SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________________
Commission file number: 1-8967
ATLANTIC GULF COMMUNITIES CORPORATION
(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)
4800 N. FEDERAL HWY, SUITE 105 E
Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
(561) 620-0029
(Registrant's telephone number, including area code)
Securities registered pursuant to Section
12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share (Over the Counter Bulletin Board)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K [ ]
As of March 30, 2000, the aggregate market value of the registrant's
Common Stock held by non-affiliates of the registrant was approximately $4.0
million.
As of March 30, 2000, there were 12,821,432 shares of the
registrant's Common Stock outstanding.
Documents incorporated by reference: None
<PAGE>
SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, CERTAIN MATTERS DISCUSSED
HEREIN INCLUDING, WITHOUT LIMITATION, PART I, ITEM 1. "THE BUSINESS," PART I,
ITEM 3. "LEGAL PROCEEDINGS" AND PART II, ITEM 7. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONTAIN FORWARD
LOOKING STATEMENTS BASED ON MANAGEMENT'S EXPECTATIONS REGARDING, AND EVALUATIONS
OF CURRENT INFORMATION ABOUT, THE COMPANY'S BUSINESS THAT INVOLVE RISKS AND
UNCERTAINTIES, AND ARE SUBJECT TO FACTORS THAT COULD CAUSE ACTUAL FUTURE RESULTS
TO DIFFER, BOTH ADVERSELY AND MATERIALLY, FROM CURRENTLY ANTICIPATED RESULTS,
INCLUDING, WITHOUT LIMITATION, THE EFFECT OF ECONOMIC AND MARKET CONDITIONS; THE
CYCLICAL NATURE OF THE REAL ESTATE MARKET IN LUXURY/RESORT AND NON-LUXURY/RESORT
MARKETS IN FLORIDA AND COLORADO; THE INDUSTRY AND INDUSTRY SEGMENT CONDITIONS
AND DIRECTIONS; INTEREST RATES; THE AVAILABILITY AND COST OF FINANCING REAL
ESTATE ACQUISITIONS AND DEVELOPMENTS; THE SALEABILITY OF PREDECESSOR ASSETS;
CONSTRUCTION COSTS; WEATHER; THE AVAILABILITY OF HIGH QUALITY REAL ESTATE
PARCELS IN FLORIDA AND COLORADO; THE AVAILABILITY AND COST OF MATERIALS AND
LABOR; CONSUMER PREFERENCES AND TASTES; GOVERNMENTAL REGULATION; COMPETITIVE
PRESSURES; THE COMPANY'S OWN DEBT AND EQUITY STRUCTURE AND RELATED FINANCING
CONTINGENCIES AND RESTRICTIONS; MANAGEMENT LIMITATIONS; THE COMPANY'S ABILITY TO
CLOSE FINANCINGS OF NEW REAL ESTATE AT PARTICULAR TIMES RELATIVE TO THE
COMPANY'S CASH FLOW NEEDS AT SUCH TIMES; THE COMPANY'S ABILITY TO REFINANCE
EXISTING INDEBTEDNESS; LEGISLATION; RESOLUTION OF PENDING LITIGATION IN WHICH
THE COMPANY IS A DEFENDANT; THE SUCCESS OR LACK THEREOF OF THE COMPANY'S CURRENT
DEVELOPMENT PROJECTS; AND THE SUCCESS OR LACK THEREOF OF THE COMPANY'S STRATEGIC
ALTERNATIVE INITIATIVE.
UNLESS THE CONTEXT CLEARLY INDICATES OTHERWISE, ALL REFERENCES HEREIN TO (1)
"ATLANTIC GULF" REFER SOLELY TO ATLANTIC GULF COMMUNITIES CORPORATION AND (2)
THE "COMPANY" INCLUDE ATLANTIC GULF AND ITS DIRECT AND INDIRECT WHOLLY OWNED
SUBSIDIARIES.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
The Company is a Florida-based, planned community development and asset
management company. The Company's business consists of:
- 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 Florida (the West Bay Club Project) and Colorado (the
Chenoa Project) ("Luxury/Resort Markets").
- Other Operations, consisting principally of:
-- Non-Luxury/Resort Operations, formerly referred to as Primary
Market Operations, consisting of the development and sale of
existing real estate 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 ("Primary Markets").
-- Receivables Portfolio Management, consisting of portfolio
management of Mortgage Receivables (as defined below) and
Contract Receivables (as defined below) resulting principally
from the sale or other disposition of Predecessor Assets (as
defined below).
As of December 31, 1999, the Company owned outright interests in two
Luxury/Resort Projects and three Non-Luxury/Resort Projects, and partial
ownership interest in two other Non-Luxury/Resort Projects.
The Company also is engaged in the orderly disposition of scattered
Predecessor Homesites (as defined below) and Predecessor Tracts (as defined
below) located in secondary markets in Florida and Tennessee (collectively,
"Predecessor Assets"). As discussed below, the continuing disposition of
Predecessor Assets is a run-off business and not part of the Company's Core
Business.
General Development Corporation, Atlantic Gulf's predecessor (the
"Predecessor Company"), was formed in 1954 as a Florida-based community
development and land sales company. From 1955 through 1990, the Predecessor
Company acquired and developed nine large-scale communities in Florida and one
in Tennessee, comprising nearly 290,000 acres. During that period, the
Predecessor Company
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developed 357,000 Homesites, deeded 283,000 developed Homesites to customers,
and constructed and sold approximately 35,000 homes. The Predecessor Company
filed for reorganization under the federal bankruptcy laws in 1990. In March
1992, when the Company emerged from bankruptcy, (1) its assets consisted
primarily of 92,000 acres of undeveloped tract land ("Predecessor Tracts"),
27,000 scattered Homesites ("Predecessor Homesites") and certain water and sewer
utility companies ("Predecessor Utilities") and (2) its liabilities included
$302 million of secured and unsecured corporate debt not associated with
development operations (the "Reorganization Debt"), all maturing on or before
December 31, 1998. For additional information concerning the bankruptcy
proceedings, see Atlantic Gulf's 1992 Annual Report on Form 10-K ("1992 10-K").
OPERATING AND FINANCIAL STRATEGIES
The Company's current strategic plan (its "Strategic Plan") is to:
- develop the Company's remaining two (2) Luxury/Resort Projects,
- liquidate the Company's remaining Non-Luxury/Resort Projects,
- liquidate the Company's Predecessor Assets in an accelerated manner,
and
- use the proceeds therefrom to service and retire the Company's
remaining corporate debt and Preferred Stock, thereby protecting
common stockholders value.
GENERAL. The Company intends to continue its focus on its Luxury/Resort
Operations. In this segment, the Company develops waterfront or highly
amenitized communities for high-end retirement or pre-retirement homebuyers. The
Company's Luxury/Resort Market strategy is more retail focused -- selling
Homesites and Vertical Residential Units directly to the individual consumer and
operating resort-type Amenities. Management believes that the country's
demographic trends and recent real estate activity in the current Luxury/Resort
Markets strongly support the Company's Luxury/Resort Operations strategy.
The Company's overall operating strategy is to (1) develop its two
remaining Luxury/Resort Projects and (2) complete the sale of its remaining
Non-Luxury/Resort Projects and Predecessor Company assets.
The Company's financial strategy is to generate sufficient funds from the
sale of Non-Luxury/Resort Projects and Predecessor Company assets to retire any
remaining corporate debt and to redeem any outstanding Preferred Stock. See PART
II, ITEM 5. MARKET FOR ATLANTIC GULF'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS below for a description of Atlantic Gulf's Series A Preferred Stock and
Series B Preferred Stock (the "Preferred Stock"). The three-year, no call period
on the majority of the Preferred Stock expires in the second half of fiscal year
2000.
Atlantic Gulf is currently in default under project indebtedness for the
Chenoa Project, and for this reason and other reasons, the Company has received
a "going concern" opinion from its independent auditors, with respect to its
financial statements for the year ended December 31, 1999. Senior management is
in negotiations with its lenders to address such defaults.
5
<PAGE>
If the Company's financial strategy does not generate sufficient funds to
retire its corporate-level debt and outstanding Preferred Stock and provide
sufficient operating cash flow, the Company will need to consider other
alternatives, including, but not limited to, a capital or debt restructuring
and/or a federal bankruptcy filing. See PART III, ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
LIQUIDITY AND CAPITAL RESOURCES below for a description of Atlantic Gulf's cash
position.
DEVELOPMENT OPPORTUNITIES IN LUXURY/RESORT PROJECTS. The Company's
remaining two (2) Luxury/Resort Projects, once fully entitled and approved,
should yield (1) an estimated 18 acres of new Commercial Development
(approximately 13 acres of which is already entitled and approved), (2) an
estimated 652 Homesites and (3) an estimated 621 Vertical Residential Units. The
chart below summarizes the estimated development potential of the Company's
remaining two remaining (2) Luxury/Resort Projects.
POTENTIAL DEVELOPMENT SUPPLY FROM LUXURY/RESORT PROJECTS
<TABLE>
<CAPTION>
VERTICAL RESIDENTIAL UNITS
HOMESITES
------------------------- ----------------------------------------------
SINGLE MULTI- SINGLE MULTI- TIMESHARE COMMERCIAL
FAMILY (1) FAMILY (1) FAMILY (1) FAMILY (1) UNITS DEVELOPMENT (2)
------------------------- ------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Luxury/Resort Projects 622 30 68 478 75 18
========================= =========================================== ===============
Entitled and Approved(3) 191 - 68 437 - 13
Entitlements/
Approvals in Process 431 30 - 41 75 5
</TABLE>
(1) Number of units.
(2) Number of acres.
(3) "Entitled" means having the necessary discretionary local, state, and
federal government approvals and permits to proceed with development.
OTHER SIGNIFICANT BUSINESS DEVELOPMENTS IN 1999
- On February 2, 1999 (dated as of December 31, 1998), Atlantic Gulf
closed on its $39.5 million Revolving Loan Facility. On September 9,
1999, the Revolving Loan Facility was amended to reduce funds
available to $27.0 million and to restructure various financial
covenants.
- On February 2, 1999 (dated as of December 31, 1998), Atlantic Gulf
closed on its $26.5 million Term Loan Facility. On September 9, 1999
the Term Loan Facility was
6
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amended to restructure various financial covenants.
See PART II, ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES below for
a detailed description of Atlantic Gulf's Revolving Loan Facility and Term Loan
Facility.
- On February 2, 1999, (dated as of December 31, 1998), Atlantic Gulf
closed on two promissory notes for $850,000 and $1.0 million. See
PART II, ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL
RESOURCES - AMENDMENTS TO THE SECURED AGREEMENT AND INVESTMENT
AGREEMENT below.
- On February 2, 1999, Atlantic Gulf repaid the entire outstanding
balance ($13.7 million) under its Working Capital Facility and the
entire outstanding balance ($39.5 million) under its Unsecured 13%
Cash Flow Notes due December 31, 1998 (the "13% Notes") with funds
drawn under its Revolving Loan Facility and Term Loan Facility and
other available cash.
- In March 1999, the Company sold its joint venture interest in the
1,040 remaining units in its Country Lakes Project, a
Non-Luxury/Resort Project, for $500,000, recognizing a gain of
approximately $219,000. In addition, the Company received a
prepayment of its management fee in exchange for the continued
management of the Project until the joint venture engaged another
manager in July 1999. The Project, which was located in Miramar,
Florida, was acquired in 1995 for $39.5 million.
- On July 2, 1999, Atlantic Gulf announced a restructuring program
aimed at generating annual cost savings of approximately $2.9
million, which included the downsizing of its workforce and
disposing of selected real estate inventory in order to reduce
corporate debt.
- On August 17, 1999, Atlantic Gulf terminated Mr. Larry Rutherford's
employment agreement as its President and Chief Executive Officer.
SEE PART III, ITEM 11. DIRECTORS AND EXECUTIVE OFFICERS OF ATLANTIC
GULF - EXECUTIVE COMPENSATION - MR. RUTHERFORD'S TERMINATION
AGREEMENT below.
- On August 18, 1999, Atlantic Gulf entered into an employment
agreement with Mr. Richard Ackerman as its newly appointed Chief
Executive Officer. SEE PART III, ITEM 11. DIRECTORS AND EXECUTIVE
OFFICERS OF ATLANTIC GULF - EXECUTIVE COMPENSATION - MR. ACKERMAN'S
EMPLOYMENT AGREEMENT below.
- In September 1999, the Company sold the remaining two acres of its
Riverwalk Tower Project, a wholly-owned Luxury/Resort Project, for
$8.0 million. This Project, which was located in Fort Lauderdale,
Florida, was acquired by the Company in June 1997
7
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for approximately $5.6 million. In 1998, the Company sold one
commercial acre for $7.0 million.
- In November 1999, the remaining 1,146 lots and other assets in the
Sunset Lakes Project, a jointly owned Non-Luxury/Resort Project,
were sold for $46.3 million. The Project, which was located in
Miramar, Florida, was purchased through a joint venture formed in
1995. The Company's share of the sales proceeds was $30.1 million.
- In November 1999, the Company decided not to acquire Rayland, a
proposed Non-Luxury/Resort Project located near Jacksonville,
Florida. The Company expensed $1.5 million in design and
engineering costs previously incurred with respect to this project.
- In December, 1999 the Company sold its joint venture interest in the
1,093 acre Orlando Naval Training Center, a Non-Luxury/Resort
Project, to its joint venture partner, pursuant to a purchase option
in the joint venture agreement. The sales price of $1.0 million,
together with unreturned capital of $473,000 were conveyed in the
form of a non-interest bearing promissory note. The promissory note
is contingent on the release of the joint venture from a lawsuit
seeking performance under a development agreement with the City of
Orlando, Florida.
- In December 1999, the Company sold the remaining 1,298 lots in its
Trails of West Frisco Project, a wholly owned Non-Luxury/Resort
Project, for $14.6 million. The Company acquired the Project,
comprised of 1,641 lots and located in Frisco, Texas, for
approximately $7.5 million in July 1997.
- In December 1999, the Company relinquished its 40.0% joint venture
interest in the Cary Glen Project, a Non-Luxury/Resort Project, as
part of a legal settlement with Panther Creek-Raleigh Limited
Partnership. In addition, Atlantic Gulf paid $375,000 as part of the
same settlement. The Project, which was located near Raleigh-Durham,
North Carolina, was acquired in 1996 for approximately $8.0 million.
- In December 1999, the Company assigned its contract to purchase the
Harbor Bay Project, a controlled Non-Luxury/Resort Project, plus an
adjacent parcel, for $4.8 million plus reimbursement of its earnest
money deposits and certain costs. The Company had entered into a
contract to purchase this project, located in Hillsborough County,
Florida in 1998. Harbor Bay consisted of approximately 750 acres,
planned for 1,110 residential units and 44 acres of commercial
development. The contract assignment also included the assignment of
the Company's rights to purchase an adjacent 350 acres, a contract
to purchase land for a planned golf course and a two-year option to
purchase golf course lots.
- In December 1999, Environmental Quality Laboratory, Inc. ("EQ Lab"),
a wholly owned subsidiary of the Company, sold all of its operating
assets for $310,000.
- In December 1999, the Company closed the Miami office and relocated
its principal office to Boca Raton, Florida.
8
<PAGE>
- During 1999, the Company sold its joint venture interest in the 154
remaining units of its Jupiter Ocean Grande Project, a
Non-Luxury/Resort Project, for approximately $1,000,000, recognizing
a loss of approximately $3.8 million. The Project, which was located
in Jupiter, Florida, was acquired in phases in 1995 and 1996 for
$4.2 million.
- During 1999, the Company reduced its employee headcount from 158
full-time and three part-time employees as of January 1, 1999 to 80
full-time and seven part-time employees as of December 31, 1999.
- During 1999, the Company completed the entitlements for Grand Oaks,
a proposed Non-Luxury/Resort Project, but was unable to close on its
purchase in May 1999, due to funding problems. The seller was
unwilling to extend the contract to allow for alternative financing,
and retained the Company's $1.4 million in earnest money deposits
and extension fees. These deposits have been expensed in the 1999
Consolidated Statement of Operations. In addition, the Company
expensed $2.2 million in design and engineering costs incurred.
- During 1999, the Company commenced and pursued modifications to
certain land use approvals required to develop the Baxter/Martinez
Project, a controlled Non-Luxury/Resort Project for 1,400
residential units. In 1998, the Company entered into agreements with
two separate sellers to purchase approximately 232 acres (the Baxter
property) for $2.3 million and to purchase an additional adjacent
181 acres (the Martinez property) for $1.6 million, with closings
scheduled in the first half of 2000. The Company is now negotiating
to assign its rights to purchase both properties to a third party
for $1.0 million plus reimbursement of its earnest money deposits
and costs.
CORE BUSINESS
GENERAL. The Company's Core Business consists of two principal business
lines:
- Development of Luxury/Resort Projects; and
- Other Operations, principally including Receivables Portfolio
Management and the sale of Non-Luxury/Resort Projects.
LUXURY/RESORT PROJECTS. The Company is engaged in the development and sale
of master planned Luxury/Resort Projects in Luxury/Resort Markets in Florida and
Colorado. A Luxury/Resort Market is typically not a Primary Market in terms of
the volume of new single family home construction permits, but relative demand
is usually strong and the average retail price of new construction is usually
much higher. Also, there is much less focus in a Luxury/Resort Market on
industrial or employment growth in the area or the quality of schools, and more
focus on natural and/or man-made Amenities.
The Company's activities in connection with the development of
Luxury/Resort Markets consist of five principal functions:
- Planning, consisting of (1) master land use planning, (2) zoning and
land use
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entitlements, (3) environmental permitting, (4) mitigation design
and (5) obtaining all other regulatory approvals necessary to
develop a specified property. Once the Company's planning department
has finished its entitlement work with respect to a particular
parcel of property, it has frequently added enough value to the
property that the property can be sold at a profit without further
infrastructure improvements.
- Community Development, consisting of construction of roads,
utilities, amenities and other infrastructure. In large
master-planned subdivisions, the Company usually conducts
construction activities in phases, so that it does not have an
oversupply of developed inventory awaiting sale to third party
builders.
- Residential Construction, which currently consists of the
construction of Homesites and Vertical Residential Units. Depending
on the Luxury/Resort Project and the product, the Company
participates either directly as the owner-developer or as a joint
venture partner with the owner-developer. In either case, the actual
construction work is performed by a third party general contractor.
- Marketing and Sales, consisting of the sale of Homesites and
Vertical Residential Units directly to the individual customer
through a central sales facility. Where the Company acts as the
selling broker for a third party builder, the Company receives a
standard sales commission. Centralized sales allow the Company to
more closely control the quality and consistency of the
Luxury/Resort Project marketing, as well as to capture a greater
percentage of the revenue (through lot premiums and sales
commissions) in lower volume markets.
- Amenities, consisting of the construction and operation of luxury
amenities, such as equity golf clubs, dining facilities and related
amenities. The Company believes that the equity club memberships in
its existing Luxury/Resort Projects can be sold at prices allowing
the Company to operate the Amenities at a significant profit until
such time as the operations can be turned over to the Amenities
members.
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WHOLLY-OWNED LUXURY/RESORT PROJECTS. The following table shows (in
units/acres and by net book value) the Company's two (2) wholly-owned
Luxury/Resort Projects:
<TABLE>
<CAPTION>
UNITS/ACRES NET BOOK VALUE (4)
------------------------------------ ----------------------------------
AS OF DECEMBER 31, AS OF DECEMBER 31,
------------------------------------ ----------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential (3)..................... 1,273(1) 1,954(1) 578(1) $17,319 $16,360 $8,484
Commercial Development.............. 18(2) 12(2) 12(2) 1,483 1,045 1,045
------- ------- ------
Total.................... $18,802 $17,405 $9,529
======= ======= ======
</TABLE>
(1) Number of remaining planned units.
(2) Number of remaining planned acres.
(3) Includes both Homesites and Vertical Residential Units.
(4) Net book value means total remaining capitalized costs less project debt
as of the date indicated.
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JOINT VENTURE LUXURY/RESORT PROJECTS. The following table shows (by
investment account balance and the Company's share of income (loss)) the
Company's Luxury Resort Projects in which it holds its equity interest through
joint ventures:
<TABLE>
<CAPTION>
INVESTMENT ACCOUNT BALANCES(1) COMPANY'S SHARE OF NET LOSS
------------------------------------ -----------------------------------
AS OF DECEMBER 31, AS OF DECEMBER 31,
------------------------------------ -----------------------------------
1999(2) 1998 1997 1999 1998 1997
------- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Vertical Residential Units.......... $ - $1,489 $2,118 $(4,329) $(629) $(758)
</TABLE>
(1) Includes all unamortized costs capitalized to this joint venture interest,
as required by GAAP, including corporate interest.
(2) No Joint Venture Luxury/Resort Projects remaining as of December 31, 1999.
LUXURY/RESORT PROJECT COMPONENTS, BY PROJECT. The following tables
summarize the scope and the principal components of the Company's Luxury/Resort
Projects, by Project:
<TABLE>
<CAPTION>
Scope of Project (3)
---------------------------------------------------------------------------
Ownership/ Total Total Total
Profit Gross Gross Gross
Interest Residential Lots/ Commercial
12/31/99 Acres Units Acres
---------------------------------------------------------------------------
OWNED PROPERTIES
<S> <C> <C> <C> <C>
West Bay Club(1) ........................ 100% 867 766 13
Chenoa(2) ............................... 100% 5,948 577 5
----- ----- -----
Subtotal Owned Properties ............... 6,815 1,343 18
===== ===== =====
</TABLE>
(1) This Project is located in the Naples/Fort Myers, Florida area.
(2) This Project is located near Glenwood Springs, Colorado.
(3) As currently planned.
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<TABLE>
<CAPTION>
Lots/Units/Acres at December 31, 1999 (1)
------------------------------------------------------------------------------------------------------
Homesites Vertical Residential Units Commercial
Single Family Single Family Multi-Family Timeshare Cabins Development
Total Total Total Total Total Total Total Total Total Total
Lots Entitled Units Entitled Units Entitled Units Entitled Acres Entitled
------------------------------------------------------------------------------------------------------
OWNED PROPERTIES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
West Bay Club .............. 191 191 68 68 437 437 - - 13 13
Chenoa ..................... 461 - - - 41 - 75 - 5 -
------------------------------------------------------------------------------------------------------
Subtotal Owned Properties .. 652 191 68 68 478 437 75 - 18 13
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Varying from project to project, unsold units are developed, under
development or to be developed in the future.
LUXURY/RESORT PROJECT SALES ACTIVITIES, BY PROJECT.
WEST BAY CLUB. In 1999, the Company substantially completed land
development at its West Bay Club's 18-hole golf course, 95% of its
infrastructure, platted the community, initiated construction of its Sports Club
and Beach Club and began sales. West Bay Club sold 70 single family homesites,
villas, or carriage homes in 1999. West Bay Club has reduced its units from
1,082 to 766 units to meet market demand by developing a luxury single family
subdivision instead of one of the multi-family sites.
CHENOA. Chenoa, formerly known as Aspen Springs Ranch. The Company
acquired Chenoa in September 1998 and the Company is still in the entitlement
process. Chenoa is currently planned for 461 homesites, plus 116 vertical
residential units. The homesites range in size from two acres to more than 35
acres. Of the 116 vertical residential units, there are 75 2,500 square foot
cabins that the Company intends to market as quarter-share units. The Company
also intends to construct and operate up to two 18-hole golf courses and an
equestrian facility at Chenoa. This project is currently in the entitlement
process and the Company hopes to have entitlements complete and to begin closing
homesite sales by the end of 2000.
OTHER OPERATIONS
NON-LUXURY/RESORT PROJECTS. During 1999, the Company was engaged in the sale of
Non-Luxury/Resort Projects in Florida, North Carolina, Georgia and Texas. The
Company defines a Non-Luxury/Resort Market as a geographic market in which more
than 5,000 single family home construction permits are issued annually.
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WHOLLY-OWNED NON-LUXURY/RESORT PROJECTS. The following table shows
(in units/acres and by net book value) the Company's wholly-owned
Non-Luxury/Resort Projects:
<TABLE>
<CAPTION>
UNITS/ACRES NET BOOK VALUE(3)
------------------------------------------- ---------------------------------------
AS OF DECEMBER 31, AS OF DECEMBER 31,
------------------------------------------- ---------------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Homesites ............................ 1,178 (1) 3,213 (1) 3,756 (1) $ 9,651 $27,001 $30,224
Commercial Development ............... - (2) 26 (2) 26 (2) - 270 623
------- ------- -------
Total ..................... $ 9,651 $27,271 $30,847
======= ======= =======
</TABLE>
(1) Number of remaining planned units.
(2) Number of remaining planned acres.
(3) Net book value means total remaining capitalized costs less project debt
as of the date indicated.
JOINT VENTURE NON-LUXURY/RESORT PROJECTS. The following table shows
(by investment account balance and the Company's share of income (loss)) the
Non-Luxury/Resort Projects in which the Company holds its equity interest
through joint ventures:
<TABLE>
<CAPTION>
INVESTMENT ACCOUNT BALANCE(1) COMPANY'S SHARE OF INCOME (LOSS)
------------------------------------ ----------------------------------------
AS OF DECEMBER 31, AS OF DECEMBER 31,
------------------------------------ ----------------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Homesites ............................ $ 4,004 $ 9,998 $12,131 $ 1,627 $ 577 $ (235)
Commercial Development ............... - 367 291 - 240 -
------- ------- ------- ------- ------- -------
Total ..................... $ 4,004 $10,365 $12,422 $ 1,627(2) $ 817 $ (235)
======= ======= ======= ======= ======= =======
</TABLE>
(1) Includes all unamortized costs capitalized to the joint venture interests,
as required by GAAP, including corporate interest.
(2) This amount is reduced by capitalized corporate interest of $746,000.
14
<PAGE>
NON-LUXURY/RESORT PROJECT COMPONENTS, BY PROJECT. The following
tables summarize the scope and principal components of the Company's
Non-Luxury/Resort Projects, by Project:
<TABLE>
<CAPTION>
Scope of Project (5)
----------------------------------------------------------
Ownership/ Total Total Total
Profit Gross Gross Gross
Interest Residential Lots/ Commercial
12/31/99 Acres Units Acres
OWNED PROPERTIES
<S> <C> <C> <C> <C>
Lakeside Estates (1)............................... 100% 748 1,379 -
Saxon Woods (2).................................... 100% 127 408 -
West Meadows (3)................................... 100% 1,133 1,316 76
-----------------------------------------
Subtotal Owned Properties.......................... 2,008 3,103 76
-----------------------------------------
JOINT VENTURE PROPERTIES
Falcon Trace (4)................................... 65% 390 871 -
-----------------------------------------
Subtotal Joint Venture Properties.................. 390 871 -
-----------------------------------------
Total All Properties............................... 2,398 3,974 76
=========================================
</TABLE>
- -------------------------------------------------------------------------------
(1) This Project is located in Orlando, Florida. The Company acquired the
Project in 1994 and 1995 for approximately $10.2 million. This Project was
sold in April 2000 for $2.7 million.
(2) This Project is located in Orlando, Florida. The Company acquired the
Project in August 1997 for approximately $2.9 million.
(3) This Project is located in Tampa, Florida. The Company acquired the
Project in February 1995 for approximately $5 million.
(4) This Project is located in Orlando, Florida. The JV interest was acquired
in 1996 for approximately $5.3 million.
(5) As currently planned.
15
<PAGE>
<TABLE>
<CAPTION>
Lots/Units/Acres at December 31, 1999 (1)
----------------------------------------------------------------------
Single Family Multi-Family (2) Commercial (3)
Total Total Total Total Total Total
Lots Entitled Units Entitled Acres Entitled
OWNED PROPERTIES
<S> <C> <C> <C> <C> <C> <C>
Lakeside Estates (4) ..................................... 293 293 - - - -
Saxon Woods .............................................. 354 354 - - - -
West Meadows ............................................. 531 531 - - - -
----------------------------------------------------------------------
Subtotal Owned Properties ................................ 1,178 1,178 - - - -
----------------------------------------------------------------------
JOINT VENTURE PROPERTIES
Falcon Trace ............................................. 493 493 - - - -
----------------------------------------------------------------------
Subtotal Joint Venture Properties ........................ 493 493 - - - -
----------------------------------------------------------------------
Total All Properties ..................................... 1,671 1,671 - - - -
======================================================================
</TABLE>
(1) Varying from project to project, unsold units are developed, under
development or to be developed in the future.
(2) No Multi-Family units remaining at December 31, 1999, due to the
disposition of the Country Lakes and Cary Glenn JV Projects.
(3) The remaining 26 acres were sold in January 1999.
(4) This Project was sold in April 2000.
16
<PAGE>
NON-LUXURY/RESORT PROJECT SALES ACTIVITIES, BY PROJECT. The
following tables summarize the sales activities during 1999 and 1998 at the
Company's Non-Luxury/Resort Projects, by Project:
<TABLE>
<CAPTION>
HOMESITES
1998 Activity 1999 Activity
------------- -------------
Total Revisions Total Total
Lots/Units & Unit Lot Lots/Units Unit Lot Lots/Units
1/1/98 Acq. Transfers(1) Sales Sales 12/31/98 Sales Sales 12/31/99
OWNED PROPERTIES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lakeside Estates (3) ............ 671 - (2) - (141) 528 - (235) 293
Saxon Woods ..................... 408 - - - (25) 383 - (29) 354
West Meadows .................... 1,036 - 74 - (351) 759 - (228) 531
The Trails of West Frisco(2) .... 1,641 - - - (98) 1,543 - (1,543) -
-------------------------------------------------------------------------------------------------
Subtotal Owned Properties ........ 3,756 - 72 - (615) 3,213 - (2,035) 1,178
-------------------------------------------------------------------------------------------------
JOINT VENTURE PROPERTIES
Sunset Lakes .................... 1,767 - (255) (270) - 1,242 (1,242) - -
Falcon Trace .................... 849 - - - (209) 640 - (147) 493
Cary Glen ....................... 1,134 - - - (10) 1,124 - (1,124) -
Country Lakes ................... 1,116 - 1,858 (1,934) - 1,040 (1,040) - -
-------------------------------------------------------------------------------------------------
Subtotal Joint Venture Properties 4,866 - 1,603 (2,204) (219) 4,046 (2,282) (1,271) 493
-------------------------------------------------------------------------------------------------
Total All Properties ............ 8,622 - 1,675 (2,204) (834) 7,259 (2,282) (3,306) 1,671
================================================================================================
</TABLE>
(1) Includes revisions to estimates of potential development or building size,
or transfers of property between Homesites and other categories of
property.
(2) The 1,543 lots sold in 1999 includes 303 lots sold prior to bulk sale of
1,240 lots sold in December, 1999.
(3) This Project was sold in April 2000.
17
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL DEVELOPMENT
----------------------
1998 Activity 1999 Activity
------------- -------------
Total Revisions Total Revisions Total
Lots/Units & Acres & Acres
1/1/98 Acq. Transfers Sales 12/31/98 Acq. Tansfers Sales 12/31/99
OWNED PROPERTIES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
West Meadows ............................... 26 - - - 26 - - (26) -
Dave's Creek ............................... - 1,372 - (1,372) - - - - -
--------------------------------------------------------------------------------------
Subtotal Owned Properties .................. 26 1,372 - (1,372) 26 - - (26) -
--------------------------------------------------------------------------------------
JOINT VENTURE PROPERTIES
Sunset Lakes ............................... 10 - 5 (15) - - - - -
Country Lakes .............................. 268 - (126) - 142 - - (142) -
--------------------------------------------------------------------------------------
Subtotal Joint Venture Properties .......... 278 - (121) (15) 142 - - (142) -
--------------------------------------------------------------------------------------
Total All Properties ....................... 304 1,372 (121) (1,387) 168 - - (168) -
======================================================================================
</TABLE>
ENVIRONMENTAL SERVICES. EQ Lab, a wholly owned subsidiary of the
Company, was a full service ecological consulting firm and laboratory. EQ Lab,
which sold all of its operating assets at December 31, 1999, performed water and
soil testing and environmental assessments for the Company and third parties,
including both governmental and private entities, acted as the primary surface
water laboratory for two regional Water Management Districts (government),
performed environmental chemistry analyses for the Aqua Source (private
utilities), the Consolidated Citrus, Inc. (agriculture) and numerous marina
projects (development) and performed wetlands mitigation, monitoring and exotic
control for numerous public and private clients. EQ Lab also provided services
to the Company and clients in the areas of hazardous substance testing and site
remediation, endangered species management plans and wetlands identification and
mitigation.
The following table summarizes revenues recorded by EQL Lab (in thousands
of dollars):
December 31,
------------
1999 1998 1997
---- ---- ----
Revenues from
affiliated parties $ 654 $ 999 $ 94
Revenues from
unaffiliated parties 928 584 1,048
------ ------ ------
Total Revenues $1,582 $1,583 $1,142
====== ====== ======
18
<PAGE>
RECEIVABLES PORTFOLIO MANAGEMENT. The Company is actively engaged in
the management and collection of a portfolio of (1) contract receivables
originated by the Predecessor Company's homesite installment sales program (the
"Contract Receivables") and (2) mortgage receivables generated primarily from
the Company's sales of Predecessor Tracts (the "Mortgage Receivables," which,
together with the Contract Receivables, are collectively referred to as the
"Receivables Portfolio"). The Company collected for its own account a total of
approximately $2.0 million, $3.0 million and $4.9 million in principal and
interest payments on its Contract Receivables in 1999, 1998, and 1997,
respectively. As of December 31, 1999 and 1998, the portfolio of Contract
Receivables had a net book value of $2.0 million and $4.1 million, respectively,
and the portfolio of Mortgage Receivables had a net book value of $6.2 million
and $20.2 million, respectively.
Stated interest rates on the Contract Receivables outstanding at December
31, 1999, 1998 and 1997 ranged from 4.0% to 12.5% (averaging approximately
7.0%). The original terms of the Contract Receivables were 10 to 12 years. The
Company has established the reserve for estimated future cancellations and the
reserve for Contract Receivables termination refunds, based on its actual cash
collections and cancellations, which amounted to $563,000 in 1999 and $442,000
in 1998.
The mortgages in the Mortgage Receivables portfolio are typically three to
five year notes based upon 15-20 year amortization schedules and a balloon
payment at the end. Most mortgages in this portfolio are secured by Predecessor
Tracts. The stated interest rate on the mortgages is typically Prime plus two
percent. The Company has established a reserve for estimated future
delinquencies in this portfolio amounting to $3.8 million at December 31, 1999
and $2.5 million at December 31, 1998.
PREDECESSOR ASSETS
Since 1992, Atlantic Gulf has pursued a strategy of disposing of its
approximately 92,000 acres of Predecessor Commercial Developments, approximately
27,000 Predecessor Homesites and eight (8) Predecessor Utilities. Through 1999,
the Company has disposed of approximately 89,000 acres of Predecessor Commercial
Development for approximately $195 million and approximately 12,000 Predecessor
Homesites for approximately $68 million. The Company has used the proceeds from
these sales to reduce most of its corporate debt since 1992 and to offset the
overhead expenses associated with maintaining these Predecessor Assets.
The remaining Predecessor Commercial Developments include commercial,
industrial, institutional, residential and agricultural acreage. Predecessor
Tract sales, while highly variable from quarter to quarter, constituted
approximately 6%, 29% and 46% of the Company's total real estate revenues in
1999, 1998 and 1997, respectively. The Company plans to sell the remaining
Predecessor Tracts as quickly as possible while avoiding negative gross margins
on the sale.
The Company also owns approximately 15,000 Predecessor Homesites. The
Company intends to continue its practice of selling such Predecessor Homesites
on a wholesale basis as fast as the local markets can absorb them, but it
anticipates having Predecessor Homesite inventory for the foreseeable future.
Predecessor Homesite sales represented approximately 3%, 4% and 15% of the
Company's total real estate revenues in 1999, 1998 and 1997, respectively. The
Company does not anticipate that Predecessor Homesite sales will have a material
impact on future cash flows or profitability.
19
<PAGE>
The following tables summarize the Company's Predecessor Asset
activities in 1999 and 1998:
<TABLE>
<CAPTION>
1998 Homesite Activity 1999 Homesite Activity
---------------------- ----------------------
Total Lot/ Total Lot/ Total
Lots/Units Acq./ Unit Lots/Units Acq./ Unit Lots/Units
1/1/98 (Trans.) Sales 12/31/98 (Trans.) Sales 12/31/99
OWNED PROPERTIES
<S> <C> <C> <C> <C> <C> <C> <C>
North Port(1)................. 3,925 25 160 3,790 16 118 3,688
Port Charlotte(1) ............ 2,924 (54) 50 2,820 (11) 209 2,600
Port St. Lucie(1)............. 681 (8) 54 619 (11) 31 577
Port Malabar(1)............... 3,776 90 357 3,509 (8) 133 3,368
Port Labelle(1) .............. 1,982 30 212 1,800 29 5 1,824
Sabal Trace(2)................ 79 - 4 75 - 75 -
Silver Springs Shores(3)...... 3,062 13 86 2,989 9 58 2,940
Cumberland Cove(4)............ 227 14 3 238 5 55 188
Other(5)...................... 173 - 89 84 - 17 67
-------------------------------------------------- ---------------------------------------
Total Owned Properties........ 16,829 110 1,015 15,924 29 701 15,252
================================================== =======================================
</TABLE>
(1) Scattered lots are located in the aforementioned communities, all of which
are located in Florida.
(2) This project is located in North Port, Florida.
(3) Scattered lots located North of Ocala, Florida.
(4) Lots located in the Cumberland Mountains, midway between Knoxville and
Nashville, Tennessee.
(5) Scattered lots located in Port St. John, Florida; City of Sebastian,
Florida; and Vero Beach Highlands and Vero Shores, Florida.
20
<PAGE>
The table below summarizes the Company's Predecessor Homesite inventory by
secondary market area as of December 31, 1999.
<TABLE>
<CAPTION>
PREDECESSOR HOMESITE INVENTORY SUMMARY
--------------------------------------
(IN HOMESITES)
Standard Other Buildable Other Total
Market Area Buildable Developed Reserved (2) Restricted (3) Predecessor
Lots (1) Homesites
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North Port 3,475 9 76 128 3,688
Port Charlotte 538 68 1,657 337 2,600
Port St. Lucie 187 27 304 59 577
Port Malabar 64 2 1,759 1,543 3,368
Port Labelle 740 - 32 1,052 1,852
Sabal Trace - - - - -
Silver Springs Shores 2,354 79 228 279 2,940
Cumberland Cove 180 - - 8 188
Other 30 - 30 7 67
----------------------------------------------------------------------------------
Total 7,568 185 4,086 3,413 15,280
==================================================================================
</TABLE>
(1) Includes commercial/industrial and other premium lots.
(2) Includes 3,795 lots held for Utility Reserves.
(3) Represents Predecessor Homesites which may not be buildable due to
lack of utility availability or engineering or title issues, and may
only be sold under certain conditions. The Company's inventory of
Predecessor Homesites that are not buildable has declined and is
expected to decline further as currently non-buildable Predecessor
Homesites become buildable. These Predecessor Homesites become
buildable as the communities in which these lots are located grow
and extend utility services to these lots and the Company satisfies
title or engineering issues with respect to these lots. The
Company's plans are to continue to take the appropriate actions to
convert these lots to buildable Predecessor Homesites consistent
with market demand and to monetize these assets and repay debt.
21
<PAGE>
The following table summarizes the Company's Predecessor Tract
activities in 1999 and 1998:
<TABLE>
<CAPTION>
1998 1999
Predecessor Tract Sales Predecessor Tract Sales
Activity Activity
----------------------------------------------- ------------------------------------
Total Total Total
Acres Acquired/ Acres Acquired/ Acres
1/1/98 (Donation) Sales 12/31/98 (Donation) Sales 12/31/98
----------------------------------------------- ------------------------------------
OWNED PROPERTIES
<S> <C> <C> <C> <C> <C> <C> <C>
North Port ............................ 940 (117) 202 621 (89) 109 423
Port Charlotte ........................ 1,608 13 200 1,421 38 578 881
Port St. Lucie ........................ 445 1 119 327 (33) 76 218
Port Malabar .......................... 2,487 78 1,647 918 61 97 882
Port Labelle .......................... 15,486 (17) 14,578 891 97 753 235
Sabal Trace ........................... 15 - 15 - - - -
Silver Springs Shores ................. 39 63 66 36 (5) - 31
Cumberland Cove ....................... 2,566 (1,881) - 685 - - 685
Other ................................. 46 6 13 39 2 2 39
---------------------------------------------------------------------------------------
Total Owned Properties ................ 23,632 (1,854) 16,840 4,938 71 1,615 3,394
=======================================================================================
</TABLE>
GENERAL ECONOMIC AND FINANCIAL FACTORS INFLUENCING THE COMPANY'S
LUXURY/RESORT BUSINESS
The Company's Luxury/Resort Business is highly sensitive to the
following general economic and financial factors:
- the real estate industry and specific industry segment
conditions and directions, i.e., supply and demand for
Homesites, Vertical Residential Units and/or Commercial
Developments, as well as local economic and market conditions,
- the cyclical nature of the real estate market in Luxury/Resort
Markets,
- movements in interest rates and employment levels in
Luxury/Resort Markets,
- the availability and cost of financing for development, the
availability and cost of materials and labor, weather
conditions and changes in consumer preferences;
- governmental regulation, specifically, compliance of projects
with local, regional, state and federal planning, zoning,
design, construction, development, environmental, permitting,
sales, disclosure and related rules and regulations and
- competitive pressures, specifically, other public and private
developments in the Company's Luxury/Resort Markets, and the
pricing and availability of such competing developments.
22
<PAGE>
The Company's financial strategy is to generate sufficient funds from the
sale of Non-Luxury/Resort Projects and Predecessor Company assets to retire any
remaining corporate debt and to redeem any outstanding Preferred Stock. See PART
II, ITEM 5. MARKET FOR ATLANTIC GULF'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS below for a description of Atlantic Gulf's Series A Preferred Stock and
Series B Preferred Stock (the "Preferred Stock"). The three-year, no call period
on the majority of the Preferred Stock expires in the second half of fiscal year
2000.
If the Company's financial strategy does not generate sufficient funds to
retire its corporate-level debt and outstanding Preferred Stock and provide
sufficient operating cash flow, the Company will need to consider other
alternatives, including, but not limited to, a capital or debt restructuring
and/or a federal bankruptcy filing.
Currently, all of these general economic/financial factors are reasonably
favorable to the Company. The economy, both at the national and Luxury/Resort
Market levels, is currently strong. Interest rates and unemployment rates are
both currently at historic lows, and credit is generally available to qualified
borrowers. Moreover, while the real estate business is highly competitive, none
of the Company's Luxury/Resort Markets currently has an oversupply of finished
homesites and/or vertical residential units.
Notwithstanding the favorable current conditions for the Company's
Luxury/Resort Business in general, any significant increase in interest rates or
general economic downturn or significant decline in employment growth, increase
in unemployment, decline in growth of real wages, increase in inflation or
downturn in other demographics in the Company's Luxury/Resort Markets could
adversely impact new home starts in the future.
SPECIFIC ECONOMIC AND FINANCIAL FACTORS INFLUENCING THE COMPANY'S BUSINESS
The Company's Business is also subject to certain economic and financial
factors specific to the Company, including but are not limited to, the
following:
- the Company's high cost of institutional capital (debt and Preferred
Stock) and related institutional financing contingencies and
restrictions,
- sales pressure attributable to near term debt maturities,
- the availability and cost of financing for such projects,
substantial project carrying costs (because of the substantial time
interval between project acquisition, development and sale),
- management limitations.
While managing all of the foregoing factors, the Company also is dealing
with the issue of reduced sales margins attributable to its Predecessor Assets.
For a discussion of other factors that could cause the Company's actual
operating results to differ materially from those anticipated, see PART II, ITEM
7. MANAGEMENT'S DISCUSSION
23
<PAGE>
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS below. The Company
does not undertake to update the foregoing list of specific factors in any
subsequent disclosures made from time to time by or on behalf of the Company.
EMPLOYEES
As of December 31, 1999, the Company had approximately 80 full-time
employees and seven part-time employees. In addition, the Company employs on a
daily basis such additional personnel as may be required to perform various
other activities. The Company's relations with its employees are satisfactory
and there have been no work stoppages.
ITEM 2. PROPERTIES
The Company's inventory of real estate is described in PART I, ITEM 1.
BUSINESS, - LUXURY/RESORT PROJECTS and NON-LUXURY/RESORT PROJECTS and --
PREDECESSOR ASSETS.
ITEM 3. LEGAL PROCEEDINGS
CONDEMNATION PROCEEDINGS INVOLVING GENERAL DEVELOPMENT UTILITIES, INC. AND
RELATED PROCEEDINGS
ATLANTIC GULF COMMUNITIES CORPORATION, ET AL. V. LOFTUS, ET AL., CASE NO.
94-1931 CA (CHARLOTTE CTY. CIR. CT.). In December 1994, Atlantic Gulf and GDU
(all references herein to "GDU" are to General Development Utilities, Inc., a
wholly owned subsidiary of Atlantic Gulf) filed a declaratory judgment action in
the Circuit Court for the Twentieth Judicial Circuit in and for Charlotte County
against a defendant class based upon a demand made upon the Company by Richard
D. Loftus and others for a portion of the proceeds from the Charlotte County
eminent domain case entitled CHARLOTTE COUNTY, ET AL. V. GDU, ET AL., Case No.
90-936 (Charlotte Cty. Cir. Ct.), in which the Charlotte County Circuit Court
entered a stipulated Final Judgment setting full and complete compensation to
Atlantic Gulf and GDU for certain water and wastewater systems taken by
Charlotte County in June 1991 totaling $110 million, $65 million of which was
paid as a good faith deposit at the time of the taking and the balance of which
was paid in December of 1994. The demand made upon the Company was based upon
the theory that there exists a class of property owners in Charlotte County,
Florida who have an interest in the proceeds from the condemnation proceeding
because of "contributions in aid of construction." The case has been transferred
from Charlotte County to the Fifteenth Judicial Circuit Court, Palm Beach
County, Florida, and notice has been provided to the members of the class. No
rulings have been made by the Court, and discovery has not begun in any
meaningful way. The Company believes, based on the advice of counsel, that the
defendants' claim has no merit under Florida law. The Company intends to
vigorously pursue the class action suit for declaratory judgement, seeking an
order of the Court that the class members have no interest in the proceeds from
the Charlotte County condemnation case.
24
<PAGE>
OTHER LITIGATION AND PENDING DISPUTES
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 near 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
(v) fraudulent conveyances by Spring Valley to Atlantic Gulf of income and
profits generated from the Chenoa Project.
On or about March 22, 2000, Spring Valley Development, Inc. ("Spring
Valley") filed an action against Sessions Development Corporation and Patrick
Sessions (collectively, "Sessions") in the United States District Court for the
District of Colorado, arising out of the Spring Valley Project. The complaint
alleges claims for breach of contract, negligent misrepresentation, and breach
of fiduciary duty and duty of loyalty. The claims are based on (a) Sessions'
misrepresentations about his qualifications to obtain necessary government
approvals, and operate the project on time and within budget, on which Spring
Valley relied in contracting with Sessions to manage the project; and (b) his
failures to obtain such approvals and to manage the project properly. The
complaint alleges that Sessions neither obtained the approvals nor operated
within budget, but instead (a) created such animosity with the building and land
use officials in Garfield County that Spring Valley was unable to proceed timely
with the project, and (b) expended substantial amounts on wasteful spending. The
complaint also alleges that Sessions's cost overruns and delays caused Spring
Valley to default on its loan agreements with Morgan Stanley and Lehman
Brothers.
The Company believes that the foregoing claims are without merit and
intends to vigorously defend the same.
25
<PAGE>
JOHN LAGUARDIA V. ATLANTIC GULF COMMUNITIES CORPORATION. On or about
December 17, 1999, Mr. Laguardia filed a complaint (the "Complaint") against
Atlantic Gulf in the Circuit Court of the Eleventh Judicial Circuit, Dade
County, Florida, claiming that the Company breached the Employment Agreement by
failing to pay Laguardia amounts due upon the termination of his Employment
Agreement. Mr. Laguardia's claims, totaling $955,000, and are comprised
primarily of severance compensation, the net purchase price of his residence,
home expenses and gross-up payments, of $200,000, $700,000, $18,000 and $36,000,
respectively. On March 7, 2000, Mr. Laguardia amended the Complaint to include
an additional $4,982.32 in damages for COBRA insurance reimbursements, making
the total request for damages in the amount of $959,982.32.
On November 17, 1997, Mr. Laguardia and the Company entered into that
certain Employment Agreement, pursuant to which Atlantic Gulf retained Mr.
Laguardia as Executive Vice President and Chief Operating Officer of Atlantic
Gulf for the period commencing on November 17, 1997 and ending on November 17,
2001, unless terminated sooner in accordance with the terms thereof. On June 2,
1999, the Company issued Mr. Laguardia a termination memorandum, effective
August 1, 1999. On January 7, 2000, the Company notified Mr. Laguardia that his
termination was for cause and that pursuant to the terms of his employment
agreement upon termination for cause he was not entitled to any further payments
from the Company. The Company believes that it properly terminated Mr. Laguardia
for cause and intends to contest his claims.
MR. APTHORP'S EMPLOYMENT AGREEMENT. On July 1, 1997, Atlantic Gulf and Mr.
Apthorp, a former director of Atlantic Gulf and the former chairman of the
Board, entered into that certain Employment Agreement, pursuant to which
Atlantic Gulf retained Mr. Apthorp, in the position of "Chairman Emeritus,"
principally to coordinate the Company's statewide governmental relations
program. The term of Mr. Apthorp's Employment Agreement commenced on July 1,
1997 and terminated on June 30, 1999. Pursuant to his Employment Agreement, Mr.
Apthorp was (1) paid an annual salary of $175,000, (2) received comparable
fringe benefits and perquisites as were provided to the Company's other senior
executives and (3) received no annual bonus, which was determined by the Board
in its sole discretion, based on Mr. Apthorp's performance. An amendment to the
Employment Agreement (the "Amended Employment Agreement"), dated June 24, 1998,
entitled Mr Apthorp to an additional $100,000 if the Company purchased the
"South Shore" Project, which never occurred. Mr. Apthorp claimed to be entitled
to the $100,000 for services rendered on the South Shore Project because the
Company had an opportunity to purchase the Project. Mr. Apthorp also claimed to
be entitled to $40,000 for his participation on the "Dickman" Project, which the
Company claimed as service rendered under the Employment Contract. On December
8, 1999, Mr. Apthorp filed a complaint against Atlantic Gulf in the Circuit
Court of the Thirteenth Judicial Circuit, Hillsborough County, Florida, claiming
that Atlantic Gulf breached the Amended Employment Agreement by failing to pay
Mr. Apthorp the amounts due thereunder. The plaintiff claims that he is entitled
to $140,000 plus attorney's fees. The Company believes that the foregoing claim
is without merit and intends to vigorously defend the same.
FINAL JUDGMENT OF PERMANENT INJUNCTION. On December 9, 1998, the Company
was released from the Final Judgment of Permanent Injunction (the "Final
Judgment") entered November 30, 1990, by the United States District Court for
the Southern District of Florida in the civil action UNITED STATES OF AMERICA V.
GENERAL DEVELOPMENT CORPORATION, No. 90-87-Civ-NESBITT.
REGENCY ISLAND DUNES PROJECT. Control of the Regency Island Dunes
Condominium Association (the "Association") was turned over to the condominium
owners on or about November 20,
26
<PAGE>
1997. As art of the turnover process, the Association inspected the project and
provided the Company and its developer subsidiary, Regency Island Dunes, Inc.
("Regency"), together with the general contractor who constructed the project,
with a list of the Association's claims of deficient work. The Company and
Regency have inspected the project with their consultants and are in the process
of preparing a response to the Association's claims. No lawsuit has been filed
in connection with this matter, and no amount of damages has been specified.
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 totaling 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. Coy Clark Company is seeking to recover
unpaid monthly developer fees pursuant to the Developer Management Agreement.
The Agreement provides for the payment of $10,000.00 per month. The plaintiff
claims that it is entitled to 15 months of payments ($150,000.00) plus
prejudgment interest and attorney's fees. The case settled for $55,000.00 and
has been dismissed.
RANDY RIEGER, P.A. V ATLANTIC GULF COMMUNITIES CORPORATION. In January
2000, Randy Rieger, P.A. ("Randy Rieger") filed a complaint against Atlantic
Gulf in the Circuit Court of the 11th Judicial Circuit, Dade County, Florida.
The complaint alleges breach of contract of the Brokerage Agreement (the
"Brokerage Agreement") between Randy Rieger and the Company. In May 1998,
Atlantic Gulf and Randy Rieger, P.A. entered into a Brokerage Agreement to
provide services in connection with the Company's efforts to buy the Grand Oaks
Project, which did not occur. The Brokerage Agreement stated that Atlantic Gulf
would pay Randy Rieger $10,000 in addition to one (1%) commission due upon the
closing mentioned above. Randy Rieger alleges that a subsequent oral agreement
transpired whereby Atlantic Gulf agreed to pay Randy Rieger an additional
$50,000 in fees, for a total fee of $218,500, of which $200,000 would be paid
monthly over (10) ten months at $20,000 per month as consulting fees. Randy
Rieger also alleges, based on another oral agreement, that Atlantic Gulf made
handwritten notes to Randy Reiger's billing statement agreeing to only pay
$150,000. The handwritten notes actually evidenced the Company's intention to
make a one-time payment of $15,000 to Randy Rieger and further indicated that
any additional fee was to come from a sales commission from the sale mentioned
above. The Plaintiff is seeking $135,000 for the alleged balance remaining plus
pre-judgement interest, attorney fees and court costs. Atlantic Gulf claims
Randy Rieger was only entitled to a fee upon closing, which never occurred,
besides the one-time fee of $15,000 which the plaintiff in fact received. On
March 31, 2000, the Company filed a motion to dismiss the case noted above.
CARY GLEN PROJECT. On February 8, 1999, Panther Creek Corp., a
wholly-owned subsidiary of Atlantic Gulf (the "Developer"), was terminated by
Panther Creek-Raleigh Limited Partnership (the "Owner"), as the developer of the
Cary Glen Project, for ongoing delays in the development schedule and sales
program. Furthermore, on February 26, 1999, the Owner demanded that the
Developer and Atlantic Gulf pay to the Owner approximately $5.5 million for
alleged future potential project cost overruns, pursuant to the Hearthstone
Master Form Acquisition and Development Agreement between
27
<PAGE>
the Owner and the Developer and the Guaranty Agreement given by Atlantic Gulf.
Atlantic Gulf disputed whether (1) the termination was a proper termination for
cause, (2) the Developer is liable for cost overruns not incurred prior to the
termination date and (3) the Owner correctly calculated the projected cost
overruns. In December 1999, the Company settled the dispute by relinquishing its
40.0% joint venture interest in the Cary Glenn Project and paid $375,000 to the
Owner.
GRAND OAKS GOLF CLUB, L.C. V. GRAND OAKS DEVELOPMENT CORPORATION. In
December 1999, Grand Oaks Golf Club, L.C. (the "Golf Club") filed a complaint
against Grand Oaks Development, a wholly-owned subsidiary of Atlantic Gulf (the
"Developer"). The complaint alleges that the Golf Club and the Developer entered
into a Conveyance, Development, and Construction Agreement (the "Agreement")
which called for the Developer, upon acquisition of a real estate project (the
"Project") from Crestwood Lakes Associates ("Crestwood"), to convey a portion of
the land to the Golf Club for development of a golf course to be owned and
operated by the Golf Club. The complaint further alleges that the Developer
breached the Agreement by wrongfully refusing to close the Crestwood transaction
and by failing to reimburse the Golf Club for its out of pocket expenses
incurred in anticipation of the closing of the transaction. The Golf Club is
seeking to recover its out of pocket expenses plus attorney's fees and costs. On
January 19, 2000 the Developer filed an answer denying the material allegations
of the complaint and raising as an affirmative defense that a condition
precedent to the closing of the transaction contemplated by the Agreement,
namely the acquisition of the Project from Crestwood, did not occur. The Company
believes that the foregoing claim is without merit and intends to vigorously
defend the same.
OTHER
In addition to those legal proceedings specifically discussed in this PART
I, ITEM 3. LEGAL PROCEEDINGS, the Company is, from time to time, involved in
various litigation matters primarily arising in the normal course of its
business. It is the opinion of management that the resolution of these matters
will not have a material adverse affect on the Company's business or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1999.
28
<PAGE>
PART II
ITEM 5. MARKET FOR ATLANTIC GULF'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET FOR REGISTRANT'S COMMON STOCK. The common stock, $.10 par value per
share, of Atlantic Gulf ("Common Stock") was quoted on the NASDAQ National
Market ("NNM"), under the symbol "AGLF," through the close of business on
December 10, 1998, at which time it was de-listed from the NNM because of
Atlantic Gulf's failure to meet the NNM's net tangible assets continued listing
requirement. The Common Stock began trading on the Over The Counter Bulletin
Board (the "OTCBB") on December 14, 1998, under the symbol "AGLF". The following
table sets forth the high/ask and low/bid prices of the Common Stock for the
periods indicated.
1999 1998
Prices Prices
------ ------
Quarter Ended High Low High Low
- ------------- ---- --- ---- ---
March 31 1 29/32 0 11/16 4 1/4 3 1/4
June 30 2 3/8 0 17/32 3 11/16 2
September 30 0 13/16 0 3/32 2 3/8 1
December 31 0 3/16 0 1/32 1 5/16 5/8
HOLDERS OF RECORD OF THE COMMON STOCK. As of March 30, 2000, there were
approximately 29,285 record holders of the Common Stock.
DIVIDENDS. No dividends have been paid on the Common Stock during the last
two fiscal years, and Atlantic Gulf is prohibited from paying dividends on its
Common Stock by the terms of its Revolving Loan Facility, Term Loan Facility and
Secured Agreement. See PART II, ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES
below. The holders of Atlantic Gulf's 20% Cumulative Redeemable Convertible
Preferred Stock, Series A (the "Series A Preferred Stock"), and 20% Cumulative
Redeemable Convertible Preferred Stock, Series B (the "Series B Preferred
Stock") (the Series A Preferred Stock and Series B Preferred Stock are,
together, referred to as the "Preferred Stock") are entitled to receive, when,
as and if declared by the Board of Directors of Atlantic Gulf (the "Board"), out
of funds legally available therefore, cash dividends on each share of Preferred
Stock at an annual rate equal to 20% of the Liquidation Preference (defined as
$10 per share plus accumulated and unpaid dividends) in effect from time to
time. All dividends are cumulative, whether or not declared, on a daily basis
from the date on which the Preferred Stock was originally issued by Atlantic
Gulf, and are payable, subject to declaration by the Board, quarterly in arrears
on March 31, June 30, September 30, and December 31 of each year commencing as
of September 30, 1997. As of December 31, 1999, the Series A Preferred Stock
Liquidation Preference was $39.8 million, including undeclared but accumulated
and unpaid dividends of $14.8 million and the Series B Preferred Stock
Liquidation Preference was $31.5 million, including undeclared but accumulated
and unpaid
29
<PAGE>
dividends of $11.5 million.
Effective June 24, 1997, Atlantic Gulf's stockholders approved an
amendment to Atlantic Gulf's certificate of incorporation to repeal the right of
the holders of its Common Stock to receive, semiannually, mandatory dividends
equal to 25 percent of Atlantic Gulf's Available Cash, as defined. See Note 10
to the Notes to the Company's December 31, 1999 Consolidated Financial
Statements.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
Selected financial data for each of the five years during the period ended
December 31, 1999, are summarized below (in millions of dollars, except per
share amounts):
<TABLE>
<CAPTION>
Years
Ended
December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C> <C> <C>
Total revenues $ 75.6 $ 83.8 $ 76.6 $ 138.8 $ 98.0
Income (loss) before extraordinary items (61.9) 3.7 (58.3) (12.6) (20.6)
Net income (loss) (61.9) 3.7 (58.3) 1.2 (20.6)
Net income (loss) applicable to
common stock (78.3) (8.0) (62.1) 1.2 (20.6)
Net income (loss) per common share(1) (6.33) (0.68) (5.82) 0.12 (2.12)
Weighted average common
shares outstanding 12.36 11.64 10.66 9.71 9.71
BALANCE SHEET DATA (AT PERIOD END)
Cash (including restricted amounts) $ 10.3 $ 10.5 $ 10.9 $ 13.1 $ 12.0
Land and Residential Inventory 121.1 166.9 130.5 153.4 218.3
Receivables Portfolio 10.0 33.4 41.2 73.4 59.8
Total assets 163.0 229.8 203.1 263.4 332.8
Notes, mortgages, capital leases and
other debt 145.4 151.8 132.4 169.2 221.0
Preferred stockholders' equity 68.8 54.8 41.7 -- --
Common stockholders' equity (deficit) (80.4) (2.6) 5.3 56.4 54.4
</TABLE>
(1) The net income (loss) per common share amounts have been restated so as to
comply with Statement of Financial Accounting Standards No. 128, Earnings
Per Share. For further discussion of earnings per share and the impact of
Statement No. 128, see the Notes to Company's December 31, 1999
Consolidated Financial Statements beginning on page F-7.
30
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The tables below summarize the Company's real estate operations for 1999,
1998, and 1997:
COMBINING RESULTS OF REAL ESTATE OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Luxury/ Non-Luxury/
Resort Resort Predecessor
Operations Operations Assets Total
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite $ 8,888 $ 36,032 $ 3,075 $ 47,995
Commercial 8,000 4,500 3,897 16,397
Vertical Residential Units - - - -
--------------------------------------------------------------------
Total real estate sales 16,888 40,532 6,972 64,392
--------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales
Homesite 7,024 36,494 3,583 47,101
Commercial 7,099 3,240 3,411 13,750
Vertical Residential Units - - - -
--------------------------------------------------------------------
Total cost of real estate sales 14,123 39,734 6,994 60,851
--------------------------------------------------------------------
Gross margin real estate sales $ 2,765 $ 798 $ (22) $ 3,541
Results of Joint Venture Operations(1) $ (4,329) $ 4,659 $ - $ 330
=====================================================================
</TABLE>
(1) Included in Other Operating Revenues.
31
<PAGE>
COMBINING RESULTS OF REAL ESTATE OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Luxury/ Non-Luxury/
Resort Resort Predecessor
Operations Operations Assets Total
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite $ - $14,259 $ 3,017 $17,276
Commercial 7,010 27,270 21,245 55,525
Vertical Residential Units - - - -
------------------------------------------------------------------
Total real estate sales 7,010 41,529 24,262 72,801
------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales
Homesite - 12,108 2,675 14,783
Commercial 2,076 23,161 19,733 44,970
Vertical Residential Units - - - -
------------------------------------------------------------------
Total cost of real estate sales 2,076 35,269 22,408 59,753
------------------------------------------------------------------
Gross margin real estate sales $ 4,934 $ 6,260 $ 1,854 $13,048
Results of Joint Venture Operations(1) $ (629) $ 1,042 $ - $ 413
===================================================================
</TABLE>
(1) Included in Other Operating Revenues.
32
<PAGE>
COMBINING RESULTS OF REAL ESTATE OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Luxury/ Non-Luxury/
Resort Resort Predecessor
Operations Operations Assets Total
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Real estate sales
Homesite $ - $ 13,851 $ 10,755 $ 24,606
Commercial - 590 31,439 32,029
Vertical Residential Units 10,908 - 76 10,984
-----------------------------------------------------------------
Total real estate sales 10,908 14,441 42,270 67,619
-----------------------------------------------------------------
Costs and expenses:
Cost of real estate sales
Homesite - 12,941 10,431 23,372
Commercial - 484 35,303 35,787
Vertical Residential Units 12,944 - 89 13,033
-----------------------------------------------------------------
Total cost of real estate sales 12,944 13,425 45,823 72,192
-----------------------------------------------------------------
Gross margin real estate sales $ (2,036) $ 1,016 $ (3,553) $ (4,573)
Results of Joint Venture Operations(1) $ (758) $ (235) $ - $ (993)
=================================================================
</TABLE>
(1) Included in Other Operating Revenues.
THE YEAR ENDED DECEMBER 31, 1999 ("1999") COMPARED TO THE YEAR ENDED DECEMBER
31, 1998 ("1998")
During 1999, the Company reported a net loss applicable to Common Stock of
approximately $78.3 million compared to a $8.0 million net loss applicable to
Common Stock in 1998. The increase in loss from 1998 to 1999 of approximately
$70.3 million was primarily due to (1) a $9.5 million decrease in real estate
gross margins, (2) an increase in inventory valuation reserves of $28.2 million,
(3) a decrease in other income of $12.3 million associated with reorganization
reserves, (4) a $1.6 million increase in the costs of borrowings, (5) a $4.8
million increase in preferred stock dividends and accretion changes, (6) an
increase in other expense of $3.6 million related to an increased valuation
reserve for land mortgage receivables (7) a $7.8 million increase in operating
expenses and (8) a $1.6 million increase in general and administrative expenses,
partially offset by (9) a $1.9 million decrease in real estate costs.
33
<PAGE>
LUXURY/RESORT OPERATIONS.
HOMESITES. Net margins from Homesite sales increased by approximately
$1.9 million in 1999 compared to $0 in 1998, due to 1999 sales at the West Bay
Project. No Homesite sales were recorded in 1998 due to the continuing
entitlement and/or development of the West Bay and Chenoa Projects during the
year. Homesite sales gross margin percentage was 21.0% in 1999 compared to 0% in
1998.
During 1999, total sales of $16.9 million consisted of one commercial
tract sale and 70 residential units, comprised of single-family Homesites,
villas and carriage homes. In September 1999, the Company sold, for
approximately $8.0 million, the remaining 1.9 acres of office/hotel parcel which
were part of the 2.8 acre Riverwalk Tower site. Additionally, the Company sold
70 units at the West Bay Club Project for $8.9 million. The Company is
continuing to develop the West Bay Project and began development at the Chenoa
Project during 1999. Initial sales are expected at the Chenoa Project in 2000 or
2001.
As of December 31, 1999, the Company had under contract approximately 156
Homesites for $8.3 million and 8 commercial acres for $2.0 million at the West
Bay Club Project. As of December 31, 1998, the Company had under contract
approximately 12 Homesites for $2.4 million at the West Bay Club Project.
The revenues and profits associated with sales at the Regency Island Dunes
Project were recorded using the percentage of completion method. The Project
consisted of two 72-unit buildings for a total of 144 units, all of which were
sold and closed as of December 31, 1997. The condominium revenues of $1.6
million in the first building in 1997 represented revenue earned upon the
closing of an additional five units in 1997 for a total of 72 units sold and
closed in the first building. The revenues of approximately $9.3 million in the
second building in 1997 were derived from an increase in the completion
percentage from 79% to 100% in 1997, and to an additional 16 units sold and
closed in 1997 for a total of 72 units sold and closed in the second building.
The gross margin for Vertical Residential Units in 1997 was negative
primarily due to a $2.85 million settlement in December 1997 with the Company's
general contractor for the Regency Island Dunes Project. See PART I, ITEM 3.
LEGAL PROCEEDINGS in Atlantic Gulf's 1997 Annual Report on Form 10-K (the "1997
10-K"). The settlement costs were applied solely against the revenues earned in
1997, resulting in a large negative gross margin in 1997. The overall gross
margin for this Project was approximately 12.1%.
JOINT VENTURES. Results of Joint Ventures were $(4.3) million during
1999 compared to $(629,000) in 1998. The additional loss of $3.7 million is
primarily due to the $3.8 million loss recognized for the sale of the Company's
Joint Venture interest.
NON-LUXURY/RESORT OPERATIONS.
HOMESITES. Net margins from Homesite sales decreased by
approximately $2.6 million to a negative net margin of $(462,000) in 1999
compared to $2.2 million in 1998. The $2.6 million decrease is primarily due to
the final sale of the West Frisco Project, which resulted in a loss of
approximately $4.2 million. Net margins for 1999 were further reduced by a
decrease in margin of
34
<PAGE>
$628,000 and $292,000 from the Lakeside and West Meadows Projects, respectively,
and offset by an increase in net margin of $2.5 million from the West Frisco
Project. The net margin at the Lakeside Project decreased by approximately
$628,000 to $(224,000), due to higher than expected development costs. The
increase and decrease in net margin for the other Projects listed above were due
to changes in sales volume and bulk sales.
Revenues from Homesite sales increased by approximately $21.8 million to
$36.0 million in 1999 compared to $14.3 million in 1998, which was primarily due
to the final sale of the West Frisco Project for approximately $14.6 million.
The remaining $7.2 million increase in Homesite sales was primarily due to
increased sales of approximately $7.9 million, $656,000 and $54,000 from the
West Frisco, Lakeside and Saxon Woods Projects, respectively, offset by a $(1.4)
million decrease at the West Meadows Project. The increases in sales for the
Projects listed above were due to increases in sales volume and bulk sales.
As of December 31, 1999, the Company had under contract approximately 72
Homesites for $3.2 million at the Lakeside Project, the Saxon Project and the
West Meadows Project. As of December 31, 1998, the Company had under contract
approximately 650 Homesites for $19.8 million at the Lakeside Project, the Saxon
Project, the West Meadows Project and The Trails of West Frisco Project.
Homesite sales gross margin percentage was (1.3)% in 1999 compared to
15.1% in 1998. The lower gross margin percentage in 1999 is primarily due to the
loss on sale of the West Frisco Project approximating $4.2 million. This sale
was necessitated by the Company's need for liquidity to meet debt and operating
obligations.
COMMERCIAL DEVELOPMENT. Commercial Development revenues decreased by
approximately $22.8 million to $4.5 million in 1999 compared to $27.3 million in
1998, primarily due to a large tract sale in 1998. In 1998, the Company sold and
closed Dave's Creek for $24.8 million. Sales proceeds of $4.5 million were
received in 1999 for the sale of 26 acres at West Meadows.
JOINT VENTURES. Results of Joint Ventures increased by approximately
$3.6 million to $4.7 million in 1999 compared to $1.0 million in 1998. The $3.7
million increase is primarily due to the $5.1 million gain on sale of the Sunset
Lakes' assets, offset by the relinquishment of JV interest in Panther Creek
worth $1.0 million, as part of a legal settlement, and other operating losses at
the Falcon Trace and Naval Training Center JV Projects. As of December 31, 1999,
the Company's JV Projects had six Homesites under contract, totaling
approximately $282,000 in future gross revenue, a portion of which is allocable
to the Company as a joint venturer.
PREDECESSOR ASSETS.
PREDECESSOR HOMESITES. Revenues from Predecessor Homesite sales
increased by approximately $58,000 to $3.1 million in 1999 compared to $3.0
million in 1998. The $58,000 increase is due to an increase in the average sale
price per Predecessor Homesite, partially offset by a 30.1% decrease in the
number of Predecessor Homesite sales. The increase in the average sales price is
primarily due to the mix of higher priced unit sales in 1999 compared to 1998.
The decrease in the number of Predecessor Homesite sales is due to fewer bulk
sales in 1999 compared to 1998. Bulk sales are usually made at a discount and
have lower gross margin percentages.
35
<PAGE>
As of December 31, 1999, the Company had under contract 1,103 Homesite
lots for $1.6 million. As of December 31, 1998, the Company had under contract
two commercial lots allocated to Predecessor Homesites for $99,000.
The Predecessor Homesite sales gross margin percentage was (16.5)% in 1999
compared to 11.3% in 1998. The Predecessor Homesite sales gross margin was
adversely affected by a decrease in sales markup, yielding lower margin to
accelerate the disposal of the Predecessor Homesites. The margin in 1998 is
consistent with an orderly liquidation of the predecessor assets.
PREDECESSOR TRACTS. Revenues from Predecessor Tract sales decreased
by $17.3 million to $3.9 million in 1999 compared to $21.2 million in 1998. The
decrease in Predecessor Tract sales was primarily due to a declining inventory
balance. As of December 31, 1999, there were pending Predecessor Tract sales
contracts or letters of intent totaling approximately $1.3 million. As of
December 31, 1998, there were pending Predecessor Tract sales contracts or
letters of intent totaling approximately $980,000.
The Predecessor Tract sales gross margin percentage was 12.5% for 1999
compared to 7.1% in 1998. The increase in gross margin during 1999 is due to
fewer sales at a more profitable level as compared to 1998.
OTHER RESULTS OF OPERATIONS.
INVENTORY VALUATION RESERVE CHARGES. Inventory valuation reserve
charges increased to $28.3 million in 1999, compared to $195,000 in 1998. The
increase in inventory valuation charges was primarily due to reductions in
valuating Predecessor and Non-Luxury/Resort Assets of $20.0 and $8.3 million,
respectively. The inventory valuation reserve represented a reduction in the
carrying value of the Company's inventory based upon a review of the fair
values.
SELLING EXPENSES. Selling expenses decreased by approximately
$104,000 to $6.4 million in 1999 compared to $6.5 million in 1998. The $104,000
decrease was primarily due to a combined increase in selling expenses at the
West Meadows and West Frisco Projects, related to increased sales activity,
offset by a 66.1% decrease in selling expenses for Predecessor Assets. The
decrease in selling expenses for Predecessor Assets was primarily due to the
decreasing number of Predecessor Homesite and Predecessor Tract sales. Selling
expense, as a percentage of real estate sales, increased to 9.9% in 1999 from
8.9% in 1998, primarily due to higher sales activity at the West Meadows and
West Frisco Projects, offset by lower direct selling expenses associated with
Predecessor Homesite and Predecessor Tract sales as noted above.
OPERATING EXPENSES. Operating expenses increased by approximately
$7.8 million in 1999 to $9.8 million compared to $2.0 million in 1998. The
increase in operating expenses is primarily due to $6.1 million in
predevelopment costs, from forfeited, terminated or expired purchase contracts,
and $1.6 million in operating expenses for the West Bay Golf Club, which was not
in operation in 1998.
OTHER REAL ESTATE COSTS. Other real estate costs decreased by $1.9
million, or 19.9%, to $7.7 million in 1999 compared to $9.6 million in 1998. The
$1.9 million decrease is primarily due to a decline in property taxes of $3.0
million for Predecessor Assets, offset by increases in sales office overhead of
approximately $1.1 million. The $3.0 million decrease in Predecessor Assets'
property
36
<PAGE>
taxes is due to the numerous bulk sales completed by the Company in 1998.
Increases in sales office overhead were attributable primarily to the West
Meadows, Chenoa and Panther Creek Projects.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by $1.6 million to $11.5 million in 1999 compared to $9.9
million in 1998. The $1.6 million increase is primarily due to costs related to
the Company's restructuring program, implemented in July 1999, partially offset
by cost savings resulting from the restructuring program. Restructuring costs
included severance, wages, professional fees and other related expenses.
COSTS OF BORROWING NET OF CAPITALIZED INTEREST. Costs of borrowing,
net of capitalized interest, increased by approximately $1.6 million to $6.0
million in 1999, compared to $4.4 million in 1998. The $1.6 million increase is
primarily due to more debt being financed at the corporate level instead of
being capitalized within a project loan.
OTHER INCOME - REORGANIZATION RESERVES. Other income - other
reorganization reserves consisted of gains of approximately $1.1 million in 1999
compared to $13.4 million in 1998 resulting from the resolution of certain
reorganization items. The $1.1 million gain in 1999 consisted primarily of $1.1
million in amortization of utility connection reserves and a $27,000 refund for
unclaimed expired notes. The $3.5 million gain in 1998 consisted of (a) a $1.1
million amortization of utility connection reserves, (b) a $3.7 million utility
trust withdrawal, (c) a gain of $8.5 million associated with the receipt of
proceeds from unclaimed expired 12% Notes and (d) $104,000 of contract
receivables termination refunds.
OTHER EXPENSE ITEMS. Other expense - miscellaneous loss of
approximately $3.9 million in 1999 and $78,000 in 1998 consisted of net gains
and losses associated with various reserve adjustments and settlements. The $3.9
million loss in 1999 was due to a $3.4 million valuation reserve for Mortgage
Receivables and a $514,000 loss due to contract receivables termination refunds.
PREFERRED STOCK ACCRUAL. During 1999, the Company recorded a $14.6
million accrual for dividends associated with its Preferred Stock. The
dividends were accumulated but unpaid as of December 31, 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. In addition, the Company accreted $1.4 million
of the value of its Preferred Stock to the redemption amount in 1999. The total
of approximately $26.2 million and $3.2 million of accrued Preferred Stock
dividends and Preferred Stock accretion, respectively, was charged to
contributed capital in the accompanying December 31, 1999 consolidated balance
sheet.
THE YEAR ENDED DECEMBER 31, 1998 ("1998") COMPARED TO THE YEAR ENDED DECEMBER
31, 1997 ("1997")
During 1998, the Company reported a net loss applicable to Common Stock of
$8.0 million compared to a net loss of $62.1 million applicable to Common Stock
in 1997. The reduction in loss from 1997 to 1998 of $54.1 million was primarily
due to (1) a $17.6 million increase in real estate gross margins, (2) a
reduction in the change to inventory valuation reserves of $14.3 million, (3) an
increase in other income of $12.2 million associated with reorganization
reserves, (4) a $7.8 million decrease in the costs of borrowings, (5) a $5.4
million decrease in real estate costs and (6) a $2.4 million reduction in
general and administrative expenses, partially offset by (7) a $7.9 million
increase in preferred stock dividends and accretion changes.
37
<PAGE>
LUXURY/RESORT OPERATIONS.
During 1998, sales consisted of one commercial tract sale. In June 1998,
the Company sold a 0.9 acre office/hotel parcel for approximately $7.0 million
which was part of the 2.8 acre Riverwalk Tower site. Additionally, the Company
began development of the West Bay Club Project, Ocean Grande Project and the
Aspen Springs Ranch Project. Initial sales are expected on these three Projects
in 1999 or 2000.
Vertical Residential Unit sales are summarized as follows for the years
ended December 31 (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Condominium sales - Regency Island Dunes Project:
First Building $ - $ 1,620
Second Building - 9,288
---- -------
Total condominium sales $ - $10,908
==== =======
</TABLE>
The revenues and profits associated with sales at the Regency Island Dunes
Project were recorded using the percentage of completion method. The Project
consisted of two 72-unit buildings for a total of 144 units, all of which were
sold and closed as of December 31, 1997. The condominium revenues of $1.6
million in the first building in 1997 represented revenue earned upon the
closing of an additional five units in 1997 for a total of 72 units sold and
closed in the first building. The revenues of approximately $9.3 million in the
second building in 1997 were derived from an increase in the completion
percentage from 79% to 100% in 1997, and to an additional 16 units sold and
closed in 1997 for a total of 72 units sold and closed in the second building.
The gross margin for Vertical Residential Units in 1997 was negative
primarily due to a $2.85 million settlement in December 1997 with the Company's
general contractor for the Regency Island Dunes Project. See PART I, ITEM 3.
LEGAL PROCEEDINGS in Atlantic Gulf's 1997 Annual Report on Form 10-K (the "1997
10-K"). The settlement costs were applied solely against the revenues earned in
1997, resulting in a large negative gross margin in 1997. The overall gross
margin for this Project was approximately 12.1%.
JOINT VENTURES. Results of Joint Ventures increased by approximately
$129,000 in 1998 from 1997 due to reduced losses on the Jupiter Ocean Grande
Project.
NON-LUXURY/RESORT OPERATIONS.
HOMESITES. Net margins from Homesite sales increased $1.2 million in
1998 compared to 1997 primarily due to increased margins. The increased margins
on Homesite sales were primarily related to (1) an increase of $307,000 in West
Meadows related to increased sales volume, (2) a combined increase of $587,000
in Saxon Woods and West Frisco, which did not have sales in 1997, (3) a decrease
in Lakeside of $413,000 related to decreased sales volume as a result of tornado
damage during
38
<PAGE>
1998 and (4) a reduction of $760,000 of negative margin associated with
Sanctuary Homesite and Windsor Palms which had final sales in 1997.
Revenues from Homesite sales decreased $7.3 million in 1998 compared to
1997 primarily due to a $7.7 million decrease in Other Predecessor Assets
revenue which was slightly off-set by a $409,000 increase in Homesite revenue.
The decreased revenue associated with Other Predecessor Assets was related to
the Company's orderly disposition of the remaining Predecessor Assets. The
increase in revenue from Homesite sales was primarily related to (1) an increase
of $2.7 million in the West Meadows Project, (2) a combined increase of $4.2
million in the Saxon Woods Project and The Trails of West Frisco Project, which
did not have sales in 1997, (3) a decrease in the Lakeside Project of $1.7
million related to decreased sales as a result of tornado damage during 1998 and
(4) a decrease of $4.9 million associated with the Sanctuary Project and the
Windsor Palms Project which had final sales in 1997.
As of December 31, 1998, the Company had under contract approximately 650
Homesites for $19.8 million with 11 homebuilders in the Lakeside Project, the
Saxon Project, the West Meadows Project and The Trails of West Frisco Project.
As of December 31, 1997, the Company had under contract approximately 869
Homesites for $24.7 million with 11 homebuilders in the Lakeside Project, the
West Meadows Project and the Trails of West Frisco Project.
Homesite sales gross margin percentage was 15.1% in 1998 compared to 6.6%
in 1997. The higher gross margin percentage in 1998 is primarily due to lower
margins in 1997 which were attributable principally to the sale of the final 102
lots in the Windsor Palms Project for $4.5 million, generating a negative 14%
gross margin. This sale was necessitated by the Company's need for liquidity to
meet a June 30, 1997 debt payment.
COMMERCIAL DEVELOPMENT. Commercial Development revenues increased
$26.7 million in 1998 compared to 1997 primarily due to a large tract sale in
1998. In April 1998, the Company sold and closed Dave's Creek for $24.8 million.
Additional sales proceeds of $2.5 million were received in the third quarter of
1998 after the Company received an Army Corp of Engineers permit. There were no
comparable sales in 1997.
JOINT VENTURES. Results of Joint Ventures increased $1.3 million in
1998 from 1997. This is primarily due to improved net income at the Sunset Lakes
Project. As of December 31, 1998, the Company's JV Projects had 787 Homesites
under contract, totaling approximately $37.3 million in future gross revenue, a
portion of which is allocable to the Company as a joint venturer.
PREDECESSOR ASSETS.
PREDECESSOR HOMESITES. Revenues from Predecessor Homesite sales
decreased $7.7 million in 1998 compared to 1997 due to a 77.7% decrease in the
number of Predecessor Homesites sold, partially offset by a 25.5% increase in
the average sales price per Predecessor Homesite. The decrease in the number of
Predecessor Homesite sales and the increase in the average sales price were due
to fewer bulk sales in 1998 compared to 1997. Bulk sales are usually made at a
discount and have lower gross margin percentages.
39
<PAGE>
As of December 31, 1998, the Company had under contract two commercial
lots allocated to Predecessor Homesites for $99,000. As of December 31, 1997,
the Company had under contract approximately 129 Predecessor Homesites for
$806,000.
The Predecessor Homesite sales gross margin percentage was 11.3% in 1998
compared to 3.0% in 1997. Predecessor Homesite sales gross margin was also
adversely affected in 1997 by the increase in the bulk sale of Predecessor
Homesites yielding lower margin to accelerate the disposal of the Predecessor
Homesites. The margin in 1998 is consistent with an orderly liquidation of the
predecessor assets.
PREDECESSOR TRACTS. Revenues from Predecessor Tract sales decreased
$10.2 million in 1998 compared to 1997 primarily due to fewer sales from a
declining inventory balance. As of December 31, 1998, there were pending
Predecessor Tract sales contracts or letters of intent totaling approximately
$980,000. As of December 31, 1997, there were comparable pending Predecessor
Tract sales contracts or letters of intent totaling approximately $3.4 million.
The 7.1% gross margin percentage for Predecessor Tract sales in 1998 is
due to fewer sales at a more profitable level. The 1997 negative gross margin of
(12.3%) is attributable principally to the Company's business plan to accelerate
the liquidation of Predecessor Assets.
PREDECESSOR VERTICAL RESIDENTIAL UNITS. There were no Vertical
Residential Unit sales in 1998 because of the Company's decision in mid-1995 to
begin phasing out its single family home business in Predecessor communities,
which was substantially completed in 1996. 1997 sales of $76 were due to the
final closing of this business activity.
OTHER RESULTS OF OPERATIONS.
INVENTORY VALUATION RESERVE CHARGES. Inventory valuation reserve
charges of $195,000 in 1998 represented a reduction in the carrying value of the
Company's inventory based upon a review of the fair values. The charges were
primarily related to Predecessor Assets.
SELLING EXPENSES. Selling expenses decreased $2.0 million in 1998
compared to 1997 primarily due to a reduction in selling expenses at Cumberland
Cove due to the closing of the on-site sales operation in September 1997.
Selling expense as a percentage of real estate sales decreased to 8.9% in 1998
from 12.6% in 1997 primarily due to (1) lower direct selling expenses associated
with the large sale in 1998 of the Dave's Creek Project and (2) the closing of
the Cumberland Cove sales center noted above.
OTHER REAL ESTATE COSTS. Other real estate costs decreased by $5.4
million, or 36%, in 1998 compared to 1997 due to (1) a decline in property taxes
associated with a reduction in land inventory not under development
corresponding to sales activity during the intervening period and (2) reduced
legal costs associated with supporting real estate activity.
COSTS OF BORROWING NET OF CAPITALIZED INTEREST. Costs of borrowing
net of capitalized interest, decreased $7.8 million compared to 1997 principally
due to a decrease in corporate debt resulting from proceeds of the Atlantic
Gulf's Preferred Stock sales, which were substantially completed
40
<PAGE>
in 1997.
OTHER INCOME - REORGANIZATION RESERVES. Other income - other
reorganization reserves consisted of gains of $13.4 million in 1998 and $3.5
million in 1997 resulting from the resolution of certain reorganization items.
The $13.4 million gain in 1998 consisted of (a) a $1.1 million amortization of
utility connection reserves, (b) a $3.7 million utility trust withdrawal, (c) a
gain of $8.5 million associated with the receipt of proceeds from unclaimed
expired 12% Notes and (d) $104,000 of contract receivables termination refunds.
The $3.5 million gain in 1997 consisted of (1) a $1.1 million amortization of
utility connection reserves, (2) a $706,000 gain due to the reduction of the
Contract Receivables termination refunds reserve and (3) adjustments of various
other reorganization reserves, none of which were individually significant.
OTHER EXPENSE ITEMS. Other expense - miscellaneous of $78,000 in
1998 and $810,000 in 1997 consisted of net gains and losses associated with
various reserve adjustments and settlements, none of which were individually
significant.
PREFERRED STOCK ACCRUAL. During 1998, the Company recorded a $10.3
million accrual for dividends associated with its Preferred Stock. The dividends
were accumulated but unpaid as of December 31, 1998. The dividend rate is 20% of
the liquidation preference value of the Preferred Stock. The liquidation
preference value of the Preferred Stock is $10 per share, plus accumulated and
unpaid dividends. In addition, the Company accreted $1.3 million of the value of
its Preferred Stock to the redemption amount in 1998. The total of approximately
$11.6 million of accrued Preferred Stock dividends and Preferred Stock accretion
was charged to contributed capital in the accompanying December 31, 1998
consolidated balance sheet.
LIQUIDITY AND CAPITAL RESOURCES
Atlantic Gulf is currently in default under project indebtedness for the
Chenoa Project, and for this reason and other reasons, the Company has received
a "going concern" opinion from its independent auditors, with respect to its
financial statements for the year ended December 31, 1999. Senior management is
in negotiations with its lenders to address such defaults.
The Company's financial strategy is to generate sufficient funds from the
sale of non-Luxury/Resort Projects and Predecessor assets to retire any
remaining corporate debt and to redeem any outstanding Preferred Stock. If the
Company's financial strategy does not generate sufficient funds to retire
corporate debt and outstanding Preferred Stock and provide sufficient operating
cash flow, the Company will need to consider other alternatives, including but
not limited to, a capital or debt restructuring and/or a federal bankruptcy
filing.
GENERAL. As of December 31, 1999, the Company's (1) cash and cash
equivalents totaled approximately $8.1 million and (2) restricted cash and cash
equivalents totaled $2.1 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
approximate $1.3 million decrease in cash and cash equivalents during 1999, (i)
$16.7 million was provided by operating activities, offset by (ii) $3.6 million
used in investing activities and (iii) $14.4 million used in financing
activities.
41
<PAGE>
Cash provided by operating activities includes approximately (1) $8.1
million for interest payments, (2) $2.9 million for property tax payments, (3)
$50.7 million for construction and development expenditures, (4) $2.2 million
related to property acquisitions and (5) $5.1 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 primarily of $3.7 million of
property plant and equipment additions, partially offset by proceeds received
from the sale of property plant and equipment.
Cash used in financing activities consisted primarily of principal
reductions of $131.7 million, offset by additional borrowings of $117.3 million.
Principal reductions of $131.7 million included $62.9 million used to payoff
corporate debt, related to the Company's Cash Flow Notes, Working Capital
Facility and Mortgage Receivables loans, and $14.0 million to reduce the
Revolving Loan Facility balance. The remaining $54.8 million in principal
reductions was for various project loans as project units were sold. Additional
borrowings of $117.3 million consisted of $56.4 in corporate borrowings, related
to the Revolving Loan, Term Loan and Apollo Note, and $60.9 million in project
debt for construction and development purposes.
DECEMBER 1998 DEBT REFINANCING. Dated as of December 31, 1998, and
effective as of February 2, 1999, (1) Atlantic Gulf closed on its $39.5 million
Revolving Loan Facility and its $26.5 million Term Loan Facility (collectively,
the "Senior Loan Facilities"), (2) Atlantic Gulf entered into amendments to its
Secured Agreement, dated as of February 7, 1997, as amended, with Apollo (the
"Secured Agreement"), and Investment Agreement, dated as of February 7, 1997, as
amended, with Apollo (the "Investment Agreement"), (3) SP-Sub canceled Atlantic
Gulf's obligation to repay its $11 million SP Sub Loan and (4) Apollo, the New
Revolving Loan Lenders and the New Term Loan Lenders and the collateral agent
entered into a New Intercreditor Agreement. These transactions are collectively
referred to herein as the "December 1998 Debt Refinancing."
REVOLVING LOAN FACILITY. The lenders (the "Revolving Loan Lenders") under
Atlantic Gulf's Revolving Loan Facility are DK Acquisition Partners, L.P., Comac
Partners, Halcyon/Alan B. Slifka Management Co. LLC, East West Partners,
Stonehill Investment Corp. and Anglo American Financial and its participants. M.
H. Davidson, LLC. ("MHD") is the agent and collateral agent.
The Revolving Loan Facility will mature on August 1, 2000 and bears
interest at the rate of (1) eleven percent (11%) per annum (fifteen percent
(15%) per annum upon the occurrence and continuation of an event of default)
upon all amounts other than letter of credit guarantees and (2) fifteen percent
(15%) per annum (nineteen percent (19%) per annum upon the occurrence and
continuation of an event of default) upon all draws under letter of credit
guarantee amounts.
The aggregate outstanding borrowings under the Revolving Loan Facility are
subject to a borrowing base limitation based on the value of certain of the
Company's assets. The Revolving Loan Facility contains standard and customary
representations, warranties and covenants for a facility of its type, size and
term, including, a consolidated net worth covenant.
The $39.5 million commitment under the Revolving Loan Facility was
subsequently reduced to $27.0 million by the Third Amended and Restated
Revolving Loan Agreement, dated September 9, 1999.
42
<PAGE>
The $27.0 million commitment was and will be further reduced (1) by seventy five
percent (75%) of the net cash proceeds realized from certain bulk sales of lots
and/or land in certain eligible subdivision projects; (2) by an additional $1.7
million on each of February 15, 2000, March 15, 2000 and April 15, 2000; and (3)
by an additional $2.3 million on each of May 15, 2000, June 15, 2000, and July
15, 2000. The remaining outstanding balance under the Revolving Loan Facility is
due and payable in full on August 1, 2000. The Company used a portion of the
proceeds from the Anglo American Facility to fund the March 31, 1999, commitment
reduction. See PART II, ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES
- -- ANGLO AMERICAN FACILITY below.
On the closing date, the Revolving Lenders delivered to the trustee for
Atlantic Gulf's 13% Notes $7.5 million of cash collateral to secure the payment,
when presented, of up to $7.5 million of the 13% Notes. The cash collateral,
which is treated as a letter of credit guarantee amount, is deemed to be part of
the Revolving Loan Facility.
On the closing date, Atlantic Gulf paid (1) the collateral agent a closing
fee of $1.28 million and (2) the agent a letter of credit guarantee fee of
$150,000. Atlantic Gulf also has agreed to pay (a) the collateral agent a
servicing fee of $10,000 per month so long as any amounts remain outstanding
under the Revolving Loan Facility and (b) the agent a second letter of credit
guarantee fee of $150,000 on the second anniversary of the effective date of the
New Revolving Loan Facility if any portion of the letter of credit guarantee
amount remains outstanding on that date.
TERM LOAN FACILITY. The lenders (the "New Term Loan Lenders") under
Atlantic Gulf's Term Loan Facility (the "Term Loan Facility") are Anglo American
Financial and General Motors Employees Global Group Pension Trust. Anglo
American Financial is the agent, and MHD is the collateral agent.
The Term Loan Facility will mature on the earlier of February 1, 2002, or
the date that is thirty (30) days prior to the first date on which any of the
holders of the Preferred Stock have the right to require Atlantic Gulf to
repurchase any shares of Preferred Stock and bears interest at the rate of
fifteen percent (15%) per annum (nineteen percent (19%) per annum upon the
occurrence, and continuation, of an event of default). The Term Loan Facility
contains standard and customary representations, warranties and covenants for a
facility of its type, size and term, including a consolidated net worth
covenant.
On the closing date, Atlantic Gulf paid the agent a closing fee of $2.0
million.
AMENDMENTS TO THE SECURED AGREEMENT AND INVESTMENT AGREEMENT. As
part of the December 1998 Debt Refinancing:
1. Apollo consented to Atlantic Gulf entering into the New Senior Loan
Agreements and agreed to subordinate its collateral interest in
certain Company assets, and in exchange therefor:
a. Atlantic Gulf issued an $850,000 promissory note to Apollo
(the "$850,000 Note"). The $850,000 Note will mature on
February 1, 2002, and provides for current payments of
interest only at the rate of ten percent (10%) per annum
43
<PAGE>
(fifteen percent (15%) per annum upon the occurrence and
continuation of an event of default), monthly in arrears.
b. Atlantic Gulf issued a $1 million promissory note to Apollo
(the "$1 Million Note"). The $1 Million Note will mature on
February 1, 2002, and provides for payments of interest only
at the rate of ten percent (10%) per annum (fifteen percent
(15%) per annum upon the occurrence and continuation of an
event of default), monthly in arrears. Atlantic Gulf has the
obligation, under certain circumstances, to prepay seventy
five percent (75%) of the original principal amount of the $1
Million Note by conveying a 20% net profit interest in a
specified project to Apollo.
The $850,000 Note and $1 Million Note, both of which are
secured by certain Company assets, are together referred to
herein as the "Notes".
c. Atlantic Gulf issued 500,000 shares of Common Stock to Apollo
(the "Additional Shares").
2. Apollo and Atlantic Gulf entered into amendments to the Secured
Agreement and Investment Agreement (from and after the effective
dates of such amendments, the terms "Investment Agreement" and
"Secured Agreement" refer to those agreements, as so amended by
those amendments) to (a) conform such agreements to the terms and
conditions of the New Senior Loan Agreements, (b) reflect the terms
of the Apollo Notes, (c) delete all SP Subsidiary provisions, (e)
include the Additional Shares as Registrable Securities and make all
of Apollo's Registrable Securities, Warrants and Notes freely
transferable (subject to the requirements of the applicable
securities laws) and (f) make certain other, technical conforming
changes.
INTERCREDITOR AGREEMENT. Atlantic Gulf's obligations under the
Senior Loan Facilities and the Secured Agreement are fully secured by security
interests in substantially all of Atlantic Gulf's assets (the "Collateral") and
guaranteed by certain of Atlantic Gulf's subsidiaries. In connection with the
December 1998 Debt Refinancing, Apollo, the Revolving Loan Lenders, the Term
Loan Lenders and MHD, as collateral agent, entered into a new Intercreditor
Agreement (the "Intercreditor Agreement") pursuant to which the parties agreed
(1) that the liens of the parties upon the Collateral would have the following
priorities and rank: (a) the Revolving Loan Facility liens and obligations would
have first priority, (b) the Term Loan Facility liens and obligations would have
second priority and (c) the Secured Agreement liens and obligations would have
third priority and (2) to certain repayment subordinations, standstill periods,
blockage periods, payment turnover provisions and related matters.
REPAYMENT OF WORKING CAPITAL FACILITY, 13% NOTES AND RECEIVABLE
DEBT. On February 2, 1999, the Company repaid (1) the entire outstanding balance
($13.7 million) under its prior Working Capital Facility, (2) the entire
outstanding balance ($39.5 million) under its 13% Notes and (3) its outstanding
Mortgage Receivables Loans and Contract Receivables Loans ($7.8 million) with
$32 million drawn under its Revolving Loan Facility (including $7.5 million of
cash collateral treated as letter of credit guarantees), $26.5 million drawn
under its Term Loan Facility and $800,000 of other
44
<PAGE>
available cash.
ANGLO AMERICAN FACILITY. On March 31, 1999, West Frisco Development
Corporation ("WFDC"), an indirect wholly-owned subsidiary of Atlantic Gulf,
borrowed $7.0 million from Anglo American Financial (the "Anglo American
Facility"), which was repaid in December 1999 upon the final sale of the West
Frisco Project. The Anglo American facility (1) was a full recourse obligation
of WFDC, secured by a deed of trust on the West Frisco Project, (2) matured on
December 31, 1999, (3) bore interest at the rate of 1.75% per month and (4)
required payments of interest only (monthly in arrears) until maturity. Atlantic
Gulf has guaranteed the Anglo American Facility. Atlantic Gulf used $4.0 million
of the proceeds of the Anglo American Facility to fund the March 31, 1999
commitment reduction under the Revolving Loan Facility. See PART II, ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES -- DECEMBER 1998 DEBT REFINANCING
- --- REVOLVING LOAN FACILITY above.
OTHER MATERIAL OBLIGATIONS COMING DUE IN 2000. In addition to the
mandatory reductions of $14.0 million in the $26.5 million Revolving Loan
Facility, Atlantic Gulf's other material obligations coming due in 2000 include
approximately $7.5 million in property related debt. The Company's 2000 business
plan contemplates approximately $12 million of expenditures for development,
construction and other capital improvements, a substantial portion of which will
be funded through individual project development loans or joint venture
arrangements, many of which are already in place. If the Company is unable to
obtain the capital resources to fund these obligations and expenditures, the
implementation of the Company's business plan will be adversely affected,
slowing the Company's anticipated revenue growth and increasing the time
necessary to achieve profitability. However, management believes that the
Company, 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.
STRATEGIC TRANSACTION. On March 26, 1999, the Company announced that (1)
its Board of Directors had formed a Special Committee to explore strategic
alternatives to maximize stockholder value and (2) it has retained BT Alex.
Brown, a leading investment banking firm, to assist the Special Committee in
reviewing strategic transactions. The Company terminated BT Alex. Brown's
engagement in early 2000 after an unsuccessful effort to identify a strategic
partner.
On July 2, 1999, Atlantic Gulf announced a restructuring program aimed at
generating annual cost savings of approximately $2.9 million, which included
downsizing its workforce and disposing of selected real estate inventory in
order to reduce corporate debt.
OPERATING AND FINANCIAL STRATEGY. The Company's overall operating strategy
is to (1) develop its two remaining Luxury/Resort Projects and (2) complete the
sale of its remaining Non-Luxury/Resort Projects and Predecessor Company assets.
The Company's financial strategy is to generate sufficient funds from the
sale of Non-Luxury/Resort Projects and Predecessor Company assets to retire any
remaining corporate debt and to redeem any outstanding Preferred Stock. See PART
II, ITEM 5. MARKET FOR ATLANTIC GULF'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS below for a description of Atlantic Gulf's Series A Preferred Stock and
Series B Preferred Stock (the "Preferred
45
<PAGE>
Stock"). The three-year, no call period on the majority of the Preferred Stock
expires in the second half of fiscal year 2000.
Atlantic Gulf is currently in default under project indebtedness for the
Chenoa Project, and for this reason and other reasons, the Company has received
a "going concern" opinion from its independent auditors, with respect to its
financial statements for the year ended December 31, 1999. Senior management is
in negotiations with its lenders to address such defaults.
If the Company's financial strategy does not generate sufficient funds to
retire corporate debt and outstanding Preferred Stock and provide sufficient
operating cash flow, the Company will need to consider other alternatives,
including but not limited to, a capital or debt restructuring and/or a federal
bankruptcy filing.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Financial Statements and supplemental data required under this ITEM 8.
are provided as Exhibits under ITEM 14. below and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
46
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ATLANTIC GULF
DIRECTORS
The following table sets forth certain information concerning the
directors of Atlantic Gulf:
<TABLE>
<CAPTION>
Name Age Position(s) with Atlantic Gulf
---- --- ------------------------------
<S> <C> <C>
Gerald D. Agranoff (1)(7)(8)(9)(10)(11) 53 Director and Chairman of the Compliance Committee
James M. DeFrancia (3)(5)(6)(9)(11) 58 Director
Daniel Gropper (7)(9)(10)(12)(14) 29 Director
Stuart F. Koenig (4)(5)(6)(11) 47 Director
Ricardo Koenigsberger (4)(5)(6)(7)(8)(10) 33 Director and Chairman of the Audit Committee
Charles K. MacDonald (1)(7)(9)(10)(13) 41 Former Director
Lee Neibart (4)(6)(8) 49 Director and Chairman of the Compensation Committee and the
Acquisitions/Dispositions Committee
J. Larry Rutherford (2)(8)(9) Director, Chairman of the Refinancing Committee and former President
54 and Chief Executive Officer
</TABLE>
- ---------------------------
(1) A Class 1 Director whose term on the Board of Directors of Atlantic Gulf
(the "Board") was scheduled to expire at Atlantic Gulf's Annual Meeting of
Stockholders in 1999 (the "1999 Annual Meeting"). The 1999 Annual Meeting
was not held and, accordingly, the Class 1 Directors are continuing to
serve on the Board of Directors.
(2) A Class 2 Director whose term on the Board is scheduled to expire at
Atlantic Gulf's Annual Meeting of Stockholders in 2000 (the "2000 Annual
Meeting").
(3) A Class 3 Director whose term on the Board is scheduled to expire at
Atlantic Gulf's Annual Meeting of Stockholders in 2001 (the "2001 Annual
Meeting").
(4) Appointed by AP-AGC, LLC ("Apollo") for a one-year term, which will expire
at the 1999 Annual Meeting. Apollo is the sole holder of the 20%
Cumulative Redeemable Convertible Preferred Stock, Series A, of Atlantic
Gulf (the "Series A Preferred Stock"). Pursuant to the Investment
Agreement, Apollo has the right to appoint three (3) directors to the
Board.
(5) Member of the Audit Committee.
(6) Member of the Compensation Committee. Mr. Koenigsberger is an alternate
member of the Compensation Committee in the absence of Mr. Koenig or Mr.
Neibart.
47
<PAGE>
(7) Member of the Compliance Committee.
(8) Member of the Acquisitions/Dispositions Committee.
(9) Member of the Refinancing Committee, which was formed in February 1998.
(10) Member of the first Special Committee, which was formed in March 1999.
(11) Member of the Operations Committee, which was formed in March 1999.
(12) Member of the second Special Committee formed in August 1999.
(13) Resigned as a Director effective as of July 17, 1999.
(14) Appointed as a Director effective as of July 17, 1999.
PRINCIPAL OCCUPATIONS AND DIRECTORSHIPS HELD BY THE DIRECTORS
Mr. Agranoff has been a director since June 1994. He is a general partner
of, and general counsel to, Edelman Securities Company, L.P. (formerly Arbitrage
Securities Company), a registered broker-dealer. He has been affiliated with
Edelman Securities Company, L.P. since January 1982. In addition, Mr. Agranoff
is currently of counsel to the law firm of Pryor, Cashman, Sherman & Flynn, in
New York. From 1975 through 1981, Mr. Agranoff was engaged exclusively in the
private practice of law in New York. In addition, he was an adjunct instructor
at New York University's Institute of Federal Taxation. Prior to entering
private practice, Mr. Agranoff served as attorney-advisor to a judge of the
United States Tax Court. Mr. Agranoff is a director of Datapoint Corporation,
Canal Capital Corporation, Bull Run Corporation and American Energy Group, Ltd.
Mr. DeFrancia has been a principal of Lowe Enterprises, Inc., a national
real estate development company engaged in residential, commercial and resort
development activities, since 1987. Since 1995, he has served as Chairman of
Lowe Enterprises Mid-Atlantic Inc., and president of Lowe Enterprises Community
Development, which is headquartered in suburban Washington, D.C., and manages
the development of large scale community projects nationally. He has also
managed projects where Lowe has been retained by banks, insurance companies and
Federal agencies as a consultant/development manager for properties in numerous
states.
Mr. Gropper was appointed as a Director as of July 16, 1999. Mr. Gropper
joined Stonington Management Corp. ("SMC") as an Analyst in 1995 and is
currently a Portfolio Manager, working on a variety of projects including
bankruptcies, restructurings, liquidations, activist positions and distressed
high yield situations. Prior to joining SMC, Mr. Gropper was an Associate in the
Investment Banking Department of Interstate/Johnson Lane, where he worked on
public offerings and merger transactions. Prior to his position with
Interstate/Johnson Lane, Mr. Gropper was an Analyst in the Financial
Institutions group of Investment Banking Division of Goldman, Sachs & Co. Mr.
Gropper has a Bachelor of Science in Commerce with Distinction from the
University of Virginia. SMC is controlled by Mr. Paul E. Singer. Mr. Singer is
also a partner of Elliott Associates, L.P. ("Elliott"), and controls the
investment manager of Westgate International, L.P. ("Westgate").
Mr. Koenig joined Apollo Real Estate Advisors in 1995 as Chief Financial
Officer. Prior to that
48
<PAGE>
time, Mr. Koenig was a Vice President in the Real Estate Principal Investment
Area of Goldman, Sachs & Co., where he served as Controller and Director of
Investor Relations for the three Whitehall real estate investment funds.
Mr. Koenigsberger has been associated with Apollo Real Estate Advisors I,
L.P., since 1995 and a partner of Apollo Real Estate Advisors II, L.P. since
1996, which, together with affiliates, act as managing general partners of the
Apollo Real Estate Investment Funds, private real estate investment funds which
invest in direct and indirect real property interests, including real estate
related public and private debt and equity securities. Since 1995, Mr.
Koenigsberger has been associated with Apollo Advisors, L.P., which acts as
managing general partner of Apollo Investment Fund, L.P. and AIF II, L.P.,
private securities investment funds. Mr. Koenigsberger is a director of
Meadowbrook Golf, Inc.
Mr. Neibart has been a partner of Apollo Real Estate Advisors I, L.P.,
since 1993 and of Apollo Real Estate Advisors II, L.P., since 1996, which,
together with affiliates, act as managing general partners of the Apollo Real
Estate Investment Funds, private real estate investment funds which invest in
direct and indirect real property interests, including real estate related
public and private debt and equity securities. Prior to 1992, Mr. Neibart was
Executive Vice President and Chief Operating Officer of The Robert Martin
Company, a private real estate development and management firm based in
Westchester County, New York. Mr. Neibart is a director of Koger Equity, Inc.,
Metropolis Realty, Inc., NextHealth, Inc., Meadowbrook Golf, Inc., All-Right
Parking Corp. and Roland International, Inc.
See PART III, ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ATLANTIC GULF -
EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES below for biographical information.
COMMITTEES OF THE BOARD ("COMMITTEES") AND MEETINGS OF THE BOARD AND COMMITTEES.
The Board has four (4) standing Committees, the Acquisitions/Dispositions
Committee, the Audit Committee, the Compensation Committee (formerly known as
the Human Relations Committee) and the Compliance Committee. The Board also had
a Refinancing Committee from February 1998 through January 1999, a Special
Committee and Operations Committee from March 1999 through December 1999 and a
second Special Committee, which it formed in August 1999.
The Acquisitions/Dispositions Committee held no meetings in 1999. The
current members of the Acquisitions/Dispositions Committee are Messrs. Agranoff,
Koenigsberger, Neibart (the Chairman) and Rutherford. The principal functions of
the Acquisitions/Dispositions Committee are to (1) approve all operational
decisions to implement the Board-approved business plan(s), (2) approve real
estate acquisitions which commit no more than $5 million of Company equity in
any single transaction, (3) approve dispositions of Company assets with gross
sales prices no greater than $3 million per transaction and (4) delegate certain
authorities to the President and Chief Executive Officer of Atlantic Gulf
relating to acquisitions, dispositions and personnel matters, subject to the
restrictions set forth with respect to these matters in the Investment
Agreement.
The Audit Committee held one (1) meeting in 1999. The current members of
the Audit Committee are Messrs. DeFrancia, Koenig and Koenigsberger (the
Chairman). The principal functions of the Audit Committee are to (1) select and
engage on Atlantic Gulf's behalf, and fix the compensation of, a firm of
certified public accountants whose duty it shall be to audit the books and
accounts of
49
<PAGE>
Atlantic Gulf and its subsidiaries for the fiscal year in respect of which they
are appointed, and who shall report to the Audit Committee, and (2) confer with
the accountants and determine, and from time to time report to the Board upon,
the scope of audit procedures, accounting practices and internal accounting and
financial controls of the Company.
The Compensation Committee held no meetings in 1999. The current members
of the Compensation Committee are Messrs. DeFrancia, Koenig and Neibart (the
Chairman). Mr. Koenigsberger is an alternate member of the Compensation
Committee. The principal functions of the Compensation Committee are to (1)
administer and approve all elements of compensation for Company officers and
senior staff members, (2) administer and approve participation in all awards,
grants and related actions under the provisions of each of Atlantic Gulf's
annual incentive and/or stock option programs, including under Atlantic Gulf's
Employee Stock Option Plan, as amended (the "Employee Stock Option Plan"), and
(3) report to stockholders on executive compensation items, as required by the
Securities and Exchange Commission (the "SEC").
The Compliance Committee held no meetings in 1999. The current members of
the Compliance Committee are Messrs. Agranoff (the Chairman), Gropper and
Koenigsberger. The principal function of the Compliance Committee is to monitor
Atlantic Gulf's compliance with the terms of the November 1992 Final Judgment
against Atlantic Gulf as it relates to the Company's sales and marketing
practices. On December 9, 1998, the Company was released from the Final
Judgment. See PART I, ITEM 3. LEGAL PROCEEDINGS - OTHER LITIGATION AND PENDING
DISPUTES -- CARY GLEN PROJECT above.
The Refinancing Committee, which was formed in February 1998, completed
its work and disbanded in early January 1999. The members of the Refinancing
Committee were Messrs. Agranoff, DeFrancia, Gropper and Rutherford (the
Chairman). The principal function of the Refinancing Committee was to approve
all decisions concerning negotiations with Apollo for the release of its
security interest in the Company's projects in connection with the refinancing
of the Company's institutional indebtedness, which was completed in early 1999.
The first Special Committee, which first formed in March 1999 and
terminated in December 1999, held one meeting in 1999. The members of the first
Special Committee were Messrs. Agranoff, Koenigsberger (the Chairman) and
Gropper. On March 26, 1999, the Company issued a press release announcing (1)
the formation of the Special Committee to explore strategic alternatives to
maximize stockholder value and (2) the retention of BT Alex. Brown to assist the
Special Committee in reviewing possible strategic alternatives. The principal
function of the Special Committee was to review, evaluate and make
recommendations to the full Board concerning possible strategic alternatives.
The Board terminated the first Special Committee in December 1999, when it
terminated its strategic alternatives initiative.
The Operations Committee, which was formed in March 1999, held no meetings
in 1999. The current members of the Operations Committee are Messrs. Agranoff,
DeFrancia (Chairman) and Koenigsberger. The principal function of the Operations
Committee is to review, evaluate and make recommendations to the full Board
concerning overhead, operating costs, staffing and related matters.
The second Special Committee, which was formed in August 1999, held four
(4) meetings in 1999. The current members of the Second Special Committee are
Messrs. Agranoff, Defrancia and
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<PAGE>
Gropper (the Chairman). The principal functions of the Second Special Committee
is to review all senior management employment matters, all matters related to
Crocker Realty, and Broad River LLC, and other matters pertaining to management
restructuring.
The Board currently consists of Messrs. Agranoff, DeFrancia, Koenig,
Koenigsberger, Gropper, Neibart and Rutherford (the Chairman of the Board). The
Board held eight (8) regularly scheduled meetings and four (4) special meeting
during 1999. Each director attended at least 75% of the aggregate number of
meetings of the Board (that were held during his term on the Board) and
committees on which he served during 1999.
51
<PAGE>
EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following table sets forth certain information about the current
executive officers and certain other key employees of Atlantic Gulf who served
during 1999 and 2000:
<TABLE>
<CAPTION>
Name Age Position(s) with Atlantic Gulf (1)
---- --- ----------------------------------
<S> <C> <C>
Richard S. Ackerman 41 President, Chief Executive Officer
J. Larry Rutherford (1) 54 Former President, Chief Executive Officer, Director and Chairman of the Board
Thomas W. Jeffrey(2) 40 Former Executive Vice President and Chief Financial Officer
John Laguardia(3) 61 Former Executive Vice President and Chief Operating Officer
J. Thomas Gillette 55 Senior Vice President - Development
Frank C. Weed 51 Senior Vice President - Resorts Division
Lisa Anness 43 Senior Vice President
Eugene M. Giblin 51 Vice President and Chief Accounting Officer
William G. Peacher 59 Vice President
Andrea Miller 31 Vice President
Paula J. Cook(5) 41 Former Vice President and Controller
Joel K. Goldman(7) 34 Former Vice President, Secretary and General Counsel
Susan M. Kinsey(8) 48 Former Vice President - Human Resources
Kevin M. O'Grady(9) 45 Former Vice President - Business Development
Matthew Allen(10) 35 Former Vice President - Finance
Cotter Christian(11) 44 Former Vice President - Community Development
</TABLE>
(1) Resigned as President and Chief Executive Officer as of August 16, 1999.
(2) Resigned as of August 17, 1999.
(3) Resigned as of July 30, 1999.
(4) Resigned as of October 2, 1999.
(5) Resigned as of September 30, 1999.
(6) Resigned as of December 1, 1999.
(7) Resigned as of December 1, 1999.
(8) Resigned as of December 10, 1999.
52
<PAGE>
(9) Resigned as of June 30, 1999.
(10) Resigned as of December 1, 1999.
(11) Resigned as of November 17, 1999.
Mr. Ackerman joined Atlantic Gulf in August 1999 as President and Chief
Executive Officer. Prior to joining Atlantic Gulf, Mr. Ackerman served as
President, Chief Operating Officer and a Director of Crocker Realty Trust, Inc.,
a privately held REIT, since its formation in 1996. Mr. Ackerman was President
of a publicly held REIT, also named Crocker Realty Trust, Inc. from its
inception in 1992 until its sale to Highwoods Properties, Inc. in 1996 and Vice
President of a certain predecessor entity from 1987 to 1992. Mr. Ackerman
graduated from Tulane University with a Bachelor of Arts in 1980 and a Juris
Doctor in 1982. He is a member of the Florida and Pennsylvania Bars.
Mr. Gillette joined Atlantic Gulf in 1991, and, since February 1996, has
been Senior Vice President - Community Development for North Florida overseeing
the Company's Projects in Tampa, Orlando and Jacksonville, Florida, and Cary,
North Carolina. Prior to 1996, he served as Vice President and General Manager
for the Company's Jacksonville and Tampa projects. Prior to joining Atlantic
Gulf, Mr. Gillette held the position of Vice President and General Manager for
Westinghouse Treasure Coast Communities in Vero Beach, Florida for approximately
two years where he directed all activities associated with a luxury residential
project. During most of the 1980's, Mr. Gillette was President of the Northeast
Florida Division for Gulfstream. Previously, Mr. Gillette owned and operated a
home building and brokerage company in Richmond, Virginia for seven years.
Mr. Weed joined Atlantic Gulf in July 1997 as Senior Vice President -
Resorts Division and has management oversight responsibility for the West Bay
Project in Naples, Florida, as well as the Jupiter Ocean Grande Project in
Jupiter, Florida. Prior to joining Atlantic Gulf, Mr. Weed was Chief Executive
Officer of Island Developers, Ltd., the developer of Fisher Island, Florida. He
was also responsible for the development of several large-scale residential
communities such as Boca West and Cherry Valley.
Ms. Anness joined Atlantic Gulf in 1978. She has held various planning and
project management positions with the Company. She became an officer of the
Company in 1990. She currently serves as Senior Vice President and President of
Environmental Quality Laboratory, Inc. a wholly-owned subsidiary of Atlantic
Gulf.
Mr. Giblin joined Atlantic Gulf in November 1992 as Director - Internal
Audit and was named Vice President and Chief Accounting Officer in December
1999. Prior to joining Atlantic Gulf, Mr. Giblin was with Planned Development
Corporation and Arvida Corporation for eleven years in various accounting and
internal audit positions.
Mr. Peacher joined Atlantic Gulf in April 1999 as Vice President of the
Company, and President and Chief Executive Officer of Aspen Springs Ranch, Inc.,
a wholly-owned subsidiary of Atlantic Gulf. Prior to joining Atlantic Gulf, Mr.
Peacher held the position of President of Reynolds Plantation in Greensboro,
Georgia for approximately eight years where he directed all activities
associated with a pre-retirement/second home residential project. During most of
the 1970's and 1980's, Mr. Peacher served as the Vice President of Sales and
Marketing or General Manager for several developments. Mr. Peacher graduated
from Georgia Tech with a Bachelor of Industrial Engineering in 1962 and a Master
of Science
53
<PAGE>
and Management in 1968.
Ms. Miller joined Atlantic Gulf in December 1999 as Cash Manager and named
a Vice President in February 2000. Prior to joining Atlantic Gulf, Ms. Miller
was a Budgeting and Financial Analyst at Crocker Realty Trust in Boca Raton for
approximately three years and was previously in Cash Management at other various
entities.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the directors and certain officers of Atlantic Gulf and beneficial
owners of more than ten percent (10%) of Atlantic Gulf's common stock, par value
$.10 per share (the "Common Stock") to file reports of securities ownership and
changes in such ownership with the SEC. Based solely upon a review of the copies
of such forms furnished to Atlantic Gulf and the representations made by such
persons to Atlantic Gulf, Atlantic Gulf believes that during fiscal year 1999
its directors, officers and ten percent (10%) beneficial owners complied with
all filing requirements under Section 16(a) of the Exchange Act.
54
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation accrued/paid by Atlantic
Gulf during the periods indicated for services rendered to the Company by (1)
Atlantic Gulf's Chief Executive Officer and (2) the four highest paid executive
officers, other than the Chief Executive Officer, of Atlantic Gulf during the
year ended December 31, 1999 (the "Named Executive Officers") and (3) three
other highly paid executive officers who, but for their resignations during
1999, would have been named Executive Officers.
<TABLE>
<CAPTION>
Annual Compensation(1)
-------------------------------------------
Fiscal Severance
Year Salary Bonus(2) Compensation(3)
---- ------ -------- ---------------
<S> <C> <C> <C>
Richard S. Ackerman 1999 $157,769 -- --
President and Chief 1998 N/A N/A --
Executive Officer (14) 1997 N/A N/A --
J. Larry Rutherford, 1999 $288,498 $200,000 $48,462
President and Chief 1998 476,613 400,000 --
Executive Officer 1997 425,000 306,000 --
Thomas W. Jeffrey, 1999 $121,640 $85,000 $115,500
Executive Vice President 1998 233,010 95,000 --
and Chief Financial 1997 200,000 105,000 --
Officer
John Laguardia, Executive 1999 $236,328 $115,300 $100,000
Vice President and Chief 1998 311,663 200,000 --
Operating Officer(8) 1997 N/A N/A --
J. Thomas Gillette, III, 1999 $168,878 $91,420 --
Senior Vice President - 1998 N/A N/A --
Community Devolopment 1997 N/A N/A --
for North Florida (10)
Frank C. Weed, 1999 $284,878 -- --
Senior Vice President - 1998 N/A N/A --
Resorts Division (11) 1997 N/A N/A --
Lisa Anness, 1999 $142,229 $43,750 $62,500
Senior Vice President (12) 1998 N/A N/A --
1997 N/A N/A --
William G. Peacher, 1999 $289,362 -- --
Vice President (13) 1998 N/A N/A --
1997 N/A N/A --
55
<PAGE>
Long Term Compensation
--------------------------------------
Awards LTIP
--------------------------- ------
Restricted Securities Payout
Stock Underlying ------ All Other
Award(s) Option(s) Compensation(4)
-------- --------- ---------------
<S> <C> <C> <C> <C>
Richard S. Ackerman -- -- -- --
President and Chief -- -- -- --
Executive Officer (14) -- -- -- --
J. Larry Rutherford, -- -- -- $5,000
President and Chief (5) (6) -- 5,400
Executive Officer (5) (6) -- 3,673
Thomas W. Jeffrey, -- -- -- $4,198
Executive Vice President -- (7) -- 5,000
and Chief Financial -- (7) -- 4,563
Officer
John Laguardia, Executive -- -- -- $5,250
Vice President and Chief -- (9) -- 5,000
Operating Officer(8) -- N/A -- 4,059
J. Thomas Gillette, III, -- -- -- $3,618
Senior Vice President - -- -- -- N/A
Community Devolopment -- -- -- N/A
for North Florida (10)
Frank C. Weed, -- -- -- $3,390
Senior Vice President - -- -- -- N/A
Resorts Division (11) -- -- -- N/A
Lisa Anness, -- -- -- $3,688
Senior Vice President (12) -- -- -- N/A
-- -- -- N/A
William G. Peacher, -- -- -- --
Vice President (13) -- -- -- N/A
-- -- -- N/A
</TABLE>
55
<PAGE>
(1) Salary and commissions are included in the table on a when paid basis and
bonuses are included on a when accrued basis.
(2) These amounts consist of cash bonus payments, except that (a) one half
(i.e., $200,000) of Mr. Rutherford's 1998 bonus was paid in shares (a
total of 213,333 shares) of Common Stock and (b) one half (i.e., $100,000)
of Mr. Laguardia's 1998 bonus was paid in shares (a total of 106,666
shares) of Common Stock.
(3) While the Named Executive Officers receive certain perquisites, except as
stated herein, such perquisites did not exceed the lesser of $50,000 or
10% of any such officer's salary and bonus for any periods presented.
(4) Represents amounts contributed on the officer's behalf by Atlantic Gulf to
its 401(k) Plan.
(5) Reserved.
(6) All options previously granted have expired in 1999.
(7) All options previously granted have expired in 1999.
(8) Mr. Laguardia joined Atlantic Gulf in December 1997 and became a Named
Executive Officer for the first time in 1998.
(9) All options previously granted have expired in 1999.
(10) Mr. Gillette joined Atlantic Gulf in 1991 and became a Named Officer for
the first time in 1999.
(11) Mr. Weed joined Atlantic Gulf in 1997 and became a Named Officer for the
first time in 1999.
(12) Ms. Anness joined Atlantic Gulf in 1978 and became a Named Executive
Officer for the first time in 1999.
(13) Mr. Peacher joined Atlantic Gulf in 1999 and became a Named Executive
Officer for the first time in 1999.
(14) Mr. Ackerman joined Atlantic Gulf in 1999 and became a named Executive
Officer for the first time in 1999.
56
<PAGE>
STOCK OPTION GRANTS DURING FISCAL YEAR 1999
The following table sets forth summary information concerning options to
purchase Common Stock granted to Named Executive Officers in 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Percent of Total Options
Granted to Employees in Exercise Expiration Grant Date
Name Options Granted Fiscal Year(1) Price Date Present Value(2)
---- --------------- -------------- ----- ---- ----------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard S. Ackerman -- -.-% N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
J. Larry Rutherford -- -.-% N/A (3) N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas W. Jeffrey -- -.-% N/A (3) N/A
- ------------------------------------------------------------------------------------------------------------------------------------
John Laguardia -- -.-% N/A (3) N/A
- ------------------------------------------------------------------------------------------------------------------------------------
J. Thomas Gillette, III 50,000 (1) -.-% $2.00 (1) --
- ------------------------------------------------------------------------------------------------------------------------------------
Frank C. Weed 50,000 (1) -.-% $2.00 (1) --
- ------------------------------------------------------------------------------------------------------------------------------------
Lisa Anness 30,000 (1) -.-% $2.00 (1) --
- ------------------------------------------------------------------------------------------------------------------------------------
William G. Peacher -- -.-% N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) During 1998, Atlantic Gulf granted to executive officers and other key
employees (other than Mr. Jeffrey) options to acquire a total of 500,000
shares of Common Stock under the Employee Stock Option Plan. All of these
options were granted on August 12, 1998, have an exercise price of $2.00
per share and a ten (10) year term. Of this amount, only 150,000 shares
remain outstanding, reduced by expired options due to employment
terminations.
(2) The grant date present values are calculated based on the "risk-free"
Black-Scholes model. The assumptions used in the calculations include an
expected volatility of 1.131, a rate of return of 6.55%, no dividend yield
and a time to exercise of five years.
(3) All previously granted options expired in 1999.
57
<PAGE>
AGGREGATED STOCK OPTION AND STOCK APPRECIATION RIGHTS EXERCISES DURING FISCAL
YEAR 1999 AND STOCK OPTION VALUES AT DECEMBER 31, 1999.
The following table sets forth information concerning options to purchase
Common Stock held by each of the Named Executive Officers during fiscal year
1999 and the value of their unexercised options at December 31, 1999. None of
the Named Executive Officers exercised any options to purchase Common Stock
during fiscal year 1999.
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Shares Unexercised In-the-Money
Acquired Options At Options At
On Value December 31, 1999 December 31, 1999 (1)
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
-------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard S. Ackerman -- $ -- N/A N/A -- --
J. Larry Rutherford -- -- N/A N/A -- --
Thomas W. Jeffrey -- -- N/A N/A -- --
John Laguardia -- -- N/A N/A -- --
J. Thomas Gillette -- -- 43,100 33,400 -- --
Frank Weed -- -- 25,000 25,000 -- --
Lisa Anness -- -- 22,000 16,000 -- --
William G. Peacher -- -- N/A N/A -- --
</TABLE>
(1) Represents the difference between the fair market value of the Common
Stock on December 31, 1999 (i.e., $0.75 per share) and the per share
exercise prices of the options.
Atlantic Gulf had no stock appreciation rights ("SARs") outstanding to
Named Executive officers at any time during fiscal year 1998.
LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS DURING FISCAL YEAR 1999
Atlantic Gulf made no LTIP Awards to any Named Executive Officers during
fiscal year 1999.
DEFINED BENEFIT RETIREMENT PLAN
Atlantic Gulf has a defined benefit plan (the "Retirement Plan") that
covers most employees who met certain age and service requirements before
December 31, 1990. The Retirement Plan was amended in 1990 to fix benefits and
service accruals as of December 31, 1990. The following table reflects estimated
annual benefits payable on retirement under the Retirement Plan in the form of a
life annuity. Because credited service ceased in 1990 and none of the Company's
executive officers has 15 years of credited service, the table does not display
more than 15 years. Benefits payable under the Retirement Plan are subject to
certain limitations imposed by the Internal Revenue Code of 1986, as amended
(the "Code"), and benefits in certain situations may be subject to offsets for
Social Security.
58
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years of Credited Service
Assumed Highest Average Compensation
------------------------------------------------------------------------
5 10 15
- -- --
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
$ 75,000 $ 4,467 $ 8,935 $ 13,402
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 6,155 12,310 18,465
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPENSATION OF DIRECTORS
Under the 1996 Non-Employee Directors' Stock Plan (the "Non-Employee
Directors' Stock Plan"), each Non-Employee Director receives (1) an annual
retainer of $25,000 (except for Mr. Daniel Gropper and each Apollo Director who
receive $10,000), (2) $3,000 per Board meeting attended in person and (3) $1,000
per Board meeting attended by telephone. Board meeting fees are paid in cash
quarterly. No fees are paid for attending Committee meetings or for serving as
Chairman of a Committee. Prior to August 4, 1999, the Non-Employee Directors'
Stock Plan provided that (a) sixty percent (60%) of the annual retainer (i.e.,
$15,000) would be paid in Common Stock and (b) the remaining forty percent (40%)
of the annual retainer (i.e., $10,000) would be paid in cash, and prior to April
1, 1998, the annual retainer was paid in shares of Atlantic Gulf Common Stock,
quarterly based on the share price at the end of the previous quarter. Effective
August 4, 1999, the Board amended the Non-Employee Directors' Stock Plan to
provide that the entire annual retainer be paid in cash.
Under the Non-Employee Directors' Stock Option Plan (the "Non-Employee
Directors' Stock Option Plan"), each Non-Employee Director (1) was (is) granted
an option to acquire 20,000 shares (except for each Apollo Director who receive
10,000 shares) of Common Stock on the date he first became (becomes) a director
of Atlantic Gulf and (2) is granted an option to acquire an additional 5,000
shares of Common Stock at the first meeting of directors following each
subsequent election or re-appointment of such director to the Board. The
exercise price of each of these options is 100% of the FMV of the Common Stock
on the option grant date. Each option is fully vested on the grant date and has
a term of ten years. Options for a maximum of 350,000 shares of Common Stock may
be granted under this plan. Effective April 1, 1998, the Board amended the
Non-Employee Directors' Stock Option Plan to provide that each Apollo Director
(who is subject to reappointment annually) will be granted an option to purchase
1,667 shares of Common Stock each time he is re-appointed to the Board. Every
third year that an Apollo Director is re-appointed to the Board his option grant
will cover 1,666 shares of Common Stock, with the result that an Apollo Director
who is re-appointed to the Board for three consecutive years will receive three
option(s) covering the same number of shares of Common Stock (i.e., 5,000
shares) as a Class 1, 2 and 3 Director who is re-elected to a three-year term.
59
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Atlantic Gulf is a party to written termination and employment agreements
with Messrs. Ackerman, Rutherford, Laguardia and Peacher, and a retention
agreement for Ms. Annes, the terms of which are described below.
MR. ACKERMAN'S EMPLOYMENT AGREEMENT. On March 1, 2000, Atlantic Gulf and
Broad River LLC ("Broad River") entered into a Service Agreement ("Service
Agreement"), pursuant to which Broad River agreed to cause Mr. Ackerman, a
member and manager of Broad River, to serve as President and Chief Executive
Officer of Atlantic Gulf for the period commencing on December 1, 1999 and
ending on November 30, 2001 ("Initial Service Period"), unless terminated sooner
in accordance with the terms thereof. The Initial Service Period will be
extended for successive one year terms so long as Atlantic Gulf or Broad River
do not give timely notice of non-renewal. The Service Agreement supersedes Mr.
Ackerman's Employment Agreement.
Pursuant to the Service Agreement, the Company will pay Broad River at the
rate of $207,625 per annum ($511,975 per annum for the first twelve months of
the Initial Service Period). At the first year anniversary, Broad River will be
entitled to a bonus equal to 25% of the cumulative overhead savings, as defined
in the Service Agreement, during the 12-month period.
Broad River will also be entitled to receive an additional bonus equal to
5% of the total dollars available for shareholder distribution after payment of
all institutional and project indebtedness of the Company (the "Profit
Participation"). Broad River's Profit Participation vests after Broad River
fully completes the Initial Service Period and cannot exceed $2.5 million (the
"Dollar Cap"). For each full extended one year term, the Dollar Cap will
increase by $1.0 million.
During the Service Period, Atlantic Gulf will permit Broad River to become
a participating employer in Atlantic Gulf's employee insurance and other benefit
plans. The Company will also reimburse Broad River for all reasonable and
necessary expenses incurred by it or Mr. Ackerman in the course of, and pursuant
to, the business of the Company.
Atlantic Gulf has agreed to maintain director and officer insurance for
Mr. Ackerman and otherwise indemnify Broad River and Mr. Ackerman to the fullest
extent permitted by law for losses incurred by them as a result of any suits
relating to the performance of services under the Service Agreement.
Broad River and Mr. Ackerman have certain confidentiality, nonsolicitation
of employees and limited non-compete obligations.
In the case of a termination of the Service Agreement due to non-renewal,
Broad River will be entitled to all accrued but unpaid compensation, vacation
time and cash bonuses (the "Accrued Obligations") and 100% of the vested profit
participation. If the Service Agreement is terminated for "cause" (as defined in
the Service Agreement), Broad River will receive the Accrued Obligations and 25%
of its vested profit participation. If the Service Agreement is terminated
without "good reason" (as defined in the Service Agreement) or Mr Ackerman's
death or disability, Broad River will be entitled to Accrued Obligations and
100% profit participation, whether or not vested, and the
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<PAGE>
Dollar Cap will be determined as if Broad River had been terminated immediately
following the close of business on the next succeeding November 30th, plus a
lump sum payment equal to the compensation that Broad River would have received
if it had continued to provide services through the end of the then current
Service Period.
MR. RUTHERFORD'S TERMINATION AGREEMENT. On August 30, 1999, Mr. Rutherford
and Atlantic Gulf entered into a Termination Agreement (Mr. Rutherford's
"Termination Agreement"), pursuant to which Mr. Rutherford's employment with
Atlantic Gulf and all subsidiaries as its President and Chief Executive Officer
was terminated, effective as of August 17, 1999 (the "Effective Date"), without
cause. Mr. Rutherford has agreed to continue to serve as a director and
non-executive Chairman of the Board of Directors.
Pursuant to his Termination Agreement, the Company is obligated to pay to
Mr. Rutherford his annual base salary of $450,000 through December 31, 2000, in
accordance with Atlantic Gulf's normal payroll practices, so long as he agrees
to provide up to 40 hours of consulting service per month to the Company.
Mr. Rutherford agreed to forfeit, as of the Termination Date, all options
granted to him that were not exercisable, all options exercisable but not
exercised and any other rights, privileges and benefits under the Company's
Stock Incentive Agreement ("ISA Options") and Employee Stock Option Plan
("ESOP").
Pursuant to Mr. Rutherford's Termination Agreement, Atlantic Gulf has
agreed to cancel Mr. Rutherford's two $199,000 recourse promissory notes (the
"Recourse Loans") on December 31, 2000 if Mr. Rutherford is not in breach of his
Termination Agreement as of that date, in exchange for the shares of Atlantic
Gulf common stock that he purchased with the proceeds. Atlantic Gulf loaned Mr.
Rutherford $199,000 in each of 1997 and 1998 (a total of $398,000) for the
purpose of permitting Mr. Rutherford to purchase shares of Common Stock in the
open market and/or in one or more private transactions with third parties. The
two Recourse Loans are full recourse obligations evidenced by promissory notes,
with five year terms, and secured by pledges (evidenced by written pledges and
security agreements) of the shares of Common Stock acquired with the Loan
proceeds. The Recourse Loans are payable in annual installments of interest
only, at the prime rate, with all unpaid principal and accrued and unpaid
interest payable on maturity. The Loans would have become due and payable in
full upon (a) the termination by Atlantic Gulf of Mr. Rutherford's employment
with Atlantic Gulf for cause (as defined in his Employment Agreement) or (b) the
termination by Mr. Rutherford of his employment with Atlantic Gulf.
Pursuant to Mr. Rutherford's Termination Agreement, Atlantic Gulf has
agreed to cancel Mr. Rutherford's $600,000 nonrecourse promissory note as of the
Effective Date, in exchange for the shares of Atlantic Gulf common stock that he
purchased with the proceeds. Atlantic Gulf loaned Mr. Rutherford $600,000 in
1998 for the purpose of permitting Mr. Rutherford to purchase shares of Common
Stock directly from Atlantic Gulf having a market value equal to $600,000 (the
"$600,000 Loan"). The $600,000 Loan was a nonrecourse obligation evidenced by a
promissory note, with a five year term, and secured by a pledge (evidenced by a
written pledge and security agreement) of the shares of Common Stock acquired
with the Loan proceeds. The Loan was payable in annual installments of interest
only, at the prime rate, with all unpaid principal and accrued and unpaid
interest payable on
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maturity. In addition to other customary events of default, the Loan would
become due and payable in full upon (a) the termination by Atlantic Gulf of Mr.
Rutherford's employment with Atlantic Gulf for cause (as defined in his
Employment Agreement) or (b) the termination by Mr. Rutherford of his employment
with Atlantic Gulf.
Mr. Rutherford's Termination Agreement provides for the continuation of
certain fringe benefits to Mr. Rutherford, including medical and life insurance
and his Company leased automobile) so long as he remains a director of Atlantic
Gulf.
Mr. Rutherford has agreed to certain restrictive covenants, i.e., (a) an
agreement not to compete with Atlantic Gulf within a 100 mile radius of the
Company's Chenoa project located in Aspen/Glenwood Springs, Colorado and a 25
mile radius of the Company's West Bay Project, located in Lee County, Florida,
and an agreement not to participate (as an equity or debt investor) in any of
the Company's real estate projects, in both cases through December 31, 2000 and
(b) an agreement not to disclose confidential information of the Company.
To date, Mr. Rutherford has not received any compensation as per Mr.
Rutherford's Termination Agreement.
MR. LAGUARDIA'S EMPLOYMENT AGREEMENT. On November 17, 1997, Mr.
Laguardia and Atlantic Gulf entered into that certain Employment Agreement,
pursuant to which Atlantic Gulf retained Mr. Laguardia as Executive Vice
President and Chief Operating Officer of Atlantic Gulf for the period commencing
on November 17, 1997 and ending on November 17, 2001, unless terminated sooner
in accordance with the terms thereof. On June 2, 1999, the Company issued Mr.
Laguardia a termination memorandum, effective August 1, 1999, in compliance with
Employment Agreement which calls for sixty (60) day termination notice.
On or about December 17, 1999, Mr. Laguardia filed a complaint (the
"Complaint")against Atlantic Gulf in the Circuit Court of the Eleventh Judicial
Circuit, Dade County, Florida, claiming that the Company breached the Employment
Agreement by failing to pay Laguardia amounts due upon notice of termination.
Amounts due, per Mr. Laguardia's claim, totals $955,000, which is comprised
primarily of severance compensation, the net purchase price of his residence,
home expenses and gross-up payments, of $200,000, $700,000, $18,000 and $36,000,
respectively. On March 7, 2000, Mr. Laguardia amended the Complaint to include
an additional $4,982.32 in damages for COBRA insurance reimbursements, making
the total request for damages in the amount of $959,982.32.
Per the Employment Agreement, Atlantic Gulf had the right, upon sixty (60)
days' notice, to terminate Mr. Laguardia's employment with Atlantic Gulf without
cause. Upon any such termination, Mr. Laguardia would be entitled to receive (1)
any earned but unpaid Performance Bonus and (2) a cash severance payment in the
amount of $300,000, payable within fifteen (15) days of the termination date.
Atlantic Gulf would continue Mr. Laguardia's (a) life and health insurance,
leased car expense reimbursement allowance and his tax preparation reimbursement
allowance for a period of twelve (12) months following the termination date or,
alternatively, pay Mr. Laguardia the after-tax equivalent of such benefits and
(b) continue his rental apartment lease reimbursement allowance through the
earlier of the expiration of his Employment Agreement or the term of such lease.
Atlantic Gulf would also pay, on Mr. Laguardia's behalf, up to $10,000 of out
placement costs. Any and all unexercised and unvested
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Options will terminate ninety (90) days after the termination date.
Atlantic Gulf had the right to terminate Mr. Laguardia's employment with
Atlantic Gulf for cause, as defined in Mr. Laguardia's Employment Agreement.
Upon any such a termination, Mr. Laguardia will not be entitled to receive any
further compensation, and all of his Options will terminate five (5) business
days after the termination date.
On January 7, 2000, the Company notified Mr. Laguardia that his
termination was for cause and that pursuant to the terms of his employment
agreement upon termination for cause he was not entitled to any further payments
from the Company. The Company believes that it properly terminated Mr. Laguardia
for cause and intends to contest his claims.
MR. PEACHER'S EMPLOYMENT AGREEMENT. In April, 1999, Mr. Peacher (the
"Employee") and Atlantic Gulf entered into that certain Employment Agreement,
pursuant to which Atlantic Gulf retained Mr. Peacher as Vice President of the
Company, and President and Chief Executive Officer of Aspen Springs Ranch, Inc.,
a wholly-owned subsidiary of Atlantic Gulf, for the period commencing on June 1,
1999 and ending on May 31, 2004, unless terminated sooner in accordance with the
terms thereof.
Pursuant to his Employment Agreement, Mr. Peacher is paid an annual base
salary of $250,000 ("Base Compensation").
Mr. Peacher was eligible to receive an annual bonus of $175,000 for the
year ended December 31, 1999, and commencing January 1, 2000, Mr. Peacher's
bonus (a "Performance Bonus"), may be up to 70% of his Base Compensation, based
upon the Company's and his achievement of certain performance objectives and
other criteria which were set by the President and approved by the Board. The
actual amount of Mr. Peacher's 1999 bonus, which was paid in February 2000, was
$175,000.
Mr. Peacher also entered into a Participation Agreement, which will
provide that the employee shall be entitled to five (5%) of "Net Profits" and
"Positive Net Cash Flow," as defined in the Participation Agreement.
Mr. Peacher's Employment Agreement also provides that he will be entitled
to such other fringe benefits and perquisites as are provided to any or all of
Atlantic Gulf's senior executives, including but not limited to, life insurance
and health insurance, four weeks of paid vacation, the right to participate in
Atlantic Gulf's 401K plan and a leased car. Mr. Peacher is entitled to
reimbursement for all reasonable travel, lodging, food and related expenses
incurred in connection with his employment. Mr. Peacher is also entitled to
reimbursement for expenses relating to house hunting, relocation, temporary
residential rentals and customary closing expenses incurred on the sale of the
employee's prior home. During 1999, Mr. Peacher received a relocation allowance
of $127,947.
Per the Employment Agreement, Mr Peacher is eligible to select a mutually
agreed upon lot from the undeveloped portion of the Development Company's
inventory for purchase, together with a membership in the Aspen Springs Club, at
the original offering price. The Employee shall earn a credit in the amount of
$100,000 per year for each year of employment under this Employment Agreement.
Mr Peacher will pay the difference between the retail value (of the lot and
membership) and $500,000, which reflects a non-recourse and contingent
promissory note (the "Note") issued to the Employee from
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the Company. The Note, which matures in five years, will earn interest at the
rate required by the Internal Revenue Service and shall provide for a reduction
of the indebtedness evidenced thereby by the earned Credits discussed above. Mr.
Peacher is also entitled to customary closing expenses and reasonable closing
costs, financing fees and other customary closing expenses incurred upon the
acquisition of the lot and club membership.
Atlantic Gulf has the right to terminate Mr. Peacher's employment with
Atlantic Gulf for cause, as defined in Mr. Peacher's Employment Agreement. Upon
any such a termination, Mr. Preacher will only be entitled to receive all
accrued but unpaid compensation and unearned Credits mentioned above. If the
Company terminates Mr. Preacher without cause, he will be entitled to a lump sum
of $500,000, recognition of the earned Credits mentioned above and amounts that
would otherwise accrue to the benefit of the Employee under the Participation
Agreement for six months from the date of termination. Mr. Peacher may terminate
this Agreement upon ninety (90) days' written notice to the Company.
Mr. Peacher's Employment Agreement will terminate immediately upon his
death or total and permanent disability (i.e., if he is unable to perform his
regular duties for one hundred eighty (180) or more consecutive days). Upon such
a termination, Mr. Peacher or his estate will be entitled to receive (1) any
accrued but unpaid Base Compensation through the termination date and (2) any
accrued and earned but unpaid Performance Bonus. Any and all unexercised and
unvested Options will terminate ninety (90) days after the termination date.
Mr. Peacher is prohibited from competing, directly or indirectly, with the
Company in the real estate development and sales business in the State of
Colorado during his employment and for two years following the date of
termination. He is also prohibited at any time from disclosing or using any of
the Company's confidential information except as required by the performance of
his duties and solely for the Company's benefit, except as may be required by
any law or court order.
MS. ANNESS' RETENTION AGREEMENT. On November 8, 1999, Ms. Anness and
Atlantic Gulf entered into a Retention Agreement, pursuant to which Atlantic
Gulf retained Ms. Anness as Senior Vice President for the period commencing on
November 8, 1999 and ending on June 30, 2000 ("Retention Period"), unless
terminated sooner in accordance with the terms thereof.
Pursuant to her Retention Agreement, Ms. Anness was paid an annual base
salary of $125,000 in fiscal year 1999 ("Base Compensation") and is currently
being paid the same Base Compensation in fiscal year 2000.
Ms. Anness is eligible to receive a retention bonus, to the extent earned
(a "Retention Bonus"), of $50,000 payable in equal installments until the end of
the Retention Period. Ms. Anness was paid a Retention Bonus of $62,500 in fiscal
year 1999.
Ms. Anness' Retention Agreement also provides that she will be entitled to
such other fringe benefits provided to any or all of Atlantic Gulf's senior
executives, including medical, dental, life and disability insurance.
Atlantic Gulf also has the right to terminate Ms. Anness' employment with
Atlantic Gulf without cause. Upon any such termination, Ms. Anness will be
entitled to receive any unpaid Retention Bonus if
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the Company does not engage her as a consultant or independent contractor. If
Ms. Anness is engaged as a consultant or independent contractor at such
termination, the Company will compensate Ms. Anness for such services at a rate
equivalent to the total compensation, including the fringe benefits stated
above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal year 1998 were
Messrs. DeFrancia, Koenig and Neibart (the Chairman). None of the executive
officers of Atlantic Gulf serves or served on the compensation committee of
another entity or on any other committee of the board of directors of another
entity performing similar functions during fiscal year 1998, and no executive
officer of Atlantic Gulf serves or served as a director of another entity one of
whose executive officers serves or served on the Compensation Committee or the
Board.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of shares of Common Stock as of March 31, 2000, by (i) each
person (or group of affiliated persons) known by Atlantic Gulf to be the
beneficial owner of more than five percent (5%) of the outstanding shares of
Common Stock, (ii) each of Atlantic Gulf's directors, (iii) each Named Executive
Officer (as defined in PART III, ITEM 11. EXECUTIVE COMPENSATION - SUMMARY
COMPENSATION TABLE above) and (iv) all directors and Named Executive Officers as
a group.
<TABLE>
<CAPTION>
Number
Name and Address of Beneficial Owner (1) of Shares(2) Percent (2)
---------------------------------------- ------------ -----------
<S> <C> <C>
AP-AGC, LLP (3)(4) 11,472,267 48.22%
Morgan Stanley Group (5) 4,163,609 28.34%
Elliott-Westgate Group (6) 3,569,515 23.06%
Gerald N. Agranoff (7) 52,334 (18)
James M. DeFrancia (8) 47,497 (18)
Stuart F. Koenig (3)(4)(9) 42,774 (18)
Ricardo Koenigsberger (3)(4)(10) 44,164 (18)
Lee Neibart (3)(4)(12) 44,164 (18)
Daniel Gropper (13) 25,022 (18)
Richard S. Ackerman - N/A
J. Larry Rutherford (14) 363,827 2.84%
J. Thomas Gillette, III (15) 76,500 (18)
Frank Weed (16) 50,000 (18)
Lisa Anness (17) 38,000 (18)
William G. Peacher - N/A
All Named Executive Officers and Directors as a Group (8 persons) 784,282 5.98%
</TABLE>
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(1) Unless otherwise indicated, the address of each of the persons named above
is c/o Atlantic Gulf Communities Corporation.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon the
exercise of options or warrants. Each beneficial owner's number of shares
is determined by assuming that options or warrants that are held by such
person (but not those held by any other person) and that are exercisable
within 60 days from the date hereof have been exercised. The total
outstanding shares used to calculate each beneficial owner's percentage
includes such exercisable options and warrants of that person only. Unless
otherwise noted, Atlantic Gulf believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
(3) Messrs. Koenig, Koenigsberger and Neibart, the Apollo Directors, are
affiliated with Apollo. Accordingly, Apollo may be deemed to be the
beneficial owner of the shares owned by each of Messrs. Koenig,
Koenigsberger and Neibart and, in turn, each of them may be deemed to be
the beneficial owner of the shares owned by Apollo. As discussed below,
each of the Apollo Directors disclaims any beneficial ownership of the
shares of Common Stock, shares of Series A Preferred Stock and Apollo
Warrants owned by Apollo.
(4) According to a Schedule 13G, dated June 30, 1998 and the Company's stock
records, AP-AGC, LLC beneficially owns 11,472,267 shares of Common Stock,
consisting of (a) 500,000 shares of Common Stock, (b) 5,972,267 shares of
Common Stock issuable upon the conversion of 2,500,000 shares of Series A
Preferred Stock and (c) 5,000,000 shares of Common Stock issuable upon the
exercise of 5 million warrants (the "Apollo Warrants"). The address for
Apollo is Two Manhattanville Road, Purchase, New York 10577.
(5) According to a Schedule 13G, dated February 15, 2000 and the Company's
stock records, the following parties, which have elected to file as a 13G
group (the "Morgan Stanley Group"), beneficially own 4,163,609 shares of
Common Stock, consisting of (a) 2,761,715 shares of Common Stock, (b)
801,894 shares of Common Stock issuable upon the conversion of 300,000
shares of Series B Preferred Stock and (c) 600,000 shares of Common Stock
issuable upon the exercise of 600,000 warrants ("Series B Warrants").
The addresses for the Morgan Stanley Group members are (a) Morgan Stanley
Dean Witter & Co. - 1585 Broadway, 38th Floor, New York, New York 10036 ;
(b) Morgan Stanley Asset Management, Inc., and Morgan Stanley
Institutional Fund, Inc. - 1221 Avenue of the Americas, New York, New York
10020; and (c) Van Kampen American Asset Management, Inc., and Van Kampen
American Capital Life Investment Trust Real Estate Securities Fund - One
Parkview Plaza, Oakbrook Terrace, Illinois 60181.
(6) According to a Schedule 13D, dated January 20, 2000, and the Company's
stock records, the following parties, which have elected to file as a 13D
group (the "Elliott-Westgate Group," consisting of Elliot Associates,
L.P., Westgate International, L.P., and Martley International, Inc."),
beneficially own 3,569,515 shares of Common Stock consisting of (a)
909,079 shares of Common Stock, (b) 1,537,533 shares of Common Stock
issuable upon the conversion of 561,452 shares of Series B Preferred Stock
and (c) 1,122,903 shares of Common Stock issuable upon the exercise of
1,122,903 warrants ("Series B Warrants").
The address of the Elliott-Westgate Group is 712 Fifth Avenue, 36th Floor,
New York, New York 10019.
(7) Consisting of (a) 27,334 shares of Common Stock and (b) 25,000 shares of
Common Stock issuable upon the exercise of stock options.
(8) Consisting of (a) 22,497 shares of Common Stock and (b) 25,000 shares of
Common Stock issuable upon the exercise of stock options.
(9) Consisting of (a) 21,107 shares of Common Stock and (b) 21,667 shares of
Common Stock issuable upon the exercise of stock options. Mr. Koenig
disclaims beneficial ownership of the Atlantic Gulf securities owned by
Apollo and Messrs. Koenigsberger and Neibart.
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(10) Consisting of (a) 22,497 shares of Common Stock and (b) 21,667 shares of
Common Stock issuable upon the exercise
of stock options. Mr. Koenigsberger disclaims beneficial ownership of the
Atlantic Gulf securities owned by Apollo and Messrs. Koenig and Neibart.
(11) Reserved.
(12) Consisting of (a) 22,497 shares of Common Stock and (b) 21,667 shares of
Common Stock issuable upon the exercise of stock options. Mr. Neibart
disclaims beneficial ownership of the Atlantic Gulf securities owned by
Apollo and Messrs. Koenig and Koenigsberger.
(13) Consisting of (a) 5,022 shares of Common Stock and (b) 20,000 shares of
Common Stock issuable upon the exercise of stock options.
(14) Consisting of (a) 360,033 shares of Common Stock, (b) 2,018 shares of
Common Stock issuable upon the conversion of 888 shares of Series B
Preferred Stock into Common Stock and (c) 1,776 shares of Common Stock
issuable upon the exercise of 1,776 warrants.
(15) Consisting of 76,500 shares of Common Stock issuable upon the exercise of
stock options.
(16) Consisting of 50,000 shares of Common Stock issuable upon the exercise of
stock options.
(17) Consisting of 38,000 shares of Common Stock issuable upon the exercise of
stock options.
(18) Less than one percent.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOWE ENTERPRISES MID-ATLANTIC, INC. CONSULTING AGREEMENT
In October 1998, Atlantic Gulf negotiated a Consulting Agreement (the
"Consulting Agreement") with Lowe Enterprises Mid-Atlantic, Inc. ("Lowe"),
pursuant to which Atlantic Gulf would retain Lowe to provide certain executive
management consulting services in connection with the development of the
Company's Chenoa Project (the "Project"). Mr. James DeFrancia, a director of
Atlantic Gulf, is the chairman and a stockholder of Lowe. Atlantic Gulf has not
executed the Consulting Agreement as of the date hereof; however, the parties
have operated since October 1998 under the term of the Consulting Agreement.
Pursuant to the Consulting Agreement, Lowe has agreed to provide a minimum
of twenty percent (20%) and a maximum of forty percent (40%) of the work time of
Mr. DeFrancia to oversee the construction, marketing, financing, development and
sale of the Project. The term of the Consulting Agreement was scheduled to begin
on September 1, 1998 and is scheduled to end on the earlier of September 30,
2003 or the date upon which the Company has sold all of the lots, timeshare
units and club memberships comprising the Project. In consideration for Lowe's
services, Atlantic Gulf has agreed to pay Lowe (1) a base fee of $15,000 per
month and a retainer fee of $5,000 per month and (2) incentive compensation in
an amount equal to one percent (1%) of the Company' gross revenues from the
Project, payable as follows: (a) $500,000 upon achieving $50 million in gross
revenues, (b) another $500,000 upon achieving $100 million in gross revenues,
(c) another $500,000 upon achieving $150 million in gross revenues, (d) another
$500,000 upon achieving $200 million in gross revenues and (e) one percent (1%)
of the gross revenues in excess of $200 million upon completion of the
disposition of
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the Project. The amount of each incentive payment is conditioned upon the
Project achieving a cumulative twenty percent (20%) minimum gross margin. If
such gross margin has not been achieved as of the date of any incentive payment,
then that payment will not be earned and will be permanently forfeited.
Either party may terminate the Consulting Agreement, without cause, on
thirty (30) days prior written notice. If Atlantic Gulf terminates the
Consulting Agreement without cause, Lowe will not be entitled to receive, after
the date of termination, any further base fees or retainer fees, but will retain
its right to be paid incentive compensation. If Lowe terminates the Consulting
Agreement without cause, Lowe will not be entitled to receive, after the date of
termination, any further base fees, retainer fees or incentive compensation.
Atlantic Gulf may terminate Lowe for cause (as defined in the Consulting
Agreement), in which case Lowe will not be entitled to receive, after the date
of termination, any further base fees, retainer fees or incentive compensation.
If Lowe terminates the Consulting Agreement for cause (as defined in the
Consulting Agreement), Lowe will not be entitled to receive, after the date of
such termination, any further base fees or retainer fees, but will retain its
right to be paid incentive compensation.
In the event of Mr. DeFrancia's death or disability or if he ceases to be
employed by Lowe, Atlantic Gulf may terminate the Consulting Agreement, and such
termination shall be deemed a termination by Atlantic Gulf of the Consulting
Agreement for cause. In addition, if Atlantic Gulf is unable to obtain certain
permits for the Project within eighteen (18) months of the date of the
Consulting Agreement, Atlantic Gulf may terminate the Consulting Agreement, and
such termination shall be deemed a termination for cause. If Atlantic Gulf
obtains such permits within such eighteen (18) month period, Atlantic Gulf may
terminate the Consulting Agreement, and Lowe will not be entitled to receive,
after the date of termination, any further base fees, retainer fees or incentive
compensation; however, Lowe will be entitled to receive a lump sum $250,000
termination payment within thirty (30) days after the date of such termination.
At all times during or subsequent to the term of the Consulting Agreement,
Lowe has agreed not to disclose or use for its own benefit any of the Company's
confidential information except as required by the performance of its duties and
solely for the Company's benefit except as may be required by any law or court
order. In addition, during the term of the Consulting Agreement, Lowe has agreed
not to, directly or indirectly, own, operate, control, assist or participate in
the development of any other residential community development in Garfield or
Pitkin County, Colorado, with certain limited exceptions.
Atlantic Gulf has agreed to indemnify Lowe and its employees, officers and
directors ("Consultant Person") for any losses, claims, damages or liabilities
("Losses") arising out of or related to Consultant Person's provision of
services under the Consulting Agreement, other than Losses caused by such
Consultant Person's gross negligence or willful misconduct. Lowe has agreed to
indemnify Atlantic Gulf, its affiliates and their employees, officers and
directors for any Losses arising out of or related to any Consultant Person's
gross negligence or willful misconduct and certain other expenses, taxes and
liabilities.
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STOCK PURCHASES BY APOLLO PURSUANT TO THE TERMS OF THE INVESTMENT AGREEMENT
In March 1998, Apollo, pursuant to the terms of the Investment
Agreement, purchased 173,525 shares of Series A Preferred Stock and Investor
Warrants to purchase an additional 347,050 shares of Common Stock for an
aggregate purchase price of $1,735,248, bringing (1) the total number of shares
of Series A Preferred Stock owned by Apollo to 2,500,000 and (2) the total
number of shares purchasable upon exercise of Investor Warrants to 5,000,000.
At December 31, 1998, the liquidation value of Apollo's Series A Preferred Stock
was 32,706,000.
AMENDMENTS TO THE INVESTMENT AGREEMENT AND SECURED AGREEMENT AND RELATED MATTERS
Effective as of December 31, 1999, Apollo consented to the terms, and
consummation, of the New Senior Loan Agreements and, in connection therewith:
- Atlantic Gulf issued the $850,000 promissory note and the $1,000,000
Promissory Note to Apollo.
- Atlantic Gulf issued 500,000 Additional Shares to Apollo.
- Atlantic Gulf and Apollo entered into the First Amendment to the
Amended and Restated Secured Agreement and the First Amendment to
the Amended and Restated Investment Agreement pursuant.
- Atlantic Gulf and Apollo entered into an Omnibus Amendment of
Collateral Documents pursuant to which the parties agreed to (a)
include the indebtedness evidenced by the Notes as part of the
Secured Obligations under the Apollo Collateral Documents (as
defined therein) and (b) make other conforming changes to the Apollo
Collateral Documents.
- Apollo, the New Revolving Loan Agreement lenders, the New Term Loan
Agreement lenders and MHD, as collateral agent, entered into the new
Intercreditor Agreement.
In connection with the foregoing, the Board obtained a written opinion
from an independent third party financial advisor that, subject to the
conditions and limitations set forth in such opinion, the terms and
consideration paid to Apollo for its consent and the other matters discussed
above was fair to the stockholders of Atlantic Gulf from a financial point of
view as of the date of such opinion.
See PART I, ITEM 1. BUSINESS - OPERATING AND FINANCIAL STRATEGIES -- OTHER
SIGNIFICANT BUSINESS DEVELOPMENTS IN 1998 and PART II, ITEM 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
LIQUIDITY AND CAPITAL RESOURCES for more information concerning these agreements
and transactions between the Company and Apollo.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
A. Consolidated Balance Sheets as of December 31, 1999 and 1998
B. Consolidated Statements of Operations for fiscal years 1999,
1998 and 1997
C. Consolidated Statements of Cash Flows for fiscal years 1999,
1998 and 1997
D. Consolidated Statements of Stockholders' Equity for the fiscal
years 1999, 1998 and 1997
2. FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED BY PART II, ITEM
8 AND BY PART II, ITEM 14(D).
A. Schedule II - Valuation and Qualifying Accounts
3. EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K. See c. below.
(B) REPORTS ON FORM 8-K DURING THE LAST QUARTER OF FISCAL YEAR 1999
1. The Company filed a report on Form 8-K on December 11, 1998,
pursuant to Item 5, Other Events announcing that NASDAQ had
de-listed Atlantic Gulf's securities from the NASDAQ National
Market, effective as of the close of business on Thursday, December
10, 1998.
(C) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K (THE EXHIBIT NUMBERS BELOW
CORRESPOND TO THE EXHIBIT NUMBERS IN ITEM 601 OF REGULATION S-K, EXHIBIT
TABLE):
3. ARTICLES OF INCORPORATION AND BYLAWS:
3.1. Amended and Restated Certificate of Incorporation of Atlantic
Gulf.(7)
3.2. Restated Bylaws of Atlantic Gulf, dated November 17, 1997 (the
"Bylaws").(13)
3.3. Amendment to the Bylaws, dated March 24, 1999.(15)
3.4. Amendment to Bylaws, dated September 30, 1999 (16)
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.1. Third Amended and Restated Revolving Loan Agreement, dated as
of December 31,
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1998, by and among Atlantic Gulf, the lenders signatory
thereto and M.H. Davidson & Co., LLC (AMHD"), as agent and
collateral agent (the "Revolving Loan Agreement").(15)
4.2. Term Loan Agreement, dated as of December 31, 1998, by and
among Atlantic Gulf, the lenders signatory thereto, Anglo
American Financial, as agent, and MHD as collateral agent (the
"Term Loan Agreement").(15)
4.3. Secured Agreement, dated as of February 7, 1997, amended and
restated as of May 15, 1997, by and among Atlantic Gulf,
certain of its subsidiaries, AP-AGC, LLC ("Apollo"), and MHD,
as collateral agent (the "Amended and Restated Secured
Agreement").(14)
4.4 First Amendment to Amended and Restated Secured Agreement,
dated as of December 31, 1998, by and among Atlantic Gulf,
certain of its subsidiaries, Apollo and MHD, as collateral
agent.(15)
4.5. Investment Agreement, dated as of February 7, 1997, amended as
of March 20, 1997, amended and restated as of May 15, 1997, by
and between Atlantic Gulf and Apollo (the "Investment
Agreement").(9)
4.6. First Amendment to Amended and Restated Investment Agreement,
dated as of December 31, 1998, by and among Atlantic Gulf and
Apollo.(15)
4.7. Intercreditor Agreement, dated as of December 31, 1998, by and
among the Revolving Loan Agreement lenders, the Term Loan
Agreement lenders, the Secured Agreement obligee and MHD, as
collateral agent.(15)
4.8 Form of Warrant granted on September 30, 1996.(6)
4.9 The Company is a party to a number of other instruments
defining the rights of holders of long-term debt. No such
instrument authorizes an amount of securities in excess of ten
percent (10%) of the total assets of the Company and its
subsidiaries on a consolidated basis. On request, the Company
agrees to furnish a copy of each such instrument to the
Commission.
4.10 Waiver and First Amendment to Term Loan Agreement dated
October 28, 1999. (16)
4.11 First Amendment to Third Amended and Restated Revolving Loan
Agreement, dated October 28, 1999. (16)
4.12 Reduction in Exercise Price of Warrants, as of June 17, 1999.
(17)
10. MATERIAL CONTRACTS:
10.1 Trust Agreement among GDC and NCNB National Bank of Florida as
Trustee, dated as
72
<PAGE>
of January 17, 1991 (for GDC-owned developed lots in Florida).
(1)
10.2 Tennessee Trust Agreement between GDC and Joe M. Looney, Esq.
as Trustee, dated as of December 29, 1989 (for GDC-owned lots
in Tennessee).(1)
10.3 Trust Agreement No. 2 between GDC and Joe M. Looney, Esq. as
Trustee, dated as of May 31, 1991 (for GDFS-owned lots in
Tennessee).(1)
10.4 Atlantic Gulf's 401(k) Plan.(2)
10.5 Atlantic Gulf's Employee Stock Option Plan as amended, as
adopted by Atlantic Gulf's Board on April 6, 1993, as approved
by Atlantic Gulf's common stockholders at the 1993 Annual
Meeting of Stockholders (the "Employee Stock Option Plan").
(3)
10.6 Agreement of Nanjing Ya Dong International Corporation
Limited, dated September 1993, between Nanjing Huan Dong
Enterprise/Nanjing Xianlin Agricultural and Grazing Farm and
Atlantic Gulf Asia Holdings N.V.(3)
10.7 Joint Venture Contract of Nanjing Ya Dong International
Corporation Limited, dated September 1993, between Nanjing
Huan Dong Enterprise/Nanjing Xianlin Agricultural and Grazing
Farm and Atlantic Gulf Asia Holdings N.V.(3)
10.8 Articles of Association of Nanjing Ya Dong International
Corporation Limited, dated September 1993, between Nanjing
Huan Dong Enterprise/Nanjing Xianlin Agricultural and Grazing
Farm and Atlantic Gulf Asia Holdings N.V.(3)
10.9 Non-Employee Directors' Stock Option Plan as approved by
Atlantic Gulf's common stockholders at the 1995 Annual Meeting
of Shareholders.(5)
10.10 Atlantic Gulf 1996 Non-Employee Directors' Stock Plan.(11)
10.11 Registration Rights Agreement dated as of September 30, 1996
between the Atlantic Gulf and the lenders set forth in Exhibit
A of the agreement.(6)
10.12 Utility Lot Trust Agreement, dated as of December 26, 1996,
between Atlantic Gulf and the Division of Florida Land Sales,
Condominiums, and Mobile Homes, and Peninsula State Title, as
Trustee.(8)
10.13 Restated, Amended and Consolidated Trust Agreement, dated as
of December 26, 1996, amended as of December 30, 1996, between
the State of Florida, Department of Business Regulation,
Division of Florida Land Sales, Condominiums, and Mobile
Homes, Atlantic Gulf and First Union National Bank of Florida,
as Trustee.(8)
10.14 First Amendment to the Restated, Amended and Consolidated
Trust Agreement, dated as of December 26, 1996, amended as of
December 30, 1996.(8)
73
<PAGE>
10.15 Employment Agreement, dated November 17, 1997, effective July
1, 1997, between Atlantic Gulf and J. Larry Rutherford, with
form of Stock Incentive Plan and Agreement for J. Larry
Rutherford, and Amendment to Employment Agreement, dated
November 26, 1997.(12)
10.16 Modification of Employment Agreement between the Company and
J. Larry Rutherford, dated December 27, 1997.(13)
10.17 Employment Agreement, dated November 19, 1997, effective
November 17, 1997, between Atlantic Gulf and John Laguardia,
with form of Stock Option Plan and Agreement for John
Laguardia.(12)
10.18 Employment Agreement, dated November 17, 1997, effective July
1, 1997, between Atlantic Gulf and Thomas W Jeffrey, with form
of Existing Plan Stock Option Agreement for Thomas W. Jeffrey,
and New Stock Option Plan and Agreement for Thomas W.
Jeffrey.(12)
10.19 Amendment to the Employee Stock Option Plan, as approved by
Atlantic Gulf's common stockholders at the 1997 Annual Meeting
of Stockholders.(15)
10.20 Amendment of the Non-Employee Directors' Stock Plan, dated as
of April 1, 1998.(15)
10.21 Amendment of the Non-Employee Directors' Stock Option Plan,
dated as of April 15, 1998.(15)
10.22 Order Granting Government's Motion for Early Termination of
Compliance Program and Special Master, dated as of December 9,
1998.(15)
10.23 Form of Consulting Agreement by and between Atlantic Gulf and
Lowe Enterprises Mid-Atlantic, Inc.
10.24 Letter Agreements with Richard Ackerman dated August 17, 1999.
(16)
10.25 Letter Agreement with Larry Rutherford dated August 17, 1999.
(16)
10.26 Letter Agreement with Broad River LLC, dated March 1, 2000.
(18)
21. SUBSIDIARIES OF THE COMPANY
23. ACCOUNTANTS' CONSENT - Ernst & Young LLP
27. FINANCIAL DATA SCHEDULE
- --------------------------------------
74
<PAGE>
(1) These exhibits are incorporated herein by reference to the
Predecessor Company's Annual Report on Form 10-K for the year ended
December 31, 1991, as filed with the Securities and Exchange
Commission ("SEC").
(2) These exhibits are incorporated herein by reference to Atlantic
Gulf's Annual Report on Form 10-K for the year ended December 31,
1992, as filed with the SEC.
(3) These exhibits are incorporated herein by reference to Atlantic
Gulf's Annual Report on Form 10-K for the year ended December 31,
1993, as filed with the SEC.
(4) Reserved.
(5) These exhibits are incorporated herein by reference to Atlantic
Gulf's Annual Report on Form 10-K for the year ended December 31,
1995, as filed with the SEC.
(6) These exhibits are incorporated herein by reference to Atlantic
Gulf's Annual Report on Form 10-K for the year ended December 31,
1996, as filed with the SEC.
(7) These exhibits are incorporated herein by reference to Atlantic
Gulf's Proxy Statement dated May 21, 1997, as filed with the SEC.
(8) These exhibits are incorporated herein by reference to Atlantic
Gulf's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997, as filed with the SEC.
(9) These exhibits are incorporated herein by reference to Atlantic
Gulf's Current Report on Form 8-K, dated June 5, 1997, as filed with
the SEC.
(10) These exhibits are incorporated herein by reference to Atlantic
Gulf's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995, as filed with the SEC.
(11) These exhibits are incorporated herein by reference to Atlantic
Gulf's Proxy Statement dated April 22, 1996, as filed with the SEC.
(12) These exhibits are incorporated herein by reference to Atlantic
Gulf's Current Report on Form 8-K, dated November 26, 1997, as filed
with the SEC.
(13) These exhibits are incorporated herein by reference to Atlantic
Gulf's Annual Report on Form 10-K for the year ended December 31,
1997, as filed with the SEC.
(14) These exhibits are incorporated herein by reference to Atlantic
Gulf's Amended Annual Report on Form 10-K/A for the year ended
December 31, 1997, as filed with the SEC.
(15) These exhibits are incorporated herein by reference to Atlantic
Gulf's Amended Annual Report on Form 10-K for the year ended
December 31, 1998, as filed with the SEC.
75
<PAGE>
(16) These exhibits are incorporated herein by reference to Atlantic
Gulf's Quarterly Report on Form 10-Q for the quarter ended September
30, 1999, as filed with the SEC.
(17) These exhibits are incorporated herein by reference to Atlantic
Gulf's Current Report on Form 8-K, dated June 17, 1999, as filed
with the SEC.
(18) These exhibits are incorporated herein by reference to Atlantic
Gulf's Current Report on Form 8-K dated March 13, 2000, as filed with
the SEC.
(d) Financial Statement Schedules required by Regulation S-X that are excluded
from the Annual Report to Stockholders by Rule 14a-3(b) promulgated
pursuant to Section 14 of the Securities Exchange Act of 1934, including
(1) separate financial statements of subsidiaries and 50 percent or less
owned persons; (2) separate financial statements of affiliates whose
securities are pledged as collateral; and (3) schedules.
76
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ATLANTIC GULF COMMUNITIES CORPORATION
By: /s/ Richard S. Ackerman
---------------------------
Richard S. Ackerman
President and Chief
Executive Officer
Date: April 14, 2000
By: /s/ Eugene M. Giblin
---------------------------
Eugene M. Giblin
Vice President and Chief
Accounting Officer
Date: April 14, 2000
77
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Atlantic Gulf Communities Corporation and Subsidiaries
Consolidated Financial Statements
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Common Stockholders' Equity
(Deficit) for the Years Ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
Consolidated Financial Statement Schedule for each of the
periods in the three years ended December 31, 1999:
Schedule II - Valuation and Qualifying Accounts S-1
All schedules other than those indicated in the index have been omitted as
the required information is inapplicable or not material, or the
information is presented in the Consolidated Financial Statements and
Notes thereto.
<PAGE>
Report of Independent
Certified Public Accountants
Board of Directors and Stockholders
Atlantic Gulf Communities Corporation
We have audited the accompanying consolidated balance sheets of Atlantic Gulf
Communities Corporation and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, common stockholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 1999. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Atlantic Gulf Communities Corporation and subsidiaries at December 31, 1999 and
1998, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
The accompanying financial statements have been prepared assuming that Atlantic
Gulf Communities Corporation and subsidiaries will continue as a going concern.
As more fully described in Note 2, the Company has experienced recurring
operating losses, defaulted on certain project indebtedness and does not have
the ability to repay the project indebtedness if called by the lenders. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans with respect to these matters are described in
Note 2. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
/s/ Ernst & Young LLP
Miami, Florida
March 29, 2000
F-2
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(in thousands, except share amounts and par value)
<TABLE>
<CAPTION>
Assets 1999 1998
------ ---- ----
<S> <C> <C>
Cash and cash equivalents $ 8,148 $ 9,413
Restricted cash and cash equivalents 2,147 1,041
Contract receivables, net 2,048 4,109
Mortgages, notes and other receivables, net 7,926 29,273
Land and residential inventory 121,116 166,870
Property, plant and equipment, net 12,750 3,950
Other assets, net 8,817 15,150
-------- --------
Total assets $162,952 $229,806
======== ========
Liabilities and Stockholders' Deficit
-------------------------------------
Accounts payable and accrued liabilities $ 19,386 $ 17,533
Other liabilities 9,778 8,207
Notes and mortgages payable 145,378 151,805
-------- --------
174,542 177,545
Commitments and Contingencies
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 $39,754 and
$32,706 as of December 31, 1999 and 1998,
respectively 38,310 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 $31,480 and
$25,898 as of December 31, 1999 and 1998,
respectively 30,531 24,417
-------- --------
68,841 54,820
Common stockholders' deficit
Common stock, $.10 par value,
70,000,000 shares authorized; 12,821,432
and 11,933,359 shares issued as of
December 31, 1999 and 1998, respectively 1,282 1,193
Contributed capital 102,401 117,994
Accumulated deficit (177,229) (115,379)
Accumulated other comprehensive loss (6,746) (6,351)
Treasury stock, 439,191 and 158,536
shares, at cost (139) (16)
-------- --------
Total common stockholders' deficit (80,431) (2,559)
-------- --------
Total liabilities and common stockholderss'
deficit $162,952 $229,806
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1999, 1998 and 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Real estate sales:
Homesites $ 47,995 $ 17,276 $ 24,606
Commercial 16,397 55,525 32,029
Vertical residential units -- -- 10,984
--------- --------- ---------
Total real estate sales 64,392 72,801 67,619
Other operating revenue 8,518 6,017 3,011
Interest income 2,722 4,937 6,018
--------- --------- ---------
Total revenues 75,632 83,755 76,648
Costs and expenses:
Direct cost of real estate sales:
Homesite 47,101 14,783 23,372
Commercial 13,750 44,970 35,787
Vertical residential units -- -- 13,033
--------- --------- ---------
Total direct cost of real estate sales 60,851 59,753 72,192
Inventory valuation reserves 28,346 195 14,457
Selling expense 6,406 6,510 8,502
Operating expenses 9,812 2,010 1,505
Real estate costs 7,688 9,598 14,984
General and administrative expense 11,542 9,908 12,297
Cost of borrowing, net of amounts capitalized 5,951 4,375 12,222
Other expense 4,102 853 1,463
--------- --------- ---------
Total costs and expenses 134,698 93,202 137,622
--------- --------- ---------
Operating loss (59,066) (9,447) (60,974)
Other (expense) income:
Reorganization reserves
Utility trust accounts -- 3,666 --
Utility connection reserve 1,065 1,063 1,063
Contract receivables termination refunds (514) 104 706
Refund of unclaimed expired notes 27 8,549 --
Other reorganization reserves -- -- 1,761
Land mortgages receivable valuation discount (3,364) (184) (92)
Miscellaneous 2 (78) (810)
--------- --------- ---------
Total other (expense) income (2,784) 13,120 2,628
--------- --------- ---------
Net (loss) income (61,850) 3,673 (58,346)
Less:
Accrued preferred stock dividends 12,629 10,309 3,296
Accretion of preferred stock to redemption amount 1,392 1,332 427
Modification of preferred stock security interest 2,381 -- --
--------- --------- ---------
16,402 11,641 3,723
--------- --------- ---------
Net loss applicable to common stock $ (78,252) $ (7,968) $ (62,069)
========= ========= =========
Basic and diluted earnings per common share:
Net loss per common share $ (6.33) $ (0.68) $ (5.82)
========= ========= =========
Weighted average common shares outstanding 12,356 11,640 10,661
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (61,850) $ 3,673 $ (58,346)
Adjustments to reconcile net (loss)income to net
cash provided by (used in) operating activities:
Depreciation and amortization 9,731 4,807 5,033
Other income 7,117 (3,259) (2,396)
Loss from sale of property, plant and equipment 239 3 36
Reorganization items -- 746 549
Inventory valuation reserves 28,346 195 14,457
Land acquisitions -- (24,875) (21,423)
Other net changes in assets and liabilities:
Restricted cash (1,106) 672 4,321
Receivables 19,091 7,499 19,351
Land and residential inventory 11,211 6,702 45,091
Other assets (80) 3,514 (9,401)
Accounts payable and accrued liabilities 3,723 3,866 (3,046)
Other liabilities 306 (3,224) (5,648)
Other, net -- -- (103)
--------- --------- ---------
Net cash provided by (used in) operating activities 16,728 319 (11,525)
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (3,656) (2,876) (455)
Proceeds from sale of property, plant and equipment 52 -- 1
Funds withdrawn from utility trust accounts -- 3,774 12,109
--------- --------- ---------
Net cash (used in) provided by investing activities (3,604) 898 11,655
--------- --------- ---------
Cash flows from financing activities:
Borrowings under credit agreements 117,306 71,412 120,097
Repayments under credit agreements (131,695) (74,531) (168,860)
Principal payments on other liabilities -- -- (2,494)
Proceeds from issuance of common stock -- 632 10,000
Proceeds from issuance of preferred stock and warrants -- 1,495 43,265
--------- --------- ---------
Net cash (used in) provided by financing activities (14,389) (992) 2,008
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (1,265) 225 2,138
Cash and cash equivalents at beginning of year 9,413 9,188 7,050
--------- --------- ---------
Cash and cash equivalents at end of year $ 8,148 $ 9,413 $ 9,188
========= ========= =========
Supplemental cash flow information:
Income tax payments $ -- $ -- $ 103
========= ========= =========
Interest payments, net of amounts capitalized $ 2,976 $ 322 $ 6,552
========= ========= =========
Reorganization item payments $ -- $ 46 $ 1,756
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Common Stockholders' Equity (Deficit)
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
------------ Contributed Accumulated Comprehensive Treasury
Shares (1) Amount Capital Deficit Loss Stock Total
---------- ------ ------- ------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 9,709 $ 980 $ 122,123 $ (60,706) $ (6,000) $ (9) $ 56,388
Net loss -- -- -- (58,346) -- -- (58,346)
Minimum pension liability adjustment -- -- -- -- 288 -- 288
----------
Comprehensive loss (58,058)
----------
Shares issued under director stock plan 36 3 189 -- -- -- 192
Common shares issued 1,776 178 9,822 -- -- -- 10,000
Proceeds from issuance of warrants -- -- 519 -- -- -- 519
Accrued preferred stock dividends -- -- (3,296) -- -- -- (3,296)
Preferred stock accretion -- -- (427) -- -- -- (427)
-------------------------------------------------------------------------------------
Balance, December 31, 1997 11,521 1,161 128,930 (119,052) (5,712) (9) 5,318
Net income -- -- -- 3,673 -- -- 3,673
Minimum pension liability adjustment -- -- -- -- (639) -- (639)
----------
Comprehensive income 3,034
----------
Stock returned (72) -- -- -- -- (7) (7)
Shares issued under director stock plan 43 4 101 -- -- -- 105
Common shares issued 283 28 583 -- -- -- 611
Proceeds from issuance of warrants -- -- 21 -- -- -- 21
Accrued preferred stock dividends -- -- (10,309) -- -- -- (10,309)
Preferred stock accretion -- -- (1,332) -- -- -- (1,332)
-------------------------------------------------------------------------------------
Balance, December 31, 1998 11,775 1,193 117,994 (115,379) (6,351) (16) (2,559)
Net loss -- -- -- (61,850) -- -- (61,850)
Minimum pension liability adjustment -- -- -- -- (395) -- (395)
----------
Comprehensive loss (64,804)
----------
Stock returned (292) -- -- -- -- (123) (123)
Shares issued under director stock plan 79 7 61 -- -- -- 68
Common shares issued 820 82 748 -- -- -- 830
Accrued preferred stock dividends -- -- (12,629) -- -- -- (12,629)
Preferred stock accretion -- -- (1,392) -- -- -- (1,392)
Modification of preferred stock security -- -- (2,381) -- -- -- (2,381)
interest
-------------------------------------------------------------------------------------
Balance, December 31, 1999 12,382 $ 1,282 $ 102,401 $(177,229) $ (6,746) $ (139) $ (80,431)
=====================================================================================
</TABLE>
F-6
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL. Atlantic Gulf Communities Corporation's ("Atlantic
Gulf" or the "Company") business consists of two principal business lines:
(1) "Luxury/Resort Operations," consisting of the development and sale of
real estate projects ("Luxury/Resort Projects") involving one or more of
the following activities: Homesite development, construction of "Vertical
Residential Units" (i.e., single family housing, condominiums and
timeshare units), and construction and operation of equity golf clubs and
other amenities ("Amenities") in selected markets in Florida and Colorado
("Luxury/Resort Projects"); and (2) "Other Operations," consisting
principally of (a) "Non-Luxury/Resort Projects," consisting of the sale of
real estate projects containing residential homesite components, such as
single-family lots, multi-family lots/units, and residential tract sales
("Homesites") and/or non-residential components, such as commercial,
industrial, office and institutional ("Commercial Development') in primary
markets in Florida and selected primary markets in the southeastern United
States, (b) "Environmental Services," consisting of the provision of
environmental services to third parties on a contract basis and (c)
"Receivables Portfolio Management," consisting of portfolio management of
primarily contracts receivables and mortgages receivables.
The Company is also engaged in the orderly disposition of scattered
predecessor homesites ("Predecessor Homesites") and tracts ("Predecessor
Tracts") located in secondary markets in Florida and Tennessee
(collectively, "Predecessor Assets"). The continuing disposition of
Predecessor Assets is a run-off business and not part of the Company's
core business.
(b) CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and all majority-owned subsidiaries controlled by
the Company. All significant intercompany accounts and transactions have
been eliminated in consolidation.
(c) USE OF ESTIMATES. The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
(d) REORGANIZATION. In April 1990 (the "Petition Date"), Atlantic
Gulf's predecessor corporation ("Predecessor Company") and certain of its
subsidiaries filed for reorganization under Chapter 11 of the United
States Bankruptcy Code. The Predecessor Company's Plan of Reorganization
("POR") was confirmed on March 27, 1992 by the Bankruptcy Court and became
effective on March 31, 1992 ("Effective Date"). Atlantic Gulf, as the
successor Company, adopted a new charter and business plan.
F-7
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(e) SALES REVENUES AND COSTS OF SALES. Revenue from sales of
residential units is recognized when the earnings process is complete.
Revenue from the sale of land is recognized when (i) the cash received is
at least 20% of the selling price, (ii) the earnings process is complete
and (iii) the collection of any remaining receivable is reasonably
assured.
Cost of sales of residential units is determined on a specific
identification basis. Cost of sales of land is determined on a Project
basis, using the relative sales value method.
(f) INVENTORY. Costs capitalized are allocated on a specific Project
identification basis. Residential unit costs are accounted for on a
specific identification basis and all inventory stated at cost or at
values determined in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. Inventory under
development and held for future development is evaluated at least
quarterly for impairment if impairment indicators are present. An
impairment write-down to fair value is made if the estimated undiscounted
cash flows from an item of inventory are less than the carrying amount of
such inventory. Inventory that is substantially complete and ready for its
intended use is carried at the lower of carrying amount or fair value less
cost to sell. The determination of whether the carrying amount of
inventory requires a write-down is based on an evaluation of each
individual parcel.
(g) DEPRECIATION. Depreciation and amortization is provided on a
straight-line basis on the following assets:
Estimated useful
lives in years
------------------
Land improvements 5 to 33
Buildings 10 to 40
Fixtures and equipment 3 to 10
Maintenance and repairs are charged to income as incurred. Renewals
and betterments to owned properties are capitalized. Betterments to leased
properties are capitalized and amortized over the shorter of the terms of
the leases or the lives of the betterments.
(h) INCOME TAXES. Income taxes have been provided using the
liability method in accordance with SFAS No. 109, Accounting for Income
Taxes.
(i) CAPITALIZED INTEREST. The Company capitalizes interest on its
inventory under development on a specific Project identification basis.
Capitalized interest approximated $21,745,000, $15,130,000 and $7,804,000
for 1999, 1998 and 1997, respectively.
(j) CASH AND CASH EQUIVALENTS. The Company includes in cash and cash
equivalents all highly liquid debt instruments purchased with a maturity
of three months or less. The credit risk
F-8
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
associated with cash and cash equivalents are considered low due to the
high quality of the financial instruments in which these assets are
invested.
Restricted cash and cash equivalents include amounts held in sale
escrow accounts, development cash collateral accounts, funds in a trust to
pay certain bankruptcy claims and various other escrow accounts.
(k) DEFERRED DEBT ISSUANCE COSTS. Costs associated with the issuance
of the Company's various debt instruments or closing of other financing
transactions have been deferred and are being amortized over the term of
the related debt. Amortization of deferred debt issuance costs, included
in cost of borrowing, net in the accompanying consolidated statements of
operations, was $2,975,000, $4,130,000 and $1,463,000 for 1999, 1998 and
1997, respectively.
(l) REPORTING ON ADVERTISING COSTS. The Company expenses advertising
costs as incurred. The Company recognized advertising expenses of
$1,907,000, $1,498,000 and $1,608,000 for 1999, 1998 and 1997,
respectively, and these expenses are included in selling and other real
estate costs in the accompanying consolidated statements of operations.
The Company did not incur any direct response advertising cost, as defined
by SOP 93-7, during the year.
(m) ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company will
continue to account for stock-based compensation plans under the
provisions of APB 25 - Accounting for Stock Issued to Employees. The
Company discloses the pro forma information required for stock-based
compensation plans in accordance with SFAS No. 123, Accounting for Stock
Based Compensation.
(n) EARNINGS PER COMMON SHARE. Basic and diluted earnings per share
is calculated and presented to conform with the requirements of SFAS No.
128, Earnings Per Share.
(o) RECLASSIFICATION. Certain amounts in the consolidated financial
statements have been reclassified to conform with the 1999 presentation.
(2) FUTURE OPERATIONS
The Company has incurred operating losses of $78.3 million, 8.0
million and $62.1 million for the years ended December 31, 1999, 1998, and
1997, respectively. In addition, as discussed in Note 9, the Company is in
default on its Aspen Springs Ranch Project loans. Management of the
Company has initiated negotiations with its lenders to modify the terms of
the loans, however, no agreement has been reached as of March 29, 2000.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regards to continuing
as a going concern are as follows:
1. Modify the Aspen Springs Ranch Loans in order to bring the Company
into compliance with the loans.
2. Liquidate the Company's remaining Non-Luxury/Resort projects,
Predecessor Assets and
F-9
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other inventory.
3. Develop and sell retail the Company's remaining two Luxury/Resort
Projects.
4. Use these proceeds to service and retire the Company's remaining
corporate debt and Preferred Stock.
The financial statements do not include any adjustments to
reflect the possible future effects on the recovery and classification
of assets or the amounts and classification of liabilities that may
result from the outcome of this uncertainty.
(3) RECEIVABLES PORTFOLIO
The receivables portfolio consists of:
(a) CONTRACT RECEIVABLES. Contract Receivables at December 31, 1999
and 1998 consisted of the following (in thousands of dollars):
1999 1998
---- ----
Contract Receivables, gross $ 2,639 $ 4,551
Reserve for estimated future
cancellations,
net of estimated land recoveries (326) --
Valuation discounts to yield 15% (265) (442)
------- -------
$ 2,048 $ 4,109
======= =======
Stated interest rates on the Contract Receivables outstanding at
December 31, 1999, 1998 and 1997 ranged from 4% to 12.5% (averaging
approximately 7.0%). The original terms of the Contract Receivables were
10 to 12 years.
Total future cancellations are estimated at $398,000 and
$550,000 as of December 31, 1999 and 1998, respectively, based on prior
cancellation experience. When a contract cancels, the Company
recovers/restores the Predecessor Asset to inventory at its current fair
value. Total future recoveries are estimated at $72,000 and $550,000 as of
December 31, 1999 and 1998, respectively. Based on actual collection and
cancellation activity, the estimated future cancellations and recoveries
were adjusted resulting in a net loss of $326,000 in 1999 and net gains of
$141,000 and $47,000 in 1998 and 1997, respectively, recorded in contract
receivable termination refunds in the accompanying consolidated statements
of operations. There are no significant concentrations of credit risk
associated with the Contract Receivables.
The Company amortizes the valuation discounts over the expected life
of the Contract Receivables. This amortization, included in results of
operations in the accompanying consolidated statements of operations,
amounted to $177,000, $325,000 and $673,000 for 1999, 1998 and 1997,
respectively. The valuation discounts did not change in 1999. The
valuation discounts were increased by $44,000 in 1998 due to lower than
anticipated collection activity in 1998 resulting in a loss of $44,000
recorded in other income (expense) in the accompanying consolidated
statements of operations.
F-10
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1999, scheduled principal collections on the
Contract Receivables for the next five years ending December 31, 2004 and
thereafter are as follows: 2000 - $1,229,000, 2001 - $807,000, 2002 -
$388,000, 2003 - $137,000, 2004 - $50,000 and thereafter - $0.
The Contract Receivables serve as collateral for a portion of the
Company's indebtedness (see Note 8).
(b) MORTGAGES AND OTHER RECEIVABLES. Mortgages and Other
Receivables, net as of December 31, 1999 and 1998 consisted of the
following (in thousands of dollars):
1999 1998
---- ----
Mortgage Receivables,
net of valuation reserves of
$3,812 and $2,483 $ 6,168 $20,246
Sunset Lakes Receivable -- 1,794
Jupiter Ocean Grande Receivable -- 2,478
Other Receivables 1,758 4,755
------- -------
$ 7,926 $29,273
======= =======
(i) MORTGAGE RECEIVABLES. The Mortgage Receivables are typically
three to five year notes using 15-20 year amortization schedules with a
balloon payment at the end. Most Mortgage Receivables are secured by
Predecessor Tracts. The stated interest rate on Mortgage Receivables is
typically prime plus two percent. The Company has established a reserve
for estimated future delinquencies on its Mortgage Receivables. The value
of the land securing the Mortgage Receivables is estimated to equal or
exceed the net book value of the related receivables as adjusted by
valuation reserves.
The Company entered into two-secured borrowing transactions (one in
March 1997 and another in December 1997) with the First National Bank of
Boston ("BankBoston") pursuant to which the Company (i) borrowed
approximately $7.0 million and $5.2 million, respectively, from BankBoston
and (ii) transferred approximately $9.3 million and $6.9 million,
respectively, of Mortgage Receivables to BankBoston as collateral for the
borrowings. The Company financed an additional $1 million net amount of
Mortgage Receivables under the agreement in January 1998 for approximately
$0.8 million. The Company used the proceeds from these transactions to
reduce its corporate debt and to fund ongoing operations. These borrowings
were subsequently repaid on February 2, 1999.
As part of a settlement with certain Predecessor Homesite customers,
the Company established various trusts. The Company funded these trusts
with cash, stock and notes based on estimates of the costs of its future
improvement obligations. The Company periodically assesses the adequacy of
the property in the trusts and reserves and any excess or deficiency
accrues to the benefit or becomes an obligation of the Company (see Note
12).
F-11
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(ii) SUNSET LAKES RECEIVABLE. The Sunset Lakes Receivable
consists of a management fee accrual from the Sunset Lakes JV of
$1,174,000 in 1998. No amounts were due from the Sunset Lakes JV Project
that was sold in November 1999. Management fees related to the Sunset
Lakes JV of $357,000 and $653,000 were earned in 1999 and 1998,
respectively. The Sunset Lakes Receivable also includes $620,000 as of
December 31, 1998, of interest accrued on amounts loaned by one of the
Company's consolidated subsidiaries to the Sunset Lakes JV Project.
(iii) JUPITER OCEAN GRANDE RECEIVABLE. The Company's interest
in the Jupiter Ocean Grand JV was sold in December, 1999. The Jupiter
Ocean Grande Receivable consisted of a $2,271,000 loan to the Jupiter
Ocean Grande JV Project plus $207,000 of accrued interest as of December
31, 1998.
(c) SCHEDULED COLLECTIONS. Scheduled collections of principal on
Mortgages and Other Receivables for the next five years ending December
31, 2004 and thereafter are as follows: 2000 - $3,431,000, 2001 -
$1,188,000, 2002 - $2,954,000, 2003 - $4,165,000, 2004 - $0 and thereafter
- $0. Substantially all other receivables are non-interest bearing and
have no stated maturity.
(d) COLLATERAL. Substantially all of the Mortgages and Other
Receivables serve as collateral for a portion of the Company's
indebtedness (see Note 8).
(4) LAND AND RESIDENTIAL INVENTORY
(a) GENERAL. Land and residential inventory as of December 31, 1999
and 1998 consisted of the following (in thousands of dollars):
1999 1998
---- ----
Luxury/Resort Operations $ 95,149 $ 81,806
Non-Luxury/Resort Operations 23,205 48,720
Predecessor Assets 33,040 41,259
Other 923 950
--------- ---------
Gross Inventory 152,317 172,735
Valuation Reserves (30,201) (5,865)
--------- ---------
Total $ 121,116 $ 166,870
========= =========
Luxury/Resort Operations land and residential inventory is
held for development and sale. All other land and residential inventory is
classified as held for sale.
(b) NET VALUATION RESERVES. Land and residential inventory are net
of valuation reserves of $29.4 million and $5.1 million as of December 31,
1999 and 1998, respectively. In conjunction with the Company's reviews in
1999, 1998 and 1997 of the fair values associated with
F-12
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
its land and residential inventory, the Company provided additional net
valuation reserves to reduce the carrying value of its land and
residential inventory in the amounts of $28.3 million, $195,000 and $14.5
million for 1999, 1998 and 1997, respectively, which were charged to land
inventory valuation reserves in the accompanying consolidated statements
of operations.
(c) ENVIRONMENTAL RESERVES. Land and residential inventory is net of
environmental reserves of $770,000 as of December 31, 1999 and 1998 (see
Note 12). Based on a review of the environmental reserve and recent
changes in Florida state laws, this reserve was reduced by $0, $180,000
and $250,000 in 1999, 1998 and 1997, respectively, and recorded in other
income (expense) in the accompanying consolidated statements of
operations.
(d) PROJECT ACTIVITY IN 1999. In 1999, the Company had the following
project activity:
(i) In September, 1999, the Company sold the remaining two
acres of the Riverwalk Tower project, a wholly-owned
Luxury/Resort Project, for $8.0 million. This Project, which
is located in Fort Lauderdale, Florida, was acquired by the
Company in June 1997 for approximately $5.6 million. In 1998,
the Company sold one commercial acre for $7.0 million.
(ii) In December, 1999, the Company sold the remaining 1,298
lots in the Trails of West Frisco Project, a wholly owned
Non-Luxury/Resort Project, for $14.6 million. The Company
acquired the Project, comprised of 1,641 lots and located in
Frisco, Texas, for approximately $7.5 million in July 1997.
(e) PROJECT ACTIVITY IN 1998. In 1998, the Company acquired the
following Core Projects:
(i) In April 1998, the Company acquired and sold the Dave's
Creek Project, in Forsythe County, Georgia. The project was
sold for approximately $27.3 million, with a cost of
approximately $23.2 million.
(ii) In September 1998, the Company acquired the Aspen Springs
Ranch Project, in Glenwood Springs, Colorado, for
approximately $17.8 million, of which $2 million was paid in
cash and the balance was financed by an acquisition loan.
(f) COLLATERAL. Substantially all of the Company's land and
residential inventory serves as collateral for a portion of the Company's
indebtedness (see Note 8) and certain of its other liabilities and
commitments (see Notes 7 and 12).
F-13
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) PROPERTY, PLANT AND EQUIPMENT
(a) GENERAL. Property, plant and equipment, net, as of December 31,
1999 and 1998 consisted of the following (in thousands of dollars):
1999 1998
---- ----
Land and improvements $ 270 $ 87
Buildings 1,608 1,227
Fixtures and equipment 2,747 4,155
Accumulated depreciation (1,574) (3,680)
Construction in progress (golf course) 9,699 2,161
-------- --------
$ 12,750 $ 3,950
======== ========
(b) COLLATERAL. Substantially all property, plant and equipment
serve as collateral for a portion of the Company's indebtedness (see Note
8).
(6) OTHER ASSETS
(a) GENERAL. Other assets as of December 31, 1999 and 1998 consisted
of the following (in thousands of dollars):
1999 1998
---- ----
Sunset Lakes JV Project $ -- $ 5,205
Falcon Trace JV Project 4,000 3,874
Jupiter Ocean Grande JV Project -- 2,094
Other real estate related assets -- 1,601
Prepaid issuance cost, net 3,141 940
Other assets 1,676 1,436
------- -------
$ 8,817 $15,150
======= =======
(b) SUNSET LAKES JV PROJECT. In November, 1999, the remaining 1,146
lots and other assets in Sunset Lakes, a jointly owned Non-Luxury/Resort
Project, were sold for $46.3 million. The Project, which is located in
Miramar, Florida, was purchased through a joint venture formed in 1995.
The Company's portion of this sale was $30.1 million.
The Company was the managing general partner with an unaffiliated
third party in the Sunset Lakes Joint Venture ("Sunset Lakes JV"). The
Sunset Lakes JV owned the Sunset Lakes JV Project, which is located in
southwest Broward County, Florida, sold all of the Project's assets in
November 1999. The Company (i) had a 65% interest in the profits and
losses of the Sunset Lakes JV and (ii) was entitled to a fee from Sunset
Lakes JV in an amount equal to 4% of development costs. The Company did
not control the Sunset Lakes JV. The Company's partner has consented to
major transactions and actions of Sunset Lakes JV, including the sale of
F-14
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
substantially all of its properties and assets, modifications of its
business plan, phasing of sales, development and construction activities,
financing and the acquisition of additional property. The Company
accounted for the Sunset Lakes JV Project under the equity method.
(c) FALCON TRACE JV PROJECT. In April 1996, the Company acquired the
Falcon Trace JV Project, in Orlando, Florida, for approximately $5.3
million, of which $2.4 million was financed by Cypress Realty Limited
Partnership ("Cypress") through an acquisition loan secured by a mortgage
on the property and the balance was paid for in cash. In December 1996
(and as amended in March 1997), the Company and Cypress agreed to a
restructuring in which the Company contributed its net investment in the
Falcon Trace Project and its partner, Cypress, through an affiliate,
contributed its mortgage on the property, to Falcon Trace Partners Limited
Partnership. The Company has a 65% limited partnership interest in the
Falcon Trace JV Project after expenses and fixed returns to the partners.
The Company does not control the partnership. Cypress is the managing
venturer and must consent to major transactions and actions of the
partnership including the sale of the property and assets of the Falcon
Trace JV Project, modification of its business plan, development and
construction activities, financing, and the acquisition of additional
property. The Company accounts for the Falcon Trace JV Project under the
equity method.
(d) JUPITER OCEAN GRANDE JV PROJECT. In December, 1999, the Company
sold its joint venture interest in Jupiter Ocean Grand, a Luxury/Resort
Project, for approximately $1.0 million. The Company realized a loss of
$3.8 upon the sale if its interest in the JV.
(d) OTHER. Other real estate related assets include refundable
deposits to acquire additional property and predevelopment costs incurred
to obtain regulatory permits and approvals properties under contract. In
1999, the Company had the following activity related to other real estate
assets:
(i) In December, 1999, the Company relinquished its 40.0%
joint venture interest in the Cary Glen Project, a
Non-Luxury/Resort Project, as part of a legal settlement with
Panther Creek-Raleigh Limited Partnership (see note 12). The
Project, which is located near Raleigh-Durham, North Carolina,
was acquired in 1996 for approximately $8.0 million and had a
book value of $1.2 million before the settlement. Atlantic
Gulf additionally paid $375,000 as part of the settlement
mentioned above. The Company realized a loss of $1.5 million
in the above mentioned settlement.
(ii) In March, 1999, the Company sold its joint venture
interest in the 1,040 remaining units of the Country Lakes
Project, a Non-Luxury/Resort Project, for $500,000,
recognizing a gain of approximately $219,000. In addition, the
Company received a prepayment of its management fee in
exchange for which it agreed to continue to manage the Project
until the joint venture engaged another manager in July 1999.
The Project, which is located in Miramar, Florida, was
acquired in 1995 for $39.5 million.
F-15
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(iii) On December 9, 1999, the Company assigned its contract
to purchase the Harbor Bay Project, a controlled
Non-Luxury/Resort Project, plus an adjacent parcel, for $4.8
million plus reimbursement of its earnest money deposits and
certain costs. The Company had entered into a contract to
purchase this Non-Luxury/Resort Project, located in
Hillsborough County, Florida in 1998. The contract assignment
also included the assignment of the Company's rights to
purchase an adjacent 350 acres, a contract to purchase land
for a planned golf course and a two-year option to purchase
golf course lots.
(iv) During 1999, the Company completed the entitlements for
Grand Oaks, a proposed Non-Luxury/Resort Project, but was
unable to close on its purchase in May, 1999, due to funding
problems. The seller was unwilling to extend the contract to
allow for alternative financing, and retained $1.4 million in
earnest money deposits and extension fees. In addition, the
Company expensed $2.2 million in design and engineering costs
incurred, which has been previously capitalized.
(v) In November, 1999, the Company decided not to acquire
Rayland, a proposed Non-Luxury/Resort project near
Jacksonville, Florida. The Company expensed $1.5 million in
design and engineering costs incurred, which had been
previously capitalized.
(vi) During 1999, the Company commenced and pursued
modification to certain land use approvals required to develop
the Baxter/Martinez Project, a controlled Non-Luxury/Resort
Project for 1,400 residential units. In 1998, the Company
entered into agreements with two separate sellers to purchase
approximately 232 acres (the Baxter property) for $2.3 million
and to purchase an additional adjacent 181 acres (the Martinez
property) for $1.6 million, with closings scheduled in the
first half of 2000. The Company is now negotiating to assign
its rights to purchase both properties to a third party for
$1.0 million plus reimbursement of its earnest money deposits
and costs.
(7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
(a) GENERAL. Accounts payable and accrued liabilities as of December
31, 1999 and 1998 consisted of (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Accounts payable, principally trade $ 3,284 $ 5,591
Accrued interest 10,931 5,005
Taxes, other than income taxes 2,779 3,109
Employee earnings and benefits 1,451 1,758
Other accrued liabilities 941 2,070
------- -------
$19,386 $17,533
======= =======
</TABLE>
F-16
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) OTHER LIABILITIES
(a) GENERAL. Other liabilities as of December 31, 1999 and 1998
consisted of the following (in thousands of dollars):
1999 1998
---- ----
Reserve for Contract Receivables
Termination refunds $1,931 $2,333
Accrued pension liability 2,395 2,208
Utility connection reserve 1,065 2,130
Bankruptcy and other reserves 709 797
Customers' and other deposits 3,678 739
------ ------
$9,778 $8,207
====== ======
(b) RESERVE FOR CONTRACT RECEIVABLES. The reserve for Contract
Receivables termination refunds and other costs relate to the Company's
obligations to retail land sales customers whose contracts were not
terminated or rejected in the reorganization proceedings. Under the terms
of the retail land sales contract, if a customer defaults and the contract
is canceled, the customer is entitled to a refund of principal payments in
excess of the Company's damages, which generally has been stipulated at
20% of the sales price. This reserve also provides for the estimated
future costs to maximize receivable collections and minimize cancellations
and termination refunds during the remaining life of this portfolio. Based
on estimates of these future costs, there was no need to adjust the
servicing reserve in 1999. Based on estimates of these future costs, the
future servicing reserve was increased in 1997 resulting in an expense of
$375,000. There was no change in the estimate for 1998.
(c) ACCRUED PENSION LIABILITY. The accrued pension liability is
related to a frozen plan (see Note 14). The Company's estimated funding
obligation for the next two years is approximately $600,000 and $200,000
for 2000 and 2001, respectively. Thereafter, the Company does not
anticipate any significant additional funding requirements.
(d) UTILITY CONNECTION RESERVE. The utility connection reserve
consists of the Company's obligation to provide utility connection credits
to qualified claimants. Based on minimal fundings to date and minimal
fundings anticipated in the future, the utility connection credit reserves
were reduced by $1.1 million per year in 1999, 1998 and 1997, which were
recorded as gains in other income (expense) in the accompanying
consolidated statements of operations (see Note 11).
(e) BANKRUPTCY AND OTHER RESERVES. Bankruptcy and other reserves
primarily include the remaining claims related to the Predecessor Company
with respect to approved claimants. The remaining outstanding claims
corresponding to the issuance of stock and notes to claimants should be
satisfied in 1999. As of December 31, 1999 and 1998, respectively,
approximately $185,000
F-17
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
and $177,000 are included in restricted cash and cash equivalents to fund
a portion of these remaining claims (see Note 1).
(9) NOTES AND MORTGAGES PAYABLE
(a) GENERAL. At December 31, notes and mortgages payable consisted
of the following (in thousands of dollars):
1999 1998
---- ----
Cash Flow Notes $ -- $ 39,496
Working Capital Facility -- 18,291
Apollo Notes 1,850 --
Term Loan 26,500 --
Revolving Loan 21,463 --
Project acquisition and development loans 95,463 85,578
Mortgage Receivables loans -- 6,072
Other 102 2,368
-------- --------
$145,378 $151,805
======== ========
In connection with the POR, the Company (i) issued $100 million in
Mandatory Interest Notes, consisting of Secured Floating Rate Notes and
Unsecured Notes ("12% Notes"), (ii) issued $100 million in Cash Flow
Notes, consisting of Secured Cash Flow 12% Notes and Unsecured 13% Cash
Flow Notes ("13% Notes"), discounted to a value of $76.5 million, (iii)
refinanced the debt incurred during the reorganization through a $50
million Term Loan and (iv) obtained a $20 million Working Capital
Facility. The balance of the $50 million Term Loan was fully repaid in
December 1994. In December 1998, the Company recorded approximately $8.5
million of other income in connection with the receipt of proceeds from
the remaining unpaid 12% Notes.
(b) FOOTHILL DEBT. On September 30, 1996, the Company closed on
three credit facilities totaling $85.0 million with Foothill (the
"Foothill Debt"). Pursuant to the Foothill Debt, Foothill provided the
Company with (i) an extension to December 1, 1998 of the $20 million
Working Capital Facility; (ii) a $40 million Term Loan maturing on June
30, 1998 and (iii) a $25 million Reducing Revolving Loan maturing on June
30, 1998 (see Note 20).
The $20 million Working Capital Facility bore interest at the
Norwest Bank of Minnesota, N.A."base rate," plus two percentage points.
The Working Capital Facility matured on December 1, 1998, was extended
through February 2, 1999 and was repaid in full on February 2, 1999. The
Working Capital Facility was secured by a first lien on substantially all
of the Company assets, with certain exceptions as to which the lenders
received junior liens. As of December 31, 1998, there was no additional
credit available under the Working Capital Facility. The Company was
F-18
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
required to pay an unused line fee equal to 1/2 of 1% per annum of the
average unused portion of the Working Capital Facility.
(c) CASH FLOW NOTES. The Cash Flow Notes, as of December 31, 1998,
consisted of $39.5 million of 13% Notes. The 13% Notes were repaid in full
on February 2, 1999. Interest on the Cash Flow Notes, which was
non-cumulative, was payable semiannually, only out of Available Cash. The
amortization of the Cash Flow Notes discount is included in cost of
borrowing, net, in the accompanying consolidated statements of operations
and approximated $2,138,000 and $1,876,000 for 1998 and 1997,
respectively.
The Company did not have any Available Cash at December 31, 1998 and
1997 to make any interest payment on the Cash Flow Notes for the payment
periods through December 31, 1998. Therefore, the Company has not recorded
any interest expense related to the Cash Flow Notes during the years ended
December 31, 1998 and 1997.
(d) DECEMBER 1998 DEBT REFINANCING. On February 2, 1999 (effective
December 31, 1998), (i) Atlantic Gulf closed on its $39.5 million New
Revolving Loan Facility and its $26.5 million New Term Loan Facility
(collectively, the "New Senior Loan Facilities"), (ii) Atlantic Gulf
entered into amendments to its Secured Agreement and Investment Agreement
with Apollo and (iii) Apollo, the New Revolving Loan Lenders and the New
Term Loan Lenders and the collateral agent entered into a New
Intercreditor Agreement. These transactions are collectively referred to
herein as the "December 1998 Debt Refinancing." The balances outstanding
at December 31, 1999, for the respective loans above are $14.0 million
(not including the $7.5 million cash collateral on the 13% notes), $26.5
million and $1.85 million.
(i) NEW REVOLVING LOAN FACILITY. The lenders (the "New Revolving
Loan Lenders") under Atlantic Gulf's New Revolving Loan Facility are DK
Acquisition Partners, L.P., Comac Partners, Halcyon/Alan B. Slifka
Management Co. LLC, East West Partners, Stonehill Investment Corp. and
Anglo American Financial and its participants (the "Revolving Loan
Lenders"). M. H. Davidson, LLC. ("MHD"), is the agent and collateral
agent.
The New Revolving Loan Facility will mature on August 1, 2000 and
bears interest at the rate of (1) eleven percent (11%) per annum (fifteen
percent (15%) per annum upon the occurrence, and continuation, of an event
of default) upon all amounts other than letter of credit guarantees and
(2) fifteen percent (15%) per annum (nineteen percent (19%) per annum upon
the occurrence, and continuation, of an event of default) upon all draws
under letter of credit guarantee amounts.
The aggregate outstanding borrowings under the New Revolving Loan
Facility are subject to a borrowing base limitation based on the value of
certain Company assets. The New Revolving Loan Facility contains standard
and customary representations, warranties and covenants for a facility of
its type, size and term, including, a consolidated net worth covenant.
F-19
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The original $39.5 million commitment under the New Revolving Loan
Facility was subsequently reduced to $27.0 million by the Third and
Restated Revolving Loan Agreement dated September 9, 1999. The New
Revolving Loan Facility will automatically be reduced (1) by seventy five
percent (75%) of the net cash proceeds realized from certain bulk sales of
lots and/or land in certain eligible subdivision projects; (2) by an
additional $1,667,000 on each of February 15, 2000, March 15, 2000 and
April 15, 2000; and (3) by an additional $2,333,000 on each of May 15,
2000, June 15, 2000, and July 15, 2000. The remaining outstanding balance
under the New Revolving Loan Facility is due and payable in full on August
1, 2000. The Company is currently working on closing several transactions,
the proceeds from which will be used to fund the remaining balance.
On the closing date, the Revolving Lenders delivered to the trustee
for Atlantic Gulf's $7.5 million of cash collateral to secure the payment,
when presented, of up to $7.5 million of the 13% Notes. The cash
collateral, which is treated as a letter of credit guarantee, is deemed to
be part of the New Revolving Loan Facility.
On the closing date, Atlantic Gulf paid (1) the collateral agent a
closing fee of $1.28 million and (2) the agent a letter of credit
guarantee fee of $150,000. Atlantic Gulf also has agreed to pay (a) the
collateral agent a servicing fee of $10,000 per month so long as any
amounts remain outstanding under the New Revolving Loan Facility and (b)
the agent a second letter of credit guarantee fee of $150,000 on the
second anniversary of the effective date of the New Revolving Loan
Facility if any portion of the letter of credit guarantee amount remains
outstanding on that date.
(ii) NEW TERM LOAN FACILITY. The lenders (the "New Term
Loan Lenders") under Atlantic Gulf's new term loan facility (the "New Term
Loan Facility") are Anglo American Financial and General Motors Employees
Global Group Pension Trust (the "Term Loan Lenders"). Anglo American
Financial is the agent, and MHD is the collateral agent.
The New Term Loan Facility will mature on the earlier of February 1,
2002, or the date that is thirty (30) days prior to the first date on
which any of the holders of the Preferred Stock have the right to require
Atlantic Gulf to repurchase any shares of Preferred Stock and bears
interest at the rate of fifteen percent (15%) per annum (nineteen percent
(19%) per annum upon the occurrence, and continuation, of an event of
default). The New Term Loan Facility contains standard and customary
representations, warranties and covenants for a facility of its type, size
and term, including a consolidated net worth covenant.
On the closing date, Atlantic Gulf paid the agent a closing fee of
$2.0 million.
(iii) AMENDMENTS TO THE SECURED AGREEMENT AND INVESTMENT
AGREEMENT. As part of the December 1998 Debt Refinancing:
F-20
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Apollo consented to Atlantic Gulf entering into the New
Senior Loan Agreements and agreed to subordinate its
collateral interest in certain Company assets, and, in
exchange therefor:
-- Atlantic Gulf issued an $850,000 promissory note to
Apollo (the "$850,000 Note"). The $850,000 Note will
mature on February 1, 2002, and provides for current
payments of interest only at the rate of ten percent
(10%) per annum (fifteen percent (15%) per annum upon
the occurrence and continuation of an event of default),
monthly in arrears.
-- Atlantic Gulf issued a $1 million promissory note to
Apollo (the "$1 Million Note"). The $1 Million Note will
mature on February 1, 2002, and provides for payments of
interest only at the rate of ten percent (10%) per annum
(fifteen percent (15%) per annum upon the occurrence and
continuation of an event of default), monthly in
arrears. Atlantic Gulf has the obligation, under certain
circumstances, to prepay seventy five percent (75%) of
the original principal amount of the $ 1 Million Note by
conveying a 20% net profits interest to Apollo.
The $850,000 Note and $1 Million Note, both of which are
secured by certain Company assets, are together referred
to herein as the "Notes".
-- Atlantic Gulf issued 500,000 shares of Common Stock to
Apollo (the "Additional Shares").
- Apollo and Atlantic Gulf entered into amendments to the
Secured Agreement and Investment Agreement to (a) conform such
agreements to the terms and conditions of the New Senior Loan
Agreements, (b) reflect the terms of the Apollo Notes, (c)
delete all SP Subsidiary provisions, (d) include the
Additional Shares as Registrable Securities and make all of
Apollo's Registrable Securities, Warrants and Notes freely
transferable (subject to the requirements of the applicable
securities laws) and (e) make certain other, technical
conforming changes.
(e) PROJECT ACQUISITION AND DEVELOPMENT LOANS. At December 31, 1999,
project acquisition and development loans include the following:
(i) WEST BAY CLUB PROJECT/LEHMAN BROTHERS LOAN. In
December 1997, Lehman Brothers Holdings loaned West Bay Club Development
Corporation, a wholly owned subsidiary of the Company, $22.5 million to
finance acquisition and construction costs at the West Bay Club Project
and to refinance approximately $10.6 million of existing purchase money
mortgages encumbering the project. The loan is secured by, among other
things, the common stock of West Bay Club Development Corporation, with
limited recourse to the Company. The loan bears interest at LIBOR plus 4%,
matures December 23, 2001 and will be repaid with
F-21
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
proceeds from closings in this project. Additional interest of $11.25
million is due and payable in full at the maturity date or such earlier
date when the loan is paid in full. If the entire debt is paid within 36
months, the additional interest will be reduced to approximately $8.2
million. If the debt is paid between 36 and 42 months, the additional
interest will be reduced to approximately $9.8 million. The Company is
currently accruing the minimum amount of additional interest. The balance
outstanding including interest amounted to $27.0 million and $24.9 million
as of December 31, 1999 and 1998, respectively.
(ii) WEST BAY CLUB PROJECT/BANKBOSTON LOAN. In December
1997, BankBoston, B.A. and certain other institutions made a $33 million
revolving loan to West Bay Club Development Corporation pursuant to which
the lenders have agreed to lend the Company the maximum cumulative amount
of $67.4 million to finance construction of the West Bay Club Project. The
loan bears interest at either LIBOR plus 4% or the higher of either
BankBoston's prime rate plus 1.25% or the overnight federal funds
effective rate plus 0.5% and matures on December 23, 2001. The balance
outstanding amounted to $33.1 million and $19.8 million as of December 31,
1999 and 1998, respectively.
(iii) RIVERWALK TOWER PROJECT LOAN. In June 1997, Las
Olas Tower at Riverwalk, Inc., a wholly owned subsidiary of the Company,
borrowed $2.75 million to acquire the Riverwalk Tower site. The loan bore
interest at prime plus 0.75% and was secured by the project property, with
recourse to the Company. In September, 1999, the Project was sold (see
note 3) and the balance outstanding was paid in full. The balance
outstanding was $2.7 million at December 31, 1998.
(iv) LAKESIDE PROJECT LOAN. In March 1996, Lakeside
Development of Orlando, a wholly owned subsidiary of the Company, obtained
an acquisition loan and a development loan with a combined commitment of
$6.3 million to acquire and finance the development of the Lakeside
Project. These loans bear interest rates ranging from prime plus 1.25% to
1.5%, are secured by the project property, with recourse to the Company.
As of December 31, 1999 and 1998, the Company has a total of $599,000 and
$2.7 million, respectively outstanding under these loans.
(v) SAXON WOODS PROJECT LOAN. In August 1997, the
Company obtained a $1.3 million loan to acquire the Saxon Woods Project.
In addition, the Company obtained a $2.2 million development loan to fund
development of the Saxon Woods Project. The loan bears interest at prime
plus 0.5%, is secured by the project property, with recourse to the
Company, and originally matured in September 1999. The loan has been
renewed with an extended maturity of April 2000. The balance outstanding
amounted to $1.7 million and $2.3 million as of December 31, 1999 and
1998, respectively.
(vi) WEST FRISCO PROJECT LOAN. In November 1997, West
Frisco Development Corporation, a wholly owned subsidiary of the Company,
obtained a $19 million loan to develop the Trails of West Frisco Project.
The loan bears interest at prime plus 1.375%, is secured by the
F-22
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
project property, with recourse to the Company and matured in December
1999. In December, 1999, the Project was sold (see note 3) and the balance
outstanding was paid in full. $4,589,000 was borrowed under this loan as
of December 31, 1998.
(vii) ASPEN SPRINGS RANCH PROJECT/LEHMAN BROTHERS LOAN.
In September 1998, Lehman Brothers Holdings loaned Aspen Springs Ranch,
Inc., a wholly owned subsidiary of the Company, an $18.0 million loan to
finance acquisition and construction costs at the Aspen Springs Ranch
Project. The loan is secured by, among other things, the common stock of
Aspen Springs Ranch, Inc., with limited recourse to the Company. The loan
bears interest at LIBOR plus 4%, matures September 1, 2002 and will be
repaid with proceeds from closings in this project. Additional interest of
$15.0 million is due and payable in full at the maturity date or such
earlier date when the loan is paid in full. Principal and accrued interest
amounted to $20.4 million and $19.8 million as of December 31, 1999 and
1998, respectively.
(viii) ASPEN SPRINGS RANCH PROJECT/BANKBOSTON LOAN. In
September 1998, BankBoston, B.A. and certain other institutions made a $45
million revolving loan to Aspen Springs Ranch, Inc., to finance
construction of the Aspen Springs Ranch Project. The loan bears interest
at either LIBOR plus 4% or the higher of either BankBoston's prime rate
plus 1.25% or the overnight federal funds effective rate plus 0.5% and
matures on August 1, 2001. The Company has $5.8 million and $1.2 million
outstanding under this loan as of December 31, 1999 and 1998.
Atlantic Gulf is currently in default under project indebtedness for
the Aspen Springs (Chenoa) Project, and for this reason and other reasons,
the Company has received a "Going Concern" opinion from its independent
auditors, with respect to its financial statements for the year ended
December 31, 1999. Senior management is in negotiations with its lenders
to address such defaults.
(ix) WEST MEADOWS PROJECT. A $5.9 million revolving
credit loan with an outstanding balance of $2.9 million and $4.7 million
as of December 31, 1999 and 1998, respectively. This loan bears interest
at the LIBOR rate plus 3%, is secured by the project property with
recourse to the Company, and matures in February 2000. In addition, two
mortgage loans totaling $1.6 million and $4.1 million as of December 31,
1999 and 1998, respectively.
(x) OTHER PROJECT DEBT. Other project debt amounted to
$695,000 and $463,000 as of December 31, 1999 and 1998, respectively.
(f) MORTGAGE RECEIVABLES LOANS. The Mortgage Receivables loans were
used to finance a portion of the Company's Mortgage Receivables in 1998
(see Note 2). As of December 31, 1998, these loans consisted of two loans
with BankBoston for $1.2 million and $4.9 million. The $1.2 million
BankBoston loan bears interest at 12% and matures in December 2001. The
$4.9 million BankBoston loan bears interest at prime plus 3% and matures
in June 2002. The
F-23
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
BankBoston loans are repaid with collections from the underlying Mortgage
Receivables. The Mortgage Receivables Loans were repaid on February 2,
1999.
(g) PRINCIPAL PAYMENTS IN FUTURE PERIODS. Based on the outstanding
balances as of December 31, 1999, principal payments required on the notes
and mortgages for each of the five years following December 31, 1999 and
thereafter, are as follows: 2000 - $21,596,000, 2001 - $75,151,000, 2002 -
$48,631,000, 2003 - $0, 2004 - $0 and thereafter $0.
F-24
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) REDEEMABLE PREFERRED STOCK
(a) GENERAL. Redeemable Preferred Stock as of December 31, 1999 and
1998 consisted of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
SERIES A
Gross proceeds $ 25,000 $ 25,000
Accrued dividends 14,754 7,706
-------- --------
Liquidation Preference amount 39,754 32,706
Less issue costs (3,104) (3,104)
Less warrants purchased (300) (300)
Plus accretion of preferred stock to redemption amount 1,960 1,101
-------- --------
38,310 30,403
-------- --------
SERIES B
Private Placement 6/24/97
Gross proceeds 10,000 10,000
Accrued dividends 6,352 3,453
-------- --------
Liquidation Preference amount 16,352 13,453
Less issue costs (950) (950)
Less warrants purchased (120) (120)
Plus accretion of preferred stock to redemption amount 634 369
-------- --------
15,916 12,752
-------- --------
Rights Offering 11/19/97
Gross proceeds 10,000 10,000
Accrued dividends 5,128 2,446
-------- --------
Liquidation Preference amount 15,128 12,446
Less issue costs (950) (950)
Less warrants purchased (120) (120)
Plus accretion of preferred stock to redemption amount 557 289
-------- --------
14,615 11,665
-------- --------
Total Series B 30,531 24,417
-------- --------
Total redeemable preferred stock $ 68,841 $ 54,820
======== ========
</TABLE>
F-25
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In 1997, the stockholders of the Company authorized the issuance of
up to 4.5 million shares of preferred stock, consisting of 2.5 million
shares of 20% Series A Redeemable Preferred Stock ("Series A Preferred
Stock") and 2 million shares of 20% Series B Redeemable Stock ("Series B
Preferred Stock").
(b) APOLLO TRANSACTIONS. In June 1997, the Company and Apollo
entered into an Investment Agreement and Secured Agreement whereby Apollo
agreed to acquire 2.5 million shares of Series A Preferred Stock at a per
share price of $9.88, and warrants to purchase up to 5 million shares of
common stock, $.10 par value per share, of Atlantic Gulf ("Common Stock")
(the "Investor Warrants"), at a per warrant price of $.06, for an
aggregate purchase price of $25 million (the "Apollo Transaction"). As of
December 31, 1997, Apollo had purchased 2,326,475 shares of Series A
Preferred Stock with Investor Warrants to purchase 4,652,950 shares of
Common Stock for a total purchase price of approximately $23.3 million of
the $25 million total. On March 31, 1998, Apollo purchased the remaining
173,525 shares of Series A Preferred Stock and Investor Warrants to
purchase an additional 347,050 shares of Common Stock, or an aggregate
purchase price of $1,735,248. The Company's repurchase and redemption
obligations in respect of the Series A Preferred Stock are secured by (a)
a junior lien on substantially all of the assets of the Company and its
subsidiaries (see Note 20).
(c) PRIVATE PLACEMENT. In June 1997, the Company and certain
sophisticated investors (the "Private Purchasers") entered into a
Securities Purchase Agreement whereby the Private Purchasers purchased for
an aggregate price of $20 million; (i) 1,776,199 shares of Common Stock
for $10 million, and (ii) 1 million shares of Series B Preferred Stock at
a per share price of $9.88, and warrants to purchase up to 2 million
shares of Common Stock ("Series B Warrants") at a per warrant price of
$.06 for an aggregate purchase price of $10 million. The $20 million of
proceeds from the private placement were applied primarily to the
reduction of aggregate debt.
(d) RIGHTS OFFERING. In November 1997, holders of Common Stock
acquired 1 million shares of Series B Preferred Stock and warrants to
purchase 2 million shares of Common Stock for $10 million in a rights
offering. These proceeds were applied primarily to the reduction of
corporate debt.
(e) CONVERSION RIGHTS OF THE PREFERRED STOCK. Each share of Series A
Preferred Stock and Series B Preferred Stock (collectively, the "Preferred
Stock") is convertible, at the holders election, into shares of Common
Stock at the rate of $5.75 per share. The Investor Warrants and Series B
Warrants are also exercisable at $4.78 per share, as the strike price on
the warrants was subject to a one-time downward adjustment in 1999 based
on actual cash flow results for 1997 and 1998, which resulted in a $0.97
per share decrease.
The holders of the Preferred Stock are entitled to receive, when, as
and if declared by the Board of Directors of Atlantic Gulf (the "Board"),
out of funds legally available therefore, cash dividends on each share of
preferred stock at an annual rate equal to 20% of the Liquidation
Preference (defined as $10 per share plus accumulated and unpaid
dividends) in effect from time to
F-26
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
time. All dividends are cumulative, whether or not declared, on a daily
basis from the date on which the Preferred Stock was issued by the
Company, and will be payable, subject to declaration by the Board,
quarterly in arrears on March 31, June 30, September 30, and December 31
of each year commencing as of September 30, 1997. The excess of the
Liquidation Preference value over the carrying value is being accreted by
periodic charges to contributed capital over the life of the issues.
During 1998, the Company recorded a $10.3 million accrual for
dividends associated with its Preferred Stock. The dividends were
accumulated but unpaid as of December 31, 1998. The dividend rate is 20%
of the liquidation preference value of the Preferred Stock. The
liquidation preference value of the Preferred Stock is $10 per share, plus
accumulated and unpaid dividends. In addition, the Company accreted $1.3
million of the value of its Preferred Stock to the redemption amount in
1998. The total of approximately $11.6 million of accrued Preferred Stock
dividends and Preferred Stock accretion was charged to contributed capital
in the accompanying December 31, 1998 consolidated balance sheet.
Beginning in 2001, the holders of the Preferred Stock are entitled
to redeem the Preferred Stock ratably over three years. The aggregate
redemption amounts of the Preferred Stock based on the Liquidation
Preference at December 31, 1999 for each of the five years following
December 31, 1997 and thereafter are as follows: 2001 - $19,536,000, 2002
- $19,536,000 and thereafter - $19,536,000.
(10) COMMON STOCKHOLDERS' EQUITY
(a) COMMON STOCK. In 1997, the stockholders approved an increase in
the authorized number of shares of Common Stock from 15,665,000 shares to
70,000,000 shares. Under the terms of the POR, 9,750,000 shares were
issued for distribution to creditors, of which 3,000 shares are being held
in a Disputed Claims Reserve Account as of February 28, 1999. The
remaining shares are subject to distribution in accordance with the POR
during 1999 as remaining disputed claims are resolved.
(b) STOCK OPTION PLANS. The Company has two fixed stock option plans
as well as fixed contractual stock options. In 1993, the stockholders
adopted the Company's Employee Stock Option Plan ("Employee Option Plan"),
which provides for the issuance of options to purchase up to 750,000
shares of Common Stock at a price equal to the fair value of the Common
Stock on the date of grant of each option. In June 1998, the stockholders
approved an amendment to the Employee Option Plan increasing the number of
shares of stock subject to the plan to 1.25 million shares. Pursuant to
this plan, the Company issued options to acquire 500,000 shares in 1998.
No options were issued in 1999 and 1997. In 1994, the stockholders adopted
the Company's 1994 Non-Employee Directors' Stock Option Plan (the
"Non-Employee Directors' Option Plan"), which provides for the issuance of
options to purchase up to 350,000 Common Stock at a price equal to the
fair value of the Common Stock on the date of grant of each option. In
June 1998, the shareholders approved the Employment Agreements of certain
executives. The terms of their agreements contain provisions providing for
the granting of options at the fair market value of the
F-27
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Common Stock on the grant approval date of each option. See Note 17 for
information on these stock option plans.
(c) STOCK PLAN. In 1996, the Company's stockholders adopted the
Company's 1996 Non-Employee Directors' Stock Plan (the "Non-Employee
Directors' Stock Plan"), which provides for the payment quarterly of each
Non-Employee Director's annual $25,000 retainer in Common Stock based on
the share price at the end of the previous quarter. In 1998, the Board
adopted an amendment to the Non-Employee Directors' Stock Plan that
provided, from and after April 1, 1998, 40% of the annual retainer would
be paid in cash and the balance would be paid in shares of Common Stock.
Effective August 4, 1999, the Board amended the Non-Employee Directors'
Stock Plan to provide that the entire annual retainer be paid in cash.
During 1997, the Company issued to the Non-Employee Directors (a) 12,355
shares at a price of $4.3125 per share for the first quarter of 1997, (b)
11,158 shares at a price of $5.50 per share plus 288 shares at $6.625 per
share for the second quarter of 1997, (c) 5,884 shares at a price of
$6.375 per share for the third quarter of 1997 and (d) 6,000 shares at a
price of $6.25 per share for the fourth quarter of 1997. During 1998, the
Company issued to the Non-Employee Directors (a) 8,330 shares at a price
of $4.50 price per share for the first quarter of 1998, (b) 6,209 shares
at a price of $3.62 per share for the second quarter of 1998 (c) 10,908
shares at a price of $2.06 per share for the third quarter of 1998 and (d)
18,006 shares at a price of $1.25 per share for the fourth quarter of
1998. During 1999, the Company issued to the Non-Employee Directors (a)
30,000 shares at a price of $0.75 per share for the first quarter of 1999,
(b) 13,212 shares at a price of $1.703 per share for the second quarter
1999 and (3) 36,000 shares at a price of $0.625 per share for the third
quarter 1999.
(d) SHARES RESERVED FOR FUTURE ISSUANCE. At December 31, 1999, the
following shares of Common Stock were reserved for possible future
issuance (in thousands of dollars):
Series A Preferred Conversion 2,500
Investor Warrants 5,000
Series B Preferred Conversion 2,000
Series B Warrants 4,000
Warrants - Secured Cash Flow Notes 1,500
Employee Option Plan 202
Non-Employee Directors' Option Plan 394
------
15,596
======
F-28
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) NONRECURRING AND OTHER ITEMS
The Company recorded the following gains and provisions during 1999,
1998 and 1997 for several items included in other income (expense) in the
accompanying consolidated statements of operations:
During 1999, 1998 and 1997, the Company recorded net gains of
$578,000, $13.4 million, and $3.5 million, respectively, in other
income (expense) - reorganization reserves in the accompanying
consolidated statements of operations resulting from its annual
review of certain reorganization items. The $3.5 million net gain in
1997 included gains of $1.1 million due to the reduction of the
utility credit reserves (see Note 7 and schedule below regarding
utility connection credit reserve account activity) and $706,000 due
to the reduction of the Contract Receivables termination refunds
reserve (see Note 7). This process is expected to continue during
1999 with adjustments to be recorded as the final disposition of
various claims and other liabilities is concluded.
Utility Trust Accounts
Account Activity
(in thousands of dollars)
1999 1998 1997
---- ---- ----
DESCRIPTION
Beginning balance $ - $ 3,448 $ 15,198
Additions - - 1,155
Interest earned - 293 154
Withdrawals - (3,741)(c) (12,645)(a)
Cancellation of notes - - (414)(b)
----- ------- --------
Ending balance $ - $ - $ 3,448
===== ======== ========
(a) Includes $12,109 withdrawal on January 2, 1997.
(b) Total cancellations of $6,208, including $414 canceled on January 2, 1997,
resulted in an extraordinary gain of $5,998 in 1996, net of a $210 unamortized
discount.
(c) Release of Utility Class 14 Trust cash on September 29,1998 for $3,741.
F-29
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Utility Connection Credit Reserve
Account Activity
(in thousands of dollars)
1999 1998 1997
---- ---- ----
DESCRIPTION
Beginning balance $ 2,130 $ 3,196 $ 4,264
Additions - - -
Amounts charged (credited) to
results of operations (1,065) (1,065) (1,064)
Deductions - (1) (4)
------- ------- -------
Ending balance $ 1,065 $ 2,130 $ 3,196
======= ======= =======
The activity for the land mortgage receivable valuation discount is included in
Schedule II of the 10-K.
(13) COMMITMENTS AND CONTINGENCIES
(a) LITIGATION. Atlantic Gulf is involved in various litigation
matters primarily arising in the normal course of its business or with
respect to the bankruptcy. It is the opinion of management that the
resolution of these matters will not have a material adverse affect on the
Company's financial position.
(b) TRUST AND RESERVES. As part of a settlement of the Company's
improvement obligations to the Predecessor Company's retail homesite
customers, various trusts were established. The Company funded these
trusts with cash, stock and notes based on estimates of the costs of the
future improvement obligations. Certain other reserves were established to
make a minimum of 1,700 utility satisfied homesites available for trade to
customers whose homesites may not be utility satisfied, and therefore not
buildable, at the time they wish to construct a home. The terms of these
trusts and reserves require the Company to periodically assess the
adequacy of the property in the trusts and reserves and any excess or
deficiency will accrue to the benefit or become an obligation of the
Company. The Company believes the remaining property currently held in
trusts is sufficient to meet all future improvement obligations required
under the terms of the settlements.
F-30
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(c) ENVIRONMENTAL MATTERS. A small portion of the Company's land
holdings contain residues or contaminants from current and past activities
by the Company, its lessees, prior owners and operators of the properties
and/or other third parties. Some of these areas have been the subject of
cleanup action by the Company voluntarily or following the involvement of
regulatory agencies. Additional cleanup in the future also may be
required. The business of the Company is subject to a variety of
additional obligations under the environmental laws, relating to both the
ongoing operations and past activities. The Company does not believe,
however, that its obligations under the environmental laws will have a
material adverse effect on its business, results of operations or
financial position. See Note 3.
(d) RENTAL EXPENSE. Rental expense related to operating leases was
$1,231,000, $1,302,000 and $1,352,000 for 1999, 1998 and 1997,
respectively.
The Company leases its corporate office space under an operating
lease which expires in 2000. Minimum future rental commitments under
non-cancelable operating leases as of December 31,1999 are as follows:
2000 - $16,930 and $0 thereafter.
(e) DEVELOPMENT OBLIGATIONS. As of December 31, 1999, the Company
had no material development obligations related to sold property. The
Company's business plan contemplates that 2000 expenditures for
development, construction, and other capital improvements could range up
to $12.0 million, of which a substantial portion would need to be funded
through individual project development loans or JV Project arrangements,
many of which are already in place.
(14) INCOME TAXES
The difference between income taxes computed at the statutory
federal rate and the provision for income taxes consists of (in thousands
of dollars):
1999 1998 1997
---- ---- ----
Amount at statutory federal rate $(21,677) $ 1,249 $(19,704)
Unrecognized (recognized) benefit
of change in valuation allowance
for temporary differences other
than net operating loss carryovers 21,677 (1,249) 19,704
-------- -------- --------
- - -
======== ======== ========
F-31
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effect of temporary differences that give rise to
significant portions of deferred tax assets and liabilities at December
31, 1999 and 1998 are presented below (in thousands of dollars):
1999 1998
---- ----
DEFERRED TAX ASSETS:
Excess of tax basis in land over
financial statement basis $ 33,851 $ 11,747
Net operating loss carryover 129,489 120,010
Other 572 963
Alternative minimum tax and
general business credit carryover 3,568 3,611
--------- ---------
Total gross deferred tax assets 167,480 136,331
Less - valuation allowance (156,972) (123,395)
--------- ---------
Net deferred tax assets 10,508 12,936
DEFERRED TAX LIABILITIES:
Excess of tax basis in debt
obligations and reserves over
financial statement basis 5,407 5,856
Excess of financial statement basis
in other receivables over tax basis 2,628 2,607
Excess of financial statement basis
in Predecessor Homesite Covenants
Receivable over tax basis 2,473 4,473
--------- ---------
Net deferred tax amount $ -- $ --
========= =========
The net change in the valuation allowance for net deferred tax
assets for 1999 was an increase of $30.4 million.
The nine months ended December 31, 1992 and each of the years ended
December 31, 1993 through 1999, have resulted in a net increase in the
valuation allowance. The Company has not utilized any net operating
losses.
At December 31, 1999, the Company had a net operating loss carryover
for tax purposes of approximately $344.1 million that expires in years
1999 through 2019. Included in this amount is approximately $24.1 million
of net operating loss attributable to certain legal entities that may only
be used against future taxable income of these same entities.
Additionally, the Company has an unused general business credit of
approximately $2.6 million expiring in the years 2000 through 2004.
F-32
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During 1997, the Company underwent an ownership change as defined in
Section 382 of the Internal Revenue Code of 1986, as amended. The impact
of this change in ownership will be to significantly limit the amount of
any net operating loss, general business credit, and alternative minimum
tax credit carryforwards that will be available to reduce taxable income
in future years. Certain of these tax attributes will expire unused
pursuant to IRS ss.382.
The Company has an alternative minimum tax credit of approximately
$1.0 million. The alternative minimum tax credit does not have an
expiration date.
(15) RETIREMENT PLANS
The Company has a Defined Benefit Retirement Plan ("Retirement
Plan") for substantially all of the Predecessor Company employees under
which future benefit accruals were frozen in 1990. The Company's policy
generally has been to fund an amount at least equal to the minimum
required contribution but no greater than the maximum tax-deductible
amount.
Assets of the Retirement Plan are invested in Common Stocks, U.S.
government agency issues, U.S. treasury bonds and notes, corporate bonds,
foreign bonds and money market funds, and included approximately 87,068
shares of Atlantic Gulf Common Stock with an aggregate fair value at
December 31, 1999 and 1998 of $4,000 and $65,000, respectively.
Atlantic Gulf also has a defined contribution savings plan which is
available to substantially all employees. The Company matches 25% of each
employee's contributions, up to a maximum of 6% beginning on January 1,
1996. In addition, upon approval from the Boards, an annual supplemental
contribution may be made in an amount up to the Company's matching
contribution made during the year. The Company's matching contribution was
approximately $94,000 in 1999, $142,000 in 1998 and $166,000 in 1997.
F-33
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, the funded status of the Company's Retirement Plan
was as follows (in thousands of dollars):
1999 1998
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $ 10,328 $ 10,394
Interest cost 697 688
Actuarial gain 1,112 454
Benefits paid (1,611) (1,208)
-------- --------
Benefit obligation at end of year $ 10,526 $ 10,328
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year 8,120 8,308
Actual return on plan assets 1,026 184
Employer contribution 596 836
Benefits paid (1,611) (1,208)
-------- --------
Fair value of plan assets at end of year 8,131 8,120
-------- --------
Funded status (2,395) (2,209)
Unrecognized prior service cost (57) (61)
Unrecognized actuarial loss 7,056 6,716
Unrecognized net asset at transition (253) (304)
-------- --------
Net amount recognized $ 4,351 $ 4,142
-------- --------
Amount recognized in the statement of
financial position consist of:
Prepaid benefit cost $ 4,351 $ 4,142
Accrued benefit liability (6,746) (6,351)
Accumulated other comprehensive income 6,746 6,351
-------- --------
Net amount recognized $ 4,351 $ 4,142
======== ========
Weighted-average assumptions as of December 31:
Discount rate 7.0% 6.5%
Expected return on plan assets 9.0% 9.0%
Components of net periodic benefit cost:
Interest cost 697 688
Expected return on plan assets (735) (724)
Amortization of net assets at transition (51) (51)
Recognized actuarial loss 456 411
Amortization of prior service cost (4) (4)
-------- --------
Net periodic benefit cost $ 363 $ 320
======== ========
F-34
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value.
(a) CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH
EQUIVALENTS. The carrying value of these instruments approximates fair
value because of the short maturity.
(b) CONTRACT RECEIVABLES. The net book value of Contract Receivables
represents the net expected future cash flow of the Company discounted to
a rate approximating 15%, which management believes approximates fair
value.
(c) MORTGAGES, NOTES AND OTHER RECEIVABLES. Substantially all
receivables which have a maturity in excess of one year have stated rates
that approximate market interest rates. Consequently, management believes
that the carrying value of these receivables approximates fair value.
(d) OTHER INTEREST BEARING LIABILITIES. Other interest bearing
liabilities are at rates that approximate current incremental borrowing
rates.
(e) NOTES AND MORTGAGES. As discussed in Note 8, long term debt
includes Cash Flow Notes issued in connection with the POR. The fair value
of the Cash Flow Notes is estimated based on quoted market prices for the
Unsecured Notes. Long term debt also includes other indebtedness including
a Working Capital Facility, a Term Loan and a Reducing Revolving Facility
as well as various acquisition, development and construction loans (see
Note 8) for which the Company estimates the carrying value to approximate
fair value.
(f) REDEEMABLE PREFERRED STOCK. The fair value of the Redeemable
Preferred Stock was calculated based on quoted market prices.
F-35
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(g) ESTIMATED FAIR VALUES OF INSTRUMENTS. The estimated fair values
of the Company's financial instruments at December 31 were as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
1999 1998
----------------------- ------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value(*) Value Value(*)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 8,148 $ 8,148 $ 9,413 $ 9,413
Restricted cash and cash 2,147 2,147 1,041 1,041
equivalents
Contract Receivables 2,048 2,048 4,109 4,109
Mortgages, notes and other 7,926 7,926 29,273 29,273
receivables
Other interest bearing - - - -
liabilities
Mandatory Interest Notes - - - -
Cash Flow Notes - - (39,496) (39,496)
Redeemable Preferred Stock (68,841) (24,750) (54,820) (23,062)
Other Indebtedness (145,378) (145,378) (112,309) (112,309)
</TABLE>
(*) These values represent an approximation of fair value and may never
actually be realized.
F-36
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) UNAUDITED QUARTERLY FINANCIAL DATA
Quarterly financial data for 1999 and 1998 are summarized below (in
thousands of dollars except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1999:
-----
Real estate sales 12,960 10,904 15,155 25,373
Other revenues 3,140 1,245 1,380 5,475
Total revenues 16,100 12,149 16,535 30,848
Gross margin on real estate sales(*) 2,170 1,923 1,528 (2,080)
Net loss (3,728) (10,258) (18,964) (28,900)
Net loss applicable to
Common Stock (9,383) (13,681) (22,544) (32,644)
Net loss per common
share (**) (.77) (1.08) (1.78) (2.70)
======= ======= ======= =======
</TABLE>
(*) Gross margin on real estate sales represents real estate sales revenue
less real estate cost of sales.
(**) All outstanding stock options, warrants and preferred stock are
anti-dilutive.
F-37
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In conjunction with the Company's reviews in 1999 of the net
realizable values associated with its inventories and land holdings, the
Company provided a net inventory valuation reserve of $18.5 million in the
fourth quarter of 1999 and $7.9 million in the third quarter of 1999.
Reviews of joint venture investments provided for a reserve of $6.0
million in the third quarter of 1999. As of December 31, 1999, the
remaining reserves on joint venture investments was $1.3 million.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998:
-----
Real estate sales 8,972 43,903 9,968 9,958
Other revenues 2,392 3,397 3,951 1,214
Total revenues 11,364 47,300 13,919 11,172
Gross margin on real estate sales (*) 483 7,397 3,612 1,556
Net income (loss) (3,949) 2,066 3,337 2,219
Net income (loss) applicable to
Common Stock (6,596) (801) 341 (912)
Net income (loss) per common
share (**) (0.57) (0.07) 0.03 (0.08)
======= ======= ======= =======
</TABLE>
(*) Gross margin on real estate sales represents real estate sales revenue
less real estate cost of sales.
(**) All outstanding stock options, warrants and preferred stock are
anti-dilutive.
In conjunction with the Company's reviews in 1998 of the net
realizable values associated with its inventories and land holdings, the
Company provided an inventory valuation reserve in the fourth quarter of
1998 of approximately $195,000 all of which was associated with
Predecessor Assets (see Note 3).
(18) STOCK OPTIONS
(a) GENERAL. At December 31, 1999, the Company has three stock based
compensation plans (see Note 9). The Company applies APB Opinion No. 25
and related interpretations in accounting for its stock based compensation
plans. Accordingly, no compensation cost has been recognized for its fixed
stock option plans.
F-38
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Had compensation cost for the Company's two stock option plans and
contractual stock options been determined consistent with SFAS No. 123,
the Company's net income and earnings per share results would have been
reduced to the proforma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net (loss) income
applicable to
common stock As reported $(78,252) $(7,968,000) $(62,069,000)
Pro forma (78,370) (9,470,665) (62,875,702)
Basic and diluted
earnings per
common share As reported $(6.33) $(0.68) $(5.82)
Pro forma (6.34) (0.81) (5.90)
</TABLE>
(b) FIXED STOCK OPTION PLANS. The Company has two fixed stock option
plans as well as fixed contractual stock options.
(i) EMPLOYEE OPTION PLAN. The Employee Option Plan
provides for the issuance of options to acquire up to 1,250,000 shares of
Common Stock at a price equal to the fair market value of the Common Stock
on the date of grant of each option (see Note 10). The options vest 40%
two years after the date of grant and 20% on each of the three subsequent
anniversaries of the date of grant or if there is a change in control as
defined in the Employee Option Plan. On August 12, 1998, the Company
granted a total of 500,000 options under the Employee Option Plan which
vest at an accelerated rate of 25% immediately and the remaining 75% over
three years. The options are exercisable for a period of ten years from
the date of the grant, unless employment is terminated. Vested options of
terminated employees expire in ninety days from the termination date.
(ii) NON-EMPLOYEE DIRECTOR OPTION PLAN. The Non-Employee
Director Option Plan provides for the grant of (A) options for 20,000
shares of Common Stock to each Non-Employee Director on December 5, 1994,
(B) options for 20,000 shares of Common Stock to each new Non-Employee
Director upon his/her first election or appointment to the Board and (C)
options for 5,000 shares of Common Stock to each Non-Employee Director at
the first meeting of directors following such director's subsequent
election or appointment to the Board. In 1998, the Board amended the
Non-Employee Director Option Plan to provide that each Apollo director,
who is appointed to the Board annually, will receive, an option to acquire
1,667 shares at each meeting (1,666 shares at every third meeting) at
which he is reappointed to the Board. The option price for any grant under
the Non-Employee Director Plan is equal to the fair market value of Common
Stock on the date of grant of each option. Each option is immediately
vested, exercisable, and
F-39
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
remains exercisable for a period of 10 years from the grant date. A
maximum of 350,000 shares of Common Stock may be issued pursuant to the
Non-Employee Director Option Plan.
Compensation cost was recognized for compensation paid under the
Non-Employee Directors' Stock Plan. The compensation cost charged against
income for annual retainer fees paid in Common Stock was $60,000, $105,000
and $191,600 for 1999, 1998 and 1997, respectively. Forty percent of
annual retainer fees were paid in cash after March 31, 1998 and all
retainer fees were paid in cash after March 31, 1999.
(iii) CONTRACTUAL STOCK OPTIONS. The Company has
extended employment agreements to certain executives. The terms of their
agreements contain certain provisions providing for an extension of
options at the fair market value of the Common Stock on the grant approval
date of each option. The options vest in accordance with the individual
contractual provisions and provide for immediate vesting if there is a
change in control as defined in the contract. Contractual Stock Options
are generally exercisable for a period of seven years from the date of
each grant, unless employment is terminated. Vested options of terminated
employees expire in ninety days from the termination date.
(iv) FAIR VALUE OF OPTIONS. In order to calculate the
proforma amounts shown above, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants in
1997, 1998 and 1999.
Dividend yield : None.
Expected volatility : Based on historical month-end close stock
prices from June, 1992 through the month
prior to the grant date as reported by
NASDAQ.
Expected life of grants : Five years.
Risk free interest rate : Yield on five-year U.S. Treasury Notes
maturing five years from date of grant.
Contractual term of grant : Ten years for fixed stock option plans
and seven years for contractual stock
options.
F-40
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(v) SUMMARY. A summary of the status of the Company's
two fixed stock option plans and the contractual stock options as of
December 31, 1999, 1998, and 1997, respectively, and the changes during
the years ended on those dates are presented below.
(A) EMPLOYEE STOCK OPTIONS. The following table
summarizes information about employee stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Number of Weighted- Weighted- Number of Weighted-
Range of Options Average Average Options Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Price at 12/31/99 Life Price at 12/31/99 Price
----- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$2.00 - $2.99 150,000 5.7 $2.00 75,000 $2.00
$5.00 - $5.99 30,750 5.85 $5.799 20,950 $5.763
$7.00 - $7.99 6,750 3.9 $7.00 6,750 $7.00
$8.00 - $8.99 8,000 5.1 $8.875 6,400 $8.875
$12.00 - $12.99 6,000 4.7 $12.00 6,000 $12.00
---------- ----------
201,500 115,100
========== ==========
</TABLE>
F-41
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(B) NON-EMPLOYEE DIRECTOR STOCK OPTIONS. The
following tables summarize information about Non-Employee Director stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
Non-Employee
Director Weighted Avg. Weighted Avg. Weighted Avg.
Stock Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------- ------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at 185,000 $8.311 305,000 $7.414 315,001 $5.560
the beginning of year
Options granted 120,000 $6.032 10,001 $2.125 20,000 $0.75
Options exercised - - - - - -
Options forfeited - - - - - -
------- ------- -------
Outstanding at
end of year 305,000 $7.414 315,001 $5.560 335,001 $5.273
------- ------- -------
Options exercisable 305,000 - 315,001 - 335,001 -
at year-end.
Weighted-avg. $2.750 - $.94 - - -
fair value of
options granted
during the year
</TABLE>
Note: This schedule does not include the stock options issued in 1995 pursuant
to the 1993 Plan and subsequently surrendered in accordance with the
adoption of the Non-Employee Director Option Plan.
<TABLE>
<CAPTION>
Number of Weighted-Average Weighted- Number of Weighted-
Range of Options Remaining Average Options Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Price at 12/31/99 Life Price at 12/31/99 Price
----- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$0.00 - $0.99 20,000 9.6 $0.75 20,000 $0.75
$2.00 - $2.99 10,001 8.6 $2.125 10,001 $2.125
$4.00 - $4.99 40,000 7.4 $4.813 40,000 $4.813
$6.00 - $6.99 115,000 7.1 $6.479 115,000 $6.479
$7.00 - $7.99 10,000 5.3 $7.875 10,000 $7.875
$8.00 - $8.99 120,000 5.1 $8.875 120,000 $8.875
$9.00 - $9.99 20,000 5.2 $9.00 20,000 $9.00
------- -------
335,001 335,001
======= =======
</TABLE>
F-42
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1997 1998 1999
Non-Employee ------------------------- ------------------------- --------------------------
Director Weighted Avg. Weighted Avg. Weighted Avg.
Stock Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------- ------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at - - - 3,650,000 $2.125
the beginning of
year
Options granted - - 3,650,000 $2.125 - -
Options exercised - - - - - -
Options forfeited - - - - 3,650,000 $2.125
--------- --------- ---------
Outstanding at
end of year - - 3,650,000 $2.125 - -
========= ========= =========
Options - - 1,933,334 - - -
exercisable at
year-end.
Weighted-avg. - - $.97 - - -
fair value of
options granted
during the year
</TABLE>
F-43
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(19) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the following years (in thousands, except per share
data):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary items $(61,850) $ 3,673 $(58,346)
Accrued preferred stock dividends (12,629) (10,309) (3,296)
Accretion of preferred stock to
redemption amount (1,392) (1,332) (427)
Modification of preferred stock (2,381) - -
security interest -------------------------------------------------
Numerator for basic and diluted earnings
per share - net (loss) income applicable to
common stock
$(78,252) $ (7,968) $(62,069)
=================================================
Denominator:
Denominator for basic and diluted
earnings per common share - weighted
average shares
12,356 11,640 10,661
=================================================
Basic and diluted earnings per common
share: -------------------------------------------------
Net loss per common share $ (6.33) $ (0.68) $ (5.82)
=================================================
</TABLE>
For additional disclosures regarding the outstanding preferred
stock, see Note 9. Options to purchase Common Stock, described in Note 17,
were not included in the computation of diluted earnings per common share
because the options' exercise price was greater than the average market
price of the Common Stock and, therefore, the effect would be
anti-dilutive.
(20) SEGMENT REPORTING
(a) DESCRIPTION OF THE TYPES OF PRODUCTS AND SERVICES FROM WHICH
EACH REPORTABLE SEGMENT DERIVES ITS REVENUES. The Company has four
reportable segments: Luxury/Resort Operations, Non-Luxury/Resort
Operations, Predecessor Assets and all other. The Company's Luxury/Resort
Operations division consists of the development of waterfront or highly
amenitized communities for high-end retirement or pre-retirement
homebuyers. The Company's Non-Luxury/Resort Operations division consists
of the development and sale of residential homesites to
F-44
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
third party home builders. The Company's Non-Luxury/Resort Operations
markets commercial industrial division consists of the acquisition,
development and sale of commercial industrial land parcels to third
parties. The Company's other predecessor assets consists of the sale of
developed and undeveloped real estate inherited from the Company's
predecessor. All other includes the Company's environmental services
operations and their receivables portfolio management.
(b) MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS. The
Company evaluates performance and allocates resources based on gross
margins of each business segment, except for all other which is only
evaluated on a total revenues basis. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. The Company does not report assets on a
segment basis and therefore has not included this information.
(c) FACTORS MANAGEMENT USED TO IDENTIFY THE ENTERPRISE'S REPORTABLE
SEGMENTS. The Company's reportable segments are lines of business that
offer different products to different customers. The reportable segments
are each managed separately because they require different production
processes and are distinct products. The Company's businesses are
primarily conducted in the United States. No significant part of the
business is dependent upon a single customer.
(d) RESTATED OF REPORTABLE SEGMENTS. The Company's reportable
segments have been restated for 1998 and 1997 to conform to management's
new review of segments.
F-45
<PAGE>
The following table summarizes the Company's information for
reportable segments for the year's ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Segment revenues:
Luxury/Resort Operations 8,888 7,010 10,908
Non-Luxury/Resort Operations $ 47,831 $ 41,529 $ 14,441
Predecessor assets 7,672 24,262 42,270
All other 3,064 4,922 3,608
-------- -------- --------
67,455 77,723 71,227
Unallocated revenues:
Other operating revenues 6,937 4,434 771
Interest revenues 1,240 1,598 4,650
-------- -------- --------
Total revenues $ 75,632 $ 83,755 $ 76,648
======== ======== ========
Gross margins:
Segment gross margins:
Luxury/Resort operations 1,864 4,934 (2,036)
Non Luxury/Resort Operations $ 999 $ 6,260 $ 1,016
Predecessor assets 678 1,854 (3,553)
-------- -------- --------
3,541 13,048 (4,573)
Unallocated revenues and (expenses):
Other operating revenues 8,518 6,017 3,011
Interest revenues 2,722 4,937 6,018
Inventory valuation reserves (28,346) (195) (14,457)
Selling expense (6,406) (6,510) (8,502)
Operating expenses (9,812) (2,010) (1,505)
Real estate costs (7,688) (9,598) (14,984)
General and administrative expense (11,542) (9,908) (12,297)
Cost of borrowing, net of amounts capitalized (5,951) (4,375) (12,222)
Other expense (4,102) (853) (1,463)
Other income (expense):
Reorganization reserves
Utility trust accounts - 3,666 -
Utility connection reserve 1,065 1,063 1,063
Contracts receivable termination refunds (514) 104 706
Cancellation of Notes 27 8,549 -
Other reorganization reserves - - 1,761
Utility Condemnation - - -
Land mortgages receivable valuation discount (3,364) (184) (92)
Miscellaneous 2 (78) (810)
-------- -------- --------
Income (loss) $(61,850) $ 3,673 $(58,346)
======== ======== ========
</TABLE>
F-46
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES Years Ended
December 31, 1999, 1998 and 1997
Schedule II -
Valuation and Qualifying Accounts
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Amounts
Balance at Charged (Credited) Balance at
Beginning to Results of End of
of Period Operations Deductions(2) Period
--------- ---------- ------------- ------
<S> <C> <C> <C> <C>
DESCRIPTION
YEAR ENDED DECEMBER 31, 1997:
Predecessor Homesite Contract
Receivables reserves $2,130 $ (826) $ 293 $1,011
Other receivable reserves (1) 2,732 440 589 2,583
------ ------- ------ ------
Total $4,862 $ (386) $ 882 $3,594
====== ======= ====== ======
YEAR ENDED DECEMBER 31, 1998:
Predecessor Homesite Contract
Receivables reserves $1,011 $ (467) $ 141 $ 403
Other receivable reserves (1) 2,583 - 1,746 837
------ ------- ------ ------
Total $3,594 $ (467) $1,887 $1,240
====== ======= ====== ======
YEAR ENDED DECEMBER 31, 1999:
Predecessor Homesite Contract
Receivables reserves $ 403 $ (176) $ (335) $ 562
Other receivable reserves (1) 837 2,911 666 3,082
------ ------- ------ ------
Total $1,240 $ 2,735 $ 331 $3,644
====== ======= ====== ======
</TABLE>
- ---------------
(1) Reserves are a deduction from mortgages, notes and other receivables.
(2) Deductions represent amounts charged to reserves resulting from the
cancellation, write-off, sale or other disposition of the related
receivables.
F-47
Atlantic Gulf Communities Corporation Exhibit to the 1999 Form 10-K
Exhibit (c) 23, Accountant's Consent-Ernst & Young, LLP
- -------------------------------------------------------
Consent of the Independent Certified Public Accountants
Ernst & Young LLP
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-78284, as amended by Amendments 1 and 2, and Form S-8 No.
33-78282 pertaining to the Company's Employee Stock Option Plan), of our report
March 29, 2000, with respect to the consolidated financial statements and
schedule of Atlantic Gulf Communities Corporation included in the Annual Report
(Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young, LLP
Miami, Florida
April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR THEN ENDED AND THE NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS 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> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 10,295
<SECURITIES> 0
<RECEIVABLES> 9,974
<ALLOWANCES> 0
<INVENTORY> 121,116
<CURRENT-ASSETS> 0
<PP&E> 14,323
<DEPRECIATION> (1,573)
<TOTAL-ASSETS> 162,952
<CURRENT-LIABILITIES> 0
<BONDS> 145,378
68,841
0
<COMMON> 1,282
<OTHER-SE> (81,713)
<TOTAL-LIABILITY-AND-EQUITY> 162,952
<SALES> 64,392
<TOTAL-REVENUES> 75,632
<CGS> 60,851
<TOTAL-COSTS> 128,747
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<NET-INCOME> (78,252)
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</TABLE>
