLANTIC GULF COMMUNITIES CORPORATION, a Delaware corporation, formerly known as
General Development Corporation (the "COMPANY"), ANGLO-AMERICAN FINANCIAL, a New
York limited partnership, as agent for the Lenders (as defined in the Loan
Agreement) under the Loan Agreement (hereinafter defined) (hereinafter, in such
capacity, together with any successors thereto in such capacity, referred to as
the "AGENT"), and DAVIDSON KEMPNER SERVICE COMPANY, LLC, a New York limited
liability company and successor to M. H. DAVIDSON & CO., LLC, a New York limited
liability company, as collateral agent for the Lenders under the Loan Agreement
(hereinafter, in such capacity, togther with any successors thereto in such
capacity, referred to as "COLLATERAL AGENT").
Each of the Company, the Agent and the Collateral Agent is sometimes
referred to herein as "PARTY" and all of them, together, are collectively
referred to herein as the "PARTIES."
W I T N E S S E T H:
WHEREAS, the Parties and the Lenders (as defined in the Loan Agreement)
entered into that certain Term Loan Agreement (the "LOAN AGREEMENT"), dated as
of December 31, 1998; and
WHEREAS, the Company has requested certain modifications to, and the
Agent has agreed to modify, the terms of (1) Section 7.1 of the Loan Agreement,
(2) Section 7.15 of the Loan Agreement and (3) the definitions of "Gross Allowed
Amount" and "Maximum Permissible Loan" in Section 1.1 of the Loan Agreement; and
WHEREAS, the Company also has requested a waiver from the Agent and the
Collateral Agent of the Maximum Loan Amount "cap" in Section 2.1 of the Loan
Agreement and/or the mandatory prepayment obligation in Section 2.5(a) of the
Loan Agreement with respect to any violations thereof by the Company occurring
at any time after June 30, 1999, and before January 1, 2000; and
WHEREAS, the Parties now desire to amend the Loan Agreement, and the
Agent and the Collateral Agent have agreed to provide the waiver requested by
the Company, on and subject to the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the respective covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and legal sufficiency of which are hereby acknowledged, the Parties
hereto hereby agree as follows:
1. Capitalized terms used and not defined in this Waiver and First
Amendment shall have the meanings given them in the Loan Agreement.
<PAGE>
2. The first paragraph of Section 7.1 of the Loan Agreement is deleted
in its entirety and the following new language is inserted in its place:
"Permit Consolidated Net Worth to be less than the sum of
the amounts set forth below (hereinafter referred to as
the "Minimum Consolidated Net Worth"): (a)(i) $25 million
so long as the aggregate outstanding principal balance of
the DK Loans equals or exceeds $25,000,000 and (ii) $20
million so long as the aggregate outstanding principal
balance of the DK Loans is less than $25,000,000, MINUS
the sum of (b)(i) the GAAP Book Value of Homesite Contract
Receivables, Commercial Receivables and the real property
consisting of identified scattered homesites and Eligible
Tract Land, plus (ii) the amount of the GAAP book loss, if
any, realized by the Company in connection with the sale
of any Collateral permitted under this Agreement, other
than sales of Homesite Contract Receivables, Commercial
Receivables and the real property consisting of identified
scattered homesites and Eligible Tract Land."
3. The second paragraph of Section 7.1 of the Loan Agreement is deleted
in its entirety and the following new language is inserted in its place:
"To demonstrate compliance with the Consolidated Net Worth
covenant set forth in this Section, the Company shall
furnish to Lenders (i) within 45 days of the close of each
calendar quarter a certificate of a Responsible Officer
setting forth Minimum Consolidated Net Worth for such date
calculated in accordance with this Section 7.1, and the
calculation upon which it is based; and (ii) within 90
days of the close of each fiscal year, a certificate of a
Responsible Officer setting forth Minimum Consolidated Net
Worth as of such date calculated in accordance with this
Section 7.1 and the calculation upon which it is based,
reflecting in each such certificate delivered under clause
(i) and (ii) any adjustments the Company is required to
make in calculating Minimum Consolidated Net Worth
pursuant to clauses (b)(i) and/or (ii) of the first
paragraph of this Section 7.1 during the period to which
such certificate relates."
4. The definition of "Gross Allowed Amount" in Section 1.1 of the Loan
Agreement is deleted in its entirety and the following new language is inserted
in its place:
"Gross Allowed Amount' means the sum of:
(a) an amount equal to $10,328,000 with respect to Eligible
Homesite Contract Receivables and Eligible Commercial Receivables
("Receivables") MINUS the sum of (i) 75% of the aggregate net cash
proceeds from the sales or other dispositions of Receivables closing
after June 30, 1999, (ii) 75% of the principal payments received with
respect to Receivables after June 30, 1999 and (iii) 75% of the
principal amount (as of June 30, 1999) of any
2
<PAGE>
Receivables that are foreclosed on, terminated by reason of a deed in lieu or
canceled after June 30, 1999;
(b) an amount equal to $2,260,000 with respect to Commercial
Receivables or Homesite Contract Receivables which are not Eligible
Commercial Receivables or Eligible Homesite Contract Receivables, as
the case may be ("Ineligible Receivables"), MINUS the sum of (i) 50% of
the aggregate net cash proceeds from the sales or other dispositions of
Ineligible Receivables closing after June 30, 1999, (ii) 50% of the
principal payments received with respect to Ineligible Receivables
after June 30, 1999 and (iii) 50% of the principal amount (as of June
30, 1999) of any Ineligible Receivables that are foreclosed on,
terminated by reason of a deed in lieu or canceled after June 30, 1999;
(c) an amount equal to the sum of (i) $8,865,000 with respect to
Real Property consisting of identified scattered homesites owned by the
Company as of June 30, 1999, PLUS (ii) 50% of the "value" of any
identified scattered homesites reacquired after June 30, 1999 as the
result of foreclosure, deed in lieu or cancellation of Ineligible
Receivables (which value for purposes hereof shall be equal to the
principal amount of such Ineligible Receivables) PLUS (iii) $1,194 with
respect to each identified scattered homesite release from the Class 14
Utility Reserve after June 30, 1999, LESS, in all three cases, 50% of
the aggregate net cash proceeds from the sales or other dispositions of
such identified scattered homesites closing after June 30, 1999;
(d) an amount equal to the sum of (i) $3,232,000 with respect to
Real Property consisting of identified Eligible Tract Land (as defined
in the DK Loan Agreement) owned by the Company as of June 30, 1999,
PLUS (ii) 50% of the "value" of any identified Eligible Tract Land
reacquired after June 30, 1999, as the result of foreclosure, deed in
lieu or cancellation of Ineligible Receivables (which value for
purposes hereof shall be equal to the principal amount of such
Ineligible Receivables), LESS 50% of the aggregate net cash proceeds
from the sales or other dispositions of such Eligible Tract Land
closing after June 30, 1999;
(e) an amount equal to the sum of the following values for the
following Eligible Subdivision Projects: (i) $2,512,000 for the West
Meadows Project, (ii) $1,374,000 for the Lakeside Estates Project,
(iii) $1,136,000 for the Saxon Woods Project, (iv) $1,719,000 for the
Trails of West Frisco Project, (v) $3,829,000 for the West Bay Club
Project, (vi) $4,011,000 for the West Bay Club Condominium Project,
(vii) $13,475,000 for the Aspen Springs Project and (viii) $551,000 for
the Natures Cove Project; and
(f) an amount equal to the sum of the following values for the
Venture Subsidiaries' interests in the following Eligible Joint Venture
Projects: (i) $2,184,000 for the Falcon Trace Project, (ii) $4,068,000
for the Sunset Lakes Project and (iii) $877,000 for the Jupiter Ocean
Grande Project."
3
<PAGE>
5. The definition of "Maximum Permissible Loan" in Section 1.1 is
deleted in its entirety and the following new language is inserted in its place:
"Maximum Permissible Loan' means, on any date of
determination, (1) during the period prior to April 1,
2000, the Gross Allowed Amount LESS the aggregate
outstanding principal amount of the DK Loans and (2)
during the period from and after April 1, 2000, the Gross
Allowed Amount LESS the sum of the aggregate outstanding
principal amount of the DK Loans and the aggregate stated
amount of all outstanding letter of credit guarantees
under the DK Loan Agreement."
6. The text of Section 7.15 is deleted in its entirety and the
following new language is inserted in its place:
"[RESERVED]"
7. The Agent and the Collateral Agent hereby waives any violations by
the Company of the Maximum Loan Amount "cap" in Section 2.1 of the Loan
Agreement and/or the mandatory prepayment obligation in Section 2.5(a) of the
Loan Agreement with respect to any violations by the Company thereof occurring
at any time after June 30, 1999, and before January 1, 2000.
8. The Company hereby agrees to pay the following amounts by wire
transfer to (or such method as instructed in writing by) the Agent for the
ratable benefit of the Agent and the Lenders:
a. an amount, payable in good funds upon the execution and
delivery by the Parties of this Waiver and First Amendment, equal to one-quarter
percent (0.25%) of the outstanding principal balance of the Loans on the
Effective Date hereof; and
b. an amount, payable in good funds on March 31, 2000, equal to
one-half percent (0.50%) of the outstanding principal balance of the DK Loans on
March 31, 2000.
9. This Waiver and First Amendment shall become effective as of June
30, 1999, upon the satisfaction of all of the following conditions:
a. the Company has executed and delivered this Waiver and First
Amendment to the Agent and the Collateral Agent; and
b. the Agent and the Collateral Agent have executed and
delivered this Waiver and First Amendment to the Company.
10. The Company hereby represents and warrants that there exist no
causes of action, offsets, claims, counterclaims or defenses with respect to (a)
its obligations under the Loan Agreement or any of the other Loan Documents and
(b) the obligations of any of the entities set forth on EXHIBIT A under any of
the Loan Documents.
4
<PAGE>
11. The Company hereby represents and warrants to and covenants with
the Agent and the Collateral Agent that (a) the Company has full power,
authority and legal right to execute this Waiver and First Amendment and to keep
and observe all of the terms of this Waiver and First Amendment on the Company's
part to be observed and performed, (b) each and every representation and
warranty contained in Article 4 of the Loan Agreement is true and correct as of
the date hereof and (c) so long as the Commitments remain in effect or any
Obligations remain outstanding and unpaid or any other amount is owing to any
Lender or the Agent under the Loan Agreement, without the prior written consent
of the Agent, the Company shall not, and shall not permit any of its
Subsidiaries, to use any proceeds received, directly or indirectly, from any
SPUD, MPUD or Venture Subsidiary for any purpose other than (i) payment of
Indebtedness permitted under Section 7.2 of the Loan Agreement, (ii) payment of
reasonable overhead expenses of the Company and/or its Subsidiaries, (iii)
payment of reasonable severance obligations of the Company and/or its
Subsidiaries and (iv) reinvestment, directly or indirectly, in other Collateral
of the Company and/or its Subsidiaries.
12. The Loan Agreement, as modified hereby, and the Loan Documents are
hereby ratified and confirmed in all respects, and the Loan Agreement, as so
modified, and the Loan Documents shall continue in full force and effect in
accordance with their respective terms. From and after the Effective Date, all
references in any of the Loan Documents to the Loan Agreement shall be to the
Loan Agreement, as amended by this Waiver and First Amendment.
13. This Waiver and First Amendment shall be binding upon and inure to
the benefit of the Parties and their respective successor and assigns.
14. Time is strictly of the essence of this Waiver and First Amendment
and full and complete performance of each and every provision hereof.
15. This Waiver and First Amendment constitutes the entire agreement of
the Parties with respect to the subject matter hereof and cannot be modified or
amended except in writing signed by the Parties hereto.
16. This Waiver and First Amendment shall be governed by and construed
and enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed wholly within such State.
17. This Waiver and First Amendment may be executed in multiple
counterparts, wich of which shall be deemed an original and all of which
together will constitute one and the same instrument.
18. This Waiver and First Amendment may be executed by facsimile
signature page. Each Party agrees to be bound by its own facsimile page hereto
and to accept the facsimile signature page hereto of any other Party, in each
case as if each such facsimile signature were a manually executed original
signature page, provided each Party shall promptly thereafter deliver its
original manually executed signature page.
5
<PAGE>
[The remainder of this page left blank intentionally.]
6
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Waiver and First
Amendment to be duly executed and delivered as of the Effective Date.
ANGLO-AMERICAN FINANCIAL
as Agent
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
DAVIDSON KEMPNER SERVICE COMPANY, LLC,
as Collateral Agent
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
ATLANTIC GULF COMMUNITIES CORPORATION, on
behalf of itself and, with respect to
Sections 10 and 11 only, the Entities
listed on Exhibit A hereto
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
<PAGE>
EXHIBIT A
1. AG Sanctuary of Orlando, Inc. (Florida)
2. AG Title Corporation (Florida)
3. AG-NTC, Inc. (Florida)
4. AGC CL Limited Partner, Inc. (Florida)
5. AGC Homes, Inc. (Florida)
6. AGC Sanctuary Corporation (Florida)
7. AGC-SP, Inc. (Delaware)
8. AGC-SP4, Inc. (Florida)
9. AGC-SP5, Inc. (Florida)
10. Atlantic Gulf C.C. Corp. (Florida)-f/k/a C.C. Village Development
Corporation
11. Atlantic Gulf Commercial Realty, Inc. (Florida)
12. Atlantic Gulf Communities Management Corporation (Florida)
13. Atlantic Gulf Communities Service Corporation (Florida)
14. Atlantic Gulf Development, Inc. (Florida)
15. Atlantic Gulf Engineering Company (Florida)
16. Atlantic Gulf of Tampa, Inc. (Florida)
17. Atlantic Gulf Realty, Inc. (Florida)
18. Atlantic Gulf Receivables Corporation (Florida)
19. Atlantic Gulfshore Natures Cove, Inc. (Florida)
20. Atlantic Gulf Utilities, Inc. (Florida)
21. Atlantic Gulf Water's Edge, Inc. (Florida)
22. Community Title Agency, Inc. (Florida)
23. Country Lakes Development Corporation (Florida)
24. Cumberland Cove, Inc. (Tennessee)
25. Environmental Quality Laboratory, Incorporated (Florida)
26. EQL Environmental Services, Inc. (Florida)
27. Five Star Homes, Inc. (Florida)
28. Fox Creek Development Corporation (Florida)
29. FRC Investments, Inc. (Florida)
30. GDV Financial Corporation (Florida)
31. General Development Acceptance Corporation (Delaware)
32. General Development Air Service, Inc. (Florida)
33. General Development Commercial Credit Corp. (Florida)
34. General Development Headquarters Corp. (Florida)
35. General Development Resorts, Inc. (Florida)
36. General Development Sales Corporation (Florida)
37. General Development Service Corporation (Florida)
38. General Development Utilities, Inc, Inc. (Florida)
39. Grand Oaks Development Corporation (Florida)
40. Grand Oaks Holding Company (Florida)
41. Hunter Trace Development Corporation (Florida)
42. Lakeside Development of Orlando, Inc. (Florida)
43. Las Olas Tower at River Walk, Inc. (Florida) - f/k/a AGC-SP2, Inc.
44. Longwood Utilities, Inc. (Florida)
45. Maplewood Development Corporation (Florida)
A-1
<PAGE>
46. Miramar Rock, Inc. (Florida)
47. NT Development Corporation (Florida)
48. Ocean Grove, Inc. (Florida)
49. Panther Creek Corp. (North Carolina)
50. Regency Island Dunes, Inc. (Florida)
51. Sabal Trace Development Corporation (Florida)
52. Saxon-DeBary, Inc. (Florida)
53. Spring Valley Acquisition Corp. (Colorado) - f/k/a Aspen Springs Valley
Acquisition Corp.
54. Spring Valley Holding Company (Florida) - f/k/a Aspen Springs Ranch
Holding Company
55. Spring Valley Development, Inc. (Colorado) - f/k/a Aspen Springs Ranch,
Inc.
56. Summerchase Development Corporation (Florida)
57. Sunset Lakes Development Corporation (Florida)
58. Town & Country II, Inc. (Florida)
59. Waterford-Orlando, Inc. (Florida) f/k/a AGC-SP1, Inc.
60. West Bay Club Development Corporation (Florida) f/k/a Estero Pointe
Development Corp.
61. West Bay Holding Corporation (Florida)
62. West Bay Realty, Inc. (Florida)
63. West Frisco Development Corporation (Florida) - f/k/a AGC-SP3, Inc.
64. Windsor Palms Corporation (Florida)
65. XYZ Insurance, Inc. (Florida)
66. Atlantic Gulf Asia Holdings N.V. (Netherlands Antilles)
A-2
AGREEMENT
THIS AGREEMENT (the "AGREEMENT") is entered into as of the 1st day of
July, 1999 by and between Atlantic Gulf Communities Corporation, a Delaware
corporation (the "COMPANY") and Joel K. Goldman ("KEY EMPLOYEE").
W H E R E A S:
A. Key Employee has been employed by the Company since January, 1996
and has served as a Vice President and General Counsel of the Company since
March, 1997.
B. In the course of his employment, Key Employee has acquired
invaluable knowledge of the Company's business and operations, including,
without limitation, knowledge of the overall corporate structure, corporate
financing documentation, project financing documentation, preferred stock
instruments, business plan, and specific assets (including predecessor assets)
of the Company.
C. In March, 1999, the Company announced that it had retained BT Alex.
Brown to serve as the Company's investment advisor with respect to the
exploration of strategic alternatives for the Company.
D. Effective as of June 30, 1999, the Company implemented a corporate
restructuring program, which included the elimination of 24 jobs, or
approximately 18% of its workforce, including, without limitation, the positions
of chief financial officer and chief operating officer.
E. As a result of the implementation of the corporate restructuring
program, the Company will require that Key Employee take on additional
responsibilities as both an officer and General Counsel in connection with the
continuing operation of the Company's business.
F. In view of the Company's continuing exploration of potential
strategic alternatives, together with the implementation of the corporate
restructuring program, the Company recognizes that the possibility of a
significant transaction and the uncertainty and questions which may arise
concerning the foregoing, could result in the Key Employee's departure or
distraction to the detriment of the Company and its stockholders.
G. The Company considers it essential to the best interests of its
stockholders to foster the continuous employment of Key Employee.
H. The Company has established a stay bonus program (the "BONUS
PROGRAM") for the benefit of Key Employee on the terms described herein to
encourage Key Employee to remain in the employ of the Company.
NOW, THEREFORE, in consideration of the foregoing recitals and for
other good
<PAGE>
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Key Employee hereby agree as follows:
1. RECITALS. The foregoing recitals are true and correct and are
incorporated herein by this reference.
2. TITLE. Key Employee shall continue to serve as General Counsel, and
effective as of the date hereof is hereby appointed to serve as a Senior Vice
President of the Company.
3. BONUS PROGRAM. The Bonus Program shall consist of the following:
a. 1999 ANNUAL BONUS. Company agrees to pay Key Employee a
guaranteed annual bonus in cash for the calendar year 1999 in an amount
equal to $40,500, payable in full on or before March 15, 2000.
b. ADDITIONAL BONUS. Company agrees to pay Key Employee a
guaranteed lump sum bonus in cash in an amount equal to $135,000 on or
before December 15, 1999.
4. EMPLOYMENT TERM. In consideration of the payment of the amounts set
forth in paragraph 3 above, Key Employee agrees to remain an employee
of the Company from the date hereof through and including June 1, 2000,
unless otherwise terminated by the Company.
5. ELIGIBILITY.
a. Key Employee shall be entitled to receive the bonuses set forth
above provided that (i) Key Employee is employed by the Company on the
dates payments are due under paragraph 3 above, or (ii) Key Employee is
no longer employed by the Company on such dates solely as a result of
death or permanent disability. Notwithstanding anything to the contrary
set forth herein, in the event Key Employee is terminated without
"Cause" prior to the payment of all amounts due under paragraph 3
above, the amounts payable under subparagraphs 3(a) and 3(b) above
which have not yet been paid to Key Employee shall be paid in full by
the Company to Key Employee within fifteen (15) days following the date
of termination.
b. If, after the date of this Agreement, the Company moves (or
decides to move) its headquarters presently located at 2601 South
Bayshore Drive, Miami, Florida 33133 to a new location outside of
Miami-Dade County, Florida (a "New Location"), and Key Employee's
continued employment with the Company (or its successor) is conditioned
upon Key Employee's agreement to work within the New Location, Key
Employee may elect to terminate his employment with the Company (or its
successor) and such election shall be treated as a termination of Key
Employee's employment by the
2
<PAGE>
Company (or its successor) without "Cause." In addition, for purposes
of this Agreement, in the event the Company (or its successor) reduces
Key Employee's base salary and/or fringe benefits, Key Employee may
elect to terminate his employment with the Company (or its successor)
and such election shall be treated as a termination of Key Employee's
employment by the Company (or its successor) without "Cause." To make
either of these elections, Key Employee must deliver a written notice
to the Company advising the Company (or its successor) of his election
within ten (10) business days following receipt of written notice from
the Company (or its successor) informing Key Employee of either (i) the
Company's (or its successor's) decision to relocate to the New
Location, or (ii) the Company's (or its successor's) decision to reduce
Key Employee's base salary and/or fringe benefits.
c. For purposes of this Agreement, the term "CAUSE" shall mean (i)
Key Employee's substantial failure to satisfactorily perform his
reasonably assigned duties to the Company or any of its subsidiaries or
affiliates, (ii) dishonesty in the performance of Key Employee's duties
to the Company, its subsidiaries or affiliates, (iii) an act or acts on
Key Employee's part constituting a felony under the laws of the United
States or any state thereof or crime involving moral turpitude, (iv)
Key Employee's material breach of any written policy or practices of
the Company, its subsidiaries or affiliates, or (v) any other act or
omission by Key Employee which is materially injurious to the financial
condition or business reputation of the Company or any of its
subsidiaries or affiliates. For such purposes, the term Company shall
mean the Company or its successor, as the case may be.
6. MISCELLANEOUS.
a. Rights to the payment of any sums payable hereunder may not be
assigned, transferred, pledged or otherwise alienated by Key Employee,
other than by will or the laws of descent and distribution. This
Agreement shall be for the benefit of and binding upon the parties
hereto and their respective heirs, personal representatives, legal
representatives, successors, and, where applicable, assigns, including,
without limitation, any successor to the Company, whether by merger,
consolidation, sales of stock, sale of assets or otherwise.
b. This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida.
c. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and, upon its
effectiveness, shall supersede all prior agreements, understandings and
arrangement, both oral and written, between the Key Employee and the
Company (or any of its affiliates) with respect to such subject matter.
This Agreement may not be modified in any way unless by a written
instrument signed by both the Company and the Key Employee.
3
<PAGE>
d. All notices required or permitted to be given hereunder shall
be in writing and shall be personally delivered by courier, sent by
registered mail or certified mail, return receipt requested or sent by
confirmed facsimile transmission addressed as set forth herein. Notices
personally delivered, sent by facsimile or sent by overnight courier
shall be deemed given on the date of delivery and notices mailed in
accordance with the foregoing shall be deemed given upon the earlier of
receipt by the addressee, as evidence by the return receipt thereof, or
three (3) days after deposit in the U.S. mail. Notice shall be sent (i)
if to the Company, addressed to Atlantic Gulf Communities Corporation,
2601 S. Bayshore Drive, Miami, Florida 33133, Attention: President, and
(ii) if to the Key Employee, to his address as reflected on the payroll
records of the Company, or to such other address as either party hereto
may from time to time give notice to the other.
e. The invalidity of any one or more of the words, phrases,
sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement
or any part thereof, all of which are inserted conditionally on their
being valid in law, and, in the event that any one or more of the
words, phrases, sentences, clauses or sections contained in this
Agreement shall be declared invalid, this Agreement shall be construed
as if such invalid word or words, phrase or phrases, sentence or
sentences, clause or clauses, or section or sections had not been
inserted.
f. The waiver by either party hereto of a breach or violation of
any term or provision of this Agreement shall not operate nor be
construed as a waiver of any subsequent breach or violation. The
failure by either party to exercise any rights hereunder shall not be
construed as a waiver by such party of such right or of such party's
future exercise of such right.
g. Company and Key Employee hereby knowingly, voluntarily and
intentionally waive the right to a trial by jury in respect of any
litigation based hereon, or arising out of, under or in connection with
this Agreement.
h. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
i. This Bonus Program is in addition to, and not in lieu of,
participation in any other bonus or incentive compensation programs to
which Key Employee is currently entitled to participate and shall not
be deemed to limit or restrict in any way the Company from making any
bonus or other payment to Key Employee under any other plan or
agreement, whether now existing or hereinafter in effect.
j. Unless otherwise determined by the Company, any payments made
hereunder shall not be taken into account in computing Key Employee's
salary or
4
<PAGE>
compensation for the purposes of determining any benefits or
compensation under (i) any pension, retirement, life insurance or other
benefit plan of the Company or its affiliates, or (ii) any agreement
between the Company or its affiliates and Key Employee.
k. Except as may be required by law or court order or as otherwise
permitted or expressly contemplated herein or as necessary to enforce
the terms hereof, Key Employee agrees not to disclose to any third
party other than members of the board of directors of the Company or
such agents, employees or other personnel of the Company designated in
writing by the President and Chief Executive Officer the existence, the
subject matter or terms of the Bonus Program or this Agreement, without
the prior written consent of the Company ("CONFIDENTIAL INFORMATION");
provided, however, that any information regarding the Bonus Program,
this Agreement or Confidential Information that is otherwise publicly
available, without breach by Key Employee, shall not be subject to the
prohibition on disclosure set forth herein.
l. Nothing herein shall be construed as conveying any rights to
Key Employee of continued employment with the Company.
ATLANTIC GULF COMMUNITIES CORPORATION
By:
-------------------------------------
J. Larry Rutherford, President,
Chief Executive Officer and
Chairman of the Board
-------------------------------------
Joel K. Goldman
5
AGREEMENT
THIS AGREEMENT (the "AGREEMENT") is entered into as of the 1st day of
July, 1999 by and between Atlantic Gulf Communities Corporation, a Delaware
corporation (the "COMPANY") and Matthew Allen ("KEY EMPLOYEE").
W H E R E A S:
A. Key Employee has been employed by the Company since June, 1986 and
has served as Vice President-Finance of the Company since January, 1999.
B. In the course of his employment, Key Employee has acquired
invaluable knowledge of the Company's business and operations, including,
without limitation, knowledge of the overall corporate structure, business plan,
and specific assets (including predecessor assets) of the Company.
C. In March, 1999, the Company announced that it had retained BT Alex.
Brown to serve as the Company's investment advisor with respect to the
exploration of strategic alternatives for the Company.
D. Effective as of June 30, 1999, the Company implemented a corporate
restructuring program, which included the elimination of 24 jobs, or
approximately 18% of its workforce, including, without limitation, the positions
of chief financial officer and chief operating officer.
E. As a result of the implementation of the corporate restructuring
program, the Company will require that Key Employee take on additional
responsibilities as an officer in connection with the continuing operation of
the Company's business.
F. In view of the Company's continuing exploration of potential
strategic alternatives, together with the implementation of the corporate
restructuring program, the Company recognizes that the possibility of a
significant transaction and the uncertainty and questions which may arise
concerning the foregoing, could result in the Key Employee's departure or
distraction to the detriment of the Company and its stockholders.
G. The Company considers it essential to the best interests of its
stockholders to foster the continuous employment of Key Employee.
H. The Company has established a stay bonus program (the "BONUS
PROGRAM") for the benefit of Key Employee on the terms described herein to
encourage Key Employee to remain in the employ of the Company.
NOW, THEREFORE, in consideration of the foregoing recitals and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the
<PAGE>
Company and Key Employee hereby agree as follows:
1. RECITALS. The foregoing recitals are true and correct and are
incorporated herein by this reference.
2. TITLE. Effective as of the date hereof, Key Employee is hereby
appointed to serve as Senior Vice President-Finance of the Company.
3. BONUS PROGRAM. Company agrees to pay Key Employee a guaranteed lump
sum bonus in cash in an amount equal to $150,000 on or before December 15, 1999.
4. EMPLOYMENT TERM. In consideration of the payment of the amount set
forth in paragraph 3 above, Key Employee agrees to remain an employee of the
Company from the date hereof through and including December 31, 1999, unless
otherwise terminated by the Company.
5. ELIGIBILITY.
a. Key Employee shall be entitled to receive the bonus set forth
above provided that (i) Key Employee is employed by the Company on the
date payment is due under paragraph 3 above, or (ii) Key Employee is no
longer employed by the Company on such date solely as a result of death
or permanent disability. Notwithstanding anything to the contrary set
forth herein, in the event Key Employee is terminated without "Cause"
prior to the payment of all amounts due under paragraph 3 above, the
amount payable under paragraph 3 above which has not yet been paid to
Key Employee shall be paid in full by the Company to Key Employee
within fifteen (15) days following the date of termination.
b. If, after the date of this Agreement, the Company moves (or
decides to move) its headquarters presently located at 2601 South
Bayshore Drive, Miami, Florida 33133 to a new location outside of
Miami-Dade County, Florida (a "New Location"), and Key Employee's
continued employment with the Company (or its successor) is conditioned
upon Key Employee's agreement to work within the New Location, Key
Employee may elect to terminate his employment with the Company (or its
successor) and such election shall be treated as a termination of Key
Employee's employment by the Company (or its successor) without
"Cause." In addition, for purposes of this Agreement, in the event the
Company (or its successor) reduces Key Employee's base salary and/or
fringe benefits, Key Employee may elect to terminate his employment
with the Company (or its successor) and such election shall be treated
as a termination of Key Employee's employment by the Company (or its
successor) without "Cause." To make either of these elections, Key
Employee must deliver a written notice to the Company advising the
Company (or its successor) of his election within ten (10) business
days following receipt of written notice from the Company (or its
successor) informing Key Employee of either (i) the Company's (or its
successor's) decision to relocate to the New Location, or (ii) the
2
<PAGE>
Company's (or its successor's) decision to reduce Key Employee's base
salary and/or fringe benefits.
c. For purposes of this Agreement, the term "CAUSE" shall mean (i)
Key Employee's substantial failure to satisfactorily perform his
reasonably assigned duties to the Company or any of its subsidiaries or
affiliates, (ii) dishonesty in the performance of Key Employee's duties
to the Company, its subsidiaries or affiliates, (iii) an act or acts on
Key Employee's part constituting a felony under the laws of the United
States or any state thereof or crime involving moral turpitude, (iv)
Key Employee's material breach of any written policy or practices of
the Company, its subsidiaries or affiliates, or (v) any other act or
omission by Key Employee which is materially injurious to the financial
condition or business reputation of the Company or any of its
subsidiaries or affiliates. For such purposes, the term Company shall
mean the Company or its successor, as the case may be.
6. MISCELLANEOUS.
a. Rights to the payment of any sums payable hereunder may not be
assigned, transferred, pledged or otherwise alienated by Key Employee,
other than by will or the laws of descent and distribution. This
Agreement shall be for the benefit of and binding upon the parties
hereto and their respective heirs, personal representatives, legal
representatives, successors, and, where applicable, assigns, including,
without limitation, any successor to the Company, whether by merger,
consolidation, sales of stock, sale of assets or otherwise.
b. This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida.
c. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and, upon its
effectiveness, shall supersede all prior agreements, understandings and
arrangement, both oral and written, between the Key Employee and the
Company (or any of its affiliates) with respect to such subject matter.
This Agreement may not be modified in any way unless by a written
instrument signed by both the Company and the Key Employee.
d. All notices required or permitted to be given hereunder shall
be in writing and shall be personally delivered by courier, sent by
registered mail or certified mail, return receipt requested or sent by
confirmed facsimile transmission addressed as set forth herein. Notices
personally delivered, sent by facsimile or sent by overnight courier
shall be deemed given on the date of delivery and notices mailed in
accordance with the foregoing shall be deemed given upon the earlier of
receipt by the addressee, as evidence by the return receipt thereof, or
three (3) days after deposit in the U.S. mail. Notice shall be sent (i)
if to the Company, addressed to Atlantic Gulf Communities Corporation,
2601
3
<PAGE>
S. Bayshore Drive, Miami, Florida 33133, Attention: President, and (ii)
if to the Key Employee, to his address as reflected on the payroll
records of the Company, or to such other address as either party hereto
may from time to time give notice to the other.
e. The invalidity of any one or more of the words, phrases,
sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement
or any part thereof, all of which are inserted conditionally on their
being valid in law, and, in the event that any one or more of the
words, phrases, sentences, clauses or sections contained in this
Agreement shall be declared invalid, this Agreement shall be construed
as if such invalid word or words, phrase or phrases, sentence or
sentences, clause or clauses, or section or sections had not been
inserted.
f. The waiver by either party hereto of a breach or violation of
any term or provision of this Agreement shall not operate nor be
construed as a waiver of any subsequent breach or violation. The
failure by either party to exercise any rights hereunder shall not be
construed as a waiver by such party of such right or of such party's
future exercise of such right.
g. Company and Key Employee hereby knowingly, voluntarily and
intentionally waive the right to a trial by jury in respect of any
litigation based hereon, or arising out of, under or in connection with
this Agreement.
h. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
i. This Bonus Program is in addition to, and not in lieu of,
participation in any other bonus or incentive compensation programs to
which Key Employee is currently entitled to participate and shall not
be deemed to limit or restrict in any way the Company from making any
bonus or other payment to Key Employee under any other plan or
agreement, whether now existing or hereinafter in effect.
j. Unless otherwise determined by the Company, any payments made
hereunder shall not be taken into account in computing Key Employee's
salary or compensation for the purposes of determining any benefits or
compensation under (i) any pension, retirement, life insurance or other
benefit plan of the Company or its affiliates, or (ii) any agreement
between the Company or its affiliates and Key Employee.
k. Except as may be required by law or court order or as otherwise
permitted or expressly contemplated herein or as necessary to enforce
the terms hereof, Key Employee agrees not to disclose to any third
party other than members of the board of directors of the Company or
such agents, employees or other personnel of the Company
4
<PAGE>
designated in writing by the President and Chief Executive Officer the
existence, the subject matter or terms of the Bonus Program or this
Agreement, without the prior written consent of the Company
("CONFIDENTIAL INFORMATION"); provided, however, that any information
regarding the Bonus Program, this Agreement or Confidential Information
that is otherwise publicly available, without breach by Key Employee,
shall not be subject to the prohibition on disclosure set forth herein.
l. Nothing herein shall be construed as conveying any rights
to Key Employee of continued employment with the Company.
ATLANTIC GULF COMMUNITIES CORPORATION
By:
--------------------------------------
J. Larry Rutherford, President, Chief
Executive Officer and Chairman of the
Board
--------------------------------------
Matthew Allen
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 (UNAUDITED) AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS THEN ENDED (UNAUDITED)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000771934
<NAME> Atlantic Gulf Communities Corporation
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 4,254
<SECURITIES> 0
<RECEIVABLES> 22,141
<ALLOWANCES> 0
<INVENTORY> 160,510
<CURRENT-ASSETS> 0
<PP&E> 11,834
<DEPRECIATION> 0
<TOTAL-ASSETS> 212,693
<CURRENT-LIABILITIES> 0
<BONDS> 160,857
65,097
0
<COMMON> 1,283
<OTHER-SE> (48,687)
<TOTAL-LIABILITY-AND-EQUITY> 212,693
<SALES> 39,019
<TOTAL-REVENUES> 44,784
<CGS> 33,398
<TOTAL-COSTS> 44,787
<OTHER-EXPENSES> (451)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,049
<INCOME-PRETAX> (45,608)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,608)
<EPS-BASIC> (3.65)
<EPS-DILUTED> (3.65)
</TABLE>
